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HomeMy WebLinkAboutOrdinance - 2003-O0080 - Issuance Of General Obligation Bond Series 2003. $11,885,000 - 07/24/2003First and Final Reading July 24, 2003 Item No. 31 ORDINANCE NO. 2003-0 0080 AN ORDINANCE authorizing the issuance of "CITY OF LUBBOCK, TEXAS, GENERAL OBLIGATION BONDS, SERIES 2003"; specifying the terms and features of said bonds; levying a continuing direct annual ad valorem tax for the payment of said bonds; and resolving other matters incident and related to the issuance, sale, payment and delivery of said bonds, including the approval of a Paying Agent/Registrar Agreement and a Purchase Contract and the approval and distribution of an Official Statement pertaining thereto; and providing an effective date. WHEREAS, the City Council of the City of Lubbock, Texas, hereby finds and determines that $11,885,000 in principal amount of general obligation bonds approved and authorized to be issued at an election held on September 18, 1999, should be issued and sold at this time and a summary of the general obligation bonds authorized at such election, as well as previously held elections, the principal amount authorized, amounts heretofore issued and being issued pursuant to this ordinance and amounts remaining to be issued subsequent hereto being as follows: Principal Amounts Date Amount Heretofore Amounts Unissued Purpose Authorized Authorized Issued Being Issued Balance Waterworks System 10-17-87 2,810,000 200,000 0- 2,610,000 Sewer System 5-21-77 3,303,000 2,175,000 0- 1,128,000 Street Improvements 5-01-93 10,170,000 10,166,000 0- 4,000 Street Improvements 9-18-99 17,165,000 11,800,000 5,365,000 0- Drainage 9-18-99 2,160,000 1,025,000 1,135,000 0- Traffic Signals 9-18-99 3,295,000 2,160,000 1,135,000 0- Parks 9-18-99 14,765,000 10,515,000 4,250,000 0- AND WHEREAS, the City Council hereby reserves and retains the right to issue the balance of unissued bonds approved at said elections in one or more installments when, in the judgment of the Council, funds are needed to accomplish the purposes for which such bonds are voted; now, therefore, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK: SECTION 1: Authorization - Designation- Principal Amount -Purpose. General obligation bonds of the City shall be and are hereby authorized to be issued in the aggregate principal amount of $11,855,000, to be designated and bear the title "CITY OF LUBBOCK, TEXAS, GENERAL OBLIGATION BONDS, SERIES 2003" (hereinafter referred to as the Bonds"), to provide funds in the amount of $11,885,000 for the purpose of making permanent public improvements and public purposes, to wit: $5,365,000 for street improvements, including drainage, curb, gutters, landscaping, sidewalks, curb ramps and utility line relocation and the acquisition of land and right-of-way therefor, $1,135,000 for drainage improvements, $1,135,000 for traffic signalization and assorted communications equipment and $4,250,000 to acquire or improve, or both, land for park purposes, all in accordance with authority conferred at the aforesaid election and under and in strict conformity with the Constitution and laws of the State of Texas, including V.T.C.A., Government Code, Chapter 1331 and Article VIII Section 1 of the City Charter of the City of Lubbock, Texas. 45337214.1 SECTION 2: Fully Registered Obligations - Bond Date -Authorized Denominations -Stated Maturities -Interest Rates. The Bonds shall be issued as fully registered obligations only, shall be dated July 15, 2003 (the "Bond Date"), and, other than the single fully registered Initial Bond referenced in Section 8 hereof, shall be in denominations of $5,000, or any integral multiple (within a Stated Maturity) thereof, and shall become due and payable on February 15 in each of the years and in principal amounts (the "Stated Maturities") in accordance with the following schedule: Year of Principal Interest Stated Maturity Amount Rate(s) 2004 600,000 3.00% 2005 415,000 3.00% 2006 425,000 3.00% 2007 440,000 3.00% 2008 450,000 3.00% 2009 465,000 3.00% 2010 480,000 3.50% 2011 500,000 4.00% 2012 520,000 4.00% 2013 540,000 4.00% 2014 565,000 4.00% 2015 585,000 4.00% 2017 1,260,000 5.00% 2019 1,395,000 5.00% 2020 745,000 4.50% 2021 785,000 4.75% 2022 820,000 4.75% 2023 865,000 4.75% The Bonds shall bear interest on the unpaid principal amounts from the Bond Date at the per annum rates shown above (computed on the basis of a 360-day year of twelve 30-day months); such interest shall be payable on February 15 and August 15 in each year, commencing February 15, 2004. SECTION 3: Terms of Payment -Paving Agent/Registrar. The principal of, premium, if any, and the interest on the Bonds, due and payable by reason of maturity, redemption or otherwise, shall be payable only to the registered owners or holders of the Bonds (hereinafter called the "Holders") appearing on the registration and transfer books maintained by the Paying Agent/Registrar and the payment thereof shall be in any coin or currency of the United States of America, which at the time of payment is legal tender for the payment of public and private debts, and shall be without exchange or collection charges to the Holders. The selection and appointment of JPMorgan Chase Bank, Dallas, Texas, to serve as Paying Agent/Registrar for the Bonds is hereby approved and confirmed. Books and records relating to the registration, payment, transfer and exchange of the Bonds (the "Security Register") shall at all times be kept and maintained on behalf of the City by the Paying 45337214.1 _2_ Agent/Registrar, as provided herein and in accordance with the terms and provisions of a Paying Agent/ Registrar Agreement", substantially in the form attached hereto as Exhibit A, and such reasonable rules and regulations as the Paying Agent/Registrar and the City may prescribe. The Mayor and City Secretary are authorized to execute and deliver such Agreement in connection with the delivery of the Bonds. The City covenants to maintain and provide a Paying Agent/Registrar at all times until the Bonds are paid and discharged, and any successor Paying Agent/Registrar shall be a bank, trust company, financial institution or other entity qualified and authorized to serve in such capacity and perform the duties and services of Paying Agent/Registrar. Upon any change in the Paying Agent/Registrar for the Bonds, the City agrees to promptly cause a written notice thereof to be sent to each Holder by United States Mail, first class postage prepaid, which notice shall also give the address of the new Paying Agent/Registrar. Principal of and premium, if any, on the Bonds shall be payable at the Stated Maturities or the redemption thereof, only upon presentation and surrender of the Bonds to the Paying Agent/Registrar at its designated offices in Dallas, Texas (the "Designated Payment/Transfer Office"). Interest on the Bonds shall be paid to the Holders whose name appears in the Security Register at the close of business on the Record Date (the last business day of the month next preceding each interest payment date) and shall be paid by the Paying Agent/Registrar (i) by check sent United States Mail, first class postage prepaid, to the address of the Holder recorded in the Security Register or (ii) by such other method, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the Holder. If the date for the payment of the principal of or interest on the Bonds shall be a Saturday, Sunday, a legal holiday, or a day on which banking institutions in the City where the Designated Payment/Transfer Office of the Paying Agent/Registrar is located are authorized by law or executive order to close, then the date for such payment shall be the next succeeding day which is not such a Saturday, Sunday, legal holiday, or day on which banking institutions are authorized to close; and payment on such date shall have the same force and effect as if made on the original date payment was due. In the event of a nonpayment of interest on a scheduled payment date, and for thirty (30) days thereafter, a new record date for such interest payment (a "Special Record Date") will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest (which shall be 15 days after the Special Record Date) shall be sent at least five (5) business days prior to the Special Record Date by United States Mail, first class postage prepaid, to the address of each Holder appearing on the Security Register at the close of business on the last business day next preceding the date of mailing of such notice. SECTION 4: Redemption. (a) Optional Redemption. The Bonds having Stated Maturities on and after February 15, 2013, shall be subject to redemption prior to maturity, at the option of the City, in whole or in part in principal amounts of $5,000 or any integral multiple thereof (and if within a Stated Maturity by lot by the Paying Agent/Registrar), on February 15, 2012 or on any date thereafter at the redemption price of par plus accrued interest to the date of redemption. At least forty-five (45) days prior to a redemption date for the Bonds (unless a shorter notification period shall be satisfactory to the Paying Agent/Registrar), the City shall notify the Paying Agent/Registrar of the decision to redeem Bonds, the principal amount of each Stated Maturity to be redeemed, and the date of redemption therefor. The decision of the City to 45337214.1 _3_ exercise the right to redeem Bonds shall be entered in the minutes of the governing body of the City. b) Mandatory Redemption. The Bonds having Stated Maturities of February 15, 2017 and February 15, 2019 (the "Term Bonds") shall be subject to mandatory redemption in part prior to maturity at the redemption price of par and accrued interest to the date of redemption on the respective dates and in principal amounts as follows: Term Bonds due February 15, 2017 Redemption Date Principal Amount February 15, 2016 $615,000 Term Bonds due February 15, 2019 Redemption Date Principal Amount February 15, 2018 $680,000 Approximately forty-five (45) days prior to each redemption date the Term Bonds are to be mandatorily redeemed, the Paying Agent/Registrar shall select by lot the numbers of the Term Bonds within the applicable Stated Maturity to be redeemed on the next following February 15 from moneys set aside for that purpose in the Interest and Sinking Fund (as hereinafter defined). Any Term Bond not selected for prior redemption shall be paid on the date of their Stated Maturity. The principal amount of the Term Bonds for a Stated Maturity required to be redeemed on a mandatory redemption date may be reduced, at the option of the City, by the principal amount of Term Bonds of like Stated Maturity which, at least 50 days prior to the mandatory redemption date, (1) shall have been acquired by the City at a price not exceeding the principal amount of such Term Bonds plus accrued interest to the date of purchase thereof, and delivered to the Paying Agent/Registrar for cancellation or (2) shall have been redeemed pursuant to the optional redemption provisions set forth in paragraph(a) of this Section and not theretofore credited against a mandatory redemption requirement. c) Selection of Bonds for Redemption. If less than all Outstanding Bonds of the same Stated Maturity are to be redeemed on a redemption date, the Paying Agent/Registrar shall treat such Bonds as representing the number of Bonds Outstanding which is obtained by dividing the principal amount of such Bonds by $5,000 and shall select the Bonds, or principal amount thereof, to be redeemed within such Stated Maturity by lot. d) Notice of Redemption. Not less than thirty (30) days prior to a redemption date for the Bonds, a notice of redemption shall be sent by United States Mail, first class postage prepaid, in the name of the City and at the City's expense, to each Holder of a Bond to be redeemed in whole or in part at the address of the Holder appearing on the Security Register at the close of business on the business day next preceding the date of mailing such notice, and any notice of redemption so mailed shall be conclusively presumed to have been duly given irrespective of whether received by the Holder. All notices of redemption shall (i) specify the date of redemption for the Bonds, (ii) identify the Bonds to be redeemed and, in the case of a portion of the principal amount to be redeemed, the principal amount thereof to be redeemed, (iii) state the redemption price, iv) state that the Bonds, or the portion of the principal amount thereof to be redeemed, shall become due and payable on the redemption date specified, and the interest thereon, or on the portion of the principal amount thereof to be redeemed, shall cease to accrue from and after the redemption date, and (v) specify that payment of the redemption price for the Bonds, or the principal amount thereof to be redeemed, shall be made at the Designated Payment/Transfer 45337214.1 _4 _ Office of the Paying Agent/Registrar only upon presentation and surrender thereof by the Holder. If a Bond is subject by its terms to prior redemption and has been called for redemption and notice of redemption thereof has been duly given as hereinabove provided, such Bond (or the principal amount thereof to be redeemed) shall become due and payable and interest thereon shall cease to accrue from and after the redemption date therefor; provided moneys sufficient for the payment of such Bond (or of the principal amount thereof to be redeemed) at the then applicable redemption price are held for the purpose of such payment by the Paying Agent/Registrar. SECTION 5: Registration - Transfer/Exchange of Bonds -Predecessor Bonds. The Paying Agent/Registrar shall obtain, record, and maintain in the Security Register the name and address of each and every owner of the Bonds issued under and pursuant to the provisions of this Ordinance, or if appropriate, the nominee thereof. Any Bond may be transferred or exchanged for Bonds of other authorized denominations by the Holder, in person or by his duly authorized agent, upon surrender of such Bond to the Paying Agent/Registrar for cancellation, accompanied by a written instrument of transfer or request for exchange duly executed by the Holder or by his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. Upon surrender of any Bond (other than the Initial Bonds authorized in Section 8 hereof) for transfer at the Designated Payment/Transfer Office of the Paying Agent/Registrar, the Paying Agent/Registrar shall register and deliver, in the name of the designated transferee or transferees, one or more new Bonds of authorized denominations and having the same Stated Maturity and of a like aggregate principal amount as the Bond or Bonds surrendered for transfer. At the option of the Holder, Bonds (other than the Initial Bonds authorized in Section 8 hereof) may be exchanged for other Bonds of authorized denominations and having the same Stated Maturity, bearing the same rate of interest and of like aggregate principal amount as the Bonds surrendered for exchange, upon surrender of the Bonds to be exchanged at the Designated Payment/Transfer Office of the Paying Agent/Registrar. Whenever any Bonds are surrendered for exchange, the Paying Agent/Registrar shall register and deliver new Bonds to the Holder requesting the exchange. All Bonds issued in any transfer or exchange of Bonds shall be delivered to the Holders at the Designated Payment/Transfer Office of the Paying Agent/Registrar or sent by United States Mail, first class, postage prepaid to the Holders, and, upon the registration and delivery thereof, the same shall be the valid obligations of the City, evidencing the same obligation to pay, and entitled to the same benefits under this Ordinance, as the Bonds surrendered in such transfer or exchange. All transfers or exchanges of Bonds pursuant to this Section shall be made without expense or service charge to the Holder, except as otherwise herein provided, and except that the Paying Agent/Registrar shall require payment by the Holder requesting such transfer or exchange of any tax or other governmental charges required to be paid with respect to such transfer or exchange. Bonds canceled by reason of an exchange or transfer pursuant to the provisions hereof are hereby defined to be "Predecessor Bonds," evidencing all or a portion, as the case may be, of the same obligation to pay evidenced by the new Bond or Bonds registered and delivered in the exchange or transfer therefor. Additionally, the term "Predecessor Bonds" shall include any mutilated, lost, destroyed, or stolen Bond for which a replacement Bond has been issued, 45337214.1 _cJ_ registered and delivered in lieu thereof pursuant to the provisions of Section 11 hereof and such new replacement Bond shall be deemed to evidence the same obligation as the mutilated, lost, destroyed, or stolen Bond. Neither the City nor the Paying Agent/Registrar shall be required to issue or transfer to an assignee of a Holder any Bond called for redemption, in whole or in part, within 45 days of the date fixed for the redemption of such Bond; provided, however, such limitation on transferability shall not be applicable to an exchange by the Holder of the unredeemed balance of a Bond called for redemption in part. SECTION 6: Book -Entry Only Transfers and Transactions. Notwithstanding the provisions contained in Sections 3, 4 and 5 hereof relating to the payment, and transfer/exchange of the Bonds, the City hereby approves and authorizes the use of Book -Entry Only" securities clearance, settlement and transfer system provided by The Depository Trust Company (DTC), a limited purpose trust company organized under the laws of the State of New York, in accordance with the operational arrangements referenced in the Blanket Issuer Letter of Representation, by and between the City and DTC (the "Depository Agreement"). Pursuant to the Depository Agreement and the rules of DTC, the Bonds shall be deposited with DTC who shall hold said Bonds for its participants (the "DTC Participants"). While the Bonds are held by DTC under the Depository Agreement, the Holder of the Bonds on the Security Register for all purposes, including payment and notices, shall be Cede & Co., as nominee of DTC, notwithstanding the ownership of each actual purchaser or owner of each Bond (the "Beneficial Owners") being recorded in the records of DTC and DTC Participants. In the event DTC determines to discontinue serving as securities depository for the Bonds or otherwise ceases to provide book -entry clearance and settlement of securities transactions in general or the City determines that DTC is incapable of properly discharging its duties as securities depository for the Bonds, the City covenants and agrees with the Holders of the Bonds to cause Bonds to be printed in definitive form and provide for the Bonds to be issued and delivered to DTC Participants and Beneficial Owners, as the case may be. Thereafter, the Bonds in definitive form shall be assigned, transferred and exchanged on the Security Register maintained by the Paying Agent/Registrar and payment of such Bonds shall be made in accordance with the provisions of Sections 3, 4 and 5 hereof. SECTION 7: Execution - Registration. The Bonds shall be executed on behalf of the City by the Mayor under its seal reproduced or impressed thereon and countersigned by the City Secretary. The signature of said officers on the Bonds may be manual or facsimile. Bonds bearing the manual or facsimile signatures of individuals who are or were the proper officers of the City on the Bond Date shall be deemed to be duly executed on behalf of the City, notwithstanding that such individuals or either of them shall cease to hold such offices at the time of delivery of the Bonds to the initial purchaser(s) and with respect to Bonds delivered in subsequent exchanges and transfers, all as authorized and provided in V.T.C.A., Government Code, Chapter 1201. No Bond shall be entitled to any right or benefit under this Ordinance, or be valid or obligatory for any purpose, unless there appears on such Bond either a certificate of registration substantially in the form provided in Section 9C, manually executed by the Comptroller of Public Accounts of the State of Texas, or his duly authorized agent, or a certificate of registration substantially in the form provided in Section 9D, manually executed by an authorized officer, 45337214.1 _6_ employee or representative of the Paying Agent/Registrar, and either such certificate duly signed upon any Bond shall be conclusive evidence, and the only evidence, that such Bond has been duly certified, registered and delivered. SECTION 8: Initial Bond(s). The Bonds herein authorized shall be initially issued either (i) as a single fully registered bond in the total principal amount of $11,855,000 with principal installments to become due and payable as provided in Section 2 hereof and numbered T-1, or (ii) as multiple fully registered bonds, being one bond for each year of maturity in the applicable principal amount and denomination and to be numbered consecutively from T-1 and upward (hereinafter called the "Initial Bond(s)") and, in either case, the Initial Bond(s) shall be registered in the name of the initial purchaser(s) or the designee thereof. The Initial Bond(s) shall be the Bonds submitted to the Office of the Attorney General of the State of Texas for approval, certified and registered by the Office of the Comptroller of Public Accounts of the State of Texas and delivered to the initial purchaser(s). Any time after the delivery of the Initial Bond(s), the Paying Agent/Registrar, pursuant to written instructions from the initial purchaser(s), or the designee thereof, shall cancel the Initial Bond(s) delivered hereunder and exchange therefor definitive Bonds of authorized denominations, Stated Maturities, principal amounts and bearing applicable interest rates for transfer and delivery to the Holders named at the addresses identified therefor; all pursuant to and in accordance with such written instructions from the initial purchaser(s), or the designee thereof, and such other information and documentation as the Paying Agent/Registrar may reasonably require. SECTION 9: Forms. A. Forms Generally. The Bonds, the Registration Certificate of the Comptroller of Public Accounts of the State of Texas, the Registration Certificate of Paying Agent/Registrar, and the form of Assignment to be printed on each of the Bonds, shall be substantially in the forms set forth in this Section with such appropriate insertions, omissions,. substitutions, and other variations as are permitted or required by this Ordinance and may have such letters, numbers, or other marks of identification (including identifying numbers and letters of the Committee on Uniform Securities Identification Procedures of the American Bankers Association) and such legends and endorsements (including insurance legends in the event the Bonds, or any maturities thereof, are purchased with insurance and ar~y reproduction of an opinion of counsel) thereon as may, consistently herewith, be established by the City or determined by the officers executing such Bonds as evidenced by their execution. Any portion of the text of any Bonds may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Bond. The definitive Bonds and the Initial Bond(s) shall be printed, lithographed, or engraved, typewritten, photocopied or otherwise reproduced in any other similar manner, all as determined by the officers executing such Bonds as evidenced by their execution thereof. 45337214.1 _7_ B. Form of Definitive Bond. REGISTERED NO Bond Date: July 15, 2003 Registered Owner: Principal Amount: UNITED STATES OF AMERICA STATE OF TEXAS CITY OF LUBBOCK, TEXAS, GENERAL OBLIGATION BONDS, SERIES 2003 Interest Rate: Stated Maturity REGISTERED CUSIP NO: The City of Lubbock (hereinafter referred to as the "City"), a body corporate and political subdivision in the County of Lubbock, State of Texas, for value received, acknowledges itself indebted to and hereby promises to pay to the Registered Owner named above, or the registered assigns thereof, on the Stated Maturity date specified above the Principal Amount hereinabove stated (or so much thereof as shall not have been paid upon prior redemption) and to pay interest on the unpaid principal amount hereof from the Bond Date at the per annum rate of interest specified above computed on the basis of a 360-day year of twelve 30-day months; such interest being payable on February 15 and August 15 in each year, commencing February 15, 2004. Principal of this Bond is payable at its Stated Maturity or redemption to the registered owner hereof, upon presentation and surrender, at the Designated Payment/Transfer Office of the Paying Agent/Registrar executing the registration certificate appearing hereon, or its successor; provided, however, while this Bond is registered to Cede & Co., the payment of principal upon a partial redemption of the principal amount hereof may be accomplished without presentation and surrender of this Bond. Interest is payable to the registered owner of this Bond or one or more Predecessor Bonds, as defined in the Ordinance hereinafter referenced) whose name appears on the "Security Register" maintained by the Paying Agent/Registrar at the close of business on the "Record Date", which is the last business day of the month next preceding each interest payment date, and interest shall be paid by the Paying Agent/Registrar by check sent United States Mail, first class postage prepaid, to the address of the registered owner recorded in the Security Register or by such other method, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the registered owner. All payments of principal of, premium, if any, and interest on this Bond shall be without exchange or collection charges to the owner hereof and in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts. This Bond is one of the series specified in its title issued in the aggregate principal amount of $11,855,000 (herein referred to as the "Bonds") to provide funds in the amount of 11,885,000 for the purpose of making permanent public improvements and public purposes, to wit: $5,365,000 for street improvements, including drainage, curb, gutters, landscaping, sidewalks, curb ramps and utility line relocation and the acquisition of land and right-of-way therefor, $1,135,000 for drainage improvements, $1,135,000 for traffic signalization and 45337214.1 _$_ assorted communications equipment and $4,250,000 to acquire or improve, or both, land for park purposes, all in accordance with authority conferred at an election and under and in strict conformity with the Constitution and laws of the State of Texas, including particularly V.T.C.A., Government Code, Chapter 1331, and pursuant to an Ordinance adopted by the City Council, of the City (herein referred to as the "Ordinance"). The Bonds maturing on the dates hereinafter identified (the "Term Bonds") are subject to mandatory redemption prior to maturity with funds on deposit in the Interest and Sinking Fund established and maintained for the payment thereof in the Ordinance, and shall be redeemed in part prior to maturity at the price of par and accrued interest thereon to the date of redemption, and without premium, on the dates and in the principal amounts as follows: Term Bonds due February 15, 2017 Redemption Date Principal Amount February 15, 2016 $615,000 Term Bonds due February 15, 2019 Redemption Date Principal Amount February 15, 2018 $680,000 The particular Term Bonds of a stated maturity to be redeemed on each redemption date shall be chosen by lot by the Paying Agent/Registrar; provided, however, that the principal amount of Term Bonds for a stated maturity required to be redeemed on a mandatory redemption date may be reduced, at the option of the City, by the principal amount of Term Bonds of like stated maturity which, at least 50 days prior to the mandatory redemption date, (1) shall have been acquired by the City at a price not exceeding the principal amount of such Term Bonds plus accrued interest to the date of purchase thereof, and delivered to the Paying Agent/Registrar for cancellation or (2) shall have been redeemed pursuant to the optional redemption provisions appearing below and not theretofore credited against a mandatory redemption requirement. The Bonds maturing on and after February 15, 2013, may be redeemed prior to their Stated Maturities, at the option of the City, in whole or in part in principal amounts of $5,000 or any integral multiple thereof (and if within a Stated Maturity by lot by the Paying Agent/Registrar), on February 15, 2012, or on any date thereafter, at the redemption price of par, together with accrued interest to the date of redemption. At least thirty days prior to a redemption date, the City shall cause a written notice of such redemption to be sent by United States Mail, first class postage prepaid, to the registered owners of the Bonds to be redeemed in whole or in part, and subject to the terms and provisions relating thereto contained in the Ordinance. If a Bond (or any portion of its principal sum) shall have been duly called for redemption and notice of such redemption duly given, then upon said redemption date such Bond (or the portion of its principal sum to be redeemed) shall become due and payable, and interest thereon shall cease to accrue from and after the redemption date therefor, provided moneys for the payment of the redemption price and the interest on the principal amount to be redeemed to the date of redemption are held for the purpose of such payment by the Paying Agent/Registrar. In the event a portion of the principal amount of a Bond is to be redeemed and the registered owner is someone other than Cede & Co., payment of the redemption price of such principal amount shall be made to the registered owner only upon presentation and surrender of such Bond to the Designated Payment/Transfer Office of the Paying Agent/Registrar, and a new Bond or Bonds of like maturity and interest rate in any authorized denominations provided by the Ordinance for the then unredeemed balance of the principal sum thereof will be issued to 45337214.1 _9_ the registered owner, without charge. If a Bond is selected for redemption, in whole or in part, the City and the Paying Agent/Registrar shall, not be required to transfer such Bond to an assignee of the registered owner within 45 days of the redemption date therefor; provided, however, such limitation on transferability shall not be applicable to an exchange by the registered owner of the unredeemed balance of a Bond redeemed in part. The Bonds are payable from the proceeds of an ad valorem tax levied, within the limitations prescribed by law, upon all taxable property in the City. Reference is hereby made to the Ordinance, a copy of which is on file in the Designated Payment/Transfer Office of the Paying Agent/Registrar, and to all of the provisions of -which the owner or holder of this Bond by the acceptance hereof hereby assents, for definitions of terms; the description of and the nature and extent of the tax levied for the payment of the Bonds; the terms and conditions relating to the transfer or exchange of this Bond; the conditions upon which the Ordinance may be amended or supplemented with or without the consent of the Holders; the rights, duties, and obligations of the City and the Paying Agent/Registrar; the terms and provisions upon which this Bond may be discharged at or prior to its maturity or redemption, and deemed to be no longer Outstanding thereunder; and for other terms and provisions contained therein. Capitalized terms used herein have the meanings assigned in the Ordinance. This Bond, subject to certain limitations contained in the Ordinance, may be transferred on the Security Register only upon its presentation and surrender at the Designated Payment/Transfer Office of the Paying Agent/Registrar, with the Assignment hereon duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Paying Agent/Registrar duly executed by, the registered owner hereof, or his duly authorized agent. When a transfer on the Security Register occurs, one or more new fully registered Bonds of the same Stated Maturity, of authorized denominations, bearing the same rate of interest, and of the same aggregate principal amount will be issued by the Paying Agent/Registrar to the designated transferee or transferees. The City and the Paying Agent/Registrar, and any agent of either, shall treat the registered owner whose name appears on the Security Register (i) on the Record Date as the owner entitled to payment of interest hereon, (ii) on the date of surrender of this Bond as the owner entitled to payment of principal hereof at its Stated Maturity or its redemption, in whole or in part, and (iii) on any other date as the owner for all other purposes, and neither the City nor the Paying Agent/Registrar, or any agent of either, shall be affected by notice to the contrary. In the event of nonpayment of interest on a scheduled payment date and for thirty (30) days thereafter, a new record date for such interest payment (a "Special Record Date") will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest (which shall be 15 days after the Special Record Date) shall be sent at least five (5) business days prior to the Special Record Date by United States Mail, first class postage prepaid, to the address of each Holder appearing on the Security Register at the close of business on the last business day next preceding the date of mailing of such notice. It is hereby certified, recited, represented and declared that the City is a body corporate and political subdivision duly organized and legally existing under and by virtue of the Constitution and laws of the State of Texas; that the issuance of the Bonds is duly authorized by law; that all acts, conditions and things required to exist and be done precedent to and in the issuance of the Bonds to render the same lawful and valid obligations of the City have been properly done, have happened and have been performed in regular and due time, form and 45337214.1 _ _ No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text No Text - Document Number 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 45352653.1 TRANSCRIPT OF PROCEEDINGS RELATING TO $11,855,000 CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION BONDS SERIES 2003 DATED JULY 15, 2003 Description of Document Resolution Approving and Authorizing Publication of Notice of Sale/Affidavit of Publication Bond Ordinance Executed Paying AgenURegistrar Agreement Purchase Contract Final Official Statement General Certificate Signature and No-Litigation Certificate Attorney General's Opinion and Comptroller's Registration Certificate Closing Instructions Certificate as to Tax Exemption Closing Certificate Receipt for Payment Opinion of Bond Counsel Supplemental Opinion of Bond Counsel Opinion of Underwriter's Counsel Opinion of City Attorney MBIA Insurance Policy and Related Documents Rating Letters Certificate of Underwriter Filed Information Report 1 .-. THE STATE OF TEXAS COUNTY OF LUBBOCK CITY OF LUBBOCK CERTIFICATE OF CITY SECRETARY § § § § § Resolution No. 2003-R0213_ I, the undersigned, City Secretary of the City of Lubbock, Texas, DO HEREBY CERTIFY as follows: 1. On the 22nd day of May, 2003, a regular meeting of the City Council of the City of Lubbock, Texas, was held at a meeting place within the City; the duly constituted members of the Council being as follows: MARC McDOUGAL MAYOR JIM GILBREATH ) FRANK W. MORRISON } VICTOR HERNANDEZ ) COUNCILMEMBERS T. J. PATTERSON ) GARY BOREN ) TOM MARTIN ) and all of said persons were present at said meeting, except the following: ______ _ -------,.---,-------· Among other business considered at said meeting, the attached resolution entitled: "A RESOLUTION approving and authorizing publication of notice of sale with respect to general obligation bonds." was introduced and submitted to the Council for passage and adoption. After presentation and due consideration of the resolution, and upon a motion being made by T. J. Patterson and seconded by Victor Hernandez , the resolution was finally passed and adopted by the Council to be effective immediately by the following vote: 6 voted "For" ---__ o __ voted "Against" -- Recused: abstained Jim Gilbreath all as shown in the official Minutes of the Council for the meeting held on the aforesaid date. 2. The attached resolution is a true and correct copy of the original on file in the official records of the City; the duly qualified and acting members of the City Council of said City on the date of the aforesaid meeting are those persons shown above and, according to the records of my office, advance notice of the time, place and purpose of the meeting was given to each member of the Council; and that said meeting and the deliberation of the aforesaid public business was open to the public and written notice of said meeting, including the subject of the above entitled resolution, was posted· and given in advance thereof in compliance with the provisions ofV.T.C.A., Government Code, Chapter 551, as amended. 45316172.1 1 - IN WITNESS WHEREOF, I have hereunto signed my name officially and affixed the seal of said City, this the 22nd day of May, 2003. City Secretary ~ City of Lubbock, Texas (City Seal) 45316172.1 2 .. II'<! RESOLUTION NO . .;:?odl3 -A!?cJ,;;..13 A RESOLUTION approving and authorizing publication of notice of sale with respect to general obligation bonds. WHEREAS, the City Council of the City of Lubbock, Texas, has determined to issue and take bids for the purchase of general obligation bonds in the principal amount of $11,885,000 and, in accordance with the provisions of the City's Charter, the sale of such bonds is to be advertised in a newspaper once a week for a period of 30 days; now, therefore, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK, TEXAS: SECTION 1: The City Secretary is hereby authorized and directed to cause a notice of sale relating to the sale of general obligation bonds to be published once a week for a period of thirty (30) days; such notice of sale to read substantially in the form and content of Exhibit A hereto attached and incorporated herein by reference as a part of this resolution for all purposes. SECTION 2: It is officially found, determined, and declared that the meeting at which this Resolution is adopted was open to the public and public notice of the time, place, and subject matter of the public business to be considered at such meeting, including this Resolution, was given, all as required by V.T.C.A., Government Code, Chapter 551, as amended. SECTION 3: This Resolution shall be in force and effect from and after its passage on the date shown below. PASSED AND APPROVED, this May 22, 2003. ATTEST: (City Seal) 45313726.1 Exhibit A NOTICE OF SALE $11,885,000 City of Lubbock, Texas, General Obligation Bonds, Series 2003 On the 24th day of July, 2003, the City Council of the City of Lubbock, Texas, plans to sell the above referenced bonds during its regular meeting scheduled to begin at 10:30 o'clock A.M.. . A complete description of the Bonds being authorized and sold may be obtained from the Division of Finance, City of Lubbock, P.O. Box 2000, Lubbock, Texas 79457; or from First Southwest Company, 1700 Pacific Avenue, Suite 500, Dallas, Texas 75201, Financial Consultants to the City. 45313726.1 Rebecca Garza City Secretary City of Lubbock, Texas . i ~"''.T~7~ . . ,. . ,. NOTJC!; OFSAU; ...... $1!,ass,ooo ~ :.i: f 1 )/: exas~; :~ -~:-·· _ 8of1d.s,:~_._··• · Onth .~ /tn _e24thcta· .,,,..._~ , e Ctty cif;i.,_,iy, 20(13 "'·· AFFIDAVIT OF PUBLICATION / lnec;ty1/ 4 THE STATE OF TEXAS ~ l . COUN:E:::::::: underaigned a~~rify on this day peraonally appea~ L ""1?'..;...,y.~:-:½:P!-: \\;:e.~\{_,,,e<; of the Lubbock Avalanche-Journal, a newspaper published in the ··~ County of Lubbock, Texas, who, being by me duly sworn, upon oath deposes and says: That said newspaper is of general circulation in the City of Lubbock, Texas, and that the "NOTICE OF SALE", hereto attached, was published in said newspaper in its issues of _-...,.0"-·--';;.....;;..""-=:e....__\5 ___ ,. 2003; _---=-.... <-> __ ....,_ •... _,-e __ ?-___ ";.l.... _____ , 2003; _--__ c) __ .__, __ -v-c_:e._~_5_-__ , 2003; __ -:S=-·.......;s;. ........ ':'::;\_ts~~·'-"=---•2003;and ~~ \'2... 2003· ------.... ~------• ~-----• I and said newspaper devotes not less than twenty-five percent (25%) of its total column llneage to items of general interest, is published not less frequently than once each week, entered as periodical postal matter in the county where it is published and has been published regularly and continuously for not less than twelve (12) months prior to the date of the publication of said "NOTICE OF SALE". 2003. SWORN TO AND SUBSCRIBED BEFORE ME, this. the a-?.,~ day of --:3" ~ , (Notary Seal) 45317908.1 2 THE STATE OF TEXAS COUNTY OF LUBBOCK CITY OF LUBBOCK CERTIFICATE OF CITY SECRETARY § § § § § I, the undersigned, City Secretary of the City of Lubbock, Texas, DO HEREBY CERTIFY as follows: 1. On the 24th day of July, 2003, the City Council of the City of Lubbock, Texas, convened in regular session at its regular meeting place in the City Hall of said City; the duly constituted members of the Council being as follows: MARC McDOUGAL VICTOR HERNANDEZ T. J. PATTERSON GARY BOREN FRANK W. MORRISON TOM MARTIN JIM GILBREATH MAYOR MAYOR PRO TEM COUNCILMEMBERS all of said persons were present at said meeting, except the following: none. Among other business considered at said meeting, the attached ordinance entitled: "AN ORDINANCE authorizing the issuance of 'CITY OF LUBBOCK, TEXAS, GENERAL OBLIGATION BONDS, SERIES 2003'; specifying the terms and features of said bonds; levying a continuing direct annual ad valorem tax for the payment of said bonds; and resolving other matters incident and related to the issuance, sale, payment and delivery of said bonds, including the approval of a Paying AgenURegistrar Agreement and a Purchase Contract and the approval and distribution of an Official Statement pertaining thereto; and providing an effective date." was introduced and submitted to the Council for final passage and adoption. After presentation and due consideration of the Ordinance, and upon a motion being made by Tom Martin and seconded by Jim Gilbreath, the Ordinance was duly passed and adopted to be effective immediately in accordance with the Section 1201.028 by the following vote: 7 voted "For" 0 voted "Against" 0 abstained all as shown in the official Minutes of the Council for the meeting held on the aforesaid date. 45339317.1 2. The attached Ordinance is a true and correct copy of the original on file in the official records of the City; the duly qualified and acting members of the City Council of said City on the date of the aforesaid meetings are those persons shown above and, according to the records of my office, advance notice of the time, place and purpose of each meeting was giv.en to each member of the Council; and that said meetings and the deliberation of the aforesaid public business were open to the public and written notice of said meetings, including the subject of the above entitled Ordinance, was posted and given in advance thereof in compliance with the provisions of V.T.C.A., Government Code, Chapter 551, as amended. IN WITNESS WHEREOF, I have hereunto signed my name officially and affixed the seal of said City, this the 24th day of July, 2003. City Se retary City of Lubbock, Texas (City Seal) 45339317.1 -2- ~ - ORDINANCE NO. 2003-00080 AN ORDINANCE authorizing the issuance of "CITY OF LUBBOCK, TEXAS, GENERAL OBLIGATION BONDS, SERIES 2003"; specifying the terms and features of said bonds; levying a continuing direct annual ad valorem tax for the payment of said bonds; and resolving other matters incident and related to the issuance, sale, payment and delivery of said bonds, including the approval of a Paying Agent/Registrar Agreement and a Purchase Contract and the approval and distribution of an Official Statement pertaining thereto; and providing an effective date. WHEREAS, the City Council of the City of Lubbock, Texas, hereby finds and determines that $11,885,000 in principal amount of general obligation bonds approved and authorized to be issued at an election held on September 18, 1999, should be issued and sold at this time and a summary of the general obligation bonds authorized at such election, as well as previously held elections, the principal amount authorized, amounts heretofore issued and being issued pursuant to this ordinance and amounts remaining to be issued subsequent hereto being as follows: Principal Amounts Date Amount Heretofore Amounts Unissued Purpose Authorized Authorized Issued Being Issued Balance Waterworks System 10-17-87 2,810,000 200,000 -0-2,610,000 Sewer System 5-21-77 3,303,000 2,175,000 -0-1,128,000 Street Improvements 5-01-93 10,170,000 10,166,000 -0-4,000 Street Improvements 9-18-99 17,165,000 11,800,000 5,365,000 -0- Drainage 9-18-99 2,160,000 1,025,000 1,135,000 -0- Traffic Signals 9-18-99 3,295,000 2,160,000 1,135,000 -0- Parks 9-18-99 14,765,000 10,515,000 4,250,000 -0- AND WHEREAS, the City Council hereby reserves and retains the right to issue the balance of unissued bonds approved at said elections in one or more installments when, in the judgment of the Council, funds are needed to accomplish the purposes for which such bonds are voted; now, therefore, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK: SECTION 1: Authorization -Designation-Principal Amount-Purpose. General obligation bonds of the City shall be and are hereby authorized to be issued in the aggregate principal amount of $11,855,000, to be designated and bear the title "CITY OF LUBBOCK, TEXAS, GENERAL OBLIGATION BONDS, SERIES 2003" (hereinafter referred to as the "Bonds"), to provide funds in the amount of $11,885,000 for the purpose of making permanent public improvements and public purposes, to wit: $5,365,000 for street improvements, including drainage, curb, gutters, landscaping, sidewalks, curb ramps and utility line relocation and the acquisition of land and right-of-way therefor, $1, 135,000 for drainage improvements, $1,135,000 for traffic signalization and as~orted communications equipment and $4,2?0,000 to acquire or improve, or both, land for park purposes, all in accordance with authority conferred at the aforesaid election and under and in strict conformity with the Constitution and laws of the State of Texas, including V.T.C.A., Government Code, Chapter 1331 and Article VIII Section 1 of the City Charter of the City of Lubbock, Texas. 45337214.1 (/Ill',. ""' ORDINANCE NO. 2003-00080 AN ORDINANCE authorizing the issuance of "CITY OF LUBBOCK, TEXAS, GENERAL OBLIGATION BONDS, SERIES 2003"; specifying the terms and features of said bonds; levying a continuing direct annual ad valorem tax for the payment of said bonds; and resolving other matters incident and related to the issuance, sale, payment and delivery of said bonds, including the approval of a Paying Agent/Registrar Agreement and a Purchase Contract and the approval and distribution of an Official Statement pertaining thereto; and providing an effective date. WHEREAS, the City Council of the City of Lubbock, Texas, hereby finds and determines that $11,885,000 in principal amount of general obligation bonds approved and authorized to be issued at an election held on September 18, 1999, should be issued and sold at this time and a summary of the general obligation bonds authorized at such election, as well as previously held elections, the principal amount authorized, amounts heretofore issued and being issued pursuant to this ordinance and amounts remaining to be issued subsequent hereto being as follows: Principal Amounts Date Amount Heretofore Amounts Unissued Purpose Authorized Authorized Issued Being Issued Balance Waterworks System 10-17-87 2,810,000 200,000 -0-2,610,000 Sewer System 5-21-77 3,303,000 2,175,000 -0-1,128,000 Street Improvements 5-01-93 10,170,000 10,.166,000 -0-4,000 Street Improvements 9-18-99 17,165,000 11,800,000 5,365,000 -0- Drainage 9-18-99 2,160,000 1,025,000 1,135,000 -0- Traffic Signals 9-18-99 3,295,000 2,160,000 1,135,000 -0- Parks 9-18-99 14,765,000 10,515,000 4,250,000 -0- AND WHEREAS, the City Council hereby reserves and retains the right to issue the balance of unissued bonds approved at said elections in one or more installments when, in the judgment of the Council, funds are needed to accomplish the purposes for which such bonds are voted; now, therefore, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK: SECTION 1: Authorization -Designation-Principal Amount-Purpose. General obligation bonds of the City shall be and are hereby authorized to be issued in the aggregate principal amount of $11,855,000, to be designated and bear the title "CITY OF LUBBOCK, TEXAS, GENERAL OBLIGATION BONDS, SERIES 2003" (hereinafter referred to as the "Bonds"), to provide funds in the amount of $11,885,000 for the purpose of making permanent public improvements and public purposes, to wit: $5,365,000 for street improvements, including drainage, curb, gutters, landscaping, sidewalks, curb ramps and utility line relocation and the acquisition of land and right-of-way therefor, $1,135,000 for drainage improvements, $1,135,000 for traffic signalization and assorted communications equipment and $4,250,000 to acquire or improve, or both, land for park purposes, all in accordance with authority conferred at the aforesaid election and under and in strict conformity with the Constitution and laws of the State of Texas, including V.T.C.A., Government Code, Chapter 1331 and Article VIII Section 1 of the City Charter of the City of Lubbock, Texas. 45337214.1 SECTION 2: Fully Registered Obligations -Bond Date -Authorized ,,,,,,, Denominations-Stated Maturities-Interest Rates. The Bonds shall be issued as fully registered obligations only, shall be dated July 15, 2003 (the "Bond Date"), and, other than the single fully registered Initial Bond referenced in Section 8 hereof, shall be in denominations of $5,000· or any integral multiple (within a Stated Maturity) thereof, and shall become due and payable on February 15 in each of the years and in principal amounts (the "Stated Maturities") in accordance with the following schedule: Year of Principal Interest Stated Maturity Amount Rate(s) 2004 $600,000 3.00% 2005 415,000 3.00% 2006 425,000 3.00% 2007 440,000 3.00% 2008 450,000 3.00% 2009 465,000 3.00% 2010 480,000 3.50% 2011 500,000 4.00% 2012 520,000 4.00% 2013 540,000 4.00% 2014 565,000 4.00% 2015 585,000 4.00% 2017 1,260,000 5.00% 2019 1,395,000 5.00% 2020 745,000 4.50% 2021 785,000 4.75% 2022 820,000 4.75% 2023 865,000 4.75% The Bonds shall bear interest on the unpaid principal amounts from the Bond Date at the per annum rates shown above (computed on the basis of a 360-day year of twelve 30-day months); such interest shall be payable on February 15 and August 15 in each year, commencing February 15, 2004. SECTION 3: Terms of Payment-Paying Agent/Registrar. The principal of, premium, if any, and the interest on the Bonds, due and payable by reason of maturity, redemption or otherwise, shall be payable only to the registered owners or holders of the Bonds (hereinafter called the "Holders") appearing on the registration and transfer books maintained by the Paying Agent/Registrar and the payment thereof shall be in any coin or currency of the United States of America, which at the time of payment is legal tender for the payment of public and private debts, and shall be without exchange or collection charges to the Holders. · The selection and appointment of JPMorgan Chase Bank, Dallas, Texas, to serve as Paying Agent/Registrar for the Bonds is hereby approved and confirmed. Books and records relating to the registration, payment, transfer and exchange of the Bonds (the "Security Register") shall at all times be kept and maintained on behalf of the City by the Paying 45337214.1 -2- Agent/Registrar, as provided herein and in accordance with the terms and provIsIons of a "Paying Agent/ Registrar Agreement", substantially in the form attached hereto as Exhibit A, and such reasonable rules and regulations as the Paying Agent/Registrar and the City may prescribe. The Mayor and City Secretary are authorized to execute and deliver such Agreement in connection with the delivery of the Bonds. The City covenants to maintain and provide a Paying Agent/Registrar at all times until the Bonds are paid and discharged, and any successor Paying Agent/Registrar shall be a bank, trust company, financial institution or other entity qualified and authorized to serve in such capacity and perform the duties and services of Paying Agent/Registrar. Upon any change in the Paying Agent/Registrar for the Bonds, the City agrees to promptly cause a written notice thereof to be sent to each Holder by United States Mail, first class postage prepaid, which notice shall also give the address of the new Paying Agent/Registrar. Principal of and premium, if any, on the Bonds shall be payable at the Stated Maturities or the redemption thereof, only upon presentation and surrender of the Bonds to the Paying Agent/Registrar at its designated offices in Dallas, Texas (the "Designated Payment/Transfer Office"). Interest on the Bonds shall be paid to the Holders whose name appears in the Security Register at the close of business on the Record Date (the last business day of the month next preceding each interest payment date) and shall be paid by the Paying Agent/Registrar (i) by check sent United States Mail, first class postage prepaid, to the address of the Holder recorded in the Security Register or (ii) by such other method, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the Holder. If the date for the payment of the principal of or interest on the Bonds shall be a Saturday, Sunday, a legal holiday, or a day on which banking institutions in the City where the Designated Payment/Transfer Office of the Paying Agent/Registrar is located are authorized by law or executive order to close, then the date for such payment shall be the next succeeding day which is not such a Saturday, Sunday, legal holiday, or day on which banking institutions are authorized to close; and payment on such date shall have the same force and effect as if made on the original date payment was due. In the event of a nonpayment of interest on a scheduled payment date, and for thirty (30) days thereafter, a new record date for such interest payment (a "Special Record Date") will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest (which shall be 15 days after the Special Record Date) shall be sent at least five (5) business days prior to the Special Record Date by United States Mail, first class postage prepaid, to the address of each Holder appearing on the Security Register at the close of business on the last business day next preceding the date of mailing of such notice. SECTION 4: Redemption. (a) Optional Redemption. The Bonds having Stated Maturities on and after February 15, 2013, shall be subject to redemption prior to maturity, at the option of the City, in whole or in part in principal amounts of $5,000 or any integral multiple thereof (and if within a Stated Maturity by lot by the Paying Agent/Registrar), on February 15, 2012 or on any date thereafter at the redemption price of par plus accrued interest to the date of redemption. At least forty-five (45) days prior to a redemption date for the Bonds (unless a shorter notification period shall be satisfactory to the Paying Agent/Registrar), the City shall notify the Paying Agent/Registrar of the decision to redeem Bonds, the principal amount of each Stated Maturity to be redeemed, and the date of redemption therefor. The decision of the City to 45337214.1 . -3- exercise the right to redeem Bonds shall be entered in the minutes of the governing body of the City. (b) Mandatory Redemption. The Bonds having Stated Maturities of February 15, 2017 and February 15, 2019 (the "Term Bonds") shall be subject to mandatory redemption in part prior to maturity at the redemption price of par and accrued interest to the date of redemption on the respective dates and in principal amounts as follows: Term Bonds due February 15, 2017 Term Bonds due February 15, 2019 Redemption Date Principal Amount Redemption Date Principal Amount February 15, 2016 $615,000 February 15, 2018 $680,000 Approximately forty-five (45) days prior to each redemption date the Term Bonds are to be mandatorily redeemed, the Paying Agent/Registrar shall select by lot the numbers of the Term Bonds within the applicable Stated Maturity to be redeemed on the next following . February 15 from moneys set aside for that purpose in the Interest and Sinking Fund (as hereinafter defined). Any Term Bond not selected for prior redemption shall be paid on the date of their Stated Maturity. The principal amount of the Term Bonds for a Stated Maturity required to be redeemed on a mandatory redemption date may be reduced, at the option of the City, by the principal amount of Term Bonds of like Stated Maturity which, at least 50 days prior to the mandatory redemption date, (1) shall have been acquired by the City at a price not exceeding the principal amount of such Term Bonds plus accrued interest to the date of purchase thereof, and delivered · to the Paying Agent/Registrar for cancellation or (2) shall have been redeemed pursuant to the optional redemption provisions set forth in paragraph(a) of this Section and not theretofore credited against a mandatory redemption requirement. (c) Selection of Bonds for Redemption. If less than all Outstanding Bonds of the same Stated Maturity are to be redeemed on a redemption date, the Paying Agent/Registrar shall treat such Bonds as representing the number of Bonds Outstanding which is obtained by dividing the principal amount of such Bonds by $5,000 and shall select the Bonds, or principal amount thereof, to be redeemed within such Stated Maturity by lot. (d) Notice of Redemption. Not less than thirty (30) days prior to a redemption date for the Bonds, a notice of redemption shall be sent by United States Mail, first class postage prepaid, in the name of the City and at the City's expense, to each Holder of a Bond to be redeemed in whole or in part at the address of the Holder appearing on the Security Register at the close of business on the business day next preceding the date of mailing such notice, and any notice of redemption so mailed shall be conclusively presumed to have been duly given irrespective of whether received by the Holder. All notices of redemption shall (i) specify the date of redemption for the Bonds, (ii) identify the Bonds to be redeemed and, in the case of a portion of the principal amount to be redeemed, the principal amount thereof to be redeemed, (iii) state the redemption price, (iv) state that the Bonds, or the portion of the principal amount thereof to be redeemed, shall become due and payable on the redemption date specified, and the interest thereon, or on the portion of the principal amount thereof to be redeemed, shall cease to accrue from and after the redemption date, and .(v) specify that payment of the redemption price for the Bonds, or the principal amount thereof to be redeemed, shall be made at the Designated Payment/Transfer 45337214.1 -4- Office of the Paying Agent/Registrar only upon presentation and surrender thereof by the Holder. If a Bond is subject by its terms to prior redemption and has been called for redemption and notice of redemption thereof has been duly given as hereinabove provided, such Bond (or the principal amount thereof to be redeemed) shall become due and payable and interest thereon shall cease to accrue from and after the redemption date therefor; provided moneys sufficient for the payment of such Bond ( or of the principal amount thereof to be redeemed) at the then applicable redemption price are held for the purpose of such payment by the Paying Agent/Registrar. SECTION 5: Registration -Transfer/Exchange of Bonds-Predecessor Bonds. The Paying Agent/Registrar shall obtain, record, and maintain in the Security Register the name and address of each and every owner of the Bonds issued under and pursuant to the provisions of this Ordinance, or if appropriate, the nominee thereof. Any Bond may be transferred or exchanged for Bonds of other authorized denominations by the Holder, in person or by his duly authorized agent, upon surrender of such Bond to the Paying Agent/Registrar for cancellation, accompanied by a written instrument of transfer or request for exchange duly executed by the Holder or by his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. Upon surrender of any Bond (other than the Initial Bonds authorized in Section 8 hereof) for transfer at the Designated Payment/Transfer Office of the Paying Agent/Registrar, the Paying Agent/Registrar shall register and deliver, in the name of the designated transferee or transferees, one or more new Bonds of authorized denominations and having the same Stated Maturity and of a like aggregate principal amount as the Bond or Bonds surrendered for transfer. At the option of the Holder, Bonds ( other than the Initial Bonds authorized in Section 8 hereof) may be exchanged for other Bonds of authorized denominations and having the same Stated Maturity, bearing the same rate of interest and of like aggregate principal amount as the Bonds surrendered for exchange, upon surrender of the Bonds to be exchanged at the Designated Payment/Transfer Office of the Paying Agent/Registrar. Whenever any Bonds are surrendered for exchange, the Paying Agent/Registrar shall register and deliver new Bonds to the Holder requesting the exchange. All Bonds issued in any transfer or exchange of Bonds shall be delivered to the Holders at the Designated Payment/Transfer Office of the Paying Agent/Registrar or sent by United States Mail, first class, postage prepaid to the Holders, and, upon the registration and delivery thereof, the same shall be the valid obligations of the City, evidencing the same obligation to pay, and entitled to the same benefits under this Ordinance, as the Bonds surrendered in such transfer or exchange. All transfers or exchanges of Bonds pursuant to this Section shall be made without expense or service charge to the Holder, except as otherwise herein provided, and except that the Paying Agent/Registrar shall require payment by the Holder requesting such transfer or exchange of any tax or other governmental charges required to be paid with respect to such transfer or exchange. Bonds canceled by reason of an exchange or transfer pursuant to the provisions hereof are hereby defined to be "Predecessor Bonds," evidencing all or a portion, as the case may be, of the same obligation to pay evidenced by the new Bond or Bonds registered and delivered in the exchange or transfer therefor. Additionally, the term "Predecessor Bonds" shall include any . mutilated, lost, destroyed, or stolen Bond for which a replacement Bond has been issued, 45337214.1 -5- registered and delivered in lieu thereof pursuant to the provisions of Section 11 hereof and such new replacement Bond shall be deemed to evidence the same obligation as the mutilated, lost, destroyed, or stolen Bond. Neither the City nor the Paying Agent/Registrar shall be required to issue or transfer to an assignee of a Holder any Bond called for redemption, in whole or in part, within 45 days of the date fixed for the redemption of such Bond; provided, however, such limitation on transferability shall not be applicable to an exchange by the Holder of the unredeemed balance of a Bond called for redemption in part. SECTION 6: Book-Entry Only Transfers and Transactions. Notwithstanding the provisions contained in Sections 3, 4 and 5 hereof relating to the payment, and transfer/exchange of the Bonds, the City hereby approves and authorizes the use of "Book-Entry Only" securities clearance, settlement and transfer system provided by The Depository Trust Company (OTC), a limited purpose trust company organized under the laws of the State of New York, in accordance with the operational arrangements referenced in the Blanket Issuer Letter of Representation, by and between the City and OTC (the "Depository Agreement"). Pursuant to the Depository Agreement and the rules of OTC, the Bonds shall be deposited with DTC who shall hold said Bonds for its participants (the "DTC Participants"). While the Bonds are held by OTC under the Depository Agreement, the Holder of the Bonds on the Security Register for all purposes, including payment and notices, shall be Cede & Co., as nominee of DTC, notwithstanding the ownership of each actual purchaser or owner of each Bond (the "Beneficial Owners") being recorded in the records of DTC and DTC Participants. In· the event OTC determines to discontinue serving as securities depository for the Bonds or otherwise ceases to provide book-entry clearance and settlement of securities transactions in general or the City determines that OTC is incapable of properly discharging its duties as securities depository for the Bonds, the City covenants and agrees with the Holders of the Bonds to cause Bonds to be printed in definitive form and provide for the Bonds to be issued and delivered to OTC Participants and Beneficial Owners, as the case may be. Thereafter, the Bonds in definitive form shall be assigned, transferred and exchanged on the Security Register maintained by the Paying AgenVRegistrar and payment of such Bonds shall be made in accordance with the provisions of Sections 3, 4 and 5 hereof. SECTION 7: Execution -Registration. The Bonds shall be executed on behalf of the City by the Mayor under its seal reproduced or impressed thereon and countersigned by the City Secretary. The signature of said officers on the Bonds may be manual or facsimile. Bonds bearing the manual or facsimile signatures of individuals who are or were the proper officers of the City on the Bond Date shall be deemed to be duly executed on behalf of the City, notwithstanding that such individuals or either of them shall cease to hold such offices at the time of delivery of the Bonds to the initial purchaser(s) and with respect to Bonds delivered in subsequent exchanges and transfers, all as authorized and provided in V.T.C.A., Government Code, Chapter 1201. No Bond shall be entitled to any right or benefit under this Ordinance, or be valid or obligatory for any purpose, unless there appears on such Bond either a certificate of registration substantially in the form provided in Section 9C, manually executed by the Comptroller of Public Accounts of the State of Texas, or his duly authorized agent, or a certificate of registration substantially in the form provided in Section 90, manually executed by an authorized officer, 45337214.1 -6- employee or representative of the Paying Agent/Registrar, and either such certificate duly signed upon any Bond shall be conclusive evidence, and the only evidence, that such Bond has been duly certified, registered and delivered. SECTION 8: Initial Bond(s). The Bonds . herein authorized shall be initially issued either (i) as a single fully registered bond in the total principal amount of $11,855,000 with principal installments to become due and payable as provided in Section 2 hereof and numbered T-1, or (ii) as multiple fully registered bonds, being one bond for each year of maturity in the applicable principal amount and denomination and to be numbered consecutively from T-1 and upward (hereinafter called the "Initial Bond(s)") and, in either case, the Initial Bond(s) shall be registered in the name of the initial purchaser(s) or the designee thereof. The Initial Bond(s) shall be the Bonds submitted to the Office of the Attorney General of the State of Texas for approval, certified and registered by the Office of the Comptroller of Public Accounts of the State of Texas and delivered to the initial purchaser(s). Any time after the delivery of the Initial Bond(s), the Paying Agent/Registrar, pursuant to written instructions from the initial purchaser(s), or the designee thereof, shall cancel the Initial Bond(s) delivered hereunder and exchange therefor definitive Bonds of authorized denominations, Stated Maturities, principal amounts and bearing applicable interest rates for transfer and delivery to the Holders named at the addresses identified therefor; all pursuant to and in accordance with such written instructions from the initial purchaser(s), or the designee thereof, and such other information and documentation as the Paying Agent/Registrar may reasonably require. SECTION 9: Forms. A. Forms Generally. The Bonds, the Registration Certificate of the Comptroller of Public Accounts of the State of Texas, the Registration Certificate of Paying Agent/Registrar, and the form of Assignment to be printed on each of the Bonds, shall be substantially in the forms set forth in this Section with such appropriate insertions, omissions, substitutions, and other variations as are permitted or required by this Ordinance and may have such letters, numbers, or other marks of identification (including identifying numbers and letters of the Committee on Uniform Securities Identification Procedures of the American Bankers Association) and such legends and endorsements (including insurance legends in the event the Bonds, or any maturities thereof, are purchased with insurance and any reproduction of an opinion of counsel) thereon as may, consistently herewith, be established by the City or determined by the officers executing such Bonds as evidenced by their execution. Any portion of the text of any Bonds may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Bond. The definitive Bonds and the Initial Bond(s) shall be printed, lithographed, or engraved, typewritten, photocopied or otherwise reproduced in any other similar manner, all as determined by the officers executing such Bonds as evidenced by their execution thereof. 45337214.1 -7- B. Form of Definitive Bond. REGISTERED NO Bond Date: July 15, 2003 Registered Owner: Principal Amount: UNITED STATES OF AMERICA STATE OF TEXAS CITY OF LUBBOCK, TEXAS, GENERAL OBLIGATION BONDS, SERIES 2003 Interest Rate: Stated Maturity: DOLLARS REGISTERED $ ____ _ CUSIP NO: The City of Lubbock (hereinafter referred to as the "City"), a body corporate and political subdivision in the County of Lubbock, State of Texas, for value received, acknowledges itself indebted to and hereby promises to pay to the Registered Owner named above, or the registered assigns thereof, on the Stated Maturity date specified above the Principal Amount hereinabove stated (or so much thereof as shall not have been paid upon prior redemption) and to pay interest on the unpaid principal amount hereof from the Bond Date at the per annum rate of interest specified above computed on the basis of a 360-day year of twelve 30-day months; such interest being payable on February 15 and August 15 in each year, commencing February 15, 2004. Principal of this Bond is payable at its Stated Maturity or redemption to the registered owner hereof, upon presentation and surrender, at the Designated Payment/Transfer Office of the Paying Agent/Registrar executing the registration certificate appearing hereon, or its successor; provided, however, while this Bond is registered to Cede & Co., the payment of principal upon a partial redemption of the principal amount hereof may be accomplished without presentation and surrender of this Bond. Interest is payable to the registered owner of this Bond (or one or more Predecessor Bonds, as defined in the Ordinance hereinafter referenced) whose name appears on the "Security Register" maintained by the Paying Agent/Registrar at the close of business on the "Record Date", which is the last business day of the month next preceding each interest payment date, and interest shall be paid by the Paying Agent/Registrar by check sent United States Mail, first class postage prepaid, to the address of the registered owner recorded in the Security Register or by such other method, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the registered owner. All payments of principal of, premium, if any, and interest on this Bond shall be without exchange or collection charges to the owner hereof and in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts. This Bond is one of the series specified in its title issued in the. aggregate principal amount of $11,855,000 (herein referred to as the "Bonds") to provide funds in the amount of $11,885,000 for the purpose of making permanent public improvements and public purposes, to wit: $5,365,000 for street improvements, including drainage, curb, gutters, landscaping, sidewalks, curb ramps and utility line relocation and the acquisition of land and right-of-way therefor, $1,135,000 for drainage improvements, $1,135,000 for traffic signalization and 45337214.1 -8- assorted communications equipment and $4,250,000 to acquire or improve, or both, land for park purposes, all in accordance with authority conferred at an election and under and in strict conformity with the Constitution and laws of the State of Texas, including particularly V.T.C.A., Government Code, Chapter 1331, and pursuant to an Ordinance adopted by the City Council of the City (herein referred to as the "Ordinance,.). The Bonds maturing on the dates hereinafter identified (the "Term Bonds") are subject to mandatory redemption prior to maturity with funds on deposit in the Interest and Sinking Fund established and maintained for the payment thereof in the Ordinance, and shall be redeemed in part prior to maturity at the price of par and accrued interest thereon to the date of redemption, and without premium, on the dates and in the principal amounts as follows: Term Bonds due February 15, 2017 Term Bonds due February 15, 2019 Redemption Date Principal Amount Redemption Date Principal Amount February 15, 2016 $615,000 February 15, 2018 $680,000 The particular Term Bonds of a stated maturity to be redeemed on each redemption date shall be chosen by lot by the Paying Agent/Registrar; provided, however, that the principal amount of Term Bonds for a stated maturity required to be redeemed on a mandatory redemption date may be reduced, at the option of the City, by the principal amount of Term Bonds of like stated maturity which, at least 50 days prior to the mandatory redemption date, ( 1) shall have been acquired by the City at a price not exceeding the principal amount of such Term Bonds plus accrued interest to the date of purchase thereof, and delivered to the Paying Agent/Registrar for cancellation or (2) shall have been redeemed pursuant to the optional redemption provisions appearing below and not theretofore credited against a mandatory redemption requirement. The Bonds maturing on and after February 15, 2013, may be redeemed prior to their Stated Maturities, at the option of the City, in whole or in part in principal amounts of $5,000 or any integral multiple thereof (and if within a Stated Maturity by lot by the Paying Agent/Registrar), on February 15, 2012, or on any date thereafter, at the redemption price of par, together with accrued interest to the date of redemption. At least thirty days prior to a redemption date, the City shall cause a written notice of such redemption to be sent by United States Mail, first class postage prepaid, to the registered owners of the Bonds to be redeemed in whole or in part, and subject to the terms and provisions relating thereto contained in the Ordinance. If a Bond (or any portion of its principal sum) shall have been duly called for redemption and notice of such redemption duly given, then upon said redemption date such Bond (or the portion of its principal sum to be redeemed) shall become due and payable, and interest thereon shall cease to accrue from and after the redemption date therefor, provided moneys for the payment of the redemption price and the interest on the principal amount to be redeemed to the date of redemption are held for the purpose of such payment by the Paying Agent/Registrar. In the event a portion of the principal amount of a Bond is to be redeemed and the registered owner is someone other than Cede & Co., payment of the redemption price of such principal amount shall be made to the registered owner only upon presentation and surrender of such Bond to the Designated Payment/Transfer Office of the Paying Agent/Registrar, and a new Bond or Bonds of like. maturity and interest rate in any authorized denominations provided by the Ordinance for the then unredeemed balance of the principal sum thereof will be issued to 45337214.1 -9- the registered owner, without charge. If a Bond is selected for redemption, in whole or in part, the City and the Paying Agent/Registrar shall not be required to transfer such Bond to an assignee of the registered· owner within 45 days of the redemption date therefor; provided, however, such limitation on transferability shall not be applicable to an exchange by the registered owner of the unredeemed balance of a Bond redeemed in part. The Bonds are payable from the proceeds of an ad valorem tax levied, within the limitations prescribed by law, upon all taxable property in the City. Reference is hereby made to the Ordinance, a copy of which is on file in the Designated Payment/Transfer Office of the Paying Agent/Registrar, and to all of the provisions of which the owner or holder of this Bond by the acceptance hereof hereby assents, for definitions of terms; the description of and the nature and extent of the tax levied for the payment of the Bonds; the terms and conditions relating to the transfer or exchange of this Bond; the conditions upon which the Ordinance may be amended or supplemented with or without the consent of the Holders; the rights, duties, and obligations of the City and the Paying Agent/Registrar; the terms and provisions upon which this Bond may be discharged at or prior to its maturity or redemption, and deemed to be no longer Outstanding thereunder; and for other terms and provisions contained therein. Capitalized terms used herein have the meanings assigned in the Ordinance. This Bond, subject to certain limitations contained in the Ordinance, may be transferred on the Security Register only upon its presentation and surrender at the . Designated Payment/Transfer Office of the Paying Agent/Registrar, with the Assignment hereon duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Paying Agent/Registrar duly executed by, the registered owner hereof, or his duly authorized agent. When a transfer on the Security Register occurs, one or more new fully registered Bonds of the same Stated.Maturity, of authorized denominations, bearing the same rate of interest, and of the same aggregate principal amount will be issued by the Paying Agent/Registrar to the designated transferee or transferees. The City and the Paying Agent/Registrar, and any agent of either, shall treat the registered owner whose name appears on the Security Register (i) on the Record Date as the owner entitled to payment of interest hereon, (ii) on the date of surrender of this Bond as the owner entitled to payment of principal hereof at its Stated Maturity or its redemption, in whole or in part, and (iii) on any.other date as the owner for all other purposes, and neither the City nor the Paying Agent/Registrar, or any agent of either, shall be affected by notice to the contrary. In the event of nonpayment of interest on a scheduled payment date and for thirty (30} days thereafter, a new record date for such interest payment (a "Special Record Date") will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest (which shall be 15 days after the Special Record Date) shall be sent at least five (5) business days prior to the Special Record Date by United States Mail, first class postage prepaid, to the address of each Holder appearing on the Security Register at the close of business on the last business day next preceding the date of mailing of such notice. It is hereby certified, recited, represented and declared that the City. is a body corporate and political subdivision duly organized and legally existing under and by virtue of the Constitution and laws of the State of Texas; that the issuance of the Bonds is duly authorized by law; that all acts, conditions and things required· to exist and be done precedent to and in the issuance of the Bonds to render the same lawful and valid obligations of the City have been properly done, have happened and have been performed in regular and due time, form and 45337214.1 -10- manner as required by the Constitution and laws of the State of Texas, and the Ordinance; that the Bonds do not exceed any Constitutional or statutory limitation; and that due provision has been made for the payment of the principal of and interest on the Bonds by the levy of a tax as aforestated. In case any provision in this Bond shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. The terms and provisions of this Bond and the Ordinance shall be construed in accordance with and shall be governed by the laws of the State of Texas. IN WITNESS WHEREOF, the City Council of the City has caused this Bond to be duly executed under the official seal of the City as of the Bond Date. COUNTERSIGNED: City Secretary (SEAL) CITY OF LUBBOCK, TEXAS Mayor C. *Form of Registration Certificate of Comptroller of Public Accounts to appear on Initial Bond(s) only. REGISTRATION CERTIFICATE OF COMPTROLLER OF PUBLlC ACCOUNTS OFFICE OF THE COMPTROLLER OF PUBLIC ACCOUNTS ( ( ( ( REGISTER NO. THE STATE OF TEXAS I HEREBY CERTIFY that this Bond has been examined, certified as to validity and approved by the Attorney General of the State of Texas, and duly registered by the Comptroller of Public Accounts of the State of Texas. WITNESS my signature and seal of office this _______ _ Comptroller of Public Accounts of the State of Texas · (SEAL) *NOTE TO PRINTER:. Do Not Print on Definitive Bonds 45337214.1 -11- D. Form of Certificate of Paying Agent/Registrar to appear on Bonds (other than a single fully registered Initial Bond). REGISTRATION CERTIFICATE OF PAYING AGENT/REGISTRAR This Bond has been duly issued and registered under the provisions of the within-mentioned Ordinance; the bond or bonds of the above entitled and designated series .