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Ordinance - 2008-O0003 - $52,900,000 City Of Lubbock, Texas Tax And Wastewater Surplus Revenue Certificat - 01/10/2008
Ordinance No. 2008-o0003 ORDINANCE relating to CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SER1ES2008 Adopted: January 10,2008 TABLE OF CONTENTS ARTICLE I DEFINITIONS AND OTHER PRELIM:INARY MATTERS Section 1.0 1. Definitions ................................................................................................................ 2 Section 1.02. Findings .................................................................................................................... 4 Section 1.03. Table of Contents, Titles, and Headings .................................................................. 5 Section 1.04. Interpretation ............................................................................................................ 5 ARTICLE II SECURITY FOR THE CERTIFICATES; INTEREST AND SINKlNG FUND; PRIOR LIEN OBLIGATIONS Section 2.01. Payment of the Certificates ...................................................................................... 5 Section 2.02. Interest and Sinking Fund ........................................................................................ 6 ARTICLE III AUTHORIZATION; GENERAL TERMS AND PROVISIONS REGARDING THE CERTIFICATES Section 3.01. Authorization ........................................................................................................... 6 Section 3.02. Date, Denomination, Maturities, and Interest.. ........................................................ ? Section 3.03. Medium, Method, and Place ofPayment. ................................................................ 7 Section 3.04. Execution and Registration of Certificates .............................................................. 8 Section 3.05. Ownership ................................................................................................................ 9 Section 3.06. Registration, Transfer, and Exchange ...................................................................... 9 Section 3. 07. Cancellation ........................................................................................................... 1 0 Section 3.08. Temporary Certificates .......................................................................................... 10 Section 3.09. Replacement Certificates ....................................................................................... 11 Section 3.1 0. Book-Entry-Only System ....................................................................................... 11 Section 3.11. Successor Securities Depository; Transfer Outside Book-Entry-Only System ..... 12 Section 3 .12. Payn1ents to Cede & Co ......................................................................................... 13 ARTICLEN REDEMPTION OF CERTIFICATES BEFORE MATURITY Section 4.01. Redemption ............................................................................................................ 13 Section 4.02. Optional Redemption ............................................................................................. l3 Section 4.03. Mandatory Sinking Fund Redemption ................................................................... 13 Section 4.04. Partial Redemption ................................................................................................. 14 Section 4.05. Notice of Redemption to Owners .......................................................................... 14 (i) Section 4.06. Payment Upon Redemption ................................................................................... 14 Section 4.07. Effect ofRedemption ............................................................................................. 15 Section 4.08. Lapse ofPayment ................................................................................................... 15 ARTICLEV PAYING AGENT !REGISTRAR Section S. 01. Appointment of Initial Paying Agent/Registrar ..................................................... 15 Section 5.02. Qualifications ......................................................................................................... 15 Section 5.03. Maintaining Paying Agent/Registrar ..................................................................... 15 Section 5.04. Tennination ............................................................................................................ 16 Section 5.05. Notice of Change to Owners .................................................................................. 16 Section 5.06. Agreement to Perform Duties and Functions ........................................................ .l6 Section 5.07. Delivery of Records to Successor .......................................................................... 16 ARTICLE VI FORM OF THE CERTIFICATES Section 6.01. Fonn Generally ...................................................................................................... 16 Section 6.02. Form of the Certificates ......................................................................................... 17 Section 6.03. CUSIP Registration ................................................................................................ 23 Section 6.04. Legal Opinion ........................................................................................................ 23 Section 6.05. Bond Insurance ...................................................................................................... 23 ARTICLE VII SALE AND DELIVERY OF CERTIFICATES; DEPOSIT OF PROCEEDS Section 7 .01. Sale of Certificates; Official Statement ................................................................. 23 Section 7.02. Control and Delivery ofCertificates ...................................................................... 24 Section 7.03. Deposit ofProceeds ............................................................................................... 25 ARTICLEVID INVESTMENTS Section 8.01. Investnlents ............................................................................................................ 25 Section 8.02. Investnlent Income ................................................................................................. 25 ARTICLE IX PARTICULAR REPRESENTATIONS AND COVENANTS Section 9.01. Payment ofthe Certificates .................................................................................... 26 Section 9.02. Other Representations and Covenants ................................................................... 26 Section 9.03. Provisions Concerning Federal Income Tax Exclusion ......................................... 26 (ii) Section 9.04. No Private Use or Payment and No Private Loan Financing ................................ .26 Section 9.05. No Federal Guaranty .............................................................................................. 27 Section 9.06. Certificates Are Not Hedge Bonds ........................................................................ 27 Section 9.07. No-Arbitrage Covenant .......................................................................................... 27 Section 9.08. Arbitrage Rebate .................................................................................................... 27 Section 9.09. Information Reporting ........................................................................................... 28 Section 9.10. Continuing Obligation ........................................................................................... 28 ARTICLE X DEFAULT AND REMEDIES Section 10.0 1. Events of Default ................................................................................................... 28 Section 1 0.02. Remedies for Default ............................................................................................. 28 Section 10.03. Remedies Not Exclusive ........................................................................................ 29 ARTICLE XI DISCHARGE Section 11.01. Discharge ............................................................................................................... 29 ARTICLE XII CONTINUING DISCLOSURE UNDERTAKING Section 12.01. Annual Reports ...................................................................................................... 29 Section 12.02. Material Event Notices .......................................................................................... 30 Section 12.03. Limitations, Disclaimers and Amendments ........................................................... 31 ARTICLE XIII AMENDMENTS; ATTORNEY GENERAL MODIFICATION Section 13.01. Amendments .......................................................................................................... 32 Section 13.02. Attorney General Modification .............................................................................. 32 ARTICLEXN EFFECTIVE IMMEDIATELY Section 14.01. Effective Immediately ............................................................................................ 33 Exhibit A -Description of Annual Disclosure of Financial Information ................................... A-1 Exhibit B -Sale Para.Dleters ......................................................................................................... B-1 (iii) AN ORDINANCE PROVIDING FOR THE ISSUANCE OF CITY OF LUBBOCK, TEXAS, TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION, SERIES 2008 IN AN AMOUNT NOT TO EXCEED $70,000,000; LEVYING A TAX AND PLEDGING SURPLUS WASTEWATER SYSTEM REVENUES IN PAYMENT THEREOF; APPROVING THE OFFICIAL STATEMENT; APPROVING EXECUTION OF A PURCHASE CONTRACT; AND ENACTING OTHER PROVISIONS RELATING THERETO WHEREAS, under the provisions of Subchapter C, Chapter 271, Texas Local Government Code, as amended, the City of Lubboc~ Texas (the "City"), after giving proper notice, is authorized to issue and sell for cash its certificates of obligation (herein defined as the "Certificates') that are secured by and payable from the ad valorem taxes and other revenues specified in Article IT of this Ordinance, and that are issued in the amount, for the purposes, and with the provisions set forth in Section 3.1 of this Ordinance; WHEREAS, pursuant to a resolution heretofore passed by the City Council, notice of intention to issue the Certificates was published in a newspaper of general circulation in the City in accordance with applicable law; WHEREAS, no petition has been filed with the City Secretary, any member of the City Council or any other official of the City, protesting the issuance of the Certificates; WHEREAS, the City Council is now authorized and empowered to proceed with the issuance and sale of the Certificates, and has found and determined that it is necessary and in the best interests of the City and its citizens that it authorize the issuance of the Certificates in accordance with the terms and provisions of this Ordinance at this time; WHEREAS, the City Council desires to delegate, pursuant to Chapter 1371, Texas Government Code, as amended, and the parameters of this Ordinance, to the Authorized Officer, the authority to approve the amount, the interest rate, the price and terms of the Certificates authorized hereby and to otherwise take such actions as are necessary and appropriate to effect the sale of the Certificates; WHEREAS, the meeting at which this Ordinance is considered is open to the public as required by law, and public notice of the time, place, and purpose of said meeting was given as required by Chapter 551, Texas Government Code, as amended; therefore, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK: ARTICLE I DEFINITIONS AND OTHER PRELIMINARY MATTERS Section 1.01. Definitions. Unless otherwise expressly provided or unless the context clearly requires otherwise in this Ordinance, the following terms shall have the meanings specified below: "Authorized Officer'' means each of the City Manager and the Chief Financial Officer and, if both are absent, the Director of Fiscal Policy and Strategic Planning. "Certificate" means any of the Certificates. "Certificate Date" means the date designated as the initial date of the Certificates by Section 3.02(a) of this Ordinance. "Certificate Purchase Contract" means the purchase contract approved in Section 7.0l(b) of this Ordinance. "Certificates" means the certificates of obligation authorized to be issued by Section 3.01 of this Ordinance and designated as "City of Lubbock, Texas, Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008." "City" means the City of Lubbock, Texas. "Closing Date" means the date of the initial delivery of and payment for the Certificates. "Code" means the Internal Revenue Code of 1986, as amended, including applicable regulations, published rulings, and court decisions. "Designated Payment/Transfer Office" means (i) with respect to the initial Paying Agent/Registrar named in this Ordinance, the Designated Payment/Transfer Office as designated in the Paying Agent/Registrar Agreement, or at such other location designated by the Paying Agent/Registrar and (ii) with respect to any successor Paying Agent/Registrar, the office of such successor designated and located as may be agreed upon by the City and such successor. "DTC" means The Depository Trust Company of New York, New York, or any successor securities depository. "DTC Participant.. means brokers and dealers, banks, trust companies, clearing corporations and certain other organizations on whose behalf DTC was created to hold securities to facilitate the clearance and settlement of securities transactions among DTC Participants. "Event of Default" means any event of default as defined in Section 10.1 of this Ordinance. -2 - ''Fiscal Year" means such fiscal year as shall from time to time be set by the City Council "Gross Revenues" means, with respect to any period, all income, revenues and receipts received from the operation and ownership of the System. "Initial Certificate" means the initial certificate authorized by Section 3.04 of this Ordinance. "Interest and Sinking Fund" means the interest and sinking fund established by Section 2.02 of this Ordinance. "Interest Payment Date" means the date or dates on which interest on the Certificates 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 information repository within the meaning of the Rule from time to time. "Net Revenues" means the Gross Revenues of the System, with respect to any period, after deducting the System's Operating and Maintenance Expenses during such period. "Operating and Maintenance Expenses" means all reasonable and necessary expenses directly related and attributable to the operation and maintenance of the System, including, but not limited to, the costs of insurance, the purchase and carrying of stores, materials, and supplies, the payment of salaries and labor, and other expends reasonably and properly charged, under generally accepted accounting principles, to the operation and maintenance of the System or by statute deemed to be a first lien against the Gross Revenues. Depreciation charges on equipment, machinery, plants and other facilities comprising the System and expenditures classed under generally accepted accounting principles as capital expenditures shall not be considered as "Operating and Maintenance Expenses" for purposes of detennining "Net Revenues.'' "Owner" means the person who is the registered owner of a Certificate or Certificates, as shown in the Register. "Paying Agent/Registrar'' means initially The Bank of New York Trust Company, National Association, or any successor thereto as provided in this Ordinance. "Pricing Certificate" means a certificate or certificates to be signed by the Authorized Officer. "Prior Lien Obligations" means all bonds or other similar obligations of the City presently outstanding or that may be hereafter issued, payable in whole or in part from and secured by a first lien on and pledge of the Net Revenues of the System or by a lien on and ~ 3- pledge of the Net Revenues subordinate to a first lien on and pledge of the Net Revenues but superior to the lien on and pledge of the Surplus Revenues made for the Certificates. "Project" means the purposes for which the Certificates are issued as set forth in Section 3.1. "Record Date" means the last business day of the month next preceding an Interest Payment Date. "Register'' means the Register specified in Section 3.06(a) of this Ordinance. "Representations Letter'' means the Blanket Letter of Representations between the City andDTC. ''Representative" means Morgan Keegan & Co., Inc., as representative for the Underwriters. "Rule" means SEC Rule 15c2-12, as amended from time to time. "SEC" means the United States Securities and Exchange Commission. ''SID" means any person designated by the State of Texas or an authorized department, office or agency thereof, as and determined by the SEC or its staff to be a state information depository within the meaning of the Rule from time to time. "Surplus Revenues" means the Net Revenues of the System in an amount not to exceed $1,000 remaining after payment of all debt service, reserve and other requirements in connection with the City's Prior Lien Obligations. "System" means the City's Wastewater System being all properties, facilities and plants currently owned, operated and maintained by the City for the supply, treatment, transmission and distribution of treated, potable water, together with all future extensions, improvements, replacements and additions thereto. ''Term Certificates" has the meaning set forth in Section 4.03 hereof. ''Unclaimed Payments" means money deposited with the Paying Agent/Registrar for the payment of principal of or interest on the Certificates as the same come due and payable and remaining unclaimed by the Owners of such Certificates after the applicable payment or redemption date. ''Underwriters" means the Underwriters named in the Certificate Purchase Contract. Section 1.02. 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. -4- Section 1.03. Table of Contents, Titles. and Headings. The table of contents, titles and headings of the Articles and Sections of this Ordinance have been inserted for convenience of reference only and are not to be considered a part hereof and shall not in any way modify or restrict any of the terms or provisions hereof and shall never be considered or given any effect in construing this Ordinance or any provision hereof or in ascertaining intent, if any question of intent should arise. Section 1.04. 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 versa, and words of the singular number shall be construed to include correlative words of the plural number and vice versa. (b) This Ordinance and all the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein. ARTICLE II SECURITY FOR THE CERTIFICATES; INTEREST AND SINKING FUND; PRIOR LIEN OBLIGATIONS Section 2.01. Payment of the Certificates. (a) Pursuant to the authority granted by the Texas Constitution and laws of the State of Texas, there shall be levied and there is hereby levied for the current year and for each succeeding year thereafter while any of the Certificates or any interest thereon is outstanding and unpaid, an ad valorem tax on each one hundred dollars valuation of taxable property within the City, at a rate sufficient, within the limit prescn'bed by law, to pay the debt service requirements of the Certificates, being (i) the interest on the Certificates, and (ii) a sinking fund for their redemption at maturity or a sinking fund of two percent per annum (whichever amount is the greater), when due and payable, full allowance being made for delinquencies and costs of collection. (b) The ad valorem tax thus levied shall be assessed and collected each year against all property appearing on the tax rolls of the City most recently approved in accordance with law, and the money thus collected shall be deposited as collected to the Interest and Sinking Fund. (c) Said ad valorem tax, the collections therefrom, and all amounts on deposit in or required hereby to be deposited to the Interest and Sinking Fund are hereby pledged and committed irrevocably to the payment of the principal of and interest on the Certificates when and as due and payable in accordance with their terms and this Ordinance. (d) The City hereby covenants and agrees that the Surplus Revenues are hereby irrevocably pledged equally and ratably to the payment of the principal of and interest on the Certificates. The City reserves the right to issue Prior Lien Obligations for any lawful purpose, at any time, in one or more installments. -5- (e) The amount of taxes to be assessed annually for the payment of debt service on the Certificates shall be detennined in the following manner: (i) The City's annual budget shall reflect (A) the amount of debt service requirements to become due on the Certificates in the next ensuing Fiscal Year and (B) the amount on deposit in the Interest and Sinking Fund on the date such budget is approved. (ii) The amount required to be provided in the next succeeding Fiscal Year from ad valorem taxes shall be the amount, if any, that the debt service requirements on the Certificates to be paid during the next Fiscal Year exceeds the amoWlt then on deposit in the Interest and Sinking Fund. (iii) Following approval of the City's annual budget, the City Council shall, by ordinance, establish a tax rate that is sufficient to produce taxes in an amoWlt which, when added to the amount then on deposit in the Interest and Sinking Fund, will be sufficient to pay debt service on the Certificates when due during the next Fiscal Year. (f) If the liens and provisions of this Ordinance shall be released in a manner permitted by Article XI hereof, then the collection of such ad valorem tax may be suspended or appropriately reduced, as the facts may permit, and further deposits to the Interest and Sinking Fund may be suspended or appropriately reduced, as the facts may permit. In determining the aggregate principal amount of outstanding Certificates, there shall be subtracted the amount of any Certificates that have been duly called for redemption and for which money has been deposited with the Paying Agent/Registrar for such redemption. Section 2.02. Interest and Sinking Fund. (a) The City hereby establishes a special fund or account to be designated the "City of Lubbock, Texas, Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008, Interest and Sinking Fund., (the "Interest and Sinking Fund"), said fund to be maintained at an official depository bank of the City separate and apart from all other funds and accounts of the City. (b) Money on deposit in or required by this Ordinance to be deposited to the Interest and Sinking Fund shall be used solely for the purpose of paying the interest on and principal of the Certificates when and as due and payable in accordance with their terms and this Ordinance. ARTICLE ill AUTHORIZATION; GENERAL TERMS AND PROVISIONS REGARDING THE CERTIFICATES Section 3.01. Authorization. The City's certificates of obligation to be designated "City of Lubbock, Texas, Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008" (the "Certificates''), are hereby authorized to be issued and delivered in accordance with the -6- Constitution and laws of the State of Texas, specifically Subchapter C, Chapter 271, Texas Local Government Code, as amended, Chapter 1371, Texas Government Code, as amended, and Article Vlll of the City's Home-Rule Charter. The Certificates shall be issued in the aggregate principal amount designated in the Pricing Certificate, such amount not to exceed $70,000,000, for the purpose of paying contractual obligations to be incurred for the following purposes, to wit: (i) improvements and extensions to the City's Wastewater System, including plant improvements to the Southeast Water Reclamation Plant (SEWRP) (the ''Projecf') and (ii) payment of professional services of attorneys, financial advisors and other professionals in connection with the Project and the issuance of the Certificates. Section 3.02. Date. Denomination. Maturities., and Interest. (a) The Certificates shall be dated the date set forth in the Pricing Certificate (the "Certificate Date"). The Certificates 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 Certificate, which shall be numbered T -1. (b) The Certificates 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 Certificates shall not exceed forty years. (c) Interest shall accrue and be paid on each Certificate respectively until its maturity or prior redemption, from the later of the Certificate 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 on each Interest Payment Date until maturity or prior redemption. Interest on the Certificates 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 3.03. Medium. Method. and Place ofPayment. (a) The principal of and interest on the Certificates shall be paid in lawful money of the United States of America. (b) Interest on the Certificates shall be payable to the Owners as shown in the Register at the close ofbusiness 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; provided, however, that the Owner shall bear all risk and expense of such alternative banking arrangement. At the option of an Owner of at least $1,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. (d) The principal of each Certificate 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 -7- surrender of such Certificate at the Designated Payment/Transfer Office of the Paying Agent/Registrar. (e) If the date for the payment of the principal of or interest on the Certificates 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 3.02 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 Certificates 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 Certificates thereafter coming due; to the extent any such moneys remain three years after the retirement of all outstanding Certificates, 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 Certificates for any further payment of such unclaimed moneys or on account of any such Certificates, subject to Title 6 of the Texas Property Code. Section 3.04. Execution and Registration of Certificates. (a) The Certificates 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 Certificates shall have the same effect as if each of the Certificates had been signed manually and in person by each of said officers, and such facsimile seal on the Certificates shall have the same effect as if the official seal of the City had been manually impressed upon each of the Certificates. (b) In the event that any officer of the City whose manual or facsimile signature appears on the Certificates ceases to be such officer before the authentication of such Certificates 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 Certificate 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 du1y 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 Certificates. In lieu of the executed Certificate of Paying Agent/Registrar described above, the Initial Certificate delivered at the Closing Date shall have attached thereto the Comptroller's Registration Certificate substantially in the form provided herein, manually executed by the -8- Comptroller of Public Accounts of the State of Texas, or by his duly authorized agent, which Certificate shall be evidence that the Certificate 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 Certificate reflecting the terms set forth in the Pricing Certificate and representing the entire principal amount of all Certificates, payable in stated installments to the Representative, or its designee, executed by the Mayor and City Secretary of the City by their manual or facsimile signatures, approved by the Attorney General, and registered and manually signed by the Comptroller of Public Accounts, will be delivered to the Representative or its designee. Upon payment for the Initial Certificate, the Paying Agent/Registrar shall cancel the Initial Certificate and deliver a single registered, definitive Certificate for each maturity, in the aggregate principal amount thereof, to DTC on behalf of the Underwriters. Section 3.05. Ownership. (a) The City, the Paying Agent/Registrar, and any other person may treat the person in whose name any Certificate is registered as the absolute owner of such Certificate for the purpose of making and receiving payment as herein provided (except interest shall be paid to the person in whose name such Certificate is registered on the Record Date), and for all other purposes, whether or not such Certificate is overdue, and neither the City nor the Paying Agent/Registrar shall be bound by any notice or knowledge to the contrary. (b) All payments made to the Owner of a Certificate shall be valid and effectual and shall discharge the liability of the City and the Paying Agent/Registrar upon such Certificate to the extent of the sums paid. Section 3.06. Registration. Transfer. and Exchange. (a) So long as any Certificates remain outstanding, the City shall cause the Paying Agent/Registrar to keep at the Designated Payment/Transfer 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 Certificates in accordance with this Ordinance. (b) The ownership of a Certificate may be transferred only upon the presentation and surrender of the Certificate at the Designated Payment/Transfer Office of the Paying Agent/Registrar with such endorsement or other evidence of transfer as is acceptable to the Paying Agent/Registrar. No transfer of any Certificate shall be effective until entered in the Register. (c) The Certificates shall be exchangeable upon the presentation and surrender thereof at the Designated Payment/Transfer Office of the Paying Agent/Registrar for a Certificate or Certificates 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 Certificates presented for exchange. The Paying Agent/Registrar is hereby authorized to authenticate and deliver Certificates exchanged for other Certificates in accordance with this Section. -9- (d) Each exchange Certificate 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 Certificate or Certificates in lieu of which such exchange Certificate 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 Certificates. 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 cormection with the registration, transfer, or exchange of a Certificate. (f) Neither the City nor the Paying Agent/Registrar shall be required to issue, transfer, or exchange any Certificate 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 ofthe uncalled principal balance of a Certificate. Section 3.07. Cancellation. All Certificates paid or redeemed before scheduled maturity in accordance with this Ordinance, and all Certificates in lieu of which exchange Certificates or replacement Certificates 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 Certificates to the City or may in accordance with law destroy such cancelled Certificates and periodically furnish the City with certificates of destruction of such Certificates. Section 3.08. Temporary Certificates. (a) Following the delivery and registration of the hritial Certificate and pending the preparation of definitive Certificates, the City may execute and, upon the City's request, the Paying Agent/Registrar shall authenticate and deliver, one or more temporary Certificates that are printed, lithographed, typewritten, mimeographed, or otherwise produced, in any denomination, substantially of the tenor of the definitive Certificates 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 Certificates may determine, as evidenced by their signing of such temporary Certificates. (b) Until exchanged for Certificates in definitive form, such Certificates 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 surrender of the Certificate or Certificates in temporary form to the Paying Agent/Registrar, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor a Certificate or Certificates of the same maturity and series, in definitive form, in the authorized denomination, and in the same aggregate principal amount, as the Certificate or Certificates in temporary form surrendered. Such exchange shall be made without the making of any charge therefor to any Owner . • 10- Section 3.09. Replacement Certificates. (a) Upon the presentation and surrender to the Paying Agent/Registrar of a mutilated Certificate, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor a replacement Certificate 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 Certificate 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 Certificate 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 Certificate has been acquired by a bona fide purchaser, shall authenticate and deliver a replacement Certificate 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 satisfactory evidence of his or her ownership of and the circwnstances of the loss, destruction, or theft of such Certificate; (ii) furnishes such security or indemnity as may be required by the Paying Agent/Registrar to save it and the City hannless; (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 Certificate, a bona fide purchaser of the original Certificate in lieu of which such replacement Certificate was issued presents for payment such original Certificate, the City and the Paying Agent/Registrar shall be entitled to recover such replacement Certificate 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 Certificate has become or is about to become due and payable, the Paying Agent/Registrar, in its discretion, instead of issuing a replacement Certificate, may pay such Certificate when it becomes due and payable. (e) Each replacement Certificate 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 Certificate or Certificates in lieu of which such replacement Certificate is delivered. Section 3.10. Book-Entry-Only System. -11- (a) Notwithstanding any other prOVISIOn hereof, upon initial issuance of the Certificates, the Certificates shall be registered in the name of Cede & Co., as nominee of DTC. The definitive Certificates shall be initially issued in the form of a single separate certificate for each of the maturities thereof. (b) With respect to Certificates registered in the name of Cede & Co., as nominee of DTC, the City and the Paying Agent/Registrar shall have no responsibility or obligation to any DTC Participant or to any person on behalf of whom such a DTC Participant holds an interest in the Certificates. 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 Certificates, (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 Certificates, 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 or interest on the Certificates. 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 Certificate is registered in the Register as the absolute owner of such Certificate for the purpose of payment of principal of and interest on Certificates, for the purpose of giving notices of redemption and other matters with respect to such Certificate, for the purpose of registering transfer with respect to such Certificate, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of and interest on the Certificates 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 interest on the Certificates to the extent of the sum or sums so paid. No person other than an Owner, as shown in the Register, shall receive a certificate evidencing the obligation of the City to make payments of amounts due pursuant to this Ordinance. Upon delivery by DTC to the Paying Agent/Registrar of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., the word "Cede & Co." in this Ordinance shall refer to such new nominee of DTC. (c) The Representations Letter previously executed and delivered by the City, and applicable to the City's obligations delivered in book-entry-only form to DTC as securities depository, is hereby ratified and approved for the Certificates. Section 3.11. Successor Securities De.pository; Transfer Outside Book-Entry-Only System. In the event that the City determines that it is in the best interest of the City and the beneficial owners of the Certificates that they be able to obtain certificated Certificates, 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 Certificates to such successor securities depository; or (ii) notify DTC and DTC Participants of the availability through DTC of certificated Certificates and cause the Paying Agent/Registrar to transfer one or more separate -12- registered Certificates to DTC Participants having Certificates credited to their DTC accounts. In such event, the Certificates 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 transferring or exchanging Certificates shall designate, in accordance with the provisions of this Ordinance. Section 3.12. Payments to Cede & Co. Notwithstanding any other provision of this Ordinance to the contrary, so long as the Certificates are registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of and interest on such Certificates, and all notices with respect to such Certificates shall be made and given, respectively, in the manner provided in the Representations Letter of the City to DTC. ARTICLE IV REDEMPTION OF CERTIFICATES BEFORE MATURITY Section 4.0 1. Redemption. The Certificates are subject to redemption before their scheduled maturity only as provided in this Article IV. Section 4.02. Optional Redemption. (a) The City reserves the option to redeem Certificates in the manner provided in the Form of Certificate set forth in Section 6.02 of this Ordinance with such changes as are required by the Pricing Certificate. (b) If less than all of the Certificates are to be redeemed pursuant to an optional redemption, the City shall determine the maturity or maturities and the amounts thereof to be redeemed and shall direct the Paying Agent/Registrar to call by lot the Certificates, or portions thereof, within such maturity or maturities and in such principal amounts for redemption. (c) The City, at least 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 Certificates to be redeemed. Section 4.03. Mandatory Sinking Fund Redemption. (a) Certificates designated as "Term Certificates," 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 pwpose in the Interest and Sinking Fund, on the dates and in the respective principal amounts as set forth in the Pricing Certificate. (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 -13- that results in a random selection, a principal amount of Term Certificates equal to the aggregate principal amount of such Term Certificates to be redeemed, shall call such Term Certificates for redemption on such scheduled mandatory redemption date, and shall give notice of such redemption, as provided in Section 4.05. The principal amount of the Term Certificates required to be redeemed on any redemption date pursuant to subparagraph (a) of this Section 4.03 shall be reduced, at the option of the City, by the principal amount of any Term Certificates 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 Certificates 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. Section 4.04. Partial Redemption. (a) A portion of a single Certificate 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 Certificate is to be partially redeemed, the Paying Agent/Registrar shall treat each $5,000 portion of the Certificate as though it were a single Certificate for purposes of selection for redemption. (b) Upon surrender of any Certificate for redemption in part, the Paying Agent/Registrar, in accordance with Section 3.06 of this Ordinance, shall authenticate and deliver an exchange Certificate or Certificates in an aggregate principal amount equal to the unredeemed portion of the Certificate 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 Certificate as to which only a portion thereof is to be redeemed. Section 4.05. Notice of Redemption to Owners. (a) The Paying Agent/Registrar shall give notice of any redemption of Certificates by sending notice by United States mail, first class postage prepaid, not less than 30 days before the date fixed for redemption, to the Owner of each Certificate (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 Certificates are to be surrendered for payment, and, if less than all the Certificates outstanding are to be redeemed, an identification of the Certificates or portions thereof to be redeemed. (c) Any notice given as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Owner receives such notice. Section 4.06. Payment Upon Redemption. -14- (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 Certificates 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 Certificates being redeemed. (b) Upon presentation and surrender of any Certificate called for redemption at the Designated Payment/Transfer Office on or after the date fixed for redemption, the Paying Agent/Registrar shall pay the principal of and accrued interest on such Certificate to the date of redemption from the money set aside for such purpose. Section 4.07. Effect of Redemption. (a) Notice of redemption having been given as provided in Section 4.05 of this Ordinance, the Certificates 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 Certificates or portions thereof shall cease to bear interest from and after the date fixed for redemption, whether or not such Certificates 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 Certificate or portion thereof called for redemption shall continue to bear interest at the rate stated on the Certificate until due provision is made for the payment of same by the City. Section 4.08. Lapse of Payment. Money set aside for the redemption of Certificates and remaining unclaimed by the Owners of such Certificates shall be subject to the provisions of Section 3.03(t) hereof. ARTICLEV PAYING AGENT/REGISTRAR Section 5.01. Appointment of Initial Paying Agent/Registrar. The Bank of New York Trust Company, National Association, is hereby appointed as the initial Paying Agent/Registrar for the Certificates. Section 5.02. Qualifications. Each Paying Agent/Registrar shall be a conunercial 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 perform the duties and services of paying agent and registrar for the Certificates. Section 5.03. Maintaining Paying Agent/Registrar. -15- (a) At all times while any of the Certificates are outstanding, the City will maintain a Paying Agent/Registrar that is qualified under Section 5.02 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 fonn 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 5.04. 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 5.05. 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 5.06. 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 5.07. 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 Certificates to the successor Paying Agent/Registrar. ARTICLE VI FORM OF THE CERTIFICATES Section 6.01. Form Generally. (a) The Certificates, including the Registration Certificate of the Comptroller of Public Accounts of the State of Texas, the Certificate of the Paying Agent/Registrar, and the Assignment form to appear on each of the Certificates, (i) shall be substantially in the fonn set forth in this Article, with such appropriate insertions, omissions, substitutions, and other variations as are permitted or required by this Ordinance and the Pricing Certificate, and (ii) may have such letters, numbers, or other marks of identification (including identifying numbers and -16- letters of the Committee on Uniform Securities Identification Procedures of the American Bankers Association) and such legends and endorsements (including any reproduction of an opinion of counsel) thereon as, consistently herewith, may be determined by the City or by the officers executing such Certificates, as evidenced by their execution thereof (b) Any portion of the text of any Certificates may be set forth on the reverse side thereof, with an appropriate reference thereto on the face of the Certificates. (c) The definitive Certificates, 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 Certificates, as evidenced by their execution thereof (d) The Initial Certificate submitted to the Attorney General of the State of Texas may be typewritten and photocopied or otherwise reproduced. Section 6.02. Form of the Certificates. The form of the Certificates, 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 Certificates, shall be substantially as follows: (a) Form of Certificate. REGISTERED No. United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 REGISTERED $ __ _ INTEREST RATE: MATURITY DATE: CERTIFICATE 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 1 Information to be inserted from Pricing Certificate. -17- or registered assigns, on the Maturity Date specified above, the sum of _________ DOLLARS unless this Certificate shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Certificate 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 Certificate shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Certificate at the corporate trust office in Dallas, Texas (the "Designated Payment/Transfer Office''), of The Bank of New York Trust Company, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office of such successor. Interest on this Certificate 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. At the option of an Owner of at least $1,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Certificate, the registered owner shall be the person in whose name this Certificate 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 Certificate 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 Certificate is one of a series of fully registered certificates specified in the title hereof issued in the aggregate principal amount of $ 3 (herein referred to as the "Certificates"), issued pursuant to a certain ordinance of the City (the "Ordinance~') for the purpose of paying contractual obligations to be incurred for authorized public improvements (collectively, the "Project"), as described in the Ordinance, and to pay the contractual obligations 2 Information to be inserted from Pricing Certificate. 3 Information to be inserted from Pricing Certificate. -18- for professional services of attorneys, financial advisors and other professionals in connection with the Project and the issuance of the Certificates. (The City has reserved the option to redeem the Certificates maturing on or after February 15 in whole or in part, before their respective scheduled maturity dates, on ---~or on any date thereafter, at a price equal to the principal amount of the Certificates so called for redemption plus accrued interest to the date fixed for redemption. If less than all of the Certi.ficates are to be redeemed, the City shall determine the maturity or maturities and the amounts thereofto be redeemed and shall direct the Paying Agent/Registrar to call by lot or other customary method that results in a random selection the Certificates, or portions thereof, within such maturity and in such principal amounts, for redemption. t [Certificates maturing on February 15 in each of the years __ through _, inclusive (the ''Term Certificates"), 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 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 Certificates (or with respect to Term Certificates having a denomination in excess of $5,000, each $5,000 portion thereof) to be redeemed by mandatory redemption. The principal amount of Term Certificates 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 Certificates 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 Certificates 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 first class mail, postage prepaid, not less than 30 days before the date fixed for redemption, to the registered owner of each of the Certificates to be redeemed in whole or in part. Notice having been so given, the Certificates 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 Certificates or portions thereof so called for redemption shall not have been surrendered for payment, interest on such Certificates or portions thereof shall cease to accrue. 4 Insert optional redemption provisions, if any, and revise as necessary to conform to the Pricing Certificate. s Insert mandatory sinking fund redemption provisions, if any, and conform as necessary to the Pricing Certificate. -19- As provided in the Ordinance, and subject to certain limitations therein set fo~ this Certificate is transferable upon surrender of this Certificate 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 Certificates of the same stated maturity, of authorized denominations, bearing the same rate of interest, and for the same aggregate principal amount will be issued to the designated transferee or transferees. Neither the City nor the Paying Agent/Registrar shall be required to issue, transfer or exchange any Certificate called for redemption where such redemption is scheduled to occur within forty-five (45) calendar days of the transfer or exchange date; provided, however, such limitation shall not be applicable to an exchange by the registered owner of the uncalled principal balance of a Certificate. The City, the Paying Agent/Registrar, and any other person may treat the person in whose name this Certificate 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 Certificate is registered on the Record Date) and for all other purposes, whether or not this Certificate 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 Certificate and the series of which it is a part is duly authorized by law; that all acts, conditions, and things to be done precedent to and in the issuance of the Certificates 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 Certificates within the limit prescribed by law; that, in addition to said taxes, further provisions have been made for the payment of the debt service requirements of the Certificates by pledging to such purpose Surplus Revenues, as defined in the Ordinance, derived by the City from the operation of the Wastewater System in an amount limited to $1,000; that when so collected, such taxes and Surplus Revenues shall be appropriated to such purposes; and that the total indebtedness of the City, including the Certificates, does not exceed any constitutional or statutory limitation. IN WITNESS WHEREOF, the City has caused this Certificate 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 Certificate. Mayor, City of Lubbock, Texas City Secretary, City of Lubbock, Texas [SEAL] -20- (b) Fonn of Comptroller's Registration Certificate. The following Comptroller's Registration Certificate may be deleted from the definitive Certificates if such certificate on the Initial Certificate 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 Certificate has been examined by him as required by law, that he flnds 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 Certificate 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 of Texas (c) Fonn of Certificate of Paying Agent/Registrar. The following Certificate of Paying Agent/Registrar may be deleted from the Initial Certificate if the Comptroller's Registration Certificate appears thereon. CERTlFICA TE OF PAYING AGENT/REGISTRAR The records of the Paying Agent/Registrar show that the Initial Certificate of this series of Certificates 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 Certificates referred to in the within-mentioned Ordinance. Dated: The Bank of New York Trust Company, National Association as Paying Agent/Registrar By: --------------------------Authorized Signatory -21- (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 Certificate and all rights hereunder and hereby irrevocably constitutes and appoints ________ attorney to transfer the within Certificate 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 Certificate in every particular and must be guaranteed in a manner acceptable to the Paying Agent/Registrar. Signature Guaranteed By: Authorized Signatory (e) The Initial Certificate shall be in the fonn set forth in paragraphs (a), (b) and (d) of this Section, except for the following alterations: (i) immediately under the name of the Certificate the headings "INTEREST RATE" and "MATURITY DATE" shall both be completed with the words "As shown below"; and (ii) in the first paragraph of the Certificate, 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 (Infonnation to be inserted from the Pricing Certificate pursuant to Section 3.02 of this Ordinance) -22- Section 6.03. 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 fac.e of the Certificates. It is expressly provided, however, that the presence or absence of CUSIP numbers on the Certificates shall be of no significance or effect in regard to the legality thereof and neither the City nor the attorneys approving said Certificates as to legality are to be held responsible for CUSIP numbers incorrectly printed on the Certificates. Section 6.04. Legal Opinion. The approving legal opinion of Vinson & Elkins L.L.P., Bond Counsel, may be attached to or printed on the reverse side of each Certificate over the certification of the City Secretary of the City, which may be executed in facsimile. Section 6.05. Bond Insurance. Information pertaining to bond insurance, if any, may be printed on each Certificate. ARTICLE VII SALE AND DELNERY OF CERTIFICATES; DEPOSIT OF PROCEEDS Section 7.0 1. Sale of Certificates; Official Statement. (a) The Certificates shall be sold at negotiated sale to the Underwriters in accordance with the terms of this Ordinance, including this Section 7.0l(a) and Exhibit B hereto, provided that all of the conditions set forth in Exhibit B can be satisfied. As authorized by Chapter 1371, Texas Govenunent Code, as amended, the Authorized 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 Certificates and carrying out the other procedures specified in this Ordinance, including determining whether to acquire bond insurance for the Certificates, the aggregate principal amount of the Certificates and price at which each of the Certificates will be sold, the number and designation of series of Certificates to be issued, the form in which the Certificates shall be issued, the years in which the Certificates 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 Certificates 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 Certificates, all of which shall be specified in the Pricing Certificate. The authority granted to the Authorized Officer under this Section 7.0l(a) shall expire at 5:00p.m., July I 0, 2008, unless otherwise extended by the City Council by separate action. Any finding or determination made by the Authorized Officer relating to the issuance and sale of the Certificates and the execution of the Certificate Purchase Contract in connection -23- therewith shall have the same force and effect as a finding or determination made by the City Council. (b) The Authorized Officer is hereby authorized and directed to execute and deliver, and the City Secretary is hereby authorized and directed to attest, a certificate purchase contract (the "Certificate Purchase Contract'') which Certificate Purchase Contract is hereby accepted, approved and authorized in substantially the fonn submitted to the City and upon completion of the terms of the Certificate Purchase Contract in accordance with the terms of the Pricing Certificate and this Ordinance, the Authorized Officer is authorized and directed to execute such Certificate Purchase Contract on behalf of the City and the Authorized 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 Certificates. The Certificates shall initially be registered in the name the Representative. (c) The fonn and substance of the Preliminary Official Statement and any addenda, supplement or amendment thereto, are hereby in all respects approved and adopted and is hereby deemed final as of its date within the meaning and for the purposes of paragraph (b )(1) of Rule 15c2-12 under the Securities Exchange Act of 1934, as amended. The Authorized· Officer and City Secretary are hereby authorized and directed to cause to be prepared a final Official Statement (the "Official Statement") incorporating applicable pricing information pertaining to the Certificates, and to execute the same by manual or facsimile signature and deliver appropriate numbers of executed copies thereof to the Underwriters. The Official Statement as thus approved, executed and delivered, with such appropriate variations as shall be approved by the Authorized Officer and the Underwriters, may be used by the Underwriters in the public offering and sale thereof. The City Secretary is hereby authorized and directed to include and maintain a copy of the Official Statement and any addenda, supplement or amendment thereto thus approved among the permanent records of this meeting. The use and distribution of the Preliminary Official Statement, and the preliminary public offering of the Certificates by the Underwriters, is hereby ratified, approved and confirmed. (d) All officers of the City are authorized to execute such documents, certificates and receipts as they may deem appropriate in order to consummate the delivery of the Certificates in accordance with the terms of sale therefor including, without limitation, the Purchase Contract (e) The obligation of the Underwriters identified in subsection (a) of this Section to accept delivery of the Certificates is subject to the Underwriters being furnished with the final, approving opinion of Vinson & Elkins L.L.P., bond counsel for the City, which opinion shall be dated and delivered the Closing Date. Section 7 .02. Control and Delivery of Certificates. (a) The Authorized Officer of the City is hereby authorized to have control of the Initial Certificate 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. -24- (b) After registration by the Comptroller of Public Accounts, delivery of the Certificates shall be made to the Underwriters thereof under and subject to the general supervision and direction of the Authorized Officer, against receipt by the City of all amounts due to the City under the terms of sale. (c) In the event the Mayor or City Secretary is absent or otherwise unable to execute any document or take any action authorized herein, the Mayor Pro Tem and the Assistant City Secretary, respectively, shall be authorized to execute such documents and take such actions, and the performance of such duties by the Mayor Pro Tern and the Assistant City Secretary shall for the purposes of this Ordinance have the same force and effect as if such duties were performed by the Mayor and City Secretary, respectively. Section 7.03. Deposit ofProceeds. (a) First: All amounts received on the Closing Date as accrued interest on the Certificates from the Certificate Date to the Closing Date shall be deposited to the Interest and Sinking Fund. (b) Second: The remaining balance received on the Closing Date shall be deposited to a special account of the City, such moneys to be dedicated and used solely for the remaining purposes for which the Certificates are being issued as herein provided. ARTICLEVID INVEST.MENTS Section 8.01. 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. (b) Any securities or obligations in which such money is so invested shall be kept and held in trust for the benefit of the Owners and shall be sold and the proceeds of sale shall be timely applied to the making of all payments required to be made from the fund from which the investment was made. Section 8.02. Investment Income. (a) Interest and income derived from investment of the Interest and Sinking Fund shall be credited to such fund. (b) Interest and income derived from investment of the funds to be deposited pursuant to Section 7 .03(b) hereof shall be credited to the account where deposited until the acquisition or construction of said projects is completed or shall be transferred to the Interest and Sinking Fund as shall be determined by the City Council. Upon completion of the authorized projects, to the extent such interest and income are present, such interest and income shall be deposited to the Interest and Sinking Fund. -25- ARTICLE IX PARTICULAR REPRESENTATIONS AND COVENANTS Section 9.01. Payment of the Certificates. On or before each Interest Payment Date while any of the Certificates 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 principal of and interest on the Certificates as will accrue or mature on the applicable Interest Payment Date or date of prior redemption. Section 9.02. Other Representations and Covenants. (a) The City will faithfully perform, at all times, any and all covenants, undertakings, stipulations, and provisions contained in this Ordinance; the City will promptly pay or cause to be paid the principal of and interest on each Certificate on the dates and at the places and manner prescribed in such Certificate; 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 Certificates; all action on its part for the creation and issuance of the Certificates has been duly and effectively taken; and the Certificates in the hands of the Owners thereof are and will be valid and enforceable obligations of the City in accordance with their terms. Section 9.03. Provisions Concerning Federal Income Tax Exclusion. The City intends that the interest on the Certificates 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 Certificates to be includable in the gross income, as defined in section 61 of the Code, of the holders thereof for purposes of federal income taxation. In particular, the City covenants and agrees to comply with each requirement of Sections 9.03 through 9.9 of this Article IX; provided, however, that the City shall not be required to comply with any particular requirement of Sections 9.03 through 9.09 of this Article IX if the City has received an opinion of nationally recognized bond counsel ("Counsel's Opinion") that such noncompliance will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Certificates or if the City has received a Counsel's Opinion to the effect that compliance with some other requirement set forth in Sections 9.03 through 9.09 of this Article IX will satisfy the applicable requirements of the Code, in which case compliance with such other requirement specified in such Counsel's Opinion shall constitute compliance with the corresponding requirement specified in Sections 9.03 through 9.09 of this Article IX. Section 9.04. 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 -26- Certificates are delivered, the proceeds of the Certificates will not be used in a manner that would cause the Certificates 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 Certificates, including interest or other investment income derived from Certificate 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 Certificates will not be ''private activity bonds" within the meaning of section 141 of the Code and the Regulations. Section 9.05. No Federal Guaranty. The City covenants and agrees not to take any action, or lmowingly omit to take any action within its control, that, if taken or omitted, respectively, would cause the Certificates to be "federally guaranteed" within the meaning of section 149(b) of the Code and the Regulations, except as pennitted by section 149(b)(3) of the Code and the Regulations. Section 9.06. Certificates Are Not Hedge Bonds. The City covenants and agrees not to take any action, or knowingly omit to take any action, and has not lmowingly omitted and will not knowingly omit to take any action, within its control, that, if taken or omitted, respectively, would cause the Certificates to be ''hedge bonds" within the meaning of section 149(g) of the Code and the Regulations. Section 9.07. No-Arbitrage Covenant. The City shall certify, through an authorized officer, employee or agent, that, based upon all facts and estimates lmown or reasonably expected to be in existence on the date the Certificates are delivered, the City will reasonably expect that the proceeds of the Certificates will not be used in a manner that would cause the Certificates 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 Certificates including interest or other investment income derived from Certificate proceeds, regulate investments of proceeds of the Certificates, and take such other and further action as may be required so that the Certificates will not be "arbitrage bonds" within the meaning of section 148(a) of the Code and the Regulations. Section 9.08. Arbitrage Rebate. If the City does not qualify for an exception to the requirements of Section 148(f) of the Code, the City will take all necessary steps to comply with the requirement that certain amounts earned by the City on the investment of the "gross proceeds, of the Certificates (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 Certificates as may be required to calculate the amount earned on the investment of the gross proceeds of the Certificates 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 Certificates 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 Certificates -27- 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 Certificates or on such other dates as may be pennitted 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 Certificates that might 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 had been at arm's length and had the yield on the issue not been relevant to either party. Section 9.09. Information Reporting. 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 Certificates are issued, an information statement concerning the Certificates, all under and in accordance with section 149(e) of the Code and the Regulations. Section 9.1 0. Continuing Obligation. Notwithstanding any other provision of this Ordinance, the City's obligations under the covenants and provisions of Sections 9.03 through 9.09 of this Article IX shall survive the defeasance and discharge of the Certificates. ARTICLE X DEFAULT AND REMEDIES Section 10.01. Events of Default. Each of the following occurrences or events for the purpose of this Ordinance is hereby declared to be an Event of Default: (i) the failure to make payment of the principal of or interest on any of the Certificates when the same becomes due and payable; or (ii) default in the performance or observance of any other covenant, agreement, or obligation of the City, which default materially and adversely affects the rights of the Owners, including but not limited to their prospect or ability to be repaid in accordance with this Ordinance, and the continuation thereof for a period of sixty (60) days after notice of such default is given by any Owner to the City. Section 10.02. Remedies for Default. (a) Upon the happening of any Event of Default, then any Owner or an authorized representative thereof, including but not limited to a trustee or trustees therefor, may proceed against the City for the purpose of protecting and enforcing the rights of the Owners under this Ordinance by mandamus or other suit, action or special proceeding in equity or at law in any -28- court of competent jurisdiction for any relief permitted by law, including the specific performance of any covenant or agreement contained herein, or thereby to enjoin any act or thing that may be unlawful or in violation of any right of the Owners hereunder or any combination of such remedies. (b) It is provided that all such proceedings shall be instituted and maintained for the equal benefit of all Owners of Certificates then outstanding. Section 10.03. 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 Certificates 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 Certificates shall not be available as a remedy under this Ordinance. (b) The exercise of any remedy herein conferred or reserved shall not be deemed a waiver of any other available remedy. ARTICLE XI DISCHARGE Section 11.01. Discharge. The Certificates may be defeased, discharged or refunded in any manner permitted by applicable law. ARTICLE XII CONTINUING DISCLOSURE UNDERT.AICWG Section 12.01. Annual Reports. (a) The City shall provide annually to each NRMSIR and to any SID, within six (6) months after the end of each fiscal year, financial infonnation and operating data with respect to the City of the general type included in the final Official Statement, being the 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 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. -29- (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 12.02. 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 Certificates, 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 serv1ce 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; (vi) adverse tax opinions or events affecting the tax-exempt status of the Certificates; (vii) modifications to rights of Owners; (viii) redemption calls; (ix) defeasances; (x) release, substitutio~ or sale of property secunng repayment of the Certificates; and (xi) rating changes. (b) The City shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any failure by the City to provide financial information or operating data in accordance with Section 12.01 of this Ordinance by the time required by such Section. -30- Section 12.03. 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 Certificates 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 Certificates, 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 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 Certificates at any future date. UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE OWNER OR BENEFICIAL OWNER OF ANY CERTIFICATE OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE CITY, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS ARTICLE, BUT EVERY RIGHT AND RE:MEDY OF ANY SUCH PERSON, IN CONTRACT OR TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORMANCE. (c) No default by the City in observing or performing its obligations under this Article shall constitute a breach of or default under the Ordinance for purposes of any other provisions of this Ordinance. (d) Nothing in this Article is intended or shall act to disclaim, waive, or otherwise limit the duties of the City under federal and state securities laws. (e) The provisions of this Article may be amended by the City from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, but only if (i) the provisions of this Article, as so amended, would have permitted an underwriter to purchase or sell 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 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 Certificates consent to such amendment or (B) an entity or individual person that is 1.maffiliated 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 Certificates. If the City so amends the provisions of this -31 - Article, it shall include with any amended financial information or operating data next provided in accordance with Section 12.01 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 XII may be made through the facilities of DisclosureUSA or such other central post office as may be approved in writing by the SEC for such purpose. Any such filing made through such central post office will be deemed to have been filed with each NRMSIR and SID or MSRB as if such filing had been made directly to such entity. ARTICLE XIII AMENDMENTS; ATTORNEY GENERAL MODIFICATION Section 13.01. 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 Certificate remains outstanding except as permitted in this Section. The City may, without consent of or notice to any Owners, from time to time and at any time, amend this Ordinance in any manner not detrimental to the interests of the Owners, including the curing of any ambiguity, inconsistency, or formal defect or omission herein. In additio~ the City may, with the written consent of the Owners of the Certificates holding a majority in aggregate principal amount of the Certificates then outstanding, amend, add to, or rescind any of the provisions of this Ordinance; provided that, without the consent of all Owners of outstanding Certificates, no such amendment, addition, or rescission shall (i) extend the time or times of payment of the principal of and interest on the Certificates, reduce the principal amount thereof, the redemption price, or the rate of interest thereon, or in any other way modify the terms of payment of the principal of or interest on the Certificates, (ii) give any preference to any Certificate over any other Certificate, or (iii) reduce the aggregate principal amount of Certificates required to be held by Owners for consent to any such amendment, addition, or rescission. Section 13.02. Attorney General Modification. In order to obtain the approval of the Certificates by the Attorney General of the State of Texas, any provision of this Ordinance may be modified, altered or amended after the date of its adoption if required by the Attorney General in connection with the Attorney General's examination as to the legality of the Certificates 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. -32- ARTICLE XIV EFFECTIVE IMMEDIATELY Section 14.01. Effective Immediately. Notwithstanding the provisions of the City Charter, this Ordinance shall become effective immediately upon its adoption at this meeting pursuant to Section 1201.028, Texas Government Code. -33- PRESENTED~ FINALLY PASSED AND APPROVED, AND EFFECTIVE on the 1Oth day of January, 2008, at a regular meeting of the City Council of the City of Lubbock, Texas. ATTEST: ~~ .. ,~~ REBccA GARZA, c~ [SEAL] APPROVED AS TO FORM: By: Signature Page for Ordinance Ordinance No. 2008-o0003 EXHIBIT A DESCRIPTION OF ANNUAL DISCLOSURE OF FINANCIAL INFORMATION The following information is referred to in Article XII of this Ordinance. Annual Financial Statements and Operating Data The financial information and operating data with respect to the City to be provided annually in accordance with such Section are as specified (and included in the Appendix or other headings of the Official Statement referred to) below: 1. The portions of the financial statements of the City appended to the Official Statement as Appendix B, but for the most recently concluded fiscal year. 2. Statistical and financial data set forth in Tables 1-6 and 8A-15 of the Official Statement. Accounting Principles The accounting principles referred to in such Section are the accounting principles described in the notes to the financial statements referred to in Paragraph 1 above. A-1 EXHIBITB SALE PARAMETERS Ordinance No. 2008-o0003 In accordance with Section 7.0l(a) of the Ordinance, the following conditions with respect to the Certificates must be satisfied in order for the Authorized Officer to act on behalf of the City in selling and delivering the Certificates to the Underwriters: (a) the price to be paid for the Certificates shall be not less than 95% of the aggregate principal amount of the Certificates; (b) the Certificates shall not bear interest at a rate greater than the maximum rate allowed by Chapter 1204, Texas Government Code, as amended; (c) the aggregate principal amount of the Certificates shall produce proceeds in an amount sufficient, as determined by the Authorized Officer, to fund the purposes described in Section 3.01 and such aggregate principal amount shall not exceed the maximum amount authorized in Section 3.02; (d) the maximum maturity for the Certificates shaH not exceed forty years; and (e) the Certificates 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 tenn obligations. B-1 ) LUB200n1009 Dallas 1357 102v.l TRANSCRIPT OF PROCEEDINGS pertaining to CITY OF LUBBOCK, TEXAS $52,900,000 TAX AND W ASTERW ATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 Dated: January 15, 2008 Delivered: February 12, 2008 Vinson &-Elkins ATTORNEYS AT LAW VINSON 8t EU<tNS L.L.P. 3700 TRAMMELL CROW CENTER 2001 ROS$ AVENUE DALLAS, TEXAS 75201·2975 TE~E.PHONE (214) 220.n00 VOICE MAIL. (214) 220-7999 FAX(214)220.nH; CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES2008 TABLE OF DOCUMENTS DOCUMENT I. BOND DOCUMENTS 1.1 Certified Resolution Authorizing Publication of Notice of Intent to Issue Certificates 1.2 Affidavit of Publication 1.3 Certified Ordinance Providing for the Issuance of the Certificates 1.4 Pricing Certificate 1.5 Paying Agent/Registrar Agreement 1.6 Preliminary Official Statement 1.7 Official Statement 1.8 Bond Purchase Contract 1.9 Specimen Certificates 1.10 Insurance Commitment 1.11 Insurance Policy II. CERTIFICATES, LETTERS AND RECEIPTS 2.1 General and No-Litigation Certificate 2.2 Attorney General/Comptroller Instruction Letter 2.3 Federal Tax Certificate 2.4 Form 8038-G and Evidence of Transmittal 2.5 Receipt and Delivery Certificate of Paying Agent/Registrar Dallas 1352262v.l TAB NO. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 ) ) DOCUMENT 2.6 Certificate of Insurer 2. 7 Rating Letters 2.8 Certificate Pursuant to Bond Purchase Contract III. OPINIONS TAB NO. 17 18 19 3.1 Opinion of Bond Counsel 20 3.2 Supplemental Opinion of Bond Counsel 21 3.3 Opinion of Underwriter's Counsel 22 3.4 Opinion of Attorney General and Comptroller's Registration 23 Certificates 3.5 Opinion of Insurer's Counsel 24 3.6 Reliance Letters to Insurer 25 3.7 Opinion of City Attorney 26 Dallas 1352262v.l -2- Resolution No. 2007-ROS40 MINUTES AND CERTIFICATION PERTAINING TO STATE OF TEXAS § COUNTY OF LUBBOCK § CITY OF LUBBOCK § PASSAGE OF A RESOLUTION On the 20th day of November, 2007, 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 Government Code, as amended; and the roll was called of the duly constituted officers and members of the City Council, which officers and members are as follows: David A. Miller, Mayor Jim Gilbreath, Mayor Pro Tern Linda DeLeon Floyd Price Todd R. Klein Phyllis S. Jones John Leonard ) ) ) ) ) Members of the Council and all of said persons were present except (all present) ~thus constituting a quorum. Whereupon, among other business, a written Resolution bearing the following caption was introduced: A RESOLUTION AUTHORIZING PUBLICATION OF NOTICE OF INTENTION TO ISSUE TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION The Resolution, 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 Resolution be passed and adopted. The Presiding Officer put the motion to a vote of the members of the City Cmmcil, and the Resolution was passed and adopted by the following vote: AYES: 7 NOES: o ABSTENTIONS: o 1357086v.l LUB200nt012 'I } MINUTES APPROVED AND CERTIFIED TO BE TRUE AND CORRECT, and to correctly reflect the duly constituted officers' and members of the City C01mcil of said City, and the attached and following copy of said Resolution is hereby certified to be a true and correct cop~ an official copy thereof on file among the official records of the City, all on this the /~ day of January, 2008. City sedretary City of Lubbock, Texas [SEAL] -2- 1357086v.l LUB200/7I012 ) A RESOLUTION AUTHORIZING PUBLICATION OF NOTICE OF INTENTION TO ISSUE TAX AND WASTEWATER SYSTEM ) SURPLUS REVENUE CERTIFICATES OF OBLIGATION WHEREAS, the City of Lubbock, Texas (the "City"), pursuant to Subchapter C, Chapter 271, Texas Local Government Code, as amended, is authorized to issue its certificates of obligation (the "Certificates") for the purpose of paying contractual obligations to be incurred for ) the pwposes set forth in Exhibit A hereto; and ) ) > ) WHEREAS, the City Council of the City has· found and detennined that a notice of intention to issue certificates of obligation should be published in accordance with the requirements of applicable law; NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK, TEXAS, THAT: Section 1. The findings and detenninations set forth in the preambles hereto are hereby incorporated by reference for all purposes. Section 2. The City Secretary of the City is hereby authorized and directed to issue a notice of intention io issue the Certificates in substantially the fonn set forth in Exhibit A hereto incorporated herein by reference for all pwposes. The notice as set forth in Exhibit A shall be published once a week for two consecutive weeks, the date of the first publication being not less than the day before the (30th) day prior to the date set forth in the notice for passage of the ordinance authorizing the Certificates. Such notice shall be published in a newspaper of general circulation in the area of the City of Lubbock, Texas. Section 4. This resolution shall take effect fr~m and after the date of its passage. '\ 1331S84v.l LU8200/l ) ) } ) ) ) ADOPTED THIS £uf?'-day of MvfmhRr. 2007, by the City Council of the City of Lubbock, Texas. CTIY OF LUBBOCK, TEXAS '---=;,"::>it!!~~-- ATIEST: LUB200nt010 -2- 1331584v.l LUB200/t ) ) ) Exhibit A NOTICE OF INTENTION TO ISSUE CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTWICATES OF OBLIGATION, SERIES 2008 NOTICE IS HEREBY GIVEN that on January 10, 2008, the City Council of the City of Lubbock, Texas, at 7:30a.m. at a regular meeting of the City Council to be held in the City Council Chambers at the Municipal Complex, 1625 13th Street, Lubbock, Texas, the regular meeting place of the City Council, intends to pass an ordinance authorizing the issuance of not to exceed $70,000,000 principal amount of certificates of obligation for the purpose of paying contractual obligations to be incurred for the following purposes, to wit: (i) improvements and extensions to the City's Wastewater System, including plant improvements to the Southeast Water Reclamation Plant (SEWRP) (the "Projecf') and (ii) payment of professional services of attorneys, financial advisors and other professionals in connection with the Project and the issuance of the Certificates. The Certificates shall bear interest at a rate not to exceed fifteen percent (15%) per annum and shall have a maximum maturity date of not later than forty (40) years after their date. Said Certificates shall be payable from the levy of a direct and continuing ad valorem tax, levied within the limits prescribed by law, against all taxable property within the City sufficient to pay the interest on this series of Certificates as due and to provide for the payment of the principal thereof as the same matures, as authorized by Subchapter C, Chapter 271, Texas Local Goverrunent Code, as amended, and from all or a part of the surplus net revenues of the City's Wastewater System, such pledge of surplus net revenues being limited to $1,000. THIS NOTICE is given in accordance with law and as directed by the City Council of the City of Lubbock, Texas. GIVEN THIS November 20, 2007. A-1 1331584v.l LUB200/l Is! Rebecca Garza City Secretary City of Lubbock, Texas ' ) ) ) THE STATE OF TEXAS COUNTY OF LUBBOCK Before me Alan C. Weems a Notary Public in and for lubbock County, Texas on this of the Southwestern Newspaper day personally appeared Krista Ramirez -------------------------------------Corporation, publishers of the Lubbock Avalanche-Journal-Morning, and Sunday, who being by me duly sworn did dispose and say that said newspaper has run continuously tor more than fifty-two weeks prior to the first insertion of this ..;;L;;.;;e;.agL;s~I..:;.N.:.:o:..:t;;.ic:..:e:........ _________________________ _ No. _____________ at lubbock County, Texas and the attached printed copy of the Legal Notice is a true copy of the original and was printed in the Lubbock Avalanche-Journal on the following dates: i~~ fJ ~ J&v~ .;<{ I '¢ }.~ .ZcoJ ;.? 1] l.l.Jtcd5 -:. Inside Sales Manager LUBBOCK AVALANCHE-JOURNAL Morris Communication Corporation Subscribed and sworn to before me this FORM 58·10 I I /fl' .t'lai~-~~ NOTARY PUBLIC in and for the State of Texas my commission Expires 5n/2011 /?~~ __ v.:..:::;.._ 1../' ____ day of Al.A.'Il c WeEMS I! \Jotary Public. s~ate of Texas I i v1v Commission Expires Ia May 07, 20i 1 : J~ -____ _....""!'!o.~~~=----·-·"'· --111'-11,1 ".,. ' ... -~-.... ------~ ... -.............. _ .. N01JCE OF INTiNTrOI'I TO ISSUE CITY OF LU860Cr< TEXA.S TAX AND ' WASTEWATEII SYST!;M SURPLUS REVENUE CERTIFICATES OF OSI.IGATrOf'l, SERIES lllOI NOTICE IS 1-iEREBY GIVEN lhot Ot! Jonvory ro, 2008, lh& Clr Councor of lhe City Of Lubbockv Texos, ot 7:30a.m, at a regula; ~ ... t.lng of rne Clrv Counclf to be ttc1 .n ~ City Council Chambers fJ1~hse Municioar Comorex. ,625 treet, LubbocJt., Te)Cos tl'1e cegutor.m~ting PIDc.e of lhe-'citv I OU_DC1I, •ntends to Doss 011 ~n:f•noncr authorizing the •ssuonc.-ol not to exceed S70,~o.ooo princiP<JI omount of certllocons of Obli9atl011 lor fh& CIU(go.s.e of ~cYi!'SI controctuor fblo9oloons ro be oncurrecr lor the 1ollowln9 Purposes, ro wit• (il ~~:~~~~~enwts ond extensions. to •. 'I s astewoter Svstem J~ctsuamg Plont imorovomenls rei • ovthE'~t Water Rec:tamotlon Pion! .<SEWRPl (1111 'Project•) ond P•) DOYmf'nt of Profenione~f S~ryJC:es Of ortorn•vs. financfol ~ vtsors ond otner .OI'Ofts.sioncrs '" connecti.on witn the Prol•c-t on d. the •ssuance of the :i,",';('!~cot.es. Til~ Ctr tificaros o..p:;o_r 11'11trest ar a rote not to ex~eed fo fie en oercent 115'1.) Qer <Hin.CJ m ond sholl hove a max,mum maturity dare of no• lot~r than lorry 140) voors olte; bheor dote. Soia Certlflcot .. <holl ~ POYOble from rne levv 01 0 d1recr Ond confil'lurn9 ad valorem rax, l~vie:d ·w;rhln the limits prescr,b~~ bv low. <sgofnst ofJ ra~~ble .oropertv withrl"' lhe Cit~ ~u.rfrcieflt to POY the interesr on .hu, senes !Jf CE!rtlficcnes 05 ctue-Of\d to. Qra" td'e for the PO'fftle'nt ot the !'nnctpcrr t-eof os rho Scun& mo.utes. O$ oulhorlzed by t'c~Ger C. Cllaorer 211: tuos overnmenr Code as a.mti"'Cie-d .. cnct ~rom au cr o Port .::1~ th~ surphss net revenve-s of tht C•IY s Wosrewoter System su<h Obl~9e1 •. O! SUrplus net revenues eong omolt'dto SIAJOO. THIS NOTICE Is 9iven In ll,ccordonC'e \Vilh law OI"C! 01 do,r~red bv the City Council of lht Co tv of l.ul>bOCk. Texas. GIVEN THIS,.,._, :!G. 'l007. lSI Rebecrn r.._...,. I \ AFFIDAVIT OF NEWSPAPER THE STATE OF TEXAS § § COUNTY OF LUBBOCK § BEFORE ME, the undersigned authority, on this day personally appeared the person whose name is subscribed below, who, being by me first duly sworn, upon oath deposed and said: I. That this affiant is a duly authorized officer or employee of Lubbock Avalanche Journal, which is a newspaper of general circulation in the City of Lubbock, Lubbock County, Texas. 2. That said newspaper is a "newspaper" as defined by Section 2051.044, Texas Government Code, and as such: (1) devotes not less than 25 percent of its total column lineage to general interest items; (2) is published at least once each week; (3) is entered as second-class postal matter in the county where published; and (4) has been published regularly and continuously for at least 12 months prior to publishing the notice referenced below. ~ SWORN TO AND SUBSCRIBED BEFORE~· this the ~d_ JGt!J oRf¥-m.t:Afti).)QO"l, ! 0~ [NOTARY SEAL] Dallas 1306399v .l ) MINUTES AND CERTIFICATION PERTAINING TO PASSAGE OF AN ORDINANCE STATEOFTEXAS § COUNTY OF LUBBOCK § CITY OF LUBBOCK § On the lOth day of January, 2008, the City Com1cil 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 Government Code, as amended; and the roll was called of the duly constituted officers and members of the City CoWlcil, which officers and members are as follows: ) David A. Miller, Mayor Jim Gilbreath, Mayor Pro Tern Linda DeLeon Floyd Price Todd R. Klein Phyllis S. Jones John Leonard ) ) ) ) ) Members of theCom1cil > and all of said persons were present except (all present) . thus constituting a quorum. Whereupon, among other business, a written Ordinance bearing the following caption was introduced: AN ORDINANCE PROVIDING FOR TIIE ISSUANCE OF CITY OF LUBBOC~ TEXAS, TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION, SERIES 2008 IN AN AMOUNT NOT TO EXCEED $70,000,000; LEVYING A TAX AND PLEDGING SURPLUS WASTEWATER SYSTEM REVENUES IN PAYMENT THEREOF; APPROVING THE OFFICIAL STATEMENT; APPROVING EXECUTION OF A PURCHASE CONTRACT; 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 CoWlcil, and the Ordinance was passed and adopted by the following vote: AYES: 7 NOES: o ABSTENTIONS: o 135207lv.l LUB2oon1012 ) 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 1Oth day of January, 2008. ) City of Lubbock, Texas [SEAL] ) -2- 1352071v.J LUB200171012 ) ) > ORDINANCE relating to CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 Adopted: January 10,2008 ) ) ) ) TABLE OF CONTENTS ARTICLE I DEFINITIONS AND OTHER PRELIMINARY MA TIERS Section 1.0 1. Definitions ............................................................................................................... 2 Section 1.02. Findings ................................................................................................................... 4 Section 1.03. Table of Contents, Titles, and Headings ................................................................. 5 Section 1.04. Interpretation ........................................................................................................... 5 ARTICLE II SECURITY FOR THE CERTIFICATES; INTEREST AND SINKING FUND; PRIOR LIEN OBLIGATIONS Section 2.01. Payment of the Certificates ..................................................................................... 5 Section 2.02. Interest and Sinking Fund ....................................................................................... 6 ARTICLE III AUTHORIZATION; GENERAL TERMS AND PROVISIONS REGARDING THE CERTIFICATES Section 3. 0 I. Authorization .................................................................................................................... 6 Section 3.02. Date, Denomination, Maturities, and Interest ......................................................... 7 Section 3.03. Medium, Method, and Place of Payment.. .............................................................. 7 Section 3.04. Execution and Registration of Certificates .............................................................. 8 Section 3.05. Ownership ............................................................................................................... 9 Section 3.06. Registration, Transfer, and Exchange ..................................................................... 9 Section 3.07. Cancellation ........................................................................................................... 10 Section 3.08. Te:tnporary Certificates .......................................................................................... l 0 Section 3.09. Replace:tnent Certificates ....................................................................................... 11 Section 3.10. Book-Entry-Only System ...................................................................................... 11 Section 3.11. Successor Securities Depository; Transfer Outside Book-Entry-Only System .... 12 Section 3 .12. Payments to Cede & Co ........................................................................................ 13 ARTICLE IV REDErvtPTION OF CERTIFICATES BEFORE MATURITY Section 4.01. Redemption ........................................................................................................... 13 Section 4.02. Optional Redemption ............................................................................................ 13 Section 4.03. Mandatory Sinking Fund Rede:tnption .................................................................. 13 Section 4.04. Partial Rede:tnption ................................................................................................ 14 Section 4.05. Notice of Redemption to Owners .......................................................................... 14 (i) Section 4.06. Payntent Upon Redetnption .................................................................................. 14 Section 4.07. Effect of Redemption ............................................................................................ 15 ) Section 4.08. Lapse of Payntent .................................................................................................. 15 ARTICLEV PAYING AGENT/REGISTRAR ) Section 5.01. Appointment of Initial Paying Agent/Registrar .................................................... 15 Section 5.02. Qualifications ........................................................................................................ 15 Section 5.03. Maintaining Paying Agent/Registrar ..................................................................... 15 Section 5.04. Tennination ........................................................................................................... 16 Section 5. 05. Notice of Change to Owners ................................................................................. 16 Section 5.06. Agreement to Perform Duties and Functions ........................................................ 16 Section 5.07. Delivery of Records to Successor ......................................................................... 16 ARTICLE VI FORM OF THE CERTIFICATES Section 6.01. Form Generally ..................................................................................................... 16 Section 6.02. Form of the Certificates ......................................................................................... 17 Section 6.03. CUSIP Registration ............................................................................................... 23 Section 6.04. Legal Opinion ........................................................................................................ 23 Section 6.05. Bond Insurance ...................................................................................................... 23 ARTICLE VII SALE AND DELIVERY OF CERTIFICATES; DEPOSIT OF PROCEEDS Section 7.01. Sale of Certificates; Official Statement.. ............................................................... 23 Section 7 .02. Control and Delivery of Certificates ..................................................................... 24 Section 7.03. Deposit of Proceeds ............................................................................................... 25 ARTICLE VIII INVESTMENTS Section 8.0 1. Investments ............................................................................................................ 25 Section 8.02. Investment Income ................................................................................................ 25 ARTICLE IX PARTICULAR REPRESENTATIONS AND COVENANTS Section 9.0 1. Payntent of the Certificates ................................................................................... 26 Section 9.02. Other Representations and Covenants ................................................................... 26 Section 9.03. Provisions Concerning Federal Income Tax Exclusion ........................................ 26 (ii) ) Section 9.04. No Private Use or Payment and No Private Loan Financing ................................ 26 Section 9.05. No Federal Guaranty ............................................................................................. 27 Section 9.06. Certificates Are Not Hedge Bonds ........................................................................ 27 Section 9.07. No-Arbitrage Covenant ......................................................................................... 27 Section 9.08. Arbitrage Rebate ................................................................................................... 27 Section 9.09. Information Reporting ........................................................................................... 28 Section 9.1 0. Continuing Obligation ........................................................................................... 28 ) ARTICLE X DEFAULT AND REMEDIES Section 1 0.01. Events of Default ................................................................................................... 28 ) Section 1 0.02. Remedies for Default ............................................................................................ 28 Section 1 0.03. Remedies Not Exclusive ....................................................................................... 29 ARTICLE XI DISCHARGE Section 11.01. Discharge ............................................................................................................... 29 ARTICLE XII CONTINUING DISCLOSURE UNDERTAKING Section 12.01. Annual Reports ...................................................................................................... 29 Section 12.02. Material Event Notices .......................................................................................... 30 Section 12.03. Limitations, Disclaimers and Amendments .......................................................... 31 ARTICLE XIII AMENDMENTS; ATTORNEY GENERAL MODIFICATION Section 13.0 1. Amendments .......................................................................................................... 32 Section 13.02. Attorney General Modification ............................................................................. 32 ARTICLE XIV EFFECTIVE IMMEDIATELY Section 14.0 1. Effective Immediately ........................................................................................... 33 Exhibit A -Description of Annual Disclosure of Financial Information .................................... A-1 Exhibit B -Sale Paratneters ........................................................................................................ B-1 (iii) ) ) ) ) AN ORDINANCE PROVIDING FOR THE ISSUANCE OF CITY OF LUBBOCK, TEXAS, TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION, SERIES 2008 IN AN AMOUNT NOT TO EXCEED $70,000,000; LEVYING A TAX AND PLEDGING SURPLUS WASTEWATER SYSTEM REVENUES IN PAYMENT THEREOF; APPROVING THE OFFICIAL STATEMENT; APPROVING EXECUTION OF A PURCHASE CONTRACT; AND ENACTING OTHER PROVISIONS RELATING THERETO WHEREAS, under the provisions of Subchapter C, Chapter 271, Texas Local Government Code, as amended, the City of Lubbock, Texas (the "City"}, after giving proper notice, is authorized to issue and sell for cash its certificates of obligation (herein defined as the "Certificates") that are secured by and payable from the ad valorem taxes and other revenues specified in Article II of this Ordinance, and that are issued in the amount, for the purposes, and with the provisions set forth in Section 3.1 of this Ordinance; WHEREAS, pursuant to a resolution heretofore passed by the City Council, notice of intention to issue the Certificates was published in a newspaper of general circulation in the City in accordance with applicable law; WHEREAS, no petition has been filed with the City Secretary, any member of the City Council or any other official of the City, protesting the issuance of the Certificates; WHEREAS, the City Council is now authorized and empowered to proceed with the issuance and sale of the Certificates, and has found and detennined that it is necessary and in the best interests of the City and its citizens that it authorize the issuance of the Certificates in accordance with the terms and provisions of this Ordinance at this time; WHEREAS, the City Council desires to delegate, pursuant to Chapter 1371, Texas Government Code, as amended, and the parameters of this Ordinance, to the Authorized Officer, the authority to approve the amount, the interest rate, the price and terms of the Certificates authorized hereby and to otherwise take such actions as are necessary and appropriate to effect the sale of the Certificates; WHEREAS, the meeting at which this Ordinance is considered is open to the public as required by law, and public notice of the time, place, and purpose of said meeting was given as required by Chapter 551, Texas Government Code, as amended; therefore, ) BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK: ARTICLE I DEFINITIONS AND OTHER PRELIMINARY MA TIERS Section 1.01. Definitions. Unless otherwise expressly provided or unless the context clearly requires otherwise in this Ordinance, the following terms shall have the meanings specified below: "Authorized Officer" means each of the City Manager and the Chief Financial Officer and, if both are absent, the Director of Fiscal Policy and Strategic Planning. "Certificate" means any of the Certificates. "Certificate Date" means the date designated as the initial date of the Certificates by Section 3.02(a) of this Ordinance. "Certificate Purchase Contractu means the purchase contract approved in Section 7.0l(b) of this Ordinance. "Certificates" means the certificates of obligation authorized to be issued by Section 3.01 of this Ordinance and designated as "City of Lubbock, Texas, Tax and Wastewater System Smplus Revenue Certificates of Obligation, Series 2008." "City" means the City of Lubbock, Texas. "Closing Date" means the date of the initial delivery of and payment for the Certificates. "Code" means the Internal Revenue Code of 1986, as amended, including applicable regulations, published rulings, and court decisions. "Designated Payment/Transfer Office" means (i) with respect to the initial Paying Agent/Registrar named in this Ordinance, the Designated Payment/Transfer Office as designated in the Paying Agent/Registrar Agreement, or at such other location designated by the Paying Agent/Registrar and (ii) with respect to any successor Paying Agent/Registrar, the office of such successor designated and located as may be agreed upon by the City and such successor. "DTC" means The Depository Trust Company of New York, New York, or any successor securities depository. "DTC Participant" means brokers and dealers, banks, trust companies, clearing corporations and certain other organizations on whose behalf DTC was created to hold securities to facilitate the clearance and settlement of securities transactions among DTC Participants. "Event of Default" means any event of default as defined in Section 10.1 of this Ordinance. -2- ) "Fiscal Year" means such fiscal year as shall from time to time be set by the City Council. "Gross Revenues" means, with respect to any period, all income, revenues and receipts received from the operation and ownership of the System. "Initial Certificate" means the initial certificate authorized by Section 3.04 of this Ordinance. "Interest and Sinking Fund" means the interest and sinking fund established by Section 2.02 of this Ordinance. "Interest Payment Date" means the date or dates on which interest on the Certificates 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 Rulemak:ing 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. "Net Revenues" means the Gross Revenues of the System, with respect to any period, after deducting the System's Operating and Maintenance Expenses during such period. "Operating and Maintenance Expenses" means all reasonable and necessary expenses directly related and attributable to the operation and maintenance of the System, including, but not limited to, the costs of insurance, the purchase and carrying of stores, materials, and supplies, the payment of salaries and labor, and other expends reasonably and properly charged, under generally accepted accounting principles, to the operation and maintenance of the System or by statute deemed to be a first lien against the Gross Revenues. Depreciation charges on equipment, machinery, plants and other facilities comprising the System and expenditures classed under generally accepted accounting principles as capital expenditures shall not be considered as "Operating and Maintenance Expenses" for purposes of determining "Net Revenues." "Owner" means the person who is the registered owner of a Certificate or Certificates, as shown in the Register. "Paying Agent/Registrar" means initially The Bank of New York Trust Company, National Association, or any successor thereto as provided in this Ordinance. "Pricing Certificate" means a certificate or certificates to be signed by the Authorized Officer. "Prior Lien Obligations'' means all bonds or other similar obligations of the City presently outstanding or that may be hereafter issued, payable in whole or in part from and secured by a first lien on and pledge of the Net Revenues of the System or by a lien on and ) ) pledge of the Net Revenues subordinate to a first lien on and pledge of the Net Revenues but superior to the lien on and pledge of the Surplus Revenues made for the Certificates. "Project" means the purposes for which the Certificates are issued as set forth in Section 3 .1. "Record Date" means the last business day of the month next preceding an Interest Payment Date. "Register'' means the Register specified in Section 3.06(a) of this Ordinance. "Representations Letter" means the Blanket Letter of Representations between the City andDTC. "Representative" means Morgan Keegan & Co., Inc., as representative for the Underwriters. "Rule" means SEC Rule 15c2-12, as amended from time to time. "SEC" means the United States Securities and Exchange Commission. "SID" means any person designated by the State of Texas or an authorized department, office or agency thereof, as and detennined by the SEC or its staff to be a state information depository within the meaning of the Rule from time to time. "Surplus Revenues" means the Net Revenues of the System in an amount not to exceed $1,000 remaining after payment of all debt service, reserve and other requirements in connection with the City's Prior Lien Obligations. "System" means the City's Wastewater System being all properties, facilities and plants currently owned, operated and maintained by the City for the supply, treatment, transmission and distribution of treated, potable water, together with all future extensions, improvements, replacements and additions thereto. "Tenn Certificates" has the meaning set forth in Section 4.03 hereof. "Unclaimed Payments" means money deposited with the Paying Agent/Registrar for the payment of principal of or interest on the Certificates as the same come due and payable and remaining unclaimed by the Owners of such Certificates after the applicable payment or redemption date. "Underwriters" means the Underwriters named in the Certificate Purchase Contract. Section 1.02. Findings. The declarations, detenninations, 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. -4- ) ) ) Section 1.03. Table of Contents. Titles. and Headings. The table of contents, titles and headings of the Articles and Sections of this Ordinance have been inserted for convenience of reference only and are not to be considered a part hereof and shall not in any way modify or restrict any of the terms or provisions hereof and shall never be considered or given any effect in construing this Ordinance or any provision hereof or in ascertaining intent, if any question of intent should arise. Section 1.04. Interpretation. (a) Unless the context requires otherwise, words of the masculine gender shall be construed to include correlative words of the feminine and neuter genders and vice versa, and words of the singular number shall be construed to include correlative words of the plural number and vice versa. (b) This Ordinance and all the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein. ARTICLE II SECURITY FOR THE CERTIFICATES; INTEREST AND SINKING FUND; PRIOR LIEN OBLIGATIONS Section 2.01. Payment of the Certificates. (a) Pursuant to the authority granted by the Texas Constitution and laws of the State of Texas, there shall be levied and there is hereby levied for the current year and for each succeeding year thereafter while any of the Certificates or any interest thereon is outstanding and unpaid, an ad valorem tax on each one hundred dollars valuation of taxable property within the City, at a rate sufficient, within the limit prescribed by law, to pay the debt service requirements of the Certificates, being (i) the interest on the Certificates, and (ii) a sinking fund for their redemption at maturity or a sinking fund of two percent per annum (whichever amount is the greater), when due and payable, full allowance being made for delinquencies and costs of collection. (b) The ad valorem tax thus levied shall be assessed and collected each year against all property appearing on the tax rolls of the City most recently approved in accordance with law, and the money thus collected shall be deposited as collected to the Interest and Sinking Fund. (c) Said ad valorem tax, the collections therefrom, and all amounts on deposit in or required hereby to be deposited to the Interest and Sinking Fund are hereby pledged and committed irrevocably to the payment of the principal of and interest on the Certificates when and as due and payable in accordance with their terms and this Ordinance. (d) The City hereby covenants and agrees that the Surplus Revenues are hereby irrevocably pledged equally and ratably to the payment of the principal of and interest on the Certificates. The City reserves the right to issue Prior Lien Obligations for any lawful purpose, at any time, in one or more installments. . -5- ) } ) ) ) ) (e) The amount of taxes to be assessed annually for the payment of debt service on the Certificates shall be determined in the following manner: (i) The City's annual budget shall reflect (A) the amount of debt service requirements to become due on the Certificates in the next ensuing Fiscal Year and (B) the amount on deposit in the Interest and Sinking Fund on the date such budget is approved. (ii) The amount required to be provided in the next succeeding Fiscal Year from ad valorem taxes shall be the amount, if any, that the debt service requirements on the Certificates to be paid during the next Fiscal Year exceeds the amount then on deposit in the Interest and Sinking Fund. (iii) Following approval of the City's annual budget, the City Council shall, by ordinance, establish a tax rate that is sufficient to produce taxes in an amount which, when added to the amount then on deposit in the Interest and Sinking Fund, will be sufficient to pay debt service on the Certificates when due during the next Fiscal Year. (f) If the liens and provisions of this Ordinance shall be released in a manner pennitted by Article XI hereof, then the collection of such ad valorem tax may be suspended or appropriately reduced, as the facts may permit, and further deposits to the Interest and Sinking Fund may be suspended or appropriately reduced, as the facts may permit. In detennining the aggregate principal amount of outstanding Certificates, there shall be subtracted the amount of any Certificates that have been duly called for redemption and for which money has been deposited with the Paying Agent/Registrar for such redemption. Section 2.02. Interest and Sinking Fund. (a) The City hereby establishes a special fund or account to be designated the "City of Lubbock, Texas, Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008, Interest and Sinking Fund" (the "Interest and Sinking Fund"), said fund to be maintained at an official depository bank of the City separate and apart from all other funds and accounts of the City. (b) Money on deposit in or required by this Ordinance to be deposited to the Interest and Sinking Fund shall be used solely for the purpose of paying the interest on and principal of the Certificates when and as due and payable in accordance with their terms and this Ordinance. ARTICLE III AUTHORIZATION; GENERAL TERMS AND PROVISIONS REGARDING THE CERTIFICATES Section 3.01. Authorization. The City's certificates of obligation to be designated "City of Lubbock, Texas, Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008" (the "Certificates"), are hereby authorized to be issued and delivered in accordance with the -6- ) Constitution and laws of the State of Texas, specifically Subchapter C, Chapter 271, Texas Local Government Code, as amended, Chapter 1371, Texas Government Code, as amended, and Article VIII of the City's Home-Rule Charter. The Certificates shall be issued in the aggregate principal amount designated in the Pricing Certificate, such amount not to exceed $70,000,000, for the purpose of paying contractual obligations to be incurred for the following purposes, to wit: (i) improvements and extensions to the City's Wastewater System, including plant improvements to the Southeast Water Reclamation Plant (SEWRP) (the "Project") and (ii) payment of professional services of attorneys, financial advisors and other professionals in cormection with the Project and the issuance of the Certificates. Section 3.02. Date, Denomination, Maturities, and Interest. (a) The Certificates shall be dated the date set forth in the Pricing Certificate (the "Certificate Date"). The Certificates 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 Certificate, which shall be numbered T -1. (b) The Certificates 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 Certificates shall not exceed forty years. (c) Interest shall accrue and be paid on each Certificate respectively until its maturity or prior redemption, from the later of the Certificate 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 on each Interest Payment Date until maturity or prior redemption. Interest on the Certificates 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 3.03. Medium, Method, and Place of Payment. (a) The principal of and interest on the Certificates shall be paid in lawful money of the United States of America. (b) Interest on the Certificates 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 Agent/Registrar and the Owner; provided, however, that the Owner shall bear all risk and expense of such alternative banking arrangement. At the option of an Owner of at least $I ,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. (d) The principal of each Certificate 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 -7- ) ) ) surrender of such Certificate at the Designated Payment/Transfer Office of the Paying Agent/Registrar. (e) If the date for the payment of the principal of or interest on the Certificates 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 3.02 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 Certificates 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 Certificates thereafter coming due; to the extent any such moneys remain three years after the retirement of all outstanding Certificates, 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 Certificates for any further payment of such unclaimed moneys or on account of any such Certificates, subject to Title 6 of the Texas Property Code. Section 3.04. Execution and Registration of Certificates. (a) The Certificates 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 Certificates shall have the same effect as if each of the Certificates had been signed manually and in person by each of said officers, and such facsimile seal on the Certificates shall have the same effect as if the official seal of the City had been manually impressed upon each of the Certificates. (b) In the event that any officer of the City whose manual or facsimile signature appears on the Certificates ceases to be such officer before the authentication of such Certificates 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 Certificate 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 Certificates. In lieu of the executed Certificate of Paying Agent/Registrar described above, the Initial Certificate delivered at the Closing Date shall have attached thereto the Comptroller's Registration Certificate substantially in the form provided herein, manually executed by the ) Comptroller of Public Accounts of the State of Texas, or by his duly authorized agent, which Certificate shall be evidence that the Certificate 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 Certificate reflecting the terms set forth in the Pricing Certificate and representing the entire principal amount of all Certificates, payable in stated installments to the Representative, or its designee, executed by the Mayor and City Secretary of the City by their manual or facsimile signatures, approved by the Attorney General, and registered and manually signed by the Comptroller of Public Accounts, will be delivered to the Representative or its designee. Upon payment for the Initial Certificate, the Paying Agent/Registrar shall cancel the Initial Certificate and deliver a single registered, definitive Certificate for each maturity, in the aggregate principal amount thereof, to DTC on behalf of the Underwriters. Section 3.05. Ownership. (a) The City, the Paying Agent/Registrar, and any other person may treat the person in whose name any Certificate is registered as the absolute owner of such Certificate for the purpose of making and receiving payment as herein provided (except interest shall be paid to the person in whose name such Certificate is registered on the Record Date), and for all other purposes, whether or not such Certificate is overdue, and neither the City nor the Paying Agent/Registrar shall be bound by any notice or knowledge to the contrary. (b) All payments made to the Owner of a Certificate shall be valid and effectual and shall discharge the liability of the City and the Paying Agent/Registrar upon such Certificate to the extent of the sums paid. Section 3.06. Registration. Transfer. and Exchange. (a) So long as any Certificates remain outstanding, the City shall cause the Paying Agent/Registrar to keep at the Designated Payment/Transfer 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 Certificates in accordance with this Ordinance. (b) The ownership of a Certificate may be transferred only upon the presentation and surrender of the Certificate at the Designated Payment/Transfer Office of the Paying Agent/Registrar with such endorsement or other evidence of transfer as is acceptable to the Paying Agent/Registrar. No transfer of any Certificate shall be effective until entered in the Register. (c) The Certificates shall be exchangeable upon the presentation and surrender thereof at the Designated Payment/Transfer Office of the Paying Agent/Registrar for a Certificate or Certificates 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 Certificates presented for exchange. The Paying Agent/Registrar is hereby authorized to authenticate and deliver Certificates exchanged for other Certificates in accordance with this Section. -9- ) ) ) ) ) (d) Each exchange Certificate 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 Certificate or Certificates in lieu of which such exchange Certificate 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 Certificates. 