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Home My WebLink AboutOrdinance - 2005-O0081 - Ordinance Relating To $7,260,000 General Obligation Bonds, Series 2005 - 07/28/2005LUB200nt002 Dallas 988798_1.00C First and Only Reading July 28, 2005 Item 13 ORDINANCE relating to $7,260,000 CITY OF LUBBOC~ TEXAS GENERAL OBLIGATION BONDS SERIES 2005 Dated: July IS, 2005 Adopted: July 28, 2005 GKnlNAN:CE NO. 2005-00081 . . : : .... : . .• . I,·.. , TABLE OF CONTENTS Page Parties .............................................................................................................................................. 1 Section 1.1. Section 1.2. Section 1.3. Section 1.4. ARTICLE I DEFINITIONS AND OTHER PRELIMINARY MATTERS Definitions ............................................................................................................... 2 Findings ................................................................................................................... 3 Table of Contents, Titles and Headings .................................................................. 3 Interpretation ........................................................................................................... 4 ARTICLE II SECURITY FOR TIIE BONDS; INTEREST AND SINKING FUND Section 2.1. Tax I.,evy .................................................................. ~--............................................ 4 Section 2.2. Interest and Sinking Fund ....................................................................................... 4 Section 3.1. Section 3.2. Section 3.3. Section 3.4. Section 3 .5. Section 3.6. Section 3. 7. Section 3.8. Section 3.9. Section 3.10. Section 3.11. Section 3.12. Section 4.1. Section 4.2. Section 4.3. we2oom002 ARTICLE III AUTHORIZATION; GENERAL TERMS AND PROVISIONS REGARDING THE BONDS Authorization ........................................................................................................... 5 Date, Denomination, Maturities and Interest .......................................................... S Medium, Method and Place of Payment ................................................................. 6 Execution and Registration of Bonds ...................................................................... 7 Ownership ............................................................................................................... 7 Registration, Transfer and Exchange ...................................................................... 8 Cancellation ............................................................................................................. 8 Temporary Bonds .................................................................................................... 9 ReplaceIIIent Bonds ................................................................................................. 9 Book-Entry Only System ...................................................................................... 10 Successor Securities Depository; Transfer Outside Book-Entry Only System ..... I I Payments to Cede & Co ........................................................................................ 11 ARTICLE IV REDEMPTION OF BONDS BEFORE MATURITY Limitation on Redemption .................................................................................... 11 Optional Redemption . .. . ... . ... . ... . ... . .. . ... . ... ... . . .. . .. . . ... .. .. ... . .. . . ... . .. . .. . . ... . .. . .. . . .. . ... ... . ... 12 Partial Redeniption ................................................................................................ 12 Dallas 988798_1.DOC (i) Section 4.4. Section 4.5. Section 4.6. Section 4.7. Section 5.1. Section 5.2. Section 5.3. Section 5.4. Section S.S. Section 5.6. Section 5.7. Section 6.1. Section 6.2. Section 6.3. Section 6.4. Section 6.5. Section 7 .1. Section 7 .2. Section 7.3. Notice of RedeI11ption to Owners .......................................................................... 12 Paynient Upon Redetllption .................................................................................. 13 Effect of Redeillption ............................................................................................ 13 Lapse of Payment .................................................................................................. 13 ARTICLE V PAYING AGENT/REGISTRAR Appointment of Initial Paying Agent/Registrar .................................................... 13 Qualifications ........................................................................... , ............................ 13 Maintaining Paying Agent/Registrar ..................................................................... 14 T ennination ........................................................................................................... 14 Notice of Change to Owners ................................................................................. 14 Agreement to Perform Duties and Functions ........................................................ 14 Delivery of Records to Successor ......................................................................... 14 ARTICLE VI FORM OF THE BONDS Form Generally ..................................................................................................... 14 Form of the Bonds ................................................................................................. 1 S CUSIP Registration ............................................................................................... 20 Legal Opinion ........................................................................................................ 20 StateI11ent of Insurance .......................................................................................... 20 ARTICLE VII SALE AND DELNERY OF BONDS; DEPOSIT OF PROCEEDS Sale of Bonds; Official Statement ......................................................................... 20 Control and Delivery of Bonds ............................................................................. 21 Deposit of Proceeds ............................................................................................... 22 ARTICLE VIII INVESTMENTS Investments ............................................................................................................ 22 Section 8.1. Section 8.2. Investment Income ................................................................................................ 22 ARTICLE IX PARTICULAR REPRESENTATIONS AND COVENANTS Section 9 .1. Payment of the Bonds ........................................................................................... 22 Section 9.2. Other Representations and Covenants ................................................................... 23 LUB200nt002 Dallas 988798_1.DOC (ii) Section 9.3. Section 9.4. Section 9 .5. Section 9.6. Section 9.7. Section 9.8. Section 9.9. Section 9.10. Provisions Concerning Federal Income Tax Exclusion ........................................ 23 No Private Use or Payment and No Private Loan Financing ................................ 23 No Federal Guaranty ............................................................................................. 24 Bonds are not Hedge Bonds .................................................................................. 24 No-Arbitrage Covenant ......................................................................................... 24 Arbitrage Rebate ................................................................................................... 24 Infonnation Reporting ........................................................................................... 25 Continuing Obligation ........................................................................................... 25 ARTICLEX DEFAULT AND REMEDIES Section 10.1. Events of Default. .................................................................................................. 25 Section 10.2. Reinedies for Default ............................................................................................ 25 Section 10.3. Remedies Not Exclusive ....................................................................................... 25 ARTICLE XI DISCHARGE Section 11.1. Discharge ............................................................................................................... 26 ARTICLE XII CONTINUING DISCLOSURE UNDERTAKING Section 12. l. Annual Reports ...................................................................................................... 26 Section 12.2. Material Event Notices .......................................................................................... 27 Section 12.3. Limitations, Disclaimers and Amendments .......................................................... 27 ARTICLE XIII AMENDMENTS; ATTORNEY GENERAL MODIFICATION Section 13 .1. Amendments .......................................................................................................... 29 Section 13 .2. Attorney General Modification ............................................................................. 29 ARTICLE XIV EFFECTIVE IMMEDIATELY Section 14.1. Effective hnmediately ........................................................................................... 29 Signatures ...................................................................................................................................... 3 O Exhibit A -Description of Annual Disclosure of Financial Information .................................... A-1 LUB200nl002 Dallas 988798_1.00C (iii) AN ORDINANCE PROVIDING FOR THE ISSUANCE OF CITY OF LUBBOC~ TEXAS, GENERAL OBLIGATION BONDS, SERIES 2005, IN THE AGGREGATE PRINCIPAL AMOUNT OF $7,260,000; LEVYING A TAX IN PAYMENT THEREOF; APPROVING THE OFFICIAL STATEMENT; APPROVING EXECUTION OF A PURCHASE CONTRACT; AND ENACTING OTHER PROVISIONS RELATING THERETO WHEREAS, the bonds hereinafter authorized were duly and favorably voted, as required by the Constitution and laws of the State of Texas, at an election held in the City of Lubbock, Texas (the "City"), on May 15, 2004; WHEREAS, at said election the following are among the purposes and amounts of the bonds which were authorized, reflecting any amount previously issued pursuant to each voted authorization, the amount therefrom being issued pursuant to this Ordinance, and the balance that remains unissued after the issuance of the bonds herein authorized, to wit: ( amounts in thousands) Amount Amount Election Amount Previously Being Unissued Purpose Date Voted Issued Issued Balance Parks 05/15/04 $ 6,395 $ 190 $ $ Streets 05/15/04 9,210 1,590 Libraries 05/15/04 2,145 -0- Animal Shelter 05/15/04 1,045 160 Fire 05/15/04 1,405 85 Police/Municipal Court 05/15/04 3,350 -0- Civic Center/ Auditorium 05/15/04 6,450 -0- Total SJQ.OOQ s2.02s l 1 WHEREAS, pursuant to a resolution heretofore passed by the City Council, notice of intention to issue the bonds was published in a newspaper of general circulation in the City in accordance with the City's Home-Rule Charter; WHEREAS, the City Council has found and determined that it is necessary and in the best interest of the City and its citizens that it authorize by this Ordinance the issuance and delivery of $7,260,000 of such bonds at this time, all in a single issue; and WHEREAS, the meeting at which this Ordinance is considered is open to the public as required by law, and public notice of the time, place and purpose of said meeting was given as required by Chapter 551, Texas Government Code, as amended; therefore, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK: LUB200nt002 Danas 988798_1.DOC ARTICLE I DEFINITIONS AND OTHER PRELIMINARY MATTERS Section 1.1. Definitions. Unless otherwise expressly provided or unless the context clearly requires otherwise in this Ordinance, the following terms shall have the meanings specified below: "Bond" means any of the Bonds. "Bond Date" means the date designated as the date of the Bonds by Section 3.2(a) of this Ordinance. "Bonds" means the City's bonds authorized to be issued by Section 3.1 of this Ordinance and designated as "City of Lubbock, Texas, General Obligation Bonds, Series 2005." ''City'' means the City of Lubbock, Texas. ''Closing Date" means the date of the initial delivery of and payment for the Bonds. "Code,' means the Internal Revenue Code of 1986, as amended, including applicable regulations, published rulings and court decisions. "Designated Payment/Transfer Office" means (i) with respect to the initial Paying Agent/Registrar named in this Ordinance, the Designated Payment/Transfer Office as designated in the Paying Agent/Registrar Agreement, or at such other location designated by the Paying Agent/Registrar and (ii) with respect to any successor Paying Agent/Registrar, the office of such successor designated and located as may be agreed upon by the City and such successor. "DTC" means The Depository Trust Company of New York, New York, or any successor securities depository. "DTC Participant" means brokers and dealers, banks, trust companies, clearing corporations and certain other organizations on whose behalf DTC was created to hold securities to facilitate the clearance and settlement of securities transactions among OTC Participants. "Event of Default" means any event of default as defined in Section 10.1 of this Ordinance. "Initial Bond" means the initial bond authorized by Section 3.4 of this Ordinance. "Interest and Sinking Flllld" means the interest and sinking fund established by Section 2.2 of this Ordinance. "Interest Payment Date" means the date or dates on which interest on the Bonds is scheduled to be paid lllltil their respective dates of maturity or prior redemption, such dates being February 15 and August 15 of each year, commencing February 15, 2005. LUB200nI002 Da1Jas 988798_1.DOC -2- "MSRB" means the Municipal Securities Rulemaking Board. "NRMSffi." 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. "Owner" means the person who is the registered owner of a Bond or Bonds, as shown in the Register. "Paying Agent/Registrar" means initially JPMorgan Chase Bank, National Association, or any successor thereto as provided in this Ordinance. "Record Date" means the last business day of the month next preceding an Interest Payment Date. "Register'' means the Register specified in Section 3.6(a) of this Ordinance. "Representation Letter" means the Blanket Letter of Representations between the City andDTC. "Rule"means SEC Rule 15c2-12, as amended from time to time. "SEC,, means the United States Securities and Exchange Commission. "SID" means any person designated by the State of Texas or an authorized department, office, 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. ''Unclaimed Payments" means money deposited with the Paying Agent/Registrar for the payment of principal of or interest on the Bonds as the same come due and payable and remaining unclaimed by the Owners of such Bonds after the applicable payment or redemption date. "Underwriters" means A.G. Edwards & Sons, Inc., M.E. Allison & Co. Inc. and RBC Dain Rauscher Inc. Section 1.2. Findings. The declarations, determinations and findings declared, made and found in the preamble to this Ordinance are hereby adopted, restated and made a part of the operative provisions hereof. Section 1.3. Table of Contents, Titles and Headings. The table of contents, titles and headings of the Articles and Sections of this Ordinance have been inserted for convenience of reference only and are not to be considered a part hereof and shall not in any way modify or restrict any of the terms or provisions hereof and shall never be considered or given any effect in construing this Ordinance or any provision hereof or in ascertaining intent, if any question of intent should arise. WB200/71002 Dallas 988798_1.00C: -3- Section 1.4. Interpretation. (a) Unless the context requires otherwise, words of the masculine gender shall be construed to include correlative words of the feminine and neuter genders and vice versa, and words of the singular number shall be construed to include correlative words of the plural number and vice versa. (b) This Ordinance and all the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein. ARTICLE II SECURI1Y FOR TIIE BONDS; INTEREST AND SINKING FUND Section 2.1. Tax Levy. (a) Pursuant to the authority granted by the Texas Constitution and the laws of the State of Texas, there shall be levied and there is hereby levied for the current year and for each succeeding year hereafter while any of the Bonds or any interest thereon is outstanding and unpaid, an ad valorem tax on each one hundred dollars valuation of taxable property within the City, at a rate sufficient, within the limit prescribed by law, to pay the debt service requirements of the Bonds, being (i) the interest on the ·Bonds, and (ii) a sinking fund for their redemption at maturity or a sinking -fund of two percent (2%) per annum (whichever amount is greater), when due and payable, full allowance being made for delinquencies and costs of collection. (b) The ad valorem tax thus levied shall be assessed and collected each year against all property appearing on the tax rolls of the City most recently approved in accordance with law and the money thus collected shall be deposited as collected to the Interest and Sinking Fund. (c) Said ad valorem tax, the collections therefrom, and all amounts on deposit in or required hereby to be deposited to the Interest and Sinking Fund are hereby pledged and committed irrevocably to the payment of the principal of and interest on the Bonds when and as due and payable in accordance with their terms and this Ordinance. ( d) If the lien and provisions of this Ordinance shall be released in a manner permitted by Article XI hereof, then the collection of such ad valorem tax may be suspended or appropriately reduced, as the facts may permit, and further deposits to the Interest and Sinking Fund may be suspended or appropriately reduced, as the facts may permit. In determining the aggregate principal amount of outstanding Bonds, there shall be subtracted the amount of any Bonds that have been duly called for redemption and for which money has been deposited with the Paying Agent/Registrar for such redemption. Section 2.2. Interest and Sinking Fund. (a) The City hereby establishes a special fund or account to be designated the "City of Lubbock, Texas, General Obligation Bonds, Series 2005, Interest and Sinking Fund," said fund to be maintained at an official depository bank of the City separate and apart from all other funds and accounts of the City. LUB2oon1002 Dallas 988798_1.00C -4- (b) Money on deposit in or required by this Ordinance to be deposited to the Interest and Sinking Fund shall be used solely for the purpose of paying the interest on and principal of the Bonds when and as due and payable in accordance with their terms and this Ordinance. ARTICLE III AUTHORIZATION; GENERAL TERMS AND PROVISIONS REGARDING THE BONDS Section 3.1. Authorization. The City's bonds, to be designated "City of Lubbock, Texas, General Obligation Bonds, Series 2005," are hereby authorized to be issued and delivered in accordance with the Constitution and laws of the State of Texas, including specifically Chapter 1331, Government Code, as amended, and Article VIII of the Charter of the City. The Bonds shall be issued in the aggregate principal amount of $"---_ _,000, for the purpose of providing funds for payment of the costs of issuing the Bonds and for permanent public improvements, to wit: (i) $c ___ for street improvements including drainage, curbs, gutters, landscaping, sidewalks, curb ramps, utility line relocation and traffic signalization and the acquisition of land and rights-of-way therefor, (ii) $. __ to acquire and improve, or both, land for park purposes and (iii) $ ____ for constructing, renovating, improving and equipping fire stations. Section 3.2. Date, Denomination. Maturities and Interest. (a) The Bonds shall be dated July 15, 2005. The Bonds shall be in fully registered form, with.out coupons, in the denomination of $5,000 or any integral multiple thereof, and shall be numbered separately from one upward, except the Initial Bond, which shall be nmnbered T-1. (b) The Bonds shall mature on February 15 in the years and in the principal amounts set forth in the following schedule: Principal Amounts Interest Rate Principal Amounts Interest Rate (c) Interest shall accrue and be paid on each Bond respectively until its maturity or prior redemption, from the later of the Bond Date or the most recent Interest Payment Date to LUB200/71002 Dallas 988798_1.DOC -5- which interest has been paid or provided for at the rates per annum for each respective maturity specified in the schedule contained in subsection (b) above. Such interest shall be payable on each Interest Payment Date until maturity or prior redemption. Interest on the Bonds shall be calculated on the basis of a three hundred sixty (360) day year composed of twelve (12) months of thirty (30) days each. Section 3.3. Medium. Method and Place of Payment. (a) The principal of and interest on the Bonds shall be paid in lawful money of the United States of America. (b) Interest on the Bonds shall be payable to each Owner as shown in the Register at the close of business on the Record Date. (c) Interest shall be paid by check, dated as of the Interest Payment Date, and sent by the Paying Agent/Registrar to each Owner by United States mail, first class postage prepaid, to the address of each Owner as it appears in the Register, or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the Owner; provided, however, the Owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. ( d) The principal of each Bond shall be paid to the Owner thereof on the due date (whether at the maturity date or the date of prior redemption thereof) upon presentation and surrender of such Bond at the Designated Paymentlfransfer Office of the Paying Agent/Registrar. · (e) If the date for the payment of the principal of or interest on the Bonds shall be a Saturday, Sunday, legal holiday, or day on which banking institutions in the city where the Designated Paymentrrransfer Office of the Paying Agent/Registrar is located are required or authorized by law or executive order to close, then the date for such payment shall be the next succeeding day that is not a Saturday, Sunday, legal holiday, or day on which banking institutions are required or 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 and no additional interest shall be due by reason of nonpayment on the date on which such payment is otherwise stated to be due and payable. (f) Unclaimed Payments shall be segregated in a special escrow account and held in trust, uninvested by the Paying Agent/Registrar, for the accounts of the Owners of the Bonds to which the Unclaimed Payments pertain. Subject to Title 6 of the Texas Property Code, Unclaimed Payments remaining unclaimed by the Owners entitled thereto for three years after the applicable payment or redemption date shall be applied to the next payment or payments on the Bonds thereafter coming due and, to the extent any such money remains after the retirement of all outstanding Bonds, shall be paid to the City to be used for any lawful purpose. Thereafter, neither the City, the Paying Agent/Registrar nor any other person shall be liable or responsible to any holders of such Bonds for any further payment of such unclaimed monies or on account of any such Bonds, subject to Title 6 of the Texas Property Code. LUB200nl002 Dallas 988798_1.DOC -6- Section 3.4. Execution and Registration of Bonds. (a) The Bonds shall be executed on behalf of the City by the Mayor and the City Secretary, by their manual or facsimile signatures, and the official seal of the City shall be impressed or placed in facsimile thereon. Such facsimile signatures on the Bonds shall have the same effect as if each of the Bonds had been signed manually and in person by each of said officers, and such facsimile seal on the Bonds shall have the same effect as if the official seal of the City had been manually impressed upon each of the Bonds. (b) In the event that any officer of the City whose manual or facsimile signature appears on the Bonds ceases to be such officer before the authentication of such Bonds or before the delivery thereof, such manual or facsimile signature nevertheless shall be valid and sufficient for all purposes as if such officer had remained in such office. (c) Except as provided below, no Bond shall be valid or obligatory for any purpose or be entitled to any security or benefit of this Ordinance unless and until there appears thereon the Certificate of Paying Agent/Registrar substantially in the form provided herein, duly authenticated by manual execution by an officer or duly authorized signatory of the Paying Agent/Registrar. It shall not be required that the same officer or authorized signatory of the Paying Agent/Registrar sign the Certificate of Paying Agent/Registrar on all of the Bonds. In lieu of the executed Certificate of Paying Agent/Registrar described above, the Initial Bond delivered at the Closing Date shall have attached thereto the Comptroller's Registration Certificate substantially in the form provided herein, manually executed by the Comptroller of Public Accounts of the State of Texas, or by his duly authorized agent, which Certificate shall be evidence that the Bond has been duly approved by the Attorney General of the State of Texas, that it is a valid and binding obligation of the City and that it has been registered by the Comptroller of Public Accounts of the State of Texas. ( d) On the Closing Date, one Initial Bond representing the entire principal amount of all Bonds, payable in stated installments to the initial purchaser, or its designee, executed by the Mayor and City Secretary of the City by their manual or facsimile signatures, approved by the Attorney General, and registered and manually signed by the Comptroller of Public Accounts, will be delivered to the initial purchaser or its designee. Upon payment for the Initial Bond, the Paying Agent/Registrar shall cancel the Initial Bond and deliver to DTC, on behalf of the initial Purchaser, one typewritten Bond for each maturity representing the aggregate principal amount for each respective maturity, registered in the name of Cede & Co., as nominee for OTC. Section 3.5. Ownership. (a) The City, the Paying Agent/Registrar and any other person may treat the person in whose name any Bond is registered as the absolute owner of such Bond for the purpose of making and receiving payment as provided herein ( except interest shall be paid to the person in whose name such Bond is registered on the Record Date), and for all other purposes, whether or not such Bond is overdue, and neither the City nor the Paying Agent/Registrar shall be bound by any notice or knowledge to the contrary. LUB2oont002 Dallas 988798_1.0CX: -7- (b) All payments made to the Owner of a Bond shall be valid and effectual and shall discharge the liability of the City and the Paying Agent/Registrar upon such Bond to the extent of the swns paid. Section 3.6. Registration, Transfer and Exchange. (a) So long as any Bonds remain outstanding, the City shall cause the Paying Agent/Registrar to keep at the Designated Payment/fransfer Office a register in which, subject to such reasonable regulations as it may prescribe, the Paying Agent/Registrar shall provide for the registration and transfer of Bonds in accordance with this Ordinance. (b) The ownership of a Bond may be transferred only upon the presentation and st.UTellder of the Bond at the Designated Paymentffransfer Office of the Paying Agent/Registrar with such endorsement or other evidence of transfer as is acceptable to the Paying Agent/Registrar. No transfer of any Bond shall be effective until entered in the Register. (c) The Bonds shall be exchangeable upon the presentation and surrender thereof at the Designated Payment/f ransfer Office of the Paying Agent/Registrar for a Bond or Bonds of the same maturity and interest rate and in any denomination or denominations of any integral multiple of $5,000 and in an aggregate principal amount equal to the unpaid principal amount of the Bonds presented for exchange. The Paying Agent/Registrar is hereby authorized to authenticate and deliver _Bonds exchanged for other Bonds in accordance with this Section. ( d) Each exchange Bond delivered by the Paying Agent/ Registrar in accordance with this Section shall constitute an original contractual obligation of the City and shall be entitled to the benefits and security of this Ordinance to the same extent as the Bond or Bonds in lieu of which such exchange Bond is delivered. (e) No service charge shall be made to the Owner for the initial registration, subsequent transfer, or exchange for any different denomination of any of the Bonds. The Paying Agent/Registrar, however, may require the Owner to pay a sum sufficient to cover any tax or other governmental charge that is authorized to be imposed in connection with the registration, transfer or exchange of a Bond. (f) Neither the City nor the Paying Agent/Registrar shall be required to issue, transfer, or exchange any Bond called for redemption, in whole or in part, where such redemption is scheduled to occur within forty-five (45) calendar days after the transfer or exchange date; provided, however, such limitation shall not be applicable to an exchange by the Owner of the uncalled principal balance of a Bond. Section 3.7. Cancellation. All Bonds paid or redeemed before scheduled maturity in accordance with this Ordinance, and all Bonds in lieu of which exchange Bonds or replacement Bonds are authenticated and delivered in accordance with this Ordinance, shall be cancelled and proper records shall be made regarding such payment, redemption, exchange or replacement. The Paying Agent/Registrar shall then return such cancelled Bonds to the City or may in accordance LUB2oon1002 Dallas 988798_1.DOC -8- with law destroy such cancelled Bonds and periodically furnish the City with certificates of destruction of such Bonds. Section 3.8. Temporary Bonds. ( a) Following the delivery and registration of the Initial Bond and pending the preparation of definitive Bonds, the proper officers of the City may execute and, upon the City's request, the Paying Agent/Registrar shall authenticate and -deliver, one or more temporary Bonds th.at are printed, lithographed, typewritten, mimeographed or otherwise produced, in any denomination, substantially of the tenor of the definitive Bonds in lieu of which they are delivered, without coupons, and with such appropriate insertions, omissions, substitutions and other variations as the officers of the City executing such temporary Bonds may detemrine, as evidenced by their signing of such temporary Bonds. (b) Until exchanged for Bonds in definitive form, such Bonds in temporary fonn shall be entitled to the benefit and security of this Ordinance. (c) The City, without unreasonable delay, shall prepare, execute and deliver to the Paying Agent/Registrar the Bonds in definitive form; thereupon, upon the presentation and surrender of the Bonds in temporary form to the Paying Agent/Registrar, the Paying Agent/Registrar shall cancel the Bonds in temporary form and shall authenticate and deliver in exchange therefor Bonds of the same maturity and series, in definitive form, in the authorized denomination, and in the same aggregate principal amount, as the Bonds in temporary form surrendered. Such exchange shall be made without the making of any charge therefor to any Owner. Section 3.9. Replacement Bonds. (a) Upon the presentation and surrender to the Paying Agent/Registrar of a mutilated Bond, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor a replacement Bond of like tenor and principal amount, bearing a number not contemporaneously outstanding. The City or the Paying Agent/Registrar may require the Owner of such Bond to pay a sum sufficient to cover any tax or other governmental charge that is authorized to be imposed in connection therewith and any other expenses connected therewith. (b) In the event that any Bond is lost, apparently destroyed or wrongfully taken, the Paying Agent/Registrar, pursuant to the applicable laws of the State of Texas and in the absence of notice or knowledge that such Bond has been acquired by a bona fide purchaser, shall authenticate and deliver a replacement Bond of like tenor and principal amount, bearing a number not contemporaneously outstanding, provided that the Owner first: (i) furnishes to the Paying Agent/Registrar satisfactory evidence of his or her ownership -of and the circumstances of the loss, destruction or theft of such Bond; (ii) furnishes such security or indemnity as may be required by the Paying Agent/Registrar to save it and the City harmless; LUB200nt002 Dall$ 988798_1.DOC -9- (iii) pays all expenses and charges in connection therewith, including, but not limited to, printing costs, legal fees, fees of the Paying Agent/Registrar and any tax or other governmental charge that is authorized to be imposed; and (iv) satisfies any other reasonable requirements imposed by the City and the Paying Agent/Registrar. (c) If, after the delivery of such replacement Bond, a bona fide purchaser of the original Bond in lieu of which such replacement Bond was issued presents for payment such original Bond, the City and the Paying Agent/Registrar shall be entitled to recover such replacement Bond from the person to whom it was delivered or any person taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the City or the Paying Agent/Registrar in connection therewith. (d) In the event that any such mutilated, lost, apparently destroyed or wrongfully taken Bond has become or is about to become due and payable, the Paying Agent/Registrar, in its discretion, instead of issuing a replacement Bond, may pay such .Bond if it has become due and payable or may pay such Bond when it becomes due and payable. (e) Each replacement Bond delivered in accordance with this Section shall constitute an original additional contractual obligation of the City and shall be entitled to the benefits and security of this Ordinance to the same extent as the Bond or Bonds in lieu of which such replacement Bond is delivered. Section 3.10. Book-Entry Only System. Notwithstanding any other provision hereof, upon initial issuance of the Bonds, the ownership of the Bonds shall be registered in the name of Cede & Co., as nominee of DTC. The definitive Bonds shall be initially issued in the form of a single separate fully registered certificate for each of the maturities thereof. With respect to Bonds registered in the name of Cede & Co.. as nominee of DTC, the City and the Paying Agent/Registrar shall hav~ no responsibility or obligation to any DTC Participant or to any person on behalf of whom such a DTC Participant holds an interest in the Bonds. Without limiting the immediately preceding sentence, the City and the Paying Agent/Registrar shall have no responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co. or any OTC Participant with respect to any ownership interest in the Bonds, (ii) the delivery to any DTC Participant or any other person, other than an Owner, as shown on the Register, of any notice with respect to the Bonds, including any notice of redemption, or (iii) the payment to any DTC Participant or any other person, other than ·a Bondholder, as shown in the Register of any amount with respect to principal of or interest on the Bonds. Notwithstanding any other provision of this Ordinance to the contrary, the City and the Paying Agent/Registrar shall be entitled to treat and consider the person in whose name each Bond is registered in the Register as the absolute owner of such Bond for the purpose of payment of principal of and interest on such Bonds, for the purpose of giving notices of redemption and other matters with respect to such Bond, for the purpose of registering transfer with respect to LUB200nt002 Dallas 988798_1.0CX:: -10- such Bond, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of and interest on the Bonds only to or upon the order of the respective owners. as shown in the Register as provided in this Ordinance. or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the City's obligations with respect to payment of principal of and interest on the Bonds to the extent of the swn or sums so paid. No person other than an Owner. as shown in the Register, shall receive a certificate evidencing the obligation of the City to make payments of amounts due pW'SUallt to this Ordinance. Upon delivery by OTC to the Paying Agent/Registrar of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., the word "Cede & Co." in this Ordinance shall refer to such new nominee ofDTC. The Representation Letter previously executed and delivered by the City, and applicable to the City's obligations delivered in book-entry-only fonn to DTC as securities depository is hereby ratified and approved for the Bonds. Section 3 .11. Successor Securities Depository; Transfer Outside Book-Entry Only System. In the event that the City or the Paying Agent/Registrar detennines that DTC is incapable of discharging its responsibilities described herein and in the Representations Letter of the City to DTC, or in the event OTC discontinues the services described herein, the City or the Paying Agent/Registrar shall (i) appoint a successor securities depository, qualified to act as such under Section 17( a) of the Securities and Exchange Act of 1934, as amended, notify DTC and DTC Participants of the appointment of such successor securities depository and transfer one or more separate Bonds to such successor securities depository or (ii) notify DTC and DTC Participants of the availability through DTC of Bonds and transfer one or more separate Bonds to DTC Participants having Bonds credited to their DTC accounts. In such event, the Bonds shall no longer be restricted to being registered in the Register in the name of Cede & Co., as nominee of DTC, but may be registered in the name of the successor securities depository, or its nominee, or in whatever name or names Bondholders transferring or exchanging Bonds shall designate, in accordance with the provisions of this Ordinance. Section 3. 12. Payments to Cede & Co. Notwithstanding any other provision of this Ordinance to the contrary, so long as any Bonds are registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of and interest on such Bonds, and all notices with respect to such Bonds, shall be · made and given, respectively, in the manner provided in the Representation Letter. ARTICLE IV REDEMPTION OF BONDS BEFORE MATURITY Section 4.1. Limitation on Redemption. The Bonds shall be subject to redemption before scheduled maturity only as provided in this Article IV. LUB2Donl002 Dallas 988798_1.DOC -11- Section 4.2. Optional Redemption. (a) The City reserves the option to redeem Bonds maturing on and after February 15, 2016 in whole or any part, before their respective scheduled maturity dates, on February 15, 2015, or on any date thereafter, at a price equal to the principal amount of the Bonds called for redemption plus accrued interest to the date fixed for redemption. (b) The City, at least forty-five ( 45) days before the redemption date, unless a shorter period shall be satisfactory to the Paying Agent/Registrar, shall notify the Paying Agent/Registrar of such redemption date and of the principal amount of Bonds to be redeemed. Section 4.3. Partial Redemption. (a) Ifless than all of the Bonds are to be redeemed pursuant to Section 4.2 hereof, the City shall determine the maturity or maturities and the amounts thereof to be redeemed and shall direct the Paying Agent/Registrar to call by lot the Bonds, or portions thereof, within such maturity or maturities and in such principal amounts for redemption. (b) A portion of a single Bond of a denomination greater than $5,000 may be redeemed, but only in a principal amount equal to $5,000 or any integral multiple thereof. If such a Bond is to be partially redeemed, the Paying Agent/Registrar shall treat each $5,000 portion of the Bond as though it were a single Bond for purposes of selection for redemption. (c) Upon surrender of any Bond for redemption in part, the Paying Agent/Registrar, in accordance with Section 3.6 of this Ordinance, shall authenticate and deliver an exchange Bond or Bonds in an aggregate principal amount equal to the unredeemed portion of the Bond so surrendered, such exchange being without charge. ( d) The Paying Agent/Registrar shall promptly notify the City in writing of the principal amount to be redeemed of any Bond as to which only a portion thereof is to be redeemed. Section 4.4. Notice of Redemption to Owners. (a) The Paying Agent/Registrar shall give notice of any redemption of Bonds by sending notice by United States mail, first class postage prepaid, not less than thirty (30) days before the date fixed for redemption, to the Owner of each Bond ( or part thereof) to be redeemed, at the address shown on the Register at the close of business on the business day next preceding the date of mailing such notice. (b) The notice shall state the redemption date, the redemption price, the place at which the Bonds are to be surrendered for payment, and, if less than all the Bonds outstanding are to be redeemed, an identification of the Bonds or portions thereof to be redeemed. (c) Any notice given as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Owner receives such notice. LUB200nI002 Dallas 988798_1.DOC -12- Section 4.5. Pawent Upon Redemption. ( a) Before or on each redemption date, the City shall deposit with the Paying Agent/Registrar money sufficient to pay all amounts due on the redemption date and the Paying Agent/Registrar shall make provision for the payment of the Bonds to be redeemed on such date by setting aside and holding in trust such amounts as are received by the Paying Agent/Registrar from the City and shall use such funds solely for the purpose of paying the principal of and accrued interest on the Bonds being redeemed. (b) Upon presentation and surrender of any Bond called for redemption at the Designated Payment/Transfer Office on or after the date fixed for redemption, the Paying Agent/Registrar shall pay the principal of and accrued interest on such Bond to the date of redemption from the money set aside for such purpose. Section 4.6. Effect of Redemption. (a) Notice of redemption having been given as provided in Section 4.4 of this Ordinance, the Bonds or portions thereof called for redemption shall become due and payable on the date fixed for redemption and, unless the City defaults in its obligation to make provision for the payment of the principal thereof, or accrued interest thereon, such Bonds or portions thereof shall cease to bear interest from and after the date fixed for redemption, whether or not such Bonds are presented and surrendered for payment on such date. (b) If the City shall fail to make provision for payment of all sums due on a redemption date, then any Bond or portion thereof called for redemption shall continue to bear interest at the rate stated on the Bond until due provision is made for the payment of same by the City. Section 4.7. Lapse of Payment. Money set aside for the redemption of Bonds and remaining unclaimed by the Owners of such Bonds shall be subject to the provisions of Section 3.3(f) hereof. ARTICLEV PA YING AGENT/REGISTRAR Section 5.1. Appointment of Initial Paying Agent/Registrar. JPMorgan Chase Bank, National Association, is hereby appointed as the initial Paying Agent/Registrar for the Bonds. Section 5.2. Oualifications. Each Paying Agent/Registrar shall be a commercial bank, a trust company organized m1der the laws of the State of Texas, or any other entity duly qualified and legally authorized to serve as and perform the duties and services of paying agent and registrar for the Bonds. LUB200nI002 Dallas 988798_1.DOC -13- Section 5.3. Maintaining Paying Agent/Registrar. (a) At all times while any Bonds are outstanding, the City will maintain a Paying Agent/Registrar that is qualified under Section 5.2 of this Ordinance. The Mayor is hereby authorized and directed to execute an agreement with the Paying Agent/Registrar specifying the duties and responsibilities of the City and the Paying Agent/Registrar. The signature of the Mayor shall be attested by the City Secretary of the City. The form of the Paying Agent/Registrar Agreement presented at this meeting is hereby approved with such changes as may be approved by bond counsel to the City. (b) If the Paying Agent/Registrar resigns or otherwise ceases to serve as such, the City will promptly appoint a replacement. Section 5.4. Tennination. The City, upon not less than sixty (60) days notice, reserves the right to terminate the appointment of any Paying Agent/ Registrar by delivering to the entity whose appointment is to be tenninated written notice of such termination. Section 5.5. Notice of Change to Owners. Promptly upon each change in the entity serving as Paying Agent/Registrar, the City will cause notice of the change to be sent to each Owner by United States mail, first class postage prepaid, at the address in the Register thereof, stating the effective date of the change and the name and mailing address of the replacement Paying Agent/Registrar. Section 5.6. Agreement to Perfonn Duties and Functions. By accepting the appointment as Paying Agent/Registrar and executing the Paying Agent/Registrar Agreement, the Paying Agent/Registrar is deemed to have agreed to the provisions of this Ordinance and that it will perfonn the duties and :functions of Paying Agent/Registrar prescribed thereby. Section 5.7. Delivery of Records to Successor. If a Paying Agent/Registrar is replaced, such Paying Agent/Registrar, promptly upon the appointment of the successor, will deliver the Register ( or a copy thereof) and all other pertinent books and records relating to the Bonds to the successor Paying Agent/Registrar. ARTICLE VI FORM OF THE BONDS Section 6.1. Fonn Generally. (a) The Bonds, including the Registration Certificate of the Comptroller of Public Accounts of the State of Texas, the Certificate of the Paying Agent/Registrar, and the Assignment fonn to appear on each of the Bonds, (i) shall be substantially in the fonn set forth in LUB20<ml002 Dallas 988798_1.DOC -14- this Article, with such appropriate insertions, omissions, substitutions, and other variations as are permitted or required by this Ordinance, and (ii) may have such letters, numbers, or other marks of identification (including identifying nwnbers and letters of the Committee on Uniform Securities Identification Procedures of the American Bankers Association) and such legends and endorsements (including any reproduction of an opinion of cowisel) thereon as, consistently herewith, may be detennined by the City or by the officers executing such Bonds. as evidenced by their execution thereof. (b) Any portion of the text of any Bonds may be set forth on the reverse side thereof, with an appropriate reference thereto on the face of the Bonds. (c) The definitive Bonds shall be typewritten, photocopied, printed, lithographed, or engraved, and may be produced by any combination of these methods or produced in any other similar manner, all as determined by the officers executing such Bonds, as evidenced by their execution thereof. (d) The Initial Bond submitted to the Attorney General of the State of Texas may be typewritten and photocopied or otherwise reproduced. Section 6.2. Form of the Bonds. The form of the Bond, including the form of the Registration Certificate of the Comptroller of Public Accounts of the State o{ Texas, the form of Certificate of the Paying Agent/ Registrar and the form of Assignment appearing on the Bonds, shall be substantially as follows: LUB200nt002 Dallas 988798_1.DOC (a) Form of Bond. REGISTERED No. __ United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION BOND SERIES 2005 INTEREST RA TE: MA 1URlTY DATE: % -- BOND DATE: July 15, 2005 REGISTERED $. __ _ CUSJP NUMBER: The City of Lubbock (the "City"), in the County of Lubbock, State of Texas, for value received, hereby promises to pay to or registered assigns, on the Maturity Date specified above, the sum of ________ DOLLARS unless this Bond shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Bond Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annum rate of interest specified above, computed on the basis of a three hundred sixty (360) day year of twelve (12) thirty (30) day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing February 15, 2006. The principal of this Bond shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Bond at the corporate trust office in Dallas, Texas (the "Designated Payment/Transfer Office") of JPMorgan Chase Bank, National Association, as Paying Agent/Registrar or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office thereof. Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amotmt of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Bond, the registered owner shall be the person in whose name this Bond is registered at the close of business on the "Record Date," which shall be the last business day of the month next preceding such interest payment date. LUB200nI002 Dallas 988798_1.DOC -16- If the date for the payment of the principal of or interest on this Bond shall be a Saturday, Sunday, legal holiday, or day on which banking institutions in the city where the Designated Payment/Transfer Office of the Paying Agent/Registrar is located are required or authorized by law or executive order to close, the date for such payment shall be the next succeeding day which is not a Saturday, Sunday, legal holiday, or day on which banking institutions are required or 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 and no additional interest shall be due by reason of nonpayment on the date on which such payment is otherwise stated to be due and payable. This Bond is one of a series of fully registered bonds specified in the title hereof issued in the aggregate principal amount of $7,260,000 (herein referred to as the "Bonds"), issued pursuant to a certain ordinance of the City (the "Ordinance") for the purpose of providing funds with which to make various pennanent public improvements for the City and to pay the costs of issuing the Bonds. The City has reserved the option to redeem the Bonds maturing on or after February 15, 2016, in whole or in part before their respective scheduled maturity dates, on February 15, 2015, or on any date thereafter, at a price equal to the principal amount of the Bonds so called for redemption plus accrued interest to the date fixed for redemption. If less than all of the Bonds are to be redeemed, the City shall detennine the maturity or maturities and the amounts thereof to be redeemed and shall direct the Paying Agent/Registrar to call by lot or other customary method that results in a random selection of the Bonds, or portions thereof, within such maturity and in such principal amounts, for redemption. Notice of such redemption or redemptions shall be given by first class mail, postage prepaid, not less than thirty (30) days before the date fixed for redemption, to the registered owner of each of the Bonds to be redeemed in whole or in part. Notice having been so given, the Bonds or portions thereof designated for redemption shall become due and payable on the redemption date specified in such notice; from and after such date, notwithstanding that any of the Bonds or portions thereof so called for redemption shall not have been sU1Tendered for payment, interest on such Bonds or portions thereof shall cease to accrue. As provided in the Ordinance, and subject to certain limitations therein set forth, this Bond is transferable upon surrender of this Bond for transfer at the Designated Payment/Transfer Office of the Paying Agent/Registrar with such endorsement or other evidence of transfer as is acceptable to the Paying Agent/Registrar; thereupon, one or more new fully registered Bonds of the same stated maturity, of authorized denominations, bearing the same rate of interest, and for the same aggregate principal amount will be issued to the designated transferee or transferees. Neither the City nor the Paying Agent/Registrar shall be required to issue, transfer or exchange any Bond called for redemption where such redemption is scheduled to occur within forty-five (45) calendar days of the transfer or exchange date; provided, however, such limitation shall not be applicable to an exchange by the registered owner of the uncalled principal balance of a Bond. The City, the Paying Agent/Registrar, and any other person may treat the person in whose name this Bond is registered as the owner hereof for the pmpose of receiving payment as herein LUB200nI 002 Dalw 988798_1.DOC -17- provided ( except interest shall be paid to the person in whose name this Bond is registered on the Record Date) and for all other purposes, whether or not this Bond be overdue, and neither the City nor the Paying Agent/Registrar shall be affected by notice to the contrary. IT IS HEREBY CERTIFIED AND RECITED that the issuance of this Bond and the series of which it is a part is duly authorized by law, and has been authorized by a vote of the properly qualified electors of the City; that all acts, conditions and things required to be done precedent to and in the issuance of the Bonds have been properly done and performed and have happened in regular and due time, form and manner, as required by law; and that ad valorem taxes upon all taxable property in the City have been levied for and pledged to the payment of the debt service requirements of the Bonds, within the limit prescribed by law. IN WITNESS WHEREOF, the City has caused this Bond to be executed by the manual or facsimile signature of the Mayor of the City and countersigned by the manual or facsimile signature of the City Secretary, and the official seal of the City has been duly impressed or placed in facsimile on this Bond. City Secretary, City of Lubbock, Texas (SEAL) Mayor, City of Lubbock, Texas (b) Form of Comptroller's Registration Certificate. The following Comptroller's Registration Certificate may be deleted from the definitive Bonds if such certificate on the Initial Bond is fully executed. OFFICE OF THE COMPTROLLER OF PUBLIC ACCOUNTS OF THE STATE OF TEXAS § § § REGISTER NO. ___ _ I hereby certify that there is on file and of record in my office a certificate of the Attorney General of the State of Texas to the effect that this Bond has been examined by him as required by law, that he finds that it has been issued in conformity with the Constitution and laws of the State of Texas, and that it is a valid and binding obligation of the City of Lubbock, Texas, and that this Bond has this day been registered by me. Witness my hand and seal of office at Austin, Texas, ______ _ SEAL LUB200nt002 Dallu 988798_1.DOC Comptroller of Public Accounts of the State of Texas -18- ( c) Form of Certificate of Paying Agent/Registrar. The following Certificate of Paying Agent/Registrar may be deleted from the Initial Bond if the Comptroller's Registration Certificate appears thereon. CERTIFICATE OF PAYING AGENT/REGISTRAR The records of the Paying Agent/Registrar show that the Initial Bond of this series of bonds was approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas, and that this is one of the Bonds referred to in the within-mentioned Ordinance. Dated: _________ _ (d) Form of Assignment. JPMORGAN CHASE BANK, NATIONAL ASSOCIATION, as Paying Agent/Registrar By: Authorized Signatory 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 hereunder and hereby irrevocably constitutes and appoints _______ _ attorney to transfer the within Bond on the books kept for registration hereof, with full power of substitution in the premises. Date: ________ _ Signatme Guaranteed By: Authorized Signatory LUB200nl002 Dallas 988798_1.DOC 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 and must be guaranteed in a manner acceptable to the Paying Agent/Registrar. -19- (e) The Initial Bond shall be in the form set forth in paragraphs (a), (b) and (d) of this Section, except for the following alterations: (i) immediately under the name of the Bond, the heading.i "INTEREST RA TE" and "MATURITY DATE" shall both be completed with the words "As shown below"; and (ii) in the first paragraph of the Bond, the words "on the Maturity Date specified above" shall be deleted and the following will be inserted: "on August 15 in each of the years, in the principal installments and bearing interest at the per annum rates in accordance with the following schedule: Principal Installments Interest Rates (Infonnation to be inserted from schedule in Section 3.2 of this Ordinance) Section 6.3. CUSIP Registration. The City may secure identification numbers through the CUSIP Service Bureau Division of Standard & Poor's, A Division of the McGraw-Hill Companies, New Yo~ New Yo~ and may authorize the printing of such numbers on the face of the Bonds. It is expressly provided, however, that the presence or absence of CUSIP numbers on the Bonds shall be of no significance or effect as regards the legality thereof and neither the City nor the attorneys approving said Bonds as to legality are to be held responsible for CUSIP numbers incon-ectly printed on the Bonds. Section 6.4. Legal Opinion. The approving legal opinion of Vinson & Elkins L.L.P ., Bond Counsel, may be attached to or printed on the reverse side of each Bond over the certification of the City Secretary of the City, which may be executed in facsimile. Section 6.5. Statement of Insurance. A statement relating to a municipal bond insurance policy, if any, to be issued for the Bonds may be printed on or attached to each Bond. ARTICLE VII SALE AND DELNERY OF BONDS; DEPOSIT OF PROCEEDS Section 7 .1. Sale of Bonds; Official Statement. (a) The Bonds are hereby officially sold and awarded and shall be delivered to the Underwriters in accordance with the tenns and provisions of that certain purchase contract (the LUB2oonl002 Dallas 988798..J.DOC -20- "Purchase Contract") relating to the Bonds between the City and the Underwriters and dated the date of the passage of this Ordinance. The fonn and content of such Purchase Contract are hereby approved, and the Mayor is hereby authorized and directed to execute and deliver such Purchase Contract. It is hereby officially found, determined and declared that the terms of this sale are the most advantageous reasonably obtainable. The Bonds shall initially be registered in the name of _____ _, as representative for the Underwriters, or their designee. (b) The form and substance of the Preliminary Official Statement, dated July_, 2005, and any addenda, supplement or amendment thereto, are hereby in all respects approved and adopted and is hereby deemed final as of its date within the meaning and for the purposes of paragraph (b)(l) of Rule 15c2•12 under the Securities Exchange Act of 1934, as amended. The final Official Statement (the "Official Statement") presented to and considered at this meeting is hereby in all respects approved and adopted and the Mayor and the City Secretary of the City are hereby authorized and directed to execute the same and deliver appropriate nwnbers of executed copies thereof to the Underwriters. The Official Statement as thus approved, executed and delivered, with such appropriate variations as shall be approved by the Mayor, City Manager, Deputy City Manager, any Assistant City Manager, Chief Financial Officer, Cash and Debt Manager or City Secretary of the City and the Underwriters, may be used by the Underwriters in the public offering and sale thereof. The City Se~ is hereby authorized and directed to include and maintain a copy of the Official Statement and any addenda, supplement or amendment thereto thus approved among the pennanent records of this meeting. The use and distribution of the Preliminary Official Statement, and the preliminary public offering of the Bonds by the Underwriters, is hereby ratified, approved and con.finned. (c) All officers of the City are authorized to execute such docwnents, certificates and receipts as they may deem appropriate in order to consummate the delivery of the Bonds in accordance with the tenns of sale therefor including, without limitation, the Purchase Contract. (d) The obligation of the Underwriters identified in subsection (a) of this Section to accept delivery of the Bonds is subject to such purchaser being furnished with the final, approving opinion of Vinson & Elkins L.L.P., bond counsel for the City, which opinion shall be dated and delivered the Closing Date. Section 7.2. Control and Delivery of Bonds. (a) The Mayor of the City is hereby authorized to have control of the Initial Bond and all necessary records and proceedings pertaining thereto pending investigation, examination, and approval of the Attorney General of the State of Texas, registration by the Comptroller of Public Accowtts of the State of Texas and registration with, and initial exchange or transfer by, the Paying Agent/Registrar. (b) , After registration by the Comptroller of Public Accowits, delivery of the Bonds shall be made to the initial purchasers thereof under and subject to the general supervision and direction of the Mayor, against receipt by the City of all amounts due to the City under the terms of sale. LUB200nI002 Dallas 98879LI.DOC ·21- Section 7.3. Deposit of Proceeds. (a) First: All amounts received on the Closing Date as accrued interest on the Bonds from the Bond Date to the Closing Date shall be deposited to the Interest and Sinking Fund. (b) Second: The remaining balance received on the Closing Date shall be deposited to a special account of the City, such moneys to be dedicated and used solely for the purposes for • which the Bonds are being issued as herein provided. ARTICLE VIII INVESTMENTS Section 8.1. Investments. (a) Money in the Interest and Sinking Fund created by this Ordinance, at the City's option, may be invested in such securities or obligations as permitted under applicable law. (b) Any securities or obligations in which such money.is so invested shall be kept and held in trust for the benefit of the Owners and shall be sold and the proceeds of sale shall be timely applied to the making of all payments required to be made from the fund from which the investment was made. Section 8.2. Investment Income. (a) Interest and income derived from investment of the Interest and Sinking Fund shall be credited to such fund. (b) Interest and income derived from the investment of the funds deposited pursuant to Section 7.3(b) hereof shall be credited to the fund or account where deposited until the construction of the projects for which the Bonds are issued is completed; thereafter, to the extent such interest and income are present, such interest and income shall be deposited to the Interest and Sinking Fund. ARTICLE IX PARTICULAR REPRESENTATIONS AND COVENANTS Section 9 .1. Payment of the Bonds. On or before each Interest Payment Date and while any of the Bonds are outstanding and unpaid, there shall be made available to the Paying Agent/Registrar, out of the Interest and Sinking Fund, money sufficient to pay such interest on and principal of the Bonds as will accrue or mature on the applicable Interest Payment Date or date of prior redemption. WB2oon1002 Dallas 988798_1.DOC Section 9.2. Other Representations and Covenants. (a) The City will faithfully perform at all times any and all covenants, undertakings, stipulations, and provisions contained in this Ordinance; the City will promptly pay or cause to be paid the principal of and interest on each Bond on the dates and at the places and manner prescribed in such Bond; and the City will, at the times and in the manner ~cn"bed by this Ordinance, deposit or cause to be deposited the amounts of money specified by this Ordinance. (b) The City is duly authorized under the laws of the State of Texas to issue the Bonds; all action on its part for the creation and issuance of the Bonds has been duly and effectively taken; and the Bonds in the hands of the Owners thereof are and will be valid and enforceable obligations of the City in accordance with their tenns. Section 9.3. Provisions Concerning Federal Income Tax Exclusion. The City intends that the interest on the Bonds shall be excludable from gross income for purposes of federal income taxation pursuant to sections 103 and 141 through 150 of the Internal Revenue Code of 1986, as amended (the "Code"), and the applicable regulations promulgated thereunder (the "Regulations''). The City covenants and agrees not to take any action, or knowingly omit to take any action within its control, that if taken or omitted, respectively, would cause the interest on the Bonds to be includable in the gross income, as defined in section 61 of the Code, of the holders thereof for purposes of federal income taxation. In particular, the City covenants and agrees to comply with each requirement of Sections 9.3 through 9.9 of this Article IX; provided, however, that the City shall not be required to comply with any particular requirement of Sections 9.3 through 9.9 of this Article IX if the City has received an opinion of nationally recognized bond counsel (''Counsel's Opinion") that such noncompliance will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds or if the City has received a Counsel's Opinion to the effect that compliance with some other requirement set forth in this Article IX will satisfy the applicable requirements of the Code, in which case compliance with such other requirement specified in such Counsel's Opinion shall constitute compliance with the corresponding requirement specified in Sections 9.3 through 9.9 ofthis Article IX. Section 9.4. No Private Use or Payment and No Private Loan Financing. The City shall certify, through an authorized officer, employee or agent, that, based upon all facts and estimates known or reasonably expected to be in existence on the date the Bonds are delivered, the proceeds of the Bonds will not be used in a manner that would cause the Bonds to be "private activity bonds" within the meaning of section 141 of the Code and the Regulations. The City covenants and agrees that it will make such use of the proceeds of the Bonds, including interest or other investment income derived from Bond proceeds, regulate the use of property financed, directly or indirectly, with such proceeds, and take such other and further action as may be required so that the bonds will not be '1>rivate activity bonds" within the meaning of section 141 of the Code and the Regulations. LU8200nI002 Dallas 988798_1.DOC -23- Section 9.5. No Federal Guaranty. The City covenants and agrees not to take any action, or knowingly omit to take any action within its control, that, if taken or omitted, respectively, would cause the Bonds to be "federally guaranteed" within the meaning of section 149(b) of the Code and the Regulations, except as permitted by section 149(b)(3) of the Code and the Regulations. Section 9.6. Bonds are not Hedge Bonds. The City covenants and agrees not to take any action, or knowingly omit to take any action, and has not knowingly omitted and will not knowingly omit to take any action, within its control, that, if taken or omitted, respectively, would cause the Bonds to be ''hedge bonds" within the meaning of section 149(g) of the Code and the Regulations. Section 9.7. No-Arbitrage Covenant. The City shall certify, through an authorized officer, employee or agent, that, based upon all facts and estimates known or reasonably expected to be in existence on the date the Bonds are delivered, the City will reasonably expect that the proceeds of the Bonds will not be used in a manner that would cause the Bonds to be "arbitrage bonds" within the meaning of section 148( a) of the Code and the Regulations. Moreover, the City covenants and agrees that it will make such use of the proceeds of the Bonds including interest or other investment income derived from Bond proceeds, regulate investments of proceeds of the Bonds, and take such other and further action as may be required so that the Bonds will not be "arbitrage bonds" within the meaning of section 148( a) of the Code and the Regulations. Section 9.8. Arbitrase Rebate. If the City does not qualify for an exception to the requirements of Section 148(f) of the Code, the City will take all necessary steps to comply with the requirement that certain amounts earned by the City on the investment of the "gross proceeds" of the Bonds (within the meaning of section 148(f)(6)(B) of the Code), be rebated to the federal government. Specifically, the City will (i) maintain records regarding the investment of the gross proceeds of the Bonds as may be required to calculate the amount earned on the investment of the gross proceeds of the Bonds separately from records of amounts on deposit in the funds and accounts of the City allocable to other bond issues of the City or moneys which do not represent gross proceeds of any bonds of the City, (ii) calculate at such times as are required by the Regulations, the amount earned from the investment of the gross proceeds of the Bonds which is required to be rebated to the federal government, and (iii) pay, not less often than every fifth anniversary date of the delivery of the Bonds or on such other dates as may be permitted under the Regulations, all amounts required to be rebated to the federal government. Further, the City will not indirectly pay any amount otherwise payable to the federal government pW'SUant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the gross proceeds of the Bonds that might result in a reduction in the amount required to be paid to the federal government because such arrangement results in a smaller profit or a larger loss than would have resulted if the arrangement had been at ann's length and had the yield on the issue not been relevant to either party. LUB2oonI002 Dallas 988798_1.DOC -24- Section 9.9. Infonnation RCJ)Orting. The City covenants and agrees to file or cause to be filed with the Secretary of the Treasury, not later than the 15th day of the second calendar month after the close of the calendar quarter in which the Bonds are issued, an information statement concerning the Bonds, all under and in accordance with section 149(e) of the Code and the Regulations. Section 9.10. Continuing Obligation. Notwithstanding any other provision of this Ordinance, the City's obligations wider the covenants and provisions of Sections 9.3 through 9.9 of this Article IX shall survive the defeasance and discharge of the Bonds. ARTICLEX DEFAULT AND REMEDIES Section 10.1. Events of Default. Each of the following occurrences or events for the purpose of this Ordinance is hereby declared to be an Event of Default: · (i) the failure to make payment of the principal of or interest on any of the Bonds when the same becomes due and payable; or (ii) default in the performance or observance of any other covenant, agreement or obligation of the City, which default materially and adversely affects the rights of the Owners, including but not limited to, their prospect or ability to be repaid in accordance with this Ordinance, and the continuation thereof for a period of sixty (60) days after notice of such default is given by any Owner to the City. Section 10.2. Remedies for Default. (a) Upon the happening of any Event of Default, then any Owner or an authorized representative thereof, including but not limited to, a trustee or trustees therefor, may proceed against the City for the purpose of protecting and enforcing the rights of the Owners under this Ordinance, by mandamus or other suit, action or special proceeding in equity or at law, in any court of competent jurisdiction, for any relief permitted by law, including the specific performance of any covenant or agreement contained herein, or thereby to enjoin any act or thing that may be unlawful or in violation of any right of the Owners hereunder or any combination of such remedies. · (b) It is provided that all such proceedings shall be instituted and maintained for the equal benefit of all Owners of Bonds then outstanding. Section I 0.3. Remedies Not Exclusive. (a) No remedy herein conferred or reserved is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be WB2oonI002 Dallas 988798_1 .DOC -25- in addition to every other remedy given hereunder or under the Bonds or now or hereafter existing at law or in equity; provided, however, that notwithstanding any other provision of this Ordinance, the right to accelerate the debt evidenced by the Bonds shall not be available as a remedy under this Ordinance. · (b) The exercise of any remedy herein conferred or reserved shall not be deemed a waiver of any other available remedy. ARTICLE XI DISCHARGE Section 11.1. Discharge. The Bonds may be defeased, discharged or refunded in any manner permitted by applicable law. ARTICLE XII CONTINUING DISCLOSURE UNDERTAKING Section 12.1. Annual Reports. (a) The City shall provide annually to each NRMSIR and to any SID, within six (6) months after the end of each fiscal year, financial information and operating data with respect to the City of the general type included in the final Official Statement, being the information described in Exhibit A hereto. Any financial statements so to be provided shall be (i) prepared in accordance with the accounting principles described in Exhibit A hereto, and (ii) 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 the audit of such financial statemel}ts is not complete within such period, then the City shall provide notice that audited financial statements are not available and shall provide unaudited financial statements for the applicable fiscal year to each NRMSIR and any SID. The City shall provide audited financial statements for the applicable fiscal year to each NRMSIR and to any SID, when and if audited financial statements become available. (b) 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 infonnation and operating data pursuant to this Section. (c) 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 referenced 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. LUB2oon1002 Dallas 988798_UXX:: -26- Section 12.2. Material Event Notices. (a) 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: (i) principal and interest payment delinquencies; (ii) nonpayment related defaults; (iii) unscheduled draws on debt service reserves reflecting financial difficulties; (iv) unscheduled draws on credit enhancements reflecting financial difficulties; (v) substitution of credit or liquidity providers, or their failme to perform; (vi) adverse tax opinions or events affecting the tax exempt status of the Bonds; (vii) modifications to rights of Owners; (viii) bond calls; (ix) defeasances; (x) release, substitution, or sale of property securing repayment of the Bonds; and (xi) rating changes. (b) 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 infonnation or operating data in accordance with Section 12.1 of this Ordinance by the time required by such Section. Section 12.3. Limitations, Disclaimers and Amendments. (a) The City shall be obligated to observe and perform the covenants specified in this Article for so long as, but only for so long as, 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 notice of any Bond calls and any defeasances that cause the City to be no longer an "obligated person." (b) The provisions of this Article are for the sole benefit of the Owners and beneficial owners of the Bonds, and nothing in this Article, express or implied, shall give any benefit or any legal or equitable right, remedy, or claim hereunder to any other person. The City widertakes to provide only the financial information, operating data, financial statements, and notices which it LUB200n1002 Dallas 988798_1.DOC -27- has expressly agreed to provide pursuant to this Article 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 Article 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 OWNER 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 ARTICLE, 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. (c) No default by the City in observing or performing its obligations under this Article shall constitute a breach of or default under the Ordinance for purposes of any other provisions of this Ordinance. ( d) Nothing in this Article is intended or shall act to disclaim, waive, or otherwise limit the duties of the City under federal and state securities laws. · (e) The provisions of this Article may be amended by the City 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, but only if (i) the provisions of this Article, 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 (ii) either (A) the Owners of a majority in aggregate principal amount (or any greater amount required by any other provisions of this Ordinance that authorizes such an amendment) of the outstanding Bonds consent to such amendment or (B) an entity or individual 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 Owners and beneficial owners of the Bonds. If the City so amends the provisions of this Article, it shall include with any amended financial information or operating data next provided in accordance with Section 12.1 an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in type of financial infonnation or operating data so provided. (t) Any filing required to be made pursuant to this Article XII may be made through the facilities of DisclosureUSA or such other central post office as may be ~pproved in writing by the SEC for such purpose. Any such filing made through such central post office will be deemed to have been filed with each NRMSIR and SID or MSRB as if such filing had been made directly to such entity. LUB20<Jnl002 Dallas 988798_1.DOC -28- ARTICLE XIII AMENDMENTS; ATTORNEY GENERAL MODIFICATION Section 13.1. Amendments. This Ordinance shall constitute a contract with the Owners, be binding on the City, and shall not be amended or repealed by the City so long as any Bond remains outstanding except as pennitted in this Section. The City may, without consent of or notice to any Owners, from time to time and at any time, amend this Ordinance in any manner not detrimental to the interests of the Owners, including the curing of any ambiguity, inconsistency, or formal defect or omission herein. In addition, the City may, with the written consent of the Owners of the Bonds holding a majority in aggregate principal amount of the Bonds then outstanding, amend, add to, or rescind any of the provisions of this Ordinance; provided that, without the consent of all Owners of outstanding Bonds, no such amendment, addition, or rescission shall (i) 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, or the rate of interest thereon, or in any other way modify the terms of payment of the principal of, or interest on the Bonds, (ii) give any preference to any Bond over any other Bond, or (iii) reduce the aggregate principal amount of Bonds required to be held by Owners for consent to any such amendment, addition, or rescission. Section 13.2. Attorney General Modification. In order to obtain the approval of the Bonds by the Attorney General of the State of Texas, any provision of this Ordinance may be modified, altered or amended after the date of its adoption if required by the Attorney General in connection with the Attorney General's examination as to the legality of the Bonds and approval thereof in accordance with the applicable law. Such changes, if any, shall be provided to the City Secretary and the City Secretary shall insert such changes into this Ordinance as if approved on the date hereof. ARTICLE XIV EFFECTNE IMMEDIATELY Section 14.1. Effective Immediately. Notwithstanding the provisions of the City Charter, this Ordinance shall become effective immediately upon its adoption at this meeting pursuant to Section 1201.028, Texas Government Code. LUB2oon1002 Dallas 988798_1.IX>C -29- PRESENTED, FINALLY PASSED AND APPROVED, AND EFFECTIVE on the 28th day of July, 2005, at a regular meeting of the City Council of e City of Lu c~ Texas. ATTEST: REBECCA GARZA, City Secretary [SEAL] APPROVED AS TO CONTENT: By: e~~ L ANNDUMBAULD, Chief Financial Officer/Assistant City Manager APPROVED AS TO FORM: By: RAY HUTCHISON, Bond Counsel LUB20on1002 Dallas 988798_1.DOC -30- EXHIBIT A DESCRIPTION OF ANNUAL DISCLOSURE OF FINANCIAL INFORMATION The following information is referred to in Article XII of this Ordinance. Annual Financial Statements and Operating Data 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 other headings of the Official Statement referred to) below: l. The portions of the financial statements of the City appended to the Official Statement as Appendix B, but for the most recently concluded fiscal year. 2. Statistical and financial data set forth in Tables _ and _ of the Official Statement. Accounting Principles The accounting principles referred to in such Section are the accounting principles described in the notes to the financial statements referred to in Paragraph 1 above. LUB200nI002 Dallas 988798_1.DOC A-1 ) ) ) we2oon1002 Dallas 1003398_1.DOC TRANSCRIPT OF PROCEEDINGS pertaining to $7,265,000 CITY OF LUBBOC~ TEXAS GENERAL OBLIGATION BONDS SERIES2005 Vinson&:Elkins ATTORNEYS AT LAW VINSON 1c EI..K1NS LLP. 3700 TRAIIIIMEU. CROW CENTER 2001 IIOSS AvaruE DALLAS, TEXAS 75201-2975 TELEPHONE (214) 2»7700 VOICE IWL (214) 2»1999 FAX (214) 2»7716 $7,265,000 CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION BONDS SERIES 2005 TABLE OF DOCUMENTS ) DOCUMENT TAB NO. I. BOND DOCUMENTS LI Certified Ordinance Providing for the Issuance of the Bonds 1 ) 1.2 Affidavit of Publication of Notice of Intent to Issue the Bonds 2 1.3 Paying Agent/Registrar Agreement 3 1.4 Preliminary Official Statement 4 1.5 Official Statement 5 1.6 Bond Purchase Contract 6 ) 1.7 Specimen Bonds 7 1.8 Insurance Commitment 8 1.9 Insurance Policy 9 II. CERTIFICATES, LETTERS AND RECEIPTS 2.1 General and No-Litigation Certificate 10 2.2 Attorney General/Comptroller Instruction Letter 11 ) 2.3 Federal Tax Certificate 12 2.4 Fonn 8038-G and Evidence of Transmittal 13 2.5 Receipt and Delivery Certificate of Paying Agent/Registrar 14 2.6 Certificate of Insurer 15 2.7 Rating Letters 16 2.8 Certificate Pursuant to Bond Purchase Contract 17 LUB200/7 I 00 I ) Dallas 995488_1.DOC ) ) ) DOCUMENT III. OPINIONS 3.1 3.2 3.3 3.4 3.5 3.6 3.7 LUB200nIOOI 995488_1.DOC Approving Opinion of Bond Counsel Supplemental Opinion of Bond Counsel Opinion of Underwriter's Counsel Opinion of Attorney General and Certificate Opinion of Insurer's Counsel Reliance Letter to Insurer Opinion of City Attorney -2- TAB NO. 18 19 20 Comptroller's Registration 21 22 23 24 MINUTES AND CERTIFICATION PERTAINING TO PASSAGE OF AN ORDINANCE STATE OF TEXAS § COUNTY OF LUBBOCK § CITY OF LUBBOCK § On the 28th day of July, 2005, the City Council of the City of Lubbock, Texas, convened in a special meeting at the regular meeting place thereof, the meeting being open to the public and notice of said meeting, giving the date, place and subject thereof, having been posted as prescribed by Chapter 551, Texas Government Code, as amended; and the roll was called of the duly constituted officers and members of the City Council, which officers and members are as follows: Marc McDougal, Mayor Tom Martin, Mayor Pro Tern Linda DeLeon Floyd Price Gary 0. Boren Phyllis S. Jones Jim Gilbreath ) ) ) ) ) Members of the Council and all of said persons were present, thus constituting a quorum. Whereupon, among other business. a written Ordinance bearing the following caption was introduced: AN ORDINANCE PROVIDING FOR THE ISSUANCE OF CITY OF LUBBOCK, TEXAS, GENERAL OBLIGATION BONDS, SERIES 2005, IN THE AGGREGATE PRINCIPAL AMOUNT OF $7,265,000; LEVYING AT AX IN PAYMENT THEREOF; APPROVING THE OFFICIAL STATEMENT; APPROVING EXECUTION OF A PURCHASE CONTRACT; AND ENACTING OTHER PROVISIONS RELATING THERETO The Ordinance, a full, bue and correct copy of which is attached hereto, was read and reviewed by the City Council. Thereupon, it was duly moved and seconded that the Ordinance be passed and adopted. The Presiding Officer put the motion to a vote of the members of the City Council, and the Ordinance was passed and adopted by the following vote: AYES: 7 NOES: 0 ABSTENTIONS: 0 LUB200nl002 Dallas 982454_1.00C MINUTES APPROVED AND CERTIFIED TO BE TRUE AND CORRECT, and to correctly reflect the duly constituted officers and members of the City Council of said City, and the attached and following copy of said Ordinance is hereby certified to be a true and correct copy of an official copy thereof on file among the official records of the City, all on this the 28th day of July, 2005. [SEAL] WB200nI002 Dallas 9824S4_1.DOC City Secretary CityofLubbock, Texas ) ' -2- LUB200nl002 Dallas 988798..J.DOC ORDINANCE relating to $7,265,000 CIIT OF LUBBOCK, TEXAS GENERAL OBLIGATION BONDS SERIES 2005 Dated: July 15, 2005 Adopted: July 28, 2005 TABLE OF CONTENTS Parties .............................................................................................................................................. 1 Section 1.1. Section 1.2. Section 1.3. Section 1.4. Section 2. l . Section 2.2. Section 3 .1. Section 3.2. Section 3.3. Section 3.4. Section 3.5. Section 3.6. Section 3. 7. Section 3.8. Section 3.9. Section 3.10. Section 3.11. Section 3.12. Section 4.1. Section 4.2. Section 4.3. LUB200171002 ARTICLE I DEFINITIONS AND OTHER PRELIMINARY MA TIERS Definitions ............................................................................................................... 2 Findings ................................................................................................................... 3 Table of Contents, Titles and Headings .................................................................. 3 Interpretation ........................................................................................................... 4 ARTICLE II SECURITY FOR THE BONDS; INTEREST AND SINKING FUND Tax Levy ................................................................................................................. 4 Interest and Sinking Fund ....................................................................................... 4 ARTICLE III AUTHORIZATION; GENERAL TERMS AND PROVISIONS REGARDING THE BONDS Authorization ........................................................................................................... 5 Date, Denomination, Maturities and Interest .......................................................... 5 Medium, Method and Place of Payment ................................................................. 6 Execution and Registration of Bonds ...................................................................... 7 Ownership ............................................................................................................... 7 Registration, Transfer and Exchange ...................................................................... 8 Cancellation ............................................................................................................. 8 Temporary Bonds .................................................................................................... 9 Replacement Bonds ................................................................................................. 9 Book-Entry Only System ...................................................................................... 10 Successor Securities Depository; Transfer Outside Book-Entry Only" System ..... 11 Payments to Cede & Co ........................................................................................ 11 ARTICLE IV REDEMPTION OF BONDS BEFORE MATURITY Limitation on Redemption .................................................................................... 11 Optional Redemption ............................................................................................ 12 Partial Redemption ................................................................................................ 12 Dallas 988798_2.00C (i) Section 4.4. Section 4.5. Section 4.6. Section 4.7. Section 5.1. Section 5.2. Section 5.3. Section 5.4. Section S.S. Section 5.6. Section 5.7. Section 6.1. Section 6.2. Section 6.3. Section 6.4. Section 6.5. Section 7 .1. Section 7 .2. Section 7.3. Section 8.1. Section 8.2. Notice of Redemption to Owners .......................................................................... 12 Payment Upon Redemption .................................................................................. 13 Effect of Redemption ............................................................................................ 13 Lapse of Payment .................................................................................................. l 3 ARTICLEV PA YING AGENT/REGISTRAR Appointment of Initial Paying Agent/Registrar .................................................... 13 Qualifications ........................................................................................................ 13 Maintaining Paying Agent/Registrar ..................................................................... l 4 Termination . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .. .. . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Notice of Change to Owners ................................................................................. 14 Agreement to Perform Duties and FW1ctions ........................................................ 14 Delivery of Records to Successor ......................................................................... 14 ARTICLE VI FORM OF THE BONDS Form Generally ... . .. . . .. . . . .. ... . ... ... . . . .. . . . .. . . . .. . . .... ... . ... . ..... .. .. .. . .... .. . . .. . . ... . .... .. . . . . . .. . ... . . 14 Form of the Bonds ................................................................................................. 15 CUSIP Registration ............................................................................................... 20 Legal Opinion ........................................................................................................ 20 Statement of Insurance .......................................................................................... 20 ARTICLE VII SALE AND DELIVERY OF BONDS; DEPOSIT OF PROCEEDS Sale of Bonds; Official Statement.. ....................................................................... 20 Control and Delivery of Bonds ............................................................................. 21 Deposit of Proceeds ............................................................................................... 22 ARTICLE VIII INVESTMENTS Investtnents ............................................................................................................ 22 Investtnent Income ................................................................................................ 22 ARTICLE lX PARTICULAR REPRESENTATIONS AND COVENANTS Section 9. l . Paynient of the Bonds ........................................................................................... 22 Section 9.2. Other Representations and Covenants ................................................................... 23 LUB200/71002 Dallas 988798__2.DOC (ii) Section 9.3. Section 9.4. Section 9.5. Section 9.6. Section 9.7. Section 9 .8. Section 9.9. Section 9.10. Provisions Concerning Federal Income Tax Exclusion ........................................ 23 No Private Use or Payment and No Private Loan Financing ................................ 23 No Federal Guaranty ............................................................................................. 24 Bonds are not Hedge Bonds .................................................................................. 24 No-Arbitrage Covenant ......................................................................................... 24 Arbitrage Rebate ................................................................................................... 2 4 Information Reporting ........................................................................................... 25 Continuing Obligation ........................................................................................... 25 ARTICLEX DEFAULT AND REMEDIES Section 10.1. Events of Default. .................................................................................................. 25 Section 10.2. Remedies for Default ............................................................................................ 25 Section 10.3. Remedies Not Exclusive ....................................................................................... 25 ARTICLE XI DISCHARGE Section 11.1. Discharge ............................................................................................................... 26 ARTICLE XII CONTINUING DISCLOSURE UNDERTAKING Section 12.1. Annual Reports ...................................................................................................... 26 Section 12.2. Material Event Notices .......................................................................................... 27 Section 12.3. Limitations, Disclaimers and Amendments .......................................................... 27 ARTICLE XIII AMENDMENTS; ATTORNEY GENERAL MODIFICATION Section 13.1. Amendments .......................................................................................................... 29 Section 13.2. Attorney General Modification ............................................................................. 29 ARTICLE XIV INSURANCE PROVISIONS Section 14. l. Municipal Bond Insurance .................................................................................... 29 Section 14.2. Payments Under Municipal Bond Insurance Policy ............................................. 29 LUB2oomoo2 Dallas 988798_2.DOC (iii) ARTICLE XV EFFECTIVE IMMEDIATELY Section 15.1. Effective hnmediately ........................................................................................... 32 Signatures ...................................................................................................................................... 30 Exhibit A -Description of Annual Disclosure of Financial Information .................................... A-1 LUB200nl002 _ Dallas 938798_2.00C (iv) AN ORDINANCE PROVIDING FOR THE ISSUANCE OF CITY OF LUBBOCK. TEXAS, GENERAL OBLIGATION BONDS, SERIES 2005, IN THE AGGREGATE PRINCIPAL AMOUNT OF $7,265,000; LEVYING A TAX IN PAYMENT THEREOF; APPROVING THE OFFICIAL STATEMENT; APPROVING EXECUTION OF A PURCHASE CONTRACT; AND ENACTING OTHER PROVISIONS RELATING THERETO WHEREAS, the bonds hereinafter authorized were duly and favorably voted, as required by the Constitution and laws of the State of Texas, at an election held in the City of Lubbock, Texas (the "City"), on May 15, 2004; WHEREAS, at said election the following are among the purposes and amounts of the bonds which were authorized, reflecting any amount previously issued pursuant to each voted authorization, the amount therefrom being issued pursuant to this Ordinance, and the balance that remains unissued after the issuance of the bonds herein authorized, to wit: (amounts in thousands) Amount Amount Election Amount Previously Being Unissued Purpose Date Voted Issued Issued Balance Parks 05/15/04 $ 6,395 $ 190 $4,480 $1,725 Streets 05/15/04 9,210 1,590 1,465 6,155 Libraries 05/15/04 2,145 -0--0-2,145 Animal Shelter 05/15/04 1,045 160 -0-885 Fire 05/15/04 1,405 85 1,320 -0- Police/Municipal Court 05/15/04 3,350 -0--0-3,350 Ci vie Center/ Auditorium 05/15/04 6,450 -0--0-6,450 Total $301000 $2,025 SZ.265 $20.ZJQ WHEREAS, pursuant to a resolution heretofore passed by the City Council, notice of intention to issue the bonds was published in a newspaper of general circulation in the City in accordance with the City's Home-Rule Charter; WHEREAS, the City Council has found and determined that it is necessary and in the best interest of the City and its citizens that it authorize by this Ordinance the issuance and delivery of $7,265,000 of such bonds at this time, all in a single issue; and WHEREAS, the meeting at which this Ordinance is considered is open to the public as required by law, and public notice of the time, place and purpose of said meeting was given as required by Chapter 551, Texas Government Code, as amended; therefore, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK: WB200n1002 Dallas 988798_2.IX>C ) ARTICLE I DEFINITIONS AND OTHER PRELIMINARY MATTERS Section 1.1. Definitions. Unless otherwise expressly provided or unless the context clearly requires otherwise in this Ordinance, the following terms shall have the meanings specified below: "Bond" means any of the Bonds. "Bond Date" means the date designated as the date of the Bonds by Section 3.2(a) of this Ordinance. "Bonds" means the City's bonds authorized to be issued by Section 3.1 of this Ordinance and designated as "City of Lubbock, Texas, General Obligation Bonds, Series 2005." "City" means the City of Lubbock, Texas. "Closing Date" means the date of the initial delivery of and payment for the Bonds. "Code" means the Internal Revenue Code of 1986, as amended, including applicable regulations, published rulings and court decisions. "Designated Payment/Transfer Office" means (i) with respect to the initial Paying Agent/Registrar named in this Ordinance, the Designated Paymeniffransfer Office as designated in the Paying Agent/Registrar Agreement, or at such other location designated by the Paying Agent/Registrar and (ii) with respect to any successor Paying Agent/Registrar, the office of such successor designated and located as may be agreed upon by the City and such successor. "DTC" means The Depository Trust Company of New York, New York, or any successor securities depository. "DTC Participant" means brokers and dealers, banks, trust companies, clearing corporations and certain other organizations on whose behalf DTC was created to hold securities to facilitate the clearance and settlement of securities transactions among DTC Participants. "Event of Default" means any event of default as defined in Section 10.1 of this Ordinance. "Initial Bond" means the initial bond authorized by Section 3.4 of this Ordinance. "Interest and Sinking Fund" means the interest and sinking fund established by Section 2.2 of this Ordinance. "Interest Payment Date" means the date or dates on which interest on the Bonds is scheduled to be paid until their respective dates of maturity or prior redemption, such dates being February 15 and August 15 of each year, commencing February 15, 2006. LUB200nl002 Dallas 988798_2.DOC -2- "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. "Owner" means the person who is the registered owner of a Bond or Bonds, as shown in the Register. "Paying Agent/Registrar" means initially JPMorgan Chase Bank, National Association, or any successor thereto as provided in this Ordinance. "Record Date" means the last business day of the month next preceding an Interest Payment Date. "Register" means the Register specified in Section 3 .6( a) of this Ordinance. "Representation Letter'' means the Blanket Letter of Representations between the City and DTC. "Rule" means SEC Rule l 5c2-12, as amended from time to time. "SEC" means the United States Securities and Exchange Commission. "SID" means any person designated by the State of Texas or an authorized department, office, or agency thereof as, and determined by the SEC or its staff to be, a state infonnation depository within the meaning of the Rule from time to time. "Unclaimed Payments" means money deposited with the Paying Agent/Registrar for the payment of principal of or interest on the Bonds as the same come due and payable and remaining unclaimed by the Owners of such Bonds after the applicable payment or redemption date. "Underwriters" means A.G. Edwards & Sons, Inc., M.E. Allison & Co. Inc. and RBC Dain Rauscher Inc. Section 1.2. Findings. The declarations, determinations and findings declared, made and found in the preamble to this Ordinance are hereby adopted, restated and made a part of the operative provisions hereof. Section 1.3. Table of Contents, Titles and Headings. The table of contents, titles and headings of the Articles and Sections of this Ordinance have been inserted for convenience of reference only and are not to be considered a part hereof and shall not in any way modify or restrict any of the terms or provisions hereof and shall never be considered or given any effect in construing this Ordinance or any provision hereof or in ascertaining intent, if any question of intent should arise. LUB2Clonl002 Dallas 988798_2.IX>C -3- Section 1.4. Interpretation. (a) Unless the context requires otherwise, words of the masculine gender shall be construed to include correlative words of the feminine and neuter genders and vice versa, and words of the singular number shall be construed to include correlative words of the plural number and vice versa. (b) This Ordinance and all the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein. ARTICLE II SECURITY FOR THE BONDS; INTEREST AND SINKING FUND Section 2.1. Tax Levy. (a) Pursuant to the authority granted by the Texas Constitution and the laws of the State of Texas, there shall be levied and there is hereby levied for the current year and for each succeeding year hereafter while any of the Bonds or any interest thereon is outstanding and unpaid, an ad valorem tax on each one hundred dollars valuation of taxable property within the City, at a rate sufficient, within the limit prescribed by law, to pay the debt service requirements of the Bonds, being (i) the interest on the Bonds, and (ii) a sinking fund for their redemption at maturity or a sinking fund of two percent (2%) per annum (whichever amount is greater), when due and payable, full allowance being made for delinquencies and costs of collection. (b) The ad valorem tax thus levied shall be assessed and collected each year against all property appearing on the tax rolls of the City most recently approved in accordance with law and the money thus collected shall be deposited as collected to the Interest and Sinking Fund. ( c) Said ad valorem tax, the collections therefrom, and all amounts on deposit in or required hereby to be deposited to the Interest and Sinking Fund are hereby pledged and committed irrevocably to the payment of the principal of and interest on the Bonds when and as due and payable in accordance with their tenns and this Ordinance. ( d) If the lien and provisions of this Ordinance shall be released in a manner permitted by Article XI hereo~ then the collection of such ad valorem tax may be suspended or appropriately reduced, as the facts may permit, and further deposits to the Interest and Sinking Fund may be suspended or appropriately reduced, as the facts may pennit. In determining the aggregate principal amount of outstanding Bonds, there shall be subtracted the amount of any Bonds that have been duly called for redemption and for which money has been deposited with the Paying Agent/Registrar for such redemption. Section 2.2. Interest and Sinking Fund. (a) The City hereby establishes a special fund or accowit to be designated the ''City of Lubbock, Texas, General Obligation Bonds, Series 2005, Interest and Sinking Fund," said fund to be maintained at an official depository bank of the City separate and apart from all other funds and accounts of the City. LUB2oon 1002 Dallas 988798_2DOC -4- ) (b) Money on deposit in or required by this Ordinance to be deposited to the Interest " and Sinking Fund shall be used solely for the purpose of paying the interest on and principal of ., "I the Bonds when and as due and payable in accordance with their terms and this Ordinance. ARTICLE III AUTHORIZATION; GENERAL TERMS AND PROVISIONS REGARDING THE BONDS Section 3.1. Authorization. The City's bonds, to be designated "City of Lubbock, Texas, General Obligation Bonds, Series 2005," are hereby authorized to be issued and delivered in accordance with the Constitution and laws of the State of Texas, including specifically Chapter 1331, Government Code, as amended, and Article VIII of the Charter of the City. The Bonds shall be issued in the aggregate principal amount of$7,265,000, for the purpose of providing funds for payment of the costs of issuing the Bonds and for permanent public improvements, to wit: (i) $1,465,000 for street improvements including drainage, curbs, gutters, landscaping, sidewalks, curb ramps, utility line relocation and traffic signalization and the acquisition of land and rights-of-way therefor; (ii) $4,480,000 to acquire and improve, or both, land for park purposes and (iii) $1,320,000 for constructing, renovating, improving and equipping fire stations. Section 3.2. Date, Denomination, Maturities and Interest. (a) The Bonds shall be dated July 15, 2005. The Bonds shall be in fully registered fonn, without coupons, in the denomination of $5,000 or any integral multiple thereof, and shall be numbered separately from one upward, except the Initial Bond, which shall be numbered T-1. (b) The Bonds shall mature on February 15 in the years and in the principal amounts set forth in the following schedule: Principal Interest Principal Interest Year Amounts Rate Year Amounts Rate 2006 $230,000 3.000% 2016 $360,000 4.000% 2007 260,000 3.000% 2017 375,000 4.050% 2008 265,000 3.250% 2018 390,000 4.100% 2009 275,000 3.375% 2019 405,000 4.150% 2010 285,000 3.500% 2020 420,000 4.200% 201 l 295,000 3.625% 2021 44-0,000 4.250% 2012 305,000 3.750% 2022 460,000 4.300% 2013 320,000 3.875% 2023 480,000 4.350% 2014 330,000 3.700% 2024 500,000 4.375% 2015 345,000 3.800% 2025 525,000 4.400% (c) Interest shall accrue and be paid on each Bond respectively until its maturity or prior redemption, from the later of the Bond Date or the most recent Interest Payment Date to LUB200n 1002 Dallas 988798_2.00C -5- ) which interest has been paid or provided for at the rates per annum for each respective maturity ) specified in the schedule contained in subsection (b) above. Such interest shall be payable on each Interest Payment Date until maturity or prior redemption. Interest on the Bonds shall be calculated on the basis of a three hundred sixty (360) day year composed of twelve (12) months of thirty (30) days each. ) "I '\ I ) Section 3.3. Medium. Method and Place of Payment. (a) The principal of and interest on the Bonds shall be paid in lawful money of the United States of America. (b) Interest on the Bonds shall be payable to each Owner as shown in the Register at the close of business on the Record Date. ( c) Interest shall be paid by check, dated as of the Interest Payment Date, and sent by the Paying Agent/Registrar to each Owner by United States mail, first class postage prepaid, to the address of each Owner as it appears in the Register, or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the Owner; provided, however, the Owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. ( d) The principal of each Bond shall be paid to the Owner thereof on the due date (whether at the maturity date or the date of prior redemption thereof) upon presentation and surrender of such Bond at the Designated Paymentffransfer Office of the Paying Agent/Registrar. ( e) If the date for the payment of the principal of or interest on the Bonds shall be a Saturday, Sunday, legal holiday, or day on which banking institutions in the city where the Designated Paymentffransfer Office of the Paying Agent/Registrar is located are required or authorized by law or executive order to close, then the date for such payment shall be the next succeeding day that is not a Saturday, Sunday, legal holiday, or day on which banking institutions are required or 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 and no additional interest shall be due by reason of nonpayment on the date on which such payment is otherwise stated to be due and payable. (f) Unclaimed Payments shall be segregated in a special escrow account and held in trust, uninvested by the Paying Agent/Registrar, for the accounts of the Owners of the Bonds to which the Unclaimed Payments pertain. Subject to Title 6 of the Texas Property Code, Unclaimed Payments remaining unclaimed by the Owners entitled thereto for three years after the applicable payment or redemption date shall be applied to the next payment or payments on the Bonds thereafter coming due and, to the extent any such money remains after the retirement of all outstanding Bonds, shall be paid to the City to be used for any lawful purpose. Thereafter, neither the City, the Paying Agent/Registrar nor any other person shall be liable or responsible to any holders of such Bonds for any further payment of such unclaimed monies or on account of any such Bonds, subject to Title 6 of the Texas Property Code. LUB200n 1002 Dallas 988798__2.00C .:.6- ") Section 3 .4. Execution and Registration of Bonds. ( a) The Bonds shall be executed on behalf of the City by the Mayor and the City Secretary, by their manual or facsimile signatures, and the official seal of the City shall be impressed or placed in facsimile thereon. Such facsimile signatures on the Bonds shall have the same effect as if each of the Bonds had been signed manually and in person by each of said officers, and such facsimile seal on the Bonds shall have the same effect as if the official seal of the City had been manually impressed upon each of the Bonds. (b) In the event that any officer of the City whose manual or facsimile signature appears on the Bonds ceases to be such officer before the authentication of such Bonds or before the delivery thereof, such manual or facsimile signature nevertheless shall be valid and sufficient for all purposes as if such officer had remained in such office. (c) Except as provided below, no Bond shall be valid or obligatory for any purpose or be entitled to any security or benefit of this Ordinance unless and until there appears thereon the Certificate of Paying Agent/Registrar substantially in the form provided herein, duly ) authenticated by manual execution by an officer or duly authorized signatory of the Paying Agent/Registrar. It shall not be required that the same officer or authorized signatory of the Paying Agent/Registrar sign the Certificate of Paying Agent/Registrar on all of the Bonds. In lieu of the executed Certificate of Paying Agent/Registrar described above, the Initial Bond delivered at the Closing Date shall have attached thereto the Comptroller's Registration Certificate substantially in the fonn provided herein, manually executed by the Comptroller of Public Accounts of the State of Texas, or by his duly authorized agent, which Certificate shall be evidence that the Bond has been duly approved by the Attorney General of the State of Texas, that it is a valid and binding obligation of the City and that it has been registered by the Comptroller of Public Accounts of the State of Texas. } ( d) On the Closing Date, one Initial Bond representing the entire principal amount of all Bonds, payable in stated installments to the initial purchaser, or its designee, executed by the Mayor and City Secretary of the City by their manual or facsimile signatures, approved by the Attorney General, and registered and manually signed by the Comptroller of Public Accounts, will be delivered to the initial purchaser or its designee. Upon payment for the Initial Bond, the Paying Agent/Registrar shall cancel the Initial Bond and deliver to DTC, on behalf of the initial Purchaser, one typewritten Bond for each maturity representing the aggregate principal amount for each respective maturity, registered in the name of Cede & Co., as nominee for DTC. Section 3.5. Ownership. (a) The City, the Paying Agent/Registrar and any other person may treat the person in whose name any Bond is registered as the absolute owner of such Bond for the purpose of making and receiving payment as provided herein ( except interest shall be paid to the person in whose name such Bond is registered on the Record Date), and for all other purposes, whether or not such Bond is overdue, and neither the City nor the Paying Agent/Registrar shall be boWld by any notice or knowledge to the contrary. LUB200nl002 Dallas 988798_2.DOC (b) All payments made to the Owner of a Bond shall be valid and effectual and shall ) discharge the liability of the City and the Paying Agent/Registrar upon such Bond to the extent of the sums paid. ) ) ) ) Section 3.6. Registration. Transfer and Exchange. ( a) So long as any Bonds remain outstanding, the City shall cause the Paying Agent/Registrar to keep at the Designated Paymentffransfer Office a register in which, subject to such reasonable regulations as it may prescribe, the Paying Agent/Registrar shall provide for the registration and transfer of Bonds in accordance with this Ordinance. (b) The ownership of a Bond may be transferred only upon the presentation and surrender of the Bond at the Designated Payment/Transfer Office of the Paying Agent/Registrar with such endorsement or other evidence of transfer as is acceptable to the Paying Agent/Registrar. No transfer of any Bond shall be effective until entered in the Register. (c) The Bonds shall be exchangeable upon the presentation and surrender thereof at the Designated Payment/Transfer Office of the Paying Agent/Registrar for a Bond or Bonds of the same maturity and interest rate and in any denomination or denominations of any integral multiple of $5,000 and in an aggregate principal amount equal to the unpaid principal amount of the Bonds presented for exchange. The Paying Agent/Registrar is hereby authorized to authenticate and deliver Bonds exchanged for other Bonds in accordance with this Section. (d) Each exchange Bond delivered by the Paying Agent/ Registrar in accordance with this Section shall constitute an original contractual obligation of the City and shall be entitled to the benefits and security of this Ordinance to the same extent as the Bond or Bonds in lieu of which such exchange Bond is delivered. (e) No service charge shall be made to the Owner for the initial registration, subsequent transfer, or exchange for any different denomination of any of the Bonds. The Paying Agent/Registrar, however, may require the Owner to pay a sum sufficient to cover any tax or other governmental charge that is authorized to be imposed in connection with the registration, transfer or exchange of a Bond. (f) Neither the City nor the Paying Agent/Registrar shall be required to issue, transfer, or exchange any Bond called for redemption, in whole or in part, where such redemption is scheduled to occur within forty-five (45) calendar days after the transfer or exchange date; provided, however, such limitation shall not be applicable to an exchange by the Owner of the uncalled principal balance of a Bond. Section 3.7. Cancellation. All Bonds paid or redeemed before scheduled maturity in accordance with this Ordinance, and all Bonds in lieu of which exchange Bonds or replacement Bonds are authenticated and delivered in accordance with this Ordinance, shall be cancelled and proper records shall be made regarding such payment, redemption, exchange or replacement. The Paying Agent/Registrar shall then return such cancelled Bonds to the City or may in accordance LUB2oon 1002 Dallas 988798_2.IXJC -8- ) ) ) ) with law destroy such cancelled Bonds and periodically furnish the City with certificates of destruction of such Bonds. Section 3.8. Temporary Bonds. (a) Following the delivery and registration of the Initial Bond and pending the preparation of definitive Bonds, the proper officers of the City may execute and, upon the City's request, the Paying Agent/Registrar shall authenticate and deliver, one or more temporary Bonds that are printed, lithographed, typewritten, mimeographed or otherwise produced, in any denomination, substantially of the tenor of the definitive Bonds in lieu of which they are delivered, without coupons, and with such appropriate insertions, omissions, substitutions and other variations as the officers of the City executing such temporary Bonds may detennine, as evidenced by their signing of such temporary Bonds. (b) Until exchanged for Bonds in definitive form, such Bonds in temporary form shall be entitled to the benefit and security of this Ordinance. (c) The City, without unreasonable delay, shall prepare, execute and deliver to the Paying Agent/Registrar the Bonds in definitive fonn; thereupon, upon the presentation and surrender of the Bonds in temporary form to the Paying Agent/Registrar, the Paying Agent/Registrar shall cancel the Bonds in temporary fonn and shall authenticate and deliver in exchange therefor Bonds of the same maturity and series, in definitive form. in the authorized denomination, and in the same aggregate principal amount, as the Bonds in temporary fonn surrendered. Such exchange shall be made without the making of any charge therefor to any Owner. Section 3.9. Rq,lacement Bonds. (a) Upon the presentation and surrender to the Paying Agent/Registrar of a mutilated Bond, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor a replacement Bond of like tenor and principal amount, bearing a number not contemporaneously outstanding. The City or the Paying Agent/Registrar may require the Owner of such Bond to pay a sum sufficient to cover any tax or other governmental charge that is authorized to be imposed in connection therewith and any other expenses connected therewith. (b) In the event that any Bond is lost, apparently destroyed or wrongfully taken, the Paying Agent/Registrar, pursuant to the applicable laws of the State of Texas and in the absence of notice or knowledge that such Bond has been acquired by a bona fide purchaser, shall authenticate and deliver a replacement Bond of like tenor and principal amount, bearing a nmnber not contemporaneously outstanding, provided that the Owner first: (i) furnishes to the Paying Agent/Registrar satisfactory evidence of his or her ownership of and the circumstances of the loss, destruction or theft of such Bond; (ii) furnishes such security or indemnity as may be required by the Paying Agent/Registrar to save it and the City harmless; LUB200n I 002 Dallas 988798_2.DOC -9- ) (iii) pays all expenses and charges in connection therewith, including, but not limited to, printing costs, legal fees, fees of the Paying Agent/Registrar and any tax or other governmental charge that is authorized to be imposed; and (iv) satisfies any other reasonable requirements imposed by the City and the Paying Agent/Registrar. ) (c) If, after the delivery of such replacement Bond, a bona fide purchaser of the original Bond in lieu of which such replacement Bond was issued presents for payment such original Bond, the City and the Paying Agent/Registrar shall be entitled to recover such replacement Bond from the person to whom it was delivered or any person talcing therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity ) provided therefor to the extent of any loss, damage, cost or expense incurred by the City or the Paying Agent/Registrar in connection therewith. (d) In the event that any such mutilated, lost, apparently destroyed or wrongfully taken Bond has become or is about to become due and payable, the Paying Agent/Registrar, in its ) discretion, instead of issuing a replacement Bond, may pay such Bond if it has become due and payable or may pay such Bond when it becomes due and payable. (e) Each replacement Bond delivered in accordance with this Section shall constitute an original additional contractual obligation of the City and shall be entitled to the benefits and security of this Ordinance to the same extent as the Bond or Bonds in lieu of which such replacement Bond is delivered. Section 3.10. Book-Entry Only System. Notwithstanding any other provision hereof, upon initial issuance of the Bonds, the ownership of the Bonds shall be registered in the name of Cede & Co., as nominee of DTC. The definitive Bonds shall be initially issued in the fonn of a single separate fully registered certificate for each of the maturities thereof. With respect to Bonds registered in the name of Cede & Co., as nominee of DTC, the City and the Paying Agent/Registrar shall have no responsibility or obligation to any DTC Participant or to any person on behalf of whom such a DTC Participant holds an interest in the Bonds. Without limiting the immediately preceding sentence, the City and the Paying Agent/Registrar shall have no responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co. or any DTC Participant with respect to any ownership interest in the Bonds, (ii) the delivery to any DTC Participant or any other person, other than an Owner, as shown on the Register, of any notice with respect to the Bonds, including any notice of redemption, or (iii) the payment to any OTC Participant or any other person, other than a Bondholder, as shown in the Register of any amount with respect to principal of or interest on the Bonds. Notwithstanding any other provision of this. Ordinance to the contrary, the City and the Paying Agent/Registrar shall be entitled to treat and consider the person in whose name each Bond is registered in the Register as the absolute owner of such Bond for the purpose of payment of principal of and interest on such Bonds, for the purpose of giving notices of redemption and other matters with respect to such Bond, for the purpose of registering transfer with respect to LlJB200nI002 Dallas 988798_2.DOC -10- ' J ) ) ) such Bond, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of and interest on the Bonds only to or upon the order of the respective owners, as shown in the Register as provided in this Ordinance, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the City's obligations with respect to payment of principal of and interest on the Bonds to the extent of the sum or sums so paid. No person other than an Owner, as shown in the Register, shall receive a certificate evidencing the obligation of the City to make payments of amounts due pursuant to this Ordinance. Upon delivery by OTC to the Paying Agent/Registrar of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., the word "Cede & Co.•• in this Ordinance shall refer to such new nominee of OTC. The Representation Letter previously executed and delivered by the City, and applicable to the City's obligations delivered. in book-entry-only form to DTC as securities depository is hereby ratified and approved. for the Bonds. Section 3.11. Successor Securities Depository; Transfer Outside Book-Entry Only System. ln the event that the City or the Paying Agent/Registrar determines that OTC is incapable of discharging its responsibilities described herein and in the Representations Letter of the City to DTC, or in the event DTC discontinues the services described herein, the City or the Paying Agent/Registrar shall (i) appoint a successor securities depository, qualified to act as such under Section l 7(a) of the Securities and Exchange Act of 1934, as amended, notify DTC and DTC Participants of the appointment of such successor securities depository and transfer one or more separate Bonds to such successor securities depository or (ii) notify DTC and DTC Participants of the availability through DTC of Bonds and transfer one or more separate Bonds to DTC Participants having Bonds credited to their DTC accounts. In such event, the Bonds shall no longer be restricted to being registered in the Register in the name of Cede & Co., as nominee of OTC, but may be registered in the name of the successor securities depository, or its nominee, or in whatever name or names Bondholders transferring or exchanging Bonds shall designate, in accordance with the provisions of this Ordinance. Section 3.12. Payments to Cede & Co. Notwithstanding any other provision of this Ordinance to the contrary, so long as any Bonds are registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of and interest on such Bonds, and all notices with respect to such Bonds, shall be made and given, respectively, in the manner provided in the Representation Letter. ARTICLE IV REDEMPTION OF BONDS BEFORE MATURITY Section 4.1. Limitation on Redemption. The Bonds shall be subject to redemption before scheduled maturity only as provided in this Article IV. LUB200nl002 Dallas 988798_2.DOC -11- ) .., .I ) ) ) Section 4.2. Optional Redemption. (a) The City reserves the option to redeem Bonds maturing on and after February 15, 2016 in whole or any part, before their respective scheduled maturity dates, on February 15, 2015, or on any date thereafter, at a price equal to the principal amount of the Bonds called for redemption plus accrued interest to the date fixed for redemption. (b) The City, at least forty-five (45) days before the redemption date, unless a shorter period shall be satisfactory to the Paying Agent/Registrar, shall notify the Paying Agent/Registrar of such redemption date and of the principal amount of Bonds to be redeemed. Section 4.3. Partial Redemption . (a) If less than all of the Bonds are to be redeemed pursuant to Section 4.2 hereof, the City shall detennine the maturity or maturities and the amounts thereof to be redeemed and shall direct the Paying Agent/Registrar to call by lot the Bonds, or portions thereof, within such maturity or maturities and in such principal amounts for redemption. (b) A portion of a single Bond of a denomination greater than $5,000 may be redeemed, but only in a principal amount equal to $5,000 or any integral multiple thereof. If such a Bond is to be partially redeemed, the Paying Agent/Registrar shall treat each $5,000 portion of the Bond as though it were a single Bond for purposes of selection for redemption. (c) Upon surrender of any Bond for redemption in part, the Paying Agent/Registrar, in accordance with Section 3.6 of this Ordinance, shall authenticate and deliver an exchange Bond or Bonds in an aggregate principal amount equal to the unredeemed portion of the Bond so surrendered, such exchange being without charge. ( d) The Paying Agent/Registrar shall promptly notify the City in writing of the principal amount to be redeemed of any Bond as to which only a portion thereof is to be redeemed. Section 4.4. Notice of Redemption to Owners. ( a) The Paying Agent/Registrar shall give notice of any redemption of Bonds by sending notice by United States mail, first class postage prepaid, not less than thirty (30) days before the date fixed for redemption, to the Owner of each Bond (or part thereof) to be redeemed, at the address shown on the Register at the close of business on the business day next preceding the date of mailing such notice. (b) The notice shall state the redemption date, the redemption price, the place at which the Bonds are to be surrendered for payment, and, if less than all the Bonds outstanding are to be redeemed, an identification of the Bonds or portions thereof to be redeemed. (c) Any notice given as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Owner receives such notice. LUB200n 1002 Dallas 98879&_2.00C -12- ) ) Section 4.5. Payment Upon Redemption. (a) Before or on each redemption date, the City shall deposit with the Paying Agent/Registrar money sufficient to pay all amounts due on the redemption date and the Paying Agent/Registrar shall make provision for the payment of the Bonds to be redeemed on such date by setting aside and holding in trust such amounts as are received by the Paying Agent/Registrar from the City and shall use such funds solely for the purpose of paying the principal of and accrued interest on the Bonds being redeemed. (b) Upon presentation and surrender of any Bond called for redemption at the Designated Payment/Transfer Office on or after the date fixed for redemption, the Paying Agent/Registrar shall pay the principal of and accrued interest on such Bond to the date of redemption from the money set aside for such purpose. Section 4.6. Effect of Redemption. (a) Notice of redemption having been given as provided in Section 4.4 of this Ordinance, the Bonds or portions thereof called for redemption shall become due and payable on the date fixed for redemption and, unless the City defaults in its obligation to make provision for the payment of the principal thereof, or accrued interest thereon, such Bonds or portions thereof shall cease to bear interest from and after the date fixed for redemption, whether or not such Bonds are presented and surrendered for payment on such date. (b) If the City shall fail to make provision for payment of all sums due on a redemption date, then any Bond or portion thereof called for redemption shall continue to bear interest at the rate stated on the Bond until due provision is made for the payment of same by the City. Section 4. 7. Lapse of Payment. Money set aside for the redemption of Bonds and remaining unclaimed by the Owners of such Bonds shall be subject to the provisions of Section 3.3(t) hereof. ARTICLEV PA YING AGENT/REGISTRAR Section 5.1. Appointment of Initial Paying Agent/Registrar. JPMorgan Chase Bank, National Association, is hereby appointed as the initial Paying Agent/Registrar for the Bonds. Section 5.2. Qualifications. Each Paying Agent/Registrar shall be a commercial bank, a trust company organized under the laws of the State of Texas, or any other entity duly qualified and legally authorized to serve as and perform the duties and services of paying agent and registrar for the Bonds. WB200nl 002 Dallas 988798_2.00C -13- ) ) ) Section 5.3. Maintaining Paying Agent/Registrar. (a) At all times while any Bonds are outstanding, the City will maintain a Paying Agent/Registrar that is qualified under Section 5.2 of this Ordinance. The Mayor is hereby authorized and directed to execute an agreement with the Paying Agent/Registrar specifying the duties and responsibilities of the City and the Paying Agent/Registrar. The signature of the Mayor shall be attested by the City Secretary of the City. The form of the Paying Agent/Registrar Agreement presented at this meeting is hereby approved with such changes as may be approved by bond counsel to the City. (b) If the Paying Agent/Registrar resigns or otherwise ceases to serve as such, the City will promptly appoint a replacement Section 5.4. Tennination. The City, upon not less than sixty (60) days notice, reserves the right to terminate the appointment of any Paying Agent/ Registrar by delivering to the entity whose appointment is to be terminated written notice of such termination. Section 5.5. Notice of Change to Owners. Promptly upon each change in the entity serving as Paying Agent/Registrar, the City will cause notice of the change to be sent to each Owner by United States mail, first class postage prepaid, at the address in the Register thereof, stating the effective date of the change and the name and mailing address of the replacement Paying Agent/Registrar. Section 5.6. Agreement to Perform Duties and Functions. ) By accepting the appointment as Paying Agent/Registrar and executing the Paying ) Agent/Registrar Agreement, the Paying Agent/Registrar is deemed to have agreed to the provisions of this Ordinance and that it will perform the duties and functions of Paying Agent/Registrar prescribed thereby. Section 5.7. Delivery of Records to Successor. If a Paying Agent/Registrar is replaced, such Paying Agent/Registrar, promptly upon the appointment of the successor, will deliver the Register ( or a copy thereof) and all other pertinent books and records relating to the Bonds to the successor Paying Agent/Registrar. ARTICLE VI FORM OF THE BONDS Section 6.1. Form Generally. (a) The Bonds, including the Registration Certificate of the Comptroller of Public Accounts of the State of Texas, the Certificate of the Paying Agent/Registrar, and the Assignment form to appear on each of the Bonds, (i) shall be substantially in the form set forth in LUB200/71002 Dallas 988798_.2.DOC -14- ) ) ) ) ) this Article, with such appropriate insertions, omissions, substitutions, and other variations as are pennitted or required by this Ordinance, and (ii) 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 any reproduction of an opinion of counsel) thereon as, consistently herewith, may be determined by the City or by the officers executing such Bonds, as evidenced by their execution thereof (b) Any portion of the text of any Bonds may be set forth on the reverse side thereof: with an appropriate reference thereto on the face of the Bonds. (c) The definitive Bonds shall be typewritten, photocopied, printed, lithographed, or engraved, and may be produced by any combination of these methods or produced in any other similar manner, all as detennined by the officers executing such Bonds, as evidenced by their execution thereof. (d) The Initial Bond submitted to the Attorney General of the State of Texas may be typewritten and photocopied or otherwise reproduced. Section 6.2. Form of the Bonds. The form of the Bond, including the fonn of the Registration Certificate of the Comptroller of Public Accounts of the State of Texas, the fonn of Certificate of the Paying Agent/ Registrar and the form of Assignment appearing on the Bonds, shall be substantially as follows: we2oon1002 Dallas 988798_2.DOC -15- ' ) ) (a) Form of Bond. REGISTERED No. __ United States of America State of Texas County of Lubbock CITY OF LUBBOC~ TEXAS GENERAL OBLIGATION BOND SERIES 2005 INTEREST RA TE: MATURITY DATE: __ % BOND DATE: July 15, 2005 REGISTERED $. __ _ CUSIP NUMBER: Toe City of Lubbock (the "City''), in the County of Lubbock, State of Texas, for value received, hereby promises to pay to or registered assigns, on the Maturity Date specified above, the sum of _________ DOLLARS unless this Bond shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Bond Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for. at the per annum rate of interest specified above, computed on the basis of a three hundred sixty (360) day year of twelve (12) thirty (30) day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing February 15, 2006. The principal of this Bond shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Bond at the corporate trust office in Dallas, Texas (the "Designated Paymentffransfer Office") of JPMorgan Chase Bank, National Association, as Paying Agent/Registrar or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office thereof. Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Bond, the registered owner shall be the person in whose name this Bond is registered at the close of business on the "Record Date," which shall be the last business day of the month next preceding such interest payment date. LUB200nt002 Dallas 988798_2.DOC -16- ) ) If the date for the payment of the principal of or interest on this Bond shall be a Saturday, Sunday, legal holiday, or day on which banking institutions in the city where the Designated Paymentffransfer Office of the Paying Agent/Registrar is located are required or authorized by law or executive order to close, the date for such payment shall be the next succeeding day which is not a Saturday, Sunday, legal holiday, or day on which banking institutions are required or 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 and no additional interest shall be due by reason of nonpayment on the date on which such payment is otherwise stated to be due and payable. This Bond is one of a series of fully registered bonds specified in the title hereof issued in the aggregate principal amount of $7,265,000 (herein referred to as the "Bonds"), issued pursuant to a certain ordinance of the City (the "Ordinance") for the purpose of providing funds with which to make various permanent public improvements for the City and to pay the costs of issuing the Bonds. The City has reserved the option to redeem the Bonds maturing on or after February 15, 2016, in whole or in part before their respective scheduled maturity dates, on February 15, 2015, or on any date thereafter, at a price equal to the principal amount of the Bonds so called for redemption plus accrued interest to the date fixed for redemption. If less than all of the Bonds are to be redeemed, the City shall determine the maturity or maturities and the amounts thereof to be redeemed and shall direct the Paying Agent/Registrar to call by lot or other customary method that results in a random selection of the Bonds, or portions thereof, within such maturity and in such principal amounts, for redemption. Notice of such redemption or redemptions shall be given by first class mail, postage prepaid, not less than thirty (30) days before the date fixed for redemption, to the registered owner of each of the Bonds to be redeemed in whole or in part. Notice having been so given, the Bonds or portions thereof designated for redemption shall become due and payable on the red.emption date specified in such notice; from and after such date, notwithstanding that any of the Bonds or portions thereof so called for redemption shall not have been surrendered for payment, interest on such Bonds or portions thereof shall cease to accrue. As provided in the Ordinance, and subject to certain limitations therein set forth, this Bond is transferable upon surrender of this Bond for transfer at the Designated Payment/Transfer Office of the Paying Agent/Registrar with such endorsement or other evidence of transfer as is acceptable to the Paying Agent/Registrar; thereupon, one or more new fully registered Bonds of the same stated maturity, of authorized denominations, bearing the same rate of interest, and for the same aggregate principal amount will be issued to the designated transferee or transferees. Neither the City nor the Paying Agent/Registrar shall be required to issue, transfer or exchange any Bond called for redemption where such redemption is scheduled to occur within forty-five ( 45) calendar days of the transfer or exchange date; provided, however, such limitation shall not be applicable to an exchange by the registered owner of the uncalled principal balance of a Bond. The City, the Paying Agent/Registrar, and any other person may treat the person in whose name this Bond is registered as the owner hereof for the purpose of receiving payment as herein ws2oon1002 Dallas 988798_2.DOC -17- ) provided ( except interest shall be paid to the person in whose name this Bond is registered on the Record Date) and for all other purposes, whether or not this Bond be overdue, and neither the City nor the Paying Agent/Registrar shall be affected by notice to the contrary. IT IS HEREBY CERTIFIED AND RECITED that the issuance of this Bond and the series of which it is a part is duly authorized by law, and has been authorized by a vote of the properly qualified. electors of the City; that all acts, conditions and things required to be done precedent to and in the issuance of the Bonds have been properly done and performed and have happened in regular and due time, form and manner, as required by law; and that ad valorem taxes upon all taxable property in the City have been levied for and pledged to the payment of the debt service requirements of the Bonds, within the limit prescribed by law. ) IN WITNESS WHEREOF, the City has caused this Bond to be executed by the manual ) ) or facsimile signature of the Mayor of the City and countersigned by the manual or facsimile signature of the City Secretary, and the official seal of the City has been duly impressed or placed in facsimile on this Bond. City Secretary, City of Lubbock, Texas (SEAL) Mayor, City of Lubbock, Texas (b) Form of Comptroller's Registration Certificate. The following Comptroller's Registration Certificate may be deleted from the definitive Bonds if such certificate on the htitial Bond is fully executed. OFFICE OF THE COMPTROLLER OF PUBLIC ACCOUNTS OF THE STATE OF TEXAS § § § REGISTER NO .. ___ _ ) I hereby certify that there is on file and of record in my office a certificate of the Attorney General of the State of Texas to the effect that this Bond has been examined by him as required by law, that he finds that it has been issued in conformity with the Constitution and laws of the State of Texas, and that it is a valid and binding obligation of the City of Lubbock, Texas, and that this Bond has this day been registered by me. Witness my hand and seal of office at Austin, Texas, _______ _ SEAL LUB200n I 002 Dallas 988798_2.DOC Comptroller of Public Accounts of the State of Texas -18- ) ' J ) ) (c) Form of Certificate of Paying Agent/Registrar. The following Certificate of Paying Agent/Registrar may be deleted from the Initial Bond if the Comptroller's Registration Certificate appears thereon. CERTIFICATE OF PA YING AGENT/REGISTRAR The records of the Paying Agent/Registrar show that the Initial Bond of this series of bonds was approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas, and that this is one of the Bonds referred to in the within-mentioned Ordinance. Dated: __________ _ (d) Form of Assignment. JPMORGAN CHASE BANK, NATIONAL ASSOCIATION, as Paying Agent/Registrar By: Authorized Signatory 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 hereunder and hereby irrevocably constitutes and appoints attorney to transfer the within Bond on the books kept for registration hereof, with full power of substitution in the premises. Date: --------- Signature Guaranteed By: Authorized Signatory LUB200/71002 Dallas 988798_2.DOC 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 and must be guaranteed in a manner acceptable to the Paying Agent/Registrar. -19- ) (e) The Initial Bond shall be in the fonn set forth in paragraphs (a), (b) and (d) of this ) Section, except for the following alterations: ) ) ) (i) immediately under the name of the Bond, the headings "INTEREST RA TE" and "MATURITY DATE" shall both be completed with the words "As shown below"; and (ii) in the first paragraph of the Bond, the words "on the Maturity Date specified above" shall be deleted and the following will be inserted: "on February 15 in each of the years, in the principal installments and bearing interest at the per annum rates in accordance with the following schedule: Principal Installments Interest Rates (Information to be inserted from schedule in Section 3.2 of this Ordinance) Section 6.3. CUSIP Registration. The City may secure identification numbers through the CUSIP Service Bureau Division of Standard & Poor's, A Division of the McGraw-Hill Companies, New York, New York, and may authorize the printing of such numbers on the face of the Bonds. It is expressly provided, ) however, that the presence or absence of CUSIP numbers on the Bonds shall be of no significance or effect as regards the legality thereof and neither the City nor the attorneys approving said Bonds as to legality are to be held responsible for CUSIP numbers incorrectly printed on the Bonds. ) ) Section 6.4. Legal Opinion. The approving legal opinion of Vinson & Elkins L.L.P ., Bond Counsel, may be attached to or printed on the reverse side of each Bond over the certification of the City Secretary of the City, which may be executed in facsimile. Section 6.5. Statement of Insurance. A statement relating to a municipal bond insurance policy, if any, to be issued for the Bonds may be printed on or attached to each Bond. ARTICLE VII SALE AND DELIVERY OF BONDS; DEPOSIT OF PROCEEDS Section 7 .1. Sale of Bonds; Official Statement. (a) The Bonds are hereby officially sold and awarded and shall be delivered to the Underwriters in accordance with the terms and provisions of that certain purchase contract (the LUB200nI 002 Dallas 988798J.DOC -20.. ) ) ) ) ) ) "Purchase Contract") relating to the Bonds between the City and the Underwriters and dated the date of the passage of this Ordinance. The form and content of such Purchase Contract are hereby approved, and the Mayor is hereby authorized and directed to execute and deliver such Purchase Contract. It is hereby officially found, determined and declared that the tenns of this sale are the most advantageous reasonably obtainable. The Bonds shall initially be registered in the name of A.G. Edwards & Sons, Inc., as representative for the Underwriters, or their designee. (b) The form and substance of the Preliminary Official Statement, dated July 21, 2005, and any addenda, supplement or amendment thereto, are hereby in all respects approved and adopted and is hereby deemed final as of its date within the meaning and for the purposes of paragraph (b)(l) of Rule 15c2-12 under the Securities Exchange Act of 1934, as amended. The final Official Statement (the "Official Statement") presented to and considered at this meeting is hereby in all respects approved and adopted and the Mayor and the City Secretary of the City are hereby authorized and directed to execute the same and deliver appropriate numbers of executed copies thereof to the Underwriters. The Official Statement as thus approved, executed and delivered, with such appropriate variations as shall be approved by the Mayor, City Manager, Deputy City Manager, any Assistant City Manager, Chief Financial Officer, Cash and Debt Manager or City Secretary of the City and the Underwriters, may be used by the Underwriters in the public offering and sale thereof. The City Secretary is hereby authorized and directed to include and maintain a copy of the Official Statement and any addenda, supplement or amendment thereto thus approved among the permanent records of this meeting. The use and distribution of the Preliminary Official Statement, and the preliminary public offering of the Bonds by the Undeiwriters, is hereby ratified, approved and confirmed. (c) All officers of the City are authorized to execute such documents, certificates and receipts as they may deem appropriate in order to consummate the delivery of the Bonds in accordance with the terms of sale therefor including, without limitation, the Purchase Contract. (d) The obligation of the Underwriters identified in subsection (a) of this Section to accept delivery of the Bonds is subject to such purchaser being furnished with the final, approving opinion of Vinson & Elkins L.L.P ., bond counsel for the City, which opinion shall be dated and delivered the Closing Date. Section 7.2. Control and Delivery of Bonds. (a) The Mayor of the City is hereby authorized to have control of the Initial Bond and all necessary records and proceedings pertaining thereto pending investigation, examination, and approval of the Attorney General of the State of Texas, registration by the Comptroller of Public Accounts of the State of Texas and registration with, and initial exchange or transfer by, the Paying Agent/Registrar. (b) After registration by the Comptroller of Public Accounts, delivery of the Bonds shall be made to the initial purchasers thereof under and subject to the general supervision and direction of the Mayor, against receipt by the City of all arnowits due to the City under the tenns of sale. LUB200nI002 Dallas 988798_2.IX>C -21- "I ) ) Section 7.3. Deposit of Proceeds. (a) First: All amounts received on the Closing Date as accrued interest on the Bonds from the Bond Date to the Closing Date shall be deposited to the Interest and Sinking Fund. (b) Second: The remaining balance received on the Closing Date shall be deposited to a special account of the City, such moneys to be dedicated and used solely for the purposes for which the Bonds are being issued as herein provided. ARTICLE VIII lNVESTMENTS Section 8.1. Investments. (a) Money in the Interest and Sinking Fund created by this Ordinance, at the City's option, may be invested in such securities or obligations as permitted under applicable law. (b) Any securities or obligations in which such money is so invested shall be kept and held in trust for the benefit of the Owners and shall be sold and the proceeds of sale shall be timely applied to the making of all payments required to be made from the fund from which the investment was made. Section 8.2. Investment lncome. (a) Interest and income derived from invesbnent of the lnterest and Sinking Fund shall be credited to such fund. (b) Interest and income derived from the investment of the funds deposited pursuant to Section 7.3(b) hereof shall be credited to the fund or account where deposited until the construction of the projects for which the Bonds are issued is completed; thereafter, to the extent such interest and income are present, such interest and income shall be deposited to the Interest and Sinking Fund. ARTICLE IX PARTICULAR REPRESENTATIONS AND COVENANTS Section 9 .1. Payment of the Bonds. On or before each Interest Payment Date and while any of the Bonds are outstanding and unpaid, there shall be made available to the Paying Agent/Registrar, out of the Interest and Sinking Fund, money sufficient to pay such interest on and principal of the Bonds as will accrue or mature on the applicable Interest Payment Date or date of prior redemption. LUB2oon 1002 DaUas 988798_2.DOC -22- "\ ) ) ' , Section 9.2. Other Rq,resentations and Covenants. (a) The City will faithfully perform at all times any and all covenants, undertakings, stipulations, and provisions contained in this Ordinance; the City will promptly pay or cause to be paid the principal of and interest on each Bond on the dates and at the places and manner prescribed in such Bond; and the City will, at the times and in the manner prescribed by this Ordinance, deposit or cause to be deposited the amounts of money specified by this Ordinance. (b) The City is duly authorized under the laws of the State of Texas to issue the Bonds; all action on its part for the creation and issuance of the Bonds has been duly and effectively taken; and the Bonds in the hands of the Owners thereof are and will be valid and enforceable obligations of the City in accordance with their terms. Section 9.3. Provisions Concerning Federal Income Tax Exclusion. The City intends that the interest on the Bonds shall be excludable from gross income for purposes of federal income taxation pursuant to sections I 03 and 141 through 150 of the Internal Revenue Code of 1986, as amended (the "Code .. ), and the applicable regulations promulgated thereunder (the "Regulations"). The City covenants and agrees not to take any action, or knowingly omit to take any action within its control, that if taken or omitted, respectively, would cause the interest on the Bonds to be ineluctable in the gross income, as defined in section 61 of the Code, of the holders thereof for purposes of federal income taxation. In particular, the City covenants and agrees to comply with each requirement of Sections 9.3 through 9.9 of this Article IX; provided, however, that the City shall not be required to comply with any particular requirement of Sections 9.3 through 9.9 of this Article IX if the City has received an opinion of nationally recognized bond counsel ("Counsel's Opinion") that such noncompliance will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds or if the City has received a Counsel's Opinion to the effect that compliance with some other requirement set forth in this Article IX will satisfy the applicable requirements of the Code, in which case compliance with such other requirement specified in such Counsel's Opinion shall constitute compliance with the corresponding requirement specified in Sections 9 .3 through 9.9 of this Article IX. Section 9.4. No Private Use or Payment and No Private Loan Financing. The City shall certify, through an authorized officer, employee or agent, that, based upon all facts and estimates known or reasonably expected to be in existence on the date the Bonds are delivered, the proceeds of the Bonds will not be used in a manner that would cause the Bonds to be "private activity bonds" within the meaning of section 141 of the Code and the Regulations. The City covenants and agrees that it will make such use of the proceeds of the Bonds, including interest or other investment income derived from Bond proceeds, regulate the use of property financed, directly or indirectly, with such proceeds, and take such other and further action as may be required so that the bonds will not be ''private activity bonds" within the meaning of section 141 of the Code and the Regulations. LUB200nl002 Dallas 988798...2.l)OC -23- ) ) Section 9.5. No Federal Guaranty. The City covenants and agrees not to take any action, or knowingly omit to take any action within its control, that, if taken or omitted, respectively, would cause the Bonds to be ''federally guaranteed" within the meaning of section 149(b) of the Code and the Regulations, except as permitted by section 149(b)(3) of the Code and the Regulations. Section 9 .6. Bonds are not Hedge Bonds. The City covenants and agrees not to take any action, or knowingly omit to take any action, and has not knowingly omitted and will not knowingly omit to take any action, within its control, that, if taken or omitted, respectively, would cause the Bonds to be "hedge bonds" within the meaning of section l 49(g) of the Code and the Regulations. Section 9. 