-, originally delivered having been approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts, as shown by the records of the Paying Agent/Registrar. The designated offices of the Paying Agent/Registrar in Dallas, Texas is the "Designated Payment/Transfer Office" for this Bond. JPMORGAN CHASE BANK, Dallas, Texas, ·· as Paying Agent/Registrar . Registration date: By _____________ _ Authorized Signature E. Form of Assignment. ASSIGNMENT FOR VALUE RECEIVED the undersigned hereby sells, assigns, and transfers unto ,,... (Print or typewrite name, address, and zip code of transferee:) ________ (Social Security or other identifying number:) _________ the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints __________ attorney to transfer the within Bond on the books kept for registration thereof, with full power of substitution in the premises. DATED: _________ _ Signature guaranteed: 45337214.1 NOTICE: The signature on this assignment must correspond with the name of the registered owner as it appears on the face of the within Bond in every particular. -12- F. The Initial Bond(s) shall be in the form set forth in paragraph B of this Section. except that the form of the single fully registered lnitiai Bond shall be modified as follows: (i) immediately under the name of the bond the headings "Interest Rate __ " and "Stated Maturity __ " shall both be omitted. (ii) Registered Owner: Principal Amount: Paragraph one shall read as follows: DOLLARS The City of Lubbock (hereinafter referred to as the "City"), a body corporate and municipal corporation in the County of Lubbock, State of Texas, for value received, acknowledges itself indebted to and hereby promises to pay to the Registered Owner named above, or the registered assigns thereof, the Principal Amount hereinabove stated on February 15 in each of the years and in principal installments in accordance with the following schedule: YEAR OF MATURITY PRINCIPAL INSTALLMENTS INTEREST RATE (Information to be inserted from schedule in Section 2 hereof). {or so much principal thereof as shall not have been prepaid prior to maturity) and to pay interest on the unpaid Principal Amount hereof from the Bond Date at the per annum rates of interest specified above computed on the basis of a 360-day year of twelve 30-day months; such interest being payable on February 15 and August 15 in each year, commencing February 15, 2004. Principal installments of this Bond are payable in the year of maturity or on a prepayment date to the registered owner hereof by JPMorgan Chase Bank, Dallas, Texas (the "Paying Agent/Registrar"), upon presentation and surrender, at its designated offices in Dallas, Texas (the "Designated Payment/Transfer Office"). Interest is payable to the registered owner of this Bond whose name appears on the "Security Register" maintained by the Paying Agent/Registrar at the close of business on the "Record Date", which is the last business day of the month next preceding each interest payment date, and interest shall be paid by the Paying Agent/Registrar by check sent United States Mail, first class postage prepaid, to the address of the registered owner recorded in the Security Register or by such other method, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the registered owner. All payments of principal of, premium, if any, and interest on this Bond shall be without exchange or collection charges to the owner hereof and in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts. SECTION 10:Levy of Taxes. To provide for the payment of the "Debt Service Requirements" of the Bonds, being (i) the interest on the Bonds and (ii) a sinking fund for their payment at maturity or redemption or a sinking fund of 2% (whichever amount is the greater), there is hereby levied, and there shall be annually assessed and collected in due time, form, and manner, a tax on all taxable property in the City, within the limitations prescribed by law, and such tax hereby levied on each one hundred dollars' valuation of taxable property in the City for the Debt Service Requirements of the Bonds shall be at a rate from year to year as will be ample and sufficient to provide funds each year to pay the principal of and interest on said 45337214.1 -13- Bonds while Outstanding; full allowance being made for delinquencies and costs of collection; separate books and records relating to the receipt and disbursement of taxes levied, assessed and collected for and on account of the Bonds shall be kept and maintained by the City at all times while the Bonds are Outstanding, and the taxes collected for the payment of the Debt Service Requirements on the Bonds shall be deposited to the credit of a "Special 2003 Bond Account" (the "Interest and Sinking Fund") maintained on the records of the City and deposited in a special fund maintained at an official depository of the City's funds; and such tax hereby levied, and to be assessed and collected annually, is hereby pledged to the payment of the Bonds. Proper officers of the City are hereby authorized and directed to cause to be transferred to the Paying Agent/ Registrar for the Bonds, from funds on deposit in the Interest and Sinking Fund, amounts sufficient to fully pay and discharge promptly each installment of interest and principal of the Bonds as the same accrues or matures or comes due by reason of redemption prior to maturity; such transfers of funds to be made in such manner as will cause collected funds to be deposited with the Paying Agent/Registrar on or before each principal and interest payment date for the Bonds. SECTION 11: Mutilated-Destroyed-Lost and Stolen Bonds. In case any Bond shall be mutilated, or destroyed, lost or stolen, the Paying Agent/Registrar, subject to City approval and in its discretion, may execute and deliver a replacement Bond of like form and tenor, and in the same denomination and bearing a number not contemporaneously outstanding, in exchange and substitution for such mutilated Bond, or in lieu of and in substitution for such destroyed, lost or stolen Bond, only upon (i) the filing by the Holder thereof with the Paying Agent/Registrar of evidence. satisfactory to the Paying Agent/Registrar of the destruction, loss or theft of such Bond, and of the authenticity of the ownership thereof and (ii) the furnishing to the Paying Agent/Registrar of indemnification in an amount satisfactory to hold the City and the Paying Agent/Registrar harmless. All expenses and charges associated with such indemnity and with the preparation, execution and delivery of a replacement Bond shall be borne by the Holder of the Bond mutilated, or destroyed, lost or stolen. Every replacement Bond issued pursuant to this Section shall be a valid and binding obligation, and shall be entitled to all the benefits of this Ordinance equally and ratably with all other Outstanding Bonds; notwithstanding the enforceability of payment by anyone of the destroyed, lost, or stolen Bonds. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement and payment of mutilated, destroyed, lost or stolen Bonds. SECTION 12: Satisfaction of Obligation of City. If the City shall pay or cause to be paid, or there shall otherwise be paid to the Holders, the principal of, premium, if any, and interest on the Bonds, at the times and in the manner stipulated in this Ordinance, then the pledge of taxes levied under this Ordinance and all covenants, agreements, and other obligations of the City to the Holders shall thereupon cease, terminate, and be discharged and satisfied. 45337214.1 -14- Bonds or any principal amount(s) thereof shall be deemed to have been. paid within the meaning and with the effect expressed above in this Section when (i) money sufficient to pay in full such Bonds or the principal amount(s) thereof at maturity or (if notice of redemption has been duly given or waived or if irrevocable arrangements therefor acceptable to the Paying Agent/ Registrar have been made) the redemption date thereof, together with all interest due thereon, shall have been irrevocably deposited with and held in trust by the Paying Agent/Registrar, or an authorized escrow agent, or (ii) Government Securities shall have been ,... irrevocably deposited in trust with the Paying Agent/Registrar, or an authorized escrow agent, which Government Securities have been certified by an independent accounting firm to mature as to principal and interest in such amounts and at such times as will insure the availability, without reinvestment, of sufficient money, together with any moneys deposited therewith, if any, to pay when due the principal of and interest on such Bonds, or the principal amount(s) thereof, on and prior to the Stated Maturity thereof or (if notice of redemption has been duly given or waived or if irrevocable arrangements therefor acceptable to the Paying Agent/ Registrar have been made) the redemption date thereof. The City covenants that no deposit of moneys or Government Securities will be made under this Section and no use made of any such deposit which would cause the Bonds to be treated as "arbitrage bonds" within the meaning of Section 148 of the Internal Revenue Code of 1986, or regulations adopted pursuantthereto. Any moneys so deposited with the Paying Agent/Registrar, or an authorized escrow agent, and all income from Government Securities held in trust by the Paying Agent/Registrar, or an authorized escrow agent, pursuant to this Section which is not required for the payment of the Bonds, or any principal amount(s) thereof, or interest thereon with respect to which such moneys have been so deposited shall be remitted to the City or deposited as directed by the City. Furthermore, any money held by the Paying Agent/Registrar for the payment of the principal of and interest on the Bonds and remaining unclaimed for a period of three (3) years after the Stated Maturity, or applicable redemption date, of the Bonds for which such moneys were deposited and are held in trust to pay, shall upon the request of the City be remitted to the City against a written receipt therefor. Notwithstanding the above and foregoing, any remittance of funds from the Paying Agent/Registrar to the City shall be subject to any applicable unclaimed property laws of the State of Texas. The term "Government Securities", as used herein, means {i) direct noncallable obligations of the United States of America, including obligations the principal of and interest on which are unconditionally guaranteed by the United States of America, (ii) noncallable obligations of an agency or instrumentality of the United States, including obligations unconditionally guaranteed or insured by the agency or instrumentality and on the date of their acquisition or purchase by the City are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent and (iii) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and on the date of their acquisition or purchase by the City, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent. · SECTION 13: Ordinance a Contract -Amendments -Outstanding Bonds. This Ordinance shall constitute a contract with the Holders from time to time, be binding on the City, and shall not be amended or repealed by the City while any Bond remains Outstanding except as permitted in this Section. The City may, without the consent of or notice to any Holders, from time to time and' at any time, amend this Ordinance in any manner not detrimental to the interests of the Holders, including the curing of any ambiguity, inconsistency, or formal defect or omission herein. In addition, the City may, with the consent of Holders holding a 45337214.1 -15- majority in aggregate principal amount of the Bonds then Outstanding affected thereby, amend, add to, or rescind any of the provisions of this Ordinance; provided that, without the consent of all Holders of Outstanding Bonds, no such amendment, addition, or rescission shall (1) extend the time or times of payment of the principal of, premium, if any, and interest on the Bonds, reduce the principal amount thereof, the redemption price therefor, or the rate of interest thereon, or in any other way modify the terms of payment of the principal of, premium, if any, or interest on the Bonds, (2) give any preference to any Bond over any other Bond, or (3) reduce ,,,,.,. · the aggregate principal amount of Bonds required to be held by Holders for consent to any such amendment, addition, or rescission. The term "Outstanding" when used in this Ordinance with respect to Bonds means, as of the date of determination, all Bonds theretofore issued and delivered under this Ordinance, except: (1) those Bonds canceled by the Paying Agent/Registrar or delivered to the Paying Agent/RegistrarJor cancellation; (2) those Bonds deemed to be duly paid by the City in accordance with the provisions of Section 12 hereof; and {3) those mutilated, destroyed, lost, or stolen Bonds which have been replaced with Bonds registered and delivered in lieu thereof as provided in Section 11 hereof. · SECTION 14: Covenants to Maintain Tax-Exempt Status. A. used in this Section, the following terms have the following meanings: Definitions. "Closing Date" means the date on which the Bonds are first authenticated and delivered to the initial purchasers against payment therefor. "Code" means the Internal Revenue Code of 1986, as amended by all legislation, if any, effective on or before the Closing Date. "Computation Date" has the meaning set forth in Section 1.148-1 {b) of the Regulations. "Gross Proceeds" means any proceeds as defined in Section 1.148-1 (b) of the Regulations, and any replacement proceeds as defined in Section 1.148-1 ( c) of the Regulations, of the Bonds. "Investment" has the meaning set forth in Section 1.148-1 (b) of the Regulations. "Nonpurpose Investment" means any investment property, as defined in section 148(b) of the Code, in which Gross Proceeds of the Bonds are invested and which is not acquired to carry out the governmental purposes of. the Bonds. "Rebate Amount" has the meaning set forth in Section 1.148-1(b) of the Regulations. 45337214.1 -16- When "Regulations" means any proposed, temporary, or final Income Tax Regulations issued pursuant to Sections 103 and 141 through 150 of the Code, and 103 of the Internal Revenue Code of 1954, which are applicable to the Bonds. Any reference to any specific Regulation shall also mean, as appropriate, any proposed, temporary or final Income Tax Regulation designed to supplement, amend or replace the specific Regulation referenced. "Yield" of {1) any Investment has the meaning set forth in Section 1.148-5 of the Regulations; and (2) the Bonds has the meaning set forth in Section 1.148-4 of the Regulations. B Not to Cause Interest to Become Taxable. The City shall not use, permit the use of, or omit to use Gross Proceeds or any other amounts {or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner which if made or omitted, respectively, would cause the interest on any Bond to become includable in the gross income, as defined in section 61 ·of the Code, of the owner thereof for federal income tax purposes. Without limiting the generality of the foregoing, unless and until the City receives a written opinion of counsel nationally recognized in the field of municipal bond law to the effect that failure to comply with such covenant will not adversely affect the exemption from federal income tax of the interest on any Bond, the City shall comply with each of the specific covenants in this Section. C No Private Use or Private Payments. Except as permitted by section 141 of the Code and the Regulations and rulings thereunder, the City shall at all times prior to the last ,-, Stated Maturity of Bonds: {1) exclusively own, operate and possess all property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with Gross Proceeds of the Bonds, and not use or permit the use of such Gross Proceeds (including all contractual arrangements with terms different than those applicable to the general public) or any property acquired, constructed or improved with such Gross Proceeds in any activity carried on by any person or entity (including the United States or any agency, department and instrumentality thereof) other than a state or local government, unless such use is solely as a member of the general public; and (2) not directly or indirectly impose or accept any charge or other payment by any person or entity who is treated as using Gross Proceeds of the Bonds or any property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with such Gross Proceeds, other than taxes of general application within the City or interest earned on investments acquired with such Gross Proceeds pending application for their intended purposes. 45337214.1 -17- D No Private Loan. Except to the extent permitted by section 141 of the Code and the Regulations and rulings thereunder, the City shall not use Gross Proceeds of the Bonds to make or finance loans to any person or entity other than a state or local government. For purposes of the foregoing covenant, such Gross Proceeds are considered to be "loaned" t0 a person or entity if: {1) property acquired, constructed or improved with such Gross Proceeds is sold or leased to such person or entity in a transaction which creates a debt for federal income tax purposes; (2) capacity in or service from such property is committed to such person or entity under a take-or-pay, output· or similar contract or arrangement; or (3) indirect benefits, or burdens and benefits of ownership, of such Gross Proceeds or any property acquired, constructed or improved with such Gross Proceeds are otherwise transferred in a transaction which is the economic equivalent of a loan. E Not to Invest at Higher Yield. Except to the extent permitted by section 148 of the Code and the Regulations and rulings thereunder, the City shall not at any time prior to the final Stated Maturity of the Bonds directly or indirectly invest Gross Proceeds in any Investment (or use Gross Proceeds to replace money so invested), if as a result of such investment the Yield from the Closing Date of all Investments acquired with Gross Proceeds (or with money replaced thereby), whether then held or previously disposed of, exceeds the Yield of the Bonds. F Not Federally Guaranteed. Except to the extent permitted by section 149{b) of the Code and the Regulations and rulings thereunder, the City shall not take or omit to take any action which would cause the Bonds to be federally guaranteed within the meaning of section 149(b) of the Code and the Regulations and rulings thereunder. G Information Report. The City shall timely file the information required by section 149{e) of the Code with the Secretary of the Treasury on Form 8038-G or such other form and in such place as the Secretary may prescribe. H Rebate of Arbitrage Profits. Except to the extent otherwise provided in section 148(f) of the Code and the Regulations and rulings thereunder: (1) The City shall account for all Gross Proceeds (including all receipts, expenditures and investments thereof) on its books of account separately and apart from all other funds (and receipts, expenditures and investments thereof) and shall retain., all records of accounting for at least six years after the day on which the last Outstanding Bond is discharged. However, to the extent permitted by law, the City may commingle Gross Proceeds of the Bonds with other money of the City, provided that the City separately accounts for each receipt and expenditure of Gross Proceeds and the obligations acquired therewith. (2) Not less frequently than each Computation Date, the City shall calculate the Rebate Amount in accordance with rules set forth in section 148(f) of the Code and the Regulations and rulings thereunder. The City shall maintain such calculations with its official transcript of proceedings relating to the issuance of the Bonds until six years after the final Computation Date. 45337214.1 -18- (3) As additional consideration for the purchase of the Bonds by the Purchasers and the loan of the money represented thereby and in order to induce such purchase by measures designed to insure the excludability of the interest thereon from the gross income of the owners thereof for federal income tax purposes, the City shall pay to the United States from the construction fund, other appropriate fund, or if permitted by applicable Texas statute, regulation or opinion of the Attorney General of the State of Texas, the Interest and Sinking Fund the amount that when added to the future . value of previous rebate payments made for the Bonds equals (i) in the case of a Final Computation Date as defined in Section 1.148~3(e)(2) of the Regulations, one hundred percent (100%) of the Rebate Amount on such date; and (ii) in the case of any other Computation Date, ninety percent (90%) of the Rebate Amount on such date. In all cases, the rebate payments shall be made at the times, in the installments, to the place and in the manner as is or may be required by section 148(f) of the Code and the Regulations and rulings thereunder, and shall be accompanied by Form 8038-T or such other forms and information as is or may be required by Section 148(f) of the Code and the Regulations and rulings thereunder. (4) The City shall exercise reasonable diligence to assure that no errors are made in the calculations and payments required by paragraphs (2) and (3), and if an error is made, to discover and promptly correct such error within a reasonable amount of time thereafter (and in all events within one hundred eighty (180) days after discovery of the error), including payment to the United States of any additional Rebate Amount owed to it, interest thereon, and any penalty imposed under Section 1.148-3(h) of the Regulations. I Not to Divert Arbitrage Profits. Except to the extent permitted by section 148 of the Code and the Regulations and rulings thereunder, the City shall not, at any time prior to the earlier of the Stated Maturity or final payment of the Bonds, enter into any transaction that reduces the amount required to be paid to the United States pursuant to Subsection H of this Section because such transaction results in a smaller profit or a larger loss than would have resulted if the transaction had been at arm's length and had the Yield of the Bonds not been relevant to either party. J Elections. The City hereby directs and authorizes the Mayor, City Secretary, City Manager, Director of Finance, Cash and Debt Manager, and Assistant City Manager, individually or jointly, to make elections permitted or required pursuant to the provisions of the Code or the Regulations, as they deem necessary or appropriate in connection with the Bonds, in the Certificate as to Tax Exemption or similar or other appropriate certificate, form or document. SECTION 15: Sale of Bonds-Approval and Execution of Purchase Contract. The sale of the Bonds to Siebert Brandford Shank & Co., LLC, RBC Dain Rauscher Incorporated, William R. Hough & Co. and Morgan Keegan & Company, Inc. (herein referred to as the "Underwriters") in accordance with the Purchase Contract, dated July 24, 2003, attached hereto as Exhibit B and incorporated herein by reference as a part of this Ordinance for all purp0ses. The Mayor is hereby authorized and directed to execute said Purchase Contract for and on behalf of the City ancf as the act and deed of this Council, and in regard to the approval and execution of the Purchase Contract, the Council hereby finds, determines and declares that the representations, warranties and agreements of the City contained therein are true and correct in all material respects and shall be honored and performed by the City. · 45337214.1 -19- SECTION 16: Official Statement. The use of the Preliminary Official Statement, dated July 14, 2003, in the offering and sale of the Bonds is hereby ratified, confirmed and approved in all respects, and the City Council hereby finds that the information and data contained in said Preliminary Official Statement pertaining to the City and its financial affairs is true and correct in all material respects and no material facts have been omitted therefrom which are necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The final Official Statement, which reflects the terms of sale (together with such changes approved by the Mayor, Mayor Pro Tern, City Manager, Assistant City Manager, Director of Finance, Cash and Debt Manager, or City Secretary, one or more of said officials}, shall be and is hereby in all respects approved and the Underwriters are hereby authorized to use and distribute said final Official Statement, dated July 24, 2003, in the offering, sale and delivery of the Bonds to the public. SECTION 17: Control and Custody of Bonds. The Mayor of the City shall be and is hereby authorized to take and have charge of all necessary orders and records pending investigation by the Attorney General of the State of Texas, including the printing and supply of definitive Bonds, and shall take and have charge and control of the Initial Bond(s} pending the approval thereof by the Attorney General, the registration thereof by the Comptroller of Public Accounts and the delivery thereof to the Underwriters. Furthermore, the Mayor, Mayor Pro Tern, City Secretary, City Manager, Director of Finance, Assistant City Manager, and Cash and Debt Manager, any one or more of said officials, are hereby authorized and directed to furnish and execute such documents relating to the City and its financial affairs as may be necessary for the issuance of the Bonds, the approval of the Attorney General and the registration by the Comptroller of Public Accounts and, together with the City's financial advisor, bond counsel and the Paying Agent/Registrar, make the necessary arrangements for the delivery of the Initial Bond(s) to the Underwriters and the initial exchange thereof for definitive Bonds. SECTION 18: Proceeds of Sale. The proceeds of sale of the Bonds, excluding the accrued interest received from the Underwriters, shall be deposited in a construction fund maintained at the City's depository bank. Pending expenditure for authorized projects and purposes, such proceeds of sale may be invested in authorized investments in accordance with the provisions of V.T.C.A., Government Code, Chapter 2256, including guaranteed investment contracts permitted by V.T.C.A., Section 2256.015 et seq., and the City's investment policies and guidelines, and any investment earnings realized shall be expended for such authorized projects and purposes or deposited in the Interest and Sinking Fund as shall be determined by the City Council. Accrued interest received from the Underwriters as well .as all surplus proceeds of sale of the Bonds, including investment earnings, remaining after completion of all authorized projects or purposes shall be deposited to the credit of the Interest and Sinking Fund. SECTION 19: Notices to Holders-Waiver. Wherever this Ordinance provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and sent by United States Mail, first class postage prepaid, to the address of each Holder appearing in the Security Register at the close of business on the business day next preceding the mailing of such notice. 45337214.1 -20- In any case where notice to Holders is given by mail, neither the failure to mail such notice to any particular Holders, nor any defect in any notice so mailed, shall affect the sufficiency of such notice with respect to all other Bonds. Where this Ordinance provides for notice in any manner, such notice may be waived in writing by the Holder entitled to receive such notice, either before or after the event with respect to which such notice is given, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Paying Agent/Registrar, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 20: Cancellation. All Bonds surrendered for payment, redemption, transfer, exchange, or replacement, if surrendered to the Paying Agent/Registrar, shall be promptly canceled by it and, if surrendered to the City, shall be delivered to the Paying Agent/Registrar and, if not already canceled, shall be promptly canceled by the Paying Agent/Registrar. The City may at any time deliver to the Paying Agent/Registrar for cancellation any Bonds previously certified or registered and delivered which the City may have acquired in any manner whatsoever, and all Bonds so delivered shall be promptly canceled by the Paying Agent/Registrar. All canceled Bonds held by the Paying Agent/Registrar shall be returned to the City. SECTION 21: Legal Opinion. The obligation of the Underwriters to accept delivery of the Bonds is subject to being furnished a final opinion of Fulbright & Jaworski L.L.P., Attorneys, Dallas, Texas, approving such Bonds as to their validity, said opinion to be dated and delivered as of the date of delivery and payment for such Bonds. A true and correct reproduction of said opinion is hereby authorized to be printed on the definitive Bonds or an executed counterpart thereof shall accompany the global Bonds deposited with the Depository Trust Company. SECTION 22: CUSIP Numbers. CUSIP numbers may be printed or typed on the definitive Bonds. It is expressly provided, however, that the presence or absence of CUSIP numbers on the definitive Bonds shall be of no significance or effect as regards the legality thereof and neither the City nor attorneys approving the Bonds as to legality are to be held responsible for CUSIP numbers incorrectly printed or typed on the definitive Bonds. SECTION 23: Benefits of Ordinance. Nothing in this Ordinance, expressed or implied, is intended or shall be construed to confer upon any person other than the City, the Paying Agent/Registrar and the Holders, any right, remedy, or claim, legal or equitable, under or by reason of this Ordinance or any provision hereof, this Ordinance and all its provisions being intended to be and being for the sole and exclusive benefit of the City, the Paying Agent/Registrar and the Holders. SECTION 24: Inconsistent Provisions. All ordinances, orders or resolutions, or parts thereof, which are in conflict or inconsistent with any provision of this Ordinance are hereby repealed to the extent of such conflict, arid the provisions of this Ordinance shall be and remain controlling as to the matters contained herein. SECTION 25: Governing Law. This Ordinance shall be construed and enforced in accordance with the laws of the State of Texas and the United States of America. SECTION 26: Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. 45337214.1 -21- e SECTION 27: Construction of Terms. If appropriate in the context of this Ordinance, words of the singular number shall be considered to include the plural, words of the plural number shall be considered to include the singular, and words of the masculine, feminine or neuter gender shall be considered to include the other genders. SECTION 28: Severability. If any provision of this Ordinance or the application thereof to any circumstance shall be held to be invalid, the remainder of this Ordinance and the application thereof to other circumstances shall nevertheless be valid, and the City Council hereby declares that this Ordinance would have been enacted without such invalid provision. SECTION 29: Continuing Disclosure Undertaking. {a) Definitions. As used in this Section, the following terms have the meanings ascribed to such terms below: "MSRB" means the Municipal Securities Rulemaking Board. "NRMSIR" means each person whom the SEC or its staff has determined to be a nationally recognized municipal securities information repository within the meaning of the Rule from time to time. "Rule" means SEC Rule 15c2-12, as amended from time to time. "SEC' means the United States Securities and Exchange Commission. "SIG' means any person designated by the State of Texas or an authorized department, officer, or agency thereof as, and determined by the SEC or its staff to be, a state information depository within the meaning of the Rule from time to time. (b) Annual Reports. The City shall provide annually to each NRMSIR and any SID, within six months after the end of each fiscal year (beginning with the fiscal year ending September 30, 2003) financial information and operating data with respect to the City of the general type included in the final Official Statement approved by Section 16 of this Ordinance, being the information described in Exhibit B hereto. Financial statements to be provided shall be (1) prepared in accordance with the accounting principles described in Exhibit B hereto and (2) audited, if the City commissions an audit of such statements and the audit is completed within the period during which they must be provided. If audited financial statements are not available at the time the financial information and operating data must be provided, then the City shall provide unaudited financial statements for the applicable fiscal year to each NRMSIR and any SID with the financial information and operating data and will file the annual audit report when and if the same becomes available. If the City changes its fiscal year, it will notify each NRMSIR and any SID of the change (and of the date of the new fiscal year end) prior to the next date by which the City otherwise would be required to provide financial information and operating data pursuant to this Section. The financial information and operating data to be provided pursuant to this Section may be set forth in full in one or more documents or may be included by specific reference to any document {including an official statement or other offering document, if it is available from the MSRB) that theretofore has been provided to each NRMSIR and any SID or filed with the SEC. 45337214.1 -22- (c} Material Event Notices. The City shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any of the following events with respect to the Bonds, if such event is material within the meaning of the federal securities laws: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Principal and interest payment delinquencies; Non-payment related defaults; Unscheduled draws on debt service reserves reflecting financial difficulties; Unscheduled draws on credit enhancements reflecting financial difficulties; Substitution of credit or liquidity providers, or their failure to perform; Adverse tax opinions or events affecting the tax-exempt status of the Bonds; Modifications to rights of holders of the Bonds; Bond calls; Defeasances; Release, substitution, or sale of property securing repayment of the Bonds; and Rating changes. · The City shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any failure by the City to provide financial information or operating data in accordance with subsection {b} of this Section by the time required by such Section. ( d} Limitations, Disclaimers, and Amendments. The City shall be obligated to observe and perform the covenants specified in this Section while, but only while, the City remains an "obligated person" with respect to the Bonds within the meaning of the Rule, except that the City in any event will give the notice required by subsection (c) hereof of any Bond calls and defeasance that cause the City to be no longer such an "obligated person." The provisions of this Section are for the sole benefit of the Holders and beneficial owners of the Bonds, and nothing in this Section, express or implied, shall give any benefit or any legal or equitable right, remedy, or claim hereunder to any other person. The City undertakes to provide only the financial information, operating data, financial statements, and f"-J notices which it has expressly agreed to provide pursuant to this Section and does not hereby undertake to provide any other information that may be relevant or material to a complete presentation of the City's financial results, condition, or prospects or hereby undertake to update any information provided in accordance with this Section or otherwise, except as expressly provided herein. The City does not make any representation or warranty concerning such information or its usefulness to a decision to invest in or sell Bonds at any future date. UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE HOLDER OR BENEFICIAL OWNER OF ANY BOND OR .ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE CITY, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS SECTION, BUT EVERY RIGHT AND REMEDY OF ANY SUCH PERSON, IN CONTRACT OR TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORMANCE. No default by the City in observing or performing its obligations under this Section shall constitute a breach of or default under this Ordinance for purposes of any other provision of this ,.,.,, Ordinance. Nothing in this Section is intended or shall act to disclaim, waive, or otherwise limit the duties of the City under federal and state securities laws. 45337214.1 -23- The provisions of this Section may be amended by the City from time to time to adapt to changed circumstances resulting from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, but only if (1) the provisions of this Section, as so amended, would have permitted an underwriter to purchase, or sell Bonds in the primary offering of the Bonds in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (2) either (a) the Holders of a majority in aggregate principal amount (or any greater amount required by any other provision of this Ordinance that authorizes such an amendment) of the Outstanding Bonds consent to such amendment or (b) a Person that is unaffiliated with the City (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interests of the Holders and beneficial owners of the Bonds. If the City so amends the provisions of this Section, it shall include with any amended financial information or operating data next provided in accordance with subsection (b) an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information or operating data so provided. SECTION 30: MBIA Insurance. The Bonds have been sold with the principal of and interest thereon being insured by MBIA Insurance Corporation (hereinafter called "MBIA") pursuant to a Financial Guaranty Insurance Policy. In accordance with the terms and conditions applicable to insurance provided by MBIA, the City covenants and agrees that, in the event the principal and interest due on the Bonds shall be paid by MBIA pursuant to the policy referred to this Section, the assignment and pledge of all funds and all covenants, agreements and other obligations of the City to the Holders shall continue to exist and MB IA shall be subrogated to the rights of such Holders; and furthermore, the City covenants and agrees that: (a) In the event that, on the second business day, and again on the business day, · prior to the payment date on the Bonds, the Paying Agent/Registrar has not received sufficient moneys to pay all principal of and interest on the Bonds due on the second following or following, as the case may be, business day, the Paying Agent/Registrar shall immediately notify MBIA or its designee on the same business day by telephone or telegraph, confirmed in ~ writing by registered or certified mail, of the amount of the deficiency. (b) If the deficiency is made up in whole or in part prior to or on the payment date, the Paying Agent/Registrar shall so notify MBIA or its designee. (c) In addition, if the Paying Agent/Registrar has notice that any Holder has been required to disgorge payments of principal of or interest on the Bonds to a trustee in bankruptcy or creditors or others pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes avoidable preference to such Holder within the meaning of any applicable bankruptcy laws, then the Paying Agent/Registrar shall notify the MBIA or its designee of such fact by telephone or telegraphic notice, confirming in writing by registered or certified mail. (d) The Paying Agent/Registrar is hereby irrevocably designated, appointed, directed and authorized to act as attorney-in-fact for Holders of the Bonds as follows: 45337214.1 -24- e ( 1) If and to the extent there is a deficiency in amounts required to pay interest on the Bonds; the Paying Agent/Registrar shall (a) execute and deliver to State Street Bank and Trust Company, N.A., or its successors under the Policy (the "Insurance Paying Agent"), in form satisfactory to the Insurance Paying Agent, an instrument appointing the MBIA as agent for such Holders in such legal proceeding related to the payment of such interest and an assignment to the MBIA of the claims for interest to which such deficiency relates and which are paid by MBIA, (b) receive as designee to the respective Holders (and not as Paying Agent/Registrar) in accordance with the. tenor of the Policy payment from the Insurance Paying Agent with respect to the claims for interest so assigned, and (c) disburse the same to such respective Holders; and (2) If and to the extent of a deficiency in amounts required to pay principal of the Bonds, the Paying Agent/Registrar shall (a) execute and deliver to the Insurance Paying Agent in form satisfactory to the Insurance Paying Agent an instrument appointing MBIA as agent for such Holder in any legal proceeding relating to the payment of such principal and an assignment to· MBIA of any of the Bonds surrendered to the Insurance Paying Agent or so much of the principal thereof as has not previously been paid or for which moneys are not held by the Paying Agent/Registrar and available for such payment (but such assignment shall be delivered only if payment from the Insurance Paying Agent is received), (b) receive as designee of the respective Holders (and not as Paying Agent/Registrar) in accordance with the tenor of the Policy payment therefor from the Insurance Paying Agent, and (c) disburse the same to such Holders. (e) Payments with respect to claims for interest on and principal of Bonds disbursed by the Paying Agent/Registrar from proceeds of the Policy shall not be considered to discharge the obligation of the City with respect to such Bonds, and MBIA shall become of the owner of such unpaid Certificate and claims for the interest in accordance with the tenor of the assignment made to it under the provisions of this subsection or otherwise. (f) Irrespective of whether any such assignment is executed and delivered, MBIA and the Paying Agent/Registrar hereby agree for the benefit of the MBIA that: (1) They recognize that to the extent MBIA makes payments, directly or indirectly (as by paying through the Paying Agent/Registrar), on account of principal of and interest on the Bonds, MBIA will be subrogated to the rights of such Holders to receive the amount of such principal and interest from the City as provided and solely from the sources stated in this Ordinance and the Bonds; and (2) They will accordingly pay to MBIA the amount of such principal and interest (including principal and interest recovered under subparagraph (ii) of the first paragraph of the Policy, which principal and interest shall be deemed past due and not to have been paid) as provided in this Ordinance and the Bonds, but only from the sources and in the manner provided herein for the payment of principal of and interest on the Bonds to Holders, and will otherwise treat the MBIA as the owner of such rights to the amount of such principal and interest. 45337214.1 -25- e (g) In connection with the issuance of additional obligations, the City shall deliver to the MBIA a copy of the disclosure document, if any, -circulated with respect to such additional obligations. (h) No amendment or supplement to this Order may become effective without prior consent of MBIA. Copies of any amendments made to the documents executed in connection with the issuance of the Bonds which are consented to by the MBIA shall be sent to Standard & Poor's Corporation. (i) MBIA shall receive notice of the resignation or removal of the Paying Agent/Registrar and the appointment of a successor thereto. 0) MBIA shall receive copies of all notices required to be delivered to Holders and, on an annual basis, copies of the City's audited financial statements and annual budget. (k) Any notice that is required to be given to a Holder of the Bonds or to the Paying Agent/Registrar pursuant to the Ordinance shall also be provided to MBIA. All notices required to be given to MBIA under the Ordinance shall be in writing and shall be sent by registered or certified mail addressed to MBIA Insurance Corporation, 113 King Street, Armonk, New York 10504, Attention: Surveillance. (I) MBIA, acting alone, shall have the right to direct al! remedies in the event of a default. MBIA shall be recognized as the registered owner of each bond which it insures' for the purposes of exercising all rights and privileges available to Holders. For Bonds which it insures, MBIA shall have the right to institute any suit, action, or proceeding at law or in equity under the same terms as the Holder in accordance with the applicable provisions of this Ordinance. (m) The City agrees, subject to annual appropriation by the City and to the extent permitted by law, to reimburse MBIA for all reasonable expenses, including attorneys' fees and expenses, incurred by MBIA in connection with (i) the. enforcement by MBIA of the City's obligations, or the preservation or defense of any rights of MBIA, under this Ordinance and any other document executed in connection with the issuance of the Bonds, and (ii) any consent, amendment, waiver or other action with respect this Ordinance or any related document, whether or not granted or approved, together with interest on all such expenses from and including the date incurred to the date of payment at Citibank's Prime Rate plus 3% or the maximum interest rate permitted by law, whichever is less. In addition, MBIA reserves the right to charge a fee in connection with its review of such consent, amendment or waiver, whether or not granted or approved. SECTION 31: Public Meeting. It is officially found, determined, and declared that the meeting at which this Ordinance is adopted was open to the public and public notice of the time, place, and subject matter of the public business to be considered at such meeting, including this Ordinance, was given, all as required by Chapter 551, Texas Government Code, as amended. 45337214.1 -26- SECTION 32: Effective Date. This Ordinance shall take effect and be in full force from I". and after its adoption on the date shown below in accordance with V.T.C.A., Government Code, Section 1201.028. PASSED AND ADOPTED, this July 24, 2003. CITY OF LUBBOCK, TEXAS ATTEST:· 0 ~-~~. rty .Secretary ~ (City Seal) APPROVED AS TO CONTENT: 45337214.1 -27- EXHIBIT A EXECUTED PAYING AGENT/REGISTRAR AGREEMENT See Document Number 3 45352653.1 EXHIBIT B PURCHASE CONTRACT See Document Number 4 45352653.1 DESCRIPTION OF ANNUAL FINANCIAL INFORMATION The following information is referred to in Section 29 of this Ordinance. Annual Financial Statements and Operating Data EXHIBITC to Ordinance The financial information and operating data with respect to the City to be provided annually in accordance with such Section are as specified (and included in the Appendix or under the headings of the Official Statement referred to) below: 1. The financial statements of the City appended to the Official Statement as Appendix B, but for the most recently concluded fiscal year. 2. The information under Tables 1 through 6 and 8A through 25. Accounting Principles The accounting principles referred to in such Section are the generally accepted accounting principles as applicable to governmental units as prescribed by The Government Accounting Standards Board. 45337214.1 3 - PAYING AGENT/REGISTRAR AGREEMENT THIS AGREEMENT entered into as of July 24, 2003 (this "Agreement"), by and between the City of Lubbock, Texas (the "Issuer"), and JPMorgan Chase Bank, Dallas, Texas, a New York banking corporation organized and existing under the laws of the State of New York and authorized to do business in the State of Texas, or its successors, RECITALS WHEREAS, the Issuer has duly authorized and provided for the execution and delivery of its "City of Lubbock, Texas, General Obligation Bonds, Series 2003" (the "Securities"), dated July 15, 2003, and such Securities are scheduled to be delivered to the initial purchasers thereof on or about August 28, 2003; and WHEREAS, the Issuer has selected the Bank to serve as Paying Agent/Registrar in connection with the payment of the principal of, premium, if any, and interest on said Securities and with respect to the registration, transfer and exchange thereof by the registered owners thereof; and WHEREAS, the Bank has agreed to serve in such capacities for and on behalf of the Issuer and has full power and authority to perform and serve as Paying Agent/Registrar for the Securities; NOW, THEREFORE, it is mutually agreed as follows: ARTICLE ONE APPOINTMENT OF BANK AS PAYING AGENT AND REGISTRAR Section 1.01 Appointment. The Issuer hereby appoints the Bank to serve as Paying Agent with respect to the Securities, and, as Paying Agent for the Securities, the Bank shall be responsible for paying on behalf of the Issuer the principal, premium (if any), and interest on the Securities as the same become due and payable to the registered owners thereof; all in accordance with this Agreement and the "Bond Resolution" (hereinafter defined). The Issuer hereby appoints the Bank as Registrar with respect to the Securities and, as Registrar for the Securities, the Bank shall keep and maintain for and on behalf of the Issuer books and records as to the ownership of said Securities and with respect to the transfer and exchange thereof as provided herein and in the "Bond Resolution". The Bank hereby accepts its appointment, and agrees to serve as the Paying Agent and Registrar for the Securities. Section 1.02 Compensation. As compensation for the Bank's services as Paying Agent/Registrar, the Issuer hereby agrees to pay the Bank the fees and amounts set forth in Annex A attached hereto for the first year of this Agreement and thereafter the fees and amounts set forth in the Bank's current fee schedule then in effect for services as Paying Agent/Registrar for municipalities, which shall be supplied to the Issuer on or before 90 days prior to the close of the Fiscal Year of the Issuer, and shall be effective upon the first day of the following Fiscal Year. 45339308.1 In addition, the Issuer agrees to reimburse the Bank upon its request for all reasonable expenses, disbursements and advances incurred or made by the Bank in accordance with any of the provisions hereof (including the reasonable compensation and the expenses and disbursements of its agents and counsel). ARTICLE TWO DEFINITIONS Section 2.01 Definitions. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: "Acceleration Date" on any Security means the date on and after which the principal or any or all installments of interest, or both, are due and payable on any Security which has become accelerated pursuant to the terms of the Security. "Bank Office" means the designated office of the Bank in Dallas, Texas at the address shown in Section 3.01 hereof. The Bank will notify the Issuer in writing of any change in location of the Bank Office. "Bond Resolution" means the resolution, order, or ordinance of the governing body of the Issuer pursuant to which the Securities are issued, certified by the Secretary or any other officer of the Issuer and delivered to the Bank. "Fiscal Year" means the fiscal year of the Issuer, ending September 30th. "Holder'' and "Security Holder" each means the Person in whose name a Security is registered in the Security Register. "Issuer Request" and "Issuer Order" means a written request or order signed in the name of the Issuer by the Mayor, Mayor Pro Tern, City Manager, Assistant City Manager, Director of Finance, Cash and Debt Manager, or City Secretary, any one or more of said officials, and delivered to the Bank. "Legal Holiday" means a day on which the Bank is required or authorized to be closed. "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision of a government. "Predecessor Securities" of any particular Security means every previous Security evidencing all or a portion of the same obligation as that evidenced by such particular Security (and, for the purposes of this definition, any mutilated, lost, destroyed, or stolen Security for which a replacement Security has been registered and delivered in lieu thereof pursuant to Section 4.06 hereof and the Resolution). 45339308.1 -2- "Redemption Date" when used with respect to any Security to be redeemed means the date fixed for such redemption pursuant to the terms of the Bond Resolution. "Responsible Officer" when used with respect to the Bank means the Chairman or Vice-Chairman of the Board of Directors, the Chairman or Vice-Chairman of the Executive Committee of the Board of Directors, the President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, the Cashier, any Assistant Cashier, any Trust Officer or Assistant Trust Officer, or any other officer of the Bank customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Security Register" means a register maintained by the Bank on behalf of the Issuer providing for the registration and transfers of Securities. "Stated Maturity" means the date specified in the Bond Resolution the principal of a Security is scheduled to be due and payable. Section 2.02 Other Definitions. The terms "Bank," "Issuer," and "Securities (Security)" have the meanings assigned to them in the recital paragraphs of this Agreement. The term "Paying Agent/Registrar" refers to the Bank in the performance of the duties and functions of this Agreement. ARTICLE THREE PAYING AGENT Section 3.01 Duties of Paying Agent. As Paying Agent, the Bank shall, provided adequate collected funds have been provided to it for such purpose by or on behalf of the Issuer, pay on behalf of the Issuer the principal of each Security at its Stated Maturity, Redemption Date, or Acceleration Date, to the Holder upon surrender of the Security to the Bank at the following address: P. 0. Box 2320, Dallas, Texas 75221-2320 or 2001 Bryan Street, 9th Floor, Dallas, Texas 75201, Attention: Operations. As Paying Agent, the Bank shall, provided adequate collected funds have been provided to it for such purpose by or on behalf of the Issuer, pay on behalf of the Issuer the interest on each Security when due, by computing the amount of interest to be paid each Holder and making payment thereof to the Holders of the Securities (or their Predecessor Securities) on the Record Date. All payments of principal and/or interest on the Securities to the registered owners shall be accomplished ( 1) by the issuance of checks, payable to the registered owners, drawn on the paying agent account provided in Section 5.05 hereof, sent by United States mail, first class, postage prepaid, to the address appearing on the Security Register or (2) by such other method, acceptable to the Bank, requested in writing by the Holder at the Holder's risk and expense. Section 3.02 Payment Dates. The Issuer hereby instructs the Bank to pay the principal of and interest on the Securities at the dates specified in the Bond Resolution. 45339308.1 -3- ARTICLE FOUR REGISTRAR Section 4.01 Security Register -Transfers and Exchanges. The Bank agrees to keep and maintain for and on behalf of the Issuer at the Bank Office books and records (herein sometimes referred to as the "Security Register") for recording the names and addresses of the Holders of the Securities, the transfer, exchange and replacement of the Securities and the payment of the principal of and interest on the Securities to the Holders and containing such other information as may be reasonably required by the Issuer and subject to such reasonable regulations as the Issuer and Bank may prescribe. All transfers, exchanges and replacement of Securities shall be noted in the Security Register. Every Security surrendered for transfer or exchange shall be duly endorsed or be accompanied by a written instrument of transfer, the signature on which has been guaranteed by an officer of a federal or state bank or a member of the National Association of Securities Dealers, in form satisfactory to the Bank, duly executed by the Holder thereof or his agent duly authorized in writing. The Bank may request any supporting documentation it feels necessary to effect a re-registration, transfer or exchange of the Securities. To the extent possible and under reasonable circumstances, the Bank agrees that, in relation to an exchange or transfer of Securities, the exchange or transfer by the Holders thereof will be completed and new Securities delivered to the Holder or the assignee of the Holder in not more than three (3) business days after the receipt of the Securities to be cancelled in an exchange or transfer and the written instrument of transfer or request for exchange duly executed by the Holder, or his duly authorized agent, in form and manner satisfactory to the Paying Agent/Registrar. Section 4.02 Certificates. The Issuer shall provide an adequate inventory of printed Securities to facilitate transfers or exchanges thereof. The Bank covenants that the inventory of printed Securities will be kept in safekeeping pending their use and reasonable care will be exercised by the Bank in maintaining such Securities in safekeeping, which shall be not less than the care maintained by the Bank for debt securities of other governments or corporations for which it serves as registrar, or that is maintained for its own securities. Section 4.03 Form of Security Register. The Bank, as Registrar, will maintain the Security Register relating to the registration, payment, transfer and exchange of the Securities in accordance with the Bank's general practices and procedures in effect from time to time. The Bank shall not be obligated to maintain such Security Register in any form other than those which the Bank has currently available and currently utilizes at the time. The Security Register may be maintained in written form or in any other form capable of being converted into written form within a reasonable time. Section 4.04 List of Security Holders. The Bank will provide the Issuer at any time requested by the Issuer, upon payment of the required fee, a copy of the information contained in the Security Register. The Issuer may also inspect the information contained in the Security Register at any time the Bank is customarily open for business, provided that reasonable time is allowed the Bank to provide an up-to-date listing or to convert the information into written form. 45339308.1 -4- - - The Bank will not release or disclose the contents of the Security Register to any person other than to, or at the written request of, an authorized officer or employee of the Issuer, except upon receipt of a court order or as otherwise required by law. Upon receipt of a court order and prior to the release or disclosure of the contents of the Security Register, the Bank will notify the Issuer so that the Issuer may contest the court order or such release or disclosure of the contents of the Security Register. Section 4.05 Return of Cancelled Certificates. The Bank will, at such reasonable intervals as it determines, surrender to the Issuer, Securities in lieu of which or in exchange for which other Securities have been issued, or which have been paid. Section 4.06 Mutilated, Destroyed, Lost or Stolen Securities. The Issuer hereby instructs the Bank, subject to the provisions of Section 11 of the Bond Resolution, to deliver and issue Securities in exchange for or in lieu of mutilated, destroyed, lost, or stolen Securities as long as the same does not result in an overissuance. In case any Security shall be mutilated, or destroyed, lost or stolen, the Bank may execute and deliver a replacement Security of like form and tenor, and in the same denomination and bearing a number not contemporaneously outstanding, in exchange and substitution for such mutilated Security, or in lieu of and in substitution for such destroyed lost or stolen Security, only upon the approval of the Issuer and after (i) the filing by the Holder thereof with the Bank of evidence satisfactory to the Bank of the destruction, loss or theft of such Security, and of the authenticity of the ownership thereof and (ii) the furnishing to the Bank of indemnification in an amount satisfactory to hold the Issuer and the Bank harmless. All expenses and charges associated with such indemnity and with the preparation, execution and delivery of a replacement Security shall be borne by the Holder of the Security mutilated, or destroyed, lost or stolen. Section 4.07 Transaction Information to Issuer. The Bank will, within a reasonable time after receipt of written request from the Issuer, furnish the Issuer information as to the Securities it has paid pursuant to Section 3.01, Securities it has delivered upon the transfer or exchange of any Securities pursuant to Section 4.01, and Securities it has delivered in exchange for or in lieu of mutilated, destroyed, lost, or stolen Securities pursuant to Section 4.06. ARTICLE FIVE THE BANK Section 5.01 Duties of Bank. The Bank undertakes to perform the duties set forth herein and agrees to use reasonable care in the performance thereof. Section 5.02 Reliance on Documents, Etc. (a} The Bank may conclusively rely, as to the truth of the statements and correctness of the opinions expressed therein, on certificates or opinions furnished to the Bank. (b} The Bank shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Bank was negligent in ascertaining the pertinent facts. (c) No provisions of this Agreement shall require the Bank to expend or risk its own funds or otherwise incur any financial liability for performance of any of its duties hereunder, or 45339308.1 -5- -✓ in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity satisfactory to it against such risks or liability is not assured to it. (d) The Bank may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note, security, or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. Without limiting the generality of the foregoing statement, the Bank need not examine the ownership of any Securities, but is protected in acting upon receipt of Securities containing an endorsement or instruction of transfer or power of transfer which appears on its face to be signed by the Holder or an agent of the Holder. The Bank shall not be bound to make any investigation into the facts or matters stated in a resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note, security, or other paper or document supplied by Issuer. (e) The Bank may consult with counsel, and the written advice of such counsel or any opinion of counsel shall be full and complete authorization and protection with respect to any action taken, suffered, or omitted by it hereunder in good faith and in reliance thereon. (f) The Bank may exercise any of the powers hereunder and perform any duties hereunder either directly or by or through agents or attorneys of the Bank. Section 5.03 Recitals of Issuer. The recitals contained herein with respect to the Issuer and in the Securities shall be taken as the statements of the Issuer, and the Bank assumes no responsibility for their correctness. The Bank shall in no event be liable to the Issuer, any Holder or Holders of any Security, or any other Person for any amount due on any Security from its own funds. Section 5.04 May Hold Securities. The Bank, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Issuer with the same rights it would have if it were not the Paying Agent/Registrar, or any other agent. Section 5.05 Moneys Held by Bank -Paying Agent Account/Collateralization. Money deposited by the Issuer with the Bank of the principal (or Redemption Price, if applicable) of or interest on any Securities shall be segregated from other funds of the Bank and the Issuer and shall be held in trust for the benefit of the Holders of such Securities. All money deposited with the Bank hereunder shall be secured in the manner and to the fullest extent required by law for the security of funds of the Issuer. Amounts held by the Bank which represent principal of and interest on the Securities remaining unclaimed by the owner after the expiration of three years from the date such amounts have become due and payable shall be reported and disposed of by the Bank in accordance with the provisions of Texas law including, to the extent applicable, Title 6 of the Texas Property Code, as amended. The Bank shall have no liability by virtue of actions taken in compliance with this provision. The Bank is not obligated to pay interest on any money received by it hereunder. 45339308.1 -6- This Agreement relates solely to money deposited for the purposes described herein, and the parties agree that the Bank may serve as depository for other funds of the Issuer, act as trustee under indentures authorizing other bond transactions of the Issuer, or act in any other capacity not in conflict with its duties hereunder. Section 5.06 Indemnification. To the extent permitted by law, the Issuer agrees to indemnify the Bank for, and hold it harmless against, any loss, liability, or expense incurred without negligence or bad faith on its part, arising out of or in connection with its acceptance or administration of its duties hereunder, including the cost and expense against any claim or liability in connection with the exercise or performance of any of its powers or duties under this Agreement. Section 5.07 lnterpleader. The Issuer and the Bank agree that the Bank may seek adjudication of any adverse claim, demand, or controversy over its person as well as funds on deposit, in either a Federal or State District Court located in the State and County where the administrative offices of the Issuer is located, and agree that service of process by certified or registered mail, return receipt requested, to the address referred to in Section 6.03 of this Agreement shall constitute adequate service. The Issuer and the Bank further agree that the Bank has the right to file a Bill of lnterpleader in any court of competent jurisdiction in the State of Texas to determine the rights of any Person claiming any interest herein. Section 5.08 DT Services. It is hereby represented and warranted that, in the event the Securities are otherwise qualified and accepted for "Depository Trust Company" services or equivalent depository trust services by other organizations, the Bank has the capability and, to the extent within its control, will comply with the "Operational Arrangements", which establishes requirements for securities to be eligible for such type depository trust services, including, but not limited to, requirements for the timeliness of payments and funds availability, transfer turnaround time, and notification of redemptions and calls. ARTICLE SIX MISCELLANEOUS PROVISlONS Section 6.01 Amendment. This Agreement may be amended only by an agreement in writing signed by both of the parties hereto. Section 6.02 Assignment. This Agreement may not be assigned by either party without the prior written consent of the other. Section 6.03 Notices. Any request, demand, authorization, direction, notice, consent, waiver, or other document provided or permitted hereby to be given or furnished to the Issuer or the Bank shall be mailed or delivered to the Issuer or the Bank, respectively, at the addresses shown on page 9. Section 6.04 Effect of Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. Section 6.05 Successors and Assigns. All covenants and agreements herein by the Issuer shall bind its successors and assigns, whether so expressed or not. 45339308.1 -7- Section 6.06 Severability. In case any prov1s1on herein shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 6.07 Benefits of Agreement. Nothing herein, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any benefit or any legal or equitable right, remedy, or claim hereunder. Section 6.08 Entire Agreement. This Agreement and the Bond Resolution constitute the entire agreement between the parties hereto relative to the Bank acting as Paying Agent/Registrar and if any conflict exists between this Agreement and the Bond Resolution, the Bond Resolution shall govern. Section 6.09 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which shall constitute one and the same Agreement. Section 6.10 Termination. This Agreement will terminate (i) on the date of final payment of the principal of and interest on the Securities to the Holders thereof or (ii} may be earlier terminated by either party upon sixty (60) days written notice; provided, however, an early termination of this Agreement by either party shall not be effective until (a) a successor Paying Agent/Registrar has been appointed by the Issuer and such appointment accepted and (b} notice given to the Holders of the Securities of the appointment of a successor Paying Agent/Registrar. Furthermore, the Bank and Issuer mutually agree that the effective date of an early termination of this Agreement shall not occur at any time which would disrupt, delay or otherwise adversely affect the payment of the Securities. Upon an early termination of this Agreement, the Bank agrees to promptly transfer and deliver the Security Register (or a copy thereof}, together with other pertinent books and records relating to the Securities, to the successor Paying Agent/Registrar designated and appointed by the Issuer. The provisions of Section 1.02 and of Article Five shall survive and remain in full force and effect following the termination of this Agreement. Section 6.11 Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Texas. 45339308.1 -8- - IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. [SEAL] Atte&: ll, 1:--- · .. Title: (CITY SEAL) Attest: VICE PRESIDENT ReO&c ,u, ~--r-ciiy cretary ~ 45339308.1 JPMORGAN CHASE BANK, Dallas, Texas, BY(h)~ Title: ASSJSTANT VICE PRESIDENT Address: 2001 Bryan Street, 10th Floor Dallas, Texas 75201 Address: P. 0. Box12000 Lubbock; Texas 79457 -9- - .... ,.,JPMorgan JPMorgan Chase Bank Issuer Administrative Services 2001 Bryan Street, 10th Floor Dallas, Texas 75201 June 17, 2003 Fee Schedule Paying Agent & Bond Registrar Services City of Lubbock, Texas General Obligation Bonds, Series 2003 Pricing for Paying Agent & Registrar: Acceptance Fee Annual Fee Out-of-Pocket Fees: Notes: waived $300 waived Please note charges for extraordinary expenses, including but not limited to, travel expenses and counsel fees, are billed to the issuer at cost. Administration fees include one annual audit confirmation without charge. Additional audit confirmations are billed at $75 per requested confirmation. A separate fee of $300 for redemption processing, including the call notice, will be assessed in connection with optional or mandatory redemptions on the 2003 Bonds. The quoted fee is based on our understanding of the information and terms to date. As always, our acceptance of this appointment is subject to our internal credit review process and the review of final documentation furnished with respect to the debt financing. We reserve the right to revise this proposal should any material aspect of the transaction differ from our understanding. PAR fee schedule 4 $11,855,000" . CITY OF LUBBOCK, TEXAS General Obligation Bonds, Series 2003 PURCHASE CONTRACT July 24, 2003 The Honorable Mayor and Members of the City Council City of Lubbock 1625 13th St. Lubbock, Texas79401 Dear Mayor and Members of the City Council: Siebert Brandford Shank & Co., L.L.C. (the 11Authorized Representative"), RBC Dain Rauscher, William R Hough & Co., and Morgan Keegan & Company, Inc. ( collectively, the "Underwriters"), offer to enter into this Purchase Contract with the City of Lubbock, Texas (the "City"). This offer is made subject to the City's acceptance of this Purchase Contract on or before 9:00 p.m. Central Time on July 24, 2003. 1. Purchase and Sale of the Bonds. Upon the terms and conditions and upon the basis of the representations set forth herein, the Underwriters jointly and severally hereby agree to purchase from the City, and the City hereby agrees to sell and deliver to the Underwriters an aggregate of$1 I,855,000 principal amount of City of Lubbock, Texas General Obligation Bonds, Series 2003 (the "Bonds"). The Bonds shall have the maturities, interest rates and be subject to redemption in accordance with the provisions of Exhibit A hereto and shall be issued and secured under the provisions of the Ordinance ( as defined below). The purchase price for the Bonds shall be $11,941,503.11, representing the principal amount of the Bonds of$11,855,000, less an Underwriters' discount on the Bonds of $74,419.00, plus aggregate net original issue premium on the Bonds of$ I 02,077.80, and plus accrued interest in the amount of $58,844.31. Siebert Brandford Shank & Co., L.L.C. represents that it has been duly authorized to execute· this Purchase Contract and has been duly authorized to act hereunder as the Authorized Representative. All actions that may be taken by the Underwriters hereunder may be taken by the Authorized Representative alone. 2. Ordinance. The Bonds shall be as described in and shall be issued and secured under the provisions of the Ordinance authorizing the issuance and sale of the Bonds adopted by the City on July 24, 2003 (the "Ordinance"). The Bonds shall be secured and payable as provided in the Ordinance. 3. Public Offering. It shall be a condition of the obligations of the City to sell and deliver the Bonds to the Underwriters, and of the obligations of the Underwriters to purchase and accept delivery of the Bonds, that the entire principal amount of the Bonds authorized by the Ordinance shall be sold and. delivered by the City and accepted and paid for by the Underwriters at the Closing. The Underwriters agree to make a bona fide public offering of all of the Bonds, at not in excess of the initial public offering prices, as set forth in the Official Statement; provided however at least ten percent (10%) of the principal amount of the Bonds of each maturity shall be sold to the "public" ( exclusive of dealers, brokers and investment bankers, etc.) at the initial offering price set forth in the Official Statement. 4. Security Deposit. Delivered to the City herewith is a corporate check of the Authorized Representative payable to the order of the City in the amountof$118,850. The City agrees to hold such check uncashed until the Closing to ensure the perfom1ance by the Underwriters of their obligation to purchase, accept delivery of and pay for the Bonds at the Closing. Concurrently with the payment by the Underwriters of the purchase price of the Bonds, the City shall return such check to the Authorized Representative as provided in Paragraphs 7 and 8 hereof Should the City fail to deliver the Bonds at the Closing, or should the City be unable to satisfy the conditions of the obligations of the Underwriters to purchase, accept delivery of and pay for the Bonds, as set forth in this Purchase Contract (unless waived by the Authorized Representative), or should such obligations of the Underwriters be tenninated for any reason permitted by this Purchase Contract, such check shall immediately be returned to the Authorized Representative. In the event the Underwriters fail (other than for a reason permitted hereunder) to purchase, accept delivery of and pay for the Bonds at the Closing as herein provided, such check shall be retained by the City as and for full liquidated damages for such failure of the Underwriters and for any defaults hereunder on the part of the Underwriters. The Authorized Representative hereby agrees not to stop or cause payment on said check to be stopped unless the City has breached any of the terms of this Purchase Contract. 