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 cormection with the registration, transfer, or exchange of a Certificate. (f) Neither the City nor the Paying Agent/Registrar shall be required to issue, transfer, or exchange any Certificate 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 Certificate. Section 3.07. Cancellation. All Certificates paid or redeemed before scheduled maturity in accordance with this Ordinance, and all Certificates in lieu of which exchange Certificates or replacement Certificates 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 Certificates to the City or may in accordance with law destroy such cancelled Certificates and periodically furnish the City with certificates of destruction of such Certificates. Section 3.08. Temporary Certificates. (a) Following the delivery and registration of the Initial Certificate and pending the preparation of definitive Certificates, the City may execute and, upon the City's request, the Paying Agent/Registrar shall authenticate and deliver, one or more temporary Certificates that are printed, lithographed, typewritten, mimeographed, or otherwise produced, in any denomination, substantially of the tenor of the definitive Certificates 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 Certificates may determine, as evidenced by their signing of such temporary Certificates. (b) Until exchanged for Certificates in definitive form, such Certificates 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 surrender of the Certificate or Certificates in temporary form to the Paying Agent/Registrar, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor a Certificate or Certificates of the same maturity and series, in definitive form, in the authorized denomination, and in the same aggregate principal amount, as the Certificate or Certificates in temporary form surrendered. Such exchange shall be made without the making of any charge therefor to any Owner. -10- > Section 3.09. Replacement Certificates. (a) Upon the presentation and surrender to the Paying Agent/Registrar of a mutilated Certificate, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor a replacement Certificate of like tenor and principal amoWlt, bearing a number not contemporaneously outstanding. The City or the Paying Agent/Registrar may require the Owner of such Certificate 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 corutected therewith. (b) In the event that any Certificate 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 Certificate has been acquired by a bona fide purchaser, shall authenticate and deliver a replacement Certificate 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 satisfactory evidence of his or her ownership of and the circumstances of the loss, destruction, or theft of such Certificate; (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 corutection 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 Certificate, a bona fide purchaser of the original Certificate in lieu of which such replacement Certificate was issued presents for payment such original Certificate, the City and the Paying Agent/Registrar shall be entitled to recover such replacement Certificate 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 Certificate has become or is about to become due and payable, the Paying Agent/Registrar, in its discretion, instead of issuing a replacement Certificate, may pay such Certificate when it becomes due and payable. (e) Each replacement Certificate 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 Certificate or Certificates in lieu of which such replacement Certificate is delivered. Section 3.10. Book-Entry-Only System. -1l - ) ) ) {a) Notwithstanding any other provtston hereof, upon initial issuance of the Certificates, the Certificates shall be registered in the name of Cede & Co., as nominee of DTC. The definitive Certificates shall be initially issued in the form of a single separate certificate for each of the maturities thereof. (b) With respect to Certificates registered in the name of Cede & Co., as nominee of DTC, the City and the Paying Agent/Registrar shall have no responsibility or obligation to any DTC Participant or to any person on behalf of whom such a DTC Participant holds an interest in the Certificates. 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 Certificates, ,(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 Certificates, 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 or interest on the Certificates. 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 Certificate is registered in the Register as the absolute owner of such Certificate for the purpose of payment of principal of and interest on Certificates, for the purpose of giving notices of redemption and other matters with respect to such Certificate, for the pwpose of registering transfer with respect to such Certificate, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of and interest on the Certificates 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 interest on the Certificates to the extent of the sum or sums so paid. No person other than an Owner, as shown in the Register, shall receive a certificate evidencing the obligation of the City to make payments of amounts due pursuant to this Ordinance. Upon delivery by DTC to the Paying Agent/Registrar of written notice to the effect that DTC has detennined 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-entry-only form to DTC as securities depository, is hereby ratified and approved for the Certificates. Section 3.11. Successor Securities Depository; Transfer Outside Book-Entry-Only System. In the event that the City determines that it is in the best interest of the City and the beneficial owners of the Certificates that they be able to obtain certificated Certificates, 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 Certificates to such successor securities depository; or (ii) notify DTC and DTC Participants of the availability through DTC of certificated Certificates and cause the Paying Agent/Registrar to transfer one or more separate -12- ) > registered Certificates to DTC Participants having Certificates credited to their DTC accounts. In such event, the Certificates shall no longer be restricted to being registered in the Register in the name of Cede & Co., as nominee ofDTC, but may be registered in the name of the successor securities depository, or its nominee, or in whatever name or names Owners transferring or exchanging Certificates shall designate, in accordance with the provisions of this Ordinance. Section 3.12. Payments to Cede & Co. Notwithstanding any other provision of this Ordinance to the contrary, so long as the Certificates are registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of and interest on such Certificates, and all notices with respect to such Certificates shall be made and given, respectively, in the manner provided in the Representations Letter of the City to DTC. ARTICLE IV REDEMPTION OF CERTIFICATES BEFORE MATURITY Section 4.01. Redemption. The Certificates are subject to redemption before their scheduled maturity only as provided in this Article IV. Section 4.02. Optional Redemption. (a) The City reserves the option to redeem Certificates in the manner provided in the Form of Certificate set forth in Section 6.02 of this Ordinance with such changes as are required by the Pricing Certificate. (b) If less than all of the Certificates are to be redeemed pursuant to an optional redemption, the City shall determine the maturity or maturities and the amounts thereof to be redeemed and shall direct the Paying Agent/Registrar to call by lot the Certificates, or portions thereof, within such maturity or maturities and in such principal amounts for redemption. (c) The City, at least 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 Certificates to be redeemed. Section 4.03. Mandatory Sinking Fund Redemption. (a) Certificates designated as "Term Certificates," 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. (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 -13 - ) ) ) ) that results in a random selection, a principal amount of Term Certificates equal to the aggregate principal amount of such Term Certificates to be redeemed, shall call such Tenn Certificates for redemption on such scheduled mandatory redemption date, and shall give notice of such redemption, as provided in Section 4.05. The principal amount of the Term Certificates required to be redeemed on any redemption date pursuant to subparagraph (a) of this Section 4.03 shall be reduced, at the option of the City, by the principal amount of any Term Certificates 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 Tenn Certificates 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. Section 4.04. Partial Redemption. (a) A portion of a single Certificate 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 Certificate is to be partially redeemed, the Paying Agent/Registrar shall treat each $5,000 portion of the Certificate as though it were a single Certificate for purposes of selection for redemption. (b) Upon surrender of any Certificate for redemption in part, the Paying Agent/Registrar, in accordance with Section 3.06 of this Ordinance, shall authenticate and deliver an exchange Certificate or Certificates in an aggregate principal amount equal to the umedeemed portion of the Certificate 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 Certificate as to which only a portion thereof is to be redeemed. Section 4.05. Notice of Redemption to Owners. (a) The Paying Agent/Registrar shall give notice of any redemption of Certificates by sending notice by United States mail, first class postage prepaid, not less than 30 days before the date fixed for redemption, to the Owner of each Certificate (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 Certificates are to be surrendered for payment, and, if less than all the Certificates outstanding are to be redeemed, an identification of the Certificates or portions thereof to be redeemed. (c) Any notice given as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Owner receives such notice. Section 4.06. Payment Upon Redemption. -14- ' 1 (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 Certificates 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 Certificates being redeemed. (b) Upon presentation and surrender of any Certificate called for redemption at the Designated Paymentffransfer Office on or after the date fixed for redemption, the Paying Agent/Registrar shall pay the principal of and accrued interest on such Certificate to the date of redemption from the money set aside for such purpose. Section 4.07. Effect of Redemption. (a) Notice of redemption having been given as provided in Section 4.05 of this Ordinance, the Certificates 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 Certificates or portions thereof shall cease to bear interest from and after the date fixed for redemption, whether or not such Certificates 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 Certificate or portion thereof called for redemption shall continue to bear interest at the rate stated on the Certificate until due provision is made for the payment of same by the City. Section 4.08. Lapse of Payment. Money set aside for the redemption of Certificates and remaining unclaimed by the Owners of such Certificates shall be subject to the provisions of Section 3.03(t) hereof. ARTICLEV PAYING AGENT/REGISTRAR Section 5.01. Appointment of Initial Paving Agent/Registrar. The Bank of New York Trust Company, National Association, is hereby appointed as the initial Paying Agent/Registrar for the Certificates. Section 5.02. 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 perform the duties and services of paying agent and registrar for the Certificates. Section 5.03. Maintaining Paying Agent/Registrar. -15- ' ) ) (a) At all times while any of the Certificates are outstanding, the City will maintain a Paying Agent/Registrar that is qualified under Section 5.02 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 5.04. 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 5.05. 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 5.06. 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 5.07. 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 Certificates to the successor Paying Agent/Registrar. ARTICLE VI FORM OF THE CERTIFICATES Section 6.0 1. Form Generally. (a) The Certificates, including the Registration Certificate of the Comptroller of Public Accounts of the State of Texas, the Certificate of the Paying Agent/Registrar, and the Assigrunent form to appear on each of the Certificates, (i) shall be substantially in the form set forth in this Article, with such appropriate insertions, omissions, substitutions, and other variations as are permitted or required by this Ordinance and the Pricing Certificate, and (ii) may have such letters, numbers, or other marks of identification (including identifying numbers and -16- ) ) letters of the Committee on Uniform Securities Identification Procedures of the American Bankers Association) and such legends and endorsements (including any reproduction of an opinion of counsel) thereon as, consistently herewith, may be determined by the City or by the officers executing such Certificates, as evidenced by their execution thereof. (b) Any portion of the text of any Certificates may be set forth on the reverse side thereof, with an appropriate reference thereto on the face of the Certificates. (c) The definitive Certificates, 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 Certificates, as evidenced by their execution thereof. (d) The Initial Certificate submitted to the Attorney General of the State of Texas may be typewritten and photocopied or otherwise reproduced. Section 6.02. Form of the Certificates. The form of the Certificates, 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 Certificates, shall be substantially as follows: (a) Form of Certificate. REGISTERED No. __ United States of America State ofTexas County of Lubbock CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 REGISTERED $'------- INTEREST RATE: MATURITY DATE: CERTIFICATE 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 1 Information to be inserted from Pricing Certificate. -17- ) ) } or registered assigns~ on the Maturity Date specified above, the sum of _________ DOLLARS unless this Certificate shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Certificate 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, conunencing 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 Certificate shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Certificate at the corporate trust office in Dallas, Texas (the "Designated Payment/Transfer Office"), of The Bank of New York Trust Company, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office of such successor. Interest on this Certificate is payable by check dated as of the interest payment date, and wilt 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. At the option of an Owner of at least $1 ,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Certificate, the registered owner shall be the person in whose name this Certificate 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 Certificate 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 Certificate is one of a series of fully registered certificates specified in the title hereof issued in the aggregate principal amount of $ 3 (herein referred to as the "Certificates"), issued pursuant to a certain ordinance of the City (the "Ordinance") for the purpose of paying contractual obligations to be incurred for authorized public improvements (collectively, the "Project"), as described in the Ordinance, and to pay the contractual obligations 2 Information to be inserted from Pricing Certificate. 3 Infonnation to be inserted from Pricing Certificate. -18- ) for professional services of attorneys, financial advisors and other professionals in connection with the Project and the issuance of the Certificates. [The City has reserved the option to redeem the Certificates maturing on or after February 15 in whole or in part, before their respective scheduled maturity dates, on ___ __, or on any date thereafter, at a price equal to the principal amount of the Certificates so called for redemption plus accrued interest to the date fixed for redemption. If less than all of the Certificates are to be redeemed, the City shall determine the maturity or maturities and the amounts thereof to be redeemed and shall direct the Paying Agent/Registrar to call by lot or other customary method that results in a random selection the Certificates, or portions thereof, within such maturity and in such principal amounts, for redemptionl [Certificates maturing on February 15 in each of the years __ through ___,_) inclusive {the "Term Certificates"), 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 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 Certificates (or with respect to Term Certificates having a denomination in excess of $5,000, each $5,000 portion thereof) to be redeemed by mandatory redemption. The principal amount of Term Certificates 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 Certificates 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 Certificates 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 first class mail, postage prepaid, not less than 30 days before the date fixed for redemption, to the registered owner of each of the Certificates to be redeemed in whole or in part. Notice having been so given, the Certificates 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 Certificates or portions thereof so called for redemption shall not have been surrendered for payment, interest on such Certificates or portions thereof shall cease to accrue. 4 Insert optional redemption provisions, if any, and revise as necessary to conform to the Pricing Certificate. s Insert mandatory sinking fund redemption provisions, if any, and conform as necessary to the Pricing Certificate. -19- ) As provided in the Ordinance, and subject to certain limitations therein set forth, this Certificate is transferable upon surrender of this Certificate 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 Certificates of the same stated maturity, of authorized denominations, bearing the same rate of interest, and for the same aggregate principal amount will be issued to the designated transferee or transferees. Neither the City nor the Paying Agent/Registrar shall be required to issue, transfer or exchange any Certificate called for redemption where such redemption is scheduled to occur within forty-five (45) calendar days of the transfer or exchange date; provided, however, such limitation shall not be applicable to an exchange by the registered owner of the uncalled principal balance of a Certificate. The City, the Paying Agent/Registrar, and any other person may treat the person in whose name this Certificate 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 Certificate is registered on the Record Date) and for all other purposes, whether or not this Certificate 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 Certificate and the series of which it is a part is duly authorized by law; that all acts, conditions, and things to be done precedent to and in the issuance of the Certificates have been properly done and perfonned 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 Certificates within the limit prescribed by law; that, in addition to said taxes, further provisions have been made for the payment of the debt service requirements of the Certificates by pledging to such purpose Surplus Revenues, as defined in the Ordinance, derived by the City from the operation of the Wastewater System in an amount limited to $1 ,000; that when so collected, such taxes and Surplus Revenues shall be appropriated to such purposes; and that the total indebtedness of the City, including the Certificates, does not exceed any constitutional or statutory limitation. IN WITNESS WHEREOF, the City has caused this Certificate 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 Certificate. Mayor, City of Lubbock, Texas City Secretary, City of Lubbock, Texas [SEAL] -20- ) ) 'I } (b) Form of Comptroller's Registration Certificate. The following Comptroller's Registration Certificate may be deleted from the definitive Certificates if such certificate on the Initial Certificate 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 Certificate 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 Certificate 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 of Texas (c) Fonn of Certificate of Paying Agent/Registrar. The following Certificate of Paying Agent/Registrar may be deleted from the Initial Certificate if the Comptroller's Registration Certificate appears thereon. CERTIFICATE OF PAYING AGENT/REGISTRAR The records of the Paying Agent/Registrar show that the Initial Certificate of this series of Certificates 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 Certificates referred to in the within-mentioned Ordinance. Dated: The Bank of New York Trust Company, National Association as Paying Agent/Registrar By: -------------------------Authorized Signatory -21- ' ) (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 number: ) the within Certificate and all rights hereunder and hereby irrevocably constitutes and appoints ---------attorney to transfer the within Certificate 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 Certificate in every particular and must be guaranteed in a manner acceptable to the Paying Agent/Registrar. Signature Guaranteed By: Authorized Signatory (e) The Initial Certificate shall be in the fonn set forth in paragraphs {a), (b) and (d) of this Section, except for the following alterations: {i) immediately under the name of the Certificate the headings "INTEREST RATE" and "MATURITY DATE" shall both be completed with the words "As shown below"; and (ii) in the first paragraph of the Certificate, 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 {lnfonnation to be inserted from the Pricing Certificate pursuant to Section 3.02 of this Ordinance) -22- ) ) ) ) Section 6.03. 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 Certificates. It is expressly provided, however, that the presence or absence of CUSIP numbers on the Certificates shall be of no significance or effect in regard to the legality thereof and neither the City nor the attorneys approving said Certificates as to legality are to be held responsible for CUSIP numbers incorrectly printed on the Certificates. Section 6.04. Legal Opinion. The approving legal opinion of Vinson & Elkins L.L.P., Bond Counsel, may be attached to or printed on the reverse side of each Certificate over the certification of the City Secretary of the City, which may be executed in facsimile. Section 6.05. Bond Insurance. lnfonnation pertaining to bond insurance, if any, may be printed on each Certificate. ARTICLE VII SALE AND DELIVERY OF CERTIFICATES; DEPOSIT OF PROCEEDS Section 7.01. Sale of Certificates; Official Statement. (a) The Certificates shall be sold at negotiated sale to the Underwriters in accordance with the terms of this Ordinance, including this Section 7.0l(a) and Exhibit B hereto, provided that all of the conditions set forth in Exhibit B can be satisfied. As authorized by Chapter 1371, Texas Govenunent Code, as amended, the Authorized Officer is authorized to act on behalf of the City upon detennining that the conditions set forth in Exhibit B can be satisfied, in selling and delivering the Certificates and carrying out the other procedures specified in this Ordinance, including detennining whether to acquire bond insurance for the Certificates, the aggregate principal amount of the Certificates and price at which each of the Certificates will be sold, the number and designation of series of Certificates to be issued, the fonn in which the Certificates shall be issued, the years in which the Certificates 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 Certificates 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 Certificates, all of which shall be specified in the Pricing Certificate. The authority granted to the Authorized Officer under this Section 7.0l(a) shall expire at 5:00p.m., July 10, 2008, unless otherwise extended by the City Council by separate action. Any finding or determination made by the Authorized Officer relating to the issuance and sale of the Certificates and the execution of the Certificate Purchase Contract in connection -23- ' } ) ) ' ) therewith shall have the same force and effect as a finding or determination made by the City Council. (b) The Authorized Officer is hereby authorized and directed to execute and deliver, and the City Secretary is hereby authorized and directed to attest, a certificate purchase contract (the "Certificate Purchase Contract'') which Certificate Purchase Contract is hereby accepted, approved and authorized in substantially the form submitted to the City and upon completion of the terms of the Certificate Purchase Contract in accordance with the terms of the Pricing Certificate and this Ordinance, the Authorized Officer is authorized and directed to execute such Certificate Purchase Contract on behalf of the City and the Authorized 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 Certificates. The Certificates shall initially be registered in the name the Representative. (c) The fonn and substance of the Preliminary Official Statement and any addenda, supplement or amendment thereto, are hereby in all respects approved and adopted and is hereby deemed final as of its date within the meaning and for the purposes of paragraph (b)(l) of Rule 15c2-12 under the Securities Exchange Act of 1934, as amended. The Authorized Officer and City Secretary are hereby authorized and directed to cause to be prepared a final Official Statement (the "Official Statement") incorporating applicable pricing information pertaining to the Certificates, and to execute the same by manual or facsimile signature and deliver appropriate numbers of executed copies thereof to the Underwriters. The Official Statement as thus approved, executed and delivered, with such appropriate variations as shall be approved by the Authorized Officer and the Underwriters, may be used by the Underwriters in the public offering and sale thereof. The City Secretary is hereby authorized and directed to include and maintain a copy of the Official Statement and any addenda, supplement or amendment thereto thus approved among the permanent records of this meeting. The use and distribution of the Preliminary Official Statement, and the preliminary public offering of the Certificates by the Underwriters, is hereby ratified, approved and confirmed. (d) All officers of the City are authorized to execute such documents, certificates and receipts as they may deem appropriate in order to consummate the delivery of the Certificates in accordance with the terms of sale therefor including, without limitation, the Purchase Contract. (e) The obligation of the Underwriters identified in subsection (a) of this Section to accept delivery of the Certificates is subject to the Underwriters being furnished with the final, approving opinion of Vinson & Elkins L.L.P ., bond counsel for the City, which opinion shall be dated and delivered the Closing Date. Section 7 .02. Control and Delivery of Certificates. (a) The Authorized Officer of the City is hereby authorized to have control of the Initial Certificate 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. -24- ) ) (b) After registration by the Comptroller of Public Accounts, delivery of the Certificates shall be made to the Underwriters thereof under and subject to the general supervision and direction of the Authorized Officer, against receipt by the City of all amounts due to the City under the terms of sale. (c) In the event the Mayor or City Secretary is absent or otherwise unable to execute any document or take any action authorized herein, the Mayor Pro Tern and the Assistant City Secretary, respectively, shall be authorized to execute such documents and take such actions, and the performance of such duties by the Mayor Pro Tern and the Assistant City Secretary shall for the purposes of this Ordinance have the same force and effect as if such duties were performed by the Mayor and City Secretary, respectively. Section 7.03. Deposit of Proceeds. (a) First: All amounts received on the Closing Date as accrued interest on the Certificates from the Certificate Date to the Closing Date shall be deposited to the Interest and Sinking Fund. (b) Second: The remaining balance received on the Closing Date shall be deposited to a special account of the City, such moneys to be dedicated and used solely for the remaining purposes for which the Certificates are being issued as herein provided. ARTICLE VIII INVESTMENTS Section 8.01. 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. (b) Any securities or obligations in which such money is so invested shall be kept and held in trust for the benefit of the Owners and shall be sold and the proceeds of sale shall be timely applied to the making of all payments required to be made from the fund from which the investment was made. Section 8.02. Investment Income. (a) Interest and income derived from investment of the Interest and Sinking Fund shall be credited to such fund. (b) Interest and income derived from investment of the funds to be deposited pursuant to Section 7 .03(b) hereof shall be credited to the account where deposited until the acquisition or construction of said projects is completed or shall be transferred to the Interest and Sinking Fund as shall be determined by the City CounciL Upon completion of the authorized projects, to the extent such interest and income are present, such interest and income shall be deposited to the Interest and Sinking Fund. -25- ' ) ) ' ARTICLE IX PARTICULAR REPRESENTATIONS AND COVENANTS Section 9.01. Payment of the Certificates. On or before each Interest Payment Date while any of the Certificates 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 principal of and interest on the Certificates as will accrue or mature on the applicable Interest Payment Date or date of prior redemption. Section 9.02. Other Re.presentations and Covenants. (a) The City will faithfully perform, at all times, any and all covenants, undertakings, stipulations, and provisions contained in this Ordinance; the City will promptly pay or cause to be paid the principal of and interest on each Certificate on the dates and at the places and manner prescribed in such Certificate; 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 Certificates; all action on its part for the creation and issuance of the Certificates has been duly and effectively taken; and the Certificates in the hands of the Owners thereof are and will be valid and enforceable obligations of the City in accordance with their terms. Section 9.03. Provisions Concerning Federal Income Tax Exclusion. The City intends that the interest on the Certificates shall be excludable from gross income for purposes of federal income taxation pursuant to sections 1 03 and 141 through 150 of the Internal Revenue Code of 1986, as amended (the "Code"), and the applicable regulations promulgated thereunder (the "Regulations"). The City covenants and agrees not to take any action, or knowingly omit to take any action within its control, that if taken or omitted, respectively, would cause the interest on the Certificates to be includable in the gross income, as defined in section 61 of the Code, of the holders thereof for pwposes of federal income taxation. In particular, the City covenants and agrees to comply with each requirement of Sections 9.03 through 9.9 of this Article IX; provided, however, that the City shall not be required to comply with any particular requirement of Sections 9.03 through 9.09 of this Article IX if the City has received an opinion of nationally recognized bond counsel ("Counsel's Opinion") that such noncompliance will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Certificates or if the City has received a Counsel's Opinion to the effect that compliance with some other requirement set forth in Sections 9.03 through 9.09 of this Article IX will satisfy the applicable requirements of the Code, in which case compliance with such other requirement specified in such Counsel's Opinion shall constitute compliance with the corresponding requirement specified in Sections 9.03 through 9.09 of this Article IX. Section 9.04. 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 -26- ' ' } ) ' Certificates are delivered, the proceeds of the Certificates will not be used in a manner that would cause the Certificates 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 Certificates, including interest or other investment income derived from Certificate 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 Certificates will not be "private activity bonds" within the meaning of section 141 of the Code and the Regulations. Section 9.05. 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 Certificates to be "federally guaranteed" within the meaning of section 149(b) of the Code and the Regulations, except as permitted by section 149(b )(3) of the Code and the Regulations. Section 9.06. Certificates 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 Certificates to be ''hedge bonds" within the meaning of section 149(g) of the Code and the Regulations. Section 9.07. 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 Certificates are delivered, the City will reasonably expect that the proceeds of the Certificates will not be used in a manner that would cause the Certificates 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 Certificates including interest or other investment income derived from Certificate proceeds, regulate investments of proceeds of the Certificates, and take such other and further action as may be required so that the Certificates will not be "arbitrage bonds" within the meaning of section 148(a) of the Code and the Regulations. Section 9.08. Arbitrage Rebate. If the City does not qualify for an exception to the requirements of Section 148(f) of the Code, the City will take all necessary steps to comply with the requirement that certain amounts earned by the City on the investment of the "gross proceeds" of the Certificates {within the meaning of section 148(f)(6)(B) of the Code), be rebated to the federal govenunent. Specifically, the City will (i) maintain records regarding the investment of the gross proceeds of the Certificates as may be required to calculate the amount earned on the investment of the gross proceeds of the Certificates 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 Certificates 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 Certificates -27- ) ) ' ' 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 Certificates 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 Certificates 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 9.09. Information Re,porting. 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 Certificates are issued, an information statement concerning the Certificates, all under and in accordance with section 149(e) of the Code and the Regulations. Section 9.1 0. Continuing Obligation. Notwithstanding any other provision of this Ordinance, the City's obligations under the covenants and provisions of Sections 9.03 through 9.09 of this Article IX shall survive the defeasance and discharge of the Certificates. ARTICLE X DEFAULT AND REMEDIES Section 10.01. 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 or interest on any of the Certificates when the same becomes due and payable; or (ii) default in the performance or observance of any other covenant, agreement, or obligation of the City, which default materially and adversely affects the rights of the Owners, including but not limited to their prospect or ability to be repaid in accordance with this Ordinance, and the continuation thereof for a period of sixty (60) days after notice of such default is given by any Owner to the City. Section 1 0.02. Remedies for Default (a) Upon the happening of any Event of Default, then any Owner or an authorized representative thereof, including but not limited to a trustee or trustees therefor, may proceed against the City for the purpose of protecting and enforcing the rights of the Owners under this Ordinance by mandamus or other suit, action or special proceeding in equity or at law in any -28- 'I ) ) court of competent jurisdiction for any relief pennitted by law, including the specific performance of any covenant or agreement contained herein, or thereby to enjoin any act or thing that may be unlawful or in violation of any right of the Owners hereunder or any combination of such remedies. (b) It is provided that all such proceedings shall be instituted and maintained for the equal benefit of all Owners of Certificates then outstanding. Section 10.03. 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 Certificates 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 Certificates shall not be available as a remedy under this Ordinance. (b) The exercise of any remedy herein conferred or reserved shall not be deemed a waiver of any other available remedy. ARTICLE XI DISCHARGE Section 11.01. Discharge. The Certificates may be defeased, discharged or refunded in any manner pennitted by applicable law. ARTICLE XII CONTINUING DISCLOSURE UNDERTAKING Section 12.01. 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. -29- (b) If the City changes its fiscal year, it will notify each NRMSIR and any SID of the change (and of the date of the new fiscal year end) prior to the next date by which the City otherwise would be required to provide financial infonnation and operating data pursuant to this Section. (c) The financial infonnation 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. ' I Section 12.02. 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 Certificates, 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; (vi) adverse tax opinions or events affecting the tax-exempt status of the Certificates; (vii) modifications to rights of Owners; (viii) redemption calls; (ix) defeasances; (x) release, substitution, or sale of property securing repayment of the Certificates; and (xi) rating changes. (b) The City shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any failure by the City to provide financial infonnation or operating data in accordance with Section 12.01 of this Ordinance by the time required by such Section. -30- ' I ) ) ) \ ' I ' ) Section 12.03. 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 Certificates within the meaning of the Ruie, 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 Certificates, 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 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 Certificates at any future date. UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE OWNER OR BENEFICIAL OWNER OF ANY CERTIFICATE OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE CITY, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS ARTICLE, BUT EVERY RIGHT AND REMEDY OF ANY SUCH PERSON, IN CONTRACT OR TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORMANCE. (c) No default by the City in observing or performing its obligations under this Article shall constitute a breach of or default under the Ordinance for purposes of any other provisions of this Ordinance. (d) Nothing in this Article is intended or shall act to disclaim, waive, or otherwise limit the duties of the City under federal and state securities laws. (e) The provisions of this Article may be amended by the City from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, but only if (i) the provisions of this Article, as so amended, would have permitted an underwriter to purchase or sell 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 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 Certificates 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 Certificates. If the City so amends the provisions of this -31 - \ ) ) Article, it shall include with any amended financial information or operating data next provided in accordance with Section 12.01 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 XII may be made through the facilities of DisclosureUSA or such other central post office as may be approved in writing by the SEC for such purpose. Any such filing made through such central post office will be deemed to have been filed with each NRMSIR and SID or MSRB as if such filing had been made directly to such entity. ARTICLE XIII AMENDMENTS; AITORNEY GENERAL MODIFICATION Section 13.01. 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 Certificate remains outstanding except as permitted in this Section. The City may, without consent of or notice to any Owners, from time to time and at any time, amend this Ordinance in any manner not detrimental to the interests of the Owners, including the curing of any ambiguity, inconsistency, or formal defect or omission herein. In addition, the City may, with the written consent of the Owners of the Certificates holding a majority in aggregate principal amount of the Certificates then outstanding, amend, add to, or rescind any of the provisions of this Ordinance; provided that, without the consent of all Owners of outstanding Certificates, no such amendment, addition, or rescission shall (i) extend the time or times of payment of the principal of and interest on the Certificates, reduce the principal amount thereof, the redemption price, or the rate of interest thereon, or in any other way modify the terms of payment of the principal of or interest on the Certificates, (ii) give any preference to any Certificate over any other Certificate, or (iii) reduce the aggregate principal amount of Certificates required to be held by Owners for consent to any such amendment, addition, or rescission. Section 13.02. Attorney General Modification. In order to obtain the approval of the Certificates by the Attorney General of the State of Texas, any provision of this Ordinance may be modified, altered or amended after the date of its adoption if required by the Attorney General in connection with the Attorney General's examination as to the legality of the Certificates 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. -32- ) ) ' ' ' ARTICLE XIV EFFECTIVE IMMEDIATELY Section 14.01. Effective Immediately. Notwithstanding the provisions of the City Charter, this Ordinance shall become effective immediately upon its adoption at this meeting pursuant to Section 1201.028, Texas Government Code. ~ 33- ) ') PRESENTED, FINALLY PASSED AND APPROVED, AND EFFECTIVE on the lOth day of January, 2008, at a regular meeting ofthe City Council of the City of Lubbock, Texas. DAVID A. MILLE~ Mayor ATTEST: ~~-q. ___, iiEB CCAGARZA, city sec;e¥i [SEAL] APPROVED AS TO FORM: By: Signature Page for Ordinance ) ) ) EXHIBIT A DESCRIPTION OF ANNUAL DISCLOSURE OF FINANCIAL INFORMATION The following information is referred to in Article XII of this Ordinance. Annual Financial Statements and Operating Data The financial information and operating data with respect to the City to be provided annually in accordance with such Section are as specified (and included in the Appendix or other headings of the Official Statement referred to) below: 1. The portions of the financial statements of the City appended to the Official Statement as Appendix B, but for the most recently concluded fiscal year. 2. Statistical and financial data set forth in Tables 1-6 and 8A-15 of the Official Statement. Accounting Principles The accounting principles referred to in such Section are the accounting principles described in the notes to the financial statements referred to in Paragraph 1 above. A-1 } ' EXHIBITB SALE PARAMETERS In accordance with Section 7.0l(a) of the Ordinance, the following conditions with respect to the Certificates must be satisfied in order for the Authorized Officer to act on behalf of the City in selling and delivering the Certificates to the Underwriters: (a) the price to be paid for the Certificates shall be not less than 95% of the aggregate principal amount of the Certificates; (b) the Certificates shall not bear interest at a rate greater than the maximum rate allowed by Chapter 1204, Texas Government Code, as amended; (c) the aggregate principal amount of the Certificates shall produce proceeds in an amount sufficient, as determined by the Authorized Officer, to fund the purposes described in Section 3.01 and such aggregate principal amount shall not exceed the maximum amount authorized in Section 3.02; (d) the maximum maturity for the Certificates shall not exceed forty years; and (e) the Certificates 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. B-1 ) PRICING CERTIFICATE ) Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008 ) ) Re: $52,900,000 City of Lubbock, Texas Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008 (the "Certificates") 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 January 10, 2008 (the "Ordinance .. ) authorizing the issuance of the Certificates. Capitalized terms used in this Pricing Certificate shall have the meanings given such terms in the Ordinance. 1. As authorized by Section 7.01 of the Ordinance, I have acted on behalf of the City in selling the Certificates to the Underwriters pursuant to the terms of a purchase contract in substantially the form accepted, approved and authorized pursuant to Section 7.01 of the Ordinance, for the sum of $55,433,110.06 (representing the principal amount of $52,900,000, plus net original issue premium of$2,851,566.50 and less an underwriters' discount of $318,456.44), plus accrued interest from the Certificate Date and having the following terms, conditions and provisions, all as authorized pursuant to Section 7.01 of the Ordinance: A. The Certificates shall be issued in the aggregate principal amount of $52,900,000, shall be dated January 15, 2008 (the "Certificate Date") and bear interest from such date, shall mature on February 15 in the years and in the principal amounts and shall bear interest payable on February 15 and August 1 S of each year, commencing August 15, 2008, at the rates set forth in the following schedule: Serial Certificates Principal Principal Years Installments Interest Rate Years Installments Interest Rate 2009 $1,765,000 4.000% 2019 $2,550,000 5.000% 2010 1,830,000 3.500% 2020 2,685,000 5.000% 2011 1,895,000 3.500% 2021 2,820,000 5.000% 2012 1,960,000 3.250% 2022 2,965,000 5.000% 2013 2,025,000 3.250% 2023 3,115,000 5.000% 2014 2,095,000 3.250% 2024 3,265,000 4.200% 2015 2,165,000 3.500% 2025 3,420,000 5.000% 2016 2,245,000 3.500% 2026 3,595,000 5.000% 2017 2,325,000 3.625% 2027 3,780,000 5.000% 2018 2,430,000 5.000% 2028 3,970,000 5.000% B. In accordance with the parameters contained in Section 7.01 and Exhibit B of the Ordinance, the undersigned does hereby find, certify and represent that the foregoing terms of the Certificates satisfy the following requirements and parameters contained within such Section 7.01 and Exhibit B: 1352068v.l LUB200/71012 ) ) ) (i) the price to be paid by the Underwriters for the Certificates shall be - 104.8% the aggregate principal amount of the Certificates, which is not less than 95% of the aggregate principal amount of the Certificates; (ii) the Certificates do not bear interest at a rate greater than the maximum rate allowed by Chapter 1204, Texas Government Code, as amended; (iii) the aggregate principal amount of the Certificates produces proceeds sufficient to fund the purposes described in Section 3.01 of the Ordinance and such aggregate principal amount does not exceed the maximum amount authorized in Section 3.01 of the Ordinance; (iv) the maximum maturity for the Certificates is twenty years which does not exceed forty years; (v) the Certificates 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 term obligations. 2. The proceeds of the Certificates shall be applied as set forth in Section 7.03 of the Ordinance. 3. The Certificates shall be insured by Financial Security Assurance Inc. 4. The Certificates shall be issued substantially in the form attached hereto as Exhibit A. -2- 1352068v.l LUB200/71012 ' Executed as of the 1Oth day of January, 2008. ) ) ) ) ) Signature Page for Pricing Certificate ) ) ) ) ) ) EXHIBIT A The form of the Certificates, including the form of the Registration Certificate of the Comptroller of Public Accounts of the State of Texas, the fonn of Certificate of the Paying Agent/Registrar and the form of Assigrunent appearing on the Certificates, shall be substantially as follows: (a) Form of Certificate. REGISTERED No. __ United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 REGISTERED $. ___ _ INTEREST RATE: MATURITY DATE: CERTIFICATE DATE: CUSIP NUMBER: __ % February 15, __ January 15, 2008 The City of Lubbock (the "City"), in the County of Lubbock, State of Texas, for value received, hereby promises to pay to or registered assigns, on the Maturity Date specified above, the sum of ---------DOLLARS unless this Certificate shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Certificate 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, 2008. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). The principal of this Certificate shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Certificate at the corporate trust office in Dallas, Texas (the "Designated Payment/Transfer Office"), of The Bank of New York Trust Company, National Association, or, with respect to a A-I 1352068v.l LUB200/71 012 ' ) ) ) ' } ) successor Paying Agent/Registrar, at the Designated Payment/Transfer Office of such successor. Interest on this Certificate 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. At the option of an Owner of at least $1,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with the Paying Agent/Registrar. For the purpose of the payment of interest on this Certificate, the registered owner shall be the person in whose name this Certificate 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 Certificate 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 Certificate is one of a series of fully registered certificates specified in the title hereof issued in the aggregate principal amount of $52,900,000 (herein referred to as the "Certificates"), issued pursuant to a certain ordinance of the City (the "Ordinance") for the purpose of paying contractual obligations to be incurred for authorized public improvements (collectively, the "Project"), as described in the Ordinance, and to pay the contractual obligations for professional services of attorneys, financial advisors and other professionals in cormection with the Project and the issuance of the Certificates. The City has reserved the option to redeem the Certificates maturing on or after February 15, 2018, in whole or in part, before their respective scheduled maturity dates, on February 15, 2017, or on any date thereafter, at a price equal to the principal amount of the Certificates so called for redemption plus accrued interest to the date fixed for redemption. If less than all of the Certificates are to be redeemed, the City shall determine the maturity or maturities and the amounts thereof to be redeemed and shall direct the Paying Agent/Registrar to call by lot or other customary method that results in a random selection the Certificates, or portions thereof, within such maturity and in such principal amounts, for redemption. Notice of such redemption or redemptions shall be given by first class mail, postage prepaid, not less than thirty (30) days before the date fixed for redemption, to the registered owner of each of the Certificates to be redeemed in whole or in part. Notice having been so giveD; the Certificates 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 Certificates or portions thereof so called for redemption shall not have been surrendered for pa)'ment, interest on such Certificates or portions thereof shall cease to accrue. A-2 1352068v.l LUB200/710l2 ) ) ) ) ) ) As provided in the Ordinance, and subject to certain limitations therein set forth, this Certificate is transferable upon surrender of this Certificate 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 Certificates of the same stated maturity, of authorized denominations, bearing the same rate of interest, and for the same aggregate principal amount will be issued to the designated transferee or transferees. Neither the City nor the Paying Agent/Registrar shall be required to issue, transfer or exchange any Certificate called for redemption where such redemption is scheduled to occur within forty-five (45) calendar days of the transfer or exchange date; provided, however, such limitation shall not be applicable to an exchange by the registered owner of the uncalled principal balance of a Certificate. The City, the Paying Agent/Registrar, and any other person may treat the person in whose name this Certificate 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 Certificate is registered on the Record Date) and for all other purposes, whether or not this Certificate 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 Certificate and the series of which it is a part is duly authorized by law; that all acts, conditions, and things to be done precedent to and in the issuance of the Certificates 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 Certificates within the limit prescribed by law; that, in addition to said taxes, further provisions have been made for the payment of the debt service requirements of the Certificates by pledging to such purpose Surplus Revenues, as defined in the Ordinance, derived by the City from the operation of the Wastewater System in an amount limited to $1 tOOO; that when so collected, such taxes and Surplus Revenues shall be appropriated to such purposes; and that the total indebtedness of the City, including the Certificates, does not exceed any constitutional or statutory limitation. A·3 1352068v.t lUB200111012 ) ) ' ) IN WITNESS WHEREOF, the City has caused this Certificate 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 Certificate. Mayor, City of Lubbock, Texas City Secretary, City of Lubbock, Texas [SEAL] A-4 1352068v.l LUB200171012 (b) Form of Comptroller's Registration Certificate. The following Comptroller's Registration Certificate may be deleted from the definitive Certificates if such certificate on the Initial Certificate 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 Certificate 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 Certificate 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 Paving Agent/Registrar. The following Certificate of Paying Agent/Registrar may be deleted from the Initial Certificate if the Comptroller's Registration Certificate appears thereon. CERTIFICATE OF PAYING AGENT/REGISTRAR The records of the Paying Agent/Registrar show that the Initial Certificate of this series of certificates 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 Certificates referred to in the within-mentioned Ordinance. Dated: A-5 1352068v.l LUB200171012 The Bank of New York Trust Company, 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 nwnber: the within Certificate and all rights hereunder and hereby irrevocably constitutes and appoints ---------attorney to transfer the within Certificate on the books kept for registration hereof, with full power of substitution in the premises. Dated: NOTICE: The signature on this Assigrunent must correspond with the name of the registered owner as it appears on the face of the within Certificate in every particular and must be guaranteed in a manner acceptable to the Paying Agent/Registrar. Signature Guaranteed By: Authorized Signatory (e) The Initial Certificate shall be in the form set forth in paragraphs (a), (b) and (d) of this Section, except for the following alterations: (A) immediately under the name of the Certificate the headings "INTEREST RATE" and "MATURITY DATE" shall both be completed with the expression "As shown below" and the heading "CUSIP NO.H shall be deleted; and (B) in the first paragraph of the Certificate, 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: 1352068v.l LUB200171012 Principal Installments Interest Rate (Information to be inserted from the Pricing Certificate pursuant to Section 3.02 of the Ordinance} A-6 ) ) PAYING AGENT/REGISTRAR AGREEMENT between CITY OF LUBBOCK, TEXAS and THE BANK OF NEW YORK TRUST COMPANY, NATIONAL ASSOCIATION LUB200n1012 Pertaining to City of Lubbock~ Texas Tax and Wastewater System Surplus Revenue Certificates of Obligation Series 2008 Dated as of January 15, 2008 ·~ Dallas 1352066v.l ) ) TABLE OF CONTENTS Page Recitals ........................................................................................................................................ 1 ARTICLE I APPOINTMENT OF BANK AS PAYING AGENT AND REGISTRAR Section 1.01. Section 1.02. Appoint:tnent. ................................................................................................... 1 Compensation .................................................................................................. 1 ARTICLE II DEFINITIONS Section 2.01. Definitions ....................................................................................................... 2 Section 3.01. Section 3.02. Section 4.01. Section 4.02. Section 4.03. Section 4.04. Section 4.05. Section 4.06. Section 4.07. Section 5.01. Section 5.02. Section 5.03. Section 5.04. Section 5.05. Section 5.06. Section 5.07. LUB200nt012 Dallas 13 52066v.I ARTICLE III PAYING AGENT Duties of Paying Agent ................................................................................... 3 Payntent Dates ................................................................................................. 4 ARTICLE IV REGISTRAR Transfer and Exchange .................................................................................... 4 The Certificates ............................................................................................... 4 Form ofRegister .............................................................................................. 4 List of Owners ................................................................................................. 5 Cancellation of Certificates ............................................................................. 5 Mutilated, Destroyed, Lost, or Stolen Certificates .......................................... 5 Transaction Information to Issuer ................................................................... 6 ARTICLEV THE BANK Duties ofBank ................................................................................................. 6 Reliance on DocUinents, Etc ........................................................................... 7 Recitals of Issuer ............................................................................................. 7 May Hold Certificates ..................................................................................... 7 Money Held by Bank ...................................................................................... 8 Indemnification ............................................................................................... 8 Interpleader ...................................................................................................... 8 (i) ) ) ) ) Section 6.01. Section 6.02. Section 6.03. Section 6.04. Section 6.05. Section 6.06. Section 6.07. Section 6.08. Section 6.09. Section 6.10. Section 6.11. ARTICLE VI MISCELLANEOUS PROVISIONS Amendment ..................................................................................................... 9 Assignment ...................................................................................................... 9 Notices ................................................................................................................. 9 Effect of Headings ........................................................................................... 9 Successors and Assigns ................................................................................... 9 Separability ...................................................................................................... 9 Benefits of Agreement .................................................................................... 9 Entire Agreentent ............................................................................................ 9 Counterparts .................................................................................................. 1 0 Tennination ................................................................................................... 10 Governing Law .............................................................................................. 10 Execution ....................................................................................................................................... 11 Annex A ~ Schedule of Fees for Service as Paying Agent/Registrar LUB200nl012 Dallas I352066v.l (ii) ) ) ) PAYING AGENT/REGISTRAR AGREEMENT THIS PAYING AGENT/REGISTRAR AGREEMENT (the or this "Agreement"), dated as of January 15,2008, is by and between CITY OF LUBBOCK, TEXAS (the "Issuer"), and The Bank of New York Trust Company Bank, National Association (the "Bank"), a New York state banking corporation duly organized and existing under the laws of the United States of America. WHEREAS, the Issuer has duly authorized and provided for the issuance of its Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008 (the "Certificates"), dated January 15,2008, to be issued as registered securities without coupons; WHEREAS, all things necessary to make the Certificates the valid obligations of the Issuer, in accordance with their tenns, will be taken upon the issuance and delivery thereof; 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 Certificates, in accordance with the tenns thereof, and that the Bank act as Registrar for the Certificates; 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 tenns, have been done; NOW, THEREFORE, it is mutually agreed as follows: ARTICLE I APPOINTMENT OF BANK AS PAYING AGENT AND REGISTRAR Section 1.01. Appointment. (a) The Issuer hereby appoints the Bank to act as Paying Agent with respect to the Certificates in paying to the Owners of the Certificates the principal, redemption premium, if any, and interest on all or any of the Certificates. (b) The Issuer hereby appoints the Bank as Registrar with respect to the Certificates. (c) The Bank hereby accepts its appointment, and agrees to act as, the Paying Agent and Registrar. Section 1.02. Compensation. (a) As compensation for the Bank's services as Paying Agent/Registrar, the Issuer hereby agrees to pay the Bank the fees and amounts set forth in Annex A hereto for the first year of this Agreement, or such part thereof as this Agreement shall be in effect, and thereafter while this Agreement is in effect, the fees and amounts set forth in the Bank's current fee schedule then in effect for services as Paying Agent/Registrar for municipalities, which shall be supplied to the Issuer on or before 90 days prior to the close of the Fiscal Year of the Issuer, and shall be effective upon the first day of the following Fiscal Year. LUB20ont012 Dallas 1352066v.l ) ) (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 2.01. Definitions. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, the following terms have the following meanings when used in this Agreement: "Bank" means The Bank of New York Trust Company 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. "Certificate" or "Certificates" means any or all of the Issuer's Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008, dated January 15,2008. "Certificate Ordinance" means the ordinance of the City Council of the Issuer authorizing the issuance and delivery of the Certificates. "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 Certificate is registered in the Register. "Paying Agent" means the Bank when it is performing the functions associated with the terms in this Agreement. "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization, or govenunent or any agency or political subdivision of a govenunent. "Predecessor Certificates" of any particular Certificate means every previous Certificate evidencing all or a portion of the same obligation as that evidenced by such particular Certificate (and, for the purposes of this definition, any Certificate registered and delivered under LUB200171012 Dallas I352066v.l 2 ) ) ) ' 1 ' ) ) ) Section 4.06 in lieu of a mutilated, lost, destroyed or stolen Certificate shall be deemed to evidence the same obligation as the mutilated, lost, destroyed or stolen Certificate). "Record Date" means the last Business Day of the month next preceding an interest payment date established by the Certificate Ordinance. "Register" means a register in which the Issuer shall provide for the registration and transfer of Certificates. "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 Certificate Ordinance as the fixed date on which the principal of the Certificates is due and payable or the date fixed in accordance with the terms of the Certificate Ordinance for redemption of the Certificates, 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 Certificate or Certificates so maturing at the Bank Office, the principal amount of the Certificate or Certificates 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 Certificates to each Owner of the Certificates (or their Predecessor Certificates) as shown in the Register at the close of business on the Record Date, provided that the Bank shall have been provided by or on behalf of the Issuer adequate funds to make such payments; such payments shall be made by computing the amount of interest to be paid each Owner, preparing the checks, and mailing the checks on each interest payment date addressed to each Owner's address as it appears in the Register on the Record Date. LUB200nt012 Dallas 1352066v.l 3 ) ) ) Section 3.02. Payment Dates. The Issuer hereby instructs the Bank to pay the principal of, redemption premium, if any, and interest on the Certificates at the dates specified in the Certificate Ordinance. ARTICLE IV REGISTRAR Section 4.01. Transfer and Exchange. (a) The Issuer shall keep the Register at the Bank Office, and subject to such reasonable written regulations as the Issuer may prescribe, which regulations shall be furnished to the Bank herewith or subsequent hereto by Issuer Order, the Issuer shall provide for the registration and transfer of the Certificates. The Bank is hereby appointed "Registrar'' for the purpose of registering and transfening the Certificates as herein provided. The Bank agrees to maintain the Register while it is Registrar. The Bank agrees to at all times maintain a copy of the Register at its office located in the State of Texas. (b) The Bank as Registrar hereby agrees that at any time while any Certificate is outstanding, the Owner may deliver such Certificate to the Registrar for transfer or exchange, accompanied by instructions from the Owner, or the duly authorized designee of the Owner, designating the persons, the maturities, and the principal amounts to and in which such Certificate 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 Certificate or Certificates as provided in such instructions. The provisions of the Certificate 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 Certificate Ordinance. {c) Every Certificate surrendered for transfer or exchange shall be duly endorsed or be accompanied by a written instrument of transfer, the signature on which has been guaranteed in a manner satisfactory to the Bank, duly executed by the Owner thereof or his attorney duly authorized in writing. (d) The Bank may request any supporting documentation it feels necessary to effect a re-registration. Section 4.02. The Certificates. The Issuer shall provide an adequate inventory of unregistered Certificates to facilitate transfers. The Bank covenants that it will maintain the unregistered Certificates in safekeeping and will use reasonable care in maintaining such unregistered Certificates in safekeeping, which shall be not less than the care it maintains for debt securities of other govenunents 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 LUB200ni012 Dallas l352066v.l 4 ' ) ' J ) ) be obligated to maintain such Register in any form other than a form which the Bank has currently available and currently utilizes at the time. (b) The Register may be maintained in written form or in any other form capable of being converted into written form within a reasonable time. Section 4.04. List of Owners. (a) The Bank will provide the Issuer at any time requested by the Issuer, upon payment of the cost, if any, of reproduction, a copy of the information contained in the Register. The Issuer may also inspect the information in the Register at any time the Bank is customarily open for business, provided that reasonable time is allowed the Bank to provide an up~to-date listing or to convert the information into written form. (b) The Bank will not release or disclose the content of the Register to any person other than to, or at the written request of, an authorized officer or employee of the Issuer, except upon receipt of a subpoena or court order or as otherwise required by law. Upon receipt of a subpoena or court order the Bank will notify the Issuer so that the Issuer may contest the subpoena or court order. Section 4.05. Cancellation of Certificates. All Certificates surrendered for payment, redemption, transfer, exchange, or replacement, if surrendered to the Bank, shall be promptly cancelled by it and, if surrendered to the Issuer, shall be delivered to the Bank and, if not already cancelled, shall be promptly cancelled by the Bank. The Issuer may at any time deliver to the Bank for cancellation any Certificates previously certified or registered and delivered which the Issuer may have acquired in any manner whatsoever, and all Certificates so delivered shall be promptly cancelled by the Bank. All cancelled Certificates held by the Bank shall be disposed of pursuant to the Securities Exchange Act of 1934. Section 4.06. Mutilated, Destroyed, Lost, or Stolen Certificates. (a) Subject to the provisions of this Section 4.06, the Issuer hereby instructs the Bank to deliver fully registered Certificates in exchange for or in lieu of mutilated, destroyed, lost, or stolen Certificates as long as the same does not result in an overissuance. (b) If (i) any mutilated Certificate is surrendered to the Bank, or the Issuer and the Bank receives evidence to their satisfaction of the destruction, loss, or theft of any Certificate, 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 Certificate 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 Certificate, a new Certificate of the same stated maturity and of like tenor and principal amount bearing a number not contemporaneously outstanding. (c) Every new Certificate issued pursuant to this Section in lieu of any mutilated, destroyed, lost, or stolen Certificate shall constitute a replacement of the prior obligation of the LUB2001710l2 Dallas 1352066v.l 5 ) ) , ) Issuer, whether or not the mutilated, destroyed, lost, or stolen Certificate shall be at any time enforceable by anyone, and shall be entitled to all the benefits of the Certificate Ordinance equally and ratably with all other outstanding Certificates. (d) Upon the satisfaction of the Bank and the Issuer that a Certificate has been mutilated, destroyed, lost, or stolen, and upon receipt by the Bank and the Issuer of such indenmity or security as they may require, the Bank shall cancel the Certificate number on the Certificate registered with a notation in the Register that said Certificate has been mutilated, destroyed, lost, or stolen; and a new Certificate 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 Certificate in lieu of or exchange for a mutilated, destroyed, lost, or stolen Certificate. (f) The Issuer hereby accepts the Bank's current blanket bond for lost, stolen, or destroyed Certificates and any future substitute blanket bond for lost, stolen, or destroyed Certificates that the Bank may arrange, and agrees that the coverage under any such blanket bond is acceptable to it and meets the Issuer's requirements as to security or indemnity. The Bank need not notify the Issuer of any changes in the security or other company giving such bond or the terms 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 Certificates by the Bank is available for inspection by the Issuer on request. 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 Certificates it has paid pursuant to Section 3.01; Certificates it has delivered upon the transfer or exchange of any Certificates pursuant to Section 4.01; and Certificates it has delivered in exchange for or in lieu of mutilated, destroyed, lost, or stolen Certificates pursuant to Section 4.06 of this Agreement. ARTICLEV THE BANK Section 5.01. Duties of Bank. The Bank undertakes to perform the duties set forth herein and in accordance with the Certificate 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 Certificates to pay the Certificates as the same shall become due and further agrees to establish and maintain all accounts and funds as may be required for the Bank to function as Paying Agent. LUB200nt012 Dallas 1352066v.l 6 ) ) ) ) ) ) ) Section 5.02. Reliance on Documents, Etc. (a) The Bank may conclusively rely, as to the truth of the statements and correctness of the opinions expressed therein, on certificates or opinions furnished to the Bank. (b) The Bank shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Bank was negligent in ascertaining the pertinent facts. (c) No provisions of this Agreement shall require the Bank to expend or risk its own funds or otherwise incur any financial liability for performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity satisfactory to it against such risks or liability is not assured to it. (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 Certificates, but is protected in acting upon receipt of Certificates containing an endorsement or instruction of transfer or power of transfer which appears on its face to be signed by the Owner or an attorney-in-fact of the Owner. The Bank shall not be bound to make any investigation into the facts or matters stated in an ordinance, resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, certificate, note, security, or other paper or document supplied by Issuer. (e) The Bank may consult with counsel, and the written advice of such counsel or any opinion of 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 oflssuer. (a) The recitals contained herein and in the Certificates 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 Certificate 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 Certificates. The Bank, in its individual or any other capacity, may become the Owner or pledgee of Certificates 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. LUB200nt012 Dallas I3S2066v. l 7 ) ) J ) ) ) 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 Certificate and remaining unclaimed for three years after final maturity of the Certificate has become due and payable will be paid by the Bank to the Issuer, and the Owner of such Certificate shall thereafter look only to the Issuer for payment thereof, and all liability of the Bank with respect to such monies shall thereupon cease. (d) The Bank will comply with the reporting requirements of Chapter 7 4 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 Certificates, with such moneys in the account that exceed the deposit insurance, available to the Issuer, provided by the Federal Deposit Insurance Corporation to be fully collateralized with securities or obligations that are eligible 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 Certificates 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 Certificates 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 indenmify 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 Certificate 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. Interpleader. The Issuer and the Bank agree that the Bank may seek adjudication of any adverse claim, demands or controversy over its persons as well as funds on deposit in a court of competent jurisdiction within the State of Texas; waive personal service of any process; and agree that service of process by certified or registered mail, return receipt requested, to the address set forth in this Agreement shall constitute adequate service. The Issuer and the Bank further agree that the Bank has the right to file a Bill of Interpleader in any court of competent jurisdiction within the State of Texas to determine the rights of any person claiming any interest herein. LUB200nt012 Dallas 1352066v.l 8 ) ) .... ..) ) ARTICLE VI MISCELLANEOUS PROVISIONS Section 6.01. Amendment. This Agreement may be amended only by an agreement in writing signed by both of the parties hereof Section 6.02. Assignment. This Agreement may not be assigned by either party without the prior written consent of the other. Section 6.03. Notices. Any request, demand, authorization, direction, notice, consent, waiver, or other document provided or 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: (a) if to the Issuer: (b) if to the Bank: City of Lubbock, Texas 1625 13th Street Lubbock, Texas 79457 Attention: Director of Fiscal Policy and Strategic Planning The Bank of New York Trust Company, National Association 600 North Pearl Street South Tower--Suite 420 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. Seoarabilitv. If any provision herein shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 6.07. Benefits of Agreement. Nothing herein, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any benefit or any legal or equitable right, remedy, or claim hereunder. Section 6.08. Entire Agreement. This Agreement and the Certificate 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 Certificate Ordinance, the Certificate Ordinance shall govern. LUB200171012 Dallas 1352066v.l 9 ) ) ) ) Section 6.09. Counteroarts. This Agreement may be executed in any nwnber of counterparts, each of which shall be deemed an original and all of which shall constitute one and the same Agreement. Section 6.1 0. 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 Certificates. (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 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 of Texas. LUB200171012 Dallas 1352066v.l 10 ) IN WllNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above. CITY OF LUBBOCK, TEXAS fiy:?-);ifl.l-¥4- David A. Miller, Mayor ATTEST: Signature Page for Paying Agent/Registrar Agreement ) ) Dallas !3S2066v.l THE BANK OF NEW YORK TRUST COMPANY, NATIONAL ASSOCIATION By: Title: VICE PRESIDENT ANNEX "A" SCHEDULE OF FEES FOR SERVICE AS PAYING AGENT/REGISTRAR ) ) ) Dallas 1352066v.l -%eBANK 1:1 :;:: o/NEWYORK. ~'-'.: $52~900,000 Lubbock, (City of), Texas Tax & Wastewater System Surplus Revenue Certificates of Obligation, Series 2008 Acceptance Fee: Waived A one-time charge covering the Bank Officer's review of governing documents, communication with members of the closing party, including representatives of the issuer, investment banker(s) and attomey(s), establishment of procedures and controls, set-up of trust accounts and tickler suspense items and the receipt and disbursement/investment of bond proceeds. This fee i8 payable on the closing date. Annual Paying Agent Administration Fee: $500 An annual charge covering the normal paying agent duties related to account administration and bondholder services. This fee is payable annually, in advance, on the closing date and each anniversary thereafter. Extraordinary Services I Miscellaneous Fees: By Appraisal The charges for perfonning extraordinary or other services not contemplated at the time of the execution of the transaction or not specifically covered elsewhere in this schedule will be determined by appraisal in amounts commensurate with the service to be provided. If it is contemplated that the Trustee hold and/or value collateral or enter into any investment contract, forward purchase or similar or other agreement, additional acceptance, administration and counsel review fees will be applicable to the agreement governing such services. If the bonds are converted to certificated form, additional annual fees will be charged for any applicable tender agent and/or registrar/paying agent services. Additional information will be provided at such time. Should this transaction terminate prior to closing, all out-of-pocket expenses incurred, including legal fees, will be billed at cost. If all outstanding bonds of a series are defeased or called in full prior to their maturity, a termination fee may be assessed at that time. Miscellaneous fees may include, but are not necessarily limited to the following, if applicable: UCC filing fees, money market sweep fees, auditor confirmation fees, wire transfer fees, transaction fees to settle third-party trades and reconcilement fees to balance trust account balances to third-party investment provider statements. Annual fees include one standard audit confirmation per year without charge. Standard audit confumations include the final maturity date, principal paid, principal outstanding, interest cycle, interest paid, cash and asset infonnation. interest rate, and asset statement information. Non-standard audit confirmation requests may be assessed an additional fee. Periodic tenders, sinking fund, optional or extraordinary call redemptions will be assessed an additional charge of $300 per event Terms and Disclosures Terms of Proposal Final acceptance of the appointment under the Indenture is subject to approval of authorized officers of BNY and full review and execution of all documentation related hereto. Please note that if this transaction does not close, you will be responsible for paying any expenses incurred, including counsel fees. We reserve the right to terminate this offer if we do not enter into final written documents within three months from the date this document is first transmitted to you. Fees may be subject to adjustment during the life of the engagement. Customer Notice Required by tbe USA Patriot Act To help the US government fight the funding of terrorism and money laundering activities, US Federal law requires all financial institutions to obtain, verify, and record information that identifies each person (whether an individual or organization) for which a relationship is established. What this means to you: When you establish a relationship with BNY, we will ask you to provide certain information (and documents) that will help us to identify you. We will ask for your organization's name, physical address~ tax identification or other government registration number and other information that will help us to identify you. We may also ask for a Certificate of Incorporation or similar document or other pertinent identifying documentation for your type of organization. ( (. ( c , \, PRELIMINARY OFFICIAL STATEMENT DATED JANUARY 8, 2008 Tb.i.s Preliminary Official Stat£ment is subject to completion and amendmenL Upon sale of the Certifica~ described herein, the Official Statement will be completed and deli ven:d to lhe Underwriters (defined herein). Prospective purchasers must read the entire Official St~tement to make an infonned investment decision. IN TilE OPINlON OF BOND COUNSEL, INTEREST ON lliE CERTIFICATES IS EXCLUDABLE FROM GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES UNDER EXISTING LAW AND TilE CERTIFICATES ARB NOT PRIVATE ACTIVTIY BONDS. SEE "TAX MATIERS-TAX E.XEMmOW HEREIN FOR A DISCUSSION OF 1lfE OPINION OF BOND COUNSEL, INCLUDING A DESCRIPTION OF ALTERNATIVE MINIMUM TAX FOR CORPORATIONS. NEWISSUE: BOOK-ENTRY-ONLY D.ted: Jaauary IS, 2008 RATINGS: Moody'slaveston Sernce, IDe. "-" Standard & Poor's Raelap Services"'-" Fik11 RatiDgs "_"' $66,975,000• See "OTHER INFORMATION-RATINGS" aad "BOND INSURANCE" herein. CITY OF LUBBOCK. TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBUGATION, SERIES2008 Due: February 15, as sllowa on the inside cover Principal of and interest on the $66,975,000• City of Lubboclc, Texas (the "City"), Tax and Wastewat« System SmpiU$ Revenue Certificates of Obligation, Series 2008 (the~") are payable by The Bank of New Yort Trust Company; Nati9Dl'l Association, Dallas, Texas (the "'Paying Agent!R.egisttar'?-The Certifi.cau=; are initially registered and delivered only to Cede & Co., tbe nominee of The Depository Trust Company ("DTC") P\I(SUallt to the Book-Eotty-Only System described herein. Beneficial ownership of tbe Certificate$ may be acquired in denomin•rions of $5,000 or integral multiples thereof. No phy1ical cldfvery of the Cer1itieatea will be made to the bendieW O'I'I"Den daereof. Principal of and interest on the Certificates will be payable by the Paying Agent/Registrar to Calc & Co., which will make distribution of the amounts so paid to the beneficial owners of the Ce11ificates.. See "THE CERTIFlCATES-BOOK-ENTRY ..ONLY SYSTEM" herein. lnterest on the Certifi~ will be calculated on the basis of a 360-<lay year consisting of twelve 3G-day ll)()nths, will accroe &om Jan1131Y IS, 2008, and is payable on August 1 S, 2008, and each Febnwy IS and August 15 thereafter unlil maturity or earlier redemption, to the registered owners (initially Cede & Co.) appeariDg on the registration books of tbe Paying AgentiR.cgistrar on the last bll$iness day of the month Preoedin8 each inte.est paymcDt date (the "'Record Date") (see "THE CERTIFICATES -DESCRIPTION OF 1HE CERTIFICATES"). The Cenifi.cates are subject to optional redemption prior to their scheduled maturities at the option of the City (see "THE CER,TIFICATES - OPTIONAL REDEMPTION"). The Certificates are payable from a combination of (i) the proceeds of a continuing, direct 8111lual ad valorem tax. levied within the limits prescn"bed by law, on all tuable property within the City, and (ii) a pledge of s~~~plus net revenues of lhe City's Wastewater System not to Ciltceed $1,000. The Certificates are issued pursuant to the Constitution and general laws of the State of Texas, particularly subcbapter C of Cbaptm" 271, Texas Local Gove:mment Code, as amended, Cbapter 1371, Texas Govenimen.t Code, as amended, and an ordinance adopted by the City Council (the "Ordinance"). Proceeds from the sale of the Certificates will be used for the purpose of paying contractual obligations to be incurred for (i) improvements and exteosions to the City's Wastewater Syscem and (ii) professional services reodered in coDDeccion there'witb.. In addilioa, a portion of the proceeds from the sale of the Certificates will be used to pay the cmts of issuance: of the CertifiC~tes. The City has -wlied to sevmd companies for bond ioswauce and will COIISider the purchase of such ins~nnce after an analysis of the bids from such companies bas been made. The Certificates are offered wben, as and if issued, subject to the approving opinion of the Attorney Geo.er.al of the State of Texas and the opia.ion of Vinson & Ellcins L.L.P., Bond Collll!el, Dallas, Texas. Certain legal matters will be passed upon for the Undelwriters named below (the "U.o.detwriters'') by their counsel, McCall. Parlcb~Ul;t & Horton L.L.P., Dalla$, Texas. See "'THER. INFORMATION-LEOAL MATTERS." Delivery of the Certificates through The Depository Trust Company is expected to be on or about February 6, 2008. Morgan Keegan & Company, lne. Merrill Lynch & Co. Morgan Stanley Southwest Securities • Preliminary, subject to change. • PRINCIPAL AMOUNTS, INTEREST RATES AND PRICES CUSIP Prdis: 549187 $66,975,000• Tax and Wutewater System Surplus Revenue· Certificates of Obligation, Series 2008 (Due February IS) Initial Principal Interest Offering CUSIP M.alllrily Amount"' Rate Yidd!a~ Suftix~2 2009 $ 2,190,000 % % 2010 2,280,000 2011 2.,375,000 2012 2,470,000 2013 2,570,000 2014 2,675,000 2015 2,785,000 2016 2,900,000 2017 3,015,000 2018 (c:) )-,140,000 2019 (c:) . 3,275,000 2020 (c) 3,420,000 2021 (c) 3,575,000 2022 (c) 3,745,000 2023 (c) 3,920,000 2024 (c) 4,105,000 202S (c) 4,305,000 2026 (c) 4,515,000 2027 (c) 4,740,000 2028 (c) 4,975,000 ~.subject to dlazlce . (a) The iai1ia1 yields will be establiJbed by md are lbr: sole ~ibility of the Ullllkrwrilzn, md may lllbscqur:u.lly be c:blapd. (b) CUSIP IUIIbm llave bem usipcd to lbr: Certificafes by Stmmrd aod Poor's CUSIP Savice B--. a O.ivisioA of Tile MoGiaw-Hill Companies, lac., md an: iucluded 110lely fix die COD-u.-:., of lbr: regilltenld OWIIaS of lbr: Certificaes. Neilber tbe Cily, lbr: Fillax:ial Advisor, oor die Uadaw•iters ace rapoasible mrlhc selco:tiool or coaectttess of the CUSIP lilliilbaa set 6:Jrth baeiD. (c) The Cati.ficales ma11Jriaa oo Fet.u.y IS, 2018111d ~are subject to redcmpti.oo.. u 1br: optioo. of the City, at lilt value lhtftofplus acaued iDiaat oo February IS, 2017 or uy date dltnafttr (see "l'HE CERTIFICATES -OPTIONAL REDEMPTION"). c c c ( c ( ..... ' ... USE OF INFORMATION IN omCIAL STATEMENT For pwposes of compliance with Rule 15c2-12 of the Securities and Exc:haoge Comm..i.ssion, this doc:ument may be treated as a Preliminary Official Statement of the City with respect to tbe Ca1ificatcs descri'becl herei.o dceutecl '"fin&~" by the City as of its date except for the omission of no more thaD tbe infonnation permiued by Rule 1Sc2-12. No deal«, broker, salesman or other petSOll has been authotiud by the City to give any information or to make any n:prcscotation other than ihose contained in this Official Slatcment, and, if given or made, such other information or n:presenWioos must not be rdied upon as having been authorized by lhe City. This Official Stalclncnt is not to be used in an offer to seU or the solic:itation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. This Official Statement contains, in part. estimates, assumptions and matters of opinion which are not intended as statements of fact, and no representation is made as to the correctness of SU<:h estimates, assumptions or mattm~ of opinioo or as to the likelihood that they will be reali2ed. A11y infonnation and expressions of opinion herein contained are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hemmder shall, uader any circumstances. emile any implication that there bas been no change in lhe coadition of tbe City or other matteu described herein since the date b.ereot: See "'THER INFORMATION-CONTINUING DISCLOSURE OF INFORMATION" for a description of the City's Ulldenakizlg to provide certain information on a continuing basis. The information set fmth or included in this Official Statement bas been provided by the City and from other sources believed by the City 10 be reliable. The information and expressions of opinion hemn ..-e subject to change without notice, aad neither the delivery of this Official Statement nor any sale hereunder shaD create any implication that there has been no challge in the financial condition or operations of the City deacn.Oed herein since the date hereof. This Official Statement COII.tains, in part. cstim.ates and matters of opinion that arc not intended as statemmts of tact, and no repnseutalion or warranty is made as to the correctness of such estimates and opinions or that they will be realized. 1be Underwriters have provided the following seo.tence for inclusion in this Official Statement 1be Underwriters have revi~ the information in this Official Statement in accordance with, and as part of, their raponsibilities to investors u.ada: federal sec:uriti.es l&ws ~ applied 10 the facis and circwnstanccs of this transaction, but the U oclerwriters do not guarantee the ICCUI'1C)' or completeoess of such information. NEITHER THE Cl'IT. THE FINANCUL ADJIISOR. THE UNDERWRITERS NOR BOND COUNSEL MAKE ANY REPRESENT.A710N OR WARJUNTY Wfi'1{ RESPBCI' TO THE INFORMA.710N CONTAINED IN THIS OFFICIB. STATEMENT REGA.RDING DTC OR rrs BOOK-ENTRY-ONLY SYSTEM. THB COYER PAGB CONTAINS CERTAIN OlFORMA.710N FOR GENEJUL REFERENCE ONLY AND IS NOT INTENDED .4S A SUMMARY OF THIS OFFERING. INYESTORS SHOULD READ '1'HlS ENTIRE OFFICLtL stATEMENT, INCLUDING THE ATTACHED APPENDICES. TO OBTAIN INFORMA.710N ESSENTLfL ro MAKING AN INFORMED INYESTMENT DECISION. TABLE OF CONTENTS USE OF INFORMATION IN OmCIAL STATEMENT ... -··-·---·---·----1 TABLE OF CONTENTS---------·-2 omCIALSTATEMENT SUMMARY----3 CITY OFFICIALS, STAFF AND CONSULTANTS-·---··--·---·-·--·-S INTRODUCITON.--------·--·--·---·-···-· 6 DESCRJP110N OF THE CITY ............................ 6 FINANCIAL AND MANAGEMENT CHALLENGES ............................................. 6 THE CERTIFICATES .. -·-·--·-----·-· 6 DESCRIPTION OF 1HE CERTIFICATES ......... 6 PURPOSR .............................................................. 6 AUIHORIIY FOR ISSUANCE ........................... 6 SECURITY AND SOURCE OF PAYMENT ...... 7 TAX RATE LIMITATION ................................... 7 OP'nONAL REDm.fPllON ........................... -.... 7 NOTICE OF RED~ON ................................ 7 A}dENI)ldENTS .................................................... 7 DEFEASANCE ...................................................... 7 BOOK-ENTRY .ONLY SYSTEM ........................ 8 Use ofCenain Terms in Other Sections of this Official Statement .......................................... 9 Effect ofTa:mination ofBook-Entry..Qnly System. ........................................................... 9 PAYING AGENT/REGISTRAR .......................... 9 TRANSFER, EXCHANGE AND REGISTRATION ........................................ tO RECORD DATE FOR INTEREST PA YMEJ.IIT 10 Ramr>lES .......................................................... lO SOURCES AND USES OF FUNDS .................. 11 BOND IN'StJR.ANCE ... 4 ....... 4 .... ,_ ............. _ .. __ .. _._Jl FORWARD LOOKING STATEMENTS DISCLAIMER-----------.--12 DISCUSSION OF RECENT FINANCIAL AND MANAGEMENT EVENTS-----· ... -13 FY 2003 FINANCIAL CONCERNS AND MID- YEAR BUDGET AMENDMENlS ........... 13 SEPTEMBER 30, 2003 FINANCIAL RESULTS14 FY 2003 AUDIT RESTATEMENTS, RECLASSlFICATIONS AND INTERNAL CONIROLS ISSUES ............ 14 CITY'S RESPONSES TO RECENT FINANCIAL AND MANAGEMENT EVENTS ...................................................... IS FY 2008 BUDGET .............................................. 19 AD VALOREM TAX INFORMATION----·--21 ADVALOREMTAXLAW ............................... 21 EFFECI1VE TAX RATE AND ROlLBACK TAXRATE ................................................. 22 PROPERTY ASSESSMENT AND TAX PA~ ................................................ -22 PENALTIES AND INTEREST .......................... 23 Cl'IY APPLICATION OF. TAX CODE ............. 23 TAX ABATEMENT POLICIES ......................... 23 TAX INCREMENT FINANCING ZONES ....... 24 FINANCIAL INFORMATION--·----·-··--·-25 2 ~ FINANCIAL POUCIES·--------·--·--39 IN'YE~NTS. ___ .. , •. _ ........ ___ ,..... ...... , .. -40 LEGAL INVES'J'h.fENTS .................................... 40 INVES'Il.iENT POLICIES ................................. 41 ADDmONAL PROVISIONS ............................ 41 TAX. MA~RS ..... _ .. _, ............ -.......... -....... ,.-.... -.42 TAX EXElvfYilON ............................................. 42 ADDmONAL FEDERAL INCOME TAX CONSIDERATIONS .................................. 42 CoUatml. Tax Consequences ............................... 42 Tax Accounting Treatment of Original Issue Prcmium ....................................................... 43 Tax Accounting Treatment of Original Issue Discount Certificates ..... ~ ............................ 43 OTHER INFORMATION ··---------44 RATINGS ............................................................. 44 Financial Guaranty Industry-Recent Events ..... 44 LmGATION ........... -.......................................... 44 INVESTIGATIONS RELATING TO CITY'S HEALTH INSURANCE AD}.{lNISTRATOR. ................................... 45 REGISTRATION AND QUALIFICATION OF CERTIFICATES FOR SALE ..................... 45 LEGAL INVESTMENTS AND EUGIBn.rrY TO SECURE PUBliC FUNDS INTEX.AS4S LEGAL MATIERS ...................... -..................... 46 CONTINUING DISCLOSURE OF INFORMATION ......................................... 46 Annual Reports ..................................................... 46 :Material Event Notices ......................................... 47 Availability of.Information From NRMS1RS and SID ............................................................... 47 Limitations and Am.cndm.cnts .............................. 47 Compliance with Prior Undertaldngs .................. 47 FINANCIAL ADVISOR ............. -................ -.... 47 UNDERWRlTIN'G ......................................... -.... 48 FORWARD-LOOKING STATEMENTS . DISCI...AIM:ER ............................................ 48 ~CEJ:.LANEOUS ............................................ 