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Home My WebLink AboutOrdinance - 2006-O0047 - General Obligation Refunding Bonds; $18,830,00; Transcript Of Proceedings - 04/26/2006) ORDIBABCE lfo. 2006-()()04 7 AN ORDINANCE PROVIDfNG FOR THE ISSUANCE OF CITY OF LUBBOCK. TEXAS, GENERAL OBLIGATION REFUNDING BONDS, SERIES 2006 IN AN AMOUNT NOT TO EXCEED $20,000,000; LEVYING A TAX IN PAYMENT THEREOF; APPROVING EXECUfiON AND DELIVERY OF AN ESCROW AGREEMENT AND A BOND PURCHASE CONTRACT; APPROVING lHE OFFICIAL STATEMENT; AND ENACTING OTHER PROVISIONS RELATING THERETO WHEREAS, there are presently outstanding certain obligations of the City of Lubbock, Texas (the •'City,.), described on Schedule I attached hereto (collectively, the "Refunded Obligation Candidates"); WHEREAS, the City now desires to refund all or a portion of such Refunded Obligation Candidates (such refunded obligations to be hereinafter referred to as the "Refunded Obligations"); WHEREAS, Chapter 1207, Texas Government Code, authorizes the City to issue refunding bonds and to deposit the proceeds from the sale thereof, and any other available funds or resow-ces, directly with a commercial bank or trust company, and such deposit, if made before the payment dates for the Refunded Obligations, shall constitute the making of finn banking and financial arrangements for the discharge and final payment of the Refunded Obligations; WHEREAS, Chapter 1207 further authorizes the City to enter into an escrow agreement with a commercial bank with respect to the · safekeeping, investment, reinvestment, administration and disposition of any such deposit, upon sucll terms and conditions as the City and such bank may agree, provided that such deposits may be invested and reinvested only in direct obligations of the United States of America, including obligations the principal of and interest on which are unconditionally guaranteed by the United States of America, and which shall mature and bear interest payable at such times and in such amounts as will be sufficient to provide for the scheduled payment or prepayment of the Refunded Obligations; WHEREAS~ JPMorgan Chase Bank, National Association, is a commercial bank and does not act as depository for the City and the Escrow Agreement hereinafter authorized constitutes an escrow agreement of the kind authorized and permitted by said Chaptec 1207; WHEREAS, the City Council desires to delegate, pursuant to Section 1207.007, Texas Government Code, and the parameters of this Ordinance, to the Chief Financial Officer, the authority to approve the amount, the interest rate, price and terms of the Bonds authorized hereby and to otherwise take such actions as are necessary and appropriate to effect the sale of the Bonds and to select the specific maturities or series of Refunded Obligation Candidates to be refunded; WHEREAS, the City Council hereby finds and determines that the refunding contemplated in this Ordinance will benefit the City by providing a present value savings of debt service payable by the City in an amount to be certified in the Pricing Certificate, and that such benefit is sufficient consideration for the refunding of the Refunded Obligations; UJBlOOf71006 Dallas liOS361_1.DOC 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 its bonds at this time; and WHEREAS, the meeting at which this Ordinance is considered is open to the public as required by law, and public notice of the ti~ place, and purpose of said meeting was given as required by Chapter 551, Texas Government Code, as amended; therefore BE IT ORDA£NED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK: ARTICLE I DEFINITIONS AND OTHER PRELIMINARY MA TIERS 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: 4'Bond" means any of the Bonds. 4'Bond Date" means the date designated as the initial date of the Bonds in accordance . ·with Section 3.2(a) of this Ordinance. ccBond Purchase Contract'' means the bond purchase contract approved in Section 7.1 (b) of this Ordinance. "Bonds" means the bonds authorized to be issued by Section 3.1 of this Ordinance and designated as "City of Lubbock, Texas General Obligation Refunding Bonds, Series 2006." "City" means the City of Lubbock. Texas. 4'Closing Date,. means the date of the initial delivery of and payment for the Bonds. •'Designated Paymentlfransfer Office" means (i) with respect to the initial Paying Agent/Registrar named in this Ordinance, the Designated Paymentfl'ransfer 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 suoccssor 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" shall mean 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. 1..l.JB200171006 O.U.S ll0Sl68_1.DOC .. Escrow Agent., means JPMorgan Chase Bank, National Association, as escrow agent under the terms of the Escrow Agreement. "Escrow Agreement" means that certain Escrow Agreement between the City and the Escrow Agent pertaining to the defeasance of the Refunded Obligations. "Escrow FWld" means the fund by that name established in the Escrow Agreement ~'Event of Default" means any event of default as defined in Section 11.1 of this Ordinance. "Fiscal Year'' means such fiscal year as shall from time to time be set by the City Council . .. Initial Bond" means the initial bond authorized by Section 3.4(d) of this Ordinance. "Interest and Sinking Fund" means the interest and sinking fund established by Section 8.3 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 on the date set forth in the Pricing Certificate. "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 infonnation 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, meas initially JPMorgan Chase Bank, National Association, or any successor thereto as provided in this Ordinance. "Pricing Certificate" means a certificate or certificates to be signed by the Chief Financial Officer of the City. "Record Date" means the last business day of the month next preceding an Interest Payment Date. "Refunded Obligation Candidates" means the obligations of the City described in Schedule I attached hereto which are authorized to be designated as Refunded Obligations in the Pricing Certificate. UJB200171006 Dalla 1105368_1.DOC -3- ) "Refunded Obligations., means those obligations of the City to be designated in the Pricing Certificate from the Refunded Obligation Candidates described in Schedule I attached hereto. "Register" means the Register specified in Section 3.6(a) of this Ordinance. "Representations 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, officer 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, redemption premium. if any, or interest on the Bonds as the same come due and payable or money set aside for the payment of Bonds duly called for redemption prior to maturity. "Underwriter'' means A. G. Edwards & Sons, 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 hel-eof 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. Section 1.4 Intemretation. (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 v~ and words of the singular number shall be construed to include oorrelative words of the plural number and vice versa. (b) This Ordinance and all the tcnns and provisions hereof shall be liberally construed to effectuate the pmposes set forth herein. WB200nl006 Dlllas IIOS36&_1.DOC ) ARTICLE II SECURITY FOR THE BONDS Section 2.1 Tax Leyy for Payment of the Bonds. (a) The City Council hereby declares and covenants that it will provide and levy a tax legally and fully sufficient for payment of the Bonds, it having been detennined that the existing and available taxing authority of the City for such purpose is adequate to pennit a legally sufficient tax in consideration of all other outstanding obligations of the City. (b) In order to provide for the payment of the debt service requirements on the Bonds, being (i) the interest on the Bonds, and (ii) a sinking fund for their payment at maturity or a sinking fund of two percent per annum (whichever amount is the greater), there is hereby levied for the current year and each succeeding year thereafter while the Bonds or interest thereon remain outstanding and unpaid, a tax within legal limitations on each $100 assessed valuation of taxable property in the City that is sufficient to pay such debt service requiremen~ full allowance being made for delinquencies and costs of collection. (c) The tax levied by this Section shall be assessed and collected each year and applied to the payment of the debt service requirements on the Bonds, and the tax shall not be diverted to any other purpose. (d) Said ad valorem tax, the collections therefro~ and all amo\Dlts on deposit in or required hereby to be deposited to the Intezest 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. (e) If the liens and provisions of this Ordinance shall be discharged in a manner · permitted by Article XU hereo~ then the collection of such ad valorem tax may be suspended or appropriately reduced, as the facts may pennit, 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 in accordance with Article XII herein. WB200171006 Da11a5 1105368_1.DOC -5- ARTICLE Ill 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 Refunding Bonds, Series 2006" (the "Bonds"), are hereby authorized to be issued and delivered in accordance with the Constitution and laws of the State of Texas, specifically Chapter 1207, Texas Government Code, as amended, and Article VIII of the City's Home-Rule Charter. Th~ Bonds shall be issued in the aggregate principal arnowtt designated in the Pricing Certificate, such amount not to exceed $20,000,000, for the purpose of refunding the Refunded Obligations and paying the costs of issuing the Bonds. Section 3.2 Date. Denomination. Maturities. and Interest. (a) The Bonds shall be dated the date set forth in the Pricing Certificate (the "Bond Date,). 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 -I. (b) The Bonds shall mature on February 15 in the years and in the principal amounts set forth in the Pricing Certificate provided that the maximum maturity for the· Bonds shall not exceed twenty years. (c) Interest shall accrue and be paid on each Bond respectively wttil its maturity or prior redemption, from the later of the Bond Date or the most recent Interest Payment Date to which interest has been paid or provided for at the rates per annum for each respective maturity specified in the Pricing Certificate. Such interest shall be payable semiannually on each Interest Payment Date. 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: redemption premium, if any, 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 the Owners as shown in the Register at the close of business on the Record Date. (c) Interest shall be paid by cb.~ dated as of the Interest Payment Date, .and sent United States mail, first class postage prepaid, by the Paying Agent/Registrar to each Owner, at the address thereof as it appears in the Register, or by such other customary banking arrangement acceptable to the Paying Agent/Registrar and the Owner; provided, however, that the Ownc:c shall bear all risk and expense of such altc:mative banking arrangement. WB200l71006 Dallas IIOS368J.DOC (d) The principal of each Bond shall be paid to the Owner thereof on the due date, whether at the matwity date or the date of prior redemption thereof, upon presentation and surrender of such Bond at the Designated Payment!fransfer 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 Payment!fransfer 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 for all pwposes be deemed to have been made on the due date thereof as specified in Section 3.2 of this Ordinance. (f) Unclaimed Payments shall be segregated in a special escrow account and held in trust. uninvested by the Paying Agent/Registrar, for the account 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 on the Bonds thereafter coming due; to the extent any such moneys remain three years after the retirement of all outstanding Bonds, such moneys 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 Owners of such Bonds for any further payment of such unclaimed moneys or on account of any such Bonds, subject to Title 6 of the Texas Property Code. 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 ~ at the Closing Date shall have attached thereto the Comptroner•s Registration UJB200171006 DaDas I IOS368_1.DOC -7- ) Certificate substantially in the form provided herein, manually executed by the Comptroller of Public Accounts of the State ofTexas, 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 reflecting the terms set forth in the Pricing Certificate. representing the entire principal amount of all Bonds, payable in stated installments to the Underwriter, or its designee, executed by the Mayor and City Secretary, approved by the Attorney General, and registered and manually signed by the Comptroller of Public Accounts, will be delivered to the Underwriter or its designee. Upon payment for the Initial Bond, the Paying Agent/Registrar shall cancel the Initial Bond and deliver a single registered, definitive Bond for each maturity, in the aggregate principal amount thereof, to DTC on behalf of the Underwriter. 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 herein provided (except interest shall be paid to the person in whose name such Bond is registered on the Record Date), and for all other pwposes, whether or not such Bond is overdue, and neither the City nor the Paying Agent/Registrar shall be bound by any no~ce or knowledge to the contrary. (b) All paynients made to the Owner of a Bond sball 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 Agcut/Registrar to keep at the Designated Payment!fraosfer Office a register (the "Register") in which, subject to such reasonable regulations as it may prescribe, the Paying Agent/Registrar shall provide for the registration and transfa' of Bonds in accordance with this Ordiiwlce. (b) Ibe ownership of .a Bond may be transferred only upon the presentation and surrender of the Bond at the Designated Payment!fransfer Office of the Paying Agent/Registrar with such endorsement or other evidence of t{ansfer 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 thereofat the Designated Paymentffransfer Office of the Paying Agent/Registrar for a Bond or Bonds of the same maturity and interest rate and in a denomination or dCnominations of any integral multiple of$5,000, and in an aggregate principal amount equal to the unpaid principal amount of the Bonds pcesented for exchange. The Paying Agent/Registrar is hereby authorized to authenticate and deliver Bonds exchanged for other Bonds in accordance with this Section. W8200nl006 Dallas IIOS36IJ.DOC -8- ) (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 secwity 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 a different denomination of any of the Bonds. The Paying Agent/Registrar, however, may require the Owner to pay a swn 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 replaCc:ment Bonds are authenticated and delivered in accordance with this Ordinance, shall be cancelled and proper records 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 with law destroy such cancelled Bonds and periodically furnish the City with Bonds 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 City may execute and, upon the City~s req~ the Paying Agent/Registrar shall authenticate and deliver, one or more temporary Bonds that are printed, lithographed, typewritten, mimeographed, or otherwise · produ~ 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 fonn, 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; thereupon, upon the presentation and sunmder of the Bond or Bonds in temporary form to the Paying Agent/Registrar, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor a Bond or Bonds of the same maturity and series, in definitive form, in the authorized denomination, and in the same aggregate principal amount, as the Bond or Bonds in temporary form surrendered. Such exchange shall be made without the making of any charge therefor to any Owner. WBl00/71006 O.O.S IIOS3A_I.DOC -9- ) ) 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 complies with the following requirements: (i) furnishes to the Paying Agent/Registrar satisfiwtory evidence of his or her ownership of and the circumstances of the loss, destructio~ 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; (iii) pays all expenses and charges in connection therewi~ including, but not limited to, printing costs, legal fees, fees of the Paying Agent/Registrar, and any tax or other govermnental 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 secwity 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, appareotly 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 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. WB200171006 DIDM IIOS361_LDOC -10- ) Section 3.10 Book-Entry-Only Svstem. (a) Notwithstanding any other provision hereof: upon initial issuance of the Bonds, 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 Bond for each of the maturities thereof. (b) With respect to Bonds registered in the name of Cede & Co., as nominee ofDTC, 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 DTC Participant or any other person, other than an Owner, as shown in the Register of any amount with respect to principal of, premium, if any, 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, premium, if any, and interest on 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 such Bond, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal ot: premium, if any, 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, premium, if any, 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 Bond evidencing the obligation of the City to make payments of amounts due pursuant to this Ordinance. Upon delivery by DTC to the Paying Agent/Registrar of written notice to the effect that DTC bas 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 DTC. (c) The Representations Letter previously executed and delivered by the City, and applicable to the City's obligations delivered in book:-mtry-only form to DTC as securities depository, is hereby ratified and approved for the Bonds. · Section 3.11 Successor Securities Deoositorv: Transfer Outside Book:-Entry:Only Svstem. In the event that the City detennines that it is in the best interest of the City and the beneficial owners of the Bonds that they be able to obtain ~ or in the event DTC discontinues the services described herein. the City shall (i) appoint a SU<X:e8SOr 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 UJB200171006 Dallas IIOS361_1.DOC -11- ) depository, or (ii) notify DTC and DTC Participants of the availability through DTC of Bonds and cause the Paying Agent/Registrar to transfer one or more separate registered 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 Owners transfening or exchanging Bonds shall designate, in accordance with the provisions of this Ordinance. Section 3.12 Pavments to Cede & Co. Notwithstanding any other provision of this Ordinance to the contrary, so long as the Bonds are registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of, premium, if any, 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 Representations Letter. ARTICLE IV REDEMPTION OF BONDS BEFORE MATURITY Section 4.1 RedemptioiL The Bonds are subject to redemption before their scheduled maturity only as provided in this Article IV. · Section 4.2 Optional Redemption. (a) The City reserves the option to redeem Bonds in the manner provided in the Form of Bond set forth in Section 6.2 of this Ordinance with such changes as are required by the Pricing Certificate. (b) If less than all of the Bonds are to be redeemed pursuant to an optional redemption, the City sball determine the maturity or maturities and the amounts thereof to be redeemed and shall direct the Paying Agent/Registw" to call by lot the Bonds, or portions thereof, within such maturity or maturities and in such principal amounts for redemption. (c) 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 M&ndatorv SinJcjng Fund Redemption. (a) Bonds designated as "Tenn Bonds,, if any, in the Pricing Certificate are subject to scheduled mandatory redemption and will be redeemed by the City, in part at a price equal to the principal amount thereo( without premium, plus accrued interest to the redemption date, out of moneys available for such purpose in the lntel"est and Sinking Fund, on the dates and in the respective principal amo\Ults as set forth in the Pricing Certificate. WB200171006 Dallas li0Sl68_l.OOC -12- ) (b) At least forty-five (45) days prior to each scheduled mandatory redemption date, the Paying Agent/Registrar shall select for redemption by lot, or by any other customary method that results in a random selection, a principal amount of Term Bonds equal to the aggregate principal amount of such Term Bonds to be redeemed, shall call such Term Bonds for redemption on such scheduled mandatory redemption date, and shall give notice of such redemptio~ as provided in Section 4 .5. (c) The principal amount of the Tenn Bonds required to be redeemed on any redemption date pursuant to subparagraph (a) of this Section 4.3 shall be reduced, at the option of the City, by the principal amount of any Term Bonds which, at least forty-five (45) days prior to the mandatory sinking fund redemption date (i) shall have been acquired by the City at a price not exceeding the principal amo\Ult of such Term Bonds plus accrued interest to the date of purchase thereof, and delivered to the Paying Agent/Registrar for cancellation, or (ii) shall have been redeemed pursuant to the optional redemption provisions hereof and not previously credited ~o a mandatory sinking fund redemption. Section 4.4 Partial Redemption. (a) 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 thereat: If such a Bond is to be partially redeemed, the Paying Agent/Registrar shall treat each $5,000 portion of the .&ond as though it were a single Bond for purposes of selection for redemption. (b) Upon surrender o( any Bond for redemption in part, the Paying Agent/Registrar, in aocordance 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. (c) 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 4.5 Notice ofRedemotioil to Qwners. (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 redeem~ at the address shown on the Register at the close ofbusiness 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 shalt be conclusively presumed to have been duly given, whether or not the Owner receives such noti~. WB200171006 DdK 110Sl68_LDOC -13- ) ) Section 4.6 Pavment Uoon 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!fransfer Office on or after the date fixed for redemption, the Paying Agent/Registrar shall pay the principal of, redemption premiwn, if any, and accrued interest on such Bond to the date of redemption from the money set aside for such purpose. Section 4. 7 Effect of Redemption. (a) Notice of redemption having been given as prQvided in Section 4.5 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 4.8 Lapse of Payment. Money set aside for the redemption of Bonds and remaining unclaimed by the Owners of such Bonds sha11 be subject to the provisions of Section 3.3(f) hereof. ARTICLEV PAYING AGENT/REGISTRAR Section 5.1 Appoinbnent 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 other entity duly qualified and legally authorized to serve as and perfonn the duties and services of paying agent and registrar for the Bonds. UJB20CV11006 DIDas ll0.5368_l.OOC -14- ) ) Section 5.3 Maintaining Paying Agent/Registrar. (a) At all times while any of the 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 in substantially the form presented at this meeting, such form of agreement being hereby approved. The signature of the Mayor shall be attested by the City Secretary. (b) If the Paying Agent/Registrar resigns or otherwise ceases to serve as such, the City will promptly appoint a replacement. Section 5.4 Termination. 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 thereof in the Register, stating the effective date of the change and the name and mailing address of the replacement Paying Agent/Registrar. Section 5.6 Aweanent to Pedorm 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 Delivav of Records to Successor. If a Paying Agent/Registrar is replaced, such Paying Agent, 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 ~f 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 this Article, with such appropriate insertions, omissions, substitutions, and other variations as are UJB200171006 Dlallas 1105361_1.DOC -15- ) permitted or required by this Ordinance and the Pricing Certificate, and (ii) may have such letters, numbers. or other marks of identification (including identifying nwnbers and letters of the Conunittee on Uniform Securities Identification Procedmes of the American Bankers Association) and such legends and endorsements (including any reproduction of an opinion of counsel) 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, if any, 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 Fonn of the Bonds. The form of the Bonds, including the form of the Registration Certificate of the Comptroller of Public Accounts of the State of Texas, the form of Certificate of the Paying Agent/Registrar and the form of Assignment appearing on the Bonds, shall be substantially as follows: UJB200f71006 o.Das l10S361J.DOC -16- ) (a) Fonn of Bond. REGISTERED No. United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 INTEREST RATE: MA TURI1Y DATE: .. BOND DATE: __ % ____ , __ REGISTERED $~--- CUSIP 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 swn of ---------DOLLARS 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 wttil 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 36Q..day year of twelve 30-day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing . 2• All capitalized terms used herein ·but not defined shall have the meaning assigned to them in the Ordinance (defined below). 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, or, with respect to a successor Paying Agent/RegjS1rar, at the Designated Payment/Transfer Office of such successor. Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying Agent/Registmr to the registered owner at the address shown on the registration books kept by the Paying Agent/Registmr or by such other customary banking ammgement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expenses of such customary banking ammgement. For the purpose of the 1 Insert based upon the Pricing Certificate. 2 Insert based upon the Pricing Certificate. WB200171006 DIJias UOS36&_l.OOC -17- ) 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 Paymentlfransfer 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 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. This Bond is one of a series of fully registered Bonds specified in the title hereof issued in the aggregate principal amount of$ 3 (herein referred to as the "Bonds"), issued pursuant to a certain ordinance of the City (the "Ordinance") for the purpose of.refunding certain outstanding obligations of the City. [The City has reserved the option to redeem the Bonds matwing on or after February 15, ___ before their respective scheduled maturities in whole or in part in integral multiples of $5,000 on February 15, ~ or on any date thereafter, at a redemption price of par, 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 Bonds, or portions thereof within such maturity or maturities and in such amounts, for redemption. f · [Bonds maturing on February 15, (the "Tenn Bonds") are subject to mandatory sinking fund redemption prior to their scheduled maturity. and will be redeemed by the City, in part at a redemption price equal to the principal amount thereof: without premium, plus interest accrued to the redemption date, on the dates and in the principal amounts shown in the following schedule: Redemption Date February 15,_ February 15, _(maturity) Principal Amount $~-- $'------- The Paying Agent/Registrar will select by lot or by any other customary method that results in a random selection the specific Term Bonds (or with respect to Tenn Bonds having a denomination in excess of $5,000, each $5,000 portion thereof) to be redeemed by mandatory redemption. The principal amount of Term Bonds required to be redeemed on any redemption date pursuant to the foregoing mandatory sinking fund redemption provisions hereof shall be reduced; at the option of the City, by the principal amount of any Term Bonds which, at least 45 3 Insert based upon the Pricing Certificate. . •IDsert optional redemption provisions and revise as~ to conform to the Pricing Certificate. WB200171006 Dalu ll05368_l.DOC -18- days prior to the mandatory sinking fund redemption date (i) shall have been acquired by the City at a price not exceeding the principal amount of such Tenn Bonds plus accrued interest to the date of purchase thereof, and delivered to the Paying Agent/Registrar for cancellation, or (ii) shall have been redeemed pursuant to the optional redemption provisions hereof and not previously credited to a mandatory sinlcing fund redemption. ]s Notice of such redemption or redemptions shall be given by United States mail, first class postage prepaid, not less than 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 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. The City, the Paying Agent/Registrar, and any other person may treat the person in whose name this Bond is regis_t«ed as the owner hereof for the purpose of receiving payment as herein 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; 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; 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; and that the total indebtedness of the City, including the Bonds, does not exceed any constitutional or statutory limitation. 5 Insert mandatory sinking fuod ~provisions, if any, aad revise as DCCCSSary fA) confOrm to lhe Pricing Catificate. WB200t'71006 Dallas 1105368_1.DOC ) 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. Mayor, City of Lubbock. Texas City Secretary, City of Lubbock, Texas [SEALJ (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 Lubboc~ Texas; and that this Bond has this day been registered by me. Witness my hand and seal of office at Austi.l4 Texas, ______ ___. [SEAL] WB200171006 Dalla$ I 105368_1.DOC -20.. Comptroller of Public Accounts of the State of Texas ) ) (c) Fonn 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: WB201V71006 D11a ll05361_1.DOC -21· JPMorgan Chase Bank, National Association as Paying Agent/Registrar By: Authorized Signatory ) (d) Fonn of Assignment. ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns. and transfers unto (print or typewrite name, address and Zip Code of transferee): -------------- (Social Security or other identifying nwnber: 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. Dated: 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. Signature Guaranteed By: Authorized Signatory (e) The Initial Bond sball 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 headings "INTEREST RATE" and "MA TURIIY DATE" shall both be completed with the expression uAs 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 IS in each of the years, in the principal installments and bearing interest at the per annum rates set forth in the following schedule: WB200171006 Dlllla IIOS361_1.JX)C -22- Principal Installments Interest Rate (lRformation to be inserted from the Pricing Certificate p~uant to 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 in regard to 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 ob the Bonds. Section 6.4 Legal Qj?inion. 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, which may be executed in facsimile. Section 6.5 Bond Insurance. Information pertaining to bond insurance, if any, may be printed on each Bond. ARTICLE VII SALE AND DELIVERY OF BONDS; DEPOSIT OF PROCEEDS Section 7.1 Sale of Bonds; Official Statement (a) The Bonds shall be sold at negotiated sale to the Underwriter in accordance with the terms of this Ordinance, including this Section 7.l(a) and Exhibit B hereto, provided that all of the conditions set forth in Exhibit B can be satisfied. As authorized by Chapter 1207, Texas Government Code, as amended, the Chief Financial Officer is authorized to act on behalf of the City upon determining that the conditions set forth in Exhibit B can be satisfied, in selling and delivering the Bonds and carrying out the other procedures specified in this Ordinance, including d~g whether to acquire bond insurance for the Bonds, the ~gate principal amount of the Refunded Ob~igations, the aggr~ principal amount of the Bonds and price at which each of the Bonds will be sold; the number and designation of series of Bonds to be issued, the fonn in which the Bonds shall be issued, the years in which the Bonds will matlD:'e, the principal amount to mat\D."e in each of such years, the rate of interest to be borne by each such maturity, the first interest payment date, the dates, prices and terms upon and at which the Bonds shall be subject to redemption prior to maturity at the option of the City and shall be subject to mandatory sinking fund redemption, and all other matters relating to the issuance, sale and delivery of the LUB200nl006 DaDas 110Sl68_1.DOC -23- Bonds, including the refunding of the Refunded Obligations, all of which shall be specified in the Pricing Certificate. The authority granted to the Chief Financial Officer under this Section 7.l(a) shall expire at 5:00 p.m., June 26, 2006 unless othetWise extended by the City Council by separate action. Any finding or determination made by the Chief Financial Officer relating to the issuance and sale of the Bonds and the execution of the Bond Purchase Contract in connection therewith shall have the same force and effect as a finding or determination made by the City Council. (b) The Chief Financial Officer is hereby authorized and directed to execute and deliver, and the City Secretary is hereby authorized and directed to attest, a bond purchase contract (the "Bond Purchase Contract .. ) which Bond Purchase Contract is hereby accepted, approved and authorized in substantially the form submitted to the City and upon completion of the tenns of the Bond Purchase Contract in accordance with the terms of the Pricing Certificate ·and this Ordinance, the Chief Financial Officer is authorized and directed to execute such Bond Purchase Contract on behalf of the City and the Chief Financial Officer and all other officers, agents and representatives of the City are hereby authorized to do any and all things necessary or desirable to satisfy the conditions set out therein and to provide for the issuance and delivery of the Bonds. The Bonds shall initially be registered in the name of the Underwriter. (c) The form and substance of the Preliminary Official Statement for the Bonds and any addenda, supplement or amendment thereto, are hereby in all respects approved and adopted, and the Preliminary Official Statement 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 Chief Fmancial Officer and City Secretary are hereby authorized and directed to cause to be prepared a final Official Statement incorporating applicable pricing information pertaining to the Bonds, and to execute the same by manual or facsimile signature and deliver appropriate numbers of executed copies thereof to the Underwriter. The Official Statement as thus approved, executed and delivered, with such appropriate variations as shall be approved by the Chief Financial Officer and the Underwriter, may be used by the Underwriter in the public offering and sale thereof. The City Secretary is hereby authorized and directed to include and maintain a ropy 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 in the public offering of the Bonds by the Underwriter is hereby ratified, approved and oonfirmed. (d) All officers of the City are authorized to execute such documents, Bonds 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 Bond Purchase Contract. (e) The obligation of the Underwriter 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.LP., bond oounsel for the City, which opinion shall be dated and delivered the Closing Date. UJB200f71006 Da1lls IIOS36U.DOC -24- ) Section 7.2 Control and Deliverv of Bonds. (a) The Chief Financial Officer 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 UndeiWriter thereof under and subject to the general supervision and direction of the Chief Financial Officer, against receipt by the City of all amounts due to the City under the terms of sale. ARTICLE VIII CREATION OF FUNDS AND ACCOUNTS, INITIAL DEPOSITS AND APPLICATION OF MONEY Section 8.1 Creation of Funds. The City hereby establishes the following funds: (i) the City of Lubbock, Texas, General Obligation Refunding Bonds, Series ·2006, Interest and Sinking Fund (the '1nterest and Sinking Fund"); and (ii) the City of Lubbock, Texas, General Obligation Refunding Bonds, Series 2006, Cost of Issuance Fund (the "Cost of Issuance Fund"). Section 8.2 Initial Deposits. On the Closing Date, the City shall cause the proceeds from the sale of the Bonds to be deposited as follows: (i) first, an amount equal to all accrued interest on the Bonds, if any, from the Original Issue Date until the Closing Date shall be deposited to the credit of the Interest and Sinking Fund; (ii} second, a portion of the proceeds from the sale of the Bonds, funds transferred from the interest and sinking funds for the Refunded Obligations, and other funds of the City, if any, as set forth in the Pricing Certificate shall be applied to establish an Escrow Fund to refund the Refunded Obligations and, to the extent not otherwise provided for, to pay all expenses arising in connection with the establishment of such Esaow Fund and the refunding of the Refunded Obligations; and (iii) third, the remaining balance shall be deposited to the credit of the Cost of Issuance Fund to pay the costs of issuance. UJB200171oo6 Dallas IIOS361_l.DOC ) Section 8.3 Interest and Sinkin& Fund. (a) The taxes levied under Section 2.1 of this Ordinance shall be deposited to the credit of the Interest and Sinking Fund at such times and in such amowtts as necessary for the timely payment of the principal of and interest on the Bonds. (b) If the amount of money in the Interest and Sinking Fwtd is at least equal to the aggregate principal amount of the outstanding Bonds plus the aggregate amowtt of interest due and that will become due and payable on such Bonds, no further deposits to that fund need be made. In detennining the aggregate principal amount of outstanding Bonds, there shall be subtracted the amowtt 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. (c) Money on deposit in the Interest and Sinking FWtd shall be used to pay the principal of and interest on the Bonds as such become due and payable. Section 8.4 Cost of Issuance Fund. The Cost of Issuance Fund shall be used for the purpose of paying expenses incurred in connection with the issuance and delivery of the Bonds. Section 8.5 Excess Bond Proceeds. (a) Upon payment of the cost of issuance associated with the Bonds, any amount that remains in the Cost of Issuance Fund shall be transferred to the credit of the Interest and Sinking Fund and segregated in a special escrow account. (b) The money in such special escrow account shall be used for the payment of principal, premium, if any, and interest on the Bonds, on the respective due dates thereof or dates as of which Bonds have been called for redemption. Section 8.6 Security of Funds. All moneys on deposit in the funds referred to in this Ordinance shall be secured in the manner and to the fullest extent required by the laws of the State of Texas for the security of public funds, and moneys on deposit in such funds shall be used only for the purposes pmnittcd by this Ordinance. ARTICLE IX INVESTMENTS Section 9.1 Investments. (a) Money in the Interest and Sinking Fund aeated by this Ordinance, at the option of the City, maybe invested in such securities or obligations as permitted under applicable law. WB200nJ006 Dallas IIOS36IJ.DOC -26- ) ) ) (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 9.2 Investment Income. Interest and income derived from investment of the Interest and Sinking Fund shall be credited to such Fund. ARTICLE X PARTICULAR REPRESENTATIONS AND COVENANTS Section 10.1 Payment of the Bonds. On or before each Interest Payment Date 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, redemption premium, if any, and interest on the Bonds as will accrue or mature on the applicable Interest Payment Date or date of prior redemption. Section 10.2 Other Rc;:presentations and Cov~ts. (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, redemption premium, if any, 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 10.3 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 10.3 through 10.9 of this Article X; provided, however, that the City shall not be required to comply with any particular requirement of Sections 10.3 through 10.9 of this Article X if the City has received an opinion of LUB200171006 Dalias I 10S361U.DOC -27- ) 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 CoWlSel's Opinion to the effect that compliance with some other requirement set forth in Sections I 0.3 through 10.9 of this Article X will satisfy the applicable requirements of the Code, in which case compliance with such other requirement specified in such CoWlSel's Opinion shall constitute compliance with the corresponding requirement specified in Sections I 0.3 through I 0.9 of this Article X. Section 10.4 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 Qot 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. Section 10.5 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 I 0.6 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 I 0. 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 otha-investment income derived ftom Bond proceeds, regulate investments of proceeds of the Bonds, 8lld 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. UJB200171006 Ddas IIOS368_1.DOC -28- ) Section I 0.8 Arbitrage Rebate. If the City does not qualify for an exception to the requirements of Section l48(f) of the Code, the City will take all neressary 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 govenunent, 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 govenunent FW'ther, 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 inight result in a reduction in the amount required to be paid to the federal govenunent because such arrangement results in a smaller profit or a larger loss than would have resulted if the arrangement bad been at arm • s length and had the yield on the issue not been relevant to either party. Section 10.9 Information Rgx>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 infonnation statement concerning the Bonds, all under and in accordance with section l49(e) of the Code and the Regulations. Section 10.10 Cgntinuing Obligation. Notwithstanding any other provision of this· Ordinance, the City's obligations under the covenants and provisions of Sections 10.3 ,through 10.9 of this Article X shall survive the defeasance and discharge of the Bonds. ARTICLE XI DEFAULT AND REMEDIES Section 11.1 Events ofDefault 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: redemption premium, if any, or interest on any of the Bonds when the same becomes due and payable; or W8200f71006 DaDas 110S368_l.DOC -29- ) ) (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 11 .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 Qwners 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 tmlawful 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 11.3 Remedies Not Exclusive. (a) No remedy herein conferred or reserved is intended to be exclusive of any other available remedy, but each and every such remedy shall be cumulative and shall be 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 XII DISCHARGE Section 12.1 Discharge. The Bonds may be def~ discharged or refunded in any manner permitted by applicable law. WB200171006 Dellas IIOS368_1.DOC -30- ARTICLEXlll CONTINUING DISCLOSURE UNDERTAKING Section 13 .I Annual Reoorts. (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 statements is not complete within such period, then the City shall provide notice that audited financial statements are not available and shall provide Wlaudited 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 information 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. Section 13.2 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 failure to perfonn; WB200171Cl06 Dallas ll0,l61_LDOC -31- (vi) adverse tax opinions or events affecting the tax-exempt status of the Bonds; (vii) modifications to rights of Owners; (viii) redemption 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 13.1 of this Ordinance by the time required by such Section. Section 13.3 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 personu with respect to the Bonds within the meaning of the Rule, except that the City in any event will give notice of any redemption calls and any defea.sances 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 information, operating data, financial statements, and notices which it 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 RSU!ts, 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 Cl1Y, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN TillS ARTICLE, BUT EVERY RIGHI' AND REMEDY OF ANY SUCH PERSON, IN CONfRACT OR TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACfiON FOR MANDAMUS OR SPECIFIC PERFORMANCE. UJB200171006 DaDas J 10S368_l.DOC -32- ) ) ) (c) No default by the City in observing or perfonning 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 pennitted 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 13.1 an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in type of financial information or operating data so provided. (f) Any filing required to be made pursuant to this Article XIII may be made through the facilities of DisclosurcUSA 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. ARTICLE XIV REDEMPTION OF BONDS; APPROVAL OF ESCROW AGREEMENT; · PURCHASE OF ESCROWED SECURITIES Section 14.1 Redemption of Refunded Obligations. (a) The City hereby calls the Refunded Obligations for redemption prior to maturity on the dates and at the prioes set forth in the Pricing Certificate. (b) The Chief Financial Officer is hereby authorized and directed to cause a copy of this Ordinance to be delivered to each paying agent/registrar for the Refunded Obligations, the delivery of which shall constitute notice of redemption and notioe of defeasance to such paying agent/registrar. Section 14.2 Subsaiotion of Federal Securities. The Mayor and the Chief Financial Officer, either or both, are hereby authorized to make necessary arrangements for the purchase of the Federal Securities referenced in the EScrow WB200171006 Dallas 1105361_1 .DOC -33- ) Agreement, as may be necessary for the Escrow Fund and the application for the acquisition of the Federal Securities is hereby approved and ratified. Following the deposits to the Escrow Fund as specified herein and in the Pricing Certificate, the Refunded Obligations shall be payable solely from and secured by such deposits and shall cease to be payable from ad valorem taxes. Section 14.3 Approval ofEscrow Agreement. The discharge and defeasance of the Refunded Obligations shall be effectuated pursuant to the tenns and provisions of an Escrow Agreement (the "Escrow Agreement") to be entered into by and between the City and the Escrow Agent, which shall be substantially in the fonn presented at this meeting, the tenns and provisions of which are hereby approved, subject to such ·insertions, additions and modifications as shall be necessary (a) to carry out the program designed for the City, (b) to minimize the City's costs of refunding, (c) to comply with all applicable laws and regulations relating to the refunding of the Refunded Obligations. (d) t~ carry out the other intents and purposes of this Ordinance and (e) to comply with the terms set forth in the Pricing Certificate. The Chief Financi~ Officer is hereby authorize(l to execute and deliver such Escrow Agreement on behalf of the City in multiple counterparts and the City Secretary is hereby authorized to attest thereto and affix the City's seal. Section 14.4 Notice ofDe:posit Each paying agent/registrar for the Refunded Obligations is hereby authorized and directed to give notice of redemption and deposit with respect to th~ Refunded Obligations as required under the ordinance pursuant to which the Refunded Obligations were issued. ARTICLE XV AMENDMENTS; ATIORNEY GENERAL MODIFICATION Section 15.1 Amendments. 'Ibis 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 8s any Bond remains outstanding except as permitted in this Section. The City may, without consent of or notice to any Own~ ftom 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 outstandin& 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 tiiQ.es 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, premilllnt if any. 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, ~r rescission. ·34- ) ) ) Section 15.2 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 Genecal"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 Secretaty shall insert such changes into this Ordinance as if approved on the date hereof. [Execution Page Follows] UJB200171006 Dalla IIOS361J.DOC -35- ) ) ) PRESENTED, FINALLY PASSED AND APPROVED, AND EFFECTIVE on the 26th day of April, 2006, at a special meeting of the City Council of the City of Lubbock, Texas. ATTEST: ~~e-'9---:t = REBCCAciARZA, Citysecreial"y Q [SEAL] APPROVED AS TO CONTENT: By: LUB200nJ006 Dallas IIOS368_1.DCX; -36- ) ) ) ) ) SCHEDULE I REFUNDED OBLIGATION CANDIDATES All o f the City• s outstanding obligations of the following series: Tax & Mwticipal Drainage Utility System Surplus Revenue Certificates of Obligation, Series 2001 U18200171006 Dallas ll0Sl68_l.DOC ) ) ) EXHIBIT A DESCRIPTION OF ANNUAL DISCLOSURE OF FINANCIAL INFORMATION The following infonnation is referred to in Article XIII of this Ordinance. Anaual Ymancial State111ents aad 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: I. The portions of the financial statements of the City appended to the Official Statement as Appendix 8, but for the most recently concluded fiscal year. 2. Statistical and financial data set forth in Tables 1 through 6 and 8A through 1 5 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. UJB200171006 Dallas 11053aJ.DOC A-1 ) \ ) EXHffiiTB REFUNDING PARAMETERS In accordance with Section 7.l(a) of the Ordinance, the following conditions with respect to the Bonds must be satisfied in order for the Chief Financial Officer to act on behalf of the City in selling and delivering the Bonds to the Underwriter: (a) the price to be paid for the Bonds shall be not less than 1000/o of the aggregate principal amount of the Bonds; (b) the Bonds shall not bear interest at a rate greater than the maximwn rate allowed by Chapter 1204, Texas Government Code. as amended; (c) the aggregate principal amount of the Bonds authorized to be issued for the purposes described in Section 3.1 shall not exceed the maximmn amount authorized in Section 3.1 and shall equal an amount sufficient to (i) provide for the refunding of the Refunded Obligations and (ii) pay the costs of issuing the Bonds; (d) the maximum maturity for the Bonds shall not exceed twenty years; (e) the refunding of the Refunded Obligations shall result in a net present value sa~ of at least 2%; and (f) the Bonds to be issued, prior to delivery, must have been rated by a nationally recognized rating agency for municipal securities in one of ·the four highest rating categories for long term obligations. WB200171006 Dlllls 110Sl68_1.DOC B-1 D LUB200/16000 Dallas 112840S_I.DOC Ordinance Bo. 2006-D0047 TRANSCRIPT OF PROCEEDINGS pertaining to $18,830,000 CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES2006 \llnson&t£lkins AlTORNEYS AT LAW VINSON • B.KINS LLP. 3700 TRAMMa..L CROW CEKTUI 2001 ROSS AVENUE DAlLAS, TEXAS 75201-2975 TB.EPHOH£(214)2»7700 VOICE MAIL (214) 2»7999 FAX (214) Z»ml $18,830,000 CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES2006 TABLE OF DOCUMENTS DOCUMENT I. BOND DOCUMENTS 1.1 Certified Ordinance Providing for the Issuance of the Bonds 1.2 Certified Amending Ordinance 1.3 Pricing Certificate 1.4 Ordinances Authorizing Refunded Obligations 1.5 Paying Agent/Registrar Agreement 1.6 Preliminary Official Statement 1.7 Official Statement 1.8 Bond Purchase Contract 1.9 Escrow Agreement 1.10 Verification Report 1.11 Specimen Bonds 1.12 Insurance Commitment 1.13 Insurance Policy II. CERTIFICATES, LETTERS AND RECEIPTS 2.1 General and No-Litigation Certificate 2.2 Signature Identification and Authority Certificate of Escrow Agent 2.3 Attorney General/Comptroller Instruction Letter 2.4 Acknowledgement of Receipt ofNotice of Redemption 2.5 Federal Tax Certificate LU8200nt006 Dallas ll22035_l.doc TAB NO. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 DOCUMENT 2.6 Form 8038·G and Evidence of Transmittal 2.7 Certificate of Insurer 2.8 Rating Letters 2.9 Certificate Pursuant to Bond Purchase Contract 2.10 Receipt of Paying Agent/Registrar III. OPINIONS 3.1 3.2 3.3 3.4 3.5 3.6 3.7 WB200nl006 112203S_I.doc Approving Opinion of Bond Counsel Supplemental Opinion of Bond Counsel Opinion of Underwriter's Counsel Opinion of Attorney General and Comptroller's Certificate Opinion of Insurer's Counsel Reliance Letter to Insurer Opinion of City Attorney ·2- TAB NO. 19 20 21 22 23 24 25 26 Registration 27 28 29 30 ' Ordinance Ho. 2006-oQ047 MINUTES AND CERTIFICATION PERTAINING TO PASSAGE OF AN ORDINANCE STATE OF TEXAS § COUNTY OF LUBBOCK § CITY OF LUBBOCK § On the 26th day of April, 2006, the City Council of the City of Lubbock, Texas, convened in a regular 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 Goverrunent 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 REFUNDING BONDS, SERIES 2006 IN AN AMOUNT NOT TO EXCEED $20,000,000; LEVYING A TAX IN PAYMENT THEREOF; APPROVING EXECUTION AND DELIVERY OF AN ESCROW AGREEMENT AND A BOND PURCHASE CONTRACT; APPROVING THE OFFICIAL STATEMENT; AND ENACTING OTHER PROVISIONS RELATING THERETO The Ordinance, a full, true 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: 6 NOES: _o_ ABSTENTIONS: 1 LU8200nt006 Dallas 1108473_l.DOC 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 26th day of April, 2006. City of Lubbock, Texas [SEAL] LUB200/71006 Dallas 1108473_l.DOC UJB200171006 Dallas ll05368_1.DOC ORDINANCE relating to CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 Adopted: April26, 2006 Section 1.1 Section 1.2 Section 1.3 Section 1.4 TABLE OF CONTENTS ARTICLE I DEFINITIONS AND OTHER PRELIMINARY MATTERS Definitions ............................................................................................................... 2 Findings ................................................................................................................... 4 Table of Contents, Titles, and Headings ................................................................. 4 Interpretation ........................................................................................................... 4 ARTICLE II SECURITY FOR THE BONDS Section 2.1 Tax Levy for Payment of the Bonds ....................................................................... 5 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. I 1 Section 3.12 Section4.1 Section 4.2 Section 4.3 Section 4.4 Section 4.5 Section 4.6 WB200f71006 ARTICLE HI AUTHORIZATION; GENERAL TERMS AND PROVISIONS REGARDING THE BONDS Authorization ........................................................................................................... 6 Date, Denomination, Maturities, and Interest ......................................................... 6 Medium, Method, and PI~ of Payment ................................................................ 6 Execution and Registration ofBonds ...................................................................... 7 Ownership ............................................................................................................... 8 Registration, Transfer, and Exchange ................................................................. : ... 8 Cancellation ............................................................................................................. 9 TeDJ.porary Bonds .................................................................................................... 9 Replacement Bonds ............................................................................................... 10 Book-Entry-Only System ...................................................................................... ll Successor Securities Depository; Transfer Outside Book-Entry-Only System .... II Payments to Cede & Co ........................................................................................ 12 ARTICLE IV REDEMPTION OF BONDS BEFORE MATURITY Redemption ........................................................................................................... 12 Optional Redemption ............................................................................................ 12 Mandatory Sinking Fund Redemption .................................................................. 12 Partial Redemption ................................................................................................ l3 Notice ofRede:tnption to Owners .......................................................................... 13 Payment Upon Redemption .................................................................................. 14 Dallas IIOS368_1.DOC (i) Section 4.7 Effect of Redemption ....................................................................•....................... 14 Section 4.8 Lapse of Paytnent .................................................................................................. 14 Section 5.1 Section 5.2 Section 5.3 Section 5.4 Section 5.5 Section5.6 Section 5.7 Section 6.1 Section6.2 Section6.3 Section6.4 Section 6.5 ARTICLEV PAYING AGENT/REGISTRAR Appointment of Initial Paying Agent/Registrar .....•.........................................•.... 14 Qualifications ........................................................................................................ 14 Maintaining Paying Agent/Registrar ..................................................................... l5 Termination ........................................................................................................... 15 Notice of Change to Owners ................................................................................. 15 Agreement to Perform Duties and Functions ........................................................ 15 Delivery of Records to Successor ......................................................................... 15 ARTICLE VI FORM OF THE BONDS Form Generally ..................................................................................................... 15 Form of the Bonds ................................................................................................. l6 CUSIP Registration: .............................................................................................. 23 Legal Opinion. ....................................................................................................... 23 Bond Insurance ...................................................................................................... 23 ARTICLE VII SALE AND DELIVERY OF BONDS; DEPOSIT OF PROCEEDS Section 7.1 Sale of Bonds; Official Statement ......................................................................... 23 Section 7.2 Control and DeliveryofBonds ............................................................................. 25 Section 8.1 Section 8.2 Section 8.3 Section 8.4 Section8.5 Section 8.6 WBl00/71006 ARTICLE VIII CREATION OF FUNDS AND ACCOUNTS, INITIAL DEPOSITS AND APPLICATION OF MONEY Creation of Funds .................................................................................................. 25 Initial Deposits ...................................................................................................... 25 Interest and Sinking Fund ..................................................................................... 26 Cost of Issuance Fund ........................................................................................... 26 Excess Bond Proceeds ........................................................................................... 26 Security of Funds .................................................................................................. 26 DalW IIOS368_l.OOC (ii) ARTICLE IX INVESTMENTS Section 9.1 Investments ............................................................................................................ 26 Section 9.2 Investment Income ................................................................................................ 27 ARTICLE X PARTICULAR REPRESENTATIONS AND COVENANTS Section 10.1 Paytnent of the Bonds ........................................................................................... 27 Section 10.2 Other Representations and Covenants ................................................................... 27 Section 10.3 Provisions Concerning Federal Income Tax Exclusion ......................................•. 27 Section 10.4 No Private Use or Payment and No Private Loan Financing ............................. : .. 28 Section 10.5 No Federal Guaranty ............................................................................................. 28 Section 10.6 Bonds Are Not Hedge Bonds ................................................................................ 28 Section 10.7 No-ArbitrageCovenant ......................................................................................... 28 Section 10.8 Arbitrage Rebate ................................................................................................... 29 Section 10.9 Information Reporting ........................................................................................... 29 ·Section I 0.10 Continuing Obligation ........................................................................................... 29 ARTICLE XI DEFAULT AND REMEDIES Section ll.l Events of Default ................................................................................................... 29 Section 11.2 Remedies for Default ............................................................................................ 30 Section 11.3 Remedies Not Exclusive ....................................................................................... 30 ARTICLE XII DISCHARGE Section 12.1 Discharge ......................................................................•.......................................• 30 ARTICLEXill CONTINUING DISCLOSURE UNDERTAKING Section 13.1 Almual Reports ....................... ~··············································································· ... 31 Section 13.2 Material Event Notices .......................................................................................... 31 Section 133 Limitations, Disclaimers and Amendments .......................................................... 32 LUB2oont006 Dallas 1105368_l.DOC (iii) ARTICLE XIV REDEMPTION OF BONDS; APPROVAL OF ESCROW AGREEMENT; PURCHASE OF ESCROWED SECURITIES Section 14.1 Redemption of Refunded Obligations ................................................................... 3 3 Section 14.2 Subscription of Federal Securities ......................................................................... 33 Section 14.3 Approval of Escrow Agreement ............................................................................ 34 Section 14.4 Notice of Deposit .................................................................................................. 34 ARTICLE XV AMENDMENTS; ATTORNEY GENERAL MODIFICATION Section 15.1 Amendments .......................................••..................................... : ........................... 34 Section 15.2 Attorney General Modification ............................................................................. 35 Schedule 1-Schedule of Refunded Obligation Candidates Exhibit A -Description of Annual Disclosure of Financial Infonnation .................................... A-1 Exhibit B -RefUnding Parameters •............................................................................................. B-1 UJB200171006 Dalfas IIOS368_1.DOC (iv) ) ORDINANCE No. 2006-o0047 AN ORDINANCE PROVIDING FOR THE ISSUANCE OF CITY OF LUBBOCK. TEXAS, GENERAL OBLIGATION REFUNDING BONDS, SERIES 2006 IN AN AMOUNT NOT TO EXCEED $20,000,000; LEVYING AT AX IN PAYMENT THEREOF; APPROVING EXECUIION AND DELIVERY OF AN ESCROW AGREEMENT AND A BOND PURCHASE CONTRACT; APPROVING THE OFFICIAL STATEMENT; AND ENACTING OTHER PROVISIONS RELATING THERETO WHEREAS, there are presently outstanding certain obligations of the City of Lubbock. Texas (the "City"), described on Schedule I attached hereto (collectively, the "Refunded Obligation Candidates .. ); WHEREAS, the City now desires to refund all or a portion of such Refunded Obligation Candidates (such refunded obligations to be hereinafter referred to as the "Refunded Obligations"); WHEREAS, Chapter 1207, Texas Goverrunent Code, authorizes the City to issue refunding bonds and to deposit the proceeds from the sale thereot and any other available funds or resoW'ces, directly with a commercial bank or trust company, and such deposit, if made before the payment dates for the Refunded Obligations, shall constitute the making of firm banking and financial arrangements for the discharge and final payment of the Refunded Obligations; WHEREAS, Chapter 1207 further authorizes the City to enter into an escrow agreement with a commercial bank with respect to the · safekeeping, investment, reinvestment, administration and disposition of any such deposit, upon such terms and conditions as the City and such bank may agree, provided that such deposits may be invested and reinvested only in direct obligations of the United States of America, including obligations the principal of and interest on which are unconditionally guaranteed by the United States of America, and which shall mature and bear interest payable at such times and in such amounts as will be sufficient to provide for the scheduled payment or prepayment of the Refunded Obligations; WHEREAS, JPMorgan Chase Bank, National Association, is a commercial bank and does not act as depository for the City and the Escrow Agreement hereinafter authorized constitutes an escrow agreement of the kind authorized and permitted by said Chapter 1207; WHEREAS, the City Council desires to delegate, pursuant to Section 1207.007, Texas Government Code, and the parameters of this Ordinance, to the Chief Financial Officer, the authority to approve the amount, the interest rate, price and tenns of the Bonds authorized hereby and to otherwise take such actions as are necessary and appropriate to effect the sale of the Bonds and to select the specific maturities or series of Refunded Obligation Candidates to be refunded; WHEREAS, the City Council hereby finds and detennines that the refunding contemplated in this Ordinance will benefit the City by providing a present value savings of debt service payable by the City in an amount to be certified in the Pricing Certificate, and that such benefit is sufficient consideration for the refunding of the Refunded Obligations; UJB200nt006 .Dallas llOS368_l.DOC WHEREAS, the City Council has found and detennined 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 its bonds at this time; 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 ORDAlNED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK: ARTICLE I DEFINITIONS AND OTHER PRELIMINARY MATTERS Section 1.1 Definitions. Unless otherwise expressly provided or Wlless the context clearly requires otherwise in this Ordinance, the following terms shall have the meanings specified below: "Bond" means anyofthe Bonds. "Bond Date" means the date designated as the initial date of the Bonds in accordance . ·with Section 3.2(a) of this Ordinance. "Bond Purchase Contract" means the bond purchase contract approved in Section 7 .l (b) of this Ordinance. "Bonds" means the bonds authorized to be issued by Section 3.1 of this Ordinance and designated as "City of Lubbock, Texas General Obligation Refunding Bonds, Series 2006." "City" means the City of Lubbock, Texas. "Closing Date .. means the date of the initial delivery of and payment for the Bonds. «Designated Payment!fransfer Office" means (i) with respect to the initial Paying Agent/Registrar named in this Ordinance, the Designated Paymentlfransfer 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't means The Depository Trust Company of New York, New York, or any successor securities depository. ~'DTC Participant" shall mean 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. WB200nl006 Dallas llOS368_1.DOC -2- "Escrow Agent" means JPMorgan Chase Bank, National Association, as escrow agent under the terms of the Escrow Agreement. "Escrow Agreement" means that certain Escrow Agreement between the City and the Escrow Agent pertaining to the defeasance of the Refunded Obligations. "Escrow Fund" means the fund by that name established in the Escrow Agreement "Event of Default" means any event of default as defined in Section t 1.1 of this Ordinance. "Fiscal Year" means such fiscal year as shall from time to time be set by the City Council. "Initial Bond" means the initial bond authorized by Section 3.4(d) of this Ordinance. "Interest and Sinking Fund" means the interest and sinking fund established by Section 8.3 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 on the date set forth in the Pricing Certificate. · "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 infonnation repository within the meaning of the Rule from time to time. "'wnef' 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. "Pricing Certificate" means a certificate or certificates to be signed by the Chief Financial Officer of the City. ''Record Date" means the last business day of the month next preceding an Interest Payment Date. "Refunded Obligation Candidates, means the obligations of the City described in Schedule I attached hereto which are authorized to be designated as Refunded Obligations in the Pricing Certificate. l..lJB200/71006 Dalla$ IIOS368_1.0<X; -3- "Refunded Obligations" means those obligations of the City to be designated in the Pricing Certificate from the Refunded Obligation Candidates described in Schedule I attached hereto. "Register" means the Register specified in Section 3.6(a) of this Ordinance. "Representations 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, officer or agency thereo~ 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, redemption premium, if any, or interest on the Bonds as the same come due and payable or money set aside for the payment of Bonds duly called for redemption prior to maturity. "Underwriter'' means A. G. Edwards & Sons, 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 Headin~. 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. Section 1.4 Intetpretation. (a) Unless the context requires otheiWise, 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 plmal 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. LUB200nl006 Dallas IIOS368_1.DOC ARTICLE II SECURITY FOR THE BONDS Section 2.1 Tax Levy for Payment of the Bonds. (a) The City Council hereby declares and covenants that it will provide and levy a tax legally and fully sufficient for payment of the Bonds, it having been detennined that the existing and available taxing authority of the City for such purpose is adequate to pennit a legally sufficient tax in consideration of all other outstanding obligations of the City. (b) In order to provide for the payment of the debt service requirements on the Bonds, being (i) the interest on the Bonds, and (ii) a sinking fund for their payment at maturity or a sinking fund of two percent per annum (whichever amount is the greater}, there is hereby levied for the current year and each succeeding year thereafter while the Bonds or interest thereon remain outstanding and unpaid, a tax within legal limitations on each $100 assessed valuation of taxable property in the City that is sufficient to pay such debt service requirements, full allowance being made for delinquencies and costs of collection. (c) The tax levied by this Section shall be assessed and collected each year and applied to the payment of the debt service requirements on the Bonds, and the tax shall not be diverted to any other purpose. (d) Said ad valorem tax, the collections therefrom, and all amounts on deposit in or required hereby to be deposited to the Interest and Sinking Fwtd 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. (e) If the liens and provisions of this Ordinance shall be discharged in a manner · permitted by Article XU 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 in accordance with Article XII herein. UJB200171006 DaDas IIOS368_1.DOC -5- 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 Refunding Bonds, Series 2006" (the "Bonds"), are hereby authorized to be issued and delivered in accordance with the Constitution and laws of the State of Texas, specifically Chapter 1207, Texas Govenunent Code, as amended, and Article VIII of the City's Home-Rule Charter. Th~ Bonds shall be issued in the aggregate principal amount designated in the Pricing Certificate, such amount not to exceed· $20,000,000, for the purpose of refunding the Refunded Obligations and paying the costs of issuing the Bonds. Section 3.2 Date. Denomination, Maturities. and Interest (a) The Bonds shall be dated the date set forth in the Pricing Certificate (the "Bond Date"). The Bonds shall be in fully registered form, 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 nwnbercd T -1. (b) The Bonds shall mature on February 15 in the years and in the principal amounts set forth in the Pricing Certificate provided that the maximum maturity for the· Bonds shall not exceed twenty years. (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 which interest has been paid or provided for at the rates per annum for each respective maturity specified in the Pricing Certificate. Such interest shall be payable semiannually on each Interest Payment Date. 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 ofPavment. (a) The principal of, redemption premium, if any, 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 the Owners 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 United States mail, first class postage prepaid, by the Paying Agent/Registrar to each Owner, at the address thereof as it appears in the Register, or by such other customary banking arrangement acceptable to the Paying .AgentJR.egistrar and the Owner, provid~ however, that the Owner shall bear all risk and expense of such alternative banking arrangement WB200171006 o.JJas IIOS36U.DOC -6- (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 Payment/Transfer 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 for all purposes be deemed to have been made on the due date thereof as specified in Section 3.2 of this Ordinance. (f) Unclaimed Payments shall be segregated in a special escrow accowtt and held in trust. uninvested by the Paying Agent/Registrar, for the account of the Owners of the Bonds to which the Unclaimed Payments pertain. Subject to Title 6 of the Texas Property Code, Unclaimed Payments remaining wtclaimed by the Owners entitled thereto for three years after the applicable payment or redemption date shall be applied to the next payment on the Bonds thereafter coming due; to the extent any such moneys remain three years after the retirement of all outstanding Bonds, such moneys shall be paid to the City to be used for any lawful purpose. Thereaft~, neither the City, the Paying Agent/Registrar, nor any other person shall be liable or responsible to any Owners of such Bonds for any further payment of such unclaimed moneys or on account of any such Bonds, subject to Title 6 of the Texas Property Code. 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 funn provided here~ 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 ~ at the Closing Date shall have attached thereto the Comptroller's Registration UJB200171006 Dallas IIOS368_l.DOC -7- 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 reflecting the terms set forth in the Pricing Certificate, representing the entire principal amount of all Bon~ payable in stated installments to the Underwriter, or its designee, executed by the Mayor and City Secretary, approved by the Attorney General, and registered and manually signed by the Comptroller of Public Accounts, will be delivered to the Underwriter or its designee. Upon payment for the Initial Bond, the Paying Agent/Registrar shall cancel the Initial Bond and deliver a single registered, definitive Bond for each maturity, in the aggregate principal amount thereof, to DTC on behalf of the Underwriter. 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 herein provided (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 no~ce or knowledge to the contrary. (b) All paynients 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 Paymentlfransfer Office a register (the "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 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 StuTender 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 a 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. WB200/71006 Dallas IIOS368_l.OOC -8- (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 a 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. (t) 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 replaeement Bonds are authenticated and delivered in accordance with this Ordinance, shall be cancelled and proper records 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 with law destroy such cancelled Bonds and periodically furnish the City with Bonds 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 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 insertio~ 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 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; thereupon, upon the presentation and surrender of the Bond or Bonds in temporary fonn to the Paying Agent/Registrar, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor a Bond or Bonds of the same maturity and series, in definitive form, in the authorized denomination, and in the same aggregate principal amount, as the Bond or Bonds in temporary fonn surrendered. Such exchange shall be made without the making of any charge therefor to any Owner. W8200nl006 Dallas llOS368_1.DOC -9- 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 mnnber not contemporaneously outstanding, provided that the Owner first complies with the following requirements: (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; (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 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. WB200171006 Dalla$ IIOS36S_I.OOC -10- Section 3.10 Book-Entry-Only System. (a) Notwithstanding any other provision hereof, upon initial issuance of the Bonds, 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 Bond for each of the maturities thereof. (b) With respect to Bonds registered in the name of Cede & Co., as nominee ofDTC, 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 inunediately 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 DTC Participant or any other person, other than an Owner, as shown in the Register of any amount with respect to principal of, premium, if any, or interest on the Bonds. Notwithstanding any other provision of this Ordinance to the contrazy, 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: premi~ if any, and interest on 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 such Bond, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of, premium, if any, 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, premium, if any, 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 Bond evidencing the obligation of the City to make payments of amounts due pursuant to this Ordinance. Upon delivery by DTC to the Paying Agent/Registtar 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. (c) The Representations Letter previously executed and delivered by the City, and applicable to the City's obligations delivered in book-entcy-only form to DTC as securities depository, is hereby ratified and approved for the Bonds. · Section 3.11 Successor Securities D£QOsitory: Transfer Outside Book-Entzy-Only Svstem. In the event that the City determines that it is in the best interest of the City and the beneficial owners of the Bonds that they be able to obtain Bonds, or in the event DTC discontinues the services described herein, the City 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 LUB200nt006 Dallas l lOS368_1.00C -11- depository; or (ii) notify DTC and DTC Participants of the availability through DTC of Bonds and cause the Paying Agent/Registrar to transfer one or more separate registered 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 su~sor securities depository, or its nominee, or in whatever name or names Owners transfening or exchanging Bonds shall designate, m 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 the Bonds are registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of, premium, if any, 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 Representations Letter. ARTICLE IV REDEMPTION OF BONDS BEFORE MATURITY Section 4.1 Redemption. The Bonds are subject to redemption before their scheduled maturity only as provided in this Article IV. · Section 4.2 Optional Redemption. (a) The City reserves the option to redeem Bonds in the manner provided in the Form of Bond set forth in Section 6.2 of this Ordinance with such changes as are required by the Pricing Certificate. (b) If less than all of the Bonds are to be redeemed pursuant to an optional redemption, 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. (c) 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 Mandat01:y Sinking Fund Redemption. (a) Bonds designated as "Term Bonds," if any, in the Pricing Certificate are subject to scheduled mandatory redemption and will be redeemed by the City, in part at a price equal to the principal amount thereof, without premium, plus accrued interest to the redemption date, out of moneys available for such purpose in the Interest and Sinking Fund, on the dates and in the respective principal amounts as set forth in the Pricing Certificate. LUBZOOnl006 Dallas llOS368_1.00C -12- (b) At least forty-five (45) days prior to each scheduled mandatory redemption date, the Paying Agent/Registrar shall select for redemption by lot, or by any other customary method that results in a random selection, a principal amount of Term Bonds equal to the aggregate principal amount of such Term Bonds to be redeemed, shall call such Term Bonds for redemption on such scheduled mandatory redemption date, and shall give notice of such redemption, as provided in Section 4.5. (c) The principal amount of the Term Bonds required to be redeemed on any redemption date pursuant to subparagraph (a) of this Section 4.3 shall be reduced, at the option of the City, by the principal amount of any Term Bonds which, at least forty-five (45) days prior to the mandatory sinking fund redemption date (i) shall have been acquired by the City at a price not exceeding the principal amount of such Term Bonds plus accrued interest to the date of purchase thereof, and delivered to the Paying Agent/Registrar for cancellation, or (ii) shall have been redeemed pursuant to the optional redemption provisions hereof and not previously credited ~o a mandatory sinking fund redemption. Section 4.4 Partial Redemgtion. (a) 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. (b) 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. (c) 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 4.5 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 shalt be conclusively presumed to have been duly given, whether or not the Owner receives such noti~. LUB200171006 Dallas llOS368J.OOC -13- Section 4.6 Payment Upon Redemption. (a) Before or on each redemption date, the City shall deposit with the Paying Agent/Registrar money sufficient to pay aU 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: redemption premiwn, if any, and accrued interest on such Bond to the date of redemption from the money set aside for such purpose. Section 4. 7 Effect of Redemption. (a) Notice of redemption having been given as prqvided in Section 4.5 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 4.8 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 PAYING AGENT/REGISTRAR Section 5.1 Ap,pgintment of Initial Paving 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 b~ a trust company organized under the laws of the State of Texas, or other entity duly qualified and legally authorized to serve as and perfonn the duties and services of paying agent and registrar for the Bonds. LUB20017l006 Dallas llOS368_UXX: -1+ ) D ... ., Section 5.3 Maintaining Paying Agent/Registrar. (a) At all times while any of the 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 in substantially the form presented at this meeting, such form of agreement being hereby approved. The signature of the Mayor shall be attested by the City Secretary. (b) If the Paying Agent/Registrar resigns or otherwise ceases to serve as such, the City will promptly appoint a replacement. Section 5.4 Termination. 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 thereof in the Register, 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, 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 fonn to appear on each of the Bonds, (i) shall be substantially in the form set forth in this Article, with such appropriate insertions, omissions, substitutions, and other variations as are UJB200171006 Dallas ll05368_l.DOC -15- permitted or required by this Ordinance and the Pricing Certificate, and (ii) may have such letters, numbers, or other marlcs of identification (including identifying nwnbers and letters of the Committee on Uniform Securities Identification Proced\U'es of the American Bankers Association) and such legends and endorsements (including any reproduction of an opinion of counsel) 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, if any, 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 Bonds, including the form of the Registration Certificate of the Comptroller of Public Accounts of the State of Texas, the form of Certificate of the Paying Agent/Registrar and the form of Assignment appearing on the Bonds, shall be substantially as follows: WB2oonJ006 Dallls IIOS3611_I.DOC -16- (a) Form of Bond. REGlSTERED REGISTERED No. $~--- INTEREST RATE: __ % United States of America State of Texas County of Lubbock CITY OF LUBBOC~ TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 MATURITY DATE: .. BOND DATE: ____ , __ CUSIP 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 swn of __________ DOLLARS 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 360-day year of twelve 30-day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing . 2• All capitalized terms used herein ·but not defined shall have the meaning assigned to them in the Ordinance (defined below). 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 Paymentfrransfer OfficeH), of JPMorgan Chase Bank, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment!fransfer Office of such successor. 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 custommy banking ammgement acceptable to the Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expenses of such customary banking arrangement For the purpose of the 1 Insert based upon the Pricing Certificate. 2 Insert based upon the Pricing Certificate. WB20017l006 Dallas UOS368_l.DOC -17- 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/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 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. This Bond is one of a series of fully registered Bonds specified in the title hereof issued in the aggregate principal amount of$ 3 (herein referred to as the "Bonds.,), issued pursuant to a certain ordinance of the City (the "Ordinance") for the purpose of.refunding certain outstanding obligations of the City. (The City has reserved the option to redeem the Bonds matwing on or after February 15, ___ before their respective scheduled maturities in whole or in part in integral multiples of $5,000 on February 15,-> or on any date thereafter, at a redemption price of par, 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 Bonds, or portions thereof within such maturity or maturities and in such amounts, for redemption. t · [Bonds maturing on February 15, (the 04Term. Bonds") are subject to mandatory sinking fund redemption prior to their scheduled maturity, and will be redeemed by the City, in part at a redemption price equal to the principal amount thereo~ without premium, plus interest accrued to the redemption date, on the dates and in the principal amounts shown in the following schedule: Redemption Date Principal Amount February 15,_ $:_ __ _ February 15, _(maturity) $:_ __ _ The Paying Agent/Registrar will select by lot or by any other customary method that results in a random selection the specific Term Bonds (or with respect to Term Bonds having a denomination in excess of $5,000, each $5,000 portion thereof) to be redeemed by mandatory redemption. The principal amount of Term Bonds required to be redeemed on any redemption date pursuant to the foregoing mandatory sinking fund redemption provisions hereof shall be reduced, at the option of the City, by the principal amount of any Term Bonds which, at least 45 3 Insert based upon the Pricing Certificate. . 4 Insert optional redemption provisions and revise as necessary to conform to the Pricin8 Certificate. WB200nl006 Dallas 110S368_1.DOC -18- days prior to the mandatory sinking fund redemption date (i) shall have been acquired by the City at a price not exceeding the principal amount of such Tenn Bonds plus accrued interest to the date of purchase thereof, and delivered to the Paying Agent/Registrar for cancellation, or (ii) shall have been redeemed pursuant to the optional redemption provisions hereof and not previously credited to a mandatory sinking fund redemption.]5 Notice of such redemption or redemptions shall be given by United States mail, first class postage prepaid, not less than 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 Jimitations therein set forth, this Bond is transferable upon surrender of this Bond for transfer at the designated 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. The City, the Paying Agent/Registrar, and any other person may treat the person in whose name this Bond is regis:tered as the owner hereof for the purpose of receiving payment as herein 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; 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, fonn and manner, as required by law; 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; and that the total indebtedness of the City, including the Bonds, does not exceed any constitutional or statutory limitation. s Insert mandatory sinking fund redemption provisions, if any, and revise as necessary to confoan to the Pricing Cer:Uficate. WB.200f71006 Dallas l10S368J.OOC -19- 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. Mayor, CityofLubboc~ Texas City Secretary, City of Lubbock, Texas [SEAL] (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] WB20MI006 Dallas 110Sl6&_1.DOC -20- Comptroller of Public Accounts of the State ofTexas (c) Fonn of Certificate of Paying AgentJR.egistrar. 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 AgentJR.egistrar 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: UJB200f71006 Dallas 110S368_1.00C -21- JPMorgan Chase Bank, National Association as Paying Agent/Registrar By: Authorized Signatory (d) Form of Assignment ASSIGNMENT FOR VALUE RECEIVEDt the undersigned hereby sells. assigns, and transfers unto (print or typewrite namet 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 hereo~ with full power of substitution in the premises. Dated: 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. Signature Guaranteed By: Authorized Signatory (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) inunediately under the name of the Bond the headings "INTEREST RATE, and "MA TIJRITY DATE" shall both be completed with the expression "As showp 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 set forth in the following schedule: UJB200171006 Dallas IIOS368_1.DOC -22- Principal Installments Interest Rate {Information to be inserted from the Pricing Certificate pursuant to 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 in regard to 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 Qpinion. The approving legal opinion of Vinson & Elkins L. L.P ., Bond CoWlSel, may be attached to or printed on the reverse side of each Bond over the certification of the City Secretary, which may be executed in facsimile. Section 6.5 Bond Insurance. Information pertaining to bond insurance, if any, may be printed on each Bond. ARTICLE VII SALE AND DELIVERY OF BONDS; DEPOSIT OF PROCEEDS Section 7.1 Sale of Bonds; Official Statemenl (a) The Bonds shall be sold at negotiated sale to the Underwriter in accordance with the terms of this Ordinance, including this Section 7.l(a) and Exhibit B hereto, provided that all of the conditions set forth in Exhibit B can be satisfied. As authorized by Chapter 1207, Texas Government Code, as amended, the Chief Financial Officer is authorized to act on behalf of the City upon determining that the conditions set forth in Exhibit B can be satisfied, in selling and delivering the Bonds and carrying out the other procedures specified in this Ordinance, including determining whether to acquire bond insurance for the Bonds, the aggregate principal amount of the Refunded Obligations, the aggregate principal amount of the Bonds and price at which each of the Bonds will be sold; the number. and designation of series of Bonds to be issued, the fonn in which the Bonds shall be issued, the years in which the Bonds will mature, the principal amount to mature in each of such years, the rate of interest to be borne by each such maturity, the first interest payment date, the dates, prices and terms upon and at which the Bonds shall be subject to redemption prior to maturity at the option of the City and shall be subject to mandatory sinking fund redemption, and all other matters relating to the issuance, sale and delivery of the UJB200f11006 DaJiu 1105368_1.DOC ~23- Bonds, including the refunding of the Refunded Obligations, all of which shall be specified in the Pricing Certificate. The authority granted to the Chief Financial Officer under this Section 7.1 (a) shall expire at 5:00 p.m .• June 26, 2006 unless otherwise extended by the City Council by separate action. Any finding or determination made by the Chief Financial Officer relating to the issuance and sale of the Bonds and the execution of the Bond Purchase Contract in connection therewith shall have the same force and effect as a finding or determination made by the City Council. (b) The Chief Financial Officer is hereby authorized and directed to execute and deliver, and the City Secretary is hereby authorized and directed to attest, a bond purchase contract (the "Bond Purchase Contract.,) which Bond Purchase Contract is hereby accepted, approved and authorized in substantially the fonn submitted to the City and upon completion of the tenns of the Bond Purchase Contract in accordance with the terms of the Pricing Certificate and this Ordinance, the Chief Financial Officer is authorized and directed to execute such Bond Purchase Contract on behalf of the City and the Chief Financial Officer and all other officers, agents and representatives of the City are hereby authorized to do any and ail things necessary or desirable to satisfy the conditions set out therein and to provide for the issuance and delivery of the Bonds. The Bonds shall initially be registered in the name of the Underwriter. (c) The form and substance of the Preliminary Official Statement for the Bonds and any addenda; supplement or amendment thereto, 3:fe hereby in all respects approved and adopted, and the Preliminary Official Statement 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 Secwities Exchange Act of 1934, as amended. The Chief Financial Officer and City Secretary are hereby authorized and directed to cause to be prepared a final Official Statement incorporating applicable pricing information pertaining to the Bonds, and to execute the same by manual or facsimile signature and deliver appropriate nwnbers of ex.ecuted copies thereof to the Underwriter. The Official Statement as thus approved, executed and delivered, with such appropriate variations as shall be approved by the Chief Financial Officer and the Undexwriter, may be used by the Underwriter 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 in the public offering of the Bonds by the Underwriter is hereby ratified, approved and confirmed. (d) All officers of the City are authorized to execute such documents, Bonds and receipts as they may deem appropriate in order to oonswnmate the delivery of the Bonds in accordance with the terms of sale therefor including, without limitation, the Bond Purchase Contract. (e) The obligation of the UndetWriter 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. WB200nl006 Dallas ll0S368_l.DOC -24- Section 7.2 Control and Delivery of Bonds. (a) The Chief Financial Officer 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 Underwriter thereof under and subject to th.e general supervision and direction of the Chief Financial Officer, against receipt by the City of all amounts due to the City under the tenns of sale. ARTICLEVIH CREATION OF FUNDS AND ACCOUNTS, INITIAL DEPOSITS AND APPLICATION OF MONEY Section 8.1 Creation of Funds. The City hereby establishes the following funds: (i) the City of Lubbock. Texas, General Obligation Refunding Bonds, Series·2006, Interest and Sinking Fund (the "Interest and Sinking Fund,.); and (ii) the City of Lubbock. Texas, General Obligation Refunding Bonds, Series 2006, Cost of Issuance Fwtd (the "Cost of Issuance Fund"). Section 8.2 Initial Deposits. On the Closing Date, the City shall cause the proceeds from the sale of the Bonds to be deposited as follows: (i) first, an amount equal to all accrued interest on the Bonds> if any, from the Original Issue Date until the Closing Date shall be deposited to the credit of the Interest and.Sinking Fund; (ii) second, a portion of the proceeds from the sale of the Bonds, funds transferred from the interest and sinking funds for the Refunded Obligations, and other funds of the City, if any, as set forth in the Pricing Certificate shall be applied to establish an Escrow Fund to refund the Refunded Obligations and, to the extent not otherwise provided for, to pay all expenses arising in connection with the establishment of such Escrow Fund and the refunding of the Refunded Obligations; and (iii) third, the remaining balance shall be deposited to the credit of the Cost of Issuance FWld to pay the costs of issuance. LUB200ntoo6 Dallas IIOS368_l.OOC -25- Section 8.3 Interest and Sinking Fund. (a) The taxes levied under Section 2.1 of this Ordinance shall be deposited to the credit of the Interest and Sinking Fund at such times and in such amounts as necessary for the timely payment of the principal of and interest on the Bonds. (b) If the amotmt of money in the Interest and Sinking Fund is at least equal to the aggregate principal amount of the outstanding Bonds plus the aggregate amount of interest due and that will become due and payable on such Bonds, no further deposits to that fund need be made. 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. (c) Money on deposit in the Interest and Sinking Fund shall be used to pay the principal of and interest on the Bonds as such become due and payable. Section 8.4 Cost of Issuance Fund. The Cost of Issuance Fund shall be used for the purpose of paying expenses incurred in connection with the issuance and delivery of the Bonds. Section 8.5 Excess Bond Proceeds. (a) Upon payment of the cost of issuance associated with the Bonds, any amotint that remains in the Cost of Issuance Fund shall be transferred to the credit of the Interest and Sinking Fund and segregated in a special escrow account (b) The money in such special escrow account shall be used for the payment of principal, premium. if any, and interest on the Bonds, on the respective due dates thereof or dates as of which Bonds have been called for redemption. Section 8.6 Security of Funds. All moneys on deposit in the funds referred to in this Ordinance shall be secured in the manner and to the fullest extent required by the laws of the State of Texas for the security of public funds, and moneys on deposit in such funds shall be used·only for the purposes permitted by this Ordinance. ARTICLE IX INVESTMENTS Section 9.1 Investments. (a) Money in the Interest and Sinking Fund created by this Ordinance, at the option of the City, may be invested in such securities or obligations as permitted under applicable law. WB200nl006 Dallas llOS.368_! .OCX:: -26- (b) Any securities or obligations in which such money is so invested shall be kept and held in tnast 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 9.2 Investment Income. Interest and income derived from investment of the Interest and Sinking Fund shall be credited to such Fund. ARTICLE X PARTICULAR REPRESENTATIONS AND COVENANTS Section 10.1 Payment of the Bonds. On or before each Interest Payment Date 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, redemption premium, if any, and interest on the Bonds as will accrue or mature on the applicable Interest Payment Date or date of prior redemption. Section 10.2 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, redemption premium, if any, 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 10.3 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 10.3 through 10.9 of this Article X; provided, however, that the City shall not be required to comply with any particular requirement of Sections 10.3 through 10.9 of this Article X if the City has received an opinion of UJB200171006 Dallu llOS368_1.DOC -27- 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 Sections 10.3 through 10.9 of this Article X 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 10.3 through 10.9 of this Article X. Section 10.4 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. Section I 0.5 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. respectivelyt 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 10.6 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 l49(g) of the Code and the Regulations. Section I 0. 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 ftom Bond proceeds, regulate investments of proceeds of the Bondst and · take such other and fi.Jrther 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 Regulati_ons. WB200nl006 Dallas l!OS368_l.DOC -28- Section 10.8 Arbitrage Rebate. (f 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) ofthe Code), be rebated to the federal govenunent. Specifically, the City will (i) maintain records regarding the investment of the gross proceeds of the Bonds as may be required to calculate the amoWlt 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 arm's length and had the yield on the issue not been relevant to either party. Section 10.9 Information Reoorting. 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 l49(e) of the Code and the Regulations. Section 10.10 Continuing Obligation. Notwithstanding any other provision of this Ordinance, the City's obligations under the covenants and provisions of Sections 10.3 . through I 0.9 of this Article X shall swvive the defeasance and discharge of the Bonds. ARTICLE XI DEFAULT AND REMEDIES Section 11.1 Events ofDefault. Each of the following occwrences 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: redemption premium, if any, or interest on any of the Bonds when the same becomes due and payable; or LUB20017l006 Dallas ll0536&_1.DOC -29- (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 11 .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 Qwners 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) [t is provided that all such proceedings shall be instituted and maintained for the equal benefit of all Owners of Bonds then outstanding. Section 11.3 Remedies Not Exclusive. (a) No remedy herein confeired or reserved is intended to be exclusive of any other available remedy, but each and every such remedy shall be cumulative and shall be 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 XII DISCHARGE Section 12.1 Discharge. The Bonds may be defeased, discharged or refunded in any manner permitted by applicable law. UJB200!71006 Dallu 110Sl68_l.DOC -30- ARTICLEXIH CONTINUING DISCLOSURE UNDERTAKING Section 13.1 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 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 information 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. Section 13.2 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 failure to perform; UJB200nl006 Dallas l IOS368_l.DOC -31- (vi) adverse tax opinions or events affecting the tax-exempt status of the Bonds; (vii) modifications to rights of Owners; (viii) redemption 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 13.1 of this Ordinance by the time required by such Section. Section 13.3 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 redemption 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 Wldertakes to provide only the financial information, operating data, financial statements, and notices which it 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 TilE OWNER OR BENEFICIAL OWNER OF ANY BOND OR ANY OTHER PERSON, IN CONfRACI' 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 CONTRACf OR TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORMANCE. LI.JB200(71006 Dallas IIOS368_1.DOC -32- (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 undet'Writer 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 wtaffitiated 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 infonnation or operating data next provided in accordance with Section 13.1 an explanation, in narrative form., of the reasons for the amendment and of the impact of any change in type of financial information or operating data so provided. (f) Any filing required to be made pursuant to this Article XIII 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. ARTICLE XIV REDEMPTION OF BONDS; APPROVAL OF ESCROW AGREEMENT; ·PURCHASE OF ESCROWED SECURITIES Section 14.1 Redemption ofRefimded Obligations. (a) The City hereby catls the Refunded Obligations for redemption prior to maturity on the dates and at the prices set forth in the Pricing Certificate. (b) The Chief Financial Officer is hereby authorized and directed to cause a copy of this Ordinance to be delivered to each paying agent/registrar for the Refunded Obligations, the delivery of which shall constitute notice of redemption and notice of defeasance to such paying agent/registrar. Section 14.2 Subscription of Federal Securities. The Mayor and the Chief Financial Officer, either or both, are hereby authorized to make necessary arrangements for the purchase of the Federal Securities referenced in the EScrow UJB200nt006 DaDas J 10S368_l.OOC -33- Agreement, as may be necessary for the Escrow Fund and the application for the acquisition of the Federal Securities is hereby approved and ratified. Following the deposits to the Escrow Fund as specified herein and in the Pricing Certificate, the Refunded Obligations shall be payable solely from and secured by such deposits and shall cease to be payable from ad valorem taxes. Section 14.3 Ap_proval of Escrow Agreement. The discharge and defeasance of the Refunded Obligations shall be effectuated pursuant to the terms and provisions of an Escrow Agreement (the "Escrow Agreement") to be entered into by and between the City and the Escrow Agent, which shall be substantially in the form presented at this meeting, the terms and provisions of which are hereby approved, subject to such ·insertions, additions and modifications as shall be necessary (a) to carry out the program designed for the City, (b) to minimize the City's costs of refunding, (c) to comply with all applicable laws and regulations relating to the refunding of the Refunded Obligations, (d) tp carry out the other intents and purposes of this Ordinance and (e) to comply with the terms set forth in the Pricing Certificate. The Chief Financial Officer is hereby authorized to execute and deliver such Escrow Agreement on behalf of the City in multiple counterparts and the City Secretary is hereby authorized to attest thereto and affix the City's seal. Section 14.4 Notice ofDeposit. Each paying agent/registrar for the Refunded Obligations is hereby authorized and directed to give notice of redemption and deposit with respect to the Refunded Obligations as required under the ordinance pursuant to which the Refunded Obligations were issued. ARTICLE XV AMENDMENTS; ATTORNEY GENERAL MODlFICATION Section 15.1 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 pecmitted in this Section. The City may, without consent of or notice to any Own~ 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 o( 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 ot: premium, if any, 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, ~r rescission. WB200171006 Dalllls 110S361_l.DOC -34- Section 15.2 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 Generat•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. [Execution Page Follows) WB200nl006 Dallas ltOS368_l.DOC -35- PRESENTED, FINALLY PASSED AND APPROVED, AND EFFECTIVE on the 26th day of April, 2006, at a special meeting of the City Council of the City of Lubbock, Texas. ATTEST: REB CCA GARZA, City Secretary [SEAL] APPROVED AS TO CONTENT: By: LUB200nJ006 Dallas I IOS368_l.OOC -36- SCHEDULE I REFUNDED OBLIGATION CANDIDATES All o f the City• s outstanding obligations of the following series: Tax & Municipal Drainage Utility System Surplus Revenue Certificates of Obligation, Series 2001 WB200171006 Dallas IIOS368_LDOC EXHIBIT A DESCRIPTION OF ANNUAL DISCLOSURE OF FINANCIAL INFORMATION The following information is referred to in Article XIII of this Ordinance. Annual F"maneial Statements and Operating Data The financial infonnation 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 I through 6 and SA through IS 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. WB200171006 Dalla$ IIOSJ68J .DOC A-I EXHIBITB REFUNDING PARAMETERS In accordance with Section 7.l(a) of the Ordinance) the following conditions with respect to the Bonds must be satisfied in order for the Chief Financial Officer to act on behalf of the City in selling and delivering the Bonds to the Underwriter: (a) the price to be paid for the Bonds shall be not less than I 00% of the aggregate principal amount of the Bonds; (b) the Bonds shall not bear interest at a r~te greater than the maximum rate allowed by Chapter 1 204) Texas Government Cod~ as amended; (c) the aggregate principal amount of the Bonds authorized to be issued for the purposes described in Section 3.1 shalt not exceed the maximum amount authorized in Section 3. t and shall equal an amount sufficient to (i) provide for the refunding of the Refunded Obligations and (ii) pay the costs of issuing the Bonds; (d) the maximum maturity for the Bonds shall not exceed twenty years; (e) the refunding of the Refunded Obligations shall result in a net present value savings of at least 2%; and (f) the Bonds to be issued, prior to delivery, must have been rated by a nationally recognized rating agency for municipal securities in one of the four highest rating categories for long term obligations. UJB200nl006 DaDas llOS368J.DOC: B-1 ) Ordinance No. 2006-00060 MINUTES AND CERTIFICATION PERTAINING TO PASSAGE OF AN ORDINANCE STATE OF TEXAS § COUNTY OF LUBBOCK § CITY OF LUBBOCK § On the 18th day of May, 2006, 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 Goverrunent 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 except N.A. thus constituting a quorum. Whereupon, among other business, a written Ordinance bearing the following caption was introduced: AN ORDINANCE AMENDING THE CITY'S ORDINANCE PROVIDING FOR THE ISSUANCE OF CITY OF LUBBOCK, TEXAS, GENERAL OBLIGATION REFUNDING BONDS, SERIES 2006 AND RATIFYING THE PURCHASE CONTRACT PROVIDING FOR THE SALE OF SUCH BONDS The Ordinance, a full, true 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: _o _ LU8200nt006 Dallas U20S49_1.DOC 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 18th day of May, 2006. City S~cretary City of Lubbock, Texas [SEAL] LUB200171006 Dallas 1120849_1.DOC -2- OliDIJWiCE Ho. 2006-Q0060 First & Final Reading Kay 18~ 2006 It.em. Ho. 2.6 AN ORDINANCE AMENDING THE CITY'S ORDINANCE PROVIDING FOR THE ISSUANCE OF CITY OF LUBBOCK, TEXAS, GENERAL OBLIGATION REFUNDING BONDS, SERIES 2006 AND RATIFYING THE PURCHASE CONTRACT PROVIDING FOR THE SALE OF SUCH BONDS WHEREAS, the City of Lubbock, Texas (the "City"), pursuant to Chapter 1207, Texas Government Code, as amended, adopted an ordinance (the "Ordinance") on April 26, 2006, authorizing the issuance of its General Obligation Refunding Bonds, Series 2006 (the "Bonds,) and delegating to the Chief Financial Officer the authority to approve the amount, the interest rate, price and terms of the Bonds authorized thereby and to otherwise take such actions as necessary and appropriate to effect the sale of the Bonds; WHEREAS, the City Council of the City (the "City Council,) has found and determined that it is in the best interest of the City to amend the Ordinance to revise the parameters pertaining to the minimmn price to be paid for the Bonds and the maximum maturity of the Bonds and to ratify the execution of the Bond Purchase Contract (as defined in the Ordinance) and the Pricing Certificate (as defined in the Ordinance) relating to the Bonds, each dated May 11, 2006; 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; NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK, .TEXAS, THAT: Section t. The findings and determinations set forth in the preambles hereto are hereby incorporated by reference for all purposes. Section 2. Section 3.2(b) of the Ordinance is hereby amended to provide that the maximum maturity for the Bonds shall not exceed twenty-five years. Section 3. Exhibit B of the Oz:dinance entitled "Refunding Parameters" is hereby amended to provide that the maximum maturity for the Bonds shall not exceed twenty-five years and the price to be paid for the Bonds shall be not less than 98.5% of the aggregate principal amount of the Bonds. Section 4. The execution of the Bond Purchase Contract and the Pricing Certificate for the Bonds, each dated as of May 11, 2006, and the tenns and conditions contained therein are hereby approved and ratified. Section 5. This ordinance shall take effect from and after the date of its passage. WB200Jl Dallas 1119S28_l.DOC PRESENTED, FINALLY PAS SED AND APPROVED, AND EFFECTIVE on the 18th day of May, 2006, at a special meeting of the City Council of the City ofLubboc~ Texas. ATTEST: £~~ City Secretary -e [SEAL] lU8200/I Dallas 1119S28_1.DOC -2- PRICING CERTIFICATE General Obligation Refunding Bonds, Series 2006 Re: $18,830,000 City of Lubbock, Texas General Obligation Refunding Bonds, Series 2006 (the "Bonds'') I, the undersigned officer of the City of Lubbock, Texas (the "City"), do hereby make and execute this Pricing Certificate pursuant to an ordinance adopted by the City Council of the City on April 26, 2006, as amended on May 18, 2006 (the "Ordinance") authorizing the issuance of the Bonds. Capitalized terms used in this Pricing Certificate shall have the meanings given such terms in the Ordinance. 1. As authorized by Section 7 .I of the Ordinance, I have acted on behalf of the City in selling the Bonds to the Underwriter pursuant to the tenns of a bond purchase contract in substantially the form accepted, approved and authorized pursuant to Section 7.1 of the Ordinance, for the sum of $18,557,755.97 (representing the principal amount of $18,830,000, less net original issue discount of $147,517.60 and less an underwriters• discount of $124,726.43 ), and having the following terrns, conditions and provisions, all as authorized pursuant to Section 7.1 of the Ordinance: A. The Bonds shall be issued in the aggregate principal amount of$18,830,000, shall be dated May 15, 2006 (the "Bond Date") and bear interest from such date, shall mature on February 1 5 in the years and in the principal amounts and shall bear interest payable on February IS and August 15 of each year, conunencing August 15, 2006, at the rates set forth in the following schedule: Serial Bonds Principal Principal Years Installments Interest Rate Years Installments Interest Rate 2007 $30,000 4.000% 2018 $ 50,000 4.4000/o 2008 30,000 4.000% 2019 50,000 4.500% 2009 35,000 4.000% 2020 55,000 4.500% 2010 35,000 4.000% 2021 55,000 4.500% 2011 35,000 4.000% 2022 1,455,000 4.500% 2012 40,000 4.000% 2023 1,525,000 4.750% 2013 40,000 4.000% 2024 1,600,000 4.7500/o 2014 40,000 4.000% 2025 1,680,000 4.750% 2015 40,000 4.000% 2026 1,765,000 4.7500/o 2016 45,000 4.200% 2027 1,850,000 4.600% 2017 45,000 4.300% LUB200nt006 Dallas I 119S42_l.OOC Term Bonds Principal Years Installments Interest Rate 2029 $1,000,000 5.000% 2029 2,965,000 4.750% 2031 4,365,000 4.750% B. The Term Bonds are subject to scheduled mandatory redemption and will be redeemed by the City, in part at a price equal to the principal amount thereof, without premium, plus accrued interest to the redemption date, out of moneys available for such purpose in the Interest and Sinking Fund, on the dates and in the respective principal amounts as set forth in the following schedule: $1,000,000 5.00% Term Bonds Maturing February 15,2029 Redemption Date Principal Amount February 15,2028 February 15, 2029 (maturity) $460,000 540,000 $2,965,000 4.75% Term Bonds Maturing February 15, 2029 Redemption Date Principal Amount February 15,2028 February 15, 2029 (maturity) $1A75,000 1,490,000 $4.365.000 4.75% Term Bonds Maturing February 15,2031 Redemption Date Principal Amount February 15, 2030 February 15,2031 (maturity) $2,130,000 2,235,000 C. In accordance with the parameters contained in Section 7.1 and Exhibit B of the Ordinance, the undersigned does hereby fi~ certify and represent that the foregoing terms of the Bonds satisfy the following requirements and parameters contained within such Section 7 .l and Exhibit B: (i) the price to be paid by the UndetWriters for the Bonds shall be 98.554% of the aggregate principal amount of the Bonds, which is not less than 98.5% of the aggregate principal amount of the Bonds; (ii} the Bonds do not bear interest at a rate greater than the maximum rate allowed by Chapter 1204, Texas Government Code, as amended; WB2oont006 Dallas lll9S42_l.DOC -2- (iii) the aggregate principal amount of the Bonds issued for the purposes described in Section 3.1 does not exceed the maximum amount authorized in Section 3.1 and equals an amount sufficient to (i) provide for the refunding of the Refunded Obligations and (H) pay the costs of issuing the Bonds; (iv) the maximum maturity for the Bonds is February 15, 2031 which does not exceed twenty-five years; (v) the refunding of the Refunded Obligations will result in a net present value savings of2.502%, which is at least 2%; and (vi) the Bonds have been rated, or will be rated prior to delivery, by a nationally recognized rating agency for municipal securities in one of the four highest rating categories for long tenn obligations. 2. The Refunded Obligations to be refunded through the issuance of the Bonds are the City's Tax and Municipal Drainage Utility System Surplus Revenue Certificates of Obligation, Series 2001 maturing February 15 in the years 2023 ($2,885,000 principal amount), 2026 ($4,940,000 principal amount) and 2031 ($1 0,190,000 principal amount), in the aggregate principal amount of$18,015,000. The Refunded Obligations are hereby irrevocably called for redemption prior to maturity on February 15, 2011, at a price of 100% of par, plus accrued interest to the date fixed for redemption, and notice of such redemption shall be given in accordance with the ordinance authorizing the issuance of such obligations. 3. $18,348,279.17 of the proceeds of the Bonds and $339,198.47 of prior debt service funds shall be deposited to the Escrow Fund. $145,000 from the proceeds of the Bonds shall be deposited to the Cost of Issuance Fund for the purpose of paying costs and expenses incurred with respect to the issuance of the Bonds. $63,013.15 of the proceeds of the Bonds shall be applied to pay the bond insurance premium. Accrued interest plus $IA63.65 of proceeds of the Bonds shall be deposited to the debt service fund for the Bonds. 4. The Bonds shall be insured by Financial Guaranty Insurance Company. 5. The Bonds shall be issued substantially in the fonn attached hereto as Exhibit A. WB200nt006 Dallas 1119S42_l.OOC -3-. Executed as of the 11th day of May, 2006. Signature Page for Pricing Certificate EXHIBIT A The fonn of the Bonds, including the fonn of the Registration Certificate of the Comptroller of Public Aocounts of the State of Texas. the form of Certificate of the Paying Agent/Registrar and the form of Assignment appearing on the Bonds, shall be substantially as follows: (a) Fonn of Bond. REGISTERED REGISTERED No. $ ___ _ INTEREST RATE: __ % United States of America State of Texas County of Lubbock CITY OF LUBBOC~ TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 MATURITY DATE: BOND DATE: February 15 __ May 15,2006 CUSIP 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 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 360-day year of twelve 30-day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing August 15, 2006. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). 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, or, with respect to a successor Paying Agent/Registrar, at the Designated Paymentffransfer Office of such successor. 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 LUB200171006 Dallas 1119S41_1.DOC A-1 Paying Agent/Registrar and the registered owner; provided, however, such registered owner shall bear all risk and expenses of such customary banking arrangement. 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 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 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. This Bond is one of a series of fully registered Bonds specified in the title hereof issued in the aggregate principal amowtt of $18,830,000 (herein referred to as the "Bonds"), issued pursuant to a certain ordinance of the City, as amended (the ''Ordinance") for the puq>Ose of refunding certain outstanding obligations of the City. The City has reserved the option to redeem the Bonds maturing on or after February 15, 2017 before their respective scheduled maturities in whole or in part in integral multiples of $5,000 on February 15, 2016, or on any date thereafter, at a redemption price of par, 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 Bonds, or portions thereof within such maturity or maturities and in such amounts, for redemption. Bonds maturing on february 15, 2029 and February 15, 2031 (the "Term Bonds") are subject to mandatory sinking fund redemption prior to their scheduled maturity, and will be redeemed by the City, in part at a redemption price equal to the principal amount thereof: without premi~ plus interest accrued to the redemption date, on the dates and in the principal amounts shown in the following schedule: UJB20MI006 Dallas 1119541_1 .DOC $1.000.000 5.00%, Term Bonds Maturing February 15.2029 Redemption Date February 15, 2028 February 15,2029 (maturity) frincipal Amowtt $460,000 540,000 $2.965,000 4.75% Term Bonds Matwing February 15. 2029 Redemption Date February 1 5, 2028 February 15,2029 (matwity) A-2 Principal Amount $1,475,000 1,490,000 $4,365,000 4.75% Term Bonds Maturing February 15,2031 RedemJ)tion Date February 15, 2030 February 15, 2031 (maturity) PrinciJ)al Amount $2,130,000 2,235,000 The Paying Agent/Registrar will select by lot or by any other customary method that results in a random selection the specific Term Bonds (or with respect to Term Bonds having a denomination in excess of $5,000, each $5,000 portion thereot) to be redeemed by mandatory redemption. The principal amowtt of Term Bonds required to be redeemed on any redemption date pursuant to the foregoing mandatory sinking fund redemption provisions hereof shall be reduced, at the option of the City, by the principal amount of any Term Bonds which, at least 45 days prior to the mandatory sinking fund redemption date (i) shall have been acquired by the City at a price not exceeding the principal amount of such Term Bonds plus accrued interest to the date of purchase thereo~ and delivered to the Paying Agent/Registrar for cancellation, or (ii) shall have been redeemed pursuant to the optional redemption provisions hereof and not previously credited to a mandatory sinking fund redemption. Notice of such redemption or redemptions shall be given by United States mail, first class postage prepaid, not less than 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 slttl'ender of this Bond for transfer at the designated 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. 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 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; 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; that ad W820Ml006 Dallas Jll9S42_J.DOC A-3 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; and that the total indebtedness of the City, including the Bonds, does not exceed any constitutional or statutory limitation. 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. Mayor, City of Lubbock, Texas City Secretary, City of Lubbock, Texas [SEAL] WB200nt006 Dallas lii9S42_l.DOC A-4 (b) Fonn 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 confonnity 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] Comptroller of Public Accounts of the State ofTexas . (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 ofTexas, and that this is one of the Bonds referred to in the within-mentioned Ordinance. Dated: LUB2.00f71006 Dallas lll9S42_1.DOC A-5 JPMorgan Chase B~ National Association as Paying Agent/Registrar By: Authorized Signatory (d) Form of Assignment ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto (print or typewrite name, address and Zip Code of transferee): -------------- (Social Security or other identifying number: the within Bond and all rights 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. Dated: 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. Signature Guaranteed By: Authorized Signatory (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: LUB2oonl006 (A) immediately under the name of the Bond the headings "INTEREST RATE" and "MATURITY DATE" shall both be completed with the expression "As shown below"; and (B) 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 set forth in the following schedule: Principal Installments Interest Rate (Information to be inserted from the Pricing Certificate pursuant to Section 3.2 of the Ordinance) Dallas lii9S4-2_l.DOC A-6 ORDINANCE NO. 2001-00041 AN ORDINANCE authorizing the issuance of ·ciTY OF LUBBOCK. TEXAS. TAX AND MUNICIPAL DRAINAGE UTILITY SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION. SERIES 2001•; specifying the tenns and features of said certificates; providing for the payment of said certificates of obligation by the levy of an ad valorem tax upon all taxable property within the City and a lien on and pfedge of the net revenues from the operation of the City's Municipal Drainage Utility System; and resotving other matters incident and related to the issuance, sate. security. payment and delivery of said certificates. including the approval of a Paying Agent/Registrar Agreement and Purchase Contract and the approval and distribution of an Official Statement; and providing an effective date. WHEREAS. notice of the City Council's intention to issue certificates of obligation in the maximum principal amount of $35,000,000 for the purpose of paying contractual obligations to be incurred for (i) drainage improvements, including the acquisition, construction and repair of structures. equipment and facilities for the City's Municipal Drainage Utility System, and (ii) professional services rendered in connection with such project and the financing thereof, has been duly published in the Lubbock Avalanche-Journal, a newspaper hereby found and determined to be of general circulation in the City of lubbock. Texas. on May 13, 2001 and May 20, 2001, the date of the first publication of such notice being not less than fifteen (15) days prior to the tentative date stated therein for the second reading and final passage of this Ordinance; and WHEREAS, no petition, protesting the issuance of such certificates and bearing valid petition signatures· of at least 5% of the qualified voters of the City, has been filed with the City Secretary, any member of the Council or any other official of the City on or prior to the date of the passage of this Ordinance; and WHEREAS. the Council hereby finds and determines the certificates of obligation desaibed in such notice should be issued and sold at this time in the amount and manner hereinafter provided; now. therefore, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF lUBBOCK: SECTION 1: AuthorizaQon-Oe~nalion-Principat Amount-Pur~. Certificates of obligation of the City shall be and are hereby authorized to be issued in the aggregate principal amount of $35,000,000 to be designated and bear the title ·caTV OF lUBBOCK. TEXAS, TAX AND MUNICIPAl DRAINAGE UTILITY SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION. SERIES 2001• (the •Certificates"), for . the purpose of paying contractual obligations to be incurred for (i} drainage improvements, including the acquisition, construction and repair of structures. equipment and facilities for the City's Municipal Drainage Utility System. and (ii) professional setvioes rendered in connection with such project and 1he financing thereof. pursuant to auUlority conferred by and in oonfonnity with the Constitution and laws of the State of Texas, induding V.T.C.A.. local Government Code. Subchapter C of Chapter 271. · SECTION 2: FuJ(y R!Qisfered Obligations -Authorized Denominations·Stated Maturities-Date. The Certificates are issuable in fully registered tocm onty; shall be dated June 1, 2001 (the ·eertiricate Date•) and, other than the Initial Certificates referenced in Section 8 hereof) shall be in denominations of $5.000 or any integral multiple thereof (within a Stated Maturity) and the Certfficates shall become due and payable on February 15 in each of the years and in principal amounts (the •stated Maturities·) and bear interest at the per annum rate(s) in acc:ordance with the following schedule: Year of Principal Interest Stated Maturity Amount Rate 2002 160,000 5.000% 2003 550,000 5.000% 2004 575,000 5.000% 2005 605,000 5.000% 2006 635,000 5.000% 2007 670,000 5.000% 2008 705,000 5.000% 2009 740,000 5.000% 2010 780,000 5.000% 2011 815.000 4.400% 2012 855,000 4.625% 2013 895,000 4.700% 2014 940,000 4.800% 2015 985,000 4.900% 2016 1,035,000 5.000% 2017 1,085,000 5.000% '2Q18 1,145,000 5.125% 2019 1,205,000 5.125% 2020 1,270,000 5.200% 2021 1,335,000 5.200% 2023 2,885,000 5.200% 2026 4,940,000 5.250% 2031 10,190,000 5.300% The Certif.cates shaa bear interest on the unpaid principal amounts hom the Certfficate Date at the per annum rate(s) shown above in this Section (calculated on the basis of a 360-day year of twefve 30-day months). Interest on Che Certificates shaD be payable on Februasy 15 and August 15 in each year, convnencing February 15,2002. SECTION 3: Terms of P!yment-Paying Agent/Registrar. The principal of. premium. if any, and the interest on the Certificates. due and payable by reason of malurity, redemption or othefWise, shaU be payable only to the registered owners or holdess of the Ceftificates (hereinafter called the •Holders") appearing on lhe registration and transfer books maintained by the Paying Agent/Registrar and the payment thereof shall be in any coin or currency of the United States of America, which at the time of payment is legal tender for the payment of public and private debts, and shan be without exchange or col1edion charges to the Holders. 4S03S694.2 -2- The selection and appointment of U.S. Trust Company of Texas, N.A., Dallas, Texas to serve as Paying Agent/Registrar tor the Certificates is hereby approved and confirmed. Books and records relating to the registration. payment, exchange and transfer of the Certificates (the •Security Register") shall at all times be kept and maintained on behalf of the City by the Paying Agent/Registrar, aU as provided herein, in acaxdance with the terms and provisions of a •paying Agent/Registrar Agfeemenr; substantially in the foon attached hereto asExhibit A and such reasonable rules and regulations as the Paying Agent/Registrar and the City may prescribe. The Mayor and City Secretaly of the City are hereby authorized to execute and deliver such Agreement in oonnection with the delivery of the Cectificates. The City covenants to maintain and provide a Paying Agent/Registrar at all times until the Certificates are paid and discharged, and any successor Paying Agent/Registrar shall be a bank, trust company, financial institution or other entity qualified and authorized to serve in such capacity and perfonn the duties and services of Paying Agent/Registrar. Upon any change in the Paying Agent/Registrar for lhe Certificates. the City agrees to prompUy cause a written notice thereof to be sent to each Holder by United States Mail, first dass postage prepaid. which notice shall aJso give \fle address of the new Paying Agent/Registrar. Principal of and premium, if any, on the Certificates shall be payable at the Stated Maturities or the redemption thereof only upon presentation and surrender of the Certificates to the Paying Agent/Registrar at its designated offices in New York, New York (the •Designated Payment/Transfer Office•). Interest on the Certificates shalf be paid by the Paying Agent/Registrar to the Holders whose name appears in the Security Register at the dose of ~usiness on the Record Date (the last business day of the month next preceding each interest payment date) arid payment of such interest shall be (i) by check sent United States Mail, first class postage prepaid, to the address of the Holder recorded in the Security Register or (ii) by such other method, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the Hofder. If the da.te for the payment of the principal of or interest on the Certificates shall be a Satumay, Sunday, a legal holiday, or a day when banking institutions in the City where the Designated PaymenVfransfer Office of the Paying Agent/Registrar is located are authorized by taw or executive order to dose, then the date for such payment shall be the next succeeding day which is not such a Saturday, Sunday. legal holiday, or day when banking institutions are authorized to close; and payment on such date shall have the same force and effect as if made on the original date payment was due. In the event of a nonpayment of interest on a scheduled payment date, and for thirty (30) days thereafter, a new record date for such interest payment (a •SpedaJ Record Date•) will be' established by lhe Paying A!Jentl Registrar, if and when funds for the payment of such interest have been received from lhe City. Notice of the Special Record Date and of the scheduled payment date of the past due interest (which shaU be 15 days after the Special Record Date) shalt be sent at least five (5) business days prior to the Special Record Date by United States MaD, first dass postage prepaid, to the address of each Hokler appearing on the Security Register at the close of business on the last business next preoeding the date of mailing of such notice. SECTION 4: Redemption. (a) Optional Redemption. The Certificates having Stated Maturities on and after February 15, 2012, shalt be subject to redemption prior to maturity, at the option of the City, in whole or in part in pcindpaJ amounts of $5,000 or any integral multipfe thereof (and if within a Stated Maturity by lot by the Paying Agent/Registrar), on February 15. 2011 or on any date thereafter at the redemption price of par plus acaued interest to the date of redemption. -3- At least forty-five (45) days prior to a redemption date for the Certificates (unless a shorter notification period shal be satistact()(}' to the Paying Agent/Registrar}. the City shari notify the Paying Agent/Registrar of the decision to redeem Certificates, the principal amount of each Stated Maturity to be redeemed, and the date of redemption therefor. The decision· of lhe City to exercise the right to redeem Certificates shall be entered in the minutes of the governing body of the City. {b) Mandatory Redemption. The Certificates having Stated Maturities of February 15. 2023, February 15, 2026 and February 15, 2031 ("Term Certificates") shall be subject to mandatory redemption in part prior to maturity at the redemption price of par and accrued interest to the date of redemption on the respective dates and in principal amounts as foiSows: Term CertifiCates due February 15, 2023 Term Certificates due February 15, 2026 Redemption Date Principal Amount Redemption Date Principal Amount February 15, 2022 $1,405,000 February 15, 2024 $1,560,000 February 15.2025 · $1,645,000 Term Certificates Due February 15, 2031 Redemption Date Principal Amount February 15,2027 $1,830,000 February 15, 2028 $1,925,000 February 15,2029 $2,030,000 February 15,2030 $2,145,000 Approximately forty-f.ve (45) days prior to ead1 redemption date specified above the Term Certificates are to be mandatorily redeemed, the Paying Agent/Registrar shall sated by lot the numbers of the Tenn Certificates wiChin lhe applic:abfe Stated Maturity to be redeemed on the next following February 15 from moneys set aside for lhat purpose in the Certificate Fund (as hereinafter defined). Any Term Certificate not selected for prior redemption shall be paid on the date of their Stated Maturity. The principal amount of the Tenn Certificates for a Stated Maturity required to be redeemed pursuant to the operation of such mandatory redemption provisions may be reduced, at the option of the City, by the principal amount of Tenn Certificates of like Stated Maturity which, at least 50 days prior to a mandatory redemption date, (1) shall have been acquired by the City at a price not exceeding the principal amount of such T enn Certificates plus accrued interest to the date of purchase thereof, and delivered to the Paying .AgentfRegistrar for cancellation or (2) shall have been redeemed pursuant to the optional redemption provisions set fofth in paragraph (a) of this Section and not theretofore aedited against a mandatory redemption requirement (c) Selection of Certificates for Redemption. If tess than aQ Outstanding Certificates of the same Stated Maturity are to be redeemed on a ~lion date, the Paying Agent/Registrar shall treat such Certificates as representing the number of Cef'tifteates Outstanding which is obtained &y cftviding the principal amount of such Cenificates by $5,000 and shaU select 1he Certificates. or principal amount thereof, to be redeemed within such Stated Maturity by Jol (d) Notice of Redemption. Not less than thirty (30) days prior to a redemption date for the Certificates, a notice of redemption shall be sent by United States MaU, first class 4SOlS6'94.2 postage prepaid. in the name of the City and at the City's expense, to each Holder of a Certificate to be redeemed in whole or in part at the address of the Holder appearing on the Security Register at the close of business on the business day next preceding the date of mailing such notice, and any notice of redemption so mailed shall be conclusively presumed to have been duly given irrespective of whether received by the Holder. AlJ notices of redemption shaD (i) specify the date of redemption for the Certificates. {ii) identify the Certificates to be redeemed and, in the case of a portion of the principal amount to be redeemed, the principal amount thereof to be redeemed, (iii) state the redemption price, (iv) state that the Certificates, or Ule portion of the princip~ arnomt thereof to be redeemed, shall become due and payable on the redemption date specified, and the interest thereon, or on the portion of the principal amount thereof to be redeemed, shaU cease to accrue from and after the redemption date, and (v) specify that payment of the redemption price for the Certificates, or the principal amount thereof to be redeemed, shall be made at the Designated PayrnenVTransfer Office of the Paying Agent/Registrar only upon presentation and surrender thereof by the Holder. If a Certificate is subject by its terms to prior redemption and has been caUed for redemplion and notice of redemption thereof has been duly given as hereinabove provided, such Certificate (or the principal amount thereat to be redeemed) shal become due and payable and interest thereon shaD cease to accrue from and aftef' the redemption date therefor; provided moneys sufficient for the payment of such Certifacate (or of the prindpal amount thereof to be redeemed} at the then applicable redemption price are held for the purpose of such payment by the Paying Agent/Registrar. SECTION 5: Registration-Transfer • Exchange of Certificates·Predecessor Certificates. The Paying Agent/Reg~r shaJI obtain, record, and maintain in the Security Register the name and address of each and every owner ot the Certificates issued under and pursuant to the provisions of this Ordinance. or if appropriate, the nominee thereof. Ally Certificate may be transferred or exchanged for Certificates of other authorized denominations by the Holder, in person or by his duty authorized agent, upon surrender of such Certifate to the Paying Agent/Registrar for cancellation, accompanied by a written instrument ot transfer or request for exchange duty executed by the Holder or by his duly authorized agent. in form saHsfacto<y to the Paying AgenfJRegistrar. . Upon surrender of any Certificate (other than the Initial Certificates authorized in Section 8 hereof) for transfer at the Designated Payment/Transfer Office of the Paying Agent/Registrar, the Paying Agent/Registrar shaft iegister and deliver, in the name of the designated transferee or transferees, one or more new Certificates of authorized denominations and having the same Stated Maturity and of a like aggregate principal amount as lhe Certificate or Certificates surrendered for transfer. At the option of the Holder, Certificates (other than the Initial Certificates authorized in Section 8 hereof) may be exchanged for other Certificates ot authorized denominations and having the same Staled Maturity, bearing lhe same rate of interest and of like aggregate principal amount as the Certificates surrendered fOt exchange, upon surrender of the Certificates to be exchanged at the Designated Payment/Transfer Office of the Paying Agent/ Registrar. Whenever any Certificates are surrendered for exchange, the Paying Agent/Registrar shall regmer and deliver new Certificates to the Holder requesting the exchange. · An Certificates issued in any transfer or exchange of Certificates shall be delivered to the Holders at the Designated PaymentiTtanSfer <?ffice of_ the Paying Agent/Registrar or sent by · 4S03S694.2 United States Mail, first dass, postage prepaid to the HokJers, and, upon lhe registration and delivery thereof, the same shall be the valid obligations of the City, evidencing Che same obligation to pay. and entitled to the same benefits under this Ordinance, as Ole Certificates surrendered in such transfer or exchange. All transfers or exchanges of Certificates pursuant to this Section shall be made without expense or service charge to the Holder, except as othefWise herein provided, and except that the Paying Agent/Registrar shall requite payment by the Holder requesting such transfer or exchange of any tax or other governmental charges required to be paid with respect to such transfer or exchange. Certificates canceled by reason of an exchange or transfer pursuant to the provisions hereof are hereby defined to be ·Predecessor Certificates: evidencing aU or a portion, as the case may be, ot the same obligation to pay evidenced by the new Certificate or Certificates registered and delivered in the exchange or transfer therefor. Additionarty. the term ·Predecessor Certificates• ~all include any fOOtlated, lost. destroyed. or stolen CertifiCate for which a replacement Certificate has been issued, registered and delivered in lieu thereof pursuant to the provisions of Section 23 hereof and such new replacement Certiftcate shaH be deemed to evidence the same obligation as the mutiated, lost, destroyed, or stolen Certificate. Neither the City nor the Paying Agent/Regislrar shaM be required to issue or transfer to an assignee or a Holder any Certificate qalled for redemption, in whole or in part. within 45 days of lhe date fixed for the redemption of such Cettiftcate; provided, however. such limitation on transferabirrty shall not be applicable to an exchange by the Holder of lhe unredeemed balance of a Certificate called for redemption ;n part. · SECTION 6: Book-Entry Only Transfers and Transactions. Notwithstanding the provisions contained in Sections 3, 4 and 5 hereof relating to the payment and transfer/exchange of the Certificates, the City hereby approves and authorizes the· use of ·Book·Entry Only" securities clearance. setUement and transfer system provided by The Oepositoty Trust Company (OTC}. a limited purpose trust oompany organized under the laws of the State of New Yorlc.. in accon:lanoe with lhe opetational arrangements referenced in lhe Blanket Issuer letter of Representations by and between the City and OTC {the ·Depository Agreemenr). Pursuant to the Oepositofy Agreement and the rules of OTC. lhe Certificates shall be deposited with OTC who shan hold &aid Certificates for its participants (the "OTC Participants1 and, while the Certificates are held by OTC under the Oeposit<xy Agreemenl the Holder of the Certificates on the Security Register for all purposes. indud'lf19 payment and notices, shall be Cede & Co., as nominee of OTC, notwhhstanding the ownership of each actual purd\aser ar owner or each Certificate (Che 13eneficiaJ 0wners1 being recorded fn the records of DTC and OTC Partidpants. In the event OTC detemlines to discontinue serving as securities depository for lhe Certificates Of otheMise ceases to provide book-entry dearance and settlement of securities transactions in general or the CUy detennines that OTC is incapable of property discharging its duties as securities depositor}'. for the Certificates, lhe City covenants and agrees with the Holders of the Certificates to cause Certificates to be printed in definitive foon and provide for the CertifiCate certificates to be issued and delivered to OTC Participants and Beneficial Owners. as lhe case may be. 11leceafter, the Certificates in definitive form shafl be assigned, transferred and exdlanged on lhe Security Register maintained ~ the Paying Ageni/Regisnr 4SC))S6t4.l and payment of such Certificates shall be made in accordance with the provisions of Sections 3, 4 and 5 hereof. SECTION 7: Exea.rtion -Registration. The Certificates shall be executed on behalf of the City by the Mayor under its seal reproduced or impressed thereon and countersigned by the City Secretary. The signature of said officers on the Certificates may be manual « facsimile. Certificates bearing the manual Of facsimile signatures of individuals who are or were the proper officers of the City an the Certificate Date shall be deemed to be duly executed on behatf of the City, notwithstanding that one or more ot the individuals executing the same shall cease to be such officer at the time of delivery of the Ceftificates to the initial purdlaser(s) and with respect to Certificates delivered in subsequent exchanges and transfers, all as authorized and provided in V.T.C.A., Government Code, Section 1201.026. No Certificate shan be entilfed to any right or benefit under this Ordinance, or be valid or obligatory for any purpose •. unless there appears on such Certificate either a certificate of registration substantially in the fonn provided in Section 9C, manually executed by the Comptroller ~f Public Accounts of the State of Texas, or his duty authorized agent. or a certificate of registration substantially in the fonn provided in Section 90. manually executed by an authorized officer. employee or representative of the Paying Agent/Registrar, and either such certificate duly signed upon any Certificate shall be condusive evidence, and the only evidence, that such Certificate has been duly certified, registered and delivered. SECTION 8: Initial Certificate(s). The Certificates herein authorized shall be initially issued either (i) as a single fuRy registered <:ertfficate in . the total principal · amount of $35,000.000 with principal installments to become due and payabk! as provided in Section 2 hereof and numbered T-1. or (i) as multiple fylty registered certificates, being one certifitate fOf each year of maturity in the applicable principal amount and denomination and to be numbered consecutively from T-1 and upward (hereinafter called the '"Initial Cettificate(s)"} and, in either case, the Initial Certificate(s) shan be registered in the name of the initial purchaser(s} or the designee thereof. The Initial Certificate{s) shall be the Certificates submitted to the Office of the Attorney General of the State of Texas for approval, certified and registered by the Office of the COmptroller of Public Accounts of the State of Texas and delivered to the initial purchaser(s). Any time after the delivery of the Initial Certiftcate(s). the Paying Agent/Registrar, pursuant to written instructions from the initial purchaser(s), or the designee thereof, shalf cancel the Initial Cet1ificate{s) delivered hereunder and exchange therefor definitive Certificates of auUlorized denominations, Stated Maturities, principal amounts and bearing appfecabte interest rates for ttansfer ·and delivery to the Holders named at the addresses identified therefor; aU pursuant to and in aceo«<ance wiUt such written inStructions from the initial purchasef(s). or the designee thereof, and such other infoonation ~nd documentation as the Paying Agent/Registrar may reasonably require. ·.- SECTION 9: Forms. A. Fonns Generally. The Certificates, the Registration Certificate of the Comptroaer of Public Accounts of the State of Texas, the Registration Certificate of Paying AgentJRegistrar, and the form of Assignment to be printed on each d the CE!ftificates, shall be substantially in the forms set fOf1b in this Section with such appropriate inseroons, omissions, substitutions, and other variations as are permitted «required by this Ordinance and may have such letters. numbets, or other mart<s of identification (including identifying numbecs and letlecs ot the Committee on Unifonn Securities Identification Procedures of the American Bankers Association) and such legends and endorsements {including insurance ~s in the event the Certificates, or any maturities thereof. are purchased with insurance and any reproduction of an opinion of counsel} thereon as may. consistently herewith, be established by -7- the City or determined by the officers executing such Certificates as evidenced by their execution. Any portion of the text of any Certificates may be set forth on the reverse thereof. with an appropriate reference thereto on the face of the Certifacate. The definitive Certificates and the Initial Cettifacate(s) shall be printed, Hthographed, or engraved, typewritten. photocopied or otherwise reproduced in any other similar maMer, all as determined by the officers exeruting such Certificates as evidenced by their execution thereof. REGISTERED NO. __ _ B. Form of Certificates. UNtTEO STATES OF AMERICA STATE OF TEXAS CITY OF LUBBOCK, TEXAS, REGISTERED PRINCIPAL AMOUNT $ ___ _ TAX AND MUNICIPAL DRAINAGE UTILITY SYSTEM SURPLUS REVENUE CERTIFICATE OF OBLIGATION, SERIES 2001 Certificate Date: June 1. 