7. No-Arbitrage Covenant. The City shall certify, through an authorized officer, employee or agent, that, based upon all facts and estimates known or reasonably expected to be in existence on the date the Bonds are delivered, the City will reasonably expect that the proceeds of the Bonds will not be used in a manner that would cause the Bonds to be "arbitrage bonds" within the meaning of section 148( a) of the Code and the Regulations. Moreover, the City covenants and agrees that it will make such use of the proceeds of the Bonds including interest or other investment income derived from Bond proceeds, regulate investments of proceeds of the Bonds, and take such other and further action as may be required so that the Bonds will not be "arbitrage bonds" within the meaning of section 148(a) of the Code and the Regulations. Section 9.8. Arbitrage Rebate. If the City does not qualify for an exception to the requirements of Section 148(f) of the Code, the City will talce all necessary steps to comply with the requirement that certain amounts earned by the City on the investment of the "gross proceeds" of the Bonds (within the meaning of section I 48(f)(6)(B) of the Code), be rebated to the federal government. Specifically, the City will (i) maintain records regarding the investment of the gross proceeds of the Bonds as may be required to calculate the amount earned on the investment of the gross proceeds of the Bonds separately from records of amounts on deposit in the funds and accounts of the City allocable to other bond issues of the City or moneys which do not represent gross proceeds of any bonds of the City, (ii) calculate at such times as are required by the Regulations, the amount earned from the investment of the gross proceeds of the Bonds which is required to be rebated to the federal government, and (iii) pay, not less often than every fifth anniversary date of the delivery of the Bonds or on such other dates as may be permitted under the Regulations, all amounts required to be rebated to the federal government. Further, the City will not indirectly pay any amount otherwise payable to the federal government pursuant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the gross proceeds of the Bonds that might result in a reduction in the amount required to be paid to the federal government because such arrangement results in a smaller profit or a larger loss than would have resulted if the arrangement had been at ann's length and had the yield on the issue not been relevant to either party. ura2oomoo2 Dallas 988798_2.DOC -24- '\ '\ ) Section 9. 9. Information ReJX)rting. The City covenants and agrees to file or cause to be filed with the Secretary of the Treasury, not later than the 15th day of the second calendar month after the close of the calendar quarter in which the Bonds are issued, an information statement concerning the Bonds, all under and in accordance with section 149( e) of the Code and the Regulations. Section 9. l 0. Continuing Obligation. Notwithstanding any other prov1s1on of this Ordinance, the City's obligations under the covenants and provisions of Sections 9.3 through 9.9 of this Article IX shall survive the defeasance and discharge of the Bonds. ARTICLEX DEFAULT AND REMEDIES Section 10.1. Events of Default. Each of the following occurrences or events for the purpose of this Ordinance is hereby declared to be an Event of Default: (i) the failure to make payment of the principal of or interest on any of the Bonds when the same becomes due and payable; or (ii) default in the performance or observance of any other covenant, agreement or obligation of the City, which default materially and adversely affects the rights of the Owners, including but not limited to, their prospect or ability to be repaid in accordance with this Ordinance, and the continuation thereof for a period of sixty (60) days after notice of such default is given by any Owner to the City. Section 10.2. Remedies for Default. (a) Upon the happening of any Event of Default, then any Owner or an authorized representative thereof, including but not limited to, a trustee or trustees therefor, may proceed against the City for the purpose of protecting and enforcing the rights of the Owners under this Ordinance, by mandamus or other suit, action or special proceeding in equity or at law, in any court of competent jurisdiction, for any relief pennitted by law, including the specific performance of any covenant or agreement contained herein, or thereby to enjoin any act or thing that may be unlawful or in violation of any right of the Owners hereunder or any combination of such remedies. (b) It is provided that all such proceedings shall be instituted and maintained for the equal benefit of all Owners of Bonds then outstanding. Section 10.3. Remedies Not Exclusive. (a) No remedy herein conferred or reserved is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be LUB200nl002 Dallas 988798.....2.00C -25- ) ) in addition to every other remedy given hereunder or under the Bonds or now or hereafter existing at law or in equity; provided, however, that notwithstanding any other provision of this Ordinance, the right to accelerate the debt evidenced by the Bonds shall not be available as a remedy under this Ordinance. (b) The exercise of any remedy herein conferred or reserved shall not be deemed a waiver of any other available remedy. ARTICLE XI DISCHARGE Section 11. l. Discharge. The Bonds may be defeased, discharged or refunded m any manner pennitted by applicable law. ARTICLE XII CONTINUING DISCLOSURE UNDERTAKING Section 12.1. Annual Reports. (a) The City shall provide annually to each NRMSIR and to any SID, within six (6) months after the end of each fiscal year, financial infonnation and operating data with respect to the City of the general type included in the final Official Statement, being the infonnation described in Exhibit A hereto. Any financial statements so to be provided shall be (i) prepared in accordance with the accounting principles described in Exhibit A hereto, and (ii) 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 the audit of such financial statements is not complete within such period, then the City shall provide notice that audited financial statements are not available and shall provide unaudited financial statements for the applicable fiscal year to each NRMSIR and any SID. The City shall provide audited financial statements for the applicable fiscal year to each NRMSIR and to any SID, when and if audited financial statements become available. (b) 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 infonnation and operating data pursuant to this Section. ( c) 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 referenced 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. LUB200n 1002 Dallas 988798_2.DOC -26- ) ) ; ) Section 12.2. Material Event Notices. (a) 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: (i) principal and interest payment delinquencies; (ii) nonpayment related defaults; (iii) unscheduled draws on debt service reserves reflecting financial difficulties; (iv) unscheduled draws on credit enhancements reflecting financial difficulties; (v) perform; substitution of credit or liquidity providers, or their failure to (vi) adverse tax opinions or events affecting the tax exempt status of the Bonds; (vii) modifications to rights of Owners; (viii) bond calls; (ix) defeasances; (x) release, substitution, or sale of property securing repayment of the Bonds; and (xi) rating changes. (b) 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 Section 12 .1 of this Ordinance by the time required by such Section. Section 12.3. Limitations, Disclaimers and Amendments. (a) The City shall be obligated to observe and perform the covenants specified in this Article for so long as, but only for so long as, 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 notice of any Bond calls and any defeasances that cause the City to be no longer an "obligated person." (b) The provisions of this Article are for the sole benefit of the Owners and beneficial owners of the Bonds, and nothing in this Article, 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 infonnation, operating data, financial statements, and notices which it ws2oomoo2 1 Dallas 988798_2.DOC -27- ) has expressly agreed to provide pursuant to this Article 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 Article 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 OWNER 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 ARTICLE, 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. (c) No default by the City in observing or performing its obligations under this Article shall constitute a breach of or default under the Ordinance for purposes of any other provisions of this Ordinance. (d) Nothing in this Article is intended or shall act to disclaim, waive, or otheiwise limit the duties of the City under federal and state securities laws. ( e) The provisions of this Article may be amended by the City 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, but only if (i) the provisions of this Article, as so amended, would have pennitted an underwriter to purchase or sell Bonds in the primary offering of the Bonds in compliance with the Rule, talcing 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 Owners of a majority in aggregate principal amount ( or any greater amount required by any other provisions of this Ordinance that authorizes such an amendment) of the outstanding Bonds consent to such amendment or (B) an entity or individual 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 Owners and beneficial owners of the Bonds. If the City so amends the provisions of this Article, it shall include with any amended financial information or operating data next provided in accordance with Section 12.1 an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in type of financial infonnation or operating data so provided. (f) Any filing required to be made pW"Suant to this Article XII may be made through the facilities of DisclosureUSA or such other central post office as may be approved in writing by the SEC for such purpose. Any such filing made through such central post office will be deemed to have been filed with each NRMSIR and SID or MSRB as if such filing had been made directly to such entity. LUB200nt002 Dallas 988798_;!.DOC -28- 'I ) ARTICLE XIII AMENDMENTS; ATTORNEY GENERAL MODIFICATION Section 13. l. Amendments. This Ordinance shall constitute a contract with the Owners, be binding on the City, and shall not be amended or repealed by the City so long as any Bond remains outstanding except as permitted in this Section. The City may, without consent of or notice to any Owners, from time to time and at any time, amend this Ordinance in any manner not detrimental to the interests of the Owners, including the curing of any ambiguity, inconsistency, or formal defect or omission herein. In addition, the City may, with the written consent of the Owners of the Bonds holding a majority in aggregate principal amount of the Bonds then outstanding, amend, add to, or rescind any of the provisions of this Ordinance; provided that, without the consent of all Owners of outstanding Bonds, no such amendment, addition, or rescission shall (i) 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, or the rate of interest thereon, or in any other way modify the terms of payment of the principal of, or interest on the Bonds, (ii) give any preference to any Bond over any other Bond, or (iii) reduce the aggregate principal amount of Bonds required to be held by Owners for consent to any such amendment, addition, or rescission. Section 13.2. Attorney General Modification. In order to obtain the approval of the Bonds by the Attorney General of the State of Texas, any provision of this Ordinance may be modified, altered or amended after the date of its adoption if required by the Attorney General in connection with the Attorney General's examination as to the legality of the Bonds and approval thereof in accordance with the applicable law. Such changes, if any, shall be provided to the City Secretary and the City Secretary shall insert such changes into this Ordinance as if approved on the date hereof. ARTICLE XIV INSURANCE PROVISIONS Section 14.1. Municipal Bond Insurance. The Bonds have been sold with the principal and interest thereon being insured by MBIA Insurance Corporation {"MBIA"), a stock insurance company incorporated under the laws of the State of New York, or any successor or assigns thereto pursuant to an insurance policy (the "Policy") issued by MBIA guaranteeing the scheduled payment of principal of and interest on the Bonds when due. Section 14.2. Payments Under Municipal Bond Insurance Policy. As long as the Bonds are insured pursuant to a municipal financial guaranty insurance policy (the "Policy') issued by MBIA Insurance Corporation (the "Insurer''), and MBIA is not in default under such Policy, the following provisions shall apply. LUB200nt002 Dallas 988798_2.IX>C -29- ') ) ) (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 the Insurer 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 the Insurer or its designee. ( c) In addition, if the Paying Agent/Registrar has notice that any Owner has been required to disgorge payments of principal 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 an avoidable preference to such Owner within the meaning of any applicable bankruptcy laws, then the Paying Agent/Registrar shall notify MBIA or its designee of such fact by telephone or telegraphic notice, confirmed 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 Owners as follows: (i) 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 U.S. Bank Trust, National Association, or its successors under the Policy (the "Insurance Paying Agent"), in fonn satisfactory to the Insurance Paying Agent, an instrument appointing the Insurer as agent for such Owners in any legal proceeding related to the payment of such interest and an assignment to the Insurer of the claims for interest to which such deficiency relates and which are paid by the Insurer, (B) receive as designee of the respective Owners (and not as Paying Agent) 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 Owners; and (ii) If and to the extent of a deficiency in the 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 the Insurer as agent for such Owner in any legal proceeding relating to the payment of such principal and an assignment to the Insurer of any of the Bonds surrendered to the Insurance Paying Agent of so much of the principal amount 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 Owners (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 Owners. LUB2oomo02 Dallas 988798_2.DOC -30- ) ) ) (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 the Insurer shall become the owner of such unpaid Bond 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, the City and the Paying Agent/Registrar hereby agree for the benefit of the Insurer that: (i) They recognize that to the extent the Insurer makes payments, directly or indirectly (as by paying through the Paying Agent/Registrar), on account of principal of or interest on the Bonds, the Insurer will be subrogated to the rights of such Owners 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 (ii) They will accordingly pay to the Insurer 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 Owners, and will otherwise treat the Insurer as the owner of such rights to the amount of such principal and interest. (g) In connection with the issuance of additional obligations, the City shall deliver to MBIA a copy of the disclosure document, if any, circulated with respect to such additional obligations. (h) Copies of any amendments made to the documents executed in connection with the issuance of the Bonds which are consented to by the Insurer shall be sent to Standard & Poor's Corporation. (i) The Insurer shall receive notice of the resignation or removal of the Paying Agent/Registrar and the appointment of a successor thereto. (j) The Insurer shall receive copies of all notices required to be delivered to Owners and, on an annual basis, copies of the City's audited financial statements and annual budget. Notices: Any notice that is required to be given to a holder of the Bonds or the Paying Agent/Registrar pursuant to this Ordinance shall also be provided to the Insurer. All notices required to be given to the Insurer hereunder shall be in writing and shall be sent by registered or certified mail addressed to MBIA Insurance Corporation, 113 King Street, Annonk, New York 10504 Attention: Surveillance. (k) The Issuer/Obligor agrees to reimburse the Insurer immediately and unconditionally upon demand, to the extent permitted by law, for all reasonable expenses, including attorneys' fees and expenses, incurred by the Insurer in connection with (i) the LUB2oont002 Dallas 988798_2.DOC -31- \ ) enforcement by the Insurer of the Issuer's/Obligor's obligations, or the preservation or defense of any rights of the Insurer, under this Resolution/Indenture and any other document executed in connection with the issuance of the Obligations, and (ii) any consent, amendment, waiver or other action with respect to the Resolution/Indenture 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, the Insurer reserves the right to charge a fee in connection with its review of any such consent, amendment or waiver, whether or not granted or approved. The obligation of the city to make the payments and reimbursements described in this paragraph shall be subject to annual appropriate by the City. (I) The Issuer/Obligor agrees not to use the Insurer's name in any public document including, without limitation, a press release or presentation, announcement or forum without the Insurer's prior consent; provided however, such prohibition on the use of the Insurer's name shall not relate to the use of the Insurer's standard approved form of disclosure in public documents issued in connection with the current Obligations to be issued in accordance with the terms of the Commitment; and provided further such prohibition shall not apply to the use of the Insurer's name in order to comply with public notice, public meeting or public reporting requirements. (m) The lssuer/Obligor shall not enter into any agreement nor shall it consent to or participate in any arrangement pursuant to which Bonds are tendered or purchased for any purpose other than the redemption and cancellation or legal defeasance of such Bonds without the prior written consent of MBIA. ARTICLE XV EFFECTNE IMMEDIATELY Section 15.1. Effective Immediately. Notwithstanding the provisions of the City Charter, this Ordinance shall become effective immediately upon its adoption at this meeting pursuant to Section 1201.028, Texas Government Code. LUB2<lont002 Dallas 988798_2.00C -32- ) PRESENTED, FINALLY PASSED AND APPROVED, AND EFFEC day of July, 2005, at a regular meeting of the City Cowicil of e City of LUL1JU1..K;1.1... ATTEST: ! ~A,h.___~ REB CCA GARZA, City Secretary [SEAL] APPROVED AS TO CONTENT: By. k~ ilm ANN DUMBAULD, Chief Financial Officer/ Assistant City Manager AS TO FORM: -By: LUB2oonto02 Dallas 988798_1.00C -33- on the 28th EXHIBIT A DESCRIPTION OF ANNUAL DISCLOSURE OF FINANCIAL INFORMATION The following information is referred to in Article XII of this Ordinance. Annual Financial Statements and Operating Data 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 other headings of the Official Statement referred to) below: 1. The portions of the financial statements of the City appended to the Official Statement as Appendix B, but for the most recently concluded fiscal year. 2. Statistical and financial data set forth in Tables 1-6 and 8A-15 of the Official Statement. Accounting Principles The accounting principles referred to in such Section are the accounting principles described in the notes to the financial statements referred to in Paragraph I above. WB200nt002 Dallas 988798_2.DOC A-1 •~1.Q)h.~PrMJ>JJXOJO#.M JkJJJ.9MWX «<"49:@WMJ49WJ. .. 3.ZAP ;,o:;o;y;c, ;;;z_;;;;: Zt (JPJ.!JZ¼MJ.&_Jk JJ;t;; >»SW> ... JJ..Q£J.)) .. ) .»J#.i)Q!iWG)S»;ik(.AJ.¼ THE STATE OF TEXAS COUNTY OF LUBBOCK Donna M. Bates Before me TaHR!tsha Powell a Notary Public in and for Lubbock County, Texas on this day personally appeare ___________________ of the Southwestern Newspapers Corporation, publishers of the Lubbock Avalanche-Journal -Morning, and Sunday, who being by me duly sworn did depose and say that said newsp:frer ~as been published continuously for more than fifty-two weeks prior to the first insertion of this Lega Notice ·----------------------------------------Le.,..,..,, .... ~ • at Lubbock County, Texas and the attached printed copy of the ___________ __,·s a true copy of the riginal and was printed in the Lubbock Avalanche-Journal on the following dates: -tLncL 3 0 I ~l/ '5 I!'-_ {p: v,Ml,...CUJ @ "73'7-5' Inside Cllwified Sales Manager LUBBOCK AVALANCHE.JOURNAL Morris Communication Corporation FORMS&-10 OONNAM IATU No1lfY Public. Stateof Tt1111s MyCommis-.,n E,cpires May 19, 2009 ~tL1)1.~ NOTARY PUBLIC in and fortl)e,St~e of Tew My Commission Expires !5/ 1 q 1---.J.OD ~ 20 05 h!f.@#MSQ¼,W-SJ.C».4 .. )2) .. Pk .-5 ½, &»;)}h)t.JM,.h.2.~P. .. O ., .. QS).(%)!_5 ·''"'·· J. •.. SJ .. ,,;;;;;;;:;z:;@X .w.;;;::;.04,; .. ,, .. '14%@)3,,.mo;J.b)4:W».;.,_ ::;;_ ... X'½ •. ) THE STATE OF TEXAS COUNTY OF LUBBOCK Donna M. Bates Before me Tametsha Puwell a Notary Public in and for Lubbock Co.1 day personally appeare,-.,_ __________________ of the Southwe Corporation, publishers of the Lubbock Avalanche-Journal -Morning, and Sunday, who being did depose and say that said newspaper has been published continuously for more than fifty- the first insertion of this ____ Le___;g_a_l N_o_t_ice _________________ __,J ---------'Leg--ai'IRutice at Lubbock County. 11 1 printed copy of the ____________ is a true copy of the priginal and was print ,.. · Avalanche-Journal on the following dates: (o/R../e{O':J CLn.cL 713, /D1171 ,:}.l/ /~~{\-J,~"~-~,? ... ,;: .~;;,,. {p :J5' ~ ~Yyit~,t:,/"";.i~,.,.' ' ~,Jf Q,d.L ~tL1)1. D/i_W NOTARY PUBLIC in and for tt)e,~e of Te~ Inside Classified Sales Manager My Commission Expires !5L19..J_.:),/){)~ LUBBOCK AVALANCHE-JOURNAL ? Morris Communication Corporation Subscribed and sworn to before me this, __ _,JlfUr\,<;.....;:=::.......:c..:......_:____....:day ofQ 9 FORM58-10 DOHHAMIIA!ES Notary Pubic, State of Texas MyCommis3ian &pires May 19, 2009 20 05 •r•· ,, •. ··· ) ) ) ) ) LUB2oon1001 Dallas 995506_1.DOC PA YING AGENT/REGISTRAR AGREEMENT between CITY OF LUBBOCK, TEXAS and JPMORGAN CHASE BANK, NATIONAL ASSOCIATION Pertaining to City of Lubbock, Texas General Obligation Bonds Series 2005 Dated as of July 15, 2005 ) TABLE OF CONTENTS Page Recitals ........................................................................................................................................ 1 ARTICLE I APPOINTMENT OF BANK AS PAYING AGENT AND REGISTRAR Section 1.01. Appointment. ................................................................................................... 1 Section 1.02. Compensation .................................................................................................. 1 ) ARTICLE II DEFINITIONS Section 2.0 I. Definitions ....................................................................................................... 2 ) ARTICLE III PAYING AGENT Section 3.01. Duties of Paying Agent. .................................................................................. 3 Section 3.02. Payment Dates ................................................................................................. 3 ) ARTICLE IV Section 4.01. Section 4.02. Section 4.03. Section 4.04. Section 4.05. Section 4.06. Section 4.07. Section 5.01. Section 5.02. Section 5.03. Section 5.04. Section 5.05. Section 5.06. Section 5.07. REGISTRAR Trans fer and Exchange .................................................................................... 4 The Bonds ....................................................................................................... 4 Form of Register .............................................................................................. 4 List of Owners ................................................................................................. 5 Cancellation of Bonds ..................................................................................... 5 Mutilated, Destroyed, Lost, or Stolen Bonds .................................................. 5 Transaction Infonnation to lssuer ................................................................... 6 ARTICLEV THE BANK Duties of Bank ................................................................................................. 6 Reliance on Documents, Etc ........................................................................... 6 Recitals of Issuer ............................................................................................. 7 May Hold Bonds ............................................................................................. 7 Money Held by Bank ...................................................................................... 7 Indetnnification ............................................................................................... 8 Interpleader ...................................................................................................... 8 ARTICLE VI MISCELLANEOUS PROVISIONS Section 6.01. Amendinent ..................................................................................................... 8 LUB200/7 l00I Dallas 995.506_1.00C (i) ) Section 6.02. Assigninent. ..................................................................................................... 8 Section 6.03. Notices ............................................................................................................. 8 Section 6.04. Effect of Headings ........................................................................................... 9 Section 6.05. Successors and Assigns ................................................................................... 9 Section 6.06. Separability ...................................................................................................... 9 'I Section 6.07. Benefits of Agreement .................................................................................... 9 Section 6.08. Entire Agreement ............................................................................................ 9 Section 6.09. Counterparts .................................................................................................... 9 Section 6.10. Termination ..................................................................................................... 9 Section 6.11. Governing Law .............................................................................................. I 0 EXECUTION .............................................................................................................................. 1 ) Annex A-Schedule of Fees for Service as Paying Agent/Registrar ) ) ) ) LUB200/7l00I DalJas 99S506J.DOC (ii) ) ) i ) ) ) ) PA YING AGENT/REGISTRAR AGREEMENT THIS PAYING AGENT/REGISTRAR AGREEMENT (the or this "Agreement"), dated as of July 15, 2005, is by and between CITY OF LUBBOCK, TEXAS (the "Issuer"), and JPMorgan Chase Banlc, National Association (the "Bank"), a New York state banking corporation duly organized and existing under the laws of the United States of America. WHEREAS, the Issuer has duly authorized and provided for the issuance of its General Obligation Bonds, Series 2005 (the "Bonds''), dated July 15, 2005, to be issued as registered securities without coupons; and WHEREAS, all things necessary to make the Bonds the valid obligations of the Issuer, in accordance with their terms, will be taken upon the issuance and delivery thereof; and WHEREAS, the Issuer is desirous that the Bank act as the Paying Agent of the Issuer in paying the principal, redemption premium, if any, and interest on the Bonds, in accordance with the terms thereof, and that the Bank act as Registrar for the Bonds; and WHEREAS, the Issuer has duly authorized the execution and delivery of this Agreement, and all things necessary to make this Agreement the valid agreement of the Issuer, in accordance with its terms, have been done; NOW, TIIEREFORE, it is mutually agreed as follows: ARTICLE I APPOINIMENT OF BANK AS PA YING AGENT AND REGISTRAR Section 1.01. Appointment. (a) The Issuer hereby appoints the Bank to act as Paying Agent with respect to the Bonds in paying to the Owners of the Bonds the principal, redemption premium, if any, and interest on all or any of the Bonds. (b) The Issuer hereby appoints the Bank as Registrar with respect to the Bonds. (c) The Bank hereby accepts its appointment, and agrees to act as, the Paying Agent . ' and Registrar. Section 1.02. Compensation. (a) 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 hereto for the first year of this Agreement, or such part thereof as this Agreement shall be in effect, and thereafter while this Agreement is in effect, 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. UJB200/71002 Dallas 995506_1.DOC ) ) ) ) ) (b) 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 II DEFINITIONS Section 2.0l. Definitions. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, the following terms have the following meanings when used in this Agreement: "Bank" means JPMorgan Chase Bank, National Association. "Bank Office" means the Bank's office in Dallas, Texas. The Bank will notify the Issuer in writing of any change in location of the Bank Office. "Bond" or "Bonds" means any or all of the Issuer's General Obligation Bonds, Series 2005, dated July 15, 2005. "Bond Ordinance" means the ordinance of the City Council of the Issuer authorizing the issuance and delivery of the Bonds. "Fiscal Year" means the 12 month period ending September 30th of each year. "Issuer'' means the City of Lubbock. Texas. "Issuer Request" and "Issuer Order" means a written request or order signed in the name of the Issuer by the Mayor of the Issuer, or any other authorized representative of the Issuer and delivered to the Banlc. "Legal Holiday" means a day on which the Bank is required or authorized by applicable law to be closed. "Owner'' means the Person in whose name a Bond is registered in the Register. "Paying Agent" means the Bank when it is performing the functions associated with the terms in this Agreement. "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 Bonds" of any particular Bond means every previous Bond evidencing all ) or a portion of the same obligation as that evidenced by such particular Bond (and, for the purposes of this definition, any Bond registered and delivered under Section 4.06 in lieu of a mutilated, lost, destroyed or stolen Bond shall be deemed to evidence the same obligation as the mutilated, lost, destroyed or stolen Bond). UJB200/7l002 Dallas 995506_1.DOC ) 2 ) ) ) ) ) ) ) ) "Record Date" means the 'last Business Day of the month next preceding an interest payment date established by the Bond Ordinance. "Register" means a register in which the Issuer shall provide for the registration and transfer of Bonds. "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 Ex.ecutive 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 perfonned 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 "Stated Maturity" means the date or dates specified in the Bond Ordinance as the fixed date on which the principal of the Bonds is due and payable or the date fixed in accordance with the tenns of the Bond Ordinance for redemption of the Bonds, or any portion thereof, prior to the fixed maturity date. ARTICLE III PA YING AGENT Section 3.01. DutiesofPayingAgent (a) The Bank, as Paying Agent and on behalf of the Issuer, shall pay to the Owner, at the Stated Maturity and upon the surrender of the Bond or Bonds so maturing at the Bank Office, the principal amount of the Bond or Bonds then maturing, and redemption premium. if any, provided that the Bank shall have been provided by or on behalf of the Issuer adequate funds to make such payment. (b) The Bank. as Paying Agent and on behalf of the Issuer, shall pay interest when due on the Bonds to each Owner of the Bonds (or their Predecessor Bonds) as shown in the Register at the close of business on the Record Date, provided that the Bank shall have been provided by or on behalf of the Issuer adequate funds to make such payments; such payments shall be made by computing the amount of interest to be paid each Owner, preparing the checks, and mailing the checks on each interest payment date addressed to each Owner's address as it appears in the Register on the Record Date. Section 3.02. Payment Dates. The Issuer hereby instructs the Bank to pay the principal of: redemption premium, if any, and interest on the Bonds at the dates specified in the Bond Ordinance. WB2oon1002 Dallas 995506_1.DOC 3 ) ) ) ) ) ) ARTICLE IV REGISTRAR Section 4.01. Transfer and Exchange. (a) The Issuer shall keep the Register at the Bank Office, and subject to such reasonable written regulations as the Issuer may prescribe. which regulations shall be furnished to the Bank herewith or subsequent hereto by Issuer Order, the Issuer shall provide for the registration and transfer of the Bonds. The Bank is hereby appointed "Registrar' for the purpose of registering and transferring the Bonds as herein provided. The Bank agrees to maintain the Register while it is Registrar. The Bank agrees to at all times maintain a copy of the Register at its office located in the State of Texas. (b) The Bank as Registrar hereby agrees that at any time while any Bond is outstanding, the Owner may deliver such Bond to the Registrar for transfer or exchange, accompanied by instructions from the Owner, or the duly authorized designee of the Owner, designating the persons, the maturities, and the principal amounts to and in which such Bond is to be transferred and the addresses of such persons; the Registrar shall thereupon, within not more than three (3) business days, register and deliver such Bond or Bonds as provided in such instructions. The provisions of the Bond Ordinance shall control the procedures for transfer or exchange set forth herein to the extent such procedures are in conflict with the provisions of the Bond Ordinance. (c) Every Bond 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 in a manner satisfactory to the Bank, duly executed by the Owner thereof or his attorney duly authorized in writing. ( d) The Bank may request any supporting documentation it feels necessary to effect a re-registration. Section 4.02. The Bonds. The Issuer shall provide an adequate inventory of unregistered Bonds to facilitate transfers. The Bank covenants that it will maintain the unregistered Bonds in safekeeping and will use reasonable care in maintaining such unregistered Bonds in safekeeping, which shall be not less than the care it maintains for debt securities of other governments or corporations for which it serves as registrar, or which it maintains for its own securities. Section 4.03. Form of Register. (a) The Bank as Registrar will maintain the records of the Register 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 Register in any form other than a form which the Bank has currently available and currently utilizes at the time. (b) The Register may be maintained in written form or in any other form capable of being converted into written fonn within a reasonable time. LUB2oon1002 Dallas 995S06_1.DOC 4 ) ) ) ) ) ) ) Section 4.04. List of Owners. (a) The Bank will provide the Issuer at any time requested by the Issuer, upon payment of the cost, if any, of reproduction, a copy of the information contained in the Register. The Issuer may also inspect the information in the 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. (b) The Bank will not release or disclose the content of the 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 subpoena or court order or as otherwise required by law. Upon receipt of a subpoena or court order the Bank will notify the Issuer so that the Issuer may contest the subpoena or court order. Section 4.05. Cancellation of Bonds. All Bonds surrendered for payment, redemption, transfer, exchange, or replacement, if surrendered to the Banlc, shall be promptly cancelled by it and, if surrendered to the Issuer, shall be delivered to the Bank and, if not already cancelled, shall be promptly cancelled by the Bank. The Issuer may at any time deliver to the Bank for cancellation any Bonds previously certified or registered and delivered which the Issuer may have acquired in any manner whatsoever, and all Bonds so delivered shall be promptly cancelled by the Bank. All cancelled Bonds held by the Bank shall be disposed of pursuant to the Securities Exchange Act of 1934. Section 4.06. Mutilated, Destroyed. Lost. or Stolen Bonds. (a) Subject to the provisions of this Section 4.06, the Issuer hereby instructs the Bank to deliver fully registered Bonds in exchange for or in lieu of mutilated, destroyed, lost, or stolen Bonds as long as the same does not result in an overissuance. (b) If (i) any mutilated Bond is surrendered to the Bank, or the Issuer and the Bank receives evidence to their satisfaction of the destruction, loss, or theft of any Bond, and (ii) there is delivered to the Issuer and the Bank such security or indemnity as may be required by the Bank to save and hold each of them hannless, then in the absence of notice to the Issuer or the Bank that such Bond has been acquired by a bona fide purchaser, the Issuer shall execute, and upon its request the Bank shall register and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost, or stolen Bond, a new Bond of the same stated maturity and of like tenor and principal amount bearing a number not contemporaneously outstanding. (c) Every new Bond issued pursuant to this Section in lieu of any mutilated, destroyed, lost, or stolen Bond shall constitute a replacement of the prior obligation of the Issuer, whether or not the mutilated, destroyed, lost, or stolen Bond shall be at any time enforceable by anyone, and shall be entitled to all the benefits of the Bond Ordinance equally and ratably with all other outstanding Bonds. ) ( d) Upon the satisfaction of the Bank and the Issuer that a Bond has been mutilated, ) destroyed, lost, or stolen, and upon receipt by the Bank and the Issuer of such indemnity or security as they may require, the Bank shall cancel the Bond number on the Bond registered with a notation in the Register that said Bond has been mutilated, destroyed, lost, or stolen; and a new UJB200/7l002 Dallas 99SS06_1.DOC s ) ) ) ) Bond shall be issued of the same series and oflike tenor and principal amount bearing a number, according to the Register, not contemporaneously outstanding. (e) The Bank may charge the Owner the Bank's fees and expenses in connection with issuing a new Bond in lieu of or exchange for a mutilated, destroyed, lost, or stolen Bond. (f) The Issuer hereby accepts the Bank's current blanket bond for lost, stolen, or destroyed Bonds and any future substitute blanket bond for lost, stolen, or destroyed Bonds that the Bank may arrange, and agrees that the coverage under any such blanket bond is acceptable to it and meets the Issuer's requirements as to security or indemnity. The Bank need not notify the Issuer of any changes in the security or other company giving such bond or the tenns of any such bond, provided that the amount of such bond is not reduced below the amount of the bond on the date of execution of this Agreement. The blanket bond then utilized by the Bank for lost, stolen, or destroyed Bonds by the Bank is available for inspection by the Issuer on request. Section 4.07. Transaction Infonnation to Issuer. The Bank will, within a reasonable time after receipt of written request from the Issuer, furnish the Issuer information as to the Bonds it has paid pursuant to Section 3.0 I; Bonds it has delivered upon the transfer or exchange of any Bonds pursuant to Section 4.01; and Bonds it has delivered in exchange for or in lieu of mutilated, destroyed, lost, or stolen Bonds pursuant to Section 4.06 of this Agreement. ARTICLE V THEBANK Section 5.01. Duties of Bank. The Bank undertakes to perform the duties set forth herein and in accordance with the Bond Ordinance and agrees to use reasonable care in the performance thereof. The Bank hereby agrees to use the funds deposited with it for payment of the principal of, redemption premium, if any, and interest on the Bonds to pay the Bonds as the same shall become due and further agrees to establish and maintain all accounts and funds as may be required. for the Bank to function as Paying Agent. 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 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. ws2oon1002 Dallas 99SS06_1.DOC 6 '\ ) ') ) ') ) (d) The Bank may rely and shall be protected in acting or refraining from acting upon any ordinance, resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, certificate, 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 Bonds, but is protected in acting upon receipt of Bonds containing an endorsement or instruction of transfer or power of transfer which appears on its face to be signed by the Owner or an attorney-in-fact of the Owner. The Bank shall not be bound to make any investigation into the facts or matters stated in an ordinance, resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, certificate, 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 coW1Sel 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 perfonn any duties hereunder either directly or by or through agents or attorneys of the Bank. Section 5.03. Recitals of Issuer. (a) The recitals contained herein and in the Bonds shall be taken as the statements of the Issuer, and the Bank assumes no responsibility for their correctness. (b) The Bank shall in no event be liable to the Issuer, any Owner or Owners, or any other Person for any amount due on any Bond except as otherwise expressly provided herein with respect to the liability of the Bank for its duties wider this Agreement. Section 5.04. May Hold Bonds. The Bank, in its individual or any other capacity, may become the Owner or pledgee of Bonds 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. Money Held by Bank (a) Money held by the Bank hereunder need not be segregated from any other funds provided appropriate accounts are maintained. (b) The Bank shall be under no liability for interest on any money received by it hereunder. (c) Subject to the provisions of Title 6, Texas Property Code, any money deposited with the Bank for the payment of the principal, redemption premimn, if any, or interest on any Bond and remaining unclaimed for three years after final maturity of the Bond has become due and payable will be paid by the Bank to the Issuer, and the Owner of such Bond shall thereafter look only to the Issuer for payment thereo~ and all liability of the Bank with respect to such monies shall thereupon cease. WB200nt002 Dallas 995506_1.IXX: 7 ) ) ) '\ ) (d) The Bank will comply with the reporting requirements of Chapter 74 of the Texas Property Code. (e) The Bank shall deposit any moneys received from the Issuer into a trust account to be held in a paying agent capacity for the payment of the Bonds, with such moneys in the account that exceed the deposit insurance, available to the Issuer, provided by the Federal Deposit Insurance Corporation to be fully collateralized with securities or obligations that are eligible wider the laws of the State of Texas and to the extent practicable under the laws of the United States of America to secure and be pledged as collateral for trust accounts until the principal and interest on the Bonds have been presented for payment and paid to the owner thereof. Payments made from such trust account shall be made by check drawn on such trust account unless the owner of such Bonds shall, at its own expense and risk, request such other mediwn of payment. Section 5.06. Indemnification. To the extent permitted by law, the Issuer agrees to indemnify the Bank, its officers, directors, employees, and agents for, and hold them harmless against, any loss, liability, or expense incurred without negligence or bad faith on their part arising out of or in connection with its acceptance or administration of the Bank's duties hereunder, and under Article V of the Bond Ordinance, including the cost and expense (including its counsel fees) of defending itself against any claim or liability in connection with the exercise or perfonnance of any of its powers or duties under this Agreement. Section 5.07. lntetpleader. The Issuer and the Bank agree that the Bank may seek adjudication of any adverse claim, demands or controversy over its persons as well as funds on deposit in a court of competent jurisdiction within the State of Texas; waive personal service of any process; and agree that service of process by certified or registered mail, return receipt requested, to the address set forth in this Agreement shall constitute adequate service. The Issuer and the Bank further agree that the Bank has the right to file a Bill of Interpleader in any court of competent jurisdiction within the State of Texas to determine the rights of any person claiming any interest herein. ARTICLE VI MISCELLANEOUS PROVISIONS Section 6.01. Amendment. This Agreement may be amended only by an agreement in writing signed by both of the parties hereof. 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 pennitted hereby to be given or furnished to the Issuer or the Bank shall be mailed or delivered to the Issuer or the Banlc, respectively, at the addresses shown below: LUB200/71002 Dallas 99SS06_1.00C 8 ) ) ) (a) (b) (c) if to the Issuer: if to the Banlc: City of Lubbock, Texas 1625 13th Street Lubbock, Texas 79457 Attention: Cash and Debt Manager JPMorgan Chase Banlc, National Association 2001 Bryan Street, 8th Floor Dallas, Texas 75201 Attention: Corporate Trust Department 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 Section 6.06. Separability. If any provision 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 Ordinance 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 Ordinance, the Bond Ordinance shall govern. Section 6.09. Countexparts. 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. (a) This Agreement will tenninate on the date of final payment by the Bank issuing its checks for the final payment of principal, redemption premium, if any, and interest of the Bonds. (b) This Agreement may be earlier tenninated upon sixty (60) days written notice by either party; provided, that, no termination shall be effective until a successor has been appointed by the Issuer and has accepted the duties imposed by this Agreement. A resigning Paying Agent/Registrar may petition any court of competent jurisdiction for the appointment of a successor Paying Agent/Registrar if an instrument of acceptance by a successor Paying Agent/Registrar has not been delivered to the resigning Paying Agent/Registrar within sixty (60) days after the giving of notice of resignation. LUB200/71002 Dallas 995506_1.DOC 9 ) (c) 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. WB200/7l002 Dallas 995506_1.DOC 10 ) ) ... , ' ) ) ) ) IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above. ATTEST: Rebecc'a Garza, City Secretary LUB200n I 002 Dallas 99SS06_1.DOC ) ) ) ) j ) JPMORGAN CHASE BANK, NATIONAL ASSOCIATION By: Title: /--- Assistant Vice~nt Madelyn Wallace ) ANNEX"A" SCHEDULE OF FEES FOR SERVICE AS PA YING AGENT/REGISTRAR ) ) ) ) ) ) ) ) ~ .. ..,,.,JPMorgan Proposal and Schedule of Fees for Services as Paying Agent and Registrar in connection with City of Lubbock General Obligatwn Bondsf Series 2005 Based upon our current understanding of your proposed transaction, our fee proposal is as follows: Notes: Pricing for Paying Agent and Registrar The Paying Agent and Registrar Fee covers the maintenance of records as registrar, processing of transfers, and payment of interest/principal funds for Debt Service. Option No. 1 Acceptance Fee Annual Fee (payable annually in advance) Option No. 2 One Time Fee (payable at closing) Option No. 3 Acceptance Fee Annual Fee $0.00 $300.00 $2,500.00 $0.00 $0.00* *Open a New Money Custody Account and the traditional paying agent functions are included as part of the custody am,ngement at no extra fee -for the life of the issue. This account is designed to handle project funds on new money transactions. More information will be proJJided upon request. Please note that our willingness to act in the capacities specified above and the fees designated in this proposal are indicative and based upon our understanding of the transaction. We reserve the right to revise this proposal should any material aspect of the transaction differ from our understanding. Also, our acceptance of the above contracts and duties is subject to our usual internal review, document review and the receipt of appropriate immunities and indemnities. JPMorgan's Trust Accounting Reporting (TAR) website gives corporate and municipal issuers 24/7 Internet access to information on their cash and asset transactions/positions free of charge. TAR also electronically posts and archives trust and escrow account statements so you can access them online, easily at your convenience. With functionality allowing the user to customize reporting, choose format, drill down for detail, and download for convenience, Trust Accounting Reporting on the Web is a powerful decision-making and account management tool. To further facilitate your TAR online experience, intra-day updates are provided for more timely and accurate reporting. This capability gives you the option of viewing asset details as of intra-day, close-of-business or to review prior month-end J.P. Morgan Trust Company, N. A.• 201 Main Street-3rdFloor, Fort Worth, TX 76102 Telephone: (817) 878-7505 • Facsimile: (817) 878-7540 jeffrey.c.salavarria@jpmorgan.com ) ) ) '\ ) ~ .. .. ,JPMorgan JPMorgan Fee Proposal July 21, 2005 reports. Please visit us at www .jpmorgan.com/tar for more details or contact your JPMorgan Relationship Manager or Sales Representative. Annual fees include one standard audit confirmation per year without charge. Standard audit confinnations include the final maturity date, principle paid, principal outstanding, interest cycle, interest rate, interest paid, cash and asset infonnation, interest rate, and asset statement infonnation. Non- standard audit confinnation requests may be assessed an additional fee. Perfonnance of any extraordinary service or incurring extraordinary expenses, such as those in connection with any default, account resignation, or outside legal counsel charges, will be billed in addition to the stated per annum fees. To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record infonnation that identifies each person who opens an account. When you open an account, we will ask for information that will allow us to identify you. ) ) '\ ) ) NEW lSSUE -Book-E11try-Onl)· PRF.LIMINARY OJ,"FIC.1AL STATEMENT Dated July 21, 2005 Ratin~: Moody's: Applied For S&P: Applied For Fitch: Applied For See ("Other Information - Ratings" •nd "Bond lnsuraa«" bereia) In 1he opinion of Bond Counsel, intereSt on the Bonds is excludable from gross income for federal income taX purposes under existing law and lhe Bonds are no1 private activity bonds. See "Tax Maner.;" herein for a discussion of the opinion of Bond Counsel, including a descriplion of altemative minimum tax consequences for corporations. Dated Date: July IS, 2005 $7,260,000* CITY OF LUBBOCK, TEXAS (Lubb&Ck Couaty) GENERAL OBLIGATION BONDS, SERIES 2005 Due: February 15, as shown inside conr PAYMEl'IT TtRMS ... lntereSt on the $7,260,000• City of Lubbock, Texas, General Obligation Bonds, Series 2005 (the «Bonds") will accrue from July 15, 2005 (the "Dated Date~) and will be payable February 15 and August IS of each year commencing February IS, 2006, and will be calculated on the basis of a 360-day year consisting of twelve 30~y months. The definitive Bonds will be initially regis1ered and delivered only to Cede & Co., the nominee of The Depository Trust Company ("DTC') pur.;uant to the Book-Entry-Only System described herein. Beneficial ownership or the Bortds may be acquired in denominations ofSS,000 or integral multiples thereof. No physical delivery or the Bonds will be made to the owners there.f. 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 OTC for subsequent payment to the beneficial owners of the Bonds. See "The Bonds -Book-Enlry-Only Sysrem" herein. The initial Paying Agent/Registrar is JPMorgan Chase Bank, National Association, Dallas, Texas (see "The Bonds-Paying Agent/Regis1Jar''). AVTHORrTY ffiR lssUANCE ••. The Bonds are issued pllfSuant to the Constitution and general laws of the State of Texas, (the ~state") including particularly Chapter 1331 Texas Government Code. as amended, and are direct obligations of the City of Lubbock. Texas (the wCity"), payable from a continuing ad valorem tax levied on all taxable property within the City, within the limits prescribed by law, as provided in the ordinan1:e authorizing the Bonds (the "Ordinance") (see "The Bonds -Authority for Issuance"). PURPOSE ... Proceeds from the sale of the Bonds will be used (i) for various pennanent public improvements and public puiposes including street improvements, parks and fire stations and (ii) to pay the costs associated with the issuance of the Bonds. BOND INSURANCE ••• The City has made applicalion to municipal bond insurance companies to have the pa)'lllent of the principal of and interest on the Bon-OS insured by a municipal bond guaranty policy. CUSIP PREFIX: 549187 SEE MATIJRITV ScHEDULE, 9 Digit CUSIP AND REDEMPTION PROVISIONS ON THE REVERSE OFTHIS PAGE LEGALITY ... lbe Bonds are offered for deliveiy when, as and if issued and received by Underwriters and subject IO the approving opinion of the Attorney General of Texas and the opinion of Vinson &. Elkins L.L.P ~ Bond Counsel. Dallas, Texas (see Appendix C. uForm of Bond Counsel's Opinion"). Cenain legal matters will be passed upon for the Underwriters by McCall, Parkhurst & Horton L.L.P., Dallas, Texas. Counsel for the Underwriters. Dl!LIVERY ... It is expe4:ted that the Bonds will be available for delivery through OTC on September I, 2005. • Preliminary, subject to change. A.G. Enw ARDS & SONS, INC. M.E. ALLlSON & Co., INC. RBC DAIN RAUSCHER INC. ) ) ) ) ) ) ) MATURITY SCHEDULE* CUSIP Prefiit! 549187 <u Principal Maturity Interest (ni1ial CUSIP Principal Maturily Interest Initial CUSIP Amount (February I 5) Rate Yield Suffix (I> Amount (February I 5) Rate Yield Suffix 111 ------$ 225,000 2006 $ 35S,000 2016 255,000 2007 370,000 2017 265.000 2008 385,000 2018 275.000 2009 405,000 2019 280,000 2010 425,000 2020 290,000 201! 44S,000 2021 305,000 2012 465,000 2022 315,000 2013 485.000 2023 no.ooo 2014 510,000 2024 340,000 2015 535,000 2025 (Accrued Interest from July IS. 2005 to be added) • Preliminary, subject 10 change. (I) CUSIP is a registered trademail of the American Bankers Association. CUSIP data herein is provided by Slandard and Poor's CUSIP Service Bureau., A Division of The McGn,,w-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute ror the CUSIP Services. NeithM the City nor the Underwriters shall be responsible for the selection or correctness of the CUSIP nwnbers shown on the inside cover page. Om0NAL REDEMPTION ... The City reserves the right, at its option, to redeem Bonds having stated maturities on and after February IS, 2016, in whole or in part in principal amounts ofSS,000 or any integral multiple !hereof, on February IS, 2015, or any date thereafter, at the par value thereof plus accrw:d interest to the date of redemption (see "Tue Bonds -Optional Redemption"). 2 ) ) ) ) ., ) ,.,,r pu,post of complumct with RJd, 15c2-12 of rht Untted Sta1es ~c,u,ri~ and &,change Comm1sswtt, this document as lhe same may he nppltmfflW:I or corrected.from t111,.-ttH1me. may be 1reo1ed a, on Offic,al Sla1<1111m1 of tht City wuh ~ct to tht Bonds wcribed Nre111, which has bun "dum4dflNll" by tht c;1y at of tht dore htr,uf (or of any such supp/emuu ur correcllon) uctpt for 1ht< omwu,n of"" more th,m rht informat,on pl'Ovided l,y Sub=tion (b)(1) of R,Je 15<2.12 Tlus O/fic1ai Sto1emen1. wJ11ch ,n.cludes ,~ cover page. tnsub. ct:>ver page ond th~ Appt£ruhcu Jrerua.. does nc,t oonw1ute an offer 10 sell or llr« solicitation of an offer- lo buy'" any jurisdiction t0 (My person to wham 11 1s rm/awfaf to ~ StM:A offer, soltcit.tuun, or MJl-t. No dealt:r. bl"OUr. U'Jles~non or othu person has be.w awlro,iud to g,'lfe infonnotitm or 10 .rrxrle any rq,resoi1a1,on ozJ,er Olan ~ ccntainf:11 in tlrl.S 0/flCial Star1:mcnt.. and. if g,11er1 or 1'f0dt. slid, otlt,:r mform,atlOfJ or ~preselJlolions nntSI not be ,,.eJied upon. TM mfonnat,on ,,, ford, huem lras been abiarntd from lhe City and other so~rcu l,,J,e,,,d ,o /Jg nimble. 1ml sud, infomrD11on.is no1 g,,aronreed as IO accuracy or t:tJmputtntM and ,s nos 10 b< C01t1trwd a., the promIs, "' guoran1ee ef ~ FUJDnCwl .A.d,,sor. Tlus Ojf,cial SJallmtm cont4ins, ;,, pan. est/males and mauen oJ opi/UOn which ""' ""' in1tlllhd a.< statements of foe( and no np,uaUalion iJ madt o; to the correctntss of s,,clt "-Sllmares and "(li1U011$. or lhat 1/t,y will be realrud. 11,c infomra11on ottd upress= a/ op,n,,,,, cmru,rm:d heum or, •ubi~ IQ cha,rg• w11how tl(Jliu. and neither the ek/ive,y of dlis Ojfida/ StaurMru nor any sale mad, her,,r,,ukr shall. untkr any crraunsu,ncts, crtoft ony implicatwn 1lto1 then ha, been "° change m tlte ajfam, of the Ctl)I ar o/Ju,r man,n <kscribed lttrem since 1M. ,Jar,, /rcn,of Su "OtMr lnJol'/rtiUton -umtmo,ng Disdosw-e of lnfonM///JII "far a wcrlpllon of the c;,y·, imd,,rlllk/,rg to pravide cel'fain ln/OnMtion on a c.on1imdng l>os1s, THE BONDS ARE EXEMPT FROM REGISTRATION WfTH THE SECURlllES AND EXCHANGE CiJMMISSION AND CONSEQUE!m.Y HAVE NOT BEEN R£GISl1iRED THeJIEWITH. TH£ REGISTRATION. QUAUFICATION. OR EXEMPTION OF THE BONDS IN ACCORDANCE WITH A.PPUCABl£ SECURITIES I.AW PROVISIONS OF THE JURISDICTlON IN WHICH THESE SE.CURI11ES HAVE BEEN REG/SfERED OR EXEMPT£D SHOULD NOT BE REGARDED AS A RECOMMF.NDA TION THEREOF. NEITHER THE crrr NOR THE UNDERWRJTERS MAKE ANY REPRESENTATION OR WARRANTY W/TH RESPECT ro THE INFORMATIONCiJNTAINED IN THIS OFFICIAL STATEMENT l/£GARDING THE DEPOSl10RY TRUST COMPANY OR ITS BOOK-ENTTI.Y-ONLY SYSTEM. AS SUCH INFORMATION HAS BEEN FURNISHED BY THE DEPOSITORY TRt.r.rl'COMl'ANY IN CONNECTION WITH THE OFFERING OF 11fE BONDS. THE UNDERWRITERS A«Y OVER-ALLOT OR £FFEC1. TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET !'RICES OF THE BONDS AT A LEVEL ABOVE THA TWH/CH M/GffTOTH£RWTS£ PR.El'All/N TH£ OPEN MARKET. SUCH STABIUZING. fF COMM£NCED. MAY BE DISCONTINUED AT ANYTIME. Tht Underwri1en have prov,ekd t~ joi/Ql;•11tg sent,r,a: for mcl,,..,on •• ,Ji, Offe,al Sraumtn'-The Umkrwrlt,rs have r,view.d the infOmrDtion 1'1 this Official Slotunenl In acc,,rdance wit/,, and o; port of. /heir nsponsibillrits lo invtston imder 1M fedual sec,,ritiet tar,,, as applied to rite facts and ,:rraarrsftln<!U ef this trm,JacJum. blit IM Underwnu,rs do "°' gr,aranue tht ==Y or complettJtaS of sud, information. TABLE OF CONTENTS OfflCIAL STATEMENT SlJMMARV ______ 4 CITY 0FFIOALS. STAFF AND CONSULT ANTS ----··6 ELE.CTEO OFFIClALS .............................................................. 6 SELECTED ADMINISTR,\ TIVE ST Aff ...................................... 6 CONSULTANTS AND AOV[S()f(S ............................................. 6 INTRODUCT(ON ____________ 7 THE BONDS 7 BOND INSURANC 12 DISCUSSION OF RECENT FINANCIAL AND MANAGEMENT EVENT..,__ _______ 13 TAX INFORMATION 26 TABLE I -VAWA TION, EXEMPTIONS AND GENERAL OBLIGATION DEBT .................................................... 29 TABLE 2 • TAXABLE As5£sSEO VALUATIONS BY CATEOOJI.Y ................................................................ 31 TABLE 3A -VALUATION ANO GENERAL OBLIGATION DEBT HISTORY ................................................................... 32 TABLE 38 -DERIVATION Of GENERAL PultPosE Fl.JNDED TAX DEBT ............................................................. 32 TABLE4 -TAX RATE, LEvY ANDCOltECTION HISTORY .32 TABLES -TEN LARGllsTTAXPAYERS ............................... 33 TABLE6 -TAXADEQUACY ................................................ 33 TABLE 7 -EsnMA TED OV'EJU.APPING DEBT ...................... 34 DEBTINFORMATlON-----------.5 TABLE 8A -GENERAL 0BUGA110N DEBT Sl!RVICE REQu!R£MENT'S ......................................................... 3 5 TABLE 88 -DIVISION OF DEBT SERVICE Rl!QUUt.EMENTS. 36 TABLE 9 -INTEllEST AND SINK.ING FUND BUDGET PROJECllON .............................................................. 37 TABLE 10 -COMPUTATION OF SW-SUPPORTING DEBT ... 38 3 TABLE II -AUTHORIZED Bur UNISSUED GENERAL OBUGATION BoNDS ................................................. 39 TABLE 12 -OTIIER OBUGATIONS ....................................... 39 FINANCIAL INFORMATI0N ________ 4t TABLE 13 -CHANGESINNETAssi!Tt'> ............................ 41 TABLE 13-A -GENERALfUNDREvEN'UEsAND EJ<P£NDmJRE HISTORY ............................................ 42 TABLE \4 -MUNICIPAL SALES TAX HiSroRY ................... 43 TAtlLE 15-CURJtENT INvESTMENTS ................................... 47 TAXMATIERS-------------43 OTHER INFORMATION __________ so RATINOS ............................................................................ 50 LITIGATION ............. ·······"· .. ·"" .......................................... so REG!sntATI0N AND QUALlflCATION OF BONDS FOR $ALE 50 Ll!GA.t INVESTMeNTS AND EUGIBILITY TO SECURE PUBuc Fl.lNOS INTl!,V.S .................................................... 51 LEGALOl'INIONS ................................................................. 51 CONTINulNG DISCLOSURE OF INl'OltMATION ..................... SI flNANCAL ADVISOR ........................................................... 53 UNDERWltlTlNCJ .................................................................. 53 FORWARD-looKJNG STATEMENTS DJsCLAJMER ................ 53 MISCELu\NEOUS ................................................................. 53 APPENDICES G£NEAAL IN'fOIIMATION ReGARDING lll£Crrr ................. A ExCEUrs FROM THI! .ANNtlAL FINANCIAL Rl!PoRT .......... B FORM OP BoNoCOuNs&.'SOPINTON ................................ C The cover page hcnot; this page, the appendices included herein and any addenda, supplement or amendmenl heleto, are part of the Official Statement. ) ) ) ) ) ) OFFICIAL ST A TEMENT SUMMARY This summary is subject in all respec1s to the more complete information and defmitions oontained or incorponw=d in this Official StatemenL The offering of the Bonds 10 potential investors is made only by means oflhis entire Official Statement. No person is authorized to detach Ibis summary from this Official Statement or to otherwise use ii without the entire Official Statement. TH£ CITY..................................... The City of Lubbock, Texas (the "City") is a political subdivision and municipal coq,oration of the State., located in Lubbock County, Texas. The City covers approximaiely 115 square miles and has an estimated 2005 population of 209. 120 (see '"'lnb"Oduction -Description oflhe City~). TH£ BoNOS .....................•............ The Bonds are issued as $7,260,000• General Obligation Bonds, Series 2005. The Bonds are issued as serial bonds maturing on February 15 in each of the years 2006 through 2025 (see "'The Bonds-Description of the Bonds"). PAYMENTOFINT£R[ST .............. Interest on the Bonds awroes from July IS, 2005, and is payable February IS, 2006, and each August 15 and February I S thereafter until maturity or prior redemption ( see "The Bonds - Description oflhe Bonds" and "The Bonds-Optional Redemption"). AUTHOR.IT\' FOR lssUANCE .......... The Bonds are issued pllCSUant to !he general laws of the Slale., including particularly Chapter 1331, Texas Government Code., as amended. and an Ordinance passed by the City Council of the City (see ftThe Bonds -Authority for Issuance"). SECURITY FOR mE BONDS .......... The Bonds constitute direct and voted obligations of the City, payable from the levy and collection of a direct and continuing 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 lhe right, at its option, lo redeem Bonds having stated maturities on and after February 15. 2016, in whole or in part in principal amounts of$5,000 or ~y integral multiple thereof, on February 15, 2015, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption ( see "The Bonds -Optional 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 and the Bonds are no< private activity bonds. See ''Tax Matters -Tax Exemption ft for a discussion of the opinion of Bond CoWlSel, including a description of the altemati ve minimum tax consequences for corporations. USE OF PROCEEDS ..........•............ Proceeds from lhe sale of the Bonds will be used (i) for various permanent public improvements and public purposes including street improvements, parks and fire stations and (ii) to pay the costs asso<:iated with the issuance of the Bonds. RA TINGS...................................... The presently outStanding tax supported. debt of the City is rated • A I" by Moody's Investors Service, Inc. ("Moody's"). "AA-'' by Standard & Poor's Ratings Services, A Division of The McGraw-Hill Companies, Inc. ("S&P") and "AA-~ by Fitch Ratings rFitch"). The City also has issues outstanding which~ rated "Aaa" by Moody's, "AAA" by S&P and "AAA" by Fitch through insurance by various commercial insurance companies. Applications for contract ratings on the Bonds have been made to Moody's, S&P and Fitch (see "Other lnfomiation -Ratings"). • Preliminary, subjectto change. 4 ) ) ) 'I ) ) ., J ) 8ooK•ENTRY-0NLV SYSTEM...................................... The definitive Bonds will be initially registered and delivered only to Cede & Co., the nominee of DTC pursuant to the Boole-Entry-Only System described herein. Beneficial ownership or 1he Bonds may be acquired in denominations or SS,000 or integral multiples thereof. No physical delivery of the Bonds will be made to 1he beneficial owners lhereor. Principal or, 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 member.; of DTC for subsequent payment to the beneficial owners of the Bonds (see "The Bonds· Book-Entry-Only Systemfl). PAYMENT RICORD ..................... The City bas never defaulted in payment of its general obligation tax.debL SELECTED FINANCIAL INl'ORMA TION Ratio General Purpose Per Capita Funded Fiscal Per Capita General General Tax Debt Year Taxable Taxable Purpose Purpose lo Taxable %of Ended Estimated A=sed Assessed Funded Funded Assessed Total Tax 9/30 Poeulation (I) Valuation Valuation Tax Debt (Z) Tax Debt <2> Valuation <2> Collections 2001 201,097 $ 6,638,9 I 1,093 s 33,013 S 58,122,809 s 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 70,188,204 343 0.96% 2004 206,290 7,921,590,380 38,400 70,161,218 340 0.89% 2005 209,120 8,664,190,909 41,432 71,693,286 (ll 343 (3) 0.83% (1) Source: The City of Lubbock, Texas. (2) Does not include self-supporting debt. (3) Projected, includes the Bonds. Preliminary, subject to change. (4) Partial collections through April 30, 2005. GENERAL FUND CONSOLIDATED STATEMENT SUMMARY Fiscal Y car Ended S!:,21embcr 30, 2004 2003 2002 2001 Fund Balll[l{;C at Beginning of Y car s 9,417,346 S I 6,598,252 (IJ S 16,716,042 S 16,620,652 Total Revenues and Transfers 97,437,436 91,753,809 92,490,374 90,463,799 Total Expenditllm; and Transfers 94,160,257 98,934,715 90,594,059 90,368,409 .Fund Balance at End of Year S 12,694,525 s 9,417,346 S 18,612,357 S 16,716,042 (3) Less: Reserves and Designations (1,903,690) ~2.361,860) Undesignatm Fund Balance S 12,694,525 s 9,417,346 S 16,708,667 S 14,354,182 99.290./4 99.41% 98.78% 99.690/4 96.48% (4) 2000 $ 17,248,025 85,518,102 86,145,475 S 16,620,652 c2,ss1.006l S 13,763,556 (I) The "FWld Balance at Beginning of Year" was restated. See "Discussion of lw;ent Financial and Management Events • FY 2003 Audit Restatements, Reclassifications and Internal Controls Issues" for a fi.u'ther explanation of the restatemenlS . Fo, additional information regarding the City, please c.ontacl: Ms. Lee Ann Dumbauld CFO/ACM City of Lubbock P.O. Box 2000 Lubbock, Texas 79457 Phone (806) 775-2016 Fax (806) 775•2051 Mr. Vince Viaille First Southwest Company or I 00 I Main Sb'eet Suite 802 Lubbock, Texas 79401 Phone (806) 749-3792 Fax (806) 749-3793 5 Mr. Jason Hughes First Southwest Company or 325 North St Paul Street Suite 800 Dallas, Texas 75201 Phone(214) 943-4000 Fax (214) 953-4050 ) ) ) " I ., ) ) CITI' OFFlCIALS. STAFF AND CONSULT ANTS EU:CTED OFFICIALS Dateof Tenn City Council Installation to Office Expires Occupation Marc McDougal• May, 2002 May, 2006 Business Owner, Real Estate Mayor Linda DeLeon May, 2004 May, 2006 Business Owner Councilmember, District I Floyd Price June..2004 May, 2008 Retired Councilmember, District 2 Gary Boren May, 2002 May, 2006 Business Owner, Personnel Services Councilmember, District 3 Phyllis .Jones May, 2004 May, 2008 Self-Employed Councilmernber, District 4 Tom Manin May,2002 May, 2006 Retired Law Enforcement Councilmember, District 5 Jim Gilbreath May, 2003 May, 2008 Business Owner Councilmember, District 6 • Mr. McDougal has served on the Council since May, 1998. SELECTED ADMINISTRATIVE STAFF Date of Employment Date ofEmploymenl Total Government Name Position in Current Position with Ci!_l'. of Lubbock Service Lou Fox City Manager Februaly, 2004 Febnwy, 2004 24 Years TomAdams Deputy City Manager August, 2004 August. 2004 22 Years Lee Ann Dumbauld Chief Financial Officer/ Assistant City Manager July, 2004 July,2004 20+ Years Quincy White Assist.ant City Manager September, 2000 Scp«:mbeT, 2000 13 Years Anita Burgess City Attorney December, 1995 December, 1995 9 Years ~Gana CitySeaelal)' January, 200 I August, 1996 8 Year.; Andy Blltdtam Cash & Debt Manager November, 1998 November, 1998 6 Years CONSULTANTS AND ADVISORS Auditors .......................................................................................................................................................................... KPMG LLP Dallas, Texas Bond Comtsel ................................................................................................................................................ Vinson & Elkins L.L.P. Dallas, Texas Financial Advisor ...................................................................................................................................... First Southwest Company Lubbock and Dallas, Texas 6 ) ) ) ) ) ) PRELIMINARY OFFICIAL STATEMENT RELATING TO $7,260,000· CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION BONDS, SERIES 2005 INTRODUCTION This Official Statement, which includes the Appendices hereto, provides certain information regarding the issuance of S7,260,000* City of Lubbock, Texas General Obligation Bonds, Series 2005. Capitalized tenns used in this Official Statement have the same meanings assigned to such tenns in the Ordinance authorizing the issuance of the Bonds, except as otherwise indicated herein. There follows in this Official Statemenl descriptions of the Bonds and certain information regarding the Cicy and its finances. All descriptions of documents contained herein are only summaries and are qualified in their entirety by reference to each such documenL Copies of such documents may be obtained from 1he City's Financial Advisor, First Southwest Company, Dallas, Texas. DESCRJPTION 01' TIIE CITY ... The City is a political subdivision and municipal corporation of the State, duly organi7.ed and existing under the laws of the State, including the City's Home Rule Charter. The City was incorporated in 1909, and fm:t adopted its Home Rule Chaner in 1917. The City operates under a CounciVManager fonn of government with a City Council comprised of the Mayor and six Councilmembers. The Mayor is elected at-large for a two-year tenn 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. airpon, sanitation and solid waste disposal, health and social services, culture-recreation, public transportation. public improvements, planning and zoning, and general administtative services. The 2000 Census population for the City was 199,564; the estimated 2005 population is 209,120. The City covers approximately 115 square miles. FINANCIAL AND MANAGEMENT CHALL!.NGF.S •. .In the past three fiscal years, the City has experienced a variety of financial and management challenges. and certain investigations and reports conducted or prepared by the City or its consultants have found weaknesses in the City's genen.1 management and financial practices, both with the City in general and the City's el~c utility system, known as Lubbock Power & Light ("LP&L "), in particular. The City is of the view that it has substantially addressed many of these conditions. Reference is made to "Discussion of Recent Financial and Management Events" for a discussion of these events and a description of how the Cily has responded to these events. THEBONDS DESCRIPTION 01' THE BoNDS ... The Bonds are dated July 15, 2005, and mature on February 15 in each of the years and in the amounts shown on the inside cover page hereof. Interest will be computed on the basis of a 360-day year or twelve 3o-day months, and will be payable on February 15 and August 1S, commencing February IS, 2006. The definitive Bonds will be issued only in fully registered form in any integral multiple or SS,000 for any one maturity and will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trost Company (''DTC") pursuant to the Book-Entry-Only System described herein. No physical delivery oftbe Bonds will be made to tbe owners dien:of. Principal of, pmnium, 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 "The Bonds • Book-Entry-Only System" herein. Atlll(OIUTY FOR lssUANCt: ••. The Bonds are being issued pursuant to the ConstiMion and general. laws of the State of Texas, particularly Chapter 1331. Texas Government Code, as amended; an election held May 15, 2004, and passed by a majority of the participating voteis; and the Ordinance. SECURITY AND S0URC£ o, PAYMENT .•• All taxable property within the City is subject to a continuing direct annual ad valorem tax; levied by the City sufficient to provide for the payment of principal of and inten:st on all Bonds. • Preliminary, subject to change. 7 ) ') ) ) TAX RATE LIMITATION ••• All taxable property wilhin the City is subject to the assessment, levy and collection by the City of a continuing. direct annual ad valorem tax sufficient to provide for the payment of principal of and interest on all ad valorem lax debt within the limits prescribed by law. Article XL Section 5, of the Texas Constitution is applicable IO the City, and limits its maximum ad valorem tax rate to $2.50 per $100 Taxable Assessed Valua1ion for all Ciiy purposes. The Home Rule Charter of the City adopts the oonstitutionally authorized maximum tax rate ofS2.50 per SIOO Taxable Assessoo Valuation. · OPTIONAL REDEMPTION ... The City reserves lhe right, at its option, to redeem Bonds having stated manu-ities on and after February I 5, 2016, in whole or in part in principal amounts of SS.000 or any integral multiple thereof, on February 15, 2015, or any date thereafter, at the par value thereQfplus accrued interest IO the date ofredemp1ion. 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 OTC while the Bonds are in Book-Entry-Only form) shall determine by lot the Bonds, or ponions thereof, within such maturity to be n,deemed. ff a Bond (or any portion or 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. NOTICE OF REDEMPTION ... Not less than 30 days prior to a n,demption date for the Bonds, the City shall cause a notice of n,demption to be sent by United States mail, lirst 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 registtation books or 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 HA VlNG BEEN SO GIVEN, THE BONDS CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE. AND NOTWITHSTANDING 1HAT ANY BOND OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, lNTEREST 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 nol delrimental to the interests of the registen,d ownecs, including the curing of any ambiguity, inconsistency, formal defect or omission therein. In addition, the City may, with the written consern or the holders of a majority in aggregate principal BmOWJt of the Bonds then outstanding, amend, add to, or iescind any of lhe provisions of the Ordinance, except that, without the consent of the n:gisten,d owners of all oftbe Bonds no such amendment, addition or rescission may (i) 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, or in any other way modify !he terms of their payment, (ii) give any preference to any Bond over any other Bond or (iii) reduce the aggregate principal amount required to be held by owners for consent to any amendment, addition or waiver. D1tFEASANC£ ... The Ordinance provides that the City may discharge its obligations to the registered owners or any or all of the Bonds to pay principal, interest and redemption price thereon in any matter permitted by law. Under current Texas law, such discharge may be accomplished by either (i) depositing with the Comptroller of Public Accounts of the Sate of Texas a sum of money equal to principal, premiwn. if any and all interest 10 accrue on lhe Bonds to maturity or redemption and/or (ii) by depositing with a paying agent or other authorized escrow agent amounts sufficient to provide for the payment and/or redemption of lhe Bonds; provided that such deposits may be invested and reinvested only in (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 or America, including obligations that are unconditionally guaranteed or insuted by the agency or insttwnentality and that me rated as to investment quality by a nationally recognized invesbnent rating firm not less than AAA or its equivalent, and (c) nonca\lable obligations of a state or an agency or a county, municipaJity, or other political subdivision of a slate that have been refunded and that are rated as lo investment quality by a nationally rerognized investment rating furn not less than AAA or its equivalenl. Under current Texas law, upon the maldng of a deposit as described above, such Bonds shall no longer be regarded to be outstanding or unpaid. After furn banking and financial arrangements for the discharge and final payment or redemption of the Bonds have been made as described above, all rights of the City to initiate proceedings to call the Bonds for n,demption or to lake any other action amending the tenns of the Bonds are extinguished; provided however, the right to call the Bonds for redemption is not extinguished if the City: (i) in the proceedings providing for the firm banking and financial arrangements, expressly reserves the right to call the Bonds for n,demption; (ii) gives notice of the reservation of that right to the owners of the Bonds immediately following the making of the firm banking and financial ammgements; and (iii) directs that notice of the reservation be included in any redemption notices that it authorizes. BooK-ENTRV-ONLY SYSTEM ... This section describes how ownership of the Bonds is to be transferred and how the principal of. premium. if any, and interest on the Bonds are to be paid 10 and credited by The Depository Trust Company ("DTC'?, New York. New York, while the Bonds are registered in its nominee name. The informaJion in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documenls such as this Official SJatement. The City believes the source of $UCh information to be reliable, but takes no responsibility for the accuracy or completeness thereof 8 ') ) ) ) The City cannot and does not give any assurance thaJ {1) DTC will distribute paymt:nls of debt service on the Bends, or redemption or other 11Ctices, lo DTC Participants, (41 DTC Participants or others will distribule debt servfoe payments paid to OTC or its nominu (as the registered owner of the Bonds). or redemption or other notices, to lhe Beneficial Owners. or thilt they will do so on a timely basis. or ~ DTC will serve and act in the manner described in this Official StaJemenr. The currenl rules applicable to DTC are on file with the Securities and Exchange Commission. and the currenl procedures of DTC to be followed in dealing with OTC Participams are on file with DTC. · OTC will act as securities depository for !he Bonds. The Bonds will be issued as fully-registered securities registered in the name o[Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of OTC. One fully-registered Bond will be issued for each maturity of the Bonds, in the aggregate principal amount of each such maturity, and will be deposited with OTC. OTC, lhe world's largest depository, is a limited-purpose trust company organized under the New York Banking Law. a "banking organization~ within the meaning oflhe New York Banking Law. a member of the Federal Reserve System, a "clearing corporation" within the meaning oflhe New York Uniform Commercial Code, and a "clearing agencyfl registered pursuant to lhe provisions of Section 17 A of the Securities Exchange Act of 1934. OTC holds and provides asset servicing for over 2 million issues or U.S. and non-U.S. equity issues, corporate and mwiicipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with OTC. 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 ~n Direct Participants· accounts. This eliminates the need for physical movement of securities Bonds. Oin!ct 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""). OTCC, in tum, is owned by a number of Direct Participants of OTC and Members of the National Securities Clearing Corporation. Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporaiion, (NSCC. GSCC, MBSCC, and EMCC, also subsidiaries ofDTCC), as well as by the New York Stock Exchange, Inc .• the American Stock Exchange LLC, and the National Association of Securities Dealers, fnc. Access 10 the DTC system is also available IO others such as both U.S. and non-U .S. securities bro leers 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"). OTC has Standard & Poor's highest rating: AAA. The OTC Rules applicable to its Participants are on file with lhe Securities and Exchange Commission. More infonnation about DTC can be found at www.dtcc.com. Purchases of Bonds under the OTC 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 confinnation &om DTC of their purchase. Beneficial Owners are, however, expected IO receive written confirmations providing details 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 bond 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 OTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authoriud representative of DTC. The deposit of Bonds with DTC and their registration in lhe name of Cede & Co. or such other OTC nominee do not effect any change in beneficial ownership. OTC has no knowledge of the aclUal Beneficial Owners of the Bonds; DTC's =rds reflect only the identity of the Di~ Participants to whose accounts such Bonds are credited. which may or may not be the Beneficial Owners. Tiie 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 IO Direct Participants, by Direct Participants to Indirect Participants, and by Di'rect Participants and Indirect Participants 10 Beneficial Owners will be governed by anangemenlS among them, subject to any stalutory or regulatory requirements as may be in effect from time IO time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission 10 them of notices of significant events with respect to ·the Bonds, such as redemptions, renders, defaults, and proposed amendments ro the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain thal the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish 10 provide their names and addresses to the ~istrar and ~uest that copies of notices be provided directly to them. Redemption noticc:s shall be sent to OTC. If less than all of the Bonds within a maturity are being redeemed, DTC"s practice is to derermine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither OTC nor Cede & Co. {nor any other OTC nominee) will consent or vote with respect to Bonds unless al,dhorized by a Direct Participant in accordance with DTC's Procedun:s. Under its usual procedures, OTC 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). 9 ) '.) ) ) ) J ) 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 or 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, 011 payable date in accordance with 1heir respective holdings shown on DTC's reoords. 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 in bearer form or regis1ered in "street name. " and will be the responsibility of such Participant and nol of OTC nor its nominee, the Paying Agent/Registrar, or the City, subject to any statuloiy or regulatory requirements as may be in effect from time to time. Paymenl of principal and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of OTC) is the responsibility of the City or the Paying Agent/Registrar, disbursemen1 of such payments to Direc1 Participants will be the n.:sponsibility of DTC. and disbursement of such payments to the Beneficial Owners will be lhe responsibility of Direct and lndirecl Participants. DTC may discontinue providing its services as depository widi respect to the Bonds at any lime by giving reasonable notice to the City or the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, Bonds are required to be printed and delivered. Subject 10 DTC's policies and guidelines, the City may discontinue use of the system ofbook-entty transfers through DTC (or a successor securities deposilOiy ). In that event, Bonds will be prinled and delivered. Use of Certain Terms in Other Sections oftbis Official Stateme11t In reading lhis Official Statemenl ii should be understood th.al while the Bonds are in the Book-Entty-Only System. references in other sections of this Official Statement to registered owners should be read to include the person for which lhe Participant acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through DTC and die Book-Entty-Only System, and (ii) exoept as described above. no1ices tha1 are to be given to registered owners under the Ordinance will be given only to OTC. lnfonnation conceming DTC and the Book-Entry-Only Syslem has been obtained from OTC and is not guaranreed as to accuracy or completeness by. and is not to be construed as a representation by the City or the Underwriters. Effect or TerminatioP of Book-Entry-Only System In the event that the Book-Entty-OnJy System is discontinued, printed Bonds will be issued to 1he holders and lhe 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. PA.YING AGENT/REGISTRAR •.• The initial Paying Agent/Registrar is JPMorgan Chase Bank, National Association, Dallas, Texas. In the Ordinance, the City retains the right to replace the Paying Agent/Regisltar. The City covenants to maintain and provide a Paying Agent/Registrar at all times until lhe Bonds are duly paid and any successor Paying Agent/Registrar shall be a commercial bank or trust company organized under the laws of the Staie of Texas 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 IO promptly cause a written notice thereof to be sent to each registered owner of the Bonds by United States mail, first class. postage prepaid, which notice shall also give the address of the new Paying Agent/Registrar. 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 {hereinafter defined}, and such inrerest shall be paid (i) by check sent United States mail. first class postage pn:paid, to the address of the registered owner recorded in the registration books of the Paying Agent/Registrar or (ii) by such other method, acceplable to the Paying Agent/Registrar requested by, and at lhe risk and expense or. the registered owner. Principal of the Bonds will be paid to the registered owner at the stated maturily or earlier redemption upon presentation to the designated paymentfbansfer 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 localed are authorized to close, then the date for such payment shall be lhe 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. TRANSFER, ExCHANGE AND REGISTRATION O • O In the event the Book-Entry4 0nly System should be disoontinued. the Bonds may be transferred and exchanged on the registration books of lhe Paying Agent/Registrar only upon presentation and surrender 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 clwges R1quired to be paid with respect to such registration, exchange and transfer. Bonds rnay be assigned by die execution of an assignment form on the respective Bonds or by other ins1rument 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, al the designaled office of the Paying Agent/Registrar. or sent by United Stales mail, first class, postage prepaid, to the new registered owner or his designee. To the extent poSStole, new Bonds issued in an exchange or ttansfer 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 aulhori:zed 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 ofSS,000 for any one maturity and for a like aggregate 10 ) j ) ) ) principal amount as the Bonds surrendered for exchange or transfer. See "The Bonds -Book-Entry-Only Sysrem" 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 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 DATf. FOR INTEREST PAYMENT ••. The record date ("Record Dace") 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/Registfar, if and when funds for the payment of such interest have been R:Ceived from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest ("Special Payment Dale-, whk:h shall be 15 days after lhe Special Re<:ord Date) shall be sent at least five business days prior 10 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 al the close of business on the last business day next preceding the date of mailing of such no1ice. BoNDHOLDERS' REMEDIES ... The Ordinance establishes as "events of default" (i) the failure to make payment of principal of or interest on any of the Bonds when due and payable; or (ii) default in the performance or observance of any other covenant. agreement or obligation of the City, which default materially and adversely affects the rights of the Owners, including. but not limited to, their prospect or ability to be repaid in accordance with the Ordinance, 1U1d the continuation thereof for a period or sixty days after notice of such default is given by any Owner to the City .. Under State law there is no right to the acceleratioo of maturity of the Bonds upon the failure of the City to observe any covenant under the Ordinance. Although a registered owner of Bonds c;:ould 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 regisk:red owner could be required 10 enforce such remedy on a periodic basis. In addition, recent Texas lower rourt decisions have questioned whether statutory language authorizing districts to "sue and be sued" is sufficient to waive a municipality's sovereign immunity to suit While these decisions could affect the ability of an Owner to seek specific performance of a covenant made by the City in the Ordinance or other bond document or lo seek recovery of damages from the City, the remedy of mandamus has not been at issue in these cases. These decisions are currently under review by the Tex.as Supreme Court. The Ordinance does not provide for the appointment of a trustee to represent lhe 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. Furtbennore, the City is eligible to seek relief from its creditors under Chapter 9 of the U.S. Banlcruptcy Code. Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged so\ITT:C of revenues, the pledge of taxes in support of a general obligation of a banlcrupt entity is not specifically recognittd 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 10 enforce would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankniptcy Court inslead 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 enfurceability of the Ordinance and the Bonds are qualified with respect to the customary righlS of debtors relative IO their creditors. Us! OF BoND PROCEEDS ... Proceeds from the sale of the Bonds are expected to be expended as follows: SOURCES OF FUNDS: Principal Amount of the Bonds Reoffering Premium Accrued Interest Total Sources of Funds USES OF FUNDS: Deposit to Construction Fund Debt Service Fund Deposit (includes accrued interest and rounding amount) Underwriter's Discount Costs of Issuance (includes Bond Insurance Premium) Total Uses of Funds II $ $ $ $ ) ) ., ) ) ) J ) BOND INSURANCE The City has made application to municipal bond insurance companies 10 have the payment of the principal of and interest on the Bonds insured by a municipal bond guaranty policy. {THE llEMAIN'DER OF THIS PAGE lNTENTIONALL Y LEFr BLANK) 12 j ' DISCUSSION OF RECENT FINANClAL AND MANAGEMENT EVENTS In the past three fiscal years ( a fisca 1 year is referred to here in as "FY,"' with the year designation being the year in which the fiscal year ends; each City fiscal year begins on October I and ends on September 30), the City has experienced a variety or fin1111Cial and management challenges. In response 10 the events ud circumstances that bave created such challenges, lhe City or consultants retained by it have conducted a series of audits and reviews of City government Certain of lhe reports.. including those described below, revealed weaknesses in the City's general management and financial practices. The City is of !he view that progress has been made in correcting many of these conditions (see "Discussion of Recent Financial and Management Events -City's Responses to Recent Financial and Management Events"), although further work will be required before the City is capable of meeting its financial policies, particularly those associated with fund operating and rate stabilization reserves (!R)C "Financial Information• Financial Policiestt). The following diswssion includes an analysis of the events that have occurred in the last two fiscal yeais, in particular, a summary of the measures taken in response to the challenges that have arisen, and a current description of the City's financial and management position. Caution Regarding Forward-Looking Statements This Official Slalement, and in particular the infonnation under the heading "Discussion of Recent Financial and Management Events,., contains forward-looking statements. Although the City belleves such forward-looking statements are based on reasonable assumptions, any such forward-looking statement in vo Ives uncertainties and is qualified in its entirely by reference to the considerations described below, among others., that could cause the actual financial results of the City to differ materially Imm those contemplated in such forward-looking statements. The City cannot fully predict what effects factors of the nature described below may have on the operations of the City and financial condition of the general fund of the City (the "General Fund") or its business-type activities, including its electric enterprise fund, which operates as Lubbock Light &. Power ( referred to herein as "LP &L"' or the "electric fund"), but the effects could be significant. The discussion of such factors herein does not pmport to be comprehensive or definitive, and these matters are subject to change subsequent to the date hereof. With respect to LP&L, exlensive infonnation on the electric utility industry is, and will be., available Imm the legislative and regulatory bodies and other sources in the public domain, and potential purchasets of the securities of the City should obtain and review such information. Among the factors that could affect the operations and financial condition of the City in general, and its electric utility in particular. are the fol lowing: > Significant changes in governmental policies and regulatory actions, including those of the Federal Energy Regulatory Commission, the United Stales Environmental Protection Agency (the "EPA"), the United States Department of Homeland Security, the United States Department of the Treasury. the Texas Commission on Environmental Quality ("TCEQ"), the Public Utility Commission of Texas (the "PUC") and the Southwest Power Pool, Inc., with respect to: • changes in and compliance with environmental and safety laws and policies effecting the City's water, sewer, storm water and solid waste funds; • changes in and compliance with national and state homeland security laws and policies effecting the City's water, sewer, solid waste and airport funds: -electric transmission cost rate structure; -purchased power and recovery of investments in electric system assets; -acquisitions and disposal of assets and facilities; and • present or prospective wholesale and retail competition in the electric industry; > Unanticipated population growth or decline, and changes in market demand, demographic patterns and the development of technology affecting the City's service area, its general government and public safety expenditures and City revenue from: -investor owned utility franchise fees, -City utility and service fees -sales tax revenues; and • ad valorem tax revenues: > With respect to LP&L: -the implementation of or adjustments made to new business straregies by LP&L; -competition for retail and wholesale customers by LP&L, particularly competition with Xcel (as defined below) and its subsidiaries; • access 10 adequate electric transmission facilities to meet current and future demand for energy; • pricing and transportation of coal, natural gas and other commodities that rnay affect the 00SI of energy purchased by LP&L; -inability of various contractual counterparties to meet their obligations to the Cily, and with LP &.L in particular with respect to LP&L's fuel and power purchase arrangements 13 ) > Wilh respect 10 the City's financial perfonnance in general: -legal and administrative proceedings and settlements; and -significant changes in critical accounting policies. FY 2003 Financial Coacuns and Mid-Year Budget Amendments Going into FY 2003. the City Council adopted General Fund and Enterprise Fund budgets that were balanced. However, during the preparation of the budget it was apparent that the transfers to the General Fund from lhe City's electric fund would ne,ed to be reduced as compared 10 transfers included in prior years' budgets. This situation arose as a result or the cumulative effc<:t or net losses to LP&L after transfers to the City's General Fund. During FY 2003. interfund loans were made ro LP&L from the water fond and the General Fund. A number or factors contributed to the LP&L losses (see "Discussion of Recent Financial and Management Events -Past Events Relating to LP&L and West Texas Municipal Power Agency"); a significant factor was that LP&L, unlike most other municipal eleclric utilities in Texas, competes directly with Southwestem Public Service Company ("'SPS"), a subsidiary of a large investor owned energy company, Xcel Energy, Inc. Xcel Energy, Inc .• and its subsidiaries with which the City has contracted for energy and other services -principally SPS • and with which it competes, are hereinafter referred to collectively as '"Xcel." Xe.el is based in Minneapolis. Minnesota, and is the fourth-largest combination electricity and natural gas energy company in the U.S. In addition 10 the service area that has dual certification with Xcel, a small part of the City is also served by South Plains Elecuic Cooperative ("SPEC"). The City, through LP&L, has competed for both wholesale and relail electric customers against investor owned utilities for over 80 years. This competition has existed despite the fact that the City is not within the transmission system governed by the Electric Reliability CoWlcil of Texas ("ERCOT''). ERCOT was opened to retail electric competition through the adoption o rswe deregulation legislation that went into effect on January I. 2002. The competitive environment has made it difficult for LP&L to fully recover its foe I costs, particularly during periods of volatile and historically high nalllral gas prices. Prior to calendar year 2000, natural gas prices generally ranged from S2.00 to $3.00 per thousand cubic foot Since 2000, gas prices have held within a general range of $5.00 to $6.00 per thousand cubic foot, and reached as high as $25 per thousand cubic foot in Februa,y 2003. Despite the increases in gas prices that began in calendar year 2000, LP&L produced positive net operating income in each year until FY 2003. All LP&L electric generating units, which provided approximately 35% of its energy requirements in J\lcent years preceding FY 2004 (the remaining energy was acquired through power purchase agreements), operare with natural gas as the primary generation fuel. Morwver, a majority of the units are older and significantly less fuel efficient than more modem Wlits. Prior to FY 2004, the City operated LP&L in a manner that was designed to recover administrative or indirect costs provided by the General Fund for LP&L (such as legal and financial services) as well as certain other general transfers. Such transfers included a payment in I ieu of ad valorem 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 was based on 3% of the gross operating revenues of LP&L) (collectively, the "Cost Recovery Payments,. In addition to the Cost Recovery Payments, prior to FY 2003 LP&:L was required to annually transfer IO 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"). Over the ten year period from 1993 to 2002, the average annual operating income of LP&L before transfers was $8 million, and during that period. LP&L transfers to the General Fund for payments in lieu of taxes and recovery of costs or business averaged $8 million per year. During the preparation of the FY 2003 City budgets, it was evident durt the amount of money transfened from LP&L to the General Fund would need to be reduced given the financial condition of LP&L. Consequently, the FY 2003 budget trimmed $4.8 million from LP&L transfers included in prior year budgets. In February 2003, during a period of extraordinarily high natural gas prices, City finance staff projected !hat, in !he absence of com:ctive measures, the electric enterprise fund would have an operating toss ofS24 million for FY 2003. During the then cum:nt practice of undertaking a mid-year budget assessment, in the Spring of 2003 the City Council amended lhe-LP&L and General Fund budgets to eliminate $7.7 million in transfers from LP&L 10 the General Fund. City management then undertook a comprehensive review of the General Fund and other enterprise funds for the purpose of identifying budget cuts throughout City government that would offset the reduced LP&L transfers. Ultimately, the City Council adopted budget amendments during the Spring 2003 mid-year review that totaled $9. 7 million for the General FWld (hereinafte{ ~ to as the "2003 Budget Adju.stments"), which represented approximately 10.5% of the original FY 2003 General Fund budget In addition to the $7. 7 million budget adjustment made to address the LP&L transfec reduction, the City Council determined to write offS2 million owed to the General Fund from the golf course entetprise fund. A number of other budget adjustments were made including (i) the elimination ofS2.S million of capital expenditure items; (ii) a reorganization of the structure or City government was implemented that consolidated a number of positions; (iii) the implementation or a general hiring freez.e throughout all City depanments, and the elimination of 100 positions in both the General Fund and the electric fund (approximately 40 positions were eliminated at LP&L., a majority of which were in the energy production area); and (iv) a 1% increase of the iransfers-in- lieu-of•franchise•payments was made for the water and solid waste funds, which increased the transfer for those funds from 3% to 4% of their respective gross reve1111Cs. 14 '.) ) ) Other measures that were taken after the 2003 Budget Amendments to address the projected LP&L operating loss included an increase in the fuel cost adjustment (-'FCAn) for residential and small commercial customers of LP&L by S0.01 per kWh effective May I, 2003 and, effective June I, 2003. the City increased the FCA for its two laJgest customers, which include Texas Tech University ("Texas Tech"), and which account for approximately 10% of the energy sales of LP&L. At the time of the May I. 2003 FCA increase for residential and small commercial custome~. the total electric cost energy for that class of LP&L's customers was approximately 30% above those of Xcel. In addition, in August 2003, the City issued two series of tax-supported debt 10 refund S8.5 million of LP&L revenue bonds and to provide $13 million for LP&L capital expenditures. The City anticipates that such debt will be self-supporting from LP&L revenues. although as discussed below. LP&L failed to generate sufficient revenues to pay all of its outstanding bonds for FY 2003: nevertheless, the issuance of tax-supported debt for LP&L reduced the cost ofbonowing for, and outstanding debt attributed directly to. LP&L. Past Eveats Relating to LP&L and West Texas Municipal Power Agency The City is a member of WTMPA. a mwiicipaJ power agency that was formed by concurrent ordinances adopted by the governing bodies of the cities of Brownfield, Floydada., Lubbock and Tulia. Texas (the a.Member Cities") in 1983. The original purpose of WTMPA was 10 engage in the generation. transmission, sale and exchange of electric energy to the Member Cities. As described below, under the heading "Discussion of Recent Financial and Management Events -City's Responses to Recent Financial and Management Events -Recent Measures taken to Address Financial and Management Concerns at LP&L." the scope or WTMP A's activities has changed as a result of a series of related agreements reached among WTMP A and the Member Cities in December 2003 (the "WTMPA Settlements"). WTMPA is a separate political subdivision under the laws of the State. In Jwie 1998, WTMPA issued $28,910,000 of its Revenue Bonds. Series 1998 (the "WTMPA Bonds"), to finance the construction and acquisition of a 62 MW electric co-generation project (the "WTMPA Project"), The WTMPA Project consists of a 40 MW combustion turbine generator (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. The Massengale Unit 8 turbine was originally scheduled to go online in the Spring of 1999, but during the course of the run 1eSt, the turbine experienced a catastrophic failure. In May 2001. the City and WTMPA filed a lawsuit against the manufilcturer 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 lhe turbine manufacturer and the gas company with respect to the settlement of the litigation. During the course of the mediation. the directorofLP&L and a City Council member who served on the Board of WTMPA and as chainnan of WTMPA made statements to the effect that WTMPA had retained the sum of Sl.6 million. representing proceeds of the WlMPA Bonds, from the turbine manufacturer until the litigation could be n:solved. Subsequent investigations revealed that such amount had been retained, but the money had eventually been applied, in Febnwy 2002. to pay debt service on the WTMP A Bonds. In addition, as a result of the delayed completion of the Unit, costs associated with replacement energy were incurred by WTMP A, and the amount of that expense and die responsibility for the expense, subsequently became a disputed claim of the City against WTMPA (see "Discussion of Recent Financial and Management Events -City's Responses co Recent Financial and Management Events -Recent Measures taken to Address Financial and Management Concerns at LP&L"). Al; a result of the confusion over the existence of the retained amount, the City embarked upon a series of internal fmancial and management audits of the relationship between LP&L and WTMPA, as well as an analysis of the internal c.ontrols of the City with respect to LP&.L. Such audits (collectively, the "LP&UWlMPA Management Audit") are available on the City's website at: www.ci.lubbock.tx.us under the heading uwest Texas Municipal Power Agency AudiL'' None of these reviews uncovered any malfeasance with respect to the administration of LP&L or WTMPA funds. However, the reviews concluded that the prevailing view that guided the administration of WTMPA affairs by the management of LP&.L, was that WTMPA was indistinguishable from LP&L. This view stemmed from the facts that LP&L was contractually committed on a joint and several basis to pay the WTMPA Bonds, the WTMPA Project was operated by LP&L and, as a practical matter, LP&L was talcing all the energy from the WTMPA Project (the other Member Cities received lower-cost energy purchased tmder WTMPA and City power purchase contracts with SPS). Ae<:ording to the audits, this management perspective had resulted in a consistent failure to follow the terms or the various WTMPA organizational, operational and power purchase agreements. In addition to poor contract administration by the management ofLP&L. there were findings in the LP&UWTMP A Management Audit to the effect that LP&L was acting without proper oveisight from the City Council and the City Manager's office. For a discussion of the measures taken co address the criticisms made in the audits, see "Discussion of Recent financial and Management Events -City's Responses to Recent Financial and Management Events• General Fund and General Government Actions" below. 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 or E& Y was delivered in May 2003, and included findings of misallocation of costs among the Member Cities. The report noted that no evidence of misappropriation or assets or intentional omissions of financial information was discovered. The E& Y report fowid that the misalloc:ations, adding an interest factor for such allocations. and an unbilled 5% management allocation that LP&L was entitled to under the power agreements, would result ma total amount owing 10 the City ofSS,590,746, of which the City owed itself, as a Member City ofWTMPA, approximately 90% of the total amount. 15 ) ) In March 2005, the City delivered irs Combination Tax and Electric Light and Power System Surplus Revenue CertificaleS of Obligation. Series 2005, in the aggregate principal amount of$23,055,000. A portion of the proceeds of this issue were used by the City to acquire the WTMPA ProjecL WTMPA used the proceeds received from the City to defease all of the outstanding WTMP A Bonds. Finaacial Staff and City Management Turnover Following the publication of the LP&UWTMPA Management Audit and the E&Y audit, 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 Deputy City Manager, who had almost 8 years of service to the City, the Assistant City Manager for Public Wotlcs, who had over five years of service 10 the Cily, and the Chief Executive Officer of LP&L, who had served in that capacity since 1998. Also. in late summer of 2002., the City's Chief Ac.countant died during the implementation of Governmental Accounting Standards Boani Statement 34 ("'GASB 34"). Between the beginning of FY 2002 and the close of FY 2003, some 29 pets0ns who held senior management positions with the City left the City's employment, some on their own accord and others as a result of a reorganization of City government. For a discussion of the City's responses to these events, see "Discussion of Recent Financial and Management Events -City's Responses to Recent Financial and Management Events" below. September 30, 2003 Financial Results The General Fund ... As hereafter described in ""Discussion of Recent Financial and Management Events • FY 2003 Audit Reslatements, Reclassifications and Internal Controls [ssues", the financial position of the City in FY 2003 was impacted by significant changes in the reporting entity and prior period adjustments and reclassifications of the City's FY 2002 financial statements. With respect to the General Fund. the beginning fund balance/net assets was restated from $18.6 million to Sl6.6 million. The restatement was attributable to the write off of a receivable in the General Fund from the City's golf fund. In addition, the General Fund experienced a $7 .2 million reduction in fund balance/net assets in FY 2003. the most significant drawdown of the General Fund reserves in over ten years. The decrease in fund balance occurred because of the $9.3 million transfer to LP&L to ensure the ongoing operation ofLP&L and the payment of the senior lien revenue bonds issued by the City for LP&L. In addition. the General Fund reduction in fund balance was a result of the forgiveness of originally budgeted payments in lieu of taxes, franchise fees and indirect costs of S4.8 million fiom the electric fund to the General Fund. TIie aggregate result of restatement of the beginning fund balance and the FY 2003 ll$e of fund balance was a General Fwid ending balance of$9.4 millioIL Coming in to FY 2003, the City bad a fund balance (adjusted) ofSl8.6 million. The City has adopted a policy (the "General Fund Balance Policy") to maintain an unreserved General Fund balance equal to two months operating expenditures. At September 30, 2002 the General Fund balance exceeded the General Fund Balance Policy by S4.5 million. At September 30, 2003, the General Fund Balance Policy required a fund balance of $14.2 million. As a result of the FY 2003 events described above, the City was $4.8 million under the fund balance required under its policy at the close of FY 2003. TIie decline in General Fund balance limits the City's ability to miti~ ru~ risks of revenue shortfalls and unanticipated expenditures. Reference is made to the information hereafter presented under the headings "Discussion of Recent Financial and Management Events -FY 2004 Budget and Year-End Financial Results" and .. _ FY 2005 Budget," for a discussion of FY 2004 results for the General Fund and a summary of the City's planning for FY 2005. The Electric Fund ... With respect to the City's electric fund (LP&L), the measures taken by the City Council during the FY 2003 mid-year budget review yielded substantial results as measured by the projected operating loss of S24 million in February 2003. LP&L ended FY 2003 with a $6.3 million operating loss. Before taking into aCCO\lllt transfers from other funds, the electric fund reported a ·$9 million loss. the first such loss in over ten years. As a consequence of the operating loss, LP&L failed to meet its revenue bond rate covenant under which the City has agreed 10 set rates for the electric system sufficient to produce net revenues equal to 100%-of its senior lien bonded indebtedness. £n FY 2003, LP&L produced $0.704 million that was available for the payment of debt service, which represents a 0.3 times coverage of average annual debt service and a 0.2 times coverage or maximum annual debt service, in each case after taking into account the issuance of City general obligation debt for LP&L that occurred in August 2003 (see "Discussion of Recent Financial and Management Events • FY 2003 Financial Concerns and Mid-Year Budget Amendments" for a description of such debt). Under the tenns of its bond ordinances, the failure to meet the rate covenant, while significant, did nol result in the w:eleration of LP&L's debt Moreover, the failure did not materially affect LP&L's operations, as LP&L was able to make its debt payments after receiving a $9.3 million contnllution from the General Fund, and LP&L has never defaulted in the payment of its bonded indebtedness. [n making its debt payments, LP&L has not used any moneys set aside as a debt service reserve fund under its senior lien revenue bond ordinances. The electric fund added S0.587 million to total net assets for the yeac after fac10ring in the $9.6 million contribution from the General fund. Cash and cash equivalents for LP&L were $0.330 million at September 30, 2003. As described above under "Discussion of Recent Financial and Management Events -FY 2003 Financial Concerns and Mid-Year Budget Amendments," in May 2003, lhe City Council implemented an increase in the FCA ofLP&L, by S0.01 per kWh which resulted in LP&L's rates for residential and commercial customers being approximately 30"/4 above lhose of Xcel. As a result, from May I, 2003 to September 30, 2003 LP&L Jost approximately 5.6% of its customers. Despite the increase in the FCA, operating revenues for LP&L declined from $97.4 million in FY 2002 to $91.7 miUion in FY 2003, while operating expenses increased from $88.3 16 J ) ) ) million in FY 2002 IO S98 million in FY 2003, which reflects a SI0.7 million increase in cost or purchased fuel and power during the year. For FY 2003, LP&.L's average fuel cost was approximately 61 % above the cost in FY 2002. LP&L was able IO reduce its fuel payments as a result of negotiating a third purchased power contract with SPS in July 2003 to minimize the use or its generation assets. Despite the relatively small operating income that resulted after taking into account the Gerteral Fund contribution to LP&L, total net assets or the electric fund decreased by S3.9 million during the year, to S38.S million. as a result of a restatement or the beginning rwtd balance. The restatement reflected the write off of a S4.48 million receivable recorded from WTMPA in FY 2002. although the obligation was disputed by the other Member Cities or WTMPA. As described below under "Di.seussion of Recent Financial and Management Events -City's Responses to Recent Financial and Management Events -Recent Measures taken to Address Financial and Management Concerns at LP&L." the WfMPA Settlements have resolved the disputed receivable. Other Major Enterprise Funds: Water, Sewer. Solid Waste and Stonnwater .. .In addition 10 the electric fund, for which FY 2003 financial results are discussed above, the City's other major enterprise funds, consisting of the water, sewer, solid waste and stonnwater funds, produced total operating revenues of$71.6 million in FY 2003, as compared to $73.6 million for FY 2002. In FY 2003, operating expenses for those funds were $57.7 million, as compared with $51.6 million for FY 2002. Net operating transfers for the other major enterprise funds totaled S12.8 million in FY 2003 as compared to $6.S million in FY 2002. The increase in net transfers out was due primarily to an increase of $5.2 million in net transfers from the solid waste fund that was attributable to the write off of an interfund loan made to the community investment fund in connection with an economic development grant ~t (see "Discussion of Recent Financial and Management Events -FY 2003 Audit Restatements. Reclassifications and Internal Controls Issues • Audit Restatements"). In addition, operating expenses or the solid waste fund increased SS.8 million over FY 2002, which was the result of a change in =unting estimate related to depreciation expense for the City's landfills. FY 2003 Audit Restateme•Us, Reclassifica1i9ns and Ioternal Controls Issues As was the case with other municipalities in the State and U.S., the implementation ofGASB 34 by the City in FY 2002 effected a substantial change in the presentation of the City's financial statements. Prior to the implementation of GASB 34, governmental accounting standards did not require the use of a government-wide perspective in the presentation of financial infonnation; instead, fund accounting was generally used to present financial data Under GASB 34, fund accounting has been supplemented by government-wide statements and certain aspectS relating to the presentation of the fund level statements have been modified., as well, particularly with respect to the presentation of restricted and unrestricted net assets within each fund. For additional information regarding accowiting policies duu are applicable to lhe City, see Note r. "Summary of Significant Accounting Policies" in the financial statementsofthe City attached as Appendix B. The FY 2002 financial statements, and the City's financial statements dating to FYl993, were audited by Robinson Burdette Martin Seright & Burrows, L.LP. (the "Former External Auditor"}. In keeping with the overall reassessment of its financial and management affaus undertaken by the City following the occummce of the events swrunarized under "Discussion of Recent Financial and Management Events -Past Events Relating to LP&L and West Texas Municipal Power Agency FY 2003 .... in the Summer of 2003, the City conducted a request for qualifications for its external auditor and selected KPMG L.LP. ('4KPMG"} to audit its FY 2003 financial statements. Consequently, the Former External Auditor guided the City through the initial year implementation of GASB 34, while in the second year of GASB 34 financial reporting, the City's financial statements wen, audited by KPMG. Audit Restatements ... During the preparation of the FY 2003 CAFR. some seven restatements ro beginning fund balance/net assets were made to various fund level statements of the City. The restatements totaled S36. 7 million. These restatements represented an aggregate increase in net assets of the City ofS2.56 million. as some affected funds had their beginning balances restated tD a higher figure, while other funds were restated 10 decrease their beginning fund balance. As described above under "Discussion of Recent Financial and Management Events -FY 2003 Financial Concerns and Mid- Year Budget Amendments.," the General Fund was restated from a fund balance ofSl8.6 million to $16.6 million to rellect a write off for an ac.count re<:eivable, which as of September 30, 2002 had ceased to be collectible. Also, as described above under .. Discussion of Recent Financial and Management Events -September 30, 2003 Financial Results -The Electric Fund," the electric fund's beginning fund balance was restated downward by S4.43 million to reOect a receivable from WTMPA that was uncollectible. Other enterprise fund resta1ements include an S0.867 million increase in the water rund beginning balance and a S0.722 million increase in the sewer fund begiMing balance, each or which were made to reflect a change in ac.counting treatment pertaining to the approrriate pany that is responsible for reimbursement of fees collected by the City for new water and sewer connections. With respect to the impact on a particular fund asset, the most significant restatement in begiMing fund balance occiured in lhe City's community investment fund, a fund used in prior yea.rs to account for economic development initiatives, which was restated from a beginning balance of S46.8 million to $36.8 million. The change was associated with an economic development grant made by that fund in FY 2002 that was originally reflected on the accounting statements of the City as a loan. In preparing the 2003 CAFR, it was determined that such transaction should be tn:ated as a grant, not a loan, although Market Lubbock, Inc., a component unit of the City that administers the grant agreement, retains cer1llin reoourse actions in the 17 ) ) ) event lhat the grant recipient fails to satisfy its economic development initiative agreement. As a result, the receivable in the community invesunent fund for the $10 million amounl was deleted as an assel of the fund ($6 million of the SJ0 million grant had originally been funded through an interfund loan lo the community investmenl fund from the water and solid waste funds). In addition to these five restatements of existing fund balances, in preparing the 2003 CAFR, new assessments were made with respecl IO two entities with which the City has long-standing conlraCtllal relationships: a corporate entity !hal does business under conlract wilh the City as "Citibus", and WTMP A, a legally separate municipal QOrporation. In prior fiscal years, lhe fonner entity had been accounted for by 1he City as a discretely presented componeni Wlit of the City, while the City's relatiooship with WTMPA had been described in the foolnOtes to City firumciaJ statements as a contingent liability of the City, because the City had contractually ag~ to provide a debt service guaramee for the debt of the agency. In the 2003 CAFR, the accoun1ing treatment of these entities was reconsidered, and each was added to the City's financial slatements as an enterprise fund. The result of the addition of each of these funds was an increase in nel assets, in the amount of $12.3 million for the new lransit fund, and $3.2 million for the new WTMPA fund. Audit Reclassifications ... In addition to the restatements summarized above, other reclassifications of net assets were made in oonneclion with the preparation of the FY 2003 CAFR. Except for the restatements lhat were made to the financial statements, as described above, the reclassifications did not affect the "bottom line" statement of nel assets for a particular fund, and did not reflec1 lhe discovery of missing funds or uncollectible amounts from the prior fiscal period. Instead, lhe reclassifications pertain to the portion of a fund's net ~ts thal are shown as invested in plant, restricted for future claims or that are unrestricled and available to support the operations of lhe entity, and as such. the incorrect information shown in the portions of the FY 2002 financial statements that required co=tions, or reclassifications, oould have provided a reader of the f11181lcia! statements wilh misleading information regarding the liquidity of such funds. In the preparaiion of the FY 2003 CAFR, it was discovered that the portion of net assets shown in certain of the financial statements, particularly with respect to the enterprise funds (or business-type activities), had been mathematically incorrectly calculated in the FY 2002 CAFR. While the government-wide sta1ement of net assets of the City included in the FY 2002 CAFR showed $37.9 million unrestricted ne1 assets for business-type activities of the City, the fund financial statements showed an aggregate amount of unrestricted net assets or the enterprise funds lhat tolaled $195.2 million of unrestricted net assets. The FY 2003 CAFR reports in the govemment-wide statement of net asselS of the City S3Z.9 million of unrestricted net assets for business-type activities of the City and the fund financial statements in the FY 2003 CAFR repon an aggregate amounl of unrestricted net assets for the enterprise funds that total $30.2 million (certain reconciliations are required to balance government-wide and fund level reports, thus small differences should appear between the two presenlalions). Internal Controls Issues .. .In accordance with accounting guidelines, the external auditor customarily provides the govemmenlal entity with a "management letter" that includes a discussion of any material weaknesses in the audited government's internal c.ontrol stnicture. In its FY 2003 Management Letter (the "2003 Management Letter"), KPMG noted several weakness in the City's internal controls, including an overall internal control weakness in the City during FY 2003. The 2003 Management Letter noted that the City operaied during FY 2003 with an interim City Manager, an interim Chief Financial Officer and a Vlk:ant Internal Auditor, and that a high turnover of staff within the City Manager's office dating to late 2002 had a significant effec1 on the City's internal control structure. See "Discussion of Recent Financial and Management Events -Financial Staff and City Management Twnover'' above. In addition, the 2003 Management Letter nolCd deficiencies in the year end GAAP financial ieporting cycle, citing as examples the significant restatement of beginning net assets/fund balances and the reclassifications described above, as well as nwnerous adjustments that were required to be posted after the initial closing of the City's books for FY 2003. The failure to timely obtain financial statements from component units, including W1MP A, was also noted. KPMG recommended that the City review the personnel within the City's accounting department and the accounting staff within LP&L to detennine whether sufficient qualified personnel were in place to provide accurate and timely closing of lhe City's books and preparation of annual fmancial statements. Other material weaknesses noted include the failure of lhe City to properly reconcile its cash balances, the failw-e of LP&L to meet iis bond rate covenant {as described above under "Discussion or Recent Financial and Management Events - September 30, 2003 Financial Results -The Electric fund"), a lack of oversight or monitoring of contracts with other entities (for example, WTMPA), and the failure of the City to abide by its General Fund Balance Policy (as described above under "Discussion of Recent Financial and Management Events -September 30, 2003 Financial Results -The General Fund"). FV 2004 Budget and Year-End Financial Results General Fund .•. The City Council adopted the FY 2004 budget on September 18, 2003. In adopling the FY 2004 budget, lhe City Council restricted the transfers out of the electric fund to a transfer to the General Fund to an amount equal 10 the indirect cost rec.overy amount, or $1.1 million, which iepresented an approximately $6.6 million reduction in transfers liom LP&L from the original FY 2003 budget. lo addition, the City Council instructed the interim City Manager to prepare the budget using the principle that taxes would not increase as a result of the increase in taxable value from reappraisals of existing properties, which has ~nled a substantial portion of tax base growth in previous y~. As a result, the tax rate was reduced from S0.5700 per $100 of taxable Yaluation in FY 2002 to S0.5457 in FY 2003, the equivalent ofSt.9 million in revenue, although the tax raie was projected to generate additional revenues of SI.I million due to new construction in the City. Other revenue enharu:ements included in the FY 2004 budget were increases in the franchise fees assessed to the gas franchisee and to Xcel, each of which 18 ) ) ) increased from 3% of gross revenues to 5% effective December I, 2003. In addition, the transfers from the water and solid waste funds for the cost of business transfer (which approximates a payment in lieu or franchise taxes) was increased from 3% to 6% of gross revenues. On the expenditure side, seven employment positions were eliminated from the General F1md budget, while an addition.al live police officers and nine firefighter.; were funded in the budget. Total revenues and expendilWCS budgeted for the General Fwtd were balanced. at S94.2 million Based upon unaudited financial records through the first eleven months of FY 2004, and projecting revenues and expenses to the end of FY 2004, the City estimates that the General fund balance will grow by approximately S4.4 million at year-end. to $13.8 million. which would place the City S0.9 million under its General Fund Balance Policy. Among the most significant factors affecting the projected year end results of the General Fund are stable growth in the sales tax and other revenues overall and reduced expenditures through operating and administrative efficiencies. While no firm assurances can be given that these projected results will be achieved. the City believes that such projection is reasonable based upon current financial data. In FY 2004, LP&L's revenues were sufficient to make debt service payments on its bonded indebtedness without a lranSfer from the General Fund. Excerpts from the City's Comprehensive Annual Financial Report of the fiscal year ended September 30, 2004 (the "FY 2004 CAFR"), including the audited financial statements and the management discussion and analysis (the "MD&A") are attached as Appendix 8. Refi:renoe is made to Appendix B for a more complete presentation of FY 2004 financial results (the complete FY 2004 CAFR is available from the City upon request and may be downloaded from the City's web site: http://www.ci.lubbock.tx.us). Enterprise Funds ... With respect to the major enterprise funds of the City, in FY 2003. the City adopted rate ordinances for the water and sewer enterprise funds that included a series of four 3% increases in water rates and a series of foUI' 5% increases in sewer rates. FY 2004 was the second year of such increases (bu1 see "Discussion of Recent Financial and Management Events - FY 2005 Bud.get" for a discussion of possible addition.al rate increases in the water, sewer and stonnwater funds in FY 2005 below). Olhet key budgetary measures included the decrease in transfers from the electric fund to the General Fund and the increase in the cost of business transfer for the water and solid waste funds., each described above, and a planned use of fund balance in the stonnwater fund to pay increased debt service on tax-supported debt issued by the City for drainage projects. Based upon unaudited financial records for the first eleven months of FY 2004. and projecting revenues and expenses to the end of the fiscal year, the City estimates that LP&L will produce positive net income after transfers of $1 million at year end. Based upon unaudited financial records for the first eleven months of FY 2004, the City estimaies that the fund balances of the water, sewer, solid waste and stormwater funds will increase by Sl.6 million, $0.164 million, $0.2 million and SJ.8 million, respectively at FY 2004 year end. While no furn assurances can be given these projected results will be achieved, the City believes such projections are reasonable based upon current financial data. City's lhsponses to R«eol Financial and Management Events As described above, the City has encountered in recent years criticism or its management practices in various reports and audits prepared by the City and outside consultants. Al the same time, the City has experienced financial downturns, partictdarly in the General Fund and at LP&.L. Moreover, lhrough reorgani7.ations of government designed to address these shortcomings, and in response to political pressures by the City Council to provide a more accountable City government while reducing the growth or the cost of City government, a significant number of senior management staff of the City have departed. In FY 2004, the City implemented a nwnber of significant steps to ~ss both its management needs and financial challenges. Certain of the measw-es taken by the City to strengthen City government in general, and to addtess its financial challenges, are described below. General Fund and General Government Actions > General Fund Budgetary Actions ... As discussed above under "Discussion or Recent Financial and Management Events-FY 2003 Financial Concerns and Mid• Year Budget Amendments" in adopting the 2003 Budget Amendments, as well as the FY 2004 budget and the FY 2005 budget, the City has demonstrated the ability after FY 2003 to meet General Fund obligations with balanced operating results. This has been achieved through various budget cuts and other austerity measures, including eliminating approximately 100 pasitions City•wide. The City will need lo restore its General Fund balance over a period of years. For FY 2004. General Fund balanoe ended with a surplus ofSl2,127,969. While no assurances can be given as to future fmancial results, based on historic expenditure trends an increase in General Fund balance of an additional SI million 10 $2 million is expected for FY 2005 year end. City management also has implemented monthly assessments of the budget > City Management Changes ... ln February, 2004, the City completed its search for a new City Manager with the employment of Lou Fox. In late June 2004, City Manager Fox announced a new slate of senior managers for the City, including the hiring of a new Deputy City Manager, a new Chieffinancial Officer/Assistant City Manager and a new Director oflntemal Audit (which pasition was m:ated by the City Council in FY 2003, but was vacant until filled in Jwie 2004). Each of the positions were filled by individuals from outside of the City, and each of the new City officers has extensive government service (see "City Officials, Staff and Consultants -Selecred Administrative Staff"). Collectively, the new management team represents over 80 years of government service experience. 1lie City is of the view that these moves reflect a return to management stability, and that they will.assist the City in addressing the general internal control weakness cited by KPMG in the 2003 Management Letter. 19 ) ) ) > Establishment of Audit Committee ... Through the adoption or a resolution in June 2003, the City Council established an independent Audit Committee composed of five members. The City believes it is one of only a few municipalities nationwide that has created an audit committee, taking its design in large part from the provisions of Sartianes-Oxley Public Company Accounting Refonn and Investor Protection Act. The Audit Committee is charged with maintaining an open avenue of communication between the City Council, City Manager, internal auditor and independent external auditor lo assist the City in fulfilling its fiduciary responsibility to its citizens. 1he committee has the power 10 conduct or authorize investigations into the city's financial perfonnances, internal fiscal controls, exposure and risk assessment It reports to the City Council. 