5. Official Statement. The Official Statement, including the cover pages and Appendices thereto, of the City, dated July 24, 2003, with respect to the Bonds, as further amended only in the manner herein provided, is hereinafter called the "Official Statement." The City hereby authorizes the Ordinance and the Official Statement and the information therein contained to be used by the Underwriters in connection -with the public offering and sale of the Bonds. The City confirms its consent to the use by the Underwriters prior to the date hereof of the Preliminary Official Statement, relative to the Bonds, dated July 14, 2003 ( the "Preliminary Official Statenlent"), in connection -with the preliminary public offering and sale of the Bonds, and it is "deemed final" as of its date, -within the meaning, and for the purposes, of Rule 15c2- 12 promulgated under authority granted by the federal Securities and Exchange Act of 1934 (the "Rule"). The City agrees to cooperate with the Underwriters to provide a supply of final Official Statements -within seven business days of the date hereof in sufficient quantities to comply with the Underwriters' obligations under the Rule and the applicable rules of the Municipal Securities Rulemaking Board. The Underwriters -will use their best efforts to assist the City in the preparation of the final Official Statement in order to ensure compliance with the aforementioned rules. 2 - If at any time after the date of this Purchase Contract but before the first to occur of (i) the date upon which the Underwriters notify the City that the period of the initial public offering of the Bonds has expired or (ii) the date that is 90 days after the date hereof, any event shall occur that might or would cause· the Official Statement to contain any untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, the City shall notify the Authorized Representative, and if, in the opinion of the Authorized Representative, such event requires the preparation and publication of a supplement or amendment to the Official Statement, the City will at its expense supplement or amend the Official Statement in the form and in a manner approved by the Authorized Representative and furnish to the Underwriters a reasonable number of copies requested by the Authorized Representative in order to enable the Underwriters to comply with the Rule. To the best knowledge and belief of the City, the Official Statement contains information, including financial information or operating data, as required by the Rule. The City has not failed to comply with any undertaking specified in paragraph (b)(S)(i) of the Rule within the last five years. 6. Representations, Warranties and Agreements of the City. On the date hereof, the City represents, warrants and agrees as follows: ( a) The City is a home rule municipality and a political subdivision of the State ofT exas and a body politic and corporate, and has full legal right, power and authority to enter into this Purchase Contract to adopt the Ordinance, to sell the Bonds, and to issue and deliver the Bonds to the Underwriters as provided herein and to carry out and consummate all other transactions contemplated by the Ordinance and this Purchase Contract; (b) By official action of the City prior to or concurrently with the acceptance hereof, the City has duly adopted the Ordinance, has duly authorized and approved the execution and delivery of, and the performance by the City of the obligations contained in the Bonds and this Purchase Contract and has duly authorized and approved the performance by the City of its obligations contained in the Ordinance and in this Purchase Contract; ( c) The City is not in breach of or default under any applicable law or administrative regulation of the State of Texas or the United States (including regulations of its agencies) or any applicable judgment or decree or any loan agreement, note, order, agreement or other instrument; except as may be disclosed in the Official Statement, to which the City is a party or to the knowledge of the City it is otherwise subject, that would have a material and adverse effect upon the business or financial condition of the City; and the execution and delivery of this Purchase Contract by the City and the execution and delivery of the Bonds and the adoption of the Ordinance by the City and compliance with the provisions of each thereof will not violate or constitute a breach of or default under any existing law, administrative regulation, judgment, decree 3 - - or any agreement or other instrument to which the City is a party or, to the knowledge of the City, is otherwise subject; ( d) All approvals, consents and orders of any governmental authority or agency having jurisdiction of any matter that would constitute a condition precedent to the performance by the City of its obligations to sell and deliver the Bonds hereunder will have been obtained prior to the Closing; ( e) At the time of the City's acceptance hereof and at the time of the Closing, the Official Statement does not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not nlisleading; (f) Between the date of this Purchase Contract and the Closing, the City will not, without the prior written consent of the Underwriters, sell or issue any additional bonds, notes or · other obligations for borrowed money payable in whole or in part from ad valorem taxes ( except for the City's $9,775,000 Tax and Waterworks System Surplus Revenue Certificates of Obligation, Series 2003, $685,000 Tax and Sewer System Surplus Revenue Certificates of Obligation, Series 2003, $3,595,000 Tax and Solid Waste System Surplus Revenue Certificates of Obligation, Series 2003, $40,135,000 Tax and Municipal Drainage Utility System Surplus Revenue Certificates of Obligation, Series 2003, $3,800,000 Tax and Tax Increment Revenue Certificates of Obligation, Series 2003 (North Overton Tax Increment Financing Reinvestment Zone) that are being sold concurrently with the Bonds and the City's $13,280,000 (approximate amount) Combination Tax and Surplus Revenue Electric Light and Power Certificates of Obligation, Series 2003 and $8,915,000 (approximate amount) Combination Tax and Surplus Revenue Electric Light and Power Refunding Bonds, Series 2003 that may be sold after the sale of the Bonds), and the City will not incur any material liabilities, direct or contingent, nor will there be any adverse change of a material nature in the financial position of the City; (g) Except as described in the Official Statement, no litigation is pending or, to the knowledge of the City, threatened in any court affecting the corporate existence of the City, the title of its officers to their respective offices, or seeking to restrain or enjoin the issuance, sale or delivery of the Bonds, the levy, collection or application of the ad valorem taxes pledged or to be pledged to pay the principal of and interest on the Bonds, or in any way contesting or affecting the issuance, execution, delivery, payment, security or validity of the Bonds, or in any way contesting or affecting the validity or enforceability of the Ordinance, or contesting the powers of the City, or any authority for the Bonds, the Ordinance, or this Purchase Contract or contesting in any way the completeness, accuracy or fairness of the Preliminary Official Statement or the Official Statement; (h) The City will cooperate with the Underwriters in arranging for the qualification of the Bonds for sale and the determination of their eligibility for investment under the laws of such 4 jurisdictions as the Authorized Representative designates, and will use its best efforts to continue such qualifications in effect so long as required for distnbution of the Bonds; provided, however,. that the City will not be required to execute a consent to service of process or to qualify to do business in connection with any such qualification in any jurisdiction; (i) The descriptions of the Bonds and the Ordinance contained in the Official Statement accurately summarize certain provisions of such instruments, and the Bonds, when validly executed, authenticated and delivered in accordance with the Ordinance and sold to the Underwriters as provided herein, will be validly issued and outstanding obligations of the City entitled to the benefits of, and subject to the limitations contained in, the Ordinance; G) If prior to the Closing an event occurs affecting the City that is materially adverse for the prupose for which the Official Statement is to be used and is not disclosed in the Official Statement, the City shall notify the Authorized Representative, and if in the opinion of the City and the Authorized Representative such event requires a supplement or an1endment to the Official Statement, the City will supplement or amend the Official Statement in a fonn and in a manner approved by the Authorized Representative; (k) The financial statements contained in the Official Statement present fairly the financial position of the City as of the date and for the period covered thereby and are stated on a basis substantially consistent with that of the prior years audited financial statements; (1) Any certificate signed by any official of the City and delivered to the Underwriters shall be deemed a representation and warranty by the City to the Underwriters as to the truth of the statements therein contained; (m) The City has not been notified of any listing 0r proposed listing by the Internal Revenue Service to the effect that it is a bond issuer whose arbitrage certifications may not be relied upon; and (n) The City will not knowingly take or omit to take any action, which action or omission will in any way cause the proceeds from the sale of the Bonds to be applied in a manner other than as provided in the Ordinance or that would cause the interest of the Bonds to be includable in gross income of the holders thereof for federal income tax pruposes. 7. Closing. At 10:00 A.M., Central Time, on September 11, 2003 (the "Closing"), the City will deliver the initial Bonds (as defined in the Ordinance) to the Underwriters and the City shall take appropriate steps to provide DTC with one definite securities certificate for each year of maturity of the Bonds, and to provide the Underwriters with the other documents hereinafter mentioned. On or prior to the date of Closing, the Underwriters shall make arrangements with The Depository Trust Company ("DTC") for the Bonds to be immobilized and thereafter traded as book-entry only securities and on the 5 date of Closing the Underwriters will accept such delivery and paythepurchaseprice of the Bonds as set forth in Paragraph 1 hereof in immediately available funds. Concurrently with such payment by the Underwriters, the City shall return to the Authorized Representative the check referred to in paragraph 4 hereof. Delivery and payment as aforesaid shall be made at the office of the paying agent/registrar for the Bonds, as identified in the Official Statement, or such other place as shall have been mutually agreed upon by the City and the Authorized Representative. 8. Conditions. The Underwriters have entered into this Purchase Contract in reliance upon the representations and warranties of the City contained herein and to be contained in the documents and instruments to be delivered at the Closing, and upon the performance by the City of its obligations hereunder, both as of the date hereof and as of the date of Closing. Accordingly, the Undenvriters1 obligations under this Purchase Contract to purchase and pay for the Bonds shall be subject to the performance by the City of its obligations to be perfom1ed hereunder and under such documents and instruments at or prior to the Closing, and shall also be subject to the following conditions: (a) The representations and warranties of the City contained herein shall be true, complete and correct in all material respects on the date hereof and on and as of the date of Closing, as if made on the date of Closing; (b) At the time of the Closing, (i) the Ordinance shall be in full force and effect, and the Ordinance shall not have been amended, modified or supplemented and the Official Statement shall not have been amended, modified or supplemented, except as may have been agreed to by the Authorized Representative; and (ii) the net proceeds of the sale of the Bonds shall be deposited and applied as described in.the Official Statement and in the Ordinance; (c) At the time of the Closing, all official action of the City related to the Ordinance shall be in full force and effect and shall not have been amended, modified or supplemented; (d) The City shall not have failed to pay principal or interest when due on any of its outstanding obligations for borrowed money; ( e) At or prior to the Closing, the Underwriters shall have received each of the following documents: (I) The Official Statement of the City, executed on behalf of the City by the Mayor and City Secretary; (2) The Ordinance, certified by the City Secretary under the seal of the City as having been duly adopted by the City and as being in effect, with such changes or amendments as may have been agreed to by the Underwriters. The Ordinance shall contain 6 -the agreement of the City, in fom1 satisfactory to the Underwriters, that is described under the caption ucontinuing Disclosure of Information" in the Preliminary Official Statement;. (3) The opinion, dated the date of Closing, of Fulbright & Jaworski L.L.P. ('1Bond Counsel") in substantially the fonn and substance of Appendix C to the Official Statement; (4) An opinion or certificate, dated on or prior to the date of Closing, of the Attorney General ofTexas, approving the Bonds as required by law and the registration certificate of the Comptroller of Public Accounts of the State of Texas; (5) The supplemental opinion or opinions, dated the date of Closing, of Bond Counsel, addressed to the City and the Underwriters, which provides that the Underwriters may rely upon the opinion of Bond Counsel delivered in accordance with the provisions of paragraph 8(e)(3) hereof, and opining to the effect that (a) the Purchase Contract has been duly authorized, executed and delivered by the City and ( assuming due authorization by the Underwriters) constitutes a binding and enforceable agreement of the City in accordance with its terms; (b) in its capacity as Bond Counsel, such firm has reviewed the information in the Official Statement under the captions or subcaptions 1'The Bonds" (except under the subcaptions "Book Entry-Only System" and "Sources and Uses"), "Tax Matters," 11Continuing Disclosure Of Information" ( except under the subcaption "Compliance With Prior Undertakingsu), and the subcaptions "Other Information-Legal Matters" and "Other Information-Legal Investments And Eligibility To Secure Public Funds In Texas, " and such firm is of the opinion that the information relating to the Bonds and legal matters contained under such captions and subcaptions is an accurate and fair description of the laws and legal issues addressed therein and, with respect to the Bonds, such information conforms to the Ordinance; and ( c) the Bonds are exempt from registration pursuant to the Securities Act of 1933, as amended, and the Ordinance is exempt from qualification as an indenture pursuant to the Trust Indenture Act of 1939, as amended; ( 6) An opinion ofMcCall, Parkhurst & Horton L.L.P., Underwriters' Counsel addressed to the Underwriters, and dated the date of Closing in substantially the form attached hereto as Exhibit C; (7) A certificate, dated the date of Closing, signed by the Mayor and Interim City Manager of the City, to the effect that (i) the representations and warranties of the City contained herein are true and c01Tect in all material respects on and as of the date of Closing as if made on the date of Closing; ( ii) except to the extent disclosed in the Official Statement, no litigation is pending or, to the knowledge of such persons, threatened in any court to restrain or enjoin the issuance, sa(e or delivery of the Bonds, or the levy, collection 7 - or application of the ad valorem taxes pledged or to be pledged to pay the principal of and interest on the Bonds, or the pledge thereof, or in any way contesting or affecting the validity of the Bonds, the Ordinance, or contesting the powers of the City or the authorization of the Bonds or the Ordinance, or contesting in any way the accuracy, completeness or fairness of the Official Statement (but in lieu of or in conjunction 'With such certificate, the Underwriters may, in their sole discretion, accept certificates or opinions of the City Attorney that, in the opinion thereof, the issues raised in any such pending or threatened litigation are without substance or that the contentions of all plaintiffs therein are without merit); (iii) to the best of their knowledge, no event affecting the City has occurred since the date of the Official Statement that should be disclosed in the Official Statement for the purpose for which it is to be used or that it is necessary to disclose therein in order to make the statements and information therein not misleading in any respect; and (iv) that there has not been any material and adverse change in the affairs or :financial condition of the City since September 30, 2002, the latest date as to which audited :financial information is available; (8) An opinion of the City Attorney addressed to the Underwriters and dated the date of Closing substantially in the form and substance of Exhibit B hereto; (9) A certificate, dated the date of the Closing, of an appropriate officer of the Cityto the effect that, on the basis of the facts, estimates and circumstances in effect on the date of delivery of the Bonds, it is not expected that the proceeds of the Bonds 'Will be used in a manner that would cause the Bonds to be arbitrage bonds 'Within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended; (10) Evidence of the rating on the Securities, which shall be "Aaa" by Moody's Investors Service, Inc. ("Moody's"), "AAA" by Standard and Poor's Corporation, a division of the McGraw-Hill Companies, Inc. ("S&P"), and "AAA" by Fitch Ratings ("Fitch"), shall be delivered in a fom1 acceptable to the Underwriters; ( 11) A copy of the policy of municipal bond insurance issued by MBIA Insurance Corporation with respect to the Bonds; and (12) Such additional legal opinions, certificates, instruments and other documents as Bond Counsel or the Underwriters may reasonably request to evidence the truth, accuracy and completeness, as of the date hereof and as of the date of Closing, of the City's representations and warranties contained herein and of the statements and information contained in the Official Statement and the due performance and satisfaction by the City at or prior to the date of Closing of all agreements then to be performed and all conditions then to be satisfied by the qty. 8 - - All of the opinions, letters, certificates, instruments and other documents mentioned above or elsewhere in this Purchase Contract shall be deemed to be in compliance with the provisions hereof if, but_ only if, they are satisfactory to the Underwriters. If the City shall be unable to satisfy the conditions to the obligations of the Underwriters to purchase, to accept delivery of and to pay for the Bonds as set forth in this Purchase Contract, or if the obligations of the Underwriters to purchase, to accept delivery of and to pay for the Bonds shall be terminated for any reason permitted by this Purchase Contract, this Purchase Contract shall terminate, the security deposit referred to in Paragraph 4 of this Purchase Contract shall be returned to the Authorized Representative and neither the Underwriters nor the City shall be under further obligation hereunder, except that the respective obligations of the City and the Underwriters set forth in Paragraphs 10 and 12 hereof shall continue in full force and effect 9. Termination. The Underwriters may tenninate its obligation to purchase at any time before the Closing if any of the following should occur: (a) (i) Legislation shall have been enacted by the Congress of the United States, or recommended to the Congress for passage by the President of the United States or favorably reported for passage to either House of the Congress by any C01m11ittee of such House; or (ii) a decision shall have been rendered by a court established under Article III of the Constitution of the United States or by the United States Tax Comt; or (iii) an order, ruling or regulation shall have been issued or proposed by or on behalf of the Treasury Department of the United States or the Internal Revenue Service or any other agency of the United States; or (iv) a release or official statement shall have been issued by the President of the United States or by the Treasury Department of the United States or by the Internal Revenue Service, the effect of which, in any such case described in clause (i), (ii), (iii), or (iv), would be to impose, directly or indirectly, federal income taxation upon interest received on obligations of the general character of the Bonds or upon income of the general character to be derived by the City, other than any imposition of federal income taxes upon interest received on obligations of the general character as the Bonds on the date hereof and other than as disclosed in the Official Statement, in such a manner as in the judgment of the Authorized Representative would materially impair the marketability or materially reduce the market price of obligations of the general character of the Bonds. (b) Any action shall have been tal(en by the Securities and Exchange Commission or by a court that would require registration of any security under the Securities Act of 1933, as amended, or qualification of any indenture under the Trust Indenture Act of 1939, as amended, in connection with the public offering of the Bonds, or any action shall have been taken by any court or by any governmental authority suspending the use of the Preliminary Official Statement or the Official Statement or any amendment or supplement thereto, or any proceeding for that pu:rpose shall have been initiated or threatened in any such'court or by any such autherity. 9 ( c) (i) The Constitution of the State of Texas shall be amended or an amendment shall be proposed, or (ii) legislation shall be enacted, or (iii) a decision shall have been rendered as to. matters of Texas law, or (iv) any order, ruling or regulation shall have been issued or proposed by or on behalf of the State of Texas by an official, agency or department thereof, affecting the tax status of the City, its property or income, its bonds (including the Bonds) or the interest thereon, that in the judgment of the Authorized Representative would materially affect the market price of the Bonds. ( d) A general suspension of trading in securities shall have occurred on the New York Stock Exchange. ( e) The United States shall have become engaged in hostilities which have resulted in a declaration of war or a national emergency or there shall have occurred any other outbreak or escalation of hostilities or a national or international emergency, calamity or crisis, financial or otherwise, the effect of such outbreak, emergency, calamity or crisis on the financial markets of the United States being such as, in the reasonable opinion of the Representative, would materially and adversely affect the ability of the Underwriters, to market the Bonds. (f) An event described in Paragraph 6G) hereof occurs that, in the opinion of the Authorized Representative, requires a supplement or amendment to the Official Statement that is deemed by them, in their discretion, to adversely affect the market for the Bonds. (g) A general banking moratorium shall have been declared by authorities of the United States, the State of New York or the State of Texas. (h) A lowering of the ratings of "Aaa," "AAA" and "AAA," initially assigned to the Bonds by Moodyts, S&P and Fitch, respectively, shall occur prior to the Closing. 10. Expenses. (a) The City shall pay all expenses incident to the issuance of the Bonds, including but not limited to: (i) the cost of the preparation, printing and distribution of the Preliminary Official Statement and the Official Statement; (ii) the cost of the preparation and printing of the Bonds; (iii) the fees and expenses of Bond Counsel to the City; (iv) the fees and disbursements of the City's accountants, advisors, and of any other experts or consultants retained by the City; (v) the fees for the bond ratings and any travel or other expenses incurred incident thereto; and ( vi) the premium for municipal bond insurance policy pertaining to the Bonds. (b) The Underwriters shall pay (i) all advertising expenses in connection with the offering of the Bonds; (ii') the cost of the preparation and printing of all the underwriting documents; and (iii) the fee of McCall, Parkhurst & Horton L.L.P. for such firm's opinion required by Paragraph 8(e)(6) hereof. 10 11. Notices. Any notice or other communication to be given to the City under this Purchase Contract may be given by delivering the same in writing at the address for the City set forth above, and any_ notice or other communication to be given to the Underwriters under this Purchase Contract may be given by delivering the same in writing to Siebert Brand.ford Shank & Co., L.L.C., 1845 Woodall Rodgers Freeway, Suite 1200, Dallas, Texas 75201, Attention: Levi Davis. 12. Parties in Interest This Purchase Contract is made solely for the benefit of the City and the Underwriters (including the successors or assigns of any Underwriter) and no other person shall acquire or have any right under this contract. The City's representations, warranties and agreements contained in this Purchase Contract that exist as of the Closing, and without regard to any change in fact or circumstance occurring subsequent to the Closing, shall remain operative and in full force and effect, regardless of (i) any investigations made by or on behalf of the Underwriters, and (ii) delivery of any payment for the Bonds hereunder; and the City's representations and warranties contained in Paragraph 6 of this Purchase Contract shall remain operative and in full force and effect, regardless of any termination of this Purchase Contract. 13. Severability. If any provision of this Purchase Contract shall be held or deemed to be or shall, in fact, be invalid, inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions, or in all jurisdictions because it conflicts with any provisions of any constitution, statute, rnle of public policy, or any other reason, such circumstances shall not have the effect of rendering the provision in question invalid, inoperative or unenforceable in any other case or circumstances, or of rendering any other provision inoperative or unenforceable to any extent whatever. 14. Choice of Law. This Purchase Contract shall be governed by and construed in accordance with the laws of the State of Texas. 15. Execution in Counterparts. This Purchase Contract may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Purchase Contract by signing any such counterpart. 16. Section Headings. Section headings have been inserted in this Contract as a matter of convenience of reference only, and it is agreed that such section headings are not a part of this Contract and will not be used in the interpretation of any provisions of this Contract. 17. Status of the Underwriters . It is 1.mderstood and agreed that for all purposes of this Contract and the transactions contemplated hereby the Underwriters have, in their role as underwriters, acted solely as independent contractors and have not acted as financial or investment advisors, fiduciaries or agents to or for the City, whether directly or indirectly through any person. The City recognizes that the Underwriters expect to profit from the acquisition and potential distribution of the Bonds. II - 18. Effective Date. Tiris Purchase Contract shall become effective upon the execution of the acceptance hereof by the Mayor of the City and shall be valid and enforceable as of the time of such acceptance. Accepted: Tiris 24th day of July, 2003 By: Very truly yours, Siebert Brandford Shank & Co., L.L.C. RBC Dain Rauscher, Inc. William R Hough & Co. Morgan Keegan & Company, Inc. By: Siebert Brandford Shank & Co., L.L.C. Authorized Representative ~ · N e: · avis Ti. =Vi~ ~ EXHIBIT A Schedule of Maturities, Interest Rates, Yields and Redemption Provisions City of Lubbock, Texas General Obligation Bonds, Series 2003 Maturity Principal Interest Rate Yield (2/15) Amount (%) (%) 2004 $600,000 3.00% 1.00% 2005 415,000 3.00 1.48 2006 425,000 3.00 1.95 2007 440,000 3.00 2.37 2008 450,000 3.00 2.73 2009 465,000 3.00 3.06 2010 480,000 3.50 3.40 2011 500,000 4.00 3.63 2012 520,000 4.00 3.81 2013 540,000 4.00 3.95 2014 565,000 4.00 4.11 2015 585,000 4.00 4.23 * * * * * * * * * * * * 2017 1,260,000 5.00 4.33 * * * * * * * * * * * * 2019 1,395,000 5.00 4.52 2020 745,000 4.50 4.72 2021 785,000 4.75 4.80 2022 820,000 4.75 4.85 2023 865,000 4.75 4.89 Optional Redemption . . . The City reserves the right, at its option, to redeem Bonds having stated maturities on and after February 15, 2013, in whole or in part in principal amounts of$5,000 or any integral multiple thereof, on February 15, 2012, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. In addition, the Bonds maturing February 15, 2017 and February 15, 2019 (the "Term Bonds") are subject to mandatory redemption prior to maturity. The Tenn Bonds shall be redeemed by the City in part prior to maturity for the principal amount thereof and accrued interest to the date of redemption, and without premium, on the dates and in the principal amounts as set forth in the following schedule: Bonds Maturing February 15, 2017 Bonds Maturing February 15, 2019 Redemption Date Principal Amount Redemption Date Principal Amount February 15, 2016 $615,000 February 15, 2018 $680,000 February 15, 2017* 645,000 February 15, 2019* 715,000 * Final maturity. A-1 - EXHIBITB' OPINION OF THE CITY ATTORNEY August_, 2003 Siebert Brandford Shank & Co., L.L.C. RBC Dain Rauscher, Inc. William R. Hough & Co. Morgan Keegan & Company, Inc. c/o Siebert Brandford Shank & Co., L.L.C. 1845 Woodall Rodgers Freeway, Suite 1200 Dallas, Texas 75201 Ladies and Gentlemen: I am the City Attorney for the City of Lubbock, Texas (the "City") at the time of the issuance and sale of the "City of Lubbock, Texas General Obligation Bonds, Series 2003," in the aggregate principal amount of $11,855,000 (the "Bonds"), pursuant to the provisions of an ordinance duly adopted by the City · Council of the City on July 24, 2003 (the "Ordinance"). Capitalized tenns not otherwise defined in this opinion have the meanings assigned in the Purchase Contract. In my capacity as City Attorney to the City, I have reviewed such agreements, documents, certificates, opinions, letters, and other papers as I have deemed necessary or appropriate in rendering the opinions set forth below. In making my review, I have assumed the authenticity of all documents and agreements submitted to me as originals confonnity to the originals of all documents and agreements sub1nitted to me as certified or photostatic copies, the authenticity of the originals of such latter documents and agreements, and the accuracy of the statement contained in such documents. Based upon the foregoing, and subject to the qualifications and exceptions hereinafter set forth, I am of the opinion that under the applicable laws of the United States of America and the State of Texas in force and effect on the date hereof L Based on reasonable inquiry made of the responsible City employees and public officials, the City is not, to the best of my knowledge, in breach of or in default under any applicable law or administrative regulation of the State of Texas or the United States, or any applicable judgment or decree or any trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or B-1 2. other instrument to which the City is party or is otherwise subject and, to the best of my knowledge after due inquiry, no event has occurred and is continuing that, with the passage of time or the giving_ of notice, or both, would constitute such a default by the City under any of the foregoing; and the execution and delivery of the Purchase Contract, the Bonds and the adoption of the Ordinance and compliance with the provisions of each of such agreements or instruments does not constitute a breach of or default under any applicable law or adnrinistrative regulation of the State of Texas or the United States or any applicable judgment or decree or, to the best of my knowledge, any trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the City is a party or is otherwise subject; and Except as disclosed in the Official Statement, no litigation is pending, or, to my knowledge, threatened, in any court in any way (a) challenging the titles of the Mayor or any of the other members of the City Council to their respective offices; (b) seeking to restrain or enjoin the issuance, sale or delivery of any of the Bonds, or the levy, collection or application of the ad valorem taxes pledged or to be pledged to pay the principal of and interest on the Bonds; ( c) contesting or affecting the validity or enforceability of the Bonds, the Ordinance, or the Purchase Contract; ( d) contesting the powers of the City or any authority for the issuance of the Bonds, or the adoption of the Ordinance; or ( e) that would have a material and adverse effect on the financial condition of the City. 3. I have reviewed the information in the Official Statement contained under the caption "Other Information--Litigation" and such information in all material respects accurately and fairly summarizes the matters described therein. This opinion is furnished solely for your benefit and may be relied upon only by the addresses hereof or anyone to whom specific pennission is given in writing by me. Very truly yours, 8-2 Exhibit C Proposed Form of Underwriters' Counsel Opinion of McCall, Parkhurst & Horton L.L.P. August_, 2003 Siebert Brandford Shank & Co., L.L.C. RBC Dain Rauscher, Inc. William R. Hough & Co. Morgan Keegan & Company, Inc. c/o: Siebert Brandford Shank & Co., L.L.C. 1845 Woodall Rodgers Freeway, Suite 1200 Dallas, Texas 75201 Re: $11,855,000 City of Lubbock, Texas General Obligation Bonds, Series 2003 Ladies and Gentlemen: . We have acted as counsel for you as the underwriters of the Bonds described above (the "Bonds"), issued under and pursuant to an ordinance (the "Ordinanceu) of the City of Lubbock, Texas (the "Issuer"), authorizing the issuance of the Bonds, which Bonds you are purchasing pursuant to a Purchase Contract, dated July 24, 2003. All capitalized undefined terms used herein shall have the meaning set forth in the Purchase Contract. In connection with this opinion letter, we have considered such matters oflaw and of fact, and have relied upon such Bonds and other information furnished to us, as we have deen1ed appropriate as a basis for our opinion set forth below. We are not expressing any opinion or views herein on the authorization, . issuance, delivery, validity of the Bonds and we have assumed, but not independently verified, that the signatures on all documents and Bonds that we have examined are genuine. Based on and subject to the foregoing, we are of the opinion that under existing laws, the Bonds are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Ordinance is not required to be qualified under the Tmst Indenture Act of 1939, as amended. Because the primary purpose ofourprofessional engagement as your counsel was not to establish factual matters, and because of the wholly or partially nonlegal character of many of the determinations involved in the preparation of the Official Statement dated July 24, 2003 (the "Official Statement") and because the information in the Official Statement under the headings "BOOK-ENTRY ONLY SYSTEM," ''TAX MATTERS," "CONTINUING DISCLOSURE -Compliance with Prior Undertakings" and Appendices A, B, and C thereto were prepared by others who have been engaged to review or provide C-l such information, we are not passing on and do not assume any responsibility for, except as set forth in the last sentence of this paragraph, the accuracy, completeness or fairness of the statements contained in the. Official Statement (including any appendices, schedules and exhibits thereto) and we make no representation that we have independently verified the accuracy, completeness or fairness of such statements. In the course of our review of the Official Statement, we had discussions with representatives of the City regarding the contents of the Official Statement. In the course of our participation in the preparation of the Official Statement as your counsel, we had discussions with representatives of the Issuer, including its City Attorney, Bond Counsel and Financial Advisor, regarding the contents of the Official Statement. In the course of such activities, no facts came to our attention that would lead us to believe that the Official Statement ( except for the financial statements and other financial and statistical data contained therein, the information set forth under the headings "BOOK-ENTRY ONLY SYSTEM," "TAX MATTERS," "CONTINUING DISCLOSURE.;_ Compliance with Prior Undertakings" and Appendices A, B and C thereto, as to which we express no opinion), as of its date contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. This opinion letter may be relied upon by only you and only in connection with the transaction to which reference is made above and may not be used or relied upon by any other person for any purposes whatsoever without our prior written consent. Respectfully, C-2 5 SUPPLEMENT TO OFFICIAL STATEMENT Dated July 24, 2003 relating to: $11,855,000 City of Lubbock, Texas General Obligation Bonds, Series 2003 On August 22, 2003, Standard & Poor's Ratings Services, A Division of The McGraw-Hill Companies, Inc. (''S&P"), lowered its underlying rating of the City of Lubbock's general obligation debt, including that for the Bond issue set forth above (the "Bonds"), from "AA+" to "AA-". The Bonds are also rated "Aaa" by Moody's Investors Service, Inc., "AAA" by S&P and "AAA" by Fitch Ratings by virtue of an insurance policy issued by MBIA Insurance Corporation. As a result of this rating change, the second sentence under the subcaption "Official Statement Summary-Ratings" that appears on page 4 of the Official Statement described above (the "Official Statement") and the second sentence under the subcaption "Other Information -Ratings" that appears on page 39 of the Official Statement has been changed to read as follows: "The presently outstanding tax supported debt of the City is rated "Aa3" by Moody's, "AA-" by S&P and "AA-" by Fitch." Subject to circumstances occurring subsequent to the date hereof, this Supplement, together with the Official Statement noted above, constitute the "Final Official Statement" within the meaning of Securities and Exchange Commission Rule 15c2-12. Dated: August 26, 2003 OFFICIAL STATEMENT Dated July 24, 2003 Ratings: Moody's: "Aaa" S&P: "AAA" Fitch: "AAA" MBIA Insured NEW ISSUE · Book-Entry-Only See ("Municipal Bond Insurance" and "Other Information - Ratings" herein) In the opinion of Bond Counsel, interest on the Bonds will be excludable from gross income for federal income tax purposes under existing law, subject to the matters described under "Tax Exemption" herein, including the alternative minimum tax on corporations. THE BONDS WILL NOT BE DESIGNATED AS "QUALIFIED TAX-EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS $11,855,000 CITY OF LUBBOCK, TEXAS (Lubbock County) GENERAL OBLIGATION BONDS, SERIES 2003 Dated Date: July 15, 2003 Due: February 15, as shown inside cover PAYMENT TERMS ... Interest on the $11,855,000 City of Lubbock. Texas, General Obligation Bonds, Series 2003 (the "Bonds") will accrue from July 15, 2003, (the "Dated Date") and will be payable February 15 and August 15 of each year, commencing February 15, 2004, and will be calculated on the basis ofa 360-day year consisting of twelve 30-day months. The definitive Bonds will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ("DTC") pursuant to the Book-Entry-Only System described herein. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Bonds will be made to the owners thereof. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent!Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners -0f the Bonds. See "The Bonds -Book-Entry-Only System" herein. The initial Paying Agent!Registrar is JPMorgan Chase Banlc, Dallas, Texas (see ''The Bonds -Paying Agent!Registrar"). AUTHORITY FOR ISSUANCE ... The Bonds are issued pursuant to the Constitution and general laws of the State of Texas, (the "State") including particularly Vernon's Texas Codes Annotated ("V.T.C.A."), Texas Government Code, Chapter 1331, as amended, and are direct obligations of the City of Lubbock, Texas (the "City"), payable from an annual ad valorem tax levied on all taxable property within the City, within the limits prescnbed by law, as provided in the ordinance authorizing the Bonds (the "Ordinance") (see "The Bonds • Authority for Issuance"). PURPOSE ... Proceeds from the sale of the Bonds will be used for (i) park improvements; (ii) street improvements; (iii) traffic control improvements and (iv) costs associated with issuance of the Bonds. ..MBIA The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Bonds by MBIA Insurance Corporation ("MBIA"). See "Municipal Bond Insurance" herein. CUSIP PREFIX: 549187 SEE MATURITY SCHEDULE, 9 Digit CUSIP AND REDEMPTION PROVISIONS ON THE REVERSE OF nus PAGE SIMULTA."iEOUS ISSUES ... The Bonds are being offered simultaneously with "City of Lubbock, Texas Tax and Waterworks System Surplus Revenue Certificates of Obligations, Series 2003" (the "Waterworks Certificates"), "City of Lubbock, Texas Tax and Sewer System Surplus Revenue Certificates of Obligation, Series 2003" (the "Sewer Certificates•~, "City of Lubbock, Texas Tax and Solid Waste System Surplus Revenue Certificates of Obligation, Series 2003" (the "Solid Waste Certificates"), "City of Lubbock, Texas Tax and Municipal Drainage Utility System Surplus Revenue Certificates of Obligation, Series 2003" (the "Drainage Certificates") and "City of Lubbock, Texas Tax and Tax Increment Revenue Certificates of Obligation, Series 2003 (North Overton Tax Increment Financing Reinvestment Zone)" (the ''Tax Increment Certificates"). The Waterworks Certificates, Sewer Certificates, Solid Waste Certificates, Drainage Certificates and Tax Increment Certificates (collectively, the "Obligations") are separate and distinct securities offerings being issued and sold separate and apart from the other offerings, and should be reviewed and analyzed independently, including, among other material, the kinds and type of obligations being offered, their terms for payment, the security for their payment and the rights of the holders. The City also plans to offer $13,280,000 (estimated amount) Combination Tax and Surplus Revenue Electric Light and Power Certificates of Obligation, Series 2003 and $8,915,000 (estimated amount) Combination Tax and Surplus Revenue Electric Light and Power Refunding Bonds, Series 2003 under a separate offering document following the offering of the Bonds. LEGALITY ... The Bonds are offered for delivery when, as and if issued and received by the Underwriters and subject to the approving opinion of the Attorney General of Texas and the opinion of Fulbright & Jaworski L.L.P., Bond CoW1Sel, Dallas, Texas (see Appendix C, ttForm of Bond Counsel's Opinion"). Certain legal matters will be passed upon for the Underwriters by McCall, Parkhurst & Horton L.L.P., Dallas, Texas, Counsel for the Underwriters. DELIVERY ... It is expected that the Bonds will be available for delivery through the OTC on August 28, 2003. SIEBERT BRANDFORD SHANK & Co., LLC WILLIAM R. HOUGH & Co. RBC DAIN RAUCHER MORGAN KEEGAN & COMPANY, INC. MATURITY SCHEDULE CUSIP Prefix: 549187<1> Principal Maturity Interest Price or CUSIP Principal Maturity Interest Price or CUSIP Amount (February 15) Rate Yield Suffix(,) Amount (February 15) Rate Yield Suffix (t) $ 600,000 2004 3.00% 1.00% TC6 $ 565,000 2014 4.00% 4.11% TN2 415,000 2005 3.00% 1.48% TD4 585,000 2015 4.00% 4.23% TP7 425,000 2006 3.00% 1.95% TE2 *** 2016 *** *** *** 440,000 2007 3.00% 2.37% TF9 *** 2017 *** "'** *** 450,000 2008 3.00% 2.73% TG7 *** 2018 **" "'** **"' 465,000 2009 3.00% 3.06% TH5 *** 2019 *** *** *** 480,000 2010 3.50% 3.40% TJI 745,000 2020 4.50% 4.72% TU6 500,000 20ll 4.00% 3.63% TK8 785,000 2021 4.75% 4.80% TV4 520,000 2012 4.00% 3.81% TL6 820,000 2022 4.75% 4.85% TW2 540,000 2013 4.00% 3.95% TM4 865,000 2023 4.75% 4.89% TX0 $1,260,000 at 5.00% Term Bonds Due February 15, 2017 Priced to Yield 4.33% CUSIP 549187TR3 $1,395,000 at 5.00o/o Term Bonds Due February 15, 2019 Priced to Yield 4.52% CUSIP 549187TT9 (Accrued Interest from July 15, 2003 to be added) ( l) CU SIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by Standard and Poor's CUSIP Service Bureau, a division of the McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP services. OPTIONAL REDEMPTION ... The City reserves the right, at its option, to redeem Bonds having stated maturities on and after February 15, 2013, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2012, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "The Bonds • Optional Redemption"). MA.'IDATORY SINKING FUND REDEMPTION ... The Bonds maturing February 15, 2017 and February 15, 2019 (the "Term Bonds") shall be subject to mandatory redemption prior to maturity at the price of par plus accrued interest to the mandatory redemption date on the respective dates and in principal amounts as follows: Tenn Bond due February 15, 2017 Tenn Bond due February 15, 2019 Redemption Date Principal Amount Redemption Date Principal Amount February 15, 2016 $ 615,000 February 15, 2018 $ 680,000 February 15, 2017 645,000 * February 15, 2019 715,000 * * Maturity 2 ,,...,,. ,-,.: .-. This Ojjicial Statement, which includes the cover page, inside cover page and the Appendices hereto, does not constitute an offer to sell or the solicitation of an offer to buy in any jurisdiction to any person to whom it is unlawful to make such offer, solicitation or sale. No dealer, broker, salesperson or other person has been authorized to give iriformation or to make any representation other than those contained in this Ojjicial Statement, and, if given or made, such other information or representations must not be relied upon. The information set forth herein has been obtained from the City and other sources believed to be reliable, but such information is not guaranteed as to accuracy or completeness and is not to be construed as the promise or guarantee of the Financial Advisor. This Ojjicial Statement contains, in part, estimates and matters of opinion which are not intended as statements off act, and no representation is made as to the correctness of such estimates and opinions, or that they will be realized. The information and expressions of opinion contained herein are subject to change without notice, and neither the delivery of this Ojjicial Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or other matters described herein since the date hereof. See "CONTTNUING DISCLOSURE OF INFORMATION" for a description of the City's undertaking to provide certain information on a continuing basis. THE BONDS ARE EXEMPT FROM REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION AND CONSEQUENTLY HAVE NOT BEEN REGISTERED TIIEREWITH. THE REGISTRATION, QUALIFICATION, OR EXEMPTION OF THE BONDS IN ACCORDANCE WITH APPLICABLE SECURITIES LAW PROVISIONS OF THE JURISDICTION IN WIDCH THESE SECURITIES HA VE BEEN REGISTERED OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THE CITY NOR THE UNDERWRITERS MAKE ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION CONTAINED IN TIDS OFFICIAL STATEMENT REGARDING MBIA OR ITS POLICY AS DESCRIBED UNDER "MUNICIPAL BOND INSURANCE" HEREIN OR IN APPENDIX DOR ANY INFORMATION REGARDING THE DEPOSITORY TRUST COMPANY OR ITS BOOK ENTRY• ONLY SYSTEM, AS SUCH INFORMATION HAS BEEN FURNISHED BY THE DEPOSITORY TRUST COMP ANY IN CONNECTION WITH THE OFFERING OF THE BONDS. THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHf OTHERWISE PREV AlL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. The Underwriters have provided the following sentence for inclusion in the Ojjicial Statement. The Underwriters has reviewed the information in this Ojjicial Statement in accordance with, and as part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. TABLE OF CONTENTS OFFICIAL STATEMENT SUMMARY .......................................... 4 CITY OFFICIALS, STAFF AND CONSULTANTS ...................... 6 ELECTED OFFICIALS .................................................................. 6 SELECTED ADMINISTRATIVE STAFF ........................................... 6 CONSULTANTS AND ADv!SORS .................................................. 6 INTRODUCTION ................................. ,_ ......................................... 7 THE BONDS ............ -................................................................. '". 7 MUNICIPAL BOND INSURANCE ............................................... 12 DISCUSSION OF RECENT FINANCIAL M'D MANAGEMENT EVENTS ............................ -.................. -.......................... 14 TAX INFORMATION ..................................................................... 17 TABLE l -VALUATION, EXEMPIIONSANDGENERAL OBLIGATION DEBT ....................................................... 20 TABLE 2 -TAXABLE AsSESSED VALUATIONS BY CATEGORY 22 TABLE3A • VALUATIONANDGENERAL0BLIGATIONDEBT HlsTORY ....................................................................... 23 TABLE 3B • DERlVATION OF GENERAL PURPOSE F'UNDED TAX DEBT ............................................................................ 23 TABLE 4 • TAX RATE, LEVY AND COLLECTION HlsTORY •••••• 23 TABLES • TENLA.R.Gl!STTAXPAYERS .................................... 24 TABLE 6 • TAX ADEQUAd1l ................................................. 24 TABLE7 • EsTIMATEDOvllRLAPPINGDEBT .......................... 24 DEBT INFORMATION ....... __ ................................................... 25 TABLE SA • GENERAL 0BUGATION DEST SERVICE REQUIREMENTS ............................................................ 25 TABLE 8A • GENERAL OBLIGATION DEBT SERVICE REQUJRBMENTS • CONTINUED ...................................... 26 TABLE 8B • DMSION OF DEBT SERVICE REQUIREMENTS ...... 27 TABLE 9 INTEREST AND SINKING F'UND BUDGET J'ROJECTION28 TABLE 10 • CoMPUTATION OF SELF-SUPPORTING DEBT •••••••• 29 TABLE 11 • AlITHOIUZED Bur UNISSUED GENERAL OBLIGATIONBONDS ..................................................... 29 TABLE 12 -OTI!ER 0BL10ATIONS ........................................... 30 FINANCIAL INFORMATION ..... -.............................................. 32 3 TABLE 13 • GENER.AL FUND REvENuEs AND EXPENDITURE HlsTORY ...................................................................... 32 TABLE 14 • MUNICIPAL SALESTAXHlsTORY ....................... 33 TABLE 15 -CURRENT INvEsTMENTS ....................................... 36 TAX MA TIERS ................. "' ............................................... -.. -· 37 OTHER INFORMATION .............................................................. 39 RATINGS .................................................................................. 39 LmGATION ............................................................................. 39 RECllSTR.ATION AND QUALIFICATION OF BONDS FOR SALE •••.•. 39 LEGAL INvasTMENTS AND ELIGIBILITY TO SECURE Pum.IC FUNDS IN TExAs .......................................................... 39 LEGAL MATTERS ..................................................................... 39 FINANCIAL ADVISOR ............................................................... 41 FORWAIID-LooKING STATEMENrs DISCLAIMER. ..................... 41 APPENDICES GENERAL lNFOR..\iATION REGARDING TIIE CITY ....................... A EXCERPTS fROMTiiE ANNuAL FINANCIAL REPORT ................ B FORM OF BOND COUNSEL'S OPINION....................................... C SPECIMEN OF BOND INSURANCE PoLICY ................................. D The cover page hereof, this page, the appendices included herein and any addenda, supplement or amendment hereto, are part of the Official Statement. OFFICIAL STATEMENT SUMMARY This summary is subject in all respects to the more complete information and definitions contained or incorporated in this Official Statement. The offering of the Bonds to potential investors is made only by means of this entire Official Statement. No person is authorized to detach this summary from this Official Statement or to otherwise use it without the entire Official Statement. THE CITY..................................... The City of Lubbock is a political subdivision and municipal corporation of the State, located in Lubbock County, Texas. The City covers approximately 115 square miles and has an estimated 2003 population of204,737 (see "Introduction -Description of City"). THE BOJ\1>S ........................ .......... The Bonds are issued as $11 ;855,000 General Obligation Bonds, Series 2003. The Bonds are issued as serial bonds maturing February 15, 2004 through February 15, 2015 and February 15, 2020 through February 15, 2023, and as Term Bonds maturing on February 15, 2017 and February 15, 2019 (see "The Bonds -Description of the Bonds"). PAYME1''T OF INTEREST .............. Interest on the Bonds accrues from July 15, 2003, and is payable February 15, 2004, and each August 15 and February 15 thereafter until maturity or prior redemption (see "The Bonds - Description of the Bonds" and "The Bonds -Optional Redemption"). AUTHORITY FOR lssuANCE.......... The Bonds are issued pursuant to the general laws of the State, including particularly V.T.C.A., Texas Government Code, Chapter 1331, and an Ordinance passed by the City Council of the City (see "The Bonds -Authority for Issuance"). SECURITY FOR THE BoNDS .... .•. .. . The Bonds constitute direct and voted obligations of the City, payable from the levy and collection of an annual ad valorem tax, within the limits prescribed by law, on all taxable property located within the City (see "The Bonds -Security and Source of Payment"). REDEMPTION ........ ............. .......... The City reserves the right, at its option, to redeem Bonds having stated maturities on and after February 15, 2013, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2012, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "The Bonds -Optional Redemption"). Additionally, the Term Bonds are subject to mandatory redemption in part prior to maturity (see "The Bonds -Mandatory Sinking Fund Redemption"). TAX EXEMPTION.......................... In the opinion of Bond Counsel, the interest on the Bonds will be excludable from gross income for federal income tax purposes under existing law, subject to the matters descnbed under the caption "Tax Matters" herein, including the alternative minimum tax on corporations. USE OF PROCEEDS....................... Proceeds from the sale of the Bonds will be used for (i) park improvements; (ii) street improvements; (iii) traffic control improvements and (iv) for costs associated with issuance of the Bonds. RATINGS ..................................... The Bonds are rated "Aaa" by Moody's Investors Service, Inc. ("Moody's"), "AAA" by Standard & Poor's Ratings Services, A Division of The McGraw-Hill Companies, Inc. ("S&P") and "AAA" by Fitch Ratings (11Fitch") by virtue of an insurance policy to be issued by MBIA. The presently outstanding tax supported debt of the City is rated "Aa3" by Moody's, "AA+" by S&P and "AA-" by Fitch. The City also has five tax supported issues outstanding which are rated "Aaa" by Moody's, "AAA" by S&P and "AAA" by Fitch through insurance by various commercial insurance companies (see "Other Information -Ratings"). BooK~ENTRY-ONLY SYSTEM ...................................... The definitive Bonds will be initially registered and delivered only to Cede & Co., the nominee of DTC pursuant to the Book-Entry-Only System described herein. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members ofDTC for subsequent payment to the beneficial owners of the Bonds (see "The Bonds -Book-Entry-Only System"). PAYMENT RECORD ...................... The City has never defaulted in payment ofits bonded indebtedness. 4 ""' SELECTED FINANCIAL INFOR:'1.ATION Ratio General Purpose Per Capita Funded Fiscal Per Capita General General Tax Debt Year Taxable Taxable Purpose Purpose to Taxable Ended Estimated Assessed Assessed Funded Funded Assessed 9/30 Po2!;!lation ''J Valuation Valuation Tax Debt l~J Tax Debt Valuation 1999 197,117 $ 6,019,588,349 $ 30,538 $ 51,222,980 $ 260 0.85% 2000 199,445 6,176,963,982 30,971 53,455,346 268 0.87% 2001 201,097 6,638,911,093 33,013 58,122,809 289 0.88% 2002 202,000 6,909,309, 707 34,205 63,115,346 312 0.91% 2003 204,737 7,342,344,867 35,862 70,188,204 (3) 343 0.96% (1) Source: The City of Lubbock, Texas. (2) Does not include self-supporting debt (see "Table 3B -Derivation of General Purpose Funded Tax Debt"). (3) Projected, includes the Bonds. (4) Collections for part year only, through 6-30-03. GENERAL FuND CONSOLIDATED STATEMENT SUMMARY Fiscal Year Ended September 30, Fund Balance at Beginning of Year Total Revenues and Transfers Total Expenditures and Transfers Fund Balance at End of Year Less: Reserves and Designations Undesignated Fund Balance 2002 $ 16,716,042 92,490,374 90,594,059 $ 18,612,357 (1,903,690) $ 16,708,667 2001 $ 16,620,652 90,463,799 901368,409 $ 16,716,042 (2,361,860~ $ 14,354,182 For additional infonnation regarding the City, please contact: Mr. Andy Burcham Mr. Vince Viaille 2000 1999 $ 17,248,025 $ 18,990,299 85,518,102 81,929,016 86,145,475 83,671,290 $ 16,620,652 $ 17,248,025 ~2,857,096) (4,432,834) $ 13,763,556 $ 12,815,191 Mr. Jason Hughes %of Total Tax Collections 99.24% 98.89% 99.29% 99.51% 98.08% (4) 1998 $ 18,472,903 83,556,685 83,039,289 $ 18,990,299 ~5,442,847.! $ 131547,452 Cash & Debt Manager First Southwest Company First Southwest Company City ofLubbock or 1001 Main Street or 325 North St. Paul Street P.O.Box2000 Suite 802 Suite 800 Lubbock, Texas 79457 Lubbock, Texas 79401 Dallas, Texas 75201 Phone (806) 775-2149 Phone (806) 749-3792 Phone(214)943-4000 Fax (806) 775-2033 Fax (806) 749-3793 Fax (214) 953-4050 5 CITY OFFICIALS, STAFF AND CONSULTANTS ELECTED OFFICIALS City Council Marc McDougal* Mayor Victor Hernandez Mayor Pro Tern and Councilmember, District 1 T. J. Patterson Councilmember, District 2 Gary Boren CouncHmember, District 3 Frank W. Morrison Councilmember, District 4 Tom Martin Councilmember, District 5 Jim Gilbreath Councilmember, District 6 Date of Installation to Office May, 2002 June, 1994 April, 1984 May,2002 May,2000 May,2002 May,2003 Tenn Expires May,2004 May, 2006 May,2004 May, 2006 May,2004 May, 2006 May,2007 *Mr.McDougal has served on the Council since May, 1998. SELECTED ADMINISTRATIVE STAFF Date of Employment Occupation Business Owner, Real Estate Attorney-at-Law Co-Publisher Business Owner, Personnel Services Business Owner, Commodities Retired Law Enforcement Self-Employed Date of Employment Total Government Name Position in Current Position with City of Lubbock Service Tommy Gonzalez Anita Burgess Rebecca Garza Quincy White Beverly Hodges Andy Burcham Interim City Manager City Attorney City Secretary Assistant City Manager Director of Finance Cash & Debt Manager CONSULTANTS AND ADVISORS May,2003 December, 1995 January, 2001 September, 2000 July, 2001 November, 1998 June, 1991 12 Years December, 1995 9Years August, 1996 6 Years September, 2000 12 Years July, 2001 21 Years November, 1998 4 Years Auditors ......................................................................................................... Robinson Burdette Martin Seright & Burrows, L.L.P. Lubbock, Texas Bond Counsel ........................................................................................................................................ Fulbright & Jaworski L.L.P. Dallas, Texas Financial Advisor ...................................................................................................................................... First Southwest Company · Lubbock and Dallas, Texas 6 e OFFICIAL STATEMENT RELATINGTO $11,855,000 CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION BONDS, SERIES 2003 JNTRODUCTION This Official Statement, which includes the Appendices hereto, provides certain information regarding the issuance· of $11,855,000 City of Lubbock, Texas, General Obligation Bonds, Series 2003. Capitalized terms used in this Official Statement have the same meanings assigned to such terms in the Ordinance to be adopted on the date of sale of the. Bonds which will authorize the issuance of the Bonds, except as otherwise indicated herein. · There follows in this Official Statement descriptions of the Bonds and certain information regarding the City and its finances. All descriptions of documents contained herein are only summaries and are qualified in their entirety by reference to each such document. Copies of such documents may be obtained from the City's Financial Advisor, First Southwest Company, Dallas, Texas. DESCRIPTION OF THE CITY ... The City is a political subdivision and municipal corporation of the State, duly organized and existing under the laws of the State, including the City's Home Rule Charter. The City was incorporated in 1909, and first adopted its Home Rule Charter in 1917. The City operates under a Council/Manager form of government with a City Council comprised of the Mayor and six Councilmembers. The Mayor is elected at-large for a two-year term ending in an even- numbered year. Each of the six members of the City Council is elected from a single-member district for a four-year term of office. The tenns of three members of the City Council expire in each even-numbered year. The City Manager is the chief administrative officer for the City. Some of the services that the City provides are: public safety (police and fire protection), highways and streets, electric, water and sanitary sewer utilities, airport, sanitation and solid waste disposal, health and social services, culture-recreation, public transportation, public improvements, planning and zoning, and general administrative services. The 2000 Census population for the City was 199,564; the estimated 2003 population is 204,737. The City covers approximately 115 square miles. THE BONDS DESCRIPTION OF THE BONDS ... The Bonds are dated July 15, 2003, and mature, subject to prior redemption, on February 15 in each of the years and in the amounts shown on page 2 hereof. Interest will be computed on the basis of a 360-day year of twelve 30-day months, and will be payable on February 15 and August 15, commencing February 15, 2004. The definitive Bonds will be issued only in fully registered form in any integral multiple of $5,000 for any one maturity and will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ("DTCff) pursuant to the Book-Entry-Only System described herein. No physical delivery of the Bonds will be made to the owners thereof. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds. See "Book-Entry- Only System" herein. Interest on the Bonds shall be paid to the registered owners appearing on the registration books of the Paying Agent/Registrar at the close of business on the Record Date ( defined below), and such interest shall be paid (i) by check sent United States Mail, first class postage prepaid to the address of the registered owner recorded in the registration books of the Paying Agent/Registrar or (ii) by such other method, acceptable to the Paying Agent/Registrar requested by, and at the risk and expense of, the registered owner. Principal of the Bonds will be paid to the registered owner at their stated maturity upon their presentation and surrender to designated payment/transfer office of the Paying Agent/Registrar. If the date for the payment of the principal of or interest on the Bonds shall be a Saturday, Sunday, a legal holiday or a day when banking institutions in the city where the designated payment/transfer office of the Paying Agent/ Registrar is located are authorized to close, then the date for such payment shall be the next succeeding day· which is not such a day, and payment on such date shall have the same force and effect as if made on the date payment was due. AUTHORITY FOR ISSUANCE •.. The Bonds are being issued pursuant to the Constitution and general laws of the State of Texas, particularly V.T.C.A., Texas Government Code, Chapter 1331, as amended and the Bond Ordinance. The Bonds are the third and final installment from a voted authorization of$37,385,000 in principal amount of bonds approved at an election held in the City on September 18, 1999. See "Table 11 -Authorized But Unissued General Obligation Bonds" for information regarding voted authorizations, authorized purposes, amounts heretofore issued and unissued balances from such voted authorizations. SECURITY AND SOURCE OF PAYMENT .•. The Bonds, together with the City's outstanding tax supported obligations, are payable from the proceeds of an annual ad valorem tax levied, within the limitations prescribed by law, upon all taxable property in the City. See "The Bonds-Tax Rate Limitation". TAX RATE LIMITATION ... All taxable property within the City is subject to the assessment, levy and collection by the City of an annual ad valorem tax sufficient to provide for the payment of principal of and interest on all ad valorem tax debt within the 7 limits prescribed by law. Article XI, Section 5, of the Texas Constitution is applicable to the City, and provides for a maximum ad valorem tax rate of $2.50 per $100 Taxable Assessed Valuation for all City purposes. The Home Rule Charter of the City adopts the constitutionally authorized maximum tax rate of $2.50 per $100 Taxable Assessed Valuation. OPTIONAL REDEMPTION ... The City reserves the right, at its option, to redeem Bonds having stated maturities on and after February 15, 2013, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2012, or any date thereafter,.at the par value thereof plus accrued interest to the date of redemption. If less than all of the Bonds are to be redeemed, the City may select the maturities of Bonds to be redeemed. If less than all the Bonds of any maturity are to be redeemed, the Paying Agent/Registrar (or DTC while the Bonds are in Book-Entry-Only form) shall detennine by lot the Bonds, or portions thereof, within such maturity to be redeemed. If a Bond ( or any portion of the principal sum thereof) shall have been called for redemption and notice of such redemption shall have been given, such Bond { or the principal amount thereof to be redeemed) shall become due and payable on such redemption date and interest thereon shall cease to accrue from and after the redemption date, provided funds for the payment of the redemption price and accrued interest thereon are held by the Paying Agent/Registrar on the redemption date. MANDATORY SINKING FuND REDEMPTION ... The Bonds maturing February 15, 2017 and February 15, 2019 (the "Term Bonds") shall be subject to mandatory redemption prior to maturity at the price of par plus accrued interest to the mandatory redemption date on the respective dates and in principal amounts as follows: Term Bond due February 15, 2017 Term Bond due February 15, 2019 Redemption Date Principal Amount Redemption Date Principal Amount February 15, 2016 $ 615,000 February 15, 2018 $ 680,000 February 15, 2017 645,000 * February 15, 2019 715,000 * Approximately forty-five (45) days prior to each mandatory redemption date for the Term Bonds, the Paying Agent/Registrar shall select by lot the numbers of the Term Bonds within the applicable Stated Maturity to be redeemed on the next following February 15 from moneys set aside for that purpose in the Interest and Sinking Fund (as hereinafter defined). Any Tenn Bonds not selected for l?rior redemption shall be paid on the date of their Stated Maturity. The principal amount of Term Bonds required to be redeemed pursuant to the operation of such mandatory redemption provisions may be reduced, at the option of the City, by the principal amount of Tenn Bonds of the same maturity which (i) shall have been acquired by the City at a price not exceeding the principal amount of such Term Bonds plus accrued interest to the date of purchase and delivered to the Paying Agent/Registrar for cancellation or (ii) shall have been redeemed pursuant to the optional redemption provisions and not theretofore credited against a mandatory redemption requirement. NOTICE OF REDEMPTION ... Not less than 30 days prior to a redemption date for the Bonds, the City shall cause a notice of redemption to be sent by United States mail, first class, postage prepaid, to the registered owners of the Bonds to be redeemed, in whole or in part, at the address of the registered owner appearing on the registration books of the Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing such notice. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HA VE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, THE BONDS CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND NOTWITHSTANDING THAT ANY BOND OR PORTION IBEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH BOND OR PORTION THEREOF SHALL CEASE TO ACCRUE. AMENDMENTS ... The City may amend the Ordinance without the consent of or notice to any registered owners in any manner not detrimental to the interests of the registered owners, including the curing of any ambiguity, inconsistency, or formal defect or omission therein. In addition, the City may, with the written consent of the holders of a majority in aggregate principal amount of the Bonds, then outstanding, amend, add to, or rescind any of the provisions of the Ordinance, except that, without the consent of the registered owners of all of the Bonds then outstanding no such amendment, addition or rescission may ( 1) change the date specified as the date on which the principal on any installment of interest is due payable, reduce the principal amount or the rate of interest, change the authorized coin or currency of payment for any Bond or interest thereon, or in any other way modify the terms of the payment of the principal of or interest on, (2) give any preference to any Bond over any other Bond or (3) reduce the aggregate principal amount required to be held by owners for consent to any amendment, addition or waiver. DEFEASA..',CE . . . The Ordinance provides for the defeasance of the Bonds when the payment of the principal of and premium, if any, on the Bonds, plus interest thereon to the due date thereof (whether such due date be by reason of maturity, redemption, or otherwise), is provided by irrevocably depositing with the paying agent or other authorized escrow agent, in trust (1) money sufficient to make such payment or (2) Government Securities, certified by an independent public accounting firm of national reputation to mature as to principal and interest in such amounts and at such times to insure the availability, without reinvestment, of sufficient money to make such payment, or (3) a combination of money and such certified Government Securities. The Ordinance provides that "Government Securities" means (a) direct, noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (b) noncallable obligations of an agency or instrumentality of the United States of America, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, and (c) noncallable obligations of a state or an agency or a county, 8 ,- municipality, or other political subdivision of a state that have been refunded and that are rated as to investment quality by a nationally recognized investment rating finn not less than AAA or its equivalent. Upon making such deposit in the manner described, such Bonds shall no longer be deemed outstanding obligations payable from ad valorem taxes levied by the City, but will be payable only from the funds and Government Securities deposited in escrow and will not be considered debt of the City for purposes of taxation or applying any limitation on the City's ability to issue debt or for any other purpose. BOOK-ENTRY-ONLY SYSTEM ... This section describes how ownership of the Bonds are to be transferred and how the principal of, premium, if any, and interest on the Bonds are to be paid to and credited by The Depository Trust Company ("DTC''j, New York, New York, while the Bonds are registered in its nominee name. The information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The City believes the source of such information to be reliable, but takes no responsibility for the accuracy or completenes,s thereof The City cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Bonds, or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Bonds), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC will act as securities depository for the Bonds. The Bonds witl be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for the Bonds, in the aggregate principal amount of each maturity, and will be deposited with DTC. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17 A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in tum, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in tum to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing detaHs of the transaction, as · well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book--entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to 9 ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. 1n the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. Ifless than all of the Bonds within a maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. 's consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date ( identified in a listing attached to the Omnibus Proxy). Redemption proceeds, principal, and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from· the City or the Paying Agent/Registrar, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers iri bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC nor its nominee, the Paying Agent/Registrar, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time, Payment of redemption proceeds, principal, and dividend payments to Cede & Co. ( or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Paying Agent/Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. · DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice tq the City or the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. Use of Certain Terms in Other Sections of this Official Statement 1n reading this Official Statement it should be understood that while the Bonds are in the Book-Entry-Only System, references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through DTC and the Book-Entry-Only System, and (ii) except as described above, notices that are to be given to registered owners under the Ordinance will be given only to DTC. Information concerning DTC and the Book-Entry-Only System has been obtained from DTC and is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by the City or the Underwriters. Effect of Termination of Book-Entry-Only System In the event that the Book-Entry-Only System is discontinued by DTC or the use of the Book-Entry-Only System is discontinued by the City, printed Bonds will be issued to the holders and the Bonds will be subject to transfer, exchange and registration provisions as set forth in the Ordinance and summarized under "The Bonds -Transfer, Exchange and Registration" below. PAYING AGENT/REGISTRAR ... The initial Paying Agent/Registrar is JPMorgan Chase Bank, Dallas, Texas. In the Ordinance, the City retains the right to replace the Paying Agent/Registrar. The City covenants to maintain and provide a Paying Agent/Registrar at all times until the Bonds are duly paid and any successor Paying Agent/Registrar shall be a commercial bank, trust company, financial institution or other entity duly qualified and legally authorized to serve as and perform the duties and services of Paying Agent/Registrar for the Bonds. Upon any change in the Paying Agent/Registrar for the Bonds, the City agrees to promptly cause a written notice thereof to be sent to each registered owner of the Bonds by United St.ates mail, first class, postage prepaid, which notice shall also give the address of the new Paying Agent/Registrar. TRANSFER, EXCHANGE AND REGISTRATION ... In the event the Book-Entry-Only System should be discontinued, printed Bond certificates will be issued to the registered owners of the Bonds and thereafter the Bonds may be transferred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrender such printed Bond certificates to the Paying Agent/Registrar and such transfer or exchange shall be without expense or service charge to the registered owner, except for any tax or other governmental charges required to be paid with respect to such registration, exchange and transfer. Bonds may be assigned by the execution of an assignment form on the respective Bonds or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. New Bonds will be delivered by the Paying Agent/Registrar, in lieu of the Bonds being transferred or exchanged, at the designated office of the Paying Agent/Registrar, or sent by United States mail, first class, postage prepaid, to the new registered owner or his designee. To the extent possible, new Bonds issued in an exchange or transfer of Bonds will be delivered to the registered owner or assignee of the registered owner in not more than three business days after the receipt of the Bonds to be canceled, and the written instrument of transfer or request for exchange duly executed by the registered owner or his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. New Bonds registered and delivered in an exchange or transfer shall be in any integral multiple of $5,000 for any one maturity and for a like aggregate principal amount as the Bonds surrendered for exchange or transfer. See "Book-Entry-Only System" herein for a description of the system to be utilized initially in regard to ownership and transferability of the Bonds. Neither the City nor the Paying Agent/Registrar shall be required to transfer or exchange any Bond called for redemption, in whole or in part, within 45 days of 10 ~ the date fixed for redemption; provided, however, such limitation of transfer shall not be applicable to an exchange by the registered owner of the uncalled balance of a Bond. RECORD DATE FOR INTEREST PAYMENT ... The record date ("Record Date") for the interest payable on the Bonds on any interest payment date means the close of business on the last business day of the preceding month. In the event of a non-payment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (a "Special Record Date") will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest ("Special Payment Date", which shall be 15 days after the Special Record Date) shall be sent at least five business days prior to the Special Record Date by United States mail, first class postage prepaid, to the address of each Holder of a Bond appearing on the registration books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. BONDHOLDERS' REMEDIES . . . The Ordinance does not establish specific events of default with respect to the Bonds. Under State law there is no right to the acceleration of maturity of the Bonds upon the failure of the City to observe any covenant under the Ordinance. Although a registered owner of Bonds could presumably obtain a judgment against the City if a default occurred in the payment of principal of or interest on any such Bonds, such judgment could not be satisfied by execution against any property of the City. Such registered owner's only practical remedy, if a default occurs, is a mandamus or mandatory injunction proceeding to compel the City to levy, assess and collect an annual ad valorem tax sufficient to pay principal of and interest on the Bonds as it becomes due. The enforcement of any such remedy may be difficult and time consuming and a registered owner could be required to enforce such remedy on a periodic basis. The Ordinance does not provide for the appointment of a trustee to represent the interests of the bondholders upon any failure of the City to perform in accordance with the terms of the Ordinance, or upon any other condition. Furthermore, the City is eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code. Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, the pledge of taxes in support of a general obligation of a bankrupt entity is not specifically recognized as a security interest under Chapter 9. Chapter 9 also includes an automatic stay provision that would prohibit, without Bankruptcy Court approval, the prosecution of any other legal action by creditors or bondholders of an entity which has sought protection under Chapter 9. Therefore, should the City avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court); and the Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Ordinance and the Bonds are qualified with _respect to the customary rights of debtors relative to their creditors. INSURER'S RIGHTS Ull<"DER THE ORDINANCE ... Notwithstanding the discussion of bondholder rights under the captions "The Bonds -Bondholders' Remedies" and "The Bonds -Amendments," so long as the insurance policy of MBIA Insurance Corporation that secures the Bonds is in force, and the Insurer is not in default under the insurance policy, the Insurer shall be deemed to be the sole holder of the Bonds for the purpose of exercising any voting right or privilege or giving any consent or direction or taking any other action that the holders of the Bonds are entided to talce pursuant to the Ordinance. In addition, no modification or amendment to the Ordinance may become effective except upon the City obtaining the prior written consent of MBIA Insurance Corporation. · SOURCES AND USES OF BOND PROCEEDS ..• Proceeds from the sale of the Bonds will be applied approximately as follows: SOURCES OF FUNDS: Principal Amount of the Bonds $ 11,855,000.00 Accrued Interest 58,844.31 Reoffering Premium 169,179.10 Total Sources of Funds $ 12,083,023.41 USES OF FUNDS: Deposit to the Construction Fund $ I 1,775,000.00 Deposit to Interest and Sinking Fund 58,844.31 Original Issue Discount 67,101.30 Underwriter's Discount 74,419.00 Gross Bond Insurance Premium 38,000.00 Costs oflssuance 68,450.00 Rounding Amount 1,208.80 Total Uses of Funds $ 12,083,023.41 11 MUNICIPAL BOND INSURANCE MBIA Insurance Corporation ("MBIA") has committed to deliver its insurance policy with respect to the Bonds. The following information has been furnished by MBIA for use in this Official Statement. Such information has not been independently verified by the City or the Underwriters and is not guaranteed as to completeness or accuracy by the City or the Underwriters and is not to be construed as a representation of the City or the Underwriters. Reference is made to Appendix D for a specimen of the insurance policy of MBIA. THE MBIA INSURANCE CORPORATION INSURANCE POLICY The following information has been furnished by MBIA for use in this Official Statement. Reference is made to Appendix D for a specimen ofMBIA's policy. MBIA's policy unconditionally and irrevocably guarantees the full and complete payment required to be made by or on behalf of the Issuer to the Paying Agent or its successor of an amount equal to (i) the principal of (either at the stated maturity or by an advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Bonds as such payments shall become due but shall not be so paid ( except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed by MBIA's policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner of the Bonds pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law (a "Preference"). MBIA's policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Bonds. MBIA's policy does not, under any circumstance, insure against loss relating to: (i) optional or mandatory redemptions ( other than mandatory sinking fund redemptions); (ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of Bonds upon tender by an owner thereof; or (iv) any Preference relating to (i) through (iii) above. MBIA's policy also does not insure against nonpayment of principal of or interest on the Bonds resulting from the insolvency, negligence or any other act or omission of the Paying Agent or any other paying agent for the Bonds. Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by MBIA from the Paying Agent or any owner of a Bond the payment of an insured amount for which is then due, that such required payment has not been made, MBIA on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, N.A., in New York, New York, or its successor, sufficient for the payment of any such insured amounts which are then due. Upon presentment and surrender of such Bonds or presentment of such other proof of ownership of the Bonds, together with any appropriate instruments of assignment to evidence the assignment of the insured amounts due on the Bonds as are paid by MBIA, and appropriate instruments to effect the appointment of MBIA as agent for such owners of the Bonds in · any legal proceeding related to payment of insured amounts on the Bonds, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners or the Paying Agent payment of the insured amounts due on such Bonds, less any amount held by the Paying Agent for the payment of such insured amounts and legally available therefor. MBIA MBIA Insurance Corporation ("MBIA") is. the principal operating subsidiary of MBIA Inc., a New York Stock Exchange listed company (the "Company"). The Company is not obligated to pay the debts of or claims against MBIA. MBIA is domiciled in the State of New York and licensed to do business in and subject to regulation under the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United States and the Territory of Guam. MBIA has three branches, one in the Republic of France, one in the Republic of Singapore and one in the Kingdom of Spain. New York has laws prescribing minimum capital requirements, limiting classes and concentrations of investments and requiring the approval of policy rates and forms. State laws also regulate the amount of both the aggregate and individual risks that may be insured, the payment of dividends by MBIA, changes in control and transactions among affiliates. Additionally, MBIA is required to maintain contingency reserves on its liabilities in certain amounts and for certain periods of time. MBIA does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the policy and MBIA set forth under the heading "Municipal Bond Insurance". Additionally, MBIA makes no representation regarding the Bonds or the advisability of investing in the Bonds. 12 MBIA INFORMATION Toe following document filed by the Company with the Securities and Exchange Commission (the "SEC") is incorporated herein by reference: (1) The Company's Annual Report onFonn 10-K for the year ended December 31, 2002; and (2) Toe Company's Quarterly Report on Fonn 10-Q for the quarter ended March 31, 2003. Any documents filed by the Company pursuant to Sections l3(a), l3(c), 14 or 15(d) of the Exchange Act of 1934, as amended, after the date of this Official Statement and prior to the termination of the offering of the Bonds offered hereby shall be deemed to be inco:rporated by reference in this Official Statement and to be a part hereof. Any statement contained in a document inco:rporated or deemed to be incorporated by reference herein, or contained in this Official Statement, shall be deemed to be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be inco:rporated · by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. Toe Company files annual, quarterly and special reports, information statements and other infonnation with the SEC under File No. 1-9583. Copies of the SEC filings (including (1) the Company's Annual Report on Form 10-K for the year ended December 31, 2002, and (2) the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003), are available (i) over the Internet at the SEC's web site at http://www.sec.gov; (ii) at the SEC's public reference room in Washington D.C.; (iii) over the Internet at the Company's web sit.e at http://www.mbia.com; and (iv) at no cost, upon request to MBIA Insurance Co:rporation, 113 King Street, Armonk, New York 10504. The telephone number of MBIA is (914) 273-4545. As of December 31, 2002, MBIA had admitted assets of $9 .2 billion ( audited), total liabilities of $6.0 billion ( audited), and total capital and surplus of$3.2 billion (audited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of March 31, 2003, MBIA had admitted assets of $9.3 billion (unaudited), total liabilities of $6.1 billion (unaudited), and total capital and su:rplus of $3.2 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. FINANCIAL STRENGTH RATINGS OF MBIA Moody's Investors Service, Inc. rates the financial strength of MBIA "Aaa. " Standard & Poor's, a division of The McGraw-Hill Companies, Inc. rates the financial strength of MBIA "AAA. " Fitch Ratings rates the financial strength of MBIA "AAA." Each rating of MBIA should be evaluated independently. Toe ratings reflect the respective rating agency's current assessment of the creditworthiness of MBIA and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the above ratings may be obtained only from the applicable rating agency. Toe above ratings are not recommendations to buy, sell or hold the Bonds, and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Bonds. MBIA does not guaranty the market price of the Bonds nor does it guaranty that the ratings on the Bonds will not be revised or withdrawn. DISCLOSURE OF GUARANTY FUND NONPARTICIPATION In the event the Insurer is unable to fulfill its contractual obligation under this policy or contract or application or evidence of coverage, the policyholder or bondholder is not protected by an insurance guaranty fund or other solvency protection arrangement. 13 DISCUSSION OF RECENT FINANCIAL AND MANAGEMENT EVENTS Mid-Year Budget Amendments; Financial Challenges Going into the 2002-03 fiscal year, the City Council adopted General Fund and Enterprise Fund budgets that included approximately $94 million and $171 million in expenditures, respectively. While the budget that was adopted in August 2002 was balanced, it was apparent that the City's electric enterprise fund, which operates as Lubbock Light & Power ("LP&L"), would need to reduce the amount of transfers to the General Fund as compared to transfers included in prior years I budgets. This situation arose as a result of the cumulative effect of operating losses incurred by LP&L that date to the 1996-97 fiscal year. As measured by generally accepted accounting practices ("GAAP"), which take into account budgeted transfers to the City's General Fund, and non-cash expense items such as depreciation and amortization, at the close of the 2001-02 fiscal year LP&L had a negative cash balance of approximately $12.8 million on a GAAP basis, which has been funded by interfund loans made from the water fund, solid waste fund and General Funds. A number of factors have contributed to the LP&L losses (see "Discussion of Recent Financial and Management Events -Recent Events Relating to the City's Electric System"), but the most significant fact is that LP&L, unlike most other municipal electric utilities, competes directly with a large investor owned energy company, Xcel Energy, Inc. ("Xcel Energy"), and the competitive environment has made it difficult for LP&L to fully recover its fuel costs, particularly during periods of volatile and historically high natural gas prices, which have prevailed in recent years. All LP&L electric generating units, which have provided approximately 35% of its energy requirements in recent years (the remaining energy is provided under power purchase agreements), operate with natural gas as the primary generation fuel. Additional information regarding LP&L will be available from the City's Financial Advisor, First Southwest Company, Lubbock, Texas, during the offering of the 2003 LP&L Debt (as defined below), which is scheduled to occur in mid-to late-August, 2003. At present and in the past, LP&L has been obligated by its annual budget to make transfers to the General Fund to cover costs incurred by the City with respect to the operation of LP&L as well as certain other general transfers. Such transfers have included a payment in lieu of ad valorern taxes, an allocation for indirect costs such as legal and financial services, and a cost of business transfer ( which approximates a payment in lieu of franchise taxes, and is based on 3 % of the gross operating revenues of LP&L) (collectively, the "Cost Recovery Payments"). In addition to the Cost Recovery Payments, LP&L has been obligated to annually transfer to the General Fund amounts to support economic development incentives in the City, a payment designated for infrastructure use, a "gas tax" transfer, and a reimbursement of the street lighting expense incurred by the City (collectively, the "Other Transfer Amounts"). During the preparation of the 2002-03 City budgets, it was evident that the amount of money transferred from LP&L to the General Fund would need to be reduced given the financial condition of LP&L. Consequently, the 2002-03 budget trimmed approximately $645,000 that in previous years had been budgeted for transfer to the General Fund from the electric enterprise fund, In February 2003, during a period of extraordinarily high natural gas prices, City finance staff projected that, in the absence of corrective measures, the electric enterprise fund would have an operating loss of approximately $24 million for the current fiscal year. In response, the City amended the LP&L and General Fund budgets to eliminate approximately $7.7 million in transfers from LP&L to the General Fund for the current fiscal year (which represents approximately 8.4% of the original General Fund budget for the year). City management then undertook a comprehensive review of the General Fund and other enterprise funds for the purpose of identifying budget cuts in the General Fund and in other areas of City government that could offset the reduced LP&L transfers. The City annually undertakes a mid-year budget assessment during April and May. During the budget assessment in the Spring of 2003, the Council adopted budget amendments for the General Fund that totaled 9.7 million (referred to hereafter as the "2003 Budget Adjustments"), which represents approximately l 0.5% of the original General Fund budget for the year. In addition to the $7.7 million budget adjustment made to address the LP&L transfer reduction, the General Fund also absorbed an approximately $2 million adjustment relating to a prior year interfund payable from the golf course enterprise fund. The cuts that were made included both "one-time" reductions, as well as reductions that will carry forward into future budgets. Among the measures taken to address the General Fund shortfall that resulted from the current year elimination of the LP&L transfers were the following: (i) the elimination of approximately $2.5 million of capital expenditure items (which effect a one-time cost savings for the City); (ii) the reduction of operating costs such as office supplies and staff training and travel expense; (iii) a reorganization of the structure of City government was implemented that consolidated a number of positions; (iv) a general hiring freeze was implemented throughout all City departments in which 24 unfilled positions at LP&L and 8 positions funded from the General Fund (for which funds had been appropriated) were frozen, and 16 jobs were eliminated through work force reductions; (v) a l % increase of the transfers in lieu of franchise payments was implemented for the water and solid waste funds, which increased that transfer for those funds from 3% to 4% of gross revenues; (vi) certain available cash deposits were consolidated into the General Fund, which made such amounts available for current year budget requirements, including amounts held in certain sales tax accounts and internal service funds, as well as amounts in excess of working capital targets that in past years have been used to fund capital improvements. The 2003 Budget Adjustments were made for the purpose of placing the General Fund in position to end the current fiscal year with a balanced operating result, and the City is of the view that the 2003 Budget Amendments substantially meets that objective. Current finance staff estimates include a projected reduction of the General Fund balance at the close of the 2002-03 fiscal year of approximately $500,000, which would have the unrestricted General Fund balance slightly below the City's financial policy of maintaining a balance equivalent to 60 days of operating expenses. Management of the City and LP&L are 14 - implementing and reviewing certain options that are designed to improve the financial condition of LP&L, although no assurances can be given as to any future financial result. For the CU1Tent fiscal year, as well as for foreseeable future years, the ability of the General Fund to maintain adequate fund balances and operating reserves will in large part be dependent on whether austerity measures taken by the. City with respect to LP&L will pennit the electric utility to operate on at least a break even basis. As a result of the LP&L financial condition, the City intends to offer approximately $22 mi11ion in combination tax and surplus electric system debt prior to the end of the current fiscal year (the "2003 LP&L Debt") for the purposes of refinancing a portion of the outstanding LP &L debt and to provide approximately $13 million for LP &L capital expenditures. In the past, the City has issued stand-alone revenue bonds to provide capital for LP&L, although the City has issued combination tax and revenue obligations, such as the Obligations, to finance improvements for other City enterprise funds. In reducing the transfers from LP&L to the City, the City is permanently eliminating the . Other Transfer Amounts (approximately $2.7 million per year), and, for the current fiscal year the Cost Recovery Payments, as well. Current budget planning for the 2003-04 fiscal year (which is subject to change) reflects that for the coming year LP&L will transfer to the General Fund only an amount equal to its indirect cost recovery amount, which is approximately $1.1 million ( an approximately $6.6 million reduction from the original 2002-03 budget that will need to be absorbed by additional austerity measures in the General Fund. It is possible that in the future LP&L transfers to the General Fund would be increased (though probably not to the full amounts of prior years), provided that LP&L has stabilized its financial condition. The City is presently fonnulating its 2003-04 operating and capital budgets. Among the measures that are being reviewed are additional and substantial cuts in City staff, employee benefits, including health care options, travel and other general administrative costs. City finance staff estimates that approximately 7% of City employment positions (which totaled 1,980 in 2002-03) will be eliminated during 2003-04 by permanently closing unfilled positions in the City, as well as through reductions in force, and virtually all reductions will be in the General Fund and at LP&L. These staff reductions are expected to result in an approximately $2.5 million reduction in General Fund staffing and benefit funding requirements. In addition, the City is reviewing potential increases in franchise tax payments from commercial entities in the City that use City streets and rights of way for access, although the City is generally required to negotiate as opposed to impose increases in franchise payments. Based upon amounts paid to other municipalities, however, the City is of the view that it will be able to increase overall franchise payment receipts in the 2003-04 fiscal year. While the City has generally not experienced a downturn in its tax base or sales tax revenue as has occurred in other parts of the State during the post September 11, 2001 period (see "Tax Infonnation -Table 2 • Taxable Assessed Valuations by Category" and "Financial Information -Table 14 Municipal Sales Tax History"), the City Council has instructed City finance staff to implement a budget that holds ad valorem tax revenues flat in the coming year, except that portion of the tax rate that is proportionate to tax base growth attributable to new construction in the City. In effect, this policy is designed to end the pass through growth of City tax revenue that is associated with reappraisals of property in the City, which has represented a substantial portion of tax base growth in previous years. Based upon this budget approach, and due to an approximately 7% increase in the City's 2003 tax roll ( of which approximately 62% is attributable to reappraisal of existing property), City finance staff is anticipating an approximately $0.023 decrease in the ad valorem tax rate of the City for the 2003-04 budget year. The City intends to increase water and sewer rates in the 2003-04 fiscal year, as part of a multi-year plan to maintain the self- sufficiency of the enterprise fund debt incurred for the Water System and Sewer System (the City's financial policies also provide that the Drainage System and the Solid Waste System are to be operated on a self-supporting basis from fees, rates and other charges for service). The City Council has also indicated that it intends to call an election for November 4, 2003 for the purpose of submitting a proposition to the voters of the City for a one-eighth cent ($.00125) sales and use tax ("sales tax") dedicated for economic development in the City and a one-quarter cent ($.0025) sales tax to be used for the reduction of ad valorem taxes in the City. While the City cannot predict whether the voters will approve the sales tax increases, if they do, the City would begin receiving revenue from the new taxes during October 2004, and, in accordance with State law, the City would have to reduce its ad valorem tax levy for the 2004-05 tax year by the estimated amount of revenue to be generated by the one-quarter cent sales tax collected for the reduction of ad valorem taxes in the City. Current estimates of the impact of the one-quarter cent tax rate indicate a potential reduction in 2004-05 ad valorem rates of approximately $0.083. The one-quarter cent tax would be dedicated to support economic development incentives in the City, and the City is reviewing its options as to whether it will continue or eliminate all or part of the $0.03 portion of its ad valorem tax that it has historically levied for economic development (see "Table 4 -Tax Rate, Levy and Collection History"). The effect of these taxes, if they should be approved, is anticipated to be approximately revenue neutral to the City, although the approval would result in an increased dependence by the City on sales tax collections as a revenue source. Typically, sales tax revenue has been a more volatile income source than ad valorem taxes, due to the immediate impact that fluctuations in economic conditions have on sales activities that generate sales tax revenue. Rece11t Events Relating to the City's Electric System The City is a member of the West Texas Municipal Power Agency ("WTMP A"), a municipal power agency that was formed by concurrent ordinances adopted by the governing bodies of the cities of Brownfield, Floydada, Lubbock and Tulia, Texas (the "Member Cities") in 1983. The purpose of WTMP A is to engage in the generation, transmission, sale and exchange of electric energy to the Member Cities. WTMPA is a separate political subdivision under the laws of the State. Under the terms of various WTMP A power sale agreements that each Member City has entered into with the other Member Cities,· the City is currently obligated to purchase approximately 87% of the energy available to WTMPA. In June 1998, WTMPA issued $28,910,000 of its Revenue Bonds, Series 1998 (the "WTMPA Bonds") to finance the construction and acquisition of a 65 MW electric co-generation project (the "WTMP A Project"). The WTMP A Project consists of a 43 MW combustion turbine generator 15 (the "Massengale Unit 8 turbine") and the re--powering of an existing 22 MW generation unit, each located at the City's J.R. Massengale Plant. Through an operation management agreement with WTMPA. LP&L assumed the responsibility for operating the WTMPA Project The Massengale Unit 8 turbine was originally scheduled to go on line in the Spring of 1999, but during the course of the run test, the turbine experienced a catastrophic failure. In May 200 l, the City and WTMP A filed a lawsuit against the manufacturer of the Massengale Unit 8 turbine and the gas company that supplied fuel for the Unit, in connection with the failure of the turbine. During September 2002, the City engaged in mediation with the turbine manufacturer and the gas company with respect to the settlement of the litigation. During the course of the mediation, the director of LP &L and a City Council member who served on the Board of WTMPA and as president of WTMP A made statements to the effect that WTMP A had retained a sum of approximately $1.6 million, representing proceeds of the WTMPA Bonds, from the turbine manufacturer until the litigation could be resolved. Subsequent investigations revealed that such amount had been retained, but the money had eventually been applied, in February 2002, to pay debt service on the WTMPA Bonds. As a result of the confusion over the existence of the retained amount, the City embarked upon a series of internal financial and management audits of the relationship between LP&L and WTMPA, as well as an analysis of the internal controls of the City with respect to LP&L. Such audits are available on the City's website at: www.ci.lubbock.tx.us under the heading "West Texas Municipal Power Agency Audit." None of these reviews uncovered any malfeasance with respect to the administration of LP&L or WTMP A funds. However, the reviews agree that the prevailing view that guided the administration of WTMP A affairs by the management ofLP&L, was that WTMPA was indistinguishable from LP&L. This view stemmed from the facts that LP&L is contractually committed on a joint and several basis to pay the WTMPA Bonds, it is the operator of the WTMP A Project and, as a practical matter, LP&L was taking all the energy from the WTMP A Project. According to the audits, this management perspective had resulted in a consistent failure to follow the terms of the various WTMP A organizational, operational and power purchase agreements. In addition to poor contract administration by the management of LP&L, there were findings in the City audits to the effect that LP&L was acting without proper oversight from the City Council and the City Manager's office. In April 2003, the WTMPA Member Cities (including the City) engaged Ernst & Young LLP ("E & Y") to conduct an audit of the records of WTMPA and LP&L. The final report of E & Y was delivered in May 2003, and included findings as to the historic misallocation of costs among the Member Cities. The report noted that no evidence of misappropriation of assets or intentional omissions of financial information was discovered, but that, talcing into account past misallocations, adding an interest factor for such allocations, and recovering an unbilled 5% management overhead allocation that LP&L was entitled to under the power agreements, would result in a total amount owing to the City of $5,590,746, of which the City owed itself, as a member city ofWTMPA, approximately 90% of the total amount. The E & Y report also noted that according to the WTMPA financial statements for the year ended September 30, 2002 (which were not prepared or audited by E & Y), WTMPA was not in compliance for that year with the 1.15 times rate coverage of debt service requirements that are required by the resolution under which the WTMP A Bonds were issued. As a result of the City audits described above, the City is assessing whether WTMP A should continue to function as an independent agency, whether WTMPA should be unwound (which would require the discharge of the WTMPA Bonds) or whether some other legal arrangement can be negotiated whereby the existing legal structure will remain in place but additional agreements implemented to better define the responsibility of the City and the other Member Cities for costs incurred by WTMPA. Following the release of the City audits, City management and WTMPA officers have implemented a number of procedural ammgements and written agreements to address the contract administration aspects that were noted in the City audits, among other remedial steps. The City is of the view that the amount owing to the City from WTMP A does not materially affect the financial condition of the City or WTMP A Business and Management Transition ... Following the publication of these reports, several key City officers and LP&L management personnel resigned. Among the officials and management of the City who resigned was a member of the City Council with almost 11 years of service, the City Manager, who had served 27 years with the City, the last ten of which as City Manager, the Assistant City Manager for Finance, who had almost 8 years of service to the City, the Assistant City Manager for Public Works, who had over five years of service to the City, and the Chief Executive Officer of LP&L, who had served in that capacity since 1998. The City has begun a search for a new City Manager. It is expected that a new City Manager will not be selected until first quarter of the 2003-04 fiscal year. The interim City Manager has also implemented a new organizational structure for City government and the City has initiated a search for a Chief Financial Officer, which is a new position under the new government organizational structure. In addition, numerous staff changes have been made at LP&L, including the appointment of new Chief Executive and Chief Operating Officers. As described under "Discussion of Recent Financial and Management Events -Mid-Year Budget Amendments; Financial Challenges," in February 2003, City finance staff projected a large operating loss for LP&L during the current fiscal year and all transfers from LP&L to the City's General Fund were eliminated or deferred until such time as the financial condition of LP&L has stabilized. At present, the City is undergoing a period of transition in both its management and its business strategies, which has resulted from the situation described under "Discussion of Recent Financial and Management Events -Mid-Year Budget Amendments; Financial Challenges," as well as by the changes key management of City and LP&L that have occurred in recent months. 16 - TAX INFORMATION AD V ALO REM TAX LAW ... The appraisal of property within the City is the responsibility of the Lubbock Central Appraisal District (the "Appraisal District"). Excluding agricultural and open-space land, which may be taxed on the basis of productive capacity, the Appraisal District is required under the Property Tax Code t.o appraise all property within the Appraisal District on the basis of 100% of its market value and is prohibited from applying any assessment ratios. In detennining market value of property, different methods of appraisal may be used, including the cost method of appraisal, the income method of appraisal and market data comparison method of appraisal, and the method considered most appropriate by the chief appraiser is to be used. State law further limits the appraised value of a residence homestead fur a tax year to an amount not t.o exceed the less of (l) the market value of the property, or (2) the sum of (a) 10% of the appraised value of the property fur the last year in which the property was appraised for taxation times the number of years since the property was last appraised, plus (b) the appraised value of the property for the last year in which the property was appraised plus ( c) the market value of all new improvements to the property. The value placed upon property within the Appraisal District is subject to review by an Appraisal Review Board, consisting of three members appointed by the Board of Directors of the Appraisal District. The Appraisal District is required to review the value of property within the Appraisal District at least every three years. The City may require annual review at its own expense, and is entitled to challenge the determination of appraised value of property within the City by petition filed with the Appraisal Review Board. Reference is made to the V.T.C.A., Property Tax Code, for identification of property subject to taxation; property exempt or which may be exempted from taxation, if claimed; the appraisal of property for ad valorem taxation puiposes; and the procedures and limitations applicable to the levy and collection of ad valorem taxes. Article VIII of the State Constitution (" Article VIII") and State law provide for certain exemptions from property taxes, the valuation of agricultural and open-space lands at productivity value, and the exemption of certain personal property from ad valorem taxation. Under Section 1-b, Article VIIl, and State law, the governing body of a political subdivision, at its option, may grant ( l) An exemption of not less than $3,000 of the market value of the residence homestead of persons 65 years of age or older and the disabled from all ad valorem taxes thereafter levied by the political subdivision; (2) An exemption of up to 20% of the market value of residence homesteads. The minimum exemption under this provision is $5,000. In the case of residence homestead exemptions granted under Section 1-b, Article VIII, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes have previously been pledged for the payment of debt if cessation of the levy would impair the obligation of the contract by which the debt was created. State law and Section 2, Article VIII, mandate an additional property tax exemption for disabled veterans or the surviving spouse or children of a deceased veteran who died while on active duty in the armed forces; the exemption applies to either real or personal property with the amount of assessed valuation exempted ranging from $5,000 to a maximum of$12,000. Article VIIl provides that eligible owners of both agricultural land (Section 1-d) and open-space land (Section 1-d-l ), including open-space land devoted to fann or ranch purposes or open-space land devoted to timber production, may elect to have such property appraised for property taxation on the basis of its productive capacity. The same land may not be qualified under both Section 1-d and 1-d-l. Nonbusiness personal property, such as automobiles or light trucks, are exempt from ad valorem taxation unless the governing body of a political subdivision elects t.o tax this property. Boats owned as nonbusiness property are exempt from ad valorem taxation. Article VIII, Section 1-j, provides for "freeport property" to be exempted from ad valorem taxation. Freeport property is defined as goods detained in Texas for 175 days or less for the pUipose of assembly, storage, manufacturing, processing or fabrication. Decisions to continue to tax may be reversed in the future; decisions to exempt freeport property are not subject t.o reversal. The City may create one or more tax increment financing districts ("TID") within the City and freeze the taxable values of property in the TID at the value at the time of its creation. Other overlapping taxing units levying taxes in the TID may agree to contnbute all or part of future ad valorem taxes levied and collected against the value of property in the TID in excess of the "frozen values" to pay or finance the costs of certain public improvements in the TID. Taxes levied by the City against the values of real property in the TID in excess of the "frozen" value are not available for general city use but are restricted to paying or financing "project costs" within the TID. See "Tax Information -Tax Increment Financing Zones". State law also provides that the City may enter into tax abatement agreements to encourage economic development Under the agreements, a property owner agrees to construct certain improvements on its property. The City in tum agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the agreement. The abatement agreement could last for a period of up to l 0 years. See "Tax Information -Tax Abatement Policy". EFFECTIVE TAX RATE AND ROLLBACK TAX RATE ... By each September 1 or as soon thereafter as practicable, the City Council adopts a tax rate per $100 taxable value for the current year. The City Council will be required to adopt the annual tax rate for the City before the later of September 30 or the 60th day after the date the certified appraisal roll is received by the City. If the City Council does not adopt a tax rate by such required date the tax rate for that tax year is the lower of the effective tax rate calculated for that tax year or the tax rate adopted by the City for the preceding tax year. The tax rate consists of two components: ( 1) a rate for funding of maintenance and operation expenditures, and (2) a rate for debt service. 17 Under the Property Tax Code, the City must annually calculate and publicize its "effective tax rate" and "rollback tax rate". Effective January 1, 2000, a tax rate cannot be adopted by the City Council that exceeds the lower of the rollback tax rate or 103 per cent of the effective tax rate until a public hearing is held on the proposed tax rate following a notice of such public hearing (including the requirement that notice be posted on the City's website if the City owns, operates or controls an internet website and public notice be given by television if the City has free access to a television channel} and the City Council has otherwise complied with the legal requirements for the adoption of such tax rate. If the adopted tax rate exceeds the rollback tax rate the qualified voters of the City by petition may require that an election be held to determine whether or not to reduce the tax rate . adopted for the current year to the rollback tax rate. "Effective tax rate" means the rate that will produce last year's total tax levy (adjusted) from this year's total taxable values (adjusted). "Adjusted" means lost values are not included in the calculation of last year's taxes and new values are not included in this year's taxable values. "Rollback tax rate" means the rate that will produce last year's maintenance and operation tax levy (adjusted) from this year's values (adjusted) multiplied by 1.08 plus a rate that will produce this year's debt service from this year's values (unadjusted) divided by the anticipated tax collection rate. The Property Tax Code provides that certain cities and counties in the State may submit a proposition to the voters to authorize an additional one-half cent sales tax on retail sales of taxable items. If the additional tax is levied, the effective tax rate and the rollback tax rate calculations are required to be offset by the revenue that will be generated by the sales tax in the current year. Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad valorem taxes and the calculation of the various defined tax rates. PROPERTY AsSESSMENT AND TAX PAYMENT ... Property within the City is generally assessed as of January 1 of each year. Business inventory may, at the option of the taxpayer, be assessed as of September 1. Oil and gas reserves are assessed on the basis of a valuation process which uses an average of the daily price of oil and gas for the prior year. Taxes become due October 1 of the same year, and become delinquent on February 1 of the following year. Taxpayers 65 years old or older are permitted by State law to pay taxes on homesteads in four installments with the first due on February 1 of each year and the final installment due on August 1. PENALTIES AND INTEREST . . . Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: Cumulative Cumulative Month Penalty Interest Total February 6% 1% 7% March 7 2 9 April 8 3 11 May 9 4 13 June 10 5 15 July 12 6 18 After July, penalty remains at 12%, and interest increases at the rate of 1 % each month. In addition, a taxing unit may contact with an attorney for the collection of delinquent taxes and the amount of compensation as set forth in such contract may not provide for a fee that exceeds 20% of the amount of delinquent tax, penalty, and interest collected.. Under certain circumstances, taxes which become delinquent on the homestead of a taxpayer 65 years old or older incur a penalty of 8% per annum with no additional penalties or interest assessed. In general, property subject to the City's lien may be sold, in whole or in parcels, pursuant to court order to collect the amounts due. Federal law does not allow for the collection of penalty and interest against an estate in bankruptcy. Federal bankruptcy law provides that an automatic stay of action by creditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing on property and prevents liens for post-petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases post-petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. CITY APPLICATION OF TAX CODE ••• The City grants an exemption to the market value of the residence homestead of persons 65 years of age or older of$16,600; the disabled are also granted an exemption of $10,000. The City has not granted an additional exemption of 20% of the market value of residence homesteads; the minimum exemption that may be granted under this provision being $5,000. See Table 1 for a listing of the amounts of the exemptions described above. Ad valorem taxes are not levied by the City against the exempt value of residence homesteads for the payment of debt. The City does not tax nonbusiness personal property; and the Lubbock County Appraisal District collects taxes for the City. 18 - The City does not permit split payments of taxes, and discounts for early payment of taxes are not allowed by the City, although permitted on a local-option basis by the Property Code. In the past, the City has taxed freeport property, although beginning with the 1999 tax year the City has exempted freeport property from taxation. The City collects an additional one-eighth cent sales tax for reduction of ad valorem taxes. The City will hold an election on November 4, 2003 to increase this tax by one-quarter cent, for a total of three-eighths of a cent. The City has adopted tax abatement policies, as described below. TAX ABATEMENT POLICIES ... The City has established a tax abatement program to encourage economic development. In order to be considered for tax abatement, a project must be located in a reinvestment zone or enterprise zone (a commercial project must be in an enterprise zone) and must meet several criteria pertaining to job creation and property value enhancement. The City has established three enterprise zones, the north zone, of approximately 18.6 square miles, the south zone, of approximately 15.7 square miles, and the international airport zone, of approximately 10.3 square miles. At present, there are 20 active enterprise projects and tax abatements, principally in the northeast and southeast sections of the City. In accordance with State law, the City has adopted policies for granting tax abatements, which provide guidelines for tax abatements for both industrial and commercial projects. The guidelines for industrial and commercial projects are similar, except that qualifying industrial projects may receive a ten year abatement, while qualifying commercial projects are limited to five year tax abatements. Although older abatements made by the City were given full (100%) tax abatement, since 1997 the City has negotiated abatements on a declining percentage basis, with a portion of the tax value being added to the City's tax roll each year during the life of the abatement. The City's policies provide a variety of criteria that affect the terms of the abatement, including the projected life of the project, the type of business seeking the abatement, with certain businesses targeted for abatement, the amount of real or personal property to be added to the tax roll, the number of jobs to be created or retained, among other factors. The policies disallow abatements for certain categories of property, including real property, inventories, tools, vehicles, aircraft, and housing. Each abatement policy provides for a recapture of the abated taxes if the business is discontinued during the term of the agreement, except for discontinuances caused by natural disaster or other factors beyond the reasonable control of the applicant. For a description of the amount of property in the City that has been abated for City taxation purposes, see "Table 1 - Valuations, Exemptions, and General Obligation Debt." TAX INCREMENT FINANCING ZoNE ... Chapter 311, Texas Tax Code, provides that the City and other taxing entities may designate a continuous geographic area in their jurisdiction as a TIF if the area constitutes an economic or social liability in its present condition and use. Any ad valorem taxes relating to growth of the tax base in a TIF above the frozen base may be used only to finance improvements within the TIF and are not available for the payment of other tax supported debt of the City and other participating taxing units. Together with other taxing units, the City participates in two TIFs, the Central Business District Reinvestment Zone (the "Downtown TIF) and the North Overton Tax Increment Financing Reinvestment Zone (the "North Overton TIF"). The Downtown TIF covers an approximately 0.71 square-mile area which includes part of the central business district and abuts the North Overton TIF. The base taxable values of the Downtown TIF are frozen at the level of taxable values for 2001, the year of creation, at $101,454,552. For the first tax year of the Downtown TIF, tax year 2002, there was an approximately 1.2% increase in value before talcing into account tax abatements and exemptions. After tax abatements and exemptions, there was a net loss of tax value in the Downtown TIF. Consequently, for the year ended September 30, 2003, no deposit was made to the tax increment fund for the Downtown TIF. In addition to the City, the County, County Hospital District and the High Plains Underground Water Conservation District participate in the Downtown TIF. Given the relative tax rates of the participants, it is anticipated that the City will be the largest contributor to the tax increment fund if there is growth from the frozen base. The Downtown TIF was created pursuant to City ordinance and official action of the other participating taxing entities and is to expire in 2021. In addition to the Downtown TIF, the City enacted an ordinance in 2001 establishing the North Overton TIF. The other participating Taxing Units in the zone are Lubbock County, Lubbock County Hospital District and the High Plains Underground Water District. A£, for the Downtown TIF, the taxes levied by the City in the 2002-03 fiscal year represent approximately 65% of all taxes levied by all participating Taxing Units. The City ordinance establishing the North Overton TIF provides that the TIF will terminate on December 31, 2031 or at an earlier time designated by subsequent ordinance of the City Council. The North Overton TIF consists of approximately 325 acres near the Central Business District of the City. The frozen tax base for the North Overton TIF was established as of January 1, 2002 at $26,772,484. During the first year of its existence, there was no tax increment in the zone, due to the demolition of existing structures as land was being acquired and prepared for future development. A£, of January 1, 2003, there was approximately $12.7 million of tax increment in the North Overton TIF, and at present construction is underway on several mixed use multifamily and commercial projects in the TIF. 19 TABLE 1 • VALUATION, EXEMPTIONS AND GENERAL 0BLJGATION DEBT 2002 Market Valuation Established by Lubbock Central Appraisal District Less Exemptions/Reductions at l 00% Market Value: Residential Homestead Exemptions Homestead Cap Adjustment Disabled Veterans Agricultural/Open-Space Land Use Reductions Pollution Exemptions Freeport Exemptions Exemption for Property Valued under $500 Tax Abatement Reductions tlJ 2002 Taxable Assessed Valuation City Funded Debt Payable from Ad Valorem Taxes General Obligation Debt (as of6-30-03) (Z) The Bonds The Waterworks Certificates The Sewer Certificates The Solid Waste Certificates The Drainage Certificates The Tax Increment Certificates Total Funded Debt Payable from Ad Valorem Taxes Less: Self Supporting Debt (as of 6-30-03) (3) Waterworks System General Obligation Debt Sewer System General Obligation Debt Solid Waste System General Obligation Debt Drainage Utility System General Obligation Debt Tax Increment Financing General Obligation Debt General Purpose Funded Debt Payable from Ad V alorem Taxes (4) General Obligation Interest and Sinking Fund as of 6-30-03 Ratio Total Funded Debt to Taxable Assessed Valuation Ratio General Purpose Funded Debt to Taxable Assessed Valuation 2003 Estimated Population -204,737 PJ Per Capita Taxable Assessed Valuation -$35,862 $ 198,263,601 72,231,686 13,293,626 48,152,885 2,179,378 38,583,846 101,547 76,773,815 $ 203,945,000 11,855,000 9,765,000 680,000 3,590,000 40,135,000 3,795,000 $ 67,980,314 48,533,989 8,842,493 74,425,000 3,795,000 Per Capita Total Funded Debt Payable from Ad Valorem Taxes -$1,337 Per Capita General Purpose Funded Debt Payable from Ad Valorem Taxes -$343 $ 7,791,925,251 449,580,384 $ 7,342,344,867 273,765,000 203,576,796 $ 70,188,204 3.73% 0,96% Note: On July 25, 2003, the Lubbock Central Appraisal District certified the City's 2003 tax roll at $7,898,368,386, which includes $352,138,085 of value that is still under tax appraisal appeal. See "Discussion of Recent Financial and Management Events." (1) See above, "Tax Information -Tax Abatement Policy". (2) The statement of indebtedness does not include outstanding $39,785,000 Electric Light and Power System Revenue Bonds, as these Bonds are payable solely from the Net Revenues of the City's Electric Light and Power System. Also excludes $22,810,000 of WTMPA Bonds, with respect to which the City is jointly and severally obligated, together with other members ofWTMPA, to pay from its electric enterprise fund. (3) As a matter of policy, the City provides debt service on general obligation debt issued to fund improvements to its Waterworks System, Sewer System, Solid Waste System and Drainage System from surplus revenues of these Systems (see ttTable 8A -Pro-Forma General Obligation Debt Service Requirements", "Table SB -Division of Debt Service Requirements", "Table 9 -Interest and Sinking Fund Budget Projection" and "Table 10 -Computation of Self-Supporting 20 ,r-, - Debt"). The Tax Increment Certificates are shown in Table l as self-supporting debt However, the City projects that the amount of incremental tax revenue available to cover debt service on the Tax Increment Certificates will be insufficient until the 2005-06 fiscal year. In 2005-06, based upon development projections that the City believes to be reasonable, but which are dependent in part on future economic conditions and other factors that the City can not control and as to which it can give no assurances, the City anticipates that tax increment revenues will be adequate to cover debt requirements for that year and prior years. In the interim, the City intends to make an interfund loan to cover the debt service, and if the projected development in the North Overton TIF proceeds as expected, the City would repay such loan from revenues received in future years. In addition, in August 2003 the City plans to offer $13,280,000 (estimated amount) Combination Tax and Surplus Revenue Electric Light and Power Certificates of Obligation, Series 2003 and $8,915,000 (estimated amount) Combination Tax and Surplus Revenue Electric Light and Power Refunding Bonds, Series 2003. Current City planning calls for the 2003 LP&L Debt and other outstanding revenue bonds issued by the City for LP&L to be self- supporting, but no assurances can be given that all or some part of such debt will not be self-sufficient (see "Discussion of Recent Financial and Management Events -Mid-Year Budget Amendments; Financial Challenges"). "Waterworks System General Obligation Debt" includes $67,980,314 principal amount of outstanding general obligation bonds and certificates of obligation (including the Waterworks Certificates) that were or are being issued to finance Waterworks System improvements, and that are being paid, or are expected to be paid, from Waterworks System revenues. The City has no outstanding Waterworks System Revenue Bonds but has obligated revenues of the Waterworks System under water supply contracts. See "The Waterworks System". "Sewer System General Obligation Debt" includes $48,533,989 principal amount of general obligation bonds and certificates of obligation (including the Sewer Certificates) that were or is being issued to finance Sewer System improvements, and that are being paid, or is expected to be paid, from Sewer System . revenues. The City has no outstanding Sewer System Revenue Bonds. "Solid Waste Disposal System General Obligation Debt" includes $8,842,493 principal amount of general obligation debt (including the Solid Waste Certificates) that was or is being issued for Solid Waste System improvements, and that is being paid, or is expected to be paid, from revenues derived from Solid Waste service fees. The City has no outstanding Solid Waste Disposal System Revenue Bonds. "Drainage Utility System General Obligation Debt" includes $74,425,000 principal amount of general obligation debt (including the Drainage Certificates) that was or is being issued for Drainage System improvements, and that is being paid, or that is expected to be paid, from revenues derived from Drainage Utility System fees. The City bas no outstanding Drainage Utility System Revenue Bonds. ''Tax Increment Financing General Obligation Debt" consists of the Tax Increment Certificates that are being issued for construction and improvements in the North Overton TIF, and that is expected to be paid from revenues derived from the Pledged Tax Increment Revenues. The City has no outstanding Tax Increment Financing Revenue Bonds. (4) "General Purpose Funded Debt Payable from Ad Valorein Taxes" includes $68,684,454 of general obligation debt and $1,503,750 principal amount of outstanding Tax and Airport Surplus Revenue Certificates of Obligation on which debt service is provided from Passenger Facility Charge ("PFC") revenues (see Footnote (2), "Table 9 -Interest and Sinking Fund Budget Projectionn). · (5) Source: City of Lubbock, Texas. 21 TABLE2 -TAXABLEAsSESSEDVALUATIONSBYCATEGORY Taxable Appraised Value for Fiscal Year Ended SeEtember 30, 2003 2002 2001 %of %of %of Cateiory Amount Total Amount Total Amount Total Real, Residential, Single-Family $ 4,532,345,951 58.17% $ 3,935,486,660 53.59% $ 3,771,725,980 53.71% Real, Residential, Multi-Family 455,993,262 5.85% 466,775,473 6.36% 453,863,141 6.46% Real, Vacant Lots/Tracts 93,473,144 120% 96,407,484 1.31% 88,108,541 1.25% Real, Acreage (Land Only) 59,644,977 0.77% 60,171,506 0.82% 60,125,617 0.86% Real, Farm and Ranch Improvements 11,391,782 0.15% 12,003,318 O.I6% ll,OOO,I6I 0.16% Real, Commercial and Industrial 1,370,730,397 17.59% 1,445,748,160 19.69% 1,348,046,123 19.20% Real, Oil, Gas and Other Mineral Reserves 7,909,460 0.10% 8,849,390 0.12% 7,000,000 0.10% Real and Tangible Personal, Utilities 192,138,423 2.47% I85,588,935 2.53% 181,228,303 2.58% Tangible Personal, Commercial and Industrial 974,534,729 I2.51% 1,039,521,384 14.16% 1,072,713,960 15.28% Tangible Personal, Other 15,336,364 020% 15,296,446 0.21% 14,786,889 0.21% Real Property, Inventory 11,087,603 0.14% 10,279,056 0.14% 13,320,136 0.19% Special Inventory 67,339,159 0.86% 67,429,634 0.92% 0.00% Total Appraised Value Before Exemptions $ 7,791,925,251 100.00% $ 7,343,557,446 100.00% $ 7,021,918,851 100.00% Less: Total Exemptions/Reductions ~ 449 ,sso,3s4l ~434,247l739l {383,007,758! Taxable Assessed Value $ 7,342,344,867 $ 6,909,309,707 $ 6,638,911,093 Taxable Appraised Value for Fiscal Year Ended September 30, 2000 1999 %of %of Cate~ Amount Total Amount Total Real, Residential, Single-Family $ 3,417,179,021 51.99% $ 3,219,691,355 50.90% Real, Residential, Multi-Family 411,487,582 6.26% 396,277,540 6.26% Real, Vacant Lots/Tracts 87,184,492 1.33% 93,912,543 1.48% Real, Acreage (Land Only) 46,378,532 0.71% 45,494,120 0.72% Real, Faun and Ranch Improvements 7,166,908 0.11% 6,778,453 0.11% Real, Commercial and Industrial 1,322,413,335 20.12% 1,272,262,327 20.11% Real, Oil, Gas and Other Mineral Reserves 4,540,780 0.07% 7,862,650 0.12% Real and Tangible Personal, Utilities 180,418,060 2.74% 178,399,714 2.82% Tangible Personal, Commercial and Industrial 1,072,361,347 16.31% 1,081,053,583 17.09% Tangible Personal, Other 14,283,024 0.22% 12,807,717 0.20% Real Property, Inventory 9,845,906 0.15% 11,256,034 0.18% Total Appraised Value Before Exemptions $ 6,573,258,987 100.00% $ 6,325,796,036 100.00% Less: Total Exemptions/Reductions {396,296,005) {306,207,687} Taxable Assessed Value $ 6,176,962,982 $ 6,019,588,349 NOTE: Valuations shown are certified taxable assessed values reported by the Lubbock Central Appraisal District to the State Comptroller of Public Accounts. Certified values are subject to change throughout the year as contested values are resolved and the Appraisal District updates records. 22 ,,... TABLE 3A -VALUATION AND GENERAL OBLIGATION DEBT HISTORY General Purpose Ratio Fiscal Taxable Funded Tax Debt Tax Debt Funded Year Taxable Assessed Outstanding to Taxable Debt Ended Estimated Assessed Valuation at End Assessed Per 9/30 P2Eulation (l) Valuation {ZJ PerCal?!ta ofYearV> Valuation Ca2ita 1999 197,117 $ 6,019,588,349 $ 30,538 $ 51,222,980 0.85% $ 260 2000 199,445 6,176,963,982 30,971 53,455,346 0.87% 268 2001 201,097 6,638,911,093 33,013 58,122,809 0.88% 289 2002 202,000 6,909,309,707 34,205 63,115,346 0.91% 312 2003 204,737 7,342,344,867 35,862 70,188,204 (4) 0.96% 343 (1) Source: The City of Lubbock, Texas (2) As reported by the Lubbock Central Appraisal District on City's annual State Property Tax Board Reports; subject to change during the ensuing year. (3) Does not include self-supporting debt (see Table 3B and footnote 3 to Table I). (4) Projected, includes the Bonds. TABLE 3B • DERIVATION OF GENERAL PuRPOSE FUNDED TAX DEBT The following table sets forth certain information with respect to the City's general purpose and self-supporting general obligation debt. The City has adopted a capital improvement plan which is expected to result in the issuance of additional self- supporting general obligation debt. See "Debt Information-Capital Improvement Program and Anticipated Issuance of General Obligation Debt." Fiscal Funded Tax Debt Less: General Purpose Year Outstanding Self-Supporting Funded Tax Debt Ended at End Funded Tax Outstanding 9/30 of Year Debt at End of Year 1999 $ 158,117,749 $ 106,944,771 $ 51,222,980 2000 176,847,762 123,392,416 53,455,346 2001 175,408,321 117,285,512 58,122,809 2002 217,269,682 154,154,335 63,115,347 2003 273,765,000 {!) 203,576,796 (I) 70,188,204 (!) (1) Projected, includes the Bonds, the Waterworks Certificates, the Sewer Certificates, the Solid Waste Certificates, the Drainage Certificates and the Tax Increment Certificates. Excludes the 2003 LP&L Debt, which the City plans to offer in mid to late August, 2003. TABLE 4 -TAX RATE, LEVY AND COLLECTION HISTORY Fiscal % of Current % of Total Year Distribution Tax Tax Ended Tax General Economic Interest and Collections Collections 9/30 Rate Fund Develo£!!!ent Sinkin~ Fund Tax Levy to Tax Levy to Tax Le~ 1999 $ 0.5800 $ 0.41691 $ 0.03000 $ 0.13309 $ 34,988,031 97.67% 99.24% 2000 0.5800 0.42750 0.03000 0.12250 35,831,812 97.35% 98.89% 2001 0.5700 0.42718 0.03000 0.11282 37,841,145 97.58% 99.29% 2002 0.5700 0.42844 0.03000 0.11156 39,351,225 97.70% 99.51% 2003 0.5700 0.43204 0.03000 0.10796 42,286,967 96.85% (I) 98.08% (!) (1} Collections for part year only, through June 30, 2003. 23 TABLES -TENLARGESTTAXPA\'ERS Name of Taxpayer Macerich Lubbock LTD Partnership Southwestern Bell Telephone Co. Southwestern Public Service Wal-Mart Supercenter #861 X-Fab Texas, Inc. PYCO Industries Inc. Fleming Companies Inc. Energas Co:x: Communications West Texas Methodist Hospital Nature of Property Regional Shopping Mall Telephone Utility Electric Utility Retail Store Electronics Manufacturer Agricultural Processing Retail Grocery Natural Gas Utility Telecommunications Company Hospital and Medical Office Building 2002/03 Taxable Assessed Valuation $111,202,071 70,703,934 56,941,488 34,337,581 30,910,715 24,912,910 22,658,261 22,177,765 20,500,010 15,177,982 $ 409,522,717 % of Total Taxable Assessed Valuation 1.51% 0.96% 0.78% 0.47% 0.42% 0.34% 0.31% 0.30% 0;28% 0.21% 5.58% GENERAL OBLIGATION DEBT LIMITATION ... No general obligation debt limitation is imposed on the City under current State law or the City's Home Rule Charter (see "Tax Rate Limitation"). TABLE 6 -TAX ADEQUACY(t) Maximum Principal and Interest Requirements, All General Obligation Debt, 2005<2i .......................................................................................................................... $ 26,659,728 $0.3706 Tax Rate at 98% Collection Produces .................................................................................................................. $ 26,666,515 Maximum Principal and Interest Requirements, General Purpose General Obligation Debt, 2004<3) ................................................................................................... $ 8,115,324 $0.1128 Tax Rate at 98% Collection Produces .................................................................................................................. $ 8,116,522 (1) Based on 2002-2003 taxable assessed valuation. (2) See Table 8A. Excludes the 2003 LP&L Debt (3) See Table 8B. Excludes the 2003 LP&L Debt. TABLE 7 -ESTIMATED OVERLAPPING DEBT Expenditures of the various taxing entities within the territory of the City are paid out of ad valorem taxes levied by such entities on properties within the City. Such entities are independent of the City and may incur borrowings to finance their expenditures. This statement of direct and estimated overlapping ad valorem tax bonds ("Tax Debt") was developed from information contained in "Texas Municipal Reports" published by the Municipal Advisory Council of Texas. Except for the amounts relating to the City, the City has not independently verified the accuracy or completeness of such information, and no person should rely upon such information as being accurate or complete. Furthermore, certain of the entities listed may have issued additional Tax Debt since the date hereof, and such entities may have programs requiring the issuance of substantial amounts of additional Tax Debt, the amount of which cannot be determined. The following table reflects the estimated share of overlapping Tax Debt of the City. Taxing Jurisdiction City of Lubbock Lubbock Independent School District Lubbock County Lubbock County Hospital District High Plains Underground Water Conservation District No. I Frenship Independent School District Idalou Independent School District Lubbock-Cooper Independent School District New Deal Independent School District Total Direct and Overlapping G.O. Debt $ 2002/03 Taxable Assessed Value 7,342,344,867 6,050,459,610 8,423,271,899 8,693,093,090 8,693,093,090 1,029,341,776 l 16,759,420 395,300,402 16,957,054 Total Funded Debt Tax As Of Rate 6-30-03 $ 0.57000 $ 273,765,000 {I) 1.60560 74,034,219 0.19110 79,935,000 0.10440 -0- 0.00840 -0- 1.64160 30,169,125 1.45000 1,439,998 1.52900 14,399,555 0.61590 -0- City's Estimated Overlapping % G.O. Debt A1:2licable As of 6-30-03 100.00% $ 273,765,000 98.91 % 73,227,246 82.94% -0- 82.94% -0- 82.94% -0· 64.44% 19,440,984 1.10% 15,840 15.30% 2,203,132 0.03% -0- $ 368,652,202 Authorized But Unissued $ Debt As Of 6-30-03 3,742,000 3,402,595 505,347 -0- -0- .Q. -0- -0- -0· Ratio of Direct and Overlapping G.O. Debt to Taxable Assessed Valuation............................................... 5.02% Per Capita Direct and Overlapping G.O. Debt ......... , ... , ..•.................••.... , . . . . . . . . . . . . • . . . . . . . . . . . . . . .... , . $ 1,825 (1) Includes the Bonds, the Waterworks Certificates, the Sewer Certificates, the Solid Waste Certificates, the Drain.age Certificates and the Tax Increment Certificates. 24 .....,, ) ) ) ) } ) ) .} ) ) ) TABLE 88 -DMSION OF DEBT SERVICE REQUIREMENTS Less: Less: Less: Less: Less: Solid Waste Drainage Tax Wateiworks Sewer Disposal Utility Increment General Fiscal System System System System Financing Purpose Year General General General Gener.ii General General Ended Combined Rcquirements111 Obligation Obligation Obligation Obligation Obligation Obligation ..2Q2_ Princi1;al Interest Total Requirements Requirements Requirements Requirements Reguiremcnts Requirements 2003 $ 13,324,682 (2) $ 11,120,130 (l) $ 24,444,812 (2) $ 6,921,579 <2> $ 6,507,447 (Z) $ 579,021 <2) $ 2,321,441 (2) $ $ 8,115,324 (l) 2004 13,5!0,000 12,899,033 26,409,033 6,798,536 6,235,864 732,646 4,307,251 183,869 8,150,868 2005 14,700,000 11,959,728 26,659,728 7,085,088 5,940,796 813,084 4,852,706 286,725 7,681,329 2006 14,845,000 11,269,592 26,114,592 6,915,220 5,754,261 796,168 4,852,456 285,600 7,510,887 2007 15,000,000 10,599,190 25,599,190 6,792,535 5,557,089 783,121 4,853,903 289,100 7,323,442 2008 14,525,000 9,946,978 24,471,978 6,371,748 5,231,518 773,041 4,855,891 287,225 6,952,556 2009 14,280,000 9,310,514 23,590,514 6,219,281 4,942,739 758,041 4,853,231 285,825 6,531,396 20IO 13,975,000 8,683,863 22,658,863 6,049,718 4,658,847 743,158 4,855,106 289,825 6,062,209 2011 14,245,000 8,053,924 22,298,924 5,944,541 4,496,853 727,796 4,854,651 288,525 5,986,558 2012 13,265,000 7,436,121 20,701,121 5,060,244 4,257,896 712,037 4,856,299 287,025 5,527,620 2013 13,525,000 6,829,644 20,354,644 5,003,521 4,068,507 700,693 4,856,694 285,325 5,439,904 2014 13,810,000 6,204,699 20,014,699 4,939,885 3,898,220 683,746 4,856,825 · 288,325 5,347,698 2015 11,115,000 5,626,756 16,741,756 4,803,073 2,030,676 666,322 4,857,133 285,909 4,098,642 2016 10,520,000 5,108,777 15,628,777 4,748,003 1,251,468 648,827 . 4,857,350 287,950 3,835,179 tv 2017 10,075,000 4,603,064 14,678,064 4,700,179 1,212,310 631,350 4,852,350 289,450 2,992,425 -.I 2018 10,485,000 4,091,493 14,576,493 4,637,767 1,181,659 618,221 4,856,259 285,369 2,997,217 2019 10,405,000 3,568,577 13,973,577 4,261,237 1,144,628 423,800 4,853,666 285,694 3,004,552 . 2020 9,180,000 3,072,882 12,252,882 3,301,278 378,450 417,238 4,854,518 290,309 3,011,090 2021 6,955,000 2,664,600 9,619,600 1,282,056 381.581 409,938 4,853,413 289,056 2,403,556 2022 6,410,000 2,334,373 8,744,373 1,280,781 378,819 270,400 4,852,254 287,181 1,674,938 2023 5,040,000 2,053,913 7,093,913 740,588 53,563 273,644 4,850,863 289,713 885,544 2024 4,375,000 1,823,076 6,198,076 737,100 51,188 271,294 4,851,845 286,650 2025 3,220,000 1,632,714 4,852,714 4,852,714 2026 3,395,000 1,463,114 4,858,114 4,858,114 2027 3,575,000 1,283,950 4,858,950 4,858,950 2028 3,755,000 1,095,068 4,850,068 4,850,068 2029 3,955,000 896,385 4,851,385 4,851,385 2030 4,170,000 686,998 4,856,998 4,856,998 2031 4,390,000 466,390 4,856,390 4,856,390 2032 2,240,000 297,250 2,537,250 2,537,250 2033 2,350,000 182,500 2,532,500 2,532,500 2034 2,475,000 61,875 2,536,875 2,536,875 $ 287,089,682 $ 157,327,167 $ 444,416,849 $ 104,593,958 $ 69,614,377 $ 13,433,584 $ 145,307,347 $ 5,934,650 $ 105,532,934 ( l) Includes debt service on the Bonds, the Waterworks 0.,'11:ificates, the Sewer Certificates, the Solid Waste Certificates, the Drainage Certificates and the Tax Increment Certificates. (2) Includes principal and semiannual interest paid by the City on February 15, 2003. TABLE 9 -INTEREST A:'ID SINKING FuND BUDGET PROJECTION General Obligation Debt Service Requirements, Fiscal Year Ending 9-30-03 $ 24,444,812 Fiscal Agent, Tax Collection and Other Uses 15,000 Total Requirements $ 24,459,812 Sources of Funds Interest and Sinking Fund, 9-30-02 $ 1,697,045 Budgeted Ad Valorem Tax Receipts 7,715,943 Budgeted Transfers From: Water Fund (l) $ 6,921,579 Sewer Fund (Il 6,507,447 Solid Waste Fund (l) 579,021 Drainage Utility Fund <I) 2;321,441 Airport Fund -from Passenger Facility Charges (2) 209,434 Budgeted Interest Earned 42,800 Total Sources of Funds $ 25,994,710 Projected Balance, 9-30-03 $ 1,534,898 (1) See "Table 10 -Computation of Self-Supporting Debt". (2) Passenger Facility Charges ("PFCs") are authorized by the Federal Aviation Administration ("FAA"). PFC revenues must be used for allowable costs of FAA approved airport projects, including debt service on airport obligations issued for approved airport projects. The City has issued several series of debt for municipal airport improvements (" Airport Debt"), including tax and airport surplus revenue certificates of obligation in 1993 and 1998, and general obligation refunding bonds in 1985 and 1997, which refunded prior issues of Airport Debt. A portion of the refunding bonds have been allocated to the airport in proportion to the principal amount of Airport Debt that was refunded. PFC revenues in the fiscal year ending 9-30-02 were $1,342,212, and, as shown above, $209,434 of PFC revenues have been budgeted for payment of Airport Debt in 2002-03, which equates to self-supporting Airport Debt with a principal balance of $1,638,750. For 2002- 03, the portion of Airport Debt that is being funded from general fund contributions (ad valorem taxes) equates to a principal balance of$3,495,082. 28 ,,-., r-' ") ) 0 f) ,, ·, () f) '} ) ) ) DEBT INFORMATION l,IGATION DEBT SERVICE REQUIREMENTS '1;i :;,;, 0:, z -i ~ ~ .8 a ~ [;j :1 8 ~-§ ~ ~ f;i ' S-§8 llol ,.. ' ,. ~g~bi ~ <=> Outstanding Debt (ll Tbe Bonds<>) I!Je Waterw2rl!s Certificat~t> Jlie ~ewer Qcuifi£ates1•> ~ TQ!.\!1 PD.!!!ii11J!! IQl~!ll!!I . Toil!! £!:ln,il!l!l Interest Total frinci11al interest 1'otal ' a.it~!'!o i (':) Interest ' ~ 8' g.:;,;, a-12 (S) 11,120,!30 (l) (5) $ !. 0 $ $ 24,444,812 $ $ .$ $ $ $ $ $ ,. a .., cr.§ oo :: 600,000 1,124,704 473,051 473,051 " "" )0 9,521,151 22,431,151 524,704 33,387 33,387 l i £ ~ ~-1 ~ 8,878,776 21,893,776 415,000 468,425 883,425 310,000 428,913 738,913 I ~ )0 20,000 30,319 50,319 f-)O 8,244,489 21,349,489 425,000 455,825 880,825 325,000 413,038 738,038 25,000 29,194 54,l.94 ) it;S:-9:,"1 ~ )O 7,633,616 20,828,616 440,000 442,850 882,850 345,000 396,288 741,288 25,000 27,944 52,944 ). (/) ... ~&l'!)! :: z t «it"'dcl'g s 0 )0 7,045,641 19,705,641 450,000 429,500 879,500 360,000 378,663 738,663 25,000 26,694 51,694 I ~-a ~ = "I )0 6,474,861 18,824,861 465,000 415,775 880,775 380,000 362,063 742,063 25,000 25,444 50,444 f ~ ' .,, 0 (1> (1> )() 5,917,098 17,892,098 480,000 400,400 880,400 395,000 346,563 741,563 25,000 24,256 49,256 r ~fi~~~ "11 JO 5,363,046 17,528.046 500,000 382,000 882,000 4I0,000 330,463 740,463 30,000 23,094 53,094 0 ;::, 0 i:::::.: ~ z: Q 9 0 g. "'d )0 4,826,793 15,936,793 520,000 361,600 881,600 425,000 313,763 738,763 30,000 21,894 51,894 a ~ to ....... <! oq ofl JO 4,307,018 15,587,018 540,000 340,400 880,400 445,000 296,363 741,363 30,000 20,694 50.694 :d e: a 8.::ri ~ lO 3,773,449 15,248,449 565,000 318,300 883,300 460,000 278,263 738,263 30,000 19,494 49,494 ) UQ. 0 Y' ~ z JO 3,291,353 11,976,353 585,000 295,300 880,300 480,000 259,163 739,163 35,000 18,172 53,172 ~ ~Uf ::rla 0 ~ O(!Q "',< i )0 2,882,714 10,857,714 615,000 268,225 883,225 500,000 238,638 738,638 35,000 16,706 51,706 ;;,~ g_ij JO 2,500,239 9,910,239 645,000 236,725 881,725 525,000 216,856 · 741,856 35,000 15,219 50,219 ~ o s· ~ lO 2,119,099 9,809,099 680,000 203,600 883,600 545,000 193,438 738,438 40,000 13,575 53,575 ~ i~ ig1 :i, (/) (1> t:t1 i::,. )0 1,734,221 9,209,221 715,000 168,725 883,725 570,000 168,350 738,350 40,000 11,775 51,775 ~ g._;r ;::, a lO 1,382,135 7,487,135 745,000 134,088 879,088 600,000 141,650 741,650 40,000 9,950 49,950 ,!. ';"> i::,. \C) lO 1,125,150 '4,850,150 785,000 98,681 883,681 625,000 112,931 737,931 45,000 7,956 52,956 l ~ ~ 8.. (,, 'd g_ '-0 0 lO 953,535 3,983,535 820,000 60,563 880,563 655,000 82,531 737,531 45,000 5,819 50,819 1 0, b ..:: 0 tv )0 837,900 2,317,900 865,000 20,544 885,544 690,000 50,588 740,588 50,000 3,563 53,563 "' ::i g b )0 758,470 2,318,470 720,000 17,100 737,IO0 50,000 1,188 51,188 gi (IQ ... w )0 674,339 2,319,339 (. g1 Q. JO 585,614 2,320,614 5· 0 oq )O 491,575 2,321,575 l '-0 t )0 392,068 2,317,068 w 0 )0 287,260 2,317,260 ' 0 0 w )O 176,623 2,321,623 if JO 59,890 2,319,890 i l2 $ 103.358.251 $ 320.627,933 $ 11,855,000 $ 6.026,229 $ 17,881,229 I 9,765,000 $ 5,498,670 I 680,000 $ 386,334 '.i 1,066,334 @ = ~ :s not include lease/purchase obligations. I. g ~i ~ ~ -11.268 years. Jnterest on the Bonds has been calculated at the rates shown on the cover page hereof. --.... I 0\ OQ QO = -12.501 years. Interest on the Waterworks Certificates has been calculated at the rate of 4.475%. §18~6~ = -12.532 years. Interest on the Sewer Certificates has been calculated at the rate of 4.512%. • ..-l>) I tJ.J o• • • emiannual interest paid by the City of February 15, 2003. [ 0 Vi O 0 ::!:". -:i '-" ..,. " '-0 -:i -:i CAPITAL IMPROVEMENT PROGRAM AND A.i ... TICIPATED lsSUANCE OF GENERAL OBLIGATION DEBT .•• The City Council adopted a resolution during the 1984-85 budget process establishing pennanent capital maintenance funds for capital projects. A capital improvement plan is made for planning purposes and may identify projects that will be deferred or omitted entirely in future years. In addition, as conditions change, new projects may be added that are not currently identified. In order for a project to be funded as a capital project it must have a cost of $25,000 or more and a life of seven or more years. Many of the projects require more than one year of completion and are accounted for on a life to date basis. For fiscal year ending 9-30-03, the City Council has approved $57,972,331 in total expenditures for capital projects for all general purpose projects, as well as projects for the City's Electric System, Waterworks System, Sewer System, Solid Waste System, Drainage System and Airport. The Capital Projects Fund budget for 2002-2003 also identifies an additional $119,258,382 in future improvements for all City departments over the four succeeding fiscal years, including $32,050,000 to be financed through the issuance of tax-supported debt in these years. The balance of the capital expenditures are anticipated to be funded from reserves or current year revenue sources. The current issuance of tax supported debt by the City, which includes the issuance of the Bonds, is intended to fund General Fund and enterprise fund capital expenditures for the next 18 to 24 month period, although itis possible that the City will need to issue approximately $4 million of tax supported certificates of obligation during the 2003-04 fiscal year to pay the City's share of a State Department of Transportation freeway project in the City. In addition, it is possible that the City could issue a portion of any voted bond authorization should it be approved by the voters during the 2003-04 fiscal year (see the discussion below), but it is unlikely that more than $1.5 million of any such voted authorization would be issued during the 2003-04 fiscal year. At present, however, City staff and management are formulating the 2003-04 capital improvement budget for presentation to the City Council, and the amount of debt that will be included in the final capital improvement budget of the City could be revised when the new capital projects fund budget is finally adopted by the Council. The City typically issues voted bonds for general purpose City projects, such as streets, parks, libraries, civic centers and public safety improvements. However, the City has incurred substantial tax supported debt to fund portions of the capital budget of the Waterworks System, Sewer System, Drainage System, City Airport, Solid Waste System and is presently anticipating issuing tax supported debt for the Electric System. As described elsewhere in this Official Statement, such enterprise fund indebtedness is generally anticipated to be self-supporting from enterprise fund revenues. During the second quarter of Fiscal Year 2002-03, the Lubbock Citizens Advisory Committee was appointed and charged with evaluating capital improvement needs that should be submitted to the voters of the City. In June 2003, the Committee reported to the City Council that it had identified approximately $29.9 million in capital projects to be funded from voted bonds at a future City bond election. The Committee undertook its review with a goal of providing the City Council with recommendations for projects to be constructed during the 2004-2008 time frame and prioritizing the projects in a manner that would permit the bonds to be issued without a tax rate increase. The City Council has not formally ordered the election, but has indicated that it expects to call the election during the 2003-04 fiscal year. TABLE 12 -OTHER OBLIGATIONS The City has capital lease obligations for leased equipment in the following amounts: Balance Asset Classification 2003 2004 2005 Outstanding Motor Vehicles $ 654,333 $ 654,333 $ 308,778 $ 1,617,443 Heavy Equipment 66,336 48,326 114,662 Heavy Moveable Equipment 650,934 594,126 594,126 1,839,187 PENSION FuND ... TEXAS MUNICIPAL RETIREMENT SYSTEM C1X2> ••• All permanent, full-time City employees who are not firefighters are covered by the Texas Municipal Retirement System ("TMRS"). TMRS is an agent, multiple-employer, public- employee retirement gystem which is covered by a State statute and is administered by six trustees appointed by the Governor of Texas. TMRS operates independently of its member cities. The City ofLubbockjoined TMRS in 1950 to supplement Social Security. All City employees except firefighters are covered by Social Security. Options offered under TMRS, and adopted by the City, include current, prior and antecedent service credits, ten year vesting, updated service credit, occupational disability benefits and survivor benefits for the spouse of a vested employee. An employee who retires receives an annuity based on the amount of the employees contributions over-matched two for one by the City. Since October 11, 1997, the employee contribution rate has been 7% of gross salary. The City's contribution rate is calculated each year using actuarial techniques applied to experience. The 2002 contribution rate was 13.99%. The 2003 contribution rate is 14.05%. Enabling statutes prohibit any member city from adopting options which impose liabilities that cannot be amortized over 25 years within a specified statutory rate. On December 31, 2001, the actuarial value of assets held by TMRS (not including those of the Supplemental Disability Fund, which is "pooled"), for the City of Lubbock were $172,510,622. Unfunded actuarial accrued liabilities on December 31, 2001 were $43,073,413, which is being amortized over a 25-year period beginning January, 1997. Total contributions by the City to the System for Calendar Year 2002 were $5,513,501.97. 