2001 Interest Rale: ___ % Staled Maturity: CUSIP NO:---- Registered Owner: Principal Amount: DOLlARS The· City of Lubbock (hereinafter referred to as the ·city"), a body corporate and municipal corporation in the COunty of lubbock. state of Texas, for value received, acknowledges itself indebted to and hereby promises to pay to the Registered Owner named above, oc the registered assigns thereof, on the Stated Maturity date specified above the Principal Amount stated above (or so much thereof as shall not have been paid upon prior redemption) and to pay interest (computed on the basis of a 36<k:lay year of twelve 30-day months) on lhe unpaid Principal Amount hereof from the Certificate Date at the per annum rate of interest specified above; such interest being payable on february 15 and August 15 of each year, commencing February 15, 2002. Principal of this Certificate is payable at its Stated Maturity or redemption to the registered owner hereof. upon presentation and surrender, at the Designated PaymenVTransfer Office of the Paying Agent/RegisCrar exea.Jting the registration certificate appearing hereon, or its successor, provided. however. while this Certificate is registered to Cede & Co., the payment of principal upon a partial redemption of the principal amount hereof may be accomplished without presentation and surrender of this Certificate. Interest is payable to the registered owner qf this Certificate (or one or more Predecessor Certificates, as defined in the Ordinance hereinafter referenced) whose name appears on the •Security Register-mainlained by the Paying Agent/Registrar at the dose of business on the ·Record Date·, Which Is the last business day of the month next preceding each interest payment date and interest shaH be paid by the Paying Agent/Registrar by check sent United States Mai1, first dass postage prepaid, to the address of the registered owner recorded in the Security Register on the Record· Date or by SU<:h oCher method, ao:::eptabfe to the Paying Agent/Registrar, requested by, and at the risk. and expense of, the registered owner. All payments of prindpal of, premium, if any, and interest on this Certificate shall be without exchange or collection charges to the owner hereof and in any coin or a~rrency of the Uniled 4S0l~ States of America which at the time of payment is legal tender fOf the payment of public and private debts. This Certificate is one of the series specified in its titJe issued in the aggregate principal amount of $35,.000,000 (herein referred to as lhe •Certificates•) for lhe purpose of paying contractual obligations to be incurred for (i) drainage improvements, induding the acquisition, construction and repair of structures, equipment and facilities fOf the City's Municipal Drainage Utility System, and (ii) professional services rendered in connection with such project and the financing thereof, under and in strict conformity with the Constitution and laws of the State of Texas, particular1y V.T.C.A., local' Government Code, Subchapter C of Chapter 271, and pursuant to an Ordinance adopted by the governing body of the City (herein referred to as the ·ordinance·}. The Certificates maturing on dates hereinafter identified (the "Tenn Ceftifteates*) are . subject to mandatory redemption priOf to maturity with funds on deposit in the certificate Fund established and maintained for the payment thereof in the Ordinance, and shaft be redeemed in part priOf to maturity at the price of par and accrued interest to the mandatory redemption date on the respective dates and in principal amounts as follows: Term Certificates due February 15,2023 Term Certificates due February 15, 2026 Redemption Date Principal Amount Redemption Date Principal Amount February 15,2022 $1,405,000 February 15, 2024 $1,560,000 February 15,2025 $1,645,000 Term Certificates Due February 15, 2031 Redemption Date Principal Amount February 15,2027 $1,830,000 February 15,2028 $1.925,000 February 15,2029 $2,030,000 February 15, 2030 $2,145,000 The particular Term Certificates of a stated maturity to be redeemed on each redemption date shall be chosen by lot by the Paying Agent/Registrar; provided, however, that the principal amount of Term Certificates for a stated maturity required to be redeen:ted pur.;uant to lhe operation of such mandatory redemption provisions may be reduced, at the option of the City, by the principal amount of Term Cettificates of like stated maturity which, at least 50 days prior to a mandatory redemption date, (1) shal have been acquired by the CJty at a price not exceeding the prlndpal amount of such Term Certiftcales plus acaued interest to the date or purchase, and delivered to the Paying Agent/Registrar for cancellation or (2) shall have been redeemed pursuant to the optional redemption provisions appearing below and not theretofore aedited against a mandatory redemption requiremenl The Certificates maturing oo and after Februaly 15, 2012, may be redeemed prior to lheir Stated Maturities, at the option of the City, in whole or in part in principal amooots of $5,000 or any integral multiple thereof (and if within a Stated Maturity by lot by lhe Paying Agent/Registrar}, on February 15, 2011, or on any date thereafter, at the redemption price of par, together with acaued interest to the date of redemption. At least thirty days prior to a redemption date, the City shall cause a written notice of such redemplion to be sent by United States Mai1. first class postage prepaid. lo the registered -9- owners of each Certificate to be redeemed at the address shown on the Security Register and subiect to the terms and provisions relating thereto contained in the Of'dinance. It a Certificate (or any portion of its principal sum) shal have been duly called for redemption and notice of such redemption duly given, then upon the redemption date such CertifiCate (or the portion of its principal sum to be redeemed) shall become due and payable, and, if moneys for the payment of the redemption price and the interest accrued on the prindpal amount to be redeemed to the date of redemption are held for the purpose of such payment by the Paying Agent/Registrar, interest shall cease to accrue and be payable from and after the redemption date on the prindpal amount redeemed. In the event a portion of the principal amount of a Certificate is to be redeemed and the registered owner is someone other than Cede & Co .• payment of the redemption price of such principal amount shall be made to the registered owner only upon presentation and surrender of such Certificate to the Designated PaymentiTransfer Office of ~ Paying Agent/Registrar. and a new Certificate or Certificates of like maturity and interest rate in any authorized denominations provided by the Ordinance tor the then unredeemed balance of the principal sum thereof will be issued to the registered owner, wilhout charge. If a Certificate is selected for redemption, in whole or in part, the City and the Paying Agent/Registrar shall not be required to transfer such Certificate to an assignee of the registered owner within 45 days of the redemption date therefor, provided, however, such limitation on transferability shall not be applicable to an exchange by the registered owner of the unredeemed balance of a Certificate redeemed in part. The Certificates are payable from the proceeds of an ad valorem tax levied. within the limitations prescribed by law. upon af& taxable property in the City and are additionaly payable from and secured by a lien on and pledge of the Net Revenues (as defined in the Ordinance) of lhe City's Municipal Drainage Utility System (lhe ·system}, such lien and pledge, however. being junior and subordinate to the Jieo Ql1 and pledge of the Net Revenues of the System secwing the payment of "Prior Uen Obligations• (as defined in the Ordinance}. In the Ordinance, the City reserves and retains the right to issue Prior Uen Obligations while the Certificates are outstanding without limitation as to principal amount but subject to any tenns, conditions or restrictions as may be applicable thereto under law or othefwise. as wei as the right to issue Additional Obligations (as defined in the Ordinance). Reference is hereby made to the Ordinance, a copy of wmch is on file in the Designated PaymenVTransfer Office of 1he Paying Agent/Registrar, and to all the provisions of which the Holder hereof by the acceptance hereof hereby assents, for definitions of terms: the description of and the nature and extent of the tax levied for the payment of the Certificates; the nature and extent of the limited pledge of the Net Revenues securing the payment of the Certificates; the tenns and conditions relating to the transfer or exchange of this Cedificale; lhe conditions upon which. the C>roinance may be amended or supplemented with or wfthout the consent of the Holders; the rights, duties, and obligations of the City and the Paying Agent/Registrar: the tenns and provisions upon which the tax levy and the pledge of the Net Revenues and covenants made in the Ordinance may be discharged at or prior to the maturity of this Certificate. and this Certificate deemed to be no longer Outstanding thereunder; and for lhe other terms and provisions contained therein. Capitaf&zed tenns used herein have the meanings assigned in the Ordinance. This Certificate, subject lo certain limitations contained in the Ordinance. may be transferred on the security Register only upon Its presentation and surrender at the Designated PaymentfTransfer Office of the Paying Agent/Registrar, with the Assignment hereon duty endorsed by, or accompanied by a written instrument of transfer in foon sati.c;factory to the ·10- Paying Agent/Registrar duly exeaJted by. the registered owner hereof, or his duly authorized agent. When a transfer on the Seatrity Register OCCUIS, one or more fully registered Certificates of authorized denominations and of the same aggregate principal amount will be issued by the Paying Agent/Registrar to the designated transferee or transferees. The City and the Paying Agent/Registrar, and any agent of either, may treat the registered owner hereof whose name appears on the Security Register (i) on the Record Date as the owner entitled to payment of interest hereon, (ii) on the date of surrender of this Certificate as the owner entitled to payment of principal hereof at its Stated Maturity or its redemption, in whole or in part, and (iii) on any other date as the owner tor aU other purposes, and neither the City nor the Paying Agent/Registrar. or any agent of either, shall be affected by notice to the contrary. In the event of nonpayment of interest on a scheduled payment date and for thirty (30) days thereafter, a new record date for such interest payment (a "Special Record Oate•) will be established by the Paying Agent/Registrar. if and when funds for the payment of such interest have been received from the City. Notioe of the Special Record Date and of the scheduled payment date of the past due interest (which shatl be 15 days after the Special Record Date) shall be sent at 1east five (5) business days prior to the Special Reooro Date by United States Mait, first dass postage prepaid. to the address of each Holder appearing on the Security Register at the dose of business on the last business day next preceding the date of mailing of such notice. It is hereby certified, recited, represented and covenanted that the City· is a body corporate and politicat subdivision duly organized and fegalJy existing under and by virtue of the Constitution and Jaws of lhe State of Texas: that the issuance of the Certificates is duly authorized by taw; that all acts. conditions and things required to exist and be done precedent to and in the issuance of the Certificates to render the same fawfu( and valid obf!Qations of the City have been propet1y done, have happened and have been perl'ormed in regular and due time. fonn and manner as required by the Constitution and Jaws of the State of Texas, and the Ordinance; that the Certificates do not exceed any constitutional or statutory limitation; and that due provision has been made for the payment of the principal of and interest on the Certificates as aforestated. In case any provision in this Cettificate or any appracation thereof shall be invalid, illegal, or unenforceable, the varldity. legality, and enforoeability of the remaining provisions and applications shall not in any way be affected or impaired thereby. The terms and provisions of this Certificate and the Ordinance shalt be construed in accordance with and shall be governed by Che taws of the State of Texas. IN WtlNESS WHEREOF. the City Council of the City has caused this Certificate to be duly executed under the official seal of the City as of the Certificate Date. COUNTERSIGNED: City Secretary (SEAL) CtTY OF LUBBOCK. TEXAS Mayor C. •Form of Registration Certificate of Complroler of Public Accounts to ApJ?!ar on Initial Certiticate(s) oQ)Y. REGISTRATION CERTIACATE OF COMPTROLLER OF PUBUC ACCOUNTS OFFICE OF THE COMPTROllER Of PUBUC ACCOUNTS THE STATE OF TEXAS § § § § REGISTERNO. ---- I HEREBY CERTIFY that this Certificate has been examined, certified as to validity and approved by the Attorney General of the State of Texas. and duJy tegistered by the Comptroller of Pubfic Accounts of the State of Texas. WITNESS my signature and seal of offtee this _______ _ ComptroHer of Public Acoounts of the State of Texas (SEAL) •NoTE T.O PRINTER: Oo not print on definitive Certificates -12- 0. Fonn of Certificate of Paying ~enURegistrar to Appear on Definitive Certificates. REGISTRATION CERTIFICATE OF PAYING AGENT/REGISTRAR This Certificate has been duly issued and registered under the provisions of the within-mentioned Ordinance; the certificate or cer1ificates of the above entiUed and designated series originally delivered having been approved by the Attorney General of the State of Texas arid registered by the Comptrofler of Public Accounts, as shown by the records of the Paying Agent/Registrar. The designated offJCeS of the Paying Agent/Registrar located in New York, New Y Otk, is the ·Designated PaymenVTransfer Office• for this Certificate. Registration Date: E. Fonn of Assignment U. S. TRUST COMPANY OF TEXAS, N .A., DaRas, Texas, as Paying Agent/Registrar By: ~~~~~~-------------Authorized Signature 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.----------------------------. ) ::-:-th-e-within~-:-:-:-. ~C~erti--:-:-:.fi=-ca-=_te:--a-nd~al::-1 ng..,.._ -:-h-:-ts-:the::--reund---.-e-r,-and--:-h':""e-re-:b-y...,.irr_e_voca_-:bty.--cons---:ti~.tu-.tes--a-:-n~d:-a-p-POf-=·-.nts:-_ attorney to transfer the wilhUl Certificate on the books kept for registration thereof, with full ~er of substitution in the premises. DATED: ________________ _ Signature guaranteed: NOTICE: The signature on this assignment must correspond with the name of the registered owner as it appears on Ule face of the within Certificate in every particular. F. The Initial Certificate(s) shaH be in lhe fonn set forth in paragraph a of this Section, except lhat the form of a single fully registered Initial Certificate shall be modified as follows: (i) immediatefy under the name d the certificate the headings •tnterest Rate• and "Stated Maturity" shaU both be omitted; (ii) paragraph one shall read as follows: Registered Owner: Principal Amount: DOLLARS The City of Lubbock (hereinafter referred to as the "City"'), a body COlpOf'ate and municipal corporation in the County of lubbock, State of Texas. tor value received, acknowledges itself indebted to and hereby promises to pay to the Registered Owner name<i above. or the registered assigns thereof, the Principal Amount here4nabove stated. on · February 15 in each of the years and in principal installments in accordance with the folowing schedule: YEAR PRINCIPAL INSTALLMENTS fNTEREST RATE (Information to be inserted from schedule in Section 2 hereof). (or so mud\ principai thereof as shail not have been prepaid priOf to maturity) and to pay interest on the unpaid Principal Amount hereof from the Certificate Oate at the per annum rates of interest specified above computed on the basis of a 360-day year of twelve 30-day months; such interest being payable on Februaty 15 and August 15 of each year, commencing February 15, 2002. Principal installments of this Certificate are payable in the year of maturity or on a prepayment date to the registered owner hereof by U. S. Trust Company of Texas, N.A., Dallas, Texas (the •paying Agent/Registrar"). upon presentation and surrender, at its designated offices in New Yoct. New Yoci< (the ·oesignated Payment/Transfer OffJCej. Interest is payable to the registered owner of this Certificate whose name appears on the ·Security Register" maintained by the Paying Agent/Registrar at the dose df business on the ·Recoro Oate•. which is the last bUsiness day of the month next preceding each interest payment date hereof and interest shaH be paid by the Paying Agent/Registrar by check sent United States Mail, first dass postage prepaid. to the address of the registered owner recorded in the Security Register or by such other method, acceptable to the Paying Aget1t/ Registrar. requested by, and at the risk and expense of. the registered owner. Al1 payments of principal of, premium, if any. and interest on this Certificate shall be without exchange or ooUec:tlon charges to the owner hereof and in any <:Oin or currency of the United States of America which at the time of payment is legal tender for the payment of pubric and private debts. secnoN 10: Oefirutions. For purposes of this Orcfenance and for darity with respect to the issuance of the Certificates, and the fevy of taxes and appropriation of Net Revenues therefor. the folfowing words or tenns, whenever the same appear herein without qualifying language, are defined to mean as follows: (a) The tenn •Additional Obligations• shaH mean tax and revenue obUgations hereafter issued which by their tenns are payable from ad valorem taxes and additionaly payable from and secured by· a parity lien on and pledge of the Net Revenues of the System of equal rank and dignity with the lien and pledge securing the payment of the Ceftificates. (b) The tenn ·Certificates" shall mean $35,000,000 "CllY OF LUBBOCK. TEXAS, TAX ANO MUNICIPAl DRAINAGE UTILITY SYSTEM SURPlUS REVENUE CERTIFICATES OF 08UGATION, SERIES 2001" authorized by this Ordinance. -14-- (c) The tenn ·certificate Fund· shaft mean the spedaJ Fund aeated and estabftShed under the provisions of Section 11 of this Ordinance. (d) The term ·coUedion Date• shall mean. when reference is being made to the levy and coUection of annual ad valorem taxes, the date annual ad valorem taxes levied each year by the CUy become delinquent. (e) The teem •fiscal Year" shaJJ mean the annual fmanciaJ accounting period used with respect to the operations of the System now ending on September 30th of each year; provided. however. the City Council may change, by ordinance duly passed, such annual financial accounting period to end on another date if such change is found and detenni~ to be necessary for budgetary or other flscaJ purposes. (f) The term •Government Securities• shalt mean (i) direct noncallable obfegations of the United States of America, induding obligations the prindpaf of and interest on which are unconditionally guaranteed by the United States of America. (ii) noncall~ obregations ot an agency or instrumentality of the United States. including obligations unconditionaly guaranteed or insured by the agency or instrumentality and on the date of their acquisition or purchase by lhe City are rated as to investment quality by a nationally recognized investment rating finn not less than AAA or its equivalent and (iii) noncaUable obligations of a state or an agency or a Olllnty. municipality. or other political subdivision of a state lhat have been refunded and on lhe date of lheir acquisition or purchase by the City, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent. (g) The term •Gross Revenues· shall mean. with respect to any period, all income, revenues and receipts received from the operation and ownership of the System. (h) The term•Net Revenues" shaft mean the Gross Revenues of lhe System, with respect to any period. after deducting the System's Operating and Maintenance Expenses during such period. (i) The tenn *Operating and Maintenance Expenses" shall mean all reasonable and necessary expenses directly related and attributable to the operation and maintenance of the System as defined in V.T.CA. Government Code. section 1502.056 as a first lien against the Gross Revenues. Depreciation charges on equipment. machinery, plants and other facilities comprising the System and expenditures classed under generaly accepted aooounting prindples as capital expenditures shaD not be considered as •Operating and Maintenance Expenses• for purposes of detennining •Net Revenues·. 0> The tenn •Outstanding• when used in this Ordinance with respect to Certificates means, as of the date of determinaUon, all Certificates Cheretofore issued and delivered under this Ordinance, except: (1) those Certificates canceted by the Paying Agent/Registrar or delivered to the Paying Agent/Registrar for cancellation; -15- (2) those Certificates deemed to be duly paid by the City in accordance with the provisions of Section 19 hereof; and (3) those Certificates that have been mutilated, destroyed, lost, or stolen and replacement Certificates have been registered and delivered in lieu lhereof as provided in Section 23 hereof. (k) The leon ~Prior lien Obligations· shall mean all bonds or other similar obligations hereafter issued that are payable in whole or in part from and secured by a lien on and pledge of the Net Revenues of the System and such lien and pledge securing the payment thereof is prior and superior in daim, rank and dignity to the lien and pledge of the Net Revenues securing the payment of the Certificates. (I) The tenn ·system· Of ·Municipal Drainage Utility System• shall mean atl land, easements and interest in land, together with all structures, equipment and facilities used in draining benefited property (within the meaning of Subchapter C of Chapter 402 of the local Government Code, as amended), induding, but not limited to, bridges, catch basins, chamels, conduits, creeks, culverts, detention ponds, ditches, draws, flumes, pipes, pumps, stoughs, treatment works, and appurtenances to those items, whether natural or artificial, oc using force or gravity, that are used to draw off surface water from land, cany the water away, ooiJect, stOfe, or treat the water, or divert the water into natural or artificial watercourses. SECTlON 11: Celtificate Fund FOf' the purpose of paying the Interest on and to provide a sinking fund for the payment and retirement of the Certificates, there shalt be and is hereby created a special Fund to be designated ·sPECIAL 2001 CITY OF LUBBOCK, TEXAS, TAX AND MUNICIPAL DRAINAGE UTILITY SYSTEM SURPLUS REVENUE CERTIFICATE OF OBLIGATION FUNo·, which Fund shall be kept and maintained at lhe City"s depositOfY bank. and moneys deposited in said Fund snaU be used for no other pwpose. Proper officers of the City are hereby authorized and directed to cause to be transferred to the Paying Agent for the Certificates, from funds on deposit in the Ceftificate Fund, amounts sufficient to fufly pay and cfiSdlarge promptly each installment of interest and principal of the CertifiC8tes as the same acaues or matures or comes due by reason of redemption prior to maturity; such transfers of funds to be made in such manner as wirl cause immediatEtfy available funds to be deposited with the Paying Agent for the Certificates at the dose of business on the last business day next preceding each interest and/or principal payment date for the Certificates. Pending the transfer of funds to the Paying Agent/Registrar, money in the Certificate Fund may, at the option of the City, be invested in obrigations identified in, and in accordance wittllhe provisions of the "Public Funds Investment Ad (V.T.CA, Government Code, Chapter 2256) relating to the investment of "bond proceeds·: provided that all such investments shall be made in such a manner that the money required to be expended from said Fund wil be available at the proper time or times. AD interest and income derived from deposits and investments in said Certificate Fund shall be aedited to, and any losses debited to. the said Certificate Fund. All such investments shall be sold promptly when necessary to prevent any default in connection with the Certificates. -16- SECTION 12: Tax Levy. That to provide for the payment of the ·Debt Service Requirements• on the Certificates being (i) the intec'est on said Certificates and (ii) a sinking fund tor their redemption at maturity ex a sinking fund of 2% (whichever amount shall be the greater), there shaiJ be and there is hereby levied a suffiCient tax on each one hundred dollars' valuation of taxable property in said City to pay such Debt Service Requirements while the Certificates are Outstanding, fuU allowance being made fcx delinquencies and oosts or collection, and said tax shall be assessed and collected each year and applied to the payment of the Debt Service Reqwrements, and the same shall not be diverted to any olhef' purpose. The taxes so levied and oollected shall be deposiled into the Certiftcate Fund. This governing body hereby declares its purpose and intent to provide and levy a tax legaly and fully sufficient to pay the said Debt SeMce Requirements, it havlng been determined that the existing and available taxing authority of the City for such purpose is adequate to pennit a legaly sufficient tax in consideration of an other outstanding indebtedness. The amount of taxes to be provided annuafJy for the payment of the principal of and interest on the Certificates herein authorized to be issued shaJI be detennined and accomplished in the following manner. (a) Prior to the date the City Council establishes the annual tax rate and passes an ordinance levying ad valorem taxes each year, the City Council shaU detennine: { 1) The amount on deposit in the Certificate Fund after (a) deducting therefrom the total amount of Debt Service Requirements to become due on Cet1ificates prior to the Collection Date for the ad valorem taxes to be levied and (b) adding thereto the amount of Net Revenues of the System appropriated and al1ocated to pay such Debt Service Requirements prior to the Collection Date for the ad valorem taxes lo be levied. (2) The amount of Net Revenues ;r any, appropriated and to be set aside for the payment of the Debt Service ·Requirements on the Certificates between the CoDection Date for the taxes then to be levied and the Conection Date for the taxes to be levied during the next succeeding calendar year. (3) The amount ot Debt SeMc::e Requirements to become due and payable on the Certificates between the Collection Date for the taxes then to be levied and the Collection Date for the taxes to · 6e levied during ~ next succeeding calendar year. (b) The amount of taxes to be levied annually each year to pay the Debt Service Requirements on the Cenificates shall be the amount established in paragraph (3) above less the sum total of the amounts established in paragraphs (1)and (2), after taking into consideration delinquendes and oosts of collecting such annual taxes. SECTION 13: Pledge of Revenues. The City hereby covenants and agrees that, subject only to a prtor lien on and pledge of the Net Revenues of the System for the payment and security of Prior lien Obtigations, the Net Revenues of the System, with the exception of those in excess of the amounts required to be deposited to the Certifteate Fund as hereafter -17- provided. are hereby irrevocably pledged. equaUy and ratably, to the payment of the principal of and interest on the Certificates and Additional Obligations, if issued. as herein provided. and the pledge of the Net Revenues of the System herein made for the payment of the Certificates shalt constitute a lien on lhe Net Revenues of the System in accordance with the terms and provisions hereof and be valid and binding without further action by the City and without any filing or recording except for the filing of lhis Ordinance in the records of the City_ _ SECTION 14: System Fund The City covenants and agrees that aH Gross Revenues (exduding earnings from lhe investment of money held in any special funds or accounts created for lhe payment and security of the Prior Uen Obligations) shall be deposited as coUected into a fund maintained at an official depositofy ot lhe City and known on the books of the City as the ·city of Lubbock. Texas, MuniQpaJ Drainage Utility System Operation System fund• (hereinafter called the •system Fund"). AJI moneys deposited to the aedit of the System Fund shall be allocated, dedicated and disbursed to the extent required for the fof.loiNing purposes and in the order of priority shown, to wit First: To the payment of all necessary and reasonable Operating and Maintenance Expenses of the System as defined hefein or required by statute to be a first charge on and claim against the Gross Revenues. Second: To the payment of the amounts required to be deposited in the special Funds created and established for the payment, security and benefit of Prior Uen Obligations in accordance with the tenns and provisions of the ordinances authorizing the issuance of Prior Uen Obligations: and Thifd: Equally and ratably to the payment of ~ amounts required to be deposited in the special funds and accounts aeated and established for the payment of the Certifecates and Additional Obfigations, if issued. Any Net Revenues remaining in lhe System Fund after satisfying the foregoing payments, or making adequate and sufficient provision for the payment lhereof, may be appropriated and used for any other City purpose now or hereafter permitted by law. SECTION 15: Deposits to Certificate Fund. The City hereby covenants and agrees to cause to be deposited in lhe Ceftificate Fund prior to each interest and principal payment date from the Net Revenues of the System, after deduction of all payments required to be made to special Funds or acoounts created for lhe pa~nt and security of the Prior lien Obligations, an amount equal to one hundred per centum (100%) of the amount required to tuny pay the acaued interest and principal of the Certificates then due and payable by reason of maturity or redemption prior to maturity, such deposits to pay accrued interest and principal on the Certificates to be made In substantially equal monthly installments on or before the last business day of eadl month beginning the month the Certificates are delivered to lhe initial purchaser. The monthly deposits to the Certificate Fund. as hereinabove proWjed, shaU be made unti1 such time as such Fund contains an amount equal to pay the principal of and interest on the Certificates to maturity. AIJ valorem taxes ltMed, c:oUected and deposited in the Certificate Food for and on behalf of the Cer1ificates may be taken into consideration and reduce the amount of the monthly deposits otherwise required to be deposited in the Certificate Fund from the Net Revenues of the System. In addition. any proceeds of sate or the Certificates in excess of the amount requimd to _pay the contractual obligations to be incurred ftnduding change CS035694.l -18- orders to a construction contract) shall be deposited in the Certificate Fund, which amount shall reduce the sums otherwise required to be deposited in said Fund from ad valorem taxes and the Net Revenues of the System. SECTION 16: Security of Funds. AD moneys on deposit in the Funds tor which this Ordinance makes provision (except any portion thereof as may be at any time property invested) shall be secured in the manner and to the fullest extent required by the laws of Texas for the security of pubfic funds, and moneys on deposit in such funds shaU be used only for the purposes permitted by this Ordinance. SECTION 17: S~ar Covenants. The City hereby further covenants as follows: (a) It has the lawful power to pledge the Net Revenues of the System supporting this issue of Certificates and has lawfully exercised said powers under the Constitution and laws of the State of Texas. induding said power existing under V.T.C.A.. Government Code, SectiQns 1502.052. et seq. and V.T.C.A., Local Government Code. Subchapter C of Chapter 402 and Subchapter C of Chapter 271. (b) Other than for the payment of the Certificates, the Net Revenues of the System have not in any manner been pledged to the payment of any debt or obligation of the City or of the System. SECTIO~ 18: Issuance of Prior Uen Obligations and Additional Obli9!tions; Subocdinate to Prior Uen Obligations Covenants and Agreements. (a) The City hereby expressly reserves the right to hereafter issue Prior Uen Obfigations, without limitation as to principal amount but subjett to any tenns, conditions or restrictions applicabte thereto undef" law or otherwise. In addition, the City resefVes the right to issue Additional Obligations, without limitation or any restriction or condition being applicable to their issuance under the tenns of this Ordinance, payable from and secured by a ften on and pledge of the Net Revenues of the System of equal rank and dignity, and on a parity in all respects, with the lien and pledge securing the payment of the Cettificates. (b) It is.the intention of this governing body and accordingly hereby recognized and stiputated lhat the provisions. agreements and covenants contained herein bearing upon the management and operations of the System and the administering and application of revenues derived from the operation thereof, shal to the extent possible be hannonized with like provisions, agreements and covenants contained in oA'Jinan<:es authorizing the issuance of Prior lien Obligations, and to the extent of any irreoondlable oonlfiCt between the provisions contained hefein and in .ordinances authorizing the issuance of Prior lien Obligations, the provisions, agreements and covenants contained therein shall pt'eV8iJ to the extent of such conflict and be appUcable to this Ordinance but in all respects subject to the priority of rights and benefits. if any, confelred thefeby to the hoadets or owners of the Prior Uen Obf~gations. Notwithstanding the above, any change or modification affecting the application of revenues derived f'rorJl the operation of the System shaU not impair the obligation of contract with respect to the pledge of revenues herein made for the payment and security of the Cer1ificates. SECTION 19: ·Satisfaction of Obligations of City. If the City shalf pay or cause to be paid, or there shall othefwise be paid to the Holders. the principal of. premium, if any. and 4SOJS69U interest on the Certificates. at the times and in the manner stipulated in this Ordinance, then the pledge of taxes levied and the lien on and pledge of the Net Revenues of the System under this Ordinance and all covenants, agreements. and other obligations of the City to the Holders shall thereupon cease, tenninate. and be discharged and satisfied. Certificates shall be deemed to have been paid within the meaning and with the effect expressed above in this Section when (i) money sufficient to pay in full such Certificates or the principal amount(s) thereof at maturity or (if notice of redemption has been duly given or waived or if irrevocable arrangements therefor acceptable to the Paying Agent/Registrar have been made) the redemption date thereof, together with all interest due thereon, shall have been irrevocably deposited with and held in trust by the Paying Agent/Registrar, or an authorized escrow agent. or (ii) Govemment Securities shall have been irrevocably deposited in trust with the Paying Agent/Registrar, or an authorized escrow agent. which Govenunent Securities have been certified by an independent accounting finn to rnarure as to principal and int~st in such amounts and at sudl times as will insure the availability, without reinvestment, of suffiCient money. together with any moneys deposited therewith, it any, to pay when due the principal of and interest on such Certificates, or the principal amount(s) thereof, on and prior to the Stated Maturity thereof or (it notice of redemption has been duly given or waived or if irrevocabfe arrangements therefor acceptable to the Paying Agent/Registrar have been made) the redemption date thereof. The City covenants that no deposit of moneys or Government Securities wiU be made under this Section and no use made of any such deposit which would cause the Certificates to be treated as ·arbitrage bonds" within the meaning of Section 148 of the Internal Revenue Cocfe of 1986, as amended. or regulations adopted pursuant thereto. Any moneys so deposited with the Paying Agent/ Registrar and all income from Government Securities held in trust by the Paying Agent/Registtar, or an authorized esaow agent. pursuant to this Section which is not required for the payment of the Certificates, or any principal amount(s) thereof, or interest thereon with respect to which such moneys have been so deposited shall be remitted to the City or deposited as directed by the City. Furthennore. any money held by the Paying Agent/Registrar for the payment of the principal of and interest on the Certificates and remaining undaimed for a period of three (3) years after the maturity, or appticabie redemption date. ot the Certifteates for which such moneys were deposited and are held in trust to pay, shal1 upon the request of the City be remitted to the City against a written receipt therefor. Notwithstanding the above and foregoing, any remittance of ftrlds from the Paying Agent/Registrar to the City shall be subject to any apptlcab1e unclaimed property laws of the State of Texas. SECTION 20: Ordinance a Contract ~ Amendments. This Ordinance shaU constitute a oontract with the Holders from time to time, be binding on the City, and shall not be amended or repealed by the Clty so long as any Certificate remains Outstancftng except as permitted in this Section. The City, may. without the oonsent ot or notice to any Holders of the Certificates, from time to time and at any time, amend this Ordinance in any manner not detrimental to the interests of the Holders of the Certificates, including the curing of any ambiguity. inconsistency, or fonnal defect or omission herein. In addition, the City may, wi1h the written oonsent of Holders of the certificates holding a majority in aggregate prindpaf amount of the Certificates then Outstanding affected thereby. amend, add to. or rescind any of Ole provisions or this Ordinance; provided that. without the consent of al Holders of Outstanding Certificates. no such amendment, addition, or rescission shall (1) extend the time or times of payment of the principal of. premiwn, if any, and interest on the Certificates, reduoe the principal amount thereof, the redemption price, or the rate of interest thereon, or in any other way modify the teons of ·payment of the principal of, premium. if any, or interest on the Certificates, (2) give any preference to any Certificate over any other Certificate, or (3) reduce the aggregate principal amount of Certificates required to be held by Holders for consent to any such amendment. addition, or rescission. SECTION 21 : Notices to Holders~ Waivers. Wherever lhis Ordinance provides for notice to Holders of any event, such notice shail be sufficienUy given {unless otherwise herein expressly provided) if in writing and sent by United States Mail, first dass postage prepaid, to the address of each Holder appearing in the Security Register at the dose of business on the business day next preceding the rna iring of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice to any particular Holders. nor any defect in any notice so lllCUied, shal affect the sufficiency of such notice with respect to all other Certificates. Where Chis Ordinance provides for notice in any manner. such notice may be waived in writing by the Holder entiOed to receive such notice, etlher before or after the event with respect to which such notice is given, and suet\ waiver shan be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Paying Agent/Registrar, but such finng shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 22: Cancellation. Certificates surrendered for payment. redemption, tlansfer, or exchange, if surrendered to the Paying Agent/Registrar, shall be promptly canceled by it and, if surrendered to the City, shall be delivered co the Paying Agent/Registrar and, if not already canceled. shaft be promptly canceled by the Paying Agent/Registrar. The City may at any time deliver to the Paying Agent/Registrar for cancellation any Ceftificates previously certified or registered and delivered which the City may have acquired in any manner whatsoever, and an Ceftificates so delivered shall be prompdy canceled by the Paying Agent/Registrar. All canceled Certificates held by the Paying Agent/Registlar shall be returned to the City. SECTION 23: Mutilated. Destroyed, Lost and Stolen Certificates. In case any Certificate shall be mutilated. or destroyed, lost or stolen, the Paying Agent/Registrar may exea.~te and deliver a replacement CertifiCate of like form and tenor. and in lhe same denomination and bearing a number nol oontemporaneousty outstanding, in exchange and substitution for such mutilated Certificate, or in lieu of and in substitution for such destroyed. lost or stolen Certificate, only upon the approval of the City and after (i) the filing by the Holder thereof with the Paying Agent/Registrar of evidence satisfactory to the Paying AgentJRegistrar of the destruction, Joss or lheft of such Certificate, and of the authenticity of the ownership thereof and (ii) the furnishing to the Paying Ageni/RegiStrar of"indemnification in an amount satisfa.cby to hold the City and ·the Paying Agent/Registrar harmless. All expenses and dlarges associated with such indemnity and with the preparation, execution and delively of a replacement Ceftificate shall be borne by the Holder of the Certificate mutilated, Of" destroyed. lost or stolen. Evefy replacement Certificate issued pursuant to this Section shaa be a vafld and binding obligation, and shall be entitled to all lhe benefits of 1his Ordinance equaAy and ratably with al other Outstanding Certificates; notwilhstanding the enfoo::eability of payment by anyone of the destroyed, lost or stolen Certificates. The provisions of this Section are exdusive and shall predooe (to the extent lawful) all other rights and remedies with respect to the replacement and payment of mutilated, destroyed. lost. or stolen Certificates. federal income tax of the interest on any Certificate, the City shall comply with each ot Ute specific covenants in this Section. C. No Private Use or Private Payments. Except as pennitted by section 141 of the Code and the Regulations and rulings thereunder, the City shall at all times prior to the-last Stated Maturity of Certificates: (1) exdusively own, operate and possess all property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirecUy with Gross Proceeds of lhe Certificates, and not use or permit the use of such Gross Proceeds (including all contractual arrangements with tenns different than those applicable to the general public) or any property acquired. constructed or improved with such Gross Proceeds in any activity carried on by any person or entity (including the United States or any agency, department and instrumentality thereof) other than a state or local government, unless such use is solely as a member of the general public; and -- (2) not directly or indirectly impose or accept any charge or other payment by any person or entity who is treated as using Gross Proceeds of the Certificates or any property the acquisition, construction or improvement of which is to be financed or refinanced direcUy or indirectly with such Gross Proceeds. other than taxes of general application within the City or interest earned on investments acquired with such Gross Proceeds pending application for their intended purposes. D. No Private Loan. Except to Ute extent pennitted by section 141 of the Code and the Regulations and rulings thereunder. the City shall not use Gross Proceeds of the Certificates to make or finance loans to any person or entity other than a state or locat government. For purposes of the foregoing covenant, such Gross Proceeds are conside~ to be ,oaned• to a person or entity if: ( 1) property acquired. constructed or Improved with such Gross Proceeds is sold or leased to such person or entity in a transaction which aeates a debt for fedefal income tax purposes; (2) capacity in or service from such property is convnitted to sudl person or entity under a take«-pay. output or simitat contract or arrangement; or (3) indirect benefits, or burdens and benefits of ownership, of such Gross Prooeeds or any property acquired, c::onstnJcted or. improved with such Gross Proceeds are otherwise transferred fn a transaction which is the economic eq~t of a loan. E. Not to Invest at Higher Yteld. Except to the extent permitted by section 148 of the Code and the Regutations and rulings thereunder. the City shall not at any time ptjor to the final Stated Maturity of the Certificates direcdy oc indirectly invest Gross Proceeds in any lnvestment (or use Gross Proceeds to replace money so invested), if as a result of such investment the Yteld from lhe Closing Date of aU Investments acquired with Gross Proceeds (or with money replaced !hereby). whether then held or previously disposed of, exceeds lhe Yield of the Certificates. F. Not Federally Guaranteed. Except to the extent permitted by section 149(b) of the Code and the Regc.dations and rulings thereunder, the City shaD not take or omit to take any action which would cause the Certificates to be federaiSy guaranteed within the meaning of section 149(b) of the Code and the Regulations and rulings th«eunder. -23- G. Information Report The City shaH timely file the information required by section 149(e) of She Code with the Seaetary of lhe Treasury on FOIJT18038--G or such other form and in such place as the Secretaty may prescribe. H. Rebate of Albitrage Profits. Except to the extent otherwise provided in section 148(f) of the COde and the Regu~tions and rulings thereunder: (1) The City shall account for all Gross Proceeds (induding all receipts. expenditures and investments thereof) on its books of account separately and apart from all other foods (and receipts, expenditures and investments thereof) and shail retain aa records of accounting for at least six years after the day on which the ~t Outstand"~ng Certificate is dischaf9ed. However. to the extent permitted by faw. the City may commingte Gross Proceeds of the Certificates with other money of the City, provided lhat the City separately accounts for each receipt and expenditure of Gross Proceeds and the obligations acquired therewith. (2) Not less frequeoUy than each Computation Date, the City shall calculate the Rebate ~unt in accordance wHh rules set forth in section 148(f) of the Code and the Regulations and rulings thereunder. The City shall maintain such calaJtations with its official transcript of proceedings relating to the issuance of lhe Certificates until six years after the fina1 Computation Date. (3) As additional consideration for the purchase or the Certificates by the Purchasers and the loan of lhe money represented thereby and in <K'der to induce such purchase by measures designed to insure the exdudabitity of lhe interest thereon from the gross income of the owners thereof for" federal inoome tax purposes, the City shall pay to the United States out of the certificate Fund or its general fund, as permitted by applicable Texas statute, regulation or opinion of the Attorney General of the State of Texas. lhe amount that when added to the future value of previous rebate payments made for the Certificates equals (i) in the case of a F~nal Computation Date as defined in Section 1.143-J(eX2} of the Regulations, one hundred percent (100%) of the Rebate Amount on such date; and {i) in the case of any other Computation Date. ninety percent (90%) of the Rebate Amount on such date. In al C8Se$, the rebate payments shaU be made at the times, in the installments, to the place and in the manner as is or may be required by section 148(f) of the Code and the Regulations and rulings thereunder, and shal be accompanJed by Form 8038-T or such oCher fonns and information as is or may be required by Section 148(f) of the Code and the Regulations and rurmgs thereunder. ( 4) . The City shall exercise reasonable diligence to assure that no errors are made in the catculations and payments required by paragraphs (2) and (3), and if an error is made, to discover and promptly conect such enor within a reasonable amount of time thereafter (and in al events within one hundred eighty (180) days after discovery of the error}. including payment to lhe United States of any ad<fltional Rebate Amount owed to it. interest thereon, and any penalty imposed under Section 1.148--J(h) of the Regulations. I. Not to Divert Atbilrage Profits. Except to lhe extent permitted by section 148 of the Code and the Regulations and rufings thereunder, the City shaU not. at any time UD5694.l prior to the eartier of the Stated MabJrity or final payment of the Certificates, enter into any transaction that reduces the amount required to be paid to the United States pursuant to Subsection H of this Section because such transaction results in a smafter profit Of a larger loss &han would have resulted if the transaction had been at arm's length and had the Yield of the Certificates not been relevant to either party. J. Sections. The City hereby dite<:ts and authorizes the Mayor, City Secretary, City Manager, Managing Director of Finance. and FA"St Assistant City Manager, individually or jointly. to make elections pennitted or required pursuant to the provisions of the Code or the Regulations, as they deem necessary or appropriate in connection with the Certificates, in the Certificate as to Tax Exemption or similar or other appropriate certificate, form or documenl SECTION 25: Safe of Certificates -Official Statement Approval. The Certificates authorized by this Ordinance are hereby ~by lhe City to Salomon Smith Bamey, Dain Rauscher Incorporated, Estrada Hinojosa & Company, Inc., Edward 0. Jones and Southwest Securities (herein coUectively referred to as the "Purchasers.) in accordance with the Purchase Contract. dated June 14, 2001, attached hereto as Exhibit B and incolporated herein by reference as a part of this Ordinance for all purposes. The Mayor is hereby al!thorized and directed to execute said Purchase Contract for and on behalf of lhe City and as the act and deed of this Council. and in regard to ltle approval and exeQJtion of the Purchase Contract, the Council hereby finds. determines and declares lhal the representa6ons, warranties and agreements of the City contained therein are true and OOfTeCt in all material respects and shall be honored and perfonned by the City. Furthermore, the use of the Official Statement by the Purchasers in connection with the public offering and sale of the Certificates is hereby ratified, oonfif!Md and approved in all respects. The final Official Statement. whic:tl refteds the tenns of sale, attached as Exhibit A to the Purchase Contract (together with such changes approved by the Mayor, City Manager, First Assistant to City Manager, Managing Director of Finance or City Seaetary, one or more of said offk:iats), shall be and is hereby in all respects approved and the Purchasers are hereby au1horized to use and distribute said final OffiCial Statement. dated June 1_., 2001, in lhe offering, sale and deUvery of the Certificates to lhe pub&c. The Mayor and Oty Seaetary are furth« authorized and directed to manually exea.tte and deliver foc and on behalf of the City copies of said Official Statement in fJnal fonn as may be required by the Purchasers, and such final Official Statement in the form and oontent manually exearted by said officials shall be deemed to be approved by the City Couna1 and oonstitute the Official Statement authorized for distribution and use by the Purchasers. SECT10N 26: Control and Custody of Certificates. The Mayor of the City shall be and is hereby authorized to take and have charge of al necessary oniers and records pending investigation by the Attorney General of the State of Texas, including the printing and supply of definitive Certificates, and shaft take and have Charge and control of the Initial Celtificate(s) pending the approval thereof by the Attorney General, the registration thereof by the Comptrolet of Public Accounts and the delivery thereof to the PUtd'lasefs. FW1hetmore, the Mayor, City Seaetary. City Manager, Managing Director of Fmance and Assistant City Manager. any one or more of said officials. are hereby authoriZed and directed to furnish and execute such documents relating to the City and its financial .affairs as may be necesscuy for the issuance of the Certificates, the approval of the Attorney General and lhe registration by the Comptrofter of POOle Accounts and. together with the City's financiat ~25- advisor, bond counsel and the Paying Agent/Registrar, make the necessary arrangements for the delivery of the Initial Certificate(s) to the Purchasers and lhe initial exchange lhefeof fOt definitive Certifacates. SECTION 27: P.roceeds of Sale. The proceeds of sale of the Certificates, excluding lhe accrued interest and premium, if any, re<:eived from lhe purchasers, shall be deposited in a CXJnSiruction fund maintained at the City's depositofy bank. Pending expenditure for authorized projects and purposes, such proceeds of sate may be invested in authorized investments in a<x:Ofdance with lhe provisions of V.T.CA, Government Code, Chapter 2256, induding guaranteed investment contracts permiHed by V.T.C.A., Section 2256.015 et seq., and the City's investment policies and guidetines, and any investment earnings realized shall be expended for such authorized projects and purposes or deposited in the Interest and Sinking Fund as shall be determined by the City Council. Accrued interest and premium, if any, received from the Purchasers as weD as all surplus proceeds of safe of the Certificates, induding investment earnings, remaining after completion of al authoriZed projects or purposes shaQ be deposited to the credit of the Interest and Sinking Fund. SECTION 28: legal Opinion. The obligation of the Purchasers to accept defiVery of the Certificates is subject to being furnished a final opinion of Furbright & Jaworski l.LP .• Attorneys, Dallas, Texas, approving such Certificates as to their validity, said opinion to be dated and delivered as of the date of delivery and payment for such Certificates. A lrue and correct reproduction of said opinion is hereby authorized to be printed on the definitive Certificates or an executed counlerpart thereof shan acoompaily the global Cenlficates deposited with the Depository Trust Company. SECTION 29: CUSIP Nt.ff11bers. That CUSIP numlfers may be printed or typed on the definitive Certificcites. It is expressty provided, however, lhatlhe presence or absence of CUSIP numbers on the definitive Certificates shaA be of no significanc::e or effea as regards the legality thereof and neither the City nor attorneys approving said Certificates as to legafity are to be held responsible for CUSIP numbers incorrectJy printed or typed on the definitive Certificates. SECTION 30: Benefits of Ordinanm. Nothing in this Ordinance, expressed or implied, is intended or shal be construed to confer upon any person other than the City, the Paying Agent/Regislrar and the Holders, any right. remedy, or claim, legaJ or equitable, under or by reason of this Ordinance or any provision hereof, this Ordinance and all its provisions being intended to be and being for the · sole and exdusive benefit of the City, the Paying Agent/Registrar and the Holders. SECTION 31: lncoosistent Provisions. All ordinances. Ofders or resolutions, or parts thereof, which are in oonftict or inconsistent with any provision of this Ordinance are hereby repealed to the extent of such conftict and the provisions of this Ordinance shall be and remain oonCrolting as to the matters contained herein. SECTION 32: Governing Law. This Ordinance shall be construed and enforced in accomance with the laws of the State of Texas and the United States of America. SECTION 33: Severabiity. If any provision of this Onlnanoe or the appication thereof to any circumstance shall be held to be invalid, the remaindef of this Ordinance and the application thereof to other ciraJmstances shal nevertheless be valid, and the City Council hereby declares that this Oldinanc:e wou1d have been enacted without such invalid provision. 4501S694.l -26- SECTION 34: Effect of Headings. The Section headings herein are fOf' convenience only and shall not affect the construction hereof. SECTtON 35: Construction of Tenns. If appropriate in the context of this Ordinance. words of the singular number shaJI be considered to indude the plural. words of the plural number shall be considered to include lhe singtAar, and words of the masculine, feminine or neuter gender shall be considered to include the other genders. SECTION 36: Continuing Disclosure Undertaking. (a) Definitions. As used in this Section, the following terms have the meanings ascribed to such terms below: "MSR8' means the MunicipaJ Securilies Rutemaking Board. •NRMSI~ means each person whom the SEC or its staff has detennined to be a nationally recognized municipal securities information repository within lhe meaning of the Rule from time to time. "Rule· means SEC Rufe 15c2·12. as amended from time to time. "'SEC" means the United States Serurities and Exchange Commission. •stu means any person designated by the. State of Texas or an authorized department, officer, or agency thereof as, and delennined by the SEC or its staff to be. a state information depositoty within the meaning of the Rufe from time to time. (b) Annual Reports. The City shall provide aMuaDy to each NRMSIR and any SID. within six months after the end of each fiscal year (begiming with the fiscal year ending September 30. 2001) financial information and operating data with respect to the City of the general type included in the flnaJ Official Statement approved by Section 25 of this Ordinance, being the information desaibed in Exhibit C hereto. Financial statements to be provided shaU be (1) prepared in accordance with the accounting principles desaibed in Exhibit C hereto and (2) audited, if the City commissions an audit of such statements and the audit is compfeted within the period during which lhey must be provided. If audited financial statements are not available at the time the financial information and opetating data must be provided, then lhe City Shall provide unaudited financial statements for the applicable fiscal year to each NRMStR and any SID with the financial infonnation and operating data and will file the annual audit report. when and if the same becomes available. If the City changes its tistal year:, it wiD notify each NRMSIR and any SID of the change (and of the date of Che twNI fiscal year eod) prior to the next date by Whk:tl the City otherwise would be required to provide financial information and operating data pursuant to this Section. The financial information and operating data to be provided pUISuant to this Section may be set forth in ful in one or more documents or may be included by specific reference to any document flllducfmg an official statement or other offering document, if it is availabte from the MSRB) that theretofore has been provided to each NRMSIR and any SID or filed with the SEC. 4S01S694.l (c) Material Event Notices. The City shall notify any SID and either each NRMSIR Of the MSRB. in a timely manner. of any of the following events with respect to Ute Certificates. if such event is material within the meaning of the federal securities laws: 1. Principal and interest payment delinquencies; 2. Non-payment related defaults; 3. Unscheduled draws on debt service reserves reflecting financial difficulties; 4. Unscheduled draws on credit enhancements reflecting financiat difficulties; 5. Substitution of credit or liquidity providers, or their failure to perform; 6. Adver.;e tax opinions or events affecting the tax-exempt status of the Certiftcates; 7. Modifications to rights of holders of the Certificates; 8. Ceftificate cans; 9. Oefeasanoes; 10. Release, substitution, or saJe of property seo.Jring repayment of the Certificates; and 11. Rating changes. The City shaD 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 operatiOQ data in accordance with subsection (b) of this Section by the time required. by such Section. (d) Umitations, Disclaimers, and Amendments. The City shall be obligated to observe and perform the covenants specified in this Section while, but only while, the City remains an ·ooligated pesson· with respect to lhe Certificates within the meaning of the Rule. except that lhe City in any event will give the notice required by subsection (c) hereof of any Certificate calls and defeasance that cause the City to be no longer such an •obligated person: The provisions of this Section are for Ule sole benefit of the Holders and beneficial owners or the Certificates, and nothing in this Section, express or implied, shaU give any benefit or any legal or equitable right, remedy, or daim hereunder to any other person. The City undertakes to provide only the financial information, operating data. financial statements, and notices which it has expressly agreed to provide pursuant to this Section and does not hereby undertake to proWfe any other information that may be relevant or material to a complete presentation of the. City's financial results, oondition. ot prospects or hereby undertake to update any infonnation provided in accordance with this Section or oihefwise. except as expressly provided herein. The City does not make any representation or wananty concerning such information or its usehdness to a decision to invest in or sell Certificates at any ru~ date. UNDER NO CIRCUMSTANCES SHAll THE CllY BE LIABLE TO THE HOLDER OR BENEFICIAL OWNER OF AHf CERTIFICATE OR NN OTHER PERSON. IN CONTRACT OR TORT. FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE CITY. WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART. OF ANY COVENANT SPECIFIED IN THIS SECTION. BUT EVERY RIGHT AND REMEDY OF ANY SUCH PERSON. IN CONTRACT OR TORT. FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE UMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORMANCE. No default by the City in observing or petfonning its obligations under this Section shall constitute a breach of or default under this Ordinance for purposes of any other provision of this Ordinance. Nothing in this Section is intended or shall act to disclaim, waive, or otherwise limit the duties of the City under federal and slate securities laws. The provisions of this Section may be amended by the City from time to time to adapt to changed circumstances resulting from a change in legal requirements. a change in law, or a change in the identity. nature, status, or type ot operations of the City. but only if ( 1) the provisions of this Section, as so amended, would have permitted an underwriter to purchase or seO Certificates in the primary offering of the Certificates in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as we!l as such changed circumstances, and (2) either (a) the Hoklef's ot a majority in aggregate principal amount (or any greater amount required by any other provision of this Ordinance that authoriZes such an amendment) of the Outstanding Certificates consent to such amendment or (b) a person that is unaffiliated with the City (such as nationatty reoognized bond counsel) detennines that ~ch amendment will not materially impair the interests of the Holders and beneficiaJ owners of the Certificates. The provisions of this Section may also be amended from time to time or repealed by the City if the SEC amends « repeals the applica~ prov!sions of the Rule or a court of final jurisdiction determines that such provisions are invalid, but onty if and to the extent that reservation of the City's right to do so would not prevent underwriters of the initial public offering of the Certificates rrom lawfully purchasing or selling Certificates in such offering. If the City so amends the provisions of this Section, it shall indude with any amended financial information or operating data next provided in accordance with subsection {b) an explanation. in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial infonnation or operating data so provided. SECTION 37: Pubtic Meeting. It is officially found, determined, and declared that the meeting at which lhis Ordinance is adopted was open to the public and public notice of the time, place, and subject matter of the public business to be considered at such meeling, including this Ordinance, was given, all as required by V.T.C.A., Government Code, Chapter 551, as amended. -29- SECTION 38: Effective Date. This Ordinance shall take effect and be in force immediate1y from and after its passage on seoond and final reading. and IT IS SO ORDAINED. PASSED AND ADOPTED ON FIRST READING. May 24, 2001. PASSED AND ADOPTED ON SECOND AND FINAL READING, this the 14th day of June. 2001. A TrEST: Cd.Y Seaetary (City Seal) APPROVED AS TO CONTENT: APPROVED AS TO FORM: (2; L 6_~~··-City Attorney EXHIBIT A PAYING AGENT/REGISTRAR AGREEMENT See Document Number 4 EXHIBITB PURCHASE CONTRACT See Document Number 5 DESCRIPTION OF ANNUAL FINANCIAL INFORMATION The following information is referred to in Section 36 of this Ordinance. Annual Financial Statements and Operating Data ExhibitC to Ordinance The financial information and operating data wilh respect to lhe City to be provided aooually in acc:ofdanc:e with such Section are as specified (and included in Ule Appendix or under the headings of the Official Statement referred to) below: 1. The financial statements of the City appended to the Official Statement as Appendix B. but for the most recenUy concluded fiscal year. 2. The information contained in Tables 1 through 6 and 8A through 17 of the Off"tcial Statement. Acc:ounting Principles The accounting principles referred to in such seCtion are the generaUy accepted aqoounting principles as appl"teabte to governmental units as presaibed by The Government Accounting Standards Board. 4503!56SM. t C-1 LUB200nJ006 Dallas 1122.092_l.DOC PAYING AGENT/REGISTRAR AGREEMENT between CITY OF LUBBOCK, TEXAS and JPMORGAN CHASE BANK, NATIONAL ASSOCIATION Pertaining to City of Lubbock, Texas General Obligation Refunding Bonds Series 2006 Dated as of June 1, 2006 TABLE OF CONTENTS Page Recitals ........................................................................................................................................ I ARTICLE I APPOINTMENT OF BANK AS PAYING AGENT AND REGISTRAR Section 1.0 1. AppointJnent. ................................................................................................... I Section 1.02. Compensation. ................................................................................................. 1 ARTICLE II DEFINITIONS Section 2.01. Definitions ........................................................................................ : .............. 2 ARTICLE III PAYING AGENT Section 3.01. Duties of Paying Agent .................................................................................. 3 Section 3.02. Payment Dates ................................................................................................. 3 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.~3. Section 5.04. Section 5.05. Section 5.06. Section 5.07. ARTICLE IV REGISTRAR Transfer and Exchange .................................................................................... 4 The Bonds ....................................................................................................... 4 Form ofRegister .............................................................................................. 4 List of Owners ................................................................................................. 5 Cancellation of Bonds ..................................................................................... 5 Mutilated, Destroyed, Lost, or Stolen Bonds .................................................. 5 Transaction Information to Issuer ................................................................... 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 Indenmification ............................................................................................... 8 Interpleader ...................................................................................................... 8 ARTICLE VI MISCELLANEOUS PROVISIONS Section 6.01. Amendment .......................................................................... ! .......................... 8 I..UB200/71001 Dallas 1122092...1 .ooc (i) Section 6.02. Assignment ...................................................................................................... 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 Section 6.07. Benefits of Agreement .................................................................................... 9 Section 6.08. Entire Agreetnent ............................................................................................ 9 Section 6.09. Counterparts .................................................................................................... 9 Section 6.1 0. Tennination. .................................................................................................... 9 Section 6.11 . Governing Law .............................................................................................. 1 0 EXECUTION .............................................................................................................................. 1 Annex A -Schedule of Fees for Service as Paying Agent/Registrar WB20MIOOI Dallas ll22092_l.DOC (ii) PA YlNG AGENT/REGISTRAR AGREEMENT THIS PAYlNG AGENT/REGISTRAR AGREEMENT (the or this "Agreement"), dated as of Jwte I, 2006, is by and between CITY OF LUBBOCK, TEXAS (the "Issuer"), and JPMorgan Chase Bank, National Association (the "Bank"}, a New York state banking corporation duly organized and existing wtder the laws of the United States of America WHEREAS, the Issuer has duly authorized and provided for the issuance of its General Obligation Refunding Bonds, Series 2006 (the "Bonds,.), dated May 15, 2006, 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, THEREFORE, it is mutually agreed as follows: ARTICLE I APPOINTMENT OF BANK AS PA YlNG AGENT AND REGISTRAR Section 1.0 1. 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 amoWl.ts 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 amowtts 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. WB200n!OOI Dallas 1122092_l.OOC (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 2.0 l. Definitions. For all pwposes 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 Refunding Bonds, Series 2006, dated M~y 15,2006. ''Bond Ordinance" means the ordinance, as amended, 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 Bank. "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 perfonning the functions associated with the tenns 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. "P.redecessor 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). WB200f71001 Dallas 112209Z_I.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 Executive Committee of the Board of Directors, the President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, the Cashier, any Assistant Cashier, any Trust Officer or Assistant Trust Officer, or any other officer of the Bank customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "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 terms of the Bond Ordinance for redemption of the Bonds, or any portion thereof, prior to the fixed maturity date. ARTICLE III PAYING AGENT Section 3.01. Duties of Paying Agent. (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 in~t 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 premiwn, if any, and interest on the Bonds at the dates specified in the Bond Ordinance. LUB200nl001 Dallas 1122092_1.DOC 3 ARTICLE lV REGISTRAR Section 4.0 I. 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 ofTexas. (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 matwities, 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 instrwnent 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 fonn capable of being converted into written form within a reasonable time. LUB200n1001 Dallas 1122092_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 ofthe 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 Bank, shall be promptly cancelled by it an~ 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 destructio~ 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 stole~ 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 WBl00/71001 Dallas 1122092_1.DOC 5 Bond shall be issued of the same series and of like 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 lssuer'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 requesl Section 4.07. Transaction Information to Issuer. The Bank will, within a reasonable time after receipt of written request from the Issuer, furnish the Issuer information as to the Bonds it has paid pursuant to Section 3.01; 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 THE BANK Section 5.0 l. 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 fu.rUler 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 Docwnents. 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. UJB200nl001 Dallas 1122092_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 attomey"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 counsel shall be full and complete authorization and protection with respect to any action taken, suffered, or omitted by it hereunder in good faith and in reliance thereon. (f) The Bank may exercise any of the powers hereunder and perform any duties hereunder either directly or by or through agents or attorneys of the Bank. Section 5.03. Recitals of Issuer. (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 under 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 premium, 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 thereof, and all liability of the Bank with respect to such monies shall thereupon cease. WB2ooniOOI Dallas llnocn_t.DOC 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 lnsurance Corporation to be fully collateralized with securities or obligations that are eligible under 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 medium 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 performance of any of its powers or duties under this Agreement Section 5.07. Intemleader. 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 jw-isdiction 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 6.0L 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 permitted hereby to be given or furnished to the Issuer or the Bank shall be mailed or delivered to the Issuer or the Bank, respectively, at the addresses shown below: WB200nl001 Dallas 1122092_1.DOC 8 (a) (b) (c) if to the Issuer: if to the Bank: City of Lubbock, Texas I 625 13th Street Lubbock, Texas 79457 Attention: Director of Fiscal Policy and Strategic Planning JPMorgan Chase Bank, 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. S\:ction 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. Countqparts. 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 terminate 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 terminated 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 WB200nlOOl Dallas 1122092_1.DOC 9 Agent/Registrar has not been delivered to the resigning Paying Agent/Registrar within sixty (60) days after the giving of notice of resignation. (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 ofTexas. LUB20Ml001 Dallas 1122092_1.DOC 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above. CITY OF LUBBOCK, TEXAS ATIEST: ~~ LUB200171 00 I Dallas 1121092_l.OOC JPMORGAN CHASE BANK, ASSOCIATION By: Title: ANNEX"A" SCHEDULE OF FEES FOR SERVICE AS PAYING AGENT/REGISTRAR JPMorganO Schedule of Fees for Services as Paying Agent and Registrar in connectWn with $18,295 000 City of Lubbock General Obligation Refunding Bonds, Series 2006 Based upon our current understanding of your proposed transaction, our fee proposal is as follows: N()tts~ 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) $0.00 $300.00 $2,800.00 Pricing for Escrow Agent (for escrow terminating 2/15/2011) The Escrow Agent Fee covers the consideration of documents and the nonnal administrative duties of the escrow agent according to the governing documents. Pricing includes distribution of the call notice to holders of record, redemption processing, and notification to NRMSIR.s. Any publication expenses (i.e. Bond Buyer, regional periodical, financial periodicals, etc.) for the call notice will be billed to the Issuer at cost. This also includes cost associated with adjusting systems to reflect the partial refunding of the Series 1998 bonds. One Time Fee (payable at closing) Redemption Fees on Refunded Bonds Series 2001 $3,500.00 $300.00 Please nDte 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 rese&Ve the right to revise this proposal should any material aspect of the transaction differ from our understanding. Also, our ac<:eptance of lhe above contracts and duties is subject to our usual internal review, document review and the receipt of appropriate immunities and inderrmities. To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each pec"SOn who opens an account When you open an account, we will ask for information that will allow us to identify you. Annual fees include one standard audit confirmation per year without charge. Standard audit confirmations include the final maturity date, principal paid, principal outstanding, interest cycle, interest paid, cash and asset information, interest rate, and asset statement information. Non-standard audit confirmation requests may be assessed an additional fee. J. P-Morgaa Trust Compaay, N. A. • 420 Throckmorton. 9th Floor, Fort Worth, TX 76l02 Telephone: (817) 884-4726 • Facsimile: (817) 884-4651 jeffrey .c.salavarria@ipmorgan.com JPMorganO JPMorgan's Trust Accounting Reporting (TAR) website gives corporate and municipal issuers 24n Internet access to infonnation 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 fonnat, drill down for detail, and download for convenience, Trust Accounting Reporting on the We'b is a powerful decision· ma1cing 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-etd reports. Please visit us at www.jpmorgan.comltar for more details or contact your JPMorgan Relationship Manager or Sales Representative. Periodic tenders, sinking fund, optional or extraordinary call redemptions will be assessed an additional charge of $300 per event. Performance 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. JPMorgan Chase & CO. ("JPMorgan") has entered into an agJeetnent with The Bank of New Yorlt Company, Inc. ("BNY") pursuant to which JPMorgan intends to exchange select portions of its corporate trust business, including municipal, c01porate and structured finance trusteeships and agency appointments, for BNY's consumer, small-business and middlo-mark:et banking businesses. This transaction has been approved by both companies' boards of directors and is subject ro regulatory approvals. [tis expected to close in the late third quaner or fourth quarter of 2006. J.P. Morgan Trust Company, N. A. • 420 Throckmorton, 9th Floor, Fort Worth, TX 76102 Telephone: (817) 884-4726 • Facsimile: (817) 884-465 I jeffrey .c.salavarria@jpmorgan .com ) ]! ·= ... .. E·~ o·; ) .s ~ .. x -~ .. .,:; :i'o o., -.. ~ .. ·c ,... ""5 ]_g ) 8!! ~.s ~=iii )o,..C :::1 .. .., ... 00 -c: l!~ ~ .<> • 0.!:! g >. tl ·~ ";') ~1:::-~ o-.:J g :;·~ ....... ~ :9o..c: ~ § g u ":2 .. ~-~ §' c ·-.... >,.0 0 !~j ) ~ 5 rl -~ 1 :§ t: g ~ ! ~ .. ~0~ _,:;~ 6s5 -5 .§ g ii 2 "'oil es~ ~ r= 0 .. ;:1 c ... . g s 5 -iJl 8 a-·-g·~ g s IE.:! ) _o e j. ~ s ~ -~ ~ .. ·.: ~;.:::;"" e-.!! .... ~ ]~! -.::~=;~ § .S ~ .8 s ..... C8"3 B j ~ 5 -0 ·:: § "ii @ ~: ·-0 .a<>g .s g ":% .. ~. :; ·5 -g = .. ;:J g 5 g ~- E .2 o B-..Q ~~ ~ 3 .5 '5 2-.:s:a E~;r; 0 c .i~ :j a·-... . -:;:; "! 5 ·§ "-E ., v """""' ·-s >. ~v.~i PRELIM I NARY OFnCIAL STATEMENT Dated April 13, 20o.i Ratings: Moody's: Applied For S&P: Applied For Fitcb: Applied For NEW ISSUE -Book-Eatry-Oaly See "Od!er laformatioa-Ratings" aad "Boad lasunnce" bereia. In the opinion of Bond Counsel. interest on lhe Bonds is excludable &om gross income for federal income tax purposes under existing Jaw and the Bonds~ not private activity bonds. See "Tax MatteB" herein for a discussion of the opinion of Bond Counsel, including a description of altemalive minimum tax consequences for COillOrations. THE BONDS WILL NOT BE DESIGNATED AS "OUAUFIED TAX-EXEMPT OBLIGATIONS" FOR FINANClAL INsmuriONS Dated Dau: April IS. 2006 S18,295,01Ml* CITY OF LUBBOCK. TEXAS (Lubbock Couaty) GENERAL OBLIGATION REFUNDING BONDS, SERIES ZIMI6 Due: February IS, as sbown on page 2 PA'Ic'MENT TERMS ... Interest on the $18,295,000• City of Lubbock. Texas Genen~l Obligation Refunding Bonds, Series 2006 (the "Bonds") will accrue &om April 15, 2006 (the "Dated Date") and will be payable on August IS, 2006, and on each February 15 and Ausust 15 thereafteT until maturil)' or prior redemption. Interest will be calculaled oo the basis of a 360-day year consisting of twelve 30-day months. Tbe definitive Bonds will be initially registered and delivered only to Cede & Co., the nominee ofTbe Depository Trust Company ("DTC") pursuant to the Book-Entty·Only System described herein. Beneficial owuetShip of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of tile Bonds will be made to the owaen thereof. Principal of, premiwn, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., wbich will make distnbwion of the amounts so paid to the participating membets of DTC for subsequent payment to the beneficial owners of the Bonds. See "The Bonds -Book-Entry·Only System" herein. The initial Paying Agent/Registrar is IPMorgan Cbase Bank, National Association. Dallas, Texas (see "The Bonds· Paying Agent/Registrar"). AUTHORITY FOR IssUANCE ... The Bonds are issued pursuant to the ConsliiUtion and general laws of the Stale of Texas (the "State"), particularly C~ter 1207, Texas Government Code, as amended, and coostitute ~obligations of the City of Lubbock. Texas (the "City"), payable &om the levy and collection of a direct and continuing ad valorem tax, within the limits prescribed by Jaw, on aU taxable property within the City, as provided in the ordinance a~tthorizing the Bonds (the "Ordinance") (see "The Bonds -Authority for Issuance") . PVRI"'SE ••. 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 supporiA!d indebtedness (the "Refunded Obligations") described in Schedule I to achieve debt service savings and (ii) paying costs of issuance of the Bonds. BoNO INSURANCE •.. The City has made application to municipal bond insurance companies to bave the payment of the principal of and interest on the Bonds insured by a municipal bond gua.nanty policy. CUSIP PREFIX: 549187 SEE MATUIUTY SCHEDUL£, 9 Digit CUSIP AND REDEMP'IlON PROVISIONS ON THE REVERSE Of TBIS PAGE SEPARATE ISSUES ••• The Cil)' is also simul!aneously offering its $2,740,000• General Obligation Bonds, Series 2006 and its $76,315,000• Tax and Warerwol'ks System Surplus Revenue Certificates of Obligation, Series 2006 UDder a separate offering document LEGAUTY •.. The Bonds are offered for delivery when, as and if issued and received by the UndetWriter and subject to the approving opinion of the Attorney ~ of Texas and the opinion or Vinson & Elkjns L.L.P., Bond Counsel, Dallas, Texas (see Appendix C, "Form of Bond Counsel's Opin.ionu). Certain. legal matters will be passed upon for the Underwriter by McCall. Parlchurst & Horton LLP., Da.llas, Texas, Counsel for the Underwriter. DELIVERY •.. It is expected that the Bonds will be available for delivery through DTC on or about June 6, 2006. • Preliminary, subject to change. A.G. EDWARDS & SONS, INc. MATURITY SCHEDULE* CUSIP Prefix: 549187 (t) Priocipal Malllrity Ill term lllitial CUSIP ~~~ Maturity Interest IDirial CUSIP Amount (Feb!\wy I.S) R.a.te Yield Suffix (II Amount (Felmwy 15} ~ Yield Suffix 111 ----s 10,000 2007 $ 20,000 2020 10,000 2008 20,000 2021 15,000 2009 1,425,000 2022 15,000 2010 I,SOO,OOO 2023 lS,OOO 2011 l,S7S,OOO 2024 IS,OOO 1012 1,660,000 2025 IS,OOO 2013 1,745,000 2026 IS,OOO 2014 1,835.000 2027 15,000 20\S 1,925,000 2028 \5,000 2016 2,025,000 2029 15,000 2017 2,130,000 2030 20,000 2018 2,140,000 2031 20,000 2019 (A(( rued lourest from April IS, lOG6 to be added) * Preliminary, subject to change. (I) CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by Standard and Poor's CUSIP Service Bureau, a Division of The McGraw-Hill Companies, Inc. This data is not intended to create a database 81ld does not serve in aoy way as a substitute for the CUSIP Services. Neither the City nor the Underwriter shall be responsible for the selection or correctness of the CUSIP numbers shown on the inside cover page. OPTIONAL REDEMPTION .•• The City reserves the right, at its option, to redeem Bonds having stated maturities on and after February 15, 2017, in whole or in pan in principal amounts of$5,000 or any integral multiple thereof, on February IS, 2016, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "The Bonds -Optiooal Redemption''). 2 c c c c c ( , \. ( ) ) ) ) For purpose of compl~ with RMJe I Jc2· I 2. profi'UIIgtJted by the United Simes Securities and !zehangt: Commission(the "SEC"). this documtltll as the same may be s:upplement.ed or corrected from ti~~e-t<>-Jime, may be tre.oted as o Preliminary Official StatelfleJU of the Cily wirh re.spea to the Bonds described hereill. which has bun ~dumt!dfilllll" by the CUy os of the dale henof (or of tJ1I)' nu:h mpplemenl or conw:titon) except for flu! omisskm of no WUJI'e thmt the ilf/ot7tUlllon pl'()v/ded by S411mdion (11)(/J of Rule /Jc2-12. This OjfJCial Sto.ten:Uil. wlli<:h includes the COWl' p;tge. inside Cl?l'V pop: and the Appendices hereto. does not constitute an offer to sell or the so/i.ciJQ:ion of (JII offer to buy in any juri:ulietit!tt to mry person to whom it is unl""'ful to make such offer. soliciut:Wn or sale. No det:ller. brt*er. sak.Jp<tn()n or other person has been 011thbrized to give infot7tUlllon or to make any representation other than those C<NUainell il1 this Officl41 Statement. and. if given or McJde. such other infot7tUlllon or rqtresentations mJUI not be relied upon. The information set forth IID'ein has bun obtained from the City and other sourcu beliewed to be reliable. but such infomratiolf is not guoro.nt«d as 10 accii1'Qo/ or txJmpleune.u and ill 1101/b be coiUlnted as the promtre or p41'aii/U of the F'Uialll:ial Advisor. This Official StatemDII contains, ill pan. utim4te.s ollli matters of opinio" which are not intended os statements of fact. (UI(/ no represenUllion 1.$ rNide as to the corre.ctneu of such I!.SiiiMies and opinions. 01' that they will be realized The ilf/onMtion and upres.sitms of opinit!n contained henin are subject ta change without notice. and neilher the deJi,..uy of this OfficiDI Statemenl 110r any sale made hereunder shall. under any cii'CllnultlnCe.r. create any implication that/here lias bem nt> change in the affairs of the City or o/her lfiD#e1"s detc:ribed lrueilf since the date hu~f See "OTHER INFOB.MA.T10N-Contir111illg Disclosure of Information" for a deJe:rlplion of the City's un4ertaldng «>provide certain ilf/ormatio" on tJ <:o11ti,.,mg bosu. THE BONDS ARE EXEMPT FROM REGISTRATION WTTH THE SEC AND CONSEQUENTLY HAl'£ NOT BEEN REGISTERED THEREWITH. THE REGJSTRA.TION. QUALIFICATION. OR EXEMPTION OF THE BONDS IN ACCORDANCE WITH APPUCABLE SECUR.ITIES I..AW PROVISIONS OF THE JUJUSDTCTION IN WHICH THESE SECUR.ITIES HAJIE BEEN REGISTEB.ED OR EXEMPTED SHOULD NOT BE REGAIWED AS A RECOMMENDATION THEREOF NEITHER THE CITY NOR THE UNDERW'IUTEB. !JAf(.£ ANY REPRESENTATION OR WARRA..NIT WTTH RESPECT TO THE INFORMATION CONTAINED IN THIS OFFICiAL STATEMENT B.EGA.RDING THE DEPOSrfORY TRUST COMPANY OR ns IJOOK·ENTRY-ONLY SYSTEM. AS SUCH INFORMATION HAS BEEN FURNISHED BY THE DEPOSrfORY TRUST COMPANY IN CONNECTION wrt'H THE OFFERING OF TH£ BONDS. THE UNDERWRITER MAY Of'ER.ALUJT OR EFFECI' T.IU.NSACTTONS TH.AT STABIUZE OR MAINTAIN THE MA.R.K£1' PRICES OF THE BONDS AT A LEVEL ABOVE THAT WHTCH MIGHT O'l71ERW1SE PREY AIL IN THE OPEN MARKET. SUCH STABILIZfNG. IF COMMENCED. MAY BE DISCONTINUED AT ANY T1ME. The Underwriter has provided the following se:n~enc:e for inclusion ill the OjfJCUII StateltUint. The Ulllitrwriter has r~'eli the i".fomwticn in this Offi<:iol Statem.etrl in acc:ordance with. and as part of. their responsibilities to invesk>rs tm&er the fedmzl seCW'ittes laws as opplied to the fo<:ts and circumJf4N:u of this trans~XIion. but the Unduwriter does not guarantee the acau'QCY or completeness of su.cfa information. TABLE OF CONTENTS OFFICIAL STATEMENT SUMMARY -·-·--··---·---4 CITY OFFICIALS, STAFF AND CONSULT ANTS -·--·-6 ELECTED O.FI'tClAIS .................................. ~ .......................... 6 SEL£CTED ADM.INISTRA 1lV:E STAfF ........................ _ ........ _ .. 6 CONSULTANTS ANO ADVISORS ............................................. 6 INTRODUCTION .. -·-·---.. -··-"--·--"-.. ---7 THE BONDS •• --·---··-... -...... -.... ---·-·----7 BOND INSURANCE ... -··--·----·------13 DISCUSSION OF RECENT FINANCIAL AND MANAGEMENT EVENTS·--···----··-·14 AD VALOREM TAX INFORMATION---.. ------·25 TABLE I • V ALUA 1lON, EXEMPTIONS AND GENERAL 08UGA1l0N DEBf ............................................. -..... 29 TABLE 2 • T AX.ABLE ASSESSED V ALUA 1lONS BY CATEGOR¥ ................................................................ 31 TABLE 3A • VALUATION AND GENERAL 0BUOATION DSI':Jl' HlSTO.R.Y ........................................................... -..... 32 TABLE3B -DEIUVATIONOfGENEBALPU&POSEFl.JNOED TAX DEBT ............................. _ ....................... -........ 32 TABLE 4 • TAX RAT£, LEVY AND CoLLECTION HISTORY 32 TABLES • TEN LA.R.GESTTAXPAYUS .............................. j3 TABLE6 • TAX ADEQUACY ......................... -.................... 33 TABL£7 • ESTIMAT£l)0VERLAPPIN00EBT •. -................. 34 DEBT INFORMATION ---·---·------··--·-.. -35 TABI..E SA • PRo-fORMA GENERAL 08UGA1lON DEBT S£.RVlCE REQUI.R£MENTS .......................................... 35 TABLE 88 • DIVISION OF DEBT S£.RVlCE RJ!QUIUMENTS 36 TABI..E9 • INTEREST ANDSINKJNGFUNDBUOOET P.tOJecnoN .............................................................. 37 TABLE 10 • COMPVTA1lONOFSELP-SUPPOR1lNGDEBr .. 38 TABLE II • AUTHORJUO BVT UNISSUED GENERAL OBLIGATION BoNOS ................................................. 39 3 ANT!Cl.PAT.EO IsSUANCE 01' GENERAL 0BUGA1l0N DEBT ... .. TABLE 12-0THE.R.08UGAT!ONS ...................................... 40 FINANCIAL INFORMATION--·--·-.... -.. -42 TABL£13 • CHANGESINNtrrAssErS ............................... 42 TABLE 13-A • GENERAl. FuND REVENUES AND EXPENDITURE HiSroRY ............. -............................. 43 TABLE 14 • MUNICIPAL SA1.ES TAX HiSToRY .................. 44 TABLE IS· CUR.It£NTlNV£STMENTS •• -............................. 48 TAX MATTERS ·----·-·----.. ·-·---.. ----49 OTHER INFORMATION ··-.. ··-·---·-·--···Sl RATINGS ........ -.................................................................... S I Lrn<lATlON ....................................................... -........... -.... s I REGISTRATION ANOQUAUI'tCATION Of BoNDS FOil SAL£ S2 LEGAL INVEsTM:ENTS ANO ELIGIBILITY TO SECURE PUBLlC FUNDS lN TExAs ...................................................... S2 'LEGAL MATTE.RS ................................................................. 52 CoNTINUING DISCLOSURE. Of INFORMATION ............. -...... 52 fiNANCIAL ADVISOR ........................................................... 54 VE.R.IFICATION OF AIUniMETtCAL AND MATHEMATICAL CoMPUTATIONS ......... : ............................. _ ............... 54 UND.E.li.WRITING ....................................... -.......................... S4 FORWARD-LOOKING STATEMENTS DlSCI.AIMER ............... S4 Mlsca..l.ANEOOS ................................................................. SS SCHEDULE OF REFUNDED OBUGA TIONS ............................................. SCHEDULE l APPENDICES GENERAL lNFORMA TiON R£GA.RDING THE CITY ................ A EXC£1U'TS FROM THE ANNUAL fiNANCIAL REI'oltT ••. ....... B fORM OF BoNO COUNSEL'S OPINION ................................. C The cover page hereof, this page. the appendices inclllded herein and any addenda, supplement or amendment hereto, are part of the Official Statement. omCIAL STATEMENT SUMMARY This summary is subject in all respects to the more complete information and definitions contained or incorporated in this Official Statement The offering of the Bonds to potential investors is made only by means of this entire Official StatemenL 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 coven approximately 119.1 square miles and has an estimated 2006 population of211,187 (see "Introduction -Description of the City"). TB.EBoNDS .................. " .............. The Bonds are issued as $18,295,000• General Obligation Refunding Bonds, Series 2006. The Bonds are issued as serial bonds maturing on February 15 in each of the years 2007 through 2031• (see "The Bonds -Description of the Bonds"). PAYMENI'OFINTEREST .............. Interest on the Bonds accrues from ApnliS, 2006, and is payable August 15,2006, and each February IS and August IS thereafter until maturity or prior redemption (see "The Bonds - Description of the Bonds~ and "The Bonds-Optional Redemption"). AUTHORITY FOil. lSSliANCE. ......... The Bonds are i!lSued pursuant to the general laws of the State, particularly Chapter 1207, Texas Government Code. as amended (see "The Bonds-Authority for Issuance"). SEcURITY FOR THE BoNDS ........................................... The Bonds constitute direct 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 within the City (see "The Bonds -Security aod Source of Payment"). REDEMPTION ..... .......................... The City reserves the right, at its option, to redeem Bonds having stated maturities on and after February 15, 2017, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2016, or any date thereafter, at the par value thereof plus acctued interest to the date of redemption (see "The Bonds -Optional Redemption"). TAXExEMrTION ............. ~ ............. In the opinion of Bond Counsel. the interest oo the Bonds will be excludable from gross income for federal income tax purposes under existing law and the Bonds are not private activity bonds. See "Tax Mauers-Tax Exemption" for a discussion of the opinion of Bond Counsel, including a description of !be alternative minimum tax consequences IDr corporations. USE OF PRocuos ....................... Proceeds from the sale of the Bonds will be used for (i) refunding a portion of the City's outstanding ad valorem tax supported indebtedness (the "Refunded Obligations") Oescribed in Schedule i to achieve debt service savings and (ii) paying costs of i!lSuance of the Bonds (see "The Bonds -Purpose"). RATINGS ...................................... The presently outstanding ad valorem 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-" Fitch Ratings ("Fitch"). The City also bas obligations outstanding which are rated "Au" 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 lnfonnation-Ratings"). 8ooK·ENTRl'-0NLY SYSTEM...................................... The definitive Boods will be initially registered and delivered only to Cede & Co., the nominee of DTC pursuant to the Book-Entry-Qnly System described herein. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members ofDTC for subsequent payment to the beneficial owners of the Boods (see "The Bonds -Book-Entry-Only System"). PA YMENr REcORD...................... The City has never defaulted in payment of its general obligation tax debL • Preliminary, subject to change. 4 c c c ( ,. .. ( ( ( ) ) SELECfEO FINANCIAf..INroRMAflON 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 9130 Population (I) Valuation Valuation Tax. Debt (2) Tax. Debt (Z) Valuation (2) Collections -2002 202,000 $ 6.909.309, 707 2003 204.737 7,342,344,867 2004 206,290 7 '921 ,590.380 2005 209,120 8,664,190,909 2006 211,187 9,365,239,925 (I) Source: The City of Lubbock, Texas. (2) Does not include self-supporting debt. $ 34,205 35,862 38,400 41.432 44,346 $ 63,115,346 s 312 0.91% 99.41% 70,188.204 343 0.96% 98.78% 70,161,218 340 0.890/o 99.69% 80,210,269 384 0.93% 100.08% 87,256,363 (l) 413 ()) 0.93% (J) 95.81% (4) (3) Projected, includes the Bonds. Ex.cludes the projected Refunded Obligations. Also includes the proposed $2,740,000 General Obligation Bonds, Series 2006 and $76,315.000 Tax and Waterworks System Surplus Revenue Certificates of Obligation, Series 2006, scheduled to be sold simultaneously with the Bonds. Preliminary, subject to change. (4) Partial collections through February 28. 2006. GW&RAL FuND CONSOLIDATED STATEMENT SVMMARY Fiscal Year Ended S~tember 30, 2005 2004 2003 2002 2001 Fund Balance at BegiMing of Year $ 12,694,525 $ 9,417,346 $ 16.598,252 (I) $ 16,716,042 $ 16,620,652 Total Revenues and Tr.msfers 107,885,132 97,437,436 91,753,809 92.490,374 90,~3.799 Total ExpendiiUres and Transfers 103,203,237 94,160,257 98,934,715 90,594,059 90,368,409 Fund Balance at End of Year s 17,376,420 $ 12,694,525 $ 9,417,346 $ 18,612.357 $ 16,716,042 Less: R.e$erves and Designations '1.255,04Q !2.361,860) Undesignated Fund Balance $ 17,376,420 $ 12.694,525 $ 9,417.346 $ 17,357,316 $ 14,354,182 (I) The "Fund Balance at Beginning of Year" was restated. See "Discussion of Recent FiDaDCial and Management Events -FY 2003 Audit Restatements, Reclassifications and Internal Controls Issues" for a further explanation of the restatements. For additional infonnation regarding the City, please contact: Mr. Jeff Yates Mr. Vince Viaille Mr. Jason Hughes Chief Financial Officer First Southwest Company First Southwest Company City of Lubbock or 1001 Main Street or 325 North St. Paul Street P.O. Box 2000 Suite802 Suite800 Lubbock, Texas 79457 Lubbock, Texas 79401 Dallas, Texas 75201 Phone (806) 775-2161 Phone (806) 749-3792 Phone(214)943-4000 Fax (806) 775-2051 Fax (806) 749-3793 Fax. (214) 953-4050 5 c CITY OmCIALS, STAFF AND CONSULTANTS ELECTED OmclALS Date of Term c 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 ( Councilmembcr, District I Floyd Price June,2004 May, 2008 Retired Councibnember, District 2 Gary Boren May,2002 May, 2006 Business Owner, Personnel Services Councilroember, District 3 ( Phyllis Jones May, 2004 May,2008 Self-Employed Councilmember, District 4 Tom Martin 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 A.DMIMSTRATIVE STAFF Date of Employment Date of Employment Total Government Name Position in Current Position with Ci~ of Lubbock Service Lee Ann Du.mbauld City MaJlager September,2005 July, 2004 20+ ( Tom Adams Deputy City Manager August, 2004 August, 2004 23 Jeff Yates Chief Financial Officer September, 2005 November, 2004 s Quincy White Assistant City Manager September, 2000 September, 2000 14 Anita Burgess City Attorney December, 1995 December, 1995 10 ( Rebecca Gatza City Secretary January, 2001 August, 1996 9 Andy Burcham Director of Fiscal Policy September, 2005 November, 1998 7 and Strategic Planning CONSULT ANI'S AND ADVISORS Auditors ............................................................................................................................................................................ BKD, LLP Little Rock, Arkansas Bond Counsei ................................................................................................................................................ Vinson & Elkins L.L.P. Dallas, Texas Financial Advisor ...................................................................................................................................... First Southwest Company Lubbock and Dallas, Texas 6 PRELIMINARY OFflCIAL STATEMENT RELATING TO $l8,l95,000* CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 2006 INTRODUCTION This Official Statement, which includes the Appendices hereto, provides cenain information regarding the issuance of $18.295,000• City of Lubbock, Texas General Obligation Refunding Bonds, Series 2006. Capitalized terms used in this Official Statement have the same meanings assigned to such terms in the Ordinance authorizing the issuance of the Bonds, except as otherwise indicated herein. There follows in this Official Statement descriptions of the Bonds and certain infonnation regarding the City and its finances. All descriptions of documents contained herein are only sununaries and are qualified in their entirety by reference to each such document Copies of such documents may be obtained from the City's Financial Advisor, First Southwest Compa11y, Dallas, Texas. DESCRlPTlON OF THE CITY ... The City is a political subdivision and municipal corpotation of the State, (iuly organized and existing under the laws of the State, including the City's Horne Rule Charter. The City was incorporated in 1909, and ftrst adopted its Home Rule Charter in 1917. The City operates under a CounciVManager form of government with a City Council comprised of the Mayor and six Councilrnembers. The Mayor is elected at-large for a two-year term ending in an even- numbered year. Each of the six members of the City Council is elected from a single--member district for a four-year term of office. The terms of lfltu members of the City Council expire in each even-numbered year. The City Manager is the chief administrative officer for the City. Some of the services that the City provides are: public safety (police and fire protection), highways and streets, electric, water and sanitary sewer utilities, airport, sanitation and solid waste disposal, health and social services, culture-recreation, public transportation, public improvements, planning and zoning, and general administrative services. The 2000 Census population for the City was 199,564; the estimated 2006 population is 211,187. The City covers approximately 119.1 square miles. FINANClAL AND MANAGEMENT CBALLENCfS . . . In recent years, the City experienced a variety of financial and management challenges, and certain investigations and reports conducted or prepared by lhe City or its consultants found weaknesses in. the City's general management and financial practices, both with the City in general and lhe 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. Reference is made to "Discussion of Recent Financial and Management Events" for a discussion of these everus and a description of how the City has responded to these events. THE BONDS DESCRlPTIONOFTIII BoNDS ••• The Bonds are dated April IS, 2006, and mature on February lS 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, 2006, and on each February 15 and August IS thereafter until maturity or prior redemption. The definitive Bonds will be issued only in fully registered form in any integral multiple of $5,000 for any one maturity and will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ("DTC") pursuant to lhe Book-Entry-Only System described herein. No physical deUvery of the Bonds will be made to the owners thereof. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds. See "The Bonds-Book-Entry-Only System" herein. PtlJtl'ost ... Proceeds ftom the sale of the Bonds will be used fur the purpose of (i) refunding a portion of the City's outstanding ad valorem tax supported indebtedness (the "Refunded Obligations") described in Schedule I to achieve debt service savings and (ii) paying costs of issuance of the Bonds. • Preliminary, subject to change. 7 R£roNDEO OBLIGATIONS ••• Upon delivery of the Bonds, the City will deposit proceeds from the sale of the Bonds with JPMorgan Chase Bank, National Association. Dallas, Texas (the "Escrow Agent"). The amount of Bond proceeds so deposited, when added to any other lawfully available funds and the investment earnings thereon, will be sufficient to accomplish the discharge and final payment of the Refunded Obligations. 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 Pond is irrevocably pledged to the payment of principal of and interest on the Refunded Obligations and amounts therein will not be available to pay the Bonds. Gtant Thornton LLP, Certified Public Accountants (the "Verification Agent"), will verify at the time of delivery of the Bonds to the Underwriter that the Federal Securities will mature and pay interest in such amounts which, together with uninvested funds, if any, in the Escrow Fund will be sufficient to pay, on the scheduled interest payment dates and redemption dates, the principal of aod interest on the Refunded Obligations, and will issue a report to this effect (the "Verification Report~). The arithmetical accuracy of certain computations included in the schedules provided by First Southwest Company to the Verification Ageut on behalf of the City relating to (a) computation of the sufficiency of the anticipated receipts from the Federal Securities, together with the initial cash deposit, if any, to pay wben due the principal, interest and early redemption premium requirement, if any, of tbe Refunded Obligations and (b) computati<ln of the yields on the Federal Securities wiU 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 restrict its procedures to recalculating the arithmetical accuracy of certain computations and will not malce any study or evaluation of the assumptions and information on which the computations are based. and accordingly, will not express an opinion 011 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 Obligations in accordance with Texas law. As a result of such defeasance, the Refunded Obligations will be outstanding only for the purpose of receiving payments from the Federal Securities and any cash held for such purpose by the Escrow Agent and such Refunded Obligations 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 Obligations will be extinguished. AtrmoiUTY roa 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. SECURCn" AND SoURCE OF PA\'MENT ••• The Bonds are payable fiom a continuing direct annual ad valorem tax levied by the City in an amount sufficient to provide for the payment of principal of and interest on tbe Bonds, which tax must be levied within limits prescribed by law. TAXRATELIMITATION •.• AU taxable property within 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 tax debt within the limits prescribed by law. Article XI, SectionS, of 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 S 100 Taxable Assessed Valuation. OmoNAL RmEMPTtON ... The City reserves the right, at its option, to redeem Bonds having stated maturities on and after February 15, 2017, in whole or in part in principal amounts of$5,000 or any integral multiple thereof, on February 15, 2016, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. If less than all of tbe Bonds are to be redeemed, the City may select the maturities of Bonds to be redeemed. If less than all the Bonds of any maturity are to be redeemed, the Paying Agent/Registrar (or DTC while the Bonds are in Book-Entry..Qnly fonn) shall determine by lot the Bonds, or portions thereof, within such maturity to be redeemed. If a Bond (or any portion of the principal sum thereof) shall have been called for redemption and ootice 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!R.egistrar 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, fust class, postage prepaid, to the registered owners of the Bonds to be redeemed, in whole or in part, at the address of the registered owner appearing on the registration books of the Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing such notice. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO 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 SPECIFIED 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 interests of the registered owners, including the curing of any ambiguity, inconsistency, fonnal defect or 8 ; ... ( ( ( ( ( ( ) ) ) omission therein. In addition. lhe 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 oftbe Ontinance, 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 lhe principal on any installment of interest is due payable, reduce the principal amount or the rate of interest, or in 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 amount required to be held by owners for consent to any amendment, addition or waiver. DEFEASANCE ... 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 redemption price theteon in any matter permitted by law. Under current Texas law, such discharge may be a.ccomplished by either (i) depositing with the Comptroller of Public Accounts of the State of Texas a swn of money equal to principal, premium, if any and an 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 sufficieot to provide for the paymen.t and/or redemption of the Bonds; provided that such deposits may be invested and reinvested only in (a) direct, ooncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (b) noncallable obligations of an agency or instrumentality of the United States of America, including obligations that are unconditionally guaranteed or insured by the agency or instnunentality and that are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, and (c) noncallable obligations of a state or an agency or a county, municipality. or other political subdivision of a state that have been refunded and that are rated as to investment quality by a nationally recognized investment rating firm 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 firm banking and financial arrangements for the discharge and final payment or redemption or the Bonds have been made as described above, all rights or the City to initiate proceedings to call the Bonds for redemption or to take 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 finn banking and financial arrangements, expressly reserves the rigbt to call the Bonds for redemption; (ii) gives notice of the reservation of thaJ right to the owners of the Bonds immediately following the making of the finn banking and financial arrangements; and (iii) directs that notice of the reservation be included in any redemption notices that it authorizes. BooK-ENTRY-ONL v SYSTEM ..• This section describes lww ownership of the Bonds is to be trOifSferred and Jww the principal of. premium. if any, and interest on the Bonds are to he paid to and credired by The Depository Trust Compaff)' ("DTC''). New York. New York. while the Bonds are registered in il8 nominee name. The inforrnaiWn in tJUs section concerning DTC an.d the Book-Entry-Only System has been provided by DTC for use in disclosure documenl8 such as this Official Statement. The City believes t~ source of such infonnolion to be reliable, but l4ka no responsibility for 1M accuracy or completDteSs thereof The City cannot and dot!$ not give 019' assurance that (I) DTC will distribute paymems of debt service on the Bonds, or redemption or other notices, to DTC Participants. (2) DTC Participants or others will distribute debt service paynumts paid to DTC or il8 nominee (as the registered OWI'II!r of the Bonds), or redmlption or other notices, tot~ Beneficial Owners. or that they will do so on a timely basis, or (3) DTC will serve and act in the manner dacribed in this Official Statement. The current rules applicable to DTC are on file wiJh the Securities and &:change Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered io the name of Cede & Co. (DTC's partnership nominee) or such other name u may be requested by an authorized representative of DTC. 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 DTC. DTC, the world's laJgest depository, is a limited-purpose trust company organized under the New Yorlc Banlcing Law, a "banking organization" within lh.e meaning oflhe New Yorlc Banking La.w, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17 A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instnunents from over 85 countries that DTC's participants ("Direct Participants") deposit wilh DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and olher securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants• accounts. This eliminates the need for physical movement of securities Bonds. Direct Participants include both U.S. and non-U.S. securities brolcets and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in tum, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation. Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New Yorlc Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Aocess to the DTC system is also available to others such as botli 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 infomwion about DTC can be found at www.dtcc.com. 9 Purcbases 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 pwcbaser of each Bond ("Beneficial Owner") is in tum to be recorded on the Direct and IndiJect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive wrinen confinnations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through whicb the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnerShip nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their regislrlltion in the name of Cede & Co. or such other DTC oominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited. which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by am~ngements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that 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 to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed. DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedW'CS, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing a.uached 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 DTC. DTC's practice is to credit Direct Participants' a<:eouots 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 fonn or registered in "street name," and will be the responsibility of such Participant and not ofDTC 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 sucb other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Paying Agent/Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by gjving 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 transfers through DTC (ora 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 owners should be read to include tbe person for which the Participant acquires an interest in the Boods, but (i) all rights of ownership must be exercised through DTC and the Book-Entry-Only System, and (ii) e~cept 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 bas been obtained from DTC and i.s not guarant,eed as to accuracy or completeness by, and is not to be construed as a representation by the City or the Underwriter. 10 c ( ( f ... ( ( < < ) ' ' Effect of Termiaation of Book-Entry-Only System In the event lbat the Book-Entzy-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 sununarized wtder "Transfer, Excbange and Registration" below. PAYING 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/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 State 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 to promptly cause a written notice ~f 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 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 paymeniftransfer office of the Paying Agent/Registrar is located are authorized to close, then the date for such payment shall be the next succeeding day which is not such a day, and payment on such date shall have the same force and effect as if made on the date payment was due. 'I'RANsft:R, ExCBANGE AND REGISTRATION ... In the event the Book-Entry-Only System should be discontinued, the Bonds may be transferred 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 other governmental charges required to be paid with respect to such registration, exchange and transfer. Bonds may be assigned by the execution of an assignment form on the respective Bonds or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. New Bonds will be delivered by the Paying Agent/Registrar, in lieu of the Bonds being transferred or exchanged, at the designated office of the Paying Agent/Registrar, or sent by United States mail, ftrSt class, postage prepaid, to the new registered owner or his designee. To the extent possible, new Bonds issued in an exchange or transfer of Bonds will be delivered to tbe registered owner or assignee of the registered owner in not more than three business days after the receipt of the Bonds to be canceled, and the written instrument of transfer or request for exchange duly executed by the registered owner or his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. New Bonds registered and delivered in an exchange or transfer shall be in any integral multiple of SS,OOO for any one maturity and for a like aggregate principal amount as the Boods 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 excbaQge aoy 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 excbange by the registered owner of the uncalled balance of a Bond. REcoRD DATE POR INTEREst PAYMENT ••• The record date ("Record Date") for the interest payable on the Bonds on any interest payment date means the close of business on the last business day of the preceding month. In the event of a non-payment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (a "Special Record Date") will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest ("Special Payment Date", which shall be 15 days after the Special Record Date) shall be sent at least five business days prior to the Special Record Date by United States mail, first class postage prepaid, to the address of each Holder of a Bond appearing on the registration books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. ll BoNDBOI..D£RS' REMEoo:s .•. The Ordinance establishes as ftevents 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 perfonnance 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, and the continuation thereof for a period of sixty days after notice of such default is given by any Owner to the City with respect to the Bonds. Under State taw 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 prc;sumably obtain a judgment against the City if a default occurred in the payment of principal of or interest on any such Bonds, such judgment could·not be satisfied by execution against any property of the City. Such registered owner's only practical remedy, if a default occurs, is a mandamus or mandatory injunction proceeding to compel the City to levy, assess and collect an annual ad valorem tax sufficient to pay principal of and interest on the Bonds as it becomes due. The enforcement of any such remedy may be difficult and time consuming and a registered owner could be required to enforce such remedy on a periodic basis. In addition, recent Texas lower court decisions have questioned whether statutory language authorizing political subdivisions to ~sue and be sued" is sufficient to waive a municipality's sovereign immunity to suit. While tbese 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 to seelc: recovery of damages from the City, the remedy of mandamus has oot beeo at issue in these cases. These decisions are CIUl'Ctltly under review by the Texas Supreme Court. 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 perfonn in acco1dance with the terms of the Ordinance, or upon any other condition. Furthennore, the City is eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code. Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, the pledge of taxes in support of a general obligation of a bankrupt entity is not specifically recognized as a security interest under Chapter 9. Chapter 9 also includes an automatic stay provision that would prohibit, without Bankruptcy Court approval, the prosecution of any other legal action by creditors or bondholders of an entity which has sought protection under Chapter 9. Therefore, should the City avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court inst.ead of other federal or state court); aod 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 Accrued lnterest Reoffering Premium Total Sources of funds USES OF FUNDS: Deposit to Escrow Fund Deposit to lnterest and Sinking Fund (Includes Rounding) Underwriter's Discount Original Issue Discount Costs oflssuance (including Bond Insurance Premium) Total Uses of Funds 12 $ s s s ( ( ( ( c ( ( ( ) ) ) BOND INSURANCE The City bas made application to municipal bond insutance companies to have the payment of the principal ofand interest on the Bonds insured by a muoicipal bond guaranty policy. ('l'tre R.e.MA.rNDER OF TJns PAGE IN'TENTIONALL Y LeFT BLANK) 13 DISCUSSION OF RECENT FINANCIAL AND MANAGEMENT EVENTS In the 2002 and 2003 fiscal yean (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 experienced a variety of financial and management challenges.. In response to the events and circumstances that have created such cballengcs, the City has taken actions to address and correct matters, and 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"). The following discussion includes an analysis of the events that have occurred, a swnmary 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 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 tbe naJure described below may have on lhe 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 effec1S could be significant The discussion of such factors herein does not purpon to be comprehensive or definitive, and these marten; are subject to change subsequent to the date hereof. 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 potential 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 geneml, and its electric utility in particular. are the following: > Significant changes in govenunelltal. policies and regulatory actions, including those of the Federal Energy Regulatory CoiJllllission, the United States Envitoll.RlCII.tal Protection Agency (the "EPA"), the United States Department of Homeland Security, the United Stales 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 Jaws and policies effecting the City's water, sewer, stormwater and solid waste funds; -changes in and compliance with national and state homeland security taws and policies effecting the City's water, sewer, solid waste and airport funds; • electric transmission cost rate structure; -purchased power and recovezy 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 Wilily 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 sttategies 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 pun:hase arrangements >With respect to the City's financial performance in general: -legal and adminisuative proceedings and settlements; and -significant changes in critical accounting policies. 14 ( c ( ( ( < ( ( ) ) ) ) ) ) FY 2003 Financial Conceros 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 net losses to LP&L after transfers 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"), a subsidiary of a large investor owned energy company, Xcel Energy, Inc. Xcel Energy. Jnc., and its subsidiaries with which the City has contracted for energy and other services -principally SPS -and with which it competes, are hereinafter refetred to-collectively as "Xcel." 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 smatl 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 fact 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 effect on January I, 2002. Prior to FY 2004, the City operated LP&L in a marmer 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 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 the Cost Recovery Payments, prior to FY 2003 LP&L was requited to annually transfer to the General Fund amounts to support economic development incentives in the City, a payment designated for infrastructure use, a "gas f3X" 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 tJansfers was $8 million, and during that period, LP&L tnlnsfers to the General Fund for payments in lieu of taxes 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 trinuned $4.8 million from LP&L transfers included in prior year budgets. In February 2003. during a period of extraordinarily high oatwal gas prices, City finance staff projected that. in the absence of cotreetive measures, the electric enterprise fuod would bave an operating loss of $24 miUion 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 Che 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 Fund (hereinafter referred to as the "2003 Budget Adjustments"), which represented approximately I 0.5% 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 detennined to write off$2 million owed to the General Fund from the golf course enterprise fund. 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 1, 2003 and, effective June I, 2003, the City increased the FCA for its two largest customers, which include TeJtas Tech University ("Texas Tech"), and which account for approximately 10% of the energy sales of LP&L. At the time of the May 1, 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. 15 Past Eventw Relating to LP&L and West Texas Municipal Power Agency The City is a member of WTMPA. a municipal power agency that was fanned 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 pmpose of WTMPA was to engage in the generation, tnns.mission. 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 Conoems at LP&L," the scope of WTMP A's activities has changed as a result of a series of related agreements reached among WTMPA and the Member Cities in December 2003 (the "WTMP A Settlements"). WTMP A is a separate political subdivision under the laws of the State. In June 1998, WTMPA issued $28,910,000 of its Revenue Bonds, Series 1998 (the "WTMPA Bonds"), to finanoe the construction and acquisition of a 62 MW electric co-generation project (the "WTMP A Project"). The WIMP A Project consists of a 40 MW combustion turbine generator (the "Massengale Unit 8 turbine") and the re-poweriog of an existing 22 MW generation unit, each located at the City's J.R. Massengale Plant Numerous issues, both operational and managerial, arose from the WTMPA Project. As a result, 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&UWTMPA Management Audit") are available on the City's website at: www.ci.lubbock.tx.us under the heading "West Texas Municipal Power Agency Audit" No malfeasanoe was uncovered with respect to the administration ofLP&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 tbat WTMPA was indistinguishable from LP&L. [n 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 ofE&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 financial infonnation was discovered. The E& Y report found that the misaUocations, adding an interest factor for such allocations, and an unbilled 5% management allocation that LP&L was entitled to under the power agnlelllents, would result in a total amount owing to the City of $5,590,746, of which the City owed itself. as a Member City of WTMPA, approximately 90% of the total amount. £n 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 was used by the City to acquire the WTMP A Project. WTMP A used the proceeds received from the City to defease all of the outstanding WTMPA Bonds. The City now owns and operates the WTMPA Project, as partofLP&L. F"maucial 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 1llliDllgeii1ent ~nne! resigned. Among the officials and management of the City who resigned was a member of the City Council with almost 11 years of servioe, the City Manager, who had served 27 years with the City (the last ten of which as City Manager), the Deputy City Manager, who bad almost 8 years of service to the City, the Assistant City Manager for Public Works, who had over five years of service to the City, and the Chief Executive Officer ofLP&L, who bad served in that capacity since 1998. Also, in late summer of 2002, the City's Cbief 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 to Reoent Financial and Management Eventsw below. September 30, 2003 Fiaancial Resalts The General Fund •.• As hereafter described in "Discussion of Recent Financial and Management Events • FY 2003 Audit Restatemenls, Reclassifications and Internal Controls Issues", 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 sllltcments. With respect to the GeDeral Fund, the beginning fund balance/net assets was restated from $18.6 million to $16.6 millioo.. 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 balan<:e/net assets in FY 2003, the most significant drawdown of the General Fund reserves in over ten years. The decrease in fund balanoe 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 $4.8 million from the electric fund to the General Fund. The aggregate result of restatement of the beginning fund balanoe and the FY 2003 use or fund balanoe was a General Fund ending balance of$9.4 mitlioo.. 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 Balanoe Policy") to maintain an unreserved Gmeral Fund balance equal to two months operatiDg expenditures. At September 30, 2002 the General Fund balanoe exceeded the General Fund Balance Policy by $4.5 million. At September 30, 2003, the Genetal Fund Balance Policy required a fund balance of $14.2 million. As a result of the FY 2003 16 c ( c ,. ... ( ( ( ) ) ) } 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 infonnation hereafter presented under the headings "Discussion of Recent Financial and Management Events -General Fund and General Government Actions -General Fund Budgetary Actions" and "FY 2006 Budget," for a discussion of lhe results for lhe General Fund and a summary of the City's planning for FY 2006. The Electric Fund ... With respect to LP&L, lhe 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 $24 million in February 2003. LP&L ended FY 2003 with a $6.3 million operating loss. Before taking into account transfe.s from other funds, the electric fund reported a $9 million loss, the first such loss in over ten years. As a consequence of the openating loss. LP&L failed to meet its revenue bond rate covenant under which the City has agreed to set rates for the electric system sufficient to produce net revenues equal to 10001. of its senior lien bonded indebtedness. In FY 2003, LP&:L produced SO. 704 million that was available for the payment of debt service, wbich represents a 0.3 times coverage of average annual debt service and a 0.2 times coverage of 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. Under the tenns 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, lhe 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 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. 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 fY 2003, to $88.5 million, as a result of a restatement of the beginning fund balance. Tbe 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 WTMP A. As described below under "Discussion of Reoent Financial and Management Events -City's Responses to Reoent Financial and Management Events -Recent Measures taken to Address Financial and Management Concerns a1 LP&L ", the WTMPA Settlements have resolved the disputed receivable. Other Major Entemrise Funds; Water, Sewer. Solid Waste and Stonuwate.-... [n 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 S6.5 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 the write off of an interfund loan made to the community investment fund in C011Dection 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, openaling 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 eltpCIJSe for the City's landfills. FY 2003 Audit Restatements, Reclassifications and lnterul Centrols Issues As was the case with other municipalities in the State and U.S., the implementation of GASB 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 a.ttacbed as Appendix B. The FY 2002 financial statements, and the City's financial statements dating to FY 1993, were audited by Robinson Burdette Martin Seright & Burrows, L.L.P. (the "Fonner External Auditor"). In keeping with the overall reassessment of its financial and t'OIID88tment 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 of2003, the City conducted a request for qualifications for its external auditor and selected KPMG L.L.P. ("KPMG") to audit its FY 2003 financial swements. Consequently, the Fonner External Auditor guided the City through the initial year implementation of GASB 34, while in the second year of GASB 34 fmancial reporting, the City's financial statements were audited by KPMG. Audit Restatements ... During the preparation of the FY 2003 CAFR. some seven restatements to begiMing 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 S2.S6 million, as some affected funds had their beginning balances restated to a higher figure, wbile olher funds were restated to decrease their beginning fund balance. 17 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 ofSI8.6 million to Sl6.6 million to reflect a write off for an account receivable, which as of September 30, 2002 bad 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 $4.48 million to reflect 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 fuod 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 accouuting 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 Market Lubbock, Inc., a component unit of the City that administers the grant agreement, retains certain recourse actions in the event that the grant recipient fails to satisfy 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 $10 million grant had originally been funded tluougb 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 legally separate municipal corporation. In prior fiscal years, the fonner entity had been accounted for by the City as a discretely presented component unit of the City, while the City's relationship with WTMPA had been described in the foomotes to City financial statements as a contingent liability of the City, because the City bad 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 au 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 WTMP A fund. Audit Reclassifications ... In addition to the restatements sununarized 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 affect the "boltQm line" statement of net assets for a particular fund. and did not reflect the discovery of missing funds or uncollectible amouuts !Tom tbe prior fiscal period. Instead, the reclassifications pertain to the portion of a fund's net assets that 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 infonoation 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 information 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 fioancial statements, particularly with respect to the enterprise funds (or business-type activities), bad been mathematically incorrectly calculated in the FY 2002 CAFR. While the govenunent-wide statement of net assets of the City included in the FY 2002 CAFR showed $37.9 million unrestricted net assets for business-type activities of the City, the fund financial statements showed an aggregate amount of unrestricted net assets of the enterprise funds that totaled $195.2 miUion of unrestricted net assets. The FY 2003 CAFR reports in the government-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 agg11:gate 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 differences should appear between the two presentations). Internal Controls Issues .. .In accordance with accounting guideUnes, the external auditor customarily provides the governmental entity with a "management letter" that includes a discussion of any material weaknesses in the audited govemmeuts 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 Officer and a vacant lntemal Auditor, and that a bigb. turnover of staff within the City Manager's office dating to late 2002 bad a significant effect on the City's internal control structure. See "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 net assets/fund balaoces and the reclassifications described above, as well as numerous adjustments that were required to be posted after the initial closing of the City's boob for FY 2003. The failure to timely obtain financial statements from component uuits, including WTMPA, was also noted KPMG recommended that the City review the personnel within the City's aocounting department and the accounting staff within LP&L to determine whether .sufficient qualified personnel were in place to provide accmate 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 casb 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 18 c ( c ( ( ( ( ) ) ) example, WfMPA), and the failure of the City to abide by its General Fund Balan~ Policy (as described above under "Discussion of Recent Financial and Management Events-September 30, 2003 Financial Results-The General Fund"). Ctty•s Respooses to Recent Financial and Management Events 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 GAAeral Government Actions > Qeneral Fund Budgetary Actions ... The City has restored its General Fund balance within a 2-year period to roughly 200/o of operating revenues. for FY 2005, the General Fund balance ended with a surplus of$17,376,420. While no assurances can be given as to future financial results, based on historic expenditure trends, an increase in the General Fund balance of an additional $2.5 million is currently expected for FY 2006 year end. City management also has implemented monthly assessments of the budget. 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 Reform 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 to assist lhe City in fulfilling its fiduciazy responsibility to its citizens. The committee has the power to conduct or authorize investigations into the city's financial performances, internal fiscal controls, exposure and risk assessment The committee is appointed by the City Council and infonnally reports to City Manager. The establishment of the Audit Committee is designed to serve as an additional check on the preparation of the City's fmancial 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 backgrowtd in financial reporting. acCounting or auditing, and at least one member is required to be a certified public accountant The current 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 Tecb 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; Kim Turner, dte Din:ctor of Internal Audit at Texas Tech; and John Zwiacher, a member of the Board of Directors of LP&L. Mr. Epps is lhe chair of the Audit Committee. City Management Changes ... As reflected in "City Officials, Staff and Consultants -Selected Administrative Staft", the City bas in p~ an experienced management team representing extensive government service experience. This management team has implemented procedures that have addressed the general internal control weakness cited by KPMG in lhe 2003 Management Letter. Recent Measures taken to Address Financial and Management Concerns at lP&L > 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 Agency .. in May 2003, the City Council approved an increase in the FCA portion of the residential and small commercial customers 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 !hose rate classifications than Xcel. The increase was approved in order to pass through fuel costs that had been incwred by LP&L but not recovered through its rate base. LP&L adjusts its FCA each month, and rnay do so under the existing methodology without funher 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 adjus1ment permits LP&L to remain competitive with Xcel. If the adjustments will 'not permit LP&L to remain competitive and are not passed through, they become an unrecovered fuel expense. After losing almost 4,000 metered customers following the May l, 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. Furthermore, while maintaining its competitive position, LP&L has wtdertaken two r~eot FCA increases to offset increasing fuel costs, including an FCA increase in November 2005 of approximately 14.78% and an FCA increase in February 2006 of approximately I 1.76%. Fuel cost will be continuaUy evaluated and adjustments may be made as warranted. >Establishment of New El~ttic Utilities Board ... 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 19 (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 transfer of revenues from LP&L to any other fund of the. City, including, particularly, the General Fund, until such reserves bave 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 to 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 least 51% of the LP&L bondholders, and in August 2004 the City received tho requisite consents. The City amended the boad ordinances to provide for the governance of LP&L by the Electric Board in January 2005. On November 2, 2004, the voters of the City approved a referendum amending the City Charter to reqwre 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 City Council adopted the New LP&L Governance Ordinance on December 16, 2004. Each of the New LP&L Govemanoe 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 furthec described below, the New LP&L Governance Ordinance includes additional provisions that pertain to the establishment of financial resetVes and restrictions on transfer of funds from LP&L. In addition, the charter amendment stipulates that the Electric Board shall determine 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 fmancial experience as the primary qualification for serving on the Electric Board. Electric Board members serve without compensation. Under the New LP&L Governance Orotoance, the Board is given the authority, duty 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 (J) 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 see~ approval of, the Electric Board prior to appointing and/or removing the director of LP&L. In accordance with the New LP&L Governance Ordinance, the director of LP&L reports to the Boani. 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. > Establisbment of Reserve Funds for LP&L; R.estrictiog on Transfers from LP&L ... As noted above, the LP&L Governance Ordinance includes a provision tba1 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 determined by LP&L's previous fiscal year, (2) a rate stabilization reserve to be funded to an amount equal to two months' gross retail electric revenue as determined by LP&L's previous fiscaJ year; and (3) an electric utility development resetVe 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&{., Governance Ordinance, the City may not require that LP&L transfer any fee equivalent to a franchise fee, 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 bave been fully funded. As noted above, the charter amendment provides that the Electric Board shall determine the transfer and disbursement of all net ~ues. Consequently, subject to (i) provisions of State laws that govern municipal utilities, and which stipulate that a fust 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 Boud bas not deviated from the flow of funds contemplated under the LP&L Governance Ordinance. At the end of FY 2005, LP&L partially funded its electric utility development reserve fund by the amount of $2 million. However, LP&L has not funded all of the reserves established under the LP&L Governance Ordinance, as net revenues have been inadequate for a total funding of such accounts. Moreover, the mere establishment of the funds does not imply that such reserves will be funded within any puricular time frame. Nevertheless, 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 fuod of the City. >New Contractual Anangements Affecting LP&L Operations and &venues ... As a result of 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 to the use of its gas generation units, 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- 20 ( ( ( ( c ( ( ( ) ) ) 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 connibuted 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 ex.penses., in the Summer of 2004 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, aDd 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 Teus Tech, the largest LP&L customer. >The WTMPA Seetlement Agreement ... In December 2003, the City, WTMPA and the other Member Cities ofWTMPA 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 WTMP A, the right to wrMP A power resources and the costs associated with such power resources, wbicb consist of the WTMP A 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 outstanding, disputed claims for costs incurred by the City on behalf of WTMP A In addition, the WTMP A 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, aod the City agreed to schedule such power for the other Member Cities. The WTMP A Settlements repealed certain power sales agreements and operating agreements entered into by the parries 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 tules and regulations, each Member City appoints two members to the WTMP A Board, each of which has an equal vote (certain actions of the WTMP A Board require a six vote "super majority"), but, in addition to the affirmative votes of the board members, the tules and regulations provide, in effect, a veto right over WTMPA Board actions based upon the amount of net energy conswned by each Member City. As LP&L lakes substantially all of the energy from WTMP A resources, it has a veto over certain of the actions of the WTMP A Board, including adoption of a budget, certain energy sates and the amendment of the agency's bylaws. The City believes the comprehensive settlement agreement modifies the principal WTMPA agreements in a manner that better reflects the historical manner in wbicb the Member Cities have engaged in energy activities. In addition, while LP&L will continue to schedule power deliveries for all Member Cities, the conn.ct administration of WTMPA agreements has been simplified by the acquisition by the City of the WTMP A Project and the defeasance of the WTMP A Bonds. As noted under "Discussion of Recent Financial and Management Events -FY 2003 Audit Restatements, Reclassifications and Internal Controls Issues .. , for FY 2003 and subsequent years, WTMPA has been classified as an entaprise 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 became effective July I, 2004, and replaced a series of existing agreements between WTMP A and SPS and the City and SPS, which bad expiration dates in 2004 and 2005. Under the New Power Agreement, SPS or its permitted assigns is obligated to provide all energy requi.Jem.entS for each of the Member Cities of WTMP A, 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 agyeement for each of the other WTMPA Member Cities. The New Power Agreement includes a fixed demand cbarge 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 tbe term of the agreement based upon a predetermined schedule set forth in the New Power Agreement. SPS may terminate the agreement upon the OCCWiellCe of an adverse regulatory action under which SPS is required to sell generation assets, and WTMP A 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-fired genen~tion. Each party may require adequate assurances of perfonnance whenever there is a reasonable basis therefor. 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 conlract reflects a decision of the City to abandon the role of power generator, alJhough, as described below, in ooMection with the consummation of the New Power Agreement the City has entered into two unit contingency agreements (the "Unit Co.ntingency Agreements H) with SPS that will require LP&L to maintain its gene~ation 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 rel3il customers in the City mote 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 match its FCA to changes in SPS's fuel adjustment, as it 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 determination to approve the New Power Agreement by WI'MPA. In the event that gas prices should decline over the term 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. 21 With respect to the competitive posture of the City in light of the long-term commibnent of the New Power Agreement, the City notes that under current nwket conditions, and taking into account the secondary benefits of the agreement, induding future savings associated with reduced petSOnnel and mainteoan<:e costs as a result of the shift from being an active electric generator to being a passive generator (for SPS under the terms 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 WTMP A gas agreement described below, permits the City to compete favorably with SPS. An additional benefit of the New Power Agreement is that it will permit 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 10 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 10 build their own distribution infrastrucrure 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 pennit the City to obtain the favorable margins that ace cunently being achieved by the City. While the City does not believe that the area served by LP&L will be opened in the short-term 10 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 tyfug 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 oounterparty to vital agreements relating to the operation and financial condition of LP&L. Cowrterparty risk is risk associated with the countetparty'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 10 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 tian.Sportation 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 fixed price component for gas transportation irrespective of whether the City purchases gas. That contract. between the City and ConocoPhillips. eltpires in Febnwy 2008. In coonection with the Unit Contingency Agreements, the City bas in place standby gas purchase agreements that can be used to supply LP&L with gas to the extent that SPS calls upon tbe units, and the City will receive an olfset 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 wiU be subject to the same risks described below with respect to the oew gas contra.ct, the City does not anticipate that it will incur substantial costs in connection with prior contracrual 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 coonection 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 aod run times, has the right to call upon one or more of Che generation units owned or controlled by LP&:L, from time to time to meet energy requirements of SPS. locluding the WTMPA Project, all of the capacity of which, in accordance with the WTMPA Settlements., is dedicated 10 LP&L, the City has dedicated generation capacity of 219 megawatts ( .. MW") to SPS under the Unit Contingency Agreements. The most fuel efficient units within that capacity are the 39 MW capacity of Massengale Unit 8 and the 21 MW capacity of the Braodon Unit 1 ("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 during the term ending June 30, 2007; the term of the Unit Contingency Agreement for the Older Units is fifteen 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 term 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 10 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. Wbile 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, WTMP A and other parties entered into a series of agreements (collecrively, the "New WTMPA Gas Agreements") under which WTMPA may acquire natural gas and effec:tively 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 Corpora.tion ("1MGC") at below-market prices and se!l the gas to SPS in return for a madet-priced credit (reduced by nominal administrative and incentive fees) against payments due from WTMP A under the New Power Agreement. The net savings, if any, will be applied proportionately 10 reduce the power charges of WTMPA's 22 c ( ( ( ( ( ( { ) ) Member Cities, including the City. TMGC is a Teu.s public f.itcility corpontion 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 tenns of the New WTMP A Gas Agreements, SPS is not obligated to purchase gas from WTMP A unless natural 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 trom 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 marlcet· 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 secwed contracts with five suppliers (Conoco Phillps, Coral Energy, NGTS, Concorde Energy, and Tenaska). Thete can be no assurance that sufficient qualified suppliers will conara.ct to sell gas, or that they will offer to do so on sufficiently advantageous terms, to supply all or any portion of wrMPA's gas requirem.ents Wlder the New WTMP A Gas Agreements. In addition, the discount now offered by TMGC may be reduced as ~sary to enable it to comply wilh financial covenants, although the discount has remained essentially constant for three years. For these and other reasons, lhere can be no assurance that WTMPA will be able to realize savings in any amount or for any term for the benefit of its members under the New WfMPA 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 permiued quantities, and that the TMGC discount will continue to hold. Accordingly, the City has included $3.8 million in gas rebate income in the electric system's FY 2006 operating budget. That amount assumes that the maximum quantities of gas will be acquired and credited by SPS under the New WTMP A Gas AgreementS in FY 2006; 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 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 cogeneration 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 ofTexas Tech. In response to mediation to resolve disputes uruler a prior agreement, lhe City and Texas Tech executed a new contract on April 28, 2005 (the ''New Texas Tech Agreement"). In general tenns, 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 l2teS provided in the New Teu.s Tech Agreement The City has agreed that steam produced at Brandon Station, if any, wiU 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 Tecb 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 are mutually beneficial for the parties. New Chief Executive Officer for LP&:L ... Gary Zheog was appointed Chief Executive Officer of LP&.L in September 2005. Previously, he had served as the Superintendent of Electric Distributions at LP&L and subsequently, fu>m March 2003 until his recent appointment to CEO, as the Chief Operating Officer of LP&L. He bas more than 19 years of engineering and management experience in electrical utility business. Mr. Zheng, a registered Professional Engineer, is a graduate of the University of Southern California withaMS in Electrical Engineering, a MS in Computer Engineering and a PhD in Electrical Engineering. FY 2006 Badget General Fund ... The City Council adopted the FY 2005-()6 budget and five year forecast on September 8, 2005. The City's FY 2005-06 budget for the General Fund is balanced with $105.8 million in total reveoues and expenses. The budget projects that sa.les tax revenues will produce 54.0"/o of total tax revenues (tax revenues represent 69.9% of the General Fund's total operating revenues), while ad valorem tax reveoue is budgeted to produce 44.7% of total tax revenues. As shown in Table 14 HMunicipal Sales Tax History," the City's sales tax receipts bave increased each year over the past six years. In FY 2006 the City's total tax mte was set at $0.4472 per $100 taxable assessed valuation. down trom $0.4597 in FY 2005. The City's tax roll increased $701.0 million, or 8.1%, from FY 2005 to FY 2006. The City Council, on June 12, 2003, passed a resolution afftrming their support for truth-in-taxation. The goal of this resolution is to allow the citizens to be better infonned about the real needs of City government and if the increased revenue from increased appraisal values is truly necessary. The resolution goes on to provide that each year the tax rate should be adopted based oo the actual needs of government. This goal was affirmed in April 2004 in a resolution that stated the City Council has supported as well as taken action to provide tax relief to property owners within the City, and that the City Council recognized the need for the City to be autonomous in its ability to provide the public safety, health, and quality of life for its citizens. The FY 2005--06 Operating Budget was developed in consideration of the goals of the resolutions and as a result, there was a $0.0125 reduction in the adopted tax rate. 23 Total transfers to the General Fund from enterprise and internal service funds ~ budgeted to decrease by $4.2 million, while transfers out decrease by $3.0 million. On the expenditure side, administrative services, community services, cultural and recreation services and public works budgets are comparable with the amended FY 2005 budgel Expeoditures for public safety are S7 .I million greater than the amended FY 2004-05 budget, or an 11.2% increase. This increase is due to the City Council goal of increasing public safety officers in Fire and Police. Oven.ll, General Fund operating expenditures are budgeted to increase by $6.3 million over the amended FY 2005 budget. Entemrise Funds . . . The following table illustrates the revenues, use or contribution of net appropriable assets, and appropriation as approved in the City's FY 2005-06 adopted operating budget and five year forecast for the Solid Waste, Wastewater, Water and Electric Funds: Adopted FY200~ Adopted Planned Use Adopted Change FY200S.o6 (Coatributioa) FY 2005-06 from Revenues Net Assets Apprepriatlon Prior Year Solid Waste s 13.9 0.8 14.7 -33.6% Wastewater 21.2 0.8 22.0 -13.9% Water 37.9 2.2 40.1 3.8% LP&L 196.3 (2.5) 193.8 7.3% The decreased budget in Solid Waste is a result of red110ed transfers to the Sewer Fund. In 2004-05, a transfer of $5.0 million to the Wastewater open.ting fund occurred in order to fund the Wastewater rate stabilization fund. Additionally, a reduction in tipping fee expense of $3.5 million for the City garbage collections deplll1ment was budgeted. Historically, the landfiU was clwgiDg landfill-tipping fees to the City garbage collections department. Si.noe the landfill and garbage collection departments boch reside in the Solid Waste fund, the revenues and expenditures were inflated by the amount of those cbarges. Tbese revenues and expenditures have been eliminated to reflect the true revenues and expenditures in the fund. The change had a zero net effect on the utility's fund balance. The decreased budget in Wastewater is a result of reduced transfers to the Wastewater Rate Stabilization Fund. In 2()04...05, a transfer of $5.0 million from the operating fund to the Wastewater rate stabilization fund occurred. This transfer was not budgeted for FY 2005-06 as the rate stabilization fund was at adequate levels. [Ttm REMAINDER OF THIS PAGE INTENnONALLY LEFT BLANK) 24 ( ( ( ( , ( AD VALOREM TAX INFORMATION AD VALOREM TAX LAw •.. The appraisal of property within the City is !be responsibility of the Lubbock County Central Appraisal District (the ft Appraisal District"). Excluding agricultural and open-space land, which may be taxed on the basis of productive capacity,lhe Apptaisal District is required under the Property Tax Code (defined below) to appraise all property within the Appraisal District on the basis of I 00"/o of its market value and is prohibited from applying any assessment ratios. In detennining ma.rl<et value of property, different methods of appraisal may be used, including the cost mdhod of appraisal, the income metbod of appraisal and market data comparison method of appnUsal. and the method considered most appropriate by the chief appraiser is to be used State law further limits lhe appraised v.alue of a residence homestead for a tax year to au amount not to exceed the lesser of (I) the marlcet value of lbe propcrty, or (2) the sum of (a) 10% of the appraised value of lbe property for the last year in which the property was appraised for taxation times the number of yea.s since the property was last appraised. plw; (b) the appraised value of the property for the last year in wbich the property was appraised plus (c) lbe maricet value of aU new ~ to the property. The value placed upon property within the Appraisal District is subject to review by an Appnlisal Review Board, consisting of three members appointed by the Board of Directors of the Appnlisal District The Appraisal District is required to review the value of property within the Appraisal District at least every three years. The City may require annual review at its own expense, and is entitled to challenge the determination of appraised value of property within the City by petition filed with the Appraisal Review Boord. Reference is made to Title I of the Texas 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 raxa.tion purposes; and the procedun:s and limitations applicab~ to the levy and collection of ad valorem taxes. Article VITI of the State Constitution ("Article VDt; 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 prope!ty from ad valorem taxation. Under Section 1-b, Article VIII, and State law, the governing body of a politia.l. subdivision, at its option, may grant (I) an exemption of not less than $3,000 of the nwket value of the residence homestead of persons 65 years of age or older and the disabled from all ad valorem taxes thereafter levied by the political subdivision; or (2) an exemption of up to 20% of the market value of residence homesteads. The rnininrum exemption under this provision is $5,000. In the case of residence homestead exe01ptions granted under Section 1-b, Article VOl, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes bave 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 vm, 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; tbe exemption applies to either real or petSOnal property with the amounl of assessed valuation exempted ranging from $5,000 to a maximum of $12,000. Effective January l, 2004, under Article vrn and State law, the governing body of a county, municipality or junior college district, may provide that the tot.11 amount of ad valorem taxes levied on the residence homestead of a disabled person or persons 6S yean of age or older will not be increased above the amount of taxes imposed in the year such residence qualified for such limitation. 