1be establishment of the Audit Committee is designed lo serve as an additional check on the preparation of the City's financial statements and lo avoid weaknesses in the City's internal controls, including the status and adequacy ofinfonnalion systems and security. The chairperson is appointed by the Mayor and the other positions are filled by a vote of the City Council. At least two members of the Audit Committee are required to have a background in financial reporting., accounting or auditing, and at least one member is required to be a certified public accountant. The cutn:nt membership of the committee consists of Mike Epps. an Executive Vice President at American State Bank in Lubbock, Jim Brunjes, Senior Vice Chancellor and Chief financial Officer for the Texas Tech University System; Dan Benson, a professor at the Texas Tech University School of Law with expertise in federal criminal law and appellate procedure; R.J. Givens, a real estate agent in the City; and Kim Turner, the Director of lntemal Audit at Tex.as Tech. Mr. Brunjes is the chair of the Audit Committee. Recent MN5!1fl'i"i taken 10 Address Financial and Management Concerns at LP&L > New ChiefExecutive Officer for LP&L .. .In March 2003, R. Can-oil McDonald contracted with the City to perform the duties of Director of Electric Utilities for the City. Mr. McDonald had previously been employed by LP&L, most recently in 1994. when he retired as CEO of LP&L. Mr. McDonald has over 40 years experience in the electric ulility business in Lubbock and the surrounding area, having also served in various positions with Southwestern Public Service Company (now Xcel) for over 25 yemi. Mr. McDonald's contract is scheduled lo expire in May 2006. Under the management of Mr. McDonald, the City and LP&L have implemented a variety of measures designed to improve the accountability of LP&L to the City and to better position the utility for future profitability. Certain of those measures are described in the paragraphs I hat follow. The Electric Board (hereinafter defined) has commenced the process of hiring a successor to Mr. McDonald and expects to have completed this process by 0-mber 2005. The City believes it is Mr. McDonald's intent lo assist any successor as needed until bis rontract expires. > Increase in fuel Cost Adjustment ... As described under "Discussion of Recent Financial and Management Events -Past Events Relating to LP&L and West Texas Municipal Power Agencyn in May 2003, the City Council approved an increase in the fCA portion of the residential and small commercial customers rate class by SO.OJ per kWh, an average increase of 12.5% for both residential and commercial customers, which resulted in LP&L being approximately 30% higher in cost for those rate classifications than Xcel. The increase was approved in order to pass through fuel costs that had been incun-ed by LP&L but not recovered through its rate base. LP&L adjusts its FCA each monlh, and may do so under the existing methodology without further action of the City Council, lo reflect CUfl'Cllt energy prices plus an additional measure to recover a portion of the rolling eighteen month average for uncollected fuel expense; provided, however, that no such adjustment is typically made unless the overall cost of energy after the FCA adjustment RC=nnits LP&L to remain competitive with Xcel. If lhe adjustments will not pennit LP&L to remain competitive and are not passed through, they become an unrecovered fuel expense. As a result of the increase, from May 1, 2003 to September 30, 2003 LP&L lost approximately 5.6% of its customer.;. After losing almost 4,000 metered customers following the May I, 2003 FCA increase, LP&L began to increase its customer cowit in May 2004. Since May 2004, LP&:L has had an average ineiease of approximately 263 customeis per month. The City has undertaken periodic adjustments to its fuel COSI to remain competitive with Xcel. In May 2005, the City FCA was increased by $0.085 per kWh, an increase that was in line with a rate increase imposed by Xcel. > Establishment of New Electric Utilities Board ... In Dc<:ember 2003, the City Council appointed the Lubbock Electric Utility Governance Commission to review and evaluate various issues relating to the governance of LP&L. In February 2004, that Commission presented its findings 10 the City Council (the "Electric Utility Governance Report"), and on February 5, 2004, the City Council adopted an ordinance (the "LP&L Governance Ordinance") (I) creating a new Electric Utilities Board (the ""Electric Boa.rd") for LP&L (the new board replaces a fonner boanl that was ~visory only), (2) i:eseiving certain duties and responsibilities with respect to LP&L to the City Council (i.e., the powers lo approve LP&.L's annual budget; set LP&L's rates; issue debt for LP&L; exercise the power of eminent domain for LP&L; and require the payment of an annual fee to the City), and (3) mandating the crea1ion of certain reserve accounts by LP&L and restricting the transfer of revenues from LP&L to any other fund of the City, including, particularly, .the General Fund, until such reserves have been funded. The Electric Board was appointed in February 2004. In June 2004, the City initiated a solicitation tO the holders ofLP&L's senior revenue debl seeking approval to amend each LP&L bond ordinance to provide for the governance of LP&L by the Electric Board. (n atx:0rdance with the provisions of the bond ordinances, the City was obligated to obtain the consent of at least 51% of the LP&L bondholders, and in Augusl 2004 the City received the requisite consents. The City amended the bond ordinances to provide for the governance ofLP&L by the Electric Board in January 2005. 20 ) ) ) ) On November 2. 2004, the voter.; of the City approved a referendum amending the City Charter to require the establishment of the Eleciric Board. The purpose of the charter amendment was to ensure the pennanenl establishment of the Electric Board, as the action of the City Council in adopting the LP&L Governance Ordinance was subject to repeal by subsequent City Councils. The charter amendment requires the City Council to adopt an ordinance (the "New LP&L Governance Ordinance") by no later than January I, 2005 setting forth other duties and responsi bi lilies of the Electric Board not specifically set forth in the proposed charter amendment. The City Council. utilizing the LP&L Governance Ordinance as a model, adopted the New LP&.L Governance Ordinance on December 16, 2004. Each of the New LP&L Governance Ordinance., the bond ordinance amendment and the charter amendment contain similar provisions regarding the powers of the Electric Board, although as noted above. and as further desaibed below, the New LP&L Governance Ordinance includes additional provisions that pertain to the establishment of financial reserves and restrictions on ttansfer of funds from LP&L. In addition, the charter amendment stipulates that the Electric Board shall detennine the transfer and disbursement of all net revenues of the City's electric utility. The New LP&.L Governance Ordinance provides that the Electric Board oonsist of nine members appointed by the City Council, and that the City Council consider extensive business and/or financial experience as the pri mazy qualification for serving on the Electric Board. EleclTic Board members serve without compensation. Under the New LP&L Governance Ordinance, the Board is given the authority, duties and responsibility to (I) approve an annual budget and electric rare schedule for submission to the City Council for approval and, from lime to time, submit to the City Council amendments to the budget and/or the electric rate schedule: (2) oversee the audit of the electric fimd. and engage an accounting finn for that purpose; and (3) subject to applicable law. including the City Charter and Code of Ordinances, govern, manage. administer and operate the City's electric system, including conllading for legal and other services separate and apart from those provided by the City. In addition. the City Manager is required to oonsult with, and seek approval ot the Electric Board prior to appointing and/or removing the din:ctor of LP&L. In accordance with the New LP&L Govemanoe Ordinance, the director ofLP&L reports to the Board. The adoption of the LP&L Governance Ordinance. the charter amendment election. and the subsequent adoption of the New LP&L Governance Ordinance reflects a decision by the City Council to provide a measure of independent management and financial self-determination for LP&L. In accordance with the findings present.ed lo the City CoWlcil in the Electric Utility Governance Report, the prim!IJ}' purpose of the New LP&L Governance Ordinance is lo permit LP&L 10 rebuild, and then better contto ~ its financial reserves with substantially less input in the process from the City Council than in the past The adoption of the New LP&L Governance Ordinance follows in the wake of the conclusions reached in the LP&UWTMPA Managemen.t Audit lo the effect that there had been a history of poor contract administration by the management of LP&L relative to WTMPA, and that LP&L had acted without proper ov~ight from the City Council and the City Manager's offwe. While the City Council retains substantial powers over the electric system., an additional goal of the City in establishing the Electric Board is to develop local expertise in a pool of individuals who can provide a sharper focus by the City on the operation of LP&L than has occurred in the reamt past > Establishment of Reserve Funds for LP&L: Remiction on Transfers from LP&L ... As noted above, the LP&L Governance Ordinance includes a provision lhat requires LP&L to establish reserve funds. Such funds consist of {I) an operations reserve fund to be equal to three months' gross retail electric revenue as detennined by LP&L's previous fiscal year; (2) a rate stabili7.ation reserve to be funded to an amount equal to two months' gross retail electric revenue as detennined by LP&L's previous flSC31 year; and (3) an electric utility deve loprnent reserve to be funded lo a level equal to one months' gross retai I electric revenue as detenninc:d by LP&L's previous fiscal year and 10 be used solely to meet any rapid or unforeseen increase in development in the City. Under the LP&L Governance Ordinance. the City may not require that LP&L aransfer any fee equivalent to a franchise fee, a payment in lieu of taxes or other disbursement of the 11et revenues of LP &L uoti I ( a) all bond debt service requirements have been funded (which obligation is senior in right to the obligarion IO fund the reserves) and (b) the reserves have been fully funded. As noted above, the charter amendment provides that the Electric Board shall detennine the trans for and disbUfSement of all net revenues. Consequently, subject to (i) provisions of Stare laws that govern municipal uti Ii ties, and which stipulate that a first use of the utility's gross revenues be used to pay operating expenses, and (ii) the obligations of the City with respect to LP&L's bonded indebtedness_ it is possible that the Electric Board could devise a flow of funds for LP&L that is substantially different from that set forth in the LP&L Governance Ordinance. To date, the Electric Board has not deviated from the flow of funds contemplated under the LP&L Governance Ordinance. At present, LP&L has not funded any of the reserves established under the LP&L Governance Ordinance, as net revenues have been inadequate for that purpose. Moreover, the mere establishment of the funds does not imply that such reserves will be funded within any particular time frame. if ever. However, in adopting the LP&L Governance Ordinance and calling the special charter election, the City Council has evidenced its commitment that LP&L be given the opportunity to regain financial stability without being obligated to make transfers, other than its indirect cost of business transfer, to the General Fund or any other fund ofthe City . . > New Contractual Arrangements Affecting LP&L Operations and Revenues ... lo late 2003 and extending into the Summer of 2004, City Management, including LP&L staff in particular, negotiated a series of new agreements that will change the long• term operating plan of LP&L. These agreements, which are summarized below, stemmed from a series of events and circumstances relating to LP&L that are described herein under «Discussion of Recent Financial and Management Events -Past Events Relating to LP&L and West Texas Municipal Power Agency, n including an ongoing dispute with WTMPA relating to the responsibility for costs incurred by the City during the delayed completion of the WTMPA Project. In addition, as a result of 21 ) ) ) ) ) ) continued high (by historic levels) natural gas prices, following the negotiation of an additional wholesale power purchase agreement between the City and SPS in July 2003. the City concluded that. given the then prevailing gas prices, it was more economical to purchase wholesale energy from SPS than to operate its gas generation units, a significant portion of which are older and, in light of current gas prices, obsolete. In recent years, the City has explored several alternatives lo the use of its gas generation uoits, including the possible acquisition of new generation, perhaps through a joint venture for a coal generation facility, and the possibility of purchasing energy on a wholesale basis from entities other than Xcel or its subsidiaries. The City is in a severely electric transmission-conslTained area. The lack of sufficient transmission for delivery of energy to the City and the absence of other energy providers in the vicinity of the City with excess energy for sale were factors that contributed to the failure of the City to negotiate a wholesale energy purchase agreement with an entity other than Xcel or its subsidiaries. Consequently, to reduce fuel and production expenses., in the Summer of2004 the City began taking greater amounts of energy from the Xcel contracts, and restricted the generation of energy primarily to that produced at the WTMPA Project, and only then during periods of high energy demand. As described below under "Wholesale Energy Agreement with Texas Tech", these events led to a contract dispute between the City and Te,cas Tech, the largest LP&L customer. > The WTMPA Settlement Agreement ... In December 2003, the City, WTMPA and the other Member Cities or WTMPA entered into a series of agreements styled the "Comprehensive Settlement AgreemenL" Such agreements were negotiated for the purposes of (I) reallocating among the Member Cities of WTMPA, the right to WlMPA power resounies and the costs associated with such power resuurces, which consist or the WTMPA Project and certain power purchase agreements between WTMP A and SPS; (2) resolving disputes regarding the composition and voting power of the WTMP A board; and (3) settling the outs1anding, disputed claims for COSIS inCUJTed by the City on behalf of WTMP A. The WTMPA Settlements include the following agreements: (a) all of the capacity and energy in the WTMPA Project was allocated to the City or its assignee (under the 1998 WTMPA Project agreements, the City had an 85% allocation of the energy from the WTMPA Project, although ii had historically taken substantially all of the energy -and dispatched purchased energy lo the other Member Cities to meet their needs); (b) the City asswned responsibility for the cost of operation and maintenance of the WTMPA Project; (c) the City agreed to annually pay WTMPA l00% of the debt service due on the WlMPA Bonds (under the basic agreement of WTMPA, the agency's Power Sale Contract. each of the other Member Cities has joint and several liability for the WTMPA Bonds and will remain contingently liable in that capacity in the event the City should la.ii to make a bond payment obligation); (d) provision was made ror title to the WTMPA Project to 1ransfer to the City upon the retirement of the WTMPA Bonds; and (e) the City released all of its claims associated with costs that it had asserted was owed in connection with the energy costs incurred by the City for lhe Member Cities during the period when the WTMP A Project was delayed in coming online. In addition, the WTMPA Settlements include a purchased power allocation under which the City has agreed to allocate to the other Member Cities energy requirements nominated by the other Member Cities from other agency purchased power agreements, and the City agreed to schedule such power for the other Member Cities. The WlMPA Settlements repealed certain power sales agreements and operating agreements entered into by the parties in connection with the issuance of the WTMPA Bonds that were associated with the operation of the WTMPA Project. The WTMPA Settlements eliminated the position of WTMPA chairman, but the relative voting power.1 of the Member Cities were not modified. Under the WTMPA rules and regulations, each Member City appoints two members to the WlMPA Board, each of which has an equal vote (certain actions or the WTMPA Board require a six vote "super majority"). but, in addition to the affirmative votes of the board members, the roles and regulations provide, in effect. a veto right over WTMPA Board actions based upon the amount of net energy consumed by each Member City. As LP&L lakes substantially all of the energy from WTMPA resources, it has a veto over certain of the actions of the WTMPA Board. including adoption ofa budget, certain energy sales and the amendment of the agency's bylaws. The City believes the comprehensive settlement agreement modifies the principal WTMP A agreements in a manner that better reflects the historical manner in which the Member Cities have engaged in energy activities. In addition, while LP&L will continue to schedule power deliveries for all Member Cities, the contract administration of WTMPA agreements has been simplified by lhe 11.C(luisition by the City of the WTMPA Project and the defeasance of the WTMPA Bonds. As noted llllder "Discussion or Recent Financial and Management Events• FY 2003 Audit Restatements, Reclassifications and Internal Controls Issues," for FY 2003 and subsequent years, WTMP A has been classified as an enterprise fund of the City, which reflects the extensive associations between WTMP A and the City. > New Full Requirements Energy Agreement ... In June 2004. WTMPA entered into a 15 year full requirements wholesale power agreement (the '"'New Power Agreement") with SPS. The New Power Agreement is effective July I, 2004, and replaces a series of existing agreements between WTMP A and SPS and the City and SPS, which had expiration dates in 2004 and 2005. Under the N~ Power Agreement. SPS or its permitted assigns is obligated to provide all energy requirements for each of the Member Cities ofWTMPA, including the City, during the term of the agreement, which tenninates oo June 30, 2019. k, in past WTMPA agreements, and in accordance with the WTMPA Settlements, LP&L will schedule energy pun:hased under the agn:ement for each of the other WTMP A Member Cities. The New Power Agreement includes a fixed demand charge and energy components, with a pass through of SPS's fuel cost, which is billed in accordance with SPS's FERC approved fuel cost adjustment schedule. Under the tenns of the New Power Agreement. the fixed demand charge will increase incrementally, in most years annually. during the tenn of the agreement based upon a predetermined schedule set forth in the New Power Agreement. SPS may terminate the agreement upon the occurrence of an adverse reguiatoiy action under which SPS is required to sell generation assets, and WTMP A may terminate the agreement upon notice and during the fmal. four years of the scheduled termination date if WfMPA acquires an interest in replacement. coal-fired generation. Each party may require adequate assurances of perl'onnance whenever there is a reasonable basis therefor. 22 l ) ) ) ) The New Power Agreement represents a significant departure for LP&L, in that it reflects a long-tenn commitment to take all of its energy from SPS. The contract reflects a decision oflhe City to abandon the role of power generator. although, as described below, in connection with the consummation of the New Power Agreement the City has entered into two unit contingency agreements (the "Unit Contingency Agreements") with SPS that will require LP&L lo maintain its generation wtits for dispatch by SPS. Among the implications for LP&L of the New Power Agreement are that LP&L has resolved its long-tenn power supply issues_ and lessened its exposure to fuel price volatility, although SPS will pass lhrougb its fuel charges to LP&L on a monthly billing basis. SPS. in turn, may not pass its fuel costs through to its retail customers in the City more frequently than once every six months under CU1Tent State law that requires SPS to seek a rate order from the PUC before increasing retail fuel cost charges. As a result, the New Power Agreement provides the possibility of both advantages and disadvantages to the City with respect co casb flow, particularly if the City detennines to match its FCA to changes in SPS's fuel adj11Sbnent, as it has generally done in the past According 10 infonnation filed with various regulatory agencies, the City believes that over 60% of the energy that it purchases from SPS is from coal generation. This fuel mix was a significant factor in the City's detellllination to approve the New Power Agreement by WTMPA. In the event that gas prices should decline over the tenn of the Agreement, the City believes that SPS has the flexibility to switch a larger portion of its generation to gas. including through the use of the City's generation units in accordance wilh the Unit Contingency Agreements. With respect to the competitive posture of the City in light of the long-term commitment of the New Power Agreement, lhe City · notes that under cummt nwket conditions, and taking into account the secondary benefits of the agreement, including future savings associated with reduced personnel and maintenance costs as a result of the shift from being an active electric generator IO being a passive generator (for SPS under the tenns of the Unit Contingency Agreements), the wholesale price of the purchased energy, together with the other financial 'benefits of the Unit Contingency Agreements and the possible receipt of revenues under the new WTMPA gas agreement described below, pennits the City to compete favorably with SPS. An additional benefit of the New Power Agreement is that it will pennit the City to increase its efforts in developing LP&L's distribution business. In light of recent rate structure changes implemented by both the City and SPS that require new developments in the City to fund electric infrastructure through a development charge paid when the development is planed, new principals in developments are choosing to install only one electric distribution infrastructure. Since this new development charge was implemented in FY 2003. all major new developments in the City have selected LP&L as Che electric distributor, which positions the City as a distributor of energy to those developments in the future, even though the retail provider of such energy oould be a utility other that LP&L and other electric providers could choose to build their own distribution infrastructure to serve the developments. Perhaps the greatest risk co LP&L from the New Power Agi-eement is that given the term of the agreement and the dynamic na111re of electric competition, over time the wholesale price of the purchased energy will not permit the City to obtain the favorable margins that arc currently being achieved by the City. While the City does 001 believe that the area served by LP&L will be opened in the short-term to retail deregulation, as is the case in other parts of the State, that could occur during the tenn of the New Power Agreement While there are signincant uncertainties as to how such deregulation, if it occurs, would be administered, it is possible that new retail energy providers could enter the marlcet during the tenn of the New Power Agreement In addition, by tying its energy requirements solely to SPS, and though the other new agreements discussed in this section, the City has significantly increased its dependence on SPS as a counterparty to vital agreements relating to the operation and financial condition of LP&L. Counterparty risk is risk associated with the counterparty's financial condition, credit ratings., changes in business strategies and other quantitative and qualitative measures that could affect the ability of the countelparty to perform its obligations to the City. Both the long-tenn Unit Contingency Agreement and the New Power Agreement provides the City the right to demand certain credit assurances from its counterparty if it has reasonable grounds for insecurity regarding the performance of any contract obligation. The City was relatively unrestrained by existing gas purchase and transportation agreements in making the move from a generation utility to a full requirements energy purchase business strategy, as only one contract, for gas delivery, was in place that required the City to pay a faed price oomponent for gas transportation ~ctive of whether the City purchases gas. That contract, between the City and ConocoPhillips, expires in Februazy 2008. In connection with the Unit Contingency Agreements, the City has in place standby gas purchase agreements that can be used to supply LP&L with gas lo the extent that SPS calls upon the units., and the Ci1y will receive an offiiet against its minimum gas transportation requirements from ConocoPhillips for any gas purchased by SPS under the new WTMPA gas contract, if any, described below. While such offset will be subject to lhe same risks described below with respect to the new gas contract, the Cily does not anticipate that it will incur substantial costs in connection with prior contractual commitments relating to the purchase and transponation of natural gas as a .result of the new LP&L business strategy. > Other New Energy Related Agreements .•. As noted above, in collllCCtion with the negotiation of the New Power Agreement, the City negotiated the Unit Contingency AgreemeDIS, which consist of two agreementS that dedicate the Cily's generation capacity solely to SPS, which, subject to certain customary conditions, including reasonable notice and run times, has the right to call upon one or more of the generation units owned or controlled by LP&L, from time to time to meet energy requirements of SPS. Including the WTMPA Project, all of the capacity of which, in accordance with the WTMPA Settlements, is dedicated to LP&L. the City has dedicated generation capacity of 219 megawatts ("MW") to SPS under the Unit Contingency Agreements. 23 ) ) ) ) ) 1be most fuel efficient units wilhin that capacity are the 39 MW capacity of Massengale Unit 8 and the 21 MW capacity of the Brandon Unit I ("Brandon Station ff), which is located on the campus of Texas Tech (the "New Units"). The remaining capacity is in twelve older units (the "Older Units"). With respect to the New Units.. SPS may dispatch those units for a three year term ending J1111e 30, 2007; the tenn of the Unit Contingency Agreement for the Older Units is fifteen years, matching the term of the Power Purchase Agreement, wilh an expiration date of Jwte JO. 2019. Aside from the differences in units covered, the t:enn of the agreements and certain termination provisions in the Older Unit agreement, each Unit Contingency Agreement is substantially identical. The Unit Contingency Agreements include a demand charge, which must be paid irrespective of whether SPS chooses to take energy from the City's units, and an energy charge that is based upon the output of any of the City's units thal is dispatched fur SPS. While the amount of the energy charge will depend upon the energy taken by SPS from the City's generation units, if any, the Unit Contingency Agreements provide an annual minimum payment by SPS to the City of $6.3 million. > Natural Gas Sale Agreement ... Subsequent to its execution of the New Power Agreement, WTMPA and other parties entered into a series of agreements (collee1ively, the "New WTMPA Gas Ag,eements") under which WTMPA may acquire natural. gas and effectively exchange it for electric power to realize a cost savings. Under the New WTMPA Gas Agreements, WTMP A may purchase natural gas from Texas Municipal Gas Corporation ("TMGC") at below-mark.et prices and sell the gas lo SPS in return for a market-priced credit (reduced by nominal administrative and incentive fees) against payments due from WfMPA under the New Power Agreement. The net savings, if any, will be applied proportionately to reduce the power charges of WTMPA's Member Cities., including the City. TMGC is a Texas p11blic facility corporation created for the purpose of acquiring producing narwa.l gas reserves and selling its production to municipal entities s11ch as WlMPA and LP&L. The City's standby gas pwchase agreement, mentioned above in connection with the Unit Contingency Agreements, is also with TMGC. Under the terms of the New WTMPA Gas Agreements. SPS is not obligated to purchase gas from WTMPA unless natural gas producers, dealers, or other suppliers execute contracts to sell gas to TMGCs upstream gas provider, those suppliers offer t.o sell such gas on terms that SPS considers at least as advantageous as those available from other producers and dealers, and the aggregate quantities sold do not exceed either SPS's Texas gas requirements or the quantities available to WTMPA from TMGC at a discount from the offered prices or the quantities needed lo generate WTMPA's electric requirements. WTMPA's market- price credil is based on the prices offered by the qual i tied suppliers, and its supply of gas is dependent on sales by the qualified suppliers at those prices. TMGC has secured contracts with five suppliers (Conoco Phillps, Coral Energy. NOTS, Concorde Energy, and TeDaska). There can be no assurance that sufficient qualified suppliers will contract to sell gas, or that they will offer to do so on sufficiently advantageous terms, to supply all or any portion of WlMPA's gas requirements under the New WTMPA Gas Agreements. In addition. the discount now offered by TMGC may be reduced as necessary lo enable it to comply with financial covenants., although the discount has remained essentially constant for three years. Moreover, TMGC's reserves are not expected to be able to meet WTMPA's gas requirements for discount gas beyond 2006, although TMGC has agreed to use reasonable efforts to acquire additional reserves to do so. For these and other reasons. there can be no assurance that WTMP A will be able to realize savings in any amount or for any term for the benefit of its members under the New WTMPA Gas Agreements. Nevertheless, the City believes that the New WTMPA Gas Agreements contain sufficient economic incentives to induce SPS to qualify sufficient suppliers and to accept gas under the agreements up to the permitted quantities, and that the TMGC discowi1 will continue to hold. Accordingly, the City has included $4.1 million in gas rebate income in the electric system's FY 2005 operating budget. That amount assumes that the maximwn quantities of gas will be acquired and credited by SPS under the New WTMPA Gas Agreements in FY 2005; City management is of the view. however, that it is possible the rebate budgeted will be achieved. > Wholesale Energy Agreement with Texas Tech ... As noted above, Texas Tech, a four year State institution of higher education with a student enrollment of almost 29,000, is the largest customer ofLP&L in tenns of both energy sold and revenues generated. In 1990, the City constructed Brandon Station on the campus of Texas Tech. The Brandon Station is a cogeneratioo plant and waste heat is used to produce steam which in the past has been sold to the University. [n addition, the City owns the ele<:tric distribution system on the campus ofTexas Tech. Since 1998, the City has sold energy to Texas Tech under the tenns of a Power sale agreement (the "Old Texas Tech Agreement") that included pricing tenns for the sale of steam and penalties in the event that the City was unable to produce steam in accordance with lhe agreement. As described above. beginning in the Summer of 2003, as a result of high gas prices, lhe City generally discontinued the production of energy from its generation wiits, including Brandon Station, therefur requiring Texas Tech to use its boilers for the generation of steam, as a result of which Texas Tech incurred increased costs for natural gas for its boilers. Io 1he Spring of 2004, Texas Tech pteSCnled the City with a claim for stipulated damages under the tenns of the Old Texas Tech Agreement The parties agreed to mediate the claim. Following that mediation, the City and Texas Tech commenced new negotiations for lUI energy sales agn:ement (the "New Texas Tech Agreement'1-The negotiations have been concluded and the contract was executed by the parues on April 28, 2005. In general terms, Texas Tech has agreed to continue to purchase energy from the City at a price that will provide the City with a small rate ofretum, and is paying for energy usage at the rates provided in the New Te,cas Tech Agreement The City has agreed that steam produced at Brandon Station, if any, will be delivered to Texas Tech at no charge. The City has also agreed with Texas Tech that it may tenninate the agreement upon reasonable notice to the City, in which event the City will wheel energy to Texas Tech in accordance with an eneigy deliveiy charge. The City is of the view that the New Texas Tech Agreement has resolved the dispute with its largest customer on tenns that are mutually beneficial for the parties. 24 ) ) ) ) FY 2005 Budget General Fund ... The City Council adopted the FY 2005 budget on September 28, 2004. The City's FY 2005 budget for the General Fund is balan<:ed with S98 million in total revenues and expenses. The budget projects that sales tax revenues will produce 52% of total tax revenues (tax revenues represent 86% of the General Fund's total operating revenues), while ad valorem tax revenue is budgeted to produce 39% of tolal tax revenues. The FY 2004 budget included a 41 % to 46% mix of sales tax revenues to ad valorem tax revenues. The higher proportion of sales tax revenue to ad valorem rax revenue ror FY 2005 versus FY 2004 is attributable to the one quarter cent sales tax for ad valo.-em tax reduction that was approved by the voters of the City on November 4, 2004. The City began to receive revenues from that sales tax in October 2004. This shift in General fwid revenue sources represents a greater dependence upon sales tax receipts. which is generally a more volatile revenue souroe than ad valorem taxes. However, the City's sales tax receipts have not demonstrated the volatility that bas been experienced in othec parts of the State, especially following the events of September 11, 2001. As shown in Table 14 "Municipal Sales Tax History," the City's sales tax receipts have increased each year over the past six years. In FY 2005, the City!s to!a.l tax rate will decline from S0.5457 per SIOO taxable assessed valuation in FY 2004 to S0.4597. The largest decline in the tax rate is in the portion of the tax levied for the General Fund (see "Table 4 -Tax Rate, Levy and Collection History"). The City's tax roll increased $683 million, or 8.6%, from FY 2004 IO FY 2005. In keeping with current City Council policy that laXes not increase solely as a result of the increase in tax.able value from tax reappraisals of exisling properties, a portion of the $402 million of the growth attributable to reappraisals was discounted for purposes of detennining the tax rate for FY 2005. Other fa.c:tors used to de1em1ine the tax ra1r: are revenues from the new quarter cent sales tax and a 2.7% cost of living adjustment, as measured by the consumer price index. llie increase in sales tax revenues is intended to offset reduced franchise fee income and ad valorem tax income for the General Fwtd during FY 2005. Total transfers to the General Fund from enterprise and internal service funds are budgeted to increase only marginally, by $1 million, while transfers out increase by $ I. 7 million. On the expenditure side, administrative services. street lighting, fmancial services, fire, po lice, general government, human resources and planning and transportation budgets are comparable with FY 2004 budget amounts.. with total General Fund operating expenditures increasing by S l.6S million over the FY 2004 budget Enterprise Funds ... During the Summer of2004 the City made significant changes to City management The new management is presently assessing available resoun:es for capital expenditures in !he City's enterprise funds, and it is reevaluating the City's utility rate· structure and its existing capital expenditure plans. It is possible that the FY 2005 budget sumlllllriud below will be amended during the year to reflect this evaluation, and that the FY 2005 budget could be amended in a manner that increases or decreases planned spending for enterprise fund capital improvements, the use or contribution to reserves and the rate structure for various enterprise funds. The FY 2005 budget for the solid waste fund is balanced with $15.S million of revenues and expenditures, including an increased transfer to the General Fund of $1.1 million. The FY 2005 budget reflects $22.5 million in sewer fund revenues and expenditures, with $0.45 million earmarked as a conlribution for sewer fund capital expendi~ and an increase of$0.65 million in the transfer to the General Fund. The sewer budget includes a planned use oU23 million of fund reserves. The sewer budget reflects the third year of a planned overall four year rale increase, with rates increasing by 5% each year. The water fund budget for FY 2005 is balanced at $39.8 million of revenues and expenditures, which reflects a 17% increase in the water fund budget, including a planned use of $4.2 million of fund reserves. Operating expenses increase by Sl.5 million, spending for water system improvements increase by S0.9 million, debt and other expenditures of tbe water fund inaease by $2.8 million. The increase in the water budget reflects the third year of a planned four year rate increase, with rates increasing by 3% each year. Water transfers to the General Fund are comparable to FY 2004 and the water budget reflects a S0.3 million net increase in reserves. With respect to the electric fund, the revenues and expenditures inttease by $92 million and $82 million, ~vely over the prior year mainly as a result of gas sale revenues and expenditures under the new gas contract between TMOC and WTMPA. The FY 2005 budget for the stormwater fund is balanced al $7.3 million of revenues and expenditures, including a planned use orS0.2 million of fund reserves. Proposed FY 2006 Badget Currently, City Management is developing the 2005-()6 fiscal year operating budget and Capital Improvement Program. This process includes the ongoing evaluations of staffing levels and operating expenditures to ensure the most effective and efficient use of public resources. Goals for the upcoming budget include additional staffing in public safety and ensuring the solvency of the water and sewer ulil ities. 25 ) ) ) ) ) TAX INFORMATION ADV Al.OREM TAX LAW ••. The appraisal of property within the City is the responsibility of the Lubbock County Central Appraisal District (lhe "Appraisal Di.mien. Excluding agricultwal and open-space Ian<!. which may be taxed on the basis of productive capacity. lhe Appraisal District is required under the Property Tax Code (defined below) ro appraise all property within the Appraisal District on the basis of 100% of its market value and is prohibired from applying any assessment ratios. In detmnining market value of property. different melhods of appraisal may be used, including the cost method of appraisal, the income method of appraisal and market dala comparison method of appraisal and the melhod considered mosl appropriate by the chief appraiser is to be used Slate law further limits the appraised value of a residence homestead for a tax year to an amount not to exceed the lesser of ( I ) the maricet value of the property, or (2) lhe sum of (a) 10% of the appraised value of the property for the last year in which the property W$ appraised for laxation 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 llu.:e 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 yeatS. 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 widi the Appraisal Review Board. Reference is made to Title I of the TeKaS Tax Code (die "Property Tax Code''), for identification of property subject t.o taxation; property exempt or which may be exempted from laxalion, if claimed; die appraisal of property for ad valorem taxation pmposes; and the prooedures and limitations applicable to the levy and oollection of ad valorem taxes. Article VIII of the State Constitution (" Article vnr') 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 Vlll., and State law, 1he governing body of a political subdivision, at its option, may grant: (I) An exemption of not less than $3,000 of the marlcel value of 1he residence homestead of persons 65 yeatS of age or older and die disabled from all ad va.lorem taxes thereafter levied by lhe political subdivision; (2) An exemption of up to 20% of lhe market value of residence homesteads. Tite minimum eJ(emption undtt this provision is SS,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 home.steads 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 focces; the exemption applies to either real or personal property with the amount of assessed valuation exempted rangi11g from $5,000 to a maximwn of $12,000. Effective January I, 2004, under Article VIII and State law, the governing body of a coWtty, municipality or junior college district, may provide that the total amount of ad valorem taxes levied on the residence homestead of a disabled person or persons 65 years of age or older will not be increased above the amount of taxes imposed in the year such midence qualified for such limitation. Also, upon receipt ofa petition signed by five percent of the registered voters of the coWtty, municipality or junior college dislric:t, an election •must he held to determine by majority vote whether to establish such a limitation on taxes paid on residence homesteads of persons 65 years of age or older or who are disabled. Upon providing for such exemption, such freu.e on ad valorem laxes is transferable lo a different residence homestead within the taxing Wtit and to a surviving spouse living in such homestead who is disabled or is al least 55 years of age. If improvements (other than maintenance or repairs) are made t.o the property, the value of the improvements is taxed at the then CUITCIII tax rate, and the total amount of taxes imposed is increased to reflect the new improvements with the new amount of taxes then serving as the ceiling on taxes for the following years. Once established, the tax rate limitation may not be repealed or rescinded. The City has established such a limitation on ad valorem taxes. Article VIII provides that eligible owners of both agricultural land (Section 1-d) and open-space land (Section I -d-I), including open-space land devoted to fann or ranch purposes or open-space land devoted to timber production, may elect bl 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 l-d-1. Nonbusiness personal property. such as automobiles or light 1rucks, are exempt from ad valorem mxation wtless the governing body of a political subdivision elects to lax this property. Boats owned as nonbusiness property are exempt from ad valorem lllxation. Article VIII, Section 1-j, provides for "freeport property" to be exempred liom ad valorem laxation. Freeport property is defined as goods detained in Texas for 175 days or less for the purpose of assembly. storage, manufacturing, processing or fabricatiolL Decisions to continue to tax may be reversed in the future; decisions lo exempt m:eport property are not suqject lo reversal. 1be Cit;y may create one or more lax incremeut financing zones, under which the tax values on property in the zone: are "frozen" at the value of the property at the lime of creaiion of the zone. Other overlapping taxing units may agree to contribute all or part of 26 ) ) ) future ad valorem taxes levied and collected against the value or property in the zone in excess of the "frozen value" to pay or finance the costs of certain public improvements in the zone. Truces levied by the City against the values of real property in the zone in excess of lhe "frozen value" are not available for general city use but are restricted to paying or financing "project costs" within the zone. The Ci1y also may enter into tax. abatement agreements to encourage economic development Under the agreements. a property owner agrees to oonSll'uet certain improvements on its property. The City in rum agrees not to levy a tax on all or part of the increased value attributable co the improvements Wltil the expiration of the agreement. The abatement agreement oould last for a period of up to I O years. EFFECTIVE TAX RAn: AND RoLLBACK TAX RATE .•. By each September I or as soon then:after as practicable, the City Council adopts a tax rate per $JOO laxable value for the cummt year. The City Council is required to adopt the annual tax rate for the City before the laler of September 30 or the W-day after the dat.e the cE:Jtified appraisal roll is received by the City. If the City Counci I does not adopt a true rate by such required date the tax rate fur 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: (I) a rate for funding of maintenance and operation expenditures and (2) a rate for debt service. U oder the Property Tax Code. the City must annually calculate and publicize its "effective tax rate" and "ro II back tax rate". A lax rate cannot be adopted by the City Council that exceeds the lower of the rollback tax rate or the effective tax rate unti I two public hearings are 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 Ci1y owns. operates or controls an internet website and public notice be given by television if the City has free access to a IC levision channel) and the City Council has otherwise romplied with the legal R:qUirements for lhe adoption of such lax rate. If the adopted tax rate exceeds the rollback tax ra1e 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 IO the rollback tax rate. "Effective tax rate" means the rare that will produce last year's total tax levy (adjusted) from this year's Iota! lllxable 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 yea(s values (adjusted) multiplied by 1.08 plus a rare lhat will produce this yea.r's debt service l'rom 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 lo 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 Propeny Tax Code for defmitive requirements for the levy and collution of ad valorem wees and the calculation of the various defined tax rates. PROPERTY AssESSMENT ANO TAX PAVM£NT •.• Property within the City is generally assessed as of January I of each year. Business inventocy may, at the option or the taxpayer, be assessed as of September. 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 I of the same year, and become delinquent on Febroary I of the following year. Taxpayer.; 65 years old or older are permitted by State law to pay taxes on homesteads in four installments with the first due on Februaiy I of each year and the final installment due on August I. PENALTIES AND INTER€ST •.• Charges for penalty and interest on the Wlpaid balance of delinquent taxes are made as follows: Cumulative Cumulative Month Penalty lnteJest Total February 6% 1% 7% March 7 2 9 April 8 3 II May 9 4 13 June 10 s IS July 12 6 18 After July, penalty remains at 12%, and interest increases at the rate of I% each month. In addition, if an account is delinquent in July, a 15% attorney's collection fee is added to the total tax penalty and interest charge. Under certain circumstanoes, 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, 27 ) ) ) ) pursuant to coun 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 lbat an automatic slay of action by creditors and other entities, including governmental units, goes into effect with the filing of any petition in banlauptcy. The automatic stay prevents governmental units l'iom foreclosing on property and prevents liens for post-petition taxes from attaching to property and obtaining secured creditor stalUS unless, in either case, an order Ii 11:ing the stay is obtained from the bankruptcy cowt. In many cases pose-petition taxes are paid as an administrative expense of the esta1e in bankruptcy or by order of the bankruptcy court Crrv APPLICATION OF TAX Coo£ ... The City grants an exemption to the market value of the residence homestead of persons 65 years of age or olderof$16,600; the disabled are also granted an exemption ofSI0,000. The City has not granted any part of the additional exemption of up to 20'% of 1he market value of residence homesteads; the minimum exemption that may be granted under this provision being $5,000. The City has established the tax freeze on residence homesteads of disabled persons and persons 65 811d over. See Table I fora listing of the amounts of the exemptions described above. Ad valorem truces are not levied by the City against the exempt value of residence homesteads for the payment of debl The City does not tax nonbusiness personal propeny; and the Appraisal District collects taxes for the City. The City does not pennit split payments of taxes, and discounts fO£ ,;arly payment of taxes are not allowed by the City, although pennined on a local-option basis by lhe Property Tax Code. In the past, the City has taxed freepon property, although beginning with the 1999 tax year the City has exempted &eeport property from taxation. The City collects an additional one-eighth cent sales tax for reduction or ad valorem taxes. The City held an election on November 4, 2003 to increase this tax by one quarter oent, fur a total of three eighths of a oent. The rate increase became effective on October I, 2004. The City has adopted tax abatement policies, as described below. TAX ABATEMENT Pouc11:s ... The City has established a tax abatement program lo 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 SQWlfC miles, the south zone, of approximately 15. 7 square miles, and the international airport zone. of approximately I 0.3 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 lax 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 (I 00"/4) tax abatement, since 1997 the City has negotiated abatements on a declining percentage basis, with a ponion 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 or 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 ro 11, the number of jobs to be created or .retained, among other factors. The palicies 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 lactors beyond the reasonable control of the applicant For a description of the amount ofpropel'ty in the City that bas been abated for City taxation purposes, see "Table I - Valuations, Exemptions, and General Obligation Debt" TAX INCR.£MtNT FINANCING ZoNr.s ... Chapter 311, Texas Tax Code. provides that the City and other taxing entities rnay designate a oonlinuous geographic area in its jurisdiction as a TIF if the area constitutes an economic or social liability in its present condition and use. Other overlapping taxing units may agree to contribute all or a portion of their taxes collected against the "Incremental Value" in the TIF to pay for TIF projects. Any ad valorem taxes relating to growth of the tax base in a TIF above the frozen base may be used only to flllllllce 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 participaies in two TIFs, the Central Business District Reinvesbnent 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 pan of the central business district and abuts the North Overton TIF. The base taxable values of the TIF an: fiw.en at the level of taxable values for 200 I, the year of creation 28 ') ) ) ) ) at $101,376.054. In FY 2005, lhe Downtown TIF has a taxable value ofSl 17,046,263 before taking into ac<xlunt tax abatements and exemptions. A Iler tax abatements and exemptions, the tax value in the TIF is S 114, 14 7.891. In addition to the City, the County, County Hospital District and the High Plains Underground Water Conservation District (collmively, the "Taxing Units") participate in the Downtown TIF. Giveri 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. Tbe Downtown TIF was created pursuant to City ordinance and official action of the other participating taxing entities and is to i:xpire in 202 L In addition to the Downtown TIF. the Cily enacted an ordinance in 2001 establishing the North Overton TIF. Each oflhe other Taxing Units in the Downtown TIF also participate in the North Overton TrF. As is the case with the Downtown TIF, the taxes levied by the City in the FY 2005 represent approximately 54.8% of all taxes levied by all participating Taxing Units. The City ordinance establishing the North Overton TIF provides that the T[f will terminate on December 31, 2031 or at an earlier time designated by subsequent ordinance of the City Council. TIIC North Overton TIF consists ofapproximarely 325 acres near the Cenmd Business District of the City. The &oun tax base for lhe North Overton TIF was established as of January I. 2002 at $26,940,604. During the first year of its existence, there was no tax increment in the z.one. due to the demolition of existing structures as land was being acquired and prepared for future development As of January I, 2004, there was approximately $10,750,157 oftax increment value in the North Overton TIF. TABU: 1 • VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT 2004 Market Valuation Established by Lubbock Central Appraisal District Less Exemptions/Reductions at 100% Markel Value: Residential Homestead Exemptions Homestead Cap Adjustment Disabled Veterans Agricultural/Open-Space Land Use Reductions Pollution Exemptions Solar and Wind-powered Exemptions Freeport Exemptions Tax Abatement Reductions1'1 Historical Exemption 2004 Taxable Assessed Valuation City Fwtded Debt Payable from Ad Valofem Taxes General Obligation Dehl (as ofS-15-05) C2> The Bonds Total Fwtded Debt Payable from Ad Valorem Taxes Less: Self Supporting Debt (as of 8-15--05) C3l Waterworlcs System General Obligation Debt Sewer System General Obligation Debi Solid Waste Disposal System General Obligation Debt Drainage Utility System General Obligation Debt Tax lncmnent Financing General Obligation Debt Electric Light and Power System General Obligation Debt General Purpose Funded Debt Payable from Ad V!llorem Taxes ((j General Obligation Interest and Sinking Fund as of 4-30-05 Ratio Total Funded Debi to Taxable Assessed Valuation Ratio General Purpose Funded Debt to Taxable Assessed Valuation 2005 Estimated Population -209,120 (SJ Per Capita Taxable Assessed Valuation -$41,432 $ 202,962.443 97,892.88S 13,497,140 53,151,755 2,706,800 80,992 62,093,896 63,387,926 144,359 $ 334,805,000 7,260,000 • $ 102,931.413 39,888,274 8,052,027 72,485,000 3,675,000 43,340,000 Per Capita Total Funded Debt Payable from Ad Valorem Taxes -$1,636 Per Capita General Purpose Funded Debt Payable from Ad Valorem Taxes -$343 • Preliminary, subject to change. (I) See above, "Tax Information-Tax Abatement Policies". 29 S 9,160,109,105 495.918,196 S 8.664. 190. 909 $ 342,065,000 270,371,714 $ 71,693,286 • $ 1,433,694 3.95¾ 0.83% ) ) ) (2) The Slatement of indebtedness does not include outstanding $24,840,000 Electric Light and Power System Revenue Bonds, as these Bonds arc payable solely from the Net Revenues of the City's Electric Light and Power System. Includes the Tax and Waterworks System Surplus Revenue Refunding Bond, Series 2005 expected 10 be delivered on August 15, 2005. Includes the General Obligation Refunding Bonds., Series 2005 (the "Refunding Bonds") expected lo be delivered on July 28, 2005. Excludes oulSlanding bonds and ccnificates of obligation to be refunded by lhe Refunding Bonds. (3) As a manu 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 "Table 8A -Pro-Fonna General Obligation Debt Service Requirements", "Table 8B • Division of Debt Service Rf:qulll!ments", "Table 9 -Interest and Sinking Fund Budget Projection" and "Table 10 -Compuwion of Self-Supporting Debt"). "Waterworks System General Obligation Debt" includes $102,931,413 principal amount of outstanding general obligation bonds, certificates of obligation and Tax and Wateiworlcs System Surplus Revenue Refunding Bonds, Series 2005, expected to be delivered on August 15, 2005 that were issued to finance or rtfll13JICC Waterworks System improvements, and that are being paid, or arc expected to be paid, from Waterworks System revenues. The City has no outstanding Waterworks System Revenue Bonds but has obligated revenues or the Waterworks System under water supply contracts. "Se~ System General Obligation Debt» includes $39,888,274 principal amount or general obligation bonds and Bonds of obligation that were issued 10 finance Sewer System improvements, and that an: being paid, or are 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 $8,052,027 principal amount of general obligation debt that was 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 $72,485.000 principal amount of general obligation debt that was issued ror Drainage System improvements, and that is being paid, or that is expecied to be paid, from revenues derived from Drainage Utility System fees. The City has no outstanding Drainage Utility System Revenue Bonds. "Tax Increment Financing General Obligation Debt~ represents $3,675,000 principal amount of general obligation Tax Increment Certificates of Obligation issued for construction of improvements in the North Overton TIF, and is being paid, or is expected to be paid, from revenues derived from the Pledged Tax Increment Revenues. The City has no oulSUU!ding Tax Increment Financing Revenue Bonds. However, for FY 2004 lhe City projects that the increme11tal tax revenue available to cover debt service on the existing Tax Increment Certificates of Obligation will cover approximately 30% of$llch debt, and that for FY 2005 (based upon the January I, 2004 tax roll), the incremental tax revenue available to cover debt service on the existing Tax lncrement·Cenificates of Obligation will cover approximately 60% of such debt In FY 2006, based upon development projections that the City believes to be reasonable. but which are dependent in pan 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 on lhe existing Tax Increment Certificates of Obligation. In the interim, the City intends to make an interfund loan lo 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 ruture years. The North Overton master plan projects additional debt to be issued by the City for infrastructure improvements in the TIF. If that occurs, there would likely be years in which the TIP would not produce revenues in amounts sufficient to cover all debt issued for it. at least until the TIF has readied full build-out status. "Electric Light and Power System General. Obligation Debt'' includes $43,340,000 principal amount of general obligation Bonds and refunding bonds that were issued to finance Electric Light and Power System improvements and to refund certain Electric Light and Power System Revenue Bonds. (4) "General Purpose Funded Debt Payable from Ad Valorem Taxes" includes $71,693,286 of general obligation debt and ffil,250 principal amowtt of outstanding Tax and Airpon Surplus Revenue Bonds of Obligation on which debt service is provided from Passenger Facility Charge ("PFC") revenues (see Footnote (2), "Table 9 -Interest and Sinking Fund Budget Projection"). Source: City of Lubbock, Texas. 30 ) TABLE 2 -TAXABLE AssESSED VALUATIONS BY CATtGORY ') Taxable Appraised Value for Fiscal Yeas Ended September 30, 2005 2004 2003 %of %of %or Catei,,ry Amount Total A.mount Total A.mou.nt Total Real, Residential. Single-Family SS,156,\69,884 56.29% S4,690,l58.161 SS.50% S4,282.214,635 56.78% Real. Residential, M ulti-Farnily 614,631,057 6.71% 561.569,488 6.64% 455,993.262 6.05% Real, Vacant Lotsrfracts 135,464.357 1.48% 108.625,954 1.29% 93,473,144 1.24% Real, Aaeaff. (Laad Only J 64,528.231 0.70% 65.880,410 0.78% 59.644,977 0.79% Real. Farm and Randi Improvements I0.391,IJ9 0.11% 10.83S.088 0.13% 11,391,782 0.15% Real, Commacial and Industrial 1,701.145.839 18.57% 1.638,846,765 19.39% 1,370,730,397 18.18% Real. Oil Gas and Other Mineral Reserves 11.298.200 0.12% 8,923.810 0.11% 7.909.460 0.10% Real and Tangible Personal, Utilities 173,90&,469 1.90% 185,761,346 2.20% 192.138.423 2.55% Tangible Personal, Commercial and Industrial I. 198,078.620 13.08% 1,090.862 .s 79 12.91% 974.534,729 12.92% ) Tangible Personal. Other 15,279.192 0.1~/o 16,287,022 0.19% 15,336,364 0.20% Real Property • Inventory 10,987,935 0.12% 4,774,287 0.06% 11,087,603 0.15% Special Inventory 68.226,182 0.74% 68,663,514 0.81% 67,339,159 0.89"/4 Tot1l Appraised Value Before E.ia:mptions S 9. 160,!09. 105 100.00% $8,451,188.424 100.00% S7,541,793,935 100.00% Less: Total E,eroptions/Reductions (495.918. 196) (529,S98,044) (199.449,068) Taxable Assessed Value S 8,664.190.909 S 7,921,590.380 S 7.342,344,867 TaJCable Appraised Value for Fiscal Yeas Ended September 30, 2002 2001 ¾of ¾or C.itellPry Amount Total Amoum Total Real, Res iden!ial. Single-F .imily Sl.935,486,660 53.59% $3.771.72S.980 53.71% Real. Residential, Multi-Family 466,775.473 6.36% 4Sl,863,141 6.46% Real, Vacant Lotsffncts 96.407.484 1.31% 88,108,541 1.25% Real, Acn:ai,:: (Land Only) 60.171,506 0.82% 60,125,617 0.86% Real, Farm and lunch Improvements 12,003.318 0.16% 11,000.161 0.16% Real, Commercial and Industrial 1,445.748,160 19.69"/4 l,348,04o,12l 19.20% Real. Oil, Gas and Other M ineral Reserves 8.849,390 0.12% 7,000,000 0.10% Real 11t1d Tangil,le Personal, U1ilities I 8S,S88,93S 2.S)¾ 181,228,303 2.58% T anJ?>"ble Personal. Commer<:ial and Industrial 1,039,521.384 14.16% 1.072.713,960 15.28% ) Tangible Personal, Other 15,296,446 0.21% 14,786.889 0.21% Spec:ial fn•en,ory l0.279.056 0.14% 13,320,136 0.19% Real Property. Inventory 67,429,634 0.92% 0.00% Total A pp raised Value Before Exemptions $7,343,557,446 100.00% S7.021,918,851 100.00% Less: Total Elemp lions/Red uctioRS (434,247,739) (383,007,758) Twrable Assessed Value $ 6,909,309. 707 S 6,638.911,093 NOTE: Valuations shown are certified taxable assessed values reported by the Lubbock Central Appraisal District to the City for purposes of establishing and levying the City's annual ad valorem tax rate and to the State Comptroller of Public Acoounts.. Cenified values are subject to change throughout lhe year as contested values are resolved and the Appraisal District updates records. 31 ) \ ) ) TABLE3A • VALUATION ANDGE.NERAL0BLIGATION DEBTHISTORV General Purpose Ratio fiscal Taxable Funded Tax Debt Tax Debt Funded Year Taxable Assessed Outstanding lo Ta.uble Debt Ended Estimated Assessed Valuation at End Assessed Per 9/30 Poeulation (I) Valuation <2) PerC~ita ofYear(l) Valuation m Capita<1> 2001 201.097 $ 6,638,911,093 s 33.013 $ 58,122,809 0.88% s 289 2002 202,000 6,909,309,707 34,205 63,115,346 0.91% 312 2003 204,737 7 ,34 2,344,867 35,862 70,188,204 0.96% 343 2004 206,290 7,921,590,380 38,400 70,161,218 0.89% 340 2005 209,120 8,664,190,909 41,432 71,693,286 (') 0.83% (4t 343 (') (I) 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 10 change during the ensuing year. (3) Does not include self-supporting debt (see Table 38 and footn-Ote 3 w Table I). (4) Projected, includes the Bonds. Preliminary, subject to change. TABU:38 • DERIVATIONOFGENERALPURPOSE 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 is revising its capital improvement plan, but lhe City expects to issue additional self-supporting general obligation debt within the three to five year time frame. See ''Debt lnfonnation---Capital Improvement Program and Anticipated Issuance of General Obligation Debt"' FiS<:al Funded Tax Debt Less: General Purpose Year Outstanding Self-Supporting Funded Tax Debt Ended at End Funded Tax Outstanding 9/30 ofYear Debt atEndofYear 2001 s 175,408,321 $ 117,285,S 12 s 58,122,809 2002 217,269,682 154,154,335 63,11.S,346 2003 29S,935,000 225,746,796 70,188.204 2004 285,885,000 215,723,783 70,161,217 2005 342,065,000 270,371,714 71,69 J,286 ( l) (I) Projected, includes the Bonds. Includes the General Obligation Refunding Bonds, Series 2005 expected lo be delivered on July 28, 2005 and excludes the bonds and certificates of obligation refunded by such bonds. Includes the Tax and Waterworks System Surplus Revenue Refunding Bonds, Series 2005 expected to be delivered on August 15, 2005. TABLE4 • TAX R.ATE,LEVV AND COLLECTION HISTORY Fiscal ¾of Current %ofTotal Year Dislribution Tax Tax Ended Tax General Economic Interest and Collections Collections 9/30 Rate Fund Development Sinkin; Fund Tax Levy to Tax Levy to Tax Levy 2001 S O.S700 S 0.42718 $ 0.03000 s 0.11282 S 37,841,145 97.58% 99.29"/4 2002 0.5700 0.42844 0.03000 O.tl156 39,351,225 97.60% 99.41% 2003 0.5700 0.43204 0.03000 0.10796 42,286,967 97.25% 98.78"/o 2004 0.5457 0.41504 0.03000 0.10066 43,659,111 97.02% 99.69% 200S <2> 0.4597 0.33474 0.03000 0.09496 39,786,978 94.75% (II 96.48°/4 (U (I) Collections for part year only, through April 30, 2005. (2) For a discussion of the factors affecting the decline in the 2005 General Fund tax rate, see "Discussion of Recent Financial and Management Events -FY 200S Budget." 32 ) ) ) ) ) TABLE 5 -TIEN LARGEST T AXPA VERS 2004/0S %ofTotal Taxable Taxable Assessed Assessed Name ofTaxl!aler Nature of Pro!!!:~ Valuaiion Valuation Macerich Lubbock LTD Partnership Regional Shopping Mall S 111,433,954 1.29"/4 Southwestem Bell Telephone Co. Telephone Utility 59,427.700 0.69% Southwestern Public Service Electric Utility 53.466,701 0.62% United Supermarkets Distribution Center Retail Grocery 48,241,512 0.56% Grinnell Corp-Flow Control Division Manufacturing/Fire Sprinklers 45,933,080 0.53% Pyco Industries Cottonseed Oil Mill 43,349.210 0.50% McLane Food Services food Wholesale 37,823,550 0.44% Walmart Supercentcr Retail 34,779,467 0.400/4 X Fab Texas, Inc. Electronic Manufacturing 29,152,174 0.34% Lubbock SMSA Ltd. Partnership Telephone Utility 27,671,690 0.32°/4 S 491,279,038 5.67"/4 ·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(~ "Tax Rate Limitation"). TABLE(i -TAXADEQUACY1f Maximwn Principal and Interest Requirements, All General Obligation Debt, zooe2> ................................................. ·-··· .. ·····················-··"'············ .. ···········-......... $ 34,568,543 S0.4072 Tax Rate at 98% Collection Produces ................................................................................................................. S 34,574,974 Maximum Principal and Interest Requimnents. General Purpose General Obligation Debt. 2006ll> ................................. ·-··················································-·········· $ 8,133,004 $0.0958 Tax Rate at 98% Collection Produces ...................................................... _ ......................................................... $ S, 134,239 (I) Based on 2004-2005 taxable assessed valuation. Preliminary. subject to change. (2) See Table SA. (J) See Table 8B. 33 "\ ) TABLE 7 -Es'TIMATED 0vERLAPPING 0£BT Expenditures of the various taxing entities within the territory of the City are paid out of ad valorem wees 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 Debi") was developed from information contained in "Texas Mwiicipal Reports" published by the Municipal Advisory Council of Texas. Except for the amo\lllts relating to the City, the City has not independently verified the accuracy or oompleteness of such infonnation, and no person should rely upon such information as being accurate: or complete. Furthennore, 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 amowil of which cannot be de1ennined. The following table reflects the estimated share of overlapping Tax Debt of the City. Taxing Jurisdiction City of Lubbock Lubbod< ~t Sdlool Distrid Lo.tbbod: CQunry ~bbock County Hospital Dislrict High Plains Unclcrgmund Wakr Conservation District. No. I Frenslrip hi~ School District Idalou lndependellt School Di!.1rict Lubbod<-Coopec Independent School DiSlrici New Deal ifldq,a,dent Sd>ool Discrict To131 Din:ct and Overllll)ping G.O. Debt s 2004/0S Taxable Assessed Tax Value Ralc 8,605,424.748 S 0.45970 6,303.,339.726 1.60560 I0.198,959,098 0.25587 10.194.687 ,811 0.10742 10,194,687,811 0.00830 1,290.505.,343 1.68060 128.SSl.070 1.50000 613.192.253 1.51760 124.288.ISS 1.50000 Ra.rioofDirecc and()vaiapping G.O. Debt ro Taxable Assessed Valwttioo. TO(aJ Funded Debt AsOf 8-\S.OS S 342,SSS,000 (II 103,675,06() 76,610,000 41,960,026 795,000 n.219.m City's An!hori-' ESlimaited Overlapping Bat Uais.sucd % G.O.Dd>I Debt.AsOf A2J!!icable As of 8-1 S--OS 8-IS-OS 100.00¾ S 342.SSS.OOO $31,717,000 98.91% 102,545.002 52,248,593 82.94% SOS,341 82.94% 82.94% 64.44% 27,039,041 1.10% 8.745 15.30¾ 2.022.592 0.03% S 474,170,379 5.51% Pt,-Capita Direct and Overlapping G.O. Debt . ................... ················ .... ·································s 2,299 (I) Includes the Bonds. Includes the General Obligation Refunding Bonds, Series 2005 and excludes the bonds and certificates of obligation refunded by such bonds. The General Obligation Refunding Bonds, Series 2005, are to be delivered on July 28, 2005. Includes the Tax and Waterworks System Surplus Revenue Refunding Bonds, Series 2005, expected to be delivered on August 15, 2005. 34 ~ DEBT INFORMATION TABLE 8A • PRO-F0RMA GENIRAL OBLIGATION DEBT SERVICE REQUIIUM&NTS Fisul Year Total %of J:.nded Outst1111ding Debt 111 The Bonds11)()> Combined Principal 9/30 PtinciEal Interest Total Ptincie?l Interest Total Reguirements Retired 2005 $ 16,005,000 $ 11,899,223 $ 27,904,223 $ s $ s 27,904,223 2006 18,555,000 lS,465,266 34,020,266 225,000 323,277 548,277 34,568,543 2007 19,715,000 14,280,331 33,995,331 255,000 290,995 545,995 34,541,325 2008 19,335,000 l 3,484,803 J:2,819,803 265,000 282,853 547,853 33,367,656 2009 19,185,000 12,680,591 3 J ,865,591 275,000 274,034 549,034 32,414,626 2620% 20IO 18,965,000 11,871,892 30,836,892 280,000 264,612 544,612 31,381,503 201 l 19,395,000 11,029,800 30,424,800 290,000 254,562 544,562 30,969,362 2012 18,625,000 10,179,641 28,804,641 305,000 243,684 548,684 29,353,325 2013 19,060,000 9,334,067 28,394,067 315,000 231,978 546,978 28,941,045 2014 l9,S6S,OOO 8,447,358 28,012,358 330,000 219,462 549,462 28,561,819 53 33% 2015 17,o45,000 7,623,634 24,668,634 340,000 206,092 546,092 25,214,726 2016 16,660,000 6,843,000 23,503,000 355,000 191,663 546,663 24,049,663 2017 16,450,000 6,041,760 22,491,760 370,000 176,109 S46,l09 23,037,869 2018 17,115,000 5,224,511 22,339,S 11 385,000 159,648 544,648 22,884, IS9 2019 15,840,000 4,376,721 20,216,721 405,000 142,186 547,186 20,763,907 77.05¾ 2020 13,400,000 3,664,451 17,064,451 425,000 J23,S91 548,591 17,613,042 2021 11,495,000 3,056,478 14.SSl,478 445,000 103,839 548,839 15,100,316 2022 8,46S,000 2,568,695 11,033,69S 465,000 82,929 547,929 I 1,581,624 2023 7,195,000 2,188,830 9,383,830 485,000 60,863 S4S,863 9,929,693 2024 4,950,000 1,853,251 6,803,251 S I0,000 37,502 541,502 7,350,753 90.41% 2025 3,485,000 1,644,639 S,129,639 535,000 12,733 547,733 5,677,372 2026 3,395,000 1,463,114 4,858,114 4,858,114 2027 3,S7S,OOO 1,283,950 4,858,950 4,858,950 2028 3,755,000 1,095,068 4,850,058 4,850,068 2029 3,9SS,OOO 896,385 4,851,385 4,85 l,385 95.64% 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,SOO 2,532,SOO 2.532,SOO '20:\4 214751000 61 875 2:536,875 2,536,875 10000% s 350,810,000 $ 170,192,470 s 521,002.470 $ 7,260,000 .t 3,682,609 $ 10,942,601_ s 53 ~.945,080 (I) "Outstanding Debt" does not include lease/purchas1: obligations. Includes 1he General Obligation Refunding Bonds, Series 200S and excludes the bonds and certificates of obligation refunded by such bonds. The General Obligation Refunding Bonds, Series 2005, are to be delivered on July 28, 2005. (2) Average life of the issue is 11.475 years. Interest on the Bonds has been calculated at the TIC rate of 4.491 % for purpose of illustration only. {3) Preliminary, subject to change. 35 ~ \J ,J u .J TABU:8B • DIVrsIONOFDEBTSERVJCEREQUIREMENTS Less: Less: Less: Less: Less: Less: Solid Waste Drainage Tax Electric Waterworks Sewer Disposal Utility Increment Light and General Fiscal System System System System Financing Power Sy stem Purpose Year General General General General General General General Ended Combined Requirementsu> Obligation Obligation Obligation Obligation Obligation Obligation Obligation 9/30 Princieal Interest Total RequircmcntsOKZl Re9 uircments R~uirements Reg uirements Re9 uirements Re9uirements Reguirements 2005 $ 16,005,000 $ 11,899,223 $ 27,904,223 s 6,544,773 $ 5,834,616 $ 789,006 $ 4,671,744 $ 286,725 $ 1,682,411 $ 8,094,947 2006 18,780,000 IS,788,543 34,568,543 10,745,069 5,379,087 796,411 4,840,465 285,600 4,388,907 B, 133,004 2007 19,970,000 14,571,325 34,541,325 10,637,365 5,556,890 783,365 4,841,912 289,100 4,314,586 8,118,108 2008 19,600,000 13,767,656 33,367,656 10,226,561 S,227,61 S 773,284 4,843,899 287,225 4,247,086 7,761,985 2009 19,460,000 12,954,626 32,414,626 10,068,751 4,937,709 758,285 4,841,240 285,825 4,171,149 7,351,667 2010 19,245,000 12,136,503 31,38].503 9,893,361 4,644,926 743,402 4,843,115 289,825 4,092,593 6,874,282 201 I 19,685,000 ! 1,284,362 30,969,362 9,807,108 4,482,884 722,7IO 4,842,660 288,525 4,027,099 6,798,377 2012 18,930,000 10,423,325 29,353,325 8,929,346 4,244,153 711,200 4,837,830 287,025 3,944,649 6,399,122 2013 19,375,000 9,566,045 28,941,045 8,883,614 4,055,291 699,174 4,840,404 285,325 3,875,449 6,301,790 2014 19,895,000 8,666,819 28,561,819 8,847,493 ),890,831 681,155 4,838,253 288,325 3,797,476 6,217,687 201S 17,385,000 7,829,726 25,214,726 8,725,862 2,019,849 664,681 4,842,053 285,909 3,721,389 4,954,984 2016 17,0lS,000 7,034,663 24,049,663 8,694,872 1,239,870 647,661 4,841,828 287,950 3,641,879 4,695,603 2017 16,820,000 6,217,869 23,037,869 8,661,286 1,201,060 625,225 4,837,078 289,450 3,564,751 3,859,019 2018 17,S00,000 S,384,159 22,884,159 8,614,362 1,170,909 612,346 4,841,953 285,369 3,493,669 3,865,552 2019 16,245,000 4,518,907 20,763,907 8,266,657 1,134,378 418,17S 4,&36,203 285,694 l,953,781 3,869,020 2020 13,825,000 3,788,042 17,613,042 5,859,525 378,450 411,863 4,839,578 290,309 1,957,625 3,875,693 2021 11,940,000 3,160,316 15,100,316 3,962,431 381,581 404,813 4,836,703 289,056 1,951,238 3,274,495 2022 8,930,000 2,6S1,624 11,581,624 1,280,781 378,819 270,400 4,852,254 287,181 1,954,388 2,557,802 2023 7,680,000 2,249,693 9,929,693 740,588 53,563 273,644 4,850,863 289,713 1,953,363 1,767,962 2024 .S,460,000 1,890,753 7,350,7S3 737,100 51,188 271,294 4,851,845 286,6S0 272,863 879,8) S 2025 4,020,000 1,657,372 5,677,372 4,852,714 276.92S S47.733 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 1,09S,068 4,850,068 4,850,068 2029 3,955,000 896,385 4,8S 1,385 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,S37,2S0 2033 2,350,000 182,500 2,532,S00 2,532,500 20141 2,47Sz000 61,87.S 2,536,875 21536,875 $ 3 S 8,070,000 $ 173,8751080 $ SJl,945,080 s 150,126,906 $ 56,263,666 $ 12,058,693 $ I 38,263,118 $ 5,750,781 $ 63,283,273 s 106,198,643 (1) Includes the Bonds. Includes the General Obligation Refunding Bonds, Series 2005 and excludes the bonds and cenificates of obliga1ion refunded by such bonds. The General Obligation Refunding Bonds, Series 200S, are to be delivered on July 28, 2005. (l) Includes the Tax and Waterworks System Surplus Revenue Bonds, Series 2005. 36 "'I ..I TABU 9 • INT£R£ST ANO SlNKJNG FUND BUDGET PROJECTION General Obligation Debt Servic:e Requirements (Pro-fomia). Fiscal Year Ending 9-30-05 $ 27,904,223 rtseal Agent, Tax Collection and Other Uses 15,000 Total Requirements s 27.919,223 Sources of Funds Interest and Sinking Fund, 9-30-04 s 2,852,843 Budgeted Ad Valorem Tax Receipts 7,954,344 Budgeted Transfers From: Water Fund (ll s 7,085,088 Sewer Fund <1> S,940.796 Solid Waste Fund <1> 813,084 Drainage Utility Fund ui 4,852,706 Ele<:lfic FunJ11 1,682,411 TIF Fund 286.725 Airport Fund -from Passenger Facility Charges ("PFCsff) (21 l9S,630 Budgeted Interest Earned 189,405 Total Sources ofFunds $ 31,853,032 Projected Balance, 9-30-05 $ 3,933,809 (I) See "Table 10 -Computation ofSelr-Supponing 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 lax and airport swplus revenue Bonds 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 collected for fiscal yeax ending 9-30-04 were $1,402.033, and, $195,650 of PFC revenues have been budgeted for payment of Airport Debt in 2004- 05, which equates to self-supporting Airport Debt with a principal balance of $1,368,750. For 2004-05, the portion of Airport Debt that is being funded from general fund contributions ( ad valorem taxes) equates to a princip-al balance of $2,366,250. • SeeTable8B-footnote(l). 37 ) ) ..., TABLE 10 • CoMPlJTATIONOF SELF.SUPPORTING DEBT Tin: WATERWORKS SYSTEM (•l Net System Revenue Available, Fiscal Year Ended 9-30--04 Less: Requirements for Revenue Bonds, Fiscal Year Ended 9-30..05 Balance Available for Other Purposes Requifements for System General Obligation Debt, Fiscal Year Ending 9-30-05 Percentage of System General Obligation Debt Self-Supporting $ 16,142,912 -0- S 16,142,912 S 6,544.113 100.00% (I) Each Fiscal Year the City transfers Net Revenues of the W aterwoncs Enteiprise Fund to the General Obligation lnlet'esl and Sinking Fund in an amount equal to debt service requirements on Waterworks System general obligation debt. TH£ SEWER SYSTEM (I) Net System Revenue Available., Fiscal Year Ended 9-30-04 Less: Requirements for Revenue Bonds, Fiscal Year Ending 9·30..05 Balance Available for Other Purposes Requirements for System General Obligation Debt, Fiscal Year Ending 9-30--05 Percentage of System General Obligation Debt Self-Supporting S 8,720,503 -0- $ 8,720,503 S 5,834,616 100.00% (I) Each Fiscal Year the City transfers Net Revenues oflhe Sewer Enterprise Fund to the General Obligation Interest and Sinking Fund in an amowu equal IO debt service requirements on Sewer System general obligation debl THE SoUD WAST!. DISPOSAL SYSTEM 111 Net System Revenue Available, Fiscal Year Ended 9-30--04 Less: Requirements for Revenue Bonds, Fiscal Year Ending 9-30-0S Balance Available for Other Purposes Requirements for System General Obligation Debt, Fiscal Year Ending 9-30-05 PefCelltage of System General Obligation Debt Self.Supporting $ 2,538,565 -0- $ 2,538,565 $ 789,006 100.00% (I) Each Fiscal Year the City lransfers Net Revenues of the Solid Waste Enterprise FWld ro the General Obligation Interest and Sinking Fund in an amount equal to debt seivice requirements on Solid Waste System general obligation debt. THE DRACNAGESYSTEM(I) Net System Revenue Available, Fiscal Year Ended 9.3o..o4 Less: Requirements for Revenue Bonds, Fiscal Year Ending 9-30..05 Balance A vailablc for Other Purposes Requirements for System General Obligation Debt, Fiscal Year Ending 9-30-05 Percentage of System General Obligation Debt Self-Supporting $ S,167.840 -0- S 5,167,840 $ 4.671,744 100.00% (I) Each Fiscal Year the City transfers Net Revenues of the Drainage Enterprise Furui to the General Obligation Interest and Sinking Fund in an amount equal to debt service requirements on Drainage System general obligation debt THr. ELECTRIC LIGHT AND POWER SYSTEM (II Net Electric Light and Power System Revenue Available, Fiscal Year Ended 9-30--04 Less: Requirements for Revenue Bonds, Fiscal Year Ending 9-30-05 Balance Available for Other Purposes Requirements for Elc:c1ric System General Obligation Debt, Fiscal Year Ending 9-30-05 Percentage ofEle<:tric System General Obligation Debt Self-Supporting S 10,269,560 4,276,703 $ 5,992,857 $ 1,682,411 100.00% (I) The City ttansfers Net Revenues of the Electric Light and Power Enterprise Fund to the General Obligation Interest and Sinking Fund in an amount equal to debt service requirements on Electric Light and Power System general obligation debt 38 .., .,, ") ., ') ) TABLE 11 -AUTHORIZED BUT UNlSSUED GENERAL OBLIGATION BoNDS AmoWll Dale Amoant Previously The Unissued Pu~se Authorized Authorized Issued Bonds Balance Wa!erworlcs System 10-17-87 s 2,810.000 $ 200,000 s s 2,610,000 Se-rSystem '.i-21-77 3,303,000 2,175.000 t.128.000 Sireet Improvements 5-1-93 10.170.000 10.166.000 4.000 Stnel Improvements S-15-04 9.210.000 1.590,000 1,465.000 6,ISS,000 Civic Catter/ Auditorium Renovations and J mprovemenrs S-IS-04 6,450,000 6,450.000 Park Improvements 5-15-04 6,395.000 190,000 4,475,000 1,730,000 Police/Municipal Coun facilities 5-15-04 3.350,000 3,3.50.000 Library lmpro\'ffllellls 5-15-04 2.14S.000 2.145,000 Fire Sla!ions 5-15-04 1,405.000 8.5.000 1,320,000 Animal Shelter Renovations and Improvements S-15-04 1,045,000 160.000 885,000 S 46,283,000 S 14.566,000 s 7,260.000 S 24,457,000 ANTICIPATED ISSUANCE OF GENERAL OBLIGATION DEBT ... The City CoUllcil adopted a resolution during the 1984-8S budget process establishing capital maintenance funds for capiral projects. A capital improvement plan is made for planning purposes and may identify proj~ that will be de forred or omitted entirely in future years. In addition, as conditions change, new projects may be added that are not currently identified. Under current City policy, for a project to be funded as a capiral project it must have a cost ofS25,000 or more and a life of seven or more years. For FY 2004, the City Council approved SI0.4 million in total expenditures for capital projects for al I general purpose projects. as well as projects for the electric fund, water fund, sewer fund, solid waste fund, stonnwater flllld and aiiport fund (down from $57.9 million in FY 2003). The Capital Projects Ftmd budget for FY 2004 also included an additional $1S1.9 million in future improvements for all City departments over the four succeeding fiscal years. The improvements included in the City's capital improvement plan are generally funded from a blend of bond proceeds, reserves or current year revenue sources. As shown in Table 11, the City has $20.64 million of authoriud but unissued bonds from the May 15, 2004 bond election. When that election was held, the City anticipated that the bonds would be issued over lhe 2004 through 2008 time frame. The City typically issues voted bonds for general purpose City projects, such as streets. parlcs, libraries, civic centers and public safety improvements. However. the City has incurred substantial unvoted tax supported debt to fund portions of the capital budget of the electric fund, water fund., sewer fund, solid waste fund, stonnwater fund and airport fund. As di:scribed elsewh=: in this Official Statement, such enterprise fund indebtedness is generally anticipated to be self-supporting from enterprise fund revenues. Within the next six months, the City anticipates issuing approximately $48,000,000 in ad valorem tax and waterworks system reveriue certificates of obligation to finance various capital projects. In addition, the City's General Obligation Refunding Bonds, Series 2005, are expected to be delivered on July 28, 2005. TABLE 12-Onn:.R. OBLIGATIONS At December 31. 2004, the City had capital lease obligations for leased equipment in the following amounts: Fiscal Governmental Business-type Total Year Capilal Lease Capital Lease Capital Lease Ended Minimum Minimum Minimum 9/30 Pa~ent Payment Paiment 2005 $ 854,159 s 643,732 $ 1,497,891 2006 545,380 418,741 964,121 2007 353,694 353,694 Less: Interest (38,582) {65,572) ~104,154~ s 1,360,957 $ 1,350,595 $ 2,711,552 39 ) ) ') ) PENSION fuNo ... TEXAS MUNICIPAL RETIREMENT SYSTEM <1K21 •.. All permanent, full-time ·city employees who are not firefighters arc covered by lhe 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 or Texas. TMRS operates independenlly orits member cities. The City joined TMRS in 1950 lo supplement Social Security. All City employees except firefighters are covered by Social Security. Options offered under TMRS. and adopled by the City, include cwrent, prior and antecedent service credits, five year vesting, updated service credit. occupational disability benefits and survivor benefits for lhe spouse or a vested employee. An employee who retires receives an annuity based on !he amount or the employees contributions over-matched two for one by the City. Since October 11, 1997, the employee contribution rate has been 7"/4 of gross salary. The City's conlributioo rate is calculated each year using actuarial techniques applied to ex:perience. 1ne 2004 contribution rate is 14.54%. 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, 2003, lhe actuarial value or assets held by TMRS (not including those of the Supplemental Disability Fund, which is "pooled"). for lhe City were $182,384,183. Unfunded actuarial accrued liabilities on December 3 I, 2003 were $56,925,25 I. which is being amorti?.ed over a 25-year period beginning January, 1997. Total contributions by the City to TMRS for Calendar Year 2003 were $8,747,723. FIREMEN'S RELIEF AND RETIREMENT FUND <n ... City of Lubbock firefighters are members oftbe locally administered Lubbock Firemen's Relief and Retirement Fund (the "'Fund"), operating under an act passed in 1937 by the State Legislature and adopted by City fire fighters, by vote or the department, in 1941. Firefighters are not coven:d by Social Security. The Fund is governed by seven trustees., three firefighters, two outside trustees (appointed by the other trustees), the Mayor or the representative thereof and the chief financial officer or the representative thereof. Execution of the act is monitored by lhe firemen's Pension Commissioner. who is appoinled by the Governor. Benefits or retired firemen are determined on a "formula" or a "final salary" plan. Actuarial reviews are perfonned every two years, and the fund is audited annually. Firefighters contribute a percentage of full salary into the fund. The i11Cfighters' contribution rate for 2005 is 12.43%. The City must contribute a like amount; however, the city contributes on a basis of the percentage or salary which is a ratio adjusted annually that bears the same relationship to the firefighter' s contribution rate that the Cily's rate paid into the TMRS and FICA bears to the rate other employees pay into the TMRS and FlCA. The City's rontribution rate for 2005 is 19.94%. As of December 31, 2003, wifunded pension benefit obligations were $16,588,639 which is being amortized over a 13 year period beginning January I, 1997. (I) For historical information concerning !he relireme:nt plans, see Appendix B, "Excerpts from the City's Annual Financial Report" -Note #III, Subsection E, "Retirement Plansn.) (2) Source: Texas Municipal Retirement System, OJmprehensive Annual Fil'IQrlCia/ Report for Year Emkd December 31, ~ "CiJy of Lubbock. Tews .. _ 40 ) FINANCIAL INFORMATION TABU 13 -CHANGES IN N£T AssETSlll 2004 Fiscal Year Ended ~tember 30, 2003 2002 Govanrnenlal Governmental Governmental Activities Activities Activities ) REVEN! Jf.S· Program Revenues: (inOOO's) (in OOO's~ (in OOO's) Charges for services $ 12,713 $ 13,888 s 9.369 Operating grants and contributions 9,643 12,137 7,007 General Revenues: Propelty Taxes 44,497 42,303 40.408 Sales Taxes 30,555 29,092 28.903 Other Taxes 3,793 3,712 J.681 ) Franchise Taxes 9,654 6,613 6,998 Grant/contributions not restricted 10 spe,: ilic programs (25) Other 4~74 3,834 6,227 Total Revenues $ 115,129 $ 111,579 s 102,568 EXPENSF,S· Adminisb'lltive/Community Services $ 22.313 $ 21.793 $ 3~483 Electric 2,471 2.373 2,585 ) Financial Services 2.387 1,965 1,908 Fire 21,998 20.207 18,664 General Government 20,S62 21.009 23,436 Human Resources 777 786 883 Police 33,249 31.429 29,715 Streets 10.789 9,827 5,940 Public Wori:s 3,078 9,856 4,322 ) lnteJcst on L-T Debt 4,593 3,346 3,382 Total Expeases $ 122,217 $ 122,S91 $ 123,318 Change in net assets before special items & lransfers (7,088) (11,012) (20,750) Special items (687) Transfers 9.745 2.554 15.668 Change in net ~ s 2,657 s (8,458) $ (5,769) Net assets -beginning of year, as restated $ 101.684 $ 110,142 $ 115,911 Net assets -end of year $ 104.341 $ 101,684 $ 110,142 (I) Data shown in Table 13 refleqs general governmental activities reported in accordance with GASB Statement No. 34. The FY 2003 fuumcial statements include a management discussion and analysis of the operating results of sucll fiscal year, including restatements to beginning fund balances and net assets. A:i of the date of lhis Official Statement, a wpy of the FY 2003 financial statement can be =ssed through the City's website., http:flwww.ci.lubbock.tx.us. 41 ) ) ) ) ) TABLI! 13-A -GENERAL FUND REV£Nt/£S ANO EXPENDmJRE HISTORY Fiscal Year Ended Seetember 30,tn Revenues 2004 2003 2002 2001 2000 Ad Valorem Taxes $ 33,233,274 S 32,194,087 S 29,885.252 S 28,604,141 S 26,595,709 Sales Taxes 30.554,632 29,092,032 2&,902,649 28,183,746 27,121,078 Franchise Fees 9,654.447 6,612.822 6,998,085 7,684,683 6,619,755 Miscellaneous Taxes 939,456 848,816 820,507 774,587 743,771 Licenses and Permits 1,982,281 1,875,118 1,475,451 1,202,794 1,138,924 Intergovernmental 42&,459 343.787 351,878 333,171 365,671 Charges for Services 4,467,733 4,945,591 4,472,094 4,299,958 4,210,334 Fines 3,675,856 3,672.509 3.069,362 3,051,055 2,834.208 Miscellaneous Taxes 1.442,677 1,532,346 1.058,237 995,494 1,143.226 Interest 334,730 285,756 433,393 1,058,096 1,108,662 Operating Transfers (ll 10,723,891 I0,345,94S 15,023!466 14,276,074 13,636,764 Total Revenues and Transfers S 97,437,436 $ 91,753,809 S 92,490,374 S 90,463,799 S 8S,518,102 Expcndihu:ts General Government $ 5,633,469 $ 5,717,151 $ 5,596,868 s 5,772,031 s 5,255,236 Financial Services 2,333,469 1,969.413 1,958,0S I 1,833,933 1,919,299 Non-departmental 214,562 175.499 1,497,485 1,716.167 606,843 Admin/Communicty Services 18,156,455 17,837,076 17,997,152 18,314,255 17,293,247 Police 32,400,371 30,321,182 28,905,651 28,139,047 25,561,261 Fire 20,613,077 19,511,797 18,632,109 17,903,118 17,183,526 Streets 7,180,843 6.610.394 6,510,394 7,443,017 8,004,402 Electric Utilities 2,185,286 2,078,277 2,168,620 2,146,212 1,923,584 Human Resources 754,225 780,529 895,311 913,250 871,596 Capital Outlay 475.585 378,059 480,749 Operating Transfers 4,212,915 13,555,338 5,951,669 6,187,379 7,526,481 Total Expenditures S 94,160,257 S 98,934,715 S 90,594,059 S 90,368,409 $ 86,145,475 Excess (Deficiency) of Revenues and Transfer.. Over Expenditures s 3,277,179 S (7.180,906) $ 1,896,315 s 95,390 s (627,373) Fund Balance at Beginning of Year 9,417,346 I 6,598,252 ('I 16,716,042 16,620,652 17,248,025 Fund Balance at End of Year $ 12,694,525 $ 9,417,346 S 18,612,357 S 16,716,042 $ 16,620,652 Less: Reseivcs and Designations <JJ (1,903,690) (2.36 I ,360) (2,857,096) Undesignated Fund Balance S 12,694,525 s 9,417,346 S 16,708,667 $ 14,354,182 S 13,763,556 (I ) Prior years have been restated lo reflect current organization. (2) for fiscal year 2003/04, the water, solid waste and waste water funds transferred an amount sufficient to cover the pro rata share of the City's general and administrative expenses and an amount representing a payment in lieu of ad valorem taxes. 1be water and solid waste funds transferred an arnowtt representing a franchise payment equal to 4% of gross receipts. 1be waste water fund transferred an amount representing a franchise payment equal to 6% of gross receipts. lbe Electric System was not required to make transfers to the General Fund for any of the foregoing purposes during the fl.seal year. (3) The City's financial policies target a General Fund undesignated balance of at least two months of General fund expenditures. lbe undesignated fund balance is_ at 81% of the target established by the City's financial policies. (4) The "Fund Balance at Beginning of Year" was restated. 42 ) ' ) TABL£ 14 -MUNICIPAL SALES TAX HISrORY The City has adopted the Mwiicipal Sales and Use Tax Act, Chapter 321 Texas Tax Code. which grants the City lhe 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 Bonds or other debt of the City. In addition, in January, 1995, the voters oflhe City approved the imposition of an additional sales and use tax of one-eighth of a cent as authoriz.ed by Chaple!" 323 Texas Tax Code, as amended. Collection for the additional tax commenced in October. 199 5 with lhe proceeds fiom the one-eighth cent sales tax designated for the use and benefit oflhe City to replace property tax revenues lost as a result of the adoption of the tax. At an eledion held in the City on November 4, 2003, voters approved an additional one-quarter oenl sales and use tax, with the proceeds to be dedicared to the reduction of ad valorem taxation, and an additional one-eighth cent sales and use tax under Section 4A of the Texas Development Corporalion Act, to be used for economic development in the City. The City began to receive proceeds of these taxes in October 2004. Collections and enforoemenrs of the City's sales tax are effected through the offices of the Comptroller of Public Accounts, State of Texas, who remits the proceeds or the tax, to the City monthly, after deduction or a 2% service fee. Hisrorical collections or the City's 1.125% local Sales and Use Tax are shown below: Fiscal Year %of Equivalent of Ended Total Ad Valorem AdValorem 9/30 Collectecf11 Tax Levy 2001 S 28,183,746 74.48% s 2002 28,902,648 73.37% 2003 29,092,032 73.8S% 2004 30,554,632 70.67% 2005 20,587,235 (}) 51.74% ( I) Excludes bingo tax receipts. (2) Based on p0pulation estimates of the City. (3) Partial collections October I, 2004 through April 30, 2005. Effective October I, 2004 the sales tax breakdown for the City is as follows: City: City Sales & Use Tax City Sales & Use Tax for Property Tax Relief City Sales & Use Tax for Economic Development County Sales & Use Tax State Sales & Use Tax Total FINANCIAL POLICIES Tax Rate 0.4245 0.4183 0.3962 0.38S7 0.2376 1.000¢ 0.375¢ 0.125¢ 0.500¢ 6.250¢ 8.250¢ Per Capita (Z) S 140.1S 143.08 142.09 148.11 98.45 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 GPOA has awarded a Certificale of Achievement for Excellence in Financial Reponing to the City fur each or the fiscal years ended September 30, 1984 through September 30, 2002. The City will submit the City's 2004 report lo GFOA to determine its eligibility for another certificate. Comprehensive Annual Financial Report ICAFR1 ... Beginning with the year ended September 30, 2002, the City's CAFR has been presented under the Governmental Accounting Standard Board ("GASB") Statement No. 34, Basic Financial Statemenls - and Managemem's Discussion and Analysis -for State and Local Governmems, GASB Statement No. 37, Basic Financial Statements -and Management's Discussion and Analysis -for Slate and lcca/ GovemmenJs: Omnibus, and GASB Statement No. 38, Certain Financial Note Disclosures. For additional information regarding accounting policies thaJ are applicable to the City, see Note I. "Summal)' ofSignifi~t Accowtting Policies" in the financial statements of the City attached as Appendix 8. 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 fiuctuations in revenue. The City's General Fund currently has an unreserved/undesignated fund balance that is at 80.9% of the targeted working capital reserve amount 43 ') ) ) ) Emerpri.re Fund Balance ... II is lhe policy of the City to maintain Unresbicted Net Assets 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 wider this policy). The City's financial policy provides that such Net Assets shall be a~ulated over a ten year period. whiclt commenced in 1996. For a variety of reasons, including incceased bansfers from lhe water, sewer and solid WBSte funds to the General Fund following lhe cessation of lransfers 10 the General Fund from the electric fund in FY 2003, the City is not presently in compliance with its fund balance policies for all its entel])rise funds. See "Discussion of Recent Financial and Management Events -September 30, 2003 Financial Results." According to audited numbers for FY 2004, the current requirements for operating and .rate stabilization resaves for each enierprise fund and current unrestricted net assets for each enterprise fund are as follows: Enterprise Fund Cti~I Reserve Actual Required Unrestricted Net Assets Electric $28.5 million $ 7 .0 million Water $6.5 million $14 million Sewer $4.2 million $6.3 million StonnWater $.S million $1.3 million Solid Waste $4. 7 million $6.0 million Airport {I) SI. 97 million .$-1 million (I) The Ail])Ort Fund has not recovered from the events of September 11, 200 I. Enlerprise Fund Revenues .•. [t 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 transfer.; from other funds (although the Electric System received transfers from the General fund during the FY 2003). 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 lo 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: l) Prior to August I, the City Manager submits to the City Council a proposed operating budget for the fiscal year commencing the following October I. The operating budget includes proposed expenditures and the means of financing them. 2) Public hearings are conducled to obtain taxpayer comments. 3) Prior to October I the budget is legally enacted through passage of an ordinance. 4) The City Manager is authoriud to transfer budgeted amounts between accounlS below the depanment level. Any transfer of funds between departments or higher level are presented to the Cily Council for approval by ordinance before lhe funds are transferred or expended. Expenditures may not legally exceed budgeted appropriations al lhe fund level. 5) Formal budgetary integration is employed as & management control device during lhe year for lhe Convention and Tourism, Criminal Investigation, and Capital Projects Funds. Budgets an: adopted on an annual basis. Fonnal budgetary integration is not employed for Debt Service funds because c ITecti ve 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 <XJnsisu:nt with generally accepted accounting principles. 7) Appropriations for the General Fund lapse at year-end. Unencwnbered balances for the Capital Projects Funds oontinue as authorily for subsequent period expenditures. 44 ) ) ) 8) Budgetary comparison is presented for lhe General fund in the combined financial statement section of !he Comprehensive Annual Financial Report. The City has received the Distinguished Budget Presentation Award from the GFOA for the following budget years beginning October I, 1983-88 and 1990-04. The City will submit the FY 2005 budget to the GFOA tn detennine its eligibility for another award. l,qurance and Risk Managemem ... The City is self-insured for public entity liability and health benefits coverage. Risk management purchases a $10,000.000 excess insurance policy for liability claims in excess of $250.000, per occurrence. Aiiport liability insurance and workers' compensation is insured under guaranteed cost policies. The Health Benefits are covered a fully insured program with a $10,765,643 cap and a $150,000 individual cap. The City maintains insurance policies with large deductibles for fire and extended property coverage and boiler and machinery coverage. An lnswance Fund has been established in lhe fotemal Service fund to account for insurance programs and budgeted transfers are made to this fund based upon estimated payments for claim losses. Al September JO, 2004 the total Net Assets of these insurance funds were as follows: Self-insurance -health Self-insurance -risk management S 4,375,796 S 5.727,822 The City obtains an actuarial study of its risk management fund (the ftRisk Fwid") every year. In liS<:31 year 2004. an actuarial study was conducted 1hat considered the types of insurance prorection obtained by the City, the loss exposure and loss history, and claims being paid or reserved that are not covered by insurance. The 2004 actuarial review recommended that the liabilities of the Risk fund be increased to $6,437,000 from $4,824,000 to the minimum expected confidence level of the Government Accouoting Standard Board Swement Number 10 ("GASB IO"), which requires maintenance of risk management assets at a level representing at least a 50"/4, confidence level that all liabilities, if presented for payment immediately, could be paid. The Risk. Fund has net assets restricted for insurance claims or SS,715.000 over the recommended funding level. Given the risk net assers balance, the City exceeds the minimum GASB 10 requirement The C!IY invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the City Council of the City. Both slate law and the City's investment policies are subject to change. LEGAL INvlf.SJMEm5 ••• Under Texas law, the City is authorized to invest in (I) obligations, including letters of credit. of the United States or its agencies and instrumentalities. (2) din:d obligations of the State of Texas or its agencies and insbumentalities, (3) collatetalized 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 of and interest on which are unconditionally guaranteed or insured by, or backed by the full faith and credit o( the State of Texas or the United Stares or their respective agencies and instrumentalities, ( 5) obligations of states, agencies., counties, cities, and other political subdivisions of any statt rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent, ( 6) certificates of deposit that are guaranteed or insured by the Federal Deposit Insurance Corporation or are secured as to principal by obligations descnl>ed in the pn:ceding clauses or in any other manner and amount provided by law for City deposits, (7) certificates of deposit and share certificates issued by a state or fedeial credit union domiciled in the State of Texas that are guaranteed or insun:d by the Federal Deposit Insurance Corporation or lhe National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in the clauses ( I) through ( 5) or in any other manner and amount provided by law for City deposits, (8) fully collateralized repurchase agreements that have a defined teimination date, are fully sec wed by obligations described in clause (I), and are pl.aced lhrough a primary government securities dealer or a financial institution doing business in the SIBie of Texas, (9) bankers' acceptances with the remaining term of270 days or less, if the short-term obligations or lhe tM:Cepting bank or its parent are rated at least A-1 or P-1 or the equivalent by at least one nationally rec:ognix.ed credit rating agency, ( IO) commercial paper that is rated at least A-I or P-1 or the equivalent by either (a) two nationally iecognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S. or stare bank, ( 11) no- load money market mutual funds regulated by the Securities and Exchange Commission that have a dollar weighted average portfolio maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of$ I for each share, (12) no-load mutual funds registered with the Securities and Excliange Commission Chat: have an average weighted maturity of less than two years; invests exclusively in obligations descn'bed in the preoeding clauses; 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, (13) bonds issued, assumed, or guaranteed by the State of lsrae~ and (14) guaranteed investment contracts secured by obligations of the United States of America or its agencies and instrumentalities, olher than the prohibited obligations described in the ne,ct succeeding paragraph. 45 ) ) ) 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 AAArn or an equivalent by at least one nationally reoognized raring service. The City is specifically prohibited from investing in: (I) obligations whose payment represents the coupon payments on lhe outslanding principal balance of the wulerlying mortgage-bacb:d security collateral and pays no principal; (2) obligalions whose payment represents the principal stream of cash flow from the underlying mortgage--baclted security and bears no interest; (3) collateralized mortgage obligations that have a stared final maturity of greater than IO years; and ( 4) col lateralized mortgage obligations the interest rate of which is determined by an index that adjUSIS opposite 10 the changes in a market index. Effective September I, 2003. governmental bodies in the State are 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 wtder the program is either secured by (a) obligations that are described in clauses (I) through (6) of the first paragraph under this subcaption, (b) irrevocable letters of cn:dit issued by a state or national bank that is continuously rated by a nationally recognized investment rating finn not less than "A" or its equivalent. or (c) cash invested in obligations th.al are de.scribed in clauses (I) through (5) and (IO) through (13) of the first paragraph under this subcaption, or an authorized investment pool; (ii} securities held as collateral under a loan are pledged to the governmental body, held in lhe name or the governmental body and deposited at the time the investment is made with the City or a third party designated by the City; (iii) a loan made under the program is placed through either a primary government securities dealer or a financial institution doing business in the Stare of Texas; and (iv) the agreement to lend securities has a term of one year or less. INVf.STMENT Poua£S ... Under Texas Jaw, the City is ll:(!Uired to invest its funds under written investment policies lhat primarily emphasize safety or principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and !hat includes a list of aulhorized inveSbnents for City funds, maximum allowable staled maturity of any individual investment and the maximum average dollar-weighted maturity allowed for pooled fund groups. AU City funds must be invested consistent with a fonnally adopted "Investment S11'81egy Staranenl" that specifically addresses each funds' investment. Each Investment Strategy Statement will desaibe its objectives concerning: (I) suitability of inve.stment type, (2) preservation and safety of principal, (3) liquidity, ( 4} marketability of each investment, ( 5) diveisificalion of the portfolio, and (6) yield. Un~ Texas law, City invesl!nenlS must be made '-\Yith judgment and care, under prevailing circumstances, that a pcr..on of prudence, discretion, and intelligence would exercise in the management of the perwn • s own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived." At leas! quarterly the investment ofTJCers of the City shall submit an invesiment report detailing: ( l) 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 1he ending value of each pooled fund group, (4) the book value and market value of each separately listed asset at the beginning and end oflhe reporting period, ( 5) the maturity dare 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 lhe investment portfolio as it relates to: ( a) adopted investment strategy SWements and (b) state law. No person may invest City funds without express written authority from the City Council. AODITIONAL PROVJSIONS .•. Under Texas law the City is additionally required to: (I) annually review its adopted policies and s!ralegies; (2) require any investment officets' with personal business rclationships or relatives with finns seeking to sell securities to the entity to disclose the rel.alionship and file a stalement with the Texas Ethics Commission and the City Council; (3) n:quin: the registered principal of finns 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 10 preclude imprudent investment activities, and (c) deliver a written statement attesting to 1hese requirements; (4) perfoim an annual audit of the management controls on investmeots 811d adherenoe to the City's investment policy; (5) provide specific investment training for the Treasurer, Chief Financial Officer and investment officers; ( 6) restrict reveise repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater 1han the leml of the reverse repurcl\ase agreement; (7) restrict its in vestment in mutual funds in !he aggregate 10 no more than 1.5 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 debl servioe, in mutual funds; and (8) require local government investment pools to confonn to the new disclosun:, rating. net asset value, yield calculation, and advisory board requirements. 46 ) ) ) ) ) TABLE 15-CURRENT INVESTMENTS As of April 30, 2005. the City•s investable funds were invested in lhe following ca1egories: Estimalcd fair Book Value Market Value<'' Weighted ¾of Total %ofTotal A.v..-.gc T Par Value Value Book Value Value Market Value ~!l'.{Dals) UDiled S!aW Agaicy Obligations S 27,000,000 26,997,764 14.83 S 26,724,160 14.70 462 days lnlcl"5t Bearing Bank Deposits<•> 96,220.620 %,220,620 52.87 %,220,620 52.94 I day Mooey Maricet Mul\lal Fuods'" 2,928..474 2,928,474 t.61 2,928,474 1.61 I day Local govanment invesrmc,11 pools''' 55,864,393 SS,864,393 30.69 55,864,393 30.74 I dal 182,013,487 182,011,251 100.00 181,737,647 100.00 70 days (I) Marice1 prices are obtained through information provided by Wells Fargo Brokerage Services, LLC. As of such dare. !he mmket value of such investmerus was approximately 100.00% oflheir book value. No funds of the City are invested in mortgage-backed securities. ~ City holds all investments IO maturity which m:inimi;:es the risk of market prioe vofali lity. (2) Deposits are held at Wells faJgo Bank, N .A. in fully collateralized interest earning savings accounts. (3) Mouey Marlcet MutuaJ Funds (MMMFs), used by the City, have investment objectives that include adueving a stable net asset value ofS 1.00 per share.. (4) Local government investment pools consist of entities wilh investment objectives that include achieving a stable net asset value of $1.00 per share. The investment pools used by the City include Te~l and TexSTAR. TexSTAR is a local government inveslment pool for whom First Southwesc Asset Management, Inc., an affiliati: of First Southwest Company, provides customer service and IIUlfketing ror the pool. TexSTAR currently maintains a "AAA" rating from Standard & i>oor's and has an investment objective of achieving and maintaining a stable net asset value ofS I. 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. (THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) 47 ) ) -., ) TAXMATIERS TAX EXEMPTION •.• In the opinion of Vinson&. Elkins L.L.P., Bond Counsel, (i) interest on Bonds is excludable from gross income for federal income tax purposes under existing law and (ii) interest on the Bonds is not subject to the alternative minimum tax on individuals and corporations, except as described below in the discussion regarding the adjusted current earnings adjustment for corporations. 1ne Internal Revenue Code of 1986. as amended (the "Code"), imposes a number of requirements that must be satisfJCd for interest on state or local obligations, such as the Bonds, to be excludable from gross income for federal inoome tax purposes. These requirements include limitations on the use of bond proceeds and the source of repayment of bonds, limitations on the investment or bond proceeds prior 10 expenditure. a requirement that excess arbitrage earned on the investment of bond proceeds be paid periodically to the United States and a n1quirement that the issuer file an infonnation report with !he Internal Revenue Service. The Issuer has covenanted in the Ordinance that ii will comply with these requirements. Bond Counsel's opinion will assume continuing compliance with the covenants of the Ordinance pertaining 10 those sections of the Code that affect the exclusion from gross income of interesl on the Bonds for federal income tax purposes and, in addition, will rely on representations by the Issuer, the Issuer's Financial Advisor and the Underwriters with res peel to matters solely within the knowledge of the Issuer, the [ssuer's Financial Advisor and the Underwriters, respectively, which Bond Counsel has not independently verified. If the Issuer should fail 10 comply with the covenants in the Ordinance or if lhe foregoing representations or report should be detennined 10 be ina~urate or incomplete, interest on !be Bonds could become lallable from the date of delivery or the Bonds, regardless or the date on which the event causing such taxability occurs. The Code also imposes a 20"/4 altemative minimwn tax on the "alternative minimum lallable income" of a corporation ir the amount of such alternative minimum iax is gn:ater than the amount of the oorporation's regular income tax. Generally, the alternative minimum taxable income of a corporation (other than any S corporation, regulated investment company, REIT, REMIC or FASID, includes 75% of the amounl by which its "adjusted current earnings" exceeds its other "alternative minimum taxable income." Because intereSt on tax exempl obligations, such as the Bonds, is included in a corporation• s "adjusted cWTent earnings," ownership oflhe Bonds could subject a corporation to alternative minimum tax consequences. Except as stated above, Bond Counsel will express no opinion as to any federal, state or local tax consequences resulting from the receipt or accrual of interest on, or acquisition., ownership or disposition of, the Bonds. Bond Counsel's opinions are based on exis1ing law, which is subject to change. Such opinions are further based on Bond Counsel's knowledge of faclS as of the date thereof. Bond Counsel assumes no duty to update or supplement its opinions to reflect any facis or circumStances that may thereafter come to Bond Counsel's attention or lo refl~ any changes in any law that may thereafter occur or become effective. Moreover. Bond Counsel's opinions are not a guarantee or result and are not binding on the Internal Revenue Service (the "Service~); rather, such opinions represent Bond Counsel's legal judgment based upon its review of ex is ting Jaw and in reliance upon the represeniations and covenants referenced above that it deems relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given whether or 001 the Service will commence an audit of the Bonds. Ir an audit is commenced, in accordance with its current published procedures the Service is likely to treat the Issuer as the taxpayer and the Owners may not have a right to participate in such audit. Public awareness of any furure audil of the Bonds could adversely affect the value and liquidity of the Bonds during the pendency of the audit regardless of the ultimate ouccome orthe audit. ADDITIONAL FEDERAL INCOME TAX CONSIDERATIONS COUATERAL Ti\X CoNSEQUENCES -.• Prospective purchasers of the Bonds should be aware that the ownership of tax exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings and profits, individual recipients or Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax exempt obligations, taxpayers owning an interest in a FASIT thai holds tax-exempt obligations and individuals otherwise qualifying for the earned income credit In addition, certain foreign corporations doing business in the United States may be subject to the ''branch profits tax" on their effectively connected eammgs and profits, including tax exempt interest such as interest on the Bonds. These categories of prospective purchasers should consult their own tax advisors as to the applicability of these consequences. Prospec1ive purchasers of the Bonds should also be aware that, under the Code, taxpayers are required to report on lheir returns the amount of tax-exempt interest. such as interest on the Bonds, received or accrued during the year. TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE PREMIUM ••• The issue price of all or a portion of the Bonds may exceed the stated redemption price payable al ma111ri1y of such Bonds. Such Bonds (the "Premium Bonds") are considered for federal income tax purposes to have "bond premium" equal to the amount of such excess. lne basis of a Premium Bond in the hands of an initial owner is reduced by the amount of such excess that is amortiud during the period such initial owner holds such Premium Bond in detennining gain or loss for federal income tax purposes. This reduction in basis will incn:ase the amoimt of any gain or decrease the amount of any loss r«:ognized for federal income tax purposes on the sale or other laXable disposition 48 ) ) ) ) ) of a Premium Bond by the initial owner. No corresponding dedl.lclion is allowed for federal income tax purposes for the reduction io basis resulting from amortizable bond premium. llie amount of bond premium on a Premium Bond that is amortizable each year (or shorter period in the event of a sale or disposition of a Premium Bond) is determined using the yield to maturity on the Premium Bond based on the initial offering price of such Bond. The federal income tax consequences of the purchase, ownership and redemption, sale or other disposition of Premium Bonds that are not purchased in the initial offering at the initial offering price may be detennined according 10 rules thal differ from those described above. All owners of Premium Bonds should consult their own tax advisors with respect to the determination for federal, state, and local income tax pll(J)Oses of amortized bond premium upon the redemption, sale or other disposition of a Premium Bond and with respect to the federal., state, local, and foreign tax consequences of the purchase, ownership, and sale, redemption or other disposition of such Premium Bonds. TAX ACCOUNTING TREATMENT OF ORIGINAL lssUE DISCOUNT BoNos ••• The issue price of all or a portion of the Bonds may be less than the stated redemption price payable at maturity of such Bonds (the "Original Issue Discount Bonds"). In such case, the difference between (i) the amount payable at the maturity of each Original Issue Discount Bond, and (ii) the initial offering price to the public of such Original Issue Discount Bond conSlitutes original issue discount with respee1 to such Original Issue Discount Bond in the hands of any owner who has purchased such Original Issue Discount Bond in the initial public offering of the Bonds. Generally, such initial owner is entitled to exclude fiom gross income (as defined in S«tion 61 of the Code) an amount of income with respect to such Original Issue Discount Bond equal to that portion of the amount of such original issue discount allocable to the period that such Original Issue Discount Bond continues to be owned by such owner. Because original issue discount is treated as interest for federal income tax purposes, the discussion regarding interest on the Bonds under the caption "Collateral Tax Consequences" above generally applies. and should be considered in connection with the discussion in this portion of the Official Statement In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Bond prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for wbich such Original Issue Discount Bond was held by such initial owner) is includable in gross income. The foregoing discussion assumes that (a) the Underwriter has purchased the Bonds for conr.empomneous sale to the public and (b) aJI of the Original Issue Discount Bonds have been initially offe~ and a substantial amount of each maturity thereof has been sold, to the general public: in ann's-length transactions for a price (and with no other consideration being included) not more than the initial offering prices thereof stated on the oover page of this Official Statement Neither the Issuer nor Bond Counsel has made any investigation or offers any comfort lhal the Original Issue Discount Bonds will be offered and sold in accordance with such assumptions. Under existing law, the original issue wscount on each Original Issue Discount Bond is accrued daily to the stated maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the semiannual anniversary dates of the date of the Bonds and ratably within each such six-monlh period) and the accrued amount is added to an initial owner's basis for such Original Issue Discount Bond for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition thereof. The amo11I1t to be added to basis for each accrual period is equal lo (-a) the Sllm of the issue price and the amolD'lt of original issue discount accrued in prior periods multiplied by the yield to stated maturity (determined on the basis of compowiding at the close of each accrual period and properly adjusted for the length of the accrual period) less (b) the amounts payable as current interest during such accrual period on such Bond. The federal income tax consequences of the purchase, ownership, and redemption, sale or other disposition of Original Issue Discount Bonds which are not pllrchased in the initial offering at the initial offering price may be determined according to rules which differ from those described above. AU owners of Original Issue Discount Bonds should consult their own tax advisors with respect to the determination for federal, state, and local income tax purposes of interest accrued upon redemption, sale or other disposition of such Original Issue Discount Bonds and with respect to the federal, state., local and foreign tax consequences or the purchase., ownership, redemption, sale or other disposition of such Original Issue Discount Bonds. 49 ') ) ) OTHER INFORMATION RATINGS The presently outstanding tax supported debt or the City is rated "Al" by Moody's, "AA-" by S&P and "AA-ft by Fitch. The City also has issues outstanding which all: rated "Aaa" by Moody's., "AAA" by S&P and "AAA" by Fitch through insurance by various commercial insurance companies. Applications for contract ratings on this issue have been made to Moody's, S&P and Fitch. An explanation of the significance of such ratings may be obtained from the company furnishing the raling. The ratings reflect only the respective views of such organizations and the City malccs 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 wi II not be revised downward or withdrawn entirely by either or both of such rating companies. if in the judgment or either or both companies, circumstances so wammL Any such downward revision or withdrawal of such ratings may have an adverse effect on the marlcet price of the Bonds. LITIGATION 1ne City is involved in various legal pro«edings related to alleged personal and property damages, breach of contract and civil rights cases, some of which involve claims against the City that exceed $500,000. State law limits municipal liability for personal injury at S2S0,000/$500.000 and property damage at SI 00,000 per claim. The following represents the significant litigation against the City at this time. 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 ("Section 1983"). If a claim should be made under that law and damages are uhimately assessed against the City, the City would not be subject to limitations on damages. Insurance should cover all but the self-insured retention. The City is also involved in a lawsuit with the City's firefighters regarding pay issues. The firefigh1ers obtained a $688,000 judgment against the City for damages that accrued thtough July 2002. Damages have continued to accrue since July 2002. The City appealed this judgment. and the Coun of Appeals overturned the judgment. The plaintiffs have filed an appeal to the Texas Supreme Court. The Supreme Court has not made a decision on whether to hear the appeal. While any liability would not be covered by an insurance policy, the City Attorney only assesses the potential that the firefighters will obtain relief from the Texas Supreme Court as possible. The City is also involved in a suit filed by the general contractor for a large drainage project in the City. In the suit. the contractor asserted damages in excess of S2.3 million under a breach of contract claim. Tbe City obtained a summary judgment in this case against the contractor. The contractor has appealed the decision to the Fifth Circuit Court of Appeals. While 1his liability is not covered by any insurance policy, the City Attorney only assesses the likelihood of recovery by the contractor as possible. The City has also been sued by a another contractor who was not awarded the bid on a different portion of the stormwater drainage project. The contractor has alleged violations of the state bid statute and a violation of Section 1983. The plaintiffs took a nonsuit in state court and re-filed the case in federal court The federal court has dismissed the contta<:tor's Section 1983 claims, and the contractor has filed a Notice of Appeal. The City Attorney assesses the likelihood or liability as possible. Potential damages are unknown. The City Attorney believes there is insurance coverage for the Section 1983 claim, although there is a dispute with the carrier regarding coverage. The City has been sued by six plaintiffs who allege that the City and or Lubbock County failed to properly record infonnation in its cemetery records that would show where their relatives were buried. The Plain ti tis' attorney indicates that he has about eighty other clients with similar claims. The City will assert a defense under statutes of limitations, that the City was not the owner of the property during portions of the time in question, and that the allegations fail 10 state a c !aim upon which relier can be granted. The City Attorney assesses the potential for liability as possible. There is no insurance coverage for these claims. The City intends to vigorously defend itself on all claims, although no assurance can be given that the City will prevail in all cases. However, the City Attorney and City management is of the view that its available soun:es 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 lo the Underwriters a certificate lo 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 or the Bonds. RI.GISTRA TION AND QUAUFICA noN OF BoNDS FOR SAU: The sale of the Bonds has not been i:egistered under the Federal Securities Act of 1933, as amended, in reliance upon the 50 ) ) exemption provided thereunder by Section J(a}(2); and the Bonds have not been qualified under the Securities Act of Texas in reliance upon various exemptio llS co11rained lhere in; 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 secllfities laws of any jurisdiction in which the Bonds may be sold. assigned, pledged, hypothecated or otherwise transfened. This disclaimer of responsibility for qualification for sale or other disposition of lhe Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemplion from securities registration provisions. Lr.GAL INVESTMENTS AND ELIGIBILITY TO SECURE J>ueuc FUNDS 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 an: legal and authoriz.ed investments for insurance companies, fiduciaries, and trustees., and for the sinking funds of municipalities or other political S\lbdivisions or public agencies of the Swe of Texas. With respect to investment in the Bonds by municipalities or other political subdivisions or public agencies of the Sl.llte 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 inveslments for state banks. savings banks, trust companies with capital of one million dollars or rnon; 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 market value. No review by the City has been made of the laws in other states to determine whether the Bonds arc legal inveslments for various institutions in those states. LEGAL 0.PINIONS The City will furnish a complete transcript of proceedings had incident to the authorization and issuance of the Bonds. including the unqualified approving legal opinion of the Attorney General of Texas approving the Initial Bond and to the effect that the Bonds arc valid and legally binding obligations of the City. and b3Sl:d upon examination of such transcript of proceedings. the approving legal opinion of Bond Counsel., to like effect and to the effect that the interest on the Bonds wilt be excludable from gross income for federal income tax purposes under Section l0J(a) of the Code, subject to the matters described under "Tax Matters" herein. including the alternative minimum tax on corporations. Bond Counsel was not requeSted to panicipate, and did not talce part, in the preparation of the Official Statement, and such finn has not assumed any responsibility with respect thereto or undertali:en independently to verify any of the infonnation contained therein., except that, in its capacity as Bond Counsel, such firm has reviewed !he infonnation under the captions "The Bonds" (exclusive of the subcaption "Book-Entry-Only System"), "Tax Matters" and "Continuing Disclosure of Information" and the subcaptions "Legal Opinions" and "Legal Investments and Eligibility to Secure Public Funds in Texas" under the caption "Other Information" in lhe Official Statement and such firm is of the opinion that the information relating to the Bonds and the legal issues contained under such captions and subcaptions is an aoourate and fair description of the laws and legal issues addressed therein and. with respect 10 the Bonds, such information confonns to the Ordinance. The legal fee to be paid to Bond Counsel for services rendered in connection with the issuance of the Bonds is contingent on the sale and delivery of the Bonds. The legal opinion will accompany the Bonds deposited with DTC or will be printed on the 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 L.L.P., Dallas, Texas, Counsel to the Underwriters. The legal opinions to be delivered concummtly with the delivery of the Bonds express the professional judgment of the attorneys- rendering the opinions as to the legal issues expressly ad~ therein. In rendering a legal opinion. the attorney does not become an insurer or guarantor of the expression of professional judgment, of the transaction opined upon, or of the future performance of the parties to the lransaclion, nor does the rendering or an opinion guarantee the outcome of any legal dispute that may arise from the transaction. CONTINUING DISCLOSURE OF INFORMATION In the Ordinance., the City has made the following agreement for the benefil of the holders and beneficial owners 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 Cily will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to certain infonnation vendors. This infoimation 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 lhis Official Siatement under Tables numbered I through 6 and 8A through 15, and in Appendix 8. The City will update and provide this information within six months after the end of each fiscal year ending in or after 2005. The City will provide lhe updated inrormation to each nationally recognized municipal securities information repository ("NRMSIR'') approved by the staff of the United States Securities and Exchange Commission ("SEC") and to any state infonnation depository ("SID'') that is designated and approved by the State orTexas and by the SEC staff. 51 ) ) ) ') "I 'I The City may provide updated information in ruu 1ex1 or may incorporate by reference certain other publicly available OOClJments, as permitted by SEC Rule 15c2-l2. The updated information will include audited financiaJ stalements, if the City commissions an audit and it is completed by the required lime. If audited financial statemenlS are not available by the required time, the City will provide unaudited financial information and operating data which is customarily prepared by the City by the required time. and audited financial statements when and if such audited financial statements become available. Any such financial swemems will be prepared in accordance widi the accounting principles described in Appendix B or such other accounting principles as the City may be required to employ from time IO 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 lhe 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. The Municipal Advisory Council has also received Securities and Exchange Commission approval to operate, and has begun IO operate, a "central post office" for information filings made by municipal issues, such as the City. A municipal issuer may submit its information tilings with the cenlral post office, which tben transmits such information to the NRMSIRs and the appropriate SID for filing. This cenlral post office can be accessed and utilized at www.DisclosureUSA.com ("DisclosureUSA"). The City may utilize DisclosureUSA for the filing ofinfonnation relating 10 the Bonds. MATERIAL EVENT NOTICES •.. TIie City will also provide timely notices of certain events to certain infonnation vendors. The City will provide notice of any of the following events with respect IO the Bonds, if such event is material to a decision to purchase or sell Bonds: (I) 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) modifica1ions to rights of holders of the Bonds; (8) Bond calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds; and (11) rating changes. In addition. the City will provide timely notice of any failw-e by the City to provide information, data, or financial statements in accoroance with its agreement described above under .. Annual Reports." The City will provide each notice described in this paragraph to the Sro and to either each NRMSIR or the Municipal Securities Rulemaking Board ("MSRB"). AVAILABlln'V 01' INFORMATION PROM NRMSIRs AND SID ... The City has agreed to provide the foregoing infonnation only to NRMSIRs (or the MSRB in the case of Material Events Notices) and the SID. 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. AM&NDMENTS ••. The City may amend its continuing disclosure agreement fi:om time to time lo adapt to changed circumstances that arise fi:om 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 pennitted 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 collSCllt 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 I 5c2-12 or a court of fmal jurisdiction enters judgment that such provisions of lhe SEC Rule I 5c2-12 are invalid, but only if and to the extent tha1 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 lhe agieement, it has agreed to include with the next financial information and operating data provided in accordance with its agreement described above under "Annual Reports" an explanation, in narrative fonn, of the reasons for the amendment and of 1he impact or any change in the type o ffinancial information and operating data so provided. COMPLIANCE WITH PRIOR UNDIRTAKJNGS ... The City became obligated lo file annual reports and financial Statements with the state information depository ("SID") and each nationally recognized municipal securities information repository C'NRMSIR") in an offering that took place in 1997. All of the City's General Obligation debt reports and financial statements m:re 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 Eleclric and Power Revenue debt reports late to the SID and each NRMSIR The financial information has since been filed, as well as a notice oflate filing. The City has implemented procedures to ensure timely filing of all future fmancial infonnation. Under previous continuing disclosure agreements made in connection with LP&L revenue bonds, the City committed to make prompt filings with the SID and either each NRMSIR or the MSRB upon the occurrence of any "non-payment related defaults." The City's FY 2003 audiled financial statements were not available until mid-September 2004. Therefore, when the City made its annual disclosure filing with the SID and NRMSIRs in Mareh. 2004, it filed unaudited financial statements in accordance with its undertaking. Several references in that filing, including in the unaudited MD&A, in ootes to those statements and in the statisticaJ tables, reponed that for FY 2003 LP&.L bad failed to meet its rate covenant (see "Discussion of Recent Financial and Management Events -Seplember 30, 2003 Financial Results • The Electric Fwid"}. Because there was an uncertainty as to an amowit by which the rate covenant would fail IO be met, which was not finally 52 ) "\ i ) ) detennined until the audited financials were released in September 2004 (although the City had a reasonable belief prior to that time that the rate covenant had not been met), the City waited until September 2004 to make its event filing of non-compliance with its LP&L rate covenant FINANCIAL ADVISOR First Southwest Company is employed as financial Advisor to the City in connection with the issuance of the Bonds. The Financial Adviso(s fee for seivices rendered with respect IO the sale of the Bonds is contingent upon the issuance and delivecy 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, 10 investors under the federal securities laws as applied to the facts and cii:cumstances of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of sucb information. UNDERWRITING The Underwriters have agreed, subject 10 certain conditions. to purchase the Bonds fiom the City, at an undetwriting discount of S ____ . The Undefwriters will be obligated to purchase a11 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 Undetwritels and other dealers depositing Bonds into investment trusts) at prices lower than lhe public offering prices of such Bonds, and such public offering prices may be changed, from time to time, by the Underwrite.rs. FORWARO-LooKING STATEMENTS DISCLAIMER The statements contained in lhis 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 eiq,ectatioos, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in this OfficiaJ 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. The forward-looking statements included herein are necessarily based on various assumptions and estimates and are inhenmtly 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 circwnstances 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 IO the foregoing involve judgements with respect to, among other things, fulun: economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accw:ately and many of which ~ beyond the control of the City. Any of such asswnptions could be inaccurate and, therefore, there can be no assurance that the forward•looking statements included in lhis Official Statement will prove to be accurate. MISCELLANIEOl.lS The financial data and other information conlllined herein have been obtained from lhe City's records, audited flll81lCial statements and other sources which are believed to be reliable. 1bere is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents and resolutions contained in this Official Statement are made subject to all of the provisions of such statutes, docwnents and resolutions. These summaries do not pwport to be complete slalemenls of such provisions and reference is made to such documents for further informatio1L Reference is made to original documents in all respects. The Ordinance aulhoriring the issuance of the Bonds will also approve the form and content of this Official Statement, and any addenda, supplement or amendment thereto, and aud!orize ils further use in lhe reoffering of the Bonds by the Underwriters. ATTEST: Isl REBECCA GARZA City Secretuy 53 Isl MARC McDOUGAL Mayor City of Lubbock, Texas ) APPENDIX A GENERAL INFORMATION REGARDING THE CITY ) ) ) THE CITY U>CATION 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. POPlJI.A TION Lubbock is the ninth largest City in Texas: 1910 Census 1920 Census 1930Census 1940 Census l950Census 1960Ceosus l970Cemus l980Census 1990 Census 2000Census 2005 (Estimated) 111 City of Lubbock {Corporate Limits) 1.938 4,051 20,520 31.,853 71,747 128,691 149,701 173,979 186.206 199,564 209,120 Metropolitan Statistical Area C4MSA') {Lubboclc Cowlty) 1970 Census 179,295 1980 Census 2 ll,6S I 1990 Census 222,636 2000 Census 242,628 (I) Source: City orl.ubbock, Texas AGRICUL TIJRE; BUSINESS AND INDUSTRY Lubbock is the center of a highly mechanized agricultural aiea widt a majority of the crops irrigated with water from undergroWld sources. Principal crops are cotton and gmin sorghums with livesrnck:. a major additional source of agricultural income. In 2003, approximately 2.2 million bales of cotton we.e produced in Lubbock and the 25-counries sunounding Lubbock. This was less 1han the 3.2 million bales produoed in 2002 and is 27% below the I 0-year average of 2.80 million bales. Projections for the 2004 cotton crop are 3.89 million bales. depending on the growing conditions lllld the weather during the 2004 production season.0) T"M> 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 manuracturing plants in Lubboclc produce such products as semiconductors, vegetable oils, irrigation equipment and pipe, pl:mics products, farm equipment, paperboard boxes, custom millworlc/shuners, foodsluffs, prefabricated homes, poultry and livestock feeds, boilers and pressure vessels, automatic sprinkler system heads. and StruCrural steel fabrication. (I) Souroe: Plains Cotton Growers, Inc., Lubbock, Texas. LuaBOCK MSA LABOR FORCE Esml.4.ns (I) March 2005(1) Civilian Labor Force 139,181 TotaJ Employment 133,308 Unemployment 5,873 Percent Unemployment 4.20% (I) Souroe: Texas Workforce Commission. (2) Subject to revisio1L 2004 138,516 132,065 6,451 4.70% A-1 Annual Av~es 2003 2002 2001 2000 130,645 128,131 127,293 124,756 125,969 124,223 124,046 121,482 4,676 3,903 3,247 3,274 3.60% 3.00"/o 2.60% 2.60% ) ) Estimated non-agricultural wage and salaried jobs in various categories as of December, 2004 ~= (II Manufuooiring Corcsttu<:tion Trade, Transportation & Public Utilities Finance., Insurance and Real Estate Education & Health Services lnfonnatioo Leisure &Hospitality & Other Government Total 5,400 5,300 25.500 16.700 17,900 5,800 19,700 28,500 124,800 (I) Source: Texas Worlcforoe Commission. MuoR EMPLOYERS{300 EMPLOYEES OR MORE) Company Texas Tech University Covenant Health System Lubbock Independent School District UniVetSity Medical Center United Supennarlcers City of Lubbock Texas Tech Health Sciences Center Cingular Convergys Corporation Lubbock County Lubbock Stale School Texas Dept. of Criminal Justice Psychiatric Hospital Frensllip ISD Tyco Fire Protection G BGrell Services, Inc. SBC/Southwestern Bell Walmart Superoenter U.S. Postal Service State National Bank of West Texas Texas Department ofTransportation Gene Messer Ford Inc. Lubbock-Cooper !SD Lubbock Regional MHMR Center Operator Service Company Sonic Drive In ChaseCom/Staffinark WeJls Fargo Phone Bank Lubbock Oiristian Univmity Plains Capital Bank NTS Communications, Inc. American Stale Bank Dill.ards Deparunent Stores Cox Cable of Lubbock, Inc. Mclane High Plains Sodexho School Services ARAMARK Lubbock Heart Hospital Interim Healthcare of West Texas {I) Souroe: Marlret Lubbock. (2) Full and part time. Type of .Business State University Hospital Public Schools Hospital Supenna,kets City Government Medical and Allied Health School Wireless Communications caJI Center County Government School for Mentally Retarded Psychiatric Hospiral Public Schools Manufacturing/Fire Sprinklers Staffing/HR Consulting Telephone Utility Discount Retailer Post Office Bank State Highway and Street Maintenance Automobile Dealership Public Scbools Social Services Customer Service Restaurants Call Cen1er Bank Phone Center College/University/Professional School Bank Telephone Utility Bank Department Store Cable Utility Wholesale Food Distribution Facilities Management Managed Food Services Heart Hospital Home Health Care Estimated Employees July, 2004''1 9,919 tJJ 4,310 3,504 2,310 2,156 2,109 2,010 1,750 1,450 950-1200 850 755 O) 639 525 516 500-999 500-999 500-999 500 474 449 444 427 427 425 400 392 384 371 367 355 341 339 330 316 316 308 300 (3) See Texas Department of Criminal Justice ("TDC.r') Prison Psychiatric Hospital following for more detailed information. A-2 ) "I ) EDUCATION -TEXAS TECH UNlVERSITY Established in Lubbock in 1923. Texas Tech University is the fifth liugest State-owned Uoiversily in Texas and had a Spring, 2005, enrollment or 28,549. Accttdited by !he Southern Association of Colleges and Schools, rhe University is a co-educational, State- supported institution offering a bachelor's degree in 158 major fields, the master's degree in 107 major fields, the doctorate degree in 64 major fie ids, and a professional degree in 2 major fields (law and medicine). The University proper is situated on 451 acres or the 1,829 acre campus, and has over 160 permanenl buildings with additional oonstruction in progress. Spring, 2004, total employment was 9,919 full time and part time employees. The medical school had an enrollment or 2, I 00 fur Spring, 2005, not including residents: there were n graduate students. The School orNursing had a Spring, 2005, enrollment of 443. The Allied Health School had a Spring, 2005, enrollment of 731. Source: Texas Tech University. OTHER EDUCATION INFORMATION The Lubbock Independent School District. with an an:a of 117.5 sq~ miles, includes ovef 90"/4 of the City of Lubbock. There are approJCimalely 3,504 total employees. The Dislrict opeiates four senior high schools, nine junior high schools, 39 elemenwy schools and other educational programs. Scholastic Membership History (II School Year 2000--01 2001--02 Z002-03 2003--04 2004-05 Average Daily Attendance 27,046 27,019 27,094 26,800 28,474 (l) ( I ) Source: Superintendent's Office, Lubbock Independent School District (2) Estimated. Lubbock Ouistian University, a privately owned, co-educational senior college located in Lubbock, had an enrollment of 1,819 for the Spring Semester, 2005. The State of Texas School fur the Mentally Retarded, locatoo on a 226-acn:: 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 T eJCllS. operates a Lubbock Campus which had a Spring, 2005, enrollment of 650 students. TRANSPORTATION Scheduled airline transportation at Lubbock Preston Smith International Airport is furnished by Southwest Airlines, Continental Airlines and American Eagle; non-srop SCl"Vice is provided IO Dallas-Fort Worth International Airport, Dallas Love Field, Bush Intercontinental Airport (Houston), Houston Hobby, El Paso, Las Vegas, Austin, and Albuquetque. Passenger boardings for 2001 536,670, for 2002 513,096 fur 2003 514,250 and 541,549 for 2004. Extensive private aviation services are located at the airport. Rail transportation is furnished by the Burlington Nordlcm Santa Fe Railroad with through service t0 Dallas, Housron, Kansas City, Chicago, Los Aiigeles and San Francisco. Short-haw rail service is also furnished by the Seagraves, Whiteface and Lubbock Railroad. Texas, New Mexico and Oklahoma Bus Lines, a subsidiary of Greyhound Coiporation, provides bus service. Several motor freight common caniers provide service. Lubbock has a well-developed highway network including lmerstate 27 (Lubbock-Amarillo), four U.S. Highways, one State Highway, a controlled-access outer loop and a county-wide system or paved flum-to-masket roads. A-3 ) ) ) GOVERNMENT AND MILITARY <0 The former air base, now known as Reese Technology Center (the "Center') is a 2500-acre campus with over I million square feet of space. The Center is the Sth largest Research Park in the United States and is considered by Department of Defense as "one of the most rapid and successfully redeveloped closed military bases in the rountry ." 