48 APPENDICES APPENDIX A-EXCERPTS FROM ANNUAL FINANCIAL REPORT FOR TilE YEAR ENDED SEPTEMBER 30, 2006 . APPENDIX B-FORM OF BOND COUNSEL OPINION c c c ( c r .. ( ( OFFICIAL STATEMENT SUMMARY This summary is subject in all respects to the more complete information and definitions contained or incorporated in this Official Statemecl The offerillg of the Certificates 1o potential investors is made only by means of Chis entire Official Sta~emeot. No person is authorized to detach this SliiUllla.IY from this Official Statement or to othawise use it without the entire Official Statemeol · THE CITY ........................................... The City of Lubbock, Texas (the "City") is a political subdivision and municipal corporation of the State, located in Lubbock County, Texas. The City covers approximately 119.1 square miles and has an estimated 2008 population of 214,847 (see . "lNTRODUCfiON-DESCRIPTION OF THE CITY"). THE CERTIFICATES ....................... $66,975,000• Tax and Wastewater System Swplus Reveoue Certificates of Obligation, Series 2008 (the "Certificates"), are dated January IS, 2008, and mature on February IS in each of the years 2009 through 2028, inclusive. PAYMENT OF INTEREST ............... Interest on the Certificates accrues from the dated date, 8lld is payable August IS, 2008 and each February IS and August IS theceafter Wltil maturity or prior redemption~ "THE CERTIFICATES-DESCRWI'ION OF THE CERTIFICATES"). AVTBORITY FOR ISSUANCE ....... The Certificates are issued pursuant 10 the Consti111tion and general laws of the State of Texas, particularly Subchapter C of Chapter 271 of the Texas Local Government Code. as amended. Chapter 1371, Texas Government Code, as amended. and an ordinance adopted by the City Council (the "'rdinance"). SECURITY .......................................... The Certificates are payable from a combination of (i) the pro<:eeds of a continuing, direct annual ad valorem tax, levied within the limits prescribed by law, on all taxable property within the City, and (ii) a pledge of surplus net revenue$ oflhe City's·Wastewater System not to exceed $1,000. OPTIONAL REDEMI'TION ............. The City resenres the right. at its option, to redeem Certificates having stated maturities on and after February IS, 2018, in whole or in part in principal amoums of SS,OOO or any integral multiple thereof; on february IS, 2017, or any date thereaft«, at the par value thereof plus accrued interest to the date of redemption (see 11:11! CERTIFICATES - O.PTIONAL REDEMPTION"). TAX EXEMPTION ............................ In the opinion of bond counsel, interest on the Certificates is excludable fi:om gross income for federal income tax pwposes under existing law and Che Certificates are not priwte activity obligations. See "TAX MATTERS-TAX EXEMPTION" bemn for a discussion of the opinion of bond counsel, including a description of alte.mative minimum tax for corporations. USE OF PROCEEDS ......................... Proceeds from the sale of the Certificates will be used for the pwpose of paying conlrac1Ual obligations to be incUrred for (i) improvemeots and extensions to the City's Wastewater System and (u) professional services rendered in connection therewith. In addition, a portion of the proceeds trom the sale of the Certificates will be used to pay the costs of issuance of the Certificates (see "1HE CERTIFICATES· PURPOSB"). RATINGS ............................................ The Cenificates are rated .. _, by Moody's Investors Service, Inc. ("Moody's"), "-"by Standard & POQr's Ratings Services, A Division of The McGraw-Hill Companies, Inc. ("S&P") and "-" by Fitch IU.t.ings ("Fitch"). The City's underlying ~ on its pm;ently outstanding general obligation debt are "Aa3" by Moody's, "AA" by S&:P and "AA" by Fii.cb. The City also has issues outstanding which are rated "AJa" by Moody's. "AAA" by S&P and .. AAA., by Fitch through i.nsunmce by various commercial insurance companies (see "'lHER INFORMATION -RATINGS"). BOOK-ENTRY-ONLY SYSTEM .............................................. The delhtitive Certificates will be initially regisceRd and delivered only to Cede & Co., the nominee of DTC pursuant 10 !he Book-EntJy.onty Symm described herein. Beneficial ownership of the Certificates may be acquired in denominations of $S,OOO or integral multiples thereof. No physical deUvesy of the Certificates will be made 1o the beneficial owners theteof. Principal of, pmnium, if any, and inten:st on the Certificates 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 subsequeut paymeot to the beneficial owners of the Certificates (see "TilE CERTIFICATES • BOOK-ENTRY-ONLY SYSTEM"). PAYMENT RECORD ........................ The City bas never defaulted in payment of its genua~ obligation tax debt. • Prel.im.illary, subject to chauge 3 -Sdetecd FII18Ddalloformadoo - Per Capita FisuJ. Per Capita General General Rado Year Estimated Taxable Tuab1e Purpose Purpose TuDebtto Eu.ded City Assessed Assessed Funded Funded Assessed ~ PoJ!ulation<01 Valuation Valuation Tax Debt~> TaxDebtm Valuation<'> 2003 204,737 $7,342,344,867 s 35,862.33 s 70,188,204 s 342.82 0.96% 2004 206,290 7,921,590,380 38,400.26 70,161,218 340.11 0.89"/o 2005 209,120 8,634,994,862 41,292.06 80,210,269 38l.S6 0.93% 2006 211,187 9,346,613,951 44,257.53 87,231,945 413.()6 0.93% 2007 212,365 10,002,725,637 47,101.57 92,487,363 435.51 0.92% 2008 214,847 10,897,210,563 50,720.79 98,504,904 (c} 458.49 (C) 0.90% (c) 011 Sollrce: Tile Cily. "" Does aot iac'b!.do tell~ dd!t. *'> Prd.imiDaly, sub;oc:c to c:ble:<-~ 11uo c~ Taub!A. s.n.s 2008 Cc:r1fficlccs ~to be ddiv.....s .... J_,. 11, 2008. Gaeral Fund Consolidated Statement SWDmary · 2006 2005 2004 2003 2001 Beginning Bal= s 17,376,420 s 12,694,525 $ 9,417,346 $ 16,S9S,2S2 s 16,716,042 Total Rt:vemtes 97,818,207 104,3Sl,116 ?7,437,436 91,753,809 92,490,374 Total &peoditures 112,278,444 103,203,.269 94,160,257 98,934,715 90,594,059 &ding Balance 19,924,711 17,376.,420 12,694,525 9.417,346 18,612,357 Reserves & DcsigrlatioiiS !I~SS1041l Undesignated Fund Bal.a.oce s 19,924,711 $ 17,376,420 s 12,694,525 $ 9,417,346 s 17,357,316 For additional information regarding che City, please contact: Mallhew Boles RBC Capital Markets JeliYates ChiefFilla.oceOflicer City of Lubbock P.O. Box 2000 · Lubbock. TX 79457 Phone (806) 775-2161 Fax (806) 77S-20S1 ADdy Bun;;ham Dim:lorofYascal Policy & Strategic Planning City ofLuhboc:k 2711 N. Hasell. Avenue, Suite 2500 . Dal.las, TX 75204 P.O. Box 2000 Lubbock. TX 79457 Phone(~ 775-2149 Fax (806) 775-2051 Phone (214) 989-1672 Fax (214) 989-16SO 4 £ %of TotaJTu Tas CCII.Iedfons Year 99.21% '2002 98.64% 2003 100.28% 2004 99.71% 2005 99.02% 2006 N/A 2007 ( ( < ) ) crrY OmCIALS, STAFF AND CONSULT ANTS ELECT£D OFFIClALS City Council David Miller Mayor Linda Deleon Council Member, District I Floyd Price Council Member, District 2 Todd R. Klein (I) CounciL Member, District 3 Phyllis Jones Council Member, District 4 Jobn w. Lco!W'd, m CQunci1 Member, DistrictS Tun Gillmath Council Member, District 6 Date of lnstal1ation to Office May,2006 May,2004 May,2004 Ju.oe, 2007 May,2004 May,2006 May,2003 Term ~Des Occupation May,2008 Business Owner Mzy,20l0 Business Owuer May,2008 Retired May,2010 Grant Coosultant May,2008 Self-Employed May,2010 Business Owner Mzy,2008 Business Owner Cll Todd R. KleiD was elected lome 9, '1JYJ7, to fill the UDeXPiRd tam of Distric:t 3 CouDeilmaa Galy 0. BOR:D. SELECJ'ED ADMINJSTilAnvE STAFF Dele of~ Date of EmpiO)'IJII:IIl Total OoYcmmem Narue · Positi<n in Olmut Positim \W:b. City of Lubbock Sc:nice Lee Allll.Dumbadd CityMaliaF Scptmila-, 2005 1uly,2004 1l)t- Tom Adams Deputy aty Malla,gcr Auglm, 2004 Augllst, 2004 23 IeffYates a.icfFinancial Offiar Sepamcr, 2005 N<Mimcr, 2004 5 Aoila Burgess CityAttl:mey ~.1995 ~.1995 II Rt.bccca Ger7J1 CitySecrcmry Janull(y, 2001 August, 1996 9 Andy 8un:bam Director ofFISCal Policy ~.2005 Nova:ober, 1998 7 and Strategic PlamiDg COHSUL TANTS AND ADvlsORS Auditors ............................................................................................................................................... BKD, lLil Little Rock, Arbnsas Bond Counsel ...................................................................................................................................... Vinson & Elldns L.L.P. I>aU.u. Tens Financial Advisor ................................................................................................................................ RBC capital Madcds Da!W,Tcxas s OFflCW.STATEMENT RELATING TO CITY OF LUBBOCK, TEXAS $66,975,000* TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION, SERIES 1008 INTRODUcnON This Official S1atement, which includes the Appendices bc:fm, provides cenain information regarding the issuanc:e of $66,975,000* City of Lubbock. Texas Tax and Wastewater System Surplus Revenue Qrtificates of Obligation, Series 2008 (the "Certificates"}. Capitalized lerms used in this Official Statement have Che same meanings assigned to such lemls in the Ordinance authorizing the i&suance of the Certificates ell:cq:~t as otherwise indicated herein. There follows i11 ibis Official Statement· descriptions of the Certificates and certain information regarding the City and its finances. Alt descriptions of doc\llllents 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, RBC Capital Markets, 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 O!arter. The City was incorporated in 1909, and first adopted. its Home Rule Charter in 1917. The City opemes under a Council/Manage;-form of government with a City Council comprised of the Mayor and six co\Ulcil members. The Mayor is elected at-large for a two-year tmn coding in an even-numbered year. Each of the six members of the City Council is elected from a smile-member district for a four-year tam of office. The terms of three membefs of the City Council expire in each even-numbered year. The City Manager is the chief ~ve ot)icer for the City. Some of the senices that the City provides are: public safety (police and fire pro~tion), highways and streets, electric, water and sanitary sewa-utilities, anport, sanication and solid waste disposal, health and social services, culture-rea"eation, public transportation, public improvemeocs, plao.ni.Dg and zoning, and general adm.inistnuive services. The 2000 Census population for the City was 199,564; Che estimated. 2008 population is 2t4,S47.1be City covers approximately 119.1 square miles. FINANCIAL AND MANAGEMENT CHALLENGES In recent years, the City experienced a variety of financial and management c:ballenges, and c:et1ain investigations and reports conducted or prepared by the City or its consultants foUlld weaknesses in Che City's general management and financial practices, both with tbe City in general and the City's electric utility sysrem, kno.wn 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 tbe City bas responded to these events. THE CERTIFICATES DESCRIPTION OF THE tER'lmCATES The Certificates are dated Ianllii.IY 1 S, 2008, and mature on Febn.wy 1 S in each of the years and in the amounts shown on the inside cova-page hereof. Interest will be computed on the basis of a 360-day year of twelve 31k!ay months, and will be payable on August 15, 2008, and on each Febnwy IS and August IS thereafter Ull,til maturity or prior redemption. The definitive Certificates will be issued only in fully registered form in any integral multiple of SS,OOO for any one maturity and will be initially registered and delivered 'only to Cede & <A., the nominee of The Depository Trust Olmpany ("DTC") pum1a0.t to the Book-Eo.try..Qnly System described herein. No physical delivery of the Cerdficates wW be made to the oWDen thereof. Principal o' premium. if any, and interest on the Certificates will be payable by the Paying Agent/Registrar to Cede &. OJ., which will make discn'bution of the amolmts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Certificates. See "'1HE CERTIFICATES-BOOK-ENTRY-ONLY SYSTEM" herein. PURPOSE Proceeds from the sale of Che Certificates will be used. for the purpose of paying contractual obligations to be incwn:d for (i) improvements and extensions to the City's Wastewatu System and (ii) professional services rendtted in connection lhcrewith. In addition, a portion of the proceeds from the sale of the Certificates will be used to pay the cosb of issuance of the Certificates AVTBORIIY FOR ISSUANCE The Certificates are issued pursuant to Che Constitution and gca<nl laws of the State of Texas, particularly Subchapter C of Chapll:f 271 of the Texas Local Govemmcat Code, as amended., Chapter 1371, Texas Government Code, as amended, and an ordinance adopted by the City CoWlcil (the "'rdinance"}. • Preliminary, subject to change. 6 c ' c c ( < ) ) SECURITY AND SOURCE OF PAYMENT The Certificates are payable from a combination of (i) the proceeds of a continuing, direct annual ad valorem tax, levied within the limits p~n'bed by law, on an taxable property within the City, and (ii) a pledge of swplus DCt revenues of the City's Wastewater System not to exceed $1,000. TAX RATE LIMITATION 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 intcnst on all ad valorem tax debt within the limits presm'bed by law. Article XI, Section 5, of the Texas Coostitution is applicable to the City, and limits its awcimum ad valomn tax rate to $2.50 pez-$100 taxable assessed valuation for aJI City purposes. The Home Rule Clw1er of the Cily adopts the constitutionally authorized max.imum tax rate of$2.50 per $100 taxable assessed valuation. OniONAL REDEMPTION The City reserves the rigbt, at its option, to redeem Certificates having ststed maturities on and after February IS, 2018, in whole or in part in principal amou.nt3 ofSS,OOO or any integral multiple thereof, on February IS, 2017, or any daft thereafter, at the pa.r value thereof plus accrued interest to the date of redemption. If less than an of the Certificates are to be redeemed, the City may . select the maturities of Certificates to be redeemed If less than all the Certificates of any maturity are to be redeemed, the Paying Ageat!Registrar (or DTC wbile the Certificates are in Book-Entry-Only form) shall detenni.ne by lot the Certificates, or portioDS thereof, within such maturity to be redeemed. If a Certificatt: (or a.o.y portion of tbe principal sum thereot) shall have been called for redemption and .DOtice of sucll mlempti.on shall bave been given, such Certific:ate (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 mlemption date, provided funds. fur the payment of the redemption price and acaued interest thereon are held by the Paying Ageot/R.egislor on the miempcion date. NOTICE OF REDEMY110N Not less than 30 day~ prior to a redemption date for any Certificates. 1he City shall cause a notice of redemption to be $COl by United States mail, first class, postage pRpaid, to dle registered OWD.er$ of the Certificates to be rcdccm.ed. in whole or in part, at the addn:ss of the registered owuer appearing on the registration boob of the Paying AgeatiR.egistra 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, WHE1HER. OR NOT 1HE REGIS'IERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, TilE CERTIFICATES CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON TilE SPECIFIED RBDEMPilON DATE, AND NOlWrniSTANDING THAT ANY CERTIFICATE OR PORTION nfEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH CERTIFICATE OR PORTION lHEREOF SHAlL CEASE TO ACCRUE. AMENDMENTS The City may amend the Ordinance without the conseut of or notice to any registered owners ia any manner oot detrimental to the interests of the regist:eted owners, including the curing of any ambiguity, iocousistency, formal defect or omission themn. In addition, the City may, with the written ooosent of the holders of a ~ty in agp-egate principal amount of the Certificates then outstanding, as appUc:able, amend, add to, Of rescind any of the provisioDS of the Ordinance, except that. without the consent of the registered OWDOQ of all of the Certificates, no such amendmCDl, addition or rescission may (1) dlange the date spc)Cified as the date on wb.i.cb the principal on any installm.ent of int«est is due payable, reduce ~ principal amount Of the rate of interest, or in any other way modifY the terms of their payment. (2) give any preference to any Certificate over any other Certificate or (3) reduce the aggregate principal amount requited to be held by owners for consent to any amendment, addition or waiver. DEFEASANCE The Ordinanoe provi~ that the City may disc:barge its obligations to the regiNted owners of any Of all of the Certificates to pay principal, interest and redemption price thereon in any maltet' pennitted by law. Und« c:urmat Texas law, such discbarge may be accoiQJilished by either (i) depo6iting with the Complroller of Public Aocounts of the State of Texas a sum of DI.Oiley equal to principal, premium, if aay and all interest to accrue on the Certificates to malluity or redemption and/or ( ii) by depositing with a paying agent or other autlwrizcd escrow agent amounts sufficient to provide for the payment md/or redemption of tbe Certificatts; provided that such deposits may be invesCed aad reinvestt.d only in (a) clirect, noo.callable obligatioDS of the United States of America, including obligations that are unoonditionally guaraotced by the United Scates of America, (b) noncallable obligations of an agency or instn.nnentality of the United SlateS of America, including obligations that are unconditionally guaranteed or iDsured by the agency or instrumentality and that are ramd as to investment quality by a oatioDally recognized investment rating firm not less than AAA or itS equivalent, and (c) noncallable obligations of a scate 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 recogllized. investment ratm, fum not less thaD AAA or its equivalent Under CWTeOt Texas law, upon the making of a deposit as descn'bed above, suc:b Certi1icates sba1l no longer be regarded to be outstanding or unpaid. Aftu firm banking and fiaancial amngements for die discharge and final payment or redemption of the Certificates have been made as desa-ibed above, all rights of tbe Cily 1o initiate proc:ecdings to call the Certificates for 7 redemption or to lake any other action amending the tenns of the Certificates are extinguished; provided however. the right to call the Certificates for redemption is not extinguished if the City: (i) in the proceedings providing for the finn banking and financial ammgements, expressly reserves the right to call the Certificates for redemption; (b) gives notice of the reservation of that ript to the o~ of the Certificates immediately following the making of the firm banking and financial arrangements; and (iii) directs that notice of 1he reservation be included in any redemption notices that it authorizes. BOOK-ENTRY ..ONLY SYSTEM This sedion describes how ownership of the Cen:if~ is to be transferTed and how the prinCipal of. premiwn, if mty, an.d interest on the Certifo:aJes are to be paid to an.d credited by The Depository Trust ComJXDiy ("DTC"), New York, New YorJ:; while the CertijicoiU are registered In its nominee IIQI1Ie. The information in this sedion concerning DTC and the Book-Entry- Only System has been provided by DTC for use in disclosure documents such as this Offo;Uzl Statement The City, the Financuu Advisor and the Underwriters believe the source of such informaJion to be reliable, but take no responsibility for the accuracy or completeness therecf. The City cannot. and does not give mty assurmu.:e that (1) DTC will distribuJe paymenJs of debt service on dte Certijicales, or re<kmption or other noticu, to DTC Participants, (2) DTC ParticipanJs or others wifl distribute debt service pqymenu paid to DTC or its no~ (as the registered owner of the Certi~). or redemption or other notices, to the BDII!ji.cUzl Owners, or thaJ they will do so on a timely basis, or (3) DTC will serve an.d act in the manner described in this OjJicUzJ Staleni6!L The CTPTem rules applicable to DTC are on file with the Securiliu and Exchange Commission, an.d the curTent procedures of DTC w be foUowed in dealing wilh DTC Participants are on fife wilh DTC. DTC will act as securities depository for the Certificates. lhe Certificates 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 Certificate will be issued for eacb maturity of the Certificates, in the aggregate principal amount of each such maturity, and will be deposited with DTC. DTC, the world's largest depository, is a limiled-pwpose lrUSt company organized under the NeW York Banking Law, a "banking orgaail:ation" within the meaning of the New York Banking Law, a member of the Federal R.esa:ve System,. a "clearing corporation" within the meaning of the New York Uniform Commm::ial Code, and a "clearing agency"' registered pu.rsuant to the provisioDS of Section 17 A of the Securities Exchange Act of 1934. DTC holds and provides asset senicing foe over 2.2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC's participants ("Direct Participants"') deposit with DTC. DTC also facilitates the post-trade settlement arooog Direct Participants of sales and other securities aansactions in deposited securities, through elccttonic computerized book-ectry transfers and pledges between Direct Participants' ac<:oUnts. This eliminates the need for physical movement of securities Certifi~ Direct Participants mclude both U.S. and non-U.S. S(l(;wities brom and dealers, banks, crust companies, clearing corporations, and certain other organizations. DTC is a whoUy-owned subsidiary of lhe Depository Trust & Clearing Corporation ("DTCC'). DTCC. in &urn. is owned by a number of Dirett Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation and Emerging MadCets Clearing Corporation. (NSCC. FICC, and EMCC, also subsidiaries ofDTCC),. as weD as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the NatioDal Association of Securities Dealers, Inc. Access to the DTC system is also available to otheJS such as both U.S. and non-U.S. securities brokers and dealers, banks. trust companies, and clearing corporations 1hat clear through or maintain a custodial relationship with a DiRct Participant, either directly or iDdirectly ("Indirect Participants"'). DTC bas Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exc:bange ~mmission. More information about DTC can be fo'Uild at www.d((:C.oom and dcc.oxg. Purdlases of Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Certificates on DTC's records. The ownership interest of each actual purchaser of each Bond ("'Beneficial Owner") is in turn to be recorded on the Direct a.ad 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 wen as peri.odjc statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner eo.teced into 1he transaction. Transfers of ownership interests in the Certificates are to be accomplished by entries made on the books of Direct and IDdirect Partic:ipants acting on bebalf of Bencfic:ial Owners. Bmefic:ial Owners will not receive cerUfi<:ates repmsenting 1heir ownership interms in Certificates, except in the event lha.t use of the book-ectry sySiem. for the Certificates is discontinued. To facilitate subsequent tn.nsfm, all Certificates deposited by Direct Participants with DTC are registered in the name ofDTC's partnership nomine-e, Cede & Co., or such other IWlle as may be requested by an authorized repn!SCiltative of DTC. The deposit of Certific:atcs with DTC and their registrati.on in 1he name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC hils no knowledge of the actual Beneficial Owners of the Certificates; DTC's records reflect oJ:dy the identity of 1he Direct Participants to whose ~unts such Certifi<:ates are cmlited,. which may oc may oot be the Beo.e6cial Owners. The Direct and Indirect Participants will remain responsible for keeping ac::count of their holdings on behalf of their customm. Cooveyance of notices and other cocnmunicatioDS 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 amngements among them. subject to aay statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners ofQrtificates may wish to take cel1ain steps to augment the transmission to them of notices of signifiC3Ilt events with respe<:t to the Certificates, such as 8 (" ... c ( (" ... ( c ( ( ( ) ) ) '• Rldemptions, lt:adea, defauiiS, and proposed amendJnents to the Bond documents. For ex.ample, Beneficial Owners of Certificates may wish to ascertain that the nominee holding the Certificates for their benefit has agreed to obtain and cransmit 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 Certificates within a maturity ace being redeemed. DTC' s practice is to detennine by lot the amount of the interest of each Direct Puticipant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any otha: DTC nominee) will c:co.sent or vote with respect to Certificates unless authorized by a Direct Participao.t in IICCXlrdanoe with DTC's Procedun:s. Uude£ illi usual procedures, DTC oWls an Omnibus Proxy to the City as soon as possible after the reoord date. The Omnibus Proxy usigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose IICCXlunls Certificates are CRdiled on the record date (identified in a listing auached to the Omnibus Proxy). Principal and iDterest payments oR the Certificates will be made to Cede & Co., or such othlll' nominee as may be nll}uested by an authorized repn:sentative of DTC. DTC's practice is to credit Direct Participants' acoouuts upon DTC's receipt of funds and c:cmsponding detail information from the City or the Paying Age:nt/R.egistrar, on payable date in IICCXlr:dao.oe with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by Jtanding instructions and ~mary practices, as is the case with securities held for the acc:cunts of customers in bearer funn or~ in "street name," and will be the responsibility of such Participant and not of DTC nor its nominee, the Paying AgentllUg.istnr, or the City, subject to any statutory or regu1atoly 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 ofDTC) is the responsibility of the City or the Paying Agent/Registrar, disbursement of such payments to Din!ct Participants will be the responsibility of DTC, and disbursement of such payments to the Beoeticia! Own Ill'S will be the respoDSibility of Direct and IDdircct Participants. DTC may dilc:ootinue providing its services as depository with rapect to the Certifi~ at any time by giviq reasonable notice 110 the City or the Paying AgentiR.egistrar. Under such cimamstances, in the event that a successor depository is DOt obWoed, Certificatea 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 securilit$ depository). In that event, Certificates will be printed and delivered. tJae of Certain Terms Ia Otber Sectioas of this Official Statanea.t In reading this Official Statement it should be understood that while the Certificates are in the Book-Entry-Only System, references i.D. other sections of this Official Statement to registered owners should be read to include the person for which the Participant :~Qqu.ites an interest in the Certificates, but (i) all rights of owneahip must be exercised tbrough DTC IUid the Book- Eotry-Oaly Systml, and (ii) eotcept as described above, notices that are to be given to registered owaers under the Ordinance will be given only to DTC. JnfomJation couceming DTC and the Book-Entry-Only System bas been obtained from DTC and is aot guan.nteecl as to accura.cy or complete:ness by, aad is not to be oonstrued as a representatioa by the City, the F"III3Dcia.l Advisor or the Underwriters. Effect ofTermiDation of Book-Eatey-Only System In 1be event that the Book-Entry-Only System is disc:cntinued, printed Certificates wiD be issued to the holders and the Certificates will be subjed to transfe£, exchange and registra.tiou provisions as set fonb in the Ordinance aDd summarizccl under "TRANSFBR, EXCHANGE AND REGISTRATION" below. PAYING AGENT/REGISTRAR The initial Paying Agent!Reg:istnlf is The Bank of New York Trust Company, National Associatiou, Dallas, Texas. In the Ordinance, the City rdains the risht to replace the Paying Agc:ut/R.egistn. The City c:cvenants to maintain and provide a Paying Agent.IRegistrar at aU times until the Certificates are duly paid aad any successor Paying Age:nt/Registrar sball be a c:cmmercial bauk: or trust company orpni2ed under the laM of the State of Texas or other entity duly qualified and legally authorized to serve as and perform the duties and $ei"Vices of Paying Agent!Registrar for the Certificates. Upon any cbange in the Paying AgentiR.egistra for the Catificatcs. the City agrees to promptly c:ause a written ootice thereof to be sa1t to each tqisteted owner of the CGtificate& then outstanding and affected by such change by United States mail. lint class, postllge prepaid, wbich notice shall also give the address of the MW Paying Agent/Registrar. Interest on the Certifica.tes shill be paid to the registered owners appearing on the registration boob of the Paying .Agent/Registl:ar at the clo~ of business 011 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 boob of the Paying Agent!Regislnlr or (ii) by such other method, IICCq)table to the Paying Agent/Registrar Rlqllested by, and at the risk and expense o~ ~e ~ owner. Principal of the Certificates will be paid to the registered owner at the stated maturity or eadie£ redemption upon presentation to the designated. payment/trallsfer office of the Paying Agent/Registrar. If the dale for the payment of the principal of or interest on the Certificates sbalJ be a Saturday, Sunday, a legal holiday or a day when ballking 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 sllch payment shall be the next SIKlCCCidillg day which is 110t such a day, and payment on such dale shall have the same force and effect as if made on the dae payment was dlle. 9 \._ TRANSFER, EXCII.ANGE AND REGISTRATION In the event the Book-Entry-Only System should be discontinued with mpect to the Certificates, printed certificates wiU be is.wed to the registered owna:s of the Cenificates affected and theteafter such obligations may be transferred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrend« of such printed certificates to the Paying AgentiR.egistrar and such transfer or exchange shall be without expense or service cbarge to the registered owner, except for any tax or other governmental charge$ required to be paid with ~ to such registration. exchange and transf«. Certificates may be assigned by the execution of an assignment Conn on the Certificates or by other insttument of transfer and assignment acceptable to the Paying Agent/Registrar. New Certificates will be delivered by the Paying Agent/Registrar, in lieu of the Ca:tificates being tr.U!Sferred or exchanged, at the designated office of the Paying Agent/Registrar, or sent by United States mail, first class, postage pn!paid., to the new registet'ed owner or his designee. To the extent possible, new Certificates issued in an exchange or transfer of Certificates will be delivered to the registef'ed owner or assignee of the registered own« in not more than three busine$S days after the receipt of the Certificates 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 fonn satisfactol)' to the Paying Agent/Registrar. New Certificates registered and delivered in an exchange or transfer shall be in any integral multiple of $5,000 for any one maturity and a like aggregate principal amount as the Certificates surrendered for exchange or tr.msfer. See "111E CERTIFICATES-BOOK-ENTRY-ONLY SYSTEM" herein for a description oftbe system to be utilized initially in regaid to ownership and tJansferabiJity of the Certificates. Neither the City nor the Paying Agent/Registrar shall be required to transfer or exchange any Certificate calJed for redemption, in whole or in part,. within 4S days of lhe date fixed for redemption; pro"llicled, however, such. limitation of tr.U!Sfer shall not be applicable to an exchange by the registered owner of the uncalled balance of a Certificate. RECORD DATE FOR INTEREST PAYMENT The reconi date ("Record Date") for the interest payable on the Certificate$ 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 reconi date for such interest payment (a "Special R.econi Date") will be es1ablished by the Paying .Agent/Registtar, if and when Nods for the payment of such interest have been RC~eived from the City. Notice of the Special keconi Date and of the scheduled payment date of the past due interest ("Special Payment Dale". which shall be 15 days after the Special Record Date) shall be sent at least five business days prior to the Special keconi Date by United Stlte$ mail. first class, postage prepaid, to the address of each Holder of a Cenificate appearing on the registration books of the Paying Agent/Registtar at the close of business on the last busine$S day next preceding the date of mailing of such ootice. REMEDIES The Ordinance e$1abUshes specific events of default with respect to the Certificates. If the City defaults in the payment of principal of or interest on the Certificates when due, or if the City defaults in the observance or pedorman<:e of any of the covenants. conditions or obligations of the City, the failure to perform which materially. adversely affects the rights of the owners, including but not limited to, their prospect or ability to be repaid in accordance with the Otdinaoce, and the continuation thereof for a period of 60 days after notice of such default is given by any owner to the City, the Ordinance provides that any owner is entitled to seek a writ of mandamus from a cowt of proper jwisdiction requiring the City to make such payment or observe and perform such covenants. obligations, or conditions. The issuance of a writ of mandamus may be sought if there is no other available remedy at law to compel performance of the Certificates or the Ordinance and the City's obligations are not unoettlin or disputed The remedy of mandamus is controlled by equitable principles, so rests wilh the discretion of the court, but may not be arbitrarily refused. There is no acceleration of maturity of the Certificates in the event of default and., oonsequently. the remedy of mandamus may have to be relied upon from year to year. The Ordinance does not pro"llide for the appointment of a trustee to represent the intelesU of the owners upon any failure of the City to perform in accordance wilh the terms of the Ordinance, or upon any olher condition and accordingly all legal actions to enforce such remedie$ would have to be undertaken at the initiative of, a.ad be financed by. the regiStered owners. On June 30, 2006, the Texas Supreme Court ruled in Tooke v. City of Mexia, 197 S.W.3d 32S (Tex. 2006), that a waiver of sovereign immunity in a contrac:tual dispute must be provided for by sta!llte in "c:)ear and unambiguous" language. In so ruling, the Cowt declared that statutory language such as "sue and be sued," in and of itsel( did not constitute a clear and unambiguous waiver of sovereign immunity. Because it is oot clear that lhe Texas LegislaiUre has effec;tively waived the City's immunity from suit for money damages, a holders of Certificates may not be able to bring such a suit against tbe City for breach of the Certificate or the Otdinance. In Too.te, the Cowt noted the eMCtm.ent in 200S of sections 271.1Sl-.160, Texas Local Government Code (the "Local Government Immunity Waiver Act"), which, according to the Court, waives "immunity from suit for contract claims against most local govemmental entities in certain ciR:umstanee$." The Local Government Immunity Waiver Act covers cilie$ and relate$ to contracts entered into by cities for providing goods or services to cities. Tbe City is not aware of any Texas court constnling the Local Oovemmeat Immunity Waiver Act in the context of whether contractual undett.aki.np of local governments that relate to their borrowing powers are contral:U covet'ed by the Act. A:s noted above, the Ordinance provides that holders of Certificates may exemse the remedy of mandamus to enforce the obligations of the City UDder the Ordinance. Neither the remedy of mandamus nor ·any other type ~f injlln(:tive reUef was at issue in Tooke, and it is unclear whether Tooke will be coiiStnled to have any effect with respect to the exerci$e of m.andamus, as such remedy has been interpreted by Texas courts. Jo. general, Texas courts have held that a writ of mandamus may be issued to requi.re public officials to perform ministerial acts that clearly pertain to their duties. Texas courts have held that a ministerial act is defined as a legal duty that is prescribed 10 c r c ' c c ' c ) ) and defined with a prcoision and certainty that leaves nothing to the exercise of discretion or judpent, !bough mandamus is not available to enforce purely contractual duties. However, mandamus may be used to require a public otri.CCI' to perform legally- imposed ministerial duties necess&I)' for the ~ of a valid contract to which the State or a political subdivision of the State is a party (including the payment of monies due under a contract). Even if a judgment against the City could be obtained, it could not be enforced by direct levy and Cl[ecu.tion agajnst the City's property. Further, the .~emf owners cannot themselves fOreclose on property within the City or seU property within the City to eoforce the tax lien oo taxable property to pay the prim:ipal of and interest oo the Certificates. Furtlaermon:, the City is elig~ble to seek relief from its creditors l!llder Chapter 9 of the U.S. Baolauptcy Code ("Chapter 9"). Although Chapter 9 provides for the recognition of a security interest repraented by a specifically pledged source of revenues, the pl.edge of ad valorem taxes in support of a gateBl obliplion of a baalcnlpt entity is not specifically recogni2ed as a security interest un&r Chapt.er 9. Chapter 9 also includes an automalic stay provision that woold prolubit, without Bankruptcy Court approval. the prosecution of any olher legal action by «editors or registered owners of an cotity which bas sougb.t protection under Cbapter 9. ThereCon:, should the City avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to tbc approval of the Bankruptcy Court (which could require that the action be heard in Banlauptcy Court instead of other federal or state court); and the Bankruptcy Code provides for broad discretionary powers of a Banlauptcy Court in administering any proceeding brought beton: it. The opinion of Bond Counsel will note that aU opinions n:lal.ive to the enforceability of the Certificates are qualified with respect to the custoowy rights of debtors relative to their creditors and that aU opinions relative to the enforceability of the Ordinance and the Certificates arc subject to balllcruptcy and other laws affectiDg creditors rights or remedies geoenilly. SOURCES AND USES OF FUNDS Tbe proceeds from tbe sale of the Certificates will be applied as foUows: SOURCES OF FUNDS: Prineipal Amount of Certificates ......................................................................................... . Net Original Issue Premium (Discount) ................. _ ........................................................... . Accrued Inten:st .................................................................................................................. . Total SoiUCC:S of Funds ................................................................................................. .. USES OF FUNDS: Deposit to Co1151ruction Fund ............................................................................................. . Acaued Interest Deposited to Interest & Sinking Fund ..................................................... .. Uoderwriten' Discount ...................................................................................................... . Cost oflssuance .................................................................................................................. . Total Uses ofFunds ············-············ ............................................................................. . BOND INSURANCE The City bas applied to several oompanies for bond insurance and wiD consider the purcbase of such i.osuraoce after an analysis of the bids from such companies has been made. (1HE REMAINDER OF lHIS PAGE OO'ENTIONALL Y LEFT BLANK] II FORWARD LOOKING STATEMENTS DISCLAIMER The statements c:ootained in this Official Statement, and in aay otbcr inWrmation provided by the City, in particular the infomwioo under" the heading "DISCUSSION OF RECENT FINANCIAL AND MANAGEMENT EVENTS', that are oot purely bist.orical, are forward-looking .tlalemalts, illl:Judins stalemeots regan1iDg the City's cxpecUtioos, hopes, intentions, or s1ratcgies regarding the fulllre. Readers should not place undue r:diance on fulward-looking statements. All forward-looking stalemeotS included in am. Official Statemet~t are based on information available to the City on the date hereof", md the City assumes no obliption to update any such forward-looking statements. Although the City believes such forward-looking stuements are based on rcasouable assumptions, any such forward-looking statement involves uncertainties and is qualified in its entirety by refCfaiCC to the coasiderations described below, among 01hets, which could cause the aclllal financ;ial RSUlts of the City to differ materially from those oontemplated in such forward-looking statements. Any assumptions could be inaccurate and, therefore, there can be DO assurance lbat the forward-looking statements included in this Official Statement will prove to be IIQC~ The City cannot fully predict what effects factors of the wmare described below may have on the operations of the City and financial condition of the General Fund or its business-type activities, includ.in3 LP&:L. but the effects could be significant. The discussion of auch factors herein does DOt pwport to be comprehensive or definitive, and these matters are subject co change subsequent to the date hereof. With n:spect to LP&L. cxteosive information 011 the electric utility industry is, and will be, available from the legislative and regulatOry bodies and other sources in the public domain, and potential pW'Cbascrs of the securities of the City should obtain and review such information. Amoog the factoq lbat could affect the operations and financial condition of the City in general, and its electric utility in partic:ular, are the following: > Significant ~ in governmental policies and regulatory actions, including those of the Feder31. Energy ReguiatOly Commission. the United States Euvironmenlal Protection Agency (the "EPA"), the United States Deparunent of Homeland Security, the United States Department of the Tn:a.sury, the Texas Commission on Fnvironmenlal Quality (the "TCEQ"), the Public Utility Commission of Texas (the "PUC") and the Southwest Power Poo~ Inc., with n:spect to; changes in and compliance with enviroomeatal and safety Ia~ and polic:ies affecting the City's water, sewer, stonnwater aod solid waste funds; challges in and compliance with ualional and .uaee bomdand security taw. and polieies effec:tiag the City's water, sewer, solid waste and airport funds; elcctrie llarl5mission oost r1lle sttucture; purclwed power and recovery of investments in electric system assets; acquisitions and disposal of assets and &cilities; and pr-m or prospective wholesale and reuil competition in the electric industry; > Un.wic:ipatcd population growth or decline, and cbanges in marltet demand, demographic patteros and the development of teclmology affecting the City's service area. its general govcmmCitt and public safety expenditmes and City ~ue from: investor owned· utility franchise fees, City utility and service fees sales tax revenues; and ad Valorem tax revenue$; > With respect to LP&:L: the implementation of or adjustments made co business strategies adopted by LP&L; competition for retail and wholesale customers by LP&L, particularly oompetition with Xte! (as defined below) and its subsidiaries; access to adequate electric transmission facilities to meet cumot and future demand fur energy; pricing and tr.msportation of coal, natural gas and other oommodities that may affect the cost of energy purchased by LP&L; inability of various oontractua1 oounterparties co meet their obligaaions to the City, aod with LP&L in particular with respect to LP&L's fuel and power purchase arrangementS; > With respect to the City' I financial perform.an« in general: legal and ~ve pcocecdings and seulcments; md significant changes in criticaliiCOOIIDting policies. 12 c c c c c c c ) ) ) ) ) \ DISCUSSION OF RECENT FINANCIAL AND MANAGEMENT EVENTS In the 2002 and 2003 fiscal years (a fiscal year is referred to herein as "IT', with the year designation being the year in which tbe fiscal year ends; each City fiscal year begins on October 1 and ends on Septanber 30), the City expcrieaccd a·variety offill.ancial and management challenges. In response to the events and circumstances that have created such cballenges, the City has taken actioos to address and conectllllltteiS, specifically employing a new management teatn in 2004, and the City is of the view that progress has beeo. inade in correcting these conditioos (see "DISCUSSION OF RECENT FINANCIAL AND MANAGEMENT EVENTS -CITY'S RESPONSES TO RECENT FINANCIAL AND MANAGEMENT EVENTSj. The following discussion includes an analysis of the events that have oocum:d in the reoeat fiscal years, in particular, a summary of the measures taken in response to the challenges that have arisen, and a cunent deacriplion of the City's li.Dancial and management position. FY 2003 FINANCIAL CONCERNS AND MID-YEAR BUDGET AMENDMENTS In FY 2003, the City's electric enterprise fund, which operates as Lubbock Light & Power (referred 10 herein as "LP&L" or the "electric lUnd") incurred unanticipated net losses. During FY 2003, interfund loans were made to LP&L from the water flmd and the General Fund. A number of factors contributed to the LP&L losses; a significant factor was that LP&L. unlike most other municipal electric utilities in Texas, competeS directly with Southwestern Public Service Company ("SPS"), a subsidWy of a large investor oWned energy company, Xcel Eneqy, Inc. In addition to the service area that has dual certification with Xcel, a small part of the City is also served by South Plains Electric Cooperative ("SPEC"). The City, through LP&L, has co!llpdo.d for both wholesale and retail electric cu.stomen apiost investor owned utilities for over 80 years. This competition bas elt.isted despite the W:t. that the City is not within the transmission system governed by the Electric Reliability Couacil of Texas ("ERCOT'). ERCOT was opened to retail electric competition through the adoption of State deregula!ion legislation that went into effect on 1 anuary 1, 2002. PriOr to FY 2004, Che City operated LP&L in a manner that wu desigDed 10 recover administqtive or iodirect costs provided by the General FWld for LP&L (such as legal and financial services) as weU as cenain other genetallrausfen. Such transfer~ included a payment ill lieu of ad valorem laXCS, an allocation fur indlrcc:t costs such as legal and finaacial services, and a cost of business transfer (whicb approl(imates a payrneot in lieu of franchise taltes. In addition, prior to FY 2003 LP&L was required to annuaUy transfer to the General Fund amounts to support economic development iDcc:atives in the City, a payment desiptted for infrastructure use, a "gas laX" lrliDSfer, and a reimbursement of the street lighting expense incurred by the City. Over the ten year period from 1993 to 2002, the average annual operating income of LP&L before trans~ was S8 million, and during that period, LP&L tr.l.nSfers to the Genem Fund for payments in lieu of !aXes and recovery of costs of business averaged $8 million per year. During the preparation of the FY 200) City budgets, it was evident that the amount of mODeY traosfemd from LP&L to the General Fund would 11eed to be reduced given the 6na.o.cia! condition ofLP&L. CoiiSequently, the FY 200) budp trimmed $4.8 million from LP&L transfers included in. prior year budgets. In Febnwy 2003, during a period of extraordinarily high namral gas prices, City finance s1aft' projected that, in the absence of comctive measures, the electric entaprise fwd wwld have an opeming klss of $24 million for FY 2003. In the Spring of 2003, the Cily CoiJIICil amCDded the LP&L aDd GeDenl Fund budgets to eliminate $7.7 million in transfers from LP&L to the Ga1eral Fund. City maaagement Ibm undertook a comprehensive review of the General FUDd aod other enterprise funds for the purpose of identif)illg budget cuts throughout City govemment that would offset the reduced LP&L ITIDsfers. Ullimatdy, tbe City Council adopled budget amcodmCDU dllring the Spring 2003 mid-year review that totaled $9.7 million for the General FUDd (hereinafter referred to as the *2003 Bw:lget Adjustmentsj, which represented approximately lO.S% of the original FY 2003 General Fuod budget. Other measures that were taken after the 2003 Budget Amendments to adckess the projected LP&L operating loss irlcluded increases in the fuel cost adjustment ("FCAj for residential and smaU commercial customers, as well as for its two largest customers, which included Te.xas Tech University ("Tuas Tech") and which 8C(()Uiltcd for approximately 10% of the CllCiiY sales ofLP&L. The City is a member of the West Teus Municipal Power Agency ("WTMPAj, a municipal power agency that was formed by concuneat ordinances .clopted by the governing bodies of the cities of Brownfield, Floydada, Lubbock and Tulia, Teus (the "Member Citiesj in 1983. WTMP A is a separate politic:al subdivision under the laws of the State. hi! uno 1998, WTMPA imaed $28,910,000 of its Reveaue Bonds, Series 1998 (the "WTMPA Bonds"), to finlace the construdioo aod acquisition of a 62 MW electric eo-generation project (the ''WTMPA Project"). The WIMP A Project coosists of a 40 megawatt ("MW) combustion turbine generator (the .. Massengale Unit 8 turbinej and the ro-powering of an existing 22 MW genezatioo unit, cadi located at the City's J.R. Massengale Planl Numerous issues, both operational and managerial, arose from the WIMP A Project. As a result, the City embarked upon a series of intema1 financial and management audits of the relatiolubip between LP&L and WTMPA. as weU as an analysis of the internal controls of the City with respect 10 LP&L. 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 ofWTMPA 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 IWditofthe records ofWTMPA and LP&L. The fiDa1 report of E& Y was del.ivmxl in May 2()03, and included findings of misallocation of costs among the Member Citie3. 1be report noted that no evidence of misappropriation of assets or intentioaal omissiom of financial information was diiCOvered. The E&Y R:pOrt found that the misallocations, adding an interm (a(:IOr for such allocations, and ao 181billed S% llllUIJgallent allocatioa that LP&L was entided to under the power agRCI!lents, would result in a total amount owing to the City of $S,S90, 746, of which the City owed itself, as a Member City of WTMPA. approximaldy 90% of the total amounl 13 In December-2003, the City, WIMP A and the other Member Cities of WThfPA eutert.d into a series of agreements styled the ~Comprehensive Settlement ~eut". The Compreheosive Settlement Apleulent provided for the reallocation of resources and costs aa~ong WI'MPA Member Citi~ resolved disputes relating co che oomposition and votiDg powers of the WTMPA Boazd. and seulcd disputed «:!aims incurred by the City on behalf of WTMPA. lbe City believes the Comprehensive Settlement Agreement beUef rtf1ccts the bistori<:aliiWII:Ier in which the Member Citia bave eapgcd in eoergy ldivities. WTMPA bas beea ~lassificd as an entelprise fundoftheCity, which reflects lbe extensive associations betweeD WIMP A and the City. In March 2005, the City delivered i~ Combination Tax and Elec:tri~ Light and Power System Swplus Revenue Certificates of Obllpdon, Series 2005, in the aggregate principal amount of $23,055,000. A portion of the prooccds of tlris issue was used by the City 10 ~the WTMPA Proj~l WTMPA used the proceeds rcoeivcd from the City co defease all of the outstanding WTMPA Bonds. The City now owns aod operates the WTMPA Project. as partofLP&L. SEPTEMBER 30, ZOO~ FINANCIAL RESULTS The Genm1 fund ... As b.eR:aftet described in "DISCUSSION OF RECENT FINANCIAL AND MANAGEMENT EVENTS • FY 2003 AUDIT RESTATEMENTS. RECLASSIFICATIONS AND INTERNAL OONTROLS ISSUES", the fioaocial position of the City in FY 2003 was impacted by significant changes in the rqxlrting entity and prior period adjustm.ents and ~lfications of the City's FY 2002 financial statemen~. With respect to the General FWld, the beginning fund balanOC'Inet assets were restated from $18.6 m.Ul.ion to $16.6 miUion. 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 ~eaced a $7 2 million reduction i.o fund balanc:elnet ~ in FY 2003, the most significant drawdown of the General Fund reserva in over ten years. lbe decreaae in fund balance cxx:urred because of the $9.3 million transfer to LP&L to ensure the ongoing operation of LP&L aod the paymeot·of the se:oior lieu revenue bonds issued by the City for LP&L. In lddition, the Geoeral Fund reduction iD fund balance was a result of the f(qiveness of origioaDy budgeted payments in lieu of lues, fi'aachiae fees and indirect ~sts of $4.8 million from the electric timd to the Genenl Fund. lbe aggregate result of resta1emeot of the beginDing fund balance and the FY 2003 use of timd balance was a General FlUid emiing balance of $9.4 million. Coming in to FY 2003, the City bad a fund balanu (adjusted) of Sl8.6 million. The City bas adopted a policy (the "Genua~ Fund Balance Policy") to maintain an unreserved Gen.en1 Fund balaDce equal to two months operating expenditures. At September 30, 2002 the General Fund balance exceeded the General FUAd Balance Policy by $4.5 million. At. September 30, 2003, the General Fuod Balaoce Policy requiml. a ftmd balance of $14.2 million. As a result of the FY 2003 events described above, the Ci~ was $4.8 million UDder the fund balance requ.iRd under its policy at the close of FY 2003. The d~line in General Fund balallce limits the City's ability to mitigate future risb of revenue sbor1&lls and 1IDIU1ticipated expendibaes. Refereoce is made to the infunnation ben:after presented under the beadings "DISCUSSION OF RECENT FINANCIAL AND MANAGEMENT EVENTS -CITY'S RESPONSE TO RECENT FINANCIAL AND MANAGEMENT EVENTS -General Fund and Geoetal GovC11111DeUt Actioos -General Fund Budgetaly Actions., and "DISCUSSION OF RECENT FINANCIAL AND MANAGEMENT EVENTS -CITY'S RESPONSE TO RECENT FINANCIAL AND MANAGEMENT EVENTS -FY 2007 BUDGET", for a discussion of the results for the Genetal Fund and a summary ofcbe City' a planaiag for FY 2007. The E!ectri~ 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 1081 of $24 million in February 2003. LP&L enc:led FY 2003 with a $6.3 million operating loss. Before taking into account tnosfers from other 1ilnds, the electric fund reported a $9 million ·toss, the first such loss iD over ten years. As a consequence of the operating l.oas, LP&L &iled to meet its revenue bond rate coveoant under which the City bas agreed co set rates for the electric system sufficient to produce net revenues equal to 100% of its s=or 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 ~verage of average anllual debt service and a 0.2 times covenge of maximum an11ual debt servi()C, in each case after taking into accollllt the issuance of City general obligation debt for LP&L that OCCIII'rtd in August 2003. Under the tenDs of its bond ordinances, the failure to meet the rate covenant, while significant, did not result in the accelenliion of LP&L 's debt Moreover, the failure did oot materially affect LP&L's opetations, as LP&L was able to make its debt paymeots aftD receiving a $9.3 miUion c:ontribution from the Genual Fuod, aud LP&L b.u never defaulted in the paymeut of its bonded indebtedness. In maldng its debt pe.ymeo.ts, LP &L bas oot Ulellllll)' moneys set aside as a debt service reserve fund UDder its senior lien revenue bond ordinaDces. Since 2003, LP&L bas met che rate covenant, aDd the City bas oot made tr.msfers from the General Fund to LP&L. Despite the relatively small operating income tbat resulted aftD taking into lWCOunt the Geueta1 Fund coo.tributiou to LP&L. total DOt assets of tbe dectri~ fund decreased by $3.9 million during FY 2003, to $88.S millioa, u a result of a restateme11t of the beginning fUud balance. The rmatemeot refl.ccted the write off of a $4.48 million receivable recorded from WTMPA in FY 2002, although the obligation was disputed by the other Member Cities of WTMPA. AJ described below lllldet "DISCUSSION OF RECENT FINANCIAL AND MANAGEMENT EVENTS -CI'IY'S RESPONSES TO RECENT FINANCIAL AND MANAGEMENT EVENTS -Recent Meawres taken to Address Finaacial aud M.anagcmeut Co!!cam at LP&L". the WTMPA Settl.cments have resolved the di&pufcd receivable. FY 2003 AUDIT RESTATEMENTS, .RECLASSIFICA110NS AND INTERNAL CONTROLS ISSUES AJ was the~ with other mUDicipalities in the State and U.S., the implementatioo of Government Acoouming Standards Board Statement 34 ("GASB 34") by the City in FY 2002 effeeted a substantial change in the presentation of the City's fioan~ial statements. Prior to the implementation of GASB 34, governmental aooounting 51aDdards did oot require tbe usc of a govemment- wide perspective i.o the presentatioD of financial information; instr:ad, ftmd ~unting was generally used to present financial 14 c c c ( ( ) ) dala. UDder GASB 34, fund aceouati.ng has been supplemented by government-wide statements and certain aspects Rlatiog to the presentation of the fund level statements have been modified. as well, particularly with respect to the ~n of restricted and unrestricted net assets within each fund. For additional iafonna.tion regarding ~u.nting policies that are applicable to tbe City, see Note I. "Summary of Significant Accounting Policies" in the financial statements of the City attached as Appendix A. The FY 2002 financial stalemenl&, and the City's financial statements dating to FY 1993, were audited by Robinson Burdette Martin Seright & BmTOws, L.L.P. (the "Former External Auditm"). In keeping with the overall reassessment of its financial and management affairs undertalctn by the City, in the Summer-o£2003 the City oouducted a request for qualifications fur its CJttemal auditor aod selected KPMG L.L.P. ("KPMG") to audit its FY 2003 financial statements. Consequently, the Former Extemal Auditor gW.d.ed the City lhrough the initial year implcmentalion of GASB 34, while in the seooad year of GASB 34 fiaaacial reporting, the City'& financial statements were audited by KPMG. In 2005, the City mainecl the services of BKD, LLP, to prepare the fity's financial statements. Audit Restatsnents ... During the preparation of the FY 2003 CAFR., seven restatements to beginning fund balanco'uet assets were made to various fund level swemeuts of the City. The restatements totaled $36.7 million. These restatemena ~an aggreeate increa&e in net assets of the City of $2.56 million, as some affected fwlds bad their beginniag balmces restated to a higher figure, while other funds were restated to decrease their beginning fund balance. The Oeueral Fund was restated from a fund balance of $18.6 million to $16.6 million to reflect a write off for an ~unt receivable, which as of September-30, 2002 bad ceased to be collectible: Also, the electric fund's begiDning fuDd balaru:e was restated downward by $4.48 million to retl.ec:t a Reeivab\e from WI'MPA that was unoollect:Jble.. Other eoterprise fund restatements were Jllade, including an $0.867 million increase in the water fund beginning balance and a $0.722 million increase in the sewer t\Jnd beginning balance, eacll of which WCR .IIIIIde to reflect a chaDge in accountillg treatment per1aioiog to the appropriate party that is respoOSlble for l'eimbunemcnt of fees coUectcd by the City for new water aDd sewcz-coD.DectiOilll. With respect to the impact on a particular fimd asset, the most significant restatement in begiDDiDg fimd balaoce occutnld iD the City's community mvestmeDt fUad, a fimd used in prior yair& to aocount for cconomie development initia!ivea, which was restated liom a beginning balance of $46.8 million to S36.8 million. The cbauge wu associated with an economic development srant made by that fund in FY 2002 that was origiDally reftcctcd on the accounting statements of the City as a loan. In preparing the 2003 CAFR,. it was deCmnincd that such traDsaction should be treated as a grant, DOt a loan. As a result, the m:eivable in the community investment fund for the $10 million amount was del~ as an asset of the fund ($6 million of the $10 million grant bad origi.oally been fUnded through an iotctfund loan to the community investment fund from the water and eolid waste fimds). Two additional reswements of existing ftmd balaoces WCR made with re$peCt to lwo entities with which the City bas !oDg· standing contractual relationships: a coqx>ratc entity that does business under contract with the City as "Cillbus", and WTMP A. In the 2003 CAFR, the accounting trealmeut of these entities was ~idered, and each was added to the City's financial statements as an eo.taprise fund. The result of the addition of each of these fimds was an ioctease in net assets, in the amou.11.t of $12.3 million for the oew lnmait fund, and $3.2 million for the new WI'MPA fund. Audit Reclassificatioos .•. In the preparation of the FY 2003 CAFR, it was discovered that the portion of D.et uscts shown iD certain of the finaacial statements., particularly with respect to the enterprise fimds (or bU3ioess-type ldivities), hid been mafbematically incorm:tly calculated in the FY 2002 CAFR. While the govermnem-wide statement of net asset5 of lbe City included in the FY 2002 CAFR sbowed $37.9 million unrestricted net assets for business-type activities of the City, the fund financial statements showed an asgregate amount ofunrestricud oet assets of the c:ntaprise timds that totaled SI9S.2 million of unrestricted net assets. The FY 2003 CAFR reports in the government-wide stltement of net assets of the City $32.9 million of unrestricted net II8SCts fur business-type activities of the City and the fund fioaocial sta!em.eots in the FY 2003 CAFR report an aggregate amount of unn:stricted net assets for the enterprise funds that total $30.1 million (certain reconcililtion.s are required to balanoe government-wide and fund level reports, thus small differeoces should appear between the two presentati0118). Internal Controls Issues ... In acoordance with accounting guidelines. the eJttemal auditor customarily provides the govemmeotal entity with a "maDagement letter' that includes a discussion of any material weaknesses in the audited govemment' s int.em.al. control structure. In ita FY 2003 Management Letta' (the "2003 Management Lettet"), KPMG nolld sevaaJ weakDesses in tbe City's internal controb, including an overall internal control wabless in the City during FY 2003. In addition, the 2003 Maugentent Lettet noted deficiencies in the year end GAAP financial reportiq cycle, citing u examples the significant ~t of beginning !let assetslfimd balances md the m:lassifications described above, u well as numerous adjustments that Wft'e required to be posted after the iDiiW clos.ios of the City's boob for FY 2003. The failure to timely obtain financial statements from component units, including WI'MPA, wu abo DOted. KPMG recommended that the City review the pmoii!le! within the City's accounting department and the accountiDg staff within LP&L to detennioe wbdber sufficient qualified pe11011nel WCR in place to provide accurate and timely cloaing of the City's boob and preparadoa. of annual financial statements. Otha" material wealcnesses noted ioclude the failun: of the City to properly mx~nci.le its cash balances. the fail~m: of LP&L to meet its bond n1tc covaw~t, a lack of oversight or monitoring of contracts with other-entities (for example, WTMPA), and the fa.il~m: of the City to abide by its General Fund Balance Policy. CITY'S RESPONSES TO RECENT FINANCIAL AND MANAGEMENT EVENTS Following the publication of lbe LP&:UWTMPA Maoagcm.eot Audit alld the E&Y audit, ~ key City o~ and LP&L managemeut personnel resigned. Between the begimling of FY 2002 and the c~ 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 u a result of a reorganization of City govemmen.t. Since FY 2004, the City bas implemented a o.umbet of sianificaut steps to address both its 15 managemet~t ne>eds and financial challenges. Cenain of the measwu taken by the City to Slrengthen City government in genetal, lll!d to address its financial challenges, are described below. General Fund and Ostetal Government Actions >General Fund Budgetary Actions ... Prior to FY 2007, the City had restored its General Fund balance, within a 2·year period. to roughly 200.4 of ~g revenues. For F'i 2007, pn::liminary projections indicate the General Fund balance wiU be approximately 18.4% of operating revenues. F'i 2007 Expenditures were in line with budget,. however, revenues from mllllicipal court fines, &ancl!ise taxes, and red light photo enfo~U~Dent came in $2.S million less than budgded, causing a use of approximately $800,000 of General Fund balance. The FY 2007-08 budget inoorporates revenue adjUS!ments addressing the sbortfillls from the prior year, and has been approved with expenditures b3lanced to revenues. City management oontinues monthly assessments of the budgeted expenditures and revenues, a program which was fully implemented in the prior fiscal year. > Estat!lishntent of Audit and lnvcsbnent <&mmittee ••• Through the adoption of a resolution in June 2003, lhe City <&unci! established an independent Audit <&mmitlee composed of five members. The Audit and Investment <&mmittee is charged with maintaining 311. ope~:~. avenue of oommunicatioa between the City Council, City Manager, intemal auditor and indepettdent external auditor to assist the City in fulfilling its fiduciary responsibility to its citizens. The committee has the power to oonduct or authorize inve$tigatioos into the city's financial pezformanc:es, internal fisc:al controls. exposure and risk assessment. The committee is appointed by the City Council lll!d informally n:ports to the City Manager. The establishment of the Audit and Investment Committee is designed to serve as an additional check on tbe preparation of the City's financial statements and to avoid weaknesses in the City's intemai control&, including the~ and adeq_uacy of information systems and security. The chairperson is appointed by the Mayor and the other positions are fiUcd by a vote of the City Council. At least two members of lhe Audifand Investment Committee are required to have a background in finaooial reporting, ~Uilting or auditing, and at least one member is required to be a certified public ~UDtant, and at least one member is -required to have a.ri e~teosive background in investments. The CV!Tent membership of the oo.mmiUee oonsists of Mike Epps, aA Ex~utive Vice Presideat at American State Bank in Lubbock, Jim BlWljes, Senior Vice Chancellor aad Chief Financial Officer for the Texas Tech University Syscem; lU. Givens, a real estate ageat in th:e City; Kim Turner. the Director of Internal Audit at Texas Tech; and John ZwiacheF. a member of the Board ofDiJ:ec:tlm ofLP&L. Mr. Zwiacher is lhe chair of the Audit and Investment Committee. > Citll Management Qywges ••• As reflected in "CIT¥ OFFICIALS, STAFF AND CONSULTANTS • SELECTED. ADMINISTRATIVB STAFF' •. the City bas in place an experienced management team repreaenting extensive govemmeat service experience. This management am has implemented procedures that have addres3ed the general internal oontrol weakness cited by KPMO in the 2003 Management Letttt. Recent Financial and Management Actions at LP&L > Euel Cost Adjustmmts ••• As of June I, 2007, LP&L no longer uses fuel cost adjustments to remain competitive with XceL JUles are now identical to SPS with a few exceptions. one of which is that LP&L now has a dis<:o1111t tariff which allows its n.tes to be lower. > Establishment of Electric Utilities So&!! •.. In 2004, several measures were taken to addm.s concerns with the management and operatioll ofLP&L, including: the City Council adopted an ordinance (the "LP&L Goyemance Ordinance") (t) a:eatiDg a new Electric Utilities Board (the "Electric Board") for LP&L (the DCW board replaces a fonnez board that was advisory only). (2) reserving cedain duties and responsibilities with respect to LP&L to the City Council (i.e., the powers to approve LP&Vs annual budget; set LP&L's mcs; issue deb~ 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 resave acooums by LP&L and restricting the transfer of revenues from LP&L to any other fund of the City, including, partic:Wady. lhe General Fund. WJtil such reserves have been fUnded.; the City initiated a solicitation to the holders ofLP&L's senior revenue debt seeking approval to amend each LP&:L bond ordinance to provide for the governance of LP&L by the Elcc:Cric Soan% the City, after obtaini.ag the aecessazy coosenf:!l, amended the boad ordinances to provide for the govemance of LP&L by the Electric Board in January 2005; the voters of the City approved a memldum amend.iDg the City Charter to req_llire lhe establishmeat of the Electric Board; and the City Council adopted the LP&L Governance Ordinance on December 16. 200<t The LP&L Governance Ordinance provides that the Electric Board consist of nine mem~ appointed by the City Council, and that the City Council COI!Sid« extensive business and/or financial experience as dte primary qualification for setViDg on the Electric Board. Elecuic Board mem~ m:ve without compensation. Under the LP&L Governance Ordinance, lhe Board is given lhe authority, duties and R!$pODSibility to (t) approve an annual budget and el.ec(ric rate schedule for submission to the City CoUilcil for approval and, from time to time, submit to the City Council amendments to the budget and/or the elec1ric rate schedule; (2) oversee the audit of the electric fund, aad engage 311 ac:cowuing fum 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 eleclric system, including contracting for legal and other semc:es separate and apart from those provided by lhe City. In addition, the City Manager is requited to COIISUlt with, and $eel! approval of, the Electric Board prior to appointing tmdlor removing the director of LP&L. ID accordance with the New LP&L Governance Ordinance, the ditector of LP&L reports to the Board. While the City CoUilcil mains substantial powers over tbe electric syscem, 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 opm1tion of LP&L dlan has oceumd in tbe recent past. 16 c c ( ' . , ( ( ) \ > Establishment of Resqve fUDds for LP&L; Restriction on TAD5fers fipm Ll'&L ... The LP&L Governaoce OrdiDance was amended in December of 2006. This ameodmcnt included, among other things. changes to the requirements regarding the reserve funds LP&L maintains. As ameadcd.lhe LP&L Governance Ordinance requires lhe Electric Utility l3oard to maintain (i) sufficient operating cash to satisfy all eunent aooounts payable and (ii) a general reserve fund tbat is equal to the grealeJ of four months gross retail electric revenue as detennined by taking the average monthly gross retail electric ~ue from the previous fiscal year or $50 miUioo dollars. This general reserve fuod sball be used for operatiooal pmposes, rate SlltbilizaUon and for meeting the electric utility dtmaod of any rapid or unforeseen increase in reside!ltial and/or commercial development. Uncler the current LP&L Governance Ordinance, the City may not require the transfer from LP&L any fee rJquivalentto a limchise fee. a payment in lieu of taxes or other disbursement of the net revenues of LP&L until (a) all boud debt service requirements have been funded (which obligation is senior in right to the obligation to fund the gener.al reserve), (b) sufficient operating cash is maintained, aod (c) the general reserve has been fully funded. Additionally, the amendment allows the Electric Utility Boanl, solely at their discmion aod regardless of the funding obligations oullioed above, to refund up to one million doUan ($1,000,000) to the ratepayers of the City's electric utility for marketing and competitive pmposes.. The reserve amounts, franchise fees, payments in lieu of taxes and refunds to the ratepayers of the City's eleclric utility shall be based on audited, UDqualified financial statements from the most. reqent completed fiscal year. Subject to (i) provisions of State laws that govem municipal utilities, md which stipulate that a tim use of the utility' a gross revenues be used to pay operating e:xpenaes, aocl (ii) the obligations of the City with~ to LP&L's bonded iDdcbtedness, it is possible that the Electric Board could devise a flow of funds for LP&L that is substantially different from that set forlh in the LP&L Governance Oidinance. To date, the Electric Board has oot deviated from the flow of funds contemplated under the LP&L Governance OrdiD.auce. At the end of FY 2007, LP&:L partially funded its geDCI'Il reserve fund by the amount of $25.4 m.illioo. LP&L bas not fUn<ted all of the reserve fund established under the LP&L Governance Ordinance, as net 1\\'YeD.ueS have beal inadequate for a total funding of such reserve. > 200§ Proposed Amegdment to LP&L ~ 9minan..::e. ... Prior to FY 2004. the City opeaCcd LP&:L in a mamaer, consistent with the practice to require its enterprise funds to make a payment in lieu of taxes to the City's Geaual Fmu:l, that provided an annual payment be made by LP&L to the City in lieu of ad valorem taxes and a ~ of business trausfer (which transfer approximMed a payment in lieu of franchise taxes). In an effort 10 give LP&L an opportunity 10 regain firlaucial stability, in 2004 the City adopted the LP&L Governance Ordinance which, as described above, IIWidated the ctealion of certain reserve acoounts by lJ>&L and restricted the transfer of revenues from LP&L to any other-fund of the City, iDcladiog. particularly, the General Fund, until such resaves bad been funded. At= FY 2004,1he City required. and it is the City's c:urreot practice to require. a payment in lieu of taxes from each of its other enterprise fuuds. During its deliberations conceming lhe FY 2008 budget. the City Council approved a Pudgetod $1,000,000 transfer from the net revenues of LP&L to the City's general fund (lbe "2008 LP&:L Transfer"). The FY 2008 budget was approved by the City CoUDCil on September 13, 2001. See "DISCUSSION Of RECENT FINANCIAL AND MANAGEMENT EVENTS-FY 2008 BUDGET." The 2008 LP&L Transfer may not be made until such time that the LP&L Governaoce Ordillance is amended by the City Couo.cil. After audited financial statements are available for September 30, 2007, LP&L and City Finance Staff will make a reoommeadatioD to the Electric Utility Board and the City Council that will outline a fiscally ~Ulld, snduated policy to begin the limited payment in lieu of fimchise fees, wbile continuing to build the n:serve to the required policy levels. >New Full Reguimnepts E;qgy Agreement ... In June 2004, WIMP A entered into a IS year fldl rcquireme11ts wholesale power ·asreement (the "New Power Ag:n:e;me:nt") with SPS. 1M New Power Agreement became effective July 1, 2004, aDd repW:ed a series of existing agreementS between WTMP A IIDd SPS md lhe City and SPS, which had c::q~iration dates in 2004 and 200S. Under lhe New Power Agreement, SPS or its pennittcd assigns is obligated to provide all energy requirements for each of lhe Member Cities of WTMP A, including the City, during lbe tt:nn of the asreement, which terminates on June 30, 2019. SPS may terminate the agreement upon the OCCIII'I'ellce of an adverse regulatory adion UDder which SPS is required Co sell generation assets, 'and WTMP A may tmninate the agreemeut upon notioe and during the final folD' years of the scheduled termination date if WIMP A acquires an interest in replacement,. coal-fired geaeradoo. Each party may require adequate usurances of perfollll.allCC whenever tha-e is a RlaSOnable basis therefor. The New Power AgJoeuient Jq)l'eaCI1Ied a sipificant departure for LP&L, ill that it reflected a long·tenn commitment to take all of its energy from SPS. The contract reflected a decision of the City to abandon the role of power galel'ltor, allbough, u described below, ill ooDMCiion with the consummation of the New Power Agreement the City lw eateled into tM) unit CODtingeocy agreemm~s (tbe "Unit Contingellcy Agreementaj wilh SPS that will req~ LP&L to mainlain its gene:ntiOD UDits for dispatch by SPS. Amollg the implications for LP&L oflhe New Power Agreement are that LP&:L baa resolved its long-Cm power supply issues, aud lessened its exposure to fuel price volalility, although SPS will pass through .its fuel charges to LP&L on a monthly billing bash. SPS, iD tum, may not pass its fuel coSts through to its retail customers in lhe City more frequently than once eve!)' six months under cum:nt State law that requires SPS to seek a rate order from lhe PUC before increasins 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 ddennines to maroh its FCA to ~hanges iD SPS's fuel adjustment, as it has generally done in the past. Acx:onting to information filed with varipus regulafory agencies, the Ci.ly believes that~ 6()0,{, of the eoetgy that it purclwes from SPS is £rom ooal geueratioo. This fuel mix was a significant W:lor in the City's decennination Co approve lhe New Power 1\ireement by WIMP A. In lhe event that ps prices should declio.e over lhe tenD of the ~t, the City believes that SPS hz lbe flexibility to switch a larger portion ofits genention to gas, including through the use oflhe Ci.ly's ~«.Wonunitsin~cewithlheU~~~ 17 With respect tO the oompetitive posture of the City in light of the long-tenn commitment of the New Pow« Agreement, the City noleS that unda-current market oonditions, and taking into ac.c:ount the secondary benefits of the agteement, including future savings associated with reduced personnel and maintenance costs as a result of the shift from beiDg an ~ve electric genera.IOr to being a passive generator (for SPS under the terms of lhe Unit Contingency Agrcemenls), the wholesale price of the purchased czergy, togecher with the other financial benefits of the Unit Contingency Agreements and the possible receipt of revenues unda- tbe new WTMP A gas agreement dC$C!llled below, permits the City to compete favorably wilh SPS. All additional benefit of the New Power Agrec;ment is Chat it will permit lhe City to increase its efforts iD developiDg LP&L's distribution busiDcss. In light of ~t rate structure changes implemented by both the City and SPS that r~uire new developmeilts in the City to fUnd elcicttic infrastructure lhrough a developmeut charge paid when the development is platted, new principals iD developments are choosing to inslal.l only one electric distribution infrastructure. Since this new development charge was implemented iD FY 200), all major new developments in the City have selected LP&L as the electric distributor, which positions lhe City as a dis1riblll0r of energy to those developments in the future, even though the retail provider of such energy could be a utility other. that Ll'&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 tbe New Power Agreement is that given lhe term of the agreement and tbe dynamic nalllre of electric oompetitioli, ova-time the wholesale price of the purchased en«gy will not permit the City to obtain tbe favorable ll1lll!ins that are currently being achieved by the City. While the City doe$ not believe Chat the area served by LP&L wiU be opened in the short-term to retail deregulation, as is the case iD other pans of the Slate that could occur during the term of the New Power Agn:cment. While there are significant uncedainties as to how Such deregulation, if it occui-s. would be administered, it is possible that new retail energy providers could enter the IIWket during the term of the New Power Agreement ln addition, by tying its eDetgy requirements solely to SPS, and though the other new agreements discussed in this section, the City has significantly inm-ased its dependence on SPS as a co1mtetparty to vital agreements relating to tbe operation and finaDcial oo.ndition of LP&L. Cou.ntetparty risk is risk associated with the counterparty's financial oondition, credit ratings, changes in business s«rategies and other quantitative and qualitative measures Chat oould affect tbe ability of the oounterparty to perfonn its obligations to the City. Both the loog-term Unit Contingency Agreement and the New Power Agreement provides the City tbe right to demand Ceftain credit assurances from its countetpa.rty if it has reasonable grounds for insecurity regarding the perfOrmance of any oonfract obligation. > Other New Energy &;lat.ed Agreements ..• As noted above, in connection with the negotiation of tbe New Power Agreement, the City negotiated the Unit CoatiDgency Agreement&, which consist of two agreements that dedi.cace the City's genen.tion C3pa.City solely to SPS, which, subject to certain customary conditions. including reasonable notice and run times, has tb.e right to call upon one or more of the genaation units owned or controlled by LP&L. from time to time to meet energy requirements of S,S. Including the WTMP A Project, all of tbe capacity of which. in ac>cordance witb the WTMP A Settlements, is dedicated to LP&L, the City has dedicaled generatioa c:apa.city of 219 megawatts to SPS under the Unit Coatingoocy Agreements. The most fuel efficient units within that capacity are the 39 MW ciapacity 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 o.lder units {tbe "'lder Units"). With mpect to the New Units, SPS may dispatch tbose u.nils during tbe term ending June 30, 2007~ tbe term of the Unit Contingency Agreement for the Older Units is fifteen years, matching tb.e term of the Power Purchase Agn:emoot, with an ~iration 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, whic:h must be paid inespc:ctive of whether SPS chooses to ~ eoergy from the City's units, and an energy chluge that is based upon the output of any of the City's units that ·is dispatd1ed for SPS. While tbe amount of the energy charge will depend upon tbe energy taken by SPS from the City's generation units, if any, the Uliit Contillgency Agreements provide ar1annual minimum payment by SPS to the City of$6.3 million. > Nataral Gas Sale Agreement ••• SubseqUCQt to its execution of the New Power Agreement, WTMP A and other parties entm:d into a series of agreements (ooUectively, the "New WTMPA Oas Agreemenlsj under which WTMPA may acquire IWural gas aD(I effectively exchange it for electric power to realize a cost saving$. Under the New WTMP A Gas Agreeroenls, WTMP A may pun:hase natural gas from Texas Municipal Gas Corporation ("'TMOC"') at below-madcet prices and sell the gas co SPS iD 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 tbe power charges of WTMPA's Member Cities, ilicluding the City. TMGC is a Texas nonprofit public facility corporation crea!l:d for the pwpose of ac:quiring and producing Dalural gas reserves and selling its production to municipal entities such as WTMPA and LP&L. The City's standby gas purchase agreemen.t, mentioned above in connection with the Unit Contingency Agreements, is also with TMGC. Under the tenns of the New WTMP A Gas Agreement$, SPS is not obligated to purchase gas from WTMP A unlC$8 natural gas produceiS,. dealers, or otber suppliers execule conttliCCs to seU gas to TMGC's upstream gas provider, chose suppliers offer to sell sw:h gas on tenns that SPS considers at least as advantageous as those available from otha-produca:s and dealers, and the aggregate quantities s<ild do not exceed either SPS's Texas gas ~uirements or the quantities awi.lable to WTMPA from TMGC at a discomrt from the offm:d prices or the quantities needed to genecale WTMPA's elec:cric ~uirements. WTMPA's maikelprice credit is based on the prices offefed by the qualified suppliers, and its supply of gas is dependent on sales by the qualliii:d suppliers at tbose prices. TMGC bas secun:d conlr.icts with five suppliers (ConoooPhillps, Com Energy, NGTS, Concorde En~. and Te:naska). There can be no assurance that sufficient qualified supplietS will contract to sell gas, or that they will offer to do so on sufficiently advantageous terms. co supply all or any portion of WTMP A's gas ~uirements under tbe New WTMPA Gas Agtec:ments. In addition, the discount now offered by TMGC may be reduced as neceswy to enable it to comply 18 ,. .... c c c c ( ( ( ) ') ) with financial covemnts, although the discount has remained essentially constant for three yeMJ. For these and olher reasons, there can be no assurance that WTMPA will be able to realize savings i.ll. any amount or for any term for the benefit of its membm 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. For FY 2008, LP&L did not budget any revenues from WTMP A gas activity. >Wholesale Energy Agreement ~th Texas Tech. •• The decision in the Summer of2004 to take greater amounts of enecgy from X<:el resulted in a dispule between the City and Texas Tech ~g a prior agreement with respect co the operation of Brandon · Station, which is located on the Texas Tech campus. In response to mediatioa to resolve disputes under the prior ~eut, the City and Texas Tech executed a new CQD.trllc:t on April 28, 200S (the "New Texas Tech Agreement"'). In general terms, Texas Tech has agreed to continue co purchase energy from the City at a price that will provide the City with a small rate of mum, 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, wiU be delivered to Texas Tech at no c:halxe. The City has also agreed with Texas Tech that it may terminate the ~ent upon reasonable notice to the City, in which event the City will wheel encqy to Texas Tech in ateordanoe 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 muiUally beneficial for the parties. > Chief Exeeutive Officer for LP~L •.• G.ey Zheug was appointed Chief Executive Officer of LP&L in September 2005. Previously, he had served as the SuperinteDdent of Electric Dis!ributions at ~&Land subsequently, from Marth 2003 unli! his recent appoi.ll.tment to CEO, as the Chief Operating Officer ofLP&L. He has more than 19 yean of engineering and management experience in eleclric:al utility business. Mr. Zheng, a registaed Professional Eogineer, is a graduate of the University of Southern Califomia withaMS in Electrical Engineering, a MS in Computer Engineering and a PhD in Elec:lric:al EDgineering. FY 1008 BUDGET General Fund ••• The City Council adopted the FY 2007-08 budget and five year forecast on September 13, 2007. Ttie City's FY 2007-08 budget for the General Fund is balanced with $122.4 million in total revenues and expenses. The budget projects that sales tax revenues will prodac:e S3.9"A of total tax revenues (tax revenues represent 79.39",{, of the General Fund's total operating revenues), while ad valorem tax revenue is budgeted to produce 44.8% of total tax re.venues. Ill FY 2008 the City's total~ rate was set at $0.4550S per $100 taxable assessed valuation, down from $0.46199 in FY 2007. The City's tax roll incm~Sed $894.5 million, or 8.9%, from FY 2007 to FY 2008. The City CoiUlcil, on June 12, 2003, passed a resolution affirming lbeir support for trutb.-in-taxatioa.. The goal of this resolution is to allow the citizens to be beuet infutmed about the real needs of City government and if the increased revenue from increased appraisal values is truly necessary. The resolution goes 011 to provide that each year the tax rate should be adopted based on the actual needs of govemmeol This goal was affirmed in April 2004 in a resolution that stated die City Council has suppotted, as weU as taken action, to provide tax relief tO property owners within the City. In addition, the City Council recognized die need for die City to be autonomous i.ll. it~ ability to provide the public safety, health, and quality of life for its citizens. The FY 2007-08 Opeming Budget was developed i.ll. consideration of the goals of the resolutions and, as a result, there was a $0.00694 decrease in the adopted tax rate. Total transfers to the Gelleral Fund &om entetprise and internal semce funds are budgeted to ~by $1.5 millioa.. Transfers out inaeased $3.2 million mainly due to Che Cemetezy and Civic Centers moving to entelpri$e funds, but need Oalera.l Fund assistance for operating purposes. On the expenditute side, administrative services and public works budgets experienced dem-ases of three to six percent due to efficiency planning. Cultural and recreation services budgets decre3sed ova: 18% due to the movement of Che Cemetery and Civic Centers to &letprise Funds. Comml.lllity services are four percent high« due to scheduled charge i.ll.creases for data processing and information ceclmology. Expenditures for public safety are $4.9 million greau:r than the amended FY 2006..()7 budget, or a 6.5% increase. This increase is due to the City Co~mcil goal of i.ll.c:reasing public safety officers in Fin~ and Police. Overall, Gmcnil Fund oper.l.tiJl8 expenditures are budgeted to increase by S3.S million over 1he amended FY 2007 budget. {THE REMAINDER OF THIS PAOE INTENTIONALLY LEFT BLANK] 19 Ectemrise Funds .•• The following table (amounts in millions) ii!USII3tes the revenues, use or oonfribution of net appropriable assets, and appropriation as approved in the City's FY 2007-08 adopted operating budget and five year forecast fur the Solid Waste, WasleWater, Water and Eleca:ic.Funds: Adopted FY2007..08 Adopted Pf.auaed Use Adopted Chuge FY2007-08 (Contributloa) fY2007..08 from. Revenue Net .Assets ~ro~tion Prior Year SolidWastt $ IS,781,779 764,575 16,S46.)S4 -'.6% Wastewater 22,088,059 l,S49,23l 23,637,290 0.4% Wattt 42,6ll,S77 6,412,285 49,023,862 8.2% LP&L 135,436,074 126,597,820 -44.2% The decm~Sed budget in Solid W3SW is a result of lower fuel costs, motor vehicle and heavy machinery maintenance costs, and mast« lease payments. Decreases in these areas are as fuUows (in millions): fuel costs, ($0.3); maintenance costs, ($0.1); master lease costs, ($1.7). No rate increase was needed in FY 2007-08. The increased budget in Water is a result of increased debt service payments for debt issued during 2006-07 and for increased Canadian River Municipal Water Authority ("CRMWA") costs. Increases in these areas are as foUows (in millions): debt sa'Vice, $3.8; and CRMW A oosts, $0.4. The large increase in debt service is mainly relaled to tbe acquisition of water rights over the past two years. No rate increase was needed in FY 2007-08. See also "DISCUSSION OF RECENT FINANCIAL AND MANAGEMENT EVENTS • CITY'S RESPONSES TO RECENT FINANCIAL AND MANAGEMENT EVENTS-2008 Proposed Amendment to LP&L Govcm.ance Ordinance." (THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 20 c c c c: c: c ) ) ) ) AD VALOREM TAX INFORMATION AD VALOREM TAX LAW The appraisal of property within the City is the respoDSt"bility of the Lubbock Central Appraisal District (the .. Appraisal District"). Excluding agricultutal. and open-space land, which may be taxed on the basis of productive capacity, the Appraisal District is requiRd under the Property Tax Code (defined below) to appraise all property within the Appraisal District on the basis of 100% of its market value and is proln"bited from applying any assessment ratios. In detemlining market value of property, diffm:ot methods of appraisal may be used, including the oost method of appraisal, the income method of appraisal and mvlc.et data comparison method of appraisal, and the method considered most appropriate by the chief appraiser is to be used. The appraised value of a msidence homestead for a tax year may not exceed the lesser of (I) the most recent matket value of the msiden11e homestead as d~ennin.ed by the appraisal entity or (2) II 0 percent of the appr.Used value of the residence homestead for the p~g lax year. 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 Dinlctors of the Appraisal Districl 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 cballenge the determination of appraised value of property within the City by petition filed with the Appraisal Review Board. R.eferen11e is made to Title I of the Texas Tax Code (the "Property Tax Code"), fur identification of property subject to taxation; property exempt or whkb. may be exempted from taxation, if claimed; the appraisal of property for ad valon:m taxation purposes; and the procedures lllld limitatioDS applicable to the levy and coUection of ad valorem taxes. Article VDI of the State Constitution ("~cle VIII") and State law provide fur certain exemptions fiom property taxes,. the valuation of agriculrural. and open-space lands at productivity value, and the exemption of certain pmonal property fi:om ad valorem taxation. Under Section 1-b, Article vm, and State law, the governing body of a political subdivision, at its option, may grant (1) 811 exemption of not less than $3,000 of the market wlue of the msidence homestead of persons 65 years of age or older l!ld the disabfed fiom all ad valorem taxes thereafter levied by the political subdivision; or (2) an exemption of up to 20".4 of the market value of msideclce homesteads. The minimum exemption under this provision is $5,000. In the case of residence homeste8d exemptions granted Ullder Section 1-b, Article vm, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem. taxes have previously been pledged fur the paymect 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 fur disabled veterans or the surviving spouse or children of a deceased vetenn who died while on active duty in the azmed forces; the exemption applies to either real or pmonal property with the an:tOWlt of assessed valuation exempted ranging fiom $5,000 to a maximum of $12,000. · Effective January 1; 2004, under Article vm 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 msidence homestead of a disabled person or persons 65 years of age or older will not be increased above the amowt of taltes imposed in the year such residence qualified for such limitation. Also, upon receipt of a petition signed by five pert.mt of the registen:d voters of the county, municipality or junior college district, an election must be held co detennine by majority vote whether to establish sueb a limitation on taxes paid on msidence homesteads of pmons 6S years of age or older or who are disabled. Upon ·providing fur such exemption, such freeze on ad valorem taxes is ttansferable to a different raiderioe hom~ within the taxing unit and to a surviving spouse living in such homest* '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 CU~Tent tlllt rate, and the total amount of taxes imposed is increased .to n~flect the new improvements with the new amount of taxes then serving as the ceiling on taxes fur the following years. On11e established, Che tax rate limitation may not be repealed or rescinded. The City lw established such a limitation 011. ad valorem taxes. Article vm provides that eligt"ble ownm of both agricultural land (Section 1-d) lllld open-space land (Section 14-1), including Ope!)-space land devoted to farm or ranch purposes or open-space land devoted to timber production, may elect to have such property appnised fur 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 cruclr:s, are exempt from ad valorem taxation unless the goveming body of a political subdivision elects to tax this property. Boats owned as nonbusiness property are exempt &om ad valorem laltation. State law additionally provides for one motor vehicle owned by an individual and used in the course of the owner's occupation or profession and also fur personal activities of the owner to be exempted fi:om ad valomn taltation. Article vm, Section 1-j, provides for "freeport property" to be exempted from ad valorem. taxation. Freeport property is defined as goods detained in Texas fur 175 days or less fur the purpose of assembly, storage, manufacturing, processing or fabrication. Decisions to continue to tax may be reversed in. the future; decisioiiS to ex.empt freeport property are not subje<:t to reveml. In addition, under Section 11.253 of the Texas Tax Code, "Goods-in-transif' are exempt from mation unless a laXing unit opts out of the exemption. Goods-in-transit are defined as tangible personal property that (i) is aoquiRd in or imported into the state to be fuiWarded to another location in the state or outside the state; (ii) is detained at a location in the state in which the owner of the 21 property does not have a direct or indirect ownership inlerest for assembling, storing, manufacWrillg, processing, or fabricating pwposes by the person who acquired or imported the property; (iii) is transported to another location in the slate or outside the state not later than 175 days after the date the person acquired lhe property in or imported the property into the state; and (iv) does not include oil, natural gas, petroleum products, aircmft, dealer's motor vehicle inventory, dealer's vessel and outboard IDOtor iDventory, dealer's heavy equipment inventory, 9r retail manufactured housing inventory. The City may crealc one or more lax increment financing zones, under wbidl the' tax values on property in the zone are "froun" at the value of the property at the time of creation of the zooc. Other overlapping taxing units may agree to contribute all or part of future ad valorem taxe3 levied and collected against the value of property in the zone in excess of the "frozen value" to pay or finance the costs of certaiD public improvements in the moe. Taxes levied by the City against the values of real property in the zone in c:~tcess of the "frozen value" are DOt available fur general city Ide but are restricted to paying or fioanciag "project costs" within the zone. See "'TAX INCREMENT FINANCING ZONES" below. The City also rnay enter into tax abatement agreements to eucourage economic development. Under d!e agreements, a property owner agrees to coiiStruct certain improvements on its property. The City in tum agrees not to levy a tax on all or part of the increased value attribugble to the improvements until the ex,pil:ation of the agreement. The abatement agreement could last fur a period of up to 10 years. See "TAX ABATEMENT POUCIES" below. EFFECTIVE TAX RATE AND ROlLBACK TAX RATE By each September I or as soon ~ as p!3Cticable, the City CoUDCil adopts a tax rate per S I 00 taxable value for the cum:nt year. The City Council is required to adopt the annual tax rate for the City before the 1aier of September 30 or the 60th day after the date the certified appraisal roll ia received by d!e City. If the City CoUDCil does not adopt a tax rate by such requiRd date the tax rate for that tax year is the lower or the "effective tax rail!' calcu.lated for that tax year or the tax rate adopted by the City foe the prcx:eding tax year. The lax rate cousists of two component~: (1) a ..-e for fuading of maintenance md operation c:xpend.itures aDd (2) a rate for debt service. UDder the Property Tax Code, tbe City must annually calculate md publicize its "effective tax rate" and "rollback tax rate". A tax rate cannot be adopclld by the City Couocillhat acecds the lower of the rollback lliX rate or the effilctive tax rate until two public hearings are held on the proposed tax rate following a notice of such public hearing (including the requirelllent that notice be posted on the City's websitc if the City oWDS, operates or oontzols an internet website and public notice be given by television if the City has free access 10 a television channel) and the City Council has otherwise complied with the legal requirements for lhe adoption of such tax rate. If the adopted tax nte ex.cec:ds the rollback tax rate the qualified voters of d!e City by petition may require that an election be held to detennine whether or not to reduce the tax rate adopted for the cwn:nt year 10 the rollback tax rate. "Effective tax rate" means the rate that will produce last yeac's IOtlll tax levy (adjusted) from thi3 yew's total taxable values (adjusted). "Adjusted" means lost val_, are not included in the calculatiou oflast year's taxes and new values are not included in this year's taxable values. "'Rollbac" tax rate'' mems the rate that will produce last year's mainteamce and operation tax levy (adjusted) from 1flis year' a values (adjusted) multiplied by 1.08 plus a rate that will produce this year's debt se.tVice from this year's values (unadjusted) divided by the anticipated tax collection me. · The Property Tax Code provides that certaiJi cities and counties In the State may submit a proposition to the voters to authorize an additional on~f cent sales tax on retail sales of taxable items. If the additional tax is levied, the effective tax rate aod the rol..lback tax rate calculations are required 10 be of&et bY d!e reveau.e that will be generated by the sales tax in the cwrent year. Reference is made to the Property Tax Code for definitive requimnents for the levy and collection of ad valorem taxes and the caJculation of the various defined tax rate$. PROPERTY ASSESSMENT AND TAX PAYMENT Property within the City is gecerally assessed as of January 1 ofeacll year. Business Inventory may, at the option of the taxpayer, be ~ as of September. Oil and gas reserves are as-sed on the bw of a valuation process which uses an average of the daily price of oil and gas tor the prior year. Taxes becom.e due Oetob« 1 of the SIDI.¢ year, and become delinquent on February 1 of the fuUowlng year. Taxpayezs 6S years old or oldec are penn.iltcd by State law to pay taxes on homesteads in tour insCallinents with the tim due oo February I of each year and the fmal inst.allment due ou August 1. 22 c c c c "') l ) j PENALTIES AND INTEREST Charges for penalty and interest on the unpaid balance of delinquent taxes are made u follows: Cumulative Cumulative Mooth Penalty Interest Total February 6% 1% 7% March 7 2 9 April 8 3 lJ May 9 4 13 June 10 s IS July 12 6 18 After July, the penalty remains at 12%, and intemo:t increases at the rate of l% each mo11th. In addition, if an account is delinquent in July, a IS% attorney's collectioo fee is added co the total tax penalty and interest charge. Under certain c~. taxes which become delinquent Oil the homestead of a taxpayer 6S years old or older incur a penalty of 8% per annwn with no additional penalties or interest assessed. In general, propeny subject co the City's lien may be sold, in whole or in part.els, pursuant to court order co ooUect the amounts due. Fedenl law doe$ not allow for the collection of peaa1ty and interest against an estate in bankruptcy. Federal banktuptcy law provides that an automatic stay of action by rnditors and other entities, including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevc:cts govemmc:ctal units from foreclosing on property and prevents liens for post-petition taxes from attaching to propc11y and obtaining secured creditor status unless, in either <:ase, an order lifting the stay is obtained from the bankruptcy cow:t. In many cases post-petition tutes are paid as an administrative expease of the eslate in ballkruptcy or by order of the banlatiptcy cowt. CITY APPLICATION OF TAX CODE The City grants an exemption co the market value of the residence homestead of persons 65 years of age or older of$16,600; the disabled are also granted an C~temption of$10,000. The City lias not granted any part of the addition.al exemptioo of up CO 20010 of the market value of residence homesteads; the minimum exemption that may be granted under this provision being $S,OOO. The City has established the tax freeze on residc:cce homesteads of disabled persons and persons 6S and over. See Table l for a listing ofCh.e amounts of the exemptions described above. Ad valorem taxes are not levied by the City against the exempt value of resid~ homesteads for the payme~~t of debt. The City does .not tax nonbusiness personal property; and the Appraisal District collects taxes for Che City. The City does not pennit split payme~~ts of taxes, and discowtts for early payme~~t of ~es are not allowed by the City, although permitted on a local-option basis by the Property Tax Code. Since the 1999 ~ year, the City has exempted freeport property from taxation. The City collects an addition.al 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 thn:e eighths of a ~t The rate increase became efl'ecti.ve on October I, 2004. TAX ABATEMENT POUCIES The City bas ~lished a tax abateme~~t program to encourage economic develepment. In order co be considered for tax abatement, a project must be located in a reinveslment zone or entelprise zone (a com.mm:iai project must be in an enterprise zone) and must meet seven! criteria pertaining to job creation and property value enhancement. The City has two entetprise zones, the Lubbock 2000 North Enterprise Zone, approximately 18.6 square miles, and the Lubbock 2000 South Enterprise Zone, approximately 1 S. 7 3quare miles. A third eatetprise zone, the Lubbock Intemation.al Airport Enterprise Zone, expired in September 200S. In 2003, the Legislature made major changes to the statute governing c:cterprise zones, including designating zones by block group based on poverty rate. The block groups that meet the criteria become enterprise zone eligt'ble, but ean only be used ·for tax abatemc:ct if the new zones are activated. The Lubbock 2000 North and South l!ntc!prise Zones are graildfathered and will expire no later than their original expiration date. At present, there are 17 active tax abatement agR>ements, principally fur companies located in the northeast and southeast sections of the City. In accordance with State Jaw, · the City has adopted policies for granting tut abatements, which provide guidelines for tax abatements for both industriil and commercial projects. The guidelines for industrial and commm:ial projects are similar, except that qualifying induslrial 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 (1 00%) ~ abatement, since 1997 the City has negotiated abatemeats 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 23 City's policies provide a variety of criteria that affect the terms of the abatement, including the proje-cted life of the proje-ct, the type of business seeking the abatement, with certain businesses targeted for lbatement. the amount of real or personal property to be added to the tax roU. the number of jobs to be created or recained, among other factors. The policies disallow abatements for cer1ai.n ~tegories of property, including real property, inventories, tools, vehicles, aircraft, and housing. Each abatement policy provides for a recapture of Che abated taxes if the business is c&continued during the tetm of Che agreement, exoept for discontinuances caused by natural disaster or oth« factors beyond the reasonable (.Ontrol of the applicant For a description of the amount of property in the City that has been abated for City twtion 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 (.Oiltinuous geographic area in its jurisdiction as a tax increment financing zone (wrtf") if the area oonstitutes an C(.OI\Omic or social liability in its present condition and use. OCher overlapping taxing 1mits may agree to contribute all or a portion of their taxes collected against the .. Incremental Value" in the TIF to pay for TIF proje-cts. Any ad valorem taxes n:lating to growth of the tax base in a TIF above the frozen base may be used only to finance improvements withln the TIF and are not available for the payment of other tax supported debt of the City and other participating taxing units. Together with other taxing units, the City participates in two TIFs, the Central Business Dislrict Reinvestment Zone (the "Downtown TIF') and the North Overton Tax Inc:mnent Ytna.DCillg Reinvesttnent Zone(the "North Overton TIF"). The Downtown TIF covers an approximately 0.71 square-mile area which includes part of the central businesll district and abuts the North Overton TIF. The base taxable values of the TIF are frozen at the level of taxable values for 2001, the year of cn:atioa., at $105,858,25J.·In FY 2007, the Downtown 11F bad a taxable value of$161,582,450 befon: tak:iD,g illto account tax abatements and exemptions. Afttt tax lbatements and exemptions, Che tax value in the Downtown TIF was $155,747,677. In addition to the City, the County, Lubbock Co1mty Hospital Diserict and the High P.lains Un~ Water Conservation Dislrict (collectively, the "Taxing Units") participate in the Downtown TIF. Giveo the relative tax rates of the participants, it is anticipated that the City wiU be the largest oontributor to the tax increment fUnd if then: is growth from the frozen base. Tbe Oity Ordinance eStablishing the Downtown TlF provides that the Downtown TIF wiU tcrmiDate on December 31, 2021 or at an earlier time desigllated by subsequeot ordinance of the City CoiU1ciL In adclition to the Dowp.town TIF, the City eruu:ted an ordinance ill 2001 establishing the North Ovet'ton TIF. Each ofehe other Taxing Units in the Downtown TIF also participate in the North Ovet'toa TIF. The City ordinance establishing the North Overton TIF provides that the North Overto11 TIF willlerminate on December 31, 2031 or at an earlier time designated by subsequeut ordinanoe·of the City Council The North Overton TIF coasists of approximately 325 acres near the Central Businesll District of the City. The frozen tax base for the North Overto.11 TIF was established as of January I, 2002 at $26,940,604.1.11 FY 2007, the North Overtoa TIF had a taxable value of $192,302,370 befon: taking into account tax abatements and exemptions. Afttt tax abatements and exemptions, the tax value ill the North Overton TIF was $192,172,230. (THE REMAINDER OF TIIIS PAGE INTENTI~NALL Y LEFT BLANK) 24 c c .