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 beld to detennine by majority vote whether to establish such a limitation on taxes paid on residence homestead,s of persoM 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 SS years of age. If improvements (other than maintenance or repairs) are made to the property, the value of the improvements is taxed at the then current 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 limiaation on ad valorem taxes. Article VIII provides that eli,gible owners of both agricultural land (Section 1-d) and open-space land (Section I -d-I), including open-space land devoted to farm or lllllCh purposes or open-space land devoted to timber production, may elect to have such property appraised for property taxation on the basis of its productive capacity. The same land may not be qualified under both Section 1-d and 1-d-1. Nonbusiness personal property, such as automobiles or light trucks, are exempt &om ad valomn taxation unless the governing body of a political subdivision elects to tax this property. Boats owned as nonbw;iness property are exempt &om ad valorem taxation. Article VIII, Section 1-j, provides for "freeport property" to be exempted from ad valorem taxation. Freeport property is defined as goods detained in Texas for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. Decisions to continue to tax may be reversed in the future; decisions to exempt freeport property are not subject to reversal. The City may create one or more tax increment financing zones, under which the tax values on property in the zone are "frolen" at the value of tbe property at the time of creation of the zone. Other overlapping taxing units may agree to contribute all or part of future ad valorem taxes levied and collected against the value of property in the zone in eltcess of the "frozen value" to pay or 25 f"mance the costs of certain public improvements in the zone. Taxes levied by the City against the values of real property in the zone in excess of the "frozen value" are not available for general city use but are restricted to paying or financing "project costs" within the zone. See "Tax Increment Financing Zones" below. The City also may enter into tax abatement agreements to encow-age economic development Under the agreements, a property owner agrees to consttuct 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 ~t The abatement agreement could last for a period of up to 10 years. See "Tax Abatement Policies" below. EFFK1lVE TAX RATE AND ROLLBACK TAX RATE ... By each September 1 or as soon thereafter as practicable, the City Council adopts a tax rate per $100 taxable value for the cummt year. The City Council is required to adopt the annual tax rate for the City before the later of September 30 or the 60111 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 t3x rate" calculated for that tax year or the tax rate adopted by the City for the preceding tax year. The tax rate consists of two components: ( 1) a rate for funding of maintenance and operation expenditures and (2) a rate for debt service. Under the Property Tax Code, the City must annually calculate and publicize its "effective tax rate" and "rollback tax rate". A tax rate ca.Mot be adopted by the City Council that exceeds the lower of the rollback tax rate or the effective tax rate until 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 City owns, operates or controls an internet website and public notice be given by television if the City has free access to a television channel) and the City Council has otherwise complied with the legal requirements for the adoption of such tax rate. If the adopted tax rate exceeds the rollback tax rate the qualified voters of the City by petition may require that an election be held to determine whether or not to reduce the tax rate adopted for the current year to the rollback tax rate. "Effective tax rate" means the rate that will produce last year's total tax levy (adjusted) from this year's total taxable values (adjusted). "Adjusted" means lost values are not included in the calculation oflast 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 requited to be offset by the revenue that will be generated by the sales t3x in the current year. Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad valorem taxes and the calculation of the various defined tax rates. · PROPERTY ASsESSMENT AND TAX PAYMENT ••• Property within the City is generally assesst!d as of January 1 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. Taxes become due October I of the same year. and become delinquent on February I of the following year. Taxpayers 6S years old or older are permitted 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 INTEREST ••• Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: Cwnulative Cumulative Month Penalty Interest Total February 6% 1% 7% March 7 2 9 April 8 3 11 May 9 4 13 June 10 5 15 July 12 6 18 26 ( ( c c c ( ( ( c ) .... , ) After July, dte penalty remains at 12%, and interest increases aJ the rate of 1% cacb 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 cba.rl:e. Under certain circumstances, taxes which become delinquent on dte homestead of a taxpayer 65 years old or older incur a penalty of 8% per annum with no additional peoalties or interest assessed. In genetal, property subject to the City's lien may be sold, in whole or in pan:els, pursuant to court order to collect the amounts due. Federal law docs not allow for the collection of penalty and interest against an estate in bankruptcy. Federal banlauptcy 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 adm.inisttative expense of the estate in bankruptcy or by order of the bankruptcy court. CrtY AJ'PUCATIONOFTAXCODE ... The City grants an exemption to the market value of the residence homestead of persons 65 years of age or older of S 16,600; the disabled are also granted an exemption of S I 0,000. The City has not granted any part of the additional exemption of up to 20% 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. ~ee Table l for a listing of the amounts of the exemptions described above. Ad valorem taxes are not levied by the City against the exempt value of residence homesteads for the payment of debt. The City does not tax nonbusiness personal property; and the Appraisal District collects taxes for the City . The City does not permit split payments of taxes, and discounts for early payment of taxes are not allowed by the City, although permitted on a local-option basis by the Property Tax Code. In the past, the City has taxed freeport property, although beginning with the 1999 tax year the City has exempted freeport property from taxation. 1be City collects an addition.al on~ighth cent sales tax for reduction of ad valorem taxes. 1be City held an election on November 4, 2003 to increase this tax by one quarter cent, for a total of three eigbths of a cent. The rate increase became effective on October I, 2004. The City has adopled tax abatement policies, as described below. TAX ABATEMENT PouCIES ... The City bas established a tax abatement program to encourage economic development. In order to be considered for tax abatement, a project must be located in a reinvestment zone or enterprise zone (a commercial project must be in an enterprise zone) and must meet several criteria pertaining to job creation and property value enbancement. The City bas established three enterprise zones, the north zone, of approximately 18.6 square miles, the south zone, of approximately 15.7 square miles, and the international airport zone, of approximately 10.3 square miles. At present, there are 20 active enterprise projects and tax abatements, principally in the northeast and southeast sections of the City. In accordance with State law, the City bas 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 limiled to five year tax abatements. Although older abatements made by the City were given full (100%) tax abatement, since 1997 the City bas negotiated abatements on a declining percentage basis, with a portion of the tax value being added to the City's tax roll each year during the life of the abatement. The City's policies provide a variety of criteria thai affect 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 tbe agreement, except for discontinuances caused by natural disaster or other fitctors beyond the reasonable control of tbe applicant. For a description of the amount of property in the City that has been abated for City taxation pwposes, see "Table I - Valuations, Exemptions. and General Obligation Debt" TAX [!'(CR£MENT FINANCING ZoNES ... Chapter 311, Texas Tax Code, provides 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 taxes collected against the "Incremental Value" in the 1lF 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 1lF and are not available for the payment of other tax supported debt of the City and other participating taxing units. Together with other taxing units., the City participates in two TIFs, the Central Business District Reinvestment Zone (the "Downtown TIF") and the North Overton Tax Increment Financing Reinvestment Zone (the "North Overton TIF"). 27 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 oflhe TIF are frozen at the level of taxable values for 2001, the year of creation, at $101,376,054. In FY 2005, the Downtown TIF had a taxable value ofS117,046,263 before taking into account tax abatements and exemptions. After tax abatements and exemptions, the tax value in the Downtown l1F is $114,14 7 ,891. In addition to the City, the County, Lubbock County Hospital District and the High Plains Underground Water Conservation District (collectively, the "Taxing Units") participate in the Downtown TfF. 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 Downcown l1F was created pursuant to City ordinance and official action of the other participating taxing entities and is co expire in 2021. In addition co 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 Downcown 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 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. rn FY 2005, the North Overton TfF had a taxable value of$144,869,221 before taking into account tax abatements and exemptions. After tax abatements and exemptions, the tax value in die North Overton TIF is $144,045,505. [THE REMA.INDER.OFTH!S PAGE INTENTIONALLY LEFT BLANK] 28 ( ' c c ( ( ( ( ( ( ( ' / j) ) TABU I -VALUATION, EXEMPTIONS AND GENERAL 08LIGATION DEBT 2005 Market Valuation Establ is lied by Lubbcx:k Central Appraisal District Less Exemptions/Reductions at 100% Market Value: Residential Homestead Exemptions Homestead Cap Adjustment Disabled Veterans Agricultural/Open-Space Land Use Reductions Pollution E~temptions Solar and Wtnd-powered Exemptions Freeport Exemptions Tax Abatente11t Reductions'" Tax Freeze Adjustment 2005 Taxable Assessed Valuation City Fuoded Debt Payable from Ad Valorem Tues General Obligation Debt (as of 4·1..()6) (ll The Bonds(11 Gener:al Obligation Bonds, Series 2006(31 Tax and Waterworks System Surplus Revenue Certificates of Obligation. Series 2006m Total Funded Debt Payable from Ad Valorem Taxes Less: Self Supporting Debt (as of 4-I-G6) <•I Waterworks System General Obligation Debt Sewer System General Obligation Debt Solid Waste Disposal System General Obligation Debt Drainage Utility System General Obligation Debt Tax Increment Financing General Obliga~ion Debt Electric Light and Power System General Obligation Debt Cemetery General Obligation Debt Ga!ewBy General Obligation Debt Airport General Obligation Debt General Purpose Funded Debt Payable li'om Ad Valorem Taxes General Obligation Interest mel Sinking Fwad as of2-28-06 Ratio Total Fllllded Debt to Taxable~ Valuation Ratio General Purpose Funded Debito Taxable Assessed Valuation 2006 Estimated Population -211 ,187 (SJ Per Capita Taxable Assessed Valuation -$44,346 s 218,845,610 68,094,952 14,325,479 66,049,991 1,744,920 152,622 58,2!5,911 71,434,955 27,802,642 s 18,295,000 2,740,000 76,315,000 s ll7,521,524 57,633.526 11,747,885 79,409,173 18,769,896 51,931,908 491,408 17,115,740 6,632ro:!77 Per Capita Total Funded Debt Payable from Ad Valorem Taxes -$2,124 Per Capita General Pu.rpose Funded Debt Payable from Ad Valorem Taxes-$413 (I) See above, "Tax lnformation -Tax Abatement Policies". s 9,891,907,007 S2M67,082 s 9,365,239,925 $ 351,160.000 s 448,510,000 361,253,637 $ 87,256,363 s 1,575.272 4.79% 0.93% (2) The statemeot of indebtedness does not include outstanding $24,840,000 Electric Light and Power System Revenue Bonds., as these Bonds are payable solely from the Net Revenues of the Cicy's Electric Light and Power System. Excludes the Refunded Obligations. (3) Preliminary, subject to change. (4) 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 Wasle System. Tax Increment Finance Reinvestment Zone, Gateway Fund, Electric Light and Power System and Drainage System from surplus revenues of these Systems (see "Table 8A-Pro-Fonna General Obligation Debt Service Requirements", "Table 88-Division ofDebt Service Requirements", "Table 9-Interest and Sinking Fund Budget Projection" and "Table 10 -Computation of Self-Supporting Debt"). "Waterworks System General Obligation Debt" includes S 117,521,524 principal amount of outstanding general obligation bonds and certificateS of obligation that were issued to finance or refinance Waterworlcs System improvements, and that are being paid, or are expected to be paid, from Waterworks System revenues. The City has no outstanding Waterworks System Revenue Bonds but has obligated revenues of the Waterworks System under water supply contracts. 29 "Sewer System General Obligation Debt" includes $57,633.526 principal amount of general obligation bonds and certificates 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 $11,747,885 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 $79,409,173 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 $18,769,896 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 outstanding Tax Increment Financing Revenue Bonds. However, for FY 2005 the City projects that the incremental tax revenue available to cover debt service on the existing Tax Increment Certificates of Obligation will cover approximately 57% of such debt, and that for FY 2006 (based upon the January I, 2004 tax roll), the incremental tax revenue available to cover debt service on the existing Tax Increment Certificates of Obligation will cover approximately 97% of such debt. In FY 2007, based upon development projections that the City believes to be reasonable, but which are dependent in part on future economic conditions and other factors that the City can not control and as to which it can give no assurances, the City anticipates that tax increment revenues will be adequate to cover debt requirements on the existing Tax Increment Certificates of Obligation. In the interim., the City intends to make an interfund loan to cover the debt service, and if the projected development in the North Overton TIF proceeds as expected, the City would repay such loan from revenues received in future years. 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 untillhe TIF has reached full build-out status. "Electric light and Power System General Obligation Debt" includes $51,931.908 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. "Cemetery General Obligation Debt" includes $491,408 principal amount of genernl obligation debt that was issued to finance Cemetery improvements. "Gateway General Obligation Debt" includes $17,llS,740 principal amount of general obligation debt that was issued for Gateway Streets improvements, and that is being paid, or that is expected to be paid, from Franchise Fees. The City has no outstanding Gateway Fund Revenue Bonds. "Airport General Obligation Debt" includes $6,632,577 principal amount of general obligation debt that was issued to finance Airport improvements. (5) SoW'Ce: City of Lubbock. Texas. 30 ( c c ( ( ( ( c ) .... , ) ) ) ) ) ' 1 TABLE 1 -TAXABLE ASstsSED V ALVATIONS BY CATEGORY Taxable Appraised Value for Fiseal Year Ended Seetembc:r 30, 2006 200$ 2004 %of •to of %of Calee!l: Amouct Total Amount Total Amount Tow Ileal. Residential, Siogle-Fa.roily $ 5,513,686,680 55. 79"/o $ S.l56.169,884 !16.29%. s 4,690.1 S8,161 ss.so-;., Real. Residential Multi-Fa.raily 784,395,414 7.93% 614,631,057 6.71% S6l.S69.488 6.64% Real, Vac&~~t LotsiTraA:IS 164.261.677 1.66% 135,464,357 1.48% 108,62S,9S4 1.29"4 Rtal. Acreage (l..1od Only) 79,430,309 0.80"/o 64,528.231 0.70% 65.880.410 0.78% Real. Farm and Ranch Improvements ll,o35,38S 0.11% 10,391~139 0.11% 10,835,088 0.13% RaJ. Commeteial and Industrial 1,813,142,623 18.33% 1.701,145,839 18.S7% 1.638.346.765 19.39% Rut. Oil, Gas and Ocher Mineral Reserves 17.428.230 0.18% I 1,298,200 0.12% 8,923.810 0.11% Real and Tangible Persooal, Utilities I 77,838,907 1.80%. 173,908,469 1.90% 18S,761,346 2.20"/o Taogible Persotaal, Commercial and Industrial 1,217.205,610 12.31% 1,198,078,620 13.08% 1,090,862,5 79 12.91% T angibte Penollal. Other 14,31l,S17 0.14% 15.279,192 0.17% 16.287.022 0.19% Real Propeny, Inventory 26.816.741 0.27% 10,987,935 0.12% 4,774.287 0.06% Speci.allnventOty 67,353,915 0.68% 68.226.182 0.74% 68.663,514 0.81% Total Apptaised Value Before Exemptions $ 9.891,907,008 100.00'% s 9.160.109,105 100.00% s 8.451.188.424 100.00".4 Less: Total bemptioos/Reduetions (526,667.083) (495,918,196) (529.598.044) T .axable Assessed Value $ 9,36S,ll9,92S $ 8.664.190.909 s 7,921,590,380 Taxable ~raised Valu.e for fiscal Y ev: Eoded ~tember 30, 2003 2002 %of %of ea~eao!l: A.mowlt Total Am<! Wit Total R.ea1. Rc:sidenllal, Si.ogle-faroily $ 4,282,214,63S !16.78% s 3.93S,486,660 53.$9% Real. Residt:nlial.. Multi.f.amily 455,993,262 6.05% 466,77S.473 6.36% Real. Vac:aat Lots/Ttaets 93.473,144 1.24% 96,407.484 1.31% Real. Acreage (l..1od Oaly) 59.644,977 0.79% 60,171,506 0.82% .Real. farm 1111<1 RmclllraptOVCIDCDts 11,391,782 0.15% 12,003,318 0.16% Real. Commereial &ad lodus1rial 1,3 70,730,397 18.18% 1,445,748,160 19.69% Real, Oil. Gas and Olher Miner.al Reserves 7,909,460 0.10% 8.849,390 0.12% RaJ and Tangible Personal. Utilities 192,138,423 2.SS"Io 18S,.S88.935 2.S3% Tmgiblc PetSODal, Co~ial an:d lndUS!rial 974,534,129 12.92".4 1,039,521,384 14.16% Tangible PcrsoDal, Oilier 15.336,364 0.20% 15,296,446 0.21% Special loventOty 11,087,603 O.IS% 10.279,056 0.14% Reall'ropcrty,loveatOry 67,339,159 0.89% 67.429.634 0.92% Total Appraised Valu.e Beron: Excrpptioos $ 7,541,793,935 100.00% s 7 ,343,SS7,446 100.00"4 Less: Total ExemptioiiSIR<:ductions (199.449.068) ~434,247,739) Taxable Assessed Vallle $ 7,342,344,867 s 6,909,309, 707 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 tate and lo lhe State Comptroller of Public Accounts. Certified values are subject to change throughout the year as contested values are resolved and the Appraisal District updates records. 31 TABLE JA -V ALlJATlON AND GENERAL 0BLIGA nON DEBT HlSTOIU' 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 Poj!ulation (II Valuation (l) Per £!!!ita ofYear(ll Valuation ()I Capita<3> 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 80,210,269 0.93% 384 2006 211,187 9,365,239,925 44.346 87,256,363 <~I 0.93% (41 413 <•J (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 self-supporting debt (see Table 3B and footnote 3 to Table 1). (4) Includes the Bonds and e:o~:cludes the Refunded Obligations. Also includes the proposed $2,740,000 General Obligation Bonds, Series 2006 and the proposed $76,315,000 Tax and Waterworks System S\Uplus Revenue Certificates of Obligation, Series 2006, scheduled to be sold simultaneously with the Bonds. Preliminary, subject to change. TA.BL£38 -DERIVAnON OF GENERAL PuRPosE FUNDED TAX D£BT 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 the City expects to issue additional self-supporting general obligation debt within the three to five year lime frame. See "Debt tnfonnation-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 9130 of Year Debt at EadofYear ""2002 $ 217,269,682 $ 154,154.335 s 63,115,346 2003 295,935,000 225,746,796 70,188,204 2004 285,885,000 215,723,783 70,161,217 2005 388,595,000 308,384,731 80,210,269 2006 448,510,000 (I) 361,253,637 (\) 87,256,363 (I) (1) Includes the Bonds and excludes the Refunded Obligations. Also includes the proposed $2,740,000 General Obligation Bonds, Series 2006 and the proposed $76,315,000 Tax and Waterworks System Surplus Revenue Certificates of Obligation, Series 2006, scheduled to be sold simultaneously with the Bonds. Preliminary, subject to change. TABLE 4 -TAX RAT£. LEVY AND COLLEC110N HISTORY Fiscal o/. of Current %ofTotal Year Distribution Tax Tax Ended Tax General Economic Interest a.nd Collections Collections 9/30 Rate Fund Development -Sinking Fund Tax Levy to Tax Levy toTaxLeyy 2002 $ 0.57000 $0.42844 s 0.03000 $ 0.11156 $ 39,351,225 97.60"/e 99.41% 2003 0.57000 0.43204 0.03000 0.10796 42,286,967 97.25% 98.78% 2004 0.54570 0.41504 0.03000 0.10066 43,659,111 97.02% 99.69% 2005 (I) 0.45970 0.33474 0.03000 0.09496 39,777,866 97.53% 100.08% .2006 (I) 0.44720 0.35626 0.03000 0.06094 41,881,353 94.54% (2) 95.81% (2) (I) For a discussion of the factors affecting the decline in the 2005-2006 General Fund tax rate, see "Discussion of Recent Financial and Management Events -FY 2006 Budget. " (2) Collections for part year only, through February 28,2006. 32 f" ... f" 1.. ( ( ( c , \, ' :1 ' , ) TABLE 5 -TEN LAJtGEST TAXPAYERS 2005/06 %of Total Taxable Taxable Assessed Assessed Name ofTaxe:!l:er Nature of P~!!l: Valuation Valuation ~rich Lubbock LTD Partnership Regional Shopping Mall s 108,834,600 1.16% Southwestenl Bell Telephone Co. Telephone Utility 60,284,618 0.64% Southwestern Public Service Electric Utility 54,323,701 0.58% United Super Ma.rlcets Retail Grocery 41,577,740 0.44% Me Canton Woods Real Estate 40,985,875 0.44% McLane Food Services Food Wholesale 36,011,717 0.38% Wal-Mart Stores Inc. Retail 35,393,886 0.38% Atmos Energy Corp. Natural Gas Utility 25,562,068 0.27% X Fab Texas., Inc. Electronic Manufacturer 24,220,539 0.26% Lubbock Two Associates Apartment Complex 23,000,000 0.25% $ 450,194,744 4.81% GENERAL OBLIGATION DEBT LIMITATlON ... No general obligation debt limitation is imposed on the City under current State law or the City's Home Rule Charter (see "Tax Rate Limitation"). Maximum Principal and Interest Requirements, All General Obligation Debt, :zoosa> ......... -............................................................................................................. S 43,096.,995 $0.4696 Tax Rate at 98"/o Collection Produces ................................................................................................................. S 43,099,583 Maximwn Pri.Dcipal and Interest Requimnents, General Pwpose General Obligation Debt. 2oo,O> .................................................................................................. s 9,120,688 $0.0994 Tax Rate at 98"/o Collection Produces ................................................................................................................. $ 9,122,868 (I) Based on 2005-2006 taxable assessed valuation. Preliminary, subject to change. (2) See Table SA. (3) See Table 88. 33 TABLE7 -EsrutATEDOVERLAPPlNGDEBT Expenditures of the various taxing entities within the tenitory of the City are paid out of ad valorem taxes levied by such entities on properties within the City. Such entities are independent of the City and may incur borrowings to finance their expenditures. This statement of direct and estimated overlapping ad valorem tax bonds ("Tax Debt") was developed from infonnation contained in "Texas Municipal Reports" published by the Municipal Advisory Council of Texas. Except for the amounts relating to the City, the City has not independently verified the accuracy or completeness of such information. and no person should rely upon such infonnation as being accurate or complete. Furthermore, certain of the entities listed may have issued additional Tax Debt since the date hereof, and such entities may bave programs requiring the issuance of substantial amounts of additional Tax Debt, the amount of which cannot be determined. The following table reflects the estimated share of overlapping Tax Debt of the City. 2005106 Total Flllldtd City's Authorized Taxable Debt Estirnalcd Overlapping But Unissued Assessed Tu As Of % G.O.Debt Debt As Of Taxi!! Jurisdierioa Valoe RJIIe 2·28~6 ~licable As or 2· 28-06 2-2&-o6 City of Lubbock S 9,36S,239,92S s 0.44720 $ 448,SIO,OOO (II 100.00".4 s 448,Sl0.000 $ 21,712.000 Lubbock lndepcodent School Disaiet 7,3S0,064,19S l.6SS90 96,SII,IS6 98.91% 95,459,184 S2.248,S93 Lubbock County 11,079,168,972 0.26162 73,695.000 82.94% 61,122,63) SO.S,J47 Lubbock County HospitalDislriet II,OS6,SSS,800 0.11034 82.94o/. High Plains Uoderground Water Conservation Disaict No. I II,OS6,SSS,800 0.00330 82.94% Fn:nsllip Independent School District I,S51,333.929 1.71060 67,331,742 64.44% 43,388,575 Id.llov. Independent School Disaict 133,910.057 I.S.SOOO 540,000 1.10% S,9-40 Lubbock-Cooper lndependcat School District 743,148,347 I.St700 12,S74,SSS 15.30"/o 1,923,907 New Deallndcpcndeat S<:bool District 132,486,994 t.SOOO() 0.()3% Total Din:ct and Overlappiag G.O. Debt s 650,410,239 Ratio ofDircct aod Overlapping 0.0. Debt to Taxable As.ses.sed V&luation..... . . • . . • • . . • • . . . . . • . . . . . . • . . . . . . . . . • . . . • . . . . 6.94% Per Capilli Di~t &nd Overiappill8 0.0. Debt .•.....•...•...•..••..••........•.•....•.••.•.....•...•.•••......•............. S 3,080 (I} Includes the Bonds. Excludes the Retimded Obligations. Also includes the proposed $2,740,000 Geoeral Obligation Bonds, Series 2006 and the proposed $76,315,000 Tax and Waterworks System Surplus Revenue Certificates of Obligation, Series 2006, scheduled to be sold simultaneously with the Bonds. Preliminary, subject to change. 34 ( c r ... c ( ( f ' ( ( ..., ..., ....... ...., 00 '.1 v DEBT INFORMATION TABLE 8A -PJto-FOilMA GENERAL 0BUGATION DDT SERVICE RIQVIUMENTS Fla1 v .. 'faa aw~~!b'pllll~ Oaxnl Obli..aoa Tolll lilldld ~DobiU) a-.~ a.ue""""' Scrica 200/P" ~ or(lblipllca, s.;,. 2oo8'l Rel\ediQI Boado Scriao 200tf.'l ~ llllO Priwipo! ..... ToCII Prladpol ..__ Tacal ~ l'alcniC Toea! 1'tiMciiW ~ Thill "-'-'2oii6 s 10,110,000 ~ s 17,244,111 s 37,.4lo4,111 s . s . s . s s s $ . s 304,181 s 304,181 s 37,72t,993 2001 21,39,,000 15,515,193 36,.910.193 . 1$fi,3l2 156,322 $,017,667 .S,OI7,667 10,000 911,370 !t22,370 43,076.j.S:1 :2001 11,070,000 14,670.4$9 35,74(),459 95,000 IIS,S2l 1l0,5ll 2,470,000 3,754,000 6,22<1,000 10.000 912,014 922,014 0,096,995 l009 lo,915,000 13,112,491 34,19'7,.411 100,000 111,911 ll\,911 2,59$,000 3,621,37$ 6,2ll,315 15,000 911,561 926,S61 42,U8,4l1 2010 20,135,000 12,944,.511 33,1'79,SII 10$,000 UNI,2.10 ll3,ll0 2,72S,OOO 3,4J4.37S 6,119,37$ 1$,000 911,017 926,017 41,131,120 2011 21,]30,000 12,037,971 33,36?,917 110,000 104,205 214,205 2,W,OOO 3,354,62$ 6,119,625 15,000 910,464 925,464 40,727,271 2012 2(),64$,000 11,117.2'4 31,?62,2.94 IIS,OOO 99,940 214,940 3,015,000 3,207,62$ 6,222,62$ 15,000 909,19!1 924,198 39,124,757 2013 21,17$,()1)0 10.190,638 31,36$,631 120,000 95,380 215,310 3,17o,OOO 3,0S3,000 6,223,000 IS,OOO 909,320 ln4,310 31,728,338 2014 21,710,000 9,2116,336 30,916,ll6 120,000 90,610 21(),610 3,.130.000 2,890,500 6,l10,SOO 15,000 901.721 923,728 31,341,114 10U 19,545,000 1.211,728 17,816,728 115,000 85,642 21(),641 3.'00,000 2,719,750 6,2.19,750 15,000 9011,120 923,120 35,110,239 2016 19,2110,000 7,.390,433 26,67o,m m.ooo 80,291 215,291 3,680.000 2,540,250 6,220,250 15,000 907,501 922,501 34,02&,475 1011 19,195,000 6,451,649 15,653,649 140,000 14,551 214,5$7 3,870,000 2,3$1,500 6,221,500 1$,000 906,815 921,175 33,011,510 2018 IJ,t80,000 5,517,061 15,497,061 145,000 68,470 213,470 4,o70,000 ::1,153,000 6,223.000 10.000 906,115 926,125 32.159,656 2019 11,135,000 4,$38,623 23.373,623 150,000 62,001 212,001 4,215,000 1,944,37$ 6,219,315 20,000 905,245 925,245 30,730,244 2010 16,545,000 3,676,254 20,221 ,254 160.000 55,095 21$,095 4,495,000 1,725,125 6,220,125 20,000 904,3$0 924,150 27,580,823 2021 14,800,()1)0 2,910,360 17,710,360 165,000 47,712 212,712 o4,12S,OOO 1,.4ll4,615 6,219,625 20,000 903,~50 923,.4$0 25,066,211 2021 10,5.10,000 2,:292,993 12,812,993 17.$,000 40PI1 215,011 4,970,000 1,252,2$0 6,2.22,250 1,425,000 867,315 2,292,3?5 21,552,689 2023 9,3$$,000 1,811,583 11,166,513 180,000 31,96& 211,968 5,11$,000 m,m 6,2.22,375 1,500,000 194,250 2,294,250 19,&95,116 2024 7,22$,000 1,367,622 8,592.622 190,000 23,467 213,467 5,.490,()1)0 1::19,500 6,219,500 I,S't5,000 717,37.$ 2,292,375 17,317,9S 201$ 5,170,000 1~8,521 6,92S,.S22 200,000 14,447 214.447 5,775,000 447,815 6,222,81$ 1,660,000 636.500 2,296,500 15,662,344 2026 1,660,000 111,500 2,537,500 210,000 4,904 21-4,904 6,0'70.000 151,150 6,221,750 1,745,000 551)15 2,296)?$ 11,270,529 202'1 1,745,000 792,37$ 2,5!1,375 . . 1,135,000 461,175 2,l96,81S -4,134,1$11 2021 1,130,000 703,000 2,533,000 . . 1,925,000 367,175 2,192,175 4,823,175 2029 1,925,000 609,115 2,534,115 . 2,Ql$,000 269,115 2,lli4,12.S 4,821,250 2030 2,015,000 510,.375 2,535,315 2,130.000 16S,2.SO 2,29S,2SO 4,830,625 1031 2,130,000 406,500 2,536,500 . 2,240,000 56,000 2,296,000 4,832,500 1032 2,140,000 291,150 2,537,150 . . 2,S37,1$0 2033 2,350.000 112,500 2,532,500 . . . 2,Sll,.,., 2034 ~41~ 61175 ~,175 . !a~l75 s 36U3MOO s 166,414,051 s 53'¢19,051 s 2,740,000 $ 1,47o,&59 S 4.210,15t s 76315.000 s 4637Gl s 1.23 ,291 ,542 s 18,295.,000 s 1&.811,218 s 37.113)11 i 700,034,670 (I) "Outstanding Debt" does not include lease/purchase obligations. Excludes the Refunded Obligations. (2) Average life of the issue • 12.114 years. Interest on the General Obligation Bonds, Series 2006 has been calculated at the TIC rate of 4.482% for purposes of illustration. Preliminary, subject to change. (3) Average life of the issue • 12.311 years. Interest on the Tax and Waterworks System Surplus Revenue Certificates of Obligation, Series 2006 has been calculated at the rate of 4.497% for purposes of illustration. Preliminary, subject to change. (4) Average life of the issue • 20.636 years. Interest on the Bonds has been calculated at the rate of 4.759% for purposes of illustration. Preliminary, subject to change. (5) Includes combined principal and interest paid by the City on February IS, 2006. 35 ,., TABLE 8B • DMBION OF DEBT SDVICE REQtJDUtMJNTS ~= Le&t: Lou: Leu: Leu: t..e.: SGiidW-DniDqe ,... l!lcclric WIJI&nmb s.-llUpoal Udlity ""'""*'· u,btllld Lea: U..: Leu <Jcunl Flacal 8ylfnl S}Anb 8yllaD Syw~cm I'UI .... u., PowerSYflem Cemday ~ Abpon l'wJI-Year Oaunl ()eaenl Oa!Gnl Oaunl Oenanl Oeneral OcDcnl o-..1 Oencnl Ocacnl Badod Comlliae<t~\1) Ololipticm Obllpdoo ObllpdaD Ololiplio.o Obliallioa Obllallfoa OIIUallioa Obllaolioa Obllsllfon Obllallli<m 9130 ~ ~ Toc.ol ~.a-''' ~·) !.'!11.._.. ~·) ~uift-II(IJ llaqlllftmmllll) ~m=tl" ~~·' ~~~ ~~~·J 2006 s 20,110.000 PI S 17,548,993 s 37,721,993 $ 11,(159,339 $ 5,9.56)74 $ 711,472 s •• ~.917 s 997,.4Ql s 4,596,132 s $ 1,138,526 $ $17,11$ s 7,952,706 :1001 21,.405,000 21,671,5$2 43,076,SS1 12,019,820 7,099,174 1,066,194 s,m,120 1,417,446 4,919,90$ 32,760 1,311,!51 119,693 9,120.611 2001 2J,64S,OOO 19,451.!'95 43,096,995 11,155,698 6,992,941 l,l:U,417 5,46US9 I,SOI,S20 4,944,02, 40,078 1.366,429 1$9,462 9,037,4PS 2009 23,69$,000 11,463,411 42,Ul,411 11,766.128 6,758,748 911,954 5,470,$76 1,511).17 4,864)17 40,067 1,364,743 585,735 1,106,706 2010 23,610,000 17,451,120 41,.131,120 11,$90,944 6,372,361 1,063,119 5,471,593 l,$1l,191 4,717,611 40,04& 1,366,115 580,317 IJ$2,62$ 2011 24,320,000 1~).11 40,727).71 11,497.548 6,212).71 1,()44,2AO 5.410,611 l,,ot,420 4,111,544 40.049 1,36l,J·SO 575)63 1)..92,.175 2012 23,790,000 15,33-4,757 39,1:1.4,757 10,614.481 5,914,606 1,034,590 5.465,530 !,Sot,"2. 4,642)64 40,069 1,365,222 570,600 7,907,$34 2013 14,410,000 14,.241,338 31,721,331 10,562,281 5,7U,lSI l,o2.4,1)42 5,467,565 1,301,267 4,573,2$6 4D,071 1,362,773 564,711 7,137,013 2014 15,245,000 13,Qt6,174 38,341,174 10,52U82 $,623,153 1.001,007 5,464.5$9 1,501,113 4,494,212 40,0SS 1,365,151 557,732 7,757,903 2015 23,185,000 11,995).39 )5,110,2]9 10,395,0$5 3,745,356 992,040 5,467,673 1,$07,324 4,417,722 40,050 I,J65,693 414,164 6,815,163 2016 23,110,000 10,91t,41S 3-4,028,475 10,341,720 2,951,661 1,012,573 5,466,882 1,Sl0,093 4,337,657 40,053 1,364,774 423,14!1 6,579,912 2017 23,.ll0,000 9,7~1,$10 33,011,$10 10,308,7)7 2,912,613 990,211 5,461,637 1,513,570 4,259,003 40,061 1,362,944 415,939 $,736,166 1018 24,21.5,000 8,644,6$6 32,859,656 10,256,261 2,88?,468 917,419 5,470,919 1,307,136 4,191,764 40,071 1,363,123 42.4,137 5,740,459 2019 23,210,000 7,4SD,244 30,730,2.44 9,907,300 2,853).10 783.~ S,463,9ot 1,5ot,965 2,649,941 40,04& 1,361,767 421,910 5,739,141 2020 11,220,000 6,160,811 nsao,123 7,465,642 2,130,110 'r/6,761 5,466,468 1,5ll,OI7 2,651,219 40,053 1,364,419 423,695 5,749,435 2021 19,710,000 S,156,117 2$,066,217 5,512)11 2,130,647 769,611 5,462,640 1,508,841 2,646,792 40,049 1,364,776 42.4,929 5,145,532 202Z 17,100,000 4,452,619 21.552,619 2,889,m 2,129,75$ 635,419 5,411,912 1,501,931 2,651,649 40,066 1,362,996 415,763 4,430,69? 2023 16,260,000 3,635,176 19,195,\76 1,346,902 1,104,319 631,610 5,479,421 1,509,315 2,646,646 40,067 1.363,119 415,192 1,640,m 2024 14,480,000 2,137.9'3 17,.317,963 2.344.~ 1,799,633 636,162 5,417,645 1,$07,853 966,431 40,049 1,364,143 415,293 2,755,412 l01S 13,50$,000 2,157,344 U,662,344 \,610,301 1,753,014 36S,Il66 5,4112,143 1,224,126 971,.523 40,070 1,363,2&4 415,101 2,427,602 1016 9,615,000 I,SIS,$29 11,270,S19 1,323,944 1,175,442 36S,OOO 5,486,015 501,721 490,134 40,06J :W,ISJ 200,3$9 1,456,ts7 2027 3,$10,000 1,2.54,150 4,&3-4,2$0 -. 4,834,250 2021 3,755,000 1,070,875 4,125,175 . 4,125,815 2029 3,950,000 811,250 4,821,250 . . 4,828,2.10 2030 4,1SS,OOO 67$,615 4,830,625 . . 4,830,615 2031 4,370,000 462,500 4,8!2,500 . . 4,8!2,500 1032 2,240,000 297,150 2,537,2$0 . . . 2,$37,130 2033 2,150,000 182,500 2,$32,500 . . 2,532,500 2034 114751000 61.!75 ~536.!75 . . 2~815 s 466,285,000 s 233,?49,670 s 700)134.670 J 176,2S1,486 t 85,051,931 $. 11,076,m s 14$,719,776 $ 29,&11,913 s 75,426,417 $ 793,899 s 27)37,454 s 10,171).3? s 13 I 02i3.S44 (I) Includes debt service on the Bonds, and the proposed General Obligation Bonds, Series 2006 and Tax and Waterworks System Surplus Revenue Certificates of Obligation, Series 2006. Excludes the Refunded Obligations. Preliminary, subject to change. (2) Includes the principal and semiannual interest to be paid on February 15, 2006. 36 ""' "" ,.... ~""-~ ,-\ r"l n ""' r-. ) ) } } ) TABLE 9 • INTEREST AND SlN1CING FUND BUDGET PROJECTION* General PutpOse General Obligation Debt Service Requirements (Pro-Fonna), Fiscal Year Ending 9-30..()6<'> Fiscal Agent, Tax CoUe<:tion and Other Uses Total Requirements Sources of FW\ds In~ and Sinlcing Fund, 9-30..()5 Budgeted Ad Valorem Tax Receipts Budgeted lnter~t Earned Total Sourtes of Funds Projected Balance, 9-30-06 (I) See "Table to-Computation of Self-Supporting Debt". •see Table 8B -Footnote ( 1) {THE REMAINDER OF THIS PAGE fNTENTIONAIL Y LEFT BLANK] s $ $ s $ 7,9S2,7Q6 15,000 7,967,706 2,624,340 5,465,000 483,010 8,512,350 604,644 TABLE 10 • COMPUTATIONOFSELF·SVPPORTlNG DEBT In addition to the enterprise funds shown in this Table 10, on September 8, 2005, the City Council of the City approved an ordinance designating the City's Gateway Fund and Airport Fund as self-supporting enlerprise funds of the City for FY 2006. In the same ordinance, the City Council of the City approved the budget for the City's Tax Iocrement Fii'Wlcing Fund wherein it is designated that debt relating to such fund shall be partially self-supported by tax increment revenues (i.e., in an amount equal to at least 15% of debt service for FY 2006) and the remainder supported by a loan from the City's Solid Waste Fund. Furtbermore, the City Council of the City approved ordinances on March 23, 2006 and February 24, 2006 designating debt issued for the Cemetery (a unit of the City's General Fund) to be supported by sales of crypts and niches at the City Cemetery. See also Table 88. T8:E WATERWORKS SYSTEM (I) Net System Revenue Available, Fiscal Year Ended 9-30-05 Less: Requirements for Revenue Bonds, Fiscal Year Ended 9-30-06 Balance Available for Other Purposes Requirements for System General Obligation Debt, Fiscal Year Ending 9-30-06 Percentage of System General Obligation Debt Self-Supporting $ 16,570,942 -0- $ 16,570,942 $ ll.059,339 100.00% (I) Each Fiscal Year the City transfers Net Revenues of the Waterworks Entetprise Fund to the General Obligation Interest and Sinking Fund in an amount equal to debt service requirements on Waterworks Syslem general obligation debt THE SEWER SYSTEM(!) Net System Revenue Available, Fiscal Year Ended 9-30-05 Less: Requirements for Revenue Bonds, Fiscal Year Ended 9-30-06 Balance Available for Other Purposes Requirements for System General Obligation Debt, Fiscal Year Ending 9-30-06 Percentage of System General Obligation Debt Self-Supporting $ $ $ 9.342,565 -0- 9,342,565 5,956,374 100.00% (1) Each Fiscal Year the City transfers Net Revenues of the Sewer Entetprise Fund to the General Obligation lntetest and Sinking Fund in an artlOUIU equal to debt service requirements on Sewer System general obligation debt. T8:E SOLID W ASU DlSPOSAL SYsTEM ttl Net System Revenue Available, Fiscal Year Ended 9-30-()5 $ 3,591,426 Less: Requirements for Revenue Bonds, Fiscal Year Ended 9-30-06 Balance Available for Other Purposes -0- $ 3,591,426 Requirements for System General Obligation Debt, Fiscal Year Ending 9-30-06 $ 781,472 Percentage of System General Obligation Debt Self-Supporting 100.00% (I) Each Fiscal Year the City transfers Net Revenues of the Solid Wasle Enterprise Fwtd to the General Obligation lnlerest and Sinking Fund in an amount equal to debt service requirements on Solid Waste System general obligation debt. THE DRAINAGE SYSTEM (I) Net System Revenue Available, Fiscal Year Ended 9-30-05 Less: Requirements for Revenue Bonds, Fiscal Year Ended 9-30-06 Balance Available for Other Pwposes Requiretnell.ts for System General Obligation Debt, Fiscal Year Ending 9-30-06 Percentage of System General Obligation Debt Self-Supporting $ 5,685,303 -0- $ 5,685,303 $ 4,669,927 100.00% (I) Each FIScal Year the City transfers Net Revenues of the Drainage Entetprise Fund to the General Obligation Interest and Sinking Fund in an amount equal to debt service requirements on Drainage Syslem general obligation debt THE EL£CT1UC LICHT AND POWER SYSTEM <tl Net Electric Light and Power System Revenue Available, Fiscal Year Ended 9-30-05 Less: Requirements for Revenue Bonds, Fiscal Year Ending 9·30-06 Balance Available for Other Pwposes Requirements for Electric System General Obligation Debt, Fiscal Year Ending 9-30-06 Percentage of Electric System General Obligation Debt Self-Supporting $ 16,061,968 4,099,673 S II ,962,295 $ 4,596,132 1 00.000/o (I) The City transfers Net Revenues of the Electric Light and Power Enterprise Fund to lhe Genenl Obligation lnterest and Sinking Fund in an amount equal to debt service requirements on Electric Light and Power System general obligation debt 38 c < ,. \, ( f ... < ( ( ( < ) ) ) TABLE 11 • AliTBORIZED BUT UNISSUED GENERAL 0BLIGA110N BoNDS Ammmt The Dare AmouDt Previously Series 2006 Uaissued Pu~se Alllhorizcd Authorized lssu.cd 8oodJ<11 Balance Watoworb System 10117/87 s 2,810,000 s 200.000 $ s 2,610,000 Sewer System Sl21n7 3.303,000 2,175,000 1.12&.000 Street lmprovanents S/1~3 10,170,000 10,166,000 4,000 Sttec~ Improvements S/\S/04 9,210,000 3,0SS,OOO 1,914,000 4,241,000 Civic Ccn!cll Auditorium Ralovatioas aod Improvements S/\.S/04 6,450,000 6,450,000 Puk~ts S/JS/04 6 . .395.000 4.670.000 826.000 899,000 PoticeiMomjcipel Coun Fa<ililic:s SfiS/04 J,JSO,OOO 3.350,000 Libruy lmpt0ve11M1US SflS/04 2,HS,OOO 2,145,000 file Statioos 5115104 1.405.000 \,405,000 Aoimal Sh.elu:r Renovations aDd lmprovemco.IS S/15104 1,045,000 160,000 885,000 s 46,283,000 s 21.831,000 s 2,740,000 s 21.712.000 (I) Proposed to be issued simultaneously with the Bonds. Preliminary, subject to change. ANTICIPATED IssUANCE OF GENERAL 0BUGA110N DEBT ..• The City Council adopted a resolution during the 1984-85 budget process establishing capital maintenance funds for capital projects. A capital improvement plan is made for planning purposes and may identify projects that will be deferred or omitted entirely in future years. In addition, as conditions change. new projects may be added that~ not currently identified. Under current City policy, for a project to be funded as a capital project it must have a cost of $25,000 or more and a life of seven or more yeus. For FY 2006, the City Council approved S I 01.5 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 (up from $26.9 million in FY 2005). The Capital Projects Fund budget for FY 2006 also included an additional $305.4 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 II, after the issuance of the proposed General Obligation Bonds, Series 2006, the City will have $17,970,000 of authorized but unissued bonds from the May 15, 2004 bond elccti.on. 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, parts, libraries, civic centers and public safety improvements. However, the City has incwred substantial unvoted tax: supported debt to fund portions of the capital budget of the Electric Fund, Water Fund, Sewer Fund, Solid Waste Fund, Storm Water Fund, Tax Increment Fund, Gateway Fund and Airport Fund. As described elsewhere in this Official Statement, such entetprise fund indebtedness is generally anticipated to be self-supporting from enterprise fund revenues. 39 TABLE 12 -OTHER. OBLIGATIONS At February 28, 2006, the City had capital lease obligations for leased equipment in the following amounts: Fiscal Govenunental Business-type Total Year Capital Lease Capital Lease Capital Lease Ended Minimwn Minimum Minimum 9/30 Pa~ent Pa~ent Pa~ent 2006 $ 1,167,281 $ 584,092 $ 1,751,373 2007 679,328 461,618 1,140,946 2008 679,328 130,124 809,452 2009 659,569 127.681 787.250 2010 530,413 127,681 658,094 2011-2015 639,898 639,898 Less Interest: !400,932) p6.62o~ i477.S52) $ 3,954,885 $ 1,354,576 $ 5,309.461 At February 28, 2006, the City had a note agreement outstanding described as follows: On January s~~>, 2004, the City entered into a note agreement with the Department of Housing and Urban Development ("miD") for loan guarantee assistance under Section 108 of title I of the Housing and Community Development Act of 1974, as amended, in the amount of $1,000,000. The Note was issued to aid io the establishment of a Housing Rehabilitation Program in order to provide rehab options for low-to- moderate income households on a citywide basis, pay professional services rendered in relation to such project, and the financing thereof. Under the tenns of the Note, the City will make annual principal payments on August 1, of each year beginning in 2005 through 2012; interest payments are due semi-annually. As of February 28,2006, the outstanding balance of this note agreement was $875,000. The Note is a liability of the City's Community Development Block Grant Program and debt service will be paid from this grant Fiscal Year Ended Contract Revenue Bonds 9/30 Princi£al Interest Total 2006 $ 125,000 $ 36,688 $ 161,688 2007 125,000 32,825 157,825 2008 125,000 28,300 153,300 2009 125.000 23,300 148,300 2010 125.000 17,900 l42,900 2011 125,000 12,188 137,188 2012 125,000 6,200 131,200 $ 875.000 $ 157,400 $ 1,032,400 40 c ( ( c c ( < c ( ) ) ) PENsiON FuND ••• 'fExAs MUNICIPAL REllREMENT SYSTEM (\1(2) ••• All permanent, full-time City employees who are not firefighters are covered by the Texas Municipal Retirement System ("TMRS"). TMRS is an agent, multiple-employer, public employee retiremeot system which is covered by a State statute and is administered by sbt trustees appointed by the Governor of Texas. TMRS operaJes indepeudently of its member cities. The City joined TMRS in 1950 to supplement Social Secwity. All City employees except firefighters are covered by Social Secwity. Options offered under TMRS, and adopted by the City, include cwrcnt, 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 oo the amount of the employees contributions over-matched two for one by the City. Since October II, 1997, the employee contribution rate has been 7"/o of gross salary. The City's contribution rate is calculated each year usiog actuarial techniques applied to experience. The 2006 contribution rate is 15.84%. Enabling statutes prohibit any member city from adopting options which impose liabilities that cannot be amortized over 25 years within a specified statutocy rate. On December 31, 2004, the actuarial value of assets held by TMRS (not including those of the Supplemental Disability Fund, which is "pooled"), for the City were $186,398,545. Unfunded actuarial accrued liabilities on December 31, 2004 were $62,034,262, which is being amortized over a 25-year period beginning January, 1997. Total contributions by the City to TMRS for Calendar Year 2005 were $10,426,241. F'IREMEN'S RELIEF AND R£"riR£mNT FuND <11 ••. City 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, ia 1941. Firefighters are not covered by Social Security. The Fund is governed by seven trustees, consisting of three firefighters, two outside trustees (appointed by the other trustees), the Mayor or the representative thereof and the chief flnancial 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 perfonned every two years, and the fund is audited annually. Firefighters contribute a pen:eotage of Cull salary i.nto the fund. The firefighters' contribution rate for 2006 is 12.43%. The City must contribute a like amo~ however, the city contributes on a basis of the percentage of salary which is a ratio adjusted annually that bears the same relationship 1o the firefighter's contribution rate that the City's rate paid into the TMRS and FICA bears to the rate other employees pay into the TMRS and FICA. The City's contribution rate for 2006 is 19.93%. N. of December 31, 2004, unfunded peosion benefit obligations were 513,8 16,991 which is amortized with the excess of the assumed total contribution rate over the nonnal cost rate. The number of years needed to amortize the unfunded pension obligation is determined using an open, level percentage of payroll method, assuming that the payroll will increase 4% per year, and was 24.7 years as of the December 31, 2002 actuarial valuation and 20.6 years as of the December 31, 2004 actuarial valuation, both based on the plan provisions effective November t, 2003. OmEit POST-EMPLOYMENT BENEFITS .•. The City currently provides certain post-employment benefits to its employees, as described in Note m. K (Notes to the Basic Financial Statements) set forth in Appendix B. The City ioteods 1o comply with the requirements of GASB No. 43 and 45, with respect to the reporting of post-employment benefits, in accordance with the timelines set forth in GASB No. 43 and 45. As of the date of this Official Statement, the City has oot retained the services of an actuarial fum to prepare the calculations required under GASB No. 43 and 45, but intends to do so in anticipation of implementing the requirements of GASB No. 43 and 45. (I) For historical information concerning the retirement plans, see Appendix B, "Excerpts from the City's Annual Financial "Report"-Note #ill, Subsection E, "Retirement Plans ... ) (2) Soun:e: Texas Municipal Retirement System, OJmprehensive A..nnua/ Financial Reporl for YeDT Ended December 31. ]()(U, "City of Lubboclc. Texas'". 41 c FINANCIAL INFORMATION TABLE 13 -CHANGES lN NET AssETS(!) ( Fiscal Year Ended ~tember 30. 2005 2004 2003 2002 Governmental Govenuncntal Governmental Governmental Activities Accivities Activities Activities REVENUES· !in OOO's~ ~ill OOO's) !inOOO's2 !inOOO's} Program Revenues: Charges for services $ 10,583 $ 12,713 $ 13,888 $ 9,369 ( Opetating grants and conlriburions 13,296 9,643 12,137 7,007 General Revenues: Propetty Taxes 39,748 44,497 42,303 40,408 Sales Taxes 41,803 30.SSS 29,092 28,903 Other Taxes 4,242 3.793 3,712 3,681 Fra.nehise Taxes 11,154 9,654 6,613 6,998 Granr/contnbutions not restricted to specific progrnms {25) ... ()!her 5:742 4.274 3.834 6.227 \.. Total Revenues $ 126.568 $ 115.129 $ !11,579 $ 102,568 EXPENSES· Adminisnative/Clmmunity Services $ 23,355 s 22,313 $ 21,793 $ 32,483 Eleelric 2,459 2,471 2,373 2,585 Financial Services 2,240 2.387 1.965 1,908 Fire 23,667 21,998 20,207 18,664 c General Government 27,600 20,562 21,009 23.436 Human Resources 776 717 786 883 Police 37,773 33,249 31,429 29,715 Stteets 11,985 10,789 9,827 5,940 Public Works 2,699 3,078 9,856 4,322 IntereSt on L-T Debt 3,19S 4,593 3,346 3.382 Total Expenses $ 135.749 s 122,217 $ 122.591 $ 123.318 Change in net assets before sp«ial items &. cransfea (9,181) (7,088} (11,012) (20,750) ( Special items (687) Transfers 15.~9 9,745 2,554 15,668 Change in net assets s 6,288 $ 2,657 s (8.458} $ (5,769) Net assets-beginning of year, as reswed $ 104,.341 $ 1{)1,684 s 110,142 $ 115,911 Net assets -c:Dd of year $ 110,619 s 104.J41 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 re5tatements to beginning fund balances and net assets. As of the date of this Official Statement, a copy of the FY 2003 fmancial statement can be accessed through the City's website, http://www.ci.lubbock.tx.us. 1-" ' ' 42 ( ) ) ) ) ) ) TABLE 13-A • GENERAL FuND lbWENUES AND EXPt:NDrrtiRE HlsrORY Fiscal Year Ended S~tember 30.<'1 Revenues 2005 2004 2003 2002 2001 Ad Valorem Taxes $ 29,414,773 $ 33,233,274 s 32,194,087 s 29,885,252 $ 28,604,141 Sales Taxes 38.319,501 30,554,632 29,092,032 28,902,649 28.183,746 Fmnchise Fees 6,693.209 9,654,447 6,612,822 6,998,085 7,684,683 Miscellaneous Taxes 982.327 939,456 848,816 820,507 774,587 Licenses and Pennits 1,953,666 1,982,281 1,875,118 1,475,451 1,202,794 Intergovernmental 480,648 428.459 348,787 351,878 333,171 Charges for Services 4,070,642 4,467.733 4,945.591 4,472,094 4,299,958 Fines 4,015,4(}2 3,675,856 3,672,509 3,069,362 3,051,055 MisceUaneous 1,506.315 1,442,677 1,532,346 1,058,237 995,494 Interest 349,236 334,730 285,756 433,393 1,058,096 Operating Transfers (ll 16,565,397 10,723,891 10,345,945 15,023,466 14,276,074 Total Revenues and Transfers $ 104,351,116 s 97,437,436 s 91,753.809 s 92,490,374 $ 90.463,799 Expendinn'es General Government s 6,159,536 s 5,633,469 $ 5,717,151 s 5,596,868 $ 5,772,031 Financial Services 2,139.492 2,333,469 1,969,413 1,958,051 1,833,933 Non-departmental 445,251 214,562 175,499 1,497,485 1,716,167 Admin!Community Services 18,330,508 18,156,455 17,837,076 17,997,152 18,314.255 Police 33,919,626 32,400,371 30,321,182 28,905,651 28,139,047 Fire 21,943,267 20,613,077 19,511,797 18,632,109 17,903,118 Planning and Transportation 8.120.727 7,180,843 6.610,394 6,510,394 7,443,017 Street Lighting 2,214.291 2,185,286 2,078,277 2,168,620 2,146,212 Human Resources 740,826 754,225 780,529 895,31l 913,250 Capital Outlay 5,277,100 415,585 378,059 480,749 Operating Transfers 3,912.645 4~12,915 13,SSS,338 5,951,669 61187,379 Total Expenditures $ 103.203,269 s 94,160,257 $ 98,934,715 s 90,594,059 s 90,368,409 Excess (Deficiency) of Revenues and Transfers Over Expenditures $ 1,147,847 $ 3,277,179 $ (7.180,906) $ 1,896,315 $ 95,390 Capital Leases Issued 3,534,048 Fund Balance at Beginning of Year 12,694,525 9,417,346 16,598.252 (4) 16,716,042 16,620,652 Fund Balance at End of Year $ 17,376,420 s 12,694,525 $ 9,417,346 s 18,612,357 $ 16,716,042 Less: Reserves and Designations m !1,255,041~ i2,361,860l Undesign.ated fund Balance $ 17,376,420 $ 12,694,525 s 9,417,346 s 17,357,316 $ 14,354,182 ( 1) Prior years have been restated to reflect current organization. (2) For fiscal year 2004/05, the water, solid waste and waste water funds transfem:d 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, waste water and solid waste funds transfem:d an amount representing a franchise payment equal to 6% of gross Reeipts. 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 20% of General Fund revenues. The undesignaled fund balance is at 99% of the target established by the City's financial policies. (4) The "Fund Balance at Beginning of Year" was restated 43 TABLE 14 • MUNICIPAL SALES TAX HISTORY The City has adopted the Municipal Sales and Use Tax Act, Chapter 321, Texas Tax Code, which grants the City the power to impose and levy a 1% Local Sales and Use Tax within the City; the proceeds are credited to the General Fund and are not pledged to the payment of the Bonds or other debt of the City. In addition, in January, 1995, the voters of the City approved the imposition of an additional sales and use tax of one-eighth of a cent as authorized by Chapter 323 Texas Tax Code, 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 sates and use tax under Section 4A of the Texas Development Corporation Act (Article 5190.6, Texas Revised Civil Statutes), 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 arc effected through the offices of the Comptroller of Public Accounts, State of Texas. who remits the proceeds of the tax, to the City monthly, after deduction of a 2% service fee. Historical collections of the City's 1.125% local Sales and Use Tax arc shown below: Fiscal Year %of Equivalent of Ended Total Ad Valorem Ad Valorem 9130 Collected<ll Tax Levy Tax Rate 2002 $ 28,902,648 73.37% $ 0.4183 2003 29,092,032 73.85% 0.3962 2004 30,554,632 70.67% 0.3857 2005 41,803,092 105.07% 0.4825 2006 11,722,467 (l) 27.99% 0.1252 (I) Excludes bingo tax receipts. (2) Based on population estimates of the City. (3) Partial coUectiODS October I, 2005 through February 28, 2006. Effective as of October 1, 2004 the sales tax breakdown for the City is as follows: FINANCIAL POUCIES 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 1.000¢ 0.375¢ 0.125¢ 0.500¢ 6.250¢ 8.250¢ Per Capita(l) s 143.08 142.09 148.11 199.90 55.51 Basis gf .4ccgwrting . . . The accounting policies of the City conform to generaUy 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 and September 30, 2004. The City will submit the City's 2005 report to OFOA to determine its eligibility for another certificate. Cgmorehensive .4nnug/ Financial Reogrt CCAFRJ ... Beginning with the year ended September 30, 2002, the City's CAFR bas been presented under the Governmental Accounting Standard Boan:l ("GASB") Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis -for State and Local Govern~Trents, GASB Statement No. 37, Basic Financial Statements -and Management's Discussion and Analysis -for State and Local Governments: Omnibus, aDd GASB Statement No. 38, Cert(Jin Filwncial Note Disclosures. For additional information regarding accounting policies that are applicable to the City, see Note I. "Summary of Significant Accounting Policies" in the financial slatements of the City attached as Appendix B. Gengal Fund Balance ... The City's objective is to maintain an unreservedfundesignated fund balance at a minimum of an amount equal to two months budgeted operating expenditures to meet unanticipated contingencies and tluctwl.tions in revenue. The City's General Fund currently has an unreservedlundesignated fund balance that is at 99"/o of the target established by the City's financial policies. 44 c ( ( c , \ ( ( ( ( ( ' II ) } Water. Wast~ater. SIQrm Water. Solid Waste and Aimort Enterorise Fund Balances ... It is the policy of the City to maintain appropriable net assets in the Water aod Wastewater funds in an amount equal to 25% of operating revenues for unforeseen contingencies. The City's goal of appropriable net assets in the Solid Waste, Airport, and Storm Water funds is an amount equal to 15% of regular operating revenues. With the exception of the Electric Enterprise Fund (as further described below). the City currently exceeds its policy on appropriable net assets for its various enterprise funds. See "Discussion of Recent Financial and Managemen.t Events· September 30, 2003 Fmancial Results." According 10 audited numbers for FY 2005. the target net assets by policy and current appropriable net assets for the Water, Wastewater, Storm Water and Airport enterprise funds are as follows: Enterprise Fund Target Net Assets Appropriable Net by Poli~y Assets• Water $9.5 million $13.7 miUion Wastewater $5.3 million $9.2 million Storm Water $.9 million $11.3 million Solid Waste $2.1 million $3.8 million Ajrport $.9 million $2.0 million Electric Enterorise Fund Balance ... [t is the policy of LP&L to maintain appropriable net assets set by the City Charter. Ordinance No. 2004-00140 requires LP&l to restrict cash based on prior year's gross retail electric revenue (GRR) as detennined by the previous fiscal year of LP&L. The City's goal of appropriable net assets LP&L is an amount equal to three months GRR reserved for operations, two months GRR reserved for rate stabilization. and one month GRR reserved for electric utility development According to audited numbers for FY 2005, the total target net assets by ordinance and current appropriable net assets for LP&L is as follows: Enterprise Fund Target Net Assets Appropriable Net byPoUcy Assets• LP&L $53.3 million $24.6 million • Appropriable net assets are calculated on a budget basis. The calculation takes the audited FY 2()04..{)5 cWTCDI assets less current liabilities and a<kis/subtracts FY 2005-06 adjusted budgeted revenues over/under expenditures and adds restricted cash for debt service. Restricted cash for debt service is added to the calculation, as this is already included in the budgeted expenditures for FY 2005-06. Entemrlse Fund Revenues ... It is the policy of the City that each of the Electric, Water, Solid Waste and Sewer funds be operated in a manner that results in self sufficiency, without the need for additional monetary transfers from other fuDds (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 detennining self sufficiency, cost recovery for each enterprise fund ioclud.es direct operating and maintenance expense, as well as indirect cost recovery, in-lieu of transfers to the General Fund for property and franchise tax payments, capital expenditures and debt service payments, where appropriate. Rate increases may be considered in future budgets as costs may warrant, including specifically the costs related to fuel charges that may affect LP&L and the cost of providing service. Debt Service Fund Balance ... A reasonable debt service fund balance is maintained in order to compeosate for unexpected contingencies. Budgerarv Procedures ••. The City follows these procedures in establishing operating budgets: 1) 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 conducted to obtain taxpayer COIWUents. 3} Prior to October 1 the budget is legally enacted through passage of an ordinance. 45 4) The City Manager is authorized to transfer budgeted amounts between accounts below the department leveL Any transfer of funds between departments or higher level are presented to the City Council for approval by ordinance before the funds are transferred or expended. Expenditures may not legally exceed budgeted appropriations at the fund level. 5) Fonnal 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 aMual basis. Fonnal budgetary integration is not employed for Debt Service funds because effective budgetary control is alternatively achieved through general obligation bond indentw"e and other contract provisions. 6) The Budget for the General Fund is adopted on a basis consistent with generally accepted accounting principles. 7) Appropriations for the General Fund lapse at year-end. Unencumbered balances for the Capital Projects Funds continue as authority for subsequent period expenditures. 8) Budgetary comparison is presented for the General Fund in the combined financial statement section of the Comprehensive Annual Financial Report. The City has received the Distinguished Budget Presentation Award from the GFOA for the following budget years begirming October 1, 1983-88 and 1990-0S. Insurance and Risk ManagemW. . . . 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 $500,000, per occurrence. Airport liability insurance and workers' compensation is insured under guaranteed cost policies. The Health Benefits are covered by a self insured program with a $18,845,756 cap and a $175,000 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 transfers are made 1o this fund based upon estimated payments for claim losses. At September 30, 2005 the total Net Assets of these insurance funds were as follows: Self-insurance -health Self-iosunutce -risk management $ 2,050,874 $ 1,688,257 The City obtains an actuarial study of its risk management fund (the "Risk Fund") every year. In fiscal year 2005, an actuarial study was conducted that considtted the types of insurance protection obtained by the City, the loss elq)()St!R and loss history, and claims being paid or reserved that are not covered by insurance. The 200S actuarial review recommended that !he liabilities of the Risk Fund be increased to $6,479,000 from $6,437,000 to the minimum expec:ted confidence level of the Govenunent Acco~.mting Standard Board Statement Number 10 ("GASB I 0''), which requires maintenance of risk management assets at a level representing at least a 500AI confidence level that all liabilities, if presented for payment immediately, could be paid. The Risk Fund bas net assets restricted for insurance claims of $1,688,000 over the recommended funding level. Given the risk net assets balance, the City exceeds the minimum GASB 10 requirement. The City invests its investable funds in investtnents authorized by Texas law in accordance with investment policies approved by the City Council of the City. Both state law and the City's inveslment policies are subject to change. LEGAL INvlsrMENrS ... Under Texas law, the City is authorized to invest in (1) obliga!ions, including letters of credit, of the United States or its agencies and instnunentalities, (2) direct obligations of the State of Texas or its agencies and instrumentalities, {3) collateralized mortgage obligations din:ctly issued by a federal agency or instrumentality of the United Stues, the underlying security for which is guaranteed by an agency or instrumentality of the United States, (4) other obligations, the principal of and inlere$t 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 respeceive agencies and instrwnentalities, (5) obligations of sta1es, agencies, eowtties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized inveslment rating finn not less than A or its equivalent, (6) bonds issued. assumed, or guaranteed by the State of Israel, (7) certificates of deposit (i) meeting the requirements of the Texas Public Funds Investment Act (Chapter 2256, Texas Govemment Code) that are issued by or through an institution that either has its main office or a branch in Texas, and are guaranteed or insured by the Fedetal. Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in the clauses (1) through (6) or in any other manner aad amount provided by law for City deposits, or (ii) where: (a) the funds are invested by the City through a depository institution that bas its main office or branch office in the State of Texas and that is selected by the City; (b) the depository institution selected by the City amnges for the deposit of funds in one or more federally insured depository institutions, wherever located; (c) the certificates of deposit are insured by the United States or an instrumentality of the United States; (d) the depository institution acts 46 c ( c c ( ,. ( c ' c , I, ) ) ) as a custodian for the City with respect to lhe certificates of deposit; and (e) at the same time lhat tbe certificates of deposit are issued, the depository institution selected by the City receives deposits from customers of OCher fedenlly insured depository institutions, wherever located, lhat is equal to or greater than the funds invesmd by lhe City through the depository institution selected under clause (ii)(a) above, (8) fully collaleral.iz.ed rcpurcbase agreements lhat have a defined t.cnnination date, are fully secured by obligations described in clause (1), and are placed through a primary government securities dealer or a financial institution doing business in tbe State of Texas, (9) bankers' acceptances with the remaining tenn of 270 days or less, iftbe short-tenD obligations of the acoepti.ng bank or its parent are rated at least A-I or P-1 or the equivalent by at least one nationally recognized credit rating ageocy, (10) commercial paper that is rated at least A-I or P-1 or the equivalent by either (a) lwo nationally recognized credit rating ageocies or (b) one nationally recognized credit rating agency if the paper is fully secured by an inevocab\e letter of credit issued by a U.S. or state bank, (11) no-load money market mutual funds regulated by lhe Securities and Exchange Commission lhat 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 S I for each shale, (\ 2) no-load mutual funds registered with lhe Securities and Exchange Commission that: have an average weigbmd maturity of less than two years; invests exclusively in obligations described in the pRlCeding cla\lses; aod are continuously rated as to investment quality by at least one nationally recognized investment rating finn of not less than AAA or its equivalent, and (13) 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. The City may invest in such obligations directly or through government investment pools that invest solely in such obligations provided lhat 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) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; (2) obligations whose payment represents tbe principal stream of cash flow from the underlying mortgage-backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite 10 the changes in a market index. 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 tennination at any time and a loan made under 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 credit 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 that are described in clauses (I) through (6) and (10) through (12) of the fii'St 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 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 the program is placed through either a primary government securities dealer or a financial institution doing business in the State of Texas; and (iv) the agreement to lend securities has a term of one year or less. INvrSTMENT Poucu:s ... Under Texas law, the City is required to invest its funds under written investment policies tha1 primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and tbat includes a list of authorized investments for City funds, maximum allowable stated maturity of any individual investment and lhe maximum average dollar-weighted maturity allowed for pooled fund groups. All City funds must be invesmd consistent with a fonnally adopted "'nvestment Strategy Statement" that spccifica1ly addresses each funds' investment. Each Investment Stta1egy Statt::me:at will descn"be its objectives concerning: (I) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketlbility of each investment, (5) diversification of the portfolio, and (6) yield Under Texas law, City investments must he made "with judgment and care, under prevailing citcumstances, that a person of prudence, disetetion, and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment, considering the probable safety of capital aod the probable income to be derived" At least quarterly tbe investment officers of the City sball submit an investment report detailing: (I) the investment position oftbe City, (2) that all investment officers jointly prepared and signed the report. (3) tbe beginning market value, any additions and changes 10 market value and the ending value of each pooled fund group, (4) the book value and market value of each separately listed asset at tbe beginning and end of the reporting period, (5) tbe maturity date of each separately invesmd asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (1) the compliaoce of the investmenJ portfouo as it relales to: (a) adopted investment strategy statements and (b) state law. No person may invest City funds wiltoout express written auahority from the City Council AoomONAL PRoVISIONS .•• Under Texas law the City is additionally required to: (I) annually review its adopmd policies and strategies; (2) require any investment officers' with personal business relationships or relatives with films seeking to sell securities to the entity to disclose the relationship and file a statement wi1h the Texas Ethics Commission and the City Council~ (3) require the registen:d principal of fums seeking to sell securities to tbe City to: (a) receive and review the City's investtnent policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; ( 4) perl'onn an annual audit of tbe management controls on investmeo1s and adherence to the City's investment policy; (S) provide specific investment training for the Treasurer, Chief Fm.ancial Officer and investment officers; (6) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the tenn of tbe reverse repurchase agreement; (7) restrict its investment in mutual funds in the aggregate to oo more th1111 15 percent of its monthly average fund balance, excluding bond proceeds and reserves 47 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 investtnent pools to oonform to the new disclosure, rating, net asset value, yield calculation. and advisory board requirements. TABLE 15 -CURRENT INVESTMENTS As of February 28, 2006, the City's investable funds were invested in the following categories: Estimated Fair Book Value Martet Value111 W~igbted %of Total •!oofTotal Average T~ Par Value Value Book Value Value Market Value Maturi!l;~S) United States AgeDcy Obligalioll$ $ 50,500,000 49,838,470 2-1.22 s 49,606,00:> 24.13 50 days Money Markee Mutual Funds(l1 6),948.615 63,948,615 31.08 6),948,615 31.11 I day Local govemmem investment pools111 91,987,482 91,987,482 44.10 9!,987,482 44.7S I day 206,436,097 205,774,5(,7 100.00 205,542,102 100.00 51 days (I) Market prices are obtained from Advent's interface with fT Interactive Data No funds are invested in mortgage back securities. The City holds all investments to maturity whicb minimizes the risk of market price volatility. (2} Money Market FWlds are held at Wells Fargo Bank, Texas N.A. (3) local govenunent investment pools con.sist of entities whose investment objectives are preservation and safety of principal, liquidity and yield. The pools seek to maintain a $1.00 value per sbare as required by the Texas Public Funds Investment Act The investment pools used by the City include TexPool and TexSTAR.. TexSTAR is a local government investment pool for whom First Southwest Asset Management, Joe., an affiliate of First Southwest Company, provides customer service and marketing for the pooL TexST AR currently maintains an "AAA" rating ftom 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 redemption.s of funds are allowed by the participants. First Southwest Company is a Financial Advisor for the City in connection with the issuance of City debt. [THE REMAINDER OF THIS PAGE IN'I'ENnONALL Y LEFT BLANK) 48 c ( c c c ( r .. < ( ) } ' } TAX MATTERS TAX ExEMPTION In the opinion of Vinson & Elkins LL.P., Bond Counsel, (i) interest on the 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 cotpOrations .. The Internal Revenue Code of 1986, as amended (the "Code"), imposes a number of requirements that must be satisfied for interest on state or local obligations, such as the Bonds, to be excludable from gross income for federal income tax purposes. These requiremenlS 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 States and a requirement that the issuer file an information report with the Internal Revenue Service. The Issuer bas covenanted in the Ordinance that it will comply with these requirements. Bond Counsel's opinion wiU assume continuing compliance with the covenants of the Ordinance pertaining to those ~tions of the Code that affect the exclusion from 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 Underwriter with respect to matters solely within the knowledge of the Issuer, the Issuer's Financial Advisor and the Underwriter, 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 detennined to be inaccurate or incomplete, interest on the Bonds could become taxable from the date of delivery of the Bonds, regardless of the date on which the event causing such taxability occurs. The Code also imposes a 20% alternative minimum tax l)n the "alternative minimum taxable income" of a corporation if the amount of such alternative minimum tax is greater than tbe 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 FAsrn. includes 75% of the amount by which its ~adjusted current earnings" c:xceeds its other "alternative minimum taxable income." Because interest on tax exempt obligations, sucb as the Boods, is included in a co1p0ration's "adjusted current 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 feden.J., 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 existing law, which is subject to change. Such opinions are further based on Bond Counsel's knowledge of facts as of the date thereof. Bond Counsel assumes oo duty to update or supplement its opinions to reflect any facts or circumstances that may thereafter come to Bond Counsel's attention or to reflect aoy changes in any law that may thereafter occur or become effective. Moreover, Bond Counsel's 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 law and in reliance upon the representations and covenants referenced above that it deems relevant to such opinions. The Service has an ongoing audit program to detennine 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 wiU commence an audit of the Bonds. If an audit is commenced, in accordance wilb its cun-ent published procedures the Service is likely to treat the Issuer as the taxpayer and the Owners may oot 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. ADDmONAL FEDERAL INCOME TAX CONSIDERATIONS ColLA TUAL TAX CONSEQVENCES ••• Prospective purchasers of the Bonds should be aware that the ownel$hip of tax exempt obligations may result i.n collateral federal income tax consequences to financ.ial institutions, life insurance and property and casualty inswa<:e companies, certain S cotpOrations with Subcmpter C earnings and profits, individual R:Cipients 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 Uoited States may be subject to tbe "branch profits tax" on their effectively connected eamiogs 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. Prospective purchasers of the Bonds should also be aware that, under the Code, taxpayers are required to report on their returns the amount of tax-exempt interest, such as interest on the Bonds, R:Ceived or accrued during the year. 49 TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE PREMruM ... The issue price of all or a portion of the Bonds may eltceed the stated redemption price payable at maturity 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. 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 detennining gain or loss for federal income tax 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 amortizable 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 detennined using the yield to maturity on the Premium Bond based on Che 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 Che initial offering at the initial offering price may be detenuined according to rules that differ from those described above. All owners of Premium Bonds should consult their own lax advisors with res~t 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 putchase, ownership, and sale, redemption or other disposition of such Premium Bonds. TAX ACCOUNTING Tlu:A TMENT OF ORIGINAL ISSUE DlSCOVNT 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 at the maturity ofeacb Original Issue Discount Bond, and (ii) the initial offering price to the public of sw::b Original 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 6l 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 captions "Tax Exemption" and "Collateral Tax Consequences" generally applies, and should be considered in connection with the discussion in this portion of the Official Statement. ln 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 sw::b 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 sw::b 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· length transactions for a price (and with no other consideration being included) not more than the initial offering prices thereof stated on the cover page of this Official Statement. Neither the Issuer nor Bond Counsel bas 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 anmversary dates of the date 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 stated 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 detennined according to rules which differ from those described above. All owners of Original Issue Discount Bonds should consult lheir 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 Originallssu.e Discollllt Bonds and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption., sale or other disposition of such Original Issue Discount Bonds. 50 c c ,. \,. c ( c ( t' " , ... ( , ... ) ) ) ) OTIIER INFORMATION RATINGS The presently outstanding tax supported debt of the City is rated "Al" by Moody's. "AA-" by S&P and "AA-" by Fitch. The City also has issues outstanding which are rated "Aaa." by Moody's, "AAA" by S&P aod "AAA" by Fitch through illSUI'3DCe by various commercial insurance companies. Applications for contract ratings on the Bonds have been made to Moody's, S&:P and Fitch. An ex:planation of lhc significance of such ratings may be obtained from lhe company furnishing the rating. The ratings reflect only the respective views of such organizations and the City malces no representation as to the appropriateness of the ratings. There is no assurance that such ratings will continue for any given period of rime or that they will not be revised downward or withdrawn entirely by either or both of such rating companies, if in the judgment of either or both companies, circumstances so warrant. Any such downward revision or withdzawal of such ratings may have an adverse effect on the mad:et price of the Bonds. LmGATION 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. · The City is also involved in a lawsuit with the City's firefighters regarding pay issues. The firefightm 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 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 covere4 by an insurance policy, lhe City Attorney only assesses lhe 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 $2.6 million under a breach of contract claim. The City obtained a summary judgment in this case against the conlractor. The contractor appealed lhc decision to the Fifth Circuit Court of Appeals and oral argument was heard on March 7, 2006. While this 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 lhe stormwater drainage project. The contractor has alleged violatioliS of the state bid statute and a violation of Section 1983. The plaintiffs took a nonsuit in state court and ~filed the case in federal court. The federal 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 sixty-two plaintiffs who allege that lhe 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 during portions of the time in question, and/or that the allegations fail to state a claim upon which relief 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 sources for payment of any such claims, which include insurance policies and City ~erves 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 Underwriter, the City will execute and deliver to lhe Underwriter a certificate to the effect that. except as disclosed herein, oo litigation of any nature has been filed or is pending, as of that date, to restrain or enjoin the issuance or delivery of the Bonds or which would affect the provisions made for their payment or security or in any manner question the validity of the Bonds. 51 REGISTRATION AND QUALIFICATION OF BoNDS FOR SALE The sale of the Bonds has not been registered under tbe Federal Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a)(2); and the Bonds have not been qualified under the Securities Act ofTex.as in reliance upon various ex.eroptions 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 10 the availability of any exemption from securities registration provisions. LEGAL INvEsTMENTS AND ELICIBfi.ITV TO SECURE Pl/BUC FliNDS IN TEXAS Section 1201.041 of the Public Security Procedures Act (Chapter 1201, Texas Govenunent 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, tbe Public Funds Investment Act, Chapter 2256, Texas Govenunent Code, requires that the Bonds be assigned a rating of "A" or its equivalent as to investment quality by a national rating agency. See "-other Information -Ratings" herein. In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investor standard, the Bonds are legal investments for state banks, savings banks, trust companies with at capital of one million dollars or more, and savings and loan associations. The Bonds are eligible to secure deposits of any public funds of the State, its agencies, and its political subdivisions, and are legal security for those deposits to the extent of their market value. No review by the City bas been made of the laws in other states co detennine whether the Bonds ace legal investments for various institutions in those smtes. LtGAL MATTERS The delivery of the Bonds is subject to the approval of the Attorney General ofTens to the effect that such Bonds are valid and legally binding obligations of the City payable from sources and in the manner described herein and in the Bond Ordinance and the approving legal opinion of Bond Counsel, to like effect and 10 the effect that the interest on the Bonds will be ex.cludable from gross income for federal income tax pwposes under Section I OJ{ a) of the Code, subject lo the matters descnbed under "Tax Matters" herein, includiog the alternative minimum tax on corporations. The form of Bond Counsel's opinion is attached hereto in Appendix C. The legal fee 10 be paid Bond Counsel for services rendered in connection with the issuance of the Bonds is contingent upon the sale and delivery of the Bonds. The legal opinion of Bond Counsel will accompany the Bonds deposited with DTC or will be printed on the definitive Bonds in the event of the discontinuance of the Book-Entry-Only System. CelUin legal matters will be passed upon for the Underwriter by McCall, Parkhurst & Horton LLP, Dallas, Texas, Counsel for the Underwriter. The legal fee of such firm is contingent upon the sale and delivery of the Bonds. Bond Counsel was engaged by, and only represents, the City. Except as noted below, Bond Counsel did not take part in the preparation of the Official Statement, and such finn bas not assumed any responsibility with respect thereto or undertaken independently to verify any of the information conmined berein ex.cept that in its capacity as Bond Counsel, such fum has reviewed the information appearing in this Official Statement under the captions ''The Bonds" (exclusive of the information under the S'Ubcaptions "Book-Entry Only System," "Use of Bond Proceeds" and "Bondholders' Remedies") and "Tax Matters" and under the subcaptions "legal Opinions," "Legal Investments and Eligibility 10 Secure Public Funds in Texas" and "Continuing Disclosure of Information" under the caption "Other Information" and such flTIIl 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 conforms to the Ordinance.. The legal opi.Nons 10 be delivered concurrently with the delivery of the Bonds ex.press the professional judgment of the attorneys retldering the opinions as to the legal issues explicitly addressed thereio. In reodering a legal opinion, the attorney does not become an insurer or guarantor of that expression of professional judgment, of the transaction opined upon, or of the future performance of the parties to the transaCtion, nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. CO!'mNVINC DISCLOSURE OF INFOill\IA nON In the Ordinance, the City has made the following agreement for the benefit of the holders and beneficial owners of the Bonds. The City i.s required to observe the agreement for so long as it remains obligated 10 advance funds to pay the Bonds. Under the agreement. the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to certain information vendon. This information will be available to securities brokers and others who subscribe to receive the information from the vendors. ANNUAL RI:PORTS ... The City will provide certain updated financial information and operating data to celUin information vendors annually. The information to be updated includes all quantitative financial information and operating data with respect 52 c ( c c c ( c < c c ) ) ) to the City of the genel'31 type iucluded in this Official Statement under Tables numbered I through 6 and SA through IS 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 2006. The City will provide the updated infonnation to eacb nationally recognized municipal securities information repository ('"NRMSIRn) approved by the staff of the United States Securities and Exchange Commission rsEC") and to any state information depository {"SID") that is designated and approved by the State ofTexas and by the SEC staff. The City may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule 1Sc2-12. The updated information will include audited financial statements, if the City commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the City will provide unaudited financial information and operating data which is customarily prepared by the City by the required time, and audited financi.aJ statements wben and if such audited financial statements become available. Any such financial statements will be prepared in accordance with the accounting principles described in Appendix B or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation. The City's current fiscal year end is September 30. Accordingly, it must provide updated information by March 31 in each year, unless the City changes its fiSCal year. If the City changes its fiSCal year, it will notify each NRMSrR. and the SID of the change. The Municipal Advisocy Council of Te:us (the "MAC") has been designated by the State of Texas and approved by the SEC staff as a qualified SID. The address of the MAC is 600 West 8th Stteet. P.O. Box 2177, Austin, Texas 78768-2177, and its telephone number is 512/476-{;947. The MAC has also received SEc approval to operate, and has begun to operate, a "central post office" for information filings made by municipal issuers, such as the City. A municipal issuer may submit its infonnation filings with the cenllal post office, which then transmits such information to the NRMSIRs and the a.ppropriate SID for filing. This central post office can be accessed and utilized at www.DisclosureUSA.org (•DisclosureUSA "). The City may utilize DisclosureUSA for the filing of infonnarion relating to the Bonds. MATEIUA.L EVENT NOTICES ... The 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 to the Bonds, if such event is material to a decision to pwchase or sell Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) W1SCheduled dl'3ws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax-exempt status of the Bonds; (7) modifications to rights of holders of the Bonds; (8) early redemption of the Bonds; {9) defeasances; {10) release, substitution, or sale of property securing repa~t of the Bonds; and {II) rating changes. (Neither the Bonds nor Ordinance make any provision for debt service reserves or liquidity enhancement.) In addition, the City will provide timely notice of any failure by the City to provide information, data. or financial statements in accordance with its agree.meot described above under w Annual Reports." The City will provide eacb ootice described in this paragraph to the SID and to either each NRMSIR or the Municipal Securities Rulemaki.og Board ("MSRB"). AVAILABWTY OF INFORMATION FROM NRMSlRs AND SID ... The City bas agreed to provide lhe foregoing information only to NRMSI:Rs, the MSRB and the SID, as described above. The information will be available to holders of Bonds only if the holders comply with the procedures and pay the charges established by such information vendors or obtain the infonnation through securities brokers who do so. LIMITATIONS AND AMENDMENTS ••• The City has agreed to update information and to provide notices of material events only as descn'bed above. The City has not agreed to provide other information that may be relevant or material to a cotnplete presentation of its financial results of operations. condition, or prospects or agreed to update any information that is provided, except as described above. The City makes DO representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders of Bonds may seek a writ of mandamus to compel tbe City to compty with its agreement The City may amend its continuing disclosure agreement from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, if (i) the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds, in the offering described herein in compliance with tbe Rule, taking into acoount any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circutDStances, and (ii) either (a) the holders of a majority in aggregaJe principal amount of the outstanding Bonds consent to the amendment or (b) any person unaffiliated with the City (such as nationally recognized bond counsel) determines that the amendment will not materially impair the in~ts 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 1Sc2-12 or a court of final juri.sdiction enters judgment that such provisions of the SEC Rule !Sc2-12 are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling the Bonds in the primary offeri.D,g of such Bonds. 53 If the City so amends the agreement, it bas agreed to include with the next flnancial information and operating data provided in accordance with its agreement described above under "Annual Reports" an explaoation, in narrative fonn, of the reasons for the amendment and of the impact of any change in the type of financial infonna.tion and operating data so provided. COMPLIANCE Wrrtl PJuoR UNDERTAKINGS ••• The City beeame obligated to file annual reports and financial statements with the state information depository ("SID'') and each nationally recognized municipal securities information repository ("NRMSIR") in an offering that took place in 1997. All of the City's General Obligation debt reports and financial statements were timely filed with both the SID and each NRMSIR; however, due to 811 administrative oversight. the City filed its fiscal year end 1999, 2000, and 2001 Electric and Power Revenue debt reports late to the SID and each NRMSIR. The financial infonnatioo has since been filed. as well as a notice of late filing. The City has implemented procedures to ensure timely filing of all future financial information. Under previous continuing discloswe agteements made in oonnection with LP&L revenue bonds, the City conunitted 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 Man:h 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 Financial Results -The Electric Fund"). Because there was an uncertainty as to an amount by which the rate covenant would fail to be met, which was not finally dete!Uiined 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 Wltil September 2004 to make its event filing ofnon-compliam:e with its LP&L rate oovenant. FINANCIAL ADVISOR First Southwest Company is employed as Financial Advisor to the City in co!Ulection with the issuance of the Bonds. The Financial Advisor's fee for services rendered with respect to the sale of the Bonds is contingent upon the issuance and delivery of the Bonds. First Southwest Company, in its capacity as Financial Advisor, does not assume any responsibility for the infonnation, covenants and representations oontained 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 actioos taken by any legislative or judicial bodies. The Financial Advisor to the City bas provided the following sente!lce for inclusion in this Official Statement. The Financial Advisor has reviewed the infonnation in this Official Slatement 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 cireumsi8Jioes of this transaction, but lhe Financial Advisor does not guarantee the accuracy or completeness of such information. VEIUF1CATION Of A.IUTBMETICAL AND MATHEMATICAL COMPUTA TIOI'IS The arithmetical accuracy of certain oornputations included in the schedules provided by Filst Southwest Company on behalf of the City relating to (a) oomputation of forecasted receipts of principal and interest on the Federal Securities and the forecasted payments of priocipal and interest to redeem the Refunded Obligations and (b) computation of the yields of the Refunding Bonds and the restricted Federal Securities were verified by Grant Thornton. LLP, certified public accountants. Such oomputations were based solely on assumptions and information supplied by First Southwest Comp811y on behalf of the City. Grmt Thornton., ILP has restricted its procedures to verifying the arithmetical accuracy of certain computations and has not made any study or evaluation of the assumptions and information on which the computations are based and. accordingly, has not expressed an opinion on the data used. the reasonableness of the assumptions, or the achievability of the forecasted outcome. UNDUWIUTING The Underwriter has agreed, subject to certain conditions, to pwchase the Bonds from the City, at an Ullderwriting discount of $ . The Underwriter wiD be obligated to pun:hase all of the Bonds if any Bonds are pun:bascd The Bonds to be offered to the public may be offered and sold to certain dealers (including the Underwriter 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 cbanged, li:om time to time, by the Underwriter. The statements contained in this Official Statement, and in any other information provided by the City, that are not purely historical, are forward-looking statements, including statements regarding the City's expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in this Official Statement are based on information available to the City on the date hereof, and the City assumes oo obligation to update any suclt forward-looking statements. lbe City's actual results could differ materially from those discussed in such forward-looking statements. 54 ( ( c c I' \ ( " \.. c ,. \, c ) ' ) ) ) 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 R:lating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal, and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors, and legislative, judicial, and other governmental authorities and officials. Assumptions related to the foregoing involve judgments with n:spect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which aR: difficult or impossible to predict accurately and many of which aR: beyond the control of the City. Any of such assumptions could be inaccurate and, therefore, theR: can be no assurance that the forward-looking statements included in this Official Statement wiU prove to be accurate. Mtsc!U.ANEOUS 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 thai any of the assumptions or estimates contained herein will be realized All of tbe swnmaries of the statutes, documents and resolutions contained in this Official Statement are made subject to all of the provisions of such statutes, documents and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for fi.mher izlformation. Reference is made to original documents in aU 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 amcodmCilllbereto, and authorize its fw1her use in lhe R:Offering of the Bonds by the Underwriter. AITEST: lsi REBECCA GARZA City Secretary 55 lsi MARC McDOUGAL Mayor City of Lubbock, Texas S.:hedule I SCHEDULE OF REFUNDED OBUGA TIONS* Tu aad Mualcipal Dniu~ Utility System Sarplas Revenue Certificates of Obligation, Series ZOOl Original Interest Ori~nal Dated Date Maturi!l Rates Amount June 1,2001 02115123 5.20% s 2,885,000 02/15/26 5.25% 4,9<W,OOO 02/15/31 5.30% 10,190,000 The tenn certificates maturing in the years 2023, 2026 and 2031 will be redeemed prior to original maturity on February I 5, 20 It at par. • Preliminary, subject to change. 56 c ( c c ,. 1, ( ( ( ( c ) APPENDIX A GENERAL INFORMATION REGARDING mE CllY ) ) 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: 1910Census 1920Census 1930Census l940Census l950Census 1960Census l970Census 1980Census l990Census 2000Census 2005 (Estimated) (I) 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 t'MSA") (Lubbock Coun!l') l970Census 179,295 1980 Census 2ll,6S l 1990 Census 222,636 2000 Census 242,628 (1) Source: CityofLubbock, Texas AGRJCVLT11RE; BUSINESS AM> INDVS'CRY 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 so~e of agricultural i.Dcome. The Southern High Plains is one of the United State's most productive agricultural areas. Ahnost eighteen percent of the nation's cotton crop and fifty-one percent of the state's cotton crop is planted by fanners in the Southern High Plains. In 2004, approximately 3.59 million bales of cotton were produced in Lubbock and the tO-counties surrounding Lubbock. This was more than the 1. 72 million bales produced in 2003. Projections for the 2005 cotton crop are 4.1 million bales. This will be two consecutive years with record cotton crops for the area. Lubbock also has a large number of service and retail businesses that are agriculturally related. Over 200 manufacturing plants in Lubbock produce such products as semiconductors, vegetable oils, irrigation equipment and pipe, plastics products, funn equipment, papettoard boxes, custom miUworlc/shutters, foodstuffs, prefabricated bomes; poultry and livestock feeds, boilers and pressure vessels, automanc sprinkler system heads. and structural steel fabrication. (l) Source: Texas Agricultural Statistics Services. LUBBOCK MSA I..ABoR FoRCE EsTIMATES {1) Civilian Labor Force Total Employment Unemployment Percent Unemployment Febnwy 2006(2) 142,146 136,511 5,635 4.000.4 (I) Source: Texas Workfon:e Commission. (2) Subject to revision. 2005 141,606 135,878 5,728 4.000.4 Annual Averages 2004 140,436 134,068 6,368 4.50% 2003 138,611 131,896 6,715 4.80% 2002 135.772 129,876 5,896 4.30% 2001 134,187 129,262 4,925 3.70% c ( ( c ( ( ( ( ( c c ) ) ) Estimated non-agricultw:al wage and salaried jobs in various categories as of December, 2005 wm: Hl Manufacturing Construction Trade, Transportation & Public Utilities Financial Activities Professional & Business Services Education & Health Services Infonnation Leisure &Hospitality & Other Government Total 5,400 5,300 24,900 6,800 10,400 18,500 6,200 19,900 28,800 126,000 (1) Source: Texas Workforce Commission. MAJOR E~IPLOU:RS(300 £MPLOY£ESOR MORE) Company Texas Tecti University Covenant Health System Lubbock Independent School District University Medical Center United Supermarkets City of Lubbock Texas Tech Health Sciences Center Cingular Convergys Corporation Lubbock County Lubbock Stale School Texas Dept of Criminal Justice Psychiatric Hospital Frenship lSD Tyco Fire Protection G Boren Services, Inc. SBCJSouthwestem Bell Walmart Supercenter 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 Opelator Service Company Sonic Drive ln ChaseCom!Staffinark Wells Fargo Phone Bank Lubbock Christian University Plains Capital Bank NTS Communications, Inc. American State Bank Dillards Department Stores Cox Cable of Lubbock, lnc. McLane High Plains Sodexho School Services ARAMARK Lubbock Heart HoSPital Interim Healthcare of West Texas ( 1) Soun:e: Business Development (2) Full and part lime. Txpe of Business State Umverstty Hospital Public Schools Hospital Supennarkets City Government Medical and Allied Health School WiRiess Communications Call Center County Govenuuent School for Mentally Retarded Psychiatric Hospital Public Schools Manufacturing/Fire Sprinklers Staffing!HR Consulting Telephone Utility Discount Retailer Post Office 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 Oeparlment Store Cable Utility Wholesale Food Distribution Facilities Management Managed Food Services Heart Hospital Home Health Care Estimated Employees July, 2004(1) 9,919 as 4,310 3,669 2,310 2,156 2,109 2,010 1,750 1,450 950-1200 850 155 VI 639 540 516 500.999 500.999 500.999 500 474 449 444 427 427 425 400 392 384 371 367 355 341 339 330 316 316 308 300 (3) See Texas Depanment of Criminal Justice {''TDCJ") Prison Psychiatric HoSPital following for more detailed information. A-2 EDUCATION· TEXAS TECH UNIVERSITY Eslabl.ishc:d in Lubbock in 1923, Texas Tech University is the fifth largest Stale-Owned University in Tex.as and had a Fan, 2005, enrollment of 28,001. Accredited by the Southern Association of Colleges and Schools, the University is a co-educational. State- supported institution offering a bachelors degree in 158 major fields, the master's degree in 107 major fields, the doctotate 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 aae campus, and bas over 160 permanent buildings with additional oonstruction in progress. According to the July, 2004 major employer list the total employment was 9,919 full time and part time employees. The medical school had an enrollment of 2.391 for Fall, 2005, not including residents; thet-e were 91 graduate students. The School of Nursing had a Fall, 2005, enrollment of632. The Allied Health School had a Fall, 2005, enrollment of795. Source: Texas Tech University. OTHER EDUCATION INFORMATION The Lubbock Independent School District, with an area of 87.5 square miles, includes over 90% of the City of Lubbock. There are approximately 3,669 total employees. The District operates four senior high schools, ten junior high schools, 34 elementary schools and other educational programs. Scholastic Membership History 01 School Year 2000-01 2001-02 2002.03 2003-04 2004..()5 Average Daily Attendance 27,046 27,019 21,094 26,800 28,474 (l) (1) Source: Superintendent's Office, Lubbock Independent School Dislrict (2) Estimaled. Lubbock Christian University, a privately owned, c:o-educational senior college located in Lubbock, had an enrollment of2,079 for the Fall Semester, 2005. The State of Texas School for the Mentally Retarded, located on a 226-acre site in Lubbock, consists of 4{) buildings with bed- capacity for 436 students; 400 students w~ in resideoce. There are approximately 850 professional and other employees. Wayland Baptist College, Plainview Texas, operates a Lubbock Campus which had a Fa!~ 2005, enrollment of 756 students. South Plains Junior College, operates a Lubbock Campus which had a Fal~ 2005, emollmeot of approximately 4.200 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 5.36,670, for 2002 513,096, for 2003 514,250, for 2004 541,549 and 553,688 for 2005. 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 aod Oldahoma Bus Lines, a subsidiary of Greyhound Corporation, provides bus seJVice. Several motor freight common carriers provide service. Lubbock bas a well-developed highway network including Interstate 27 (Lubbock-Amari!lo), four U.S. Highways, one State Highway, a controlled-access outer loop and a county-wide system of paved fann-to-rnarlcet roads. A-3 c c c c c ( c c c ( ) ) ' GOVERNMENT AND MILITARY (ll The fonner air base, now kDown as Reese Technology Center (the "Center") is a 2500-acre campus with over I million square feet of space. The Center is the Stb largest Rese.arch Parle 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 1 t commercial tenants employing over 670 people (created over the last three years). Anchor tenants include Texas Tech Research and the 4,ZOO-srudent campus of South Plains College, a two-year community college. Reese Center is the home of the prized Institute of Environmental and Human Health (llEHH). TJEHH is a joint venture between Texas Tech University and Texas Tech University Health Sciences Center aod researches the exposwe and effects toxic chemicals have on human health and the environment. TIEHH has assisted in stimulating the Lubbock economy with over $50 million in grants. TIEHH's location as the anchor t.er1an.t at the Reese Technology Center has assisted the facility in being transfonned into a research, industrial and col1lllle1'cial 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 conununications. 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 the last three years. State of Texas •.. More than 25 State of Texas boards, depanments, agencies and commissions have offices in Lubbock; several of lbese offices have multiple units or offices. Federal Government ... Several Federal departments and various other administrations and agencies have offices in Lubbock; a Federal District Court is locatod in the City. (I) Source: City of Lubbock. Texas. TEXAS DEPARTMENT OF CRIMINAL JUSTICE ("TDCJ") PRISON PSYCHIATRIC HOSPITAL TOCJ operates a 550-bed Prison Psychiatric Hospital and a 48-bcd 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 fur all facilities is approximately 870 wid! an annual estimated payroll of S 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 I ,800 beds. Covenant Medical Center is the laigest and also operates an accredited nw:sing school. Lubbock County Hospital District, with boundaries contiguous with Lubbock County, owns the University Medical Center which it operates as a teaching hospital for the Texas Tech Health Sciences Center. There are approximately l 00 clinics and over 800 practicing physicians, surgeons, and dentists. Lubbock's Health Care Sector employs over 18,000 people whose payroll of almost $580 million and related contributions provide a substantial impact to the Lubbock area. Lubbock's Health Care Sector draws patients from 77 counties in West Texas and Eastern New Mexico. RECREATION AND ENTERTAINMENT Lubbock's Mackenzie Regional Padc and over 75 City parks and playgrouuds provide rema.tion centers, pavilions, shelter buildings, a garden and art center, swimming pools, a golf couxse, tennis and volley ball courts, baseball diamonds and picnic areas, iru:ludiDg the fun Bertram Canyon Lakes system of six lakes and 750 acres of adjacent parkland extending from northwest to southeast Lubbock along the Yellowhouse Caoyon. There are several privately-owned public swimming pools, golf courses, and country clubs. The City of Lubbock bas developed a 36 square block area of approximately l 00 acres adjacent to downtown Lubbock under the Lubbock Memorial Civic Center program.. Approximately SO acres contain the 300,000 square foot Lubbock Memorial Civic Center, the main City libracy building and State Depactment of Public Safety offices; a SO-acre peripheral area bas been redeveloped privately with office buildings, hotels and motels, a hospital, and other facilities. Available to residents are Texas Tech University programs and events, Texas Tech University Museum. Planetarium and Ranching Heritage Center exhibits and programs, United Spirit Arena and its events, Lubbock. Memorial Civic Center and its events, Lubbock Symphony Orchestra programs, Lubbock Thea1re Center, Lubbock Civic Ballet, Municipal Auditorium and coliseum programs and events, the library and its branches, tbe annual Panhandle-South Plains Fair, college and high school football, baskefuall and other sporting events, as well as modem movie theaters. A -4 CHURCHES Lubbock has approximately 300 cbun:hes representing more than 2S denominations. UTH..I1Y SERVICES Water and Sewer -City of Lubbock. Gas-Atmos Energy Company. Electric-City of Lubbock (Lubbock Power & Light) and X eel Energy; and, in a small area, South Plains Electric Co-ope.tative. ECONOMIC INDICES c•l Utility Connections Building Electric Year Penuits Water Gas (LP&L Onlyf1) 2001 $ 294,064,200 70,756 65,332 59,431 2002 314,077,929 72,615 67,308 62,713 2003 417,252,162 12,505 69,954 62.203 2004 408,726,402 74,026 70,196 63,07~ 2005 452,511,964 (l) All data as of 12-31, except wf\ere noted; Soun::e: City ofLubboclc. (2) Electric cormections are those of City of Lubbock owned Lubbock Power and Light ("LP&L") and do not include those ofXcel Energy or South Plains Electric Cooperative. LP&L provides service 10 approximately 70"/o of the electric custo~ in the City. BUU..DING PERMITS BY CLASSIF1CA TION <n Residential Permits Single Family Multi-Family Total Residential Commercial, No. No. Public Total Calendar No. Dwelling Dwelling and Other Building Year Units Value Units (l) Value Units (2) Value Permits Penni IS 2000 819 $87,501,009 281 $11,548,809 1,100 s 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 1,595 101,540,351 2,883 274,219,589 143,032,573 417,252,162 2004 1,204 169,075,633 2,382 114,339,697 3,586 283,415,330 125,31 1,072 408,726,402 2005 1,129 179,992,398 350 37,835,811 1,479 217,828,209 234,683,755 452,511,964 (1) Source: City of Lubbock, Texas. (2) Data shown under "No. Dwelling Units" is for each individual dwelling unit, aod is not for separate buildings; includes duplex, triplex, quadruplex and apartment pennits. A -5 ,. ... c ( c c c c ( c c c ) ) ) APPENDIXB EXCERPTS FROM 1liE CITY OF LUBBOCK, TEXAS ANNUAL FINANCIAL REPORT For the Year Ended September 30, 2005 The infonnation contained in this Appendix CODSists of excerpts from the City of Lubbock. Texas Annual Financial Report for theY ear Ended Seplember 30. 2005, and is not inteDded 10 be a complete statement of the City's financial condition. Reference is made 10 the complete Report for further information. February 13,2006 Honorable Mayor, City Council, and Citi?ens of the City of Lubbock, Texas: We are pleased to submit the Comprehensive Annual Financial Report (CAFR) of the City of Lubboc~ Texas (City) for the fiscal year ended September 30, 2005. The purpose of this report is to provide the City Council, citizens, representatives of financial institutions, and others with detailed information concerning the financial condition and performance of the City of Lubbock. In addition, the report provides assurance that the City presented fairly, in all material respects, its financial position as verified by independent auditors. 1bis report consists of management's representations concerning the finances of the City. Consequently, management assumes full responsibility for the completeness and reliability of all of the infonnation presented in this report. To provide a reasonable basis for making these representations, management of the City has established a comprehensive internal control framework that is designed both to protect the City's assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City's financial statements in confonnity with generally accepted accounting principles (GAAP). Because the cost of internal controls should not outweigh their benefits, the City's comprehensive framework of internal controls has been designed to provide reasonable, rather than absolute, assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief: this financial report is complete and reliable in all material respects. The City's financial statements have been audited by BKD, LLP, a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City for the fiscal year ended September 30, 2005, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the City's financial statements for the fiscal year ended September 30, 2005, are fairly presented in confonnity with 1 c ( c c c c c c ( c c ) ) Honorable Mayor, City Council, And Citizens of the City of Lubbock, Texas February 13, 2006 GAAP. The independent auditor's report is presented as the first component of the financial section of this report. The independent audit of the financial statements of the City was part of a broader, federally mandated "Single Audit" designed to meet the special needs of federal grantor agencies. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government's internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards. These reports are available in the City's separately issued Single Audit Report. GAAP require that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management's Discussion and Analysis (MD&A). This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. The City's MD&A can be found immediately following the report of the independent auditors. THE CITY AND ITS ORGANIZATION Population and Location The City is located in the northwestern part of the state commonly known as the South Plains of Texas. The City currently occupies a land area of 119.1 s~uare miles and serves a population of 211,187 (2006 estimated population). Lubbock is the II largest city in the State of Texas and the 13th largest Metropolitan Statistical Area (MSA). The Lubbock MSA includes Lubbock and Crosby Counties. Form of Government and City Services The City was incorporated in 1909. The City is empowered to levy a property tax on both real and personal properties located within 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 has operated under the council-manager form of government since 1917. Policy- making and legislative authority are vested in a city council consisting of the mayor and six other members. The City Council is responsible, among other things, for passing ordinances, adopting the budget, appointing committees, and hiring the City Manager, City Attorney, and City Secretary. The City Manager is responsible for carrying out the policies and ordinances of the City Council, for overseeing the day-to-day operations of the City, and for appointing the heads of the various departments. The City Council is elected on a non-partisan basis. Council members serve four-year staggered terms, with three council members elected every two years. The mayor is elected to serve a two-year term. Six of the council members are elected by district The mayor is elected at large. 2 Honorable Mayor, City Counci~ And Citizens of the City of Lubbock, Texas February 13, 2006 The City provides a full range of services that include public safety, the construction and maintenance of highways, streets, and other infrastructure, solid waste services, and recreational activities and cultural events. The City also provides utilities for electricity, water, wastewater, and storm water as well as a public transportation system. Public safety includes police protection and fire protection. Police protection is provided through the Police Department, which includes 359 sworn police officers. The City's Fire Department operates 1 S fire stations and has 319 total personnel including administration, fire prevention, maintenance, training, and communications. Electric service in the City is provided by Lubbock Power and Light (LP &L ), Xcel Energy and South Plains Electric Cooperative. LP&L, the municipal electric company, has 66,172 meters in the City with an average daily consumption of3,956,904 kwh. LP&L has 14 substations, 1005 miles of distribution lines, and 85 miles of transmission lines. Natural gas service is provided by Atmos Energy.' Currently, the City obtains 75% to 85% of its drinking water supply from the Canadian River Municipal Water Authority {CRMW A). The CRMWA combines surface water from Lake Meredith and ground water from Roberts County to meet the water demands of Lubbock and the other 10 member cities of CRMW A. Lubbock secures the remaining 15% to 25% of its water from its groundwater rights in Bailey and Lamb Counties. The City provides water service to 75,700 meters as well as the City of Shallowater, City of Ransom Canyon, Buffalo Springs Lake, and Lubbock Reese Redevelopment Authority. The capacity of the City water transmission system is 81 million gallons per day with an average utilization of 39 million gallons per day. The City has 1,341 miles of distribution lines and 146 active water wells with 83,265 acres of warer rights. The CRMW A allocates more than 11 billion gallons of water to the City annually. Lake Alan Henry, built by the City in 1993, is considered a third water supply for future use. In order for the City to utilize water from Lake Alan Henry, future construction is required for pump stations, a pipeline to carry the water to Lubbock, and a new treatment plant For the past several years, the City has been planning for future water needs. In March 2003, the City contracted with WaterTexas, Inc. to evaluate and make recommendations on how the City could optimize "existing and potential water supplies on a short-, mid-, and long-tenu basis. In a report titled City of Lubbock Strategic Water Plan, WaterTexas reported that the City has adequate water supply and will continue to do so provided that it takes steps to address its maximwn day capacity limitations; addresses its ability to respond readily to drought conditions at Lake Meredith; and strategically develops additional supplies giving due consideration to demand, cost, opportunity, and competing budgetary needs. To strategically develop additional water supplies, the City Council established the Lubbock Water Advisory Commission in July 2003. The primary objective of this Commission is to assist in the development of a 100-year water supply plan. The CRMWA has secured an additional 180,000 acres of groundwater rights in the Northern Panhandle. The total of groundwater rights now stands at over 220,000 acres with an estimated 15 million acre feet of water within those rights. Conservative projections using current secured water rights indicate the CRMW A member city water demands can be fully met tluough 2097. 3 ( c c c c c ( ( ( ( Honorable Mayor, City Council, And Citizens oftbc City of Lubbock, Texas February 13,2006 Wastewater collection and treatment is provided within the city limits to residential, commercial, and industrial customers. The collection system consists of 940 miles of sanitary sewer as of January 1, 2005. The wastewater treatment plant has a capacity of 31.5 million gallons per day (permitted capacity) and an average utilization of approximately 23 million gallons per day. The peak utilization of the wastewater treatment plant is 27 million gallons per day. The City of Lubbock's drainage is primarily conveyed through the City's street system that discharges into more than 115 playa lakes. The subsurface drainage, via storm sewer pipes with cmb inlets, conveys water to two small intermittent streams (Blackwater Draw and Yellowhouse Draw) which both converge at the upper reaches of the North Fork of the Double Mountain Fork of the Brazos River. The City's municipal separate stonn sewer system (MS4) is made up of 1,076 linear miles of paved and unpaved streets, 530 linear miles of paved and unpaved alleys, 1,188 miles of storm sewer inle~ 70 miles of subsurface storm sewer pipe, three detention basins, 115 playa lakes, and one pump station. Maintenance ·of all of the storm sewers and street cleaning was funded from the Storm Water Fund during FY 2005. During FY 2005 the primary focus of the storm water fund was the construction of the South Lubbock Drainage Project-Phase I Main Trunk Line and the completion of the one mile portion of storm sewer between University Avenue and Indiana Avenue as part of the street widening project The design of the drainage channel north of Andrews Park Lake was also completed this fiscal year. Work was completed on the Maxey Park Feasibility Study and work began on a Federal Emergency Management Agency (FEMA) Restudy of two of the playa lake systems. The other focus was on the submissio~ of the City's application for the Texas Pollution Discharge Elimination System (TPDES) MS4 permit for the City's storm water quality activities. Until the new permit is issued, the City will continue to comply with the existing MS4 permit from the Environmental Protection Agency. The eleven different programs that are part of the existing permit were continued during FY 2005. The City also provides garbage collection and disposal services. The City provides services to 63, t 03 residential customers and 2,930 commercial customers. The City has two landfill sites. One site is designated as Lubbock Landfill and is a transfer station only. The second site is Lubbock's premier landfill, the West Texas Regional Disposal Facility. The West Texas Regional Disposal Facility opened in 1999 and is currently the largest landfill in the State of Texas. With 1,260 acres it is expected to serve the region for the next 100 years. Citibus is the public transportation provider for the City. Citibus provides three primary types of services. They include a Fixed Route Service, CitiAccess {parafransit system), and Special Services. Citibus has also expanded service later into the evenings. The Citibus Evening Service is designed to meet the needs of both CitiAccess and fixed route passengers who are transit dependent and who would have no other means of transportation in the evenings if the Evening Service were not provided. A majority of Evening Service passengers woik at night and use the service for transportation to and from job sites. Citibus is professionally managed by McDonald Transit Associ~ Inc. 4 Honorable Mayor. City Council, And Citizens of the City of Lubbock, Texas February 13, 2006 The City has an aggressive housing and community development program implemented and administered through :funding from the Federal Community Development Block Grant program, HOME Investment Partnership Program, and Emergency Shelter Grant program. This year the City completed work on over 823 houses, assisted over 25,888 individuals, and created 6 jobs through an economic development loan program. Community enrichment and cultural services are also major programs of the City. The City owns and operates four libraries with over 388,220 volumes. The City also owns and maintains 76 parks and 55 playgrounds. Extensive recreational facilities include 4 swimming pools, 60 tennis oow:ts, 31 baseball and softball fields, 5 recreation centers and 5 senior centers. To further enhance quality of life and to provide support to the tourism industry, the City also operates the Civic Center (convention center), a coliseum, an auditorium for performing arts, the Buddy Holly Center, and the Silent Wmgs Museum. The City is responsible for the construction and maintenance of highways and streets. Currently the City has 1003.8 miles of paved streets. A new fund was established after the City Council passed a resolution in 2004 stating that 40% of the franchise fee revenue and telecom line charges would be devoted to fimding street projects. This fund is called the Gatevvay Street Fund. The funding will be used to fund the debt service on street projects as determined by the City Council. The FY 2005-06 budget for the Gatevvay Street Fund includes the widening of Milwaukee Avenue from 34111 to 98th Street, cons1ruction of a T-2 thoroughfare street on Erskine from Frankford to Salem, construction of a T-2 thoroughfare street on Slide Road from Loop 289 to Erskine) and wideDing Loop 289 just north of 4ill Street to just south of Erskine and rebuilding the interchange. These projects support substantial commercial and residential development on the west side of the City. Other major road construction in the City includes construction on 98th Street from Slide Road to Frankford Avenue and construction of the Marsha Sharp Freeway by the Texas Department of Transportation (I'XD01). This freevvay will run from West Loop 289 east to link up with Interstate 27. The first phase of the project is completed and included widening Loop 289 from four to six lanes from 34th street to Slide Road and rebuilding the frontage road system \Dlder the main lanes -three lanes on each side. It also included building the 50th Street overpass and extending 50th S1reet to Frankford Avenue. TXDOT awarded the bid for the second phase of the Marsha Sharp Freeway that began construction in May 2005. The Marsha Sharp Freeway will benefit the City by providing a western connection to West Loop 289 enswing a more efficient flow of traffic throughout the City. It will also reduce the congestion on north/south and east/west major arterials and give faster access to all points in Lubbock, specifically Texas Tech University, the central business district, education centers, and medical facilities. The entire project is expected to cost $256 million and be completed sometime after 20 I 0. One of the key components of the City's transportation system is the Lubbock Preston Smith lnterna.tional Airport, l~ted 7 miles north of the City's central business district on 3,000 acres of land adjacent to Interstate 27. It is operated as a department of the City. The airport operates a 220~000 square foot passenger terminal and has three runways; 11,500' x 150'; 8,000' x 150'; 2869' x 75 '. Air traffic control services include a 24·hour Federal Aviation Administration control tower and a full range of instrument approaches. The airport is currently served by three major passenger airlines and two major cargo airlines having over 80 commercial flights per day. 5 c ( ( c c ( c c c c ) Honorable Mayor, City Council, And Citizens of 1be City of Lubboclc. Texas February 13, 2006 The City is financially accountable for a legally separate civic services corporation and an economic development corporatio11s both of which are reported separately within the City's financial statements as discretely presented component units. Additional information on these legally separate entities can be found in the notes to the financial statements. Annual Budget Process The annual budget setVes as the foundation for the City's financial planning and control. All departments of the City are required to submit requests for appropriation to the City Manager in June of each year. The City Manager uses these requests as the starting point for developing a proposed budget. The City Manager then presents this proposed budget to the City Council for review prior to August 31. The City Council is required to hold public hearings on the proposed budget and to adopt a final budget by no later than September 30, the close of the City's fiscal year. The appropriated budget is. prepared by fund and department. Department directors may request transfers of appropriations within a department. Transfers of appropriations between funds, however, require the approval of the City Council. Budget-to-actual comparisons are provided in this report for the General Fun~ as part of the basic financial statements. ECONOMIC CONDITION AND OUTLOOK The information presented in the financial statements is perhaps best understood when it is considered within the context of the City's local economy. The following information is provided to highlight a broad range of economic forces that support the City's operations. Local Economv The City has a stable economy that has historically shown slow~ steady growth and it has continued that growth through October 2005. The City's economy is agriculturally based but has diversified over the past 20 years which minimizes the affects ofbusiness cycles experienced by individual sectors. The South Plains is one of the United States' most productive agricultural areas. Almost eighteen percent of the nation's cotton crop and fifty-one percent of the state's cotton crop is planted by farmers in the South Plains. Production on the Southern High Plains is estimated to total4.1 million bales for 2005, up fourteen percent from last year's production. The City has strong manufacturing, wholesale and retail trade; services~ and government sectors. The manufactmers are a diverse group of employers who support approximately 5,400 workers. A central location and access to transportation have contributed to the City,s development as a regional warehousing and distribution center. The City also serves as the major retail trade center and health~e provider for a region of more than a half a million people. A breakdown of the percent of employment base by industry category has been provided below, which gives a "snapshof' of the industry base of the City. 6 Honorable Mayor, City Council, And Citizens of the City of Lubbock, Texas February 13, 2006 !PERCENT EMPLOYMENT BASE BY INDUSTRY CATEGORY I Transp. W""'housing & Ulilties Natural Resources. Mining & ConsiiUCiion 4.5% 2.9% Professional & Businen Setviees 8.7% and Hospitality 11.1% Two major components of the local economy are education and health care services. Lubbock is home to three universities and one community college; Texas Tech University, Lubbock Christian University, Wayland Baptist University -Lubbock Center and South Plains College. Enrollment increased steadily through Fall2003, but because of increased tuition costs decreased slightly in Fall2004 and 2005. The availability of the schools in Lubbock is an added advantage for our industries as they provide a ready source of labor for their successful operation. The healthcare and social services sector is also a vital component of the Lubbock economy. This sector employs almost 18,000 people, whose payroll of almost $580 million and related contributions provide a substantial impact to the Lubbock area (Source: 2003 County Business Patterns) Other current and trend information has been provided below, which gives a picture of the overall city economy. Lubbock Economic Index. The Lubbock Economic Index is designed to represent the general condition of the Lubbock economy by tracking local economic growth rates. It is based atlOO.O in January 1996. The economic index for October 2005 was 124.6, which is .4% impro':ed over the index for October 2004. The Lubbock economy continues to be "high, but flat", with most sectors posting solid numbers, but with little growth sector by sector, or in the overall Lubbock economy. (Source: Lubbock Economic Index October 2005) 7 c c c c c c c c c f' .... ) ) Honorable Mayor, City Council., And Citizens ofthe City of Lubbock. Texas February 13, 2006 Lubbock Economic Index January 1996 to October 2005 100~----~----~----~----~-----r-----r-----r----~----~--~ Jan-96 Jan-97 Jan-98 Jan-99 Jan.OO Jan-01 Jan-02 Jan·-03 Jan-<14 Jan-os Building Permit Valuations. Construction continues to make a strong contribution to the Lubbock economy, with the value of all building permits issued so far in 2005 up by 52% from last year's total through October. The $388 million in building permits issued through the first ten months of 2005 continues the upward trend that has set records for the City for the last several years. (Source: Economic and Demographic Overview: Building Valuations-10-Year Trend I Original Source of Data: Building Inspection statistical Report) Total Building Pennit VaJtmlons $450.0 $417.3$408.7 $400.0 +-----------------:;~~._ ~~ +---------------------~~~~~------ $300.0 +---~iU'in---::::::7~~ ... 1111!!!!!!IE....----• 6 $250.0 +------'"""":::lk--------::~~~o:::..._-------------- ~ $200.0 +-.--~1.3..:ifC-----'"''IIII:l~E:...----------------- $150.0 ~~~L--~----------- s1oo.o +------------------------------- sso.o +---------------------------- $0.0 +---~-.----.------,,-----.--,.----.------..----r----, 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 8 Honorable Mayor, City Council, And Citizens of the City of Lubbock, Texas February 13. 2006 Total new residential permits deaeased by 28.3% through October 2005 when compared to the same period in 2004. The $184 million in residential building permits issued for the first 10 months of 2005 is slightly down from the record setting levels that have been seen in the City over the last few years. Average home sale price year-to-date through October 2005 has increased by .01% from October 2004 to October 2005. (Source: Economic and Demographic Ovecvlew: Building Valuations -10-Year Trend I Origi:Dal Source of Data: Building Inspection Statistical Report and The Real Estate Center at Texas A & M University, Lubboclc: Residential Housing Activity Report) Sales Tax Collections Sales tax collections for October 2005 were 10.86% improved over the October 2004 sales tax collected. Year-to-date sales tax collections through October 2005 were 35.9% improved over the same period in 2004. A portion of this increase is due to the increase in the sales tax rate from 7.875 to 8.25% in October 2004. (Counted in the month the sales tax was collected, not the month it was paid) (Soun:e: Economic and Demographic Overview; Monthly Sales Tax Collections -Calendar Year -City of Lubbock. I Original Source of Data: State Comptroller of Public Accounts-Allocation Historical Summary) Tourism/Visitor Related Indicators Lodging tax receipts increased from $2.6 million in October 2004 to $2.8 million in October 2005. This is a year-t<Hiate increase through October 2005 of 8.6%. Airline boardings at Lubbock Preston Smith International Airport also increased in 2005 by 1.5% over the same period last year. (Soun::e: Lubbock Economic Index.) Employment The total non-agricultural employment estimate for October 2005 was 126,100. This was .4% improved over October of last year. There were 500 more people employed in October 2005 than in the same period of2004. The lUlemployment rate for the Lubbock MSA in October 2005 was 3.6%, 3rd lowest in the State of Texas. Historically Lubbock bas a low rate of unemployment that is generally l% -2% below the national rate and about 1% below the rate for Texas. (Source: Lubbock Economic and Demographic Overview 8Dd 2004 Population and Economics Report I Original Source of data: Texas Workforce Commission) 9 c c c r - c c ( .. ( c c ) ) ) ) Honorable Mayor, City Council, And Citizens of the City of Lubbock, Texas February 13,2006 Unemployment Rates -Lubboc:k MSA 1995 1996 1997 1998 l999 2000 2001 2002 2003 2004 Note: The methodology for calculating the unemployment rate was changed in 2005 and the last five years was recalculaled based on the new method. The Lubbock MSA also changed in 2005 to include both Lubbock and Crosby Counties. Economic Development Economic development is a priority for the City of Lubbock. In 1995. the City Council created Market Lubbock, Inc., a non-profit corporation, to oversee economic development for the City. Market Lubbock, Inc. is funded with 3 cents of the property tax allocation. In October 2004 the Lubbock Economic Development Alliance (LEDA), an economic development sales tax corporation. assumed the responsibility for economic development in the City of Lubbock. LEDA program strategies include business retention. business recruitment. workforce development, foreign trade zone, and the bioscience initiative. LEDA is funded by a 1/8 cent economic development sales tax. Total estimated revenues for LEDA for FY 2005-06 are 3,487,455. Over the last year, through their business retention, expansion. and attraction programs, LEDA assisted eleven companies in the creation of 355 new jobs with an estimated annual payroll of$12.4 million and capital investment of$52.5 million. The City's Business Development Department works closely with LEDA to provide the support needed to assist in their economic development projects. Business Development is responsible for tracking and maintaining economic and demographic infonnation for the City, assisting with city-related business issues, the enterprise zone and tax abatement programs, the two Tax Increment Financing Reinvestment Zones, and all Public Improvement Districts. Business Development also works with retail and commercial projects that do not fit the criteria required by the state for economic development sales tax corporations. 10 Honorable Mayor, City Council, And Citizens ofthe City of Lubbock, Texas February 13,2006 Development Initiatives Overton Park. Overton Park is a 300+-acre revitalization project that is underway in the heart of the City. It has been called the largest privately funded revitalization project in the United States. Overton Park is the complete revitalization of a blighted area in the City called North Overton. The North Overton area was established in 1907 and over the next twenty years developed as a middle class neighborh~ with home ownership predominating. Then, in 1925, Texas Tech University (fexas Technological College) was established along the western boundary of the neighborhood. Following World War II, the growth of Texas Tech University stimulated a need for student housing. This need was provided by many non-<X>nfonning apartments, converted garages, and subdivided houses, reducing home ownership in the area considerably. Continued growth of Texas Tech encouraged development of apartment buildings, further destroying the stability of the area. By the 1980s, the Lubbock City Council recognized that the passage of time, market trends, and land use changes had created severe pressures on North Overton. Through the 1990s, the situation in North Overton continued to stagnate. Population was declining, vacancies were high, owner occupancy was only 7.3% of the properties compared to 51.5% in the City as a whole. Crime was high in the area and many properties in the area were in poor condition, abandoned vehicles and weeds were prevalent, and there was little to attract residents to this neighborhood other than extremely low values and rents. A local developer approached the City to discnss plans to redevelop the North Overton area. The developer planned to purchase and redevelop about 90% of the North Overton area. The developer and other property owners submitted a petition to the City and asked that the City establish a Tax Increment Financing Reinvestment Zone (ITRZ) to provide the public funds for constructing public improvements in the proposed district In response, the City created the North Overton TIRZ with participation from the City, County, High Plains Underground Water District and Lubbock County Hospital District This public/private partnership provides for a significantly enhanced redevelopment of the North Overton area by using public funds for upgraded intersections, additional right-of-way landscapin& improved street lighting, park improvements, and street and utilities replacement and reconstruction. These infrastructure projects are designed to replace 70-year old utilities, provide new street lighting and signalization, upgrade existing Pioneer Park; and provide for enhanced right-of-way landscaping, wider sidewalks, and street ftnni.ture. The plans called for street closures to allow for larger development projects, student housing, a variety of well-planned housing developments, retail to support the neighborhood and the Tech student populatio~ and for the entire development to be pedestrian oriented. The City has approved site design guidelines for the development in Overton Park in order to ensure the high quality of this development project. It is anticipated that build-out of this public/private partnership will occur over a seven-year period. It is expected that the North Overton TIRZ planned expenditure of approximately $72.7 million for public infrastructure improvements will result in future development/redevelopment in the North Overton TIRZ, which will increase the taxable value by approximately $445 million over the zone's 30-year life. ll c c r - c I" ... ( c ( ) Honorable Mayor, City Council, And Citizens of the City of Lubbock, Texas February 13, 2006 At this time, three student-oriented apartment complexes have been completed. The Centre, a $26 million, 618,000 square foot project that includes the construction of a multi-story apartment complex built over an upscale retail shopping center and more than 226,000 square feet of parking, is completed. City Bank has also completed their new 10,000 square foot bank facility. The new Starbucks has also been completed. Walmart has broken ground on their new 200,000 square foot plus store that will be built near the southwest comer of 4th Street and Avenue Q. Also in 2005, construction began on the condominiums in Overton Park and it is expected that ground will be broken on the first single-family houses in early 2006. The project, as a whole, is running about three years ahead of schedule, with much of the construction now expected to be completed by the end of2007. Central Lubbock Stabilization and Revitalization Master Plan The Central Lubbock Stabilization and Revitalization Master Plan is a comprehensive guide for future growth and prosperity for the Central Lubbock Area The plan was developed with the assistance of Gould Evans Affiliates through a public process bringing together local residents, local employers, city staff, and major stakeholders. This plan is intended to provide a framework for future development in Central Lubbock and to be a "living documenf' evolving to address any unforeseen future concerns or strategies. As a result of the pi~ the 341b Street Business Association, made up of business owners on 34lh Street, was formed in 2005. North & East Lubbock Community Development Corporati<?n During the last 50 years, while Lubbock grew, North and East Lubbock experienced an out4 migration of people. From 1960 to 2000, the area's population decreased by 47%. Concluding that portions of northern and eastern Lubbock were in serious disrepair, the City and the North & East Lubbock Development Advisory Committee decided to take action. A comprehensive master plan for the area was completed in October 2004. The City created the North & East Lubbock Community Development Corporation (CDC) to oversee and promote development in the area and committed to providing funding to the CDC for four years. The North & East Lubbock CDC is working on its first project, a new single-family housing project called Kings Dominion. Construction of the first houses should begin in early 2006. Central Business District Tax Increment Reinvestment Zone The City of Lubbock Central Business District (CBD) has been typically developed over the years with office, retail, and governmental agency uses. Like many cities in the last ten to twenty years, retail has moved to shopping areas and other areas outside the CBD and office development has stagnated. In an effort to reverse that trend and to stimulate further development downtown. the City established a new CBD Tax Increment Finance Reinvestment Zone (TIRZ) on December 3, 2001. The Board ofthe CBD TIRZ created a project plait that includes projects that will assist redevelopment in the CBD. It is expected that the CBD TIRZ planned expenditure of almost $8.4 million for public infrastructure improvements will result in futtn-e development and redevelopment in the CBD TIRZ which will increase the taxable value by approximately $106 million over the zone's 20-year life. 12 Honorable Mayor, City Council, And Citizeas of the City of Lubbock, Texas February 13, 2006 Downtown Redevelopment Conunission The City Council created the Downtown Redevelopment Commission in May 2005 to develop an action plan for the redevelopment of the downtown area The Commission is composed of eleven members that are citizens of Lubbock and stakeholders in the downtown area. Since its creation in May, the Commission members have been working on gathering information on what is available and what is needed in the downtown area. Although there were no fiscal activities during FY 2005, the Commission members have started their fimd raising efforts and have begun the process of searching for a consultant to prepare a Downtown Master Plan. FINANCIAL INFORMATION Long~term. finan~ial planning. The City uses 10-year rate models for long-range planning in the General Fund and all enterprise funds. These models are based on current projects and policies. The models are driven by the idea that the rate should be annually adjusted to reflect the service needs of the citizens. Because of this philosophy, the rates in the models are annually trimmed to leave as little excess as possible, after allowing for financially sowtd working capital and rate stabilization reserves. The models, in association with the City's "5-year Forecast", provide anticipated trends given current policies. These forward looking models provide a basis for budget discussion and policy decision-making. Dming fiscal year 2003 the City formed the Citizens Advisory Committee to survey City-wide infrastructure needs and priorities. The committee developed a six-year program for future capital needs for which general obligation bonds have been or will be issued. The bond issuance was approved by the citizens of Lubbock in a bond election held in May 2004. Cash management policies and practices. Cash temporarily idle during the year was invested in certificates of ~eposit. obligations of the U.S. Treasury, U.S. Agencies, money market mutual funds, and state investment pools. The maturities of the investments range from 1 day to 3-1/2 years, with an average maturity of approximately 7-1/2 months. The average yield on investments was 2.68 percent for the City's operating funds and 2.71 percent for the City's bond funds. Investment income is offset by decreases in the fair value of investments. Decreases in fair value dwing the current year, however, do not necessarily represent trends that will continue; nor is it always possible to realize such amounts, especially in the case of temporary changes in the fair value of investments that the City intends to hold to maturity. Risk management. During 2005, the City continued its use of third party workers' compensation coverage. The cUIIent coverage provides for coverage to begin with the initial dollar of claims. The City is primarily self-insmed for medical and dental coverage. Stop loss coverage of $150,000, per insured per year, is ctnTently maintained with a third party insurer to mitigate risk associated with medical coverage. Additional information on the City's risk management activities can be found in the notes to the financial statements. Pension benefits. The City sponsors a multiple-employer hybrid defined benefit pension plan for its employees other than firefighters. Each year, an independent actuary engaged by the plan calculates the amount of the annual contribution that the City must make to the plan to ensure that the plan will 13 c (' .... c c ( r ... ( c c ) ' Honorable Mayor, Ciey Council. And Citizens oftbe City of Lubbock, Texas February 13, 20tUi be able to fully meet its obligations to retired employees on a timely basis. As a matter of policy, the City fully funds each year's annual required contribution to the pension plan as detennined by the actuary. As a result of the City's conservative funding policy, the City has succeeded as of December 31, 2004, in funding 75 percent of the present value of the projected benefits earned by employees. The remaining u.nftmded amount is being systematically funded over 25 years as part of the annual required contribution calculated by the actuary. The City also provides benefits for its firefighters. These benefits are provided through a single- employer defined benefit pension plan, the Lubbock Firemen's Relief and Retirement Fund (LFRRF), which is administered by the Board of Trustees of the LFRRF. The City contributes an amount that is detennined by formula and is anticipated to average 19.9 percent of firefighter1s pay annually. The City does provide 25% -600/o of post retirement health and dental care benefits for retirees or their dependents. Additional information on the City's pension arrangements and post employment benefits can be found in the notes to the financial statements. AWARDSANDACKNOWLEDGEMrnNTS The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Lubbock, Texas, for its comprehensive annual financial report for the Fiscal Year Ended September 30, 2004. The City reapplied for this prestigious award last year after a one-year lapse in applying for the award. In order to be awarded a Certificate of Achievement, a governmental unit must publish an easily readable and efficiently organiud comprehensive annual financial report, whose contents conform to program standards. Such reports must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one-year only. We believe our current report continues to conform to the Certificate of Achievement Program requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. The preparation of this report would not have been possible without the efficient and dedicated services of the entire staff of the Finance Division. Exceptional and tireless effort was invested by the Accounting Department. We would particularly like to thank Jeffery Snyder, Pamela Moo14 the Senior Accountants, and Accountants for their countless hours of work on this financial report. We would like to express our appreciation to all members of the departments who assisted with and contributed to the preparation of this report. Credit is also given to City Council and the Audit Committee for their interest and support in planning and conducting the operations of the City of Lubbock in a responsible and progressive manner. Respectfully submitted, Lee Ann Dumbauld City Manager 14 Jeff Yates Chief Financial Officer c Certificate of £ Achievement for Excellence "' " in Financial Reporting Presented to (" .... City of Lubbock, Texas c For its Comprehensive Annual Financial Report for the Fiscal Year Ended September 30, 2004 A Cedificate of Achievement for Excellence in F'ID8D.Cial Report.iDs is presemcd by die GovemmentFinance Officers Association of the United States and Canada to govetlllXICld unitS and public employee retiremem ( systems whose comprehensive annual financial reports (CAPRs) acJ;Ueve the highest standards ingovemment accounting and finaDcia1 reporting. ~tf:'t' c President ~/.~ c Executive Director c 15 ( I -0\ v BllltUwl Omurllulon Effective September 22, 2005 J \::1 Ll'.tt. 8oetd '0 Clt.y of Lubbock, Texas Oraanl2ational Chart Cit.yCourlciJ 16 v v -J \v v r Municipal Court Judgo I Au411 Con"lu.:t FINANCIAL SECTlON c c c c c c c c c ) ) ) ) Independent Accountants' Report on Financial Statements and Supplementary Information The Honorable Mayor and City Council City of Lubbock, Texas We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Lubbock, Texas, as of and for the year ended September 30, 2005, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of Civic Lubbock, Inc., Market Lubbock Economic Development Corporation d/b/a Market Lubbock and Lubbock Economic Development Alliance, which comprise the aggregate discretely presented component units. In addition, we did not audit the fmancial statements of the major fund West Texas Municipal Power Agency, which statements reflect total assets and total revenues of$14,059,031 and $158,128,217, respectively, and represent two percent and thirty~ight percent of the business·type activities' total assets and operating revenues, respectively. The financial statements of these entities were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for such entities, is based solely on the reports of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to fmancial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement The financial statements of the component units Civic Lubbock, Inc.; Market Lubbock Economic Development Corporation d/b/a Market Lubbock; Lubbock Economic Development Alliance and the major fund West Texas Municipal Power Agency, 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 and the reports of the other auditors provide a reasonable basis for our opinions. 5000 Rogers AVIlflue. Suite 700 Fort Smilh, AA 72903-2079 479 452-1040 Fax 479 452·5542 400 W. Capilol Avenue. Suits 2500 P.O. Sox 3667 Li!!le Roc:lc, AR 72203-3667 501372·1040 FaxS01 372-1250 200 e. 11111 Avenue P.O. Box 8306 Pine Blulf, AA 71&11-8306 870 534-9172 Fax 870 534-.2146 l.n....,_._d~ ---'!!Y The Honorable Mayor arid City Council Page2 In our opinion, based on our audit and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the goverrunental 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 September 30, 2005, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated January 6, 2006, on our consideration of the City'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. 