1be Center is rurrend.y 80"/4 occupied with 11 oommescial tenants employing over 670 people (created over the last~ years). Am:hor tenants include Te:icas Tech Research and the 4,200-student campus of South Plains College, a two-year community college. Reese Center is the home of the prized Institute of Eovirorunental and Human Health (TIE.HI-I). TIEHH is a joint venture between Texas Tech Univer..ity and Texas Tech University Health Scienres Center and researches the exposure and effects toxic chemicals have on human health and the enviromncnL TIEHH has assisted in stimulating the Lubbock economy with over $50 million in grants. TIEHH' s location as the anchor tenant at the Reese Technology Center has assisted the facility in being transfonned into a research, indUSlrial and commercial center. Cwrenl areas of specialty 11t the Cencer include Biotechnology, Environmental Sciences, Food Technology and Woric Force DevelopmenL Reese Center recently received an EDA grant for $1.7 million dollars lo install an OC-192 fiber optic network and wireless system for the entire campus making it a leader in high tech communications. Other resean:b facilities that have been relocated to Reese Technology Center are lite Texas Tech Univen.ity Wind Engineering and Advanced Vehicle Engineering Resi::8lcll Centers. Total economic impact of the Reese Technology Center has been $26.8 million dollars over the last three yeais. Stale of Texas ... More than 25 Slate ofTexas boards, departmems, agencies and oommissions have offices in Lubbock; several of these offices have muhiplc units or offices. Federal Governmery ... Several Fede111l departments and various other administrations and agencies have offices in Lubbock; a Federal District Court is located in the City. (I) Source: City of Lubbock, Texas. TEXAS DEPARTMENT OF CRIMINAL JUSTICE ("TDCJ") PRISON PSYCmATRIC HOSPITAL TOCJ openucs a 550-bed Prison Psychiatric Hospital and a 48-bcd regional prison hospital on a 1,303 acre sile in southeast Lubbock. An adjacent 400-bed capacity ''trusty" facility houses prison trusties some of whom wortc at the hospital Employment for all &cilities is approxirna!£\y 870 with an annual esriman::d payroll ofSl7 million and an estimated remaining annual operating budget of$27 million. HOSPITALS AND MEDICAL CARE Theie arc four hospitaJs in the City with over t,500 beds. Covenant Medical Center is lhe largest and also operates an aocredited nursing school. Lubbock Coun1y Hospital District, with boundaries contiguous with Lubbock County, owns the University Medical Center which it operates as a teaching hospital fur the Texas Tech Health Sciences Center. There arc 102 clinics and over 700 practicing physicians, swgeons, and dentists. Lubbock's Health Care Sector employs over 17,000 people with a total payroll of SS43.3 million and draws patients from 77 counties in West Texas and Eastern New Mexico. A radiology center for the 1Jeatment of malignant diseases is located in the City. RECREATION AND ENTERTAINMENT Lubbock's Mackenzie Regional Parle and over 115 City parics and playgrounds provide recreation centers, shelter buildings, a garden and art center, swimming pools, a golf course, 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 nonhwest to southeast Lubbock along the Yellowhousc Canyon. There are several privately-owned public swimming pools, golf rourses, and cowitry clubs. The City of Lubbock has developed a 36 square block area of approximately 100 acres adjacent to downtown Lubbock under the Lubbock MelllOrial Civic Center program. Approximately 50 acres colllain the 300,000 square foot Lubbock Memorial Civic Center, the main City library building and State Department of Public Safety offices; a SO-acre peripheral area-has been redeveloped priVllle ly with office buildings, hotels and morels, a hospital, and other facilities. Available to residents are Texas Tech University programs and events, Texas Tech University M\ISeum, 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 Theam:, Center. Lubbock Civic Ballet, Municipal Auditoriwn and coliseum programs and events, the library and its branches, the annual Panhandle-South Plains Fair, college and high school fuotbal~ basketbal.l and olher sporting events, as well as modem movie theaters. A-4 ) ) "'\ ) CHURCHES Lubbock has approximately 300 churches representing more than 25 denominations. UTILITI' SERVICES Walef and Sewer -City of Lubbock. Gas -Atmos Energy Company. Electric -City of Lubbock (Lubbock Power & Light) and Xcel Energy; and. in a small area, South Plains Elc:wic C<Hlperative. ECONOMIC INDICES co Year 2000 2001 2002 2003 2004 Building Permits $ 200.427.650 294,064,200 314,077,929 417,252,162 408,726,402 70,111 70,756 72,615 72,505 74,026 Utility Connoctions Gas 65.000 65,332 67,308 69,9.54 70,196 (I) All data a-. of 12-31, except where noted; Source: City of Lubbock. Electric (LP&L Onlyi2l 58,724 59,431 62.713 62.203 63,076 (2) Electric connections arc those of City of Lubbock owned Lubboclc Power and Light ("LP&L i and do not include those of Xcel Energy or South Plains Electric Cooperative. LP&L provides service to approximately 70% oflhe elearic customeis in the City. BUILDING PERMITS BY CLASSIFICATION (II Residential Pennits Single Family Multi-Family Total Residential Commercia~ No. No. Public Total Calendar No. Dwelling Dwelling and Other Building Year Units Value Units <l> Value Urutsll> Value Pennits Permits 2000 819 $87,SO 1,009 281 SI 1,548,809 1,100 S 99,049,818 SI0t,3n,832 $200,427,650 2001 941 108,589,812 8.53 37,242,260 1,794 145,936,072 148, 128,128 294,064,200 2002 1,281 148,190,769 549 31,700,960 1,830 178,891,729 134,186,200 314,on,929 2003 1,288 172,679.238 l,59S 101,540,351 2,883 274,219,589 143,032,573 417,252,162 2004 1,204 169,075,633 2,382 114,339,697 3,586 283,415,330 125,311,072 408,726,402 2005 (3) 546 84,646,181 140 9,717.000 686 94,363,181 78,560,300 172,923,481 (I) Sow-c:e: City of Lubbock, Texas. (2) Data shown under "No. Dwelling Units" is for each individual dwelling unit, and is not ror separate buildings; includes duplex, triplex., quadruplex and apartment permits. (3) Through May 31, 2005. A-5 ) ) ) APPENDIXB EXCERPTS FROM THE CITY OF LUBBOCK, TEXAS ANNUAL FINANCIAL REPORT For the Year Ended September 30, 2004 The infonnation contained in this Appendix consists of excerpts from the City of Lubbock, Texas Annual Financial Report for lhe Year Ended Seprembec 30, 2004, and is not intended to be a complete statement of the City's financial condition. Refetencc is made to the complete Report for further information. ::, ) ) ) ) l(PMG lLP Suite 3100 717 North Harwood Street Dallas. TX 15201..;sss [ndependent Auditors' Report The Honorable Mayor and Members of the City Council City of Lubbock. Texas: We have audited lhe 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, as of and for the year ended September 30, 2004, wbich collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City of Lubbock's management. Our responsibility is to express opinions on these financial statements based on our audit We did not audit the financial statements of Market Lubbock Economic Development Corporation and Civic Lubbock, Inc. which comprise the aggregate discretely presented component units. In addition, we did not audit the West Texas Municipal Power Agency, which is both a major fund and represents 4 percent., l percent, and 22 percent of the assets. ner assets, and revenues of the business-type activities, respectively. Those financial statements were audited by other auditors whose reports thereon have been furnished t.o us, and our opinions, insofar as they relate to the amounts included for the Market Lubbock Economic Development Corporation, Civic Lubbock. [nc., and the Wes1 Texas Municipal Power Agency are based on the reports of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United St.ates of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perfonn the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The financial statements of Market Lubbock Economic Development Corporation, Civic Lubbock, Inc. and the West Texas Municipal Power Agency Fund were not audited in accordance with Government Auditing Standards. 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 opinions. In our opinion, based on our audit and the repons of other auditors, the financial statements referred to above present fairly. in all material respects, the respective fmancial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund infonnation of the City of Lubbock, Texas, as of September 30, 2004, and the respective changes in financial position and cash flows, where applicable, thereof and the budgetary comparison for the General Fund for the year then ended in confonnity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued a report dated March 28, 2005 on our consideration of the City of Lubbock's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. K'.PMt:; ~P a U S. HM.a ~ p,;l'rMNl!p. -=i,: 1'lc U.S. ~ r11Yn;;J1 qMG, ,~. a S'l"!Ss~ 17 > ) . The puq,ose of that report is to descnoe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The management's discussion and analysis and schedules, of funding progress on pages 19 through 34 and 73 and 77. respectively, are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. 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 conducted fur the purpose of forming opinions on the financial statements that collectively comprise the City of Lubbock's basic financial statements. The introductocy section, combining fimd stalements and schedules, and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining fund statements and schedules have been subjected to the auditing procedures applied by us and the other auditors in the audit of the basic financial statements and, in our opinion, based on our audit and the reports of other auditors, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. March 28, 2005 18 "') ) ) } City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 As management of the City of Lubbock, Texas (City), we offer readers this narrative overview and analysis of the financial activities of the City for the fiscal year ended September 30, 2004. We encourage readers of these financial statements to consider the information included in the transmittal letter and in the other sections of the Comprehensive Annual Financial Report (CAFR) e.g .• combining statements and the statistical section in conjunction with this discussion and analysis. Financial Highlights These financial highlights summarize the City's financial position and operations as presented in more detail in the Basic Financial Statements (BFS), as listed in the accompanying Table of Contents. • The assets of the City exceeded its liabilities at September 30, 2004 by $546 million (net assets). Of this amount, $51 million (unrestricted net assets) may be used to meet the City's ongoing obligations to citizens and creditors. • The City's total net assets decreased by nearly $2. 7 million as a result of operations during the fiscal year. • The ending unreserved fund balance for the General Fund was $12. l million or approximately 13.5% of total General Fund expenditures, or 14.0% of total General Fund revenues. • All of the City's governmental funds reported combined ending fund balances of $47.7 million. Of this total amount, $13.8 million is available for spending at the City's discretion. • All of the City's business-type activities reported combined ending net assets of $442.4 million. Of this total amount, $41.2 million is available for spending at the City's discretion. • The City's proprietary funds net assets decreased by nearly $5.0 million from $437.1 million to $432.1 million. The Electric Fund (Lubbock Power & Light or LP&L) ended the year with operating income of nearly $3.3 million erasing a $6.3 million operating loss experienced in the prior year. • Near the end of the fiscal year, the City issued $22.6 million of bonds to refund $23.2 million in outstanding bonds. As a result of this transaction, the City will experience an economic gain of $0.8 million and an accounting loss of $1 .0 million, with 4.2% in present value savings. 19 ") ) ' City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 Overview of the Financial Statements Basic Financial Statements. Management's Discussion and Analysis (MD&A) is intended to serve as an introduction to the City's BFS. The BFS are comprised of three components: 1) Government-Wide Financial Statements (GWFS). 2) Fund Financial Statements (FFS), and 3) Notes to Basic Financial Statements (Notes). This CAFR also contains other supplementary information in addition to the BFS. Government-Wide Financial Statements. The GWFS, shown on pages 35-37 of this report, contain the statement of net assets and the statement of activities, described below: The statement of net assets presents infonnation on all of the City's assets and liabilities (including capital assets and short-and long-term liabilities), with the difference between the two reported as net assets using the accrual basis. Over time, increases or decreases in net assets serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities presents a comparison between direct expenses and program revenues for each of the City's functions or programs (referred to as "activities"). Direct expenses are those that are specifically associated with an activity and are therefore clearly identifiable with that activity. Program revenues include charges paid by the recipient of the goods or services offered by the program, in addition to grants and contributions that are restricted to meeting the operational or capital requirements of a particular activity. Revenues that are not directly related to a specific activity are presented as general revenues. The comparison of direct expenses with revenues from activities identifies the extent to which each activity is self-financing, or alternatively, draws from any City generated general revenues. The governmental activities (activities that are principally supported by taxes and intergovernmental revenues) of the City include administration of community services, electric (street lighting), financial services, fire, general government, human resources, police, streets, and public works. The business-type activities (activities intended to recover all of their costs through user fees and charges) of the City include Electric (LP&L), Water, Sewer, Solid Waste, Stonnwater, Transit, and Airport. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs (accrual basis), regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods, such as uncollected tax.es and earned but unused vacation leave. 20 ) ) ) ) City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 Compooeot Units. The GWFS include not only the City itself (the "primary government"), but also two legally separate entities (the "component units): Market Lubbock Economic Development Corporation, d/b/a Market Lubbock. Inc. and Civic Lubbock, Inc., for which the City is financially accountable. These entities provide economic development services and arts and cultural activities for the City. Financial information for these component units is reported separately in the GWFS in order to differentiate them from the City's financial information. Neither of these component units are considered major component units. Fuod Financial Statements. A.fund is defined as a fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources., together with all related liabilities and residual equities or balances, and changes therein, whicb. are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The principal role of funds in the new financial reporting model is to demonstrate fiscal accountability. The City, as with other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. The focus of the FFS is on major funds. Major funds are those that meet minimum criteria (a percentage of assets, liabilities, revenue, or expenditures/expenses of fund category and of the governmental and enterprise funds combined), or those that the City chooses to report as major funds given their qualitative significance. Nonmajor funds are aggregated and shown in a single column in the appropriate financial statements. Combining schedules of nonmajor funds are included in the CAFR following the BFS. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds, and fuluciary funds. Governmental FFS. Governmental funds are used to account for essentially the same functions reported as governmental activities in the GWFS. However, unlike the GWFS, governmental FFS focus on near-tenn inflows and outflows of spendable resources, as weU as on balances of spendable resources available at the end of the City's fiscal year. Such infonnation is useful in evaluating the City's near-term financing requirements. Because the focus of governmental funds is narrower than that of the GWFS (modified accrual versus accrual basis of accounting, and current financial resources versus economic resources), it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the GWFS. By doing so, readers may better understand the long-tenn impact of the near-term financing decisions. Reconciliations are provided for both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances to facilitate the comparison between governmental funds and governmental activities. 21 ) ) ) ) ) City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 The City maintains 24 individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General Fund only. The General Fund is considered to be a major fund Data from the other governmental funds are combined into a single aggregated presentation. The City adopts a budget annually for the General Fund and all other funds. A budgetary comparison statement has been provided for the Genera) Fund to demonstrate compliance with this budget. It is presented in the FFS following the statement of changes in revenues, expenditures, and changes in fund balances. The governmental FFS can be found on pages 39-43 of this report. Proprietary FFS. The City maintains two different types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the GWFS. Enterprise FFS provide the same type of information as the GWFS, only in more detail. The City uses enterprise funds to account for its Electric (LP&L), Water, Sewer, West Texas Municipal Power Agency (WTMPA), Stormwater, Transit, Solid Waste, and Airport activities, of which the first five activities are considered to be major funds by the City and are presented separately. The latter three activities are considered nonmajor funds by the City and are combined into a single aggregated presentation. Internal service funds are an accounting device used to accumulate and allocate costs internally among the City's various functions. The City uses internal service funds to account for its fleet of vehicles, management information systems, risk management. print shop, and central warehouse activities among others. The services provided by the internal service funds benefit both governmental and business-type activities, and accordingly, they have been included within governmental activities and business- type activities, as appropriate, in the GWFS. All internal service funds are combined into a single aggregated presentation in the proprietary FFS. Reconciliations are provided for both the proprietary fund statement of net assets and the proprietary fund statement of revenues, expenses, and changes in fund net assets to facilitate the comparison between enterprise funds and business-type activities. The proprietary FFS can be found on pages 44-55 of this report. Fiduciary FFS. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the GWFS because the resources of those funds are not available to support the City's own programs. The City presents an agency fund as its only fiduciary fund in the FFS. The fiduciary FFS can be found on page 56 of this report. Notes to Basic Financial Statements. The Notes provide additional information that is essential to a full understanding of the data provided in the GWFS and FFS. The Notes can be found on pages 57-90 of this report. 22 )' ) City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 Required Supplementary Information Other Than MD&A. The City has presented required supplementary information relating to its progress in funding its obligation to provide pension benefits to its employees in the Notes to the BFS. Government-Wide Financial Analysis As noted earlier, net assets serve as a useful indicator of the City's financiaJ position. For the City, assets exceeded liabilities by $546 million (net assets) at the close of the fiscal year. This compared to assets exceeding liabilities by $549 million (net assets) at the end of the prior fiscal year. As a result of operations, total net assets decreased by $2.7 million during the period. By far the largest portion of the City's net assets, 78.7%, reflect its investment in capital assets, e.g., land, buildings, infrastructure, machinery, and equipment, less any related debt used to acquire those assets that is still outstanding at the close of the fiscal year. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City's investment in capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. City of Lubbock Net Assets September 31 (in CXDs) Governmental Business-Type Activities Activities Total al)4 am al)4 2lB aD4 am Current and other assets $ 100,489 78,784 177,959 188,077 278,448 266,861 Capital assets 129,014 121,735 611,703 617,465 740,717 739.200 Total assets 229,503 200,519 789,662 805,542 1,019,165 1,006,061 Current liabilities 48,739 25,697 44,156 37,774 92,895 63,471 Noncummt liabilities 76,423 73,138 303,173 320,024 379,596 393,162 Total liabilities 125,162 98,835 347,329 357,798 472,491 456.,633 Net assets: Invested in capital assets, net of related debt 74,433 78,475 355,816 371,427 430,249 449,902 Restricted 20,339 4,391 45,417 43,389 65,756 47,780 Unrestricted 9,569 18,818 41,190 32,928 50,759 51,746 Total net assets s 104,.341 101,684 442,423 447,744 546,764 549,428 An additional portion of the City's net assets, 12%, represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets of $50.7 million may be used to meet the City's ongoing obligations to citizens and creditors. 23 ') ) ) City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 The City also reports positive balances in all three categories of net assets for the City as a whole, as well as for its separate governmental activities, and business-type activities. The City's governmental activities experienced an increase in net assets of $2. 7 million, while net assets decreased by $8.5 million during the prior fiscal year. This increase is primarily a result of strong growth in new construction and better than anticipated sales tax revenues coupled with a concentrated effort by City management to contain expenditures. This is the second year in a row that the City Council has been able to cut property tax rates while streamlining City operations. The City's business-type activities experienced a decrease in net assets of $5.3 million during the current fiscal year as compared to an increase of $3.6 million during the prior fiscal year. This decrease in net assets resulted from a change in accounting estimate on the life of the City's landfill. This change in accounting estimate resulted in the nearly doubled depreciation in the Solid Waste Fund. 24 City of Lubboc~ Texas Management's Discussion and Analysis "'\ For the Year Ended September 30, 2004 .,, Changes in Net Assets Details of the following summariz.ed infonnation can be found on pages 36-37 of this report. City of' Lnbhodr. Oaau;cs in Net Assets For tbe Year Ended September 3) (in ODs} Business- Governmmtal Type Adivities Activities Totals Revelaues: aDI 4'1111 ~ ,itllj aoi ifllj Progi:am RcvCllllCS: Olarges for services $ 12,713 13,888 181,411 178,S36 194,124 192,424 Opcnting grants and contributions 9,643 12,137 6,739 S,219 16,382 17,356 C.api1al grams and contnlluti.om 9,269 General Revemies: 7,909 9,269 7,900 Property taxes 44,497 42,303 44,497 42,303 Sales taxes 30,SSS 29,092 30,SSS 29,092 ) Otbcrtro:s 3.793 3,712 3,793 3,712 Franchise fees 9,654 6,613 9,654 6,613 Grants/oontributions not restricted to specific programs 259 259 Olhe(-4,274 3,834 2,932 'b,737 7,206 6,571 Totalrevmues IIS,129 llll579 200,3S1 194,660 3151430 306,239 Erpemes: .Administrati~ Services 22,313 21,793 22,313 21,793 Electric 2,471 2.:m 2,471 2,373 Fmancial. Setvioe.5 2,387 1,965 2,387 1,965 Fare 21,998 20,207 21,998 20,207 Geuera!Go~ 20,562 21,009 20,562 21,009 Humm Resouroes m 786 m 786 Police 33,249 31,429 33,249 31,429 ) Plmmins and Trampommon 10.,789 9,827 10,789 9,827 Public Works 3,078 9,856 3,078 9,856 Interest on lcmg-tenn debt 4,593 3,346 4,593 3,346 Eleclric 110,591 105,216 110,591 105,216 Water 27,879 27,461 27,879 27,461 Sewer 17,020 17,248 17,020 17,248 Solid Waste 17,662 19,559 17,662 19,559 ) Stonmwtl7 S,357 3,315 5,351 3,315 Transit 10,565 9,163 10,565 9,163 Airport 6,853 6,479 6,853 6,479 Golf 21 21 Tolal Expeosrs 122,217 122,591 195,927 188,462 31~144 311,053 Cbange in net 5CIS before special items and trmsfera (7,088) (11,012) Special items 4,424 6,198 (2,664) (4,814) Tramfers 9,745 2,554 {9,74~ {2,SS42 Chmgeinnc:ta<Jsets 2,657 (8.458) (5,321) 3,644 (2,664) (4,814) Net assels -~oning of year 101,684 110,142 447,744 444,100 549,428 554,242 Nd assets -end of year $ 104,341 1011684 44!423 447,744 ~764 5491428 25 ) "\ ) i Q " 0 El < City of Lubbock, Texas Managemenes Discussion and Analysis For the Year Ended September 30, 2004 Governmental activities. Governmental activities increased the City's net assets by $2.7 million. Key elements of the increase follow: • Transfers to/from business-type activities during the fiscal year increased governmental activities net assets by $9.7 million. During the prior fiscal year these transfers increased governmental activities net assets by approximately $2. 7 million. This is a net increase of $7.1 million in resources to governmental activities, which is the primary factor for the increase in net assets. Transfers from the business-type activities included payments in lieu of taxes, franchise fees, and indirect costs of operations for centralized services such as payroll and purchasing. • Total expenses decreased by nearly $.4 million from the prior year due primarily to a payment made in the prior year of $5.5 million for the City's share of the Marsha Sharp Freeway Project This project will be owned and maintained by the State of Texas. However, the governmental activities did increase planning and transportation spending of $1.0 million for the City's streets and had an increase in public safety spending, police and fire of $3.6 million--a result of the City Council's commitment to public safety. • Revenues increased by approximately $3.6 million. The key factors impacting this increase include increases in property taxes of $2.1 million due to the additional property being added to the tax rolls. increases in franchise fees of $3.0 million due to changes in the fee structures. and increases in sales taxes of nearly $1.5 million. Also, charges for services and operating grants and contributions decreased by $ 1. 1 million and 2.5 million, respectively. This graph depicts the expenses and program revenues generated through the City's various governmental activities. Expenses aud Program Reveuues -Governmental Activities $35,000 $30,000 $15,000 $20,000 $15,000 $10,000 SS,000 so ~ ~ '% ~ ~<:. t -0 .,. -0 '$ ~ q.., ~ ~ 1,. ~" ~ .. ~. \ 'l< t-¼. ~ \. l3 <:;,.. ~ ~ i ' \, '~ ~ ... \ 'I!~ \ ~ ~ ~ <:,. ... <.,, ' \ '\ ~ ,:, ~ ~ ~ \ ~ \ \ <{: ~ 26 ~ ) City of Lubboc~ Tens Management's Discussion and Analysis For the Year Ended September 30, 2004 The following graph reflects the source of the revenue and the percentage each source represents of the total. Charges (or Services 110.1. Operating grants & Contributions 8'>/4 Franchise Fees 8% Other Taxes 3"/4 Reveaues by Source -Governmeatal Activities Miscellaneous 4% Sales Taxes 'Zl-/4 Property Taxes r9'lo Business-type activities. Business-type activities decreased the City's net assets by $5.3 million as a result of operations. Key elements of this increase follow: • Charges for services for business-type activities increased by $2.9 million. This is mainly due to increased sales in the Electric Fund (LP&L) with revenues up nearly $10.8 million over the prior year. Sales for the water fund were $.9 million less than the prior fiscal year in spite of ,!ill increase in rates, because 2004 was the second wettest year in recorded history for the City. WTMPA revenues were impacted because of the capital lease of the co-generation power plant JRM8 to the Electric Fund. The plant was not utilized due to the continued high natural gas prices. 27 ) ) City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 • Capital grants and contributions continue to be a significant revenue source for the Electric (LP&L). Airport, Water, and Sewer Funds during the current fiscal year, producing nearly $93 million in revenue. This is comparable to the prior fiscal year's support of $7.9 million. These contributions primarily came from federal grants and from water and sewer lines and taps that were funded by property owners. • Expenses increased in total by $7.5 million over the prior fiscal year. This is mainly due to the increased cost of operations for electric activity, which increased nearly $5.4 million over the prior year. The stormwater activity experienced a $2.0 million increase in expenses due primarily to scheduled interest payments on debt. The transit activity expenses increased by $1.4 million over the prior year due to the increased cost of personal services and other services. The following graph reflects the revenue sources generated by the business-type activities. As noted earlier, these activities include Electric (LP&L), Water, Sewer, Solid Waste, Transit, WTMPA, Airport, and Stonnwater Drainage. Charges for Services 91% Revenues by Source -Business-type Activities 28 Captial Grants & Contributions 5"/4 Operating Grants & Contributions 3% ) ) ) City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 Financial Analysis of the City's Funds Governmental funds. The focus of the City's governmental funds is to provide information on near-tenn inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, unreserved fund balance serves as a useful measure of the City's resources available for spending at the end of the fiscal year. At the end of the fiscal year the City's governmental funds reported combined ending fund balances of $47.7 million. This compared to $50.3 million at the end of the prior fiscal year. A significant portion of this decrease resulted from the planned spend-down of fund balance in the Capital Projects Fund. This resulted in a reduction of net assets of $5. 7 million. This reduction was partially offset by the results of operations of the General Fund that ended the year adding $3.3 million to net assets. Of the ending governmental fund balance, $13.8 million or 28.9% constituted unreserved fund balance. which is available for spending at the City's discretion. This compared to $10.6 million or 21.1% at the end of the prior fiscal year. The remainder of the fund balance is reserved to indicate it has already been committed to, I) pay debt service, 2) use in construction of approved capital projects, or 3) for other restricted purposes. The General Fund is the chief operating fund of the City. At the end of the fiscal year, unreserved fund balance in the General Fund was approximately $12.1 million compared to $8.4 million in the previous fiscal year, representing an increase of $3. 7 million. Total fund balance (reserved and unreserved) approximated $12.7 million at the end of the fiscal year compared to $9.4 million at the end of the prior fiscal year. As a measure of the General Fund's liquidity, it is useful to compare both unreserved fund balance and total fund balance to total fund expenditures. Unreserved fund balance represented 13.4% of total General Fund expenditures compared to 9.8% of total General Fund expenditures in the prior year. Total fund balance represented 14. I% of total General Fund expenditures compared to 11.0% in the prior year. The increase in fund balance is primarily a result of strong growth in new construction and better than anticipated sales tax revenues, coupled with a concentrated effort by City management to contain expenditures. Proprietary funds. The City's proprietary funds provide essentially the same type of information found in the GWFS, but in more detail. 29 ) ) ) ) ) City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 Unrestricted net assets of the major proprietary funds at the end of September 30 are shown next with amounts presented in OOOs: aD4 am Electric Fund $ 7,006 2,367 Water Fund 14,078 15,55 L Sewer Fund 6,343 4,286 WTMPA 1,743 2,155 Stonnwater 1,305 869 $ 30,475 25,228 The Electric Fund (LP&L) increased unrestricted net assets by $4.6 million as opposed to a decrease of $.4 million during the prior year. This is mainly due to the results of operations, a capital contribution from the Water, Sewer, Stormwater, and Solid Waste Funds of $1.8 million for prior years costs of the utility billing system and a decision by City Council not to charge for payments in lieu of taxes and franchise fees until adequate cash reserves are established. The Water Fund reflected a current year decrease in unrestricted net assets of nearly $1.5 million compared to an increase of $3.6 million during the prior year. This is due to decreases in consumption. Despite a raise of approximately 3% in water rates, revenues were down with record rainfall. The Sewer Fund reflected a current year increase in unrestricted net assets of approximately $2.1 million compared to a $1.9 million decrease during the prior year. This is primarily due to sewer rates increases to all customers. The WTMP A Fund reflected a decrease in unrestricted net assets of $.4 million primarily as a result of operations. The prior fiscal year's change was an increase in unrestricted net assets of $2.5 million. The Stonnwater Fund experienced an increase in Wlf'estricted net assets of$.4 million during the fiscal year compared to a $1 .6 million increase in the prior fiscal year. The increase continues to be due to an increase in stonnwater rates of nearly 200%. This increase was necessitated to provide Jong-term funding for system improvements, maintenance, and flood prevention. 30 ) ) ) ) City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 General Fund Budgetary Highlights Differences between the original budget and the final amended budget were minimal. lhls is a result of the truth-in-budgeting initiative championed by the City Council. This resulted in fewer amendments as City management also made a concentrated effort to reduce spending and streamline operations. This also resulted in a planned increase in the General Fund's fund balance. Adjusbnents were made to expenditures to lessen the impact of the net reductions in transfers from LP&L. The General Fund ended the fiscal year with expenditures more than $1.3 miHion less than budgeted. · As noted earlier, the City chose to issue $22.6 million in bonds to refund $23.2 million in outstanding debt This resulted in present value savings of $836,312, decreasing total debt service requirements by $874,031. The transaction resulted in an accounting loss of $1,019,912. Due to stronger than anticipated growth in new construction and better than expected sales tax revenue, actual revenues were nearly $3.3 million more than budgeted for the fiscal year. Capital Assets and Debt Administration Capital assets. The City's investment in capital assets for its governmental and business- type activities at September 30, 2004 amounted to $741 million, net of accumulated depreciation. This was a $1.5 million increase over the prior fiscal year's balance of $739 million, net of accumulated depreciation. This investment in capital assets includes land, buildings and improvements, equipment, construction in progress, and infrastructure. Major capital asset events during the fiscal year included the following: • Work continued in the Water Fund with another $3.3 million ex.pended on the construction of water lines ahead of the Marsha Sharp Freeway. Total expenditures on the project to date are $4.3 million. • $1.7 million was expended on Cell II construction at the landfill. Total expenditures on the project to date total $3.9 million. • $1.3 million was expended on the construction of the MacKenzie Park Amphitheater. Expenditures to date on the project total $1.7 million. • Scheduled improvements to LP&L's distribution infrastructure amount to $4 million. In addition, the Electric Fund spent an additional $3.2 million on a new substation to provide service to South and Southeast Lubbock. Total expenditures for this project to date total $3.7 million. 31 ) ) ) City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 • The City continues work on a flood relief project linking South Lubbock's chain of playa lakes with an underground drainage system spending $3.2 million during the fiscal year. Expenditures to date on the project total $4.8 million. At the end of the fiscal year, the City has construction commitments of$l 13 million. City o( Lubbock Capital Assets (Net of Accumulated Depreciation) September 3) (in O:Os) Business- Governmental Type Activities Activities Totals 2004 am 2004 2003 2004 2003 Land $ 8,608 7,996 31,676 31,676 40,284 39,672 Buildings 23,794 25,602 68,302 71.525 92,096 97,127 Improvements other 1han buildings 37,183 37,100 330,842 329,618 368,025 366,718 Machinery and equipment 15,957 14,88 I 66,922 79.957 82,879 94,838 Construction in progress 43,472 36,156 1131961 1042689 1571433 140z845 To1al s 129,014 121,735 611,703 617,465 740,717 739,200 Additional information about the City's capital assets can be found on pages 70-72 of this report. Long-term debt. A summary of the City's total outstanding debt follows: General obligation bonds Revenue bonds Total s s City D( LubbDck Outstanding Debt General Obligation and Revenue Bonds Septemher 3) (in CXDs) Business- Governmental Type Actil'ities Activities Zll4 am am am 70,221 69,808 21 s.664 226,127 94,605 101,295 70,221 69,808 310~69 327,422 Totals aXJ4 285,885 94,605 380t490 axn 295.935 IOI 295 397,230 There is no direct debt limitation in the City Charter or under State law. The City operates under a Home Rule Charter that limits the maximum tax rate for all City purposes to $2.50 per $100 of assessed valuation. The Attorney General of the State of Texas permits an allocation of $1.50 of the $2.50 maximum tax rate for general obligation bonds debt service. 32 ) ) ) ) ) ") ) ) City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 The current interest and sinking fund tax rate per $100 of assessed valuation is $0.09496, which is significantly below the maximum allowable tax rate. Over the fiscal year, the City's total outstanding debt decreased by $16.74 million, or 4.2%. This is compared to an increase of$62.5 million, or 18.8%, during the prior fiscal year. The decrease in outstanding debt is attributed to the payment of scheduled debt service totaling $21.28 million and a reduction in outstanding debt of $.585 million as a result of the refunding. The reductions in outstanding debt were offset by the issuance of $5.125 million in debt to fund streets projects and the capital improvements plan. During the fiscal year, the City issued $2.025 million of General Obligation Bonds, Series 2004. This issuance was the first installment of the $30 million capital improvement debt issuance approved by voters in 2004 to fund the current capital improvements plan. The City also issued $3.1 million in Tax and Waterworks System Surplus Revenue Certificates of Obligation, Series 2004. This issuance funded streets projects that included right-of-way costs on the Marsha Sharp Freeway project, environmental study costs for future thoroughfares, and for citywide traffic signals and streetlights. The City also issued $22.62 million of General Obligation Refunding Bonds, Series 2004 to defease $23.205 million in outstanding bonds. All bonds issued during the fiscal year were insured to provide a lower cost of interest expense for the City's taxpayers. (t is the City's policy to evaluate each bond issue to determine whether it is economically feasible to purchase bond insurance. The City of Lubbock maintains an .. AA-" rating from Standard & Poor's and Fitch Ratings, Inc. and an "Al" rating from Moody's Investors Service for general obligation debt. The revenue bonds of LP&L and WTMPA have been rated "BBB-" by Standard & Poor's, "BBB+" by Fitch Ratings, Inc., and "A3" by Moody's Investors Service. Additional information about the City's long-term debt can be found on pages 80-84 of this report. Economic Factors aod the Next Fiscal Year's Budget and Rates • At the end of the City's fiscal year the unemployment rate for the Lubbock area was 2.9 percent. This is a decrease from a rate of 3.1 percent one year earlier. This compares favorably to the state's average unemployment rate of 5.5 percent and the national average of 5.1 percent on December 30, 2004. • Total retail sales reflected a 2.4 percent increase over the prior year. 33 ) ) ) ) ) ) City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 • Building permits for new construction decreased from 3,125 during 2003 to 2,644 in 2004, or about a 15% decrease. This compares to a 25% decrease during the prior period. Conversely, building permit values for new construction decreased from $370.6 million in 2003 to $357.2 million in 2004, or about a 3.6% decrease. • Tot.al occupancy in local hotels and motels remaine.d constant and the occupancy tax totaled nearly $2.9 million, nearly identical to the amount received dwing the prior fiscal year. • City Council again decided to support the operations of the Electric Fund by forgoing transfers for payments in lieu of taxes, and franchise fees for the upcoming fiscal year. The City Council intends to continue this support until such time as the Electric Fund has adequate monetary reserves. All of these factors were considered in preparing the City of Lubbock's budget for the 2004- 2005 fiscal year. During the just ended fiscal year, unreserved fund balance in the General Fund increased by nearly $3.7 million to $12.l million compared to $8.4 million at the end of the prior fiscal year. It is intended that the unreserved undesignated fund balance be equal to 15% of operating expenditures, which equates to approximately $13.5 million. The City ended the year nearly $1.4 million under this target City Management anticipates meeting this goal within the next few years. The Electric Fund increase.d rates in May 2004 twelve and one half percent for the larger commercial consumers as a result of higher than anticipated cost of power. Residential and small commercial consumers rates remained relatively unchanged due to the rate increases implemented in the prior fiscal year. Both the Water and Sewer Funds rates were increased for the 2003-2004 fiscal year. The water rates were increased by an average of 3 percent and the sewer rates were increased by an average of 5 percent for all customers. Currently, the City is in the process of having a rate study completed for both the water and sewer rates. The results of this study will impact future water rates. The water and sewer rates affected both residential and commercial consumers by approximately the same percentage. These rate increases were necessary to cover increased operating costs due to inflationary pressures. Requests for Information This financial report is designed to provide a general overview of the City of Lubbock's finances. Questions concerning any of the information provided in the report or requests for additional financial information should be addressed to the Chief Financial Officer, P .0. Box 2000, Lubbock, Texas, 79457. 34 ) ) ) ) ) &sic FINANCIAL SATEMENTS CITY OF LUBBOCK. TEXAS STATEMENT OF NET ASSETS SEPTEMBER 30, 2004 Prima~ Government Governmental Business-Type Component Activities Activities Total Units ASSETS Pooled cash and cash equivalents $ 30,797,510 25,309,543 56,107,053 1,519,082 Investments 7,503,969 6,077,077 13,581,046 494,689 ) Receivables, net 16,383,864 29,811,958 46,195,822 158,612 Internal balances (555.465) 555,465 Due from other governments 1,308,277 1,308,277 Due from others 1,470,831 1,119,160 2,589,991 Inventories 190,034 2. 114.453 2,304.487 87,425 Investment in property 218,503 218,503 '\ Prepaid expenses 897,648 897,648 25,229 Restricted assets: Cash and cash equivalents 2,152,275 44,658,899 46,811,174 100,000 Incentives advances 9,164,684 Investments 6,723,257 63,543,690 70,266,947 Accounts receivable 1,013,813 1,013,813 Bond proceeds receivable 27,745,000 27,745.000 Mortgage receivables 5,653,444 5,653,444 Capital assets: Non-depreciable 52,080,271 145,637,526 197,717,797 366,332 Depreciable 76,933,607 466,065,118 542,998,725 881,214 Deferred charges 3,751,695 3,751,695 Other assets 4,071 4,071 T otat Assets 229,503,025 789,662,468 1,019,165,493 12,797,267 ) LIABILITIES Accounts payable 5,758,795 17,892,025 23,650,820 462,805 Due to others 35,195 35,195 547,519 Due to other governments 80,937 Accrued expenses 3,204,277 2,310,777 5,515,054 156,108 Accrued interest payable 387,855 1,611,164 1,999,019 ) Payable to escrow agent 22,620,000 22,620,000 Customer deposits 1,000,526 1,000,526 Deferred revenue 3,120,823 29,353 3,150,176 9,029,783 Noncurrent liabnilies: Due within one year: Bonds payable 4,955,949 17,271,718 22,227,667 Compensated absences 5,475,861 2,143,563 7,619,424 Accrued insurance claims 2,354,536 1,184.210 3,538,746 Capital leases payable 826,018 Due in more than one year: 622,442 1,448,460 2,085,606 Bonds payable 65,265,268 292,082,188 357,347,456 Deferred premium on bonds 1,179,722 1,179,722 Compensated absences 9,442,647 2,016,571 11,459,218 Accrued insurance claims 5,252,644 5,252,644 ) Landfill closure and postdosure care 3,051,116 3,051,116 Capital leases payable 534,939 770,765 1,305,704 1,455,515 Total Liabilities 125,161,885 347,239,062 472,400,947 13,.818,273 NET ASSETS Invested in capital assets, net of related debt 74,433,159 355,816,406 430,249,565 1,247,546 Restricted for: ) Capital projects 7,869,506 38,650,935 46,520,441 Debt service 2,223,003 1,050,347 3,273,350 Other purposes 10,246,203 5,715,360 15,961,583 100,000 Unrestricted ( deficit) 9,569,269 41,190,338 50,759,607 (2,368,552! Total Net Assets $ 104,341,140 442,423,406 546,764,546 {1,021,006) See accompanying Notes to Basic Financial Statements. ) 35 ) ) ..., .I ) ) ) Function5/Programs Primary Government GovemmenlaJ Activities: Administration/Community Services Slree1 Lighting Financial SeNices Fire General Govemment Human Re50Urce5 Police Planning and Transportation Public Wotks Interest on long-Term Debt Total Governmental Activities Business-Type Activities; Electric Water Sewer Solid Wasle Stormwater Transit Airport Total Business• Type Activities Total Primary Government Component Units: Civic Lubbock, Inc. Market Lubbock, Inc. Total Component Units CITY OF LUBBOCK. TEXAS STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2004 P~ram Revenues Operating Charges for Grants and Expenses Services Conbibutions $ 22,313,139 2,912.165 6,041,287 2,471,382 2,387,188 21,998,241 10,600 20,563,083 3,516,980 1,972,229 777,035 33,248,228 5,424,232 1,629,923 10,788,596 3,078,122 849,147 4,593,150 122,218,164 12,713,124 9,643,439 110,591,149 105,433,133 27,879,343 31,907,893 17,020,092 18,889,095 17,661,438 11,641,316 5,356,649 6,019,490 10,565,159 2,893,507 5,336,794 6,8521874 4,626,270 1!402,003 195,926,704 181,410,704 6,738,797 318,144,868 194,123,828 161382,236 1,609,630 1.731,625 s,n1,a54 127,826 6,707,783 $ 7,331,484 1,659,451 6,707,763 General revenues: Taxes: Property Sales Occupancy Other Franchise fees Investment eamings Miscellaneous Transfers, net Total general revenues and transfers Change in net assets Net assets -beginning of year Net assets -end of year See accompanying Notes to Basic Financial Statements. 36 Capital Gran1sand Contributions 1,849,662 2,642,778 3,203,482 1,573,384 9,269,306 9.269,306 ) Net (Expense) Revenue and Changes in Net Assets Prlma2 Government Govemmental Business-Type Component ) Activities Activities Total Units $ (13,359,687) (13,359,687) (2,471,382) (2,471,382) (2,387, 188) (2,387,188) (21,987,641) (21,987,641) (15,073,874) (15,073,874) (777,035) (7TT,035) (26,194,073) {26, 194,073) (1 o. 788,596) (10,788,596) (2,228,975) (2,228,975) ,4,593,150) (4,593, 1502 (99,861,601) (99,861,601) (3,308,354) (3,308,354) 6,671,328 6,671,328 5,072,485 5,072,485 {6,020, 122) (6,020,122) ) 662,841 662,841 (2,334,858) (2,334,858) 748,783 748,783 1,492,103 1,492,103 (99,861,601) 1,492,103 (98,369,498) ) 121,995 1,113,755 1,235,750 44,496,973 44,496,973 30,554,632 30,554,632 2,~205 2,853,205 939,456 939,456 9,654,447 9,654,447 1,151,620 2,859,344 4,010,964 8,636 3,123,572 72,870 3,196,442 9,745,250 (9,745,250) } 102,519,155 (6,813,0~ 95,706,119 8,636 2,657,554 (5,320,933) (2,663,379) 1,244,386 101,683,586 447,744,339 549,427,925 (2,265,392) $ 104,341,140 442,423,406 546,764,546 (1,021,006) 37 ) ) ) CITY OF LUBBOCK. TEXAS BALANCE SHEET GOVERNMENTAL FUNDS ) SEPTEMBER 30, 2004 Other Total General Debt Service Governmental Governmental Fund Fund Funds Funds ASSETS Pooled cash and cash equivalents $ 5,888,268 2.282,997 21,407,030 29,578,295 Investments 1,426,351 553,024 5,229,256 7,208,631 Taxes receivable (net) 6,864,967 533,715 90,102 7,488,784 Accounts receivable (net) 6,098,853 162,485 2,433,012 8,694,350 Interest receivable 79,463 2,119 20,146 101,728 Due from other funds 1,930,500 1,930,500 Due from other governments 13,637 1,294,640 1,308,277 ... j Due from ·others 781,704 679,746 1,461,450 Investment in property 218,503 218,503 Inventory 120,880 120,880 Bonds proceeds receivable 22,620,000 5,125,000 27,745,000 Secured receivables 5,653,444 5,653,444 Advances to other funds 445,676 445,676 Total Assets 23,650,299 26,154,340 42,150,879 91,955,518 LIABILITIES Accounts payable 1,836,027 418,017 3,131,290 5,385,334 Due to others 35,195 35,195 'I Due to other funds 1,480,500 1,480,500 JI Accrued liabilities 3,036,761 121,374 3,158,135 Payable to escrow agent 22,620,000 22,620,000 Advances from other funds 1,469,381 1,469,381 Deferred revenue 6,047,791 475,303 3,547,898 10,070,992 Total Liabilities 10,955,774 23,513,320 9,750,443 44,219,537 FUND BALANCES Reserved for: Prepaid itemslinventoiy 120,880 120,880 Advances to other funds 445,676 445,676 Debt service 2,641,020 2,641,020 ) Capital projects 24,870,961 24,870,961 Special revenue -grants 5,871,947 5,871,947 Unreserved, reported in General Fund 12,127,969 12,127,969 Special revenue funds 1,734,312 1,734,312 Capital projects funds !76,784) !76,784) } Total fund balances 12,694,525 2,641,020 32,400,436 47,735,981 Total liabilities and Fund Balances $ 23,650,299 26,154,340 42,150,879 91,955,518 See ac.companying Notes to Basic Financial Statements. 39 CITY OF LUBBOCK, TEXAS RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET ASSETS SEPTEMBER 30, 2004 Total fund balance -governmental funds Amounts reported for governmental activities in the statement of net assets are different because: $ 47,735,981 Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. 129,013,878 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 portion of the assets and liabilities of the IS F's primarily serving "' governmental funds are included in governmental activities in the statement of ) net assets as follows: Net assets Net book value of capital assets (included in captial assets above) Compensated absences Amounts due from business-type ISFs for amounts overcharged Certain liabilities are not due and payable in the current period and therefore are not reported in the funds. Those liabilities are as follows: General obligation bonds Capital leases payable Compensated absences Accrued interest on general obligation bonds Bond premiums are recognized as an other financing source in the fund statements but the premiums are amortized over the life of the bonds in the government-wide statements. Actual City contributions to the fire fighter's pension trust fund is greater than the actuarially determined required contribution. This will reduce future funding requirements and is not recognized as an asset at the fund level but is a prepaid expense in the Statement of Net Assets. Revenue earned but unavailable in the funds is deferred. Net assets of governmental activities See accompanying Notes to Basic Financial Statements. 40 8,953,624 {1,353,658) 193,517 18,240 (70,221,217) (1,360,957) (14,918,508) (387,855) (1,179,722) 897,648 6,950,169 $ ====1=04==,34=1=, 1=40= CITY OF LUBBOCK, TEXAS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS ) FOR THE YEAR ENDED SEPTEMBER 30, 2004 Other Total General Debt Service Govemmental Governmental Fund Fund Funds Funds ) REVENUES Taxes $ 74,381,814 7,943,630 5,373,390 87,698,834 Fees and fines 3,675,857 3,675,857 licenses and permits 1,982,281 1,982,281 Intergovernmental 428,458 9,214,981 9,643.439 Charyes for services 4,467,730 849,147 5,316,877 Interest 334,730 28,622 375,997 739,349 MisceUaneous 1,442,675 1,612,800 3,055,475 Total revenues 86,713,545 7,972.252 17,426,315 112,112,112 EXPENDITURES Current Administration/Community Services 18,156,455 18,156,455 Electric -street lighting 2,185,286 2,185,286 Financial Services 2,333,469 2,333,469 Fire 20,613,077 20,613,077 General Government 5,633,469 16,992 13,650,037 19,300,498 Human Resources 754,225 754,225 Police 32,400,371 32,400,371 Planning and Transponation 7.180,843 7,180,843 Non-departmental ~ 214,562 214,562 Public Works Debt service: 3,012,987 3,012,987 Principal 4,498,304 4,498,304 Interest and other charges 4.749.272 4,749,272 Capital outlay 475,585 16,190,551 16,666,136 Total expenditures 89,947,342 9,264,568 32,853,575 132,065,485 Excess(deficiency}ofrevenues over (under) expenditures (3,233,797) (1,292,316) (15,427,260) {19,953,373) OTHER FINANCING SOURCES (USES) long-tenn debt issued 22,620,000 5,125,000 27,745,000 Due escrow agent (22,620,000) (22,620,000) Bond premium (discount) 1,179,722 1,179,722 Capital leases 1,535,075 1,535,075 Transfers in 10,723,891 20,715,403 6,120,514 37,559,808 Transfers out {4,212,915~ (19,955,679) (3,871,880) (28,040,474) Total other financing sources (uses} 6,510,976 1,939,446 8,908,709 17,359,131 Net change in fund balances 3,277,179 647,130 (6,518,551) (2,594,242) Fund balances -beginnrng of year 9,417,346 1,993,890 38,918,987 50,330,223 Fund balances • end of year $ 12,694,525 2,641,020 32,400,436 47,735,981 See accompanying Notes to Basic Financial Statements. 41 ) ' 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, 2004 Net change in fund balances -total governmental funds Amounts reported for governmental activities in the statement of activities are different because: 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 of $16,666,136 exceeded depreciation of $9,813,391 in the current period. Bond proceeds provide current financial resources lo governmental funds. but issuing debt increases long-t8l'Tll 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 of $27,745,000 exceeded repaymenls and debt defeasence of $27,118,304. Capital lease transactions provide current financial resources to governmental funds and repayment of principal is an expenditure. This is the amount by which proceeds of $1,535,075 exceeded repayments of$1,170,595. Bond premiums are recognized as an other financing source in the govemmental funds, but are considered deferred assets on the Statement of Net Assets. This amount wilt be amortized over the life of the bonds. 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 during the 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 lhe estimated long-team liability for rebatable arbitrage during the year. Property taxes levied and court fines and fees earned, but not available, are deferred in the governmental funds. but are recognized when earned (net of estimated uncollectlbles) in the Statement of Activities. This amount is the net change in deferred property taxes and court fines and fees for the year. The difference between the par value of debt defeased which is greater than the par value of the new debt is recognized as a conlra expense in lhe Statement of Activities, but is a Nole disclosure in the fund statements. Actual City contributions to the fire ftghler's pension trust fund are greater than the actuarially determined Net Pension Obligation (NPO). This amount is recognized as an expenditure at the fund level but is accrued when overpaid and reduces expenses on the Statement of Activities Internal service funds are used by management lo charge lhe costs of certain activities, such as insurance and telecommunications, lo individual funds. The net reve11ue (expense) of certain internal service funds is reparted with governmenlai activities. Accrued interest is recognized as expenses in the Statement of Activities as incurred, but is recognized when current financial resources are used in the governmental funds. This amount is the net change in the accrued interest this year. The net effect of various miscellaneous transactions involving capital assets (e.g., sales and trade-ins) is to increase net assets. $ (2,594,242) 6,852,745 (626,696) (364,480) (1,179,722) (2,225,479) 122,984 2,537,988 213,682 15,025 {94,019) {57,560) 57,328 Change in nel assets of governmental activities $ ====2=,6=5=7'=55=4= See accompanying Notes to Basic Financial Statements. 42 CITY OF LUBBOCK, TEXAS BUDGETARY COMPARISON STATEMENT GENERAL FUNO '\ FOR THE YEAR ENDED SEPTEMBER 30, 2004 Variance with Final Budget Budgeted Amounts Actual Positive Original Final Amounts (Negative) REVENUES ) Taxes and fees $ 71,855,445 72,262,445 74,381,814 2,119,369 Fees and fines 3,288,500 3,288.500 3,675,857 387,357 Licenses and permits 1,823,721 1,807,550 1,982,281 174,731 Intergovernmental 372,192 455,907 428,458 (27,449) Charges for services 4,541,034 4,325,642 4,467,730 142,088 Interest 236,689 164,118 334,730 170,612 Miscellaneous 935,379 1,125,711 1,442,675 316,964 Total Revenues 83,052,960 83,429,873 86,713,545 3,283,672 EXPENDITURES Administration/Community Services 18,403,905 18,365,948 18,156,455 209,493 Electric -street lighting 2,302,033 2,210,784 2,185,286 25,498 Financial Services 1,873,928 2,185,455 2,333,469 (148,014) Fire 21,026,400 20,775,537 20,613,077 162,460 General Government 5,435,697 5,507,366 5,633,469 {126,103) Human Resources 714,338 801,863 754,225 47,638 Police 32,531,242 32,419,834 32,400,371 19,463 Planning and Transportation 7,659,089 7,664,495 7,180,843 483,652 Capital Outlay 53,000 502,136 475,585 26,551 Non-departmental 849,200 849,200 214,562 634,638 Total Expenditures 90,848,832 91,282,618 89,947,342 1,335,276 Excess (deficiency) of revenues over {under) expenditures F,795,872! (7,852,745) (3,233, 797! 4,618,948 OTHER FINANCING SOURCES {USES) Transfers in 11,138,094 10,936,402 10,723,891 (212,511) Transfers out (3,342,222) {3,441,959! {4,212,915) {770,956~ Total other financing sources (uses) 7,795,872 7,494,443 6,510,976 {983,467~ Net change in fund balances (358,302) 3,277,179 3,635,481 Fund balances -beginning of year 9,417,346 9,417,346 9,417,346 Fund balances -end of year $ 9,417,346 9,059,044 12,694,525 3,635,481 See accompanying Notes to Basic Financial Statements. 43 ) CITY OF LUBBOCK, TEXAS STATEMENT OF NET ASSETS ""I PROPRIETARY FUNDS SEPTEMBER 30, 2004 Business-!}'.pe Activities-Enterprise Funds West Texas ) Municipal Power Electric Water Sewer Agency (WTMPA) ASSETS Current assets: Pooled cash and cash equivalents $ 2,633,706 9,646,398 4,300,692 627,826 Investments 637,979 2,336,705 1,041,782 ) Receivables, net 13,392,448 3,935,759 2,356,470 6,892,959 Interest receivable 7,694 34,961 11,658 Due from others 28,081 Due from other funds 261,500 Inventories 32,981 170,483 Total current assets 16,704,808 16,413,887 7,710,602 7,520/85 "\ Noncurrent assets: Restricted cash and cash equivalents 5,435,733 9,888,565 247,331 1,050,347 Restricted investments 5,017,600 12,590,121 572,230 Receivables, net 21,218,605 Restricted interest receivable 2,456 25,426 21.201 Deferred charges 3,344,444 407,251 Other assets 4,071 Advances to other funds Capital assets: Land 756,714 12,724,350 12,578,774 Construction in progress 9,488,738 45,999,985 5,227,618 Buildings 8,067,549 21,573,970 23,857,432 Improvements other than buildings 167,860,376 200,308,490 105,745,873 25,200 Machinery and equipment 48,790,387 19,405,223 15,856,542 Less accumulated depreciation {94,090,505) (77.889,617) {53,936,873) (25,200} Total capital assets 140,873,259 222,122,401 109,329,366 Total noncurrent assets 154,673,492 244,630,584 110,170,128 22,676,203 T otar Assets $ 171,378,300 261,044,471 117,880,730 30,196,988 See accompanying Notes to Basic Financial Statements. 44 Business-type Activities-Enterprise Funds Total Nonmajor Total ) Enterprise Proprietary Stonnwater Funds Funds $ 938,663 5,826,657 23,973.942 227,378 1,509.702 5,753.546 705,599 2,226,503 29,509,738 7,264 29.257 90,834 1,091,079 1,119,160 261,500 467 557 671,021 1,878.904 11,150,755 61,379.741 22,394,882 4,990,434 44,007.292 22,785,586 10,306,990 51,272,527 21,218,605 23,277 28.282 100,642 3,751,695 4.071 1,023,705 1,023,705 115,669 5,500,647 31,676,154 43,053,522 9,493,563 113,263,426 64,580 41,756,630 95,320,161 8,158.852 91,972,033 574,070,824 ) 2,766,404 43,677,838 130,496,394 {8,368,621) (100,941,974) (335,252,790} 45,790,406 91,458.737 609,574,169 90,994,151 107,808,148 730,952,706 $ 92,873,055 118,958,903 792,332447 ) 45 Internal Service Funds 2,554,816 618,869 309 9,381 13,148 1,512,586 4,709,109 2,803,882 18,994,420 150,686 45,603 65,343 1,632,378 1,608,618 313,341 8,178,213 (8!315,760) 3,482,133 25,476,724 30,185,833 STATEMENT OF NET ASSETS "") PROPRIETARY FUNDS SEPTEMBER 30, 2004 Business•~pe Activities--Enterprise Funds West Texas Municipal Power Electric Water Sewer Agency (WTMPAt LIABILITIES Current liabilities: Accounts payable $ 8,516,408 730,385 224,644 6,196,307 Accrued e,cpenses 1,015,631 166,986 131,540 Accrued interest payable 602,093 700,818 122,246 129,608 Accrued insurance claims Due to other funds Customer deposits 969,689 24,715 Lease payable 1,525,000 235,259 Bonds payable 3,653,385 5,908,680 4,015,748 1,5251000 "' Total current liabilities 16,282,206 7,531,584 4,729,437 7,850,915 Noncurrent liabilities: Compensated absences 1,941,690 742,146 372,324 Deferred revenue Accrued insurance claims Landfill closure and post closure care ') Contractsneases payable 18,679,792 422,232 Bonds payable 44,217,709 104,820,983 40,329,424 19,552,463 Total noncurrent liabilities 64,839,191 105,563,129 41,123,980 19,552,463 Total Liabilities 81,121,397 113,094,713 45,853,417 27,403,378 ") NET ASSETS Invested in capital assets, net of related debt 76,855,904 125,395.032 65,684.404 Restricted for: Capital projects 6,394,802 8,476,392 Debt service 1,050,347 .., Other purposes Unrestricted 7,006,197 14,078,334 6,3421909 1.743,263 Total Net Assets $ 90,256,903 147,949,758 72,027,313 2,793,610 SeQ accompanying Noles to Basic Financial Statements. ) 46 J Business-type Activities-Enterprise Funds Total Nonmajor Total ) Enterprise Proprietary Stonnwater Funds Funds $ 54,385 1.157,219 16,879,348 471,617 405,685 2,191,459 ) 56,399 1,611,164 711,500 711,500 6,122 1,000,526 387,183 2,147.442 1,281,550 887 355 17 271 718 1,807,552 3,611,463 41,813,157 71,659 626,968 3,754,787 29,353 29,353 3,051,116 3,051,116 348.533 19,450,557 71,801,015 11,360,594 292,082,188 71,872,674 15.416,564 318,368,001 73,6801226 19,028,027 360,181,158 5,504,853 82,376,213 355,816,406 12,383,463 11,396,278 38,650,935 1,050,347 1,304513 6,158,385 36,633,601 $ 19,192,829 99,930,876 432,151,289 :; 47 Internal Service Funds 1,386,138 165,460 3,538,746 5,090,344 598,864 5,252,644 5,851,508 10,941,852 3,482,133 10,089,636 5,672,212 19,243,981 ) ) ) ) ) ) ) ) ) CITY OF LUBBOCK, TEXAS RECONCILIATION OF THE STATEMENT OF NET ASSETS -PROPRIETARY FUNDS TO THE STATEMENT OF NET ASSETS SEPTEMBER 30, 2004 Total net assets -enterprise funds Amounts reported for business-type activities in the Statement of Net Assets are different because: Internal service funds (ISFs) are used by management to charge the costs of certain activities, such as insurance and telecommunications, to individual funds. The portion of assets and liabilities of the ISFs primarily serving enterprise funds are included in bqsiness-type activities in the Statement of Net Assets as follows: Net assets of business-type ISFs Amounts due to governmental ISFs for amounts overcharged Net assets of business-type activities See accompanying Notes to Basic Financial Statements. 49 $ $ 432,151,289 10,290,357 (18,240) 442,423,406 ) CITY OF LUBBOCK STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2004 .... J Business-Ty:f! Activities -Enterprise Funds West Texas Municipal Power Electric Water Sewer A9enc;t jWTMPAj OPERATING REVENUES ) Charges for sel'Vices $ 103,664.178 32,222.280 18.203,020 48,966,215 Provision for bad debts (2,312,477) (738,125! (301,780! Charges for services ( net} 101.551,701 31,484.155 17,901.240 48,966,215 New taps and reconnects 423,738 Effluent water sale$ 754,970 Commodity safes 232,885 Landing fees Paliling ) Rentals Concessions Miscellaneous Tola! Operating Revenues 101,551,701 31,907.893 18.889.095 48.966,215 OPERATING EXPENSES Personal setVices 8,294,785 5,274,209 3,522,215 331,148 Supplies 456,933 1.021.166 642.948 Maintenance 2.756,885 2,019,918 1,095.564 320,000 Purchase of fue1 and power 73,969,427 48,936,216 Collection expense 1,850,565 346,446 158,619 Ottler seivices a/Id charges 3,758,830 6.138.536 4,070,608 1,685 Depreciation and amortization 9.033,112 5,958,903 5,075,034 133 274 Total Operating El<penses 98,269,972 22,263,297 14,752,815 49,880,942 Operating Income (Loss) 3,281.729 9,644.596 4 136,280 {914,727! ) NON-OPERATING REVENUES (EXPENSES) I ntere$1 income Passenger racility ch arges/Federa I grants 129,257 588,435 88,789 1,006,104 Disposition or assets (240,692) 88,773 (8,481) (2,825,018) M'1SCehaneous 1.420,053 (137,795) (571,119) Pass4hrough grant payments Interest expense on bonds (3,353,899) (5,584,522! (2,188,707) (1,062,316) ) Total non-operating revenues (expenses) @,045,281) (5,045,109) (2,679,516) (2,881,230) Income (loss) berore contributions and transfers 1,236,448 4,599,487 1,456.762 (3,795,957) Capital 00ntribulions 1,849,662 2,642,778 3,203,482 Transfers in 1,777,956 6.891,766 6,235,864 356,922 Transfer5 (out) @,150,195) (11,172,003) {8.032,942! Change in net assets 1,713,871 2,962,028 2,863,166 (3,439,035) Tola! net assets -beginning or year 88,5431032 144,987,730 69,164,147 6,232,645 ) Total net assets -ending $ 90,256,903 147,949,758 72,027,313 2,793,610 ) See accompanying Notes to Basic financial Statements. 50 .., Business-Tie! Activities• Enterprise Funds Other Nonmajor Total Internal Enblrprise Enterprise Service Stonnwater Funds Funds Funds $ 6.131.808 14,835,148 224,222,649 35,943,622 (112,318! (439,776! (3,904,476) 6,019.490 14,395.372 220,318,173 35,943.622 423,738 754.970 232,885 749.037 749.037 1,065,838 1.065,838 1,696.683 1,696,683 1,114,712 1.114,712 139 451 139,451 175.459 6,019,490 19,161,093 226,495,487 36,119,081 645,260 9,643,788 27,711,405 5,272,295 1,599,917 3,720,964 6.852,554 ') 148,564 2,647,316 8,988,247 1,473,732 122,905,643 295,069 292,217 2,942,916 49,413 4,396,830 18,417,902 23,122.204 553,592 13.291 441 34,045,356 602,494 1,691.898 31.873,509 218,732,433 37,323.279 4,327,592 (12,712,416) 7,763,054 (1,204,198) ) 594,120 320,356 2,727,061 544,554 6,738,797 6,738,797 (981,284) (3,966.702) (7,434) (307,464) (334.780) 68,895 12,584 (1,568.721) (1,568,721) {3,658.830) (424,539) (16,272,813) ) (3;372. 17 4) 3,749,829 (12,273,483) 549,704 955,418 (8,962,587) (4.510.429) (654,494) 1,573,384 9.269,306 4,307.251 1,874,760 21,444,519 225,916 {4,618,513} j4,216, 115) @1,189,768! 644,156 (9,730,558) (4,986,372) (428,578) 18,548,673 109,661,434 437,137,661 19,672,559 $ 19,192,829 99,930,876 432, 151,289 19,243,981 } 51 "') ) ... I ) ) CITY OF LUBBOCK, TEXAS RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENSES ANO CHANGES IN FUND NET ASSETS OF PROPRIETARY FUNDS TO THE STATEMENT OF ACTMTIES FOR THE YEAR ENDED SEPTEMBER 30, 2004 Net change in fund net assets -total enterprise funds Amounts reported for business-type activities in the statement of activities are different because: Internal service funds (ISFs) 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 ISFs is reported with business-type activities. Change in net assets of business-type activities See accompanying Notes to Basic Financial Statements. 53 $ (4,986,372) (334,561) $ (5,320,933) CITY OF LUBBOQ(, TEXAS STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE VEAR EHDED SEl>TEM8ER JO, 2004 "\ Buslness-Tll'.ee Activi6es -Eotetl:!rise Funds West Texas Municipal Power electtic Water Sewer A!lenci ~MPA! CASH FLOWS FROM OPERA TING ACTIVITIES Receipts from tuSIOITlelS s 101,626,637 32,663,422 19,074,799 47.218,29S Payme,,ts to suppliers (78. 396.377) {11,220,827) {6.259.4331 {47 ,864,595! Pa)fflents to employees (7,691.004) (5. 117.293) (3,401.569) Olher receipts (payments) 1,179,361 !49.0221 (579,600) Net cash pmyided (used) by operating aciivities 16,518.617 16,-476 280 8,834,197 jG-46,300) CASH FLOWS FROM NONCAPITAL AND RELATED FINANCING ACTMTIES Transfers in fnm other funlls l,TT7,956 6,891.766 6,235,664 356,922 Tnmsfenl out to other funds (3. 150. 195) {11,172,003) (6,032,942) Short-term interfund borrowmgs 3,678,500 S,909 Adwances from (lo) olfler fullds ) Operating grants Payments reoaivedf(made) oo advances (lo)Jfrom other funds (4,844,865! Net cash p'Ollided (.ised) by noncapital and related fir>ancing activities j&.017, 104) (601,73?] p,791, 169) 356922 CASH FLOWS FROM CAPITAL AND RElATEO ANANCING ACTMTIES Pun;nases or capilal assets (12,307.612) (11,663,809) (5,551.770) Sale ol caJ)ilal assets 2,646,037 110.281 201.939 22,810,000 ) Receipb(payments) on leases (174,165! 2.580,495 Payments l'or boftd issuance costs (30,085) Principal paid on revenue bonds {4,413.300) (1,464.741) (1,525,000) lnleresl paid on revenue bonds (3,353,899) (2,233,809) (1,070.799) Principal paid on general obligation bonds and other debt (4,635.318) (3,654.354) lnleral paid on 9"neral ob!igafioo bonds (3.391.605) (2,345.232) IS$Uanc:e or revenue, G.O. bonas. and capital leases Passenger fadllty Charge&lcapit31 grants IU7,923 (22. 810,000) Conttlbllled capllaJ 1,849,662 2,672,324 3,090,696 ) Nel cash provided (used) for capital and related financing m;livities (15,609,19r:l (20,161,754) (8,432.886! (15,304) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds frotn sales and maturities of irtVes!ments 932,430 10.219,927 2,665.663 Pulchaae of iovestrnents {6,588,009) (5,794,121) (626,508) Interest earnings oo cash and inwstmenls 52,369 571 337 86,012 17,005 Net cash provicled by (used lo() investing activitie$ (5,603,210! 4,997,143 2,125,167 17,005 Net increase (decrease) in cash ) a'1d cash equivalents (10,710,894) 709.932 735.309 (287,67n CaSll and cash eq~alent.s -beg!tmlng of year 18.780.333 18,825,031 3,812.714 1,965.850 Cash and cash equlvalenl.$ -end ct year 8,069,439 19 534 963 4,548 023 1678 173 ReconciRation or opel'llling income (loss) to nel cash provtded (used) by operating aQivlties: Operating income (leas) Adjuslmetlts to reconcile operaling income (lOss) 3,281,729 9.644.596 4,136,280 (914,nn to net cash pff)Vided (used) bV operating acwities: Deprecia1ion and MIOllization 9,033,112 5,958,903 5,075,034 117,994 Otl>er incomtl (&Jq>enSe) 1,179,361 (49,022) (579,600) Cl1ange in aurenl 8S$Ols and fiabill!ies; Accounts reoelvab!e 74,936 955,547 185,704 (1,589.301) Inventory 4,000 (53,333} Prepaid~ Due fJom otl1el' governments 18,286 AccounlS payable 1,876,018 (172,499) (82,105) 1,724,455 Otner acaued expenses 262.470 27,350 54.872 15.279 Customer deposits 644.570 24.715 Increase (decrease) in compensated absences 162.421 121,737 44012 Net cash ll(Ovided (uwd) by operating activi!ies 16,518,617 16 476 280 8,834,197 j646,JOO) Supplemental cash flow lnfonnation: Noncas!> c:af)it8i lmprovemenls and other changes s 20,204,792 96133 112 786 see accompanying Notes to Basic Ftnaocial Stalementa. 54 CtTY 0Ft.U880Cl(, lllAS STATENENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEM SIDED SEP1'EMSER 30, 2004 BuslneH•Tlf!!l Ac1ivltiN -ElltelPfl8e Funda Olher Nonmajor lnlemal Era,potse Senlca Slolm\ftter Funds Tot.als Funcla CASH R.0WS FROM OPERATING ACTMTIES Recaipllfl'omc:ualDl'n<n $ G,047,n9 20,044,130 226,875,082 36,000,252 Payrneni. ID IUl)plierll (510,507) (B.079.Bll) (152,331,572) (31,042,6-46) P8)ffll!lltl ID 8ll'lpk¥!es (670,169) (9,616,018) (26,686.073) (5,108,035) Otner lfJOBipb (payments) ~7,4e.l (1,250,3511 j1.007.078j '9,348 Net cash proylded (Used) tr/ operating activities •.559,6111 1,097,928 46,M0,341 (131,0812 CASH FLOWS FROM NONCAPITAL ANO RELATED FINANaNG ACTMT1ES Transf4ta in fltirn olllS runds 4,307,251 1,874,760 21.444.519 225,916 ·Tninst.n GUI ID alfler l'undl (4,818,513) (4,216,115) (31.189,768) Sholt-tenn inlelfUnd bomJ,wlngs (544,181) 3,040,228 1.1111 Advanc8ll rrom (lo) o111er funds {1,036,740) (1,038,740) Open,tinggrartb 3,768,073 3,768,073 P~ f8C8M!dl(made) on advances (m)ll'rom olher funds 1 045.135 j3.599, 730) Net cash prvvided (used) tr/ ncncapital andnllaled lillllllQllll adMties {!11,26~ 790932 Q:fil4181 '2Zl,527 CASK Ft.OWS FROII CAPITAL AND fCELATED FINANQNG ACTMTIES Purchases of aipilal a9Mb (3,447,008) (3,928.747) (36.1198,946) (ffl.430) ) Sale of capital asseb 225,164 25,1193,,421 Receipla(paymenls) on lealJe,a 2,406,330 Pll)fflenll for ~ issuance costs f.]73,851) (403,936) Plinc:lpal paid on AMlftue bcnda {S46,551) (7,949,592) lnr.erest paid on --,w bands {3,658.830) (10,317,337) Principal paid on general obliaatiofl bonds and olhef debt (762,349) (9,255,021) lnlMlst paid on O-ral obligation bands (430,980) (6,167,817) Issuance of AM!llue, G.O. bonds, and capil'al leases (22,162,077) Paasenget fltc:ii1y chalveslcapllal granls 1.402.003 1,402,003 ) Conlnl>ul8d capllal 1,573,384 9,186,066 Met cash provided (used) for capital and rala1ad financing~ ll,65~:sesr g211s1376l 154, 166,906! {!!23,4301 CASH F1..0WS FROM INVESTING AC1MTIE.S PtOQl8ds from aales and matwities of lnveslmenb 1,380,757 7.275,615 22.-454.392 6,594,329 Purdlase of investments 332,322 (4,848,301) (17,32•,617) (5,081,927) lnllll'est earnings on caall and~ 569,120 291,746 1,587,589 511.156 Net ca:lh pvvidecl by (used fol) investing actMlie& 2.262, 199 2.919.060 8i717,384 2,043.558 Net lna9ase (dec:rea&eJ In casll and cash equivalents (1,141,833) 2.512,$44 (8,162,619) 1,316,574 Cash and~ equivaJenls. iJe9innillg °' year 24,475,378 8,304,547 76,163,853 4,04~ 124 cashandc;aall equlvalenb-end of year ~.333.545 10,817,1191 67,961,234 5,358,698 R-illatlon of opellltlng income "°"' to net call provfdad (used) by opemlng actlYlties: Operat;no incame (loss) 4,327,592 (12,712,416) 7,783,054 (t ,204, 198) AdjuslrnMts·to noc:ade operating income (loss) to net casl, PIOYided {used) by operating activities; DepTVCiation and amortizaticn 553,592 13,291,441 34,030,076 602,494 Olllerincome (~l (307,464) (1,3"'.022) (1,100,747) 19,348 Cllaftg8 i1 ~nt assets and liabilifies: Aocoonls reoelveble 28.289 883.037 538,212 (118,829) lrwenlD&y (41,924) (91,257) (114.330) Prai,elclexpenses 12,097 12.097 Due tra,n 01her govemments (1114,307) (176,021) Acccunts payable (11,800) 514,153 3,848,222 450,968 Other accrued~ (35,352) 130,882 455,301 Cuatomerdepostm 150 669,435 470.655 lnaaase {dec:reasel in compens;,ted 8baence& 4762 559037 891,969 ~1!!! Net c:asll Pf0Vided {used) bV cpe!llting activities 4,559,619 1,097,828 46,&40,341 {131.081! Suppletnffltal cash flow lnfannatlon: N0ne8$11 capllal improvements and oChet changes $ 21477 20,435.188 See accompanying No1a8 to Basic Financial Slatements. 55 ) ) ) ASSETS CITY OF LUBBOCK, TEXAS STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS SEPTEMBER 30, 2004 Cash and cash equivalents $ Investments, at fair value: Pools Total assets LIABILITIES Accounts payable Total liabilities $ See accompanying Notes to Basic Financial Statements. S6 Agency Fund 1,099 73 1,172 1,172 1,172 ) ) ) ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POUCIES 1be Basic financial Stalements (BFS) of the City of Lubbock, Texas (Cily) have been prepared in confonnily with Accounting Principles Generally Accepted in the United States of America (GAAP) as applied to govcmmen1 units. including specialized industry practices as specified in tllc American lnstitule of Certified Public Accountants audit and accounting guide titled Audi/~ of Slate and local Governmental Units (GASS 34 Edition). The Governmental Accounting Slalldards Board (GASB) is the acknowledged Standard-setting body for establishing governmental aceounling and financial reporting principles. With respect lo proprietary activities related to business-type ac1ivi1ics and enterprise funds, including component units, 1he City applies all applicable GASB pronouncements as ~II as Financial Accounting Standards Roard (FASB) Statements and Interpretations, Accounting Principles Board (APB) Opinions and Accounting Research Bulletins of Ebe Committee on Accounting Procedure, issued on or before November 30. 1989, unless those pronouncements conflict with or comradict GASB pronouncements. The more significant accounting policies are described below. A. REPORTING ENTITY The City is a municipal corporation governed by a Council-Manager form of government The City, incorporated in 1909. is located in the nonhwestcm part of the state. The City currently occupies a land area of 115 square miles and serves a population exceeding 206,000. The City is empowered 10 levy a property tax on both real and personal pro!)Crties located within ilS boundaries. It is also empowered by state statute lo extend its corporate limits by annexation, which occurs periodically when deemed appropriate by the city council. The City provides a full range of services, including police and fire protection; recreational activities and cultural events; construction and maintenance of highways. streets, and other infrastructure; and sanitation services. The City also provides utilities for electricity, water, se~r. and stomiwater as well as a public 1ransportalion system. The BFS present the City and its component units and include all activities, organizations, and functions for which the City is wnsidercd to be financially accountable. The criteria considered in determining activities to be reported within the City's BFS arc based upon and consistent with those sec forth in the Codification of Governmental Accounting Standards. Se<:tion 2100, "Defining the Financial Reporling Emicy. " The criteria include whether: • The organization is legally separate (can sue and be sued in its own name), • The City holds the corporate powers of the organization. • The City appoints a voting majority of the organization's board, • The City is able to impose its will on the organization, • The organization has the potential to impose a financial benefit or burden on the City, or • There is fiscal dependency by the organization on the City. 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 1he City are such lhal exclusion could cause the City's BFS to be misleading or incomplclc. BLENDED COMPONENT UNITS The Urban Renewal Agenq (URA) has been included in the City's financial reporting entity within the primary govemmenl using the blended method because, although it is legally separate, its opaatioos arc so intertwined with the City that ic is, in substance. a part of the City. The URA was fonned to provide urban renewal services including rehabilitation of housing, acquisition of housing, and disposition ofland. The URA Board is composed of nine members appointed by the Mayor with the consent of the Cily Council, and acts only in an advisory capacity to the City Council. All powers to govern the URA arc held by lhe Cily Council. There are no separate financial statements available for the URA. 57 ) ) ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. REPORTING ENTITY {CONTINUED) West Texas Municipal Power Agency (WTMPA) is a legally separate municipal corporation, a political subdivision of Texas. and body politic and corporate, fonned in 1983, governed by a Board of eight directors who serve wilhou1 compensation. WTMPA has no employees and instead conlracts with the City for general operations. WTMPA may engage in the business of generation, transmission, sale, and exchange of electric energy IO the four participating public entities: Lubbock, Tulia, Brownfield, and Floydada WTMPA may also panicipate in power pooling and power exchange agreements with other entities. wrMPA provides electricity to its four member cities with the City having an 88.5% interest in its operations. Each member city appoints two members to the WTMl'A board, however an affinnativc vote of the "majority in intCTCSI" is required to approve the operating budget, approve capital projects, approve debt issuance, and approve any amendments to WTMPA rules and regulations. The City maintains the "majority in interest" vote based on Kilowatt purchases, and consequently has majority voting control. As che City purchases approximately 88.5% of the electricity brokered, WTMPA provides services almost exclusively lo the City and is therefore presented as a blended enterprise fund. Their separate audiced financial swemenlS may be obtained through lhc Cicy. DISCRETELY PRESENTED COMPONENT UNITS The financial data for the Component Units are shown in the Government-Wide Financial Statements. They are reported in a separate column to emphasize that they an: legally separaie from the City. The following Component Units are included in the reponing entity because the primary government is financially accountable. is able co impose its will on the organiU"ttion, or can significantly influence operations and/or activities of the organization. Civic Lubbock. Inc. is a legally separate entity that was organized lO foster and promote the presentation of wholesome educational, culcural, and enteruiinment programs for the general moral, intellectual, physical improvement, and welfare of the citizens of Lubbock and its surrounding area. The seven-member board is appointed by the: Ciiy Council. City Council approves the annual budget Separate financial statements for Civic Lubbock may be obtained from them at 1501 6111 Street. Lubbock, Texas. Market Lubbock Economic Development Corporation, dba Market Lubbock, is a legally separate entity that was 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 primarily through budgeted allocalions or the City's property and hotel occupancy taxes. Separale financial statements may be obtained from Market Lubbock at 1301 Broadway, Suite 200, Lubbock, Texas. 58 ) ) ) ., J ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September30,2004 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. REPORTING ENTITY (CONTINUED) RELATED ORGANIZATIONS The Ci1y Council is responsible for appointing lhe members of the boards of other organizations but the City's accountability for these organizations does nor extend beyond making board appointments. The City Council is not able to impose its will on these entities and there is no financial benefit or burden relationship. Bonds issued by these organizations do not <:on!>1ilule indebtedness of the City. The following Related Organizations are not included in the reporting cnlity: The Housing Authority or the City or Lubbock (Authority) is a legally separate entity. The Mayor appoints the five-member board . The Lubbock Health Facilities Development Corporation promotes health facilities development. City Council appoints the seven-member board. The Lubbock Housing Finance Corporation, Inc. was fonncd pursuant to the Texas Housing Finance Corporation Act, to finance the cost of decent. safe, and affordable residential housing. The Mayor appoints the seven-member board. North & East Lubbock Community Development Corporation (CDC) was formed from the recommendation of lhe mayor's commission formed in May 2002 to examine the condition of North &. East Lubbock. Incorporated in February 2004, lhe CDC began work 10 effectuate change in North and East Lubbock. The North & East Lubbock Community Development Corporation is a local entity that drives social change; promotes autonomy and empowerment by increasing the supply of quality and affordable housing, generating economic activity, and coordinating the efficient delivery of social services. The City Council appoints two membeTs of an eleven-member board. The City Council is not able to impose its will on lhe entity and there is no financial benefit/burden relationship. The Lubbock Education Fa<:ilities Authority, Inc. is a non-profit corporation and instrumentality of the City and was crea1e<I pursuant to the Higher Education Authority Act, Chapter 53 Texas Education Code for the purpose of aiding institutions of higher education, secondary school, and primary schools in providing educational facilities, housing facilities. The seven-member Board is appointed by 1he City Council. The Lubbock Firemen's Retirement and Relief Fund (Pension Trust Fund) operates under provisions of the Firemen's Relief and Retirement Laws of the $1a1e of Texas for pull)OSCS of providing retirement benefits for the Ci1y's firefighters. The Mayor's designee, the Cash & Debt Manager, three firefighters elected by members of the Pension Trust Fund and two at-large members eletted by lhe Board, govern its affairs. It is funded by contributions from the firefighters and City matching contributions. As provided by enabling legislation, the City's responsibility to the Pension Trust Fund is limited lo matching monthly contributions made by the members. Title to assets is vested in the Pension Trust Fund and not in the City. The State Firemen·s Pension Commission is the governing body over the Pension Trust fund and the City cannot significantly influence its operations. Their separate audited financial statements may be obtained through the City. 59 ) ) ) ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 8. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS The City's financial statements are prepared using the reporting model specified in GASB Statement No. 34 - Basic Financial Statements -and Marzagement 's Discussion and Analysis -for State and local Govemmel'lls, GASR Statement No. 37 -Basic Financial Slatements -and Managements Discussion and Analysis -For State and LDcal Governments -Omnibus. GASB Statement No. 38 -Certain Financial Slatemenl:s Note Disclosures, and GASB Interpretation No. 6 -Recognition and Measurement of Certain Liabilities and Expenditures in Govermruntal Fund Financial StatemenJs. As specified by Statement No. 34, the Basic Financial Statements (BFS) include boLh Governimnt-Wide and Fund Financial Statements. The Governmenl-Wide Financial S1atements (GWFS) (i.e., the S1atement of Net Assets and the Statement of Activities) TCport infoflTlation on all of the non-fiduciary activities of the City and its blended component units as a whole. The discretely presented component units are also aggregately presented within these statements. The cffe<:t of intcrfund activity has been removed from these statements by a/location of the activities of the various in1emal service funds to the governmental and business-1ypc activities on a fund basis based on the predominant users of lhe services. Governmental activities, which are primarily supporu:d by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. All activities, bolh governmental and business-type, are reported in lhc GWFS using the economic resources measurement focus and the accrual basis of accounting, which includes long-tenn assets and receivables as well as long-tenn debt and obligations. The GWFS focus more on the sustainability of th<: City as an entity and the cllangc in aggregate !inane ial position rcsu !ting from the activities of the fiscal period. The Government-Wide Statement of Net Assets reports all financial and capital resources of the City, excluding those reported in the fiduciary fund. It is displayed in the format of assets less liabilities equals net assets, with the assets and liabilities shown in order of their relaiive liquidity. Net assets are required to be displayed in three components: (I) invested in capital assets net or related debt, (2) restricted, and (3) unrestricted. Invested in capital assets net or relaied debt equals capital assets net of accumulated depreciation and reduced by outstanding balances of any bonds, mortgages, notes, or other bo1TOwings 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: (I) externally imposed by c:ceditors (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 noc otherwise classified as investro in capital assets net or related debt or restricted, are shown as unrestricted. Reservations or designaiions of net assets imposed by the City, whether by administrative policy or legislative actions of the City Council that docs not otherwise meet the definition of restricted net assets, arc not shown in the GWFS. The Government-Wide Statement of Activities demonstrates the degree to which the direct expenses for a given function or segment are offset by program revenues. Direct c:~penses are those that arc clearly identifiable with a specific function OT segment Program revenues include, (I) charges IO 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 lhat 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 pan of the BFS are Fund Financial Statements (FFS) fur governmental funds, proprietary funds, and the fiduciary fund, even though the latter is excluded from lhe GWFS. The focus oflhe FFS is on majoT funds, as defined by GASB Statement No. 34. Although GASB Statement No. 34 sets forth minimum criteria for determination of major funds, i. c., a percentage of assets, I iabilitics, revenue, or expenditures/expenses of fund category and of the governmental and enterprise funds combined. It also gives governments lhe option of displaying other funds as major funds. The City can eled lo add some funds as major funds because or outstanding debt or community focus. Major individual govemmental funds and major individual enteq>rise funds are reported as separate columns in the FFS. Other 11on-major funds an: combined in a single column in the appropriate FFS. 60 .... CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September30,2004 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION Fund FiPancial Sutements The GWfS are reported using the economic resourcc:s measurement focus and the accrual basis of accounting, as arc the proprietary FFS. The City's fiduciary FFS includes only an agency fund that uses the accrual basis of accounting. However, because agency funds report only assds and liabilities, this fbnd docs not have a measurement focus. Revenues are recorded when earned and expenses arc recorded when a liability is incurred, tegardless of the timing of rclaled cash flows. Propcny laxes arc rccogni:a:d as n:vcnucs in the year for which they are levied. Grants and similar items arc recognized as revenue as soon as all eligibility requirements have be;cn •net. Because the enterprise funds are combined into a single business-type: activities column on the GWFS, certain interfund activities between these funds are eliminated in die consolidation for the GWf'S, but are included in the fund columns in the proprietary FFS. The effect of inter-fund activity has been eliminated from the GWFS. l:.xceptions 10 this general rule are payments-in-lieu oftallc:s and other charges between the City's c:lcctric, walCf and sewer functions and various other limc1ions of the government. Elimination of these charges would distort the direct costs and program revenues repol1Cd for the various functions concerned. For instance, 88.5°/4 of the operations of WTMPA representing ttansactions between WTMPA and Lubbock Powu & Light have been eliminated for theGWFS presentation and for the: electric BTA. Governmental FFS are reported using the cufTent financial resources measurement focus and the modified accrual basis of accounting. This is the traditional basis of accounting for governmental funds. This presentation is necessary, (I) co demonstrate legal and covenant compliance. (2) to demonstra1e the sources and uses of liquid resources, and (3) to demonstrate how the City's actual revenues and expenditures confonn to the annual budget. Revenues arc rccogniled as soon as they are both mc:.asurable and available:. Revenues are considered to be: available whc:n they are collectible within the curren1 period or soon c:nough !hereafter to pay liabilities of the currem period. For this purpose, the government considers revenues to be available, generally, if they are collected within 45 days of 1he end of lhe cwrenl fiscal period, with the exception of sales taxes which are considered to be: available if they arc collected within 60 days of year end. The City considers the grant availabili1y period to be one year for revenue recognition. Expenditures generally are recorded when a liability is Jncurrcd, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences, and claims and judgments are recorded only when the liability has matured. Because the governmental FFS are pn:senled on a different basis of accounting than the GWFS, a reconciliation is provided immediately following each fund statement These reconciliations explain the adjuSIJTlents necessary ID convert the: FFS into the govcmrnc:ntal activities column of the OWfS. Property tax~ sales taxes, franchise taxes, occupancy taxes, grants, licenses. court fines, and interest associated with the current fiscal period are all considered to be sus«ptiblc to accrual and have been recog,iized as n:venues of the current rlScal period. Only the portion of special assessments receivable due within the cumnt fiscal period is considered to be susceptible to accroal as revenue of the current period. All other revenue items are considered to be: measurable and available only when the City receives cash. Fund Accounti11c 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 entiry with a self-balancing set of accounts, which includes assets, liabilities, fund balance/net assets, revenues and expenditun:s/expenses. Governmental funds arc lhose through which most of the governmental functions orthe City arc financed. The City reports two major governmental funds: The General Fund. The General Fund as the City's primary operating fund accounts for all financial resources of the general government, except those required 10 be: accounted for in another fund. I The Debt Service Fund is used to account for the: accumulation of resources for, and the payment of, general long-tenn obligation principal and inl.cT1:st (other than debt service payments made by proprietary funds). 61 .. I CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES C. MEASUREMENT FOCUS. BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION (CONTINUED) Enterprise Funds are used 10 account for operations, ( I) that are financed and oper.ued in a manner similar to priva1e business enterprises where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a conlinuing basis be financed or recovered through user charges; or (2) where the governing body has decided 1ha1 periodic detennination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. The City reports the following major enterprise funds: The Eledric Fund accounts for the activities of Lubbock Power & Light (LP&L). 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 West Texas Municipal Power Agency (WTMPA) Fun.d accounts for the activities of power generation and power brokering to member cities. Member cities include Lubbock with 88.5% ownership. and Tulia. Brownfield, and Floydada comprising the remaining 11.5% ownership . The Stormwater Fund accounts for the activities of the slormwater utility, which provides stonnwater drai nagc for the City. The City reports the following non-major funds: Governmental Funds Spec:ial Revenue Funds are used to account for the proceeds of specific revenue sources (other than special assessments or major capital projects) that arc legally restricted to expenditures for speci ficd purposes. Capital Projects Funds arc used to account for financial resources to be used for the acquisition or construction of major capital improvements (other than chose recorded in the proprietary funds). The Permanent Fund is used 10 report resources that are legally restricted to the extent drat only earnings, and not principal, may be used for purpose of perpetual care for the cemetery grounds. Proprietary Funds distinguish operating revenues and expenses from non-operating 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 operating 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 cosl of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reponed as non-operating revenues and expenses. 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.). Enterprise Funds are used to account for services lo outside users where the run cost of providing services, including capital, is to be recovered through fees and charges, e.g., Lubbock Preston Smith lnlemational Airpon (airport fund), Citibus, and the: solid waste fund. Fiduciary Funds include an Agency Fund that is used to account for assets held by the City as an agent for private organizations. 62 ) CITY Of LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 0. BUDGETARY ACCOUNTING The City Manager submits a proposed operating budget and capical improvement plan lo the City Council annually for the upcoming fiscal year. Public hearings are conducted to ob1ain taxpayer commen1s, and the budget is legally enacted through pa.,o;age of an ordinance by City Council. City Council action is also required for the approval of any supplemental appropriations. All budget amounts presented in the budget comparison statement reflect the original budget and the amended budget, which have been adjusted for legally authoriud supplemen1al appropriations to the annual budgets during the fiscal year. The operating budget is adopted on a basis consistent with GAAP for the General Fund. Budgeta,y control is maintained al the department level in lhe following expenditure categories: personnel services., supplies, other charges, and capital outlay. Management may make administrative transfers and increases or decreases in accounts within categories. as long as expenditures do not exceed budgelcd appropriations at the fund level, the legal level of control. All annual operating appropriations lapse al the end of the fiscal year. Capital budgets do not lapse at fiscal year end but remain in effect until the project is completed and closed. In addition to the tax levy for general operations, in accordance with State Jaw, the City Council sets an ad valorem we levy for a sinking fond (General Obligation Debt Service) which, with cash and investments in the fund, is sufficient to pay all debt service due during the fJSCal year. E. ENCUMBRANCES At the end of the fiscal year, encumbrances for goods and services that have not been received are canceled. Al the beginning of !he next fiscal year, management reviews all open encumbrances. During the budget revision process, encumbrances may ~ re-established. On October I, 2004, the General Fund had no significant amounts of open encumbrances. F. ASSETS, LIABILITIES AND FUND BALANCE/NET ASSETS ~uity in Pooled Cash and lnvest111ents -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 rc:flect each fund's cquity in the pooled account. 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 mart.ct prices as of the valuation date. Cash Equivalents -Cash equivalents are defined as short-term highly liquid investments that arc readily convertible lo known amounts of ca.~h 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 Tu Receivable -The value of all real and business property located in the City is assessed annually on January I in conformity wi1h 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 I, a tax lien attaches to property to secure the payment of all taxes, penalties, and interest ultimately imposed. The taxes are COllSidercd delinquent if not paid before February I. ThCTCfore. at fiscal year end all property taxes receivable are delinquent, but are secured by a tax lien. At the GWFS level property tax revenue is recognized upon levy. In governmental funds, the City rocords property taxes receivable upon levy and defers tax revenue u nlil the taxes are co llccted or available. For each fiscal year, lhe City recognizes revenue in the amount of taxes collected during !he 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 Debt Service funds based on tax rates adopted for the year of levy. The Lubbock Central Appraisal District assesses property values, bills, collects, and remits the property taxes lo lhe Cicy. The City adjusts the allowance for uncolleclible taxes and deferred tax revenue at fiscal year end based upon historical collection experience. To write off property taxes receivable, the City eliminates the receivable and reduces the allowance for uncollectible accounts. Enterprise Fu11ds Receivables -Within the Electric, Wata, Sewer, and WTMPA Enterprise Funds, services rendered but not billed as oflhe close of the fiscal year are accrued and this amount is reflected in the accounts receivable balances of each fund. Amounts billed are reflected as accounts receivable nel of an allowance for um:o llectible accounts. 63 ) .... ) ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES F. ASSETS. LIABILITIES. AND FUND BALANCE/NET ASSETS (CONTINUED) h1ventories -Inventories consist of expendable supplies held for consumption. Inventories are valued at cost using the a veragc cost method of valuation, and arc aeeounted 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. Restric:ted Assets -Certain enterprise fund and governmental activitie.~ assets arc restricted for con~ruction; consequently, net assets have been resu-icted for these amountS. The excess of other resuicted assets over related liabilities are included as restTictcd net assets for capital projects. rate stabilization. economic development, and bond inden1ures. Mortgage Receivables -Mortgage receivables consist of Joans made to Lubbock residents under the City's Community Development loan program. These loans were originally funded primarily through grants received from the U.S. Department of Housing and Urban Development. Capital Assets and Depreciation -Capital assets, including public domain infrastructure (streets. bridges, sidewalks and other assets that arc immovable and of value only to the City) are defined as assets with an initial. individual cost of more than $5,000 and an estimated useful life in excess of one year. These capital assets arc reported in the GWFS and the proprietary FFS. Capital assets arc recorded at cosl or estimated historical cost if purchased or constructed. Donated assets are recorded at the estimaled fair value on the date of donation. Major outlays for capital assets and improvements arc capilalized as the projects arc constructed. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend the asset lives arc 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: In frastructurc/lmprovcmcnts Buildings Equipment Waler rights 10-SO years 15•50 years 3-15 years 85 years Interest Capitalization -Because the City issues general-purpose ,;apital improvement bonds, which art: recorded within the proprietary funds, the City capitalizes intercsi costs for business-type activities and enterprise funds according to the Financial Accounting Standards Board (FASB) Statement No. 34 CclpiJalizalion of lnterut Cost and FASB Statement No. 62 Capi1aliza1ion of lnterut Costs. The City capitalized interest of approximately $457,000, net of interest earned, for !he business-type activities and the enterprise funds during the current fiscal year. Advances lo Other Funds ~ Amounts owed to one fund by another that arc not due within one year arc recorded as advances to other funds. V$e of Estimates -The preparation of financial statements in confonnity with accounting principles generally accepted in the United States of America requires managemen1 to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dale of the financial statements and reported amounts of revenues and expenses/expenditures during the reporting period. Actual results could differ from those estimates. 64 ") ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September30,2004 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES G. 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 10 the toial citywide six-month rolling average monthly balance in pooled cash and investments, except for certain Fiduciary Funds, certain Special Revenue Funds. Capital Project Funds, and certain lnlemal Service Funds. The interest income on pooled cash and investments of these funds is reported in the General Fu11d or the Debi Service Fund. Sales Tax Revenue for the City results from an allocation of 1.125% of the tolal sales laX 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 Seate by the 20th of lhe month following collection. The tax is then paid to the City by the 10th of1hc ne,ct month. Grant Revenue from federal and state granlS is rewgnized as revenue as soon as all eligibility requiremenls have been met. The availability period for granlS is eonsidered IO be one year. Inter-fund Transactions ace accounted for as revenues, expenditures.. expenses, or other financing sources or uses. Transactions that constitute reimbursements 10 a fund for expenditures/expenses initially made from that fund that ace properly applicable to another fund, arc recorded as expenditures/expenses in the reimbursing fund and as reduc1ions of expenditures/expenses in the fund that is reimbursed. In addition. 1ransfers are made between funds to shift resources from a fund legally authorized 10 receive revenue to a fund authorized IO expend the re venue. Compensated Absences consists of vaca1ion 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 "C8JTied 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 I-¼ days pee month with a maximum accrual status of200 days. After 15 years of continuous full time service for non-civil service personnel. vested sick leave is paid on retirement or termination at the current hourly rate for up to 90 days. Upon retirement or termination. Civil Service Personnel (Police) are paid for up to 90 days accroed sick leave after one year of employment Civil Service Personnel (Firefighters) are paid for up to J 35 days of accrued sick leave upon retirement or tcrminatiolL The 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 and in the FFS for proprietary fund employees when earned. The liability is recorded in the governmental FFS to the extent it is due and payable. Post Employment Benefits for retirees of the City of Lubbock include 1he option lo purchase health and life insurance benefits at their own expense. Amounts lo cover premiums and administrative costs, with an incremental charge for reserve funding, are detennined by the City's heallh care administrator. Employer contributions ace funded on a pay-as-you-go basis and appro,i:imated Sl.3 million for fiscal 2004. These contributions arc included in the amount of insurance expense reflected in the financial activity reported in the Health Insurance Internal Service fund. 65 ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE II. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. NET ASSET/FUND BALANCE DEFICITS The deficit of $76. 784 in the General Capital Projects Fund is due 10 liming differences of incurring capital outlay expenditures for an internally financed project. The fund balance should be positive by the end of fiscal year 2004/2005 with the final internal payback from the Special Revenue Funds. The deficit of $6. 700 in the Jnvcs1ment Pool Internal Service Fund is the result of not recovering ac1ual cost with lhc allocation of interest earnings to this fund. This also represents a timing difference. The deficit of $1,864,119 in Market Lubbock Inc. (MLI) is due to long-term commilmenis for incentive and special project contracts w,d tentative open convention offers. MLI management expeccs future receipts of funding from lhe City of Lubbock to pay these Jong•term commitments. No other funds of the City had deficits in either 101al fund balances or total net assets. NOTE III. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS A. POOLED CASH AND INVESTMENTS The City's investment polices are governed by State statute and City ordinances. The following are authorized invcsuncncs for the City and all are authorized and further defined by lhe Public Funds Investment Act (Chapter 2256) ("PFIA ft): • Obligations of the United Slates or its agencies and instrumentalities, which have a liquid marlcct with a readily detcnninablc market value. • Direct obligations of this state or its agencies and instrumentalities. • Olhcr obligations, the principal and interest of which a.re: unconditionally guaranteed or insured by, or backed by the full faith and credit of, this state or the United Swes or their respective agencies and instrumentalities. • Obligations of states. agencies, counties, cities, and other political subdivisions or any state rated as 10 investment quality by a nationally recognii.ed investment rating finn not less than A or its equivalent • Fully collateralized certificates of deposit issued by a stale or national bank doing business in Texas and guaranteed, or insured by the Federal Deposit Insurance Corporation or its successor, secured by obligations authorized by this subchapter, or secured in any other manner and amount provided by law for deposits of the investing entity. • Fully collateralizcd repurchase agreements with a defined tl:rmination date; and secured by obligations authorized by the Act; such collateral pledged to 1he City, held in the City's name, and deposi1ed at the time the investment is made with the City or with an independent third party selected and approved by the Cily. Repurchase agreements must be purchased through a primary government securities dealer, as defined by 1he Federal Reserve, or a bank doing business in this state. The lerm of any reverse repurchase agreements may not exceed 90 days after the date the reverse security repurchase agreement is delivered. Money received by the City under the tenns of a reverse security repurchase agreement shall be used to acquire additional authorized investments. but the leT1ll of the wthorized investments acquired must mature not later lhan the expiration date stated in the rever.;e security repurchase agreement. • Bankers' acceptances with a srated maturity of 270-days or fewer from the date of its issuance; and liquidated in full at maturity: and eligible for collateral for borrowing from a Federal Reserve Bank; and accepted by a bank organized and existing under the laws of the United States or any state, if the short-term obligations of the bank., or of a bank holding company of which the bank is lhe largest subsidiary, arc rated not less than A• I or p. I or an equivalent rating by at least one nationally recognized credit rating agency. · • Commercial paper with a stated maturity of 270 days or fewer from the date of its issuance, and rated not less than A-I or P-1 or an CQuivalent rating by at least two nationally recognized credit rating agencies. 66 ") ) ) ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE III. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS A. POOLED CASH AND INVESTMENTS {CONTINUED) • No-load money market mutual funds regulated by the Securities and Exchange Commission, and with a dollar-weighted average stated maturity of 90 days or fewer, and whose inveslmenl objectives include the maintenance of a stable net asset value of SI for each share. • AAA-ra~. constant dollar, invcs1men1 pools authorized by lhe City Council and as further defined by the Act, which invests in eligible securities as authorized by the PflA. Government Pool investments as of Seplember 30, 2004, were invesled in Tex.Pool and TexSTAR. TexPool. The Comptroller of Public Accounts (the "Comparollertt) is the sole officer, director and shareholder of the Texas Treasury Safekeeping Trust Company (the "Trust Company-) which is authorized to operate TexPool. Pursuan1 to the TexPool Panicipation Agreement, administrative and investment services to TexPool are provided by Lehman Brothers Inc. and Federated Investors, Inc. ("Lehman and l'edcratcd"), under an agreement with the Comptroller. acting on behalf of the Trust Company. The Comptroller maintains oversight of the services provided to TcxPool by Lehman and Federated. In addition, lhe TexPool Advisory Board advises on TexPool's Investment Policy and approves any fee increases. As required by the PFIA, the Advisory Board is composed equally of participants in Tex Pool and·other persons who do not have a business relationship with TexPool who are qualified to advise TexPool. Tex Pool is currently ra1cd AAAm by Standard and Poor's. An explanation oflhe significance of such rating may be obtained from Standard & Poor 's at 1221 A venm; of the Americas. New York, New York I 0020. TexST AR. Texas Short Term Asset Reserve Program ("TEXST AR") has been organized in conformity with the lnterlocal Cooperation Act, Chapter 791 of the Texas Government Code, and the Public Funds Investment Act. Chapter 2256 of the Texas Government Code. JPMorgan Fleming Asset Management (USA), Inc. ("JPMFAM") and First Southwest Asset Management, Inc. ("FSAlvr') serve as co-administrators for TEXST AR under an agreement with the TEXST AR board of directors (lhe "Board"). JPMF AM provides investment services, and FSAM provides participant services and marketing. CUStodial, transfer agency. fund accounting and depository services are provided by JPMorgan Chase Bank and/or its subsidiary J.P. Morgan Investor Services Co. Finally, TEXSTAR is currently rated AAAm by Standard and Poor's. An explanation of the significance of such rating may be obtained from Standard & Poor's al 1221 Avenue of the Americas. New York. New York 10020. Collateral is required for demand deposits, certificates of obligation, and repurchase agreements at I 02% 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 oflhe state and its subdivisions. The City's deposits and investments are categorized below to indicate the le:vel of custodial credit risk assumed by the City at September JO, 2004. INVESTMENT CATEGORY OF CUSTODIAL CREDIT RISK (I) Insured, rcgistCfcd, or securities held by the City or its agent in the City's name. (2) Uninsured and unregistered, with securities held by the countcrparty's agent or trust department in the City's name. (3) Uninsured and unregistered, with securities held by the counlerparty or by the trust department or agent but not in the City's name. DEPOSIT CA TEGORV OF CUSTODIAL CREDIT RISK (I) Insured or collateraliz.ed with securities held by lhe City or by its agent in the City's name. (2) Collateralized with securities held by the pledging financial institution's trust department or agent in the City's name. (3) Uncollateralized. Amounts invested in investment pools and money market funds are not _categorized, because they do not represent securities 1ba1 exist in physical fonn. 67 ) ) ) ) ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements Septembet30,2004 NOTE III. DETAIL NOTES ON ALL ACTMTIES AND FUNDS A. POO(iED CASH ~D INVE.ffMENTS {CONTINUED) The following table is a schedule of the City's pooled cash and investments at Seplcmber JO, 2004: Category Carrying Iavcstmen1S !1! ~ P! Amount friroaQ: Gov.emmmt U.S. TtaSuries s 3,998,817 J,998,817 Agency Obligations 36,658.090 36,658,090 Investment Pools 47,413,743 Money Market MulWII Fund 2,796,414 Tolll.l Primary Government 9().867,064 Ageru;y Funds Investment Pools 73 Total Af.enC'f Funds 73 Tomi Investments 90,867,137 Cash and Category Bank Canying Bank Deposits !A) {B! !9 Balance: Amount Primary Government $ 95,899,156 95,899,156 95,81>9,156 Agency Funds 1,099 1,099 1,099 Total $ 95,900,255 95,900,255 95,900,255 Cash and investmen1S listed above include investrnenl pools and money market mutual funds (mmmf). The table below categon1.CS the investment pools and mmmrs as cam and equivalents in unrestricted funds. Restricted funds include investment pool and mmmf balances. The difference in total investment balances bclween lhc table above and lhc table below totals $7,019,071, which is due to lhc different ,eporting methods used in each table. Cash and investments are l'Cl)Orted in the Statement of Net Assets as: Tolal Total l"rimary Agency Govemmcna Funds Total Cash and Equmlcnts • Unrestricted s 56,107,053 56,107,053 C2sb and EquivalenlS -Reslricml 46,811,174 1,099 46,812,273 Total Cash ud E<Juivalerus 102,918,2Z7 1,099 102,919,326 In vestments • Uru:cstrictcd ll,581,046 13,581,()46 Investments -Resllictec:I 70;1,M,,947 73 70:U,7 J)20 Total fovatments 83,847,993 73 83,848,066 Total Cash and Investments s 186,766,220 1,172 18(,,767,392 68 J ) ) ) ' J CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE ID. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS B. INTERFlJND TRANSACTIONS lnterfund balances, specifically the due to and due from other funds, are short-tam loans to cover temporary cash deficits in various funds. This occasionally occurs. pri01 to bond sales or gnint reimbursements. These outstanding balances arc repaid wilhin the following fiscal year. lnterfund balances. specifically advances to and from other funds. arc longer-term Joans to cover Council ditmed intcmal financing of certain projects. At September 30, 2004 the City has nearly $1.5 million of this type of inaemal financing. These balances are assessed an interest charge and are repaid over time through operations and transfers. Net interfund receivables and payables between governmental activities and busines.Hype activities in the amount of $555,465, are included in the government-wide financial swcments. The following amowits due to other funds or due from othc:r funds. including advances, are included in the fund financial statements (all amounts in thousands): Governmenlal funds Intcrfuod Rcccmablcs Ptopriewy Funds Interfund Payables: Water Scwec Solid Waste Govcmmcntal Funds: Nonmajor Govcmmcntal Propricwy Fuads: Electric Nonmajoc Proprietary Tot2ls s s 1,930 1,024 446 261 2,376 261 1,024 Net transfers of $9,745,250 from business-type activities to governmental activities, up from $2.6 million during the prior year, on the government-wide statement of activities is primarily the result of I) debt service payments made &om the debt service fund, but funded .Ii-om an operating fund; 2) subsidy transfers from unrestricted general funds; and 3) transfers to move indil'ffl cost allocations, payments in lieu of taxes (PILOT), and franchise fees to the general fund or other funds as appropriate. The following interfund transfers are rcOcctcd in the fund financial statements (ail amounts in thousands): Ittccrfuad Transfen Que: GovcmmentaJ. FU11ds P~ricu,y Puach Debt Nonmajot Stonn-Nonmajor Int=! lnterlund General Service Go.-. Electric Wster Sewer Water .Entcq>ris,: Semcc Transrc:n In: Govemmencal Funds: General Fund s -1,433 1,068 3,997 1,751 311 2.114 ~bt Service Fund 760 1,679 6.799 6,236 4,307 935 Nonmajor Governmental 3,221 1,449 3.30 1,121 Proprietary Funds: Electric 9 1,679 90 Watu 93 6,799 Sewer 6,236 Stormwstu 4,307 WThlPA 357 Nonmajoi Enrciprisc 849 935 91 Intemal Service funds 41 46 46 46 46 Total $ 4,213 19,956 3,sn 3,150 11,172 8,033 4,619 4,.216 69 Totals 2,954 707 3,661 Totals 10,724 20,715 6,121 1,778 6,892 6,2¼ 4,307 357 1,875 226 59,230 ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE Ill DETAIL NOTES ON ALL ACTIVITIES AND FUNDS C. DEFERRED CHARGES The IOt.ai defemd charges of $3,344,444 in the Electric Enterprise Fund represenlS an advertising contract with the United Spirit Arena. The advertising (and amortization) began with the opening of lhe sports arena in fiscal year 2000 and will continue for 30 ycan;. The total defcll'Cd charges of $407,251 in the West Texas Municipal Power Agency Fund ,cprcscnts unamortil!X.! bond issuance costs related to the bonds issued to build the JRM8 cogcncratioo facility. D. CAPITAL ASSETS Capital asset activity for the year ended Scptcmbec 30, 2004, was as follows: Primary Government: Govei:runcntal Aclivilies Bcgimring Balance lnc:.-ca&cs DcCICIIICS Capital Assets not being depreciated: Land s 7,996,406 6tl,843 Conscruccioo in Progr= 36,tSS,690 14,14-0.SSO 6,824,218 Tow Capital Assets not being dep«ciattd 44,152,096 14,752,393 6,824,218 Capil2l AsM:ts being dcpn:ciatc<I: Buildings 51,475,936 6,.864 28,522 Improvements Other than Buildings 125,742,157 3,908,958 Machinery and Equipment 48,896,000 5,585,646 1,526,973 Tora.I Cll(lital Assets being dcpr:cciatcd 226,114,093 9,501,468 1,555,495 Less Accumulated Depreciation foe Buildings 25,1173,4S2 1,815,.260 28,522 Improvements Other than Buildings 88,642,271 3,826.069 Machinery 2rul Equipment 34,0lS,313 4,42.6,516 1,443,900 Total Accumulated Depreciation 148,531,036 10,067,845 1,472,422 Total Capital &secs bciog dep,cciaud, oet 77,583,057 !566,3~ 83,(ITT Governmental A.ctivities Capital Assets, net s 121,735,153 14,186,016 6.,907,291 Depreciation expense was charged to functions/programs of the governmental activities as follows: Governmental activities; General Government Finmcial Semas Human Ile$= Administntion/Community Services Fm: Police Stttcts Electric Internal Savice Funds Total deprcci2tion expense -governmental :activities Tnmfu in to accumulated depreciation -govemmcotil activities lncn:sc in accumuhtcd depreciation . govcmmcntal activities 70 &cling Babnces 8,608,249 43,472,022 52,080,271 51,454,278 129,651,115 52,954,673 234,.()60,066 27,660,190 92,468,340 36,997,929 157,126,459 76,933,607 129,013,878 S 325,447 5;,:T9 4,636 3,646,365 841,694 1,339,872 3,364,002 286.096 162,702 9/}76,093 91,752 $ 10,067,84S ) ' ) ... .) ) ) , j ) ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE Ill. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS D. CAPITAL ASSETS (CONTINUED I Business-Type Activities Beginaing Ending Balaa.cc lncttasea Decttaan Balaru:ca Capiw Assets nor being dcptcciared: Land $ ll,676,155 31,676,155 Construction in Progress 104,689,207 28,965,883 19,693,719 113,961,371 Total Capital Assets not being depreciated 136,365,362 28,965,883 19,693,719 145,637,526 Capiw Assets being depccciatcd: Buildings 96,941,635 6,034 18,891 96,928,778 Improvements Othec than Buildings 555,982,769 20,441,780 2,065,.581 574,358,968 Mac~ and Equipment ll7,992,381 25,692,500 30,927,318 132,757 ,S6l Tow Capital Assets being depreciated 790,916,785 46,140.314 33,011,790 804,045,309 Less Accumulated Deprcc:wion foe Buildmgs 26,180,634 2,465,313 18.891 28,627,056 Improvements Ocher than Buildings 225,416,823 19,574,185 1,473,470 243,517,538 Mach.ineiy and Equipment 58,219,321 12,838,270 S,221,994 65,835,597 Total Accumulated Depteci2tion 309,816,778 14,877,768 6,714,355 337,980,191 Tobi Capital Assets being dcptcciatcd, net 431,100,007 11,262,546 26,297,435 466,06S, 1 18 Business-Type Activities Capital Assets, net $ 617,465,369 40,228,429 45,991,154 611,702,644 Depreciation expense: was charged to functions/programs of the business-type activities as follows; Business-Type Activities: Electric Warer Scwu S10rmwatec Solid Wure Ailport Transit Intcmlll Seorice Funds Total depreciation expense -business-type actmties Transfer in to accumulated dcp.reciatioo -business-type activities Incresc in accumulated depreciation -business-type :IC!Mties 71 $ 9,121,124 5,958,903 S.075,034 SSJ,592 8,016,067 3,255,-401 2,019,973 439,792 34,439,886 437,882 $ 34,877,768 ) ) ""' .) ) ) ) } CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements Septemberl0,2004 NOTE m. DETAIL NOTES ON ALL ACTMTIES AND FUNDS D. CA PIT AL ASSETS (CONTINUED) Construction Commilmeat5 The City had many construction projects in progress at fiscal year end. Public Safely projects include construction or a liw pump test piL Parle projects include park inigalion and lighting systems. Street projects include the widcoing of 98111 street from Slide to Fnrnkford. A security upgrade of Police Headquarters was also underway. Electric projects included the final touches on a new subslati.on. Water projects included a new projcct IO develop water wells south of Loop 289. Sewer projcccs included construction of sewer lines ahead of the Marsha Sharp freeway. Airport projects included an cxtcttsion of the aiJport's taxiways. Two large Stormwatcr projects are underway. The first project provides for the construction of an outfall storm sewer from Clapp Park to Yellowbousc Canyon and a series of upstmun stonn sewers that will provide various protections around four playa lakes. The second project provides for the consmiction of a Oood relief project for south Lubbock's chain ofplaya lakes. Original Rcmaiaiag Projects Comanilments Spent-to-Date: Commiumeate Public Safety s 9)71,433 7,799,579 t,57t.S54 Paik lmprovancnu 13,078,S02 7,481,061 5,597,441 Sttcet Improvements 25,866,652 t5,479,l52 10)87,.}()0 Permanent Street Maintenance 1,788,000 1.626,990 161,010 General Capital Projects l55,l7l 285,505 69,666 Gmeral Facilities and System [mprovemcnts 10,062,864 7,713'68 2,288,.896 Tax Inaemen1 Fund Capiul Projects 3,800,000 1,198,597 2,601,403 Gnnt Tcnomm Lab 1,179,000 892,540 286,460 Ekctric 14,650,111 9,488,738 5,161,.)73 Watu 70,435,418 45,999,985 24,435,433 ~ 11,001,937 5,2Z7,618 5,774,;mi Solid Waste 9,591,700 5,950,400 l.641,300 Aiiport 16,058,200 3,339)64 12.718,836 Tnnsit 1.03,799 203,799 Stonnwater 79,900,000 43,053,522 36,846.478 Intcmal Scmce Fwtd 2,956,000 1,632,378 1,323,622 Toral s 270)98,787 157,433,396 1 12,865,391 72 ) ) ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE 1(1. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS E. RETIREMENT PLANS Each qualified employee is included in one of two retiremenl plans in which lhe City of Lubbock participates. These are 1he Texas Municipal Retirement System (TMRS) and the Lubbock Firemen's Relief and Retirement Fund (LFRRF). The City docs not maintain the accounting records, hold the investments or administer either retirement plan. Summary of significant data for each retirement plan follows: TEXAS MUNICIPAL RETIREMENT SYSTEM (TMRS) Plan Description The City provides pension benefiis for all of its foll-time employees (wilh lhe exception of firelighters) through a non-traditional, joint conltibutory. hybrid defined benefit plan in the state-wide TMRS, one of 794 administered by TMRS, an agent multiple-employer public employee retirement system. Benefits depend upon the sum of the employee's contributions 10 the plao. with interest, and the City- financed monetary credits, with inlerest. Al lhc 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 establishmenl of the plan. Monetary credits for service since the plan began are a percent (100%, 150%, or 200%) of lhe employee's accumulated conlfibutions. In addition. che 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 ac<:umulated contributions and lhe monetary credits for service since the plan began, would be the tollll monetary credits and employee contributions accumulated with interest if the current employee conrribution 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 lhe 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 wi1h interest were used to purchase an annuity. Members can retire at ages 60 and above with S or more years of service or with 20 years of service regardless of age. A member is vested after 5 years. The plan provisions are adopted by lhc governing body of the City, within the op lions available in the state statutes governing TMRS and within the actuarial constraints also in the statutes. Contributions The contribution rate for the employc:es is 7% and the City maiching ratio is currently 2 to I. both as adopted by the governing body of the City. Under the state law governing TMRS, the actuary annually detenniru:s the City contribution rate and the prior service COSl contribution rate, both of which ere calculated to be a level percent of payroll from year to year. The nonnal cost contribution rate finances the currently accruing monetary credits due lo the City matching peri:ent, 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 acruarially detennined percent of payroll necessary lo satisfy the obligation of the City to each employee at the time his/her relircment becomes effective. The prior service contribution l'3le amortizes the unfunded (overfunded) actuarial liability (asset) over the remainder of the plan's 25-ycar amortiiation period. The unit credit actuarial cost method is used for determining the City contribution rale. 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 serves as the basis for the rate and the c;alendar year when the rate goes into effect (i.e. December 3 I, 2003 valuation is effective ror rates beginning January 2005). 73 ) i ) ) ) ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE m. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS E. RETIREMENT PLANS (CONTINUED) Actqarial Assamptio11s The actuarial assumptions for the Dec.ember 31, 2003 valuations are as follows: Actuarial cost method: Unit credit Amortization method: Remaining llffi!)rtization period: Level percent of payroll 25 years-open period Amortized cost Asset valuation meehod: lnvc:stment rate of rctum: Projected salary increases: includes inflation at: Cost of Living adjustmcnlS: Asof September 30 2001 2002 2003 7% None None None Annaal Pension Cost S 8,398,884 8,803,613 8,708,867 Ccmtribation Made 8,398,884 8,803,613 8,708,867 TEXAS MUNICIPAL RETIREMENT SYSTEM TIIREE-YEAR HISTORICAL SCHEDULE OF ACTUARIAL LIABILITIES AND FUNDING PROGRESS REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) Unfunded Actauial Actuarial Accrued Asof Actuarial Value or Accrued Percentage Liability December 31 Assets Liability F11nded (UAAL) 2001 s 172,S I 0,622 21S,584,03S 80.0"/4 43,073,413 2002 181,191,012 228,372,843 79.3% 47,181,831 2003 182,884,183 239,809,434 76.3% 56,925,251 UAALasa¾ Asof Annual Covered orCevered Decemberll Payroll Payrell 2.001 s 58,173,019 74.0% 2002 60,285,077 78.3% 2003 57,577,743 98.9% The City of Lubboclc is one of794 municipalities having the benefit plan administered by TMRS. Each of the municipalities has an annual, individual actuarial valu~on peTfonncd. All assumptions for lhe December 31, 2003 valuations are contained in lhe 2003 TMRS Comprehensive: Annual financial Report, a copy of which may be oblained by writing to P.O. Box 149153, Austin, Texas 78714-9153. 74 ) ) ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements Septembe£ 30, 2004 NOTE III. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS E. RETIREMENT PLANS {CONTINUED) LUBBOCK FIREFIGHTER'S RELIEF AND RETIREMENT FUND (LFRRF) Plan Desc ri ptio n The Board of Trustees of the LFRRF is th<: administrator of a single-employer defined benefit pension plan. It is rep0ned by the City as a related organization and is not considered to be a part of the City financial reporting entity. Fircfighlcrs in the Lubbock fire Department are covered by the LFRRf. The LFRRF provides service retirement. death. disability and withdrawal benefits. llu:se benefits fully vest after 20 years of credited service. A partially vested Benefit is provided for firefighters who terminate employment with al least IO but less than 20 years of 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 years of service. The LFRRF Plan effective November I, 200) provides a monthly nonnal service retirement benefit, payable in a Joint and Two-Thirds to Spouse fonn of annuity. equal to 68.92% of final 48-month average salary plus $335.05 per month for each year of service in excess Or 20 years. A firefighter has the option 10 participate in a Retroactive Deferred Retirement Option Plan (RETRO DROP) which provides a lump sum benefit and a reduced annuity upon termination of employment Firefighters must be at least 51 with 21 years of service at the selected "RETRO DROP benefit <:alculation date" (which is prior to date of employment tennination}. Early RETRO DROP with benefit reductions is available at age SO 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 lhc 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. LFRRF has the authority to provide. and h.as periodically provided for in the past, ad hoc postret irement 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 10 amend benefil 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 dctennined as a percentage of pay by each firefighter and a percentage of payro II by the City. State law requires that each plan of benefits adopted by LFRRF. be approved by an eligible actuary. The acruary certifies that lhe contributio~ 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 determined as a percentage of payroll. The excess of the total contribution rate over the normal cost contribution rate is used to amonize LfRRF's unfunded actuarial accrued liability (UAAL), if any, and the number of years needed to amortize LFRRF"s unfunded actuarial liability, if any, is determined using a level percentage of payro II method. The costs of administering the plan are financed by LFRRF. 75 ) ) ) ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE Ill. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS E. RETIREMENT PLANS {CONTINUED I Annual Pension Cost For the fiscal year ended September 30, 2004, the City of Lubbock's Annual Pension Cost (APC) for the Lubbock Fire fund was equal to $2,582.713 as described below in itan 4 in lhc table below. Based on the rcsullS of the December 31, 2002 actuarial valuation of lhe Plan Effective November-I, 2003. the Board's actuary found that the fund had an adequate financing arTangement, as described in the paragraph below, based on lhe fixed level of 1hc firefighter contribution rates and on the assumed level of City contribution rates. Based on the Plan Effective November I, 2003, LFRRF's funding policy requires contributions equal 10 12.43% of pay by the firefighters. Contributions by the City arc based on a fonnula, which causes the City's con1ribution rate 10 flucluate from year to year. The December 31, 2002 actuarial valuation (most recent available) re0ecting the Plan Effective November I. 2003· assumes that lhe City's contributions will average 18.67% of payroll in the future. Therefore, based on the December 31, 2002 actuarial valuation of the Plan Effective November I, 2003, the Annual Required Contributions (ARC) arc not actuarially determined but arc equal to the City's ac1ual conlributions beginning January I, 2003. Prior to January I, 2003, the ARC was based on the December 31, 2000.actuarial valuation and was actuarially determined as described below. The following shows the development oflhe Net Pension Obligation (NPO) as of September JO, 2004: I. Annual Required Contributions (ARC) $2,597,738 2. Interest on NPO (70,609) 3. Adjustment to ARC 55,S84 4. Annual Pension Cost (APC) 2,582.713 5. Actual City Contributions made (2,597, 738) 6. Increase (Decrease) in NPO/( asset J (15,025) 7. NPO/(asset) at October I, 2002 (882,623) 8. NPO/(asset) at September 30, 2003 ($897,648) The ARC for the period October I, 2002 through September 30. 2004 was based on the December 3 I, 2002 actuarial valuation. The entry age actuarial cost method was used with the nonnal cost calculated as a level percentage of payroll. The actuarial value of as.sets was market value smoothed by a five-year deferred recognition method, with the actuarial value not more than I 10°4, or less than 90% of the market value of assets. The actuarial assumptions included in an investment return assumption of 8% per year (net of expenses), projected salary increases including promotion and longevity averaging 6% per year over a 25•year career, and oo poslretirement cost-of-living adjustments. An inflation assumption of 4% per year was included in the investment return and salary increase assumptions. The UAAL is amortized with the excess of the assumed total contribution rate over the nonnal cost rate. The number of years needed to amortize the UAAL is determined using an open. level percentage of payroll method, assuming that the payroll will increase 4% per year, and was 25 years as of the December 31, 2002 actuarial -valuation based on the plan provisions effective November I, 2003. 76 ) ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE m. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS E. RETlREMENT PLANS (CONTINUED) 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 st2nd-alone financial report is available by contacting lhe LFRRF. Trend Information Annual Pension Cost Fi.,cal Year Ended {AP9 Percentage of APC Contributed Net Pension Obligation (Asset) 9/30/02 9/30/03 9/30/04 $ 1,379,564 1,964,788 2,582,713 148% 111 lOI (660,692) (882,623) (897,648) ANALYIS OF FUNDING PROGRESS REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) Actuarial Actuarial Entry Age Unfunded Funded Annual UAAU Valu•lion Value or Actuarial AAL Ratio (alb) Covered Funding Date Assets (a) Ac::crued (UAAL) Payroll Excess as a Liability /Funding (c) Percentage of (AAL)(b) excess Covered (b-a) 1213 I/98 1,2 S 90,364,681 97,533,314 7,168,633 92.7% 10,290,190 12131/00 1,3 119,660.788 114,675,049 (4,985,739) 104.3 12,243,913 12131/02 1,4 111,261,77S 127,850,414 16,588,639 87.0 13,S21,366 I. E(;onomic and demographic assumptions were revised. 2. Reflects changes in plan benefit provisions effective November I, 1999. 3. Reftcc;ts dJangcs in plan b«;nefit provisions effective December I, 200 I. 4. Reflects changes in plan benefit provisions effective November I, 2003. 5. The covc:n:d payroll is based on estimated annualiu:d salaries used in the valuation. F. DEFERRED COMPENSATION The City offers its employees two deferred compensation plans in accordance with Internal Revenue ·code ("IRC') Section 457. The plans, available to all City employees, permit chem to defer a portion of lbeir salary until future yeais. The deferred compensation is not available to employees until termination, retimuent, 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 for these plans; ihc:refore, they arc not presented in the BFS. 77 Payroll {(b-a}/c} 69.7% (40.7) 122.7 ) ) ) ) "\ CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE Ill. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS G. SURFACE WATERSUPPLV Canadian River Municipal Water Authority The Canadian River Municipal Water Authority (CRMWA} is a Conservation and Rccla.malion District established by the Texas Legislature lO constroct a dam, water reservoir, and aquedUC{ system for lhe purpose of supplying water 10 surrounding cities. The Oistrict was created in 1953 and comprises eleven cities. including the City of Lubbock. The budget, financing. and operations of !he: District arc 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, 2004, the Board was comprised of 18 members, two of which rc:presen1ed the City. The City contracted with the CRMWA to reimburse it for a portion of the cost of the Canadian River Dam and aqueduct system in exchange for surface water. Prior 10 fiscal year 1998-99, such payments were made solely from water system revenues and were not considered general obligations of the Cily. The City's pro rata share of annual fixed and variable operating and reserve assessments are recorded as an expense of obtaining surface water. Prior to fiscal year J 998-99. long-term dc:bl 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 costs was S32,90.'i,862. During the year ended September 30, 1999, bonds in the principal amount of SJ2,300.000 were issued to pay off the construction obligation owed to the U.S. Bureau of Reclamation via 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 of Rcclanwion 10 the member r.:ities. This discount has been recorded as a deferred gain on refunding and is being amonized over the life of the refunding bonds. At September 30, 2004, $5,904,703 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 capital assets and are being amortized over 85 years. The cost and debt are recorded in the Wat.er Enterprise Fund. Braus River Authority -Lake Alan Henry During 1989, the City entered into an agreement with the Brazos River Authority (BRA) for the construction. maintenance, and 0peration of the facilities known as Lake Alan Henry. The BRA, whir.:h is authorized by the State of Texas to provide for the conservation and development or sutface waters in the Brazos River Basin, issued bOflds for the construction of the dam and lake facilities on the South Fort of the Double Mountains Fork of the Brazos River. Total costs are expected to exr.:eed $120 million. The agreement obligates the City to provide revenues to BRA in amounts sufficient to cover all maintenanec and operating costs, management fees of the: authority, as well as funds sufficient to pay al I capital costs associated with construction. The City will receive surface water for the payments to BRA. Approximately $515,005 was paid to lhe BRA for maintenanec and operating costs during the fiscal year. 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. Construction of the dam and lake facilities began in 1989. The City is obligated to p"rovide sufficient funds ovei-the remaining life of the bonds to setVice the debt requiremc:nL The asset, Lake Alan Henry dam and facilities, are recorded as capital assets and arc being depreciated over 50 years. The financial activity. along with the related obligation, is accounted for in the Water Entetprise Fund. In order to protect against the risk of interest rate changes between March 28, 2002 and May I, 2005, the City entered into an interest rate swap agreement with JPMorgan Chase (herein referred to as the KSwap Provider") rated A+ by Standard & Poor's and Aa3 by Moody's Investors Service with a notational dollar amount of $40,465,000. The City entered into an interest rate swap in order to achieve lower borrowing costs associated with an anticipative borrowing in 2005. This borrowing will prepay and refund the obligation of the City to pay debt service on Special Facilities (Lake Alan Henry) Revenue Refunding Bonds, Series 1995 issued by the BRA to finance or refinance the construction of surface water supply facilities known as Lake Alan Henry pursuant to a Water Supply Agreement, dated as of May 11, 1989, as amended, betwtt:n the BRA and the: City; and under this agreement commencing Each August I, starting 78 ) ) ) ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE III. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS G. SURFACE WATER SUPPLY (CONTINUED) August I. 2003 up to and including August I. 2005 the Swap ProvidCT pays a premium ofS280.000 to the City and in addition beginning May I, 2005, the swap Provider will pay the City of Lubbock in1c:rest on tile notational amount of the swap based on the Bond Market Association (BMA) Municipal Bond Index on a monthly (actual/actual) basis. On a monthly (30/360) basis. the City of Lubbock pays the Swap Provider intcrcst at the fixed rate of 5.260%. Additionally, the Swap Provider has the right but. not the obligation. to terminate the transaction in whole when the 180 day weighled average of lhe Municipal Bond Index is more than 6.50"/o, but with no market value cost to lhc City. The notational amount of the swap reduces annually; the reduc1ions begin on August I, 2006 and mature on August I, 2022. As of December I 0, 2004, rates were as follows: Fixed payment Variable payment FiKed BMA 5.260% 1.450% Al December 10. 2004 the swap agreement had a negative fair value or S6,07S,000. The fair value was developed by using the zero coupon method. This method calculates the fu1ure net settlement payments requin;d by the agreement assuming Iha£ 1he current rorward rates implied by the yield curve correctly anticipate future spot interest rates. These payments are then discounted using 1hc spot races implied by the current yield curve for hypothetical zero-coupon bonds due on rhe dale of each future net settlement on the swap. At December 10, 2004, the City was not exposed to credit risk because the swap had a negative fair value. However, should interest rates cltange and the fair value of lhe swap become positive, the City could be exposed to credit risk in the amount of the derivative's positive fair value. Should the swap have a positive fair value at some point the Swap Provider may be required to collateralize a percentage of their exposure. Since inception no impairments in· respect to the Providei--'s ratings have occurred. The City's derivative contract uses lhe International Swap Dealers Association Master Agreement The swap agreements include standard tennination events, such as failure to pay, credit rating downgrades. and bankruptcy. Al1hough the City has obtained provisions to avoid an unwanted early termination event. the result of such an occurrence cou 1 d resu It in the City being required to make an unanlicipaled tcnni nation payment 79 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements SeptemberJ0,2004 ) NOTE IIL DETAIL NOTES ON ALL ACTIVITIES AND FUNDS H. LONG-TERM DEBT GENERAL OBLIGATION BONDS AND CERTIFICATES OF OBLIGATION: ) Average Fiaal Balance lnterC$t Issue Maturity Amount Outstanding Rate Date Date Issued 9-3~ 9.01 05-15-91 02-IS-1 I $1,085,000 370,000 5.50 05-15-92 02-15-04 34,520,000 1,725,000 3.97 05-01-93 02-15-15 14.425,000 725,000 S.39 10-01-93 02-15-14 3,625,000 1,825,000 5.39 10--01-93 02-15-14 2,550,000 1,J00,000 S.20 IO-Oi-93 02-15-14 1,470,000 225,000 5.14 10-01-93 02-15-14 19,215,000 2,895,000 5.50 05-15-95 02-15-15 4,690,000 235,000 5.07 12-15-95 02-15-16 6,505,000 650,000 5.07 12-15-95 02-1S-16 10,000,000 1,000,000 4.91 01-15-97 02-15-09 17,530,000 9.190.000 4.61 Ol--01-98 02-15--08 1,330,000 610,000 4.71 01.01-98 02-15-18 10,260,000 7.200.000 4.36 01-15-99 02-15-14 20,835,000 18,870,000 4.58 01-15-99 02-15-19 15,355,000 11,505,000 4.77 04.