30 ---"" I l I .e- ;n, A'< A'> 0 ,. - FIREMEN'S RELIEF AND RETIREMENT FUND en ... City of Lubbock firefighters are members of the locally administered Lubbock Firemen's Relief and Retirement Fund (the uFUND"), operating under an act passed in 1937 by the State Legislature and adopted by City firefighters, by vote of the department, in 1941. Firefighters are not covered by Social Security. The Fund is governed by seven trustees, three firefighters, two outside trustees (appointed by the other trustees), the Mayor or his representative and the chief financial officer or his representative. Execution of the act is monitored by the Firemen's Pension Commissioner, who is appointed by the Governor. Benefits of retired firemen are determined on a "fonnula" or a "final salary" plan. Actuarial reviews are performed every two years, and the fund is audited annually. Firefighters contribute 11% of full salary into the fund and the City must contribute a like amount; however, the city contributes on a basis of the percentage of salary which is a ratio adjusted annually that bears the same relationship to the firefighter's contribution rate that the City's rate paid into the TMRS and FICA bears to the rate other employees pay into the TMRS and FICA. The City's contribution rate for 2002 was 16.25%. As of December 31, 2000, over-funded pension benefit obligations were $4,985,739 which is being amortized over a 13 year period beginning January 1, 1997. (1) For historical information concerning the retirement plans, see Appendix B, "Excerpts from the City's Annual Financial Report" -Note #III, Subsection E, "Retirement Plans".) (2) Source: Texas Municipal Retirement System, Comprehensive Annual Financial Report for Year Ended December 31, 2001, "City of Lubbock, Texas". 31 FINANCIAL INFORMATION TABLE 13 • GENERAL FuND REVENUES AND EXPENDITURE HISTORY 2002Ul Fiscal Year Ended S92tember 30, Revenues 2001 2000 1999 1998 Ad Valorem Taxes $ 29,885,252 $ 28,604,141 $ 26,595,709 $ 25,338,127 $ 23,271,939 Sales Taxes 28,902,649 28,183,746 27,121,078 25,196,203 24,914,523 Franchise Fees 6,998,085 7,684,683 6,619,755 6,235,099 7,128,034 Miscellaneous Taxes 820,507 774,587 743,771 721,907 675,694 Licenses and Permits 1,475,451 1,202,794 1,138,924 976,091 1,037,458 Intergovernmental 351,878 333,171 365,671 576,136 917,572 Charges for Services 4,472,094 4,299,958 4,210,334 4,032,665 4,016,475 Fines 3,069,362 3,051,055 2,834,208 3,335,340 3,313,233 Miscellaneous Taxes 1,058,237 995,494 1,143,226 947,636 1,011,559 Interest 433,393 1,058,096 1,108,662 1,118,016 1,239,562 Operating Transfers (Z) 15,023,466 14,276,074 13,636,764 13,451,796 16,030,636 Total Revenues and Transfers $ 92,490,374 $ 90,463,799 $ 85,518,102 $ 81,929,016 $ 83,556,685 ElQleDditures General Government $ 6,959,462 $ 7,130,478 $ 6,193,124 $ 6,143,076 $ 5,762,283 Financial Services 1,614,175 1,499,967 1,458,232 1,366,006 1,196,779 Management Services 590,596 629,903 461,067 396,216 389,583 Non-departmental 1,497,485 1,716,167 606,843 926,203 1,125,310 Health & Community Services 4,956,070 4,831,348 4,744,830 4,522,041 4,519,880 Strategic Planning 900,720 948,514 823,399 839,814 774,878 Culture/Leisure Services 13,489,457 13,668,823 13,454,832 12,630,738 12,667,406 Police 28,950,964 28,139,048 25,561,261 23,478,729 22,013,906 Fire 18,485,419 17,785,641 17,080,371 15,616,543 14,468,027 Transportation Services 4,134,111 4,771,680 5,439,855 5,195,459 5,007,496 Electric Utilities 2,168,620 2,146,211 1,923,584 1,759,509 1,848,283 Human Resources 895,311 913,250 871,596 870,172 810,997 Operating Transfers 5,951,669 6,187,379 7,526,481 9,926,784 12,454,461 Total Expenditures $ 90,594,059 $ 90,368,409 $ 86,145,475 $ 83,671,290 $ 83,039,289 Excess (Deficiency) of Revenues and Transfers Over Expenditures $ 1,896,315 $ 95,390 $ (627,373) $ (1,742,274) $ 517,396 Fund Balance at Beginning ofY ear 16,716,042 16,620,652 17,248,025 18,990,299 18,472,903 Fund Balance at End of Year $ 18,612,357 $ 16,716,042 $ 16,620,652 $ 17,248,025 $ 18,990,299 Less: Reserves and Designations <3l (1,903,6902 (2,361,8602 ~2,857,0962 (4,432,834l {5,442,847) Undesignated Fund Balance $ 16,708,667 $ 14,354,182 $ 13,763,556 $ 12,815,191 $ 13,547,452 (1) In accordance with GASB Statement No. 34 (see discussion below under "Financial Policies"), the fiscal year 2002 financial statements, which are attached hereto as Appendix B, include a management discussion and analysis of the operating results of such fiscal year. Reference is made to Appendix B for such information. (2) The City's financial policies provide for transfers to the General Fund from the City's enterprise funds. The policies provide that the water, waste water and solid waste funds transfer an amount sufficient to cover the pro rata share of the City's general and administrative expenses, an amount representing a franchise payment equal to 3% of gross receipts with respect to the Sewer System, and 4% with respect to the Water System and Solid Waste System, plus an amount representing a payment in lieu of ad valorern taxes. For a discussion of changes made to the transfer policy with respect to the Water System, Solid Waste System and LP&L in May 2003, see "Discussion of Recent Financial and Management Events -Mid-Year Budget Amendments; Financial Challenges." (3) The City's financial policies target a General Fund undesignated balance of at least two months of General Fund expenditures. Amounts representing fund balances in excess of the target are reserved for future capital expenditures. See "Discussion of Recent Financial and Management Events -Mid-Year Budget Amendments; Financial Challenges". 32 ,-,, .. ~ .. ,-. ·"""' ~ TABLE14 • MUNICIPALSALESTAXHISTORY The City has adopted the Municipal Sales and Use Tax Act, VTCA, Tax Code, Chapter 321, which grants the City the power to impose and levy a 1% Local Sales and Use Tax within the City; the proceeds are credited to the General Fund and are not pledged to the payment of the Certificates or other debt of the City. In addition, in January, 1995, the voters of the City approved the imposition of an additional sales and use tax of one-eighth of a cent as authorized by VTCA, Tax Code, Chapter 323, as amended. Collection for the additional tax commenced in October, 1995 with the proceeds from the one--eighth cent sales tax designated for the use and benefit of the City to replace property tax revenues lost as a result of the adoption of the tax. Collections and enforcements of the City's sales tax are effected through the offices of the Comptroller of Public Accounts, State of Texas, who remits the proceeds of the tax, to the City monthly, after deduction of a 2% service fee. Historical collections of the City's local Sales and Use Tax is shown below: Fiscal Year %of Equivalent of Ended Total Ad Valorem AdValorem Per 9/30 Co llected1'' Tax Le;::x Tax Rate Capita1'' 1998 $ 25,002,693 73.94% $ 0.4288 $ 127.12 1999 25,196,203 72.Q1% 0.4186 127.82 2000 27,121,078 71.67% 0.4391 135.98 2001 28,183,746 74.48% 0.4245 140.15 2002 28,902,649 73.37% 0.4183 143.08 ( 1) Excludes bingo tax receipts. (2) Based on population estimates of the City. Note: Through June 30, 2003, sales tax collections were $16,780,624, which represents a 0.45% increase from the same time period in the 2001-02 fiscal year. Amounts collected and remitted to the City through June 30, 2003 reflect economic activity through April 30, 2003. The sales tax breakdown for the City is as follows: City Sales & Use Tax City Tax for Property Tax Relief County Sales & Use Tax State Sales & Use Tax Total 1.000¢ 0.125¢ 0.500¢ 6.250¢ 7.875¢ The City will hold an election on November 4, 2003 for the purpose of submitting a proposition to the voters of the City for a one-eighth cent ($.00125) sales and use tax dedicated for economic development in the City and an additional one--quarter cent ($.0025) sales tax to be used for the reduction of ad valorem taxes in the City. The City cannot predict whether the voters will approve the sales tax increases. , FINANCIAL POLICIES Basis of Accounting ... The accounting policies of the City confonn to generally accepted accounting principles of the Governmental Accounting Standards Board and program standards adopted by the Government Finance Officer's Association of the United States and Canada ("GFOA"). The GFOA has awarded a Certificate of Achievement for Excellence in Financial Reporting to the City for each of the fiscal years ended September 30, 1984 through September 30, 2002. The City's 2003 report will be submitted to GFOA to determine its eligibility for another certificate. Implementation of New Accounting Standards ..• For the year ended September 30, 2002, the City implemented the provisions of the Governmental Accounting Standard Board ("GASB") Statement No. 34, Basic Financial Statements -and Management's Discussion and Analysis -for State and Local Governments, GASB Statement No. 37, Basic Financial Statements -and Management's Discussion and Analysis -for State and Local Governments: Omnibus, and GASB Statement No. 38, Certain Financial Note Disclosures which results in a change in content and format of the City's financial statements (collectively, the "New GASB Statements"). The audited financial statements of the City for the year ended September 30, 2002, prepared in accordance with the New GASB Statements, are in included in Appendix B hereto. The purpose of the New GASB Statements is to create new information and restructure much of the information that governments have presented in the past to provide a more comprehensive demonstration of their annual :financial performance on a system-wide basis. Among the significant changes effected by the new accounting standards are new presentations for proprietaty or business-type operations of the City, such as those reported for the City's water and waste water operations (the "Proprietary Funds"). As required by the newly adopted accounting principles, the City's annual report consists of three basic :financial statements for the Proprietaiy Funds: the Statement of Net Assets; the Statement of Revenues, Expenses and Changes in Net Assets; and the Statement of Cash Flows. Those statements are included in the financial statements of the City for the year ended September 30, 2002 in Appendix B. 33 A discussion of the New GASB Statements is set forth in the Management Discussion and Analysis and in various notes to the City's financial statements in Appendix B, General Fund Balance ... The City's objective is to maintain an unreserved/undesignated fund balance at a minimum of an amount equal to two months budgeted operating expenditures to meet unanticipated contingencies and fluctuations in revenue. Enterprise Fund Balance ... It is the policy of the City to maintain retained earnings equal to three months operating expense and debt requirements in each of the Electric, Water, Solid Waste and Sewer funds for unforeseen contingencies (although the Electric System has not funded any operating reserves under this policy). The City's financial policy provides that such retained earnings shall be accumulated over a ten year period, which commenced in 1996. Resources are also retained in a rate stabilization fund within these funds to meet shortfalls in revenues or fluctuating rate environments, to fund capital improvements and may be allocated if there are not sufficient resources in unreserved/undesignated retained earnings. Enterprise Fund Revenues ... It is the policy of the City that each of the Electric, Water, Solid Waste and Sewer funds be operated in a manner that results in self sufficiency, without the need for additional monetary transfers from other funds (although the Electric System has relied upon interfund loans from other enterprise funds and from the General Fund in recent years). Such self sufficiency is to be obtained through the rates, fees and charges of each of these enterprise funds. For purposes of determining self sufficiency, cost recovery for each enterprise fund includes direct operating and maintenance expense, as well as indirect cost recovery, in-lieu of transfers to the General Fund for property and franchise tax payments, capital expenditures and debt service payments, where appropriate. Debt Service Fund Balance ... A reasonable debt service fund balance is maintained in order to compensate for unexpected contingencies. Budgetary Procedures ... The City follows these procedures in establishing operating budgets: I) Prior to August l, the City Manager submits to the City Council a proposed operating budget for the fiscal year commencing the following October 1. The operating budget includes proposed expenditures and the means of financing them. 2) Public hearings are conducted to obtain taxpayer comments. 3) Prior to October 1 the budget is legally enacted through passage of an ordinance. 4) The City Manager is authorized to transfer budgeted amounts between departments and funds. Expenditures may not legally exceed budgeted appropriations at the fund level. 5) Formal budgetary integration is employed as a management control device during the year for the Convention and Tourism, Criminal Investigation, and Capital Projects Funds. Budgets are adopted on an annual basis. Formal budgetary integration is not employed for Debt Service funds because effective budgetary control is alternatively achieved through general obligation bond indenture and other contract provisions. 6) The Budget for the General Fund is adopted on a basis consistent with generally accepted accounting principles ("GAAP"). 7) Appropriations for the General Fund lapse at year end. Unencumbered balances for the Capital Projects Funds continue as authority for subsequent period expenditures. 8) Budgetary comparison is presented for the General Fund in the combined financial statement section of the Comprehensive Annual fmancial Report. The City has received the Distinguished Budget Presentation Award from the GFOA for the following budget years beginning October 1, 1983-88 and 1990-02. The City has submitted the current budget to the GFOA to determine its eligibility for another award. Insurance and Risk Management ... The City is self-insured for general liability and health benefits coverage, although it purchases reinsurance coverage and risk management for claims in excess of $250,000 for general liability claims. Airport liability insurance and workers' compensation is insured under policies issued by third party insurers. The City's insurance policies are maintained with large deductibles for fire and extended coverage and boiler coverage. An Insurance Fund has been established in the Internal Service Fund to account for insurance programs and budgeted transfers are made to this fund based upon estimated payments for claim losses. At 9-30-02 the total Fund Equity of these insurance funds were as follows: Self-insurance -health Self-insurance -risk management 34 $ 8,839,602 $ 10,874,197 r\ i - TABLE 10 -COMPUTATION OF SELF-SUPPORTING DEBT THE WATERWORKS SYSTEM (lJ Net Waterworks System Revenue Available, Fiscal Year Ended 9-30-02 Less: Requirements for Revenue Bonds, Fiscal Year Ended 9-30-03 Balance Available for Other Purposes Requirements for Waterworks System General Obligation Debt, Fiscal Year Ending 9-30-03 Percentage of Waterworks System General Obligation Debt Self-Supporting $ 18,713,057 -0- $ 18,713,057 $ 6,921,579 100.00% (1) Each Fiscal Year the City transfers Net Revenues of the Waterworks Enterprise Fund to the General Obligation Interest and Sinking Fund in an amount equal to debt service requirements on Waterworks System general obligation debt THE SEWER SYSTEM!ll Net Sewer System Revenue Available, Fiscal Year Ended 9-30-02 Less: Requirements for Revenue Bonds, Fiscal Year Ending 9-30-03 Balance Available for Other Purposes Requirements for Sewer System General Obligation Debt, Fiscal Year Ending 9-30-03 Percentage of Sewer System General Obligation Debt Self-Supporting $ 8,646,096 -0- $ 8,646,096 $ 6,507,447 100.00% (I) Each Fiscal Year the City transfers Net Revenues of the Sewer Enterprise Fund to the General Obligation Interest and Sinking Fund in an amount equal to debt service requirements on Sewer System general obligation debt THE SOLID WASTE DISPOSAL SYSTEM <1> Net Solid Waste System Revenue Available, Fiscal Year Ended 9-30-02 Less: Requirements for Revenue Bonds, Fiscal Year Ending 9-30-03 Balance Available for Other Purposes Requirements for Solid Waste System General Obligation Debt, Fiscal Year Ending 9-30-03 Percentage of Solid Waste System General Obligation Debt Self-Supporting $ 6,411,218 -0- $ 6,411,218 $ 579,021 100.00% ( l) Each Fiscal Year the City transfers Net Revenues of the Solid Waste Enterprise Fund to the General Obligation Interest and Sinking Fund in an amount equal to debt service requirements on Solid Waste System general obligation debt THE DRAJNAGE SYSTEM (IJ Net Drainage Utility System Revenue Available, Fiscal Year Ended 9-30-02 Less: Requirements for Revenue Bonds, Fiscal Year Ending 9-30-03 Balance Available for Other Purposesl"J Requirements for Drainage UtilitySystem General Obligation Debt, Fiscal Year Ending 9-30-03 Percentage of Drainage System General Obligation Debt Self-Supporting $ 5,501,920 -0- $ 5,501,920 $ 2,321,441 100.00% (l) Each Fiscal Year the City transfers Net Revenues of the Drainage Enterprise Fund to the General Obligation Interest and Sinking Fund in an amount equal to debt service requirements on Drainage System general obligation debt TABLE 11 -AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS Amount Date Amount Previously Unissued Pu!J?2se Authorized Authorized Issued The Bonds Balance Waterworks System 10-17-87 $ 2,810,000 $ 200,000 $ $ 2,610,000 Sewer System 5-21-77 3,303,000 2,175,000 1,128,000 Street Improvements 5-1-93 10,170,000 10,166,000 4,000 Street Improvements 9-18-99 17,165,000 11,800,000 5,365,000 Drainage 9-18-99 2,160,000 1,025,000 1,135,000 Traffic Signals 9-18-99 3,295,000 2,160,000 1,135,000 Parks 9-18-99 14,765,000 10,515,000 4,250,000 $ 53,668,000 $ 38,041,000 $ 11,885,000 * $ 3,742,000 * Includes $30,000 of premium paid by the Underwriters. 29 CAPITAL IMPROVEME:NT PROGRAM AND A1"TICIPATED ISSUANCE OF GENERAL OBLIGATION DEBT ... The City Council adopted a resolution during the 1984-85 budget process establishing pennanent capital maintenance funds for capital projects. A capital improvement plan is made for planning purposes and may identify projects that will be deferred or omitted entirely in future years. In addition, as conditions change, new projects may be added that are not currently identified. In order for a project to be funded as a capital project it must have a cost of $25,000 or more and a life of seven or more years. Many of the projects require more than one year of completion and are accounted for on a life to date basis. For fiscal year ending 9-30-03, the City Council has approved $57,972,331 in total expenditures for capital projects for all general purpose projects, as well as projects for the City's Electric System, Waterworks System, Sewer System, Solid Waste System, Drainage System and Airport. The Capital Projects Fund budget for 2002-2003 also identifies an additional $119,258,382 in future improvements for all City departments over the four succeeding fiscal years, including $32,050,000 to be financed through the issuance of tax-supported debt in these years. The balance of the capital expenditures are anticipated to be funded from reserves or current year revenue sources. The current issuance of tax supported debt by the City, which includes the issuance of the Bonds, is intended to fund General Fund and enterprise fund capital expenditures for the next 18 to 24 month period, although it is possible that the City will need to issue approximately $4 million of tax supported certificates of obligation during the 2003-04 fiscal year to pay the City's share of a State Department of Transportation freeway project in the City. In addition, it is possible that the City could issue a portion of any voted bond authorization should it be approved by the voters during the 2003-04 fiscal year (see the discussion below), but it is unlikely that more than $1.5 million of any such voted authorization would be issued during the 2003-04 fiscal year. At present, however, City staff and management are formulating the 2003-04 capital improvement budget for presentation to the City Council, and the amount of debt that will be included in the final capital improvement budget of the City could be revised when the new capital projects fund budget is finally adopted by the Council. The City typically issues voted bonds for general purpose City projects, such as streets, parks, libraries, civic centers and public safety improvements. However, the City has incurred substantial tax supported debt to fund portions of the capital budget of the Waterworks System, Sewer System, Drainage System, City Airport, Solid Waste System and is presently anticipating issuing tax supported debt for the Electric System. As described elsewhere in this Official Statement, such enterprise fund indebtedness is generally anticipated to be self-supporting from enterprise fund revenues. During the second quarter of Fiscal Year 2002-03, the Lubbock Citizens Advisory Committee was appointed and charged with evaluating capital improvement needs that should be submitted to the voters of the City. In June 2003, the Committee reported to the City Council that it had identified approximately $29.9 million in capital projects to be funded from voted bonds at a future City bond election. The Committee undertook its review with a goal of providing the City Council with recommendations for projects to be constructed during the 2004-2008 time frame and prioritizing the projects in a manner that would permit the bonds to be issued without a tax rate increase. The City Council has not formally ordered the election, but has indicated that it expects to call the election during the 2003-04 fiscal year. TABLE 12 -OTHER OBLIGATIONS The City has capital lease obligations for leased equipment in the following amounts: Asset Classification Motor Vehicles Heavy Equipment Heavy Moveable Equipment 2003 $ 654,333 66,336 650,934 2004 $ 654,333 48,326 594,126 2005 $ 308,778 594,126 Balance Outstanding $ 1,617,443 114,662 1,839,187 PENSION FuND ... TExAs MUNICIPAL RETIREMENT SYSTEM ttXZJ • • • All pennanent, full-time City employees who are not firefighters are covered by the Texas Municipal Retirement System ("TMRS"). TMRS is an agent, multiple-employer, public- employee retirement system which is covered by a State statute and is administered by six trustees appointed by the Governor of Texas. TMRS operates independently of its member cities. The City of Lubbock joined TMRS in 1950 to supplement Social Security. All City employees except firefighters are covered by Social Security. Options offered under TMRS, and adopted by the City, include current, prior and antecedent service credits, ten year vesting, updated service credit, occupational disability benefits and survivor benefits for the spouse of a vested employee. An employee who retires receives an annuity based on the amount of the employees contributions over-matched two for one by the City. Since October 11, 1997, the employee contribution rate has been 7% of gross salary. The City's contribution rate is calculated each year using actuarial techniques applied to experience. The 2002 contribution rate was 13.99%. The 2003 contn'bution rate is 14.05%. Enabling statutes prohibit any member city from adopting options which impose liabilities that cannot be amortized over 25 years within a specified statutory rate. On December 31, 2001, the actuarial value of assets held by TMRS (not including those of the Supplemental Disability Fund, which is "pooled"), for the City of Lubbock were $172,510,622. Unfunded actuarial accrued liabilities on December 31, 2001 were $43,073,413, which is being amortized over a 25-year period beginning January, 1997. Total contributions by the City to the System forCalendarYear2002 were $5,513,501.97. 30 The City obtains an actuarial study of its risk mangagement fund (the "Risk Fund") every three to four years. In fiscal year 2003, an actuarial study was conducted that considered the types of insurance protection obtained by the City, the loss exposure and loss history, and claims being paid or reserved that are not covered by insurance. The 2003 actuarial review recommended that the liabilities of the Risk Fund be increased to $7,856,000 from $6,014,073 to meet the minimum expected confidence level of the Government Accounting Standard Board Statement Number 10 ("GASB 10"), which requires maintenance of risk management assets at a level representing at least a 50% confidence level that all liabilities, if presented for payment immediately, could be paid. The Risk Fund has a balance of $10,874,196, leaving a balance of $3,018,000 over the recommended liability funding level. Given the Risk Fund balance, the City exceeds the minimum GASB 10 requirement, with an approximately 85% confidence level. INvESTMENTS The City invests its investable funds in investments authori:zed by Texas law in accordance with investment policies approved by the City Council of the City of Lubbock. Both state law and the City's investment policies are subject to change. LEGAL INvESTMENTS •.. Under Texas law, the City is authori:zed to invest in (1) obligations of the United States or its agencies and instrumentalities, (2) direct obligations of the State of Texas or its agencies and instrumentalities; (3) collaterali:zed mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States; (4) other obligations, the principal and interest of which is guaranteed or insured by or backed by the full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities; (5) obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent; (6) bonds issued, assumed or guaranteed by the State oflsrael; (7) certificates of deposit that are issued by a state or national bank domiciled in the State of Texas, a savings bank domiciled in the State of Texas, or a state or federal credit union domiciled in the State of Texas and are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations descnbed in clauses (1) through (6) or in any other manner and amount provided by law for City deposits, (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations descnbed in clause (1), and are placed through a primary government securities dealer or a financial institution doing business in the State of Texas, (9) certain bankers' acceptances with the remaining term of 270 days or less, if the short-term obligations of the accepting bank or its parent are rated at least A-1 or P-1 or the equivalent by at least one nationally recogni:zed credit rating agency, (10) commercial paper with a stated maturity of 270 days or less that is rated at least A-1 or P-1 or the equivalent by either (a) two nationally recogni:zed credit rating agencies or (b) one nationally recogni:zed credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S. or state bank, (11) no-load money market mutual funds registered with and regulated by the Securities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of $1 for each share, and (12) no-load mutual funds registered with the Securities and Exchange Commission that have an average weighted maturity of less than two years, invest exclusively in obligations described in the this paragraph, and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than AAA or its equivalent If specifically authorized in the authorizing document, bond proceeds may be invested in guaranteed investment contracts that have a defined termination date and are secured by obligations of the United States or its agencies and instrumentalities in an amount at least equal to the amount of bond proceeds invested under such contract, other than the prolnbited obligations described in the next succeeding paragraph. The City may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than AAA or AAAm or an equivalent by at least one nationally recogni:zed rating service. The City may also contract with an investment management firm registered under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-l et seq.) or with the State Securities Board to provide for the investment and management of its public funds or other funds under its control for a term up to two years, but the City retains ultimate responsibility as fiduciary of its assets. In order to renew or extend such a contract, the City must do so by order, ordinance, or resolution. The City is specifically prohibited from investing in: {l) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collaterali:zed mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. Effective September 1, 2003, governmental bodies in the State will be authorized to implement securities lending programs if (i) the securities loaned under the program are collateralized, a loan made under the program allows for termination at any time and a loan made under the program is either secured by (a) obligations that are descnbed in clauses (1) through (6) of the first paragraph of this subsection, (b) irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized investment rating firm not less than "A" or its equivalent, or (c) cash invested in obligations that are described in clauses (1) through (6) and (11) through (13) of the first paragraph of this subsection, or an authorized investment pool; (ii) securities held as collateral under a loan are pledged to the governmental body and held in the name of the governmental body; (iii) a loan made under the program is placed through. either a primary government securities dealer or a financial institution doing business in the State of Texas; and (iv) the agreement to lend securities has a term of one year or less. In addition to the foregoing, the City is authorized to use hedging instruments as authorized by Section 2256.0201 of the Texas Government Code and in accordance with the City's Energy Price Risk Management Policy for the purpose of managing risks of financial uncertainty or loss associated with adverse volatility in the pricing of LP&L's energy and fuel assets, to include energy 35 based futures contracts, option contracts, insurance contracts, and structured contracts composed of combinations of hedging instruments. INvESTMENT PoLICIES ... Under Texas law, the City is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that includes a list of authorized investments for City funds, maximum allowable stated maturity of any individual investment and the maximum average dollar-weighted maturity allowed for pooled fund groups. All City funds must be invested consistent with a formally adopted "Investment Strategy Statement" that specifically addresses each funds' investment Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) yield Under Texas law, City investments must be made "with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived." At least quarterly the investment officers of the City shall submit an investment report detailing: (1) the investment position of the City, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, any additions and changes to market value and the ending value of each pooled fund group, ( 4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, ( 5) the maturity date of each separately invested asset, ( 6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategy statements and (b) state law. No person may invest City funds without express written authority from the City Council. ADnmoNAL PROVISIONS ... Under Texas law the City is additionally required to: (1) annually review its adopted policies and strategies; (2) require any investment officers' with personal business relationships or relatives with firms seeking to sell securities to the City to disclose the relationship and file a statement with the Texas Ethics Commission and the City Council; (3) require the registered principal of fums seeking to sell securities to the City to: (a) receive and review the City's investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities, and ( c) deliver a written statement attesting to these requirements; ( 4) perfonn an annual audit of the management controls on investments and adherence to the City's investment policy; (5) provide specific investment training for the Treasurer, Chief Financial Officer and investment officers; ( 6) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement; (7) restrict its investment in mutual funds in the aggregate to no more than 15 percent of its monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service, and to invest no portion of bond proceeds, reserves and funds held for debt service, in mutual funds; and (8) require local government investment pools to confonn to the new disclosure, rating, net asset value, yield calculation, and advisory board :requirements. TABLE 15 -CURRENT INVESTMENTS As of April 30, 2003, the City's investable funds were invested in the following categories: &lirmtedFair Bxic Value Mn<ft Va)ue<I) Weighted %oITotal %ofTctal Avernge T Par Value Value BxicValue Value Mlli<el:Value Mm.u:i~ (llljs ! Unitoo Staffs Treasmya,Ji~ons $ 3,roJ,roJ $ 3,00J,'i1J:J5 22()0.k $ 3,020,859 221% 92days UnifooStalfs Ni!}:IX'/OJli~OIE 20,roJ,roJ 20,o::6,884 14.63% 20,145,269 14.72",.{, 362days BankCertifu:ale, ofll:tmt 6,014,019 6,014,019 4.-'ICP.k 6,014,019 4.39% I day Cormm:ial. 175,242 175,242 0.13% 175,242 0.13% lday MMMPs ardl.o::al governnl:llt investt:rmt:p.xil#l 107,502,(86 107,502,006 78.64% 107,502,(lJ6 7855% 1 day $136,691,347 $136,708,036 100.00% $136,857,475 100.~A, 56<11¥; (1) As determined by Patterson & Associates, the City's investment adviser. As of such date, the market value of such investments was approximately 100.00% of their book value. No funds of the City are invested in mortgage-backed securities. The City holds all investments to maturity which minimi:zes the risk of market price volatility. (2) Money Market Mutual Funds (MMMF's) and local government investment pools used by the City have investment objectives that include achieving a stable net asset value of $LOO per share. The MMMF used by the City includes the "Wells forgo Overland Express Sweep Fund" and the investment pools used by the City include TexPool and Tex:Star. TexSTAR is a local government investment pool for whom First Southwest Asset Management, Inc., an affiliate of First Southwest Company, provides customer service and marketing for the pool. TexST AR currently maintains a "AAA" rating from Standard & Poor's and has an investment objective of achieving and maintaining a stable net asset value of $1.00 per share, Daily investments or redemptions of funds is allowed by the participants. First Southwest Company is the Financial Advisor for the City in connection with the issuance of City debt. 36 r>, TAXMATTERS TAX EXEMPTION ... The delivery of the Bonds is subject to the opinion of Bond Counsel to the effect that interest on the Bonds for federal income tax purposes (I) will be excludable from gross income, as defined in section 6 l of the Internal Revenue Code of 1986, as amended to the date of such opinion (the "Code"), pursuant to section 103 of the Code and existing regulations, published rulings, and court decisions, and (2) will not be included in computing the alternative minimum taxable income of the owners thereof who are individuals or, except as hereinafter described, corporations. A form of Bond Counsel's opinion is reproduced as Appendix C. The statute, regulations, rulings, and court decisions on which such opinion is based are su~ect to change. Interest on all tax-exempt obligations, including the Bonds, owned by a corporation will be included in such corporation's adjusted current earnings for tax years beginning after 1989, for purposes of calculating the alternative minimum taxable income of such corporation, other than an S corporation, a qualified mutual fund, a real estate investment trust, a real estate mortgage investment conduit, or a financial asset securitization investment trust (FASIT). A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by Section 55 of the Code will be computed. In rendering the foregoing opinions, Bond Counsel will rely upon representations and certifications of the City made in a certificate dated the date of delivery of the Bonds pertaining to the use, expenditure, and investment of the proceeds of the Bonds and. will assume continuing compliance by the City with the provisions of the Ordinance subsequent to the issuance of the Bonds. The Ordinance contains covenants by the City with respect to, among other matters, the use of the proceeds of the Bonds and the facilities financed therewith by persons other than state or local governmental units, the manner in which the proceeds of the Bonds are to be invested, the periodic calculation and payment to the United States Treasury of arbitrage "profits" from the investment of the proceeds, and the reporting of certain infonnation to the United States Treasury. Failure to comply with any of these covenants would cause interest on the Bonds to be includable in the gross income of the owners thereof from date of the issuance of the Bonds. Bond Counsel's opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the City described above. No ruling has been sought from the Internal Revenue Service (the "Service") with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel's opinion is not binding on the Service. The Service has an ongoing program of auditing the tax- exempt status of the interest on tax-exempt obligations. If an audit of the Bonds is commenced, under current procedures the Service is likely to treat the City as the "taxpayer, " and the Owners would have no right to participate in the audit process. In responding to or defending an audit of the. tax-exempt status of the interest on the Bonds, the City may have different or conflicting interests from the Owners. Public awareness of any future audit of the Bonds could adversely affect the value and liquidity of the Bonds during the pendency of the audit, regardless of its ultimate outcome. Except as described above, Bond Counsel expresses no other opinion with respect to any other federal, state or local tax consequences under present law, or proposed legislation, resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Bonds. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations such as the Bonds may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, S corporations with subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, owners of an interest in a F ASIT and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Prospective purchasers should consult their own tax advisors as to the applicability of these consequences to their particular circumstances. TAX ACCOUNTING TREATMENT OF DISCOUNT AND PREMIUM ON CERTAIN BONDS .•• The initial public offering price of certain Bonds (the "Discount Bonds") may be less than the amount payable on such Bonds at maturity. An amount equal to the difference between the initial public offering price of a Discount Bond (assuming that a substantial amount of the Discount Bonds of that maturity are sold to the public at such price) and the amount payable at maturity constitutes original issue discount to the initial purchaser of such Discount Bond. A portion of such original issue discount allocable to the holding period of such Discount Bond by the initial purchaser will, upon the disposition of such Discount Bond (including by reason of its payment at maturity), be treated as interest excludable from gross income, rather than as taxable gain, for federal income tax purposes, on the same terms and conditions as those for other interest on the Bonds described above under "Tax Exemption." Such interest is considered to be accrued actuarially in accordance with the constant interest method over the life of a Discount Bond, taking into account the semiannual compounding of accrued interest, at the yield to maturity on such Discount Bond and generally will be allocated to an original purchaser in a different amount from the amount of the payment denominated as interest actually received by the original purchaser during the tax year. However, such interest may be required to be taken into account in determining the alternative minimum taxable income of a corporation, for purposes of calculating a corporation's alternative minimum tax imposed by Section 55 of the Code, and the amount of the branch profits tax applicable to certain foreign corporations doing business in the United States, even though there will not be a corresponding cash payment. In addition, the accrual of such interest may result in certain other collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, S corporations with "subchapter C" earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for earned income tax credit, owners of an interest in a F ASIT, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred 37 certain expenses allocable to, tax-exempt obligations. Moreover, in the event of the redemption, sale or other taxable disposition of a Discount Bond by the initial owner prior to maturity, the amount realized by such owner in excess of the basis of such Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Discount Bond was held) is includable in gross income. Owners of Discount Bonds should consult with their own tax advisors with respect to the determination of accrued original issue discount on Discount Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Discount Bonds. It is possible that, under applicable provisions governing determination of state and local income taxes, accrued interest on Discount Bonds may be deemed to be received in the year of accrual even though there will not be a corresponding cash payment. The initial public offering price of certain Bonds (the "Premium Bonds") may be greater than the amount payable on such Bonds at maturity. An amount equal to the difference between the initial public offering price of a Premium Bond (assuming that a substantial amount of the Premium Bonds of that maturity are sold to the public at such price) and the amount payable at maturity constitutes premium to the initial purchaser of such Premium Bonds. The basis for federal income tax purposes of a Premium Bond in the hands of such initial purchaser must be reduced each year by the amortizable bond premium, although no federal income tax deduction is allowed as a result of such reduction in basis for amortizable bond premium. Such reduction in basis will increase the amount of any gain ( or decrease the amount of any loss) to be recognized for federal income tax purposes upon a sale or other taxable disposition of a Premium Bond. The amount of premium which is arnortizable each year by an initial purchaser is determined by using such purchaser's yield to maturity. Purchasers of the Premium Bonds should consult with their own tax advisors with respect to the determination of amortizable bond premium on Premium Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Premium Bonds. 38 - OTHER INFORMATION RATINGS The Bonds are rated "Aaa" by Moody's, "AAA" by S&P and "AAA" by Fitch by virtue of an insurance policy to be issued by MBIA. The presently outstanding tax supported debt of the City is rated "Aa3" by Moody's, "AA+" by S&P and "AA-" by Fitch. The City also has five tax supported issues outstanding which are rated "Aaa" by Moody's, "AAA" by S&P and "AAA" by Fitch through insurance by various commercial insurance companies. An explanation of the significance of such ratings may be obtained from the company furnishing the rating. The ratings reflect only the respective views of such organizations and the City makes no representation as to the appropriateness of the ratings. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by either or both of such rating companies, if in the judgment of either or both companies, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the mark.et price of the Bonds. LITIGATION The City is involved in various legal proceedings related to alleged personal and property damages, breach of contract and discrimination cases, some of which involve claims against the City that exceed $500,000. State Jaw limits municipal liability for personal injury at $250,000/$500,000 per claim and property damage at $100,000 per claim. However, there is one claim pending against the City, which is in a preliminary stage, that the City Attorney believes could be brought under Section 1983 of the post Civil War Civil Rights Act. If a claim should be made under that law and damages are ultimately assessed against the City, the City would not be subject to limitations on damages. The City is also involved in a lawsuit with the City's firefighters regarding pay issues. The firefighters obtained a $688,000 judgment against the City for damages that have accrued through July 2002. The City has appealed this judgment. Potential damages continue to accrue at a rate of about $120,000-$150,000 per year. This liability is not covered by any insurance policy. The City is also involved in a dispute with the general contractor for a large drainage project that is presently nearing completion in the City. The City anticipates that the contractor will file suit against the City and that the contractor assert damages in excess of $2 million under a breach of contract claim. This liability is • also not covered by any insurance policy. The City intends to vigorously defend itself, although no assurance can be given that the City will prevail in all such cases. However, the City Attorney and City management is of the view that its available sources for payment of any such claims, which include insurance policies and City reserves for self insured claims, are adequate to pay any presently foreseeable damages (see "Financial Policies -Insurance and Risk Management"). On the date of delivery of the Bonds to the Underwriters, the City will execute and deliver to the Underwriters a certificate to the effect that, except as disclosed herein, no litigation of any nature has been filed or is pending, as of that date, to restrain or enjoin the issuance or delivery of the Bonds or which would affect the provisions made for their payment or security or in any manner question the validity of the Bonds. REGISTRATION AND QUALIFICATION OF BoNDS FOR SALE The sale of the Bonds has not been registered under the Federal Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a)(2); and the Bonds have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been qualified under the securities acts of any jurisdiction. The City assumes no responsibility for qualification of the Bonds under the securities laws of any jurisdiction in which the Bonds may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration provisions. LEGAL INvEsTMENTS AND ELIGIBILITY TO SECURE PuBLIC FtJNDS IN TEXAS Section 1201.041 of the Public Security Procedures Act (Chapter 1201, Texas Government Code) provides that the Bonds are negotiable instruments governed by Chapter 8, Texas Business and Commerce Code, and are legal and authorized investments for insurance companies, fiduciaries, and trustees, and for the sinking funds of municipalities or other political subdivisions or public agencies of the State of Texas. With respect to investment in the Bonds by municipalities or other political subdivisions or public agencies of the State of Texas, the Public Funds Investment Act, Chapter 2256, Texas Government Code, requires that the Bonds be assigned a rating of "A" or its equivalent as to investment quality by a national rating agency. See "OTHER INFORMATION -Ratings" herein. In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investor standard, the Bonds are legal investments for state banks, savings banks, trust companies with at capital of one million dollars or more, and savings and loan associations. The Bonds are eligible to secure deposits of any public funds of the State, its agencies, and its political subdivisions, and are legal security for those deposits to the extent of their mark.et value. No review by the City has been made of the laws in other states to determine whether the Bonds are legal investments for various institutions in those states. LEGALMATIERS The delivery of the Bonds is subject to the approval of the Attorney General of Texas to the effect that the Bonds are valid and legally binding obligations of the City payable from the proceeds of an annual ad valorem tax levied, within the limits prescribed by law, upon all taxable property in the City and the approving legal opinion of Bond Counsel, to like effect and to the effect that the interest on the Bonds wiIJ be excludable from gross income for federal income tax purposes under Section 103(a) of the 39 Code, subject to the matters described under "Tax Matters" herein, including the alternative minimum tax on corporations. The form of Bond Counsel's opinion is attached hereto as Appendix C. The legal fee to be paid Bond Counsel for services rendered in connection with the issuance of the Bonds is contingent upon the sale and delivery of the Bonds. The legal opinion of Bond Counsel will accompany the Bonds deposited with DTC or will be printed on the definitive Bonds in the event of the discontinuance of the Book-Entry-Only System. Certain legal matters will be passed upon for the Underwriters by McCall Parkhurst & Horton LLP, Dallas, Texas, Counsel for the Underwriters. The legal fee of such firm is contingent upon the sale and delivery of the Bonds. Bond Counsel was engaged by, and only represents, the City. Except as noted below, Bond Counsel did not take part in the preparation of the Official Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained herein except that in its capacity as Bond Counsel, such firm has reviewed the information appearing under captions "Plan Of Financing", "The Bonds" (except under the subcaptions "Book Entry-Only System" and "Sources and Uses"), "Tax Matters," "Continuing Disclosure Of Information" (except under the subcaption "Compliance With Prior Undertakings"), and the subcaptions "Other Information-Legal Matters" and "Other Information-Legal Investments And Eligibility To Secure Public Funds In Texas, " and such firm is of the opinion that the information relating to the Bonds and legal matters contained under such captions and subcaptions is an accurate and fair description of the laws and legal issues addressed therein and, with respect to -the Bonds, such information conforms to the Ordinance. The legal opinions to be delivered concurrently with the delivery of the Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. In rendering a legal opinion, the attorney does not become an insurer or guarantor of that expression of professional judgment, of the transaction opined upon, or of the future performance of the parties to the transaction. Nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. CONTINUING DISCLOSURE OF INFORMATION In the Ordinance, the City has made the following agreement for the benefit of the holders and beneficial o\VD.ers of the Bonds. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to certain information vendors. This information will be available to securities brokers and others who subscribe to receive the information from the vendors. ANNUAL REPORTS ... The City will provide certain updated financial information and operating data to certain information vendors annually. The information to be updated includes all quantitative financial information and operating data with respect to the City of the general type included in this Official Statement under Tables numbered 1 through 6 and 8 through 15 and in Appendix B. The City will update and provide this information within six months after the end of each fiscal year ending in or after 2003. The City will provide the updated information to each nationally recognized municipal securities infonnation repository ("NRMSIR") and to any state information depository ("SID") that is designated by the State of Texas and approved by the State of Texas and approved by the staff of the United States Securities and Exchange Commission (the "SEC"). The City may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule l 5c2-l 2. The updated information will include audited financial statements, if the City commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the City will provide unaudited financial statements by the required time and audited financial statements when and if such audited financial statements become available. Any such financial statements will be prepared in accordance with the accounting principles described in Appendix B or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation. The City's current fiscal year end is September 30. Accordingly, it must provide updated information by March 31 in each year, unless the City changes its fiscal year. If the City changes its fiscal year, it will notify each NRMSIR and the SID of the change. The Municipal Advisory Council of Texas has been designated by the State of Texas and approved by the SEC staff as a qualified SID. The address of the Municipal Advisory Council is 600 West 8th Street, P. 0. Box 2177, Austin, Texas 78768- 2177, and its telephone number is 512/476-6947. MATERJAL EVENT NOTICES ... The City will also provide timely notices of certain events to certain information vendors. The City will provide notice of any of the following events with respect to the Bonds, if such event is material to a decision to purchase or sell Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; ( 4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax-exempt status of the Bonds; (7) modifications to rights of holders of the Bonds; (8) Bond calls; (9) defeasances; (I 0) release, substitution, or sale of property securing repayment of the Bonds; and (11) rating changes. (Neither the Bonds nor the Ordinance make any provision for debt service reserves or liquidity enhancement.) In addition, the City will provide timely notice of any failure by the City to provide infonnation, data, or financial statements in accordance with its agreement described above under "Annual Reports." The City will provide each notice described in this paragraph to the SID and to either each NRMSIR or the Municipal Securities Rulemaking Board (''MSRB"). 40 AVAILABILITY OF INFORMATION FROM NRMSIRs AND SID ... The City has agreed to provide the foregoing information only to NRMSIRs, the MSRB and the SID, as described above. The information will be available to holders of Bonds only if the holders comply with the procedures and pay the charges established by such information vendors or obtain the information through securities brokers who do so. LIMITATIONS AND AMENDMENTS ... The City has agreed to update information and to provide notices of material events only as described above. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders of Bonds may seek a writ of mandamus to compel the City to comply with its agreement. The City may amend its continuing disclosure agreement from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, if (i) the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds in the offering described herein in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (ii) either (a) the holders of a majority in aggregate principal amount of the outstanding Bonds consent to the amendment or (b) any person unaffiliated with the City (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Bonds. The City may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals the applicable provisions of the SEC Rule 15c2-12 or a court offU¥tl jurisdiction enters judgment that such provisions of the SEC Rule 15c2-12 are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Bonds in the primary offering of the Bonds. If the City so amends the agreement, it has agreed to include with the next financial infonnation and operating data provided in accordance with its agreement described above under "Annual Reports" an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided. COMPLIANCE WITH PRIOR UNDERTAKINGS .•. The City became obligated to file annual reports and financial statements with the state information depository ("SID") and each nationally recognized municipal securities information repository (''NRMSIR") in an offering that took place in 1997. All of the City's General Obligation debt reports and financial statements were timely filed with both the SID and each NRMSIR; however, due to an administrative oversight, the City filed its fiscal year end 1999, 2000, and 2001 Electric and Power Revenue debt reports late to the SID and each NRMSIR. The financial information has since been filed, as well as a notice of late filing. The City has implemented procedures to ensure timely filing of all future financial information. FINANCIAL ADVISOR First Southwest Company is employed as Financial Advisor to the City in connection with the issuance of the Bonds. The Financial Advisor's fee for services rendered with respect to the sale of the Bonds is contingent upon the issuance and delivery of the Bonds. First Southwest Company, in its capacity as Financial Advisor, does not assume any responsibility for the information, covenants and representations contained in any of the legal documents with respect to the federal income tax status of the Bonds, or the possible impact of any present, pending or future actions taken by any legislative or judicial bodies. The Financial Advisor to the City has provided the following sentence for inclusion in this Official Statement The Financial Advisor has reviewed the infonnation in this Official Statement in accordance with, and as part of, its responsibilities to the City and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such information. UNDERWRITING The Underwriters have agreed, subject to certain conditions, to purchase the Bonds from the City, at an underwriting discount of $74,419.00. The Underwriters will be obligated to purchase all of the Bonds if any Bonds are purchased. The Bonds to be offered to the public may be offered and sold to certain dealers (including the Underwriters and other dealers depositing Bonds into investment trusts) at prices lower than the public offering prices of such Bonds, and such public offering prices may be changed, from time to time, by the Underwriters. FORWARD-LOOKING STATEMENTS DISCLAIMER The statements contained in this Official Statement, and in any other information provided by the City, that are not purely historical, are forward-looking statements, including statements regarding the City's expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in this Official Statement are based on information available to the City on the date hereof, and the City assumes no obligation to update any such forward-looking statements. The City's actual results could differ materially from those discussed in such forward-looking statements. 41 The forward-looking statements included herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal, and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors, and legislative, judicial, and other governmental authorities and officials. Assumptions related to the foregoing involve judgements with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the City. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Official Statement will prove to be accurate. MISCELLANEOUS The fmancial data and other information contained herein have been obtained from the City's records, audited fmancial statements and other sources which are believed to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents and ordinances contained in this Official Statement are made subject to all of the provisions of such statutes, documents and ordinances. These summaries do not putport to be complete statements of such provisions and reference is made to such documents for further information. Reference is made to original documents in all respects. The Ordinance authorizing the issuance of the Bonds will also approve the form and content of this Official Statement, and any addenda, supplement or amendment thereto, and authorize its further use in the reoffering of the Bonds by the Underwriters. AITEST: REBECCA GARZA City Secretary 42 MARC McDOUGAL Mayor City of Lubbock, Texas APPENDIXA GENERAL INFORMATION REGARDING THE CITY :-" THIS PAGE INTENTIONALLY LEFT BLANK r THE CITY LoCATION The City of Lubbock, which is the County Seat of Lubbock County, Texas, is located on the South Plains of West Texas. Lubbock is the economic, educational, cultural and medical services center of the area. POPULATION Lubbock is the ninth largest City in Texas: 1910 Census 1920 Census 1930 Census 1940 Census · 1950Census 1960 Census · 1970 Census 1980 Census 1990Census 2000Census 2003 (Estimated) cii City of Lubbock {Coxporate Limits) 1,938 4,051 20,520 31,853 71,747 128,691 149,701 173,979 186,206 199,564 204,737 Metropolitan Statistical Area ("MSA") (Lubbock County) 1970 Census 179,295 1980 Census 211,651 1990 Census 222,636 2000 Census 242,628 (l) Source: CityofLubbock, Texas AGRICUI.:roRE; BUSINESS AND INDUSTRY Lubbock is the center of a highly mechanized agricultural area with a majority of the crops irrigated with water from underground sources. Principal crops are cotton and grain sorghums with livestock a major additional source of agricultural income. 1n 2002, approximately 3,300 million bales of cotton were produced in Lubbock and the 25-counties surrounding Lubbock. This was more than the 2.82 million bales produced in 200 l and is 111 % of the 10-year average of 2. 80 million bales. Projections for the 2003 cotton crop are about the same depending on the growing conditions and the weather during the 2003 production season.<1> Two major vegetable oil plants located in Lubbock have a combined weekly capacity between 50,000 and 70,000 tons of cottonseed oil and soybean oil. Several major seed companies are headquartered in Lubbock. Over 200 manufacturing plants in Lubbock produce such products as semiconductors, vegetable oils, heavy earth-moving machinery, irrigation equipment and pipe, farm equipment, paperboard boxes, foodstuffs, mobile and prefabricated homes, poultry and livestock feeds, boilers and pressure vessels, automatic sprinkler system heads, structural steel fabrication and soft drinks. (1) Source: Plains Cotton Growers, Inc., Lubbock, Texas. LL'BBOCK MSA LABOR FORCE ESTIMATES (l) March 2003'2) Civilian Labor Force 131,067 Total Employment 126,945 Unemployment 4,122 Percent Unemployment 3.10% { 1) Source: Texas Wo:tkforce Commission. (2) Subject to revision. 2002 128,507 124,577 3,930 3.10% A-1 Annual A vera~es 2001 2000 1999 1998 127,176 124,640 123,476 122,692 123,923 121,368 119,914 118,568 3,253 3,272 3,562 4,124 2.60% 2.30% 2.90% 3.40% Estimated non-agricultural wage and salaried jobs in various categories as of March, 2003 were: {t) Manufacturing Construction Transportation & Public Utilities Trade Finance, Insurance and Real Estate Education & Health Services Information Leisure &Hospitality & Other Government Total 5,800 5,000 3,600 20,600 16,400 18,400 5,700 19,400 28,900 123,800 (l) Source: Texas Workforce Commission. MAJOR EMPLOYERS (300 EMPLOYEES OR MORE) Company Texas Tech University Covenant Health System Lubbock Independent School District TTU Health Sciences Center City of Lubbock University Medical Center United Supermarlcets Cingular Convergys Corporation Lubbock State School Lubbock County Walmart Supercenter Operator Service Company Frenship ISD American State Bank Texas Department of Human Services West TeleServices SBS/Southwestern Bell Lubbock Regional MHMR Center U.S. Postal Service TDC1 -John T. Montford Unit Interim Healthcare of West Texas Town & Country Food Stores, Inc. Texas Department of Transportation Icon Benefit Administrator Caprock Home Health Services, Inc. McLane High Plains NTS Communications, Inc. Wells Fargo Phone Bank Tyco Fire Protection Dillards Department Stores Lubbock Christian University ARAMARK Lubbock-Cooper ISD Sodexho School Services Cox Cable of Lubbock Inc. Lubbock Avalanche Journal TNM&O Coaches Inc. Granite Construction, Inc. USA Relay Telecommunications Boldt, Inc. (McDonalds) (1) Source: Market Lubbock. (2) Full and part time. Type of Business State University General Medical and Surgical Hospital Public Schools Medical and Allied Health School City Government General Medical and Surgical Hospital Supermarket Wireless Communications Call Center Residential Care-Mental Retardation County Government Discount Retailer Telecommunications/Long Distance/Customer Service Public Schools Bank Social Services Call Center Telephone Communications Social Services Postal Service Psychiatric/Medical Facility Home Health Care Convenience Stores State Highway and Street Maintenance Employee Benefit Plans Home Health Care Wholesale Food Distributor Telecommunications Bank Phone Center Manufacturing-General Industrial Machinery Depanment Stores University Managed Food Services Public Schools Facilities Management Cable TV Services Newspaper Bus Transportation Highway and Street Construction Telephone and Infonnation Services for Deaf and Hearing Impaired Restaurants Estimated Employees June, 2002<1) 6,526 (Z) 5,270 4,233 2,520 2,217 2,141 1,956 1,700 ll00 931 918 900 692 629 599 580 560 550 550 544 541 (3) 540 500 486 427 4-00 400 385 375 350 350 324 320 318 315 315 310 305 301 300 300 (3) See Texas Department of Criminal Justice ("TDCJ") Prison Psychiatric Hospital following for more detailed information. A-2 EDUCATION. TEXAS TECH UNIVERSITY Established in Lubbock in 1923, Texas Tech University is the fifth largest State-owned University in Texas and had a Spring, 2003, enrollment of 25,752. Accredited by the Southern Association of Colleges and Schools, the University is a co-educational, State- supported institution offering a bachelor's degree in 158 major fields, the master's degree in l 07 major fields, the doctorate degree in 64 major fields, and a professional degree in 2 major fields (law and medicine). The University proper is situated on 451 acres of the 1,829 acre campus, and has over 160 permanent buildings with additional construction in progress. Spring, 2003, total employment was 4,062 full time employees with an additional 2, l 03 part time employees. The medical school had an enrollment of 490 for Spring, 2003, not including residents; there were 76 graduate students. The School ofNursing had a Spring, 2003, enrollment of 444 including the Permian Basin Program, located in Midland/Odessa; there were l 12 graduate students. The Allied Health School had a Spring, 2003, enrollment of 628. Source: Texas Tech University. OTHER EDUCATION INFORMATION The Lubbock Independent School District, with an area of 87 .5 square miles, includes over 90% of the City of Lubbock. There are approximately 3,495 total employees. The District operates four senior high schools, ten junior high schools, 38 elementary schools and other educational programs. Scholastic Membership History (I) School Year 1998-99 1999-00 2000-01 2001-02 2002-03 Average Daily Attendance 27,946 29,397 27,946 29,397 28,607 (2) (l} Source: Superintendent's Office, Lubbock Independent School District. (2) Estimated. Lubbock Christian University, a privately owned, co-educational senior college located in Lubbock, had an enrollment of 1,836 for the Spring Semester, 2003. The State of Texas School for the Mentally Retarded, located on a 226-acre site in Lubbock, consists of 40 buildings with bed- capacity for 436 students; 400 students were in residence. There are approximately 850 professional and other employees. Wayland Baptist College, Plainview Texas, operates a Lubbock Campus which had a Fall, 2003, enrollment of705 students. TRANSPORTATION Scheduled airline transportation at Lubbock International Airport is furnished by Southwest Airlines, Atlantic Southeast, Continental Airlines and American Eagle; non-stop service is provided to Dallas-Fort Worth International Airport, Dallas Love Field, Bush Intercontinental Airport (Houston), Houston Hobby, El Paso, Las Vegas, Austin, Amarillo and Albuquerque. Passenger boardings for 2000 totaled 585,000, for 2001 536,670 and 513,096 for 2002. Extensive private aviation services are located at the airport. Rail transportation is furnished by the Burlington Northern Santa Fe Railroad with through service to Dallas, Houston, Kansas City, Chicago, Los Angeles and San Francisco. Short-haul rail service is also furnished by the Seagraves, Whiteface and Lubbock Railroad. Texas, New Mexico and Oklahoma Bus Lines, a subsidiary of Greyhound Corporation, provides bus service. Several motor freight common carriers provide service. Lubbock has a well-developed highway networlc including Interstate 27 (Lubbock-Amarillo), 4 U.S. Highways, l State Highway, a controlled-access outer loop and a county-wide system of paved fann-to-market roads. A-3 GOVERNMENT AND MILITARY (t> Reese Air Force Base (Reese), a pilot training base located adjacent to the City, was included on the list of bases approved for closure by the President and Congress in July, 1995. Reese closed on September 30, 1997. As a result of the closure, the City developed a re-use plan for the facilities. Reese represented approximately 2.6% of the local work force. While closure of the base did not have a positive impact on the Lubbock economy, the growth in other economic sectors minimized or neutralized the effect of the closure of the base. In addition, there has been a positive economic impact from the re-use of the base. In 1997, the Texas Legislature enacted Chapter 2300 of the Texas Government Code that provided for the creation of the Lubbock Reese Redevelopment Authority (the "Authority"). The Authority is a political subdivision of the State of Texas and is authorized to accept title from the United States to all or any portion of the real, pennanent, and mixed property situated within Reese Air Force Base. The Authority is empowered to manage, lease, sale and develop the property at Reese Air Force Base. The former air base, now known as Reese Technology Center and is the home of the prized Institute of Environmental and Human Health (TIEHH). TIEHH is a joint venture between Texas Tech University and Texas Tech Health Sciences Center and researches the exposure and effects toxic chemicals have on human health and the environment. TIEHH has assisted in stimulating the Lubbock economy by creating 157 jobs with a payroll-to-date of 9 .9 million. TIEHH' s location as the anchor tenant at the Reese Technology Center has assisted the facility in being transformed into a research, industrial and commercial center. Other research facilities that have been relocated to Reese Technology Center is the Texas Tech University Wind Engineering and Advanced Vehicle Engineering Research Centers. South Plains College has also taken advantage of Reese Technology Centers accessibility and proximity and moved their entire Lubbock campus to Reese. South Plains College has more than 3.300 students a semester at the Reese Technology Center. Other businesses located at the Reese Technology Center include Supachill, an Australian based company that specializes in refrigeration, freezing and cryogenics for food products. Also located at Reese is the centralized operation of Aslan. This company will facilitate discovery, development and promulgation of new protocols, techniques and patient care services for pediatric and adult disabled citizens. The will be working closely with Texas Tech University in their research and development State of Texas ... More than 25 State of Texas boards, departments, agencies and commissions have offices in Lubbock; several of these offices have multiple llllits or offices. Federal Government. . Several Federal departments and various other administrations and agencies have offices in Lubbock; a Federal District Court is located in the City. (1) Source: City of Lubbock, Texas. TEXAS DEPARTMENT OF CRIMINAL JUSTICE ("IDCJ") PRISON PSYCHIATRIC HOSPITAL TDCJ operates a 550-bed Prison Psychiatric Hospital and a 48-bed regional prison hospital on a 1,303 acre site in southeast Lubbock. An adjacent 400-bed capacity "trusty" facility houses prison trusties some of whom work at the hospital. Employment for all facilities is approximately 870 with an annual estimated payroll of $17 million and an estimated remaining annual operating budget of $27 million. HOSPITALS A.'llffi MEDICAL CARE There are four hospitals in the City with over 1,500 beds. Covenant Medical Center is the largest and also operates an accredited nursing school. Lubbock County Hospital District, with boundaries contiguous with Lubbock County, owns the University Medical Center which it operates as a teaching hospital for the Texas Tech Health Sciences Center. There are 102 clinics and over 700 practicing physicians, surgeons, and dentists. Lubbock's Health Care Sector employs over 17,000 people with a total payroll of $543.3 million and draws patients from 77 counties in West Texas and Eastern New Mexico. A radiology center for the treatment of malignant diseases is located in the City. A-4 - RECREATION AND ENTERTAINMENT Lubbock's Mackenzie Regional Park and over l l 5 City parks and playgrounds provide recreation centers, shelter buildings, a garden and art center, swimming pools, a golf coume, tennis and volley ball courts, baseball diamonds and picnic areas, including the Yellowhouse Canyon Lakes system of six lakes and 750 acres of adjacent parkland extending from northwest to southeast Lubbock along the Yellowhouse Canyon. There are several privately-owned public swimming pools, golf coumes, and country clubs. The City of Lubbock has developed a 36 square block area of approximately l 00 acres adjacent to downtown Lubbock under the Lubbock Memorial Civic Center program. Approximately 50 acres contain the 300,000 square foot Lubbock Memorial Civic Center, the main City library building and State Department of Public Safety offices; a 50-acre peripheral area has been redeveloped privately with office buildings, hotels and motels, a hospital, and other facilities. Available to residents are Texas Tech University programs and events, Texas Tech University Museum, Planetarium and Ranching Heritage Center exhibits and programs, United Spirit Arena and its events, Lubbock Memorial Civic Center and its events, Lubbock Symphony Orchestra programs, Lubbock Theatre Center, Lubbock Civic Ballet, Municipal Auditorium and coliseum programs and events, the library and its branches, the annual Panhandle-South Plains Fair, college and high school footbalL basketbalL and other sporting events as well as modern movie theaters. CHURCHES Lubbock has approximately 300 churches representing more than 25 denominations. UTILITY SERVICES Water and Sewer• City of Lubbock. Gas -Atmos F.nergy Company. Electric• City of Lubbock (Lubbock Power & Light) and Xcel Energy; and, in a small area, South Plains Electric Co-operative. ECONOMIC INDICES (IJ Year 1998 1999 2000 2001 2002 Building Permits 181,716,532 181,285,089 200,427,650 294,064,200 314,077,929 Water 68,228 68,449 70,111 70,756 72,615 Utility Connections Gas 62,472 63,2IO 65,000 65,332 67,30& ( l) All data as of 12-31, except where noted; Source: City of Lubbock. Electric (LP&L Only)(2} 56,435 57,411 58,724 59,431 62,713 (2) Electric connections are those of City of Lubbock owned Lubbock Power and Light ("LP&L") and do not include those of Xcel Energy or South Plains Electric Cooperative. LP &L provides service to approximately 70% of the electric customers in the City. BUILDING PERMITS BY CLASSIFICATION (l) Residential Permits Single Family Multi-Family Calendar No. No. Dwelling Year Units Value Units (Z) Value 1998 664 $ 64,304,918 242 9,186,999 1999 747 80,496,444 222 22,134,000 2000 819 87,501,009 281 11,548,809 2001 941 108,589,812 853 37,242,260 2002 1,281 148,190,769 549 31,700,960 (1) Source: CityofLubbock, Texas. Total Residential No. Dwelling Units C2l Value 906 $ 73,491,917 969 102,630,444 1,100 99,049,818 1,794 145,936,072 1,830 179,891,729 Commercial, Public and Other Permits $ 108,224,615 78,654,645 101,377,832 148,128,128 134,186,200 Total Building Permits $181,716,532 181,285,089 200,427,650 294,064,200 314,077,929 (2) Data shown under "No. Dwelling Units" is for each individual dwelling unit, and is not for separate buildings; includes duplex, triplex, quadruplex and apartment permits. A-5 Tms PAGE INTENTIONALLY LEFT BLANK .