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 accompanying management's discussion and analysis as listed in the table of contents is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. /s!BKO, LLP January 6, 2006 c ( c < c r - c c ) ) " ; City of Lubbock, Texas Management's Discussion and Analysis For theY ear Ended September 30, 2005 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, 2005. We encourage readers of these financial statements to consider the information included in the transmittal letm" 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. Financiallfighlights 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, 200S by $545.5 million (net assets). Of this amount, $64.9 million (unrestricted net assets) may be used to meet the City's ongoing obligUions to citizeos and creditors. • The City's total net assets decreased by nearly $1.3 million as a result of operations during the fiscal year. • The ending unreserved fund balance for the General Fund was $17.3 million or approximately 17.4% of total General Fund expenditures, or 19.7% of total General Fund revenues; an increase of $52 million over the prior year amount • All of the City's governmental funds reported combined ending fund balances of $85.2 million. Of this total amount, $25.9 million is available for spending at the City's discretion • AU ofthe City's business-type activities reported combined ending net assets of$429.7 miJlion. Oftlilii total amount, $42.0 million is available for spending at the City's disc.retion. • The City's proprictaJy funds net assets decreased by $2.4 million from $432.1 million to $429.7 million. • During FY 2005, the City issued $75.3 million in debt for various capital projects and issued $112.2 million in debt to refund $114.0 million in outstanding debt. • In 2002, the City entered into an interest rate swap agreement to protect •inst the risk of rising interest rates between March 28, 2002 and May 1, 2005. On August 15, 2005, the City of Lubboclt chose to terminate the swap and issue bonds in the amount of $43.1 million to retire $43.8 million bonds. The combined refunding and swap termination agreement resulted in an economic break-even transaction with negUgible present value savings; yet the swap termination and related expenses resulted in an accounting loss of $6.6 million. This is recorded as a special item in the Water Enterprise Fund financial statements. Overview of the Financial Statements Basi~ FiiWldal Statements. Management's Discussion and Analysis (MD&A) is intended to serve as an introduction to the City's BFS. The BFS ar:e 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 infonnation in addition totheBFS. 19 City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, lOOS Government-Wide Fiaaneial Statements. The GWFS, shown on pages 35-37 of this report, contain the statement of net assets and the stalement of activities, described below: The statement of net a.sset:s 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 asse/3 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 staJement 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 eacb activity is self-financing. or alternatively, draws from any City generated general revenues. The governmental activities (activities that arc 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 busines&-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. AU 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. Component Units. The GWFS include not only the City itself (the "primary govemmentj, but also three legally separate entities (the "component units): Market Lubbock Economic Development Corporation, dlbla Market Lubbock, Inc., Lubbock Economic Development Alliance, 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 infonnation for these component units is repomd separately in the GWFS in order to differentiate them from tbe City's fmancial information. None of these component units are considered major component units. FUJld Fiuaaeial Statements. A.fond is defined as a fiscal and accounting entity with a self- balancing set of accounts recording cash and other financial resources, together with an 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 flll8Rcial 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. 20 c c c c ( c ( ) ) ) ' ) City of Lubboek, Texas Management's Dilcussion aod Analysis For theY ear Ended September 30, 2005 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 ace aggregated and shown in a single column in the appropriate financial statements. Combining schedules of nonm.ajor funds are included in the CAFR following the BFS. All of the funds of the City can be divided into three categories: govemmentol funds, proprietary funds, and fiduciary funds. GoveT1111101tJU 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-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 i.s 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 resoUR;eS versus economic resources), it is useful to compare the information presented for governmental funds with similar infonnation 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. The City maintains 29 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 fim.d. Data from the other governmental funds are combined into a single aggregated presentation. 1be City adopts a budget annuaUy for the General Fund and all other funds. A budgetmy comparison statement bas 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 io fund balances. The governmental FFS can be found on pages 38-41 of this report. Proprietary FFS. The City maintains two different types of proprietary funds. Enterprise fonds are used to report the same functions presented as business~ type activities in the GWFS. Enterprise FFS provide the same type of infunnation as the GWFS, only in more detail The City uses enterprise funds to acoount for its Electric (LP&L), Water, Sewer, West Texas Municipal Power Agency (WIMPA), Stonnwater, 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 tluee activities are considered nonmajor funds by the City and are combined into a single aggregated presentation. Internal service funds ace an accounting device used to accumulate and allocate costs internally among the City's various functions. The Cit;y 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 21 City of Lubbock, Texas Management's Diseossion aud Analysis For theY ear Ended September 30, 2005 the GWFS. All internal service funds are combined into a single aggregated presentation in the proprietaiy 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. FidMciaty 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 Fioandal 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 57-93 of this report. Required Supplemeotary Information Other Tban 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 assefs serve as a useful indicator of the City's fmancial position. For the City, assets exceeded liabilities by $545.5 million (net assets) at the close of the fiscal year. This compared to assets exceeding liabilities by $546.7 million (net mseu) at the end of the prior fiscal year. As a result of operations, total net assets decreased by $1.2 million during the period. By far the largest portion of the City's net assets, 81.7%, 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 stiU outstanding at the close of the fascal 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. 22 c c c ( c ( ( c c ( ) ) ) ) ) ) City of Lubboek, Texas Management's Discussion and Analysis For theY ear Ended September 30, 2005 aty ofl.abbock Net Assets September 30 (inOOO's) Goverameut8l ~Type Admties Adivitir:s Total 2805 200' 2005 2804 2805 2804 ~ aod other assets $ 116,021 $ 100,489 $ 170,945 $ 1T1,9S9 $ 286,966 $ 273.448 o.pita189SdS 138,614 1291014 6371444 611,703 776,058 7-40,717 Total assets 254,635 229~ 808,389 789,662 1,063,()24 110191165 Olrrerd.liabililies 16,837 48,739 2S,SOS 44,156 42,342 92,895 Nonaureut liabilities 127,169 76,423 343,036 303,173 415,205 379~96 Total Jiahllities 144,006 125,162 373,541 347,329 511,.541 472,491 Net&SSI'JS: Invested in capital assets, Mt of related debt 82,330 74,433 363,227 355.816 445.551 430,249 Ratricttd 8,770 20,339 U;J:16 45,417 35,046 6S,1S6 t.Jnrestrictr.d 19,529 9~69 45,345 41,190 64,874 ~159 Total net assets $ 1101629 $ 104,341 $ 434,848 $ 442,423 $ 545,477 $ 546,764 An additional portion of the City's net assets, 100/o, represents resources that~ subject to external restrictions on how they may be used. The remaining baJa:ncc of unrestricted net assets of $64.9 million may be used to meet the City's ongoing obligations to citizens and creditors. The City also reports positive balances in aU 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 $6.3 million, while net assets increased by $2.7 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 third 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 $7.6 million during the current fiscal year as compared to a decrease of $5.3 million during the prior fiscal year. This decrease in net assets resulted primarily from the $6.6 million accounting loss recorded in the Water Fund for the bond refunding and associated swap tennination fee. This transaction generated negligible present value savings. CbJagea i.D Net Assets. Details of the following summarized infonnation can be found on pages 36- 37 of this report 23 c City of Lubbock, Texas Management's Diseussion and Analysis For the Year Ended September 30, 2005 c Qty of Lubbock Claaoge.s in Net Assets For the Year Ended September 30 (iuOOO's) lklsiness- Governmental Type Activities Activities Totals c Revenues: 2005 2004 zoos 1004 zoos 2004 Program Revenues: 01arges fur seJVices $ (0,583 $ 12,713 $ 272,902 $ 181,411 $ 283,435 $ 194,124 Operating grants and contribuaions 13,296 9,643 8,156 6,739 21,452 16,382 Capital grants and contributions 5,206 9,269 5,206 9,269 Oeneral Revenues: c Property taxes 39,748 44,497 39,748 44,497 Sales taxes 41,803 30,555 41,803 30,555 Other taxes 4,242 J,m 4,242 3,793 Franchise fees 11,154 9,654 11,154 9,654 Other 5,742 41274 51146 6932 10,888 7,206 Total revet"WeS 126,568 115,129 2913410 200~51 4171978 315,480 Expenses: (. Administrative/Comnumity Services 23,355 22,313 23)55 22,313 Street Lighting 2,459 2,471 2,459 2,471 Financial Secvices 2,240 2,387 2,240 2,387 Fire 23,667 21,998 23,667 21,998 General Government 27,600 20,562 21,600 20,562 Human Resources 776 m T16 171 Police 37,713 33,249 37,773 33,249 c Planning and Transportation 11,985 10,789 11,985 10,789 Public Works 2,699 3,078 2,699 3,078 Interest on long-term debt 3,195 4,593 3,195 4,593 Electric 192,902 IIO.S9l 192,902 110,591 Water 28,738 27,379 28,738 27,879 Sewer 17,804 17,020 17,&04 17,020 Solid Waste 14,695 17,662 14,695 17,662 c Stormwater 5,586 S;JS1 S,S86 5,351 Transit 9,003 10,565 9,003 10,56S Airport 81151 62853 8z1Sl 6t8S3 Total Expenses 135.749 122,217 Tl6,879 195,927 41~628 3181144 Otange in net assets befOre special items and transfers (9.181) (7,088) 14,531 4,424 5,350 (2.664) c Special items (6,631) (6,631) Tnmsfets 151469 9z74S {152469) (9z74~ OlanF in net assets 6,288 2,657 (7,575) (5,321) (1,287) (.2,664) Net assets-beginning of year 104~1 IOJSf 44~423 44~744 ~764 549,428 Net assets -end of year $ no,~ $ I<RI $ ~4.!41 $ 44 423 s -,4., s S46.m c c 24 c ) ) ) ") ) ) ) ) ) City of Lubbock, Texas Management's Discussion and Analysis For theY ear Ended September 30, 2005 Govei'IUDental activities. Governmental activities increased the City•s net assets by nearly $6.3 million. Key elements of the increase follow: • TmlSfers to/from business-type activities during the fiscal year increased governmental activities net assets by $15.4 million. During the prior fiscal year these tnmsfas increased governmental activities net assets by approximately $9.7 million. This is a net increase of $5.1 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 increased by nearly $13.5 million from the prior year due priman1y to increased spending in sevetal of the functional categories including general government $7 million, police $4.5 million, and fire $1.7 million. The general government increase was due to the creation of the voter approved Lubbock Economic Development Alliance (LEDA) and the corresponding $3.5 million sales tax payment plus increased spending in the hotel motel fund to promote tourism and the start up operations for new special revenue funds: $.7 million for Municipal Court Fund, Donations Fund, North Overton Public Improvement District, and Abandoned Motor Vehicle Fund. The increase in public safety spending of $6.3 million is a result of the City Council's continued commitment to increased public safety. • Revenues increased by approximately $11.4 zrullion. The key factors impacting this increase include a voter approved increase in sales taxes of $11.2 million, which corresponds to the voter approved decrease in property tax of $4.7 million. Also contn'bu:ting is increases in franchise fees of$1.5 million due to growth and implementation of the 5% franchise fee. 25 -;: Q Q s c = 0 s: < City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2005 This graph depicts the expenses and program revenues generated through the City's various governmental activities. Expenses aud Program Revenues -Governmental Activities $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 26 c c c c c ,. \, ) ) ) ) ) ) City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2005 The following graph reflects the source of the revenue and the percentage each source represents of the total. Charges for Services 8.4% Operating grants & Contributions 10.5% Fraad1ise Fees 8.8% 3.4% Revenues by Source -Governmental Activities Miscellaneous 4.5% 33% Property Taxes 31.4o/o Business-type activities. Business-type activities decreased the City's net assets by $7.6 million as a result of operations. Key elements of this increase follow: • Charges for services for business-type activities increased by $91.5 million. During the cwrent fiscal year the Lubbock Power and Light (LP&L) and West Texas Municipal Power Agency (WI'MPA) began selling natural gas (gas swap sales) to a third party which brought in revenues of $65.2 million. Revenues were also up slightly in all of the City's other enterprise funds. Because of the inter-fimd activity between LP&L and WTMPA. approximately one third of the revenue was eliminated for the entity wide statements. • Operating grants, capital grants, and contributions continue to be a significant revenue source for LP&L, Airport, Water, and Sewer Ftmds during the current fiscal year, producing nearly $13.4 million in revenue. This is a slight decrease in prior fiscal year's support of$16.0 million. These 27 City of Lubbock, Texas Management's Discussion and Analysis For tbe Year Ended September 30, 2005 contributions came primarily from federal grants and from water and sewer lines and taps that were funded by property owners. • Expenses increased in total by $81.0 million over the prior fiscal year. This increase is primarily due to the cost of fuel for the new gas swap sales contract of $62.1 million and the increased cost of operations for electric operations. Increases in the nation's fuel and energy costs have also affected both LP&L's and WIMP A's cost of power. The following graph reflects the revenue sources generated by the business-type activities. As noted earlier, these activities include LP&L, Water, Sewer, Solid Waste, Transit, WfMPA, Airport, and Stormwater Drainage. Revenues by Source -Business-type Activities Captial Grants & Contributions 1.8% c c c c c Operating Grants C & Contributions Clw-gesfor Services 93.7% Financial Analysis of the City's Funds 2.8% Gollunmentalfunds. The focus of the City's governmental fonds is to provide infonnation 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. 28 c c c ) ) ) ) ) ) ) City of Lubbock, Texas Management's Discussion and Analysis For tile Year Ended September 30, 2.00S At the end of the fiscal year, the City's governmental funds reported combined ending fund balances of$85.2 million. 'This compared to $47.7 million at the end of the prior fiscal year. This increase is primarily the result of debt issuance for capital projects including the Gateway Streets projects, parks projects, tax increment financing projects, and street projects. This resulted in an increase of fund balance of $37.9 million. Also affecting this increase was the result of operations of the General Fund where fimd balance increased by $4.7 million. Of the ending govermnental fund balance, $25.9 million or 30.4%, constituted unreserved fund balance which is available for spending at the City's discretion. This compared to $13.8 million or 28.9% at the end of the prior fiscal year. The remainder of the fund balance is reserved to indicate it has already been committed to, 1) pay debt service, 2) use in construction of approved capital projects, or 3) is restricted for other 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 $17.3 million compared to $12.1 million in the previous fiscal year, representing an increase of approximately $5.1 million. Total fund balance (reserved and unreserved) approximated $17.4 million at the end of the fiscal year compared to $12.7 million at the end of the prior fiscal year. As a measure of the General Fund's liquidity, it is useful to compare both unreserved fimd balance and total fund bat~ to total fund expenditures. Unreserved fund balance represented 17.4% of total General Fund expenditures compared to 13.4% of total General Fund expenditures in the prior year. Total fund balance represented 17.5% of total General Fund expenditures compared to 14.1% in the prior year. The inerea.se in fund balance is primarily a result of strong growth in new construction and better than anticipated sales 1ax reven~ coupled with a concentrated effort by City management to contain expenditures. It also has a transfer from the Risk Management Fund. hoprietJuy fiuld$. The City's proprietary funds provide essentially the same type of information found in the GWFS, but in more detatl. Unrestricted net assets of the major proprietary fimds at the end of September 30 are sho'Wll next with amounts presented in OOOs: Eledric FuDd Water Fund Sewer Fund WTMPA Stonnwatcc $ $ 14,151 6,818 5,964 1,314 7,420 35,667 $ $ 7,006 14,078 6,343 1,743 1,305 30,475 The LP&L Fund increased unrestricted net assets by $7.1 million compared to an increase of $4.6 million during the prior year. This is mainly due to the results of operations, a restructuring of the eapital ftmding method for existing projects. and a decision by City Council not to charge for payments in lieu of taxes and franchise fees until adequate cash reserveS are established. 29 City ofLubboek, Texas Management's Discussion and Analysis For the Year Ended September 30, 2005 The Water Fund reflected a current year decrease in unrestricted net assets of nearly $7.3 million compared to a decrease of $1.5 million during the prior year. This is due primarily to the accounting loss for the termination of an interest rate swap payment of $6.6 million and a scheduled incmase in interest payments of nearly $1 million. This was offset by increases in water sales due in part to a raise of approximately 3% in water rates. The Sewer Fund reflected a current year decrease in unrestricted net assets of approximately $.3 million compared to a $2.1 mi1lion increase during the prior year. Changes to debt covenant requirements and changed methods of capital funding contributed to the change. The WIMP A Fund reflected a decrease in unrestricted net assets of nearly $.4 million primarily as a result of operations. The prior fiscal year's change was an increase in unrestricted net assets of $.4 million. The Stormwater Fund experienced an increase in unrestricted net assets of $6.1 million during the fiscaJ year compared to a $.4 million increase in the prior fiscal year. The increase is a result of changed methods for capital funding. General Fund Budge1ary Highlights Di.fferences between the original budget and the final amended budget were approximately $3.6 million in increases to expenditures. The main reason for the increase was for the street seal coating program, which was moved from a Capital Project Fund to the General Fund. The General Fund ended the fiscal year with expenditures more than $3.6 million more than budgeted. This mainly resulted from the implementation of a master lease program fur obtaining vehicles and equipment as adopted by the City Council. The annual operating lease payments are budgeted; however, the lease proceeds and related capital expenditures are not budgeted items. This was a result of budgeting for the total amount of lease payments which is a true cash outflow instead of budgeting for the full cost of the vehicles leased which is reqwred by generally accepted accounting principals (GAAP). Due to stronger than anticipated growth in new construction and better than expected sales tax. revenue, actual revenues were nearly $2.1 million more than budgeted for the fiscal year. Capital Assets and Debt Administration Capital assets. The Clty"s investment in capital assets fur iCs governmental and business-type activities at September 30, 2005 amounted to $776.1 million, net of accumulated depreciation. This was a $35.4 million increase over the prior fiSC81 year's balance of$740.7 million, net of accumulated depreciation. This investment in capital assets includes land, buildings and improvements, equipment, construction in progress. and infrastructure. 30 c c c c c ' c c ) ) ) J ) ) ) ) ) City of Lubbock, Texas Management's Discuuion and Analysis For theY ear Ended September 30, 2005 Major capital asset events during the fiscal year included the following: • Work continued in the W alec Fund with another $3 .I million expended on the construction of water lines and $1.8 million on sewer lines ahead of1he Marsha Sharp Freeway. • A large street project began with the construction of a T ~2 thoroughfare street with $6.5 miUion expended on Milwaukee Avenue from 34th Street to 98th Street . This project is in the Gateway Streets Fund which was established in FY 2004-05. The fund is supported by 2% of the 5% franchise fees. • Scheduled improvements to LP&L's distribution infrastructure amount to $2.8 million. Another $1.6 million was spent on overhead distribution infrastructure. • The City continues work on a flood relief project linking South Lubbock's ohain of playa lakes with an underground drainage system, spending SS.S million during the fiscal year. Expenditures to date on the project total $13 million. At the end ofthe fiscal year, the City has construction commitments of$112.5 million. City of Lubbock Capital Assets (Net of Aeeamalated Depreelatioa) September 30 (bt OOO's) Buslaess~ Goverameatal Type ActiYitiel Activities Totals :!005 20N 2005 1004 2005 :!004 Land $ 8,951 $ 8,608 $ 31,949 s 31,676 s 40,900 s 40,284 Buildings 28,146 23,794 6S,9SI 68,302 94,097 92,096 Improvements otheT than 'buildings 43,89S 37,183 347,393 330,842 391,211 368,025 Machinery and equipment 19,829 15,95·1 63,719 66,922 83.548 82,879 Construction in progress 371793 431472 1281432 1131961 1661225 157:433 Total $ 1381614 $ 129,014 s 637,444 s 611!703 s 7761058 $ 7401717 Additional information about the City's capital assets can be found on pages 70-72 of this report. 31 City of Lubbock, Tens Management's Discussion and ABalysis For the Year Ended September 30, 2005 Long-term debt. A summary of the City's total outstanding debt follows: General obligation bonds Revenue bonds ·Total City of Lubbock Outstanding Debt Geaeral ObUgatioa a.d Reveuae Bonds September 30 Covenuzaeatal Activities (in OOO's) B•dncss- Type Activities 2005 2004 2005 2004 $ 102,120 $ 70,.221 $ .286,750 s 215,664 42,800 94,605 s 102.120 $ 70,221 s 329.550 $ 3l0,269 Totals 2005 2004 $ 389,470 $ 285,885 42,800 94,605 s 432,270 s 380,490 There is no direct debt limitation in the City Charter or tmder State law. The City operates tmder a Home Rule Charter that limits the nwtimum 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. The current interest and sinking .fimd tax rate per $100 of assessed valuation is $0.09496, which is significantly below the maximum allowable tax rate. As of September 30, 2005, the City's total outstanding debt has increased by $50.7 million or 13.3% over the prior fiscal year. The increase in outstanding debt is attributed to the issuance of $187.5 million in debt, offset by the payment of scheduled debt service totaling $22.4 million and a reduction in outstanding debt of$114.3 million as a result of refunding existing obligations. During the fiscal year, the City issued the following bonds and certificates: • $7.3 million of General Obligation Bonds. Series 2005 were issued to fund the CUITent capital improvements plan. This issuance was the second installment of the $30 million capital improvement debt issuance approved by voters in 2004. • $46.5 million of Tax and Waterworks System Surplus Revenue Certificates of Obligation, Series 2005 were issued to finance projects in Water, Sewer, Airport, North Overton Tax Jncremcnt Financing Zone, Lubbock Power & Light, and Gateway Streets; as well as Parks and Streets projects throughout the City. • $23.1 million of Tax & Electric Light & Power Surplus Revenue CO, Series 2005 were issued to finance distribution projects and to refund $19.8 million of contract debt previously issued by West Texas Municipal Power Agency. • $49.6 million of General Obligation Refunding Bonds, Series 2005 were issued to defease $50.4 million in outstanding bonds in order to achieve interest savings. • $43.1 million of Tax & Waterworks System Surplus Revenue Ref. CO, Series 2005 were issued to defease $43.74 million in outstanding bonds originally held by Brazos River Authority for the acquisition and construction of the lake and reservoir at Lake Alan Henry. 32 c c ,.. .... c c c c ) ) ) ) ) ) ... ..1 ) City of Lubbock, Tens Manage~ent's Discussion and ·Analysis For theY ear Ended September 30, 2005 • $17.9 million in bonds were issued as Lubbock's share of the $48.1 million Canadian Municipal Water Authority Contract Revenue Bonds, Series 2005 (Coqjtmctive Use Groundwater Supply Project) for the purchase of water rights. The City of Lubbock is contractually obligated to pay the debt service on these bonds over a 20 year period. 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. On November 22, 2005, the City of Lubbock received a rating outlook upgrade from "stable" to "poSitive" from Moody's Investors Service. The City currendy 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. On December 21, 2005~ LP&L received a rating upgrade from "BBB-" to "BBB" from Standard & Poor's. The LP&L revenue bonds are currently 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 81-86 of this report. Economic Factors and the Next Fbcal Year's Budget and Rates • At the end of the City's fiscal year the tmemployment rate for the Lubbock area was 3.8 percent This is a decrease from a rate of 4.3 percent from the same month one year earlier. This compares favorably to the state's unemployment rate of 5.3 percent and the national rate of 4.8 percent for September 2005. • Retail sales figures are only available through the 1hini quarter of FY 2004-05. Total retail sales reflected a 4.9 percent increase for that period over the same period in 2004. • The nwnber of building per.mits for new construction decreased from 2, 796 during FY 2003-04 to 2)22 in FY 2004-05, or about a 20.5 percent decrease. This compares to a 2.9 percent decrease during the prior period. Bw1ding permit values for new construction decreased from $389.4 nullion in FY 2003-04 to $388.4 million in FY 2004-05, or about a 2 percent decrease. • Total occupancy in local hotels and motels improved and the loeal occupancy tax totaled nearly $3.3 milli~ a 14 percent iru:rease over last fiscal year. • City Council again decided to support the operations of LP&L 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 untll such time as LP&L has adequate monetary reseJVeS as set by City ordinance. All of these factors were considered in prepating the City of Lubbock's budget for FY 2005-06. During the just ended fiscal year, t.mreSerVed fund balance in the General Fund increased by nearly $5.1 million to $17.2 million compared to $12.1 million at the end of the prior fiscal year. It is intended that 1he unreserved undesigoated fund balance be equal to 2~!0 of operating revenues, which equates to approximately S 17.6 million. The City ended the year nearly $ .4 million under this target City Management anticipates meeting this goal in the next fiscal year. 33 City of Lubbock, Texas Managements Discussion and Analysis For the Year Ended September 30, 2005 LP&L increased rates in May 2005 as follows; 155% for the larger commercial consumers, 12.3% for residential customers, and 13.0% for small commercial consumers as a result of higher than anticipated costs of power. Both the Water and Sewer Funds rates were increased for FY 2003-04 and FY 2004··05. Water rates were increased by 3 percent and sewer rates were increased by 5 percent for all custcmers each year. The water and sewer rates affected both residential and commercial consumers by the same percentage. These rate increases were necessary to cover increased operating costs due to expanded capital replacement projects and the acquisition of additional water rights. Requesu 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 c c c c c c c c c c ) ) ) ) ) ) . BASIC FINANCIAL STATEMENTS .• c City of Lubbo&:ks Texas Statement of Net Assets September 30, 2005 Primary Governmcat Governmeatal Busiaess-type Compoamt ' Adirities Activities Total Units ASSETS Ccsb and CISh cqllivalcnts $ 20,720,923 $ 44,471,841 $ 65,192,764 s 3,123,029 lnvutmenm 5,241,795 5,892,115 11,133,910 706,422 Receivable4 (IICI. ohllowancc for uncollcctlbles) 13,835,367 25,648,568 39,483,935 796,745 lnumal balance 6,076,822 (6,076,822) I" I., D~ from atber pemments 6,009,023 6,009,023 DuciRJmothen 1,897,124 1.~13,965 3,411,089 lmenloria 181,358 2,596,308 2.1n,666 93,821 Investment ill propetty 210,853 210,853 Prepaid expe4SCS 909,112 909,112 59,814 c ltatrided useta: Cull aJid cash cquiYalCIII$ 26).76,557 26;216,557 100,000 In~ 55,003,853 67,320,433 122,324,286 AccoiUIIS I'CCllliYible 91,358 91,358 8,120,768 Monpae IBlllivables 5,934,866 5,934,866 Capilal as11ets (net of ~ulated depr=ialion): c Noa-depr=iablo 46,744,528 160,380,890 207,125,418 366,932 Depreciable 91,869,623 4n,062,70t 568,932;324 829,750 Defimd cbNIU 3~111110 3,211,110 Totalesscu 2541635~47 808,389,024 1,0631024,271 14,197,281 UABILITIIS Accouna P'Yl!ble 8,016,664 17,436,412 25,453,076 1,185,956 Acctued expenses 4,581,439 2.772,051 7,353,490 157,798 A=ul:d interest pByablc 1.081,814 2.976,994 4,05$,808 Caltcmer defoeits 200 2.304,900 2,305,100 UIXUQCid ICYCIIIIe 3,156,602 14,697 3,171,299 8,028,853 NOIIcummt liabitilics due within 01\C )Ur. c 8ctJ1ds payable 5,789,101 17,625,899 23,415,000 Compa!IIIICd abseuces 5,723,349 2,201,245 7,930,594 ~ ~c:lailllS 2,340,260 1,603,601 3,943,861 Clpilalleae& paytbleiCoatnii:IS payable 936,250 456,625 1,392,875 1,643,412 NoacunW f..tlilieies clue in mete Ibm one )'tlr. ,. 1.. Bands payable 96,931,168 314,479,280 411,410,448 Deferred premium on bonds 1,86.5,984 1,865,984 CoatpcmaO:d absenc:e.s 10,565,016 2,793,520 13,358,536 Ac:cnled iiiSIII'II\Qe claims 4,898,297 4,898,297 Landfift dosure and~ care 3,073,391 3,073,391 ~ leaes Jll)'lblc:ICoatts I")'Jbbe 3,0181635 897.951 3,916,586 1,195,168 c Total liabilities 144,006,482 373,5401863 517,547,345 12,2111187 Nr:rASSETS In Yea led ill capilal 1$1$, net of telawt debt 82,330,195 363,226,855 445,557,050 1,196,682 Re.strided for: l'llssalgcr lic:Uicy chqes 4,359,610 4,359,610 Debt llllrYicc 2,624,340 21,916,947 24,541;287 ,.. \, Grant propams 6,145,719 6,145,719 Primmy aovernmcat q,eemeot 100,000 UIIRStric:tcd 19,528,:511 45,344,749 64,873,260 689,412 Tolal aetas5C!U $ 110,628,765 $ 434,848,161 $ 545,476,926 $ 1,986,094 See accompllllying Notes to Basic F"miiDCial Statemen!S 35 c ) ) J ) ) ) ) ) ) ) City of Lubbock, Texas Statement of Activities For the Year Ended September 30, 2005 Primary govon1ment~ GovemmentaJ activities: Administration/Conununity Services Street Lighting Financial Services Fire General Government Human Resources Police Planning and Transportation PubJic: Worlcs Interest on Long-Term Debt TotaJ governmental activities Bosiness-typc activities: Electric Water Sewer Solid WBSte Stonnwater Transit Airport Total business-type activities Total primary govcmmcnt Compoaent uaits: Civic Lubboclc, Inc. Ma.rlcet Lubb oc:k. Inc. Lubbock Economic Development AJ\iance Total component units Cba"''es ro r Sen ices s 23,355,816 $ 2,571,376 2,459,025 2,240,424 23,666,709 300 27,600,270 3,866,182 776,128 37,772,866 4,024,650 11,985,323 2,698,517 120,646 3,195,182 135,750,260 192,902,041 28,737,866 17,804,487 14,695,193 5,585,577 9,003,610 8,150,815 276,879,589 $ 412,629,849 $ 1,888,596 2,608,975 3,031,818 $ 7,529,J89 General revenues: Property taxes Sales taxes Occupancy taxes Other Taxes Franchise Fees Investment Earnings Miscellaneous 10,583,154 192,568,012 33,306,786 19,829,430 12,420,499 6,239,436 3,144,015 5,394,314 272,902,492 $ 283,485,646 $ 1,615,361 78,632 $ 1,693,993 Termination of interest rate swap Transfers, net Program Revenues Opentiag Capital Graats aad Gnats aad Olatributioas Coatributioat $ 6,792,134 5,965,621 517,857 19,970 13,295,582 6,964,325 1,191,690 8,156,015 s 21,451,597 $ 5,320,871 3,483,960 s 8,804,831 $ 33,306 1,814,011 2,374,233 983,991 5,.205,541 $ 5,205,541 $ $ Total gcnereal rc:vetiW:S. special items, and transfers Charlge in net assets Net assets -beginning Net assets -ending See acc:ompanying Notes to Basic: Financial Statements 36 c Net (Expeues} Revenues alld ··c Cbaoges in Net Asxts Primary Government Govenmeotal Business-type Activities Aetivities Tota, Compooeat Uaits s (13,992,306) s $ (13,992,306) $ c (2,459,025) (2,459,025) (2,240,424) (2,240,424) (23,666,409) (23,666,409) (17,768,467) (17,768,467) (776,128) (776,128) c (33,230,359) (33,230,359) (11,985,323) (11,985,323) (2,551,901) (2,557,901) {3, 195,182} (3,195,182} (1 I 1,871,524) (Ill ,871 ,524) c (300,723) (300,723) 6,382,931 6,382,931 4,399,176 4,399,176 (2,274,694) (2,274,694) 653,859 653,859 c 1,104,730 1,104,730 !SS<I,820l {5802820) 9J84l4S9 91384,459 (111,871.524) 9,384,459 (I 02,487 ,065) c (273,235) 2,790,528 452,142 2,969,435 c 39,748,464 39,748,464 41,803,092 41,803,092 3,260,040 3,260,040 982,327 982,327 11,153,64] 11,153,641 c 1,633,312 3,758,240 5,391,552 10,529 4,109,474 1,387,914 5,497,388 (6,637,093) (6,637,093) 15,468,765 (15,468,7652 ll8,1.59,ll5 ~1619592704} 101,199,411 10.529 6,287,591 (7,575,245) (1,237,654) 2,979,964 104,341,174 442,4231406 546,764,580 (993,870) .-..... $ 110,628,765 $ 434!8482161 s 545,476,926 $ 1,986,094 37 c ) City of Lubbock, Texas Balance Sheet ) Governmental Funds September 30, 2005 Noa-Major Total Govenunenml Govenmeutal ) General Fu•d Fuads Funds ASSETS cash and casb equivalcms s 5,747,399 s 12,430,465 $ 18,177,864 Investments 1,513,176 3,330,647 4,843,823 Taxes receivable (net) 8,903,379 561,325 9,464,704 Accounts receivable (net) 4,190,603 6,024 4,196,627 Interest receivable 32,727 21,945 54,672 Due from other funds 7,087,923 4,202,414 11,290,337 Due from other governments 6,009,023 6,009,023 Due from others 722,145 1,148,131 1,870,276 Investment io property 210,853 210,853 ) lnventory 107,830 107,830 Restricted investments 50,584,201 50,584,201 Mortgage receivables 5,934,866 5,934,866 Total assets $ 28,305,182 $ 84,439,894 s 112,745,076 LIABILITIES Accounts payable $ 1,326,745 $ 6,262,025 s 7.,588,770 Due to other fund.s 5,992,151 5,992,151 Accrued liabilities 4,150,068 392,727 4,542,195 Accrut:d interest payable 491,204 491.204 Deferred revenues 5.451,949 3,477,453 8,929,402 Total liabilities 10,928,762 16,615,560 27,544,322 FUND BALANCES Reserved for: Pl'qlaid itemslinventor:y 107,828 107,828 Debt .scrvic;c 2,624,340 2,624,340 Cepital projects 50,391,187 50,391,187 SpeciaJ revenue -grants 6,145,719 6,145,719 u~. reported in ) General fund 17,268,592 17,268,592 Special revenue funds 8,663,088 8,663,088 Total fund balance 17.376,420 67,824,334 85,200,754 Total liabilities and fund balances s 28,305,182 $ 84,439,894 s 112z745z076 See accompanying Notes to Basic Financial Statements ) 38 c City of Lubbock, Texas Reconciliation of the Balance Sheet of Governmental Funds To tbe Statement of Net Assets September 30, 2005 c Total fund balance -governmental funds $ 85.200,754 Amounts reported for governmental activities in the statement of net assets are different because: c Capital assets used in govCilUJlentaJ activities arc not financial resources and therefore are not reported in the funds. 138,614.151 Internal semce funds (ISF's) arc used by management to charge the costs of certain activities, such as i.nsuranc:e and telecommunications. to individual fUnds. The portion oftbc assets and c liabilities of the ISF's primarily serving govemmeutal funds are included in governmental activities in !be statement of net assets as follows: Net assets 5,636,774 Net book value of capital assets (1,072,813) Compensated absences 214,828 AmounlS due from business-type lSFs fur amounts uadc:rcharged m,274 Certain liabilities are not due and payable in the current period and therefore arc not repom:d in the fuods. Those liabilities are as fullows: Genenl obligation bonds (102,720,269) c Capital leases payable (3,954,887) Compensated ehsences ( 16,288,365) Accrued intcre$t on general obligation bonds (590,610) Bond premiums are recognized as an other finaru:ing source io the fund statements but the ,. premiums are amoctized over the life of the bonds in die govcrtll1lC(It-widc statemeots. (1,865,984) \, Adual City conlribution.s to the fire fighter's pension trust fund is greater than the actuarially determined required contribution. This will reduce 1\dure funding requirements aod is not recognized as an asset at the fund level but is a prepaid expense in tbe Slatemeut ofNet As<sta 909,112 ( Revenue amed but una...ailab lc in the funds is deterred. s.n2.soo Net assets of ~vemmcntal activities s 110,628,765 ( ( Sec acoompaoyi!lg Notes to Basic Financial Statemeots. 39 ( ) City of Lubbock, Texas Statement of Revenues, Expenditures and Changes in Fund Balanees ) Governmental Funds For theY ear Ended September 30, 2005 Noa-Mtljor Tobll Goverameatal Gonrumcatal GeneniF'uad Fuada Fuads ) REVENUES Taxes $ 68,716,601 s 17,797,455 s 86,514,056 Franchise Fees 6,693,209 4,460,432 11,153,641 Fees and fines 4,015,402 4,015,402 Licenses and permi13 1,953,666 1,953,666 Intergovernmenlal 480,648 12,814,933 13,295,581 Ouuges for services 4,070,642 543,440 4,614,082 Ioterest 349,236 805,103 1,154,339 Miscellaneous 1,506,315 3,268,281 4,774,596 Total revenues 87,785,719 39,689,644 127,475,363 EXPENDITURES Administra.tloolcommuaity services 18,330,508 18,330,508 Streetlightiog 2,214,291 2,214,291 Financial services 2,139,492 2,139,492 Fire 21,943,261 21,943,267 General government 6,159,536 20,358,995 26,518,531 Human resources 740,826 740,826 Police 33,919,626 33,919,626 Plaoning and transportation 8,120,727 8,120,727 Non-departmc:oral 445,251 445,251 Publi~ worlcs 2,657,218 2,657,218 Debt service: Principal 6,336,036 6,336,036 lnleleSt and fiscal charges 3,031,751 3,031,751 Capillll outlay 5,277,100 16,438,438 2117151538 Total expendilun:s 99~90.624 ~.822.438 148,113,062 Excess ( dcficicocy) of revenues over (under) expenditures (11,504,905) (9,132,794) (20.637,699) OTHER FINANCING SOURCES (USES) Long-term debt issued 45,110,000 45,110,000 Retitanent of refunded debt (7 ,215,000} (7,215,000) Bond premiwn (discowt) 725,586 725,586 Capital leases issued 3,534,016 3,534,016 TraDSfets in 16,565,397 6,122,612 22,688,009 Transfers out ~3,912164~ ~2,827,52~ {6.740.17Q Net other financing sources (uses) 1611861768 41.9151672 58!102,440 Net ehauge in fund balances 4,681,863 32,782,878 37,464,741 Fund balances at beginning of year 12,694,557 35,041,456 47,736,013 Fund balances at end of year $ 17,376,420 $ 67,824.334 $ 85,200,154 See acc;ompaning Notes to Basic Financial Staremea~s ) 40 City of Lubbock, Texas ReeoneiUation of the Statement of Revenues, Expenditures and Changes In Fund Balances of Governmental Funds To the Statement of Ac:tivities For the Year Ended September 30,2005 AmouniS reported for govemcnental activities in the slate~:~~a~t of activities ~ differeat bec:ausc: Go'lll::mlllemal fUnds ft\POI1 capital outlays as cxpemtitura. HOWC'Vef, in the Stal.mlerlt of Adivities the cost of those assets i$ allocated over their estimated useful. lives and n:portcd as depredatioa expense. 'Ibis is the amount by wbic:h capital 0\ldays of $21,702,8$8 exceeded depreciatioll of$1 l,S9S,992 in the aum1t period. BoDd proceeds provide t\llmlt fmancial resoun::es to goVCI'IliDelltal fuads. bot issuing debt inm:ases Joag- tam liabilities in the Statement of Net Asse1s. Repayment of bond prin<:ipal is an expenditure in tbe govcmmcnlal funds,. but the repaymeu.t reduces long-lam liabilities in tbc ~of Net Assets. This is tbc amount by which proceeds of$45,110,000 exceeded rc:paymcats and. dt:bt defe'ISCIIOe of$12,619,948. · Capital lease 1ransalltio.ns provide cunent finallc:ial resources 1o govcmmc:atal fUnds aad repaymCDl of p~inc:ipal is an expettditure. This is the amoUDt by whic:h proc;ccds ofS3,S34,016 exceeded repayments of $940,086. Bond premiums are cccogniz.ed as ao ocbef financing source in the govcm.meotal fimds. but~ considm::d dcferml assca on the Stacemeot of Net Assets. Premiums arc amonizcd over the lite of the bonds. This is the amolUil by whic:b bond pmnium issued of$72S,S86 exceeded amodi:mtion of$39,324. &timal.cd loag-tcsm liabilities for oompc.asaiCCI. absalccs ~ rccogoizcd as expenses iD. tile Scateme~~t of Activities as earned, but are~ when c:am:nt financial resoun:es are ustd in lhc gowmmcmal fuads. This amoUDt is dtc DCt cbangc in the estimated loq-tcrm liability for compensated abscaccs duriDg the year. Property taxes levied and court fines and fees camed, but a.ot available,. arc dc:fi::m:d in lhc goYCmiDCDtal fi:mds,. but arc n:cogniz.ed whco earned (ru:t of estimated wu:oUc:d.ibles:} in the Statement of Activities. This amou.at is tbc 11et cbaogc in defemd ptopc:tty taxes and court fines and fees for die year. Acwal City c:oolribatiOIIS to the fin: fig&tds pcusion trust illnd an: gree11:r .._die a=aria!ly cld.mnil1td Net Peosioo. Oblit,&Don (NPO). This am.OUD.t ~ xecogniad as an expeaditwe at die fund lml. but is accrued Wben ovetpaid m:l reduc:a Clq)CII$t:S on. the S«•!nntnt of Activities Inlema! sa:vicc fimds arc used by manasement to char8e the costs of c:ertail1 act.Mtics, StiCh as insunulcc and t.c:lccomm.unic:atioos, to individual funds. Tbc t1et nM:m~C (expense} of CCl'laill inUtnal service fimds is reponed with govemmCDtiJ activities. Accmcd interest is ~ as cxpc:.oscs in the Statcmcrst of Activities as iDc:um:d. but is~ when c:umat tinanciaJ resoun:cs ~used illlbe govemmental tunds. This amount is tile net challsc in Cbc acerued intl:Rst this year. The net effect of 'YariollS misecllaneous transactions involving cqital assets (e.g.. salC~IIDd trade-ins) is to decrease net assets. 41 c c $ 37,464,741 c 10,106,866 ,. I,. (32.499,052) (2,!593,930) c (686,262) (1 ,348,546) ,. I. (1,177,369) ( 11,464 (2,561,821) ( (202,7SS) (225,745) $ 6,281,591 ( c ( ) ) "\ l ~/ i / City ofLubboek, Texas Budget Comparison Statement General Fund For the Year Ended September 30,2005 Ori;iaal B•d~et REVENUES Taxes $ 67,662,817 franchise Fees 6,490,916 Fees and fines 3,675,500 Licenses and pennits 1,954,759 Intergovernmental 38_5,304 Charges for services 4,597,064 Interest 264,230 Miscellaneous 1,063,508 Total revenues 86,094,098 EXPENDITURES Administration/communily services 18,339,305 Stn:et lighting 2,270,937 Financial services 2,288,879 F~ 21,862,118 General government 5,960,400 Human resources 722,083 Police 33,783,644 Planning 1111d transportation 7,782,461 Non-departmeataJ (1,391,429) capital outlay 473 141 Toral expendilllrcs 92,091!539 Excess (deficiency} of revenues over (under:) expendltures ~5,997,44ll OTHER FINANCING SOURCES (USES) Capital leases T~in 11,925,222 Transf'cr3 out ~5,927,732} Net oCher financing sources (uses) 5,997,440 Net change in ftmd balances (I) Fund balances at beginniug ofyctU" 12,694,557 Fund balances at end ofyear $ 12,694,556 See accompaning Notes to Basic Financial Stalemeuts 43 $ $ c c Variance with Final B•dget- Positive ,. .... Final Budget Actu•l A.,ouats (Neptive) 67,662,817 $ 68,716,601 $ 1,053,784 6,490,916 6,693,209 202,293 3,675,500 4,015,402 339,902 (" 1,954,759 1,953,666 (1,093) ... 391,664 480,648 88,984 4,179,364 4,070,642 {108,722) 264,230 349,236 85,006 1&063.508 1,506,315 442,807 85,682,758 87,785,719 2,102,961 ,. I,. 18,311,655 18,330,508 (18,853) 2,270,937 2,214,291 56,646 2,288,879 2,139,492 149,387 21,935,828 21,943,267 {7,439) !" .... 6,070,400 6,159,536 (89,136) 792,083 740,826 51,251 34,171,143 33,919,626 252,217 8,146,421 8,120,727 25,694 (689,.562) 445,251 {1,134,813) ( 2,381,141 5~77,100 (2,895,959} 95£6192625 99~90,624 {3,610,999~ ~9,996,86:D {11~50419052 ~1,.508,038} c 3,534,016 3,534,016 16,520,075 16,.56.5,397 45,322 {31803,251} ~3,9 12,645) {J09,394l 12,716,824 16,1861768 3,469,944 2,719,957 4,681,863 1,961,906 12,694,557 l2,694,557 15,414,514 $ 17,376,420 $ 1.961,906 c ) ) ) ) City of Lubbock, Texas Statement of Net Assets Proprietary Funds Septe~~~ber 30, 2005 ASSETS Current assets: cash and cll5h equivalents lnvescments Accounts receivable Intucst receivable Due from others Due from other funds Inventories Total cu.m:nt assets Noncurrent assets: Restricted cash and cash equivalents Rcsmc:ted lnvcslmeltts Rc$icted ioterest n:ceivable Resnictcd accounts receivable Defemxi clwps Capjtal assets: Land Coostruction in progress Buildings Improvements other than buildings Madlinery .nd equipment Less accumulated depreciation Total capical assm Total noncurrent assets ToQ!Assets $ $ See accompenying Notes to Basic Financial Statements LP&L 11,629,589 3,094,677 15,203,375 19,267 255,509 30,202,417 5,588,827 4,583,485 3,211,110 756,714 12,248,738 8,054,811 169,337,586 49,137,805 ~100,3892815) 139,145,839 152,529.261 18'b731.678 44 Eaterprise Fuads Water Sewer WTMPA $ 5,205,156 $ 3,834,508 $ 1,663,523 186,781 1,027,426 4,113,761 2,324,999 1,096,068 19,769 9,131 42,444 11,299,440 215,806 9,783,717 7,196,064 14,059,031 7,781,030 3,312,987 14,106,757 7,999,160 472 22,179 26,164 12,724,350 1~8,774 50,601,987 6,893,669 21,570,924 23,862,871 222,401,681 109,746,495 25,200 20,304,008 16,075,017 (83J51,900} ~58,910!186) Q5.200l 244~11050 110,246,640 266,161,488 121,584.951 $ 27.5.945,205 s 128,781,015 $ 14,0S9,031 Stormw.ter $ 12,208,148 s 454,334 656,534 5,902 13,3241918 4,548,392 25,629,786 10,856 283,337 51,964,007 64,580 8,158,852 2,766,421 !8t215104Q 54,322,156 84,511,190 s 971836,108 $ Euterprisc Funds Non-Major Enterprise Funds 8,041,256 765,249 2.184,286 12,667 1,471,521 51,814 6031445 13,135,238 5,045,321 6,825,808 16,243 5,605,535 6,059,823 41,865,343 95,430,523 48,457,729 {109,764,554} 87,654,399 991541,771 112,677,009 c ( Tobl Enterprise Joteraal Funds Service Funds c $ 42,582,180 $ 4,432,716 5,528,467 761,620 25,579,023 1,818 c 66,736 8,078 1,513,965 26,848 11,351,254 5;367 lz079,760 1,590,076 87,701,385 6,826,.523 c 26,276,557 59,144,996 12,595,089 27,571 20,656 48;343 107,063 c 3,211,110 31,948,710 65,343 127,768,224 1,100,582 95,418,529 1,608,618 605,100,337 628,868 c 136,740,980 7,898,666 (361,35~696) (1,405,774) 635,620,084 2,896,303 724~282661 15,619,111 c $ 81220302046 $ 22,4451634 c c 45 c ) ) ... , ' City of Lubbock, Texas Statement of Net Assets Proprietary Funds September 30, 1005 LIABU..ITIES Current liabilities: Accounts payable A<:aued liabilities Accrued interest payable Due to other funds Customer deposits Compensated absences Lease payable Bonds payable Toeal current liabilities Noncutm1t liabilities: Compensated absences Deferred revenues Accrued Insurance Claims LaodfiU closure and post closure care CcntnK:ts md leases payable Bonds payable Totllf noncu.nent liabilities Total Liabilities NET ASSETS Iaveslcd in capital assets, net of related debt Restrlcted for: Passccgcr facility cbargcs Debt service Unrestricted Total NetAs=s $ $ See .x:ompanying Notes to Basic Fioancial Statements LP&L 809,810 1.304,102 1,236,712 11,299,440 2,268,713 1,038,245 8,780 51425,000 23,390,862 1.305,704 81,239 6417011763 66,088,706 89z4791S68 73,512,542 5,588,827 141150,741 93.252.110 46 Eaterprise FuadJ Water Sewer WTMPA $ 882,905 $ 364,840 $ 12,745,213 172,906 108,770 . 986,739 248,821 29,355 403,463 192,771 195,525 5,911,004 3193;162 8,386,372 5,042,889 12,745,213 513,493 245,345 222,387 122,319,849 431875,658 122,&33,347 44,343,390 131,219,719 49z386,279 12.745,213 130,126,954 70,118,10& 7,781,030 3,312,987 6,817,502 5,963,641 1,313,818 S 1441725z486 $ 79z394,736 $ 1,3131818 Storamllter s 880,091 $ 23,318 429,758 4,500,000 36,.290 1,355,000 7,124,457 46,188 70z2961817 70,343,005 77,567,462 8,300,125 4,548,392 7,420,129 $ 20,268,646 s Eaterprise Fuads Non-Major Enterprise Faods 901,608 1,064,084 74,964 855,367 6,7n 347,141 252,320 1,002,733 4,504,989 441,815 14,697 3,073,391 594,325 13,.285,193 17,409,421 21,914,410 79,345,636 4,359,610 685,711 6,371,642 90,7621599 Total Eaterprise Internal Funds Service Funds s 16,584,467 $ 1,279,836 2,673,180 137,515 2,976,994 16,654.807 2,304,900 200 2,017,910 264,524 456.625 17z625~899 61,294,782 1,682,075 2,552,550 380,609 14,697 8,842,158 3,073,391 897,951 314,479,280 321,017,869 9;1.22,767 38;312,651 10,904,842 361,403.365 2,896,303 4,359,610 21,916,947 42,037,473 8,644,489 $ 4291717.395 $ 11,540,792 47 r " c I"' .... c c ( ( c c c c No Text City of Lnbboek, Texas .Reconeiliation of the Statemeat of Net Assets -Proprietary Funds To the Statement of Net Assets September 30, 2005 Total net assets-proprietary funds Amounts n:ported for business-type activities in the Statement ofNet Asscls are different because: Jntemal suvicc funds (ISFs) are used by management to charge the costs of certain activities, sucll as insuraocc and telec:ommunica!ions, to individual funds. The portion of assets and liabilities of the ISFs primarily serving enterprise fUnds are iueluded in business.. type activities in the Statement ofNc:t Assets as follows: Net assets of business-type ISF' Amounts due to govemmentallSFs for amounts overcharged Net assets of business-type activities See accompanying Notes to Basic F"UUIOcial Statements. 49 s 429,717,395 5.904,018 (773,252) $ 434,848,161 c ,.. .... c c c ( ( ( ( City of Lubbock, Texas Statement of Revenues, Expenses and Chuges in Fund Net Assets Proprietary Funds For Fiseal Year Ended September 30, 2005 Ent!rprise :Fu11ds ) LP&L Water Sewer WTMPA OPERATING REVENUES ~for services $ 180,549,258 s 33,500,269 $ 19,929,559 $ 158,128,217 Provision for bad debts (789,632} (193.~3} (100z129} ChUJ!:S for Services (net) 179,759,626 33,306,786 19,829,430 158,128,217 Miscellmeous Total operating revenues 179,759,626 33,306,786 19,829.430 158,128,217 OPERATING EXPENSES Personal Services 9,921,315 5.423,288 3,537,639 405,974 Insurance Supplies 585,433 992,173 724,106 Materials Maintenance 1,575,709 2,171,179 1,137,176 Purd1ase of tUel and power 146,980,186 157,964,087 Collcceion expense 1,460,411 910,539 Other sen'iccs and charges 5,007,907 7,512,617 4,555,055 261,920 Depreciation and amortization 9zl92,618 5z950,475 5,096,596 614,787 Tocal operating expenses 173,263,168 23,570,143 15,961,111 159,246,768 Opcraling income (loss) 6,496,458 9,736,643 3,868,319 (1,118,S51) NON OPERATING REVENUES (EXPENSES) Intcn:sc earnings 348,637 788,431 165,758 537,249 Passenger facility <:barges/Federal gnmts Disposition of assets (1.372,588) (174)25) (10,636) M"IScellaoeous 1,396,843 269,718 222,528 Pass-through grant payments ~t expense on bonds Q,828,762) {4,632,649} (1,747t211) {I~OS,246! Net non-operaliog reveoues (expenses) (2,455,870) (3,748,825) (l.J70,261) (667,997) ':\ Income (loss) before canbibulions and transfers 4,040,588 5,987,818 2.493,058 (1,786,548) , Capibll contributions 33,306 1,814,011 2,374,233 Operating transfers in 25,000 147,802 5,000,000 306,756 Opcntina tnmsfers out ~1,10316872 (4,536,812) (;50418672 Change in oet assets before special item 2,995,207 3,412,819 7,367,424 (1,479,792) Tenr~ination of interest rate swap {6,637 ,0932 Change in oct assets after special item 2,995,207 (3,224,.274) 7,367,424 (1,479,792) Total net assets -beginning 90,256,903 147.,949,760 n,027)12 2,793,610 To1al net assets • ending $ 93,252,ll0 s 144,725,486 $79,394,736 $ 1.313,818 Sec accompanying Notes to Basic Financial SlatemenU. 50 r 1.. c Enterprise Funds Noa-major Total EAterprise Internal Sel"ric:e Storm water Enter~e F~tacb FuadJ Fuads ( $ 6,322,447 s 20,951,536 s 419,381,286 s 38,242,434 (83,0lQ {126,2432 ~1,.2921498} 6,239,436 20,825,293 418,088,788 38,242,434 1331535 133,535 180,580 6,239,436 20,958,828 418,222,323 38,423,014 r ... 757,308 10,8&0,055 30,925,579 5,061,567 22,091,005 2,368,452 4,670,164 ll2,8ll ( 8,087,476 168,618 3,270,121 8,322,803 1,959,390 304,944,273 500,514 490,271 3,361,735 288,721 .5,073,375 22,759,595 4.457,031 ,.. 546,314 9,470,382 301811,172 350,833 " 2,.261,475 31,552,656 405,855,321 42,120,It3 3,977,961 (10,593,328) 12,367,002 (3,697,099) c 1,163,013 517,347 3,520,435 7t6,ns 8,156,015 8,156,015 417,181 (1,140,368) (79,618) (1,985) 925,084 2,812,188 10,448 (1,334,955) (1,334,955) ( Q,200,695} ~470,956) ~14,086,219} (2,307) (2,039,667) 8,.209,716 (2,072,904) 645,301 1,938,294 {2,384,112) 10,294,098 (3,051,798) 983,991 5,.205,541 c 128,586 1,564,299 7,172,443 206,711 ~991,06~ ~9,3321457} ~18,468,889} (4,858,103) 1,075,814 (9 ,168,279) 4,.203,193 (7,703,190) (6,637,0932 1,075,814 (9,168,279) (2,433,900) (7,703,190) ( 19,192,832 99,930,878 432,151,295 19,.243,982 s 20,268,646 $ 90,762,599 $ 429,717 )95 $ 11,.540,792 51 ( ) ) ) .; -.. ., ......... ·. City of Lubbock, Texas Reconciliation of the Statement of Revenues, Expemes, and Changes in Fund Net Assets -Proprietary Funds To the Statement of Activities For theY ear Ended September 30, 2005 Net change in fund net assets -tolal enterprise funds Amounts reported for business-type activities in the statement of activities are di.tferent because: Intema1 service funds (ISFs) are used by mao.agement to cbarze the costs of certain activities such as fleet services. central warehousing activities, management infbnnation activities, etc. to individual funds. The net revenue (expense) of certain ISFs is reported wilh business-type activities. Change in net assets of business-type activities See ac:companying NOleS to Basic Fuwtcial Statements.. 53 s (2,433,900) {5,141,345) s (7,575,245} ,.. '- c c c c c c c c c c City Of Lubbodc. Texas SQulllellt of C., II Flows Proprietary Fluids For the Year Ended September 30, ZOOS ) W•ITcuo Muldp8lp,_,. LP.I:L Wakr Sewer At-.ya!!MPAl CASH PLOWS FROM OPIRATING AC11VITIES a..ceipllllial~ s tn,948,699 $ 33,128,784 s 19,860,901 s 79).75,763 p.,_.. 10 lllpPlim (149,0S8,292) (12,126,758) (7 ,.292, I 88) {71,733,170) ......,. ... cmplo)'ccs (9 ,5 18, 796) (5,214,701) (3,401,576) Ollocc ra:cipcs c,.,-) 14,2.SS 95J25 211,192 Neteash~(-..d)by~..U~ 19~S,I66 1S1182,no 9J.79,029 S4~S93 CASH PLOWS ROM NONCAPttAL AND RELATED I'INANCING AC'lTVnTIS Tnmlli:n ., &om edtef W. 25,000 147,802 5,000,000 306,7S6 Trmdi:n oat to olhor t\la4s (1,103,617) (4,536,812) (2,504,867) ) Sbort-urm ialafud~ :261,500 Adv.uces &om (10) Oilier fUnds Opontins pita hyaxollleCCM&II(mado) OO&..tvaN:es (r.o)lfloln ........ fund& Wet.,_. protided (IIICd) by~ awl NIIIIOCI ffNoac:ias edivitiel (1,078,687} {4,127J101 ~495,133 ~756 CASH PLOWS noM CAPrTALA!m ULAT&D "\ FINANCJNG Acrrvnus ... l'lrcltuos ot ~ilal-(9,790,539) (28,861,654) (6,t51,n6) s.leof~wcta 2,325,.341 1,447,215 514,740 ~)OIIIeucs (20,204,792) (239,579) 762,498 ~ pJiid 011 bolllds and other debt (3,770,000) (72,062,519) (II ,SS6, 800) (1,009,S62) Boed iDuoacc oost paid (940,181) (2,897 ,423) (412,81S) ...._..paid QD I'CYCIIIIC bonda (2.194,143) (1 ,853,060) (631,746) 1-.. paid OD bolufa aad edtefddlt (2,493,663) (1,621,336) IIIIIIN:Oot~ G.O. boodr, ani! aopjlaJ '-27,0SS,I69 92,461,132 15,444,730 ~ t.ci1ily daqet/c.pilllf pa T'.....&aatiGn ol--1'110 !llnp (6,637,093) Colllrilluled ..... 33,306 111S31397 ?:,003,398 Net cash pro.w.d (aecl) b ...,;r.1 -.1 ra..d ~ac~M!ies (7,48S11J92 !19,743,673} Qa025,438l (US,IIO) CAS8 PLOWS PROM IN'VESTil'IG ACflVITUS ) Proccallfrana salca .... --ofm-4,56~,426 1,401,002 l'llldlua ora.-(6,.511,009) (767,714) (7,412,574) m.-eamiep ooc.allad~ 339,520 806~ 163~22 21 Ill Net.-~o:kd by (llltd fir) ....... ldiviliet !1,683,063} 1,439,686 {7,M9.m} 21811 Net iDc:n:uo (~)ilt c.all -eull equM!enll 9,148,977 (6,.548,7n) 2,599,472 (14,650) Cub....! ouh equiwalcms -~qiaaiqof',_-1,069,439 19,534,963 4,548,023 1678173 Cub ...!cuhoquivaladl-....S of~ $ 17¢1'.416 s 12,9!6,186 s 7,147,495 s 1,663$23 Rua Xalio-.t.......-c'-<1-)t.-CMII ,....w.. (....-!)" .-t~.& dftia: Opealiala .._. (lea) s 6,496,451 s 9,736,.643 s 3,868,319 s (1,118,SSI) ~10--=i!e~U.......(l-) ...... cab proWled(~ by ..-.ldMcit:t: DcpraciMiGa 1114 amortizalioa 9,192,611 5,95().415 ~.096,596 614,181 Olber income (cqJCC~Mt) 24,.255 95,393 211,893 a,. ill cam:Dt-....! liotHiilieo: ~ receivlblo (1,810,927) (178,002) 31,471 (5,502,549) In~ (222,528) (45,323) . !'nPd <llqiCIIIQI Dae e-<llhor govenar-. 11,299,440 (14,363) ACCOIIIIIa payalolo (7 ,706,598) IS2,S20 140,196 6,133,231 Olbcz--=-1~ 288,471 5,920 (35,237) 415,668 ) c.-.,.,. 1,299,084 4,640 1--(.-.-)ia~ • ._ !53SJ93 174115 65792 Not CNb ,_;dod(-..!) by opontiq-.civi~j.,. s 19.;!95~ s 15,882.718 s 9.;!79,030 $ ~.593 s.,.ae-ea~ Clldl tlow ...., ...... , Naacab Glpial ilt:lpa-...cl Clbcrdlla3el s s 66o,614 s 370834 s S.~NottstoBuicF"IIIIIII.Cial~ ) 54 c l!!uprio! ...... OCIMrN...;.r btonul ( llllorprile Scmoc s..-w ,.... ,. ...... ,.. s 6,288.$01 s 21,00!,046 s 337,503,694 s 38,389,571 (169,004) (11,503,229) (258,882,641) (36,750,900) (7.2&,111) (10,6Sl,S79) (29 .s 14,83:J) (5,061,318) {1,981} 1414 704 11744.?:!jS 11892 c 5,389,335 260942 .50,850,485 (3,410,825) 128,586 1,564,299 7,172,443 157,638 (991,066) (9,332,457) (18,468,889) (4,109,030) 4,500,000 143,867 4,905,367 {13,402) (5,367) c 5,629,370 5,6l9,370 1,023,706 1,023,706 3,637,5l0 (971,21S) 261 997 (4,670,161) (9 ,086,984) (6,m,784) (60,669,737) (31,114) c 8,920 1,106,740 5,402,956 194,264 (19,611,873) (12,101,3.~0) (3,714,091) (I 04,.214,322) (851,391) 223,181 (4,878,631) (3,200,696} (7 ,886,64S) (452,390) (4,567 ,394) 11,522,003 5,641,111 IS2, 12S,S4S 1,191,690 1,191,690 (6,637,093) 983991 4,174,092 (13,709,SJ!Ql (I. 791,152) (45,641,412) 155,380 1,360,757 4,532,944 11,160,129 7,070,785 (4,431,913) (307,309) (t9,S07,S19) {814,206) ( 1,17~796 545976 3,053,823 743044 ~1,894,3601 4,171,611 (4~93,567} 6,999,623 (6,577,005) 2,269,486 877,503 (925,983) ~~~ 10,117,091 67,981,234 S,35M99 s s 13,086,571 s gssa,737 s 4,432.,716 c s 3,977,961 s (10,593,828) $ 12,367,002 $ (3,697,099) 546,314 9,470,312 30,871,112 350,133 (1.914) 1,342,.264 1,671,121 11,892 ( 49,065 42,217 (7 .368. 72S) (33,445) (140,181) (40&,739) (5,996) (432.,256) 10,852,821 1125,706 (255,606) (710,544) (106,302) (11.$41) 658,399 1,314,680 37)!19 650 \.304,374 lOIII 169607 9S6618 31.993 c s S,)!9,332 s 260.941 s 50,850,480 s (3,410,!2S) s s s 1,031,443 s 55 c ) ' "' , City of Lubbock, Texas Statement of Fiduciary Net Assets Fiduciary Funds September 30, 2005 ASSETS Cash and cash equivalents Investments, at fair value: Total Assets LlABILmES Accounts payable: Tol.lll Liabilities See ~mpanying Notes to Basic Financial Statements. Agency Fund $ 1,099 73 $ 1,172 $ l1172 $ 1,172 56 City ofLobboek, Texas Notes to Basic Financial Statements September 30, 2005 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Basic Financial Statements (BFS) of the City of Lubbock, Texas (City) have been prepared in confonnity with Accounting Principles Generally Accepted in the United States of America (GAAP) as applied to government units. iacluding s~ialized inclusby practices as specified in tbe American Institute of Certified Public Accountants audit and accounting guide titled State and Local Governments. The Governmental Accounting Standards Board (GASB) is 1he acknowledged standard-setting body for establishing governmemal accounting and financial reporting principles. With respect to propdetary activities related to business-type activities and enterprise funds, including component units, the City applies aU applicable GASB pronouncements as well as Financial Accounting Standards Board (F ASS) Statements and Interpretations, Accounting Principles Board (APB) Opinions and Accounting Research Bulletins of the Committee on Accounting Procedure, issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. The more significant accounting policies are described below. A. REPORTING ENTITY The City is a municipal corporation govemcd by a Council-Manager form of government. The City, incorporated in 1909, is located in the northwestern part of the state. The City currently occupies a land area of 119.1 square miles and serves a population exceeding 211,000. The City is empowered to levy a property tax on both real and personal properties located within its boundaries. It is also empowered by state statute to extend its corporate limits by annexation, which occurs periodicaUy when deemed appropriate by the city council The City provides a twl range of services, including police and fire protection; recreational activities and cultural events; construction and maintenance of highways, streets, and other infrastructure; and sanilation services. The City a1so provides utilities for electricity, water, sewer, and stonnwat.er as well as a public transpOl'llUion system. . The BFS present the City and its component units and include all activities, organizations, and functions for which the City is considered to be financially llCC()UDtable. The criteria consid~ in determining activities to be reported within the City's BFS are based upon and c::oosistent with those set forth in the Codification of Governmental Accounting Standards. Section 2100, "Defming the Financial Reporting &Jity. ,. The criteria include whether: • The organization is legally separate (can sue and be sued in its own name), • The City bolds the corporate powers of the organiution, • The City appoints a voting majority of the organization's board, • The City is able to impose its will on the organization, • The organization bas the potential to impose a financial benefit or burden on the City, or • 1\lete 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 whidt lhe City is financially accouncable, and other organizations for which the uature and significance of their relatioll5hip with the City are such !hat exclusion could cause the City's BFS to be nrisleading or incomplete. 57 ( ( c c ( ( c c ) J City ofLubbock, Texas Notes to Basic FinaDcial Statemeafs September 30, 2005 NOTE L SUMMARY OF SIGND1CANT ACCOVNTING POLICIES (Coatiaued) A. REPORTING ENTITY (Contiaaed) BLENDED COMPONENT UNITS The Urban Renewal Ageacy (URA) bas been included in the City's financial reporting entity within the primary government using the blended method because, although it is legally separate, its operations are so intertwined with the City that it is, in substaoce, a part of the City. The URA was formed to provide urban renewal services btcluding 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 Cotmcil. AU powers to govern the URA are held by the City Council. There are no separate fuwtciaJ statements available for the URA. West Texas Municipsl Power A.Keocy (WfMPA) is a legally separate municipaJ corporation. a political subdivision of Texas, and body politic and corporate, formed in 1983, governed by a Board of eight directors who serve without compensation. WfMP A has no employees and instead contracts with the City for general opaations. WTMP A may engage in the business of generation, transmission, sale. and exchange of electric energy to the four participating public entities: Lubbock, Tulia, Brownfield, and Floydada. Wf.MP A may also participate in power pooling and power exchange agreements widJ. other entities. wrMP A provides eledricity to its four member cities with the City having an 88.5% interest in its operations. Each member city appoints two rnembers to the wrMPA board, however an affirmative vote of the "majority in interest" 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 purehascs, and consequently bas majority voting comroL ~ the City purchases approximately 88.S% of tbe electricity brokered, WTMP A provides services almost exclusively to the City and is therefore preseuted as a blended enterprise fund. Their separate audited financial statements may be obtained through the City. 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 colwnn to emphasize that they are legally separate from the City. The following Component Units are included in the reporting entity because the primary govemment is financially accountable. is able to impose its will on the organization, or can significantly influence operations and/or activities of the OJ88Di2ation. Civic Lubboek, lac. is a legally separate entity that was organized to foster and promote the presentation of wholesome educational. cu1tura1, and entertainment progmns for the general moral, intellectuaJ, physical improvement, and welfare of the citizens of Lubbock and its surrounding area. The seven-member board is appoimed by tbe City Council City Council approves the ammal budget Separate financial statements for Civic Lubboclc may be obtained from them at 1501 6* Street, Lubbock, Texas. Market Lubbock Econolllie Development Corporatioa, dba Markd Lub~k, is a legally separate entity tbat was formed on October 10, 1995 by the Ci~ Council to create, manage. operate, and supervise programs and activities to promote, assist, and eohance economic development within and around the City. The City Council appoints the seven-member board and its operations arc funded primarily through budgeted allocatious of the City's property and hotel occupancy taxes. Separate financial statements may be obtained ftom Market Lubbock at 1301 Broadway, Suite 200. Lubbock, Texas. 58 City of Lubbock, Texas Notes to Bane Financial Statements September 30, 2005 NOTE L SUMMARY OF SIGNIFICANT ACCOUNTING POUCIES (Continued) A. REPORTING ENTITY (Continued) Lubboek Economic Development AUiaace is a legally separate entity that was formed on June 1, 2004 by the City of Lubbock to create, manage and supervise programs and activities to promote, assist, and enhance economic development within and around the City. The City Council appoints the five (5)-member board and its operatioos are funded primarily through budgeted aUocatioos of the City's sales and use taxes. Separate financial statemeots may be obtained from Market Lubbock at 1301 Broadway, Suite 200, Lubbock, Texas. RELATED ORGANIZATIONS The City Council is responsible for appointing the members of the boards of other organizations but the City's accotmtability for these org:aai7Jrtioas does not 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 constitute indebtedness of the City. The following Related Organizations are not included in the reporting entity: The Housing Authority of the City of Lubbock (Authority) is a legally separate entity. The Mayor appoints the five-member board. The Lubbock Health Facilities Development Corporation promotes health faciUties development City Council appoints the seven-member board. The L•bboek Hoasing Finanee Corporatioa, Inc. was fonned pursuant to the Texas Housing Finance Corporation Act, to finance the cost of decent, safe. aud affordable residential housing. The Mayor appoints the seven-member board. Nortfl ud East Lubbock Commanlty Development Corporation (CDC) was formed from 1he recommendation of the mayors commission formed in May 2002 to examine the condition of North & East Lubbock. Inoorporated in February 2004, the CDC began work to effectuate change in North and East Lubbock. The North & East Lubbock Community Development Colporation 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 members of an eleven-member board. The City Council is not able to impose its will on the entity and there is no financial benefit/burden relationship. The Lubbock Education Facilities Authority, Inc.. is a non-profit COI)lOration and instrumentality of the City and was created pursuant to dle Higher Educ:ation Authority Ace, Chapter 53 Texas Education Code for the parpose of aiding institutions of higher education, secondary school, and primary schools in providing educadoual &cilities, housing facilities. The seven-member Board is appointed by the City CounciL The Lubboek. Firemen's Retirement and Relief Fund (Peosion Trust Fund) operates under provisions of the Firemen's Relief and htirement Laws of the State of Texas for purposes of providing retirement benefits for the City's firefight.eB. The Mayor's designee, lhe Cash and Debt Manager, three firefighters electEd by members of the Pension Trust F1md and two at-large members elected by the Board, govern its affitirs. It is fimded by contributions from the firefighters and City matching contributions. As provided by enabliDg legislation, tbe City's respoosibiJity to the Pension Trust Fund is limited to 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 carmot significantly influence its operations. Their separate audited financial statements may be obtained through the City. 59 c ( c c ,. ' ( c ( c ( ) ' ) City of Lubbock, Texas Notes to Basic Financial Statemeats September 30, 2005 NOTE L SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) B. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS The City's financial smtements are prepared using dle reporting model specified in GASB Statement No. 34- Basic FinanciDI Statements -and Manogenumt's Discussion and Analysis -for Stale and L«al Governments, GASB Statement No. 37 -BO$ic Financial State~Mnts -and Management's Discussion and Analysis -For S/aJe and Local Governments -Omnibus, GASB Statemeot No. 38 -Certain Financial SlatemDtt Note Disclo.JJII'e3, and GASB Interpretation No. 6 -Rscognilion Qlld Meanvement of Certain Liabililies and &pendilures in Governmental Fund Financial Stauments. As specified by Statement No. 34, the Basic Financial Statements (BFS) include both Government-Wide and Fund Financial Statements. In FY 2005 the City adopted dle provisions of GASB Statement No. 40 -Deposit and I~tt~estmenl Risk Disclosures. This new standard revises the existing requirements regarding disclosure of custodial credit rislc and establishes requiremcats for disclosures regarding credit risk. con<:entration of uedit risk, interest rate risk and foreign CUITency risk. Adoption of GASB Statement No. 40 had no effect on net assets and change in net assets in the prior or current year. The Govemmeat-Wide Financial Statements (GWFS) (i.e., the Statement ofNet Assets and the Statement of Activities) report infonnation on aJl of the non-fiducllll)' activities of the City and bs blended component units as a whole. The discretely presented component unit$ an: also aggregately preseo=:l within these stlsternents. The effect of interfbnd activity has been removed from these statements by allocation of the activities of the various internal service fUnds to tbe governmental and business--type activities on a fund basis based on the predominant users of the services. Governmental activities, which are primarily supported by taxes and intergovernmental revenues, are reported separately fi'om business-type activities. which rely to a significant extent on fees and charges for support. All activities, botb governmental and business-type, are reported in the GWFS using the economic resources measurement focus aad the accrual basis of accolmting. which includes long--term assets and receivables as weD as long-tmn debt and obligations. The GWFS focus more on the sustainabili(¥ of the City as an entity and the change in aggregate financial position resulting fi'om the ac:tivities of the fiscal period. The Govenunent-Wide Statement of Net Assets reporiS all financial and capital resources of the City, excluding those reported in tbe fiduciary fimd. It is displayed in the fonnat of assets less liabilities equaJs net assets. with the assets and liabilities shown in order of their relative liquidity. Net assets are required to be displayed in three components: (1) invested in capital assea net of related debt. (2) restricted. and (3) unrestricted. Invested in capiml assets net of rebd8d debt equaJs capital awets net of accumulated depreciation and reduced by outstanding balances of any bonds, mortgages, notes, or other borrow~ that are attributable to the acquisition, construction, or improvement of those assets.. Restricted net assets are those with constraints placed on their use by either: (1) ex:temaJiy imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments; or (2) imposed by law through constitu1ional provisions or enabling legislation. All net assets not o1hcrwise classified as invested in capital assets net of rolated debt or restricted, are shown as amestricted. Resecvatious or designations of net assets imposed by dle City, whether by administrative poUcy or legislative actions of the City Council that do not otherwise meet the definition of restricted net assets, are considered unrestricted in the GWFS. The Govermnent-Wide Statement of Activities demonstrates the degree to which the direct expcoses for a given fimction or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment Program revenues include, (l) charges to customers or applicants who pmcbase, use, or directly benefit &om goods, services, or privileges provided by a given function or segment; and (2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment Taxes and other items not properly included among program revenues are reported instead as general revenues. The general reYenues support the net costs of the functions and segments not covered by program revenues. 60 City of Lubbock, Texas Notes to Basic Financial Statemeots September 30, 2005 NOTE L SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) & GQVERNMENT -WIDE AND FUND FINANCIAL STATEMENTS (Coutiaued} Also part of the BFS arc Fund Financial Statements (FFS) for govemmenfal funds, proprietary funds, and the fiduciary fund, even though Che latter is excluded from the OWFS. The focus of the FFS is on major fuuds, as defined by GASB Statement No. 34. GASB Statement No. 34 sets forth minimum criteria for determination of major funds, i.e., a percentage of assets, liabilities, revenue, or expenditures! expenses of fund category and of the governmental and enterprise funds combined. However, it also gives governments the option of displaying other fimds as major funds. The City can elect to add some funds as major funds be<:ause of outstanding debt or community focus. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the FFS. Other non-major funds are combined in a single ooJumn in the appropriate FFS. C. MEASUREMENT FOCUS. BASIS OF ACCOUNTING. AND FINANCIAL S'[ATEMENT PRESENTATION . Fund Financial Statements The GWFS are reported using the economic resources measurement focus and the ac:aual basis of accowting. as are the proprietary FFS. The City's fiduciary FFS iucludes only an agency fund that uses the accrual basis of accounting. However, because agency fimds report only assets and liabiHties, tbis fund does not ha.ve a measurement foeus. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property aaxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements have been met. Because the enterprise foods are combined into a single business--type activities column on the GWFS, certain interfimd activities between these funds are eliminated in the coo.sol..idation for the GWFS, but are included in the fund columns in the proprietary FFS. The effect of inter-fund activity has been eliminated from the GWFS. Exceptions to this general rule are payments-in-lieu of aaxes and other charges between the City's electric, water and sewer functions and various other functions of tbe government Elimination of these charges would distort the direct costs and program revenues reported for the various fimctions concerned. For iDstan.ce, 88.5% of the operations of WTMP A representing transactions between WTMP A and Lubbock Powec & Light bave been eliminated for the GWFS presentation and for the electric BTA. Governmental FFS are reported using the current finalu::ial resources measurement focu·s and the modified accrual basis of accounting. This is the traditional basis of aooounting for govemmentaJ funds. This presentation is necess&Jy, (1) to demonstrate legal and covenant compliance, (2) to demonstrate the sources and uses of liquid resources, and (3) to demonstrate how the City's actual revenues aod expenditun:s confonn to the annual budget. Revenues are recognized as soon as tbey are both measurable and available. Revenues are considered to be available when they are collectlble within the current period or soon enough thereafter to pay liabilities of the current period For this purpose, the government considers revenues to be available, generally, if they Ke coUcctcd within 45 days of th~ end of the cum:nt fiscal period, with the exception of sales taxes which are considered to be avail.abJe if they are collected within 60 days of year end. The City couiders the grant availability period to be one year for revenue recognition. Expenditures generally are recorded when a liability is incurred, as under accroal acc:oun1:ing. However, debt service expenditures, as well as eJtpenditures related to compensated absences, and claims and judgments are recorded only when the liability has matured. Because the governmental FFS are presented on a different basis of accounting than the GWFS, reconciliation is provided immediately following each fund statement. These reconciliations explain the adjustments necessary to convert the FFS into tbe govenunental activities colwnn of the GWFS. 61 c r '- ,.. .... c ,. \,. c ,. 1., ) J ) ) City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE L SUMMARY OF SIGNIFICANT ACCOUNIING POLICIES (Continued) C • .MEASUREMENT FOCUS. BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION (Coqtinuedl Property taxes, sales taxes, franchise taxes, occupancy taxes. grants, licenses, court fines, and interest 8SSO(;ia,ted witb the c:urrent fiscal period are all considered to be susceptible to aocrual and have been recognized as revenues of the current fiscal period Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when the City receives cash. Fond Accounting The City uses funds to report its financial position and lhe results of its operations. Fuod accounting segregates funds aocording to their intended pmpose and is designed to demoostrate legal compliance and to aid fiDaneial management by segregating transactions related to certain governmental functions or activities. A fund is a separate aecounting entity with a self~cing set of accounts, which includes assets, liabilities, fund balance/net assets, revenues and expenditures/expenses. Governmeotal funds are those through which most of the governmental functions of the City are financed. The City reports one major governmental fund: The Geoeral Fuud. The General Fund, as the City's primlll)' operating fund, accounts for all financial :resources of the general govemmeDt, except those required to be accounted for in another fund. Enterprise Funds are used to account fbr operations: (1) Chat are financed and operated in a manner similar to priYale business enterprises where the intent of tbe governing body is tbat the costs (expenses, incl.llding depreciation) of providing goods or services to the general public on a continuing basis be financ:ed or recovered tbrougb usee charges; or (2) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital mainlenance, public policy, management conttol, accountability, or other purposes. The City rep011S tbe following major enterprise funds: The Electric Fund accounts for the activities of Lubbock Power & Light (LP&L), the City-owned electric production and distribution system. ne Water Fuad accoucJS fur the activities of the City's water system. The Sewer Fund accounts for the activities of the City's sanitary sewer system. The West Tens Municipal Power Agency (WTMPA) Fuad accounts for the activities of power generation and power brokering to member cities. Member cities include Lubbock with 88.5% ownership, and Tuli~ Brownfield, and Floydada comprising the remaining 11.5% ownership. The Stor""JDWater Fuad accounts for the activities of the stonnwater utility, which provides stormwater drainage for the City. 62 City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE L SUMMARY OF SIGNIFICANT ACCOUNTING POUCIES (Continued) C. MEASUREMENT FOCUS. BASIS OF ACCQUNTING. AND FINANCIAL STATEMENT PRESENTATION (Continued) The City reports the following non-major funds: Governmeat.l Funds Special Revenue Foods are used to account for the proceeds of specific revenue sources (other than special assessments or major capital projects) that an: legally restricted to expenditures for specified purposes. The Debt Service Fund is used to accowtt for the accumulation of resources for, and the payment of, general long-term obl~tion principal and interest (other tban debt service payments made by proprietary funds). Capital Projects Funds are 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). Proprietary Funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expea!seS generally result from providing services and producing and delivering goods in <:ODDCCtion with a proprietary fund1S principal ongoing operations. ~ principal operating TC"m~ues of tbe City's ente.rprise funds and of the City's internal service funds are charges to customers for sales and services. Operating expenses for enterprise funds and internal service funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. lntenal Service F'tlnds are used to aooount for services provided to other departments, agencies of the departments or to other governments on a cost reimbursement basis (i.e., Fleet Mainteoance Fund, Central Warehouse Fund, Print Shop Fund, Self-Insurance Fund, etc.). Enterprise Fuads are 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 Preston Smith lnlcmational Airport (Airport Fund), Citibus, and d1e Solid Waste Fund. Fidaclary Funds include an Agency had that is used to account for assets held by the City as an agent for private organi23tions. D. BUDGETARY ACCOUNTING The City Manager submits a proposed operating budget and capital improvemeat plan to the City Council annwdJy for the upcoming fiscal year. Public hearings are conducted to obtain taxpayer comments, and the budget is legally enacted through passage of an ordinance by City CounciL City Council action is also required for the apprcm1l 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 leplly authorized supplemental appropriations to the annual budget during the fiscal year. The operating budget is adopted on a basis consistent with GAAP for the General Fund. Budgetary control is D)llimained at the department level iD the foUowing expenditure categories: personnel services, supplies. other charges. and 63 { c c c c c .. .... ( ) ) ,. ) City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOI'E L SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. BUDGETARY ACCQUNfiNG (Continued) capital outlay. Management may make administrative transfers and increases or decreases in accounts within categories, as long as expeuditures do not exceed budgeted appropriations at the fund level, the legal level of control. AJl annual openltiog appropriations )apse at the end of the fiscal year. Capital budgets do not Japse 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 acoordance with State law, the City Council sets an ad valorem tax levy for a sinking fund (General Obligation Debt Service) whicb, with casb and investments in the fund, is sufficient to pay all debt service due during the fiscal year. E. ENCUMBRANCES At the end oftbe fiscal year, encumbrances for goods and services tbat have not been received are canceled. At the beginning of the next fiscal year, management reviews all open encumbrances. During the budget revision process, encumbrances may be re-established. On October 1, 2005, the Geneml Fund had no significant amounts of open encumbrances. F. ASSETS. LIABILITIES AND FUND BAI.ANCEINET ASSETS Equity in Cash and Investments -The City pools the resoun:es of the various funds in order to facilitate the management of cash aod enhance investment earnings. Records are maintained which reflect each fond's equity in the pooled account The City's investments are stated at fair value, which is based on quoted m.arlctt prices as of the valuation date. Cash Equivalents -Cash equivalents are defined as sbort...tenn highly liquid invesbneots that are mdily convatible to known amounts of cash and have origina) maturities of three months or less when purtbased which present an insignificant risk of changes in value because of changes in intereSt rates. Investments -lnvestmems include securities in the Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, and Federal National Mortgage Association. Restricted investments include cash equivalents and investments that have been restricted for bond financed capital projects and money restricted fur claims in the Risk and Health Insurance Funds. Property Tn Recavable -The value of aU real and business property located in the City is assessed annually on January l in confonnity with Subtitle E of the Texas Property Code. Property taxes are levied on October l on those assessed val11e$ and tbe taxes are due on receipt of the tax bilL On the following 1anuuy l, a tax lien attaches to property to secure the payment of all taxes, penalties, and interest ultimately imposed. The taxes are considered delinquent if not paid before February 1. Therefore, at fiscal year end aU property taxes receivable are delinquent, but are secured by a tax lien. At the GWFS level, property hx reveuue k recognized upon levy. In governmental fimds., the City records property taxes receivable upon levy and defers tax ~venue unbl tbe taxes are collected or available. For each fiscal year, the City recognize:! revenue in the amount of taxes coJiected during the year plus an estimate of taxes to be collected in the subsequent 45 days. The City allocates property tax revenue between the General, cmain Special Revenue, and Debt Service FWlds 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 uncoUecbole taxes and deferred tax revenue at fiscal year end based upon historical collection experimce. To write off property taxes receivable, the City eliminates the receivable and reduces the aHowanee for uncollec:tible accounts. 64 City ofLubboek, Texas Notes to Basic Financial Statements September 30, 2005 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) F. ASSETS, LIABILlTIES. AND FUND BALANCE/NET ASSETS <Continued) Eaterprise Fuods Receivables· Within the Electric, Water, Sewer, and WTMPA Enterprise Funds, services rendered but not billed as of the close of the fiscal year are accrued and this amount is reOected in the accounts receivable balances of each fund. Amounts billed are reflected as accounts receivable net of an aUowance for uncollecti'ble accot.mts. IDventorif$ • Inventories consist of expendable supplies held for consumption. Inventories are valued at cost using the average cost method of valuation, and are accounted for using the consumption method of accounting. i.e., inventory is expensed when used rather than when purchased. Prepaid lteou w Prepaid items are accounted for under the consumption method. Restricted Assets w Certain enterprise fund and governmental activities assets are restricted for construction and debt; consequently, net assets have been restricted for these amounts. The excess of other restricted assets over related liabilities are included as resb'icted net assets for bond proceeds, bond indentures requirements, and passenger faciUty charges. Mortgage Receivables -Mortgage receivables consist of loans made tb Lubbock residents under the City's Community Development loan program. These loans were originally funded primarily through gnmts received from the U.S. Department of Housing and Urban Development. Capital Assets aud Depreciation -Capital assets, including public domain infrastructure (streets, bridges, sidewalks and other assets tbat are immovable and of value only to the City) are defined as usets with an initiaJ, individual cost of more than $5,000 and an estimated useful life in excess of one year. These capital assets are reported in the GWFS and the proprietary fwlds. Capital assets are recorded at cost or estimated historical cost if pun;hased or constructed. Donated assets are recorded at the estimated .fair value on the date of donation. Major outlays for capital assets and improvements are capita]~ as the projects are oonstructed. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend the asset lives are not capitalized. Major improvements are capitalim:l and depreciared over the remaining useful lives of tbe related capital assets. Depreciation is computed using the straight-line method over the estimated useful lives as follows: ~mpwR~J~C&ts Buildings Equipment Watc:rrights 10-~0years 15-SOycars 3-lS years 8!J years Interest Caplbtlization -Bec:;ause the Cif:y issues geueral-purposo capital improvement bonds, which are m:orded within the proprietaey funds, the City capitalizes interest casts for business-type activities and enterprise fuods aocording to the Financial Accouoting Standards Board (FASB) Scatement No. 34 Capitalization of Interest Cost and FASB Statement No. 62 Capitalization of Interest Costs. The City capitalized Interest of approximately $540,000 net of interest earned, for the business~type activities and the enterprise funds during the current fiscal year. AdvaDca to Otller Funds -Amounts owed to one fund by another that are not due within one year are recorded as advances to other funds. 65 c c ( t ... c c ( c ( ) ). ) ) City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE L SUMMARY OF SIGNIFICANI' ACCOUNTING POUCD:S (Continued) F. ASSETS, LIABILITIES. AND FUND BALANCE/NET ASSETS {Continued) Use of F&timates -The preparation of financial statements in conformity with accounting principles generally acc:epted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses/expenditures during the reporting period. Actual results could differ from those estimates. G. REVJ!NUES. EXPENSES AND EXPENDITURES Interest locome on pooled cash mel investments is allocated monthly based on the percentage of a fund's six- month roUing average monthly balance in pooled cash and investments to the total citywide six-moodt rolling average monthly balan<:e in pooled cash and investments, except for certain Fiduciary Funds, C«tain Special Revenue Funds. Capital Project Funds, and certain Internal Service Ftmds. The interest income on pooled cash and investments of these funds is reported in the General Fund or the Debt Service Fund. Sales Tax Reveoae for the City results from an allocation of l.S% of the total sales tax Ievy of 8.25%, 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 tbe 20th of the month following collection. The tax is then paid to the City by the lOth of the next month. Grant Revenue from fedenl and state grants is recognized as revenue as soon as all eligibility requirem.ents have been met. The availability period for grants is considered to be one year. Interfuad Transactiom are accounted for as revenues, expenditures, expenses, or other fiw!ncing sources or uses. Transadions that constitute reimbursements to a fund for expenddureslexpenses initially made from dtat fimd that are properly applicabJe to another fund. are recorded as expe.nditures/expenses in the reimbursing fund and as reductions of expenditures/expenses in the fund that is reimbursed. In addition, transfers are made between funds to shift resow-ces from a fund I~Uy authorized to receive revenue to a fund authorized to expend lhe revenue. Compeasated Abseoees consists of vacation leave and sick leave. Vacation leave of 10-20 days is granted to all regular employees dependent upon the dale employed, years of service, and civil service status. Ctutently, up to 40 hours of ~on leave may be "carried over" to the next calendar year. The City is obligated to make payment upon retirement or terminal:ion for any available, unused vacation leave. Sick leave for employees is accrued at 1-~ days per month with a maximum accrual status of200 days. After IS years of continuous full time service for non-civil service personnel, vested sick leave is paid on retimnent or termination at the current hourly rate for up to 90 days. Upon retirement or termination, Civil Service Persoonel (Police) are paid for up to 90 days accrued sick leave after one year of employment. Civil Service Persooncl (Firefighters) are paid for up to 90 days of accrued sick leave upon ~ent or tcnnination. The Texas Civil Service laws dic:taie certain benefits and personnel policies above and beyond those policies of the City. The liability for the accumulated vacation and sick Jeave is recorded in the GWFS and in the FFS for proprietary fund emplo~ when earned. The liability is recorded in the governmental FFS to the extent it is due and payable. 66 City of Lubbock, Texas Notes to Basic Financial Statemeots September 30, 2005 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) G. REVENUES. EXPENSES AND EXPENDJ:TURES !Continued) Post Employment Benefits for retirees of the City of Lubbock include the option to pW'Cbase health and life insurance benefits at their own expense. However, employees 1hat retire with lS years of service or Civil Service employees that retire who have a balance in excess of 90 days will be able to elect to continue receiving medical coverage in full 30-day periods for the term of the balance of their sick leave. Amounts to c:over premiums and administrative costs, with an incremental charge for reserve funding, are determined by the City's health care administrator. Employee contributions are funded on a pay-as--you~go basis and approximated $1.4 miltion for fiscal 2005. These contributions are included in the amount of insurance expense reflected in the financial activity reported in the Health Insurance Internal Service Fund. NOTE IL STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. RESTRicrED NET ASS.iTS Restricted net assets are only used for their intended purpose. For projects funded by tax exc:mpt debt proceeds, the debt proceeds are used first, then unrestricted resources are used. B. NIT ASSET/FUND BALANCE DEFICIT The deficit of $18S,403 in Chc Pennaoent Street Mainteoanc:e Capital Projects Fuod is due to timing diffcrcntell of ioc:uning Cll)ital outlay expenditures for an intcmally financed project. When n:maining capital projects arc complete in the Pe:rmanc:nt Street Maintenance Capital Projects Fund, a tnmst'er will be recommended to cover the deficit No other funds of the City llad deficits In either total fund balances or total net assets. NOTE m. DETAIL NOTES ON ALL ACfiVITIES AND FUNDS A. CASH AND INVESTMENTS Deposits Custodial credit risk is the risk that in the event of a bank failure, a government's deposits may not be returned to it. The City's deposit policy for custodial credit risk requires compliance with the provisions of state law .. State Jaw nquires c:ollateralization of aU deposits with federal depository insurance, eligible securities, or a surety bond having an aggregate value at least equal to the amount of the deposits. The City's Investment Policy requires the minimwn collateral level to be 102% of market value of principal and accrued interest. Citibus and American State Bank are not in compliance with the City's investment policy, the Public Funds In~cot Act and the Public Funds Collateral Act At September 30, 2005, $1.973,078 of bank balance5 of $2,373,078 was exposed to custodial credit risk as foUows: Uninsured and uncollateralized Uninsured and coliatetal held by pledging financial institution Uninsured and collatmJ held by pledging financial institution's trust department or agent in other than the City's name 67 s J61,3n 1,611,701 ( , c c c ( f ... ,. ... c ( ) ) ) ) City of Lubbock, Texas Notes to Basie Financial Statements September 30, 2005 NOTE llL DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) A. CASH AND INVESTMENTS CCoutiuued} lavestments At September 30, 2005, the City had the following investmeots and maturities: Txpe Repun:hase agreements • Federal Hoene Loan Banks (FHLB) Federal Home to.n Mortgage Corporatioo (FHLMC) Fedecal Natiooal Mortgage Association (FNMA) Money market mutual funds •• StaJe Investment Pools •• September 30, 2G05 Fair Value $ 1,382.123 13,836,400 1,975,600 7,917,000 98,931,041 JOI.07S,003 $ 225. JI 1167 Less Thanl $ 1,382,123 7,931,400 1,975,600 7,917,000 91,931,041 101.075.003 $219212167 1-5 $ 5,905,000 SS.90SOOQ +considered cash equivalent for financial reporting. •• Money madcet mutual .funds and Stme lnvcstmcot Pools are considered casb equivalents for financial reporting. unless n:stric:ted for bond fin.anced capital projects and claims for Risk and Heallb Insurance Funds. Interest Rate Risk -As a means of limiting its exposure to fair value losses arising from rising interest rates. the City's investment policy limits investments to those that can be held to macurity and by limiting final maturity to no more than five (5) years. The money marlcet mutual funds and in~t pools are presented as an investment with a maturity ofless than one year because chey are redeemable in full immediately. Credit Risk -Credit risk is tbe risk dlat tbe issuer or other oounterparty to an invesbnent will not fulfiU its obligations. The City's policy allows investment in direct obligations of and other obligations guaranteed as to principal of the U.S. Treasury and U.S. agencies and instrumentalities with tbc exception of mortgage backed securities. It allows obligations of investment in tha State of Texas or its agencies and obligations of states, agencies, counties. cities. and other political subdivisions rated not less than A or its equivalent It may also invest in fully collateralized repurchase agreements, fully co.IJateralized certificates of deposit, commercial paper and bank acceptanceS with a stated maturity of270 days or fewer from the dam of ismance, AAA-rated, no-load money mcuket mutual funds regulated by the Securities and Exchange Commission, and. AAA-rated, constant dollar AAA-rated investments pools authorized by the City Council At Septembcc 30, 2005, Standard & Poor's rated the investment pools AAAm and Moody's rated the money madcet mutual funds Aaaa. The senior unsecured debt for investments in FNMA and FIR.MC are rated MA by Standard & Poor's and Moody's. Custodial Credit Risk-For an investment, custodial credit risk is tbe risk that, in the event of the lhllure of the counterparty, the City will DOt be able to recover the value of its investment or collateral securities tbat are in the possession of an ouisido party. The City required that deposits and repurchase agreements be held in an institution that has a minimum coUateral level of 102% of the marbt value. FHLB, FHLM:C, and FNMA investments are held in the City's name in third party safekeeping by a Federal Reserve member financial institution designated as a City depository. The City shall maintain a list of authorized brobrldealers and financial institutioos, whieb are approved by the Audit Committ= for investment purposes. 68 City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE ID. DETAR. NOTES ON ALL ACTIVITIES AND FUNDS (Continued) A. CASH AND INVESTMENTS <Continued) Concentration of Credit Risk-The City places limits on the amount that may be invested in any one issuer with the exception of United States Treasury obligations. At September 30, 2005, the City's investments constituted tho fullowing percentages of total investments: repurchase agreements -0.6'!/o, FHLMC -0.9%, and FNMA-3.5%. Foreign Currency Risk -This risk relates to adverse atfects on the fair value of an inveSbnent from changes in exchange ntes. The City has no foreign currency risk. B. INTERFUND TRANSACTIONS Interfund balances, speclfically the due 10 and due from other fimds, are short-tenn loans to cover temporary cash deficits in various funds. This occasio1111Uy occurs prior to bond sales or grant reimbursements. These outstanding balances are repaid within tbe following fiscal year. Interfund balances, specifically advances to and from other funds, are longer-tenn loans to cover Council directed internal financing of certain projects. At September 30, 200S the City has nearly $22.6 million of this type of internal financing. These balances are assessed an interest charge and are repaid over time through operations and transfers. Net interftmd receivable.s and payables between governmental activities and business-type activities in the amount of $6,076,822, are included in the govemmcnt~wide :financial statements. The following amounts due to other funds or due from other funds, including advances, are included in tbe fund financial ~ (all amounts in thousands): Iaterfuod Receivables (Thouaa.ds) Govenmeabl Fuad1 Proprietary Fwtds ldterfuad Payables (Tboasaads) Non-Major Noa-Major luterul Geaeral Governme~~t WTMPA Eaterprile Service Totals Govenmental Faads: Non-Major Governmental $ 1,738 s 4,202 $ $ 52 $ sm Proprietary F'ltacls: Eledric 11,299 11,299 StDnnwater 4,500 4,SOO Non-Major Enterprise 8SO s ass Toea Is s 7,088 $ 4.202 $ 11,299 s 52 $ s $ 22,646 Net transfers of $15,468,765 ftom business-type activities to govenune.ntal activities, up $5.8 million from the prior year, on the government-wide statement of activities is primarily the result of 1) debt S«Vice payments made from the debt service fund, but funded from an operating fund; 2) subsidy transfm from unrestricted funds; and 3) transfers to move indirect cost allocations, payments in lieu of taxes (PILOT), and franchise fees to the general fund or other funds as appropriate. The following interfun<l transfers are reflected in the fund financial statements (all amO\llliS in thousaods): 69 c c c ( c ( ( c I" \, ( ( ) ) ) ) ') ) ' City of Lubbock, Texas Notes to Basic Fioao.cial Statements September 30, 2005 NOTE m. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Cootioued) B. INTERFUND TRANSACTIONS {Coatinued} I11terfund Tnufen Oat: (Thousands) Govern meatal Funds Propriebry Fuads Non~JN!jor Stono-NOMiajof lntaal laterfuad Transfers General Gov. Electric Water Sewer Water BIUcrprisc Service Totals Ia: (Thousands) C.vernmeatal Faads: General Fund s -$ 872 $ 797 $ 4,537 s 2,505 $ 991 $ 2.865 $ 3,998 $ 16..565 Nonmajor Governmental 3,053 1,016 1,219 835 6,123 Proprietary Funds: Electrli: 25 25 Water 147 147 Sewer 5,000 5,000 Stonnwater 129 129 WTMPA 307 307 Nonmajor Enterprise 849 664 51 1,564 Internal Service Funds 10 197 207 Total $ 3,912 $ 2.828 $ 1,104 s 4,537 $ 2.SOS $ 991 $ 9,332 $ 4,8SB $ 30,067 C. DEFERRED CHARGES The total deferred charges of$3,211,110 in the LP&L Enterprise Fund represents an advertising contract with the United Spirit .Arena. The advertising (and amorti2ation) began with the opening of the sports arena in fiscal year 2000 and will continue for 30 years. D. CAPITAL ASSETS Capital asset activey for the year ended September 30, 2005, was as follows: 70 City of Lubbock, Tens Notes to Basic Financial Statements September 30, 2005 NOTE Ill. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Cootioued) D. CAPITAL ASSETS (Continu~ Primary Government: ~meouiA~tia Begia..Uag EudiDC Balance launscs Decreasa Balaaces Capital A.ssetJ Not Depreciated: Land $ 8,608,249 s 496,946 $ 154,095 $ 8,951,100 Construction in Progress 43,472,022 15,626,731 21,305,325 37,793,428 Total Capital Assets Not Depn:ciated 52,080,271 16,123,677 21,459,420 46,744,528 Capital Assets DepTCc:iated: Buildings 51,454,278 6,181,112 29,345 57,606,045 Improvements Other tban Buildings 129,651,115 11,345,076 4,597,201 136,398,990 Machinery and Equipmcru 52,954,673 9,851,376 2,563,173 60,242,876 Total Capital Assets Depreciated 234,060,066 27,377,564 7,189,719 254,247,911 Less Aecumulated Depreciatioa: Buildings 27,660,190 1,811,465 11,782 29,459,873 Improvements Other tban Buildings 92,468,340 4,195,013 4,159,593 92,503,760 Macllincry and Equipment 36,997,929 5,917,503 2,500,777 40,414,655 Total Accumulated Depreciation 157,126,459 11,923,981 6,672,152 162,378,288 Total Capital Assets Depreciated, Net 76z933,607 15,453,583 517,567 91,869,623 Govemmcnml Activities Capital Assets, Net $ 129,013,878 $ 3l.S77 ,260 $ 21,976,987 $ 138.,614,151 DcpreciatiOD expense was «:barged to fonctionslprograms of the govermneotal activities as follows: Govcrnmental activities; General Government Financial Se~Vices Human Resoun:es Administration/Communi~ Servia=; Fire Police Sereets Electric Internal Service PUDds T01al dqln:eiation expense-govemmeatal activities Transfer in to accwnutamd depleciatioD ~ govc:niiiiUltal ac::tiviCies Increase in accumulated depreciation ~ governmental activities 71 $ 351,216 5;1.79 4,636 4,2M,580 985,657 2,199,601 3,514,289 244,734 107,670 11,703,662 220,319 $ 11,923,981 c c c c c ) ) ) ) City of Lubbock, Texas Notes to Basie Financial Statements September 30, 2005 NOTE IU. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Con tinned) D. CAPITAL ASSETS <Coatinutdl Basiaas-Type Actirities B~ianiag Ending Balance Increases Decreases Balances Capital Assets Not Depreciated: Land $ 31,676,155 s 361,678 $ 89,122 s 31,948,711 Construction in Progress 113,9611371 33,298,426 18,827,618 128,432,179 Total Capital Assets Not Depreciated 145,637,526 33,660,104 18,916,740 l60,380a890 Capital Assets Depreciated: Buildings 96,928,778 114,152 15,784 97,027,146 Improvements Other than Buildings 574,358,968 35,064,830 4,0JI,628 605,412,170 Machinery and Equipment 132,757,563 9,450,490 3,537,.365 138,670,688 Total Capital Assets Depreciated 804,045,309 44,629,472 7,564,771 841,110,004 Less Accamulaeed Depreciation: Buildings 28,627,056 2,459,327 10,691 31,075,692 Improvements Other than Buildings 243,517,538 16,291,923 1,790;1.77 258,019,184 Machine!)' aod Equipment 65,835,597 12,083,156 2,966,.326 74~952~27 Total Ac:c:umulated Depreciation 337,980,191 30,834,406 4,767,294 364,047,303 Total Capilal Assets Depreciated, Net 466,065,118 13,795,066 2,797,483 477,062,701 Business· Type Activities capital Assets, Net $611,702,644 $ 47,455,170 $ 21,714,223 s 631,443,591 Depreciation expense was charged to functions/programs of the business--type activities as follows: Busme.'I)pe Activities! Electric Wale!' Sewer Stormwa!er Solid Waste Airport Transit lntemal Service Funds Total depreciation expease -busine.type activities Transfer in to aa:umul.ated depn:ciation -business-type activities Increase in accumulated depreciation -busiocss-type adivitics 72 s 9,059,285 5,950,475 5,096,596 546,314 4,930,067 3,211,033 1,329,282 243,163 30,366.,215 468,191 $ 30,834,406 City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE IU. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Conthtued) D. CAPITAL .ASSETS (Continued) Construction Commitments The City had many coastruction projects in progress at fis<:a1 year end. The Parks Department continues to work on updating irrigation and park lighting. A large street project involving Milwaukee A venue, 341h Street to 98111 Street is under way. The project falls under the Gateway Street Projects Fund. Electric projects included upgrades to their infrastructure. Water projects included expanding water lines to new areas of town to increase water availability. Sewer projeets included construction of sewer lines ahead oftbe Marsha Sbarp Freeway. Solid Waste projects include the construction and site development for a new recycling drop off center and the upgrade of existing sites. Work on Airport taxi\Wys comprises the majority of the Airport•s spen1 to date nmnber. Two of the City's largest coastruc:tion projects are related to Stormwater. The first project provides for the construction of an outfall storm sewec &om Clapp Park to Yellowhouse Canyon and a series of upstream storm sewers that wiD provide various protections around four playa lakes. The second project provides for the c:oastrudion of a flood relief project for south Lubbock's chain of playa lakes. Oricinal Retnaiaing Projects Commitments Spent-to-Date CommJtiments Public Safety $ 1,801,772 $ 184,051 $ 1,617,721 Part Improvemeats 20,200.528 7,126.221 13,074,307 Street Improvements 26,171,525 IS,Sll,742 10,659,783 Geoe:al Capi131 Projccb 1,093,426 114,198 979,228 General Facilities Improvements 5,693,276 4,352,183 1,341,093 Tax Increment Fund capital Projects 15,023.670 2,665,3 17 12,358,353 Gateway Stmlt Projects 9,000,000 6,405,700 2,594,300 Blectric 17,417,727 12,248.740 5,168,987 Water 61,381,231 50,610.861 10,770,370 Sewer 9,8S5,482 6,893,671 2,961,811 Solid Waste 3,668,680 1,296,565 2,372.ll5 Airport 29,667,471 4,763,256 24,904,215 Stonnwa~er 75,353,518 51,964,009 23,389,509 lntcmal Service Fund 1,450,000 1,100,582 349,418 Total $ 2n.778,306 $ 165,237,096 s 112,541,210 73 c c c c c .. .. ( ,. .... c ) ) J ' ) City ofLabbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE m. DETAIL NOTES ON ALL AcrMTIES AND FUNDS (Continued) E. RETIREMENT PLANS Bach qualified employee is included in one of two retirement plans in which the City of Lubbock participates. These are 'the Texas Municipal Retirement System (TMRS) aud the Lubbock F"JRmen's Relief and Retirement Fund (l.FRRF). The City does oot maintain lhe accounting records, bold the investments or administer either retirement plao. Summary of significant data for each retirement plan follows: TEXAS MUNICIPAL RETIREMENT SYSTEM (TMRS) Plan Description The City provides pension benefits for all of its fu.ll·time employees (with the exception of ftrefighters) through a non-traditiooal. joint contributory, hybrid defined benefit plan in the state-wide TMRS, one of 80 1 administered by TMRS. an agent multiplc>-employer public employee retirement system. Benefits depend upon the sum of the employee's contributions to lhe plan, with interest, and the City·financed monetary credits, with interest. At the date the plan began. the City ~ monetaJy ~its for service rendered before the pJan began of a 1beoretical amount equal to two times what would have been contributed by the employee, with interest, prior to establishment of the plan. Monetary credits for service since the plan began are a percent (100%. 150%, or 200'%) of tbc employee's accumulated contributions. In addition, the City can grant, as often as annually, another type of monetary credit merred to as an updated service credit which is a theoretical amount which, when added to the employee's accumulated contributions a~:~d the monetary credits for service since the plan began, would be the total monetary credits and employee contributions acc:wnulated with i.nterest if tbe current employee contribution ~ and City matching percent had always been in existence and if the employee's sa1uy had always been lbe avenge of his salaly in the last three years that are one ~ before the eff.ective dati:. At retirement, the benefit is calculated as if the sum of the employee's accumulated contributions wi1h interest and the employer-financed monetary credits with interest were used to purchase an annuity. The plan provisions are adopted by the governing body of the City, within the options available in the state statutes governing TMRS and within the actuarial constraints also in the statutes. Members can retire at ages 60 and above with S or more years of service or wi1h 20 years of service regardless of age. A member is vested after s years. Contributions The contribution rate for the employees is '70.4 and the City matching ratio is cummtly 2 to l, both as adopted by the governing body of the City. Under the state law governing TMRS. the actuary annually determines the City contribution rate and the prior service cost contribution rate, both of which are calculated to be a level percent of payroll from year to year. The normal cost contribution rate finances the currerttly accruing monetary credits due to the City matching percent. which are the obUgation of the City as of a1:1 employee's retirement date, not at the time Che employee's contributions are made. The normal cast contribution rate is the Ublarially determined percent of payroll necessary to S1ltisfy the obligation of the City to each employee at the time bislher retirement becomes effective. The prior service contribution rate amortizes the unfimded (overfunded) actuarial liability (asset) over the remainder of the plan's 25-year amortization period. The mlit credit actuarial cost method is used for determining the City contribution rate. Both the employees and the City make contributions montbly. Since the City needs to know its cootributioo rate in advance for budgetary 74 City ofLabboek, Texas Notes to Basic Finandal Statements September 30, 2005 NOTE lD. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) E. RETIREMENT PI..ANS CCoatiauedl purposes, there is a o~year delay between the actuarial valuation that serves as the basis for the rate and the calendar year when the rate goes into effect (i.e. December 31, 2004 valuation is effective for rates beginning January 2006). Actuarial Assumptions The actuarial assumptions for the December 31,2004 valuations aR as foUows: Actuarial cost method: Unitaedit Amottization method: Remaining amorti2:ation period: Level p«ccot of payroll 2S years-open period Amortized cost Asset valuation method: Investment rate of tetum: Projec:rcd salll')' increases: Iocludcs inflation at: Cost of Living adjustments: A.sof SepteiDber 30 2003 2004 2005 7% None 3.5% None Aaaaal Pension Cost $ 8.803,613 8.708,867 9,933,373 Contribution Made 8,803,613 8,708,867 9,933,373 TEXAS MUNICIPAL RE'I1REMENT SYSTEM THREE-YEAR HISTORICAL SCHEDULE OF ACTIJARIAL LIABILITIES AND FUNDING PROGRESS REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) Unfunded Adlrarlal Actuarial Accrued As of Actuarial Vahle of Ac:trned Pereeatage LlabiJity ~aaber31 .Auea LiUltity Jl\laded (UAAL) 2002 s 181,191,012 228,372.343 79.3% 47,181,831 2003 182,884,183 239,809,434 76.3% 56,925,.251 2004 186,398,545 248,432,807 15.0% 62,034,262 UAALasa% Auf Ana•al Coftf'ed Of Covered Deumller31 Payroll Payroll 2002 $ 60,285,077 78.3% 2003 57,577.743 98.9% 2004 61,931,003 100.2% The City of Lubbock is one of 801 munkipalities having tbe benefit plan administered by TMRS. Ea.cb of the municipalities bas an annual. individual actuarial valuation perfonned. All assumptions for the December 31, 2004 vahtations are contained in the 2004 TMRS Comprehensive Annual Financial Report, a copy of which maybe obtained by writing to P.O. Box 149153, Austin, Texas 78714-9153. 75 c c c ,.. '- ' c c c ,. \ ) ) ) ) ) ) ... ) City of Lubbock, Texas Notes to Basic Fiaancial Statements September 30, 2005 NOTE m. DETAIL NOTES ON AU. ACTIVITIES AND FUNDS (Continued) E. RETIREMENT PLANS (Continued) LUBBOCK FIREFIGHTERtS RELmF AND RETIREMENT FUND (LFRRF) Plan Description The Board of Trustees of the LFRRF is the administrator of a single-employer defined benefit pension plan. This pension fund is a trust fimd. It is reported by the City as a related organization and is not considered to be a part of the City financial reporting entity. Firefighters in the Lubbodc: Fire Depaitrnent are covered by theLFRRF. The LFRRF provides service retirement, death, disability and withdrawal benefits. These benefits fully vest after 20 years of credited service. A partially vested benefit is provided for firefighters who terminate employment with at least 10 but less than 20 years of servic:e. Employees may retire at age 50 wilh 20 years of service. A reduced early service retirement benefit is provided for employees who tenninate employment with 20 or more years of service. The LFRRF Plan effective November 1. 2003 provides a monthly normal service retirement benefit, payable in a Joint and Two-Thirds to Spouse fonn of annuity, equal to 68.92% of 6Dal48-month average salary plus $335.05 per month for each year of service in excess of20 years. A firefighter has lhe option to participate in a Retroactive Defemd Retirement Option Plan (RETRO DROP) which provides a lump sum benefit and a reduced anDuity upon termination of employment. Firefighters must be at least S 1 years of age with 21 years of service at the selected "RETR.O DROP benefit calculation date" (which is prior to dare of employment termination). Early RBTR.O 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 actuariaUy 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-thUds form. There .is no provision for automatic poscretirement benefit increases. LFRRF bas the authority to provide, and bas periodically provided for in dl.e past, ad hoc postretirement benefit increases. The benefit provisions of this plan are authorized by tbe Texas Local Fire Fightel"s Retirement Act (TLFFRA). TLFFRA provides the authority and procedure to amend benefit provisions. Coatributioas Required and Coatribatious Made The contribution provisions of this plan are lllltborized by TLFFRA. TLFFRA provides the authority and procedure to c:hange the amoum of cootributions determined as a percentage of pay by each firefighter and a percentage ofpayroU by the City. St1lte law requires that each plan of benefits adopted by LFRRF be approved by an eligible actuary. The actuary certifies that the contribution commitment by the firefighters and the City provides an adequate financing arrangement. Using dl.e entry age actuarial cost method, LFR.RF's normal cost contribution rate is determined as a percemage of payroll. The excess of the total contnbution rate over the nonnal cost contribution rate is used to amortize LFRRFs unfunded actuarial accrued liability (UAAL), if any, and the number of years needed to amortize LFRRFs unfimded actuarial Uability, if any, is detennined using a level percentage of payroll method. The costs of administering the plan are fiDanced by LFRRF. 76 City of Lubboek, Teus Notes to Basic Financial Statements September 30, ZOOS NOTE m DETAIL NOTES ON ALL ACTIVITIES AND FUNDS {Cootinoed) r.. RE'I'IREMENT PLANS CCoatinaedl Annaal Pension Cost For the fiscal year ended September :30, 2005, the City of Lubbock's Annual Pension Cost (APC) fur the Lubbock Fire Fund was equal to $3,016,942 as described in item 4 in the table below. Based on the results of 1M December 31, 2004 actuarial valuation of the Plan Effective November 1, 2003, the most recent biennial actuarial valuation, the Board's actuary found that the fund had an adequate financing arrangement, as dcscnOed in the paragraph below, based on the fixed level of the 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 to 12.43% of pay by the firefighters. Contributions by the City are based on a fonnufa, which causes the City's contribution rate to fluctuate from year to year. The December :31, 2004 actuarial valuation assumes that the City's contributions will average 19% of payroll in the future. Therefore, based on the December 31, 2004 actuarial valuation of the Plan Effective November 1, 2003, the Annual Required Contributions (AR.C) are not actuarially determined but are equal to the City's actual contributions beginning January I, 2005. This actuarial valuation satisfied the parameters of the Governmental Accounting Standards Board (GASB) Statement No. 27. Prior to January 1, 2005, the ARC were not actuarially determined but. based on the December 31, 2002 actuarial valuatiOn, were equal to the City's actual contn'butions in calendar year 2004. This acruarial valuation also satisfied the parameters of GASB Statement No. 27. The following shows the development oftbe Net Pension Obligation (NPO) as of September 30, 2005: I. Annual Required Contributions (ARC) s 3,0'28, 4{)6 2. (nlerest on NPO (71,812) 3. Adjustment to ARC 60,348 4. Annual Pension Cost (APC) 3,016.942 s. Actual City contributions made (3,028,406) 6. Increase (Decrease) in NPO/(eet) (11,464) 7. NPOI(assct) at October 1, 2004 (1!97,648) 8. NPO/(asset) at September 30, 200S ($909,112) The AR.C for the period October I, 2004 through September 30, 2005 was based on the December 31, 2002 and the December 31, 2004 a<:tuarial valuations. The entry age actuarial cost method ms used with the normal cost calculated as a level percentage of payroll. The actuarial value of assets was market value smoothed by a five-year deferred recognition method, with the actuarial value not more than 110% or less than 90% of the market value of assets. The actuarial assumptions included in an btvestment return assumption of 8% per year (net of expenses), projected salary increases including promotion and longevity averaging 5. 7% per year over a 30-year career, and no postnltirement cost ..of-living adjustments. An intlatioo assumption of 4% per year was included iD th.e 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 nwnber 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 24.7 years as of the December 31, 2002 actuarial valuation and 20.6 years as of December 31, 2004 actuarial valuation, both based on the plan provisions effective November I, 2003. 77 c c c c c c c c c ( ) ) ) ) ) ) City of Lubbock, Texas Notes to Basie Financial Statements September 30, 2005 NOTE ID. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) E. RETIREMENT PLANS (Continued) Further details concerning tbe financial position of the LFRRF and the latest actuarial valuation are available by contacting the Board ofTrustees, LFRRF, City of Lubbock, P.O. Box 2000, Lubbock, Texas 19457. A stand·alone financial report is available by contacting the LFRRF. Fiscal Year Eaded 9/3Q/03 9/30/04 9130/05 Trend Information Annual Pension Cost (APC) $ 1,964,788 2,582,713 3,016,942 Percentage of APC Contributed Ill% 101 100 Analysis of Funding Progress Net Pea1ion Obligation (Asset) (382,623) (897,648) (909,112) Required Supplementary lnformatioa (Unaudited) UAAU Faadiag .EatryAge Uaf11nded Exc:t:SS as a Actuarial AAL Percentage of A.duarlal Actuarial Aeeraed (UAAL) · A.a.aaal Covered Valuatioa Value of Liability /hading Funded Covered PayroU Date Assets (a) {AAL}(b) exuss l!!:::!l Ratio (alb) Payroll (c) 4 ({b-a}!c} 12/31100 1,2 $119,660,788 ) 14,675,()49 (4,985,739) 104.3% 12.,243,913 (40.1)% 12131102 1,3 111,261,775 127,850,414 16,588,639 87.0 13.,521,366 122.7 12/31104 5 130,174.984 143,991,'YJS 13.816,991 90.4 14,711,366 93.9 1. Economic and demographic asswnptions were revised. 2. Reflects duulges in plan benefit provisions e:ft'ectlvc December 1, 2001. 3. Reflcds c:hanges in plan beo.efit provisions eft'c::c:tive November I, 2003. 4. The covered payroll is based on estimated annualized salaries used in the -valuation. 5. Demographic assumption was revised. F. DEFERRED COMPENSATION Tile City offers ils employees two c:k:femd compensation plans in accordance with Intcmal Revenue Code ("'IR.C") Sec:tion 4S7. The plans. available to all City employees, permit them to defer a portion of their · sala1y until future years. The deferred compensation is not available to employees until termination. retiremeot. 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 fiduciacy responsibilities for these plans; therefore, they are not presented in the BFS. 78 City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE m. DETAD... NOTES ON ALL AcriVITIES AND FUNDS (Continued) G. SURFACE WATER SUPPLY Caaadian River Municipal Water Authority The Canadian River Municipal Water Authority (CRMWA) is a Conservation and Reclamation District established by the Texas Legislature to construct a dmn. water reservoir, and aqueduct system for the purpose of supplying water to surrounding cities. The District was created in 19.53 and comprises eleven cities, including the City of Lubbock. The budget. financing, and operations of the District are governed by a Board of Directors selected by tho governing bodies of each of the member cities, each city being entitled to one or two members dependent upon population. At September 30.2005, the Board was comprised of 18 members, two of which represented the City. Tbe City contracted with tbe CRMW A to reimburse it for a portion of the cost of the Canadian River Dam and aqueduct system in exchange for surface water. The City's pro rata share of annual fixed and variable operating and reserve assessments are recorded as an expense of oblaining surface water. Prior to FY 1999, long-tenn debt was owed to the U.S. Bun:au of Reclamation for the cost of construction of the facility, which was completed in 1969. The City's allocation of project costs was $32,905,862. During FY 1999, bonds in the pri.ooipal amount of $12,300,000 were issued to pay off the construction obligation owed to the U.S. Bmeau of Reclamation via CRMWA in the amount of $20,809,067. The difference of SB,S09,067 was a discount in the remaining princ:ipal provided by the U.S. Bureau of Reclamation to the member cities. This discount bas been recorded as a deferred gain on refunding and is being amortized over the life of the Rtimding bonds. At September 30, 200S. $S,454,761 remains unamortized. The annual principal and interest payments are incloded in the disclosures for other City related long-tenn debt. The above cost for tbe rights are recorded as capital assets and are being amortized over 85 years. The cost and debt are recorded in the Water Enterprise Fund. The Canadian River Municipal Autbodty issued a new Contract Revenue Bond. Series 2005 on April 20, 2005, in the amOWit of $48,125,000. The City of Lubbock shared in tbat issue for $17,960,000 and other costs of$850,296, and received depreciable assets (water rights) valued at $18,810,296. These assets and liabilities~ recorded in tbe Water Enterprise Fund Brazos River Autlaority-Lab AlaD Henry During 1989, the City entered into an agreement with the Brazos River Authority (BRA) for the construction, maintenance, and operation of the facilities known as Lake Alan Henry. The B~ which is authorized by the State of Texas to provide for the conservation and development of surface waters in the Brazos River Basin, issued bonds for the construction of a dam and lake fAciUties on the South Fork of the Double Mountain Fork of the Brazos River. The BRA issued $16,970,000 in revenue bonds in 1989 and $39,685,000 in revenue boncb in 1991, which were refunded in July 199.5. 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 related obligation. is accouated for in the Water Enterprise Fund. Soeeial Item In order to protect agamst the risk of interest rate changes between March 28. 2002 and May 1, 2005, the City entered into an interest rate swap agreement with JP Morgan Chase. The forward starting swap was fashioned to a:Uow d'te City to issue variable rate. tax-exempt bonds in a cWTCJrt refunding on lhe call date in August 2005. The variable rate bonds could then be swapped for a fixed rate of5.26%. 79 c c c c ' c ,. \. c r .. ) ) ) ) ) ) ) City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE m. DETAIL NOTES ON ALL ACfiVITIES AND FUNDS (Continued) G. SURFACE WATER SUPPLY (Continued) On August lS, 2005, the City chose to terminate the swap and issue Tax & Waterworks Revenue Refunding Bonds. series 2005 in tbe amount of$43,080,000 to retire the Brazos River Authority Bonds of 1995 in the amount of$43,740,000. The new issue has an average coupon rate of 4.84%, payable through FY 2021. On the date of the bond issuance and swap tenninati.on, the swap had a negative fair value of $6,612,000. The fair value was developed by using the zero coupon method. This method calculates the future net settlement payments required by the agreement assuming that the current forward rates implied by the yield curve correctly anticipate fiJture spot interest rates. These payments are then discounted using the spot rates implied by the CUJ't'ent yield curve for hypothetical zero-coupon bonds due on the date of each future net settlement on the swap. While the net present value of the combined refunding and swap termination agreement resulted in an economic break-even transaction, the swap termination and related expenses resulted in an accounting loss of $6,637,093. 80 c City of Lubbock, Texas Notes to Basie Financial Statements September 30, 2005 c NOTE m. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) B. LONG: TERM DEBT GENERAL OBLIGATION BONDS AND CERTIFICATES OF OBLIGATION: I'" .... Interest bsae Matarity Amouot Outstaading Rate% Date Date lssftd ~ 5.39 10.01-93 02-15-14 3,625,000 1,645,000 5.39 10.01-93 02-15-14 2,550,000 1,170,000 5.20 10..01-93 02-IS-14 1,470,000 225,000 5.14 10-01-93 02-15-14 19,215,000 2,895,000 c !1.07 12-IS-95 02-15-16 6,505,000 325,000 5.01 12-15-95 02-15-16 10,000,000 500,000 4.91 01-15-97 02-15-09 17,530,000 7,195,000 4.61 01-0J.-98 02-15-08 1.330,000 470,000 4.71 01-01-98 02-15-18 10,260,000 3,085,000 4.36 01-ls-99 02-15-14 20,835,000 18,650,000 4.!18 01-ts-99 02-15-19 15,355,000 3,080,000 c 4.77 ()4..01-99 02-15-19 6,100,000 1,220,000 4.71 04--01-99 02-15-19 12,300,000 8,680,000 5.37 09-IS-99 02-ls-20 24,800,000 4,035,000 S.S4 03-IS-00 02-ls-20 7,000,000 1,135,000 4.90 ~1..()1 02-15-21 9,100,000 1,910,000 4.81 02-DI-Dl ~IS-21 2,170,000 700,000 !1.2!1 ()6-01-01 02-15-31 35,000,000 22,360,000 c 4.68 02-15-02 02-15-22 9,400,000 8,790,000 4.71 02-IS-02 02-15·22 6,450,000 6,025,000 4.70 02-15-02 02-15-22 1,545,000 1,440,000 4.62 07-DI-02 02-15-22 2,605,000 2,345,000 3.11 07-01..02 02-15--10 Hl,BIO,OOO 6,240,000 4.42 07-15..03 02-ts-23 11,885,000 10,840,000 4.47 01-lS-03 02-1S..24 9,775,000 9,455,000 ,. 4.48 07-15-03 02-ls-24 685,000 660,000 \, 4.47 01-15-03 02-IS-24 3,59.5,000 3,475,000 4.87 07-15-03 02-15-34 40,135,000 39,430,000 4.47 07-15-03 02-15-24 3,800,000 3,615,000 4.60 03-15..03 ()4..15-23 8,900,000 8,140,000 4.60 08-15-03 04-15-23 13,270,000 12,14.5,000 4.37 06-30-04 OS.OI-12 I ,()00,000 87.5,000 ,. 4.09 09-28-04 02-15-24 2,02.5,000 1,805,000 .... 4.03 09-28-04 02-ls-24 3,100,000 2,690,000 3.58 09-28-04 02-15-20 22,620,000 22,620,000 4.63 02-15-0S 04-15--25 23,05.5,000 23,055,000 4.90 06-ts-05 02-15-21 49,615,000 49,615,000 4.84 08-IS-05 02-15-25 46,525,000 46,525,000 4.84 07-15-05 02-15-25 7,265,000 7,265,000 c U4 07-IS-OS 02-15-21 43,~000 43,010,000 TO(a! $526,885,000 389.470,000(A) (A) Excludes ($4,075,761) net deferred losses on advance refundings, net bond premiums and discounts, and bond issuance costs -($2,1t19,771) business-type and ($1,865,984) governmental. AdditionaUy, this c amount includes $286,749,731 of bonds usrd to financ.e enterprise fund activities. 81 c ) ) ) ) ) ) ) City or Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE DI. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Coatiaued) H. LONG-TERM DEBT (Continued) At September 30, 2005, management of the City believes that it was in compliance with all financial bond covenants on outstanding general obliglltion bonded debt, certificates of obligation, and water revenue bonded debt. LP&L REVENUE BONDS Balance Final Amount Outstanding Interest Rate(%} Issue Date Maturi~ Date Issued 9·30-05 3.80 tD s.so 6·15-95 4-15-08 s 13,560,000 s 3,150,000 4.25 tD 6.2S 1..01-98 +1.5·18 9,170,000 5,980,000 3.10to 5.00 1-15-99 +1S·l9 14,975,000 8,350,000 4.00 lO 5.25 7.01-01 4-15-21 912001000 7~60.000 Total s 461905,000 $ 24,840,000 • • Balance outstanding excludes $374,792 of net deferred losses on advance refundings. bond premiums and discounts, and bond issuance costs. • Interest Rate 5.25% Issue Date 01HER REVENUE BONDS Final Maturity Da~ Q9.30.2S Alltoaat Issued 17,960,000 $17,960,000 Balance Outsbading 9-30-05 17,960,000 $17,960,000 • Balaooe outstanding excludes ($720.463) discolmt and deferred losses on bonds sold or refunded. The annual requirements to amortize all outstanding debt of the City as of September 30, 2005 are as foUows: (;overa01eotal~~es Busbaess--Type Aetivities F"ISCal General Obligation Bonds Geaenl Obligatio• Boads Reveo11e Beads Year Priaeipll ID.tcrest Priud!al laterest Priu~ lllterest 2006 s 5,789,101 $ 5,611,663 s 14,69.5,899 $ 12.216,667 s 2,930,000 $ 2.013,560 2007 6,045,492 5,341,816 I.S,6S4,508 11.218.843 3,S2S,OOO 1,869,050 2008 .5,909,994 5,278,407 15,465,006 10,423,992 3,175,000 1,713,716 2009 5,913,654 4,842,203 IS,376,346 9,988,23.5 2,390,000 1,574,105 2010 .5,694,419 4,572,758 1.5,4.50,582 9,375,175 2.410,000 1,467,770 2011·2015 28,587,609 13,482.794 76,877,390 42.179,667 11,060,000 5,816,184 2016-2020 25,215,000 7,700,255 68,560,000 24,627,964 10,405,000 3,151,771 2021-2025 19,505,000 2,031,801 34,36.5,000 11,542.337 6,905,000 $77,081 2026-2030 18,850,000 5,42$,513 2031·2035 11,4.55,000 1,008,015 Totals s 102. no,269 $ 48,861,697 s 286,749,731 s 138,006,408 $ 42,800,000 $ 18,483,237 82 City of Lubboek, Texas Notes to Basic Financial Statements September 30, 2005 NOTE m. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) B. LONG-TERM DEBT (Continued) Capital leases were used to acquire equipment and vehicles. The interest rate on the leases ranged from 2.Q-4 to 4.4%. The annual requirements oo <:apitalleases of the City as of September 30,2005, including interest payments of$417,552 are as follows: Governmental Business-Type Total Capital Lease Capital Lease Capital Lease Fiscal Minimum Minhaam Minim am Year PazmeDt Payllleot Paymeat 2006 s 1,167,281 s 584,092 s 1,751,373 2007 679,32& 461,618 1,140,946 2.008 679.328 130,124 809,452 2009 659,569 127,681 787,250 2010 530,413 127,681 658,094 2011-2015 639,898 639,898 Less: Interest (400,932) (76,620) (417,SS2} Total s 3,954,885 s 1,3.5<1,576 s 5,309,461 The carrying values on the leased assets of the City as of September 30, 2005 arc as follows: Acc.umulated Net Book Gross Value Depredation Valae GovemmeD1al Activities s 7,190,820 $ 2,601,612 s 4,589,208 Business-Type Activities 4,017,069 1,572,105 2,444,964 Total Leased Assets $ 11,207,889 $ 4,173,717 $ 7,034,172 83 c c ,.. \, c c ,. I. c c ,. .. c ) ) ) ) ) ) City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE DL DETAn. NOTES ON ALL ACTMTIES AND FUNDS (Cootinued) H. LON!£:TERM DEDT {Continued) Long-tenn obligations (net of discounts and premiums) for governmental and business-type activities for the year ended September 30, 2005 are as follows: Debt Payable Debt Payable Dacia 9136/Z004 Additions Dele~D.I 9{30/2.005 oae~r Goverameatal activities: Tax-Suppomd- Obligation Bonds $ 70,221,217 $ 45,110,000 $ 12,610,948 $ 102,720,269 s 5,789,101 capital Leases 1,360,957 3,534,016 94().088 3,95~885 936.250 Compensalcd Absences 14,918,508 7,178,748 $,808,891 16.288,365 5,123,349 Insurance Claim Payable 2.3S4,536 17,824,861 17,839,137 2,340,260 2,340,260 Bond Dls<;ounts/PremilDllS 1,179,722 125,586 39,324 1,865,984 Total Goveramental activities $ 90,034,940 $ 74,373.2ll $ 37,238,388 s 127,169,763 s 14,788,960 BusiDesJ-Type activities: Self-Supported - Obligation Boods 215,663,783 125,430.000 54,344.052 286,749,731 14,695,899 Revenue Bonds 94,605,000 17,960,000 69,765,000 42.800,000 2.930,000 Capital Leases 1,393.20'7 1,706,563 1,745,194 1,354,576 456,625 Closurer'Post ClOSID'e 3,051,116 '12;l1S 3,073,391 Compeodtcd Absences 4,160,142 2,897,m 2.057,349 5,000,765 2,207,245 Insurance Claim Payable 6,436,&54 4,423.757 4,358,713 6,501,898 1,603,601 Bond DiscountsiPraniwrtJ ~14.!17) (404,924) (3,87.5,249) 2,SSS,448 Total Busiaest-Type ac:tlvitie• $ 324,395,225 s 152,035,643 $ 128,39S,OS9 $ 34&,035.809 $ 21,893,370 Payments on bonds payable for governmental activities are made m the Debt Service Fund. Accrued compensated absences that pertain to govemmemal activities will be liquidated by tbe General Fund and Special Revenue funds. The Risk Management lotemal Service Fund wiU liquidate iDsW"aDc:e claims payable tbat pertain to govemmental activities. Payments for lhe capital leases that pertain to the governmental activities will be liquidated by the General Fund and Capital Projects Funds. 84 City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE llL DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) H. LONG-TERM DEBT ((:()otiouedl The total long-term debt is reconciled to the total annual requirements to amortize Jong-tenn debt as follows: l..ong-4am dtbt -GovemmcoiZI Acti9i!ics $ 127,169,763 Loag.wm debt -Business-type Activirics 348,035,809 Interest 1D5.828,894 TOOIIlUDOU!lt of debt 681,034,466 Net gains/losses, pn:miums/discount¥ (4,421,432) Less: upiu.!Ieases (5,787 ,013) Less: I11Sum.oce claims payable (8,842,158) Lc:ss: Cocnpeasatrd absenses (21,289,!l0) Less: Closure/ post cl05'1t~: $ (3,073,.391) Total other debe: {·U,4t31124) Total fUrore botlded debt rcquitemcnu 63 7,621 ,.342 New Bond Issuances The City Council called an election for May 15, 2004 to seek voter approval to issue genentl-pw-pose tax- supported bonds in the amOlJilt of $30,000,000, wbich repn:seots the City's CWTeDt six-year general-purpose debt plan. The following seven propositions were approved by the voters: street improvements, $9,210,000; eivic::center/mditorium renovations and improvements, $6,450,000; park improvements, $6,395,()00; police/municipal court facilities, $3,350,000; library improve:rneats, $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. ID September 2004, the City issued $2,025,000 Genem Obligation Bond!, Series 2004. This issuance was the first installment of the capital improvement debt issuance approved by the voters in 2004. The second installment was in September 2005, for S7,26S,OOO, General Obligation Bonds Series 2005. The certificates wee issued at a discount of $91,805 and had bond ~ costs of $95,000. The net proceeds after discounts and costs were $7,075,000. The identified projects are: Fire Stations 12 and 8 $1,.325,000; MLK little league complex Sl,548,000; NE Lubbock residential ioftastructure $475,000; paving and streets $330,000; curbs and ramps $440,000; traflic signaJs SSO,OOO; signal systems $113,000; Midwest little league complex $1,664,000; and Phase I SW Lubbock soccer $1,130,000. The proceeds oftbe debt are recorded in various Capital Projects Funds. In September 2005, the City issued $46,525,000 Tax and Waterworks System Surplus Revetwe Certificates of Obligation, Series 2005. The Certificates were issued at a premium of $1,581,752. After paying issuance costs of$325,139, the net proceeds were $47,780,720. Proceeds from the sale of these certificates will be used for street improvements, iocluding drainage. streetlights, and traffic signalization and the acquisition of land and necessary rights-of-way; and costs associated with the issuance of the Certificates. The proceeds of the debt are recorded in \'11J'ious Enterprise Funds and Capital Projecls Funds. The Canadian River Municipal Authority issued a new Contract Revenue Bond, Series 2005 in April 2005 in the amount of $4&,125,000. The City of Lubboclc. shared in that issue for $17,960,000 and other costs of $850,296, and received depreciable assets (water rights) valued at $18,810,296. These assets and liabilities are recorded in the Water Enterprise Fund. 85 c ( c c ' c c r ._ c c ( ) ) ) ) ) ) ) City ofLobboek, Texas Notes to Basic Financial Statemeots September 30, 2005 NOTE ID. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) H. WNG-TERM DEBT (Continued) Current Refunding In August 2005, the City issued Tax and Waterworks System Surplus Revenue Refunding Bonds, Series 2005 {"the Bonds") with a par value of $43,080,000 wilh the purpose to lower debt service requirements on indebtedness. The Bonds refunded $43,750,000 outstanding bonds. They were issued at a net premium of $2,638,737 and had issllance costs of$332,358. This bond issuance also paid for the termination of interest rate swap agreement in the amount of $6,637,093. The refunding resulted in a legal defeasance of debt and resulted in a net present value savings $621,296. The reacquisition price exceeded the net carrying value of old debt by $4,511,666. This accounting loss is netted against the new debt and amortized over the remaining life oflhe refimded debt. The various transactions arc recorded in the Water Entetprise Fund. Adnnced Ref'undings The City issued two advance refundings to retire a portion of the City's outstanding debt to Iowec the debt service requirements on such indebtedness. In both advance refimdings the net proceeds from the issuance of the Refunding Bonds were deposited with the Escrow Agent (JP Morgan Chase Bank, Dallas, Texas) in an amount necessary to accomplish the discharge end final payment of the Refunded Bonds on their sc:hednled 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 ~ of America. Under the escrow agreement3, between the City and JP Morgan Chase Bank, the escrow fUnds are 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. In March 2005, the City issued a combination Tax and Electric Light and Power System Surplus Revenue Certificate of Obligation, Series 2005 in the amotmt of$23,055,000, which included $19,500,000 of refunded debt and $3,555,000 of new capital funds. This debt refunded $19,760,000 of WTMPA long-tam debt and dissolved the lease betw-een WTMP A and the Electric Funds. Tho refunding bonds were issued at a net premium of $981,819. Issuance costs were $209,894 and net proceeds for electric capital projects were $3,600,000. The refunding resulted in a net presebt value savings of $557,722. The reacquisition price exceeded the net carrying amount of the old debt by $679,280. This accounting loss is netted against the new debt and amortized over the remaining life of the refunded debt. The various transactions are recorded in 1he WTMP A and the Electric Enterprise Funds. In July 2005, the City issued General Obligation Refunding Bonds, Series 2005 {"Refimding Bonds") with a par value of$49,615,000. The RefUnding Bonds retimded $50,455,000 outsbmding bonds. They were issued at a net premium of $3,836,536 and had $351,200 issuance costs. A$ a result of the refun.ding, the City decreased its total debt service requirements by $2,205,662, which resulted in an eoonomic gain of $1,886,563 aod an accomrting loss of $4,140,288. The debt transactions are recorded in various Enterprise Funds and the Debt Service Fund. L CONDUIT DEBT The City issued Housing Finance Ccrporation Bonds, Health FaciJities 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 acquired 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 the bonds. Aooordiogfy, the bonds are not reported as liabilities in the accompanying financial statements. 86 City of Lubbock, Tens Notes to Basic Financial Statements September 30, 2005 NOTE m. DETAD.. NOTES ON ALL ACTIVITIES AND FUNDS (Continued) I. CONDUIT DEBT (Continued) As of September 30, 2005, there were seven series of Lubbock Health Facilities Development Qlrporation Bonds oucstanding with an aggregate principal amount payable of $278,537,343. The bonds were issued between 1993 and 2002. Also as of September 30, 2005, !here was one series of Lubbock Education FaciJities Authori1y Inc. Bonds outstanding with an aggregate principal amount payable of$10,500,000. The bonds were issued in 1999. J. RISK MANAGEMENT The Risk Management Fund was established to account for liability claims, workers compensation claims, and premiums for property/casualty insurance ooverage. The Risk Management Fund generates its revenue through charges to other departments, whicb are based on costs. In April 1999, the City purchased workers• compensation coverage, with no deductible, from a third party. Prior to April t 999 the City was self insured for worker's compensation claims. Any claims outstanding prior to Aprill999 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 premiwns based upon losses, administrative fees and reserve requirements. In order to control the risks associated with liability claims. the City purohased excess liability coverage in September 1999, which is m:aewed annually. The policy has a $10 million annual aggregate limit and is subject to a $250,000 deductible per claim. For self~insured coverage. the rusk Management Fund establishes claim liabilities based on estimates of the ultimate cost of claims (including future claim adjustment expenses) that have been reported but not settled, and of claims that have been incurred but not reported (IBNR). The lengdl of time fur which such costs must be estimated varies depending on the coverage involved. Because acrual claim costs depend on such complex factors as inflation, changes in doctrines oflegalliabilil;y, and damage awards, the process used in computing claim liabilities does not necessarily result in an exact amount, particularly for liability coverage. Claim liabilities are recomputed periodically using a variety of actuarial and statistical techniques to produce current estimates that reflect recent settlements, claim frequency, and other economic and social factors. Adjusbnents to claim liabilities are charged or credited to expense in the period in which they are incurred. Additionally. property and boiler coverage is accounted for in the Ris1c Management Fund. The property insurance policy was purchased ftom an outside insurance carrier. The policy has a $500,000 deducta'ble per occurrence, and the boiler covera&e lnsurance deductible is up to $500,000 dependent upon the unit Premiums are charged to funds based upon estimated premiums for the upcoming year. Other small insurance policies, such as surety bond coverage and miscellaneous floaters, are also a.ctounted for in the Risk Management Fund. Funds are charged based on premiwn amounts and administrative charges. The City bas bad 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 activity in Internal Service Funds. 87 c c c c c c c c c c ) ) ) ) ) ) ) City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE m DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) K. BEALTHINSURANCE The City provldes medical and dental insurance for all full-time employees that are accounted for in the Health Benefits Fund. Revenue for the health insmance premiums are generated from each cost center ~ upon the nwnber 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 $17!i,OOO per covered individual annually and an aggregate cap of $18,845,757. The insurance vendor based on medical trend, claims history, and utilization determines the aggrqate deductible. The contract requires an mNR reserve of approximately $2.3 million. The City also provides full-time employees basic term life insurance. Revenues for the life insuran~ premiums are also generated from each cost center based upon the number of active employees. 1b.e [ife insurance policy bas a face value of $10,000 per employee. Full-time employees may elect to purc:hase 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 insuranc:e. Voluntary insurance products are fully paid by the employee. Retiring City employees may elect to re1ain medical and dental insurance and a reduced amoWlt 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 miUion armually. The life insurance is fully paid by the retiree. L. ACCRUED INSURANCE CLAIMS The Self-Insurance Funds establish a liability for self'-insuranoe for both reported and unreported insured events, which includes estimates of both future payments of losses and related c:laim adjustment expenses. The foJiowing represents changes in those aggregate liabilities for the Self:. Insurance Funds during the past two years ended September 30: 88 City of Lubbock, Texas Notes to Basic Financial SU.tements September 30, 2005 NOTE ID. DETAIL NOTES ON ALL ACI'lVITIES AND FUNDS (Con1inaed) L. ACCRUJm INSURANCE CLAIMS (Continued} Worlted Compensacion and Liability Reserves at beginning offucal ~ $ 6,436,854 $ 6,000,000 Claims Expenses 4,658.359 5,467,674 Claims Payments ~4.593,315} (5,030,820) Workers' Compensation and Liability Reserves at end of fiscal year 6,501,898 6,436,854 Medical and Dental Claims Liability at beginning of fiscal year . 2,354,536 2,720,897 Qailm Expenses 17,432,646 14,328,384 Claims Payments ~17,446.922) (14,694,745) Medical and Dental Claims Liability at end of fiscal y.-2,340,260 2,354,536 Total Self-Insurance Uability at end of fiscal year 8,842,158 8,791,390 Total Assets to pay claims at end of fiscal year 12,646,638 18,920,469 .Mcrued insurance claims payable from n::stricted assds • cum:nt 3,943,861 3,538,746 Acaued insurance claims payable -noncurrent 4,898,297 5,252,644 Total ac:crucd i!l5111l'8Dce claims $ 8,842,158 $ 8,791,390 M. LANPIDJ. CLQSURI AND POSTCLOSPRE CARE COST State md federal. laws and regulalioos require the City to place final covers on its landfill sites when tbey stop accepting waste and to perfonn 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 u operating expenses (and recogaizing a com:spondmg liability) in each period based on landfill capacity used as of each balance sheet date. The $3,073,391 included in landfill closure and postclosurc care liability at September 30, 2005, .represents the cumulative amotllt expensed by the City to date for its two landfills that are~ under TCEQ permlt numbers 69 (Landfill 69) and 2252 (Landfill 2252), less amounts that have been paid. Around 92 perca1t of 1he estimated capacity of Landfill 69 bas been used to date, with $814,03S remaining to be recognized over the remaining c::losure period, which is estimated at two years. Approximately 2.3 percent of 1be estimmd capacity or Landfill 2252 bas bceu used to date, with $23,356,052 remaining to be n:cogni2cd over lhe remaining closure period, which is estimated at over 80 years. Postclosurc care costs ~ based on prior estimates and have been adjusted tor inflation. Actual costs may be dift"ereot due to inflation, deflation. cbanges in technology. or cblnges io regulatioos. 89 c c c c c c c c c c ( ) ) ) ) ) ) City of Lubbock, Texas Notes to Basic Finaocial Statements September 30, 2005 NOTE ID. DETAIL NOTES ON ALL ACI1VlTIES AND FUNDS (Cootillaed) M. LANDFILL CLOSURE AND POSTCLQSURE CARE COST (Continued) The City is required by state and federal Jaws aod regulations to provide assurance that financial resources will be available to provide for closure, postclostn care, and remediation or contaiDment of environmental hazards at its landfills. The City .is in compliance with these requirements aod has chosen the Local Government Financial Test mechanism for providing this assurance. The City expects to finance costs through normal operations. N. DISAGREGAIION OF ACCOUNTS Aceouats Receivable SuiiUIUU'Y Co art Property Balance at Fines Dam!J! Pavint Grants 9130JO.S Govemme11tal Aettvities: General Fund $ 4,079,900 $ 230,.337 $ 192,944 $ -$ 4,503,181 Non-Major 6,024 6,024 Total $ 4z079,900 $ 230J37 $ 1921944 $ 6lfl4 $ 4,509,205 Aa:.uuts ReceiYable Sa•mary Geaenl From Credit Balance at CoDSumer Otbers Card Misc. 9130105 Business-type Adirities: LP&L $ 16,291,858 s -$ . $ 32,753 s 16,324,611 Water 4,535,594 4,535,594 Sewer 2,422,918 88,562 4,375 2,515,855 Stotmwater 741,617 741,677 WTMPA 1,771,285 1,771,285 Non-Major 2,429,764 8,429 2,438,193 lnlmJal Service 1818 1,818 Total $ 281194z214 $ 88,562 $ 8,429 $ 37zl28 s 28J29,033 Allowaace for Doubtful Aceoanu Saauna!:l Balance at Accouua Taxes 9130105 Governmental Genetal Fund $ 312,578 $ 1,065,047 $ 1,377,625 Non-Major 456,158 456,158 B~Type LP.J:L 1,121,236 1,121;236 Water 421,833 421,833 Sewer 190,&56 190,856 Storm water 85,143 85,143 WfMPA 675,217 675,217 Noo-Major 2532907 253,907 Total s 3l)601170 $ 1.521aos s 4,581225 90 c City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 c NOTE Ill. DETAIL NOTES ON ALL ACfiVITIES AND FUND (Continued) N. DISAGREGATION OF ACCOUNTS <Continued) Aecounts Pa;t!ble 5umma!1 c Ba~aeeat Vo•c:llen Accoaab lavesbnenb Miscdlaneou 9/JOJ05 Gonmmeatal: GcnmdFund $ 549,520 $ 171;J:l5 $ s s 1,326,745 Non-MajOt' 776,893 4,756,291 215,387 513,454 6.262,025 Busiae.n--Type: c LP&L 317,873 272,898 2,144 216,895 809,810 Water 167,320 628,733 4,022 82,830 882,905 Sewer 312,368 25,054 1,603 25,815 364,840 Stonnwatel' 61,636 818,455 880,091 WTMPA )2,745,213 12,745,213 Non-Major 202,426 595,617 103,505 901.608 Total $ 2,388,036 $ 20~619,546 $ 223,)56 $ 942,499 $ 24,173,237 o. ,I!ISAGREGATION OF ACCOUNTS-GOVERNMENT-WIDE Net Receivables c Accounts Interest Taxes Internal Service Balance at Receivable Receivable Rec:emble Rtcdwbles 9130105 GoverDmental Ac:tiYities $ 4,196,627 $ 54,672 $ 9,464,704 $ 119,364 s 13,835,367 Busiaas-Type ( Adivities 25,627,366 94.307 18,246 25,739,919 Total $ 29,823,993 $ 1481979 $ 9,464,704 $ 137,610 $ 39,575,286 ACCOIIIIts Pay!lble c Accoaals bteraal Semce BaJaace.t PQable Payables 9130105 Goverameatal Activities $ 1,s8s,m $ 427,891 $ 8,016,664 Buieess-Type Activities 16,584,467 851,945 17,436,412 c Total $ 24,173,240 $ 1,279,836 $ 25,453,076 c 91 ( ) ) ) ) ) ) ' ) J ) ) City of Lubbock, Texas Notes to Basic Financial Statements Sep~ber30,2005 NOTE IV. CONTINGENT LIABILITIES A. FEDERAL GRA.N'l'S In the normal course of opetations, the City receives grant funds from various federal and state agencies. The grant programs are subject to audits by agents of the granting authority to ensure compliance with conditions precedent to the granting offuDds. Any liability for reimbursement whicb 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 iftbe City is found liable. Aclams. et al v. Citv of Lubbock: The City of Lubbock has been sued by numerous firefighters employed by the City of Lubbock. They are claiming that the City of Lubbock did not properly pay its firefighters for "IUOVC·Up" pay puJSuant to the Civil Service Act Pursuant to 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 plainti.ffis assert they are also entitled to the "seniority pay" which they've earned at the lower classification. Their basis for this assertion is tbat the statute says that they are entitled to tbe base pay of the bighec classification plus any •tongevity or seniority pay". Both sides filed Motions for Summary Judgment in the trial court and the tourt ruled in favor of the plaintiffi. The City's Motion for SUmmary Judgment was denied. PlaintiftS were awarded damages, collectively, in the amouot of $688,000 for damages through July t2, 2002, which includes pre-judgment interest. Plaintiffs were dellied attorney's fees. The City of Lubbock appealed the trial court's decision to the appeUate court. On October 7, 2004, the Appeals Court reversed the judgment of the trial court and rendered a decision in favor of the City of Lubbock. holding that 1be City paid its employees property under the Civil Servioe Act. Plaintif& have appealed to 1he Texas Supreme Court and the Texas Supreme Court bas requested full briefing on the issues. The Court has not made a detennination as to whether or oot it will hear the case. Banard Construction Comoany. Inc. "· City oCLubboek: Plaintiff is a constmctioo company suing the City of Lubbock for breach of contract. Plaintiff alleges the City owes it almost $2,400,000 for rock it excavated on a drainage project. They assert they are owed $204,000 for rode excavated on Line AI and assert they are owed almost $2,200,000 for rock excavated on other lines on the project The City bas~ to pay for approximately $176,000 of rock excavated on Line AI. However, the City has denied that it owes 8arnaJd any ~on 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, 2005. B811W'd has appealed this case to the Fifth Circuit Court of Appeals. Oral arguments are set for March. Jeanette Livinnton, et at v. City of Lubbock; Six (6) Plaintiffs filed suit against the City of Lubbock in 2004 alleging that the City and/or County failed to properly reconf information in its cemetet)' ~ that would indicate where their relatives were buried. Fifty-six additional Plaintiffs were added to the suit in November 2005. The City believes it has located where twenty-one (21) of such persons were interred. As to others, many were interred before the City owned the portion oftbe cemetety. The City acquired portions of the current cemewy between 1948 and 1959 and 92 City of Lubboek, Texas Notes to Basic Financial Statements September 30, 2005 NOTE IV. CONTINGENT LIABn.ITIES (Continued) B. LITIGATION CContiolled) many of the deceased were clearly buried when other entities owned the cemetery. The City will assert it has no liabiUty for their negligence in not recording the burial locations properly. The City will also assert that the Plaintiffs have no evidence that the City was negligent and didn't maintain records that showed where such persons were buried. For those persons who were buried while the City owned the cemetery and the City failed to properly record the burial location. there are a number of defenses. First, the City will assert that the statute of limitations has run. Second, the City will assert that this is a contractual issue and not a tort issue, thus giving standing only to those who were parties to the contract Third, the City will assert that. if this is a tort issue, that this is a negligent infliction of emotional distress case and such cause of action was nullified by the Texas Supreme Court in 1993. Lastly, for those buried after 1970, the City has other defenses it will assert under the Texas Tort Claims Act At this time, damages are difficult to ascertain but, collectively, they would meet the $200,000 materiality definition for damages. Marvio Rodriguez v. LP&L: Plaintiff sued LP&L fur negligently maintaining a line. Plain~ an employee of Abnos Energy. was working around an LP&L line and suffered second degree bums over S% of his body. He alleges that LP&L was negligent in not de-energizing tho line since it was DO longer in usc. The City will assert that the Plaintiff was negligent for failing to contact LP&L and as to whether the line was energized. It is our unders1anding that Plaintiff' was suspended by his own company for his negligent conduct Wbile we do not believe this suit has a potential exposure of over $200,000. we are mcluding it in this disclosure as Plaintiff's demand was $325,000. C. SITE REMEDIATION The City bas identified specific locations requiring site remediation relative to underground fuel storage tanks and historical fire training sites. As of September 30, 200S the City identified three locations that posed a probable liability. The City recorded the liabilities for the three Iocad011s as follows: LP&L Plant 1 ($236,000), LP&L Cooke Plant ($326,000) and WesT ex Aircraft ($300,000). The potential exposure for the remaining locations is not readily dett:nninable as of September 30, 2005. In the opinion of management, the ultimate liability for these locations will not have a materially adverse effect on the City's financial position. 