()1-99 02-15-19 6,100,000 4,575,000 4.71 04.01-99 02-15-19 12,300,000 9,300,000 5.37 09-15-99 02-15-20 24,800,000 21,600,000 5.54 03-15--00 02-15-20 7,000,000 2,430,000 ) 4.90 02.01.01 02-15-21 9,100,000 8,410,000 4.81 02-01--01 02-IS-2I 2,770,000 2,350,000 5.25 06--01.0 I 02-15-31 35,000,000 33,715,000 4.68 02-15-02 02-15-22 9,400,000 9,095,000 4.71 02-15--02 02-15-22 6,450,000 6,235,000 4.70 02-IS-02 02-15-22 1,545,000 1,490,000 4.62 07-01-02 02-15-22 2,605,000 2,440,000 3.18 07-01.02 02-15-10 10,810,000 7,865,000 4.42 07-15--03 02-15-23 ll,8S5,000 11,255,000 4.47 07-15-03 02-15-24 9,765,000 9,765,000 4.48 07-15-03 02-15-24 680,000 680,000 4.47 07-15-03 02-15-24 3,:590,000 3,590,000 4.87 07-1S-03 02-15-34 40,135,000 40,135,000 4.47 07-15--03 02-15-24 3,795,000 3,795,000 4.60 08-15-03 04-15-23 8,900,000 8,465,000 4.60 08-15-03 04-15-23 13,270,000 12,625,000 4.09 09-28-04 02-15-24 2,02S,OOO 2,025,000 4.08 09-28-04 02-15-24 3,100,000 3,100,000 3.58 09-28-04 02-15-20 22,620,000 22,620,000 Total $411,010,000 285,885,000(A} ) (A) Eia:ludes net defe=d gains and losses on advance refundings, prior year bond discounts of $4,993,103 ($3,813,381 business-type and $1,179,722 governmental.). Additionally, this amount includes SllS.663,783 of bonds used to finance enterprise fund activities. At September 30, 2004, management oflhe City believes that it was in compliance with all financial bond ) covenants ou outstanding general obligation bonded debt, certificates of obligation, and water n:venuc bonded debt 80 ) ) ) ) 1 ' ) ) ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 301 2004 NOTE IIl. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS B. WNG-TERM DEBT (CONTINUED) ELECTRIC REVENUE BONDS Final Amount Interest Ra!g•/4} Issue Date Maturity Date Issued 3.80 to S.50 ~IS-95 4-1.5-08 S 13,560,000 4.25 to6.25 1-01-98 4-IS-18 9.170.000 4.05 to 5.00 5-01-98 2-15-18 28,910,000 3.10 to S.00 1-15-99 4-15-19 14,975,000 4.00 to S.25 7-01-01 4-15-21 9,200,000 Total $ 75,815,000 • Balaocc outstanding excludes ($595,420) of discount on bonds sold. laCercst Rate 3.80to5.SO% WATER REVENUE BONDS Issue Date 6-1-95 Fiaal Maturity Date 8-15-21 Amoanl Issued $58,170,000 Balance Outstanding 9-30--04 4,360,000 6,440,000 21.285,000 9,185,000 7,820,000 49,090,000 • Balance Outstaading 9-30-4)4 45,SIS,000 • • Balance: outstanding excludes ($4,132,838) discount and deferred losses on bonds sold or refunded. The annual requirements to amonize all outstanding debt of the City as of September 30, 2004 are as follows: Governmental Acliricica Business-T~ Adivilica Fiscal Geaeral Obligalion Bonds Genenl Obligalion Bonds llcw:nueBonds Year Princi2!! InW'efit Principal Iateteel Princii?!! lnW'eSt 2004-05 $ 4,955,949 2,975,462 11,104,051 9,824,743 6,265,000 4,784.861 2005-06 4,479,101 2,867.175 10,845,8'.19 9,}80,451 6,305.000 4,475,173 2006--07 4,685,492 2,674,605 11,329,508 8,916,898 6,370,000 4,176,228 2007-08 4,514,994 2,491,285 1 t ,035,006 8,444,872 6,115,000 3,869,100 2008-09 4,468,654 2,298,592 10,861,3-16 7,974,453 5,415,000 3,571,735 2009-14 21,145,278 8,592,662 53.604,722 32,762,481 27,995,000 13,717,183 2014-19 15,776,749 4,246,685 44,128,251 21,506,908 29,750,000 6.2()6,l65 2019-24 10,195,000 896,451 29,230,000 11,982,075 6,390,000 527,850 2024-29 17,900,000 6,3.71,230 2029-l4 15,625,000 1,695,013 Totals $ 70,221,.217 27,042,917 215,663,783 t 18,859,124 94,605,000 41,328,494 The annual requirements on capital leases of the City as of September 30, 2004, including illtcfCst payments of SI 06,232 ~ as follows: Govemmen1al Business-Type Total Capital Lease Capital Lease Capital Lease Fiscal Minimu,n Mininu1m Minimum Year PaEcat PaEeat Paeent 2004--05 s 854,159 666,220 1,520,379 2005-06 545,380 418,741 964,121 2006-07 353,694 353.694 2007-08 22,202 22,202 Less: Intetest (38,S8!l !67,65oi 1106,23~ Tow 1,360,957 1,l93,207 2,754,164 81 ) ) ... , ) .., ) ) ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE ill. DETAIL NOTES ON ALL ACTMTIES AND FUNDS H. LONG-TERM DEBT (CONTINUED) The carrying values on the leased assets of lhe City as of September 30. 2004 are as follows: Accumulated Net Book GrosaValue Dqmdalion Value Governmental. Activities $ 3,SS&,489 1,441,188 2,117,301 Business-Type Activities 3,404,477 1.()64.892 2,339,585 Total Leased Assets $ 6,962,966 2,506,0SO 4,456,886 Long-term obligations (nel of discounts and premiums) for governmental and business-type activities for the year ended September 30. 2004 are as follows: Debt Payable Debt Payable 9/30/'lJXJJ Additions Deledona 9 I 30 f'}J104 Govemmeotal activicics: T:ax-Supponed - Obligalioa Bonds $ 69,808,204 27,745.000 27,331,987 70,221,217 Rebw.ble Arl>icragc 122.984 122,984 Capital Leases 9%,477 1.535,075 1,170,595 1,360,957 Compensated Abseru:<:s 12,636,967 7,.918,589 S,6l7,048 14,918,508 Insur:wa: CWio Payable 2,7'}J),897 14,328,384 14,694,745 2,354,Sl6 Bond DiS<:ountS/Prcmiums 1,179,722 1,179,722 Total Govc:mmcntal acrivicies 86,285,.529 52,706,770 48,957)59 90,034,940 Business-Type activities: Self-Supported - Obligalion Bonds 226,126,796 10,463,013 215,663,783 Reveaue Bonds 101,295,000 6,690,000 94.605,000 C2pital~ 1,941,223 1,844,606 2,392,622 1,393,207 RebaQblc Atbit:ci.gc: 119,152 119,152 Ooslln:/Post OoSUtt 2,690,001 361,1 IS 3,051,116 C~Abseoces 3,695,242 2,849,947 2)85,047 4,160,142 Insunna: Claim Pa)'2blc 6,000,000 5,904,528 5,467,674 6,436,854 BoodDiscoona/Prcmi.uim il,496,.39~ 2,796:J(,2 2,215,441 !214,877) Total Busincu-Typc: ac:tivitics $ 340,371,016 13,757,158 29,732,949 324,395,225 Payments on _bonds payable and arbilJagc payable for governmental activities an: made in the Debt Ser\lice Fund. Accrued compensated absences that pertain to governmental activities will be liquidated by the General Fund and ~pccial Revenue fimds. The Risk Management Internal Servi«: Fund will liquidate insurance claims payable that pertain to governmental activities. Payments for the capital leases that pertain to lbc governmental activities will be liquidated by the general fund. 82 Ducin oner.,e:u 4,955,949 826,018 5,475,861 2,354,536 13,612,364 11,104,0Sl 6,265.000 622,442 2,143,563 1,184,210 ~.333l 21,221,933 ) ) ) ) ) ) ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE Ill. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS H. LONG-TERM DEBT (CONTINUED) The Iota! long-term debt is reconciled 10 lbc total annual requirements to amortize long-tenn debt as follows: l .. ong • rcrm debt • G ovcrn mental Activities I ..c,ng-rez:m debt -Business-type Activities lntc=t Toti! amount of debt Net i.•suns/losscs, premiums/discounts I .css: Rcbat:lblc arbitro.gc I ..css: Capital leascs Less: Insurance claims payable Less: Compens2tc<l abscnsc,; I .css: Clo,;urc/ post closure Total other debt Total future bon<.kd tlcbt ""<luiremcnts $ 90,034.940 }24 .39 5 .225 187.230.SJS (264,845) (2,754,164) (8,791,J90) (19,078,6SO} (3,051,116) 601,660,700 (lJ,940, 165) $ 567,720,535 The City Council called an election for May IS, 2004 to seek voter approval to issue general-purpose tax- supported bonds in the amount of $30,000,000, which represents lhe City's current six-year general- purpose debt plan. The following seven propositions were approved by the voteJS: street improvements, $9,210,000; civic center/auditorium renovations and improv~ts. $6,450,000; park improvements, $6,395,000; polict/municipal coun racilities, $3,350,000; library improvements, S2, 145,000; fire stations, $1.405,000 and animal sheller renovacions and improvements. $1,045,000. The City previously issued a capital improvement plan to voters in 1999, when voters in the.City approved a $37,385,000 capital improvement plan. In September 2004, the City issued $2,025,000 General Obligation Bonds, Serles 2004. This issuance was lhe first installment or the capital improvement debt issuance approved by the voters in 2004. The Obligations were issued at a net discount of$23,332. After paying issuance costs ofSS0,000, the net proceeds were $1,951,668. The proceeds from the sale of the Obligations will be used to fund the following projects: Fire station improvements, $80,000; animal shelter impr<1vemtt1ts, $154,000; park improvements, $181,000; street improvements, $1,420,000; traffic control improvements, $100,000; and costs associated with issuance oflhe bonds. In September 2004, the City issued $3,100.000 Tax and Waterworks System Surplus Revenue Cenificatcs of Obligation, Series 2004. The Certificates were issued at a net discount of $36,042. After paying issuance costs of $58,000. lhe oel proceeds were SJ,005,958. Proceeds from the sale of these Certificates will be used for street improvements, including drainage, streetlights, and iraffic signalil.ation and lhe acquisition of land and necessary rights-of-way; and costs associated with the issuance of the Certificates. 83 ) ) ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30~ 2004 NOTE Ill DETAIL NOTES ON ALL ACTIVITIES AND FUNDS I. ADVANCED REFUNDING On September 28, 2004, the City issued General Obligation Refunding Bonds, Series 2004 ("Refunding Bonds") with a par value of $22,620,000 and a net interest cost of 3.7855% lo refund $23.205.000 of ou1standing bonds. These bonds were issued 10 refund a portion of the City's outstanding tax-supported deb! 10 lower the debt service requirements on such indebtedness. The Refunding Bonds were issued at a net premium of Sl.815,646. After paying issuance COStS of $304,179, the net proceeds were $24,224,912. The net proceeds from the issuance of lhc Refunding Bonds were deposited with the Escrow Agent (JPMorgan Chase Bank. Dallas, Texas) in an amount necessary to accomplish the discharge and final payment of the Refunded Bonds on their scheduled redemption date. These funds will be held by the Escrow Agent in a special escrow fund and used to purchase direct obligations of the United State of America. Under the escrow agreement, between the City and JPMorgan Chase Bank. the escrow fund is irrevocably pledged 10 the payment of principal and interest on the Refunded Bonds. The Refunded Bonds were removed from the City's basic financial statements. As a result of the refunding. the City decreased its total debt service requirements by $874,03 I. which n;sulted in an economic gain ofS836,3!2 and an accounting loss ofSl,0.19,912. The net premium and bond issuance costs are allocated lo both the governmental funds and the enterprise funds based on lhe fund type which will be responsible for servicing the debt. J. CONDUIT DEBT The City issued Housing Finance Corporation Bonds, Health Facilities Development Corporation Bonds, and Education Facilities Authority Bonds to provide financial assistance to private sector entities for the acquisition and consuuetion of facilities deemed to be in the public interest. The bonds are secured by the property financed. Upon repayment of tile bonds, ownership of lhe a<:quired facilities transfers to the pri vale-sector entity served by the bond issuanoe. Neither the City, the State, nor any political subdivision thereof is obligated in any manner for repayment of1he bonds. Accordingly, the bonds are not reported as liabilities in the accompanying financial statements. As of September 30, 2004, there were seven series of Lubbock Health Facilities Development Co,poration Bonds outstanding with an aggregate principal amount payable of$338,358,912. The bonds were issued between 1993 and 2002. Also as of September 30, 2004, there was one series of Lubbock Education Facilities Authority Inc, Bonds outstanding with an aggregate principal amount payable of SI I ,000,000. The bonds were issued in 1999. K. RISK MANAGEMENT The Risk Management Fund was established to account for liability claims, worker's compensation claims, and premiums for property/casualty insurance coverage. The Risk Management Fund generates its revenue through charges lo other departments, which an: 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 orda to control the risks associated with I iability claims, the City purchased excess liability coverage in September 1999 which is renewed annually. The policy has a $10 million annual aggregate limit and is subject to a $250,000 deductible per claim. 84 ) ) ) ) ' CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE III. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS K. RISK MANAGEMENT {CONTINUED) ror self-insured coverage, the Risk Management Fund establishes claim liabili1ics based on estimaleS of the ultimate cost of claims (including future claim adjustment expenses) that have been reported but not sculcd. and of claims that have been incurred but not reported (IBNR). 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 rac1ors as inflation, clianges in doctrines of legal liability, and damage awards, the process used in compu1ing claim liabilities does not necessarily result in an exact amount, particularly for liability coverage. Claim liabililies are iccomputed periodically using a variety of aclllarial and statistical techniques to produce current estimates that reflect recent settlements, claim frequency, and other economic and social factors. Adjustments to claim liabilitie:; arc charged or credited 10 expense in the period in which they are incurred. Additionally, property and boiler coverage is accounted for in the Risk Management Fund. 1hc 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 S2S0,OOO 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 f1oaters, are also accounted for in the Risk Management Fund. Funds arc charged based on pmnium amounts and administrative charges. The City has had no significant reductions in insurance coverage during the fiscal year. Settlements in the current year and preceding two years have not exceeded insurance coverage. The City accounts for all insurance aciivily in Internal Service Funds. L HEALTHINSURANCE The City provides modical and dental insurance for all full-time emp.loyecs that arc accounted for in the Health Insurance Fund. Revenue for lhe heallh insurance premiums are generated ftom each cost center based upon the number of active full-time employees. The City's plan is self-insured under an Administrative Services Only (ASO) Agre<:menl The ASO Agreement provides excess coverage of $150,000 per covered individual annually and an aggregate cap of $12,546,913. The insurance vendor based on medical trend, claims history, and utifrzation determines the aggregate deductible. The conll'act requires an IBNR reserve of approximately $2.3 million. The City also provides full-time employees basic tenn life insurance and long-tenn disability insurance. Revenues for the life insurance premiums and long-tenn disability premiums are also generated from each cost center based upon the number of active employees. The life insurance policy has a face value of $10,000 per employee. The City will discontinue providing long-term disability insurance as an employer paid benefit during fiscal year 2004-05. Long-term disability premiums are set at a rate pa-$ I 00 of annual salary. full-time employees may elect to purchase medical and dental insurance for eligible dependents and the City subsidizes dependent premiums to reduce the cost to employees. Employees may also elect to participate in several voluntary insurance programs such as a cancer income policy, voluntary life, and personal accident insurance. Voluntary insurance products are fully paid by the cmployu. Retiring City employees may elect to retain medical and dental insurance and a reduced amount of life insurance on themselves and eligible dependents. The retiree pays a portion of the premium costs, but the City subsidies retiree premiums by about $1.3 million annually. The life insurance is fully paid by the retiree. · 85 '\ ) ') ) ... .I \ CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements Septemberl0,2004 NOTE m. DETAIL NOTES ON ALL ACTfVITIES AND FUNDS M. ACCRUED INSURANCE CLAIMS N. The Sclf-lnsW11J1cc Funds establish a liability for self-insurance for both fel'Ortcd and unreported insured events. which includes estimates. of both future paymenlS of IOSKS and related claim adjustment expenses. The following rcprcscnts changes in those: aggregate liabilities for the Sclf-lnsuranc.c Funds during the past two years ended September 30: 2004 2003 WodceQ' Compensation and Liability Reserves at ~miog of fiscal ycac $ 6,000,000 6,000,000 Cwms Expenses 5,467,674 4.561,925 Claims P2.ymencs ~.030,820) ~4.561,9251 Workers' Compensation and Liability Resaves at end of 6scal year 6,4¾,854 6,000,000 Medical and Dental Claims Liability ar beginning o( 6scal ycac 2,7'2D,897 2,685,925 C12imsExpenses 14,.328,384 u. 148.()48 Claims Payments· {14,694,745) (13,113,07~ Medical and Dental Claims Liability ar end of fiscal year 2,.354,536 2.,720,897 Tow Self-Insurance Liability at end of fiscal ycac 8,791,390 8,720,897 Tollll Assets to pay claims at end of fiscal ycac 18,920, '1<i9 19,741,497 Accrued insw,ancc claims payable from restricttd assets - c:uncnl 3.538,746 4,220,897 Accmed insunnce daims payable. noocunr.nt 5,252,644 4,.500,000 Total accrued insurance claims $ 8,791,390 8,721),897 LANDFILL CLOSURE AND POSTCLOSURE CARE COST State and federal laws and regulations require the City to place fioal cover.; on its landfill sites when they stop accepting waste and to perfonn certain maintenance aod monitoring functions at rhc sites for thirty years after closure. Although cl~ and postclosure care costs will be paid only near or after the date that the landfills stop accepting waste, the City reports a portion of these closure and postclosure costs as operating c:xpcnscs (and recognwng a comsponding liability) in each period based on landfill capacity used as of each balance sheet date. The $3,051,116 included in landfill closure and postclosure can: liability at September 30, 2004, represents the cumulative amount expensed by the Cify to dare for its two landfills that are registered under TCEQ permit numbers 69 (Landfill 69) and 2252 (Landfill 2252), less amounts that have been paid. Over 92 percent of the estimated capacity of Landfill 69 has been used to date, with $753,669 remaining to be tee0gnizcd over the ,-wrung closwc period, which is estimated at three years.. Approximately 2.2 pcrccol of the estimated capacity ofLandfill 22S2 has been used to date, with $22,867,597 remaining to be recognized ovct the remaining closure period, which is estimated at over 80 years. PostcloSUJe care costs arc based on prior estimates and have been adjusted for inflation. Actual a,slS may be diffcn:nt due to inflation, deflation. changes in technology, or changes in regulations. The City is required by state and fedc:ral laws and regulations to provide assurance thac financial resources will be available to provide for closure, postclosure care, and l'CIDCdiation or containment of environmental hazan1s at its landfills. The City is in compliance with these requirements and bas chosen the Local Government Financial Test mechanism for providing 1his assurance. The City expects to finance costs through normal operations. 86 ) ) ... ) ) CITY OF LUBBOC~ TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE III. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS 0. DISAGREGATION OF ACCOUNTS Aox.mlllB«civabkS"Pi ,. GJurt Property 6m:a ~ TxDCJI' Pawq Gr-. ~ actMties: G:noa!Fuod $ 4,537,134 551.155 472,281 403,300 DdJt Service NonMajor ~4l.\012 Tot.al $ 4,5J7,U4 551,155 472,281 403,300 2,,m.012 J\t:i0ouols ~ S,mam., General From Cffllit IW...:eat C-amr Olbc:rs Caad Mi&e. 9/3D/04 "BusinesMyp:Aamties Bearic 14,192,556 '3S)IJl 14,227,763 ~ 4,181,134 452 1;,':I:} 4,189,145 Sa= 2,380,864 89,104 11,875 2.481,843 ~ 768,042 768,042 WIMPA 7,568,176 7,568,176 Noa-Major 2,331,690 2,580 40,72.6 2)74'9{, Tora! $ 31,422,462 89,556 2,580 95)67 31,609,965 Miac:. .385,llOB 162,485 51938 SS4,Dt Allowanee ,or Doubtlul Accomau Sua1111!!!I Balano:ac Accounts Taxes 9/30/04 Govcmmcntal General Fund $ 250,925 1,202,795 1,453,720 Debt SCMCC Fund 438,808 438,808 Noo-Majot 5,938 S,938 Business-Type Electric 835,314 835,314 Wa11er 253,386 253,386 Sewer 125,372 125,372 Stonnwatet 62,443 62,443 wrMPA 675,217 675,217 Noo-Major 148,493 148,493 Tobd $ 2.357,088 1,641,603 3,998,691 87 Babnceat 9/?Jj/04 6.,349,778 162,~ ~438,m 8,951,213 ) ) ) ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September30~2004 NOTE Ill. DETAIL NOTES ON ALL ACTIV1TIES AND FUND 0. DISAGREGATION OF ACCOUNTS (CONTINUED) Ac:coun•PayableSumawy Vouchen Accounts Iovulments Mi.scdlaneous Govemmetat:al General Fund $ 4S4,39S 1,.287,984 93,648 Debt Service 167,374 250,643 Non-Major 349,943 2,371,925 174,987 234,437 Buswss-Type Electric 679,590 7,644,824 3,410 188.584 Water 78,964 580,589 1,462 69,370 Sewer 163,982 23,978 2,344 l-4,340 Stoanwatcr 1,172 53,213 WfMPA 6,196,)07 Non-Major 1831429 795,9Z7 36l9 174,224 TOllll s 1,911,47S 19,122,121 436,485 794.600 ,. DISAGREGATION OF ACCOUNTS-GOVERNMENT-WIDE Net Receivables AccollDtS Intucst Tazcs la.tcmal Scmcc. ReceiV'ahlc: Rc:cavable Rcccivablc: Fuads Recc:inbles Govcmmencal Activities s 8,694,350 101,728 7,4811.-784 99,002 Business-Type Act:ivities 29,509,738 191,476 110,744 Total s 38,204,0SS 293,204 7,488,784 209,746 Acxoun18 P2ablc: Aa:ounm lntc:mal Savicc Balance at Payable: Funds P~ablc:s 9/30/04 Govcmmcnw Ac:tmtics s S,385,334 373,461 5,758.,795 Business-Type Activities 16,879 ,.348 1,012,6TT 17,89ZO'lS Tola! s 22,2.64,682 1,386,138 23,650,820 Q. FUND CLOSURES Balance at 9/30/04 1.836.027 418,017 l,131,292 8,516,408 730,.lBS 2'24,644 S4,38S 6,196,307 1,157,219 22,264,684 Balaacc at 9/30/04 16,383,864 29,811,958 46,195,822 fn fiscal year 2004, management streamlined the accounting process and closed the following funds: Information Technology Improvements and Community [mprovements. 88 ) ) ) ) ) ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September30>2004 NOTE IV. CONTINGENT LIABILITIES A. FEDERAL GRANTS In the nonnal course of operations, the City receives grant funds from various Federal and state agencies. The grant programs arc subject to audits by agents or 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 grants is not believed to be significant. B. LITIGATION The City is currently involved in the following lawsuits which could have an impact on the financial position if the City is found liable. Adams, et al "· City or Lubbock: The City has been sued by numerous firefighters employed by the Ciiy of Lubbock.. They claim that the City did not properly pay its firefighters for "move-up~ pay pursuant 10 the Civil Service Acl Pursuant to the Civil Service Act firefighters can move-up and perform cemporary duties in higher classifications. When they perform these duties they are entitled to the pay or the higher cla.<1.~ifo;ation. While the City has paid them this higher pay, the plaintiffs assert they are also entitled ID the "seniority pay" which they've earned at the lower classification. Their basis for this assertion is that 1hc statute says that they are entitled 10 1he base pay or the higher classification plus any "longevity or seniority pay". Both sides filed Motions for Summlll)' Judgment in the trial court and the court ruled in favor of the plaintiffs. The City's Motion for Summary Judgment was denied. Plaintiffs were awarded damages, collectively, in the amount ofS688,000 for damages through July 12, 2002, which includes pre-judgment interest. Plaintiffs were denied attorney's fees. The City of Lubbock appealed the trial coun's decision to the appellate court. On October 7, 2004, the Appeals Court reversed the judgment of the trial court and rendered a decision in favor of the City, holding that the City paid its employees properly under the Civil Service Act. The Plaintiffs filed a Motion for Rehearing, which was denied. Plaintifls have indicated they will altempl 10 have the Texas Supreme Court review the case. Barnard Construction Comp.any, Inc. v. City or Lubbock: The Plaintiffis a construction company suing !he City for breacli of contract. The plaintiff alleges chc City owes it nearly $2,400.000 for rock it excavated on a drainage project They assert that they are owed $204,000 for rode excavated on Line Al and assert they are owed nearly $2,200.000 for rock excavated on other lines on the project The City has agreed IO pay for approximately $176,000 of rock excavated on Line Al. However, the City denied that it owes Barnard any compensation for rock excavated on the other Lines. llle City filed a Motion for Summa,y Judgment as to this issue and a Trial Court ruled in the City's favor on September 28. 2004. Barnard has indicated it will appeal. Jeanette Livingston, et al 11. City or Lubbock: Six Plaintiffs filed suit against the City alleging that the City and/or County failed to properly record information in its cemetety records that would indicate where their relatives were buried. The Plaintiffs' attorneys have indicated that he has approximately eighty other clients in the same or similar posit.ion. The City asserts it is not responsible ror the improper recordation by the prior entities. The City also assens that the Plaintiffs have no physical injuries and then: is no cause or action in Texas for the negligent infliction of emotional distress. The City is al so asserting defenses under the statute of I imitations. At this time, damages are difficult to asccrwn but, collectively, they would meet the $200,000 materiality definition for damages. 89 ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September30,2004 NOTE IV. CONTINGENT LIABILITIES B. LITIGATION (CONTINUED) Marcie Tanner v. City or Lubbock: The Plaintiff sued the City for racial discrimination. pursuant to 42 U .S.C. § 1981, after she was lenninated from her employment with the City of Lubbock. The City asserts that slie was lcnninated because she sent duplicate mileage reimbursement requests to both the City her employef", and Texas Tech University. The Plaintiff also sued Texas Tech, but Texas Tech was dismissed. The City does not believe the potential damages are above $200,000. C. SITE REMEDIATION The City has identified specific locations requiring site remediation relative to underground fuel Storage tanks and historical fire training sites. The potential exposure is not readily deteiminable as of September 30, 2004. fn the opinion of management, the ultimate liability will not have a 11181erially adverse effect on lhe City's financial position. NOTE V. SUBSEQUENT EVENTS A. VOTER APPROVED CHARTER AMENDMENT The voters of the City of Lubbock on November 2, 2004, voted to amend the Charter of the City of Lubbock providing for an Electric Utility Board composed of nine Lubbock citizens and eligible voters appointed hy City Council be created to govern, manage, and operate the City's electric utility. The Cily Council appointed the nine members of the new Electric Utility Board on November 12, 2004 pursuant to the Charter Amendment passed by the voters of the City of Lubbock on November 2, 2004. The purpose of th.e change is to give closer scrutiny to LP&L's competitive position and long tenn financial viability. B. LUBBOCK ECONOMIC DEVELOPMENT ALLIANCE, INC. (LEDA) Lubbock Economic Development Alliance., Inc. (LEDA) is a S0IC-4 Corporation created by the Lubbock. City Council to take the lead in economic deveJopment for the City. LEDA is led by a five member Board · appointed by the City Co_uncil and is funded by a 118 cent increase in the sales tax. The sales tax increase was approved by the voters for economic development activities in November 2003. LEDA will be considered a component unit of the City when it begins collecting fonds ftom operations during the fiscal year 2004-0S. 90 ) ) APPENDIXC FORM OF BOND COUNSEL'S OPINION ) ) ) Vinson(~-Elkins APPENDIXC FORM OF BOND COUNSEL OPINION [Date of Closing] $ ___ _ CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION BONDS SERIES all:> WE HA VE represented the City of Lubbock, Texas (the "City"), as its Bond Counsel in connection with an issue of bonds (the "Bonds") described as follows: CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION BONDS, SERIES 3lli, dated July 15. all>, issued in the principal amount of$ ---- The Bonds mature. bear interest, are subject to redemption prior ·to maturity and may be transferred and exchanged as set out in the Bonds and in the ordinance adopted by the City Council of the City authorizing their issuance (the "Ordinance"). WE HA VE represented the City as its Bond Counsel for the sole pwpose of rendering an opinion with respect to the legality and validity of the Bonds under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Bonds from gross income for federal income tax purposes. We have not investigated or verified original proceedings, records, data or other material, but have relied solely upon the transcript of proceedings described in the following paragraph. We have not assumed any responsibility with respect to the financial ·condition or capabilities of the City or the disclosure thereof in connection with the sale of the Bonds. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Bonds has been limited as described therein. IN OUR CAPACITY as Bond Counsel, we have participated in the preparation of and have examined a transcript of certified proceedings pertaining to the Bonds, on which we have relied in giving our opinion. The transcript contains certified copies of certain proceedings of the City and customary certificates of officers, agents and representatives of the City, and other public officials, and other certified showings relating to the authorization and issuance of the Bonds. We have also examined executed Bond No. 1 of this issue. BASED ON SUCH EXAMINATION, IT IS OUR OPINION THAT: Vmson & Elkins U.P Atlomeys at Law Austin Beijing Dallas Dubai Houston londoo Moscow N-Yock Tokyo washington Trammell Crow Center. 2001 Ross Awnue, Sulte 3700 Dallas. Texas 75201-2975 Tel 214.220.noo Fax 214.220.7716 -.velaw.com ) ) ) ) V&E (A) The transcript of certified proceedings evidences complete legal authority for the issuance of the Bonds in full compliance with the Constitution and Jaws of the State of Texas presently effective and, therefore, the Bonds constitute valid and legally binding obligations of the City; and (B) A continuing ad valorem tax upon all taxable property within the City, necessary to pay the interest on and principal of the Bonds, has been levied and pledged irrevocably for such purposes, within the limit prescribed by law, and the total indebtedness of the City, including the Bonds, does not exceed any constitutional, statutory or other limitations. THE RIGHTS OF THE OWNERS of the Bonds are subject to the applicable provisions of the federal bankruptcy laws and any other similar: laws affecting the rights of creditors of political subdivisions generally, and may be limited by general principles of equity which permit the exercise of judicial discretion. IT IS OUR FURTHER OPfNION THAT: (1) Interest on the Bonds is excludable from gross income for federal income tax purposes under ex.isting law; and (2) The Bonds are not "private activity bonds" within the meaning of the Code, and interest on the Bonds is not subject to the alternative minimum tax on individuals and corporations, except that interest on the Bonds will be included in the "adjusted current earnings" of a corporation (other than an S corporation, regulated investment company, REJT, REMIC or FASll) for purposes of computing its alternative minimum t.ax liability. In providing such opinions, we have relied on representations of the City, the City's financial advisor and the underwriters of the Bonds with respect to matters solely within the knowledge of the City, the City's financial advisor and the underwriters respectively, which we have not independently verified, and have asswned continuing compliance with the covenants in the Ordinance pertaining to those sections of the Code that affect the exclusion from gross income of interest on the Bonds for federal income tax purposes. If such representations are determined to be inaccurate or incomplete or the City fails to comply with the foregoing provisions of the Ordinance, interest on the Bonds could become includable in gross income from the date of original delivery, regardless of the date on which the event causing such inclusion occurs. Except as stated above, we express no opinion as to any federal, state or local tax consequences resulting from the receipt or accrual of interest on, or acquisition, ownership or disposition of, the Bonds. ws1B.tmp -2- ) ) V&-E Owners of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations and individuals otherwise qualifying for the earned income credit In addition, certain foreign corporations doing business in the United States may be subject to the "branch profits tax" on their effectively-connected earnings and profits (including tax-exempt interest such as interest on the Bonds). The opinions set forth above 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 these opinions to reflect any facts or circumstances that may hereafter come to our attention or to reflect any changes in any law that may hereafter occur or become effective. Moreover, our opinions are not a guarantee of result and ~ not binding on the Internal Revenue Service (the "Service"); rather, such opinions represent our legal judgment based upon our review of existing law and in reliance upon the representations and covenants referenced above that we deem relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is inctudable in gross income for federal income tax purposes. No assurance can be given whether or not the Service will commence an audit of the Bonds. If an audit is commenced. in accordance with its current published procedures the Service is likely to treat the City as the taxpayer. We observe that the City has covenanted in the Ordinance not to take any action, or omit to take any action within its controi that if taken or omitted, respectively, may result in the treatment of interest on the Bonds as includable in gross income for federal income tax purposes. ws1B.tmp -3- OFFICIAL ST A TEMENT Dated June 24, 2005 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 is excludable from gross income for federal income tax purposes under existing law and the Bonds are not private activity bonds. See "Tax Matters" herein for a discussion of the opinion of Bond Counsel, including a description of alternative minimum tax consequences for corporations. $49,615,000 CITY OF LUBBOCK, TEXAS (Lubbock County) GENERAL OBLIGATION REFUNDING BONDS, SERIES 2005 Dated Date: June 15, 2005 Due: February 15, as shown inside cover PAYMENT TERMS ... Interest on the $49,615,000 City of Lubbock, Texas General Obligation Refunding Bonds, Series 2005 (the "Bonds") will accrue from June 15, 2005 (the "Dated Date") and will be payable on August 15, 2005, and on each February 15 and August 15 thereafter until maturity or prior redemption. Interest will be calculated on the basis of a 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 ofDTC for subsequent payment to the beneficial owners of the Bonds. See "The Bonds -Book-Entry-Only System" herein. The initial Paying Agent/Registrar is JPMorgan Chase Bank, National Association, Dallas, Texas (see "The Bonds -Paying Agent/Registrar"). AUTHORJTY FOR ISSUANCE .•. The Bonds are issued pursuant to the Constitution and general laws of the State of Texas, (the "State") panicularly Chapter 1207, Texas Government Code, as amended, and constitute direct obligations of the City of Lubbock, Texas (the "City"), payable from the levy and collection of a direct and continuing ad valorem tax, within the limits prescribed by law, on all taxable property within the City, 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 the purpose of (i) refunding a portion of the City's outstanding ad valorem tax supported indebtedness (the "Refunded Bonds") described in Schedule I to achieve debt service savings and (ii) paying costs of issuance of the Bonds. A1BIA The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under an insurance policy 10 be issued concurrently with the delivery of the Bonds by MBIA Insurance Corporation ("MBIA"). See "Bond Insurance" herein. CUSIPPREnX: 549187 SEE MA TtJRITY ScHEDllLI':, 9 Digit CUSIP AND REDEMPTION PROVlSJONS ON THE REVERSE OF THIS PAGE LEGALITY .•. The Bonds are offered for delivery when, as and if issued and received by Underwriters and subject to the approving opinion of the Attorney General of Texas and the opinion of Vinson & Elkins L.L.P ., Bond Counsel, Dallas, Texas (see Appendix C, "Fonn 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 DTC on or about July 28, 2005. MORGAN STANLEY COAST AL SECURITIES M.E. ALLISON & Co., INC. _I ] OFFICIAL ST A TEMENT SUMMARY This summary is subject in all respects to the more complete infonnation and definitions contained or incorporated in lhis Otlicial Statement. The offering of the Bonds to potential inveslors 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. Texas (the --City'") 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 2005 population of209.120 (see --introduction• Description of the City""). THE BoNDS .................................. The Bonds are issued as $49.615.000 General Obligation Refunding Bonds. Series 2005. The Bonds arc issued as serial bonds maturing on February 15 in each of the years 2009 through 2021 (see ·"The Bonds• Description of the Bonds""). PAYMENT OF INTEREST .............. Interest on the Bonds accrues from June 15. 2005. and is payable August 15. 2005. and each February 15 and August 15 thereafter until maturity or prior redemption (see ""The Bonds - Description of the Bonds·· and --Toe Bonds -Optional Redemption·"). AUTH0RITV FOR ISSUANCE .•..•..•.. The Bonds arc issued pursuant to the general laws of the State. particularly Chapter 1207. SECURITY FOR THE Texas Government Code. as amended. and an Ordinanci: passed by the City Council of lhe City (see "The Bonds -Authority for Issuance··). BoNDS ........................................... The Bonds constitute direct obligations of the City. payable from the levy and collection of a direct and continuing ad valorem ta'<. within the limits prescribed by law. on all taxable property within the City (see ""The Bonds -Security and Soun:e of Payment""). REDEMPTION ............................... The City reserves the righl at its option. to redeem Bonds having stated maturities on and after February 15. 2016. in whole or in part in principal amounts of $5,000 or any integral multiple thereot: on February 15. 2015. or any date therealkr. at the par value thereof plus accrued interest to the date of redemption (sec ··The Bonds -Optional Redemption'"). TAX Ext:MPTI0N ............................ In the opinion of Bond Counsel. the interest on the Bonds will be excludable from gross income for federal income ta" purposes under existing law and the Bonds arc not private activity bonds. St.~ ··Tax Matten; -Tax Exemption .. for a discussion of the opinion of Bond Counsel. including a dl.-scription of the alternative minimum tax cons,.,'qucnccs for corporation:;. USE OF PROCEEDS ....................... Proceeds from the sale of the Bonds will be used for (i) refunding a ponion of the City"s outstanding ad valorem tax supported indebtedness (the ··Refunded Bonds .. ) described in Schedule I to achieve debt service savings and (ii) paying costs of issuance of the Bonds (see -The Bonds -Purpose··). 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 ("Fitch") by vinue of insurance policies to be issued by MBIA. The presently ouL~tanding tux supported debt of the City is rated "Al" by Moody's. "AA-" hy S&P and "AA-" by Fitch. The City also has multiple 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 lnfonnation -Ratings"). 8ooh'.-ENTRY-ONL.Y 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 tht: Bonds will be made to the beneficial owners then:o[ Principal ot: 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 ··The Bonds -Book-Entry-Only System""). PA \'MtNT RECORD...................... The City has never defaulted in payment of its general obi igalion tax debt. 4 SELECTED FINANCIAL INFORMATION Ratio General Purpose Per Capita Funded Fiscal Per Capita General General Tax Debt Year Taxable Taxable Purpose Purpose to Taxable %of Ended Estimated Assessed Assessed Funded Funded Assessed Total Tax 9/30 Poeulation (t) Valuation Valuation Tax Debt (2) Tax Debt Valuation Collections 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 70.188.204 343 0.96% 2004 206.290 7 ,921.590.3 80 38,400 70.161.218 340 0.89% 2005 209,120 8,664,190.909 41,432 64,433,286 (H 308 (J) 0.74% (J) (I) Source: The City of Lubbock. Texas. (2) Does not include self-supporting debt (see -Table 3B -Derivation of General Purpose Funded Tax Debt"). (3) Includes the Bonds. excludes the Refunded Bonds. ( 4) Colle"'tions for part year only. through April 30. 2005. GENERAL FUND CONSOLIDATED STATEMENT SUMMARY Fiscal Year Ended September 30. Fund Balance at Beginning of Year Total Revenues and Transfors Total Expenditures and Transfers Fund Balance at End ofYear Less: Reserves and Designations Undesignated Fund Balance 2004 $ 9.417.346 97.437.436 94.160.257 $ 12,694.525 $ 12.694.525 2003 $ 16,598,252 91.753.809 98.934.715 $ 9.417,346 $ 9.417.346 2002 2001 ti) $ 16,716.042 $ 16.620.652 92,490.374 90.463.799 90.594.059 90.368.409 S 18.612.357 $ 16.716,042 ( 1.903.690) (2.361.860) $ 16,708.667 $ 14.354.182 99.29% 99.41% 98.78% 99.69% 96.48% (41 2000 $ 17.248.025 85.518.102 86.145.475 $ 16,620.652 (2.857 .096) $ 13.763.556 (I) The "'Fund Balance at Beginning of Year" was restated. See ·'Discussion or Recent Financial and Management Events -FY 2003 Audit Restatements, Reclassifications and Internal Controls Issues" for a further explanation orthe restatements. For additional infonnation regarding the City. please contact: Ms. Lee Ann Dumbauld Mr. Vince Viaille Mr. Jason Hughes CFO/ACM First Southwest Company First Southwest Company City of Lubbock 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 7520 I Phone (806) 775-2016 Phone(806)749-3792 Phone(214)943-4000 Fax (806) 775-2051 Fax (806) 749-3793 Fax (214) 953-4050 5 ---I l CITY OFFICIALS. ST A FF AND CONSULT ANTS ELECTED OFFICIALS Date of Tenn City Council Installation to Otlice Expires Occupation Marc McDougal* May. 2002 May. 2006 Busine;:ss Owner. Real Estate Mayor Linda Deleon May. 2004 May. 2006 Business Owner Councilmember. District I Floyd Price June. 2004 May. 2008 Retired Councilmember. District 2 Gary Boren May. 2002 May. 2006 Business Owner. Personnel Services Councilmember. District 3 Phyllis Jones May. 2004 May. 2008 Se\f.£mploycd Councilmcmber. District 4 Tom Martin May. 2002 May. 2006 Retired Law Enforcement Councilmembcr. District 5 Jim Gilbreath May. 2003 May. 2008 Business Owner Councilmember. District 6 * Mr. McDougal has served on the Council since May. 1998. SELECTED ADMINISTRATIVE STAFF Date of Employment Date of Employment Total Government Name Position in Current Position with Ci!i of Lubbock Service Lou Fox City Manager February. 2004 F ebruW)'. 2004 24 Years Tom Adams Deputy Ciiy Manager August. 2004 August. 2004 22 Years Lee Ann Dumbauld Chief Financial Otliccr/Assistant City Manager July. 2004 July. 2004 20+ Years Quincy White Assistant City ManBger September. 2000 September. 2000 13 Years Anita Burgess City Anomey December. 1995 December. 1995 9 Years Rebecca Garza City Secretary January. 2001 August. 1996 8 Years Andy Burcham Cash & Debt Manager November. J 998 November. 1998 6 Years CONSULTANTS AND ADVISORS Auditors .................................................... , ..................................................................................................................... KPMG LLP Dallas. Texas Bond Counsel ................................................................................................................................................ Vinson & Elkins L.L.P. Dallas. Texas Financial Advisor ...................................................................................................................................... First Southwest Company Lubbock and Dallas. Texas 6 OFFICIAL STATEMENT RELATING TO $49,615,000 CITY OF LUBBOCK. TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 2005 INTRODUCTION This Official Statement. which includes thl!: Appendices hereto. providl!:S certain information regarding the issuancl!: of $49,615.000 City of Lubbock. Texas Gi:neral Obligation Refunding Bonds. Series 2005. Capitalized terms used in this Official Statement have the same meanings assigned to such temis in the Ordinance authorizing the issuance of the Bonds, except as otherwise indicated herein. There follows in this Otlicial Statement dl!:scriptions 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 or such documents may be obtained from the City's Financial Advisor. First Southwest Company, Dallas. Tellas. 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 l-lome 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 tenn ending in an even- numbered year. Each of the six members of the City Council is elected from a single-membl!:r district for a four-year tenn of office. The terms of three members of the City Council expire in each even-numberl!:d year. The City Manager is the chief administrative otlicer 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 2005 population is 209,120. The City covers approximately 115 square miles. FINANCIAL AND MANAGEMENT CHALLENGES ... In the past three fiscal years. the City has experienced a variety of financial and management challenges. and certain investigations and reports conducted or prepared by the City or its consultants have found weaknesses in the City's gl!:neral manageml!:nt and financial practices. both with the City in general and the City's electric utility system. known as Lubbock Power & Light (-LP&L .. ), in particular. The City is of the view that it has substantially addressed many of these conditions. Reforence is made to .. Discussion of Recent Financial and Management Events~ for a discussion of these events and a description of how the City has responded to these events. THE BONDS DESCRIPTION OF THE BoNDS ... The Bonds are dated June 15. 2005, and mature on February 15 in each of the years and in the amounts shown on the inside cover page hereof. Interest will be computed on the basis of a 360-day year of twelve 30-day months. and will be payable on August 15. 2005. and on 1!:aeh August 15 and February 15 thereafter until maturity or prior redemption. The definitive Bo~ds 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 ("DTC .. ) pursuant' to the Book-Entry-Only System described herein. No physical delivery of the Bonds will be made to the owners thereof. Principal ot: 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 OTC for subsl!:quent payment to the bl!:nelicial owners of the Bonds. See ·'The Bonds -Book-Entry-Only System•· hl!:rein. PuRPOSE ... Proceeds from the sale of the Bonds will be used for the purpose of (i) refunding a portion of the City's outstanding ad valorem tax supported indebtedness (the "Refunded Bonds'·) describl!:d in Schedule I to achieve debt service savings and (ii) paying costs of issuance of the Bonds. REFUNDED BoNDS ... Upon delivery of thl!: Bonds to the City will deposit the Bond proceeds. together with other lawfully available funds. if any. with JPMorgan Chase Bank. National Association. Dallas. Texas (the "Escrow AgenC). The amount deposited. when added to the investment earnings thereon. will be sufficient to accomplish the discharge and final payment of the Refunded Bonds. Such funds will be held by the Escrow Agent in a special escrow account (the --Escrow Fund") and used to purchase direct obligations of the United States of America (the "Federal Securities''). Under the Escrow Agreement. the Escrow Fund is irrevocably pledged to thl!: payment of principal or and interest on the Refunded Bonds and amounts therein will not be available to pay the Bonds. 7 ----l l Grant Thornton LLP, Certified Public Accountants (the "Verification Agenl"), will verify at the time of delivery of the Bonds to the Underwriters that the Federal Securities will mature and pay interest in such amounts which. together with uninvested fonds. if any. in the Escrow Fund will be sutlicient to pay, on the scheduled interest payment dates and redemption dates. the principal of and interest on the Refunded Bonds. and will issue a report to this effect (the "Verification Report'"). The arithmetical uccuracy of certain computations included in the schedules provided by First Southwest Company to the Verification Agent on behalf of the City relating to (a) computation of the sutliciency of the anticipated receipts from the Federal Securities, together with the initial cash deposit. if any. to pay when due the principal, interest and early redemption premium requirement if any. of the Refunded Bonds and (b) computation of the yields on the Federal Securities will be verified by the Verification Agenl Such computations will be completed using certain assumptions and information provided by First Southwest Company on behalf of the City. The Verification Agent will restricl its procedures to recalculating the arithmetical accura1.,-y of certain computations and will not make any sludy or evaluation of the assumptions and information on which the computations are based, and accordingly. will not express an opinion on the data used, the reasonableness of the assumptions. or the achievability of the forecasted outcome. By the deposit of Federal Securities and cash. if necessary. with the Escrow Agent pursuant to the Escrow Agreement. the City will have effected the defeasance of all of the Refunded Bonds in accordance with Texas law. As a result of such defeasance. the Refunded Bonds will be outstanding only for the purpose of receiving payments from the Feder.i.l Securities and any cash held for such purpose by the Escrow Agent and such Rdi.mdcd Bonds will not be deemed as being outstanding obligations of the City, and the obligations of the City to make payments in support of the debt service on such Refunded Bonds will be extinguished. AUTHORITY FOR ISSUANCE ... The Bonds are being issued pursuant to the Constitution and general laws of the State of Texas. particularly Texas Government Code. Chapter 1207. as amended. and by an ordinance passed by the City Council on June 9. 2005 (the ''Ordinance··). By adopting the Ordinance. the City Council delegated to the Chief Financiul Officer/Assistant City Manager of the City the authority to effect the sale of the Bonds to the Underwriters. SECURJTY AND SOURCE OF PAYMENT ... The Bonds are payable from a e-0ntinuing direct annual ad valorem tax levied by the City in an amount suflicient to provide for the paymenl of principal of and in1erest on the Bonds. which tax must be levfod within limits prescrilx-d by law. TAX RATE LIMITATION ... All taxable property within the City is subject to the assessment, levy and collection by the City ofa continuing. direct annual ad valorem tax sullicient to provide for the payment of principal of and interest on all ad valorem la.'< debt within the limits prescribt.-d by law. Article XI. Section 5. or the Texas Constitution is applicable to the City. and limits its maximum ad valorem tax rate to $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 $2.50 per$ I 00 Ta'<able Assessed Valuation. OJ'T10NAL REDEMPTION ... The City reserves the right. at its option. to redeem Bonds having stated maturities on and after February 15. 2016. in whole or in part in principal amounts of $5.000 or any integral multiple thereot: on F'ebruary 15. 2015. or any date thereafter. at the par value thereof plus accrued interest to the date of redemption. If less lhan 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 n.-deemed. the Paying Agent/Registrar (or DTC while the Bonds are in Book-Entry-Only form) shall determine by lot the Bonds. or portions thcn..--of. within such maturity to be redeemed. lfa Bond (or any portion of the principal sum thereot) 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. 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 owni:rs of the Bonds to be redeemed. in whole or in part at the addn.-ss 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 HAVE 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 SPECIF'IED REDEMPTION DATE. AND NOTWITHSTANDING THAT ANY BOND OR PORTION THEREOF 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 inlerests of the registered owners, including the curing of any ambiguity. inconsistency. 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 no such amendment. addition or rescission may (I) 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. or in 8 any other way modify the tenns of their payment, (2) give any preference to any Bond over any other Bond or (3) reduce the aggregate principal amounl required to be held by owners for consent to any amendment. addition or waiver. Drn:ASANCE ... The Ordinance provides that the City may discharge its obligations to the registered owners of any or all of the Bonds to pay principal. interest and redemp1ion price thereon in any matter pennitted by law. Under curren1 Texas law, such discharge may be accomplished by either (i) depositing with the Comptroller of Public Accounts of the Slate of Texas a sum of money equal to principal. premium. if any and all interest to accrue on the Bonds to maturity or redemption and/or (ii) by depositing with a paying agent or other authorized escrow agent amounts sufficient to provide for the payment and/or redemption of the Bonds: provided that such deposits may be invested and reinvested only in (a) direct. noncallable obligations of the United States of America. including obligations thal are unconditionally guaranteed by the United States of America, (b) noncallable obligations of an agency or ins1rumen1ality 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 finn not less than AAA or its equivalent. and (c) noncallable obligations of a state or an agency or a county, municipality. or other political subdivision of a state that have been refunoed and that are rated as to investment quality by a nationally recognized investment rating finn not less than AAA or its equivalent. Under current Texas law, upon the making of a deposit as described above. such Bonds shall no longer be regarded to be outstanding or unpaid. After finn banking and financial arrangements for the discharge and final payment or redemption of the Bonds have been made as described above. all rights of the City to initiate proceedings to call the Bonds for redemption or to take any other action amending the tenns of the Bonds an: extinguished: provided however. the right to call the Bonds for redemption is not extinguished if the City: (i) in the proceedings providing for the tinn banking and financial arrangements. expressly reserves the right to call the Bonds for redemption: (ii) gives notice of the reservation of that right to the owners of the Bonds immediately following the making of the firm banking and financial arrangements: and (iii) directs that notice of the reservation be included in any redemption notices that it authorizes. 8ooK-ENTRY-0NLY SYSTEM ... This section describes how ownership of the Bonds is 10 be transferred and how the principal of. premium. if arry. and interest on the Bonds are to be paid to and credited by The Depository Trust Company t· DTC '"), New York. New York, while the Bonds are registered in ils nominee name. The information in this section concerning DTC and the Book-Entry-Only System hes 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 completeness thereof The City cannot and does not give arry assurance that (I) 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 lime(v basis, or (J) DTC will serve and act in the manner described in this Official Statement. The current rules applicable to OTC are on file witlt the Securities and Exchange Commission. and the current procedures of DTC to befoJ/owed in dealing with DTC Participants are onjile with DTC. OTC will act as securities depository for the Bonds. The Bonds will 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 wil I be issued for each maturity of the Bonds, in the aggregate principal amount of each such 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 Unifonn Commercial Code. and a "clearing agency~ registered pursuant to the provisions of Section I 7 A of the Securities Exchange Act of 1934. OTC 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 c-oire,.,'t Participants'") deposit with OTC. OTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited se1;urities, through electronic computerized book-entry transfers and pledges between Direct Participants" accounts. This eliminates the need for physical movement of securities Bonds. Direct Participants include both U.S. and non-U.S. securities brokers and dealers. banks. trust companies, clearing corporations. and certain other organizations. OTC 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 OTC 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 OTC 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 9 [ l recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC or their purchase. Beneficial Owners are. however. expected to receive written confinnations providing details 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 tnmsaction. Transfers of ownership interests in the Bonds arc to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Bendicial Owners will not receive bond representing their ownership interests in Bonds. except in the event that .use of the book-entry system for the Bonds is discontinued. To focilitute subsequent transfers. all Bonds deposited by Direct Participants with f?TC are registered in the name of DTC's partnership nominee, Cede & Co .. or such other name as may be requested by an authorized representalive of OTC. The deposit of Bonds with OTC and their registration in the name of Cede & Co. or such other OTC nominee do not effect any change in beneficial ownership. OTC 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 n."ITlain responsible for keeping account of their holdings on behalf of their customt:rs. Conveyance of notices and other communications by DTC to Direct Participants. by Direct Participants to Indirect Participants. and hy 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 or 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 ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Benelicial Owners. In the alternative. Beneficial Owm:rs may wish to provide their names and addresses 10 the n:gistrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed. DTC's practice is to detennine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither OTC 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. OTC mails an Omnibus Proxy to the City as soon as possible aller the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting righ1s to those Direct Participants to whose accounts Bonds arc cn.-ditcd on the record date (identified in a listing attached to the Omnibus Proxy). 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 OTC. OTC'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 in bearer form or registered in -street name. •· and will be the responsibility of such Participant and not of OTC 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 principal and interest payments to Cede & Co. (or such other nomim.-e as may be requested by an authorized representative of OTC) is the responsibility of the City or the Paying Agent/Registrar. disbursement of such payments to Direct Participants will be the responsibility of OTC. and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. OTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City or the Paying Agent/Registrar. Under such circumstances. in the event that a successor depository is not obtained. Bonds are required to be printed and delivered. Subject to DTC's policies and guidelines. the City may discontinue use of the system of book-entry transters through OTC (or a successor securities depository). In that event. Bonds will be printed and delivered. Use of Certain Terms in Other Sections of this Official Statement In 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 owm:rs 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 OTC 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 hy the Ci1y or the Underwriters. [ffec:t of Terminlltion of Book-1!:ntry-Only System In the event that the Book-Entry-Only System is discontinued. 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 -Transfor. Exchange and Registration" below. 10 PAYING AGENT/REGISTRAR ... The initial Paying Agent/Registrar is JPMorgan Chase Bank. National Association. Dallas. Texas. In the Ordinance. lhe 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 or trust company organized under the laws of the Slate of Texas or other entity duly qualified and legally authorized to serve as and perfonn 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 10 promptly cause a written notice thereof to be sent to each registered owner of the Bonds by United States mail, first class. postage prepaid. which notice shall also give the address of the new Paying Agent/Registrar. 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 (hereinafter defined). 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 the stated maturity or earlier redemption upon presentation to the designated payment/transfer omce 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 otlice 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. TRANSFER. EXCHANGE AND REGISTRATION ... In the event the Book-Entry-Only System should be discontinued. the Bonds may be transforred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrender 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 othl!r 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 mai I, first class. postage prepaid. lo 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 lhe 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 lo 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 .. The Bonds -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 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 ofa 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 WSpecial 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 dale 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. ifa default occurs. is a mandamus or mandatory injunction proceeding to compel the Cily 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 ditlicull 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 rcvcnut--s. the pledge of laxes 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 11 ----L l subject to the approval of the Bankruptcy Court (which could require that the al"tion 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. USE OF BoND PROCEEDS ... Proceeds from the sale of the Bonds are expected to be expended as follows: SOURCES OF FUNDS: Principal Amount of the Bonds Transfers from Prior Issue Debt Service Funds Accrued Interest Rcoffering Premium Total Sources of Funds USES OF FUNDS: Deposit to Escrow Fund Deposit to Interest and Sinking Fund (Includes Rounding) Underwriters' Discount Costs of Issuance (including Bond Insurance Premium) Total Uses ofFunds 12 $ 49.615.000.00 1.159.371.64 289.539.32 4.174.892.00 $ 55.238.802. 96 $ 54.252.819.16 296.627.61 338.356.19 351.000.00 $ 55.238.802. 96 BOND INSURANCE The following information has been furnished by MBIA Insurance Corporation ("MBIA") for use in this Otlicial Statement Reference is made to Appendix D for a specimen of MBIA's policy (the ·'Policy"). Such infonnation 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. MBIA does not accept any responsibility for the accuracy or completeness of this Otlicial 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 --sond Insurance". Additionally. MBIA makes no representation regarding the Bonds or the advisability of investing in the Bonds. The MBIA Policy unconditionally and irrevocably guarantees the full and complete paymem required to be made by or on behalf of the City to the Paying Agent/Registrar 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 the MBIA 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. unless MBIA elects in its sole discretion. to pay in whole or in part any principal due by reason of 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 of the 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/Registrar 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/Registrar 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. in New York. New York. or its successor. sutlicient 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 or 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/Registrar payment of the insured amounts due on such Bonds. less any amount held by the Paying Agent/Registrar for the payment of such insured amounts and legally available therefor. 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 offrance. one in the Republic of Singapore and one in the Kingdom of Spain. The principal executive offices of MBIA are located at 113 King Street. Annonk, New York 10504 and the main telephone number at that address is (914) 273-4545. REGULATION As a financial guaranty insurance company licensed to do business in the State of New York. MBIA is subject to the New York Insurance Law which. among other things. prescribes minimum capital requirements and contingency reserves against liabilities for MBIA. limits the classes and concentrations of investments that are made by MBIA and requires the approval of policy rates and forms that are employed by MBIA. State law also regulates the amount of both the aggregate and individual risks that may be insured by MBIA. the payment or dividends by MBIA. changes in control with respect to MBIA and transactions among MBIA and its affiliates. The Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. 13 ---- [ ~ FINANCIAL STRENGTH RA TINGS OF MBIA Moody's Investors Servk-e. Inc. rates the financial strength of MBIA ~Aaa.·· Standard & Poor's. a division ofThe McGraw-Hill Companies. Inc. rates lhe financial strength of MBIA --AAA.'' Fitch Ratings rates the financial strength of MBIA .. AAA.~ Each rating of MBIA should be evaluated independently. The ratings reflect the respeccive rating agency's current assessment or the creditworthiness of MBIA and its ability to pay claims on its policies of insurance. Any further explanation as lo the significance of the above ratings may be obtained only from the applicable rating agency. The 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. MBIA FINANCIAL INFORMATION As of December 31. 2004. MBIA had admitted assets of $10.4 bi Ilion {unaudited). total liabilities of $7.0 bill ion ( unaudited). and total capital and surplus of $3.4 billion (unaudited) detennined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of March 31. 2005 MBIA had admitted assets of$10.6 billion (unaudited). total liabilities of $7.0 billion (unaudited). and total capical and surplus of $3.6 billion (unaudited) dctennined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. For further information concerning MBIA. see the consolidated financial statements of MBIA and its subsidiaries as of December 31. 2004 and December 31. 2003 and for each of the three years in the period ended December 31. 2004. prepared in accordance with generally accepted accounting principh:s. included in the Annual Report on Fonn 10-K of the Company for the year ended December 3 I. 2004 and the consolidated financial statements of MBIA and its subsidiaries as of March 3 I. 2005 and for the three month periods ended March 31. 2005 and March 31. 2004 included in the Quarterly Report on Form 10-Q of the Company for the period ended March 3 I. 2005. which are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof. Copies of 1he statutory financial statements filed by MBIA with the State of New York Insurance Department are available over the Internet at the Company·s web si1e at http://www.mbia.com and at no cost upon request to MBIA at its principal executive offices. Incorporation of Certain Documents by Reference The following documents filed by the Company with 1he Securities and Exchange Commission (the .. SEC) are incorporated by reference into this Otlieial Statement: (I) The Company· s Annual Report on Form I 0-K for lhe year ended December 31, 2004; and (2) The Company·s Quarterly Report on Form 10-Q for the quarter ended March 31. 2005. Any documents. including any financial statements of MBIA and its subsidiaries that arc included therein or attached as exhibits thereto. tiled by the Company pursuant to Sections IJ(a). 13(c). 14 or l5(d) of the Exchange Act after the date of the Company·s most recent Quarterly Report on Form I 0-Q or Annual Report on Form I 0-K. and prior to the termination of the offering of the Bonds offered hereby shall be deemed to be incorporated by reference in this Otlicial Stalement and to be a part hereof from the respective dates of filing such documents. Any statement contained in a document incorporated or deemed to be incorporat..-d 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 incorporated by reforence 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 Otlicial Statement. The Company files annual. quarterly and special reports. information statements and other information with the SEC under File No. 1-9583. Copies of the Company's SEC tilings (including (I) the Company·s Annual Report on Form 10-K for the year ended December 31. 2004. and (2) the Company·s Quarterly Reports on Form 10-Q for the quarter ended March 31, 2005) are available (i) over the Internet at the SEC's web site at http://www.sec.gov: (ii) at the SEC's public reforence room in Washington D.C.: (iii) over the lntemet at the Company·s web site at http://www.mbia.com: and (iv) at no cost. upon request to MBIA at its principal executive offices. DISCLOSURE OF GUARANTY FUND NONPARTICIPATION: In the event the Insurer is unable to fulfill its contractual obligation under this policy or concract or application or certificate or evidence of coverage. the policyholder or certificatcholder is not protected by an insur.i.nce guaranty fond or other solvency protection arrangement. 14 DISCUSSION OF RECENT FINANCIAL AND MANAGEMENT EVENTS In the past three fiscal years (a fiscal year is referred to herein as ··FY.'" with the year designation being the year in which the fiscal year ends: each City fiscal year begins on October I and ends on September 30), the City has experienced a variety of financial and management challenges. In response to the events and circumstances that have created such challenges, the City or consultants retained by it have conducted a series of audits and reviews of City government. Certain of the reports. including those described below. revealed weaknesses in the City's general management and financial practices. The City is of the view that progress has been made in correcting many of these conditions (see ·•Discussion of Recent Financial and Management Events• City's Responses to Recent Financial and Management Events"), although further work will be required before the City is capable of meeting its financial policies. particularly those associated with fund operating and rate stabilization reserves (see -Financial Information -Financial Policies-). The following discussion includes an analysis of the events that have occurred in the last l\vo fiscal years, in particular. a summary of the measures taken in response to the challenges that have arisen, and a currem description of the City's financial and management position. Caution Regarding Forward-Looking Statements This Official Statement, and in particular the infonnation under the heading "Discussion of Recent Financial and Management Events.'' contains forward-looking statements. Although the City believes such forward-looking statements are based on reasonable assumptions. any such forward-looking statement involves uncertainties and is qualified in its entirety by reference to the considerations described below. among others. that could cause the actual financial results of the City to differ materially from those contemplated in such forward-looking statements. The City cannot fully predict what effects factors of the nature described below may have on the operations of the City and financial condilion of the general fund of the City ( the "General Fund") or its business-type activities. including its electric enterprise fond. which operates as Lubbock Light & Power (referred to herein as ""LP&L" or the --electric fund''), but the effects could be significant. The discussion of such factors herein does not purport to be comprehensive or definitive. and these matters are subject to change subsequent to the date hereot: With respect to LP&L. extensive information on the electric utility industry is. and will be. available from the legislative and regulatory bodies and other sources in the public domain, and potemial purchasers of the securities of the City should obtain and review such information. Among the factors that could affect the operations and financial condition of the City in general. and its electric utility in particular. are the following: > Significant changes in governmental policies and regulatory actions. including those of the Federal Energy Regulatory Commission. the United States Environmental Protection Agency (the "EPA"). the United States Department of Homeland Security. the United States Department of !he Treasury. the Texas Commission on Environmental Quality ('"TCEQ~), the Public Utility Commission of Texas (the ~PUC) and the Southwest Power Pool, lnc., with respect to: -changes in and compliance with environmental and safety laws and policies effecting the City's water. sewer, stormwater and solid waste funds: -changes in and compliance with national and state homeland security laws and policies effecting the City's water. sewer. solid waste and airport funds: -electric transmission cost rate structure: • purchased power and recovery of investments in electric system assets: • acquisitions and disposal of assets and facilities: and -present or prospective wholesale and retail competition in the electric industry; > Unanticipated population growth or decline. and changes in market demand, demographic patterns and the development of technology affecting the City's service area. its general government and public safety expenditures and City revenue from: -investor owned utility franchise fees; • City utility and service fees -sales tax revenues: and -ad valorem tax revenues: > With respect to LP&L: -the implementation of or adjustments made to new business strategies by LP&L: -competition for retail and wholesale customers by LP&L. particularly competition with Xcel (as defined below) and its subsidiaries: • access to adequate electric transmission facilities to meet current and future demand for energy; -pricing and transportation of coal. natural gas and other commodities that may affect the cost of energy purchased by LP&L: -inability of various contractual counterparties to meet their obligations to the City, and with LP&L in particular with respect to LP&L's fuel and power purchase arrangements 15 ----I l > With respect to the City's financial perfonnance in general: -legal and administrative proceedings and settlements: and -significant changes in critical accounting policies. FY 2003 Financial Concerns and Mid-Year Budget Amendments Going into FY 2003. the City Council adopted General Fund and Enterprise Fund budgets that were balanced. However. during the preparation of the budget it was apparent that the transfers to the General Fund from the City's electric fund would need to be reduced as compared to transfers included in prior years' budgets. This situation arose as a result of the cumulative effect of nt:t losses to LP&L after transfors to the City's General Fund. During FY 2003. interfund loans were made to LP&L from the water fund and the General Fund. A number of factors contributed to the LP&L losses (see "Discussion of Recent Financial and Management Events -Past Events Relating to LP&L and West Texas Municipal Power Agency-); a significant factor was that LP&L. unlike most other municipal electric utilities in Texas, competes directly with Southwestern Public Service Company (-SPS"'J. a subsidiary of a large investor owned energy company. Xcel Energy. Inc. Xcel Energy, Inc., and its subsidiaries with which the City has contracted for c:nergy and other servicc:s -principally SPS -and with which it competes, arc hereinafter referred to collectively as --xce1:· Xcel is based in Minneapolis. Minnesota., and is the fourth-largest combination electricity and natural gas energy company in the U.S. In addition to the service area that has dual certification with Xcel. a small part of the City is also served by South Plains Electric Cooperative ('"SPEC"). The City. through LP&L. has competed for both wholesale and retail electric customers against investor owned utilities for over 80 years. This competition has existed despite the fuct that the City is not within the transmission system governed by the Electric Reliability Council of Texas ("ERCOT'). ERCOT was opened to retail electric competition through the adoption of State deregulation legislation that went into etli!ct on January I. 2002. The competitive environment has made it dillicult for LP&L to fully recover its fuel costs. particularly during periods of volatile and historically high natural gas prices. Prior to calendar year 2000. natural gas prices generally ranged from $2.00 to $3.00 per thousand cubic foot Since 2000. gas prices have held within a general range of $5.00 to $6.00 per thousand cubic foot, and reached as high as $25 per thousand cubic foot in February 2003. Despite the increases in gas prices that began in calendar year 2000. LP&L produced positive m:t operating income in each year until FY 2003. All LP&L electric generating units. which provided approximately 35% of its energy requirements in recent years preceding FY 2004 (the remaining energy was acquired through power purchase agreements). operate with natural gas as the primary generation fuel. Moreover. a majority of the units are older and significantly less fuel efficient than more modem units. Prior to FY 2004. lhe City operated LP&L in a manner that was designed to n,,"Cover administrative or indirect costs provided by the General Fund for LP&L (such as legal and financial services) as well as certain other general transfers. Such transfers included a payment in lieu of ad valorem 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 was based on 3% of the gross operating revenues of LP&L) (collectively. the ··cost Recovery Payments'"). In addition to lhe Cost Recovery Payments. prior to FY 2003 LP&L was required 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 .. ). Over the ten year period from 1993 to 2002. the average annual operating income of LP&L before transfers was $8 million, and during that period. LP&L transfers lo the General Fund for payments in lieu oft.axes and recovery of costs of business averaged $8 million per year. During the preparation of the FY 2003 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 FY 2003 budget trimmed $4.8 million from LP&L transters included in prior year budgets. 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$24 million for FY 2003. During the then current practice of undertaking a mid-year budget assessment in the Spring of 2003 the:: City Council amended the LP&L and General Fund budgets to eliminate $7.7 million in transfers from LP&L to the General Fund. City management then undertook a comprehensive review of the General Fund and other enterprise funds for the purpose of identilying budget cuts throughout City government that would offset the reduced LP&L transfers. Ultimately. the City Council adopted budget amendments during the Spring 2003 mid-year review that totaled $9.7 million for the General Fund (hereinaller referred to as the "'2003 Budget Adjustments .. ). which represented approximately 10.5% of the original FY 2003 General Fund budget. In addition to the $7.7 million budget adjustment made to address the LP&L transfer reduction. the City Council determined to write off$2 million owed to the General Fund from the golf course enterprise fund. A number of other budget adjustments were made including (i) the elimination of $2.5 million of capital expenditure items: {ii) a reorganization of the structure of City government was implemented that consolidated a number of positions: (iii) the implementation of a general hiring freeze throughout all City departments. and the elimination of 100 positions in both the General Fund and the electric fund (approximately 40 positions were eliminated al LP&L. a majority of which were in the energy production arc-.i): and (iv) a 1% increase of the transfers-in- lieu-of-franchisc-paymcnts was made for the water and solid waste tunds. which increased the transfer for those funds from 3% to 4% of their respective gross revenues. 16 Other measures that were taken after the 2003 Budget Amendments to address the projected LP&L operating loss included an increase in the fuel cost adjustment (-FCA") for residential and small commercial customers of LP&L by $0.01 per kWh effective May I. 2003 and. effective June I, 2003, the City im.-reased the FCA for its two largest customers. which include Texas Tech University ("Texas Tech'·). and which account for approximately 10% of the energy sales of LP&L. Al the time of the May I. 2003 FCA increase for residential and small commercial customers. the total electric cost energy for that class of LP&L's customers was approximately 30% above those of Xcel. In addition. in August 2003. the City issued two series of tax-supported debt to refund $8.5 million of LP&L revenue bonds and to provide $13 million for LP&L capital expenditures. The City anticipates that such debt will be self-supporting from LP&L revenues, although as discussed below. LP&L failed to generate sufficient revenues to pay all of its outstanding bonds for FY 2003: nevertheless.. the issuance of tax-supported debt for LP&L reduced the cost of borrowing for. and outstanding debt attributed directly to. LP&L. Past Events Relating to LP&L and West Texas Municipal Power Agency The City is a member of WTMPA, a municipal power agency that was fonned by concurrent ordinances adopted by the governing bodies of the cities of Brownfield. Floydada. Lubbock and Tulia. Texas (the --Member Cities") in 1983. The original purpose of WTMPA was to engage in the generation. transmission. sale and exchange of electric energy to the Member Cities. As described below. under the heading .. Discussion of Recent Financial and Management Events -City's Responses to Recent Financial and Management Events -Recent Measures taken to Address Financial and Management Concerns at LP&L:· the scope of WTMPA's activities has changed as a result of a series of related agreements reached among WTMPA and the Member Cities in December 2003 (the ··WTMPA Settlements"). WTMPA is a separate political subdivision under the laws of the Stnte. In June 1998. WTMPA issued $28.910.000 of its Revenue Bonds. Series 1998 (the -wTMPA Bonds'"), to finance the construction and acquisition ofa 62 MW electric co-generation project (the -wTMPA Project'·). The WTMPA Project consists of a 40 MW combustion turbine generator (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. The Massengale Unit 8 turbine was originally scheduled to go online in the Spring of 1999, but during the course of the run te~"t. the turbine experienced a catastrophic failure. In May 2001. the City and WTMPA 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 chairman of WTMPA made statements to the effect that WTMPA had retained the sum of $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. In addition, as a result of the delayed completion of the Unit, costs associated with replacement energy were incurred by WTMPA, and the amount of that expense and the responsibility for the expense. subsequently became a disputed claim of the City against WTMPA (see "'Discussion of Recent Financial and Management Events -City's Responses to Recent Financial and Management Events -Recent Measures taken to Address Financial and Management Concerns at LP&L .. ). 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 (collectively. the .. LP&L/WTMPA Management Audit") 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 WTMPA funds. However, the reviews concluded that the prevailing view that guided the administration of WTMPA affairs by the management of LP&L, was that WTMPA was indistinguishable from LP&L. This view stemmed from the facts that LP&L was contractually committed on a joint and several basis to pay the WTMPA Bonds. the WTMPA Project was operated by LP&L and. as a practical matter. LP&L was taking all the energy from the WTMPA Project (the other Member Cities received lower-cost energy purchased under WTMPA and City power purchase contracts with SPS). According to the audits. this management perspective had resulted in a consistent failure to follow the terms of the various WTMPA organizational. operational and power purchase agreements. In addition to poor contract administration by the management of LP&L, there were findings in the LP&UWTMPA Management Audit to the effect that LP&L was acting without proper oversight from the City Council and the City Manager's office. For a discussion of the measures taken to address the criticisms made in the audits, see ·•Discussion of Recent Financial and Management Events -City's Responses to Recent Financial and Management Events -General Fund and General Government Actions" below. 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 of misallocation of costs among the Member Cities. The report noted that no evidence of misappropriation of assets or intentional omissions of tinancial infonnation was discovered. The E&Y report found that the misallocations, adding an interest factor for such allocations. and an unbilled 5% management 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 itselt: as a Member City of WTMP A, approximately 90%, of the total amount. 17 ----I l In March 2005. the City delivered its Combination Tax and Electric Light and Power System Surplus Revenue Certificates of Obligation. Series 2005. in the aggregate principal amount of $23.055.000. A portion of the proceeds of this issue were used by the City to acquire the WTMPA Project. WTMPA used tht: proceeds received from the City to defease all of the outstanding WTMPA Bonds. Financial Staff and City Management Turnover Following the publication of the LP&L/WTMPA Managem.:nt Audit and the E&Y audit. several key City otlicers 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 Deputy City Manager, who had almost 8 years of service to the City, the Assistant City Manager for Public Works. who had over five years of service 10 the City. and the Chief Executive Officer of LP&L. who had served in that capacity since 1998. Also. in late summer of 2002. the City's Chief Accountant died during the implementation of Governmental Accounting Standards Board Statement 34 ("'GASB 34 .. ). Between the beginning of FY 2002 and the close of FY 2003. some 29 persons who held senior management positions with the City left the City's employment. some on their own accord and others as a result of a reorganization of City government. For a discussion of the City's responses to these events. see .. Discussion of Recent Financial and Management Events~ City's Responses ·,o Recent Financial and Management Events" below. September 30, 2003 Financial Results The General Fund ... As hereafter described in ·•Discussion of Recent Financial and Management Events -FY 2003 Audit Restatements. Reclassifications and Internal Controls Issues··. the financial position of th-:: City in FY 2003 was impacted by significant changes in the reporting -::ntity and prior period adjustments and reclassifications of the City's FY 2002 financial statements. With respect to the General Fund. the beginning fund balance/net assets was restated from $18.6 million to $16.6 million. The restatement was attributable to the write off of a receivable in the General Fund from the City's golf fund. In addition. the General Fund experienced a $7.2 million reduction in fund balance/net assets in FY 2003. the most significant drawdown of the General Fund reserves in over ten years. The decrease in fund balance occurred bt.-cause of the $9.3 million transfer to LP&L to ensure the ongoing operation or LP&L and the payment of the senior lien revenue bonds issued by the City for LP&L. In addition. the General Fund reduction in fund balance was a result or the forgiveness of originally budgeted payments in lieu of taxes. franchise fees and indirect costs of $4.8 million from the electric fund to the Gt:neral Fund. The aggregate result of restatement of the beginning fund balance and the FY 2003 use of fund balance was a General Fund ending balance of $9.4 million. Coming in to FY 2003, the City had a fund balance (adjusted) of $18.6 million. The City has adopted a policy (the -General Fund Balance Policy .. ) to maintain an unreserved General Fund balance equal lo two months operating expenditures. At September 30, 2002 the General Fund balance exceeded th.: General Fund Balance Policy by $4.5 million. At September 30. 2003. the General Fund Balance Policy required a fund balance of $14.2 million. As a result of the FY 2003 events described above, the City was $4.8 million under the fund balance required under its policy at the close of FY 2003. The decline in General Fund balance limits the City's ability to mitigate future risks of revenue shortfalls and unanticipated expenditures. Reference is made to the information hereafter presented under the headings "Discussion of Recent Financial and Management Events -FY 2004 Budget and Year-End Financial Results .. and .. _ FY 2005 Budget.·· for a discussion of FY 2004 results for the General Fund and a summary of the City's planning for FY 2005. The Electric Fund ... With n:spect to the City's electric fund (LP&L). the measures taken l)y the City Council during the FY 2003 mid-year budget review y idded substantial results as measured by the projected operating Joss of $24 million in February 2003. LP&L ended FY 2003 with a $6.3 million operating loss. Before taking into account transfers from other funds. the electric fund reported a $9 million loss. the first such loss in over ten years. As a consequence of the operating loss. LP&L failed to meet its revenue bond rate covenant under which th.: City has agreed to set rates for the electric system sufficient to produce net revenues equal to 100% of its senior lien bonded indebtedness. In FY 2003. LP&L produced $0.704 million that was available for the payment of debt service. which repn:sents a 0.3 times coverage of average annual debt service and a 0.2 times coverage of maximum annual debt service.. in each case atler taking into account the issuance of City general obligation del)t for LP&L that occurred in August 2003 (see ·•Discussion of Recent Financial and Management Events -FY 2003 Financial Concerns and Mid-Year Budget Amendments" for a description of such debt). Under the terms of its bond ordinances. the failure to meet the rate covenant. while significant. did not result in the acceleration of LP&L's debt. Moreover. the failure did not materially affect LP&L's operations. as LP&L was able to make its debt payments atler receiving a $9.3 million contribution from the General Fund. and LP&L has never defaulted in the payment of its bonded indebtedness. In making its debt payments, LP&L has not used any moneys set aside as a debt service reserve fund under its senior lien revenue bond ordinances. The electric fund added $0.587 million to total net assets for the year after factoring in the $9.6 million contril,ution from the General Fund. Cash and cash equivalents ror LP&L were $0.330 million at September JO. 2003. As described above under --Discussion of Recent Financial and Management Events -FY 2003 Financial Concerns and Mid-Year Budget Amendments ... in May 2003. the City Council implemented an increase in the FCA ot'LP&L. by $0.01 per kWh which resulted in LP&L's rates for residential and commercial customers being approximately 30% above those of Xcel. As a resull from May I. 2003 to September 30. 2003 LP&L lost approximately 5.6% of its customers. Despite the increase in the FCA. operating revenues for LP&L declined from $97.4 million in FY 2002 to $91.7 million in FY 2003. while opemting exp.:nses increased from $88.3 18 million in FY 2002 to $98 mil lion in FY 2003. which reflects a$ I 0. 7 million increase in cost of purchased fuel and power during the year. For FY 2003. LP&L's average fuel cost was approximately 61% above the cost in FY 2002. LP&L was able to reduce its fuel payments as a result of negotiating a third purchased power contract with SPS in July 2003 to minimize the use of its generation assets. Despite the relatively small operating income that resulted after taking into account the General Fund contribution to LP&L. total net assets of the electric fund decreased by $3.9 million during the year. lo $88.5 million, as a result of a restatement of the beginning fund balance. The restatement reflected the write off of a $4.48 million receivable recorded from WTMPA in FY 2002. although the obligation was disputed by the other Member Cities of WTMPA. As described below under ·•Discussion of Recent Financial and Management Events -City's Responses lo Recent Financial and Management Events -Recent Measures taken to Address Financial and Management Concerns at LP&L;" the WTMPA Settlements have: resolved the disputed receivable. Other Major Enterprise Funds: Water, Sewer, Solid Waste and Stormwater .. .In addition to the electric fund. for which FY 2003 financial results are discussed above. the City's other major enterprise funds.. consisting of the water. sewer. solid waste and stormwater funds. produced total operating revenues of $71.6 million in FY 2003. as compared to $73.6 million for FY 2002. In FY 2003. operating expenses for those funds were $57.7 million, as compared with $51.6 million for FY 2002. Net operating transfers for the other major enterprise funds totaled $12.8 million in FY 2003 as compared to $6.5 million in FY 2002. The increase in net transfers out was due primarily to an increase of $5.2 million in net transfers from the solid waste fund that was attributable to lhe write off of an inlerfund loan made to the community investment fund in connection with an economic development grant agreement (see .. Discussion of Recent Financial and Management Events -FY 2003 Audit Restatements. Reclassifications and Internal Controls Issues • Audit Restatements'"). In addition. operating expenses of the solid waste fund increased $5.8 million over FY 2002. which was the result of a change in accounting estimate related to depreciation expense for the City's landfills. FY 2003 Audit Restatements, Reclassifications and Internal Controls Issues As was the case with other municipalities in the State and U.S .• the implementation of GASS 34 by the City in FY 2002 effected a substantial change in the presentation of the City's financial statements. Prior to the implementation of GASB 34, governmental accounting standards did not require the use of a government-wide perspective in the presentation of financial information: instead. fund accounting was generally used to present financial data. Under GASB 34. fund accounting has been supplemented by government-wide statements and certain aspects relating to the presentation of the fund level statements have been modified. as well. particularly with respect to the presentation of restricted and unrestricted net assets within each fund. For additional information regarding accounting policies that are applicable to the City. see Note I. -summary of Significant Accounting Policies" in the financial statements of the City attached as Appendix B. The FY 2002 financial statements. and the City's financial statements dating to FY1993. were audited by Robinson Burdette Martin Seright & Burrows, L.L.P. (the -Former External Auditor''). In keeping with the overall reassessment of its financial and management affairs undertaken by the City following the occurrence of the events summarized under ""Discussion of Recent Financial and Management Events-Past Events Relating to LP&L and West Texas Municipal Power Agency FY 2003," in the Summer of 2003. the City conducted a request for qualifications for its external auditor and selected KPMG L.L.P. ("'KPMG-) 10 audit its FY 2003 financial statements. Consequently. the Fonner Ex.ternal Auditor guided the City through the initial year implementation of GASB 34. while in the second year of GASB 34 financial reporting. the City's financial statements were audited by KPMG. Audit Restatements ... During the preparation of the FY 2003 CAFR. some seven restatements to beginning fund balance/net assets were made to various fund level statements of the City. The restatements totaled $36.7 million. These restatements represented an aggregate increase in net assets of the City of$2.56 million. as some affected funds had their beginning balances restated to a higher figure, while other funds were restated to decrease their beginning fund balance. As described above under -rnscussion of Recent Financial and Management Events -FY 2003 Financial Concerns and Mid- Year Budget Amendments:· the General Fund was restated from a fund balance of $18.6 mill ion to $16.6 million to reflect a write off for an account receivable. which as of September 30, 2002 had ceased to be collectible. Also, as described above under ·•Discussion of Recent Financial and Management Events -September 30. 2003 Financial R~ults -The Electric Fund.-the electric fund's beginning fund balance was restated downward by $4.48 million to retlect a receivable from WTMPA that was uncollectible. Other enterprise fund restatements include an $0.867 million increase in the water fund beginning balance and a $0.722 million increase in the sewer fund beginning balance, each of which were made to reflect a change in accounting treatment pertaining to the appropriate party that is responsible for reimbursement of fees collected by the City for new water and sewer connections. With respect to the impact on a particular fund asset. the most significant restatement in beginning fund balance occurred in the City's community investment Fund. a fund used in prior years to account for economic development initiatives. which was restated from a beginning balance of$46.8 million to $36.8 million. The change was associated with an economic development grant made by that fund in FY 2002 that was originally reflected on the accounting statements of the City as a loan. In preparing the 2003 CAFR. it was determined that such transaction should be treated as a grant. not a loan. although Markel Lubbock. Inc .. a component unit of the City that administers the grant agreement. retains certain recourse actions in the 19 ---- [l event that the grant recipient fails IO s:itisfy its economic development initiative agreement. As a result, the receivable in the community investment fund for the $10 million amount was deleted as an asset of the fund ($6 million of the $to million grant had originally been funded through an interfund loan to the community investment fund from the water and solid waste funds). In addition to these five restatements of existing fund balances. in preparing the 2003 CAFR. new assessments were made with respect to two entities with which the City has long-standing contractual relationships: a corporate entity that does business under contract with the City as "Citibus-. and WTMPA. a leg.ally separate municipal corporation. In prior fiscal years. the former entity had been accounted for by the City as a discretely presented component unit of the City. while lhe City's relationship with WTMPA had been described in the footnotes to City financial statements as a contingent liability of the City. because the City had contractually agreed to provide a debt service guarantee for the debt of the agency. In the 2003 CAFR. the accounting treatment of these entities was reconsidered. and each was added to the City's financial statements as an enterprise fund. The result of the addition of each of these funds was an increase in net assets. in the amount of $12.3 million for the new transit fund, and $3.2 million for the new WTMPA fund. Audit Reclassifications ... In addition to the restatements summarized above. other reclassifications of net assets were made in connection with the preparation of the FY 2003 CAFR. Except for the restatements that were made to the financial statements. as described above. the reclassifications did not am.x:t the .. bottom line·· statement of nc::t assets for a particular fund. and did not retlect the discovery of missing funds or uncollectible amounts from the prior fiscal period. Instead. the reclassifications pertain to the portion of a fund's net assets thal are shown as invested in plant. restricted for future claims or that are unrestricted and available to support the operations of the entity. and as such. the incorrect infonnation shown in the portions of the FY 2002 financial statements that required corrections. or reclassifications. could have provided a reader of the financial statements with misleading infonnation regarding the liquidity of such funds. In the preparation of the FY 2003 CAFR. it was discovered that the portion of net assets shown in certain of the financial statements. particularly with respect 10 the enterpriSt: funds (or business-type activities). had been mathematically incorrectly calculated in the FY 2002 CAFR. While the government-wide statement of net assets of the City included in the FY 2002 CAFR showed $37.9 million unrestricted net assets for businessAype activities of the City. the fund financial statements showed an aggregate amount of unrestricted net assets of the enterprise funds that totaled $195.2 million of unrestricted net assets. The FY 2003 CAFR reports in the govemmenl-wide statement of net assets of the City $32.9 million of unrestricted net assets for business-type activities of the City and the fund financial statements in the FY 2003 CAFR report an aggregate amount of unrestricted net assets for the enterprise funds that total $30.2 million (certain reconciliations are required to balance government-wide and fund level reports. thus small ditlerences should appear between the two presentations). Internal Controls fssues ... lo accordance with accounting guidelines. the external auditor customarily provides the governmental enlity with a -management letter .. that includes a discussion of any material weaknesses in the audited government's internal control structure. In its FY 2003 Management Letter (the --2003 Management Letter'"). KPMG noted several weakness in the City's internal controls.. including an overall internal control weakness in the City during FY 2003. The 2003 Management Letter noted that the City operated during FY 2003 with an interim City Manager. an interim Chief Financial Ollicer and a vacant Internal Auditor, and that a high turnover of staff within the City Manager's office dating to late 2002 had a significant effect on the City's internal control structure. S<!e .. Discussion of Recent Financial and Management Events -Financial Staff and City Management Turnover'· above. In addition. the 2003 Management Letter noted deficiencies in the year end GAAP financial reporting cycle. citing as examples the significant restatement of beginning m.1 assets/fond balances and the reclassilications described above. as well as numerous adjustments thal were required to be posted after the initial closing of the City's books for FY 2003. The failure to timely obtain financial statements from component units. including WTMPA. was also noted. KPMG recommended that the City review the personnel within the City's accounting department and the accounting staff within LP&L to detennine whether sufficient qualified personnel were in place to provide accurate and timely closing of the City's books and preparation of annual financial statements. Other material weaknesses noted include the failure of the City to properly reconcile its cash balances. the failure of LP&L to meet its bond rate covenant (as described above under ·•Discussion of Recent Financial and Management Events - September 30. 2003 Financial Results -The Electric Fund"'). a lack of oversight or monitoring of contracts with other entities (for example. WTMPA). and the failure of the City to abide by its General Fund Balance Policy (as described above under ·•Discussion of Recent Financial and Management Events -September 30. 2003 Financial Results -The General Fund"). FY 2004 Budget and Year-[nd Financial Results General Fund ... The City Council adopted the FY 2004 budget on September 18. 2003. In adopting the FY 2004 budget. the City Council ~-iricted the transfors out of the: electric fund to a transtcr to the General Fund to an amount equal to the indirect cost recovery amount or $1.1 million. which represented an approximately S6.6 million reduction in transfers from LP&L from the original FY 2003 budget. In addition. the City Council instructed the interim City Manager to prepare the budget using the principal that taxes would not increase as a result of the increase in taxable value from reappraisals of existing properties. which has represented a substantial portion of tax base growth in previous years. A~ a result. the; tax rate was reduced from $0.5700 per $ 100 of ta-.able valuation in FY 2002 to $0.5457 in FY 2003. the equivalent of$1.9 million in revenue. although the tax rate was projected to genera1e additional revenues of $I.I million due to new construction in the City. Other revenue enhancements included in the FY 2004 budget were increases in the franchise fees assessed to the gas franchisee and to Xcel. each of which 20 increased from 3% of gross revenues to 5% effective December I, 2003. In addition. the transfers from the water and solid waste funds for the cost of business transter (which approximates a payment in lieu of franchise taxes) was increased from 3% to 6% of gross revenues. On the expenditure side, seven employment positions were eliminated from the General-Fund budget while an additional live police officers and nine firefighters were funded in the budget Total revenues and expenditures budgeted for the General Fund were balanced, at $94.2 million. Based upon unaudited financial records through the first eleven months or FY 2004, and projecting revenues and expenses to the end of FY 2004, the City estimates that the General Fund balance will grow by approximately $4.4 million at year-end. to $13.8 million. which would place the City $0.9 million under its General Fund Balance Policy. Among the most significant factors affecting the projected year end results of the General Fund are stable growth in the sales tax and other revenues overall and reduced expenditures through operating and administrative efficiencies. While no firm assurances can be given that these projected results will be achieved. the City believes that such projection is reasonable based upon current financial data ln FY 2004, LP&L ·s revenues were sufficient to make debt service payments on its bonded indebtedness without a transfer from the General Fund. Excerpts from the City's Comprehensive Annual Financial Report of the fiscal year ended September 30. 2004 (the "FY 2004 CAFR-), including the audited financial statements and the management discussion and analysis (the --MD&A-) are attached as Appendix 8. Reference is made to Appendix 8 for a more complete presentation of FY 2004 financial results (the complete FY 2004 CAFR is available from the City upon request and may be downloaded from the City's web site: http://www.ci.lubbock.IX.us ). Enterprise Funds ... With respect to the major enterprise funds of the City. in FY 2003. the City adopted rate ordinances for the water and sewer enterprise funds that included a series of four 3% increases in water rates and a series of four 5% increases in sewer rates. FY 2004 was the second year of such increases (but see ·'Discu.ssion of Recent Financial and Management Events - FY 2005 Budget" for a discussion of possible additional rate increases in the water. sewer and stormwater funds in FY 2005 below). Other key budgetary measures included the decrease in transfers from the electric fund to the General Fund and the increase in the cost of business transfor for the water and solid waste funds. each described above. and a planned use of fund balance in the stonnwater fund to pay increased debt service on tax-supported debt issued by the City for drainage projects. Based upon unaudited financial records for the first eleven months of FY 2004. and projecting revenues and expenses to the end of the fiscal year. the City estimates that LP&L will produce positive net income after transfers of$ I mill ion at year end. Based upon unaudited financial records for the first eleven months of FY 2004. the City estimates that the fund balances of the water, sewer. solid waste and stonnwater funds will increase by $1.6 million. $0.164 million. $0.2 million and $3.8 million. respectively at FY 2004 year end. While no finn assurances can be given these projected results will be achieved. the City believes such projections are reasonable based upon current financial data. City's Responses to Recent Financial and Management Events As described above. the City has encountered in recent years criticism of its management practices in various reports and audits prepared by the City and outside consultants. At the same time. the City has experienced financial downturns. particularly in the General Fund and at LP&L. Moreover. through reorganizations of government designed to address these shortcomings. and in response to political pressures by the City Council to provide a more accountable City government while reducing the growth of the cost of City government. a significant number of senior management staff of the City have departed. In FY 2004. the City implemented a number of significant steps to address both its management needs and financial challenges. Certain of the measures taken by the City to strengthen City government in general. and to address its financial challenges. are described below. General Fund and General Government Actions > General Fund Budgetary Actions ... As discussed above under ~Discussion of Recent Financial and Management Events -FY 2003 Financial Concerns and Mid-Year Budget Amendments·· in adopting the 2003 Budget Amendments. as well as the FY 2004 budget and the FY 2005 budget. the City has demonstrated the ability atler FY 2003 to meet General Fund obligations with balanced operating results. This has been achieved through various budget cuts and other austerity measures. including eliminating approximately 100 positions City-wide. The City will need to restore its General Fund balance over a period of years. The new City management anticipates that during FY 2005 the City will establish a replenishment target for the General Fund. For FY 2004. General Fund balance ended with a surplus of $12.127.969. While no assurances can be given as to future financial results, based on historic expenditure trends an increase in General Fund balance of an additional $1 million to $2 million is expected for FY 2005 year end. City management also has implemented monthly assessments of the budget. > City Management Changes ... In February. 2004, the City completed its search for a new City Manager with the employment of Lou Fox. In late June 2004. City Manager Fox announced a new slate of senior managers for the City. including the hiring of a new Deputy City Manager. a new Chief Financial Otlicer/Assistant City Manager and a new Director of Internal Audit (which position was created by the City Council in FY 2003. but was vacant until filled in June 2004). Each of the positions were filled by individuals from outside of the City. and each of the new City otlicers has extensive government service (see ·'City Otlicials. Staff and Consultants -Selected Administrative Statr'). Collectively. the new management team represents over 80 years of government service experience. The City is of the view that these moves reflect a return to management stability. and that they will assist the City in addressing the general internal control weakness cited by KPMG in the 2003 Management Letter. 21 _[l > Establishment of Audit Committee ... Through the adoption of a resolution in June 2003, the City Council established an independent Audit Committee composed of five members. The City believes it is one of only a few municipalities nationwide that has created an audit committee, taking its design in large part from the provisions of Sarbanes-Oxley Public Company Accounting Refonn and Investor Protection Act. The Audit Committee is charged with maintaining an open avenue of communication between the City Council. City Manager. internal auditor and independent external auditor lo assist the City in fulfilling its fiduciary responsibility to its citizens. The committee has the power to conduct or authorize investigations into the city's financial perfonnances. internal fiscal controls. ei.posure and risk assessment. It reports to the City Council. The establishment of the Audit Committee is designed to serve as an additional check on the preparation of the City's financial statements and to avoid weaknesses in the City's internal controls. including the status and adequacy of information systems and security. The chairperson is appointed by the Mayor and the other positions are filled by a vote of the City Council. At least two members of the Audit Committee are required to have a background in financial reporting.. accounting or auditing. and at lea.st one member is required to be a certified public accountant. The current membership of the commi1tee consists of Mike Epps. an Executive Vice President at American State Bank in Lubbock. Jim Brunjes. Senior Vice Chancellor and Chief Financial Otlicer for the Texas Tech University System: Dan Benson. a protessor at the Texas Tech University School of Law with expertise in federal criminal law and appellate procedure; R.J. Givens. a real estate agent in the City; and Kim Turner, the Director of Internal Audit at Texas T.:ch. Mr. Brunjes is the chair of the Audit Committee. Recent Measures taken to Address Financial and Management Concerns at LP&L > New Chief Executive Officer for LP&L .. .In March 2003. R. Carroll McDonald contnu.'ted with the City to perform the duties of Director of Electric Util'ities for the City. Mr. McDonald had previously been employed by LP&L, most recently in 1994. when he retired as CEO of LP&L. Mr. McDonald has over 40 years experience in the eh:ctric utility business in Lubbock and the surrounding area. having also served in various positions with Southwestern Public Service Company (now Xcel) for over 25 years. Mr. McDonald"s contract is scheduled to expire in May 2006. Under the management of Mr. McDonald. the City and LP&L have implemented a variety of measures designed to improve the accountability of LP&L to the City and to better position the utility for future profitability. Certain of those measures are described in the paragraphs that follow. The Electric Board (hereinafter defined) has commenced the process of hiring a successor to Mr. McDonald and expects to have completed this process by December 2005. The City believes it is Mr. McDonald's intent to assist any successor as needed umil his contract expires. > Increase in Fye) Cost Adjustment ... As described under -Discussion of Recent Financial and Management Events -Past Events Relating to LP&L and West Texas Municipal Power Agency"' in May 2003. the City Council approved an increase in the FCA portion of the residential and small commercial cm,1omers rate class by $0.01 per kWh. an average increase of 12.5% for both residential and commercial customers. which resulted in LP&L being approximately 30% higher in cost for those rate classifications than Xcel. The incrcwe was approved in order to pass through fuel costs that had been incurred by LP&L but not recovered through its rate base. LP&L adjusts its FCA each month. and may do so under the existing methodology without further action of the City Council. to reflect current energy prices plus an additional measure to recover a portion of the rolling eighteen month average for uncollected fuel expense; provided. however. that no such adjustment is typically made unless the overall cost of energy after the FCA adjustment permits LP&L to remain competitive with Xcel. If the adjustments will not pennit LP&L to remain competitive and are not passed through. they become an unrecovered fuel expense. As a result of the increase. from May I. 2003 to September 30. 2003 LP&L lost approximately 5.6% of its customers. Atler losing almost 4,000 metered customers following the May I. 2003 FCA increase. LP&L began to increase its customer count in May 2004. Since May 2004, LP&L has had an average increase of approximately 263 customers per month. The City has undertaken periodic adjustments to its fuel cost to remain competitive with Xcel. In May 2005. the City FCA was increased by $0.085 per kWh. an increase that was in line with a rate increase imposed by Xcel. > Estab]jshment of New Electric Utiljtics Board ... In December 2003, the City Council appointed the Lubbock Electric Utility Governance Commission lo review and evaluate various issues relating to the governance of LP&L. In February 2004. that Commission presented its findings to the City Council (the -Electric Utility Governance Report''), and on February 5, 2004, the City Council adopted an ordinance (the ··LP&L Governance Ordinance'") (I) creating a new Electric Utilities Board (the "'Electric Board'") for LP&L (the new board replaces a fonner board that was advisory only). (2) reserving certain duties and responsibilities with respect to LP&L to the City Council (i.e .• the powers to approve LP&L's annual budget set LP&L's rates: issue debt for LP&L; exercise the power of eminent domain for LP&L: and require the payment of an annual fee to the City). and (3) mandating the creation of certain reserve accounts by LP&L and restricting the trunster of revenues from LP&L to any other fund of the City. including, particularly. the General Fund. until such reserves have been funded. The Electric Board was appointed in February 2004. In June 2004, the City initiated a solicitation to the holders of LP&L's senior revenue debt seeking approval to amend each LP&L bond ordinance lo provide for the governance of LP&L by the Electric Board. In accordance with the provisions of the bond ordinances. the City was obligated to obtain the consent of at leru;t 51 % of the LP&L bondholders. and in August 2004 the City received the requisite consents. The City amended the bond ordinances to provide for the governance of LP&L by the Electric Board in January 2005. 22 On November 2. 2004, the voters of the City approved a referendum amending the City Charter to require the establishment of the Electric Board. The purpose of the charter amendment was to ensure the pennanent establishment of the Electric Board. as the action of the City Council in adopting the LP&L Governance Ordinance was subject to repeal by subsequent City Councils. The charter amendment requires the City Council to adopt an ordinance (the '"'New LP&L Governance Ordinance'') by no later than January I, 2005 setting forth other duties and responsibilities of the Electric Board not specifically set forth in the proposed charter amendment. The City Council, utilizing the LP&L Governance Ordinance as a model. adopted the New LP&L Governance Ordinance on December 16. 2004. Each of the New LP&L Governance Ordinance. the bond ordinance amendment and the charter amendment contain similar provisions regarding the powers of the Electric Board. although as noted above, and as further described below, the New LP&L Governance Ordinance includes additional provisions that pertain to the establishment of financial reserves and restrictions on transfer of funds from LP&L. In addition. the charter amendment stipulates that the Electric Board shall detennine the transfer and disbursement of all net revenues of the City's electric utility. The New LP&L Governance Ordinance provides that the Electric Board consist of nine members appointed by the City Council. and that the City Council consider extensive business and/or financial experience as the primary qualification for serving on the Electric Board. Electric Board members serve without compensation. Under the New LP&L Governance Ordinance, the Board is given the authority, duties and responsibility to (I) approve an annual budget and electric rate schedule: for submission to the City Council for approval and. from time to time. submit to the City Council amendments to the budget and/or the electric rate schedule: (2) oversee the audit of the electric fund, and engage an accounting firm for that purpose: and (3) subject to applicable law, including the City Charter and Code of Ordinances, govern. manage. administer and operate the City's electric system, including contracting for legal and other services separate and apart from those provided by the City. In addition. the City Manager is required to consult with. and seek approval of. the Electric Board prior to appointing and/or removing the director or LP&L. In accordance with the New LP&L Governance Ordinance, the director of LP&L reports to the Board. The adoption of the LP&L Governance Ordinance. the charter amendment election, and the subsequent adoption of the New LP&L Governance Ordinance reflects a decision by the City Council to provide a measure of independent management and financial self-detennination for LP&L. In accordance with the findings presented to the City Council in the Electric Utility Governance Report. the primary purpose of the New LP&L Governance Ordinance is to pennit LP&L to rebuild. and then better control, its financial reserves with substantially Jess input in the process from the City Council than in the past. The adoption of the New LP&L Governance Ordinance follows in the wake of the conclusions reached in the LP&L/WTMPA Management Audit to the effect that there had been a history of poor contract administration by the management of LP&L relative to WTMPA, and that LP&L had acted without proper oversight from the City Council and the City Manager's office. While the City Council retains substantial powers over the electric system. an additional goal of the City in establishing the Electric Board is to develop local expertise in a pool of individuals who can provide a sharper focus by the City on the operation of LP&L than has occurred in the recent past. > Establishment of Reserve Funds for LP&L · Restriction on Transfers from LP&L ... As noted above. the LP&L Governance Ordinance includes a provision that requires LP&L to establish reserve funds. Such funds consist of (I) an operations reserve fund lo be equal to three months' gross retail electric revenue as determined by LP&L's previous fiscal year: (2) a rate stabilization reserve to be funded lo an amount equal to two months' gross retail electric revenue as determined by LP&L's previous fiscal year: and (3) an electric utility development reserve to be funded to a level equal to one months' gross retail electric revenue as determined by LP&L's previous fiscal year and to be used solely to meet any rapid or unforeseen increase in development in the City. Under the LP&L Governance Ordinance, the City may not require that LP&L transfer any fee equivalent to a franchise foe, a payment in lieu of taxes or other disbursement of the net revenues of LP&L until (a) all bond debt service requirements have been funded (which obligation is senior in right to the obligation to fund the reserves) and (b) the reserves have been fully funded. As noted above, the charter amendment provides that the Electric Board shall detennine the transfer and disbursement of all net revenues. Consequently. subject to (i) provisions of State laws that govern municipal utilities. and which stipulate that a first use of the utility's gross revenues be used to pay operating expenses. and ( ii) the obligations of the City with respect to LP&L's bonded indebtedness. it is possible that the Electric Board could devise a tlow of funds for LP&L that is substantially difterent from that set forth in the LP&L Governance Ordinance. To date, the Electric Board has not deviated from the now of funds contemplated under the LP&L Governance Ordinance. At present. LP&L has not funded any of the reserves established under the LP&L Governance Ordinance, as net revenues have been inadequate for that purpose. Moreover. the mere establishment of the funds does not imply that such reserves will be funded within any particular time frame. if ever. However. in adopting the LP&L Governance Ordinance and calling the special charter election, the City Council has evidenced its commitment that LP&L be given the opportunity to regain financial stability without being obligated to make transfers, other than its indirect cost of business transfer, to the General Fund or any other fund of the City. > New Contractual Arrangements Affecting LP&L Operations and Revenues ... In late 2003 and extending into the Summer of 2004. City Management. including LP&L staff in particular. negotiated a series of new agreements that will change the long- tenn operating plan of LP&L. These agreements. which are summarized below. stemmed from a series of events and circumstances relating to LP&L that are described herein under ·•Discussion of Recent Financial and Management Events -Past Events Relating to LP&L and West Texas Municipal Power Agency,'' including an ongoing dispute with WTMPA relating to the responsibility for costs incurred by the City during the delayed completion of the WTMPA Project. In addition. as a result of 23 ----L l continued high (by historic levels) natural gas prices. following the negotialion of an additional wholesale power purchase agreement between the City and SPS in July 2003. the City concluded that. given the then prevailing gas prices. it was more economical to purchase wholesale energy from SPS than to operate its gas generation units. a significant portion of which are older and. in light of current gas prices. obsolete. In recent years. the City has explored several alternatives to the use of its gas generation units, including the possible acquisition of new gem:ration, perhaps through a joint venture for a coal generation facility, and the possibility of purchasing energy on a wholesale basis from entities other than Xcel or its subsidiaries. The City is in a severely electric transmission-constrained area. The lack of sufficient transmission for delivery of energy to the City and the absence of other energy providers in the vicinity of the City with excess energy for sale were factors that contributed to the failure of the City to negotiate a wholesale energy purchase agreement with an entity other than Xcel or its subsidiaries. Consequently. to reduce fuel and production expenses. in the Summer of 2004 the City began taking greater amounts of energy from the Xcel contracts. and restricted the generation or energy primarily to that produced at the WTMPA Project and only then during periods of high energy demand. As described below under -wholesale Energy Agreement with Texas Tech-. these events led to a contract dispute between the City and Texas Tech. the largest LP&L customer. > The WTMPA Settlement Agreement ... In December 2003. the City. WTMPA and the other Member Cities of WTMPA entered into a series of agreements styled the -comprehensive Settlement Agreement-Such agreements were negotiated for the purposes of (I) reallocating among the Member Cities of WTMPA, the right to WTMPA power resources and the costs associated with such power resources. which consist of the WTMPA ·Project and certain power purchase agreements between WTMPA and SPS: (2) resolving disputes regarding the composition and voting power of the WTMPA board: and (3) settling the outstanding. disputed claims for costs incurred by the City on behalf of WTMPA. The WTMPA Setth:ments include the following agreements: (a) all of the capacity and energy in the WTMPA Project was allocated to the City or its assignee (under the 1998 WTMPA Project agreements. the City had an 85% allocation of the energy from the WTMPA Project although it had historically taken substantially all of the energy and dispatched purchased energy to the other Member Cities to meet their needs); (b) the City assumed responsibility for the cost of operation and maintenance of the WTMPA. Project: (c) the City agreed to annually pay WTMPA 100% of the debt service due on the WTMPA Bonds (under the basic agreement of WTMPA. the agency's Power Sale Contract. each of the other Member Cities has joint and several liability for the WTMPA Bonds and wil I remain contingently liable in that capacity in the event the City should fail lo make a bond payment obligation): (d) provision was made for title to the WTMPA Project to transfer to the City upon the retirement of the WTMPA Bonds: and (e) the City released all of its claims associated with costs that it had asserted was owed in connection with the energy costs incurred by the City for the Member Cities during the period when the WTMPA Project was delayed in coming online. In addition. the WTMPA Settlements include a purchased power allocation under which the City has agreed to allocate to the other Member Cities energy requirements nominated by the other Member Cities from other agency purchased power agreements. and the City agreed to schedule such power for the other Member Cities. The WTMPA Settlements repealed certain power sales agreements and operating agreements entered into by the parties in connection with the issuance of the WTMPA Bonds that were associated with the operation of the WTMPA Project. The WTMPA Settlements eliminated the position of WTMPA chairman. but the relative voting powers of the Member Cities were not modified. Under the WTMPA rules and·regulations, each Member City appoints two members to the WTMPA Board each of which has an equal vote (certain actions of the WTMPA Board require a six vote "super majority"). bul in addition to the atlirmative votes of the board members. the rules and regulations provide. in effect. a veto right over WTMPA Board actions based upon the amount of net energy consumed by each Member City. As LP&L takes substantially all of the energy from WTMPA resources. it has a veto over certain of the actions of the WTMPA Board, including adoption of a budget. certain energy sales and the amendment of the agency's bylaws. The City believes the comprehensive settlement agreement modifies the principal WTMPA agreements in a manner that bta:tter reflects the historical manner in which the Member Cities have engaged in energy activities. In addition. while LP&L will continue to schedule power deliveries for all Member Cities. the contract admini~1ration of WTMPA agreements has been simplified by the acquisition by the City of the WTMPA Project and the deteasanc~ of the WTMPA Bonds. As noted under ·•Discussion of Recent Financial and Management Events -FY 2003 Audit Restatements. Reclassilications and Internal Controls Issues." for FY 2003 and subsequent years. WTMPA has been classified as an enterprise fund of the City, which reflects the extensive associations between WTMPA and the City. > New Ful) Requirements Energy Agreement ... In June 2004. WTMPA entered into a 15 year full requirements wholesale power agreement (the -New Power Agreement'") with SPS. The New Power Agreemen1 is effective July I. 2004. and replaces a series of existing agreements between WTMPA and SPS and the City and SPS. which had expiration dates in 2004 and 2005. Under the New Power Agreement, SPS or its permitted assigns is obligated to provide all energy requirements for each of the Member Cities of WTMPA. including the City. during the term of the agreement. which terminates on June 30. 2019. As in past WTMPA agreements, and in accordance with the WTMPA Settlements. LP&L will schedule energy purchased under the agreement for each of the other WTMPA Member Cities. The New Power Agreement includes a tixed demand charge and energy components. with a pass through of SPS's fuel cost. which is billed in accordance with SPS's FERC approved fuel cost adjustment schedule. Under the terms of the New Power Agreement. the fixed demand charge will increase incrementally. in most years annually. during the tenn of the agreement based upon a predetermined schedule set forth in the New Power Agreement. SPS may terminate the agreement upon the occurrence of an adverse regulatory action under which SPS is requi11.-d to sell generation assets. and WTMPA may terminate the agreement upon notice and during the final four years of the scheduled termination date if WTMPA acquires an interest in replacement. coal-tired generation. Each party may require ad._-quatc assurances of perfonnance whenever there is a reasonable basis therefor. 24 The New Power Agreement represents a significant departure for LP&L, in that it reflects a long-term commitment to take all of its energy from SPS. The contract reflects a decision of the City to abandon the role of power generator. although. as described below, in connection with the consummation of the New Power Agreement the City has entered into two unit contingency agreements (the ··unit Contingency Agreements'·) with SPS that will require LP&L to maintain its generation units for dispatch by SPS. Among the implications for LP&L of the New Power Agreement are that LP&L has resolved its long-tenn power supply issues, and lessened its exposure to fuel price volatility. although SPS will pass through its fuel charges to LP&L on a monthly billing basis. SPS, in tum, may not pass its fuel costs through to its retail customers in the City more frequently than once every six months under current State law that requires SPS to seek a rate order from the PUC before increasing retail fuel cost charges. As a result the New Power Agreement provides the possibility of both advantages and disadvantages to the City with respect to cash flow. particularly if the City determines to ma1ch its FCA to changes in SPS's fuel adjustment as ii has generally done in the past According to infonnation filed with various regulatory agencies. the City believes that over 60% of the energy that it purchases from SPS is from coal generation. This fuel mix was a significant factor in the City's detennination to approve the New Power Agreement by WTMPA. In the event that gas prices should decline over the tenn of the Agreement. the City believes that SPS has the flexibility to switch a larger portion of its generation to gas, including through the use of the City's generation units in accordance with the Unit Contingency Agreements. With respect to the competitive posture of the City in light of the long-tenn commitmem of the New Power Agreement, the City notes that under current market conditions. and taking into account the secondary benefits of the agreement. including future savings associated with reduced personnel and maintenance costs as a result of the shin from being an active electric generator to being a passive generator (for SPS under the tenns of the Unit Contingency Agreements). the wholesale price of the purchased energy. together with the other financial benefits of the Unit Contingency Agreements and the possible receipt of revenues under the new WTMPA gas agreement described below. permits the City to compete favorably with SPS. An additional benefit of the New Power Agreement is that it will pennit the City to increase its efforts in developing LP&L's distribution business. In Jig.ht of recent rate structure changes implemented by both the City and SPS that require new developments in the City to fund electric infrastructure through a development charge paid when the development is platted, new principals in developments are choosing to install only one electric distribution infrastructure. Since this new development charge was implemented in FY 2003. all major new developments in the City have selected LP&L as the electric distributor. which positions the City as a distributor of energy to those developments in the future. even though the retail provider of such energy could be a utility other that LP&L and other electric providers could choose to build their own distribution infrastructure to serve the developments. Perhaps the greatest risk to LP&L from the New Power Agreement is that given the term of the agreement and the dynamic nature of electric competition. over time the wholesale price of the purchased energy will not permit the City to obtain the favorable margins that are currently being achieved by the City. While the City does not believe that the area served by LP&L will be opened in the short-lerm to retail deregulation. as is the case in other parts of the State, that could occur during the term of the New Power Agreement. While there are significant uncertainties as to how such deregulation. if it occurs. would be administered. it is possible that new retail energy providers could enter the market during the term of the New Power Agreement. In addition. by tying its energy requirements solely to SPS, and though the other new agreements discussed in this section. the City has significantly increased its dependence on SPS as a counterparty to vital agreements relating to the operation and financial condition of LP&L. Counterparty risk is risk associated with the counterparty's financial condition, credit ratings. changes in business strategies and other quantitative and qualitative measures that could affect the ability of the counterparty to perform its obligations to the City. Both the long-term Unit Contingency Agreement and the New Power Agreement provides the City the right to demand certain credit assurances from its counterparty if it has reasonable grounds for insecurity regarding the perfonnance of any contract obligation. The City was relatively unrestrained by existing gas purchase and transportation agreements in making the move from a generation utility to a full requirements energy purchase business strategy. as only one contract. for gas delivery. was in place that required the City to pay a tixed price component for gas transportation irres.pective of whether the City purchases gas. That contract. between the City and ConocoPhillips. expires in February 2008. In connection with the Unit Contingency Agreements, the City has in place standby gas purchase agreements that can be used to supply LP&L with gas to the extent that SPS calls upon the units. and the City will receive an oftset against its minimum gas transportation requirements from ConocoPhillips for any gas purchased by SPS under the new WTMPA gas contract. if any. described below. While such offset will be subject to the same risks described below with respect to the new gas contract. the City does not anticipate that it will incur substantial costs in connection with prior contractual commitments relating to the purchase and transportation of natural gas as a result of the new LP&L business strategy. > Other New Energy Related Agreements ... As noted above. in connection with the negotiation of the New Power Agreement. the City negotiated the Unit Contingency Agreements, which consist of two agreements that dedicate the City's generation capacity solely to SPS. which. subject to certain customary conditions, including reasonable notice and run times. has the right to call upon one or more of the generation units owned or controlled by LP&L. from time to time to meet energy requirements of SPS. Including the WTMPA Project all of the capacity of which, in accordance with the WTMPA Settlements. is dedicated to LP&L. the City has dedicated generation capacity of 219 megawatts ( .. MW~) to SPS under the Unit Contingency Agreements. 25 L l The most fuel efficient units within that capacity are the 39 MW capacity of Massengale Unit 8 and the 21 MW capacity of the Brandon Unit I ("Brandon Station-). which is located on the campus of Texas Tech (the ··New Units"). The remaining capacity is in twelve older units (the ··Older Units .. ). With respect to the New Units. SPS may dispatch those units for a three year term ending June 30. 2007: the tenn of the Unit Contingency Agreement for the Older Units is filteen years. matching the term of the Power Purchase Agreement. with an expiration date of June 30, 2019. Aside from the differences in units covered. the tenn of the agreements and certain termination provisions in the Older Unit agreem~t. each Unit Contingency Agreement is substantially identical. The Unit Contingency Agreements include a demand charge. which must be paid irrespective of whether SPS chooses to. take energy from the City's units. and an energy charge that is based upon the output of any of the City's units that is dispatched for SPS. While the amount of the energy charge will depend upon the energy taken by SPS from the City's generation units. if any, the Unit Contingency Agreements provide an annual minimum payment by SPS to the City of $6.3 million. > Natural Gas Sale Agreement ... Subsequent to its execution of the New Power Agreement. WTMPA and other parties entered into a series of agreements (collectively. the -New WTMPA Gas Agreements .. ) under which WTMPA may acquire natural gas and effectively exchange it for electric power to realize a cost savings. Under the New WTMPA Gas Agreements. WTMPA may purchase natural gas from Texas Municipal Gas Corporation (-TMGC .. ) at below-market prices and sell the gas to SPS in return for a market-priced credit (reduced by nominal administrative and incentive fees) against payments due from WTMPA under the New Power Agreement. The net savings. if any. will be applied proportionately to reduce the power charges of WTMPA's Member Cities. including the City. TMGC is a Texas public facility corporation created for the purpose of acquiring producing natural gas reserves and selling its production to municipal entities such as WTMPA and LP&L. The City's standby gas purchase agreement mentioned above in connection with the Unit Contingency Agreements, is also with TMGC. Under the terms of the New WTMPA Gas Agreements. SPS is not obligated to purchase gas from WTMPA unless naturnl gas producers. dealers. or other suppliers execute contracts to sell gas to TMGC's upstream gas provider. those suppliers offer to sell such gas on terms that SPS considers at least as advantageous as those available from other producers and dealers. and the aggregate quantities sold do not exceed either SPS's Texas gas requirements or the quantities available to WTMPA from TMGC at a discount from the offered prices or the quantities needed to generate WTMPA's electric requirements. WTMPA's market- price credit is based on the prices offered by the qualified suppliers, and its supply of gas is dependent on sales by the qualified suppliers at those prices. TMGC has secured contracts with five suppliers (Conoco Phillps. Coral Energy. NOTS. Concorde Energy. and Tenaska). There can be no assurance that sufficient qualified suppliers will contract to sell gas. or that they will offer to do so on sufficiently advantageous terms, to supply all or any portion of WTMPA's gas requirements under the New WTMPA Gas Agreements. In addition. the discount now olfored by TMGC may be n..>duced as necessary to enable it to comply with financial covenants, although the discount has remained essentially constant for three years. Moreover. TMGC's reserves are not expected to be able to meet WTMPA's gas requirements for discount gas beyond 2006, although TMGC has agreed to use reasonable efforts to acquire additional reserves to do so. For these and other reasons. there can be no assurance that WTMPA will be able to realize savings in any amount or for any tenn for the benefit of its members under the New WTMPA Gas Agreements. Nevertheless, the City believes that the New WTMPA Gas Agreements contain sufficient economic incentives to induce SPS to qualify sutlicient suppliers and to accept gas under the agreements up to the permitted quantities. and that the TMGC discount will continue to hold. Accordingly. the City has included $4.1 million in gas rebate income in the electric system's FY 2005 operating budget. That amount assumes that the maximum quantities of gas will be acquired and credited by SPS under the New WTMPA Gas Agreements in FY 2005; City management is of the view. however. that ii is doubtful the rebate budgeted will be achieved. > Wholesale Energy Agreement with Texas Tech ... As noted above. Texas Tech. a four year State institution of higher education with a student enrollment of almost 29,000. is the largest customer of LP&L in terms of both energy sold and revenues generated. In 1990. the City constructed Brandon Station on the campus of Texas Tech. The Brandon Station is a cogencration plant and waste heat is used to produce steam which in the past has been sold to the University. In addition. the City owns the electric distribution system on the campus of Texas Tech. Since 1998. the City has sold energy to Texas Tech under the terms of a power sale agreement (the -Old Texas Tech AgreemenC) that included pricing terms for lhe sale of steam and penallies in the event that the City was unable to produce steam in accordance with the agreement. As described above, beginning in the Summer of 2003. as a result of high gas prices. 