- APPENDIXB EXCERPTS FROM THE CITY OF LUBBOCK, TEXAS ANNUAL FINANCIAL REPORT For the Year Ended September 30, 2002 The information contained in this Appendix consists of excerpts from the City of Lubbock, Texas Annual Financial Report for the Year Ended September 30, 2002, and is not intended to be a complete statement of the City's financial condition. Reference is made to the complete Report for further information. THIS PAGE INTENTIONALLY LEFf BLANK Robinson Burdette Martin Seright & Burrows,L.L.P. a professional services firm of certified public accountants . Independent Auditors' Report The Honorable Mayor Marc McDougal and Members of City Council The City of Lubbock, Texas tfaxeleP,hone(806)744-3333 (806} 747-2106 WWw.rbmsb.com We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Lubbock, Texas ("the City") as of and for the year ended September 30, 2002, which collectively comprise the City's basic financial statements ("BFS") as listed in the table of contents. These BFS are the responsibility of the City's management. Our responsibility is to express an opinion on these BFS based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards ("GAS"), issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The financial statements of City Transit Management Company, Inc., dba Citibus, Market Lubbock Economic Development Corporation, dba Market Lubbock, Inc. and Civic Lubbock, Inc., component units of the City, were not audited in accordance with GAS. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the BFS referred to above, present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City, as of September 30, 2002, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 3 (L) to the BFS, an adjustment has been reflected in beginning-ofwyear net assets to restate the amount previously reported. As described in Note 1 (B), the City has implemented new Government Accounting Standards, as required by the provisions of the Governmental Accounting Standards Board ("GASS") Statement No. 34, Basic Financial Statements -and Management's Discussion and Analysis -for State and Local Governments, GASB Statement No. 37 -Basic Financial Statements and Management's Discussion and Analysis -For State and Local Governments -Omnibus, GASB Statement No. 38 -Certain Financial Statements Note Disclosures, and GASB Interpretation No. 6 -Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund Financial Statements, during the year ended September 30, 2002. In accordance with GAS, we have also issued our report dated April 4, 2003 on our consideration of the City's internal control over financial reporting and ~ur tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with GAS and should be read in conjunction with this report in considering the results of our audit. The Management's Discussion and Analysis ("MD&A") on pages 17 through 31 is not a required part of the BFS but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was performed for the purpose of fanning an opinion on the City's BFS taken as a whole. The information identified in the table of contents as combining and individual fund financial statements and schedules are presented in the City's Comprehensive Annual Financial Report ("CAFR") for purposes of additional analysis and are not a required part of the BFS of the City. Such information has been subjected to the auditing procedures applied in the audit of the City's BFS and, in our opinion, is fairly stated, in all material respects, in relation to the City's BFS taken as a whole. The information provided in the Introductory, Statistical and Supplementary sections listed in the table of contents has not been subjected to the auditing procedures applied in our audit of the City's BFS and we express no opinion on that information. April 4, 2003 Lubbock, Texas ,{j;J//JJdl ~rd!'~fe /ltd?rl✓-·r1 .5er,jltf J-&rrr,-n~ ~.L./! -Government-Wide Financial Statements Intentionally Left Blank ,.., CITY OF LUBBOCK, TEXAS STATEMENT OF NET ASSETS SEPTEMBER 30, 2002 ,,.. Prima!}'. Government Nonmajor Governmental Business-Type Component Activities Activities Total Units ASSETS Pooled cash and cash equivalents $ 26,743,647 $ 5,195,142 $ 31,938,789 $ 1,159,122 Investments 24,683,873 4,792,956 29,476,829 2,774,327 Receivables, net 13,153,308 30,130,880 43,284,188 673,123 Secured receivables 5,880,761 5,880,761 lntemal balances (3,297,244) 3,297,244 Due from other governments 276,141 276,141 Due from others 1,792,630 33,722 1,826,352 Advances to others 10,000,000 10,000,000 Inventories 145,800 1,561,371 1,707,171 478,110 Investment in property 236,363 236,363 Prepaid expenses 706 706 157,741 Restricted assets: Cash and cash equivalents 2,363,405 39,218,017 41,581,422 199,642 Incentives advances 3,870,242 Investments 8,752,942 55,212,068 63,965,010 6,356,540 -capital assets: Non-depreciable 42,619,874 128,198,098 170,817,972 1,387,266 Depreciable 74,665,045 416,790,761 491,455,806 12,834,616 Deferred charges 6,015,199 6,015,199 60,435 Other assets 19,747,588 19,747,588 96,501 Total assets 208,017,251 710,193,046 918,210,297 30,047,665 LIABILITIES Accounts payable 5,894,367 13,283,037 19,177,404 1,240,260 Due to others 890,772 890,772 Due to other governments 739,075 Accrued expenses 4,562,550 2,517,093 7,079,643 377,532 Accrued interest payable 243,929 1,930,158 2,174,087 I""'· Deferred revenue 3,824,499 18,221 3,842,720 10,210,742 Noncurrent liabilities: Due within one year: Bonds payable 4,347,143 13,095,358 17,442,501 Compensated absences 4,811,594 1,790,057 6,601,651 Contracts payable 2,144,192 Due in more than one year: Bonds payable 54,158,203 237,227,478 291,385,681 Compensated absences 7,506,402 1,962,340 9,468,742 Rebatable arbitrage 282,876 282,876 Accrued Insurance claims 4,500,000 4,500,000 23,223 Landfill closure and postclosure care 2,552,923 2,552,923 Contracts payable 1,787,180 1,787,180 2,099,935 Customer deposits 5,650 5,650 70,000 ,... Total Liabilities 86,522,335 280,669.495 367,191,830 16,904,959 •~_.,; NET ASSETS Invested in capital assets, net of related debt . 78,256,348 332,049,641 410,305,989 14,221,882 Restricted for: Capital projects 34,225,008 56,424,049 90,649,057 100,000 Debt service 1,453,117 3,062,400 4,515,517 . Other purposes 1,255,041 1,255,041 303,201 Unrestricted ( deficit) 6,305,402 37,987,461 44,292,863 {1,482,3TTz Total net assets $ 121,494,916 $ 429,523,551 $ 551,018,467 $ 13,142,706 The accompanying Notes to Basic Financial Statements are an integral part of these statements. 37 FUNCTIONS/PROGRAMS Primary Government: Governmental Activities: Communicatlons/Legislalion Community Services Development Services Electric Financial Services Fire General Government Human Resources Management Services Police Strategic Planning Non-departmental Public works Interest on Long-Term Debt Tolal governmental activities Business-Type Activities: Electric Water Sewer Solid Wasta Airport Golf Stonnwater Total business-type activities iota! primary government Component units: Nonmajor component units CITY OF LUBBOCK, TEXAS STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2002 ProQram Revenues Operating Capital Charges for Grants and Grants and Exeenses Services Contributions Contributions $ 1,037,720 $ $ $ 19,876,147 3,104,443 4,403,861 4,154,810 2,584,532 1,564,348 19,178,048 22,282,578 3,157,038 1,712,378 883,198 1,569,412 29,715,174 3,107,304 606,669 1,931,647 1,497,485 4,322,357 283,907 3,381,762 113,979,218 9,368,785 7,006,815 89,803,676 97,424,993 26,760,680 32,727,207 17,766,514 18,492,113 14,105,518 16,375,461 7,024,286 4,601,675 61,192 3,749,298 5,9971284 159,271,164 175,618,733 $ 273,250,382 $ 184,987,518 $ 7,006,815 $ $ 15,031,203 $ 3,482,501 $ 11,961,322 $ 943,557 General revenues: Taxes: Property Sales Occupancy Other Franchise fees Grants and contributions not restricted to specific programs Unrestricted Investment eamlngs Miscellaneous Special Items: Gain or (loss) on sale of property Transfers, net Total general revenues, special items and transfers Change In net assets Net assets -beginning of year Net assets -end of year The accompanying Notes to Basic Financial statements are an Integral part of these statements. 38 ,-, ,--. Net (Expense) Revenue and Changes In Net Assets Prlma!l'. Government Nonmajor Governmental Business-Type Component Activities Activities Total Units $ (1,037,720) $ $ (1,037,720) $ (12,367,843) (12,367,843) (4,154,810) (4,154,810) (2,584,532) (2,584,532) (1,564,348) (1,564,348) (19,178,048) (19,178,048) {17,413,162) (17,413,162) (883,198) (883,198) (1,569,412) (1,569,412) (26,001,201) (26,001,201) (f ,931,647) (1,931,647) (1,497,485) (1,497,485) (4,038,450) (4,038,450) (2,381?62} (3,381,762) (97,603,618) (97,603,618) 7,621,317 7,621,317 5,966,527 5,966,527 725,599 725,599 2,269,943 2,269,943 (2,422,611) (2,422,611) (61,192) {61,192) 2,2471986 2,247,986 16,347,569 16,347,569 (97,603,618) 16,347,569 (81,256,049) ,..) 1,356,177 40,408,067 40,408,067 28,902,648 28,902,648 2,860,785 2,860,785 820,507 820,507 6,998,085 6,998,085 (25,027) 3,881,473 3,856,446 2,027,513 3,303,341 5,330,854 6,575 4,200,103 2,694,661 6,894,764 (2,151) (687,016) 34,176 (652,840) {41,663) 15,667,795 !15,667,795) 101,173,460 (5,754,144) 95,419,316 (37,239) 3,569,842 10,593,425 14,163,267 1,318,938 117,925,074 418,930,126 536,855,200 11,823,768 ,.. $ 121,494,916 $ 429,523,551 $ 551,018,467 $ 13,142,706 39 Intentionally Left Blank ,-,_ ' Fund Financial Statements - Intentionally Left Blank .. ~' General Fund The General Fund is the general operating fund of the City. It is used to account for all financial transactions except those required to be accounted for in another fund. Other Governmental Funds The Other Governmental Funds include the total Special Revenue Funds, Debt Service Fund and Capital Project Funds. 43 CITY OF LUBBOCK, TEXAS BALANCE SHEET• GOVERNMENTAL FUNDS SEPTEMBER 30, 2002 Other Total General Governmental Governmental Fund Funds Funds ASSETS Pooled cash and cash equivalents $ 1,977,704 $ 23,814,838 $ 25,792,542 Investments 1,825,572 21,980,359 23,805,931 Taxes receivable 6,318,978 584,422 6,903,400 Accounts receivable 5,973,377 2,075 5,975,452 Interest receivable 93,904 83,794 177,698 Secured receivables 5,880,761 5,880,761 Due from other funds 7,485,865 7,485,865 Due from other governments 13,637 262,504 276,141 Due from others 669,130 1,121,539 1,790,669 Investment in property 236,363 236,363 Prepaid items 706 706 Advances to other funds 1,254,335 1,254,335 . ..-,, Advances to others 10,000,000 10,000,000 Inventory 125,771 125,771 Total assets $ 25,738,979 $ 63,966,655 $ 89,705,634 -, LIABILITIES Accounts payable $ 2,358,620 $ 2,951,947 $ 5,310,567 Due to others 890,772 890,772 Due to other funds 2,516,760 2,516,760 Due to other governments Accrued liabilities 1,806,126 40,225 1,846,351 Advances from other funds 8,294,430 8,294,430 Deferred revenue 2,071,104 3,330,669 5,401,773 Total liabilities 7,126,622 17,134,031 24,260,653 FUND BALANCES Reserved for: Prepaid items 706 706 Advances to other funds 1,254,335 1,254,335 .Debt service fund 1,697,046 1,697,046 Capital projects funds 34,225,008 34,225,008 Special revenue funds-grants 6,117,124 6,117,124 Unreserved, reported in: General fund 17,357,316 17,357,316 Special revenue funds 4,793,446 4,793,446 Total fund balances 18,612,357 46,832,624 65,444,981 Total liabilities and fund balances $ 25,738,979 $ 63,966,655 $ 89,705,634 The accompanying Notes to Basic Financial Statements are an integral part of these statements. 44 CITY OF LUBBOCK, TEXAS RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENT AL FUNDS TO THE STATEMENT OF NET ASSETS SEPTEMBER 30, 2002 Amounts reported for governmental activities in the statement of net assets are different because: Total fund balance -governmental funds Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. Internal service funds (ISF) are used by management to charge the costs of certain activities, such as insurance and telecommunications, to individual funds. The assets and liabilities of the ISF primarily serving governmental funds are included in governmental activities in the statement of net assets as follows: Net assets Net book value of fixed assets Compensated absences Amounts due to business-type ISF for amounts overcharged Certain liabilities are not due and payable in the current period and therefore are not reported in the funds. Those Habllities are as follows: General obligation bonds Compensated absences Rebatable arbitrage Accrued interest on general obligation bonds Revenue earned but unavailable in the funds is deferred. Unavailable criteria is not used in the recognition criteria in the Statement of Net Assets Net assets of governmental activities $ 65,444,981 117,284,919 10,668,511 (1,420,804) 226,437 (936,255) (58,505,346) (12,317,996) (282,876) (243,929) 1,577,274 $ ===1=2=1,4=94==,9=16= The accompanying Notes to Basic Financial statements are an integral part of these statements. 45 CITY OF LUBBOCK, TEXAS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2002 -- Other Total General Governmental Governmental Fund Funds Funds REVENUES Taxes and fees $ 66,606,493 $ 12,651,124 $ 79,257,617 Fees and fines 3,069,362 3,069,362 Licenses and permits 1,475,451 1,475,451 Intergovernmental 351,878 6,722,908 7,074,786 Charges for services 4,472,094 283,907 4,756,001 Interest 433,393 896,491 1,329,884 Miscellaneous 1,058,237 3,339,254 4,397,491 Total revenues 77,466,908 23,893,684 101,360,592 EXPENDITURES Current: General government 5,940,744 15,878,838 21,819,582 Communications/Legislation 1,011,648 1,011,648 '" ' Community Services 17,329,727 17,329,727 Development Services 4,134,114 4,134,114 Electric 2,168,620 2,168,620 Financial Services 1,614,175 1,614,175 Fire 18,485,419 18,485,419 Human Resources 895,311 895,311 -~. Management Services 590,696 590,696 Police 28,905,651 28,905,651 Strategic Planning 1,588,051 1,588,051 Non-departmental 1,497,485 1,497,485 Public works 1,435,296 1,435,296 Debt service: Principal 4,113,177 4,113,177 Interest and other charges 3,390,300 3,390,300 Capital outlay 480,749 12,826,222 13,306,971 Total expenditures 84,642,390 37,643,833 122,286,223 Excess {deficiency) of revenues over (under) expenditures (7,175,482) (13,750,149) (20,925,631) OTHER FINANCING SOURCES (USES) Long-term debt issued 9,400,000 9,400,000 Refunded bonds issued 7,252,985 7,252,985 Payment to bond refunding escrow agent (7,117,270} (7,117,270) '"' ' Transfers in 15,023,466 28,685,600 43,709,066 Transfers out (5,951,669) (22,311,437} (28,263,106) Total other financing sources (uses) 9,071,797 15,909,878 24,981,675 Net change in fund balances 1,896,315 2,159,729 4,056,044 Fund balances-beginning of year 16,716,042 44,672,895 61,388,937 Fund balances-end of year $ 18,612,357 $ 46,832,624 $ 65,444,981 The accompanying Notes to Basic Financial Statements are an integral part of these statements. 46 ,,... CITY OF LUBBOCK, TEXAS RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2002 Amounts reported for governmental activities in the statement of activities are different because: Net change in fund balances -total governmental funds Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays ($13,306,971) exceeded depreciation ($9,223,638} in the current period. Bond proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the statement of net assets. Repayment of bond principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. This is the amount by which proceeds exceeded repayments. Estimated long-term liabilities for compensated absences are recognized as expenses in the Statement of Activities as earned, but are recognized when current financial resources are used in the governmental funds. This amount is the net change in the estimated long-term liability for compensated absences this year. Estimated long-term liabilities for rebatable arbitrage are recognized as expenses in the Statement of Activities as earned, but are recognized when current financial resources are used in the governmental funds. This amount is the net change in the estimated long-term liability for rebatable arbitrage this year. Property taxes levied, but not available, are not revenues in the governmental funds, but are accrued when earned (net of estimated uncollectibles) in the Statement of Activities. This amount is the net change in deferred property taxes for the year; Internal service funds are used by management to charge the costs of certain activities, such as insurance and telecommunications, to individual funds. The net revenue (expense) of certain internal service funds is reported with governmental activities. Other liabilities are recognized as expenses in the Statement of Activities as earned, but are recognized when current financial resources are used in the governmental funds. This amount is the net change in the other liabilities this year. The net effect of various miscellaneous transactions involving capital assets (i.e., sales and trade-ins) is to decrease net assets. Change in net assets of governmental activities $ 4,056,044 4,083,333 (5.422,538} (188,206) 338,781 732,476 846,050 8,538 (884,636) $ ====3=,5=69=,8=4=2= The accompanying Notes to Basic Financial Statements are an integral part of these statements. 47 CITY OF LUBBOCK, TEXAS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES • BUDGET AND ACTUAL -GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2002 Variance with Final Budget Budaeted Amounts Actual Positive Original Final Amounts (Negative) REVENUES Taxes and fees $ 65,389,509 $ 65,723,946 $ 66,606,493 $ 882,547 Fees and fines 3,280,000 3,180,000 3,069,362 (110,638) Licenses and permits 1,303,515 1,282,540 1,475,451 192,911 Intergovernmental 282,275 331,090 351,878 20,788 Charges for services 4,473,446 4,351,248 4,472,094 120,846 Interest 713,366 497,175 433,393 (63,782) Miscellaneous 990,341 1,013,949 1,058,237 44,288 Total revenues 76,432,452 76,379,948 77,466,908 1,086,960 EXPENDITURES ,~. General government 6,132,529 6,349,295 5,940,744 408,551 Communications/Legislation 1,053,031 1,027,587 1,011,648 15,939 Community Services 17,680,059 17,608,428 17,329,727 278,701 Development Services 4,975,640 4,685,027 4,134,114 550,913 Electric 2,374,811 2,256,214 2,168,620 87,594 Financial Services 1,618,573 1,634,648 1,614,175 20,473 ,-,.. Fire 19,190,968 18,838,660 18,485,419 353,241 Human Resources 929,298 927,016 895,311 31,705 Management Services 657,483 636,384 590,696 45,688 Police 29,354,474 29.288,219 28,905,651 382,568 Strategic Planning 1,624,612 1,609,302 1,588,051 21,251 Capital Outlay 533,596 561,596 460,749 80,847 Non-departmental 849,200 1,497,485 (648,285) 86,125,074 86,271,576 84,642,390 1,629,186 Excess (deficiency) of revenues over (under) expenditures (9,692,622) (9,891,628) (7,175,482} 2,716,146 OTHER FINANCING SOURCES (USES) Transfers in 15,357,009 15,140,577 15,023,466 (117,111) Transfers out (5,664,387) (5,348,949) (5,951,669} (602,720) Total other financing sources (uses) 9,692,622 9,791,628 9,071,797 (719,831) , ..... Net change in fund balances (100,000) 1,896,315 1,996,315 Fund balances-beginning of year 16,716,042 16,716,042 16,716,042 Fund balances~end of year $ 16,716,042 $ 16,616,042 $ 18,612,357 $ 1,996,315 The accompanying Notes to Basic Financial Statements are an integral part of these statements. 48 Proprietary Funds The Proprietary Funds are used to account for the operations of the City :financed and operated in a manner similar to private business enterprises, where the intent is costing goods or services to the general public on a continuing basis to be recovered in whole or part through user charges. Enterprise Funds Electric Fund-To account for the operations of the City-owned electric system. Water Fund-To account for the operations of the City's water system. Sewer Fund-To account for the operations of the City's sanitary sewer system. Solid Waste Fund -To account for the operations of the City's landfills and its solid waste collection system. Airport Fund -To account for the operations of Lubbock International Airport. Golf Fund -To account for the operations of Meadowbrook Golf Course. Storm.water Fund -To account for the operations of the stormwater utility which provides stormwater drainage for the City. Internal Service Funds All Internal Service Funds that are allocated to Governmental or Business -type activities. 49 · CITY OF LUBBOCK, TEXAS STATEMENT OF NET ASSETS - PROPRIETARY FUNDS SEPTEMBER 30, 2002 Business-Type Activities • Enterprise Funds Solid Electric Water Sewer Waste ASSETS -. Current assets: Pooled cash and cash equivalents $ 521 $ 1,735,481 $ 2,072,311 $ 547,118 Investments 480 1,601,982 1,912,903 505,032 Receivables, net 20,998,519 3,687,945 2,335,709 1,400,562 Interest receivable 43,372 20,533 21,003 Due from others 33,722 ,.-,,,,, Due from otherfunds 6,615,810 400,000 4,000,000 Inventories 36 981 87905 Total current assets 21,036,501 13,806,217 6,741,456 6,473,715 Noncurrent assets: Restricted cash and cash equivalents 7,709,024 10,047,446 3,497,985 3,717,207 ,..,, Restricted investments 4,978,565 12,916,901 3,229,244 8,837,463 Receivables, net Interest receivable 16,718 45,397 22,370 41,528 Deferred charges 6,015,199 Other assets 19,747,588 Advances to other funds 2,000,000 2,000,000 4,185,666 Capital assets: Land 756,714 1,599,297 12,578,774 1,607,932 Construction in progress 12,946,402 46,905,378 7,644,858 4,483,315 Buildings 7,535,840 21,552,272 23,857,432 1,399,523 Improvements other than buildings 157,532,875 161,522,565 91,950,854 14,766,137 Machinery and equipment 20,374,999 19,314,649 13,946,164 15,681,469 Less accumulated depreciation (79,596,163) (54,294.448) {44,648,324) (9,844,836) Total noncurrent assets 138,270,173 241,357,045 114,079,357 44,875,404 Total assets $ 159,306,674 $ 255!163!262 $ 120,820!813 $ 51,349,119 The accompanying Notes to Basic Financial Statements are an integral part of these statements. 50 - e Business-T~ Activities -Ente!'.Erise Funds Total Total Enterprise Internal Al~rt Golf Stormwater Funds Service Funds !"": $ 15,914 $ 2,773 $ 88,827 $ 4,462,945 $ 1,683,302 14,689 81,995 4,117,081 1,553,817 675,938 689,510 29,788,183 410 4,596 964 90.468 24,520 ~ 33,722 1,961 11,015,810 124.886 114561514 711137 2773 861,296 491633,095 4,720,524 1,444,743 · 22,899 12,256,296 38,695,600 2,885,822 3,102,324 21,138 11,313,504 44,399,139 19,565,871 65,060 33,503 22,280 181,796 77,201 6,015,199 19,747,588 8,185,666 2,482,327 115,669 19,140,713 65,343 11,591,312 18,690 24,796,515 108,386,470 838,380 33,788,504 9,372 64,580 88,207,523 1,614,935 66,176,657 821,342 7,170,659 499,941,089 223,894 6,553,593 2,326,486 78,197,360 8,555,576 ("'; (54,589,893) (791,633) (7,381,133) (251,146.430) (7,615,190) 70,583,070 101,808 50,684:856 659,951?13 26,276,892 $ 711294,207 $ 104,581 $ 51,546,152 $ 709,584,808 $ 30,9971416 - 51 CITY OF LUBBOCK, TEXAS STATEMENT OF NET ASSETS PROPRIETARY FUNDS SEPTEMBER 30, 2002 Business-Type Activities• Enterprise Funds Solid Electric Water Sewer Waste LIABILITIES Current liabilities: Accounts payable $ 8,507,801 $ 1,060,560 $ 685,321 $ 447,755 Accrued expenses 192,525 284,236 72,711 91,714 Accrued interest payable 748,742 800,800 334,188 33,319 Accrued insurance claims Due to other funds 12,865,810 170,000 395,000 Customer deposits 5,650 Bonds payable 3,518,159 4,270,701 3,998,347 323,151 Total current liabilities 25,833,037 6,5861297 5,485,567 901 589 Noncurrent liabilities: Compensated absences 2,010,821 621,329 272,614 222,450 Deferred revenue Contracts payable 923,532 863,648 Accrued insurance claims Advances from other funds Landfill closure and post closure care 2,552,923 Bonds payable 391034,906 1071527,937 47,355,042 5,252,493 --.. Total noncurrent liabilities 41,045,727 109,072,798 48,491,304 8,027,866 Total liabilities 66,878,764 115,659,095 53,976,871 8,929,455 NET ASSETS Invested in capital assets, net of related debt 16,059,433 60,643,428 37,747,580 19,537,948 Restricted for claims payments Unrestricted 76,368,477 78,B60i139 29,096,362 22,8811716 Total net assets $ 92!427,910 $ 139,504,167 $ 66,843,942 $ 42,419,664 The accompanying Notes to Basic Financial Statements are an integral part of these statements. 52 ,.., $ ,-.,. '~ $ - Aireort 570,992 61,940 13,109 250,000 435,000 1,331,041 216,373 18,221 1,145,571 4,175,000 5,555,165 6,886.206 65,877,175 (1,469,174) $ 64,408,001 $ Business-Tree Activities· Enterprise Funds Golf 2,014,105 2,014,105 2,014,105 41,931 (1,951,455) $ (1,909,524) $ Stormwater 1,336,588 236,660 550,000 2,123,248 61,226 33,8821100 33,943,326 36,066,574 24,036,026 (8,556,448) $ 15479,578 $ 53 Total Total Enterprise Internal Funds Seivice Funds 12,609,017 $ 1,257,820 939,786 107,581 1,930,158 4,185,925 15,694,915 290,000 5,650 13,0951358 44,274,884 5,841,326 3,404,813 574,021 18,221 1,787,180 4,500,000 1,145,571 2,552,923 2371227,478 246,136,186 5,074,021 2901411,070 10,915.347 223,943,521 3,682,938 10,811,840 1951230,217 5,587,291 419,173,738 $ ==-=2=0 .... os_2""',o ... s9""" Intentionally Left Blank CITY OF LUBBOCK, TEXAS RECONCILIATION OF THE STATEMENT OF NET ASSETS OF PROPRIETARY FUNDS TO THE STATEMENT OF NET ASSETS SEPTEMBER 30, 2002 Amounts reported for business-type activities in the statement of net assets are different because: Total net assets -proprietary funds Internal service funds (ISF's) are used by management to charge the costs of certain activities, such as insurance and telecommunications, to individual funds. The assets and liabilities of the ISF's primarily serving enterprise funds are included in business-type activities in the statement of net assets as follows: Net assets of business-type ISF's Amounts due from governmental lSF's for amounts undercharged Net assets of business-type activities $ 419,173,738 9.413,558 936,255 $ 429,523,551 ================ Toe accompanying Notes to Basic Financial Statements are an integral part of these statements. 55 ~- CITY OF LUBBOCK STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS • PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2002 Buslness•Tl'.ee ActivHles • Ente!Erise Funds Solid Electric Water Sewer Waste OPERATING REVENUES Charges for services $ 97,424,993 $ 32,451,225 $ 17,263,041 $ 16,375,461 ,--, New taps and reconnects 275,982 Effluent water sales 682,253 Commodity sales 546,819 Landing fees Parking Rentals Concessions Miscellaneous Total operating revenues 97,424,993 32,727,207 18,492,113 16,375,461 OPERATING EXPENSES Personal services 9,392,588 4,957,742 3,407,397 3,657,622 Supplies 497,457 889,659 657,194 676,182 Maintenance 1,480,493 1,790,015 1,080,886 1,315,742 Uncollectible accounts 448,780 241,347 90,727 126,697 Purchase of fuel and power 82,475,256 Collection expense 2,094,377 422,685 356,505 Other services and charges 5,708,877 5,354,659 4,421,581 4,520,683 Depreciation and amortization 8,297,665 5,878,409 5,103,633 2,963,644 Total operating expenses 88,301,116 21,204,208 15,184,103 13,617,075 Operating Income (loss) 9,1231877 11,522,999 3,308,010 2i758,386 NONOPERATING REVENUES (EXPENSES) Interest 220,608 879,650 252,869 555,357 Passenger facility charges Disposition of properties (7,103) 85,005 {104,749) 47,316 Miscellaneous 439,152 348,994 86,333 86,515 Interest on bonds (1,861,457) (5,557,334) (2,535,849} (330,739) ~ Total nonoperating revenues (expenses) (1,208,800} (4,243,685} (2,301,196} 358 449 Income (loss) before conbibutions and transfers 7,915,077 7,279,314 1,006,814 3,116,835 Capital contributions/( distributions) 27,857 (846,410) 2,387,337 47,898 Transfers in (out) fr,785,9362 {2,3551078} {2,154:387~ {1,988!241! Change in net assets 156,998 4,2n,e2e 1,239,764 1,176,492 Total net assets -beginning (restated) 92,270,912 135.226,341 65,6041178 41,243,172 Total net assets -ending $ 92,427,910 $ 139,504,167 $ 66,843,942 $ 42,419,664 The accompanying Notes to Basic Financial Statementsare an integral part of these statements. 56 Business•Tlee Activities• Entererlse Funds Total Total Enterprise Internal Airport Golf Stormwater Funds Service Funds $ $ $ 5,997,284 $ 169,512,004 $ 35,773,135 275,982 682,253 546,819 706,710 706,710 1,206,944 1,206,944 1,665,309 1,665,309 ,,,.., 1,022,712 1,022,712 258,549 41501,675 5,997,284 175,618,733 36,031.684 1,365,693 760,344 23,541,386 6,955,024 134,827 (91,994) 2,763,325 6,670,537 !""-, 381,393 135,008 6,183,537 1,787,744 57,161 964,712 62,475,256 360,070 3,233,537 1,939,567 16 63,311 22,008,694 19,138,006 3,163,331 61,176 394,539 25,860,397 1,356,933 61984,811 61,192 1,678,439 14710301944 35,908,244 {2,383, 136) (61,192) 4,318,845 28,587,789 123,440 255,314 791,786 2,955,584 1,045,386 1,342,212 1,342,212 8,392 28,861 (7,242) 498,374 22,459 (3,250) 1,478,577 (113,339) ,,,., (47,890} ~.079,209} {12,412,278) 2,056,402 22459 (1,290,673) {6,607,0442 924,805 (326,734) (38,733) 3,028,172 21,980,745 1,048,245 4,935,525 542,091 7,294,298 (3,437,852) (653,541) (163} (14,937,366} {508,595} 3,955,250 (38,733) 3,570,080 14,337,677 (2,898,202) 601452z751 (1,870,191 l 11,9091498 404,836,061 22,980,271 $ 64,406001 $ {11909,524} $ 15,479,578 $ 419,173,738 $ 20,082,069 57 Intentionally Left Blank CITY OF LUBBOCK, TEXAS RECONCILIATION OF THE ST~TEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS OF PROPRIETARY FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2002 Amounts reported for business-type activities in the statement of activities are different because: Net change in fund net assets -total enterprise funds Internal service funds (ISF's) are used by management to charge the costs of certain activities such as fleet services, central warehousing activities, management information activities, etc. to individual funds. The net revenue (expense) of certain ISF's is reported with business-type activities. Change in net assets of business-type activities $ 14,337,677 (3,744,252) $ 10,593,425 ========= The accompanying Notes to Basic Financial statements are an integral part of these statements. 59 CITY OF LUBBOCK, TEXAS COMBINING STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2002 Buslness•Ty:ea Activities· Enterer!&& Funds Electric: Water Sewer Solid Waste Fund Fund Fund Fund CASH FLOWS FROM Ol'>ERATING ACTIVITIES Receipts from customers $ 91,417,664 $ 31,873,646 $ 17,671,837 $ 16,218,320 Payments to suppliers and employees (72,661,395) (14,867,676) (9,271,281) (10,519,158) Other receipts (payments) 432.049 433,999 !18,416) 133,831 Net cash provided by (used for) operating activities 19,188,318 17,419,769 8,382,140 5,832,993 CASH FLOWS FROM NONCAPITALANO RELATED FINANCING ACTIVITIES Operating transfers In from olher funds 54,000 7,764,608. 6,697,294 1,029,180 Operating transfers out to other funds (7,839,936) {10,139,686) (8,851,681) (3,017,421) Short-tenn interfund borrowings 1,365,210 1,024,190 (5,000) (4,000,000) Advances to other funds (2,622,013) Payments received (made) on advances (to) from other funds (1,830,509} <2,000,oooi Net cash provided by (1.1$9d for) noncapltal and related financing actlvi!ies (6,420,726) (3,181,397! (4, 159,367) !8,810,254) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVlnES Payments for gas reserves and other deferred charges (548,014) Purchases of property, plant and equipment (12,620,369) (9,389,081) (4,702,127) (4,145,891) Sale of property, plant and equipment 734,550 78,651 151,515 77,333 Prlncipal paid on l'e\lenue bonds (3,965,000) (1,545,000) Interest paid on revenue bonds (1,653,348) (1,892,600) ,--:, Principal paid on general obUgallon bonds and other debt (6,205,307) 1,299,867 (598,674) Interest paid on general obligation bonds (3,804,878) (2,525,856) (352,625) Issuance of revenue, G.O. and C.O. bonds 8,500,000 7,621,399 Refunds of pro-rata contracts (67,334) (128,906) Deposits on pro-rata contracts 35,797 74,240 Passenger faciDty charges Contributed capital 33,307 ! 1,008,61 Dl 1,887,914 Net cash provided by (used for) c:apilal and related financing activities (9,538,874) {16,176,963) (3,943,353) (5,019,857) CASH FLOWS FROM INVESTI~ ACTIVITIES Proceeds from sales and maturities of investments 5,577,067 15,554,746 5,542,025 13,181,812 Purchase of investments (1,932,708) (5,635,770) (1,996,019) (3,626,461) Interest eami~s on cash and investments 228,734 862,613 240,128 5B2 871 Net cash provided by (used for) investing activities 31B73,093 10,781,589 3,786,134 10,138,222 Net Increase (decrease) ln pooled cash and CS$h equivalents 7,101,811 8,862,998 4,065,534 2.,341,104 Pooled cash and cash equivalents at beginning of year 607,734 2,919,929 1,504,752 1,923,221 Pooled cash and cash equivalents at end of year $ 7,709,545 $ 11,782,927 $ 5,570.296 $ Rec:onci1iation of operating lnc:ome (loss) to net cash provided by (used for) operating activities: Operating Income (loss) $ 9,123,877 $ 11,522,999 $ 3,308,010 $ 2,758,386 Adjustments to reconcile operating Income (loss) to net cash from operating ac:t:Mties: Depreciation, amortization and accretion 8,297,665 6,284,641 5,459,942 2,963,644 Other income (expense) 432,049 433,999 (18,416) 133,831 Receipts from building rent Increase (decrease) in long-te!m assets/liablUties not requiring cash flow 5,076,841 (21,763) (11,659) 25,985 Change In current assets and liabilities: Aocoun!s receivable (6,007,329} (853,561) (820,276) (157,141) ln11en10ry 57,886 9,969 Prepaid expenses Due from other governments 23,800 Accounts payable 2,057,061 299,018 455,276 71,532 Due from others Other accnJed expenses 150,268 (279,333) 9,263 36,156 Customer deposits 600 Net cash provided by ( used for) operating activities $ 19,188,318 $ 17,419,789 $ 8,382,140 $ 5,832,993 Supplemental cash flow Information: Noncash capital imprO'l/ements and other changes $ 5,450 $ 485,382 $ 571,615 $ 47,898 The accompanying Nol.es lo Basic Financial Statements are an integral part of these statements. 60 Buslness•T~e ActMlies • Ente!J!rlse Funds """ Total Internal Airport Golf Stonnwater Seivlce Fund Fund Fund Totals Funds $ 4,223,306 $ $ 5,'307,TT4 $ 166,712,547 $ 36,076,199 (3,517,394) (22,475) 272,792. (110,606,787) (35,134,448) 506,766 22.459 [3,250} 1,507,438 (50,971) 1,212,678 (16) 5,577.316 57,613,198 892,760 374,954 2,414,672 18,354,708 929,229 (1,028,495) (2,414,855) (33,292,074) (1,437,624) 250,000 13 {50,000) (1,415,567) 35,000 1,145,571 (1,476,442) (3,630,509) (627,994) 742,030 13 (50,183) {21,659,904) {1,101,589) (548,014) (10,301,314) (15) (21,150.452) (62,309,249) (1,147,673) 1,042,049 3,963,7TT (5,530,000) (2,395,508) (5,941,456) {430,000) (160,000) (6,094, 114) (49,296) 14,567 (6,718,088) 16,121,399 (196,240) 110,037 1,342,212 1,342,212 4,935,525 5,848,136 (3,000,000) (4,502.873) (15) (23,691,393) (62,873,328) (184,096) 4,506,760 25,379 25,n5,397 70,163,186 9,138,419 (1,209,926) (8,205) (4,423,372) (18,832.461 l (8,222,503) 246,627 769,017 2,929,990 1,054,670 3,543,461 17,174 22,1211042 54,280,715 1,970,586 ,.., 995,296 17,156 3,956,782 27,340,681 1,5TT,681 465,361 8,516 8,388,341 15,817,864 2,991,443 $ 1,460,657 $ 25,672 $ 12,345,123 $ 43,158,545 $ 4,569,124 -$ (2,383,136) $ (81,192) $ 4,318,845 $ 28,587,789 $ 123,440 3,163,331 61,176 394,539 26,824,938 1,358,933 506,786 22,459 (3,250) 1,507,438 (133,365) 12,784 2,053 54,763 5,126,22.0 (568,604) (378,369) (689,510) (8,906,186) 33,243 67,855 491,194 624,314 23,800 321,478 (22,459) 1,275,689 4,457,575 {1,130,094} 82,882 (19,445) 226,260 123,169 53 600 ,.. $ 1,212,678 $ (16) $ s,sn,a1a $ 57,813,198 $ 892.780 $ • $ . $ 542,091 $ 1,652,638 $ 437,852 61 ASSETS CITY OF LUBBOCK, TEXAS STATEMENT OF FIDUCIARY NET ASSETS - FIDUCIARY FUNDS SEPTEMBER 30, 2002 Pooled cash and cash equivalents Investments Due fom other funds Total assets LIABILITIES Accounts payable lncentitives payable Due to other governments Total liabilities * Held by Market Lubbock Economic Development Corporation, dba Market Lubbock, Inc., for the purpose of paying incentives on behalf of the City of Lubbock. $ Living Memorial Agency Fund 3,158 2,915 6,073 $===== $ 6,073 6,073 $ ======== $ $ $· $ The accompanying Notes to Basic Financial Statements are an integral part of these statements. 62 Nonmajor Component Unit Agency Fund* 31,670 100,259 131,929 31,469 100,460 131,929 ,.-,,., - ,... CITY OF LUBBOCK, TEXAS STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS· FIDUCIARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2002 Balance 10/1/2001 Additions Deletions Living Memorial Agency Fund Pooled cash and cash equivalents $ 289 $ 21,539 $ 18,670 Investments 1,925 3,218 2,228 Total assets $ 2,214 $ 24,757 $ 20,898 Accounts payable $ 2,214 $ 3,859 $ - Total liabilities $ 2,214 $ 3,859 $ - $ $ $ $ The accompanying Notes to Basic Financial Statements are an Integral part of these statements. 63 Balance 9/30/2002 3,158 2,915 6,073 6,073 6,073 CITY OF LUBBOCK Notes to Basic Financial Statements September 30, 2002 I. Summaiy of Significant Accounting Policies ............................................ 66 A Reporting Entity .................................................................................. 66 B. Government-wide & Fund Financial Statements-GASB #34 ............ 68 C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation .................................................................... 69 D. Budgetary Accounting ......................................................................... 71 E. Encumbrances ..................................................................................... 71 F. Assets, Liabilities and Fund Balance/Net Assets ................................ 72 G. Risk Management ................................................................................ 73 H. Health Insurance .................................................................................. 74 I. Revenues, Expenses and Expenditures ............................................... 74 II. Stewardship, Compliance and Accountability ........................................... 76 A Net Asse1/Fund Balance Deficits ........................................................ 76 m. Detail Notes on all Activities and Fim.ds ................................................... 77 A Pooled Cash and Investments .............................................................. 77 B. Interfund Transactions ........................................................................ 79 C. Def erred Charges ................................................................................. 80 D. Capital Assets ...................................................................................... 80 E. Retirement Plans ................................................................................. 83 F. Deferred Compensation ....................................................................... 88 G. Surface Water Supply ......................................................................... 88 H. Other Enterprise Fund Activities ........................................................ 89 64 r-, ' CITY OF LUBBOCK Notes to Basic Financial Statements September 30, 2002 I. Long-Term Debt .................................................................................. 90 J. Advanced Refunding ........................................................................... 94 K. Accrued Insurance Claims .................................................................. 94 L. Landfill Closure and Postclosure Care Cost ....................................... 95 IV. Contingent Liabilities ................................................................................ 95 A. Federal Grants ..................................................................................... 95 B. Litigation ............................................................................................. 95 C. Site Remediation ................................................................................. 96 D. West Texas Municipal Power Agency ................................................. 96 65 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POUCIES The Basic Financial Statements (BFS} of the City of Lubbock, Lubbock County, Texas (City) have been prepared in confonnity with Accounting Principles Generally Accepted in the United States of America as applied to government units, including specialized industry practices as specified in the American Institute of Certified Public Accountants audit and accounting guide titled Audits of State and Local Governmental Units (GAAP). The Government Accounting Standards Board (GASE) is the aclmowledged standard- setting body for establishing governmental accounting and financial reporting principles. With respect to proprietary activities related to business-type activities and enterprise funds, including component units, the City has adopted GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that use Proprietary Fund Accounting. The City applies all applicable GASB pronouncements as well as Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting Principles Board (APB) Opinions and Accounting Research Bulletins of the Committee on Accounting Procedure, issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. The more significant accounting policies are described below. A. REPORTING ENTITY The City is a municipal corporation governed by a Mayor-Council form of government. As required by GAAP, the BFS present the reporting entity which consists of the City (the primary government), organizations for which the City is financially accountable and other organizations for which the nature and significance of their relationship with the City are such that exclusion could cause the City's BFS to be misleading or incomplete. BLENDED COMPONENT UNITS The following component unit has been included in the City's financial reporting entity using the blended method because although it is legally separate, its operations are so intertwined with the City that it is, in substance, a part of the City. · The Urban Renewal Agency (URA) was formed to provide urban renewal services for the City, that include rehabilitation of housing, acquisition of housing, and disposition of land. The Urban Renewal Agency Board is composed of nine members appointed by the Mayor, with the consent of the City Council, and acts only in an advisory capacity to the City Council. All powers to govern URA are held by the City Council. DISCREIBLY PRESENTED COMPONENT UNITS The Component Unit columns in the Government-Wide Financial Statements include the financial data of the City's other Component Units. They are reported in a separate column to emphasize that they are legally separate from the City, The following Component Units are included in the reporting entity because the primary government is fmancially accountable and is able to impose its will on the organization. A primary government has the ability to impose its will if it can significantly influence operations and/or activities of an organization. City Transit Management Co., Inc. dba Citibns (Citibus) is a legally separate entity that operates a City-owned transportation system. In 1998, the City renewed a five-year management agreement with McDonald Transit Associates, Inc. to manage and operate Citibus. The City Council appoints the seven-member Lubbock Public Transit Advisory Board, and approves the annual budget. The City is responsible for funding deficits. Citibus is reported as a proprietary-type component unit. Civic Lubbock. Inc. (Civic), a legally separate entity, was organized to foster and promote the presentation of wholesome educational and cultural programs, attractions and entertainments for the general moral, intellectual, a physical improvement and welfare of the people of the· City of Lubbock and surrounding area. The seven-member board is appointed by the City Council. City Council approves the annual budget for Civic. Civic is reported as a proprietary-type component unit 66 - CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. REPORTING ENTITY (CONTINUED) Market Lubbock Economic Development Corporation dba Market Lubbock, Inc. (Market Lubbock, Inc.), a legally separate entity, wa.s fonned on October 10, 1995 by the City Council to create, manage, operate and supervise programs and activities to promote, assist and enhance economic development within and around the City. The City Council appoints the seven-member board and its operations are funded by budgeted allocations of the City's property and hotel occupancy taxes and other City contnbutions. Market Lubbock, Inc. is reported as a governmental- type component unit. Copies of financial statements of the individual component units may be obtained from their respective administrative offices listed below: Administrative Offices Citibus 801 Texas Lubbock, Texas Civic Lubbock, Inc. 1501 611, Street Lubbock, Texas RELATED ORGANIZATIONS Market Lubbock, Inc 1301 Broadway Suite200 Lubbock, Texas The City's officials are also responsible for appointing the members of the boards of other organiz.ations but the City's accountability for these organizations does not extend beyond making the appointments. The following are related organizations, which have not been included in the reporting entity: Housing Authority of the City of Lubbock (Authority) is a legally separate entity. The Mayor appoints the five-member board. It is the City Attorney's opinion that the Authority is independent of the City. The Authority is not fiscally dependent on the City and City Council is not able to impose its will on the entity. The City has no responsibility for debt issued by the Authority. Lubbock Firemen's Retirement and Relief Fund (LFRRF) operates under provisions of the Firemen's Relief and Retirement Laws of the State of Texas for purposes of providing retirement benefits for the City's firefighters. The Mayor's designee, the Cash & Debt Manager, three firefighters elected by members of the LFRRF and two at-large members elected by the Board, governs its affairs. It is funded by contnbutions · by the firefighters and matched by contributions from the City. As provided by enabling legislation, the City's responsibility to the LFRRF is limited to matching monthly contributions made by the members. Title to assets is vested in the LFRRF and not in the City. The State Firemen's Pension Commission is the governing body over the LFRRF; the City does not significantly influence operations. Lubbock Arts Alliance, Inc. (Alliance) is dedicated to the promotion and improvement of the arts and sponsoring the annual Lubbock Arts Festival. Fiscal dependence by the Alliance on the City is not significant to the City. City Council does not appoint the board. The City is not able to exert its will on the Alliance. Lubbock Health Facilities Development Corporation (LHFDC) promotes health facilities development City Council appoints the seven-member board. Bonds issued by LHFDC do not constitute indebtedness of the City. The City does not govern operations ofLHFDC. Lubbock Housing Finance Corporation, Inc. (LHFq was formed pursuant to the Texas Housing Finance Corporation Act, to finance the cost of decent, safe, affordable residential housing. The Mayor appoints the seven-member board. It is the opinion of the City Attorney that LHFC is independent of the City. Indebtedness of the LHFC does not constitute indebtedness of the City. The City is not able to impose its will on the LHFC. 67 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. REPORTING ENTITY {CONTINUED) JOINT VENTURE In May 1998, the City, along with three other cities in the West Texas area, entered into an agreement with the West Texas Municipal Power Agency (WI'MPA) to purchase power generated by a co- generation facility to be constructed with the proceeds obtained from the issuance of $28,910,000 of revenue bonds issued by WTMP A. The contractual arrangement with WTMPA calls for each participating city to guarantee payments of the WTMP A bond debt service in the event the net revenues of the power sales contracts with the participating cities is not adequate to cover the debt service. The City has an ongoing financial interest in WTMP A through the contractual arrangement to purchase generated power and is also considered to have an ongoing financial responsibility due to the manner in which the debt service is guaranteed as well as the responsibility for financing the operations of the joint venture by purchasing the power generated by WTMP A which will benefit the citizens of Lubbock. Financial information for WTMPA can be obtained from the City of Lubbock, P.O. Box 2000, Lubbock, Texas 79401, (Attention Managing Director of Financial Services). B. GOVERNMENT-WIDE & FUND FINANCIAL STATEMENTS-GASB # 34 The City has implemented GASB Statement No. 34 -Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments, GASB Statement No. 37 -Basic Financial Statements and Management's Discussion and Analysis -For State and Local Governments -Omnibus, GASB Statement No. 38 -Certain Financial Statements Note Disclosures, and GASB Interpretation No. 6 -Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund Financial Statements. GASB Statement No. 34 represents changes in the financial reporting model. Under the new model, specified by Statement No. 34, the BFS include both Government-Wide and Fund Financial Statements. The Government-Wide Financial Statements (GWFS) (i.e., the Statement of Net Assets and the Statement of Changes in Net Assets) report information on all of the nonfiduciary activities of the City and its blended component units as a whole. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the City is reported separately from certain legally separate component units for which the City is financially accountable. All activities, both governmental and business type, are reported in the GWFS using the economic resources measurement focus and the accrual basis of accounting, which includes long-term assets and receivables as well as long-term debt and obligations. The GWFS focus more on the sw;tainability of the City as an entity and the change in aggregate financial position resulting from the activities of the fiscal period. The Government-Wide Statement of Net Assets reports all financial and capital resources of the City, excluding fiduciary funds. It is displayed in a format of assets less liabilities equals net assets, with the assets and liabilities shown in order of their relative liquidity. Net assets are required to be displayed in three components: I) invested in capital assets, net of related debt, 2) restricted and 3) unrestricted. Invested in capital assets, net of related debt is capital assets net of accumulated depreciation and reduced by outstanding balances of any bonds, mortgages, notes or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Restricted net assets are those with constraints placed on their use by either: 1} externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments, or 2) imposed by law through constitutional provisions or enabling legislation. All net assets not otherwise classified as restricted, are shown as unrestricted. Generally, when both restricted and unrestricted resources are available for use, the City will use restricted resources first then unrestricted resources, as they are needed. 68 - CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE L SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES B. GOVERNMENT-WIDE & FUND FINANCIAL STATEMENTS-GASB # 34 {CONTINUED) Reservations or designations of net assets imposed by the City, whether by administrative policy or legislative actions of the City Council, are not shown in the GWFS. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include I) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. The general revenues support the net costs of the functions and segments not covered by program revenues. Also part of the BFS are Fund Financial Statements (FFS) for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the GWFS. The focus of the FFS is on major funds, as defined by GASB Statement No. 34. Although the new model sets forth minimum criteria for detennination of major funds {a percentage of assets, liabilities, revenue, or expenditures/expenses of fund category and of the governmental and enterprise funds combined), it also gives governments the option of displaying other funds as major funds. The City has elected to add some funds as major funds because of outstanding debt or community focus. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the FFS. Other non-major funds are combined in a single column on the FPS. C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING. AND FINANCIAL STATEMENT PRESETATION The GWFS are reported using the economic resources measurement focus and the accrual basis of acco1mting, as are the proprietary FFS and fiduciary FFS. 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 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. Because the enterprise funds are combined into a single business-type activities colunm on the GWFS, certain interfund activities between these funds may be eliminated in the consolidation for the GWFS, but be included in the fund columns in the proprietary FFS. Governmental FFS are reported using the current financial resources measurement focus and the modified accrual basis of accounting. This is the traditional basis of accounting for governmental funds. This presentation is deemed most appropriate to 1) demonstrate legal and covenant compliance, 2) demonstrate the sources and uses of liquid resources, and 3) demonstrate how the City's actual revenues and expenditures confonn to the annual budget Revenues are recognized as soon as they are both measurable and available. Revenues are considered to he available when they are collectJ'ble within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 45 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 and claims and judgments, are recorded only when payment is due. Because the governmental FFS are presented on a different basis of accounting than the GWFS, reconciliation is provided immediately following each fund statement. These reconciliations explain the adjustments necessary to transform the FFS into the governmental activities column of the GWFS. Property taxes, franchise taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and have been recognized as revenues of the current fiscal period. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when the City receives cash. 69 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION (CONTINUED} The City uses funds to report its financial position and the results of its operations. Fund accounting segregates funds according to their intended purpose and is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts, which includes assets, liabilities, fund balance/net assets, revenues and expenditures/expenses. Governmental funds are those through which most of the governmental functions of the City are financed. The measurement focus is based upon determination of changes in financial position rather than upon net income determination. The City reports one major governmental fund: The General Fund is the City's primary operating fund. It accounts for all fmancial resources of the general government, except those required to be accounted for in another fund. The City reports the following major proprietary funds: The Electric Fund accounts for the activities of Lubbock Power & Light, the City-owned electric production and distribution system. The Water Fund accounts for the activities of the City's water system. The Sewer Fund accounts for the activities of the City's sanitary sewer system. The Solid Waste fund accounts for activities of the City's landfills and solid waste collection system. The Airport Fund accounts for the activities of Lubbock International Airport. The Golf Fund accounts for the activities of Meadowbrook Golf Course. The Stormwater Fund accounts for the activities of the stormwater utility, which provides stormwater drainage for the City. Additionally, the City reports the following fund types: Special revenue funds are used to account for the proceeds of specific revenue sources (other than special assessments or major capital projects) that are legally restricted to expenditures for specified purposes. The Debt Service Fund is used to account for the accumulation of resources for, and the payment of, general long-term obligation principal and interest. Capital projects funds are used to account for fmancial resources to be used for the acquisition or construction of major capital improvements ( other than those financed by proprietary funds). Internal service funds are used to account for services provided to other departments, agencies of the departments or to other governments on a cost reimbursement basis (i.e., fleet maintenance, central warehouse, print shop, self-insurance, etc.). As a general rule the effect of interfund activity has been eliminated from the GWFS. Exceptions to this general rule are payments-in-lieu of taxes and other charges between the City's electric, water and sewer functions and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. 70 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE L SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION (CONTINUED) Amounts reported as program revenues include l) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operaring revenues of the City's enterprise funds and of the City's internal service funds are charges to customers for sales and services. Operating expenses for enterprise funds and internal service funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. D. BUDGETARY ACCOUNTING Annual budgets are adopted on a basis consistent with generally accepted accounting principles for all govemrnental funds except special revenue funds and project funds, which adopt project-length budgets. All annual appropriations lapse at the end of the fiscal year. Annually, the City Manager submits to City Council a proposed operating budget for the upcoming fiscal year. Public hearings are conducted to obtain taxpayer cormnents, and the budget is legally enacted through passage of an ordinance by the City Council. City Council action is required for the approval of a supplemental appropriation. All budget amounts presented in the accompanying supplementary information reflect the original budget and the amended budget (which have been adjusted for legally authorized revisions of the annual budgets during the year). Budgetary control is maintained by department and by the following categories of expenditures: personnel services, supplies, other charges, and capital outlay. All budget supplements must be approved by the City Council Management may make administrative transfers and increases or decreases in accounts within categories, as long as expenditures do not exceed budgeted appropriations at the fund level. Each year, in accordance with State law, the City Council sets an ad valorem tax levy for a sinking fund (General Obligation Debt Service) which, with cash and investments in the fund, would be sufficient to pay all the bonded indebtedness and interest due in the following fiscaJ year. E. ENCUMBRANCES At the end of the year, encumbrances for which goods and/or services have not been received are canceled. At the beginning of the next year, management reviews all open encumbrances. During the budget revision process, encumbrances may be re-established. On October 1, 2002, the General Fund had no significant amounts of open encumbrances. 71 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES F. ASSETS, LIABILITIES AND FUND BALANCE/NET ASSETS Equity in Pooled Cash and Investments -The City pools the resources of the various funds in order to facilitate the management of cash and enhance investment earnings. Records are maintained which reflect each fund's equity in the pooled account. The City has adopted the provisions of GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and .Exiernal Investmem Pools. As a governmental entity, other than an external investment pool, the City's investments are stated at fair value, except for repurchase agreements with maturities, when purchased, of one year or less. Fair value is based on quoted market prices as of the valuation date. Cash Equivalents -Cash equivalents are defined as short-term highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less when purchased which present an insignificant risk of changes in value because of changes in interest rates. Property Tax Receivable -The value of all real and business property located in the City is assessed annually on January I in conformity with Subtitle E of the Texas Property Code. Property taxes are levied on October I on those assessed values and the taxes are due on receipt of the tax bill. On the following January 1, a tax lien attaches to property to secure the payment of all taxes, penalties and interest ultimately imposed. The taxes are considered delinquent if not paid before February 1. Therefore, at the City's fiscal year end, September 30, all property taxes receivable are delinquent, but are secured by a tax lien. · The City records property taxes receivable upon levy and defers tax revenue until the taxes are collected or available; for each fiscal year, the City recognizes revenue in the amount of taxes collected during the year plus an estimate of taxes to be collected in the subsequent 45 days. The City allocates property tax revenue between the General, certain Special Revenue and the Debt Service funds based on tax rates adopted for the year of levy. The Lubbock Central Appraisal District (District) assesses property values, bills, collects, and remits the property taxes to the City. The City adjusts the allowance for uncollectible taxes and deferred tax revenue at year-end based upon historical collection experience. Accordingly, at August 31 of each year, property taxes receivable less the allowance for uncollectible taxes and deferred tax revenue is equivalent to the projected tax collections from September 1 through October 15 of the same year. To write off property taxes receivable, the City eliminates the receivable and reduces the allowance for uncollectible accounts. Enterprise Fund Receivable -Within the Electric, Water, Sewer and Solid Waste Enterprise Funds, services rendered but not billed as of the close of the fiscal year, are not considered significant. Amounts billed are reflected as accounts receivable net of an allowance for uncollectibles. Inventories -Inventories consist of expendable supplies held for consumption. Inventories are valued at cost using the average cost method of valuation, and are accounted for using the consumption method of accounting (i.e., inventory is expensed when used rather than when purchased). Prepaid Items -Prepaid items are accounted for under the consumption method. Restricted Asset'S -Certain enterprise fund assets are restricted for construction, which has been funded through long-term debt, therefore net assets have been restricted for these amounts. The excess of other restricted assets over related liabilities are included as restricted net assets for capital projects, rate stabilization, economic development and bond indentures. · 72 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES F. ASSETS. LIABILITIES AND FUND BALANCE/NET ASSETS (CONTINUED) Fixed Assets and Depreciation -Prior to GASB Statement No. 34, capital assets for governmental funds were recorded in the General Fixed Asset Account Group and not depreciated. The new model requires that all capital assets, whether owned by governmental activities or business-type activities, be recorded and depreciated (unless the modified approach is used) in the GWFS. The City has chosen not to apply the modified approach to any networks or subsystems of infrastructure assets. No long-term assets or depreciation are shown in the governmental FFS. Capital assets, including public domain infrastructure (e.g., streets, bridges, sidewalks and other assets that are immovable and of value only to the City) are defmed as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of one year. Capital assets are recorded at cost or estimated historical cost if purchased or constructed. Donated assets are recorded at the fair value on the date of donation. Major outlays for capital assets and improvements are capitalized as the projects are constructed. The cost ofnormal maintenance and repairs that do not add to the value of the asset or materially extend the asset lives are not capitalized. Major improvements are capitalized and depreciated over the remaining useful lives of the related capital assets. Depreciation is computed using the straight-line method over the estimated useful lives as follows: Improvements Buildings Equipment 10-50 years 15-50 years 3-15 years Interest Capitalization -The City does not capitalize interest cost. Interest capitalization would not be significant to the BFS. Advances to Other Funds -Amounts owed to one fund by another which are not due within one year are recorded as advances to other funds. G. RISK MANAGEMENT The Risk Management Fund was established to account for liability claims, worker's compensation claims, and premiums for property coverage. The Risk Management Fund generates its revenue through charges to other departments, which are based on costs. In April 1999, the City purchased worker's compensation coverage, with no deductible, from a third party. Prior to April 1999 the City was self insured for worker's compensation claims. Any claims outstanding prior to April 1999 continue to be the responsibility of the City. The City's self insurance liability program is on a cash flow basis, which means that the servicing contractor processes, adjusts and pays claims from a deposit provided by the City. The City accounts for the liability program by charging premiums based upon losses, administrative fees and reserve requirements. In order to control the risks associated with liability claims, the City purchased excess liability coverage in September 1999. The policy has a $10 million annual aggregate limit and is subject to a $250,000 deductible per claim. 73 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE L SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES G. RISK MANAGEMENT {CONTINUED} For self-insured coverage, the Risk Management Fund establishes claim liabilities based on estimates of the ultimate cost of claims (including future claim adjustment expenses) that have been reported but not settled, and of claims that have been incurred but not reported. The length of time for which such costs must be estimated varies depending on the coverage involved. Because actual claim costs depend on such complex factors as inflation, changes in doctrines of legal liability, and damage awards, the process used in computing claim liabilities does not necessarily result in an exact amount, particularly for liability coverage. Claim liabilities are recomputed periodically using a variety of actuarial and statistical techniques to produce current estimates that reflect recent settlements, claim frequency, and other economic and social factors. Adjustments to claim liabilities are charged or credited to expense in the period in which they are incurred. Additionally, property and boiler coverage is accounted for in the Risk Management Fund. The property insurance policy was purchased from an outside insurance carrier. The policy has a $250,000 deductible per occurrence, and the boiler coverage insurance deductible is up to $150,000 dependent upon the unit. Premiums are charged to funds based upon estimated premiums for the upcoming year. Other small insurance policies, such as surety bond coverage and miscellaneous floaters, are accounted for in the Risk Management Fund. Funds are charged expenditures based on premium amounts and administrative charges. The City has had no significant reductions in insurance coverage during the year. Settlements in the current year and preceding two years have not exceeded insurance coverage. The City accounts for all insurance activity in Internal Service Funds. H. HEALTH INSURANCE The City provides medical and dental insurance for all full-time employees. Revenues for the health insurance premiums are generated from each cost center based upon the number of active employees. Premium costs are determined by the health insurance vendor based on 3 years of claims history. The City also provides basic term life insurance in the amount of SI 0,000 and Long Term Disability for all full-time City employees. Revenue for the life insurance premiums is also generated from each cost center based upon the number of active employees. Long Term Disability premiums are a rate per $100 of annual salary. Full-time employees may elect to purchase medical, dental, and life insurance coverage on eligfble dependents. Employees also have the option to participate in several voluntary insurance plans such as vision insurance, a cancer income policy, voluntary life, and personal accident insurance. Each of these insurance plans is employee funded. Retiring City of Lubbock employees may elect to retain medical insurance and reduced amounts of life insurance on themselves and eligible dependents at their expense. I. REVENUES, EXPENSES AND EXPENDITURES Interest Income on pooled cash and investments is allocated monthly based on the percentage of a fund's six-month rolling average monthly balance in pooled cash and investments to the total citywide six-month rolling average monthly balance in pooled cash and investments, except for certain Fiduciary Funds, certain Special Revenue Funds, Governmental Capital Project Funds, and certain Internal Service Funds. The interest income on pooled cash and investments of these funds is reported in the General Fund or the Debt Service Fund. 74 ..... CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE L SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES I. REVENUES, EXPENSES AND EXPENDITURES (CONTINUED} Sales Tax Revenue for the City results from an allocation of 1.125% of the total sales tax levy of 7.875%, which is collected by the State of Texas and remitted to the City monthly. The tax is collected by the vendor, and is required to be remitted to the State by the 20th of the month following collection. The tax is then paid to the City by the 10th of the next month. On January 21, 1995, voters approved a 1/8-cent increase in sales tax to reduce the property tax rate which went into effect October 1, 1995. The 60-day availability period provides for full accrual of sales taxes. Grant Revenue from federal and state grants is recognized to the extent that the related expenditure has been incurred and reimbursement received or requested. Interfund Transactions or quasi-external transactions are accounted for as revenues, expenditures or expenses. Transactions that constitute reimbursements to a fund for expenditures/expenses initially made from that fund that are properly applicable to another fund, are recorded as expenditures/expenses in the reimbursing fund and as reductions of expenditures/expenses in the fund that is reimbursed. In addition, transfers are made between funds to shift resources from a fund legally authorized to receive revenue to a fund authorized to expend the revenue, Compensated Absences consists of vacation leave and sick leave. Vacation leave of 10-20 days is granted to all regular employees dependent upon the date employed, years of service, and civil service status. Currently, up to 40 hours of vacation leave may be "carried over" to the next calendar year. The City is obligated to make payment upon retirement or termination for any available, unused vacation leave. Sick leave for employees is accrued at 1 ¼ days per month with a maximum accrual status of 200 days. After 15 years of continuous full time services for non-civil service personnel, vested sick leave is paid on retirement or tennination at the current hourly rate for up to 90 days. Upon retirement or tennination, Civil Service Personnel {Police) are paid for up to 90 days accrued sick leave after one year of employment Civil Service Personnel (Firefighters) are paid for up to 135 days of accrued sick leave upon retirement or termination. Toe Texas Civil Service laws dictate certain benefits and personnel policies above and beyond those policies of the City. The liability for the accumulated vacation and sick leave is recorded in the GWFS for governmental fund employees and in the FFS for proprietary fund employees . 75 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE I. SUMMARY OF SIGNIFICA.."'l'T ACCOUNTING POLICIES I. REVENUES. EXPENSES AND EXPENDITURES (CONTINUED} Post Employment Benefits for retirees of the City of Lubbock include the option to purchase health and life insurance benefits at their own expense. Amounts to cover premiums and administrative costs, with an incremental charge for reserve funding, are determined by the City's health care administrator. Employer contributions are funded on a pay-as-you-go basis and approximated $612,000 for fiscal 2002. These contributions are included in the amount of insurance expense reflected in the financial activity reported in the Health Insurance Internal Service Fund. The following schedule reflects participation in the City's health care program: Participants Active Retired Cobra Active Claims Retired Claims Cobra Claims Total Claims % of Employee Groups to total claims Active Retired Cobra Total% 2002 1,830 406 18 $6,478,468 2,360,675 196,928 $9,036,071 71.70% 26.13% 2.17% 100.00% NOTE II. STEW ARDSBIP, COMPLIANCE AND ACCOUNTABil.,ITY A. NET ASSET/FUND BALANCE DEFICITS The deficit ofS37l,847 in the General Capital Projects Fund is due to timing differences of incurring capital outlay expenditures for an internally financed project. Over the tenn of the project, transfers in from Special Revenue Funds will eliminate the deficit. The deficit of $182,395 in the Library Special Revenue Fund is the result of a timing difference between expenditures incurred and the filing of requests for reimbursements. These funds have not been accrued, as certain reimbursement amounts are not measurable at September 30, 2002, which is consistent with the revenue recognition required by the modified accrual basis of accounting. The deficit of .'&2,406,326 in the Community Development Special Revenue Fund is the result of timing differences between expenditures incurred and the filing ofrequests for reimbursements. These funds have not been accrued, as certain reimbursement amounts are not available at September 30, 2002, which is consistent with the revenue recognition required by the modified accrual basis of accounting. The deficit of $7,408 in the Community Services Special Revenue Fund is the result of timing differences between expenditures incurred and the filing of requests for reimbursements. These funds have not been. accrued, as certain reimbursement amounts are not available at September 30, 2002, which is consistent with the revenue recognition required by the modified accrual basis of accounting. 76 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE Il. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. NET ASSET/FUND BALANCE DEFICITS (CONTINUED} The deficit of $575,088 in the Police Special Revenue Fund is the result of a timing difference between expenditures incurred and the filing of requests for reimbursements. These funds have not been accrued, as certain reimbursement amounts are not available at September 30, 2002, which is consistent with the revenue recognition required by the modified accrual basis of accounting. The deficit of $16,092 in the Other Grants Special Revenue Fund is the result of a timing difference between expenditures incurred and the filing of requests for reimbursements. These funds have not been accrued, as certain reimbursement amounts are not available at September 30, 2002, which is consistent with the revenue recognition required by the modified accrual basis of accounting. The deficit of $18,937 in the Tourism Reserve Special Revenue Fund results from not recovering actual costs thru hotel tax transfers. The transfers were reduced this fiscal year to fund a new special projects fund. Management is evaluating hotel tax transfers in order to recover actual costs and the fund balance deficit The deficit in the Golf Enterprise Fund of $1,909,524 is the result of placing itself in a more competitive position through non-capital course equipment improvements. On October 13, 1994, the City contracted with Fore Star Golf, Inc. for management services to be provided for the golf course operations. The management agreement is effective through December 31, 2014. Over the term of the contract, Fore Star Golf, Inc. wiU receive a portion of the golf course revenues based on a sliding scale. Additionally, management has approved a 10 year funding source from the General Fund to eliminate the deficit beginning in fiscal 2002. The deficit of $312,186 in the Communications Internal Service Fund results from not recovering actual costs thru user charges. Management is evaluating user charges in order to recover actual costs and recover the net asset deficit. The Internal Service Communication Fund will be eliminated from the Internal Service Fund Type and be funded by the General Fund in fiscal 2003. No other funds of the City had deficits in either total fund balances or total net assets. NOTE ill. DETAJL NOTES ON ALL ACTMTIES AND FUNDS A. POOLED CASH AND INVESTMENTS The City's investment polices are governed by State statute and City ordinances. Permissible investments include direct obligations of the United States or its agencies and instrumentalities, certificates of deposit, prime domestic banker's acceptances, commercial paper, repurchase agreements, and deposits in a qualifying investment pool. Collateral is required for demand deposits, certificates of obligation, and repurchase agreements at 102% of all amounts not covered by Federal deposit insurance. Obligations that may be pledged as collateral are obligations of the United States and its agencies and obligations of the state and its subdivisions. The City's deposits and investments are categorized below to indicate the level of risk assumed by the City at September 30, 2002. INVESTMENT CATEGORY OF CREDIT RISK (1) Insured, registered or in securities held by the City or its agent in the City's name. (2) Uninsured and unregistered, with securities held by the counter party's trust department or its agent in the City's name. (3) Uninsured and unregistered, with securities held by the counter party or by the trust department or agent but not in the City's name. 77 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30J 2002 NOTE ill. DETAIL NOTES ON ALL ACTMTIES AND FUNDS A. POOLED CASH AND INVESTMENTS (CONTINUED) DEPOSIT CATEGORY OF CREDIT RISK (A) Insured or co!lateralized with securities held by the City or by its agent in the City's name. (B) Collateralized with securities held by the pledging :financial institution's trust department or agent in the City's name. (C) Uncollateralized. Pooled Cash and Investments The City's pooled cash and investments consist of deposits with financial institutions, certificates of deposit, U.S. government and agency securities, commercial paper, and deposits in qualifying non- regulated money market investment pools (Logic and TexPool). These investments have varying maturities ranging ftom one day to three years. The weighted average maturity of the total portfolio is kept to under two years. The following is a schedule of the City's pooled cash and investments at September 30, 2002: I Category Carrying Investments {1} {2} {3} Amount Primary Government: U. S. Treasury and Agency Obligations $ 70,423,521 $ $ $ 70,423,521 Mutual Funds 95,547,369 Subtotal 165,970,890 Component Units: U.S. Treasury and Agency Obligations 27,876 27,876 Mutual Funds 9,1021991 Subtotal 92130,867 Total Investments $ 175,101,757 Cash and Category Bank Carrying Bank De osits A B C Balance Amount Primary Government $ 2,970,993 $ -$ $ 2,970,933 $ 991,160 Component Units 4&1,526 89,334 5&4,814 1,155,674 1,358,764 Total $ 3,452,519 $ &9,334 $ 584,814 $ 4,1262607 $ 2,349,924 78 r,.., CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE ill. DETAIL NOTES ON ALL ACTMTIES AND FUNDS A. POOLED CASH AND INVESTMENTS (CONTINUED) Cash and investments are reported in the GWFS as: Cash and Equivalents -Unrestricte.d Cash and Equivalents -Restricte.d Total Cash and EquivaJents Investments-Unrestricted Investments-Restricted Total Investments Total Cash and Investments B. INTERFUND TRANSACTIONS Total Primary Government $ 31,938,789 41,581,422 73,520,211 29,476,829 63,965,010 93,441,839 $ 166,962,050 Total Component Units $1,159,122 199,642 1,358,764 2,774,327 6,356,540 9,130,867 $ 10,489,631 Total Reporting Entltt $ 33,097,911 41,781,064 74,878,975 32,251,156 70,321,550 102,572,706 $ 177,451,681 Interfund receivables and payables consisting of due to/from and advances to/from ot:her funds at September 30, 2002 were as follows: Funds General Fund Special Revenue Funds: Tomism Reserve Hotel/Motel Tax Community Improvement lnfonnation Technology Improvements Community Development Community Services Library Other Grants Capital Project Funds: Public Safety General Capital Projects Enterprise Funds: Electric Water Sewer Solid Waste Airport Golf Internal Service Funds: Communications Investment Pool Total Primary Government 79 Interfund Receivables $ 8,740,200 8,615,810 2,400,000 8,185,666 $ 27,941,676 $ Interfund Pavables 20,000 720,000 6,850,000 80,000 458,939 45,294 173,756 168,771 1,040,095 1,254,335 12,865,810 170,000 395,000 1,395,571 2,014,105 200,000 90,000 $ 27,941,676 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE ill. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS C. DEFERRED CHARGES The total deferred charges of $6,641,639 in the Electric Enterprise Fund, includes $3,611,111 that represents an advertising contract with the United Spirit Arena. The advertising (and amortization) began with the opening of the sports arena in fiscal 2000 and will continue for 30 years. The deferred charges also include an amount of$1,643,133 at September 30, 2002, which represents prepayments for a contract for future delivery of natural gas as contracted for by the City. In 19 88, a contract was entered into for the purchase of proven and unproven reserves, totaling 2,000,000 MMBTU at $1.56 per MMBTU with an option, which the City has exercised, to purchase an additional 2,000,000 MMBTU at the same price. Quantities in excess of the first 4,000,000 MMBTU can then be purchased at market value. During 1988, proven reserves of 338,000 MMBTU were purchased at the $1.56 rate. The remaining reserves are being purchased as proven. One-half the rate, or $.78 per MMBTU, is paid upon proven determination of the reserves and the balance is to be paid upon delivery. The prepayments are to be expensed as the gas is taken until the prepaid units of gas have been consumed. At September 30, 2002 and 2001, 1,317,934 MMBTUhad been delivered, and reir.ainingproven reserves at September 30, 2002 and 2001 were2,104,273 MMBTU. The remaining deferred charges of $1;387,395 represent infrastructure, prepaid postage and other economic development costs being amortized over their useful life. D. CAPITAL ASSETS Capital asset activity for the year ended September 30, 2002, was as follows: Primary Government Govemmemal activities Beginning Ending Balance Increases Decreases Balance Capital Asset, not being depreciated: Land s 7,413,395 $ 300,607 $ 208,479 $ 7,505,523 Consttuction in Progress 31,120,193 12,485,792 8,491,634 35,114,351 Total capital assets, not being deprew.ted 38,533,588 12,786,399 8,700,113 42,619,874 Capital assets, being depreciated Buildings 46,096,404 2,971,034 613,549 48,453,889 Improvemen!li other than buildings 142,771,017 2,515,967 22,539,670 122,747,314 Machinery and equipment 43,969,569 31893,633 3,395,670 44,467,732 Total capital assets being depreciated 232,836,990 9,380,834 26,548,889 215,668,935 Less accumulated depreciation for: Buildings 22,595,926 2,020,085 495,243 24,094,828 Improvements other than buildings 105,026,898 3,709,526 22,448,829 86,107,694 ~chine,:y and equipment 28,707,574 4,750,453 2,862,500 30,801268 Total accumulated depreciation 156,330,398 10,480,064 25,806,572 141,003,890 Total capital assets, being deprecia~, net 76,506,592 (1,099,230} 742,317 74 665,045 Governmental activities oipital assets, net $ 115,040,180 $ 11,687,169 $ 9,442,430 $ 117,284,919 80 ~ CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE ill. DET.All. NOTES ON ALL ACTIVITIES AND FUNDS D. CAPITAL ASSETS {CONTINUED) Business-type activities Beginning Balance Increases Decreases Capital Asset, not being depreciated: Land $ 13,261,802 $ 5,878,911 $ -S Comtruction in Progress 90,534,491 58,867,054 40,344,160 Total capital asseis, not being depreciated 103,796,293 64,745,965 40,344,160 <:apital assets, being depreciated Buildings 84,.522,891 5,302,085 55,477 Improvements other than buildings 479,242,515 22,532,817 1,790,250 Machinei:yand equipment 70,224)11 14,507,749 4,477,228 Total capital ~ets being depreciated 633,989,717 42,342,651 6)22,955 Less accumulated depreciation for. Buildings 20,688,234 2,229,744 118,565 Improvements other than buildings 176,391,843 20,026,240 1,587,316 Machinery md equipment 29,108,882 10,378,631 3,899,041 Total accumulated depreciation 226,188,959 32,634,615 5,604,922 Total capital assets, being depreciated, net 407,800,758 9,708,036 718,033 Business-type activir:ies capital assets, ner $ 511,597,051 $ 74,454,001 $ 41,062,193 $ Ending Balance 19,140,713 109,057,385 128,198,098 89,769,499 499,985,082 80,254,832 670,009,413 22,799,413 194,830,767 35,588,472 253.218,652 416,790?61 544,988,859 Depreciation expense was charged to functions/programs of the primaiy government as follows: Governmental activir:ies: Genetal government $ 345,637 Fimncial Services 5,918 Human Resources 5,197 Management Services 1,097,135 Comnn•nications/1.egishtion 39,664 Fire 877,761 Police 1,~7,400 Planning &: Transportation 432,600 Development Seivices nm Public Works 3,236,420 Community Services 2,970,718 Electric 267,553 Total depreciation expense• governmental activ:icies $ 10,339,"6 81 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE III. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS D. CAPITAL ASSETS (CONTINUED) Business-rype activities: Electru:: Water Sewer Solid Waste Airport Golf Stormw:iter Total depreciation exp~• business-type activities Construction Commitments $ 7,586,577 5,410,654 5,129,887 2,972,541 3,194,430 61,777 378,180 The government has active construction projects as of September 30, 2002. Public Safety projects include a new Fire Administration Complex. Park projects include the development of a number of new parks. Bond funds provide for several different Lubbock street projects. · Street projects include Subdivision Paving and a Curb Ramp Project. Projects in the general facility fund include a new Police Academy Firing Range and a remodeling of our building located at Municipal Square. Electric projects include construction of a new substation that will help provide setvice reliability to the Lubbock Southwest area. Water projects include Lake Alan Henry recreational improvements. Sewer projects include improvements to the Hancock Land Application Site transmission system. Airport projects include the construction of an extension to the south of the air cargo apron and taxiway system. The largest active Stormwater project is providing for the construction of an outfall storm sewer from Clapp Park to Yellowhouse Canyon and a series of upstream storm sewers that will provide various protection around four playa lakes. Remaining Project! Seent-to-Date Commitment Public Safety $ 6,083,337 $ 1,297,222 Park Improvements 3,819,242 4,916,460 Street Improvements 18,332,793 19,5.34,979 Permanent Street M:airuerumce 1,326,952 173,048 General Facilities and System Improvements 7,882,885 2,241,005 Electric 6,018,620 683,116 Water 7,340,290 12,840,092 Sewer 4,729,632 5,491,212 Solid Waste 356,135 358,865 Airport 10,236,387 .3,486,719 Stor:rnw::tter 14,627,757 Total Life-to-Date Activity $ $ 65,650,475 82 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE m. DETAil.. NOTES ON ALL ACTMTIES A.1\lD FUNDS D. CAPITAL ASSETS (CONTINUED} Discretely presented component units Activity for nonmajor component units for the year ended September 30, 2002, was as follows: Beginning Balance Increases Decreases Capit>!l Asset, not being depreciated: F',ne ./I.rt $ 366,333 $ •• $ -$ Land 828,828 174,357 174,357 Construction in progress 125,559 310,201 243,655 Total capit:1! assets, not being depreciated 1,320,720 484,558 418,012 Capital assets, being depreciated Buildings 4,159,174 188,260 Imp,:ovemen!E other than buildings 1,179,543 144,698 Equipm..-nt 17,951,605 605,413 529,986 Leasehold improvements 48,534 Vehicles 55,016 Tomi capital assets being depreciated 23,393,872 938,371 529,986 Less accumulated depreciation foi:: Buildings 1,030,220 114,497 Improvements other than buildings 270,912 57,615 Equipment 8,063,268 1,908,513 52.6,250 Leasehold improvements 3,640 1,213 Vehicles 33,010 11,003 Totnl accumulated depteciation 9,401,050 2,002,841 526,250 Total capital assets, being dep.ceciated, net 13,992,822 (1,154,47!!) 3,736 Component unit capitll! assets, net $ 15,313,542 $ (669,912) S 421,748 $ E. RETIREMENTPLANS Ending Bala.nee 366,333 828,828 192,105 1,387,266 4,347,434 1,324,241 18,027,032 48,534 55,016 23,802,257 1,144,717 328,527 9,445,531 4,853 44,013 10,967,641 12,834,616 14,221,882 Each qualified employee is included in one of two retirement plans in which the City of Lubbock participates. These are the Texas Municipal Retirement System {TMRS) and the Lubbock Firemen's Relief and Retirement Fund (LFRRF). The City does not maintain the accounting records, hold the investments or administer either fund. Summary of significant data for each retirement plan follows: TEXAS MUNICIPAL RETIREME1''T SYSTEM (TMRS) Plan Description The City provides pension benefits for all of its full-time employees (with the exception of firefighters) through a non-traditional,joint contributory, hybrid defined benefit plan in the state-wide TMRS, one of758 administered by TMRS, an agent multiple-employer public employee retirement system. 83 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE ill. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS E. RETIREMENT PLANS (CONTINUED) Benefits depend upon the sum of the employee's contributions to the plan, with interest, and the City- financed monetary credits, with interest. At the date the plan began, the City granted monetary credits for service rendered before the plan began of a theoretical amount equal to two times what would have been contributed by the employee, with interest, prior to establishment of the plan. Monetary credits for service since the plan began are a percent (100%, 150%, or 200%) of the employee's accumulated contributions. In addition, the City can grant, as often as annually, another type of monetary credit referred to as an updated service credit which is a theoretical amount which, when added to the employee's accumulated contributions and the monetary credits for service since the plan began, would be the total monetary credits and employee contributions accumulated with interest if the current employee contribution rate and City matching percent had always been in existence and if the employee's salary had always been the average of his salary in the last three years that are one year before the effective date. At retirement, the benefit is calculated as if the sum of the employee's accumulated contributions with interest and the employer-financed monetary credits with interest were used to purchase an annuity. Members can retire at ages 60 and above with 5 or more years of service or with 25 years of service regardless of age. Ai; of January 2002, a member is vested after 5 years. During 2001, legislation was enacted that changed the vesting period from 10 years to 5 years. The plan provisions are adopted by the governing body of the City, within the options available in the state statutes governing TMRS and within the actuarial constraints also in the statutes. Contributions The contribution rate for the employees is 7% and the City matching ratio is currently 2 to 1, both as adopted by the governing body of the City. Under the state law governing TMRS, the actuary annually determines the City contribution rate. This rate consists of the normal cost contribution rate and the prior service contribution rate, both of which are calculated to be a level percent of payroll from year to year. The normal cost contribution rate finances the currently accruing monetary credits due to the City matching percent, which are the obligation of the City as of an employee's retirement date, not at the time the employee's contributions are made. The normal cost contribution rate is the actuarially determined percent of payroll necessary to satisfy the obligation of the City to each employee at the time his/her retirement becomes effective. The prior service contribution rate amortizes the unfunded (overfunded) actuarial liability (asset) over the remainder of the plan's 25- year amortization period. The unit credit actuarial cost method is used for determining the City contribution rate. Both the employees and the City make contributions monthly. Since the City needs to know its contribution rate in advance for budgetary purposes, there is a one-year delay between the actuarial valuation that is the basis for the rate and the calendar year when the rate goes into effect (i.e., the December 31, 2000 valuation is effective forrates beginning January 2002). Actuarial Assumptions The actuarial assumptions for the December 30, 2001 valuations are as follows: Actuarial cost method: Amortization method: Remaining amortization period: Asset valuation method: Investment rate of return: Projected salary increases: Includes inflation at: Cost of Living adjustments: 84 Unit credit Level percent of payroll 25 years-open period Amortized cost 8% None None None - CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE m. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS E. RETIREMENT PLANS (CONTINUED) TEXAS MUNICIPAL RETIREMENT SYSTEM REQum.ED SUPPLEMENTAL DISLOSURE THREE-YEAR HISTORICAL SCHEDULE OF ACTUARIAL LIABILITIES AND FUNDING PROGRESS Unfunded Actuarial Asof Actuarial Accrued December31 Actuarial Value of Accrued Percentage Liability Assets Llabllity Funded (UAAL) 1999 $ 147,042,049 $ 181,439,657 81.0% $ 34,397,608 2000 160,299,195 200,713,365 79.9% 40,414,170 2001 172,510,622 215,584,035 80.0% 43,073,413 UALLasa% Annual Required Asof Annual Covered Of Covered Contribution Contribution December31 Payroll Payroll (ARg Made 1999 $ 51,627,837 66.6% $ 7,794,560 $ 7,794,560 2000 54,589,153 74.0% 8,010,122 8,010,122 2001 58,173,019 74.0% 8,398,884 8,398,884 The City of Lubbock is one of 758 municipalities having the benefit plan administered by TMR.S. Each of the municipalities has an annual, individual actuarial valuation performed. All assumptions for the December 31, 2001 valuations are contained in the 2001 TMRS Comprehensive Annual Financial Report, a copy of which may be obtained by writing to P.O. Box 149153, Austin, Texas 78714-9153. LUBBOCK FIREFIGHTER'S RELIEF AND RETIREMENT FUND (LFRRF) Plan Description The Board of Trustees of the LFRRF is the administrator of a single-employer defined benefit pension plan. This pension fund is a trust fund. It is reported by the City as a related organization and is not considered to be a part of the City financial reporting entity. Firefighters in the Lubbock Fire Department are covered by the LFRRF. The LFRRF provides service retirement, death, disability and withdrawal benefits. These benefits vest after 20 years of credited service. Employees may retire at age 50 with 20 years of service. A reduced early service retirement benefit is provided for employees who terminate employment with 20 or more yean; of service. A partially vested benefit is provided for firefighters who terminate employment with at least 10 but less than 20 years of service. The LFRRF Plan Effective December 1, 2001 provides a monthly normal service retirement benefit, payable in a Joint and Two-Thirds to Spouse form of annuity, equal to 70.02% of Final 48-Month Average Salary Plus $335.0S per month for each year of service in excess of 20 years. 85 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE ill. DETAIL NOTES ON ALL ACTMTffiS AND FUNDS E. RETIREMENT PLANS (CONTINUED) A firefighter has the option to participate in a Retroactive Deferred Retirement Option Plan (RETRO DROP) which will provide a lump sum benefit and a reduced annuity upon tennination of employment. Firefighters must be at least 51 with 21 years of service at the selected "RETRO DROP benefit calculation date" (which is prior to date of employment temrination). Early RETRO DROP with benefit reductions is available at age 50 with 20 years of service for the selected "early RETRO DROP benefit calculation date". A Partial Lump Sum option is also available where a reduced monthly benefit is determined based on an elected lump sum amount such that the combined present value of the benefits under the option is actuarially equivalent to that of the normal form of the monthly benefit. Optional fonns are also available at varying levels of surviving spouse benefits instead of the standard two-thirds form. There is no provision for automatic postretirement benefit increases. The fund has the authority to provide, and has periodically in the past provided for, ad hoc postretirement benefit increases. The benefit provisions of this plan are authorized by the Texas Local Fire Fighter's Retirement Act (TLFFRA). TLFFRA provides the authority and procedure to amend benefit provisions. Contributions Required and Contributions Made The contribution provisions of this plan are authorized by TLFFRA. TLFFRA provides the authority and procedure to change the amount of contributions determined as a percentage of pay by each firefighter and a percentage of payroll by the City. State law requires that each plan of benefits adopted by the fund must be approved by an eligiole actuary. The actuary certifies that the contribution commitment by the firefighters and the City provides an adequate financing arrangement Using the entry age actuarial cost method LFRRF' s normal cost contribution rate is detemrined as a percentage of payroll. The excess of the total contribution rate over the normal cost contribution rate is used to amortize LFRRF's unfunded actuarial accrued liability (UAAL), if any, and the number of years needed to amortize LFRRFs unfunded actuarial liability, if any, is determined using a level percentage of payroll method. When there is a negative UAAL, the actuarially required contribution rate for compliance with GASB 27 is determined by amortizing the negative UAAL over 30 years using a level percentage of payroll method. This will be the case for 2001 and 2002 (calendar years) based on the most recent results of the December 31, 2000 valuation. The costs of administering the plan are financed from the trust. LFRRF's funding policy requires contributions equal to 11 % of pay by the firefighters. Contributions by the City are based on a formula which causes the City's contrilxition rate to fluctuate from year to year. The December 31, 2000 actuarial valuation (most recent) assumes that the City's contributions will average 15% of payroll in the future. The plan of benefits most recently adopted effective December 1, 2001 was adopted cautiously, allowing for future unforeseen contingencies in light of the unsettled investment environment that existed in the fall of 2001 when various plan amendments were being studied and considered. Therefore, even though the actual contributions for the 2001 and 2002 plan years (calendar years) are somewhat greater than the Annual Required Contributions defined by GASB 27, the actuary certified the most recent plan of benefits assuming that the present financing arrangement would continue and would be necessary for an adequate financing arrangement for the long-term future. 86 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE ill. DETAIL NOTES ON ALL ACTMTIES AND FUNDS E. RETIREMENT PLANS {CONTINUED} Annual Pension Cost The Annual Required Contributions {ARC), the Annual Pension Cost (APC) and the Net Pension Obligation (NPO) are developed in such a manner to satisfy the parameters of GASB Statement No. 27. The required contrfbutions for the period prior to January 1, 2001 are based on the actuarial valuation as of December 31, 1998. The required contributions for the period beginning January 1, 2001 are based on the actuarial valuation as of December 31, 2000 and reflect the December 1, 2001 plan provisions. The ARC and the APC for the year ended September 30, 2002 was $1,379,564 and the actual City contributions (ARC) made for the year was $2,040,255 resultfng in an NPO of ${660,692). The entry age actuarial cost method was used, with the nonnal cost calculated as a level percentage of payroll. The actuarial value of assets was determined based on a five-year smoothed fafr-market value of assets. The actuarial assumptions fncluded an investment return assumption of 8.5 % per year (net of administrative expenses), projected salary increases includfng promotion and longevity averaging 6.5% per year over a 25 year career, and no postretirement cost-of-living adjustments. An fnflation assumption of 4.5% per year is included in the investment return and salary increase assumptions. AB of the December 31, 2000 actuarial valuation date and based on plan provisions effective December 1, 2001, the fund's assets exceeded the actuarial accrued liability resulting in a negative unfunded actuarial accrued liability (UAAL). The negative UAAL is amortized over 30 years using an open, level percentage of payroll method, assuming that the payroll will increase 4.5% per year. Further details concerning the financial position of the LFRRF and the latest actuarial valuation are available by contacting the Board of Trustees, LFRRF, City of Lubbock. P.O. Box 2000, Lubbock, Texas 79457. A stand-alone financial report is available by contacting the I.FR.RF at 762-1590 or 5402 S AV Q Dr., Lubbock, Texas 79412. Fiscal Year Ending 9/30/00 9/30/01 9/30/02 Trend Information Annual Pension Cost (AP9 $ 1,852,835 1,366,293 1,379,564 87 Percentage of APC Contributed 100% 143 148 $ Net Pension Obligation (594,013) (660,692) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE ID. DETAIL NOTES ON ALL ACTMTIES AND FUNDS E. RETffiEMENT PLANS (CONTINUED} LUBBOCK FIREMEN'S RELIEF AND RETIREMENT FUND ANAL YIS OF FUNDING PROGRESS Actuarial Actuarial Entry Age Unfunded Funded Annual Valuation Value of Actuarial AAL Ratio (alb) Covered Date Assets (a) Accrued (UAAL) Payroll 5 Liability {b-a) (c) {AALl (b) 12/31/96 1,2 $ 73,626,537 $ 80,105,898 $ 6,479,361 91.9% $ 9,223,974 12/31/98 1,3 90,364,681 97,533,314 7,168,633 92.7 10,290,190 12/31/00 1,4 119,660,788 114,675,049 (4,985,739) 104.3 12,243,913 1 Economic and demographic assumptions were revised. UAALasa Percentage of Covered Payroll ((b-a}/c} 70.2% 69.7 (40.7) 2 Changes in plan benefit provisions were effective December 20, 1995, March 30, 1996 and November l, 1997. 3 Reflects changes in plan benefit provisions effective November 1, 1999. 4 Reflects changes in plan benefit provisions effective December l, 2001. 5 The covered payroll is based on estimated annualized salaries used in the valuation. F. DEFERREDCOMPENSATION The City offers its employees three deferred compensation plans in accordance with Internal Revenue Code ("IRC") Section 457. The plans, available to all City employees, permit them to defer a portion of their salary until future years. The deferred compensation is not available to employees until termination, retirement, death or unforeseeable emergency. The plans' assets are held in trust for the exclusive benefits of the participants and their beneficiaries. The City does not provide administrative services or have any fiduciary responsibilities in regards to the City-sponsored deferred compensation plans. Therefore they are not presented in the BFS. G. SURFACEWATERSUPPLY Canadian River Municipal Water Authority The Canadian River Municipal Water Authority (CRMW A) is a Conservation and Reclamation District established by the Texas Legislature to construct a dam, water reservoir and aqueduct system for the purpose of supplying water to surrounding cities. The District was created in 1953 and comprises eleven cities, including the City. The budget, financing and operations of the District are governed by a Board of Directors selected by the governing bodies of each of the member cities, each city being entitled to one or two members dependent upon population. At September 30, 2002, the Board was comprised of 18 members, two of which represented the City. The City contracted with the CRMW A to reimburse it for a portion of the cost of the Canadian River Dam and aqueduct system in exchange for surface water. Accordingly, prior to fiscal 1999, such payments were made solely out of water system revenues and were not general obligations of the City. The City's pro rata share of annual fixed !llld variable operating and reserve assessments are recorded as an expense of obtaining surface water. 88 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE ill. DETAIL NOTES ON ALL ACTMTIES AND FUNDS G. SURFACE WATER SUPPLY {CONTINUED) Canadian River Municipal Water Authority (Continued) Prior to fiscal 1999, the long-tenn debt was owed to the U.S. Bureau of Reclamation for the cost of Construction of the facility, which was completed in 1969. The City's allocation of project cost was $32,905,862. During the year ended September 30, 1999, bonds in the principal amount of $12,300,000 were issued to payoff the construction obligation owed to the U.S. Bureau of Reclamationvia CRMWA in the amount of $20,809,067. The difference of $8,509,067 was a discount in the remaining principal provided by the U.S. Bureau ofReclamation to the member cities. This discount has been recorded as a deferred gain on refunding and is being amortized over the life of the refunding bonds. At September 30, 2002, $7,254,528 remains unamortized. The annual principal and interest payments are included in the disclosures for other. City related long-term debt. The above cost for the rights are recorded as other assets and are being amortized over 85 years. The cost and debt are recorded in the Water Enterprise Fund. Brazos River Authority -Lake Alan Henry During 1989, the City entered into an agreement with the Brazos River Authority (BRA) for the construction, maintenance and operation of the faciJities known as Lake Alan Henry. Toe BRA, which is authorized by the State of Texas to provide for the conservation and development of surface waters in the Brazos River Basin, has issued bonds for the construction of the dam and lake facilities on the South Fork of the Double Mountains Fork of the Brazos River. Total costs are expected to exceed $120 tm1lion. Toe agreement obligates the City to provide revenues to BRA in amounts sufficient to cover all maintenance and operating costs, management fees to the authority, as well as funds sufficient to pay all capital costs associated with construction. Toe City will receive surface water for the payments to BRA. Approximately $294,325 was paid to the BRA for maintenance and operating costs in fiscal year 2002. The BRA issued $16,970,000 in revenue bonds in 1989 and $39,685,000 in revenue bonds in 1991. These bonds were refunded July 1995. Disclosure of the refunding can be found in Note m. K. Construction of the dam and lake facilities began in 1989. The City is obligated to provide sufficient funds over the remaining life of the bonds to service the debt requirement The financial activity, along with the related obligation, is accounted for in the Water Enterprise Fund. IL OTHER ENTERPRISE FUND ACTIVITIES Enterprise Fund Transfers Transfers to the General Fund from the Electric, Water, Solid Waste, and Sewer Enterprise Funds, in the opinion of management, exceed the amount that would have been paid to the City if these funds were private sector companies engaged in the same enterprises. In addition to the amount transferred in excess of private sector taxes, there is also an amount transferred to compensate the General Fund for shared services and indirect costs. 89 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 ,-._ NOTE ill. DETAIL NOTES ON ALL ACTMTIES AND FUNDS I. LONG-TERM DEBT ,r"""I.\ GENERAL OBLIGATION BONDS AND CERTIFICATES OF OBLIGATION: Average Final Balance Interest Issue Maturity Amount Outstanding Rate Date Date Issued 9-30-02 7.86% 11-15-85 02-15-03 $ 60,614,070 $ 134,682 9.01 05-15-91 02-15-11 1,085,000 480,000 5.50 05-15-92 02-15-04 34,520,000 5,175,000 3.97 050-1-93 02-15-15 14,425,000 9,370,000 5.39 10-01-93 02-15-14 3,625,000 2,185,000 5.39 10-01-93 02-15-14 2,550,000 1,550,000 5.20 10-01-93 02-15-14 1,470,000 900,000 5.14 10-01-93 02-15-14 19,215,000 4,815,000 5.50 05-15-95 02-15-15 4,690,000 3,055,000 ~, 5.07 12-15-95 02-15-16 6,505,000 4,555,000 5.07 12-15-95 02-15-16 10,000,000 7,000,000 4.91 01-15-97 02-15-09 17,530,000 13,500,000 4.61 01-01-98 02-15-08 1,330,000 875,000 4.71 01-01-98 02-15-18 10,260,000 8,220,000 4.36 01-15-99 02-15-14 20,835,000 19,305,000 4.58 01-15-99 02-15-19 15,355,000 13,045,000 ~- 4.77 04-01-99 02-15-19 6,100,000 5,185,000 4.71 04-01-99 02-15-19 12,300,000 10,540,000 5.37 09-15-99 02-15-20 24,800,000 23,270,000 5.54 03-15-00 02-15-20 7,000,000 6,795,000 4.90 02-01-01 02-15-21 9,100,000 9,035,000 4.81 02-01-0] 02-15-21 2,770,000 2,630,000 5.25 06-01-01 02-15-31 35,000,000 34,840,000 ,-, 4.68 02-15-02 02-15-22 9,400,000 9,400,000 4,71 02-15-02 02-15-22 6,450,000 6,450,000 4.70 02-15-02 02-15-22 1,545,000 1,545,000 4.62 07-01-02 02-15-22 2,605,000 2,605,000 3.18 07-01-02 02-15-10 10!810,000 10,810,000 Total $351,889,070 $217,269,682(A) (A) Excludes net deferred gains and losses on advance refundings, bond issuance costs and discounts of $5,358,388. Additionally, this amount includes $158,764,336 of bonds used to finance enterprise fund activities. 90 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE ID. DETAIL NOTES ON ALL ACTIVITffiS AND FUNDS I. LONG-TERM DEBT (CONTINUED) ELECTRIC REVENUE BONDS: Final Interest Rate(%) 3.80 to5.50 4.25 to 6.25 3.10to5.00 4.00 to 5.25 4.75 Issue Date 6-15-95 1-01-98 1-15-99 7-01-01 8-15-02 Maturity Date Amount Issued Balance Outstanding 9-30..02 Total 4-15-08 4-15-18 4-15-19 4-15-21 4-15-21 $ 13,560,000 9,170,000 14,975,000 9,200,000 8,500,000 $6,865,000 7,350,000 11,865,000 8,740,000 8,500,000 $ 55,405,000 $43,320,000 * * Balance outstanding includes $(766,935) of discount on bonds sold and bond issuance costs. WATER REVENUE BONDS: Interest Rate 3.80 to 5.50% Issue Date 6-1-95 Final Amount Maturity Date Issued 8-15-21 $58,170,000 Balance Outstanding 9-30-02 $48,810,000 * * Balance outstanding includes $(5,162,953) discount, bond issuance costs and deferred losses on bonds sold or refunded. 91 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE III. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS I. LONG-TERM DEBT (CONTINUED} The annual requirements to amortize all outstanding debt of the City as of September 30, 2002, including interest payments of$!48,274,131 are as follows: Fiscal General Year Obligation Revenue Total 2002-03 $ 24,444,812 $ 9,697,562 $ 34,142,374 2003-04 22,431,151 10,288,963 32,720,114 2004-05 21,893,775 9,608,900 31,502,675 2005-06 21,349,489 9,415,283 30,764,772 2006-07 20,828,615 9,251,773 30,080,388 2007-08 19,705,641 8,764,558 28,470,199 2008-09 18,824,861 7,835,585 26,660,446 2009-10 17,892,098 7,753,750 25,645,848 2010-11 17,528,047 7,681,005 25,209,052 2011-12 15,936,793 7,262,645 23,199,438 2012-13 15,587,018 7,216,400 22,803,418 2013-14 15,248,449 6,083,240 21,331,689 2014-15 11,976,353 6,039,000 18,015,353 2015-16 10,857,714 5,988,960 16,846,674 2016-17 9,910,239 5,945,825 15,856,064 2017-18 9,809,099 5,895,560 15,704,659 2018-19 9,209,221 5,399,020 14,608,241 2019-20 7,487,135 3,469,150 10,956,285 2020-21 4,850,150 3,448,700 8,298,850 2021-22 3,983,535 3,983,535 2022-23 2,317,900 2,317,900 2023-24 2,318,470 2,318,470 2024-25 2,319,339 2,319,339 2025-26 2,320,614 2,320,614 2026-27 2,321,575 2,321,575 2027-28 2,317,068 2,317,068 2028-29 2,317,260 2,317,260 2029-30 2,321,623 2,321,623 2030-31 2,319,890 2,319,890 Total $320,627,934 $137,045,879 $457,673,813 "' "' This schedule does not include the effect of premiums or discounts. The City has complied in all material respects with the bond covenants as outlined in each issue's indenture. 92 .~. ,-, l"'l CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE m. DETAil.. NOTES ON ALL ACTIVITms AND FUNDS L LONG-TERM DEBT (CONTINUED) Long-tenn debt transactions for governmental and proprietary funds for the year ended September 30, 2002 are as follows: Debt Payable Debt Payable Governmental activities: 9-30-01 Additions Deletions 9-30-02 Tax-Supported Obligation Bonds $ 53,082,808 $ 9,400,000 $ 3,9n,462 $ 58,505,346 Rebatable arbitrage 621,657 338,781 282,876 Compensated Absences 12,179,659 195,329 56,992 12,317,996 Total Governmental 65,884,124 9,595,329 4,373,235 71,106,218 Business-type activities: Self-Supported Obligation Bonds 163,893,747 10,768,568 10,539,591 164,122,724 Revenue Bonds 81,575,667 8,500,300 3,875,855 86,200,112 Compensated Absences 3,659,405 149,369 56,377 3,752,397 Total Business--type 249,128,819 19,418,237 14,471,823 254,075,233 Total City-Wide: Obligation Bonds 216,976,555 20,168,568 14,517,053 222,628,070 Revenue Bonds 81,575,667 8,500,300 3,875,855 86,200,112 Rebatable arbitrage 621,657 338,781 282,876 Compensated Absences 15,839,064 344,698 113,369 16,070,393 Total City-Wide $315,012,943 $ 29,013,566 $ 18,845,058 $ 325,181,451 The total long-tenn debt is reconciled to the total annual requirements to amortize long-term debt as follows: Long-term debt $ 325,181,451 Interest 148,274,131 Total amount of debt $ 473,455,582 Net gains/losses, discounts, etc. 571,500 Rebatable arbitrage (282,876) Compensated absences p6,070,3932 {15,781,769} Total future debt requirements $ 457,673!813 The City Council called an election for September 18, 1999 to seek voter approval to issue general purpose tax-supported bonds in the amount of $37,385,000, which represents the City's current five year general purpose debt plan. The following four propositions were approved by the voters: parks, $14,765,000; city-wide drainage projects, $2,160,000; city-wide street projects, $17,165,000; and traffic signal systems, $3,295,000. The City has not submitted a capital improvement plan to voters since 1993, when voters in the City approved a $28,690,000 capital improvement plan. In February 2002, the City issued $9,400,000 General Obligation Bonds, Series 2002. This issuance was the third installment of the capital improvement debt issuance approved by the voters in 1999. The proceeds from the sale of the Obligations will be used to fund projects in the following areas: Parks, $4,245,000; Streets $4,075,000; and Traffic Control $1,080,000. 93 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE ill. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS J. ADVANCED REFUNDING In fiscal~ 1994, 1999 and 2002 the Gty defeased portions of Gty of Lubbock General Obligation Bonds. All of the defeased portions of the following bonds were c:illed and retired during the 2001-2002 fiscal;ear. Combination Tax & Sewer Subordinate Lien Revenue Grcificates of Obligation, Series 1991. Tax & Warerworks System {Limited Pledge) Revenue C.ertificates of Obligation, Series 1992. General Obligation Refunding Bonds, Series 1993. In fiscal year 1999, the Gty def eased cenain General Obligation Bonds. A portion of the proceeds of the Series 1999 General Obligation Re Bonds were used to purchase United Stares Treasury Securities State and Local Government Series, were placed in an inevocable trust to be used solely to partially refund the portion of the Series 1992 Combination Tax & Sewer Subordinate Lien Revenue Certificates of Obligation payments due February 15, 2006 through 2014. Accordingly, the truSt account assets and the liability for the defeased bonds are not included in the Gty's BFS. On the September 30, 2002, $15,545,000 of bonds outstanding are comidered defeased. In fiscal year 2002, the Gty defeased cenain General Obligation Bonds, A portion of the proceeds of the Series 2002 General Obligation Refunding Bonds were used to purchase United States Treasury Securities State and Local Government Series, which were placed in an irrevocable trust r.o be used solely to partially refund the portion of the Series 1993 General Obligation Bonds due February 15, 2004 thro 0, scheduled to be called February 15, 2003 at par. Accordingly, the trust acc:oum: assets and the for the defeased bonds are not included in the Gcy's BFS. The Gty advance refunded the 1993 Series bonds to reduce its total debt service paymenrs over the next eight years by approximately $296,000 and to obtain an et:OllOmic gain (difference between the present values of the debt service payments on the old and new debt) of approximately $350,000. On the September 30, 2002, $6,720,000 of bonds outstanding are co.osidered defeased. K. ACCRUED INSURANCE CLAIMS As discussed in Note LG., the Self-Insurance Funds establish a liability for seJf-insurance for both reported and unreported insured events, which includes estimates of both future payments of losses and related claim adjustment expenses. The follmving represents changes in those aggregate liabilities for the Insurance Funds during the past two yean, ended September 30: ~ 2001 Worker's Compensation and Liability Reserves at beginning of fiscal year $ 6,000,000 $ 3,734,340 Claims expenses 3,368,160 5,735,258 Claims payments (313681160) {31469,598} Worker's Compensation and liability reserves at end of fiscal year 6,000,000 6,000,000 Medical and Dental Claims Liability at end of fiscal year * 2,685!925 3,264,865 Total Self-Insurance Liability at end of fiscal year $ 8,685,925 $ 9,264:865 Total Assets to pay claims at end of fiscal year $ 19,450,532 $ 18,534,516 Accrued insurance claims payable from restricted assets-current $ 4,185,925 $ 4,764,865 Accrued insurance claims-non-current 4,500,000 4,500,000 Total accrued insurance claims $ 8,685,925 $ 9,264,865 ,. The information nec:essaryto prepare the separate disclosures for medical and dental claims liabilities is Ullavailable. 94 ~. CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE m. DETAil.. NOTES ON ALL ACTMTIES AND FUNDS L. LANDFILL CLOSURE AND POSTCLOSURE CARE COST State and federal laws and regulations require the City to place foul covers on its landfill sites when they stop accepting waste and to perform certain maintenance and monitoring functions at the sites for thirty years after closure. Although closure and postclosure care costs will be paid only near or after the date that the landfills stop accepting waste, the Gty reports a portion of these closure and postclosure costs as operating expenses ( and recognizing a corresponding liabilit}? in each period based on landfill capacity used as of each balance sheet date. The $2,552,923 included in landfill closure and postclosure care liability at September 30, 2002, represents the cumulative amount expensed by the City to date for its two landfills that are registered under TCEQ pennit numbers 69 (Landfill 69) and 2252 {Landfill 2252), less amounts that have been recognized. Over 90 percent of the estimated capacity of Landfill 69 has been used to date, with $751,182 remaining to be recognized over the remaining closure period, which is estimated at 5 years. Approximately 15 percent of the estimated capacity of Landfill 2252 has been used to date, with $22,448,347 remaining to be recognized over the remaining closure period, which is estimated at over 80 years. Postclosure care costs are based on prior estimates and have been adjusted for inflation. Actual costs may be different due to inflation, deflation, changes in technology, or changes in regulations. The City accounts for its Municipal Solid Waste Landfill in accordance with GASB Statement No. 18; however, in prior years the amount of closure costs used in the calculation of current cost for Landfill 69 was incorrect resulting in overstatement of the liability for closure and postclosure care costs. In order to properly reflect the estimated total current eost of the landfill's closure and postclosure care, a reduction in the liability of approximately $3,600,000 has been reco.rded, with a corresponding increase in beginning-of-year net assets. The City is required by state and federal laws and regulations to provide assurance that fi.nancial. resources will be available to provide for closure, postclosure care, and remediation or containment of environmental hazards at its landfill. The City is in compliance with these requirements and has chosen the Local Government Financial Test mechanism for providing this assurance. The City expects to finance costs through normal operations. NOTE IV. CONTINGENT LIABILITIES A. FEDERAL GRANTS In the normal course of operations, the Gty receives grant funds from various Federal and state agencies. The gr.mt progratm are subject to audits by agents of the granting authority to ensure compliance with conditions precedent to the granting of funds. Any liability for reimbursement which may arise as the result of audits of gr.mts is not believed to be material. B. LITIGATION The Qty is involved in lawsuits a.risiag in the normal course of business, including claims for property damage, personal mju.ty and personnel practices, disputes over contract awards and property condemnation proceedings, suits conteSting the legality of certain taxes and public safety practices. In the opinion of management, the ultimate outcome of these lawsuits will not have a materially adverse effect on the aty's financial position 3S of September 30, 2002. 95 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2002 NOTE IV. CONTINGENT LIABILITIES C. SITE REMEDIATION The Gty has idem:ified specific locations requiring site remediation relative to underground fuel storage tanks and historical fire training sites. The potential exposure is not readily determinable as of September 30, 2002. In the opinion of management, the ultimate liability will not have a materially adverse effect on the Gty's fmancial position. D. WEST TEXAS MUNICIPAL POWER AGENCY In fiscal 1998, the West Texas Municipal Power Agency (WIMP.A) issued $28,910,000 of WIMPA Revenue Bonds, Series 1998 maturing through February of 2018. These bonds are secured by the net revenues of certain power sales contracts with participating cities of which the Clty is one. In the event the net revenues of the power sales contracts are not sufficient to cover the debt service of the bonds, the parricipat.ing cities are required under a debt service guarantee prov:won of the agreement, to provide funds sufficient to cover any debt service deficit to the extent of their respective participation percentages for the preceding 12 momhs. The Gtys percentage share in this agreement for the coming year approximates 85.21 %. At, September 30, 2002, the City had current accounts receivable of approximately $3.7 million and long-term accoums receivable of $4.0 million from WIMPA During the year ended September 30, 2002, the Oty reported expenses of approximately$37.1 million for power purchased from WI'MPA and approximately $2.1 million in contract service revenue. At, September 30, 2002, the City owed WIMP A approximately $5.4 million for purchased power. 96 APPENDIXC FORM OF BOND COUNSEL'S OPINION THIS PAGE INTENTIONALLY LEFT BLANK FULBRIGHT & JAWORSKI L.L.P. A REGISTE:RED LIMITE:D LIABILITY PARTNE:RSHIP 2200 Ross AVENUE, Su ITE 2900 DALLAS, TEXAS 75201-2784 WWW.F'ULBRIGHT.COM TELEPHONE: (a 14) 855-8000 F' ACSI MI LE: (214) ass-aaoo IN REGARD to the authorization and issuance of the "City of Lubbock, Texas, General Obligation Bonds, Series 2003" (the "Bonds"), dated July 15, 2003 (the "Bond Date"), in the principal amount of $11,855,000, we have examined into the legality and validity of the issuance thereof by the City of Lubbock, Texas (the "City"), which Bonds are issuable in fully registered form only, in denominations of $5,000 or any integral multiple thereof (within a maturity) and mature annually on February 15 in each of the years 2004 through 2023, unless redeemed prior to maturity in accordance with applicable redemption provisions stated in the ordinance authorizing the issuance of the Bonds (the "Ordinance"). The Bonds bear interest on the unpaid principal amount from the Bond Date at the rates per annum stated in the Ordinance, and such interest is payable on February 15 and August 15 in each year, commencing February 15, 2004, to the registered owners shown on the registration books of the Paying Age of/Registrar on the Record Date ( stated on the face of the Bonds). WE HAVE SERVED as Bond Counsel solely to pass upon the legality and validity of the issuance of the Bonds under the Constitution and laws of the State of Texas, and the exclusion of the interest on the Bonds from gross income for federal income tax purposes, and for no other purpose. We have not been requested to investigate or verify, and we neither expressly nor by implication render herein any opinion concerning, the financial condition or capabilities of the City, the disclosure of any financial or statistical information or data pertaining to the City and used in the sale of the Bonds, or the sufficiency of the security for or the value or marketability of the Bonds. In rendering the opinions herein we have examined and rely upon (i) original or certified copies of the proceedings of the City in connection with the issuance of the Bonds, including the Ordinance, (ii) certifications and opinions of officers of the City relating to the expected use and investment of proceeds of the sale of the Bonds and certain other funds of the City and to certain other facts within the knowledge and control of the City, and (iii) such other documentation, including an examination of the Bond executed delivered initially by the City (which we found to be in due form and properly executed), and such matters of law as we deem relevant to the matters discussed below. In such examinations, we have assumed the authenticity of all documents submitted to us as originals, the conformity to original copies of all documents submitted to us as certified copies and the accuracy of the statements and information contained in such certificates. BASED ON OUR EXAMINATIONS, IT IS OUR OPINION that, under the applicable law of the United States of America and the State of Texas In force and effect on the date hereof: 1. The Bonds have been duly authorized by the City and, when issued in compliance with the provisions of the Ordinance are valid, legally binding, and enforceable obligations of the City, payable from the proceeds of an ad valorem tax levied, within the limitations prescribed by law, upon all taxable property within the City, except to the extent that the enforceability thereof may be affected by bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting creditors' rights or the exercise of judicial discretion in accordance with general principles of equity. 2. Pursuant to section 103 of the Internal Revenue Code of 1986, as amended to the date hereof (the "Codep), and existing regulations, published rulings, and court decisions thereunder, and assuming continuing compliance after the date hereof by the City with the provisions of the Ordinance relating to sections 141 through 150 of the Code, interest on the Bonds will be excludable from the gross income, as defined in AUSTIN• DAt.1..AS •HONGKONG• HousTON • LoNOON • Los ANGELES• M1NN£APOLis •MUNICH• Ne:w YORK• SAN ANTONIO• WASHINGTON DC Page 2 of Legal Opinion of Fulbright & Jaworski L.L.P. Re: "City of Lubbock, Texas, General Obligation Bonds, Series 2003", dated July 15, 2003 section 61 of the Code, of the owners thereof for federal income tax purposes, and such interest will not be included in computing the alternative minimum taxable income of the owners thereof who are individuals for federal income tax purposes. Interest on all tax-exempt obligations, such as the Bonds, owned by a corporation (other than an "S" corporation or a qualified mutual fund, real estate mortgage investment conduit, real estate investment trust, or a financial asset securitization investment trust) will be included in such corporation's adjusted current earnings for purposes of calculating the alternative minimum taxable income of such corporation. A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by section 55 of the Code is computed. WE EXPRESS NO OTHER OPINION with respect to any other federal, state, or local tax consequences under present law or any proposed legislation resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Bonds. Ownership of tax-exempt obligations such as the Bonds may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, •s• corporations with subchapter "C" earnings and profits, owners of interests in a financial asset securitization investment trust, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, and · taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. OUR OPINIONS ARE BASED on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above . . EHE:dfc APPENDIXD SPECIMEN OF BOND INSURANCE POLICY - - ..A-1EIIA FINANCIAL GUARANTY INSURANCE POLICY MBIA Insurance Corporation Armonk, New York 10504 Policy No. [NUMBER] MBIA Insurance Corporation (the "Insurer'), in consideration of the payment of the premium and subject to the terrm of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, oflhe following described obligations, the full and complete payment required to be made by or on behalf of the lsmler to [PA YING AGENT!IRUSTEE] or its successor (the "Paying Agent'') of an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatmy sinking fund payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but shall not be so paid ( except that in the event of any acceleration of lhe due date of such principal by reason of mandatocy or optional redemption or acceleration resulting from default or othervvise, other than any advancement of maturity pursuant to a manrlatocy sinking fund pa~ the paymenls guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration); and (it) lhe reimbursement of any such payment which is subsequently recovered from any o-wner pursuant to a final judgment by a court of competent jurisdiction that such payment constitut.es an avoidable preference to such owner within the meaning of any applicable bankruptcy law. The amoums referred to in clauses (i) .and (u) of the preceding sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean; [PAR} [LEGAL NAME OF ISSUE} Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in 'Writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paying Agent or any owner of an Obligation the payment of an InsuredArnount for which is . then due, that such~ payment bas not been made, lhe Insurer on the due date of such payment or within one business day airer receipt of notice of such nonpayment. wbicbever is later, will make a deposit of funds, in an account with U.S. Bank Trost National Association, in New York, New York, or its successor, sufficient fur the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such Obligation<; or presentment of such other proof of ownership of the Obligations, 1ogether with any appropriate :instruments of assigi:nmlt to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent fur such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on 1he Obligations, such inslruments being in a form satisfuctory to U.S. Bank Trust National Association, U.S. Bank Trost National Association shall disbwse to such owners, or the Paying Agentpayment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent fur lhe payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. As used herein, the tenn "owner'' shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the lsmler, or any designee of the Is.suer fur such purpose. The term owner shall not include the Issuer or any party vmose agreement with the mrer comtitutes the underlying security for the Obligations. Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Street. Annonk, New Y rnk 10504 and such service of process shall be valid and binding. This policy is non-cancel1able for any reason. The premium on this policy is not refundable for any reason including the paymmt prior 1o maturity of the Obligations. IN WITNESS WHEREOF, the Insurer has caused this policy to be executed in facsimile on its behalf by its duly,authoriz.ed officers, this [DAY] day of fl'.K,Qil\.TT"U YEAR]. >' L"" .,.,..,.,, ?''.. : , MBIA Insurjnt~Corporation ~0:g~~' A~;}' (f0 -~ ·' istant Secretary ·.:-.,... ..• DISCLOSURE OF GUARANTY FUND NONPARTICIPATION: In the event the Insurer c· fulfill its contractual obligation under this policy or contract or application or certificate or evidence of coverage, the policyholder or certificateholder is not 'cted by an insurance guaranty fund or other solvency protection anangement. SID-R-TX-6 4195 -- ,,-.. Financial Advisory Services Provided By Ir FIRST SOlJTI-MrnST COMPANY INVESTMENT BANKERS ·-- 6 THE STATE OF TEXAS COUNTY OF LUBBOCK CITY OF LUBBOCK GENERAL CERTIFICATE § § § § § WE, the undersigned, Director of Finance and City Secretary, respectively, of the City of Lubbock, Texas, DO HEREBY CERTIFY as follows: '°' 1. The total principal amount of indebtedness of the City, including the proposed "City of Lubbock, Texas, General Obligation Bonds, Series 2003," dated July 15, 2003 (the "Bonds") and the proposed "City of Lubbock, Texas, Tax and Waterworks System Surplus Revenue Certificates of Obligation, Series 2003", dated July 15, 2003 (the "Water Certificates"), "City of Lubbock, Texas, Tax and Sewer System Surplus Revenue Certificates of Obligation, Series 2003", dated July 15, 2003 (the "Sewer Certificates"), "City of Lubbock, Texas, Tax and Solid Waste System Surplus Revenue Certificates of Obligation, Series 2003", dated July 15, 2003 (the "Solid Waste Certificates"), "City of Lubbock, Texas, Tax and Municipal Drainage Utility System Surplus Revenue Certificates of Obligation, Series 2003", dated July 15, 2003 (the "Drainage Certificates") and "City of Lubbock, Texas, Tax and Tax Increment Revenue Certificates of Obligation, Series 2003 (North Overton Tax Increment Financing Reinvestment Zone)", dated July 15, 2003 (the "TIF Certificates")payable from ad valorem taxes levied and collected by the City is as follows: 45339375.1 OUTSTANDING INDEBTEDNESS ---------------------------- THE BON OS -------------------------------------------------- WATER GERTI FICA TES --------------------------------- SEW ER C ERTi FICA TES---------------------------------- SO LI• WASTE CERTIFICATES------------------ DRAINAGE CERTIFICATES---------------------------- TIF CERTIFICATES------------------------------------------------------ $ 203,945,000 11,855,000 9,765,000 680,000 3,590,000 40,135,000 3,795,000 TOTAL INDEBTEDNESS ______________ ,_____________________ $273,765,000 2. A debt service requirement schedule for all outstanding tax debt of the City, including the Bonds, the Water Certificates, the Sewer Certificates, the Solid Waste Certificates, the Drainage Certificates and the TIF Certificates, attached hereto as Exhibit A and made a part of this certificate for all purposes. 3. Certain duly qualified and acting officers of said City are as follows: MARC McDOUGAL VICTOR HERNANDEZ TOMMY GONZALEZ BEVERLY HODGES REBECCA GARZA ANITA BURGESS ANDY BURCHAM MAYOR MAYOR PRO TEM INTERIM CITY MANAGER DIRECTOR OF FINANCE CITY SECRET ARY CITY ATTORNEY CASH AND DEBT MANAGER 4. The assessed value of all taxable property (net of exemptions) in the City, as shown by the tax rolls for the year 2002, and which have been duly approved and are the latest official assessment of taxable property in the City is as follows: TOTAL ASSESSED TAXABLE VALUES OF REAL AND PERSONAL PROPERTY-----------------------------------------$7,342,344,867 5. The City is incorporated under the General Laws of the State of Texas, and is "'l operating under the Home Rule Amendment to the Texas Constitution, Section 5, Article XI, as amended in 1912. The City Charter was originally adopted at an election held on December 27, 1917, and said Charter has not been amended or revised in any respect since January 18, 1992, the date of the last Charter Amendment Election. 45339375.1 WITNESS OUR HANDS AND THE SEAL OF THE CITY OF LUBBOCK, TEXAS, this the 24th day of July, 2003. (City Seal). 45340124.1 CITY OF LUBBOCK, TEXAS RebeGarza City Secretary 7 , , ) .) <) ) ) ) ) ) ) EXHIBIT A DEBT INFORMATION GENERAi. 081,l(;ATION DEUT SERVICE REQUIREMENTS focal Year Ended Outstanding IJcht '" The Jlonds"' The Wat,:rwo1b Ccrtificatcsm The S=•-r Ccnificntcs''' ~ PrinciEal Interest folal PrinciEal Interest Total l'rincieal Interest Total l'1incil!:!I Interest 'fotnl 200] \ IJ,J24.6k2 i~l s 11,120,130 l!i) $ 24,444.R 12 (~1 $ s $ s $ $ $ s s 2004 I 2.QI0,000 '1521.151 22,431,151 60(),000 524.704 1.124,704 473,051 473,051 JJJ87 H,387 2005 Ll,015.ooo 8,R7R,776 21,R'l.\,77(, 415.f){)f) 4'1R,42:'i 883,425 JJ0,000 428,QIJ 738,913 20,000 JOJl9 50,319 2006 IJ,1()5,llllll R,244,4R9 21,34'1,4RQ 425,0ll0 455,825 RR0,825 325,000 413,038 738,038 25,000 29,J()4 54,194 2007 13,1(}5,000 7,6J.l,6l6 20,828.616 440,000 442,850 R82,R50 345,000 396,288 741,288 25,000 27,944 52,944 2008 12,660,000 7,0H,641 IC/.705,641 450,000 42Q,500 R7C/,500 )(i0,000 )78,663 738,663 25,000 26,694 51,694 2009 12,350,000 6.474,861 I R.824,861 465,000 415,775 880,775 380,000 362,063 742.0liJ 25,000 25,444 50,444 20l0 11,975,000 5,'117,0Q8 I 7,M92,f.l'IR 480,000 400,400 R80.400 3()5,000 J46.S63 741,563 2S,000 24,2S6 49,256 2011 12,1(,5,0tJ0 5,363,1146 17,528,()46 500,000 JR2,000 llR2,000 410,000 330,463 740,463 J0,000 23,094 53,094 2012 11,110,000 4,R26,7QJ 15,936,7Q3 520,000 361,600 RR 1,60{1 425,000 313,763 738,76) 30,000 21,8Q4 51,1194 2013 11.2110.()00 4,307,018 15,5R7.0l8 540,000 340,400 RR0,400 44$,000 296,363 741,363 30,00IJ 20.6()4 50,694 2014 11,475.000 3,773,449 15,241l,44Q 565.000 lift.JOO RRJ,300 460,000 278,263 7311,263 30,000 l<l,4'14 49.494 20" 8,685,000 J,2C/I.J53 11,976,353 585,000 29S,JOO RR0,300 480,000 259,163 739,163 35,000 IR,172 5),172 2016 7,975,000 2,882,714 10,857,714 615,000 2611,225 RRJ,225 $00,000 238,638 7311,638 35.000 16,706 51,706 2017 7,4!0.000 2,500,239 9,910,239 645,000 236,725 RRl,725 525,000 216,856 741,856 35,000 15,219 S0,219 2018 7,690,000 2,119,099 C/,R09,0Q9 680,000 203,600 llkJ.600 S45,ooo 193,4)8 738,438 40,000 ll,575 S),575 ,!019 7,475',(R){) 1,734.221 9,20<l,221 715,0!){1 lliR,725 883,725 S70,000 168,350 7lR,350 40,000 11,775 Sl;77S 2020 6,105.0!lO 1,382,135 7,487,135 74S,OOO 134,088 87Q,088 600,000 141,650 741,650 40,000 Q,1150 4'1,'150 2021 ),725,000 1,125,150 4,1150,150 785,000 C/R,6RI 11113,6111 625,000 112,93 I 737,931 45,000 7,956 52,956 2022 J,f!J0,000 9SJ,S3S J.llllJ,535 R20,000 60,563 RR0,563 655,000 s2 .. rn 737,531 45,000 S,Hl9 50.1119 2023 1,480,000 RJ7,C/00 2,317,Q00 865,000 20,544 8115,S44 690,000 50,588 740,588 ~o.ooo 3,563 53,563 2024 1,560,000 758,470 2,3111,470 720,000 17,100 737,100 S0,000 l,IRR 51,138 2025 1,645,000 674,JJQ 2,319,JlQ 2026 1,7)5,000 5RS,6l4 2,320.614 2027 1.830,000 4C/l,515 2,321,575 202R 1,925,000 392,06R 2,317,068 2029 2,0J0,000 287.260 2,317,260 2030 2,145,001) 176.623 2,321,623 2031 2,260,000 59,890 2,319,8'10 2032 203) 2034 $ 217,269,682 $ 103,358,25 I $ 320,627,933 $ l 118SS,OOO $ 6,026,229 $ 17,881.229 $ 9,765,000 $ 5,498,670 s 15,263,670 $ 680,000 $ 386,334 $ l,1166.H4 ) ) ) J ') ) ) ,) " EXHIBIT A-2 GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS -CONTINUED Total ¾of The Solid Waste Certificatcsn> The Drainage Ccrlilicatcs111 TI1c Tax Increment Ccrtilicatcsm Combined Principal Principal lnlercsl Total Principal hllcrcsl Total Princip;d Interest Total R~uircments Retired s s s s s !i $ s s s 24,444,1112 (41 17.1,936 173.<H6 1,988,935 1,988,935 183,869 183,1169 26,409,033 115,000 157,6111 272,6111 7115,000 1,828,890 2,533,SCIO 120,000 166,725 286,725 26,659,728 120,000 151,1106 271.1106 720.00() 1,1114,MO 2,534,640 125.000 160,600 285,600 26,114,592 125.000 145,681 270,681 735,000 1,798.712 2,533.712 135,000 154,100 289,I00 25,59<1,IQO 24.86% 135,000 139,181 274,181 755,000 1,780,074 2,535,074 140,000 147,225 287,225 24,471,9711 140,000 133,006 273,006 775,000 1,7511,540 2,533,540 145,000 140,1!25 285,1125 23,590,514 14~.ooo 127.)06 272,306 1100,000 1,733,415 2,533,415 155,000 134,1125 2119,825 22,658,863 150,000 121,406 271,406 830,000 1,705.390 2,535,390 160,000 128,525 288,525 22,298,924 155,000 115,306 270,306 860,000 1,674,740 2,534,740 165,000 122,025 287,025 20,701,121 165,000 1011,90() 271,906 !195.000 1,640,939 2,535,939 170,000 115,325 285,325 20,3.54,644 54.06% 170,000 102,206 272,206 930,000 1,604,663 2,5.l4,663 IR0,000 !08,325 288,325 20,014,(199 175.000 95.197 270,197 970,000 1,566,663 2,536,663 185,000 IOO.<I09 285,909 16,741,756 185,000 87,656 272,656 1,015,000 1,521,88!1 2,536,888 195,000 92,950 287,950 15,628,777 IIJ0,000 79,688 269,688 1,065,000 1,469.KKK 2,534,RRR 205,000 84.450 2119,450 14,67!1,0M 200,000 71,150 271,150 1,120,000 1,415,263 2,535,261 210,000 75,369 285,369 14,576,493 73 . .57% 210,000 61,Cl25 271,925 1,175,000 1,357,888 2,532,8118 220,000 65,694 285,694 13,973,577 2:io.000 52,11 J 272,113 1,2JS,OOO 1,297,638 2,532,638 235,000 55,309 290,309 12,252,8112 230,000 41,563 271.563 1,)00,000 1,234,263 2,534,263 245.000 44,056 28<),0S<, 9,619,600 240,000 30,400 270,400 1,365,000 1,169,344 2,534,344 255,000 32,181 2!17,181 8,744,373 255,000 18,644 273,644 1.430,000 1,102,963 2,532,963 270,000 19,713 289,713 7,093,913 86.80% 265,000 6,294 271,294 1,500,000 1,031,375 2,533,375 2!10,000 6,650 286,650 6,198,076 1,575,000 958,375 2,533.375 4,!152,714 1,660,000 877,500 2,5.17,500 4,RSll, 114 1,745,000 792,375 2,537,37.5 4,858,950 1,830,000 703,000 2.533.000 4,850,068 93 IK% 1,925,000 609,12:'i 2,534.125 4,851,385 2,025.000 510,375 2,535,375 4,856,998 2,130.000 406,500 2,536,500 4,1156,J'IO 2,240,000 297,250 2,537,250 2,537,250 2,350,000 182,500 2,532,500 2,532,500 99.14¾ 2,475,000 61.1175 2,536,1175 2,536,875 I00.00¾ $ 3,5'10,000 !i 2,021,052 s 5,611,0S2 s 40,135,000 $ 37,11%,981 ' S 7!1,031,981 s 3,795.000 s 2,139,(,50 $ 5,934.<,50 s 444,416.849 7 SIGNATURE AND NO-LITIGATION CERTIFICATE THE STATE OF TEXAS COUNTY OF LUBBOCK § § § WE, the undersigned, officials of the City of Lubbock, Texas (the "Issuer"), do hereby certify with respect to the "CITY OF LUBBOCK, TEXAS, GENERAL OBLIGATION BONDS, SERIES 2003," dated July 15, 2003 (the "Bond Date"), in the aggregate principal amount of $11,855,000 (the "Bonds") as follows: (1) The Bonds have been duly and officially executed by the undersigned with their manual or facsimile signature in the same manner appearing hereon, and the undersigned hereby adopt and ratify their respective signatures in the manner appearing on each of the Bonds whether in manual or facsimile form, as the case may be, as their true, genuine and official signatures. (2) On the Bond Date and on the date hereof, we were and are the duly qualified and acting officials of the Issuer indicated below. (3) The legally adopted proper and official corporate seal of the Issuer is impressed, imprinted or lithographed on all of the Bonds and impressed on this Certificate. ( 4) No litigation of any nature is now pending before any federal or state court, or administrative body, or to our knowledge threatened, seeking to restrain or enjoin the issuance or delivery of the Bonds or questioning the issuance or sale of the Bonds, the authority or action of the governing body of the Issuer relating to the issuance or sale of the Bonds, the levy of taxes to pay the principal of and interest on the Bonds or materially affecting the assessment or collection of taxes to pay the principal of and interest on the Bonds; and that neither the corporate existence or boundaries of the Issuer nor the right to hold office of any member of the governing body of the Issuer or any other elected or appointed official of the Issuer is being contested or otherwise questioned. (5) No authority or proceeding for the issuance, sale or delivery of the Bonds, passed and adopted by the governing body of the Issuer, has been amended, repealed, revoked, rescinded or otherwise modified since the date of passage thereof, and all such proceedings and authority relating to the issuance and sale of the Bonds remain in full force and effect as of the date of this Certificate. 45339320.1 -; - - DELIVERED this __ A_UG_2_8_20_03 __ (Issuer's Seal) THE STATE OF TEXAS COUNTY OF LUBBOCK OFFICIAL TITLE Mayor, City of Lubbock, Texas City Secretary, City of Lubbock, Texas § § § The undersigned, a Notary Public, hereby represents and certifies each of the signatures of Marc McDougal and Rebecca Garza, Mayor and City Secretary, respectively, of the City of Lubbock, Texas, appearing above is genuine. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 2</ day of July , 2003. of Texas ,··«:t-~X'.°'&4 .. /~,t,.., ······i:1\ Ed H. Esquivel /*, '*' N . \ ~-... i f otary Pubhc. State of Texas \'!;,,; ......... 'i.(~.i My Comm. Expires 03/24/06 ·· ...... OF't_, ...... •· (Notary Seal 45339320.1 -2- 8 - - ATTORNEY GENERAL OF TEXAS GREG ABBOTT August 25, 2003 THIS IS TO CERTIFY that the City of Lubbock, Texas (the "Issuer") has submitted to me City of Lubbock, Texas General Obligation Bond, Series 2003 (the 11Bond11), in the principal amount of $11,855,000, for approval. The Bond is dated July 15, 2003, numbered T-1, and was authorized by Ordinance No. 2003-00080 of the Issuer passed on July 24, 2003. I have examined the law and such certified proceedings and other papers as I deem necessary to render this opinion. As to questions of fact material to my opinion, I have relied upon representations of the Issuer contained in the certified proceedings and other certifications of public officials furnished to me without undertaking to verify the same by independent investigation. I express no opinion relating to any official statement or any other offering material relating to the Bond. Based on my examination, I am of the opinion, as of the date hereof and under existing law, as follows: No. 40753 (1) The Bond has been issued in accordance with law and is a valid and binding obligation of the Issuer. (2) The Bond is payable from the proceeds of an annual ad valorem tax levied, within the limits prescribed by law, upon all taxable property within the Issuer. Therefore, the Bond is approved. -- Book No. 2Q03-1.: - JCJ« POST OFFICE Box 12548, AUSTIN, TEXAS 78711-2548 TEL:(512)463-2100 WWW.0AG.STATlLTX.IJS An Equal E1nplqpmnl Opportunity E1npl'!Jer · Printed o• Rceycled Paper - OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, CAROLE KEETON STRAYHORN, Comptroller of Public Accounts of the State of Texas, do hereby certify that the attachment is a true and correct copy of the opinion of the Attorney General approving the: City of Lubbock. Texas General Obligation Bond. Series 2003 numbered T-1, of the denomination of $ 11,855,000, dated July 15. 2003, as authorized by issuer, interest various percent, under and by authority of which said , popqs/ce,~ificates were registered electronically in the office of the Comptroller, on the 25th d~y of August. 2003, under Registration Number 67 456. ~. ✓ .J . Give~1. LJ!lder my hand and seal of office, at Austin, Texas, the 25th day of August. 26Q3. ~ CAROLE KEETON STRAYHORN Comptroller of Public Accounts of the State of Texas - OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, Melissa Mora, 0 Bond Clerk (g] Assistant Bond Clerk in the office of the Comptroller of the State of Texas, do hereby certify that, acting under the direction and authority of the Comptroller on the 25th day of August. 2003. I signed the name of the Comptroller to the certificate of registration endorsed upon the: City of Lubbock. Texas General Obligation Bond, Series 2003. numbered T-1 • d July 15. 2003, and that in signing the certificate of registration I used the I, Carole Keeton Strayhorn, Comptroller of Public Accounts of the State of Texas, certify that the person who has signed the above certificate was duly designated and appointed by me under authority vested in me by Chapter 403, Subchapter H, Government Code, with authority to sign my name to all certificates of registration, and/or cancellation of bonds required by law to be registered . and/or cancelled by me, and was acting as such on the date first mentioned in this certificate, and that the bon~s/certificates described in this certificate have been duly registered in the office of the Comptroller, under Registration Number 67 456. ;, ✓.,,.~ GIVEN under my hand and seal of office at Austin, Texas, this the 25th day of August. 2003. ~~~~-.~~-z...__. CAROLE KEETON STRAYHORN . Comptroller of Public Accounts of the State of Texas 9 - .r;. . :fp;'RST SOUTHWEST COMPANY Vince Viaille Vu-e Pre,itlmt City of Lubbock Ms. Beverly Hodges P. 0. Box 2000 Lubbock, Texas 79457 Phone: (806) 775-2161 Fax: (806) 775-2033 City of Lubbock Mr. Andy Burcham P .0. Box 2000 Lubbock, Texas 79457 Phone: (806) 775-2149 Fax: (806) 775-2033 Fulbright & Jaworski L.L.P. Mr. Ed H. Esquivel 2200 Ross A venue, Suite 2800 Dallas, Texas 75201 Phone: (214) 855-8000 Fax: (214) 855-8200 McCall, Parkhurst & Horton L.L.P. Mr. Dan Culver 717 North Harwood, Ninth Floor Dallas, Texas 75201 Phone: (214) 754-9200 Fax: (214) 754-9250 August 20, 2003 Siebert Brandford Shank & Co. Mr. Harold Durk 1999 Harrison Street, Suite 2720 Oakland, CA 94612 Phone: (510) 645-2270 Fax: (510) 645-2275 JPMorgan Chase Bank lvfs. Michelle Baldwin 2001 Bryan Street -10th Floor Dallas, Texas 75201 Phone: (214) 468-6254 Fax: (214) 468-6322 Wells Fargo Bank, N.A. Ms. Teena Blasdell · 420 Montgomery Street San Francisco, CA 94163 Phone: (806) 788-2632 Fax: (806) 788-2630 MBIA Insurance Corporation Mr. Jan Petrillo 113 King Street Armonk, NY 10504 Phone: (914) 765-3931 Fax: (914) 765-3161 Re: Closing Instructions for the $11,855,000 City of Lubbock, Texas, General Obligation Bonds, Series 2003 (the "Bonds") Payment for the above referenced Bonds is scheduled to occur at 10:00 AM, CDT, on Thursday, August 28, 2003, and payment therefor is to occur at the offices of JPMorgan Chase Bank ("JPMorgan''). INVESTMENT BANKERS SINCE 1946 SOURCES OF FUNDS Par Amount of Bonds .......... ·................................................ $ 11,855,000.00 Reoffering Premium............................................................. 169,179.10 Accrued Interest (07/15/03 to 08/28/03).............................. 58,844.31 Less: Underwriters Discount............................................... (74,419.00) Less: Original Issue Discount............................................. (67,101.30) -s:----'--'---""-TOT AL FUNDS AVAILABLE AT CLOSING..................... $ 11,941,503.11 USES OF FUNDS Deposit to Project Construction Fund................................... $ Deposit to Interest & Sinking Fund (rounding amount) ..... . Deposit to Interest & Sinking Fund (accrued interest) ...... ~. Gross Bond Insurance Fee.................................................... · Paying Agent/Registrar Fee ................................................ . Costs of Issuance ................................................................. . TOT AL USES OF FUNDS . ........ ....... ............ .................... .... $ 11,775,000.00 1,208.80 58,844.31 38,000.00 300.00 68,150.00 11,941,503.11 (A) On Thursday, August 28, 2003, the Underwriters, represented by Siebert Brandford Shank .-, & Co., shall wire $11,941,503.11 in immediately available funds to the paying agent bank, JPMorgan, prior to 10:00 AM, CDT, for the account of the City of Lubbock, in payment for the purchase price of the Bonds. Wiring Instructions for JPMorgan are as follows: JPMorgan Chase ABA: 113000609 Credit A/C #: 00103237013 Credit Name: ITS IAS Clearing FFC: City of Lubbock, GO Series 2003 Attn: Issuer Administrative Services / Michelle Baldwin (B) On Thursday, August 28, 2003, JPMorgan shall wire or transfer immediately available funds prior to 11 :00 AM, CDT, as follows: (1) Transmit by wire or transfer to JPMorgan Chase Bank ABA: 021000021, Credit A/C #: 910-2-721728, :MBIA Insurance Corporation For the City of Lubbock, Texas Policy #42029 ...................................... $ 38,000.00 ·A - . (2) Transmit by wire to Wells Fargo Bank, N.A., San Francisco, CA ABA #121000248, Attn: Ms. Teena Blasdell Phone (806) 788-2632, depository bank for City of Lubbock for credit to the following account: City of Lubbock Master, Account #4000047951 .................................... 11,835,053.11 (Project Construction Funds $11,775,000 and I&S Funds $60,053.11) (3) Retain in payment of services to be rendered as Paying Agent/Registrar 300.00 (4) Transmit by wire to Bank One, Texas ABA #111000614, Attn: Jack Addams Account #1822155345 for client# 0336-025 for credit to First Southwest Company for costs of issuance ................... ___ 68 __ ,1_5_0_.0_0 Total Disbursement of Funds ............................................................................... $ 11,941,503.11 · The cooperation of the addressees with the above instructions is greatly appreciated. If you have any questions or cannot comply with any portion of the instructions, please contact us immediately at (806} 749-3792. cc: First Southwest Company · Mr. Jack Addams Ms. Mary Ann Dunda Mr. Joe Brawner Sincerely, Vince Viaille 10 - - CERTIFICATE AS TO TAX EXEMPTION The undersigned, being the duly chosen and qualified Mayor and Director of Finance of the City of Lubbock, Texas (the "Issuer"), hereby certifies with respect to "City of Lubbock, Texas, General Obligation Bonds, Series 2003", dated July 15, 2003, in the principal amount of $11,855,000 (the "Bonds"), "City of Lubbock, Texas, Tax and Waterworks System Surplus Revenue Certificates of Obligation, Series 2003", dated July 15, 2003, in the principal amount of $9,765,000 (the "Water Certificates"), "City of Lubbock, Texas, Tax and Sewer System Surplus Revenue Certificates of Obligation, Series 2003", dated July 15, 2003, in the principal amount of $680,000 (the "Sewer Certificates"), "City of Lubbock, Texas, Tax and Solid Waste System Surplus Revenue Certificates of Obligation, Series 2003", dated July 15, 2003, in the principal amount of $3,590,000 (the "Solid Waste Certificates"), "City of Lubbock, Texas, Tax and Municipal Drainage Utility System Surplus Revenue Certificates of Obligation, Series 2003", dated July 15, 2003, in the principal amount of $40,135,000 (the "Drainage Certificates") and "City of Lubbock, Texas, Tax and Tax Increment Revenue Certificates of Obligation, Series 2003 (North Overton Tax Increment Financing Reinvestment Zone)", dated July 15, 2003,. in the principal amount of $3,795,000 (the "TIF Certificates"), as follows. A. General. 1. We, along with other officers of the Issuer, are charged with the responsibility for issuing the Bonds, the Water Certificates, the Sewer Certificates, the Solid Waste Certificates, the Drainage Certificates and the TIF Certificates (collectively, the "Obligations"). 2. This certificate is made pursuant to Sections 103 and 141 through 150 ofthe Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), and Treasury Regulations issued thereunder (the "Regulations"). 3. This certificate is based on the facts and estimates described herein in existence on this date, which is the date of delivery of the Obligations to and payment for the Obligations by the initial purchasers thereof, and, on the basis of such facts and estimates, the Issuer expects that the future events described herein will occur. B. Purpose and Size. 1. The Bonds are being issued pursuant to an ordinance of the Issuer, finally adopted by the City Council of the Issuer on July 24, 2003 (hereinafter referred to as the "Bond Ordinance") to finance the costs of (i) street improvements, including drainage, cubs, gutters, landscaping, sidewalks, curb ramps and utility line relocation and the acquisition of land and right-of-way therefor, {ii) traffic signalization and assorted communications equipment, (iii) drainage improvements, and (iv) acquiring or improving, or both, land for park purposes (collectively, the "Bond Projects"), and to pay costs of issuance. 2. The Water Certificates are being issued pursuant to an ordinance of the Issuer, finally adopted by the City Council of the Issuer on July 24, 2003 (hereinafter referred to as the "Water Certificate Ordinance") to finance the costs of improvements and extensions to the Issuer's Waterworks System, including recreational improvements to Lake Alan Henry reservoir (the "Water Projects"), and to pay costs of issuance. 3. The Sewer Certificates are being issued pursuant to an ordinance of the Issuer, finally adopted by the City Council of the Issuer on July 24, 2003 (hereinafter referred to as the 45340376.1 -1- - "Sewer Certificate Ordinance") to finance the costs of improvements and extensions to the Issuer's Sewer System (the "Sewer Projects"), and to pay costs of issuance. 4. The Solid Waste Certificates are being issued pursuant to an ordinance of the Issuer, finally adopted by the City Council of the Issuer on July 24, 2003 (hereinafter referred to as the "Solid Waste Certificate Ordinance") to finance the costs of excavation and lining of a cell at the City's landfill (the "Solid Waste Project"), and to pay costs of issuance. 5. The Drainage Certificates are being issued pursuant to an ordinance of the Issuer, finally adopted by the City Council of the Issuer on July 24, 2003 (hereinafter referred to as the "Drainage Certificate Ordinance") to finance the costs of drainage improvements, including the acquisition, construction and repair of structures, equipment and facilities for the City's Municipal Drainage Utility System (the "Drainage Projects"), and to pay costs of issuance. 