93 c c ,. ... c ( c c c c c c ) ) ) ) ) c c c c APPENDIXC c FORM OF BOND COUNSEL'S OPfNION c c c c c c ) ) ) ) ) ) ) ) ) Vinson &Elkins [FORM OF BOND COUNSEL OPINION] [Closing Date] $ ___ _ CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDrNG BONDS SERIES 2006 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 REFUNDING BONDS, SERIES 2006, dated April 15, 2006, 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 HAVE 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 upen 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; 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 Obligations") and the mathematical accuracy of certain computations of the yield on the Bonds and obligations acquired with the proceeds of the Bonds; and Vinson & Elkins UP Momeys at Law Austin Beijing Dallas Oubal Houston Landon Moscow New Yorll Tokyo Washington Trammell Crow CAnter. 2001 Ross Avenue. Suite 3700 Dallas, Texas 75201-2975 Tel214.220.7700 Fax 214.220.7716 -.velaw.eam V&E 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 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 Obligations pursuant to the Escrow Agreement, and therefore, the Refunded Obligations 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. IT IS OUR FURTHER OPINION THAT: (I) 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 Internal Revenue Code of 1986, as amended (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 POS Opinion-Lubbock-Refunding-2006.DOC -2- c c c c c c c r .... c c r '- ) ) ) V&E 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 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 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 AS IT 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. POS Opinion-Lubboclc-Refunding-2006.DOC -3- c V&£ c ( c ( TI-ns PAGE li'I'ICtmONALL Y LEFT BLANK J c ( ( ( POS Opinion-Lubbock-Refunding-2006.DOC -4- I - OFFICIAL STATEMENT Dated May 11, 2006 Ratings: Moody's: "Aaa" S&P: "AAA" Fitch: "AAA" Financial Guaranty Insurance Company loSIIred NEW ISSUE -Book-Entry-Only (See "Other Information -Ratings" aad "Boad IMuranu" bereia) In the opinion of Bond Counsel, interest on the Bonds is excludable from gross income for federal income tax purposes under existing Jaw 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. THE BONDS WILL NOT BE DESIGNAIED AS "QUALIFIED TAX-EXEMPT OBLIGA TIQNS" FOR FINANCIAL INSTITUTIONS St8,83G,ot0 CITY OF LUBBOCK, TEXAS (Lubbock County) GENERAL OBLIGATION REFUNDING BONDS, SERIES lOt6 Dated Date: May JS, 20&6 Due: February 15, as shwn oa page 2 PAYMENT TERMS .•• Interest on the $18,830,000 City of Lubbock, Tex.as General Obligation Refunding Bonds, Series 2006 (the "Bonds") will accrue from May 15, 2006 (the "Dated Date") and will be payable on August IS, 2006, and on each february 15 and August IS thereafter until maturity or prior redemption. Interest wilt 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 pllysical delivery of the Bonds wUI 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 tbe 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, Tex.as (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 KState"), particularly 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 adopted April 26, 2006, as amended (the "Ordinance") (see "The Bonds -Authority for Issuance"). PURI'OSE •.• 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 Obligations") described in Schedule I to achieve debt service savings and (ii) paying costs of issuance of the Bonds. F6IC The scheduled payment of principal and interest on the Bonds when due will be guaranteed under a Municipal Bond Insurance Policy to be issued simultaneously with the delivery of the Bonds by Financial Guaranty Insurance Company. CUSJP PREFlX: 549187 SEE MA TlJRJTV SCHEDULE, 9 Digit CUSIP AND lb:DEMI'TION PROVISIONS ON THE Rl:V£RS£ OF THIS PAG£ LEGALITY ... The Bonds are offered for delivery when, as and if issued and received by the Underwriter 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, "Form of Bond Counsel's Opinion"). Certain Jega] matters will be passed upon for the Underwriter by McCall, Parkhurst & Horton L.L.P., Dallas, Texas, Counsel for the Underwriter. DELIVERY ... It is expected that the Bonds will be available for delivery through DTC on or about June 20, 2006. A. G. EDWARDS & SONS, INc. OFFICIAL STATEMENT SUMMARY This summary is subject in all respects to the more complete information and definitions contained or incorporated in this Official Statement. The offering of the Bonds to potential investors is made only by means of this entire Official Statement. No person is authorized to detach this summary from this Official Statement or to otherwise use it without the entire Official Statement. THE CJT'L .................................... 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 119.1 square miles and has an estimated 2006 population of 211.187 (see "Introduction-Description of the CityM). THE 8<}.'\0DS .................................. The Bonds are issued as S18.830.000 General Obligation Refunding Bonds. Series 2006. The Bonds are issued as serial bonds maturing on February IS in each of the years 2007 through 2027 and Term Bonds maturing February 15.2029 and February 15.2031 (see "The Bonds- Description of the Bonds"). PAYMENT OF INTEREST .............. Interest on the Bonds accrues from May 15, 2006, and is payable August 15, 2006, and each February 15 and August 15 thereafter until maturity or prior redemption (see "The Bonds - Description of the Bonds" and "The Bonds-Optional Redemption"). AlTTHORJTI' fOR ISSliASCE ...•...... The Bonds arc issued pursuant to the general laws of the State. particularly Chapter 1207. Texas Government Code. as amended (see "The Bonds -Authority for Issuance''). SECURJTI" FOR THE BoNDS ···········~······························ The Bonds constitute direct 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 within the City (see "The Bonds • Security and Source of Payment"). RIDEMPTlON ................. .... .......... The City reserves the right. at its option. to redeem Bonds having stated maturities on and after February 15. 2017. in whole or in pan in principal amounts of $5.000 or any integral multiple thereof. on February 15. 2016, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see "The Bonds -Optional Redemption"). The Bonds maturing on February 15 in the years 2029 and 203 I are subject to mandatory redemption as described in the Ordinance (see "The Bonds -Mandatory Sinking Fund Redemption"). TAX EXEMPTION............................ In the opinion of Bond Counsel. the interest on the Bonds will be excludable from gross income for federal income tax purposes under existing Jaw and the Bonds are not private activity bonds. See "Tax Maners-Ta.-< Exemption" for a discussion of the opinion of Bond Counsel. including a description of the alternative minimum tax consequences for corporations. UsE or PROCEEDS ....................... Proceeds from the sale of the Bonds will be used for (i) refunding a portion of the City's outstanding ad valorem tax supported indebtedness (the "Refunded Obligations") described in Schedule Ito achieve debt service savings and (ii) paying costs of issuance of the Bonds (see "The Bonds-Purpose"). RATINGS ...........•...••..••................. The Bonds have been rated "Aaa" by Moody's Investors Service. Inc. (MMoody'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 virtue of an insurance policy issued by Financial Guaranty Insurance Company (see ~Bond Insurance"). The City·s underlying ratings are "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 ("Fitch"). The City also has issues outstanding which are rated "Aaa" by Moody's. "AAA" by S&P and "AAA" by Fitch through insurance by various commercial insurance companies (see "Other Information-Ratings"). 800K-ENTR\'-0Nt.Y S\.STEM . ... . .•••. •••. .•..... ... .......•. ... .. The defi nitivoe Bonds "ill be initially registered and delivered only to Cede & Co.. the nominee of DTC pursuant to the Book-Entry-Only System described herein. Beneficial O\\ nership of the Bonds may be acquired in denominations of $5.000 or integral multiples thereof. No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal ol: premium. if any. and interest on the Bonds will be payable by the Pay ing Agent/Registrar to Cede & Co .. \\hich will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to th e beneficial owners of the Bonds (sec "The Bonds-Book-Entry-Only System"). P,\YMENT RECORD ......•.....•......... The City has never defaulted in payment of its general obligation tax debt. 4 1~----------------- Fiscal Year Taxable Ended Estimated Assessed 9/30 Poeulation 1'1 Valuation 2002 202,000 $ 6,909,309, 707 2003 204,737 7,342,344,867 2004 206,290 7.921.590.380 2005 209,120 8.664,190,909 2006 211.187 9.365,239,925 (I) Source: The City of lubbock. Texas. (2) Does not include self-supporting debt. SELECTED FJNANCJAL INFORMATION Per Capita Per Capita General General Taxable Purpose Purpose Assessed Funded Funded Valuation Tax Debt (2} Tax Debt (2) $ 34,205 $ 63,115,346 $ 312 35,862 70,188,204 343 38,400 70,161.218 340 41,432 80.210.269 384 44,346 87:231:945 (.I) 413 (.I) Ratio General Purpose Funded Tax Debt to Taxable %of Assessed Total Tax Valuation (2) Collections 0.91% 99.41% 0.96% 98.78% 0.890/o 99.690/o 0.93% 100.08% 0.93% (J) 95.81% (4) (3) Includes the Bonds. Excludes the Refunded Obligations. Also includes the $2,740.000 General Obligation Bonds. Series 2006 and $76.950,000 Tax and Waterworks System Surplus Revenue Certificates of Obligation. Series 2006, scheduled to be delivered on June 6, 2006. (4) Partial collections through February 28, 2006. GENERAL fl!ND CONSOLIDATED STATEMENT SUMMARY Fiscal Year Ended Se2tember 30, 2005 2004 2003 2002 2001 Fund Balance at Beginning of Year $ 12,694,525 $ 9,417,346 $ 16.598.252 (I} s 16,716,042 $ 16.620,652 Total Revenues and Transfers 107,885,132 97,437,436 91.753.809 92,490,374 90,463,799 Total Expenditures and Transfers 103.203,237 94,160,257 98,934,715 90,594,059 90,368,409 Fund Balance at End of Year $ 17,376,420 $ 12,694,525 s 9.417.346 $ 18,612,357 $ 16,716,042 Less: Reserves and Designations ( 1,255,041) (2,361 ,86()l Undesignated Fund Balance s 17,376,420 $ 12,694,525 $ 9,417,346 $ 17,357,316 $ 14.354.182 (I) The "Fund Balance at Beginning of Year" was restated. See "Discussion of Recent Financial and Management Events· FY 2003 Audit Restatements, Reclassifications and Internal Controls Issues" for a further explanation of the restatements. For additional infonnation regarding the City. please contact: Mr. Jeff Yates Mr. Vince Viaille Mr. Jason Hughes Chief Financial Officer First Southwest Company First Southwest Company City of lubbock or 1001 Main Street or 325 North St. Paul Street P.O. Box 2000 Suite 802 Suite 800 lubbock. Texas 79457 Lubbock, Texas 7940 I Dallas, Texas 75201 Phone (806) 775-2161 Phone (806) 749-3792 Phone (214) 943-4000 Fax (806) 775-2051 Fax (806) 749·3793 Fax (214} 953·4050 5 : [ I CITY OFFICIALS, STAFF AND CONSULT ANTS ELECTED OmOALS Date of Term City Council Installation to Office Expires Occupation Marc McDougal•''> Mayor May. 2002 May. 2006 Business Owner. Real Estate Linda DeLeon May.2004 May. 2006 12> Business Owner Councilmember. District I Floyd Price June,2004 May. 2008 Retired Coullcilmember. District 2 Gary Boren May. 2002 May. 2006 Ill Business Owner. Personnel Services Councilmember. District 3 Phy His Jones May. 2004 May. 2008 Self-Employed Councilmember. District 4 Tom Martin14> May. 2002 May. 2006 Retired Law Enforcement Counciimember. District 5 Jim Gilbreath May. 2003 May. 2008 Business Owner Councilmember. District 6 • Mr. McDougal has served on the Council since May. 1998. (I) David A. Miller was elected Mayor on May I 3. 2006. and assumed office on May 18. 2006. His term expires in May, 2008. (2) Linda DeLeon was re-el ected Councilmember for District I on May 13. 2006. Her new term expires in May. 20 I 0. (3) Gary Boren was re-elected Councilmember for District 3 on May 13. 2006. His new term expires in May, 2010. (4) John Leonard was elected Councilmember for District 5 on May 13. 2006. and he assumed office on May 18, 2006. His term expires in May. 2010. SELECTED ADMlNISTRA TIVE STAFF Date of Employment Date of Employment Total Government Name Position in Current Position with City of Lubbock Service Lee Ann Dumbauld City Manager September, 2005 July, 2004 20+ Tom Adams Deputy City Manager August 2004 August. 2004 23 Jeff Yates Chief Financial Officer September. 2005 November. 2004 5 Quincy White Assistant City Manager September. 2000 September. 2000 14 Anita Burgess City A ttomey December. 1995 December. I 995 10 Rebecca Garza City SecrelaT)' January. 200 I Augusl. I 996 9 Andy Burcham Director of Fiscal Policy September. 2005 November. I 998 7 and Strategic Planning CONSULTANTS AND ADVISORS Auditors ............................................................................................................................................................................ BKD. LLP Little Rock. Arkansas Bond Counsel ................................................................................................................................................ Vinson & Elkins L.L.P. Dallas. Texas Financial Advisor ...................................................................................................................................... First Southwest Company Lubbock and Dallas. Texas 6 OFFICIAL STATEMENT RELATING TO $18,830,000 CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS, SERIES 2006 INTRODUCTION This Official Statement, which includes the Appendices hereto, provides certain information regarding the issuance of $18,830,000 City of Lubbock. Texas General Obligation Refunding Bonds, Series 2006. Capitalized terms used in this Official Statement have the same meanings assigned to such terms in the Ordinance authorizing the issuance of the Bonds. except as otherwise indicated herein. There follows in this Official Statement descriptions of the Bonds and certain information regarding the City and its finances. All descriptions of documents contained herein are only summaries and are qualified in their entirety by reference to each such document. Copies of such documents may be obtained from the City's Financial Advisor. First Southwest Company, Dallas, Texas. DESCRIPTION OF THE CITY ... The City is a political subdivision and municipal corporation of the State, duly organized and existing under the laws of the State. including the City's Home Rule Charter. The City was incorporated in 1909, and first adopted its Home Rule Charter in 1917. The City operates under a Council/Manager form of government with a City Council comprised of the Mayor and six Councilmembers. The Mayor is elected at-large for a two-year term ending in an even- numbered year. Each of the six members of the City Council is elected from a single-member district for a four-year term of office. The terms of three members of the City Council expire in each even-numbered year. The City Manager is the chief administrative officer for the City. Some of the services that the City provides are: public safety (police and fire protection), highways and streets. electric. water and sanitary sewer utilities, airport. sanitation and solid waste disposal, health and social services. culture-recreation. public transportation, public improvements, planning and zoning. and general administrative services. The 2000 Census population for the City was 199,564: the estimated 2006 population is 21 1,187. The City covers approximately 119.1 square miles. FINANCIAL AND MANAGEMENT CHALLENGES ... In recent years. the City experienced a variety of financial and management challenges, and certain investigations and reports conducted or prepared by the City or its consultants found weaknesses in the City's general management 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. Reference 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 May J 5. 2006. and mature on february I 5 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 I 5. 2006. and on each February 15 and August 15 thereafter until maturity or prior redemption. The definitive Bonds will be issued only in fully registered form in any integral multiple of $5,000 for any one maturity and will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ("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 DTC for subsequent payment to the beneficial owners of the Bonds. See "The Bonds-Book-Entry-Only System" herein. 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 Obligations") described in Schedule I to achieve debt service savings and (ii) paying costs of issuance of the Bonds. REftiNDED OBLIGATIONS ... Upon delivery of the Bonds. the City will deposit proceeds from the sale of the Bonds with JPMorgan Chase Bank. National Association. Dallas. Texas (the "Escrow Agent"). The amount of Bond proceeds so deposjted. when added to any other lawfully available funds and the investment earnings thereon, will be sufficient to accomplish the discharge and tina! payment of the Refunded Obligations. 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 the payment of principal of and interest on the Refunded Obligations and amounts therein" ill not be available to pay the Bonds. Grant Thornton LLP. Certified Public Accountants (the "Verification Agent"). will verify at the time of delivery of the Bonds to the Underwriter that the Federal Securities will mature and pay interest in such amounts which. together with uninvested funds. 7 l I if any. in the Escrow Fund will be sufficient to pay. on the scheduled interest payment dates and redemption dates. the principal of and interest on the Refunded Obligations. and will issue a report to this effect (the "Verification Report"). The arithmetical accuracy 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 sufficiency of the anticipated receipts from the Federal Securities. together with the initial cash deposit. if any. to pay when due the princ ipaL interest and early redemption premium requirement. if any. of the Refunded Obligations and (b) computation of the yields on the Federal Securities will be verified by the Verification Agent Such computations will be completed using certain assumptions and information provided by First Southwest Company on behalf of the City. The Verification Agent will restrict its procedures to recalculating the arithmetical accuracy of certain computations and will not make any study 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 Obligations in accordance with Texas Jaw. As a result of such defeasance. the Refunded Obligations will be outstanding only for the purpose of receiving payments from the Federal Securities and any cash held for such purpose by the Escrow Agent and such Refunded Obligations 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 Obligations 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 an ordinance adopted by the City Council of the City on April 26. 2006. as amended (the "Ordinance"). SECURITY AND SOURCE OF PA Vl\1£NT ... The Bonds are payable from a continuing direct annual ad valorem tax levied by the City in an amount sufficient to provide for the payment of principal of and interest on the Bonds, which tax must be levied within limits prescribed by Jaw. TAX R<\TE LIMITATJON ... All taxable property within 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 tax debt within the limits prescribed by law. Article XI, Section 5. of 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 $100 Taxable Assessed Valuation. OPTIONAL REDEMPTJON ... The City reserves the right. at its option. to redeem Bonds having stated maturities on and after February 15, 2017. in whole or in pan in principal amounts of $5.000 or any integral multiple thereof. on February 15. 2016. or any date thereafter. at the par value thereof plus accrued interest to the date of redemption. If less than all of the Bonds are to be redeemed. the City may select the maturities of Bonds to be redeemed. If less than all the Bonds of any maturity are to be redeemed, the Paying Agent/Registrar (or DTC while the Bonds are in Book-Entry-Only form) shall determine by lot the Bonds. or portions thereof. within such maturity to be redeemed. If a Bond (or any portion of the principal sum thereof) shall have been called for redemption and notice of such redemption shall have been given, such Bond (or the principal amount thereof to be redeemed) shall become due and payable on such redemption date and interest thereon shall cease to accrue from and after the redemption date, provided funds for the payment of the redemption price and accrued interest thereon are held by the Paying Agent/Registrar on the redemption date. MANDATOR\' SINKING FliNO REDEMPTION ... The Bonds maturing February 15. 2029 and February 15. 2031 (the "Term Bonds") shall be subject to mandatory redemption prior to maturity at the price of par plus accrued interest to the mandatory redemption date on the respective dates and in principal amounts as follows: $1.000.000 Tenn Bond due February 15. 2029 (CUSIP 549187 Y9 7) Redemption Date February 15. 2028 February 15. 2029 * Principal Amount $ 460.000 540.000 Tenn Bond due February 15. 2031 Redemption Date February 15. 2030 Febnun)• 15.2031 • • Maturity Principal Amount s 2.130.000 2.235.000 8 $2.965.000 Tenn Bond due February IS, 2029 (CUSIP 549187 Z2 I) Redemption Date February 15. 2028 February 15. 2029 * Principal Amount $ 1.475.000 1.490.000 At least fony-five {45) days prior to each redemption date specified above the Term Bonds are to be mandatorily redeemed, the Paying Agent/Registrar shall select by lot the numbers of the Term Bonds to be redeemed on the next following February IS from moneys set aside for that purpose in the interest and sinking fund maintained for the payment of the Bonds. Any Term Bond not selected for prior redemption shall be paid on the date of its stated maturity. The principal amount of the Term Bonds of a stated maturity required to be redeemed pursuant to the operation of such mandatory redemption provisions may be reduced. at the option of the City. by the principal amount of Term Bonds of such stated maturity which, at least fony-five (45) days prior to a mandatory redemption date, ( 1) shall have been acquired by the City at a price not exceeding the principal amount of such Term Bonds plus accrued interest to the date of purchase thereof, and delivered to the Paying Agent/Registrar for cancellation or (2) shall have been redeemed pursuant to the optional redemption provisions and not theretofore credited against a mandatory redemption requirement. NOTICE OF REDEMPTION ••• Not less than 30 days prior to a redemption date for the Bonds. the City shall cause a notice of redemption to be sent by United States mail. 1irst class. postage prepaid, to the registered owners of the Bonds to be redeemed, in whole or in part, at the address of the registered owner appearing on the registration books of the Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing such notice. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HA VJNG BEEN SO GIVEN. THE BONDS CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE. AND NOTWITHSTANDING THAT ANY BOND OR PORTION 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 interests of the registered owners. including the curing of any ambiguity, inconsistency, formal defect or omission therein. Jn 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 any other way modify the terms of their payment, (2) give any preference to any Bond over any other Bond or (3) reduce the aggregate principal amount required to be held by owners for consent to any amendment, addition or waiver. DEFEASANCE .•. 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 redemption price thereon in any matter permitted by law. Under current Texas Jaw, such discharge may be accomplished by either (i) depositing with the Comptroller of Public Accounts of the State 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) direcc. noncallable obligations of the United States of America. including obligations that are unconditionally guaranteed by the United States of America, (b) noncallable obligations of an agency or instrumentality of the United States of America. including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, and (c) noncallable obligations of a state or an agency or a county, municipality. or other political subdivision of a state that have been refunded and that are rated as to investment quality by a nationally recognized investment rating firm not Jess than AAA or its equivalent. Under current Texas law. upon the mai;ing of a deposit as described above. such Bonds shall no longer be regarded to be outstanding or unpaid. After firm 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 terms 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 tinancial 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 1irm banking and financial arrangements: and (iii) directs that notice of the reservation be included in any redemption notices that it authorizes. BooK-ENTRY-ONLY SYSTEM ... This section describes lww ownaship of the Bonds is to be transferred and how the principal of, premium, if any. and interest on the Bonds are 10 be paid 10 and credited by The Depository Trust Company (''DTC"), New York. New York. while the Bonds are registered in its nominu name. The information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The City believes the source of such information to be reliable. but takes no responsibility for the accuracy or completeness thereof The City cannot and does not give any assurance that (I; DTC will distribute payments of debt service on the Bonds, or redemption or other notices. to DTC Participants. (:!) DT(' Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Bonds). or redemption or othe1· notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in tlte manner described in this Official Statement. The current rules applicable to DTC are on file with the Securities and Erchange Commission. and the current procedures of DTC to be followed in dealing with DTC Participants are onjife with DTC. 9 l I ore 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 will 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 Uniform Commercial Code. and a "clearing agency" registered pursuant to the provisions of Section I?A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues. corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with orc. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities. through electronic computerized book-entry transfers and pledges between Direct Participants· accounts. This eliminates the need for physical movement of securities Bonds. Direct Participants include both U.S. and non-U.S. securities brokers and dealers. banks. trust companies. clearing corporations. and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation CDTCC"). DTCC. in tum, is owned by a number of Direct Participants of ore and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation. MBS Clearing Corporation. and Emerging Markets Clearing Corporation. (NSCC. GSCC. MBSCC. and EMCC. also subsidiaries of DTCC). as well as by the New York Stock Exchange. Inc., the American Stock Exchange LLC. and the National Association of Securities Dealers. Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers. banks. trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant. either directly or indirectly rJndirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Bonds under the DTC system must be made by or through Direct Participants. which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in tum to be recorded on the Direct an d Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are. however. expected to receive written confirmations providing 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 certificates representing their ownership interests in Bonds. except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers. all Bonds deposited by Direct Participants with DTC are registered in the name of DTC"s partnership nominee. Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in benelicial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds: DTC's records reflect only the identity of the Direct Participants to whose accoums such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf oftheir customers. Conveyance of notices and other communications by DTC to Direct Participants. by Direct Participants to Indirect Participants. and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them. subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds. such as redemptions. tenders. defaults. and proposed amendments to the Bond documents. For example. Beneficial Owners of Bonds may wish to ascertain that 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 to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed. DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other ore nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures. DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Bonds will be made to Cede & Co .• or such other nominee as may be requested by an authorized representative of DTC. DTCs practice is to credit Direct Participants' accounts upon DTCs 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 orcs records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices. as is the case" ith 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 DTC nor its nominee. the Paying Agent/Registrar. 10 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 nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Paying Agent/Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC. and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice 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 transfers through DTC (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 owners should be read to include the person for which the Participant acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through DTC and the Book-Entry-Only System, and (ii) except as described above, notices that are to be given to registered owners under the Ordinance will be given only to DTC. Information concerning DTC and the Book-Entry-Only System has been obtained from DTC and is not guaranteed as to accuracy or completeness by. and is not to be construed as a representation by the City or the Underwriter. Effect of Termination of Book-Entry-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 "Transfer. Exchange and Registration" below. PAYlNG 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/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 State 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 to 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 office of the Paying Agent/Registrar. If the date for the payment of the principal of or interest on the Bonds shall be a Saturday. Sunday. a legal holiday or a day when banking institutions in the city where the designated payment/transfer office of the Paying Agent/Registrar is located are authorized to close. then the date for such payment shall be the next succeeding day which is not such a day. and payment on such date shall have the same force and effect as if made on the dace payment was due. TRANSFER, EXCHANGE AND REGISTRATION ... In the event the Book-Entry-Only System should be discontinued. the Bonds may be transferred 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 other governmental charges required to be paid with respect to such registration. exchange and transfer. Bonds may be assigned by the execution of an assignment form on the respective Bonds or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. New Bonds will be delivered by the Paying Agent/Registrar. in lieu of the Bonds being transferred or exchanged. at the designated office of the Paying Agent/Registrar. or sent by United States mail. first class. postage prepaid, to the new registered owner or his designee. To the extent possible. new Bonds issued in an exchange or transfer of Bonds will be delivered to the registered owner or assignee of the registered owner in not more than three business days after the receipt of the Bonds to be canceled. and the written instrument of transfer or request for exchange duly executed by the registered o\vner or his duly authorized agent. in form satisfactory to the Paying Agent/Registrar. Ne\\ Bonds registered and delivered in an exchange or transfer shall be in any integral multiple of$5.000 for an~· 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 re<iemption. in whole or in part. within 45 days of the date fixed for redemption: provided. ho\vever. such limitation of transfer shall not be applicable to an exchange by the registered owner of the uncalled balance of a Bond. I I : li RECORD DATE FOR INTEREST PAYMENT ... The record date ("Record DateM) for the interest payable on the Bonds on any interest payment date means the close of business on the last business day of the preceding month. In the event of a non-payment of interest on a scheduled payment date. and for 30 days thereafter. a new record date for such interest payment (a "Special Record Date") will be established by the Paying Agent/Registrar. if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest (''Special Payment Date". which shall be 15 days after the Special Record Date) shall be sent at least five business days prior to the Special Record Date by United States mail. first class postage prepaid. to the address of each Holder of a Bond appearing on the registration books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice. BoNDHOLDERS' REMEDIES .•. The Ordinance establishes as ftevents 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 obi igation 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. and the continuation thereof for a period of siKty days after notice of such default is given by any Owner to the City with respect to the Bonds. Un der State law there is no right to the acceleration of maturity of the Bonds upon the failure of the City to observe any covenant under the Ordinance. Although a registered owner of Bonds could presumably obtain a judgment against the City if a default occurred in the payment of principal of or interest on any such Bonds. such judgment could not be satisfied by execution against any property of the City. Such registered owner·s only practical remedy, if a default occurs. is a mandamus or mandatory injunction proceeding to compel the City to levy, assess and collect an annual ad valorem tax suflkient to pay principal of and interest on the Bonds as it becomes due. The enforcement of any such remedy may be difficult and time consuming and a registered owner could be required to enforce such remedy on a periodic basis. In addition, recent Texas lower court decisions have questioned whether statutory language authorizing political subdivisions 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 to 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 Texas Supreme Court. The Ordinance does not provide for the appointment of a trustee to represent the interests of the bondholders upon any failure of the City to perform in accordance with the terms of the Ordinance. or upon any other condition. Furthermore. the City is eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code. Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, the pledge of ta'tes in support of a general obligation of a bankrupt entity is not specifically recognized as a security interest under Chapter 9. Chapter 9 also includes an automatic stay provision that would prohibit, without Bankruptcy Court approval. the prosecution of any other legal action by creditors or bondholders of an entity which has sought protection under Chapter 9. Therefore. should the City avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court): and the Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Ordinance and the Bonds are qualified with respect to the customary rights of debtors relative to their creditors. 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 Reotfering Premium Total Sources ofF unds USES OF FUNDS: Deposit to Escrow Fund Deposit to Interest and Sinking Fund (Includes Rounding) Underwriter's Discount Original Issue Discount Costs of Issuance (including Bond Insurance Premium) Total Uses of Funds 12 $ 18.830.000.00 339.198.47 86.240.97 32.564.70 $ 19.288.004.14 $ 18.687.477.64 87.704.62 124.726.43 180.082.30 208.013.15 $ 19.288.004.14 BOND INSURANCE Financial Guaranty Insurance Company ("Financial Guaranty'? has supplied the following information for inclusion in this Official Statement. No representaJion is made by the City or the Underwriter as to the accuracy or completeness of this information. PAYMENTS UNDER THE POUCY Concurrently with the issuance of !he Bonds. Financial Guaranty will issue its Municipal Bond New Issue Insurance Policy for the Bonds (the "Policy"). The Policy unconditionally guarantees the payment of that portion of the principal or accreted value (if applicable) of and interest on the Bonds which has become due for payment, but shall be unpaid by reason of nonpayment by the City. Financial Guaranty will make such payments to U.S. Bank Trust National Association. or its successor as its agent (the "Fiscal Agent"),. on the later of the date on which such principaL accreted value or interest (as applicable} is due or on the business day next following the day on which Financial Guaranty shall have received notice (in accordance with the terms of the Policy) from an owner of Bonds or the trustee or paying agent (if any) of the nonpayment of such amount by the City. The Fiscal Agent will disburse such amount due on any Bond to its owner upon receipt by the Fiscal Agent of evidence satisfactory to the Fiscal Agent of the owners right to receive payment of the principal. accreted value or interest (as applicable) due for payment and evidence. including any appropriate instnnnents of assignment that all of such owner's rights to payment of such principal, accreted value or interest (as applicable) shall be vested in Financial Guaranty. The term "nonpayment" in respect of a Bond includes any payment of principal. accreted value or interest (as applicable) made to an owner of a Bond which has been recovered from such owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final. nonappealable order of a court having competent jurisdiction. Once issued. the Policy is non-cancellable by Financial Guaranty. The Policy covers failure to pay principal (or accreted value, if applicable} of the Bonds on their stated maturity dates. and not on any other date on which the Bonds may have been otherwise called for redemption. accelerated or advanced in maturity. The Policy also covers the failure to pay interest on the stated date for its payment. In the event that payment of the Bonds is accelerated. Financial Guaranty will only be obligated to pay principal (or accreted value. if applicable) and interest on the originally scheduled amounts on the originally scheduled payment dates. Upon such payment. Financial Guaranty will become the owner of a Bond. appurtenant coupon or right to payment of principal or interest on such a Bond and will be fully subrogated to all of the holder" s rights thereunder. The Policy does not insure any risk other than Nonpayment by the City. as defined in the Policy. Specifically, the Policy does not cover: (i) payment on acceleration. as a result of a call for redemption (other than mandatory sinking fund redemption) or as a result of any other advancement of maturity: (ii) payment of any redemption. prepayment or acceleration premium: or (iii) nonpayment of principal (or accreted value. if applicable) or interest caused by the insolvency or negligence or any other act or omission of the trustee or paying agent. if any. As a condition of its commitment to insure Bonds, Financial Guaranty may be granted certain rights under the Ordinance. The specific rights, if any. granted to Financial Guaranty in connection with its insurance of the Bonds may be set forth in the description of the principal legal documents appearing elsewhere in this Official Statement, and reference should be made thereto. The Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. In the event that Financial Guaranty is unable to fulfill its obligations under the Policy. the policy holder or bondholder is not protected by an insurance guaranty fund or other solvency protection arrangement. FINANCIAL GUARANTY INSllRANCE COMPANY Financial Guaranty is a New York stock insurance corporation that writes financial guaranty insurance in respect of public finance and structured finance obligations and other financial obligations. including credit default swaps. Financial Guaranty is licensed to engage in the financial guaranty insurance business in all 50 states. the District of Columbia, the Commonwealth of Puerto Rico. the U.S. Virgin Islands and the United Kingdom. Financial Guaranty is a direct. wholly owned subsidiary of FGIC Corporation. a Delaware corporation. At March 31. 2006. the principal owners of FGJC Corporation and the approximate percentage of its outstanding common stock owned by each were as follows: The PMI Group. Inc.-42%: atliliates of the Blackstone Group L.P.-23%: and affiliates of the Cypress Group L.L.C.- 23%. Neither FGIC Corporation nor any of its stockholders or affiliates is obligated to pay any debts of Financial Guaranty or any claims under any insurance polic)'. including the Policy. issued by Financial Guaranty. Financial Guaranty is subject to the insurance laws and regulations of the State of New York. where Financial Guaranty is domiciled, including New York's comprehensive financial guaranty insurance law. That law. among other things. limits the business of each financial guaranty insurer to tinancial guaranty insurance (and related lines): requires that each financial guaranty insurer maintain a minimum surplus to policyholders: establishes limits on the aggregate net amount of exposure that may be retained in respect of a particular issuer or revenue source (known as single risk limits) and on the aggregate net amount 13 : II of exposure that may be retained in respect of particular types of risk as compared to the policyholders· surplus (known as aggregate risk limits): and establishes contingency. loss and unearned premium reserve requirements. In addition. Financial Guaranty is also subject to the applicable insurance laws and regulations of all other jurisdictions in which it is licensed to transact insurance business. The insurance laws and regulations. as well as the level of supervisory au thority that may be exercised by the various insurance regulators. vary by jurisdiction. At March 31 , 2006. Financial Guaranty had net admitted assets of approximately $3.603 billion. total liabi lilies of approximately $2.454 billion. and total capital and policyholders' surplus of approximately $1.149 billion. determined in accordance with statutory accounting practices ("'SAP"") prescribed or permitted by insurance regulatory authorities. The unaudited consolidated financial statements of Financial Guaranty and subsidiaries, on the basis of U.S. generally accepted accounting principles ("GAAP"), as of March 31, 2006 and the audited consolidated financial statements of Financial Guaranty and subsidiaries, on the basis of GAAP, as of December 31. 2005 and 2004. which have been filed with the Nationally Recognized Municipal Securities Information Repositories ('"NRMSIRs''). are hereby included by specific reference in this Official Statement. Any statement contained herein under the heading "BOND INSURANCE:· or in any documents included by specific reference herein. shall be modified or superseded to the extent required by any statement in any document subsequently fil ed by Financial Guaranty with such NRMS!Rs, and shall not be deemed, except as so modified or supc:rseded. to constitute a part of this Official Statement. All financial statements of Financial Guaranty (if any) included in documents filed by Financial Guaranty with the NRMS!Rs subsequent to the date of this Official Statement and prior to the termination of the offering of the Bonds shall be deemed to be included by specific reference into this Official Statement and to be a part hereof from the respective dates of filing of such documents. The New York State Insurance Department recognizes only SAP for determining and reporting the financial condition and results of operations of an insurance company, for determining its solvency under the New York Insurance Law, and for determining whether its financial condition warrants the payment of a dividend to its stockholders. Although Financial G11aranty prepares both GAAP and SAP fiaancial statements, no cousideratioa is give11 by the New York State Insurance Departme11t to financial statements prepared in accordance with GAAP in making such determinations. A discussion orthe principal differences between SAP and GAAP is contained in the notes to Financial Guaranty's audited SAP financial statements. Copies of Financial Guaranty's most recently published GAAP and SAP financial statements are available upon request to: Financial Guaranty Insurance Company, 125 Park Avenue. New York, NY 10017, Attention: Corporate Communications Department. Financial Guaranty's telephone number is (212) 312-3000. FINANCIAL GUARANTY'S CREDIT RATINGS The financial strength of Financial Guaranty is rated ... AAA-by Standard & Poor· s, a Division of The McGraw-Hill Companies. Inc .. ~Aaa-by Moody 's Investors Service. and "'AAA-by f itch Ratings. Each rating of Financial Guaranty should be evaluated independently. The ratings reflect the respective ratings agencies· current assessments of the insurance financial strength of Financial Guaranty. Any further explanation of any rating may be obtained only from the applicable rating agency. These ratings are not recommendations to buy, sell or hold the Bonds, and are 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. Financial Guaranty does not guarantee the market price or investment value of the Bonds nor does it guarantee that the ratings on the Bonds will not be revised or withdrawn. Neither Financial Guaranty nor any of its affiliates accepts any responsibility for the accuracy or completeness of the Official Statement or any information or disclosure that is provided to potential purchasers of the Bonds, or omitted from such disclosure, other than with respect to the accuracy of information with respect to Financial Guaranty or the Policy under the lteading .. BOND INSURANCE." In addition, Financial Guaranty makes no represntation regarding tbe Bonds or the advisability of investing in the Bonds. 14 DISCUSSION OF RECENT FINANCIAL AND MANAGEMENT EVENTS In the 2002 and 2003 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 experienced a variety of financial and management challenges. In response to the events and circumstances that have created such challenges, the City has taken actions to address and correct matters. and 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"). The following discussion includes an analysis of the events that have occurred in the recent fiscal years, 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 posjtion. Caution Regarding Forward-Looking Statements This Official Statement, and in particular the information 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 uncenainties and is qualified in its entirety by reference to the considerations described below. among others. that could cause the actual financial resulls 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 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 purpon to be comprehensive or detinitive. and these matters are subject to change subsequent to the date hereof. 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 potential 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 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. 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 counterpanies to meet their obligations to the City. and with LP&l in particular with respect to LP&L's fuel and power purchase arrangements > With respect to the City's financial performance in general: -legal and administrative proceedings and settlements: and -significant changes in critical accounting policies. 15 : ll FY 2003 Financial Concerns and Mid-Year Budget Ameftdments Going into FY 2003. the Cily 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 Cily'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 net losses to LP&L after transfers 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~), a subsidiary of a large investor owned energy company, Xcel Energy, Inc. Xcel Energy, Inc., and its subsidiaries with which the Cily has contracted for energy and other services -principally SPS -and with which it competes. are hereinafter referred to collectively as "Xcel". Xcel is based in Minneapolis. Minnesota. and is the fourth-largest combination electricily 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 Cily 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 fact that the City is not within the transmission system governed by the Electric Reliabilily Council of Texas ("ERCOT"). ERCOT was opened to retail electric competition through the adoption of State deregulation legislation that went into effect on January 1, 2002. Prior to FY 2004. the Cily 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 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 the 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 to the General Fund for payments in lieu of taxes and recovery of costs of business averaged $8 million per year. During the preparation of the FY 2003 Cily 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 transfers 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 mill ion 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 identifying budget cuts throughout City government that would offset the reduced LP&L transfers. Ultimately, the Cily Council adopted budget amendments during the Spring 2003 mid-year revie\v that totaled $9.7 million for the General Fund (hereinafter referred to as the "2003 Budget Adjustments"). which represented approximately I 0.5% 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. Other measures that were taken after the 2003 Budget Amendments to address the pr~jected 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 increased the FCA for its two largeSt customers. which include Texas Tech Un iversity ("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 customers. the total electric cost energy for that class ofLP&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 \\ill be self-supporting from LP&L revenues. although as discussed below. LP&L failed to generate sullicient revenues to pay all of its outstanding bonds for FY 2003: nevenheless. the issuance of tax-supported debt for LP&L reduced the cost of bOTrO\\ ing for. and outstanding debt attributed directly to. LP&L. 16 Past Events Relating t~ LP&L and West Texas Municipal Power Agency The City is a member of WTMPA, a municipal power agency that was formed by concurrent ordinances adopted by the governing bodies of the cities of Brownfield, Floydada, Lubbock and Tulia, Texas (the "Member Cities") in 1983. The 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 ofWTMPA'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 State. In June 1998, WTMPA issued $28,910,000 of its Revenue Bonds. Series 1998 (the "WTMPA Bonds"). to finance the construction and acquisition of a 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. Numerous issues, both operational and managerial, arose from the WTMPA Project. As a result, the City embarked upon a series of internal financial and management audits ofthe relationship between LP&L and WTMPA. as well as an analysis ofthe 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.Jubbock.tx.us under the heading "West Texas Municipal Power Agency Audit". No malfeasance was uncovered with respect to the administration ofLP&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. 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 financial information 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 itself. as a Member City of WTMPA, approximately 90% of the total amount. 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 was used by the City to acquire the WTMPA Project. WTMPA used the proceeds received from the City to defease all of the outstanding WTMPA Bonds. The City now owns and operates the WTMPA Project, as part ofLP&L. Financial 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 II 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 to 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 ofFY 2002 and the close ofFY 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 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 Restatements, Reclassifications and Internal Controls Issues". 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 $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 because of the $9.3 million transfer 10 LP&L to ensure the ongoing operation of 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 of 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 General 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 to two months operating expenditures. At September 30. 2002 the General Fund balance exceeded the 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 17 decline in General Fund balance limits the City's ability to m1t1gate future risks of revenue shortfalls and unanticipated expenditures. Reference is made to the infonnation hereafter presented under the headings "Discussion of Recent Financial and Management Events -General Fund and General Government Actions -General Fund Budgetary Actions" and "-FY 2006 Budget". for a discussion of the results for the General Fund and a summary of the City's planning for FY 2006. The Electric Fund ... With respect to 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$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 the City has agreed to set rates for the electric system sufficient to produce net revenues equal to I 00% 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 represents a 0.3 times coverage of average annual debt service and a 0.2 times coverage of maximum annuaJ debt service. in each case after taking into account the issuance of City general obligation debt for LP&L that occurred in August 2003. 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 after receiving a S9.3 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. Despite the relatively small operating income that resulted aller taking into account the General Fund contribution to LP&L, total net assets of the electric fund decreased by $3.9 million during FY 2003. to $88.5 million. as a result of a restatement of the beginning fund balance. The restatement reflected the write ofT 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 to 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 Stonnwater ... 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 storm water funds. produced total operating revenues of $71.6 million in FY 2003, as compared to $73.6 mi Ilion 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 the write off of an interfund 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 landfi Us. FY 2003 Audit Restatemenls, Reclassifications and Internal 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 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. particular\) 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 FY 1993, 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 managemem aftairs 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 of2003. the City conducted a request for qualifications for its external auditor and selected KPMG L.L.P. ("KPMG") to audit its FY 2003 financial statements. Consequently. the Former External Auditor guided the City through the initial year implementation of GJ\SB 34. \\bile in the second year of GASB 34 financial reportin~. 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 le\·el 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 ligure. \\ hilc other funds were restated to decrease their beginning fund balance. 18 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 of$18.6 million 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 Results · The Electric Fund". the electric fund's beginning fund balance was restated downward by $4.48 million to reflect a receivable from WTMPA that was uncollectible. Other enteiJ)riSe 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 Joan, although Marlcet Lubbock. Inc., a component unit of the City that administers the grant agreement, retains cenain recourse actions in the event that the grant recipient fails to satisfy 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 $10 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 legally 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 the 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 enteiJ)rise 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 affect the "bottom line" statement of net assets for a particular fund, and did not reflect 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 that 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 information 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 information 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 to the enteiJ)rise 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 business-type activities of the City, the fund financial statements showed an aggregate amount of unrestricted net assets of the enteiJ)rise funds that totaled $I 95.2 million of unrestricted net assets. The FY 2003 CAFR reports in the government-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 differences should appear between the two presentations). Internal Controls Issues .. .In accordance with accounting guidelines. the external auditor customarily provides the governmental entity 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 Officer 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. See "Discussion of Recent Financial and Management Events -Financial Stafr 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 net assets/fund balances and the reclassifications described above. as well as numerous 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 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 determine 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 19 [ I 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"). City's Responses to Recent Financial and Management Events In FY 2004. the City implemented a number of significant steps to address ooth 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 ... The City has restored its General Fund balance within a 2-year period to roughly 20% of operating revenues. For FY 2005. the General Fund balance ended with a surplus of S 17.3 76.420. While no assurances can be given as to future financial results. based on historic expenditure trends. an increase in the General Fund balance of an additional $2.5 million is currently expected for FY 2006 year end. City management also has implemented monthly assessments of the budget. > 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 pan from the provisions of Sarbanes--Oxley Public Company Accounting Reform 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 to 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 performances, internal fiscal controls. exposure and risk assessment. The committee is appointed by the City Council and informally reports to City Manager. 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 least one member is required to be a certified public accountant. The current membership of the committee consists of Mike Epps, an Executive Vice President at American State Bank in Luboock. 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 Jaw and appellate procedure: RJ. Givens. a real estate agent in the City: Kim Turner, the Director of Internal Audit at Texas Tech: and John Zwiacher. a member of the Board of Directors ofLP&L. Mr. Epps is the chair of the Audit Committee. > Cjty Management Changes ... As reflected in ''City Officials. Staff and Consultants-Selected Administrative Staff'. the City has in place an experienced management team representing extensive government service experience. This management team has implemented procedures that have addressed the general internal control weakness cited by KPMG in the 2003 Management Letter. Recent Measures taken to Address Financial and Management Concerns at LP&L > 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 Agency" in May 2003. the City Council approved an increase in the FCA portion of the residential and small commercial customers 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 increase 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 permit LP&L to remain competitive and are not passed through. they become an unrecovered fuel expense. After 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 competitiH: \\ ith 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 Xccl. Furthermore. while maintaining its competitive position. LP&L has undertaken two recent FCA increases to oflSet increasing fuel costs.. including an FCA increase in November 2005 of approximately 14.78% and an FCA increase in February 2006 of approximately 11.76% Fuel cost will be continually evaluated and adjustments may be made as '' arranted. >Establishment of New Electric Utilities Board ... On February 5. 2004. the Cit~ Council adopted an ordinance (the "LP&L Governance Ordinance") (I) creating a new Electric Utilities Board !the ~Ekctric Boord") for LP&L (the new ooard replaces a former board that was advisory only): (2) reserving cenain duties and responsibilities with respect to LP&L to the City Council 20 (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 transfer ofrevenues 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 to 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 least 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. 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 permanent 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 City Council 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 determine 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 (1) 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 of LP&L. In accordance with the New LP&L Governance Ordinance, the director of LP&L reports to the Board. 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 to 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 to 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 fee. a payment in lieu of taxes or other disbursement of the net revenues ofLP&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 determine 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 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 the end of FY 2005. LP&L partially funded its electric utility development reserve fund by the amount of $2 million. However. LP&L has not funded all of the reserves established under the lP&L Governance Ordinance. as net revenues have been inadequate for a total funding of such accounts. Moreover, the mere establishment of the funds does not imply that such reserves ''ill be funded within any particular time frame. Nevertheless. in adopting the LP&L Governance Ordinance and calling the special chaner 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. > Ne'' Contractual Arrangements Affecting LP&L Operations and Revenues ... As a result of 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 to the use of its gas generation units, including the possible acquisition of new generation. perhaps through a joint venture for a coal generation facility. and the possibility of purchasing cnerg~ on a wholesale basis from entities other than Xcel or its subsidiaries. The City is in a severely electric transmission- 21 [ I constrained area. The lack of suflicient 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 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 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 WfMPA 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. In addition. the WTMPA Senlements 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 WfMPA 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 m~jority"), but, in addition to the affirmative 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 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 the acquisition by the City of the WTMPA Project and the defeasance of the WTMPA Bonds. As noted under "Discussion of Recent Financial and Management Events-FY 2003 Audit Restatements. Reclassifications 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 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 became effective July I. 2004. and replaced 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 oflhe Member Cities of WTMPA including the City, during the term ofthe agreement. which terminates on June 30. 2019. As in past WTMPA agreements, and in accordllJ!i;e 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 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 terms of the New Power Agreement. the fixed demand charge will increase incrementally. in most years annually. during the term of the agreement based upon a predetermined schedule set fonh in the New Power Agreement. SPS may terminate the agreement upon the occurrence of an adverse regulatory action under which SPS is required 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-fired generation. Each party may require adequate assurances of performance whenever there is a reasonable basis therefor. The New Power Agreement represents a significant depanure 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 nUnit 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 resol\'ed its long-term 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 match its FCA to changes in SPS's fuel adjustment. as it has generally done in the past. According to information filed with various regulator) agencies. the Cit~ 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 Cit~ 's determination to approve the New Po'l'.er Agreement by WTMPA. In the event that gas prices should decline over the to..:nn of the Agreement. the City believes that SPS has the flexibility to switch a larger portion of its generation to gas. including through the usc of the City's generation units in accordance with the Unit Contingency Agreements. 22 With respect to the competitive posture of the City in light of the long-term commitment 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 shift from being an active electric generator to being a passive generator (for SPS under the terms 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 permit 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 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-term 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 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 fixed price component for gas transportation irrespective 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 offset against its minimum gas transportation requirements from ConocoPhillips for any gas purchased by SPS under the new WTMP A 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. su~ject 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 ProjecL all of the capacity of which. in accordance with the WTMPA Settlements, is dedicated to LP&L. the City has dedicated generation capacity of219 megawatts ("MW") to SPS under the Unit Contingency Agreements. 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 1 ("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 during the term ending June 30. 2007; the term of the Unit Contingency Agreement for the Older Units is fifteen 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 term 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 energ~' 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 an~. the Unit Contingency Agreements pro' ide 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 23 ll 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 natural 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 (ConocoPhillps, Coral Energy. NGTS. 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 offered by TMGC may be reduced as necessary to enable it to comply with financial covenants. although the discount has remained essentially constant for three years. For these and other reasons.. there can be no assurance that WTMPA 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 discount will continue to hold. Accordingly. the City has included $3.8 million in gas rebate income in the electric system's FY 2006 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 2006: 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 of LP&L in terms of both energy sold and revenues generated. Jn 1990. the City constructed Brandon Station on the campus ofTexas Tech. The Brandon Station is a cogeneration 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. In response to mediation to resolve disputes under a prior agreement. the City and Texas Tech executed a new contract on April 28. 2005 (the "New Texas Tech Agreement"). 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 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 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 are mutually beneficial for the parties. > New Chief Executive Officer for LP&L ... Gary Zheng was appointed Chief Executive Officer of LP&L in September 2005. Previously. he had served as the Superintendent of Electric Distributions at LP&L and subsequently. from March 2003 until his recent appointment to CEO. as the Chief Operating Officer of LP&L. He has more than 19 years of engineering and management experience in electrical utility business. Mr. Zheng, a registered Professional Engineer, is a graduate of the University of Southern California with a MS in Electrical Engineering, a MS in Computer Engineering and a PhD in Electrical Engineering. FY 2006 Budget General Fund ... The City Cotmcil adopted the FY 2005-06 budget and five year forecast on September 8. 2005. The City's FY 2005-06 budget for the General Fund is balanced with $105.8 million in total revenues and expenses. The budget projects that sales tax revenues will produce 54.0% of total tax revenues (tax revenues represent 69.9% of the General Fund's total operating revenues). while ad valorem tax re~·enue is budgeted to produce 44.7% of total tax revenues. 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 2006 the City's total tax rate was set at $0.4472 per $100 taxable assessed valuation. down from $0.4597 in FY 2005. The City's tax roll increased $701.0 million. or 8.1%. from FY 2005 to FY 2006. The City Council. on June 12. 2003. passed a resolution atlirming their support for truth· in-taxation. The goal of this resolution is to allow the citi1..ens to be better informed about the real needs of City government and if the increased revenue from increased appraisal values is truly necessary. The resolution goes on to provide that each year the tax rate should be adopted based on the actual needs of government. This goal was affirmed in April 2004 in a resolution that stated the City Council has supported as well as taken action to provide tax relief to property owners within the City. and that the City Council recognized the need for the City to be autonomous in its ability to provide the public safety. health. and quality of life for its citizens. The FY 2005..06 Operating Budget was developed in consideration of the goals of the resolutions and as a result. there was a $0.0125 reduction in the adopted tax rate. Total transfers to the G<!neral Fund from enterprise and internal service funds are budgeted to decrease b}· $4.2 million. n hile transfers out decrease by $3.0 million. On the expenditure side. administrative services. communit) services. cultural and recreation services and public \\Orks budgets are comparable \\ ith the amended FY 2005 budget. Expenditures tor public safety are $7.1 million greater than the amended FY 2004-05 budget. or an 11.2% increase. This increase is due to the City Council 24 goal of increasing public safety officers in Fire and Police. Overall, General Fund operating expenditures are budgeted to increase by $6.3 million over the amended FY 2005 budget. Enterprise Funds ... The following table (amounts in millions) illustrates the revenues. use or contribution of net appropriable assets, and appropriation as approved in the City's FY 2005-06 adopted operating budget and five year forecast for the Solid Waste. Wastewater. Water and Electric Funds: Adopted FY 2005-06 Adopted Planned Use Adopted Change FY 2005-06 (Contribution) FY 2005-06 from Revenues Net Assets Appropriation Prior Year Solid Waste $ 13.9 0.8 14.7 -33.6% Wastewater 21.2 0.8 22.0 -13.9% Water 37.9 2.2 40.1 3.8% LP&L 196.3 (2.5} 193.8 7.3% The decreased budget in Solid Waste is a result of reduced transfers to the Sewer Fund. In 2004-05. a transfer of$5.0 million to the Wastewater operating fund occurred in order to fund the Wastewater rate stabilization fund. Additionally. a reduction in tipping fee expense of $3.5 mmion for the City garbage collections department was budgeted. Historically. the landfill was charging landfill-tipping fees to the City garbage collections department. Since the landfill and garbage collection departments both reside in the Solid Waste fund. the revenues and expenditures were inflated by the amount of those charges. These revenues and expenditures have been eliminated to reflect the true revenues and expenditures in the fund. The change had a zero net effect on the utility's fund balance. The decreased budget in Wastewater is a result of reduced transfers to the Wastewater Rate Stabilization Fund. In 2004-05. a transfer of $5.0 million from the operating fund to the Wastewater rate stabilization fund occurred. This transfer was not budgeted for FY 2005-06 as the rate stabilization fund was at adequate levels. (THE REMAINDER OF THIS PAGE INTENTJONALL Y LEFT BLANK] 25 : ll AD VALOREM TAX INFORMATION AD V ALOR£M T AX 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 District is required under the Property Tax Code (delined 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. different methods of appraisal may be used. including the cost method of appraisal. the income method of appraisal and market data comparison method of appraisal. and the method considered most appropriate by the chief appraiser is to be used. State Jaw 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} 100/o of the appraised value of the property for the last year in which the property was appraised for taxation times the number of years since the property was last appraised, plus (b) the appraised value of the property for the last year in which the property was appraised plus (c) the marl<et value of all new improvements to the property. The value placed upon property within the Appraisal District is subject to review by an Appraisal Review Board. consisting of three members appointed by the Board of Directors of the Appraisal District The Appraisal District is required to review the value of property within the Appraisal District at least every three years. The City may require annual review at its own expense. and is entitled to challenge the detennination of appraised value of property within the City by petition filed with the Appraisal Review Board. Reference is made to Title I of the Texas Tax Code (the "Property Tax Code~), for identification of property su~ject to taxation: property exempt or which may be exempted from taxation. if claimed: the appraisal of property for ad valorem taxation pU!poses: and the procedures and limitations applicable to the levy and collection of ad valorem taxes. Article VIII of the State Constitution ("Anicle VIII") and State law provide for certain exemptions from property taxes. the valuation of agricultural and open-space lands at productivity value. and the exemption of certain personal property from ad valorem taxation. Under Section l·b. Article VIIJ. and State law. the governing body of a political subdivision, at its option. may grant: (I) an exemption of not less than .$3.000 of the market value of the residence homestead of persons 65 years of age or older and the disabled from all ad valorem taxes thereafter levied by the political subdivision: or (2) an exemption of up to 20% of the market value of residence homesteads. The minimum exemption under this provision is $5.000. In the case of residence homestead exemptions granted under Section 1-b. Article VIII. ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes have previously been pledged for the payment of debt if cessation of the levy would impair the obligation of the contract by which the debt was created. State law and Section 2, Article Vlll. 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 of$12.000. Effective January 1. 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 aoove the amount of taxes imposed in the year such residence qualified for such limitation. 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 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 freeze on ad valorem taxes is transferable to a different residence homestead within the taxing unit and to a surviving spouse Jiving 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. the value of the improvements is taxed at the then current 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 Vlll provides that eligible owners of both agricultural land (Section 1-d) and open-space land (Section 1-<l-1). 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 1-d and 1-<1·1. Nonbusiness personal property. such as automobiles or light trucks. are exempt from ad valorem taxation unless the governing body of a political subdivision elects to tax this property. Boats owned as nonbusiness property are exempt from ad valorem taxation. Article VIJI. Section 1-j. provides for "freeport property" to be exempted from ad valorem taxation. Freeport property is defined as goods detained in Texas for 175 days or less for the purpose of assembly. storage. manufacturing. processing or fabrication. Decisions to continue to tax may be reversed in the future: decisions to exempt freeport property are not subject to reversal. The City may create one or more tax increment financing zones. under 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 pan of future ad valorem taxes levied and collected against the value of propert~ in the zone in excess of the "frozen value" to pay or 26 finance the costs of certain public improvements in the zone. Taxes levied by the City against the values of real property in the zone in excess of the "frozen value'' are not available for general city use but are restricted to paying or financing "project costs" within the zone. See "Tax Increment Financing Zones" below. 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 anributable to the improvements until the expiration of the agreement. The abatement agreement could last for a period of up to I 0 years. See "Tax Abatement Policies" below. 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 60'h day after the date the certified appraisal roll is received by the City. If the City Council does not adopt a tax rate by such required date the tax rate for that tax year is the lower of the "effective tax rate" calculated for that tax year or the tax rate adopted by the City for the preceding tax year. The tax rate consists of two components: ( 1) a rate for funding of maintenance and operation expenditures and (2) a rate for debt service. Under the Property Tax Code, the City must annually calculate and publicize its "effective tax rate" and "rollback tax rate". A tax rate cannot be adopted by the City Council that exceeds the lower of the rollback tax rate or the effective tax rate until 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 City owns. operates or controls an internet website and public notice be given by television if the City has free access to a television channel) and the City Council has otherwise complied with the legal requirements for the adoption of such tax rate. If the adopted tax rate exceeds the rollback tax rate the qualified voters of the City by petition may require that an election be held to determine whether or not to reduce the tax rate adopted for the current yeM 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 I .08 plus a rate that will produce this year's debt service from this year's values (unadjusted) divided by the anticipated tax collection rate. The Property Tax Code provides that certain cities and counties in the State may submit a proposition to the voters to authorize an additional one-half cent sales tax on retail sales of taxable items. If the additional tax is levied, the effective tax rate and the rollback tax rate calculations are required to be offset by the revenue that will be generated by the sales tax in the current year. Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad valorem taxes and the calculation of the various defined tax rates. PROPERTY ASSESSMENT AND TAX PAYMENT ... Property within the City is generally assessed as of January 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. Taxes 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 permitted 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. PENAL TIES AND INTEREST . . . Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: Cumulative Cumulative Month Penalty Interest Total February 6% 1% 7% March 7 2 9 April 8 3 II May 9 4 13 June 10 5 15 July 12 6 18 27 : II After July, the penalty remains at 12%. and interest increases at the rate of I% each month. In addition. if an account is delinquent in July. a I 5% attorney's collection fee 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. 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 Jaw 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 propeny and obtaining secured creditor status unless. in either case. an order lifting the stay is obtained from the bankruptcy court. In many cases post-petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. CITY APPLICATION OF TAX CODE ..• The City grants an exemption to the market value of the residence homestead of persons 65 years of age or older of $16.600: the disabled are also granted an exemption of $1 0,000. The City has not granted any part of the additional exemption of up to 200/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 valorem taxes are not levied by the City against the exempt value of residence homesteads for the payment of debt. The City does not tax nonbusiness personal property: and the Appraisal District collects taxes for the City. The City does not permit split payments of taxes. and discounts for early payment of taxes arc not allowed by the City. although permitted on a local-option basis by the Property Tax Code. In the past. the City has taxed freeport property. although beginning with the 1999 tax year the City has exempted freeport property from taxation. The City collects an additional one-eighth cent sales tax for reduction of ad valorem taxes. The City 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. TAX ABATEMENT POLICIES ... The City has established a tax abatement program to encourage economic development. In order to be considered for tax abatement, a project must be located in a reinvestment zone or enterprise zone (a commercial project must be in an enterprise zone) and must meet several criteria pertaining to job creation and property value enhancement. The City has established three enterprise zones. the north zone. of approximately 18.6 square miles, the south zone. of approximately I 5. 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 s~ions of the City. In accordance with State Jaw, 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 (I 00%) tax abatement. since 1997 the City has negotiated abatements on a declining percentage basis, with a portion of the tax value being added to the City's tax roll each year during the life of the abatement. The City's policies provide a variety of criteria that affect the terms of the abatement. including the projected life of the project. the type of business seeking the abatement. with certain businesses targeted for abatement. the amount of real or personal property to be added to the tax roiL 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. provides 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 taxes collected against the "Incremental Value" in the TJF to pay for TIF projects. Any ad valorem taxes relating to growth of the tax base in a TIF above the frozen base ma~ be used only to finance improvements within the TIF and are not available for the payment of other t.a't supported debt of the Cit~ and other participating taxing units. Together \~ith other taxing units. the City participates in two TIFs. the Central Business District Reinvestment Zone (the "Downtown TlF") and the North Overton Tax Increment Financing Reinvestment Zone (the "North Overton TIF"). 28 < The Downtown TJF covers an approximately 0.71 square-mile area which includes part of the central business district and abuts the North Overton TJF. The base taxable values of the TIF are frozen at the level of taxable values for 200 I. the year of creation. at $101,376,054. In FY 2005, the Downtown TIF had a taxable value of$117.046,263 before taking into account tax abatements and exemptions. After tax abatements and exemptions. the tax value in the Downtown TJF is $114.147.891. In addition to the City, the County. Lubbock County Hospital District and the High Plains Underground Water Conservation District (coll~tively, 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 to City ordinance and official action of the other participating taxing entities and is to expire in 2021. In addition to the Downtown TIF. the City enacted an ordinance in 2001 establishing the North Overton TIF. 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, 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 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. In FY 2005, the North Overton TIF had a taxable value of$144,869,221 before taking into account tax abatements and exemptions. After tax abatements and exemptions. the tax value in the North Overton TIF is $144,045,505. {THE REMAINDER OF THIS PAGE INTENTJONALL Y LEFT BLANK) 29 : : ~ l ! TABLE I • VALtJATJON, EXEMPT10NSANDGENERAL0BUCATION DEBT 2005 Market Valuation Established by Lubbock Central Appraisal District Less Exemptions/Reductions at 100% 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 Reductions11J Tax Freeze Adjustment 2005 Taxable Assessed Valuation City Funded Debt Payable from Ad Valorem Taxes General Obligation Debt (as of 5-1-06) (Z)(J) The Bonds Total Funded Debt Payable from Ad Valorem Taxes Less: Self Supporting Debt (as of5-l-06) 13X41 Waterworks System General Obligation Debt 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 Cemetery General Obligation Debt Gateway General Obligation Debt Airport General Obligation Debt General Purpose Funded Debt Payable from Ad Valorem Taxes General Obligation Interest and Sinking Fund as of2-28-06 Ratio Total Funded Debt to Taxable Assessed Valuation Ratio General Purpose Funded Debt to Taxable Assessed Valuation 2006 Estimated Population • 211.187 (S) Per Capita Taxable Assessed Valuation -$44.346 $ 218.845.610 68.094.952 14.325.479 66.049.991 1,744,920 152,622 58.215,91 I 71.434,955 27,802.642 $ 18.830.000 $ I 17.698.109 57.790.304 I 1.796.568 80.031.156 18.837.749 49.592,282 491.989 17,145,597 6,659.301 Per Capita Total Funded Debt Payable from Ad Valorem Taxes· $2.118 Per Capita General Purpose Funded Debt Payable from Ad Valorem Taxes -$413 (I) See above. "Ad Valorem Tax Information · Tax Abatement Policies". $ 9.891,907,007 526.667.082 s 9.365.239,925 $ 428.445,000 $ 447275.000 360,043,055 $ 87.231.945 $ 1.575,272 4.78% 0.93% (2) The statement of indebtedness does not include outstanding $24.840,000 Electric Light and Power System Revenue Bonds, as these Bonds are payable solely from the Net Revenues of the City's Electric Light and Power System. Excludes the Refunded Obligations. (3) Includes the $2.740.000 General Obligation Bonds. Series 2006 and $76.950.000 Tax and Waterw·orks System Surplus Revenue Certificates of Obligation. Series 2006. scheduled to be delivered on June 6. 2006. (4) As a matter of policy. the City provides debt service on general obligation debt issued to fund improvements to its Watem-orks System. Sewer System. Solid Waste System, Tax Increment Finance Reinvestment Zone, Gateway Streets, Airport. Cemetery. Electric Light and Power System and Drainage System from surplus revenues of these Systems (see "Table 8A - General Obligation 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"). ~waterworls S~stcm General Obligation Debt• includes $117.698.109 principal amount of general obligation debt issued to finance or refinance Waterworks System improvements. and that is being paid. or is expected to be paid. from Waterworks 30 I ' System revenues. 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 $57,790,304 principal amount of general obligation debt issued to finance Sewer System improvements, and that is being paid. or is expected to be paid. from Sewer System revenues. The City has no outstanding Sewer System Revenue Bonds. "Solid Waste Disposal System General Obligation Debt" includes $11 ,796.568 principal amount of general obligation debt 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 $80,031,156 principal amount of general obligation debt 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. Includes the Bonds and excludes the Refunded Obligations. "Tax Increment Financing General Obligation Debt" represents $18.837.749 principal amount of general obligation debt issued for construction of improvements in the North Overton TIF, and that 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. For FY 2006 (based upon the January I. 2004 tax roll). the incremental tax revenue available to cover debt service on the existing Tax Increment debt will cover approximately 97% of such debt. In FY 2007. based upon development projections that the City believes to be reasonable, but which are dependent in part on future economic conditions and other factors that the City can not control and as to which it can give no assurances. the City anticipates that tax increment revenues will be adequate to cover debt requirements on the existing Tax Increment Certificates of Obligation. 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 Tlf 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 $49.592.282 principal amount of general obligation debt issued to finance Electric Light and Power System improvements and to refund certain Electric Light and Power System Revenue Bonds, and that is being paid, or that is expected to be paid, from revenues derived from the Electric Light and Power System. "Cemetery General Obligation Debt" includes $491,989 principal amount of general obligation debt issued to finance Cemetery improvements, and that is being paid. or that is expected to be paid. from revenues derived from the Cemetery. MGateway General Obligation Debt" includes $17.145.597 principal amount of general obligation debt issued for Gateway Streets improvements. and that is being paid. or that is expected to be paid. from Franchise Fees. The City has no outstanding Gateway Fund Revenue Bonds. "Airport General Obligation Debt" includes $6.659,301 principal amount of general obligation debt issued to finance Airport improvements, and that is being paid. or that is expected to be paid, from revenues derived from the Airport. (5) Source: City oflubbock. Texas. 3 1 : [I TABLE 2 -TAXABLE ASSESSED VALVA TTONS BY CATEGORY Tauble Appraiu d Value for Fisal Year Ended Seecember 30, 2006 2005 2004 %of %of ~'oof Categol)l Amount Total Amount Total Amoum Total Real, Residential, Single-Family $ 5,518,686,680 SS.79% $ 5, 156,169,884 56.29% s 4,690, I 58,161 55.50% Real, Residential, Muhi-Family 784,395,414 7.93% 614,631,057 6.71% 561,569,488 6.64% Real, Vacant LotsfT1'3tls 164,261,677 1.66% 135,464,357 1.48% 108,625.954 1.29% Real, Acrea11e (Land Only} 79,430,309 0.8W. 64,528,231 0.70% 65,880,410 0.78% Real, Farm and Rancb Improvements 11,035,385 0.11% 10,391,139 0.11% 10,835,088 0.13% Real, Commercial and Industrial 1,813,142,623 18.33% 1,701,145,839 18.57% 1,638,846,765 l9.39o/o Real, 0~. Gas and Other Mineral Reserves 17,428,230 0.18% 11,298,200 0.12~. 8,923,810 011% Real and Tangible Petsonal. Uuliues 177,838,907 1.800/o 173,908,469 1.900/o 185,761 ,346 2 200/o Tangible Personal. Co1T1111Cftta1and lndustnal 1,217,205,610 12 . .31% 1,198,078,620 13.08% 1,090,862,579 12.91% Tangible Personal, O!her 14,311,51 7 0.14% 15,279,192 0.17% 16,287,022 0.19% Real Property. Inventory 26,816,741 0.27% 10,987,935 0.12% 4,774,287 0.06% Specia1 1nvenlory 67,353,915 0.68% 68,226,182 0.74% 68,663,514 0.81% Total Appraised Value Before Exemptions s 9,891,907,008 100.00'1/o $ 9,160,109,105 100.00% s 8,451,188,424 100.00% Less: Total Exemptions!Reducuons (526,667,083) (495,918,196) (529,598,044) Taxable Assessed Value $ 9,365,239,925 $ 8,664,190,909 s 7,921,590,380 Taxable Aeeraised Value for Fiscal Year Ended Seetember 30. 2003 2002 ~.or %of Category Amount Total Amount Total Real, Residemial, Single-Family $ 4,282,214,635 56.78% s 3,935,486,660 53.59% Real, Residential, Mulli-Famdy 455,993,262 6.05o/o 466,775,473 6.36% Real, Vacant LotsfTracts 93,473,144 1.24% 96,407,484 1.31% Real, Acreage 1 La11d Only) 59,644,977 0.79% 60,171,506 0.82% Real, farm and Ranch Improvements 11,391,782 O.IS% 12,003,318 0.16o/t Real, Commercial and Industrial I ,370,730,397 18.18% 1,445,748,160 19.69"/o Real, Oil, Gas and O!ller Mineral Reserves 7,909,460 0.10% 8,849,390 0.12% Real and Tangible Persona 1, Ut it nies 192,138,423 2.SS% 185,588,935 2.S3'Yo Tangible Personal, Commercial and lnduslnal 974,534,729 12.92'1/o 1,039,S21.384 14.16% Tangible Personal. 01 her 15,336,364 0.20o/o 15,296,446 021o/o Special lnventol)l 11,087,603 O.IS% 10,279,056 0.14% Real Property, Inventory 67,339,159 0.89% 67,429.634 0.92% Total Appl'3iscd Value Befort E:..emptions s 7,541 ,793,935 100.00% $ 7,343,.557,446 I 00. 00".4 Less: Total Exemptions/Reductions ( 199,449,068) (434,247,739) Taxable Assessed Value $ 7,342,344,867 s 6,909,309,707 NOTE: Valuations shown are certified taxable assessed values reponed 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 to change throughout the year as contested values are resolved and the Appraisal District updates records. 32 TABLE JA -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 Po~ulation °1 Valuation m PerCa2ita ofYearm Valuationm Capitam 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 80,210,269 0.93% 384 2006 211.187 9.365,239,925 44,346 87.231,945 14) 0.93% (4) 413 14) (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 self-supporting debt (see Table 3B and footnote 3 to Table 1 ). (4) Includes the Bonds and excludes the Refunded Obligations. Also includes the $2.740.000 General Obligation Bonds, Series 2006 and the $76,950,000 Tax and Waterworks System Surplus Revenue Certificates of Obligation. Series 2006. scheduled to be delivered June 6, 2006. TABU: 38 -DERIVATION OJ' GENERAL PuRPOSE FUNDED TAX DEBT The following table sets forth certain information with respect to the City's general purpose and self-supporting general obligation debt. The City is revising its capital improvement plan. but the City expects to issue additional self-supponing general obligation debt within the three to five year time frame. See "Debt Information-Capital Improvement Program and Anticipated Issuance of General Obligation Debt. " Fiscal Funded Tax Debt Less: General Purpose Year Outstanding Self-Supporting Funded Tax Debt Ended at End Funded Tax Outstanding 9/30 of Year Debt at End of Year 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 388,595,000 308,384,731 80,210,269 2006 447.275,000 {I} 360.043,055 (I) 87,23 1.945 (I) {I) Includes the Bonds and excludes the Refunded Obligations. Also includes the $2.740.000 General Obligation Bonds. Series 2006 and the $76.950,000 Tax and Waterworks System Surplus Revenue Cenificates of Obligation. Series 2006. scheduled to be delivered June 6, 2006. TABLE 4 -TAX RATE, LEVY AND COLLECTION HISTORY Fiscal %of Current o/o of Total Year Distribution Tax Tax Ended Tax General Economic Interest and Collections Collections 9/30 Rate Fund Develoement Sinkin! Fund Tax Levy to Tax Levy to Tax Levy 2002 $ 0.57000 $ 0.42844 $ 0.03000 $ 0.1 JJ56 $ 39.351.225 97.60% 99.41% 2003 0.57000 0.43204 0.03000 0.10796 42.286.967 97.25% 98.78% 2004 0.54570 0.41504 0.03000 0.10066 43,659,111 97.02% 99.69% 2005tll 0.45970 0.33474 0.03000 0.09496 39.777.866 97.53% 100.08% 2006 II} 0.44720 0.35626 0.03000 0.06094 41.881.353 94.54% m 95.81% m (I) For a discussion of the factors affecting the decline in the 2005-2006 General Fund tax rate. see "Discussion of Recent Financial and Management Events-FY 2006 Budget. " (2) Coll~tions for part year only. through February 28. 2006. 33 [ I : T ABL.E 5 • TEN LARGEST T A.XP AYERS 2005/06 %ofTotaJ Taxable Taxable Assessed Assessed Name ofTax~ayer Nature of Pro2erty Valuation Valuation Macerich Lubbock LTD Partnership Regional Shopping Mall $ 108.834.600 1.16% Southwestern Bell Telephone Co. Telephone Utility 60.284.618 0.64% Southwestern Public Service Electric Utility 54.323,701 0.58% United Super Marlcets Retail Grocery 41,577,740 0.44% McCanton Woods Real Estate 40.985.875 0.44% McLane Food Services Food Wholesale 36,01 1,717 0.38% WaJ-Mart Stores Inc. Retail 35,393.886 0.38% Atmos Energy Corp. Natural Gas Utility 25,562,068 0.27% X Fab Texas. Inc. Electronic Manufacturer 24.220.539 0.26% Lubbock Two Associates Apartment Complex 23,000,000 0.25% $ 450.194,744 4.81% GENERAL OBL.IGATION DEBT LIMITATION ... No general obligation debt limitation is imposed on the City under current State law or the City's Home Rule Charter (see "Tax Rate Limitation"). TABLE 6 -TAX ADEQUACY Maximum Principal and Interest Requirements. All General Obligation Debt. 20072> .•....•.•..•••••••.•••••••••........................................................................•................... $ 43.980,177 $0.4792 Tax Rate at 98% Collection Produces .......................................................................................................... ....... $ 43.980,665 Maximum Principal and Interest Requirements. General Purpose General Obligation Debt. 20013> .................................................................................................. $ 9,294.717 $0.1014 Tax Rate at 98% Collection Produces ................................................................................................................. $ 9,306,426 (I) Based on 2005-2006 taxable assessed valuation. (2) See Table SA. (3) See Table 8B. 34 ( ) ~ , } TABLE 7 -EsnMATID0VERLAPPINC DEBT Expenditures of the various taxing entities within the territory of the City are paid out of ad valorem taxes levied by such entities on properties within the City. Such entities are independent of the City and may incur borrowings to finance their expenditures. This statement of direct and estimated overlapping ad valorem tax bonds ("Tax Debt") was developed from information contained in "Texas Municipal Reports" published by the Municipal Advisory Council of Texas. Except for the amounts relating to the City. the City has not independently verified the accuracy or completeness of such information. and no person should rely upon such information as being accurate or complete. Furthermore, certain of the entities listed may have issued additional Tax Debt since the date hereof. and such entities may have programs requiring the issuance of substantial amounts of additional Tax Debt. the amount of which cannot be determined. The following table reflects the estimated share of overlapping Tax Debt of the City. 2005/06 T0111 Funded Ciry's Authorized Taxable Debt Estimated Ovcrlappins Bur Unlssued Assessed Tax As Of % G.O.Debl Debt As Of Taxing Juri sdiclion Value Rate 2-2~ Applicable As of2·28-06 2-28-06 Ciry of Lubbock s 9,365,239,925 s 0.44720 s 447,275,000 '11 100.00% s 447,275,000 $ 21,712,000 ,,, Lubbock Independent School OiSirict 7,350,064,195 1.65890 96,511,156 98.91 % 95,459,184 52,248,593 Lubbock Counry 11,079,168,972 0.26162 73,695,000 82.94% 61,122,633 505,347 lubbock Counry Hospital District I 1,056,555,800 0.11034 82.94% Hil:'h Plains Underl:'round Water Conservation 0JSlrict No. 1 I I ,056,555,800 0.00830 82.94% Frensbip lndependenl School District I ,551,333,929 1.71060 67,331,742 64.441/o 43,.388,575 Idalou I ndependenr School OiSirict 133,910,0S7 1.55000 540,000 l.IO% 5,940 Lubbock-Cooper lndependenl School Discrie1 743,148.347 1.51700 12,574,555 15.30% 1,923,907 New Deal Inde-pendent School District 132,4!6,994 1.50000 0.03% Toral Direcr and Overlapping G.O. Oeb1 s 649,175,239 Ra1io of Direct and Overlappinl:' G .0 . Debito Tax able Assessed Valuarion .............................................. . 6.93% Per Capita Direct and Overlapping G.O. Debt ....•..................•.........•..................... , ......... , .. , ..•...... $ 3,074 (I ) Includes the Bonds. Excludes the Refunded Obligations. Also includes tbe $2..740,000 General Obligation Bonds, Series 2006 and the $76.950.000 Tax and Waterworks System Surplus Revenue Certificates of Obligation. Series 2006, scheduled to be delivered on June 6. 2006. (2) Excludes $2,740,000 of voted authorization relating to the General Obligation Bonds, Series 2006, scheduled to be delivered on June 6. 2006. (See Table II .) 35 DEBT INFORMATION T Alll,f. SA -G 1.-:NF.RAI. 0BLIGi\ TION DEBT SERVICE REQliiREM ENTS Fiscal Year Total %of Ended Outstanding Debt 111 The Bondslll Combined Principal 9/30 PrincieaJ Interest Total Principal Interest Total Requirements Retired 2006 $ 20,180,000 m $ 17.244.812 s 37,424,812 s -s 221,763 $ 221.763 s 37,646,574 2007 22.395.000 20.668.727 43,063.727 30,000 886.450 916.450 43.980,177 2008 23.680.000 18.458.409 42,138,409 30.000 885.250 915,250 43.053.659 2009 23.700.000 17.493.948 41,193,948 35,000 883.950 918.950 42.112,898 2010 23.6fi5.000 16.5 I 5,068 40,180.068 35.000 882.550 917,550 41,097,618 24.33% 2011 24.290.000 15.478.477 39,768.477 35.000 881.150 916.150 40,684,627 2012 23.755.000 14,407.169 38,162.169 40,000 879.650 919.650 39,081.819 2013 24.440.000 13.322.2811 37.762.288 40,000 878.050 918.050 38.680.338 2014 25.210.000 12.171.711 37,381.711 40,000 876.450 916.450 38.298.161 2015 23.1$5.000 11.072,115 34,227.115 40,000 874.850 914.850 35.141.965 50.23% 2016 23.075.000 9,996,(J89 33,071.689 45,000 873.105 918.105 33.989,794 2017 23.180.000 8.871.349 32,051.349 45,000 871.193 916,193 32,967,541 2011! 24.165.000 7.726,311 31,891,311 50,000 869.125 919.125 32.810,436 w 2019 23.235.000 6,533.985 29,768.985 50.000 866.900 916.900 30.685,885 Q\ 2020 21.175.000 5.446.641 26,621.641 55.000 864.538 919.538 27.541.179 74.85% 2021 19.660.000 4.444.310 24,104,310 55.000 862.063 917.063 25,021.373 2022 I 5.645.000 3.578.199 19,223.199 1.455.000 828.088 2,283.088 21.506.286 2023 14.725.000 2.835.108 17,560.108 1.525.000 759.131 2.284.131 19.844,239 2024 12.870.000 2.116.234 14.98(1.234 1.600.000 684.913 2.284.913 17.271,147 2025 11.805.000 1.518.122 13.323.122 1.680.000 607.013 2.287.013 15.610.134 92.18% 2026 7.900.000 1.033.238 8,933.238 1.765.000 525.194 2.290.194 11,223.431 2027 1.74~.000 792J7~ 2,537.375 1.850.000 440.725 2.290.725 4.828.100 2028 1.830.000 703.000 2,533.000 1.935.000 351.644 2.286.644 4.819.644 2029 I.IJ25.000 609.125 2,534.125 2.030.000 256.225 2.286.225 4.820.350 2030 2.025.000 510.375 2,535.375 2.130.000 156.750 2,286.750 4.822,125 97.5.5% 2031 2.130.000 406.500 2,536.500 2.235.000 53.081 2.288,081 4.824,581 2032 2.240.000 297.250 2,537.250 -2,537,250 2033 2.350.000 182.500 2,532.500 -2.532,500 2034 2.475.000 61.875 2,536.875 -2.536,875 100.00% $ 448.625.000 $ 214.495,910 $ 663,120,910 $ 18,830,000 s 18.019.798 $ 36,849,798 $ 699,970,707 ( 1) "Outstanding Debt" docs not include lease/purchase obligations. Excludes the Refunded Obligations. Includes the $2,740.000 General Obligation Bonds, Series 2006 and the $76.950.000 Tax and Waterworks System Surplus Revenue Certificates of Obligation, Series 2006. scheduled to he delivered on June 6. 2006. (2) Average liCe of the issue -20.240 years. Interest on the Bonds has been calculated at the rates shown on page 2 hereof. (3} Includes combined principal and interest paid by the City on February 15. 2006 . ....... , .... ,.... ....... ,.. ... ,-... "' .r. ... ,.., ,.. \;J -...) ...... TABLE 88 ~ DIVISION Of DEBT SERVICE RF.QliJREMENTS fiS(•I Yc;~r Erultd 91.10 "'Too6 $ 2007 2001 2000 2010 2011 ~01~ ~Oil 201~ 201S :!01(, 2017 ~o1a 201<1 20:o 202t ZOZ:! :!n~) 2024 ~0:!5 :!O~(l 2027 2028 ~0~9 2030 20.11 2032 2033 20J4 ("omhmcd Rcqu1rcmenu.''' Pnn«pal 20.180.000 '" $ UA:HIOO 2).710.000 2 I, 715.1100 21.700,000 :!.J.)~S.OOO :1. 7<15.000 24.~Ro.ooo 2S.2SO.o00 21.195.000 n.1:o.ooo :!3.~:!~.000 24.215.000 2UKS.OOO lUJO.ooo 19,71~.000 17.100.000 16.250,000 14.470.01)() 11A~5.000 'l.~6S.OOO .U?S.OOO .1.765.000 3.'>55,000 4.155.000 4_l6S.OOO 2.240.000 2.JSO,OOO 2.475,000 lntc~st 17,4(>(>.574 21.555.171 I<>.J4J.I>S" IK .. l77.K<l8 17,1'>7.1118 H•.H0.<•27 U.2SC•.KI<l 1UOO.J)R 1J.Cl4K.1M 11.~6.<>115 IO,KC•<>.7<14 •>. 742.541 K.S95,4JC• 7.400.KKS •• .. 111.17() ~.JOC•_.\7,1 4.40C•.2K6 ,U94,lJ<> 2.801.147 2,125.1.14 1,558.4) 1 1.2.1,1.100 1.054.644 8/U,JSO 667.125 4S9..SII 297.~50 182.500 61,875 5 To,.l )7,646,574 41,?K0,177 4),051.1>59 42.11U<ll 4L007,bll 40.6K4.627 l<l,081,KI? Jfi,6KO,JJ8 .1&.298.161 .15.141.%5 J\?89,7<'14 .12,%7,541 J2.SI0.4JC> J(\.68$.885 H,S41,17<l 25,021,.17.1 21.506.286 l<l,844,ll<l 17,271,147 15,610,1.14 11.223.4.11 4,828,100 4,819,M4 4,820.350 4,822,125 4,124,581 2.5l1.2SO 2.532.500 2.516.875 $ 467.455.000 S 232,515,707 s 611<1,970.707 L<s. W~terwnrko Syslem Geneul Obhg~uan Requ~rcments'" $ 11.!lS9.3.19 $ I ~.215.470 11.850.44-ol 11.761,)64 11.586.K01 I 1,4ql.1?2 IO.C.!l?,247 10.557.2(1() 10.517.474 IO.J90.460 10.lH.Jl? IO.JO.l.S20 10,250.281 <l.902.t'>7K 7,461_287 S.S67.1RI1 2.1184,668 2 .. 141,.175 2..1.1?,450 1.6~.4811 U111.SSO 116,JSI.SI4 Less Se~r Sys1em Gtneral Obloga11on Rtcl\loremcni•1" s 5.956,)74 7.273,579 6.988,213 6,75),8911 (> • .168.691 6,201.404 S,%9,960 5,78),900 S,61B,884 .1.741.276 2.947,771 2.907,98<) 2,882,158 2.849.107 2.126.24) 2,126,09.\ 2.125,487 1.7'l'>,422 1.795,055 1,747,147 1,170,6Sl s 85,141,075 Leos SolidWMt< D•.sposal SySiem o ...... 1 Obltgahon Rcqvwcmcntsn• s 781.472 1.120,8.14 1.122.011 '1117.448 I.Ol>2.047 1.04.1.0)9 I,Oll,l47 1,022.658 1.006.681 'li)(),77J 1.011,)65 9118.715 975.770 781.761 775,S66 768,274 634.104 6Jl.IS1 6:!4,740 )6.1.461 l6J,SIJ $ 18,104,614 Les< Dt11na,e: Uuloty Sy&~em O.netal Oblosahcn Requucn1encs11, S 4,587,501 5,4l8.574 5,4S9,S07 5.460.275 5,461.086 5,459.1 S2 5,457.704 5,4S8.822 S,454.<lD 5,457,140 S,460.J27 S.45.1.l8'l S.460.<l73 S,4SJ,287 5,45'1,510 S,4S.1,726 5,467.266 S.466.S87 5,467,663 5,461>,789 5,477.187 4,821.100 4,819.644 4,820.350 4,822,125 4,824.581 2,))7,250 2.H2.SOO 2,536.875 S-14S,S05,810 l•~· Ta• lnctemenl Ftnanc1ns Ciene:ral Ohllt;aiiM Rtqlillrtments''' s 997.40) 1.4<12.624 I .SOil, SOl 1.$09.138 I,SII.S'l'> 1,507,747 1,507.751 I,SOC>,llR I.S06,2C>S uns.sss U08.40<> 1511.569 UOS,S.lR I,SOK.18'> I.SI U4.1 I,S06.A77 1.506.0<>0 1,507.211 1.505.872 1.221,889 506,649 $ 2<1,850,560 l..e•s· F.locltoc L•sh••nd Power Sys1em Geto.ral ObhJ!211M Re:qwremtnts111 4.S<l6.1.12 4,992,)}6 4,'142,084 4,862,7'M 4.786.1.17 4.721.<1.11 4,640,427 4,S71 .. 1Q8 4,4<l2,4n 4.416.0~0 4,3.16,035 4,257.075 4,18'>,550 2,648.230 2.64'>,606 2,644,893 2,649,869 2,644,600 s %4,SJO %9.368 488,1.17 7S,463,S8S ...., Less Cemetery General Obl1gation R.equiremenis<H s s 38,310 39.536 J9.519 3<1,54{) 39,535 .19,528 l9,Sl7 J9,S27 J9,S29 39,S)8 39.521 19.508 39,S2S 39.538 39,SI2 39,538 39.S 17 39,SIO )9,512 39,517 789,297 Leu Oatewoy General Oblostloon Requnemonl.l4., s 1,1}8,526 s ·~1S4,4)1 U65,540 I.J6l,81t) l,l6S,414 1,)60,61., 1..164.337 1.361,924 1.J64,34S 1.364,916 1.3M,O.ll 1.362,0()) U62.JI1 1.)60,986 1.)6),683 1,)6),909 1.362.183 1,162.184 1.)63,972 1,362,300 222,941 ~ Len Aorp(lr1 General Obhi!OIIOII Requtrc.mtnts''• S 577,11S 7SO_l02 758.667 514.908 S7<l,7SO 574.704 5~.808 56J.OS2 557.004 423,4611 422.486 42S.ISI 42UJ2 421.221 42.1.036 424.152 42S,Ol<> 425,056 424.513 424..\27 lqQ,S43 s 10.)86.4)1 Gcnerol Purpose Gcneul Oblogal<cn Requ..rcmcn.ts'1, S 7,?SZ.706 9,294,717 9,021,069 1,789,735 8.1J6.S5.l 8.276.309 7,189,911 7,814,548 7,740,6}6 6,812,825 6,562,491 5,718,479 5,721,114 5,720,902 S,7JI,l66 S,l26,748 4.412,046 3,621.131 2,735.842 2,407,151 1,436,742 $ 111,123,022 -=-= (I) Includes debt service on the Bonds. and the General Obi igation Bonds, Series 2006 and Tax and Waterworks System Surplus Revenue Certificates of Obligation, Series 2006. Excludes the Refunded Obligations. (2) Includes the principal and semiannual interest paid on February IS, 2006. TABLE 9 -INTEREST AND SINKING FUND BUDGET PROJECTION* General Purpose General Obligation Debt Service Requirements, Fiscal Year Ending 9-30-061') fiscal Agent. Tax Collection and Other Uses Total Requirements Sources of Funds Interest and Sinking Fund, 9-30-05 Budgeted Ad Valorem Tax. Receipts Budgeted Interest Earned Total Sources of Funds Projected Balance. 9-30.()6 (I) See "Table 10 -Computation of Self-Supporting Debt". •see Table 8B -Footnote (I) (THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) 38 $ $ $ 7.952.706 15.000 7,967.706 2,624,340 5.465.000 483,010 8.512.350 604.644 ( ( ( ( ( ( ) ) TABLE 10 -COMPUTATION OF SELF-SUPPORTING DEBT In addition to the enterprise funds shown in this Table I 0. on September 8, 2005, the City Council of the City approved an ordinance designating the City's Gateway Fund and Airport Fund as self-supporting enterprise funds of the City for FY 2006. In the same ordinance. the City Council of the City approved the budget for the City's Tax Increment Financing Fund wherein it is designated that debt relating to such fund shall be partially self-supported by tax increment revenues (i.e .• in an amount equal to at least !So/. of debt service for FY 2006) and the remainder supported by a loan from the City's Solid Waste Fund. Furthermore. the City Council of the City approved ordinances on March 23. 2006 and February 24. 2006 designating debt issued for the Cemetery (a unit ofthe City's General Fund) to be supported by sales of crypts and niches at the City Cemetery. See also Table 8B. THE WATERWORKS SYSTEM (I) Net System Revenue Available. Fiscal Year Ended 9-30-05 Less: Requirements for Revenue Bonds. Fiscal Year Ended 9-3D-06 Balance Available for Other Purposes Requirements for System General Obligation Debt, Fiscal Year Ending 9-30-06 Percentage of System General Obligation Debt Self-Supporting $ 16,570.942 -0- $ 16,570,942 $ II ,059,339 100.000.4 ( 1) Each Fiscal Year the City transfers Net Revenues of the Waterworks Enterprise Fund to the General Obligation Interest and Sinking Fund in an amount equal to debt service requirements on Waterworks System general obligation debt THE SEWER SYSTEM (I) Net System Revenue Available, Fiscal Year Ended 9-30-05 Less: Requirements for Revenue Bonds. Fiscal Year Ended 9-30-06 Balance Available for Other Purposes Requirements for System General Obligation Debt. Fiscal Year Ending 9-30-06 Percentage of System General Obligation Debt Self-Supporting $ 9,342,565 -Q. $ 9,342,565 $ 5,956.374 100.00% (I) Each Fiscal Year the City transfers Net Revenues of the Se\\o'er Enterprise Fund to the General Obligation Interest and Sinking FWld in an amount equal to debt service requirements on Sewer System general obligation debt THE SOLID WASTE DISPOSAL SYSTEM Ill Net System Revenue Available, Fiscal Year Ended 9-30.05 Less: Requirements for Revenue Bonds. Fiscal Year Ended 9-30-06 Balance Available for Other Purposes Requirements for System General Obligation Debt. Fiscal Year Ending 9-30-06 Percentage of System General Obligation Debt Self-Supporting $ 3,591,426 -(). $ 3,591,426 $ 781.472 100.00% (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 requirements on Solid Waste System general obligation debt. THE DRAINAGE SYSTEM Cl) Net System Revenue Available. Fiscal Year Ended 9-30-05 Less: Requirements for Revenue Bonds. Fiscal Year Ended 9-30-06 Balance Available for Other Purposes Requirements for System General Obligation Debt. Fiscal Year Ending 9-30-06 Percentage of System General Obligation Debt .Self-Supponing $ 5,685,303 .().. $ 5,685,303 $ 4,587,508 100.000/o (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 equal to debt service requirements on Drainage System general obligation debt. THE ELECTRIC LICHT AND POWER S't'ST01 Ill Net Electric Light and Power System Revenue Available. Fiscal Year Ended 9-30-05 Less: Requirements for Revenue Bonds. Fiscal Year Ending 9-30-06 Balance Available for Other Purposes Requirements for Electric System General Obligation Debt. Fiscal Year Ending 9-30-06 Percentage of Electric System General Obligation Debt Self-Supporting s 16.061,968 4.099.673 $ 11.962.295 $ 4,596.132 100.00% (I) The City transfers Net Revenues of the Electric Light and Po" er 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. 39 1 TABLE IJ -AUTHORIZEDBUTUNJSSUf.DGENERAL0BUGATION BoNDS Amount The Date Amount Previously Series2006 Unissued Purpose Authorized Authorized Issued Bonds'1' Bal~e Waterworks System 10/17/87 $ 2,810,000 s 200,000 $ $ 2,610,000 Sewer System S/21177 3,303,000 2,175,000 1,128.000 Street Improvements S/1/93 10,170,000 10,166,000 4,000 Street Improvements 5115104 9,210,000 3,055,000 1,914,000 4,241,000 Civic Center/Auditorium Renovations and Improvements 511 5104 6,450,000 6,450,000 Park Improvements 5115/04 6,395,000 4,670,000 826,000 899,000 Police/Municipal Court Facilities SI1S/04 3,350,000 3,350,000 Library Improvements .511 5/04 2,145,000 2,145,000 Fire Stations .511 5/04 1,405,000 1,405,000 Animal Shelter Renovations and Improvements 511 5/04 1,045,000 160,000 885,000 s 46,283,000 $ 21,831,000 $ 2,740.000 s 21,712,000 (I) To be delivered on June 6, 2006. ANTICIPATED ISSUANCE or GENERAL OBLIGATION DEBT ... The City Council adopted a resolution during the I 984-85 budget process establishing capital maintenance funds for capital projects. A capital improvement plan is made for planning purposes and may identity 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 pr~ject it must have a cost of$25.000 or more and a life of seven or more years. For FY 2006. the City Council approved $101.5 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, stormwater fund and airport fund (up from $26.9 million in FY 2005). The Capital Pr~jects Fund budget for FY 2006 also included an additional $305.4 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 II , after the issuance ofthe proposed General Obligation Bonds. Series 2006. the City will have $17.970,000 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 budget of the Electric Fund. Water Fund, Sewer Fund, Solid Waste fund. Stonn Water Fund. Tax Increment Fund. Gateway 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. The City does not anticipate the issuance of general obligation debt within the next nine months. 40 ( ( , \ ( c c ( ( c ( ( ) ' ~ TABLE 12-0TH£R0BLIGATJONS At February 28. 2006. the City had capital lease obligations for leased equipment in the following amounts: Fiscal Governmental Business-type Total Year capital Lease Capital Lease Capital Lease Ended Minimum Minimum Minimum 9130 Pavment Payment Pavment 2006 $ 1.167.281 $ 584.092 s 1.751.373 2007 679,328 461,618 1,140,946 2008 679,328 130,124 809.452 2009 659.569 127.681 787.250 2010 530.413 127.681 658.094 2011-2015 639.898 639.898 Less Interest: (400,932) (76,620~ (477,552) $ 3,954.885 $ 1.354,576 $ 5.309,461 At February 28. 2006. the City had a note agreement outstanding described as follows: On January 8"'. 2004. the City entered into a note agreement with the Department of Housing and Urban Development rHUD") for loan guarantee assistance under Section I 08 of title I of the Housing and Community Development Act of 1974, as amended, in the amount of $1.000,000. The Note was issued to aid in the establishment of a Housing Rehabilitation Program in order to provide rehab options for low-to- moderate income households on a citywide basis, pay professional services rendered in relation to such project. and the financing thereof. Under the tenns of the Note. the City will make annual principal payments on August I. of each year beginning in 2005 through 20 12; interest payments are due semi-annually. As of February 28. 2006. the outstanding balance of this note agreement was $875.000. The Note is a liability of the City's Community Development Block Grant Program and debt service will be paid from this grant. Fiscal Year Ended Contract Revenue Bonds 9/30 Princi2a1 Interest Total 2006 $ 125,000 $ 36.688 $ 161.688 2007 125.000 32,825 157.825 2008 125.000 28.300 153.300 2009 125.000 23.300 148.300 2010 125,000 17,900 142,9QO 2011 125.000 12.188 137.188 2012 125.000 6.200 131.200 $ 875,000 $ 157.400 $ 1.032.400 41 1 PENSION FUND ... TEXAS MUNlCIPAl. RETIREMENT SYSTEM (IXZI ••• All pennanent. full-time City employees who are not firefighters are covered by the Texas Municipal Retirement System ("TMRS"). TMRS is an agent, multiple-employer. public employee retirement system which is covered by a State statute and is administered by six trustees appointed by the Governor of Texas. TMRS operates independently of its member cities. The City joined TMRS in 1950 to supplement Social Security. All City employees except firefighters are covered by Social Security. Options offered under TMRS, and adopted by the City. include current. prior and antecedent service credits. live 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 2006 contribution rate is 15.84%. 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, 2004. the actuarial value of assets held by TMRS (not including those of the Supplemental Disability Fund. which is "pooled"), for the City were $186,398,545. Unfunded actuarial accrued liabilities on December 31. 2004 were $62.034,262, which is being amortized over a 25-year period beginning January. 1997. Total contributions by the City to TMRS for Calendar Year 2005 were $10,426.24 I. FIREMEN'S RELIEF AND RETIREMENT FUND 0 > ... City tirellghters 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, consisting of 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 detennined on a "fonnula" 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 firefighters' contribution rate for 2006 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 firelighter'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 2006 is 19.93%. As of December 31. 2004, unfunded pension benefit obligations were $13,816.991 which is amortized with the excess of the assumed total contribution rate over the normal cost rate. The number of years needed to amortize the unfunded pension obligation is detennined using an open, level percentage of payroll method, assuming that the payroll will increase 4% per year. and was 24.7 years as of the December 31. 2002 actuarial valuation and 20.6 years as of the December 31, 2004 actuarial valuation, both based on the plan provisions effective November 1, 2003. OTHER POST-EMPLOYMENT BENEFITS ••• The City currently provides certain post-employment benefits to its employees, as described in Note 111. K (Notes to the Basic Financial Statements} set forth in Appendix B. The City intends to comply with the requirements of GASB No. 43 and 45. with respect to the reporting of post-employment benefits. in accordance with the timelines set forth in GASB No. 43 and 45. As of the date of this Official Statement. the City has not retained the services of an actuarial finn to prepare the calculations required under GASB No. 43 and 45. but intends to do so in anticipation of implementing the requirements of GASB No. 43 and 45. (I) For historical infonnation concerning the retirement 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, 2004. "City of Lubbock. Te:ras ··. 42 ( ( ( ( ( ( ( ( c c fiNANCIAL INFORMATION TABLE 13 -CHANGES IN NET ASSETS{ II Fiscal Year Ended Seetember 30. 2005 2004 2003 2002 Governmental Governmental Governmental Governmental Activities Activities Activities Activities REYENUES· (in OOO's) (in OOO's) (in OOO's) (in OOO's) Program Revenues: Charges for services $ 10,583 $ 12,713 $ 13,888 $ 9,369 Operating grants and contriblltions 13,296 9,643 12,137 7,007 General Revenues: Property Taxes 39.748 44.497 42,303 40,408 Sales Taxes 41,803 30.555 29,092 28.903 Other Taxes 4.242 3.793 3.712 3,681 Franchise Taxes 11,154 9,654 6,613 6,998 Grant/contributions not restricted to specilic programs (25) Other 5.742 4.274 3.834 6.227 Total Revenues $ 126,568 $ 115,129 $ 111.579 $ 102.568 EXPENSES· Administrative/Community Services $ 23.355 $ 22,313 $ 21.793 $ 32.483 Electric 2.459 2,471 2.373 2,585 Financial Services 2.240 2,387 1,965 1,908 Fire 23.667 21,998 20,207 18.664 General Government 27.600 20.562 21.009 23,436 Human Resources 776 777 786 883 Police 37.773 33,249 31.429 29.715 Streets 1!.985 10.789 9.827 5.940 Public Works 2.699 3.078 9.856 4.322 Interest on l·T Debt 3.195 4.593 3.346 3.382 Total Expenses $ 135.749 $ 122.217 $ 122.591 $ 123,318 Change in net assets before special items & transfers (9.181) {7,088) (11.012) {20,750) Special items {687) Transfers 15.469 9.745 2.554 15.668 Change in net assets $ 6,288 $ 2.657 $ (8.458) $ (5,769) Net assets-beginning of year. as restated $ 104.341 $ 101.684 $ 110,142 $ 115.911 Net assets -end of year $ 110,629 $ 104,341 $ 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 Official Statement. a copy of the FY 2003 financial statement can be accessed through the City's website. http://www.ci.lubbock.tx.us. ) 43 Il ( TABLE 13-A -GENERAL FUND REVENUES AND EXPENDITURE HISTORY Fiscal Year Ended Se£tember 30."' Reyenues 2005 2004 2003 2002 2001 Ad Valorem Taxes s 29,414,773 s 33,233,274 s 32.194,087 s 29.885.252 $ 28.604.141 ( Sales Taxes 38,319,501 30,554,632 29.092.032 28.902.649 28.183.746 Franchise Fees 6,693.209 9.654,447 6.612.822 6,998.085 7.684.683 Miscellaneous Taxes 982.327 939,456 848,816 820.507 774.587 Licenses and Permits 1,953,666 1,982,281 1,875,118 1,475,451 1,202,794 Intergovernmental 480,648 428,459 348,787 351.878 333,171 Charges for Services 4,070.642 4,467,733 4,945,591 4.472.094 4,299.958 ( Fines 4,015,402 3.675.856 3.672,509 3.069.362 3.051.055 Miscellaneous 1,506,315 1,442.677 1.532,346 1.058.237 995.494 Interest 349,236 334,730 285,756 433,393 1,058.096 Operating Transfers <Z) 16.565,397 10.723.891 10,345.945 15.023.466 14.276.074 Total Revenues and Transfers $ 104,351,116 $ 97,437.436 $ 91.753.809 $ 92.490.374 $ 90.463,799 ( ExpendjD)[es General Government $ 6,159,536 $ 5,633,469 $ 5.717,151 s 5.596.868 $ 5.772,031 Financial Services 2,139,492 2,333,469 1,969,413 1.958,051 1,833.933 Non-departmental 445,251 214,562 175.499 1.497,485 1.716.167 Admin/Community Services 18,330.508 18.156,455 17.837.076 17.997.152 18.314,255 ( Police 33,919.626 32,400.371 30.321.182 28.905.651 28.139.047 Fire 21.943,267 20.613,077 19.511.797 18.632.109 l7.903.ll8 Planning and Transportation 8,120,727 7.180.843 6,610,394 6.510,394 7,443,017 Street lighting 2,214,291 2.185,286 2.078.277 2,168,620 2.146.212 Human Resources 740,826 754.225 780,529 895.31 I 913,250 Capital Outlay 5,277,100 475,585 378,059 480,749 ( Operating Transfers 3,912,645 4,212,915 13,555,338 5,951,669 6,187,379 Total Expenditures $ 103,203,269 $ 94,160,257 $ 98.934.715 $ 90.594.059 $ 90,368,409 Excess (Deficiency) of Revenues and Transfers Over Expenditures $ 1,147,847 $ 3.277,179 $ (7.180.906) $ 1.896.315 $ 95,390 Capital Leases Issued 3,534,048 c Fund Balance at Beginning of Year 12,694,525 9,417,346 16,598.252 !4) 16.716.042 16.620,652 Fund Balance at End of Year $ 17,376,420 $ 12.694.525 $ 9.417.346 $ 18.612.357 $ 16.716.042 Less: Reserves and Designations m { 1.255.041) (2.361.860) Undesignated Fund Balance $ 17.376.420 $ 12.694,525 $ 9.417.346 $ 17.357.316 $ 14.354.182 ( (I) Prior years have been restated to reflect current organization. (2) For fiscal year 2004/05. 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. The water, waste water and solid waste funds transferred 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 C during che fiscal year. (3) The City's tinancial policies target a General Fund undesignatcd balance of at least 20% of General Fund revenues. The undesignated fund balance is at 99% of che target established by the City· s financial policies. (4) The "Fund Balance at Beginning of Year" was restated. 44 ( c TABLIJ; 14-MUNICIPAL SALES TAX HISTORY The City has adopted the Municipal Sales and Use Tax Act. Chapter 321. Texas Tax Code. which grants the City the power to impose and levy a 1% Local Sales and Use Tax within the City: the proceeds are credited to the General Fund and are not pledged to the payment of the Bonds or other debt of the City. In addition. in January. 1995. the voters of the City approved the imposition of an additional sales and use tax of one-eighth of a cent as authorized by Chapter 323 Texas Tax Code. as amended. Collection for the additional tax commenced in October. I 995 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 (Article 5190.6, Texas Revised Civil Statutes), 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 the Comptroller of Public Accounts. State of Texas, who remits the proceeds of the tax, to the City monthly, after deduction of a 2% service fee. Historical collections of the City's 1.125% local Sales and Use Tax are shown below: Fiscal Year o/o of Equivalent of Ended Total Ad Valorem Ad Valorem 9/30 Collected0 > Tax Levy Tax Rate 2002 $ 28.902.648 73.37% $ 0.4183 2003 29,092,032 73.85% 0.3962 2004 30.554.632 70.67% 0.3857 2005 41.803.092 105.07% 0.4825 2006 II. 722.46 7 m 27.99% 0.1252 (I) Excludes bingo tax receipts. (2) Based on population estimates of the City. (3) Partial collections October 1. 2005 through February 28, 2006. Effective as of October I. 2004 the sales tax breakdown for the City is as follows: FINANCIAL POUCIES 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 1.000¢ 0.375¢ 0.125¢ 0.500¢ 6.250¢ 8.250¢ Per Capita(21 $ 143.08 142.09 148.11 199.90 55.51 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 and September 30. 2004. The City will submit the City"s 2005 report to GFOA to determine its eligibility for another certificate. Comprehensive Annual Financial Repon (CAFRJ ... 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 Ana(vsis -for State and Local Governments. GASB Statement No. 37. Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments: Omnibus, and GASB Statement No. 38. Certain Financial Note Disclosures. 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. General Fund Balance ..• The City"s objective is to maintain an unreserved/undesig.nated fund balance at 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 unreservedlundesignated fund balance that is at 99% of the target established by the City's financial policies. 45 [I WaJer. Wastewater, Storm Water, Solid Waste and Airport Enterprise Fund Balances ... It is the policy of the City to maintain appropriable net assets in the Water and Wastewater funds in an amount equal to 25% of operating revenues for unforeseen contingencies. The City's goal of appropriable net assets in the Solid Waste. Airport, and Storm Water funds is an amount equal to 15% of regular operating revenues. With the exception of the Electric Enterprise Fund (as further described below). the City ( currently exceeds its policy on appropriable net assets for its various enterprise funds. See "Discussion of Recent Financial and ( Management Events -September 30. 2003 Financial Results." According to audited numbers for FY 2005. the target net assets by policy and current appropriable net assets for the Water. Wastewater. Storm Water and Airport enterprise funds are as follows: Enterprise Fund Target Net Assets Appropriable Net by Policy Assets• Water $9.5 million $13.7 million Wastewater $5.3 million $9.2 million Storm Water $.9 million $11.3 million Solid Waste $2.1 million $3.8 million Airport $ .. 9million $2.0 million Electric Enterprise Fund Balance ... It is the policy of LP&L to maintain appropriable net assets set by the City Charter. Ordinance No. 2004-00140 requires LP&L to restrict cash based on prior year's gross retail electric revenue (GRR) as determined by the previous fiscal year of LP&L. The City's goal of appropriable net assets LP&L is an amount equal to three months GRR reserved for operations. two months GRR reserved for rate stabilization. and one month GRR reserved for electric utility development. According to audited numbers for FY 2005. the total target net assets by ordinance and current appropriable net assets for LP&L is as follows: Enttrprise Fund Target Net Assets Appropriable Net by Policy Assets* LP&L $53.3 million $24.6 million • Appropriable net assets are calculated on a budget basis. The calculation takes the audited FY 2004-05 current assets less current liabilities and adds/subtracts FY 2005-06 adjusted budgeted revenues over/under expenditures and adds restricted cash for debt service. Restricted cash for debt service is added to the calculation, as this is already included in the budgeted expenditures for FY 2005-()6. Enterprise Fund Revenues ... ll is the policy of the City that each of the Electric. Water, Solid Waste and Sewer funds be operated in a manner that results in self sufficiency. without the need for additional monetary transfers from other funds (although the Electric System 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 to the General Fund for propeny and franchise tax payments. capital expenditures and debt service payments. where appropriate. Rate increases may be considered in future budgets as costs may warrant. including specifically the costs related to fuel charges that may affect LP&L and the cost of providing service. Debt Service Fund Balance ... A reasonable debt service fund balance is maimained in order to compensate for unexpected contingencies. 81Jdgetary Procedures ... The City follows these procedures in es1ablishing operating budgets: 1) 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 conducted to obtain taxpayer comments. 3) Prior to October I the budget is legally enacted through passage of an ordinance. 46 ( ( ( ( 4) The City Manager is authorized to transfer budgeted amounts between accounts below the department level. Any transfer of funds between departments or higher level are presemed to the City Council for approval by ordinance before the funds are transferred or expended. Expenditures may not legally exceed budgeted appropriations at the fund level. 5) Formal budgetary integration is employed as a management control device during the year for the Convention and Tourism. Criminal Investigation. and Capital Projects Funds. Budgets are adopted on an annual basis. Fonnat budgetary integration is not employed for Debt Service funds because effective budgetary control is alternatively achieved through general obligation bond indenture and other contract provisions. 6) The Budget for the General Fund is adopted on a basis consistent with generally accepted accounting principles. 7) Appropriations for the General Fund lapse at year-end. Unencumbered balances for the Capital Projects Funds continue as authority for subsequent period expenditures. 8) Budgetary comparison is presented for the General Fund in the combined financial statement section of the Comprehensive Annual 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 1990-05. lns74rance and Risk Management ... 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 $500.000. per occurrence. Airport liability insurance and workers· compensation is insured under guaranteed cost policies. The Health Benefits are covered by a self insured program with a $18.845.756 cap and a $175.000 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 transfers are made to this fund based upon estimated payments for claim losses. At September 30, 2005 the total Net Assets of these insurance funds were as follows: Self-insurance -health Self-insurance -risk management $ 2,050.874 $ 1.688,257 The City obtains an actuarial study of its risk management fund (the MRisk Fund") every year. In FY 2005. 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 2005 actuarial review recommended that the liabilities of the Risk Fwtd be increased to $6,479,000 from $6,437,000 to the minimum expected confidence level of the Government Accounting Standard Board Statement Number I 0 ("GASB 10"), which requires maintenance of risk management assets at a level representing at least a 500/o confidence level that all liabilities.. if presented for payment immediately, could be paid. The Risk Fund has net assets restricted for insurance claims of $1 ,688,000 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 Jaw and the City's investment policies are subject to change. LEGAL INVESTM£NTS ... 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) coUaternlized 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 of. the State of Texas or the United States or their respective agencies and instrumentalities.. {5) obligations of states. agencies. counties. cities. and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent (6) bonds issued. assumed. or guaranteed by the State of Israel. (7) certificates of deposit (i) meeting the requirements of the Texas Public Funds Investment Act (Chapter 2256. Texas Government Code) that are issued by or through an institution that either has its main office or a branch in Texas. and are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund. or are secured as to principal by obligations described in the clauses (I) through (6) or in any other manner and amount provided by law for City deposits. or (ii) where: (a) the funds are invested by the City through a depository institution that has its main office or branch office in the State of Texas and that is selected by the City: (b) the depository institution selected by the City arranges for the deposit of funds in one or more federally insured depository institutions. wherever located: (c) the certificates of deposit are insured by the United States or an instrumentality of the United States: (d) the depository institution acts 47 as a custodian for the City with respect to the certificates of deposit: and (e) at the same time that the certificates of deposit are issued. the depository institution selected by the City receives deposits from customers of other federally insured depository institutions. wherever located. that is equal to or greater than the funds invested by the City through the depository institution selected under clause (ii)(a) above. (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause ( 1). 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 term of 270 days or less, if the short-term obligations of the accepting bank or its parent are rated at least A-1 or P-1 or the equivalent by at least one nationally recognized credit rating agency. ( 10) commercial paper that is rated at least A-I 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, (I I) 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 $1 for each share. ( 12) no-load mutual funds registered with the Securities and Exchange Commission that: have an average weighted maturity of Jess 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 and ( 13) guaranteed investment contracts secured by obligations ofthe United States of America or its agencies and instrumentalities, other than the prohibited obligations described in the next succeeding paragraph. The City may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than MA or AAAm or an equivalent by at least one nationally recognized rating service. The City is specifically prohibited from investing in: (I) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security and bears no interest: (3) coOateralized mortgage obligations that have a stated final maturity of greater than 10 years: and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. 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 are described in clauses (I) through (6) of the first paragraph underthis 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 equi valent or (c) cash invested in obligations that are described in clauses (I) through (6) and (10) through ( 12) 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 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 the program is placed through either a primary government securities dealer or a financial institution doing business in the State of Texas: and (iv) the agreement to lend securities has a term of one year or less. INVESTMENT POLICIES ... Under Texas Ia\\-. the City is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity: that address investment diversification. yield, maturity. and the quality and capabilil)' of investment management; and that includes a list of authorized investments for City funds, maximum allowable stated maturity of any individual investment and the maximum average dollar-weighted maturity allowed for pooled fund groups. All City funds must be invested consistent with a formally adopted "Investment Strategy Statement" that specifically addresses each funds' investment. Each Investment Strategy Statement will describe its objectives concerning: (I) suitability of investment type. (2) preservation and safety of principal. (3) liquidity. (4) marketability of each investment. (5) diversification of the portfolio. and (6) yield. Under Texas law. City investments must be made "with judgment and care. under prevailing circumstances, that a person of prudence. discretion. and intelligence "ould exercise in the management of the person ·s own affairs.. not for speculation, but for investment. considering the probable safety of capital and the probable income to be derived." At least quarterly the investment officers of the City shall submit an investment report detailing: (I) the investment position of the City, (2) that all investment officers jointly prepared and signed the report. (3) the beginning market value, any additions and changes to market value and the ending value of each pooled fund group. (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset. (6) the account or fund or pooled fund group for which each individual investment was acquired. and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategy statements and (b) state Ia\-\. No person may invest City funds without express wrinen authority from the City Council. ADDITIONAL PROVISIONS ... Under Texas Ia" the City is additionally required to: (I) annually review its adopted policies and strategies: (2) require any investment officers· \\ith personal business relationships or relatives with firms seeking to sell securities to the entity to disclose the relationship and file a statement "ith the Texas Ethics Commission and the City Council: (3) require the registered principal of firms seeking to sell securities to the City to: (a) receive and review the City's investment policy. (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities. and (c) deliver a wrinen statement attesting to these requirements: {4) perform an annual audit of the management controls on investments and adherence to the City·s investment polic~: (5} provide specific inYestment training lor the Treasurer. Chief Financial Officer and investment officers: (6) restrict reven;e repurchase agreem<!llts to not more than 90 days and restrict the investment of reverse repurchase ag~ment funds to no greater than the term of the n!,erse repurchase agreement: (7) restrict its investment in mutual funds in the aggregate to no more than 15 percent of its monthl~ average fund balance. excluding bond proceeds and reserves ,. " ( ( t" .. ( ( c ( I' .... ) ) and other funds held for debt service, and to invest no ponion 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. T ABLI 15-CURRENT INVESTMENTS As of February 28,2006, the City's investable funds were invested in the following categories: Book Value %ofTotal Type Par Value Value Book Value United States Age~y Obligations s )0,500,000 49,838,4711 24.22 Money Market Mutual Fundstll 63,948,615 63,948,615 :'11.118 L<x:al government investment pools()) 91,987,482 91,'.187,4!12 44.70 206,436,097 205,774,567 1!1().1)() Estimated Fair Market Value111 %ofTotal Value Market Value s 49,606,1!()5 24.13 63,'.14!1,615 31.11 91,9Ri,482 44.75 2115,542,1112 100.00 Weighted Average Maturity (Days} 50 d3ys 1 day 1 day (I} Market prices are obtained from Advent's interface with FT Interactive Data. No funds are invested in mongage back securities. The City holds all investments to maturity which minimizes the risk of market price volatility. (2) Money Market Funds are held at Wells Fargo Bank, Texas N.A. ( 3) Local government investment pools consist of entities whose investment objectives are preservation and safety of principal. liquidity and yield. The pools seek to maintain a $1.00 value per share as required by the Texas Public Funds Investment Act. The investment pools used by the City include TexPool and TexSTAR. TexSTAR is a local government investment pool for whom First Southwest Asset Management, Inc., an aftlliate of First Southwest Company, provides customer service and marketing for the pool. TexSTAR currently maintains an "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 are allowed by the panicipants. First Southwest Company is a Financial Advisor for the City in connection with the issuance of City debt. (THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) 49 : l I TAX MATTERS TAX EXEMPTJON In the opinion of Vinson & Elkins L.L.P .. Bond Counsel. (i) interest on the 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. The Internal Revenue Code of 1986. as amended (the "Code"). imposes a number of requirements that must be satisfied for interest on state or local obligations. such as the Bonds. to be excludable from gross income for federal 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 States 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 those sections of the Code that affect the exclusion from 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 Underwriter with respect to matters solely within the knowledge of the Issuer. the Issuer's Financial Advisor and the Underwriter. 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 determined to be inaccurate or incomplete, interest on the Bonds could become taxable from the date of delivery of the Bonds. regardless of the date on which the event causing such taxability occurs. The Code also imposes a 200/o 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 FA SIT). includes 7S% 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 current 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 federal. state or local tax consequences resulting from the receipt or accrual of interest on. or acquisition. ownership or disposition of. the Bonds. Bond Counsers opinions are based on existing law. which is subject to change. Such opinions are 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 reflect any facts or circumstances that may thereafter come to Bond Counsel's attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover. Bond Counsel· s 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 law and in reliance upon the representations 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 not the Service will commence an audit of the Bonds. If an audit is commenced. in accordance with its current pub I ished procedures the Service is likely to treat the Issuer as the taxpayer and the Q,,ners may not have a right to panicipate in such audit. Public awareness of any future audit of the Bonds could adverse!)' affect the value and liquidity of the Bonds during the pendency ofthe 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 tax exempt ( ( ( ( obligations may result in collateral federal income tax consequences to linancial 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 FA SIT 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. These categories of prospective purchasers should consult their O\\ n tax advisors as to the applicability of these consequences. Prospective purchasers of the Bonds should also be a" are that under the Code. taxpayers 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. ) ) ) ) TAX ACCOUNTING TREATMENT Of ORIGINAL )SSU£ PR.EMJUM ... 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 federal 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 tax 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 amortizable bond premium. The amount of bond premium on a Premium Bond that is amonizable 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. A II owners of Premium Bonds should consult their own tax advisors with respect to tbe 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. T A."< ACCOUNTING TREATMENT OF 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 at the maturity of each Original Issue Discount Bond. and (ii) the initial offering price to the public of such Original 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 captions "Tax Exemption" and MCollateral Tax ConsequencesM generally applies.. and should be considered in connection with the discussion in this ponion 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 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 tbe 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-length transactions for a price (and with no other consideration being included) not more than the initial offering prices tbereof stated on the cover page of this Official Statement. Neither the Issuer nor Bond Counsel has made any investigation or offers any comfort that tbe 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 date 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 stated maturity ldeterrnined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less (b) tbe amounts payable as current interest during such accrual period on such &nd. 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 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 oft he purchase. ownership. redemption. sale or other disposition of such Original Issue Discount Bonds. 51 I OTHER INFORMATION RATINGS The Bonds have been 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 virtue of an insurance policy issued by Financial Guaranty (see "Bond Insurance"). The City's underlying ratings are "AI" by Moody's. "AA-" by S&P and "AA-" by Fitch. An explanation of the significance of such ratings may be obtained from the company furnishing the rating. The ratings reflect only the respective views of such organizations and the City makes no representation as to the appropriateness of the ratings. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by either or both of such rating companies, if in the judgment of either or both companies. circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the 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 Jaw 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. 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 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 $2.6 million under a breach of contract claim. The City obtained a summary judgment in this case against the contractor. The contractor appealed the decision to the Fifth Circuit Court of Appeals and oral argument was heard on March 7. 2006. While this 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 stormwatcr 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-tiled the case in federal court. The federal court has dismissed the contractor's Section 1983 claims. and the comractor 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 sixty-two 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 during portions of the time in question. and/or that the allegations fail to state a claim upon which relief can be granted. The City Auorney 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 sources for payment of any such claims. which include insurance policies and City reserves for self insured claims. are adequate to pay any presently foreseeable damages (see "Financial Policies -Insurance and Risk Management"). On the date of delivery of the Bonds to the Underwriter. the City will execute and deliver to the Underwriter 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 afl'ect the provisions made tor their payment or security or in any manner question the validity of the Bonds. 52 ( ( "' \ c c c c c c c "\ ) ) REGISTRATION AND QUALIFICATION OF BONDS FOR SALE The sale of the Bonds has not been registered under the Federal Securities Act of 1933. as amended, in reliance upon the exemption provided thereunder by Section 3(a){2): and the Bonds have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein: nor have the Bonds been qualified under the securities acts of any jurisdiction. The City assumes no responsibility for qualification of the Bonds under the securities Jaws 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 ofany exemption from securities registration provisions. LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE 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 AcL 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 thal subject to a prudent investor standard, the Bonds are legal investments for state banks. savings banks, trust companies with at capital of one million dollars or more, and savings and Joan 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 MATTERS The delivery of the Bonds is subject to the approval of the Attorney General of Texas to the effect that such Bonds are valid and legally binding obligations of the City payable from sources and in the manner described herein and in the Bond Ordinance and 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 I OJ(a) of the Code. subject to the matters described under "Tax Matters" herein. including the alternative minimum tax on corporations. The form of Bond Counsel's opinion is attached hereto in Appendix C. The legal fee to be paid Bond Counsel for services rendered in connection with the issuance of the Bonds is contingent upon the sale and delivery of the Bonds. The legal opinion of Bond Counsel will accompany the Bonds deposited with DTC or will be printed on the definitive Bonds in the event of the discontinuance of the Book-Entry-Only System. Certain legal matters will be passed upon for the Underwriter by McCall. Parkhurst & Honon LLP. Dallas, Texas, Counsel for the Underwriter. The legal fee of such firm is contingent upon the sale and delivery ofthe Bonds. Bond Counsel was engaged by, and only represents, the City. Except as noted below, Bond Counsel did not take part in the preparation of the Official Statement. and such finn has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained herein except that in its capacity as Bond Counsel, such firm has reviewed the information appearing in this Official Statement under the captions "The Bonds'' (exclusive of the information under the subcaptions "Book-Entry Only System." "Use of Bond Proceeds" and "Bondholders' Remedies") and "Tax Matters" and under the subcaptions "Legal Opinions." "Legal Investments and Eligibility to Secure Public Funds in Texas" and "Continuing Disclosure of Information" under the caption "Other Information" and such firm is of the opinion that such descriptions present a fair and accurate summary of the provisions of the Jaws and instruments therein described and, with respect to the Bonds. such infonnation confonns to the Ordinance. The legal opinions to be delivered concurrently with the delivery oflhe Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. In rendering a legal opinion. the attorney does not become an insurer or guarantor of that expression of professional judgment. of the transaction opined upon, or of the future perfonnance of the parties to the transaction. nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. CONTINUING DtSCLOSl'R£ 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 funds to pay the Bonds. Under the agreement. the City will be obligated to provide cenain updated financial inlonnation and operating data annually, and timely notice of specified material events. to cenain information vendors. This information will be available to securities brokers and others who subscribe to receive the information from the 'endon;. 53 [ i 1 ANNUAL REPORTS .