1he City generally discontinued the production of energy from its generation units. including Brandon Station. therefor requiring Texas Tech to use its boilers for the generation of steam. as a result or which Texas Tech incurred increased costs for natural gas for its boilers. In the Spring of 2004. Texas T l-"Ch presented the City with a claim for stipulated damages under the terms of the Old Texas Tc:ch Agreement. The parties agreed to mediate the claim. Following that mediation. the City and Texas Tech commenced new negotiations for an energy sales agreement (the ··New Texas Tech Agreement''). The negotiations have been concluded. although at present the contract has not been completed for execution by the parties. In general terms. Texas Tech has agreed to continue to purchase energy from the City at a price that will provide the City with a small rate of return. and is paying for energy usage at the rates provided in the New Texas Tech Agreement. The City has agreed that steam produci:d at Brandon Station. if any. will be delivered to Texas Tech at no charge. The City has also agreed with Texas Tech that it may terminate the agreement upon reasonable notice to the City. in which event the City will wheel energy to Texas Tech in accordance with an energy delivery charge. The City is of the view that the New Texas Tech Agreement has resolved the dispute with its largest customer on terms that arc mutually beneficial for the parties. 26 < < FY 2005 Budget General Fund ... The City Council adopted the FY 2005 budget on September 28. 2004. The City's FY 2005 budget for the General Fund is balanced with $98 million in total revenues and expenses. The budget projects that sales tax revenues will produce 52% of total tax revenues (tax revenues represent 86% of the General Fund's total operating revenues), while ad valorem tax revenue is budgeted to produce 39% of total tax revenues. The FY 2004 budget included a 41% to 46% mix of sales tax revenues to ad valorem tax revenues. The higher proportion of sales tax revenue to ad valorem ta"< revenue for FY 2005 versus FY 2004 is attributable to the one quarter cent sales tax for ad valorem tax reduction that was approved by the voters of the City on November 4, 2004. Revenues from that sales tax will begin to be received by the City in October 2004. This shift in General Fund revenue sources represents a greater dependence upon sales tax receipts. which is generally a more volatile revenue source than ad valorem taxes. However. the City's sales tax receipts have not demonstrated the volatility that has been experienced in other parts of the State, especially following the events of September 11. 2001. As shown in Table 14 -'Municipal Sales Tax History," the City's sales tax receipts have increased each year over the past six years. In FY 2005, the City's total tax rate will decline from $0.5457 per $100 taxable assessed valuation in FY 2004 to $0.4597. The largest decline in the tax rate is in the portion of the tax levied for the General Fund (see "Table 4 -Tax Rate. Levy and Collection His1ory"'). The City's tax roll increased $683 million. or 8.6%, from FY 2004 to FY 2005. In keeping with current City Council policy that taxes not increase solely as a result of the increase in taxable value from tax reappraisals of existing properties. a portion of the $402 million of the growth attributable to reappraisals was discounted for purposes of determining the tax rate for FY 2005. Other factors used to determine the tax rate are revenues from the new quarter cent sales tax and a 2. 7% cost of living adjustmenl as measured by the consumer price index. The increase in sales tax revenues is intended to offset reduced franchise fee income and ad valorem tax income for the General Fund during FY 2005. Total transfers to the General Fund from enterprise and internal service funds are budgeted to increase only marginally. by$\ million. while transfers out increase by $1.7 million. On the expenditure side. administrative services. street lighting, tinancial services. fire, police. general government. human resources and planning and transportation budgets are comparable with FY 2004 budget amounts, with total General Fund operating expenditures increasing by $1.65 million over the FY 2004 budget. Entemrise Funds ... During the Summer of2004 the City made significant changes to City management. The new management is presently assessing available resources for capital expenditures in the City's enterprise funds. and it is reevaluating the City's utility rate structure and its existing capital expenditure plans. It is possible that the FY 2005 budget summarized below will be amended during the year to reflect this evaluation. and that the FY 2005 budget could be amended in a manner that increases or decreases planned spending for enterprise fund capital improvements. the use or contribution to reserves and the rate structure for various enterprise funds. The FY 2005 budget for the sol id waste fund is balanced with $15.5 mi Ilion of revenues and expenditures, including an increased transfer to the General Fund of SI.I million. The FY 2005 budget reflects $22.5 million in sewer fund revenues and expenditures. with $0.45 million earmarked as a contribution for sewer fund capital expenditure and an increase of$0.65 million in the transfor to the General Fund. The sewer budget includes a planned use of $2.3 million of fund reserves. The sewer budget reflects the third year of a planned overall four year rate increase. with rates increasing by 5% each year. The water fund budget for FY 2005 is balanced at $39.8 million of revenues and expenditures, which reflects a 17% increase in the water fund budget, including a planned use of $4.2 million of fund reserves. Operating expenses increase by $1.5 million. spending for water system improvements increase by $0.9 million. debt and other expenditures of the water fund increase by $2.8 million. The increase in the water budget retlects the third year of a planned four year rate increase. with rates increasing by 3% each year. Water transfers to the General Fund are comparable to FY 2004 and the water budget reflects a $0.3 million net increase in reserves. With respect to the electric fund. the revenues and expenditures increase by $92 million and $82 million. respectively over the prior year mainly as a result of gas sale revenues and expenditures under the new gas contract between TMGC and WTMPA. The FY 2005 budget for the stormwater fund is balanced at $7.3 million of revenues and expenditures. including a planned use of $0.2 million of fund reserves. Proposed FY 2006 Budget Currently, City Management is developing the 2005-06 liscal year operating budget and Capital Improvement Program. This process includes the ongoing evaluations of staffing levels and operating expenditures to ensure the most effective and efficient use of public resources. Goals for the upcoming budget include additional staffing in public safoty and ensuring the solvency of the water and sewer utilities. 27 ----[~ TAX INFORMATION AD VALOREM TAX LAW ... The appraisal of property within the City is the responsibility of the Lubbock County Central Appraisal District (the "Appraisal District"). Excluding agricultural and open•space land which may be taxed on the basis of productive capacity. the Appraisal Dil.1rict is required under the Property Tax Code (defined below) to 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. dillerent 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 for a tax year to an amount not to exceed the lesser of (I) the market value of the property. or (2) the sum of (a) 10% of the appraised value of the property for the last year in which the property was appraised for taxation times the number of years sim."e the property was last appraised. plus (b) the apprJised value of the property for the 1~1 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 10 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 Title I of the V.T.C.A.. Tax Code (the: ··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 purposes: and the procedures and limitations applicable to the levy and collection of ad valorem taxes. Article VIII of the State Con~titution ("'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 t."Xemption of cenain person.al property from ad valorem taxation. Under Section 1-b. Article VIII. and State law, the governing body of a political subdivision. at its option. may grant: (1) An exemption of not less than $3.000 of the market value of the residence homestead of persons 65 years ofage or older and the disabled from all ad valorem taxes thereafier levied by the political subdivision: (2) An exemption of up to 20% of the mark.et value of residence homt:sk.-ads. The minimum exemption under this provision is $5,000. In the case of residence homestead exemptions granted under Section l·b. Article VIII. ad valorcm ta'<es 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 creatt,-d. 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 anned forces: the exemption applies to either real or personal property with the amount of assessed valuation exempted ranging from $5.000 to a maximum ofS 12,000. Effective January I. 2004. under Article VIII and State law. the governing body of a county, municipality or junior college district. may provide that the total amount of ad valorem taxes levied on the residence homestead of a disabled person or persons 65 years of age or older will not be increased above to the amount of taxes imposed in the year such residence qualified for such exemption. Also. upon receipt of a petition signed by five percent of the registered voters of the county. municipality or junior college district. an election must be held to detennine by majori1y vote whether to establish such a limitation on taxes paid on residence homesteads of persons 65 years of age or older or who are disabled. Upon providing for such exemption. such freeze on ad valorem taxes is transferable to a different residence homestead within the taxing unit and to a surviving spouse living in such homestead who is disabled or is at least 55 years of age. If improvements (other than maintenance or repairs) are made to the property, 1he value of the improvements is taxed at 1he then current ta'I: rate. and the total amount of taxes imposed is increased to reflect the new improvements with the new amount of taxes then serving as the ceiling on taxes for the following ye-ars. Once established. the tax rate limitation may not be repealed or rescinded. The City has established such a limitation on ad valorem taxes. Article VIII provides that eligible owners of both agricultural land (Section I.ct) and open-space land (Section I.ct-I), including open•space land devoted to farm 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 I.ct and l-d-1. Nonbusiness personal property, such as automobiles or light trucks. are exempt from ad valorem taxation unless the governing body of a political subdivision t:lects to tax this property. Boats owned as nonbusiness property are exempt from ad valorem taxation. Article Vilt Section 1--j, provides for -rreepon property" to be exempted from ad valorem taxation. Freeport property is defined as goods detained in Texas for 175 days or less for the purpose of assembly. storage. manufacturing. processing or fabrication. Decisions to cominue to tax may be reversed in the future: decisions to exempt freeport property are not subject to reversal. The City may Cl\.'atc one or more tax increment financing zones. undt:r which the tax values on property in the zone are '"frozen" at the value of the property at the time of creation of the zone. Other overlapping taxing units may agree to contribute all or part of 28 future ad valorem taxes levied and collected against the value of property in the zone in excess of 1he -frozen value'" to pay or finance the costs of certain public improvements in the zone. Taxes levied by the City against the values of real property in 1he zone in excess of the .. frozen value-are no1 available for general city use but are restricted to paying or financing ""project costs .. within lhe zone. The City also 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 10 years. EFFECTIVE TAX RATE AND ROLLBACK TAX RATE ... By each September I or as soon thereafter as practicable. the City Council adopts a tax rate per $100 taxable value for the current year. The City Council is 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 lhat lax year or the tax rate adopted by the City for the preceding tax year. The tax rate consists of two components: (I) a rate for funding of maintenance and operation expenditures and (2) a rate for debt service. Under the Property Tax Code. the City musl annually calculate and publicize its ·•effective t.ax rate·· and ··rollback tax rate'", Effective Janual)' I. 2000. a la.'{ 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 lhat notice be pos1ed on the City·s website if the City owns. operates or conlrols 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 TA.X PAYMENT ... Property within the City is generally assessed as of January I of each year. Business inventory may. at the option of the taxpayer. be assessed as of September. 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. Ta.xes become due October I of the same year. and become delinquent on February I of the following year. Taxpayers 65 years old or older are pennitted by State law to pay taxes on homesteads in four installments with the first due on February I of each year and the final installment due on August I. PENALTIES AND INTERESf ... Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: Cumulative Cumulative Month Penalty Interest Tolal February 6% 1% 7% March 7 2 9 April 8 3 11 May 9 4 13 June IO 5 15 July 12 6 18 After July. penalty remains at 12%. and interest increases at the rate of 1% each month. In addition. if an account is delinquent in July. a 15% attorney's collection tee is added to the total tax penalty and interest charge. 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. 29 ----I ] 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 OFT AX 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 any part of the additional exemption of up to 20"/o of the market value of residence homesteads; the minimum exemption that may be granted under this provision being $5.000. The City has established the tax freeze on residence homesteads of disabled persons and persons 65 and over. See Table I for a listing of the amounts of the exemptions described above. Ad valorcm taxes are not levied by the City against the exempt value of residence homesteads for the payment of debt. The City docs not tax nonbusiness p,;:rsonal property; and the Appraisal Distric1 collects taxes for the City. Tht: City does not pennit split payments of taxes. and discounts for early payment of taxes are not allowed by the City. although pt:nnitted on a local-option basis by the Property Tax Code. In the past the City has taxed freeport property. although beginning with the 1999 ta'C year the City has exempted freeport property from taxation. The City collects an additional one-eighth cent sales ta'C for reduction of ad valorem taxes. The City held an election on November 4. 2003 to increase this tax by one quarter cent for a total of three eighths of a cent. The rate increase became effective on October I. 2004. The City has adopted tax abatement policies. as described below. TAX ABATEMENT POL.JCIES .•• 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 reinvestml.!nt zone or enterprisl.! zone (a commercial project must be in an enterprise zone) ond 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 southeru;t 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"/o) tax abatement, since 1997 the City has negotiated abatements on a declining percentage basis. with a portion of the tax value being added to tht: City's tax roil each year during the lite of the abatement. The City's policies provide a variety of criteria that aff~t the tenns 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 I - Valuations. Exemptions, and General Obligation Debt." TAX INCREMENT FINANCING ZoNES .•. Chapter 311. Texas Tax Code. providl.'S that the City and other taxing entities may designate a continuous geographic area in its jurisdiction as a TIF if the area constitutes an economic or social liability in its present condition and use. Other overlapping taxing units may agree to contribute all or a portion of their ta.'CeS collected against the --incremental Value .. in the TIF to pay for TIF projects. 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 --oowntown TIF .. ) and the North Overton Ta.'C 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 TIF are frozen at the level of taxable values for 2001. the year of creation 30 at $101.376,054. In FY 2005, the Downtown TIF has a taxable value of$117,046.263 before taking into account ta.x abatements and exemptions. After tax abatements and exemptions, the tax value in the TIF is $114.147,891. Consequently, for the year ended September 30. 2005. no deposit will be made to the tax increment fund for the Downtown TIF. ln addition 10 the City, the County. County Hospital District and the High Plains Underground Water Conservation District (collectively. the ··Taxing Units'') 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 lo 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. Each of the other Taxing Units in the Downtown TIF also participate-in the North Overton TIF. As is the case with the Downtown TIF. lhe taxes levied by the City in the FY 2005 represent approximately 54.8% of all taxes levied by all participating Ta,'Cing 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 I. 2002 at $26,940.604. 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. As of January I. 2004. there was approximately $ I 0. 750. 157 of tax increment value in the North Overton TIF. TABLE t -VALUATION, [XEMPTI0NSANDGENERALOBLIGATI0N DEBT 2004 Market Valuation Established by Lubbock Central Appraisal District Les~ Exemptions/Reductions at I 00% Market Value: Residential Homestead Exemptions Homestead Cap Adjustment Disabled Veterans Agricultural/Open•Space Land Use Reductions Pollution Exemptions Solar and Wind-powered Exemptions Freeport Exemptions Tax Abatement Reductions('' Historical Exemption 2004 Taxable Assessed Valuation City Funded Debt Payable from Ad Valorem Taxes General Obligation Debt (as of6-15-05) '2l The Bonds Total Funded Debt Payable from Ad Valorem Taxes Less: Self Supporting Debt (as of 6-15-05) m Waterworks System General Obligation Dt:bt Sewer System General Obligation Debt Solid Waste Disposal System General Obligation Debt Drainage Utility System General Obligation Debt Tax Increment Financing General Obligation Debt Electric Light and Power System General Obligation Debt General Purpose Funded Debt Payable from Ad Valorem Taxes c4J General Obligation Interest and Sinking Fund as of 4-30-05 Ratio Total Funded Debt to Taxable Assessed Valuation Ratio General Purpose Funded Debt 10 Taxable Assessed Valuation 2005 Estimated Population -209.120 (S) Per Capita Taxable Assessed Valuation • $41.432 $ 202.%2.443 97,892.885 13.497, 140 53.151,755 2,706,800 80,992 62,093.896 63.387,926 144.359 $ 242,1 10.000 49.615.000 $ 59,851.413 39,888.274 8,052.027 72,485,000 3,675,000 43,340,000 Per Capita Total Funded Debt Payable from Ad Valorem Taxes -$1.395 Per Capita General Purpose Funded Debt Payable from Ad Vulorem Taxes -$308 (I) See above. ··Tax lnfonnation -Tax Abatement Policy". 3 1 $ 9. 160.109.105 495,918.196 $ 8,664.190.909 $ 291.725,000 227.291.714 $ 64.433,286 $ 1.433.694 3.37% 0.74% ----I l (2) The statement of indebtedness does not include outstanding $24,840.000 Electric Light and Power System Revenue Bonds. as th..:se Bonds are payable solely from the Net Revenues of the City·s Electric Light and Power System. (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 ''Table 8A -Pro-Forma General Obligotion Debt Service Requirements". ·"Table 8B -Division of Debt Service Requirements~. ··Table 9 -Interest and Sinking Fund Budget Projection'' and ··Table 10 -Computation of Self-Supporting Debt"). ··Waterworks System Gem:ral Obi igation Debt" includes $59.851.413 principal amount of outstanding general obligation bonds and certificates of obligation that were issued to finance Waterworks System improvements., and that are being paid. or are expected to bt: paid. from Waterworks System revenues. Additionally. the City aniicipates issuing approximately $43.385.000 in tax and waterworks system surplus revenue refunding bonds closing on or about August 16, 2005, to refund the City·s obligation to pay debt service on bonds issued by the Brazos River Authority in connection with the construction of Lake Alan Henry by the Brazos River Authority. It is expected after such refunding bonds are issued that the City will take title to Lake Alan Henry. The City has no outstanding Waterworks System Revenue Bonds but has obligated revenues of the Waterworks System under water supply contracts. ··sewer System General Obligation Debt'" includes $39.888.274 principal amount of general obligation bonds and Bonds of obligation that were issued to finance Sewer System improvements. and that are being paid. or are 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 $8.052.027 principal amount of general obligation debt that was 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 $72.485.000 principal amount of general obligation debt that was 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 has no outstanding Drainage Utility System Revenue Bonds. "Tax Increment Financing General Obligation Debt"' represents $3.675.000 principal amount of general obligation Tax Increment Bonds of Obligation issued for construction of improvements in the North Overton TIF. and is being paid, or is expected to be paid. from revenues derived from the Pledged Tax Increment Revenues. The City has no outstanding Tax Increment Financing Revenue Bonds. However. for FY 2004 the City projects that the incremental tax revenue available to cover debt service on the existing Tax Increment Bonds will cover approximately 30% of such debt. and that for FY 2005 (based upon the January I. 2004 tax roll). the incremental la'< revenue available to cover debt service on the existing Tax Increment Bonds will cover approximately 60% of such debt. In FY 2006. based upon development projections that the City believes to be reasonable. hut 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 on the existing Tax Increment Bonds. 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 TIP proceeds as expected. the City would repay such loan from revenues received in future years. The North Overton master plan projects additional debt to be issued by the City for infrastructure improvements in the TIF. If that occurs. there would likely be years in which the TIF would not produce revenues in amounts sufficient to cover all debt issued for it. at least until the TIF has reached full build-out status. -Electric Light and Power System General Obligation Debt,. includes $43.340.000 principal amount of general obligation Bonds and refunding bonds that were issued to linance Electric Light and Power System improvements and to refund certain Electric Light and Power System Revenue Bonds. (4) ~General Purpose Funded Debt Payable from Ad Valorcm Taxes" includes $64.433.286 of general obligation debt and $881.250 principal amount of outstanding Tax and Airport Surplus Revenue Bonds of Obligation on which debt service is provided from Passenger Facility Charge ("PFC"') revenues (see Footnote (2), ··Table 9 -Interest and Sinking Fund Budget Projccti on-). (5) Source: City of Lubbock. Texas. 32 TABLE 2 -T A.'<ABLE ASSESSED VALUATIONS BY CATEGORY Taxable Appraised Value for Fiscal Year Ended September 30. 2005 2004 2003 %of %of %of Cate~ry Amount Total Amount Total Amount Total Real. Residential. Single-Family $5,156,169,884 56.29% $4,690,158,161 55.50% $4.282,214,635 56.78% Real. Residential.Multi-Family 614,631.057 6.71% 561,569,488 6.64% 455,993.262 6.05% Real. Vacant Lots/Tracts 135,464,357 1.48% I 08.625.954 1.29% 93.473.144 1.24% Real. A creagi: ( Land Only ) 64,528.231 0.70% 65.880.410 0.78% 59,644.977 0.79% Rea!. Fann and Ranch Improvements 10,391.139 0.11% 10,835,088 0.13% 11.39!,782 0.15% Real. Commercial and Industrial 1,701,145,839 18.57% 1,638,846,765 19.39% 1,370. 730.397 18.18% Real. Oil. Gas and Other Mineral Reserves I 1,298.200 0.12% 8,923,810 0.11% 7.909.460 0.10% Real and Tangible Personal. Utilities 173.908,469 !.90% 185,761,346 2.20% 192. 138.423 2.55% Tangible Personal, Commercial and Industrial ! , I 98,078,620 13.08% 1,090.862,579 12.91% 974.534.729 12.9'.?% Tangible Personal. Other 15.'.?79,192 0.17% 16.287.022 0.!9% 15.336,364 0.20% Real Property , I n vent ory 10,987,935 0.12% 4,774,287 0.06% I 1.087.603 0.15% Special Inventory 68.226,182 0.74% 68,663.514 0.81% 67.339.159 0.89% Total Appraised Value Before Exemptions $9.160,109,105 100.00% $ 8.451.188.424 100.00% $ 7.541. 793.935 100.00% Less: Total Exempt ions/Reduct ions (495,918.196) (529,598.044) (199.449.068) Taxable A~sessed Value $ 8.664.190.909 $7,921.590.380 $ 7.34'.?.344.867 Taxable Appraised Value for Fiscal Year Ended September 30. 2002 2001 %of %of Category Amount Total Amount Total Real. Residential. Single-Family $3,935,486.660 53.59% $3.771.725.980 53.71% Real, Residential.Multi-Family 466.775,473 ' 6.36% 453,863.141 6.46% Real. Vacant Lots/Tracts 96,407,484 l.31% 88,108.541 1.25% Real. Acreage (Land Only) 60,171,506 082% 60,125,617 0.86% Real. Fann and Ranch Improvements 12.003.J 18 0.16% I 1,000.161 0.16% Real. Commercial and Industrial 1,445,748.160 19.69% 1,348,046.123 19.20% Real. Oil. Gas and Other M ineral Reserves 8,849,390 0.12% 7,000,000 0.10% Real and Tangible Personal, Utilities 185,588.935 2.53% 181,228,303 2.58% Tangible Personal. Commercial and Industrial 1.039,521,384 14.16% 1,072.713.960 15.28% Tangible Personal. Other 15.296.446 0.21% 14.786.889 0.21% Special Inventory 10,279.056 0.14% 13,320.136 0.19% Real Property. Inventory 67,429.634 0.92% 0.00% Total Appraised Value Before Exemptions $ 7.343,557.446 !00.00% .Ii 7,021,918.851 100.00% Less: Total Exemptions/Reductions (434,247. 73Q) ( 383.007. 758) Taxable Assessed Value $6.909.309.707 $6.638.9! 1.093 • NOTE: Valuations shown are certified taxable assessed values reported by the Lubbock Central Appraisal District to the City for purposes of establishing and levying the City's annual ad valorem tax rate and to the State Comptroller of Public Accounts. Certified values are subject 10 change throughout the year as contested values are resolved and the Appraisal District updates records. 33 ---- [ ] 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 PoEulation (IJ Valuation t-'1 PerCaeita ofYear\j1 Valuation C~ita 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 0.96% 343 2004 206.290 7,921.590.380 38.400 70.161.218 0.89% 340 2005 209,120 8.664.190.909 41.432 64,433.286 0.74% 308 (I) 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 selt'..supporting debt (see Table 3B and footnote 3 to Table I). TABLE38 -DERIVATION Of GENERAL PURPOSE FUNDED TAX DEBT The following table sets forth certain information with respect lo the City's general purpose and self-supporting gem:ral obligation debt. The City is revising its capital improvement plan. but the City expects to issue additional self-supporting general obligation debt within the three to five year time frame. See ··O1:bt 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 ---2001 $ 175.408.321 $ 117,285.512 $ 58.122.809 2002 217.269.682 154.154.335 63.115.346 2003 295.935.000 225,746.796 70.188.204 2004 285.885.000 215.723. 783 70.161.217 2005 291.725,00Q (I) 227.291,714 H) 64.433,286 (I) Projected. includes the Bonds and excludes the Refunded Bonds. TABLE4 -TA.X RATE, LEVY AND COLLECTION HISTORY Fiscal % of Current %of Total Year Distribution Tax Tax Ended Tax General Economic Interest and Colh:ctions Collections 9/30 Rate Fund DeveloEment Sinking Fund Tax Levy to Tax Levy to Tax Lev~ 2001 $ 0.5700 $ 0.42718 $ 0.03000 s 0.11282 $ 37.841.145 97.58% 99.29% 2002 0.5700 0.42844 0.03000 0.11156 39,351.225 97.600/4 99.41% 2003 0.5700 0.43204 0.03000 0.l0796 42.286.967 97.25% 98.78% 2004 0.5457 0.41504 0.03000 0.10066 43.659.111 97.02% 99.69% 2005 ll) 0.4597 0.33474 0.03000 0.09496 39.786.978 94.75% (I) %.48% Ill (I) Collections for part year only. through April 30. 2005. (2) For a discussion of the factors affecting the decline in the 2005 General Fund tax rate, see -Discussion of Recent Financial and Management Events -FY 2005 Budget .. 34 TABLE 5 -TEN LARGEST T A.\:PA YIRS 2004/05 %ofT01al Taxable Taxable Assessed Assessed Name ofTaxeayer Nature of Proeerty Valuation Valuation Macerich Lubbock LTD Partnership Regional Shopping Mall $ 11 I .433,954 1.29% Southwestern Bell Telephone Co. Telephone Utility 59,427.700 0.69% Southwestern Public Service Electric Utility 53.466.701 0.62% United Supennarkets Distribution Center Retail Grocery 48,241.512 0.56% Grinnell Corp-Flow Control Division Manufacturing/Fire Sprinklers 45.933.080 0.53% Pyco lndus1ries Cottonseed Oil Mill 43.349.210 0.50% Mclane Food Services Food Wholesale 37,823,550 0.44% Walmart Supercenter Retail 34.779.467 0.40% X Fab Texas, Inc. Electronic Manufacturing 29.152,174 0.34% Lubbock SMSA Ltd. Partnership Telephone Utility 27.671.690 0.32% $ 491.279.038 5.67% 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 Limiiation""). TABU:6 -TA.XADEQUAd1) Maximum Principal and Interest Requirements. All Gi:neral Obligation Debt 2006(2J ........................................................................................................................ $ 30,075,391 $0.3543 Tax Rate at 98"/4 Collection Produces ................................................................................................................. $ 30.083,284 Maximum Principal and Interest Requirements, General Purpose General Obligation Debl 200S3) .................................................................................................. $ 8..094.947 $0.0954 Tax Rate at 98"/o Collection Produces ................................................................................................................. $ 8.100.325 (I) Based on 2004-2005 taxable assessed valuation. (2) See Table 8A. (3) See Table 8B. 35 ----I TABLE 7 -EST I MA TED 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 (-Ta" Debt") was developed from information contained in ··Texas Municipal Reports'" published by the Municipal Advisory Council of Texas. Except for the amoums 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 hereot: and such entities may have programs requiring the issuance of substantial amounts of additional Tax DebL the amount of which cannot be determined. The following table retlects the estimated share of overlapping Tax Debt of the City. Ta:(jng Jurisdiction C ily of Lubbock Lubbock Independent School DistriC\ Lubbock County Lubbock County Hospital District High Plains Underground Water Conservation District No. I Frenship Independent School District Jdalou Independent School District Lubbock-Cooper Independent School District N cw Deal I nd~-p,:ndcn1 School Di strict Total Direct and Overlapping G.O. Debi s 2004/05 Taxable Assessed Tax Value Rate 8,605.424.748 S 0.45970 6.303,339,726 l.60560 10. 198.959J)98 0.25587 10, 194.687.81 I 0.10742 10,194,687,811 0.00830 1.290,505.343 1.68060 128.551.070 1.50000 613,192.253 1.51760 124,288,155 1.50000 Tota I Funded City's Debt Estimated Overlapping As Of % G.O. Debt 6-15-05 Aeelicablc A.sof6-15-05 $ 292,215.000 '" 100.00% $ 292.215.(JO0 103,675.060 98.91% 102,545,002 76.610.000 82.94% 82.94% 82.94% 41.960.026 64.44% 27,039.041 795,000 1.10% 8.745 13.219.555 15.30% 2.022.592 0.03% $ 423.830.379 Ratio of Direct and Overlapping G.O. Dditto Ta.,able Assessed Valuation ....•..••..•............•...................... Authorized But Unissued Debt As Of 6-15-05 S 31,717,000 52,248.593 505.347 4.93% Per Capita Direct and Overlapping 0.0. Debt. ., .............. ··••·· .. ····•·····••···· ·•···········•··· ... ,$ 2.055 (I) Projected: includes the Bonds and excludes the Refunded Bonds. 36 DEBT INFORMATION TABLE 8A • GENERAL OBLIGATION DEBT SERVJCE REQUIREJ\IENTS Fiscal Year Total %of Ended Outstanding Debt u, The Bonds<2l Combined Principal 9130 Princi(!al Interest Total Principal Interest Total Regulrements Retired 2005 $ 16,005,000 $ 11,495,214 $ 27,500,214 $ $ 404,008 $ 404,008 $ 27,904,223 2006 16,855,000 10,796,341 27,651,341 2,424,050 2,424,050 30,075,391 2007 17,685,000 9,937,281 27,622,281 2,424,050 2,424,050 30,046,331 2008 17,200,000 9,235,203 26,435,203 2,424,050 2,424,050 28,859,253 2009 16,445,000 8,537,191 24,982,191 500,000 2,416,550 2,916,550 27,898,741 27.52% 2010 13,605,000 7,914,292 21,519,292 3,020,000 2,333,550 5,353,550 26,872,842 2011 13,260,000 7,347,875 20,607,875 3,670,000 2,166,300 5,836,300 26,444,175 2012 11,405,000 6,818,666 18,223,666 4,635,000 1,958,675 6,593,675 24,817,341 2013 11,945,000 6,318,542 18,263,542 4,400,000 1,732,800 6,132,800 24,396,342 2014 12,150,000 5,780,758 17,930,758 4,550,000 1,509,050 6,059,050 23,989,808 54.38% 2015 9,360,000 5,296,859 14,656,859 4,670,000 1,301,900 5,971,900 20,628,759 2016 9,180,000 4,872,000 14,052,000 4,290,000 1,101,250 5,391,250 19,443,250 2017 8,640,000 4,453,010 13,093,010 4,440,000 883,000 5,323,000 18,416,010 2018 8,945,000 4,035,261 12,980,261 4,610,000 656,750 5,266,750 18,247,01 I w 2019 7,290,000 3,605,471 16,092,596 -..J 10,895,471 4,775,000 422,125 5,197,125 75.89% 2020 7,010,000 3,266,701 10,276,701 3,910,000 205,000 4,115,000 14,391,701 2021 6,735,000 2,937,478 9,672,478 2,145,000 53,625 2,198,625 11,871,103 2022 8,465,000 2,568,695 11,033,695 11,033,695 2023 7,195,000 2,188,830 9,383,830 9,383,830 2024 4,950,000 1,853,251 6,803,251 6,803,251 89.02% 2025 3,485,000 1,644,639 5,129,639 5,129,639 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 94.92% 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 1014 2,475,000 61,875 2,536,875 2,536,875 100.00% $ 258,115,000 $ 127,337,087 $ 385,452,087 $ 49,615,000 $ 24,416,733 $ 74,031,733 $ 459,483,~20 (I) '·Outstanding Debt" does not include lease/purchase obligations. Excludes the Refunded Bonds. (2) Average life of the issue is 10.039 years. Interest on the Bonds has been calculated at the rates shown on page 2 hereof. TABLE 8B -Dl\1SION OF DEBT SERVICE REOUIREl\lENTS Less: Less: Less: Less: Less: Less: Solid Waste Drainage Tax Electric Waterworks Sewer Disposal Utility Increment Lighl and General Fiscal System System System System Financing Power System Purpose Year General General General General General General General Ended Combined Requiremen1s<11 Obligation Obligation Obligation Obligation Obligation Obligation Obligation 9/JO Princieal Interest Total Requirememsl 11 Reguirements Reg11ire111e111s Reguirements Reguirements Requiremellls Requirements 2005 $ 16,005,000 $ 11,899,223 $ 27,904,223 $ 6,544,773 $ 5,834.616 $ 789,006 $ 4,671,744 $ 286,725 $ 1,682,41 I $ 8,094,947 2006 16,855,000 13,220,391 30,075,391 6,800,194 5,379,087 796,411 4,840,465 285,600 4,388,907 7,584,727 2007 17,685,000 12,361,331 30,046,331 6,688,365 5,556,890 783,365 4,841,912 289,100 4,314,586 7,572,113 2008 17,200,000 11,659,253 28,859,253 6,266,01 I 5,227,615 773,284 4,843,899 287,225 4,247,086 7,214,132 2009 16,945,000 10,953,741 27,898,741 6,101,901 4,937,709 758,285 4,841,240 285,825 4,171,149 6,802,632 2010 16,625,000 10,247,842 26,872,842 5,929,311 4,644,926 743,402 4,843,115 289,825 4,092,593 6,329,670 2011 16,930,000 9,514,175 26,444,175 5,826,483 4,482,884 722,710 4,842,660 288,525 4,027,099 6,253,815 2012 16,040,000 8,777,341 24,817,341 4,942,046 4,244,153 711,200 4,837,830 287,025 3,944,649 5,850,438 2013 16,345,000 8,051,342 24,396,342 4,885,889 4,055,291 699,174 4,840,404 285,325 3,875,449 5,754,811 2014 16,700,000 7,289,808 23,989,808 4,824,943 3.890,831 681,755 4,838,253 288,325 3,797,476 5,668,225 2015 14,030.000 6,598.759 20,628,759 4,685,987 2,019,849 664,681 4,842,053 285,909 3,721,389 4,408,892 2016 13.470,000 5,973,250 19,443,250 4,635,122 1,239,870 647,661 4,841,828 287,950 3,641,879 4,148,940 2017 13,080,000 5,336,010 18,416,010 4,585,536 1,201.060 625,225 4,837.078 289,450 3,564,751 3,312,910 ~ 2018 13,555,000 4,692,01 I 18,247,01 I 4,521,862 I, 170,909 612,346 4,841,953 285,369 3,493,669 3,320,904 2019 12,065,000 4,027,596 16,092,596 4,142,532 1,134,378 418,175 4,836,203 285,694 1,953,781 3,321,834 2020 10,920,000 3,471,701 14,391,701 3,186,775 378,450 411,863 4,839,578 290,309 1,957,625 3,327,J 02 2021 8,880,000 2,991,103 I I ,871,103 1,282,056 381,581 404,813 4,836,703 289,056 1,951,238 2,725,656 2022 8,465,000 2,568,695 11,033,695 1,280,781 378,819 270,400 4,852,254 287,181 1,954,388 2,009,873 2023 7,195,000 2,188,830 9,383,830 740,588 53,563 273,644 4,850,863 289,713 1,953,363 1,222,099 2024 4,950,000 1,853,251 6,803,251 737,100 51,188 271,294 4,851,845 286,650 272,863 332-313 2025 3,485,000 1,644,639 5,129,639 4,852,714 276.925 2026 3,395,000 1,463,114 4,858,114 4,858,114 2027 3,575,000 1,283,9:iO 4,858,950 4,858,950 2028 3,755,000 1,095,068 4,850,068 4,850,068 2029 3,955,000 896,38:i 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 JIHJ 2,47:i,OOO 61,87S 2,536,875 2,536,875 $ 307,730,000 $ 151,753,820 $ 459,483,820 $ 88,608,256 $ 56,263,666 $ 12,058,693 $ 138,263,J 18 $ 5,750,781 $ 63,283,273 $ 95,256,033 ( I ) Excludes the Refunded Bonds and includes the Bonds. TABLE 9 -INTEREST AND SINKING FUND BUDGET PRO.IECTION General Obligation Del>t Service Requirements (Pro-.Forrna), Fiscal Year Ending 9-30.05 Fiscal Agent, Tax Collection and Other Uses Total Requirements Sources of Funds Interest and Sinking Fund, 9-30-04 Budgeted Ad Valorem Tax Receipts Budgeted Transfers From: Water Fund (I) Sewer Fund 11> Solid Waste Fund Pl Drainage Utility Fund (I) Electric Fund TIF Fund ciJ Airport Fund -from Passenger Facility Charges (~PFCs") Budgeted Interest Earned Total Sources of Funds Projected Balance. 9-30--05 ( I) See -Table IO -Computation of Self-Supporting Debt". (2) $ $ $ $ $ $ 27,904,223 15,000 27,919,223 2.852.843 7,954,344 7,085.088 5,940,796 813,084 4.852.706 1.682.411 286,725 195,630 189.405 31.853.032 3.933.809 (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 Bonds 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 collected for fiscal year ending 9-30-04 were $1.402.033, and. $195.650 of PFC revenues have been budgeted for payment of Airport Debt in 2004- 05, which equates to self-supporting Airport Debt with a principal balance of $1.368,750. For 2004-05, the portion of Airport Debt that is being funded from general fund contributions (ad valorem taxes) equates to a principal balance of $2.366,250. 39 TABLE 10 -COMPUTATION OF SELF-SUPPORTING DEBT Tm: WATERWORKS SYSTEM ti) Net System Revenue Available. Fiscal Year Ended 9-30-04 Less: RequiremenlS for Revenue Bonds. Fiscal Year Ended 9-30-05 Balance Available for Other Purposes Requirements for System Gt:nernl Obi igution Debt. Fiscal Year Ending 9-30-05 Percentage of Sy;,'tem General Obi igation Debt Sd f:.Supporti ng $ $ $ 16,142,912 -0- 16.142.912 6..544,773 100.00% ( I) 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 10 debt service requirements on Waterworks Systi::m general obligation debt. THE SEWER SYSTEM Pl Net System Revenue Available. Fiscal Year Ended 9-30-04 Less: Requirements for Revenue Bonds. Fiscal Year Ending 9-30-05 Balance Available for Other Purposes Requirements for System General Obligation Debt. Fiscal Year Ending 9-30-05 Percentage of System General Obligation Debt Selt:.Supporting $ $ $ 8,720.503 -0- 8.720.503 5.834,616 JOO.DO% (I) Each Fiscal Year the City transfors Net Revenues or 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 t 11 Net System Revenue Available. Fiscal Year Ended 9-30-04 Less: RequircmenlS for Revenue Bonds. Fiscal Year Ending 9-30-05 Balance Available for Other Purposes Requirements for System General Obligation Debt. Fiscal Year Ending 9-30-05 Percentage of System General Obligation Debt Se1t:.supporting $ 2.538.565 -0- $ 2.538.565 $ 789.006 100.00% (I) 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 requiremenlS on Solid Waste System general obligation debt. THE DRAINAGE SYSTEM (IJ Net System Revt:nue Available. Fiscal Yi::ar Ended 9-30-04 Less: Requirements for Revenue Bonds. Fiscal Y.:ar Ending 9-30-05 Balance Available for Other Purposes Requirements for System General Obligation Debt. Fiscal Year Ending 9-30-05 Percentage of System General Obligation Debt Se1t:supporting $ 5,167.840 -0- $ 5.167.840 $ 4.671.744 100.00% (I) Each Fiscal Year the City transfers Net Revenues of the Drainage Enterprise Fund to the General Obligation Interest and Sinking Fund in an amount c:qual to debt service requil\.'11lcnts on Drainage System general obligation debt THE ELECTRIC LIGHT AND POWER SYSTEM Ill Net Electric Light and Power System Revenue Available. Fiscal Year Ended 9-30-04 Less: Requirements for Revenue Bonds. Fiscal Year Ending 9·30-05 Balance Available for Other Purposes Requirements for Electric System General Obligation Debt. Fiscal Year Ending 9-30-05 Percent.age of Electric System General Obligation Debt Selt:supporting $ 10.269.560 4.276,703 $ 5,992.857 $ 1.682.41 I 100.00% (I) The City transiers Net Revenues of the Electric Light and Power Enterprise Fund to the General Obligation Interest and Sinking Fund in an amount equal to debt service 1\.-quin:ments on Electric Light and Power System gt-'lleral obligation debt. 40 TABLE II -AUTHORIZED BUT UNJSSUEDGENERALOBLIGATI0N 8oNDS Amount Date Amount Previously Unissued Pu~se Authorized Authorized Issued 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 I, 128,000 Street Improvements S•l-93 10.170,000 10,166.000 4.000 Street Improvements 5-15-04 9,210.000 1,590,000 7.620,000 Civic Center/Auditorium Renovations and Improvements 5-15-04 6,450,000 6,450.000 Park Improvements 5-15-04 6,395,000 190.000 6,205,000 Police/Municipal Court Facilities 5-15-04 3.350,000 3,350,000 Library Improvements 5-15-04 2,145,000 2.145.000 Fire Stations 5-15-04 1,405,000 85.000 1,320.000 Animal Shelter Renovations and Improvements S-15-04 1.045,000 160.000 885.000 $ 46.283.000 $ 14.566.000 $ 31.717.000 ANTICIPATED ISSUANCE OF GENERAL OBLIGATION DEBT ... The City Council adopted a resolution during the 1984-85 budget process establishing capital maintenance ti.Inds 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. Under current City policy. for a project to be funded as a capital proje~-t it must have a cost of $25,000 or more and a life of seven or more years .. For FY 2004. the City Council approved $10.4 million in total expenditures for capital projects for all general purpose projects. as well as projects for the electric fund. water fund. sewer fund. solid waste fund, stonnwater fund and airport fund (down from $57.9 million in FY 2003). The Capital Projects Fund budget for FY 2004 also included an additional $151.9 million in future improvements for all City departments over the four succeeding fiscal years. The improvements included in the City's capital improvement plan are generally funded from a blend of bond proceeds. reserves or current year revenue sources. As shown in Table 11. the City has $27.9 million of authorized but unissued bonds from the May 15. 2004 bond election. When that election was held. the City anticipated that the bonds would be issued over the 2004 through 2008 time frame. 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 unvoted tax supported debt to fund portions of the capital budgel of the electric fund. water fund. sewer fund. solid waste fund. stonnwater fund and airport fund. As described elsewhere in this Official Statement, such enterprise fund indebtedness is generally anticipated to be self-supporting from enterprise fund revenues. Within the next six months. the City anticipates issuing approximately $6.000.000 in general obligation bonds from its voted authority and approximately $37.500.000 in ad valorem tax and waterworks system revenue certificates of obligation to finance various capital projects. In addition, on or about August 15. 2005. the City anticipates issuing approximately $43.385,000 in ad valorem tax and waterworks system surplus revenue refunding bonds to refund its obligation to pay debt service on certain bonds issued by the Brazos River Authority: these bonds are expected to be paid from Waterworks System revenues (see Footnote (4). Table 1-Valuation, Exemptions and General Obligation Debt). TABLE 12-OTHEROBLIGATI0NS At December 31. 2004. the City had capital lease obi igations for leased equipment in the following amounts: Fiscal Governmental Business-type Total Year Capital Lease Capital Lease Capital Lease Ended Minimum Minimum Minimum 9/30 Pa:?'.ment Pa:?'.ment Payment 2005 $ 854,159 $ 643,732 $ 1.497.891 2006 545.380 418.741 964.121 2007 353.694 353,694 Less: Interest (38.582) {65.572) (104,154) $ 1.360.957 s 1.350.595 $ 2.711.552 41 _I l PENSION FUND .•• TEXAS MUNICIPAL RETIREMBNT SYSTEM 11x2) ..• All pennanent. full-time City employees who are not firefighters are covered by the Texas Municipal Retirement System (-TMRS'"). TMRS is an agenl multiple-employer. public- employee retirement system which is covered by a Stale statute and is administered by six lrustees appointed by the Governor of Texas. TMRS operates independently of its member cities. The City 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 thi: City. include currenL prior and antecedent service credits, five 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 2004 contribution rate is 14.54%. Enabling statutes prohibit any member city from adopting options which impose liabilities that cannot be amortized over 2.5 years within a specified statutory rate. On December 31. 2003. the actuarial value of assets held by TMRS (not including those of the Supplemental Disability Fund, which is •·pooled .. ). for the City were $182.884, 183. Unfunded actuarial accrued liabilities on December 31. 2003 were $.56.925.251. which is being amortizt.-d over a 25-year period beginning January. 1997. Total contributions by the City to TMRS for Calendar Year 2003 were $8.747.723. FIREMEN'S RELIEF AND RETIREMENT FUND (II_ .• City of Lubbock firefighters are members of the locally administered Lubbock Firemen·s Relief and Retirement Fund (the --Fund"). 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 the representative thereof and the chief financial officer or the representative thereof. 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 "formula" or a ~final salary" plan. Actuarial reviews are pertonned every two years. and the fund is audited annually. Firefighters contribute a percentage of full salary into the fund. The firefighters· contribution rote for 2005 is 12.43%. 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 lirefighter•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 2005 is 19.94%. As of December 31. 2003. unfunded pension benefit obligations were $16,588,639 which is being amortized over a 13 year period beginning January I. 1997. (I) For historical information concerning the retiremenl plans. see Appendix B. "'Excerpts from the City"s Annual Financial Report--Note #Ill. Subsection E. -Retirement Plans".) (2) Source: Texas Municipal Retirement System. Comprehensive Annual Financial Report for Year Ended December 31, 2003. "City of Lubbock, Te:r:as ". 42 FINANCIAL INFORMATION TABLE 13 -CHANGES IN NH ASSETS111 Fiscal Year Ended Sej!tember 30. 2004 2003 2002 Governmental Governmental Governmental Activities Activities Activities BEYENJIFS· (in 000's) (in OO0's) (in OO0's) Program Revenues: Charges for services $ 12.713 s 13.888 s 9,369 Operating grants and contributions 9,643 12.137 7,007 General R1."Ven ues: Property Taxes 44,497 42,303 40,408 Sales Taxes 30.555 29,092 28,903 Other Taxes 3,793 3.712 3,681 Franchise Taxes 9.654 6.613 6,998 Grant/contributions not restri1.'ted to specific programs (25) Other 4,274 3.834 6.227 Total Revenues $ 115.129 $ 111.579 $ 102.568 EXPENSES· Adminislrative/C ommunity Services s 22,313 s 21.793 s 32,483 Electric 2.471 2,373 2,585 Financial Services 2.387 1,965 1.908 Fire 21.998 20.207 18.664 General Government 20,562 21,009 23.436 Hurn an Ri:sources 777 786 883 Police 33,249 31,429 29,715 Streets 10.789 9,827 5,940 Public Works 3.078 9,856 4.322 Interest on L-T Debt 4.593 3.346 3.382 Total Expenses $ 122.217 $ 122.591 $ 123.318 Change in net assets befure special items & transters (7,088) (I 1.012) (20,750) Special items (687) Transfers 9.745 2.554 15.668 Change in net assets $ 2,657 $ (8,458) $ (5,769) Net assets -beginning of year. as restated $ 101.684 $ 110.142 $ 115.911 Net 3$C!S -end of year $ 104.341 s 101.684 $ 110.142 (I) Data shown in Table 13 reflects general governmental activities reported in accordance with GASB Statement No. 34. The FY 2003 financial statements include a management discussion and analysis of the operating results of such fiscal year. including restatements to beginning fund balances and net assets. As of the date of this Otlicial Statement.. a copy of the FY 2003 financial statement can be accessed through the City's websile. http://www.ci.lubbock.tx.us. 43 ----C ~ TABLE 13-A -GENERAL FUND REVENUES AND EXPENDITURE HISTORY Fiscal Year Ended September 30.<ll Rexem1es 2004 2003 2002 2001 2000 Ad Valorem Taxes $ 33.233.274 $ 32.194,087 $ 29.885.252 $ 28.604.141 $ 26.595.709 Sales Taxes 30.554.632 29.092.032 28.902,649 28,183,746 27.121.078 Franchise Fees 9.654.447 6.612,822 6.998.085 7.684.683 6.619.755 Miscellaneous Taxes 939.456 848.816 820.507 774.587 743.771 Licenses and Permits 1.982.281 1.875.118 1.475.451 1.202.794 1,138.924 Intergovernmental 428.459 348.787 351,878 333.171 365.671 Charges for Services 4.467.733 4.945.591 4.472.094 4.299.958 4.210.334 Fines 3.675.856 3.672.509 3.069.362 3.051.055 2.834.208 Miscellaneous Taxes 1.442.677 1.532.346 1.058.237 995.494 1.143.226 Interest 334.730 285.756 433,393 1,058.096 1.108.662 Operating Transfers(!) 10.723.891 10.345.945 15.023.466 14.276.074 13.636.764 Total Revenues and Transfers $ 97.437.436 S 91.753.809 $ 92.490.374 $ 90.463,799 $ 85.518.102 Expenditures General Government s 5.633.469 $ 5.717.151 s 5.596.868 $ 5.772.031 s 5.255.236 Financial Services 2.333.469 1.969.413 1.958.05 I 1.833.933 1.919.299 Non-departmental 214.562 175.499 1.497.485 1.716.167 606,843 Admin/Communicty Services 18.156.455 17.837.076 17.997.152 18.314.255 17.293.247 Police 32.400.371 30.321.182 28.905.651 28.139.047 25.561.261 Fire 20.613.077 19.511.797 18,632.109 17.903.118 17.183.526 Streets 7.180.843 6.610,394 6.510.394 7,443.017 8.004.402 Electric Utilities 2.185.286 2.078.277 2.168.620 2.146.212 1.923,584 Human Resources 754,225 780.529 895.311 913.250 871,596 Capital Outlay 475.585 378.059 480.749 Opemting Translers 4.212.915 13.555.338 5.951.669 6,187.379 7.526.481 Total Expenditures S 94.160.257 $ 98.934.715 S 90.594.059 $ 90,368.409 S 86.145.475 Excess (Deficiency) of Revenues and Transfers Over Expenditures s 3.277.179 $ (7.180.906) $ 1.896.315 s 95.390 s (627.373) Fund Balwice at Beginning of Year 9.417.346 16.598.252 (4> 16.716.042 16.620.652 17.248.025 Fund Balance at End of Year $ 12,694.525 $ 9,417,346 $ 18,612.357 S 16.716.042 $ 16.620.652 Less: Reserves and Designiuions !ll (1,903,690) (2.361.860) (2.857 .096) Undesignated Fund Balance $ 12.694.525 s 9.417.346 $ 16.708.667 $ 14.354.182 $ 13.763.556 (I) Prior years have been restated to reflect current organization. (2) For fiscal year 2003/04. the water. solid waste and wa.-,1e water funds transforred an amount sufficient to cover the pro rata share of the City's general and administrative expenses and an amount representing a payment in lieu of ad valorem taxes. The water and solid waste funds transferred an amount representing a franchise payment equal to 4% of gross receipts. The waste water fund transforred an amount representing a franchise payment equal to 6% of gross receipts. The Electric System was not required to make transfers to the General Fund for any of the foregoing purposes during the fiscal year. (3) The City's financial policies target a General Fund undesignated balance of at least two months of General fund expenditures. The undesignated fund balance is at 81% of the target established by the City's financial policies. ( 4) The "Fund Balance at Beginning of Year-was restated. 44 TABLE 14 -MUNICIPAL SAL.EST AX HISTORY 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 I% 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 Bonds or other debt of the City. In addition. in Januacy, 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. At an election held in the City on November 4, 2003. voters approved an additional one-quarter cent sales and use tax. with the proceeds to be dedicated to the reduction of ad valorem taxation, and an additional one-eighth cent sales and use tax under Section 4A of the Texas Development Corporation Act, to be used for economic development in the City. The City began to receive proceeds of these taxes in October 2004. Collections and enforcements of the City's sales tax are effected through the offices of 1he 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 1.125% local Sales and Use Tax are shown below: Fiscal Year %of Equivalent of Ended Total Ad Valorem Ad Valorem 9/30 Collectedci > Tax Levy 2001 $ 28.183. 746 74.48% $ 2002 28,902,648 73.37% 2003 29,092.032 73.85% 2004 30.554.632 70.67% 2005 20.587.235 fJ) 51.74% (I) Excludes bingo tax receipts. (2) Based on population estimates of the City. (3) Partial collections October I. 2004 through April 30. 2005. Effective October I. 2004 the sales ta"\ breakdown ror the City is as follows: City: City Sales & Use Tax City Sales & Use Ta'< for Property Tax Relief City Sales & Use Tax for Economic Development County Sales & Use Tax State Sales & Use Tax Total FINANCIAL POLICIES Tax Rate 0.4245 0.4183 0.3962 0.3857 0.2376 1.000¢ 0.375¢ 0.125¢ 0.500¢ 6.250¢ 8.250¢ Per Capita121 $ 140.15 143.08 142.09 148.11 98.45 Basis of Accounting ... The accounting policies of the City conform 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 will submit the City's 2004 report to OFOA to determine its eligibility for another certificate. Comprehensive Annual Financial Report (CAFR! ... Beginning with the year ended September 30. 2002, the City's CAFR has been presented under 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 GO\lernments: Omnibus, and GASB Statement No. 38. Certain Financial Note Disclosures. Por additional information regarding accounting policies that are applicable to the City. see Note I. "Summary of Significant Accounting Policies" in the financial statements of the City attached as Appendix B. General Fund Balance ... The City's objective is to maintain an unreserved/undesignated fund balance al a minimum of an amount equal to two months budgeted operating expenditures to meet unanticipated contingencies and fluctuations in revenue. The City's General Fund currently has an unreserved/undesignated fund balance that is at 80.9% of the targeted working capital reserve amount. 45 ----i ] Enterprise Fund Balance ... It is the policy of the City to maintain Unrestricted Net Assets 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 Net Assets shall be accumulated over a ten year period. which commenced in 1996. For a variety of reasons. including increased transters from the water. sewer and solid waste funds lo the General Fund following the cessation of transfers to the General Fund from the electric fund in FY 2003. the City is not presently in compliance with its fund balance policies for all its enterprise funds. See .. Discussion of Recent Financial and Management Events -September 30, 2003 Financial Results:· According to audited numbers for FY 2004, the current requirements for operating and rate ~1abilization reserves for each enterprise fund and current unrestricted net assets for each enterprise fund are as follows: Enterprise Fund Cur-rent Reserve Actual Required Unrestricted Net Assets Electric $28.5 million $7.0 million Water $6.5 million $14 million Sewer $4.2 million $6.3 million Storm Water $.5 million $1.3 million Solid Waste $4.7 million $6.0 million Airport 111 $1 .97 million $-1 million (I) The Airport Fund has not 1"1:.--covcred from the events of September 11. 200 I. Enlerprise Fund Revenygs ... It is the policy of the City that each of the Electric, Water. Solid Waste and Sewer funds be operated in a manner lhat results in self sufficiency. without the need for additional monetary transfers from other funds (although the Electric System received transfers from the General Fund during the FY 2003). Such self sutliciency is to be obtained through the rates, fees and charges of each of these enterprise funds. For purposes of determining self sufficiency. cosl recovery for each enterprise fund includes direcl operating and maintenance expense. as well as indirect cost recovery. in•lieu of transfers to the General Fund for propt.'fty and franchise tax payments. capital expenditures and debt service payments. where appropriate. Debt Sen,ice Fund Balance ... A reasonable debt service fund balance is maintained in order to compensate for unexpected contingencies. Budgetarv 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 I. The operating budget includes proposed expenditures and the meuns of financing them. 2) Public hearings are conducted to obtain taxpayer comments. 3) Prior to October I the budget is legally enacted through passage of an ordinance. 4) The· City Managt.'1" is authorized to transfer budgeted amounts between accounts below the department level. Any lranster of funds between departments or hight:r level are presented 10 the City Council for approval by ordinance before the funds arc transferred or expended. Expenditures may not kgally 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 ind1mture and olher contract provisions. 6) The Budget for the General Fund is adopted on a basis consistent with generally accepted accounting principles. 46 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) Budgetaty comparison is presented for the General Fund in the combined financial statement section of the Comprehensive Annual Financial Report. The City has received the Distinguished Budget Presentation Award from the GFOA for the following budget years beginning October 1. 1983-88 and 1990-04. The City will submit the FY 2005 budget to the GFOA to detennine its eligibility for another award. Insurance and Risk Managemenr ... The City is self-insured for public entity liability and health benefits coverage. Risk management purchases a $10.000.000 excess insurance policy for liability claims in excess of$250.000, per occurrence. Airport liability insurance and workers· compensation is insured under guaranteed cost policies. The Health Benefits are covered a fully insured program with a $10.765.643 cap and a $150.000 individual cap. The City maintains insurance policies with large deductibles for fire and extended property coverage and boiler and machinery coverage. An Insurance Fund has been established in the Internal Service Fund to account for insurance programs and budgeted transters are made to this fund based upon estimated payments for claim losses. At September 30. 2004 the tot.al Net Assets of these insurance funds were as follows: Self-insurance -health Self-insurance -risk management $ 4.375.796 S 5.727.822 The City obtains an actuarial study of its risk management fund (the "Risk Fund") every year. In fiscal year 2004. 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 2004 actuarial review recommended that the liabilities of the Risk fund be increased to $6.437.000 from $4.824.000 to achieve the minimum expected confidence level of the Government Accounting Standard Board Statement Number IO ("GASB IO"). 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 net assets restricted for insurance claims of $5.715.000 over the recommended funding level. Given the risk net assets balance. the City exceeds the minimum GASB 10 requirement INVESTMENTS The City invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the City Council of the City. Both state law and the City·s investment policies are subject to change. LEGAL INVF.SfMENTS •.. Under Texas law. the City is authorized to invest in (I) obligations, including letters of credit. of the United States or its agencies and instrumentalities. (2) direct obligations of the State of Texas or its agencies and instrumentalities. (3) collateralized mortgage obligations directly issued by a foderal 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 of and interest on which are unconditionally 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) certificates of deposit that are guaranteed or insured by the Federal Deposit Insurance Corporation or are secured as to principal by obligations described in the preceding clauses or in any other manner and amount provided by law for City deposits, (7) certificates of deposit and share certificates issued by a state or federal credit union domiciled in the State of Texas that 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 described in the clauses (I) through (5) or in any other manner and amount provided by law for City deposits, (8) fully col\ateralized repurchase agn."effients that have a defined termination date. arc fully secured by obligations described in clause ( I). and are placed through a primary government securities dealer or a financial institution doing business in the State of Texas. (9) bankers· acceptances with the remaining tenn of270 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 recognized ~.edit rating agency. ( 10) commercial paper that is rated at least A-1 or P-1 or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized 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 regulated by the Securities and Exchange Commission that have a dollar weighted average portfolio maturity of90 days or less and include in their investment objectives the maintenance of a stable net asset value of$! for each share. ( 12) no-load mutual funds registered with the Securities and Exchange Commission that: have an average weighted maturity of less than two years: invests exclusively in obligations described in the preceding clauses: 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. ( 13) bonds issued. assumed. or guaranteed by the State of Israel. and ( 14) guaranteed investment contracts secured by obligations of the United States of America or its agencies and instrumentalities.. other than the prohibited obligations described in the next succeeding paragraph. 47 ----I ] The City may invest in such obligations directly or through government investmt.'1lt 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 recognized rating service. The City is specifically prohibited from investing in: (I) obi igations 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 tlow from the underlying mortgage-backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturicy of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is detennined by an index that adjusts opposite to the changes in a market index. Effective September I. 2003. governmental bodies in the State are 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 arc described in clauses (I) through ( 6) of the first paragraph under this subcaption. (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 arc described in clauses (I) through (5) and ( 10) through ( 13) of the first paragraph under this subcaption. or an authorized investment pool: (ii) securities held as collateral under a loan arc pledged to the governmental body. held in the name of the governmental body and deposited at the time the investment is made with the City or a third party designated by the City: (iii) a loan made under th,;: 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. INVESTMENT POLICIES ..• Under Texas law. the City is required to invest its funds under written investment policies that primarily emphasize safoty 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 StatemenC that specifically addresses each funds" inv~ment Each Investment Strategy Statement wil I describe its objectives concerning: (I) suitability of investment type. (2) preservation and safoty 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 atfairs. not for speculation. but for investment considering the probable salcty of capital and the probable incomi;: to be derived."" At least quarti;:rly the investment officers of the City shall submit an investment report detailing: ( I) the investment position of the City. (2) that all investmentollicers 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 ii 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. ADDITIONAL PROVISIONS ... Under Texas law the City is additionally required to: (I) annually review its adopkd policies and strategies; (2) require any investment officers· with personal business relationships or relatives with firms ~king to sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the City Council: (3) require the registered principal of tinns 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 implemcnll.-d to preclude imprudent investment activities., and (c) deliver a written statement attesting to these requirements: (4) perform 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 Otlk-er and investment otlicers: (6) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agn,"Cment funds to no greatt..'f than the tenn 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. 48 TABLE 15-CURRENT INVESTMENTS As of April 30, 2005, the Cil)''s investable funds were invested in the following categories: Book Value ¾ ofTotal T Par Value Value Book Value United States Agency Obligations $ 27,lX!O,lHJO 2(,,997,764 14.83 Interest Bearing Bank Deposits1:1 96,220,620 96,220,620 51.87 Money Market Mutual Funds131 2,921!,474 2,928,474 1.61 Local government in vestment pools'" 1 55,864,39.; 55.1164.393 30.69 I K2,Ul3,4X7 I K2,UI 1.251 Im.no $ Estimated Fair M:utet Value{" %ofTotal Value Market Value 26,724,160 14.70 96,220,(,21) 52.94 2,928,474 1.61 55,!'164,39:l 3U.74 !Xl, 737.(,47 HK>.lK/ Weighted Average Maturity (Days) 462 days I day I Jny 1 day 70 Jay~ (I) Market prices are obtaim:d through infonnation provided by Wells Fargo Brokerage Services., LLC. As of such date, the market value of such investments was approximately I 00.00% of their book value. No funds of the City are invested in mortgage-backed securities. The Cily holds all investments to maturity which minimizes the risk of market price volatility. (2) Deposits are held at Wells Fargo Bank. Texas N.A. in fully collateralized interest earning savings accounts. (3) Money Market Mutual Funds (MMMF's), used by the City. have investment objectives that include achieving a stable net asset value of$ I .00 per share. (4) Local government investment pools consist of entities with investment objectives that include achieving a stable net asset value of $1.00 per share, The investment pools used by the City include TexPool and TexSTAR. TexSTAR is a local government investment pool for whom First Southwest Asset Managemenl Inc., an affiliate of First Southwest Company, provides customer service and marketing for the pool. TexSTAR 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. [fHE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 49 ---- I I ] TAX MATTERS TAX EXEMPTION ... In the opinion of Vinson & Elkins L.L.P .. Bond Counsel. (i) interest on Bonds is excludable from gross income for federal income tax purposes under existing law and (ii) interest on the Bonds is not subject to the alternative minimum tax on individuals and corporntions, except as described below in the discussion regarding the adjusted current earnings adjustment for corporations. The Internal Revenue Code of 1986. as amended (the ~Code-). imposes a number of requirements that must be satisfied for interest on stale or local obligations. such as the Bonds.. to be .:xcludable from gross income for foderal income tax purposes. These requirements include limitations on the use of bond proceeds and the source of repayment of bonds. limitations on the investment of bond proceeds prior to expenditure. a requirement that excess arbitrage earned on the investment of bond proceeds be paid periodically to the United Stlltes and a requirement that the issuer file an information report with the Internal Revenue Service. The Issuer has covenanted in the Ordinance that it will comply with these requirements. Bond Counsel's opinion will assume continuing compliance with the covenants of the Ordinance pertaining to thosc sections of the Code lhat affect the exclusion ti-om gross income of interest on the Bonds for federal income tax purposes and. in addition. will rely on representations by the Issuer, the Issuer's Financial Advisor and the Underwriters with respect to matters solely within the knowledge of the Issuer. the Issuer's Financial Advisor and the Underwriters. respectively. which Bond Counsel has not independently verified. Bond Counsel will further rely on the report of Grant Thornton LLP. certified public accountants. regarding the mathematical accuracy of certain computations. If the Issuer should fail to comply with the covenants in the Ordinance or if the foregoing representations or report should be detemiincd to be inaccurute or incompkte. interest on the Bonds could become taxable from the date of delivery of the Bonds. regardh:ss of the date on which the event causing such taxability occurs. The Code also imposes a 200/4 alternative minimum tax on the .. alternative minimum taxable income-of a corporation if the amount of such alternative minimum tax is greater than the amount of the corporation· s regular income tax. Generally. the alternative minimum taxable income of a corporation (other than any S corporation. regulated investment company, REIT. REMIC or FASIT). includes 75% of the amount by which its ··adjusted current earnings·· exceeds its other --alternative minimum taxable income." Because interest on tax exempt obligations.. such as the Bonds. is included in a corporation·s "adjusted currem earnings."' ownership of the Bonds could subject a corporation to alternative minimum tax consequences. Except as stated above. Bond Counsel will express no opinion as to any fodcral. state or local tax consequences resulting from lhe receipt or accrual of interest on. or acquisition. ownership or disposition ot: the Bonds. Bond Counsers opinions are based on existing law. which is subject to change. Such opinions arc further based on Bond Counsers knowledge of facts as of the date thereof Bond Counsel assumes no duty to update or supplement its opinions to rellect any facts or circumstances that may thereafter come to Bond Counsel"s attention or to retlect any changes in any law that may thereafter occur or become effective. Moreover. Bond Counsers opinions are not a guarantee of result and are not binding on the Internal Revenue Service (the ··service"'); rather. such opinions represent Bond Counsel"s legal judgment based upon its review of existing Jaw and in reliance upon the representations and covenants rcfi::renced above that it deems relevant 10 such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given whether or not the Service will commence an audit of the Bonds. If an audit is commenced in accordance with its current published procedures the Service is likely to treat the Issuer as the taxpayer and the Owners may not have a right to participate in such audit. 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 the ultimate outcome of the audit. ADDITIONAL FEDERAL INCOME TAX CONSIDERATIONS COLLATERAL TAX CONSEQUENCES ... Prospective purchasers of the Bonds should be aware that the ownership of lax exempt obliga1ions may result in collateral federal income tax consequences to financial institutions. life insurance and property and casualty insurance companies. certain S corporations with Subchapter C earnings and profits, individual recipi.:nts of Social Security or Railroad Retirement benetits. taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax ex.:mpt obligations. taxpayers owning an interest in a FASIT that holds tax-exempt obligations and individuals otherwise qualifying for the earned income credit. In addition. certain foreign corporations doing business in the United States may be subjet.i: to the ··branch profits tax .. on their effectively connected earnings and protits. including tax exempt interest such as interest on the Bonds. These categories of prospective purchasers should consult their own tax advisors as to the applicability of these consequences. Prospective purchasers of the Bonds should also be aware that. under the Code. ta,-..:payers are required to report on their returns the amount of tax-exempt interest. such as interest on the Bonds. received or accrued during the year. 50 TAX ACCOUNTING TREATMENT 01' ORIGINAL ISSUE PREMIUM ... The issue price of all or a portion of the Bonds may exceed the stated redemption price payable at maturity of such Bonds. Such Bonds (the "Premium Bonds") are considered for foderal income tax purposes to have "bond premium" equal to the amount of such excess. The basis of a Premium Bond in the hands of an initial owner is reduced by the amount of such excess that is amortized during the period such initial owner holds such Premium Bond in determining gain or loss for federal income lax purposes. This reduction in basis will increase the amount of any gain or decrease the amount of any loss recognized for federal income tax purposes on the sale or other taxable disposition of a Premium Bond by the initial owner. No corresponding deduction is allowed for federal income tax purposes for the reduction in basis resulting from amortinible bond premium. The amount of bond premium on a Premium Bond that is amortizable each year ( or shorter period in the event of a sale or disposition of a Premium Bond) is determined using the yield to maturity on the Premium Bond based on the initial offering price of such Bond. The federal income tax consequences of the purchase. ownership and redemption. sale or other disposition of Premium Bonds that are not purchased in the initial offering at the initial offering price may be determined according to rules that differ from those described above. All owners of Premium Bonds should consult their own tax advisors with respect to the determination for federal. state, and local income tax purposes of amortized bond premium upon the redemption. sale or other disposition of a Premium Bond and with respect to the federal, state. local, and foreign tax consequences of the purchase. ownership. and sale, redemption or other disposition of such Premium Bonds. TAX ACCOUNTING TREATMENT 01' ORIGINAL ISSUE DISCOUNT BoNDS ... The issue price of all or a portion of the Bonds may be less than the stated redemption price payable at maturity of such Bonds (the "Original Issue Discount Bonds"). In such case. the difference between (i) the amount payable al the maturity of each Original Issue Discount Bond. and (ii) the initial offering price to the public. of such Origi~l Issue Discount Bond constitutes original issue discount with respect to such Original Issue Discount Bond in the hands of any owner who has purchased such Original Issue Discount Bond in the initial public offering of the Bonds. Generally. such initial owner is entitled to exclude from gross income (as defined in Section 61 of the Code) an amount of income with respect to such Original Issue Discount Bond equal to that portion of the amount of such original issue discount allocable to the period that such Original Issue Discount Bond continues to be owned by such owner. Because original issue discount is treated as interest for federal income tax purposes. the discussion regarding interest on the Bonds under the caption " Collateral Tax Consequences" generally applies. and should be considered in connection with the discussion in this portion of the Otlicial Statement. In the event of the redemption. sale or other taxable disposition of such Original Issue Discount Bond prior to stated maturity. however. the amount realized by such owner in excess of the basis of such Original Issue 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 Original Issue Discount Bond was held by such initial owner) is includable in gross income. The foregoing discussion assumes that (a) the Underwriter has purchased the Bonds for contemporaneous sale to the public and (b) all of the Original Issue Discount Bonds have been initially offered. and a substantial amount of each maturity thereof has been sold. to the general public in arm's-kngth transactions for a price (and with no other consideration being included) not more than the initial offering prices thereof slated on the cover page of this Official Statement Neither the Issuer nor Bond Counsel has made any investigation or offers any comfort that the Original Issue Discount Bonds will be offered and sold in accordance with such assumptions. Under existing law. the original issue discount on each Original Issue Discount Bond is accrued daily to the stated maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the semiannual anniversary dates of the dale of the Bonds and ratably within each such six-month period) and the accrued amount is added to an initial owner's basis for such Original Issue Discount Bond for purposes of determining the amount of gain or loss recognized by such owner upon the redemption. sale or other disposition thereof. The amount to be added to basis for each accrual period is equal to (a) the sum of the issue price and the amount of original issue discount accrued in prior periods multiplied by the yield to staled maturity (detennined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less (b) the amounts payable as current interest during such accrual period on such Bond. The federal income tax consequences of the purchase. ownership. and redemption. sale or other disposition of Original Issue Discount Bonds which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those described above. All owners of Original Issue Discount Bonds should consult their own tax advisors with respect 10 the determination for federaL state. and local income tax purposes of interest accrued upon redemption. sale or other disposition of such Original Issue Discount Bonds and with respect lo the federal. state, local and foreign tax consequences of the purchase. ownership. redemption. sale or other disposition of such Original Issue Discount Bonds. 51 C l OTHER INFORMATION RATINGS The Bonds are rated "Aaa" by Moody's. "AAA" by S&P and "AAA" by Fitch by virtue of the MBIA Policy. The presently outstanding tax supported debt of the City is rated "A I" by Moody's. "AA-'' by S&~ and "AA-" by Fitch. The City also has multiple 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 signi ticance of such ratings may be obtained from the company furnishing the rating. The ratings retlect 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 withdmwn entirely by dther 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 market price of the Bonds. LITIGATION The City is involved in various legal proceedings related to alleged personal and property damages. breach of contract and civil rights cases. some of which involve claims against the City that exceed $500.000. State law limits municipal liability for personal injury at $250,000/$500.000 and property damage at $100,000 per claim. The following represents the significant litigation against the city at this time. 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 Al.1: (""Section 1983"). rf 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. Insurance should cover all but the self~insured retention. 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 accrued through July 2002. Damages have continued to accrue since July 2002. The City appealed this judgment. and the Court of Appeals overturned the judgment. The plaintiffs have tiled an appeal to the Texas Supreme Court. The Supreme Court has not made a decision on whether to hear the appeal. While any liability would not be covered by an insurance policy, the City Attorney only assesses the potential that the firefighters will obtain relief from the Texas Supreme Court as possible. The City is also involved in a suit filed by the general contractor for a large drainage project in the City. In the suit. the contractor asserted damages in excess of $2.3 million under a breach of contract claim. The City obtained a summary judgment in this case against the contractor. The contractor has appealed the decision to the Fitlh Circuit Court of Appeals. While this liability is not covered by any insurance policy. the City Attorney only assesses the likelihood of n,-covery by the contractor as possible. The City has also been sued by a another contractor who was not awarded the bid on a difforcnt portion of the stormwater drainage project. The contractor has alleged violations of the state bid statute and a violation of Section 1983. The plaintiffs look a nonsuit in state court and re-tiled the case in federal court. The foderal court has dismissed the contractor's Section 1983 claims. and the contractor has filed a Notice of Appeal. The City Attorney assesses the likelihood of liability as possible. Potential damages are unknown. The City Attorney believes there is insurance coverage for the Section 1983 claim. although there is a dispute with the carrier regarding coverage. The City has been sued by six plaintiffs who allege that the City and or Lubbock County failed to properly record information in its cemetery records that would show where their relatives were buried. The Plaintiffs' attorney indicates that he has about eighty other clients with similar claims. The City will assert a defense under statutes of limitations. that the City was not the owner of the property dw-ing portions of the time in question. and that the allegations fail to state a claim upon which relief can be granted. The City Attorney assi:sses the potential for liability as possible. There is no insurance coverage for these claims. The City intends to vigorously defend itself on all claims. although no assurance can be given that the City will prevail in all 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 dale 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 atlect 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 becn registered under the Federal Securities Al.'t of 1933. as amended. in reliance upon the 52 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 SEClJ RE PUBLIC FUNDS 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 lnfonnation -Ratings'" herein. In addition, various provisions of the Texas Finance Code provide that, subject lo a prudent investor standard. the Bonds are legal investments for state banks. savings banks., trust companies with 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 market 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. LEGAL OPINIONS The City will furnish a complete transcript of proceedings had incident to the authorization and issuance or the Bonds. including the unqualified approving legal opinion of the Attorney General of Texas approving the Initial Bond and to the effect that the Bonds are valid and legally binding obligations of the City. and based upon examination of such transcript of proceedings. the approving legal opinion of Bond Counsel. to like effect and to the effect that the interest on the Bonds will be excludable from gross income for federal income tax purposes under Section 103(a) of the Code, subject to the matters described under -Tax Matters" herein, including the alternative minimum tax on corporations. Bond Counsel was not requested to participate. and did not take part. in the preparation of lhe Official Statement. and such finn has not assumed any responsibility with respect thereto or undertaken independently to verify any of the infonnation contained therein. except that, in its capacity as Bond Counsel. such finn has reviewed the infonnation under the captions ··The Bonds" (exclusive of the subcaption "'Book-Entry~Only System""). "Tax Matters·· and the subcaptions -continuing Disclosure of lnfonnation•·. ··Legal Opinions•• and ~Legal Investments and Eligibility to Secure Public Funds in Texas-under the caption "'Other Information•· in the Official Statement and such flnn is of the opinion that the infonnation relating to the Bonds and the legal issues 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 infonnation conforms to the Ordinance. The legal fee to be paid to Bond Counsel for services rendered in connection with the issuance of the Bonds is contingent on the sale and delivery of the Bonds. The legal opinion will accompany the Bonds deposited with DTC or will be printed on the 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 L.L.P .• Dallas. Texas.. Counsel to the Underwriters. The legal opinions to be delivered concurrently with the delivery of the Bonds express the professional judgment of the attorneys rendering the opinions as lo the legal issues expressly addressed therein. In rendering a legal opinion. the attorney does not become an insurer or guarantor of the expression of professional judgment. of the transaction opined upon, or of the future perfonnance of the parties to the transaction. Nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise from the transaction. CONTINUINC DISCLOSURE OF INFORMATION In the Ordinance. the City has made the following agreement for the benefit of the holders and beneficial owners of the Bonds. The City is required to observe the agreement for so long as it remains obligated to advance fonds 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 infonnation vendors annually. The infonnation to be updated includes all quantitative financial infonnation and operating data with respect to the City of the general type included in this Oflicial Statement under Tables numbered I through 6 and 8A through 18 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 2005. The City will provide the updated information to each nationally recognized municipal securities information repository ('"NRMSIR"') approved by the staff of the United States Securities and Exchange Commission (~SEC) and to any state information depository (""SID'") that is designated and approved by the State of Texas and by the SEC staff. 53 ---I ] The City may provide updated infonnation in full text or may incorporate by reference certain other publicly available documents, as pennitted by SEC Rule 15c2-12. The updated infonnation 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 infonnation and operating data which is customarily prepared by the City 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 wilh 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 it.s 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. The Municipal Advisory Council has also received Securities and Exchange Commission approval to operate, and has begun to operate.. a --central post office .. tor infonnation filings made by municipal issues. such as the City. A municipal issuer may submit its informaJion filings with the central post office. which then transmits such information to the NRMSIRs and the appropriate SID for tiling. This central post office can be accessed and utilized at www.DisclosureUSA.com r•DisclosureUSA .. ). The City may utilize Disclosure USA for the filing of information relaJing to the Bonds. 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 10 the Bonds. if such event is material to a decision to purchase or sell Bonds: (I) principal and interest payment delinquencies: (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial ditliculties; (4) unscheduled draws on credit enhancements rel1ecting 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) defeasanccs: (10) release. substitution. or sale of property securing repayment of the Bonds: and (11) rating changes. 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-). AVAILABILITY OF INFORMATION FROM NRMSIRs AND SID ... The City has agreed to provide the foregoing infonnation only to NRMS!Rs (or the MSRB in the case of Material Events Notices) and the SID. The infonnation 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. AMENDMENTS ... The City may amend its continuing disclosure agreement from time 10 time 10 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 ofoperations of the City. if (i) the agreement as amended. would have permitted an undernriter 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) detennines 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-l2 or a court of final jurisdktion enters judgment that such provisions of the SEC Rule 15c2-l 2 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 ii has agreed to include with the next financial information 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 UNDERTAi-:JNGS •.• The City became obligated to file annual reports and financial statements with the state information depository (""SID") and each muionally 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 200 I Electric and Power Revenue debt reports late to the SID and each NRMSIR. The financial information has since been 11led. as well as a notice of late filing. The City has implemented procedures to ensure timely filing of all future financial information. Under previous continuing disclosure agreements made in connection with LP&L revenue bonds, the City committed to make prompt filings with the SID and either each NRMSIR or the MSRB upon the occurrence of any "non-payment related defaults." The City's FY 2003 audited financial statements were not available until mid-September 2004. Therefore. when the City made its annual disclosure filing with the SID and NRMSIRs in March 2004. it filed unaudited financial statements in accordance with its undertaking. Several references in that filing. including in the unaudited MD&A. in notes to those statements and in the statistical tables. reported that for FY 2003 LP&L had failed to meet its rate covenant (see .. Discussion of Recent Financial and Management Events -September 30. 2003 Financ:ial Results -The Electric Fund"). Because there was an unceru1.inty as to an amount by which the rate covenant would fail to be met. which was not finally 54 detennined until the audited financials were released in September 2004 (although the City had a reasonable belief prior to that time that the rate covenant had not been met), the City waited until September 2004 to make its event filing of non-compliance with its LP&L rate covenant. 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 sah: 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 Otlicial 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 $338,356.19. 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. FORWARO-.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 hereot: and the City assumes no obliga1ion to update any such forward-looking statements. The City's actual results could di Iler materially from those discussed in such forward-looking statements. 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 ofticials. 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 Otlicial Statement will prove to be accurate. MISCELLANEOUS The financial data and other information contained herein have been obtained from the City's records. audited financial 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. docwnents and resolutions contained in this Official Statement are made subject to all of the provisions of such statutes. docwnents and resolutions. These summaries do not purport to be complete statements of such provisions and reforence 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. ATTEST: Isl REBECCA GARZA City Secretary 55 Isl MARC McDOUGAL Mayor City of Lubbock, Texas ----C ~ THIS PAGE LEFr BLANK JNTENTIONALLY Schedule I SCHEDULE OF REFUNDED BONDS General Obligation Bonds, Series 2000 Original Interest OriBiinal Dated Date Maturi~ Rates Amount March 15. 2000 02/15/10 5.200% $ 330.000 02/15/11 5.250% 350.000 02/15/12 5.300% 370,000 The 2010-2012 maturities will be redeemed prior to original maturity on February 15. 2009 at par . ••••••••••••• General Obligation Bonds, Series 2001 OriS;inal Dated Daie Maturity Rates Amount February I. 200 I 02/15/11 4.600% $ 435,000 02/15/12 4.600% 455,000 02/15/13 4.625% 480.000 02/15/14 4.700% 500.000 02/15/15 4.850% 525,000 02/15/16 4.950% 555,000 02/15/17 5.000% 580.000 02/15/18 5.050"/o 610,000 02/15/19 5.000% 640.000 02/15/20 5.000% 675,000 02/15/21 5.000% 710,000 The 2011-2021 maturities will be redeemed prior to original maturity on February 15. 2010 at par. ************* Tax and Waterworks System (Limited Pledge) Revenue Certificates of Obligation, Series 1998 Original Interest OriS;inal Dated Date Maturi~ Rates Amount January 1. 1998 02/15/09 4.450% $ 515.000 02/15/IO 4.550% 515,000 02/15/11 4.600% 515,000 02/15/12 4.650% 515.000 02/15/13 4.7000/4 515.000 02/15/14 4.750% 515.000 02/15/15 4.750% 515,000 The 2009-2015 maturities will be redeemed prior to original maturity on February 15. 2008 at par. ······••***** ----I Tax and Waterworks System (Limited Pledge) Revenue Certifiates of Obligation, Series 1999 Original Interest Original Dated Date Maturity Rates Amount January 15, 1999 02/15/10 4.350% $ 770.000 02/15/11 4.450% 765.000 02/15/12 4.550% 765,000 02/15/13 4.650% 765.000 02/15/14 4.750% 765.000 02/15/15 4.800% 765.000 02/15/16 4.850% 765.000 02/15/17 4.900% 765.000 02/15/18 5.000% 765.000 02/15/19 5.000% 765,000 The 20I0-2019 maturities will be redei:med prior to original maturity on February 15. 2009 at p-Jr. ************* Tax and Waterworks System Surplus Revenue Certificates of Obligation, Series 1999 Original Interest Orie;inal Dated Date Maturity Rates Amount September 15. 1999 02/15/10 5.000% $ I, 140.000 02/15/11 5.500"/4 1,200.000 02/15/12 5.250% 1.270.000 02/15/13 5.375% 1.335.000 02/15/14 5.375% 1,410.000 02/15/15 5.500% 1.490.000 02/15/16 5.500% 1.575.000 02/15/17 5.600% 1.665.000 02/15/18 5.625% 1.760,000 02/15/19 5.250% 1,860.000 02/15/20 5.700% 1.965.000 The 20 I 0-2020 maturities will be redeemed prior to original maturity on February 15. 2009 at par. ************• Tax and Sewer System Surplus Revenue Certificates of Obligation, Sel'ies 1999 Original Interest Ori~inal Dated Date Maturitv Rates Amount April I. 1999 02/15/10 4.450% $ 305,000 02/15/11 4.550% 305,000 02/15/12 4.650% 305.000 02/15/13 4.700% 305.000 02/15/14 4.750% 305.000 02/15/15 4.800% 305.0UO 02/15/16 4.900% 305.000 02/15/17 5.000% 305.000 02/15/18 5.000% 305.000 02/15/19 5.000% 305.000 The 2010-2019 maturities will be redeemed prior to original maturity on February 15. 2009 at par. Tax and Municipal Drainage Utility System Surplus Revenue Certilicales of Obligation, Series 2001 Original Interest Ori~inal Dated Date Maturity Rates Amount June I. 2001 02/15/12 4.625% $ 855.000 02/15/13 4.700% 895.000 02/15/14 4.800% 940,000 02/15/15 4.9000/o 985.000 02/15/16 5.000% 1.035.000 02/15/17 5.000% 1,085.000 02/15/18 5.125% 1. 145.000 02/15/19 5.125% 1,205.000 02/15/20 5.2000/4 1.270.000 02/15/2 I 5.200% 1.335.000 The 2012-2021 maturities will be redeemed prior to original maturity on February 15. 2011 at par. Tax and Solid Waste System Surplus Revenue Certificates of Obligation, Series 2001 Original Interest Ori~inal Dated Date Maturity Rates Amount February I, 200 I 02/15/11 4.350% $ 140,000 02/15/12 4.400% 140.000 02/15/13 4.625% 140.000 02/15/14 4.700% 140.000 02/15/15 4.800% 140.000 02/15/16 4.875% 135.000 02/15/17 5.000% 135.000 02/15/18 5.000% 135.000 02/15/19 5.000% 135.000 02/15/20 5.000% 135.000 02/15/21 5.0000/o 135.000 The 2011-2021 maturities will be redeemed prior to original maturity on February 15. 2010 at par. ----I l THIS PAGE LEFr BLANK INTENTIONALLY APPENDIX A GENERAL INFORMATION REGARDING THE CITY _[ l THIS PAGE LEFT BLANK INTENTIONALLY 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 1920Census 1930Census 1940 Census 1950 Census 1960 Census 1970 Census 1980 Census 1990 Census 2000Census 2005 (E~timated) Ill City of Lubbock (Corporate Limits) 1,938 4,051 20.520 31.853 71.747 128,691 149,701 173,979 186,206 199,564 209.120 Metropolitan Statistical Area C'MSA"'} {Lubbock County) 1970 Census 179,295 1980 Census 211.651 1990 Census 222,636 2000 Census 242,628 ( I) Source: City of Lubbock, Texas AGRICULTURE; 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. In 2003. approximately 2.2 million bales of cotton were produced in Lubbock and the 25-counties surrounding Lubbock. This was less than the 3.2 million bales produced in 2002 and is 27%below the IO-year average of2.80 million bales. Projections for the 2004 cotton crop are 3.89 million bales, depending on the growing conditions and the weather during the 2004 production season?> 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.. irrigation equipment and pipe. plastics products, farm equipment. paperboard boxes, custom millwork/shutters. foodstuffs. prefabricated homes, poultry and livestock feeds. boilers and pressure vessels. automatic sprinkler system heads.. and strucrural steel fabrication. ( I) Source: Plains Cotton Growers, Inc .. Lubbock. Texas. LUBBOCK MSA LABOR FORCE [STIMATES (I) March 2005'"' Civilian Labor Force 139.181 Total Employment 133,308 Unemployment 5,873 Percent Unemployment 4.20% (I) Source: Texas Workforce Commission. (2) Subject to revision. 2004 138.516 132.065 6.451 4.70% A - I Annual Ave~es 2003 2002 2001 2000 130,645 128,131 127,293 124,756 125.969 124.228 124,046 121,482 4.676 3,903 3.247 3.274 3.60% 3.00% 2.60% 2.60% ---- I I l Estimated non-agricultural wage and salaried jobs in various categories as of December. 2004 were: 11> Manufacturing Construction Trade. Transportation & Public Utilities Finance. Insurance and Real Estate Education & Health Services lnfonnation Leisure &Hospitality & Other Government Tot.al 5,400 5.300 25.500 16.700 17.900 5,800 19.700 28.500 124.800 (I) Source: Texas Workforce Commission. MA.IOR EMPWYERS (300 KMl'WYEESORMORE) Company Tc:xas Tech Univcrsit)· Covenant Health System Lubbock Independent School District University Medical Center United Supennarkets City of Lubbock Texas Tech Health Scienci;:s Center Cingular Convergys Corporation Lubbock County Lubbock State School Texas Dept. of Criminal Justice Psychiatric Hospital Frenship ISD Tyco Fire Protection G Boren Services. Inc. SBC/Southwestern Bell Walmart Supc;:rcentcr U.S. Postal Service State National Bank of West Texas Texas Department of Transportation Gene Messer Ford Inc. Lubbock-Cooper ISO Lubbock Regional MHMR Center Operator Service Company Sonic Drive In ChaseCom/Staffmark Wells Fargo Phone Bank Lubbock Christian University Plains Capital Bank NTS Communications. Inc. American State Bank Dillards Department Stores Cox Cable of Lubbock. Inc. Mclane High Plains Sodexho School Services ARAMARK Lubbock Heart Hospital Interim Healthcare of West Texas (I) Source: Market Lubbock. (2) Full and part time. Type of Business State University Hospital Public Schools Hospital Supennarkets City Government Medical and Allied Health School Wireless Communications Call Center County Government School· for Mentally Retarded Psychiatric Hospital Public Schools Manufacturing/Fire Sprinklers S1afling/HR Consulting Telephone Utility Discount Retailer Post Otlice Bank State Highway and Street Maintenance Automobile Dealership Public Schools Social Services Customer Service Restaurants Call Center Bank Phone Center College/University/Professional School Bank Telephone Utility Bank Department Store Cable Utility Wholesale Food Distribution Facilities Management Managed Food Services Heart Hospital Home Health Care Estimated Employees July. 2004"' 9.919 121 4.310 3,504 2.310 2. 156 2.109 2.010 1.750 1.450 950-1200 850 755 (JI 639 525 516 500-999 500-999 500-999 500 474 449 444 427 427 425 400 392 384 371 367 355 341 339 330 316 316 308 300 (3) s~ Texas Department of Criminal Justice c-TDCr) Prison Psychiatric Hospital following for more det.ailed 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, 2005. enrollment of 28.549. Accredited by the Southern Association of Colleges and Schools. the University is a c~ucationnl. State- supported institution offering a bachelor's degree in 158 major fields. the master's degree in 107 major tields.. 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, 2004. total employment was 9,919 full time and part time employees. The medical school had an enrollment of2.100 for Spring. 2005. not including residents: there were 77 graduate students. The School of Nursing had a Spring. 2005, enrollment of 443. The Allied Health School had a Spring. 2005. enrollment of 731. Source: Texas Tech University. OTHER EDUCATION INFORMATION The Lubbock Independent School District with an area of 87.5 square miles. includes over 90"/o of the City of Lubbock. There are approximately 3.504 total employees. The District operates four senior high schools, nine junior high schools.. 39 elementary schools and other educational programs. Scholastic Membership History Ol School Year 2000-01 2001--02 2002--03 2003-04 2004-05 Average Daily Attendance 27.046 27,019 27,094 26.800 28,474 m (I) Source: Superintendent's Office. Lublxx;k Independent School District (2) Estimated. Lubbock Christian Uni\lersity, a privately owned. co-educalional senior college located in Lubbock.. had an enrollment of 1,819 for the Spring Semester. 2005. The State of Texas School for the Mentally Rt-"tarded. located on a 226-acre site in Lubbock. consists of 40 buildings with bt.-d- 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 Spring, 2005. enrollment of 650 students. TRANSPORTATION Scheduled airline transportation at Lubbock Preston Smith International Airport is furnished by Southwest Airlines. 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, and Albuquerque. Passenger boardings for 2001 536,670. for 2002 513,096 for 2003 514,250 and 541.549 for 2004. 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 network including Interstate 27 (Lubbock-Amarillo). four U.S. Highways. one State Highway. a controlled-access outer loop and a county-wide system of paved fann-to-market roads. A-3 -----I ] GOVERNMENT AND MILITAR\'411 The fonner air base. now known as Reese Technology Center (the ··center"") is a 2500-acre campus with over I million square feet or space. The Center is the 5th largest Research Park in the United States and is considered by Department of Defense as "'one of the most rapid and successfully redeveloped closed military bases in the country.'" The Center is currently 80% occupied with 11 commercial tenants employing over 670 people (created over the last three years). Anchor tenants include Texas Tech Research and the 4,200-student campus of South Plains College. a two-year community college. Reese Center is the home of the prized Institute of Environmental and Human Health (TIEHH). TIEIDI is ajoint venture between Texas Tech University and Texas Tech Health Sciences Center and researches the exposure and effects toxic chemicals have on human health and 1he environment. TIEHH has assisted in stimulating. the Lubbock economy with over $50 million in grants. TIEHH ·s location as the anchor tenant at the Reese Technology Center has assisted the facility in being transfonned into a research. industrial and commercial center. Current areas of specialty at the Center include Biotechnology. Environmental Sciences, Food Technology and Work Force Development. Reese Center recently received an EDA grant for $1.7 million dollars to install an OC-192 fiber optic network and wireless system for the entire campus making it a leader in high tech communications. Other research facilities that have been relocated to Reese Technology Center are the Texas Tech University Wind Engineering and Advanced Vehicle Engineering Research Centers. Total economic impact of the Reese Technology Center has been $26.8 million dollars over th.: last three years. Stale o(Texas ... More than 25 Stare or Texas boards. depanments. agencies and commissions have otlices in Lubbock; sever..11 of these ollices have multiple units or otlices. Federal Government ... Several federal departments and various other administrations and agencies have offices in Lubbock: a Federal Di!,trict Court is located in the City. (l) Source: City of Lubbock. Texas. TEXAS DEPARTMENT OF CRIMINAL JUSTICE ("TDCJ") PRISON PSYCHIATRIC HOSPITAL TDCJ operates a 550.bcd 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 AND 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 Hospi~I 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 I 02 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. RECREATION AND ENTERTAINMENT Lubbock's Mackenzie Regional Park and over 115 City parks and playgrounds provide recreation centers, shelter buildings. a garden and art center, swimming pools. a golf course. 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 courses. and country clubs. The City of Lubbock has developed a 36 square block area of approximately IOO 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 otliccs: a 50-acre peripheral area has been redeveloped privately with otlice 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 brancht->s. the annual Panhandle-South Plains Fair, college and high school football. basketball and other sporting events. as wdl as modem movie theaters. A-4 CHURCHES Lubbock has approximately 300 churches representing more than 25 denominations. UTILITY SERVICES Water and Sewer -City of Lubbock. Gas -Almos Energy Company. Electric• City of Lubbock (Lubbock Power & Light) and Xcel Energy; and, in a small area. South Plains Electric Co-operative. ECONOMIC INDICES Cl> Year 2000 2001 2002 2003 2004 Building Permits $ 200.427.6:50 294,064,200 314,077,929 4 I 7 .252.162 408,726.402 Water 70.111 70,756 72.615 72.505 74.026 Utility Connections Gas 65,000 65,332 67,308 69.954 70.196 (I) All data as of 12-31. except where noted; Source: City of Lubbock. Electric (LP&L Onlyj<~l 58,724 59.431 62,713 62.203 63,076 (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 m Residential Permits Single Family Multi-Family Total Residential Commercial. No. No. Public Total Calendar No. Dwelling Dwelling and Other Building Year Units Value Units m Value Units (Z> Value Permits Permits 2000 819 $87,501.009 281 $ I 1.548.809 1.100 $ 99.049.818 $101,377,832 $200,427.650 2001 941 108,589.812 853 37,242.260 1.794 145.936.072 148,128.128 294.064.200 2002 1.281 148.190.769 549 31.700.960 1.830 178.891. 729 134.186.200 314.077.929 2003 1,288 172.679.238 1,595 IO 1.540.351 2.883 274.219.589 143.032,573 417.252.162 2004 1.204 169,075.633 2.382 114.339.697 3,586 283,415.330 125.311.072 408.. 726.402 2005 (J) 546 84.646.181 140 9,717.000 686 94.363. 181 78,560,300 172.923.481 (I) Source: City of Lubbock. Texas. (2) Data shown under --No. Dwelling Units"" is for each individual dwelling uniL and is not for separate buildings; includes duplex. triplex. quadruplex and apartment permits. (3) Through May 31. 2005. A-5 THIS PAGE LEFf BLANK INTENTIONALLY APPENDIXB EXCERPTS FROM THE CITY OF LUBBOCK. TEXAS ANNUAL FrNANCIAL REPORT For the Year Ended September 30, 2004 The infonnation contained in this Appendix consists of excerpts from the City of Lubbock. Texas Annual Financial R.::port for the Year Ended September 30. 2004. 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. I ] TIHS PAGE LEFf BLANK INTENTIONALLY KPMGLLP Suite 3100 717 North Harwood Slreel Dallas, TX 75201-6585 Independent Auditors' Report The Honorable Mayor and Members of the City Council City of Lubbock, Texas: We have audited the accompanying financial statements of the governmental activities, the businessMtype activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Lubbock, Texas, as of and for the year ended September 30, 2004, which collectively comprise the City's basic financial statements as listed in the table of content'>. These financial statements are the responsibility of the City of Lubbock's management. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of Market Lubbock Economic Development Corporation and Civic Lubbock. Inc. which comprise the aggregate discretely presented component units. In addition. we did not audit the West Texas Municipal Power Agency, which is both a major fund and represents 4 percent, 1 percent. and 22 percent of the assets, net assets, and revenues of the business-type activities, respectively. Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinions, insofar as they relate to the amounts included for the Market Lubbock Economic Development Corporation, Civic Lubbock, Inc., and the West Texas Municipal Power Agency are based on the reports of the other auditors. We conducted our audit in accordance Y.-ith auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standard,;;, issued by the Comptroller GeneraJ of the {Jnited States. Those siandards require that we plan and perfonn the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Th,;; financial statements of Market Lubbock Economic Development Corporation, Civic Lubbock, Inc. and the West Texas Municipal Power Agency Fund were not audired in accordance with Government Auditing Standards. 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 opinions. In our opinion, based on our audit and the reports of other auditors, the financial statements· 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 infom1ation of the City of Lubbock. Texas, as of September 30, 2004, and the respective changes in financial position and cash flows, where applicable. thereof and the budgetary comparison for the General Fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued a report dated .\II.arch 28, 2005 on our consideration of the City of Lubbock's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contntcts, and grant agreements and other matters. l<P~tG l!.,.P_ a u.s Ji~U!d rln,b!il!Y ~tl~j,). :$ 1~i:S U.S. r.utmO!:r firm ii! l(f>MG ln.temationW. a Swiss ooo~er.UNe. 17 l ] -The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The management's discussion and analysis and schedules of funding progress on pages 19 through 34 and 73 and 77, respectively, are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. 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 infonnation and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the fmancial statements that collectively comprise the City of Lubbock's basic financial statements. The introductory section, combining fund statements and schedules, and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining fund statements and schedules have been subjected to the auditing procedures applied by us and the other auditors in the audit of the basic financial statements and, in our opinion, based on our audit and the reports of other auditors, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. March 28, 2005 18 City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 As management of the City of Lubbock, Texas (City), we offer readers this narrative overview and analysis of the financial activities of the City for the fiscal year ended September 30, 2004. We encourage readers of these financial statements to consider the information included in the transmittal letter and in the other sections of the Comprehensive Annual Financial Report (CAFR) e.g., combining statements and the statistical section in conjunction with this discussion and analysis. Financial Highlights These financial highlights summarize the City's financial position and operations as presented in more detail in the Basic Financial Statements (BFS), as listed in the accompanying Table of Contents. • The assets of the City exceeded its liabilities at September 30, 2004 by $546 million (net assets). Of this amount, $51 million ( unrestricted net assets) may be used to meet the City's ongoing obligations to citizens and creditors. • The City's total net assets decreased by nearly $2.7 million as a result of operations during the fiscal year. • The ending unreserved fund balance for the General Fund was $12.1 million or approximately 13.5% of total General Fund expenditures, or 14.0% of total General Fund revenues. • All of the City's governmental funds reported combined ending fund balances of $47.7 million. Of this total amount, $13.8 million is available for spending at the City's discretion • All of the City's business-type activities reported combined ending net assets of $442.4 million. Of this total amount, $41.2 million is available for spending at the City's discretion. • The City's proprietary funds net assets decreased by nearly $5.0 million from $437.1 million to $432.1 million. The Electric Fund (Lubbock Power & Light or LP&L) ended the year with operating income of nearly $3.3 million erasing a $6.3 million operating loss experienced in the prior year. • Near the end of the fiscal year, the City issued $22.6 million of bonds to refund $23.2 million in outstanding bonds. As a result of this transaction, the City will experience an economic gain of $0.8 million and an accounting loss of $1.0 million, with 4.2% in present value savings. 19 ---I City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 Overview of the Financial Statements Bask Financial Statements. Management's Discussion and Analysis (MD&A) is intended to serve as an introduction to the City's BFS. The BFS are comprised of three components: 1) Government-Wide Financial Statements (GWFS), 2) Fund Financial Statements (FFS), and 3) Notes to Basic Financial Statements (Notes). This CAFR also contains other supplementary information in addition to the BFS. Government-Wide Financial Statements. The GWFS, shown on pages 35-37 of this report, contain the statement of net assets and the statement of activities, described below: The statement of net assets presents information on all of the City's assets and liabilities (including capital assets and short-and long-term liabilities), with the difference between the two reported as net assets using the accrual basis. Over time, increases or decreases in net assets serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities presents a comparison between direct expenses and program revenues for each of the City's functions or programs (referred to as "activities"). Direct expenses are those that are specifically associated with an activity and are therefore clearly identifiable with that activity. Program revenues include charges paid by the recipient of the goods or services offered by the program, in addition to grants and contributions that are restricted to meeting the operational or capital requirements of a particular activity. Revenues that are not directly related to a specific activity are presented as general revenues. The comparison of direct expenses with revenues from activities identifies the extent to which each activity is self-financing, or alternatively, draws from any City generated general revenues. The governmental activities (activities that are principally supported by taxes and intergovernmental revenues) of the City include administration of community services, electric ( street lighting), financial services, fire, general government, human resources, police, streets, and public works. The business-type activities (activities intended to recover all of their costs through user fees and charges) of the City include Electric (LP&L), Water, Sewer, Solid Waste, Stormwater, Transit, and Airport. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs ( accrual basis), regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods, such as uncollected taxes and earned but unused vacation leave. 20 City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 Component Units. The GWFS include not only the City itself (the "primary government"), but also two legally separate entities (the "component Wlits): Market Lubbock Economic Development Corporation, d/b/a Market Lubbock, Inc. and Civic Lubbock, Inc., for which the City is financially accountable. These entities provide economic development services and arts and cultural activities for the City. Financial information for these component units is reported separately in the G WFS in order to differentiate them from the City's financial information. Neither of these component units are considered major component_ units. Fund Financial Statements. Afimd is defined as a fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The principal role of funds in the new financial reporting model is to demonstrate fiscal accountability. The City, as with other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. The focus of the FFS is on major funds. Major funds are those that meet minimum criteria (a percentage of assets, liabilities, revenue, or expenditures/expenses of fund category and of the governmental and enterprise funds combined), or those that the City chooses to report as major funds given their qualitative significance. Nonmajor funds are aggregated and shown _in a single column in the appropriate financial statements. Combining schedules of nonmajor funds are included in the CAFR following the BFS. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental FFS. Governmental funds are used to account for essentially the same functions reported as governmental activities in the GWFS. However, unlike the G WFS, governmental FFS focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the City's fiscal year. Such information is useful in evaluating the City's near-term financing requirements. Because the focus of governmental funds is narrower than that of the G WFS (modified accrual versus accrual basis of accounting, and current financial resources versus economic resources), it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the GWFS. By doing so, readers may better understand the long-term impact of the near-term financing decisions. Reconciliations are provided for both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances to facilitate the comparison between governmental funds and governmental activities. 21 ---I J City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 The City maintains 24 individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General Fund only. The General Fund is considered to be a major fund. Data from the other governmental funds are combined into a single aggregated presentation. The City adopts a budget annually for the General Fund and all other funds. A budgetary comparison statement has been provided for the General Fund to demonstrate compliance with this budget. It is presented in the FFS following the statement of changes in revenues, expenditures, .and changes in fund balances. The governmental FFS can be found on pages 39-43 of this report. Proprietary FFS. The City maintains two different types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the G WFS. Enterprise FFS provide the same type of information as the GWFS, only in more detail. The City uses enterprise funds to account for its Electric (LP&L), Water, Sewer, West Texas Municipal Power Agency (WTMPA), Stormwater, Transit, Solid Waste, and Airport activities, of which the first five activities are considered to be major funds by the City and are presented separately. The latter three activities are considered nonmajor funds by the City and are combined into a single aggregated presentation. Internal service funds are an accounting device used to accumulate and allocate costs internally among the City's various functions. The City uses internal service funds to account for its fleet of vehicles, management information systems, risk management, print shop, and central warehouse activities among others. The services provided by the internal service funds benefit both governmental and business-type activities, and accordingly, they have been included within governmental activities and business- type activities, as appropriate, in the GWFS. All internal service funds are combined into a single aggregated presentation in the proprietary FFS. Reconciliations are provided for both the proprietary fund statement of net assets and the proprietary fund statement of revenues, expenses, and changes in fund net assets to facilitate the comparison between enterprise funds and business-type activities. The proprietary FFS can be found on pages 44-55 of this report. Fiduciary FFS. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the GWFS because the resources of those funds are not available to support the City's own programs. The City presents an agency ·fund as its only fiduciary fund in the FPS. The fiduciary FPS can be found on page 56 of this report. Notes to Basic Financial Statements. The Notes provide additional information that is essential to a full understanding of the data provided in the GWFS and FFS. The Notes can be found on pages 57-90 of this report. 22 City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 Required Supplementary Information Other Than MD&A. The City has presented required supplementary information relating to its progress in funding its obligation to provide pension benefits to its employees in the Notes to the BFS. Government-Wide Financial Analysis As noted earlier, net assets serve as a useful indicator of the City's financial position. For the City, assets exceeded liabilities by $546 million (net assets) at the close of the fiscal year. This compared to assets exceeding liabilities by $549 million (net assets) at the end of the prior fiscal year. As a result of operations, total net assets decreased by $2.7 million during the period. By far the largest portion of the City's net assets, 78.7%, reflect its investment in capital assets, e.g., land, buildings, infrastructure, machinery, and equipment, less any related debt used to acquire those assets that is still outstanding at the close of the fiscal year. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City's investment in capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. City of Lubbock Net Assets September 30 (in 000's) Governmental Business-Type Activities Activities Total 2004 2003 2004 2003 2004 2003 Current and other assets $ 100.489 78.784 177,959 188,077 278,448 266.861 Capital assets 129.014 121.735 611.703 617.465 740.717 739.200 Total assets 229.503 200.S 19 789.662 805.542 1.019.165 1.006.061 Current liabilities 48.739 25,697 44.156 37,774 92.895 63.471 Noncurrent liabilities 76.423 73.138 303.173 320.024 379.5% 393,162 Total liabilities 125.162 98.835 347.329 357.798 472.491 456.633 Net assets: Invested in "-apital assets. net of related debt 74.433 78.475 355.816 371.427 '430.249 449.902 Restricted 20.339 4,391 45.417 43.389 65,756 47.780 Unrestricted 9.569 18.818 41.190 32.928 50.759 51.746 Total net assets $ 104.341 101.684 442.423 447.744 546.764 549.428 An additional portion of the City's net assets, 12%, represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets of $50.7 million may be used to meet the City's ongoing obligations to citizens and creditors. 23 --- I I ] City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 The City also reports positive balances in all three categories of net assets for the City as a whole, as well as for its separate governmental activities, and business-type activities. The City's governmental activities experienced an increase in net assets of $2.7 million, while net assets decreased by $8.5 million during the prior fiscal year. This increase is primarily a result of strong growth in new construction and better than anticipated sales tax revenues coupled with a concentrated effort by City management to contain expenditures. This is the second year in a row that the City Council has been able to cut property tax rates while streamlining City operations. The City's business-type activities experienced a decrease in net assets of $5.3 million during the current fiscal year as compared to an increase of $3.6 million during the prior fiscal year. This decrease in net assets resulted from a change in accounting estimate on the life of the · City's landfill. · This change in accounting estimate resulted in the nearly doubled depreciation in the Solid Waste Fund. 24 City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 Changes in Net Assets Details of the following summarized information can be found on pages 36-37 of this report. Revenues: Program Revenues: Charges fur services Operating grants and contributions Q\pital grants and contributions General Revenues: Property taxes Sales taxes Other taxes Franchise fees Grants/contributions not restricted to specific program; Other Total revenues Expen.ses: Administrative/Community Services Eleciric Financial Services Fire General Government Hwnan Resources Police Planning and Transportation Public Works Interest on long-tenn debt Eleciric Water Sewer Solid Waste Stormwater Transit Airport Golf Total Expenses Change in net assets before special items and transfers Special items Transfers Change in net assets Net as.sets-beginning of year Net assets -end of year Qty of Lubbock Changes in Net ~ts For the Year Ended September 30 (in OOO's) Governmental Activities 2004 2003 $ 12,713 9,643 44,497 30,555 3,793 9,654 4,274 115,129 22,313 2,471 2,387 21,998 20,562 777 33,249 10,789 3,078 4,593 122,217 (7,088) 9,745 2,657 101,684 $ lo4,341 25 13,888 12,137 42,303 29,092 3,712 6,613 3,834 111,579 21,793 2,373 1,965 20,207 21,009 786 31,429 9,827 9,856 3,346 122,591 (11,012) 2,554 (8,458) I 10,142 iol,684 Business- Type Activities 2004 2003 181,411 6,739 9,269 2.932 200,351 110,591 27,879 17,020 17,662 5,357 10,565 6,853 195,927 4,424 (9,745) (5,321) 447,744 178.,536 5,219 7,909 259 2.737 194,660 105,216 27,461 17,248 19,559 3,315 9,163 6,479 21 188,462 6,198 (2,554) 3,644 444,100 447.744 Totals 2004 2003 194,124 16,382 9,269 44,497 30,555 3,793 9,654 7;2.06 315,480 22,313 2,471 2,387 21,998 20,562 m 33,249 10,789 3,078 4,593 I I0,591 27,879 17,020 17,662 5,357 10,565 6,853 318,144 (2,664) (2,664) 549,428 546,764 192,424 17,356 7,909 42,303 29,092 3,712 6,613 259 6,571 306,239 21,793 2,373 1,965 20,207 21,009 786 31,429 9,827 9,856 3,346 IOS,216 27,461 17,248 19,559 3,315 9,163 6,479 21 311,053 (4,814) (4,814) 554,242 549,428 _fL l w g e ~ .. 0 e <1! City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 Govern mental activities. Governmental activities increased the City's net assets by $2. 7 million. Key elements of the increase follow: • Transfers to/from business-type activities during the fiscal year increased governmental activities net assets by $9. 7 mi Ilion. During the prior fiscal year these transfers increased governmental activities net assets by approximately $2.7 million. This is a net increase of $7.1 million in resources to governmental activities, which is the primary factor for the increase in net assets. Transfers from the business-type activities included payments in lieu of taxes, franchise fees, and indirect costs of operations for centralized services such as payroll and purchasing. • Total expenses decreased by nearly $.4 million from the prior year due primarily to a payment made in the prior year of $5.5 million for the City's share of the Marsha Sharp Freeway Project. This project will be owned and maintained by the State of Texas. However, the governmental activities did increase planning and transportation spending of $1.0 million for the City's streets and had an increase in public safety s~nding, police and fire of$3.6 million--a result of the City Council's commitment to public safety. • Revenues increased by approximately $3.6 million. The key factors impacting this increase include increases in property taxes of $2.1 million due to the additional property being added to the tax rolls, increases in franchise fees of $3.0 million due to changes in the fee structures, and increases in sales taxes of nearly $ 1.5 mi Ilion. A I so, charges for services and operating grants and contributions decreased by $1.1 million and 2.5 million, respectively. This graph depicts the expenses and program revenues generated through the City's various governmental activities. Expenses and Program Revenues -Governmental Activities $35,000 $30,000 $25,000 $20,000 $15,000 $]0,000 $5,000 $0 City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 The following graph reflects the source of the revenue and the percentage each source represents of the total. Charges for Services 11¾ Operating grants & Contributions 8'% Franchise Fees 8% Other Taxes 3% Revenues by Source -Governmental Activities Miscellaneous 4% Sales Taxes 27¾ Property Taxes 39¾ Business-type activities. Business-type activities decreased the City's net assets by $5.3 million as a result of operations. Key elements of this increase follow: • Charges for services for business-type activities increased by $2.9 million. This is mainly due to increased sales in the Electric Fund (LP&L) with revenues up nearly $10.8 million over the prior year. Sales for the water fund were $.9 million less than the prior fiscal year in spite of an increase in rates, because 2004 was the second wettest year in recorded history for the City. WTMPA revenues were impacted because of the capital lease of the co-generation power plant JRM8 to the Electric Fund. The plant was not utilized due to the continued high natural gas prices. 27 ---I l City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 • Capital grants and contributions continue to be a significant revenue source for the Electric (LP&L), Airport, Water, and Sewer Funds during the current fiscal year, producing nearly $9.3 million in revenue. This is comparable to the prior fiscal year's support of $7.9 million. These contributions primarily came from federal grants and from water and sewer lines and taps that were funded by property owners. • Expenses increased in total by $7.5 million over the prior fiscal year. This is mainly due to the increased cost of operations for electric activity, which increased nearly $5 .4 million over the prior year. The stormwater activity experienced a $2.0 million increase in expenses due primarily to scheduled interest payments on debt. The transit activity expenses increased by $ I .4 million over the prior year due to the increased cost of personal services and other services. The following graph reflects the revenue sources generated by the business-type activities. As noted earlier, these activities include Electric (LP&L), Water, Sewer, Solid Waste, Transit, WTMP A, Airport, and Stonnwater Drainage. Charges for Services 91% Revenues by Source -Business-type Activities 28 Captial Grants & Contributions 5% Operating Grants & Contributions 3% City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 Financial Analysis of the City's Funds Governmental funds. The focus of the City's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, unreserved fund balance serves as a useful measure of the City's resources available for spending at the end of the fiscal year. At the end of the fiscal year the City's governmental funds reported combined ending fund balances of $47.7 million. This compared to $50.3 million at the end of the prior fiscal year. A significant portion of this decrease resulted from the planned spend-down of fund balance in the Capital Projects Fund. This resulted in a reduction of net assets of$5.7 million. This reduction was partially offset by the results of operations of the General Fund that ended the year adding $3.3 million to net assets. Of the ending governmental fund balance, $13.8 million or 28.9% constituted unreserved fund balance, which is available for spending at the City's discretion. This compared to $10.6 million or 21. l % at the end of the prior fiscal year. The remainder of the fund balance is reserved to indicate it has already been committed to, l) pay debt service, 2) use in construction of approved capital projects, or 3) for other restricted purposes. The General Fund is the chief operating fund of the City. At the end of the fiscal year, unreserved fund balance in the General Fund was approximately $12. l million compared to $8.4 million in the previous fiscal year, representing an increase of $3.7 million. Total fund balance (reserved and unreserved) approximated $12.7 million at the end of the fiscal year compared to $9.4 million at the end of the prior fiscal year. As a measure of the General Fund's liquidity, it is useful to compare both unreserved fund balance and total fund balance to total fund expenditures. Unreserved fund balance represented 13.4% of total General Fund expenditures compared to 9.8% of total General Fund expenditures in the prior year. Total fund balance represented 14.1% of total General Fund expenditures compared to 11.0% in the prior year. The increase in fund balance is primarily a result of strong growth in new construction and better than anticipated sales tax revenues, coupled with a concentrated effort by City management to contain expenditures. Proprietary funds. The City's proprietary funds provide essentially the same type of infonnation found in the GWFS, but in more detail. 29 ---L l City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 Unrestricted net assets of the major proprietary funds at the end of September 30 are shown next with amounts presented in O0Os: 2004 2003 Electric Fund $ 7,006 2,367 Water Fund 14,078 15,55 I Sewer Fund 6,343 4,286 WTMPA 1,743 2,155 Stonnwater 1,305 869 $ 30,475 25,228 The Electric Fund (LP&L) increased unrestricted net assets by $4.6 million as opposed to a decrease of $.4 million during the prior year. This is mainly due to the results of operations, a capital contribution from the Water, Sewer, Stormwater, and Solid Waste Funds of $1.8 million for prior years costs of the utility billing system and a decision by City Council not to charge for payments in lieu of taxes and franchise fees until adequate cash reserves are established. The Water Fund reflected a current year decrease in unrestricted net assets of nearly $1.5 million compared to an increase of $3.6 million during the prior year. This is due to decreases in consumption. Despite a raise of approximately 3% in water rates, revenues were down with record rainfall. The Sewer Fund reflected a current year increase in unrestricted net assets of approximately $2.1 million compared to a $1 .9 million decrease during the prior year. This is primarily due to sewer rates increases to all customers. The WTMPA Fund reflected a decrease in unrestricted net assets of $.4 million primarily as a result of operations. The prior fiscal year's change was an increase in unrestricted net assets of $2.5 million. The Stormwater Fund experienced an increase in unrestricted net assets of $.4 million during the fiscal year compared to a $1.6 million increase in the prior fiscal year. The increase continues to be due to an increase in stormwater rates of nearly 200%. This increase was necessitated to provide long-term funding for system improvements, maintenance, and flood prevention. 30 City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 General Fund Budgetary Highlights Differences between the original budget and the final amended budget were minimal. This is a result of the truth-in-budgeting initiative championed by the City Council. This resulted in fewer amendments as City management also made a concentrated effort to reduce spending and streamline operations. This also resulted in a planned increase in the General Fund's fund balance. Adjustments were made to expenditures to lessen the impact of the net reductions in transfers from LP&L. The General Fund ended the fiscal year with expenditures more than $1.3 million less than budgeted. As noted earlier, the City chose to issue $22.6 million in bonds to refund $23.2 million in outstanding debt. This resulted in present value savings of $836,312, decreasing total debt service requirements by $874,031. The transaction resulted in an accounting loss of $1,019,912. Due to stronger than anticipated growth in new construction and better than expected sales tax revenue, actual revenues were nearly $3.3 million more than budgeted for the fiscal year. Capital Assets and Debt Administration Capital assets. The City's investment in capital assets for its governmental and business- type activities at September 30, 2004 amounted to $741 million, net of accumulated depreciation. This was a $1.5 million increase over the prior fiscal year's balance of $739 million, net of accumulated depreciation. This investment in capital assets includes land, buildings and improvements, equipment, construction in progress, and infrastructure. Major capital asset events during the fiscal year included the following: • Work continued in the Water Fund with another $3.3 million expended on the construction of water lines ahead of the Marsha Sharp Freeway. Total expenditures on the project to date are $4.3 million. • $1.7 million was expended on Cell II construction at the landfill. Total expenditures on the project to date total $3.9 million. • $1.3 million was expended on the construction of the MacKenzie Park Amphitheater. Expenditures to date on the project total $1. 7 million. • Scheduled improvements to LP&L's distribution infrastructure amount to $4 million. In addition, the Electric Fund spent an additional $3.2 million on a new substation to provide service to South and Southeast Lubbock. Total expenditures for this project to date total $3.7 million. 31 ---I l City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 • The City continues work on a flood relief project linking South Lubbock's chain of playa lakes with an underground drainage system spending $3.2 million during the fiscal year. Expenditures to date on the project total $4.8 million. At the end of the fiscal year, the City has construction commitments of$113 million. City of Lubbock Capital Assets (Net of Accumulated Depreciation) September 30 (in 000's) Business- Governmental Type Activities Activities Totals 2004 2003 2004 2003 2004 2003 Land Buildings Improvements other $ 8,608 7.996 23.794 25.602 31.676 31.676 40.284 39.672 68.302 71.525 92.096 97,127 than buildings Machinery and equipment Construction in progress Total 37.183 37.100 330.842 329.618 368.025 366.718 15.957 14.881 66.922 79.957 82.879 94.838 43.472 36.156 113.961 104.689 157.433 140.845 $ 129.014 121.735 611.703 617.465 740.717 Additional information about the City's capital assets can be found on pages 70-72 of this report. Long-term debt. A summary of the City's total outstanding debt follows: General obligation bonds Revenue bonds Total $ $ City or Lubbock Outstanding Debt General Obligation and Revenue Bonds September 30 (in OOO's) Business- Governmental Type Activities Activities 2004 2003 2004 2003 70.22 1 69.808 215.664 226.127 94.605 101.295 70.221 69.808 310.269 327 .422 Totals 2004 285.885 94.605 380.490 2003 295.935 IO 1.295 397.230 739.200 There is no direct debt limitation in the City Charter or under State law. The City operates under a Home Rule Charter that limits the maximum tax rate for all City purposes to $2.50 per $100 of assessed valuation. The Attorney General of the State of Texas permits an allocation of $1.50 of the $2.50 maximum tax rate for general obligation bonds debt service. 32 City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 The current interest and sinking fund tax rate per $100 of assessed valuation is $0.09496, which is significantly below the maximum allowable tax rate. Over the fiscal year, the City's total outstanding debt decreased by $16.74 million, or 4.2%. This is compared to an increase of$62.5 million, or 18.8%, during the prior fiscal year. The decrease in outstanding debt is attributed to the payment of scheduled debt service totaling $21.28 million and a reduction in outstanding debt of $.5 85 million as a result of the refunding. The reductions in outstanding debt were offset by the issuance of $5.125 million in debt to fund streets projects and the capital improvements plan. During the fiscal year, the City issued $2.025 million of General Obligation Bonds, Series 2004. This issuance was the first installment of the $30 million capital improvement debt issuance approved by voters in 2004 to fund the current capital improvements plan. The City also issued $3.1 million in Tax and Waterworks System Surplus Revenue Certificates of Obligation, Series 2004. This issuance funded streets projects that included right-of-way costs on the Marsha Sharp Freeway project, environmental study costs for future thoroughfares, and for citywide traffic signals and streetlights. The City also issued $22.62 million of General Obligation Refunding Bonds, Series 2004 to defease $23 .205 million in outstanding bonds. All bonds issued during the fiscal year were insured to provide a lower cost of interest expense for the City's taxpayers. It is the City's policy to evaluate each bond issue to determine whether it is economically feasible to purchase bond insurance. The City of Lubbock maintains an "AA-" rating from Standard & Poor's and Fitch Ratings, Inc. and an "Al" rating from Moody's Investors Service for general obligation debt. The revenue bonds of LP&L and WTMPA have been rated "BBB-" by Standard & Poor's, "BBB+" by Fitch Ratings, Inc., and "A3" by Moody's Investors Service. Additional information about the City's long-term debt can be fom1d on pages 80-84 of this report. Economic Factors and the Next Fiscal Year's Budget and Rates • At the end of the City's fiscal year the unemployment rate for the Lubbock area was 2.9 percent. This is a decrease from a rate of 3. I percent one year earlier. This compares favorably to the state's average unemployment rate of 5.5 percent and the national average of 5.1 percent on December 30, 2004. • Total retail sales reflected a 2.4 percent increase over the prior year. 33 ---I l City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2004 • Building permits for new construction decreased from 3,125 during 2003 to 2,644 in 2004, or about a 15% decrease. This compares to a 25% decrease during the prior period. Conversely, building permit values for new construction decreased from $370.6 million in 2003 to $357.2 million in 2004, or about a 3.6% decrease. • Total occupancy in local hotels and motels remained constant and the occupancy tax totaled nearly $2.9 million, nearly identical to the amount received during the prior fiscal year. • City Council again decided to support the operations of the Electric Fund by forgoing transfers for payments in lieu of taxes, and franchise fees for the upcoming fiscal year. The City Council intends to continue this support until such time as the Electric Fund has adequate monetary reserves. All of these factors were considered in preparing the City of Lubbock's budget for the 2004- 2005 fiscal year. During the just ended fiscal year, unreserved fund balance in the General Fund increased by nearly $3.7 million to $12. l million compared to $8.4 million at the end of the prior fiscal year. It is intended that the unreserved undesignated fund balance be equal to 15% of operating expenditures, which equates to approximately $13.5 million. The City ended the year nearly $1.4 million under this target. City Management anticipates meeting this goal within the next few years. The Electric Fund increased rates in May 2004 twelve and one half percent for the larger commercial consumers as a result of higher than anticipated cost of power. Residential and small commercial consumers rates remained relatively unchanged due to the rate increases implemented in the prior fiscal year. Both the Water and Sewer Funds rates were increased for the 2003-2004 fiscal year. The water rates were increased by an average of 3 percent and the sewer rates were increased by an average of 5 percent for all customers. Currently, the City is in the process of having a rate study completed for both the water and sewer rates. The results of this study will impact future water rates. The water and sewer rates affected both residential and commercial consumers by approximately the same percentage. These rate increases were necessary to cover increased operating costs due to inflationary pressures. Requests for Information This financial report is designed to provide a general overview of the City of Lubbock's finances. Questions concerning any of the information provided in the report or requests for additional financial information should be addressed to the Chief Financial Officer, P.O. Box 2000,Lubbock, Texas, 79457. 34 CITY OF LUBBOCK, TEXAS B ASIC F INANCIAL S TATEMENTS _, CITY OF LUBBOCK, TEXAS STATEMENT OF NET ASSETS SEPTEMBER 30, 2004 Governmental Prima~ Government Business-Type Component Activities Activities Total Units ASSETS Pooled cash and cash equivalents $ 30,797,510 25,309,543 56,107,053 1,519,082 Investments 7,503,969 6,077,077 13,581,046 494,689 Receivables, net 16,383,864 29,811,958 46,195,822 158,612 Internal ba!ances (555,465) 555,465 Due from other governments 1,308,277 1,308,277 Due from others 1,470,831 1,119,160 2,589,991 Inventories 190,034 2,114,453 2,304,487 87,425 Investment in property 218,503 218,503 Prepaid expenses 897,648 897,648 25,229 Restricted assets: Cash and cash equivalents 2,152,275 44,658,899 46,811,174 100,000 Incentives advances 9,164,684 Investments 6,723,257 63,543,690 70,266,947 Accounts receivable 1,013,813 1,013,813 Bond proceeds receivable 27,745,000 27,745,000 Mortgage receivables 5,653,444 5,653,444 Capital assets: Non-depreciable 52,080,271 145,637,526 197,717,797 366,332 Depreciable 76,933,607 466,065,118 542,998,725 881,214 Deferred charges 3,751,695 3,751,695 Other assets 4,071 4,071 Total Assets 229,503,025 789,662.468 1,019, 165,493 12,797,267 LIABILITIES Accounts payable 5,758,795 17,892,025 23,650,820 462,805 Due to others 35,195 35,195 547,519 Due to other governments 80,937 Accrued expenses 3,204,277 2,310,777 5,515,054 156,108 Accrued interest payable 387,855 1,611,164 1,999,019 Payable to escrow agent 22,620,000 22,620,000 Customer deposits 1,000,526 1,000,526 Deferred revenue 3,120,823 Noncurrent liabilities: 29,353 3,150,176 9,029,783 Due within one year: Bonds payable 4,955,949 17,271,718 22,227,667 Compensated absences 5,475,861 2,143,563 7,619,424 Accrued insurance claims 2,354,536 1,184,210 3,538,746 Capital leases payable 826,018 Due in more than one year: 622,442 1,448,460 2,085,606 Bonds payable 65,265,268 292,082,188 357,347,456 Deferred premium on bonds 1,179,722 1,179,722 Compensated absences 9,442,647 2,016,571 11,459,218 Accrued insurance claims 5,252,644 5,252,644 Landfill closure and pcstclosure care 3,051,116 3,051,116 Capital leases payable 534,939 770,765 1,305,704 1,455,515 Total Liabilities 125,161,885 347,239,062 472,400,947 13,818,273 NET ASSETS Invested in capital assets, net of related debt 74,433,159 355,816,406 430,249,565 1,247,546 Restricted for: Capital projects 7,869,506 38,650,935 46,520,441 Debt service 2,223,003 1,050,347 3,273,350 Other purposes 10,246,203 5,715,380 15,961,583 100,000 Unrestricted (deficit) 9,569,269 41,190,338 50,759,607 {2,368,552) Total Net Assets $ 104,341.140 442,423,406 546,764,546 (1,021,006) See accompanying Notes to Basic Financial Statements. 