(! c c c ) ) J ) ) FINANCIAL INFORMATION TABLE 1-VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT l..ess ~.a 100% MaJkd Value: ResicleuiW HoCDCiteed ~ Homestead Cap Adjl.lltmi:Dl Disabled Veterans Agricu.huial/Oppacc Laad Use Reductions Polluliocl &emptiom HouseBill366 Freeport Exemptions Tu Abatemem R.cduaioos (I) Tu fi'CC2e Adjustmeoa s 225,084,488 SS,7S7,272 ",D63,118 80,099,818 10,312,389 163,705 86,315,634 35,90S,S83 195,219 s ll,492,911,247 ~ Value R.cductioo fur l'rotestlid Propc:rUe$ 83,710,458 595,700,684 'JJY:)1 Taxable Assessed Valuation City Fuaded Debt Payable from Ad V.!onm Taxes: GCDCnl Oblipliou Debt (as ofl-1 ~) (2) Plus: The Cettificms Total Funded Debt Payable from Ad Valoi'Cill Tuc:s l..ess: Self Supporting Debt (as ofl-1-08) (3) Wat.erwotiG System Genen1 Obligatio4 Debt Sewer System Gmen1 Obligllioll Debt Solid w~ Disposal System GeaCI1II Obligation Debt Drainage Utility Systan Ga!r:ral Obllgation Debt Tax IDcrcmcm Y~ Geoerai Obliptioa Debt EJecuic I...igtt llld Power S)'ltan Gmtnl Obliga1ion Debt Cemetery Geoerai Obl.iption Debt G8teway Gcaeral Oblipliou Debt Hotel 0ccupaocy Tax Debt Airport Gc:ur.ml Obligltion Debt o-aJ Pwpose Funded Debt Payable ftom Ad Valorem Taxes (4) S 524,055,000 66,97S,OOO • s 129,193,872 124,245;100 12,630,290 90,745,324 22,-409,789 S7,104,440 682,14:9 41,849,527 1,218,634 6,6g912 Uoaudited GeDt.ra1 Obliption ~ md Shlking Flllld u of September 30, 7007 Ratio Total FUIIded Debt ID Tuable Assessed Valuation Ratio Gcueral i'lupolle Fuuded Debt 1D Taxable Assessed Valuation 2008 Estimaled Populabon (S) PcrCipita Taxable~ Valuation Per Capita Total Funded Debt Payable from Ad Valorem Taxes Per Capita General Purpose FIIIIIW Debt Payable from Ad Valorem Taxes • Prelim.inaly, subject ID change. (1) See "AD VALOREM TAX INFORMATION-TAX ABATEMENT POLICIES." s 10,897,210,S63 s 591,030,000 48617371637 s 104;2.92.363 s 2,830,583 S.4l% 0.96% 214,847 $50,721 $2,151 S48S (2) The statement of indebtedness does not include the City's outstanding Elec:tri<: Light and Power System Revenue Bonds. payable solely from the net revenues of the City's Electric Light and Power System. Includes the City's $11,805,000 Tu and Waterworks System Swplus Revenue Certificates of Obligalion, Taxable ~ 2008 (the "Taxable Series 2008 Certificates") scheduled to be delivered on Iamwy 17, 2008. (3) As a matter of pollcy, the City provides debt service on general obligation debt issued to filad improvements to its 25 Waterworks System, Sewer System, Solid Waste System, Drainage System, Tax ln<:remeat Ytn.anee Reinvestment Zone, Electric Light and Power Syscem. Cemcteiy, Gateway Streets, Hotel Occupancy Tax projects, and A.iJport from surplus revenues of these Sysletns (see "TABLE 8A-GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS,"' "TABLE 8B • INTEREST AND SrNKnfG FUND BUDGET PROJECTION," "TABLE 9 • DIVISION OF GENERAL OBUGATION DEBT SERVICE REQUIREMENTS, .. and "TABLE 10 ·COMPUTATION OP SELF-SUPPORTING DEBT'). The City's Watetworks Syslem General Obligation Debt has been issued 1o finance or refinance Wataworks System improvements, and is being paid, or is expected 1o be paid, from WaterwQrks System revenues. The City has no outstandmg Waterworlcs System Revenue Bonds but has obligaled revenues of the Waterworks System under walef supply contracts. The City's Sewer System General Obligation Debt has beell. issued 1o finance or refinance Sewer System improvements, and that is being paid, or is expected 1o be paid. from Sewer Syscem revenues. The City has no outstanding Sew« Syscem Revenue Bonds. The City's Solid Waste Disposal System General Obligation Debt has been issued 1o finance or refinance Solid Waste System improvanents, and is beUig paid, or is expected 1o be paid, from revenues derived from Solid Waste service fees. The City has no outstanding Solid Waste Disposal System Revenue Bonds. The City's Drainage Utility System General Obligation Debt has been issued 1o finanCe or refinance Drainage System improvements,. aDd is being paid, or that is eltpected 1o be paid, from revenues derived from Drainage Utility System fees. The City has no outstanding Drainage Utility System Revenue Bonds. The City's Tax lncmnent Financing Gen«aa Obligation Debt has been issued 1o fi.oaoce or refinance constnlction of improvements in the North Overton TIF, and is being paid, or is expected to be paid. from revenues derived from .the Pledged Tax ln«ement Revenues. The City bas no outstanding Tax Increment FinaDeiDg Revenue Bonds. In FY 2008, based upon development projections that the City believes lo be reasonable. but which are dependent in part on fu1lJre economic conditions and other factors that the City C3.!lllot control and as to which it can give no assurances, the City ll!ticipates that tax increment revenues will be adequate to cover debt requirements on the existing Tax Increment Certifieates of Obligation. In the interim, the City intends to make an intedilnd loan 1o cover the debt semoe, and if the projected development in the North Ov«ton TIF proceeds as expec:ced the City would n:pay such loan &om revenues received in future years. The North Overton master pla.o. projects additional debt to be issued by the City for infrastructure improvements in the TIF. If chat occurs, there would likely be years in which the TIF would not produce revenues in am.o1111ts sufficient to cover all debt issued for it. at least until the TIF has reached full build-old status. The City's Electric Light and Power System General Obligation Debt has been issued to fillanoe or refiDance Electric Light and Power System improvements, and is being paid, or that is expected to be paid, from revenues derived from the Electric L,ight and PoWCJ System. The City has $19,010,000 outstanding Electric Light and Power System Revenue Bonds payable from a pledge of system revenues. The City's Cemetery Ga:!eral Obligation Debt has been issued lo finance or refinance Cemetery improvements, and is beiDg paid, or that iS ell:pected 1o be paid, from revenues derived from the Cemetery. The City bas no outstanding Ceme<ety Revenue Bonds. The City's Gateway General Obligation Debt bas been issued to finance or refinance Gateway Streets improvements, and is being paid, or that is expected lo be paid, from &aachise fees. The City has 1110 o1.11StaDdiog Gateway Fund Revenue Bond$. The City's Hotel Oc:cupancy Tax Genmd Obligation Debt has been issued to finance tourism projects, and is being paid, or that is expected to be paid, from hotel occupancy taxes. The City has no outstanding Hotel Occupancy Tax Bonds. The City's Airport General Obligation Debt has been issued to finance or refinance Airport improvements, and is being paid, or that is expected to be paid, from revenues derived from the Allport. The City has no outstanding Airport Revenue Bonds. ( 4) Prdimin.ary, subject to cllange. (S) Soun:e: City of Lubbock, Texas. (THB REM.AniiDER OF TillS PAGE INTENTIONALLY LEFT BLANK) 26 c c c c c c I" - c c TABLE 2-TAXABLE ASSESSED VALUATION BY CATEGORY T1ub~ Appraised V1lae for Fflcal Yur Eacltd Septaaber 30~ 2008 2007 2()()6 %of %of %of CAicRo!I Auxllml Total AIIIOUIIl Tolal Amollllt Tow Real, Residential, SiDgl~>l'amily s 6,321,729,0SO SS.OI% s 5,889,918,195 5S.Sl% s 5,517,769.306 SS.SS% Real, Rc:sidcoDal, Multi-Family 931,507,661 8.11% 873,3~,391 8.23% 195,689,400 8.01% Real, v~ Lollfl'ncu 202,703,022 1.76% 186,939,508 1.76% 166.089,379 1.67% Real, Acrea&e (Land Oaly) 103,474,361 0.90% 11)4,443,417 0.9S% 80,067,791 0.81% Real, Fum aDCI Raoclllmpro..-t~ 10.~8,790 0.10% 10,601,986 0.10% 11,038,895 0.11% Real, Coam!creial aad IDduslrial 2,246,869,059 19.55% 1,968,271,689 18.56% 1,827,901,763 18.40% Real, Oil, Gullld 01her Miaaal Reserves 26,864,ts0 0.23% 2s.~.oso 0.27% 17,S26,SIO 0.18% Real w T10gible Pcnooal, Utilities 181,023,472 1.58% 179,562,657 1.69% 177,838,907 1.79% Taaglble Pasoaal, BIISiDa:l 1,340,911,089 11.67% 1,245,600,988 11.74% 1,228,428,632 12.37% Tangible Pasoaal, Odler 13,018,766 0.11% 13,940,265 0.13% 14,527,171 0.1.5% Real Property, IDvculory 41,291,828 0.,36% 37,577,657 0.35% 26,685,491 0.27% Spcl;ialluvaltory 12,685,000 0.63% 61,621,321 0.65% 61,:m,s4s 0.68% Oilier/ AdjuslmtD!s (11510011 0.00% 220,192 0.00% 1,499,616 0.02% TO!al Appftisod Value Be10re Exempliom s 11,492,911,247 100.00% $ 10,607,538,316 100.00% s 9,932,392,406 100.00% Less: Total ~ODS ~595,100,6841 (604,81~679l (SSS 177814SSl Taxable~ Value s 1o1s97~101s63 s 10t572SI637 s 9~1613.951 Tauble ~nlsecl Valae Cor l1'bul Yar Eaded Seeteoa~~er 301 2005 2.004 2003 %of %or %of Category Amooml Total AmOWII TOial Amouol TOial ) Real, Rcsideatial, Sillgi~FIIIIIlly $ 5,169,490,706 56.09% s 4,690,158,161 S.S.SO% s 4,282,214,635" 56.18% Real, Residaltial, Multi-Family 615,453,250 6.68% S61,S69,488 6.64% 455,993,262 6.05% Real, Vac:aot Lotri'I'ractJ 137,411,731 1.49% 108,625,954 1.29% 93,473,144 1.24% Real, At:tt:qc (LaDCI Oaly) 64,S32,486 0.70% 65,880,410 0.78% 59,644,977 0.79% Real, Faru~llld R-=b.l'mpco•cmc:u&~ 10,406,299 0.11% 10,835,088 0.13% 11,391,782 0.15% RaJ, Commacial ADd ladulcrial 1,712,457,490 18.58% 1,638,&46, 765 19.39% 1,370, 730,397 18.18% Real, Oi~ V.S m:l Olbcr MiDenl Reserves 12,167,7S4 0.13% 8,923,810 0.1 1% 7,909,460 0.10% \ Rail aad T.agible Penoaal, Ulililics 173,908,469 1.89% 18.$,761,346 2.20% 192,138,423 l.SS% Tangible Pcnoaal, Business 1,226,369,118 13.31% 1,090,862,579 12.91% 974,534,729 11.92% T~"ble Persooal, Other 15,465,413 0.17% 16,287,022 0.19% 15,336,364 0.20% Real Propaty, Iovcarory 9,863,035 0.11% 4,774,287 0.06% 11,037,603 O.IS% Special Ioveototy 68,232,264 0.74% 63,663,514 0.81% 67,339,159 0.89% Olbcr/Mjustmeaa 0.00% 0.00% 0.00% To cal Appraisal V aluc Before Exemptions s 9,21 S,7SSJ)ts 100.00% $· 8,451,188,424 100.00% s 7,541,793,935 100.00% Less: TOial Eumptioos~Recfucticm !580.763,1531 (529~98~ !t99.449.068l Taxable A.ssc.s8cd V1l11e s U34@'h862 s 71921g90d80 s 7.JS344,867 NOTB: V aluatious shown .-e c:ertified taxable assessed valiiCS reported by lhe Appnisa1 Disbict to lhe City for purposes of cstablishill.g and levying the aty• s annual ad valomn tax rate llld to the State Comptroller of Public Accounts. Certified values are subject to change throughout the year as contested values are resol~ aDd the Appraisal District updates records. } 27 TABLE 3A ·VALUATION AND GENERAL OBUGATION DEBT HISTORY Fisc:al. PuCaplta Ccaenl. ibeio Year Estim.t.led. Tauble Tuabk hrpose TuDdJtto Ell!W District AaMHell Astased FlUid eel AJistaed fudedDebt Tu .12:§!2.. P~lllatioo<>~ Valutiaa Valueiou TuDdJtllll ValuUou$) Perf!i!ta Year 2003 204,737 s 7 )42,344,867 s 3S,862 s 70,188,204 0.96% s 343 2002 2004 206,290 7,92l..S90,380 38,400 70,161,218 0.89% 34() 2003 200S 209,120 8,634,994,862 41,292 80,210,269 0.9~% 384 2004 2006 211,187 9)46,613,9SI 44,258 87,231,945 0.93% 413 200S 2007 212,36S 10,002,72S,637 47,102 92,487,363 0.92"!. 436 2006 2008 214,847 10,897,210,S63 S0,721 98,504,904 Ill 0.90% 1<1 4SS 611 2007 "' SoYrce: The Oly. 01 DooiiOiildoldeedl'~«ltt. <4 l"cdiaimry,.....,.._, ..... h:lllifcs6oTmllleSeria)(l)8~ TABLE 3B ·DERIVATION OF GENERAL PURPOSE FUNDED TAX DEBT The foUowing table sets forth cenaiD. information with respect to ihe City's general pwpose and self-supporting genenl obligation debt The City is revising its capital improvement plan, but the City expects to issue additiol131 self-supporting genenl obligation debt within Che three to five year time frame. See .. ANTICIPATED ISSUANCE OF GENERAL OBLIGATION DEBT." Fiscal Less: G~aeral Purpose Year Fwaded Tax Debt Sdf.S11ppordag Funded Tax Debt Eaded Outstandlag at Flmded Tu OucswuliDg 30-Sep Ea4ofYear Debt atEadof Year 2003 s 29S,93S,OOO s 225,746,796 s 70,188,204 2004 28S,88S,OOO 215,723,783 70,161,217 2005 388,595,000 308,384,731 80,210,269 2006 447,275,000 360,043,055 87,231,945 2007 512,.250,000 419,762,637 92,487,.363 2008"" 564,620,000 466,11S,096 93,504,904 TABLE 4-TAX RATE. LEVY AND COLLECTION BJSTORY Fiscal Tax IWe DistribaUoa YearEad Ceoeral Ecilnomk lnttrest aad Tax 09/30 FlUid Devel~meat Sinking Fu.ad Rate 2003 $ 0.43204 $ O.o3000 $ 0.10796 $ 0.57000 2004 o.41504 0.03000 0.10066 0.54570 2005 0.33474 0.03000 0.09496 0.45970 2006 0.35626 0.03000 0.06094 0.44720 2007 0.36074 0.03000 0.07125 0.46199 2008 0.35380 0.03000 0.07125 0.45505 28 Tax ~ $ 42.093,153 43,659,111 39,697,452 41,775,367 46,068,744 49,195,247 Percaat CoOected Curreat Tollll 97.67% 99.21% 97.02% 97.73% 98.64% lOO.W" 98.15% 99.71% 98.12% 99.02% (In process of collection) Tu Year 2002 2003 2004 2005 2006 2007 c c ( c c f .. ' ( ( < ) ) ) ) TABLE 5-TEN LARGEST TAXPAYERS Name Macericb Lubbock Ltd. Wal-Mart Stores, Inc. Solltbwesrem BeU Telepbone UDitcd Supermatkds OFC PYCO Industries, Inc. Southwcstcm Public Services Co. Lubbock Property, lLC Atmos Energy West Teus Division TYCO Fire Products Fountains Club Lubbock Acquisitioos, LP TABLE 6 ·TAX ADEQUACY 2007 Tu:ablt Mses!Sd valuation $ 120,319,460 69,696,472 6S,67S,631 49,479,682 48,047,230 42,711,124 33,316,729 33,181,890 31,136,879 28,036,483 $ S21,60J,S80 Average Aruwal Debt Service Requilements All General Obligation Debt (2008·2034): $0.3032 per $100 AV against the 2007 TaxableAV, at 98.5% collection, produces Maximum Annual Debt Service Requirements All Oeocral Obligation Debt (2009): $0.5125 per $100 AV against the 1HJ7 Taxable AV, at 98.5% collection, produces TABLE 7 -ESTIMATED OVERLAPPING DEBT %ofTotal Tuable As!med Valuatiou 1.10% 0.64% 0.60% 0.45% 0.44% 0.390" 0.31% 0.30% 0.29% 0.26% 4.79% $32,536,333 (a) $32,544,737 $55,0()2.913 N $5S,Ol0,481 Expenditures of the various taxing entities withiD the territory of the City are paid out of ad valorem taxes levied by such entities on properties within the City. Such emities are illdepeudeat of the City md may incur borrowiDgs to 6Daac& their expemditutes. This stltemeot of direct .Dd estimated overlapping ad valorem tax boDds ("Tax Debt") W3ll developed from information contained in '"Texas Municipal Repon.s" publlilhed by the Mlllli<:ipal Advisory CoWlcil of Texas. Except for the amounfl!l relating to the City, the City bas aot iodependeotly verified the accuracy or completeaess of such information, aod 110 penJOU should rely upon such iofumlalion as being IIOCwale or complete. Furthermore, certain of the em:ities listed may have issued additional Tax Debt since the date ~( aod such eatities may bave programs .requiring lhc isswmcc of substantial amounts of additional Tax Debt, the amount of which cannot be detcrm.iDcd. The following table reflectll tbe c:stimatcd shan: of~ Tax Debt of the City. Grots Debt EsCimatecl % Overlapplag TaDilg Jw1sclletloa !As of 111108~ Ova'laJ!I!I!!I Debt Frensbip lSD s 138,102,346 79.41% $ 109,667,073 Idalou ISD 275,000 6.93% 19,058 Lubbock CoWJ.ty 85,720,000 83.32% 71,421,904 Lubbock CoWJ.ty l{o,pital District 83.32% Lubbock lSD 140,956,725 98.49% 138,828,278 Lubbock-Cooper lSD 46,264,571 51.50% 26,602,128 NewDeaJISD 18.33% Roosevelt lSD 9,624,998 4.20% 404,250 Estimated. Overlapping Debt s 346,942,691 The City (as of l/1108) s 591,030,000 Ool 100.00% 59110301000 Ool Total Direct & Estimated Overlapping Debt $ 937,972.691 As a% of2007 Taxable Assessed Valuation 8.61% Per Capita Total Dim:t &: Estimated OverJ.awing Debt s 4,417 29 TABLE SA-GENERAL OBUGATION DEBT SERVICE REQUIREMENTS I'VE Oatltluldillg Debt~<~~<'~ De Ca11flcala N 30-S!J! Prtn!:!£!! IDbenst Total Prl!!d£!1 (Dienst 2008 $ 26,410,000 $ 24,119,1~ $ 50,222,217 $ 1,720,4Sl 2009 26,940,000 22.906.272 49,907,366 $ 2.190.000 2,90S,s48 2010 27,015.000 21,790,460 43.8~.398 2.280,000 2,816,148 2011 27,800,000 20,594,166 48,4$4,901 2,37S,OOO 2,723,048 2012 27,440.000 19,349,341 46,&50,018 2,470,000 2,626,148 "2013 28,310,000 18.082,207 46,4S2,ll31 2,570,000 2,525,348 2014 29.270.000 16,740,221 46,070,191 2,675,000 2,420,448 20JS 27,410,000 15,439,593 42,910,.326 2.78S,OOO 2,311,248 2016 27,SSS,OOO 14,160,739 41,776,980 2,900,000 2,197,548 2017 27,900,000 12,801,001 40,762,90S 3,01S,OOO 2,079.243 2018 2S.63S,OOO 11,426,822 40,124,560 3,140,000 1,9S4,s7S 2019 27.915,000 10,017,.3)2 37,993,060 3,27S,OOO 1,819,795 2020 26,07S,OOO 8,719,234 34.849,720 3,420,000 1,674,143 2021 24,79.S,OOO 7,48),700 32,328,491 3,S7S,OOO I,S18,46S 2m2 22,460,000 6,314,906 28,818,568 3,745,000 l,3S1,893 2023 21,900,000 5.217.948 27,1$4,886 3,920,000 1.11S.S98 2024 20,400,000 4,152,246 24,S81.~ 4,10S,OOO 988.910 2025 19,730,000 3,165,337 22,917,703 4,305,000 790,2S9 2026 16,245,000 2,272,639 18,S:U,163 4.Sts,OOO S79,6SS 2027 10,530,000 1,603.211 12,1~7.794 4,740,000 3S7,S3S 2028 5,225,000 1,216.219 6,.441,219 4,97S,OOO 121,888 2029 S,475,000 967,143 6,442,143 2030 S,73S,OOO 712,173 6,447,173 2031 6,000,000 445.949 6,44S,949 2032 2,195,000 260,438 2,4SS,438 2033 2,290,000 IS9,S~ 2,449,S2S 2034 2,400.000 54,000 2,454,000 s S24,0SS.OOO s 250,172,464 s 7141~047 s 66.97S!!!!2 $ 3~657~~6 Ava11F AmAial Debt Setvie>e ~All Geac:nl Obllptioo. Dctlt (2008.2034): Maximum Amllllll Debt Setvioc ~All Gener.l Olllipliotl Debt (2009): " DoCI Gilt !.odlldt '-'!=cfaso abtipliom. llodu6oteleT*"'I))e Sctita 2008 ~ Ol~.~co~ TABLE 88-INTEREST AND SINKJNG FUND BUDGET Projc:ctcd Gcocnl Pia-pose Gel.leral. Obligatioo Ddlt Sc:Mce Rl:qllircmcats, Scptonba: 30 ,2008 F~ Ago:nt Fees lilll:n:st aDd Siakiag Fund, September 30, 2007 Into:est aDd SiAkillg flltld Tax Levy@ 99'A &timatcd Imerest Eamiilp Projc:c1ed Balaac:c:, SqltCII!bef 30, 2008 30 Total $ 1,720,453 S.09SJ48 S,096.14S S,098,048 5.096,148 S,09S,348 S,09S,4-48 S,0%,248 $,097,548 $,094,248 5,094,518 5,094,795 5,094,143 $,093,465 S.096.893 S.09S,598 S.093,970 S.09S.2S9 S,094,6SS S,097,S3S S,096,888 $ 103,632,9.S6 s 2,830,S83 7,420,094 11601,774 Total J)d)t~ceiol s 51,942,730 SS,002,913 53.962.546 S3,SS2,94S Sl,946.16S SI,S48,178 51,1~,239 48.006.$74 46,874,S2S 4S,8S7,1S3 45.219,138 43,0S7.8SS 39,943,863 37,421,956 33,91S.460 32,250,483 29.61$,836 28.012,962 2'l.62S,81S 17,23$,329 lt.s38.106 6,442,143 6,447,173 6,445,949 2,4SS,438 2,449,S2S 2,4S4,000 s 878,481,00) s 32,536,333 $ S.S,002,913 S -10,940,S76 20,000 s 891,875 ,. ... c ( c ' c -.J ._, ~-' J J v ) TABLE 9 • DMSION OF GENERAL OBLIGATION DEBT SERVICE lloiWW-Dnllo ... To a-tcupt w ........ . ..... bopoool 'Odlt7 ---........ c-.1 TotAl J'YE .,.,.. .,._ .,._ .,._ ......... .,._ C8D118rJ Gtmr., IIOT Airport ...,_ c:.o. ~ ~.._.... Dollll...tco" J:lobt..,._ Delrtltnloo ., ... ...._ Dolllltnlao IJet'lllln'loo 1Jelrt8-.. Dol>! a-leo llelrt8onloo Ddatll.m.."' 1Jelrt8onte. 2001 $ 14,614,035 s 9,255.947 s 1,221,255 s 4)61,006 s l,m:nt s 5,691)41 s SS,OM s 3,010,090 s 96,451 s ?91,190 s 10.,.0,576 s 51,!'42,730 2009 14,541,0!'4 12;JN,m I.J)!114,6:U 4)65,121 1,137,314 s,621.4Q 55,111 3,067,669 97)29 617,726 11,302,1110 S$,002,913 2010 1],2'11,oot 11,17,,411 l,lllf,1U S,71t,SU 1,119,'720 S.t0$.117 SS,13S :J~067l564 97,31] 612,561 10~$0 S3,~5U lOll U,I76,3U 11,711,392 I,UO,I6S 5,717,470 l,13S,7ll S,740,5t1 55,224 ),064,963 97,27~ ~.502 10,390,239 Sl,S$l,941 2012 12,292,7U 11,417,995 1,14<1,244 5,715,.19'1 1,US,6SZ 5,651,104 55,11J 3,069,617 91,141 602,591 10,000,099 51,946,165 lOll 12,242,201 11,191,751 1,129,137 5,717,364 1,154,491 5,590,514 55,134 3,061/fl4 91,32) 596,767. 9,92J)l9 51,541,171 2014 12,201,712 11,126,769 1,113,113 5,713,156 I,U4,275 S,SII,IS6 55,217 3,061,09$ 91,280 m,aos 9,ts4,m 51,166)39 2015 12,015,142 9,249,545 l,og'l~~ 5,715,706 I,US,7l0 5,.US.264 55,227 3,066,066 91,321 4$6,215 a.924,m 411.006,574 2016 11,121,612 1,447,131 1,111,462 '·"'·'92 1,1".310 $,100,130 55,223 3,066,113 97,248 4SU15 9,217,355 46,174,521 2017 11,614,799 &,4ot,!lt6 1,419S,m 6,62!1,104 1,139,470 4,912,514 SS,20C5 3,064,011 91,14& 4S7,940 7,616,000 .S,IS7,153 2011 11.464AS 1,131,011 1,012,944 6,641,03$ 1,1:13,674 4,144,615 55,204 3,067;4'1 91)11 456,045 7)l8,321 45,21t,IJI 2.019 11,112,11$ &.105,141 lll,ll()j 6,634,660 l,t36,l33 3)05,644 55,117 3,0412,136 97,290 454,025 7,$35,020 43,0&1,1'5 1020 1,64i9)f3 7)11,,.. 112,"7 6,646,131 1,139,224 3,305,002 55,22.2. S,06S,099 91,242 4SS,tu 7,5U,554 39,!'43,86] 2021 6,771,161 7,310,15t 173,4$1 6,647,291 \,135,044 3)03,103 55,210 3,067,511 97,m 456,969 6,931,2!14 37,421,956 2022 4,090,415 7,313,701 741)01 6,662.&31 l,tt4.2'9 3)01,119 55,231 3,065,.451 91,339 451,1$6 6,219,76) 33,915,460 202:! l,7U,122 7.P16,')tfl 744,166 S,I91,US 1,135,149 '.JS7,1n 55,204 l,06&.1S6 97,251 457,149 6,G92,30:1 32,2$0,41) 202A 3,7!14).41 7,0SQ,243 741,113 s,1n,240 I,J33,911 2,015,174 55,202 3,066)n 97,119 451,)11 4,124,1,. 29,67$.136 202$ 3,os9,676 7,004)7S 47o,G5 $,1142,331 1,$49,9!14 2,020,t22 55,.207 ~.SIS 91,.301. 4.57,137 4,391,112 211.012,9Q 2024 2.m.m 6,426,..574 470,67) .5,846,!106 834,745 1,5)9,663 55,212 1.,924,141 97)05 231)51 3,.42),141 23,61S,III 21n7 1,454,616 U$1,742 107,121 5,200,602 ]1'7,916 1,051,140 15,619 1,104,1SO 97,210 32,797 1,915,2.24 17,235)251 !::! 202a . 5,096,111 . 4,731,319 ---1,702,900 . . . 11)311.106 2019 . . . 4,738,431 . . . 1,103)0$ . . . 6,442,143 2030 . . . 4,740,Ml . . . 1,706,210 . . . 6,447,173 2031 . -. 4,740,044 . . . 1,70$,905 . . . 6,445,949 2032 . . . l,.4SS,4ll . . . -. . . 1,451,431 :am . --2,44~ . . . -. . -2,449,525 20:14 . -. 2,454,000 . . . -. . -1,.454,000 s 114~75 • 111,52)1101 S IU+U9l s 1.0,413.121 • 33,9\IMO I •wu•o s t106Uts s "fflm s •am ! 91705tf1 s us1001.120 s 111,41tl003 W Pllllmlaoly, .. lljOCIIO .............. o.s-. "' ....,.,..,., nlljoct ........... lo&Woolbt ,_ -1001CG:IUI-. TABLE lt ·SELF-sUPPORTED DEBT The following details the revenues aWilab!e and debt allocations for the self·supponcd general obligation debt of the City. See also Table 9. In addition to the tu.nds detailed below, the City Council of the City approved ordinances designating debt bsued · for the Qmetay {a unit of the City's General Fund) to be supported by sales of crypts and niches at the City Cemetery. THE WATERWORKS FUND <•I Net System Rcvezwe Available, Fiscal Year Ended 9·30-06 s 18,277,614 Less: Rcqui.mnents for Revenue Bonds, Fiscal Year Ended 9·30-08 Balance Available for Other Purposes $ 18,277,614 Rtquirements for Fund General Obligation Debt, Fiscal Year Ending 9-30-08 14,614,035 Percentage ofFu.ad Oenml Obligation Debt Self-Supporting 100.00% (II ~F'uc.d Y-dlcCitycra.atfcn ao-cqual10dcbtscrvice reQ.~<)Il cbe Wa-odts FUild~ obliaallioo.dcbt 10 a~ IQCW.III i.n cbe Wau:rwub F1IDd. THE SEWER. FUND <o~ Net System Reven~ Available, Fiscal Year Boded 9·3()..06 $ 8,373,248 Less: Rtq~ts for Revenue Bonds, Fiscat Year Ended 9-30-08 BalaD!Ce Available for Oth« Purposes $ 8,373,248 Requimnents for Fund General Obligation Debt, Fiscal Year Ending 9-30-08 9,2SS,947 Percentage ofFUild Geueral Obligation Debt Self-Supporting IOQ.OO"A (II l!ach f'uc.d YarcbeCicytnlllsf= eA&DIQWit""',\8ltoddlt sc:Mccrcquiremt:atsOil cbe Seoour-t&QCnllobtipliOQ<I«Jt 10 a~ IOC<lWd i.n the~ Flmd. The Cily cqlCCtl c:u.m:ct yeats~ fllll.d-Mil be sufficialt to COYCt 1bc ~ ~ ~ ofdlc Sewer Fuad ptl'8l obtigalico debt. THE SOLID WASTE FUND<•) Net System. Revenue Available, FISCal Year Ended 9-30-06 s 3,913,968 Less.: Requiremems for Revenue Bonds, Fiscal Year Ended 9-30-08 Ba1an<:e Available for Ocher Purposes s 3,913.968 Rcquimnents for Fuad Oenera1 Obligation Debt, Fi~ Year Ending 9-30-08 1,228,.2SS Percencage of Fund General.Obtig:ation Debt Self-Supporting IOO.OO"A (II Each F'*'*' Year cbeCity ~co an amOUIIlcquaiiO debt service~ 011 cbe Solid Waste Fllll.d gcaen1 obliptioo debt 10 a~ I(IC)(IUnt ill cbe Solid Wast:: Fuad. THE DRAINAGE FUND <ol Nee System Rcvem.te Available. Fiscal Year Eodcd 9-30-06 $ 6,476,263 Less: Rtquilemenl$ for Revenue Bonds, Fiscal Year EDded 9-30-08 Balaocc Available for Other Purposes $ 6,476,.263 RequiJ:emcrxts for Fund Genetal Obligation Debt. Fiscal Year Eoding 9-30-08 4,361,006 Pereeotage of Fund Genenl Obligalion Debt Self-Supporting lOO.OO"A (f) l!acb Jiacal. Yeatdlo City lra.QSftn a.o amou.at ccpltodebt ~ ~ oo cbe Daiaaae FII.Dd (IICDt:nl obllplioo. ddlt lOa scpp.tccl-ill cbe~ FUIId. TBE ELECl'RIC LIGHT AND POWER FUND !lol Nee Elc:cttic Light 1111d Power System Revenue Available, Fiscal Year &ded 9-30-06 $ 28,689,792 Less: Rcqu.irem.eots for Rcvc:oue Boads, Fiscat Year &ding 9-30-08 314291060 Balance Available forOtber Purposes s 25,260,732 Rtquirements for Fund General Obliga!ion Debt, Fascal Year Endiag 9-30-08 S,698,341 Pm:entage ofFUild General Obligation Debt Self-Supporting 100.00% <t1 Eldl F'oscal Y-cbeCityu.nsfcoenamouDtcqual eo debt xrvice~Oillbe Eleccric li£jll.and POM:r Fuad 32 ,. ... c c ( ' ( < ) ' ) ) ) ) ) ' THE GATEWAY FVND I<~ Net System R.eveuue Available, Fiscal Y eat Elided 9-30-06 s Leu: Requimneuts fur R.eveaue Boads, F"ISC3! Year Ended 9-30-08 Balmoe Available fur Other Purposes $ Requirements fur f\md Oeneral Obligation Debt. Fiscal Year Ending 9-30-00 Perteattge ofFund GcDetal Obligalioa Debt Self-Supporting {OJ &.:b Fuca! v-e.CIIy-ren aa -equal ll)debtscrvice ~"" ~~~~ca.-y fuud&a>=r&J obliplica debt 1o ascp:pDI..,.,..... ill lk a._,. Rmd. THE AIRPORT FUND.,, Net System Revenue Availllble, Fiseal Year Elided 9-30-06 Less: Requiremeab fur R.evezwe Bonds, Fiscal Year Eaded 9-30-08 Bahmce Available for Olher Puiposes Requi1:emen1s for Fund Genem1 Obligation Debt, F'ISC8l Year Elldiag !)..30-08 Pen:a~tage ofFUDd Geoerd Obligation Debt Self-Supporting "-l &;h f"acai Y ... tile Cily IIIIIISii:a 1D IIDOIIDI c:qaal II) debt~~ malbc Ailport Fuad aa-1 o~Jti&:atiom debt to • ~ 8CCIIUIII iD.Ibc Ailport I'IIDd. THE TAX INCREMENT FINANCING FUND l>l Net System lleveGue Available, Fiscal Year Ended 9-30-06 Less: RcquiraDears for Revenue Bonds, F"ISC'&I Year Elided 9-~ Balance Available fur Other Pwposes ~ b Fuad Geoerai Obliption Debt. Fiscal Year Eadiag 9-30-08 Perc=lage ofFUDd Gmenll ObUgatioa Debt Self-Supportiug w &chf"&ICt!YearlbcCilylniiiS&:n u amoumequaltodebt~~ •lbc Tu '--F"~ f\md tpltlniJ oblipiUm dc:IJt to.~ accouat iD. tbc ~ IIIAaDCIII F"IMIICiD.a f'uDd. Tbe ~ofrm:aue accded II> "'R''Ot~ li>c:n:maiL Fiolll<::i.ag Fomd a-~ o11~ debt;, IDOIS&ncd tom 111c Cl1y'a Solid w-Pwld. TABLE 11-AUTHORIZED BUI' UNISSUED GENERAL OBllGATION BONDS Date AIDoal P1lrpose ~ Aalllorized $ s s s 1-' To Date Sewer Syst=n OSI2tm $ 3,303,000 s 2,175,000 Watc'Wo.tb System 10117187 2,810,000 200.000 Stm:t lmprow:mr.ols 05101193 10,170,000 10,166,000 Street Jmpro\UI~ads 05/IS/04 9,210,000 5,269,000 Ovk: Calkr/Audi!Drium Rmowtion and lmprovemcots OS/15104 6,450,000 Parkl'mprovcmcuts OS/15104 6,395,000 6,395,000 Poli<r~Muoi.cipal Court Facilities OS/15104 3,350,000 Library llq)rowmtrds OS/15104 2,145,000 F'U"e Slatioos 05115104 1,405.000 1,405,000 Aaimal. Sbehrr Ralo\'llliom 4: hq:JrowmaJts OS/15104 110451000 1601000 s 46.2831000 $25,'~000 33 S,S26,.200 5,526,200 3,070,090 100.00% 2,877,208 2,877,208 791,190 100.00% 940,013 940,013 1,831,739 100.00% Ulllmled s 1,128,000 2,610,000 4,000 3,941,000 6,450,000 3,350,000 2,145,000 8851000 $20~131000 ANTICIPATED ISSUANCE OF GENERAL OBLIGATION DEBT ... The City Council adopted a resolution during the 1984-85 budget process establishing capital maintenance funds fur capital projects. A capital improvement plan is made for plauning purposes and may identify projeccs that will be defem:d or omitted entirely in future years. In addition, as conditions change. new projects may be added that are not ctarently idc!tified. 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 years. For FY 2007-2008, the City <Auncil approved $194.4 million in total expenditures for capital projects for all general purpose projects. as wetl as projects for the el~c fund, water fund. sewer fund, solid waste fund, stonnwat« fund and airport fund (up from $77 miUion in FY 2()()6..2007). The Capital Projects Fund budget for FY 2007-2008 also included an additional $562.6 million in future improvements for all City dep.utments over the five succeeding fis.cal years. The improvements included in the City's capital improvemQlt plan are generally funded from a blend of bond proceeds, reserves or CUilliO.t year revmue SOIII'Ces. As shown in Table 11, the City has $16.,771,000 of authorized but unissued bonds from the May IS, 2004 bond election. When the 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 ~tial unvoted tax supported debt to fund portions of the capital budget of the Electric Fund, Water Fund, Sewer Fund. Solid Waste Fund, Storm Watt:r Fund, Tax Increment Fund, Gateway Fund and Allport Fund. A3 described elsewhere in this Official Statement, such enterprise fund indebtedness is geuetally anticipated to be self-supporting from enterprise fund revenues. · The City anticipates the issuance of$119,400,000 in additional gener.d obligation debt within the next twelve months. TABLE 12-<rrBEROBLIGATIONS Governmental Basinest-Type Total Capital Lease Capital Lease Capftal Lease FYE Miuimwn Mbllmam MID Imam 30-Sel! Pal!!!ent Pa~nt Payment 2008 s 1,694,843 $ 1,946,263 $ 3,641,106 2009 1,673,144 1,842,705 3,515,849 2010 1,522,290 1,748,474 3,270,764 2011 . 725,904 1,086,012 1,8ll,916 2012-2016 1,116,246 381,832 1,498,078 Interest !896171Q !8941074} (117901785) $ 518351716 s 61111~12 $ 11,946.,928 On January 8, 2004, the City entered into a note agreement with the Department of Housing and Urban Development ("HUD") for loan guarantee assistance under Section 108 of title 1 of the Housing aad Commwity Development Act of 1974, as amended, in the amo1.111.t of $1,000,000. 1'be Note was issued to aid in the establishment of a Housing Rehabilitation Program in order to provide rehab options for low-to moderate income households on a citywide basis, pay professional services rerulered in relation to such project. and the financing th~£ Under the terms of the Note, the City will make annual principal payments on August I, of each year beginning in 2005 through 2012; intel'e$t payments are due semi-annually. The Note is a liability of the City's Community Development Block Grant Program and debt service will be paid from Chis granl FYE Contract Revenu:e Bonds 30-Sep 'PrlDdpal In term Total 2098 $ 125,000 s 23,300 $ 1S3,300 2009 125,000 23,300 148,300 2010 12S,OOO 17,900 142,900 2011 125,000 12,188 137,188 2012 12S1000 6aoo 131.200 s 625,000 $ 871888 s 712,888 34 c c ,. ... ' ' ( ( ) ) ) ) ) PENSION FUND ... TEXAS MUNICIPAL RETIREMENT SYSTEM <a»t ••• All permanent, full-time City employees who are not firefighters are covered by the Texas Municipal Retin:meot S)'3tem ("TMRS"). TMilS is an agent. multiple-employer, public employee rdiranent system which is covered by a State stmrte aDd is administaed by six trustees appointed by the Goven!.oc of Texas. TMilS operates indepeadently of its member cities. The City joined TMilS in 1950 to supplement Social Security. All City employeea eltcept firefighters are covered by Social Security. Options offered UDder TMRS, and adopted by the City, include ctii1Qt, prioc and antcclcdent senice credits, five yeac vesting. updated service credit, occupational disability benefits and sucvivor benefits for the spouse of a vested employee. An employee who retire$ cec:eives an annuity based on the amount of the employee's contributions over-makbed two for one by the City. Since October 11, 1997, the employee contribution me bas been 7% of gross salaly. The City's contribution rate is calculated each year using actuarial techniques applied to experience. Enabling statutt:s prohibit any member city from adopting options which impose liabilities that cannot be amortized over 25 yeatS within a specified statutory rate. On December 31, 2006, tbe actuarial value o( assets held by TMilS {not includi.Qg those of the Supplemental Disability Fund. which is "pooled"), for the City were $199,865,768. Unfunded adlwial accrued liabilities Oil December 31, 2006 were S71,S02,988, which is being amortized over a 25-year period beginning Jamwy, I 997. FIREMEN'S RELIEF AND RETIREMENT FUND w .•. City firefighten are membecs of the locally administered Lubbock Fimnen 's Relief and Retirement Fund (the "Fund"), operating UDder an act passed in 1937 by the State Legislature and ad.opted by City firefighters, by vote of the department. in 1941. Filefigbte!s are not covered by Social Security. The Fund is governed by seven tnlstees, consisting of three firefighters, two outside lrUst.ees (appoio~ by the other lrUst.ees), the Mayor or the representative thereof and the chief finaucia1 officer or the rcpccSentative tbem:~f. Execution of the act is monitored by the Fin:men 's Pension Commissioner, who is appointed by the Goveroor. Benefits of retired firemen are detennined on a "fonnula" or a "final salary" plan. AcGJaria1 reviews are performed t:Very two years, and the fund is audi~ annually. Firefighters contribute a p«eemage of full salary into the fuod. Based on the plan effcclive November I, 2003, the Fund's timding policy requires contributions equal to 12.43% of pay by the firefighters. The City contri~es on a basis of the percentage of salary which is an annually adjusted ntion that beatS the sam..e relationship to the firefighter's contribution rate that the City's rate paid into the TMRS and FICA beatS to the rate other employees pay into the TMRS and FICA The December' 31,2006 actuarial valuation assumes tbe City's contributioos will average 19.75% ofpayroU in the future. A3 of December 31, 2006, the uo.fu.oded pension benefit obligation was $26,297,944 which is amortized with the excess of the assumed ll)lal contribution ra1e ov« the normal cost rate. The number of years needed II) amortize the unfimded pension obligation is determined using an open, level peteelltage of payroll method, assuming that the payroll will increase 4% per year. The December 31, 2004 actuarial valuation, which used plan provisions effcaive November I, 2003, needed 20.6 years to amortize the unfunded pension obligation. The Decemb« 31, 2006 actuarial Vllluation was based Oil the plan provisions eft'ective December I, 2005 and needed JS Ye&nl to amortize the unfUnded pension obligation. OTHER POST-EMPLOYMENT BENEFITS ... The City cun:eatJy provides eertain post-employment benefits to its employees, as described in Note m K (Notes to the Basic Financial Statements) set forth in Appendix A. lbe City inted.ds to comply with the requirements of GASB No. 43 and 45, with respect to the rqJOfling of post-employment benefits, in liCI:Ordance with the timelines set forth in GASB No. 43lllld 4S. The City bas retained the services of Gabriel. RDcder, Smith & Comp;my to prepare the cal~ations required under GASB No. 43 and 45. Cal Foe historical iafimaation ~ lhe reare:a-t plms, -"APPENDIX A. EXCERPTS FROM ANNUAL FINANCIAL REPORT FOR nm YEAR ENDED SEPTEMBER 30,2006-Note m, Subeection E-~Pima". tb> Sollrce: Teus Mllllicipal Rl:limoeat System. CompreuiUive AlllumJ FW:lncial Report for Y~ Ended Decetnber J/, 2006. [11£B REMAINDER. OF nus PAGE INTENTIONALLY LEFT BLA.N"'h) 35 c TABLE 13-CIIANGES IN NET ASSETS c Flseal Year Eockd §!etember 30 (II} ~ ~ ~ ~ REVENUES Program Revenues Charges for Services s 9,632 s 10,583 $ 12,713 s 13,888 s 9,369 Grants and Contnbutions lt,048 13.,296 9,643 12,137 7,007 General Revenues Property Taxes 42,771 39,748 44,497 42,303 40,408 Sales Tax.es 45,577 41,803 30,555 29,092 28,903 Olher Tax.es 4,447 4,242 3,793 3,712 3,681 Franchise Tax.es 13,348 11,154 9,654 6,613 6,998 Grants/Contributions not reslricted (2S) Olher 1lrl92 51742 4~74 31834 61227 Total Revenues $ 138,115 $ 126,568 s 115,129 s 111,579 s 102,568 EXPENDITURES Administrative Services $ 9,9,0 $ 8,220 s 7,946 $ 7,158 $ 7,.293 Community Services 6,112 6,146 6,776 6,~35 8,643 c Cultural and Recreation 18,915 17,745 17,102 16,796 16,.297 Economic Development 10,.283 9,739 4,610 4,535 4,399 Fire 26,711 23,517 22,074 20,450 19,432 Health 5,014 5,040 4,585 4,343 4,173 Police 42,063 38,452 36,543 33,986 31,862 Other Public Safety 5,.240 4,977 4,211 3,602 3,459 Streets and Traffic 11,850 12,466 10,570 16,371 9,913 c Non-depar!mental 5,.206 6,253 2,924 5,642 5,015 Interest on Long-Tenn Debt 4z226 31195 4877 3~73 31493 Total EKpenditl.lres s 145,630 $ 135,750 s 122€18 $ 122,591 s 1131979 Changes in net assets before special items & uansfers $ (7,515) $ (9,182) $ (7,089) $ (11,012) s (11,411) Special items (687) ' Transfm 9,607 151469 9745 21554 151668 Changes in net assets $ 2,092 $ 6,287 s· 2,656 $ (8,458) $ 3,570 Net Assets -beginning of yeu; as restated $ 1101629 $ 104,341 $ 1011684 s 110,142 $ ·106~72 Net assets -end of year s 11~721 s 1101628 $ 1041340 s 101,684 $ 110,142 ' 00 Audited. Units are in OOOs. Nocc: Data shown in Table 13 re0ec1s· geom1 goVCilllllelllal acttvities le(JOI:Ud ill aa:ordmoe with GASB Statement No. 34. Tbe fiDaocial ~ melude a managemeat discussioa aDd malysis of the opclllliDg resWis of 8Ucll fiscal year, inclwfillg resta.ltmellfs to llegilmiog fimd bala.aces aDd net assets. ( ( 36 ( TABLE 13A-GENERAL FUND REVENUES AND EXPENDITURES IDSrORY Fiscal Year Eaded September 30 l!!2i ~ ~ 2!!! 21l:!2a REVENUES Ad Valorem Tues s 33,193,738 $ 29,414,773 s 33,233,274 s 32,194,0S7 $ 29,885,252 Sales Taxes 41,778,534 38,319,501 30,SS4,632 29,092,032 28,902,649 Franchise Taxes 8,008,973 6,693,209 9,6S4,447 6,612,822 6,998,085 ) Misoel.laDeous Taxes 1,027,352 932,327 939,456 848,816 820,507 Lioeoses aad Pennits 2,250,635 1,953,666 1,982,281 1,875,118 1,475,451 lntergovemmeotal 408,997 480,648 428,459 348,787 351,878 Olarges for Setvioe'S 4,781,043 4,070,642 4,467,733 4,945,591 4,472,094 Fees and Fines 3,981,978 4,015,402 3,675,856 3,672,509 3,069,362 Miscellaoeous 1,46S,21S I,S06,31S 1,442,677 1,532,346 1,058,237 IDtm:st 921,742 349,236 334,730 285,156 433,393 ) Opcratillg T1'311Sfu's (tl 16,S6S~27. 10,723,891 10,345,945 15,023,466 Total Rnuues aud Traasfe.rs s 97,818,207 s 104,351,116 $ 97,437,436 s 911753,809 s 92,490,374 EXPENDITURES General Gova'IIDIA!Ot $ s 6,159,536 $ 5,633,469 $ S,717,1Sl $ S,S%,868 financial Service'S 2,139,-492 2,333,469 1,969,413 J,958,0Sl Cultural and Reacation 13,986,576 1 &ouomic & Business Devdopmez~t 1,146,267 Non-<lepa.111:Deatal 1,882.,255 445,251 214,562 175,499 1,497,485 Adllliii/O:nnmwmy Sa:vices 9,356,059 18,330,508 18,156,455 17,837,076 17,997,152 Police 37,463,740 33,919,626 32,400,371 30,321,182 28,905,651 Fire 24,638,814 21,943,267 20,613,071 19,511,797 18,632,109 Health 3,738,790 Olhtt Public Safety 4,287,806 Phmniog and Tr&11Sp()1'1ation 8,120,727 7,180,843 6,610,394 6,510,394 ~ Lightill.g 7,439,045 2,214,291 2.185,286 2,078).77 2,168,620 Haman Rcsouroes 740,826 7S4,22S 780,529 895,311 Debt Setvice Principal 1,009,368 .Debt Service IDten:st and Odl«Qwges 144,858 Capital Outlay 7,184,866 5,277,100 415,585 378,059 480,749 OpcntiDg Tn.os.fm 3,912.645 4~12.915 13,555,338 51951~9 Total Expeaditurei $ 112,278,444 s 103,203).69 $ 94,160,257 s 98.,934,71S s 90,594,0S9 ) Excess {Delicieacy) ofRevenues aod T1111lSfers over Elcpeadilul'eS s (14,460,237} $ 1,147,847 $ 3,271,179 s (7 ,180,906) s 1,896,315 Capital Lease Issued S,119,980 3,534,048 T1'311Sfa' In 13,325,046 TCIDSfet' Out (1,436,498) Fund BaJ.ange at Begiuing of Year 17~76,420 12,694,525 9,417~ l6,S98,25l (<) 16,716,042 Fund Balan<Je at End ofY ear s 19,924,711 $ 17,376,420 $ 12,694,525 s 9,417,346 $ 18,612,357 Less: Reserves &ad DcsiglllllioliS l'l (1 ,255,041) Uodesigll.ated Fund Balaslce <CI s 19,924,711 s 17,376,420 $ 12,694,525 $ 9,4l1J:! s 17,357,316 ) 00 Foe~ year 2005106, the wala', solid wastz: and waste water funds traliSfem:d an amollll.t sufficient to cover the pro Rill s1rue of the City's general md administrative ~ aDd 111. amoUIIt ~ a payment in lieu of ad va!Otem ~es. The wala', was1e water md solid was1e funds lran$1'cm:d 111 amotmt ~ a franchise paymt.Dt equal to 6% of g10S$ n:c:eipcs. The Electtic System was oot ~to make lr3n$fcrs to the Geoer31 Fand for any oflhe fMgoing purposes <luriD& the fiscal year. IJ>l The City's finmcial polities target a Geaa:a! l'1lad Ulldesigoaled balmoe of at least 20"/e of Galml FUIId -. The 1mcle:sipa1M fiiDd balance is at 99'Yo of the lall,d escablisbed by the City's fiDazlcial policies. <•l lb.e ~Fund Balanc:c a BcgUmiag of Year" wu rest:aled. <4> 1b.e City admini.stration believes dlat the unaudited Geoer31 Fund balance for the period eod.iDg September 30, 2IXfl was appmximaldy $19,136,979. ) 37 TABLE 14 -MUNICIPAL SALES TAX DlSTORY The City bas adopted the Municipal Sales and Use Tax Al;t, Chapter 321, Teltas Tax Code, whic:b gnnts the City the power to impose and levy a 1% Local Sales aud Use Tax wilhin the City; the pro<:eeeb are cteditccl co the Geuerai Fund and are not pledged co the payment of the Certificates orotberdebt ofd!eCity. ha addition, in Jaotwy, 1995, the votas oflbe City approvccl the imposition of an addiliooal sales and use tax of one-eighth of a call as authorized by Chapter 323 Texas Tax Code, as ameuded. CollccUon for the additional tax com.meo.cc:d in October, 1995 wilh the proceeds from the on~ cent sales tax dcsi&nated for the use aod benefit of thc City co replace property tax revenues ICMt as a result of thc adoptiotl of lhe tax. At an election held in the City on November 4, 2003, voters approved ao additiooal one-quarter cect sales and use tax, with the proceeds co be dedicated to the reduction of ad valorem taxation, aDd an additional one-eighth cect sales aod use tax under Section 4A of the Texas Development Corporation Act (Article 5190.6, Teu.s ~ Civil Statutes), to be used for economic: development in the City. The City began to receive proc::eeds of these taxes in Oc::tober 2004. Collections and enforcemeol$ of the City's sales tax are effectccllhmugh the offices of the ComptroUer of Public: Acoounts, State of Texas, who remit$ the proc::eeds of the tax, to the City monthly, after deduc::tion of a 2% service fee. Hilltoric::al coUectioos of the City's local Sales and Use Tax are shown below: %of Equivaleat of FYE Total Ad Valorem Ad Valorem Per 30-See CoUeetecl 61 TaxLe!l Tax Rate Ca(!!ts!l>l 2002 $ 28,902,648 73.45% $ 0.4183 s 143.08 2003 29,092,032.. 68.80% 0.3962 142.09 2004 30,554,632 69.98% 0.3857 148.11 2005 41,803,092 105.09% 0.4825 199.90 2006 45,576,582 109.10% 0.4556 214.61 2007 47,780,448 114.37% 0.4385 224.99 c.~ Exduda binao tax no:ipl! IUid mixed bewnF tax. l"l Buacl 011 pop&lalial c:slimata ofebe Oty. Effuctive as of October 1, 2006, the sales tax breakdown for lbe City is as follows: City: City Sales & Use Tax aty Sales & Use Tax for Property Tax Relief aty Sales & Use Tax for Ecooomic Development County Sales & Use Tax State Sales & Use Tax Total 38 $ $ 1.000 0.375 0.125 0.500 6.250 8.250 c c c c c c: c c c c ) ) ) ) ) ) ) FINANCIAL POUCIES &u& of Accmmtil!g . . • The acQ)UDUDg policies of the City cooform to geocrally aocepted acc.ou~~tillg prinCiples of the Govemmcn!al Acoountillg Standards Board aDd program standards adopted by lhe Gownuneat Finaooe Officer's Assoc:iatioD of the United Slates and Cauda {"GFOA "). The GFOA bas awarded a Certificate of Adlicvemeo.t for &Clelleo.<:e in Financial Reporting to the City for each of tbe fiscal years ended September 30, I 984 through SepteEnber 30, 2002 aod September 30, 2004 through September 30, 2005. The Cily will submit the Cily's 2006 report to GFOA to detennine its eligibility for another oertificate. Cgmprehensive Annual FiN111ClJJI Reeort (CAF'R) •• .Beginning with the year t.oded September 30, 2002. the City's CAFR has been preseoted under tb.e Govenunental Accounting Standald Board ("''ASB") Statement No. 34, Basic FiMnciDL Slatemenu- and Mll1Ulge11li!1Jt 's Dilct=ion arui AMI)'3is -for State arui Local GoYei?IIMIII3, GASB Statement No. 37, Basic Filulnciai ~ -and~ ':r D&cus.sion arui ..WUysis -for State and LoctJJ ~: Omnibus, and GASB Statement No. 38, Certain F"W111claJ Note Disclosures. For additional information regarding KCO\IIlting policies that are applicable to the City, see Note l "Summary of Significant Accounting Polic::ies" in tbe financial 111atcmcnts of the City attached as AppeDdix A. General Fund Balance •.. The City's objective is to maintain an unreserved/uadesignatcd fund balance at a minimum of an amount equal to two mouths budgeted operating expenditures to meet unanticipated contiagencies and fluctuatioD& in revenue. The City's General Fund cunently has an unreserved/UDdesignated fund balance tb.a1 is at 990!. of the target cs1ablished by the City's financial policies. · Watu. Wast.!w<Uer. Storm Watg: Solid Watte qnd Aimort Entgprise fund Balgnei!J ..• It is the policy of the City to maintain appropriable net assets in the Wau:r aDd W~ funds in an amount equal to 25% of operatiag rewuues for uofon:sce~~ contingacies. The City's goal of appropriable 11et assets in the Solid Waste, Aizport, and Storm Water fllllds is an amount equal to I 5% of regll]ar operating reveo.ues. With the exception of the Electric Entezprisc FUDd (as further described below), the City cum111tly ctcecds its policy on appropriable net assets for its various enterprise fuads. See ''DISCUSSION OF RECENT FINANCIAL AND MANAGEMENT EVENTS· SEPTEMBER 30, 2003 FINANCIAL RESULTS." Acoording to audited numbers for FY 2006, the tlqet net assets by policy and current appropriable net aaets for 1he Watt:t, Wastewatt:t, Storm Warer and Airport enterprise funds are as foUows: Entemrise Fuocl Water Wastewater Storm Water SolidWate AJrport T!l!'ftt Net Assets by PoUsy S 1 O.S million $5 .S million $1.0 million $2.3 million S I .0 million Appropriable Net Assets S 19.2 million $13.5 million $12. I million S4.9 million $3.0 million Eledric Enterprise FlUid B~ .•. It is the policy of LP&L to maintain appropriable net usets set by !be City Charter.. The LP&:L Govauance Ordioauce was amended in Decelnber of 2006 to include. among other things, changes to the requirements repding the reserve funds LP&L maintains. As amended. the LP&L Govanaacc OrdiDaoce requires the B1ectric Utility Board to ( i} maintain sufficient opmding cash to satisfY all current accounts payable and (ii) maintain a general reserve fimd that is equal to the greater of four months gtOS$ retail electric revenue (ORR) as determined by taking the average monthly ORR from the previous fiscal year or $SO million dollm. This geoual reserve fimd shall be used for operational purposes, nde stabilization and for meeting the electric utiUty demand of lilY rapid or unforeseen increase in reaideo.tialiJDIJ/or commercill deveiopmel1t. According to audited numbers for FY 2006, the total target net assets by oJdinaoce llld current appropriable net usets for LP&L are as follows: Eutmtriss fJmd LP&L Itmt Net Assets bx Polley $50.0 million • Based on Electric Utilities Board discretion. Approprf!ble Net Anetz• $25.3 million EnterPrise Fund Revenues .•• It is the policy o£ the City that eacll of the Electric, Water, Solid Waste and Sewer fimd.s be operated in a manner thai n:sults in self sufficiency, without the need for additional mooewy transfers from other funds (allbough the Electric System received transfers &om the General FUDd during FY 2003). Such self sufficleucy is to-be obtained throuF the rates, fees and cbarges of eadl of these entaprise ~ For purpo8CS of ddcnniniDs self suftkieacy, ClOSt teCO\IU)' for each enterprise fund includes direct operating and maiD1ellance expense, as weU as indirect oost recovery, in-lieu of traasfcrs to the General Fund for property and fraochjse tax payments, capital expeudilures and debt service payments, wbere appropriam. Rate increases may be coosidered in fulllre budgets as oosts 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 mainlained in order to compensate fur unexpected contingencies. 39 Budwarv Procedl!l'.U .•. The City follows these procedures in establishing operating budgets: 1} Prior to August J, the City Manager submits to the City CoWICil a proposed oper.s.ting budget for the fiscal year oommencing the following <)J::tob« 1. The opmt.ting budget includes proposed C~tpenditures and the means of financing them. 2) Public bearings are conducted to obtain taxpayer oomm.ents. 3) Prior to October I the budget is legally enacted through passage of an ordinance. 4) The City Manager is authorized to tr.wfer budgeted amounts between accounts below lhe department level. Ally tr.wfer of funds between departments or higher level are presented to the City Council for approval by ordinance before the fimds are CJansfem:d or expended. Expenditures may oot legally exceed budgeted appropriations at the fund level S) Formal budgetary integration is employed as a management oonttol device during the year for the Convention and Tourism, Criminal lnvestigation, and Capital Projects Funds. Budgets are adopted on an annual basis. Fonnal bw;!getary integration is not employed for Debt Service funds because effective budgetary oonttol i.s alternatively achieved through general obligation bond indenture aod other oontract provisions. 6) The Budget for the General Fund is adopted on a basis consistent with generally ace1:pted accounting principles. 7) Appropriations for lhe General Fund lapse at year-end. Unencumbered balances for the Cap~ Projects Funds continue as authority for subsequent period expenditw'es. · 8) Budgetary comparison is presented for the General Fund in the combined financial statement section of the Comprehensive Annual Finaocial Report. The City has reoeived. the Distinguished Budget ~lation Award from the GPOA for the following budget years beginning October 1, 1983-88 arui 1990-06. !IISW'allCe aNI Risk MIJiliJflerM!!l ••• Tbe City is self-insured for public entity liability and health benefits coverage. Risk management pun:hases a S 10,000,000 excess insw:ance policy for liability claims in excess of $500,000, per occum:oce. Airport liability insurance and workas' oompensation is iD.son:d under guaranteed cost policies. The Health Benefits are covm:d by a ~lf insured program with a $18,84S,7S6 caP and a $175,000 iadiviclllal cap. The City maintains insur.mce policies with large deductibles for fire and extended property coverage lllld boiler and machinery ooverage. All Insurance FUIId has been established in the Intemal Service Fund to account for insurance pi'ograms and budgeted transfers are made to this fund based ~n estimated payments for claim losses. A1 September 30, 20061he total Net Assets of these insurance fuods WCR as follows: Self-insurance -health($ 198,884) Self-insurance-risk management $3,397,295 The City obtains an actuarial study of its risk mao.agemeot fund (the "Risk Fund") every year. In FY 200S, an actuarial study was oonducted that considered the types of insurance prolcction obtained by the City, the loss exposure and loss histoey, arui claims being paid or reserved that a.re not covered by insurance. The 2005 actuarial review recommended that the liabilities of the Risk Fund be iDcreased to $6,479,000 from $6,437,000 to the minimum expected confidence level of the Govemmeot AcooWI.ting Standard Board Statement Numb« tO ("GAsB 10''}, which requires maintenance of risk management assets at a level rqm:seating at least a 500.4 confidence level that all liabilities. if preseolecl for payment immediately, oould 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 balaoce, the·City ex«eds the minimum GASB 10 n:quimnent INVESTMENTS The City invests its investable funds in investments authorizccl by Texas law, includillg specifically the Public Funds Investment Act (Q.apler 2256, Texas Government Code, aod refermi to herein as the "PFIA"), 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 INVESTMENTS Under Texas Jaw, the City is authorized to invest in (1) obligatiODS, including letters of credit, of the United States or its agencies and instrumentalities, (2) direct obligations of the Stale of Texas or its agencies and instrumentalities, (3) collalerali2:ed mortgage obligations directly issued by a fcclem agmcy or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the UDited States, (4) other obligations, the principal of and intm:st on which a.re uncollditiollally guaranteed or insured by, or backed by the fUll fuith and credit ot the State of Texas or the United States or their n:spective agencies aod i.nstnamentalities, (S) obligations of states, agencies, oounties. cities, and other political subdivisions of any state rated as to investment quality' by a oatiollally recognized investment rating firm not less than A or its equivalent, ( 6) bonds issued, assumed, or guaranteed by the &ate of Israel, (7) cettificates of deposit meeting the requirements of the PFlA 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 Pccleral Deposit Insurance Corporation or the National Credit Union Share Insunmce Fund, or are secured as to principal by obligations descn'bed in the clauses (1) duough (6) or in any other manner aod amount provided by law for City deposits, (8) fully oollatetalized repurohase agreements that have a defined tenninati.on date, are fully secured by obligations described in clause (I), and are pJ;1ced through a primary government securities dealer or a financial institution doing business in the Stale of Texas, (9) bankers' accq>tances 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-t or P-1 or the equivalent by at least one nationallj recognized credit ,rating agency, (10) eommmial paper that is ra1ed at least A-lor P-1 or the equivalent by either (a) two nationally recognized credit rating agencies 40 c c ' c c ,. ... c ' ( ( c ) ) ) or (b) one naliooally recognized credit rating agency if the paper is, fully secured by an ~le letter of credit issued by a U.S. or state bank. (II) no-load money market mutual funds regulated by die Securities and E!JtcbaAge Commission that have a dollar weis}lted average portfolio matllrity of 90 days or less and include in their invesunent objectives the maintea.aoce of a stable net asset value of $1 for each share, (12) no-load mutual funds registered witb tbe Securities and Exchange Commissi011 that: have an average weighted maturity of less tban two years; invests exclullively in obl.igadODJ deacribcd in the preceding clauses; and are coatinuously rated as to investment quality by at least one nalionally recognizod investment ratillg firm of DOt less than AAA or its equivalent, and (13) guarao.teed investment contracts SCCW'ed by obijg;ations of the United States of America or its 88Qlcics and instrumentalities, other tban the prohibited obligations described in the next succeeding paragraph. The City may invest in such obligations direcdy or through government investment pools that inveat solely in such obl.iptions provided that the pooLs are riUJd no lower than AAA or AAAm or an equivalent by at least ooe Dationally m:ognized ratiDg IJ<IIVice. The City i.s specifically prohibited from investing in; (I) obligations whose payment repi'C8eDb the coupon payments on the outstanding principal balance of the underlying mortgage-baclccd security coUate:nd and pays no priDcipal; (2) obligations whose payment represents lbe principal stream of cash flow from the Wlderlying mortgage-backed security and bears no interest; (3) coUateralized mortgage obligations that have a stated final maturity of grater than 10 years; and (4) col.latetali2led IIIOif8age obligatioo.s the interest rate of which is determined by an index that adjusts opposite to the changes in a markd index. Governmental bodies in the State such as the City are ~riud to implement securities !coding programs if: (i) the securities loaned under the· program are col.la1erali2:ed, a loan made under the program allows for tmnmation at any time and a loan made UDder the program is e.ilber secured by (a) obligatiODJ !bat are described in clauses (1) through ( 6) of the first paragraph under this subcaption. (b) Un:voc:.ble I etten of credit issued by a state or aatloaal bank that is coo.tinuously rated by a naticmally recognized investment nting finn not less lhan "A" or its equivalent, or (e) cash invested in obligations that are described in clawles (I) through ( 6) and (1 0) through ( 12) of tbe first paagraph Wlder this subc:aption. or an authorized 'investment pool; (ii) securities held as coiiatt:ral UDder a loan ~pledged to the goveniiiiCIIUI body, held in the name of the govemmectal body aod &posited a.c the time lbe iavestment is made with the City or a third party designDd by the City. (iii) a loaD made UDder the program is placed through either a primuy goYaDmea.t securities dealer or a finaDcial iDstitution doing W.ineas ill the State of Tc:x:as; and (iv) the agrcemc:nt to lend aecurities has a term of one year or leas. INVESTMENT POLICIES Under Teus law, lbe City is req~ to invest its funds under written investment policies !bat primarily emphasize safety of princ~ and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that includes a list of authorized investments for City t\mds, maximum allowable staled maturity of any individual ill.vatment aod lhe maximum avera,ge dollar-weighted maturity allowed fur poolod fund groups. All City fimds must be invested consistent witb a ronnally adopted .. Investment Strategy Statement" that ~peCifically ~ eacb fiDI.cb' investment. Each Investment Straaegy Statement will describe its objectives conoeming: ( 1) suitability of investment type, (2) presecvati.on and safdy of principal. (3) liquidity, ( 4) marketability of each investment, (S) diversification of the portfolio. and ( 6) yield. Under texas law, City investments must be made "witb judgment aDd~ Wlda: prevailill& cin:umJtanc:es, that a petSOI1 of prudence, discretion, and intelligence would exercise in the JnallliCment of the person's owu afJairs, DOt for speculation, but for investment, COil5iderias lhe probable safety of capital and the probable income to be derived." At least quarterly the investment officers of the City lhall submit an investment report detailing: (1) the inveslment position of the City; (2) that all in'Yestment officers jointly prepared and 1i.gned the report; (3) the beginning marltet value, IllY additions and cbaagcs to market value aDd the euding value of each pooled fuad group; ( 4) the book value and marlc.et value of each separately listed asset a.c the beginning and ea.d of the reporting period; (S) the maturity date of each separately invested asset; (6) the !MlCOWt oc ftmd or pooled fund group for which each individual investment was a.cq,uired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted invesuneat strategy statements and (b) state law. No penon may invest City funds without express wriueo autbority from the City Council. ADDnnONALPRO~IONS Under Texas law, the City il additionaUy requiml. to: (I) annually review its adopted policiea and strategies; (2) require IllY investment oflioen' wilh peqonal business relatiooships or reladves with firms sedc:ing to sell securities CD the entity to disclose the relationship aod file a statemeo.t with the Texas Ethics Commission and the City CoUDCil; (3) require the registered principal of firms sedcing to sen securities to the City to: (a) receive aod review the City's investment policy, (b) acbowlodge that reaso~le controls and procedures have been implemented to preclude imprudent investment aaivities, and (c) deliva-a written statemea.t attesting to these rcquimnea.ts; (4) perfurm an annual audit of the management controls oa investments and adhm:nce to the City's investment policy; (S) provide specific investment tnining for the Treasurer, ChiefFioaDcial Officer and investment officetS; (6) .n:8trict revccse repurohase agreements to not more than 90 days and restrict lhe investment of reverse repurcbase agreement funds to no greater than lhe term of the revene rq;nuchase agreement; (7) restrict its investmcm in mutual funds in. the aggregate to no more than l S percent of its monthly average fund balance. excluding bond proceeds and resaves Estimated Fair Book Value Market Value and other funds held for debt service, and to invest no portion ofbood proceeds, reserves and funds held for debt service, in mutual funds; and (8) rcquR I<X:al aovemment investment pools to confonD to the new disclosure, rating, net asset value, yield ca.lculation. aod advi.so.ry board requirements. 41 .., TABLE 15 ·CURRENT INVEsTMENTS As ofSeplembet 30, 2007, the City's investable fUnds were invested in the following <:aeegories: Book Value Estimated Market Value"' United States A.geucy Obligations Money M8l'ket Mu.lu.al Funds~'' Local Government lnvestmeut PooJsl<~ Par Value s 118,219,000 44,014,150 131,428,024 $ 293,661,174 Value $ 11·7,673,754 44,014,150 131,428.024 $ 293,llS,928 %of Total Book Value Value 40.1S% $ 118,04S,822 15.02% 44,014,lSO 44.84% 131,428,024 100.00% s 293,487,996 %ofTotal Market Value 40.220/o lS.OO"Io 44.78% 100.00% 00 M.alblt prices are obtained from Advent's interface wilh FT Inlcractive Data. No filllds are invemd in lliOI1gage bac{(cd s«urilic:s. The City holds all invtsllrleG!s to maturity which minimizes d1e risk of tnatlret price volatility. . ·0>> Mooey Ma!kct fllllds are beld at Wells F.ugo Bazik, Texas N.A. (<l Local govemmem izlves!mea.t poob OOIISist of eatities whose inveslment ~ves are ~!ion &lid safety of principal, liquidity and yield. The pools seek to maintain a S1.00value p«share as required by lhe Texas Public Funds lnvestmec.tAct. TAXMATIERS TAX EXEMI'TION In the opinion of Vinson & Elkins L.L.P., Bond Counsel. (i) interest on the Certificates is excludable from gross income for federal income tax purposes under existing law llld (ii) interest on the Certifi~ is ®t subject 1o the alternative minimum tax on individuals and CO!pOrations, except as descn'bed below in the discussion regarding the adjusted current earnings adjustment for CO!pOrations. 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 Cenificates, to be excludable from gross income fur federal income tax purposes. These requimnents include limitations on the use of bond proceeds and the source of n!payment of bonds, limitations on the investment ofbood proceeds prior to expenditure, a requirement that excess arbiaage earued on the investment of bond proceeds be paid periodically to the United States aad a requirement that the issuer file an information report with.the Internal Revenue Service. The City has coveDallted iu the Ordinance that it will comply with these requirements. Bond Co ~~~~Bel's opinion will assume continuing compliance with the c::ovenants of the Ordinance pertaining to those sections of the COOe that affect the exclusion from gross income of interest on the Certificatea for fedetal income tax purposes and, in addition, wiU rely oa represeotations by the City;the City's FinaDCial Advisor llld the Underwriters with respect to matters solely within the knowledge of the City, the City's Fin.a.acial Advisor and the Underwriters, respectively, which Bond Counsel has not independently verified. If the City should fail to comply .with the covenants in the Ordinani:e or if the foregoing rqm:sentations · should be decennined to be i.oaccw'lde or incomplete, interest on the Certificates could become taxable from the date of delivery of the Certifica.te:s, regardless of the date on which the event causing such taxability occurs. · The Code also imposes a 20% alternative minimum tax on the "alternative minimum taxable income" of a corpomion if the amo\lllt of such altemative minimum tax is greaCer Chan the amount of the wrporation's regular income tax. Generally, the alternative minimum taxable income of a corporation (other than any S CO!pOration, ~dated investment company, REIT, RBMIC or FASI1), includes 7S% of the amount by which its "adjusted cum:ut eamings" exceeds its other "alternative minimum taxable income." Because interest on tax-exempt obligations, such as the Certificates, is included in a CO!pOration's "adjusted ~t eamings," ownexship of the Certificates could S\lbject a corporation to alternative minimum tax consequences. Except as stated above, Bond Co ~~~~Bel will express DO opinion as to auy fedml, state or local tax consequenc:eS resulting from the RCeipt or accrual of interest on, or acquisition, ownership or disposition o~ the Cenifica!es. Bond Counsel's opinio%18 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 thereo£ Bond Counsel assumes no duty to update or supplement its opinions to retlect any facts or ciroomstances that may thereafter come to Bond Counsel's attention or to reflect ao.y changes in any law lhat may tbaeafter ~ (1'( become efl.'ective. Moreover, Bond Counsel's opinions are not a guarantee of result and are not binding on the Itttemal Revenue Service {Che "Service"); rather, such opinio%18 represent Bond Counsel's legal judgmeot based upon its review of existing law and in reliance upon the representations ao.d covenants referenced above that it deems relevant to ~uch opinions. The Service has an ongoing audit program to detennine compliance with rules that relate to whether interest 011 atate or local obligations is includable in 8f'O$ll income for federal income tax pll!pOses. No assurance can be given whether or oot the Service will commence an audit of the Certificates. If an audit is commenced, in acconlance with its current published procedures the Service is lilcely to treat the City as the taxpayer and the Owners may not have a ri8flt to participate in such audit. Public awareness of any fillure audit of the Certificates could advc:m:ly affect the value and liquidity of the <;ertificates during the pendency of the audit regatdless of Che ultimate oUicome of the audit ADDMONAL FEDERAL INCOME TAX CONSIDERATIONS CoUateral Tu: Couequenees Prospective purchasers of the Certificates should be aware that the own«Sb.ip of tax exempt obligations may result in collalet'al federal income tax co~uences to financial institutions, life insurance and property and casualty insurance companies, certain S 42 c c c c c c c c . ' c ) ) ) corpol'llli.ons with Subcbapter C earnings and profit&. individual recipieots ~f Socil1 Security or Railroad Rdimnent benefits, taxpayen who may be dccmcd to have incurred or contiDI&Cd indebtedness to purchase or carry tax ~empt obligatious, taxpayers owniug an interest in a FASIT that holds tax-exempt obliga!ioos and iDdividuals otbt:rwi3e qualifying for the earned inoome credit In addition, certam foreign corporations doing business in the United States ~~~ay be subject to the "braoeh profits tax" on their effectively connected eamiDgs and profits, including tax eltempt ioten:st such as interest on the Certifi<:ates. These categories of prospective pun:basers 5hould consult their own tax advisors as to the applicability of lbese conscqueoces. ~ve purcbasets of the CGtificat.es should also be aware that, ll.llder the Code, taxpayen are required to report on their returns the amount of tax-exC~PPt interest, such as interest on the Cenificate3. roceived or accrued during the year. Tax Ac:coiUidDg Treatmeat of Original Issue Prellliwu Tbe issue price of all or a portion of the Certificates DUlY exceed the stated redemption price payable at maturity of such Certificate$. Such Certificates (the "Premium Certificatesj are considead fOr federal income tax purposes to have "bond premium" equal to the amount of such excess. The basis of a Premium Obligation in the hands of an initial owner is reduced by the amount of such excess that is amortized duritlg the period such initial owner holds such Premium Obligation in determining gain or loss for fedenJ income tax purposes. This reduction in basis will incteaSe 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 Obligation by the initial owner. No corresponding deduction is allowed for federal income tax pwposes for the reduction in basis resulting from amortizable bond premium. The amount of bond pemium on a Premium Obligation that is amortizable each year (or shorter period in the eveat of a sale or disposition of a Pmoi.um Obligation) is ddermined using the yield to DUiturity on the Premium Obligatiou hued on the initial otferiag price of such Obligation. Thc federal income tax consequences of the purchase. ownerabip and redemption, Ale or other disposition of Prem.ium Cutificates Chat are not purchuod in the initial offering at the initial otftriDg prioe may be detennined according to rules that differ from those described above. All owuers of Pmnium Certificates should consult their own tax advisors with m;pect to the detennination for federal. state, and lo<:al income tax purposes of amortized bond premium upon the redemption, sale or other disposition of a Premium Obligation and with respect to the federal, state, local. and foreign tax consequences of the pun:base; ownership, and sale, red.Cillption or other disposition of such Premium Certificate~. Tax AccoudDg Treatmeat of Origioallssue Di.KoiUit Certificates The issue price of aJI or a portioa of the Certificates may be less than the IQtcd redemption price payable at maturity of such Certificalea (the "'riginal Issue Discount Certificatesj. In such case, the ditlamoe between (i) the amount payable at the malurity of each OrigiDal Issue Discount Obligation, aad (u) the initial offeriug price to the public of such Original Issue Discount Obliption constitutes original issue discowil with respect to such Original Issue Discount Obligation in the hands of any owner who has purchased such Originallssl.le Discount Obligation in the initial public offering of the Certificates. 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 sw:h Origjnal. Issu.e Discount Obligalion equal to that portion of the amount of such original issue discount allocable to the period thU such Original Issue Discoum Obligation continues to be owned by such owner. Because original issue discount is trcartx1 as interest fOr federal income tax pwposes, the discussion regarding interest on the Certificates under the captions "TAX MAT'J.'ERS-TAX EXEMPTION" md "TAX MATIERS -ADDMONAL FEDERAL INCOME TAX CONSEQUENCES - Collateral TaxConsequem:es" ~YIPPlies. md should be eoasidered inconnec1ion with the discussion in this portion of the Official Sl*meot. In the event of the redemption, sale or other taxable disposition of sucb Original Issue Discount Certificates prior to stated maturity, however, the amount realized by sw:h owner in excess of the basis of aueh Original Issue Discount Certificates in the hands of IUCb owner (adjusted upward by the portion of the original issue disccnmt allocable to the period for which such Original Issue Discount Obligation was held by such initial owner) is includable in gross income. The foo:goillg discussion assumes that (a) the Underwriters have p1UdJ.ased the Catificates fOr contemporaneous sale to the public aod (b) all of the Origiual !mae Discount Certificat.es have beeo initially offmld, and a substantial amount of each malurity thel-eof bas been 1101.d. to the general pUblic in IIJ1D 's-leogth transactioll3 for a price ( aod with no other considenition being included) not II!.OR thaD the initial offering prices thereof stated on the cover page of this Official Statement Neither the City nor 8oDd Counsel bas made any investigation or offers any comfort that dle Original Issue Discount Certificates will be offered and sold in accordance with such assumptions. UDder existing law, the original issue discount on each Original Issue Discount Obligation is 8CCI1Ied daily to the stated m.abllity tb.crcof (in amounts cakulatcd as described below for each six-month period eading on the date before the semiannual · llllliversary dates of the date of the Certificates and ratably within each such six-month period) and the ~rued amount is added to an initial owner's basis for sud! Original Issue Discount Obligation for pwposes of determining the" amoUDt of gain or loss ~guized by such owner upon the redemption. sale or othe-r disposition thereof. The amount to be added to basis for ead1 accrual period is equal to (a) the swn of 1he issue prioe and ~ amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity (determined on the basis of compoUDding at the c:lose of eacll aocrual period and properly adjusted for the length of the acerual period) less (b) the amouuts payable as c:urrent interest during such acaual period on such Obligation. The federal income tax consequences of the purchase, ownenhip, and redemption. sale or other disposition of Original Issue Discount Certificates which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those desc:n"bed above. All ownea of Original Is8ue Discount Certificates should consult their own tax 43 advisors with respect to the determination fur federal, state, and local income lalt purpoSes of int.erest accrued upon redemption, sale or other disposition of such Original Issue Discount Certificates and with RSpeCt to the fed<llal, state, local and foreign w COI!SeqUetlces of the purchase, ownership, redemption, sale or other disposition of such Original Issue Discount Certificates. OTHER INFORMATION RATINGS The Certificates are rated"-" by Moody's lnvesoors Setvice, Inc. ("Moody's"), "-"by Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc. ("S&P'') and"-" by Fitch Ratings ("Fitch"). The City's underlying ratings on its presently outstanding general obligation debt are "Aa3" by Moody's, "AA" by S&P and "AA" by Fitch. The City also has issues outlltanding which are rated "AU' by Moody's, "AAA" by S&P and "AAA" by Fitch through insurance by various commercial insurance companies. An explanation of the significance of such ratings may be obtained from the company furnishing the rating. The ratings reflect only the respective views of such organizatioos and the City makes no representation as to the appropriateness of the ratings. There is no assurance that such ratings will continue fur any given period of time or that they wiU not be revised downward or withdrawn entirely by any or all of such rating companies, if in the jud~enl of any or all companies, circumstances so warrant Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Certificates. Fllwldal Guaranty IDdustry-Reeeat Eveatll Moody's, S&P and Fitch (collectively refetred to as the "Rating Agencies") have each released statements on the health of the financial guaranty industry that cite financial guarantors' exposure to S\lbprime mon&age risk. among other things, as an area of stress for the financial guaranty industry. In various releases, the Rating Agencies have each outlined the processes they are implementing in evaluating the effect of this risk on their respective ratings of financial guarantors, and in the case of Moody's and S&P; have· issued repo~ stating the results of the evaluations dated Dcc:ember 14, 2007 and Dcceaiber 19, 2007, n:speclively. For some financial guarantors, the ~ult of evaluations has been or couJd be a rating affirmation, a change in rating . outlook. a review for doWDgrade, or a downgrade. Potential investors are directed to the Rating Ageucies for additional information on their respective evaluations of the financial guaranty indllStly and individual financial guarantors. LITIGATION The City is involved in various legal proceedings related to aU~ personal and property damages, breach of contract and civil rights cases, some of which involve cl.aim.s against the City that exceed $500,000. State law limits municipal liability fur peTSOna1 injury at S2S0,9()ot$SOO,OOO and property damage at $100,000 per claim. The following represents the significant litigation against the CitY. at this time. The City's insurance covezage, if available, contains either a $250,000 self-insured retention or a $500,000 self-insured retention depez1ding OD 1fle date ~f the OCCutreDCC. The City has been sued by a contractor who was not awarded the bid on a portion of the stormwater drainage project. The contractor bas. aUeged violations of the state.bid statute and a violati011. of Section 1983. The plaintiffs took a nonsuit in state court and re-filed the case in feclera1 court. The federal cowt dismissed the contractor's Section 1983 claims, and the contractor filed a Notice of AppeaL The Fifth Circuit court of appeals reversed the District Court and the District Cowt has reinstated the federal and state claims. The case is set for trial in May 2008. 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, its police cllic( and two police officers have been sued fur violation of a citizen's first amendmeot rights wheo. the plaintift"s film fiom his camera was confiscated by the police while the individual was pbotographiilg a childrett's basketball game. The matter has been di.si!Wsed on a plea to the jurisdiction and the plaintiff has appealed the court's decision. The Court of Appeals reversed 1he trial court's decision and remanded the case back to tbe 'trial court. Plaintiff is not seeking monetary damages Cltoept for attomey's fees. The City Attomey believes there is insurance fur any poteatiai damages. The City and a police officer have been sued by an individual Oil behalf of himself and his children rising out of the death of the plain tift" s teenage daughter and injwies to his son fiom an automobile accident with the police officer. The plaintiff alleges that the officer was opcraling the vebicle in a negligent manner and was speeding at the time of the automobile collision. The defendantll have~ that the driver of the vehicle carrying the plaintiff's children was negligent in failing to yield the right- of-way to the police officer. The City filed a motion fur sum.mary judgment which was granted based oo. the tact the plaintiff did not file a claim with the City. Tbc Court of Appeals reversed this decision and remauded the case back fur trial. The City has appealed die case to the Texas Supreme Court but the Qlun refused to hew the case. The case is now back in the trial court. The City Attomey believes there is insur.ince covering the claims. The City and a tbnner police officer have been sued by a plaintiff as a result of allegations of inappropriate sex.ual conduct after a police slOp by the police officer. The officer filed a motion to dismiss lll!der the Tort Claims Act citing provisions holding that the plaintiff cannot sue both the eutity and the individual officer lll!dcr the ad, and the officer was dismissed from the case. The City filed a motion for summary judgmeo.t, which was granted and tbe plaintiff appealed the decision. The AppeUate Court affirmed the jUdgment for the City but remanded the case against the police officer. The City Attorney is of the opinion that insurance is available for the City. The City and the insurance company have denied coverage to the officer. Plaintiffs have sued the City and a police officer and T as« International as a_ result of an incident where a police officer tased a 44 c c c c c c ' c c ( ) ) ' citizen while lllllking an amst. The citizen subsequelltly died. The City filed a plea to the jurisdiction which was denied and the City appealed the trial courts denial of the plea. The Appellate Court also ruled in favor of the Plaintiff. The City has appealed this decision to the Texas Supmne Court. A federal cause of action under Section 1983 bas been filed alleging feder.U civil rights violatioos involving the same facts. Trial is set in the federal case in May 2008. The City Attorney is of the opinion that insurance is available for the claims. The City and a police officer bave been sued by an individual who was tased during a traffic stop. The plaintiff has alleged violation of his civil rights, as well as, violations under the Tort Claims Art. The City Attorney is of the opinion that insu.ranc:e is available and that there arc no siguificant injuries to the plaintiff. Tbe city has been sued by ERAF Corporation alleging the city has wrollgfully denied them a pemtit to operate a sexually orien&cd business. Plaintiff has asked the court to dismiss the case with prqudice. The City bas beeo. sued by Northridge Homeowners Association and Templdon MOI1gagc Corporation seeking a declaration of rights as to various property intetests at Lake Alao Henry. At this time, Pl.aintiffs are only seelciag attorney's fees as compensation, though this could end up in the six figure range. A focmer ~loyec suocl the City in October 2007 for wronsfu! tatninatioa. While Che case is stiU in the early stages of development, the City, at this time, does not believe there is a s1roDJ likelihood of recovery. The City believes there is insula.ace coverage in this matU:r. The City intends to vigorously defend itself on all claims, although no assurance can be given that the City will prevail in ali cases. However, the City Attorney and City management arc of the view that its available souroes for payment of any such claims. which include iDsuraru:c policies and City ll*rVeS for self insufed claims, arc adcquale to pay aoy pteSCUdy foreseeable damages (sec "FFNANCIAL POUCIES -Iosuraoce and Risk Mauaaemem"). On the date of delivery of the Cutificates to the Underwriters, the City will C'MCUte and dd.iver to the Underwritea a certificate to the effect lhat, cccept as disclosed herein. no significant litigation of any oatare bas been filed or is pcudins, as of that date, to restrain or eojoin the issuance or delivery of the Certificates or wltich would affect the provisions for tbcir payment or security or in any manner question the validity of the Certificates . .INVES11GA110NS RELA1;'JNG TO CITY'S HEALTH INSURANCE ADMINISTRATOR In 2006, the City hired aD outside independent auditing company, Benefit Plan Partners, a California company, (the" Auditor") to conduct an audit of its ooDtnct (the "Administration Contract") with its then CIDTCDt health insumnce administralor, American A.d!iWListrative Group. Inc. ("AAGj. The AdminisUatioo Contract provided for AAG's administration of ali City employee claims on the City's self-insured health insurance. The Auditor found nmnerous possible overcbatges and errors by AAG during the term of the Adminis1ration Contract, including ovm:lwges possibly arising from WJalllhorized commissions taken by AAG, and possible paymez~ts to AAG by pham:w:ies as rebates. The outside Auditor estimated the afore~Dcotionocl em>n and 0~ to be approximately $2,000,000. The Admioiscratioa Cootract tmninated by its own tenns in Dccanber 2006 and MG bas ceased to admioista-any claims for the City. 'The City has hired another third party admi.nislratof to administa-the nm-out claims which aoorued prior to .December 2006. The City also aclected Blue Cross Blue Sbield to be the City's new health inslnoce administrator beginning January 2007. In Mareh 2007, the City filed an application with the State district oourt to compel AAG to preserve and provide documentation relating to die Administnltion Contract and claims submitted by City employees during the cam of the Administration Contract. It is the imeut of the City to utilize such documentation to complete Che audit by Benefit Plan Partners of its conlfact wilh AAG to dece.nnine whether any further ovm:harges have occurred. The City is aware of fedtnl authorilie$ investigating matters relating to AAG and the A.dm..i.ni.stnton Contract. including investigations conducted by the Foderal Bureau of Investigaliou. No subpoenas at this time have been directed at or issued to the City in regards to the investigations involving AAG or the Adminislratiou Contr.lct.. REGISTRATION AND QUALIFICATION OF CERTU'ICATES FOR SALE The sale of the Certificates bas not been registered uncia" the Fedenl Securities Act of 1933, as ameoded, in reliance upon the cccmption provided thereunder by Section 3(a)(2); and the Certificates have not beeD qualified UDder the Securities ActofTccas in reliance upon vvious exemptions contained therein; nor have lhe Certificates been qualified under the securities acts of aoy jurisdiction. The City assumes no responsibility for qualification of the Cenificates under thc securities laws of any jurisdiction in which the Cenifu:ates aaay be sold. assigned, pledged, hypothecated or otherwise transfemd. This disclaimer of responsibility for qualification for sale or ocher disposition of the Certificates shall not be coostruecl as an interpretation of any kind with regard to the avail.ability of any exemption from securities registtation provisions. LEGAL INVESTMENTS AND EUGmn.rrv TO SECURE PUBLIC FUNDS IN TEXAS Sectioa 1201.041 of the Public Sec\uity Proc:ecluRs Act (Cbapt« 1201, Tccas Government Code) provides that the Certificates are negotiable in.strumeuts governed by Cbapter 8, Texas Business and Commcn:c Code, and are legal and authorized investments for iDsurance companies, fiduciaries, and trustees, and for the sinkiDg funds of mllllicipalities or other political Rlbdivi.sions or public agencies of lhe State of Tex.as. With respect to investment in the ~ficates by municipalities or other political subdivisions or public agem:ies of the State ofTcxas, the PFIA, requires tbat the Certificates be assigned a rating of" A" 45 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, tbe Certificates afC legal investments for state banks, savings banks, trust companies with at capital of one million dollars or more, aDd savings and loan associations. The Certificates are eligible to secure deposits of any public funds of the Slate, its agencies, and its political subdivisioDS, and are legal security for those deposits to the extent of their market value. No review by tbe City bas been made of the laws in other states to determine whether the Cenifi~ afC legal invcstmeats for various instit:utioos in those states. LEGAL MAnERS The delivery of the Certificates is subject to the approval of the Attomey General of Texas to the effect that siiCh Certificates are valid and legally binding obligations of the· City payable from sources and in the manner descn"bed herein and in the Ordinance and the approving legal opinion of Bond Counsel. The form of Bond Counsel's opinion is attached hereto in Appendix B. The legal fee to be paid Bond Counsel for services rendered in connection with the issuance of the Certificates is contingent upon the sale and delivery of the Certificates. The legal opinion of Bond Counsel will w:ompany the Certificates deposited with DTC or will be printed on the definitive Certificates in the event of the discontinuance of the Book-Entry-Only System. Certain legal matters will be passed upon for cbe Underwriters by McCall, Parkhurst & Horton L.L.P, Dallas, Texas, Counsel for the Underwritm. The legal fee of such finn is contingent upon. the sale and delivery of the Certificates. Bond Counsel was eagaged by, and only n:Presects, the City. Except as noted below, Bond Counsel did not take part in the preparation of the Official Statement. and such firm bas not assumed any responsibility with respect therew or undertaken independently to verify any of the information contained herein ex.cept that in its capa.City as Bond Counsel, such fum bas reviewed the information appearing in this Official Statemect under the captions '-mE CERTIFICATES" (exclusive of the information under the subcaptions "BOOK-ENTRY-ONLY SYSTEM" and "USE OF PROCEEDS") and "TAX MATIERS" and~ the subc:aptions "LEGAL MATIERS," "LEGAL INVESTMENTS AND ELIGIBR.ITV TO SECURE PUBUC FUNDS IN TEXAS" and "CCNTINUING DISCLOSURE OF INFORMATION" (excq>t fur the subseCtion "Compliance with Prior Undertakings') under the caption "01HER lNFORMA TION" and such fum is of the opinion that such descriptions present a fair and accurate summary of the provisions of the Jaws and insb'uments therein described and such information conforms to the Ordinance. The legal opinions to be deliveRd ooncurrc:t~tly with the delivery of the Certificates express the professional judgmeat of the attorneys rendetillg the opinioiiS as to the legal issues explicitly addressed therein. In rendering a legal opinion, the attomey does not become an insurer or guarantor of that expression of professional judgment, of the tnnsaction opined· upon, or of the future performanCe of the parties to the transaction, nor does the rendering of !111 opinion guarantee the outcome of any legal dispute that may arise out of the ~on. CONTINUING DISCLOSURE OF INFORMATION In the Ordinance the City has made the following ~ent for the benefit of the holders and beneficial owners of the Certificates. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Certificates. UDder the agreement, the City will be obligated to provide certain updated financial information and operating dam annually, and timely notice of specified material events, to certain information veadors. This information will be available to securi~ brow and othm who subscribe to receive the information from the vendors. · ADDual Reports The City will provide cenain updated financial information and opa:aling data to cenain information vendors annually. The information to be updated includes all quantitative financial information and operating data with respect to the City of the general type included in this Official Statement under Tables numbered 1 through 6 and SA tbmU{!h lS and in Appendix A. The City will update and provide this information within silt months after the ecd of each fi.sca.l year. The City wiU provide the updated information to each nationally recognized municipal securities information repository ("NRMSIR') approved by the staff of the United States Securities and Exchange Commission ("SBC"} 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 fuU text or may incorporate by reference certain other publicly available documents, as pem1itted by SEC Rule 1 Sc2-12 (the "Rule'). 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 tbe City by the required time, and audited financial statements when and if such audited financial statements become available. A1Iy such financial statements will be p~ in w:ordance with the accounting principles described in Appendix A 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, unles~~ the City changes its fiscaJ year. If the City dwl~ its fiscal year, it will ootify each NRMSIR and the SID of 1he change. The Municipal Advisol)' Collll(;il of Texas (the "MAC") bas 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 Sth 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 "ceattal 'post office" for infotmation filiDgs made by municipal issuers, such as tbe City. A municipal issl}er may submit its infunnation filings with the centtal post office, which then transmits such information to the NRMSIR.s and the appropriate SID fur fil.ing. This central post office can be accessed and utilized at www.DisclosureUSA.org ("DisclosureUSA'). The City may utilize 46 c c c c c c c c ' c ) ) ) DisclosureUSA for the filing of information relating to the Certificates. Material Evut Notices The City will also provide timely DOtices of certain events to eenain informaliol1 veodors. The City will provide ootke of any of the folio~ events with respect to the Certificates. if such event is material to a decision to purchase or sell Ca'tificates: (I) principal and interest payment delinquencies; (2) non-payment related defaull8; (3) UIISCbcduled draws on debt service rese~VeS reflectiag financial difficulties; { 4) uoscheduled draws on credit ~ts reOCICting financial difficulties; {S) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tu QPiniou; (7) modifications to rights of holders of the Certificates; (8) early redemption of the Certificates; (9) defea£allces; (10) release, substitution, or sale of property securing repayment of the Certificates; and (II) rating changes. (Neither the Certificates oor OrdiDance make any provision for debt service reserves or liquidity enhancement) In additioo. the City will piovide timely ootice of any failure by the City to provide information, dam, or financial statanents in acoordance with its agreement described above Ullider "Annual Reports...,. The City will provide each notice descnbed in this paragraph to the SID aDd to either each NRMSIR or the Municipal Securities Rulemalcing Board ("MSRB"). Av.aflabWty of l.Dformadoa From NRMSIRS aad SID The City has agreed to provide the foregoing information only to NRMSIR$, the MSRB and the SID, as described above. Tbe information will be available to holden; of Certificates only if the holders comply with the procedures and pay the cbatges established by such i.o.fotmation vendors or obtain the information through securities brokers who do so. IJm.ltations ud Am.ad.aleab The City lw agreed to update information and to provide DOtices of material events only as desc::ribed above. The City bas not agreed to provide other information that may be relevant or material to a complete pn=senlation of its financial results of ope:rati.ons, condition. or prospects or agreed to update any information that ~ provided, except as described above. Tbe City makes oo representation or warranty concerning suoh infonnatioo or coocerni:lJg its usefulness to a decision to invest in or sell Certi.tlcates at any future ~. The City disclaims my contnctual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statemeDt uwlc pursuant to its agreement, although holdenl of Certificates may seek a writ of mandamus to compel the City to comply with its agreement Tbc City may amend its cooliDuiug disclosure agreement from time to time to adlpt to changed circiiiD.SillnCeS that arise from a change in legal requirements. a ebange ill law, or a change in the identity, nature, status. or type of opc:ratioDS of the City, if (i) the agreement, as amended, ~uld have permitted an underwriter" to purdwe or seU Certifkates, in the offeriag described herein in compliance with the Rule, 13ki.ng into account any amendmeut:s or inteqm:CatioiiS of the Rule to the date of such amenilmmt, as well as &uch changed c~. and (ii) either (a) the holders ·of a majority in aagregate principal amount of the outstanding Cenificales cooscnt to the amendment or (b) any person unaffiliated with the City (such a.s natiooally recognized bond couascl) determines that the amendment will not materially impair the interests of the holders and beneficial owaers of the Certificates. The City may also amend or repeal the provisions of this continuing discloswe ag;reem.ent if the SEC amends or ~ the applicable provisions of the Rule or a court of final jurisdiction enteQ judgment that such provisions of the Rule are invalid, but only if and to the extent that the provisions of this seatence would not prevell1 an underwriter from lawfully purebasiQg or selling the Cer1ificatea in the primary olferi:lla of such Ca'tificales. If the City ao amends the asr-nent. it bas agreed to illclude with the next financial information and operating. data provided in accordance with its agreement descnlled above uoder "Annual Reports'" ao expl.analion, in narrative form. of the reasons for the amendment and of the impact of any change in the type of financial illformatioo and operating data so providtd Cempliaace widl Prior UodertaJdup The City became obligated to file annual reports and financial statements with the SID and each NRMSIR in an offering that took place in 1997. AU of the City's general obligation debt reports and fiDaucia1 stdemenb were timely tiled with both the SID and each NRMSIR; however, due to an admini8trative oversight, the City filed its fiscal year end 1999, 2000, aDd 2001 ele<:Uic and power revenue debt reports la.te to the SID and each NRMSIR.. Tbc fiDancial inlormalion bas since been filed, as well as a notice" of !ale filiQg. Tbe City has implemented procedures to ensure timely filing of all future financial information. Under previous cooliDu.ing disclosure agreements made in connection with LP&L revenue bonds. the City committed to make prompt filings with the SID and either each NRMSIR. or the MSRB upon the occurrence of any "non-payment related defaults." The City's FY 2003 audited financial statemeuts were not available until mid-September 2004. Therefore, when the City made its annual disclosuze filing with the SID and NRMSIRs in MMch 2004, it filed unaudited financialltatements in a.c:cordanc:e with its underta.king. Several references in tlW filing, including in the unaudited MD&A, in oot.es to those statements and in the stalistical cables, reported that for FY 2003 LP&L had failed to meet its rate coveo.zat (see "DISCUSSION OF RECENT FINANCIAL AND MANAGEMENT EVENTS · SEP'IEMBER 30, 2003 FINANCIAL RESULTS · The Elcdric Fund''). Because there was an uncer1ainty as to an amount by which the rate covenant would fail to be met. which was DOt finally detennined until the audited finaocials ~ released in Sqrtember 2004 (although the City had a reasooable belief prior to that time that the rate covenant bad DOt been met), the City waited until September 2004 to make its event tiling of non-oompliance with its LP&L rate covenant. FINANCIAL ADVISOR RBC Capital Markets is employed as Financial Advisor to the City in connection with the issuance of the Catificates. RBC Capital Marlc.ds is the name under which RBC Dain Rauscher Inc., a broker~er. conducts investment banking business. The 47 Financial Advisor's fee for services rendered with respect to the sale of the Certificates is contingent upon the issuance and delivecy of the Certi~. RBC Capital Markets, in its ~ity as Financial Advisor, cJoes not assume any responsibility for the information, covenants and rqnesentation.s conlained in any of the legal doc:umeniS with respect to the fedetal in<:ome tax status of the Certificates, or the possible impact of any preseot, pending or future actions taken by any legislative or judicial bodies. UNDERWRITING The Underwritm have agreed. to purchase the Certificates, subject to «min conditions, and has agreed to pay a pw;:hase price reflecting the par amount of the Certificates, plus a net original issue pcemium (discount) of$_. less an Undetwritm' discount of$_, plus accrued interest. The Underwriters have reviewed the information in this Official S~ent in acoordance with, and as part o~ their responsibilities to investors under federal securities laws as applied to the facts and circumstances of this lraiiSaction, but the Underwriters do not guarantee the accuracy or completeness of such information. FORWARD-LOOKING STATEMENTS DISCLAIMER The statements contained in this Official Statement, and in any other information provided by the City, that are not purely historical. are forward-looking statements, including statements regaroing the City's expectltioas, hopes. intentions, or strategies regarding the future. I.teaders should not place undue reliance on forward-lookillg statements. All forward-looking statements included in this Official Statement are based ott information available to lhe City oo the date hereof. and lhe City assumes no obligation to update any such forward-looking stalemmts. The City's actual results could differ materially fi:om lhose discussed in such forward-looking statemmiS. The· forward-looking statements in<:tu4ed herein are nec.essarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertaintie3 relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developmmts in social, economic, business, industry, market, legal, and regulatory ciicumstances and conditions and actions taken or omitted to be taken by third parties, including customas, supplim, business panne!:$ and competitors, and legislative. judicial, and other govemmental authorities and officials. Assumptions relatc::d to the foregoing involve judgments with respect to, among other things, future economic, tompetitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accuntely 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 lhe forward..looking statements included in this Official Statement wiU prove to be accurate. · MISCELLANEOUS The financial data and other infotmation 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 lhe summaries of the ~ documents and resolutions contained in this Official Statement are made subject to all of the provisions of such statutes, documems and resolutions. These summaries do not purport to bo complete statements of such provisions and reference is made to such docummts for further information. Reference is made to original documents in all respects. The Ordinance aulhorizing lhe issuance of the Certificates will also approve lhe form and cootent of this Official Statement, and any addeflda, supplemmt or ammdmmt thereto, and authorize its further use in the reoffering of the Cenificases by lhe Underwriters. · sJ Mayor City oflubbock, Texas ATTEST: City Secretary City of Lubbock, Texas 48 c c c c c c ' c c c ( ) ) ) '\ ) ) APPENDIX A EXCERPTS FROM ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED SEPTEMBER 30, :Z006 January 3, 2007 P.O. Box 2000 • 1625 13th Sireet • Lubbock. TX 79457 (806) 775·3002 • Fax: {806) 775·2051 Honorable Mayor, City Council, and Citizens of Lubbock, Texas: It is with much pride that we submit the Comprehensive Annual Financial Report (CAFR) for the City of Lubbock, Texas for the fiscal year ended September 30, 2006. The purpose of the CAFR is to provide the City Council, citizens, and other interested parties with accurate and meaningful information concerning the ·financial condition and perfonnance of the City. In addition, as part of the CAFR review process; independent auditors have verified that the City has presented its financial position fairly in all material respects. The CAFR is presented with management's representation of the City's finances, and as such, management asswnes full responsibility for the completeness and reliability of all the infonnation presented. To ensure a reasonable basis for making these representations, City management 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 conformity with generally accepted accoWlting 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 for the latest fiscal year 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 1 c c c c c c ' ' ( ( ( ) ) ) Honorable Mayor, CitY Council, ADd Citizens of the City of Lubbock, Texas ' January 3. 2007 independent auditor concluded that there was a reasonable basis for rendering an unqualified opinion that the City's financial statements for the fiscal year ended September 30, 2006, are fairly presented in confonnity with GAAP. The independent auditor's report is presented as the .first component of the financial section of this ~eport. The independent audit of the City's financial statements is part of a broader, federally mandated "Single Audit", which is designed to meet the special needs of federal granting agencies. The standards governing Single Audit engagements require the independent auditor to report on several facets of the granting agencies financial processes and controls: • Fair presentation of the financial statements, • Internal Controls involving the admjnistration of federal awards, and • Compliance with legal requirements. These reports are available in the aty'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 fonn 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 PbPns of Texas. The City currently occupies a land area of 119.9 square miles and serves a population of 212,365 (2007 Planning Department est:imMed population). Lubbock is the 11th largest Metropolitan Statistical Area (MSA) in the State ofTexas and the 12111 largest city. The Lubbock MSA includes Lubbock and Crosby Counties. (Source of ranking: 2006 estimates from Demographics Now, a product ofSRC) Form of Government and City Services The City was incorporated in 1909. The City is empoweR<~ to levy a property tax, on 'both real and personal properties located within its booodaries. It is also empowered by state statute to extend its corporate limits by annexation, which oCCW"S periodically when deemed appropriate by the City Council. The City bas 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. Some of the City Council's responsibilities include adopting ordinances, adopting the budget, appointing committees, and hiring the City Manager, City Attorney, and City Secretary. The City Manager is responsible for capying 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- 2 Honorable Mayor, City Council, And Citizens of the City of Lubbock. Texas January 3, 2007 year staggered terms, with three council members elected every two years. The mayor is elected to serve a twO-year term. Six of the councif members are elected by district. The mayor is elected at large. The City provides a full range of services including 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 public utility services fur electricity, water, wastewater, and storm water. Public safety includes police protection and fire protection.. Police protection is provided through the Police Department, which includes, with the adoption of the FY 2006-07 Operating, 422 sworn police officers. The Fire Department operates 15 fire stations and has 311 sworn fire fighters. Electric service in Lubbock is provided by Lubbock Power and Light (LP&L), Xcel Energy, and South Plains Electric Cooperative. LP&L is the municipal-owned electric company and has 68,836 meters in Lubbock with an average daily consumption of 4,259,994 kWh. ~&L has 14 substations, 1,011 miles of distribution lines, and 85 miles of transmission lines. Natural gas service is provided by Atmos Energy. Currently, Lubbock obtains 75% to 85% of its drinking water supply from Canadian River Municipal Water Authority (CRMW A). CRMWA combines surface water from Lake Meredith and ground water from Roberts County~ meet the water demands of Lubbock and the other 1 Q 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 78,000 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 1,400 miles of distribution lines and 146 active water wells with 83,265 acres of water rights. CRMW A allo'cates 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 The preliminary · engineering for these improvements is now under contract and should be· completed by early 2008. For the past several years, the City has been planning for future water needs. In March 2003, the City contiac~ with WaterTexas, Inc. to evaluate and make recommendations on how the City can optimize existing and potential water supplies on a·short-, mid-, and long-term basis. In a report titled City of Lubbock Strategic Water Plan, WaterTexas reported that Lubbock has adequate water supply and will continue to co so provided that it takes steps to address its maxim.wn 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, with the primary objective of developing a 100-year water supply plan. They have since 3 c c c c c c c ( ( ) ) ) Homrablc Mayor, City Council, And Citizens of the City of Lubbock. Texas January 3, 2007 achieved that object and continue to play an intricate role m the City!s long-term water planning efforts. The City has also worlced closely with the Region 0 Planning Group in the preparation of the State Water Plan that reflects Lubbock's water supply needs and alternatives. CRMW A has secured an additional 260,000 acres of groundwater rights in the Northern Panhandle. Groundwater rights now total over 300,000 acres, with an estimated 15 million acre feet of water within those rights. Conservative projections using current secured water rights indicate CRMW A will be able to provide groundwater supplies through existing infrastructure through 2097. Wastewater collection and treatment is provided within.the city limits to residential, commercial, and industrial customers. The collection system consists of 960 miles of sanitary sewer as of 1 anuary 1, 2006. 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 bas a contract for final design to upgrade the wastewater trea.tment plant for discharge quality effluent. 