•. The City will provide certain updated financial infonnation and operating data to certain infonnation vendors annually. The infonnation to be updated includes all quantitative financial infoiTilation and operating data with respect to the City of the general type included in this Official Statement under Tables numbered I through 6 and 8A through 15 and in Appendix B. The City will update and provide this infoiTilation within six months after the end of each fiscal year ending in or after 2006. The City will provide the updated information to each nationally recognized municipal securities infoiTilation repository ("NRMSIR") approved by the staff of che United Stales 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. The City may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule I 5c2-J 2 (the "Rule"). The updated infoiTilation 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 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 statements will be prepared in accordance with the accounting principles described in Appendix B or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation. The City's current fiscal year end is September 30. Accordingly, it must provide updated information by March 31 in each year, unless the City changes its tiscal 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 (the "MAC") has been designated by the State of Texas and approved by the SEC staff as a qualified SID. The address of the MAC is 600 West 8th Street. P.O. Box 2177. Austin. Texas 78768-2177. and its telephone number is 512/476-6947. The MAC has also received SEC approval to operate. and has begun to operate. a "central post office" for infoiTilation filings made by municipal issuers. such as the City. A municipal issuer may submit its information filings with the central post office. which then transmits such information to the NRMSIRs and the appropriate SID for filing. This central post office can be accessed and utilized at www.DisdosureUSA.org ("DisclosureUSA"). The City may utilize Disclosure USA for the filing of information relating to the Bonds. MATERIAL EVENT NOTICES ... The City will also provide timely notices of certain events to certain information vendors. The City will provide notice of any of the following events with respect to the Bonds, if such event is material to a decision to purchase or sell Bonds: ( 1) principal and interest payment delinquencies; (2) non-payment related defaults: (3) unscheduled draws on debt service reserves reflecting financial difficulties: (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers. or their failure to perform: (6} adverse tax opinions or events affecting the tax-exempt status of the Bonds: (7) modifications to rights of holders of the Bonds; (8) early redemption of the Bonds; (9) defeasances: (10) release. substitution. or sale of property securing repayment of the Bonds: and (II) rating changes. (Neither the Bonds nor Ordinance make any provision for debt service reserves or liquidity enhancement.) In addition. the City will provide timely notice of any failure by the City to provide intbiTilation. 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 information only to NRMS!Rs. the MSRB and the SID. as described above. The infoiTilation 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 infoiTilation through securities brokers who do so. LIMIT ATJONS AND AMENDMENTS •.. The City has agreed to update infoiTilation and to provide notices of material events only as described above. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations. condition. or prospects or agreed to update any information that is provided. except as described above. The City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The City disclaims any contractual or tort liability lor damages resulting in whole or in pan from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement. although holders of Bonds may seek a writ of mandamus to compel the City to comply with its agreement. The City may amend its continuing disclosure agreement from time to time to adapt to changed circumstances that arise from a change in legal requirements. a change in law. or a change in the identity. nature. status. or type of operations of the City. if { i) the agreement. as amended. would have permitted an underwriter to purchase or sell Bonds. in the offering described herein in compliance with the Rule. taking into account any amendments or interpretations of the Rule to the date of such amendment. as well as such changed circumstances. and (ii) either (a) the holders of a majority in aggregate principal amount of the outstanding Bonds consent to the amendment or {b) any person unaffiliated with the City {such as nationally recognized bond counsel) determines that the amendment \\ill 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 Rule or a court of final jurisdiction enters judgment that such provisions of the Rule 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 the Bonds in the primary offering of such Bonds. 54 ( < ( I" .... c c c c ) ) ) ) If the City so amends the agreement, it has agreed to include with the next financial infonnation and operating data provided in accordance with its agreement described above under "Annual Reports" an explanation, in narrative fonn. of the reasons for the amendment and of the impact of any change in the type of financial infonnation and operating data so provided. COMPLIANCE WJTH PRJOR UNDERTAKINGS ... The City became obligated to file annual reports and financial statements with the state infonnation depository ("SID") and each nationally recognized municipal securities information repository ("NRMSIR") in an offering that took place in 1997. All of the City's General Obligation debt reports and financial statements were timely filed with both the SID and each NRMSIR: however. due to an administrative oversighL the City filed its fiscal year end 1999. 2000, and 2001 Electric and Power Revenue debt reports late to the SID and each NRMSIR. The financial infonnation has since been filed, as well as a notice of late filing. The City has implemented procedures to ensure timely filing of all future financial 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 NRMSJR 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 undenaking. 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 Financial Results • The Electric Fund"). Because there was an uncertainty as to an amount by which the rate covenant would fail to be met. which was not finally determined until the audited tinancials 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 tiling 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 sale of the Bonds is contingent upon the issuance and delivery of the Bonds. First Southwest Company. in its capacity as Financial Advisor, does not assume any responsibility for the information, covenants and representations contained in any of the legal documents with respect to the federal income tax status of the Bonds, or the possible impact of any present, pending or future actions taken by any legislative or judicial bodies. The Financial Advisor to the City has provided the following sentence for inclusion in this Official Statement. The Financial Advisor has reviewed the infonnation in this Official Statement in accordance with, and as pan 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. VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS The arithmetical accw-acy of certain computations included in the schedules provided by First Southwest Company on behalf of the City relating to (a) computation of forecasted receipts of principal and interest on the Federal Securities and the forecasted payments of principal and interest to redeem the Refunded Obligations and (b) computation of the yields of the Refunding Bonds and the restricted Federal Securities were verified by Grant Thornton. LLP, certified public accountants. Such computations were based solely on assumptions and information supplied by First Southwest Company on behalf of the City. Grant Thornton. llP has restricted its procedures to verifying the arithmetical accuracy of certain computations and has not made any study or evaluation of the asswnptions and intbnnation on which the computations are based and. accordingly, has not expressed an opinion on the data used, the reasonableness of the assumptions. or the achievability of the forecasted outcome. UNDERWRITING The Underwriter has agreed. subject to cenain conditions. to purchase the Bonds from the City, at an underwriting discount of $124,726.43. The Underwriter 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 Underwriter and other dealers depositing Bonds into investment trusts) at prices lower than the public otTering prices of such Bonds. and such public offering prices may be changed from time to time, by the Underwriter. FORWARD-LOOKING STATEMENTS DISClAIMER The statements contained in this Official Statement. and in any other infonnation 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 infonnation 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 c<luld differ materially from those discussed in such forward-looking statements. 55 : I I The forward-looking statements included herein are necessarily based on various assumptions and ~stimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social. economic. business. industry. market. legal. and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties. including customers. suppliers. business partners and competitors. and legislative. judicial. and other governmental authorities and officials. Assumptions related to the foregoing involve judgments with respect to. among other things. future economic. competitive. and market conditions and future business decisions. all of which are difficult or impossible to predict accurately and many of which are beyond the control of the City. Any of such assumptions could be inaccurate and. therefore. there can be no assurance that the forward-looking statements included in this Official Statement will prove to be accurate. MISCELLANEOUS The 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. documents and resolutions contained in this Official Statement are made subject to all of the provisions of such statutes, documents and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Reference is made to original documents in all respects. The Ordinance authorizing the issuance of the Bonds will also approve the form and content of this Official Statement. and any addenda, supplement or amendment thereto. and authorize its further use in the reoffering of the Bonds by the Underwriter. ATTEST: Is! REBECCA GARZA City Secretary 56 Is! MARC McDOUGAL Mayor City of lubbock, Texas ( ( ( c ( ( ( ( < ( Schedule I SCHEDULE OF REFUNDED OBLIGATIONS Tax and Municipal Drainage Utility System Surplus Revenue Certificates of Obligation, Series 2001 Original Interest Orij;dnal Dated Date Maturity Rates Amount June J, 2001 02/15/23 5.20% $2,885.000 02/15/26 5.25% 4,940,000 02/15/31 5.30% 10,190.000 The refunded obligations will be redeemed prior to original maturity on February 15. 2011 at par. } 57 : I l (THIS PAGE INTENTIONALLY LEFT BLANK] ( ) APPENDIX A GENERALINFORMA TION REGARDING TilE CITY l I , (THIS PAGE INTENTIONALLY LEFT BLANK} ( 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: 1910Census 1920Census 1930Census J940Census 1950Census 1960Census 1970Census 1980Census 1990Census 2000Census 2005 (Estimated) fl> City of Lubbock <Comorate 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 ("MSA") {Lubbock County) 1970Census 179,295 1980Census 211.651 1990 Census 222.636 2000 Census 242,628 (I} Source: City of Lubbock, Texas ACRJCULTURE; 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 conon and grain sorghums with livestock a major additional source of agricultural income. The Southern High Plains is one of the United State·s most productive agricultural areas. Almost eighteen percent of the nation's cotton crop and fifty-one percent of the state's cotton crop is planted by farmers in the Southern High Plains. In 2004, approximately 3.59 million bales of cotton were produced in Lubbock and the tO-counties surrounding Lubbock. This was more than the I. 72 million bales produced in 2003. Projections for the 2005 conon crop are 4.1 million bales. This will be two consecutive years with record cotton crops for the area. Lubbock also has a large number of service and retail businesses that are agriculturally related. 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/shuners. foodstuffs. prefabricated homes. poultry and livestock feeds. boilers and pressure vessels. automatic sprinkler system heads. and structural steel fabrication. ( I) Source: Texas Agricultural Statistics Services. LUBBOCK MSA LABOR FORCE EsTIMATES m February 200612) Civilian labor Force 142.146 Total Employment l36.5ll Unemployment 5.635 Percent Unemployment 4.00% (I) Source: Texas Workforce Commission. (2) Subject to revision. 2005 141.606 135,878 5,728 4.00% A-1 Annual Averages 2004 2003 2002 2001 140,436 138.61 I 135.772 134.187 134.068 131.896 129.876 129.262 6.368 6.715 5.896 4.925 4.50% 4.80% 4.30% 3.70% : [ I Estimated non-agricultural wage and salaried jobs in various categories as of December. 2005 were: c 11 Manufacturing Construction Trade. Transportation & Public Utilities Financial Activities Professional & Business Services Education & Health Services lnfonnation Leisure &Hospitality & Other Government Total 5.400 5,300 24.900 6.800 10.400 18..500 6.200 19,900 28,800 126.000 (I) Source: Texas Workforce Commission. MAJOR EMPWYERS (300 EMPLOYEES OR MORE) Company Texas Tech University Covenant Health System Lubbock Independent School District University Medical Center United Supennarkets City of Lubbock Texas Tech Health Sciences Center Cingular Convergys Corporation Lubbock County Lubbock State School Texas Dept. of Criminal Justice Psychiatric Hospital Frenship ISO Tyco Fire Protection G Boren Services, Inc. SBC/Southwestem Bell Walmart Supercenter U.S. Postal Service State National Bank of West Texas Texas Department of Transportation Gene Messer Ford Inc. Lubbock-Cooper lSD Lubbock Regional MHMR Center Operator Service Company Sonic Drive In ChaseCom/Staffmark Wells Fargo Phone Bank Lubbock Christian Uni•,:ersiry Plains Capital Bank NTS Communications. Inc. American State Bank Diltards Department Stores Cox Cable of Lubbock. Inc. Mclane High Plains Sodcxho School Services ARAMARK Lubbock Heart Hospital Interim Healthcare of West Texas (I} Source: Business Development. (2) Full and part time. Type of Business State University Hospital Public Schools Hospital Supermarkets City Government Medical and Allied Health School Wireless Communications Call Center County Government School for Mentally Retarded Psychiatric Hospital Public Schools Manufacturing/Fire Sprinklers Staffing/HR Consulting Telephone Utility Discount Retailer Post Office 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, 2004111 9,919 (2) 4,310 3,669 2.310 2.156 2.109 2.010 1,750 1,450 950-1200 850 755 IJ) 639 540 516 500-999 500-999 500.999 500 474 449 444 427 427 425 400 392 384 371 367 355 341 339 330 316 316 308 300 ( 3) See Texas Department of Crimina I Justice t"TDCJ") Prison Psychiatric Hospital following for more detailed infonnation. 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 Fall. 2005, enrollment of 28.001. Accredited by the Southern Association of Colleges and Schools. the University is a co-educational, State· supported institution offering a bachelor's degree in 158 major fields. the masters degree in 107 major fields, the doctorate degree in 64 major fields. and a professional degree in 2 major fields (law and medicine). The University proper is situated on 451 acres of the 1,829 acre campus, and has over 160 pennanent buildings with additional construction in progress. According to the July, 2004 major employer list the total employment was 9.919 full time and part time employees. The medical school had an enrollment of2,391 for Fall. 2005, not including residents: there were 91 graduate students. The School of Nursing had a Fall, 2005, enrollment of 632. The Allied Health School had a Fall. 2005, enrollment of795. Source: Texas Tech University. OTHER EDUCATION INFORMATION The Lubbock Independent School District. with an area of 87.5 square miles, includes over 90% of the City of Lubbock. There are approximately 3,669 total employees. The District operates four senior high schools, ten junior high schools, 34 elementary schools and other educational prognuns. Scholastic Membership Historv 1'> School Year 2000-0 I 2001·02 2002..()3 2003.()4 2004..()5 Average Daily Attendance 27,046 27,019 27,094 26.800 28:474 (2} ( I) Source: Superintendent's Office, Lubbock Independent School District. (2) Estimated. Lubbock Christian University. a privately owned, co-educational senior college located in Lubbock. had an enrollment of2,079 for the Fall Semester, 2005. The State of Texas School tor the Mentally Retarded located on a 22~acre site in Lubbock. consists of 40 buildings with bed· capacity for 436 students; 400 students were in residence. There are approximately 850 professional and other employees. Wayland Baptist College. Plainview Texas, operates a Lubbock Campus which had a Fall. 2005. enrollment of756 students. South Plains Junior College operates a Lubbock Campus. which had a Fall. 2005. enrollment of approximately 4,200 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 tor 2001 536.670, tor 2002 513.096, for 2003 514.2:50, for 2004 541.549 and 553.688 for 2005. 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. High·ways. one State Highway. a controlled-access outer loop and a county·\\ide system of paved fann-to-market roads. A-3 : [\ ' I GOVERNMENT AND MILITARY Cll The fonner 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 fifth 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 8()1'fi, occupied with I I 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). TIEHH is a joint venture between Texas Tech University and Texas Tech University Health Sciences Center and researches the exposure and effects toxic chemicals have on human health and the environment. TIEHH has assisted in stimulating the Lubbock economy 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 specially 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 the last three years. State of Texas ... More than 25 State of Texas boards. departments. agencies and commissions have offices in Lubbock; several of these offices have multiple units or offices. Federal Government ... Several Federal departments and various other administrations and agencies have offices in Lubbock: a Federal District Court is located in the City. (I) Source: City of Lubbock, Texas. TEXAS DEPARTMENT Of CRIMINAL JUSTICE rTDCJ") PRISON PSVCHIA TRIC HOSPITAL TDCJ operates a 550-bed Prison Psychiatric Hospital and a 4S.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 mi11ion and an estimated remaining annual operating budget of$27 million. HOSPITALS AND MEDICAL CARE There are four hospitals in the City with over 1.800 beds. Covenant Medical Center is the largest and also operates an accredited nursing school. Lubbock County Hospital District. with boundaries contiguous with Lubbock County. owns the University Medical Center which it operates as a teaching hospital for the Texas Tech Health Sciences Center. There are approximately 100 clinics and over 800 practicing physicians. surgeons. and dentists. Lubbock's Health Care Sector employs over 18.000 people whose payroll of almost $580 million and related contributions provide a substantial impact to the Lubbock area. Lubbock"s Health Care Sedor draws patients from 77 counties in West Texas and Eastern New Mexico. RECREATION AND ENTERTAINMENT Lubbock's Mackenzie Regional Park and over 75 City parks and playgrounds provide recreation centers. pavilions, shelter buildings, a garden and art center. swimming pools. a golf course. tennis and volley ball courts. baseball diamonds and picnic areas. including the Jim Bertram 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 pri\ ately-owned public swimming pools. golf courses. and country clubs. The City of Lubbock has developed a 36 square block area of approximately 100 acres adjacent to downtown Lubbock under the Lubbock Memorial Civic Center program. Approximately 50 acres contain the 300.000 square !bot Lubbock Memorial Civic Center. the main City library building and State Department of Public Safet~ oflices: a 50-acre peripheral area has been redeveloped privately with office buildings. hotels and motels. a hospital. and other facilities. Available to residents are Texas Tech University programs and e\ ents. Texas Tech University Museum. Planetarium and Ranching Heritage Center exhibits and programs. United Spirit Ar<!rla and its c'ents. Lubbock Memorial Civic Center and its events. Lubbock Symphony Orchestra programs. Lubbock Theatre Center. Lubbock Civic Ballet. Municipal Auditorium and coliseum programs and events. the library and its branches. the annual Panhandle-South Plains Fair. college and high school football. basketball and other sporting events. as well as 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-Atmos Energy Company. Electric. City of Lubbock (Lubbock Power & Light) and Xcel Energy; and, in a small area. South Plains Electric Co-operative. ECONOMIC INDICES tt> Utility Connections Building Electric Year Permits Water Gas (LP&L Onlyp> --2001 $ 294,064,200 70,756 65,332 59,431 2002 314.077,929 72,615 67.308 62.713 2003 417,252,162 72,505 69.954 62.203 2004 408.726.402 74,026 70,196 63,076 2005 452,511.964 75.876 72.046 66.172 { J) All data as of 12-31, except where noted: Source: City of Lubbock. (2) Electric connections are those of City of Lubbock owned Lubbock Power and Light ("LP&L") and do not include those of X eel Energy or South Plains Electric Cooperative. LP&L provides service to approximately 71% of the electric customers in the City. BUILDING PERMITS BY CLASSifJCA TION CJI Residential Permits Single Family Multi-Family Total Residential Commercial, No. No. Public Total Calendar No. Dwelling Dwelling and Other Building Year Units Value Units<21 Value Units !2) Value Permits Permits 2000 819 $87.501.009 281 $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 1.595 101,540,351 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 !25,311,072 408,726,402 2005 1,129 179,992.398 350 37,835,811 1,479 217,828,209 234,683,755 452,511,964 {I) Source: City of Lubbock. Texas. (2) Data shown under "No. Dwelling Units" is for each individual dwelling unit, and is not for separate buildings; includes duplex, triplex. quadruplex and apartment permits. A· 5 : [I : I {THIS PAGE INTENTIONALLY LEFT BLANK} ( < APPENDIX B EXCERPTS FROM THE CITY OF LUBBOCK. TEXAS ANNUAL FINANCIAL REPORT For the Year Ended September 30, 2005 The information contained in this Appendix consists of excerpts from the City of Lubbock. Texas Annual Financial Report for the Year Ended September 30, 2005, 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. l I (THIS PAGE INTENT!ONALL Y LEFT BLANK) ) ) ' February 13, 2006 Honorable Mayor, City CounciJ, and Citizens of the City of Lubbock, Texas: We are pleased to submit the Comprehensive Annual Financial Report (CAFR) of the City of Lubbock, Texas (City) for the fiscal year ended September 30,2005. The purpose of this report is to provide the City Council, citizens, representatives of financial institutions, and others with detailed information concerning the financial condition and performance of the City of Lubbock. In addition, the report provides assurance that the City presented fairly, in all material respects, its financial position as verified by independent auditors. This report consists of management's representations concerning the fmances of the City. Consequently, management asswnes full responsibility for the completeness and reliability of all of the information presented in this report. To provide a reasonable basis for making these representations, management of the City has established a comprehensive internal control framework that is designed both to protect the City's assets from Joss, theft, or misuse and to compile sufficient reliable information for the preparation of the City's financial statements in conformity with generally accepted accounting principles (GAAP). Because the cost of internal controls should not outweigh their benefits, the City's comprehensive framework of internal controls has been designed to provide reasonable, rather than absolute, assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. The City's financial statements have been audited by BKD> LLP, a tirm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City for the fiscal year ended September 30, 2005, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concJuded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the City's financial statements for the fiscal year ended September 30, 2005, are fairly presented in conformity with I i 1 Honorable Mayor, City Council, And Citizens of the City of Lubbock, Texas February 13,2006 GAAP. The independent auditor's report is presented as the first component of the financial section of this report. The independent audit of the financial statements of the City was part of a broader, federally mandated "Single Audit" designed to meet the special needs of federal grantor agencies. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government's internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards. These reports are available in the City's separately issued Single Audit Report. GAAP require that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management's Discussion and Analysis (MD&A). This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. The City's MD&A can be found immediately following the report of the independent auditors. THE CITY AND ITS ORGANIZATION Population and Location ( The City is located in the northwestern part of the state commonly known as the South Plains of Texas. The City currently occupies a land area of 119.1 square miles and serves a population of 211,187 (2006 estimated population). Lubbock is the 11 tJi largest city in the State of Texas and the 13th largest Metropolitan Statistical Area (MSA). The Lubbock MSA includes Lubbock and ( Crosby Counties. Form of Government and City Services The City was incorporated in 1909. The City is empowered to levy a property tax on both real and personal properties located within its boundaries. It is also empowered by state statute to C extend its corporate limits by armexation, which occurs periodically when deemed appropriate by the City Council. The City has operated under the council-manager form of government since 1917. Policy- making and legislative authority are vested in a city council consisting of the mayor and six other ( members. The City Council is responsible, among other things, for passing ordinances, adopting the budget, appointing committees, and hiring the City Manager, City Attorney, and City Secretary. The City Manager is responsible for carrying out the policies and ordinances of the City Council, for overseeing the day-to-day operations of the City, and for appointing the heads of the various departments. The City Council is elected on a non-partisan basis. Council members serve four-year staggered terms, with three council members elected every two years. C The mayor is elected to serve a two-year tenn. Six of the council members are elected by district. The mayor is elected at large. c ( 2 \ Honorable Mayor, City Council, And Citizens of the City ofLubbock, Texas February 13,2006 The City provides a full range of services that include public safety, the construction and maintenance of highways, streets, and other infrastructure, solid waste services~ and recreational activities and cultural events. The City also provides utilities for electricity, water, wastewater, and stonn water as well as a public transportation system. Public safety includes police protection and fire protection. Police protection is provided through the Police Department, which includes 359 sworn police officers. The City's Fire Department operates 15 fire stations and has 319 total personnel including administration, fire prevention, maintenance, training, and communications. Electric service in the City is provided by Lubbock Power and Light (LP&L), Xcel Energy and South Plains Electric Cooperative. LP&L, the municipal electric company, has 66,172 meters in the City with an average daily consumption of3,956,904 kwh. LP&L has 14 substations, 1005 miles of distribution lines, and 85 miles of transmission lines. Natural gas service is provided by Atmos Energy. Currently, the City obtains 75% to 85% of its drinking water supply from the Canadian River Municipal Water Authority (CRMWA). The CRMWA combines surface water from Lake Meredith and ground water from Roberts County to meet the water demands of Lubbock and the other 10 member cities of CRMWA. Lubbock secures the remaining 15% to 25% of its water from its groundwater rights in Bailey and Lamb Counties. The City provides water service to 75,700 meters as well as the City of Shallowater, City of Ransom Canyon, Buffalo Springs Lake, and Lubbock Reese Redevelopment Authority. The capacity of the City water transmission system is 81 million gallons per day with an average utilization of 39 miUion gallons per day. The City has 1,341 miles of distribution lines and 146 active water wells with 83,265 acres of water rights. The CRMWA allocates more than 11 billion gallons of water to the City annually. Lake Alan Henry, built by the City in 1993, is considered a third water supply for future use. In order for the City to utilize water from Lake Alan Henry, future construction is required for pump stations, a pipeline to carry the water to Lubbock, and a new treatment plant. For the past several years, the City has been planning for future water needs. In March 2003, the City contracted with WaterTexas, Inc. to evaluate and make recommendations on how the City could optimize existing and potential water supplies on a short-~ mid-, and long-tenn basis. In a report titled City of Lubbock Strategic Water Plan, WaterTexas reported that the City has adequate water supply and will continue to do so provided that it takes steps to address its maximum day capacity limitations; addresses its ability to respond readily to drought conditions at Lake Meredith; and strategically develops additional supplies giving due consideration to demand, cost, opportunity, and competing budgetary needs. To strategically develop additional water supplies, the City Council established the Lubbock Water Advisory Commission in July 2003. The primary objective of this Commission is to assist in the development of a 100-year water supply plan. The CRMWA has secured an additional 180,000 acres of groundwater rights in the Northern Panhandle. The total of groundwater rights now stands at over 220,000 acres with an estimated 15 million acre feet of water within those rights. Conservative projections using current secured water rights indicate the CRMW A member city water demands can be fully met through 2097. 3 [ l I Honorable Mayor, City Council, And Citizens of the City of Lubbock, Texas February 13, 2006 Wastewater collection and treatment is provided within the city limits to residential, commercial, and industrial customers. The collection system consists of 940 miles of sanitary sewer as of January 1, 2005. The wastewater treatment plant has a capacity of 31.5 million gallons per day (permitted capacity) and an average utilization of approximately 23 million gallons per day. The peak utilization of the wastewater treatment plant is 27 million gallons per day. The City of Lubbock's drainage is primarily conveyed through the City's street system that discharges into more than 115 playa lakes. The subsurface drainage, via storm sewer pipes with curb inlets, conveys water to two small intermittent streams (Blackwater Draw and Yellowhouse Draw) which both converge at the upper reaches of the North Fork of the Double Mountain Fork of the Brazos River. The City's municipal separate storm sewer system (MS4) is made up of 1,076 linear miles of paved and unpaved streets, 530 linear miles of paved and unpaved alleys, 1,188 miles of storm sewer inlets, 70 miles of subsurface storm sewer pipe, three detention basins, 115 playa lakes, and one pump station. Maintenance of all of the storm sewers and street cleaning was funded from the Storm Water Fund during FY 2005. During FY 2005 the primary focus of the storm water fund was the construction of the South Lubbock Drainage Project -Phase I Main Trunk Line and the completion of the one mile portion of storm sewer between University A venue and Indiana A venue as part of the street widening project. The design of the drainage channel north of Andrews Park Lake was also completed this fiscal year. Work was completed on the Maxey Park Feasibility Study and work began on a Federal Emergency Management Agency (FEMA) Restudy of two of the playa lake systems. The other focus was on the submission of the City's application for the Texas Pollution Discharge Elimination System (TPDES) MS4 permit for the City's storm water quality activities. Until the new permit is issued, the City will continue to comply with the existing MS4 permit from the Environmental Protection Agency. The eleven different programs that are part of the existing permit were continued during FY 2005. The City also provides garbage collection and disposal services. The City provides services to 63,103 residential customers and 2,930 commercial customers. The City has two landfill sites. One site is designated as Lubbock Landfill and is a transfer station only. The second site is Lubbock's premier landfill, the West Texas Regional Disposal Facility. The West Texas Regional Disposal FaciJity opened in 1999 and is currently the largest landfill in the State of Texas. With 1,260 acres it is expected to serve the region for the next 100 years. Citibus is the public transportation provider for the City. Citibus provides three primary types of services. They include a Fixed Route Service, CitiAccess (paratransit system). and Special Services. Citibus has also expanded service later into the evenings. The Citibus Evening Service is designed to meet the needs of both CitiAccess and fixed route passengers who are transit dependent and who would have no other means of transportation in the evenings if the Evening Service were not provided. A majority of Evening Service passengers work at night and use the service for transportation to and from job sites. Citibus is professionally managed by McDonald Transit Associates, Inc. 4 ( Honorable Mayor, City Council, And Citizens of the City of Lubbock, Texas February 13, 2006 The City has an aggressive housing and community development program implemented and administered through funding from the Federal Community Development Block Grant program, HOME Investment Partnership Program, and Emergency Shelter Grant program. This year the City completed work on over 823 houses, assisted over 25,888 individuals, and created 6 jobs through an economic development loan program. Community eruichment and cultural services are also major programs of the City. The City owns and operates four libraries with over 388,220 volumes. The City also owns and maintains 76 parks and 55 playgrounds. Extensive recreational facilities include 4 swimming pools, 60 tennis courts, 31 baseball and softball fields, 5 recreation centers and 5 senior centers. To further enhance quality of life and to provide support to the tourism industry, the City also operates the Civic Center (convention center}, a coliseum, an auditorimn for performing arts, the Buddy HoUy Center, and the Silent Wings Museum. The City is responsible for the construction and maintenance of highways and streets. Currently the City has 1003.8 miles of paved streets. A new fund was established after the City Council passed a resolution in 2004 stating that 40% of the franchise fee revenue and telecom line charges would be devoted to funding street projects. This fund is called the Gateway Street Fund. The funding will be used to fund the debt service on street projects as determined by the City Council. The FY 2005-06 budget for the Gateway Street Fund includes the widening of Milwaukee Avenue from 34th to 98th Street, construction of a T-2 thoroughfare street on Erskine from Frankford to Salem, construction of a T-2 thoroughfare street on Slide Road from Loop 289 to Erskine, and widening Loop 289 just north of 4th Street to just south of Erskine and rebuilding the interchange. These projects support substantial commercial and residential development on the west side of the City. Other major road construction in the City includes construction on 98th Street from Slide Road to Frankford A venue and construction of the Marsha Sharp Freeway by the Texas Department of Transportation (TXDOT). This freeway will run from West Loop 289 east to link up with Interstate 27. The first phase of the project is completed and included widening Loop 289 from four to six lanes from 34th street to Slide Road and rebuilding the frontage road system under the main lanes -three lanes on each side. It also included building the 50th Street overpass and extending 50th Street to Frankford Avenue. TXDOT awarded the bid for the second phase of the Marsha Sharp Freeway that began construction in May 2005. The Marsha Sharp Freeway will benefit the City by providing a western connection to West Loop 289 ensuring a more efficient flow of traffic throughout the City. It will also reduce the congestion on north/south and easflwest major arterials and give faster access to all points in Lubbock, specifically Texas Tech University, the central business district, education centers, and medical facilities. The entire project is expected to cost $256 million and be completed sometime after 2010. One of the key components of the City's transportation system is the Lubbock Preston Smith International Airport, located 7 miles north of the City's central business district on 3,000 acres of land adjacent to Interstate 27. It is operated as a department of the City. The airport operates a 220,000 square foot passenger terminal and has three runways; 11,500' x 150'; 8,000' x 150'; 2869' x 75'. Air traffic control services include a 24-hour Federal Aviation Administration control tower and a full range of instrument approaches. The airport is currently seiVed by three major passenger airlines and two major cargo airlines having over 80 commercial flights per day. 5 [ i Honorable Mayor, City Council, And Citizens of the City of Lubbock, Texas February 13, 2006 The City is financially accountable for a legally separate civic services corporation and an economic development corporation, both of which are reported separately within the City's financial statements as discretely presented component units. Additional information on these legally separate entities can be found in the notes to the financial statements. Annual Budget Process The annual budget serves as the foundation for the City's financial planning and control. All departments of the City are required to submit requests for appropriation to the City Manager in June of each year. The City Manager uses these requests as the starting point for developing a proposed budget. The City Manager then presents this proposed budget to the City Council for review prior to August 31. The City Council is required to hold public hearings on the proposed budget and to adopt a final budget by no later than September 30, the close of the City's fiscal year. The appropriated budget is prepared by fund and department. Department directors may request transfers of appropriations within a department. Transfers of appropriations between funds, however, require the approval of the City Council. Budget-to-actual comparisons are provided in this report for the General Fund, as part of the basic financial statements. ECONOMIC CONDITION AND OUTLOOK The infonnation presented in the financial statements is perhaps best understood when it is considered within the context of the City's local economy. The following information is provided to highlight a broad range of economic forces that support the City's operations. Local Economy The City has a stable economy that has historically shown slow, steady growth and it has continued that growth through October 2005. The City's economy is agriculturally based but has diversified over the past 20 years which minimizes the affects of business cycles experienced by individual sectors. The South Plains is one of the United States' most productive agricultural areas. Almost eighteen percent of the nation's cotton crop and fifty-one percent of the state's cotton crop is planted by farmers in the South Plains. Production on the Southern High Plains is estimated to < total4.1 million bales for 2005, up fourteen percent from last year's production. The City has strong manufacturing, wholesale and retail trade, services, and government sectors. The manufacturers are a diverse group of employers who support approximately 5,400 workers. A central location and access to transportation have contributed to the City's development as a regional warehousing and distribution center. The City also serves as the major retail trade center and health-care provider for a region of more than a half a million people. A breakdown of the percent of employment base by industry category has been provided below, which gives a "snapshot'' of the industry base of the City. 6 ( ( Honorable Mayor, City Council, And Citizens of the City ofLubbock, Texas February 13, 2006 !PERCENT EMPLOYMENT BASE BY INDUSTRY CATEGORYI Transp, Warehousing & Utilties Manufacturing 4.3% Natural Resources, Mining & ConstructiOn 4.5% 2.9% Information 4.8% Flnanc:ial Activities 5.6% Professional & Business Services 8.1% Educational & Heanh Services 14.6% and Hospitality 11.1% Two major components of the local economy are education and health care services. Lubbock is home to three universities and one community college; Texas Tech University, Lubbock Christian University, Wayland Baptist University -Lubbock Center and South Plains College. Enrollment increased steadily through Fall2003, but because of increased nrition costs decreased slightly in Fall2004 and 2005. The availability of the schools in Lubbock is an added advantage for our industries as they provide a ready source oflabor for their successful operation. The healtbcare and social services sector is also a vital component of the Lubbock economy. This sector employs almost 18,000 people, whose payro11 of almost $580 million and related contributions provide a substantial impact to the Lubbock area. (Source: 2003 County Business Patterns} Other current and trend information has been provided below, which gives a picture of the overall city economy. Lubbock Economic Index. The Lubbock Economic Index is designed to represent the general condition of the Lubbock economy by tracking local economic growth rates. It is based at 100.0 in January 1996. The economic index for October 2005 was 124.6, which is .4% improved over the index for October 2004. The Lubbock economy continues to be "'high. but flat", with most sectors posting solid numbers, but with little growth sector by sector, or in the overall Lubbock economy. (Sourc.e: Lubbock Economic Index October 2005) 7 .1 ~ I Honorable Mayor, City Council, And Citizens of the City ofLobbock., Texas February 13, 2006 Lubbock Economic Index January 1996 to October 2005 100~~--~-----r----~----~------~----~----~----~----~----~ Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Building Permit Valuations. Construction continues to make a strong contribution to the Lubbock economy, with the value of all building pennits issued so far in 2005 up by 5.2% from last year's total through October. The $388 million in building permits issued through the first ten months of 2005 continues the upward trend that has set records for the City for the last several years. (Source: Economic and Demographic Overview: Building Valuations-10-Year Trend I Original Source of Data: Building Inspection Statistical Report) Total Building Permit Valuations $450.0 $417.3 $408.7 $400.0 4-----------------.Je~._ $350.0 -l---------------------GA--~~~--- $300.0 +----;-;;:;:;;-;;----::::-:-~:::i:;... .. .-!!!!E....----- 111 i 5 $2so.o ;i-------k-"-----:.~£:.._::.__ __________ _ § $200.0 +~-17~7-'7~1U..l~-~~~--------------:E $150.0 +-..:......_-=------------------------- $100.0 +------------------------ S50.0 -!------------------------ $0.0 +--...---..,----.--....,.----.-----.----..-----:---..----, 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 8 ( ( Honorable Mayor, City Council, And Citizens of the City of Lubbock, Texas February 13,2006 Total new residential permits decreased by 28.3% through October 2005 when compared to the same period in 2004. The $184 million in residential building permits issued for the first 10 months of 2005 is slightly down from the record setting levels that have been seen in the City over the last few years. Average home sale price year -to-date through October 2005 has increased by .01% from October 2004 to October 2005. (Source; Economic and Demographic Overview: Building Valuations-10-Year Trend I Original Source of Data: Building Inspection Statistical Report and The Real Estate Center at Texas A & M University, Lubbock Residential Housing Activity Report) Sales Tax Collections Sales tax collections for October 2005 were 10.86% improved over the October 2004 sales tax collected. Year·to·date sales tax collections through October 2005 were 35.9% improved over the same period in 2004. A portion of this increase is due to the increase in the sales tax rate from 7.875 to 8.25% in October 2004. (Counted in the month the sales tax was collected, not the month it was paid) (Source; Economic and Demographic Overview; Monthly Sales Tax Collections-Ca1endar Year-City of Lubbock. I Original Source of Data: State Comptroller of Public Accounts-A11ocation Historical Summary) TourismNisitor Related fudicators Lodging tax receipts increased from $2.6 million in October 2004 to $2.8 million in October > 2005. This is a year-to-date increase through October 2005 of 8.6%. Airline hoardings at Lubbock Preston Smith International Airport also increased in 2005 by 1.5% over the same period last year. (Source: Lubbock Economic Index) Employment The total non-agricultural employment estimate for October 2005 was 126,100. This was .4% improved over October of last year. There were 500 more people employed in October 2005 than in the same period of2004. The unemployment rate for the Lubbock MSA in October 2005 was 3.6%~ 3rd lowest in the State of Texas. Historically Lubbock has a low rate of ) unemployment that is generally 1% -2% below the national rate and about 1% below the rate for Texas. (Source: Lubbock Economic and Demographic Overview and 2004 Population and Economics Report I Original Source of data: Texas Worlcforce Conunission) ) ) 9 I Honorable Mayor, City Council, And Citizens of the City of Lubbock, Texas February 13, 2006 Unemployment Rates -Lubbock MSA 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Note: The methodology for calculating the unemployment rate was changed in 2005 and the last five years was recalculated based on the new method. The Lubbock MSA also changed in 2005 to include both Lubbock and Crosby Counties. Economic Development Economic development is a priority for the City of Lubbock. In 1995t the City Council created Market Lubbock, Inc., a non-profit corporation, to oversee economic development for the City. Market Lubbock, Inc. is funded with 3 cents of the property tax allocation. In October 2004 the Lubbock Economic Development Alliance (LEDA), an economic development sales tax corporation, assumed the responsibility for economic development in the City of Lubbock. LEDA program strategies include business retention, business recruitment, workforce development, foreign trade zone, and the bioscience initiative. LEDA is funded by a 118 cent economic development sales tax. Total estimated revenues for LEDA for FY 2005-06 are 3,487,455. Over the last year, through their business retention, expansion, and attraction programs, LEDA assisted eleven companies in the creation of 355 new jobs with an estimated annual payroll of$12.4 million and capital investment of$52.5 million. The City's Business Development Department works closely with LEDA to provide the support needed to assist in their economic development projects. Business Development is responsible for tracking and maintaining economic and demographic infonnation for the City, assisting with city-related business issues, the enterprise zone and tax abatement programs, the two Tax Increment Financing Reinvestment Zones, and all Public Improvement Districts. Business Development also works with retail and commercial projects that do not fit the criteria required by the state for economic development sales tax corporations. lO { ( ( < , , \, ( c c ( ) '\ ) ) Honorable Mayor, City Council, And Citizens of the City of Lubbock, Texas February 13, 2006 Development Initiatives Overton Park. Overton Park is a 300+-acre revitalization project that is undeiWay in the heart of the City. It has been called the largest privately funded revitalization project in the United States. Overton Park is the complete revitalization of a blighted area in the City called North Overton. The North Overton area was established in 1907 and over the next twenty years developed as a middle class neighborhood, with home ownership predominating. Then, in 1925, Texas Tech University (Texas Technological College) was established along the western botmdary of the neighborhood. Following World War II, the growth of Texas Tech University stimulated a need for student housing. This need was provided by many non-confonning apartments, converted garages, and subdivided houses, reducing home ownership in the area considerably. Continued growth of Texas Tech encouraged development of apartment buildings, further destroying the stability of the area. By the 1980s, the Lubbock City Council recognized that the passage of time, market trends, and land use changes had created severe pressures on North Overton. Through the 1990s, the situation in North Overton continued to stagnate. Population was declining, vacancies were hi~ owner occupancy was only 7.3% of the properties compared to 51.5% in the City as a whole. Crime was high in the area and many properties in the area were in poor condition, abandoned vehicles and weeds were prevalent, and there was little to attract residents to this neighborhood other than extremely low values and rents. A local developer approached the City to discuss plans to redevelop the North Overton area. The developer planned to purchase and redevelop about 90% of the North Overton area. The deve1oper and other property owners submitted a petition to the City and asked that the City establish a Tax Increment Financing Reinvestment Zone (TIRZ) to provide the public ftmds for constructing public improvements in the proposed district. In response, the City created the North Overton TIRZ with participation from the City, County, High Plains Underground Water District and Lubbock County Hospital District. This public/private partnership provides for a significantly enhanced redevelopment of the North Overton area by using public funds for upgraded intersections, additional right-of-way landscaping, improved street lighting, park improvements, and street and utilities replacement and reconstruction. These infrastructure projects are designed to replace 70-year old utilities, provide new street lighting and signalization, upgrade existing Pioneer Park; and provide for enhanced right-of-way landscaping, wider sidewalks, and street furniture. The plans called for street closures to allow for larger development projects, student housing, a variety of well-planned housing developments, retail to support the neighborhood and the Tech student population, and for the entire development to be pedestrian oriented. The City has approved site design guidelines for the development in Overton Park in order to ensure the high quality ofthis development project. It is anticipated that build-out of this public/private partnership wiU occur over a seven·year period. It is expected that the North Overton TIRZ planned expenditure of approximately $72.7 million for public infrastructure improvements wil1 result in future development/redevelopment in the North Overton TIRZ, which will increase the taxable value by approximately $445 million over the zone's 30-year life. 11 l II ' Honorable Mayor, City Council, And Citizens of the City of Lubbock, Texas February 13,2006 At this time, three student-oriented apartment complexes have been completed. The Centre, a $26 miUion, 618,000 square foot project that includes the construction of a multi-story apartment complex built over an upscale retail shopping center and more than 226,000 square feet of parking, is completed. City Bank has also completed their new 10,000 square foot bank facility. The new Starbucks has also been completed. Wahnart has broken ground on their new 200,000 square foot plus store that will be built near the southwest comer of 4th Street and Avenue Q. Also in 2005, construction began on the condominiums in Overton Park and it is expected that ground will be broken on the first single-family houses in early 2006. The project, as a whole, is running about three years ahead of schedule, with much of the construction now expected to be completed by the end of 2007. Central Lubbock Stabilization and Revitalization Master Plan The Central Lubbock Stabilization and Revitalization Master Plan is a comprehensive guide for future growth and prosperity for the Central Lubbock Area. The plan was developed with the assistance of Gould Evans Affiliates through a public process bringing together local residents, local employers, city staff, and major stakeholders. This plan is intended to provide a framework ( , \ for future development in Central Lubbock and to be a "living document" evolving to address ( any unforeseen future concerns or strategies. As a result of the plan, the 34th Street Business Association, made up of business owners on 34th Street, was formed in 2005. North & East Lubbock Community Development Corporation Dt.ning the last 50 years, while Lubbock grew, North and East Lubbock experienced an out- migration of people. From 1960 to 2000, the area's population decreased by 47%. Concluding that portions of northern and eastern Lubbock were in serious disrepair, the City and the North & East Lubbock Development Advisory Committee decided to take action. A comprehensive master plan for the area was completed in October 2004. The City created the North & East Lubbock Community Development Corporation (CDC) to oversee and promote development in the area and committed to providing funding to the CDC for four years. The North & East Lubbock CDC is working on its first project, a new single-family housing project called Kings Dominion. Construction of the first houses should begin in early 2006. Central Business District Tax Increment Reinvestment Zone The City of Lubbock Central Business District (CBD) has been typically developed over the years with office, retail, and governmental agency uses. Like many cities in the last ten to twenty years, retail has moved to shopping areas and other areas outside the CBD and office development bas stagnated. In an effort to reverse that trend and to stimulate further development downtown, the City established a new CBD Tax Increment Finance Reinvestment Zone (TIRZ) on December 3, 2001. The Board of the CBD TIRZ created a project plan that includes projects that will assist redevelopment in the CBD. It is expected that the CBD TIRZ planned expenditure of almost $8.4 million for public infrastructure improvements will result in future development and redevelopment in the CBD TIRZ which will increase the taxable value by approximately $106 million over the zone's 20-year life. 12 ( ,. \. ( c ( c Honorable Mayor. City Council, And Citizens of the City ofLubbock, Texas February 13, 2006 Downtown Redevelopment Commission The City Council created the Downtown Redevelopment Commission in May 2005 to develop an action plan for the redevelopment of the downtown area. The Commission is composed of eleven members that are citizens of Lubbock and stakeholders in the downtown area. Since its creation in May, the Commission members have been working on gathering information on what is available and what is needed in the downtown area. Although there were no fiscal activities during FY 2005, the Commission members have started their fund raising efforts and have begmJ. the process of searching for a consultant to prepare a Downtown Master Plan. FINANCIAL INFORMATION Long~term financial planning. The City uses 1 0-year rate models for long-range planning in the General Fund and all enterprise funds. These models are based on current projects and policies. The models are driven by the idea that the rate should be annually adjusted to reflect the service needs of the citizens. Because of this philosophy, the rates in the models are annually trimmed to leave as little excess as possible, after allowing for financially sound working capital and rate stabilization reserves. The models, in association with the City's "5-year Forecast', provide anticipated trends given current policies. These forward looking models provide a basis for budget discussion and policy decision-making. During fiscal year 2003 the City formed the Citizens Advisory Committee to survey City-wide infrastructure needs and priorities. The committee developed a six-year program for futme capital needs for which general obligation bonds have been or will be issued. The bond issuance was approved by the citizens of Lubbock in a bond election held in May 2004. Cash management policies and practices. Cash temporarily idle during the year was invested in certificates of deposit, obligations of the U.S. Treasury~ U.S. Agencies, money market mutual funds~ and state investment pools. The maturities of the investments range from 1 day to 3-1/2 years, with an average maturity of approximately 7-1/2 months. The average yield on investments was 2.68 percent for the City's operating funds and 2.71 percent for the City's bond funds. Investment income is offset by decreases in the fair value of investments. Decreases in fair value during the current year, however, do not necessarily represent trends that will continue; nor is it always possible to realize such amounts, especially in the case of temporary changes in the fair value of investments that the City intends to hold to maturity. Risk management. During 2005, the City continued its use of third party workers' compensation coverage. The current coverage provides for coverage to begin with the initial dollar of claims. The City is primarily self-insured for medical and dental coverage. Stop loss coverage of $150,000, per insured per year, is currently maintained with a third party insurer to mitigate risk associated with medical coverage. Additional information on the City's risk management activities can be found in the notes to the financial statements. Pension benefits. The City sponsors a multiple-employer hybrid defined benefit pension plan for its employees other than firefighters. Each year, an independent actuary engaged by the plan calculates the amount of the annual contribution that the City must make to the plan to ensure that the plan will 13 : [I Honorable Mayor, City Council, And Citizens of the City of Lubbock, Texas February 13, 2006 be able to fully meet its obligations to retired employees on a timely basis. As a matter of policy, the City fully funds each year's annual required contribution to the pension plan as detennined by the actuary. As a result of the City's conservative funding policy, the City has succeeded as of December 31, 2004, in funding 75 percent of the present value of the projected benefits earned by employees. The remaining unfunded amount is being systematically funded over 25 years as part of the annual required contribution calculated by the actuary. The City also provides benefits for its firefighters. These benefits are provided through a single~ employer defined benefit pension plan, the Lubbock Firemen's Relief and Retirement Fund (LFRRF), which is administered by the Board of Trustees of the LFRRF. The City contributes an amount that is detennined by formula and is anticipated to average 19.9 percent of firefighter's pay annually. The City does provide 25% -60% of post retirement health and dental care benefits for retirees or their dependents. Additional information on the City's pension arrangements and post employment benefits can be found in the notes to the financial statements. A WARDS AND ACKNOWLEDGEMENTS The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Lubbock, Texas, for its comprehensive annual fmancial report for the Fiscal Year Ended September 30, 2004. The City reapplied for this prestigious award last year after a one~year lapse in applying for the award. In order to be awarded a Certificate of Achievement, a governmental unit must publish an easily readable and efficiently organized comprehensive annual fmancial report, whose contents conform to program standards. Such reports must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one-year only. We believe our current report continues to conform to the Certificate of Achievement Program requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. The preparation of this report would not have been possible without the efficient and dedicated services of the entire staff of the Finance Division. Exceptional and tireless effort was invested by the Accounting Department. We would particularly like to thank Jeffery Snyder, Pamela Moon, the Senior Accountants, and Accountants for their countless hoW'S of work on this financial report. We would like to express our appreciation to all members of the departments who assisted with and contributed to the preparation of this report. Credit is also given to City Council and the Audit Committee for their interest and support in planning and conducting the operations of the City of Lubbock in a responsible and progressive manner. Respectfully submitted, Lee Ann Dumbauld City Manager 14 Jeff Yates ChiefFinancial Officer ) ' ) ) ) Certificate of Achievement for Excellence in Financial Reporting Presented to City of Lubbock, Texas For its Comprehensive Annual Financial Report for the Fiscal Year Ended September 30, 2004 A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers Association of the United S1ates and Canada to government unitS and public employee retirement systems whose comprehensive annual financial reports (CAFRs) achieve the highest standards in goveminent accounting and financial reporting. President Executive Director 15 l l I 1 0'\ 1\ Boon!Jwl Coa.ll\inion1 Effccti'/Q September 22, 2005 r. r. V&l. Boon! A ,..... City of Lubbock, TelWI Organizational Chart City Couocil 1.cc ltJUI ~mllaul<l r-. A [ Municipal Court Judge I A...Sit Commiucc "" ,..., Allill Buracu CI\)IAIIomcy ,..... ,.....,. ) ) ) ) FINANCIAL SECTION I Independent Accountants' Report on Financial Statements and Supplementary Information The Honorable Mayor and City Council City of Lubbock, Texas We have audited the accompanying financial statements of the govemmenta1 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 and for the year ended September 30, 2005, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express opinions on these financia1 statements based on our audit. We did not audit the financial statements of Civic Lubbock, Inc., Market Lubbock Economic Development Corporation d/b/a Market Lubbock and Lubbock Economic Development Alliance, which comprise the aggregate discretely presented component units. In addition, we did not audit the financial statements of the major fund West Texas Municipal Power Agency, which statements reflect total assets and total revenues of$14,059,031 and $158,128,217, respectively, and represent two percent and thirty-eight percent of the business~type activities' total assets and operating revenues, respectively. The financial statements of these entities were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for such entities, is based solely on the reports of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to fmancial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The financial statements of the component units Civic Lubbock, Inc.; Market Lubbock Economic Development Corporation d/b/a Market Lubbock; Lubbock Economic Development Alliance and the major fund West Texas Municipal Power Agency, 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 and the reports of the other auditors provide a reasonable basis for our opinions. 5000 Rogers Avenue. Su1te 700 Fort Smith. AR 7290:>-20?9 479 452-1040 Fax 479452·5542 400 W. CapitOl Avenue. Sutte 2500 P.O. Box 3667 Ullfe Rock. AR 7220:>-3667 501 3?2·1040 Fax SOt 372·1250 200 E. 11th Avenue P.O. Box 8306 Pine BluH. AR 71611-s30G 670 534·9172 Fax 870 534·2146 I ... ( ( ( c c c c c bkd.com Beyond Your Numbers ~:rtd~--C( t?! c ,_,.,.~1!1/nd~~ ) The Honorable Mayor and City Council Page2 In our opinion, based on our audit and the reports of the 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 infonnation of the City ofLubbock, Texas, as of September 30, 2005, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity wjth accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated January 6, 2006, on our consideration of the City's internal control over financial reporting and our tests of its compliance with certain provisions oflaws, regulations, contracts and grant agreements and other matters. 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 reportjng 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 accompanying management's discussion and analysis as listed in the table of contents is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. lsi BKD, LLP January 6, 2006 [I , City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2005 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, 2005. We encourage readers of these fmancial statements to consider the information included in the transmittal letter and in the other sections of the Comprehensive Annual Financial Repon (CAFR) e.g., combining statements and the statistical section in conjunction with this discussion and analysis. Financial Highlights These fmancial 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, 2005 by $545.5 million (net assets). Of this amount, $64.9 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 $1.3 million as a result of operations during the fiscal year. • The ending unreserved fund balance for the General Fund was $17.3 million or apprmumately 17.4% of total General Fund expenditures, or 19.7% of total General Fund revenues; an increase of$5.2 million over the prior year amount. • All of the City's governmental funds reported combined ending fund balances of $85.2 million. Of this total amount, $25.9 million is available for spending at the City's discretion. • All of the City's business-type activities reported combined ending net assets of $429.7 million. Of this total amount, $42.0 million is available for spending at the City's discretion. • The City's proprietary funds net assets decreased by $2.4 million from $432.1 million to $429.7 ( ( million. ( • During FY 2005, the City issued $75.3 million in debt for various capital projects and issued $112.2 million in debt to refund $114.0 million in outstanding debt. • In 2002, the City entered into an interest rate swap agreement to protect against the risk of rising interest rates between March 28, 2002 and May 1, 2005. On August IS, 2005, the City of Lubbock chose to terminate the swap and issue bonds in the amount of $43.1 million to retire $43.8 million bonds. The combined refunding and swap termination agreement resulted in an economic break-even transaction with negligible present value savings; yet the swap termination and related expenses resulted in an accounting loss of $6.6 miJJion. This is recorded as a specjal item in the Water Enterprise Fund financial statements. 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 totheBFS. 19 ( City of Lubbockt Texas Management's Discussion and Analysis For the Year Ended September 30, 2005 Goveroment-Wide Financial Statements. The GWFS) shown on pages 35-37 of this report, contain the statement of net assets and the statement of activities, descdbed below: The statement of net assets presents information on all of the City's assets and liabilities (including capital assets and short-and long-tenn 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 js self-financing, or alternatively, draws from any City generated general revenues. The governmental activities (activities that are principalJy 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 win only result in cash flows in future fiscal periods, such as uncollected taxes and earned but unused vacation leave. Component Uoits. The GWFS include not only the City itself (the "primary govermnent''), but also three legaHy separate entities (the "component units): Market Lubbock Economic Development Corporation, d/b/a Market Lubbock, Inc., Lubbock Economic Development Alliance, and Civic Lubboc}4 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 fmanciaJ information. None of these component units are considered major component units. Fund 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, 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 fiscaJ accountability. The City, as with other state and local governments, uses fund accounting to ensure and demonstrate compliance with financ~related legal requirements. 20 l I City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30,2005 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 quaHtative 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 fonds. Go11ernmental 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-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 GWFS (modified accruaJ 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-tenn 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. The City maintains 29 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 aU 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 38-41 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 aJlocate costs interna11y 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 21 ( ( { ( ( ( ( ( ( ( ( City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2005 the GWFS. AU 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 foWld 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 57-93 of this report. 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 $545.5 million (net assets) at the close of the fiscal year. This compared to assets exceeding liabilities by $546.7 million (net assets) at the end of the prior fiscal year. As a result of operations, total net assets decreased by $1.2 million during the period. By far the largest portion of the City's net assets, 81.7%, 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. 22 City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2005 City of Lubbock Net Assets September 30 (in OOO's) Govemmeutal Busiuess-Type Adivities Activities Total 2005 2004 2005 2004 2005 2004 CUrrent and other assets $ 116,021 $ 100,489 $ 170,945 $ 177,959 $ 286,966 $ 278,448 Capital assets 13~614 129,014 637,444 611,703 776,058 740,717 Total assets 254,635 229,503 808,389 789,662 1,063,024 110191165 Olrrmt I i.abilities 16,837 48,739 25,505 44,156 42,342 92,895 Noncurrent liabilities 127,169 76,423 348,036 303,173 475,205 379,596 Total liabilities 144,006 1251162 373,541 347,329 517,547 472,491 Net assets: Invested in capital assets, net of related debt 82,330 74,433 363,227 355,816 445,557 430,249 Restricted 8,770 20,339 26,276 45,417 35,046 65,756 Unrestricted 19,529 9,569 45,345 41,190 ~874 501759 Total net assets $ 110,629 $ 104,341 $ 434,848 $ 442,423 $ 545,477 $ 546,764 An additional portion of the City's net assets, 1 0%, represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets of $64.9 mil1ion may be used to meet the City's ongoing obligations to citizens and creditors. 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 governments] activities, and business-type activities. ( ( ( , ' ( ( The City's governmental activities experienced an increase in net assets of $6.3 million, while net ( assets increased by $2.7 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 third 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 $7.6 million during the < current fiscal year as compared to a decrease of $5.3 million during the prior fiscal year. This decrease in net assets resulted primarily from the $6.6 mi1lion accounting loss recorded in the Water Fund for the bond refunding and associated swap termination fee. This transaction generated negligible present value savings. Cbauges in Net Assets. Details of the following summarized information can be found on pages 36- 37 of this report. 23 ( ) City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 200S City of Lubbock Changes in Net Assets For the Year Ended September 30 (in ooo•s) Business- Governmental Type Activities Activities Totals Revenues: 2005 2004 2005 2004 2005 2004 Program Revenues: Charges for services $ 10,583 $ 12,713 $ 272,902 $ 181,411 $ 2&3,485 $ 194,124 Operating grants and contributions 13,296 9,643 8,156 6,739 21,452 16,3&2 Capital grants and contributions 5,206 9,269 5,206 9,269 General Revenues: Property taxes 39,743 44,497 39,748 44,497 Sales taxes 41,803 30,555 41,803 30,555 Other taxes 4,242 3,793 4,242 3,793 Franchise fees ll,IS4 9,654 11,154 9,654 Other 5,742 4,274 51146 21932 10,888 7;206 Total revenues 126,568 115,129 291,410 200,351 4172978 315,480 Expenses: Administrative/Community Services 23,355 22,313 23,355 22,313 Street Lighting 2,459 2,471 2,459 2,471 Financial Services 2,240 2,387 2,240 2,387 Fire 23,667 21,998 23,667 21,998 General Government 27,600 20,562 27,600 20,562 Human Resource$ 776 777 776 m Police 37,773 33,249 37,773 33,249 Planning and Transportation 11,985 10,789 11,985 10,789 Public Works 2,699 3,078 2,699 3,078 Interest on long-tenn debt 3,195 4,593 3,195 4,593 Electric 192,902 110,591 192,902 110,591 Water 28,138 27,879 28,738 27,879 Sewer 17,804 17,020 17,804 17,020 Solid Waste 14,695 17,662 14,695 17,662 Stormwater 5,586 5,.357 5,586 5,351 Transit 9,003 10,565 9,003 10,565 Airport 81151 61853 8!151 6,853 Total Expenses 135,749 122,217 276,879 195,927 412,628 318,144 Change in net assets before special items and transfers (9,181) (7,088) 4,424 5,350 (2.664) Special items (6,637) Transfers Change in net assets Net assets· beginning of year Net assets • end of year ) 24 ll City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2005 Governmental activities. Governmental activities increased the City's net assets by nearly $6.3 million. Key elements of the increase follow: • Transfers to/from business-type activities during the fiscal year increased governmental activities net assets by $15.4 million. During the prior fiscal year these transfers increased governmental activities net assets by approximately $9.7 million. This is a net increase of $5.7 million in resources to govenunental 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 payrolJ and purchasing. • Total expenses increased by nearly $13.5 million from the prior year due primari1y to increased spending in several of the functional categories including general goverrunent $7 million~ police $4.5 million, and fire $1.7 million. The general government increase was due to the creation of the voter approved Lubbock Economic Development Alliance (LEDA) and the corresponding $3.5 million sales tax payment plus increased spending in the hotel motel fund to promote tourism and the start up operations for new special revenue funds: $. 7 million for Municipal Court Fund, Donations Fund, North Overton Public Improvement District, and Abandoned Motor Vehicle Fund. The increase in public safety spending of $6.3 million is a result of the City Council's continued commitment to increased public safety. • Revenues increased by approximately $11.4 million. The key factors impacting this increase include a voter approved increase in sales taxes of $11.2 million, which corresponds t<> the voter approved decrease in property tax of$4.7 million. Also contributing is increases in franchise fees of$1.5 million due to growth and implementation of the 5% franchise fee. 25 ( ( c c ( c c c ( :_;;;- <=I Q e ::; § c; < City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2005 This graph depicts the expenses and program revenues generated through the City's various governmental activities. Expenses and Program Reveoues -Governmental Activities $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 26 [ ] i City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2005 The following graph reflects the source of the revenue and the percentage each source represents of the total. Revenues by Source -Government2l Activities Charges for Services 8.4% Operating grants & Contributions 10.5% Franchise Fees 8.8% Other Taxes 3.4% Miscellaneous 4.5% Property Taxes 31.4% Business-type activities. Business-type activities decreased the City's net assets by $7.6 million as a result of operations. Key elements of this increase follow: • Charges for services for business-type activities increased by $91.5 million. During the current fiscal year the Lubbock Power and Light (LP&L) and West Texas Municipal Power Agency (WTMPA) began selling natural gas (gas swap sales) to a third party which brought in revenues of $65.2 million. Revenues were also up slightly in all of the City's other enterprise funds. Because of the inter-fund activity between LP&L and WTMPA, approximately one third of the revenue was eliminated for the entity wide statements. • Operating grants, capital grants, and contributions continue to be a significant revenue source for LP&L, Airport, Water, and Sewer Funds during the current fiscal year, producing nearly $13.4 million in revenue. This is a slight decrease in prior fiscal year's support of $16.0 million. These 27 ( I t ' ) City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2005 contributions came primarily from federal grants and from water and sewer lines and taps that were funded by property owners. • Expenses increased in total by $81.0 million over the prior fiscal year. This increase is primarily due to the cost of fuel for the new gas swap sales contract of $62.1 million and the increased cost of operations for electric operations. Increases in the nation's fuel and energy costs have also affected both LP&L's and WTMPA's cost of power. The following graph reflects the revenue sources generated by the business-type activities. As noted earlier, these activities include LP&L, Water, Sewer, Solid Waste, Transit, WTMPA, Airport, and Stormwater Drainage. Revenues by Source -Business-type Activities Charges for Services 93.7% Financial Analysis of the City's Funds CaptiaJ Grants & Contributions 1.8% Operating Grants & Contributions 2.8% Investment Earnings 1.7% Govemmenta/funds. The focus of the City's govermnemalfunds 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. 1n particular, unreserved fund balance serves as a useful measure of the City's resources available for spending at the end of the fiscal year. 28 City of Lubbock, Texa.s Management's Discussion and Analysis For the Year Ended September 30, 2005 At the end of the fiscal year, the City's governmental funds reported combined ending fund balances of$852 million. This compared to $47.7 million at the end of the prior fiscal year. This increase is primarily the result of debt issuance for capital projects including the Gateway Streets projects, parks projects, tax. increment financing projects, and street projects. This resulted in an increase of fund balance of $37.9 million. Also affecting this increase was the result of operations of the General Fund where fund balance increased by $4.7 million. Of the ending governmental fund balance, $25.9 million or 30.4%, constituted unreserved fund balance which is available for spending at the City's discretion. This compared to $13.8 million or 28.9% at the end of the prior fiscal year. The remainder of the fund balance is reserved to indicate it has already been committed to, 1) pay debt service, 2) use in construction of approved capital projects. or 3) is restricted for other purposes. The General Fund is the chief operating fund of the City. At the end of the fiscal year, umeserved fund balance in the General Fund was approximately $17.3 million compared to $12.1 million in the previous fiscal year, representing an increase of approximately $5.1 million. Total fund balance (reserved and unreserved) approximated $17.4 million at the end of the fiscal year compared to $12.7 million at the end of the prior fiscal year. As a measure of the General Fund's liquidity, it is useful to compare both umeserved fund balance and total fund balance to total fund expenditures. Unreserved fund balance represented 17.4% of total General Fund expenditures compared to 13.4% of total General Fund expenditures in the prior year. Total fund balance represented 17.5% of total General Fund expenditures compared to 14.1% 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. It a1so has a transfer from the Risk Management Fund. Proprietary funds. The City's proprietary funds provide essentially the same type of information found in the GWFS, but in more detail. Umestricted net assets of the major proprietary funds at the end of September 30 are shown next with I .. ( ( amounts presented in OOOs: ( zoos Electric Fund $ 14,151 Water Fund 6,818 Sewer Fund 5,964 WfMPA 1,314 Stonnwater 7,420 $ 35,667 $ $ 2004 7,006 14,078 6,343 1,743 1,305 30,475 The LP&L Ptmd increased unrestricted net assets by $7.1 million compared to an increase of $4.6 million during the prior year. lbis is mainly due to the results of operations, a restructuring of the capital funding method for existing projects, and a decision by City Council not to charge for payments in lieu of taxes and franchise fees until adequate cash reserves are established. 29 f ... " ' ( City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2005 The Water Fund reflected a current year decrease in unrestricted net assets of nearly $7.3 million compared to a decrease of$1.5 million during the prior year. This is due primarily to the accounting loss for the termination of an interest rate swap payment of $6.6 million and a scheduled increase in interest payments of nearly $1 million. This was offset by increases in water sales due in part to a raise of approximately 3% in water rates. The Sewer Fund reflected a current year decrease in unrestricted net assets of approximately $.3 million compared to a $2. I miJlion increase during the prior year. Changes to debt covenant requirements and changed methods of capital funding contributed to the change. The W1MP A Fund reflected a decrease in unrestricted net assets of nearly $.4 million primarily as a result of operations. The prior fiscal year's change was an increase in unrestricted net assets of $.4 million. The Stormwater Fund experienced an increase in unrestricted net assets of $6.1 million during the fiscal year compared to a $.4 million increase in the prior fiscal year. The increase is a result of changed methods for capital funding. General Food Budgetary Highlights Differences between the original budget and the fmal amended budget were approximately $3.6 million in increases to expenditures. The main reason for the increase was for the street seal coating program, which was moved from a Capital Project Fund to the General Fund. The General Fund ended the fiscal year with expenditures more than $3.6 million more than budgeted. This mainly resulted from the implementation of a master lease program for obtaining vehicles and equipment as adopted by the City Council. The annual operating lease payments are budgeted; however, the lease proceeds and related capital expenditures are not budgeted items. This was a result of budgeting for the total amount of lease payments which is a true cash outflow instead of budgeting for the full cost of the vehicles leased which is required by generally accepted accounting principals (GAAP). Due to stronger than anticipated growth in new construction and better than expected saJes tax revenue, actuaJ revenues were nearly $2.1 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, 2005 amounted to $776.1 million, net of accumulated depreciation. This was a $35.4 million increase over the prior fiscal year's balance of$740.7 million, net of accumulated depreciation. This investment in capital assets includes land, buildings and improvements, equipment, construction in progress, and infrastructure. 30 City ofLubboek, Texas Management's Discussion and Analysis For the Year Ended September 30, 2005 Major capital asset events during the fiscal year included the following: • Work continued in the Water Fund with another $3.1 million expended on the construction of water lines and $1.8 million on sewer lines ahead of the Marsha Sharp Freeway. • A large street project began with the construction of a T-2 thoroughfare street with $6.5 million expended on Milwaukee A venue from 34th Street to 98th Street . This project is in the Gateway Streets Fund which was established in FY 2004-05. The fund is supported by 2% of the 5% franchise fees. • Scheduled improvements to LP&L's distribution infrastructure amount to $2.8 million. Another $1.6 million was spent on overhead distribution infrastructure. • The City continues work on a flood relief project linking South Lubbock's chain of playa Jakes with an underground drainage system, spending $8.5 million during the fiscal year. Expenditures to date on the project total $13 million. At the end of the fiscal year, the City has construction commitments of$112.5 million. City of Lubbock Capital Assets (Net of Accumulated Depreciation) September 30 (in OOO's) Business- Governmeatal Type Activities Activities Totals 2005 2.004 2005 2004 2005 2004 Land Buildings Improvements other than buildings Machinery and equipment Construction in progress Total $ s 8,951 28,146 43,895 19,829 371793 138,614 $ 8,608 23,794 37,183 15,957 431472 $ 129,014 $ 31,949 s 31,676 $ 65,951 68,302 347,393 330,842 63,719 66,922 1281432 113,961 $ 637,444 $ 611,703 $ Additional information about the City's capital assets can be found on pages 70..72 ofthis report. 3 1 40,900 $ 40,284 94,097 92,096 391,2&8 368,025 83,548 82,879 1661225 157,433 7762058 s 7401717 < < f ~ ( ( City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2005 Long-term debt. A summary of the City's total outstanding debt follows: General obligation bonds Revenue bonds Total s City ofLubboc:k Outstanding Debt General Obligation ud Revenue Bonds September 30 (io OOO's} Business-- Governmental Type Activities Aetivities 2005 2004 2005 2004 )02,720 $ 70,221 $ 286,750 $ 215,664 42,800 94,605 $ 102,720 s 701221 s 329,550 $ 3101269 Totals 2005 2004 $ 389,470 s 285,885 421800 94,605 $ 432,270 $ 380,490 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. 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. As of September 30, 2005, the City's total outstanding debt has increased by $50.7 million or 13.3% over the prior fiscal yeax. The increase in outstanding debt is attributed to the issuance of $187.5 million in debt, offset by the payment of scheduled debt service totaling $22.4 million and a reduction in outstanding debt of $114.3 mi1lion as a result of reti.mding existing obligations. During the fiscal year, the City issued the following bonds and certificates: • $7.3 million of General Obligation Bonds, Series 2005 were issued to fund the current capital improvements plan. This issuance was the second installment of the $30 million capital improvement debt issuance approved by voters in 2004. • $46.5 million of Tax and Waterworks System Surplus Revenue Certificates of Obligation, Series 2005 were issued to fmance projects in Water, Sewer, Airport, North Overton Tax Increment Financing Zone, Lubbock Power & Light, and Gateway Streets; as well as Parks and Streets projects throughout the City. • $23.1 million of Tax & Electric Light & Power Surplus Revenue CO, Series 2005 were issued to fmance distnbution projects and to refund $19.8 million of contract debt previously issued by West Texas Municipal Power Agency. • $49.6 million of General Obligation Refunding Bonds, Series 2005 were issued to defease $50.4 million in outstanding bonds in order to achieve interest savings. • $43.1 million of Tax & Waterworks System Surplus Revenue Ref. CO, Series 2005 were issued to defease $43.74 million in outstanding bonds originally held by Brazos River Authority for the acquisition and construction of the lake and reservoir at Lake Alan Henry. 32 I I City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2005 • $17.9 million in bonds were issued as Lubbock's share of the $48.1 million Canadian Municipal Water Authority Contract Revenue Bonds, Series 2005 (Conjtmctive Use Groundwater Supply Project) for the purchase of water rights. The City of Lubbock is contractually obligated to pay the debt service on these bonds over a 20 year period. AJJ 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. On November 22, 2005, the City of Lubbock received a rating outlook upgrade from "stable" to "poSitive" from Moody's Investors Service. The City currently maintains an "AA-" rating from Standard & Poor's and Fitch Ratings, me. and an .. Al" rating from Moody's mvestors Service for general obligation debt. On December 21, 2005, LP&L received a rating upgrade from "BBB-" to "BBB" from Standard & Poor's. The LP&L revenue bonds are currently 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 81-86 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 3.8 percent. 'This is a decrease from a rate of 4.3 percent from the same month one year earlier. This compares favorably to the state's unemployment rate of 5.3 percent and the national rate of 4.8 percent for September 2005. • Retail sales figures are only available through the third quarter of FY 2004-05. Total retail sales reflected a 4.9 percent increase for that period over the same period in 2004. • The number ofbuilding pemrits for new construCtion decreased from 2,796 during FY 2003-04 to 2,222 in FY 2004-05, or about a 20.5 percent decrease. This compares to a 2.9 percent decrease during the prior period. Building pennit values for new construction decreased from $389.4 million in FY 2003-04 to $388.4 million in FY 2004-05, or about a 2 percent decrease. • Total occupancy in local hotels and motels improved and the local occupancy tax totaled nearly $3.3 million, a 14 percent increase over last fiscal year. • City Council again decided to support the operations of LP&L 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 tmtil such time as LP&L has adequate monetary reserves as set by City ordinance. All of these factors were considered in preparing the City of Lubbock's budget for FY 2005-06. During the just ended fiscal year, tmreserved fund balance in the General Fund increased by nearly $5.1 minion to $17.2 million compared to $12.1 million at the end of the prior fiscal year. It is intended that the unreserved undesignated ftmd balance be equal to 20% of operating revenues, which equates to approximately $17.6 million. The City ended the year nearly $ .4 million under this target. City Management anticipates meeting this goal in the next fiscal year. 33 ) ' ) \ ; ) City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2005 LP&L increased rates in May 2005 as follows; 15.5% for the larger commercial consumers, 12.3% for residential customers, and 13.0% for small commercial consumers as a result of higher than anticipated costs of power. · Both the Water and Sewer Funds rates were increased for FY 2003-04 and FY 2004-05. Water rates were increased by 3 percent and sewer rates were increased by 5 percent for all customers each year. The water and sewer rates affected both residential and commercial consumers by the same percentage. These rate increases were necessary to cover increased operating costs due to expanded capital replacement projects and the acquisition of additional water rights. 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 infonnation should be addressed to the Chief Financial Officert P.O. Box 2000, Lubboc~ Texas, 79457. 34 l I BASIC FINANCIAL STATEMENTS ( ( ( ' ) City ofLubbock, Texas Statement of Net Assets September 30, 2005 Primary Government Governmental Business--type Component ) ASSETS Activities Activities Total Units Cash and (liSb equivalents $ 20,720,923 $ 44,471,841 $ 65,192,764 $ 3,123,029 Investments 5,241,795 5,892,115 11,133,910 706,422 Receivables (Mt of allowance for uncoUeeti~) 13,835,367 25,648,568 39,483,935 796,745 Internal balance 6,076,822 (6,076,822) ) Due from other governments 6,009,023 6,009,023 ~e from others 1,897,124 1,513,965 3,4It,089 Inventories 181,358 2,596,308 2,777,666 93,821 Investment in propert)' 210,853 210,853 Ptepaid expenses 909,112 909,112 59,814 Restricted assets: Cash and cash equivalents 26,276,557 26,276,557 100,000 Investments 55,003,853 67,320,433 122,324,286 Accounts receivable 91,358 91,358 8,120,768 Mongage receivables 5,934,866 5,934,866 ) Capita! assets (net of accumulated dep~iation): Non-depR>Ciable 46,744,528 160,380,890 207,125,418 366,932 Depreciable 91,869,623 417,062,701 568,932,324 829,150 Defcm:d charges 3,211,110 3,211,110 Totalassecs 254,635,247 808,389,024 1,063,024,271 14,197,281 UABILITIES Accounts payable 8,016,664 17,436,412 25,453,076 1,185,956 AcetUed expenses 4,581,439 2,772,051 7,353,490 157,798 Accruccl interest payable 1,081,814 2,976,994 4,058,808 Customer deposits 200 2,304,900 2,305,100 Unearned revenue 3,156,602 14,697 3,171,.299 8,028,853 Noncurrent liabilities due within one year: Bonds payable 5,789,101 17,625,899 23,415,000 Compensated absences 5,723,349 2,207,245 7,930,594 Ac<:rued insurance claims 2,340,260 1,603,601 3,943,861 ) Capital leases payablefContracts payable 936,250 456,625 1,392,875 1,643,412 Noncumnt liabilities due in more than one year: Botlds payable 96,931,168 314,479,280 411,410,448 Defem:d premium on bonds 1,865,984 1,865,984 Compensated absence& 10,565,016 2,793,520 13,358,536 Accrued ii'IS'Lnllc:e claims 4,898,.297 4,898,297 ) Landfill closure and postclosure care 3,073,391 3,073,391 Capital leases payable/Contracts payable 3,018,635 897,951 3,916,586 12195,168 Total liabilities 144,006,482 373,540,863 517,547,345 12,211,187 NETASS£TS Invested in capital assets, net of related debt 82,330,195 363,226,855 445,557,050 1,196,682 Restricted for: Passenger facility charges 4,359,610 4,359,610 Debt service 2,624,340 21,916,947 24,541,287 Gmnt programs 6,145,719 6,145,719 Primal)' government agreement 100,000 Unrestricted 192528,511 4.5,344,749 64,873,260 689,412 Total net assets $ 110,628,765 $ 434,848,161 $ 545,476,926 $ 1,986,094 ) See accompanying Notes to Basic Financial Statements 35 : [ I City of Lubbock, Texas Statement of Activities For the Year Ended September 30, 2005 Primary government: Governmental activities: Administration/Community Services Street Lighting Financial Services Fire General Government Human Resources Police Planning and Transportation Public Works Interest on Long-Term Debt Total governmental activities Business-type activities: Electric Water Sewer Solid Waste Stormwater Transit Airport Total business-type activities Total primary government Component units: Civic Lubbock, Inc. Market Lubbock, Inc. Lubbock Economic Development Alliance Total component units Expenses $ 23,355,816 2,459,025 2,240,424 23,666,709 27,600,270 776,128 37,772,866 11,985,323 2,698,517 3,195,182 135,750,260 ) 92,902,041 28,737,866 17,804,487 14,695,193 5,585,577 9,003,610 8,150,815 276,879,589 $ 412,629,849 $ 1,888,596 2,608,975 3,031,818 $ 7,529,389 General revenues: Property taxes Sales taxes Oc<:upancy taxes Other Taxes Franchise Fees Investment Earnings Miscellaneous Charges ror Services $ 2,571,376 300 3,866,182 4,024,650 120,646 10,583,154 192,568,012 33,306,786 19,829,430 12,420,499 6,239,436 3,144,015 5,394,314 272,902,492 $ 283,485,646 $ 1,615,361 78,632 $ 1,693,993 Termination of interest rate swap Transfers, net ProgrAm Revenues Operating Grants and Contributions $ 6,792,134 5,965,621 517,857 19,970 13,295,582 6,964,325 1,191,690 8,156,015 $ 21,451,597 $ 5,320,871 3,483,960 $ 8,804,831 Total genereal revenues, special items, and transfers Change in net assets Net assets -beginning Net assets -ending See accompanying Notes to Basic Financial Statements 36 c Capital < Grants and Contributions $ ( 33,306 1,814,0 II 2,374,233 c 9832991 5,2052541 $ 5,205,541 ' $ $ c c c ) ) ) 'I ) ) ) Governmental Activities $ (13,992,306) (2,459,025) (2,240,424) (23,666,409) (17,768,467) (776,128) (33,230,359) (1 1,985,323) (2,557,901) (3,195,1822 (111,871,524) (J l1,871 ,524) 39,748,464 41,803,092 3,260,040 982,327 11,153,64) 1,633,312 4,109,474 15,468,765 118,159,115 6,287,591 104,341,174 $ 110,628,765 Net (Expenses) Revenues and ChaDges in Net Assets Primar:v Government Business~type Activities Totti $ $ (13,992,306) (2,459,025) (2,240,424) (23,666,409) (17,768,467) (776,128) (33,230,359) (11,985,323) (2,557,901) (3,195~ 182} (111,871,524) (300,723) (300,723) 6,382,931 6,382,931 4,399,176 4,399,176 (2,274,694) (2,274,694) 653,859 653,859 1,104,730 1,104,730 {580,820! (580,820l 9,384,459 9z384,459 9,384,459 (102,487,065) 39,748,464 41,803,092 3,260,040 982,327 11,153,641 3,758,240 5,391,552 1,387,914 5,497,388 (6,637,093) (6,637,093) (l5,468,765l ( 16,959, 704) 101,199,41 I (7,575,245) (1 ,287 ,654) 442,423,406 546,764,580 $ 434,848,161 $ 545,476,926 Component Units $ (273,235) 2,790,528 452,142 2,969,435 10,529 10,529 2,979,964 (993,870l $ J,986,094 37 : [ I City of Lubbock, Texas ' Balance Sheet Governmental Funds September 30, 2005 < Non-Major Total Governmental Governmental General Fund Funds Funds ASSETS Cash and cash equivalents $ 5,747,399 $ 12,430,465 $ 18,177,864 c Investments 1,513,176 3,330,647 4,843,823 Taxes reeeivable (net) 8,903,379 561,325 9,464,704 A«::unts receivable (net) 4,190,603 6,024 4,196,627 Interest receivable 32,727 21,945 54,672 Due from other funds 7,087,923 4,202,414 11,290,337 c Due from other governments 6,009,023 6,009,023 Due from others 722,145 1,148,131 1,870,276 Investment in property 210,853 210,853 Inventory 107,830 107,830 Restricted investments 50,584,201 50,584,201 ( Mortgage receivables 5,934,866 5,934,866 Total assets $ 28,305,182 s 84,439,894 $ 112,745,076 LJABILMES Accounts payable $ 1,326,745 $ 6,262,025 $ 7,588,770 ( Due to other funds 5,992,151 5,992,151 Accrued liabilities 4,150,068 392,727 4,542,795 Accrued interest payable 491,204 491.204 Deferred revenues 5,451,949 3,477,453 8z9292402 ' Total liabilities 10,928,762 16,615,560 27,544,322 FUND BALANCES Reserved for. Prepaid items/inventory 107,828 107,828 Debt service 2,624,340 2,624,340 Capital projects 50,391,187 50,391,187 Special revenue -grants 6,145,719 6.145,719 Unreserved, reported in General fund 17,268,592 17,268,592 c Special revenue funds 8,663,088 8,663,088 Total fund balance 17,376,420 67,824,334 85,200,754 Total liabilities and fund balances $ 28,305,182 $ 84,439,894 $ 112,745,076 c: See accompanying Notes to Basic Financial Statements 38 c ) ) ) ) City ofLubboek, Texas R~oociliation of the Balance Sheet of Governmental Funds To tbe Statement of Net Assets September 30, 2005 Total fund balance· governmental funds 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. 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 oftbe assets and liabilities of the ISF's primarily serving governmental funds are included in governmental activities in tbe statement of net assets as follows: Net assets Net book value of capital assets Compensated absences Amounts due from business-type ISFs for amounts uoderdlarged Certain li.abilities are not due and payable in the cum:nt period and therefore are not reported in the funds. Those liabilities are as follows: General obl.igation 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 contribu!ion. 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. 39 s 85.200,754 138,614,151 5,636,774 (1,072,813) 214,828 773,274 (1 02, 720,269) (3,954,887) (16,288,365) (590,610) (1,865,984) 909,112 5,772,800 110,628,765 [ City of Lubbock, Texas ' Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended September 30,2005 Non-Major Total Governmental Governmental General Fund Funds Funds REVENUES Taxes $ 68,716,601 $ 17,797,455 $ 86,514,056 Franchise Fees 6,693,209 4,460,432 11,153,641 ( Fees and fines 4,015,402 4,015,402 Licenses and pennits 1,953,666 1,953,666 Intergovernmental 480,648 12,814,933 13,295,581 Charges for services 4,070,642 543,440 4,614,082 Interest 349,236 805,103 1,154,339 ( Miscellaneous 1,506,315 3,268,281 4,774,596 Total revenues 87,785,719 39,689,644 127,475,363 EXPENDITURES Administratioc/community services 18,330,508 18,330,508 ( Street lighting 2,214,291 2,214,291 Financial services 2,139,492 2,139,492 Fire 21 ,943,267 21,943,267 General government 6,159,536 20,358,995 26,518,531 Human resources 740,826 740,826 Police 33,919,626 33,919,626 ( Planning and transportation 8,120,727 8,120,727 Non-departmental 445.251 445,251 Public works 2,657.218 2,657,218 Debt service: Principal 6,336,036 6,336,036 Interest and fiscal charges 3,031,751 3,031,751 Capital outlay 5,217,100 16,438,438 21,715,538 Total expellditurcs 991290,624 48,822,438 148,1 13,062 E.xcess (deficiency) of revenues over (under) expenditures (11,504,905) (9,1 32,794) (20,637,699) OTHER FINANCING SOURCES (USES) Long-tenn debt issued 45,110,000 45,110,000 Retirement of refunded debt (7 ,215,000) (7 .215,000) Bond premium (discount) 725,586 725,586 Capital leases issued 3,534,016 3,534,016 Transfers in 16,565,397 6,122,612 22,688,009 Transfers out (3,912,645) (2,827 ,526) (61740,171) Net other financing sources (uses) 16tl86,768 41,9151672 58,102,440 Net change in fund balances 4,681,863 32,782,878 37,464,741 Fund balances at beginning of year 12,694,557 35,041,456 47,736,013 Fuod balances at end of year $ 17,376,420 $ 67,824,334 $ 851200,754 See accompaning Notes to Basic Financial Statements 40 City of Lubbock, Texas Reconciliation of the Statement ofRevenues, Expenditures and Changes In Fund Balances of Governmental Funds To the Statement of Activities For the Year Ended September 30,2005 Net change in fund balances -tOllll governmental funds AmoiiJ\ts reported for ,governmental ac:tivities in the statement of ac:tivities are different because: Governmental fun cis report capital outlays as expenditures. However, in tbc Statement of Activities the cost of those assets is aU()(;Ilted over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays of $21,702,858 exoeeded depreciation of $11,595,992 in tbe current period. Bond proceeds provide current financial resources to govemmc.otal fimds, but issuing debt increases long- tenn liabilities in rhe Statement of Net Assets. Repayment of bond principal is an expenditure in the governmental fUnds. bur the repayment reduces long-te.nn liabilities in the Statement of Net Assets. This is the amount by wbich proceeds of$45,110,000 exceeded repayments and debt defeasence of$12,619,948. Capital Jease transactions provide current financial resources to governmental funds and repayment of principal is an expendi~. This is the amount by which proceeds of$3,534,016 exceeded repayments of $940,086. Bond premiums are recognized as an other financing source in the governmental funds, but are considered defem:d assets on the Statement ofNet Assets. Premiums are amortiZJ:d over the life of the bonds. This is the amount by which bond premiwn issued of $725,586 exceeded amortization of$39 ,324. Estimated lon,g-term liabilities for compensated absences are recognized as expenses in the Statement of Activities as earned, but are recognized when current fmancial resources are used in the governmental funds. This amowlt is the net chan£e in the estimated long-term liabiJity for compensated absences during the year. Property taxes levied md court fines and fees earned, but not available, are deferred in the governmental funds, but are recognized when earned (net of estimated uncollectibles) in the Statement of Activities. This amount is the net change in deferred property taxes and court fines and fees for the year. Actual City conlributions to the fire fighter's pension trust fund are greater than the actuarially detennined Net Pension Obligation (NPO). This amount is recognized as an expenditure at the fund level but is accrued wben overpaid and reduces expenses on the Statement of Activities Internal service funds are used by management to charge the costs of certain activities, such as insurance and celeconununications, to individual funds. The net revenue (expense) of cenain internal servioe funds is reponed with governmental activities. Accrued interest is recognized as expenses in the Statement of Activities as incurred, but is recognized when current imancial resource$ are used in the governmental funds. This amount is the net change in the accrued interest this year. The ne1 effect of various miscellaneous transactions involving capital assets (e.g., sales and trade-ins) is to decrease net assets. Cbange in net assets of governmental activities See a«ompanying Notes to Basic Financial Statements. 41 $ 37,464,741 10,106,866 (32,499,052) (2,593,930) (686,262) {I ,348,546) (1,177,369) 11,464 (2,561,821) (202,755) (225,745) $ ll ( ( -} ( 42 \ ) ' .., ) \ City of Lubbock, Texas Budget Comparison Statement General Fund For the Year Ended September 30, 2005 Original Budget REVENUES Taxes $ 67,662,817 Franchise Fees 6,490,916 Fees and fines 3,675,500 Licenses and permits 1,954,759 Intergovernmental 385,304 Charges for services 4,597,064 Interest 264,230 Miscellaneous lz063,508 Total revenues 86,094,098 EXPENDITURES Administration/community services 18,339,305 Street lighting 2).70,937 Financial services 2,288,879 Fire 21,862,118 General government 5,960,400 Human resources 722,083 Police 33,783,644 Planning and transportation 7,782,461 Non-departmental (1,391,429) Capital outlay 473,141 Total expenditures 92,091,539 Excess (deficiency) of revenues over (under) expenditures ~5,997,44Q OTHER FINANCING SOURCES (USES) Capital leases Transfers in 11,925,222 Transfers out ~5.927,782~ Net other financing sources (uses) 5,997,440 Net change in fund balances (1) Fund balances at beginning of year 12,694,557 Fund balances at end of year 12,694,556 Sec accompaning Notes to Basic Financial Statemeots 43 $ $ Variance wilh Final Budget - Positive Final Budget A<:tual Amounts (Negative) 67,662,817 $ 68,716,601 $ 1,053,784 6,490,916 6,693,209 202,293 3,675,500 4,015,402 339,902 1,954,759 1,953,666 (1,093) 391,664 480,648 88,984 4,179,364 4,070,642 {108,722) 264,230 349,236 85,006 1,063,508 1,506,315 44~807 85,682,758 87,785,719 2,102,961 18,311,655 18,330,508 (18,853) 2,270,937 2,214,291 56,646 2,288,879 2,139,492 149,387 21,935,828 21,943,267 (7,439) 6,070,400 6,159,536 (89,136) 792,083 740,826 51,257 34,171,843 33,919,626 252).17 8,146,421 8,120,727 25,694 (689,562) 445,251 (1,134,813) 2,381,141 5,277,100 (2~895,959~ 95,6791625 99,290,624 {3,610,999! (9,996,867) {I 1,504,905~ {1,508,038! 3,534,016 3,534,016 16,520,075 16,565,397 45,322 (32803,25 1! {3,912,645) {109,394~ 12,716,824 16,186,768 3,469,944 2,719,957 4,681,863 1,961,906 12,694,557 12,694,557 1514141514 $ 17,376,420 $ 1,961,906 l I City of Lubbock, Texas Statement of Net Assets Proprietary Funds September 30, 2005 ASSETS CUrrent assets: Cash and cash equivalents Investments Accounts receivable Interest receivable Due from others Due from other funds Inventories Total current assets Noncurrent assets: Restricted cash and cash equivalents Restricted investments Restricted interest receivable Restricted accounts receivable Deferred charges Capital assets: Land Construction in progress Buildings Improvements other than buildings Machinery and equipment Less accumulated depreciation Total capital assets Total noncurrent asse1s Total Assets $ $ See accompanying Notes to Basic Finan cia) Statements LP&L 11,629,589 3,094,677 15,203,375 19,267 255,509 30,202,417 5,588,827 4,583,485 3,21 1,110 756,714 12,248,738 8,054,811 169,337,586 49,137,805 {100,389,815} 139,145,839 152,529,261 182,731,678 44 ( Enterprise Funds ( Water Sewer WTMPA ( $ 5,205,156 $ 3,834,.508 $ 1,663,523 186,781 1,027,426 4,113,761 2,324,999 1,096,068 19,769 9,131 ( 42,444 11,299,440 215,806 9,783,717 7,196,064 14,059,031 ( 7,781,030 3,312,987 14,106,757 7,999,160 472 22,179 26,164 ( 12,724,350 12,578,774 50,601,987 6,893,669 21,570,924 23,862,871 222,401,681 109,746,495 25,200 ( 20,304,008 16,075,017 {83,351,900) ~58,91 0,186) ~25,200~ 244t2S 1,050 110,246,640 266,161,488 121,584,951 $ 275,945,205 $ 128,781,015 $ 14,059,031 ) Stormwater $ 12,208,148 454,334 656,534 ;"\ " 5,902 13,324,918 ) 4,548,392 25,629,786 10,856 ) 283,337 51,964,007 ) 64,580 8,158,852 2,766,421 {8,915,041~ 54,322,156 84,511,190 s 97,836,108 $ $ Enterprise Funds Non-Major Enterprise Funds 8,041,256 765,249 2,184,286 12,667 1,471,521 51,814 6082445 13,135,238 5,045,321 6,825,808 16,243 5,605,535 6,059,823 41,865,343 95,430,523 48,457,729 {109,764,554~ 87,654,399 99,541,771 112,677,009 Total Enterprise Internal Funds Service Funds $ 42,582,180 $ 4,432,716 5,528,467 761,620 25,579,023 1,818 66,736 8,078 1,513,965 26,848 11,351,254 5,367 1,079,760 1,590,076 87,?01,385 6,826,523 26,276,557 59,144,996 12,595,089 27,571 20,656 48,343 107,063 3,211,110 31,948,710 65,343 127,768,224 1,100,582 95,418,529 1,608,618 605,100,337 628,868 136,740,980 7,898,666 {361,356,696) (8,405,774~ 635,620,084 2,896,303 724,328,661 15,619,111 $ 812,030,046 $ 22,445,634 45 City of Lubbock, Texas Statement of Net Assets Proprietary Funds September 30, 2005 LIABILITIES Current liabilities: Accounts payable Accrued liabilities Accrued interest payable Due to other funds Customer deposits Compensated absences Lease payabJe Bonds payable Total current liabiJities Noncurrent liabilities: Compensated absences Deferred revenues Accrued Insurance Claims Landfill closure and post closure care Contracts and leases payable Bonds payable Total noncurrent liabilities Total Liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for: Passenger faciHty charges Debt service Unrestricted Total Net Assets $ $ See acrompanying Notes to Basic Financial Statements LP&L 809,810 1,304,l02 1,236,712 11,299,440 2,268,773 1,038,245 8,780 5,425!000 23,390,862 1,305,704 81,239 64,701,763 66,088,706 89,479,568 73,512,542 5,588,827 14,150,741 93,252z110 46 Enterprise Funds Water Sewer WTMPA ( $ 882,905 $ 364,840 .$ 12,745,213 172,906 108,770 986,739 248,821 c 29,355 403,463 192,771 195,525 5,911,004 3!932,162 c 8,386,372 5,042,889 12.745,213 513,498 245,345 c 222,387 122,319,849 43z875,658 122,833,347 44,343,390 c 131,219,719 49,386,279 12,745,213 130,126,954 70,118,108 7,781,030 3,312,987 6,817,502 5,963,641 1,313,818 c $ 144,725,486 $ 79,394,736 $ 1,313,818 c c ) ) Storm water ) $ 880,091 $ 23,318 429,758 4,500,000 36,290 1,355,000 7,224,457 :-. 46,188 ;,1 ) 70&296!817 70,343,005 77,567,462 ) 8,300,125 4,548,392 7,420,129 $ 20,268,646 $ ) Enterprise Funds Non-Major Enterprise Funds 901,608 1,064,084 74,964 855,367 6,772 347,141 252,320 1,002,733 4,504,989 441,815 14,697 3,073,391 594,325 13,285,193 17,409,421 21,914,410 79,345,636 4,359,610 685,711 6,371,642 90,162,599 Total Enterprise Internal Funds Service Funds $ 16,584,467 $ 1,279,836 2,673,180 137,515 2,976,994 16,654,807 2,304,900 200 2,017,910 264,524 456,625 17~625,899 61,294,782 1,682,075 2,552,550 380,609 14,697 8,842,158 3,073,391 897,951 314,479,280 321,017,869 9,222,767 382,312,651 10,904,842 361,403,365 2,896,303 4,359,610 21,916,947 42,037,473 8,644,489 $ 429,717,395 $ J 1,540,792 47 : l I ' ' c c c c c < c c 48 ) ' ) ) ) ) ) City of Lubbock, Texas Reconciliation of the Statement of Net Assets -Proprietary Funds To the Statement of Net Assets September 30, 2005 Total net assets -proprietary funds Amounts reported for business-type activities in the Statement of Net Assets are different because: Jntemal service funds (ISFs) are used by management to charge the costs of certain activities, suc:b as insurance and telecommunications. to individual funds. The portion of assets and liabilities of the lSFs primarily serving enterprise funds are included in business-type activities in the Statement ofNet Assets as follows: Net assets of business-type ISFs Amounts due to govemmentaiiSFs for amounts overcharged Net assets of business-type activities See accompanying Notes to Basic Financial Statements. 49 $ 429,717,395 5,904,018 (773,252) $ 434,848,161 : ll City of Lubbock, Texas ' Statement of Revenues, Expenses and Changes in Fund Net Assets Proprietary Funds For Fiscal Year Ended September 30,2005 Enterprise Funds LP&L Water Sewer WTMPA OPERATING REVENUES Charges for services $ 180,549,258 $ 33,500,269 $ 19,.929,559 $ 158,128,217 ' Provision for bad debts \ {789z632~ (193,483} {100,129} Charges for Services (net) 179,759,626 33,306,786 19,829,430 158,128,217 Miscellaneous Total operating revenues 179,759,626 33,306,786 191829z430 158,128,217 c OPERATING EXPENSES Personal Services 9,921,315 5,423,288 3,537,639 405,974 Insurance Supplies 585,433 992,173 724,106 Materials < Maintenance 1,575,709 2,171,179 1,137,176 Purchase of fuel and power 146,980,186 157,964,087 Collection expense 1,460,411 910,539 Other services and charges 5,007,907 7,572,617 4,555,055 261,920 Depreciation and amortization 9,192,618 5,950,415 5,096,596 614,787 c Total operating expenses 173,263,168 23,570,143 15,961,111 159,246,768 Operating income (loss) 6,496,458 9,736,643 3,868,319 (1,1 18,551) NONOPERATING REVENUES (EXPENSES) ' Interest earnings 348,637 788,431 165,758 537,249 Passenger facility charges/Federal grants Disposition of assets (1,372,588) (174,325) (10,636) Miscellaneous 1,396,843 269,718 222,528 Pass-through grant payments ( Interest expense on bonds (2,828, 762) (4,632,649) (1,747,911) (1,205,2462 Net non-operating revenues (expenses) (2,455,870} (3,748,825) (1 ,370,261) (667,997) Income (Joss) before contributions and transfers 4,040,588 5,987,818 2,498,058 (1,786,548) I' Capital contn"butions 33,306 1,814,011 2,374,233 Operating transfers in 25,000 147,802 5,000,000 306,756 Operating transfers out (1,103,687) (4,536,812} (2,504z8672 Change in net assets before special item 2,995,207 3.412,819 7,367,424 (1,479,792} Termination of interest rate swap (6,637,093) ,. Change in net assets after special item 2,995,207 (3,224,274) 7,367,424 (1,479,792) .. Total net assets -beginning 90,256,903 147,949,760 72,027,312 2,793,610 Total net assets-ending $ 93,252,110 $ 144,725,486 $79,394,736 $ 1,313,818 See accompanying Notes to Basic Financial Statements. 50 c ) c ( ( c ' c ' c ' 52 c ) City ofLubboek, Texas Reconciliation of the Statement of Revenues, Expenses, and Changes in Fund Net Assets -Proprietary Funds To the Statement of Activities ) For the Year Ended September 30, 2005 ) ) ) ) ) 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 infonnation 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 $ (2,433,900) (5.141,345) $ (7.575,245) : l I City Of Lubbock, Texas Statement of Cash Flows ( Proprietary Funds For the Year Ended September 30, 2005 WtstTCIN Mwdc:ipal J'owcr LP&L Wacer Sewv AC!119'(WTMPA) ' CASH FLOWS fROM OPERATING ACTIVITIES Rcceipcs li'om eustomcl'l s ln,948,699 s 33,128,784 s 19,860,901 s 79;215,163 Payments to 5Upplicn (1 49,058,292) (12,126,758) (7 ,292,188) (78,733,1 70) P~ to emplo)'Ce! (9,5 18,796) (5,214,701) (3,40\,576) Othcrm:eipls ~) 24~55 95395 211,892 Net~ provided (uKd) by opcnlling aetivitior 19,395,866 15,882,720 9,379,029 542 593 c CASH FLOWS FROM NONCAPITAL AND RILA TID FINANCING ACTMTIES Transfcn in &om Oilier 1\u>ds 25,000 147,802 5,000,000 306,756 Tnosfen 0111 to other funds (1 ,103,687) (4,536,812) (2,504,867) Sbort-lerm intcmnd bonowinas 261,500 Adv..._ &om (to) olhcr funds Opc;ratms snnta c Payments teceivcdl(m&de) on advances (to)lfrom other funds Net cash provided (used) by noneapital and telated financing aecivities {1 ,078,6871 {4,127,510} 2,495,133 306 756 CASH FLOWS 11ROM CAPITAL AND RELATED FINANCING ACTMTIES Pun:hase:s of capital a.sseu (9, 790,539) (28,861,654) (6, 157,776) Sale of capilal assels 2,325,341 1,447,215 514,740 -c R.cceipts(paymenta) on leases {20.204,792) (239,579) 762,498 Principal ~icl oo bonds and other debt (3,770,000) (72,062,5 19) (11,556,800) (1,0<»,562) Bond issuaneo corr paid (940,181) (2,897,423} (412,815) lntetC$1 ~id on = bonds (2,194,143) (I ,853,060) (638,746) Interest paid 011 bonds and ocher debt (2,493,668) (1,621,336) lssuiiiCC ofrevenae, G.O. boods, ...0 capilal leases 27,055,869 92,461,132 15,444,730 p_,... facitity clwscslcapiuJ.,....IS c Termination of interest nile 5WBJI (6,637,093) Cootnouu:d eapiul 33,306 1,153J97 2,003,398 Net cash provided (U!Cd) for capital md JCl.oled financiag activities (7,485,139~ {19,743,673~ {2,025,438} {885,810~ CASH FLOWS FROM INVESTING AcnVJnES Proceeds from sales aJid moturities of invUIInel1ts 4,565,426 1,401,002 PIIR:buo of in¥e$tmCIII$ (6,588,009) (767,714) (7,412,574) -, lntemt car11inp on cash and investments 339,521) 8Q6,393 J63J22 21 811 Net cash provided by (used for) investing activities (I 1683,063~ 1 .• 439 686 (7~49~52~ 21 811 Net~ (decrease) in cash and \OUb cquM!ent.s 9,148,977 (6,548,777) 2,599,472 (14,650) Cash and a.sll equillltlcnt.s -begjzminJ of yeM 8,069,439 19,534,963 4248,023 1678173 c-. and caslz equi~ts -llld of year $ 17,218,416 $ 12,986,186 $ 7,147,495 $ 1 663 523 I" ' RecoDcilia~011 of operalil'l& inCDIIIt (IOJS) to net casta provided (ll$ed) by opcratiR& activities! Operating ineome (loss) s 6,496,458 s 9,736,643 $ 3,868,319 $ (1,1 18,551) Adjustmei!Cs to rceoodle operating i11come (loss) to ott cash provided (used) by operating activities: Dep=iation and llllloroz.rion 9,192,618 5,950,475 5,096,596 614,787 Other iocomc (cJI'PO'I$C) 24,255 95,393 211,893 Change in CU~nJ~I J$$CIS and liabililie$: Accounts rec:eiVIblc (1,810,927) (178,002) 31,471 (5,502,549) Inventory (222,528) (45,323) Prepaid expenses Due &om o«h.,. governments I 1,299,440 (14,363) AtX:Ounls paymle (7,706,598) 152,520 140,196 6,133,238 Other accrued expcn<es 288,471 5,920 (35,237) 415,668 Customer deposits 1,299,084 4,640 -c Increase ( d.,....uc) in oompcn.satcd absences S3S 593 174 SIS 65792 Net cash provided (wed) by opcnttms activities $ 19,395,866 $ 15,882,718 s 9,379,030 $ 542 593 S..pplemeat:al cash Bow inform•tion: Noru:asb capital improvement$ and other <hlii>80S s $ 660,614 $ 370,834 s See IIC<:OIIIpan)'ing Notes to Basic fiaancial Statemcnu. ,. 54 \. ) Eu~UJ~rise F.....ts Ochn Noam.ajor lolllraal Enterprise s.mu ) Sl..,.watcr JliiiUis Tobls F"""s s 6,28&,501 $ 21,001,046 $ 337,503,694 s 38,389,571 (169,004) (11,503,229) (258,882,641) (36, 750,900) (728,181) (10,651 ,579) (29,514,833) (5,061 ,388) (1,981} 1414704 1,744,265 11,892 5,389,335 260942 S0,850A8S (3,41 0,825) 128,586 1,564,299 7,172,443 157,638 (991,066) (9,332,457) (I 8, 468,889) (4,809,030) 4,500,000 143,867 4,905,367 (13,402) (5,361) 5,629,370 5,629,370 1 023 706 1,023,706 3 637 520 {971,215) 261997 (4,670,161) (9,086,984) ( 6, 772,784) (60,669,737) (38,884) 8,920 1,106,740 5,402,956 194,264 (19,681 ,873) (12,101,350) (3,714,091) (104,214,322) (851,393) 223,181 (4,878,631) (3,200,696) (7,886,645) (452,390) (4,567 ,394) I 1,522,003 5,641,81 I 152,125,545 1,191,690 1,191,690 ( 6,637,093) 983991 4,174,092 (13,709,500) (1,791,852) (45,641,412) ISS 380 1,360,757 4,532,944 11,860,129 7,070,785 (4,431,913) (307,309) (19,507,519) (814,206) 1,176,796 545 'J76 3,053,823 743,044 {1,894,360l 4,771,611 (4,593,5622 6,999,623 (6,577,005) 2,269,486 877,503 (925,983) 23,333,545 10817091 67,981,234 5,358,699 $ 16,156,540 $ 13086577 $ 68,858,737 s 4,432,716 $ 3,977,961 $ (10,593,828) s 12,367,002 s (3,697,099) 546,314 9,470,382 30,871,172 350,833 (1,934) 1,342,264 1,671,821 11,892 49,065 42,217 (7 ,368, 725) (33,445) (140,888) (408,739) (5,996) (432,256) 10,852,821 825,706 (255,606) (710,544) (106,302) (I 8,541) 658,399 1,314,680 37,299 650 1,304,374 10 811 169607 956618 31993 $ 5,389,332 s 260,941 s 50,850,480 s (3,410,825) s s $ 1,031,443 $ 55 [I 1 City of Lubbock, Texas Statement of Fiduciary Net Assets Fiduciary Funds September 30, 2005 ASSETS Cash and cash equivalents Investments. at fair value: Total Assets LIABILmES Accounts payable Total Liabilities See accompanying Notes to Basic Financial Statements. 56 ( ( Ageney Fund c $ 1,099 73 $ 1,112 c $ 1,)72 $ 1,172 c c c c c 0 c ) ) ) ) City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Basic Financial Statements (BFS) of the City of Lubbock, Texas (City) have been prepared in confonnity with Accounting Principles Generally Accepted in the United States of America (GAAP) as applied to govenunent units, including specialized indusfly practices as specified in the American Institute of Certified Public Accountants audit and accounting guide titled State and Local Governments. The Governmental Accounting Standards Board {GASB) is the acknowledged standard-setting body for establishing governmental accounting and financial reporting principles. With respect to proprietary activities related to business-type activities and ente~prise funds, including component units, the City applies all applicable GASB pronouncements as well as Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting Principles Board (APB) Opinions and Accounting Research BuJietins of the Committee on Accounting Procedure, issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. The more significant accounting policies are described below. A. REPORTING ENTITY The City is a municipal corporation governed by a Council-Manager fonn of government. Tbe City, inco~porated in 1909, is located in the northwestern part of the state. The City currently occupies a land area of I 19.1 square miles and serves a population exceeding 211,000. The City is empowered to levy a property tax on both real and personal properties located within 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 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, sewer, and stonnwater as wen as a public transportation system. The BFS present the City and its component units and include all activities, organizations, and functions for which the City is considered to be financially accountable. The criteria considered in detennining activities to be reported within the Cityts BFS are based upon and consistent with those set forth in the Codification of Governmental Accounting Standards. Section 2100. "Defining the Financial Reporting Entity." 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 • !~ere is flScal dependency by the organization on the City. As required by GAAP, 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 are such that exclusion could cause the City's BFS to be misleading or incomplete. 57 ; l I City ofLubbock, Texas Notes to Basic Financial Statements September 30, ZOOS NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POUCIES (Continued) A. REPORTING ENTITY (Continued) BLENDED COMPONENT UNITS The Urban Renewal Agency (URA) bas been included in the City's financial reporting entity within the primary government using the blended method because, although it is legally separate, its operations are so intertwined with the City that it is, in substance, a part of the City. The URA was formed to provide urban renewal services 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. There are no separate financial statements available for the URA. West Texas Municipal Power Agency (WTMPA) is a legally separate municipal corporation, a political subdivision of Texas, and body politic and corporate, formed in 1983, governed by a Board of eight directors who serve without compensation. WTMPA has no employees and instead contracts with the City for general operations. WTMPA may engage in the business of generation, transmission, sale, and exchange of electric energy to the four participating public entities: Lubbock, Tulia, Brownfield, and Floydada. WTMPA may also participate in power pooling and power exchange agreemen1S with other entities. WTMPA 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 WfMPA board, however an affumative vote of the "'majority in interest" 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 the City purchases approximately 88.5o/o of the electricity brokered, WTMPA provides services almost exclusively to the City and is therefore presented as a blended enterprise fund . Their separate audited financial statements may be obtained through the City. 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 are legally separate from the City. The following Component Units are included in the reporting entity because the primary government is financially accountable, is able to impose its will on the organization, or can significantly influence operations and/or activities 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, intellectual, physical improvement, and welfare of the citizens of Lubbock and its surrounding area. The seven-member board is appointed by the City Council. City Council approves the annual budget. Separate financial statements for Civic Lubbock maybe obtained from them at 1501 6,.. Street., Lubbock, Texas. Market Lubbock &onomic 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 allocations of the City's property and hotel occupancy taxes. Separate financial statements may be obtained from Market Lubbock at 130 I Broadway, Suite 200, Lubbock, Texas. 58 ( ' c ( c ( ( c c ) ) ) ) ) City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) A. REPORTING ENTITY (Continued) Lubbock Economic Development Alliance is a legally separate entity that was fonned on June 1~ 2004 by the City of Lubbock to create, manage and supervise programs and activities to promote, assi~ and enhance economic development within and around the City. The City Council appoints the five (5)-member board and its operations are funded primarily through budgeted aJlocations of the City's sales and use taxes. Separate financial statements may be obtained from Market Lubbock at 1301 Broadway, Suite 200, Lubbock, Texas. RELATED ORGANIZATIONS The City Council is responsible for appointing the members of the boards of other organizations but the City's accountability for these organizations does not 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 constitute indebtedness of the City. The following Related Organizations are not included in the reporting entity: The Housing Authority of the City of 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 Corporationt Inc. was fonned pursuant to the Texas Housing Finance Corporation Act, to fmance the cost of decent, safe, and affordable residential housing. The Mayor appoints the seven-member board. North and East Lubbock Community Development Corporation (CDC) was formed from the recommendation 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, generating economic activity, and coordinating the efficient delivery of social services. The City Council appoints two members of an eleven-member board. The City Council is not able to impose its win on the entity and there is no financial benefit/burden relationship. The Lubbock Education Facilities Authority, Inc. is a non-profit corporation and instrumentality of the City and was created 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 faciUties. The seven-member Board is appointed by the 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 State of Texas for purposes of providing retirement benefits for the City's f!lefighters. The Mayor's designee, the Cash and Debt Manager, three firefighters elected by members of the Pension Trust Fund and two at-large members elected by the Board. govern its affajrs. It is funded by contributions from the ftrefigbters and City matching contributions. As provided by enabling legislation. the City's responsibility to the Pension Trust Fund is limited to 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 : II City ofLubboc~ Texas Notes to Basic Financial Statements September 30, 2005 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) B. 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 Management's Discussion and Analysis -for State and Local Governments, GASB Statement No. 37-Basic Financial Statements -and Management's Discussion and Analysis -For State and Local Governments -Omnibus, GASB Statement No. 38 -Certain Financial Statement Note Disclosures, and GASB Interpretation No. 6 -Recognition and Measurement of Certain Liabilities and Expenditures in Gavemmenlal Fund Financial &aJements. As specified by Statement No. 34, the Basic Financial Statements (BFS) include both Government-Wide and Fund Financial Statements. In FY 2005 the City adopted the provisions of GASB Statement No. 40 -Deposit and Investment Risk Disclosures. This new standard revises the existing requirements regarding disclosure of custodial credit risk and establishes requirements for disclosures regarding credit risk, concentration of credit risk, interest rate risk and foreign currency risk. Adoption of GASB Statement No. 40 had no effect on net assets and change in net assets in the prior or current year. The Government-Wide Financial Statements (GWFS) (i.e., the Statement of Net Assets and the Statement of Activities) report information on aU 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 effect of interfund activity has been removed from these statements by allocation of the activities ofthe various internaJ service funds to the governmental and business--type activities on a fund basis based on the predominant users of the services. Governmental activities, which are primarily supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. All activities, both governmental and business-type, are reported in the GWFS using the economic resources measurement focus and the accrual basis of accounting. which includes long-term assets and receivables as well as long-term debt and obligations. The GWFS focus more on the sustainability of the City as an entity and the change in aggregate financial position resulting from the activities of the fiscal period. The Govenunent-Wide Statement of Net Assets reports all financial and capital resources of the City, excluding those reported in the fiduciary fimd. It is displayed in the fonnat of assets less liabilities equals net assets, with the assets and liabilities shown in order of their relative liquidity. Net assets are required to be displayed in three components: (I) invested in capital assets net of related debt, (2) restricted, and (3) unrestricted. Invested in capital assets net of related debt equals capital assets net of accumulated depreciation and reduced by outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Restricted net assets are those with constraints placed on their use by either: (1) externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments; or (2) imposed by law through constitutional provisions or enabling legislation. All net assets not otherwise classified as invested in capital assets net of related debt or restricted. are shown as unrestricted. Reservations or designations of net assets imposed by the City, whether by administrative policy or legislative actions of the City Council that do not otherwise meet the definition of restricted net assets, are considered unrestricted in the GWFS. The Government-Wide Statement of Activities demonstrates the degree to which the direct expenses for a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include, (I) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment; and (2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment Taxes and other items not properly included among program revenues are reported instead as general revenues. The general revenues support the net costs of the functions and segments not covered by program revenues. 60 ( ( c ( c ( c ( c c c ) ) ) ) ) ) J ) City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE I. SUMMARY OF SIGNlli'ICANT ACCOUNTING POLICmS (Continued) B. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS (Continued} Also pan of the BFS are Fund Financial Statements (FFS) for governmental funds, proprietary funds, 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. GASB Statement No. 34 sets forth minimum criteria for determination of major funds, i.e .• a percentage of assets, liabilities, revenue, or expenditures/expenses of fund category and of the governmental and enterprise funds combined. However, it also gives governments the option of displaying other funds as major funds. The City can elect to add some funds as major funds because of outstanding debt or conununity focus. Major individual governmental funds and major individual enterprise funds are reported as separate coJWlUlS in the FFS. Other non-major funds are combined in a single colwnn in the appropriate FFS. C. MEASUREMENT FOCUS. BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION Fund Financial Statements The GWFS are reported using the economic resources measurement focus and the accrt1al basis of accounting, as are 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 assets and liabmties, this fund does not have a measurement focus. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements have been met. 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 the consolidation for the GWFS, but are included in the fund columns in the proprietary FFS. The effect of inter-fund activity has been eliminated from the GWFS. Exceptions to this general rule are payments-in-lieu of taxes and other charges between the City•s electric, water and sewer functions and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. For instance, 88.5% of the operations of WTMP A representing transactions between WTMP A and Lubbock Power & Light have been eliminated for the GWFS presentation and for the electric BT A. Governmental FFS are reported using the current financial resources measurement focus and the modified accrual basis of accounting. This is the traditional basis of accounting for governmental funds. This presentation is ne<::essary, (I) to demonstrate legal and covenant compliance, (2) to demonstrate the sources and uses of liquid resources, and (.3) to demonstrate how the City's actual revenues and expenditures conform to the annual budget. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available, generally, if they are collected within 45 days of the end of the current fiscal period, with the exception of sales taxes which are considered to be available if they are collected within 60 days of year end. The City considers the grant availability period to be one year for revenue recognition. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as weJJ as expenditures related to compensated absences, and cJaims and judgments are recorded only when the liability has matured. Because the governmental FFS are presented on a different basis of accounting than the GWFS, reconciliation is provided immediately following each fund statement. These reconciliations explain the adjustments necessary to convert the FFS into the governmental activities column of the GWFS. 61 : [ I City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE 1.. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. MEASUREMENT FOCUS. BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION {Continued) Property taxes, sales taxes, franchise taxes, occupancy taxes, grants, licenses, court fines, and interest associated with the current fiscal period are all considered to be susceptible to accrual and have been recognized as reveJllles of the current fiscal period. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptJ.ble to accrual as revenue of the cWTent period. All other revenue items are considered to be measurable and available only when the City receives cash. Fund Accounting 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 fmancial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts, which includes assets, liabilities, fund balance/net assets, revenues and expenditures/expenses. Governmental funds are those through which most of the governmental functions of the City are financed. The City reports one major governmental fund: 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 to be accounted for in another fUnd. Enterprise Funds are used to account for operations: (1) that are financed and operated in a manner similar to private 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 continuing basis be financed or recovered through user charges; or {2) where the governing body has decided that periodic determination 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 Electric 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 (WfMPA) Fund 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 l 1.5% ownership. The Stormwater Fund accounts for the activities of the stormwater utility, which provides stormwater drainage for the City. 62 ( ( c c c c c c c c c ) ) ) ) City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. MEASUREMENT FOCUS. BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION (Continued) The City reports tbe foJlowing non-major funds: Governmental Funds Special Revenue Funds are used to account for the proceeds of specific revenue sow-ces (other than special assessments or major capital projects) that are legally restricted to expenditures for specified purposes. The Debt Service Fund is used to account for the accumulation of resources for, and the payment of, general long-term obligation principal and interest (other than debt service payments made by proprietary funds). Capital Projects Funds are 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). Proprietary Funds distinguish operating revenues and expenses from non-<~pernting items. Operating revenues and expenses generally result ftom providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operntions. 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 cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are 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 reimbursement basis (i.e., Fleet Maintenance Fund, Central Warehouse Fund, Print Shop Fund, Self-Insurance Fund, etc.). Enterprise Funds are used to account for services to outside users where the fuU cost of providing services, including capital, is to be recovered through fees and charges, e.g., Lubbock Preston Smith International Airport (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. D. BUDGETARY ACCOUNTING The City Manager submits a proposed operating budget and capital improvement plan to the City Council annually for the upcoming fiscal year. Pubfic hearings are conducted to obtain taxpayer comments, and the budget is legally enacted through passage 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 authorized supplemental appropriations to tbe annual budget during the fiscal year. The operating budget is adopted on a basis consistent with GAAP for the General Fund. Budgetary control is ll)aintained at the department level in the following expendirure categories: personnel services. supplies, other charges, and 63 ~ II City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE I. SUMMARY OF SIGNmCANT ACCOUNTING POUCIES (Continued) D. BUDGETARY ACCOUNTING (Continued) capital outlay. Management may make administrative transfers and increases or decreases in accounts within categories, as long as expenditures do not exceed budgeted appropriations at the fund level, the legal level of control. All annual opemting appropriations lapse at 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 tax levy for a sinking fund (Genellll Obligation Debt Service) which, with cash and investments in the fund, is sufficient to pay all debt service due during the fiscal year. E. ENCUMBRANCES At the end of the fiscal year, encumbrances for goods and services that have not been received are canceled. At the beginning of the next fiscal year, management reviews al1 open encumbrances. During the budget revision process, encumbrances may be re-established. On October I. 2005, the GeneraJ Fund had no significant amounts of open encumbrances. F. ASSETS, LIABILITIES AND FUND BALANCE/NET ASSETS Equity in Casb and Investments-The City pools the resources of the various funds in order to tacllitate the management of cash and enhance investment earnings. Records are maintained which reflect each fund's equity in the pooled account. The City's investments are stated at fair value, which is based on quoted market prices as of the valuation date. Cash Equivalents -Cash equivalents are defined as short-term highly liquid invesbnents that are readily convertible to known amounts of cash and have original maturities of three months or less when purchased which present an insignificant risk of changes in value because of changes in interest rates. Investments -Investments include securities in the Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, and Federal National Mortgage Association. Restricted investments include cash equivalents and investments that have been restricted for bond financed capital projects and money restricted for claims in the Risk and Health Insurance Funds. Property Tax Receivable -The value of all real and business property located in the City is assessed annuaUy on January t in confonnity with Subtitle E of the Texas Property Code. Property taxes are levied on October 1 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 considered delinquent if not paid before February I. Therefore, at fiscal year end all property taxes receivable are delinquent, but are secured by a tax Jien. At the GWFS level, property tax revenue is recognized upon levy. In governmental funds, the City records property taxes receivable upon levy and defers tax revenue until the taxes are collected or available. For each fiScal year, the City recognizes revenue in the amount of taxes collected during the year plus an estimate of taxes to be collected in the subsequent 45 days. The City allocates property tax revenue between the General, certain Special Revenue, and 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 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. 64 ( ( ( ( c c c c c c c ) ..., , City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POUCIES (Continued) F. ASSETS, LIABILITIES, AND FUND BALANCE/NET ASSETS (Continued) Enterprise Funds Receivables· Within the Electric, Water, Sewer, and WTMPA Enterprise Funds, services rendered but not billed as of the 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 net of an allowance for uncollectib)e accounts. Inventories -Inventories consist of expendable supplies held for consumption. Inventories are valued at cost using the average cost method of valuation, and are accounted for using the consumption method of accounting, i.e., inventory is expensed when used rather than when purchased . Prepaid Items -Prepaid items are accounted for under the consumption method. Restricted Assets • Certain enterprise fund and governmental activities assets are restricted for construction and debt; consequently, net assets have been restricted for these amounts. The excess of other restricted assets over related liabilities are included as restricted net assets for bond proceeds, bond indentures requirements, and passenger facility charges. Mortgage Recelva.bles -Mortgage receivables consist of loans 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 infi'astructure (streets, bridges, sidewalks and other assets that are 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 are reported in the GWFS and the proprietary funds. Capital assets are recorded at cost or estimated historical cost if purchased or constructed. Donated assets are recorded at the estimated fair value on the date of donation. Major outlays for capital assets and improvements are capitalized as the projects are constructed. The cost of nonnal maintenance and repairs that do not add to the value of the asset or materiaUy extend the asset lives are not capitalized. Major improvements are capitalized and depreciated over the remaining useful Jives of the related capital assets. ) Depreciation is computed using the straight-line method over the estimated useful lives as foJlows.: Inftaslmctmellmprovements Buildings Equipment Water rights 10-SOyears 15-50 years 3-IS years 8Syears Interest Capitalization -Because the City issues general-purpose capital improvement bonds, which are recorded within the proprietary funds, the City capitalizes interest costs for business-type activities and enterprise funds according to the Financial Accounting Standards Board (F ASB) Statement No. 34 Capitalization of lnteresr Cost and FASB Statement No. 62 Capitalization of Interest Costs. The City capitalized interest of approximately S540,000 net of interest earned, for tbe business-type activities and the enterprise fund.s during the current 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. 65 l f City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) F. ASSETS, UABILITIES. AND FUND BALANCE/NET ASSETS <Continued) Use of Estimates -The preparation of fmanclal statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses/expenditures during the reporting period. Actual results could differ from those estimates. G. REVENUES. EXPENSES AND EXPENDITURES Interest Income on pooled cash and invesnnents is allocated mon1hly 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, Capita) Project Funds, and certain Internal Service Funds. The interest income on pooled cash and investments of these funds is reported in the General Fund or the Debt Service Fund. Sales Tn Revenue for the City results from an allocation of 1.5% of the total sales tax levy of 8.25%, which is collected by the State of Texas and remitted to the City monthly. The tax is collected by the vendor and is required to be remitted to the State by the 20th of the month following collection. Tbe tax is then paid to the City by the I Oth of the next month. Graut Revenue from federal and state grants is recognized as revenue as soon as all eligibility requirements have been met. The availability period for grants is considered to be one year. lnterfuod Transactions are accounted for as revenues, expenditures, expenses, or other fin~ncing sources or uses. Transactions that constitute reimbursements to a fund for expenditures/expenses initially made from that fund that are properly applicable to another fund, are recorded as expenditures/expenses in the reimbursing fund and as reductions of expenditures/expenses in the fund that is reimbursed. In addition, transfers are made between funds to shift resowces from a fund legally authorized to receive revenue to a fund authorized to expend the revenue. Compensated Absences consists of vacation leave and sick leave. Vacation leave of 1()..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 tennination for any available, unused vacation leave. Sick leave for employees is accrued at 1-1.4 days per month with a maximum accrual status of200 days. After 15 years of continuous futJ time service for non-civil service persomel, 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 of employment. Civil Service Personnel (Firefighters) are paid for up to 90 days of accrued sick leave upon retirement or termination. 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. 66 ( ( ( ( ( c c ( c c c ) ) City of Lubbock, Texas Notes to Basic FinanciaJ Statements September 30, 2005 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POUCIES (Continued) G. REVENUES, EXPENSES AND EXPENDITURES <Continued) Post Employment Benefits for retirees of the City of Lubbock include the option to purchase health and life insurance benefits at their own expense. However, employees that retire with 15 years of service or Civil Service employees that retire who have a balance in excess of 90 days will be able to elect to continue receiving medical coverage in full 30-day periods for the ten:n of the balance of their sick leave. Amounts to cover premiums and administrative costs, with an incremental charge for reserve funding, are determined by the City's health care administrator. Employer contributions are funded on a pay-as-you-go basis and approximated $1.4 million for fiscal 2005. These contributions are included in the amount of insurance expense reflected in the financial activity reported in the Health Insurance Internal Service Fund. NOTE ll. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. RESTRICTED NET ASSETS Restricted net assets are only used for their intended pur:pose. For projetts funded by tax exempt debt proceeds, the debt proceeds are used fu-st. then unrestricted resources are used. B. NET ASSET/FUND BALANCE DEFICIT The deficit of $185,403 in the Permanent Street Maintenance Capital Projects Fund is due to timing differences of incurring capital outlay expenditures for an internally financed project When remaining capita) projects are complete in the Pennanent Street Maintenance Capital Projects Fund, a transfer will be recommended to cover the deficit. No other funds ofthe City had deficits in either totaJ fund balances or total net assets. NOTE ID. DETAR. NOTES ON ALL ACTMTIES AND FUNDS A. CASH AND INVESTMENTS Deposits Custodial credit risk is the risk that in the event of a bank failure, a government's deposits may not be returned to it. The City's deposit policy for custodial credit risk requires compliance with the provisions of state law. State law requires eollateralization of all deposits with federal depository insurance, eligible securities, or a surety bond having an aggregate value at least equal to the amount of the deposits. The City's Investment Policy requires the minimum collateral level to be I 02% of market value of principal and accrued interest. Citibus and American State Bank are not in compliance with the City's investment policy, the Public Funds Jn~tment Act and the Public Funds Collateral Act. At September 30. 2005, $1,973t078 of bank balances of $2,373,078 was exposed 10 custodial credit risk as follows: Uninsured and uncoiJatcralized Uninsured and coUateral held by pledg.ing financial institution Uninsured and collateral held by pledging financial institution •s trust department or agent in other than the City's name 67 s 361,377 1.611.701 $1.973 078 l City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE m. DETAR, NOTES ON ALL ACTIVITIES AND FUNDS (Continued) A. CASH AND INVESTMENTS <Continued) Investments At September 30, 2005, the City bad the foUowing investments and maturities: September 30, ZOOS Maturities io Years Less 1-5 Type Fair Value Than 1 Repurchase agreements • $ 1,382,123 $ 1,382,123 $ Federal Home Loan Banks (FHLB) 13,836,400 7,931,400 5,905,000 Federal Home Loan Mortgage Corporation (FHLMC) 1,975,600 1,975,600 Federal National Mortgage Association (FNMA) 7,917,000 7,917,000 Money market mutual funds •• 98,931,041 98,931,041 State Investment Pools •• tQt.07~.oo3 101,075,00~ $ 225,111,1~1 $21221~161 $5 9()5 000 •considered cash equivalent for financial reporting. •• Money marlcet mulual funds and State lnveslment Pools are considered cash equivalents for financial reporting. unless restricted for bond financed capiml projects and claims for Risk and Health Insurance Funds. Interest Rate Risk -As a means of limiting its exposure to fair value losses arising from rising interest rates, the City's investment policy limits investments to those that can be held to maturity and by limiting final maturity to no more than five (5) years. The money market mutual funds and investment pools are presented as an investment with a maturity of less than one year because they are redeemable in full immediately. Credit Risk -Credit risk is the risk that the issuer or other counterparty to an investment will not fulfill its obligations. The City's policy allows investment in direct obligations of and other obligations guaranteed as to principal of the U.S. Treasury and U.S. agencies and instrumentalities with the exception of mortgage backed securities. It allows obligations of investment in the State of Texas or its agencies and obligations of states, agencies, counties, cities, and other political subdivisions rated not less than A or its equivalent. It may also invest in fully collateralized repurchase agreements, fully collateralized certificates of deposit, commercial paper and bank acceptances with a stated maturity of270 days or fewer from the date of issuance, AAA-rated, no-load money market mutual funds regulated by the Securities and Exchange Commission, and AAA-rated, constant dollar AAA-rated investments pools authorized by the City Council. At September 30, 2005, Standard & Poor's rated the investment pools AAAm and Moody's rated the money market mutual funds Aaaa The senior unsecured debt for investments in FNMA and FHLMC are rated AAA by Standard & Poor's and Moody's. Custodial Credit Risk-For an investment, custodial credit risk is the risk that, in the event of the failure of the COWlterparty, the City will not be able to recover the value of its investment or collateral securities that are in the possession of an outside party. The City required that deposits and repurchase agreements be held in an institution that has a minimum collateral level of 102% of the market value. FHLB, FHLMC, and FNMA investments are held in the City's name in third party safekeeping by a Federal Reserve member fmancia1 institution designated as a City depository. The City shall maintain a list of authorized broker/dealers and financial institutions, which are approved by the Audit Committee for investment purposes. 68 c ( c ( ( c ( ( c c ( City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE 10. DETAIL NOTES ON ALL ACTMTIES AND FUNDS (Continued) A. CASH AND INVESTMENTS (Continued) Concentration of Credit Risk-The City places limits on the amowtt that may be inve.md in any one issuer with the exception of United States Treasury obligations. At September 30, 2005, the City's investments oonstituted the fo11owing percentages of total investments: repurchase agreements -0.6%, mLMC -0.9%, and FNMA-3.5%. Foreign Currency Risk -This risk relates to adverse affects on the fair value of an investment from changes in exchange rates. The City has no foreign currency risk. B. INTERFUND TRANSACTIONS lnterfund balances, specifically the due to and due from other funds, are shorHenn loans to cover temporary cash deficits in various funds. This occasionally occurs prior to bond sales or grant reimbursements. These outstanding balances are repaid within the following fiscal year. Interfund balances, specifically advances to and from other funds, are longer-tenn loans to cover Council directed internal financing of certain projects. At September 30, 2005 the City has nearly $22.6 million of this type of internal fmancing. 