35 l ] Functions/Programs Primary Government: Governmental Activities: Administration/Community Services Street Lighting Financial Services Fire General Govemment Human Resources Police Planning and Transportation Public Works Interest on Long-Term Debt Total Governmental Activities Business-Type Activities: Electric Water Sewer Solid Waste Stonnwater Transit Airport Total Business-Type Activities Total Primary Government Component Units: Civic Lubbock, Inc. Market Lubbock, Inc. Total Component Units CITY OF LUBBOCK, TEXAS STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2004 Pro9ram Revenues Operating Charges for Grants and Exeenses Services Contributions $ 22,313,139 2,912,165 6,041,287 2,471,382 2,387,188 21,998,241 10,600 20,563,083 3,516,980 1,972,229 777,035 33,248,228 5,424,232 1,629,923 10,788,596 3,078,122 849,147 4,593,150 122,218,164 12,713,124 9,643,439 110,591,149 105,433,133 27,879,343 31,907,893 17,020,092 18,889,095 17,661,438 11,641,316 5,356,649 6,019,490 10,565,159 2,893,507 5,336,794 6,852,874 4,626,270 1,402,003 195,926,704 181,410,704 6,738,797 318,144,868 194,123,828 16,382,236 1,609,630 1,731,625 5,721,854 127,826 6,707,783 $ 7,331,484 1,859,451 6,707,783 General revenues: Taxes: Property Sales Occupancy Other Franchise fees Investment earnings Miscellaneous Transfers, net Total general revenues and transfers Change in net assets Net assets -beginning of year Net assets -end of year See accompanying Notes to Basic Financial Statements. 36 Capital Grants and Contributions 1,849,662 2,642,778 3,203,482 1,573,384 9,269,306 9,269,306 $ $ Net (Expense) Revenue and Changes in Net Assets Govemmental Activities (13,359,687) (2,471,382) {2,387,188) (21,987,641) (15,073,874) (777,035) (26,194,073) (10,788,596) (2,228,975) (4,593,150) (99,861,601) (99,861,601) 44,496,973 30,554,632 2,853,205 939,456 9,654,447 1,151,620 3,123,572 9,745,250 102,519,155 2,657,554 101,683,586 104,341,140 Primary Government Business-Type Activities (3,308,354) 6,671,328 5,072,485 (6,020,122) 662,841 (2,334,858) 748,783 1,492,103 1,492,103 2,859,344 72,870 (9,745,250) (6,813,036) (5,320,933) 447,744,339 442,423,406 Total (13,359,687) {2,471,382) (2,387,188) (21,987,641) {15,073,874) (777,035) (26, 194.,073) (10,788,596) {2,228,975) (4,593,150) (99,861,601) (3,308,354) 6,671,328 5,072,485 (6,020,122) 662,841 (2,334,858) 748,783 1,492,103 (98,369,498) 44,496,973 30,554,632 2,853,205 939,456 9,654,447 4,010,964 3,196,442 95,706,119 (2,663,379) 549,427,925 546,764,546 37 Component Units 121,995 1,113,755 1,235,750 8,636 8,636 1,244,386 (2,265,392) (1,021,006) --I ] No Text CITY OF LUBBOCK, TEXAS BALANCE SHEET GOVERNMENTAL FUNDS SEPTEMBER 30, 2004 Other Total General Debt Service Governmental Governmental Fund Fund Funds Funds ASSETS Pooled cash and cash equivalents $ 5,888,268 2,282,997 21,407,030 29,578,295 Investments 1,426,351 553,024 5,229,256 7,208,631 Taxes receivable (net) 6,864,967 533,715 90,102 7,488,784 Accounts receivable (net) 6,098,853 162,485 2,433,012 8,694,350 Interest receivable 79,463 2,119 20,146 101,728 Due from other funds 1,930,500 1,930,500 Due from other governments 13,637 1,294,640 1,308,277 Due from others 781,704 679,746 1,461,450 Investment in property 218,503 218,503 Inventory 120,880 120,880 Bonds proceeds receivable 22,620,000 5,125,000 27,745,000 Secured receivables -5,653,444 5,653,444 Advances to other funds 445,676 445,676 Total Assets 23,650,299 26,154,340 42,150,879 91,955,518 LIABILITIES Accounts payable 1,836,027 418,017 3,131,290 5,385,334 Due to others 35,195 35,195 Due to other funds 1,480,500 1,480,500 Accrued liabilities 3,036,761 121,374 3,158,135 Payable to escrow agent 22,620,000 22,620,000 Advances from other funds 1,469,381 1,469,381 Deferred revenue 6,047,791 475,303 3,547,898 10,070,992 Total liabilities 10,955,774 23,513,320 9,750,443 44,219,537 FUND BALANCES Reserved for: Prepaid items/inventory 120,880 120,880 Advances to other funds 445,676 445,676 Debt service 2,641,020 2,641,020 Capital projects 24,870,961 24,870,961 Special revenue -grants 5,871,947 5,871,947 Unreserved, reported in General Fund 12,127,969 12,127,969 Special revenue funds 1,734,312 1,734,312 Capital projects funds (76,784) (76,784) Total fund balances 12,694,525 2,641,020 32,400,436 47,735,981 Total Liabilities and Fund Balances $ 23,650,299 26,154,340 42,150,879 91,955,518 See accompanying Notes to Basic Financial Statements. 39 ---I CITY OF LUBBOCK, TEXAS RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET ASSETS SEPTEMBER 30, 2004 Total fund balance -governmental funds $ 47,735,981 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. 129,013,878 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 portion of the assets and liabilities of the ISF's primarily serving governmental funds are included in governmental activities in the statement of net assets as follows: Net assets 8,953,624 Net book value of capital assets (included in captial as-sets above) (1,353,658) Compensated absences 193,517 Amounts due from business-type 1S Fs for amounts overcharged 18,240 Certain liabilities are not due and payable in the current period and therefore are not reported in the funds. Those liabilities are as follows: General obligation bonds (70,221,217) Capital leases payable (1,360,957) Compensated absences (14,918,508) Accrued interest on general obligation bonds (387,855) Bond premiums are recognized as an other financing source in the fund statements but the premiums are amortized over the life of the bonds in the government-wide statements. (1,179,722) Actual City contributions to the fire fighter's pension trust fund is greater than the actuarially determined required contribution. This will reduce future funding requirements and is not recognized as an asset at the fund level but is a prepaid expense in the Statement of Net Assets. 897,648 Revenue earned but unavailable in the funds is deferred. 6,950,169 Net assets of governmenta! activities $ 104,341,140 See accompanying Notes to Basic Financial Statements. 40 CITY OF LUBBOCK, TEXAS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2004 Other General Debt Service Governmental Fund Fund Funds REVENUES Taxes $ 74,381,814 7,943,630 5,373,390 Fees and fines 3,675,857 Licenses and permits 1,982,281 Intergovernmental 428,458 9,214,981 Charges for services 4,467,730 849,147 Interest 334,730 28,622 375,997 Miscellaneous 1,442,675 1,612,800 Total revenues 86,713,545 7,972,252 17,426,315 EXPENDITURES Current: Ad ministration/Community Services 18,156,455 Electric -street lighting 2,185,286 Financial Services 2,333,469 Fire 20,613,077 General Government 5,633,469 16,992 13,650,037 Human Resources 754,225 Police 32,400,371 Planning and Transportation 7,180,843 Non-departmental 214,562 Public Works 3,012,987 Debt service: Principal 4,498,304 Interest and other charges 4,749,272 Capital outlay 475,585 16,190,551 Total expenditures 89,947,342· 9,264,568 32,853,575 Excess (deficiency} of revenues over (under) expenditures (3,233,797) (1,292,316) (15,427,260) OTHER FINANCING SOURCES (USES) Long-term debt issued 22,620,000 5,125,000 Due escrow agent (22,620,000) Bond premium (discount) 1,179,722 Capital leases 1,535,075 Transfers in 10,723,891 20,715,403 6,120,514 Transfers out (4,212,915) (19,955,679) {3,871,880) Total other financing sources (uses) 6,510,976 1,939,446 8,908,709 Net change in fund balances 3,277,179 647,130 (6,518,551) Fund balances -beginning of year 9,417,346 1,993,890 38,918,987 Fund balances -end of year $ 12,694,525 2,641,020 32,400,436 See accompanying Notes to Basic Financial Statements. 41 Total Governmental Funds 87,698,834 3,675,857 1,982,281 9,643,439 5,316,877 739,349 3,055,475 112,112,112 18,156,455 2,185,286 2,333,469 20,613,077 19,300,498 754,225 32,400,371 7,180,843 214,562 3,012,987 4,498,304 4,749,272 16,666,136 132,065,485 (19,953,373) 27,745,000 (22,620,000) 1,179,722 1,535,075 37,559,808 (28,040,474) 17,359,131 {2,594,242) 50,330,223 47,735,981 l 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, 2004 Net change in fund balances -total governmental funds Amounts reported for governmental activities in the statement of activities are different because: 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 of $16,666,136 exceeded depreciation of $9,813,391 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 of $27,745,000 exceeded repayments and debt defeasence of $27,118,304. Capital lease transactions provide current financial resources to governmental funds and repayment of principal is an expenditure. This is the amount by which proceeds of $1,535,075 exceeded repayments of$1,170,595. Bond premiums are recognized as an other financing source in the governmental funds, but are considered deferred assets on the Statement of Net Assets. This amount will be amortized over the life of the bonds. 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 during the 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 during the year. Property taxes levied and court fines and fees earned, but not available, are deferred in the governmental funds, but are recognized when earned (net of estimated uncollectibles) in the Statement of Activities. This amount is the net change in deferred property taxes and court fines and fees for the year. The difference between the par value of debt defeased which is greater than the par value of the new debt is recognized as a contra expense in the Statement of Activities, but is a Note disclosure in the fund statements. Actual City contributions to the fire fighter's pension trust fund are greater than the actuarially determined Net Pension Obligation (NPO). This amount is recognized as an expenditure at the fund level but is accrued when overpaid and reduces expenses on the Statement of Activities 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. Accrued interest is recognized as expenses in the Statement of Activities as incurred, but is recognized when current financial resources are used in the governmental funds. This amount is the net change in the accrued interest this year. The net effect of various miscellaneous transactions involving capital assets (e.g., sales and trade-ins) is to increase net assets. Change in net assets of governmental activities See accompanying Notes to Basic Financial Statements. 42 $ $ (2,594,242) 6,852,745 (626,696) (364,480) (1,179,722) (2,225,479) 122,984 2,537,988 213,682 15,025 (94,019) (57,560) 57,328 2,657,554 CITY OF LUBBOCK, TEXAS BUDGETARY COMPARISON STATEMENT GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2004 Variance with Final Budget Budgeted Amounts Actual Positive Original Final Amounts (Negative) REVENUES Taxes and fees $ 71,855,445 72,262,445 74,381,814 2,119,369 Fees and fines 3,288,500 3,288,500 3,675,857 387,357 Licenses and permits 1,823,721 1,807,550 1,982,281 174,731 Intergovernmental 372,192 455,907 428,458 (27,449) Charges for services 4,541,034 4,325,642 4,467,730 142,088 Interest 236,689 164,118 334,730 170,612 Miscellaneous 935,379 1,125,711 1,442,675 316,964 Total Revenues 83,052,960 83,429,873 86,713,545 3,283,672 EXPENDITURES Administration/Community Services 18,403,905 18,365,948 18,156,455 209,493 Electric -street lighting 2,302,033 2,210,784 2,185,286 25,498 Financial Services 1,873,928 2,185,455 2,333,469 (148,014) Fire 21,026,400 20,775,537 20,613,077 162,460 General Government 5,435,697 5,507,366 5,633,469 (126,103) Human Resources 714,338 801,863 754,225 47,638 Police 32,531,242 32,419,834 32,400,371 19,463 Planning and Transportation 7,659,089 7,664,495 7,180,843 483,652 Capital Outlay 53,000 502,136 475,585 26,551 Non-departmental 849,200 849,200 214,562 634,638 Total Expenditures 90,848,832 91,282,618 89,947,342 1,335,276 Excess (deficiency) of revenues over (under) expenditures (7,795,872) (7,852,745) (3,233,797) 4,618,948 OTHER FINANCING SOURCES (USES) Transfers in 11,138,094 10,936,402 10,723,891 (212,511) Transfers out (3,342,222) (3,441,959) (4,212,915) (770,956) Total other financing sources (uses) 7,795,872 7,494,443 6,510,976 (983,467} Net change in fund balances (358,302) 3,277,179 3,635,481 Fund balances -beginning of year 9,417,346 9,417,346 9,417,346 Fund balances -end of year $ 9,417,346 9,059,044 12,694,525 3,635,481 See accompanying Notes to Basic Financial Statements. 43 [ l CITY OF LUBBOCK, TEXAS STATEMENT OF NET ASSETS PROPRIETARY FUNDS SEPTEMBER 30, 2004 Business-type Activities-Enterprise Funds West Texas Municipal Power Electric Water Sewer Agency (WTMPA) ASSETS Current assets: Pooled cash and cash equivalents $ 2,633,706 9,646,398 4,300,692 627,826 Investments 637,979 2,336,705 1,041,782 Receivables, net 13,392,448 3,935,759 2,356,470 6,892,959 Interest receivable 7,694 34,961 11,658 Due from others 28,081 Due from other funds 261,500 Inventories 32.981 170483 Total current assets 16,704,808 16,413,887 7,710,602 7,520,785 Noncurrent assets: Restricted cash and cash equivalents 5,435,733 9,888,565 247,331 1,050,347 Restricted investments 5,017,600 12,590,121 572,230 Receivables, net 21,218,605 Restricted interest receivable 2,456 25,426 21,201 Deferred charges 3,344,444 407,251 Other assets 4,071 Advances to other funds Capital assets: Land 756,714 12,724,350 12,578,774 Construction in progress 9,488,738 45,999,985 5,227,618 Buildings 8,067,549 21,573,970 23,857,432 Improvements other than buildings 167,860,376 200,308,490 105,745,873 25,200 Machinery and equipment 48,790,387 19,405,223 15,856,542 Less accumulated depreciation (94,090,505} {77,889,617} (531936,873} {25,200} Total capital assets 140,873,259 222, 122.401 109,329.366 Total noncurrent assets 154,673,492 244,630,584 110,170.128 22,676,203 Total Assets $ 171,3781300 261,044,471 117,880?30 30,196,988 See accompanying Notes to Basic Financial Statements. 44 Business-type Activities-Enterprise Funds Total Nonmajor Total Enterprise Proprietary Stormwater Funds Funds $ 938,663 5,826,657 23,973,942 227,378 1,509,702 5,753,546 705,599 2,226,503 29,509,738 7,264 29,257 90,834 1,091,079 1,119,160 261,500 467,557 671,021 1,878,904 11,150,755 61,379 741 22,394,882 4,990,434 44,007,292 22,785,586 10,306,990 51,272,527 21,218,605 23,277 28,282 100,642 3,751,695 4,071 1,023,705 1,023,705 115,669 5,500,647 31,676,154 43,053,522 9,493,563 113,263,426 64,580 41,756,630 95,320,161 8,158,852 91,972,033 574,070,824 2,766,404 43,677,838 130,496,394 (8,368,621) {100,9411974} (335,252,790} 45,790,406 91,458?37 609,5741169 90,994,151 107,808,148 730,952,706 $ 92,873,055 118,958,903 792,332,447 45 Internal Service Funds 2,554,816 618,869 309 9,381 13,148 1,512,586 4,709,109 2,803,882 18,994,420 150,686 45,603 65,343 1,632,378 1,608,618 313,341 8,178,213 {8,315,760) 3,482,133 25,476,724 30,1851833 --- [ ' l STATEMENT OF NET ASSETS PROPRIETARY FUNDS SEPTEMBER 30, 2004 Business-type Activities-Enterprise Funds West Texas Municipal Power Electric Water Sewer Agency (WTMPA) LIABILITIES Current liabilities: Accounts payable $ 8,516,408 730,385 224,644 6,196,307 Accrued expenses 1,015,631 166,986 131,540 Accrued interest payable 602,093 700,818 122,246 129,608 Accrued insurance claims Due to other funds Customer deposits 969,689 24.715 Lease payable 1,525,000 235,259 Bonds payable 3,653,385 5,908,680 4,015,748 1,525,000 Total current liabilities 16,282,206 7,531 ,584 4 729,437 7 850,915 Noncurrent liabilities: Compensated absences 1,941,690 742,146 372,324 Deferred revenue Accrued insurance claims Landfill closure and post closure care Contracts/leases payable 18,679,792 422,232 Bonds payable 44 217,709 104,820,983 40,329,424 19,552,463 Total noncurrent liabilities 64,839,191 105,563,129 41,123,980 19,552,463 Total Liabilities 81,121,397 113,094,713 45,853,417 27,403,378 NET ASSETS Invested in capital assets, net of related debt 76,855,904 Restricted for: 125,395,032 65,684,404 Capital projects 6,394,802 8,476,392 Debt service 1,050,347 Other purposes Unrestricted 7,006,197 14,078,334 6,342,909 1,743,263 Total Net Assets $ 90,256,903 147,949,758 72,027,313 2,793,610 See accompanying Notes to Basic Financial Statements. 46 Business-type Activities-Enterprise Funds Total Nonmajor Total Enterprise Proprietary Stormwater Funds Funds $ 54,385 1,157,219 . 16,879,348 471,617 405,685 2,191,459 56,399 1,611,164 711,500 711,500 6,122 1,000,526 387,183 2,147,442 1,281,550 887,355 17 271,718 1,807,552 3,611,463 41,813,157 71,659 626,968 3,754,787 29,353 29,353 3,051,116 3,051,116 348,533 19,450,557 71,801,015 11,360,594 292,082,188 71,872,674 15,416,564 318,368,001 73,680,226 19,028,027 360,181,158 5,504,853 82,376,213 355,816,406 12,383,463 11,396,278 38,650,935 1,050,347 1,304,513 6,158,385 36,633,601 $ 19,192.829 99,930,876 432.151,289 47 Internal Service Funds 1,386,138 165,460 3,538,746 5,090,344 598,864 5,252,644 5,851,508 10,941,852 3,482,133 10,089,636 5,672.212 19,243,981 l No Text CITY OF LUBBOCK, TEXAS RECONCILIATION OF THE STATEMENT OF NET ASSETS -PROPRIETARY FUNDS TO THE STATEMENT OF NET ASSETS SEPTEMBER 30, 2004 Total net assets -enterprise funds Amounts reported for business-type activities in the Statement of Net Assets are different because: Internal service funds (ISFs) are used by management to charge the costs of certain activities, such as insurance and telecommunications, to individual funds. The portion of assets and liabilities of the ISFs primarily serving enterprise funds are included in business-type activities in the Statement of Net Assets as follows: Net assets of business-type ISFs Amounts due to governmental ISFs for amounts overcharged Net assets of business-type activities See accompanying Notes to Basic Financial Statements. 49 $ $ 432,151,289 10,290,357 (18,240) 442,423,406 ---- [l CITY OF LUBBOCK STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2004 Business-Tl!'.e!; Activities -Ente!Erise Funds Electric Water Sewer OPERATING REVENUES Charges for services $ 103,864,178 32,222,280 18,203,020 Provision for bad debts (2,312,477) (738,125) (301,780) Charges for services (net) 101,551,701 31.484, 155 17,901,240 New taps and reconnects 423,738 Effluent water sales 754,970 Commodity sales 232,885 Landing fees Parking Rentals Concessions Miscellaneous Total Operating Revenues 101,551,701 31,907.893 18,889,095 OPERATING EXPENSES Personal services 8,294,785 5,274,209 3,522.215 Supplies 456,933 1,021,166 642,948 Maintenance 2,756,885 2,019,918 1,095,564 Purchase of fuel and power 73,969,427 Collection expense 1,850,565 346,446 Other services and charges 3,758,830 6,138,536 4,070,608 Depreciation and amortization 9,033.112 5,958,903 5,075,034 Total Operating Expenses 98,269,972 22,263,297 14,752,815 Operating Income (Loss) 3,281,729 9,644,596 4,136.280 NON-O?ERATING REVENUES (EXPENSES) lnlerest income 129,257 Passenger facility charges/Federal grants 588.435 88,789 Disposition of assets (240,692) 88,773 (8,481) Miscellaneous 1,420,053 (137,795} (571,119) Pass-through grant payments Interest expense on bonds !3,353,899) (5,584,522) (2,188,707) Total non-operating revenues (expenses) !2,045,281) (5,045,109) (2,679,518) Income (loss) before contributions and transfers 1,236,448 4,599,487 1,456,762 Capital contributions 1,849,662 2,642,778 3,203,482 Transfers in 1,777,956 6,891,766 6,235,864 Transfers (out) (3,150,195) {11,172,003) (8,032,942) Change in net assets 1,713,871 2,962,028 2,863,166 Total net assets -beginning of year 88,543,032 144,987,730 69,164,147 Total net assets -ending $ . 90,256,903 147,949,758 72,027,313 See accompanying Notes to Basic Financial Statements. 50 West Texas Municipal Power Agencl!'. (WTMPA) 48,966,215 48,966,215 48,966.215 331.148 320,000 48,936,216 158,619 1,685 133,274 49,880.942 (914,727) 1,006,104 (2,825,018) (1,062,316) (2,881,230) (3,795,957) 356,922 (3,439,035) 6,232,645 2,793,610 Business-Tiee Activities -Ente!Erise Funds Other Nonmajor Total Internal Enterprise Enterprise Service Stonnwater Funds Funds Funds $ 6.131,808 14,835,148 224,222,649 35,943,622 (112,318) (439,776) (3,904,476) 6,019,490 14,395,372 220,318,173 35,943,622 423,738 754,970 232,885 749,037 749,037 1,065,838 1,065,838 1,696,683 1,696,683 1,114,712 1,114,712 139,451 139,451 175,459 6,019,490 19,161,093 226,495,487 36.119,081 645,260 9,643,788 27,711,405 5,272.295 1,599,917 3,720,964 6,852,554 148,564 2,647,316 8,988,247 1,473,732 122,905,643 295,069 292.217 2,942,916 49,413 4,398,830 18,417,902 23,122,204 553,592 13,291,441 34,045,356 602,494 1,691,898 31,873,509 218,732,433 37,323,279 4,327,592 (12,712,416) 7,763,054 (1,204,198) 594,120 320,356 2,727,061 544,554 6,738,797 6,738,797 (981,284) (3,966,702) (7,434) (307.464) {334,780) 68,895 12,584 (1,568,721) (1,568,721) {3,658,830) (424,539) (16,272,813) (3,372,174) 3,749,829 (12,273,483) 549,704 955,418 (8,962,587) (4,510,429) (654,494) 1,573,384 9,269,306 4,307,251 1,874,760 21,444,519 225,916 (4,618,513) (4,216,115) (31,189,768) 644,156 (9,730,558) (4,986,372) (428,578) 18,548,673 109,661,434 437,137.661 19,672,559 $ 19,192,829 99,930,876 432, 151,289 19,243,981 51 l No Text CITY OF LUBBOCK, TEXAS RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS OF PROPRIETARY FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2004 ' Net change in fund net assets -total enterprise funds Amounts reported for business-type activities in the statement of activities are different because: Internal service funds (lSFs) 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 ISFs is reported with business-type activities. 1 Change in net assets of business-type activities See accompanying Notes to Basic Financial Statements. 53 $ (4,986,372) (334,561) $ (5,320,933) l CITY OF LUBBOCK, TEXAS STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2004 Business-Tl,'!!! Activities -Enterense Funds West Texas Municipal Power Electrlc Water Sewer Agenc:t: jWTMPA! CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers .$ 101,626,637 32,863,422 19,074,799 47,218,295 Payments to suppliers (78,396,377) (11,220,827) (6,259,433) (47,864,595) Payments to employees (7,891,004) (5,117,293) (3,401,569) Other receipts (payments) 1,179,361 (49,022) (579,600) Ne1 cash provided (used) by operating activities 16,519,617 16,476,280 8,834,197 (646,300) CASH FLOWS FROM NONCAPITAL AND RELATED FINANCING ACTIVITIES Transfers in from other r~nds 1,777,956 6,891,766 6,235,864 356,922 Transfers out to other funds (3, 1 so. 195) (11. 172,003) (8,032, 942) Short-term i nterfund borrowings 3,678,500 5,909 Advances from (to) other lunds Operating grants Payments received/(made) on advances (to)lfrom other funds (4,644,865) Net cash provided ( used) by noncapita! and related financing activities (6,017,104} (601,737) (1 ,791,169) 356 922 CASH FLOWS FROM CAPITAL ANO RELATED FINANCING ACTIVITIES Purchases of c:a p ital assets (12,307,612) (11,663,809) (5,551,770) Sale of ca pita I assets 2,646,037 110,281 201,939 22.810,000 Receipts(payments) on leases {174, 16S) 2,580,495 Payments for bend issuance costs (30,085) Principal paid on revenue bonds (4,413,300) (1,464,741) (1,525,000) Interest paid on revenue bends (3,353,899) (2,233,809) (1,070,799) Principal paid on general obligation bonds and other debt (4,838,318) (3,654,354) Interest paid on genera I obligation bonds (3,391,605) (2. 345,232) Issuance or revenue, G.O. bonds, and capital leases Passenger facility charges/c:apital grants 647,923 (22,810,000) Contributed capital 1,849,662 2,672,324 3 090,696 Net cash provided (used) for capital and related fioanci ng activities pS.609.197! (20.161,754) !8,432.886) (15.304) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of investments 932,430 10,219,927 2,665,663 Purchase of investments (6,588,009) (5,794,121) (626,508) Interest earnings on cash and ;nvestments 52,369 571 ,337 86,012 17.005 Net cash provided by (used for) investing activities Net increase {decrease) in cash (5.603,210) 4,997,143 2,125,167 17,005 and cash equivalents (10,710,894) 709,932 735,309 (287,677) Cash and cash equivalents -beginning or year 18,780,333 18,825,031 3,812,714 1,965.850 Cash and cash equivalents -end or year 8.069 439 19,534,963 4,548,023 1 678 173 Reconciliation of operating income (loss) to net cash provided ( used I by operating activities: Operating income (loos) 3,281,729 Adjustments to reconcile operating income (loss) 9,644,596 4,136.280 (914,727) to net cash provided (used) by operating activities: Depreciation and amonization 9,033,112 5,958,903 5,075,034 117,994 Other income (expense) 1. 179,361 (49,022) (579,600) Change in current assets and liabilities: Accounts receivable 74,936 g55,547 185,704 (1,589,301) Inventory 4,000 (53,333) Prepaid expenses Due from other governments 18,286 Accounts payable 1,876,018 (172,499) (82,105) 1,724,455 Other aocrued expenses 262,470 27,350 54,872 15,279 Customer deposits 644,570 24,715 Increase (decrease) in compensated absences 162.421 121 737 44,012 Net cash provided (usecl) by operating activities 16,518.617 16,476,280 8,834,197 (646,300! Supplemental cash flow information: Noncash capital iml)(ovements and other changes $ 20,204.792 96.133 112,786 See accompanying Notes to Basic Financial Statements. 54 CITY OF LU8B0CK, TEXAS STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2004 CASH FLOWS FROM OPERATING ACTMTIES Receipts from customers Paymet1ts to Sul)plieni Paymenla to employees Other receipts (payments) Net cash provided (used) by operating activities CASH FLOWS FROM NONCAPITALAND RELATED FINANCING ACTMTIES Transfers in from other funds ·Transfers out to other funds Short-tenn intemmd bom:iwings Advances from (to) o1her funds Opera~ng grants Payments reeeived.l(made) on advances {to)lfrom other funds Net cash provided (used) by noncapitaf and related llnaru;lng activities CASH FLOWS FROM CAPITAL ANO RELATED FINANCING ACTIVITIES Purchases al capital assets Sale of capital assets Receipts~yments) on leases Payments for bond issuance CO$lS Principal paid on l'El\18f1U8 bonds Interest paid an revenue bonds Principal paid on general abligalion bonds and ether debt Interest paid on general obllgation bonds Issuance of revenue, G.O. boncb, and capital teases Passenger facility Charges/capital grants Cootribllled c:apital Net cash provided (used) for capital and related financing activities CASH FLOWS FROM INVESTING ACTIYmES PIOOOeds from sales and maturities of inves1ments Purchase of investments Interest earnings on cash and inveslments Net cash provided by (IISed for) investing activities Net increase (dea-ease) in cash and cash equivalents Cash Md cash equivalents -beginning of year Cash and cash equivalents • and of year 1 Reconcillatlon of operating Income (loss) to net cash provided (used) by ope,ating activities: Operating income (loss) Adjustments ·to raooocile operating income (loss) to net cash provided (used) by o~ng activities: Depreciation and amonlzation Otner income (expense) Change in current assets and liabilities: Aax>unts receivable lnvento,y Prepaid expenses Due from Olhar governments Accounts payable Other ac;crued ~nsas Customer deposits lnc:raase (decrease) in compensated alleences- Net cash provided (used) by operating activities Supplemantal cash flow information: Noncash capital Improvements and olher changes See aax>mpanying Notes to Basic Flnanc:iai Statements. $ Bustnass. Type Actlvillas • Enterprise Furnia Othel'Nonmajor EnterprlN Stonnwatar Funds Totals 11,047,779 (510,507) (670,189) (307,484) 4,559,1119 4,307,251 (4,618,513) (311,262) (3,447,008) (546.551) {3,658,830) {7,652,389). 1,360,757 332,322 569,120. 2,262,199 (1,141,833) 24,475,378 23,333,545 4,327,592 553,592 (307,464) 28,289 (11,800) (35,352) 4 762 4.559,619 20,044,130 (8,079,833) (9,818,018) (1,250,351) 1,097,928 1,874,760 (4,216,115) (644,181) (t ,036,740) 3,768,073 1 045.135 790,932 (3,928,747) 225,164 (373,851) (762,349) (430,980) 1,402,003 1,573 384 (2,295,376) 7,275,615 (4,648,301) 291,748 2,919,060 2,512,544 8,304,547 10,817,091 (12,712,416) 13,291,441 (1,344,022) 883,037 (41,924) 12,D87 (194,307) 514,153 130,682 150 559037 1,097,928 226,875,062 (152,331,572) (26,696,073) (1,007.0761 46,840,341 21,444,519 (31, 189,768) 3,040,228 (1,038,740) 3,768,073 ~.599.730) {7,573,418) (36,898,946) 25,993,421 2,406,330 (403,936) (7,949.592) (10,317,337) (9,255,021) (8,167,817) (22.1s2,on) 1,402,003 9,186,088 (54,166,906) 22,454,392 (17,324,617) 1,587.589 6,717,364 (8,182,619) 78,183,853 67,981,234 7,763,054 34,030,076 (1,100,747) 538,212 (91,257} 12,097 (1711,021) 3,848,222 455,301 669,435 891969 46,840,341 '====== 21477 20,435,186 55 lntemal Service Funds 38,000,252 (31,042,646) (5,108,035) 19.348 (131,081) 225,916 1,611 227,527 (823,430) (823,430) 6,594,329 (5,061,927) 511, 1511 2,043,558 1,316,574 4,042,124 5,358,898 (1,204,198) 802,494 19,348 (118,829) (114,330) 450,968 470,655 i237,189) (131,081) l ASSETS CITY OF LUBBOCK, TEXAS STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS SEPTEMBER 30, 2004 Cash and cash equivalents $ Investments, at fair value: Pools Total assets LIABILITIES Accounts payable Total liabilities See accompanying Notes to Basic Financial Statements. 56 $ Agency Fund 1,099 73 1,172 1,172 1,172 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September30,2004 NOTE(. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Basic Finuncial Statements (BFS) of the City of Lubbock, Texas (City) have been prepared in conformity with Accounting Principles Generally Accepted in the United States of America (GAAP) 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 Stale and l ocal Govemmental Units (GASB 34 Edition). The Governmental Accounting Standards Board (GASB) is the acknowh!dgcd standard-setting body tor establishing governmental accounting and financial reporting principles. With respeeL to proprietary activities related to business-type activities and enterprise funds. including component units, the City applies all applicable GASS pronouncements as well as Financial Accounting Standards Board (fASB) Statements and Interpretations, Accounting Principks Board (APB) Opinions and Accounting Research Bulletins of 1he Committee on Accounting Procedure. issued on or before November JO, 1989, unless those pronouncements connict with or contradict GASB pronouncements. The more significan1 accounting policies are described below. A. REPORTING ENTITY The City is a municipal corporation governed by a Council-Manager form of government. The: City, incorpurur.:d in 1909, is located in the northwe.'item part of the state. The City currently occupies a land area of 1 15 square miles and serves a population exceeding 206,000. The City is empowered to levy a property tax on both real and personal properties located with in its boundaries. It is also empowered by state statute to extend its corporate limits by annexation, which occurs periodically when deemed appropriate by the city council. The City provid1.-s a full range of services, including police and fire protection; n.-creational activities and cultural events; construction and maintenance of highways, streets, and other infrastructure; and snnitation services. The City also provides utilities for electricity, water, sewer, and stormwater as well as a public transportation system. The BFS pres¢nt the City and its component units and include all adivities, organimtions, and functions for which the City is considered to be financially accountable. The criteria considered in detennining activities to l>e reported within the City's BFS are based upon and consistent with those set forth in the Codification of Governmental Accounting Standards. Section 2100, ·· Defining the Financial Reporting £miry.,. The criteria include whether: • TI1e organization is legally separate (con sue and be sued in its own name). • The City holds the corporate powers of the organization. • The City appoints a voling majority of the organization's board, • The City is able to impose its will on the organization, • The organization has the potential to impose a financial benefit or burden on the City, or • There is fiscal dependency by the organization on the City. As required by GMP, the BFS present the reponing 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 arc such that exclusion could cause the City's BFS to be misleading or incomplete. BLENDED COMPONENT UNITS The Urban Renewal Agency (URA) has been included in the City's financial reporting entity within the primary government using the blllnded 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 URA was formed to provide urban renewal servic<!S including rehabilitation of-housing, acquisition of housing, and disposition of land. The URA 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 the URA are held by the City Council. Thm: are no separate financial statements available for the URA. 57 r J CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. REPORTING ENTITY (CONTINUED) Wei;t Te~as Municipal Power Agency (WTMPA) is a legally ~rarntc municipal corporntion, a political subdivision or Tcxus. and body politic and corporate. formed in 1983. governed by a Board of eight directors who serve wilhoul compensation. Wl'MPA has no employees and instcaJ contracts with the City for general operations. WTMrA may engage in Lhc business of generation, tr-,msmission. sale, and exchange of electric energy to the four participating public entities: Lubbock. Tulia. 13rowntidd. and Floydada. WTMPA may also participalc in power pooling and pow(!r exchange agreements with other entities. WTMPA provides ~lcclricily to ils four member cities with the City having an 88.5% interest in its operations. Each member city appoints two members to the WTMPA board, however an atlirmativc vote of the "majority in interest" is required to approve the opcrnting budget, approve capital projects, approve Jcbt issuance. and approve any amendments to WTMPA rules and regulations. The City maintains the "majority in interest'' vote based on Ki low alt purchases, an<l consequently has majority voting control. As the Cily purchases ,ipproxirnatdy 88.5% of the clcctricily brokered, WTMPA provides services almost exclusively to the City nnd is therefore presented as a blended enterprise fund. Their separate audited linuncial statements may be obtained through the City. DISCRETELY PRESENTED COMPONENT UNITS The linandal dala for thc Component Units arc shown in the Government-Wide Financial Statements. Th<.")' nrc reported in a separate column to emphasize that they arc legally separate from the City. The following Componcnt Units arc included in the n:poning entity because the primary government is financially accountable, is abk to impose its will on tho;: organization, or can significantly influence operations and/or acti viti<:s of the organization. Civic Lubbock, Inc. is a legally separate entity that was organized to foster and promote the presentation of wholesome educational, cultural, and entertainment programs for the general moral, inte!lcctual, physical improvem.:nt. and w<!lfare of the citi7.ens of Lubbock and its surrounding area. The seven-memher board is appoint~d by Lh~ City Council. City Counci I approves the annual budget. Separate financial statements for Civic Lubbock may be obtained from them at l 50 I 6'h Street, Lubbock, Texas. Market Lubbock Economic Development Corporation, dba Markel Lubbock, i~ a legally scpam1e entity thut was formed on October 1 O. 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 arc funded primarily through budgeted allocation~ of the City's property and hotel occupancy taxes. Separate tinancial statements may be obtained from Market Lubbock at 1301 Broadway. Suite 200, Lubbock, Texas. 58 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September30,2004 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. REPORTING ENTITY (CONTINUED) RELATED ORGANIZATIONS The City Council is respunsiblc for appointing 1he members or the boards or other organi1.atiuns but the City's accountability for these organizations docs not extend beyond making board appointments. The City Council is not able to impose its will on these entities and there is no financial bcn<:fit or burden rclationshi p. Bonds issued by these organ i1.ations do not constilute indebtedness of the City. The following Related Organ iwtions arc not included in the reporting entity: The Housing Authority of the City of Lubbock (Authority) is a legally separate entily. The Mayor appoints !he live-member board. Th~ Lubbock Health Facilities Development Corporation promotes health facilities development. City Council appoinis 1he seven-member board. The Lubbock Housing 1-'inance Corporation, Inc. wos formed pursuant to the Texas Hnu~ing Finance Curporalion Ad, to linanct: the cost of decent, sati!, and affordable residential housing. The Mayor appoints the seven-member board. North & East Lubbock Community Development Corporation (CDC) was formed from the rccommcndacion of the mayor's commission formed in May 2002 to examine: the condition of North & East Lubbock. Incorporated in February 2004, the CDC began work to effectuate change in North and East Lubbock. The North & East Lubbock Community Development Corporation is a local entity that drives social change; promotes autonomy and empowerment by increasing the supply of quality and affordable housing, geni:r<1ting economic activity, and coordinating the efficient delivt:ry of social services. The City Council appoints two mcmbcrs o!' an clcvt:n-memhcr board. The City Counci I is not able to impose its will on the entity and there is no financial benefi!/burden relationship. The Lubbock Education Facilities Authority, Inc. is a non-profit corporation and instrumentality of the City and was crealcd pursuant to the Hight:r Education Authority Act, Chapter 53 Texas Education Code for the purpose of aiding inscitutions of higher education, secondary school, and primary schools in providing ed11ca1ional facilities. housing facilities. The seven-member Board is appointed by the City Council. Thc Lubbock Firemen's Retirement and Relief Fund (Pension Trust Fund) operates under provisions of the Firemt:n's Relier.and Rctirernent Laws of the State of Texas for purposes of providing retirement benefits for the City's tircfightcrs. The Mayor's dcsignce, the Cash & Debt Manager, three firefighters ele<:ted by members of the Pension Trust Fund and two at-large members elected by the Board. govern its atfairs. It is funded by contributions from the firelighters and City matching contributions. As provided by enabling legislation. the City's responsibility to the l'ension Trust Fund is limited to matching monthly contributions made by the members. Title to a:;st:IS is vested in the Pension Trust Fund and not in the City. The State Firemen's Pension Commission is the governing body over the Pension Trust Fund and the City cannot significantly intluence its operations. Their separate audited financial statements may be obtained through the City. 59 --- ] ] CITY OF LUBBOC~ TEXAS Notes to Basic Financial Statements September30,2004 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 8. COVERNMl<:NT-Wll)E AND Jo'UND t'INANCIAL STATEMENTS The City's limmcial stutcmenls ure prcpnrcd using the reporting model specified in GASB Slaterncnt No. 34 - /Jash· Financial Slalements -cmd Manugem,mt ·s Discussion and Analysis -for State and Locaf Governmenls. GASl3 Statemcnl No. 37 -Basic: Financ:iol Stc,tem,mls -and Management's Dil·~·ussion und Ancdysis -For State and Loc(t/ Governments -Omnibus. GASl3 S1utemen1 No. 38 -C'ertain Financial S1a1ements Note Disc/osure.r, and GASB lntcrprclalion No. 6 -Recognilion ancl MeC/surement of Cenain liabilities and £Ype11dit11res in Governmental Fund Financial Statements. As specified by Statement Nu. 34, the Basic Financial Statements (IJFS) include both Government-Wide and Fund Financial Statements. The Government-Wide Finam.:ial Stalt:ments (GWFS) {i.e., the Srn1cmcnt of Net Assccs and lhc Statement of Aclivilics) report inlbrmalinn on all of the non-fiduciary uctivities or the City and ils blended componcn1 units as a whole. The discretely prcs-;n1cd componcnc units are also aggregately prcscn1ed with in these 5tatemcnls. The cffccl of interfund activity has been remuvcd from thcsc statements by allocation of the activities of the various inlcrnal service funds to the governmental and business-cype activities un a rum[ ba.~is baseLI on the predominant users of lhc services. Govemmcmal uctivitics, which arc primnrily supported by taxes and intergovernmental revenues,. an; rq,ortcd separately from business-type aclivitics, which rely to a significant extent on fees and charges for support. All activities. both govcmmentnl nnd business-type. arc rcportcd in the G WFS using the economic resources measurement focus and the uccrual basis of accounting, which includc'S long-term assets and recci vablcs as well as long•tem1 dcbl and oblignliuns. The G WFS focus more on the sustainability or the City as an entity am.J lhe change in aggregate finuncial position resulting from 1hc activities of the Jiscal period. The Govcmmcnt•Wide Statement of Net Assets reports all financial and capital resources of lhe Cily, excluding those reported in the fiduciary fund. It is displayed in the format or a.~s.:ts less liahilities equnls ncl assets. wilh the assels and liabilities shown in order of their rdntive I iquidity. Net assets are required to be d isplaycd in three compuncnts: (\) invested in capital asscts net of related debt. (2) restricted, and (3) unrestricted. Invested in cupital assets nel of related debt equals capital assets net of accumulated depreciation and reduced by outstanding balances of any bonds, mortgages, notes, or othcr borrowings lhal are attrihutablc to the acquisition. construction, or improvcmenl of those asset~. Restricted net assets are those with constraints placed on their use by either: (I) cxtemally imposed by creditors (such as through debt covenants), gmntors, contrihu1ors. or laws or regulations of other governments: or (2) imposed by law through constitutional provisions or enabling legislation. All net assels not otherwise classified as inwsted in cupital assets nel of related debt or restriclcd, are shown as unrestricted. Rescrvalions or designations of net assets imposed by the City, whether by administrative policy or legislative actions of the City Council !hat docs not otherwise meet the definition or restricted net assets, are not shown in lhc GWFS. The Government-Wide Statement of Activities demonstrates the degree to which the direct expenses for a given function or segment arc offsel by program rc:venues. Din:cl expenses are those that are clearly identifiable wilh a speci lie 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) gr.mis and contributions that are restricted to meeting the operational or capital requ ircments or a particular lilnction or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. The general revenues support the net cosL~ of the functions and segments not covered by program revenues. Also purl of lhe BFS arc Fund Financial Statements (FFS) for governmental funds, proprietary funus, and the fiduciary fund, even though the latter is excluded from the GWFS. The focus of the FFS is on major funds, as defined by GASB Statement No. 34. Although GASB Stalement No. 34 sets forth minimum criteria for determination of major funds.. i.e., a percentage of assecs, !inbilitics, revenue, or expenditures/expenses of fund category and of the govemmental and enterprise funds combined. It also gives govcrnmcnls the option of disr laying other funds as major funds. The City can dect to add sonie fonds a, major fonds because of outstandi11g debt or community focus. Major individual governmental fonds and major individual enterprise funds are reported as separate columns in lhc Fl'S. Other non-major funds are combined in a single column in the appropriate FFS. 60 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STAT£MENT PRESENT ATION Fund Financial Statements The G WT'S arc reported using the cconum ic resources mcasurcmcnl focus and the accrual basis of accounting, a:; arc the proprictary FFS. The City's fiduciary l'FS incluih:s only an agem;y fund that uses the accrual ha~is nf accounting. However, because agcncy funds report only assets and liabiliti1--s, this fund docs nut have a mcusuremen, focus. Revenues arc r1--cordcd when earned and expenses arc r~-cordcd when a liability is incurred, regardless of the timing of related cash flows. Property tuxes urc recognized as rcvc:nues in the year for which they arc levied. Grants and similar items arc recognized as revenue as suon as all cl igibility requirements have bc.:n met. Bcc.iusc the enterprise funds arc combined into a single business-type activities column on the GWFS. certain intcrlilnd acli vities between 1hesc funds arc eliminated in the consolidation for !he G WFS. bul arc included in the fund columns in the proprietary FFS. The enect of inter-fund activity has been eliminated from the GWFS. Exceptions to this general rul,; arc paymcnL~-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 thes,; ch.irgcs would distort the direct costs and program rcvo:nucs rcponed for the various functions conccrnc:d. For instance, 88.5% of the operations of WTM?A representing transactions between WTMPA and Lubbock Power & Lighl have been eliminated for the GWFS presentation and for the eh:ctrie BT A. Governmental FFS arc reported using !he current financial resources me:liurement focus and the modified accrual basis of uccounting. This is lhc traditional basis of accounling for governmental funds. This pres1.'l\tation is necessary, (I) to demonstrate legal and covenant compliancc, (2) to demonstrate the sources and uses of liquid resources. and (3) to d.:monstrate how the City's actual revenuc:s and expenditures confonn to the annual budg.:t. Revenues arc recognized .as soon as they are both measurable and .ivailnblc. Revenues are considered 10 be available when they ore col!ec1ible within 1hc current period or soon enough there.ilkr to pay liabilities of the current period. For this purpose. the government considers revenues to be available. generally, if they are collected within 45 days of the end of the current fiscal period. with the: exception of soles tnxes which arc considered to be avnilab!c if they an: collc:ctc:d within 60 days of year end. The City considers the grnnt availability period to be om: yo::ar for revenue: recognition. Expenditures generally are recorded wh,;n a liability is inqirred, as under accrual accounting. However. debt service expenditures. as well as expenditures relaled lo compensated absences, and claims and judgments are recorded only when the liabiliLy has matured. Because the governmental FFS are presentc:d on a different basis of accounting than the G WFS, a reconciliation is provided immediately following each fund statement. These reconciliations explain the adjustments necessary to convert the FFS into the governmental activities column of the GWFS. Property taxes, sales taxes. franchise: ta.'<cs. occupancy tax.:s, grants, licenses. court lines, and interest associated with the current fiscal period are all considered lo be susceptible to accrual and have bccn recognized as revenues of the current fiscal p.:riod. Only 1he portion of special assessments receivable due within the cum:nt fiscal period is considered to be susceptible to accrual as revenue of the curn:nl period. All other revenue items are considered to be mensurable and available only when the City receives cash. Fund Accounting The City uses funds 10 repurt its financial position and the results of its operalfons. Fund accounting segregates funds aOC-Ording to their intended purpose and is designed to demonstrate !.:gal compliance and Lo aid financial management by segregating transac,ions rclaled to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts, which includes ussets, liabilities, fund balance/net assets, revenues and expendi lures/expenses. Guvcmmental funds arc th9sc through which most of the government.ii functions oftbc City are financed. The City reports two major governmental funds: The General Fund. l11e Gcm:ral Fund as the City's primary opt:rating fund o.ccounts for all financial resources of the general governmcnt, except those required lo be accoun,cd for in another fund. The Debt Service Fund is used to account for the: accumulation of ri::;uurces for, and the payment of, general long-tcnn obligation principal and interest (oth~r than debt service payments made by proprietary funds). 61 L l CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September30,2004 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIF,S C. MF.ASIJRF..MF.NT FOCllS1 BASIS OF ACCOUNTING, ANO FINANCIAL STATEMENT PRESENTATION (CONTINUED) Enterprise Funds an: uscJ lo account for opcr.itions. ( 1) lhal arc JinauccJ and opcrnlcd in a manner similar to private business enterprises where the intent of tht: governing body is that the costs (expenses, including depreciation) or providing goods or services to the general public on a continuing basis be financed or recovered through user charges; or (2) where the governing body has di:cided that periodic determination or revenues t:amcd, expenses incurred. and/or net income is appropriah:: for capital· maintenance. public policy, management control, accountability. or otl1er purposes. The City reports the following m,yor enterprise limds: The Electric Fund accounts for the activities of Lubbock Power & Light (LP&L), the City-owned electric production and distribution system. The Waler •'uni! accounts for the activities ol'(he City's water system. The Sewer Fund accounts for lhc activities ofthc City's sanitary sewer sy~1em. The W,;st Texas Municipal Power Agency (WTMPA) Fund accounts for lhe aclivilics of power generation and power brokering to member cities. Member cities include Lubbock with 88.5% owncrship, and Tulia, l3rownlicld. and r1oydada comprising the remaining 11.5% ownership. The Storm waler Fund accounts for the activities of the storm water utility, which provides stonnwatcr drainage for the City. The Clty reports the fol!owing non-major funds: Governmental •'unds Special Revenue Funds are used to account for lhe proceeds of specific revenue sources (other than special ns.scssments or major capita! projects) that arc legally restricted to expenditures for specified purposes. Capital Projects Funils arc used to account for financial resources to be used for the acquisition or construction of major capital improvements ( other than those recorded in the proprietary funds). The Permanent Fund is used to repon resources that are lcg.1lly restricted to the extent that only earnings. and not principal, may be used for purpose of perpetual care for the cemetery grounds. Proprietary Funds distinguish operating revenues and expenses from mm-operating items. Opernting revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary !'untl'~ principal ongoing opern1ions. The principal operating revenues of the City's enterprise fonds and of the City's intL-mal service funds are charges to customers for sales and services. Operating expenses for enterprise funds and internal service lunds include the cost of sales and services, administrative expenses, and depreciation on capital a.~scts. All revenues and expenses not meeting this definition arc reported as non-operating revenues and expenses. Internal Service Funds are used to account for services provided to other departments, agencies of the departments or to other governments on a cost reimbursemt:nt basis (i.e., tlt:et maintenance, central warehousi:, print shop. self-insurance, etc.). Enterprise Funds arc used to account for services to outside users where the full cost of providing services, including capital, is to be recovered through fees and charges, e.g., Lubbock Prc~ton Smith International Airport (airport fund). Citibus, and the solid waste fond. Fiduciary Funils include an Agency Fund that is used to account for assets held by the City as an agenl for private organizations. 62 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 0. BUDGETARY ACCOUNTING The: City Manager submits a proposed operating budget and capital improvement plan to the City Council annu.illy for the upcoming tisc11l year. Public hearings arc conducted to obtain taxpayer comments, and the budget is legally enacted through passage oran ordinance by City Council. City Council action is also required for the approval of ony supplemcnllll appropriations. All budget amounts presentt.-d in the budget comparison ~'lutement retlect the original budget and the amended budget, which have tx.-cn adjusted for legally authorized supplemental appropriations to the annual budgets during the fiscal year. The operating budget is adopted on a basis consistent with GAAP for the General fund. Budgetary control is maintained at the department level in the following expenditure categories: personnel services. suppliL-s, other charges. and capital outlay. Management m.iy makl! administr.itive transfi!rs and increases or decrea~cs in accounL~ within categories, as long as expenditures do not exceed budgeted appropriations at the fund level, Lhe legal level or control. All annual operating appropriations lapse at the end of the fiscal yeur. Capital budgccs do not lapse at fiscal year end but remain in effect until the project is completed and closed. In oddicion to the tax levy for general opcralions, in accordance with State law, the City Council set~ an ad valorem cax levy for a sinking fund (General Obligation Debt Service) which. with cash and invc~-tmcnts in the fund, is sufficient 10 pay all debt s.:rvicc due during the fisc;il year. E. ENCUMBRANCES At the end of the fiscal year. encumbrances for goods and services that have not been received arc canceled. At the bl:ginning of the next fiscal year. management reviews all open cncumbrances. During lhc budget n:vi~ion pn.>e1:ss, t:ncumbnmccs may be re-established. On October I, 2004, the General Fund had no significant amounts of open encumbrances. 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 or cash and enhunce investment earnings. Records are maintained which rcncct cnch fund's i:quiLy in the pooled account. 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 bast.'CI on quoted market prices as of the valuation date. Cash Equivalents -Cn.~h equivalents are detined as short-term highly liquid investments that are readily convenible to known amounts of cash and have original maturities of three months or less when purchased which present an insignificilllt risk of changes in value because or changes in interest rates. Properly Tu Rei:eivable -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 ta"<es are levied on October I on those assessed values and the taxes are due on ri:ceipt of the tax bill. On lhe following January I, a mx lien attaches to property to s.:cure thl! payment of all taxes, penal tie..~. and interest ultimately imposed. The taxes arc considered delinquent if not paid before Fehruary I. Therefore. at fiscal year end all property ta.'<es receivable are delinquent, hut are secured by a tax lien. At the GWFS level property tax revenue is recognized upon levy. In governmi:ntal funds, the City records propeny 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 Ix: colkcted in the subsequent 45 days. The City allocates property tax revenuc between the General, certain Special Revenue, and Debt Service funds based on tax rates adopted for the year of levy. The Lubbock Central Appraisal District assesses property values. bills. collects.. and remits the property taxes to the City. The City adjusts the allowance for uncollectible taxes and deforreil tax revc:nue at fiscal year end based upon historical collection experience. To write off property taxes receivable, the City eliminates the receivable and reduces lhe allowance for uncollecrlble accounts. Enterprise F11nds Receiv:ablcs -Within the Electric. Water, Sewer, and WTMPA Enterprise Funds, services rendered but not billed as of th.: close of the liscal year are accrued and this amount is reflected in the accounts rccci vable balances of each fond. Amounts billed are reflected as accounts receivable net of an allowance for uncollectib!e accounts. 63 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES F. ASSETS, LIABILITIES, AND FUND BALANCE/NET ASSETS (CONTINUED) Inventories -Inventories consist of expendable supplies held for consumption. Inventories arc valued at cost using th.: average cost m.:thotl of valuation. ,md ,m: m:countcd l'or using !he consumption method l)f accmmting. i.e., inventory is cxpcns.:d when used rather than when purcha.,cd. Prepaid Items -!'repaid items are accoun1cd for untlcr the consumption mc1hod. Restricted Assets -Certain enterprise fund and governmental activities assets arc restricted lbr ctmstruction; consequently. net usscts have been rc~trictcd for these amounlS. The excess of other restricted assets over related liabilities arc included as restricted net assets for capital projects, rale stabilization, .:cunomic development, and bond inden1urcs. Mortgage Receivables -Mortgage;: rcceivabks consist or loans made to Lubbock residents under the Cily's Community Development loan program. These loans were originally tundcd primarily through grants received from the U.S. Department of I lousing and Urban Development. Capital Assets and Depreciation -Capital assets, including public domain infrastructure (sircc1s. bridges. sidewalk~ and other assets that arc immovable and of value only to the City) arc defined as assets with an inilial, individual cost of more than $5,000 and an estimated useful life in excess of one year. These capital assets are n::purted in the CJWFS and the proprietary FFS. Capital assets are recorded at cost or estimated historical cost if purchased or constructed. Donated usscts arc rccordL-d at the estimated fair value on the date of donation. Major outlays for capital assets and improvements arc cupituli7t:d as the projects are constructed. The cost of normal maintenance and repairs that do not add to !hi! value of the asset or materially extend the asset I ivcs are not capitalized. Maj1.1r improv..:ments arc capitalized and depreciated over the remaining useful lives or the related capital assets. f}eprecintion is computed using the straight-line method over the estimated useful lives as follows: r nfrastrucum:/ J mprowmcn 1s Buildings Equipment Wa1~r right:; 10-50 years 15-50 years 3-15 years 85 years Interest Capitalization -Because lhe City issues gcneral•purpose capital improvement bonus, which an: recorded within the proprietary funds, the City capitalizes interest costs for business-type activities and enterprise funds according to the Financial Accounting Standards Board (FASB) Statt.ment No. 34 Capitali:ation of Interest Cost and FASB Statement No. 62 Capitalization of f11teresl Custs. The City capitalized interest of approximately $457,000, net of interest earned. tor the business-type activities and the enterprise funds during the curr~nt fiscal year. Advances to Other Funds -Amounts owed to one fund by another that are not due within one year are recorded as advances to other funds. Use of Estimates -The preparation of financial statements in confonnity with accounting principles generally accepted in the United States of Amt:ric.;u rt:quires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabi! ities at the date of the financial statements and reported amounts of revenues and expenses/expenditures during the reporting period. Actual results could diner from those estimates. 64 ) ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September30,2004 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES G. REVENUES, EXPENSES AND EXPENDITURES Interest Income on pooled ca.sh 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, Capital J>rojcct Funds. und certain Internal Service Funds. The interest income on pooled cash and invcstmo.:nts of these funds is reported in the General Fund or the Debt Service Fund. 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 foll owing collection. The tax is then paid to lhe City by the I 0th ol'the next month. Grant Revenue from federal and stale grants is recognized as revenue as soon as all eligihi!ity requirements have been met. The nvailnbi!ity period for grants is considered to be one year. Inter-fund Transactions an! accounted for a."> revenues, expenditures. expt:nses. or mht:r financing sources or uses. Transuctions that constitute reimbursements to a fund for expenditures/expenses in itial!y made from that fund that are properly applicable to another fund, arc recorded as expenditures/expenses in the reimbursing fund and as reductions of expenditures/expenses in the fond that is reimbursed. In addition. transfers are made betwe,m 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 le11ve. 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 ! 5 years of continuous full time service for non-civil service personnel, vested sick leave is paid on retirement or termination at the current hourly rate for up to 90 days. Upon retirement or termination, Civil Service Personnel (Police) are paid for up to 90 days accrued sick leave after one year or employment. Civil Service Personnel (Firefighters) nre paid for up to 135 days of accrued sick leave upon retirement or termination. The Texas Civil Service laws dictati: certain benefits and personnel policies above and beyond thosi: policies of the City. The liability for the accumulated vacation and sick leave is recorded in the GWFS and in the FFS for propriclary fond employees when earned. The liability is recorded in the governmental FFS to the extent it is due and payable. 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 detennined by the City's health care administrator. Employer contributions are funded on 'a pay-as-you-go basis and approximated $1.3 million for fiscal 2004. These contributions are included in the amount of insurance expense reflected in the financial activity reported in the Health Insurance Internal Service fund. 65 l CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE II. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. NET ASSET/FUND BALANCE DEl'ICITS The deli cit of $76,784 in the Genera! Capital Projects Fund is due to timing diffcn.:nccs of incurring capital outlay cxpenditul\.-s fur an internally financed project. The fund balance should be positi vc by the end of fiscal ye.ir 2004/2005 with the final internal payback from the Special Revenue Fund:,. The de licit of $6,700 in the lnvc:,tment Pool Internal Service Fund is the result of not recovering actual cost with the allocation of interest earnings to this fund. This also represents a timing diffcn:ncc. The deficit of $1,864, 119 in Market Lubbock Inc. (MLI) is due to long-term commitments for incentive and special project contracts and tentative open convc::ntion offers. MLI manugement expects future receipts or funding from the City of Lubbock to pay these long-term commitments. No orhcr funds of the City had dclicits in either total fund balances or total net assets. NOTE III. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS A. POOLED CASH AND INVESTMENTS The City's investment polices are governed by State statute and City ordinances. The following a~ authorized investments for the City and all are authorized and further defined by the Public Funds Investment Act (Chapter 2256) ("·?FIA"): • Obligations of the United States or its agencies and instrumentalities, which have a liquid market with a readily determinabh: market value. • Direct obligations of this state or its agencies and instrumentalities. • Other obligations, thi; principal and interest of which are unconditionally guaranteed or insured by. or backed by the full faith and credit of, this state or the United States or their respective agencies and i nstrumentali ti es. • Obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investmenl quality by a nationally recognized investment rating firm no! less than A or its equivalent. • Fully collateralized certificates of deposit issued by a state or national bank doing business in Texas and guaranteed, or insured by the Federal Deposit Insurance Corporation or its successor, secured by obligations authorized by this subchapter, or secured in any other manner and amount provided by law for deposits of the investing entity. • Fully collateralized repurchase agreements with a defined termination date; and secured by obligations authorized by the Act; such collateral pledged to the City, held in the City's name, and deposited at the time the investment is made with the City or with an independent third party selected and approved by the City. Repurchase agreements must be purchased through a primary government securities dealer, as defined by the Federal Reserve, or a bank doing business in this state. The term of any reverse repurchase agreements may not exceed 90 days after the date the reverse security repurchase agreement is delivered. Money received by the City under the terms of a reverse security repurchase agreement shall be used to acquire additional authorized investments, but the term of the authorized investments acquired must mature not later than the expiration date stated in the reverse security repurchase agreement. • Bankers' acceptances with a stated maturity of 270 days or fewer from the date of its issuance; and liquidated in foll at maturity; and eligible for collateral for borrowing from a Federal Reserve Bank; and accepted by a bank organized and existing under the laws of the United States or any state, if the short-term obligations of the bank, or of a bunk holding company of which the bank is the largest subsidiary, are mtcd not less than A-1 or P-1 or an equivalent rating by at least one nationally recognized credit rating agency. • Commercial paper with a stated ma1urily of 270 days or fewer from the dale of its issuance. and rated not less than 1\-1 or P-1 or an equivalent rating by at least two nationally recognized credit rating agencies. 66 ( ( ( ( I. CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE III. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS A. POOLJW CASH AND INVESTMENTS (CONTINUED} • No-load mo11cy market mutual funds regulated by the Securities and Exchange Commission, and wilh a dollar-wcighled average stated maturity of 90 days or fewer, and whose investment objectives include the maintenance of a stilble net asset value or $1 for each share. • AAA-rated, constant dollar. investment pools authorized by the City Council and as further defined by the Act, which invests in eligible securities as authorized by the PFIA. Government Pool investments as of September 30, 2004, were invcslcd in Tex Pool and Tex ST AR. TexPool. The Comptroller of Public Accounts (the "Comptroller'') is the sole officer, director and shareholder of the Texas Treasury Safokecping Trust Company (the "Trust Company") which is authorized 10 operate TcxPool. Pursuant to the TcxPool Participation Agreement, administrative and investment services to TcxPool arc provided by Lehman Orothers Inc. and Federated Investors, Inc. ('"Lehman and Fcdcralcd"), under an agreement with the Comptroller. acting on behalf of the Trust Company. The Comptroller maintains oversight of the services provided to TexPool by Lehmun and fc(krated. In addition. the TcxPool Advisory Board advises on TcxPool's Investment Policy and approves any fee increases. As required by the PFIA, the.Advisory Board is composed equally of participants in TexPool and other persons who do not have a business relationship with TexPool who arc qualified to advise TexPooJ. TexPool is currently rated AAAm by Standard and Poor's. An explanation of the significance of such rating may be obtained from Standru-d & Poor's at 122 l Avenue of the Americas, New York, New York 10020. TexSTAR. Texas Short Term Asset Reserve Program ("TEXSTAR") has been organized in confonnity with the lnterlocal Cooperation Act. Chapter 791 of the Texas Government Code, and the Public Funds Investment Act, Chapter 2256 of the Texas Government Code. JPMorgan Fleming Asset Management (USA), Inc. ("JPMFAM .. ) and First Southwest l\sset Management, Inc. ("FSAM") serve as co-administrators for TEX ST AR under an agreement with the TEX STAR board of di rectors (the "Board'} JPMF AM provides investment services, and FSAM provides participant services and marketing. Custodial, transfer agency, fund accounting and depository services are provided by JPMorgan Chase Bank and/or its subsidiary J.P. Morgan Investor Services Co. Finally, TEXSTAR is currently rated AAAm by Standard and Poor's. An explanation of the significance of such rating may be obtained from Standard & Poor's at 1221 Avenue of the Americas, New York, New York !0020. Colloteral is required for demand deposits. ccrtilicatcs of obligation. and repurchase agreements at I 02% of all amounts not covered by Federal deposit insurance. Obligations that may be pledged as collateral are obligations of the United States and iL~ agencies and obligations of the state and its subdivisions. The City's deposits and investments are categorized below to indicate the level of custodial credit risk assumed by lhe City at September 30, 2004. INVESTMENT CA TECORY OF CUSTODIAL CREDIT RISK (I) Insured, registered, or securities held by the City or its agent in the City's nnme. (2) Uninsured and unregistered, with securities held by the counterparty's agent or trust department in the City's name. (3) Uninsured and unregistered, with securities held by the countcrparty or by the trust department or agent but not in thl! City's name. DEPOSIT CATEGORY OF CUSTODIAL CREDIT RISK (I) Insured or collatern!ized with securities hl!ld by the City or by its agent in the City's name. (2) Collateralized with securities he!d by the pledging financial institulion's trust department or agent in the City's name. (3) Uncollateral ized. Amounts invested in investment pools and money market funds ru-e not categorized. because th1:y do nol represent securities that exist in physical form. 67 l CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE III. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS A. POOLED CASH AND INVESTMENTS (CONTINUED} The following table is a schedule oflhe City's pooled cash and investments at September JO, 2004: Category Investments !!) (2) 13~ frimal:)'. Q2v1:mm1:nt U.S. Treasuries $ 3,998,817 Agency Obligations 36,658,0'J0 Investment Pools Money Market Mutual Fund Total Primacy Government Agensy Funds Investment Pools Total Agency Funds Total Investments Cash and Category Bank Bank D9?0Sits {A! {B) (C) Balance Primacy Government s 95,899,156 95,899,156 Agency Funds 1,099 1,099 Total s 95,900,255 95,900,255 Canyiog Amount 3,998,817 36,658,090 47,413,743 2,796,414 90,867,064 73 73 90,867,137 Carrying Amount 95,899,156 1,0".>9 95,900,255 Cash and investments listed above include investment pools and money market mutual funds (mmmf). The table below categorizes the investment pools and mmmrs as cash and equivalents in unrestricted funds. Restricted funds include investment pool and mmmf balances. The difference in total investment balances between the table above and the table below totals $7,019,071, which is due to the different reporting methods used in each table. Cash and investments are reported in the Statement of Net Assets as: Total Total Primary Agency Government Funds Total Cash and E1j1i.iV1llents -Unratrictcd $ 56,107,053 56,107,053 Cash and Equiwlents -Restricted 46,811,174 1,099 46,812,273 Total Cash and Equivalents 102,918,227 1,099 102,919,326 In vestments -Uotestricted 13,581,046 13,581,046 In vestments -Restricted 70,266,947 73 70,267,021) Total In vestments 83,847,993 73 83,848,066 Total Cash and Investments $ 186,766,220 1,172 186,767,392 68 ) 1 ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE m. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS B. JNTERFUND TRANSACTlONS lnterfund balances, specifically the due to and due from other funds, are short-tenn loans to cover temporary cash deficits in various funds. This occasionally occurs prior 10 bond sales or grant reimbursements. These outstanding balances are repaid within the following fiscal year. Intemmd balances, specifically advances to and from other funds, are longer-tenn loans to cover Council directed internal financing of certain projects. At September 30, 2004 the City has nearly Sl.5 million of this type of internal financing. These balances are assessed an interest charge and are repaid over time through operations and transfers. Net interfund receivables and payables between governmental activities and business-type activities in the amount of $555,465, are included in the government-wide financial statements. The following amounts due to other funds or due from other funds, including advances, are included in the fund financial statements ( all amounts in thousands): Intetfund Payables: Governmental Funds: Nonmajor Govemmenral Proprietary Funds: Electric Nonmajor Proprietary Totals Govemmental Funds General $ 1,930 446 $ 2,376 Interfund Receivables Proprietaty Funds Water Sewer Solid Waste 1,024 261 261 1,024 Net transfers of $9,745,250 from business-type aclivities to governmental activities, up from $2.6 million during the prior year, on the government-wide statement of activities is primarily the result of I) debt service payments made from the debt service fund, but funded from an operating fund; 2) subsidy transfers from unrestricted general funds; and 3) transfers to move indirect cost allocations, payments in lieu of taxes (PILOT), and franchise fees to the general fund or other funds as appropriate. The following interfund transfers are reflected in the fund financial statements (all amounts in thousands): Interfund T ransfcrs Out: Governmental Funds Debt Nonmajot lntedund Transfers In: Gener.ti Service Gov. Electric Governmental Funds; General Fund $ Debt Service Fund Nonmajor Governmental 3,221 Proprietary Funds: 1,483 760 1,449 1,068 1,679 Proprietuy Funds Storm-N onmaj0< lnteral Water Sewer Water Enterprise Service 3,997 6,799 330 1,751 6,236 311 4,}07 2,114 935 1,121 Totals 2,954 707 3,661 Totals 10,724 20,715 6,121 Ele,:tric 9 1,679 90 1,778 Water 93 6,799 6,892 Sewer 6,236 6,236 Scormw:iter 4,307 4,307 Wl'MPA 3S7 357 Noomajor Entciprise 849 935 91 t,875 Internal Service Funds 41 46 46 46 <Mi 226 -=---~-.,..,.,,.,....------...;.:.--..:.;.-.....:.;:..._ ____ ...:.::. ____ =:.::.. Total $ 4,213 19,956 3,872 3,150 11,172 8,033 4,619 4,216 59,230 =================""""'==================-========= 69 l CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE Ill. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS C. DEFERRED CHARGES The total deferred charges of SJ,344,444 in the Electric En1erprise fund represents an advertising contract with the United Spirit Arena. The advertising (and amortization) began with the opening of the sports arena in fiscal year 2000 and w i II continue for 3 0 years. The total deferred charges of $407,251 in the West Texas Municipal Power Agency Fund represents unamortized bond issuance costs related to the bonds issued to build the JPJ,.,18 cogeneration facility. D. CAPITAL ASSETS Capital asset activity for the yea, ended September 30, 2004, was as follows; Primary Government: Governmental Activities Beginning Balance Increases Decceases Capital Assets not being depreciated: Land s 7,996,406 611,843 Construction in ProgTess 36,155,690 14,140,550 6,824,218 Total Capital Assets not being depreciated 44,152,096 14,752,393 6,824,218 Capital Assets bcing depreciated: Buiklin~ 51,475,936 6,864 28,522 [mprovemcnts Other than Buildings 125,742,157 3,908,958 Machinery and Equipment 48,896,000 5,585,646 1,526,973 Total Capital Assets being deprcciarcd 226,114,093 9,501,468 1,555.495 Less Accumulatetl Depreciation for. Buildings 25,873,452 1,815,260 28,522 Improvements Other than Buildings 88,642,271 3,826,069 Machinery and Equipment 34,015,313 4,426,516 1,443,900 Total Accumulated Depreciation 148,531,036 10,067,845 1,472,422 Total Capibl Assets being depleciated, net 77,583,057 !566,37~ 83,073 Governmental Activities Capit:al Assets, net $ 121,735,153 14,186,016 6,907.291 Depreciation expense was charged to functions/programs orthe governmental activities as follows: Govemmenbl activiti<.-s: General Government Financial Services Human Resources Administration/ Community Services Fire: Police Streets Elcc:tric Internal Secvicc Funds Total depreciation exp;:nse -governmental activities Transfer in to accumulated depreciation • governmental activiti~ Jncrcse in accumulated depreciation • governmental activities 70 Ending Balances 8,608,249 43,472,022 52,080,271 51,454,278 129,651,115 52,954,673 234,060,066 27,660,190 92,468,340 36,997,929 157,126,459 76,933,607 129,013.878 $ 325,447 5,279 4,636 3,646,365 841,694 1,339,872 3,364,002 286,096 162,702 9,976,093 91,752 $ 10,067,845 ' ( ( C C ( ) '\ , ) ) .. I ' ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September30,2004 NOTE ill. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS D. CAPITAL ASSETS {CONTINUED) Business-T ypc Activities Beginning Ending Balance Increases Decreases Balances Capital Assets not being depreciated: Land $ 31,676,155 31,676,155 Construction in Progress 104,689,207 28,965,883 19,693,719 113,961,371 Total Capital Assets not being depreciated 136,365,362 28,965,883 19,693,719 145,637,526 Capital Assets being depreciated: Buildings 96,941,635 6,034 18,891 96,928,TTS Improvements Other than Buildings 555,982,769 20,441,780 2,065,581 574,358,968 Machinery and Equipment 137,992,381 25,692,500 30,9Z7,318 132,757,563 Total Capital Assets being depreciated 790,916,785 46,140,314 33,011,79-0 804,045 ,3-09 Less Accumulated Depreciation for. Buildings 26,180,634 2,465,313 18,891 28,627,056 Improvements Other than Buildings 225,416,823 19,574,185 1,473,470 243,517,538 Machinciy and Equipment 58,219,321 12,838,270 5,221,994 65,835,597 Total Accumulated Depreciation 309,816,778 34,877,768 6,714,355 337,980,t 91 Total Capital Assets being depreciated, net 481,100,007 11,262,546 26,297,435 466,065, 118 Business-Type Activities Capital Assets, net $ 617,465,369 40,228,429 45,991,154 611,702,644 Depreciation expense was charged to functions/programs oftbe business-type activities as follows: Business-Type Activities: Electric Water Sewer Stonnwater Solid Waste Airport Transit Intema.l Service Funds Total depreciation expense -business-type activities Transfer in to accumulated depreciation -business-type activities lncrese in accumulated depreciation -business-type activities 71 $ 9,121,124 5,958,903 5,075,034 553,592 8,016,067 3,255,401 2,019,973 439,792 34,439,886 437,882 S 34,877,768 ] CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September30,2004 NOTE Ill. DETAIL NOTES ON ALL ACTMTIES AND FUNDS D. CAPITAL ASSETS (CONTINUED} Construction Commitments The City had many construction projects in progress at fiscal year end. Public Safety projects include construction of a fire pump test pit, Park projects include park irrigation and lighting systems. Street projects include the widening of 98111 street from Slide to Frankford. A security upgrade of Police Headquarters was also underway. Electric projects included the final touches on a new substation. Water projects included a new project to develop water wells south of Loop 289. Sewer projects included construction of sewer lines ahead of the Marsha Sharp Freeway. Airport projects included an extension of the airport's taxiways. Two large Stormwater projects are underway. The first project provides for the construction of an outfall stonn sewer from Clapp Park to Yellowhousc Canyon and a series of upstream storm sewers that will provide various protections around four playa lakes. The second project provides for the construction of a flood relief project for south Lubbock's chain ofplaya lakes. Original Remaining Projects Commitments Set-to-Date Commitimcnts Public Safety $ 9,371,433 7,799,579 1,571,854 Park Improvements 13,078,502 7,481,061 5,597,441 Street Improvements 25,866,652 15,479,352 10,387,300 Permanent Street Maintenance 1,788,000 1,626,990 161,010 General Capital Projects 355,171 285,505 69,666 General Facilities and System Improvements 10,062,864 7,773,968 2,288,896 Tax Increment Fund Capital Projects 3,800,000 1,198,597 2,601,403 Grant Terrorism Lab 1,179,000 892,540 286,460 Electric 14,650,111 9,488,738 5,161,373 Water 70,435,418 45,999,985 24,435,4l3 Sewec 11,001,937 5,227,618 5,774,319 Solid Waste 9,591,700 5,950,400 3,641,300 ,¼port 16,058,200 3,339,364 12,718,836 Transit 203,799 203,799 Stormwater 79,900,000 43,053,522 36,846,478 lnternlll Service Fund 2,956,000 1,632,378 1,323,622 Total $ 270,298,787 157,433,396 112,865,391 72 ( ' ( < \ ) ) ) ) j ) CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September30,2004 NOTE 111. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS £. RETIREMENT PLANS Each qualilicd employee is included in one of two retirement plans in which the Cily or Lubbock participates. 'fhf.!je an: the Texas Municipal Retirement System (TMRS) and thc Lubbock Fircmcn's Relief and Rctiremcnt Fund (LFRRF). The City docs not maintain the accounting n:cords, hold the investments or adminislcr either retirement plan. Summory of signifo:ant data for each retirement pion follows: TEXAS MUNICIPAL RETIREMENT SYSTEM (TMRS) Plan Description The City provides pension benefits for all of its full•timc employees (with chc exception of firdighters) through a non-traditional, joint contributory. hybrid ddined benefit plan in the state-wide TMRS. one of 794 administered by TMRS. an agent multiple-employer public employee n:tircmcnt system. Benefits depend upon the sum of the employee's contributions to the plan. with interest. and the City- financc.-d monetary credits. with interest. At thl! date the plan began, the City granted monetary credits for servke n:nden:d before the plan began of a theoretical amount equal to two times what would have been contributed by the t.-mployee. with intcn.'St. prior to establishment of the plan. Monetary credits for Sl.-rvicc since the plan began are a percent ( I 00%, 150%, or 200%) of the employee's accumulated contributions. In addition, the City can grant. as ofl.:n as annually, another type of monetary 1:rcdit 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 tile average of his salary in the last three yenrs that arc one year before the efTt.-etive 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 rctil\! at ages 60 and above with 5 or more years of service or with 20 years of service regardless of age. A member is vested after 5' years. The plan provisions ore adopted by the governing body of the City, within the options available in the SI.Die statutes governing TMRS and within thl! actuarial constraints also in the statutes. ContTi butions The contribution rate for the employees is 7% and the City matching ratio is currently 2 to I. both as adopted by the governing body of the City. Under 1he slate law governing TMRS, the actuary annually determines the City contribution rate and the prior service cost contribution rate, both of which arc calculated to be a level percent of payroll from year to year. The normal cost contribution rate finances the cuJTCntly 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 nonnal cosl 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 cnntribution rate amortiZl!s the unfunded (ovcrfunded) actuarial liability (ass<lt) over the remainder of the plan's 25-ycar amortization period. The unit credit actuarial cost method is used for detennining the City contribution rate. Both the employees and the City make contributions monthly. Since the City needs to know iL~ contribution rate in advance for budgel.Dry purposes, there is a one-year delay between the actuarial valuation that serves as the basis for lhe rare and the calendar year when the rate goes into effect (i.e. December 31, 2003 valuation is effcctivti for rates beginning January 2005}. 73 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE ID. DETAIL NOTES ON ALL ACTMTIES AND FUNDS E. RETIREMENT PLANS (CONTINUED} Actuarial Assumptions The actuarial assumptions for the December 31, 2003 valuations are as follows: Actuarial cost method: Amortization method: Remaining amortization period: Asset valuation method: Investment rate ofreturn: Projected salary increases: Includes inflation at: Cost of Living adjustments: Unit credit Level percent of payroll 25 years-open period Amortized cost 7% None None None As or Annual Pension Contribution September 30 Cost Made 2001 $ 8,398,884 8,398,884 2002 8,803,613 8,803,613 2003 8,708,867 8,708,867 TEXAS MUNICIPAL RETIREMENT SYSTEM THREE-YEAR HISTORICAL SCHEDULE OF ACTUARIAL LIABILITIES AND FlJNDlNG PROGRESS REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) Asor December 31 2001 2002 2003 As of December 31 2001 2002 2003 Actuarial Value or Assets $ 172,510,622 181,191,012 182,884,183 Annual Covered Payroll $ 58,173,019 60,285,077 57,Sn,743 Actuarial Accrued Liability 215,584,035 228,372,843 239,809,434 UAALas a o/e Of Covered Payroll 74.0% 78.3% 98.9% Percentage Funded 80.0% 79.3% 76.3% Unfunded Actuarial Accrued Liability (UAAL) 43,073,413 47,181,831 56,925,251 The City of Lubbock is one of794 municipalities having the benefit plan administered by TMRS. Each of the municipalities has an annual, individual actuarial valuation performed. All assumptions for th<; December 31, 2003 valuations are contained in the 2003 TMRS Comprehensive Annual Financial Report, a copy of which may be obtained by writing to P.O. Box 149153, Austin, Texas 78714-9153. 74 f • < < ( < CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE 111. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS £. RETIREMENT PLANS CCONTINU£U) 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. It is reported by the City as a n:lated organization and is not considered lo be a part of the City financial reporting entity. Firelight¢rS in the Lubbock Fire Department are covered by the LFRRF. The LFRRF provides service retirement, death, disability and w!thdrawal benefits. These benc!1ts folly vest a1kr 20 years of credited service. A partially vested Benefit is provided tbr tiretighters who tenninate employment with at k.'l!St 10 but less than 20 years of service. Employees may retire at age SO with 20 years of service. A reduced early service retirement benefit is provided for employees who tenninate employment with 20 or more y1mr:; uf service;:. The LFRRF Plan elTectivc November I, 2003 provides a monthly normal service retirement benefit, payable in a Joint and Two-Thirds to Spouse form of annuity. e{jual to 68.92% of final 48-month average salary plus $335.05 per month for each year of service in excess of 20 years. A firefighter has the option to participate in a Retroactive Deferred Retirement Option Plan {RETRO DROP) which provides a lump sum benefit and a reduced annuity upon termim1tion of employment Firelighters must be at least SI with 21 years of service at the selected "RETRO DROP benefit calculation date .. (which is prior to date of employment termination). Early RETRO DROP with benefit reductions is av.iilable 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 combim:d present value of the benefits under the option is actuacially equivalent to that of the normal form of the monthly benefit. Optional forms are also available at varying levels of surviving spouse benefits instead of the standard two-th irds form. lberc is no provision for automatic postrctircmcnt bem:tit increases. LFRRF has the authority to provide. and has periodically provided for in the past. ad hoc postretirement benefit increases. The benefit provisions of this plan are authorw:d by the;: Texas Local Fire Fighter's Retirement Act (TLFFRA). TLFFRA provid1..--s the authority and proccdun: to amend benefit provisions. Contributions Required and Contributions Made The;: cuntribution provisions of this plan are .iuthoriud by TLFFRA. nFFRA provides the authority and procedure to change the amount of contributions detennincd as a pcrccntagc of pay by each firefighter and a percentage of payroll by the City. State law requires that each plan of benefits adopte;:d by LFRRF be approved by an eligible actullf)'. The actuary certifies that the contribution commitmo.:nt by the firefighters and the City provides an adequate financing arrangement. Using the entry age actuarial cost method, LFRRF•s nonnal cost contribution rate is determined as a percentago.i of payroll. The excess of the total contribution rate over the normal rost contribution rate is used to amortize LFRRFs unfunded actuarial accrued liability (UAAL), if any, and the numbe;:r of years needed to amortize LFRRF's unfunded actuarial liability, if any, is detennined using a level percentage of payroll method. The costs of administering the plan are financed by LFRRF. 75 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE Ill. DETAJL NOTES ON ALL ACTIVITIES AND FUNDS E. RETIR[MENT PLANS (CONTINUED) Annu:il Pension Cost For the fiscal year ended September 30, 2004, Che City of Lubbock's Annual Pension Cost (APC) for the Lubbock Fire Fun<l was equal to $2,582,713 as dcscrihcd hclnw in item 4 in the table below. Aasc<l on the results of the December 31, 2002 actuarial valu!llion or the Plan Effective November I, 2003, the Gourd's actuary found that the fund had an adcquiitc financing ammgcmcnt. as described in the par.igrnph below, based on the fixed level of the firefighter contribution rates and on the assumed level of City contribution rates. Based on the Plan EJ1ective November I, 2003, LFRRF's funding policy requires contributions equal to 12.43% of pay by the fircfightc~. Contributions by the City are based on a fonnula, which causes the City's contribution rate to lluctuate from year to ycur. The Dcc.:mber 3 I, 2002 actuarial valuution (most recent available) reflecting the Phm Etli:ctive November I, 2003 ussumcs that the City's contributions will average 18.67% of payroll in the future. Therefore, based on the December 31, 2002 actuarial valuation of the Plan E!li:ctive November I. 2003, the Annual Required Contributions (ARC) arc no\ actuarially determined but arc equal to the City's actual contributions beginning January I. 2003. Prior to January I, 2003. the ARC was based on the December 31, 2000 actuarial valuation and was actuarially dclennincd as described below. The following shows the development of the Net Pension Obligation (NPO) as of September 30, 2004: I. Annual Required Contributions (ARC) 2. Interest on N PO 3. Adjustment to ARC 4. Annual Pension Cost (APC) 5. Actual City Contributions made 6. Increase (Decrease) in NPO/(asset) 7. NPO/(a'i.o;et) at October 1, 2002 8. NPO/(a:sset) al September 30, 2003 $2,597,738 (70.609) 55,584 2,582,713 (2,597,738) (15,025) (882.623) ($897.648) The ARC for the period October I, 2002 through September 30, 2004 was based on the December 31, 2002 actuarial valuation. The entry age actuarial cost method was used with the nonnal cost calculated as a level percentage of payroll. The uctuarial value of assets was market value smoothed by a five-year deforred recognition method, with the actuarial value not more than 110% or !css than 90% of the market value of assets. The actuarial assumptions included in an investment return assumption of 8% per year (net of expenses), projected salary increases including promotion and longevity averaging 6% per year over a 25-y<:ar career, and 110 postrctirement cost-of-living adjustments, An inflation assumption of 4% per year was included in th,;: investment return and salary increase assumptions. The UAAL is amortized with the excess of the assumed total contribution rate over the normal cost rate. The number of years needed to amortize the U AAL is determined using an open, level percentage of payroll method, assuming that the payroll will increase 4% per year, and was 25 years as of the December 31, 2002 actuarial valuation based on the plan provisions effective November I, 2003. 76 ( ( CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September30,2004 NOTE m. DETAIL NOTES ON ALL ACTMTIES AND FUNDS E. RETIREMENT PLANS {CONTINUED) 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 LFRRF. Trend lnrormation Annual Pension Cost Fiscal Year Ended (AP9 Percentage of APC Contributed Net Pension Obligation (Asset) 9/30/02 9/30/03 9/30/04 $ 1,379,564 1,964,788 2,582,713 148% 111 IOI (660,692) (882,623} (897,648) ANALYIS OF FUNDING PROGRESS REQUIRED SUPPLEMENT ARY INFORMATION (UNAUDITED) Actuarial Actuarial Entry Age Unfunded Funded Annual UAAU Valuation Value of Actuarial AAL Ratio (alb) Covered Funding Date Assets (a) Accrued (UAAL) Payroll Excess as a Liability /Funding (c) Percentage of (AAL) (b) excess (b-a) 12/31/98 1,2 $ 90,364,681 97,533,314 7,168,633 92.7% 10,290,190 12/31/00 1,3 119,660,788 114,675,049 (4,985,739) 104.3 12,243,913 12/31/02 1,4 111,261,775 127,850,414 16,588,639 87.0 13,521,366 I. Economic and demographic assumptions were revised. 2. Reflects changes in plan benefit provisions effective November I, 1999. 3. Reflects changes in plan benefit provisions effective December I, 2001. 4. Reflects changes in plan benefit provisions effective November I, 2003. 5. The covered payroll is based on estimated annualized salaries used in the valuation. F. DEFERRED COMPENSATION The City offers its employees two deferred compensation plans in accordance with Internal Revenue Code ("IRC'') Section 451. The plans, available to all City employees, pennit 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 for these plans; therefore, they arc not presented in the BFS. 77 Covered Payroll ((b-a~c} 69.7% (40.7) 122.7 ] CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE lll. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS G. SURFACE WATER SUPPLY Canadian River Municipal Water Authority The Canadian River Municipal Water Authority (CRMWA) is a Conservation and Reclamation Distrkt established by the Tcxa$ Legislature to construct a dam, water reservoir, and aqueduct system for the purpose of supplying water to surrounding cities. Th..: District was created in 1953 and comprises eleven citics. including the City of Lubbock. The budget. linancing, and operations nf the District are govcrm:tl by a Board or Directors selected by the governing bodil-'S of each of the member cities, each city being entitled to one or two members dependent upon population. Al September 30, 2004, the Board was comprised of I 8 members. two of which rcprcs,.:nlcd th<: City. The City contra,lcd with thi: CRM WA to reimburse it for a ponion of the cost of the Canadian River Dam and aqueduct system in exchange for surface water. Prior·to fiscal year 1998-99, such payments were made solely from water system revenues and were not considered gen.:ral obligations of the City. The City's pro rntu share of annual fixed and variabk operating and reserve assessmi:nts are recorded as an expense of obtaining surface water. Prior lo fiscal year I 998-99, long-term debt was owed to the U.S. Bureau of Reclamation for the cost of construction or the facility, which was completed in 1969. The City's allocation of project costs was $32,90:5,862. During the year ended S<:ptember 30, 1999. bonds in the principal amount of $12,300,000 were issued to pay off the construction obligation owcd to the U.S. Burt.-au of Reclamation via 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 of Reclamation to the member cities. This discount has been recorded as a deferred gain on refunding and is being amortized over the lite of lhe refunding bonds. At S<:ptembcr 30, 2004, $5,904,703 remains unamortized. The annual principal ond interest payments are included in the disclosures for other City related long-term d<:bt. The above cost for the rights arc recorded as capital assets and arc being amortized over 85 years. The cost and debt are recorded in the Water Enterprise Fund. Brazos River Authority -Lake Alan Henry During 1989, thi: City entered into an agreement with the Brazos River Aulhority (BRA) for the construction, maintenance, and operation of the facilities known as Lake Alan l-knry. The BRA, which is authorized by the State of Texas to provide for the conservation and development of surface waters in the Brazos River Basin, i~sued 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 million. The agreement obligates th<: City to provide rcvenm:s to RRA in amounts sufficient to cover all maintenance and operating costs, management Ices of the authority, as well as funds sufficient to pay all capital costs associated with construction. The City will receive surface water for the payments to BRA. Approximately SS 15,005 was paid to the BRA for maintenance and op..:mting cosl~ during the fiscal year. Th<.: BRA issued $16,970,000 in revenue bonds in I 989 and $39,685,000 in revenue bonds in 1991. These bonds were refunded July 1995. 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 asset, Lake Alan Henry dam and facilities, are recorded as capital assets and are being depreciated over 50 years. The financial activity, along with the related obligation, is llccounted for in the Water Enterprise Fund. In order to protect against the risk of interest rate changes between March 28, 2002 and May 1, 2005, the City entered into an interest rate swap agreement with JPMorgan Chase (herein referred to as the "Swap Provider") rated A+ by Standard & Poor's and Aa3 by Moody's lnvi:stors Si:rvice with a notational dollar amount of $40,465,000. The City entered into an interest rate swap in order to achieve lower borrowing cosl~ associated with an anticipative borrowing in 200:5. This borrowing will prepay and refund the obligation of the City to pay debt service on Special Facilities (Lake Alan 1-!enry) Revenue Refunding Bonds, Series 1995 issued by the BRA to finance or refinance the construction of surface water supply facilities known as J ,ake A Ian Henry pursuant to a Water Supply Agreement, dated as of May 11, 1989, as amended, betw1.-en the BRA and the City: and under this agreement commencing Each August I, starting 78 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements Septe.mber 30, 2004 NOTE Ill. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS G. SURFACE WATER SUPPLY (CONTINUED) August I. 2003 up to and including August I, 2005 the Swap Provider pays a premium of$280.000 to lhe City and in addition beginning May I, 200S, the swap Provider will pay the City of Lubbock interest on the: nollltional amount of the swap based on the Bond Market Association (BMA) Municipal Bond Index on a monthly (actual/actual) basis. On a monthly (30/360) basis, the City of Lubbock pays the Swap Provider interest at the fixed rate of 5.260%. Additionally. the Swap Provider has the right but, not the obligation. to terminate the lrunsaclion in whole when the 180 day weighted average of the Municipal Bond Index is more than 6.50%. but with no market value cost lo the City. The notational amount of the swap reduces annually; the reductions begin on August I. 2006 and mature on August I, 2022. As of December 10, 1004, rates were as tollows: Fixed payment Variable payment Fixed 5.260% BMA 1.450% /\t December I 0, 2004 the swap agreement had a negative lair value of $6,075.000. The fair value was developed by using the zero coupon method. This method calculates the future nee settlement payments required by the agreement assuming that the current forward rates implied by the yield curve correctly anticipate lilture spot interest rates. These payments are then discounted using the spot rates implied by the current yield curve for hyPothclical zero-coupon bonds due on the date of each fulure net settlement on the swap. At Decembc:r 10. 2004, the City wa~ not exposed to credit risk because the swap had a negative fair value. However, should interest rates change and the fair value of the swap become positive, the City could be exposed to credit risk in the amount of the derivative's positive fair value. Should the swap have a positive fair value at some point the Swap Provider may be required to collateralize a percentage of their exposure. Since inception no impairments in respect to the Provider's ratings have occurred. The City's derivative contract uses the International Swap Dealers Association Master Agreement The swap agreements include standard tennination events, such as failure to puy, credit rating downgrades, and bankruptcy. Although the City has obtained provisions to avoid an unwanted early termination event, the result of such an occurrence could result in the City being required to make an unanticipated termination payment. 79 ] CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE Ill. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS H. LONG-TERM DEBT GENERAL OBLIGATION BONDS AND CERTIFICATES OF OBLIGATION: Average Final Balance Interest Issue Maturity Amount Outstanding Rate Date Date Issued 9-30--04 9.01 05-15-91 02-15-11 $ 1,085,000 370,000 5.50 05-15-92 02-l 5-04 34,520,000 1,725,000 3.97 05-01-93 02-15-15 14,425,000 725,000 5.39 10-01-93 02-15-14 3,625,000 1,825,000 5.39 10-01-93 02-15-14 2,550,000 1,300,000 S.20 10-01-93 02-15-14 1,470,000 225,000 5.14 I0-01-93 02-1S-14 19,215,000 2,895,000 5.50 05-15-95 02-15-15 4,690,000 235,000 5.07 12-15-95 02-15-16 6,505,000 650,000 5.07 12-15-95 02-15-16 10,000,000 1,000,000 4.91 01-15-97 02-15-09 17,530,000 9,190,000 4.61 01-01-98 02-15--08 1,330,000 610,000 4.71 01-01-98 02-15-18 10,260,000 7,200,000 4.36 01-15-99 02-15-14 20,835,000 18,870,000 4.58 01-15-99 02-15-19 15,355,000 11,505,000 4.77 04-01-99 02-15-19 6,100,000 4,575,000 4.71 04-01-99 02-15-19 12,300,000 9,300,000 5.37 09-1S-99 02-15-20 24,800,000 21,600,000 5.54 03-15-00 02-15-20 7,000,000 2,430,000 4.90 02-01-01 02-15-21 9,100,000 8,410,000 4.81 02-01-01 02-1S-21 2,770,000 2,350,000 5.25 06-01-01 02-15-31 35,000,000 33,715,000 4.68 02-15-02 02-15-22 9,400,000 9,095,000 4.71 02-15-02 02-15-22 6,450,000 6,235,000 4.70 02-15-02 02-15-22 1,545,000 1,490,000 4.62 07-01-02 02-15-22 2,605,000 2,440,000 3.18 07-01-02 02-1 S-10 10,810,000 7,865,000 4.42 07-15-03 02-15-23 11,855,000 11,255,000 4.47 07-15-03 02-15-24 9,765,000 9,765,000 4.48 07-15-03 02-15•24 680,000 680,000 4.47 07-15-03 02-15-24 3,590,000 3,590,000 4.87 07-15-03 02-15-34 40,135,000 40,135,000 4.47 07-lS-03 02-15-24 3,795,000 3,795,000 4.60 08-15-03 04-l S-23 8,900,000 8,465,000 4.60 08-15-03 04-15-23 13,270,000 12,625,000 4.09 09-28-04 02-15-24 2,025,000 2,025,000 4.08 09-28-04 02-15-24 3,100,000 3,100,000 3.58 09-28-04 02-15-20 22,620,000 22,620,000 Total $411,010,000 285,885,000(A) (A) Excludes net deferred gains and losses on advance refundings, prior year bond discounts of $4,993,103 ($3,813,381 business-type and $1,179,722 governmental). Additionally, this amount includes $215,663, 783 of bonds used to finance enterprise fund activities. At September 30, 2004, management of the City believes that it was in compliance with all financial bond covenants on outstanding general obligation bonded debt, certificates of obligation, and water revenue bonded debt. 80 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE lll. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS H. LONG-TERM DEBT (CONTINUED} ELECTRIC REVENUE BONDS Final Amount Interest Rat~¾} Issue Date Maturi!l'. Date Issued 3.80 to S.SO 6-IS-9S 4-IS-08 S 13,560,000 4.25 to 6.25 1-01-98 4-15-18 9,170,000 4.05 to 5.00 S-01-98 2-15-18 28,910,000 3.10 to S.00 1-15-99 4-15-19 14,975,000 4.00 to S.25 7-01-01 4-15-21 91200.000 Total $ 75,815,000 • Balance outstanding excludes ($595,420) of discount on bonds sold. Interest Rate 3.80 to 5.50"/4 WATER REVENUE BONDS Final Amount Issue Date Maturity Date Issued 6-J-9S 8-15-21 $58,170,000 Balance Outstanding 9-30-04 4,360,000 6,440,000 21,285,000 9,185,000 7,820,000 49,090,000 • Balance Outstanding 9-30-04 45,515,000 • • Balance outstanding excludes ($4,132,838) discoun1 and deferred losses on bonds sold or refunded. The annual requirements to amortize all outstanding debt of the City as of September 30, 2004 are as follows: Governmental Activities Bueiocss-T~ Activities Fiscal General Obli1ation Bonds General Obli&atioa Bonds Revenue Bonds Year PriPciJ!al Interest Prin~al lnteteSt PrinciJ!al Interest 2004--05 s 4,955,949 2,975,462 11,104,051 9,824,743 6,265,000 4,784,861 2005--06 4,479,101 2,867,175 10,845,899 9,380,451 6,305,000 4,475,17.} 2006-07 4,685,492 2,674,605 11,329,508 8,916,898 6,370,000 4,176,228 7.007-08 4,514,994 2,491,285 11,035,006 8,444,872 6,115,000 3,.869,100 2008-09 4,468,654 2,298,592 10,861,3~ 7,974,453 S,415,000 3,571,735 2009-14 21,145,278 8,592,662 53,604,722 32,762,481 27,995,000 13,717,183 2014-19 15,776,749 4,246,685 44,128,251 21,506,908 29,750,000 6,206,365 2019-24 10,195,000 896,451 29,230,000 11,982,075 6,390,000 527,.850 2024-29 17,900,000 6,371,230 2029-34 15,625,000 t,69Sc013 Totals $ 70,221,217 27,042,917 215,66J,783 118,859,124 94,605,000 41,328,494 The annual requiremenlS on capital leases of the City as of September 30, 2004, including interest payments of$106,232 are as follows: Governmental Business-Type Total Capital Lease Capital Lease Capital Lease Fitcal Minimum Minimum Minimum Year Pa2'.ment PaEent Pa~ent 2004-05 $ 854,159 666,220 1,520,379 2005-06 545,380 418,741 964,121 2006-07 353,694 353,694 2007-08 22,202 22,202 Len: Interest (38,582~ 161,6sol ~106,2J2l Tora! s 1,360.957 1,393,207 2,754,164 81 [l CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30> 2004 NOTE III. DETAIL NOTES ON ALL ACTMTIES AND FUNDS H. LONG.TERM DEBT (CONTINUED) The carrying values on the leased assets of the City as of September 30, 2004 are as follows: Accumulated Net Book Gross Value D9?redation Value Governmental Activitit.-,i s 3,558,489 1,441,l88 2,117,301 Business-Type Activities 3,404,477 1,064,892 2,339,585 Total Leased Assets $ 6,962,966 2,506,080 4,456,886 Long-term obligations (net of discounts and premiums) for governmental and business-type activities for the year ended September 30, 2004 are as follows: Debt Payable Debt Payable 9/30/2003 Additions Deletions 9/30/2004 Governmental activities: Tax-Supported - Obligation Bonds $ 69,808,204 27,745,000 27,331,987 70,221,217 Rebatable Arbitrage 122,984 122,984 Capital Leases 996,477 1,535,075 1,170,595 1,360,957 Compensated Absences 12,636,967 7,918,589 5,637,048 14,918,508 Insurance Claim Payable 2,720,897 14,328,384 14,694,745 2,354,536 Bond Discounts/Premiums 1,179,722 1,179,722 Total Governmental activities 86,285,529 52,706,770 48,957,359 90,034,940 Business-Type activities: Self-Supported - Obligation Bonds 226,126,796 10,463,013 215,663,783 Revenue Bonds 101,295,000 6,690,000 94,605,000 Capital Leases 1,941,W 1,844,606 2,392,622 1,393,207 Rebatable Aroitrage 119,152 119,152 Closure/Post Closure 2,690,001 361,115 3,051,116 Compensated Absences 3,695,242 2,849,947 2,385,047 4,160,142 lnsUC11nce Claim Payable 6,000,000 5,904,528 5,467,674 6,436,854 Bond Discounts/Premiums p,496,398) 2,796,962 2,215,441 ~914,8!Z2 Total Business-Type activities $ 340,371,016 13,757,158 29,732,949 324,395,225 Payments on bonds payable and arbitrage payable for governmental activities are made in the Debt Service Fund. Accrued compensated absences that pertain to governmental activities will be liquidated by the General Fund and Special Revenue funds. The Risk Management Internal Service Fund will liquidate insurance claims payable that pertain to governmental activities. Payments for the capital leases that pertain lo the governmental activities will be liquidated by the general fund. 82 Due in oncxear 4,955,949 826,018 5,475,861 2,354,536 13,612,364 11,104,051 6,265,000 622,442 2,143,563 1,184,210 (97,333) 21,221,933 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September30,2004 NOTE Ill. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS H. LONG-Tf!:RM DEBT (CONTINUED} The total long-term Jebt is rccondlcd to the total annual requin:mcnls to amortiic long-term debt as follows: I~ ,ng-tcnn Jd,r -( ;, wcrnmcntal Activirics I .ong-tcrm Jcbt • Husincss-typc ,\cti11itics In wrest Total amount of Jc!Jt N ct ir,1ins/losscs, premium~/ Jiscouncs Less, Rcbat:iblc arbitro1-,,c Less: Capital k-•scs I.e..,;: ln~umncc claims payable J .cs:.: { :ompcn:-ateJ abscnscs Less, Closure/ post dosur~ Tot:i.l other (.lcbt Total future bonded Jcbt Il'qUircmcnts S 90,034,940 324,395,225 187,:B0,535 (264,845) (2,754,164) (8,791,390) {19,078,650) (3,051,116) 601.660.700 (33,940.165) S 567,720.535 The City Council called an election for May 15, 2004 to seek voter approval to issue general-purpose tax- supported bonds in the amount of $30,000,000, which represents the City's current six-year general- purpose debt plan. The following seven propositions were approved by the voters: street improvements, $9,210,000; civic center/auditorium renovations and improvements, $6,450,000; park improvements, $6,395,000; pol ice/municipal court facilities, $3,350,000; library improvements, $2,145,000; fire stations. $1,405,000 and animal shelter renovations and improvements, $1,045,000. The City previously issued a capital improvement plan to voters in 1999, when voters in the City approved a $37,385,000 capital improvement plan. In September 2004. the City issued $2,025,000 General Obligation Bonds,, Series 2004. This issuance was the first installment of the capital improvement debt issuance approved by the voters in 2004. The Obligations were issued at a net discount of$23,332. After paying issuance costs of$50,000, the net proceeds were $1,951,668. The proceeds from the sale of the Obligations will be used to fund the following projects; Fire station improvements, $80,000; animal shelter improvements, $154,000: park improvements, $181,000; street improvements, $1,420,000; traffic control improvements, $100,000; and costs associated with issuance of the bonds. !n September 2004, the City issued $3,100,000 Tax and Waterworks System Surplus Revenue Certificates of Obligation, Series 2004. The Certificates were issued at a net discount of $36,042. After paying issuance costs of$58,000, the net proceeds were $3,005,958. Proceeds from the sale of these Certificates will be used for street improvements, including drainage, streetlights, and traffic signalization and the acquisition of land and necessary rights-of-way; and costs associated with the issuance of the Certificates. 83 l CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE Ill. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS I. ADVANCED REFUNDING On September 28. 2004, the City issued General Obligation Refunding Bonds, Series 2004 ("Rcl\.mding Bonds") with a par value of $22,620,000 and a net interest cost of 3. 7855% lo refund $23,205,000 of outstanding bonds. These bonds were issued to refund a portion of the City's outstam.ling tax-suppork,"d debt to lower the Jebt service requirements on such indebtedness. The Refunding Bonds wc:re issued at a net premium of $ I ,815.646. After paying issuance costs of $304, 179, the nc:t procec:ds were $24,224,912. The net proceeds from the issuance of the Refunding Bonds were 1.kposited with the Escrow Agent (JPMorgan Chase Bank, Dallas, Texas) in an amount necessary to accomplish the discharge and final payment of the Refunded Bonds on their scheduled redemption date. These funds will be held by the Escrow Agent in a special escrow fund and used to purchase direct obligations of the United State of America. Under the escrow agreement, between the City and JPMorgan Chase Bank, the escrow 11.md is irrevocably pledged to the payment of principal and interest on the Refunded Bonds. The Refunded Bonds were removed from the City's basic financial statements. As a result of lhi: refunding, the City decreased its total debt service requirements by $874,031, which resulted in an economic gain of$836,312 and an accounting loss of$1,019,912. The net premium and bond issuance cosl~ arc allncau:d to both Lhc guvcrnrncnlal funds and the enterprise funds based on the fund type which will be responsible for servicing the debt. J. CONDUIT DEBT The City issued Housing Finance Corporation 13onds, I lea Ith Facilities Development Corporation Bonds. and Education Facilities Authority Bonds to provide financial assistance to private sector entities for the acquisition and construction of facilities deemed to be in the public interest. The bonds are secured by the property financed. Upon repayment of the bonds, ownership of the acquiTcd facilities transfers to the private-sector entity served by the bond issuance. Neither the City, the State, nor any political subdivision thereof is obligated in any manner for repayment of lhe bonds. Accordingly, the honds are not reported as liabilities in the accompanying financial statements. As of September 30, 2004. there were seven series of Lubbock Health Facilities Devdopmenl Corporation Bonds outstanding with an aggregate principal amount payable of$338J58,912. The bonds were issued between 1993 and 2002. Also as of September 30, 2004, there was one series of Lubbock Education Facilities Authority [nc. Bonds outstanding with an aggregate principal amount payable of $11,000,000. The bonds were issued in 1999. K. RISK MANAGEMENT The Risk Management Fund was established to account for liability claims, worker's compensation claims. and premiums for property/casualty insurance coverage. The Risk Management Fund generates its revenue through charges to other departments, which are based on costs. In /\pril 1999, the City purchnsed worker's compensation coverage, with no deductible, rrom 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 se!f insurance liability program is on a cash tlow 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 lees and reserve requir~rncnts. In order to control the risks associated with liabi_lity claims, the City purchased excess liahility coverage in September 1999 which is renewed annually. The policy has a $10 million annual aggregate limit and is subject to a $250,000 deductible per claim. 84 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements Septembet30,2004 NOTE III. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS K. RISK MANAGEMENT (CONTINUED) For sc!l~insurcd 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 nm settkd. and of claims lhat have been incurred but not reported (IBNR). 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 proc\."SS used in computing claim liabilities docs not necessarily result in an exact umount, particularly for liability coverage. Claim liabilities arc recompuu:d periodically using a variety or actuarial and statistical techniques to produce current estimates that rcnecl ret:t.'Tlt selth:ments, claim frequency, and other economic and social factors. Adjustments to claim liabilities arc charged or credited to expense in the period in which they arc 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 deductib!.: is up to $250,000 dcpcndcnt upon the unit. P~miums arc charged to funds based upon estimated premiums for the upcoming year. Other small insurance policies, such as surety bond coverage and miscellaneous floaters, are also accounted for in the Risk Management Fund. Funds are charged based on premium amounts and administrative charges. The City has had no significant reductions in insurance coverage during the fiscal year. Settlements in the current year and preceding two years have not exceeded insurance coverage. The City accounts tor all insurance activity in Internal Service Funds. L. HEALTH INSURANCE The City provides medical and dental insurance for all full-time employees that are accounted for in the Health Insurance Fund. Revenue for the health insurance premiums are generated from each cost center based upon the number of active full-time employees. The City's plan is self-insured under an Administrative Services Only (ASO) Agreement The ASO Agreement provides excess coverage of $150,000 per covered individual annually and an aggregate cap of $12,546,913. The insurance vendor based on medical trend, claims history, and utilization determines the aggregate deductible. The contract requires an I BNR reserve of approximately $2.3 million. The City also provides full-time employees basic term life insurance and long-term disability insurance. Revenues for the life insurance premiums and long-term disability premiums are also generaled from each cost center based upon the number of active employees. The life insurance policy has a face value of SI 0,000 per employee. The City wi 11 discontinue providing long-term disability insurance as an employer paid benefit during fiscal year 2004-05. Long-term disability premiums are set at a rate per $100 of annual salary. Full-time employees may elect to purchase medical and dental insurance for eligible dependents and the City subsidizes dependent premiums to reduce the cost to employees. Employees may also elect to participate in several voluntary insurance programs such as a cancer income policy, voluntary life, and personal accident insurance. Voluntary insurance products are fully paid by the employee. Retiring City employees may elect to retain medical and dental insurance and a reduced amount uf life insurance on themselves and eligible dependents. The retiree pays a portion of the premium costs, but the City subsidies retiree premiums by about $1.3 million annually. The life insurance is fully paid by the retiree. 85 ] CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE ill. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS M. ACCRUEDINSURANCECLAIMS The Self•lnsurance Funds establish a liability for self•insurance for both reported and unreported insured events, which includes estimates of both future payments of losses and related claim adjustment expenses. The following represents changes in those aggregate liabilities for the Self.Insurance Funds during the past two years ended September 30: Workers' Compensation and Liability Reserves at beginning of fiscal year S Claims Expenses Claims Payments Workers' Compensation and Liability Reserves at end of fiscal yeu Medical and Dental Claims Liability at beginning of fiscal yeat Oaims Expenses Claims Payments Medical and Dental Claims Liability at end of fiscal year Total Self-lnsucance Liability at end of fiscal year Total Assets to pay daims at end of fiscal year Accrued insu ranee claims payable from restricted assets - CUiretll Accrued insurance claims payable -noncurrent Total accrued insucance claims N. LANDFILL CLOSURE AND POSTCLOSURE CARE COST 2004 6,000,000 5,467,674 (5,030,820) 6,436,854 2,720,897 14,328,384 (14,694,745) 2,354,536 8,791,390 18,920,469 J,538,746 5,252,644 8,791,390 2003 6,000,000 4,561,925 (4,561,925) 6,000,000 2,685,925 13,148,048 (13,113,076) 2,720,897 8,720,897 19,741,497 4,220,897 4,500,000 8,720,897 State and federal laws and regulations require the City to place final 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 City reports a portion of these closure and postclosure costs as operating expenses (and recognizing a corresponding liability) in each period based on landfill capacity used as of each balance sheet date. The $3,051,I 16 included in landfill closure and postclosurc care liability at September 30, 2004, represents the cumulative amount expensed by the City to date for its two landfills that are registered under TCEQ permit numbers 69 (Landfill 69) and 2252 (Landfill 2252), Jess amounts that have been paid. Over 92 percent of the estimated capacity of Landfill 69 hos been used to date, with $753,669 remaining to be recognized over the remaining closure period, which is estimated at three years. Approximately 2.2 percent of the estimated capacity ofLandfill 2252 has been used to date, with $22,867,597 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 is required by state and fedetal laws and regulations to provide assurance that financial resources will be available to provide for closure, postclosure care, and remediation or containment of environmental hazards at its landfills. 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. 86 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September30,2004 NOTE m. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS O. DISAGREGA TION OF ACCOUNTS .AaxitmlsRca:iwblcSummary C.oun: Property Fines Dama&e TxIXrr ~ Ganis Govi:rnmental activities: Genel>llFund $ 4,537,134 551,155 472,281 403,300 Debt Service NonMajo, 2,433,012 Total $ 4,537,134 551,155 472,281 403,300 2,433,002 Accounts Recciwble~oro!Dilly GcneraJ. From Qmt Balana:at Consumer OlbelS Card MSC-9/'!Al/04 Business-type Activities Elccttic 14,192,556 35)f17 14,2Z7,76.3 'Wolter 4,181,134 452 7~ 4,189,145 &-:r 2,380,864 89,104 11,875 2,481,843 Stmmwata: 768,()42 768,042 WTh!PA 7,568.176 7,568,176 ~Major 2,331,690 2,580 40,726 2,374,996 Total $ 31,422,462 89,556 2,580 95;!,(il 31,(0),965 Misc. 385,908 162,485 5,938 554,:m Allowance for Doubdul Ac:counu Sumro:!!l Balance at Accounts Taxes 9/30/04 Governmental General Fund s 250,925 1,202,795 1,453,720 Debt Service Fund 438,808 438,808 Non-Major Business-Type 5,938 5,938 Electric 835,314 835,314 Water 253,386 253,386 Sewer 125,372 125,372 Stonnwater 62,443 62,443 WfMPA 675,217 675,217 Non-Major 148,493 148 493 Total $ 2,357,088 1,641,603 3.998,691 87 Balance at 9/'!Al/04 6,349,778 162,485 ~438,950 8,951,213 ] CITY OF LUBBOCK., TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE DI. DETAIL NOTES ON ALL ACTMTIES AND FUND 0. DISAGREGATION OF A~COUNTS (CONTINUED) Accounts Payable Summary Vouchers Accounts lnvcscments Miscellaneous Govcmmcntal General Fund $ 454,395 1,287,984 93,648 Debt Service 167,374 250,643 Non-Major 349,943 2)71,925 174,987 234,437 Business-Type Electric 679,590 7,644,824 3,410 188,584 Water 78,964 580,589 1,462 69,370 Sewer 163,982 23,978 2,l44 34,340 Stormwater 1,172 53,213 WI'MPA 6,196,307 Noa-Major 183,429 795,927 3,639 174,224 Total s 1,911,475 19,122,121 436,485 794,603 P. DISAGREGATION OF ACCOUNTS -GOVERNMENT-WIDE Net Receivables Accounts Interest Taxes Internal Service Receivable Receivable Receivable Funds Receivables Governmental Activities $ 8,694,350 101,728 7,488,784 99,002 Business-Type Activities 29,509,738 191,476 110,744 Total $ 38,204,088 293,204 7,488,784 209,746 Accoun1!1 Payable Accounts lntemal Service Balance at P~able Funds Payables 9/30/04 Governmental Activities $ 5,385,334 373,461 5,758,795 Business-Type Activities 16,879,348 1,012,6n 17,892,025 Tow $ 22,264,682 1,386,138 23,650,820 Q. FUND CLOSURES Balance at 9/'30/04 1,836,0Z7 418,017 3,131,292 8,516,4-08 730,.385 224,644 54,385 6,196,307 1,157,219 22,264,684 Balance at 9/'30/04 16,383,864 29,811,958 46,195,822 In fiscal year 2004, management streamlined the accounting process and closed the following funds: Information Technology Improvements and Community Improvements. 88 CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September 30, 2004 NOTE IV. CONTINGENT LIABILITIES A. FEDERAL GRANTS In the normal course of operations, the City receives grant funds from various Federal and state agencies. The grant programs are subject to audits by agents of the granting au1hority to ensure compliance with conditions precedent to the granting of funds. Any liability for reimbursement which may arise as the result of audits of grants is not belit:ved to be significant. B. LITIGATION The City is currently involved in the following lawsuil!i which could have an impact on the linancial position if the City is found liable. Adams, et al v. City of Lubbock: The City has been sued by numerous firefighters employed by the City of Lubbock. They claim that the City did not properly pay its firefighters for "move-up" pay pursuant to the Civil Service Act. Pursuant lll the Civil Service Act firefighters can move-up and perform temporary duties in higher classifications. When they perform these duties they are entitled to the pay of the higher classification. While the City has paid them this higher pay, the plaintiffs assen they are also entitled to the "seniority pay" which thcy'vt: earned at the lower classi fica1ion. Their basis for this assertion is that the statute says that they are entitled to the base pay of the higher classification plus any "longevity or seniority pay''. Both sides tiled Motions for Summary Judgment in the trial court and the court ruled in favor of the plaintiffs. The City's Motion for Summary Judgment was denied. Plaintiffs were awarded damages, collectively, in the amount of $688,000 for damages through July 12, 2002, which includes pre-judgment interest. Plaintiffs were denied attorney's fees. The City of Lubbock appealed the trial court's decision to the appellate court. On October 7, 2004. the Appeals Court reversed the judgment of the trial court and rendered a decision in favor of the City, holding that the City paid its employees properly under the Civil Service Act. The Plaintiffs filed a Motion for Reht:aring, which was denied. Plaintiffs have indicated they will attempt to have the Texas Supreme Court review the case. Barnard Construction Company, Inc. v. City of Lubbock: The Plaintiff is a construction company suing the City for breach of contract. The plaintiff alleges the City owes it nearly $2,400,000 for rock it excavated on a drainage project. They assert that they are owed $204,000 for rock excavated on Line A I and assert they are owed nearly $2,200,000 for rock excavated on other I incs on the project. The City has agreed lo pay for approximately $176,000 of rock excavated on Line Al. However, the City denied that it owes Barnard any compensation for rock excavated on the other Lines. The City filed a Motion for Summary Judgment as to this issue and a Trial Court ruled in the City's favor on September 28, 2004. Barnard has indicated it will appeal. Jeanette Livingston, et al v. City of Lubbock: Six PlaintifT.~ tiled suit against the City alleging that the City and/or County foiled to properly record infonnation in its cemetery records that would indicate where their relatives were buried. The Plaintiffs' attomcys have indicated that he has approximately eighty other clients in the same or similar position. The City asserts it is not rc:.ponsible for the improper recordation by the prior entities. The City also asserts that the Plaintiffs have no physical injuries and there is no cause of action in Texas for the negligent intliction of emotional distress. The City is also asserting defenses under the statute of limititions. At this time, damages are ditlicult to ascertain but, collectively, they would meet the $200,000 materiality definition for damages. 89 t I l CITY OF LUBBOCK, TEXAS Notes to Basic Financial Statements September30,2004 NOTE IV. CONTINGENT LIABILITIES B. LITICATION (CONTINUED) Marcie Tanner v. City of Lubbock: The J>luintiff sued the City for racial discrimination. pursuunt to 42 U.S.C. § 1981, atlcr she was tcnninated from her employment with the City of Lubbock. The City assert~ that she was tenninatcd because she sent duplicate mileage reimbursement requests to both the City her employer, and Texas Tech University. The Plaintiff also sued Texas Tech. but Texas Tech was dismissed. The City docs not believe the potential damages arc above $200,000, C. SITE REMEDIATION The City has identified specific locations requiring site remediation relative to underground fuel storage tanks and historical fire training sites. The polcntial exposure is not rcadi ly determinable as or September 30, 2004. In the opinion ofmanagcmcnl, the ultimate liability will nol have a materially t1dverse effect on the City's linancial position. NOTE V. SUBSEQUENT EVENTS A. VOTF.R APPROVED CHARTER AMF.NDMENT The voters of the City of Lubbock on November 2. 2004, voted to amend the Charter of the City of Lubbock providing for an Electric Utility Board composed of nine Lubbock citizens and eligible voters appointed by City Council be created to govern, manage, and operate the City's electric utility. The City Council appointed the nine members of the new Electric Utility Board on November 12, 2004 pursuant to the Charter Amendment passed by the voters of the City of Lubbock on November 2, 2004. The purpose of the change is to give closer scrutiny to LP&L's competitive position and long term financial viability. B. LUBBOCK ECONOMIC DEVELOPMENT ALLIANCE. INC. (LEDA) Luhbock Economic Development Alliance, Inc. (LEDA) is a 501 C-4 Corporation created by the Lubbock City Council to take the lead in economic development for the City. LEDA is led by a five member Board t1ppointed by the City Council and is funded by a 1/8 cent increase in the sales tax. The sales tax increase was approved hy the voter~ for economic development activities in November 2003 . LEDA will be considered a component unit of the City when it begins collecting funds from operations during the fiscal year 2004-05, 90 ) ) ) APPENDIX C FORM OF BOND COUNSEL'S OPINION ) ) } ) ( < ( ( < TIIlS PAGE LEFf BLANK INTENTIONALLY ( ( < ) .., ) ) ·vinson&£lkins APPENDIXC FORM OF BOND COUNSEL OPINION [Date of Closing] $49,615,000 CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2005 WE HA VE represented the City of Lubbock, Texas (the "City"), as its Bond Counsel in connection with an issue of bonds (the "Bonds") described as follows: CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 2005, dated June 15, 2005, issued in the principal amount of $49,615,000. The Bonds mature, bear interest, are subject to redemption prior to maturity and may be transferred and exchanged as set out in the Bonds and in the ordinance adopted by the City Council of the City authorizing their issuance (the "Ordinance") and the Pricing Certificate executed pursuant to the Ordinance. WE HAVE represented the City as its Bond Counsel for the sole purpose ofrendering an opinion with respect to the legality and validity of the Bonds under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Bonds from gross income for federal income tax purposes. We have not investigated or verified original proceedings, records, data or other material, but have relied solely upon the transcript of proceedings described in the following paragraph. We have not assumed any responsibility with respect to the financial condition or capabilities of the City or the disclosure thereof in connection with the sale of the Bonds. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Bonds has been limited as described therein. IN OUR CAPACITY as Bond Counsel, we have participated in the preparation of and have examined a transcript of certified proceedings pertaining to the Bonds, on which we have relied in giving our opinion. The transcript contains certified copies of certain proceedings of the City; an escrow agreement (the '"Escrow Agreement") between the City and JPMorgan Chase Bank, National Association, as escrow agent (the "Escrow Agent"); a report (the "Report") of Grant Thornton LLP, Certified Public Accountants (the "Verification Agent"), verifying the sufficiency of the deposits made with the Escrow Agent for defeasance of the obligations being refunded (the "Refunded Bonds") and the mathematical accuracy of certain computations of the Vinson & Elkins LLP Attorneys at Law Austin Beijing Dallas Dubai Houston London Moscow New Yor1< Tol(yo washington Trammell Crow Center, 2001 Ross Avenue, Suite 3700 Dallas. Texas 75201•2975 Tel 214.220.7700 Fax 214.220.TT16 www.velaw.com ~ [ ] ---~~-- yield on the Bonds and obligations acquired with the proceeds of the Bonds; and customary certificates of officers, agents and representatives of the City, and other public officials, and other certified showings relating to the authorization and issuance of the Bonds. We have also examined executed Bond No. 1 of this issue. BASED ON SUCH EXAMINATION, IT rs OUR OP[NION THAT: (A) The transcript of certified proceedings evidences complete legal authority for the issuance of the Bonds in full compliance with the Constitution and laws of the State of Texas presently effective and, therefore, the Bonds constitute valid and legally binding obligations of the City; (B) A continuing ad valorem tax upon all taxable property within the City, necessary to pay the interest on and principal of the Bonds, has been levied and pledged irrevocably for such purposes, within the limit prescribed by law, and the total indebtedness of the City, including the Bonds, does not exceed any constitutional, statutory or other limitations; and (C) Firm banking and financial arrangements have been made for the discharge and final payment of the Refunded Bonds pursuant to the Escrow Agreement, and therefore, the Refunded Bonds are deemed to be fully paid and no longer outstanding except for the purpose of being paid from the funds provided therefor in such Escrow Agreement. THE RIGHTS OF THE OWNERS of the Bonds are subject to the applicable provisions of the federal bankruptcy laws and any other similar laws affecting the rights of creditors of political subdivisions generally, and may be limited by general principles of equity which permit the exercise of judicial discretion. CT IS OUR FURTHER OPINION THAT: (1) Interest on the Bonds is excludable from gross income for federal income tax purposes under existing law; (2) The Bonds are not "private activity bonds" within the meaning of the Code, and interest on the Bonds is not subject to the alternative minimum tax on individuals and corporations, except that interest on the Bonds will be included in the "'adjusted current earnings" of a corporation (other_ than an S corporation, regulated investment company, REIT, REMIC or FASIT) for purposes of computing its alternative minimum tax liability. In providing such opinions, we have relied on representations of the City, the City's financial advisor and the underwriters of the Bonds with respect to matters solely within the knowledge of the City, the City's financial advisor and the underwriters respectively, which we wsB -2- < ( ( < ( C r ( ') ) ) ) ·v&£ have not independently verified, and have assumed continuing compliance with the covenants in the Ordinance pertaining to those sections of the Code that affect the exclusion from gross income of interest on the Bonds for federal income tax purposes. We have further relied on the Report of the Verification Agent regarding the mathematical accuracy of certain computations. If such representations or the Report are determined to be inaccurate or incomplete or the City fails to comply with the foregoing provisions of the Ordinance, interest on the Bonds could become includable in gross income from the date of original delivery, regardless of the date on which the event causing such inclusion occurs. Except as stated above, we express no opm1on as to any federal, state or local tax consequences resulting from the receipt or accrual of interest on, or acquisition, ownership or disposition of, the Bonds. Owners of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a F ASIT that holds tax-exempt obligations and individuals otherwise qualifying for the earned income credit. In addition, certain foreign corporations doing business in the United States may be subject to the "branch profits tax" on their effectively-connected earnings and profits (including tax-exempt interest such as interest on the Bonds). The opinions set forth above 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 these opinions to reflect any facts or circumstances that may hereafter come to our attention or to reflect any changes in any law that may hereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service (the "Service"); rather, such opinions represent our legal judgment based upon our review of existing law and in reliance upon the representations and covenants referenced above that we deem relevant to such opinions. The Service has· an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given whether or not the Service will commence an audit of the Bonds. If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the City as the taxpayer. We observe that the City has covenanted in the Ordinance not to take any action, or omit to take any action within its control, that if taken or omitted, respectively, may result in the treatment of interest on the Bonds as includable in gross income for federal income tax purposes. wsB -3- ] C C C C C TIDS PAGE LEFf BLANK INTENTIONALLY C C C C C C ..... I APPENDIX D SPECIMEN OF BOND INSURANCE POLICY ) ) J ) ) l C C C C THISPAGELEFTBLANKINTENTIONALLY C C C c C C "') Q 0 0 0 ') FINANCIAL GUARANTY INSURANCE POLICY MBIA Insurance Corporation Armonk, New York 10504 Policy No. [NUMBER] MBIA ln.wrance Corporation (the "Insurer"). in consideration of the payment of the premiwn and subject to the terms of this policy, hereby unconditionally and im:vocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalfofthe Issuer to [PAYING AGENT/TRUSTEE] or its socoessor (the "Paying Agent") ofan amount equal to(i) the principal of (either at the stated maturity or by any advanrement of mallJrity pursuant to a mandatory sinking fimd payment) and interest on, the Obligations(as that tennis 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 dale of such principal by reason of mandatory or optional redemption or acceleration resulting from derault or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payrn.mts 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, unless the Imurer elew in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) lhe reimbursement of any such payment which is subsequently recovered from any owner pursuant to a final judgment by a oourt 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 pn:ceding 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 confinned in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the lnswer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount fur which is then due, that such required payment has not been made, the lnswer 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, in New York. New York, or its successor, sufficient for the payment of any such Insured Amount<; which are then due. Upon presentment and surrender of such Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to e1fect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of lnsW'ed Amoun1s on the Obligation,, such il\'SD'Ull1ents being in a fonn satisfuctoty 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 Obligations, less any amount held by the Paying ~oent for the payment of such Insured Amounts and legally available therefor. This policy does not insure again& 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 ls&Jer, or any designee of the Issuer for such puq,ose. The tenn owner shall not include the Issuer or any party whose agreement with the Issuer constitutes the underlying security for the Obligations. Any service of process on the Insurer may be made to the lmurer at its offices located at 113 King Street, Annonk, New York 10504 and such service of process shall be valid and binding. This policy is l"IOfl-Caflcellable for any reason. The premiwn on this policy is not refundable for any reason including 1he payment prior to maturity of the Obligations. IN WITNESS WHEREOF, the Insurer has caused this policy to be executed in facsimile on its behalf by its duly authorized officers, this (DAY] day of [MONTH, YEARJ. MBIAlos,nnceC..,..,aoon, EN Pre$l.c;l_e:nfd;,P Attest DISCLOSURE OF GUARANTY FUND NONPARTICIPATION: In the event the Insurer is unable to fulfill its contractual obligation under this policy or contract or apP.lication or certificate or evidence of coverage, the policyholder or certificateholder is not protected by an insurance guaranty fund or other solvency protection arrangement. SlD-TX-7 01/05 l TEDS PAGE LEFf BLANK INTENTIONALLY C C ,... ·-- C C C C C 0 0 0 J J ) Financial Advisory Services Provided By :f I First Southwest Company 'ail Investment Bankers Since 1946 C C ( ( ' ) ) ) ) PURCHASE CONTRACT RELATING TO $7~65,000 CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION BoNDS, SERIES 2005 July 28, 2005 The Honorable Mayor and Members of the City Council City of Lubbock P.O.Box2000 Lubbock, Texas 79457 Dear Mayor and Members of the City Council: A.G. EDWARDS & SONS, INC ( the n Authorized Representative"), M.E. ALLISON & Co., INC and RBC DAIN RAUSCHER ]NC ( collectively, the "Underwriters"), offer to enter into this Purchase Contract (the "Purchase Contract") with the CITY OF LUBBOCK, TEXAS(the "City") for the purchase by the Underwriters of the City's General Obligation Bonds, Series 2005 (the "Bonds"). This offer is made subject to the City's acceptance of this Purchase Contract on or before 5:00 p.m. Central Time on July 28, 2005. I . 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 $7,265,000 (representing the original aggregate principal amount of the Bonds). The Bonds shall have the maturities, interest rates and be subject to redemption in accordance with the provisions of Exhibit A hereto and shall be issued and secured under the provisions of the Ordinance (as defined below). The purchase price for the Bonds shall be$ 7,173,195.42 ( representing the principal amount of the Bonds, less original issue discount on the Bonds in the amount of $43,817.30, and less an Underwriters• discount on the Bonds of $47,987.28) plus accrued interest from their dated date to the date of the payment for and delivery of the Bonds. A.G. Edwards & Sons, Inc. 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 an ordinance adopted by the City on July 28, 2005, authorizing the issuance and sale of the Bonds ( 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 ( l 0%) of the principal amount of the Bonds of each maturity thereof 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 Deposil Delivered to the City herewith is a corporate check of the Authorized Representative payable to the order of the City in the amount of $72,600. Such check is a common "Good Faith" check for the Bonds, and such check may be applied toward any obligation of the Underwriters owing as a result of the failure of the Underwriters to accept delivery of the Bonds as provided herein. The City agrees to hold such check uncashed until the Closing to ensure the performance by the Underwriters of their obligation to purchase, accq>t 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 terminated for any reason pennitted 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 ofthis Purchase Contract. 5. Official Statement. The Official Statement, including the cover pages and Append.ices thereto, of the City, dated July 28, 2005, 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 Undeiwriters in connection with the public offering and sale of the Bonds. The City confums its consent to the use by the Underwriters prior to the date hereof of the Preliminary Official Statement, relative to the Bonds, dated July 21, 2005 (the "Preliminary Official Statement"), 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 l 5c2-l 2 promulgated under authority 2 "I ) ) granted by the federal Securities and Ex.change 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 hereofin 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. 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 wider 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. Except as disclosed in the Official Statement, the City has not failed to comply with any undertaking specified in paragraph (b)(5)(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 of Texas 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 perfonnance by the City of the obligations contained in the Bonds and this Pw-chase Contract and has duly authorized and approved the perfonnance by the City of its obligations contained in the Ordinance; (c) The City is not in breach of or default under any law or administrative regulation of the State of Texas or the United States (including regulations of its agencies) applicable to the issuance of the Bonds or any applicable judgment or decree or any loan agreement, note, order, agreement or other instrument, except as may be disclosed in the 3 ) ) ) 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 the Bonds and this Purchase Contract by the City 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 or administrative regulation, or any judgment, decree or 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 misleading; ( f) Between the date of this Pmchase 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 the City's General Obligation Refunding Bonds, Series 2005, Tax and Waterworks System Revenue Certificates of Obligation, Series 2005 and Tax and Waterworks System Surplus Revenue Refunding Bonds, Series 2005 and the City will not incur any material Liabilities, direct or contingent, nor will there be any adverse change of a material nan.are 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 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 jurisdictions as the Authorized Representative designates, and will use its best efforts to continue such qualifications in effect so long as required for distribution of the Bonds; provided, however, that the City will not be required to execute 4 ) ) ) 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 Undetwriters 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; (j) If prior to the Closing an event occurs affecting the City that is materially adverse for the purpose 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 amendment 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 year's 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 or 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 purposes. 7. Closing. At 10:00 A.M .