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 cutb inlets, conveys ~er 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 1,089 linear miles of paved and unpaved streets, 544 linear miles. of paved and unpaved alleys, 1,188 stollll sewer inlets, 70 miles of subsurface storm sewer pipe. three detention basins, 115 playa lakes, and one pump· station. Maintenance of all of the stonn sewers and street cleaning W!l$ fimded from the Storm Water Fund during FY 2005-06. · Dming FY 2005-06 the primary focus of the storm water fund was the construction of the South Lubbock Drainage Project -Phase I Main Trunk Line. This project remains approximately one year ahead of schedule and will connect six playa lakes during Phase I of the overall project. Construction for the widening of 98th Street from Slide Road to lola Avenue began dwing FY 2005-06 and included the remainder of the South Lubbock Drainage Project trunk line and a regional storm sewer designed to drain two detention basins at 98th Street and Frankford Ave. The coDstruction of the drainage channel north of Andrews Park Lake was completed during FY 2005-06. Work continued on a FEMA Restudy of two ofthe playa lake systems and a new study was undertaken to master plan the northwest quadrant of the city and to look at other options for flood risk reduction at Maxey Parle Lake. 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. Compliance with the City's MS4 permit is currently with the Environmental Protection Agency and consists of 11 different programs that continued during the fiscal y~. The City provides garoage collection and disposal services to 63,638 residential customers and . 2/}37 commercial customers. One of the City's two landfill sites is designated as Lubbock Landfill and is a transfer station only. The ~nd site is Lubbock's premier landfill and is 4 Honomble Mayor, City CoUDCil, And Citizens of the City of Lubbock. Texas January 3, 2007 designated as 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 of Lubbock and is professionally managed by McDonald Transit Associates, Inc. Citibus provides a Fixed Route Service, CitiAccess (paratransit system), Evening Service, and Special Services. The CitiAccess service is a cwb-to-curb service for disabled members of the community. The Citibus Evening Service is designed to meet the needs of both CitiAccess and fixed route passengers who are transit dependent, ~d who would have no other means of transportation in the evenings if the Evening Service was not provided. A majority of Evening Service passengers work at night and lise the service for transportation to and from their jobs. In addition, Citibus offers route service for Texas Tech University. The City has a housing and community development program implemented and administered . through funding from the Federal Community Development Block Grant Program. HOME Jnvestment Partnership Program, and Emergency Shelter Grant Program. Through these sources of funding, the City completed work on over 250 houses, assisted over 24,104 individuals~ and created 3 jobs through an economic development loan program. The City also receives funding from the Texas Department of Housing and Community Affairs. These funds allow the city to offer additional programs to the citizens of Lubbock. Through these programs, 216 households received assistance in weatheriz41g their home and/or making their home more energy efficient, 1,200 households received utility assistance, 75 graduated from the self-sufficiency program, and 12,000 residents received referral ass~stance through the Inl'ormation and Referral Hotline. Community enrichment and cultural services· are also major programs of the City. The City owns and operates four libraries with over 391,718 volumes. The City also owns and maintains 77 parks and 57 playgrounds. Extensive recreational facilities include 4 swimming pools, 54 tennis courts, 30 baseball and softball fields, 5 commuriity 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), Lubbock Coliseum, Lubbock Auditorium for the performing arts, the Buddy Holly Center, and the Silent Wings Museum. The City is responsible for the construction and maintenance of 1,015 miles of paved streets. The new Gateway Street Fund by the City Council in 2004, allocating 40% of the franchise fee revenue and telecom ~e charges to gateway corridor street projects. The FY 2005...()6 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 aT -2 thoroughfare street on Slide Road from Loop 289 to Erskine, and widening Loop 289 from South of the 4th Street interchange to south of the Clovis Road interchange, constructing a grade separation of Slide Road and Loop 289, widening of Slide Road from 4lh Street to Loop 289, improvements at the 4111 Street and Loop 289 interchange, and the construction of the Quaker/Erskine/Loop 289 interchange. These projects support substantial commercial and reSidential development on the west side of Lubbock. 5 c ( c c c c ( ( < ( ) ' Honorable Mayor, City CoUDCil. And Citizens of1he City of LubboCk, Texas January 3, 2007 Other major road construction in Lubbock includes constmction on 98dl Street from Slide Road· to Frankford Avenuc.and construction of the Marsha Sharp Freeway by the Texas Department of Transportation (TXDOT). This freeway will run east from West Loop 289 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 34111 Street to Slide Road and rebuilding the frontage road system under the main lanes -three lanes on each side. It also included building the 50111 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 Lubbock by providing a western connootion to West Loop 289 etl$lring a more efficient flow of traffic throughout Lubbock. It will also reduce ~e congestion on north/south and east/west major arterials and provide 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 $360 million and be completed sometime after 2015. One of the key components of Lubbock's transportation system is the Lubbock Preston Smith International Allport located 7 tnlles north of Lubbock's central business district on 3,000 acres of land adjacent to lntmtate 27. The airport is' operated as a department of the City and includes a 220,000 square foot passenger tenninal. building. The airport has two commercial service runways; one 11,500 feet in length and one 8,000 feet in length. The airport's thii-d general aviation runway is 2,869 feet in length. Air traffic control services include a 24-hour Federal Aviation Administratio~ control tower and a full range of instrument approaches. The airport is CUITently seiVed by three major passenger airlines and two major cargo airlines having over 80 commercial flights per day. The City of Lubbock annexed two areas dlllini FY 2005:-06. One of the areas annexed included 95.1 acres located north of Erskine and west of North Milwaukee that is under development as Shadow Hills Estates. The other area anneX:~ was 66.1 acres south of 98th Street and west of Avenue P that is now under development as the Stonebridge Community. 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 presen1ed CQmponent 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 City departments 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 before August 31. The City Council is required to hold public hearings on the proposed budget and to adopt a ti.rulJ. budget no later than September 30, the close of the City's fiscal year. The appropriated budget is prepared by fimd and department Department <tirectors are held accountable for managing their departments on total appropriation basis. Transfers of appropriations between funds and departments requires the approval of the City Council. 6 Hoocnable Mayor. City CollllCil, And Citizcns of the City of Lubboclc. Texas January 3, 2007 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 informa~on presented in the financial statements is perhaps best understood v-hen it is considered within the context of the Lubbock's local economy. The following information is provided to highlight a broad range ·ofeconomic forces that support the City's operations. Local Economy L~bock ~ a stable economy with historically slow and steady growth, which has continued thrOugh Septembet 2006. LUbboCk's agricultuTany. based -economy bas diversified over the past 20.yems, whiCh minimizes the effeCts ofbusiness cycles experienced by individual sectors. 'Il1e Souih ~bins is one ~fthe most-productive agricultural areas in the United States. In 2006, abnQst12% of the nation's cotton crop and 43% of the ~·s ootton crop were produced by ·rmnem. in ~ S6uthem High flainS District. Production m1he .Southern Hi,gh Plains District is estima.ted to tota12.-5 mil.&o~ bales 'fOI' 2006~ do-wn 41% ftom last ye~ prod~on due to lack of ram.,_d:uring ~peale grQwiDg sea_s(!O. LUb.OOck has strong manufaCturing. wholesale and .~1 trade, ~c.es. and government sectors. The riiaJin;tM~ ~ a di~ersc group of employers wh() .stippon app~~imatcly 5.200 wOikers. A ~ff9,1 looation ao:d ~s ~~ ~rtanon have contribJ,tted to Lubboclc"s. ~lopment ·as a .regional wazebousing and distribUtion center. Lubbock ~ serves as the major retail !:rade center and health<aa: proVider for a:region of mote' thin a half million people. A breakdoWn. of the per~ of qloyment base b.y industry category bas .b~ provided below. wbich gives a <£snapshot~ ofthc industry base l)fLubbock. (PERCENT EMPt.OVUENT BASE BV IHDUSTRlf CATEGOAyt TniiiP, ~·-areh~g & .. ()lllli!s ~., ... IDiormatkln r • .-,(, Retail,.,.. 1tll'. 7 ( ( ( ( c c c ' c ( ' ' Houomble Ma}our, Cicy Collllcil, And Citizens of the City of Lubbock, Texas Jamwy l, 2007 Two major components ~f 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 Univ~ity-Lubbock Center and South Plains College. Total emvllment for all higher education institutions in Lobbock. for Fall 2006 is 42,241. This is a sli8ht decrease fiom the enrollment for Fall of 2005~ The availability of the schools in Lubbock is an added advantage for Qur industries as they provide a ready source of labor for their~ operation. The healtbcare and social set'Vices sector is also a vital component of the Lubbock economy. This sector ·employs more than 18,000 people, whose payroll of more than $628 million and related contributions provide a substantial im~t to the Lubbock area. (Source: 2004 County Business .Patterns) Other current and trend infonnation has been provided below, which gives a picture of the .overall city economy. · Lubbock Economic Index. The Lubbock Economic Index is designed to represent the genem condition of the Lubbock eeoriamy·ltytraclq.ng local economic growth nttes. ltis baSed at 100.0 in January 1996. The -~no)lli~ ~~¥for Se.ptember 2006 was 128.9, which is ~.7% improved over th~ ind~x for September ~9()5. The Lobb.Odc Bconomic Jndex teina.UJs at a record level through September 2006~ suggesting that the overall LUbbock economy oontirule$ to perform at a high aggregate level . . (89urce: Lubbock Economic lndex September 2006) Lubbock Economic rn.dex January 1996 to September 2006 l»r---------------------------------------------------~ 1.lO ..,._, ni.1 1U.~ 111t.R l28.7 118.9 l:zi.~ 1l5 uo 115 ilO .1115 100 -- ---1996 ........ 1997 -M-1991-If-1999 ~2000 --200t ---2002-2003 -+-2004 ~2005 --1006 .s Hocarable Mayot, City CoW~CU. And Cilizens of the City of Lubbock, Texas January 3, 2001 Building Permit Valuations. Construction continues to make a strong contribution to the Lubbock economy even though the value of all building pennils issued so far in 2006 is do'WD. by 5.8% from l~t year's total through September. The $333.2 million in building permits issued through the first nine months of2006 is slightly dOV\'11 fu:lm the record setting levels that have been seen in the city over the last few years. (Source: Economic and Demographic Ova:view: Building Valuations -10-Year Trend I Original Souroe of Data: Building Inspection Statistical Report) $500.0 $4SO.a $400.0 $350.0 •.wo.u Total Building Permit Yatuatio11$ S417., eAA•., .... ,......: .... ~ . ~'f:t4_'17 . .$2~1-:o-''". $~~ ~ ~ $3ot);6 ~ $i50.0 .~~.o !~.ffa.i ~$181:7~ $160:0 ., ,.. ~::: $0.9 Total~~~~~ l'e~ts ~~ ~Y 14.3% .~~September 2QOO. w~ co~ to ·~e ·~~ ~¢ :)Q .lO~~ ··'fl,le ~154.4 miiJion in resi~eotia1 building P.e~ ~sued for the ;fh:s~ ~ months. of'2006 'is sliglnly ddWI1 fi:oin the record settmg leiels of 2.0(tl 'throUgh :2005. Average home $ale· price ~to--date through .September 200.6 bas· increased by 4.7% ftOm September · 2.00S·t9 ~~~ber 29QQ. {So~: 'Economic and n·~ograpbic Ov~ew: B.w1dmg Valumio~-10-Year Trend I Original Source of Data:. BUilding Inspection Statistical Report and Th~ Real Estate Center at Tens A & M Univeisity, Lubboek Residential Housfug Mtivity Report) Sales Tax Collections Sales tax collections for September 2006 were 2.82% improved over the September 200S sales tax collected. Year-to-date sale$ tax <X>llectioqs through SeJ)tember 2006 were 1/rJ% improved over the same period in 2005. (CoWlted in. the month the sales tax was collected, not the m.Onth it was paid. Do~ not inc~~e sales tax collected by the City of Lubbock and not reported to Comptroller of Public Acoounts) (Source: Economic and Demographic OVerview; Monthly Sales Tax Collections-Calendar Year -City of Lubbock. I Original Source of Data: State Comptroller of Public · Accounts - ~ocation Historical Summary) 9 c ( c ( ( c ' c ( ( ( ' ' ' Hcmorahle Mayor, Chy Council, ADd Citizens oftbe City of Lubbock, Teltas J:mwuy3, 2007 Tourism/Visitor Related Indicators Lodging tax receipts increased from S2.4 million in september 2005 to $2.5 million in September 2006. This is a year-to-date increase through September 2006 of 3.2%. Airline boardings at Lubbock Preston Smith International Airport also increased in 2006 by 3.1% over the same period last year. (Source: Lubbock Economic Index) Employment The total non-.agrieultural emplo;Yment estimate for Septerilber 2006 was 127,600. This was .5% improved .over September of last year. There were 600 more people employed in September 2006 than in the same period of 2005. Tiw unemployment @to for the Lubbock MSA in September ~006 was 3.8%. 41h IC?West in the State of Texas. Hi,storioally Lubbock bas a low rate ofunem.ployment that is generally 1% -2% below the national rate and about 1% below the rate for TexaS. (Souree: LubbOck Bcononric anQ. Demographic Overview I Oljginal Source of data: Texas Work:forc~ Commission) Unemploymelll R:ales -L~M'SA 5~.~-------------------------w~~~----~ 5:-'4.4.% "4.$%. .. JI.0"71o "':' , • ~~ l9% ~·. ~ • " .. ltL 3~ ~· 2'14 %~' ~~ :1% 0% 1996 19!17 1998 1!199 2000 2001 :zoo ~ ~ %005 ~Qte: The methodology for calclrlating the ~employment rate was changed in 2005 and the last five years were recalcu~ed b~ on the new method. The Lubbock MSA also changed in 2005 to include both Lubbock and Crosby Counties. Economie Development Economic development is a priority for the City of Lubbock. In 1995, the City Council ~ed Market Lubbock, Inc.. a non-profit corporation. to oversee economic development for the City. Mm:ket Lubboc~ lnc. is funded with three cents of the property tax alloeatiou. In October 2004, 10 Honorable Mayor, City Council. And Citizens of the City ofLubbock, Texas January 3, 2007 the Lubbock Economic Development Alliance (LEDA), an economic development sales tax corporation, assumed the responsibility for economic development in 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 2006-07 are $3,905,080. During the last year, through their business retention, expansion, and· attraction ·programs, LEDA assisted 13 companies in the creation of295 new jobs'with an estimated annual payroll of$9.2 million and capital investment of$2.3 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 information 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. Development Initiatives Overton Patk Overton Park is a 300+~acre revitalization project that is underway in the heart of Lubbock and has been called the largest privately funded revitalization project in the United States. Overton Park is the complete revitalization of~ blighted area called North Overton. Overton Park has developed much faster t.han anticipated It is projected that the build~ut of this public/private project will occur over a seven-year period. According to the latest Project and Finance Plan for the North Overton Tax Increment Financing Reinvestment Zone (TIRZ), there are planned expenditures of approximately $41.7 million for public infrastructure improvements, which will result· in future development/redevelopment that will increase the taxable value by approximately $S30 mi.Won over the Zone•s 30-year life. The 2006 appraised value of the North Overton TIRZ was $185.4 million, which is a $158.5 million increase over the 2002 base year value. To-date, three student~riented apartment complexes have been completed along with 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. ALSo completed are City Bank, Starbucks, and the new 200,000 Square foot Wal- Mart near 401 Street and Avenue Q. A retail center adjacent to the new Wal-Mart is nearing completion and will house several different retail businesses. Construction was completed on the first condominiums in Overton Park during 2006 and construction of the first single-family houses will begin in the next few months. COnstruction will begin on a new hotel/conference center project in early 2007. A new retail center adjacent to the hotel/conference center will begin constructio1;1 in February 2007. 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 of2008. ( ( ( ( c ( ... c ( . ( ( ' Honorable Mayor, City Council, And Citizens of the City of Lubbock, Texas Jan\Ull)' 3, 2007 North & East Lubbock Community Development Comoration While Lubbock grew during the last SO years, North and East Lubbock experienced an out- migration of people. From 1960 to 2000, the area's population decreased by 47%. In response to the deterioration of North and East Lubbock, the City of·Lubbock 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 and East Lubbock CDC has experienced significant progress in their projects during the past year. King's Dominion is a new single-family housing project with five home buyers who have closed and moved into their new homes, and five more houses are under construction. The CDC has also placed three clients into scattered site development, one client's home is presently under construction, and an additional three clients have been approved for mortgages within the target area The North and East Lubbock CDC has originated $1,079,643 in mortgages for King's Dominion and an additional $702,187 for scattered site developments this year. The CDC also awarded Somethin' Fresh Cleaners, a North and East Lubbock business, a $40,000 micro-enterprise loan and has received a grant from the US Department of Health and Human Services, Office of Community Services to go towards the development of the Parkway Place Shopping Center. Central Business District Tax Increment Reinvemnent Zone The City of Lubbock Central Business District (CBD) has been developed over the years typically 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 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. Under the revised Project Plan and Finance Plan, it is expected that the CBD TIRZ planned expenditute of almost $10.4 million for public infrastructure improvements will result in future development and redevelopment in the CBD TIRZ which will increase the taxable value by approximately $122.9 million over the zone's 20- year life. The 2006 appraised value of the Central Business District TIRZ was $137.8 million which is lin increase of $31.9 million over the 2001 base year value. 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 dQcument" 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. 12 Honorable Mayor, City CoiDlciJ, And Citizens ofthe City of Lubbock, Texas January 3, 2007 Other Residential/Com.mercial Development Growth in commercial and residential construction has been occurring at a phenomenal rate over the past few years. During the past year, construction on several new residential developments started in Lubbock. The Willow Bend Project, is being consttucted on the North side of Lubbock with an expected investment of $177.3 million. North Point is being constructed· along Quaker Avenue and is projected to have investment in new development of $200.9 million. Vintage Township is another residential/commercial development underway and is, a new concept in community development that will have an estimated $350 million investment in new development. The construction of Milwaukee Avenue is a publidprivate partnership between the City of Lubbock and developers who own property along the corridor that is expected to generate a total investment in new commercial/residential development of approximately $844 million in the next five to ten years. Canyon West has already started development of its' outdoor mall on Milwaukee.Avenue with the construction and opening of a new Target store. Other commercial projects already planned or underway in Canyon West are Main Event and Cracker Barrcl. . Other projects underway or almost completed in Lubbock include a new Market Street on 98"' Street, a new Wal-Mart in Southwest Lubbock, Grace Clinic, and Quaker Avenue Medical Center. · Downtown Redevelopment Commission The Ci~ Council created the Downtown Redevelopment Commission (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. After collecting infonnation on the issues in the downtown area as well as ongoing activities, the Commission drafted a fund-raising action plan for the development of a downtown master plan. Over the last year, the Commission has raised $324,000 for the master plan from private sources and the Central Business District Tax Increment Financing Reinvestment Zone. The Commission hired EDA W to draft the downtown master plan and they began work on the plan in July 2006. EDA W completed the Assessment Phase and have begun the Visioning Phase of the project. The Commission is expecting the Downtown Redevelopment Plan to be completed by the second quarter of2007. Lubbock Entertainment and Arts Facilities Task Force The Mayor created the Lubbock Entertainment and Arts Facilities (LEAF) Task Force in September 2006 to look at Lubbock's current and future needs for public facilities. The task force is made up of l5 Lubbock citizens whose responsibilities include a review of existing public facilities to determine if they meet current and future needs as well as establishing whether there is a need for upgrades to the existing facilities or construction of new facilities. LEAF will complete its work in early January 20?? and submit a recommende4 plan of action to the City Council. 13 ( ( ( c c ( c .( ( ( Honorable Mayor, City Council, And Citizens of the City of Lubbock, Texas January 3, 2007 FINANCIAL INFORMATION Long-term financial planning The City uses 35 • year rate models for long-range planning in the General Fund and all enterprise funds. These models are based on current projects and policies and 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 net--asset reserves, as established by City Council Policy. The mo~els, in association with the City's "5-year Forecast". provide anticipated trends given cUITent 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 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 pottcies 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-lfl years, with an average maturity of approximately 10-112 months. The average yield on investments was 4.35% for the City's operating funds and 4. 70% 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 managemeot During 2006, the Ci~ continued its use of third party workers' compensation coverage. The current covemge 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 $250,000 per insured per year is current1y 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 defmed 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 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 determined by the actuary. As a result of the City's conservative funding policy, the City has succeeded as of 14 ·Honorable Mayor, City Counci~ · And Citizens of the City of Lubbock, Texas January 3, 2007 December 31.2005. in funding. 74.6% ofthe 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 determined by formula and is anticipated to average 19.9 percent of firefighter's pay annually. The City does provide 25% to 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 fowtd in the notes to the financial statements. AWARDS AND ACKNOWLEDGEMENTS The Govermnent Finance Officers Association (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Lubbock for its comprehensive annual fmancial report for the fiscal year ended September 30, 2005. The City reapplied for this prestigious award last year after a one-year lapse. In order to be awarded a Ce~cate of Achievement, a governmental unit must publish an easily readable and efficiently organized 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 confonn. 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 A-ccounting Department. We would particularly like to thank Pamela Moon, Director of Accounting, and the Senior Accountants, and Accountants for their countless hours of work on this fmancial 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 Conunittee 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 15 c c c c c c c c c c ., 16 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, 2005 A Certificate of Achievement for Euclleuce io Financial Reporting is presented by 1bc Govemmcnt Finance Officers Association of the Uni1cd State& and Canada to govc:mmeut units and public emplo~ retirement systems whose comprdlensive umua.l financial reports (CAFRs) achieve the highest standards in goVCIIIIDellt accounting and fiuancial reporting. President ~/~ Executive Director 17 c c c { c c c .-.· ,~·· •• J " : .~;~ ... -~. ..!·~--: "Serve wi*7zumi~ity, lead, wit'liassion, commit to excellence." S:· Independent Accountants• Report on Financial Statemen~ and Supplem~ntary 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 eomp:<ment units, each major fund, and the aggregate remaining fund infonnation of tbe City of Lubbock, Texas, as of and for the year ended September 30, 2006, wh.ich collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements arc the responsibility oftbe City's management. Our responsibility is to express opinions on mese financial statements based on our audit. We did not audit the financial statements of Civic Lubbock, Int., Market Lubbock Economic Development Corporation dlb/a Market Lubbock and Lubb<x:k Economic Development Alliance, which comprise the aggregate discretely presented component units. 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 soieJy on the reports of the other auditors. · We ~onducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perfonn the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The financial statemen.ts of the component units Civic Lubbock., Inc.; Market Lubbock Economic Development _Corporation dlb/a Market Lubbock; Lubbock Economi~ 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 dis.closures 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. In our opinion, based on our audit and the reports of tbe 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 information of the City of Lubbock, Texas, as of September 30, 2006, and the respective. changes in financial position and cash flows, where applicable, thereof for the yc:.ar then ended in conformity with accounting principles generally accepted in the United States of America. 19 20011.11111 .... P.O. Sax 83C8 PineSU!,M 1'1811«106 8?0534ot!'n Faxll10~48 c c c c c ( J ') The Honorable Mayor and City Council Page2 In accordance with Government Audiling Standards, we have also issued our report dated December 22, 2006, on our consideration of the City'-s internal control over financial reponing and our tests of its compliance with certain provisions of Jaws, reg\llations, 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 reponing or on compliance. That report is an integral part of an audit pctfonned in accordance with Government Auditing Standards and should be considered in assessing the n:sults of our audit The accompanying management's discussion and fnalysis as listed in the table of contents is not a requited part of the basic financial S1atcments but is supplementary information r~uired by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquirie! of management tqJ8tding the methods of measurement and presentation of the requited supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City's basic fmancial statements. The accompanying supplementary information is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected Co the auditing procedures applied in the audit of the basic fmancial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic fmancial statements taken as a whole. The accompanying information in the introductory and statistical sections as listed in the table of contents bas not been subjected to the procedures applied in the audit of the basic financial slatements and, acc:ordingly, we express no opinion on it. December 22, 2006, except for Note V. as to which the date is January 10,2007 20 City of Lubbock, Texas Management's Discussion and Analysis For theY ear Ended September 30, 2006 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, 2006. We encourage readers of these financial statements to consider the information included in the transmittal letter and m the other sections of the Comprehensive Annual Fmancial Report {CAFR) e.g., combining statements and the statistical section in conjunction with this discussion and analysis. · Financial Highlights These financial highlights summarize the City's financial position and operations as presented in more detail in the Basic Financial Sta~ents (BFS), as listed in the accompanying Table of Contents. • • • • • • The assets of the City exceeded its liabilities at September 30, 2006 by $583.5 million {net assets). Of this am.otint, $97.8 million (unrestricted net assets) may be used to meet the City's ongoing obligations to citizens and creditors. The City's total net assets increased by $38.0 million as a result of operations during the fiscal year. The ending unreserved fund balance for the General Fund was $19.8 million or approximately 20.2% of total General Fund revenues; an iDcrease of $2.5 million over the prior year amount. All of the City's governmental funds reported combined ending fun4 balances of $96.8 nu1lion. Of this total amount, $39.8 million is available for spending at the City's discretion All of the City• s business-type activities reported combined ending net assets of $470.8 million . Ofthis·total amoWlt, $71.7 million is available for spending at the City's discretion. The City's proprietary funds net assets increased by $35.6 million from $:429.7 million to $465.3 milli'on. • During FY 2006. the City issued $79.7 million in debt for various capital projects and issued $18.8 million in debt to refund $18.0 m1llion in outstanding debt. The City also participated in the issuance of $18.6 million of contract revenue bonds with the Canadian River Municipal Water Authority. Overview of the Financial Statements Basic Financial Statements. Management's Discussion and Analysis (MD&A} is intended to serve as an inlroduction to the City•s BFS. The BFS are cpmprised of three components: 1) Government-Wide Financial Statements (GWFS), 2) Fwtd Financial Statements (FFS), and 3) Notes to Basic Financial Statements (Notes) .. This CAFR also contains other supplementary information in addition to the BFS. Government-Wide Financial Statements. The GWFS, shown on pages 37-39 of this report, contain the statement of net assets and the statement of acti.viJies, described below: . The statement of net asseJs presents infonnation on all of the City's assets and liabilities (including capital assets and short-and long-term liabilities), with the difference between the two reported as net assets using the accrual basis. Over time, in~ or decreases in net assets serve as a useful indicator of whether the financial position of the City is improving or deteriorating. 21 0 c c c c City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2006 The statement of activities presents a comparison between direct expenses and program revenues for each of the City's functions or programs (referred to as "activities"). Direct expenses are those that are specifically associated with an activity and are therefore clearly identifiable with that activity. Program revenues include charges paid by the recipient of the goods or services offered by the program. in addition to grants and contributions that are restricted to meeting the operational or capital requirements of a particular activity. Revenues that are not directly related to a specific activity are presented as general revenues. The comparison of direct expenses with revenues from activities identifies the extent to which each activity is self-financing, or alternatively, dmws from any City generated general revenues. The governmental activities (activities that are principally supported by tues and intergovernmental revenues) of the City include administrative services, community services, cultmal and recreation, economic and business development, fire, health, police, other public safety, streets and traffic, and non-departmeptal. 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, Wastewater, Solid Waste, Storm Water, Transit, and Airport. All changes m 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 ~ult in cash flows in future fiscal periods, such as uncollected taxes and earned but unused vacation leave. Componeat 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, d/b/a Market Lubbock, Inc., Lubbock Economic Development Alliance, and Civic Lubbock, Inc .• for which the City is financi.a11y accoun~b1e. These entities provide economic development services and arts and cultural activities for the City. Financial information for these component units is reported separately in the GWFS in order to differentiate them from the City's financial information. None of these component units are considered major compohent units. Fond Fiauclal 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, ar limitations. The principal role of funds in the new financial reporting model is to demonstrate fiscal accowttabiUty. The City, as with other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements, · The focus of the FFS is on major fUnds. Major fimds are those that meet minimum criteria (a percentage of assets, liabilities, revenue, or expenditures/expenses of fund category and of the governmental and enterprise funds combined), or those that the City chooses to report as major funds given their qualitative significance. Nonmajor funds are aggregated and shown in a single column in the appropriate financial statements. Combining schedules of nonmajor funds are included in the CAFR following the BFS. All of the funds of the City can be divided into three categories: governmental funds, proprietary jimds, and fiduciary fonds. G()VUIUit~11l4/ FFS. Governmental funds are used to account for essentially the same functions reported as govemmental~U:tivities 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 infonnation is useful in evaluating the City's near-term financing requirements. 22 CityofLubbock, Texas Management's Discussion and Analysis ~or the Year Ended September 30, 2006 Because the focus of governmental funds is narrower than th,at of the GWFS (modified a.ccrua1 vers\is accrual basis of accounting, and current financial resources versus economic resources). it is useful to compare the information presented for governmental funds with similar information ·presented for governmental activities in the GWFS. By doing so, readers may better understand the long-term impact of the near-term financing decisions. Reconciliations are provided for both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures. and changes in fund balances to facilitate the comparison between governmental funds and governmental activities. The City maintains 31 individual governmental ftmds. Information is presented separately in the governmental fund balance sh~t and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General Fund only. The General Fund is considered fD be a major fund. Data from the other governmental funds are combined into a single aggregated presentation. The City adopts a budget annually for the General Fund and all other funds. A budgetarY, comparison statement bas been provided fpr the General Fund to demonstrate compliance with this budget It is presented in the .FFS following the statement of revenues, expenditures~ and changes in fund balances. The governmental FFS can be found on pages 40-43 of this report. · Proprietary FFS. The City maintains two different types of proprietary ii.mds. Enterprise funds are used to report the same functions presented as business-type activities in 1he GWFS. Enterprise FFS prQvide 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, Wastewa.U:r, West Texas Municipal Power Agency (WI'MPA), Storm Water, Transit, Solid Waste, and AitpOrt activities, of which the first five activities are considered to be major funds by the City and are presented separately. The latta' tbrte activities are considered nonrnajor funds by the City and are combined into a single aggregated presentation. . . Internal service finuJs are an accounting device used to accUIIllllate and allocate costs intetnally among the City's various functions. The City uses intt'lmal service funds to account for its fleet of vehicles, management information systems. ris~ management, print shop, and central warehouse activities among others. The services provided by the internal service funds benefit both governmental and business·type activities, ·and accordingly, they have been included within governmental activities and business-type activities, as appropriate, in the GWFS. All internal service funds are combined into a single aggregated presentation in the proprietary FFS. Reconciliations are provided for both the proprietary fund statement of net assets and the proprietary fund statement of revenues, expenses, and changes in fund net assets to facilitate the comparison between enterprise funds and business-type activities: The proprietary FFS can be fotmd on pages 46·57 of this report. Fiduciary FFS. Fiduciazy funds are used to account for resources held for the benefit of parties outside tbe 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 had one agency fund, which \Y8S closed in FY 2006. • Notes to Basic Financial Statements. The Note$ 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 59-94 of this report. Required Supplementary Information Other Th.an MD&A. The City bas presented required supplementary infonnation relating to its progress in funding its obligation to provide pension benefits to its employees in the Notes tD the BFS. 23 c c c c c c c ) ) City ofLubboek, Texas Management's Discussion and Analysis For theY ear Ended September 30, 2006 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 $583.S million (net assets) at the close of the fascal year. This compared to assets exceeding liabilities by $54S.S million (net ass~ts) at the end of the prior fiscal year. As a result of operations, total net assets increased by $38.0 million during the period. City of Lubbock Net Assets September 30 (ID OOO's) Governmental Bwinm-Type Activities Adivftles Total 2006 2005 2006 2005 2006 2005 Current and other assets $ 124,446 116,021 203,858 170,945 328.304 286,966 Capital assets 160,550 1381614 7001154 6371444 860,704 116,058 Total asse~ 2841996 2S4163S 9041012 8081389 111891008 110631024 Current liabilities 35,197 16,837 54.322 2S,S05 89,519 42,342 Noncurrent liabilities 1371078 1271169 378,896 3481036 51St274 41S..t10S Total liabilities 172~7S 1441006 433~18 373~1 6051493 517~47 Net assecs: Invested in capital assets, net of related debt 76,483 82,330 380,149 363,.227 456,632 44S,SS1 Restricted 10,149 8,770 18,915 26;1.76 29,064 35,046 Unrestricted 26.089 19zS29 71t730 45!345 971819 641874 Total net assets $ 112,721 110,629 470,794 434!848 5832515 545,477 By far the largest portion of the City's net assets, 78.3%, reflect its investment in capital 'assets, e.g., land, buildings, infrastructure, li'W:hinery, and .equipment, less any related debt used to acquire ~ose 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 soun::es, since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the City's net assets, 5.00A>, represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets of$98.7 million may be used to meet the Cil;y' s ·ongoing obligations to citizens and credirors. The City also reports positive balances in all three categories of net assets for the City as a whole, as well as for its separate governmental activities and business-type activities. The City's governmental activities experienced an increase in net assets of $2.1 million, while ·net assets increased by $6.3 million during the prior fiscal year. The increase in FY 2006 is primarily due to higher than expected sales tax collections due to better than anticipated retail sates and an increase in franchise taxes from power companies due to increased fuel and electric prices. 24 City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2006 c The City's business-type activities experienced an increase in net assets of $35.9 million during the current fiscal year as compared to a decrease of$7.6 million during the prior fJSCat year. The increase in net assets was budgeted to meet City Council and LP&L Board goals of minimum unrestricted net asset balances. Oty of Lubbock Changes iD Net Assets c For the Year Eaded September 30 (io OOO's) Businus- Govern meatal Type Activities Attivities Totals Revenues: 2006 zoos 2006 2005 %006 2005 c Program RevemleS: O&arges fur services $ 9,632 10,583 313,782 212,902 323,414 283,485 Operating grants and contributions !0,203 13,296 8,352 8,156 18,555 21,452 Capital grants and conbibutions 845 . 17,625 5,206 1&,470 5,206 Gencnl Revenues: Property taxes 42,771 39,748 42,771 39,748 Sates taxes 45.571 41,803 4S.S71 41,803 c Other taxes 4,447 4,242 4.447 4,242 Frailchise fees 13,348 11,154 13,348 11,154 Investment oami.ngs 4,394 1,633 6,140 3,758 10,534 5,391 Oth« {;&&98 41110 4JJ1 11388 111175 5,498 Total revenues 138,1 IS 1261569 3S0p6 2911410 488~91 417,979 Expeasa: Administrative services 9,910 8,220 9,910 8,220 c Community services 6,112 6,14S 6,ll2 6,145 Olltural and recreation 18,915 17,745 18,915 17,145 Economic dewlopment 10,2&3 9,139 10,2&3 9,139 File 26,711 23,517 26,711 23,517 Health 5,014 5,040 5,014 5,040 Police 42,063 38,452 42,063 38,4S2 Other pli:IUc safety 5,240 4,m 5,240 4,m Streets and traffic 11,850 12,467 11,850 12,467 Non-departmmtal 5,206 . 6,253 5,206 6,253 lntt.rest on long:-term debt 4,326 3,19S 4,326 3,195 Bledric 213,027 192,9(),2 213.027 192,902 W'lltl:r 32,&30 28,738 32,830 28,738 Sewer 21,274 17,804 21,274 17,804 Solid Waste 14,971 . 14,695 14,971 14,695 Stonnwater 5,175 5,586 5,115 5,586 c Transit 9,349 9,003 9,349 9,003 Airport 1m 8151 7997 8151 Total Expenses Otange in net assets before 145,630 1351150.' 304,623 27~879 450,253 412,629 special i1l:mS and transfers (1,515) (9,181) 45,553 14.531 3&,038 5,350 Special items (6,637) (6,637) Transfu:s 9lJftl 151469 ~9,§;!m {1S1469l c 0\ange in net assets 2.,0'12 6,2&8 35,946 (7.575) 38,038 (1,287) Net~. beginning of year Net assecs. end of ;rear s 11~ II 121 104~1 110,9 434!848 470,794 442,423 464,14! S451471 583,513' 5461764 J4s,477 Changes in Net Assets. Details of the above swnmarized information can be found on pages 38·39 of this report. c 25 ) City of Lubboek, Tens Managemeat's DiScussion and Analysis For the Year Ended September 30,2006 Govenpnental adivides. Governmental activities increased the City's net assets by $2.1 million. Key elements of the increase include: • Transfers to/from business-type activities during the fiscal year increased govemmc:ntal activities net assets by $9.6 million. During the prior fiscal• year these tnmsfers increased governmental' activities net' assets by approximately $15.5 million. This is a net decrease of $5.9 million in resources to governmental activities. 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 $9.9 million from the prior year primarily due to increased spending in public safety functiODS. City Council has continued to be committed to public safety and has allocated more resources to public safety than other areas in the government Fire expenses increased $3_.2 million an4 police expenses increased S3.6 miliion in FY 2006. Administrative expenses increased $1.7 million due to moving facilities management from an internal service fimd to the Gencnl Fund. These expenses were previously sptead to many different functions. Interest on long- term debt increased $1.1 million due to new debt issuances. These were offset by a Sl.O million decrease in non-departmental functions. which was mainly due to Federal Emergency Management Administration (FEMA) expenses incurred in FY 2005 while hosting evacuees from Louisiana and southeast Texas during Hurricanes Katrina and Rita. • Revenues increased by approximately Sll.S. million. Grants and contn'butions. decreased by $2.2 million, partially due to decrease in FEMA and other emergency management funds. The property tax rate was reduced to $.44720 per $100 assessed value in FY 2006, down from the $.45970 per $100 assessed value rate in FY 2005; however, property tax revenues increased s:u million due to increased assessments. Sales tax revenue increased $3.8 million in FY 2006 due to an improved economy. Franchise taxes increased $2.2 million. primarily due to increased costs on gas and electric bills to OOIISU1JICt'S and an increase in the franchise rate from 2.0% to S.0%1 percent on one electric company. Investment income increased $2.8 million due to increases in interest rates and improved cash balances. Other revenues increased $2.8 million due to developer contributions in the Gateway Capital Project Fund. . 26 i i ~ City of Lubbock, Texas Management's Discussion and Analysis For tl&e Year Ended September 30, 2006 This graph depicts tht expenses and program m'CRUCS genera~d through the City's various governmental actilities. Expenses a1td Program Revenues -Cavci'D.IDeotal Actlvltles $45.000 $40,000 ·$3s,~o · ~ ... $30,.0()0 szs.ooo . .S%1MOO. ·S1S,O~O ·:sio_ooo 'SS..,O!)Q so \ .... ~ ~ •'\ \. ' ' \ -~ . 27 0 0 0 c c c c c ( .... J ) City of Lubbock, Texas Management's Discussion and Allalysis For the Year EncW! September JOt 2006 The following graph reflects the source of the revenue and the percentage each source represents of the total. Reve .. es by Soan:e-Govemme.u.l Aeti.Uies Graats & OdlerTues J.l% MlsecUaneous s.o•...- Property Taxes 31.11, .. ~e·u.tmoeS. BUsi:riesS-type activities incteaSCd the City's tu:t asSets by $3S.9 million a.S a. ~Of operations. Key dements of the increase in.cll:Uie: • . ~for services for business-type activities were $313.8 millian mFY 2006; an in~ of $40.9 mUi,\an. &pcuses for business-type activities wm S3o4.6 million in FY 2006, an iDcreue of $27.7 .tnillion. . • Electric: opemtioDs a<Xoumed fbr $33.8 million of the increase iri charges. for services~ Electric ~ lnclcdc both Lubl?ock Power aru.i Light (LP&L) and West Tc:us Municipa,1 Power Agency (WTMP A). &cause of the intmimd activity b~en LP&:L .and WfMP A. approximately one third ~f the combined ·electric revenue was elimiliated fpr the en~ty wide staremenl$. Operating revenues consist principaJly of the retail sales of el.ectricity to resideotial, coiDIDCI'Cial, and government cuStomcn,· and off-~ sales to wholesale power cusfotru:n, LP&L charges a bUc rate for electru: sc:rvtce plus a fuel cost adjustment raze for electric service. WhDe the base rate has remained consistent between years, there ha~ been many fuel cost aqjuStments during: FY 2006 which have 28 City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30,2006 cumulatively increased the rates charged to customers. Also, WTMP A gas sales to third parties increased from $65.2 million in FY 2005 to $76.2 million in FY 2006, again due to fuel. cost adjustments. Electric operation expenses increased $20.1 million. from $192.9 million in FY 2005 to $213.0 million in FY 2006. The increase in expenses is primarily due to the nation's increased fuel and energy costs in FY 2006, which affected both LP&L and WTMPA cost of power. • Revenues were also up slightly in most of the City's other enterprise funds, with the Water and Wastewater Funds accounting for the largest increase. Water usage, which effects both Water and Wastewater Funds, increased due to drought conditions. Water rates also increased 3% in FY 2006. Construction activity was also higher in FY 2006 and contl'actors contributed $6.6 million in Water and Wastewater assets, $2.4 more than prior year. • Operating gtants, capital grants, and contributions continue to be a significant revenue source for business·type activities during the current fiscal year, producing nearly $26.0 million in revenue. This is a $12.6 million increase over prior year support of $13.4 million. The Airport Fund incurred the largest increase due to receiving federal grants of $12.0 million for aviation apron and taxiway improvements. In the prior year the Airport received $2.2 million in federal grants. The'Water and Wastewater Funds also received additional developer contributions. • Expenses in Water and Wastewater Funds increased in total by $7.6 million over the prior fiscal year. In FY 2006 the Wastewater Fund paid $2.4. million for a Water Resource Master Plan. These funds also incurred almost $2 million additional utility costs to run their plants due to the higher fuel and electrical costs. The Wastewater and Water Funds also had an additional $•1.5 million in depreciation expense, which is directly attributed to the re<:ent capital activities that are now placed in service and deprec(ated. . '\ 29 0 0 0 0 c c c c c ) ) City of Lubbock, Texas MaMgemeot .. s Discussion and Aoa1y!is For tbe Year Ended September 30, 2006 The folloWing graph rcOects the revenue sources generated by the business-type activities. N noted earlier, these activities include LP&L, Water, Wastewater, Solid Waste. Transit. 'WTMPA. Aiiport, and Storm Warer Drainage. R.eveoues by Source -Business-type Activities :~for Servkes :89.6~o ·Fia:uttal Alialys1s ot the Clty~s Funds MisceUaneous 1.2% Operating Grams ~--& Contributioos 2.4% Go~ {tuttis.. The focus Of the City's gOIIbnmeittal,/ulub iS to provide information em .oea.r-te.rm ~ ~~ ~~ of~ble~_uroes .. Su~ ~~~is usetui jn assessing ~e City,s financmg ~ In piarticular, Wll:eServed fund balance scrv.cs u a usefUl measure of tbe City~s resources'avidlabie .tw speOOing at the aJ.4 of the fiscal year. At t1ie end of the fiscal year. the Ot.y's govt:mmental Iuilds reported combined ending f\md balances of $96~ milljoo, cawpared to s&s .2 nllilion. at the end of the prior fisc:al yc;ar. This increase is primarily the muJt of.d.C:bt i$SWmce fur park. capit&:l projects, which ieSulted in an increase of 1\.md balance of $9.5 ~li~. Als()a:ffecting this in<:rease was the result of operations ofthe General Fuod wbe~ fund balance ·:mcn:&sed by $2.S lnillion. Of the ending governmental fucd balance, $39.8 million cr 41.1% percent, constituted ~d fund balance which is available for spending at the City's discretion. This oompared to S2S~ million or 30.4% at the end of the prior fiscal year. The remainder of tl!.e fund balance is reServed to indica.le it bas ahady b=l committed to pay debt servia; use in construction of approved .capital projects. or isJeStricted for other purposes. The Gcoeral Fund is the chief operating fund of the City. At the end of the itseal year, unreserved fund ba1ance·m. 1he Genenu Fwtd was approximately $19.8 million compared to $17.3 million in the pR:Vious 30 City of Lubbock, Texas Management's Diseu.ssion and Analysis For the Year E.nded September 30, 2006 . fiscal year, representing an increase of approximately $2.5 million. Total fund balance (reserved and unreserved) was $19.9 million at the end of the fiscal year compared to $17.4 million at the end of the prior fiscal year. As a measure of the General FWld's liquidity, it is useful to compare both unreserved fund balance and total fund .balance to total fund revenues. Unreserved fund balance represented 20.2% of total General Fund revenues, which is an improvement oyer 19.?0/o of total General Ftmd revenues in the prior year. Total fund balance was 20.4% of total General Fund revenues compared to 19.8% in the prior year. Proprietllry funds. The City's. proprietary funds provide essentially the same type of information found in the GWFS, but in more detail. Unrestricted net assets of the major proprietary funds at the end of September 30 are shown next with amowts presented in OOOs: 2006 2005 Electric Fund $ 32,141 14,151 Wate:tP~~nd 10,878 6,818 Wastewllter Fund 9,593 5,964 WTMPA 1,307 1,314 Stonnwatet 1(),022 7,420 $ 63,941 35,667 The LP&L Fund increased unrestricted net assets by $18.0 million compared to an increase of $7.1 million during the prior year. This is mainly due to the. results of operations and the decision by City Council not' to charge for payments in lieu of taxes and franchise fees until adequate cash reserves are established. Increase in net assets was $16.4 million in FY 2006 and $3.0 million in FY 2004-05. The Water Fund reflected a current year increase in unr.estricted net assets of nearly $4.1 million compared to· a decrease of$7.3 million during the.prior year. In the CUlTent year, revenues were higher than expected due to increased water usage, while in prior year the Water Fund had a loss due to termination of an interest rate swap agreement The WasU:water Fwd reflected a current year increase in unrestricted net assets of approximately $3.6 million compared to a $.4 million decrease dwing the prior year. In cUITent year, revenues were higher than expected due to the discharge of a higher volume of water consumption. The WTMPA Fund had a slight decrease in unrestricted net assets. The prior fiscal year's change was a decrease in unrestricted nets assets of $.4 million, primarily as a result of operations. Th~ Storm Water Fund experienced an increase in unrestricted net assets of $2.6 miUion during the fiscal year compared to a $6.1 million increase in the prior fiscal year. The increase is due to the result of operations. 31 0 0 0 c c c c c c ) ) City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2006 General Fund Budgetary Highlights Differences between the original budget and the final amended budget were approximately $7.5 million in increases to expenditures and transfers out. The main reason for the increase was budgeting for purchase ·of machinery and equipment through the issuance of capital leases. Revenues in the General Fund exceeded budget by $4.3 million primarily due to higher than .expected sales tax collections and fumchise fees. The General Fund ended the fiscal year with expenditures and transfers out of $459,394 more than budgeted. The primary .reason for this overage was related to higher than anticipated energy and fuel costs accoss all departments. The City Manager has implemented the following additional controls to ensure more stringent budget control: • Biweekly Budget Forecasting and Manager Review • Position Control Management System and Requisition Review • Biweekly Overtime ~g and Management Review • General Ledger Reconciliation Policy • Centralized Facilities Management, and Utilities Budgeting • Improved Monthly Management Reporting to City Council • Changes in the Horne Storage of Fleet Vehicles Capital Assets and Debt Administration Capital assets. The City's investment in capital assets for its goVerr.unental and business·type activities at September 30, 2006 amounted to $860.7 million, net of accumulated depreciation. This was an $84.6 million increase over the prior fiscal year',s balance of $776.1 milli~ net of accumulated depreciation. This investment in capital assets includes land, buildings and improvements, equipment, construction in progress, and infras1ructure. Major capital asset events during the fiscal year included the following: • Many large street projects progressed due to dedicated funding from the local franchise tax, which earmarks 2% of the 5% franchise fees to fund Gateway Street Projects. The largest Gateway Street Project continued with the construction of a T-2 thoroughfare street with $12.6 million expended in the fiscal year on Milwaukee A venue :from 34th Street to 98th Street · • Large amounts of existing infrastructure and rcconstruction of roadways has been accomplished within the North Overton Tax Increment Financing (TIF) Reinvestment Zone. The fimding for these projects comes from taxes generated from the increment of property valuation growth within the TIF. The funds used to finance the projects are generated within the zone, and do not impact taxes or fees to citizens outside the TIF. • The Water Fund acquired $19.1 million in water rights from the Canadian Municipal Water Rights Authority and continued work on numerous water line change outs and extensions. • Approximately 38,000 square yards of new paving was constructed at the Lubbock Preston Smith International Airport to help serve air carrior aircraft. This project also involved removal and installation of new taxiway lighting and drainage i~vements. Expenditures on this project totaled $9.7 million during the fiscal year. Expenditures to date on the project total $10.5 mill~on. 32 City of Lubbock, Texas Management's Discussion and Analysis F~r the Year Ended September 30, 2006 • The City continues work on a flood relief project linking South Lubbock's chain of playa lakes with an underground drainage system, ~ding $12.8 million during the fiscal year. Expenditures to date on the project total $26.1 million. At the end of the fiscal year, the City has construction commitments of$159.7 million. Land Buildings Improvements other s City of Lubboek Capital Assets (Net of Ac:c:amulated Depreciation) September 30 Gover11mental Aetivltles (ia OOO's) 2006 2005 8,971 8,951 29,870 28,146 BllSIIlHS• Type Aetlvities 2006 2005 31,949 31,949 64,092 6S,9S1 Totals 1006 40,920 93,962 than buildings 50,443 43,895 389,474 347.393 439,917 Machineryandequipment 20,615 19,829 77,993 63,719 98,608 Construction in progrc:ll$ 50,650 37,793 136,646 128A32 187,296 Total S 160,549 138,614 700J54 637,444 860,703 ~dditional information about the City's capital assets can be found on pages 72-75 of this report. Long-term debt. A swnm.ary of the City's total outstanding debt follows: General obligation bonds Revenue bonds · Total City of Lubboek Outstalldlng Debt Geaeral ObUgatlon alld Revenue Bonds September 30 (la OOO's) Gover11meatal Activld.u 1006 2005 s 124,457 102,720 s 124,457 102,720 . Barilless- T)'Pe Acdvldes 2006 lOOS 323,$68 286,?50 S8,079 42,800 381,647 329,550 Totals 2006 2005 448,025 389,470 S8,079. 42,800 506,104 432.270 1005 40,900 94,097 391,288 83,548 166,225 776,058 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 tD $2.50 per $100 of assessed valuation. The Attorney General of the State of Texas pemtits an allocation of $1.50 of the $2.50 maximum tax rate for general obligatiQll bonds debt service. The cur.rent interest and sinking fund tax rate per $100 of assessed. valuation is $0.06094, which is significantly below the maximum allowable tax rate. · As ofSeptAmlber 30, 2006, the City's total outstanding debt has increased by $73.8 million or 17.1% over the prior fiscal year. The increase in outstanding debt is attnouted to the issuance of $98.3 million in debt, offset by the payment of scheduled debt service totaling $25.3 million, and the issUance of $18.8 million of debt to defease debt of $18.0 million. 33 0 c c c 0 c c c c c c ) ) · City ofLu.bbock, Texas Management~s Discussion and Aaalysis For theY ear Ended September 3~ 2006 During the fiscal year, the City issued the following bonds and certificates: • $2.7 million of General Obligation Bonds, Series 2006 were issued to fund the current capital improvements plan. This issuance was the ~ i.nstallment of the $30.0 million capital improvement debt issuance approved by voters in 2004. • $77.0 million of Tax and Wateiworks System Surplus Revenue Certificates of Obtiga~on, Series 2006 were issued to finance projects in Water, Wastewater, Solid Waste, Storm Water, Airport, Tax Increment Financing , Lubbock Power & Light, and Gateway Streets; as well as Parks. Streets and Municipal Building projects throughout the City. ·• $18.6 million in bonds were issued by the Canadian River Municipal Water Authority (CRMWA) for Lubbock's share of the $49.1 million CRMWA. Contract Revenue Bonds, Series 2006 (Conjunctive 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: • $18.8 million of General Obligation Refunding Bonds, Series 2006 were issued to defease $18.0 million in outstanding bonds in order to achieve interest savings. 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 e'!loluate each bond issue to determine whether it is economically feastble 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, Inc. and an "AI" rating from Moody's Investors Service for general obligation debt. All three rating agencies have plaoed the City on a positive outlook. which indicates the possibility of a rating upgrade in the near term. 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 R..a:ti:ngs, 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. J;(onomle Factors and the Nest Fiscal Year's Budget and Rates • At the end of the City's fiscal year, the unemployment rate for the Lubbock area was 3.S0..{,. This is tbe same rate as September 2005. This compares favorably to the state's unemployment rate of 4.7 % and the national rate of 4.4 % for September 2006. • Retail sales figures are only available through the third quarter of FY 2006. Total retail sales reflected a 7.3% increase for that period over the same period in 2005. • The number of building permits for new construction decreased from 2,222 during FY 2005 to 2,052 in FY 2006, or about a 7.7% decrease. This compares to a 20.5% decrease during the prior period. Building permit values for new construction decreased from $388.4 million in FY 2005 to $376.2 million in FY 2006, or about a 3.1% decrease. The number of new construction permits and new construction valuations hit an aU-time high in FY 2004. The current numbers arc still much improved over years prior to FY 2004. 34 City of Lubbock, Texas Management's Discussion and .Analysis Fo.r the Year Ended September 30,2006 • Total occupancy in local hotels and motels improved and the local occupancy tax totaled nearly $3.4 million. a 4.6% 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 until 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 2007. • During FY 2007 the City adopted a $.00444 'increase in the General Fund property tax rate. The General Fund increase will bring an additional $1.7 million increase in revenue from both property value growth and the adjusted tax rate. The additional revenues will help cover medi~ insurance inflation costs, a $1,200 cost of living adjustment for all employees, increased fuel costs. and 29 public safety positions added mid-year ofFY 2006 that will have the full effect of cost in FY 2007. • During FY 2007·the City adopted a $.01035 increase in the Debt Service Fund real estate tax rate. In the last several years, City CoWlcil has adopted a number of capital improvement projects to address changing community needs. The bond~ for 1hese projects were sold in 2006 and related debt service begins in FY 2007, necessitating an increase in. the interest and sinking fund tax tate. • Irl FY 2005 the City adopted a master lease program to replace public safety vehicles and oth« equipment that bad been neglected. The cumulative effect of master leasing the last two years will increase debt service payments on master lease obligations in FY 2007. • The City has prepared a S year projection of utility rates for Water. Storm Water, Wastewater, and Solid Waste Funds. The Water Fund will experience an increase in rates as the City aggressively seeks. to obtain water rights, plans on adding infrastructu:rc to transport water to the City, 1U'ld maintains existing infrastructure. The Water Fund rates will increase 11% in FY 2007 and are expected to rise over the remaining 4 years to fund debt service on water capital projects. The Storm Water Fl.Dld will incW" debt as the City focuses on infrastructure through the South Lubbock Drainage project and ongoing maintenance. Storm water rates are adequare for the future debt and are not expected to increase until FY 2010. The Wastewater Fund and Solid Waste Fund are also expeoting slight fee increases over 1he next 5 years due to operational cost increases and increased debt service. • At the March 23, 2006 City Colincil meeting, the City Council approved the "Policy on General Fund UnrestricU:d Fund Balance and Appropriable Net Assets for All Other Funds". The policy targets an unrestricted fund balance in an amount equal to at least 200/o of regular general fund operating revenues. The policy targets appropriable net assets in the Water and Wastewater funds in an amount equal to 25% of regular operating revenues, appropriable net assets in the Solid Waste, Airport and Storm Water funds in an amol.Dlt equal to 15% of regular operating revenues, and appxopriabte net assets in the Internal Service funds in·an amoWlt equal to 8% of regular operating revenues. Funds that have budgeted utilization of net assets that e~ceed the appropriate target policy include: $3.0 miUion in Water Fund, $1.5 million in' Wastew.ater Fund, $2.2 million in Solid Waste Fund, and $2.2 million in Storm Water Fund. The City has not planned any use of General FWld fund balance in FY 2007. The LP&L Board has set their unrestricted net assets goal to be $50 million, or 4 months of operating expenditures, whichever is greater. In FY 2007, LP&L bas budgeted to increase unrestricted net assets by $19.3 million: .35 0 0 c c c c c c c ) ) City of Lubbock, Texas Management's Discussion and Analysis For the Year Ende,d September 30, 2006 • LP&L FY 2007 base rates will be consistent with FY 2006 rates, but the fuel cost adjustment rates will vary based on supplier cost. One of the main suppliers of fuel to LP&L has applied for a 15% increase in rates, and if approved, could increase fuel costs up to 15% in early 2007. This may cause electric rates to increase in FY 2007, Requests for Information This financial report is designed to provide a general overview of the City of Lubbock's finances. Questions concerning any of the information provided in the report or requests for additional financial information should be addressed to the Chief Financial Officer, City of Lubbock, P.O. Box 2000, Lubbock. Texas, 79457. 36 0 CityofLubbock, Texas Statement of Net Assets September 30, 2006 Prlm1ry Gover~.ntent 0 Govenuneatal Butaess-type Co•poae111t Actlvfeies Activttfes Total Uaits ASSETS Cull ll1d cal! equi'lllcnts s 21.577,439 $ 37,13.5,183 $ 58,712.622 $ S,9S0,665 ' fRYfS!melliJ 19,013,367 33,373,806 52,387,173 225,144 ll.eci:IVIIbl.cs (netofllloWU~CC for uncollectib!a) 11,719,391 27,620,285 39,339,676 1,052,895 c bltemal bal&nce 2,009,936 {2,009,936) Due from oCher~ 3,487,278 3,487,278 Due~O!hers 2,369,856 1,863,690 4,233,546 IRvc:nCilries 212,052 3,116,0SS 3,328,107 82,7.58 lnv=tmcnt in property 208,103 208,103 l'lqlaid expomc:s 920,722 920,722 53,490 c RQtriCicd aiCIS: Cull Md aab equivale:nu 4,002,576 18,91.5,606 22,918,182 176,852 lllvestmcnb .52.987,526 80,6.58,168 133,646,394 bcciwbtcs 124,694 106,010 230,704 7,000,000 M~ reo:ivablc:s .5,813,330 5,813,330 Clopital wets (net ofliOCUIIIUlaled ~ c N .... ~able .59,621,807 168,S94,938 228,216,745 1,404,299 Depi1Ciablc 100,927,834 .531,S59,S52 632,487.386 829,241 Dcfcmldc""-" 310771777 310771777 Tocalasreu 284~.911 9041011,834 111891007,745 1~71.51344 LL\BrLITIES ,. Aa:oun&s payable 5,666,121 16,869,683 22,536,404 1,018,218 '- ACCIIIed expenses 6,9.53,799 3,155,693 10,109,492 162,308 Acc:Ncd inc=st Pll~ 9.59,422 4,261,.554 5,220,976 ~deposits 2,990,665 2,990,665 Unramal reYel1lle 5,176,605 .5,176,60.5 7,133,046 Honamnt IW!ilities clue wicbin one~ c Cornpc:auted absa!.oa 6,133,264 2,511,195 8,705,059 Acc:f1ICd insunnce claims 2,512,041 2,444,632 4,956,673 Contraco and leases payable 1,426,999 1,974,403 3,401,402 1,412,685 Bonds payable 6,361,599 20,053,.5.50 26,421,149 Nonc:umnt liabililics d&Je in mere tbiQ OM ,._: Compeod81ed ablenc:el 10,126,773 2,794,001 12,920,774 Landfill closiR llld ~cere 3,299,131 3,299,131 c Acaucd hul1l!Ce claillls 249,115 2,116,344 3,065,459 ~ lad leasa pl)'lble 6,103,560 6,414,565 12,518,125 1,241,971 Bonds payable 1201598,987 3631S71,36S 484z170~52 Total liabilities 172t!74,88S 433t!l7,381 6051492~66 10,9681228 NET ASSETS l~valed in eapitaiiWdS,IId of~ debt 76,483,334 380,149,135 456,632,469 2,164,396 ( Ralricted for: Pusmter l'lcility dulrp$ 3,630,625 3,630,625 Debt tcrvice 4,002,576 15,284,981 19,287,.557 OllllllpiOtnms 6,145,719 6,145,719 Prim:aey aovemment~ 100,000 IJIIt'ellricled 261089,397 711729!712 97,819!109 3154~720 Totai!Ml""'o:ts $ 11~721.026 s 470,794,453 s 583,5 15,479 $ 5,807,116 ( See ICQOCIIpanying Nc«cs to Basle F"IDliD.cia.l Stlfemaltl 37 c City of Lubboek, Texas .... Statement of Activities .J For the Year Ended September 30, 2006 . PrograiD Rc\tCGICS Opentiag Capital Charges Cor Grantlalld ·eruuaad Expeucs Services CoatribatfODt Coatribvtiou ) Primary govuaacat: Governmental activities: Administrative services $ 9,910,392 $ 54,356 $ $ Community .servi~ 6,112,193 5,677,173 Cultural and t\ICI'ealion 18,915,265 2,590,241 668,258 Economic and business development 10,283,007 188,856 Fi~ 26,7Il,389 13,165 36,632 86,614 Health 5,013,691 722,113 1,0~8,999 Police 42,063,023 209,251 386,165 397,054 Otb« public safety 5,239,386 4,934,968 17,4Sl 321,962 Streets and traffic 11,849,496 494,312 104,885 39,300 Non-departmental 5,206,309 374,629 2,283,899 ) Interest on long-twn debt 413261128 . Total governmental activities 14Sz!i301279 916311891 10~03!463 8441930 Busin~ activities: El~ 213,026,628 226,373,638 waur 32,830,002 37,330,953 59,296 2,1S4,SS1 wastewater 21,273,796 21,087,364 3,808,242 Solid Waste 14,971,421 13,948,861 21,633 Stonnwater S,l14,63S 6,348,461 31,740 Transit 9,349,206 3,268,441 7,294,964 Airport 719961692 S~4241016 965160S 111040~85 Total busin~ activities 3041622~80 3131781,734 8~Sl160S 1716241811 Total primaly govcmment $ 4SO~S~6S9 $ 3231413~625 $ 18255,068 $ 18z469.741 CompoDnt units: Civic Lubboclc. Inc. $ 1,772,007 $ 1,703,598 $ 249,.220 $ Market Lubbock, Inc. 6,350,116 96,728 6,082,671 Lubboclc Economic Development Allia,~ce 2,638~67 614351160 Total component units $ 10!7611690 $ 1!800,326. $ 12,767,051 $ ) General revcoues: Propcny taxes Sales taxes Occupancy taxes Other Taxes Franchise Taxes Investment Earnings MisccUaneous Transfers, oet Total general revenues, spceiaJ. items. and transfers Change in net assets Net assets -begiruting Net assets -eocliDg \ See acwmplll'l}'ing Notes to Basic Financial S1atema:lts 38 ) c Net (Expensa) Reveaues alld c Cltaa&e$ ia Net Asset~ Primary Govcra~aeat Govemmental Busiaas-typc Activities Adivities Tot. I Compoaeat Uaits c s (9,856,036) $ s (9,856,036) $ (435,020) (435,020) (15,656,766) (15,656,766) (10,094,151) (10,094,151) (26,574,978) (26,574,978) c (3,262,579) (3,262,579} (41,070,553) (41,070,553) 84,996 84,996 (11,210,999) (11,210,999) (2,547,781) (2,547,781) ~4.32611282 !4~2611282 c (124,949,995) (124,949,995) 13,347,010 13,347,010 7,314,798 7,314,798 3,621,810 3,621,810 (1,000,927) (1,000,927) c 1,205,566 1,205,566 1,214,199 1,214,199 9,433,314 914331314 3511351770 351135!770 (124,949,995) 35,135,770 (89,814,225) c 180,811 (171,317} 3,796,793 3,806,287 c 42,770,826 42,170,826 45,576,582 45,576,582 3,410,920 3,410,920 1,036,283 1,036,283 13,348,364 13,348,364 4,393,782 6,140,4~6 10,534,218 14,735 ( 6,898,288 4).77,297 11,175,585 91607~11 {91607~11} 127,042).56 8101522 127,8521778 14,735 2,092,261 35,946,292 38,038,553 3,821,022 11016'281765 434,848,161 5451476,926 1,986,094 $ 11~721,026 $ 470,7941453 $ 533,515,479 s 5,807,116 < 39 c aty ofLubboc:k, Tens Balance Sheet Goverameutal Funds September 30, 2006 N'o•major Total Governmental Govenamentat ) GeneniFuad Fuadl Fuads ASSETS Cash and cash equivalents s 8,456,754 $ 11,897,583 $ 20,354,337 ln YCSIInmts 7,605,360 10,344,578 17,949,938 Ta«S receivable (11~) 1,642,511 517,184 9,159,695 A.coounts m:c:ivable (net) 1,825,656 341,907 2,167,563 ) Interest receivable 336,741 49,608 386,349 Due from other funds 2,415,681 631,3-ui 3,047,027 Due from other governments 3,487,278 3,487,278 Due from others 797,380 1,375,633 2,173,013 Investment in propmy 208,103 208,103 Inventory 168,964 168,964 R.cmieu;d casll 4,002,576 4,002,576 Restricted investmenas 50,430,838 50,430,838 Mortgage receivables 5,813,330 .. 5,813,330 Tolal assets $ 30,249,047 s 89,099,964 s 119,.349,011 LIABILITIES Aciounts payable $ 3,285,899 $ 2,199,533 $ 5,485,432 Due to other funds 2,621,995 2,621,995 Acaucd liabilities 4,303,221 1,713,024 6,016,245 Accnlcd intcat payable 206,557 206,557 ) Dcfened revenues 2,735,216 5,454,344 8,189,560 Tolalliabilities 10,324,336 12,195,453 22,519,789 FUND BALANCES Reserved for: Prq18id ircmsfmventory 168,964 16~.964 Dr:bt senice 3,081,539 3,081,539 Capital projCCIS !52,331,096 52,331,096 Special revenue • grants 1,392,508 1,392,508 Pc:rpeiUal care 89,220 89,220 Unrcsc:rved, reported in ' Gcnctal fund 19,755,747 19,755,747 S!*ial revenue fim<b 20~010,148 201010,148 ToCal fund balance 191924,711 7619041511 9U29J22 Total liabilities and fund balances s 30,249,047 $ 89,0991964 s 119,349,011 See ICCOmpanying Notes to Basic Pillancial Statements 40 0 City of Lubbock, Texas Reconciliation of the Balance Sheet of Governmental Funds c To the Statement of Net Assets September 30, 2006 Total fund balance ~governmental fimds s 96,829,222 Amounts reported for governmental activities in the statement of net assets are c different because: Capital assets used in governmental activities are not fiDancial resources and therefore are not reported in the funds. 160,549,641 Internal service funds (lSFs) are used by management to charge dte costs of certain ~tivities, such as inswance and teleoommunications, to individual funds. The c portion of !he assets and liabilities of the ISFs primarily serving governmental funds are included in governmental activities in the S1atement of net assets as follows: Net assets 3,100,464 Net book value of capital assets (906,088) Compensated absences 61,808 Amounts due from business-type ISFs for amounts underchatged 1,584,904 Certain liabilities are not due and payable in the cwm~t period and therefore are not reported in the funds. Those liabilities are as follows: General obligation boniis (124,457 ,280) ,. 1.. capital leases payable (7 ,.530,559) Compensated absences (t6,260,o:m Accrued intel'e$t on genen.l obligation bonds (752,865) Arbitrage payable (151,716) Enviromnental remediation {922.555) Bond premiums are recogniZJCd as an other financing 50\ICCC in the fund statements c but the premiums are imortized over the life of the bonds in !he governmeot~wide statements. (2,3S7,S92) Actual City contributions to !he tn fightet'$ pension trust fund is greater than the actuarially determinod required conttibution. This will reduce future fundiog requirements and is not recogni7Jed as an asset at the fund level but is a prepaid c expense in the Statement of Net Assets. 920,722 Revenue earned but unavailable in the fUnds is deferred. 31012,957 Net assets of goverurncntal activities s 11217211026 ' ( See acoompanying Notes to Basic FinanciaJ Statemeats. 41 City ofLubbock, Texas Statement of Revenues, Expenditures and Changes in Fund Balanees Governmental Funds For the Year Ended September 30, 2006 Naam•jor Total Governmental Gove111mmtal General Fulld P'Uacls Fuad$ REVENUES Taxes $ 75,999,624 s 16,865,905 $ 92,865,529 Ftanehisc: !axeS 8,008,973 5,339,391 13,348,364 Fees and fines 3,981,978 3,981,978 Ucenscs and permits 2,250,635 2,250,635 ) Intergo"¥eminenW 408,997 . 10,639,396 11,048,393 Charges for services 4,781,043 1,307,162 6,088,205 lnta'est 921,742 2,953,198 3,874,940 Mlsc:ellancous 1146S121S 515011042 61966~7 Total revenues 97,818J07 42,606,094 1401424,301 EXPENDITURES CuJTCnt: Adrninisb'ative services 9,356,059 9,356,059 Community services 5,932,820 5,932,820 CuiiW'IImd I'CQ'Qtion 13,986,576 1,409,701 15,396,277 &o~omic ani! business devdopmcot 1,146,267 8,973,916 10,120,183 Fire 24,638,814 24,638,814 Health 3,738,790 908,623 4,647,413 Police 37,463,740 913,251 38,376,991 Other public safety 4,287,806 360,056 4,647,862 Str=s md traffic 7,439,045 527,745 1,966,190 ) Non-depar1men1al 1,882,255 2,376,525 4,258,710 .Debt selYice: Prll\clpal 1,009,368 6,324,040 7,333,408 ln!UCSt 111d other c:harges 144,858 3,996,563 4,141,!J21 Capital outlay 7,1841866 28.460,783 35.645,649 Total c:xpcndillUQ 112,278!444 6011841023 112146~467 ) Excess (deficieocy) of revenues over (UJJde,) c:xpcnditurcs (14,460,237) (1715771929) (32,038,166} OTHER FINANCING SOURCES (USES) Lona-term debt issued 27,526,113 27,526,113 Bond premium (discount) 620,860 620,860 Capital leases 5,119,980 5,119,980 Transt'm in 13,325,046 5,352,042 l8,677,088 Transfers out ~11436,498} {6184019092 {8J71,4072 Net other financing sources (uses) 171008.528 26.658,106 4316661634 Net change in fimd balan~ 2,548,291 9,080,177 .11,628,468 Fund balances· beginning of year 17,376,420 671824,334 85~00,754 ) Fund balances-end ofyeu $ 19,9241711 $ 76,904,511 $ 96,829,222 Sec aceornpaning Nota to Basic Financial Slatcments 42 City of Lubbock, Texas Re~nciliation of the Statement of Revenues, Expenditures and Cbanges Ia Fund Balaoces of Governmental Funds To tbe Statement of Activities For tbe Year Ended September 30,2006 Net change in fund balances -total govemmeotal funds Amounts reported for governmental activities in the statement of activities are different bcc:ause: Governmental funds report capital outlays as expeoditures. However, in the Statement of Aet!vities the cost of !bose assets is allocated over Cheir estimated useful lives md reported as depreciation expense. This is the amount by which capital outlays of$35,645,649 exceeded dq~rcciation ofSJ 3,291 ,425 in the current period. Bond proceeds provide current financial resources to governmental fuods, but issuing debt increases long- tenn liabilities in the Statement ofNet Asseu. Repayment of bond principal is an cxpcncliture in Che governmental funds, but the repayment reduces long-term liabilities ln the Statement ofNet Assets. lbis is the amount by which proceeds of$27,S26,113 exceeded repayme:nta and debt dcfeaseoce of$5,789,102. capital lease transactions provide current fmancial resollrCC$ to goveramental fUnds and repayment of principal is an expe:ndiCt!fe. This is the amount by which proceeds of$5,119,980 eXQeedcd repaymeots of $1,544,306. Bond premium.S are recognized as an other financing source in the governmental funds, but are considered deferm:l assets on 1be Statement of Net Assets. Premiums are amortized over the life of the bonds. This is the amount by wbic:h bood premium issued of$620,860 fWlCCded amort:!2lllion of$129,252. Estim41ed l.ong-tenn liabilities arc recognized as expenses in the Statement of Activities as earned, but arc recognized when c:uneot fmanc:ial resourtcs arc used io the govemmentallWlds. Arbitrage p~yable Compensated absences Environmental remediation Propetty taxes levied and court fines and fees earned, but not available, are def'l:zmi In the governmental funds, but are rccopired when earned (net oh~ unc:ollcctiblos) In dtc Stltcmeot of Activities. This amount is tbc net clwlge in deferred property taxes aod court fines and fees for the year. Actual City c:ontributions to Che fire fighter's pension 1n1st fund are greater than the aduarially determined Net Pension Obligarion (NPO). This amowrt is recognized as an expenditure Ill the fund level but is acaued when overpaid and reduces expenses on the Statement of Activities. IRtemal service funds are used by management to clw"ge the costs of certain acdvitics, such as insurance and telecommunications, to individual funds. The aet revmue (expense) of certain intemal service funds is reported with ,ovemmental activities. Accrued interest is recognized as expenses in the Stuemc:ot of Activities as incurred, but is recognized when current financial rcsoun;:cs are used In the governmental funds. This amoamt is the net cbange in the accrued interest this year. The net effec.t of various miscellaneous transactions involving capital assets (e.g., sales and trade-ins} is to decrease net assets. Change in net 18Sets of govenunental ~ See ~myiag Notes to Basic rwnc:ial SUtemcnts. 43 0 c $ 11,628,468 f" .._ 22,354,224 c (21,737,011) (3,575,674) c (491,608) (151,716) c (124,692) (922,SSS) (2,759,845) c 11,610 (1,724,6$8) c (162,2$5) (2.S 2,027) s ~092~1 c c ) ) ) ,:, 0 ., ., .• .... : · .. :· \ .. . . ·. ~; . ~ "Serve with humi/ity/1~-witlbAassion, commit to excellence." .· •· t1" ~ c City of Lubbock, Texas Budget Comparison Statement c General Fund For the Year Ended September 30,2006 Variance with Final Budcet -c Positive Origiaal Budget Fiul Budget Adlull Amoaots (Negatiw) REVENUES Taxes $ 73,888,110 s 73,888,110 $ 75,999,624 $ 2,lll,Sl4 franc:hise taxes 6,886,000 6,916,000 8,008,973 1,092,973 fees and fines 3,782,866 3,868,099 3,981,978 113,879 Licenses and pennits 2,170,512 2,3Sl,ISS 2,2S0,63S (100,520) c lntergov~cnt&l 406,638 406,638 408,997 2,359 Charges for services 4,530,123 4,.347,St8 4,781,043 433,S2S Interest 660,073 660,073 921,742 261,669 Miscellaneous 1.066,4it lt08114Jl t146szats 383,804 Tolal. revenues 93,390,733 931519,004 97,818,207 4,299!203 c EXPENDI.TVRES Current: Administrative services 8,877,967 9,036,722 9,356,059 (319,337) Cullurat and recre.uion 13,393,317 13,393,317 13,986,576 (593;259) Bc.onomic and business development 1,180,867 1,173,897 1,146,267 27,630 Fire 24,466,277 24,623,844 24,638,814 (14,970) c Health 3,634,443 3,649,443 3,738,790 {89,347) Police 38,802,898 38,802,898 37,463,740 1,339,158 Other public safety 4,367,61S 4,413,756 4,287,806 125,950 Streets and tnffic 8,281,641 6,981,641 7,439,045 (457,404) Non-depal'tmcn~ 1,422,064 672,294 1,882,255 (1,209,961) c Debt servic:e: . Principal 1,044,682 1,009,368 3S,314 Interest and other c:h~ 150,606 144,858 5,748 Capital outlay 4861290 8,028,860 711841866 843,994 Tot:aJ cxpcnditurc:s 10419132379 I l 119711960 112~781444 ~306,4~ Excess (deficiency) of revenues c over (UIIdet') cxpenditurc:s (1 1,522.646) (18,452,95~ (14,460,237} 3222,719 OTHER FINANCING SOURCES (USES) Capit&llcascs 6,210,000 5,119,980 (1,090,020) Transfers in 12,.371,843 12,s48,843 13,.325,046 776;203 Transfm out {849~002 !Ia831sss~ {lz4361498! ~IS21910l ' Net otfler financingsourc:cs (uses) 11,522z643 1714751255 17,008i528 !4661727} Net change iD fund balances (3) (977,701) 2,548;291 3,525,992 Fund balances-bcginlling of year 17,376,420 17!376,420_ 17,376,420 Fund balances-end of year $ 17,376,417 s 16,398!719 $ 19,924,711 $ 3,S2S,992 Sec accompanying Notes 10 Basic Financial Sca&emcnts 45 c ) ) ' City of Lubbock, Texas Statement of Net Assets Proprietary Funds September 30, 2006 ASSETS Cutl'tllt assets: Cash and cash equivalents lnvcstme~~ts Accounts receivable lntel'est receivable Due from others Due from other funds Inventories Total c:urrcnt assets Noncurrent assets: Ratrictcd cash Blld cash equivalents Restricted investments Rescrictcd interest receivable Restricted account~: receivable Deferred c;lwges Total noncurrent assets Capital assets: Land Coustruction id progress Buildings Improvements other 1han buildings Machinery lllld equipment Less IC(lumulatcd dcpnx:iation Tolal QJlital assets Total noncurrent and capital assets Total assets Electric s 14,436,691 14,329,105 15,545,253 53,919 240,533 44,611,501 4,455,759 3,669,238 3,077,777 liJ021774 756,714 8,814,299 8,054,811 180,986,045 53,267,250 {109,8g6sl} 142!006,468 153,209,242 $ 197,820,743 See accompanying Notes to Basic Financial Statements 46 Enterprise Funds Wata-Wutcw.ter Wl'MPA s 6,167,041 $ 4,990,325 $ 1,296,219 5,362,050 4,338,932 366,253 4,292,453 2,257,674 1,800,814 25,851 17,612 70,919 145,322 6,173,451 2731979 16,192J93 11,749,865 9,636,737 6,136,977 2,937,014 21,029,028 16,435,385 3,611 23,640 24,090 27,193J56 19,396,489 12,724,350 12,578,775 32,078,599 8,377,603 21,640,589 24,013,170 261,578,561 114,818,170 31,342,138 17,684,958 25,200 (90,024~8Zl {63,9191720} (25J00l 269~391850 113,552,956 296,533,106 132,949,445 $ 312,725,99 $ 144!699,310 $ 9,6361737 c c Eatel]l!'lst Fuads Noamajor c Enterprbe Total Euterpriae l11ternal Suvlce Storm water Funds Fuacls Fuads $ 6,013,928 s 3,342,335 $ 36,246,539 $ 2,Jll,746 5,228,922 2,975,896 32,601,158 1,836,077 c 689,268 2,917,543 27,503,005 4,529 9,665 111,576 11,488 1,647,449 1,863,690 196,843 1,540,853 7,714,304 6631001 11183,513 1,975,630 11,936,647 13,096,742 107,223,785 6,131,784 c t,J5B,no 4,027,086 18,915,606 21,504,033 9,370,844 72,008,528 11,207,028 15,169 18,676 37,456 30,350 47,730 115,168 c 310771n7 22,871,972 13,416,606 94,087,fYJ7 11,3$2.546 283,337 5,605,535 31,948,711 65,343 65,636,771 21,083,879 135,991,151 655,016 64,580 42,129,035 95,902,185 1,608,618 c 8,353,591 98,576,429 664,312,796 649,868 2,832,458 54,977,238 160,129,242 7,737,422 ~9,252,045~ ill720371649} ~390tJ31,652~ (7,808,182} 67,18,692 10513341467 6981!521433 2,908,145 90,796,664 IJ817Sl1073 792,2391530 14,260,691 $ 1~733~11 $ 131!847,815 $ 899,463J1S $ 20,392.1.475 c c 47 c ) ) ) ) City of Lubbock, Texas Statement of Net Assets Proprietary Funds September 30, 2006 LJABILITIES CWTellt liabilities: Accounts payable Accrued liabilities Accrued Interest payable Due to other funds Customer deposit! Comperuall:d lbsenccs Accnlcd insul"IIICC claims l...c:ases payable Bonds payable Total current liabilities Noncurrent liabilities: Compemaled !Wences Accrued insuran<le claims Landfill closure and post c:Josun: care Leases payable Bonds payable Rcbatable arbinge Tolal noncwrent liabilities Total liabilities NET ASSETS In vested in capital assets, net of related debt Restriaed ror. Passenger facility clw!cs Debt selYiOC Unrestricccd Total n~ assets Electric s 1,035,206 1,535,678 1,405,988 6,173,451 2,924,883 1,076,262 321,414 51623.977 20,096,859 1,385,951 1,274,449 65,369,133 111338 68,040,871 881137,730 73,086,733 4,455,159 32,140,521 s 109,683,013 See accoml*tying Notes to Basic Financial Statemen!S . 48 Euterprise Fuads Water Wutewat.er WTMPA s 2,635,560 $ 1,066,886 $ 8,329,910 165,716 129,143 1,501,852 473,697 58,710 544602 2.69,716 248,255 509,081 7~03,179 4,460,688 12,655,874 6.909,211 8,329,910 421,359 209,448 1,020,101 1,187,000 148,948,252 54,315,110 15,669 31.806 150A4)5,311 55,743,364 163,061.2$5 62,652,515 8,329,910 132,649,091 69,516,462 6,136,977 2,937,014 10,878,076 9,593,259 1,306,827 $ .1491664,144 $ 82,046,735 $ 1,306,827 Stormwater $ 1,146,437 27;237 666,542 S0,483 . 21,145 11540,083 3,451,927 39;202 81,020 76,804,339 761924,561 80,376,488 10,976,138 1,358,770 10,0211915 $ . 22.]56,823 Ellterprise Fuads $ $ Noamajor Enterprise Fuads 1,919,467 1,195,171 213,475 1,927,000 7,072 431,693 706,244 9251623 7,325,745 479,155 3,299,131 2,467,085 18,063,340 121378 24,321,08.9 31,646,834 92,543,019 3,630,625 396,461 3,630,876 100,2001981 c c Total Eaterprlse lateraal Senlee c FuaciJ Fuads $ 16,133,466 $ 917,506 3,052,945 117,747 c 4,261,~54 8,100,451 38,885 2,9901665 2,370,7S6 228,056 4,956,673 1,806,139 168,264 c 201053,550 58,769,526 6,4271131 2,535,115 293,677 ~ 3,065,459 I.. 3,299,131 6,029,655 384,910 363,500,174 71 191 375,435,266 3,744,046 c 434,204,792 10,171,177 378,771,443 2,354,971 ' 3,630,625 15,284,981 67,571,474 7,8661327 $ 46S,258,523 $ 10,221,298 ' < 49 ( ) •'.j•. r •• ;. ~. "~~ .. ... -t· .. ::~· ) ) ! • -· ; .. • • 0 . : ....... ,,.~ · ..... \ ' l." ., "Serve with humility, .lead wit.JSa~s~~n, ~mmit to excellence. " City of Lubbock, Te:us Reconciliation ofthe Statement of Net Assets~ Proprietary Funds To the Statement of Net Assets September 30, 2006 Total net assets -proprietaly funds AmOW1ts reported for business-type activities in the Statement ofNet Assets are different because: Internal service funds (ISFs) are used by management to charge the costs of certain activities, such as insurance: and telecommunications, to individual funds. The ponion of assets and liabilities of the lSFs primarily serving enterprise fimds are included in business· type activities io die Statement of Net Assets as follows: 'Net assets of busiaess·type lSFs Amounts due to govemmentaliSFs for amounts oven:harged Net assets of business-type activities See acc:ompanying Nofes to Basic Fi~ial Staaanents. 51 . $ 465,258,523 7,120,&34 (J ,584,904) s 470,794,453 c c c c c c ' ( City of Lubbock, Texas Statement of Revenues, Expenses and Changes io Fund Net Assets Proprietary Funds For The Year Ended September 30, 2006 Enterprise Fuacb ) Electric W•ter Wastewater WfMPA OPERATING REVENUES Charges for scrvi<:CS (net) s 212,074,481 $ 37,330,953 s 21,087,364 $ 183,322,521 Miscellaneous Total ope111ting revenues 212.,074,481 37,330,953 2110871364 183,3221521 ) OPERATING EXPENSES Personal services 10,718,282 5,910,861 3,816,414 lliSurance Supplies 884,891 1,210,729 972,075 Materials Maintenance 1,907,683 2,458,357 1,176,302 Purchase of fuel and power 167,854,029 183,149,178 Collection expense . 1,482,000 926,172 Other ~ices and charges 4,072,409 9,658,448 6,887,394 503,655 Depreciation and amoniution 8~72z217 7,113,132 s.462z027 Total operating expenses 19414101211 2718381527 19~40.384 183,65~833 Operating income (loss) 17,664,270 9,492,426 1,8461980 (330,312) NONOPERATING REVENUES {EXPENSES) In~ Ql'llings 1,063,573 1,321,864 844,020 16,565 PASSenF fac:ilicy dwges'Fedenal grmts 59,296 Disposition of asets (463,749) (110;320) 92,221 Miscellaneous 2,042,509 407,216 128,000 · Pass-through gnnt payments Jnten:st expense !3~01~09} {4.775,332} Q 10641305} Net nonoperating revenues (expenses) (653.876) (3,097 ,276) (11000,064) 161565 Income (loss) before c:ontributiOliS and tranafas 17,005.394 6,395,150 846,916 (313,747) Capital contributions 2,754,551 3,808,242 Transfers in 637,075 663,221 620,238 306,156 Transfers ou1 {1,211,5~ {4,874~64} Q,623,39:zl Change in net assets 16,430,903 4,938,658 2,651,999 (6,991) Total net assets-begiMing 93125~110 144,725,486 79,394,736 1,3131818 Total net assetS -ending $ 1091683,013 $ 149!664,144 $ 82,046,735 $ 1~06~827 See accompanying Notes tn Basic Finmcial Statements. 52 ' c c Ea~rlse Funds Nonmajor Total Enterprlte Internal Service Storrnwater Enterprise Funds Fu11ds Funds c $ 6,348,461 $ 22,641,318 $ 482,805,098 $ 39,460,284 1121610 112,610 6,348.461 22,7531928 482,9171708 39A60J84 c 868,480 11,782,232 33,096,269 4,199,269 22,296,187 80,572 2,803,942 5,952,209 94,876 9,907,836 5,680 3,331,021 8,879,043 2,180,157 <: 351,0(}3,207 504,732 512,832 3,425,736 212,115 4,911,389 26,245,410 2,569,274 3841514 8,4971448 301435.038 322,088 2,056,093 31,831,864 45910361912 41,569,687 4,292,368 (9,084,936) 23,880,796 (2,1 09,403) c 1,618,842 $93,718 5,758,582 901,559 8,697,882 8,757,178 31,740 16,774 (465,074) 69,239 c 180,359 973,645 3,731,729 427,892 (437,313) (437,313) Q10961082} (4321527} (13,6691455} (863) (I ,296,881) 9,7121179 3,675,647 1,429,567 2,995,487 627,243 27,556,443 (679,836) ' 11,062,018 .17,624,811 119,897 849,200 3,076,490 32,915 ~907,310} {31100,079} ~12,716,61§2 (792;170) 2,088,177 9,438,382 35,541,128 (1,319,494) 20,268,646 90,762,599 429,717,395 11,540,792 ( $ 22,356,823 $ IOOJ00,981 $ 465,2581523 $ 10,221,298 53 ( ) . ·~ . .,, ~ ... . · ) . ... . . . ) .. - ' :, ,/! f' .. ·"Serve with hJfmiUty, li!_f!d ~i'5idr.sion, commit to excellence. " . . ·, City of Lubbock, Texas Reconciliation of the Statement of Revenue:~, Expenses and Changes in Fund Net Assets -Proprietary Flmds To the Statement of Activities For the Year Ended September 30, 2006 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 llllUiagCment to charge the costs of certain · activities such as fleet services, central warehousing activities, management information activities, etc. to individual funds. The net revenue (expense) of certain ISFs is reported with business-type activities. Change in net assets of business-type activities See act.omplllyi.ag Notes to Basic Finaacial Stat.ements. 55 c c $ 35,541,128 c c 405,164 $ 35,946,292 c c c ' c c ( City Of Lubbock, Teus Statement of Cash Fl-s Proprietary Funds ) For Ute Year Ended September 30, Z006 WcnTuu M111eiptl Power Elodnc Waur Wul~watcr Aaaac:r (Wl'MPA} CASB n.ows FROM, OPERATING ACI1VlT1ES RecdjltS lfom c:unomcn s 211,732,604 $ 37,152.261 s 2l,IS4,689 $ 187,743,764 Paymenu to suppli.en (184,633,4SS) (13,074.362) (9,198,476) (1 88,06&, 136) Paym<IIU to 011po,-(10,718,212) (5,910,861) (3,116.414) OIMt -=lpcs (pymeats) IJ711760 356,191 136,463 Net call p10vidcd (used) by ope:raliq activities l71~S~1624 11.523.230 ·~76~ @24,372} CASH PLOWS fROM NON CAPITAL AMI BELA TED YINANClNG ACllVJTW Tnmsfo:rs in l'tom olhl:r funds 637,07S 663,221 620,238 306,1S6 · Tlaftsfen ou110 other runcts (1,2li.S66) (4,174,264) (2,623,391) ) Short-~i:m imcrfilocl bonowillgs 6,173,4SI (145,322) Operaliag pnlf hymal(s ~IIWie) Oil odYIIIUS {ID){Iiom ~ llwfs Not cuh I"'viclecS (Oiled) by noacapillll IUld n:laled fi~ Klivitia 51$98,960 (4~11,043) (;141,481) 306 7S6 CASR FLOWS FROM CAPITAL AMD UtA TED flNAHOJ'CG AcrrvrnES Paudlasu or capilal -(11,96S,276) (2~.900,1S4) (6,312,263) su .. of capilli -IJI,m 118,078 152,222 ~iflt$ (paymc:nb) oa lcucs (34,331) 1,268,356 1,271,169 Principal paid on bonds and oCher dd>l (S,219,070) (S,911,003) (3,932, 162) 8o1111 is.wanu eosl paid (36,963} (286,741) (85,600) I-paid on~ boads (3,131,934) (I,S33,126) IDu:test paid on bond1 and olhc:r clobt (2. 727 ,081) (1,839,<129) U....nee or re'o'tiiUt. G.o. boods, end c:apit.l 1eucs 7,732,S63 34,418,322 14,98$,740 ~ flcili!J clwp'c:apital p1111ts R*tele adliu.gc 15,669 31,106 Ccmln1Jided Clj)it.l 329,685 1,199,940 Not cash pco¥idecf ( 1ded) for capilli and rela~ r.--;"' ldivilics (1~593.21!l (4~7,99~ 5,471,423 CASR PLOWS F1tOM IHVES11NG AC1'JV1111:S "'-di fiom sales tnd IIUd11ritics of i-7,678,162 21,210,534 14,471,454 ~ oCiavestrDcllls (17,998,344) (33,308,076) (26,219,184) {366.2SJ) •-eamillp oo cas~ lln4 iavatmcnt~ 1,02~1 IJ111182 921J70 16~65 N« cash proYided by (-.I tor) Ulvatins ldivilics ~~~~~~ (10,716J60l (10,826J60~ (349,618) Nes i~ (decreue) In c&Sll •lid c&Sll cqulvalm!l 1,674,034 (612,168) 779,844 (367,304) C.h ..., C&SI! c:qu.ivalcnts • llcPMin& or yew 17~416 12~186 7.147149S :;m~ Cash and cull cqWva[cats. ead of~ s ia 4JO I 1~04,018 s 7~'7J39 J . --.alllllloa ot OjiCntill& ia-(las) 10 aea -• pnvlded (IIMII) b7 eperaiUoc activllia: ~·-o-> $ 17,664,270 s 9,492,426 s l,l-46,980 $ (330,312) ~--to reconcile Optfttiq iocarnc(las3) tD nee cash pnwidcd (-...d) b7 operatiaa Ktiviti~ Ocpm:ialion and lftiOI1izalicm 1,972,917 7,118,132 5,462,027 Olhcr i"eo""' (expcRSIC) 1,578,760 356,192 136,463 OlaoiJt in ~-and liMililico: ~~vable (341,177) (178,692) 67.l2S (704,746) lnvefti!OC)' 8,9'17 (58,173) Due Croon O!llef gowcmmems (2&,475) Accounts payable (11,074,043) 1,7S2,6SS 702,046 (4,41 5,303) Oue liaot odlm 5,125.989 OdiCr .c:crucd cxpeiiSCI 242,.913 (7,190} 20,373 Cusa:llllc:r de9osiu 6S6,110 29,3SS I~~CR&se in compclllllled lblenoes 2SIJ97 47000 41048 ~cab jXO\'i4l:d (used) by operllliec adivilies s 17,959,624 s 1!zS23cBO s ~76~62 $ (B4J72} Sotp'*-lal casll Oowloaforur.io•: Hoacash capilal ~ Mdllllw:r char):es s s 1,509,919 s 2,337,901 s See IICCOmplll)'illll Noles 10 8asie fiaam:ial Statemems. 56 c ............. c Oilier" No•cujw t.es .. t ~ Senlcoc ........ ..... T ..... Facb s 6,315,727 s 21,616,091 s 485,785,136 s 39,453,127 (288,143) (I 0,097,933) (405,361 ,208) (38,617,334) c (168,410) (I 1,690,079) (33,004,116) (4,199,269) 8~684 9851352 3114314SI S078l 5,245,088 S831431 501563,263 (3,312,694t &49,200 3,076,490 32,91S (907,310) (3,100,079) (12,716,616) ('792,470) c {4,500,000) 1,071,633 2,S99,762 (129,80S) 7)94,964 7,294,964 {11S4018SJ) (I 154018 S3) (5,407,310) 4 S7486S (I,U6,2S3) (189,363) (13,982,108) (26,US,S49) (88, 445,3 SO) (369,790) c 1,058 97,017 S00,104 496,30S 2,512,117 412,631 (19,983,521) (2,392,124) (37,508~80) (lAO,OJO) (41,61S) (690,9-49) (),096,08.2) (7,761,142) (294,016) (4,860,5.26) 27,018,321 9,462,160 93,617,106 70,744 965,605 965,605 ,. 12,378 59,153 '- 11,062,018 1~591,643 (I 0,212,362i (7,414,326) {29,020,049) 679,890 1,360,757 10,&06,625 SS,S27,532 16.124,689 (2,009,S9S) (I 5,562) I 0) (95,463,762) (16,511,10S) c 11709JIO 99S,OS9 519821677 887,593 1,060,742 Q,760,62§l Q319SJ,SS3} 1,201,171 (9,383,842) (S,717,1S6) {13,696,592) (2.320,990) 1§.7S6.S40 13,08~77 68,85!,737 •t,432,716 s 1,312;698 s 7,369,421 s SS,l6;14S s 2,1 lt,726 ' s 4,292,368 $ (9,084,936) s 23,880,796 s (2,1 09 ,403) 384,514 8,497,448 30,43S,038 322,088 U,684 900,665 l,OSI,764 S0,782 (32,734} (133)51) (I ,923,981) (7,157) (54.~~6) (103,752) (310,619) c (124.114) (IS2,S89) 266,346 l,017,1S9 (I I ,750,440) SI,S66 5,125,989 2.40,703 lll,OS7 627,186 (l,l60,890) 300 68S,76S 7,2:.07 332~S 679,711 13,939 s s~s,osa s 883,431 s S01S63J63 $ (3JI21694) c s s s 3,847,820 s 119,897 57 < ) , L .; ~ ) .., ) ' . ,, "Serve with hu~lity, le£Zd witJ~assion, commit to excellence. " , . ~. . ' . . ·I . .. ·~ .·· . ' ·.· ' ~ . City of Lubbock, T~s Notes to Basic Financial Statements September 30, 2006 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 industry practices as specified in the American Institute of Certifted Public Accountants audit and accounting guide titled SlaJe tutd Local G011muPU~n~s. The Governmental Accounting Standards Board (GASB) is the acknowledged standard-setting body for establishjng governmental accounting and f"tnanciat reporting principles. With respect to proprietary activities related to business-'type activities and enterprise funds, including component units, the City applies all applicable GASB ·pronouncements as well as Financial Accounting Standards Board (FASB) Statements IUid Intetpretations, Accounting Principles Board (APB) Opinions and Accounting Research Bulletins of the Corrunittee 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 form of government The City, incorpotated 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 nal and personal properties loosted within its boundaries. It is also empowered by state statute to extend its corporate limits by annexation, which occurs periodicaJJy 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; conscruction and maintenance of highways, streets, and other i.nfra.struc:tu; and sanitation services. The City also provides utilities for electricity, water, wastewater, and stonnwat.er as well as a public transportation system. The BFS present dte City and its component unitll and include all activities, organizatioas. and functions for wbidl the City is considered to be financially acc:oumable. The aiteria considered in determiniDg activities to be reported within lb.c City's BFS are based upon aud consistent with those set forth in the Codification of Governmental Accounting Standards. Se<:tion 2 1 00, "Defuring the Fi~i4J 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 or&anization. • 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 • There is fiscal dependency by the organiutioo on the City. As required by GAAP, the BPS present the reporting entity which consists of.the City (the primary govemment), organizations for which tbe 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. 59 c c c c c c c c c < c ) City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2006 NOTE L SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cootiaued) A. REPORTING ENTITY (Continued) BLENDED COMPONENT UNITS The Urbao Renewal Agency (URA) has 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 Agcacy (WfMPA) is a legally se~ municipal corporation, a political subdivision of Texas, and body politic and col'pOI'Itc, formed in 1983, governed by an eight member Board of Directors. The board consists of two d.im;tors from each city. One member is elected as the president who presides over monthly meetings. Directors serve without compensation. WTMP A has no employees and instead contra~ with the City for general operations. WI'MPA may engage in the business of generation, transmission, sale, and exchange of electric energy to !he four participating public entities: Lubbock, Tulia, Brownfield, and Floydada. WTMPA may also participate in power pooling and power exchange agreements with other-entities. WTMP A provides electricity tO its four member cities with the City having a 92.2% intemt in its operations. Each member city appoints two members to the WTMPA board. however an affirmative vote of the "majority in interest" is required to approve the operating budget, approve capital projects, approve ®bt issuance, and approve any amendments to WTMPA rules and regulations. The City maintains the "majority jn interest" vote based on Kilowatt purchases. and consequently bas majority voting control. AJ the City purchases approximately 92.2% 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 finaru:ial dati for the Compollent Units are shown in the Government-Wide Financial Smtcmenta. They are reported in a separate column to emphasize that they are legally separate from the City. The following C«Dpooent Units are included in the reporting entity because the prinwy 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: Lubboek, lac. is a legally separate eotily !hat was organized to foster and promote the presentation of wholesom(l educational, cultural. and entertainment programs for the general moral, intelJectual. pbysical improvement. and welfare of the citizens of Lubbock and its surrounding area. The eleven-member board is appointed by lhe City Council. City Council apprqves the annual budget. Separate fiDanc:ial statements for Civic Lubbock may be ob~ed from them at I SOl 66 Street, Lubbock, Texas.. Market Lubboek Economic Developme~~t Corpontioa, dba Market Lubbock, is a legally separate eutitY ·that was formed on October 10, 1995 by the City Council·to create, manage, operate, aad supervise programs ~d activities to promote, assist, and enhance economic development within and around dtc 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 Marlcet Lubbock at 1500 Broadway, Sixth Floor, Lubbock, Texas. 60 City of Lubbock, Texas Notes to Basic: Financial Statements September 30, 2006 NOTE L SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) A. REPORTING ENTITY (Continued) Lubbock Economk Development Ailiance is a legally separate entity that was formed on June I, 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 seven-member board and ics operations are fimded primarily through budgc:tz:d allocations of the City's sales aDd use taxes. Separate finam:ialstateritents may be obtained from Market Lubbock at 1500 Broadway, Sixth Floor, 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 do oot extend beyond making board appointments. The City Council is not able to impose its will on these entities and there is no fiaaocial benefit or burden relatioosbip. Bonds wued by these organizations do not constitute ~debtcdness of the City. The following related or&anizations are oot 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 Developmeat Corporation prom~ health facilities development. City Council appoints the seven-member board. The Lubbock Housing Finance Corporation, Inc. was formed pursuant to the Texas Housing Finance Corporation Act, to finance the cost of decent, safe. and affordable residential housing. The Mayor appoints the seven-member board. · North aod East Lubbock Community Devdopment Corporation (CDC) was formed from the recommendation of the mayor's commiasion formed in May 2002 to examine the condition ofNor1h & East Lubbock lncorporated in Febnwy 2004, the CDC began wodc to effi:c:tuate change in North and East Lubbock. The Nordl & East Lubbock CoiDIDIIDity Development Corporation is a local entity that drives social clumge; 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 oot able to impose its will on the entity and there is no financial benefit/burden relationship. The Lubboek Educatloa Faclllties Authority, Inc. is a non-profit corporation and iostrumeotality of the City and was created pursuant to the Higber Education Authority Act, <llapter S3 Texas Ed001tion Code for the purpose of aiding institutions of rugher education, secondary school, and primal)' schools in providing educational facUities and housing faeilitics. The seven-member Board is appointed by the City Council. The Lubbock Firemen's Retirement aad Rdlet Faad (Peasioo Truat Fuod) operates under provisions of the Firemen's Relief and Retirement Laws of the State of Texas for purposes of providing retirement benefits for the City's firefighters. The Mayor's designee, the Director of Fiscal Planning. three firefighters elected by members of the Pension Trust Fund and two at-large members elected by the Board, govern its affairs. It is funded by contributions from the firefighters and City mat~:hiDg contributions. As provided by coabliDg legislation, the City's responsibility to the Pension Trust Fund is limited to matching monthly contributions made by the membeJs. 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 inftuence its operations. Their separate audited financial statements may be obtained through the City. 61 c c c c c c c c c ( ) ) City of Lubbock, Texas Notes to Basic Financial Statements September 30, 1006 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Contiaued) B. GOVERNMENJ'-WIDE AND FUND FINANCIAL STATEMENTS The City's financial statemeots are prepared using the reporting model specified in GASB Statement No. 34- Basic Financial StaJements -(l1td Management's DisCil.Ulon (l1td Analysis -for State and Local Gcvernments, GASB Statement No. 37 ""' Basic Financial Statements -and Mant~guurnt's Ducu.uion and Analysu-For State and Local Governmenu-Omnibus, GASB Statement No. 38 -Cerl4in Financial St(llement Note DuclOSIIl'U, and QASB Interpretation No. 6 -Ret:Ognitlon and Measwement of Certain Liabilities and Expenditures In Governmental Fund Financial SlaJements •. As specified by Statement No. 34, the Basic Financial Statements (BFS) include both Government-Wide and Fund Financial Statements. In FY 2()06 the City adopted the proyisions of GASB Statement No. 44 -Economic Condlllon Reportillg: The StatistiC(Jl Section. This new standard improves the undmt8ndability and usefulness of statistical section information by addressing the comparability problems that have developed in practice aDd by adding information from the new financial reporting model. · The Government-Wide Financial Statements (GWFS) (i.e.,tbc Statement of Net Assecs and lbe Statement of Activities) report infonnation on all of the non-fiduciary activities ofdte City and its blended component units as a whole. The discr=ly preseuted component writs are also aggregately presented within these statements. The effect of interfund activity has been removed from these statements by allocation of the activities of the various internal service funds to the governmental and business-type activities On a fund basis based on the predominant usm of the services. Governmental activities, which are primarily supported by taxes and intergovernmental revenues, are repo{ted ~parately from businca-type activities, wbich rely to a significant extent on fees and charges for support. All activities, both govenun~tal and business-type. are reported in the OWFS using the economic resources measW'eUlent focus aDd the accrual basis of acco~mting, which includes long-term assets and receivables as well as long-tenn debt and obligatiOIJS. The OWFS focus more on the SU$1ainability of the City as an entity and the change in aggregate financial position raulting from the activiti~ of the fucal period. The Oovemmeot-Wide Statement of Net Assets reports all finanelal and capital resources of the City, excluding those reported in the fiduciary fund. It is displayed in the format of assets less liabilities eq~ net assets, with the assets and Liabilities shown in order of their relative liquidity. Net assets arc RqUired to be displayed in tine components: (I) invested io capital assets net of related debt, (2) restricted. and (3) unrestricted. Invested in capital assets net· of related debt equals capital assets net of accumulated depreciation and reduced by outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Reatricted net assets are those with constraints placed on their use by either: {1) externally imposed by creditors (such as through debt covenants), grantors. contributors, or laws or regulations of other governmems; or (2) imposed by law through constitutional provisions or enabling legislatiOD. All net assets not otherwise clusified a$ invested in capital assets n.et 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 d1e City Council that do not othenvise meet the definition of restricted net assets, are considered WU'eSirictcd in the GWPS. The Government-Wide Statement of Activities dcmonstnlles the degree to which the direct expense$ 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 functiOI\ or segment; and (2) grants and contributiOIIS 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 revcoues. The general revenues support the net costs of the functions and segments not covered by program revenues. 