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 $6,076,822, are induded 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): lnterfuod Receivables (fhou:~ands) Governmental Funds Proprietary Funds lnterfund Payables (Thoussnds) Non-Major Non-Major Jnterul General Govern meat WTMPA Enterprise Service Totals Governme1ltal Funds: Non-Major Governmental $ 1,738 $ 4,202 $ $ 52 $ 5,992 Proprietary Funds: Electric 11,299 11,299 Stonnwater 4,500 4,500 Non-Major Enterprise 850 5 855 Totals $ 7,088 $ 4,202 s 1 !,299 $ 52 $ 5 $ 22,646 Net transfers of S 15,468,765 from business~type activities to governmental activities, up $5.8 million from the prior year, on the government-wide statement of activities is primarily the result of I) debt service payments made from the debt service fund, but funded from an operating fund; 2) subsidy transfers from unrestricted funds; and 3) transfers to move indirect cost all ocations, payments in lieu oftaxe.s (PJL01), and franchise fees to the general fund or other funds as appropriate. The following interfuoo transfers are reflected in the fund financial statements (all amounts in thousands): 69 l i City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE m. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) B. INTERFUND TRANSACI'IONS (Continued} lnterfund Transfers Out: Q]!ousands) Governmental Funds Proprietary Foods Nonmajor Storm· Nonmajor lntcral Interf'Und TraDsfers General Gov. Electric Water Sewer Water Enterprise Service Totals In: (Thousands) Governmental Funds: General Fund s -$ 872 $ 797 $ 4,537 $ 2,505 $ 991 $ 2,865 $ 3,998 $ 16,565 Non major Governmental 3,053 1,016 1,219 835 6,123 Proprietary FlUids: Elecu-ic 25 25 Water 147 147 Sewer 5,000 5,000 Stormwater 129 129 WTMPA 307 307 Nonmajor Enterprise 849 664 51 1,564 Internal Service Funds 10 197 207 Total s 3,912 $ 2,828 s 1,104 $ 4,537 $ 2,505 $ 991 $ 9,332 $ 4,858 $ 30,067 C. DEFERRED CHARGES The total deferred charges of $3,211, II 0 in the LP&L Enterprise 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 will continue for 30 years. D. CAPITAL ASSETS Capital asset activity for the year ended September 30, 2005, was as follows: 70 . \. ( ( I' \,. c ( c E c c '\ ) ) City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE ID. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) D. CAPITAL ASSETS (Continued) Primary Government: GovernmeDtal Activities Beginning EndiDg Balance Increases Decreases Balances Capital Assets Not Depredated: Land $ 8,608,249 $ 496,946 $ 154,095 $ 8,951,100 Construction in Progress 43,472,022 15,626z731 21,305,325 37,793,428 Total Capital Assets Not Depreciated 52,080,271 16,123,677 21,459,420 46,744,528 Cnpital Assets Depreciated: Buildings 51,454,278 6,181,112 29,345 57,606,045 Improvements Other than Buildings 129,651,1 15 I J_345,076 4,597,201 136,398,990 Machinery and Equipment 52,954,673 9!851,376 2,563,173 60,242,876 Total Capital Assets Depreciated 234,060,066 27,377,564 7,189,719 254,247,911 Less Accumulated Depreeiation: Buildings 27,660,190 1,811,465 11,782 29,459,873 Improvements Other than Buildings 92,468,340 4,195,013 4,159,593 92,503,760 Machinery and Equipment 36,997,929 5,917,.503 2,500,777 40.414,655 Total Ac<:umulated Depreciation 157,126,459 11,923,981 6,672,152 J 62,378,288 Total Capital Assets Depreciated, Net 76,933,607 15,453,583 517,567 91,869,623 Governmental Activities Capital Assets, Net $ 129,013,878 $ 3 J ,577,260 $ 21,976,987 $ 138,614,151 Depreciation expense was charged to functions/programs of the governmental activities as follows: Governmental activities: General Government Financial Services Human Resources Administration/Community Services Fire Police Streets Electric Internal Service Funds Total depreciation expense-governmental activities Tranmr in to accumulated depreciation-governmental activities Increase in aceumulated depreciation -governmental activities 71 $ 357,216 5,279 4,636 4,284,580 985,657 2,199,601 3,514,289 244,734 107,670 11,703,662 220,319 $ 11,923,981 .. I City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE ID. DETAIL NOTES ON ALL ACTIVJTIES AND FUNDS (Continued) D. CAPITAL ASSETS (Continued) Business-Type Activities Beginning Ending Balance Increases Decreases Balances Capital Aueb Not Depredated: Land $ 31,676,155 $ 361,678 $ 89,122 $ 31,948,711 Construction in Progress 113,961,371 33,298,426 18,827,618 128,432, 179 Total Capital Assets Not Depreciated 145,637,526 33,660,104 18,916,740 160,380,890 Capital Assets Depreciated: Buildings 96,928,778 114,152 15,784 97,027,146 Improvements Other than Buildings 574,358,968 35,064,830 4,011,628 605,412,170 Machinery and Equipment 132,757,563 9,450,490 3,537,365 138,670,688 Total Capital Assets Depreciated 804,045,309 44,629,472 7,564,777 841,110,004 Less Accumulated Depreciation: Buildings 28,627,056 2,459,327 10,691 31,075,692 Improvements Other than Buildings 243,517,538 16,291,923 1,790,277 258,019,184 Macbine.ry and Equipment 65,835,597 12,083,156 2,966,326 74,952,427 Tota1 Accumulated Depreciation 337,980,191 30,834,406 4,767,294 364,047..303 Total Capital Assets Depreciated, Net 466,065,118 13,795,066 2,797,483 477,062,701 Business-Type Activities Capital Assets, Net $611,702,644 $ 47,455,170 $ 21,714,223 $ 637,443,591 Depreciation expense was charged to functions/programs of the business-type activities as follows: Business-Type Activities: Electric Water Sewer Stonnwatcr Solid Waste Airport Transit Internal Service Funds Total depreciation expense-business-type activities Transfer in to accumulated depreciation -business-type activities Increase in accumulated depreciation -business-type activities 72 $ 9,059,285 5,950,475 5,096,596 546,314 4,930,067 3,211,033 1,329,282 243,163 30,366,215 468,191 $ 30,834,406 c ( c c c c c c ( ... I r'\ ... ) ) City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE m DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) D. CAPITAL ASSETS (Continued) Construction Commitments The City bad many construction projects in progress at fiscal year end. The Parks Department continues to work on updating irrigation and park lighting. A large street project involving Milwaukee Avenue, 34m Street to 98111 Street is under way. The project falls under the Gateway Street Projects Fund. Electric projects included upgrades to their infrastructure. Water projects included expanding water lines to new areas of town to increase water availability. Sewer projects included construction of sewer lines ahead of the Marsha Sharp Freeway. Solid Waste projects include the construction and site development for a new recycling drop off center and the upgrade of existing sites. Work on Airport taxiways comprises the majority of the Airport's spent to date number. Two of the City's largest construction projects are related to Stormwater. The first project provides for the construction of an outfall storm sewer from Clapp Park to Yellowhouse Canyon and a series of upstream stonn 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 of playa lakes. Original Remaining Projects Commitments Spent-to-Date Commitiments Public Safety $ 1,801,772 $ 184,051 $ 1,617,721 Park Improvements 20,200,528 7,126,221 13,074,307 Street Improvements 26,171,525 15,511,742 10,659,783 General Capital Projects 1,093,426 114,198 979,228 General Facilities Improvements 5,693,276 4,352,183 1,341 ,093 Tax Increment Fund Capital Projects 15,023,670 2,665,317 12,358,353 Gateway Street Projects 9,000,000 6,405,700 2,594,300 Electric 17,417,727 12,248,740 5,168,987 Water 61,381,23 I 50,610,861 10,770,370 Sewer 9,855,482 6,893,671 2,961,8ll Solid Waste 3,668,680 1,.296,565 2,372,115 Airport 29,667,471 4,763,256 24,904,215 Stonnwater 75,353,518 51,964,009 23,389,509 Internal Service Fund 1,450,000 1,100,582 349,418 Total $ 277,778,306 $ 165,237,096 $ 112,541,210 73 City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE ID. DETAIL NOTES ON ALL ACTMTIES AND FUNDS (Continued) E. RETIREMENT PLANS Each qualified employee is included in one of two retirement plans in which the City ofLubbock participates. These are the Texas Municipal Retirement System (TMRS) and the Lubbock Firemen's Relief and Retirement Fund (LFRRF). The City does not maintain the accounting records. hold the investments or administer either retirement plan. Summary of significant data for each retirement plan follows: TEXAS MUNICIPAL RETIREMENT SYSTEM (TMRS) Plan Description The City provides pension benefits for all of its full-time employees (with the exception of firefighters) through a non-traditional, joint contributory, hybrid defined benefit plan in the state-wide TMRS, one of 801 administered by TMRS, an agent multiple-employer public employee retirement system. Benefits depend upon the sum of the employee's contributions to the plan, with interest, and the City-financed monetary credits, with interest. At the date the plan began. the City granted monetary credits for service rendered before the plan be~ of a theoretical amount equal to two times what would have been contributed by the employee, with interest, prior to establishment of the plan. Monetary credits for service since the plan began are a percent (100%, 150%, or 200%) of the employee's accumulated contributions. In addition, the City can grant. as often as annually, another type of monetary credit referred to as an updated service credit which is a theoretical amount which, when added to the employee's accumulated contributions and the monetary credits for service since the plan began, would be the total monetary credits and employee contributions accumulated with interest if the current employee contribution rate and City matching percent had always been in existence and ifthe employee's salary had always been the average of his salary in the last three years that are one year before the effective date. At retirement, the benefit is calculated as if the sum of the employee's accumulated contributions with interest and the employer-financed monetary credits with interest were used to purchase an annuity. The plan provisions are adopted by the governing body of the City, within the options available in the state statutes governing TMRS and within the actuarial constraints also in tbe statutes. 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. O>ntribotions The contribution rate for the employees is 7% and the City matching ratio is currently 2 to l, both as adopted by the governing body of the City. Under the state law governing TMRS, the actuary annually detennines the City contribution rate and the prior service cost contribution rate, both of which are calculated to be a level percent of payroll from year to year. The normal cost contribution rate finances the currently accruing monetary credits due to the City matching percent, which are the obligation of the City as of an employee's retirement date, not at the time the employee's contributions are made. The normal cost contribution rate is the actuarially determined percent of payroll necessary to satisfy the obligation of the City to each employee at the time his/her retirement becomes effective. The prior service contribution rate amortizes the unfunded {overfunded) actuarial liability (asset) over the remainder of the plan's 25-year amortization period. The unit credit actuarial cost method is used for detennining the City contribution rate. Both the employees and the City make contributions monthly. Since the City needs to know its contribution rate in advance for budgetary 74 c .. ... ( ' c c c ( ( I. ) ... J .. J ) City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE ID. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) E. RETIREMENT PLANS (Continued) pmposes, there is a one-year delay between the actuarial valuation that serves as the basis for the rate and the calendar year when the rate goes into effect (i.e. December 31, 2004 valuation is effective for rates beginning January 2006). Actuarial Assumptions The actuarial assumptions for the December 31, 2004 valuations are as follows: Actuarial cost method: Unit <:redit Amortization method: Remaining amortization period: Level percent of payroll 25 years-open period Amortized cost Asset valuation method: Investment rate of return: Projected salary increases: Includes inflation at: Cost of Living adjustments: As of September 30 2003 2004 2005 7% None 3.S% None Annual Pension Cost $ 8,803,613 8,708,867 9,933,373 Co atribution Made 8,803,613 8,708,867 9,933,373 TEXAS MUNICIPAL RETIREMENT SYSTEM THREE-YEAR HISTORICAL SCHEDULE OF ACTUARIAL LIABILITIES AND FUNDING PROGRESS REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) Unfunded Actuarial Actuarial Accrued As of Actuarial Value of Accrued Percentage Liability December31 Assets Liabili!}: Funded ~UAAL} 2002 $ 181,191,012 228,372,843 79.3% 47,181,831 2003 182,884,183 239,809,434 76.3% 56,925,251 2004 186,398,545 248,432,807 75.0% 62,034,262 UAALasa% As of Annual Covered Of Covered December31 Paxroll Palroll 2002 $ 60,285,077 78.3% 2003 57,577,743 98.9% 2004 61,931,003 100.2% The City of Lubbock is one of 801 municipalities having the benefit plan administered by TMRS. Each of the municipalities has an annual, individual actuarial valuation performed. All assumptions for the December 3 I, 2004 valuations are contained in the 2004 TMRS Comprehensive Annual FinanciaJ Report, a copy of which may be obtained by writing to P.O. Box 149153, Austin, Texas 78714-9153. 75 [ City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE m. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) E. RETIREMENT PLANS (Continued) LUBBOCK FIREFIGHTER'S RELIEF AND RETIREMENT FUND (LFRRF) Plan Description The Board of Trustees of the LFRRF is the administrator of a single-employer defined benefit pension plan. This pension fund is a trust fund. It is reported by the City as a related organization and is not considered to be a part of the City financial reporting entity. Firefighters in the Lubbock Fire Department are covered by theLFRRF. The LFRRF provides service retirement, death, disability and withdrawal benefits. These benefits fully vest after 20 years of credited service. A partially vested benefit is provided for firefighters who terminate employment with at least I 0 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, 2003 provides a monthly normal service retirement benefit, payable in a Joint and Two-Thirds to Spouse form of annuity, equal to 68.92% of final 48-month average salary plus $335.05 per month for each year of service in excess of20 years. A fuefighter 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 tennination of employment Firefighters must be at least 51 years of age with 21 years of service at the selected "RETRO DROP benefit calculation date" (which is prior to date of employment tennination). Early RETRO DROP with benefit reductions is available at age 50 with 20 years of service for the selected "early RETRO DROP benefit calculation date". A Partial Lump Sum option is also available where a reduced monthly benefit is determined based on an elected lump sum amount such that the combined present value of the benefits under the option is actuarially equivalent to that of the normal form of the monthJy benefit. Optional forms are also available at varying levels of surviving spouse benefits instead of the standard two·thirds fonn. There is no provision for automatic postretirement benefit 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 authorized by the Texas Local Fire Fighter's Retirement Act (TLFFRA). TLFFRA provides the authority and procedure to amend benefit provisions. Contributions Required and Contributions Made The contribution provisions of this plan are authorized by TLFFRA. lLFFRA provides the authority and procedure to change the amount of contributions determined as a percentage of pay by each firefighter and a percentage of payroll by the City. State Jaw requires that each plan of benefits adopted by LFRRF be approved by an eligible actuary. The actuary certifies that the contribution commitment by the firefighters and the City provides an adequate financing arrangement. Using the entry age actuarial cost method, LFRRF's normal cost contribution rate is determined as a percentage of payroll. The excess of the total contribution rate over the normal cost contribution rate is used to amortize LFRRF's unfunded actuarial accrued liability (UAAL), if any, and the number of years needed to amortize LFRRF's unfunded actuarial liability, if any, is determined using a level percentage of payroJI method. The costs of administering the plan are fmanced by LFRRF. 76 c c c: ' c c ( c ( ) City of Lubbock, Texas Notes to Basi(: Financial Statements September 30, 2005 NOTE m. DETAJL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) E. RETIREMENT PLANS <Continued) Annual Pension Cost For the fiscal year ended September 30, 2005, the City of Lubbock's Armual Pension Cost (APq for the Lubbock Fire Fund was equal to $3,016,942 as described in item 4 in the table below. Based on the results of the December 31, 2004 actuarial valuation ofthe Plan Effective November 1, 2003, the most recent biennial actuarial valuation, the Board's actuary found that the fund had an adequate fmancing arrangement, as described in the paragraph below, based on the fixed level of tbe 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 to 12.43% of pay by the firefighters. Contributions by the City are based on a formula, which causes the City's contribution rate to Ouctuate from year to year. The December 31, 2004 actuarial valuation assumes that the City's contributions will average 19% ofpayro11 in the future. Therefore, based on the December 31, 2004 actuarial valuation of the Plan Effective November 1, 2003, the Annual Required Contributions (ARq are not actuarialty determined but are equal to the City's actual contributions beginning January 1, 2005. This actuarial valuation satisfied the parameters of the Governmental Accounting Standards Board (GASB) Statement No. 27. Prior to January 1, 2005, the ARC were not actuarially detennined but, based on the December 31, 2002 actuarial valuation, were equal to the City's actual contributions in calendar year 2004. This actuarial valuation also satisfied the parameters of GASB Statement No. 27. The following shows the development of the Net Pension Obligation (NPO) as of September 30, 2005: l. Annual Requjred Contributions {ARC) 2. Interest on NPO 3. Adjustment to ARC 4. Annual Pension Cost (APC) 5. Actual City contributions made 6. Increase (Decrease) in NPO/(asset) 7. NPO/( asset) at October 1, 2004 8. NPO/(asset) at September 30, 2005 s 3,028,406 (71 ,812) 60,348 3,016,942 (3,028,406) (11,464) (897,648) ($909,112) The ARC for the period October 1, 2004 through September 30,2005 was based on the December 31,2002 ~ and the December 31, 2004 actuarial valuations. The entry age actuarial cost method was used with the normal cost calculated as a level percentage of payroll. Tbe actuarial value of assets was market value smoothed by a five-year deferred recognition method. with the actuarial value not more than I J 0% or less than 90% of the market value of assets. The actuarial assumptions included in an investment return asslDTlption of 8% per year (net of expenses), projected salary increases including promotion and longevity averaging 5.7% per year over a 30-year career, and no postretirement cost-of-living adjustments. An inflation assumption of 4% per year was included in the investment return and salaiy 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 detennined using an open, level percentage of payroll method, assuming that the payroll will increase 4% per year, and was 24.7 years as of the December 31, 2002 actuarial valuation and 20.6 years as of December 31 , 2004 actuarial valuati011; both based on the plan provisions effective November 1, 2003. ) 77 L I ! City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE ill. DETAIL NOTES ON ALL ACTMTIES AND FUNDS (Continued) 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 stancJ...alone financial report is available by contacting the LFRRF. Fiscal Year EDded 9/30/03 9/30/04 9/30/05 Trend Information Annual Pension Cost (APC) s 1,964,788 2,582,713 3,016,942 Pertent2ge of APC Contributed 111% 101 100 Analysis of Funding Progress Net Peasioo Obligation (Asset) (882,623) (897,648) (909,1 12) Required Supplementary Information (Unaudited) Aetuarial Valuation Date 12131100 1,2 12131102 1,3 12131/04 5 Actuarial VAlue of Assets (a) Sll9,660,788 111,261,775 130,174,984 Entry Age Unfunded Actuarial AAL Accrued (UAAL) · Liability /FuR ding (AAL)(b) exeess (b--a) 114,675,049 (4,985,739) 127,850,414 16,588,639 143,991,975 13,816,991 I . Economic and demographic assumptions were revised. Funded Ratio (alb) 104.3% 87.0 90.4 2. Reflects changes in plan benefit provisions effective December I, 2001. 3. Reflects changes in plan benefit provisions effective November I, 2003. Annual Covered Payroll (c) 4 12,243,913 13,521,366 14,711,366 4. The covered payroll is based on estimated annualized salaries used in the valualion. S. Demographic assumption was revised. F. DEFERRED COMPENSATION UAAU Funding Exeess as a Percentage of Covered Payroll ((b-a)lc) (40.7)% 122.7 93.9 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, 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 are not presented in the BFS. 78 c c c c < c ) ) ) ) \ .1' City ofLubbock, Texas Notes to Basic Finaneial Statements September 30, 2005 NOTE Ill. DETAIL NOTES ON ALL ACTMTIES AND FUNDS (Continued) G. SURFACE WAIER SUPPLY Canadian River Muoicip:al Water Authority The Canadian River Municipal Water Authority (CRMWA) is a Conservation and Reclamation District established by the Texas Legislature to consb\lct a dam, water reservoir, and aqueduct system for the purpose of supplying water to surrounding cities. The District was created in 1953 and comprises eleven cities, including the City of Lubbock. The budget, financing. and operations of the District are governed by a Board of Directors selected by the governing bodies of each of the member cities, each city being entitled to one or two members dependent upon population. At September 30, 2005, the Board was comprised of 18 members, two of which represented the City. The City contracted with the CRMW A to reimburse it for a portion of the cost of the Canadian ruver Dam and aqueduct system in exchange for surface water. 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 FY 1999, long-tenn debt was owed to the U.S. Bureau of Reclamation for the cost of construction of the facility, which was completed in 1969. The City's al1ocation of project costs was $32,905,862. During FY 1999, bonds in the pdncipal amount of $12,300,000 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 Reclamation to the member cities. This discount has been recorded as a deferred gain on refunding and is being amortized over the life of the refunding bonds. At September 30, 2005, S5,454,761 remains unamortized. The annual principaJ and interest payments are included in the disclosures for other City related long-tenn 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 Water Enterprise Fund. The Canadian River Municipal Authority issued a new Contract Revenue Bond, Series 2005 on April 20, 2005, in tbe amount of $48,125,000. The City of Lubbock shared in that issue for $17,960,000 and other costs of $850,296, and received depreciable assets (water rights) valued at $18,810,296. These assets and liabilities are recorded in the Water Enterprise Fund. Bruos River Authority -Lake Alan Henry During 1989, the City entered into an agreement with the Brazos River Authority (BRA) for the construction, maintenance, and operation of the faciJities known as Lake Alan Henry. 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, issued bonds for the construction of a dam and lake facilities on the South Fork of tbe Double Mountain Fork of the Brazos River. The BRA issued $16,970,000 in revenue bonds in 1989 and $39,685,000 io revenue bonds in 1991, which were refunded in July 1995. 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 related obligation, is accounted for in the Water Enterprise Fund. Special Item 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 Jp Morgan Chase. The forward starting swap was fashioned to allow the City to issue variable rate, tax-exempt bonds in a cwrent refunding on the call date in August 2005. The variable rate bonds could then be swapped for a fixed rate of5.26%. 79 t i City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE ID. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) G. SURFACE WATER SUPPLY {Continued) On August 15, 2005, the City chose to tenninate the swap aod issue Tax & Waterworks Revenue Refunding Bonds, series 2005 in the amount of$43,08(),000 to retire the Brazos River Authority Bonds of 1995 in the amount of$43,740,000. The new issue has an average coupon rate of 4.84%, payable through FY 2021. On the date of the bond issuance and swap termination, the swap had a negative fair value of $6,612,000. The fair value was developed by using the zero coupon method. This method calculates the future net settlement payments required by the agreement assuming that the current forward rates implied by tbe yield curve correctly anticipate future spot interest rates. These payments are then discounted using the spot rates implied by the current yield curve for hypothetical zero-coupon bonds due on the date of each future net settlement on the swap. While the net present value of the combined refunding and swap termination agreement resulted in an economic break-even transaction, the swap termination and related expenses resulted in an accounting loss of $6,637,093. 80 c c c c c c c c I ... ) City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 ) NOTE m. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) H. WNG-TERM DEBT GENERAL OBLIGATION BONDS AND CERTIFICATES OF OBLIGATION: Interest I.uue Maturity Amount Outst3Jiding .RJite% Date Date Issued 9-30-0S 5.39 10-01-93 02-15-14 3,625,000 1,645,000 5.39 10-01-93 02-15-14 2,550,000 1,170,000 5.20 10-01-93 02-15-14 1,470,000 225,000 5.14 10-01-93 02-15-14 19,215,000 2,895,000 .., .I 5.07 12-15-95 02-15-16 6,505,000 325,000 5.01 12-15-95 02-15-16 10,000,000 500,000 4.91 01-15-97 02-15-09 17_530,000 7,195,000 4.61 01-01-98 02-15-08 1,330,000 470,000 4.71 01-01-98 02-15-18 10,260,000 3,085,000 4.36 01-15-99 02-15-14 20,835,000 18,650,000 4.58 01-15-99 02-15-19 15,355,000 3,080,000 4.77 04-01-99 02-1.5-19 6,100,000 1,220,000 4.71 04-01-99 02-15-19 12,300,000 8,680,000 5.37 09-15-99 02-15-20 24,800,000 4,035,000 5.54 03-15-00 02-15-20 7,000,000 1,135,000 4.90 02-01-01 02-15-21 9,100,000 1,910,000 4.81 02-01-01 02-15-21 2,770,000 700,000 5.25 06-()J-0) 02-15-31 35,000,000 22,360,000 4.68 02-15-02 02-15-22 9,400,000 8.790,000 4.71 02-15-02 02-15-22 6.450,000 6,025,000 4.70 02-15-02 02-15-22 1,545,000 1,440,000 4.62 07-01-02 02-15-22 2,605,000 2,345,000 3.18 07-01.02 02-15-10 10,810,000 6,240,000 4.42 07-15-03 02-15-23 11,885,000 10,840,000 ) 4.47 07-15-03 02-15-24 9,775,000 9,455,000 4.48 07-15-03 02-15-24 685,000 660,000 4.47 07-15-03 02-15-24 3,595,000 3,475,000 4.87 07-15-03 02-15-34 40,135,000 39,430,000 4.47 07-15-03 02-15-24 3,800,000 3,675,000 4.60 08-15-03 04-15-23 8,900,000 &,140,000 4.60 08-15-63 04-15-23 13,270,000 12,145,000 .. 4,37 06-30-04 08..01-12 1,000,000 875,000 J 4.09 09-28-04 02-15-24 2,025,000 1,805,000 4.08 09·28-04 02-15-24 3,100,000 2,690,000 3.58 09-28-04 02-15-20 22,620,000 22,620,000 4.63 02-15-()5 04-15-25 23,055,000 23,055,000 4.90 06-15-05 02-15-21 49,615,000 49,615,000 4.84 08-JS-05 02-15·25 46,525,000 46,525,000 4.84 07-15-05 02-15-25 7,265,000 7,265,000 4.84 07-15-05 02-15-21 43,080,000 43,080,000 Total $526,885,000 389,470,000(A) .. (A) Excludes ($4,075,761) net deferred losses on advance refundings. net bond premiums and discounts, and J bond issuance costs -($2,W9,777) business--type and ($1,865,984) governmentaL Additionally, this amount includes $286,749,731 of bonds used to finance enterprise fund activities. 81 City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE m. DETAIL NOTES ON ALL ACTMTIES AND FUNDS (Continued) H. LONG-TERM DEBT (Continued) At September 30, 2005, management of the City believes that it was in compliance with aU financial bond covenants on outstanding general obligation bonded debt, certificates of obligation, and water revenue bonded debt. LP&L REVENUE BONDS Balance Final Amount Outstanding Interest Rate{%} Issue Date Maturi!I Date Issued 9-30.05 3.80 to 5.50 6-15-95 4-15-08 $ 13,560,000 $ 3,150,000 4.25 to 6.25 1-01-98 4-15-18 9,170,000 5,980,000 3.10 to 5.00 1-15-99 4-1 S-19 14,975,000 8,350,000 4.00 Ia 5.25 7-01-01 4-15-21 9JOO,OOO 7,360,000 Total $ 461905,000 $ 24,840,000 • * Balance outstanding excludes $374,792 of net deferred losses on advance refundings, bond premiums and discounts, and bond issuance costs. Interut Rate 5.25% Issue Date 09-30-05 OTHER REVENUE BONDS Final Maturity Date 09-30-25 Amount Issued 17,960,000 Balance Outstanding 9-30-05 17,960,000 $17,960,000 $17,960,000 • • Balance outstanding excludes ($720,463) discount and deferred losses on bonds sold or refunded. The annual requirements to amortize all outstanding debt of the City as of September 30, 2005 are as follows: Governmental Activities Business-Type Activities F~al General Obligation Bonds General Obligation Bonds Revenue Bonds Year Principal Interest Principal Interest Princieal Interest 2006 $ 5,789,101 $ 5,611,663 s 14,695,899 $ 12,216,667 $ 2,930,000 $ 2,013,.560 2007 6,045,492 5,341,816 15,654,508 11,218,843 3,525,000 1,869,050 2008 5,909,994 5,278,407 15,465,006 10,423,992 3,175,000 1,713,716 2009 5,913,654 4,842,203 15,376,346 9,988,235 2,390,000 1,574,105 2010 5,694,419 4,572,758 15,450,582 9,375,175 2,410,000 1,467,170 2011-2015 28,587,609 13,482,794 76,877,390 42,179,667 J 1,060,000 5,816,184 2016-2020 25,275,000 7,700,255 68,560,000 24,627,964 10,405,000 3,151,771 2021-2025 19,505,000 2,031,801 34,365,000 11,542,337 6,905,000 877,081 2026-2030 18,850,000 5,425,513 2031-2035 J 1,455,000 1,008,015 Totals $ 102,720,269 s 48,861,697 $ 286,749,731 $ 138,006,408 $ 42,800,000 $ 18,483,237 82 c ( c c c c ' ) ) '\ ) ) ) ) ) City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE m. DETAR. NOTES ON ALL ACTIVITIES AND FUNDS (Continued) H. LONG-TERM DEBT (Continued} Capital leases were used to acquire equipment and vehicles. The interest rate on the leases ranged from 2.0% to 4.4%. The annual requirements on capital leases of the City as of September 30,2005, including interest payments of$477,552 are as follows: Governmental Business-Type Total Capital Lease Capital Lease Capital Lease Fiscal Minimum Minimum Minimum Year Palmeot Payment Payment 2006 $ 1,167,281 $ 584,092 $ 1,751,373 2007 679,328 461,618 1,140,946 2008 679,328 130,124 809.452 2009 659,569 127,681 787,250 2010 530,413 127,681 658,094 2011-2015 639,898 639,898 Less: Interest (400,932) (76,620) (477,552) Total $ 3,954,885 $ 1,354,576 $ 5,309,461 The canying values on the leased assets of the City as of September 30,2005 are as follows: Aceumulated Net Book Gross Value Depreciation Value Governmental Activities s 7,190,820 $ 2,601,612 $ 4,589,208 Business-Type Activities 4,017,069 1,572,105 2,444,964 Total Leased Assets $ 11,207,889 $ 4,173,717 $ 7,034,172 83 I I City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE ID. DETAR. NOTES ON ALL ACTMTIES AND FUNDS (Continued) H. LONG-TERM DEBT (Continued) Long-term obligations (net of discounts and premiums) for governmental and business-type activities for the year ended September 30, 2005 are as foJJows: Debt Payable Debt Payable Dae in 9/30/2004 Additions Deletions 9/3012005 one year Governmental activities: Tax-Supported- Obligation Bonds $ 70,221,217 $ 45,110,000 $ 12,610,948 $ 102,720,269 $ 5,789,101 Capital Leases 1,.360,957 3,534,016 940,088 3,954,885 936,250 Compensated Absences 14,918,503 7,178,748 5,808,891 16.,288,365 5,723,349 Insurance Claim Payable 2,354,536 17,824,861 17,839,137 2,340,260 2,340,260 Bond Discounts/Premiums 1,179,722 725,586 39,324 1,865,984 Total Governmental:~ctjvities $ 90,034,940 $ 74,373,211 $ 37,238,388 $ 127,169,763 s 14,788,960 Business-Type activities: Self-Supported - Obligation Bonds 215,663,783 125,430,000 54,.344,052 286,749,731 14,695,899 Revenue Bonds 94,605,000 17,960,000 69,765,000 42,800,000 2,930,000 Capital Leases 1,393,207 1,706,563 1,745,194 1.354,576 456,625 Closu~ost Closure 3,051,116 22,275 3,073,391 Compensated Absences 4,160,142 2,897,972 2,057,349 5,000,765 2,207,245 Insurance Claim Payable 6,436,854 4,423,757 4,358,713 6,501,898 1,603,601 Bond Discounts/Premiums (914,877) (404,924) (3,875,249) 2,555,448 Total Busioess-Type activities $ 324,395,225 $ 152,035,643 $ 128,395,059 s 348,035,809 $ 21,893,370 Payments on bonds 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 to the governmental activities will be liquidated by the General Fund and Capital Projects Funds. 84 ( c ( I" .. "' \. ,. I. c ( ) ) ) ) City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE llL DETAH.. NOTES ON ALL ACTIVITIES AND FUNDS (Continued) H. LONG-TERM DEBT (Continued) The total long-tenn debt is reconciled to the total annual requirements to amortize long-term debt as follows: Long-tcm:J debt -Govemmenta!Activities $ 127,169,763 Loog-term debt -Business-type Activities 348,035,809 Interest 205,828,894 Total nmount of debt 681,034,466 Net gains/)Ot;ses, ptemiwt'ls/discount~< (4,421,432) Less: Cnpitlllle:~SeS (5,787,013) Less: Iosumnce cL'\ims payable (8,842,158} Less: Compent!ated :~bsenses (21,239,130) Less: Closure/post closure $ (3,073,391) Tow other debt (43,4 13,124) Total future bonded debt a:quiranents 637,621,342 New Bond Issuances 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; civiccenter/auditorium renovations and improvements, $6,450,000; park improvements, $6,395,000; police/municipal court facilities, $3,350,000; library improvements. $2,145,000; ltre 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 second installment was in September 2005, for $7,265,000, General Obligation Bonds Series 2005. The certificates wee issued at a discount of $91,805 and had bond issuance costs of $95,000. The net proceeds after discounts and costs were $7,075,000. The identified projects are; Fire Stations 12 and 8 $1,325,000; MLK little league complex $1,548,000; NE Lubbock residential infrastructure $475,000; paving and streets $330,000; curbs and ramps $440,000; traffic signals $50,000; signal systems $113,000; Midwest little league complex $1,664,000; and Phase I SW Lubbock soccer $1,130,000. The proceeds ofthe debt are recorded in various Capital Projects Funds. In September 2005, the City issued $46,525,000 Tax and Waterworks System Surplus Revenue Certificates of Obligation, Series 2005. The Certificates were issued at a premium of$1,581,752. After paying issuance costs of$325,139, the net proceeds were $47,780,720. Proceeds from the sale of these certificates wiJI 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. The proceeds of the debt are recorded in various Enterprise Funds and Capital Projects Funds. The Canadian River Municipal Authority issued a new Contract Revenue Bond, Series 2005 in April 2005 in the amount of $48,125,000. The City of Lubbock shared io that issue for $ l 7,960,000 and other costs of $850,296, and received depreciable assets (water rights) valued at Sl8,810,296. These assets and liabilities are recorded in the Water Enterprise Fund. 85 [ City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE m. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) H. LONG-TERM DEBT <Continued) Current Refunding In August 2005, the City issued Tax and Waterworks System Surplus Revenue Refunding Bonds, Series 2005 ("the Bonds") with a par value of $43,080,000 with the purpose to lower debt service requirements on indebtedness. The Bonds refunded $43,750,000 outstanding bonds. They were issued at a net premium of $2,638,737 and had issuance costs of $332,358. This bond issuance also paid for the termination of interest rate swap agreement in the amount of $6,637,093. The refunding resulted in a legal defeasance of debt and resulted in a net present value savings $621 ,296. The reacquisition price exceeded the net carrying value of old debt by $4,511,666. This accounting loss is netted against the new debt and amortized over the remaining life of the refunded debt. The various transactions are recorded in the Water Enterprise Fund. Advanced Refundings The City issued two advance refundiogs to retire a portion of the City's outstanding debt to lower the debt service requirements on such indebtedness. ln both advance refundings the net proceeds from the issuance of the Refunding Bonds were deposited with the Escrow Agent (JP Morgan 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 wiJI 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 agreements, between the City and JP Morgan Chase Bank, the escrow funds are 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. ln March 2005, the City issued a combination Tax and Electric Light and Power System Surplus Revenue Certificate of Obligation, Series 2005 in the amount of$23,055,000, which included $19,500,000 of refunded debt and $3,555,000 of new capital funds. This debt refunded $19,760,000 ofWTMPA long-term debt and dissolved the lease between WTMPA and the Electric Funds. The refunding bonds were issued at a net premium of $981,819. Issuance costs were S209,894 and net proceeds for electric capital projects were $3,600,000. The refunding resulted in a net present value savings of $557,722. The reacquisition price exceeded the net carrying amount of the old debt by $679,280. This accounting loss is netted against the new debt and amortized over the remaining life of the refunded debt. The various transactions are recorded in the WTMPA and the Electric Enterprise Funds. In July 2005, the City issued General Obligation Refunding Bonds, Series 2005 ("Refunding Bonds") with a par value of$49,615,000. The Refunding Bonds refunded $50,455,000 outstanding bonds. They were issued at a net premium of $3,836,536 and had $351 ,200 issuance costs. As a result of the refunding, the City decreased its total debt service requirements by $2,205,662, which resulted in an economic gain of $1,886,563 and an accounting loss of$4,140,288. The debt transactions are recorded in various Enterprise Funds and the Debt Service Fund. I. 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 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 acquired faciJities 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 the bonds. Accordingly, the bonds are not reported as liabilities in the accompanying fmancial statements. 86 ( ' ( ( c c ( ( c c c ) ) ) ) ) City of Lubbock, Texas Notes to Basic Financial Statements September 30,2005 NOTE m. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) I. CONDUIT DEBT (Continued) As of September 30, 2005, there were seven series of Lubbock Health Facilities Development Corporation Bonds outstanding with an aggregate principal amount payable of $278,537,343. The bonds were issued between 1993 and 2002. Also as of September 30, 2005, there was one series of Lubbock Education Facilities Authority Inc. Bonds outstanding with an aggregate principal amount payable of .$10,500,000. The bonds were issued in 1999. J. 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 coots. In April 1999, the City purchased workers' compensation coverage, with no deductible, from a third party. Prior to April 1999 the City was self insured for worker's compensation claims. Any claims outstanding prior to April 1999 continue to be the responsibility of the City. The City's self insurance liability program is on a cash flow basis, which means that the servicing contractor processes, adjusts and pays claims from a deposit provided by the City. The City accounts for the liability program by charging premiums based upon losses, administrative fees and reserve requirements. In order to control the risks associated with liability claims, the City purchased excess liability coverage in September 1999, which is renewed annually. The policy has a $10 million annual aggregate limit and is subject to a $250,000 deductible per claim. For self-insured coverage, the Risk Management Fund establishes claim liabilities based on estimates of the ultimate cost of claims (including future chum adjustment expenses) that have been reported but not settled, 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 factors as inflation, changes in doctrines of legal liability, and damage awards, the process used in computing claim liabilities does not necessarily result in an exact amount, particularly for liability coverage. Claim liabilities are recomputed periodically using a variety of actuarial and statistical techniques to produce current estimates that reflect recent settlements, claim frequency, and other economic and social factors. Adjustments to claim liabilities are charged or credited to expense in the period in which they are incurred. Additionally, property and boiler coverage is accounted for in the Risk Management Fund. The property insurance policy was purchased from an outside insurance carrier. The policy has a $500,000 deductible per occurrence, and the boiler coverage insurance deductible is up to $500,000 dependent upon the unit. Premiums are charged to funds based upon estimated premiums for the upcoming year. Other small insurance policies, such as surety bond coverage and miscellaneous floaters, are 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 for aJJ insurance activity in Internal Service Funds. 87 City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE ID. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) K. HEALTH INSURANCE The City provides medical and dental insurance for aU full-time employees that are accounted for in the Health Benefits 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 $175,000 per covered individual annually and an aggregate cap of $18,845,757. The insurance vendor based on medical trend, claims history, and utilization determines the aggregate deductible. The contract requires an ffiNR reserve of approximately $2.3 million. The City also provides full-time employees basic tenn life insurance. Revenues for the life insurance premiums are also generated ftom each cost center based upon the number of active employees. The life insurance policy has a face value of $10,000 per employee. 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 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. L. ACCRUED INSURANCE CLAIMS The Self-Insurance Funds establish a liability for self-insurance for both reported and unreported insured events, which incJudes 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: 88 c ( c c c c c < c c ) ) ) City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE m. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued} L. ACCRUED INSURANCE CLAIMS (Continued) Workers' Compensation and Liability Reserves at beginning of fiscal year $ 6,436,854 4,658,359 ( 4,593,315) Claims Expenses Claims Payments Workers' Compensation and Liability Reserves at end of fiscal year Medical and Dental Claims Liability at beginning of fiscal year Claims Expenses Claims Payments 6,501,898 2,354,536 17,432,646 (17 ,446,922) Medical and Dental Claims Liability at end of fiscal year 2,340,260 ------~~ Total Self-Insurance Liability at end of fiscal year Total Assets to pay claims at end of fiscal year Accrued insurance claims payable from restricted assets • c:urrent Accrued inswance claims payable -nonC'W'l'ent Total accrued insurance claims 8,842,158 3,943,861 4,898,297 $ 8,842,158 M. LANDFILL CLOSURE AND POSTCLOSURE CARE COST $ 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 3,538,746 5,252,644 $ 8,791,390 State and federal laws and regulations require the City to place fmat covers on its landfill sites when they stop accepting waste and to perfonn 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 $3,073,391 included in landfill closure and postclosure care liability at September 30, 2005, represents the cumulative amount expensed by the City to date for its two landfills that are registered under TCEQ pennit numbers 69 (Landfill 69) and 2252 (Landfill 2252), less amounts that have been paid. Around 92 percent of the estimated capacity of Landfill 69 has been used to date, with $814,035 remaining to be recognized over the remaining closure period, which is estimated at two years. Approximately 2.3 percent of the estimated capacity of Landfill 22S2 bas been used to date, with $23,356,052 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 adjust~ for inflation. Actual costs may be different due to inflation, deflation, changes in technology, or changes in regulations. 89 ; l I City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE ill. DETAD.. NOTES ON ALL ACTMTIES AND FUNDS (Continued) M. LANDFILL CLOSURE AND POSTCLOSURE CARE COST (Continued} The City is required by state and federal Jaws and regulations to provide assurance that financial resources wiU 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 fmance costs through normal opemtions. N. DISAGREGATION OF ACCOUNTS Accounts Receivable Summary Court Property Balance at Fines Damage Pavin~ Grants 9/30/05 GoverJimental Activities: General Fund $ 4,079,900 $ 230,337 $ 192,944 $ -$ 4,503,181 Non-Major 6,024 6024 Total $ 4,079,900 s 230,337 $ 192!944 $ 6,024 $ 4,509,205 Accounts Receivable Summary General From Credit Balance at Consumer Others Card Misc. 9/30105 Business-type Activities: LP&L $ 16,291,858 $ -$ ~ $ 32,753 $ 16,324,611 Water 4,535,594 4,535,594 Sewer 2,422,918 88,562 4,375 2,515,855 Storm water 741,677 741,677 WI'MPA 1,771,285 1,771,285 Non~Major 2,429,764 8,429 2,438,193 Internal Service 1,818 1,818 Total $ 28,194~914 $ 88,562 $ 8,429 $ 37!128 $ 28,329,033 Allowance for Doubtful Accounts Summar! Bal:lnee at Accounts Taxes 9130/05 Govemmenlal General F1md s 312,578 $ 1,065,047 $ 1,377,625 Non-Major 456,158 456,158 Business-Type LP&L 1,121,236 1,121,236 Water 421,833 421,833 Sewer 190,856 190,856 Sconnwater 85,143 85,143 WTMPA 675,217 675,217 Non-Major 2531907 253,907 Total $ 3,060,770 $ 1 !521~05 $ 4zS811975 90 ( (. c c c c c c < c c ) City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 ) NOTE m. DETAIL NOTES ON ALL ACTMTIES AND FUND (Continued) N. DISAGREGATION OF ACCOUNTS (Continued) Accounts Payable Summary ) BaJaoeeat Vouchers Accounts Investments Miscellaneous 9130105 Governmental: General Fund $ 549,520 $ 777,225 $ $ $ 1,326,745 Non-Major 776,893 4,756,291 215,387 513,454 6,262,025 Business-Type: LP&L 317,873 272,898 2,144 216,895 809,810 Water 167,320 628,733 4,022 82,830 882,905 Sewer 312,368 25,054 1,603 25,815 364,840 Storm water 61,636 818,455 880,091 WfMPA 12,745,213 12,745,213 Non-Major 20b426 595,611 103,505 901,608 ) Total $ 2,388,036 $ 20,619,546 $ 223,156 $ 942,499 $ 24,173,237 0. DISAGREGATION OF ACCOUNTS-GOVERNMENT-WIDE ) Net Receivables Accounts Interest Taxes Internal Service Balance at Receivable Receivable Receivable Receivables 9130105 Governmental Activities $ 4,196,627 $ 54,612 $ 9,464,704 $ 119,364 $ 13,835,367 Business-Type Activities 25,627,366 94,307 18,246 25,739,919 Total $ 29,823.993 $ 148,979 $ 9,464,704 $ 137,610 $ 39,575,286 ) Accounts Payable Ac:eouats Internal Service Balance at Payable Payables 9130105 Governmental Ac:tivities $ 7,588,773 $ 427,891 $ 8,016,664 Business-Type Activities 16,584,467 851,945 17,436,412 Total $ 24,173,240 $ 1,279.836 $ 25,453,076 91 ll City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE IV. CONTINGENT UABD..ITIES 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 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 foiJowing lawsuits which could have an impact on the financial position if the City Is found liable. Adams. et al v. CitvofLubboek: The City of Lubbock has been sued by numerous firefighters employed by the City of Lubbock. They are claiming that the City of Lubbock did not properly pay its firefighters for "move-up" pay pursuant to the Civil Service Act. Pursuant to the Civil Service Act, farefighters 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 assert they are also entitled to the "seniority pay" which they've earned at the lower classification. 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 ftled 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 aod rendered a decision in favor of the City of Lubbock, holding that the City paid its employees properly under the Civil Service Act. Plaintiffs have appealed to the Texas Supreme Court and the Texas Supreme Court has requested full briefing on the issues. The Court has not made a detennination as to whether or not it will hear the case. Barnard Construdion Companf2 Inc. v. City of Lubbock: Plaintiff is a construction company suing the City of Lubbock for breach of contract. Plaintiff alleges the City owes it almost $2,400,000 for rock it excavated on a drainage project. They assert they are owed $204,000 for rock excavated on Line AI and assert they are owed almost $2,200,000 for rock excavated on other lines on the project. The City has agreed to pay for approximately $176,000 ofrock excavated on LineAl. However, the City has 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 Tria1 Court ruled in the City's favor on September 28, 2005. Barnard has appealed this case to the Fifth Circuit Court of Appeals. Oral arguments are set for March. Jeanette Livingston, et al v. City of Lubbock: Six {6) Plaintiffs ftled suit against the City of Lubbock in 2004 alleging that the City and/or County failed to properly record information in its cemetery records that would indicate where their relatives were buried. Fifty-six additional Plaintiffs were added to the suit in November 2005. The City believes it has located where twenty-one (21) of such persons were interred. As to others, many were interred before the City owned the portion of the cemetery. The City acquired portions of the current cemetery between 1948 and 1959 and 92 < ( ( c ' c c c ( ) ) 0 0 0 City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2005 NOTE IV. CONTINGENT LIABILITIES (Continued) B. LITIGATION (Continued) many of the deceased were clearly bwied when other entities owned the cemetery. The City will assert it bas no liability for their negligence in not recording the burial locations properly. The City will also assert that the Plaintiffs have no evidence that the City was negligent and didn't maintain records that showed where such persons were buried. For those persons who were buried while the City owned the cemetery and the City failed to properly record the burial location, there are a number of defenses. First. the City will assert that the statute of limitations has run. Second. the City will assert that this is a contractual issue and not a tort issue, thus giving standing only to those who were parties to the oontract Third, the City will assert that, if this is a tort issue, that this is a negligent infliction of emotional distress case and such cause of action was nullified by the Texas Supreme Court in 1993. Lastly, for those buried after 1970, the City has other defenses it will assert under the Texas Tort Claims Act. At this time, damages are difficult to ascertain but, collectively, they would meet the $200,000 materiality definition for damages. Marvin Rodriguez v. LP&L: Plaintiff sued LP&L for negligently maintaining a line. Plaintift an employee of Annos Energy, was worl<ing around an LP&L Jine and suffered second degree bums over 5% of his body. He alleges that LP&L was negligent in not de-energizing the line since it was no longer in use. The City will assert that the Plaintiff was negligent for failing to contact LP&L and as to whether the line was energized. It is our understanding that Plaintiff was suspended by his own company for his negligent conduct. While we do not believe this suit has a potential exposure of over $200,000, we are including it in this disclosure as Plaintiff's demand was $325,000. C. SITE REMEDIATION The City has identified specific locations requiring site remediation relative to underground fuel storage tanks and historical fire training sites. As of September 30, 2005 the City identified three locations that posed a probable liability. The City recorded the liabilities for the three locations as follows: LP&L Plant I ($236,000), LP&L Cooke Plant ($326,000) and WesT ex Aircraft ($300,000). The potential exposure for the remaining locations is not readily detenninable as of September 30, 2005. In the opinion of management, the uJtimate liability for these locations will not have a materially adverse effect on the City's financial position. 93 : ! [ i c c c c c c c c 0 0 0 ) APPENDIXC FORM OF BOND COUNSEL'S OPINION D 0 0 0 c c c c (THIS PAGE INTEI'fflONALL Y LEFT BLANK) c 0 0 0 0 0 0 ) 0 Vi.nson&Elkins [FORM OF BOND COUNSEL OPINION] [Closing Date] $] 8,830,000 CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 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 REFUNDING BONDS, SERIES 2006, dated April 15, 2006, issued in the principal amount of $18,830,000. 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, as amended, adopted by the City Council of the City authorizing their issuance (the '"Ordinance"). WE HAVE 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 Hmited 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 AgenC); 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 Obligations") and the mathematical accuracy of certain computations of the yield on the Bonds and obligations acquired with the proceeds of the Bonds; and \Iinson & Elkins LLP Attorneys at law Austin Beijing Dallas Oubai Houston London Mosoow NewYort( Tokyo Washington Trammell Crow Center. 2001 Ross Avenue. Su~e 3700 Dallas, Texas 75201·2975 Tei214.220.7700 Fax 214.220.7716 www.vefaw.com ~ [I V&E 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 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 Obligations pursuant to the Escrow Agreement, and therefore, the Refunded Obligations 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. IT IS OUR FURTHER OPINION THAT: (I) 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 Internal Revenue Code of 1986, as amended (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 underwriter of the Bonds with respect to matters solely within the knowledge of the City. the City's financial advisor and the underwriter respectively, which we Final OS opinion. DOC -2- c c c c c c c c 0 0 c ) ) ) 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 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 obJigations may result in col1ateral 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 Jaw 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 D 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. Final OS opinion. ()(X' -3- ~ l I c c c c [fH!S PAGE INTENTJONALL Y LEFT BLANK) c c c c 0 0 c ) ) ) APPENDIXD SPECIMEN OF BOND INSURANCE POLICY J J I c c c c c [THIS PAGE INTENTIONALLY LErr BLANK) c c c c 0 c ) F6IC Financ;Jal Guaranty Insurance Company 1 25 Park A venue New York, NY 10017 T 212-312-3000 T SOG-352·0001 Municipal Bond , New Issue Insurance Policy Issuer: Bonds: Exhibit A Policy Number: Control Number: 0010001 FinanciaJ Guaranty Insurance Company ('"Financial Yorlc stock insurance company, in consideration of the payment of the premium~su · of this Policy. hereby unconditionally and inevocably agrees to pay to U.S. Bauk :ti Association or its successor, as its agent (the "Fiscal Agent"). for the benefit of Bon · portion of the principal and interest on the above. descnoed debt obligations (the "Bonds~ I become Due for Payment but shall be Wlpaid by reason of Nonpayment by the Issner. ~'""' Financial Guaranty will make such payments to the Fjscal Agent on the date such principal or interest becomes Due for Payment or on the Business Day next following the day on which FiDancial Guanmty ~ have received Notice ofNoopayment, whichever is later. The Fiscal Agent will disburse to the Bondholder the face amount of principal and interest wmch is then Due for Payment but is mzpaid by reason of NOOJI3jl1lelrt by 1be Issuer but only upon receipt by the Fiscal Agent, in form reasonably S!ltisfactory to it. of (i) evidence of the Bondholder's right to receive payment of the principal or interest Due for Payment and (ii) evidence, including any appropriate instruments of assignment, that all of the Bondholder's rights to payment of such principal or interest Due for Payment shaD therenpon vest in Financial Guaranty. Upon such disbursement. Financial Guaranty shall become tbe owner of the Bond, appartemmt coupon or right to payment of principal or interest on sucb Bond and shall be fully subrogated to all of the Bondholder's rights theretmder, including the Bondholder's right to payment thereof. This Policy is non-caocellable for any reason. The premium on this Policy is not refundable for any ~ including the payment of the Bonds prior to their maturity. 1bis Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Bond. As used herein, the term "Bondholder" means, as to a particular Bond, the person other than the Issuer who, at the time ofNonpayment. is entitled under the terms of such Bond to payment 1bereof. "Due for Payment" means, when referring to the principal of a Bond, the stated maturity date thereof or the date on which 1he same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of matmity and means, when referring to interest on a Bond, the stated date for payment of in~ "Nonpayment'' in respect of a Bond means the failure of the lssuer to have provided sufficient funds to the paying agent for payment in full of all FGIC is a repisterec! seiYice rMrk used by Fn!ndal Guatanly lnsur.lnce Campany under license from il$ pan!llt company. FGIC ~ Fonn9000(10193) Page1of2 l ~ i F6IC Financial Guar.~nty Insurance Company llS Park Avenue New York, NY 10017 T 212-312-3000 T 800· 352·000 I Municipal Bond New Issue Insurance Policy principal and interest Due for Payment on such Bond. "Notice" means telephonic or telegraphic notice. subsequently confirmed in writiDg, or written notice by registered or certified mail, from a Bondholder or a paying agent for the Bonds to Financial Guaranty. "Business Da~" any day other than a Saturday. Sunday or a day on which the Fiscal Agent is authorized by law to • sed. In Witness Wbereot: Financial Guaranty has caused~· s ~ hJ ed with its coxporate seal and to be sig):led by its duly authorized officer in facs· o~~ effective and binding upon Financial Guaranty by virtue of the countersignature of its ~uth a representative. ~ ~·s« ~~ President Effective Date: Antborized. Representative U.S. Bank Trust National A.ssociatiou, acknowledges that it has agreed to perform the duties of Fiscal Agent under this Policy. · Autho~ Officer FGIC is a tegisreted se.rvicemarlt used byFinanQ;,I Guaranty Insurance ~undel"license from ilsparern company, FG!C Coriloration. Form 9000 (10193) Page 2 of 2 c c c c c c c c c 0 0 F6IC Financial Guaranty Jnsurance Company 125 Parle Avenue NewYork,NY 10017 T 212-312-3000 T 8()(}-352-()()01 Endorsement To Financial Guaranty Insurance Company Insurance Policy Policy Number: Control Number: 0010001 It is further understood that the tenn "Nonpayme:nf" in d includes any payment of principal or interest made to a Bondholder by or on behalf of~ilSii~•%'Wch Bond which has been recovered from such Bondholder pursuant to the United States e by a trustee in bankruptcy in accordance with a final, nonappealable order of a court tent jurisdiction. NO'IlJJNG HEREIN SHALL BE CO UED TO W .AlVE, AL'I'ER, REDUCE OR AMEND COVERAGE IN ANY OTHER SECI'ION OF THE POLICY. IF FOUND CONTRARY TO THE POUCY LANGUAGE, THE TERMS OF TinS ENDORSEMENT SUPERSEDE THE POlleY LANGUAGE. In Witness Whereof: Financial Guar.mty has caused this Endorsement to be affixed with its COipOrate seal and to be signed by its dnly authorized officer in facsimile to become effective and binding upon Financial Guaranty by virtue of the countersignature of its duly authorized represemative. President Effective Date: Authorized Representative Acknowledged as of the Effective Date written a~ve: Authorized Officer U.S. Bank Trust National Association, as Fisul Agent FGIC is & tegiSiefed seNioe matk used b>j RnancSal Guaranty lnsulanoe C'.4:impeny under &tense from its parant compeny, FG1C ColporaliQn. Foml E·0002 {10193) Page 1 of 1 : II , c c c c c {THIS PACE INTENTIONALLY LEFT BLANK) c c c c 0 c ) ) ) ) ) : [ i Financial Advisory Services Provided By ~ 1 First Southwest Company _, Investment Bankers Since 1946 c ( c c c c c c c c c ) PURCHASE CONTRACT RELATING TO $18,830,000 CITY OF LUBBOC~ TEXAS GENERAL 0BUGA TlON REFUNDING BoNDS, SERlES 2006 May 11.2006 The Honorable Mayor and Members of the City Council City of Lubbock P.O. Box 2000 Lubbock, Texas 79457 Dear Mayor and Members of the City Council: A. G. EDWARDS &SONS, INC. (the "Underwriter"), offers to enter into this Purchase Contract {the "Purchase Contract") with the CITY OF LCJBBOCK, TEXAS(the "City';) for the purchase by the Underwriter of the City's General Obligation Refunding Bonds, Series 2006 (the "Bonds"). This offer is made subject to the City's acceptance of this Purchase Contract on or before I 0:00 p.m. Central Time on May 11, 2006. I. Purchase and Sale of the Bonds. Upon the terms and conditions and upon the basis of the representations set forth herein, the Underwriter agrees to purchase from the City, and the City hereby agrees to sell and deliver to the Underwriter an aggregate of $18,830,000 (representing the original aggregate principal amount of the Bonds). The Bonds shall have the maturities, interest rates and be subject to redemption in acoordance with the provisions of Exhibit A hereto and shall be issued and secured under the provisions of the Ordinance (as defmed below) . . The purchase price for the Bonds shall be $18,557,755.97 {representing the principal amount of the Bonds, less net original issue discount on the Bonds in the amount of $147,517.60, and less an Underwriter's discount on the Bonds of $124, 726.43) plus accrued interest from their dated date to the date of the payment for and delivery of the Bonds. 2. Ordinance. The Bonds shall be as described in and shall be issued and secured under ~e provisions of an ordinance adopted by the City on Apri126, 2006, authorizing the issuance and sale of the Bonds {the "Ordinance"). In the Ordinance, the City Council of the City delegated the authority to the Chief Financial Officer to establish the pricing terms for the Bonds through the execution of a Pricing Certificate dated the date hereof(the "Pricing Certificate"). The Bonds shall be secured and payable as provided in the Ordinance and the Pricing Certificate. ) ' I 3. Public Offering. It shall be a condition of the obligations of the City to sell and deliver the Bonds to the Underwriter, and of the obligations of the Underwriter 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 Underwriter at the Closing. The Underwriter agrees 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 {I 00/o) 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 Deposit. Delivered to the City herewith is a corporate check of the Underwriter payable to the order of the City in the amount of $182,950.00. Such check is a common "Good Faith" check for the Bonds, and such check may be applied toward any obligation of the UndetWriter owing as a result of the failure of the Underwriter 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 Underwriter of its obligation to purchase, accept delivery of and pay for the Bonds at the Closing. Concurrently with the payment by the UndeiWriter of the purchase price of the Bonds. the City shall return such check to the Underwriter 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 Undetwriter to purchase, accept delivery of and pay for the Bonds, as set forth in this Purchase Contract (unless waived by the Underwriter), or should such obligations of the Underwriter be terminated for any reason permitted by this Purchase Contract, such check shall immediately be returned to the Underwriter. In the event the Underwriter fails {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 Underwriter and for any defaults hereunder on the part of the Underwriter. The Underwriter hereby agrees not to stop or cause payment on said check to be stopped unless the City has breached any of the terms of this Purchase Contract. 5. Official Statement. The Official Statement, including the cover pages and Appendices thereto, oftheCity, dated May 11,2006, withrespecttotheBonds, 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 Underwriter in connection with the public offering and sale of the Bonds. The City confums its consent to the use by the Underwriter prior to the date hereof of the Preliminary Official Statement, relative to the Bonds, dated April 18, 2006 (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 l5c2-12 promulgated under authority granted by the federal Securities and Exchange Act of 1934 {the "Rule"). The City agrees to cooperate with the Underwriter to provide a supply of final Official Statements within seven business days of the date hereofin sufficient quantities to comply with the Underwriter's obligations under the Rule and the applicable rules of the Municipal Securities Rnlemaking Board. The Underwriter will use its best efforts to assist the City in the preparation of the final Official Statement in order to ensure compliance with the aforementioned rules. 2 ) ) If at any time after the date of this Purchase Contract but before the fa.rst to occur of (i) the date upon which the Underwriter notifies the City that the period of the initial public offering of the Bonds has expired or (ii) the date that is 90 days after the date hereof, any event shall occur that might or would cause the Official Statement to contain any untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make the statements therein. in the light of the circumstances under which they were made, not misleading, the City shall notify the Underwriter, and if, in the opinion of the Underwriter, 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 fonn and in a manner approved by the Underwriter and furnish to the Underwriter a reasonable number of copies requested by the Underwriter in order to enable the Underwriter to comply with the Rule. To the best knowledge and belief of the City, the Official Statement contains infonnatio~ 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 undeitaking 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 ofTexas 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 enter into the escrow agreement described in the Official Statement and the Ordinance (the "Escrow Agreement"), to sell the Bonds, and to issue and deliver the Bonds to the Underwriter as provided herein and to cany out and consummate all other transactions contemplated by the Ordinance, the Escrow Agreement and this Purchase Contract; (b) By official action of the City prior to or concurrently with the acceptance hereof: the City has duly adopted the Ordinance, has duly authorized and approved the execution and delivery of, and the performance by the City of the obligations contained in the Bonds, the Escrow Agreement and this Purchase Contract and has duly authorized and approved the performance 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 ofTexas 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 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 dte City; and the execution and delivery of the Bonds, the Escrow Agreement 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 3 ) ) ) ) ) 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 Purchase Contract and the Closing, the City will not, without the prior written consent of the Underwriter, 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 Bonds, Series 2006 and Tax and Waterworks System Surplus Revenue Certificates of Obligation, Series 2006, and the City will not incur any material liabilities, direct or contingent, nor will there be any adverse change of a material nature in the fmancial 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, the Escrow Agreement or this Purchase Conn:act 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 Underwriter in arranging for the qualification of the Bonds for sale and the determination of their eligibility for investment wtder the laws of such jwisdictions as the Underwriter 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 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, the Escrow Agreement 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 Underwriter as provided herein, will be 4 ) ) ) 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 Underwriter, and if in the opinion of the City and the Underwriter such event requires a supplement or amendment to the Official Statement, the City will supplement or amend the Official Statement in a form and in a manner approved by the Underwriter; (k) The financial statements contained in the Official Statement present fairly the fmancial 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 fmancial statements; (I) Any certifiCate signed by any official of the City and delivered to the Underwriter shall be deemed a representation and warranty by the City to the Underwriter 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 June 20, 2006 (the "Closing"), the City will deliver the initial securities certificates of the Bonds (as provided for in the Ordinance) to the Underwriter 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 Underwriter with the other documents hereinafter mentioned. On or prior to the date of Closing, the Underwriter shall make arrangements with The Depository Trust Company ("DTC") for the Bonds to be inunobilized and thereafter traded as book-entry only securities and on the date of Closing the Underwriter will accept such delivery and pay the purchase price of the Bonds as set forth in Paragraph I hereof in immediately available funds. Concurrently with such payment by the Underwriter, the City shall return to the Underwriter the check referred to in paragraph 4 hereof. Delivery and payment as aforesaid shall be made at the office of the paying agent/registrar for the Bonds, as identified in the Official Statement, or such other place as shall have been mutually agreed upon by the City and the Underwriter. In addition, the City and the Underwriter agree that there shall be a preliminary closing held at such place as the City and the Underwriter shall mutually agree, commencing at least 24 hours prior to the Closing; provided, however, in lieu of this preliminary closing Bond Counsel, as defined 5 ) below, may provide the counsel to the Underwriter 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 counsel for review at least three business days prior to the Closing. 8. Conditions. The Underwriter has entered into this Purchase Contract in reliance upon the representations and warranties of the City contained herein and to be contained in the documents and instruments to be delivered at the Closing, and upon the perfonnance by the City of its obligations hereunder, both as of the date hereof and as of the date of Closing. Accordingly, the Underwriter's obligations under this Purchase Contract to purchase and pay for the Bonds shall be subject to the perfonnance 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 aU 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 and the Escrow Agreement shall be in full force and effect, and the Ordinance and the Escrow Agreement 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 Underwriter; 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 and the Escrow Agreement 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 Underwriter shall have received each of the following documents: (1) The Official Statement of the City executed on behalf of the City by the Mayor and City Secretary, or a conformed copy thereof; (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 Underwriter. The Ordinance shall contain the agreement of dle City, in form satisfactory to the Underwriter, that is described under the caption "Other Information -Continuing Disclosure of Information" in the Preliminary Official Statement; 6 ) ) (3) the Pricing Certificate, having been duly executed on behalf of the City; (4) the Escrow Agreement, having been duly executed on behalf of the City and JPMorgan Chase Bank, N.A., as the Escrow Agent; (5) the Paying Agent/Registrar Agreement, having been duly executed on behalf of the City and JPMorgan Chase Bank, N.A., as Paying Agent/Registrar; (6) The opinion pertaining to the Bonds, dated the date of Closing, of Vinson & Elkins L.L.P. ("Bond Counsel") in substantially the fonn and substance set forth in Appendix C to the Official Statement; (7) 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; (8) The supplemental opinion, dated the date of Closing, of Bond Counsel, addressed to the City and the Underwriter, which provides that the Underwriter may rely upon the opinion of Bond Counsel delivered in accordance with the provisions of paragraph 8( e)( 6) 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 Underwriter) constitutes a binding and enforceable agreement of the City in accordance with its tenns; (b) in its capacity as Bond Counsel, such finn has reviewed the information in the Official Statement under the captions or subcaptions "The Bonds" (exclusive of the information under the subcaptions "Book-Entry-Only System" and "Bondholders' Remedies"), ''Tax Matters" and the subcaptions "Legal Investments and Eligibility to Secure Public Funds in Texas," "Legal Matters" and "Continuing Disclosure of lnfonnation" (exclusive of the information under the subcaption "Compliance with Prior Undertald.ngs") 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 ofthe provisions of the laws and instruments therein described and, with respect to the Bonds, such information conforms to the Ordinance; and (c) the Bonds are exempt from registration pursuant to the Securities Act of 1933, as amended, and the Ordinance is exempt from qualification as an i.Iidenture pursuant to the Trust Indenture Act of 1939, as amended; (9) An opinion or opinions of McCall, Parkhurst & Horton L.L.P., Underwriter's Counsel, addressed to the Undetwriter, and dated the date of Closing in substantially the form attached hereto as Exhibit B; 7 ) ) ) ) ) ( 1 0) 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 tnie 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 enjoin the issuance or delivery of the Bonds, or the levy, collection or application of the ad valorem taxes pledged or to be pledged to pay the principal of and interest on the Bonds, or the pledge thereof, or in any way contesting or affecting the validity of the Bonds, the Ordinance, the Escrow Agreement or contesting the powers of the City or the authorization of the Bonds, the Ordinance or the Escrow Agreement, 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 Underwriter may, in its sole discretion, accept certificates or opinions of the City Attorney that, in the opinion thereo~ the issues raised in any such pending or threatened litigation are without substance or that the contentions of all plaintiffs therein are without merit); (iii) to the best of their knowledge, no event affecting the City has occurred since the date of the Official Statement that should be disclosed in the Official Statement for the purpose for which it is to be used or that it is necessary to disclose therein in order to make the statements and information therein not misleading in any respect; and (iv) that there has not been any material and adverse change in the affairs or financial conditio~ of the City since September 30, 2005, the latest date as to which audited financial information is available; ( 11) An opinion of the City Attorney addressed to the Underwriter and dated the date of Closing substantially in the form and substance ofExhibit C hereto; (12) 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 of 1986, as amended; (13) Evidence of the rating on the Bonds, which shall be "Aaa" by Moody's Investors Service, Inc. ·( .. Moody's .. ), "AAA" by Standard and Poors Corporation. a division of the McGraw-Hill Companies, Inc. ("S&P"), and "AAA" by Fitch Ratings ("Fitch"), as a result of the issuance of the municipal bond insurance policy described in clause (14) below, shall be delivered in a form acceptable to the Underwriter; (14) A copy of the policy of municipal bond insurance issued by Financial Guaranty Insurance Company with respect to the Bonds; 8 ) ' ) { l S) Such additional legal opinions, certificates, instruments and other docwnents as Bond Counsel or the Underwriter may reasonably request to evidence the tiUth, 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, instruments and other documents mentioned above or elsewhere in this Purchase Contract shall be deemed to be in compliance with the provisions hereof if, but only if, they are satisfactory to the Underwriter. If the City shall be unable to satisfy the conditions to the obligations of the Underwriter 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 Underwriter to purchase, to accept delivery of and to pay for the Bonds shall be tenninated for any reason pennitted by this Purchase Contract, this Purchase Contract shall terminate, the security deposit referred to in Paragraph 4 of this Purchase Contract shall be returned to the Underwriter and neither the Underwriter nor the City shall be under further obligation hereunder, except that the respective obligations of the City and the Underwriter set forth in Paragraphs I 0 and 12 hereof shall continue in full force and effect 9. Termination. The Underwriter 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 reconunended 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 Conunittee 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 Treasury Department of the United States or the Internal Revenue Service or any other agency of the United States; or (iv) a release or official statement shall have been issued by the President of the United States or by the Treaswy Department of the United States or by the Internal Revenue Service, the .effect of which, in any such case described in clause {i), (ii), (iii), or (iv), would be to impose, directly or indirectly, federal income taxation upon interest · received on obligations of the general character of the Bonds or upon income of the general character to be derived by the City, other than any imposition of federal income taxes upon interest received on obligations of the general character as the Bonds on the date hereof and other than as disclosed in the Official Statement, in such a manner as in the judgment of the Underwriter would materially impair the marketability or materially reduce the marlcetprice of obligations of the general character of the Bonds. (b) Any action shatl 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 under the Trust Indenture Act of 1939, as amended, in connection with the public offering of the Bonds, or any action shall have been taken by any court or by any govenunental authority suspending the use of the Preliminary Official Statement or the Official Statement or any amendment or supplement thereto, or any proceeding for that pu.rpose shall have been initiated or threatened in any such court or by any such authority. (c) (i) The Constitution of the State ofTexas 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 shaU have been issued or proposed by or on behalf of the State ofTexas 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 Underwriter 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 occWTed. {f) 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 Underwriter, 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 Underwriter, 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 of New York or the State of Texas. (i) A lowering of the ratings of"A~" "AAA" and "AAA,11 initially assigned to the Bonds by Moody's, S&P and Fitch, respectively, shall occm prior to the Closing. 10. Expenses. (a) The City shall pay all expenses incident to the issuance of the Bonds, including but not limited to: (i) the cost of the preparation, printing and distribution of the Preliminary Official Statement and the Official Statement; (ii) the cost of the preparation and printing of the Bonds; (iii) the fees and expenses of Bond Counsel to the City; (iv) the fees and 10 ) ) 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 Underwriter 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 finn's opinion required by Paragraph 8{e)(9) hereof. 11. Notices. Any notice or other communication to be given to the City under this Purchase Contract may be given by delivering the same in writing at the address for the City set forth above, and any notice or other communication to be given to the Underwriter wtder this Purchase Contract may be given by delivering the same in writing to A. G. Edwards & Sons, Inc., 70 N .E. Loop 410, Suite 915, San Antonio, Texas 78216, Attention: Ms. Nora Chavez . 12. Parties in Interest. 1bis Purchase Contract is made solely for the benefitofthe City and the Underwriter (including the successors or assigns of any Underwriter) and no other person shall acquire or have any right under this contract. The City's representations, warranties and agreements contained in this Purchase Contract that exist as of the Closing, and without regard to any change in fact or circumstance occurring subsequent to the Closing, shall remain operative and in full force and effect, regardless of (i) any investigations made by or on behalf of the Underwriter, and (ii) delivery of any payment for the Bonds hereunder; and the City's representations and warranties contained in Paragraph 6 of this Purchase Contract shall remain operative and in full force and effect. regardless of any termination of this Purchase Contract. 13. Severability. If any provision of this Purchase Contract shall be held or deemed to be or shall, in fact. be invalid, inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions, or in all jurisdictions because it conflicts with any provisions of any constitution, statute, rule of public policy, or any other reason, such circumstances shall not have the effect of rendering the provision in question invalid, inoperative or wtenforceable in any other case or circumstances, or of rendering any other provision inoperative or unenforceable to any extent whatever. 14. Choice of Law. This Purchase Contract shall be governed by and construed in accordance with the laws of the State of Texas. 15. Es:eeution in Counterparts. lhis Purchase Contract may be executed in anynumbec 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 Conlract. 11 ) 17. Status of the Underwriter. The City acknowledges that in conne<:tion 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 Underwriter has 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 Underwriter's duties and obligations to the City shall be limited to those contractual duties and obligations set forth in this Contract and (c) the Underwriter may have interests that differ from those of the City. The City waives to the full extent permitted by applicable law any claims it may have against the Underwriter arising from an alleged breach of fiduciary duty in conne<:tion with the offering of the Bonds. [Signature page follows.] 12 ) ) If you agree with the foregoing~ please sign the enclosed counterpart of this Purchase Contract and return it to the Underwriter. This Purchase Contract shall become a binding agreement between you and the Underwriter 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. By: JL~ Name: Nora w. Chavez Title: Managing Director -Investment Banking ACCEPTANCE ACCEPTED pursuant to a motion adopted by the City Council of the City ofLubbock, Texas on the 26th day of April, 2006 and executed this 11th day of May, 2006. By: ) ' J EXHIBIT A Schedule of Maturities, Interest Rates, Yields and Redemption Provisions $18,830,000 City of Lubbock, Texas General Obligation Refunding Bonds, Series 2006 Maturity Principal Interest Rate Yield (Februaa 15} Amount {o/o} (•,{.) 2007 $30t000 4.000 3.680 2008 30,000 4.000 3.720 2009 35,000 4.000 3.750 2010 35,000 4.000 3.770 2011 35,000 4.000 3.810 2012 40,000 4.000 3.920 2013 40,000 4.000 4.040 2014 40,000 4.000 4.140 2015 40.000 4.000 4.230 2016 45,000 4.200 4.310 2017 45,000 4.300 4.440 2018 50,000 4.400 4.540 2019 50,000 4.500 4.610 2020 55,000 4.500 4.650 2021 55,000 4.500 4.680 2022 1,455,000 4.500 4.690 2023 1,525,000 4.750 4.720 2024 1,600,000 4.750 4.740 2025 1,680,000 4.750 4.760 2026 1,765,000 4.750 4.780 2027 1,850,000 4.600 4.800 *** ..... *** *** 2029 1,000,000 5.000 4.650 *** *** *** *** 2029 2,965,000 4.750 4.810 *** *** *** *** 2031 4,365,000 4.750 4.850 The City reserves the right, at its option, to redeem Bonds having stated maturities on and after February 15, 2017, in whole or in part in principal amounts of$5,000 or any integral multiple thereof, on February 15, 2016, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. A-1 ) The Bonds maturing on February 15 in the years 2029 (CUSIP 549187Y97). 2029 (CUSIP 549187Z21) and 2031 (collectively, the "Tenn Bonds") are subject to mandatory redemption prior to maturity in part by lot, at a price equal to the principal amount thereof plus accrued interest to the date of redemption. on February t 5 in the respective years and principal amounts shown below: TERM BoNDS MATURING FEBRUARY 15,2029 (CUSIP S49187Y97) REDEMPTION DATE February 15, 2028 ·February 15, 2029 (......-i1yl REDEMPTION AMOUNT $460,000 540,000 TERM BoNDS MATURING FEBRUARY 15, 2029 (CUSIP 549187Z21) REDEMPTION DATE February 15, 2028 February 15, 2029 (INMily) REDEMPTION AMOUNT $1,475,000 1,490,000 TERM BONDS MATURING FEBRUARY 15, 2031 REDEMPTION DAIE February 15,2030 February 15,2031 (-.ily) A-2 REDEMPTION AMQUNJ $2,130,000 2,235,000 ) ) EXHIBITB Proposed Form of Underwriter•s Counsel Opinion of McCall, Parkhurst & Horton L.L.P. A.G. Edwards & Sons, Inc. 70 N.E. Loop 410, Suite 915 San Antonio, Texas 78216 June 20, 2006 RE: $18,330,000 GENERAL OBLIGATION REFUNDING BONDS, SERIES 2006 Ladies and Gentlemen: We have acted as counsel for you as the underwriters of the Bonds described above, 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 May 11, 2006. 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 of law and of fact, and have relied upon such Bonds 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 Secwities 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 May 11, 2006 (the "Official Statementtt) and because the information in the Official Statement under the headings "THE BONDS -Book-Entry-Only System, tt "TAX MA TIERS, tt and "OTHER INFORMATION -Continuing Disclosure of Information-Compliance with Prior Undertakings" and Appendices A, B. and C thereto were prepared by others who have been engaged to review or provide such information, we are not passing on and do not assume any responsibility for, except as set forth in the last sentence of this paragraph, the accuracy, completeness or fairness of the statements contained in the Official Statement (including any appendices, schedules and exhibits thereto) and we make no representation that we have independently verified the accuracy, completeness or fairness of such statements. In the course of our review of the Official Statement, we had B-1 ) ) ) 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 fmancial and statistical data contained therein, the information set forth under the headings 11THE BONDS-Book-Entry-Only System," "TAX MATIERS," and "OTHER INFORMATION -Continuing Disclosure of Information -Compliance with Prior Undertakings" and Appendices A, Band 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 upo.n by only you and only in cormection with the transaction to which reference is made above and may not be used or relied upon by any other person for any pwposes whatsoever without our prior written consent. Respectfully, B-2 ) EXHIBITC Proposed Form of Opinion of tbe City Attorney A.G. Edwards & Sons, Inc. 70 N.E. Loop 410, Suite 915 San Antonio, Texas 78216 June 20, 2006 RE: $18,830,000 GENERAL OBLIGATION REFUNDING BONDS, SERIES 2006 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 Cowtcil of the City on April26, 2006. Capitalized terms 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, docwnents, 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 accmacy 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 ofTexas 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 ad.ministtative regulation of the State ofTexas 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 OCCUJTed and is continuing that, with the passage of time or the giving of notice, or both, would constitute such a default by the City Wlder any of the foregoing; and the execution and delivery of the Purchase Contract, the Bonds, the Escrow Agreement 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 C-1 ) ) 2. 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, the Escrow Agreement or the Purchase Contract; (d) contesting the powers of the City or any authority for the issuance of the Bonds, or the adoption of the Ordinance; or (e) that would have a material and adverse effect on the financial condition of the City. 3. I have reviewed the information in the Official Statement contained under the caption "Other Information-Litigation" and such information in all material respects accurately and fairly summarizes the matters described therein. This opinion is furnished solely for your benefit and may be relied upon only by the addresses hereof or anyone to whom specific pennission is given in writing by me. Very truly yours, C-2 ) ) ) WB200nl006 Dallas ll22038_1.DOC ESCROW AGREEMENT Between CllY OF LUBBOCK, TEXAS and JPMORGAN CHASE BANK, NATIONAL ASSOCIATION Pertaining to City of Lubbock, Texas General Obligation Refunding Bonds, Series 2006 Dated as of May 15, 2006 ) ) TABLE OF CONTENTS ARTICLE I DEFINITIONS AND INTERPRETATIONS Section 1.0 l. Definitions ............................................................................................................... 2 Section I .02. Other Definitions ..................................................................................................... 3 Section 1.03. Interpretations .......................................................................................................... 3 ARTICLE II DEPOSIT OF FUNDS AND FEDERAL SECURITIES Section 2.01. Deposits in the Escrow Fund ................................................................................... 3 ARTICLE III CREATION AND OPERATION OF ESCROW FUND Section 3.01. Escrow Fund ............................................................................................................ 3 Section 3.02. Payment of Principal and Interest ........................................................................... 4 Section 3.03. Sufficiency of Escrow Fund .................................................................................... 4 Section 3.04. Trost Fund ............................................................................................................... 4 Section 3.05. Security for Cash Balances, .................................................................................... 4 ARTICLE IV SUBSTITUTION OF FEDERAL SECURITIES Section 4.01. In General ................................................................................................................ 5 Section 4.02. Substitution of Federal Securities at Bond Closing ................................................ 5 Section 4.03. Substitution of Federal Securities following Bond Closing .................................... 5 Section 4.04. Allocation of Certain Federal Securities ................................................................. 6 Section 4.05. Albitrage .................................................................................................................. 6 ARTICLEV APPLICATION OF CASH BALANCES Section 5.01. In General ................................................................................................................ 6 Section 5.02. Reinvesflnent in SLGS ............................................................................................ 6 Section 5.03. Reinvestnlent of Cash Balances .............................................................................. 6 ARTICLE VI RECORDS AND REPORTS Section 6.01. Records .................................................................................................................... 6 Section 6.02. Reports .................................................................................................................... 7 Dallas llll038_l.DOC -i- ) ARTICLE VII CONCERNING THE PAYING AGENTS AND ESCROW AGENT Section 7.01. Representations ....................................................................................................... 7 Section 7 .02. Limitation on Liability ............................................................................................ 7 Section 7.03. Compensation ........................................................... : .............................................. 8 Section 7.04. Successor Escrow Agents ........................................................................................ 8 Section 8.01 . Notice 9 ARTICLE VIII MISCELLANEOUS Section 8.02. Termination of Responsibilities ............................................................................ 10 Section 8.03. Binding Agreement ............................................................................................... I 0 Section 8.04. Severability ............................................. : .............................................................. 10 Section 8.05. Texas Law Governs ............................................................................................... II Section 8.06. Time of the Essence .............................................................................................. 11 Section 8.07. Effective Date of Agreement.. ............................................................................... 11 Section 8.08. Modification of Agreement ................................................................................... 11 Section 8.09. Indemnification ..................................................................................................... 11 Exhibit A -Description of the Refunded Obligations Exhibit B -Schedule of Debt Service on Refunded Obligations Exhibit C-Description of Beginning Cash Balance and Federal Securities Exhibit D -Escrow Fund Cash Flow Exhibit E -Reinvestments in Zero Interest Rate SLGS Dallas 1122038_1 .DOC ) ) ) ) ) ESCROW AGREEMENT THIS ESCROW AGREEMENT, dated as of May 15, 2006 (herein, together with any amendments or supplements hereto, called the "Agreement"), entered into by and between the CITY OF LUBBOCK, TEXAS (the "Issuer"), and JPMORGAN CHASE BANK, NATIONAL ASSOCIATION, a national bank.ing association organized under the laws of the United States of America; as escrow agent (herein, together with any successor in such capacity, called the "Escrow Agent"). WlTNESSETH: WHEREAS, the Issuer has heretofore issued and there presently remain outstanding the obligations (the "Refunded Obligations") of the Issuer listed and described. on Exhibit A, attached hereto; WHEREAS, the Refunded Obligations are scheduled to mature or have been called for early redemption in such years, bear interest at such rates, and are payable at such times and in such amounts as are set forth in Exhibit B attached hereto and made a part hereof; and WHEREAS, when finn banking arrangements have been made for the payment of principal and interest to the matwity dates or redernptjon dates of the Refunded Obligations, then the Refunded Obligations shall no longer be regarded as outstanding except for the purpose of receiving payment from the funds provided for such purpose; and WHEREAS, Chapter 1207, Texas Goverrunent Code, as amended ("Chapter 1207"), authorizes the Issuer to issue refunding bonds and to deposit the proceeds from the sale thereof, and any other available funds or resources, directly with a trust company or commercial bank that does not act as a depository for the Issuer, and such deposit, if made before such payment dates and in sufficient amounts, shall constitute the making of fum banking and financial arrangements for the discharge and final payment of the Refunded Obligations; and WHEREAS, Chapter 1207 further authorizes the Issuer to enter into an escrow agreement with any such paying agent with respect to the safekeeping, investment, administration and disposition of any such deposit, upon such tenn.s and conditions as the Issuer and such paying agent may agree, provided that such deposits may be invested only in direct obligations of the . United States of America, including obligations the principal of and interest on which are unconditionally guaranteed by the United States of America, and which may be in book entry fonn, and which shall mature and/or bear interest payable at such times and in such amounts as will be sufficient to provide for the scheduled payment of principal and interest on the Refunded Obligations when due; and WHEREAS, the Escrow Agent is a trust company or commercial bank that does not act as a depository for the Issuer and this Agreement constitutes an escrow agreement of the kind authorized and required by Chapter 1207; and WHEREAS, Chapter 1207 makes it the duty of the Escrow Agent to comply with the tenns of this Agreement and timely make available to the other places of payment, if any, for the Refunded Obligations the amounts required to provide for the payment of the principal of and W8200111006 Dallas li22038_1.DOC ) ) ) ) ' 1 interest on such obligations when due, and in accordance with their tenns, but solely from the funds, in the manner, and to the extent provided in this Agreement; and WHEREAS, the issuance, sale, and delivery of the City of Lubbock, Texas, General Obligation Refunding Bonds, Series 2006 (the "Bonds"), have been duly authorized for the pwpose, among others, of obtaining the funds required to provide for the payment of the principal of the Refunded Obligations at their respective maturity or redemption dates and the interest thereon to such maturity or redemption dates; and WHEREAS, the Issuer desires that, concurrently with the delivery of the Bonds to the purchasers thereof, a portion of the proceeds of the Bonds shall be applied to purchase certain "Federal Securities'' (as herein defined) for deposit to the credit of the Escrow Fund created pursuant to the terms of this Agreement and to establish a beginning cash balance (if needed) in such Escrow Fund; and WHEREAS, the Federal Securities shall mature and the interest thereon shall be payable at such times and in such amounts as will provide moneys which, together with cash balances from time to time on deposit in the Escrow Fund, will be sufficient to pay the interest on the Refunded Obligations as it accrues and becomes payable and the principal of the Refunded Obligations on their maturity dates or redemption dates; and WHEREAS, to facilitate the receipt and transfer of proceeds of the Federal Securities the Issuer desires to establish the Escrow Fund at the designated office of the Escrow Agent; and WHEREAS, the Escrow Agent is a party to this Agreement and hereby acknowledges its acceptance of the terms and provisions hereof; NOW, THEREFORE, in consideration of the mutual undertakings, promises and agreements herein contained, the sufficiency of which hereby is acknowledged, and to secure the full and timely payment of principal of and the interest on the Refunded Obligations, the Issuer and the Escrow Agent mutually undertake, promise, and agree for themselves and their respective representatives and successors, as follows: ARTICLE I DEFINITIONS AND INTERPRETATIONS Section 1.0 I. Definitions. Unless the context clearly indicates otherwise, the following terms shall have the meanings assigned to them below when they are used in this Agreement: "Beginning Cash Balance" means the funds described in Exhibit C attached to this Agreement "Code" means the Internal Revenue Code of 1986, as amended, including applicable regulations, published rulings and court decisions thereunder. "Escrow Fund" means the fund created in Section 3.01 of this Agreement to be administered by the Escrow Agent pursuant to the provisions of this Agreement. LUB200!71006 Dallas 1122038_1.1:X)(: -2- ) "Federal Securities" means direct, noncallable obligations of the United States of America, including noncallable obligations of which the full and timely payment of the principal and interest are unconditionally guaranteed by the United States of America, that mature and/or bear interest payable at such times and in such amounts sufficient without reinvestment to provide for the scheduled payment of the principal of and interest on the Refunded Obligations. Investments in mutual funds and unit investment trusts are prohibited. Section 1.02. Other Definitions. The terms "Agreement," .. Issuer," "Escrow Agent," "Refunded Obligations," and ''Bonds," when they are used in this Agreement, shall have the meanings assigned to them in the preamble to this Agreement. Section 1.03. Interpretations. The titles and headings of the articles and sections of this Agreement have been inserted for convenience and reference only and are not to be considered a part hereof and shall not in any way modify or restrict the tenns hereof. This Agreement and all of the tenns and provisions hereof shall be liberally ~nstrued to effectuate the purposes set forth herein and to achieve the intended purpose of providing for the refunding of the Refunded Obligations in accordance with applicable law. ARTICLE II DEPOSIT OF FUNDS AND FEDERAL SECURITIES Section 2.0 I. Deposits in the Escrow Fund. Concurrently with the sale and delivery of the Bonds the Issuer shall deposit, or cause to be deposited, with the Escrow Agent, for deposit in the Escrow Fund, the Beginning Cash Balance and the Federal Securities described in Exhibit C attached hereto and incorporated by reference as a part of this Agreement for all pwposes. The Escrow Agent shall, upon the receipt thereof, acknowledge such receipt to the Issuer in writing. ARTICLE ill CREATION AND OPERATION OF ESCROW FUND Section 3.01. Escrow Fund. The Escrow Agent hereby creates on its books a special trust and irrevocable escrow fund to be known as the City of Lubbock, Texas, General Obligation Refunding Bonds, Series 2006 Escrow Fund (the "Escrow FWld") for the purpose of paying the principal of and interest on the Refunded Obligations as described in Exhibit A, in order to make firm banking arrangements therefor. The Escrow Agent hereby agrees that upon receipt thereof it will deposit to the credit of the Escrow FWld the Beginning Cash Balance and the Federal Securities described in Exhibit C attached hereto. Such deposit, all proceeds therefrom, and all cash balances from time to time on deposit therein (a) shall be the property of the Escrow Fund, (b) shall be applied only in strict oonfomrity with the terms and conditions of this Agreement, and (c) to the extent needed to pay the principal and interest requirements on the Refunded Obligations, are hereby irrevocably pledged to the payment of the principal of and interest on the Refunded Obligations, which payment shall be made by timely transfers of such arnoWlts at such times as are provided for in Section 3.02 hereof. When the final transfers have been made for the payment of such principal of and interest on the Refunded Obligations, any balance then remaining in the Escrow Fund shall be transferred to the Issuer, and the Escrow Agent shall thereupon be discharged from any further duties hereunder~ WB200171006 Dallas 1122038_l.DOC -3- ) ) Section 3.02. Payment of Principal and Interest. The Escrow Agent is hereby irrevocably instructed to transfer, from the cash balances from time to time on deposit in the Escrow Fund, the amounts required to pay the principal of the Refunded Obligations at their respective maturity date or dates as of which such Refunded Obligations have been called for earlier redemption. and interest thereon when due, in the amounts and at the times shown in Exhibit 8 attached hereto. Section 3.03. Sufficiency of Escrow Fund. The Issuer represents that the successive receipts of the principal of and interest on the Federal Securities will assure that the cash balance on deposit from time to time in the Escrow Fund will be at all times sufficient to provide moneys for transfer to each place of payment for the Refunded Obligations. at the times and in the amounts required to pay the interest on the Refunded Obligations as such interest comes due and the principal of the Refunded Obligations as such principal comes due, all as more fully set forth in Exhibit D attached hereto. It: for any reason. at any time, the cash balances on deposit or scheduled to be on deposit in the Escrow Fund shall be insufficient to transfer the amounts required by each place of payment for the Refunded Obligations to make the payments set forth in Section 3.02 hereof: the Issuer shall timely deposit in the Escrow Fund, from any funds that are lawfully available therefor, additional moneys in the amounts required to make such payments. Notice of any such insufficiency shall be given promptly as hereinafter provided, but the Escrow Agent shall not in any manner be responsible for any insufficiency of funds in the Escrow Fund or the Issuer's failure to make additional deposits thereto. Section 3.04. Trust Fund. The Escrow Agent shall hold at _all times the Escrow Fund, the Federal Securities and all other assets of the Escrow Fund wholly segregated from all other funds and securities on deposit with the Escrow Agent; it shall never allow the Federal Securities or any other assets of the Escrow Fund to be commingled with any other funds or securities of the Escrow Agent; and it shall hold and dispose of the assets of the Escrow Fund only as set forth herein. The Federal Securities and other assets of the Escrow Fund shall always be maintained by the Escrow Agent as trust funds for the benefit of the owners of the Refunded Obligations, and a special account thereof shall at all times be maintained on the books of the Escrow Agent. The owners of the Refunded Obligations shall be entitled to a preferred claim and first lien upon the Federal Securities, the proceeds thereof, and all other assets of the Escrow Fund. The amounts received by the Escrow Agent under this Agreement shall not be considered as a banking deposit by the Issuer, and the Escrow Agent shall have no right or title with respect thereto except as a trustee and Escrow Agent under the terms of this Agreement The amounts received by the Escrow Agent under this Agreement shall not be subject to warrants, drafts or checks drawn by the Issuer or, except to the extent expressly herein provided, by a place of payment for the Refunded Obligations. Section 3.05. Secmi.ty for Cash Balances. Cash balances from time to time on deposit in the Escrow Fund shall, to the extent not insured by the Federal Deposit Insurance Corporation or its successor, be continuously secured by a pledge of direct noncallable obligations of: or noncallable obligations unconditionally guaranteed by, the United States of America, having a market value at least equal to such cash balances. WB2oonl006 Dallas 1122038_1.DOC -4- ) ) ARTICLE IV SUBSTITUTION OF FEDERAL SECURITIES Section 4.01. In General. Except as provided in Section 4.02 and 4.03 hereof, the Escrow Agent shall not have any power or duty to make substitutions for the Federal Securities described in Exhibit C hereto, or to sell, transfer, or otherwise dispose of such Federal Securities. Section 4.02. Substitution of Federal Securities at Bond Closing. Concurrently with the sale and delivery of the Bonds, the Issuer, at its option, may substitute cash or Federal Securities for the Federal Securities listed in part Ill of Exhibit C attached hereto, but only if such cash and/or Federal Securities: (a) are in an amount, and/or mature in an amount, which, together with any cash substituted for such obligations, is equal to or greater than the amount payable on the maturity date of the obligation listed in part III of Exhibit C for which such obligation is substituted, and (b) mature on or before the maturity date of the obligation listed in part III of Exhibit C for which such obligation is substituted. The Issuer may at any time substitute the Federal Securities listed in part III of Exhibit C which, as permitted by the preceding sentence, were not deposited to the credit of the Escrow Fund, for the cash and/or obligations that were substituted concurrently with the sale and delivery of the Bonds for such Federal Securities, provided, that upon any such substitution the Escrow Agent receives (i) a new verification report from a finn of independent certified public accountants as to the sufficiency of the Federal Securities to provide for the payment of the Refunded Obligations (asswning such substitution has been made and assuming a zero percent reinvestment rate) and (ii) an opinion of bond counsel to the effect that such substitution shall not affect the tax-exempt status of interest on the Refunded Obligations or the Bonds. Section 4.03. Substitution of Federal Securities following Bond Closing. (a) At the written request of the Issuer, and upon compliance with the conditions hereinafter stated, the Escrow Agent shall sell, transfer, otherwise dispose of or request the redemption of all or any portion of the Federal Securities and apply the proceeds therefrom to purchase Refunded Obligations or other Federal Securities. Any such transaction may be effected by the Escrow Agent only if (1) the Escrow Agent shall have received a written opinion from a firm of independent certified public accountants that such transaction will not cause the amount of money and securities in the Escrow Fund to be reduced below an amount which will be sufficient, when added to the interest to accrue thereon and asswning a zero percent reinvestment rate, to provide for the payment of principal of and interest on the remaining Refunded Obligations as they become due, and (2) the Escrow Agent shall have received the unqualified written legal opinion of nationally recognized bond counsel or tax counsel acceptable to the Issuer and the Escrow Agent to the effect that (A) such transaction will not cause any of the Bonds to be an "arbitrage bond" within the meaning of the Code or otherwise adversely affe~t the tax-exempt status of the Refunded Obligations or the Bonds, and (B) that such transaction complies with the Constitution and laws of the State of Texas. ws2oon1006 Dallas 1122038_l.DOC -5- ) " J ... .:1 (b) The foregoing provisions of substitution notwithstanding, the Escrow Agent shall be under no obligation to effect the substitution of the Federal Securities in the manner contemplated by Subsection 4.03(a) if the Issuer fails to deliver or cause to be delivered to the Escrow Agent no later than three Business Days prior to the proposed date such substirution is to be effected a written certificate setting forth in reasonable detail the maturity dates and maturity amounts of the Federal Securities to be substituted and the proposed date such substitution is to occur. Section 4.04. Allocation of Certain Federal Securities. The maturing principal of and interest on the Federal Securities may be applied to the payment of any Refunded Obligations and no allocation or segregation of the receipts of principal or interest from such Federal Securities is required. Section 4.05. Arbitrage. The Issuer hereby covenants and agrees that it shall never reques~ the Escrow Agent to exercise any power hereunder or permit any part of the money in the Escrow Fund or proceeds from the sale of Federal Securities to be used directly or indirectly to acquire any securities or obligations if the exercise of such power or the acquisition of such securities or obligations would cause any Bonds or Refunded Obligations to be an .. arbitrage bond" within the meaning of Section 148 of the Code . ARTICLEV APPLICATION OF CASH BALANCES Section 5.01. In General. Except as provided in Sections 5.02 and 5.03 hereof: neither the Issuer nor the Escrow Agent shall reinvest any moneys deposited to or held as part of the Escrow Fund. Section 5.02. Reinvestment in SLGS. Cash balances in the Escrow Fund shall be reinvested as set forth on Exhibit E attached hereto. Section 5.03. Reinvestment of Cash Balances. At the written request ofthe Issuer, and upon compliance with the conditions hereinafter stated, the Escrow Agent shall permit or cause the reinvestment of cash balances in the Escrow Fund, pending the use thereof to pay when due the principal of and interem on the Refunded Obligations, in Federal Securities which obligations must mature on or before the respective dates needed for payment of the Refunded Obligations. Any such modification must include (i) an opinion of nationally recognized bond counsel that such transaction does not adversely affect the tax-exempt nature of the Bonds or the Refunded Obligations and complies with the Constitution and laws of the State of Texas and (ii) a verification report by a firm of independent certified public acooWttants verifying the sufficiency of the Escrow Fund and the yield on the investment thereof. ARTICLE VI RECORDS AND REPORTS Section 6.0 l. Records. The Escrow Agent will keep books of record and account in which complete and correct entries shall be made of all transactions relating to the receipts. disbursements, allocations and application of the money and Federal Securities deposited to the Escrow Fund and all proceeds thereof, and such books shall be available for inspection at UJBl00/71006 Dallas 1122033J.DOC ) ) ) ' \ reasonable hours and under reasonable conditions by the Issuer and the owners of the Refunded Obligations. Section 6.02. Reports. While this Agreement remains in effect, the Escrow Agent at least annually shall prepare and send to the Issuer a written report summarizing all transactions relating to the Escrow Fund during the preceding year, including, without limitation, credits to the Escrow Fund as a result of interest payments on or maturities of the Federal Securities and transfers from the Escrow Fund for payments on the Refunded Obligations or otherwise, together with a detailed statement of all Federal Securities and the cash balance on deposit in the Escrow Fund as of the end of such period. ARTICLE VII CONCERNING THE PAYING AGENTS AND ESCROW AGENT Section 7.01. Representations. The Escrow Agent hereby represents that it has all necessary power and authority to enter into this Agreement and undertake the obligations and responsibilities imposed upon it herein, and that it will carry out all of its obligations hereunder. Section 7.02. Limitation on Liability. The liability of the Escrow Agent to transfer funds for the payment of the principal of and interest on the Refunded Obligations shall be limited to the proceeds of the Federal Securities and the cash balances from time to time on deposit in the Escrow Fund. Notwithstanding any provision contained herein to the contrary, neither the Escrow Agent nor any place of payment for the Refunded Obligations shall have any liability whatsoever for the insufficiency of funds from time to time in the Escrow Fund or any failure of the obligors of the Federal Securities to make timely payment thereon, except for the obligation to notify the Issuer promptly of any such occurrence. The recitals herein and in the proceedings authorizing the Bonds shall be taken as the statements of the Issuer and shall not be considered as made by, or imposing any obligation or liability upon, the Escrow Agent. The Escrow Agent is not a party to the proceedings authorizing the Bonds or the Refunded Obligations and is not responsible for nor bound by any of the provisions thereof (except as a place of payment or a paying agent/registrar therefor). In its capacity as Escrow Agent, it is agreed that the Escrow Agent need look only to the terms and provisions of this Agreement. The Escrow Agent makes no representations as to the value, conditions or sufficiency of the Escrow Fund, or any part thereof, or as to the title of the Issuer thereto, or as to the security afforded thereby or hereby, and the Escrow Agent shall not incur any liability or responsibility in respect to any of such matters. It is the intention of the parties hereto that the Escrow Agent shall never be required to use or advance its own funds or otherwise incur personal financial liability in the performance of any of its duties or the exercise of any of its rights and powers hereunder. The Escrow Agent shall not be liable for any action taken or neglected to be taken by it in good faith in any exercise of reasonable care and believed by it to be within the discretion or WB200nl006 DaiJas 1122031_1.DOC -7- ) ') power conferred upon it by this Agreement, nor shall the Escrow Agent be responsible for the consequences of any error of judgment; and the Escrow Agent shall not be answerable for any loss unless the same shall have been through its negligence or want of good faith. Unless it is specifically otherwise provided herein~ the Escrow Agent has no duty to determine or inquire into the happening or occurrence of any event or contingency or the performance or failure of performance of the Issuer with respect to arrangements or contracts with others, with the Escrow Agent's sole duty hereunder being to safeguard the Escrow Fund, to dispose of and deliver the same in accordance with this Agreement. If, however, the Escrow Agent is called upon by the terms of this Agreement to determine the occurrence of any event or contingency, the Escrow Agent shall be obligated, in making such determination, only to exercise reasonable care and diligence, and in event of error in making such determination the Escrow Agent shall be liable only for its own misconduct or its negligence. In detennining the occurrence of any such event or contingency the Escrow Agent may request from the Issuer or any other person such reasonable additional evidence as the Escrow Agent in its discretion may deem necessary to determine any fact relating to the occurrence of such event or contingency, and in this coMection may make inquirieS of, and consult with, among others, the Issuer at any time. Section 7.03. Compensation. (a) Concurrently with the sale and delivery of the Bonds, the Issuer shall pay to the Escrow Agent the swn of $4,250 the sufficiency of which is hereby acknowledged by the Escrow Agent to pay its fee for performing the services of Escrow Agent hereunder and for all expenses incurred or to be incurred by it as Escrow Agent in the administration of this Agreement. In the event that the Escrow Agent is requested to perfonn any extraordinary services hereunder, the Issuer hereby agrees to pay reasonable fees to the Escrow Agent for such extraordinary services and to reimburse the Escrow Agent for all expenses incurred by the Escrow Agent in performing such extraordinary services, and the Escrow Agent hereby agrees to look only to the Issuer for the payment of such fees and reimbursement of such expenses. The Escrow Agent hereby agrees that in no event shall it ever assert any claim or lien against the Escrow Fund for any fees for its services, whether regular or extraordinary, as Escrow Agent, or in any other capacity, or for reimbursement for any of its expenses. The Escrow Agent's fee does not include the cost of publication, printing costs, or reasonable out-of-pocket expenses of the Escrow Agent (b) The Escrow Agent and the Issuer agree that any amounts payable with respect to the Refunded Obligations will be paid pursuant to the paying agent/registrar agreement pertaining to the Refunded Obligations and the Escrow Agent agrees that the sole remedy for nonpayment will be an action under such agreement. Section 7.04. Successor Escrow Agents. (a) If at any time the Escrow Agent or its legal successor or successors should become unable, through operation of law or otherwise, to act as Escrow Agent hereunder, or if its property and affairs shall be taken under the control of any state or federal court or administrative body because of insolvency or bankruptcy or for any other reason, a vacancy shall forthwith exist in the office of Escrow Agent hereunder. In such event the Issuer, by appropriate action, promptly shall appoint an Escrow Agent to fill such vacancy. If no successor Escrow Agent shall have been appointed by the Issuer within 60 days, a successor may be appointed by the owners of a majority in principal amount of the Refunded WB200nl006 Dallas 1122038_t.OOC -8- ' ' Obligations then outstanding by an instrument or instruments in writing filed with the Issuer, signed by such owners or by their duly authorized attorneys-in-fact. If, in a proper case, no appointment of a successor Escrow Agent shaH be made pursuant to the foregoing provisions of this section within three months after a vacancy shall have occurred, the owner of any Refunded Bond may apply to any court of competent jurisdiction to appoint a successor Escrow Agent. Such court may thereupon, after such notice, if any, as it may deem proper, prescribe and appoint a successor Escrow Agent. (b) The Escrow Agent may at any time resign and be discharged from the trust hereby created by giving not less than 60 days' written notice to the Issuer; provided, that, no such resignation shall take effect unless: (i) a successor Escrow Agent shall have been appointed by the owners of the Refunded Obligations or by the Issuer as herein provided; (ii) such successor Escrow Agent shall have accepted such appointment; (iii) the successor Escrow Agent shall have agreed to accept the fees cWTently in effect for the Escrow; and (iv) the Escrow Agent shall have paid over to the successor Escrow Agent a proportional part of the Escrow Agent's fee hereunder. Such resignation shall take effect immediately upon compliance with the foregoing requirements. (c) Ally successor Escrow Agent shall be: (i). a corporation organized and doing business wtder the laws of the United States or the State of Texas; (ii) authorized under such laws to exercise cotporate trust powers; (iii) have its principal office and place of business in the State of Texas; (iv) have a combined capital and surplus of at least $5,000,000; (v) subject to the supervision or examination by Federal or State authority and (vi) qualified to serve as Escrow Agent under the provisions of Chapter 1207. (d) Any successor Escrow Agent shall execute, acknowledge and deliver to the Issuer and the Escrow Agent an instrument accepting such appointment hereunder, and the Escrow Agent shall execute and deliver an instrument transferring to such successor Escrow Agent, subject to the tenns of this Agreement, all the rights, powers and trusts of the Escrow Agent hereunder. Upon the request of any such successor Escrow Agent, the Issuer shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor Escrow Agent all such rights, powers and duties. The ·Escrow Agent shall pay over to its successor Escrow Agent a proportional part of the Escrow Agent's fee hereunder. ARTICLE VIII MISCELLANEOUS Section 8.01. Notice. Any notice, authorization, request, or demand required or pennitted to be given hereunder, shall be in writing and shall be deemed to have been duly given when mailed by registered or certified mail, postage prepaid, addressed as follows: WB20Gnl006 Dallas ll22038_l.DOC -9- ) To the Escrow Agent: To the Issuer: To the Rating Agencies: JPMorgan Chase Bank, National Association Issuer Administrative Services 2001 Bryan Street. 8th Floor Dallas, Texas 75201 City of Lubbock 1625 13th Street Lubbock, Texas 79457 Attention: Cash and Debt Manager Moody's Investors Service, Inc. 2200 Ross A venue Suite 4650 West Dallas, Texas 75201 Attention: Public Finance Department Standard & Poor's Rating Group 25 Broadway New York, NewYork 10004 Fitch Investors Service, L.P. 4514 Cole Avenue, Suite 600 Dallas, Texas 75205 . The United States Post Office registered or certified mail receipt showing delivery of the aforesaid shall be conclusive evidence of the date and fact of delivery. Either party hereto may change the address to which notices are to be delivered by giving to the other party not less than ten (10) days prior notice thereof. Section 8.02. Termination of Resoonsibilities. Upon the taking of all the actions as described herein by the Escrow Agent, the Escrow Agent shall have no further obligations or responsibilities hereunder to the Issuer, the owners of the Refunded Obligations or to any other person or persons in connection with this Agreement Section 8.03. Binding Agreement. This Agreement shall be binding upon the Issuer and the Escrow Agent and their respective successors and legal representatives, and shall inwe solely to the benefit of the owners of the Refunded Obligations, the Issuer, the Escrow Agent and their respective successors and legal representatives. Section 8.04. Severability. In case any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any ·other provisions of this Agreement, but this Agreement shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. In the event any one or more provisions hereof are held to be invalid, illegal or unenforceable the Issuer shall promptly notify each of the rating agencies then maintaining a rating on the Refunded Obligations. WB20Ml006 Dallas 1122038_1 .DOC -10- ) Section 8.05. Texas Law Governs. This Agreement shaH be governed exclusively by the provisions hereof and by the applicable laws of the State ofTexas. Section 8.06. Time of the Essence. Time shall be of the essence in the petfonnance of obligations from time to time imposed upon the Escrow Agent by this Agreement. Section 8.07. Effective Date of Agreement. This Agreement shall be effective upon receipt by the Escrow Agent of the funds described in Exhibit C attached hereto and the Federal Securities, together with the specific sums stated in subsections (a) and (b) of Section 7.03 for Escrow Agent and paying agency fees, expenses, and services. Section 8.08. Modification of Agr:eement. This Agreement shall be binding upon the Issuer and the Escrow Agent and their respective successors and legal representatives and shall inure solely to the benefit of the holders of the Refunded Obligations, the Issuer, the Escrow Agent and their respective successors and legal representatives. Furthennore, no alteration, amendment or modification of any provision of this Agreement ( 1) shall alter the finn financial arrangements made for the payment of the Refunded Obligations or (2) shall be effective unless (i) prior written consent of such alteration, amendment or modification shall have been obtained from the holders of all Refunded Obligations outstanding at the time of such alteration, amendment or modification and (ii) such alteration, amendment or modification is in writing and signed by the parties hereto; provided, however, the Issuer and the Escrow Agent may, without the consent of holders of the Refunded Obligations, amend or modify the terms and provisions of this Agreement to cure in a manner not adverse to the holders of the Refunded Obligations any ambiguity, fonnal defect or omission in this Agreement. Prior notice of any such modification shall be given to each rating agency then maintaining a rating on the Refunded Obligations. Section 8.09. Indemnification. To the extent permitted by law, the Issuer agrees to indemnify the Escrow Agent, 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 Escrow Agent's duties under this Agreement, including the cost and expense (including its counsel fees) of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties under this Agreement. (Execution Page Follows] WB200nl006 Dallas l J22038_l.DOC -11- ) ' IN WITNESS WHEREOF, this Escrow Agreement has been executed in multiple counterparts, each one of which shall constitute one and the same original Agreement, as of the date and year appearing on the first page of this Agreement. CITY OF LUBBOCK, TEXAS By: Signature Page for Escrow Agreement ) ) ) JPMORGAN CHASE BANK, ASSOCIATION, as Escrow Agent Signature Page for Escrow Agreement INDEX TO EXHIBITS ' J Exhibit A Description of the Refunded Obligations Exhibit B Schedule of Debt Service on Refunded Obligations ) Exhibit C Description of Beginning Cash Balance and Federal Securities Exhibit D Escrow Fund Cash Flow Exhibit E Reinvestments in Zero Interest Rate SLGS ) -. EXHlBIT A SCHEDULE OF OBLIGATIONS TO BE REFUNDED The following obligations issued by the City of Lubbock, Texas, shall be refunded on the Closing Date and shall be redeemed on the redemption date at a redemption price equal to the principal amount of the Refunded Obligations plus interest accrued thereon to the redemption date. Original Issue Issue Date Tax & Municipal 6/112001 Drainage Utility System Surplus Revenue Certificates of Obligation, Series 2001 WB200nl006 Dallas ll22Q3SJ.DOC Refunded Obligations Original Issue Amount $35,000,000 A-1 Maturities to be Refunded 2023 2026 2031 Amount to be Refunded . $2,885,000 4,940,000 10.190.000 $J8 015.QQ() Redemption Date 2/15/2011 ) EXHIBIT B SCHEDULE OF DEBT SERVICE ON REFUNDED OBLIGATIONS (See Attached Schedule) ) .., .) WB200fll006 Dallas J 1220l8_l.DOC B-1 ; City of Lubbock, Texas General Obligation Debt Tax & Municipal Drainage Utility System Surplus Revenue C/0, Series 2001 $35,000,000 Debt Service To Maturity And To Call 1 ~-----··-·-------.. ·------·------------------.. -----·------------------~ Refunded Interest to , 0&/IS/2006 021\S/2007 0811SI2007 Bonds Call GIS To Call Principal CoupO!'! lnten!st Refunded DIS J 474.720.00 474,120.00 474.720.00 474.720.00 1 Oli1SI200S 08·15'2008 02!1Si2009 0811SI2009 02/1512010 08115/2010 02/IS/2011 08f1SI2011 Olll.s/2012 08riS12012 02/IS/2013 08fl.s/201) 021\S/2014 08fl.s/2014 0211512015 OSfl:l/20 t S 02/JS/2016 oaii.i-J2o16 02/IS/2017 08/l.s/2017 02/IS/2018 --~~~Q!~. 02/IS/2019 0811SI2019 02/ISI2020 08flSfl020 02/IS/2021 osil.s!loi -, 0211SI2022 OStiS/2012 021131202) 08/IS/2023 0211512024 08fiS/2024 0211SI202S 081lS/l02S 02/IS/2026 OiiiSI2026 ---- 02/IS/2021 0&/15.0027 02/IS/2028 08/1~~2!1 02/IS/2029 08/lS/2029 02/1512030 0811512030 0211512031 IS,OIS,OOO.OO 474.no.oo 474.720.00 s.OOO% 474.720.oo 474.720.00 1 474.720.00 474,720.00 474.720.00 474,720.00 474.720.00 474.720.00 S.OOO% 474.720.00 474,720.00 474.720 00 474.720.00 474.710.00 47020.00 474,720.00 474,720.00 S.OOO% 474.710,00 474,720.00 474,720.00 474,720.00 474,720..00 474,720.00 474,720.00 474,7ZO.OO S.OOO% 474,720.00 474,720.00 474,720.00 474,720.00 474.720.00 474,720.00 474.720.00 18.489,720.00 4.400% 474.720.00 474,720.00 474.720.00 47-4~720.00 474,720.00 474,720.00 474,720.00 474,720.00 474,720.00 474,720.00 474,720.00 474,720.00 474.720.00 474,720.00 474.710.00 474,720.00 474,720.00 474,720.00 474.720.00 474.720.00 474,7~.00 474,720.00 474,720.00 47~.120.00 474,720.00 474,720.00 474.720.00 474,720.00 474,720.00 474,720.00 4 74,720.00 ~!·!.129:99.. -474.720.00'' 474,720.00 474,720.00 474,720.00 474,720.00 474,720.00 474,720.00 474,720.00 474.720.00 -1~~~ 474,720.00 474,720.00 1.405.000.00 5.200% 474.720.00 1.&79.720.00 4J8,190.00 431.190.00 1,410.000.00 S.200% 438,190.00 I,9U,I90.00 399,710.00 399,710.00 1,$60.,000.00 5.250% 399,710.00 1.')59,710.00 3'*.760.00 358,760.00 1.645.000.00 S.lSO% 358,760.00 2,003,760.00 lts.S78.n 315.S1t1.7S l .• ?JS,9.C?J>.,Q9 ..... J.~ ... 3JS,S78.7S 2,0SO.S78.7S ·· ...... 27o:m:oo·-·---:i?O.<»s:oo· I ,830,000.00 270,QJS.OO l,IOO.OJS.OO 221.,$40.00 22 I ,540.00 1,925.000.00 S.lAXl% 221,540.00 2.146,540.00 -170,$27 .so 170.S27 .so -z.Olo.ooo.oO "S.JOO%·-· · · ·· tiOJii so · ----i.i00.52i.so· 116.732.50 116.,732.SO 2.145,000.00 116,732.50 2,261,7)2.50 59,1911.00 59,890.00 ..... U60,000.00 5_._~------J9~oo _____ JJ.!.?.~OO $19,19l,N7.50 Sl7J07.967.50 -~~~-"'-~---·-··---·-.. ----"·--····-......... -_ ................... -·· ... _ ...... --···-------.. ·--... -.... -.............. 20.684 Yl:aiS Wciaflecl A...aee ~<,...o.is> --·iO.sa7ve8B· A_~-~!5'.•.!.. ....... _ .............. -.... ... .. ... ·--___ .. ---·-· -·---__ ,_g;~~S61~ Refunding Bond Information 511512006 ---·-·~ F,r~t Southv;est Ccrnpc:n11 ~~-:;::-1l2 ~~L1. ·, '1 ~ t '--_. ) EXHIBITC DESCRIPTION OF BEGINNING CASH BALANCE AND FEDERAL SECURITIES I. Cash $.64 II. State and Local Government Series Obligations $18,687,477.00 III. Open Market Securities ) ) WB20MI006 Dallas 1122G38_1.DOC C-1 .., • ) ) ) U.S. TREASURY SECURITIES Subscription Review TreasUf)' Case Number: 2006-02565 ls.ueDate: 0612012006 Issue Amount: $18,687,477.00 Issue Information Bank Ref Number. Rate Table Date: 0511112006 Status: Complete State or Local Government Body Underlying Bond Issue: General Obligation Refunding Bonds, Series2006 Taxpayer Identification Number: 75-6000590 CITY OF LUBBOCK 162513TH STREET LUBBOCK, TX 79401 Com»d:ANDYBURCHAM Telephone: 806-775-2149 Fax: 806·775-2051 E ...... ll: aburcham@myfubbock.us ABA Routing Number: 021 000021 JP Morgan Chase Bank 2001 Bryan Street 10th Floor Dallas, TX 75201 Contact: MADELYN WAllACE Telephone: 214468·5011 Fu:214-468-6322 E-Mail: madelyn.wallace@jpmorgan.oom Trustee Bank Financial Institution Managing (ACH) Payments ABA Routing Number: 021000021 JP Morgan Chase Bank 2001 Bryan Street 10th Floor Dallas, TX 75201 Contact: MADELYN WAu.ACE Teleptlone: 21~-5011 Fax; 214-468-6322 E-Mail: Madelyn.wallace@jpmorgan.com ACH Payment Jnstructlons: Aoc:ount N-: ITS SLGS INCOME Account Number: 507942671 Account -ryp.: Ched<ing ABA Routing Number: 021000021 Date: 61112006 ) • ..... . .i ) ) J U.S. TREASURY SECURITIES Subscription Review Financial Institution Transmitting Funds for Purchase ABA Routing Number: 021000021 JPMORGAN CHASE SANK Contact: JOSH SCOGGINS Telephone: 469-4n·5179 Fax: 469-4n-5256 E-Mail: ABA Routing Number or TIN: 750708002 First Southwest Company 325 N. St Paul Street Suite800 Dallas, TX 75201 Contact: JASON l HUGHES Telephone: 214·953-8707 Fax: 214·953-4050 E-Mail: jhughes@lirstsw.eom Subscriber ·Viewers Date: 611/2006 .... j ) ) ) Ttea.sUfY Case Number: 2006.()2565 Issue Date: 0612012006 lu u• Amount: $18,687,477.00 Security Numbu 1 2 3 4 5 6 7 8 9 10 U.S. TREASURY SECURITIES Subscription Review Issue Information Bank Ref Number: Rate Table (Mg; 0511112006 Status: Complete Schedule of SLGS Securities Principal Interest Rate Maturity Date Amount $336,156.00 4.68 08/1512006 $33,557.00 5.01 02/1512007 $34,663.00 5 08/1512007 $35,529.00 4.99 02/1512008 $36,415.00 4.98 08/1512008 $37,323.00 4.98 0211512009 $38,251.00 4.99 08/1512009 $39,206.00 5 02/1512010 $40,187.00 5 08/1512010 $18,056,190.00 4.802 02/1512011 Date: 61112006 First Interest Payment .. -- 08/1512006 08/1512006 08/1512006 08/1512006 08/1512006 08/15/2006 08/1512006 08/1512006 EXHIBITD ESCROW FUND CASH FLOW (See Attached Schedules) ) ) ... .J ) "" .) WB200f71006 Dallas 1122038_1.DOC D-1 ) ) ) ) ) _Ci!:).:_~} .. ~':'-~~~~~.!~as .. _ .... -------·----··-----.. ---.. ·-·---·-·--- General Obligation Refunding Bonds Series 2006 Escrow Fund Cashflow Date Principal Rate Interest 06!20i2006 081!5.!006 136,150.36 02/IS/2007 lO • .Sl.S.OO 5.010% 441,062.65 08/lS/2007 34,663.00 5.000% 440,057.41 02/lS/2008 35,529.00 4.990% 439,190.83 0811Sf2008 36.415.00 4.980% 438,304.38 02115/2009 37,323.00 4.980% 431,397.65 OSIIS/2009 38,251.00 4.990% 436.468.31 02/IS/2010 39,206.00 5.000% 4lS,S13.9S 08/IS/2010 40,187.00 S.()()(r-' 4J4,S33.80 02/IS/2011 18,056, 190.00 4.802% 433,529.12 Total s 11,.348.,179.00 S4.0n,loa.46 Investment Parameters IDvcstmcnt Model {PV, GIC, (W Securities] DefaWt investment )'ield Wid Cost oflavescmerus Purdlased with fund Trmsfas Cam~it Cost of lavescments Purchased wilb. Bood Proceeds Total Cast oflnvcsunents Target Cost of l.ovesamettts at bond y;eld ~ J10$ilivc oc (negalivc) ub~ Yield to Rccc:ipt Yield fur Arbitrage Purpc~SeS State aDd _!.ocal Oovcrrunml Series (SLGS) rates foc ANAl PAICIHG I I GO Allllnding I 5'11121106 l I: 17 PM -t-Transfers 0.47 338.569.69 ),142.21 U41,71:U7 Receipts 0.64 474,720.05 474,719.86 474,720.41 474,719.83 474,719.38 474,720.65 474,719.31 474,719.95 474,720.80 18.489.719.12 $22,762.200.80 Disbursements Cash Balance 0.64 474,720.00 0.69 474,720.00 o.ss 474,720.00 0.96 474,724).00 0.79 474,720.00 0.17 474,720.00 0.82 474,720.00 0.13 474,720.00 0.08 474,720.00 0.88 18,489,720.00 512.761,100.00 Securities -------------- ---BondYield 339,198.47 0.17 ·-·. _____ _. __ _ _ .)8,348.2!9.00 $18,687,477.64 4.8073978% .. ,, ___ --·----------··-··-· .... - -4.8079820"-4 0 ••• H ...... , ............ ___ ., ____ _ S/11/l006 ) ) ) ) ) ) ) ) Final Numbers .~!~ .. ~!. Lubb~~--~exas __ --------·-----·····-··· --·--·------·-----··--·-·- General Obligation Refunding Bonds Series 2006 Unrestricted Money Cash Flow Date Principal Rate 06120/2006 08il512006 336,156.00 4.680% 0211512007 3,042.00 5.01004 T•tal $339,198.08 ComPOsition Of Initial DepoSit Cas~ DepoSit Cost of Investments Putt:based with Fund TAnSfa-s TOOl! Cost of Investments FINAL ~ICING 1 t GO Relundin9 I 511112006 I t:t7 PM First Southwest Company Interest -Transfers (0.47) 2,·H3.69 (338,569.69) 100.21 (3.142.21) $2,513.90 (341,712.37) Cash Balance ().47 339,198.00 $339,198.47 Pubi'c F:ncrce Depcrt!"'"'em Page c ) EXHffiiTE REINVESTMENTS IN ZERO INTEREST RATE SLGS None ) ) ) " .1 LUB200171006 Dallas 1122038J.DOC E-1 .., ) l ) ) ) j ) Cash Flow and Yield Verification Report City of Lubbock, Texas June 20, 2006 ) ) ) Letter Exhibit A ExhibitB Exhibit B-1 ) Exhibit B-2 Exhibit B-3 ) Exhlbit C Exhlbit C-1 ) Appendix I ) ) INDEX Schedule of Sources and Uses of Funds Escrow Account Cash Flow Cash Receipts From and Yield on the SLGS Purchased with Bond Proceeds Cash Receipts From the SLGS Purchased with Debt Service Funds Debt Service Payments on the Refunded Certificates and Debt Service Payments to Maturity on the Refunded Certificates Debt Service Payments and Yield on the Bonds Net Original Issue Discount on the Bonds Applicable schedules provided by First Southwest Company ) ) ') ) ) ) Accountants and Business AdviiOB City of Lubbock P.O. Box2000 Lubbock, Texas Vinson & Elkins L.L.P. 2001 Ross Avenue Dallas, Texas Grant Thornton • Report of Independent Certified Public Accountants On Applying Agreed-Upon Procedures Financial Guaranty Insurance Company 125 Park Avenue New York, New York JPMorgan Chase Bank, National Association 2001 Bryan Street, Eighth Floor Texas Attorney General's Office 300 West 15th Street, Ninth Floor Austin, Texas Dallas, Texas First Southwest Company 325 North St. Paul, Suite 800 Dallas, Texas $1 8,830,000 A. G. Edwards & Sons, Inc. 70 Northeast Loop 410, Suite 915 Sao Antonio, Texas City of Lubbock, Texas (Lubbock County) General Obligation Refunding Bonds, Series 2006 Dated May 15, 2006 We have performed the procedures described in this report, which were agreed to by the City of Lubbock, Texas (the "City") and First Southwest Company (the "Financial Advisor''), to verify the mathematical accuracy of certain computations contained in the schedules attached in Appendix I provided by the Financial Advisor. The Financial Advisor is responsible for these schedules. These procedures were performed solely to assist you in the issuance of the above-captioned bond issue (the "Bonds'') for the purpose of refunding a portion of the City's outstanding Tax and Municipal Drainage Utility System Surplus Revenue Certificates of Obligation, Series 2001 (the "Refunded Certificates") as summarized on the next page. This engagement was performed in accordance with Statements on Standards for Attestation Engagements established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of the addressees of this report who are the specified parties. Consequendy, we make no representation regarding the sufficiency of the procedures described in this report either for the purpose for which this report has been requested or for any other purpose. 200 S. 6th Street 500 US Bank Plaza N Minneapolis MN 55402 T 612.332.0001 F 612.332.8361 W www.grantthornton.com ""'I Grant ThomiM UP US member of G.....t Thomtvn lramldional ) ) ) ) ) ) ) ) Page2 Principal Principal Maturities Redemption Redemption Series Issued Dated Refunded Refunded Date Price 2-15-23, 2-15-26 2001 $35,000,000 )Wle 1, 2001 $18,015,000 and 2-15-31 2-15-11 100% VERIFICATION OF ESCROW ACCOUNT CASH FLOW SUFFICIENCY The Financial Advisor provided us with schedules (Appendix I) sunuruuizing future escrow account cash receipts and disbursements. These schedules indicate that there will be sufficient cash available in the escrow account to pay the principal and interest on the Refunded Certificates assuming the Refunded Certificates will be redeemed on February 15, 2011 at 100 percent of par plus accrued interest. The attached Exhibit A (Schedule of Sources and Uses of Funds) was compiled based upon information provided by the Financial Advisor. As part of our engagement to recalculate the schedules attached as Appendix I we prepared schedules attached hereto as Exhibits B through B-3 independently calculating future escrow account cash receipts and disbursements and compared the information used in our calculations to the information listed below contained in applicable pages of the following documents: • Subscription confirmation, dated May 11, 2006, and Schedule of U.S. Treasury Securities provided by the Financial Advisor used to acquire certain United States Treasury Securities - State and Local Government Series (the "SLGS") insofar as the SLGS are described as to the principal amounts, interest rates, maturity dates, issuance date and first interest payment date; and • Ordinance for the Refunded Certificates provided by the Financial Advisor insofar as the Refunded Certificates are described as to the maturity and interest payment dates, principal amounts, interest rates and optional redemption date and price. In addition, we compared the interest rates for each maturity of the SLGS, as shown on the Schedule of U.S. Treasury Securities, with the maximum allowable interest rates shown on the Department of Treasury, Bureau of Public Debt, SLGS Table (Form PD 4262) for use on May 11, 2006 and found that the interest rates were less than or equal to the maximum allowable interest rates for each maturity. Our procedures, as summarized in Exhibits B through B-3, prove the mathematical accuracy of the schedules provided by the Financial Advisor summarizing future escrow account cash receipts and disbursements. The schedules provided by the Financial Advisor and those prepared by us reflect that the anticipated receipts from the SLGS, together with an initial cash deposit of $0.64 to be deposited into the escrow account on June 20, 2006, will be sufficient to pay, when due, the principal and interest related to the Refunded Certificates assuming the Refunded Certificates will be redeemed on February 15, 2011 at 100 percent of par plus accrued interest. ) ) ) ) ) ) ) ) ) ) Page 3 VERIFICATION OF YIELDS The Financial Advisor provided us with schedules (Appenctix I) which indicate that the yield on the cash receipts from the SLGS purchased with Bond proceeds is less than the yield on the Bonds. These schedules were prepared based on the assumed setdement date of June 20, 2006 using a 360- day year with interest compounded semi-annually. The term "yield", as used herein, means that yield which, when used in computing the present value of all payments of principal and interest to be paid or received on an obligation produces an amount equal to, in the case of the cash receipts from the SLGS purchased with Bond proceeds, the purchase price, and in the case of the Bonds, the issue price adjusted for the bond insurance premium of $63,013.15. In addition, we found that the schedules provided by the Financial Advisor, which asswne the redemption of the Feb.ruary 15, 2029 maturity identified on Exhibits C and C-1 at par on February 15, 2016 plus accrued interest, correctly treat those Bonds as yield-to-call Bonds as retired on the respective dates that for each Bond produces the lowest yield for the issue that includes the Bonds. Those Bonds identified as yield-to-call Bonds on the attached Exhibits C and C-1 are those Bonds that are subject to optional redemption and that are issued at an issue price that exceeds the stated redemption price at maturity of such Bonds by more than one-fourth of one percent multiplied by the product of the stated redemption price at maturity of such Bonds and the nwnber of complete years to the first optional redemption date for the Bonds. We found that there are no other yield-to-call Bonds other than those identified on the attached Exhibits C and C-1. As part of our engagement to recalculate the schedules attached as Appendix I we prepared schedules attached hereto as Exhibits B-1 and C independently calculating the yields on (i) the cash receipts from the SLGS purchased with Bond proceeds calculated on Exhibit B-1, and (ii) the Bonds using the Official Statement provided by the Financial Advisor insofar as the Bonds are described as to the maturity and interest payment dates, dated date, principal amounts, interest rates, optional redemption date and price, and issue price to the public. The results of our calculations, based on the aforementioned assumptions, are summarized below: • Yield on the cash receipts from the SLGS purchased with Bond proceeds • Yield on the Bonds Yield 4.807398% 4.807982% Exhibit B-1 c Our procedures, as summarized in Exhibits B-1 and C, prove the mathematical accuracy of the schedules provided by the Financial Advisor swnm.arizing the yields. The schedules provided by the Financial Advisor and those prepared by us reflect that the yield on the cash receipts from the SLGS purchased with Bond proceeds is less than the yield on the Bonds. * * * * * * ) ) ) ) ) Page4 We were not engaged to, and did not, perform an examination in accordance with Statements on Standards for Attestation Engagements established by the American Institute of Certified Public Accountants, the objective of which would be the expression of an examination opinion on the items referred to above. Accordingly we do not express such an opinion. Had we performed additional procedures, other matters might have come to out attention that would have been reported to you. This report is intended solely for the information and use of those to whom this letter is addressed and is not intended to be and should not be used by anyone other than these specified parties. Minneapolis, Minnesota June 20,2006 ) ) ) "' .I ) ) ) City of Lubbock, Texas SCHEDULE OF SOURCES AND USES OF FUNDS SOURCES: Principal amount of the Bonds Net original issue discount June 20,2006 Transfers from prior issue Debt Setv:ice Funds Accrued interest USES: Purchase price of the SLGS: -Purchased with Bond proceeds -Purchased with Debt Service Funds Beginning cash deposit to the escrow account Costs of issuance Underwriter's discount Deposit to Debt Setv:ice Funds Bond insurance premium Contingency ExhlbitA $18,830,000.00 (147,517.60) 339,198.47 86,240.97 $19,107,921.84 $18,348,279.00 339,198.00 0.64 145,000.00 124,726.43 86,240.97 63,013.15 1,463.65 $19,107,921.84 ) Exhibit B City of Lubbock, Texas ) ESCROW ACCOUNT CASH FLOW Cash recei2ts from SLGS: Debt service 1 Purchased payments on Purchased with with Debt Refunded Bond proceeds Service Funds Certificates Cash Dates (Exhibit B-1~ (Exhibit B-2l (Exhibit B-32 balance Cash deposit on ") June 20, 2006 $0.64 08-15-06 $136,150.36 $338,569.69 $4 7 4, 720.00 0.69 02-15-07 471,577.65 3,142.21 474,720.00 0.55 08-15-07 474,720.41 474,720.00 0.96 02-15-08 474,719.83 474,720.00 0.79 08-15-08 474,719.38 474,720.00 0.17 02-15-09 474,720.65 474,720.00 0.82 08-15-09 474,719.31 474,720.00 0.13 02-15-10 474,719.95 474,720.00 0.08 08-15-10 474,720.80 474,720.00 0.88 ") 02-15-11 18,489,719.12 18,489,720.00 0.00 $22,420,487.46 $341,711.90 $22,7 62,200.00 ) ) :';! ) ) Receipt date 08-15~06 02-15-07 08-15-07 02-15-08 08-15-08 02-15-09 08-15-09 02-15-10 08-15-10 02-15-11 City of Lubbock, Texas CASH RECEIPTS FROM AND YIELD ON THE SLGS PURCHASED WITH BOND PROCEEDS Cash receipts fromSLGS Interest purchased with Princieal rate Interest Bond eroceeds $136,150.36 $136,150.36 $30,515 5.010% 441,062.65 471,577.65 34,663 5.000% 440,057.41 474,720.41 35,529 4.990% 439,190.83 474,719.83 36,415 4.980% 438,304.38 474,719.38 37,323 4.980% 437,397.65 474,720.65 38,251 4.990% 436,468.31 474,719.31 39,206 5.000% 435,513.95 474,719.95 40,187 5.000% 434,533.80 474,720.80 18,056,190 4.802% 433,529.12 18,489,719.12 $18,348,279 $4,072,208.46 $22,420,487.46 Purchase price of the SLGS purchased with Bond proceeds ExhibitB-1 Present value on June 20, 2006 using a yield of 4.807398% $135,165.79 457,178.26 449,422.30 438,872.57 428,570.61 418,511.99 408,687.20 399,094.71 389,727.55 14,823,048.03 $18,348,279.00 $18,348,279.00 The sum of the present values of the cash receipts from the SLGS purchased with Bond ptoceeds on June 20, 2006, using a yield of 4.807398%, is equal to the purchase price of the SLGS purchased with Bond proceeds. j Receipt date "'' ..1 08-15-06 02-15-07 ) City of Lubbock, Texas CASH RECEIPTS FROM THE SLGS PURCHASED WITH DEBT SERVICE FUNDS Interest Principal rate Interest $336,156 4.680% $2,413.69 3,042 5.010% 100.21 $339,198 $2,513.90 Exhibit B-2 Cash receipts fromSLGS purchased with Debt Service Funds $338,569.69 3,142.21 $341,711.90 ') ) ) ) City of Lubbock, Texas Exhibit B-3 Page 1 of2 DEBT SERVICE PAYMENTS ON THE REFUNDED CERTIFICATES AND DEBT SERVICE PAYMENTS TO MATURITY ON THE REFUNDED CERTIFICATES Interest Debt service Date PrinciEal rate Interest Eax:ments 08-15-06 $474,720.00 $474,720.00 02-15-07 474,720.00 474,720.00 08-15-07 474,720.00 474,720.00 02-15-08 474,720.00 474,720.00 08-15-08 474,720.00 474,720.00 02-15-09 474,720.00 474,720.00 08-15-09 474,720.00 474,720.00 02-15-10 474,720.00 474,720.00 08-15-10 474,720.00 474,720.00 02-15-11 $18,015,000 (1) 474,720.00 18,489,720.00 $18,015,000 $4,747,200.00 $22,762,200.00 (1) Actual maturity dates, principal amounts and interest rates are as follows: Debt service Interest payments Date PrinciEal rate Interest to maturity 08-15-06 $474,720.00 $474,720.00 02-15-07 474,720.00 474,720.00 08-15-07 474,720.00 474,720.00 02-15-08 474,720.00 474,720.00 08-15-08 474,720.00 474,720.00 02-15-09 474,720.00 474,720.00 08-15-09 474,720.00 474,720.00 02-15-10 474,720.00 474,720.00 08-15-10 474,720.00 474,720.00 02-15-11 474,720.00 474,720.00 08-15-11 474,720.00 474,720.00 02-15-12 474,720.00 474,720.00 08-15-12 474,720.00 474,720.00 02-15-13 474,720.00 474,720.00 08-15-13 474,720.00 474,720.00 02-15-14 474,720.00 474,720.00 ) ~ .., ) ) ) ' l City of Lubbock, Texas Exhibit B-3 Page 2 of2 DEBT SERVICE PAYMENTS ON THE REFUNDED CERTIFICATES AND DEBT SERVICE PAYMENTS TO MATURITY ON THE REFUNDED CERTIFICATES Debt service Interest payments Date PrinciEal rate Interest to maturity 08-15-14 474~720.00 474~720.00 02-15-15 474,720.00 474~720.00 08-15-15 474,720.00 474,720.00 02-15-16 474,720.00 474,720.00 08-15-16 474~720.00 474,720.00 02-15-17 474,720.00 474,720.00 08-15-17 474,720.00 474,720.00 02-15-18 474,720.00 474,720.00 08-15-18 474,720.00 474,720.00 02-15-19 474,720.00 474,720.00 08-15-19 474,720.00 474,720.00 02-15-20 474,720.00 474,720.00 08-15-20 474,720.00 474,720.00 02-15-21 474,720.00 474,720.00 08-15-21 474,720.00 474,720.00 02-15-22 $1,405,000 5.200% 474,720.00 1,879,720.00 08-15-22 438,190.00 438,190.00 02-15-23 1,480,000 5.200% 438,190.00 1 ,918,190.00 08-15-23 399,710.00 399,710.00 02-15-24 1,560,000 5.250% 399,710.00 1,959,710.00 08-15-24 358,760.00 358,760.00 02-15-25 1,645,000 5.250% 358,760.00 2,003,760.00 08-15-25 315,578.75 315,578.75 02-15-26 1,735,000 5.250% 315,578.75 2,050,578.75 08-15-26 270,035.00 270,035.00 02-15-27 1,830,000 5.300% 270,035.00 2,100,035.00 08-15-27 221,540.00 221,540.00 02-15-28 1,925,000 5.300% 221,540.00 2,146,540.00 08-15-28 170,527.50 170,527.50 02-15-29 2,030,000 5.300% 170,527.50 2,200,527.50 08-15-29 116,732.50 116,732.50 02-15-30 2,145,000 5.300% 116,732.50 2,261,732.50 08-15-30 59,890.00 59,890.00 02-15-31 2,260,000 5.300% 59,890.00 2,319,890.00 $18,015,000 $19,892,967.50 $37,907,967.50 J Date 08-15-06 02-15-07 08-15-07 02-15-08 08-15-08 02-15-09 ) 08-15-09 02-15-10 08-15-10 02-15-11 08-15-11 02-15-12 08-15-12 02-15-13 08-15-13 02-15-14 08-15-14 02-15-15 08-15-15 02-15-16 08-15-16 02-15-17 08-15-17 02-15-18 08-15-18 02-15-19 ) 08-15-19 02-15-20 08-15-20 02-15-21 08-15-21 02-15-22 ) 08-15-22 02-15-23 08-15-23 02-15-24 City of Lubbock, Texas Exhibit C Page 1 of2 DEBT SERVICE PAYMENTS AND YIELD ON THE BONDS Present value on $18,830,000 issue dated Ma! 15, 2006 (1) June 20, 2006 Interest Total debt Adjusted using a yield of Princi£al rate Interest service debt service 4.807982% $221,762.50 $221,762.50 $221,762.50 $220,158.64 $30,000 4.000% 443,525.00 473,525.00 473,525.00 459,064.44 442,925.00 442,925.00 442,925.00 419,318.52 30,000 4.000% 442,925.00 472,925.00 472,925.00 437,209.15 442,325.00 442,325.00 442,325.00 399,.320.47 .35,000 4.000% 442,325.00 477,325.00 477,325.00 420,801.60 441,625.00 441,625.00 441,625.00 380,189.37 35,000 4.000% 441,625.00 476,625.00 476,625.00 400,687.93 440,925.00 440,925.00 440,925.00 361,973.92 35,000 4.000% 440,925.00 475,925.00 475,925.00 381,534.83 440,225.00 440,225.00 440,225.00 344,630.33 40,000 4.000% 440,225.00 480,225.00 480,225.00 367,118.84 439,425.00 439,425.00 439,425.00 .328,042.25 40,000 4.000% 439,425.00 479,425.00 479,425.00 349,501.32 438,625.00 438,625.00 438,625.00 312,251.58 40,000 4.000% 438,625.00 478,625.00 478,625.00 332,728.31 437,825.00 437,825.00 437,825.00 297,220.01 40,000 4.000% 437,825.00 477,825.00 477,825.00 316,759.38 437,025.00 437,025.00 437,025.00 282,911.11 45,000 4.200% 437,025.00 482,025.00 1 '482,025.00 936,876.56 436,080.00 4.36,080.00 411,080.00 253,767.68 45,000 4.300% 436,080.00 481,080.00 456,080.00 274,937.58 435,112.50 435,112.50 410,112.50 241,423.31 50,000 4.400% 435,112.50 485,112.50 460,112.50 264,498.58 434,012.50 434,012.50 409,012.50 229,603.77 50,000 4.500% 434,012.50 484,012.50 459,012.50 251,622.84 432,887.50 432,887.50 407,887.50 218,347.92 55,000 4.500% 432,887.50 487,887.50 462,887.50 241,973.18 431,650.00 431,650.00 406,650.00 207,584.86 55,000 4.500% 431,650.00 486,650.00 461,650.00 230,128.74 430,412.50 430,412.50 405,41250 197,350.52 1,455,000 4.500% 430,412.50 1,885,412.50 1,860,412.50 884,368.98 397,675.00 397,675.00 372,675.00 172,996.62 1,525,000 4.750% 397,675.00 1,922,675.00 1,897,675.00 860,225.52 361,456.25 361,456.25 336,456.25 148,936.86 1,600,000 4.750% 361,456.25 1,961,456.25 1, 936,456.25 837,075.07 ) ) ) ) ) City of Lubbock, Texas ExhibitC Page 2 of2 DEBT SERVICE PAYMENTS AND YIELD ON THE BONDS Present value on $18,830,000 issue dated Ma! 15,2006 (1) June 20, 2006 Interest Total debt Adjusted using a yidd of Date Princi2al rate Interest serv1ce debt service 4.807982% 08-15-24 323,456.25 323,456.25 298,456.25 125,985.49 02-15-25 1,680,000 4.750% 323,456.25 2,003,456.25 1,978,456.25 815,547.77 08-15-25 283,556.25 283,556.25 258,556.25 104,078.52 02-15-26 1,765,000 4.750% 283,556.25 2,048,556.25 2,023,556.25 795,434.58 08-15-26 241,637.50 241,637.50 216,637.50 83,158.36 02-15-27 1,850,000 4.600% 241,637.50 2,091,637.50 2,066,637.50 774,675.33 08-15-27 199,087.50 199,087.50 174,087.50 63,724.45 02-15-28 1,935,000 5.000% 199,087.50 2,134,087.50 1,649,087.50 589,474.95 08-15-28 152,556.25 152,556.25 139,056.25 48,539.50 02-15-29 2,030,000 5.000% 152,556.25 2,182,556.25 1,629,056.25 555,295.26 08-15-29 103,668.75 103,668.75 103,668.75 34,507.93 02-15-30 2,130,000 4.750% 103,668.75 2,233,668.75 2,233,668.75 726,060.64 08-15-30 53,081.25 53,081.25 53,081.25 16,849.16 02-15-31 2,235,000 4.750% 53,081.25 2,288,081.25 2,288,081.25 709,237.68 $18,830,000 $18,019,797.50 $36,849,797.50 $36,222,797.50 $18,705,710.22 The present value of the future payments is equal to: Principal amount of the Bonds $18,830,000.00 Accrued interest 86,240.97 Net original issue discount (147,517.60) Bond insurance premium {63,013.15~ $18,705,710.22 The sum of the present values of the adjusted debt service payments of the Bonds on June 20, 2006, using yidd of 4.807982%, is equal to the issue price of the Bonds adjusted for the bond insurance premium. (1) Assumes that the Februuy 15,2029 maturity identified on Exhibit C-1 is called on Februuy 15,2016 at 100 percent of par plus accrued interest. Exhibit C-1 City of Lubbock, Texas NET ORIGINAL ISSUE DISCOUNT ON THE BONDS ) Initial Net original public issue Maturity Interest offering premium date PrinciEal rate Yield price {discount~ 02-15-07 $30,000 4.000% 3.680% 100.200% $60.00 02-15-08 30,000 4.000% 3.720% 100.440% 132.00 02-15-09 35,000 4.000% 3.750% 100.621% 217.35 02-15-10 35,000 4.000% 3.770% 100.774% 270.90 02-15-11 35,000 4.000% 3.810% 100.799% 279.65 02-15-12 40,000 4.000% 3.920% 100.397% 158.80 ) 02-15-13 40,000 4.000% 4.040% 99.764% (94.40) 02-15-14 40,000 4.000% 4.140% 99.085% (366.00) 02-15-15 40,000 4.000% 4.230% 98.343% (662.80) 02-15-16 45,000 4.200% 4.310% 99.134% (389.70) 02-15-17 45,000 4.300% 4.440% 98.816% (532.80) ) 02-15-18 50,000 4.400% 4.540% 98.738% (631.00) 02-15-19 50,000 4.500% 4.610% 98.948% (526.00) 02-15-20 55,000 4.500% 4.650% 98.490% (830.50) 02-15-21 55,000 4.500% 4.680% 98.101% (1,044.45) 02-15-22 1,455,000 4.500% 4.690% 97.904% (30,496.80) ) 02-15-23 1,525,000 4.750% 4.720% 100.224% (1) 3,416.00 02-15-24 1,600,000 4.750% 4.740% 100.070% (1) 1,120.00 02-15-25 1,680,000 4.750% 4.760% 99.871% (2,167.20) 02-15-26 1,765,000 4.750% 4.780% 99.614% (6,812.90) 02-15-27 1,850,000 4.600% 4.800% 97.391% ( 48,266.50) ':\ 02-15-29 1,000,000 5.000% , 4.650% 102.691% (1) (2) 26,910.00 02-15-29 2,965,000 4.750% 4.810% 99.171% (24,579.85) 02-15-31 4,365,000 4.750% 4.850% 98.564% {62,681.40~ $18,830,000 ($147,517.60) ) (1) Maturities were priced to call on February 15, 2016 at 100 percent of par. (2) Represents the yield-to-call Bonds included for purposes of computing yield on the Bonds. ' .... .I ) ) APPENDIX I Applicable schedules provided by First Southwest Company ) Preliminary City of Lubbock, Texas General Obligation Refunding Bonds Series 2006 Sources & Uses Dated 0511512006 1 Delivered 06120/2006 Sources Of Funds Par AmountofBond.s Sl8,830,000.00 Transfers from Prior Issue Debt Service Funds 339,198.47 Accrued Interest from 0511512006 to 06/20/2006 86,.240.97 R~fteri~Pre=m=i~wn~--------------------------------------------------------------~3~2,~5~~-7~0 Total Sourc:rs Uses Of Funds Deposit to Net Cash Escrow Fund Original Issue Discount (010) Costs of Issuance Total Underwriter's Discount (0.662%) Deposit to Debt Service Fund Gross Bond Insurance Premium ( 17.1 bp) Rounding Amount Total Uus FIHAL PRICING I GO RefundiBg I 511112006 I 11:37 AM First Southwest Company $19,288,004.14 18,687,4n.64 180,082.30 145,000.00 124,726.43 86,240.97 63,013.15 ____________________ ! •. ~1:§1. $19,288,004.14 Publtc Ftn ance Oepailment Pagc; 2 Preliminary City of Lubbock, Texas General Obligation Refunding Bonds Series 2006 Escrow Fund Cashflow Date Principal Rate Interest 06/20/2006 08/15/2006 136,150.36 02/15/2007 30,515.00 5.010% 441,062.65 08/15/2007 34,663.00 5.000% 440,057.41 02/IS/2008 35,529.00 4.990% 439,190.83 08/15/2008 36,415.00 4.980% 438,304.38 02/15/2009 37,323.00 4.980% 437,397.65 08/IS/2009 38,251.00 4.990% 436,468.31 02115/2010 39,206.00 5.000% 435,513.95 08/1 5/20 I 0 40,187.00 S.OOO% 434,533.80 02/15/2011 18,056,1%.00 4.802% 433,529.12 Total $18,348,279.00 $4,072,208.46 Investment Parameters +Transfers 0.47 338,569.69 3,142.21 $341,712.37 Receipts 0.64 474,720.05 474,719.86 474,720.41 474,719.83 474,719.38 474,720.65 474,719.31 474,719.95 474,720.80 18,489,719.12 $22,762,200.00 Disbursements Cash Balance 0.64 474,720.00 0.69 474,720.00 0.55 474,720.00 0.96 474,720.00 0.79 474,720.00 0.17 474,720.00 0.82 474,720.00 0.13 474,720.00 0.08 474 720.00 0.88 18,489,720.00 s:u, 762,200.00 Investment Model [PV, GIC, or Securities! Securities -=De...;;fa::=uh==-:in;;:.v;..;;.cstm=.:;:en;.:.tY"-"i.:;:eld.;;...;;;;;tar;.."""'ei'------------------·-----.. -·-···-·------=Bo...;;n:.:;:d:....Y:..:ie.:;:ld=- Cost of Investments Purchased with Fund Tr.u~sfeJS 339,198.47 Cash Deposit 0.17 Cost ofinveslments Purchased with Bond Proceeds 18,348,279.00 Total Cost of Investments $18,687,477.64 Target Cost of Investments at bond yield $18,347,840. I 5 Actual positive or (negative) arbiaage (439.02) Yield to Receipt 4.8073978% Yield for Arbitrage Purposes 4.8079820% State and Local Government Series (SLGS) rates for 5/11/2006 FINAL PRICING I GO Refvndlng I 511112006 111:37 AM First Southwest Company Public Finance Department Page 7 ) ) ) ) Preliminary City of Lubbock, Texas General Obligation Refunding Bonds Series 2006 Unrestricted Money Cash Flow Date Principal Rate 06/20/2006 08/15/2006 336,156.00 4.680% 0211512007 3,042.00 5.010% Total Ul9,198.00 Comeosition Of Initial Deposit Interest -Transfers (0.47) 2,413.69 (338,569.69) 100.21 (3,142.21) $2,513.90 (341,712.37) Ctib Deposit -· ···-·---------···-··---···----···---··---Cost of Investments Purchased with Fund Transfers Total Cost of Investments FINAl PRICING I GO Relundifl9 I 511112006 I 11:31 AM First Southwest Company Cash Balance 0.47 339,198.0() $339,198.47 Publ1c Finance Department P:::ge 8 ) ) ) ) ) ' ' ) ) ) Preliminary City of Lubbock, Texas General Obligation Debt Tax & Municipal Drainage Utility System Surplus Revenue C/0, Series 2001 $35,000,000 Debt Service To Maturity And To Call Refunded Interest to Date Bonds Call 0/S To Call Principal Coupon Interest Refunded DIS 0111512006 474,720.00 0211512007 474,720.00 01/1512007 474,720.00 0211512001 474,720.00 OS/IS/2001 ·-------· 4~~!!:~--·-· 0211512009 474,720.00 0111512009 474,720.00 0211512010 474,720.00 OS/1512010 474,720.00 474,720.00 474,720.00 474,720.00 474,720.00 474 720.00 474,720.00 474,720.00 474,720.00 474,720.00 5.000% S.OOO% 5.000% 5.000% 474.720.00 474,720.00 474,720.00 474,720.00 474 720.00 474,720.00 474,720.00 474,720.00 474,720.00 0211512011 1810JS1000.QO 474 720.00 18.489 720.00 4.400o/. 