• Central Time, on September l, 2005 (the "Closing"), the City will deliver the initial securities certificates of the Bonds (as provided for 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 date of Closing the Underwriters will accept such deliveiy and pay the purchase price of the Bonds as set forth in Paragraph l 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 5 '\ "I ) ) 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. In addition, the City and the Underwriters agree that there shall be a preliminary closing held at such place as the City and the Underwriters shall mutually agree, commencing at least 24 hours prior to the Closing; provided, however, in lieu ofthis preliminary closing Bond Counsel, as defined below, may provide the counsel to the Underwriters with a complete Transcript of Proceedings on the business day preceding the Closing. Drafts of all documents to be delivered at the Closing shall be prepared and distributed to all parties and their coW1Sel for review at least three business days prior to the Closing. 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 docwnents and instruments to be delivered at the Closing, and upon the perfonnance by the City of its obligations hereunder, both as of the date hereof and as of the date of Closing. Accordingly, the Underwriters' obligations wider this Purchase Contract to purchase and pay for the Bonds shall be subject to the performance by the City of its obligations to be performed 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 Secretaly or a conformed copy thereof; 6 ) ) ) (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 the agreement of the City, in fonn satisfactory to the Underwriters, that is described under the caption "Other Infonnation -Continuing Disclosure of Information" in the Preliminary Official Statement; (3) the Paying Agent/Registrar Agreement, having been duly ex.ecuted on behalf of the City and JPMorgan Chase Bank, National Association, as Paying Agent/Registrar; (4) The opinion pertaining to the Bonds, dated the date of Closing, of Vinson & Elkins L.LP. ("Bond Counsel") in substantially the form and substance of Appendix C to the Official Statement; ( 5) An opinion or certificate with respect to the Bonds, dated on or prior to the date of Closing, of the Attorney General of Texas, approving the Bonds as required by law and the registration certificate of the Comptroller of Public Accounts of the State of Texas; (6} The supplemental opinion, 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 )( 4) 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 infonnation in the Official Statement under the captions or subcaptions "The Bonds" ( exclusive of the infonnation under the subcaptions "Book-Entry-Only System" and "Bondholders' Remedies11), ''Tax. Matters" and the subcaptions "Legal Investments and Eligibility to Secure Public Funds in Texas," "Legal Opinions" and "Continuing Disclosure of Information" ( exclusive of the information under the subcaption "Compliance with Prior Undertakings") under the caption "Other Information" in the Official Statement, and such finn is of the opinion that such descriptions present a fair and accurate summary of the provisions of the laws and instruments therein described and, with respect to the Bonds, such information confonns 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 amende,¢ (7) An opinion or opinions of McCall, Parkhurst & Horton L.L.P., Underwriters' Counsel addressed to the Underwriters, and dated the date of Closing in substantially the fonn attached hereto as Exhibit C; 7 ) ) ) (8) A certificate, dated the date of Closing, signed by the Mayor and Chief Financial Officer of the City, to the effect that (i) the representations and warranties of the City contained herein are true and correct 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 eajoin 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, or contesting the powers of the City or the authorization of the Bonds, 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 aH 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, 2004, the latest date as to which audited financial information is available; (9) An opinion or opinions of the City Attorney addressed to the Underwriters and dated the date of Closing substantially in the form and substance of Exhibit B hereto; ( l 0) A certificate, dated the date of the Closing, of an appropriate officer of the City to 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 ofl986, as amended; (l I) Evidence of the rating on the Bonds, 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 form acceptable to the Underwriters; (12) A copy of the policy of municipal bond insurance issued by MBIA Insurance Corporation with respect to the Bonds; 8 ) ) ) ) ) (13) 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 City. All of the opinions, letters, certificates, instnunents 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 pw-chase, 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 retwned to the Authorized Representative and neither the Underwriters nor the City shalt be under further obligation hereunder, except that the respective obligations of the City and the Underwriters set forth in Paragraphs l O and 12 hereof shall continue in full force and effect. 9. Termination. The Underwriters may terminate 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 Committee 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 Court; or (iii) an order, ruling or regulation shall have been issued or proposed by or on behalf of the Treaswy 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 offederal 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 i:rumner 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 taken by the Securities and Exchange Commission or by a court that would require registration of any security under the Securities Act of 1933, 9 ) ) ) as amended, or qualification of any indenture W1der 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 purpose shall have been initiated or threatened in any such court or by any such authority. ( 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 behalfof the State of Texas by an official, agency or department thereof: affecting the tax status of the City, its property or income, its securities (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) A material disruption in securities clearance, payment or settlement services in the United States shall have occurred. ( t) There shall have occurred any (i) material outbreak of hostilities (including. without limitation, an escalation of hostilities that existed prior to the date hereof or an act of terrorism) or (ii) material other national or international calamity or crisis, or any material adverse change in the financial, political or economic conditions affecting the United States, the effect of which on U.S. financial markets of such an event described in clauses (i) or (ii) shall make it, in the reasonable judgment of the Authorized Representative, impractical or inadvisable to proceed with the offering or delivery of the Bonds as contemplated by the final Official Statement ( exclusive of any amendment or supplement thereto). (g) An event described in Paragraph 6(j) hereof occurs that, in the reasonable judgment 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. (h) A general banking moratorium shall have been declared by authorities of the United States, the State ofNew York or the State ofTexas. (i) A lowering of the ratings of" Aaa," "AAA" and "AAA," initially assigned to the Bonds by Moody's, 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 10 ) ) ) ) ) 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, if any. for municipal bond insurance policy pertaining to the Bonds. (b) The Un~erwriters 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 )(7) hereof l L 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 A.G. Edwards & Sons, Inc., 70 Northeast Loop 410, Suite 915 San Antonio, Texas 78216 Attention: Ms. Nora Chavez. 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 oron 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 ofthis 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, rule 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. Cb.oice 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. 11 ) ) ' ) ) 17. Status of the Underwriters. The City acknowledges that in connection with the offering of the Bonds and the discussions and negotiations relating to the terms of the Bonds set forth in this Contract: ( a) the Underwriters have acted at anns length. are not agents of or advisors to, and owe no fiduciary duties to, the City or any other person, (b) the Underwriters' duties and obligations to the City shall be limited to those contractual duties and obligations set forth in this Contract and (c) the Underwriters may have interests that differ from those of the City. The City waives to the full extent pennitted by applicable law any claims it may have against the Underwriters arising from an alleged breach of fiduciary duty in connection with the offering of the Bonds. tSignature page follows.] 12 ·-.. ) ) ) ) ) ) ) ) If you agree with the foregoing, please sign the enclosed counterpart of this Purchase Contract and return it to the Authorized Representative. This Purchase Contract shall become a binding agreement between you and the Underwriters when at least the counterpart of this Purchase Contract shall have been signed by or on behalf of each of the parties hereto. Very truly yours, A.G. Edwards & Sons, Inc. M.E. Allison & Co., Inc. RBC Dain Rauscher Inc. By: A.G. Edwards & Sons, Inc. Authorized epresentative By: Name: ...:...:..:~..:..:....:....==c.......---------- Title: Managing Director -Investment Banking ACCEPTANCE ACCEPTED pursuant to a motion adopted by the City Council of the City of Lubbock, Texas on the 28th day o July 005. By: ayor City of Lubbock, Texas ) EXHIBIT A Schedule of Maturities, Interest Rates, Yields aod Redemption Provisions $7,265,000 ) City of Lubbock, Texas General Obligation Bonds2 Series 2005 Maturity Principal Interest Rate Yield {February 15} Amount (¾} {¾} 2006 230,000 3.000 2.700 2007 260,000 3.000 2.850 · 2008 265,000 3.250 3.020 2009 275,000 3.375 3.130 2010 285,000 3.500 3.270 2011 295,000 3.625 3.430 ) 2012' 305,000 3.750 3.560 2013 320,000 3.875 3.700 2014 330,000 3.700 3.790 2015 345,000 3.800 3.900 2016 360,000 ·4_000 4.040 2017 375,000 4.050 4.150 ) 2018 390,000 4.100 4.220 2019 405,000 4.150 4.280 2020 420,000 4.200 4.340 2021 440,000 4.250 4.380 2022 460,000 4.300 4.420 2023 480,000 4.350 4.460 2024 500,000 4.375 4.490 2025 525,000 4.400 4.530 The City reserves the right, at its option, to redeem Bonds having stated maturities on and after February 15, 2016, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2015, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. ) ) ) ) ) EXHIBITB OPINION OF THE CITY ATTORNEY September l, 2005 A.G. Edwards & Sons, Inc. M.E. Allison & Co., Inc. RBC Dain Rauscher Inc. c/o A.G. Edwards & Sons, Inc. 70 Northeast Loop 410, Suite 915 San Antonio, Texas 78216 RE: $7,265,000 GENERAL OBLIGATION BoNDS, SERIES 2005 Ladies and Gentlemen: I am the City Attorney for the City of Lubbock. Texas ( the "City") at the time of the issuance of the above referenced Bonds (the "Bonds"), pursuant to the provisions of the Ordinance duly adopted by the City Council of the City on July 28, 2005. 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 asswned the authenticity of all documents and agreements submitted to me as originals, confonnity 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: l. Based on reasonable inquiry made of the responsible City employees and public officials, the City is not, to the best of my know ledge, 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 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 B-1 ) ) ) ) 2. 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 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 Infonnation--Litigation" and such information in all material respects accurately and fairly summarizes the matters described therein. 1bis 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. Very truly yolll'S, B-2 ' ) ) ) ) Exhibit C Proposed Form of Underwriters' Counsel Opinion of McCall, Parkhurst & Horton L.L.P. A.G. Edwards & Sons, Inc. ME. Allison & Co., Inc. RBC Dain Rauscher Inc. September l, 2005 c/o A.G. Edwards & Sons, Inc. 70 Northeast Loop 410, Suite 915 San Antonio, Texas 78216 RE: $7,265,000 GENERAL OBLIGATION BoNDS, SERIES 2005 Ladies and Gentlemen: We have acted as cowisel for you as the underwriters of the Bonds described above (the "Bonds"), issued under and pursuant to an Ordinance of the City of Lubbock, Texas (the "Issuer"), authorizing the issuance of the Bonds, which Bonds you are purchasing pursuant to a Purchas~ Contract, dated July 28, 2005. All capitalized undefined tenns used herein shall have the meaning set forth in the Purchase Contract. In connection with this opinion letter, we have considered such matters of law and of fact, and have relied upon such certificates 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 of 1933, 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 28, 2005 (the "Official Statement") and because the information in the Official Statement under the headings "THE BONDS -Book-Enny-Only System," "TAX MATTERS," "OTHER INFORMATION - Continuing Disclosure of Infomation -Compliance with Prior Undertakings" and Appendices A, B, and C thereto were prepared by others who have been engaged to review or proyide such information, we are not passing on and do not assume any responsibility for, except as set foJ"!h 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 coW1Sel, we had discussions with representatives of the Issuer, including its City Attorney, Bond Counsel and Financial Advisor, regarding the contents of the Official Statement. ln 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 "THE BONDS -Book-Entry-Only System,'' 11T AX MA TIERS," "OTHER INFORMATION -Continuing Disclosure of Infomation -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 wider 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 ... .J ' ' REGISTERED REGISTERED No. l $230,000 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION BOND SERIES 2005 INTEREST RA TE: MATURITY DATE: BOND DATE: CUSIP NUMBER: 3.000% February 15, 2006 July 15, 2005 549187 R20 unless this Bond shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Bond Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annum rate of interest specified above, computed on the basis of a three hundred sixty (360) day year of twelve (12) thirty (30) day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing February 15, 2006. The principal of this Bond shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Bond at the corporate trust office in Dallas, Texas (the "Designated Payment/fransfer Office") of JPMorgan Chase Bank, National Association, as Paying Agent/Registrar or, with respect to a successor Paying Agent/Registrar, at the Designated Paymentffransfer Office thereof. Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Bond, the registered owner shall be the person in whose name this Bond is registered at the close of business on the "Record Date," which shall be the last business day of the month next preceding such interest payment date. ) ) REGISTERED No. 2 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION BOND SERIES 2005 INTEREST RATE: MATURITY DATE: BOND DATE: 3.000% February 15, 2007 July 15, 2005 REGISTERED $260,000 CUSIP NUMBER: 549187 R38 The City of Lubbock (the "City''), in the County of Lubbock, State of Texas, for value received, hereby promises to pay to or registered assigns, on the unless this Bond shall hav--.. sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Bond Date specified above or the most recent interest payment date to which interest has been paid or provided for W1til payment of such principal amount has been paid or provided for, at the per annum rate of interest specified above, computed on the basis of a three hundred sixty (360) day year of twelve (12) thirty (30) day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing February 15, 2006. The principal of this Bond shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Bond at the corporate trust office in Dallas, Texas (the "Designated Paymentffransfer Office") of JPMorgan Chase Bank, National Association, as Paying Agent/Registrar or, with respect to a successor Paying Agent/Registrar, at the Designated Paymentffransfer Office thereof. Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Bond, the registered owner shall be the person in whose name this Bond is registered at the close of business on the "Record Date," which shall be the last business day of the month next preceding such interest payment date. ) ) ) ) ) REGISTERED No. 3 United States of America State of Texas Comity of Lubbock CITY OF LUBBOC~ TEXAS GENERAL OBLIGATION BOND SERIES 2005 INTEREST RA TE: MATURITY DATE: BOND DATE: 3.250% February 15, 2008 July 15, 2005 REGISTERED $265,000 CUSIP NUMBER: 549187 R46 The City of Lubbock (the "City"), in the County of Lubbock, State of Texas, for value received, hereby promises to pay to TWOH unless this Bond shall have n eel for redemption and the payment of the principal hereof shall have been paid ovided for, and to pay interest on such principal amount from the later of the Bond Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annum rate of interest specified above, computed on the basis of a three hundred sixty (360) day year of twelve (12) thirty (30) day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing February 15, 2006. The principal of this Bond shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Bond at the corporate trust office in Dallas, Texas (the "Designated Paymentlfransfer Office") of JPMorgan Chase Bank, National Association, as Paying Agent/Registrar or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/fransfer Office thereof. Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the pwpose of the payment of interest on this Bond, the registered owner shall be the person in whose name this Bond is registered at the close of business on the "Record Date," which shall be the last business day of the month next preceding such interest payment date. ) ) REGISTERED No. 4 United States of America State of Texas County of Lubbock CITY OF LUBBOC~ TEXAS GENERAL OBLIGATION BOND SERIES 2005 INTEREST RA TE: MATURITY DATE: BOND DATE: 3.375% February 15, 2009 July 15, 2005 REGISTERED $275,000 CUSIP NUMBER: 549187 R53 The City of Lubbock (the "City''), in the County of Lubbock, State of Texas, for value received, hereby promises to pay to ~o ·- unless this Bond shall Ji sooner called_ fur redemption and the payment of the principal hereof shall have been pafrl or provided for, and to pay interest on such principal amount from the later of the Bond Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annum rate of interest specified above, computed on the basis of a three hundred sixty (360) day year of twelve (12) thirty (30) day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing February 15, 2006. The principal of this Bond shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Bond at the corporate trust office in Dallas, Texas (the "Designated Payment/fransfer Office") of JPMorgan Chase Banlc, National Association, as Paying Agent/Registrar or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/f ransfer Office thereof. Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Bond, the registered owner shall be the person in whose name this Bond is registered at the close of business on the "Record Date," which shall be the last business day of the month next preceding such interest payment date. ) REGISTERED No. 5 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION BOND SERIES 2005 rNTEREST RA TE: MATURITY DATE: BOND DATE: 3.500% February 15, 2010 July 15, 2005 REGISTERED $285,000 CUSIP NUMBER: 549187 R61 The City of Lubbock (the "City''), in the County of Lubbock, State of Texas, for value received, hereby promises to pay to or registered assigns, on TWO unless this Bond shall h been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Bond Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annum rate of interest specified above, computed on the basis of a three hundred sixty (360) day year of twelve (12) thirty (30) day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing February 15, 2006. The principal of this Bond shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Bond at the corporate trust office in Dallas, Texas (the "Designated Paymentffransfer Office") of JPMorgan Chase Bank, National Association, as Paying Agent/Registrar or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office thereof. Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Bond, the registered owner shall be the person in whose name this Bond is registered at the close of business on the "Record Date," which shall be the last business day of the month next preceding such interest payment date. ) ) ) ) ) REGISTERED No. 6 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION BOND SERIES 2005 INTEREST RATE: MATURITY DATE: BOND DATE: 3.625% February 15, 2011 July 15, 2005 REGISTERED $295,000 CUSIP NUMBER: 549187 R79 The City of Lubbock (the "City"), in the County of Lubbock, State of Texas, for value received, hereby promises to pay to TWO H -E THOUSAND DOLLARS unless this Bond shall ha een sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from . the later of the Bond Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annum rate of interest specified above, computed on the basis of a three hundred sixty (360) day year of twelve (12) thirty (30) day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing February 15, 2006. The principal of this Bond shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Bond at the corporate trust office in Dallas, Texas (the "Designated Payment/Transfer Office'') of JPMorgan Chase Bank, National Association, as Paying Agent/Registrar or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office thereof. Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Bond, the registered owner shall be the person in whose name this Bond is registered at the close of business on the "Record Date," which shall be the last business day of the month next preceding such interest payment date. ) ) '\ ) ) REGISTERED No. 7 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION BOND SERIES 2005 INTEREST RATE: MATURITY DATE: BOND DATE: 3.750% February 15, 2012 July 15, 2005 REGISTERED $305,000 CUSIP NUMBER: 549187 R87 The City of Lubbock (the "City"), in the County of Lubbock, State of Texas, for value received, hereby promises to pay to CEDE or registered assigns, ~ the lY.IJo_,.,1, @fJ unless this Bond shall ~ sooner called for redemption and the payment of the principal hereof shall have been pa.J.d or provided for, and to pay interest on such principal amount from the later of the Bond Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annwn rate of interest specified above, computed on the basis of a three hundred sixty (360) day year of twelve (12) thirty (30) day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing February 15, 2006. The principal of this Bond shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Bond at the corporate trust office in Dallas, Texas (the "Designated Payment/rransfer Office") of JPMorgan Chase Bank, National Association, as Paying Agent/Registrar or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office thereof. Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Bond, the registered owner shall be the person in whose name this Bond is registered at the close of business on the "Record Date, .. which shall be the last business day of the month next preceding such interest payment date. ) ..., ) ) ' REGISTERED No. 8 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION BOND SERIES 2005 INTEREST RA TE: MA TIJRITY DATE: BOND DATE: 3.875% February 15, 2013 July 15, 2005 REGISTERED $320,000 CUSIP NUMBER: 549187 R95 The City of Lubbock (the "City"), in the County of Lu~, State of Texas, for value received, hereby promises to pay to l)\J or registered assigns, on~~ D THRE~R.: unless this Bond shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Bond Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annum rate of interest specified above, computed on the basis of a three hundred sixty (360) day year of twelve (12) thirty (30) day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing February 15, 2006. The principal of this Bond shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Bond at the corporate trust office in Dallas, Texas (the "Designated Paymentlfransfer Office") of JPMorgan Chase Barne, National Association, as Paying Agent/Registrar or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/fransfer Office thereof. Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Bond, the registered owner shall be the person in whose name this Bond is registered at the close of business on the "Record Date," which shall be the last business day of the month next preceding such interest payment date. ..., ✓ ' ) ) REGISTERED No. 9 United States of America State of Texas County of Lubbock CITY OF LUBBOCK TEXAS GENERAL OBLIGATION BOND SERIES 2005 REGISTERED $330,000 INTEREST RATE: MATURITY DATE: BOND DATE: CUSIP NUMBER: 3.700% February 15, 2014 July 15, 2005 549187 S29 The City of Lubbock (the "City"), in the County of ~r{rtate of Texas, for value received, hereby promises to pay to LS lN or registered assigns, on the THREE ) unless this Bond shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Bond Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annum rate of interest specified above, computed on the basis of a three hW1dred sixty (360) day year of twelve (12) thirty (30) day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing February l 5, 2006. The principal of this Bond shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Bond at the corporate trust office in Dallas, Texas (the "Designated Payment/Transfer Office") of JPMorgan Chase Bank, National Association, as Paying Agent/Registrar or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office thereof. Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Bond, the registered owner shall be the person in whose name this Bond is registered at the close of business on the "Record Date," which shall be the last business day of the month next preceding such interest payment date. ) ) ) ) REGISTERED No. IO United States of America State of Texas County of Lubbock CITY OF LUBBOC~ TEXAS GENERAL OBLIGATION BOND SERIES2005 INTEREST RATE: MATURITY DATE: BOND DATE: 3.800% February 15, 2015 July 15, 2005 REGISTERED $345,000 CUSIP NUMBER: 549187 S37 The City of Lubbock (the "City''), in the County O!J.-1:;'QOIJG>Q.KL State of Texas, for value received, hereby promises to pay to unless this Bond shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Bond Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annwn rate of interest specified above, computed on the basis of a three hundred sixty (360) day year of twelve (12) thirty (30) day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing February 15, 2006. The principal of this Bond shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Bond at the corporate trust office in Dallas, Texas (the "Designated Payment/fransfer Office") of JPMorgan Chase Bank, National Association, as Paying Agent/Registrar or, with respect to a successor Paying Agent/Registrar, at the Designated Paymentffransfer Office thereof. Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Bond, the registered owner shall be the person in whose name this Bond is registered at the close of business on the "Record Date," which shall be the last business day of the month nex.t preceding such interest payment date. ) ) REGISTERED No. 11 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION BOND SERIES2005 INTEREST RA TE: MATURITY DA TE: BOND DATE: 4.000% February 15, 2016 July 15, 2005 or registered assigns, on the THRE THOUSAND DOLLARS REGISTERED $360,000 CUSIP NUMBER: 549187 S45 unless this Bond shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Bond Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annum rate of interest specified above, computed on the basis of a three hundred sixty (360) day year of twelve (12) thirty (30) day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing February 15, 2006. The principal of this Bond shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Bond at the corporate trust office in Dallas, Texas (the "Designated Paymentlfransfer Office") of JPMorgan Chase Bank, National Association, as Paying Agent/Registrar or, with respect to a successor Paying Agent/Registrar, at the Designated Paymentffransfer Office thereof. Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Bond, the registered owner shall be the person in whose name this Bond is registered at the close of business on the "Record Date," which shall be the last business day of the month next preceding such interest payment date. ) ) ) REGISTERED No. 12 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION BOND SERIES2005 INTEREST RA TE: MATURITY DATE: BOND DATE: REGISTERED $375,000 CUSIP NUMBER: 4.050% February 15, 2017 July 15, 2005 549187 S52 The City of Lubbock (the "City''), in the County ott--1=:tiUt>~<llkl State of Texas, for value received, hereby promises to pay to unless this Bond shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Bond Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annum rate of interest specified above, computed on the basis of a three hundred sixty (360) day year of twelve (12) thirty (30) day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing February 15, 2006. The principal of this Bond shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Bond at the corporate trust office in Dallas, Texas (the "Designated Payment/fransfer Office") of JPMorgan Chase Bank, National Association, as Paying Agent/Registrar or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/fransfer Office thereof. Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amowit of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Bond, the registered owner shall be the person in whose name this Bond is registered at the close of business on the "Record Date," which shall be the last business day of the month next preceding such interest payment date. ) ) ) ) ) '\ ) ) REGISTERED No. 13 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION BOND SERIES2005 INTEREST RA TE: MATURITY DATE: BOND DATE: REGISTERED $390,000 CUSIP NUMBER: 4.100% February 15, 2018 July 15, 2005 549187 S60 The City of Lubbock (the "City.,), in the County of Lubbock, tate of Texas, for value received, hereby promises to pay to ~,.,.,a-, ~ or registered assigns, on the .!ftklltel ~ of THREE unless this Bond shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Bond Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annum rate of interest specified above, computed on the basis of a three hundred sixty (360) day year of twelve (12) thirty (30) day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing February 15, 2006. The principal of this Bond shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Bond at the corporate trust office in Dallas, Texas (the "Designated Payment/fransfer Office") of JPMorgan Chase Bank, National Association, as Paying Agent/Registrar or, with respect to a successor Paying Agent/Registrar, at the Designated Paymenttrransfer Office thereof. Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Bond, the registered owner shall be the person in whose name this Bond is registered at the close of business on the "Record Date," which shall be the last business day of the month next preceding such interest payment date. .., ) ) ) ) ) ) ) REGISTERED No. 14 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION BOND SERIES 2005 REGISTERED $405,000 INTEREST RA TE: MATURITY DATE: BOND DATE: CUSIP NUMBER: 4.150% February 15, 2019 July 15, 2005 549187 S78 The City of Lubbock (the "City"), in the County of Lubbock, State of Texas, for value received, hereby promises to pay to CEDE&C or registered assigns, on the Maturitr~•~ FOUR H ~~ DOLLARS unless this Bond shall have bi called fur redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Bond Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annum rate of interest specified above, computed on the basis of a three hundred sixty (360) day year of twelve (12) thirty (30) day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing February 15, 2006. The principal of this Bond shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Bond at the corporate trust office in Dallas, Texas (the "Designated Payment/Transfer Office") of JPMorgan Chase Bank, National Association, as Paying Agent/Registrar or, with respect to a successor Paying Agent/Registrar, at the Designated Paymentffransfer Office thereof. Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Bond, the registered owner shall be the person in whose name this Bond is registered at the close of business on the "Record Date," which shall be the last business day of the month next preceding such interest payment date. .., ) ) ) ) ) ) ) REGISTERED No. 15 United States of America State of Texas County of Lubbock CITY OF LUBBOC~ TEXAS GENERAL OBLIGATION BOND SERIES2005 INTEREST RATE: MATURITY DATE: BOND DATE: REGISTERED $420,000 CUSIP NUMBER: unless this Bond shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Bond Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annum rate of interest specified above, computed on the basis of a three hundred sixty (360) day year of twelve (12) thirty (30) day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing February 15, 2006. The principal of this Bond shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Bond at the corporate trust office in Dallas, Texas (the "Designated Paymentffransfer Office") of JPMorgan Chase Banlc, National Association, as Paying Agent/Registrar or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office thereof. Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Bond, the registered owner shall be the person in whose name this Bond is registered at the close of business on the "Record Date," which shall be the last business day of the month next preceding such interest payment date. ) ) ) ) ) REGISTERED REGISTERED No. 16 $440,000 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION BOND SERIES 2005 INTEREST RA TE: MATURITY DATE: BOND DATE: CUSIP NUMBER: 4.250% February 15, 2021 July 15, 2005 549187 S94 The City of Lubbock (the "City"), in the County of Lub of Texas, for value received, hereby promises to pay to or registered assigns, on the M FOURH unless this Bond shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Bond Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annum rate of interest specified above, computed on the basis of a three hundred sixty (360) day year of twelve (12) thirty (30) day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing February 15, 2006. The principal of this Bond shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Bond at the corporate trust office in Dallas, Texas (the "Designated Payment/fransfer Office") of JPMorgan Chase Bank, National Association, as Paying Agent/Registrar or, with respect to a successor Paying Agent/Registrar, at the Designated Paymentff ransfer Office thereof. Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Bond, the registered owner shall be the person in whose name this Bond is registered at the close of business on the "Record Date," which shall be the last business day of the month next preceding such interest payment date. --1 ) ) ) ) ) ) REGISTERED No. 17 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION BOND SERIES 2005 INTEREST RATE: MATURITY DATE: BOND DATE: 4.300% February 15, 2022 July 15, 2005 REGISTERED $460,000 CUSIP NUMBER: 549187 T28 The City of Lubbock (the "City"), in the County of LubboMte of Texas, for value received, hereby promises to pay to r..r~i.,Z' J~fil ~ lN or registered assigns, on the~~ WlJJ sum of FOUR~[ unless this Bond shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Bond Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annum rate of interest specified above, computed on the basis of a three hundred sixty (360) day year of twelve (12) thirty (30) day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing February 15, 2006. The principal of this Bond shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Bond at the corporate trust office in Dallas, Texas (the "Designated Payment/Transfer Office") of JPMorgan Chase Bank, National Association, as Paying Agent/Registrar or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office thereof Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Bond, the registered owner shall be the person in whose name this Bond is registered at the close of business on the "Record Date," which shall be the last business day of the month next preceding such interest payment date. .... ) ) ) ) ) ) REGISTERED No. 18 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION BOND SERIES2005 INTEREST RA TE: MATURITY DATE: BOND DATE: 4.350% February 15, 2023 July 15, 2005 REGISTERED $480,000 CUSIP NUMBER: 549187 T36 The City of Lubbock (the "City"), in the County of Lubbmtate of Texas, for value received, hereby promises to pay to ~ FOUR unless this Bond shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Bond Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annum rate of interest specified above, computed on the basis of a three hundred sixty (360) day year of twelve (12) thirty (30) day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing February 15, 2006. The principal of this Bond shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Bond at the corporate trust office in Dallas, Texas (the "Designated Paymentlfransfer Office") of JPMorgan Chase Bank, National Association, as Paying Agent/Registrar or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office thereof. Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Bond, the registered owner shall be the person in whose name this Bond is registered at the close of business on the "Record Date," which shall be the last business day of the month next preceding such interest payment date. ) ) ) ) ) REGISTERED No. 19 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION BOND SERIES 2005 INTEREST RATE: MATURITY DATE: BOND DATE: 4.375% February 15, 2024 July 15, 2005 REGISTERED $500,000 CUSIP NUMBER: 549187 T44 The City of Lubbock (the "City''), in the County of LubboMte of Texas, for value received, hereby promises to pay to • ~ U\J Fiv. HOUSAND DOLLARS unless this Bond shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Bond Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annum rate of interest specified above, computed on the basis of a three hundred sixty (360) day year of twelve (12) thirty (30) day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing February 15, 2006. The principal of this Bond shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Bond at the corporate trust office in Dallas, Texas (the "Designated Payment/Transfer Office") of JPMorgan Chase Bank, National Association, as Paying Agent/Registrar or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office thereof. Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Bond, the registered owner shall be the person in whose name this Bond is registered at the close of business on the "Record Date," which shall be the last business day of the month next preceding such interest payment date. ) ) REGISTERED No. 20 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION BOND SERIES2005 INTEREST RATE: MATURITY DATE: BOND DATE: REGISTERED $525,000 CUSIP NUMBER: 4.400% February 15, 2025 July 15, 2005 549187 T51 The City of Lubbock (the "City"), in the County of L~ of Texas, for value received, hereby promises to pay to I lS l.[\J unless this Bond shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Bond Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annum rate of interest specified above, computed on the basis of a three hundred sixty (360) day year of twelve (12) thirty (30) day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing February 15, 2006. The principal of this Bond shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Bond at the corporate trust office in Dallas, Texas (the "Designated Payment/Transfer Office") of ) JPMorgan Chase Bank, National Association, as Paying Agent/Registrar or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office thereof. Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registrar to the registered owner at the address shown on the registration books kept by the Paying Agent/Registrar or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expense of such other banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Bonds, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Bond, the registered owner shall be the person in ) whose name this Bond is registered at the close of business on the "Record Date," which shall be the last business day of the month next preceding such interest payment date. ) ) ) If the date for the payment of the principal of or interest on this Bond shall be a Saturday, Sunday, legal holiday, or day on which banking institutions in the city where the Designated Payment/f ransfer Office of the Paying Agent/Registrar is located are required or authorized by law or executive order to close, the date for such payment shall be the next succeeding day which is not a Saturday, Sunday, legal holiday, or day on which banking institutions are required or 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 and no additional interest shall be due by reason of nonpayment on the date on which such payment is otherwise stated to be due and payable. This Bond is one of a series of fully registered bonds_,..,. •• "" the title hereof issued in the aggregate principal amount of $7,265,000 rt4fi~~ the "Bonds"), issued pursuant to a certain ordinance of the Ci tfl'C.lll tlr•~•,ilnl~ lblltltd;~n~ se of providing funds with which to make various pl · r 1ty and to pay the costs of issuing the Bonds. ~ D The City has reserv ti redeem the Bonds maturing on or after February 15, 2016, in whole or in part be eir respective scheduled maturity dates, on February 15, 2015, or on any date thereafter, at a price equal to the principal amount of the Bonds so called for redemption plus accrued interest to the date fixed for redemption. If less than all of the Bonds are to be redeemed, the City shall determine the maturity or maturities and the amounts thereof to be redeemed and shall direct the Paying Agent/Registrar to call by lot or other customary method that results in a random selection of the Bonds, or portions thereof, within such maturity and in such principal amounts, for redemption. Notice of such redemption or redemptions shall be given by first class mail, postage prepaid, not less than thirty (30) days before the date fixed for redemption, to the registered owner of each of the Bonds to be redeemed in whole or in part. Notice having been so given, the Bonds or portions thereof designated for redemption shall become due and payable on the redemption date specified in such notice; from and after such date, notwithstanding that any of the Bonds or portions thereof so called for redemption shall not have been surrendered for payment, interest on such Bonds or portions thereof shall cease to accrue. As provided in the Ordinance, and subject to certain limitations therein set forth, this Bond is transferable upon surrender of this Bond for transfer at the Designated Payment/Transfer Office of the Paying Agent/Registrar with such endorsement or other evidence of transfer as is acceptable to the Paying Agent/Registrar; thereupon, one or more new fully registered Bonds of the same stated maturity, of authorized denominations, bearing the same rate of interest, and for the same aggregate principal amount will be issued to the designated transferee or transferees. Neither the City nor the Paying Agent/Registrar shall be required to issue, transfer or exchange any Bond called for redemption where such redemption is scheduled to occur within forty-five (45) calendar days of the transfer or exchange date; provided, however, such limitation shall not be applicable to an exchange by the registered owner of the uncalled principal balance of a Bond. The City, the Paying Agent/Registrar, and any other person may treat the person in whose name this Bond is registered as the owner hereof for the purpose of receiving payment as herein LUB200nl002 Dallas 1008420_1.DOC -2- ..., ) ' provided ( except interest shall be paid to the person in whose name this Bond is registered on the Record Date) and for all other purposes, whether or not this Bond be overdue, and neither the City nor the Paying Agent/Registrar shall be affected by notice to the contrary. IT IS HEREBY CERTIFIED AND RECITED that the issuance of this Bond and the series of which it is a part is duly authorized by law, and has been authorized by a vote of the properly qualified electors of the City; that all acts, conditiou.x-, ..... ,u ings required to be done precedent to and in the issuance of the Bonds have hPl'lff"'l'w-n,~1 e and performed and have happened in regular and due time, form aruH11taru1er1 te<:IYJr~ law; and that ad valorem taxes upon all taxable property i J:IOl'l(!J;' Q«:IC:at 11;~·:::-Rtl pledged to the payment of the debt s..-vice requirem~ ti,, cribed by law. WB200nt002 Dallas 1008420_1.DOC -3- ... ' ) IN WITNESS WHEREOF, the City has caused this Bond to be executed by the manual or facsimile signature of the Mayor of the City and countersi y the manual or facsimile signature of the City Secretary, and the official seal been duly impressed or City Secretary, City of Lubbock, Texas LUB200nt002 Dallas 1008420_1.DOC -4- ... 1 ) CERTIFICATE OF PA YING AGENT/REGISTRAR The records of the Paying Agent/Registrar show that the Initial Bond of this series of bonds was approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas, and that this is one of the Bonds referred to in the within-mentioned Ordinance. NK, NATIONAL Authorized Signatory LUB200nl 002 Dallas 1008420_1.DOC -5- "\ ., ) ... .I ' , ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto (print or typewrite name, address and Zip Code of transferee): _____________ _ Date: ________ _ Signature Guaranteed By: Authorized Signatory WB200nt002 Dallas 1008420_1.DOC p oints s tion hereof, with full power of 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 and must be guaranteed in a manner acceptable to the Paying Agent/Registrar. -6- J J MBIA REVISED AS OF AUGUST 29, 2005 COMMITMENT TO ISSUE A FINANCIAL GUARANTY INSURANCE POLICY Application No.: 2005-007255-001 Sale Date: July 28, 2005 Program Type: Negotiated DP Re: $7,265,000 City of Lubbock, Texas (Lubbock County), General Obligation Bonds, Series 2005 (the "Obligations") This commitment to issue a financial guaranty insurance policy (the "Commitment") dated August 29, 2005, constitutes an agreement between CITY OF LUBBOCK. TEXAS (the "Applicant") and MBIA Insurance Corporation (the "Inswer"), a stock insurance company incorporated m1der the laws of the State of New York. · · · Based on an approved application dated July 22, 2005, the Insurer agrees, upon satisfaction of the conditions herein, to issue on the earlier of (i} 120 days of said approval date or (ii) on the date of delivery of and payment for the Obligations, a financial guaranty insurance poli~y (the nPolicy") for the Obligations, insuring the payment of principal of and interest on the Obligations when due. The issuance of the Policy shall be subject to the following terms and conditions: l. Payment by the Applicant, or by the Trustee on behalf of the Applicant, on the date of delivery of and payment for the Obligations, of a nonrefundable premium in the amount· of $20,900 [ .195% (premiwn rate) of $10,702,610.85 (total debt service), premium rounded to the nearest hundred]. The premium set out in this paragraph shall be the total premium required to be paid on the Policy issued pursuant to this Commitment 2. The Obligations shall have received the unqualified opinion of bond counsel with respect to the tax-exempt status of interest on the Obligations. 3. There shall have been no material adverse change in the Obligations or the Resolution, Bond Ordinance, Trust Indenture or other official document authorizing the issuance of the Obligations or in the final official statement or other similar document, including the fiilaitcial .statements included therein. . .. 4. There shall have been no material adverse change in any information sub~itted t~ tlle Insurer as a part of the application or subsequently submitted to be a part of the application. to:_the Insurer. · :.,.· ,.·. 5. No event shall have occurred which would allow any underwriter .or··-~y ~-.Qth~-r purchaser of the Obligations not to be required to purchase the Obligations at closing .. ·: . . . ·· . . · .. · 6. A Statement of Insurance satisfactory to the Insurer shall be printed on the Obligations. 7. Prior to the delivery of and payment for the Obligations, none of the information or documents submitted as a part of the application to the Insurer shall be determined to contain.any untrue or misleading statement of a material fact or fail to state a material fact required to, be stated therein or necessary in order to make the statements contained therein not misleading.:·· ' 8. No material adverse change affecting any security for the Obligations shall have occurred prior to the delivery of and payment for the Obligations. : ~--:. :: .. ... . • ... ) > Received 08/05/2005 08:58AN in 01:08 on line (6] for J\11684 • Pg 2/2 Aug-05-05 07:29A AtBIA P.02 9. The Insurer's "Payments Under the Policy/Other Required Provisions" (see auaehed) shall be included in the authorizing document. 10. The Applicant agrees not to use the Insurer's name in any public docwnent including, without limitation, a press release or presentation, announcement or forum without the Insurer's prior consent; provided however, such prohibition on the use of the Insurer's name shall n~t relate to the use of the Insurer's standard approved fonn of disclosure in public documents issued in connection ""ith &he current Obligations to be issued in accordance with the terms of the Commitment; and provided further such prohibition shall not apply to the use of lbe Insurer's name in order to comply with public notice, public meeting or public reporting requirements. 11. This Commitment may be signed in counterpart hy the parties hereto. Dated thjs 1st day of August, 2005. CITY OF LUBBOCK. TEXAS By; dfw~ Title: e;!"IJLtJt:,/2:J. I ... .,J ") ""> ) MBIA FINANCIAL GUARANTY INSURANCE POLICY MBIA Insurance Corporation Armonk, New York 10504 Policy No. 46 756. MBIA lrnurancc Corporation (the "Irumrer"), in consideration of lhe payment of the premium and subject to the terms of this ·policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following descnbed obligations, the full and complete payment required to be made by or on behaJf oflhe Issuer to JPMorgan Chase Bank, National Association, Dallas, Texas or its successor (the .. "Paying Agent") of an amount equal to (i) the principal of ( either at the Slated maturity or by any advancement of maturity pwsuant to a mandatory sinking fund payment) and interest on, the Obligations (as that term is defined below) as such payment5 shall become due but shall not be so paid ( except lhat in !he· event of any acceleration of the due dare of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant ID a mandatory sinking fund payment, the payments 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, unless lhe hmirer elects in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbu!sement of any such payment which i5 subsequently recovered from any owner pursuant to a final judgment by a court of competent jurisdiction lhat such payment constillltes an avoidable preference ID such owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding ~ce shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean: $7,265,000 City of Lubbock, Texac; General Obligation Bonds Series2005 Upon receipt of telephonic or telegraphic notice, such notice subsequently confinned in writing by registered or certified mai~ or upon receipt of "'1itten notice by registered or certified mail, by the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after r~ipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an accoWl.t with U.S. Bank Trust National Association, in New y oi:k, New York, or its successor, sufficient for the payment of any such Insured AmoWlts which are then due. Upon presentment and swrender of~ Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the lruurer, and appropriate instrwnents to effect the appointment of die lrisui"&·as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounls on the Obligations, such ~enkbeing in a form satisfuctri,y to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disb~ to such owners. or the Paying Agent payment ·or·the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such lruured ~iutts iuid legally available therefor. This policy does not insure against IOS-$ of any prepayment premium which may at any time be payable with"respeci to any Obligation. . . .. . . As used herein, the tenn "owner'' shall mean the registered owner of any Obligation as indicated in lhe books maintained by the Paying Ag~t the Issuer, or any de&ignee of the Issuer for such purpose. The tmn owner shall not include the Issuer or any party whose agreement ~ the ~er co~ the ~lying security for the Obligations. . • . . . Any service of proce5.5 on the insurer may be made to the Insurer at its offices located at 113 King Street, Annonk, New York I 0504-aiid:such service of process shall be valid and binding. This policy is non<ancellable for any ~IL The premium on this policy is not refundable for any reason including the payment prior to ·matwity of the Obligations. IN WITNESS WHEREOF, the Insurer has caused this policy lo be executed in facsimile on its behalf by its duly authorized officers, this 1st day of ~ber, 2005. Attest: DISC,LOSURE OF GUARANTY FUND NONPARTICIPA TION: In the event lhc Insurer is unable to fulfill its contracrual obligation under Ibis policy or contract or applicalion or certificate or evidence of coverage, the policyholder or certificateholder is not protecled by an insurance guaranty fund or other solvency protection arrangement. • • ~ ;. ' l ··,, .. :· .. :·, .,.·. :.· :. ) MBIA Capital Strength. Triple-A Performance. September 1, 2005 JPMorgan Chase Bank, National Association Dallas, Texas Ladies and Gentlemen: $7,265,000 City of Lubbock, Texas General Obligation Bonds Series 2005 MBIA Insurance Corporation 113 King Street, Armonk, NY 10504 Tel 914-273-4545 www.mbia.com 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 CoipOration (the "Insurer''). U.S. Bank Trust National Association, New York, New York, (the "Fiscal Agent") is acting as the fiscal agent for the lrnurer. The Policy wiconditionally 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 amount equal to (i) the principal of ( either at the stated maturity or by any advancement of maturity ) pursuant to a mandatory sinking fund 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 fund payment, the payments guaranteed by the 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 pursuant to a final judgment by a court'of competent jurisdiction that such payment constitutes an avoidable preference (a "Preference") to the Owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding sentence are referred to collectively in this letter as the "Insw-ed Amounts." J The Policy does not insure against loss of any prepayment premium which may at any time ·be payaJ:,le with respect to any Obligations. The Policy does not. under any circwnstance, 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; (ili) payments of the purchase price of Obligations upon tender by an Owner thereof; or (iv) any Preference relating to (i) through (iii) above. ' J ) ) ) 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 cilier receipt of such notice, whichever is later, the Insurer will deposit fuoos with the Fiscal Agent sufficient to pay the Obligations (or, if applicable, coupons appertaining 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 ins1ruments of assignment 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 for the Owners in any legal proceeding related to payment of lnsw_ed Amowits on the Obligations ( or, if applicable, coupons), such instruments being in a fonn satisfactory to. the Fiscal Agent, 1he Fiscal Agent shall disburse to you payment of the Insured Amounts due on such Obligations (and, if applicable, coupons), less any amount held by you for the payment of such Insured Amounts and legally available therefor. Fonns of such instruments of assignment and instruments to effect the appointment of the Insurer as such agent for the Owners (collective)y, the "C)aim Documents"), 'Which are currently acceptable to the Fiscal Agent and the Insurer, are on file with the Fiscal Agent. The lnsmer may, from time to time, file revised forms of Claim Documents with the Fiscal Agent in substitution for the forms previously filed with the Fiscal Agent, and upon such filing, the revised forms shall supersede all fo1TI1s of Claim l;)ocume~ previous)y 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 payrribnt' 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 swrendered Obligations (and, if applicable, coupons). · Your cooperation in this matter will be most appreciated and will make it possible for the Own~is ~f Obligations guaranteed by the Insurer to be assured of all payments when due. . . ; :· .. Neil G. Budnick President ' . . •'; ,1 ••• . •. ·. •' •: .. . . ' ·-. ''; . \ . : . . ..~:.: . ·,: . ~;_: . ; ~ : ... :.:•ii ,,:--. · .. .. . . . · . . . : ':·· :-' . _ .. . . ' .. "'\ .., ) ) j ) GENERAL CERTIFICATE We, the undersigned, Mayor, City Secretary and Chief Financial Officer/Assistant City Manager, respectively, of the City of Lubbock, Texas (the "City''), do hereby certify the following information: 1. This certificate relates to the City of Lubbock, Texas, General Obligation Bonds, Series 2005 (the "Bonds"), dated July 15, 2005. Capitalized terms used herein and not otherwise defined shall have the meaning assigned thereto in the ordinance authorizing the issuance of the Bonds (the "Ordinance"). 2. The total tax supported debt of the City, after giving effect to the issuance of the proposed Bonds, is $342,070,000. 3. The assessed value of property for the purpose of taxation in the City of Lubbock, Texas, as shown by its official tax rolls for the year 2004, being its latest approved official assessment rolls is $8,664,190,909, which amount is net of the amount of any exemptions to which property otherwise subject to taxation was entitled pursuant to applicable provisions of the Constitution and laws of the State of Texas. 4. A true and correct copy of the debt service schedule for the Bonds and all other outstanding indebtedness of the City payable from ad valorem truces is set forth in the table entitled "General Obligation Debt Service Requirements" on page 37 of the City's Official Statement under the heading "DEBT INFORMATION," such debt service schedule being incorporated herein by reference for all purposes. 5. The City of Lubbock, Texas, is a duly incorporated Home Rule City, and is operating and existing under the Constitution and laws of the State of Texas and the duly adopted Home Rule Charter of the City. The Home Rule Charter was last amended at an election held in the City on November 2, 2004. 6. The following are duly qualified and acting, elected or appointed officials of the City of Lubbock, Texas: Marc McDougal, Mayor Tom Martin, Mayor Pro Tern Lou Fox, City Manager Lee Ann Dumbauld, Chief Financial Officer/ Assistant City Manager Becky Garza, City Secretary Linda Deleon Floyd Price Gary 0. Boren Phyllis S. Jones Jim Gilbreath ) ) ) Membersof ) the Council ) 7. No litigation of any nature has been filed or is now pending 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 questioning the proceedings or authority concerning the issuance of the Bonds, and so far as we know and believe, no such litigation is threatened. LUB200-71002 Dallas 995498_1.00C ) ) '.) ..... ., ) ) ) 1 8. Neither the corporate existence nor the boundaries of the City, nor the title of its present officers to their respective offices is being contested, and so far as we know and believe no litigation is threatened regarding such matters, and no authority or proceedings for the issuance of the Bonds have been repealed, revoked or rescinded. 9. There has not been filed or presented to the City Secretary or the City Council any petition protesting. challenging or otherwise questioning the issuance of the Bonds. 10. The City is not in default in the payment of principal and interest on its debt obligations. 11. The descriptions and statements of or pertaining to the City contained in its Official Statement pertaining to the Bonds (the "Official Statement"), and any addenda, supplement or amendment with respect to such descriptions or statements thereto, on the date of such Official Statement, on the date of sale of the Bonds and on the date of the delivery, were and are true and correct in all material respects . 12. Insofar as the City and its affairs, including its financial affairs, are concerned, such Official Statement did not and does not contain an 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 misleading. 13. Insofar as the descriptions and statements, including financial data, of or pertaining to entities other than the City and their activities contained in such Official Statement are concerned, such statements and data have been obtained from sources which the City believes to be reliable and the City has no reason to believe that they are untrue in any material respect. 14. There has been no material adverse change in the financial condition and affairs of the City since the date of the Official Statement. 15. The undersigned Mayor and City Secretary officially executed and signed the Bonds, including the Initial Bond delivered to the initial purchaser of the Bonds, by manually executing the Bonds or by causing facsimiles of our manual signatures to be imprinted or copied on each of the Bonds, and we hereby adopt said manual or facsimile signatures as our own, respectively, and declare that said facsimile signatures constitute our signatures the same as if we had manually signed each of the Bonds. 16. The Bonds, including the Initial Bond delivered to the initial purchasers of the Bonds, are substantially in the fonn, and have been duly executed and signed in the manner, prescribed in the ordinance authorizing the issuance of the Bonds. 17. At the time we so executed and signed the Bonds we were, and at the time of executing this certificate we are, the duly chosen, qualified, and acting officers indicated therein, and authorized to execute the same. LUB200n1002 Dallas 995498_1.00C -2- ) ) ) ) ) ' , 18. We have caused the official seal of the City to be impressed, or printed, or copied on each of the Bonds; and said seal on the Bonds has been duly adopted as. and is hereby declared to be, the official seal of the City. [EXECUTION PAGE FOLLOWS] WB2oon1002 Dallas 995498_1.00C -3- ) ) EXECUTED AND DELIVERED this ¥· I r 2.-cnt ::,-- STATE OF TEXAS § OFFICIAL TITLES Mayor, City of Lubbock, Texas Chief Financial Officer/ Assistant City Manger City of Lubbock, Texas City Secretary, City of Lubbock, Texas § ) COUNTY OF LUBBOCK § Before me, the undersigned authority, on this day personally appeared Marc McDougal, Mayor, Rebecca Garza, City Secretary, and Lee Ann Dumbauld, Chief Financial Officer/ Assistant City Manager of the City of Lubbock, Texas, each known to me to be such person who signed the above and foregoing certificate in my presence and each acknowledged to me that such person executed the above and foregoing certificate for the purposes therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE THIS Z~ 4j ~ ~ No~ In and for the State of Texas [SEAL] LUB200nt002 Dallas 995498_1.DOC -4- ) ) ) ) The Attorney General of Texas William P. Clements Building 300 West 15th Street, 9th Floor Austin, Texas 78701 Attention: Public Finance Division Comptroller of Public Accounts Thomas Jefferson Rusk Building 208 East 10th Street, Room 448 Austin, Texas 78701-2407 City of Lubbock, Texas July 28, 2005 Attention: Economic Analysis Center Re: City of Lubbock, Texas General Obligation Bonds, Series 2005 To the Attorney General: The executed Initial Bond for the captioned series has been or soon will be delivered to you for examination and approval. In connection therewith, enclosed is a General Certificate executed and completed except as to date. When the Initial Bond has received your approval and is ready for delivery to the Comptroller of Public Accounts for registration, this letter will serve as your authority to insert the date of your approval in the General Certificate and deliver the Initial Bond to the Comptroller. Should litigation in any way affecting such Bonds develop the undersigned will notify you at once by telephone and telecommunication. You may be assured, therefore, that there is· no such litigation at the time the htitial Bond is finally approved by you, unless you have been advised otherwise. To the Comptroller: The approved Initial Bond for the captioned series will be delivered to you by the Attorney General of Texas. You are hereby requested to register the Initial Bond as required by law and by the proceedings authorizing such Initial Bond. Following registration, you are hereby authorized and directed to notify and deliver the Initial Bond to Vinson & Elkins L.L.P., Dallas, Texas, which has been instructed to pick up same at your office. WB2oon!002 Dallas 995499_1.DOC ) ) Please also deliver to Vinson & Elkins L.L.P., Dallas, Texas, five copies of each of the following: 1. 2. LUB200/7 I 002 Dallas 995499_1.DOC Attorney General's approving opinion; and Comptroller's signature certificate. Very truly yours, -2- ) ) ) ) FEDERAL TAX CERTIFICATE I, the undersigned officer of the City of Lubbock, Texas (the "Issuer"), make this certification for the benefit of all persons interested in the exclusion from gross income for federal income tax purposes of the interest to be paid on the General Obligation Bonds, Series 2005 (the "Bonds") which are being issued and delivered simultaneously with the delivery of this Certificate. I do hereby certify as follows in good faith as of the date hereof (the "Issue Date"): I . Definitions. Each capitalized term used in this Certificate has the meaning or is. the amount, as the case may be, specified for such term in this Certificate or in Exhibits to this Certificate and shall for all purposes hereof have the meaning or be the amount therein specified. All such terms defined in the Code or Regulations shall for all pmposes hereof have the same meanings as given to those terms in the Code and Regulations unless the context clearly requires otherwise. 2. Responsible Officer. I am the duly chosen, qualified and acting officer of the Issuer for the office shown below my signature; as such, I am familiar with the facts herein certified and I am duly authorized to execute and deliver this Certificate on behalf of the Issuer. I am the officer of the Issuer charged, along with other officers of the Issuer, with responsibility for issuing the Bonds. 3. Code and Regulations. I am aware of the provisions of sections 141, 148, 149 and 150 of the Internal Revenue Code of 1986, as amended (the "Code"), and the Treasury Regulations (the .. Regulations") heretofore promulgated under sections 141, 148, 149 and 150 of the Code. This Certificate is being executed and delivered pursuant to sections 1.141-1 through 1.141-15, 1.148-0 through 1.148-11, 1.149(b)-l, l.149(d)-l, 1.149(g)-I, 1.150-1 and 1.150-2 of the Regulations. 4. Reasonable Expectations. The facts and estimates that are set forth in this Certificate are accurate. The expectations that are set forth in this Certificate are reasonable in light of such facts and estimates. There are no other facts or estimates that would materially change such expectations. In connection with this Certificate, the undersigned has to the extent necessary reviewed the certifications set forth herein with other representatives of the Issuer as to such accuracy and reasonableness. The undersigned has also relied, to the extent appropriate, on representations set forth in the Issue Price Certificate of A.G. Edwards & Sons, Inc. (the "Underwriters"), attached as Exhibit A to this Certificate, and the certificate of First Southwest Company (the "Financial Advisor"), attached as Exhibit B to this Certificate. The undersigned is aware of no fact, estimate or circumstance that would create any doubt regarding the accuracy or reasonableness of all or any portion of such documents. 5. Description of Governmental Pwpose. The Issuer is issuing the Bonds pursuant to the resolution, order or ordinance, as the case may be, adopted by the Issuer for purposes of authorizing the issuance of the Bonds (the "Bond Document11) for the purposes of funding ( a) the Project as described more fully in the Official Statement prepared in connection with the offering of the Bonds and (b) the costs of issuance of the Bonds. The primary purpose of each transaction undertaken in connection with the issuance of the Bonds is a bona fide governmental purpose. 10086I4_1.DOC ) 'I ) The Project is described as follows: street improvements, acquiring and improving parks, and constructing, renovating, improving and equipping fire stations. 6. Amount and Expenditure of Sale Proceeds of the Bonds. (a) Amount of Sale Proceeds. The Issuer sold the Bonds to the Underwriters for $7,173,195.42, which price does not include Pre-Issuance Accrued Interest. The Sale Proceeds from the issuance of the Bonds is $7,221,182.70, based on the amount set forth on Exhibit A hereto. Such amount represents the Stated Redemption Price at Maturity (excluding Pre- Issuance Accrued Interest for those Bonds the interest on which is paid at least once annually) of the Bonds, plus any Original Issue Premium, less any Original Issue Discount. No portion of the purchase price of any of the Bonds is provided by the issuance of any other issue of obligations. (b) as follows: Expenditure of Sale Proceeds. The Sale Proceeds of the Bonds will be expended (i) The amount of $47,987.28 will be allocated on the date of issuance of the Bonds to the payment of Underwriters' discount or compensation. (ii) The amount of $75,000.00 will be disbursed to pay other Issuance Costs on the Bonds (including any rating agency fees charged to the Issuer by the Bond insurer). (iii) Toe amount of $20,900.00 will be allocated on the date of issuance of the Bonds to the payment of Bond Insurance Premium on the Bonds (net of any rating agency fees). (iv) The amount of $7,075,000.00 will be deposited in the Construction or Project Fund and is expected to be disbursed to pay or reimburse the costs of acquisition and construction of the Project. The aggregate amount of the costs of acquisition and construction of the Project is anticipated to be not less than such amount. Any costs of the Project not financed out of original or investment proceeds of the Bonds will be financed out of the Issuer's available funds. (v) The amount of $2,295.42 will be deposited in the Debt Service Fund, and will be disbursed on the first interest payment date for the Bonds. ( c) Reimbursement. Other than to the extent of preliminary expenditures (i.e., architectural, engineering, surveying, soil testing, Bond issuance, and similar costs that are incurred prior to commencement of acquisition, construction, or rehabilitation of the Project, other than land acquisition, site preparation, and similar costs incident to commencement of construction), no portion of the amount described in paragraph 6(b) above will be disbursed to reimburse the Issuer for any expenditures made by the Issuer prior to the date that is 60 days before the earlier of the Issue Date or the date the Issuer adopted a resolution (the "Declaration"), if any, describing the Project, stating the maximum principal amount of obligations expected to be issued for the Project, and stating the Issuer's reasonable expectation on that date that it would reimburse expenditures for costs of the Project with proceeds of an obligation. The Declaration, if any, is not an official intent to reimburse that was declared as a matter of course, or in an -2- 10086I4_1.DOC ) ... ) ) amount substantially in excess of the amount expected to be necessary for the Project. The Issuer has not engaged in a pattern of failure to reimburse original expenditures covered by official intents. Such reimbursed portion will be treated as spent for purposes of paragraphs 1 l(b) and 15 below. Any such Declaration is attached hereto as Exhibit C. (d) No Working Capital. Except for an amount that does not exceed 5 percent of the Sale Proceeds of the Bonds (and that is directly related to capital expenditures financed by the Bonds), the Issuer will only expend proceeds of the Bonds for (i) costs that would be chargeable to the capital accounts of the Project if the Issuer's income were subject to federal income taxation and (ii) interest on the Bonds in an amount that does not cause the aggregate amount of interest paid on all of the Bonds to exceed that amount of interest on the Bonds that is attributable to the period that commences on the date hereof and ends on the later of (A) the date that is three years from the Issue Date of the Bonds or (B) the date that is one year after the date on which the Project is placed in service. (e) No Sale of Conduit Loan. No portion of the sale proceeds of the Bonds has been or will be used to acquire, finance, or refinance any conduit loan. (f) No Overissuance. The proceeds of the Bonds will not exceed by more than a minor portion (as defined in paragraph 13 below) the amount necessary to accomplish the governmental purposes of the Bonds and, in fact, are not expected to exceed by any amount the amount of proceeds allocated to expenditures for the governmental purposes of the Bonds. (g) Allocations and Accounting. The proceeds of the Bonds will be allocated to expenditures not later than 18 months after the later of the date the expenditure is made or the date the Project is placed in service, but in no event later than the date that is 60 days after the fifth anniversary of the date hereof or the retirement of the last Bond, if earlier. The allocation of proceeds will be made by consistently employing the direct-tracing method of accounting. No proceeds of the Bonds will be allocated to any expenditures to which proceeds of any other obligations have heretofore been allocated. The Issuer will maintain records and documentation regarding the allocation of expenditures to proceeds of the Bonds and the investment of gross proceeds of the Bonds for at least six years after the close of the final calendar year during which any Bond is outstanding. 7. Pre-Issuance Accrued Interest. The Issuer will also receive from the Underwriters on the Issue Date of the Bonds Pre-Issuance Accrued Interest from the Dated Date through the Issue Date in the amount of $36,644.11. Such amount will be deposited in the Debt Service Fund, and will be disbursed on the first interest payment date for the Bonds. 8. Expenditure of Investment Proceeds. The best estimate of the Issuer is that Investment Proceeds resulting from the investment of any proceeds of the Bonds pending expenditure of such proceeds for costs of the Project will be retained in the Construction Fund and disbursed to pay or reimburse Project costs in addition to those described in paragraph 6 above. 9. No Replacement Proceeds. Other than amounts described herein, there are no amounts that have a sufficiently direct nexus to the Bonds or to the governmental purposes of the -3- 1008614_1.DOC ) ) ) ) Bonds, other than solely by reason of the mere availability or preliminary earmarking, that the amowits would have been used for such purpose if the proceeds of the Bonds were not used or to be used for such purpose. (a) No Sinking Funds. Other than to the extent described herein, there is no debt service fund, redemption fund, reserve fund, replacement fund, or similar fund reasonably expected to be used directly or indirectly to pay principal or interest on the Bonds. (b) No Pledged Funds. Other than amounts described herein, there is no amount that is directly or indirectly pledged to pay principal or interest on the Bonds, or to a guarantor of part or all of the Bonds, such that such pledge provides reasonable assurance that such amount will be available to pay principal or interest on the Bonds if the Issuer encounters financial difficulty. For purposes of this certification, an amount is treated as so pledged if it is held under an agreement to maintain the amount at a particular level for the direct or indirect benefit of the holders or the guarantor of the Bonds. ( c) No Other Replacement Proceeds. There are no other replacement proceeds allocable to the Bonds because the Issuer reasonably expects that the term of the Bonds will not be longer than is reasonably necessary for the governmental purposes of the Bonds. The Bonds would be issued to achieve the governmental purpose of the Bonds independent of any arbitrage benefit as evidenced by the expectation that the Bonds reasonably would have been issued if the interest on the Bonds were not excludable from gross income ( assuming that the hypothetical taxable interest rate would be the same as the actual tax-exempt interest rate). (d) Weighted Average Economic Life. The Weighted Average Maturity of the Bonds will not be greater than 120 percent of the weighted average estimated economic life of the portion of the Project financed, determined in accordance with section 147(b) of the Code. Such weighted average estimated economic life is determined in accordance with the following assumptions: (a) The weighted average was determined by taking into account the respective costs of each asset financed by the Bonds, (b) the reasonably expected economic life of an asset was determined as of the later of the date hereof or the date on which such asset is expected to be placed in service (i.e., available for use for the intended purposes of such asset); ( c) the economic lives used in making this determination are not greater than the useful lives used for depreciation under section 167 of the Code prior to the enactment of the current system of depreciation in effect under section 168 of the Code (i.e., the "mid-point lives") under the asset depreciation range ("ADR") system of section 167(m) of the Code, as set forth in Revenue Procedure 83-35, 1983-1 C.B. 745, where applicable, and the "guideline lives" under Revenue Procedure 62-21, 1962-2 C.B. 418, in the case of structures; and (d) land or any interest therein has not been taken into accowit in determining the average reasonably expected economic life of such Project, unless 25 percent or more of the net proceeds of the Bonds is to be used to finance land. 10. Yield on the Bonds. For the purposes of this Certificate, the Yield on the Bonds is the discount rate that, when used in computing the present value as of the Issue Date of the Bonds, of all unconditionally payable payments of principal, interest and fees for qualified guarantees on the Bonds, produces an amount equal to the present value, using the same discount rate, of the aggregate Issue Price of the Bonds as of the Issue Date. For purposes of determining the yield on the Bonds, the Issue Price of the Bonds is the sum of the issue prices for each group -4- 1008614_1.DOC ) ) ) ) of substantially identical Bonds, plus Pre-Issuance Accrued Interest. For each group of substantially identical Bonds, the issue price is the first price at which a substantial amount (i.e., ten percent) is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters and wholesalers). The Issue Price is based upon the representations of the Underwriters set forth in Exhibit A hereto. No Underwriters' discount, issuance costs, or costs of carrying or repaying the Bonds is taken into account for purposes of computing the yield on the Bonds, except the cost of the Bond Insurance Premium. As set forth in paragraph 6(b)(iii) above, proceeds of the Bonds will be allocated on the date of issuance of the Bonds to the payment to the Insurer for municipal bond insurance for the Bonds. The Bond Insurance Premium paid to the Insurer is a qualified guarantee fee because: (a) As of the date hereof, the present value of the Bond Insurance Premium paid to the Insurer will be less than the present value of the expected interest savings on the Bonds as a result of the guarantee, computed using the Yield on the Bonds ( determined with regard to such guarantee payments) as the discount rate; (b) The guarantee creates a guarantee in substance because it imposes a secondary liability on the Insurer that unconditionally (except for reasonable procedural or administrative requirements) shifts substantially all of the credit risk for all or part of the payments on the Bonds; (c) The Insurer is not a co-obligor and does not expect to make any payments other than payments for which the Insurer will be reimbursed immediately; ( d) The Insurer and any related parties will not use more than ten percent of the gross proceeds of the Bonds that are guaranteed by the Insurer; ( e) The Bond Insurance Premium paid or to be paid to the Insurer does not exceed a reasonable ann's length charge for the transfer of credit risk; (f) The Bond Insurance Premium paid or to be paid to the Insurer does not include any payment for any direct or indirect services other than the transfer of credit risk (including fees for the Insurer's overhead and other costs relating to the transfer of credit risk); (g) The Bond Insurance Premium paid or to be paid to the Insurer does not include any payments for the costs of underwriting or remarketing the Bonds or for the cost of insurance for casualty to the Issuer's property; (h) No portion of the Bond Insurance Premiwn paid or to be paid to the Insurer is refundable upon redemption of the Bonds before the final maturity date in an amount that would exceed the portion of such Bond Insurance Premium that had not been earned; and (i) The Insurer is reasonably assured that the Bonds will be repaid if the Project is not completed. The Yield with respect to that portion of the Bonds, if any, subject to optional redemption is computed by treating such Bonds as retired at the stated redemption price at the final maturity -5- I 008614_1.DOC ) ) ) date because (a) the Issuer has no present intention to redeem prior to maturity the Bonds that are subject to optional redemption; (b) no Bond is subject to optional redemption at any time for a price less than the retirement price at final maturity plus accrued interest; (c) no Bond is subject to optional redemption within five years of the Issue Date of the Bonds; (d) no Bond subject to optional redemption is issued at an issue price that exceeds the stated redemption price at maturity of such Bond by more than one-fourth of one percent multiplied by the product of the state redemption price at maturity of such Bond and the number of complete years to the first optional redemption date for such Bond; and (e) no Bond subject to optional redemption bears interest at a rate that increases during the term of the Bond. In the case of that portion of the Bonds, if any, subject to mandatory redemption, the yield on the Bonds is calculated by treating the outstanding stated principal amounts payable on the mandatory redemption dates as payments on such dates because the Underwriters have represented that the stated redemption price at maturity of such Bonds does not exceed the issue price of such Bonds by more than one-fourth of one percent multiplied by the product of the stated redemption price at maturity and the number of years to the date of the weighted average maturity ( determined by talcing into account the mandatory redemption schedule) of such Bonds. The Yield on the Bonds is calculated in the manner set forth above. The Issuer has not entered into a hedging transaction with respect to the Bonds. The Issuer will not enter into a hedging transaction with respect to the Bonds unless there is first received an opinion of nationally recognized bond counsel to the effect that such hedging transaction will not adversely affect the exclusion of interest on the Bonds from gross income for federal income tax purposes. 11. Temporary Periods and Yield Restriction. (a) Pre-Issuance Accrued Interest. The amount described in paragraph 7 represents Pre-Issuance Accrued Interest on the Bonds for a period not in excess of one year and will be expended within one year; therefore, such amount may be invested at an unrestricted yield. (b) Project. The Issuer has incurred or will incur within six months of the date hereof a binding obligation to a third party which is not subject to any contingencies within the control of the Issuer or a related party pursuant to which the Issuer is obligated to expend at least five percent of the sale proceeds of the Bonds on the Project. The Issuer reasonably expects that work on or acquisition of the Project will proceed with due diligence to completion and that the proceeds of the Bonds will be expended on the Project with reasonable dispatch. The Issuer reasonably expects that 85 percent of the Sale Proceeds of the Bonds will have been expended on the Project prior to the date that is three years after the Issue Date. Any Sale Proceeds not expended prior to the date that is three years after the Issue Date, will be invested at a yield not "materially higher" than the Yield on the Bonds, except as set forth in paragraph 13 below. The Issuer reasonably expects that any amount derived from the investment of moneys received from the sale of the Bonds and from the investment of such investment income will not be commingled with substantial other receipts or revenues of the Issuer and will be expended prior to the date that is three years after the Issue Date, or one year after receipt of such investment income, whichever is later. Any such investment proceeds not expended prior to such date will -6- 1008614_1.DOC "\ ) ) be invested at a yield not "materially higher" than the Yield on the Bonds, except as set forth in paragraph 13 below. 12. Debt Service Fund. Pursuant to the Bond Document, the Issuer has created or continued, as the case may be, a debt service fund (the "Debt Service Fund1') and the proceeds from all taxes levied, assessed and collected for and on account of the Bonds are to be deposited in such Fund. The Issuer expects that taxes levied, assessed and collected for and on account of the Bonds will be sufficient each year to pay such debt service. All amounts which will be depleted at least once each bond year, except for a reasonable carryover amount not in excess of the greater of the earnings on such portion of the Fund for the immediately preceding bond year or one-twelfth of the principal and interest payments on the Bonds for the immediately preceding bond year, will constitute a bona fide debt service fund component of the Debt Service Fund (the "Bona Fide Portion•'). Such Bona Fide Portion of the Debt Service Fund will be used primarily to achieve a proper matching of revenues and principal and interest payments on the Bonds within each bond year. Amounts held in the Bona Fide Portion of the Debt Service Fund will be invested at an unrestricted yield because such amounts will be expended within 13 months of the date such amounts are received. The remaining portion of the Debt Service Fund (the "Reserve Portion"). if any, will be treated separately for purposes of this Certificate. Amounts on deposit from time to time in the Bona Fide Portion and the Reserve Portion are allocable between the Bonds and any other obligations of the Issuer secured by the Debt Service Fund on the basis of one of the methods set forth in section l.148-6(e)(6) of the Regulations. The portion of the Reserve Portion allocable to the Bonds will not exceed at any time the least of (a) ten percent of the stated principal amount of the Bonds ( or sale proceeds in the event that the amount of original issue discount exceeds two percent multiplied by the stated redemption price at maturity of the Bonds), (b) the maximum annual principal and interest requirements of the Bonds. and (c) 125 percent of average annual principal and interest requirements of the Bonds. Therefore, all amounts therein may be invested at an unrestricted yield. Any amounts held in the Bona Fide Portion for longer than 13 months or held in the Reserve Portion in excess of the least of the amounts described above, will be invested in obligations the yield on which is not in excess of the Yield on the Bonds, except as set forth in paragraph 13 below. 13. Minor Portion. All gross proceeds will be invested in accordance with paragraphs 11 and 12 above. To the extent such amounts remain on hand following the periods set forth in paragraphs 11 and 12 above or exceed the limits set forth in paragraph 12 above, the Issuer will invest such amounts at a restricted yield as set forth in such paragraphs; provided, however, that a portion of such amounts, not to exceed in the aggregate the lesser of $100,000 or five percent of the sale proceeds of the Bonds (the "Minor Portion"), may be invested at a yield which is higher than the Yield on the Bonds. 14. Issue. There are no other obligations that (a) are sold at substantially the same time as the Bonds (i.e., within 15 days), (b) are sold pursuant to the same plan of financing with the Bonds, and ( c) will be paid out of substantially the same source of funds as the Bonds. 15. Compliance With Rebate Requirements. (a) General. The Issuer has covenanted in the Bond Document that it will take all necessary steps to comply with the requirement that "rebatable arbitrage earnings" on the -7- 1008614_1.DOC ) ) investment of the "gross proceeds" of the Bonds, within the meaning of section 148(f) of the Code be rebated to the federal government. Specifically, the Issuer will (a) maintain records regarding the investment of the "gross proceeds" of the Bonds as may be required to calculate such "rebatable arbitrage earnings" separately from records of amounts on deposit in the funds and accounts of the Issuer which are allocable to other bond issues of the Issuer or moneys which do not represent "gross proceeds" of any bonds of the Issuer, (b) calculate at such intervals as may be required by applicable Regulations, the amount of "rebatable arbitrage earnings," if any, earned from the investment of the "gross proceeds" of the Bonds and (c) pay, not less often than every fifth anniversary date of the delivery of the Bonds and within 60 days following the final maturity of the Bonds, or on such other dates required or permitted by applicable Regulations, all amounts required to be rebated to the federal government. The Issuer will maintain a copy of any such calculations, and all documentation necessary to produce such calculations or necessary to establish qualification for an exemption from the need to produce such calculations, for at least six years after the close of the final calendar year during which any Bond is outstanding. Further, the Issuer will not indirectly pay any amount otherwise payable to the federal government pursuant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the "gross proceeds" of the Bonds that might result in a reduction in the amount required to be paid to the federal government because such arrangement results in a smaller profit or a larger loss than would have resulted if the arrangement had been at arm's-length and had the yield on the issue not been relevant to either party. (b) Two-Year Spending Exception. The Issuer hereby makes the elections, if any, set forth below for purposes of the two-year spending exception from arbitrage rebate: ELECT ~ • • • 1008614_1.DOC DONOT ELECT • NIA IT • • • 1. To use actual facts to apply the provisions of paragraphs ( e) through (m) of section 1.148-7 of the Regulations. Section 1.148-7(£)(2) of the Regulations. 2. To exclude earnings on a reasonably required reserve or replacement fund from the definition of "available construction proceeds" for purposes of the spending requirements. Section l.148-7(i)(2) of the Regulations. 3. To treat the portion of the Tax-Exempt Bonds that is not a refunding issue as two, and only two, separate issues, one of which (a) meets the definition of a construction issue and (b) is reasonably expected as of the date hereof to finance all of the construction expenditures to be financed by the Tax-Exempt Bonds. Section l.148-7(j)(l) of the Regulations. 4. To pay a penalty (the "1-1/2% penalty") to the United States in lieu of the obligation to pay arbitrage rebate -8- ' ) ) ) on available construction proceeds in the event that the Tax- Exempt Bonds fail to satisfy any of the semiannual spending requirements for the two-year rebate exception. Section l.148-7(k)(l) of the Regulations. The Issuer reasonably expects that at least 75 percent of the "available construction proceeds" of the Bonds, within the meaning of section l.148-7(i) of the Regulations, will be allocated to "construction expenditures," within the meaning of section l.148-7(g) of the Regulations, for property owned by the Issuer. 16. Not an Abusive Transaction. (a) General. No action taken in connection with the issuance of the Bonds will enable the Issuer to (i) exploit, other than during an allowable temporary period, the difference between tax-exempt and taxable interest rates to obtain a material financial advantage (including as a result of an investment of any portion of the gross proceeds of the Bonds over any period of time, notwithstanding that, in the aggregate, the gross proceeds of the Bonds are not invested in higher yielding investments over the tenn of the Bonds), and (ii) issue more bonds, issue bonds earlier, or allow bonds to remain outstanding longer than is otherwise reasonably necessary to accomplish the governmental purposes of the Bonds. To the best of our knowledge, no actions have been taken in connection with the issuance of the Bonds other than actions that would have been taken to accomplish the governmental purposes of the Bonds if the interest on the Bonds were not excludable from gross income for federal income tax purposes ( assuming the hypothetical taxable interest rate would be the same as the actual tax-exempt interest rate on the Bonds). (b) No Sinking Fund. No portion of the Bonds has a term that has been lengthened primarily for the purpose of creating a sinking fund or similar fund with respect to the Bonds. (c) No Window. No portion of the Bonds has been structured with maturity dates the primary purpose of which is to make available released revenues that will enable the Issuer to avoid transferred proceeds or to make available revenues that may be invested to be ultimately used to pay debt service on another issue of obligations. 17. No Arbitrage. On the basis of the foregoing facts, estimates and circumstances, it is expected that the gross proceeds of the Bonds will not be used in a manner that would cause any of the Bonds to be an "arbitrage bond" within the meaning of section 148 of the Code and the Regulations. To the best of the knowledge and belief of the undersigned, there are no other facts, estimates or circumstances that would materially change such expectations. 18. No Private Use, Payments or Loan Financing. (a) General. The Issuer reasonably expects, as of the date hereof, that no action or event during the entire stated term of the Bonds will cause either the "private business tests" or the "private loan financing test," as such terms are defined in the Regulations, to be met. (i) No portion of the proceeds of the Bonds will be used in a trade or business of a nongovernmental person. For purposes of detennining use, the Issuer will apply -9- 1008614_1.1:XX:: ' ,,) j ) ) ) rules set forth in applicable Regulations and Revenue Procedures promulgated by the Internal Revenue Service, including, among others, the following rules: (A) Any activity carried on by a person other than a natural person or a state or local govenunental unit will be treated as a trade or business of a nongovernmental person; (B) the use of all or any portion of the Project is treated as the direct use of proceeds; (C) a nongovernmental person will be treated as a private business user of proceeds of the Bonds as a result of ownership, actual or beneficial use pursuant to a lease, or a management or incentive payment contract, or certain other arrangements such as a take-or-pay or other output- type contract; and (D) the private business use test is met if a nongovernmental person has special legal entitlements to use directly or indirectly the Project. (ii) The Issuer has not taken and will not take any deliberate action that would cause or permit the use of any portion of the Project to change such that such portion will be deemed to be used in the trade or business of a nongovernmental person for so long as any of the Bonds remains outstanding (or until an opinion of nationally recognized bond counsel is received to the effect that such change in use will not adversely affect the excludability from gross income for federal income tax purposes of interest payable on the Bonds). For this purpose, any action within the control of the Issuer is treated as a deliberate action. A deliberate action occurs on the date the Issuer enters into a binding contract with a nongovernmental person for use of the Project that is not subject to any material contingencies. (iii) All payments of the debt service on the Bonds will be paid from and secured by a generally applicable tax. For this pwpose, a generally applicable tax is a tax (A) that is an enforced contribution exacted pursuant to legislative authority in the exercise of the taxing power that is imposed and collected for the purpose of raising revenue to be used for governmental purposes and (B) that has a uniform tax rate that is applied to all persons of the same classification in the appropriate jurisdiction using a generally applicable manner of determination and collection. No portion of the payment of the debt service on the Bonds will be directly or indirectly derived from payments (whether or not to the Issuer or any related party) in respect of property, or borrowed money, used or to be used for a private business use. Furthennore, no portion of the payment of the debt service on the Bonds will be directly or indirectly secured by any interest in property used or to be used for a private business use or payments in respect of property used or to be used for a private business use. (iv) No portion of the proceeds of the Bonds will be directly or indirectly used to make or finance a loan to any person other than a state or local governmental unit. Except to the extent permitted by section 141 of the Code and the Regulations and rulings thereunder, the Issuer 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, gross proceeds are considered to be "loaned" to a person or entity if (1) property acquired, constructed or improved with 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 -10- 1008614_1.DOC ) ) benefits, or burdens and benefits of ownership, of such gross proceeds or such property are otherwise transferred in a transaction which is the economic equivalent of a loan. (b) Dispositions of Personal Property in the Ordinary Course. The Issuer does not reasonably expect that it will sell or otherwise dispose of personal property components of the Project financed with the Bonds other than in the ordinary course of an established governmental program that satisfies the following requirements: (i) The weighted average maturity of the portion of the Bonds financing personal property is not greater than 120 percent of the reasonably expected actual use of such personal property for governmental purposes; (ii) The reasonably expected fair market value of such personal property on the date of disposition will be not greater than 25 percent of its cost; (iii) Such personal property will no longer be suitable for its governmental purposes on the date of disposition; and (iv) The Issuer is required to deposit amounts received from such disposition in a commingled fund with substantial tax or other governmental revenues and the Issuer reasonably expects to spend such amounts on governmental programs within 6 months from the date of commingling. Furthermore, the Issuer will not sell or otherwise dispose of all or any portion of the Project in circumstances in which the foregoing requirements are not satisfied unless it has received an opinion of nationally recognized bond counsel to the effect that such disposition will not adversely affect the treatment of interest on the Bonds as excludable from gross income for federal income tax purposes. (c) Other Agreements. The Issuer will not enter into any agreement with any nongovernmental person regarding the use of all or any portion of the Project during the stated term of the Bonds unless it has received in each and every case an opinion of nationally recognized bond counsel to the effect that such agreement will not adversely affect the treatment of interest on the Bonds as excludable from gross income for federal income tax purposes. 19. Weighted Average Maturity. The Weighted Average Maturity of the Bonds set forth on Exhibit B attached to this Certificate is the sum of the products of the Issue Price of each group of identical Bonds and the number of years to maturity (determined separately for each group of identical Bonds and taking into account mandatory redemptions), divided by the aggregate Sale Proceeds of the Bonds. 20. Bonds are Not Hedge Bonds. Not more than 50 percent of the proceeds of the Bonds will be invested in nonpurpose investments (as defined in section 148(f)(6)(A) of the Code) having a substantially guaranteed yield for four years or more within the meaning of section 149(g)(3)(A)(ii) of the Code. Further, the Issuer reasonably expects that at least 85 percent of the spendable proceeds of the Bonds will be used to carry out the governmental purposes of the Bonds within the three-year period beginning on the date the Bonds are issued. -ll- 1008614_1.DOC ) Vinson&Elkins Julie WIiiiams jwiltiams@velaw.com Tef 713.758.3878 Fax 713.815.5059 October 14, 2005 CERTIFIED MAIL RETURN RECEIPT REQUESTED 70031680 0000 6476 9717 District Director Internal Revenue Service Ogden, UT 84201 Re: $7,265,000 City of Lubbock, Texas General Obligation Bonds, Series 2005 Dear Sir: Enclosed please find an originally executed Form 8038-G (Infonnation Return for Tax- Exempt Governmental Obligations) for the above-captioned bond issue. Please acknowledge receipt of the Fonn 8038-G by stamping and returning the copy of the Form 8038-G attached to the self-addressed, postage-paid envelope that we have provided. cc: Julie PartainJ 945755_1.DOC Ymson & Elkins UP Attorneys at Law Austin Beijing Dallas Dubai Houston London Mosoow NewYolk Tokyo Washington Very truly yours, ~ii~ (i!~sA:istant First City Tower, 1001 Fannin Street, Suite 2300, Houston, Texas n002-6760 Tel 713.758.2222 Fax 713.758.2346 -.veiaw.com \ , ) Fonn8038-G Information Return for Tax-Exempt Govemmental Obligations {Ae,,...__2000) • Underlnllrnll ...,...Coda-=tlon 149(8) 0t.11 No. 1645-0no • ........... l'lllrUl:Gon& ~en1a111en....,. nenoal"-"'-Sawoe Caullon: II the Issue prbt Is caw S1oo.DOO. use Form 8038-GC. I Part II =---· .. ng Authority If Amended Return. check here • I I 1 Issuer's name 2 ........ ......,.. ldr::S #en .lumllw Citv ofLubhnl-k Texas 75-6000590 3 Number 111d a1rMI (or P.O. bole If mall la net d81Mll'8CI to lllreet address) AoomlltJlta 4 .Repo,tnumbar P.O. BoxlOOO 3 04 5 ~ bm. or post olllce, $1818, and ZIP COIie • Dala ol lssua Lubbock. Teus 794S7 September 1. 2005 7 Namedlssutl • CUSIPnumber General Ohliaatiou Bonds. Series 2005 549187TS1 9 Name and ... af otllcar or legal representalMt ~ the IRS may c:al for IIIOl'8 lnfatmatlon 10 __,._IU!lberaldf!Oforlegal___,. Lee Ann Dumbauld: CFO/ACM {806) 775--2149 I Part HI Type of Issue check applicable ~es) and enter the Issue price) See instructions and attach schedule 11 D Education • • • . • • • • • • . • • • . . • . • • . • . • • . • • . • . • • . • • • • • • • . . . . • . • • . . • • • • . . • • • . • • • . • 11 12 0 Health and hospital . • . . • . . . . . • . . • . . . . • • . • • • • • • • • . • • • • . . • • . • . • • • • • • • • • • • • • • • • • . 12 13 0 Transpoftation ••••••••••••.•.•..••.•.••••.•••••..•.•.••...••••..• , •••••.•.•. 13 14 D Pubflc safety • • • . . . • . • • • • • . • • . • • . • . . • • . • . . • • • • • • • . • • • • . • • . • . . • . • • . • . • • . . • . . •• 14 15 D Environment (including sewage bonds) .••••.•.••.••.••.••......................... 15 16 • Housing •.•..••..•.•..•.•••.....••••....•.••..•.....••..•..•..•......•.•... 16 17 0 Utilities • . • . . . • • . • • • . • . . • • . • • . . . . . . . • • • . • • . • • . • . • . • . . • • • • . . • . . • • • . • • . • . . • . • . 17 18 Iii Other. Describe• Streets. Parkl1 Fire fi&btinc 18 7.221.183 19 If obligations are TANs or RANs, check box• D If obligations are BANs, check box . • . . . • • D 20 If obligations are in lhe form of a lease or installment sale. d,eck box . • • . . . . • • . • . . • • • . • n I Part 1111 Dascrfption of Obllgatlona. (Complete for the entire issue forwhic:h this form is being filed.) {a) Fina! maturity dala (b) Issue price (ct Slal8d redemption (d) Welghllld (a) Yield price at maturity average mlJIUrlly 21 2/15/202S $ 7_1.21.183 $ 7.265.000 11.238 vears 4.2284% IPartlVI Uses of Proceeds of Bond Issue (lncludina underwriters' dtscount) 22 Proceeds used for accrued interest . . . . . . • . . . . • • . . . . . . . . . . . . . • . . . . . . . . . . . . . . . . . . . . . . . 22 36..644 23 Issue price of entire Issue (enter amount from line 21, column (b)) •.•....•..•.•..•.......... 23 7"'21.183 24 Proceeds used for bond Issuance costs (inducing underwriters' discount) 24 11.1..987 25 Proceeds used for credit enhancement. .........•..•••........... 25 ,nonn ' 28 Proceeds allocated to reasonably required reserve or reptacement fund .. 28 m 'Z'I Prooeeds used to currently refund prior Issues ..................... 'Z'I Ill 28 Proceeds used to adVance rehlnd prior Issues ..••••••••••••••••••• 28 tn 29 Total (acid lines 24 through 28) •.••••.•••.•••••••.•••••••••••.••.•..•.•••••••••••••• 29 143JUl7 30 Nonrefundino Droceeds of the Issue (subtract line 29 from line 23 and enter amount here) •••••••• 30 7.077.296 I PartVI Description of Refunded Bonds (Complete this nart nratu for refundlna bonds.) 31 Enter the remaining weighted average maturity of the bonds to be currently refunded • • . • . . . • . • . • _____ __.yeac..;.;;.;.r~s 32 Enter the remaining weighted average maturity of the bonds to be advance refunded . • . . . • . • . . . • _____ __.years,___ 33 Enter the last date on which the refunded bonds wm be called • • • . • • • • • • • • • • • • • . . . . • . • . • . . • _______ _ 34 Enter the datels} Iha refunded bonds were lsooed • I PartVII MlsceUaneoua 35 Enter the amount of the state volume cap allocated to the Issue under section 141 (b)(S) .•.•••••• 35 (0\ 36a Ener the amoont rl !JOSS proceeds invested a to be iMl&led i'I a ~eed iwestmcnt contta:t (see in5buctions) •.•• 36a 18\ b Enter the final maturity date ol the guaranteed investment contract• 37 Pooled l&'m:ings: a Proceeds <i this issue that are to be used IO make mis to dher IJMfflllenlal lllils ••...•...•. 37a {0) b II this issue is a loan made from Iha proceeds of another tax-exempt issue, check box• D and ente, the name of the issuer•---------------------and the date of the issue•------ 38 If the issuer has designated the issue under section 285(bX3)(B)(i)(III) (small issuer exception), check box • • . • • • . • . . . . • D 38 If the issuer has elected to pay a penalty In >leo of arbitrage rebale, check box • • .. • • • • • . • . • . • . • . • . • . . • • . . . . . . • . • • D 40 If the Issuer has idenlified a hedge, check box • • • • . . • • . • • . • • • • • . • . • • . • . . . • • • . . . . . . . . • . • • • . • . . • • . . . . • . . • . • Sign Here Under penalties ol perjury. I declare lhal I i-e...in.d 11'11s teturll and accompanying schedules and stalamen1:$, and to Iha best of my knov.1edge and belW. 1119Yate ~ue,~ eiotreet_comptate. • _ ~It.I -< B". · a O ·0':; • Lee Amt Dumbauld; CFO/ACM ,. aulhorized represenla1IY8 Dal& 1' or l)fint name and lllle for Papet work Raduc:llon Act Notice, 888 page 2 of the lnatruc:Uona. 1SA Form 8038-G (Rev. 11-2000) &lFFED840lf ) ) U.S. Postal Service ['-['-,.,. ,.,. CERTIFIED MAIL RECEIPT ['-['-(Domestic l,fa1J Only: No Insurance Coverage Provided) IT' ,r -- ..a ..a CityofLubbock, TeusGeacnl r'-r'-Obligatioo Boads. Series 200S :r :r ..a . ..a ..... ------CJ CJ c.lladFN CJCJ CJ CJ Alul!Aadljltl'N CJ C (8Mb~Allplll:I> _____ _ C CJ Aeelrlalld~FN ca "° lEI•-•~ --------1 ..a ..a n" "'lblllPoeiaoe&'-$ L.;;. ____ ___. m mnc""""o----------------,---, CJ CJ CJ CJ ['-['-District I)irector Intana1 Revc:oue Service Center -----------i ur 34201 ' .. \ ) ) Attachments: Exhibit A: Exhibit B: By:_---1-1~~/,..,_.'(~~~~------fr Title: Chief Financial Officer/ Assistant City Manager Date: September 1, 2005 Issue Price Certificate Certificate of Financial Advisor -12- Federal Tax Certificate -Lubbock GO 2005.DOC ) ) ) ) EXHIBIT A CERTIFICATE OF UNDERWRITERS I, the undersigned officer of the Underwriters, make this certification for the benefit of all persons interested in the exclusion from gross income for federal income tax purposes of the interest on the Bonds: Each capitalized term used herein has the meaning or is the amount, as the case may be, specified for such term in the Federal Tax Certificate to which this Exhibit A is attached (the "Federal Tax Certificate"). I hereby certify as follows in good faith as of the Issue Date: 1. I am the duly chosen, qualified and acting officer of the Underwriters for the office shown below my signature; as such, I am familiar with the facts herein certified and I am duly authorized to execute and deliver this certificate on behalf of the Underwriters. I am the officer of the Underwriters charged, along with other officers of the Underwriters, with responsibility for the Bonds. 2. The Underwriters have made a bona fide public offering to the public of the Bonds at the issue prices to the public set out on the cover of the Official Statement. The issue prices set forth on the cover of the Official Statement were detennined on the date the Bonds were purchased by the Underwriters based on the reasonable expectations regarding the initial public offering prices. The issue price for each maturity of the Bonds, represents the first price (including original issue premium and discount and accrued interest to the Issue Date only) of the Bonds at which a substantial amount (at least 10 percent) of each such maturity was sold to the public. The aggregate of such issue prices of all of the Bonds is $7,257,826.81 ( the "Issue Price"), which price includes Pre-Issuance Accrued Interest in the amount of $36,644.11. The initial public offering price described above does not exceed the fair market value for the Bonds on the sale date. The term "public," as used herein, does not include bondhouses, brokers, dealers, and similar persons or organizations acting in the capacity of underwriters or wholesalers. 3. The Issuer may rely on the statements made herein in connection with making the representations set forth in the Federal Tax Certificate and in its efforts to comply with the conditions imposed by the Code on the exclusion of interest on the Bonds from the gross income of their owners. Vinson & Elkins L.L.P. also may rely on this certificate for purposes of its opinion regarding the treatment of interest on the Bonds as excludable from gross income for federal income tax purposes. ng Director -Investment Banking Date: ~-0 2..~ r- Exhibit A-1 Tax Certificate ) ) EXHIBITB CERTIFICATE OF FINANCIAL ADVISOR I, the undersigned officer of the Financial Advisor, make this certificate for the benefit of all persons interested in the exclusion from gross income for federal income tax purposes of the interest on the Bonds. Each capitalized term used herein has the meaning or is the amount, as the case may be, specified for such term in the Federal Tax Certificate to which this Exhibit B is attached (the "Federal Tax Certificate"). I hereby certify as follows as of the Issue Date: 1. I am the duly chosen, qualified and acting officer of the Financial Advisor for the office shown below my signature; as such, I am familiar with the facts herein certified and I am duly authorized to execute and deliver this certificate on behalf of the Financial Advisor. I am the officer of the Financial Advisor who has worked with representatives of the Issuer in structuring the financial terms of the Bonds. 2. The Issue Price (including Pre-Issuance Accrued Interest) of the Bonds based on the representations set forth in Exhibit A to the Certificate to which this Exhibit is attached is not more than $7,257,826.81. The yield on the Bonds, based on such Issue Price (including Pre- Issuance Accrued Interest) is not less than 4.2284 percent (the "Yield"). For purposes of this certificate, the term "yield" means that yield which is computed as described in paragraph 10 of the Federal Tax Certificate. The purchase price of the Bonds and the Bond Insurance Premium, if any, used in computing yield on the Bonds is based solely on the Issue Price Certificate of the Underwriters attached as Exhibit A to the Federal Tax Certificate. 3. The Financial Advisor computed the Weighted Average Maturity of the Bonds to be 11.238 years, as set forth in paragraph 19 of the Federal Tax Certificate. 4. To the best of my knowledge the statements set forth in paragraph 16 of the Federal Tax Certificate are true. 5. The Issuer may rely on the statements made herein in connection with making the representations set forth in the Federal Tax Certificate and in its efforts to comply with the conditions imposed by the Code on the exclusion of interest on the Bonds from the gross income of their owners. Vinson & Elkins L.L.P. also may rely on this certificate for purposes of its opinion regarding the treatment of interest on the Bonds as excludable from gross income for federal income tax purposes. Exhibit B-1 Tax Certificate3.DOC FIRST SOUTHWEST COMPANY By: ~ ~., f#C:} ~ Title: ,& ff /Je,e& Cb~-r Date: ____.._~=,;<,==------'('--'1._~_07/_S---__ ) ) ) ) RECEIPT AND CERTIFICATE OF DELIVERY OF PAYING/AGENT REGISTRAR The undersigned, authorized representative of JPMorgan Chase Bank, as Paying Agent/Registrar, hereby makes the following acknowledgments and certifications in connection with the issuance and delivery of $7,265,000 principal amount of City of Lubbock, Texas, General Obligation Bonds, Series 2005 (the "Bonds"). Capitalized terms used herein and not otherwise defined shall have the meanings assigned thereto in the Ordinance authorizing the issuance thereof adopted by the City Council of the City of Lubbock, Texas (the "Issuer"). The undersigned hereby: 1. Acknowledges receipt of (i) $7,209,839.53 from A.G. Edwards & Sons, Inc. (the "Underwriter''), representing the principal amount of the Bonds plus accrued interest of $36,644.11 and less a net original issue discount of$43,817.30 and less underwriters' discount of $47,987.28. 2. Acknowledges and certifies the application of amounts described in paragraph I hereof as required by and in accordance with the Closing Instructions attached hereto as Exhibit A prepared by First Southwest Company, the Issuer's Financial Advisor. 4. Certifies that the Initial Bond for the Bonds, registered by the Comptroller of Public Accounts of the State of Texas and representing the aggregate principal amount of the Bonds, was delivered to or upon order of the Underwriter and was duly canceled this date upon delivery of the definitive Bonds to the Underwriter through The Depository Trust Company. DATED: September 1, 2005. LUB200n I 002 Dallas 1009524_1.DOC JPMORGAN CHASE BANK as Paying Agent/Registrar By: Title: . Assistant VICI President Exhibit A ) ) ' LUB200nI002 Dallas 1009524_1.DOC ) ) ) ~ I First Southwest Compa~ = Investment Bankers Since 1946 1001 Main Street Suite 802 Lubbock, Texas 79401 806.749.3792 Direct 806.790.5191 Cell 806.749.3792 Fax August30,2005 City of Lubbock Ms. Lee Ann Dumbauld P. 0. Box 2000 Lubbock, Texas 79457 Phone: (806) 775-2016 Fax: (806} 775-2051 City of Lubbock Mr. Andy Burcham P .0. Box 2000 Lubbock, Texas 79457 Phone: {806) 775-2149 Fax: (806) 775-3273 JPMorgan Chase Bank Ms. Madeyln Wallace 2001 Bryan Street - 8 th Floor Dallas, Texas 75201 Phone: (214) 468-5101 Fax: (214) 468-6322 McCall, Parkhurst & Horton L.L.P. Mr. Jeff Leuschel 717 North Harwood, Ninth Floor Dallas, Texas 75201 Phone: (214) 754-9200 Fax: (214) 754-9250 Vinson & Elkins L.L.P. Ms. Jennifer W. Taffe 3700 Trammell Crow Center 2201 Ross Avenue Dallas, Texas 75201 Phone: (214) 220-7941 Fax: (214) 999-7941 MBIA Insurance Corporation Ms. Joanne DeGennaro 113 King Street Armonk, NY 10504 Phone: (914) 765-3651 Fax: (914) 765-3161 Vince Viaille Vice President vviaille@firstsw.com A.G. Edwards & Sons, Inc. Ms. Nora Chavez 70 NE Loop 410, Suite 915 San Antonio, Texas 78216 Phone: (210) 384-8811 Fax: (210) 384-8283 Wells Fargo Bank, N.A. Mr. Vince Vasquez 420 Montgomery Street San Francisco, CA 94163 Phone: (806) 767-7461 Fax: (806) 767-7465 Re: Closing Instructions for the $7,265,000 City of Lubbock, Texas, General Obligation Bonds, Series 2005 (the "Bonds") Payment for the above referenced Bonds is scheduled to occur at 10:00 AM, CDT, on Thursday, September 1, 2005, and payment therefor is to occur at the offices of JPMorgan Chase Bank ("JPMorgan"). SOURCES OF FUNDS Par Amount of Bonds.................................................................................. $ 7,265,000.00 Aeoffering Premium.................................................................................... 16,919.35 Accrued Interest (07/15/05 to 09/01/05) ..................................................... 36,644.11 Less: Original Issue Discount . ..... ...... ...... ....... ....... ... ..... ... .... ... ......... ....... .. (60,736.65) Less: Underwriters Discount...................................................................... (47,987.28) TOTAL FUNDS AVAILABLE AT CLOSING................................................... =$""""""...,,...7,...,20..,.9..,.,83...,9.,...5=3== USES OF FUNDS Deposit to Construction Fund ..................................................................... $ 7,075,000.00 Deposit to Interest & Sinking Fund (accrued interest & rounding)............. 38,939.53 Gross Bond Insurance Fee .... ..... .... ........ .............. .... ... ........ ........ ... ..... ....... 20,900.00 Paying Agent/Registrar Fee........................................................................ 300.00 Costs of Issuance........................................................................................ 74,700.00 TOTAL USES OF FUNDS............................................................................. $ 7,209,839.53 """"""' _____ ...., ) ' ) ) ) (A) On Thursday, September 1, 2005, the Underwriters, represented by A.G. Edwards & Sons, Inc., shall wire $7,209,839.53 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. See wiring instructions below. Wiring Instructions for JPMorgan are as follows: JPMorgan Chase ABA: 113000609 Credit A/C #: 00103237013 FFC: City of Lubbock, GO Bonds Series 2005 Attn: Issuer Administrative Services/ Madelyn Wallace (B) On Thursday, September 1, 2005, JPMorgan shall wire or transfer immediately available funds, promptly upon receipt of the wire from A.G. Edwards & Sons, Inc., and in no event later than 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 # 46756 ............ ... ........... ... . ... . ..... ..... .... $ (2) Transmit by wire to State Street Bank and Trust Company, Boston MA ABA #011000028, BNF = Attn: TexPool #67573774 RFB = Location ID #77963 OBI= Pool# 449, Account #01552100020 Participant name: City of Lubbock ................................................................... . (4) Transmit by wire to Wells Fargo Bank, N.A., San Francisco, CA ABA #121000248, Attn: Mr. Vince Vasquez Phone (806) 788-2632, depository bank for City of Lubbock for credit to City of Lubbock Master, Account #4000047951 ...............•...•.............. (Interest and Sinking Fund) (5) Retain in payment of services to be rendered as Paying Agent/Registrar ....... . (6) Transmit by wire to Bank One, Texas ABA #111000614, Attn: Jack Addams Account #1822155345 for client# 0336-039 20,900.00 7,075,000.00 38,939.53 300.00 for credit to First Southwest Company for costs of issuance ...... ... . .... ..... ... . . ... . ___ .._7 .... 4 • ..,_7.,.,00...,.._..0_...0 Total Disbursement of Funds .......................................................................................... ,.,,$==7,...2""'0,.,.9 .... 8,.,.3.,.9..,.5.,.3 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. Sincerely yours, Vince Viaille Vice President Cc: Jack Addams Joe Brawner Mary Ann Dunda First Southwest Compan 2 ) ) ) ) Capital Strength. Triple-A Performance. City of Lubbock, Texas 1625 13th Street . .Lubbock, Texas 79457 TAX CERTIFICATE MBIA Insurance Corporation 113 King Street, Armonk, NY 10S.04 Tel 914-273-4545 . , www.mbia.com ..... l -~: • < • •·,· RE: $7,265,000 City of Lubbock, Texas, General Obligation Bonds, Series 2005 (the "Obligations") Ladies and Gentlemen: In connection with the issuance of the above-referenced obligations (the "Obligations"); MBIA Insurance Corporation (the "Insurer") is issuing a financial guaranty insurance policy (the -"Policy") securing the payment of principal and interest on the Obligations. ·, This is to advise you that: 1. The Policy is an unconditional obligation of the Insurer to pay scheduled payments· o~ principal and interest on the Obligations in the event of a failure to do so by the City· of Lubbock, Texas (the "Issuer"); · · 2. The insurance premium in the amount of $20,900 for the Policy, represents the charge fQr a transfer of credit risk and was determined in ann's length negotiations and is required.to be p.aid as a condition to the issuance of the Policy; 3. No portion of such premium represents an indirect payment of costs related to the issuance · of the Obligations other than for the transfer of credit risk; · 4. The Insurer does not reasonably expect that it will be called upon to make any paym~nt under the Policy; and 5. To the extent the Insurer is called upon to make any payment under the Policy, the Insurer reasonably expects to pursue all available legal remedies to secure reimbursement for such payment. Dated: September l, 2005 · ... ·:· ... • .. :; ... .. . : ,· . ... . ; .. . ~' ) ) ) ) ) MIIIA CERTIFICATE OF MBIA INSURANCE CORPORATION I. Adam M. Carta, Assistant Secretary of MBIA Insurance Corporation, do hereby certify that the information concerning MBIA Insurance Corporation and its policies as set forth in the Official Statement, dated July 28, 2005 under the caption "Bond Insurance", regarding $7,265,000 City of Lubbock, Texas, General Obligation Bonds, Series 2005, is accurate. · ... IN WITNESS WHEREOF, I herewito set my hand and deliver this Certificate on this 1st day of September, 2005. (l;:/jt/~ · Assistant Secretary .... ) ) ) MBIA Insurance Corporation 113 King Street Armonk, NY 10504 To Whom It May Concern: Moody's Investors Service 99 Church Street New York, NY August31,2005 Moody's Investors Service has assigned the rating of Aaa (MBIA Insurance Corporation Insured -Policy No. 46756) to the $7,265,000.00, City of Lubbock, Texas -General Obligation Bonds, Series 2005, dated July 15, 2005 which sold through negotiation on July 31, 2005. The rating is based upon an insurance policy provided by MBIA Insurance Corporation. Should you have any questions 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 MLK/DC ) ) ) STANDARD &POO~S August 31, 2005 MBIA Insurance Corporation 113 King Street Armonk, NY 10S04 Attention: Mr. Adam Carta, Assistant Vice President 55 Water street, 38th Floor New Yotk, NY 10041-0003 tel 212 438·2074 reference no.: 734187 Re: $7,265,000 City of Lubbock, Texas, General Obligation Bonds, Series 2005, dated: July 15, 2005, due: February 15, 2006-2025, (POLICY#46756) Dear Mr. Carta: Standard & Poor's has reviewed the rating on the above-referenced obligations. After such review, we have changed the rating to "AAA" from "AA-". 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 financial position of your company or from alterations in the documents governing the issue. The rating is not invesonent., 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 consented 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. Standard & Poor's is pleased to be of service to you. For more information please visit our website at www.standardandpoors.com. If we 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. \ ) ) ) ) Mr. Adam Carta Page2 August 31, 2005 Sincerely yours, Standard & Poor's Ratings Services a division of The McGraw-Hill Companies, Inc. kl ) ) ... I ) ) Vu, ~ , , (. V VJ I.,) 'J... r I\" "V r r ::, ~ I~ Q;, t J. I l,;11 .ll:11.;A .. "!HA !di 004/005 FitchRatings August 31, 2005 Ms. Lisa Wilson MBIA Insurance Corp. 113 King Street Annonk, r,.f"f 10504 Re; Lubbock (TX) / Policy #467.56 Dear Ms. WiJscn: :.2:>l t.&St 7th st,;:,et Fvn~11. wr 82435 T ;;i;T ]!>-I 101.2.1 J300 S., r!JCH tw,w.fitr.r,rat,;i,:s <o.:m Fitch Ratings has assigned one or more ratings and/or otherwise taken rating ac;tion{s). as detailed on the attached Notice of Rating' Action. Ratings assigned by Fitch are based Oft dccuments and infonnation provided to us by issuers. obrigors, andJor their experts af'ld agents. end a,e subject to receipt of the final dosing documents. Fftt:h does not audit or verify the truth or accuracy of such infonnation. It is impart.ant that Fitch be prowled wilh all infonnation that may be material to Its ratings so that they continue to aca,tal81V reflect the status of the rab!d issues. Ratings may be changed. wilhdrawn. suspended or placed oo Rating Watch due to changes in. additions to OJ 1he inadequacy of infonnation. Ratings are not recommendations 10 buy, sell or hold securilies.. Ratings do not comment on lhe adequacy of market price, lhe suitability of any aea.irity for a patticutar investOf', or lhe rax-exempl natu,e Of' taxabaity of payments made in respect of atry security. The assignment of a rating by Fitch shall not constitute a consent by Fitl:tt to use ~ name as an expert in connection will'I any registration statement or other fifing under u_s .. U.K., or any ottier reieYant securities laws. We are pleased to have had the opportunity to be of sefYice to you. If we can be ol further assis1ance, please feel free to contact us at any tima. DLS/ds Enc: Notice cf Rating Action (Doc ID: 15524) Sincerely, ) ) ) ,_.,., ""•1 .., .,.,,..., •~ v.., • n .n ¥\If I .J .. 1 ;.J,..1.J ~J.11,M J.tll..l\ Notice of Rating Action Bond DNCttpclon L.ubbocit (TX) GO t,onc,, &er 2005 (irmnd: MBIA Insurance Corp.) {Cod ID: 1A24) • Ml:lJ.A ltJ OO!i/00) 011---, Rating Watch Efl' n. .. MA RO:S1a 31~ j ) CERTIFICATE PURSUANT TO BOND PURCHASE CONTRACT We, the undersigned officials of the City of Lubbock, Texas (the "Issuer"), acting in our official capacity, in connection with the issuance and delivery by the Issuer of its City of Lubbock, Texas, General Obligation Bonds, Series 2005 (the "Bonds"), hereby certify that: 1. This Certificate is delivered pursuant to the Purchase Contract, dated July 28, 2005 (the "Purchase Contract"), between the Issuer and A.G. Edwards & Sons, Inc., RBC Dain Rauscher Inc. and M.E. Allison & Co., Inc (the "Underwriters"). Capitalized words used herein as defined terms and not otherwise defined herein have the respective meanings assigned to them ) in the Purchase Contract. ) 2. The representations and warranties of the Issuer contained in the Purchase Contract are true and correct in all material respects on and as of the date hereof as though made on and as of the date hereof. 3. 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 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 or 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. 4. To the best of our 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. 5. There has not been any material and adverse change in the affairs or financial condition of the City since September 30, 2004, the latest date as to which audited financial information is available. we2oomoo2 Dallas 995497_1.DOC ) ) ) ) DATED: St.~ l , 2005. yor City of Lubbock, Texas Chief inancial Officer/ Assistant City Manager City of Lubbock, Texas Signature Page for Certificate Pursuant to Purchase Contract ) ) ) ) ) Vinson&Elkins September I, 2005 $7,265,000 CITY OF LUBBOCK TEXAS GENERAL OBLIGATION BONDS SERIES 2005 WE HAVE represented the City of Lubbock, Texas (the "City"), as its Bond Counsel in connection with an issue of bonds (the "Bonds'') described as follows: CITY OF LUBBOCK TEXAS GENERAL OBLIGATION BONDS, SERIES 2005, dated July 15, 2005, issued in the principal amount of$7,265,000. The Bonds mature, bear interest, are subject to redemption prior to maturity and may be transferred and exchanged as set out in the Bonds and in the ordinance adopted by the City Council of the City authorizing their issuance (the "Ordinance"). WE HA VE represented the City as its Bond Counsel for the sole purpose of rendering an opinion with respect to the legality and validity of the Bonds under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Bonds from gross income for federal income tax purposes. We have not investigated or verified original proceedings, records, data or other material, but have relied solely upon the transcript of proceedings described in the following paragraph. We have not assumed any responsibility with respect to the financial condition or capabilities of the City or the disclosure thereof in connection with the sale of the Bonds. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Bonds has been limited as described therein. IN OUR CAP A CITY as Bond Counsel, we have participated in the preparation of and have examined a transcript of certified proceedings pertaining to the Bonds, on which we have relied in giving our opinion. The transcript contains certified copies of certain proceedings of the City and customary certificates of officers, agents and representatives of the City, and other public officials, and other certified showings relating to the authorization and issuance of the Bonds. We have also examined executed Bond No. 1 of this issue. BASED ON SUCH EXAMINATION, IT IS OUR OPINION THAT: (A) The transcript of certified proceedings evidences complete legal authority for the issuance of the Bonds in full compliance with the Constitution Vinson & Elkins UP Attorneys at Law Austin Beijing Dallas Dubai Houstoo London Moscow New York Tokyo Washington Trammell Crow Center, 2001 Ross Avenue, Suite 3700 Dallas, Texas 75201-297S Tel 214.220.7700 Fax 214.220.7716 www.velaw.com ) "\ ) ) '\ ., ) ) V&E and laws of the State of Texas presently effective and, therefore, the Bonds constitute valid and legally binding obligations of the City; and (B) A continuing ad valorem tax upon all taxable property within the City, necessary to pay the interest on and principal of the Bonds, has been levied and pledged irrevocably for such pwposes, within the limit prescribed by law, and the total indebtedness of the City, including the Bonds, does not exceed any constitutional, statutory or other limitations. THE RIGHTS OF THE OWNERS of the Bonds are subject to the applicable provisions of the federal bankruptcy laws and any other similar laws affecting the rights of creditors of political subdivisions generally, and may be limited by general principles of equity which permit the exercise of judicial discretion. IT IS OUR FURTHER OPINION THAT: (1) Interest on the Bonds is excludable from gross income for federal income tax purposes under existing law; and (2) The Bonds are not "private activity bonds" within the meaning of the Code, and interest on the Bonds is not subject to the alternative minimum tax on individuals and corporations, except that interest on the Bonds will be included in the "adjusted current earnings" of a corporation ( other than an S corporation, regulated investment company, REIT, REMIC or FASIT) for purposes of computing its alternative minimum tax liability. In providing such opinions, we have relied on representations of the City, the City's financial advisor and the underwriters of the Bonds with respect to matters solely within the knowledge of the City, the City's financial advisor and the underwriters respectively, which we have not independently verified, and have assumed continuing compliance with the covenants in the Ordinance pertaining to those sections of the Code that affect the exclusion from gross income of interest on the Bonds for federal income tax purposes. If such representations are determined to be inaccurate or incomplete or the City fails to comply with the foregoing provisions of the Ordinance, interest on the Bonds could become includable in gross income from the date of original delivery, regardless of the date on which the event causing such inclusion occurs. Except as stated above, we express no opinion as to any federal, state or local tax consequences resulting from the receipt or accrual of interest on, or acquisition, ownership or disposition of, the Bonds. Owners of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings 1008491_1.DOC -2- ') ) ) ) V&E and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a F ASIT that holds tax-exempt obligations and individuals otherwise qualifying for the earned income credit. In addition, certain foreign corporations doing business in the United States may be subject to the ''branch profits tax" on their effectively-connected earnings and profits (including tax-exempt interest such as interest on the Bonds). The opinions set forth above 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 these opinions to reflect any facts or circumstances that may hereafter come to our attention or to reflect any changes in any law that may hereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service (the "Service"); rather, such opinions represent our legal judgment based upon our review of existing law and in reliance upon the representations and covenants referenced above that we deem relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given whether or not the Service will commence an audit of the Bonds. If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the City as the taxpayer. We observe that the City has covenanted in the Ordinance not to take any action, or omit to take any action within its control, that if taken or omitted, respectively, may result in the treatment of interest on the Bonds as includable in gross income for federal income tax pwposes. 100849I_1.DOC -3- ' ) ) ) ) ) ) ) Vinson&Elkins September 1, 2005 City of Lubbock, Texas P.O. Box 2000 Lubbock, Texas 79457 A.G. Edwards & Sons, Inc. RBC Dain Rauscher Inc. M.E. Allison & Co., Inc. c/o A.G. Edwards & Sons, Inc. 6300 Bridge Point Pkwy, Suite 125 Austin, Texas 78730 Ladies and Gentlemen: City of Lubbock, Texas, General Obligation Bonds Series 2005 / ... --, - We have served as Bond Counsel to the City of Lubbock, Texas (the "Issuer") in connection with the issuance of its $7,265,000 City of Lubbock, Texas, General Obligation Bonds, Series 2005 (the "Bonds"), issued pursuant to the provisions of an ordinance duly adopted by the City Council of the Issuer on July 28, 2005 (the "Ordinance"). This opinion is delivered pursuant to the provisions of Section 8(e)(6) of the Purchase Contract (hereinafter defined). Capitalized terms not otherwise defined in this opinion have the meanings assigned in the hereinafter defined Purchase Contract. In our capacity as Bond Counsel to the Issuer, we have reviewed the following: (a) a certified copy of the Ordinance; (b) an executed counterpart of the Purchase Contract dated July 28, 2005 (the "Purchase Contract") between the Issuer and the Underwriters named in such Purchase Contract; (c) a copy of the Official Statement dated July 28, 2005; and ( d) such other agreements, documents, certificates, opinions, letters, and other papers as we have deemed necessary or appropriate in rendering the opinions set forth below. Vinson & Elkins U.P Attorneys at Law Aus~n Beijing Dallas Dubai Ho~on London Moscow NewYork Tokyo Washington Trammell Crow Center, 2001 Ross Avenue, Suite 3700 Dallas, Texas 75201-2975 Tel 214.220.noo Fax 214.220.7716 www.velaw.c:om ' , ) ' ) V&E In making our review, we have asswned the authenticity of all documents and agreements submitted to us as originals, conformity to the originals of all documents and agreements submitted to us as certified or photostatic copies, the authenticity of the originals of such latter documents and agreements, and the accuracy of the statements contained in such documents. Based upon the foregoing, and subject to the qualifications and exceptions hereinafter set forth, we are 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. The Bonds are exempted securities within the meaning of Section 3(a)(2) of the Securities Act of 1933, as amended (the "1933 Act") and the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), and it is not necessary in connection with the offering and sale of the Bonds to register the Bonds under the 193 3 Act, or to qualify the Ordinance under the Trust Indenture Act, as amended. 2. 3. Except as to the extent noted herein, we have not verified and are not passing upon and do not assume any responsibility for the accuracy, completeness or fairness of the infonnation contained in the Official Statement. We have, however, reviewed the statements and information in the Official Statement under the captions ''The Bonds" (except for the subcaptions "Book-Entry-Only System" and .. Bondholders' Remedies") and "Tax Matters" and the subcaptions "Continuing Disclosure of Information,'' "Legal Investments and Eligibility to Secure Public Funds in Texas" and "Legal Opinions" under the caption "Other Information,'' and we are of the opinion that such statements and information present a fair and accurate summary of the provisions of the laws and instrwnents therein described and, with respect to the Bonds, such information conforms to the Ordinance. 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. The addressees may rely on our opinion, dated as of the date hereof, delivered in connection with the issuance of the Bonds to the same extent as if such opinions were specifically addressed to them. 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 us. Very truly yours, 11 I --, o IJ~~--~~ 'IP t.v~~ ~ I 0084 72_1.lXlC -2- ' ) ) ) ' ' I.AW OFF<CE:S MCCALL, PARKHURST & HORTON L.L.P. 600 CONGRESS AVENUE 1250 ONE AMERICAN CENTER AUSTIN, TEXAS ,e70l-324S TELEPHONE: S12 478-3805 F .. CSIMILE: 512 47.!·0871 A.G. Edwards & Sons, Inc. M.E. Allison & Co., Inc. RBC Dain Rauscher Inc. c/o A.G. Edwards & Sons, Inc. 70 Northeast Loop 410, Suite 915 San Antonio, Texas 78216 717 NORTH HARWOOD NINTI-1 FLOOR OAl.1.AS, TEXAS 75201-6587 FACSIMILE" 214 754•92S0 September 1, 2005 700 N. ST. MARY'S STREET 1525 ONE RIVERWALK PLACE SAN ANTONIO, TEXAS 78205-3503 TEU'PHO,.,E: 2 10 22:1·2800 F°AC:Sl'"41LE: ~10 i?25•2984 RE: $7,265,000 CITY OF LUBBOCK, TEXAS GENERAL OBLIGA TION BONDS, SERIES 2005 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 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 28, 2005. 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 offact, and have relied upon such certificates and other infonnation 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 of 1933, 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 28, 2005 (the "Official Statement11) and because the infonnation in the Official Statement under the headings "THE BONDS -Book-Entry-Only System," 11TAX MATTERS," "OTHER INFORMATION -Continuing Disclosure oflnfomation -Compliance with Prior Undertakings" and Appendices A, B, and C thereto '\ ' ) ) ) ' ,/ ) ) were prepared by others who have been engaged to review or provide such infonnation, 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 infonnation set forth under the headings "THE BONDS -Book- Entry-Only System," "TAX MATTERS," "OTHER INFORMATION -Continuing Disclosure of Infomation -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, ) :.) ' , ATTORNEY GENERAL OF TEXAS GREG ABBOTT August 30, 2005 THIS IS TO CERTIFY that the City of Lubbock, Texas (the "Issuer") has submitted to me City of Lubbock. Texas, General Obligation Bond. Series 2005 (the "Bond") in the principal amount of $7,265,000 for approval. The Bond is dated July 15, 2005, numbered T-1, and was authorized by an Ordinance of the Issuer passed on July 28, 2005. 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. 43864 (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 ad valorem tax levied, within the limits prescribed by law, upon all taxable property in the Issuer. Therefore, the Bond is approved. Book No. 20O5C MAA Pon OfFlCE Box 12548, AUSTlN, TEXAS 78711-2548 TEl.:(512)463-2100 WWW.OAG.S1'A1'E.TX.t;S A11 B(/lldl E11Jpl".)11tntl OppDrfl111ifJ TJmploytr , Prh,ltd 011 R,9d,J Papa ) ) ) 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 2005 numbered T-1, of the denomination of $ 7,265,000, dated July 15. 2005, as authorized by issuer, interest various percent, under and by authority of which said bonds/certificates were registered electronically in the office of the Comptroller, on the 30th day of August. 2005, under Registration Number 70462. Given under my hand and seal of office, at Austin, Texas, the 30th day of August. 2005. ~~~,.~-~- 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 IB:] 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 3oth day of August 2005. I signed the name of the Comptroller to the certificate of registration endorsed upon the: City of Lubbock, Texas, General Obligation Bond. Series 2005, following signature: 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 bonds/certificates described in this certificate have been duly registered in the office of the Comptroller, under Registration Number 70462. GIVEN under my hand and seal of office at Austin, Tex~s. this the 3oth day of August, 2005. CAROLE KEETON STRAYHORN Comptroller of Public Accounts of the State of Texas ) ) MBIA Capital Strength. Triple-A Performance. September 1, 2005 City of Lubbock, Texas 1625 13th Street Lubbock, Texas 79457 A.G. Edwards & Sons, Inc. 70 Northeast Loop 410, Suite 915 San Antonio, Texas 78216 M.E. Allison & Co., Inc. 950 East Basse Road, 2nd Floor MBIA lnsur•nce Corporation. 113 King Street, Armonk, NY 10504 Tel 914-273-4545 www.mbia.com ) San Antonio, Texas 78209 RBC Dain Rauscher 1001 Fannin Street, Suite 400 Houston, Texas 77002 Ladies and Gentlemen: $7,265,000 City of Lubbock, Texas General Obligation Bonds Series 2005 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. 46756 (the ••Policy") relating to $7,265,000 City of Lubbock, Texas, General Obligation Bonds, Series 2005. 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 of New York and the State of Texas. • • ~ t ) ) ) MBIA Page 2 2. The Policy has been duly executed and is a valid and binding obligation of the Corporation enforceable in accordance with its tenns except that the enforcement of the Policy may be limited by laws relating to bankruptcy, insolvency, reorganization, moratorium, receivershi.P ~nd 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). Michael Knopf Deputy General Counsel ) ) ) Vinson&Elkins September 1, 2005 MBIA Insurance Corporation 113 King St. Annonk,NY 10504 Re: $7,265,000 City of Lubbock, Series 2005 Ladies and Gentlemen: Texas, General Obligation Bonds, You are hereby authorized to rely on our opinion, dated concurrently herewith, delivered in connection with the issuance of the captioned Bonds as if such opinion were specifically addressed to you. Very truly yours, Vinson & Elkins LLP Attorneys at Law Austin Beijing Dallas Dubai Houston London Moseow New York Tokyo Washington 1005141_1.DOC Trammell Crow Center, 2001 Ross Avenue, Suite 3700 Dallas, TX 75201-2975 Tel 214.220.7700 Fax 214.220.n16 www.velaw.com ) ) ) j ) ) ) P.O. Box 2000 • 1625 13th Street Lubbock, Texas 79457 (806) 775-2222 • Fax (806) 775-3307 A.G. Edwards & Sons, Inc. M.E. Allison & Co., Inc. RBC Dain Rauscher Inc. clo A.G. Edwards & Sons, Inc. -70 Northeast Loop 410, Suite 915 San Antonio, Texas 78216 Office of the City Attorney September 1, 2005 RE: $7,265,000 CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION BONDS, SERIES 2005 Ladies and Gentlemen: I am the City Attorney for the City of Lubbock, Texas (the "City") at the time of the issuance of the above referenced Bonds (the "Bonds"), pursuant to the provisions of the Ordinance duly adopted by the City Council of the City on July 28, 2005. Capitalized tenns not otheiwise 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 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 2. 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 permission is given in writing by me. Very truly yours, (l Lr:: )?U--c v~, , Anita E. Burgess City Attorney