62 City of LubiJoc:k, Texas Notes to Basie Finan~ial Statements September 30, 2006 NOTE L SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) B. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS (Continued) Also part of the BFS are Fund Financial Statements (FFS) for gC)vermnental funds, proprietary funds, and the fiduciary fund, even though the lstter 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 fo~ minimum criteria for detennination of major funds, i.e., a percentage of assets, liabilities, revenue, or expendituresfexpenses of fund category and of the govemmencal 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 1\mds as major funds because of outstanding debt or conuni.mity focus. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the FFS. Other non-major. funds are combined in a single column in the appropriate FFS. C. MEASUREMENT FOCUS. BASIS OF ACCOUNTING, AND FINANCIAL SfATEMENT PRESENTATION Fund Fillaaclal Statements The GWFS are reported using the economic resources measurement focus and the ac:crual basis of accounting. as are the proprietary FFS. The City's fiduciary FFS includes only an agency fund that uses the a<X:nlal basis .of accounting. However, because agency funds report only 8$SeiS and liabilities, 1his fund does not have a measurement focus. Revenues are recOtded when earned and expenses are recorded when a liability is incurred, regardless of the riming 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. Bec:ause the entexprise funds are combined into a single business-type activities colUDUl on the GWFS, certain interfund activities between these funds are eliminated in the c;oD$0lidation for the GWFS, but are included in the fund colwnns in. the proprietary FFS. The effect of inter·fuud ac:tivity has been eliminated from the .GWFS. For instance, 92.2% of the operations of WTMP A representing transactions between WTMP A and Lubbock Power & Light have been eliminated for the GWFS pn:scntation and for the electric BTA; Ex,oeptions to this general rule are payments-in-lieu of taxes and other charges between the City's electric:, water and wastewater functions and various other ti.mctions ofdte government. Elimination of1hese charges would distort the direct costs and program revenues reported for the various functioos concerned. Governrnental FFS are reported using the current financial rcsourc:es measurement foc:us and the modified accrual basis of accounting. This is the tnlditional basis of accounting for governmental funds. This presentation is necessary, (I) to demonstrate legal and c:ovenant compliance, (2} to demonstrate the sources and uses ofliquid resources, and (3) to demonstrate how the City's actual revenues and expenditures tonform 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 o.f the current peri9<!; For this purpose, the government considers revenues to be available, generally, if they are collected within 4S dars of the end of the current fiscal period, with the exception of sates taxes which are considered to be available if they are cotlec:ted 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 servic:e expenditw'es, as wetl as expendi!Ures related to compensated absences, and claims and judgments are recorded only when the liability has matured. Because the govenunental FFS are presented on a different basis of accounting than the GWFS. reconciliations are provided immediately foJiowing each fund statement Tbese reconciliations explain the adjustments necessary to convert the FFS into the governmental activities column oflhe GWFS. 63 c c . c c c c c c c c ( ... ., " .J City of Lubbock, Texas Notes to Basic Fioaocial Statements September 30, 2006 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Coatioued) C. MEASUREMENT FOCUS. BASIS OF ACCQUNriNG. AND FINANCIAL STATEMENT PRESENTATION (Continued) Property taxes, sales taxes, franchj,se taxes, occupancy taxes, grants, licenses, court fine$, and interest associated witb the current fiscal period are all considered to be suseepnble to acaual IIDd bave been recognized as revenues of the current ~ period. Only the Portion of special assessments receivable due within the current fiscal period is considered to be susceptible to acaual as revenue of the curmrt period. All other revenue items are considered to be measurable and available only when the City receive5 cash. Fund Accounting The City uses funds to report its financial position llld the results of its operations. Fund accounting segregates funds according to their intended JlUlPOSe llld is designed to demonstnlte legal compliance and to aid financial management by segregatin' transactions related to certain governmental functions or activities. A fund is a separate ac<:ounting entity with a self-ballllcing set of accounts, which includes ~. 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 1Und, accoonts for all financial resources of the general govenunent, except those required to be accounted for io another fimd. Enterprise Funds are used to account for operations: (I) that are financed and operated in a manner simiJar to private business enterprises where the intcnt of the governing body is that the costs (expenses, includmg depreciation) of providing goods or services to the general public on a continuing basis be fiuanced or recovered through user charge$; or (2) where the goveming body has decided that periodic detennination of revenues earned, expens~ incurred, and/or net income is appropriate for capital maiotenlllc:e, public policy, management control, accoWltability, or other purposes. The City ,reports tho following major enterprise fi.mds: The Electric Fund accounts for the activities of Lubbock Power & Light (LP&L), tho City-owned electlic production and distribution system. The Wa!er Fuad accounts for the activities of the City's water system. The Wastewater Fund accounts for the activities of the City's sanitazy wastewa= system. Tile West Texas Municipal Power Ageaey (WTMPA) Fund accounts for the activities of power generation and power brokering to member cities. Member cities include Lubbock with 92% ownership, and Tulia, Brownfield, and Floydada comprising the remaining 8% ownership. The Stormwater Fnad accounts for the activities of the stormwater utility, which provides stonnwater drainage fur the City . 64 City ofLubboek, Texas Notes to Basie Financial Statemeats September 30, 2806 NOTE L SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Coatinued) C. MEASUREMENT FOCUS. BASIS OF ACCOUN'l1NG. AND FIN~CIAL STATEMENT PRESENTATION (Continued) The City reports 1ftc following non-major funds: Governmental Funds Special Revenue Funds are used to account for the proceeds of specific revenue sources (other than special assessments or major capital projects) that are legally restricted to expenditures for specified purposes. Tile Debt Service Fund is used to accowtt for the accumulation of resources for, and the payment of, general long•tcrm obligation principal and interest (other than debt service paymenu made by proprietary funds). . Capital Projects Funds are used to account for financial resources to be used for tbe uquisition -or consttuction of major capitd improvements (other than those recorded in the proprietary funds). ProPrietary Funds distinguish operating revenues and expenses 6um non-operating ilems. Operating revenues and expenses generally result from providing services and producing and delivering goods in oonnection wi1ft a proprietary fund's principal o.ogoing operations. The principal operating revenues of the City's enterprise funds end oftbe City's io1emal aervice funds are charges to customers for sales and services. Opending expenses for enterprise fimds and internal service fUnds include the c:ost of sales llll.d services, ad.mJnistrative expensea, and depreciation on capital assets. All revenues and expenses not meeting this definiCion are reported as non-operating revenues and expenses. Eaterprise Faudt are used to account for services to outside users where the full cost of providing services, including capital, is to· be recovered through fees lllld charges, e.g., Lubbock" Preston Smith International Airport (Airport Fund), Citibu.s, and the Solid Waste Fund. Internal Service Fuads are used to account for services provided to other departmenb, agencies of !he · departments or to other governments on a cost reimbUTSemeut basis (i.e., F.leet Maintenance Fund, Central Warehouse FWtd, Print Shop Fund, Self-Insurance Fund, etc.). Fiduc:lary FDDd is an Ageucy Fulld that is used to aocount for assets held by the City as an 11gc:nt for private organizatioos. This fund closed mFY 2006 md is not part of the government-wide financlals. D. BUDGETARY ACCQOOING The City Manager submits a proposed operating budget and capital improvement plan to the City Council annually for the upcoming fiscal year. Public hearings are conducted to obtain taxpayer c:otmnents, and the budget is legally enacted through passage of an ordinance by City Council City Council action is also .equ.iled for the approval of any supplememal appropriations. All budget amoUZltS presc:ntcd in the budget comparison statement reflect the original budget and the amended budget. wbich have been &ljusted for legally authori.zed supplemenlal appropriations to the annual budget during the fiscal year. The operatillg budget is adopted on a basis COilSistent with GAAP for the Geoeral Fund. Budgetary control is maintained at the department level in the following expenditure categories: personnel services, supplies, other charges, and 65 c ,.. \,.. c ( c c c c r ... c ) City of Lubbock. Texas Notes to Basic Financial Statements September 30, 2006 NOTE L SUMMARY OF SIGNIFICANT ACCOUNTING POI.JCJES (Coadnaed) D. BUPGETARY ACCOUNTING (Continued} capital outlay. Management may make administrative transfen and increases or decreases in accounls within categories without Council approval. as long as expenditures do not exceed budgeted appropriations at the fund level, the legal level of control. All anDual operating appropriations lapse at the end of the fiscal year. Capital budgets do not lapse at fiscal year end but remain in e.ffect until the project is completed and closed. In addition to the tax levy for general operations, in accordance with StBte law, the City Council sets an ad valorem tax levy for a sinking fund (General Obligation Debt Service) which, with cash and investments in the fund, 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 servi~ that have not been received arc canceled. At the begiMing of the next fiscal year, management reviews all open encumbrances. During the budget revision process, encumbrances may be re-established. On October I, 2006, the General Fund had no significant amounts of open encumbrances. F. ASSETS. LIABILITIES~ FUND BALANCIUNET ASSETS Equity In Cash and Investments· The City pools the resOIU'(;Cs of the various funds in order to facilitate the management of cash and enhance investment earnings. Records are maintained which reflect each fUnd's equity in the pooled account. The City's investments~ stated at fair value, which is based on quoted marlcct prices as of the valuation date. Cash Equivalents • Cash equivalents are defined as short-tenn higbly liquid investments that aro readily convertible to known amounts of cash and have originaJ ma11lrities of three months or less when purchased which present an insignificant risk of changes in value because of cbanges in interest rates. Restricted cash includes cash equivalents chat have been restricted by bood covenants for debt service requirements and passenger filcility charges. . fovestmeots -Investments include securitie$ in the Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, and Federal National Mortgage Association. Restricted investments include Investments that have been restricted for bond financed capital projects and money restricted for claims in the Risk and Health Insurance Funds. Property Tu: Receivable • The value of all real and business property located in the City is assessed annually on January 1 in conformity with Subtitle E oftbe Texas Property Code. Property taxes are levied on October I on those assessed values and the taxes are due on receipt of the tllX 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 arc considered delinquent if not paid before Febnwy 1. Therefore, at fiscal year end all property taxes receivable are delinquent, but are secured by a tax lien. At the OWFS (eve~ property tax revenue is recognized upon levy. In governmental funds, the City records property taxes receivable upon levy and defers tax revenue wttU the taxes are collected or available. For each fiscal year, the City recognizes revenue in the amount of taxes collected duriug 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 Spec;ial Revenue, and Debt Service Funds based on tax rates adopted for the year of levy. The Lubboek Central Appraisal District assesses property values, bills, collects, and remits the property taxes to 66 ( City of Lubbock. Texas Notes to Basic Financial Statements September 30, 2006 NOTE L SUMMARY OF SIGNIFICANT ACCOUNTING POUCIES (Coatiaued) F. ASSETS. LrABILITIES. AND FUND BALANCE/NET ASSETS (Continued) the City. The City adjusts the allowance for uncollectlble taxes. and deferred tax revenue at fiscal year end based upon historical collection experience. To write off property taxes receivable, the City eliminates tb.e receivable and reduces the allowance for uncollectible ac:eounts. Enterprise Funds Receivables-Within the Elcc:tric, Water, Wastewater, and WTMPA Enterprise Funds, services rendered but not billed as of the elose of the fiscal year are accrued and this amount is reflected in the accounts receivable balances of each fund. Amounts billed are reflected as acoounts receivable net of an allowance for uncollectible accounts. Inventories • Inventories consi~t of expendable supplies held for consumption. lnveotories are valued at cost using Che average cost method of valuation, and are accounted for using the CODSumption method of accounting, i.e., inventory is expensed when used rather than when pun:hased. Prepaid Items -Prepaid ltems are accounted for under the consumption method. Mortgage Reeeivables • Mortgage receivables consist of loans made to Lubbock residents and businesses under the City's Community Development loan program. These loans M:re originally funded primarily through grants received from the U.S. Department of Housing and Urban Development Capital Aasets and Depreciation • Capi~ assets, including public domain iofrastructure (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 ¢imated useful life in excess ofthree years. 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 capila( assets and improvements are capitalized as the projects are constructed. The cost of normal maintenance and repairs th.at do not add to the value of the asset or materially extend the asset lives are not capitalized. Major improvements are capitalized and depreciated over the remaining useful lives of the related capital assets. Depreciation is computed using the ~ight-line method over the estimated useful lives as (ollows: lnfrastruclurellmprcnr~~meniS Buildinp EquipliiCIIt Wa!Nrighls 1 0-SO years tS·SOyears l·IS yars 8Syears Interest Capitalization -Because the City issues general·purposc capital improvement bonds, which are recorded within the proprietary fwtds, the City capitali7.es interest costs for business-type, activities and enterprise funds according to the Financial Accounting Standards Board (FASB) Statement No. 34 Capitalization of lnterul Cost and .FASB Statement No. 62 Capltal&ation of interest Costs. The City capitalized interest of approximately $961 ,000 net of interest earned, for the business-type activities and the enterprise funds during the current tiscal year. 67 c c c c c c c c c ( City of Lubboc~ Texas Notes to Basic: Financial Statement! September 30, 1006 NOTE L SUMMARY OF SIGNIFICANT ACCOUNTING POUCIES (Cootioaed) F. ASSETS. LIABILmES. AND FUND BALANCE/NET ASSETS (Coattayedl · Restricted Net A.srets -Certain enterprise fund and governmental activities assets are restricted for construction and debt; consequently, net assets have been restricted for these amounts. The excess of other restricted assets over related liabilities are included as restricted net assets for bond proceeds, bond indentures requirements, and passenger facility charges. Use of Estimate$ -The preparation of fmancial seatements in conformity with accounting principles generally accepted in the United States of America n:quires management to ma.lce estimates aod assumptions that affect the reported amounts of assets and liabilities aDd disclosure of contingent assets 111d liabilities at the date of the financial statements and reported amounts of revenues and expen.seslexpenditures during the reporting period. Actual results could differ from those estimates. G. REVENUES, EXPENSES AND EXPENDITURES Interest Ineome on pooled cash and investments is allocated monthly based on the percentage of a fund's six- month rolling average monthly balance in pooled cash and investments to the total citywide six-month rolling average month1y balance in pooled cash and investments, exc:ept for certain Fi~iaiy Funds, certain Spe~ Revenue Funds, Capital Project Funds, and cel1ain Intemal 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 Tax Revenue for the City results from an allocation of l.S% of lhe total sales tax levy of8.25%, whicll is co!Jecm:l by the State of Texas and remitted to the City m.omhly. The tax is collected by the vendor and is required to be remitted to the State by the 20th of the month following collection. The tax is then paid to the City by the: lOth of the next montlL Grant Revenue from federal and state graiJ.1:$ is recognized as revenue as soon as aU eligibility requirements have been met. The availability period for grants is considered to be one year. lnterfund Tnnsactions are accounted for as revenues, expenditures, expenses, or qdter financing sources or uses. Transactions that consolUte reimbursements to a fund for expenditureslexpcmse$ initially made from that fund that are properly applicable to another fund, are rec;orded as expenditxnslexponses in the reimbW$ing fund and as reductions of cxpenditure&'expeoses in tho fund that is reimbursed.· In addition, transfers are made between funds to shift resow-ces from a fund legally authorized to receive revenue to a fimd autborizcd to expend the revenue. Compensated Absences consists of vacation leave and sick leave. Vacation leave of 10-20 days is granted to all regular employees dependent upon the date employed. years of .service, and civil service status. Currently, up to 40 hows of vacation leave may be "canied oVC'Z" to the next wendar year. The City is obligated to make payment upon retirement or termination for employees in good standing for any available, unused vacation leave. Sick leave for employees is accrued at 1-~ days per month with a maximwn accrual Status of200 days. After 15 years of continuota fUll time service for non-civil service personnel, vested aick leaw 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 aftet one year of employment Civil Service Personnel (Firefi8hteJs) are paid for up to 90 days of acx:rued sick leave upon retirement or tennination. The Texas Civil Service Jaws dictate certain benefits and personnel policies above and beyond those policies of the City. 68 City of Lubbock, Tens Notes to Basic Financial Statements September 30, 2006 NOTE L SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) G. REVENUES. EXPENSES AND EXPENDITURES (Continued> The liability for the accumulated vacation and sick leave is recorded in the GWFS and in the FFS for proprietary fund employees when earned. The liability is recorded in the governmental FFS to the extent it is due and payable. · Post Employment Benefits for retirees of the City of Lubbock include the option to purchase health and life insurance benefits at their own expense. HoWever, employees that retire with 15 years of aemce or Civil Service employees that retire who have a sick-leave balance in excess of 90 days will be able to etect to continue receiviDg medical coverage in full 30-day periods for the tenn of the balance of their sick leave. Amounts to cover premiums and administrative costs, with an incremental charge for reserve fimding, are detennined by !he City's health care administta!or. Employer colrtributions are .funded on a pa~you-go basis and approximated $1.4 million for fuca1 2005. These contributions are included in the amount of insurance expense reflected in the financial activity reported in the Health lnslll'llllCC Internal Service Fund. NOTE U. STEWARDSHIP, COMPUANCE AND ACCOUNTABILITY A. RESTRICTED NET ASSETS Restricted net assets are only used for their intended purpose. For projects funded by tax exempt debt proceeds, the debt proceeds are used first. lhen unrestricted resources are used. B. NET ASSET/FUND BALANCE DEF1CII The deficit of$! 98,884 in the Health Benefits Internal Servite Fund is due to unusually high health claim activity in FY 2006. The revenues charged co user departments were based on predctermltied rates. The health rates have bcCD reevaluated in FY 2007 to prevent future deficits. C. GENERAL FUND BUDGET OVERAGE The General Fund FY 2006 amended budgeted expenditures and tmmfers out were $113,255,548 and actual expenditures and transfer$ out were $113,714,942, an overage of.$459,394. Management has ~tty issued new policies for departmental review of budgets. NOTE m DETAIL NOTES ON ALL ACTIVITIES AND FUNDS A. DEPOSITS AND INVESTMENTS Deposjts On September 30, 2006, the bank balance of the City's deposits was $3,002,928. All oftbe bank balances~ covered by federal depository insurance or coUatelalized. 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 ctedit risk requires compliance with the provisions of state law. State law requires oollatenilization of all deposits with federal depository in.ruranc:e. eligible S«Urities, or a surety bond having an ~egate value at least equal to the amount of lhe deposits. The City's lnvestmeut Policy requires die minimum collateral level to be 102% of market value of principal and acc:ued interest 69 0 0 c c c c c c c ( ( City of Lubbock, Texas Notes to Basie Financial Statements September 30, 2006 NOTE llL DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Coatiou.ed) A. CASH AND DEPOSITS CContiaued) At September 30, 2006, bank balances was exposed to custoclial aedit risk as follows: Insured S 400,000 Uninsured and unc:ollaretal iud Uninsun:d and eollateral held by pledging financial instillltioo 2,602,928 Uninsured and c:ollateral held by pledging tinmciallostltutioa.'s trust department or qcnt in otbc:r than tbe City's name Investments At September 30, 2006, the City had the following investments and maturities: Type Repurchase AgreemenlS • Federal Home Loan Banks federal Home Loan Mottgage Corporation Federal National Morts-go Association Farm Credit Note FedeR! Home Loan Step Up Note Money market mutual funds •• State lnvcslment Pools .. •Consideted cash equivalent for financial reporting. September 30, :Z006 Maturities Ia Yean Less 1-!5 F1lrValue Than 1 s 1,796,529 s 1,796,529 9,929,600 9,929,600 10,!179,104 8,S91,704 $1,987,400 36,543,440 30,605,040 5,943,400 1.980,000 1,980,000 3,978,600 1,981,400 1,997,200 35.!)26,078 35,926,078 ~~~liZ 166.3Q6,ll7 U6ZWfmB U,U,IJti.~l ~9.92ltll.O,Q •• Money llllll1tct mu1lJa.l fUnds and Srate Investment Pools are considered C8Sfl equivalents for financial reporting, unless RStricted for bond financed capital projc:c:Cs and claims fur Risk and Healdt 1nsuranc:e Funds. Interest Rate Risk-As a means of limiting ils exposure to fair value losses arising from risiog inkR!t rates, the City's investment policy limits investments to those that can be beld to maturity and by limiting fiDal maturity to no more than five (5) years. The money market mutual funds and invescment 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 wiU not ftdfill .it9 obligatioDS. The City's policy allows investment in direct obligations of and other obligations guaranteed as to principal of the U.S. Treasl.ll"f and U.S. agencies and instrumentalities with tbc exception of mortgage backed securities. ft allows obligations of investment in the State of Texas or its agencies and obligations of states, agencies, counties, cities, and other political subdivisions tated not less than A or its equivalent. It may also invest in fully collaseralized 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, AM-rated, no-load money market mutual funds regulat=d by the Securities and Exchange Commissiou, and AAA-rated, constant dollar Investments pools authorized by the City Council. At September 30, 2006, Slalldard & Poor's rated the investment pools and the money m.arkct mutual funds AAAr.n. Tbe senior unsecured debt for investments in FNMA and FHLMC are rated AAA by Standard &: Poor's and Moody's. 70 City of Lubbock, Texas Notes to Basic: Financial Statements September 30, 2006 . . NOTE m. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) A. DEPOSITS AND INVESTMENTS CCootinoed) Custodial Credit Risk. For an invmment. custodial credit risk is the risk that, in the event of lhe failure of the counterparty, the City will not be able to recover the value of its investment or collateral smuities that are in the possession of an outside party. The City required that deposits and repurdwe agreements be held in an institutioo that has a miuimum 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 Fedctal Reserve member fimmeial institution designated as a City depositoty. The City shall maintain a list of authorized broker/dealers and financial institution$, which are approved by the Audit Committee for investment purposes: Concentration of Credit Risk • The City places limits on the amount that may be invested in any ooe issuer with die exception of United States Treasury obligations. At September 30, 2006, the City's investments constituted the following percentages of total investments: rcpurcbase agreemems -0.7%, FHLB -S.2o/o, FHLMC -0.4%, FNMA -l3.7o/o, FFCN -0.7%, Money Market Mutual Funds-13.4So/o, and State Investment Pools -62.28%. Foreign Currency Risk • This risk relates to adverse affects on the filir value of an investment from changes in exchange mes. The City has no foreign currency risk. B. INTERFUNP TRA.NSAcriONS Interfund balances, specifically the due to and due from other funds, are sbort-terin IOIDS to cover temporary cash deficits in various funds. This oc:c:asionally occurs prior to bond sales or gnm~ reimbursemeots. These outstanding balances are repaid within the following fiscal year. lnterfund balances, specifically advances to and from other funds, are longer-tenn loans to cover Council directed internal financing of~ projects. At September 30, 2006 the City bad $10,761,.331 in"intemal financing. These balances are assessed an interest charge and are repaid over time through operations and transfers. The following amounts due to other funds or due from other funds, including advances, are Included in the fimd financial statenleDts (all amounts in 1housands): I11terfund Receivables {fhousattds) ,. GovtraiDeDtal FIIDds Prel!rleb2 FaDds lnterfaad Payables (I'bousllllds) NoD•ajor Noamajor General Gclvenllllent WIMP A Enterprise Totals Governme•tal Funds: Nonmajor Governmental s 4SO s 631 s s 1,541 s 2,62;2 Proprietary hads: Electric 6,173 6,173 Norun~or Enterprise 1,927 1,927 Internal Service 39 39 Totals s 1,416 s 631 s 6,173 $ l,S41 s 10,761 71 0 c c c c c c ,. 1., c ( ( City of Lubboek, Texas Notes to Basic Financial Statements September 30, 2006 NOTE UL DETAIL NOTES ON ALL ACI'IVITIES AND FUNDS (Colltinaed) B. INTERFUND IRANSAcrlONS (Continued) Net transfers of$9,607,211 from business-type activities to govemmentat'activities, down $5.9 million from the prior year, on tbe government-wide statement of activities is primarily the result of I) debt service paymenl3 made ftcm the debt service fund, but funded from an operating fund; 2) subsidy 1ransfers from unrestricted funds; and 3) tl"'lnsfers to move indirect cost allocations, payment! in lieu oft&xe$ (PILOT), and franchise fees to the general fund ()r other funds as appropriate. The foUowing inter6md transfers are reHected in the fund financial statements (all amounts in thousands): lnterfuad Tr1nsfen Ia: (Tboaaads) Governmoatal Faods: IatcrfUad TraiUfen Old: (T!touuads) Gova-ameutal Funds Nonnv,jor General GoY. Electric Proprietary Fuads Storm-Nooml!ior lnta'll Water Sewer weU:r Enterprise Savice Toads General Fund $ • $ 723 S 880 $ 4,649 $ 2,623 S 907 $ 2,828 S 714 S 13,324 Nonmajor Oovcmmental S87 4,632 2S 30 78 S,3S2 Proprletlry Funds: Elcdric Waa Wastcwller Storm water WlMPA 312 521 620 100 142 637 663 620 307 307 Nonmajor Eoterprise Internal Service Funds 849 M9 » n Total s 1,436 $ 6,841 s 1,211 s 4,874 $ 2,613 s 907 s 3,100 $ 792 s 21,785 C. DEFERRED CHARGES The total deferred charge of$3,077,777 in the LP&L Entelprise Fund repRSenl! an.advertising COillr8ct with the United Spirit Arena. The advertising (and amortization) began with tbe opening of Che sports arena in fiscal year 2000 and will continue for 30 years. D. CAPITAL ASSETS capital asset activity fur the year ended September 30, 2006, was as follows: 72 City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2006 NOTE m. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) D. CAPITAL ASSETS CCoatinuedl Primary Government: Coverameatat Activitie.l Begi11aing Balaac:e Inc~ Decreases Capital Auels Not Depreelated: Land $ 8,951,100 $ 20,354 $ -$ Construction in Progress 37,793,428 27!701~23 14,844,298 Total Capital 1\ssds Not Depre<:iated 46,744,528 27,721.577 14,844,298 C.pital Aaets Depredated: Buildings· 57,606,045 3,674,134 330,543 lmprovements Other chan Buildings 136,398,990 li,S20,4S2 914,367 Macllinecy and Equipment 60,242,876 8,065,957 3,336,666 Total Capital Assets Depreciated 254,247,911 23,260,543 4,581,576 Less Accumulated Depreciadoa: Buildifi&S 29,459,873 1,934,827 314,587 lmprovemen~ Odter tbarl Buildings 92,503,760 4,834,434 775,906 Machinety and Equipment 40,414,655 1,051,454 3!115,466 Tou.l Accumulated Depreciation 162,378,288 13,826,715 4,205,959 Eadlag Babnca 8,971,454 50,650,353 59,621,807 60,949.636 147,005,075 64,972,167 272,926,878 . 31,080,113 96,562,288 44,356,643 171,999,044 Total Capital Assets DepRCialcd, Net Governmental Activitie3 Capital As!ets, Net 91,869,623 9,433,82& 375,617 100,927,834 $ 138,614,151 $ 31,155,405 $ 15,219,915 s 160,549,641 Depreciation expense was cl!arged to functions/programs of the govem.m.ental activities as follows: Gcvcmmcntal activities: Adminislrative Services Community Services Culanlmd R.ccrcation Services Economic; and Development f"an: Health Other Pub lie Safety Police Slm:t and Traffic Engineering Non·Depatlrnental lnacmal Service Funds Total depreciation expeosc ·governmental activities TransCer in to aooumulated depreciation • govemment:al activities ln<:eeaSC ia aocu:mulatcd depreciation· governmental activities 73 $ 386,871 144,336 3,351,006 146,397 1,213,165 271,771 496,369 3,163,233 3,791,173 327,104 130,646 13,422,071 • 404,644 $ 13,826,715 0 0 c c c c ( 1 City of Lubbock., Tens Notes to Basic Financial Statements September 30, 2006 NOTE In. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Coa1iaued) D. CAPITAL ASSETS (Continue!D Business-Type Activities: Begiaalng Eadlag Balance laereasa Decreases Balaaces Capital AsKts Not Dqmciate4: Land $ 31,948,711 s $ -$ 31,948,711 Construction in Progress 12&.432,179 58,415,600 50~01,552 1361646..227 Total Capital Asset$ Not Depreciated 160,380,890 58,415,600 50,201,552 16&,594,938 Capital Aaets Depreciated: Buildings 97,027,146 483,657 97,510,803 Improvements Other than Buildings 605,412,170 59,621,921 375,396 664,658,695 MadUIICI')' and F.4uipment 138,670,688 271169,630 41116,964 161,723~54 Total Capital Assets Deprccla!Cd 841,110,004 '87,275,208 4,492,360 ' 923,892,852 LeSI Accu .. ulatcd Depreciation: Buildiqgs 31,075,692 2,342,667 33,418,.359 Improvements Other than Buildings 258,019,184 17,325,603 159,373 275,185,414 Machinery and Equipment 74,952,427 121057,269 3,280,169 83,729,527 Total Accumulated Depredation 364,047,303 31,125,539 3,439,542 392,333,300 Total Capitlll Assm OWreeiat.ed, Net 477,062,70 I SS,S49,669 1;052,818 S31,SS9,5S2 Business-Type Activities Capital Asse15, Net $637,443,591 $113,965,269 s 51,254,.370 s 700,154,490 Depreciation expense was charged to. functions/programs of the business..type activities as foJiows: Business-Type Activities: EICCiric Water Wastewater Storm wale!' Solid Waste Airport Transit fntemaJ Sen-icc Total dcprccilltion expense-businc:ss-type adivities Transfer in to accumuJaltd depreciation • bwines.Hype activities lfttfease in ICCUmulared depreciation-business-type activitic:a 74 $ 8,839,585 "7,118,132 5,462,021 384,514 3,875,819 3,281,317 1,340,312 191,442 30,493,148 1,232,391 $ 31,725,539 City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2006 NOTE m. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) D. CAPITAL ASSETS <Continued) Cmtstrvctioo Commitments The City of Lubbock bas active construction projeas at ti.scal year end. The Parks Oepaz1ment projects include a 12-tield fastpitch softball oomplex. The City oontinues to wOTk on a large street project involving Milwaukee Avenue from 34lh Street to 98• Street • This project is in the Gateway Street Projects Fuod. Water projects include the design and construction of a new pump station in southwest Lubbock. The recompaction of 98111 Street from Slide to just beyond Frankford Avenue is a major wastewater project. The City is busy working at the airport to construct 38,000 square yards of new pavement to help serve air carrier airerafts. Stonnwater operations continue to work on two very large construction projects. The first project provides for flood relief for Clapp Park and the eleven playa lakes immediately upstream. The second project provides for the construction of a flood relief project for south Lubbock' a chain of playa lakes. Original Remalnlac Projects Commitment. Spent-to-Date Commlthueaa Publ ie Safety $ 1,708,338 $ 1,553,720 $ 154,618 Park Improvements 27,149,31 I 8,620,769 18,528,542 Stn:ct Improvements 26,133,199 10,999,784 15,133,415 General C.pital Projects 92S,OOO 6,515 918,425 General Facili!ics Improvements 4,456,613 2,259,430 2,197,243 Tax lncrcmen! Fund Capi~ Projects 24,131,S66 6,537,195 17,594,371 GateWay Strut PrOjects 23,349,000 19,684,371 3,664,629 Electric 26,476,192 8,814,299 17,661,893 Water 71,421,032 32,078.599 39,342,433 WastGWa!er 17,400,000 8,377,603 9,022,397 SolidWam 7,215,610 991,100 6,224,580 Airpor! 30,994,699 20,092,779 10,901,920 StonnWllter 83,688,018 65,636,771 18,051,247 lntemal SeJVi~ Fund 1,000,000 655,016 344,924 Total $ 346,048,708 $ 186,308,071 $ 159,740,637 E. RETIREMENT PLANS Each qualified employee is in<:luded in one of two retirement plam in wbidl the City of Lubbock perticipates. These are the Texas Municipal Retirement System (I'MRS) sod the Lubboclc Firemen's Relief and Retirement Fund (LFRRF). The City does not maintain tbe aa:ouoting records, hold the ·investments or administer eitber retirement plan. · Summary of significant data for each retirement plao follows: 75 0 0 c c c c c c ( ' .. ;. ) City ofLubboek, Tens Notes to Basic Financiai.Statements September 30, 2006 NOTE In. D~TAIL NOTES ON ALL ACI1VITIES AND FUNDS (Coatined) E. RETIREMENT PLANS <Continued) TEXAS MUMCIPAL RETIREMENT SYSTEM (TMRS) Plan Description The City provides pensioo benefits for aJl of its fulJ..timc employees {with 1he exception of firefigbtm} through a .non-traditional, joint conlributory, hybrid defined benefit plaa ~ the stato-wide TMRS, one of811 administered by T~, an agent multiple-employer public employee rctitement system. Benefits depend upon the sum of the employWs coolributions to the plan, with interest, and the City-financed monetary credits, wieh interest At tfle date the plan began. the City gnmtcd monetary credits for service rendered before the plan began of a theoretical amount equal to two times what would bave been contn'buted by the employee, with interest, prior to establishment of the plan. M011etary m:dits fur service since the plan began are a percent (1000/., ISO%, or 200%) of 1he employee's IICCI1IDUlatcd cootributiou. In addition, the City can grant, as often as annually, another type of rnonewy ci'edit refem:d to as an updated seNice credit whicb is a theoretical amount whicll, when added to tbe employee's accumulated contributiOIIS and the monetaty ccedits for service since the plan began, would be Che total monetary credits and employee contributions accumulated with interest if the cwrent employee contribution rate and City matcbiDg percent had always been in existence and if the employee's salary bad always been the a:verage of his salary in the last thn:e years that are one year before lhe effective date. At rcdmnent, Che benefit is calculated as if the sum of the employee's acc::wnulated contributions with interest and tbe employer-financed monetary credits with interest were used to purchase an annuity. Th" plan provisions are adopted by the governing body oftbe City, within the options available in the state statuta governing TMRS and within the actuarial constraints also iD the stamtcs. Membenl can retire at ages 60 and above wilb 5 or more years of service or wi!h 20 years of service regardless of age. A member is vested after S years. ·eontrlbutioas The contribution rate for the employees is 7% and the City matclrlng ratio is curtently 2 to I, botb 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 caloulaft.d to be a level percent of payroll from year to year. The normal cost COO!rib~ rate fiDaDces the currently acauing monelary credits due to the City matching percent, which are the obligation ofthe City as of an employee's retirement date, not at' the time the C<mPloyee's contn'butiolis are made. The normal cost contn"bution rate is the actuarially determined percent of payroll necessary to satisfy 1he obligation of the City to each employee at the time his/her retirement becomes effective. The prior service c:oatiibutioo rate llii10ltiz.a the uofunded {overtbnded) actuarial liability (asset) over the remainder of the plan's 25-year amortization period. The unit credit actuarial cost method is used for ~ the City conbt"bution ratc. Both the employees and the City make contributions monthly. Since the City needs to know its coatributioll rate in advance for budgetary purposes, there is a one-year delay between the actuarial valuation that serves as the basis for the rate and the calendar year when the rate goes ioto eff'ec:t (i.e. December 3 I, 2005 valuation is effective for rates beginning January 2007). 76 City of Lubbock, Tens Notes to Basic Finao.cial Statements September 30, 2006 I NOTE m DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Coatinued) E. RETIREMENT PLANS (Continued) ·Actuarial Assumptioas The actuarial assumptions for the December 31, 2005 valuatioM are as follows: Actuarial cost method: Unit credit Amortlz.atlon mctbod: Remaining amortization period: Level percent of payroll 2.S years-open period Amortized cost Asset valuation medtod: Investment ~ of return: Projoctoed sa1aJy increases: Includes inflation at: Cost of Living adjustments: A.sof Scptutber 30 2004 2005 2006 1% None 3.5% NoD.C Amuzal Pezuioa Cost s 8.70U67 9,933,373 10,904,031 Coatrib11t1111 Made 8,708,867 9,933,.373 10,9<»,031 TEXAS MUNICIPAL RETIREMENT SYSTEM THREE-YEAR HISTORICAL SCHEDULE OF ACfUARIAL LIABILITIES AND FUNDING PROGRESS REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) Uafunclecl Actuar'bll Amr•rial Ace ned As or Act.arlal Value of Aecrued Percentage LbbDity DeeemberJl Asaets Uabilitx Fulldcd (!JAAL} 2003 s 182,884,1&3 239,809,434 76.3% 56,925,251 2004 186,398,545 248,432,807 15.'0% 62.034,262 2005 195,046,632 261,430,108 74.6% 66,383,476 UAALasa% A10f Anaual Covered or C.Vcred DeeemllerJl Payroll Payroll 2003 s 57,577,743 98 •. 9% 2004 61,93 1,003 100.2% 2005 65,424,918 101.5% The City of Lubbock is one of 811 municipalities having the benefit plan administered by TMRS. Each of lhe municipalities has an annual, individual actuarial valuation performed. All assumptions for the December 31, 2005 valuations are contained in the 2005 TMRS Comprehensive Annual F'mancial Report, a copy ·of which may be obtained by writing to P.O. Box 149153, Austin, Texas 78714·9153. 77 0 0 c c c c c ( ( J .... ) \ City of Lubbock, Texas Notes to Buie Financial Statements September 30, 2006 NOTE m. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Coutiuaed) E. RETIREMENT PLANS (Continued> LUBBOCK FIREFIGIITER•s RELIEF AND RETIREMENT FUND (LFRRF) Plan Description The Board of Trustees of lhe 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 rel.aled organization and is not considered to be a part of the City financial reporting entity. Firefighters in the Lubbock Fire Department are covered by theLFRRP. The LFRRF provides service retirement, death, disability and withdrawal benefits. These benefits fully vest after 20 years of credited service. A partiaUy vested benefit is provided for firefighters who terminate employment with at least 10 but less than 20 years of service. Employees may retire at age SO with 20 yean 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 I, 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 final48-mofldl average salary plus $335.05 per month for each year C>f semce in excess of20 years. A firefighter has the option to participate in a Retroactive Deferred Retirement Option Plan (RBlRO 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 termination). Early RETRO DROP with benefit reductions is a-ailable at age SO with 20 years of service for the selected .. early RBTRO DROP benefit calculation date". A Partial Lump Sum C>ption 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 nonnal fonn of the monthly benefit. Optional fotms 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. LF~ bas the authority to provide, and has periodically provided for in the pest, ad hoc postretirement benefit increases. The benefit provisions C>fthis 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 TI.FFRA. TLPFRA provides the aulhority and procedure to change the amount of contributions determined as a percentage of pay by eadt fin: fighter and a percenlage of payroll by the City. State law requires that each plan of benefits adopted by LFRRF be approved by an eligible acawy. The actuaiy certifies that the contribution commitment by the firefighters and the City provides m adequate financing arrangement. Using the entzy age actuarial cost melbod, LFRRF's normal cost coruribudon rUe is detennined as a percentage of payroll. The excess of the total contribution rate over the normal cost contribution rate is used to amortize LFRRFs unfunded actuarial accrued liability (UAAL), If any, and the number of years needed to amortize LFRRFs unfunded actuarial liability, if any, is determined using a Jeve] per=ttagc of payroll mdbod. The costs of administering the plan are fmanced by LFRRF. 78 City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2006 NOTE Ill. DETAD.. NOTES ON ALL AC11VITIES AND FUNDS (Coatiaued) E. RETIREMENT PLANS (Continued) Annual Pension Cost For the fiscal year ended September 30, 2006, the City of Lubbock's Annual Pension Cost (APC) for the Lubbock Fire Fund Was equal to $3_,208,595 as described in item 4 in the table below. Based on the results of the Deeember 31,2004 actuarial valuation of the Plan Effi:c:tive November 1, 2003, the most recent biennial actuarial valuation, the BOllld's actuary found tbat the fimd had an adequate tinancillg IIITillgcment, as described in che paragraph below, based on the tbed level of the firefighter contribution rates and on the assumed level of City contn'bution rates. Based on the Plan Btrective November 1, 2003, LFRRF's funding policy requires contributions equal to 12.43% of pay by the firofighters. Contributions by tbe City are based on a formula, which cause3 the City's contribution rate to tludUale from year to year. The December 31, 2004 aduarial valuation assumes tbat the City's contributions wiJI average 19% of payroll in the future. Therefore, based on the December 31,2004 actuarial valuation of the Plan Effective November I, 2003, the Annual Required Contributions (ARC} are not actuarially detennined but are equal to the City's actual contributions beginning Jmuary I, 200S. This actuarial valuation satisfied the parameters of che Oovemmeata.l Accounting Standards Board (OASB) Stalemeot No. 27. Prior to 1anuaiy I, 200S, the ARC were not actuarially determined but, based on the December 31, 2002 actoariaJ valuation. were equal to lhe City's actual contributions In calendar year 2004. This actuarial valuation also satisfied the param~Cl$ of GASB Statement No. 27. The followiog shows the development oflhe Net Pension Obligation (NPO) as of September 30, 2006: I. Aaoual Required Contributions (ARC) 2. Interest on NPO 3. Adjustment to ARC 4. Annual Pension Cost (APC) S. Actual City oontribudoos made 6. laacasc: (Deaaac) ill NPOI(assct) 7. NPO/(asset) at Ocrobcr I, 2005 8. NPO/(asset) Ill September 30,2006 $3,220,205 (72,729) 61,119 3,208,59.5 (3,220,205} (11,610) (909.112) {$920,722) The ARC for the period October 1, 200S through September 30, 2006 was based on the December 31, 2002 and lhe December 31, 2004 actuariaJ val~ions. The entry age actuarial cost method WBS used wid!. the normal cost calcuJated as a level percentage of payroll The acruaria1 value of assets w.as market value smoothed by a five-year deferred recognition method, with tbe KtuariaJ value DOt more tban 110% or less than 904'" of the market value of assets. The actuarial assumptions included in an investment return assumption of lr'-4 per year (net of ex:peoses), projected ulary increases including promotion 8Dd longevity averaging 5.7% per yw-over a 30-year career, and no postretirement cost-of· living a.ljustmeats. An intlation assumption of 4% per year was included in the investment return and salary increase assumptions. The UAAL is amocti~ wi1h the excess of the wumed total contribution rate over the IIOtmlll cost rate. The number of years needed to amortize the UML Is detennined using an open. level.percentage of payroll method, assuming that the payroll wil1 increase 4% per year, and was 24.7 yean as of the December 31,2002 actuarial valuation and 20.6 years as of December 31, 2004·actuarial valuation. both based 011 the plan provisions effective November I, 2003. 79 0 0 c c c c r .... c ( c ( .., City of Lubbock. Texas Notes to Basic Finaucial Statements September 30, 1006 NOTE m. DETAIL NOTES ON ALL ACI1VITIES AND FUNDS (Cootiaaed) E. RETiREMENT PLAN'S (Continued) Furthec ddails concerning the fmancial position of the LFRRP and the latest actuarial valuation BR available by oontaaing the Board of Trustees,~. City of Lubbock. P.O. Box 2000, Lubbock, Texas 79457. A stand-alone financial report is available by co01a~g the LFR.RF. Pls91t Year EDded 9/30/04 9130/0S 9130106 Trend Ioformatlou Alluuar Pclldou Cost (APC} $ 2,582,713 3,016,942 3,203,595 Perc:ealagc of MC Coulribaud 101% 100 100 AIUllysls of FaadiJlg Pro&ress Net Pemioa Obligation (Aalet) (197,64&) (909,112) (920,122) Required Supplementary luformatlon (Unaudited) EatryAce Uafuadcd Actuarial AAL A dUll rial Am.arlal Aecnaed (UAAL) Alloaa.l Valaatioa Value of Liability /Fuadiag Fa ad eel Covered Date Asleb~•l !AAL}~l exuss (!!::!} Ratio{llb} Paf!!U {c}4 12131100 1,2 $119,660,788 114,67S,049 (4,98S,739) 104.)% 12,243,913 IZIJ 1/02 1,3 111,261,ns 127,8S0,414 16.588,639 17.0 13,$21,366 IZIJI/04 s 130,174,984 143,991,97S 13,816.991 90.4 14,7JJ.366 I. Eco.110mic and deDWgrapbic assumptiOIIS were revised. 2. Reflects changes ia plm benefit provisloas c&c:tive December I, 2001. 3. RefJecb clJaoges In plan benefit provisioas eft'ecdve NovCUibcr 1,2003. 4. The covered payroll is based on estimated 110nualizccl salaries used In tbc valuation. S. Dc:mograph.ie 116SW1lption was revised. F, DEFERRED COMPENSATION UAAIJ Fulld.iug Escasa,sa Perceataceor C. vend PayroD ((IH)(c} (40.1)% 122.7 93.9 The City ofi'en its employees two deferred compensation plans in ac:cordance wilb lntemal Revenue Code ("IRCj Section 457. The plans, available to all City employees, pcnnit them to defer a portion of their salary antil futllre years. The deferred <:OmpeDSation is not available to employees until termination, retirement, dead!, or unforeseeable emergency. The plans' assets are held in !rUSt for the exclusive beoefits of the participants and their beneficiaries. The City does not provide admillisttative services pr have any fiduciary responsibilities for these plaDs; thercf<n, they are not pn::seoced in the BFS. 80 City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2006 NOTE IU. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Cootiaued) G. SURFACEWATERSUPPLY Canadian River Munlelpal Water Authority The C8oadi3.n River Municipal Water Authority (CRMWA) is a Conservation and Reclamation Authority established by the Texas Legislature to construct a dam. water reservoir, and aqueduct system for the purpose of supplying water to SlliFounding cities. The Authority was created in 1953 and oomprises eleven cities, including the City of Lubbock. The budget, financing, and operations of the Authority an: govc:med by a Boaro of Directors· selected by the governing bodies of each of the member cities. each city being entitled to one or two meritbers dependent upon population. At September 30, 2006, the Board was comprised of 18 members, two of which rep~d the City. The City contracted with the CRMWA to reiinburse it fur a portion of the cost of the Canadiao 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 obtain inc surface water. Prior to fY 1999,1ong·term debt was owed to the U.S. Bureau ofRechu:uation fur the oost of construction of the facility, which was oompleted in 1969. The City's allocation of project costs was $32,905,862. During FY 1999, bonds in the principal amount of$12,300,000 were issued to pay off the oonstruction 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 dis<:ount in the rCmaining principal provided by the U.S. Bureau of Reclamation to the member cities. This discount has been recorded as a defem:d gain on refundiDg and is being amortized over the life of the refunding bonds. At September 30, 2006, $4,091,071 remains unamortized. The annual principal and interest payments are included in the dis<:losures for other City related long~ debt. The above cost for the rights are recorded as capital assecs and are being amortized over 8S years. The cost and debt arc recorded in the Water Enterprise Fund. In ZOOS, the Canadian River Municipal Authority issued $48,12.5,000 in Contract Rc:vcoue Bonds. The City of Lubbock shared in this issue in the amount of$17 ,960,000. The Canadian. River Municipal Authority issued a new Contract Revenue Bond, Series 2006 in April 2006 in the amount of $49,075,000. The City of Lubbock shared in tho issue for $18,573,906 and other costs of $492,465, and received depreciable assets (water rigbts) valued at $19,066,371. These assets and liabilities are recorded in the Water Enterprise Fund. Brazos River Authority • Lake Alan Heari 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 BRA. which is audtorim<l by the State of Texas to provide for the conservation and development of surface waters in the Brazos River Basin, · issued boruis for the construction of a dam and lalcc facilities on tho 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 bonds in 1991, which were refunded in July 1995. The asset, Lake Alan Henry dam and filcilities, are recorded as capital assets and are being depreciated over SO years. The financial activity, along with related obUgation, is acoountcd for in the Water Enterprise Fund. 81 0 0 0 c c c c c 0 City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2006 NOTE m. DETAIL NOTES ON ALL ACI'IVITIES AND FUNDS (Coatiaoed) H. LONG-TERM DEBT GENERAL OBLIGATION BONDS AND CERTIFICATES OF OBLIGATION: Interest Issue Maturity Amount Outmodlug Rate% Date Date Issued ~ .5.39 10..01-93 02-15-14 s 2,550,000 $ 1,040,000 5.20 10.01-93 02-1.5-14 1,470,000 225,000 5.14 10.01-93 02-1.5-14 19,215,000 2,89.5,000 4.91 01-15-97 02·1.5..09 l7,S30,000 5,225,000 4.61 01..01-98 02-1S..08 1,330,000 320,000 4.71 01..01-91 02-IS-18 10,260,000 2,S1S,OOO 4.36 01-JS-99 02-15-14 20,835,000 16,710,000 4 . .58 01-15-99 02-15-19 15,3S5,000 2,310,000 4.77 04-01-99 02-15-19 6,100,000 91.5,000 .4.71 04..()1-99 02--IS-19 12,300,000 8,060,000 .5.37 09-15-99 02-15-20 24,800,000 3,100,000 5.S4 03-IS..OO 02-IS-20 1,000,000 87.5,000 4.90 02..01..01 02-15-21 9,100,000 1,560,000 4.81 02-()1..01 02-15-21 2,710,000 560,000 5.25 06-01-01 02-15-31 JS,OOO,OOO 3,710,000 4.68 02-IS-02 02-IS-22 9,400,000 8,470,000 4.71 02-IS-02 02-IS-22 6,450,000 5,805,000 4.70 02-15-02 02-15-22 1,545,000 1,385,000 4.62 07-01-()2 02-ts-22 2,605,000 2,2,0,000 3.18 07-()HJ2 02-15-10 10,810,000 4,635,000 4.42 07-1S..03 02-15-23 11,885,000 10,415000 4.47 07-15-03 02-IS-24 9,775,000 9,130,000 4.48 07-IS-()3 02-1.5-24 685,000 635,000 4.47 07·15-()3 02-IS-24 3,595,000 3,355,000 4.87 07-15-03 02·15·34 40,135,000 38,710,000 4.47 07-15-03 02-IS-24 3,800,000 3,550,000 4.60 08-15-03 04-15-23 8,900.000 7,810.000 4.60 ()8..15-03 04-15-23 13,270,000 11,65.5,000 4.37 ()6..30.04 08-01-12 1,000,000 7~0.000 4.09 09-28-04 02-15-24 2,025,000 1,735,000 4.08 09-28--04 02-15-24 3,100,000 2.,.585,000 3.58 09-28--04 02-1.5-20 22,620,000 22,100,000 3.89 02-1.5.05 04-lS-25 23,055,000 21,470,000 3.94 06-IS-OS 02-15-21 49,615,000 49,615,000 4.26 08-15-05 02-ls-25 46,525,000 44,950,000 4.82 07·15-0S 02-IS-21 43,080,000 41,380,000 4.27 07-15-05 02-15-25 7,265,000 1,035,000 4.58 04-1.5-06 02-IS-26 76,950,000 76,950,000 4.S8 04-15-06 02-15-26 2,740,000 2,740,000 4.84 05-15-06 02-IS-31 181830t000 ]8,&30,000 Total $ 60S,27S,OOO s 448,02S,~A) (A) Exl;ludes ($4,264,274) net deferred losses on advance refundings, net b011d praniwns aod discounts, and bond i.ssuaDce costs • (Sl,906,6S2) business-type md (S2,3S7,S92) lO"Cf1lmental. Additionally, this amouttt includes $323,567,720 of bonds~ to finance CRtaprise fund activities. 82 City of Lubboek, Texas Notes to Basic Financial Statements September 30, 2006 NOTE m. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) H. LONG-TERM DEBT (Continued) At September 30, 2006, management of the City believes that it was in compliance with all fiiWlcial bond covenants on outstanding general obligation bonded debt, certificates of obligation, and water revenue bonded debt Interest RJte(%) 3.80 to 5.SO 4.25 to6.1S J.IOtoS.OO '4.00 to S.2S Total laue Date 6-IS-9S 1-01-98 J-15-99 7-01-01 LP&L REVENUE BONDS FinaJ Maturity Date 4-IS-08 4-15-18 4-IS-19 4-IS·21 Amount luued s 13,560,000 9,170,000 14,975,000 9,200,000 $ 46,905,000 Balaace Outltaading 9-30-06 $ 1,965,000 S,SlO,OOO 1,.525,000 6.900,000 $21,910,000 ' • Balance outstanding eKcludes $274,845 of net deferred losses on advance refundings, bond premiums and di.s&»unts, and bond issuance costs. Interest Rate(%) 3.983 4.25 toS.O Issue Date 09-3~5 04-3~6 Flaal Maturity Date 09-30-25 02-IS...27 17,960,000 18,573,906 17.595,417 18zS73,905 $36,533,906 $36,169,322 • • Ba11111cc outscanding cc.cludes ($461 ,83 9) discount and deferred losses on bonds sold or refunded. The annual requimnents to amortize all o~tstanding debt ofthe City u of September 30,2006 are as follOW$: GoventRMDtal Activities Basiness-Type Adinties Fiscal Geaeral Obligation Bonds Geoeral Obligatioo Bollds Rn'ea•• Boad.s Year Principal Interest Priadpal laterest Priaclpal Interest 2007 6,367,599 S/)70,307 16,182,401 15,617,695 3,871,149 3,021,708 2008 6,81S,093 5,270,849 17,019,907 14,101,110 3,m,331 2.612,994 2009 6,855,963 4,994,544 17,004,037 13,406,654 3,016,932 2,448,196 2010 6,677,160 4,718,846 17,147,840 12,696,672 3,062,637 2,315,474 20tl 6,i92,S27 4,42~.865 17,557,473 11,942,950 3,110,359 2,181,036 2012-2016 33,943,446 17,559,698 86,021,554 47,795,519 14,872,099 8,860,165 2017-2021 32,655;873 9,916,808 79,014,127 27,439,606 14,887,118 5,089,9SS 2022-2026 24,249,619 2,482,180 46,720,381 12,003,058 10,891,111 l,6SS,6S1 2027-2031 19,835,000 4,279,800 590,586 29,529 2032-2036 7,065,000 541,625 Totals $ 124,457,280 s 55,342.097 $ 323,567,720 s 159,824,743 $ 58,079,322 $ 28,214,714 Capital leases were used to acquire equipment and vehicles. The interest rate on the leases ranged from 2.00/o to 4.3%. The a~mual requirements on capital leases oftbe City as of September 30,2006, including interest payments ofSt, 790,785 are as follows: 83 0 0 0 c c c r - ,. .... ( c ( 0 ) City of Lubbock, Texas Notes to Basic Finaoclal Statements September 30, 2006 NOTE m. DETAIL NOTES ON ALL ACfJVITIES AND FUNDS (Coatinoed) R LONG-TERM DEBT (Coatlnued} Govera•e.tal Butlness-Type Total Capital Lease Capital Lea,e Capital Lease FJ•cal Mluimum Mlulm11m Mlalmum Year Palment Palm cat Paymeat 2007 1,694,&43 2,277,756 3,972,S99 2008 1,694,843 1,946,263 3,641,106 2009 1,673,144 1,842,705 3,515,849 2010 1,522,290 1,748,474 3,270,764 2011 725,904 1,086,012 1,111,916 2012-2016 1,116,246 381,832 1,498,078 Len: Interest ~896,7 1 12 ~894,0742 (1 ,790,78S! Tot&! $ 7,530,559 $ 8,3&8,968· s 15,919,527 The canying values on the leased assets of the City as of September 30, 2006 are as follows: . Aeeumulated Net Book GrouVal11t D!J!redation Value Governmental Activities $ 12.350,672 $ 3,363,345 s 8,987,327 Business-Type Activities 12,093,797 2,.158,891 9;9341906 Total Leased Assets $ 24,444,469 s S,S22,236 $ 18,922,233 Long-term obligations (net of discounts and premiums) for governmental and business-type activities for the year coded September 30, 2006 are as follows: Debt Payable Dellt Paya.ble O.ei• 9fl0n005 Additloas Ddctioas 9/Jfll006 o~~elcar Govcmmea.taJ 1divities: Tu:·Supported • Obligation Bonds s 102,720,269 s 27,526,113 s 5,789,102 $ 124,437,210 s 6,367,599 Capilal Lcasm 3,954,885 5,119,980 1,544,306 1,530,559 1,426,999 CompeNaled Absences 16,288,365 6,313,086 6,341,414 16,260,037 6,133,264 1118111'11100 Claim Payable 2.340.260 19,060,956 18,640,060 2.761,156 2,512,.041 Bond Discounts/Premiums 1~86.5,984 620,860 129,252 2,351,592 Arbilngc Payable 1.51,716 Ul,716 Toal GoveramntaJ acdYidu s 127,169,763 s 58,792,.711 s 32,444,134 S 153,Sll,340 s 16,439,903 Busioca-Type acdvlda: Self-5uppo~- Obliption Bonds 286,749,731 70,993,887 34,175,898 323,567,720 16, 182,.40 I Revenue Bonds 42,800,000 18,573,906 3,294,5&4 58,079,.322 3,871,149 Capital Leases 1,.354,576 8,151,734 1,124,.342 8,38&,968 1,974,403 CloswVPosl Closure 3,073,391 2.2$,740 3,299,131 Compensated Absenoes 5,000,165 2,532,659 2,.217,628 5,363,796 2,.571,795 IIISUI8IIoe Claim Payable 6,501,893 3,235,231 4,476,153 5,260,976 2,444,632 Bond DismuntsiJ'mniums 2,555,443 648.300 1,297,066 1,906,682 Arilitrage Payable 71191 71191 Total Busbaca-Type actiY1ties s 348,035,809 s 104,489,648 s ~8S.671 s 405,939,786 s 27,044,380 84 City ofLubboek, Tens Notes to Basic Financial Statements September 30, 2006 NOTE m. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (ContiDtted) 1L LONG-TERM DEBT (Continued.) Payments on bonds payable for govemmensal activities are made in the Debt Service Fund. Bonded debt is subject to the applicability of federal arbitrage regulations. Accrued compensated absences that pertain to governmental activities will be liquidated by the General Fund and Spec.iat 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. . The totallong-tenn debt is reoonciled to the total annual requirements to amortize loog-tenn debt as follows: Long-cema debt • Go:vemtnenw Act.Mties $ 153,518,340 Loag-ttw debt • Bwineu-type Aai:vities 405,939,786 In~M:St U3)81,5S9 Total amount of debt $ 802,839,68S Net gains/losses, ptemiums/~ts (4,264.274) Less: Atbitnge ~yahle (222,901} . Less: Capitll.leases (tS,9t9,SZ7} Less: lllSUWKe c:laUrw payable (8,022,1l2) Less: Compcnmcd llbsenses {,21,625,833) · L<= Cfosute/post doswc (3,299,131} Total other debt !S3)S3.804l Total fueu.re booded debt scquitem~ts $ 749,485,881 New Bo.nd Issuances In April 2006,.1he City issued $76,950,000 Tax and Waterwodcs System Surplus Revenue Certificates of Obligation, Series 2006. The Certificates were issued at a premium of $2,580,245. After paying issuance oosts of $541,101, the net proceeds were $78,985,000. Proceeds fi'oin the sale of these certificates will be used for airport, Municipal Building, parks. and ~etery improvements, street repairs, and solid waste, stormwa~r, wastewater, parks, streets, Lubbock: Power & Light and ~nomic development projects; and oosts associated with the issuance of the Certificates. The proceeds of the debt are recorded in various Enterprise Funds and Capital Proje<:ts Funds. The City also issued $2,740,000 General Obligation Bonds, Series 2006 in April 2006. The General Obligation Bonds were issued at a premium of $8,076. After paying issuance costs of $14,766, the net pnx:eeds were $2,71 S,OOO. Proceeds from the sale of these certificate$ will be used for constructing street improvements including drainage, curbs. gutters, landscaping, sidewalks, cwb ramps. utility line relocation and traffic signalization and the acquisition of land and rights-of-way and for acquiring and improving land for parlc purposes. The proceeds of the debt are recorded in various Capital Projects Funds. The Canadian River Municipal Authonty issued a new Contract Revenue Bond, Series 2006 in April 2006 in the amount of $49,075,000. The City of Lubbock shared in that issue for $18,573,906 and other costs of $492,465, and received depreciable assets (water rights) valued at $19,066,371. These assets and liabilities are recorded in Che Water Enterprise Fund. 85 0 0 0 0 0 c c c c c 0 0 0 0 City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2006 NOTE m. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) H. LONG-TERM DEBT CContinu@ Advanced RefuadlDgs The City issued en advance refunding to retire a portion of the City's outstanding debt to lower the debt service requirements on such indebtedness. The net proceeds from the issualwe of the R.efuoding Bonds were deposited with the Escrow Agent (JP Morpn Chase Bank, National Association) in an amount necessary to accomplish the discharge and final payment of the Refunded Bonds on their scheduled redemption date. These funds wiD be held by the Escrow Agent in a special escrow fund and used to purchase direct obligJtioos of the United Swes of America. Under the escrow agreements, between the City and JP Mcngan Chase Bank, the escrow funds are ilrevocably pledged to the payment of principal and itdetest oit the Refunded Bonds. In May 2006, the City issued General Obligation Refimding Bonds, Series 2006 ("Refunding Bonds") with a par value of$18,830,000. The Refunding Bonds refunded $18.,015,000 outstanding bonds. They were issued at a net premium of $272,244 and had $208,013 issuance costs. M. a resuh of the refimdiJig. the City decreased its total debt service requirements by $702,199, which resulted in an economic gain of $450,705 art4 an acc;ountiDg loss of$862,823. The debt transactions are recorded in an Enterprise Fund. L OONDUIT DEBT The City issued Housing Finance Corporation Bonds, Health Facllides Development Corpomion Bonds, and Education Facilities Authority Bonds to provide financial assistance to private-sector entities for the acquisition and construction of filcilities deemed to be in the public imere8t. The bonds are secured by the property fioanced. Upon repayment of the bonds, ownership of the acquired tacllities transfers to the private- sector entity served by the bond issuance. Neither the City, the State, nor any potitical subdivisiO!l thereof is obligated in any manner for repayment of the bOnds. Accordingly, the bonds arc not reported as liabilities in the accompanying financial statements. As of September 30, 2006, there were five serie:i of Lubbock Health Facilities Development' Corporatiou Bonds ou.C3taodiog with an aggregate principal amount payable of$273,890,991. The bonds were issued between 1993 and 2005. A~ as of September 30, 2006, there was one series of Lubbock Education Facilities Authority Inc. Bonds outstanding with an aggregate principal amount payable of$8,635,000. The bonds were issued in 1999. · J. RISK MANAGEMENT The Risk Management F:und was established to ~WX:Cunt for liability c~. worker's oompeusation claims, and premiums for property/casualty insurance coverage. The Risk Management fWd geru:rates its revenue duougb charge$ to other depBJtmcnts, which are based on costs. In April 1999, the City purchased workers' oompensation c:overage. with no deductJble, from a third party. Prior to April 1999 the City was self-insured for worker's compensation claims. Any claims outstanding prior to Aprill999 continue to be the responsibility of the City. 86 City of Lubbock. Texas Notes to Basic Financial Statements September lOt 2006 NOTE m. DETAD.. NOTES ON ALL ACTI.VITIES AND FUNDS (Continued) J. RISK MANAGEMENT (Continued) 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 pro~ 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 aMually. The policy has a $10 million annual aggregate limit and is subjed to a $250,000 deductible per claim prior to October 1, 2005, and a $500,000 deductible per claim since O«ober . 1,2005. For self-insured coverage, the Risk Management Fond establishes claim liabilities based on estimates of the ultimate cost of claims (including future claim adjustnlent 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 docs 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 cwrent estimates that reflect recent settlements, claim fn>quency, and other economic and social factors. Adjustments to claim liabilities are charged or credited to expense in the. period in which they are incum:d. · .Additionally, property and boiler coverage is accounted for in the Risk Management Fund. The property insurance policy was purchased from an outside insurance carrier. The policy has a $250,000 deductible per occurrence, and the boiler coverage insura.m:e deductible is up to $500,000 dependent upon the unit. .Premiums are charged to funds based upon estimatA:d premiums for the upcoming year. Other small insurance policies, such as surety bond coverage and miscellaneous floaters, are also accowtted for in the Risk Management Fund. Funds are charged based on premiwn amowtts and administrative charges. The City has had no signifi.cant.reductions in insunmce coverage during dte fiscal year. Settlements in the cummt year and preceding two years have not exceeded insurance coverage. The City accounts for all insurance activity in Internal Service Funds. K. HEAL Til INSURANCE The City provides medical and dental insurance for aU Ml-time employees that are accounted for in die Heallh Benefits Fund. Revenue for the health insurance premiums arc generated from each cost center based upon the number of active tWI·time employees. The City's plan is self-insured under an Administrative Services Only (ASO) Agreement. The ASO Agreemeat 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 lhe aggregate d~ctible. The contract requires an IBNR reserve of approximately $2.3 million. The City also provides Ml-time employees basic tenn life insurance. Revenue$ for the life insurance premiums are also generated from each cost center based upon lhe number of active employees. The life insurance policy bas a face value of$10,000 per employee. . FuU·time employees may elect to purchase medical and dental insurance for eligible dependents and the City subsidizes dependerrt 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. 87 0 0 0 0 0 0 0 c c c 0 0 0 0 City of Lubbock, Texu Notes to Basic: Financial Statements September 30, 1006 NOTE In. DETAU.. NOTES ON ALL ACTIVl1'IES AND FUNDS (CoDtinaed) K. HEALTH INSURANCE (Continued) 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 S 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 uoreported insured events, which includes estimates of both future payments of losses and related claim adjustment expenses. The following represents changes in those aggregate liabilities for the Self-Insurance Funds during 1he past two yeus CDded September 30: Worlcers' ~on and Uability Reserves at begiMingoffisca.l )ar OaiJm &penscs Claims Payments Workers' ComperiSBI:ion and Liability Reserves at end of fiscal :year Medical and tkotal OaUm Uabilily at beginning of fiscal year Cairns Elcpcmes Claims Pa)ments Medical and Dental Claims liability at end of fiscal Y= Total Self-Insurance Liabi I ity lit end of fiscal year Total .Assets to pay claims· at end of &cal )at Accrued insurance claims payable 1iom restrided assecs • aJrTaJt ALlcrued insurance claims payable • nonctl'tl'mt Thlal acaued insunlnce claims FY1006 $ 6,501,898 3,~5,231 ~4.476,153~ 5;19),916 2,340,260 19,060,956 ~18,640,060) 2,761,156 8,022,132 11,237,066 4,956,673 3,065,459 $ 8,022,132 M. LANDFILL CLQSURE AND POSTCLOSURE CAR£ COST FYlOOS $ 6,436,854 4,658,359 (4,593,31~ 6,501,898 2,354,536 17,432,646 ~17,44619221 2,340,260 8,842,158 12,646,638 3,943,861 4,898,297 $ 8,842,158 . State and federal Jaws and regulations require the City to place final covers on its landfill sites when they stop accepting waste and to perfonn certain maiotcnance and monitoring functions at the sites for thirty yC&~S after closure. Although. closure and postclosure care costs will be paid only near or after lhe date that the landfi.Us stop acc;epting waste, the City reports a portion of these cl~ and postclosure costs u operating expenses (lllld recognizing a corresponding liability) in each period based on landfill capacity used as of each balance sheet date. 88 City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2006 NOTE m. DETAIL NOTES ON ALL AC11VITIES AND FUNDS (Continued) M. LANDFILL CLOSURE AND POSTCLOSURE CARE COST (Continued) The $3,299,131 included in landfill closure md pmtc:losure care liability at September 30, 2006, represenlS the cumulative amount expe.nsed by the City to date for its two landfills that are registered under TCEQ permit nwnbers 69 (Landfill 69) and 2252 (Landfill 2252), less amounts that have been paid. Approximately 92 percent of Jbe estimated capacity of LandfiU 69 has been used to date, with $806,525 remaining to be recognized over the remaining closure period, which is estimated at two years. Approximately 2.7 percent of the estimared capacity of Landfill 2252 bas been used to date, with $73,900,64 t remaining to be recognized over the remaining closure period, which is estimated at over 80 years. PostclOS\R care costs are based on prior estimates and have been ·adjusted for inflation. Actual costs may be different due to inflation, defl&tion, changes in technology, or changes in regulations. The City is required by state and federal laws and regulations to provide assurance that financial resouroes will be available to provide for closure, postclosurc care, and remediation or containment of environmental hazards at its landfills. The City is in compliance wilh these requjiements and has chosen the Local Government Financial Test mecllao.ism for providing this assuruce. The City expects to finance c:osts through normal operations. N. DISAGREGATION OF ACCOifNTS-FUND FJNMCIAL STATEMENTS Aalouats Recemble Sununa!l CGurt Property Balance at Ftaes Damase Pavtns Mise. 9/JD/06 Goven~mental Activities: Oeneral Fund $ 4,394,859 s 258,940 $ 329,780 s 17S,317 $ 5,15&,896 Nonmajor 341~ 341£907 Total $ 413941859 s 258,940 $ 329!780 s 517,.224 $ 515001803 Auouals Receivable Su111ma!1 Geaenl Credit Balaaceat Consumer Card Misc. 9130106 Buslaesa-type Activities: LP&:L $ 16,472,414 $ $ 81,008 s 16,553,422 Wattr 4,737,859 250 4,738,109 WutcwatCI' 2,445,149 2,445,149 Storm water 715,559 715,559 WIMP A 1,100,814 1,800,814 NOIUIIIIjOI' 311421939 51791 125 311~855 Total $ 29,3741734 $ 5!791 $ 81,383 S 29,4611908 89 0 0 0 0 0 0 0 c c c c 0 0 0 0 0 Q 0 0 City of Lubboc~ Texas Notes to Basic Finaucial Statements September 30, 2006 NOTE III. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Cootioued) N. DISAGREGATION OF ACCOUNTS-FUND FINANCIAL STATEMENTS CCoutla.ued) Allowaace ror Doubtf•l Account~ Sam111ary Balance at 9130106 Govc:mmcntal General Fund $ 3,333,240 Nonmajor Busines:r Type LP&L 1,008,169 Water 445,656 Wastewater 187,475 Stonnwater 86,291 WTMPA Nonmajor 231,312 Total $ 5,292,143 Aceellbb Papble Su•mary Balance at Vove1ter1 Auouats MlsceUaaeous 9130106 Govenune~~ul: QeoeqJ Pund $ 688,014 s 2,188,.258 $ 409,627 $ 3,285,899 Nonma,jor 1,022,563 1,000,889 176,081 2,199,533 Buiaea-Type: LP&L 490,514 272,557 272,135 1,035,206 WIIL:r 331,100 2!179,886 124,574 2,635,560 Wastewater 149,577 155,616 161,633 1,066,886 Stormwater 55,129 1,075,828 14,8&0 _1,146,437 WTMPA 8,329,910 8,329,910 N~or '96,.251 1,7281886 94.;!30 1,919,467 Total $ 2,833,748 $ 17,531,890 $ 1,253,260 s 211618,898 90 City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2006 NOTE m. DETAR. NOTES ON AL~ ACTIVITIES AND FUND (Continued) o. DISAGREGATION OF ACCOUNTS· GOVERNMENT -WIDE Net Re«ivables A«ounts later est Taxes laterual Strviu Balaneeat Receivable Receivable Receivable Receivables 9130106 Covernme~~tal Activities $ 2,167,563 $ 386,349 $ 9,159,695 $ 5,784 $ 11,719,391 Business-type A divides 27,503,005 111,576 5,704 27,620,285 Total $ 29,670,568 $ 497,925 $ 9,159,695 $ 11,488 $ 39,339,676 Aucuats Pa~bfe Aeeouafs latera a! Service Balaaceat Payable Payables 91J0(06 Coverumeotal Activities $ 5,485,43.2 $ 181,289 $ 5,666,721 Basmess-type Adivities 16,133,466 736,217 16,869,683 Total $ 21,618,898 $ 917,506 $ 22.536,404 NOTE IV. CONTINGENT LIABn..ITIES A. FEDERAL GRANTS ln dte normal course of operations, cbe City receives grant funds from various federal and state agencies. The grant pcograrns are subject to audits by agents of the granting authority to ensure compliance wilb 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. LmGATION The City is currently involved in the following lawsuits which could have an impact on 1he fmancial position if the City is found liable. · Charles Emmanuel Bosler, as Surviving Parent of Courtney Nicole Bosler, as Guar<lian of Colton Bosler v. Travis Riddle and The ~ity of Lubbock: Plaintiff sued the City of Lubbock and Officer Travis Riddle on behalf of himself and his children arising out ·of the death of his teenage daughter and injuries to his son from an automobile accident with Officer Travis Riddle. Plaintiff alleges that Officer Riddle was operating his vehicle in a negligent manner and was speeding at the time of lhe collision. The Defendants asserted that the driver of the vehicle canying 1he Bosler children, which was the mocber, was negligent in failing to yield the right-of-way to Officer Travis Riddle. 91 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2006 NOTE IV. CONTINGENT LIABILITIES (Contiaued) 8. LITIGATION (Continued) The City filed a Motion for Summary Judgment based on the fAct that the Plaintiff did not present his notice of claim to the City of Lubbock within six (6) months of the date of the accident. The Plaintiff never filed a notice of claim and filed suit seven (7) months after tbe date of the accident. The Plaintiff claims that notice was not necessary in that the Defendants had actual notioe of the incident The trial court granted the City's Summary Judgment based on the fact that the Plaintiff did not file a claim with the City ofLllbback within six (6) months from the date of the ac<:ident. The Plaintiff has appealed this decision to the Court of AppeaJs. Martha Dillon v. City of Lubbock: Plaintiff is suing the City ofLubboclc: for injuries arising from an automobile accident with a City .of Lubbock driver. The City of Lubbo<:k driver was exiting an alley when he "T·Boned" the vehicle driven by Martha Dillon. The Plaintiffbad wtdergone previous back surgery, undergone rehabilitation, and bad recovered from the previous back surgery to return to work full-time. She bad been world.ng full-time for approximately duee (3) weeks before this accident occurred As a result of this accident she has undergone other procedures including another back S1JI8ery at the end of October. According to her treating physician, who is a well respected local physician. ber prognosis for being able to return to work on a full-time basis is not very good. Grace Nuaez and Juan Nunez, et al "· City or Lo.bbock and Taser IDternational, hie.: Plaintiffs are suing the City of Lubbock and Taser International arising from the City of Lubbock's police officer's use of a taser in arresting Juan Nwtez. The City of Lubbock police oflioer utilized a tascr in arresting Juan Nunez and Nunez died after the taser was utilized. The City of Lubbock's Plea to the Jurisdiction asserting that the City has no liability under Section 101.057 of the Texas Tort Claims Act has heen denied by the trial cowt. The City bas appealed the decision to the Court of Appeals. A recent case widt similar facts to the present case was deoided by the War;o Court of Appeals in City of Waco v. Williams. In that case the appellate court ruled that the City of Waco had inununlty under this scenario. This was a 2-1 decision and it is anticipated that the Plaintiffs will appeal the City of Wac<~ case to the Texas Supreme Cowt. · · Grace Nunez and Juaa Nunez, et all v. City of LubbcKk, Officer Matt Doherty and Taser [ D teraa tlonal, Inc. This lawsuit preaents the same fac:t situation as described in the previous Nwtez lawsuit. The difference is that this lawsuit alleges civil rights violations against the City lllld Officer Matt Doherty. The suit was tiled on December 22, 2006 in lhe Amarillo Division of the Northern District . 92 City of Lubbock, Texas Notes to Basic Financial Statements September 30? 2006 NOTE IV. CONTINGENT UABn.lTIES (Continued) B. LITlCATlON (Continued l Oscar Renda Contraeting, lne., et al v. City of Lubboekt et al: The Plaintiff is a contractor who bid to perfonn -a contract for the City of Lubbock. Even though Oscar Renda Conttacting's bid was over $2,000,000 less than the company wbo rec:eived the award from the City of Lubbock, Oscar Renda Contracting was not awarded such bid. Oscar Renda asserts that the reason it was not awarded the bid was because it has filed a suit against another public entity in EI .Paso n!gatding one of its construction projects. They base this on the fact that litigation and the cost of litigation with non-local contractors was mentioned at the time the bid was awarded in August 2006. City of Lubbock filed a Motion for Summary Judgment and it was granted by the ttial court. However, the Fifth Circuit of Appeals reversed the dec:ision of th.e mal court and n!manded the case back to lrial in a split decision in August 2006. Tho City of Lubbock has filed a petition with tbe United States Suprem1.1 Court in an effort to get them to review the case. Layne StaoJord v. City of Lubboek and Lubboek Civil Service Commission: Plaintiff, a fire fighter, filed suit under the Civil Service Act alleging he was wrongfully denied a promotion. He asserts that the Fire Chief wrongfully passed him over for a promotion because he was charged. but not convicted, of OWl. · The main issue in the case pertains to whether he was entitled to have his case heard by a third·party hearing examiner. He asserts th.at since the City refused to allow the case to be heard by a hearing examiner, be is entitled to the promotion. The trial court ruled in the Defendant's favor. The case is c:uirently on appeal. Damages are limited to attorney's fees and back pay. LJ. McCallan, Jr. v. City of Lubbock, et al: A lawsuit was filed in late November against the City of Lubbock and three Lubbock police officers pertaining to an incident in which a suspect was injured with a laser utilized by one of the Lubbock police officers. Plaintiff is suing the City and the officers under the Civil Rights Act and is also suing the City under the Texas Tort Claims Act. At this time we do not have much information as we have yet to review the police reports. the investigation by internal affairs, or review the video of the incident. However, it does not appear that there were any significant injuries to the plaintiff: Terry Ellerbrook v. City of Lubbock: Plaintiff is a current employee of ~e City of Lubbock alleging claims of age discrimination., whistle blower claims, retaliation and damages because he was moved ftom one position to another position within the City. . Also, the Plaintiff is asserting open meeting violations by the City. Mr. BUerbrook is employed as the Director of Solid Waste and is currently earning more money than he was in his prior position. Discovery is ongoing. This case is pending the 23711i District Court and is set for trial in Au~ 2007. The City is denying the allegations and' claims made by the Plaintiff. 93 0 0 0 0 0 0 0 0 0 0 0 0 0 City ot Lubbock, Texas Notes to Buie Financial Statements Sep~ber30,1006 NOTE IV. CONTINGENT LIABILITIES (Continued) C. SITE REMEDIATION The City bas identified specific locations requiriDg site remediation relative to underground fuel storage tanks ·and historical fire training sites. One of the sites referred to below as Lubbock Power & Light (LP&L) Plant l, represents a liability equally shared by both the City and LP&L. A3 of September 30, 2006 the City identified three locations Chat posed a probable liability. The City recorded the liabilities for the three locations in the Enterprise Funds as follows: • LP&L Plant I ($236,000)-this represents LP&L's portion of the liability only • LP&L Cooke Plant ($539,000) • WesT ex Aircraft ($300,000) The City recorded the probable liabilities in the government-widC governmental statements as fOllows: • LP&L Plant I ($236,000)-this represents the City's portion only • Police Firing Range ($30,000) • CFR Training Facility ($114,220) • Fire Training Academy ($338,335) • South Fueling Facility ($204,000) The potential exposure for one rem.ainiDg location is not readily delmn.inable as of September 30, 2006. In tbc opinion of management, the ultimate liability for Ibis location wnJ not have a materially adverse etiect on tbe City's financial position. NOTE V. SUBSEQUENT EVENT On January 10, 2007, the City sold $54,020,000 General Obligation Refunding Bonds and $25,255,000 Certificate of Obligation Bonds. 94 0 0 0 0 0 APPENDIXB FORM OF BOND COUNSEL OPINION 0 0 0 c 0 0 () 0 G 0 0 Vinson &Elkins [Form of Opinion of Bond Counsel] [Closing Date] $. _____ _ CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERlES 2008 WE HAVE represented the City of Lubbock, Texas (the "City"), as its Bond Counsel in connection with an issue of certificates of obligation (the "Certificates'') described as follows: CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION, SERIES 2008, dated January 15, 2008, issued in the principal amount of$'-------- The Certificates mature. bear interest, are subject to redemption prior to maturity and may be transferred and exchanged as set out in the Certificates 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 Certificates under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Certificates from gross i.ricome 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 Certificates. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Certificates 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 Certificates. on which we have relied in giving our opinion. The transcript contains certified copies of certain proceedings of the City, customary certificates of officers, agents and representatives of the City and other "'-xx a Ellclna UP ~ • Lew Aus1ln Be~ 0a1as Ocbal Houston London Moecow New YO!tt Tokyo Waahlnglon Dallas 1201430v.l Tntmmel Crow Center, 2001 Ross A ... ru. Sull8 3700 Dallas. Te..s 75201-2975 Tel214.2.20.noo Fu 214.2.20.7716 -·""".com V&E public officials, and other certified showings relating to the authorization and issuance of the Certificates. We have also examined executed Certificate No. 1 of this issue. BASED ON SUCH EXAMlNATION, IT IS OUR OPINION THAT: (A) The transcript of certified proceedings evidences complete legal authority for the issuance of the Certificates in full compliance with the Constitution and laws of the State of Texas presently effective and, therefore, the Certificates constitute valid and legally binding obligations of the City; and (B) A continuing ad valorem tax upon all taxable property within the City, necessary to pay the interest on and principal of the Certificates, has been levied and pledged irrevocably for such purposes, within the limit prescribed by law, and the total indebtedness of the City, including the Certificates, does not exceed any constitutional, statutory or other limitations. In addition, the Certificates are further secured by a limited pledge (not to exceed $1,000) of the swplus net revenues of the City's Wastewater System, as described in the Ordinance. THE RIOIITS OF THE OWNERS of the Certificates 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 Certificates is excludable from gross income for federal income tax purposes under existing law; and (2) The Certificates are not "private activity bonds" within the meaning of the Internal Revenue Code of 1986, as amended (the "Code"}, and interest on the Certificates is not subject to the alternative minimum tax on individuals and corporations, except that interest on the Certificates will be included in the "adjusted current earnings" of a corporation (other than an S corporation, regulated investment company, REIT, REMIC or FASllj 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 Certificates with respect to matters solely within the knowledge of the City, the City's financial advisor and the underwriters respectively, which we have not independently verified, and have assumed continuing compliance with the covenants in the Ordinance pertaining to those sections of the Code that affect the exclusion from gross income of interest on the Certificates for federal income tax purposes. If such representations are determined to be inaccurate or incomplete or the City fails to comply with the foregoing -2- Dallas 1201430v.l 0 0 0 0 0 0 0 0 0 0 c o · V&£ provisions of the Ordinance, interest on the Certificates 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 Certificates. 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 caay 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, ~ 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 hereo£ We assume no duty to update or supplement these opinions to reflect any facts OJ:' 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 ~tee 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 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 will commence an audit of the Certificates. 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 Certificates as includable in gross income for federal income tax pwposes. -3- Dallas l201430v.1 0 0 0 0 0 0 0 0 c 0 a 0 OFFICIAL STATEMENT DATED JANUARY 17,2008 IN THE OPINION OF BOND COUNSEL, INTEREST ON THE CERTIFICATES IS EXCLUDABLE FROM GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES UNDER EXISTING LAW AND THE CERTIFICATES ARE NOT PRJVA TE ACTIVITY BONDS. SEE "TAX MA TIERS -TAX EXEMPTION" HEREJN FOR A DISCUSSION OF THE OPINION OF BOND COUNSEL, INCLUDING A DESCRIPTION OF ALTERNATIVE MINIMUM TAX FOR CORPORATIONS. NEW ISSUE: BOOK-ENTRY-ONLY Dated: January 15, 2008 RATINGS: Moody's lnveston Senice, Inc:. "Aaa" Stsodard & Poor's Ratings Services "AAA" Fitcb Radngs "AAA" $52,900,000 See "OTHER INFORMATION-RATINGS" and "BOND INSURANCE" herein. CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION, SERIES2008 Due: February IS, as sbown on tbe inside cover Principal of and interest on the $52,900,000 City of Lubbock, Texas (the "City"), Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008 (the "Certificates") are payable by The Bank of New York Trust Company, National Association, Dallas, Texas (the "Paying Agent/Registrar"). The Certificates are 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 Certificates may be acquired in denominations of$5,000 or integral multiples thereof. No physical delivery ofthe Certificates will be made to the beneficial owners thereof. Principal of and interest on the Certificates will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the beneficial owners of the Certitic~s. See ''THE CERTIACA TES -BOOK-ENTRY-ONLY SYSTEM" herein. Interest on the Certificates will be calculated on the basis of a 360-d.ay year consisting of twelve 30-day months, will accrue from January l 5, 2008, and is payable on August I 5, 2008, and each February IS and August IS thereafter until maturity or earlier redemption, to the registered owners (initially Cede & Co.) appearing on the registration books of the Paying Agent/Registrar on the last business day of the month preceding each interest payment date (the "Record Date") (see "THE CERTIFICATES -DESCRIPTION OF THE CERTIFICATES"). The Certificates are subject to optional redemption prior to their scheduled maturities at the option of the City (see ''THE CERTIFICATES - OPTIONAL REDEMPTION"). The Certificates are payable from a combination of (i) the proceeds of a oontinuing, direct annual ad valorem tax, levied within the limits prescribed by law, on all taxable property within the City, and (n) a pledge of surplus net revenues of the City's Wastewater System not to exceed $1,000. The Certificates are issued pursuant to the Constitution and general laws of the State of Texas, particularly subchapter C of Chapter 2-71, Texas Local Government Code, as amended, Chapter 1371, Texas Government Code, as amended, and an ordinance adopted by the City Council (the "Ordinance"). Proceeds from the sale of the Certificates will be used for the purpose of paying contractual obligations to be incurred for (i) improvements and extensions to the City's Wastewater System and (ii) professional services rendered in connection therewith. In addition, a portion of the proceeds from the sale of the Certificates will be used to pay the costs of issuance of the Certificates. The scheduled payment of principal of and interest on the Certificates when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Certificates by FINANCIAL SECURITY ASSURANCE INC. (see "BOND INSURANCE"). The Certificates are offered when, as and if issued, subject to the approving opinion of the Attorney General of the State of Texas and the opinion of Vinson & Elkins L.L.P., Bond Counsel, Dallas, Texas. Certain legal matters will be passed upon for the Underwriters named below (the "Underwriters") by their counsel, McCall, Parkhurst & Horton L.L.P., Dallas, Texas. See "'THER INFORMATION-LEGAL MATIERS." Delivery of the Certificates through The Depository Trust Company is expected to be on or about February 12, 2008. Morgan Keegan & Company, Inc. Merrill Lynch & Co. Morgan Stanley Southwest Securities PRINCIPAL AMOUNTS, INTEREST RATES AND PRICES CUSIP Prefix: S49187 $52,900,000 Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008 ,(Due February 15) Initial Principal Interest Offering CUSIP Maturity Amount Rate Yield {a) Sufftx (b) 2009 $ 1,765,000 4.000% 2.6700.4 6QO 2010 1,830,000 3.500% 2.7000.4 6R8 2011 1,895,000 3.5000.4 2.790% 6S6 2012 1,960,000 3.2500.4 2.890% 6T4 2013 2,025,00o 3.250% 2.980% 6Ul 2014 2,095,000 3.250% 3.100% 6V9 2015 2,165,000 3.5000.4 3.200% 6W7 2016 2,245,000 3.5000.4 3.320% 6XS 2017 2,325,000 3.625% 3.420% 6Y3 2018 (c) 2,430,000 5.0000.4 3.520% 6ZO 2019 (c) 2,550,000 5.0000.4 3.62001<1 7A4 2020(c) 2,685,000 5.000% 3.69001<1 782 2021 (c) 2,820,000 5.0000.4 3.7700.4 7CO 2022 (c) 2,965,000 5.000% 3.840% 7D8 2023 (c) 3,11,5,000 5.00001<1 3.9000.4 7E6 2024 (c) 3,265,000 4.200% 4.200% 7F3 2025 (c) 3,420,000 5.000% 4.020% 7G1 2026(c) 3,595,000 5.000% 4.0800.4 7H9 2027 (c) 3,780,000 5.000% 4.120% 7JS 2028(c) 3,970,000 5.00001<1 4.160% 7K2 (a) The initial yields will be established by and are the sole responsibility of the Underwriters, and may subsequently be changed. (b) CUSIP llwnbers have been assigned to the Certificates by Standard and Poor's CUSJP Service Bureau, a Division of The McGrew-Hill Companies, Inc., and are included solely for the convenience of the registeted owners of the Certificates. Neither the City, the Fioancial Advisor, nor the Underwriters are responsible for the seleetion or correctness of the CUSIP numbers set forth herein. {c) The Certificates maturing on February 15,2018 and thereafter are subject to redemption, at the option of the City, at par value thereof plus accrued interest on February IS, 2017 or any date thereafter (see "THE CERTIFICATES-OPTIONAL REDEMPTION"). 0 0 0 0 0 ·0 0 0 0 0 1""\, 0 0 ..... .. USE OF INFORMATION IN OFFICIAL STATEMENT No dealer, broker, salesman or other person has t..een authorized by the City to give any information or to make any representation other than those contained in this Official Statement, and. if given or made, such other information or representations must not be relied upon as having been authorized by the City. This Official Statement is not to be used in an offer to sell or the solicitation of an offer co buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. This Official Statement contains, in part, estimates, assumptions and matters of opinion which are not intended as statements of fact, and no representation is made as to the correctness of such estimates, assumptions or matters of opinion or as to the likelihood that they will be realized. Any information and expressions of opinion herein contained are subje<:l to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there bas been no change in the condition of the City or other matters described herein since the date hereof. See ~oTHER INFORMATION-CONTINUING DlSCLOSURE OF INFORMATION" for a description of the City's undertaking to provide certain information on a continuing basis. The information set forth or included in this Official Statement has been provided by the City and from other sources believed by the City to be reliable. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale hereunder shall create any implication that there has been no change in the financial condition or operations of the City described herein since the date hereof. This Official Statement contains, in part, estimates and matters of opinion that are not intended as statements of fact, and no representation or warranty is made as to the correctness of such estimates and opinions or that they will be realized. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as pan of, their responsibilities to inveStors under f~ se<:urities taws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. NEiTHER THE CIIT. THE FINANCIAL ADVISOR, THE UNDERWRiTERS NOR BOND COUNSEL MAKE ANY REPRESENTATION OR WARJUNTY WTIH RESPECT TO THE INF'ORMAT/ON CONTAINED IN THIS OFFICIAL STATEMENT REGARDING DTC OR ITS BOOK-ENTRY-ONLY SYSTEM. THE COVER PAGE CONTAINS CERTAIN INFORMATION FOR GENERAL REFERENCE ONLY AND IS NOT INTENDED AS A SUMMARY OF THIS OFFERiNG. INVESTORS SHOULD READ THIS ENTIRE OFFICIAL STATEMENT, INCLUDING THE ATTACHED APPENDICES, TO OBTAIN INFORMATION ESSENTIAL TO MAKING AN INFORMED INYESTMENT DECISION. Other than with respect to information concerning Financial Security Assurance Inc. ("Financial Se<:urity") <:ontained under the caption ~BOND INSURANCE" and Appendix C, "SPECIMEN MUNICIPAL BOND INSURANCE POLICY" herein, none of the information in this Official Statement bas been supplied or verified by Financial Security and Financial Security makes no representation or warranty, express or implied, as to (i) the accuracy or completeness of such information; (ii) the validity of the Certificates; or (iii) the tax exempt status of the interest on the Certificates. TABLE OF CONTENTS ~ USE OF INFORMA TJON IN OFFICIAL STA TEI\lENT --·-·-·-·· .. ·······-···-·-· .. · .. -········-··· I TABLE OF CONTENTS ""'~ .. ·--........ --......... _,_ .. 2 OFFICIAL STATEMENT SUMMARY'"'"'""""""' 3 CJTY OFFICIALS, STAFF AND CONSULT ANTS--.. -.... _ .. ____ ...... -....... -·-·-S INTRODUCTION.-......... -............ _,_ ....... ----···-.. 6 DESCRIPTION OF THE CITY ............................ 6 FINANCIAL AND MANAGEMENT CHALLENGES ............................................. 6 THE CERTIFICATES .................. --.-............... _,_ .. 6 DESCRJPTION OF THE CERTIFICATES ......... 6 PURPOSE ............................................................... 6 AUTHORJTY FOR ISSUANCE ........................... 6 SECURJTY AND SOURCE Of PAYMENT ...... 7 TAX RATE LJMlT A TION ................................... 7 OPTIONAL REDEMPTION ................................. 7 NOTICE OF REDEMPTION ................................ 7 AMENDMENTS .................................................... 7 DEFEASANCE ...................................................... 7 BOOK-ENTRY-ONLY SYSTEM ........................ 8 Use of Certain T eiTilS in Other Sections of this Official Statement .......................................... 9 Effect ofT ermination of Book-Entry-Only System ........................................................... 9 PAYING AGENT/REGISTRAR .......................... 9 TRANS~ EXCHANGE AND REGISTRATION ........................................ lO RECORD DATE FOR INTEREST PAYMENT 10 REMEDIES .......................................................... 10 SOURCES AND USES OF FUNDS .................. I I BOND INSURANCE ....................................... -.-...-......... 12 BOND INSURANCE POLICY ........................... 12 FINANCIAL SECURITY ASSURANCE INC.. 12 FORWARD LOOKJNG STATEMENTS DISCLAIMER .. -.. -··--·-·-.. --.. --......... _,_ .... 13 DISCUSSION OF RECENT FINANCIAL AND MANAGEMENT EVENTS ..... -·-·--... -.... -·-14 FY 2003 FINANCIAL CONCERNS AND MID- YEAR BUDGET AMENDMENTS ........... 14 SEPTEMBER 30, 2003 FINANCIAL RESULTS .................................................... 15 FY 2003 AUDJT RESTATEMENTS, RECLASSIFlCATJONS AND INTERNAL CONTROLS ISSUES ............ IS CITY'S RESPONSES TO RECENT FINANCIAL AND MANAGEMENT EVENTS ...................................................... 16 FY 2008 BUDGET ................................. -........... 20 AD VALOR.EJ\1 TAX INFORMATION.-........ --.. 22 AD VALOREM TAX LAW ............................... 22 EFFECTIVE TAX RATE AND ROLLBACK TAX RATE ................................................. 23 PROPERTY ASSESSMENT AND TAX PAYMENT .................................................. 23 PENALTIES AND INTEREST ...... -.................. 24 CITY APPLICATION OFT AX CODE ............. 24 2 TAX ABATEMENT POLICIES ......................... 24 TAX INCREMENT FINANCING ZONES ....... 25 FINANCIAL INFORMATION ..... ·-·-·-·--·-.. -· ... 26 FINANCIAL POLICIES"."""'"'"""""'"'""""'""'"" 40 INVESTMENTS.·-·-·""""""""·-·-·-··-·--·-·---41 LEGAL INVESTMENTS .................................... 41 INVESTMENT POUCIES ................................. 42 ADDITIONAL PROVISIONS ............................ 42 TAX !\<fA TIERS-.... --.. """""'"·-·-.. ---··-·-·""" 43 TAX EXEMPTION .................................. _ ......... 43 ADDITIONAL FEDERAL INCOME TAX CONSIDERATIONS .................................. 43 Collateral Tax Consequences ............................... 43 Tax Accounting Treatment of Original Issue Prenrium ....................................................... 44 OTHER INFORMATION._ .. _,_, ___ ·-·-·-·-44 RATINGS ............................................................. 44 FinanciaJ Guaranty Industry -Recent Events ..... 44 LITIGATION ....................................................... 44 INVESTIGATIONS RELATING TO CITY'S HEALTH INSURANCE ADMINISTRATOR .................................... 45 REGISTRATION AND QUALIFJCA TION OF CERTIRCA TES FOR SALE ..................... 46 LEGAL INVESTMENTS AND ELIGIBJLJTY TO SECURE PUBLIC FUNDS IN TEXAS46 LEGAL MA TfERS ............................................. 46 CONTINUING DISCLOSURE OF INFORMATION ......................................... 47 Annual Repons ..................................................... 47 Materia] Event Notices ......................................... 41 Availability oflnformation From NRMSIRS and SlD ....................................................... : ....... 47 Limitations and Amendments .............................. 47 Compliance with Prior Undertakings .................. 48 FINANCIAL ADVISOR ..................................... 48 UNDERWRJTING ............................................... 48 FORWARD-LOOKING STATEMENTS DISCLAIMER ............................................ 48 MISCELLANEOUS ............................................ 49 APPENDICES APPENDIX A-EXCERPTS FROM ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED SEPTEMBER 30, 2006 APPENDIX B -FORM OF BOND COUNSEL OPINION APPENDIX C -SPECIMEN MUNICIPAL BOND INSURANCE POLICY 0 0 0 0 0 0 0 0 0 0 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 Certificates to potential investors is made only by means of this entire Official Statement. No person is authorized to detach this summary from this Official Statement or to otherwise use it without the entire Official Statement. THE CITY ... ~~···················~··············· The City of Lubbock, Texas (the '"Cily") is a political subdivision and municipal corporation of the Sta.te,locared in Lubbock County, Texas. The City covers approximately 119.1 square miles and has an estimated 2008 population of 214,847 (see .. INTRODUCTION • DESCRJPTJON OF THE CITY"). THE CERTIFICATES ....................... $52,900,000 Tax and Wastewater System Surplus Revenue Certificates of Obligation. Series 2008 (the '"Certificates"), are dated January 15, 2008, and mature on February 15 in each of the years 2009 through 2028. inclusive. PAYMENT OF INTEREST ............... Interest on the Certificates accrues from the dated date. and is payable August 15. 2008 and each February IS and August IS thereafter until maturity or prior redemption (see "THE CERTIFICATES -DESCRIPTION OF THE CERTIFICA T'ES"). AUTHORJTY FOR ISSUANCE ....... The Certificates are issued pursuant to the Constitution and general laws of the State of Texas, particularly Subchapter C of Chapter 271 of the Texas Local Government Code. as amended, Chapter 1371, Texas Government Code, as amended, and an ordinance adopted by the City Council (the "Ordinance"). SECURITY .......................................... The Certificates are payable from a combination of (i) the proceeds of a continuing, direct annual ad valorem tax, levied within the limits prescribed by law, on all taxable property within the City, and (ii) a pledge of surplus net revenues of the City's Wastewater System not to exceed Sl,OOO. OPTIONAL REDEMPTION ............. The City reserves the right, at its option, to redeem Certificates having stated maturities on and after February IS, 2018, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on February 15, 2017, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption (see '1'HE CERTJFICA TES - OPTIONAL REDEMPTION"). TAX EXEMPTION ............................ In the opinion of bond counsel, interesl on the Certificates is excludable from gross income for federal income tax purposes under existing law and the Certificates are not private activity bonds. See '1'AX MATTERS -TAX EXEMPTION" herein for a discussion of the opinion of bond counsel, including a description of alternative minimum tax for corporations. USE OF PROCEEDS ......................... Proceeds from the sale of the Certificates will be used for the pwpose of paying contractual obligalions to be: incurred for (i) improvements and extensions to the City's Wastewater System and (ii) professional services rendered in connection therewith. In addition. a ponion of the proceeds from the sale of the Certificates will be used to pay the costs of issuance of the Certificates (see "'THE CERTIFICATES-PURPOSE"). RATINGS ............................................ The Cenificates are rated "Aaa" by Moody's Jnvesto~ Service. Jnc. ("Moody's"), "AAA" by Standard & Poor's Ratings Services. a Division of The McGraw-Hill Companies. lnc. (''S&P") and "AAA" by Fitch Ratings ( .. Fitch}, by virtue of an insurance policy to be issued concurrently with the delivery of the Certificates by Financial Security Assurance. Inc. (see "BOND INSURANCE"). The City's underlying ratings on its presently outstanding general obligation debt are ~Aa3" 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 and "AAA" by Fitch through insurance by various commercial insurance companies (see "'THER INFORMA TJON -RATINGS"). BOOK-ENTRY .ONLY SYSTEM .............................................. The definitive Certificates will be initially registered and delivered only to Cede & Co .. the nominee of DTC p~uant to the Book-Entry-Only System described herein. Beneficial ownership of the Certificates may be acquired in denominations of SS,OOO or integral multiples thereof. No physical delivery of the Certificates wiU be made to the beneficial owners thereof. Principal of, premium. if any. and interest on the Certificates will be payable by the Paying Ageni/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 ownen of the Certificates (S« "THE CERTIFICATES-BOOK-ENTRY .ONLY SYSTEM"). PAYMENT RECORD ........................ The City has never defaulted in payment of its general obligation tax debt 3 -Stltded Finandallnformatioa - Fiscal PerCapitll Gtntral Year Estimated Tauble Ta:ublt Purpost Eaded City Assessed ASRSied Funded 30-Sep Po~abtien 1') Valuation Valuation Tn Debt••• 2003 204,737 $7,342,344,867 $ 35,862.33 s 70,188.204 2004 206,290 7,921,590,380 38,400.26 70,161.218 2005 209,120 8,634,994,862 41,292.06 80.210,269 2006 211,187 9,346,613,951 44,257.53 87.231.945 2007 212,365 10,002,725.637 47,101.57 92.487.363 2008 214,847 10,897,210,563 50,720.79 98,504.904 101 Sow= Tbe Ci1y. m Does 1>01 include se1f-iUpponcd deb\. GatnJ Feacl Couolidated Statement Summary 1G06 2005 2004 Beginning Balance s 17,376,420 s 12,694,525 s 9,417.346 Total Revenues 97,818,207 I 04,351.116 97.437.436 Total Expenditures 112,278,444 103,203,269 94,160,257 Ending Balance 19,924,711 17,.376,420 12,694.525 Reserves &. Designations Undesignated Fuod Balance s 19,924,711 s 17,376,420 s 12,694.525 For additional information reprding the City. pkase contact: Jeff Yates Chief finance Officer City ofLubbock P.O. Box 2000 Lubbock. TX 79457 Phone (806) 775-2161 fill (806) 175·2051 Andy Burcham Director ofFisc:al Policy&. Strategic Plaming City of Lubbock P.O. Box 2000 Lubbock, TX 79457 Pbont.