0111512011 ...:..:..:....:.:="'--'"""'"""'=="---------:.:..:.:;.::..:..:.. __ -747.4,'[2!~L-474,72o.oo 0211512012 0811512012 0211S/201J 08/IS/2013 0211512014 081\S/2014 0211S/2015 0811512015 0211512016 0111512016 0211512017 01/15/2017 02115/2018 08/1512018 . --·---·· 0211512019 08/IS/2019 021\S/2020 08/15/202.0 0211512021 . . -----·---08/JS/2021 02/JS/2022. 081151202.2. 0211512023 081~3... 02/IS/2024 O&IIS/2024 0211512025 OS/151202.5 02/151202.6 ---· 08/15/2026 0211512021 08/IS/2027 0211S/2021 08/1512021 . ... _, ___ 0211512029 0111512029 02/IS/2030 0111512030 0211512031 Total Sli,OI$,000.00 $4.747,200.00 Yield Statistics ~~-· Weighted Avenge Mal\l!i!t.~.!!~M~l. ___ _ ~ovpon ... _ .. _____ _ Refunding Bond lnfonnatlon RefUtJ.<Img Dated Date Refunding DeiM:ty Date W.762,200.00 2001Tu & M.., Or UUI Sys I SINGLE PURPOSE I 511 V2008 I 11:37 AM F1rst SouH1west Company 1,405,000.00 5.200% 1,480,000.00 5.200"14 1,560,000.00 5.2.SO"A 1,645,000.00 S.2SO% 1,735,000.00 5.250% 1,830,000,00 5.300% 1,925,000.00 5.300% 2,030,000.00 BOO% 2,14S,OOO.OO S.JOO"A 2,260,000.00 5.300% Slti,OIS,OOO.OO 474,720.00 474,720.00 474,720.00 474,720.00 474,720.00 474,720.00 474,720.00 474,720.00 474 720.00 474,720.00 474,720.00 474,720.00 474,720.00 474 720.00 474,720.00 474,720.00 474,720.00 474,720.00 474 720.0() 474,720.00 474,720.00 43&,190.00 43&,190.00 399 710.00 399,710.00 3S8,760.00 358,760.00 31S,578.7S 31$,578.75 210,035.00 270,035.00 221,540.00 221,540.00 110,521.50 110,521.50 116,732.50 116,732.50 59,890.00 59,890.00 SU,89l,967.50 474,720.00 474,720.00 474,720.00 474.720.00 474 720.00 474,720.00 474,720.00 474,720.00 474.720.00 474,720.00 474,720.00 474,720.00 474,720.00 474,720.00 474 720.00 474,720.00 474,720.00 474,720.00 474,720.00 474720.00 474,720.00 474,720.00 474,720.00 474,720.00 474 720.00 474,720.00 474,720.00 474,720.00 474,720.00 474 720.00 474.720.00 1,879,720.00 438,190.00 1,918,190.00 399 710.00 1,959,710.00 358,160.00 2,003, 760.00 315,518.15 210SO,S7&.75 210,035.00 2,100,035.00 2Zl,S40.00 2., 146,540.00 170J27.50 2,200,521.50 116,132..50 2,2610132.50 59,890.00 2,319,890.00 $37,907,967.50 20.684 Years 20.S87 YeatS 5.2149561% 511512006 612012006 !=' L hlrr f H1anr•: De:'3rtmertt r~lP y ) Preliminary City of Lubbock, Texas General Obligation Refunding Bonds Series 2006 ... Debt Service Schedule Part 1 of3 ) Date Principal Coupon Interest Total P+l Fiscal Total 0612012006 08/15/2006 221,762.50 221,762.50 09/30/2006 221,762.50 02115/2007 30,000.00 4.000% 443,525.00 473,525.00 08/1512007 442,925.00 ~2,925.00 09/3012007 916,450.00 ) 02/1512008 30,000.00 4.000% 442,925.00 472,925.00 08/1512008 442,325.00 442,325.00 0913012008 915,250.00 02/1512009 35,000.00 4.000% 442,325.00 477,325.00 08/15/2009 441,625.00 441,625.00 09/3012009 918,950.00 ) 02/1512010 35,000.00 4.000% 441,625.00 476,625.00 0811512010 440,925.00 440,925.00 09/3012010 917,550.00 02/1512011 35,000.00 4.0000/o 440,925.00 475,925.00 08/15/2011 440,225.00 440,225.00 09/3012011 916,150.00 02/15/2012 40,000.00 4.000% 440,225.00 480,225.00 08/1512012 ___ ,A_, ____ .. _,,_ 439,425.00 439,425.00 09/3012012 919,650.00 0211512013 40,000.00 4.000% 439,425.00 479,425.00 08/1512013 438,625.00 438,625.00 09/3012013 918,050.00 02/1512014 40,000.00 4.000% 438,625.00 478625.00 08115/2014 437,825.00 437,825.00 ) 09/3012014 916,450.00 02115/2015 40,000.00 4.000% 437,825.00 477,825.00 0811512015 437,025.00 437,025.00 09/3012015 --···--....... -....................... -........... 914,850.00 02/1512016 45,000.00 4.200% 437,025.00 482,025.00 08/1512016 436,080.00 436,080.00 09/3012016 918,105.00 0211512017 45,000.00 4.300% 436,080.00 481,080.00 08/15/2017 435,112.50 435,112.50 09/3012017 916,192.50 02/1512018 50,000.00 4.400% 435,112.50 485,112.50 08/1512018 434,012.50 434,012.50 09/3012018 919,125.00 02/1512019 50,000.00 4.5000/o 434,012.50 484,012.50 08/1512019 432,887.50 432,887.50 09/30f2019 916,900.00 02/1512020 55,000.00 4.50()% 432,887.50 487,887.50 08/1Sf2020 431,650.00 431,650.00 FINAl PRICING I GO Refunding I 511112006 I 11:31 AM - -- ---- First Southwest Company ) Pubhc F mance Depa1 tmenl Page 3 ) ) ) Preliminary City of Lubbock, Texas General Obligation Refunding Bonds Series 2006 Debt Service Schedule Date Principal Coupon 0~/3012020 0211512021 55,000.00 4.500% 08/IS/2021 09/3012021 02/1512022 1,455,000.00 4.500% 08/1512022 0913012022 0211512023 1,525,000.00 4.750% 08/1512023 0913012023 0211512024 1,600,000.00 4.750% 08/15/2024 09/3012024 0211512025 1,680,000.00 4.150% 0811512025 0913012025 0211512026 1,765,000.00 4.750".4 08/1512026 09/3012026 0211512027 1,850,000.00 4.600% 08/1512027 -·----·-· 09/3012027 02/1512028 1,935,000.00 4.809% 08/1512028 09130/2028 0211512029 2,Q30,000.00 4.817% 08/15/2029 09/3012029 0211512030 2,130,000.00 4.750% 08/1512030 09/3012030 02/1512031 2,235,000.00 4.750".4 09/3012031 Total Sl8,8.JO,OOO.OO FINAL PRICING I GO Refundino I 511112006 I 11:37 AM First Southwest Company Part2 of3 Interest Total P+l Fiscal Total -919,537.50 431,650.00 486,650.00 430,412.50 430,412.50 917,062.50 430,412.50 1,885,412.50 397,675.!)0 3_g _675.00 ----- 2,283,087.50 397,675.00 1,922,675.00 361,456.25 361,456.25 2,284,131.25 361,456.25 1,961,456.25 323,456.25 323,456.25 2,284,912.50 323,456.25 2,003,456.25 283,556.25 283,556.25 2,287,012.50 283,556.25 2,048,556.25 241,637.50 241,637.50 2,290,193.75 241,637.50 2,o91,637.50 199,087.50 199,087.50 2,290,725.00 199,087.50 2,134,087.50 152,556.25 152,556.25 2,286,643.75 152,556.25 2,182,556.25 103,668.75 103,668.75 2,286,225.00 103,668.75 2,233,668.75 53,081.25 53,081.25 2,286,750.00 53,081.25 2,288,081.25 2,288,081.25 $18,019,797.50 $36,849,797.50 PubliC t=mance Department Pa~e 4 ) ) Preliminary City of Lubbock, Texas General Obligation Refunding Bonds Series 2006 Debt Service Schedule Yield Statistics Part3of3 .:.;A::::CC:::.CU::.:::ed=ln:::te:.:.:res~t:..::fr::.::o.::::m:...:0.::.:5/..::.:15:::.12::.:::0:.=.06:::...:.:::to....::06.:::.12.:::0:.:.;12::.:::0~06~--------------------------:-,...::8:.=.6,<=24,:.:0:..:.:.9:..:_7 .:::B.:::on::.::d,...::Y:...:ea=r-=Do=llars=-"-------·-····-------------------------~$3~8:..:;1,~122~.5:..::..0 Average Life 20.240 Years AvemgeCoupon 4.7280855% Net Interest Cost (NIC) 4.7995176% True Interest Cost (TIC) 4.8387640% Bond Yield for Arbitrage Purposes 4.8079820% All Inclusive Cost(AIC:L----------------4.9277058% IRS Fonn 8038 Net Interest Cost 4.8062057% Weighted Average Maturity 20.137 Years FINAL PRICING I GO Refunding I 511112006 I 11:37 AM First Southwest Company Public Fmance Department Page 5 ) Preliminary City of Lubbock, Texas General Obligation Refunding Bonds Series 2006 ) Pricing Summary 'I Maturity Type of Bond Coupon Yield Maturity Value Price OoUarPrice 0211512007 Serial Coupon 4.000% 3.680% 30,000.00 100.200% 30,060.00 02/1512008 Serial Coupon 4.000"/o 3.720% 30,000.00 100.440% 30,132.00 02/l.S/2009 Serial Coupon 4.000% 3.750% 35,000.00 100.621% 35,217.35 02/15/2010 Serial Coupon 4.000% 3.770% 35,000.00 100.774% 35.270.90 02/15/2011 Serial Cou~n 4.000% 3.810% 351,9.QO.OO 100.799% 35.279.65 ) 02/15/2012 Serial Coupon 4.000% 3.920% 40,000.00 100.397% 40,158.80 02/15/2013 Serial Coupon 4.000% 4.040% 40,000.00 99.764% 39,905.60 02/15/2014 Serial Coupon 4.000% 4.140"/o 40,000.00 99.085% 39,634.00 02/15/2015 Serial Coupon 4.000% 4.230% 40,000.00 98.343% 39,337.20 02/15/2016 Serial Cou~n 4.200% 4.310% 45,000.00 99.134% 44,610.30 02/1512017 Serial Coupon 4.300% 4.440% 45,000.00 98.816% 44,467.20 02/15/2018 Serial Coupon 4.400% 4.540% 50,000.00 98.738% 49,369.00 } 0211512019 Serial Coupon 4.500% 4.610% 50,000.00 98.948% 49,474.00 02/15/2020 Serial Coupon 4.500% 4.650% 55,000.00 98.490% 54,169.50 02/1512021 SeriaiCou~n 4.500% 4.680% 55,000.00 98.101% 53,955.55 02/15/2022 Serial Coupon 4.500% 4.690% 1,455,000.00 97.904% 1,424,503.20 02/15/2023 Serial Coupon 4.750% 4.720% 1,525,000.00 100.224% c 1,528,416.00 02/15/2024 Serial Coupon 4.750% 4.740% 1,600,000.00 100.070% c 1,601,120.00 02/15/2025 Serial Coupon 4.750% 4.760% 1,680,000.00 99.871% 1,677,832.80 0211512026 Serial Coupon 4.750% 4.780% 1,765,000.00 99.614% 1,758,187.10 02/15/2027 Serial Coupon 4.600% 4.800"/o 1,850,000.00 97.391% 1,801,733.50 02/15/2029 Tenn I Coupon 5.000% 4.650% 1,000,000.00 102.691% c 1,026,910.00 02/15/2029 Term 3 Coupon 4.750% 4.810% 2,965,000.00 99.171% 2,940,420.15 02/1512031 Term 2 Coupon 4.750% 4.850% 4,365,000.00 98.564% 4,302,318.60 Total $18,830,000.00 S18,68l,482.40 Bid lnfonnation Par Amount of Bonds $18 830 000.00 Reoffcring Premium or {Discount! {147,517.60} Gross Production $18,682,482.40 Total Underwriter's Discount (0.662%} ${124,726.43) Bid (98.554%) 18,557,755.91 Accrued Interest from 0511512006 to 06/20/2006 -----· 86.240.97 Total Purchase Price s 18,643,996.94 Bond Year Dollars $381!122.50 Average Life ..... ~ .. ·---·-----· 20.240 Years Ave~e Coueon 4.7280855% Net Inte..est Cost (NIC} 4.7995176% True Interest Cost (!:IC} 4.8387640% fiNAL PRICING I GO Refunding I Slttfl006 I 11 :37 AM --------------------- First Southwest Company Public Fmance Department ?<:ge 5 ) REGISTERED No.1 INTEREST RATE: 4.000% United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 MATURITY DATE: BOND DATE: May 15,2006 REGISTERED $30,000 CUSIP NUMBER: 549187 W40 The City of Lut>bo1""",•• received, hereby promises to in the County of Lubbock, State of Texas, for value or registered assigns, on the Maturity and to pay interest on such principal amount from ~nd Date specified above or the most recent interest payment date to which h aid or provided for until payment of such principal amount has been paid or provid · or, e per annum rate of interest specified above, computed on the basis of a 360-day year of twelVe 30-d.ay months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing August 15, 2006. All capitalized tenns used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). 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, or, with respect to a successor Paying Agent/Registrar, at the Designated Paynient!fransfer Office of such successor. 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 expenses of such customary banking arrangement. 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 INTEREST RATE: 4.000% United States of America State of Texas County of Lubbock CITY OF LUBBOC~ TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 BOND DATE: May 15,2006 The City of Lubbock (the "Ci received, hereby promises to pay to or registered assigns, on the Maturity Date specified REGISTERED $30,000 CUSIP NUMBER: 549187W57 THIRTY THOUSAND DQC,·&.:o<t jiLL-~~ and to pay interest on such principal amount from the later of the.Zd 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 360-day year of twelve 30-day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing August 15, 2006. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). 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, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment!fransfer Office of such successor. 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 expenses of such customary banking arrangement. 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 INTEREST RATE: 4.000% United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 BOND DATE: May 15,2006 \ REGISTERED $35,000 CUSIP NUMBER: 549187 W65 The City of Lubbock (ilie received, hereby promises to pay to~, .. County of Lubbock, State of Texas, for value and to pay interest on such principal amount from the . Date specified above or the most recent interest payment date to which interest or provided for until payment of such principal amount has been paid or provided rate of interest specified above, computed on the basis of a 360-day year of months, such interest .... to be paid semiannually on February 15 and August 15 of each ye~. commencing August 15, 2006. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). 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, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office of such successor. 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 expenses of such customary banking arrangement. 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 INTEREST RATE: United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 MATURITY DATE: BOND DATE: or registered assigns, on the above, the sum of REGISTERED $35,000 CUSIP NUMBER: and to pay interest on such principal of the Bond Date specified above or the most recent interest payment date to has been paid or provided for until payment of such principal amount has been for, at the per annum rate of interest specified above, computed on the basis of a 360'-~ay ~elve 30-day months,. such interest to be paid semiannually on February 15 and each year, commencing August 15, 2006. All capitalized tenns used herein but not defingl s all have the meaning assigned to them in the Ordinance (defined below). 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, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office of such successor. 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 expenses of such customary banking arrangement. 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 INTEREST RATE: 4.000% United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 MATURITY DATE: BOND DATE: May 15,2006 .,, REGISTERED $35,000 CUSIP NUMBER: 549187 W81 The City of L~bb . received, hereby promiSe "City"), in the County of Lubbock, State of Texas, for value .... and to pay interest on such principal . e later of the Bond Date specified above or the most recent interest payment date t' est has been paid or provided for until payment of such principal amount has been · ~ed for, at the per annum rate of interest specified above? computed on the basis of a 36~~ of twelve 30-day mon~, such interest to be paid semtannually on February 1-5 and Au . ~.#each year, commencmg August 15, 2006. All capitalized terms used herein but not defined«"att have the meaning assigned to them in the Ordinance (defined below). ·..v> 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, or, with respect to a successor Paying Agent/Registrar, at the Designated Paymentffransfer Office of such successor. 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 expenses of such customary banking arrangement. For the puzpose 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.6 $40,000 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 INTEREST RATE: MATURITY DATE: BOND DATE: CUSIP NUMBER: 4.000% May 15,2006 549187 W99 in the County of Lubbock, State of Texas, for value and to pay interest on such principal amount from nd Date specified above or the most recent interest payment date to which int~ · d or provided for until payment of such principal amount has been paid or provid&l for, . ~ annum rate of interest specified above, computed on the basis of a 360-day year oftw~ e· . ay months, such interest to be paid semiannually on February 15 and August 15 of each · , commencing August 15, 2006. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). 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, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment!fransfer Office of such successor. 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 expenses of such customary banking arrangement 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 INTEREST RATE: 4.000% United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 BOND DATE: May 15,2006 REGISTERED $40,000 CUSIP NUMBER: 549187 X23 The City of Lubbock e received, hereby promises to pay to the County of Lubbock, State of Texas, for value or registered assigns, on the Maturity ) and to pay interest on such principal amount the Bond Date specified above or ) the most recent interest payment date to which been paid or provided for until payment of such principal amount has been paid or the per annwn rate of interest specified above, computed on the basis of a 360-day 30-day months, such interest to be paid semiannually on February 15 and August 15 each year, commencing August 15, 2006. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). 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, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment!fransfer Office of such successor. 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 expenses of such customary banking arrangement. 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 INTEREST RATE: United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 MATURITY DATE: BOND DATE: or registered assigns, on the Maturity REGISTERED $40,000 CUSIP NUMBER: and to pay interest on such principal amount Bond Date specified above or the most recent interest payment date to which paid or provided for until payment of such principal amount has been paid or per annum rate of interest specified above, computed on the basis of a 360-day 30-day months, such interest to be paid semiannually on February 15 and August 15 of year, commencing August 15, 2006. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). 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, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment!fransfer Office of such successor. 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 expenses of such customary banking arrangement. 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. ) J ) ) ) REGISTERED No.9 INTEREST RATE: 4.000% United States of America State of Texas County of Lubbock CITY OF LUBBOC~ TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 BOND DATE: May 15,2006 REGISTERED $40,000 CUSIP NUMBER: 549187 X49 The City of Lubbock (the 'Ci received, hereby promises to pay to County of Lubbock, State of Texas, for value FOR'IYTHOUS and to pay interest on such principal amount from the late;~¥ Date specified above or the most recent interest payment date to which interest aid or provided for until payment of such principal amount has been paid or provided for, · • the per annwn rate of interest specified above, computed on the basis of a 360-day year of twelve 30-day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing August 15, 2006. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). 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, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office of such successor. 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 expenses of such customary banking arrangement. 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. 10 INTEREST RATE: United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 MATURITY DATE: BOND DATE: FORTY REGISTERED $45,000 CUSIP NUMBER: and to pay interest on such principal amount the Bond Date specified above or the most recent interest payment date to paid or provided for until payment of such principal amount has been paid or the per annum rate of interest specified above, computed on the basis of a 360-day '~117""''" months, such interest to be paid semiannually on February 15 and August 15 out!>.aA'I1111 commencing August 15, 2006. All capitalized tenns used herein but not defined shall the meaning assigned to them in the Ordinance (defined below). 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, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office of such successor. 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 expenses of such customary banking arrangement. 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. 11 $45,000 United States of America State of Texas County of Lubbock ) CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 INTEREST RATE: MATURITY DATE: BOND DATE: CUSIP NUMBER: J 4.300% February 15, 2017 May 15,2006 549187 X64 CEDE&CO. specified above, the swn of USAND DOLLARS .._ .... ) and to pay interest on such principal ·~ the later of the Bond Date specified above or the most recent interest payment date n erest has been paid or provided for until payment of such principal amount has be · ded for, at the per annum rate of interest specified above, computed on the basis of a f twelve 30-day months, such interest to be paid semiannually on February 15 and ch year, commencing August 15, 2006. All capitalized terms used herein but not efin ~ve the meaning assigned to them in the Ordinance (defined below). ../'- .. '~ The principal of this Bond shall be payable wi : out 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, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment!fransfer Office of such successor. 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 expenses of such customary banking arrangement. 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.l2 United States of America State ofTexas County of Lubbock REGISTERED $50,000 CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 INTEREST RATE: MATURITY DATE: BOND DATE: CUSIP NUMBER: 4.400% Februa;018 May 15, 2006 549187 X72 The City of Lubbock Ge: · in the County of Lubbock, State of Texas, for value received, hereby promises to pay~ '~ & CO. or registered assigns, on the Maturity D~ s~ FIFTY and to pay interest on such principal amount ttoltld~ the most recent interest payment date to which -~ the Bond Date specified above or payment of such principal amount has been paid or specified above, computed on the basis of a 360-day ye8}: to be paid semiannually on February 15 and August 15 2006. All capitalized terms used herein but not defined ~H"~-"' .. in the Ordinance (defined below). paid or provided for until the per annum rate of interest months, such interest commencing August 15, the meaning assigned to them 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, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office of such successor. 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 expenses of such customary banking arrangement. 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 INTEREST RATE: 4.500% United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 MATURITY DATE: BOND DATE: February 15,2019 May 15,2006 REGISTERED $50,000 CUSIP NUMBER: 549187 X80 The City of Lubboc received, hereby promise 'City'), in the County of Lubboc~ State of Texas, for value and to pay interest on such principal amount the Bond Date specified above or the most recent interest payment date to wm.crNII'li paid or provided for until payment of such principal amount has been paid or '"'~""-u" the per annum rate of interest specified above, computed on the basis of a 360-day months, such interest to be paid semiannually on February 15 and August 15 nv. .. gWt~t~~~ commencing August 15, 2006. All capitalized terms used herein but not defined shall the meaning assigned to them in the Ordinance (defined below). 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 coxporate trust office in Dallas, Texas (the "Designated Paymentffransfer Office"), of JPMorgan Chase Bank, National Association, or, with respect to a successor Paying AgentJR.egistrar, at the Designated Payment/Transfer Office of such successor. Interest on this Bond is payable by check dated as of the interest payment date, and will be mailed by the Paying AgentJR.egistrar 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 expenses of such customary banking arrangement. 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. ) ) ... I ) ., ) .... REGISTERED REGISTERED No.l4 $55,000 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 INTEREST RATE: TE: BOND DATE: CUSIP NUMBER: 4.500% 549187 X98 or registered assigns, on the Maturity Date and to pay interest on such principal amount from · . ~ond Date specified above or the most recent in~~st payment date to w~ch inter~s't_ . _ paid or provided f~r until payment of such pnnctpal amount has been pcud or proVIded. · , at the per annum rate of mterest specified above, computed on the basis of a 3 60-day year of twelve 30-day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing August 15, 2006. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). 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 Paymentn'ransfer Office"), of JPMorgan Chase Bank, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment!fransfer Office of such successor. 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 expenses of such customary banking arrangement. 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. 15 INTEREST RATE: 4.500% The City of L received, hereby pro United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 MATURITY DATE: BOND DATE: February 15,2021 May 15,2006 REGISTERED $55,000 CUSIP NUMBER: 549187Y22 "City"), in the County of Lubbock, State of Texas, for value FIFTY and to pay interest on such principal ........... , ....... ~ the Bond Date specified above or the most recent interest payment date to been paid or provided for until payment of such principal amount has been paid n"'•rim·~, the per annum rate of interest specified above, computed on the basis of a 360-day ,_.,,.~,...,. 30-day months, such interest to be paid semiannually on February 15 and August 1 ~~~...a ... .u year, commencing August 15, 2006. All capitalized terms used herein but not defined have the meaning assigned to them in the Ordinance (defined below). 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, or, with respect to a successor Paying Agent/Registrar, at the Designated Paymentffransfer Office of such successor. 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 expenses of such customary banking arrangement. 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 $1,455,000 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 INTEREST RATE: MATURITY DATE: BOND DATE: CUSIP NUlv.t:BER: "' 4.500% February 15, 2022 May 15,2006 549187Y30 " ) above, the sum of THOUSAND DOLLARS ) and to pay interest on such principal amount Bond Date specified above or ·. the most recent interest payment date to paid or provided for until payment of such principal amount has been paid or the per annum rate of interest specified above, computed on the basis of a 360-day year 30-day months, such interest to be paid semiannually on February 15 and August 15 of year, commencing August 15, 2006. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). 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 COIJK>rate trust office in Dallas, Texas (the "Designated Payment!fransfer Office"), of JPMorgan Chase Bank, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment!fransfer Office of such successor. 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 expenses of such customary banking arrangement. For the pmpose 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. 17 INTEREST RATE: 4.750% United States of America State ofTexas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 MATURI1Y DATE: BOND DATE: 15,2023 May 15,2006 REGISTERED $1,525,000 CUSIP NUMBER: 549187 Y48 The City of Lu received, hereby promis ity''), in the County of Lubbock, State of Texas, for value and to pay interest on such principal amo _ .er of the Bond Date specified above or the most r~t interest payment date to w · · as been paid or provided for until payment of such principal amount has been paid p · or, at the per annum rate of interest specified above, computed on the basis of a 360-da:i.·Y:-lve 30-day months, such interest to be paid semiannually on February 15 and Augus ~. ch year, commencing August 15, 2006. All capitalized terms used herein but not defined · · all have the meaning assigned to them in the Ordinance (defined below). 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 Offi.ceu), of JPMorgan Chase Bank, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment!fransfer Office of such successor. 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 expenses of such customary banking arrangement. For the pmpose 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 pr.eceding such interest payment date. ) ) ) ) ) ) REGISTERED No.l8 INTEREST RATE: United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 BOND DATE: or registered assigns, on the Maturity REGISTERED $1,600,000 CUSIP NUMBER: and to pay interest on such principal amount the Bond Date specified above or the most recent interest payment date to which paid or provided for until payment of such principal amount has been paid or the per annum rate of interest specified above, computed on the basis of a 360-day 30-day months, such interest to be paid semiannually on February 15 and August 15 each year, conunencing August 15, 2006. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). 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, or, with respect to a successor Paying Agent/Registrar, at the Designated Paymentffransfer Office of such successor. 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 expenses of su.ch customary banking arrangement. For the puq)ose 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.l9 INTEREST RATE: 4.750% United States of America State of Texas County of Lubbock CITY OF LUBBOC~ TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 BOND DATE: May 15,2006 The City of Lu received, hereby promises ONE MILLION SIX HUN REGISTERED $1,680,000 CUSIP NUMBER: 549187 Y63 and to pay interest on such principal amount t the Bond Date specified above or the most recent interest payment date to whicli ~et1 ~een paid or provided for until payment of such principal amount has been paid or p~ , at the per annum rate of interest specified above, computed on the basis of a 360-day year._ : elve 30-day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing August 15, 2006. All capitalized tenns used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). 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 B~ National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment!fransfer Office of such successor. 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 expenses of such customary banking arrangement. 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 INTEREST RATE: 4.750% United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 BOND DATE: May 15,2006 REGISTERED $1,765,000 CUSIP NUMBER: 549187 Y71 The City of Lubbock ( e received, hereby promises to pay to the County of Lubbock, State of Texas, for value or registered assigns, on the Maturity Date ONE MILLION SEVEN HUNDRED DOLLARS '· and to pay interest on such principal amount from the tat~ Date specified above or the most recent interest payment date to which interest paid or provided for until payment of such principal amount has been paid or provided at the per annum rate of interest specified above, computed on the basis of a 360-day year of twelve 30-day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing August 15, 2006. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). 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, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office of such successor. 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 expenses of such customary banking arrangement. 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. 21 United States of America State of Texas County of Lubbock CITY OF LUBBOC~ TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 BOND DATE: May 15,2006 REGISTERED $1,850,000 CUSIP NUMBER: 549187 Y89 "City"), in the County of Lubbock, State of Texas, for value 1Y THOUSAND DOLLARS and to pay interest on such principal amo : a er of the Bond Date specified above or the most recent interest payment date to whl has been paid or provided for until payment of such principal amount has been pai ork vided for, at the per annum rate of interest specified above, computed on the basis of a 360-d' year of twelve 30-day months, such interest to be paid semiannually on February 15 and August 15 of each year, conunencing August 15, 2006. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). 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, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office of such successor. 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 expenses of such customary banking arrangement. 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.22 INTEREST RATE: 5.000% United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 BOND DATE: May 15,2006 REGISTERED $1,000,000 CUSIP NUMBER: 549187 Y97 The City of Lub "), in the County of Lubbock, State of Texas, for value received, hereby promises to &CO. ONEMI ~RS and to pay interest on such principal amount fr~~~e Bond Date specified above or the most recent interest payment date to which m.(l;h been paid or provided for until payment of such principal amount has been paid or pro ,f.·· for, at the per arm:um rate of interest specified above, computed on the basis of a 360-day year of twelve 30-day months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing August 15, 2006. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). 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, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office of such successor. 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 expenses of such customary banking arrangement. 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.23 INTEREST RATE: United States of America State of Texas County of.Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 MATURITY DATE: BOND DATE: REGISTERED $2,965,000 CUSIP NUM:BER: 4.750% February 15, 2029 May 15,2006 549187 Z21 The City of Ia..wft(the "City"), in the County of Lubbock, State of Texas, for value received, hereby prov~ CEDE & CO. or registered assigns, on the ~ecified above, the sum of TWO MILLION NINE·~ -FNE THOUSAND DOLLARS and to pay interest on such principal am mter of the Bond Date specified above or the most recent interest payment date to · · · has been paid or provided for until payment of such principal amount has been pa · for, at the per annum rate of interest specified above, computed on the basis of a 360 · ·~ ~ lve 30-day months, such interest to be paid semiammally on February 15 and Au ~ .,. . . ch year, commencing August 15, 2006. All capitalized terms used herein but not defined · · all have the meaning assigned to them in the Ordinance (defined below). 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, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office of such successor. 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 expenses of such customary banking arrangement. 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.24 INTEREST RATE: 4.750% United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 BOND DATE: May 15,2006 REGISTERED $4,365,000 CUSIP NUMBER: 549187 Z47 The City of Lubboc received, hereby promises to pay to in the County of Lubbock, State of Texas, for value OUSAND DOLLARS and to pay interest on such principal amount from ~ond Date specified above or the most recent interest payment date to which int paid or provided ·for until payment of such principal amount has been paid or provid t the per annum rate of interest specified above, computed on the basis of a 360-day year of elve 30--da.y months, such interest to be paid semiannually on February 15 and August 15 of each year, commencing August 15, 2006. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). 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 Paymentrrransfer Office"), of JPMorgan Chase Bank, National Association, or, with -respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office of such successor. 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 expenses of such customary banking arrangement. 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/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 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. J ) ) ) ) ) This Bond is one of a series of fully registered Bonds specified in the title hereof issued in the aggregate principal amount of $18,830,000 (herein referred to as the "Bonds,), issued pursuant to a certain ordinance of the City, as amended (the "Ordinance") for the purpose of refunding certain outstanding obligations of the City. The City has rP<:I~rvE~B'ft 2017 before their rest)ecti&"l $5,000 on February 15, ODtton to redeem the Bonds maturing on or after February 15, maturities in whole or in part in integral multiples of " ........ .,..,.."..... at a redemption price of par, plus accrued interest to the date fixed for City shall determine the maturity or direct the Paying Agent/Registrar to or maturities and in such amounts, for all of the Bonds are to be redeemed, the ..... ,.,.~ • .., thereof to be redeemed and shall l'\l"\1'T1"1"<-thereof within such maturity Bonds maturing on February 15, 2029 "Term Bonds") are subject to mandatory sinking fund redemption prior maturity, and will be redeemed by the City, in part at a redemption price equal to "f)JJlCI~¥ amount thereof, without premium, plus interest accrued to the redemption date, on the dates in the principal amounts shown in the following schedule: $1,000.000 5.00% Term Bonds Maturing February 15.2029 Redemption Date February 15, 2028 February 15, 2029 (maturity) Principal Amount $460,000 540,000 $23965,000 4.75% Term Bonds Maturing February 15.2029 Redemption Date February 15,2028 February 15, 2029 (maturity) Principal Amount $1,475,000 1,490,000 $4.365.000 4.75% Term Bonds Maturing February 15,2031 Redemption Date February 15, 2030 February 15, 2031 (maturity) ll28474v.l LUB200171006 -2- Principal Amount $2)130,000 2,235)000 ) ) ) J ) The Paying Agent/Registrar will select by lot or by any other customary method that results in a random selection the specific Tenn Bonds (or with respect to Term Bonds having a denomination in excess of $5)000) each $5)000 portion thereof) to be redeemed by mandatory redemption. The principal amount of Tenn Bonds required to be redeemed on any redemption date pursuant to the foregoing mandatory sinking fund redemption provisions hereof shall be reduced, at the option of the City, by the principal amount of any Term Bonds which, at least 45. days prior to the mandatory sinking fund redemption date (i) shall have been acquired by the City at a price not exceeding the principal amount of such Term Bonds plus accrued interest to the date of purchase thereof, and delivered to the Paying Agent/Registrar for cancellation, or (ii) shall have been pursuant to the optional redemption provisions hereof and not previously credited to sinking fund redemption. Notice of ;)l,.l'l.ll~ postage prepaid) not owner of each of the to Bonds or portions thereof redemption date specified in redemptions shall be given by United States mail, first class before the date fixed for redemption, to the registered · whole or in part. Notice having been so given, the ~ ...... •v•••vu shall become due and payable on the the Bonds or portions thereof so payment, interest on such Bonds or nn""'~'~~ after such date, notwithstanding that any of ..,..~~n,.,.... shall not have been surrendered for As provided in the Ordinance, and limitations therein set forth, this Bond is transferable upon surrender of this the designated office of the Paying Agent/Registrar with such endorsement or of transfer as is acceptable to the Paying Agent/Registrar; thereupon, one or more 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. 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 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; 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, fonn and manner, as required by law; 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; and that the total indebtedness of the City, including the Bonds, does not exceed any constitutional or statutory limitation. ) -3- } ll2&474v.l LUB200nt006 ) ) ) ) ) ' 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, Mayor, City of Lubbock, Texas City of Lubbock, Texas -4- 1128474v.l LUB200171006 ) ) ) ) ) '\ ) 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: ~ . . -5- ll28474v.l LUB200171006 JPMorgan Chase Bank, National Association as Paying Agent/Registrar By: Authorized Signatory ~ '{v ~;6~ J~f-A I ~· ) ) ) ) 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 idenii rights hereunder and hereby : · attorney to transfer the within Bo substitution in the premises. Dated: Signature Guaranteed By: Authorized Signatory 1128474v.l LUB200171006 ---------.1 the within Bond and all constitutes and appoints--------- ks kept for registration hereof, with full power of -6- ) ) ) ) .. STATEMENT OF INSURANCE Financial Guaranty Insurance Company ("Financial Guaranty") has issued a policy containing the following provisions with respect to the Bonds, such policy being on file at the principal office of JPMorgan Chase Bank, National Association, as paying agent (the "Paying Agent"): Financial Guaranty hereby unconditionally and irrevocably agrees to pay for disbursement to the Bondholders that portion of the principal or accreted value (if applicable) of and interest on the Bonds which is then due for n.:n.""""""' and which the issuer of the Bonds (the "Issuer") shall have failed to provide. Due for means, with respect to principal or accreted value (if applicable), the stated · or the date on which the same shall have been duly called for mandatory sinking and does not refer to any earlier date on which the payment of principal or of the Bonds is due by reason of call for redemption (other than mandatory acceleration or other advancement of maturity, and with respect to for payment of such interest. Upon receipt of telephonic or telegraphic uently confirmed in writing, or written notice by registered or certified mail, or the Paying Agent to Financial Guaranty that the required payment of or interest (as applicable) has not been made by the Issuer to the Paying Agent; on the due date of such payment or within one business day after receipt nonpayment, whichever is later, will make a deposit of funds, in an account National Association, or its successor as its agent (the "Fiscal Agent"), sufficient · of such payment not paid by the Issuer. Upon presentation to the Fiscal satisfactory to it of the Bondholder's right to receive such payment and any instruments of assigrunent required to vest all of such Bondholder's right to such payment in Financial Guaranty, the Fiscal Agent will disburse such amount to the Bondholder. · As used herein the term "Bondholder" means the person other than the Issuer or the borrower(s) of Bond proceeds who at the time of nonpayment of a Bond is entitled under the terms of such Bond to payment thereof. The policy is non~cancellable for any reason. FINANCIAL GUARANTY INSURANCE COMPANY -8- 1128447v.l LUB200171006 ) ) j ) ) ) F6IC r~ G....., lns&ll'llnele ~ 12$ Patk Aveaut' New York, NY 10017 T 212•312·3000 f 212·312·3093 Commitment For Municipal Bond Insurance Issuer: City of Lubbock, Lubbock County, Texas Date or Commitment: April20, 2006 Bonds Insured: Not to exceed $20,000,000 in principal amount of General Obligation Refunding Bonds, Series 2006 Expiration Date: JWle 20, 2006* Premium: 0.171% of total debt service on the Bonds Insured •• FINANCIAL GUARANTY INSURANCE COMPANY ("Financial Guaranty") A Stock Insurance Company hereby commits to issue a Municipal Bond New Issue Insurance Policy (the "Policy>'), in the form attached hereto as Exhibit A, relating to the above-descnl>ed debt obligations (1he .. Bonds"). subject to 1he tenns and conditions contained herein or added hereto. To keep this Commitment in effect after the Expiration Date set forth above, a request for renewal must be submitted to Financial Guaranty prior to such Expiration Date. Financial Guaranty reserves the right to refuse wholly or in part to grant a renewal. THE MUNICIPAL BOND NEW ISSUE INSURANCE POLICY SHALL BE ISSUED IF THE CONDmONS SPECIFIED BELOW ARE SATISFIED. 1. In addition to the satisfaction of the other conditions set forth herein, Financial Guaranty shall be provided with: • (a) (i) Executed copies of all fmancing documents, the official statement (or any similar disclosure document), and all Bond documentation evidencing the Issuer's ability and intent to comply with the Internal Revenue Code of 1986, as amended (if in the opinion of bond counsel (described below) ongoing compliance would be necessary to maintain the exemption from federal income Subject to written acceptance of this Commitment being furnished to Financial Guaranty by the earlier of the date on which the disclosure document relating to the Bonds is circulated and April27, 2006. •• The amount of Bond proceeds deposited with the TNStee or Paying Agent at closing for the payment of accrued interest shall not be applied as a credit in calculating total debt service on the Bonds Insured. Page 1 ) F6IC ) (b) taxation of interest on the Bonds), which shall be in form and substance acceptable to Financial Guaranty; and (ii) the various legal opinions delivered in connection with the issuance and sate of the Bonds, including. without limitation, the unqualified approving opinion of bond cotmSel rendered by a law firm acceptable to Financial Guaranty and addressed to (or with a reliance letter addressed to) Financial Guaranty, which opinion shall inch.Jde statements to the effect that (A) (I) the Bonds have been duly authorized, executed and delivered by tbe Issuer and are the valid and binding obligations of the Issuer, and (2) the interest on the Bonds is excludable from gross income of the holders thereof for federal income tax purposes under the Internal Revenue Code of 1986, as amended (if the Bonds are issued as tax-exempt obligations); and (B) the Bonds constitute a general obligation of the Issuer, for the payment of wbichall eligible taxable, real property within the jurisdiction of the Issuer is subject to the levy of ad valorem taxes, subject only to limitations on levies prescn"'bed by applicable law. Copies of all dJ:afts of such documents and legal opinions (blacklined as appropriate) prepared subsequent to the date of this Commitment shall be furnished to Financial Guaranty. Final drafts of such documents shall be provided to Financial Guaranty at least five (5) business days prior to the issuance of the Policy unless Financial Guaranty shall approve a shorter period and such documents shall be satisfactory to Financial Guaranty in all respects. Evidence of wire transfer in federal funds in an amount equal to the insurance premium unless altemative arrangements for the payment of the premium acceptable to Financial Guaranty have been made prior to the delivery date of the Bonds. Please note the attached Wire Instructions. 2. By executing the commitment letu:r, the Issuer agrees to provide the information described below, to be d~ed to Financial Guaranty Insurance Company, 125 Park Avenue, New York, New York 10017. Attention.: Risk Management This agreement shall survive for so long as the Bonds are outstanding. (a) Notice of any material events pursuant to Rule 15c2·12 Wlder the Securities Exchange Act of 1934, as amended; (b) Notice of the downgrading by any rating agency of the lssuer·s or Obligor's underlying public :rating, or the rating on the Bonds or any parity obligations, to "non-investment grade"; (c) Notice of the redemption, other than mandatory sinking fund redemption, of any of the Bonds, or of any advance refunding of the Bonds. including the principal amount, maturities and CUSJP numbers thereof; and (d) Such additional infonnation as Financial Guaranty may reasonably request from time to time. 3. Neither the fmancinglauthorizing documents nor the Bonds shall include, nor shall they be amended to include, provisions allowing the Issuer or other obligor to purchase the Bonds either outright or in lieu of redemption for purposes otha than retiring the Bonds. Notwithstanding any other provision contained herein. this covenant shall survive the expiration of this commitment and shall be applicable so long as the Bonds remain outstanding. Page2 F6IC ) 4. The documents to be executed and delivered in connection with the issuance and sale of the Bonds shall not contain any untrue or misleading statement of a material fact and shall not fai) to state a material fact nooessary in order to make the infonnation contained therein not misleading. 5. No event shall occur which would pennit any purchaser of the Bonds, otherwise required, not to be required to purchase the Bonds on the date scheduled for the issuance and delivery thereof. 6. There sbaU be no material change in or affecting the Bonds (including, without limitation. the soourity for the Bonds) or the financing documents or the official statement {or any similar disclosure document) to be executed and delivered in connection with the issuance and sale of the Bonds from the descriptions or fonns thereof approved by Financial Guaranty. 7. The Bonds shall contain no reference to Financial Guaranty, the Policy or the mwticipal bond insurance evidenced thereby except as may be approved by Financial Guaranty. 8. The Bonds shall bear a "Statement of Insurance" in the fonn attached to this Conunitment (also available online on our web site at www.fgic.com). BOND PROOFS SHALL BE APPROVED BY FINANCIAL GUARANTY PRIOR TO PRJNTING. 9. The preliminary official statement and the official statement shall (a) be satisfactory in form and substance to Financial Guaranty and (b) contain the "Official Statement DisclosW"e Language" attached to this Conunitment and only such other references to Financial Guaranty as we shall supply or approve. Financial Gwlranty s ojficial stalement language and cover logo are also available online on our web site at www.(gic.com. 10. The following additional conditions shall be met for all transactions that include the issuance of advance refunding bonds: (a) The Escrow Agreement (the "Escrow Agreement") providing for the refunding of the bonds to be refunded with the proceeds of the Bonds (the "Prior Bonds") shall permit the deposit solely of cash. direct non-callable obligations of the United States of America and securities fully and wtconditionally guaranteed as to the timely payment of principal and interest by the United States of America. to which direct obligation or guarantee the full faith and credit of the United States of America has been pledged., Refcotp interest strips, CATS, TIGRS. STRPS. or defeased municipal bonds rated AAA by S&P or Aaa by Moody's {or any combination thereof) ("Direct Obligations") and shall permit substitution of Direct Obligations for other Direct Obligations solely upon the receipt by the escrow agent of (i) a new verification of the sufficiency of the escrowed secmities (assuming such substitution has been made) to provide for the payment of the Prior Bonds in accordance with the tenns of the escrow agreement and (ii) an opinion of bond counsel to the effect that such substitution shall not affect the tax ..exempt status of interest on lhe Prior Bonds or the Bonds. Modification of the Escrow Agreement shall not be pennitted unless the holders of all of the Prior Bonds consent to such modification. Page3 .... J ') ) ) F6IC (b) At least five business days prior to the proposed date for delivery of the Policy. Financial Guaranty shall receive for its review and approval (i) the escrow agreement in substantially final fonn., (ii) the verification by independent certified public accountants satisfactory to Financial Guaranty of the accuracy of the mathematical computation of the adequacy of the escrow established to provide for the payment of the Prior Bonds in accordance with the terms and provisions of the Escrow Agreement, (iii) as applicable, copies of the subscription forms for the purchase and issue of U.S. Treasury Securities-State and Local Government Series which have been stamped as received by the Federal Reserve Bank or copies of the confirmations of purchase of open market Direct Obligations, and (iv) the form of an opinion of bond coWlSel addressed to Financial Guaranty (or a reliance letter relating thereto) to the effect that, upon the making of the required deposit to the escrow, the legal defeasance of the Prior Bonds shall have occurred. If legal defeasance of the Prior Bonds is not permitted under the governing laws of the jurisdiction. then bond counsel's opinion shall address the defeasance of the Prior Bonds in the maMer permitted under such laws. The opinion requirement may be waived upon request to Financial Guaranty. in Financial Guaranty•s sole discretion. An executed copy of such opinion shall be forwarded to Financial Guaranty, together with the documentation requested in the Commitment Letter. (c) Th~ Escrow Agreement may provide that cash received by the escrow agent not required for purchase of the initial investments that are referenced in the verification report may be invested, in accordance with an opinion of bond counsel as descn"bed in the Commitment Letter, by the escrow agent, but only in noncallable Direct Obligations that mature in an amount at least equal to the purchase price of such Direct Obligations prior to the next scheduled interest payment date for the Prior Bonds. The escrow agent shall be responsible for determining compliance with this requirement. (d) A forward supply contract relating to ~ provision of such investments which is acceptable to Financial Guaranty may be entered into at closing if (i) the terms thereof are consistent with the foregoing requirements, (ii) the Escrow Agreement provides that in the event of any discrepancy or difference between the tenns of the forward supply contract and the Escrow Agreement, the terms of the Escrow Agreement shall be controllin& and (ill) the verification tepart shall expressly state that the adequacy of the escrow to accomplish the refunding project relies solely on the initial escrowed investments and the maturing principal thereof and interest income thereon and does not assume performance under or compliance with the forward supply contract. 11. All drafts of the preliminary official statement, official statement or any other disclosure documents and the form of the Bonds should be directed to the attention of Debbie Delianites (Phone 212~312~3381), Financial Guaranty's closing contact for this transaction, for approval. Page4 ..... J F6IC ) 12. Promptly after the closing oftbe Bonds, Financial Guaranty shall receive three completed sets of executed documents (one original and two photocopies or CD copies). We will provide the photocopies or CD copies to the rating agencies. Authorized Represc:ntatr e To keep this commitment in effect to the Expiration Date set forth on the first page. Financial Guaranty must receive a duplicate of this Commitment executed by an appropriate officer of City of Lubbock, Lubbock County, Texas by April27, 2006. The undersigned agrees that if the Bonds are insured by a policy of municipal bond insurance, such insurance shall be provided by Financial Guaranty in accordance with the terms of the Commitment. Accepted as of /JMJ:L ,;u, ~ by City of Lubbock. Lubbock County, Texas. 6027160 Page5 ) F6IC Financial Guaranty lnsura~ Company 125 Park A venue New York, NY 10017 T 212-312-3000 T 800·352-()()()J Municipal Bond New Issue Insurance Policy Issuer: Bonds: Exhibit A Polley Number: Coatrol Number: 0010001 Financial Guaranty Insurance Company ("Financial a w York stock insUI8llCe company, in consideration of the payment of the premium and~t tenns of this Policy, hereby unconditionally and irrevocably agrees to pay to U.S. Bank T ·o Association or its successor, as its agent (the "Fiscal Agent"), for the benefit of Bo portion of the principal and interest on the above- descnbed debt obligations (the "Bonds~ s II become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. s~"cn Financial Guaranty will make such payments to the Fiscal Agent on the date such principal or interest becomes Due for Payment or on the Business Day next following the day on which Financial Guaranty shall have received Notice of Nonpayment, whichever is later. The Fiscal Agent will disbUISe to the Bondholder the f8ce amount of principal and interest which is then Due for Payment but is unpaid by reason of Nonpayment by the Issuer but only upon receipt by the Fiscal Agent, in fonn reasonab1y satisfactory to it, of (i) evidence of the Bondholder's right to receive payment of the principal or interest Due for Payment and (ii) evidence, including any appropriate instrwllents of assignment, that all of the Bondholder's rights to payment of such principal or interest Due for Payment shall thereupon vest in Financial Guaranty. Upon such disbursement, Financial Guaranty shall become the owner of the Bond, appurtenant coupon or right to payment of principal or interest on such Bond and shall be fWly subrogated to all of the Bondholder's rights thereunder, including the Bondholder's right to payment thereo£ This Policy is non-cancellable for any reason. The premium on this Policy is not refundable for any reason, including the payment of the Bonds prior to their maturity. This P.olicy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Bond. As used herein, the term "Bondholder" means, as to a parlicular Bond, the person other than the Issuer who, at the time of Noupaymcnt, is entitled under the terms of such Boad to payment thereof. "Due for Payment" means, when referring to the principal of a Bond, the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on whlch payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity and means, when referring to interest on a Bond, the stated date for payment of interest. "Nonpayment" in respect of a Bond means the failure of the Issuer to have provided sufficient funds to the paying ageut for payment in full of all FGIC it a registered seMc:e marl< UMd by Financial Guaranty lnsutanoe Company under lieense from 118 parent ()()lllf)allY• FGIC ~tallon. Form 9000 (10193) Page 1 of 2 ) .· - ) J ) ) ) F6IC Financial Guaranty Insurance Company 125 Pazk Avenue New Yolk, NY 10017 T 212-312-3000 T 800·352·0001 Municipal Bond New Issue Insurance Policy principal and interest Due for Payment on such Bonet. ''Notice .. means telephonic or telegraphic notice, subsequently confirmed in writing. or written notice by registered or certified mail. &om a Bondholder or a paying agent for the Bonds to Financial Guaranty. "'Business Day" means any day other than a Saturday, Sunday or a day on which the Fiscal Agent is authorized by law to~· osed. In Witness Whereof, Financial Guaranty has caused this P licy ed with its corporate seal and to be signed by its duly authorized officer in facsi~~ ffective and binding upon Financial Gwuaoty by vUtue of die coUIItersignatwo ofils ~ · d _,-v~ s« ~ President Effective Date: Authorized Representative U.S. Bank Trust National Association. acknowledges that it has agreed to perform the duties of Fiscal Agent under this Policy. Authorized Officer FGIC is a regi6tel'ed set\llce mark used by Financial Guarantt lnsutallOG Comf!!nY under liCense from Its parent company, FGIC Copoelion. Form 9000 (1 0193) Page 2 of 2 ) ) ) ' , F6IC Financial Guatanty Insurance Company 125 Parlt Avenue New Yorlc, NY 10017 T 212·312-3000 T 800·352·0001 Endorsement To Financial Guaranty Insurance Company Insurance Policy Policy Number: Control Number: 0010001 It is further understood that the tenn ''Nonpayment .. in r mcludes any payment of principal or interest made to a Bondholder by or on behalf of · h Bond which bas been recovered from such Bondholder pursuant to the United States B tc de by a ttustee in bankruptcy in accordance with a fmal. nonappealable order of a court nt jurisdiction. NOTHING HEREIN SHALL BE UED TO WANE, ALTER, REDUCE OR AMEND COVERAGE IN ANY O'IHER SECrl OF TilE POLICY. IF FOUND CONTRARY TO THE POLICY LANGUAGE, THE TERMS OF: TinS ENDORSEMENT SUPERSEDE THE POLICY LANGUAGE. In Witness Whereof, Financial Guaranty bas caused this Endorsement to be affixed with its coxporate seal and to be signed by its duly authorized officer in facsimile to become effective and binding upon Financial Guaranty by virtue of the counteiSi.gnature of its duly authorized represenlative. President Effective Date: Authorized Representative Acknowledged as of the Effective Date written above: --·· Authorized Officer U.S. Bank Trust Natioul Association, as Fiscal Agent FGIC I& a registeted seMc& matk used by Financial Guaranty lnWI'ar.ce Company I.Wider lioenle from its pal'lllrt company. FGIC COc'polatioo. Form E-0002 (10193) Page 1 of 1 ) F6IC Financial Guaranty Insurance Company 125 Park Avenue New York, NY 10017 1XD • ._,ii.--.MID In tile 81111 ... lnl._ Ia ....... to fulfill D _.._.. ............ under ) T 212-312-3000 T 800·352·0001 this potler et oontr80t or 811PIID1tlon or cenlfloate • avld8noe of , • .._. the pollcyholdlr • ..rtt........., II not proteotecl ., • ......_ :l._.fttY fund 0101her.....,111 ......... 1......-.a. ) Municipal Bond New Issue Insurance Policy Issuer: City of Lubbock, Texas Bonds: $18,830,000.00 in aggregate principal amount of General Obligation Refunding Bonds, Series 2006 Policy Number: 06010214 Control Number: 0010001 Premium: $63,013.15 Financial Guaranty Insurance Company ("Financial Guaranty"), a New York stock insurance company, in considemtion of the payment of the premium and subject to the terms of this Policy, hereby unconditionally and irrevocably agrees to pay U.S. Bank Trust National Association or its successor, as its agent (the "Fiscal Agent"), for the benefit of Bondholders, that portion of the principal and interest on the above· described debt obligations (the "Bonds") which shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. Financial Guaranty will make such payments to the Fiscal Agent on the date such principal or interest becomes Due for Payment or on the Business Day next following the day on which Financial Guaranty shall have received Notice of Nonpayment, whichever is later. The Fiscal Agent will disburse to the Bondholder the face amount of principal and interest which is then Due for Payment but is unpaid by reason of Nonpayment by the Issuer but only upon receipt by the Fiscal Agent, in form reasonably satisfactory to it, of (i) evidence of the Bondholder's right to receive payment of the principal or interest Due for Payment and (ii) evidence, including any appropriate instruments of assignment, that all of the Bondholder's rights to payment of such principal or interest Due for Payment shall thereupon vest in Financial Guaranty. Upon such disbursement, Financial Guaranty shall become the owner of the Bond, appurtenant coupon or right to payment of principal or interest on such Bond and shall be fully subrogated to all of the Bondholder's rights thereunder, including the Bondholder's right to payment thereof. This Policy is non·cancellable for any reason. The premium on this Policy is not refundable for any reason, including the payment of the Bonds prior to their maturity. This Policy does not insme against loss of any prepayment premium which may at any time be payable with respect to any Bond. As used herein, the term "Bondholder" means, as to a particular Bond, the person other than the Issuer who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof. "Due for Payment'' means, when referring to the principal of a Bond, the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity and means, when referring to interest on a Bond, the stated date for payment of interest. "Nonpayment" in respect of a Bond means the fail me of the Issuer to have provided sufficient funds to the paying agent for payment in full of all principal and interest Due for Payment on such Bond. "Notice" means telephonic or telegraphic notice, subsequently confinned in writing, or written notice by registered or certified mail, from a Bondholder or a paying agent for the FGlC is a ~istered service marl< used by Financial Guaranty Insurance Company uodellieense from Its parent company. FGIC Corporation. Form 9000 (10193) Page 1 of 2 ) ) ' F6IC Financial Guaranty Insurance Company 125 Parle Avenue New York, NY 10017 T 212·312·3000 T 800·352·0001 Municipal Bond New Issue Insurance Policy Bonds to Financial Guaranty. "Business Day" means any day other than a Saturday, Sunday or a day on which the Fiscal Agent is authorized by law to remain closed. In Witness Whereof, Financial Guaranty has caused this Policy to be affixed with its corporate seal and to be signed by its duly authorized officer in facsimile to become effe<:tive and binding upon Financial Guaranty by virtue of the countersignature of its duly authorized representative. President Effective Date: June 20, 2006 U.S. Bank Trust National Association acknowledges that it has agreed to perfo under this Policy. Authorized Officer e duties of Fiscal Agent FGIC is a registered service mark used by Financial Guaranty lllsorance Company under license from its parent company, FGIC CoJporation. Foon 9000 (1 0193) Page 2 of 2 ) ) F6IC Financial Guaranty lnsuran~ Company I 25 Park A venue Ne\v York, NY 10017 T 212-312-3000 T 800·352·0001 Endorsement To Financial Guaranty Insurance Company Insurance Policy Policy Number: 06010214 Control Number: 0010001 It is further understood that the term "Nonpayment" in respect of a Bond includes any payment of principal or interest made to a Bondholder by or on behalf of the issuer of such Bond which has been recovered from such Bondholder pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction. NOTIIING HEREIN SHALL BE CONSTRUED TO WAIVE, ALTER, REDUCE OR AMEND COVERAGE IN ANY OTIIER SECTION OF THE POLICY. IF FOUND CONTRARY TO THE POLICY LANGUAGE, THE TERMS OF TinS ENDORSEMENT SUPERSEDE TIIE POLICY LANGUAGE. In Witness Whereof, Financial Guaranty has caused this Endorsement to be affixed with its corporate seal and to be signed by its duly authorized officer in facsimile to become effective and binding upon Financial Guaranty by virtue of the countersignature of its duly authorized representative. President Effective Date: June 20,2006 Acknowledged as of the Effective Date written above: Authorized Officer U.S. Bank Trust National Association, as Fiscal Agent FGIC is a registered service maril used by Financial Guaranty Insurance Company under license from its parent company, FGIC Cofpo(ation. Form E-0002 (10""3} Page 1 of 1 ) ) ) GENERAL CERTIFICATE We, the undersigned, Mayor, City Secretary and Chief Financial Officer, respectively, of the City of Lubbock, Texas (the "City"), do hereby certify the following information: l. This certificate relates to the City of Lubbock, Texas, General Obligation Refunding Bonds, Series 2006 (the "Bonds"). Capitalized terms used herein and not otherwise defined shall have the meaning assigned thereto in the ordinance (the "Ordinance") of the City Council authorizing the issuance of the Bonds. 2. The total tax supported debt of the City, after giving effect to the issuance of the proposed Bonds, is $447,275,000. 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 2005, being its latest approved official assessment rolls is $9,365,239,925, which amount is net of the amounf 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 taxes is set forth in the table entitled "General Obligation Debt Service Requirements" 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. (a) The following are duly qualified and acting, elected or appointed officials of the City of Lubbock, Texas, except as provided in subsection (b): David A. Miller, Mayor Jim Gilbreath, Mayor Pro Tern Lee Ann Dumbauld, City Manager Jeffrey A. Yates, Chief Financial Officer Rebecca Garza, City Secretary Tommy Combs, Deputy City Secretary Linda DeLeon ) Floyd Price ) Gary 0. Boren ) Phyllis S. Jones ) John Leonard ) ) Members of the Council (b) Prior to David A. Miller's assumption of office on May 18, 2006, Marc McDougal served as Mayor. Prior to John Leonard's assumption of office on May 18, 2006, Tom Martin served as a councilmember and Mayor Pro Tern. 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 WB200n!004 Dallas 1122789_1.DOC ) ) 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. 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. l 0. The Ordinance was duly adopted by the City Council on April 26, 2006 and was amended by an amending ordinance duly adopted by the City Council on May 18, 2006. ll. None of the Refunded Obligations were ever purchased by or held in the interest and sinking fund created for their payment and redemption; none of the Refunded Obligations are now held in or owned by the sinking fund created for the purpose of paying off or redeeming any of the Refunded Obligations; none of the Refunded Obligations will be taken up and paid for with money in said sinking fund; and, there is no money in the sinking fund with which to pay principal of any of the Refunded Obligations. 12. The City is not in default in the payment of principal and interest on its debt obligations. 13. The City has appropriated an amount of presently and lawfully available funds for the City which will be sufficient to pay debt service on the Bonds on August 15, 2006, and such appropriated amount will be deposited to the Interest and Sinking Fund created for the Bonds. 14. 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. 15. 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. 16. 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. 17. There has been no material adverse change in the financial condition and affairs of the City since the date of the Official Statement. -2- ) ) 18. The undersigned Mayor and City Secretary officially executed and signed the Bonds, including the Initial Bonds delivered to the initial purchasers 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. 19. The Bonds, including the Initial Bonds delivered to the initial purchasers of the Bonds, are substantially in the form, and have been duly executed and signed in the manner, prescribed in the Ordinances. 20. 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. 21. 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] -3- ) ) JUN 2 0 2006 EXECUTED AND DELIVERED this---------' MANUAL SIGNATURE STATE OF TEXAS § § COUNTY OF LUBBOCK § OFFICIAL TITLES Mayor, City of Lubboc~ Texas Before me, the undersigned authority, on this day personally appeared David A. Miller, Mayor 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 ~-~ oC M4.y (SEAL] e CB.IA VVEBB Nolary Pltlic, State ofTems t.t/ Colntris$on ~ 0~1·2010 Notary Public, In and for the State of Texas Signature Page for General Certificate l ) I i I ! f ) JUN 2 0 2006 EXECUTED AND DELIVERED this--------- MANUAL SIGNATURE STATE OF TEXAS § § COUNTY OF LUBBOCK § OFFICIAL TITLES City Secretary, City of Lubbock, Texas Before me, the undersigned authority, on this day personally appeared Rebecca Garza, City Secretary 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. [SEAL] GNEN UNDER MY HAND AND SEAL OF OFFICE THIS ..3{)-!1 My d I A!ty, ~ LINDA I. HARY Notii'Y Public, &m• of Texas My Comm.!~tion Elcpir9s June so. 2007 +sA./fp Notary Pubhc, In and for the State of Texas Signature Page for General Certificate ) 'JUN ! 0 2006 EXECUTED AND DELIVERED this _______ _. MANUAL SIGNATURE STATE OF TEXAS § § COUNTY OF LUBBOCK § OFFICIAL TITLES Chief Financial Officer, City of Lubbock, Texas Before me, the undersigned authority, on this day personally appeared Jeffrey A. Yates, Chief Financial Officer 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. GNEN UNDER MY HAND AND SEAL OF OFFICE THIS & b '111 ~ At66 ~. TOMMY D COMBS (~~~ NOTARY PUBLIC ~~., ~ State of Texas ~omm. Exp. 12-27-2006 [S t="JU.;J c{~~ In and for the State of Texas Signature Page for General Certificate ) ) SIGNATURE IDENTIFICATION AND AUTHORITY CERTIFICATE OF PAYING AGENT/REGISTRAR AND ESCROW AGENT I, the undersigned officer of JPMorgan Chase Bank, N.A, (the "Bank"), which is the Escrow Agent and Paying Agent appointed by City of Lubbock, Texas, (issuer), organized and existing under the Constitution and laws of the State of Texas, in connection with the issuance, sale, execution and delivery of its General Obligation Refunding Bonds, Series 2006, (the ·'Bonds"), and the execution and delivery of an Escrow Agreement (the "Escrow Agreement'') and Paying Agent I Registrar Agreement (the "Paying Agent Agreement") dated as of May 15, 2006 and between the Issuer and the Bank hereby certify as follows: 1. JPMorgan Chase Bank is a national banking association duly and validly existing under the laws of the United States of America, is duly authorized to transact business as a national banking association, and is authorized to act in all fiduciary capacities pursuant to 12 U.S.C. 92a and has full power and authority to enter into and petform the obligations of the Escrow Agent under Escrow Agreement and the Paying Agent/Registrar under the Paying Agent/Registrar Agreement. 2. The &crow Agreement and the Paying Agent/Registrar Agreement have been duly executed on behalf of the Bank by one or more of the persons named below whose offices appear set opposite their names; said persons were at the time of executing the &crow Agreement and the Paying Agent/Registrar Agreement, and are now, duly elected, qualified and acting incumbents of their respective offices; and the signatures appearing after each of said persons• names is the true and correct specimen of such person's genuine signature: -~~f Office Israel Lugo Assistant Vice President 3. The foregoing officers of the Bank, by virtue of the authority delegated to them as set forth in Exhibit A, are authorized to execute and deliver on behalf of the Escrow Agreement and the Paying Agent/Registrar Agreement, and such other and further documents as may be necessary or incidental to the acceptance and performance of the duties set forth within. IN WITNESS WHEREj: have hereunto set my hand and affixed the corporate seal of the Bank as of the _L day of r f}P , 2006 fBANKSEAL] Exhibit A -Evidence of Delegation of Authority JPMORGAN CHASE BANK, N.A. Dallas, Texas as Escrow Agent and as Paying A ) JPMORGAN CHASE BANK SECRETARY'S CERTIFICATE I, Rikki 0 . Jones, Assistant Corporate Secretary of JPMorgan Chase Bank, National Association, hereby certify that the following is a true and correct copy of resolutions adopted at a meeting of the Board of Directors of Chemical Bank, now known as JPMorgan Chase Bank, National Association (this "Bank"), a national banking association, on the 19th day of March 1996, which meeting was properly called and held and at which a quorum was present and voted in favor of said resolutions, ' further certify that the said resolutions, at the date hereof, are still in full force and effect. RESOLVED that for the purposes of the following resolutions the following words, when used therein, shall have the meaning ascribed to them as follows: "Officer" shall mean the Chairman of the Board, the Chief Executive Officer, the President, a Vice Chairman of the Board, a Vice Chairman, any member of the Policy Council, any Executive Vice President, the Chief Financial Officer, the Chief Credit Officer, the Secretary, any Senior Vice President, any Vice President, any Managing Director, the Controller, the Deputy Controller, any Vice President, any Assistant Vice President, any Assistant Treasurer, any Assistant Corporate Secretary, any Senior Investment Officer, any Investment Officer, any Assistant Investment Officer, any Senior Trust Officer, any Trust Officer, any Assistant Trust Officer other than any Special Assistant Trust Officer, any Manager or Assistant Manager of any branch office, division or department of this Bank, or any other Officers having functional titles, the approvals of which the Office of the Chairman, on the authority of the Board, has delegated to the Secretary. "Special Assistant Trust Officer" shall mean any employee so appointed and specially authorized by the Chairman of the Board, the Chief Executive Officer, the President, a Vice Chairman of the Board, a Vice Chairman, any member of the Policy Council, any Executive Vice President, the ·Chief Financial Officer and the Chief Credit Officer to use the designation "Authorized Officer" or "Authorized Signature··. · RESOLVED that agreements, indentures, mortgages, deeds, releases, conveyances, transfers, assignments, leases, demands, proofs of debt, claims, discharges, satisfactions, settlements, petitions, affidavits, receipts, equipment trust certificates, records, bonds, undertakings and proxies or other instruments or docwnents in connection with the exercise of any of the fiduciary or agency powers of this Bank may be signed, executed, acknowledged, verified, delivered or accepted on behalf of this Bank, manually or in facsimile by the Chaihnan of the Board, the Chief Executive Officer, the President, a Vice Chairman of the Board, a Vice Chairman, any member of the Executive Committee, any Executive Vice President, the Chief Financial Officer, the Chief Credit Officer, the Secretary, any Senior Vice President, any Managing Director, any Vice President, any Assistant Vice President, any Associate, any Senior Trust Officer, any Senior Investment Officer, any Trust Officer, or any Investment Officer, and the seal of this Bank may be affixed or a facsimile thereof imprinted on any document or instrument thereof and attested by the Secretary, any Assistant Secretary, any Senior Trust Officer, any Senior Investment Officer, any Trust Officer, any Investment Officer, any Assistant Trust Officer or any Assistant Investment Officer. G:\wetl(pp\hiPMC.Les-I\Seerewy\80ARD\JPMChase\CERTIFlCATE 119 • fiOli{IAA Y OR AGENCY CAPACITY.doe RESOLVED that certifications, declarations, accounts, schedules or requisitions in connection with the exercise of any of the fiduciary or agency powers of this Bank may be signed, countersigned, executed, delivered, acknowledged or verified by the Chairman of the Board, the Chief Executive Officer, the President, a Vice Chairman ofthe Board, a Vice Chairman, > any member of the Policy Council, any Executive Vice President, the Chief Financial Officer, the Chief Credit Officer, the Secretary, any Senior Vice President, any Managing Director, any Vice President, any Assistant Vice President, any Assistant Treasurer, any Senior Investment Officer, any Investment Officer, any Assistant Investment Officer, any Senior Trust Officer, any Trust Officer, any Assistant Trust Officer, or any Assistant Corporate Secretary. RESOLVED that in addition to other Officers so authorized, any Vice President may affix the seal of this Bank to any instrument made, executed or delivered on behalf of this Bank and that such Vice President, or the Secretary, or any Assistant Corporate Secretary may attest the same. .-' EXECUTED effective as of the _j__ day of_£-J+-'!L"'-'YT....:..::IJ~--"' 200 Jz, Dallas, Texas. JPMorgan Chase Bank, National Association Rikki 0. Jones Assistant Corporate Secretary G:\workgrp\hJPMC. Lepi\Sectetary\BOARDVPMCiweiCERTIFlCATE #9 ·FIDUCIARY OR AGENCY CAPACITY.doc ) ) 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 1Oth Street, Room 448 Austin, Texas 78701-2407 City of Lubbock, Texas May 18,2006 Attention: Economic Analysis Center Re: City of Lubbock, Texas General Obligation Refunding Bonds, Series 2006 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 setve 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 Initial 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. LU8200nl001 Dallas 1122087_l.DOC ) ) Please also deliver to Vinson & Elkins L.L.P ., Dallas, Texas, five copies of each of the following: 1. Attorney General's approving opinion; and 2. Comptroller's signature certificate. Very truly yours, CITY OF LUBBOC~ TEXAS By: LUB200nt001 Dallas li22087_1.DOC -2- ) ACKNOWLEDGMENT OF RECEIPT OF NOTICE OF REDEMPTION The undersigned authorized officer of The Bank of New York Trust Company, N.A (the "Bank"), hereby certifies that the Bank is the paying agent/registrar for the City of Lubbock, Texas Tax and Municipal Drainage Utility System Surplus Revenue Certificates of Obligation, Series 2001, dated June 1, 2001 (the "Prior Obligations"), and hereby acknowledges receipt of an Ordinance and Pricing Certificate approved by the City Council of the City approving the issuance of its General Obligation Refunding Bonds, Series 2006 (the "Series 2006 Bonds'') and specifying the maturities, the principal amounts of and the redemption dates for certain of the Prior Obligations (as specified in the Pricing Certificate, the "Refunded Obligations''). In connection therewith it is hereby certified that: I. The Bank will give notice of redemption at the time and in the manner specified in the ordinance authorizing the issuance of the Refunded Obligations to the registered owners of the Refunded Obligations as specified in the Ordinance and Pricing Certificate. 2. The Bank hereby certifies that all future paying agency fees which may be due or will become due and owing to the Bank for the Refunded Obligations will be billed to the City under its contract with the City for such obligations and that no charge will ever by asserted against the Escrow Fund established for the payment of the Refunded Obligations. 3. The Bank agrees that it will provide paying agent services for the Refunded Obligations for the life of such Refunded Obligations. 1128385_2.DOC Dallas 1128385v.2 ) Dated: Jun~ ~ 2006. ) ) 1128J8S_l.DOC THE BANK OF NEW YORK TRUST COMPANY, N.A. By:1Phzdf1~ Authorized OffiCJ ) FEDERAL TAX CERTIFICATE ) I, the undersigned officer of the City of Lubbock, Texas (the "City''), 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 City's General Obligation Refunding Bonds, Series 2006 (the "Bonds"), which are being issued in the aggregate principal amount of $18,830,000 and delivered simultaneously with the delivery of this certificate. I do hereby certify as follows in good faith on the date of issue of the Bonds: 1. Responsible Officer. I am the duly chosen, qualified and acting officer of the City 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 City. I am the officer of the City charged, along with other officers of the City, with responsibility for issuing the Bonds. 2. 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, 1.149(d)-1, 1.149(g)-1, 1.150-1 and 1.150-2 of the Regulations. 3. Definitions. The capitalized terms used in this certificate (unless otherwise defined) that are defined in the ordinance authorizing the issuance of the Bonds adopted April 26, 2006, as amended by the ordinance adopted May 18, 2006 (together, the "Ordinance") shall for all purposes hereof have the meanings therein specified. All such terms defined in the Code or Regulations shall for all purposes hereof have the same meanings as given to those terms in the Code and Regulations unless the context clearly requires otherwise. 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 City as to such accuracy and reasonableness. The undersigned has also relied, to the extent appropriate, on representations set forth in the certificate of A. G. Edwards & Sons, Inc., the Underwriter that has purchased the Bonds (the "Underwriter"), attached hereto as Exhibit A, the certificate of First Southwest Company, the City's financial advisor, attached hereto as Exhibit B, and the report (the "Report") of Grant Thornton LLP, certified public accountants, dated June 20, 2006. 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 Purpose. The City is issuing the Bonds pursuant to the Ordinance (a) to provide funds that will be used to advance refund and defease a portion of the City's Tax and Municipal Drainage Utility System Swplus Revenue Certificates of Obligation, Series 2001 (the "Prior Bonds"), pursuant to the escrow agreement dated May 15, 2006 between the City and JPMorgan Chase Bank, National Association (the "Escrow Dallas 113283 t v.2 ) Agreemenf') and (b) to pay the costs of issuance of the Bonds. The Report detaiis all relevant aspects of the application of the proceeds of the Bonds and the City's program to refund the Prior ) Bonds. Specifically, all of the Prior Bonds maturing on February 15, 2023, February 15, 2026 and February 15, 2031, in the amount of$18,015,000 (collectively, the "Refunded Bonds") will be called for redemption and retired with proceeds of the Bonds. The Refunded Bonds are being defeased in order to achieve a present-value savings in the debt service payable by the City. February 15, 2011 is the first date on which the Refunded Bonds are subject to optional redemption and on such date all of the Refunded Bonds will be called for redemption in advance of their scheduled maturities and retired with proceeds of the Bonds. The Bonds are the first advance refunding of the Refunded Bonds, all of which are original bonds. 6. The Prior Bonds. No portion of the purchase price of any of the Prior Bonds was provided by the issuance of any other issue of obligations. All of the original and investment proceeds allocable to the Prior Bonds have been expended. No portion of the proceeds of the Prior Bonds was used to pay the principal of, or interest on, any other issue of governmental obligations. In addition, other than to the extent of preliminary expenditures (i.e., architectural, engineering, surveying, soil testing, reimbursement bond issuance, and similar costs that are incurred prior to commencement of acquisition, construction, or rehabilitation of a project, other than land acquisition, site preparation, and similar costs incident to commencement of construction), no portion of the proceeds of the Prior Bonds was used to reimburse the City for any expenditures made by the City prior to the issuance date of the Prior Bonds. The City has maintained a debt service fund for the Prior Bonds and other general obligation debt of the City (the "Prior Debt Service Fund") and has on hand in such Prior Debt Service Fund certain amounts that were to be used for the payment of debt service on the Prior Bonds. Although the Prior Debt Service Fund will be continued for the payment of debt service on the Prior Bonds that are not Refunded Bonds (the "Unrefunded Bonds") and other outstanding debt of the City, the City has created a new debt service fund (the "Debt Service Fund'') under the Ordinance for purposes of the payment of debt service on the Bonds as described in paragraph 16 below. The balance in the Prior Debt Service Fund as of the date of this certificate is approximately $1,575,272. Not more than $325,322.62 of the aforementioned amount in the Prior Debt Service Fund is allocable to the Refunded Bonds, such allocation being based on the relationship of the original principal amounts of the Refunded Bonds and the Unrefunded Bonds ($18,015,000/$87,231 ,945 or 20.6518 percent). Of the amount on deposit in the Debt Service Fund, $474,200 (the "Available Cash") is an amount that together with earnings thereon would have been used to pay debt service on the Refunded Bonds on August 15, 2006, the only debt service pa}Tilent date for the Refunded Bonds which precedes the collection of tax revenues for the next fiscal year. 7. Use of Amounts Allocable to Refunded Bonds. Other than amounts described in paragraph 6 above, there are no amounts on hand that represent proceeds of the Refunded Bonds, replacement proceeds of the Refunded Bonds or accumulated earnings on such proceeds. The amount of$339,198.47 of the Available Cash will be deposited in the Escrow Fund on the date hereof and used to purchase United States Treasury Certificates of Indebtedness and Notes, State and Local Government Series (the "Unrestricted Escrowed SecuritiesH) which are allocable to 1132831_2.DOC Dallas I 13283lv.2 -2- the escrowed securities with the shortest maturities, the proceeds of which will be used to pay the principal of, and interest and redemption premium, if any, on, the Refunded Bonds. The > remainder of the Available Cash will be used on August 15, 2006, to pay debt service on the Unrefimded Bonds. The remainder of the Available Cash will be transferred by the City to the Debt Service Fund based on the recommendation of the Financial Advisor, set forth in Exhibit B hereto, that such balance should be maintained in the City's Debt Service Fund with respect to the Bonds to provide a reserve for periodic fluctuations in the amount and timing of ad valorem tax collections. 8. Expenditure of Proceeds of the Bonds. The sale proceeds from the issuance of the Bonds will be $18,682,482.40. Such amount represents the stated redemption price at maturity (excluding accrued interest for those Bonds the interest on which is paid at least once annually) of the Bonds, equal to $18,830,000, less an original issue discount in the amount of$147,517.60. No portion of the purchase price of any of the Bonds is provided by the issuance of any other issue of obligations. The sale proceeds will be expended as follows: (a) The amount of $18,348,279.00 will be deposited in the escrow fund established pursuant to the Escrow Agreement (the "Escrow Fund") and used on the date hereof to purchase United States Treasury Certificates of Indebtedness and Notes, State and Local Government Series (the "Escrowed Securities''), the proceeds of which will be used as described in the Report to pay the principal of, and interest and redemption premium, if any, on, the Refunded Bonds. No portion of the proceeds of the Bonds is expected to be used to pay any interest on, or principal of, any issue of governmental obligations other than the Bonds and the Refunded Bonds. (b) The amount of$124,726.43 will be allocated on the date of issuance of the Bonds to the Underwriter's discount or compensation. (c) The amount of$145,000.00 will be disbursed to pay other costs of issuance on the Bonds (including any rating agency fees charged to the City by the Bond insurer). (d) The amount of$63,013.15 will be disbursed to pay the insurance premium on the Bonds (net of any rating agency fees). (e) The amount of $1,463.65 represents a rounding amount and will be deposited in the Debt Service Fund and used to pay debt service on the Bonds on the first interest payment date. (f) The amount of $0.17 will be deposited as the initial cash balance in the Escrow Fund and disbursed on August 15, 2006, to pay debt service on the Refunded Bonds. Pending disbursement, such amount will not be invested. 9. Pre-issuance Accrued Interest. The City will also receive from the Undetwriter on the issuance date of the Bonds the amount of$86,240.97, representing accrued interest on the Bonds from May 15, 2006, through the date of delivery. Such amount will be deposited in the Debt Service Fund, and will be disbursed on August 15, 2006, to pay interest on the Bonds. -3- 1132831_2.00C Dallas 1132831 v.2 10. Investment Proceeds. The amounts described in paragraphs 8(b), 8(d) and 8(f) will not be invested. Except for earnings on the amounts described in paragraphs 8( c) and 8( e) all amounts received by the City, such as interest and dividends, resulting from the investment of any original proceeds or investment proceeds of the Bonds will be deposited in the Escrow Fund for the Refunded Bonds and used to pay the principal of, and interest and redemption premi~ if any, on, the Refunded Bonds. Earnings on the amounts described in paragraphs 8(c) and 8(e) will be used for one of the purposes described in such paragraphs. 11. Transferred Proceeds. There are no transferred proceeds with respect to the Bonds because all of the proceeds ofRefunded Bonds have been or will be expended prior to the first dates on which amounts are disbursed from the Escrow Fund to pay principal of the Refunded Bonds. 12. 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 Bonds, including the expected use of amounts to pay debt service on the Refunded Bonds, that the amounts 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 of the Debt Service Fund, 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 in the Debt Service Fund, there is no amount that is directly or indirectly, other than solely by reason of the mere availability or preliminary earmarking, 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 City 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 Rg?lacement Proceeds. There are no other replacement proceeds allocable to the Bonds because the City 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 a debt service savings 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). Furthermore, even if the Bonds were outstanding longer than necessary for the purpose of the Bonds, no replacement proceeds will arise because the City reasonably expects that no amounts will become available during the period that the Bonds remain outstanding longer than necessary based on the reasonable expectations of the City as to the amounts and timing of future revenues. (d) Weighted Average Maturity. The weighted average maturity of the Bonds does not exceed the remaining weighted average maturity of the Refunded Bonds and the weighted average maturity of the Refunded Bonds is not greater than 120 percent of the weighted average -4- IJ32831_.2.DOC DaJlas 1132831 v.2 estimated economic life of the portion of the project financed by the Refunded Bonds, 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 of the assets financed by the Refunded 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 account in detennining the average reasonably expected economic life of such Project, unless 25 percent or more of the net proceeds of any issue is to be used to finance land. 13. No Excess Gross Proceeds. Except for the amounts described in paragraph 8(e) above and earnings on the amounts described in paragraphs 8(c) and 8(e) above, all gross proceeds of the Bonds are allocable to: (a) the payment of principal, interest or-call premium on the Refunded Bonds as described in paragraph 8(a) above; (b) the payment of pre-issuance accrued interest on the Bonds as described in paragraph 9 above; (c) the payment of costs of issuance of the Bonds as described in paragraph 8(b) and 8(c) above; (d) a reasonably required reserve or replacement fund as described in paragraph 7 above and paragraph 16 below; (e) the payment of administrative costs allocable to repaying the Refunded Bonds, carrying and repaying the Bonds or investments of the Bonds; (f) transferred proceeds allocable to expenditures for the governmental purpose of the Refunded Bonds as described in paragraph 7 above; (g) replacement proceeds in a sinking fund for the Bonds; and (h) qualified guarantee fees for the Bonds. Investment earnings on the amounts described in paragraphs 8(c) and 8(e) are expected to be de minimis; therefore, the sum of the investment earnings on the amounts described in paragraphs 8(c) and 8(e), the amount described in paragraph 8(e) and the amount described in paragraph I 0 will be less than one percent of the original proceeds of the Bonds. 1132831_.2.DOC Dallas 113283Jv.2 -5- ) 14. 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 detennining the yield on the Bonds, the issue price of the Bonds is the sum of the issue prices for each group of substantially identical Bonds. 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). Based upon the representations of the Underwriter set forth in Exhibit A hereto, the issue price (including accrued interest to the date of issue only) of the Bonds aggregated $18,7 68,723.3 7. As set forth in paragraph 8( d) above, proceeds of the Bonds will be used to make a payment to Financial Guaranty Insurance Company (the "Insurer") for municipal bond insurance for the Bonds. The fee paid to the Insurer is a qualified guarantee fee because: (a) As of the date hereof: the present value of the fees 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 fees paid or to be paid to the Insurer do not exceed a reasonable arm's length charge for the transfer of credit risk; (f) The fees paid or to be paid to the Insurer do 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 fees paid or to be paid to the Insurer do not include any payments for the costs of underwriting or remarketing the Bonds or for the cost of insurance for casualty to the City's property; and (h) No portion of the fees 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 fees that had not been earned. -6- 1132831_2.DOC Dallas 1 I 32831 v.1 ) The yield with respect to that portion of the Bonds subject to optional redemption (other than a portion of the Bonds scheduled to mature in the year 2029 (the "Yield-to-Call Bondsu)) is > computed by treating such Bonds as retired at the stated redemption price at the final maturity date because (a) the City has no present intention to redeem prior to maturity the Bonds which 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 stated 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. No Bond is subject to mandatory early redemption. Yield with respect to the Yield-to-Call Bonds is computed by treating such Bonds as retired at the stated redemption price on the dates that produce the lowest combined yield on the Bonds because the Underwriter has represented that such portion of the Bonds is issued at an issue price that exceeds the stated redemption price at maturity of each such Bond by more than one-fourth of one percent multiplied by the product of the stated redemption price at maturity of each such Bond and the number of complete years to the first optional redemption date for each such Bond. Such lowest yield determination is made separately for each individual group of Bonds. In the case of Term Bonds with a final maturity date of February 15, 2029 and February 15, 2031 that are 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 Underwriter has represented that the stated redemption price at maturity of such Term Bonds does not exceed the issue price of such Term 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 taking into account the mandatory redemption schedule) of such Term Bonds. The yield on the Bonds calculated in this manner, as shown in the Report, is 4.807982 percent. The City has not entered into a hedging transaction with respect to the Bonds. The City 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. 15. Temnorazy Periods and Yield Restriction. (a) Pre-issuance Accrued Interest. The amount described in paragraph 9 represents 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. 1132831_2.J)(X; Dallas 1132831v.2 -7- ) (b) Uninvested Amounts. The amounts described in paragraphs 8(b) and 8(f) will not be invested and, therefore, are not subject to yield restriction. (c) Issuance Costs. To the extent any portion of the amount described in paragraph 8(c) is not expended as described herein, the City will take steps to restrict the investment of such amounts to a yield which is not materially higher than the yield on the Bonds. (d) Rounding Amount. The amount described in paragraph 8( e) will be invested at a yield that is not higher than the yield on the Bonds. (e) Available Cash. The amount described in paragraph 7 which is used to purchase the Escrowed Securities will be disbursed within 13 months of the date such Available Cash was received by the City. Therefore, such amount will be invested for an allowable temporary period. Yield on the Escrowed Securities. The yield on the Escrowed Securities is computed using the same compounding interval and financial conventions used to compute the yield on the Bonds. The yield on the Escrowed Securities is the discount rate tha~ when used in computing the present value as of the date the Escrowed Securities were first allocated to the Bonds of all unconditionally payable receipts to be actually or constructively received from the Escrowed Securities, produces an amount equal to the amounts to be actually or constructively paid for the Escrowed Securities. The Escrowed Securities are all yield-restricted nonpurpose investments that are a single class of investments and that are treated as a single investment because all of the Escrowed Securities were purchased with Bond proceeds and held in a refunding escrow as described in paragraph 8(a) above. The City has allocated gross proceeds of the Bonds in the amount described in section 1.148-6(c) of the Regulations. Such purchase price is equal to the price paid by the City to the United States for the Escrowed Securities. As shown in the Report, the yield on the Escrowed Securities determined in this manner is 4.807398 percent, a yield that is not higher than the yield on the Bonds. The City has covenanted in the Ordinance to comply with, among other things, the requirements of section 148(f) of the Code and, if required, the City will satisfy this requirement with respect to earnings 'on the Escrowed Securities out of funds other than those in the Escrow Fund. (f) Waiver of 30-Day Temoorarv Period. Pursuant to section 1.148-9(g) of the Regulations, the City hereby elects to waive the 30-day temporary period available under section 1.148-9( d)(2)(i) of the Regulations. 16. Debt Service Fund. Pursuant to the Ordinance, the City has created a new debt service fund designated the "City of Lubbock, Texas General Obligation Refunding Bonds, Series 2006, Debt Service Fund" (i.e., the Debt Service Fund) and the proceeds from all taxes levied, assessed and collected for and on account of the Bonds are to be deposited in such Debt Service Fund. The City 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 Debt Service Fund for the immediately 1132831_2.[)(X; Dallas 1132831 v.2 -8- ) ) 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 City secured by the Debt Service Fund on the basis of one of the methods set forth in section 1.148-6( 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. 17. Waiver of Minor Portion. Pursuant to section 1.148-9(g) of the Regulations, the City hereby elects to waive the minor portion available under section 1.148-9(£) of the Regulations. 18. Issue. There are no other obligations which (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. 19. Compliance With Rebate Requirements. The City has covenanted in the Ordinance that it will take all necessary steps to comply with the requirement that "rebatable arbitrage earnings" on the investment of the "gross proceeds" of the Bonds, within the meaning of section 148(f) of the Code be rebated to the federal govenunent. Specifically, the City 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 City which are allocable to other bond issues of the City or moneys which do not represent "gross proceeds" of any bonds of the City, (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 govenunent. The City 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 City will not indirectly pay any amount otherwise payable to -9- 1132831_2.0CX: Dallas 1132831 v.2 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. 20. Not an Abusive Transaction. (a) General. No action taken in connection with the issuance of the Bonds is or will have the effect of (a) enabling the City to 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 term of the Bonds), and (b) overburdening the tax-exempt bond market by issuing more bonds, issuing bonds earlier, or allowing bonds to remain outstanding longer than is otherwise reasonably necessary to accomplish the govenunental purposes of the Bonds, based on all the facts and circumstances. Specifically, (i) the primary purpose of each transaction undertaken in connection with the issuance of the Bonds is a bona fide governmental pwpose; (ii) each action taken in connection with the issuance of the Bonds would reasonably be 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); (iii) the proceeds of the Bonds will not exceed by more than a minor portion the amount necessary to accomplish the governmental purposes of the Bonds and will in fact not be substantially in excess of the amount of proceeds allocated to expenditures for the governmental purposes of the Bonds. (b) No Re-refunding. No portion of the Refunded Bonds has been refunded or defeased other than by reason of the issuance of the Bonds. (c) 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 and thereby eliminating significant amounts of negative arbitrage in the Escrow Fund. (d) No Noncallable Bonds. The Refunded Bonds do not include any noncallable Refunded Bonds that have been refunded in order to invest proceeds in the Escrow Fund allocable to the noncallable Refunded Bonds at a yield that is higher than the yield on the Bonds and thereby eliminate significant amounts of negative arbitrage in the Escrow Fund. (e) No Window Refunding. 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 City 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. (f) No Sale of Conduit Loan. No portion of the gross proceeds of the Refunded Bonds or the Bonds has been or will be used to acquire, finance, or refinance any conduit loan. -10- I 132831_.2.00C: Dallas 1132831 v.2 21. 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. 22. No Private Use. Payments or Loan Financing. (a) General. The City 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 and no portion of the proceeds of the Refunded Bonds has been used in a trade or business of a nongovernmental person. For purposes of determining use, the City will apply 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 governmental unit will be treated as a trade or business of a nongovernmental person; {B) the use of all or any portion of the project financed by the Refunded Bonds (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 or the Refunded Bonds as a result of ownership, actual or beneficial use of the proceeds 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 City 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 City is treated as a deliberate action. A deliberate action occurs on the date the City 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 purpose, a generally applicable tax is a tax (A) which 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) which 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 detennination 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 City or any related party) in respect of property, or borrowed money, used or to be used for a private business use. Furthermore, no portion of the payment of the debt service on the Bonds will be directly or 113283 u.ooc Dallas 1132831 v.2 -11- ) ) 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 City shall not use gross proceeds of the Bonds to make or finance loans to any person or entity other than a state or local government. For purposes of the foregoing covenant, gross proceeds are considered to be "loaned" to a person or entity if (1) property acquir~ 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 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 City 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 wiii 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 City is required to deposit amounts received from such disposition in a commingled fund with substantial tax or other governmental revenues and the City reasonably expects to spend such amounts on governmental programs within 6 months from the date of commingling. Furthermore, the City 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 City 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. -12- 1132831 ... H>OC Dallas 1132831 v.2 ) ) 23. Weighted Average Maturity. The Weighted Average Maturity of the Bonds set forth on Exhibit B attached to this Certificate is the swn of the products of the Issue Price of each group of identical Bonds and the number of years to maturity (detennined separately for each group of identical Bonds and taking inio account mandatory redemptions}t divided by the aggregate Sale Proceeds of the Bonds. 24. Bonds are not Hedge Bonds. The City represents that not more than 50 percent of the proceeds of the Refunded Bonds was 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, and the City reasonably expected at the time the Refunded Bonds were issued that at least 85 percent of the spendable proceeds of such issue would be used to carry out the governmental purposes of such issue within the three- year period beginning on the date of issue of such Refunded Bonds. EXECUTION PAGE FOLLOWS -13- 1132831_2.DOC Dallas 1132831 v.2 ) ) ) ) ) j ) WITNESS MY HAND, this 20th day of June, 2006. Lubbock Tax Cen.ificate.DOC Dallas 1132831v.l CITY OF LUBBOCK, TEXAS ) ' .I ) ) EXHIBIT A CERTIFfCATE OF UNDERWRITER A. G. Edwards & Sons, Inc. has acted as the underwriter (the "Underwriter") in connection with the sale and delivery of the City of Lubbock, Texas (the "City") of General Obligation Refunding Bonds, Series 2006 in the aggregate principal amount of$18,830,000 (the "Bonds"). I, the undersigned, hereby certify as follows on behalf of the Underwriter: 1. I am the duly chosen, qualified and acting officer of the Underwriter 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 Underwriter. I am the officer of the Underwriter charged, along with other officers of the Underwriter, with responsibility for the Bonds. 2. The Underwriter has purchased the Bonds from the City pursuant to a Bond Purchase Agreement dated May 11, 2006, for an aggregate purchase price of $18,643,996.94, which price includes accrued interest in the amount of$86,240.97. The Underwriter has made a bona fide public offering to the public of all of the Bonds of each maturity at the issue prices to the public set out in the Report. The issue prices set forth in the Report were determined on the date the Bonds were purchased by the Underwriter based on the reasonable expectations regarding the initial public offering prices. The issue price for each maturity of the Bonds, as set forth in the Report, 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 $18,768,723.37. The initial public offering prices described above do 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. The Underwriter hereby authorizes the City to rely on the statements made herein in connection with making the representations set forth in the Federal Tax Certificate to which this certificate is attached 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. The Underwriter hereby authorizes Vinson & Elkins L.L.P. to 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. Capitalized terms used herein and not otherwise defined have the meaning ascribed to such tenns in the Federal Tax Certificate to which this certificate is attached. A-1 J 132831_2.DOC: Dallas 1132831 v.2 ) Title: Managing Director -Investment Banking ) ) ) ) A-2 Lubbock Tax Certificate (2) (2) Dallas 113283Iv.2 ) ) ) EXHIBITB CERTIFICATE OF FINANCIAL ADVISOR First Southwest Company has acted as financial advisor to the City of Lubbock, Texas (the "City''), in connection with the sale and delivery of the General Obligation Refunding Bonds, Series 2006, in the aggregate amount of $18,830,000 (the "Bonds''). I, the undersigned, hereby certify as follows: 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 charged, along with other officers of the Financial Advisor, with responsibility for issuing the Bonds. 2. Based upon the scheduled debt service on the Bonds and the Unrefunded Bonds, an amount of not less than $1,575,272 should be maintained as of the end of the current fiscal year as a balance in the City's Debt Service Fund consistent with accepted standards of prudent fiscal management for similar governmental issuers and in order to provide a reserve against periodic fluctuations in the amount and timing of ad valorem tax collections by the City for debt service purposes. Furthermore, neither the portion of such balance allocable to the Bonds nor the portion allocable to the Unrefunded Bonds exceeds the lesser of 100 percent of maximum annual debt service and 125 percent of average debt service on the Bonds and the Unrefunded Bonds, respectively. 3. The amount of $63,013.15 of the cost of insurance for the Bonds is set forth in Insurer's commitment and does not include any payment for any direct or indirect services other than the transfer of credit risk, unless the compensation for those other services is separately stated, reasonable, and excluded from such fee. Such fee does not exceed a reasonable, arm's length charge for the transfer of credit risk. The present value of the debt service savings expected to be realized as a result of such insurance exceeds the amount of the fee set forth above. For this purpose, present value is computed using the yield on the Bonds, determined by taking into account the amount of the fee set forth above, as the discount rate. No portion of the fee payable to the Insurer is refundable upon redemption of any of the Bonds in an amount which would exceed the portion of such fee that had not been earned. 4. The Financial Advisor computed the Weighted Average Maturity of the Bonds to be 20.13 7 years as set forth in paragraph 23 of the Federal Tax Certificate. 5. I have worked closely with representatives of the City in structuring the financial terms of the Bonds and the refunding of the Refunded Bonds. The Financial Advisor has also performed certain computations that are the subject of the Report. I hereby confirm that the assumptions that are described in the Report as provided by the Financial Advisor are true, accurate and complete. I further hereby represent that to the B-1 113283t_:z.DOC Dallas 1132831 v.2 ) ) ) best of my knowledge the statements set forth in paragraph 20 of the Federal Tax Certificate to which this certificate is attached, are true. The Financial Advisor hereby authorizes the City to rely on the statements made herein in connection with making the representations set forth in the Federal Tax Certificate to which this certificate is attached 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. The Financial Advisor hereby authorizes Vinson & Elkins L.L.P. to 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. Capitalized tenns used herein and not otherwise defined have the meaning ascribed to such terms in the Federal Tax Certificate to which this certificate is attached. FIRST SOUTHWEST COMPANY By:~~ Title: U(c.J?--~.::C B-2 Lubbock Tax Certificate (2).DOC ) ) ) Vinson &Elkins Julie Williams jwilllams@velaw.com Tel 713.758.3878 Fax 713.615.5059 August 4, 2006 CERTIFIED MAIL RETURN RECEIPT REQUESTED 70031680 0000 64813397 District Director Internal Revenue Service Ogden, UT 84201 Re: $18,830,000 City of Lubbock, Texas General Obligation Refunding Bonds. Series 2006 Dear Sir: Enclosed please find an originally executed Form 8038~0 (lnfonnation Return for Tax~ Exempt Governmental Obligations) for the above-captioned bond issue. Please acknowledge receipt of the Form 8038-G by stamping and returning the copy of the Fonn 8038-G attached to the self-addressed, postage-paid envelope that we have provided. 945155_ I .DOC Vinson & Elkins LLP AttorneY$ at Law Austin Beijing Dallas Dubai Houston london Moscow New Yor!( Tokyo Washington Very truly yours, Arst City Tower, 1001 Fannin Street, Suite 2300, Houston, Texas n002~760 Tel 713.758.2222 Fax 713.758.2346 www.velaw.com ) ) ) Fonn 8038-G lnfonnation Return for Tax-Exempt Governmental ObligatiOns ... tblllr ......... ~Code..caan 141(•) ... Seesepara~~tln8tructioftL 018 No. 1545-4720 caution: 'the issue prt::e e untltK 1100.000. ~Form ~c. l Pwt ll Re_po_rting Authority If Amended Retum, check here..,.. [ J 1 ls:s&Jet's name Citv of Lubbock.. Texas z ........ ......,. ..... ~ ........ 75-68GOS90 3 NIM!Iber Blld slraet (or P.O. box if 1N1 is not cleiMred to lhet ~I P.O. Bos 2000 S ~town. or JlCI5' oftice. staB. and ZP C>Ode I ~ diaue Lubbock, Texas 79457 June 20, 2006 7 Named iMue • CUSP numbel' General Obli2aton RefuoclinJ[ Boact~ Series 2006 549187Z47 t Name and tile ~ olliCIIf or legll rapresenlaiNe Whom IN IRS mtyc;aiJ fer mQI8 inJofmaliOn iO ~ IUIIWd ._01 ..... ,.,._,,..._ Jeffrey A. Yates~ CFO (stki) 775--2161 I Part Ill Type of Issue (check applicable boX(es) and enter the issue price) See instructions and attach sohedule 11 0 Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . t-1=-=1'-+------- 12 0 Hearth and hospital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . J-1=2~------ 13 O Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . r-1::.:::3~----- 14 0 Pubi'IC safety. . . . . . . . . . . . . . • . . • . . . . • . . . • • . • . • • . . . • • . . . . . . . . • . . . . . . . . . . . . • . . . . t-14;;...:....+------ 15 0 Environment (including sewage bonds). . . . . . . . . . . . . . . .. . . . .. .. . . . . . . . . . . . . . . . . . . . . t-1=5:......t------- 16 0 Houq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . r-;1::.:::6~----- 17 0 Utilities . . . . . . . • . . . . • . . . . . . . . . . . . . . . . . . . • . . . • . . . . . . . . . • . . . . . . . . • . • . . . . . . . . . . 1-1'-=-7~---.,.,,---~ 18 lil Othec'. Oescnbe... ' J-;1~8~_--!.!18!!1: ~~~~~ 19 If obligations are TANs or RANs, check box..,.. 0 If obligations are BANs. check box . . . . . . ..,.. 0 ' ... 20 If obligations are in the form of a lease or lnsta.Ument sale, check box . . . . . . . . . . • . . . . . . ..,.. Ei ~ '' I Part till Description of Ob~ations. (Complete for the entire issue for which this fonn is being filed.} (ct Stated i1deru!1tien (d) w~ llrice .. malllity avaagemallaily (e) Ylald 21 2/JS/2031 $ Jtl~ .4.H $ 18.830.000 20.137 ~ l PM tv_l Uses of Proceeds of Bond Issue (including underwriters' discount) 22 Proceeds used for accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,...:22=-+------~86'7'i.l~·41~ 23 Issue price of enUre issue (enter amount from fine 21, column (b)). . . . . . . . . . . . . . . . . . . . . . . . . . H23=....t---...:1=8-<0!_68=2~ ..... 4=82=-- 24 Proceeds used for bond issuance costs (including underwriters' discount) 2.4 269.726 '' · "' 25 Proceeds used for credit enhancement.. . . . . . . . . . . . . . . . . . . . . . . . . . 25 6~.013 .. ·;' · 26 Proceeds allocated to reasonably required reserve or replacement fund . . 26 (0) ·\· XI Proceeds used to currently refund priol issues . . . . . . . . . . . . . . . . . . . . . XI _(0) 28 Prooeeds used to advance refund prior issues . . . . . . . . . . . . . . . . . . . . . 28 UtUiil.l"i9 29 Total (add lines 24 through 28) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . r29=-t--....:1:.::8:.z.:•'68=1:a.:::•'0;.:.18~ 30 Nonrefund~ proceeds of the issue (subtract line 29 from line 23 and enter amount here) . . . . . . . . 30 11464 l Part .VI Description of Refunded Bonds (Complete this part only for refunding bonds.) 31 Erer the remaining weighted avef'age maturity of the bonds to be currently refunded . • . . . . . . . . . ..,.. --------=yean;=--- 32 Enter the remaining weighted ave.age maturity of the bonds to be ~nee refunded . . . . . . . . . . . ..,.. ___ 2.:~0e.58~7_years~- 33 Enter lhe last date on which the refunded bonds will be called . . . . . . . . . . . . . . . . • . . . . . . . . . . . ..,.. __ _.21,....l..,S/2....uO .. I .... I __ 34 Enter the date(s) the refunded bonds were Issued..,.. 7119.12111 lPartVJI Mscellaneous ' 35 Enter the amount of the state vOlume cap allocated to the Issue under section 141(b)(5) ......... 35 _LQ) 36a Entef the amount of gross proceeds invested octo be invested in a guaranteed inWSimenl contract (see ilslructions) ••.. 36a (0) b Enter the final maturity date of the guaranteed investment contract..,. 37 Pooled Innings: a Proceeds of this issue that are to be used to m*eloals to other gowmmerta Ids ........... 37a _iQ) b If this issue is a loan made from the proceeds of another tax-exempt issue, check box.,... 0and enter the name of the issuer..,.. and the date of the issue • ------ 38 If lhe issuer has designated the issue under section 265(b)(3)(B)(i)(lll) (small issuer exception), check box ............ ..,.. 0 39 If the issuer has elected to pay a penalty in lieu of arbitrage rebate. check box . . . . . . . . .. . .. . .. . . . • • . . . . . . . . . . . . . ..,.. 0 40 II the issuer has identified a hedge, chedt box . . . .. .. . .. .. .. .. .. .. .. .. . .. .. .. .. . .. .. . . .. .. .. . .. .. . .. .. .. ..,.. Undef penallies ol ~ I I hale eanined ' re11n1 and acoomper'Ying sd1edules and sl*menb, anciiO lhe *' ol my~ and beMf. Sign Here lhey.-e and For Paperwork Alacludtibn Slf' FED6403F C, ·/6·0~ ~ Jeffrey A. Yates; CFO Dele r T~ or print i'liiiM ar!d tile e 2 of the InstructionS. &SA Form 8038-G (Rev. 11-2000) )'- ) ) ~[' Ira-' rnrn rnrn U.S. Postal Service~, CERTIFIED MAIL·: RECEIPT (Domestic Mail Only; No Insurance Coverage Provided) r-'t :...=I City of Lubbock, Texas Genml r:O · r:O Obligation Refunding ~ .::r ..D .JJ POGIIgll 5 t-------1 0 . 0 Cllltllod Fee o 'o 0 0 Aebn~Fee 0 ! 0 (eldotMU18111~ t-----..,...; CJ . c Res1rlciBr.t ~Fee r:O . r:O (eldmement ReqUnd) .JJ ..D 1---------1 ...=I . n Tolal Postllge & FMa LZ.-------1 rn IT1 r==-""o----..,-----..._ __________ __, cc a . c §N('"Aii£NO:;--District Director --·-("-: ~ or PO Bax ,.,_ • Internal Revenue Service Ccater . Ci¥,·-~-Ogden, UT 84201 PS Form 3800. June 2002 Sec Reverse tor lnsttuctu'n~ '• · . .... . ' .... .... ·., • I ) .... J ) ) ) ) ) .. F6IC f'"JMndal Gual'ant11nsurance Company 125 Park Avenue New Yorkt NY 10017 T 212·312·3000 F 212·312·3093 June 20. 2006 City of Lubbock Vinson & Elkins L.L.P. Re: $18,830,000.00 in aggregate principal amount of City of Lubbock, Texas General Obligation Refunding Bonds, Series 2006 Ladies and Gentlemen: In connection with the issuance of the above-referenced obligations (the "Bonds,), Financial Guaranty Insurance Company ("Financial Guaranty") is issuing a municipal bond insurance policy guaranteeing the payment of principal and interest on the Bonds when due (the "Insurance Policy"). This letter is to advise you that: (i) The Insurance Policy is an unconditional and recourse obligation of Financial Guaranty (enforceable by or on behalf of the holder of the Bonds) to pay the scheduled payments of principal and interest on the Bonds when due in the event of a failure by the City of Lubbock, Texas, Texas (the "Issuer'') to make such payments. (ii) The insurance premium is required to be paid as a condition to the issuance of the Insurance Policy and is a charge for the transfer of substantially all of the credit risk for the payment of principal and interest on the Bonds. (iii) Financial Guaranty is not a co-obligor on the Bonds. (iv) Except for the premium paid to Financial Guaranty for the Insurance Policy, Financial Guaranty (and any related party within the meaning of section 1.150-l(b) of the Income Tax Regulations) will not use any portion of the proceeds of the Bonds. ., .... .. ) F6IC ) ) ) June 20, 2006 (v) No portion of the premium paid to Financial Guaranty for the Insurance Policy represents a payment for any direct or indirect services~ other than the transfer of credit risk, including costs of underwriting or remarketing the Bonds or the cost of insurance for casualty to property financed with the proceeds of the Bonds. (vi) The Issuer is not entitled to a refund of any portion of the premium paid for the Insurance Policy in the event that any of the Bonds are retired prior to their stated maturity Very truly yours, 06010214 ) ) ) Financial Guaranty Insurance Company 115 Broadway New York, New York 10006 To Whom It May Concern: Moody's Investors Service 99 Church Street New York, NY June 16, 2006 Moody's Investors Service has assigned the rating of!!! (Financial Guaranty Insurance Company Insured-Policy No. 06010214) to the $18,830,000.00, City of Lubbock, Texas .. General Obligation Refunding Bonds, Series 2006, dated May 15, 2006 which sold through negotiation on May 11, 2006. The rating is based upon an insurance policy provided by Financial Guaranty Insurance Company. Should you have any questions regarding the above, please do not hesitate to contact Karen Malkowski at (201) 395-6370. Sincerely :yours, Sean Cullen Senior Vice President SCI DC .., J STANDARD &POOitS June 16, 2006 Financial Guaranty Insurance Co. 125 Park Avenue, 5th Floor New York, NY 10017 Attention: Mr. Jeffrey Fried, Senior Managing Director 55 Water Street, 38th Floor New York, NY 1004HI003 tel212 438-2074 reference no.: 767722. Re: $18,830,000 City of Lubbock, Texas General Obligation Refunding Bonds, Series 2006, dated: May 15, 2006, Serial Bonds due: February 15, 2007-2027; Term Bonds due: February 15,2029 and 2031, (POLICY#06010214) Dear Mr. Fried: 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 investment, financial, or other advice and you should not and cannot rely upon the rating as such. The rating is based on information supplied to us by you but does not represent an audit. We undertake no duty of due diligence or independent verification of any information. The assignment of a rating does not create a fiduciary relationship between us and you or between us and other recipients of the rating. We have not 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. :-.l.\.-..ll.\:~!1 •. Jl•.)t ']\' ) ) ) Mr. Jeffrey Fried Page2 June 16, 2006 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 f01ward to working with you again. Sincerely yours, Standard & Poor's Ratings Services a division of The McGraw-Hill Companies, Inc. ~JNtW~/'II,JJ) ms -.1 1~)( H' ) ) OS/15/200S 15 :54 FAX 7547995 FITCH + F6IC flJ 002/003 FitchRatings June 15, 2006 M&. Karen Oaly 1'0 I Eost i'1h Strti!t Pawell. WV R74l5 Financial Guaranty Insurance Company 125 Patk Avenue 5th Ftoor New York. NY 10017 Re: Lubbock (TX) I Policy # 06010214 Dear M$. Daly: T 30i' 764 ?.OJ2 f 800 65 fiTCH 'INIW.fJIC.'U'I(U11t'lf.CC!m Flteh Ratings has assigned on• or more ratings ancf/or otherwise taken rating action(&)1 as detailed on the attached Notice of Rating Ac1ion. Ratings Naignea by Fitch aro based on document$ and lnfonnatlon provided to us Dy ISsuers, ¢bligors~ and/or their experts and agent$, and are subject to AK:eipt of 1he final closing doc.uments. Fitch does not audit Ot verify the truth or ac:curllC)' of suoo lnfOtmatlon. It is important tnat rrteh be provided with all inlonnation that may bt material to its ratings so that they continue to aocUiately reflect the status of the rated Issues. Ratingg may be changed, withdrawn, suspended or placecJ on Rating Watch due to changes in, ackfrtions to or the Inadequacy of information. Ratings a... not recommendations to buy, sen or hOld sewrltles. Ratings do not comment on the adequacy of market price, the suitability ot any security for a particular Investor, or the tax-exempt nature or taxability of pa~nt$ made In respect of any security. The assignment of a rating Dy Fitch shall not constitute a conMnt by Fitch to use iU name a.s an $>cpGrt In connection with any registrallon statement or otner filing under U.S., U.K. or any other relevant s•c::urities laws. We ate pleased to have had the opportunity to be of service to you. If we can be of furthet assistance. please feel free to contact us at any lime. DLS/b$ Enc: Notice of Rating Action (Doc tO: 41006) Sincerely, ~~~ Insured Ratings Manager ' ) OS/~5/2008 15 :54 FAX 7547995 FITCH + FOIC ~ 003/()03 Notice of Rating Action OUUoolrl Bond Dacrlfnk!!! fiiMinJ Watdl ~ .!!!!!!, lJ.dlboak (TX) GO rfdg banda ttr 2006 (frast~Nd: AAA RO:Sta 15-Jun-2006 Financial Guara~tl)' Insurance ~Y) Key: RO: Aaling Oudoolt. RW: Rtdiflg Watch; Pol: Poai!Ne, Neg: N~, Sta: Stabfe, E110: Evi!Mng !!!!!!! 1 The rallng ltii:IMed tolely on ctlldt ~ement PfOiftded ltly a bond lrlluta~W» policy .. tued by F.nanciat Gcuntttv 1,,~ Co., wf'lidl hq.., lniUfer fl1~ s-.nglh railtlo crf 'AAA'. (Ooc 10: 41006) Page 1 o11 ) ) ) 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 Refunding Bonds~ Series 2006 (the "Bonds"), hereby certify that: 1. This Certificate is delivered pursuant to the Purchase Contract, dated May 11, 2006 (the "Purchase Contract"), between the Issuer and A. G. Edwards & Sons, Inc. (the "Underwriter'l 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 arid 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 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 the Escrow Agreement or contesting the powers of the City or the authorization of the Bonds, the Ordinance or the Escrow Agreement, 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, 2005, the latest date as to which audited financial information is available. LUB200nl006 Dallas ll22778_l.DOC ) ) ' 7 ) ) DATED: ~ d-0 '2006. -2:>~~ Mayor City of Lubbock, Texas Signature Page for Certificate Pursuant to Purchase Contract ) ) RECEIPT ANP CERTIFICATE OF DELNERY 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 $18,830,000 principal amount of City of Lubbock, Texas, General Obligation Refunding Bonds, Series 2006 (the "Bonds"). Capitalized terms used herein and not othenvise defined shall have the meanings assigned thereto in the Ordinance authorizing the issuance thereof adopted by the City Council of the City of Lubboc~ Texas (the "Issuer"). The undersigned hereby: L Acknowledges receipt of(i) $18,643,996.94 from A. G. Edwards & Sons, Inc. (the "Underwriter''), representing the principal amount of the Bonds less original issue discount of ) $147,517.60 plus accrued interest of$86,240.97 and less underwriters' discount of$124,726.43; and (iii} $339,198.47 from the City representing prior issue debt service funds. ) ) 2. Aclmowledges and certifies the application of amounts described in paragraph l 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: June 20,2006. By: Title: LUB20o: 16000 Dallas f>aymg Agent Receipt. DOC ) ) ) ,;: J First SOuthwest Comoany =' Investment Bankers Since .,946 325 North St Paul Street Suite800 Dallas 75201 June 13, 2006 City of Lubbock Ms. Lee Ann Dumbauld P. 0. Box2000 Lubbock, Texas 79457 Phone: (806)77~2016 Fax: (806) 775-2051 City of Lubbock Mr. Andy Burcham P .0. Box 2000 Lubbock, Texas 79457 Phone: (806) 775-2149 Fax: (806) 775-2051 City of Lubbock Mr. Brandon Inman P.O. Box2000 Lubbock, Texas 79457 Phone: {806) 775-3320 Fax: {806} 775-2051 McCall, Parkhurst & Horton LLP. Mr. Jeff Leuschel 717 North Harwood, Ninth Floor Dallas, Texas 75201 Phone: (214) 754-9200 Fax: (214) 754-9250 . Vinson & Elkins L.LP. Ms. Jennifer W. Taffe 3700 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201 Phone: {214) 22Q-7941 Fax: (214) 999-7941 FGIC.Insurance Corporation Ms. Debbie Dellanltes FGIC 125 Park Avenue -6th Aoor New York, NY 10017 Phone: (212) 312-3361 Fax: (21.2) 312-3206 . Jack Addams Managing Director of Public Finance A.G. Edwards & Sons Ms. Nora Chavez 70 NE Loop 410, Suite 915 San Antonio, Texas 78216 Phone: (210) 384-8811 Fax: (21 0) 384-8283 JPMorgan Chase Bank Mr. Israel Lugo 2001 Bryan Street-8fl Floor Dallas, Texas 75201 Phone: (214)~5105 Fax: {214) 468-6322 Wells Fargo Bank, N.A. Ms. Raine Young · 1500 Broadway Lubbock, Texas 79401 Phone: (806) 767-7473 Fax: (806) 767-7465 Re: Closing ·Instructions for the $18,830,000 City of Lubbock, Texas, General Obligation Refunding Bonds, Series 2006 (the •Bonds•) Payment for the above referenced Bonds is scheduled to occur at 10:00 AM, CDT, on Tuesday, June 20, 2006, and payment therefor is to occur at the offJces of JPMorgan Chase Bank (• JP~organ1. SOURCES.OF FUNDS Par Amount of Bonds .................................................................................. $ 18,830,000.00 Transfer from Prior Issue Debt Service Fund.............................................. 339,198.47 · Reoffering Premium..................................................................................... 32,564.70 Accrued Interest (05/15/06 to 06/20/06)....................................................... 86,240.97 Less: Original Issue Discount..................................................................... (180,082.30} Less: Underwriters Discount....................................................................... . {124.726.43) TOTAL FUNDS AVAJLABLE AT CLOSING................................................... -$=-==18=,9...,83........,,1 .... 95...,.4=1- USES OF FUNDS Deposit to Cash Escrow Fund .................................................................... . Deposit to Interest & Sinking Fund (accrued interest & rounding) ............ . Gross Bond Jnsurance Fee ..............................•........................................... Paying Agent/Registrar Fee ........................................................................ . Costs of Issuance ....................................................................................... . TOTAL USES OF FUNDS ............................................................................. . $ 18,687,477.64 87,704.62 63,013.15 300.00 144.700.00 $ 18,983,195.41 ) !f I -l r i ! ) ) ) ) ) (A) On Monday, June 19,2006, the City of Lubbock, shall wire $339,198.47 in immediately available funds to the paying agent bank, JPMorgan for the account of the City of Lubbock, General Obligation Refunding Bonds, Series 2006 {Prior Issue Debt Service Funds). See wiring instructions below. (B) On Tuesday, June 20, 2006, the Underwriter, A.G. Edwards & Sons, Inc., shall wire $18,643,996.94 in immediately available funds to the paying agent bank, JPMorgan, prior to 10:00 AM, COT, for the account of the City of Lubbock, in payment for the purchase prioe 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 Refunding Bonds, Series 2006 A~: Issuer Administrative ServJoes I tsrael Lugo (C) On Tuesday, June 20, 2006, 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, COT, as follows: (1) Transmit by wire or transfer to JPMorgan Chase Bank ABA: 021000021, CreditA/C#: 904951812 For Credit to Financial Guaranty Insurance Company Premium Account For the City of Lubbock, Texas FGIC Policy# 06010214 ....................................... $ 63,013.15 JPMorgan shall call Jennifer Taffe at (214) 220-7941 to provide the federal reference wire number so that she may call Financial Guaramy lnsurJnce Company for release of the policy. (2) Retain in Cash Escrow Fund . General Obligation Refunding Bonds, Series 2006 ............................................... . Pay the Bureau of Public Debt for purchase of SLGS ...••.. tnitlaJ Cssh Deposit ........................................................... . Escrow Fees .................................................................... : (3) Transmit by wire to Wells Fargo Bank, N.A. ABA#121000248, Attn: Ms. Raine Young Phone (806} 767·7473, depositor)t bank for City 9f Lubbock for 18,687,477.00 .64 3,500.00 credit to City of LUbbock Master, Account 14000047951 ...................................... .. (Interest and Sinking Fund) (4) Retain in payment of services to be rendered as Paying Agent/Registrar .............. . (5) Transmit by wire to JPMorgan Chase Bank ABA 1#021 000021, Attn: Jack Addams Account #1822155345 for client# 033EH>41 18,690,977.64 300.00 for credit to First Southwest Company for costs of issuance ................................... __ ___.:.1;;;:;.41:.....20=0;:::.00:.::. Total Disbursement of Funds ................................................................................................ $ 18,fl83.195,41 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. ackAddams anaging Director of Public Finanoe Cc: Joe Brawner Mary Ann Dunda First Southwest Company 2 ' ' Vinson &Elkins June 20, 2006 $18,830,000 CITY OF LUBBOCK, TEXAS GENERAL OBLIGATION REFUNDING BONDS SERIES 2006 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 REFUNDING BONDS, SERIES 2006, dated May 15, 2006, issued in the principal amount of $18,830,000. 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, as amended, adopted by the City Council of the City authorizing their issuance (the "Ordinance"). WE HAVE 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 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 Obligations") and the mathematical accuracy of certain computations of the yield on the Bonds and obligations acquired with the proceeds of the Bonds~ and Vinson & Elkins LLP Attorneys at law Austin Beijing Dallas Dlbai Houston London Moscow NewYork Tokyo Washington Dallas 1134321v.l Trammell Crow Center, 2001 Ross Avenue, Suite 3700 Dallas, Texas 75201-2975 Tel214.220.7700 Fax 214.220.7716 www.vel•w.com ) ) V&E 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 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 Obligations pursuant to the Escrow Agreement, and therefore, the Refunded Obligations 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. IT IS OUR FURTHER OPINION THAT: (l) 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 Internal Revenue Code of 1986, as amended (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 F AS IT) 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 underwriter of the Bonds with respect to matters solely within the knowledge of the City, the City's financial advisor and the underwriter respectively, which we -2- Dallas 113432lv.l .... ) ) 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 detennined 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 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. -3- ) Dallas 113432 I v.l ) ) Vinson &Elkins June 20, 2006 CityofLubbock, Texas P.O. Box 2000 Lubbock, Texas 79457 A. G. Edwards & Sons, Inc. 70 N.E. Loop 410, Suite 915 San Antonio, Texas 78216 Ladies and Gentlemen: City of Lubbock, Texas General Obligation Refunding Bonds Series2006 We have served as Bond Counsel to the City of Lubbock, Texas (the "Issuer,) in connection with the issuance of its $18,830,000 City of Lubbock, Texas General Obligation Refunding Bonds, Series 2006 (the "Bonds"), issued pursuant to the provisions of an ordinance duly adopted by the City Council of the Issuer on April 26, 2006, as amended on May 18, 2006 (as amended, the "Ordinance"). This opinion is delivered pursuant to the provisions of Section 8( e )(8) 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 May 11, 2006 (the "Purchase Contract") between the Issuer and the Underwriter named in such Purchase Contract; (c) a copy of the Official Statement dated May 11, 2006; 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. In making our review, we have assumed 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. Vinson & Elkins U.P Attorneys at Law Austin Beijing Dallas Dubal Houston London Moscow New Yolk Tokyo Washington Dallas 1134786v.1 Trammell Crow Center, 2001 Ross Avenue, Suite 3700 Dallas, Texas 75201·2975 Tel214.220.7700 Fax 214.220.7716 www. velaw.com ) ) ) V&£ 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 under the Securities Act of 1933t 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 1933 Act or to qualify the Ordinance under the Trust Indenture Act. 2. 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 infonnation 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 Matters" under the caption "Other Information," and we are of the opinion that such statements and information present a fair and accurate sununary of the provisions of the laws and instruments therein described and, with respect to the Bonds, such information confonns to the Ordinance. 3. The Purchase Contract has been duly authorized, executed and delivered by the City and (assuming due authorization by the Underwriter) constitutes a binding and enforceable agreement of the City in accordance with its tenns. The addressees may rely on our opinions, 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, 1134786_1.DOC -2- .., Dallas 1134 786v.l ... ' ) ) LAW OFF'ICES M~CALL, PARKHURST & HORTON L.L.P. 6 00 CONGRESS AVENUE lc50 ONE AMERICAN CENTER AUSTIN, TEXAS 78701·3248 TELO:PHON£: 512 478·3805 FACSIMILE: 512 472•0871 A. G. Edwards & Sons, Inc. 70 N.E. Loop 410, Suite 915 San Antonio, Texas 78216 717 NORTH HARWOOD NINTH FLOOR DALLAS, TEXAS 75201-6587 TtL£PHON£: 214 754·9200 FACSIMILE: 214 754·9250 June 20, 2006 70 0 N . ST. MARY'S STREET 1525 ONE RIVERWALX PLACE SAN ANTONIO, TEXAS 78205-3503 Tt:LEPHONE: 210 225·2800 FACSIMILE: 210 225·29&4 RE: $18,830,000 GENERAL OBLIGATION REFUNDING BONDS, SERIES 2006 Ladies and Gentlemen: We have acted as counsel for you as the underwriters of the Bonds described above, 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 May 1 I, 2006. All capitalized undefined terms used herein shall have the meaning set forth in the Purchase Contract. In connection with this opinion letter, we have considered such matters oflaw and of fact, and have relied upon such Bonds and other information furnished to us, as we have 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 193 3, 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 May 11, 2006 (the "Official Statement") and because the information in the Official Statement under the headings "THE BONDS -Book-Entry-Only System," "TAX MATTERS," and "OTHER INFORMATION -Continuing Disclosure of Information -Compliance with Prior Undertakings" and Appendices A, B, and C thereto were prepared by others who have been engaged to review or provide such information, we are not passing on and do not assume any responsibility for, except as set forth in the last sentence of this paragraph, the accuracy, completeness or fairness of the statements contained in the Official Statement (including any appendices, schedules and exhibits thereto) and we make no representation .... .J ) ) that we have independently verified the accuracy, completeness or fairness of such statements. In the course of our review of the Official Statement, we had discussions with representatives of the City regarding the contents of the Official Statement. In the course of our participation in the preparation of the Official Statement as your counsel, we had discussions with representatives of the Issuer, including its City Attorney, Bond Counsel and Financial Advisor, regarding the contents of the Official Statement. In the course of such activities, no facts came to our attention that would lead us to believe that the Official Statement (except for the financial statements and other financial and statistical data contained therein, the information set forth under the headings "THE BONDS -Book- Entry-Only System," "TAX MATTERS," and "OTHER INFORMATION -Continuing Disclosure of Information-Compliance with Prior Undertakings" and Appendices A, Band 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 June 16, 2006 TIDS IS TO CERTIFY that the City of Lubbock, Texas (the "Issuer") has submitted to me Citv ofLubbock. Texas General Obligation Refunding Bond. Series 2006 (the "Bond") in the principal amount of$18,830,000 for approval. The Bond is dated May 15,2006, numbered T-1, and was authorized by an Ordinance of the Issuer passed on April 26, 2006, as amended on May 18, 2006. 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: (1) The Bond has been issued in accordance with law and is a valid and binding obligation of the Issuer. (2) In accordance with the provisions of the law, including an Escrow Agreement dated as of May 15, 2006, finn banking arrangements have been made for the discharge and final payment or redemption of the obligation being refunded upon deposit of an amount sufficient to pay said obligation when due . (3) The Bond is payable from the proceeds of an ad valorem tax levied, within the limits presct:ibed by law, upon all taxable property in the Issuer. Therefore, the Bond is approved. The Comptroller is instructed that she may register the Bond without the cancellation of the underlying obligation being refunded thereby. No.44928 Book No. 20069 MAA POST OFFICE BOX 12548, AUSTIN, TEXAS 78711-2548 TEt.:(512)463-2100 WWW.OAG.STATE.n:.us A • Efnl E•PIOJ"''"' Opp•rtu;fJ E .. ptOJ" · Pr;•rrl •• Rtfftltl P•prr ) ) '\ 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 Refunding Bond. Series 2006 numbered T-1. of the denomination of $ 18.830.000, dated May 15. 2006, 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 16th day of June. 2006, under Registration Number 71523. Given under my hand and seal of office, at Austin, Texas, the 16th day of June. 2006. ~~~L---- 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 1KJ 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 16th day of June. 2006, I signed the name of the Comptroller to the certificate of registration endorsed upon the: Citv of Lubbock. Texas General Obligation Refunding Bond. Series 2006, d May 15. 2006, and that in signing the certificate of registration I used the • s the 16th day of June. 2006. 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 71523. GIVEN under my hand and seal of office at Austin, Texas, this the 16th day of June. 2006. CAROLE KEETON STRA YHOAN Comptroller of Public Accounts of the State of Texas -. " F6IC ,.awu:lal G~ lnauance Company 125 Park Avenue New York, NY 10017 T 212·312·3000 f 212·312·3093 June 20,2006 City of Lubbock A.G. Edwards & Sons, Inc., as Underwriter or as Representative of the Underwriters Re: $18,830,000.00 in aggregate principal amount of City of Lubbock, Texas General Obligation Refunding Bonds~ Series 2006 Ladies and Gentleman: I am Senior Counsel of Financial Guaranty Insurance Company ("Financial Guaranty"), and have been requested to render an opinion concerning the issuance by Financial Guaranty of its Municipal Bond New Issue Insurance Policy (the "Policy") in connection with the issuance of the captioned obligations (the "Bonds"). I have examined such documents and records as I have deemed relevant for purposes of this opinion, including (a) the Certificate of Incorporation of Financial Guaranty, including all amendments thereto, (b) the amended By-laws of Financial Guaranty as in effect on the date hereof, (c) the certificate of authority issued to Financial Guaranty by the Superintendent of Insurance of the State of New York, (d) the certificate of authority issued to Financial Guaranty by the Commissioner of Insurance of the State of Texas, (e) the executed Policy and (f) the statements in the Official Statement dated May 11, 2006, relating to the Bonds (the "Official Statement") under the caption .,BOND INSURANCE". On the basis of the foregoing, it is my opinion that: (1) Financial Guaranty is a stock insurance corporation validly existing and in good standing under the laws of the State of New York and qualified to do business therein and is licensed and authorized to issue its financial guaranty insurance policies under the laws of the State of Texas. (2) The Policy is valid and binding upon Financial Guaranty and enforceable in accordance with its terms, subject to applicable laws affecting creditors' rights generally. ) ) ) ) ) Vinson &Elkins June 20, 2006 Financial Guaranty Insurance Company 125 Park A venue New York, New York 10017 Re: City of Lubbock, Texas, General Obligation Refunding Bonds, Series 2006 Ladies and Gentlemen: You are hereby authorized to rely on our opinion dated the date hereof and delivered in connection with the issuance of the captioned obligations as if such opinion were specifically addressed to you. This letter is delivered to you at the request of our client, the City of Lubbock, Texas. Vinson & Elkins LlP Attorneys at taw Austin Beijing Dallas Dubai Houston London Moscow New Vorl< Tokyo Washington Dallas 1134317_1.DOC Very truly yours, Trammell Crow Center. 2001 Ross Avenue. Suite 3700 Dallas. Texas 75201·2975 Tel214.220.7700 Fax 214.220.7716 www.velaw.com ) ) ) .., Office of the City Attorney P.O. Box 2000 • 1625 13th Street Lubbock, Texas 79457 {806) 775-2222 • Fax (806) 775-3307 June 20, 2006 A. G. Edwards & Sons, Inc. 70 N.E. Loop 410, Suite 915 San Antonio, Texas 78216 RE: $18,830,000 GENERAL OBLIGATION REFUNDING BONDS, SERIES 2006 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 11Bonds11 ), pursuant to the provisions of the Ordinat:tce duly adopted by the City Council of the City on April26, 2006. Capitalized terms not otherwise defined in this opinion have the meanings assigned in the Purchase Contract. In my capacity as City Attorney to the City, I have reviewed such agreements, documents, certificates, opinions, letters, and other papers as I have deemed necessary or appropriate in rendering the opinions set forth below. In making my review, I have assumed the authenticity of all documents and agreements submitted to me as originals, conformity to the originals of all documents and agreements submitted to me as certified or photostatic copies, the authenticity of the originals of such latter documents and agreements, and the accuracy of the statement contained in such documents. Based upon the foregoing, and subject to the qualifications and exceptions hereinafter set forth, I am of the opinion that under the applicable laws of the United States of America and the State of Texas in force and effect on the date hereof: L Based on reasonable inquiry made of the responsible City employees and public officials, the City is not, to the best of my knowledge, in breach of or in default under any applicable law or administrative regulation of the State of Texas or the United States, or any applicable judgment or decree or any trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or 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, ) ... .J ' " 2. would constitute such a default by the City under any of the foregoing; and the execution and delivery of the Purchase Contract, the Bonds, the Escrow Agreement 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, the Escrow Agreement 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, Anita E. Burgess City Attorney THE STATE OF TEXAS • ~ V'JC'Utrtl€.( COUNTY OF LUBBOCK Before me Ashley C. McGaha day personally appeared Krlsts Ramlrar .. of the South·PROVIctNG FOil TMEF ___ ....;.;;.;.__....;.;. __ ...;;...._______ IS$\!,r.NCE Of" CITY 0 • • • LUBBOCK, l"EX.-.S, Corporatton, publishers of the Lubbock Avalanche-Journal -Momrng, and Sunday, who ~~~G~~fN~11ib~~~~ON >m SERIES*' IN .-.N AMOUNT did des pose and say that said newspaper has been cotinuously for more than fifty-two t ~~~J~~>ic:;,r 1~·000•000; ;t PAYMI51'<1" THEREOF; insertion of this Legal Notice ~riR~~rv~i~eocFv~ON No. printed copy of the &SCROW AGRI!I!MENT AIIO ______________ at Lubbock County, Te Mrf.:'fA~¥~~~:l~viNG' ld THE OFFICIAL -L_e...-.a_I_N_o_t_fc_e~--""is a true copy of the original an was J ~1.'/.~~J'JI~~~~~ !'ROVISIONS RELATJNG :k Avalanche.Joumal on the following dates: TtieRe,.o LUBBOCK AVALANCHE-JOURNAL Morris Communication Corporation Subscribed and sworn to before me this FORM 58-10 NOTARY PUBLIC In and for the State of Texas my commission Expires 8 -15~ J 0 ___ 3-"'-+\ __ dayof \