6. The TIF Certificates are being issued pursuant to an ordinance of the Issuer, finally adopted by the City Council of the Issuer on July 24, 2003 (hereinafter referred to as the "TIF Certificate Ordinance") to finance the costs of the construction of public works in North Overton Tax Increment Financing Reinvestment Zone, City of Lubbock, to wit: water and sewer improvements and extensions and street improvements, including sidewalks, street lighting, . landscaping, street furniture and utility relocations (the "TIF Projects"), and to pay costs of issuance. 7. Terms used and not defined herein have the same meaning given to them in the respective ordinances. . 8. The Bond Projects, the Water Projects, the Sewer Projects, the Drainage Projects, the Solid Waste Projects and the TIF Projects (collectively, the "Projects") will be owned, operated, and maintained by the Issuer. The Issuer has not contracted with any person or entity to operate and/or maintain any of the Projects or any part thereof for and on behalf of the Issuer. The Issuer does not expect to enter into any contract for the operation, maintenance or management of any of the Projects or any part thereof. 9. There is not, and as of the date hereof the Issuer does not anticipate entering into, any lease, contract or other understanding or arrangement, such as a take-or-pay contract or output contract, with any person other than a state or local governmental unit pursuant to which the Issuer expects that proceeds of the Obligations, or the facilities financed therewith, will be used in the trade or business of such person (including all activities of such persons who are riot individuals). 10. The amounts received from the sale of the Obligations, when added to the amounts expected to be received from the investment thereof, do not exceed the amounts required to pay the costs of the Projects and of issuing the Obligations. 11. No receipt from the sale of the Obligations or amounts received from the investment thereof will be used to pay the principal of or interest on any presently outstanding issue of bonds or other similar obligations of the Issuer other than the Obligations. C. Source and Disbursement of Funds. 1. The Obligations are being issued and delivered to the underwriters (the "Purchaser") on the date hereof upon payment of the agreed purchase price. 45340376.1 .2. 2. The Issuer has received as a result of the sale of the Obligations an amount equal to $69,976,639.03 calculated as follows: Bonds: Principal Amount Accrued Interest Original Issue Premium Original Issue Discount Underwriter's Discount TOTAL FOR BONDS Water Certificates: Principal Amount Accrued Interest Original Issue Premium Original Issue Discount Underwriter's Discount TOTAL FOR WATER CERTIFICATES Sewer Certificates Principal Amount Accrued Interest Original Issue Premium Original Issue Discount Underwriter's Discount TOTAL FOR SEWER CERTIFICATES Solid Waste Certificates Principal Amount Accrued Interest Original Issue Premium Original Issue Discount Underwriter's Discount TOTAL FOR SOLID WASTE CERTIFICATES Drainage Certificates Principal Amount Accrued Interest Original Issue Premium Original Issue Discount Underwriter's Discount TOTAL FOR DRAINAGE CERTIFICATES TIF Certificates Principal Amount Accrued Interest Original Issue Premium Original Issue Discount Underwriter's Discount TOTAL FOR TIF CERTIFICATES TOTAL FOR OBLIGATIONS $11,855,000.00 58,844.31 169,179.10 (67,101.30) (74,419.00) $11,941,503.11 $9,765,000.00 52,156.91 152,277.05 (80,380.55} (63,096.95) $9,825,956.46 $680,000.00 $3,681.13 12,342.85 (5,699.15) (6,123.84) $684,200.99 $3,590,000.00 19,177.55 56,141.60 (29,518.20) (23,191.67) $3,612,609.28 $40,135,000.00 219,292.83 220,426.55 (215,829.20) (265,039.26) $40,093,850.92 $3,795,000.00 20,272.71 59,077.95 (31,304.30) (24,528.09) $3,818,518.27 $69,976,639.03 3. The Issuer has caused the deposit or disbursement of such amount as follows: 45340376.1 -3- - DISPOSITION AMOUNT Deposit accrued interest on the Bonds in the $60,053.11 Interest and Sinking Fund Deposit accrued interest on the Water Certificates in 54,506.46 the Water Certificate Fund Deposit accrued interest on the Sewer Certificates in 6,450.99 the Sewer Certificate Fund Deposit accrued interest on the Solid Waste Certificates in 22.609.28 the Solid Waste Certificate Fund Deposit accrued interest on the Drainage Certificates in 226,823.27 the Drainage Certificate Fund Deposit accrued interest on the TIF Certificates in 23,268.27 the TIF Certificate Fund Deposit to the Bond Construction Fund 11,775,000.00 Deposit to the Water Certificate Construction Fund 9,680,000.00 Deposit to the Sewer Certificate Construction Fund 650,000.00 Deposit to the Solid Waste Certificate Construction Fund 3,540,000.00 Deposit to the Drainage Certificate Construction Fund 39,570,000.00 Deposit to the TIF Certificate Construction Fund 3,745,000.00 Disbursed to pay insurance premiums 250,000.00 Disbursed to pay costs of issuance 377,525.00 TOTAL DISBURSED $69,976,639.03 4. Proceeds of the Bonds in the amount of $60,053.11 (representing accrued interest of $58,844.31 and additional proceeds of $1,208.80) received from the Purchaser are being deposited on the date hereof in the Interest and Sinking Fund to be used to pay the first payment of interest to become due on the Bonds on February 15, 2004. Proceeds of the Water Certificates in the amount of $54,506.46 (representing accrued interest of $52,156.91 and additional proceeds of $2,349.55) received from the Purchaser are being deposited on the date hereof in the Water Certificate Fund to be used to pay the first payment of interest to become due on the Water Certificates on February 15, 2004. Proceeds of the Sewer Certificates in the amount of $6,450.99 (representing accrued interest of $3,681.13 and additional proceeds of $2,769.86) received from the Purchaser are being deposited on the date hereof in the Sewer Certificate Fund to be used to pay the first payment of interest to become due on the Sewer 45340376.1 -4- - Certificates on February 15, 2004. Proceeds of the Solid Waste Certificates in the amount of $22,609.28 {representing accrued interest of $19,177.55 and additional proceeds of $3,431.73) received from the Purchaser are being deposited on the date hereof in the Solid Waste Certificate Fund to be used to pay the first payment of interest to become due on the Solid Waste Certificates on February 15, 2004. Proceeds of the Drainage Certificates in the amount of $226,823.27 {representing accrued interest of $219,292.83 and additional proceeds of $7,530.44) received from the Purchaser are being deposited on the date hereof in the Drainage Certificate Fund to be used to pay the first payment of interest to become due on the Drainage Certificates on February 15, 2004. Proceeds of the Sewer TIF Certificates in the amount of $23,268.27 {representing accrued interest of $20,272.71 and additional proceeds of $2,995.56) received from the Purchaser are being deposited on the date hereof in the TIF Certificate Fund to be used to pay the first payment of interest to become due on the TIF Certificates on February 15, 2004. 5. Separate construction fund for each series of Obligations will be maintained on the books and records of the Issuer and will be accounted for separately from all other funds of the Issuer on the books of account of the Issuer, and will be used to pay costs of the Projects the Obligations were issued and sold. 6. The Issuer estimates that income and profit in the aggregate amount of $117,042.00 will be received from the investment of the amounts deposited to the Bond Construction Fund pending the disbursement of such amounts for the governmental purposes the Bonds are being issued. All of such income and profit will be used to pay any cost overruns on the Bond Projects or if there are none, deposited to the Interest and Sinking Fund and used to pay principal of and interest on the Interest and Sinking Fund within one year of receipt. 7. The Issuer estimates that income and profit in the aggregate amount of $61,773.00 will be received from the investment of the amounts deposited to the Water Certificate Construction Fund pending the disbursement of such amounts for the governmental purposes the Water Certificates are being issued. All of such income and profit will be used to pay any cost overruns on the Water Certificate Projects or if there are none, deposited to the Water Certificate Fund and used to pay principal of and interest on the Water Certificates within one year of receipt. 8. The Issuer estimates that income and profit in the aggregate amount of $4,333.00 will be received from the investment of the amounts deposited to the Sewer Certificate Construction Fund pending the disbursement of such amounts for the governmental purposes the Sewer Certificates are being issued. All of such income and profit will be used to pay any cost overruns on the Sewer Certificate Projects or if there are none, deposited to the Sewer Certificate Fund and used to pay principal of and interest on the Sewer Certificates within one year of receipt. 9. The Issuer estimates that income and profit in the aggregate amount of $15,709.00 will be received from the investment of the amounts deposited to the Solid Waste Certificate Construction Fund pending the disbursement of such amounts for the governmental purposes the Solid Waste Certificates are being issued. All of such income and profit will be used to pay any cost overruns on the Solid Waste Certificate Projects or if there are none, deposited to the Solid Waste Certificate Fund and used to pay principal of and interest on the Solid Waste Certificates within one year of receipt 45340376.1 -5- ,,,._ - 10. The Issuer estimates that income and profit in the aggregate amount of $372,683.00 will be received from the investment of the amounts deposited to the Drainage Certificate Construction Fund pending the disbursement of such amounts for the governmental purposes the Drainage Certificates are being issued. All of such income and profit will be used to pay any cost overruns on the Drainage Certificate Projects or if there are none, deposited to the Drainage Certificate Fund and used to pay principal of and interest on the Drainage Certificates within one year of receipt 11. The Issuer estimates that in income and profit in the aggregate amount of $24,778.00 will be received from the investment of the amounts deposited to the TIF Certificate Construction Fund pending the disbursement of such amounts for the governmental purposes the TIF Certificates are being issued. All of such income and profit will be used to pay any cost overruns on the TIF Certificate Projects or if there are none, deposited to the TIF Certificate Fund and used to pay principal of and interest on the TIF Certificates within one year of receipt. D. Temporary Periods and Time for Expenditures. 1. Within six months from the date hereof, the Issuer will have incurred binding obligations or commitments to third parties for the Projects in the amount of at least 5% of the net sales proceeds of the Obligations. 2. After entering into said contracts, completion of the Projects and the allocation of net sales proceeds of the Obligations to expenditures will proceed with due diligence. 3. The Issuer expects that all of the net sales proceeds of the Obligations will be spent within three years from the date hereof, and that al! investment proceeds of the Obligations will be spent within one year from the date of receipt. · 4. Approximately $5,011,616 of the proceeds of the Obligations will be used to reimburse the Issuer for Project expenditures made by it from its own funds prior to the date hereof. The Issuer adopted an official intent for the original expenditures (except possibly for expenditures meeting the preliminary expenditures exception set forth in section 1.150-2(f)(2) of the Regulations) not later than 60 days after payment of the original expenditures, and a copy of such official intent is attached to this Certificate As To Tax Exemption. Except for expenditures meeting the preliminary expenditures exception set forth in section 1.150-2(f)(2) of the Regulations, the Obligations are being issued and the reimbursement allocation is hereby being made not later than 18 months after the later of (i) the date the original expenditures were paid, or (ii} the date the Project is placed in service or abandoned, but in no event more than 3 years after the original expenditures were paid. The original expenditures were capital expenditures, and in connection with this allocation, the Issuer has not employed any abusive arbitrage device under section 1.148-10 of the Regulations to avoid the arbitrage restrictions or to avoid restrictions under section 142 through 147 of the Code. E. Interest and Sinking Fund for the Bonds. 1. Pursuant to the Bond Ordinance, the Issuer has levied a tax on all taxable property in the Issuer to pay principal of and interest on the Bonds as such become due, and such tax has been pledged to the payment of the Bonds. Amounts collected from such tax for the payment of the principal of and interest on the Bonds are to be deposited to the credit of the Interest and Sinking Fund maintained on the books of the Issuer. 45340376.1 -6- - - 2. The Interest and Sinking Fund will be maintained by the Issuer primarily to achieve a proper matching of revenues and debt service payments within each bond year. The Issuer expects that the following will occur with respect to the money in the Interest and Sinking Fund: a. Such fund will be depleted at least once each bond year, except possibly for a carryover amount not to exceed the greater of the previous bond year's earnings on the Interest and Sinking Fund or one-twelfth of the previous bond year's debt service requirements on the Bonds; b. All amounts deposited to such fund to pay debt service on the Bonds will be spent within 13 months of deposit; a·nd c. All amounts received from the investment of such fund will be deposited therein and will be expended within twelve months of receipt. 3. Except as described above, no funds of the Issuer have been or will be pledged to payment of the principal of or interest on the Bonds or otherwise restricted so as to give reasonable assurance of the availability of such funds for such purpose. F. Water Certificate Fund and System Fund. 1. Pursuant to the Water Certificate Ordinance, the Issuer has levied a tax on all taxable property in the Issuer to pay principal of and interest on the Water Certificates as such become due, and such tax has been pledged to the payment of the Water Certificates. Amounts collected from such tax for the payment of the principal of and interest on the Water Certificates are to be deposited to the credit of the Water Certificate Fund maintained on the books of the Issuer. 2. The Water Certificate Ordinance requires that all revenues received by the Issuer by reason of its ownership and operation of the System shall be deposited as received in the System, to be disbursed in the following order of priority: a. for payment of Maintenance and Operation expenses of the System; b. for payment into the special funds and accounts created and established for the payment, and benefit of any Prior Lien Obligations; c. for payment of the Previously Issued Obligations and the Water Certificates; d. for use by the Issuer for any other purpose of the Issuer now or hereafter permitted by law. 3. The Water Certificate Fund will be maintained by the Issuer primarily to achieve a proper matching of revenues and debt service payments within each bond year. The Issuer expects that the following will occur with respect to the money in said Water Certificate Fund: a. Such fund will be depleted at least once each bond year, except possibly for a carryover amount not to exceed the greater of the previous bond year's earnings on such Water Certificate Fund or one-twelfth of the previous bond year's debt service requirements on the Water Certificate; 45340376.1 -7- b. All amounts deposited to such fund to pay debt service on the Water Certificates will be spent within 13 months of deposit; and c. All amounts received from the investment of such fund will be deposited therein and will be expended within twelve mo,nths of receipt. 4. Except as described above, no funds of the Issuer have been or will be pledged to payment of the principal of or interest on the Water Certificates or otherwise restricted so as to give reasonable assurance of the availability of such funds for such purpose. G. Sewer Certificate Fund and System Fund. 1. Pursuant to the Sewer Certificate Ordinance, the Issuer has levied a tax on all taxable property in the Issuer to pay principal of and interest on the Sewer Certificates as such become due, and such tax has been pledged to the payment of the Sewer Certificates. Amounts collected from such tax for the payment of the principal of and interest on the Sewer Certificates are to be deposited to the credit of the Sewer Certificate Fund maintained on the books of the Issuer. 2. The Sewer Certificate Ordinance requires that all revenues received by the Issuer by reason of its ownership and operation of the System shall be deposited as received in the System, to be disbursed in the following order of priority: a. for payment of Maintenance and Operation expenses of the System; b. for payment into the special funds and accounts created and established for the payment, and benefit of any Prior Lien Obligations; c. for payment of the Previously Issued Obligations and the Sewer Certificates; d. for use by the Issuer for any other purpose of the Issuer now or hereafter permitted bylaw. 3. The Sewer Certificate Fund will be maintained by the Issuer primarily to achieve a proper matching of revenues and debt service payments within each bond year. The Issuer expects that the following will occur with respect to the money in said Sewer Certificate Fund: a. Such fund will be depleted at least once each bond year, except possibly for a carryover amount not to exceed the greater of the previous bond year's earnings on such Sewer Certificate Fund or one-twelfth of the previous bond year's debt service requirements on the Sewer Certificate; b. All amounts deposited to such fund to pay debt service on the Sewer Certificates will be spent within 13 months of deposit; and c. All amounts received from the investment of such fund will be deposited therein and will be expended within twelve months of receipt. 4. Except as described above, no funds of the Issuer have been or will be pledged to payment of the principal of or interest on the Sewer Certificates or otherwise restricted so as to give reasonable assurance of the availability of such funds for such purpose. 45340376.1 -8- H. Solid Waste Certificate Fund and System Fund. 1. Pursuant to the Solid Waste Certificate Ordinance, the Issuer has levied a tax on all taxable property in the Issuer to pay principal of and interest on the Solid Waste Certificates as such become due, and such tax has been pledged to the payment of the Solid Waste · Certificates. Amounts collected from such tax for the payment of the principal of and interest on the Solid Waste Certificates are to be deposited to the credit of the Solid Waste Certificate Fund maintained on the books of the Issuer. 2. The Solid Waste Certificate Ordinance requires that all revenues received by the Issuer by reason of its ownership and operation of the System shall be deposited as received in the System, to be disbursed in the following order of priority: a. for payment of Maintenance and Operation expenses of the System; b. for payment into the special funds and accounts created and established for the payment, and benefit of any Prior Lien Obligations; c. for payment of the Previously Issued Obligations and the Solid Waste Certificates; d. for use by the Issuer for any other purpose of the Issuer now or hereafter permitted bylaw. 3. The Solid Waste Certificate Fund will be maintained by the Issuer primarily to achieve a proper matching of revenues and debt service payments within each bond year. The Issuer expects that the following will occur with respect to the money in said Solid Waste Certificate Fund: a. Such fund will be depleted at least once each bond year, except possibly for a carryover amount not to exceed the greater of the previous bond year's earnings on such Solid Waste Certificate Fund or one-twelfth of the previous bond year's debt service requirements on the Solid Waste Certificate; b. All amounts deposited to such fund to pay debt service on the Solid Waste Certificates will be spent within 13 months of deposit; and c. All amounts received from the investment of such fund will be deposited therein and will be expended within twelve months of receipt. 4. Except as described above, no funds of the Issuer have been or will be pledged to payment of the principal of or interest on the Solid Waste Certificates or otherwise restricted so as to give reasonable assurance of the availability of such funds for such purpose. I. Drainage Certificate Fund and System Fund. 1. Pursuant to the Drainage Certificate Ordinance, the Issuer has levied a tax on all taxable property in the Issuer to pay principal of and interest on the Drainage Certificates as such become due, and such tax has been pledged to the payment of the Drainage Certificates. Amounts collected from such tax for the payment of the principal of and interest on the Drainage Certificates are to be deposited to the credit of the Drainage Certificate Fund maintained on the books of the Issuer. 45340376.1 -9- - 2. The Drainage Certificate Ordinance requires that all revenues received by the Issuer by reason of its ownership and operation of the System shall be deposited as received in the System, to be disbursed in the following order of priority: a. for payment of Maintenance and Operation expenses of the System; b. for payment into the special funds and accounts created and established for the payment, and benefit of any Prior Lien Obligations; c. for payment of the Previously Issued Obligations and the Drainage Certificates; d. for use by the Issuer for any other purpose of the Issuer now or hereafter permitted by law. 3. The Drainage Certificate Fund will be maintained by the Issuer primarily to achieve a proper matching of revenues and debt service payments within each bond year. The Issuer expects that the following will occur with respect to the money in said Drainage Certificate Fund: a. Such fund will be depleted at least once each bond year, except possibly for a carryover amount not to exceed the greater of the previous bond year's earnings on such Drainage Certificate Fund or one-twelfth of the previous bond year's debt service requirements on the Drainage Certificate; b. All amounts deposited to such fund to pay debt service on the Drainage Certificates will be spent within 13 months of deposit; and c. All amounts received from the investment of such fund will be deposited therein and will be expended within twelve months of receipt. 4. Except as described above, no funds of the Issuer have been or will be pledged to payment of the principal of or interest on the Drainage Certificates or otherwise restricted so as to give reasonable assurance of the availability of such funds for such purpose. J. TIF Certificate Fund and Project Fund. 1. Pursuant to the TIF Certificate Ordinance, the Issuer has levied a tax on all taxable property in the Issuer to pay principal of and interest on the TIF Certificates as such become due, and such tax has been pledged to the payment of the TIF Certificates. Amounts collected from such tax for the payment of the principal of and interest on the TIF Certificates are to be deposited to the credit of the TIF Certificates Fund maintained on the books of the Issuer. 2. The Ordinance requires that all Pledged Tax Increment Funds received by the Issuer shall be deposited in the Tax Increment Fund: a. for payment of the amounts for the TIF Certificates; b. for use by the Issuer for any other purpose of the Issuer now or hereafter permitted by law. 45340376.1 -10- 3. The TIF Certificate Fund will be maintained by the Issuer primarily to achieve a proper matching of revenues and debt service payments within each bond year. The Issuer expects that the following will occur with respect to the money in the TIF Certificate Fund: a. Such fund will be depleted at least once each bond year, except possibly for a carryover amount not to exceed the greater of the previous bond year's earnings on the TIF Certificate Fund or one-twelfth of the previous bond year's debt service requirements on the TIF Certificates; · b. All amounts deposited to such fund to pay debt service on the TIF Certificates will be spent within 13 months of deposit; and c. All amounts received from the investment of such fund will be deposited therein and will be expended within twelve months of receipt. 4. Except as described above, no funds of the Issuer have been or will be pledged to payment of the principal of or interest on the TIF Certificates or otheiwise restricted so as to give reasonable assurance of the availability of such funds for such purpose. K. Yield and Non purpose Investments. 1. The discount factor required to reduce the principal and interest to be paid on the Obligations to a present value on the date hereof, compounding semiannually, equal to the initial offering prices at which a substantial amount of each maturity of the Obligations was sold to the public, is 4.69049%. In determining the initial offering price at which a substantial amount of each maturity of the Obligations was sold to the public, the Issuer has relied on certificates from the managing undeiwriters that purchased the Obligations. 2. No other obligations of the Issuer which are reasonably expected to be paid from substantially the same source of funds as the Obligations were sold within 15 days from the date the Obligations were sold. 3. Except as otheiwise provided in Section 148(f) of the Code, the Issuer will account for proceeds of the Obligations separately from other funds of the Issuer and will compute and pay to the United States Treasury the Rebate Amount due with respect to the Obligations no less frequently than every five years, in the installments, to the place, in the manner and accompanied by such forms or other information as is or may be required by Section 148(f} of the Code and the regulations and rulings thereunder. L. Qualified Guarantee. 1. The Issuer has paid on the date hereof, the sum of $250,000.00 (the "Insurance Premium") has been paid from proceeds of sale of the Obligations to MBIA Insurance Corporation (the "Guarantor") to insure the payment of principal · of and interest on the Obligations. 2. The Guarantor is not exempt from federal income taxation and by issuing its . insurance has caused the Obligations to be rated "AAA" by Standard & Poor's Corporation. Neither the Guarantor nor any person related to the Guarantor within the meaning of section 144(a)(3) of the Code will use 10 percent or more of the proceeds of the Obligations. 45340376.1 -11- - 3. Under the insurance contract, the Guarantor is unconditionally and with full recourse obligated to pay all or a portion of the principal of or interest on the Obligations. 4. The Issuer reasonably expects that the Guarantor will not be called upon to make a payment of principal of or interest on the Obligations. The Guarantor is entitled to be immediately and fully reimbursed for any payment of principal of or interest on the Obligations. 5. The Insurance Premium paid to the Guarantor represents a payment solely for the transfer of credit risk for the payment of principal of and interest on the Obligations and not for any other direct or indirect services other than the transfer of credit risk. The Insurance Premium does not exceed a reasonable, arm's length charge for the transfer of such credit risk. 7. The Insurance Premium has been allocated among each of the Obligations and to computation periods in a manner that properly reflects the proportionate credit risk for which the Guarantor has been compensated. 8. The Issuer has been advised by First Southwest Company, its financial advisors, that the present value of the Insurance Premium is less than the present value of the interest saved as a result of insuring the Obligations, using the yield on the Obligations as the discount factor. M. No Abusive Arbitrage Device. 1. In connection with the issuance of the Obligations, the Issuer has not employed any action which has the effect of overburdening the market for tax-exempt obligations by issuing more bonds, issuing bonds earlier, or allowing bonds to remain outstanding longer than is reasonably necessary to accomplish the governmental purposes of the Obligations. 2. In connection with the issuance of the Obligations, the Issuer has not employed any action which has the effect of enabling the Issuer to exploit the difference between tax- exempt and taxable interest rates to gain a material financial advantage. 45340376.1 -12- EXECUTED AND DELIVERED AUG j 8 2003 --------- CITY OF LUBBOCK, TEXAS - 45340376.1 -13- The undersigned has read the foregoing Certificate as to Tax Exemption, has made the representations to the Issuer attributed to it in paragraph L.8, believe such representations to be true, correct and complete as of the date hereof, and is not aware of any facts or circumstances that would make such representations untrue, inaccurate or incomplete. FIRST SOUTHWEST COMPANY BY: 45340378.1 -14- - Resolut~on No. 2003-R0060 February 13, 2003 It:em No. 33 RESOLUTION DECLARING EXPECTATION TO REIMBURSE EXPENDITURES WITH PROCEEDS OF FUTURE DEBT STATE OF TEXAS § COUNTY OF LUBBOCK § WHEREAS, the City of Lubbock (the '"Issuer'') intends to issue debt for general purpose improvements for said City (the "Project"), and further intends to make certain capital expenditures with respect to the Project and currently desires and expects to reimburse such capital expenditures with proceeds of such debt; and WHEREAS, under Treas. Reg.§ 1.150-2 (the "Regulation"), to fund such reimbursement with proceeds of tax-exempt obligations, the Issuer must declare its expectation to make such reimbursements; and WHEREAS, the Issuer desires to preserve its ability to reimburse the capital expenditures with proceeds of tax-exempt obligations. NOW THEREFORE BE IT RESOLVED BY THE CITY COUNCIL OF THE ISSUER THAT the Issuer reasonably expects to reimburse capital expenditures with respect to the Projects with proceeds of debt hereafter to be incUITed by the Issuer, and that this resolution shall constitute a declaration of official intent under the Regulation. The maximum principal amount of obligations expected to be issued for the Project is $11,885,000. ATTEST: £.a,'¾46dd ~-= Rebecca Garza, City Secretary ( - APPROVED~ TO cp ,!J-i./ ., C. ·_ / ,.-·.-:.-i-t L..' , : . Beverly Hodg7s . Managing Dirt cto APPROVED AS TO FORM: fo.i M.Knigfu Assistant City Attorney JMK:ml Cityatf/John/Reimbuzsemem-8.Rc., & ccdocs February l, 2003 -. ~ - _,,.:· Reso1ution No. 2003-R0208 May 22, 2003 Item No. 58 RESOLUTION DECLARING EXPECTATION TO REIMBURSE EXPENDITURES WITH PROCEEDS OF FUTURE DEBT STATE OF TEXAS § COUNTY OF LUBBOCK § WHEREAS, the City of Lubbock (the "Issuer") intends to issue debt for water facilities and system improvements for said City (the "Project"), and further intends to make certain capital expenditures with respect to the Project and cUtTently de~ires and expects to reimburse such capital expenditures with proceeds of such debt; and WHEREAS, under Treas. Reg. § 1.150-2 (the "Regulation"). to fund such reimbursement with proceeds of tax~exempt obligations, the Issuer must declare its expectations to make such reimbursements; and WHEREAS. the Issuer desires to preserve its ability to reimburse the capital expenditures with proceeds of ta..x--exempt obligations. NOW THEREFORE BE IT RESOLVED BY THE CITY COUNCIL OF THE ISSUER THAT the Issuer reasonable expects to reimburse capital expenditures with respect to the Projects with proceeds of debt hereafter to be incurred by the Issuer, and the this resolution shall constitute a declaration of official intent under the Regulation. The maximum principal ammmt of obligations expected to be issued for the Project is $9,775,000. May 2003. ----- ATTEST: cca Garza, City Secretary ~ APPROVED AS TO CONTENT: reim.debtwa~er.res - - . Resolution No. 2003-R0044 January 23. 2003 Item No. 47 RESOLUTION DECLARING EXPECTATION TO REIMBURSE EXPENDITURES WITH PROCEEDS OF FUTURE DEBT STATE OF TEXAS § COUNTY OF LUBBOCK § WHEREAS. the City of Lubbock (the "Issuer") intends to issue debt for solid waste facilities and system improvements for said City (the "Project"), and further intends to make certain capital expenditures with respect to the Project and currently desires and expects to reimburse such capital expenditures with proceeds of such debt; and · WHEREAS, under Treas. Reg. § 1.150~2 (the "Regulation"), to fund such reimbursement with proceeds of tax--exempt obligations, the Issuer must declare its expectation to make such reimbursements; and WHEREAS, the Issuer desires to preserve its ability to reimburse the capital expenditures with proceeds of tax-exempt obligations. NOW THEREFORE BE IT RESOLVED BY THE CITY COUNCIL OF THE ISSUER THAT the Issuer reasonably expects to reimburse capital expenditures with respect to the Projects with proceeds of debt hereafter to be incurred by the Issuer, and that this resolution shall constitute a declaration of official intent under the Regulation. The maximum principal amount of obligations expected to be issued for the Project is $4,900,000. Passed by the City Council this 23rd day of January 2003. ~YOR ATTEST: f;~<C < ~ ~ =-Rebeccaarza, City Secretary <.'S -· APPR VED AS TO CONTENT: ( Resolution No. 200J-R0206 Hay 22,. 2003 Item No. :S6 RESOLUTION DECLARING EXPECTATION TO REIMBURSE EXPENDITURES WITH PROCEEDS OF FUTURE DEBT STATE OFTEXAS § COUNTY OF LUBBOCK § WHEREAS, the City ofLubbock (the "Issuer") intends to issue debt for storm drainage facilities and system improvements for said City (the "Project"), and further intends to make certain capital expenditures with respect to the Project and currently desires and expects to reimburse such capital expenditures with proceeds of such debt; and WHEREAS, under Treas. Reg. § l.150-2 (the "Regulation"), to fund such reimbursement with proceeds of tax-exempt obligations, the Issuer must declare its expectations to make such reimbursements; and WHEREAS, the Issuer desires to preserve its ability to reimburse the capital expenditures with proceeds of tax-exempt obligations. NOW THEREFORE BE IT RESOLVED BY THE CITY COUNCIL OF THE ISSUER THAT the Issuer reasonable expects to reimburse capital expenditures with respect. to the Projects with proceeds of debt hereafter to be incurred by the Issuer, and the this resolution shall constitute a declaration of official intent under the Regulation. The maximum principal amount of obligations expected to be issued for the Project is $40,135,000. --•-=---y __ 2003. ATTEST: I APPROVED AS TO CONTENT: APPROVED AS TO FOR.ivt:·· ---- reim.debtstormdrai.n.res lleso1ution No. 2003-R0204 May 22. 2003 It:em No. 53 RESOLUTION DECLARING EXPECTATION TO REIMBURSE EXPENDITURES FOR COSTS OF PUBLIC WORKS PRO.TECTS IN THE NORTH OVERTON AREA TAX INCREMENT FINANCING REINVESTMENT ZONE WITH PROCEEDS OF ST A TE OF TEXAS § COUNTY OF LUBBOCK § FUTURE DEBT. WHEREAS, The City Of Lubbock, Texas (the "City") plans to issue tax exempt obligations to finance the costs of public works projects in North Overton Area Tax Increment Financing Reinvestment Zone, City of Lubbock, Texas to wit: street improvements, including land acquisition, drainage, utilities, signage, lighting, curbs, gutters, landscaping, park improvements and stonn ·sewer improvements (collectively, the "Projects"); and · WHEREAS, prior to the issuance of such obligations, the City will make expenditures for the Projects from existing funds on hand, and it is the intent of the City to reimburse such funds with proceeds of sale of such obligations; and WHEREAS, under Treas. Reg. § 1.150-2 (the "Regulation"), an official intent to reimburse expenditure with the proceeds of tax exempt obligations must be made within 60 days of the date of the original expenditure; and WHEREAS, the City desires to preserve its ability to reimburse the expenditures with proceeds of tax-exempt obligations. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK, TEXAS THAT the City reasonably expects to reimburse capital expenditures with respect to the Projects paid with funds on hand from the proceeds of sale of tax exempt obligations hereafter to be issued, and this resolution shall constitute a declaration of official intent under the Regulation. The maximum principal amount of tax exempt obligations expected to be issued for the Projects is $3,800,000. Passed bythe City council this ___ 2_2_nd _____ day of __ Ma_y __ 2003. T. J. Patterson, Senior Council Member ATTEST: ecca Garza, City Secre~ 'i5 No Text 11 - THE STATE OF TEXAS COUNTY OF LUBBOCK CITY OF LUBBOCK CLOSING CERTIFICATE § § § § § WE, the undersigned, Mayor and Interim City Manager, respectively, of the City of Lubbock, Texas (the "City"), in conformity with the requirements of the Purchase Contract, dated July 24, 2003 (the "Purchase Contract"), by and between the City and Siebert Brandford Shank & Co., LLC, RBC Dain Rauscher Inc., William R. Hough & Co., and Morgan Keegan & Company, Inc. (collectively, the "Underwriters"), DO HEREBY CERTIFY, in relation to the issuance and delivery of the "City of Lubbock, Texas, General Obligation Bonds, Series 2003", dated July 15, 2003 (the "Bonds") and the Official Statement, dated July 24, 2003 (the "Official Statement"), used by the Underwriters in connection with the offering and sale of the Bonds, as follows: (1) The representations and warranties of the City contained in the Purchase Contract are true and correct in all material respects on and as of the date hereof as if made on the date hereof; (2) Except to the extent disclosed in the Official Statement, no litigation is pending or, to our knowledge, threatened in any court to restrain or enjoin the issuance or delivery of the Bonds, or the levy, collection or application of the ad valorem taxes pledged or to be pledged to pay the principal of and interest on the Bonds, or the pledge thereof, or in any way contesting or affecting the validity of the Bonds, the Ordinance authorizing the issuance of the Bonds (the "Ordinance"), or the Purchase Contract, or contesting the powers of the City, or contesting the authorization of the Bonds or the Ordinance, or contesting in any way the accuracy, completeness or fairness of the Official Statement; (3) To the best of our knowledge, no event affecting the City has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purpose for which it is to be used or which it is necessary to disclose therein in order to make the statements and information therein not misleading in any respect; and (4) There has not been any material and adverse change in the affairs and financial condition of the City since September 30, 2002 the latest date as to which audited financial information is available. 45339322.1 -, - - T.:> CERTIFY WHICH, witness our hands and the seal of the City of Lubbock, Texas, this August 28, 2003 CITY OF LUBBOCK, TEXAS (City Seal) 45339322.1 -2- 12 - - - - RECEIPT FOR PAYMENT On the date hereof the following described bonds: "CITY OF LUBBOCK, TEXAS, GENERAL OBLIGATION BONDS, SERIES 2003", dated July 15, 2003, in the aggregate principal amount of $11,855,000 (the "Bonds") were delivered to the purchaser(s) thereof, namely: SIEBERT BRANDFORD SHANK & CO. AND ASSOCIATES following the receipt of immediately available funds from the purchaser(s) in settlement of the agreed purchase price for the Bonds as follows: PRINCIPAL AMOUNT PREMIUM ACCRUED INTEREST LESS: UNDERWRITER'S DISCOUNT LESS: ORIGINAL ISSUE DISCOUNT TOTAL AMOUNT RECEIVED $11,855,000.00 169,179.10 58,844.31 (74,419.00) (67,101.30) $11,941,503.11 Furthermore, the undersigned has on the date of this receipt (i) transmitted the sum of $38,000.00 to MBIA Insurance Corporation in payment of the municipal bond insurance premium, (ii) transmitted the amount of $11,835,053.11 to Wells Fargo Bank, N.A. for deposit to the credit of the issuer's accounts as follows: $11,775,000.00 to the construction fund and $60,053.11 to the interest and sinking fund for the Bonds, (iii) retained the sum of $300.00 in payment of the first year's paying agent/registrar fee and (iv) transmitted the sum of $68,150.00 to First Southwest Company for the payment of costs of issuance; all in accordance with instructions received. · DELIVERED, this August 28, 2003. JPMORGAN CHASE BANK . By Ohc0u----- Title: ASSISTANT VICE PRESIDENT ------------- 45352832.1 13 - TELEPHONE: FULBRIGHT & ~AWORSKI L.L.P. A REGISTERED LIMITED LIABILITY PARTNERSHIP 2 200 Ross Av EN u E. Su ITE 2800 DALLAS. TEXAS 75201-2784 WWW. FULBRIGHT.COM (214) 855-8000 FACSIMILE: August28,2003 (214) 855-8200 IN REGARD to the authorization and issuance of the "City of Lubbock, Texas, General Obligation Bonds, Series 2003" (the "Bonds"), dated July 15, 2003 (the "Bond Date"), in the principal amount of $11,855,000, we have examined into the legality and validity of the issuance thereof by the City of Lubbock, Texas (the "City"), which Bonds are issuable in fully registered form only, in denominations of $5,000 or any integral multiple thereof (within a maturity) and mature annually on February 15 in each of the years 2004 through 2015, 2017 and 2019 through 2023, unless redeemed prior to maturity in accordance with applicable redemption provisions stated in the ordinance authorizing the issuance of the Bonds (the "Ordinance"). The Bonds bear interest on the unpaid principal amount from the Bond Date at the rates per annum stated in the Ordinance, and such interest is payable on February 15 and August 15 in each year, commencing February 15, 2004, to the registered owners shown on the registration books of the Paying Agent/Registrar on the Record Date (stated in the Bonds). WE HAVE SERVED as Bond Counsel solely to pass upon the legality and validity of the issuance of the Bonds under the Constitution and laws of the State of Texas, and the exclusion of the interest on the Bonds from gross income for federal income tax purposes, and for no other purpose. We have not been requested to investigate or verify, and we neither expressly nor by implication render herein any opinion concerning, the financial condition or capabilities of the City, the disclosure of any financial or statistical information or data pertaining to the City and used in the sale of the Bonds, or the sufficiency of the security for or the value or marketability of the Bonds. In rendering the opinions herein we have examined and rely upon (i) original or certified copies of the proceedings of the City in connection with the issuance of the Bonds, including the Ordinance, (ii) certifications and opinions of officers of the City relating to the expected use and investment of proceeds of the sale of the Bonds and certain other funds of the City and to certain other facts within the knowledge and control of the City, and (iii) such other documentation, including an examination of the Bond executed delivered initially by the City (which we found to be in due form and properly executed), and such matters of law as we deem relevant to the matters discussed below. In such examinations, we have assumed the authenticity of all documents submitted to us as originals, the conformity to original copies of all documents submitted to us as certified copies and the accuracy of the statements and information contained in such certificates. BASED ON OUR EXAMINATIONS, IT IS OUR OPINION that, under the applicable law of the United States of America and the State of Texas in force and effect on the date hereof: 1. The Bonds have been duly authorized by the City and, when issued in compliance with the provisions of the Ordinance are valid, legally binding, and enforceable obligations of the City, payable from the proceeds of an ad valorem tax levied, within the limitations prescribed by law, upon all taxable property within the City, except to the extent that the enforceability thereof may be affected by bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting creditors' rights or the exercise of judicial discretion in accordance with general principles of equity. 2. Pursuant to section 103 of the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), and existing regulations, published rulings, and court decisions thereunder, and assuming continuing compliance after the date hereof by the City with the provisions of the Ordinance relating to sections 141 through 150 of the Code, interest on the Bonds will be excludable from the gross income, as defined in 45325330. l Aus11N •DALLAS• HoNG KoNG • HousTON •LONDON• Los ANGELES• MINNEAPOLIS• MUNICH• NEw YORK• SAN ANTONIO• WASHINGTON DC - Page 2 of Legal Opinion of Fulbright & Jaworski L.L.P. Re: "City of Lubbock, Texas, General Obligation Bonds, Series 2003", dated July 15, 2003 section 61 of the Code, of the owners thereof for federal income tax purposes, and such interest will not be included in computing the alternative minimum taxable income of the owners thereof who are individuals for federal income tax purposes. Interest on all tax-exempt obligations, such as the Bonds, owned by a corporation (other than an "S" corporation or a qualified mutual fund, real estate mortgage investment conduit, real estate investment trust, or a financial asset securitization investment trust) will be included in such corporation's adjusted current earnings for purposes of calculating the alternative minimum taxable income of such corporation. A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by section 55 of the Code is computed. WE EXPRESS NO OTHER OPINION with respect to any other federal, state, or local tax consequences under present law or any proposed legislation resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Bonds. Ownership of tax-exempt obligations such as the Bonds may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, "S" corporations with subchapter "C" earnings and profits, owners of interests in a financial asset securitization investment trust, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. OUR OPINIONS ARE BASED on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above. EHE:dfc 45325330.1 14 - FULBRIGHT & JAWORSKI L.L.P. A REGISTERED LIMITED LIABILITY PARTNERSHIP 2200 Ross Av EN u E. Su 1TE 2soo DALL.AS. TEXAS 75201-2784 WWW. FULBRIGHT.COM TELEPHONE: ( 214) 855-8000 FACSIMILE: City of Lubbock, Texas 1625 13th Street Lubbock, Texas 79401 August28,2003 Siebert Brandford Shank & Co., L.L.C. RBC Dain Rauscher Inc. William R. Hough & Co. Morgan Keegan & Company, Inc. c/o Siebert Brandford Shank & Co., L.L.C. 1845 Woodall Rodgers Freeway, Suite 1200 Dallas, Texas 75201 Re: $11,855,000 "City of Lubbock, Texas, General Obligation Bonds, Series 2003", dated July 15, 2003 Ladies and Gentlemen: In reference to the issuance and sale of the above described Bonds ( the "Bonds") and our serving as Bond Counsel for the City of Lubbock, Texas (the "City"), we prepared the ordinance (the "Ordinance") authorizing the issuance of the Bonds, adopted by the City Council of the City on July 24, 2003, which also approved and authorized the distribution of the final Official Statement, dated July 24, 2003 (the "Official Statement") relating to the Bonds and approved and authorized the execution of the Purchase Contract, dated July 24, 2003 with Siebert, Brandford Shank & Co., L.L.C., RBC Dain Rauscher Inc., William R. Hough & Co. and Morgan Keegan & Company, Inc., as undeiwriters of the Bonds. We have examined such documents and satisfied ourselves as to such matters as we have deemed necessary in order to enable us to express the opinions set forth below. A. The Purchase Contract has been duly authorized, executed and delivered by the City and (assuming due authorization by the Undeiwriters) constitutes a binding and enforceable agreement of the City in accordance with its terms. B. We have not verified and are not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Official Statement, but we have reviewed the information contained under the captions or subcaptions "The Bonds" (except under the subcaptions "Book Entry Only System" and "Sources and Uses of Bond Proceeds"), 'Tax Matters", "Continuing Disclosure of Information" (except under the subcaption "Compliance with Prior Undertakings"), "Other Information-Legal Matters", and "Other Information-Legal Investments and Eligibility to Secure Public Funds in Texas", and we are of the opinion that the information relating to the Bonds and legal matters contained in such captions and subcaptions is an accurate and fair description of the laws and legal issues addressed therein and, with respect to the Bonds, such information conforms to the Ordinance. C. The Bonds are exempt from registration pursuant to the Securities Act of 1933, as amended, and the Ordinance is exempt from qualification as an indenture pursuant to the Trust Indenture Act of 1939, as amended. In reference to our opinion relating to the legality and validity of the Bonds and the interest thereon being excludable from gross income for federal income tax purposes, you may rely upon such opinion to the same extent and as fully as if such opinion were addressed to you. Very truly yours, 74J:/ ~-4-L/f} EHE:dfc 45353149.1 ~OUSTON • Nt::w YORK• \lVASHINGTON DC• AUSTIN• DALLAS• '....os ANGELES• M1NNEAPOLIS • SAN ANTO,'\!IO • HoNG KONG• LO."\JDON • MUNICH 15 - - LAWOF'F"ICES MCCALL, PARKHURST & HORTON L.L.P. 600 CONGRESS AVENUE 1250 ONE AMERICAN CENTER AUSTIN, TEXAS 76701-3246 TE:Ler:F'HONE: 512 478-3805 FACSIMII..E'. 512 472-0871 717 NORTH HARWOOD NINTH FLOOR DALLAS, TEXAS 75201·6567 FACSlM!LE: 214 754•9250 August 28, 2003 Siebert Brandford Shank & Co., L.L.C. RBC Dain Rauscher, Inc. William R. Hough & Co. Morgan Keegan & Company, Inc. c/o: Siebert Brandford Shank & Co., L.L.C. 1845 Woodall Rodgers Freeway, Suite 1200 Dallas, Texas 75201 700 N. ST. MARY'S STREET 1225 ONE RIVERWALK PLACE SAN ANTONIO, TEXAS 78205·3503 TE:LEPHONE'. 210 225'"2800 Re: $11,855,000 City of Lubbock, Texas General Obligation Bonds, Series 2003 Ladies and Gentlemen: We have acted as counsel for you as the underwriters of the Bonds described above (the "Bonds"), issued under and pursuant to an ordinance (the "Ordinance") of the City ofLubbock, Texas (the "Issuer"), authorizing the issuance of the Bonds, which Bonds you are purchasing pursuant to a Purchase Contract, dated July 24, 2003. All capitalized undefined terms used herein shall have the meaning set forth in the Purchase Contract. In connection with this opinion letter, we have considered such matters oflaw and off act, and have relied upon such Bonds and other information furnished to us, as we have deemed appropriate as a basis for our opinion set forth below. We are not expressing any opinion or views herein on the authorization, issuance, delivery, validity of the Bonds and we have assumed, but not independently verified, that the signatures on all documents and Bonds that we have examined are genuine. Based on and subject to the foregoing, we are of the opinion that, under existing laws, the Bonds are not subject to the registration requirements of the Securities Act ofl933, as amended, and the Ordinance is not required to be qualified under the Trust Indenture Act of 1939, as amended. Because the primary purpose of our professional engagement as your counsel was not to establish factual matters, and because of the wholly or partially nonlegal character of many of the determinations involved in the preparation of the Official Statement dated July 24, 2003 (the "Official Statement") and because the information in the Official Statement under the headings "BOOK- ENTRY ONLY SYSTEM," "MUNICIPAL BOND INSURANCE," "TAX MATTERS," "CONTINUING DISCLOSURE -Compliance with Prior Undertakings" and Appendices A, B, and C thereto were prepared by others who have been engaged to review or provide such information, .... we are not passing on and do not assume any responsibility for, except as set forth in the last sentence of this paragraph, the accuracy, completeness or fairness of the statements contained in the Official Statement (including any appendices, schedules and exhibits thereto) and we make no representation that we have independently verified the accuracy, completeness or fairness of such statements. In the course of our review of the Official Statement, we had discussions with representatives of the City regarding the contents of the Official Statement. In the course of our participation in the preparation of the Official Statement as your counsel, we had discussions with representatives of the Issuer, including its City Attorney, Bond Counsel and Financial Advisor, regarding the contents of the Official Statement. In the course of such activities, no facts came to our attention that would lead us to believe that the Official Statement ( except for the financial statements and other financial and statistical data contained therein, the information set forth under the headings "BOOK-ENTRY O1\l"'LY SYSTEM," "MUN1CIPAL BOND INSURANCE," "TAX MATTERS," 11CONTIN1JING DISCLOSURE -Compliance with Prior Undertakings" and Appendices A, B and C thereto, as to which we express no opinion), as of its date contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. This opinion letter may be relied upon by only you and only in connection with the transaction to which reference is made above and may not be used or relied upon by any other person for any purposes whatsoever without our prior written consent. Respectfully, thvYI-P~~ /~ elf) 16 e.- P.O. Box 2000 1625 13th Street• Suite 205 Lubbock, Texas 79457 (806) 775-2222 • Fax: (806) 775-3307 Office of the City Attorney OPINION OF THE CITY ATTORNEY Siebert Brandford Shank & Co., L.L.C. RBC Dain Rauscher, Inc. William R. Hough & Co. Morgan Keegan & Company, Inc. August 28, 2003 c/o Siebert Brandford Shank & Co., L.L.C. 1845 Woodall Rodgers Freeway, Suite 1200 Dallas, Texas 75201 Ladies and Gentlemen: I am the City Attorney for the City of Lubbock, Texas (the "City") at the time of the issuance and sale of the "City of Lubbock, Texas General Obligation Bonds, Series 2003," in the aggregate principal amount of $11,855,000 (the "Bonds"), pursuant to the provisions of an ordinance duly adopted by the City Council of the City on July 24, 2003 (the "Ordinance"). Capitalized terms not otherwise defined in this opinion have the meanings assigned in the Purchase Contract. In my capacity as City Attorney to the City, I have reviewed such agreements, documents, certificates, opinions, letters, and other papers as I have deemed necessary or appropriate in rendering the opinions set forth below. In making my review, I have assumed the authenticity of all documents and agreements submitted to me as originals conformity to the originals of all documents and agreements submitted to me as certified or photostatic copies, the authenticity of the originals of such latter documents and agreements, and the accuracy of the statement contained in such documents. Based upon the foregoing, and subject to the qualifications and exceptions hereinafter set forth, I am of the opinion that under the applicable laws of the United States of America and the State of Texas in force and effect on the date hereof: 1. Based on reasonable inquiry made of the responsible City employees and public officials, the City is not, to the best of my knowledge, in breach of or in default under any i, 2. 3. applicable law or administrative regulation of the State of Texas or the United States, or any applicable judgment or decree or any trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the City is party or is otherwise subject and, to the best of my knowledge after due inquiry, no event has occurred and is continuing that, with the passage of time or the giving of notice, or both, would constitute such a default by the City under any of the foregoing; and the execution and delivery of the Purchase Contract, the Bonds and the adoption of the Ordinance and compliance with the provisions of each of such agreements or instruments does not constitute a breach of or default under any applicable law or administrative regulation of the State of Texas or the United States or any applicable judgment or decree or, to the best of my knowledge, any trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the City is a party or is otherwise subject; and Except as disclosed in the Official Statement, no litigation is pending, or, to my knowledge, threatened, in any court in any way (a) challenging the titles of the Mayor or any of the other members of the City Council to their respective offices; (b) seeking to restrain or enjoin the issuance, sale or delivery of any of the Bonds, or the levy, collection or application of the ad valorein taxes pledged or to be pledged to pay the principal of and interest on the Bonds; ( c) contesting or affecting the validity or enforceability of the Bonds, the Ordinance, or the Purchase Contract; ( d) contesting the powers of the City or any authority for the issuance of the Bonds, or the adoption of the Ordinance; or (e) that would have a material and adverse effect on the financial condition of the City. I have reviewed the information in the Official Statement contained under the caption "Other Information--Litigation" and such information in all material respects accurately and fairly summarizes the matters described therein. This opinion is furnished solely for your benefit and may be relied upon only by the addresses hereof or anyone to whom specific permission is given in writing by me. cityatt/anita/Ob1igationBonds-SiebertLtr Very truly yours, Anita Burgess City Attorney 17 - MBIA FINANCIAL GUARANTY INSURANCE POLICY MBIA Insurance Corporation Armonk, New York 10504 Policy No. 42029 MBIA Insurance Coi:poration (the "Insurer''), in consideration of the payment of the premium and subject to the terms of this policy, hereby imconditionally and :irrevocably guarantees to any owner, as hereinafter defined, of the following descnoed obligations, the full and complete payment required to be made by or on behalf of the Issuer to JPMorgan Chase Bank, Dallas, Texas or its successor (the "Paying Agent") of an amount equal to (i) the principal of ( either at the stated maturity or by any advancement of maturity ptJISUant to a mandatory sinking fi.md payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but shall not be so paid ( except that in the event of any acceleration of the due date of such principal by reason of roandatoty or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fi.md payment, the payments guaranteed hereby shall be made in such amounts and at such times as such paymems of principal would baw been due bad there not been any such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner pursuant to. a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding sentence shall be refeired to herein collectively as the ''Insured Amounts.'' "Obligations" shall mean: $11,855,000 City ofLubbock. Texas General Obligation Bonds, Series 2003 Upon reccipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of 'Written notice by registered or certified rnail, by the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of fun&, in an account with U.S. Bank Tl.1B National Association, in New Y ode, New Y ode, or its successor, sufficient for the payment of any such Insured A:rnomlts which are then due. Upon presentment and surrender of such Obligations or .,,. ~ of such other proof of ownership of the Obligations. together with any appropriate instruments of assignment to evidence the assignment of - · ,_ · the I:psured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment ofI:osured Amounts on the Obligations, such instruments being in a form satisfactoiy to U.S. Bank TJ.1B National Association, U.S. Bank Tl.1B National Association shall disburse to such owners, or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent.for the payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. As used herein, the term "o.wer" shall mean the registered owner of any Obligation as indicated in the boob maintained by the Paying Agent, the Isfiller, or any designee of the Issuer for such pmpose. The term owner shall not include the Isfiller or any party whose agreement with the Issuer comtitutes the underlying security for the Obligations. Aey service of process on the Insurer may be made to the Insurer at its offices located at 113 King Street., Armonk, N~ Y ode 10504 and such service of · process shall be valid and binding. This policy is non-<:ancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations. IN WITNESS WHEREOF, the Insurer has cawed this policy to be executed in fucsimile on its behalf by its duly authorized officers, this 28th day of ~2003. . ~~L~Y--- DISCLOSURE OF GUARANTY FUND NONPARTICIPATION: In the event the Insurer is unable to fulfill its contractual obligation under this policy or contract ' or application or certificate or evidence of coverage, the policyholder or certificateholder is not protected by an insurance guaranty fund or other solvency protection arrangement. S1D-R-TX-6 4195 - MBIA Capital Strength. Triple-A Performance. August 28, 2003 City of Lubbock, Texas 1625 13th Street Lubbock, Texas79457 Siebert Brandford Shank & Co. 16300 Addison Road, Suite 300 Addison, Texas 75001 $11,855,000 MBIA Insurance Corporation 113 King Street, Armonk, NY 10504 Tel 914-273-4545 www.mbia.com City of Lubbock, Texas General Obligation Bonds, Series 2003 Ladies and Gentlemen: I am Deputy General Counsel of the MBIA Insurance Corporation, a New York corporation (the "Corporation"), and have acted as counsel to the Corporation in connection with the issuance of Financial Guaranty Insurance Policy No. 42029 (the "Policyu) relating to $11,855,000 City of Lubbock, Texas, General Obligation Bonds, Series 2003. In so acting, I have examined a copy of the Policy and such other relevant documents as I have deemed necessary. Based upon the foregoing, I am of the following opinion: 1. The Corporation is a stock insurance corporation, duly incorporated and validly existing under the laws of the State of New York and is licensed and authorized to issue the Policy under the laws of the State ofNew York and the State of Texas. .. MBIA Page2 2. The Policy has been duly executed and is a valid and binding obligation of the Corporation enforceable in accordance with its terms except that the enforcement of the Policy may be limited by laws relating to bankruptcy, insolvency, reorganization, moratorium, receivership and other similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Very truly yours, >f~Jn.tl.u,___ Pauline M. Cullen Deputy General Counsel - MBIA MBIA Insurance Corporation 113 King Street, Armonk, NY 10504 Tel 914-273-4545 wwyv.mJ>ia.com Capital Strength. Triple-A Performance. August 28, 2003 JPMorgan Chase Bank Dallas, Texas Ladies and Gentlemen: $11,855,000 City of Lubbock, Texas General Obligation Bonds, Series 2003 In connection with the above-described obligations (the "Obligations") of which you are acting as paying agent (the ''Paying Agent"), please be advised that the payment to you of principal of and interest on the Obligations has been guaranteed by a policy of financial guaranty insurance (the ''Policy') issued by the MBIA Insurance Corporation (the ''Insurer"). U.S. Bank Trust National Association, New York, New York (the '1Fiscal Agent") is acting as the fiscal agent for the Insurer. The Policy tlllconditionally and irrevocably guarantees to any owner or holder of the Obligations or, if applicable, of the coupons appertaining thereto (the "Owner"), the full and complete payment required to be made by or on behalf of the issuer of the Obligations (the "Issuer'') to the Paying Agent or its successor of an mnollllt equal to (i) the principal of ( either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking :fi.md payment) and interest on, the Obligations as such payments shall become due but shall not be so paid ( except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking :fi.md payment, the payments guaranteed by the Policy shall be made in such mnollllts and at such times as such payments of principal would have been due had there. not been any such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any Owner pursuant to a final judgment by a comt of competent jurisdiction that such payment constitutes an avoidable preference ( a "Preference") to the Owner within the meaning of any applicable bankruptcy law. The mnollllts referred to in clauses (i) and (ii) of the preceding sentence are referred to collectively in this letter as the "Insured Amollllts." The Policy does not insure against loss of any prepayment premiwn which may at any time be payable with respect to any Obligations. The Policy does not, llllder any circumstance, insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking :fi.md redemptions); (ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of Obligations upon tender by an Owner thereof; or (iv) any Preference relating to (i) through (iii) above. MBIA -2- In the event that the Issuer does not make full and complete payment when due of the principal of and interest on the Obligations, please immediately notify, by telephone or telegraph, the Insurer, 113 King Street, Armonk, New York, 10504, (914) 273-4545. On the due date or within one business day after receipt of such notice, whichever is later, the Insurer will deposit funds with the Fiscal Agent sufficient to pay the Obligations (or, if applicable, coupons appertainmg thereto) then due. Upon presentment and surrender of such Obligations ( or, if applicable, coupons) or presentment of such other proof of ownership of Obligations together with any appropriate instnnnents of assignment to evidence the assignment of the Insured Amomits due on the Obligations as are paid by the Insurer, and appropriate instnnnents to effect the appointment of the Insurer as agent for the Owners in any legal proceeding related to payment of Insured Amomits on the Obligations (or, if applicable, coupons), such instruments being in a fonn satisfactory to . the Fiscal Agent, the Fiscal Agent shall disburse. to you payment of the Insured Amounts due on such Obligations (and, if applicable, coupons), less any amomit held by you for the payment of such Insured Amomits and legally available therefor. Fonns of such instnnnents of assignment and instnnnents to effect the appointment of the Insurer as such agent for the Owners ( collectively, the "Claim Documents"), which are currently acceptable to the Fiscal Agent and the Insurer, are on file with the Fiscal Agent. The Insurer may, from time to time, file revised fonns of Claim Documents with the Fiscal Agent in substitution for the fonns previously filed with the Fiscal Agent, and upon such filing, the revised fonns shall supersede all fonns of Claim Documents previously filed with the Fiscal Agent, except as otherwise directed by the Insurer in writing. In the event that you shall have prior knowledge of an impending failure by the Issuer to make payment on the Obligations (or, if applicable, coupons) when due, please immediately notify the Insurer so that it will be possible to have funds available for you on the due date to make payments against surrendered Obligations (and, if applicable, coupons). Your cooperation in this matter will be most appreciated and will make it possible for the Owners of Obligations guaranteed by the Insurer to be assured of all payments when due. Gary C. Dunton President 18 - - MBIA Insurance Corporation 113 King Street Armonk, New York 10504 To Whom It May Concem: • t.foo~• lnvestonJ Sen,ice sgChurch&reet New York; New Yonr 1f)(){J7 August27,2003 Moody's Investors Service has assigned the rating of Aaa {MBIA Insurance Corporation Insured -Poticy No. 42029) to the $11,855,000.00, City of Lubbock, Texas General Obligation Bonds, Series 2003 , dated Juty 15, 2003 which sold through negotiation on July 24. 2003. The rating is based upon an insurance policy provided by MBIA Insurance Corporation. Should you have any quesfions regarding the above, please do not hesitate to contact the assigned analyst, Margaret Kessler at (212) 553•7884. Sincerely yours, Margaret L. Kessler Vice President/Senior Analyst MK:SY - ... Dear Ms. Wilson: 1201 East 7th Street Powell, WY 82435 R¢: City o.fLubbock. Texas SI 1,8S5,000 General Obligation Bonds, Series 2003 (42029) ·FitchRatings f 307 754 2012 I 800 8~3 4824 www.fitehratings.com Ms. Lisa Wilson l\tCBlA Insurance Corp. 113 King Street Armonk, NY I 0504 · August 26, 2003 Fitch Ratings has assigned a rating of'AAA' to the above referenced Bonds. This reflects credit enhancement in the form of a hond in$urance policy provided by MBIA Insurance Corp.(1\itBlA), which has an insurer financial strength rating of'AAA'. Fitch Ratings def'tnes companies with 'AAA' insurer financial strength ratings as fo!Jows: "Companies are viewed as possessing exceptionally strong capacity to meet poficyho1der and contract obligations. Risk factors are minimal and the impli!.Ct of any adverse business and economic factors is ex.petted to be extremely small." Ratings assigned by Fitch Ra.tings arc based on informa!ion provided to us by MBIA. Fitch Ratings does not audit or verify the truth or accuracy of such information. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment 011 the adequacy of market price; the suitability of any security for a particular investor, or the tax.-e.xempt nature or taxability of payment made in respect of any security. The iosurer financial strength rating assigned to MBlA may be changed, withdrawn, suspended, or pla~d on Rating Watch as a result of changes in MBIA 's financial condition. The assignment of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement or other filing under U.S., UK or any other relevant sc<;urities laws. Sincerely, ~~~ Becky K. Christensen Man~ 1 Insured Ratings - STANDARD. &POORS August 26, 2003 MBIA Insurance Corporation 1 13 King Stteet Armonk, NY 10504 Vincent S. Orgo Adminlsindlft 0fflce.r 55Wablf'Sll'llt. 311111 Floor New York, NY 10041-M03 191212..m-2117,4 1lincer!Lorgo@standanlandpoora.com refervnce no.:40144446 Attention: Ms. Lisa A. Wilson, Vice President Manager DAC Group Malachy Falon Managing Oiractor 500 North Akan! S1n!et 1.lm:oln Pla:a, SUltl 3200 Dllllaa, TX752111 tel 214 87M<IG1 mal_fallon@ltandardandpooruom Re: $11,855,000 Cil:y of Lubbock, Texas, General Obligation Bonds, Series 2003, dated: July 15, 2003, due: February JS, 2004-2015, 2017, 2019-2023, (POUCY#42029) Dear Ms. Wilson: Standard & Poor's has reviewed the rating on the above-referenced obligations. After such review, we have changed the rating to "AAA" from '•AA-.. and changed the outlook to not meaningful from stable. The rating reflects our assessment of the likelihood of repayment of principal and interest based on the bond insurance policy your company is providing. Therefore, rating adjustments may result from changes in the fina:ocial position of your company or from alterations in the documents governing the issue. The rating is not investment, financial, or other advice and you should not and cannot rely upon the rating as such. The rating is based on information supplied to us by you but does not represent an audit. We undertake no duty of due diligence or independent verification of any information. The assignment of a rating does not create a :fiduciary relationship between us and you or between us and other recipients of the rating. We have not cons~ted to and will not consent to being named an "expert" under the applicable securities laws, including without limitation, Section 7 of the Securities Act of 1933. The rating is not a .. market rating'•nor is it a recommendation to buy, hold, or sell the obligations. This letter constitutes Standard & Poor's permission to you to disseminate the above-assigned rating to interested parties. Standard & Poor's reserves the right to inform its own clients, subscribers, and the public of the rating .. Standard & Poor's relies on the issuer and its counsel, accountants, and other experts for the accuracy and completeness of the information submitted in connection with the rating. This rating is based on financial information and documents we received prior to the issuance of this letter. Standard & Poor's assumes that the documents you have provided to us are final. If any subsequent changes were made in the final documents, you must notify us of such changes by sending us the revised final documents with the changes clearly marked. _, Ms. Lisa A. Wilson Page2 August 26, 2003 Standard & Poor's is pleased to be of service to you: For more information please visit our website at www.standardandpoors.com. Ifwe can be of help in any other way, please contact us. Thank you for choosing Standard & Poor's and we look forward to working with you again. Sincerely yours, Standard & Poor's Ratings Services a division of The McGraw-Hill Companies. Inc. 1~-'~1 Vincent S. Orgo Administrative Officer ak 19 .- - CERTIFICATE OF UNDERWRITER The undersigned hereby certifies as follows with respect to the sale and delivery of $11,855,000 City of Lubbock, Texas, General Obligation Bonds, Series 2003 (the "Bonds"): 1. The undersigned has purchased the Bonds from the City of Lubbock, Texas (the "Issuer'') by negotiated sale. 2. The undersigned has made a bona fide offering of the Bonds of each maturity to the public at the initial offering prices set forth in paragraph 3. 3. The initial offering price (expressed as a dollar amount, yield percentage, or percentage of principal amount and exclusive of accrued interest) at which a substantial amount of the Bonds of each maturity was sold to the public (as defined in paragraph 4) is as set forth on the inside cover page of the Issuer's Official Statement with respect to the Bonds dated July 24, 2003. 4. The term "public", as used herein, means persons other than bondhouses, brokers, dealers, and similar persons or organizations acting in the capacity of underwriters or wholesalers. 5. The initial offering prices described above reflect current market prices at the time of such sales. 6. The undersigned understands that the statements made herein will be relied upon by the Issuer in its effort to comply with the conditions imposed by the Internal Revenue Code of 1986 on the exclusion of interest on the Bonds from the gross income of their owners. EXECUTED and DELIVERED this August 27, .20.03 SIEBERT BRANDFORD SHANK & CO., L.L.C. ~oirector LUBBOCK GO 2003 ISSUE PRICE CERT.DOC - 20 - - Form 8038-G (Rev. November 2000) Oepartment of the Treasury Internal Revenue Set\lice Information Return for Tax-Exempt Governmental Obligations • Under Internal Revenue Code section 149(e) 0MB No. 1545~0720 • See separate Instructions. Caution: If the issue prir;e is under $100,000, use Form 8038-GC. If Amended Return, check here • O 1 Issuer's name Z Issuer's employer identification number 75: 6000590 City of Lubbock, Texas 3 Number and street (or P.O. box if mail is not delivered to street address) 1625 13th Street 5 City, town, or post office, state, and ZIP code Lubbock, Texas 79401 7 Name of issue General Obligation Bonds, Series 2003 Room/suite 4 6 8 Report number 3 31 Date of issue 8-28,.03 CUSIP number 549187 TKO 9 Name and title of officer or legal representative whom the IRS may call for more information 10 Telephone number of officer or legal representative Andy Burcham, Cash and Debt Manager ( 806 J 775-2000 r e of Issue {check a licable box(es) and enter the issue rice) See instructions and attach schedule 11 0 Education l-'-11-'-+------ 12 0 Health and hospital 1-·.a.;12-'-+------ 13 0 Transportation . • .......13 _______ _ 14 0 Public safety, • • l-'-14.:..+------ 15 0 Environment Oncluding sewage bonds) Jo-,-1 ..... s ______ _ 16 0 Housing . • • • . • . . • • • i--16--t------- 17 0 · Utilities . • • • • • • • • • • • • • • • . . • .,_..17-+------1!21 Other. Describe • streets drainage, traffic signalization, parks 1 s 11,957,077.80 22 23 24 25 26 31 32 33 34 If obligations are TANs or RANs, check box • 0 If obligations are BANs. check box • 0 If obli ations are in the form of a lease or installment sale, check box . . . . . • • 0 (bl Issue price (c) Stated redemption price at maturity (d) Weighted average maturity February 15, 2023 $ 11,957,077.80 $ 11,855,000.00 11.110 ears Uses of Proceeds of Bond Issue (includin underwriters' discount Proceeds used for accrued interest . • • . • • • • . . • • Issue price of entire issue (enter amount from line 21, column (b)) . • Proceeds used for bond issuance costs (including underwriters' discount) Proceeds used for credit enhancement . • • • • • • • . • 24 25 142,869.00 Proceeds allocated to reasonably required reserve or replacement fund t--"'2-=--6-t-------~ Proceeds used to currently refund prior issues ,-....2_7-+--------1¼ Proceeds used to advance refund prior issues . . • . . . • ...,;2_8_._ ______ _,,.,, Total (add lines 24 through 28) . • • • • • • • • • • • • . • • . • • Nonrefundin roceeds of the issue (subtract line 29 from line 23 and enter amount here . . • Enter the remaining weighted ave ·-· maturity of the bonds to be currently refunded .• • Enter the remaining weighted a ' maturity of the bonds to be advance refunded • • · .... _., Enter the last date· on which the ded bonds will be called . . • . • • • • • • Enter the date(s) the refunded bonds were issued • •½••-··· Misceflaneous 35 Enter the amount of the state volume cap a!!ocated to the issue under section 141 (b)(5) 35 36a Enter the amount of gross proceeds invested or to be invested in a guaranteed investment contract (see instructions) 36a b Enter the final maturity date of the guaranteed investment contract • ~ 37 Pooled financings: a Proceeds of this issue that are to be used to make loans to other governmental units 37a (e) Yield* 4.690lt-9 % 58,844.31 11,957,077.80 180,869.00 11,776,208.80 years years b If this issue is a loan made from the proceeds of another tax-exempt issue, check box • 0 and enter the name of the. 38 39 40 Issuer • -------------------and the date of the issue • If the issuer has designated the issue under section 265(b}(3)(B)(i)(lll) (small issuer exception), check box If the issuer has elected to pay a penalty in lieu of arbitrage rebate. check box . . . . • • . • • If the issuer has identified a hed e, check box . . • . . . . • . . . . . . . . • • . . •• •• •• Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and beli f, they are true. correct, and complete. · Sign Here For Paperwork Reduction Act Notice, see page 2 of the Instructions. 45340733 @ "'blended yield _ • Andy Burcham, Cash and Debt Manager Type or print name and title . Cat. No. 63773S Form 8038-G (Rev. 1 1-2000)