(806) 775-2149 Fax (806) 775-2051 4 PtrCapita General Ratio Purpose Tax Debt to Funded Asse$$ed Tax Debt"' Valuation roo s 342.82 0.96% 340.11 0.89% 383.56 0.93% 413.06 0.93% 435.51 0.92% 458.49 0.90% 1003 1G02 s 16.598.252 s 16,716,042 91,753.809 92,490,374 98,934,715 90,594,059 9,417,346 18.612,357 !I ,255,041 ~ s 9,417,346 s 17,357,316 Manhew Boles RBC Capital Markets 271 lN. Hasell Avenue, Suite 2500 Dallas. TX 75204 Phone (214) 989-1672 Fa~t (214) 989-1650 0 ~.of Total Tax Tu Collections Year 99.21% 2002 98.64% 2003 100.28% 2004 99.71% 2005 0 99.02% 2006 NIA 2007 c c c c c c CITY OFFICIALS, STAFF AND CONSULT ANTS [LECTED OrFJCIALS c Date of Tmn Cit~ Council Jnsrallation 10 Office Ex2ires Occupation David Miller May, 2006 May, 2008 Business Owner Mayor Linda DeLeon May.2004 May,20l0 Business Owner Council Member, District I Floyd Price May, 2004 May, 2008 Retired Council Member, District 2 Todd R. Klein Ill June,2007 May,2010 Grant Consultant Council Member, District 3 Phyllis Jones May, 2004 May,2008 Self-Employed Council Member. District 4 John W. Leonard, Ill May,2006 May,2010 Business Owner Council Member. District 5 Jim Gilbreath May, 2003 May,2008 Business Owner Council Member, District 6 c<) Todd R. Klein was elec1cd June 9, 2001.10 fill the UneJq~ircd cerm of District 3 Councilman Gary-0. Boren. SELECTED ADMtNISTRA TIV£ STAFF I>ate of~oymmt Date of ~loyment Tocal Govemmenl Name Position in Curnnt Position with Cil)' of Lubbock Service Lee Ann Duni>auld City Manager SepteoDer, 2005 July, 2004 .Wi- Tom .Adams Depury Ci1y Manager August. 2004 August, 2004 23 ') Jeff Yates ODefFinancial Officer Septomer, 200s Noverilcr, 2004 5 Anita Bmgess Cil)'Anomey Deoetrber, 1995 Deceni>er, 1995 II Rebecca Gam Ci1y Secret.aly J1111U31Y, 200 I August, 1996 9 Andy Burdlarn Director of fiscal Policy Septetmer, 2005 Noven:tlcr, 1998 7 and Stralegic Planning CONSULTANTS AND ADVISORS Audirors ............................................................................................................................................... BKD, LLP Little Rock, Arkansas Bond Counsel ...................................................................................................................................... Vinson & Elkins L.LP. Dallas, Teltas Financial Advisor ..................................................................................... -......................................... RBC Capilal Mad:ets Dallas, Texas 5 0 0 0 0 c This page intentionally left blank c c c 0 0 OFFICIAL STATEMENT RELATING TO CITY OF LUBBOCK, TEXAS 552.,900,000 TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBUGA TION, SERIES 2008 INTRODUCilON This Official Statement, which includes the Appendices hereto, provides certain information regarding the issuance of $52,900,000 City of Lubbock. Texas Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008 (the "Certificates"). Capitalized terms used in this Official Statement have the same meanings assigned to such tenns in the Ordinance authorizing the issuance of the Cenificates except as otherwise indicated herein. There follows in this Official Sta1emen1 descriptions of the Cer1ificates 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, RBC Capital Markets, 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 Chatter. The City was incorporated in 1909, and fiTSt 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 COUJICil members. The Mayor is eJCQted 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 lire 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 2008 population is 214,847. The City covers approximately I 19.1 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 CERTJFJCA TES DESCRJmON OF THE CERTIFICATES The Certificates are dated January I 5. 2008. and mature on February 15 in each of the yeaTS 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, 2008, and on each February 15 and August 15 thereafter until maturity or prior redemption. The definitive Certificates will be issued only in fully registered form in any integral multiple of SS,OOO for any one maturity and wj)] be initially registered and delivered only to Cede & Co .. the nominee of The Depository Trust Company (WDTC") puTSuant to the Book-Entry-Only System described herein. No p~-sical delivery of tbe Certifkate5 will be made to tile ownen thereof. Principal of, premium, if any. and interest on the Certificates 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 owneTS of the Certificates. See WTHE CERTIFJCA TES -BOOK·EN'IRY -ONLY SYSTEM" herein. PURPOSE Proceeds from the sale of the Certificates will be used for the purpose of paying contractual obligations to be incurred for (i) improvements and extensions to the City's Wastewater System and (ii) professional services rendered in connec:tion therewith. In addition, a portion of the proceeds from the sale of the Certificates will be used to pay the costs ofissuance of the Certificates AUTHORITY FOR ISSUANCE The Certificates are issued pursuant to the Constitution and general laws of the State of Texas, particularly Subchapter C of Chapter 271 of the Texas Local Government Code. as amended, Chapter 1371, Texas Government Code, as amended, and an ordinance adopted by the City Council (the "''rdinance"). 6 SECURITY AND SOURCE OF PAYMENT The Certificates are payable from a combination of (i) the proceeds of a continuing, direct annual ad valorem tax, levied within the limits prescribed by law, on all taxable property within the City, and (ii) a pledge of surplus net revenues of the City's Wastewater System not to exceed $1,000. TAX RATE LIMITATION 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. Miele XI, Section 5, of the Texas Constitution is applicable to the City, and limits its lllllJtimum ad valorem tax rate to S2.50 per S I 00 taxable assessed valuation for all City purposes. The Home Rule Charter of the City adopts the constitutionally authorized ma;~timum tax nlte of $2.50 per S I 00 taxable assessed valuation. OPTIONAL REDEMPTION The City reserves the right, at its option, to redeem Certificates having stated maturities on and after February 15, 2018, in whole or in part in principal amounts ofSS,OOO or any integral multiple thereof, on February 15, 2017, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. If less than all of the Certificates are to be redeemed, the City may select the maturities of Certificates to be redeemed. Jfless than all the Certificates of any maturity are to be redeemed, the Paying Agent/Registrar (or DTC while the Certificates are in Book-Entry-Only form) shall determine by lot the Certificates, or portions thereof, within such maturity to be redeemed. If a Cenificate (or any portion of the principal sum thereof) shall have been called for redemption and notice of such redemption shall have been given, such Certificate (or the principal amount thereof to be redeemed) shall become due and payable on such redemption date and interest thereon shall cease to accrue from and after the redemption date, provided funds for the payment of the redemption price and accrued interest thereon are held by the Paying Agent/Registrar on the redemption date. NOTICE OF REDEMPTION Not less than 30 days prior to a redemption date for any Certificates, the City shall cause a notice of redemption to be sent by United States mail, first class, postage prepaid, to the registered owners of the Certificates to be redeemed, in whole or in part, at the address of the registered owner appearing on the registnltion books of the Paying Agent/Registrar at the close ofbusiness on the business day ne"t preceding tbe 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 VrNG BEEN SO GJVEN, TIIE CERTIFICATES CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND NOTWITHSTANDING THAT ANY CERTIFICATE OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT. INTEREST ON SUCH CERTIFICATE 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 mterests of the registered OWJJers, including the curing of any ambiguity, inconsistency, formal defect or omission therein. In addition, the City may, with the written consent oft he holders ofa majority in aggregate principal amount of the Certificates then ouiStanding, as applicable, 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 Certificates, 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 Certificate over any other Certificate 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 CertifiCates to pay principal. interest and redemption price thereon in any matter permitted by law. Under current Texas law, such discharge may be accomplished by either (i) depositing with the Comptroller of Public Accounts of the State of Texas a sum of money equal to principal. premium, if any and all interest to accrue on the Certificates 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 Certificates; provided that such deposits may be invested and reinvested only in (a) direct,. noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (b) noncallable obligations of an agency or instrumentality of the United States 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 Jess 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 recogaized inveslment rating finn not less than AAA or its equivalent Under current Texas law, upon the making of a deposit as described above, such Certificates shall no longer be regarded to be outstanding or unpaid. After firm banking and fiJiancial arrangemeniS for the discharge and final payment or redemption of the Cenificates have been made as described above, all rights of the City to initiate proceedings 10 call the Certificates for 7 0 0 0 0 0 0 0 c 0 c 0 0 redemption or to take any other action amending the tenns of the Cenificates are extinguisl\ed; provided however. the right to call the Certificates for redemption is not extinguished if lhe City: (i) in the proceedings providing for the firm banking and financial arrangements, expressly reserves the right to call the Certificates for redemption: (ii) gives notice of the reservation of that right to the owners of the Certificates immediately following the making of the firm banking and financial arrangements; and (iii) directs !hat notice oflhe reservation be included in any redemption notices that it authorizes. BOOK-ENTRY-ONLY SYSTEM This :s1ction describu how ownership of the Certificates is to be transferred and how the principal of. premium, if any, and inlert!$t on the Certificates are to~ paid to and credited by The Depository• Trust Company ("DTC"). Ne'IO· Yor*. New York, while the Certificates ore registered in its n<>minee name. The information in this srction concerning DTC and the Book-Entry- Only S)l$tem has hem provided by DTC for use in disclo$Ure dccvmen1s :s11ch as this Official Statemem. The City, the Financial Advisor and the Underwrlten; believe the source of such information ro be reliable. but take no responsibility for the accuracy or compltteness thereof The City cann<>t and does not give any assurance that {1) DTC will distribute payments of deb/ sen,ice on the Certificates, or redempti011 or other noliCQ, to DTC Participants. (2) DTC Pal'licipants or olhers will disrribme debt service pay-nts paid to DTC or its nominN (as the registered owner of the Certificates). or redemption or other notices, to 1he Beneficial Owners, or thot they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission. and the current procedures of DTC to be followed in dealing with DTC Participants are Olf file with DTC. DTC will act as securities depository for the Certificates. The Cenificates 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 Certificate will be issued for each maturity of the Certificates. 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 corporatioo" within the meaning of the New York Unifonn Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities E~cbange Act of 1934. DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC's participants ( .. Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposired securities. through elearonic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers. banks, trust companies, clearing corporations, and cenain other organizations. DTC is a wholly-owned subsidiary of The J)q>ository Trust & Clearing Corporation ( .. DTCCj. DTCC, in tum, is owned by a number of Direct Participants of DTC and Members of the National Securities Oearing Corporation, Fi~ed Income Clearing Corporation and Emerging Markets Clearing Corporation, (NSCC, FICC, and EMCC, also subsidiaries ofDTCC), as well as by the New York Stock Exchange. Inc., the American Stock E~change LLC, and lhe National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and oon-U.S. securities brokeiS and dealers, banks, trust companies. and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant. either directly or indirectly ( .. IndiTed Panicipants"). 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 and dtc.org. Purchases of Cet1ificates under lhe DTC system must be made by or through Direct Participants.. which will receive a credit for the Cenificares on DTC's records. The ownership interest of each actual purchaser or each Bond (~Beneficial Owner") is in tum to be recorded on lhe Direct and Indirect Participants' records. Beneficial Owners wilt not receive written confirmation from DTC of their purchase. Beneficial Owners are. however. expected to receive written confinnations providing details of the transaction, as well as periodic statements of their holdings. from the Direct or Indirect Participant through which the Beneficial Owner entered into lhe transaction. Transfers of ownership interests in the Certificates are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial 0~. Beneficial Owners will not receive certificates representing their ownership intt:Tests in Certificates. except in ~ event that use of the book-entry system for lhe Certificates is discontinued. To facilitate subsequent transfers, all Certifi<:ates 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 Certificates with DTC and their registration in the name of Cede & Co. or sU<:h ocher DTC nominee do not effect any change in beneficial ownership. IYrC bas no lmowledge of the actual Beneficial Owners of lhe Certificates: DTC's records reflect only the identity of the Direct Participants to whose accounts such Certificates 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 olher 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 aiTllngements among them. subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Certificates may wish to take certain steps. to augment the uansmissiQn to them of notices of significant events with respect to the Certificates, such as 8 redemptions, tenden, defaults, and proposed amendments to the Certificate documents. For eJtarnple, Beneficial Owners of Cmificates may wish to ascertain that tbe nominee holding the Certificates 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 ~ball be sent to DTC. If less than all of the Certificates 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 Certificates 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 Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Certificates will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the City or the Paying Agent/Registrar, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owllers will be governed by standing instruccions 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 of DTC nor its nominee, the Paying Agent/Registrar, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of 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 Bencfkial Ownns will be the responsibility of Direct and Indirect Panicipants. DTC may discontinue providing its ses-vices as depository with respect to the CertifiCates at any time by giving reasonable nolice to the City or the Paying Agent/Registrar. Under such circumstances. in the event that a successor depository is not obtained. Certificates 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, Certificates will be printed and delivered. Use of Certaia Tenn5 in Other Sections of this Official Statement In reading this Official Statement it should be undnstood that while the Certificates are in the Book-Entry-Only System. references in other sections of this Official Statement to registered owners should be read to include the ~on for which the Panicipant acquires an interest in the Cenificates, 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 WJder the Ordinance will be given only to DTC. lnfonnation concerning DTC and the Book-Entry-Only System has been obtained from DTC and is not gu.annteed as to accuracy or completeness by, and is not to be construed as a representation by the City, the Financial Advisor or the Underwriters. Eff~t of Termination of Book-Entry-Only Syltena In the evenc that the Book-Entry-Only System is discontinued, printed Certificates will be issued to the holders and the CertifiCates will be subject to transfer, excban~ and regislration provisions as ~• forth in the Ordinance and summarized under "TRANSFER, EXCHANGE AND REGISTRATION" below. PA \'lNG AGENT/REGISTRAR The initial Paying Agent/Registrar is The Bank of New York Trust Company, 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 CertifiCates 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 Certificates. Upon any change in the Paying Agent/Registrar for the Certificates,. the City agrees to promptly cause a wrillcn notice thereof to be sent to each registered owner of the Cenificates then outstanding and affected by such change by United States mail, first class. postage prepaid, which notice shall also give the address oft he new Paying Agent/Registrar. Interest on the Certificates shall be paid to the registered owners appearing on the registration books of the Paying Agent/Registrar at the dose of business on the Record Date (hereinafter defined). and such interest shall be paid (i) by check sent United States mail_ fust class. postage prepaid. to the address of the registered owner recorded in the registration books of the Payi11g 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 Certificates 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 fO!"the payment of the principal of or interest on the Certificates shall be a S..turday. Sunday, a legal holiday or a day when banking institutions in the city where the designated payment/transfer office of the Paying Agent/Registrar is located are authorized to close, then the date for such payment shall be the next succeeding day which is not such a day, and payment on such date shall have the same force and effect as if made on the date payment was due. 9 c 0 0 0 0 c c c 0 0 TRANSFER, EXCHANGE AND REGJSTRA TION In the event the Book-Entry..Only System should be discontinued with respect to the Certificates, printed certifkates will be issued to the registered owners of the Certificates afTI~eted and thereafter such obligations may be lransferred and ex.changed on the registration books of the Paying Ageni/Registnr only upon presentation and surrender of such printed cenificates to the Paying Ageni/Registnr and such transfer or excllange 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. Certificates may be assigned by the execution of an assignment fonn on the Certificates or by other instrument of transfer and assignment acceptable to the Paying Ageni/Registrar. New Certificates will be delivered by the Paying Agent/Registrar. in lieu of the Certificates being transferred or exchanged, at the designated office of the Paying Ageni/Registrar, or sent by United States mail, first class, postage prepaid, to the new registered owner or his designee. To the extent possible, new Certificates issued in an exchange or transfer of Certificates 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 Certificates 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 satisfactocy to the Paying Agent/Registrar. New Certificates registered and delivered in an exchange or transfer shall be in any integral multiple of SS,OOO for any one maturity and a like aggregate principal ammmt as the Certificates sunendered for exchange or transfer. See '"THE CERTIFICATES -BOOK-ENTRY-ONLY SYSTEM" herein for a description of the system to be utilixed initially in regard to ownership and transferability of the Certificates. Neither the City nor the Paying Agent/Registrar shall be required to transfer or exchange any Certificate called for redemption, in whole or in par1, within 45 days of the date fixed for redemption; provided. however, such limitation of transfer shall not be applicable to an exchange by the registered owner of the uncalled balance of a Certificate. RECORD DATE FOR INTEREST PA \'MENT The record date ( .. Record Date") for the interest payable on the Certificates 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 rect:ived from the City. Notice of tbe Special Record Date and of the scheduled payment date of the past due interest ("Special Payment Date", which shall be IS 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 Certificate appearing on the registration books of the Paying Agent/Registrar at the close of business on the last business day neJtt preceding the date of mailing of such notice. REMEDIES The Ordinance establishes specific events of default with respect to the Certificates. If the City defaults in the payment of principa.l of or interest on the Certificates when due, or if the City defaults in the observance or performance of any of the covenants, conditions or obligations of the City, the failure to perform which materially, adversely affects the rights of the owners, including but not limited to, their prospect or ability to be repaid in acconiauce with the Ordinance, and the continuation thereof for a period of 60 days after notice of such default is given by auy owner to the City, the Ordinance provides that any owner is entitled to seek a writ of mandamus from a court of proper jurisdiction requiring the City to make such payment or observe and perform such covenants, obligations, or conditions. The issuance of a writ of mandamus may be sought if there is no other available remedy at law to compel performance of the Certificates or the Ordinance and the City's obligations are not uncertain or disputed. The remedy of mandamus is controlled by equitable principles, so rests with the discretion of the court. but may not be arbitrarily refused. There is no acceleration of maturity of the Certificates in the event of default and. consequently, the remedy of mandamus may have to be relied upon from year to year. The Ordinance docs not provide for the appointment of a trustee to represent the interests of the owners upon any failure of the City to perform in accordance with the terms of the Ordinance. or upon any other condition and accordingly all legal actions to enforce such remedies wou\d have to be undertaken at the initiative of. and be financed by, the registered owners. On June 30, 2006. the Texas Supreme Court ruled in Tooke v. Ciry of Mexia, 197 S.W.3d 325 (Tex. 2006). that a waiver of sovereign immunity in a contractual dispute must be provided for by statute in Mclear and unambiguous" lan11uage. In so ruling. the Court declared that statutocy language such as "sue and be sued," in and of itself, did not constitute a cleannd unambiguous waiver of sovereign immunity. Because it is not clear that the Tex.as Legislature has effectively waived the City's immunity from suit for money damages. a holders of Certificates may not be able to bring such a suit against the City for breach of the Certificate or the Ordinance. In Tooke, the Com1 noted the enactment in 2005 of sections 271.1SI-.160. Texas Local Government Code (the "Local Government Immunity Waiver Act"), which, according to the Coun, waives Mimmunity from suit for contract claims against most local govenunental entities in certain circumstances." The Local Government Immunity Waiver Act covers cities and relates to contracts entered into by cities for providing goods or services to cities. The City is not aware of any Texas court construing the Local Government Immunity Waiver Act in the context of whether contnctual undertakings of local governments that retatc to their borrowing powers are coo.tracts covered t1y the Act. As noted above, the Ordinance provides that holders of Cenificates may exercise the remedy of mandamus to enforce the obligations of the City under the Ordinance. Neither the remedy of mandamus nor any other type of injWlctive relief was at issue in Tooke, and it is unclear wheiher Tooke will be construed to have any effect with respect to the exercise of mandamus. as such remedy has been interpreted by Texas courts. In general. Texas courts have held that a writ of mandamus may be issued to require public officials to perform ministerial acts that clearly pertain to their duties. Texas coorts.have held that a ministerial act is defined as a legal dul)' lbal is prescribed 10 and defined with a precision and certainty that leaves nothing to the exercise of discretion or judgment. though mandamus is not available to enforce purely contractual duties. However, mandamus may be used to require a public officer to perform legally· imposed ministerial duties necessary for the performance of a valid contract to which the State or a political subdivision of the State is a party (including the payment of monies due under a contract). Even if a judgment against the City could be obtained, it could not be enforced by direct levy and execution against the City's property. Further, the registe~ owners cannot themselves foreclose on property within the City or .sell property within abe City to enforce the tax lien on taxable property to pay the principal of and interest on the Certificates. Furthermore, the City is eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code ( .. Chapter 9"). Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, the pledge of ad valorem 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 registered owners of an entity which has sought protec1ion 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 Cour1 (which could require that the action be heanl in Ba.nknlptcy 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 ofBond Counsel will note that all opinions relative to the enforceability of the Certificates are qualified with respect to the customary rights of debtors relative to their creditors and that all opinions relative to the enforceability of the Ordinance and the Certificates are subject to banlcruptcy and other laws affecting creditors rights or remedies generally. SOURCES AND USES OF FUNDS The proceeds from the sale of the Certificates will be applied as follows: SOURCES OF FUNDS: Principal Amount of Certificates. ....................................•..... ~············································· Original Issue Premium .............•................................•........................................................ Accrued Interest .............................................................•..................................................... Total Sources of FUnds .........•......................................................•.................................. USES OF FUNDS: Deposit to Construction Fund·-··---···-·················--······--··············--······--·~··-····~····· Accrued Interest Deposited to Interest & Sinking Fund ...................................................... . Underwriter's Discount ...................................................................................................... . Cost oftssuance (including bond insurance premium) ....................................................... . Total Uses of Funds ....................................................................................................... . (THE REMAINDER OF THlS PAGE INTENTIONALLY LEFT BLANK} II $52,900,000.00 2,85 J ,566.50 175.562.72 $55 927 129 22 $55.000,000.00 175.562.72 318,456.44 433.110.06 $55927 I 29 22 0 0 0 0 0 0 c c c c c BOND INSURANCE BOND INSURANCE POLICY Concurrently with the issuance of the Certificates. Financial Seturity Assurance Inc. (kfiiWicial Security") will issue its Municipal Bond Insurance Policy for the Cenificates (the "Policy"). The Policy guarantees the scheduled payment of principal of and interest on the Certificates when due as set forth in the fonn of the Policy included as an exhibit to this Official Statement (see APPENDIX C, wSPECIMEN MUNICIPAL BOND INSURANCE POLICY). The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. FINANCIAL SECURITY ASSURANCE INC. Financial Security is a New York domiciled financial guaranty insurance company and a wholly owned subsidiary of Financial Security Assurance Holdings Ltd. (MHoldings'). Holdings is an indirect subsidiary of Dexia, S.A., a publicly held Belgian corporation, and of Dexia Credit local, a direct wholly-owned subsidiary of Dexia, S.A. Dexia, S.A., through its bank subsidiaries, is primarily engaged in the business of public finance, banking and asset management in France, Belgium and other European countries. No shareholder of Holdings or Financial Security is liable for the obligations of financial Security. At September 30, 2007, Financial Security's combined policyholders' surplus and contingency reserves were approximately $2,691,965,000 and its total net Wleamed premium reserve was approximately $2,201,808,000 in accordance with statutory accounting principles. At September 30, 2007. Financial Security's consolidated shareholder's equity was approximately $2,975,654,000 and its total net unearned premium reserve was approximately $1,721,678,000 in accordaDce with generally accepted accounting principles. The consolidated financial statemenu of Financial Security included in, or as exhibits to, the annual and quarterly repons filed after December 31, 2006 by Holdings with the Securities and Exchange Commission are hereby incorporated by reference into this Official Statement. All financial statements of Financial Security included in, or as exhibits to, documents filed by Holdings pursuant to Section 13(a), 13(c). 14 or 15(d) of the Securities Exchange Act of 1934 after the date of this Official Statement and before the tennination of the offering of the Certificates shall be deemed incorporated by reference into this OfTICial Statement. Copies of materials incorporated by reference will be provided upon request to Financial Security Assurance Inc.: 31 West 52nd Sb'eet, New York, New York 10019, Attention: Communications Department (telephone (212) 82~100). The Policy does not protect investors against changes in muket value of the Certificates, wbicb muket value may be impaired as a resull of changes in prevailing interest rates. changes in aJ)plicable ratings or other causes. Financial Security makes no representation regarding the Certificates or the advisability of investing in the Certificates. Financial Security makes no representation regarding the Official Statement. nor has it panicipated in the preparation theR!Of, except that Financial Security has provided to lhe City the information presented undCJ this caption for inclusion in the Official Statement !THE REMAINDER OF THIS PAGE rNTENTIONALL Y LEFT BLANK] 12 FORWARD LOOKJNG STATEMENTS DISCI.AlMER The statements contained in this Officia: Statement, and in any other information pro-.ided by the City. in particular the information under the heading "DISCUSSION OF RECENT FINANCIAL AND MANAGEMENT EVENTS", that are not purely historical, are forward-looking statements, including statements regarding the City's e"pectations, hopes. intentions. or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in this Official Statement are based on information available to the City on the date hereof: and the City assumes no obligation to update any such forward-looking statements. Although tbe 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, which could cause the actual financial results of the City to differ materially from those contemplated in such forward-looking statements. Any 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. The City cannot fully predict what etTec1s factors of the nature described below may have on the operations of the City and financial condition of the General Fund or its business-type activities, including the City's electric: ent.erprise fund, which operates as Lubbock Power & Light (refem:d 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 definitive, and these matters are subject to change subsequent to the date hereof: With respect to LP&L, C)(tensive 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 eleclric utility in pa11icular, 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 (the "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 affecting the City's water. sewer, stormwater and solid waste funds; changes in and compliance with national and state homeland security Jaws 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 expenditufeS 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 business strategies adopted 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 !Tansponation of coal, natural gas and other commodities that may affect the cost of energy purchased by LP&L; inability of various contractual counterparties to meet their obligations to the City. and with LP&L in particular with respect to LP&L 's fuel and power purchase arrangements; >With respect to the City's financial peTfonnance in genem: legal and administrative proceedings and senlements; and significant changes in critical accounting policies. 13 0 0 0 0 0 c c c 0 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 designalion 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 10 the events and circumstances lhat have created such challenges, the City has laken actions to address and correct maners, specifically employing a new management team in 2004, and the City is of the view that progress bas been made in correcting th~ conditions (see -DISCUSSION OF RECENT FINANCIAL AND MANAOEM.ENT EVENTS -CITY'S RESPONSES TO RECENT FINANCIAL AND MANAGEMENT EVENTS"). The following discussion includes an analysis of the eveniS that have occurred in the recent fiscal years, in particular, a summary of the measures talr.en in response to the challenges thai have arisen. and a current description of the City's financial and management position. FY 2003 F1NANCJAL CONCERNS AND MID-YEAR BUDGET AMENDMENTS In FY 2003, LP&L incurred unanticipated net losses. During FY 2003, interfund loans were made to LP&l from the water fund and the General Fund. A number of factors conlributed to the LP&L losses: a significant factor was that LP&L, unlike most other municipal electric utilities in Texas, competes directly with Soulhwestem Public Service Company ("SPS"), a subsidiary of a large investor owned energy company, Xcel Energy,lnc. In addition 10 the service area that has dual cenification with Xcel, a small part of the City is also served by Soulh 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, tbe City operated LP&l in a manner that was designed to recover administrative or ind.irect 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 fm8JiciaJ services, and a cost of business transfer (which approximates a payment in lieu of franchise taxes. In addition, prior to FY 2003 LP&L was required to annually transfer to the General Fund amouniS to suppon 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. Over the ten year period from 1993 to 2002, the average annual operating income of LP&L before tntnsfers was $8 million, and during that period, LP&L transfers 10 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 budget it was evident that the amount of money transfencd from LP&L to the General Fund would need 10 be reduced given the financial condition ofLP&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 million for FY 2003. ln 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 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 AdjustmeniS"'}, which represented approximately I o.se;. of the original FY 2003 General Fund budget. Other measures that were taken after the 2003 Budget Amendments to address the projected LP&L operating loss included increases in the fuel cost adjustment (-FCA ") for residential and small comrnerdal customers, as well as for its two largest customers., which included Texas Tech University ("'Texas Tech") and which accounted for approximately 100..4 of the energy sales ofLP&L. The City is a member of the West Texas Municipal Power Agency ("WTMPA"). a municipal power agency that was formed by concunent ordinances adopted by the governing bodies of the cities of Brownfield. Floydada, Lubbock and Tulia, Texas (the "'Member Cities} in 1983. WTMPA is a separale political subdivision under tbe laws of the State. In June 1993, 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 MWTMPA Project"). The WTMPA Project consists of a 40 megawatt ( .. MWj combustion 1Urbine generator (the MMassengale 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 inlemal 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. 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 ofWTMPA affairs by the management ofLP&:L, was that WTMPA was indistinguishable from LP&L. In April 2003. the WTMPA Member Cities (including the City) engaged Emst & Young LLP (""E&Y') to conduct an audit of the records ofWTMPA and LP&L. The final report ofE&Y was delivered in May 2003, and included findings of misallocation ofcosiS among the Member Cities. 'The report noted that no evidence of misappropriation of asseiS or intentional omissions of financial information was discovered. The E& Y repon found that the misallocations, adding an interest factor for such allocations. and an unbilled 5% management allocation that LP&L was entiUed to under the power agreements, would result in a IOta! amount owing to the City of$5,590, 746. of which the City owed itself, as a Member City ofWTMPA, approximately 90% of the total amount. 14 In December 2003. the City. WTMPA and the other Member Cities of WTMPA enterecl into a series of agJeements styled the "Comprehensive Seulement Agreement". The Comprehensive Settlement Agreement provided for the reallocation of resources and costs among WTMPA Member Cities. resolved disputes relating to the composition and voting powers of the WfMPA Board, and settled disputed claims incurred by the City on bebalfofWTMPA. The City believes the Comprehensive Settlement Agreement better reflects the historical manner in which the Member Cilies have engaged in energy activities. WfMPA has been classified as an enterprise fund of the City. which reflects the extensive associations between WTMPA and the City. 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. WfMPA 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. 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 were 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 S9.3 million transfer to 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. Jn addition, the General Fund reduction in fund balanc:e 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 ofFY 2003. The decline in General Fund balance limits the City's ability 10 mitigate future risks of revenue shortfalls and unanticipated expenditures. Reference is made to the information hereafter presented under the beadings "DISCUSSION OF RECENT FINANCIAL AND MANAGEMENT EVENTS -OTY'S RESPONSE TO RECENT FINANCIAL AND MANAGEMENT EVENTS -General Fund and General Government Actions -General Fund Budgetary Actions" and MDISCUSSION OF RECENT FJNANOAL AND MANAGEMENT EVENTS •· CITY'S RESPONSE TO RECENT FINANCIAL AND MANAGEMENT EVENTS -FY 2007 BUDGET", for a diSC\Jssion of the results for the General Fund and a summary of the City's planning for FY 2007. 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 Joss. &fore taking into account transfers from other funds, the electric fund reported a $9 million loss, the fiTSt 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 100% of its senior lien bonded indebtedness. In FY 2003. LP&L produced $0.704 million that was available for the payment of debt service, which represents a 0.3 times covenge 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 terms of its bond ordinances, the failure to meet the rate covenant, while significant, did not result in the acceleration ofLP&l's debt. Moreover. the failure did not materially affect LP&l's operations, as LP&L was able to maJce its debt payments af\er 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 Wider its senior lien revenue bond ordinances. Since 2003, LP&L has met the rate covenant, and the City has not made transfers from the General Fund to LP&L. Despite the relatively small operating income thai 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. The restatement reflected the write ofT of a $4.48 million receivable recorded from WTMP A in FY 2002. althoug)! the obligation was disputed by the other Member Cities of WfMPA. 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. FY 2083 AUDIT :RESTATEMENTS. RECLASSinCA TIONS AND INTERNAL CONTROLS ISSUES As was the case with other municipalities in the State and U.S .• the implementation of Government Accounting Standards Board Statement 34 ("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 presmtation of financial information; instead. fund accounting was generally used to present financial 15 0 0 0 0 0 c c c c 0 ) data. Under GASB 34, fund accounting has been supplemented by government-wide statements and certain aspects relating to the presentation of the fund level statemen!s 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 J ... Summary of Significant AccoWJting Policies" in the financial statements of the City attached as Appendix A. The FY 2002 financial statements, and the City's financial statements da.ting 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 management affairs undertaken by the City, in the Summer of2003 the City conducted a request for qualifications for its elltemal auditor and selected KPMG L.L.P. ( .. KPMG") to audit its FY 2003 financial statements. Consequently, the Fonner External Auditor guided the City through the initial year implementation of GASB 34, while in the second year of GASB 34 financial reporting, the City's financial statements were audited by KPMG. Jn 2005, the City retained the services of BKD. LLP, to prepare the City's financial statements. Audit Restatements ... During the preparation of the FY 2003 CAFR, seven restatements to beginning fund balance/net assets were made to various fund level statements of the City. The restatements totaled $36.7 million. These restatements represented an aggregate increase in net assets of the City of $2.56 million, as some affected funds had their ~ginning balances restated to a higher figure, while other funds were restated to decrease their beginning fund balance. The General Fund was restated from a fund balance of $18.6 million to $16.6 million to reflect a write ofT for an account receivable, which as of September 30, 2002 had ceased to be collectible. Also, the electric fund's beginning fund balance was restated downward by $4.48 million to reflect a receivable ftom WTMPA that was uncollectible. Other enterprise fund restatements were made, including 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 reimbu~ent 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 accOUilt for economic development initiatives. which was restated from a beginning balance of$46.8 million to $36.8 million. The change was associated with an economic development grant made by that fund in FY 2002 that was originally reflected on the accounting statements of the City as a loan. In preparing the 2003 CAFR, it was determined that such transaction should be treated as a grant, not a loan. As a result, the receivable in the community investment fund for the S I 0 million amount was deleted as an asset of the fund ($6 million of the $10 million grant bad originally been funded through an interfund loan to the comrniDlity investment fund from the water and solid waste funds). Two additional restatements of existing fund balances were made with respect to two entities with which the City has long- standing contractual relationships: a corporate entity that does business under eontnu:t with the City as ~citibus", and WTMPA. In the 2003 CAFR., the accounting treatment of these entities was reconsidered, and each was added to the City's financial statements as an enterprise fund. The result of the addition of each of these funds was an increase in net assets, in the amount of S 12.3 million for the new transit fund, and $3.2 million for the new WTMPA fund. Audit Reclassifications ... In the preparation of the FY 2003 CAFR. it was discovered that the portion of net assets shown In certain of the financial statements, panicularly with ~eel to the entetprise funds (or business-type activities). had been mathematically incom:ctly 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 un.restricted net assets of the enterprise funds that totaled $195.2 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 stnK:ture. Jn its FY 2003 Management Let.ter (the .. 2003 Management Letter''). KPMG noted several weaknesses in the City's internal controls, including an overall internal control weakness in the City during FY 2003. 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 ftom component units. including WTMPA, was also noted. JCPMG 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 fail~ of LP&L to meet its bond rate covenant, a lack of oversight or monitoring of contracts witb other entities (for example. wrMPA), and the failure of the City to abide by its General Fund Balance Policy. CITY'S RESPONSES TO RECENT FINANOAL AND MANAGEMENT EVENTS Following the publication oftbe LP&UWTMPA Management Audit and the E&.Y audit, several key City officers and LP&l. management personnel resigned. Between the beginning of FY 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. Since FY 2004. the City has implemented a number of significant steps to address both its 16 management needs and financial challenges. Certain of the measures taken by the City to strengthen City government in geneflll, and to address its financial challenges, are described below. General fwd and General Government Actions >General Fund Budgetary Actions ... Prior to FY 2007. the Cily had restored its General Fund ~lance, within a 2-year period, to roiJ8)lly 20% of openting reveoues. For FY 2007. preliminary projections indicate the Geoeral Fund balance will be approximately 18.4% of oper3ting revenues. FY 2007 Expenditw'es were in lint with budget. however, revenues from municipal ooun fines, franchise taxes, and red light photo enforcement came in S2.5 million less than budgeted, causing a use of approximately $800,000 of Genwal fund balance. The FY 2007-08 budget incorporates revenue adjustments addressing the shortfalls from the prior ye.r, and has been approved with expenditures ~lanced to revenues. City management continues monthly assessments of the budgeted expenditures and ~venues. a program which was fully implemented in the prior fiscal year. > EstabUsbment of Audit and lnveslment Commillec ... Through the adoption of a resolution in June 2003, the City Council established an independent Audit Committee composed of five members. The Audit and Investment Committee is charged with maintaining an open avenue of communication between the Cily Council, City Manager, internal auditor and independent external auditor to assist the Cily in fulfilling its fiduciary responsibilily 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 assessmenL The committee is appointed by the City Council and informally reports to the City Manager. The establishment of the Audit and Investment Committee is designed to serve as an additional check on the prepantion of the City's financial statements and to avoid weaknesses io the Cily'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 and Investment Comminee 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, and at least one member is required to have an extensive background in investments. 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 Tech University System; R.J. Givens, a real estate agent in the Cily; Kim Turner, the Director of Internal Audit at Texas Tech; and John Zwiacher, a member of the Board of Directors ofLP&L. Mr. Zwiacher is the chair of the Audit and Investment Committee. > Cjty Management Changes ... As reflected in "CITY OmCJALS. STAFF AND CONSULTANTS • SELECTED ADMINISTRATIVE STAFF", the City has in place :m experienced management team representing exteosive government service experieoce. This management team has implemented procedures that have addressed the general internal control wealmess cited by KPMG in the 2003 Management Letter. Recept Financial and Managemem A!;tjons at LP&L > Fuel Cost Adjustments ... As of June I. 2007, LP&L no longer uses fuel cost adjustments to remain competitive with Xcel. Rates are now identical to SPS with a few exceptions, one of which is that LP&l now has a discount tariff which allows its rates to be lower. > E!.tabljsbmcnt of Electric UJili!jes Board ... ln 2004, several measures were taken to address concerns with the management and operation of LP&L, including; the Cily Council adopted an ordinance (the "LP&L Governance Ordinancej (I) creating a new Electric UU1ities Board (the -Electric Board") for LP&L (the new board replaces a former board that was advisory only), (2) reserving certain duties and responsibilities with respect to LP&.L to the City Council (i.e .• the powers to approve LP&L's annual budget; set LP&L 's rates; issue debt for LP&L; exercise the power of eminent domain for LP&L; and require the payment of an annual fee to the City), and (3) mandating the creation of certain reserve accounts by LP&L and restricting the transfer of revenues from LP&L to any other fund of the City, including. particularly, the General Fund, until such reserves have been funded; the City initiated a solicitation to the holders ofLP&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; the City. after obtaining the necessary consents, amended the bond ordinances to provide for the governance of LP&L by the Electric Board in January 2005; the voters of the City approved a referendum amending the City Charter to require the establishment of the Electric Board; and the City Council adopted the LP&.L Governance Ordinance on December 16.2004. The LP&L Governance Ordinance provides that the Electric Board consist of nine members appointed by the Cily 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 LP&L Governance Ordinance, the Board is given the authority, duties and responsibility to (I) approve an annual budget and electric rate schedule for submission to the Cily 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, nwtage. administer and operate the City's electric system. including contracting for legal and other services separate and apart from t~ provided by the Cily. In addition, the City Manager is requiJed 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&t reports to tbe 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 locaJ 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. 17 0 0 0 0 0 0 c 0 0 0 J ) >Establishment of Reserve Funds for LP&L: Restmtion on Transfers from LP&L ... The LP&L Governance Ordinance was amended in December of 2006. This amendment included, amo;;g other things, changes to the requirements regarding the reserve funds LP&L maintains. As amended, the LP&l Governance Ordinance requires the Electric Utility Board to maintain (i) suffic-ient operating cash to satisfy all current accounts payable and (ii) a general reserve fund that is equal to the greater of four months gross retail electric revenue as determined by taking the average monthly gross retail electric revenue from the previous fiscal year or SSO million dollars. This general reserve fund shall be used for operational purposes. rate stabilization and for meeting the electric utility demand of any rapid or unforeseen increase in residential and/or commercial development. Under the current LP&L Governance Ordinance, the City may not require the transfer from LP&L any fee equivalent to a franchise fcc, 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 general reserve), (b) sufficient operating cash is maintained. and (c) the general reserve has been fully funded. Additionally, the amendment allows the Electric Utility Board, solely at their discretion and regardless of the funding obligations outlined above, to refund up to one million dollars (Si.OOO.OOO) to the ratepayers of the City's electric utility for marketing and competitive purposes. The reserve amounts, franchise fees. payments in lieu of taxes and refunds to the ratepayers of the City's electric utility shall be based on audited, unqualified financial statements from the most recent completed fiscal year. 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 Govem.ance Ordinance. At the end ofFY 2007. LP&L partially funded its general reserve fund by the amount ofS2S.4 million. LP&L has not funded an of the reserve fund established under the lP&L Governance Ordinance, as net revenues have been inadequate for a total funding of such reserve. > 2008 Proposed Amendment to LP&L Govemans:e Ordinance .... Prior to FY 2004, the City operated LP&L in a manner. consistent with the practice to require its enterprise funds to make a payment in lieu of taxes to the City's General Fund, that provided an annual payment be made by lP&L to the City in lieu of ad valorem taxes and a cost of business transfer (which transfer approximated a payment in lieu of franchise taxes}. In an effort to give LP&L an opportunity to regain fmancial stability. in 2004 the City adopced the LP&L Governance Ordinance which, as described above, mandated the creation of cmain reserve accounts by LP&L and restricted the transfer of revenues from LP&L to any other fund of the City, including. panicularly. the General Fund, until such reserves had been funded. After FY 2004, the City required. a11d it is the City's current practice to require, a payment in lieu of taxes from each of its other enterprise funds. During its deliberations concerning the FY 2008 budget, the City Council approved a budgeted $1,000,000 transfer from the net revenues of LP&L to the City's General Fund (the '"2008 LP&L Transfer''). The FY 2008 budget was approved by the City Council on September 13, 2007. See "DTSCUSSJON OF RECENT FINANCIAL AND MANAGEMENT EVENTS-FY 2008 BUDGET ... The 2008 LP&L Transfer may not be made until such time that the LP&L Governance Ordinance is amended by the City Council. After audited financial statements are available for September 30. 2007, LP&L and City Finance Staff will make a recommendation to the Electric Utility Board and the City Council that will outline a fiscally sound, graduated policy to begin the limited payment in lieu of franchise fees, while continuing to build the reserve to the required policy levels. · >New Full Reouirements Energy Agreement ... In June 2004, WTMPA entered into a 15 year full requirements wllolesale power agrecmcnc (the "New Power Agreement") with SPS. The New Power Agreement becune effective July I, 2004, and replaced a series of existing agreements between WTMPA and SPS md the Cjty and SPS, which had expiration dates in 2004 and 2005. Under the New Power Agreement. SPS or its permitted assigns is obligated to provide all energy requirements for each of the Member Cities ofWTMPA, including the City. during the term of the agreement, which terminates on June 30, l019. SPS rnay terminate the agreement upon the occunence of an adverse regulatory accion 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 represented a significant departure for LP&L, in tha& it reflected a long-term commitment to take all of its energy from SPS. The contract reflected a decision of the City to abandon the role of power generator. although, as described below, in connection with the consummation of the New Power Agreement the City has entered into two unit contingency agreements (the ~unit Contingency Agreements") with SPS that will require LP&L to maintain its generation units for dispatch by SPS. Among the implications for LP&L of the New Power Agreement are that LP&L has resolved its long-term power supply issues, and lessened its ellposure to fuel price volatility, although SPS win 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 onier 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 now, particularly if the City determines to match its FCA to changes in SPS's fuel adjUSII1leJlt. as it has generally done in the past. Aocording to information filed with various regulatwy 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 WTMPA. 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 usc of the City's generation units in accordance with the Unit Contingency Agreements. 18 With respect to the competitive posture of the City in light of the long-tenn commitment of the New Power Agreement, the City notes that Wlder 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 elec~ric generator to being a passive generator (for SPS under the tenns of the Unit Contingency Agreements). the wholesale price of the purchased energy, together with the oCher financial benefits of the Unit Contingency Agreements and the possible roceipt of revenues under the new WTMPA gas agreement described below, pennits the City to compete favorably with SPS. An additional benefit of the New Power Agreement is that it will permit the City to increase its effons 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 plaited, 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 Cil)' 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 developmeni.S. Perhaps the greatest risk to LP&:L from the New Power Agreement is that given the term of the agre:ement 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 cunently being ll(;hieved by the City. While the City does not believe that the area served by LP&L will be opened in the short-tenn to retail deregulation, as is the case in other parts of the State that could occur during the tenn of the New Power Agreement. While there are significant uncertainties as to bow 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 ene'!)' 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 counlefllarl)''s financial condition. credit ratings, changes in business strategies and other quantitative and qualitative measures that could affect the abilil)' of the counterpany to perform its obligations to the City. Both the long-tenn Unit Contingency Agreement and the New Power Agreement provides the City the right to demand cenain credit assurances from its counterparty if it has reasonable grounds for insecurity regarding the performance of any contract obligation. > Otbq 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 ~grcements that dedic:att the City's generation capacity solely to SPS, which, subject to certain customary conditions, including reasonable notice and run times, bas the right to call upon one or more of the generation units owned or controlled by LP&.L, from time to time to m~t energy requirements of SPS. Including the WTMPA Project, all of the capacity of which, in ll(;cordance with the WTMPA Settlements, is dedicated to LP&L, the City has dedicated generation capacity of219 megawatts to SPS Wlder 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 I (~Brandon Statiou"), which is located on the campus of Texas Tech (the "New Units"). lbe remaining capacity is in twelve older units (the "'lder Units"). With reSpeCt to the New Units, SPS may dispatch those units during the term ending June 30, 2007; the tenn of the Unit Contingency Agreement for the Older Units is fifteen years. matching the tenn 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 fiom the City's units, and an energy charge that is based upon the output of any of the City's units that is dispatched for SPS. While the amount of the energy charge will depend upon the energy taken by SPS from the City's generation units. if any, the Unit Contingency Agreements provide an annual minimum payment by SPS to the City ofS6.3 million. > Natural Gas Sale Agreement ... Subsequent to its execution of the New Power Agreement. WTMPA and other panies entered into a series of agreements (collectively, the "'New WTMPA Gas A~ents") under which WTMPA may acquire natural gas and dTcctively exchange it for electric pc>we:r to realize a cost savings. Under the New WTMP A Gas Agreements. WTMP A may purchase natural gas from Texas Municipal Gas Corporation ("'ThtGC"} at below-matlcet prices and sell the gas to SPS in return for a market-priced credit (reduced by n<mlinal administrative and incentive fees) against payments due from WTMPA under the New Power Agreement. The net savings, if any, will be applied proponionately to reduce the power charges of WJMPA 's Member Cities, including the City. TMGC is a Texas nonprofit public facility corporation created for the purpose of acquiring and producing natural gas n:serves 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 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 n.tGC at a discount from the offered prices or the quantities needed to genen~te WTMPA's electric requirements. WTMPA's marketprice 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 bas secured contracts with five suppliers (ConocoPhillps. Coral Energy, NGTS, Concorde Energy, and Tenaska). There can be no assurance that sufficient qualified suppliers will contraC'l to sell gas, or that they will offer to do so on sufficiently advantageous terms, to supply all or any portion ofWTMPA'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 19 0 0 0 0 0 0 c c c ) with financial covenants. although the discount has remained essentially constant for three years. For these and other reasons, there can be no assurance that WfMPA will be able to realize savings in any amount or for any term for the benefit of its members under the New WTMPA Ga.s 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. For FY 2008, LP&L did not budget any revenues from WTMPA gas activity. >Wholesale Energy Agreement with Texas Tech ... The decision in the Summer of2004 to take greater amounts of energy from X eel resulted in a dispute between the City and Teus Tech regarding a prior agreement with respec1to the operation of Brandon Station, which is located on the Texas Tech campus. ln response to mediation to resolve disputes under the prior agreement, the City and Texas Tech executed a new contract on April 28. 2005 (the "New Texas Tech Agieement"). In general terms, Texas Tech has agreed to continue to purchase energy from the City at a price that will provide the City with a small rate ofretum, and is paying for energy usage at the rates provided in the New Texas Tech Agreement. The Ciry has agreed that steam produced at Brandon Station. if any, will be delivered to Texas Tech at no charge. The City bas 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 Ciry is of the view that the New Texas Tech Agn:ement bas resolved the dispute with its largest customer on terms that are mutually beneficial for the panics. > Chief Executive Officer for LP&L ••• Gary Zheng was appointed Chief Executive Officer of LP&L in September 2005. Previously, be 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 ofLP&L He has more than 19 )ICU$ of engineering and management experience in electrical utility business. Mr. Zheng, a registered Professional Engin«r, is a graduate of the Universiry of Southern California with a MS in Electrical Engineering, a MS in Computer Engineering and a PhD in Electrical Engineering. FV 2008 BUDGET General Fund ... The Ciry Council adopted the FY 2007-08 budget and five year forecast on September !3, 2007. The City's FY 2007-08 budget for the General Fund is balanced with $122.4 million in total revenues and expenses. The budget projects that sales tax revenues will produce 53.9% of total tax revenues (lax revenues represent 79.39% of the General Fund's total open~ing revenues). while ad valorem tax revenue is budgeted to produce 44.8Y. of total tax revenues. In FY 2008 the City's total tax rate was set at S0.45505 per $100 taxable assessed valuation, down from $0.46199 in FY 2007. The City's tax roll increased $894.5 million, or 8.9%. from FY 2007 to FY 2008. The Ciry Council, on June 12, 2003, passed a resolution affirming their suppon for truth-in-taxation. The goal of this resolution is to allow the citizens 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 tN!t 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. In addition, the City Council recognized the need for the City to be autonomous in its ability to provide the public safety. ~\th. and quality of life for its citizens. The FY 2007-08 Operating Budget was developed in consideration of the goals of the resolutions and, as a resull. there was a $0.00694 decrease in the adopted tax rate. Total transfers to the General Fund from enterprise and internal service funds are budgeted to increase by $1.5 million. Transfers out increased S3.2 million mainly due to the Cemetery and Civic Centers moving to enterprise funds, but need General fund assistance for operating purposes. On the ex.penditure side. administrative sewices and public works budgets eltperienced decreases of three to six. percent due to efficiency planning. Cultural and recreation services budgets decreased over 18% due to the movement of the Cemetery and Civic Centers to Enterprise Funds. Community services are four percent higher due to scheduled charge increases for data processing and information technology. E;oc.penditwes for public safety are $4.9 million greater than the amended FY 2006-07 budget or a 6.5% increase. This increase is due to the City Council goal of increasing public safety officers in Fire and Police. Overall, General Fund operating e;oc.penditures are budgeted to increase by $3.5 million over the amended FY 2007 budget.· [TilE REMAINDER OF THIS PAGE JNTENTIONALL Y LEFT BLANK) 20 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 2007-08 adopted operating budget and five year forecast for the Solid Waste, Wastewater, Water and Electric funds: Adopted FY2G07.-8 Adopted Planned Use Adopted Cbaoge FY 2007-o8 (Contn"buaou) FY2007-08 from Revenue Net .usea AJ:!I!"'I!riat;oa PriorY ear Solid Waste s 15,781,779 764.,575 16,546,354 ~.6% Wastewater 22,088,059 1,549,231 23,637,290 0.4% Water 42,611,577 6,412,285 49,023,862 3.2o/o LP&L 135,436,074 126,597,820 -44.2% The decreased budget in Solid Waste is a result of lower fuel costs, motor vehicle and heavy machinery maintenance costs, and master lease payments. Decreases in these areas are as follows (in millions): fuel costs, ($0.3); maintenance costs, (SO.I ); master lease costs, ($1.7). No rate increase was needed in FY 2007-08. The increased budget in Water is a result of increased debt service payments for debt issued during 2006-07 and for increased Canadian River Municipal Water Authority ("CRMWA") costs. Incn:ases in these areas are as follows (in millions): debt service. $3.8; and CRMWA costs, $0.4. The large increase in debt service is mainly related to the acquisition of water rights over the past two years. No rate increase was needed in FY 2007-08. See also ~DISCUSSION OF RECENT FINANCIAL AND MANAGEMENT EVENTS • CITY'S RESPONSES TO RECENT FINANCIAL AND MANAGEMENT EVENTS-2008 Proposed Amendment to LP&L Governance Ordinance." [THE REMAINDER OF llUS PAGE INTENTIONALLY LEFT BLANK] 21 0 0 0 c 0 c c c c ' 0 0 ) AD VALOREM TAX INFORMATION AD VALOREM TAX LAW The appraisal of property within the City is the responsibility of the Lubbock Central Appraisal Distrie1 (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 (defined below) to appraise all property within the Appraisal DistriC1 on the basis ofl 000.4 of its market value and is prohibited from applying any assessment ratios. In determining market value of property, different methods of appraisal may be used, including the cost method of appraisaL the income method of appraisal and market dala comparison method of appraisal, and the melhod considered most appropriate by the chief appraiser is to be used. The appraised value of a residence homestead for a tax year may not exceed the lesser of (I) the most recent market value of the residence homestead as determined by the appraisal entity or (2) 110 percent of the appraised value of the residence homestead for the preceding tax year. The vaJue placed upon property within tlte Appraisal District is subject to review by an Appraisal Review Board, consisting of three members appointed by the Board ofDi~ors of the Appraisal District. The Appraisal District is required to review tbe 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 !he determination of appraised value of property within the City by petition filed with the Appraisal Review Board. Reference is made to Title I of the 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 taxation pli1Jl0Ses; and the procedures and limitations applicable to the levy and collection of ad valorem taxes. Article VIII of the State Consticution (~Article VIII") and State law provide for cutain exemptions from property taxes, the valuation of agricultural and operHpace lands a1 productivity value. and the exemption of certain peFSOnal property from ad valorem taxation. Under Section 1-b, Article VIII, and State law, the governing body of a political subdivision, at its option, may grant: (I) an e"emption of not Jess tban $3,000 of the market value of the residence homestead of persons 65 yeaD 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 exempt.ion under trus provision is $5,000. In the case of residenc:e homestead exemptions granted under Section 1-b. Article Vlll. ad valorem taxes may continue to be levied against tbe value ofh00le$leads exempted where ad valorem taxes have previously been pledged for the payment of debt if cessation of the levy would impair the obligation of the contract by which the debt was created. State law and Section 2, Article VIII, mandate an additional property we exemption for disabled veterans or tbe surviving spouse or children of a deceased veteran who died while on active duty in the armed forces; the exemption applies to either real or personal property with the amount of assessed valuation exempted ranging from $5.000 to a maximum of$1 2,000. Effective January I, 2004. under Article VIIJ 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 penons 65 years of age or older wi11 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 distriC1, 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 el!emption. such freeze on ad valorem taxes is transferable to a different residence homestead ...,;thin the taxing unit and to a surviving spou~ living in such homestead who is disabled or is at least 55 years of age. If improvements (other than maintenance or repairs) are made to the property, the value of the improvements is taxed at the then cunent 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. Anicle VIII provides that eligible owners ofbolh agricultural land (Section 1-d) and open-space land (Section 1-d·l), including open-space land devoted to fann or ranch purposes or open-space land devoted to timber production, may elect to have such property appraised for property taxation on the basis of its producti\-e capacity. The same land may not be qualified under both Section 1-d and 1-d·l. Nonbusiness penonal 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. State law additionally provides for one motor vehicle owned by an individual and used in the course of the owner's OCCilf)ation or profession and also for personal activities of the owner to be ellempted from ad valorem taxation. Article VIII, Section 1-j, provides for wfreeport property" to be eJtempted from ad valorem taxation. freeport property is defmed as goods detained in Texas for 175 days or fess 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 subjeC1 to reversal. In addition, under Section 11.253 of the Texas Tax Code, ~Goods-in-transit" are exempt from taxation unless a taxing unit opts out of the exemption. Goods-in-transit are defined as tangible personal property that: (i) is acquired in or imported into the state to be forwarded to another location in the state or outside the state; (ii) is detained at a location in the state in which the owner of the 22 property does not have a direct or indirect ownership interest for assembling, storing, manufacturing, processing, or fabricating purposes by the person who acquired or imported the property; (iii) is transported to another location in the state or outside the state not later than 175 days after the date the person acquired the property in or imported the property into the state; and (iv) does not include oil. natural gas. petroleum products, aircraft. dealer's motor vehicle inventory, dealer's vessel and outboard motor inventory, dealer's heavy equipment inventory. or retail manufactured housing inventory. The City may create one or more tax increment fmancing zones, under which the tu values on property in the zone are .. frozen" at the value of the property at the time of creation of the zone. Other overlapping taxing units may agree to contribute all or part of ft11ure ad valorem taxes levied and collected against the value of property in the zone in excess of the "frozen value" to pay or finance the costs of certain public improvements in the zone. Taxes levied by the City against the values of real property in 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 tu on all or part of the increased value attnbutable 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 60th day after the date the cenified appraisal roll is received by the City. If the City CoUIIcil does oot adopt a tu rate by such required date the tax rate for that tax year is the lower of the ~effective tax rate" calculated for that tu year or the tax rate adopted by the City for the preceding tax year. The tax rate consists of two components: ( l) a rate for funding of maintenance and opemion expendituJU and (2) a rate for debt service. Under the Property Tax Code, the City must annually calculate and publicize its "effective tu ntte" and "rollback tax rate". A tu rate cannot be adopted by the City Council that exceeds the lower of the rollback tax rate or the effective tu 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 othetwise 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 tbe City by petition may require that an election be held to determine whether or not to reduce tbe tax rate adopted for the current year to tbc 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) muhiplied by 1.08 plus a rate that will produce this year's debt service from this year's values (IDladjustcd) 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 authori?.e an additional one-half cent sales laX on retail sales of taxable items. If the additional tax is levied, the effective tax rate and tlle rollback tax rate calculations are required to be offset by the revenue that will be generated by the sales tu in the cw-rent year. Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad val~ 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 as~d 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 lUes on homesteads in four installments with the first due on February I of each year and the final installment due on August l. 23 0 0 0 0 0 c c c c c 0 PENAL TIES AND INTEREST Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: Cumulatin Cumalatin Mo•th Psalty Jaterest Total February 6% 1% 7% March 7 2 9 April 8 3 Jl May 9 4 13 June 10 s 15 July 12 6 18 After July, the penalty remains at 12%, and interest increases at the rate of 1% each month. In addition, if an account is delinquent in July, a 15% attorney's collection fee is added to the tolal tax penalty and interest charge. Undc:r cenain circumstances, taxes which become delinquent on the homestead of a taxpayer 65 years old or older incw 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 bankroptcy. Federal bankruptcy law provides tbat an automatic stay of action by creditors and 01her entities. including governmental units, goes into effect with the filing of any petition in bankruptcy. The aulOINtic stay prevents governmental units from foreclosing on property and prevents liens for post-petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases post-petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. CITY APPLICATION OFT AX CODE The City grants an exemption to the market value of the residence homestead of pers011s 65 years of age or older of S 16,600; the disabled are also granted an exemption of$10,000. The City has not granted any part of the additional exemption of up to 20% of the market value of residence homesteads; the minimum exemption that may be granted under this provision being SS,OOO. The City has established the lax 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 exemp( value of residence homesteads for the payment of debt The Clty does not tax nonbusiness personal property; and the Appraisal District collects taxes for the City. The City does not permit split payments oftaxes, 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. Since the J999tax year, the City has exempted freeport property from lallation. The City collects an additional one-eighth cent sales tax for reduction of ad valorem taxes. The City held an c:lection 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 lax abatement, a project must be located in a reinvestment zone or enterprise zone (a commercial project musl be in an enterprise zone) and must meet several criteria pertaining to job creation and property value enhancement. The City has two enterprise zones, the Lubbock 2000 North Enterprise Z011e, approximately 18.6 square miles, and the Lubbock 2000 South Enterprise Zone. approximately 15.7 square miles. A third enterprise zone, the lubbock International Airport Enterprise Zone. expired in September 2005. In 2003. the legislature made major changes to the statute governing enterprise zones. including designating zones by block group based on poverty me. The block groups that meet the criteria become enterprise zone eligible. but can only be used for tax abatemtot if the new zones are activated. The lubbock 2000 North and South Enterprise Zones are grandfathered and will expirt no later than their original expiration date. At present. theTe are 17 active tax abatement agreements, principally for companies lOcated in the northeast and southeast sections of the City. In accordance with State law. the City has adopted policies for granting tax abatements, which provide guidelines for tax abatements for both industrial and commercial projects. The: guidelines for industrial and commercial projects aTe similar, except that qualifying industrial projects may receive a ten year abatement, while qualifying commercial projects are limited to five year tax abatements. Although oldtt abatements made by the City were given fuU (IOOo/o) tax abatement siDCe 1997 the City bas negotiated abatements on a declining percentage basis, with a portion oftbe lax value being added to the City•s tax roll each year during the life of the abatement. The 24 City's policies provide a variety of criteria that affect the 1erms of the abatement. including I he projected life of the project, the type of business seeki11g the abatement. with cenain 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 cenain categories of propeny. including real property. inventories, tools, vehicles. aircraft, and housing. Each abatement pclicy 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. EXEMmONS 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 tax increment financing zone ("TTFj if the area constitutes an economic or social liability in its present condition and use. Other overlapping w ing units may agree to contribute all or a ponion of their taxes collected against the "Incremental Value" in the TIF to pay for TIF projects. Any ad valorem taxes relating to growth of the tax base in a TIF above the frozen base may be used only to finance improvements within the TIF and are not available for the payment of other tax supported debt ofthe City and other participating taxing units. Together with other taxing units, the City participates in two nFs, the Central Business District Reinvestment Zone (the ~Downtown TIF") and the North Ovenon Tax Increment Financing Reinvestment Zone (the "North Ovenon TIP'). The Downtown TIF covers an approximately 0.71 square-mile area which includes pan of the central business district and abuts the North Overton TIF. The base tall.able values of the TIF are ITozen at the level of taxable values for 2001, the year of creation, at SJ05,858,251.1n FY 2007, the Downtown TIF had a taxable value of$161,582,450 before taJcing into account taX abatements and exemptions. After tax abatements and exemptions, the tax value in the Downtown TIF was Sl 55,747,677. In addition to the City, the County, Lubbock County Hospital District and the High Plains Underground Water Conservation District (collectively, lhe "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 City ordinance establishing the Downtown TIF provides that the Downtown m will tenninate on December 31, 2021 or at an earlier time designated by subsequent ordinance of the City Council. In addition to the Downtown TIF, the City enacted an ordinance in 2001 establishing the North Ovenon TIF. Each of the other Taxing Units in the Downtown TIF also participate in the North Ovenon TIF. The City ordinance establishing the North Overton TIF provides that the North Overton TIF will terminate on December 31, 203 I or at an earlier time designated by subsequent ordinance of the City Council. The North Ovenon TIF consists of approximately 325 acres near the Central Business District of the City. The frozen tax base for tbe North Overton TIF was established as of January 1, 2002 at $26,940,604. ln FY 2007, the North Ovenon TIF had a taxable value of $192,302,370 before taking into account lax abatements and exemptions. After tax abatements and exemptions, the tax value in the North Ovenon TIF was S 192,172,230. [TilE REMAINDER OF TillS PAGE JNTENTlONALL Y LEFT BLANK} 25 0 0 0 0 0 0 c c c c c '""' ) FINANCIAL INFORMATION TABLE J-VALUATION, EXEMPTIONS AND GENERAL OBLIGATION DEBT 2007 Market Valuation Established by Lubbock Central Appraisal District Less Exemptions/Reductions at 100% Market Value: Residential Homestead Exemptions s 225,034,488 Homestead Cap Adjustment 58,787.,272 Disabled Veterans I.S,063,1t8 AgricuhuraVOpen-Space Land Use Reductions 80,099,818 Pollution Exemptions 10,312,389 House Bill 3~ 163,705 freepon .Exemptions 86,375,634 Til)!. Abatement Reductions (I) 35,908,583 Tax Freeze Adjustment 195,219 Market Value Reduction for Protested Properties 83,710,458 2007 Taxable Assessed Valuation City Funded Debt Payable from Ad Valorem Taxes: Gener..t Obligation Debt (as of 1-1-08) (2) $ 524,055,000 Plus: The Cenificates 52,900,000 Total Funded Debt Payable from Ad Valorem Taxes Less: SelfSupponing Debt (as of I -1-08) (3) Waterworks System General Obligation Debt s 129,198,872 Sewer System General Obligation Debt (4) 110,170,700 Solid Waste Disposal System General Obligation Debt 12,630,290 Drainage Utility System General Obligation Debt 90,745,324 Tax Increment Financing General Obligation Debt 22,409,789 Electric Light and Power System General Obligation Debt 57,104,440 Cemetery General Obligation Debt 682,149 Gateway General Obligation Debt 41,349,527 Hotel Occupancy Tax Debt 1,218,634 Airpon General Obligation Debt 6,652z9l2 General Pwpose Funded Debt Payable from Ad Valorem Taxes Unaudited General Obligation Interest and Sinking Fund as of September 30, 2007 Ratio Total Funded Debito Taxable Assessed Valuation Ratio General Purpose Funded Debt to Taxable Assessed Valuation 2008 .Estimated Population (5) Per Capita Taxable Assessed Valuation Per Capita Total funded Debt P11yable from Ad Valorem Taxes Per Capita General Purpose funded Debt Payable from Ad Valorem Taxes (I) See "AD VALOREM TAX INFORMATION -TAX ABATEMENT POLICIES." S I 1,492,911,247 595,700,684 s 10,897.,210,563 s s 576,955,000 472,662.637 104,292,363 2,830,583 5.29% 0.96~. 214,347 $50.721 $2,685 $485 (l) The statement of indebtedness does not include the City's outstanding Electric Light and Power System Revenue Bonds. payable solely from the net revenues of the City's Electric Light and Power System. (3) As a matter of policy. the City provides debt service on general obligation debt issued to fund improvements to its Waterworlcs System, Sewer System, Solid Waste System,. Drainage System, Tax Increment Finance Reinvesbnent Zone. Electric Light and Power System. Cemetery, Gateway Streets, Hotel Occupancy Tax projectS, and Ailp011 from surplus revenues of these Systems (see ""TABLE 8A-GENERAL OBLIGATION DEBT SERVICE REQUIREMENTS," "TABlE 88 -INTEREST AND SINKING FUND BUDGET PROJECTION," ""TABLE 9 -DMSION OF GENERAL OBLIGATION DEBT SERVTCE REQUIREMENTS." and '"TABLE tO-COMPUTATION OF SELF-SUPPORTING DEBr'). 26 The City's Waterworks Sys1em General Obligaaion Debt has been issued to finance or refinance Waterworks Syslem improvements, and is being paid, or is 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. The City's Sewer System General Obligation Debt has been issued to finance or refinance 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. The City's Solid Waste Disposal System General Obligation Debt has been issued to finance or refinance Solid Waste System improvements, and 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. The City's Drainage Utility System General Obligation Debt has been issued to finance or refinance Drainage System improvements, and 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. The City's Tax Increment Financing General Obligation Debt has been issued to finance or refinance 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. Tn FY 2008. 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 cannot 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. Tbe 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 yean in which the TJF would not produce revenues in amounts sufficient to cover all debt issued for it, at least until the TIF has reached full build-out slatus. The City's Electric Light and Power System General Obligation Debt has been issued to finance or refinance Electric Light and Power System improvements, and is being paid, or that is expected to be paid, from revenues derived from the Electric Light and Power System. The City has $19,010,000 outstanding Electric Light and Power System Revenue Bonds payable from a pledge of system revenues. The City's Cemetery General Obligation Debt has been issued to finance or refinance Ceme1ery improvements. and is being paid, or that is expected to be paid. from revenues derived from the Cemetery. The City has no outstanding Ceme1ery Revenue Bonds. The City's Gateway General Obligation Debt has been issued to finance or refinance Gateway Streets improvements, and is being paid, or that is expected to be paid, from franchise fees. The City has no outstanding Gateway Fund Revenue Bonds. The City's HOtel Occupancy Tax General Obligation Debt has been issued to finance touristn projects, and is being paid, or that is expected to be paid, from hotel occupancy taxes. The Cily has no outstanding Hotel Occupancy Tax Bonds. The City's Airport General Obligation Debt has been issued to finance or refinance Airport improvemenls, and is being paid, or that is ellpected to be paid, fiom revenues derived from the Airport. The City has no outstanding Airport Revenue Bonds. (4) Includes the Certificates. (5) Source: City of Lubbock. Texas. [lliE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 27 0 0 0 0 c c c c c ( TABLE 2-T AXABLI ASSESSED VALUATION BY CATEGORY Tauble Aeenlsed Value for Fiscal Year EDded September~ 2008 2007 2006 %of %of %of Ca\~ Amounl Total Amount Total Amount Total Real, Residential, Single-family $ 6.321, 729,050 55.01% s 5,889.918,195 5,,53% s 5,517' 769,306 55.55% Real, Residential. Multi-Family 931507,661 8.ll% 873,394,391 8.23% 795,689,400 8.01% .Real, Vacantlots/TraciS 202,70).022 1.76o/o I 86,939,508 1.76% 166,089,379 1.67% Real, Acreage (Land Only) 103.474,361 0.90"1. 104,443,417 0.98% 80,067,791 0.81% Re~~l, fann and Rand! Improvements 10,948,790 o.uw. 10,601,986 O.lOo/o 11,038,895 0.11% Reel. Commercial and Industrial 2,246.869,059 19.55% 1.968,271,689 18.56% 1,827,90 I, 763 18.40% Real, Oi~ Gas and Other Miner.~ I Reserves 26,864.150 0.23% 28,446,050 0.27% 17,526,510 0.18% Real and Tangible PctSOnal, Utilities 181.023.472 l.SIWo 179.562,657 1.69-A. 177,&3S,907 1.79% Tangib~ Personal. Business 1.340.911,089 11.67% I ,245,600,988 11.74% I ,228,428,632 12.37% Tangjble Personal, Other 13,018,766 0.11% 13,940,265 0.13% 14,527,171 0.15% ....., Real Propcny, I rrvcntory 41,291,828 0.36% 37,577,657 0.35% 26,685,491 0.27% Special Inventory 72,685,000 0.63% 68,621,321 0.65% 67,329,545 0.6~/o Other/ Adjustments ~115,001~ 0.00% 2201192 0.00% 1,4991616 0.02% Total Appraised Value Before ucmptions s 11,492.911,247 100.00% s 10,607,538,316 100.00% s 9,932,392,406 100.00"/o Less: Total Excmptioos/Reducrions !595.700,6842 j604,81216792 ~S8,,7781455l Taxable Assessed Value: s I 0,897,210,563 s 10!002,725,637 s 9,346,613!!5 I Taxable AJ!J!rabed Value for Fisc-al Yur Eacled Sej!tmlber 301 2005 2004 2003 %of %of %of Cat~!! Amount Total Amowu Total AmOIIDI Total Real, Residential, Single-Family s 5,169,490, 706 56.09% s 4,690.158,161 SS.SO% $ 4,282,214,635 56.78% Real, Rcsiclc:nfial, Multi-Family 615,453,250 6.68% 561,569,488 6.64% 455,993,262 6.05% Rca.!, Vac111t lots/Tracts 137,411,731 1.49". 108,625,954 1.29% 93,473,144 1.24% Real, Ac:rea~ (Land Only) 64,532,486 0.70% 65.880,410 0.78% 59.644,9n 0.79% Real, Fannand Ranch Improvements 10,406,299 0.11% JOJm.oss 0.13% 11,391,782 0.15% Real, Commercial and Industrial 1,712,457,490 18.58% 1,638,846,765 19.39% I ,370, 730,397 18.18% Real, Oil, Gas and Olher Min<:n~l Rt'SC"'cs 12,167,754 0.13% 8,923,810 0.11% 7,909,460 0.10% Real and Tangible P=onal, UtiliTies 173,908,469 1.89% 185,761,346 2.20% 192,138,423 2.55o/. T 111giblc J>c:nonal, BusiDC$5 I ,226,369,1 I 8 13.31% 1.090.862,579 12.91% 974,534,729 12.92% Tangible PctS()nal, Other 15,465,413 0.17% 16.287,022 0.19'/o 15,336,364 0.20% Real Propcny, InventOry 9,863,035 0.11% 4.774,287 0.06% 11,087,603 0.15% ) Special Jnvenuny 68.232,264 0.74% 68.663,514 0.81% 67,339,159 0.89% Other/ Adj US1I'T1Cnt5 0.00% 0.00% 0.00% T01al Appraised Value Before E~cmp1ion~ s 9.215.758,015 100.00% s 8.45 I ,188,424 100.00% s 7,541,793,935 100.00% Less: T Dill I Exc:mplions./Rcductions (580,763.153~ (529,598,0442 ~l99,4491068l Taxable ASSCS$00 Value s 8,634,994,862 s 7,92J,S90.380 $ 7,342,344,867 NOTE: Valuations shown are c-ertified taxable assessed values reported by the Appraisal District to the Ciry for purposes of establishing and levying the City's annual ad valorem lax rate and to the State Comptroller of Public Accounts. Certified values are subject to cha:nge throughout the year as contested values are resolved and the Appraisal District updates records. ) 28 TABLE 3A ~ VALUATION AND GENERAL OBLIGATION DEBT HISTORY Flsclll PerCapitll CeDtrlll Rallo Year [Jii-lrd Tnablt Tnablr Purpose Tn Debt to Endrd Cily Assessed Assessed Fundrd Assessed funded Debt Tax ~ Po~ladoa'" V•luatlon Valu•tion'" Tn Debt'" VallllltloD,., .PerCal!llll"' Year 2003 204.737 s 7,342.344,867 s 3S,862 s 70,188,204 0.96% s 343 2002 2004 206.290 7.921.590,380 38,400 70..161,218 0.89% 340 2003 200S 209.120 8.634.994.~2 41,292 80,210,269 0.93% 384 2004 2006 211.187 9.346.613.95 I 44,2S8 87,231,945 0.93% 413 200S 2007 21 2.365 10.002.72S,637 47,102 92,487,363 0.92o/o 436 2006 2008 214.847 10.897.210,563 S0,72l 98,504,904 0.90% 4S8 2007 •• , SouR:e: ThC' City. '"' 1>oa rM ftd\ldf n tr-supportcd dc:tn . ..,, llclundcd: m n~t dotLK. TABLE 38 • DERJVA TION OF GENERAL PURPOSE FUNDED TAX DEBT The following uble setS forth certain infonnation with respect to the Cily'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 time frame. See .. ANTIOPATED ISSUANCE OF GENERAL OBLJGATION DEBT." Fiscal Less: Cenenl Purpose YHr Fanded Tax Debt Self-Supporting Funded Tu Debt Ended Outstaodill& at FuDdedTu OutsbnctiDg 30-Se~ EndofYear Debt at End of Year 2003 s 295,935,000 s 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 447,275,000 360,043,055 87,231,945 2007 5 I 2,250,000 419,762,637 92,487,363 2008"' 550,545,000 452,040,096 98,504,904 ••• Projected. TABLE 4-TAX RAT£. LEVY AND COLLECnON HJSTORY Fisul · Tax Rate Distribution Year[ad General Economic I aterest and T•x Tax Perceat Collected 09130 Fund Development Sinking Fund Rate Lrvv I Curreat TotaJ 2003 s 0.43204 s 0.03000 s 0.107% s 0.57000 s 42.093,153 97.67% 99.21% 2004 0.41504 0.03000 0.10066 0.54570 43,659.111 97.02% 98.64% 2005 0.33474 0.03000 0.09496 0.45970 39,697,452 97.73o/o 100.28% 2006 0.35626 0.03000 0.06094 0.44720 41,775,367 98.15% 99.71% 2007 0.36074 0.03000 0.07125 0.46199 46,068,744 98.12% 99.02% 2008 0.35380 0.03000 0.07125 0.45505 49.195.247 (In process of collection) 29 0 0 0 0 c c c Tax Yn~r 2002 2003 c 2004 2005 2006 2007 ' ) ) ) ) TABLE 5-TEN LARGEST T AXPA VERS 2007 ~.of Total Taxable Taxable N11me A1sessed Valuation Assessed V11luati2n Macerich lubbock Ltd. Wal-Man Stores, Inc. Southwestern BeU Telephone United Supermarkets OFC PYCO Industries, Inc. Southwestern Public Services Co. Lubbock Property, LLC Atmos Energy West Texas Division TYCO Fire Products Fountains Club Lubbock Acquisitions, LP TABLE 6-TAX ADEQUACY s s 120,319,460 69,696,472 65,675,631 49,479,682 48,047,230 42,711,124 33,316,729 33,181,890 31,136,879 28,036,483 521,601,580 Average Annual Debt Service Requirements All General Obligation Debt (2008-2034): $0.2960 per $100 AVagainst the 2007 Taxable AV, at 98.5% collection, produces Maximum Annual Debt Service Requirements All General Obligation Debt (2009): $0.5030 per $100 AV against the 2007 Taxable AV, at 98.5% co!Jection, produces "' Include$ the C cnificates.. TABLE 7-ESTIMATED OVERLAPPING DEBT 1.10"/o 0.64% 0.60% 0.45% 0.44% 0.39% 0.31% 0.30% 0.29% 0.26'Y. 4.79% $31,763,762 , •• $31,771,907 $53,977,902 •• , $53,990,775 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 laX 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 lhe City, the City has not independently verified the accuracy or completeness of such infonnation, and no pe1"$0n 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 detennined. The following table reflects the estimated share of overlapping Tax Debt of the City. Gross Debt Taxln& Jurisdiction ~As of 1/J/08~ Frensbip ISO $ Idalou lSD Lubbock County Lubbock County Hospital District Lubbock lSD Lubbock-Cooper lSD New Deal lSD Roosevelt ISO Estimated Overlapping Debt The City (as of 1/1/08) $ Total Direct & Estimated Overlapping Debt As a% of2007 Taxable Assessed Valuation 138,102.3% 275,000 85,720,000 140,956,725 46,264,571 9,624,998 576,955,000 ,., Per Capita Total Direct & Estimated Overlapping Debt 1'1 lDcludes tbr Cmifoca1cs. 30 Estimated% Overlapping Overlapping Debt 79.41% $ 109,667,073 6.93% 19,058 83.32% 71,421,904 83.32% 98.49% 138,828,278 57.50% 26,602,128 18.33% 4.20% 404250 s 346,942,691 100.00% 5761955,000 ,,, s 923,897,691 8.48'Y. s 4,351 0 TABLE &A-GENERAL OBLJCA TION DEBT SERVICE REQUIREMENTS f'YE Oatslalldl~ Deb1''' Tf1t• Ctnifi<ales Total 0 30-Scp Pri~l lnkrtSC Total Prlndpal lnh!n$1 Total Debt ~.nitt 2008 s 26,410,000 s 24,119,166 s 50.222.277 s 1,365,488 s 1,36$,488 s 51,S87,76S 2009 26,940,000 12,906,212 49,907,366 s 1,765,000 :!,305,.S36 4,1)70,536 S3,9T7,902 2010 27,015,000 21,790,460 48,866,398 1,830,000 2,238.211 4,068,211 S2,93C,609 2011 27,800,000 20,594,166 48,454,901 1,895,000 2,173,024 4,068,024 52,522,924 2012 27,440,000 19,349,341 46,850,018 1,960,000 2,108.011 4,068,011 50,91S.029 2013 28.310,000 18,0&2,207 46,452,&31 2,025,000 2,()43,255 4,068.,!SS SO,S21,0&6 0 2014 29,270,000 16,740,221 46,070,791 2,095,000 1,976.305 4,071,305 S0.142,096 201S 27,410,000 1$,439.593 42.910,326 2,165,000 1,904,374 4,069,374 %,979,700 2016 27.555,000 14,160,739 41,776,980 2,245,000 1.827,199 4,072,199 4S,849,179 2017 21,900,000 12..801,001 40,762,905 2,32S.OOO 1,745,771 4,070,771 44,&33,676 2018 28,635.000 11,426,822 40,1245(.0 2,430,000 1,642,880 4,072,&80 44,197,440 2019 21,915,000 10,017,312 37,993,060 2,550,000 1,518,.)80 4,06&,380 42,061,440 2()2() 26,07S,OOO 8,719,234 34,849,720 2,685,000 1,387,SOS 4,012,SOS 38,922,225 2021 24,795,000 7.483,700 32,328,491 2,820,000 1,249,880 4,069,880 36,398,371 ,...., "'"' 2022 22,460,000 6,314,906 28,818,568 2,965,000 1,105,255 4,070.255 32,888,823 2023 21,900,000 5,217,948 27,154.886 3,115,000 953,255 4,068,2SS 31,223,141 2024 20,400,000 4,152,2-46 24.581.866 3,265,000 806,81S 4,01l,IIS 2&,653,681 202S 19,730,000 3,165,837 22,917,703 3,420,000 6S2,750 4,072,750 26,990,453 2026 16,245,000 2,272.639 18,S3l,I6J 3,595,000 477,37S 4,072,)75 22,603,538 2027 10,$30,000 1,603,211 12,t37,794 3,780,000 293,000 4,073,000 16,210,794 2028 5,225,000 1,216.219 6,441,219 3,970,000 99,250 4,069,250 JO,SI0,-469 c 2029 S,47S,OOO 967,143 6,442,1-43 6,442,143 2030 S,73S,OOO 712.173 6,447,173 6,447,173 2031 6,000,000 445,949 6,445,949 6,445,949 2032 2,19S,OOO 260,438 2,455,438 2,-455,438 2033 2,290,000 IS9.S25 2,449,S2S 2,449,S2S 2034 2,400,000 54,000 2,454,000 2,454,000 $ S24,0S5,000 s 250,172,4£>4 s 774,848,04 7 s 52,900.000 s 29,873,519 s 82,n3,SI9 s 8.57,621,$65 c Average AJtooual Debt Scmcc rtcquimneors All GeMTal Qbl;gocioa Debt (2008-2034): s 31,763,762 llfuimwn Annual Delli Servict Jtequjmncn~s All ~raJ Obliprioo Delli t2009): $ 53,977,902 ''' Ilea noc include ~obliprioru. TABLE 88 -INTEREST AND SJNIONC FUND BUDGET c Projected General Purpo$c G~l Obligatioo Deb• Service Requirements. Sqllcmbcr 30 .2008 s 10,940,576 Fis.cal Agent Fees 20.000 lntcresland Sinking Fund. Scptanbc:r 30. 2007 s 2.330.583 I nten:st ll!ld Sinking F unci Tax Levy @ 99% 7,420,094 c Estim11cd Interest Earnings 1,601,774 Projected Balan«, September 30. 200ll $ 891,875 c 31 < J ... N v v TABLE 9 ·Of VISION OF GENERAL OBLIGATlON DEBT SERVICE Watcrwnrb I'Yf. S)'•ltm ~ Delli Strvt<c 200K 2009 2010 2011 2012 20)) 1014 lOIS 2016 2011 2018 2019 2020 2021 2022 2023 2024 202$ 2026 2027 2028 2U29 2030 2031 211.12 2033 20)4 14,614,0)' 14.~41.M4 0.211.009 1).176,3!2 12.292.729 12.242.108 12.2fli.7H2 12.07$.142 11,821.612 11.684.799 11.464,423 11.112.88$ R.669J63 6,771,761 4.0911.48~ 3.79~.R22 l.794.HR l.OS9.67fi 1.713,699 1.454.616 llolldWIAit ~twcr llbpotol Sysrtll1 .~r•rrm O.bl se ... f<o'" O.br Servlre 11.000,982 IIJM.71>l IIU4U44 10,687.368 10.449.~59 10,264/o(IC lllJ02.1'27 1.222.671 7.421.7~9 7,)1(,)09 7.116.l24 7.078.727 6J~9.90Q 6,3S7.l14 6.357,0(1) 6.112U6S 6,1)211,1111 $,981.867 5.404.294 4.234.207 4,01\9,250 1.228.25$ I,OQ4,6.1S I,IM.liS I.ISO.IbS 1.140,244 1.m.u1 l.IIJ.I!ll l.il'I7,9S9 1.118.462 1.095,&72 1,082.944 888.96$ 881.M7 &7~ .• 4SH 741.30) 744.266 741.8Rl 470.625 470.1>7) !07,121 Dnln•r:• Ulllll)' S)'lltm Dthl St,...l« 4..)61,00~ 4J6$.~2R 5.119,SU S.717,470 $.715.~1 5.717.164 5.113,2$6 S.11 5,706 S.6S8,79l 6.~29.11)4 6.641.035 6.634.660 6.1146.111 6,1147,298 6,662.RH ~.R91.1S~ S.RJ9.240 $,&42.lll 5.&46,906 S,200,60l 4,738.)19 4.7l8.6l8 4.740,963 4.740,044 l.4SS,438 2.449,m 2.454.000 Tot ln<rtmtnr Flnenrln1 Dehl Scrvtrc 1,8)1,7)9 1.8)7.314 I,IJ9,UO 1.8lS.7J8 1.8JS.6ll 1,8)4,492 1,8)4,275 1.8ll,7JO 1.836.)10 1,839.470 1.8)3,674 1.836.23) 1.839.224 1.835.044 1.134.299 1.8JS.I49 1,83).1)1! 1.549,994 834.745 )27,976 1&4.907.875 S 160.66S.66l S 18J44.29l S 14J,4Bl.lll S 33.911,690 "' lnclllclco rr.: Ccni rtea~e.<. u F.lecrrk I.IJIII &Powtr Syaltlll Deb! S<n'lce S.69U41 5,62X.46X ~.lOUIJ S.740,S97 S,6S8,104 S.S90.S84 S.511,1S6 S,435.264 S.I00,8l0 4,~12,514 4,R44.68S 3.305,644 3JOJ,002 l.l03,20J 3.307.1&9 l.U7.lll 2,01$,874 l.020.9ll I,H9.66.3 l.ll$1,140 ll.9ll.l10 u Ct~rery DehiSorvtrt s ml94 SS.21K ss.u.s SU24 55,21) 55,1!4 55.211 55.217 s5.m 55,206 SS.204 55.211 ss.m 55,210 ss.m SS.204 $5.202 55,201 SS.l12 15.689 1,064,695 Garewoy DebrSu·•trc u IIOT O.hr Servl« 3.070.1\90 S 96.4S~ q7J29 97,31J 97.274 97.248 97,)2) 97,210 97.328 97,141 97,248 97.)17 97.290 97.242 97.327 97J)9 97.258 97,2R9 97.308 97,)05 97,170 3.067,61>9 J,n(I7.S64 3.0114,963 l,069,6K7 ),067,074 l.06S.09S 3.066.066 3.066.213 ),064,013 3.067,4~1 3.062,836 J.06M99 ),067,51.1 3.06S,4S8 3.068.156 ).066,372 l.063.S7S 1,924.841 1.704,150 1.702,900 1,70J,SOS 1,706.210 1.705.905 6.U4H99 S 1,944,991 ;) Alr'JIOII Dchl Scrvlr• 791.l<Xl 617.726 1>12.SU (,07,502 602.598 S96,767 589,80S 4S6,2J5 455,21S 457.940 4~6,045 454,025 455.813 456,969 4S7.8S6 4S7,ft49 457.)17 457.137 2llJS1 32,197 c;tnuol Purpn~• Dohl St,...lre 10,940.S76 ll.JOUM 10,44A.650 IO,l90.B9 10,000.099 9,q2S,Sl9 9,854,792 8.924,323 9,217,lSS 7,616.000 7.HR.J2& 1.m.ozo 7.546.,5S4 6,931.294 6,219.76) 6,092.30) 4,724.138 4.391,811 ),423.«3 1,985.226 0 Tolal G.O. Dchr Servlrr $ ~URl,7~.1 ~),Q7J,t)()J 52,9.14.(41') sz.m.924 SO,QI&.Il29 ~O.~li.Oft6 SO.I42.0% 46.979.700 4S.~9.179 44,gl•.67~ 44,197.440 42,1161.440 )8.922.225 l6,l9U71 l2.8ftU2l )l.lll.141 28,11Sl,l\ft I 26.990,4H 12.(.(1.\Jl~ 16.210.794 I 0.~ I 0.46'1 6,442.14.1 6,447.173 6.445.949 2,4S5,43ft 2.449.525 2.4~4.000 9.7M,821 S IH,00&,720 S JS1.6l1JiiS ) TABLE I G-SELF-SUPPORTED DEBT 11te following details the revenues available and debt allocations for the self-supported general obligation debt of the City. See also Table 9. In addition to the funds detailed below, the City Council of the City approved ordinances 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. THE WATERWORKS FVNo••• Net System Revenue Available, Fiscal Year Ended 9-30-06 Less: Requirements for Revenue Bonds, Fiscal Year Ended 9-30-08 Balance Available for Other Purposes Requirements for Fund Genetal Obligation Debt, Fiscal Year Ending 9·30-08 Percentage of Fund General Obligation Debt Self-Supporting "' Each Fisc.al Ye.r the Cily trwiSfers lll'llmoomt equal to cfd>t scrvi"" ~a~uin:ments on the Wotmoo•orks fund petal obliption debt to a le8RIJ!Cd 1~1 m ihe Waterworits Fwul. THE SEWER FUND 1'1 Net System Revenue Available, Fiscal Year Ended 9-30-06 Less: Requirements for Revenue Bonds, Fiscal Year Ended 9-30~8 Balance Available for Other Purposes Requirements for Fund General Obligation Debt, Fiscal Year Ending 9-30-08 Percentage of Fund General Obligation Debt Self-Supporting '" Eacb Fiscal Yell d!c Cily ITIIIISfas"" amotlnl equal to dcbl service ~a~uiremcnts on the Scwc:r Funclscncn~l obliption dd>t to a~ account io the Sewer fGIId. The Cily expects C\lrmlt ycafs Sewer Fund revenue$ ,..;u be $ulrteicntto ~owr the debt service raquirerncoiS of the: Sewer Ftmd e-n' obliptioo debt THE SOUD WASTE FUND to> Net System Revenue Available, Fiscal Year Ended 9-30-06 Less: Requirements for Revenue Bonds, Fiscal Year Ended 9-30~8 Balance Available for Other Purposes Requirements for Fund General Obligation Debt, Fiscal Year Ending 9-30~8 Percentage of Fund General Obligation Debt Self-Supporting <ol Each fiscal Yt:»r tile Cily tramfers IIIIIIDOWit equal to debt service: raquir¢mmts"" tit~ Solid Wast~ Fund zcnml obliption debt to a sqpqaiCd account in the: Solid WMtc flllld. THE DRAINAGE FUND <•) Net System Revenue Available, Fiscal Year Ended 9-30~6 Less: Requirements for Revenue Bonds, Fiscal Y car Ended 9-30~8 Balance Available for Other Purposes Requirements for Fund General Obligation Debt, Fiscal Year Ending 9-30-08 Percentage of Fund General Obligation Debt Self-Supporting '" Each Fital Year the Cily trandcrs., ta>Ount equal to deb! savicc n:quircmcms Clft the Drainarc f .. nd &t'ftCftl obliptioq debe to a $e8RPied account in d!c Drainagt Fund. nJE ELECTRIC LICHT AND POWER FUND''' Ne1 Electric Light and Power System Revenue Available, Fiscal Year Ended 9-30-06 Less: Requirements for Revenue Bonds, Fiscal Year Ending 9-30-08 Balance Available for Other Purposes Requirements for Fund General Obligation Debt, Fiscal Year Ending 9-3()..()8 Percentage of Fund General Obligation Debt Self-Supporting •·• Each fiscal Y C*r the City -sfers an &mDUm equal to ddn SC!Vkc ~a~uirc:rr>c:nts on the Elcctri<: lifltl and Plwott fund 33 s s s s s $ s s s s 18,277,614 18,277,614 14,614,035 100.000/o 8,373,248 8,373,248 9,255,947 100.00% 3,913,968 3,913,968 ),228,255 )00.00"-" 6,476,263 6,476,263 4,361,006 100.00% 28,689,792 3,429,060 2),260,732 5,698,341 100.00% 0 0 0 0 0 c ,. t,.. c () 0 0 '"'l. THE CATEWA Y FU!"iD 1'' Net System Revenue Available. Fiscal Year Ended 9-30-06 Less: Requiremmts for Revenue Bortr.l~ Fiscal Year Ended 9-30-08 Balance Available for Other Purposes R~uiremmts for Fund General Obligation Debt. Fiscal Year Ending 9-30-08 Pert:entage of Fund General Obligation Debt Self-Supporting s $ "1 Ea<:b fiscal Year lhe City transfers an amount equal to deb! service requirements oo the Ga1eway fund scnem obligation debe to a ~tc:d ••~ou~• in tho Gatrway Fund. THE AIRPORT FUND '·" Net System Revenue Available, Fiscal Year Ended 9-30-06 Less: Requirements tor Revenue Bonds, Fiscal Year Ended 9-30-08 Balance Available for Other Purposes Requirements for FWld Genm~l Obligation Debt, Fiscal Year Ending 9-30-08 Percentage of fund Genen~l Obligation Debt Self-Suppor1ing "1 ~Fiscal Year lilt C'ily uaru<fns an amounl equal to dcbl service: requirements on the: Airport Fund scncral obligatioa debt to a scgrq~arcd account in the: Airpon FIIIKI. THE TAX J.NCREME~'T FINANCING fUND w Net System Revenue Available, Fiscal Year Ended 9-30..()6 Less: Requirements for Revenue Bonds, Fiscal Year Ended 9-30-08 Balance Available for Other Purposes Requirements for Fund General Obligation Debt, Fiscal Year Ending 9-3~8 Percentage of Fund General Obligation Debt Self-Supporting "1 Each FiSC$1 Year the City lraMfcrs an amounr equal to debt service rcquizcntmu on 1hc: Tax lncremcntl'iMntins; fund peral obli!atioo detlt to a ~red a«:ount in the: Tax lncn:ntC"nt financing Fund. The n:maiader of nlVI:nue needed to suwon Tax Increment Firw>Cing Fund scncrat obli~ation debt io transfcncd !rom the Cil)"s Solid Waste Fund. TABLE J I -AUTHORIZED BUT UNISSUED GENERAL OBLIGATION BONDS lbte Amoullt Pul1)05e AlOorized Autlaorized Sewer System 0512Jm s 3,303.000 s WalCJ"Y.Uks Sys1em 1()117/87 2,810,000 Streetl~~s 05/01/93 10,170,000 Street tmprovanenls 05115104 9,210,000 Civic Caner/Auditorium Renovation and Improvements 05/lS/04 6,450,000 Park Improvements 05/15/04 6,395,000 Police!Municipal Courl f!~Cilities 05/15/04 3.350,000 Library brpoYe~rents 05115104 2,145,000 Fire Stations 05115104 1,405,000 Animal Shelter Renovation.s & l~vements 05115/04 I 1045,000 s s s s Issued To Date 2,175,000 200,000 10,166,000 5,269,000 6,395.000 1,405,000 160,000 s 46,283,000 $ 25,770,000 34 5,526,200 5,526,200 3,070,090 100.00% 2,877,208 2,877,208 791,190 100.00% 940,013 1,831,739 100.00% Ullissued s 1,128,000 2,610,000 4,000 3,941,000 6,450.000 3,350,000 2,145,000 885,000 s 2015131000 ANTlCIPATED ISSUANCE OF GENERAL OBLIGATION 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. Jn addition. as conditions change, new projects may be added that are not CUITently identified. Under current City policy, for a project to be funded as a capital project it must have a CO!>t of $25,000 or more and a life of seven or more y~. For FY 2007-2008, the City Council approved $194.4 million in total expe:nditutes for capital projects for all general purpose projects, as well as projects for the electric fund, water fund. sewer fund, solid waste fund, stormwatcr fund and airport fund (up from S77 million in FY 2006-2007). The Capital Projects Fund budget for FY 2007-2008 also included an additional $562.6 million in future improvements for all City depanments over the five succeeding fiscal years. The improvements included in tbe Ci1y's capital improvement plan are generally funded from a blend of bond proceeds, reserves or current year revenue sources. As shown in Table II, the Cily has $16,771,000 of authorized but unissued bonds from the May 15, 2004 bond election. Wheo the election was beld, the City anticipated that the bonds would be issued over the 2004 through 2008 time frame. The Cily typically i!>sues voted bonds for general purpose City projects. such as streets, parks, libraries, civic centers and public safety improvemen.ts. However, the City has incurred substantial unvoted tax supported debt to fund ponions 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 Ibis Official Statement, such enterprise fund indebtedness is generally anticipated to be self-supporting from enterprise fund revenues. The City anticipates the issuance of$119,400,000 in additional general obligation debt within the next twelve months. TABLE 12-OTHER OBLIGA 110NS Governmmtal Businas-Type Total Capital Lease Capital Lease C:~pital Lease FYE Miuimom Minimum Minimum 30-SeJ;! Paiment Paiment Paiment 2008 $ 1,694,843 s 1,946,263 $ 3,641,106 2009 1,673,144 1,&42,705 3,515,&49 2010 1,522,290 1,748,474 3,270,764 2011 725,904 1,086,012 I ,81l,916 2012-2016 1,116,246 381,832 1,498,078 Interest (8961711} ~894,074~ ~1,790,785~ s 5,835,716 s 6,111,212 s 11,946,928 On January 8, 2004, the City entered into a note agreement with the Depanment of Housing and Urban Development (~HUD'') for Joan guanntee assistance under Section 108 of title I of the Housing and Community Development Act of 1974, as amended. in the amount of S I ,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 set'\' ices rendered in relation to such project, and the financing thereof. Under the tenns of the Note, the Cily will make annual prindpal payments on August 1. of each year beginning in 2005 through 2012; interest payments are due semi-annually. The Note is a liability of the City's Communi!)' Development Block Grant Program and debt service will be paid from this grant. FYE Contract Reveaue Bonds 30-Scp Pri•dEaJ laterest Total 2008 s 125,000 s 28,300 s 153,300 2009 125,000 23,300 148,300 2010 125,000 17,900 142,900 2011 125,000 12,188 137,188 2012 125,000 6,200 131,200 s 625,000 s 87,888 s 712,888 35 0 0 0 0 0 c c c ,. "' c ( 0 ) ) PENSION FUND .•. TEXAS MUNICIPAL RETIREMENT SYSTEM "''' ... All pennanent, full-time l.ity empioyees 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 starute 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 cunent. prior and antecedent service credit:>, five year vesting, updated service credit, occupational disability benefits and survivor benefits for the spouse of a vested employee. An employee who retires receives an annuity based on the amount of the employee's 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. Enabling statutes prohibit any member city from adopting options which impose liabilities that cannot be amonized over 25 years within a specified statutOJY rate. On December 3 I, 2006, the actuarial value of assets held by TMRS (not including those of the Supplemental Disability fund, which is "pooled''), for the City were $199,865,768. Unfunded actuarial llCCTUed liabilities on December 31, 2006 were $71 ,502,988, which is being amonized over a 25-year period beginning January. 1997. F'JREMEN'S REUEF AND RETIREMENT FUND '"' ... 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 Legistarure and adopted by City fsrefighters, by vote of the department, in I 941. 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 determined on a ''formula" or a '"final salary" plan. Actuarial reviews are performed every two years, and the fuDd is audited annually. Firefighters contribute a percentage of full salary into the fund. Based on the plan effective November I, 2003, the Fund's funding policy requires contributions equal to 12.43% of pay by the firefighters. The City contn'butes on a basis of the percentage of salary which is an annually adjusted ration that bears the same relationship to the firefighter's contribution rate that the City's rate paid into the TMRS and FICA bears to the rate other employees pay into the TMRS and FICA. The December 3 I, 2006 actuarial valuation asswnes the City's contribUiions will average 19.75% of payroll in the future. As of December 31, 2006, the unfunded pension benefit obligation was $26.297,944 which is amortized with the f!ltcess of the assumed total contribution rate over the normal cost r.te. The number of years needed to amortize the unfunded pension obligation is determined u:.ing an open, level percentage of payroll method, aS:>uming that the payroll will ina-ease 4°/o per year. The December 3 I, 2004 actuarial valuation, which u:.ed plan provisions effective November I, 2003, needed 20.6 yell$ to amortize the unfunded pension obligation. The December 31. 2006 actuarial valuation was based on the plan provisions effective December 1, 2005 and needed 35 years to amortize the unfunded pension obligation. OTHER POST-EMPLOYMENT BENEFITS ... The City CUJn':ntly provides certain post-employment benefits to its employees, as described in Note 111. K (Notes to the Basic Financial Statements) set forth in Appendix A. The City intends to comply with the requirements ofGASB No. 43 and 45, with respect to the reporting of post-employment benefits, in accordan~ with the timelines set forth in GASB No. 43 and 45. The City has retained the services of Gabriel, Roeder, Smith & Company to prepare the calculations required under GASB No. 43 and 45. l•\ For bistoric1l information concerning !he ~irement plans. see "APPENDIX A. EXCERPTS FROM ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED SEPT£MBER 30,2006-Note III. SubseCtion E. Retirtment Plans". lbl Source; Texas Municipal Recirc:ment System, Comprchensi~·e Jfnnual Finanrial Report far Year Ended ~em~r JJ. 1006. [THE REMAINDER OF THIS PAGE INTENTJONALL Y LEFT BLANK) 36 0 TABLE 13 -CHANGES IN NET ASSETS Fiscal Year Eoded ~tember 30 I•> 0 2006 zoos 2004 2003 lim REVENUES Program Revenues Charges for Services s 9,632 s 10,583 s 12,713 s 13,888 s 9,369 Grants and Contribulions 11,048 13,296 9,643 12,137 7,007 General Revenues 0 Property Taxes 42,771 39,748 44,497 42,303 40,408 Sales Taxes 45,577 41,803 30,555 29,092 28,903 Other Taxes 4,447 4,242 3,793 3,712 3,681 Franchise Taxes 13,348 11,154 9,654 6,613 6,998 Grants/Contributions not restricted (25) Other 11,292 5,742 4,274 31834 6,227 0 Total Revenues $ 138,115 s 126,568 $ I 15,129 $ 111,579 s 102,568 EXPENDITURES Administrative Services s 9,910 s 8,220 $ 7,946 s 7,158 s 7,293 Community Sen~ices 6,112 6,146 6,776 6,335 8,643 Cultural and Recreation 18,915 17,745 17,102 16,796 16,297 c Economic Development 10,283 9,739 4,610 4,535 4,399 Fire 26,711 23,517 22,074 20,450 19,432 Health 5,014 5,040 4,585 4,343 4,173 Police 42,063 38,452 36,543 33,.986 31,862 Other Public Safety 5,240 4,977 4,211 3,602 3,459 Streets and Traffic II ,850 12,466 10,570 16,371 9,913 Non-departmental 5,206 6,253 2,924 5,642 5,015 c Interest on Long-Term Debt 41326 3,195 4877 3,373 3,493 Total Expeoditurn s 145,630 s 135,750 $ 122,218 s 122,591 s I 13,979 Changes in net assets before special items & lransfers s (7,515) $ (9,182) $ {7,089) s (11,012) $ (11,411) Special items (687) ,. Transfers 9,607 15,469 9,745 2,554 15,668 ... Changes in net asse1s $ 2,092 $ 6,287 $ 2,656 s (8,458) $ 3,570 Net Assets -beginning of year, as restated $ 110.629 £ 104,341 s 101,684 $ 110,142 s 106,572 Net assets -end of year s 112,721 s 110,628 s 104,340 s 101 ,684 $ 110,142 c 1"1 Audited. UniiS a~ in 000$. Note: Oa101 shov.'ll in Tab\t 13 reflects general govmunenul activities repcKtcd in accordmce with GASB Swement No. 34. The fin~ial SUitemeniS include a mana@clllC'IIt discussion and 1111alysis of the operating ~sullS of such fiSCal year, including ~IS to beginnillg fimd balances and net asseiS. c 37 ( TABLE JJA-GENERAL FUND REVENUES AND EXPENDITURES HJSTO'RY f"is(tl Ve~r E11c!ed Sfptembft' 31 0 :Z006 ~ 1t04 l!!!l :zoo:z REVENUES Ad Valorem Taxes s 33,193,738 s 29,414,773 $ 33,233,274 $ 32,194,087 $ 29,885,252 Sales Taxes 41,778,534 38,319,501 30,554,632 29,092,032 28,902,649 Franchise Taxes 8,008,973 6,693,209 9,654,447 6,612,822 6,998,085 Miscellaneous Taxes 1,027,.352 982,327 939,456 848.,816 820,507 Licenses and PermiiS 2,250,635 1,953,666 1,982,281 1,875,118 1,475,451 lntefgOvemmental 408,997 480,648 428,459 348,787 351,878 Charges for Services 4,781,G43 4,070,642 4,467,733 4,945,591 4,472,094 Fees and Fines 3,981,978 4,.015,402 3,675,856 3,672,509 3,069,362 Miscellaneous 1,465,215 1,506,315 1,442,677 1.532,346 1,058,237 Interest 921,742 349.2l6 3>4,730 285.756 433,393 Operating Transfer1 t•l 16_565,.397 10.723,ll91 10,345,945 15,023,466 Total Reveoua and Trausfers s 97,818,207 $ 104,.351,116 s 97,437,436 $ 911753,809 s 92,490,374 EXPENDITURES Gcnc:nil Govcmment s s 6,159,536 s 5,633,469 s 5,717,151 s 5,596.868 Financial Services 2,1 39.492 2,333,469 1,969,413 1,958,051 Cultural and Recreation 13,986,576 Ec:oliQIIlic & Business Development 1,146,267 Non-departmental 1,882,255 445,251 214,562 175,499 1,497,485 Admin/Communiry SeJ'\Iices 9,356,059 18,330,508 18,156,455 17,837,076 17,997,152 Poliot 37,463,740 33.919,626 32,400,371 30,321,182 28,905,651 Fino: 24,638,814 21,943,267 20,613,077 19,511,797 18,632,109 Health 3,738,790 Other Public Safety 4,287,806 Planning and Transponation 8,120,727 7,180,843 6,610,394 6,510,394 Slm:t Lighting 7,439,045 2,214,291 2,185,286 2,078,277 2,168,620 Human Resout'Ccs 740,826 754,225 780.529 &9S.:m Debt Serviot Principal 1,009,.368 Debe Service Interest and Other Charges 144,858 Capital Outlay 7,184,866 5,277,100 475,585 378,059 480,749 Operating Tran.sfers 3,912,645 4,212.915 13,555.338 5,951,669 Total Expeodlnara s I I 2,278,444 s 103,203,269 s 94, I 60,257 s 98.934,715 s 90.594,059 Excess (Deficiency) of Revenues and T ran.sf~ over EJtpenditures s (14,460,237) s 1,147.847 s 3,277,179 s (7,180,906} s 1,896,315 Capital Lease Issued 5,119,980 3.534,048 Transfer In 13,325,046 Transfer Out ( 1,436,498) Fund Balance at Beginning of Year 171376,420 12,694,525 9,417,346 16,598.252 "' 16,716,042 Fund Balance at End of Year s \9,924,711 s 17.376,420 s 12,694,525 s 9,417.346 s 18.612,357 Less: Reserves and Designations ob) (1,255.041) Undesignated Fund Balance'"' s 19,924,71 I s 17.376,420 s 12,694,525 s 9,417.346 s \7 •. 357,316 1"1 For fi~al year 2005/06. the water. solid waste and waste water funds tnlnSfemd an amount suff.clent to cover the pro rata slulre of tile City's general and administrative expeoscs and an amount ~ing a payment in lieu of ad valorem w.es. The water. waste water and solid waste funcb nnsfernd an amount rqll'esetltillg a franchise pa~ot equal 10 6% of gross receipts. The Electric SyStem was not required to make IJallSfm. to the Genc:nol Fund forany of !he forecoing ~ durinl! tile fr;scal year. ~'>I The City's fmancial policies l&rJet a General FlUid vndesignatoed ~of at least 20% of GenrDI fund r~ucs. The undesign~ fund balance js at 99% of the target e1tablished by tbe City's financial polit"ie$. 1'1 Tile Mfund Balance at Beginning of Y aT' was restated. ) 141 The Ciry lldministntion believes chat !he unOllldited General Fund ba~ for the period ending September 30. 2007 was approximately $19,136.979. 38 ' No Text 0 FINANCIAL POLICIES Basis of Accountine ... The accounting policies of the City confoTJll to generally accepted accounting principles of the Governmental AC<Xlunting Standards Board and program standards adopted by the Government Finance Officer's Association of lbe United States and Canada ("'GFOA "). The GFOA bas 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 through September 30, 2005. The City will submit the City's 2006 report to GFOA to determine its eligibility for anot.ber certificate. Comprehensive Annual Financial Ref}()rt fCAFRJ ... Beginning with lbe year ended September 30, 2002, the City's CAFR has been presented under lbe Governmental Ac~unting Standard Board ( .. GASB") Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis-for State and Ux:al Governments, GASB Statement No. 37, Basic Financial Statements-and Managemem'.s Discussion and Analysis-for State ami Loco/ Governments: Omnibus, and GASB Statement No. 38, Certaiu Financial Note Disclosures. For additional infonnation regarding accounting policies that are applicable to tht City, see Note I. ~summary of Significant Accounting Policies" in the financial statements of the City attached as Appendix A. General F11nd Balance ... The City's objective is to maintain an unreserved/undesignated fund balance at a minimum of an amount equal to two months budgeted operating expenditures to meet unanticipated contingencies and fluctuations in revenue. 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. Water. Wastewo/er. Storm Wattr. Solid Waste ondAimort Entemrise Frm4Balcmces ..• lt 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, Ailpol1, and Stonn Water funds is an amount equal to 15% ofregular operating revenues. With the exception oftbe Elec:tric 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 2006, the target net assets by policy and current appropriable net asseiS for the Water, Wastewater, Storm Water and Airport enterprise funds are as follows: Entemrise F1u1d Ta!]!.et Net Assets bi Polic! AJ!I!!J!I!riable Net Asset! Water S I 0.5 million S 19.2 million Wastewater SS.S million $13.5 million Storm Water S 1.0 million $12.1 million Solid Waste $2.3 million $4.9 million Airport $1.0 million $3.0 million Eleczric Enterprise Fr~nd Balance ... It is the policy of LP&L to maintain appropriable net assets set by the City Charter. The LJ>&L Governance Ordinance was amended in December of2006 to include, aiOOilg other things., changes to the requirements regarding the reserve funds LP&l maintains. As amended, the LP&l Governance Ordinance requires the Electric Utility Board to (i) maintain sufficient operating cash to satisfy all current accounts payable and (ii) maintain a general reserve fund that is equal to the greater of four months gross retail electric revenue (GRR) as determined by taking the average monthly GRR from the previous fiscal year or SSO million dollars. This general reserve fund shall be used for operational purposes, rate stabilization and for meeting the electric utility demand of any rapid or unforeseen inCTease in residential and/or commercial development According to audited numbers for FY 2006. the total target net assets by ordinance and current appropriable net assets for LP& l are as follows: E•terpriR Fuad LP&L Taaet Net Assets by Policy SSO.O million • Based on Electric Utilities Board discretion. Appropriable Net Assets• $25.3 million Enterorise Funr! Revenues ... h 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 FY 2003). Such self sufficiency is to be obtained through the rates. fees and charses of each of these enterprise funds. For purposes of determining self sufficiency, cost recovery for each enterprise fund includes direct operating and maintenance expense, as well as indirect cost recovery, in-lieu of transfers to the General Fund for property and franchise tax payments, capital eJtpenditures 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 Servic! Fund Balrmce ... A reasonable debt service fund balance is mainlllined in order to compensate for unexpected contingencies. 40 Budgetary 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 comments. 3) Prior to Oct.ober I the budget is legally enacted through passage of an ordinance. 4) The City Manager is authorized to transfer budgeted amounts between ICCOWits 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 appTOpriations at tbe fund level. 5) Formal budgetary integration is employed as a management control device during the year for the Convention and Tourism. Criminal Investigation, and Capital Projects funds. Budgets are adopted on an annual basis. Formal budgetary inter;ration 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. Unencwnbered 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 bas received the Distinguished Budget Presentation Award from the GFOA for the following budget years beginning October 1. 1983-88 and 1990-06. /1WJrgrr« and Risk Manggement •.. 1be City is self-insured for public entity liability and health be~~efits coverage. Risk management purchases a $1 0,000,000 eJtcesS insurance policy fOT liabilily claims in eJtcess of SSOO,OOO, per ooc:urrence. Airport liability insurance and workers' compensation is insured Wider guaranteed cost policies. The Health Benefits are covered by a self insured program with a S 18,845,756 cap and a SI7S,OOO 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 Jnlemal Service Fund to account for insurance programs and budgeted transfers are made to this fund based upon esti~nated payments for claim losses. At September 30, 2006 the total Nee Assets of these insurance funds were as follows: Self-insurance -health ($198,884)• Self-insurance-risk management S3,397,29S • Unaudited net assets in the self insurance health fund as of September 30, 2007 are $3.837,330. The positive fund balance is a result of savings realized from a change in third party administrators and network beginning January l, 2007. The City obtains an actuarial study of its risk management fund (the .. Risk Fund") every year.ln FY 2005, an actuarial study was conducted that considered the types of insurance protection obtained by the City, the loss eJtposure and loss history, and claims being paid or reserved that are not covered by insunnce. The 2005 actuarial review recommended that the liabilities of the Risk Fund be increased to $6,479,000 from $6,437,000 to the minimum expected confidence level of the Government Accounting Standard Board Statement Number 10 ("GASB 10"), which requires maintenance of risk management assets at a level representing at least a 50% confidence level that all liabilities, if presented for payment immediately, could be paid. The Risk Fund has net assets restricted for insurance claims ofSJ,688,000 over the recommended funding level. Given the risk net assets balance, the City exceeds the minimum GASB I 0 requirement INVESTMENTS The City invests its investable funds in investments authorized by Texas law, including specifically the Public Funds Investment Act (Chapter 2256, Texas Government Code, and referred to herein as the .. PFlA''). in accordanc~ with investment policies approved by the City Council of the City. Both state law and the City's investment policies are subject to change. LEGAL INVESTMENTS Under Texas law, the City is authorized to invest in (I) obligations, including leiters of credit, of the United States or its agencies and instrumentalities, (2) direct obligations of the State of Texas or its agencies and instrumentalities, (3) collateralized mortgage obligations directly issued by a 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 instrurnent.alities, (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 frrm not less than A or its equivalenc, (6) bonds issued, assumed, or guaranteed by the State oflsrael, (7) certificates of deposit meeting the requirements of the PFlA that are issued by OT through an institution that either bas 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. (8) fully colla1eralized repurehase agreements that have a defined termination date. are fully sc~ured by obligations described in clause (I), and are placed through a primary govenunent securities dealer or a financial institution doing business in the State of Texas, {9) bankers' acceptances with tbe remaining term of270 days or less. if the short-term obligations of the accepting bank 41 0 0 c c c c c c ( c 0 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-1 or P-I or the equivalent by either (a) rwo nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable Jener of credit issued by a U.S. or state bank. (I l) 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 S I for each share, ( 12) no-load mutual funds registertld with the Securities and Exchange Commission that: have an average weighted maturity of less than two years; invests exclusively in obligations described in the preceding clauses; and are continuously rated as to investment quality by at least one nationally recognized investment nating fum of not less than AAA or its equivalent, and ( 13) guaranteed investment conuacts 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 that the pools are rated no lower than AAA or AAAm or an equivalent by at least one nationally recognized rating service. The City is specifically prohibited from investing in; (I} obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mongage-backed security collatenal and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security and be~ no interest; (3) collateralized mongage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mOT1gllge 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 such as the City are authorized to implement securities tending programs if: (i) tbe securities loaned under the program are collatenalized, a loan made under the program allows for termination at any time and a loan made under the program is either seemed by (a) obligations that are described in clauses (1) through (6) of the first paragJaph under this subcaption. (b) irrevocable Jeners of credit issued by a state or national bank that is continuously rated by a nationaiJy recognized investment rating firm not Jess 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 first paragraph under this subcaption, or an authorized investment pool; (ii) securities held as collatenal 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 law, the City is required to invest its funds under written investment policies that primarily emphiiSize safety of principal and liquidity; that address investment diversifiCation, yield, marurity, and the quality and capability of inves1JTient management; and that includes a list of authorized investments for City funds, maximum allowable Stated maturity of any individual investme:nt and the maximum average dollar-weighted maturity allowed for pooled fund groups. All City funds most 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 penon of prudence, discretion, and intelligence would exen:ise in the management oflbe 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 tbe ending value of each pooled fund group; t4) the book value and market value of each separately listed asset at the beginning and end of the reponing period; (S) the maturity date of each separately invested asset; (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategy statements and (b) state law. No person may invest City funds without express written authority from the City Council. ADDITIONAL PROVISJONS Under Texas law, the City is additionally required to: (I) annually review its adopted policies and strategies; (2) require any investment officers' with personal business relationships or relatives with firms seeking to sell securities to the entity to disclose the relationship and file a statement with 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) aclc:nowledge that reasonable contrOls and procedures have been implemented to preclude imprudent investment activities. and (c) deliver a written statement attesting to these requirements: (4) perform an annual audit of the management controls on investments and adberau:e to the City's investment policy; (5) provide specific investment b'aining for the Treasurer. Chief Financial Officer and investment officers; (6} restrie1 reverse repurchase agreements to not more than 90 days and restrie1 the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement; (7) restrie1 its investment in mutual funds in the aggregate to no more than 1 S percent of its monthly avenage fund balance, excluding bond proceeds and reserves Estimated Fair Book Value Market Value and other funds held for debt service, and to invest no portion of bond proceeds, reserves and funds held for debt service, in mutual funds; and (8) require local government investment pools to conform to the new disclosure, rating. net asset value, yield calculation, and advisory board requirements. 42 TABLE1S-CURRENTINVESTMENTS As of September 30. 2007, the City's investable funds were invested in the following categories: United Slates Agency Obligations Money Market Mutual funds''' Local Government Investment Pools"' s 118,219,000 44,014,150 131,428,024 s 293,661,174 Book VaJue Valllt s 117,673,754 44,014,150 131,428,024 s 293,115,928 o/e of Total Book Vahae 40.15% 15.02% 44.84% 100.00% E5timaled Markel Value"' s 118,045,822 44,014,150 131,428,024 s 293,487,996 %ofTotal Market Value 40.22% 15.00"/o 44.78% 100.00% 1'' Marlcet prices an: obtained from Advent's interface wilh FT Interactive Data. No funds an: inveSted in mongage backed securities. The Ciry holds all invesnnents tO maruriry which minimizes the risk of market price volatiliry. ~~Money Manet Funds are held at Wells fargo Bank, Texas N.A. 1'1Local government invesnncnt pools consist of mtities whose invesnnc:nt objectives arc ~rvation and safery of principal,liquidity and yield. The pools seek to maintain a Sl.OO value per share as requimt by the Texas Public Funds l~tmcnt Act. TAXMATIERS TAX EXEMPTION In the opinion of Vinson &. Elkins L.L.P., Bond Counsel, (i) interest on the Cer1ificates is excludable from gross income for federal income tax purposes under existing law and (ii) interest on the Certificates is not subject to the alternative minimum tax on individuals and corporations, ocept 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 intmst on state or local obligations, such as the Certificates, to be excludable from gross income for fedenll income tax pwposes. 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 ocess 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 City 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 pmaining to those sections of the Code that affect the exclusion from gross income of interest on the Certificates for federal income tax purposes and, in additiOJl, will rely on representalions by the City, the City's Financial Advisor and the Underwriters with respect to matters solely within the knowledge of the City, the City's Financial Advisor and the Underwriters, respectively, which Bond Counsel bas not independently verified. lf the City should fail to comply with the covenants in the Ordinance or if the foregoing representations should be determined to be inaccurate or incomplete, interest on the Certificates could become taxable from the date of delivery oft he Certificates, regardless of tbe date on which the event causing such taxability occurs. The Code also imposes a 20% alternative minimum tax on the wallemative minimum taxable income" of a corporation if the amount of such ahernative 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, REJT. REMJC or FASID, includes 75% of the amount by which its wadjusted current earnings" exceeds its other "alternative minimum taxable income." Because interest on tax-exempt obligations, such as the Certificates, is included in a corporation's ~adjusted current earnings," ownership ofl.be Certificates 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 Certificates. Bond Counsel's opinions are based on existing law, which is subject to change. Such opiJrions are further based on Bond Counsel's 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 lhat it deems relevant to such opinions. The SeNice has an ongoing audit progRm 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 will commence an audit of the Certificates. If an audit is commmced, in accordance with its current published procedures the Service is likely to treat the City as the taxpayer and the Owners may not have a right to pa11icipate in such audit. Public awareness of any future audit of the Cer1ificates could adversely affect the value and liquidity of the Certificates during the pendency oflhe audit regardless of the ultimate outcome of the audit. ADDITIONAL FEDERAL INCOME TAX CONSIDERATIONS Collateral Tax Consequences Prospective pu~basers of the Certificates should be aware that the ownership of laX exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and propeny and casualty insurance companies. certain S 43 0 0 c c c c r I., ( c c c n 0 0 "'\ 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. taxpaym owning an interest in a FASJT that holds tax-exempt obligations and individuals othetwise 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 Cenificates. These categories of prospective purchasers should consult their own tax advisors as to the applicability of these consequences. Prospective purchasers of the Certificates 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 Certificates, received or accrued during the year. Tas Ac:couotinc Treatment of Original Issue Pnmium The issue price of all or a portion of the Certificates may exceed the stated redemption price payable at maturity of such Certificates. Such Certificates (the ~Premium Certificates") are considered for federal income tax purposes to bave Mbond premium" equal to the amount of such excess. The basis of a Premium Certificate in the hands of an initial owner is reduced by the amount of suc.h excess that is amonized during the period such initial owner holds such Prcmiwn Cenificate 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 Certifteate by the initial owner. No corresponding deduction is allowed for federal income tax purposes for the reduction in basis resulting from amortizable bond premiwn. The amount of bond premium on a Premium Certificate that is amortizable each year (or shorter period in the event of a sale or disposition of a Premium Certificate) is detennined using the yield to malllrity on the Premium Certificate based on the initial offering price of such Certificate. The federal income tax consequences of the purchase, ownership and redemption. sale or other disposition of Premium Cenificates that are not purchased in the initial offering at the initial offering price may be determined according to rules that differ from those described above. All owners of Premium Certificales should consult their own tax advisors with respect to the determination for federal, state, and local income tax purposes of amortized bond premium upon the redemption, sale or other disposition of a Premium Certificate and with respect to the federal, state, local, and foreign tax consequences of the purchase, ownership, and sale, redemption or other disposition of sud! Premium Certificates. OTHER INFORMATION RATINGS Upon the issuance of the Policy by Financial Security, the Certificates shall be rated "Au." 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;. The City's underlying ratings on itS presently outstanding general obligation debt are .. A.a3" by Moody's, ~AA"by S&P and "AA''by Fitch. The City also has issues outStanding which are rated .. Aaa" by ~oody's. "AAA" by S&P and "AAA" by Fitch through insurance by various commercial insurance companies. An explanation of the significartee 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 asSUI1lnce that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by any or alleither or both of such rating companies. if in the judgment of any or alleither or both companies, circwnstances so warranL Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Certificates. Finaac:ial Guarauty ladastry-Recent Events Moody's, S&P and Fitch (collectively referred to herein as the "Rating Agencies'') have each released statements on the health of the financial guaranty industry that cite financial guarantors' exposure to subprime mortgage risk as an area of stress for the financial guaranty industry. In various releases. the Ratings Agencies have each outlined the processes that they intend to follow In evaluating the effect of this risk on their respective ratings of financial guarantors. for some financial guarantors, the result of such evaluations could be a rating affinnation. a change in rati11g outlook, a review for downgrade, or a downgrade. Potential investors are directed to the Rating Agencies for additional information on their respective evaluations of the financial guaranty industry and individual financial guarantors. In a NovemberS. 2007 press release, Fitch stated that there was a "'minimal probability" that Financial Security may experience erosion of its capital cushion under Fitch's updated stress analysis and that .. due to minimal SF COO exposure and [a] strong initial capital cushion, Fitch anticipates no capital or rating issues resulting from its updated capital review of Financial Security." On December 14, 2007, Moody's affinned the ''Aaa" rating of Financial Security with a stable outlook. On January 17, 2008, S&P affirmed the ... AAA" rating of Financial Security with a stable outlook. UTIGATION The City is involved in various legal proceedings related to alleged personal and property damages. breach of contl'l(;l 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/SSOO,OOO and property damage at S I 00,000 per claim. The following represents the significant litigation against the City at this time. The City's insurance coverage, if available, contains either a $250,000 sclf-iosuml retention or a $500.000 self-insured retention depending on the date of the occurrence. 44 The Ciry 1\as been sued by a contractor whc was not awarded the bid on a portion of the stonnwater d111in.age project. The contractor has alleged violations of the state bid statute and a violation of Section 1983. The plaintiffs toolc a nonsuit in state court andre-filed the case in federal coun. The federal court dismissed the contractor's Section 1983 claims, and the contTactor filed a Notice of Appeal. The Fifth Circuit court of appeals reversed the District Court and the District Court has reinstated the federal and state claims. The case is set for trial in May 2008. 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. its police chief. and two police officers have been sued for violation of a citizen's first amendment rights when the plaintiffs film ftom his camera was confiscated by the police while the individual was photographing a children's basketball game. The matter has been dismissed on a plea to the jurisdiction and the plaintiff has appealed the court's decision. The Court of Appeals reversed the trial court's decision and remanded the case back to the trial court. Plaintiff is not seeking monetary damages except for attorney's fees. l1le Ciry Attorney believes there is insurance for any potential damages. The Cily and a police officer have been sued by an individual on behalf of himself and his children rising out of the death of the plaintiff's teenage daughter and injuries 10 his son from an automobile accident with the police officer. The plaintiff alleges that the officer was operating the vehicle in a negligent manner and was speeding at the time of the automobile collision. The defendants have asserted that the driver of the vehicle carrying the plaintiff's children was negligent in failing to yield the right- of-way to the police officer. The City filed a motion for summary judgment which was granted based on the fact the plaintiff did not file a claim with the City. The Coun of Appeals reversed this decision and remanded the case back for trial. The City has appealed the case to the Texas Supreme Court but the Court refused to hear the case. The case is now back in the trial court. The City Attorney believes there is insurance covering the claims. The City and a former police officer have been sued by a plaintiff as a result of allegations of inappropriate sexual conduct after a police stop by the police officer. The officer filed a motion to dismiss under the Tort Claims Act citing provisions holding that the plaintiff cannot sue both the entity and the individual officer under the act, and the officer was dismissed from the case. The Ciry filed a motion for summary judgment, which was granted and the plaintiff appealed the decision. The Appellate Coun affinned the judgment for tbe City but remanded the case against the police officer. The City Attorney is of the opinion that insurance is available for the City. The City and the insurance company have denied coverage to the officer. Plaintiffs have sued the City and a police officer and Taser International as a result of an incident where a police officer lased a citizen while making an arrest. The citizen subsequently died. The Cily filed a plea to the jurisdiction wbicb was denied and the Ciry appealed the trial courts denial of the plea. The Appellate Court also ruled in favor of the Plaintiff. The Ciry has appealed this decision to the Texas Supreme Court. A federal cause of action under Section 1983 has been filed alleging federal civil rights violations involving the same facts. Trial is set in the federal case in May 2008. The City Attorney is of the opinion that insurance is available for the claims. The City and a police officer have been sued by an individual who was tased during a traffic stop. The plaintiff has alleged violation of his civil rights, as well as. violations under the Tort Claims Act. The Ciry Allomey is of the op.inion that insunmce is available and that there are no significant injuries to the plaintiff. The city has been sued by ERAF Corporation alleging the city has wrongfully denied them a permit to operate a sexually oriented business. Plaintiff has asked the court to dismiss the case with prejudice. The City has been sued by Northridge Homeowners Association and Templeton Mortgage Corporation seeking a declaration of rights as to various property interests at Lake Alan Henry. At this time, Plaintiffs are only seeking attorney's fees as compensation. though this could end up in the six figure range. A former employee sued the City in October 2007 for wrongful termination. While the case is still in the early stages of development, the City. at this time. does not believe there is a strong likelihood of recovery. The Cily believes there is insurance coverage in this matter. The City intends to vigorously defend itself on all claims, although no assurance can be given thai the City will prevail in all cases. However. the City Attorney and City management are of the view that its available sources for payment of any such claim-s, which include insurance policies and Ciry reserves for self insured claims, are adequate to pay any presently foreseeable damages (see ~FlNANClAL POLICIES-Insurance and Risk Management"). On the date of delivery of the CertifiCates to the Underwriters. the City will execute and deliver to the Underwriters a certificate to the effect thai, except as disclosed herein. no significant litigation of any nature has been filed or is pending, as of that date, to restrain or enjoin the issuance or delivery of the Certificates or which would affect the provisions for their payment or security or in any manner question the validity of the Certificates. JNVESTIGAnONS RELA nNG TO CITY'S HEALTH INSURANCE ADMINISTRATOR In 2006, the City hired an outside independent auditing company. Benefit Plan Partners, a California company, (the .. Auditor") to cond:.~ct an audit of its contract (the "Administration ContJaCt") with ils then current health insurance administrator, American Administrative Group, Inc. ("AAG"). The Administration Contract provided for AAG's administration of all City employee clairm on the Ciry's self-insured health insurance. The Auditor fotmd numerous possible overcharges and errors by AAG during the term of the Administration Contract. including overchaTges possibly arising from unauthoriud commissions taken by AAG. 45 0 0 c c c c c r .... c c ( 0 0 and possible paymenl~ to AAG by phannacies as rebates. The outside Auditor estimated the aforementioned errors and overcharges to be approximately S2,000,000. The Administration Contract terminated by its own terms in December 2006 and AAG has ceased to administer any claims for the City. The City has hired another third party administrator to administer the nm-out claims which accrued prior to December 2006. The City also selected Blue Cross Blue Shield to be the City's new health insurance administrator beginning January 2007. In March 2007, the City filed an application with the State district court to compel AAG to preserve and provide documentation relating to the Administration Contract and claims submitted by City employees during the tenn of the Administration Contract. It is the intent of the City to utilize such documentation to complete the audit by Benefit Plan Partners of its contract with AAG to determine whether any further oveJCharges have occurred. The City is aware of federal authorities investigating man~ relating to AAG and the Administration Contract, including investigations conducted by the Federal Bureau oflnvestigarion. No subpoenas at this time have been directed at or issued to the City in regards to the investigations involving AAG or the Administration Contract. REGISTRATION AND QUALIFICATION OF CERTIFICATES FOR SALE The sale of lhe Certificates 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 Certificates have not been qualified under the Securities Act of Texas in reliance upon various ell.emptions contained therein; nor have the Certificates been qualified under the securities acts of any jurisdiction. The City assumes no responsibility for qualification of the Certificates under the securities Jaws of any jurisdiction in which the Certificates may be sold, assigned, pledged, hypothecated or otherwise tran.sferred. This disclaimer of responsibility for qualification for sale or other disposition of the Certificates shalt not be construed as an interpretalion of any kind with regard to the availability of any exemption trom securities registration provisions. LEGAL INVESTMENTS AND ELJGIB1LJTY TO SECUJtE PUBLIC FUNDS JN TEXAS Section 1201.041 of the Public Security Procedures Act (Chapter 1201, Texas Government Code) provides that the Certificates are negotiable instruments governed by Chapter 8, Texas Business and CommeJCe Code, and are legal and authorized investments for insunnce companies, fiduciaries, and trustees. and for the sinlcing funds of municipalities or other political subdivisions or public agencies of the Stale of Texas. With respect to investment in the Certificates by municipalities or other political subdivisions or public agencies of the State of Texas, the PFIA, requires that the Certificates be assigned a rating of~A" or its equivalent as to invesunent quality by a national rating agency. See ''OTifER INFORMATION -RATINGS" herein. In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investor standard. the Certificates 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 Certificates are eligible to secure dep<lSits 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 Certificates are legal investments for various institutions in those states. LEGAL MATTERS The delivety of the Certificates is subject to tbe approval of the Attorney General of Texas to the effect that such Certifica1eS are valid and legally binding obligations of the City payable from sources and in the manner described herein and in the Ordinance and the approving legal opinion of Bond Counsel. 1be form of Bond CO\Insel's opinion is attached hereto in Appendix. B. The legal fee to be paid Bond Counsel for services rendered in connection with the issuance of the Certificates is contingent upon the sale and delivery of the Certificates. The legal opinron of Bond Counsel will accompany the Certificates deposited with DTC or will be printed on the definitive Certificates in the event of the discontinuance of the Book-Entry-Only System. Certain legal man~ will be passed upon for the Underwriten by McCall, Parkhurst & Horton L.L.P .• Dallas. Texas. Counsel for !he Underwriters. The legal fee of such firm is contingent upon the sale and delivery of the Certificates. Bond Counsel was engaged by, and only represents, the City. Except as noted below, Bond Counsel did not take part in the preparation of the Official Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained herein except that in its capacity as Bond Counsel, such firm has reviewed the information appearing in this Official Statement llll<kr the captions "THE CERTIFICATES"' (exclusive of the infonnation under the subcaptions ~BOOK-ENTRY-ONLY SYSTEM" and MUSE OF PROCEEDS"' ) and "TAX MATTERS" and under the subcaptions ~LEGAL MATTERS," MLEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS" and "CCNTINUING DISCLOSURE Of JNFORMATIONft (exce.pt for the subsection "Compliance with Prior Undertakings") under the caption "'TIJER INFORMATION'' and such firm is of the opmion that such descriptions present a fair and accurate summary of the provisions of the laws and instruments therein described and such information conforms to the Ordinance. The legal opinions to be delivered concummtly with the delivery of the Certificates express the professional judgment of the anomeys rendering the opinions as to the legal issues explicitly addressed therein. In rendering a legal opinion, the anomey does not beccme an insum or guarantor of that expression of professional judgment, of the transaction opined upon, or of the future performance of the panies to the transaction, nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise oul of the transaction. 46 CONTINUING DISCLOSURE OF INFORMATION In the Ordinance the City bas made the following agreement for the benefit of the holders and be.neficial owners of the Certificates. Tile City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Certificates. 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 cenain information vendors. This information will be available to securities brokers and others who subscn"be to receive the infonnation from the vendors. AD1111al Reports The City will provide certain updated financial information and operating data to certain infonnation vendors annually. The information to be updated includes all quantitative financial information and operating data with respect to the City of the general type included in this Official Statement under Tables numbered I through 6 and SA through 15 and in Appendix A. The City will update and provide this information within six months after the end of each fiscal year. The City will provide the updated information to each nationally recognized municipal securities information repository (WNRMSIRj approved by the staff of the United States Securities and Exchange Commission ("SEC") and to any state information depository ("SIDj 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 d«uments, as pennined by SEC Rule 15c2-12 (the ~Rule"). The updated infonnation will include audited financial statements, if the City commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the City will provide unaudited financial infonnation and operating data which is customarily prepared by the City by the required time, and audited filWlcial statements when and if such audited financial statements become available. Any such financial sutements will be prepared in accordance with the accounting principles descn'bed in Appendix A 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 yearend 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 cbanges 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 5121476-6947. The MAC bas 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 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.DisclosureUSA.org ("OisclosureUSA"). 11le City may utilize DisclosureUSA for the fiJing of information relating to the Certificates. Material Eveat 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 Certificates, if such event is material to a decision to purchase or sell Certificates: (I) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions; (7) modifications to rights of holders of the Certificates; (8) early redemption of the CertifiCates; (9) defeasances; (I O) release. substitution, or sale of property securing repayment of the Certificates; and (II) rating changes. (Neither the Certificates nor Ordinance make any provision fot" debt service reserves or liquidity enhancement.) In addilion. the City will provide timely notice of any failure by the City to provide information, data, or fmancial statements in accordance with its agreement deS<:ribed above under "Annual Repons." The City will provide each notice described in this paragraph to the SID and to either each NRMSIR or the Municipal Securities Rulemaking Board (''MSRBj. Availability oflnformatiou From NRMSIRS and SID The City has ~ to provide the foregoing information only to NRMSJRs, the MSRB and the SID. as described above. 11le information will be available to bolders of Certificates only if the holders comply with the procedures and pay the charges established by such information vendors or obtain the information through securities brokers who do so. Lhnitatioas a•d Amead-ats The City bas agreed to update information and to provide notices of material events only as described above. The City has not agreed to provide other infonnalioo that may be relevanl 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 Certificates 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 Cenificates may seek a writ ofmmdamus 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 pennitted an underwriter to purchase or sell Certifx:ates, in the offering described hereio 47 0 0 c c c c: ( c ' ) in compliance with I he Rule. taking into accounl any amendmtnts 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 Certificates consent to the amendment or (b) any person unaffiliated with the City (such as JWionally recognized bond counsel) delermincs that the amendment will not materially impair lhe interests of the holders and beneficial owners of the Certificates. Tile City may also amend or repeal the provisions of this continuing disclostue 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 Certificates in the primary offering of such Certificates. If the City so amends the agreement, it has agreed to include with the next financial infonnation and operating data provided in accordance with its agreement described above under ''Annual Reports" an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided. Compliance with Prior Undertakings The City became obligated to file annual reports and financial statements with the SID and each NRMSJR in an offering that took place in 1997. All of the City's general obligation debt reports and financial statements were timely filed with both the SID and each NRMSIR; however. due to an administrative oversight, the City filed its fiscal year end I 999, 2000, and 2001 electric and power revenue debt repons late to the SID and each NRMSIR. The financial information has sinte 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 disclosure agreements made in connection with LP&L revenue bonds, the City committed to make prompt filings with the SID and either each NRMSIR or the MSRB upon the occunence of any "non-payment related defaults." The City's FY 2003 audited fmancial statements were not available until mid-September 2004. Therefore, when the City made itS annual disclosure filing with the SID and NRMSIRs in March 2004, it filed unaudited financial statements in accordance with its undertaking. Several references in that filing, including in the unaudited MD&A, in notes to those statements and in the statistical tables, reponed 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"). BeQuse there was an uncertainty as to an amount by which the rate covenant would fail to be met, which was not finally determined until lhe audited financials were released in September 2004 (although the City had a reasonable belief prior to that time that the rate covenant had not been met). the City waited until September 2004 to make its event filing of non-compliance with its LP&:L rate covenant FINANCIAL ADVISOR RBC Capital Markets is employed as Financial Advisor to the City in connection with the issuance of the Certificates. RBC Capital Markets is the name under which RBC Dain Rauscher Inc., a broker-dealer, conducts investment banking business. The Financial Advisor's fee for services rendered with respect to the sale of the Certificates is contingent upon the issuance and delivery of lhe C enificates. RBC Capital Markets, 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 fedenll income tax status of the Certificates. or the possible impact of any present, pending or future actions taken by any legislative or judicial bodies. UNDERWRITING The Underwriters have agreed to purchase the Certificates., subject to certain conditions, and has agreed to pay a purchase price reflecting the par amount of the Certificates. plus an original issue premiwn of S2,8S I ,566.50, kss an Underwriters' discount of 5318.456.44. plus accrued interest The Unde"''Titers have reviewed the information in this Official Statement in accordance with. and as part of, their responsibilities to investors under federal securities laws as applied to lhe facts and circumstances of this transaction. but the Underwrilers do not guarantee the accuracy or completeness of such information. FORWARD-LOOKING STATEMENTS DISCLAIMER Tile statements contained in this Official Statement. and in any other information provided by the City, that are not purely historical, are forward-looking statements, including statements regarding the City's expectations, hopes. intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in this Official Statement are based on information available to the City on the date hereof, and the City assumes no obligation to update any such forward-looking statements. The City's actual results could differ materiaJly from those discussed in such forward-looking statements. The forward-looking statements included herein are necessarily based on various assumptions and estimates and are inhetently subject to various risks and uncertainties, including risks and uncertainties relating to lhe 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 omined to be taken by third parties, including custorneM;. suppliers. business partners and competitors, and legislative, judicial. and other governmC11tal authorities and offici.als. Assumptions related to the foregoing involve judgments with respect to, among other things, future economic, competitive. and marllet conditions and future business decisions, all of wllich are difficult or impossible to predict accurately and many of which are beyond the conttol of the Cily. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forWard-looking statements included in this Official Statement wilt prove to be accurate. 48 MISCELLANEOUS The financial data and other infonnation 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 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 funber information. Referentt is made to original documents in all respects. The Ordinance authorizing the issuam:e of the Certificates will also approve the form and content of this Official Statement, and any addenda, supplement or amendment thereto, and authorize its further usc in the reoffering of the Certificates by the Underwriters. Is/ DavidA. Miller Mayor City of Lubb«:k, Texas ATTEST: /sf Rebecca Gong City Secretary City oflubboclc, Texas 49 0 0 0 c c c c c c c APPENDIX A EXCERPTS FROM ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED SEPTEMBER 30, 2006 .·· This page intentionally left blank 0 0 c c c ' r .. ( ( .... January 3, 2007 P.O. Box 2000 • 1625 13th Street • Lubbock, TX 79457 (806) 775-3002 • Fax: (806) 775-2051 Honorable Mayor, Cjty Council, and Citizens ofLubbock, Texas: It is with much pride that we submit the Comprehensive Annual Financial Report (CAFR) for the City of Lubbock, Texas for the-fiscal year ended September 30, 2006. The purpose of the CAFR is to provide the City Council, cidzeos, and other interested parties with accurate and meaningful information concerning the financial condition and performance of the City. In addition. as part of the CAFR review ptOcess: independent auditors have verified that the City has presented its financial position fairly in an material respects. The CAFR is presented with management's representation of the City's fmance~ and as such, management asswnes full responsibility for the completeness and reliability of all the information presented. To ensure a reasonable basis for making these representations, City management 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 confonnity with generally accepted accounting principles (OAAP). Because the cost of intemaJ controls should not outweigh their benefits, the City's comprehensive framework of internal controls has been designed to provide reasonable, rather than absQiute, 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 respe<;ts . The City's financial statemeilts have been audited by BKD. LLP. a firm of Jicensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements for the latest fiScal year are free of material misstatement. The independent audit involved examining, on a test basis. evidence supporting the amounts and disclosures in the financial st..atements; assessing the aC«>unting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The I Honorable Mayor, City Council; And Citi7.cns of the City of Lubbock, Texas January 3, 2007 independent auditor concluded that there was a reasonable basis for rendering an unqualified opinion that the City's financial statements for the fiscal year ended September 30l 2006, are fairly presented in conformity with GAAP. The independent auditor's report is presented as the first component of the financial section of this :eport. The independent audit of the City's financial statements is part of a broader. federally mandated "Single Audit", which is designed to meet the special needs of federal granting agencies. The standards governing Single Audit engagements require the independent auditor to report on several facets of the granting agencies financial processes and controls: • Fair presentation of lhe financial statements, • Internal Controls involving the admjnistration of federal awards, lllld • Compliance with legal requirements. 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 fmancial statements in the fonn of Management's Discussion and Analysis {MD&A). This letter of transmittal is designed to complement MD&A and should be read in ccmjunction with it. The City's MD&.A can be found immediately following the report of the independent auditors. THE CITY AND ITS ORGANIZATION Popugtiqp. and Loeation The City is located in the northwestern part ofthe state commonly known as the South Plains 'of Texas. The City currently occupies a land area of 119.9 square miles and serves a population cif 212,365 (2007 Planning Department estimated population). Lubbock is the 11th largest Mettopolitan Statistical Area (MSA) in the State ofTexas and the 1~ largest city. The Lubbock MSA includes Lubbock and Crosby Counties. (Source of ranlcing: 2006 estimate$ from Demographics Now, a. product of SRC) Form of Government aad City Services The City was incorporated in 1909. The City is empowered to levy a propeny tax on both real and personal properties located within its boundaries. lt is also empowered by state statute to extend its corporate limits by annexation, which ocwrs periodically when deemed appropriate by the City Council. The City bas operated under the council·manager fonn of government since 1917. Policy· making and legislative authority are vested in a city council consisting of me mayor and six other members. Some of the City Council's responsibiHties -incJude adopting ordinances. adopting the budget, appointing conunittees, a.nd hiring the City Manager, City Attorney, and City Seeretary. The City Manager is responsible for carrying out the policies and ordinances of the City Council, for overs~g the day-to-day operations of the Cityt and for appointing the heads of the various depJrtrnents. The City Council is elected on a non·partisan basis. Council members serve four· 2 0 0 c c. c c Honorable Mayor, City Council, And Citizens of the City of Lubbock, Texas January 3. 2007 year staggered terms, with three counciJ members elected every two years. The mayor is elected to serve a twoMyear term. Six of the councii members are elected by district. The mayor is elected at large. The City provides a full range of services including public safety, the construction and maintenance of highways, streets, and other inftasttucture, solid waste services, and recreational activities and cultural events. The City also provides public utility services for electricity, water, wastewater, and stonn water. . Public safety includes police protection and fire protection. Police protection is provided through tbt Police Department, which includes, with the adoption of the FY 2006·07 Operating, 422 sworn police officers. The Fire Department Opei'ates 15 fire stations and has 311 sworn rtre fighters. Electric service )n Lubbock is provided by Lubbock Power and Light (LP&L). Xcel Energy, and South Plains Electric Coop.erative. LP&L is the municipal-owned electric company and has 68,836 meters in Lubbock with an average daily consumption of 4.259,994 kWh. LP&L has 14 substations, 1,011 miles of distribution lines, and 85 miles of transmission lines. Natural gas set\fice is provided by Atmos BnerJy. Cuml:ntly, Lubbock obtains 75% to 85% of its drin1c:U1g water supply from Canadian River Municipal Water Aulhority (CRMWA). CRMW A ~mbines surface water from Lake Meredith and ground water from Roberts CO\Ulty ~ nieet the wat$' demands of Lubbock and the other 10 member cities of CRMWA. Lubbock secures the remaining l So/o to 25% of its water from its groundwater rights in Bailey and Lamb counties. 'Ibe City provides water smrice to 78,000 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 1,400 miles of distribution lines and 146 active water wells with 83,265 acres of water rights. 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 pip.elinc to carry the water to Lubbock, ·and a now treatment plant. The preliminary engineering for these improvements is now under contract and should be completed by early 2008. . For the past several years. the City has been plarming for future water needs. In March 2003, the City contracted with WaterTexas, Inc. to evaluate and make recommendations on how the City can optimize existing and potential water supplies on a short-, mid-, and long-tenn basis. In a report titled City of Lubb«k Strategic Water Plan, WaterTexas reported that Lubbock has adequate water supply and will continue to ao 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, with lhe primary objective of developing a 100-year water supply plan. They have since 3 Honorable Mayor, City Council, And Citizens of the City of Lubbock, Texas Jan\llll)' 3, 2007 achieved that object and continue to play an intricate role in the City's long-term water planning efforts. The City has aJso worked closely with the Region 0 Planning Group in the preparation of the State Water Plan that reflects Lubbock's water supply needs and alternatives. CRMWA has secured an addilional 260.000 acres of groundwater rights in the Northern Panhandle. Groundwater rights now total over 300,000 acres, with an estimated 15 million acre feet of w~r within those rights. Conservative projections using current secured water rights indicate CRMW A will be able lO provide groundwater supplies through existing infrastructure through 2097. Wastewater collection and treaunent is provided within the city limits to residential, commercial, and industrial customers. The collection system consists of 960 miles of sanitary sewer as of January 1, 2006. 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 bas a contract for final design to upgrade the wastewater treatment plant for discharge quality effluent 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 Y cllowhouse Draw) which both converge at the upper teaches of the North Fork of the Double Mountain Fork of the B~os River. The City's municipal separate stonn sewer system (MS4) is made up of 1,0891inear mile$ of paved and unpaved~. 544linear miles of paved and unpaved alleys, 1,188 storm sewer inlets, 70 miles of subsurface stonn sewer pipe, three detention basins, ll5 playa lakes. and one pump station. Maintenance of all of the stoun sewers and street cleaning was funded from the Storm Water Fund during FY 2005-06. During FY 2005.06 the primary focus of the storm water fund was the construction of the South Lubbock Drainage Project-Phase I Main Trunk Line. This project remains approximately one year ahead of schedule and will connect six playa lakes during Phase I of the overall project. Construction for the widening of 981h Street from Slide Road to lola A venue began during FY 2005-06 and included the remainder of the South Lubbock Drainage Project trunk line and a regional stOnn sewer designed to drain two detention basins at 98th Street and Frankford Ave. The construction of the drainage channel north of Andrews Park Lake was completed during FY 2005-06. Work continued on a FEMA Restudy of two of the playa lake systems and a new study was undertaken to master plan the northwest quadrant oflhe city and to look at other options for flood risk reduction at Maxey Park Lake. 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 stonn water quality activities. Compliance with the City's MS4 pennit ii currently with the Environmental Protection Agency and consists of 11 different programs that continued during the fiscal year. The City provides garbage collection and disposal services to 63.638 residential customors and 2,937 commercial customers. One of the City's two landfill sites is designated as Lubbock Landfill and is a transfer station only. The ~nd site is Lubbock's pR:mier landfill and is 4 0 0 0 0 c c c c c Honorable Mayor, City Council, And Citizens o( the City of Lubbock. Telt8S January 3, 2007 designated as tbe West Texas Regional Disposal Facility. The West Texas Regional Disposal FacHity 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 yean. Citibus is the pubUc transportation provider for the City of Lubbock m~d is professionally managed by McDonald Transit Associates, Inc. Citib\m provides a Fi~t'd Route Service, CitiAccess (paratransit system), Evening Service, and Special Services. The CitiA<:cess service is a cutb-t.o-curb service for disabled m-=rnben of the community. The Citibus Evening Service is designed to meet the needs of both CitiAeoess and fixed route passengers who are transit dependent, and who would have no other means oftranspol1ation in the evenings ifthe.Ev~ing Service was not provided. A majority of Evening Service passenJers work at night and ~ the service for transportation to and from their jobs. In additio~ Citibus o:ffets route service for Texas Tech University. The City bas a 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 Prosram. Through these sources of funding, tbe City completed work on over 250 houses, assisted over 24,104 ·individuals. and created 3 jobs through an economic development loan prosram. The City also receives funding from the Texas Department of Housing and Community Affairs. These funds allow the city to offer additional programs to the citizens of Lubbock. Through these programs, 216 households received assistance in weatherizing their home aildlor making their home more energy efficient, 1 ,200 households received utility assistance, 7S graduated from the self-sufficiency program, and 12,000 residents received referral assistance through the lnfonnation and Referral Hotline. Community enrichment and cultural services 'are also m~or programs of the City. The City owns and operates four libraries with over 391,718 volumes. The City also oWI1S and maintains 77 patks and 57 playgrounds. Extensive recreational facilities include 4 swiJnmina pools. 54 tennis courts, 30 baseball and softball fields, S community centers and 5 senior centm. To further enhance quality of life and to provide support to the tOurism industry, the City also operates the Civic Center (convention center), Lubbock Coliseum. Lubbock AuditotilDD for the performing arts, the Buddy HoiJy Center, and the Silent Wings Museum. The City is responsible for the construction and maintenance of 1,015 miles of paved streets. The new Gateway Street Fund by the Cjty Council in 2004, allocating 40% of the franchise fee revenue and telecom line charges to gateway conidor street projects. The FY 2005-06 budget for the Gateway Street Fund includes the widening of Milwaukee Avenue from 34\h to 981h Street. construction of a T-2 thoroughfare street on Erskine from Frankford to Salem, construction of a T-2 thorou~ street on Slide Road from Loop 289 to Ersldne, and widening Loop 289 &om South of the 4th Street interchange to south of the Clovis Road interchange constructing a grade separation of Slide Road. and Loop 289. widening of Slide Road from 4ih Street to Loop 289, improvements at the 4111 Street and Loop 289 intercbanget and the construction of the Quaker/Erskine/Loop 289 interchange. These projects support aubstantial commercial and residential development on the west side of Lubbock. 5 Honorable ~yor, Ciey Council. And Citizen& of tbe City of i.Albboek, Texas )anuary 3, 2007 Other major road construction in Lubbock includes construction on 981.': Street from Slide Road to Frankford Avenue and construction of the Marsha Sharp Freeway by the Texas Department of Transportation (TXDOT). This freeway will run east from West Loop 289 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 341!1 Street to Slide Road and rebuilding the frontage road sys1em under the main lames -three lanes on each side. It also included building the so'h Street overpass and extending S01b Street to Frankford A venue. TXDOT awarded the bid for the second phase of the Marsha Sharp Freeway that began construction in May 2005. The Marsha Sharp Freeway wi11 benefrt Lubbock by providing a western connection to West Loop 289 ensuring a more efficient flow of traffic throughout Lubbock. It will also reduce the congestion on nortb/south and east/west major arterials and provide 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 $360 miUion and be completed sometime a.f\er 2015. One of the key components of Lubbock's transportation system is the Lubbock Preston Smith International Airport located 7 miles north of Lubbock's central business district on 3,000 acres of land adjacent to lnterstate 27; The airport is' operated as a department of the City and includes a 220,000 square foot passenger tenninal building. The airport bas two commercial service runways; one 11,500 feet in length and ono 8,000 feet in length. The airport's third general aviation nmway is 2,869 feet in length. Air traffic control services include a 24-hour Federal Aviation Administration CODtrol tower and a full range ofinstrument·approacbes. The a.Uport is currently served by three major passenger airlines and two major cargo airlines having over 80 commercial flights per day. The City of Lubbock annex~ two areas durint FY 2005-()6. One of the areas annexed included 95.1 acres located north of Erskine and west ofNorth Milwaukee that is under development as Shadow Hills Estates. The other area annexed was 66.1 acres south of 98° Street and west of Avenue.P that is now under development as the Stonebridge Community. The City is financiaUy accountable for a legally separate civic S«Viees corporation and an economic development corporation, both of which are reported separately within tbe City's financial statements as discretely presented CQl'llpOnent units. Additional information on these legally separate entities can be found in the notes to the financial statements. AaapaJ Budget Proceas The annual budget serves as the foundation for the Cit)'s financia1 planning and control. All City departments are requiled ~o submit requ• for appropriation to the City Manager in June of each year. The City Manager uses these requests as the starring point for developing a proposed budget. The City Manager then presents this. proposed budget to the City Council for review before August 31. The City Council is required 10 hold public bearings on the proposed budget . and to adopt a final budget no later than September 30, the close of the City's fiscal year. The appropriated. budget is prepared by fund and department Depanment directors are held accountable for managing their departments on total appropriation basis. Transfers of appropriations between funds and departments requires tbe approval of the City Council. 6 0 0 c c c Honorable Mayor, City Council, And Citizens oftbc City of Lubbock, Texas JIIDI.W)I3, 2007 Budget-to-actual comparisons are provided in this report for the General Fund as part of the basic financial statements. ECONOMIC CONDmON AND OUTLOOK The information presented in the financial statements is petbaps best understood when it is considered within the context of the Lubbock's local economy. The following infOI"DlDUon is provided to highlight a broad range of economic forces that support the City's operations. Local Economy Lubbock has a stable economy with historically slow and steady growth, which bas .continued through September 2006. Lubbock•s agricultUrally based economy has diversified over .the pist 20 yeats, Which minimizes the effects of business cycles experienced by individual sectorS. The South Plains is one of the most productive agricultural areas in the United S~. In 2006 .. almost 12% of the nation's cotton crop and 43% of the state's cotton crop were. proihlced by famiers in the Southern High Plains 'District. Produdion in the Southern High Plains DiStriCt is ~ated to to1al2.5 minion bales for2006, down 41% from last years prodttction.due:to .tack· of raitt during the peak growing season. Lubbock has strong manu1icturing, wholesale and retail trade. services, and govem.m.cnt ,sectors. The manufacturers are a diverse group of employers who support approlcimately S)po wo~ A -central location and access to transportation have contributed to Lubbock's develOJm:t.ent ·as 1 regional warehousing and distribution center. Lubbock also serves as the major terail tmde center and health-c:are provider for a region of more than a half million people. A breakdown-of 'the perCent of employment base by industry category bas been provided below. wbieh gives a "snapshot" ofthe industry base of Lubbock. jPEAC£MT EMPLOYMENT BAS£ BY INDUSTRY CATEGORYJ 7 atiCI Hotpllallty 12.1% Honorable Mayor, City Council, And Citizens of the City ofLubbock, Texas January 3, 2007 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 Univ~ty-Lubbock Center and South Plains College. Total enrollment for all higher education institutions in Lubbock for Fall2006 is 42.241. This is a slight decrease from the enrollment for Fall of 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 seJVices sector is also a vital component of the Lubbock economy. This sector employs more than 18,000 people, whose payroll of more than $628 million and related contributions provide a substantial imJ*t to the Lubboclc area. (Source: 2004 County Business Patterns) Other current and mmd information has been provided below, which gives a picture of the overall city economy. Lubbos;k :Economic Index. The Lubbock Economic Index is designed m represent the .general condition of the Lubbock economy by tracking local economic growth rates. It iS based at.lOO.O in January 1996. The economic index for September 2006 was 128.9~ which is 2..7% improved over the in&x for September 2005. The Lubbock Economic Index remains at a record level through September 2006., suggesting that the overall Lubbock economy continues to perform at a high .aggregate level. (Source: Lubbock Economic Index September 20Q6) 135 130 us 121 115 110 185 too ••v• ·~~·· 4~---~ ~ ..... .-, - .. Lubbock Economic Index January 1996 to September 2006 ULt nac UR.Jt 121.7 fWl .... ~ - .-s~ 7 ' 1l8.9. .... ~ < ,.__-..._ .. r. ,-. ........ , ....... 998 ...... 1'199----ltOJ _____ , ...... 2004 -+-2005 -2006 .s 0 0 c c c 0 Honoral:>le Mayor. City Council, A1ld Citizens of the City of Lubbock, Texas Jamwy J. 2007 Building Permit Valuations. Construction continues to make. a strong contribution tO the Lubbock economy even though the value of all building pennitS issued so far in 2006 is down by 5.8% from last year's total thro'Ugh September. The $33~.2 million in building permits issued through the first nine months of2006 is slightly down from ·the xecord setting levels that have been seen in the city over the last few years. (Source: Economic and Denographie Over:view: Building Valuations -10-Year Trend I Original Source of Data: Building Inspection Statistical Report) Total Building PeJlnJt Vatuatl.ons .$1500.0 ~~0+----------------------------=~~~~~ $400.0 +--------------.Jj~!!!lill~-- ~~+----------------=~~~~~~--------• ~ +---~Dro----!e~~~~~--~----------! $25Q,O +--:----,.-""'"IJ3'.....,-::.IIIII~..;;._----- 2 $200.0 +D~~~~~~~------------- $1!0:0 ;---;..------'---·----------------- $100~0 +----------------------- $5i).o +---------------------·-- ~ +--T---~-~--~--~-~-~-~-~-~ ,._ 1997 1998 199.9 2000 2001 2002 2003 2004 2005 Total new residential permits decreased by 14.3% through September 2006 when comp~ to the aame period in 2005. The $154.4 million in residential building permits issued for the first 9 months of 2006 is slightly down from the record settin& le'Vels of 2003 through 2005. Average home sale price year-to-date through September 2006 has increased by 4.7% from September 2005 to SeptenJber 2006. (Source: EcoJtomiC and Demographic OverView; Building Valuations -10-Year Trend I Original Source of D~ta: Building Inspection Statistical Report and The Real Estate Center at Texas A & M Uni"Venity, Lubbock Residential Housing Activity Report) Sales Tax Co:llections Sales tax colleetions for September 2006 were 2.82% improved over the September 2005 sales tax collected. Year-to-date sales tax collectioqs through September 2006 were 7.97% improved over the same period in 2005. (Catmted in the month the sales tax was collected, not the month it was paid. Does not .include sales tax collected by the City of Lubbock and not reported to Comptroller of Public Accounts) (Source: Economic and Demographic Overview; Monthly Sales Tax Collections -Calendar Year-City ~r LubboCk. I Original Source of Data: State Comptroller of Public Acc<nmts - Allocation Histozieal S\muJlary) 9 Honorable Mayor, City Council, And Citizens of the City of Lubbock. Texas January 3, 2007 Tourism/Visitor Related Indicators Lodging tax receipts increased from $2.4 million in September 2005 to $2.5 million in Sep1ember 2006. This is a year-to..ciate increase through September 2006 of 3.:ZOA,. A;rlinc boarding& at Lubbock Preston Smith International Airport also increased in 2006 by 3.1"% over the same period lait year. (Source: Lubbock Economic Index) Emplovmem The total non-agricultural employment estimate for September 2006 was 127,600. This-was .S0-41 htlpn>v.ed over September of last year. There were 600 more people employed. in Stptc:mber 2P®. ~ in the· .same period of 2005. The unemployment rate for the Lubbock .MSA in September 2®6 was 3.8%. 4lh lowest in the State ofTexas. Historically Lubbock ~ a low rate of unemployment that is generally 1%-2% below the national rate and about 1% below the"rat& forTcXas. . (Soun:e: Lubbock Economic and Demographic Overview I Original Somce of data: Texas. Worlcforce Commi~on) .5 % 5 4 ... ;} 4 % 3 % 3 %' % z 1% ·~ % %' l 0 9% '1. "" U11employaaeat Rata -Lubbock MSA 4A~ 4.5% 4.0% 11 .... "'·~~ w• •• 2.'9% . - 1996 1997 1998 1999 1000 1001 1001 2003 1004 :zoos. Note: The methodology for calculating the unemployment rate was changed in 2005 and the last five years were recalculated based on the new method. The Lubbock MSA also changed in 2005 to include both Lubbock and Crosby Counties. EcoDomic: Develoollieot .Economic de.velopm~t is a priority for the City of Lubbock. In 1995, the City Council creaied Market Lubbock. lnc .• a non-profit corporation, to oversee economic development for the City. Market Lubbock, Inc. is funded with three cents of the property tax allocation. In October 2Q04. 10 0 0 0 0 0 c 0 0 c G 0 0 0 0 'J HouoraMe Mayor, City Council, And Citizens of the City of Lubbock, Te:.us January 3, 2007 1he Lubbock Economic Development Alliance (LEDA), an economic development sales tax corporation, assumed the responsibility for economic development in Lubbock. LBDA program strategies include business retcntio~ business recntitment, 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 2006-07 are $3.905,080. During the last year. through their business retention, expansion. and attraction programs, LEDA assisted 13 companies in the creation of29S new jobs with an estimated annual payroll ofS9.2 million and capital investment of$2.3 million. The City's Business Development Department works closely with LEDA to provide the support needed to assist in their economic developmeat 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 worlc:s with retail and coaunm:ial projects that do not fit the criteria required by the state for ~omic development saJea tax co1p0ratioos. Development Initiatives Overton Park Overton Park is a 300+-acre revilllization project that is underway in the heart of Lubbock and has been called the largest privately funded revitalization project in the United States. Overton Park is the complete revitalization of a blighted area called North Overton. Overton Park has developed rn.ucb faster than anticipated. It is .projected that the build-out of this public/private project will occur over a scven~ar period. According to the latest Project and Finance Plan for the North Overton Tax Increment Financing Reinvestment Zone (TIRZ). there are planned expenditures of approximately $41.7 million for public infrastructure improvements, which will r-esult in future deveJopmentlredevelopment that win increase the taxable value by approximately $530 million over the Zone's 30-year lifo. The 2006 appraised value of the North Overton TIRZ was $185.4 million) which is a $158.5 million increase over the 2002 base year va1ue. To-date. three student-oriented apartment complexes have been completed along wilh 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. Also completed are City Bank, Starbucks, and the new 200,000 square foot Wal- Ma:rt near 4111 Street and Avenue Q. A retail center adjacent to the new Wal-Mart is nearing completion and will house several different retail businesses. Construction was completed on the first condominiwns in Overton Patk during 2006 and construction of the first single-family houses wil1 ~gin in the next few months. COnstructfon ~ll begin on a new hotel/conference center project in early 2007. A new retail center adjacent to the hoteVconference center will begin constroction in February 2007. 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 of2008. '] 1 Hononble Mayor, City Cou~il. And Citizens of lbe City of Lubbock, Texas Janual')' 3, 2007 North & East Lubboclc Community Developmept Cotparation While Lubbock grew during the last 50 years. Nonh and East Lubbock experienced an out~ migration of people. From 1960 to. 2000, the area~'S population decreased by 4 7%. In response to the deterioration of North and East Lubbock, the City of Lubbock 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 and East Lubbock CDC has experienced significant progress in their projects during the past year. King's Dominion is a new single-family housing project with five home buyers who have closed and moved into their new homes, and five more houses are under construction. The CDC has also placed three cUent& into scattered site development, one client's home is presently under construction, and an ~itional three clients have been approved for mortgages within. the target area. The North and Bast Lubbock CDC has originated $1,079,643 in mortgages for King•s Dominion and an additional $702,187 for scattered site developments this year. The CDC also awamed Somethin• Fresh Cleaners. a North and East Lubbock business, a $40,000 micro-enterprise loan and has received a grant from the US Department of Health and Human Services, Office of CommWtity Services to go towards the development of the Parkway Plate Shopping Center. Central Business District 'Tax Increment Reinvestment Zone The City of Lubbock Central Business District (CBD) has been developed over the years typically with office, retail, and governmental agency uses. Like many cities in tbe 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 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. Under the revised Project PJan and Finance Plan, it is expected that the CBD TIRZ planned expenditw'e of almost $10.4 mill.ion for public infrastructure improvements will result in future development and redevelopment in the CBD TIRZ wruch will increase the taxable value by approximately $122.9 million over the zone's 2~ year life. The 2006 appraised value of the Central Business District TJRZ was $137.8 million which is an increase of $31.9 million over the 2001 base year value.· Centra) LubbocJs 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 resi~ents. local employers, city staff, and major stakeholders. 1'his plan is intended to provide a framework for future development in Central Lubbock and to be a "living document" evolvjng 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 fonned in 2005. 12 0 0 0 0 0 0 0 0 0 c 0 0 ) ) ' Honorable Mayor, City Council, And Citiuns of the City ofl.ubboei<, Texas January 3, 2007 Other Residential/Commercial Development Growth in commercial and residential construction has been occurring at ~ phenomenal rate over the past few years. During the past year. construction on several new residential developments started in Lubbock. The Willow Bend Project, is being constructed on the North side of Lubbock with an expected Investment of $177.3 million. North Point is being con.sti'Uded along Quaker Avenue and is projected to have investment in new development of $200.9 million. Vintage TO'\.vnship is another residentiallcorrunercial development underway and ut a new concept in community development that will have an estimated $3SO million investment in new development. The construction of Milwaukee A venue is a public/private partnership between the City of Lubbock and developers who own property along the corridor that is expected to generate a total invesnnent in new commcrclaVresidential development of approximately $~44 million in the next five to ten years. Canyon West has already started development ofits outdoor mall on Milwaukee A venue with the construction and opening of a new Target store. Other commercial projects already planned or underway in Canyon West are Main Event and Cracker Barrel. Other projects underway or almost completed in Lubbock include a new Market Street on 98u. Street~ a new Wal-Mart in Southwest Lubbock, Grace Clinic, and Quaker Avenue ·Medical Center. Downtown .Redevelo.pment Commission The City Council created the Downtown Redevelopment Commission (Commission) in May 2005 to develop an action plan for the redevelopment of the downtown area. The Commission is composed of el~en members that are citizens of Lubbock and stakeholders in the downtown area. After coiJecting infonnation on the issues in the downtown area as well as ongoing activities, the Commission drafted a fund-raising action plan for the development of a downtown master plan. Over the last year, the Commission has raised $324,000 for the master plan from private sources and the Central Business District Tax Increment Financing Reinvestment Zone. The Commission hired EDA W to draft the downtown master plan and they began work on the plan in July 2006. EDA W completed the Assessment Phase and have begun the Visioning Phase of the project. The Commission is exp«:ting 1he Downtown Redevelopment Plan to be completed by the second quarter of2007. Lubbock EntcrWnment and Arts Facilities Task Force The Mayor created the Lubbock Entertainment and Arts Facilities (LEAF) Task Force in September 2006 to look at Lubbock's current and future needs for public facilities. The task force is made up of 1 5 Lubbock citizens whose responsibilities include a review of existing public facilities to determine if they meet current and future needs as well as establishing whether thete is a need for upgrades to the existing facilities or construction of new facilities. LEAF will complete its work in early January 20?? and submit a recommended plan of action to the City Council. 13 Honorable Mayor, City Council, And Citizen~ of the City of Lubbock, Texas January 3, 2007 FINANCIAL INFORMATION Long-term finan~ial planning The City uses 35 -year rate models for long-range planning in the General Fund and aJJ enterprise funds. These models are based on current projects and policies and are driven by the idea that the rate should be annually adjusted to reflect the serviee needs of the citizens. Because of this philosophy, 1he rates in the models are annually trimmed to leave as little excess as possible, after allowing for financially sound net-asset reserves, as established by City Council Policy. The models, in association with the City's ns.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 Citi~ Advisory Committee to survey City-wide infmstructure 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 munotcement policies Rnd 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 maturitjes of the investments range from 1 day to 3-112 years, with an average maturity of approximately I 0·112 months. The average yield on investments was 4.35% for the City's operating funds and 4. 70% for the City's bond funds. Investment income js offset by decreases in the fair value of investments. ~reases in fair value during the current year, however, do not n~essarily represent trends that will continue~ nor is it always possible to realize such amounts, especiaJiy in the case of temporary changes in the fair valUe of investments that the City intends to hold to maturity. Risk m•pag~ment Ouring 2006, 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 Chy is primarily self-insured for medicaJ and dental coverage. S'tOp loss coverage of $250,000 per insured per year is curre.ntly 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 rhe 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 be able to fully meet its obligations to retired employees on a timely basis. As a matter of policy, the City fuUy funds each year's annual required contribution to the pension plan as determined by the actuary. As a result of the City's conservative funding policy, the City has succeeded as of )4 0 0 0 0 0 0 c c c n 0 r 0 J Honorable Mayor, Cily Counc:il, And Citiuns of tho City of lubbock. Texas J~nl!ary 3, 2007 December 31, 2005, in funding 74.6% of the present value of the projected benefits earned by employees. The remaining unfunded amount is being systematically f\mded over 25 years as part of the annual required contribution calcu1atcd by the actuary. The City also provides benefits for its firefighters. These benefits are provided through a single- employer defmed benefit pension plan, the Lubbock Firemen's Relief and Retirement Fund (LFRRF), which is administered by the Board of Trustees of the LFR.RF. The City contributes an amount that is determined by formula and is anticipated to average 19.9 percent of firefighter's pay annually. The City does provide 25% to 60% of post retirement health and dental care benefits for retirees or 1heir dependents. Additional information on the City's pension arrangements and post employment benefits can be found in the notes to the financial statements. AWARDS AND ACKNOWLEDGEMENTS The Oovenunent Finance Officers Association (GFOA) awarded a Certificate of Achievement for ExcelJence iD Financial Reporting to the City of Lubbock for its comprehensive annual financ.ial repon for the fiscal year ended September 30, 2005. The City reapplied for this prestigious award last yeu after a one-year lapse. In order to be awarded a Certificate of Achie-vement,· a governmental unit must publish an easily readable and efficiently organized comprehensive annual financial report, whose contents conform to _program standards. Sucb reports must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one-y.ear only. We believe our current report continues to confonn to the Certificate of Achievement Program requirements and we are submitting it to the GFOA to detennine 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 Jike to thank Pamela Moon, Director of Accounting, and the Senior Accountants~ and Accountantc; for their countless hours of work on this financial report. We would like to express our appreciation to aU members of the cltpartments who assisted with and contributed to the preparation of this report. Credit is also given to Ci1y Council and the Audit Committee for their interest and support in planning and oonducting the operation.s of the City of Lubbock in a responsible and progressive manner. Respectfu.Jly submitted. Jn~ Lee Ann Dumbauld City Manager 15 0 0 0 0 0 c c c 16 -\,. 0 "'). ) Certificate of Achievement for Excellence in Financial Reporting Presented to City of Lubbock Texas For its Comprehensive Annual Financial Report for the Fiscal Y car Ended September 30, 2005 A Certifk:a&e of Achim:ment for Excellence in Fiuan:gal R~ is pmented by the Government Finance Offi.cera ASsooiatkm ottbc Uni!led Statea and Canada to govftumtmllmiU IDd public ~loyee retiraucot S)'l1e~Df wbolo eotq)rcbens.ive armual financial reports (CAF'RI) achieve the bipest tlaDdards in govommeat accollDrills and 6nancial reporting. President ~/.~ Executive Director 17 No Text Independent Accountants' Report on Financial Statements and Supplem!tntary Information The Honorable Mayor and City Council City orLubboelc, Texas We have audited the accompanying financial staMments oftbe governmentalactiviti", the business-type tctivitfes, the asgregatc discretely presented component uliils, each major fund, and the assreaate remaining fUnd information of the City ofLubbor;k, Texast aa of~ for the year ended September 30, 2006, which collectively compme the City•s basic financial statemtnts as listed in the table of contents. These financial statements are the responsibility of the City's manqanent. Our responsibiJity is to expres$ opinions on these financial statements based on our audit. We did not a~dit the finallCial $tatements of Civic Lubbock. Inc., Market Lubbock Econ~ic Development Cm:potation dlbla MJ!'ket Lubbock and Lubbock Economic Developmelt Alliance, w~h comprise the asareaate discretely presented componct'lt i.rnits. ibc financial statements of these entities were audited by other auditors whose reports thCRon have been furnished to LlS, ~cl our opinion, insofar as it re)a1CS to tbe amounts included for such entities, is based solely on tlle reports ofthe other auditors. We conduoted our audit in accordance with auditina ttAndards ~ly accepted ia the United States of AmelitA and the standards applicable to financial audits contained in Gcvemmetat Allditiltg Standmds, issued by the Comptroller General of the Unite.cS States. Those~ require that we plan and perform the audit to obtain reasonable assuram:e about whether the financial stataneuts are tree of material mlsstllement. Tbc financial statements of the component unita Civic Lubbock, lne.; M&l'bt Lubbock Economic Development Corporation d/b/a Market Lubb9ck; Lubboc:k Economic Development Alliance and the major fund West Texas Municipal Power H.gency, were not audited in accordance with GoVfmment Audl'tlng Standards. An audit includes elfaminins. on a teat baSis, C\'idonc:c $upportins lhe amounts and disclosures in the fanancial .&tatements. An audit also lneludes uaesslng the accounting principles used and signifieanl estimates made by management. as weU as eva1uatins tbe overalllinancial statement presentation. We believe that our audit and the reports of the other a\lditors provide a reasonable basis for our opinions. In our opinion, based on our audit and the reports of the otbot auditors, the flnanciaJ statements rd'emd to above present f'airly, in all material respeetl, the respective financial positi011 of the governmental activiti~. the business-type activities, the: aggregate discretely presented component uniu. each major fund, and the agaregate rcmainins fund information of the City ofLubboc:k. Tmc.as. as of September 30, 2006, and the respective changes in financial position and cash flows, where ·•pplicabJe, thereof for the year then mded in conformity with accounting principles generally accepted in the United States of America. 200E.ttfl ... P.O.I!Oa8301 ... IU.M ,t11.e308 IJQSJ4otllf FuM)~ 19 ·- The Honorable Mayor and City Council Page2 In accordance with Gowmrm~nt Auditing Standards, we have also issued our repon elated Dec:cmber 22, 2006, on our consideration of the City's internal eontrol over financial reponing and our tests of ita compliance with certain provisions of laws, regUlations, eon tracts ancl grant agreements and other matters. The purpose of that report is to describe the scope of our testing or internal control over financial reponing and compliance and the results of that testing. and not 10 provi~ an opinion on the internal control over financial reporting or on compliance. That n:pon is an integral pan of an audit perfonned in aec:ordanc:e with Government Audlzlng Sttmdards and should be considered in assessing the results of our audit. The accompanying mamsgement's discussion ~tnd t.nalysis as listed in the table of content& is not a required pen oCthe basic ftnaneial statements but is supplementary information required by the Governmental Aocounl~ng Standards Boa.rd. We have applied certain limited proc:cdures1 which consisted princlpalty of inquiries of management regarding the methods of measurement and presenta~ion of the required supplementary infotrnjtion. However, we did noc •udit the infonnatjon and expms no. opinion on it. Our audit Wll$ conducted for the purpose oft'otming opiniollS on the financial stasements that colleetively comprise the City's buic fmancial statement$. The a~panying supplementary information is presented for purposes of additional analysis and~ not a required pan oftbe basic tinancialstatemeDts. Such information has been subjected to the audJtina ptoeedurcs applied in the IUldit of the: basic fmaricial slatcm~nta and, in our opinion, is faitly staled, in all material respects, in relation to the basic fmanciaJ statement$ taken as a whole. The KCOmplt\)'Utg infonnauon in the inttoduciOry and statistical sections as lisced in the table of contents has not been tUbjected to the procedures applied in tho audit of the basic financial statements and, ~rdQ1s1y. we: cxpR&a no opinion on it. Oec:ember 22, 2006, except for Note V. as to whicb the date is January 10, :2007 20 0 0 c c c ' ( ( ., City of Lubbock. Texas Management's Discussion ud Analysis For theY ear Ended September 30, 1006 As management of the City of Lubbock, Texas (Cjty), we offer readers this narrarive overview and analysis of the financial activities of the City for the fiseal year ended September 30,2006. We encourage readers of these financial statements to consider the information included in the transmittal lener and in the other sections of the Comprehensive AMual Financial Report (CAFR.} e.g., combining statements and the statistical section in conjunction with this discussion and analysis. FiDanclaJ Highllghu These fmancial highlights summarize the City's financial position and operations as presented iD hlC8 detail in the Basic Financial Statemen1t (BFS), as listed in the accompanying Table of Contents. • • • • • • • The assets of the City exceeded its liabilities at September 30, 2006 by $583.5 milli-on (net assets). Of this amoUnt. S97.8 million (UN"Cstricted net assets) may be used to meet the City's ongoing obliptions to citizens and creditors. The City's total net assets i~reased by $38.0 million as a result of operations during~ fiiOil year. The ending unreserved fund balance for tpe General Fund was $19.8 million or approximately 20.2% of total General Fund revenue$; an increase of$2.5 million over the prior year amo\lftf. All ofthe City'& governmental funds rqx>rted combined ending fund balances of$96.8 million. Of this total amount, $39.8 mi1Hon is avajlable for spending at the City's diSCI'etion All of the City"s business-type activities reported combined ending net a$$et5 of $470.8 million. Of this total amount, $71.7 million is available for spending at the City's discretion. The City's proprietary funds net assets increased by $35.6 million &om $:429.7 million to $465.3 miJHon. During FY 2006, the City issued $79.7 million in debt for various capital projeots and ia&\Jed Sl 8.8 million in debt to refund $18.0 million in outstanding debt. The City also pan:i~pated in the issuanoe of$18.6 million of contnsct revenue bonds with the Canadian River Municipal Water Authority. Overview of tbe Financial Statements Baslt Floanclal Statements. Management's Discussion and Analysis (MD&A) is intended to serve as an introduction to the City"s BFS. The BFS are cpmprised of three component$: 1) Governmeftt..Wide Financial Statements (GWFS), 2) Fund Financial Statem~ts (FFS), and 3) Notes to Buic Fimncial Statements (Notes). This CAFR also contains other supplementary information in addition to the BFS. GovenJmeat-Wide FiDancla1 Statements. The GWFS, shown on pages 37·39 of this report, contain the staltment of neJ assets and the statemtnl of activities, described below: The statement of net assets presents infonoation on all of the City's assets and liabilities (including capital assets and short· and long·tenn liabilities), with the dilfcrence between the two reported aa MJ assets using the accrual basis. Over time, increases or decreases in net assets serve as a usefuJ indicator of whether the financial position of the City is improviJl8 ot deteriorating. 21 City of Labbockt Texas Management's Dlscus1ion and A•alysls For the Year Eaded September 30,2006 Th~ statement of activities presents a comparison between direct expenses and program revenues for each of the City's functiOn$ or programs (refencd to as "activities"). Din:ct exptllle$ afe those that are specifically assooiated with an activity and are therefore clearly identifiable with that activity. Program revenues include charges paid by the recipient of the goods or services off=d by tbe program. in additiOn to grants and contributions that are restricted to meeting the operationAl or capital requirements of a particular activity. Revenues lhat art nol directly relatc.d to a specific activity are pi'C$¢Dted as &eneral revenues. The comparison of direct e~peoses with revenues from activities identifies the extent to which each activity is self-financing, or alternatively, draws from any City generated general revenues. The governmental activities (activities that are principally supported by taxes and intergovernmental te'Venues) of the City include administrative services. community services, cultural and recreation, economic and business development, fire, health. police, other public &afety, streets and traffic, and non-departmental. The business-type activities (activities intended to recover all of their costs through user fees and charges) of the City include Electric (l.P&L), Water, Wastewater, $1)lid Was~, Stonn Water, Transit. Md AUport. All changes in net assets are reported as soon as the underlying event giving rise to the change occ\D'S (accrual basis), regardless of the timing of related cash flt.w.s. Thus, revenues and expenses are reported in this statement for some items that will only ~esult in cash flows in futme ftsoal periods, such as uncol1ected taxes and earned but unused vacation leave. Component Units. The GWFS include not only the City itself (the "pJ'Unaty govemment''), but also three legally separate entities (the "component units): Market Lubbock Economic Development Corporation, d/b/a Market Lubbock, Inc., Lubbock Economic Development AUiance, .and Civic Lubbook, ln~ .• for which ~ City is finanoially accountable. These entities provide economic development services and arts and cultural activities for the City. Financial information for these component 111\its is reported separately in the OWFS io order to differentiate them from the City's finanoial infonnation. None of these component units are considered major component tmits. Fuud .Flanclal Stauments. Afimd is dcfmed as a fisealand accounting entity with a self-balancing set of lCCO\Dlts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein. which are segregated for the purpo$( of canying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The principal role of funds in the new financial reporting model is to demonstrate fiscal ac®Wltability. 1he City, as with other state and local govemmentsJ uses fund accounting to ensure and demonstrate <;ornpliance with finance-related legal requirements, The focus of the FFS is on major funds. Major funds are those that meet minimum criteria (a percentage of assets. liabilities, revenue. or expenditures/expenses of ~d category and of the governmental and c:n~se funds combined), or those that the City choo!es to report as major funds given their qualitative significance. Nonmajor funds are aggregated and shown in a single column in the appropriate financial statements. Combining schedul¢S ofnonmajor funds are included in the CAFR following the BFS. All of the funds of the City can be divided into tine categories: govenunental funds , proprietary fonds, and fiduciary funds. Govtrmnenllll F FS. Governmental funds are used to account for essentially the same functions reponed as governmental -activities in the GWFS. However-, unlike.tbe GWFS, governmental FFS focus on near~ terril inflows and outflows of spendable n=sources. as well as on balances of spendable reSOUTCeS available at the end of the City•s fiscal year. Such infonnation is useful in evaluating the City's near-term financing requirements. 22 0 0 c c ' c < ()· 0 0 '""· D City of Lubbock. Tuas Management's Discussion and Analysis For tbe Year Ended September 30, 2006 Because the focus of govemmental funds is narrower than that of the GWFS (modified acct\111 versus accrual basis of accounting, and current financial resources verws economic resources), it is useful to compare the infonnation presented for governmental funds with similar infonnation presented for govtmmental activities in the GWFS. By doing so, readers may better understand the long-term impact of the near-term financing decisions. Reconciliations are provided for both the governmental fund balance shett and the governmental fund statement of revenues, expenditures, and changes in fund balances to faoilitate the comparison between governmental funds and governmental activities. The City maintains 31 individual governmental funds. Information is presented separately in the .governmental fund batanoe sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances fer the General :Fund only. The General Fund is considered to be a major fund. Data from the othor governmental funds are combined into a single aggregated presentation. The City adopts a b\ldset annually for the General Fund and al1 other :ftmds. A budgetary comparison statement 1w been provided for the General F:und to demomnte complian~e with this budget. It is presented in the FFS folJowing the s1atem.ent of revenues. expenditures, and changes in fund balances. The governmental FFS can be found on pages 40-43 of this report. Propriti#J'y FFS. The City maintains two different types of proprieta:ry funds. Enterprise folids are used to tq)Ort the ~ functions presented as business~type activities in the GWFS. Enterprise PFS provide the same type of mtonnation as the GWFS. only iD more detail. The City uses enterprise funds to account for its Electric (LP&.L). Water, Wastewater. West Texas Municipal Power Agency (WTMPA), Stonn Water. Transit, Solid Waste, and Airport activities., of which the first five aoth·itics are considered to be major funds by the City and are presented separately. The latter three activities are considered non~or funds by the City and are combined into a single aggregated presentation. Intt:rnal service fonds are an accounting device used to accumulate and allocate costs internally among the City's various fUnctions. The City uses internal serviu funds to account for its fleet of vehicles, management information systems, risk management. print shop. and central warehouse activities among others. The services provided by the internal service funds benefit both governmental and business-type activities. and accordingly~ they have been included within governmental activities and business-type activities, as appropriate, in the G'\VFS. All internet service t\mds are combined into a single aggregated presentation in the proprietary FFS. Reconciliations are provided for both the propriewy fund statement of net assets and the proprietary fund statement of revenues., expenses, and changes in fund net assets to facilitate !he comparison between enterprise funds and business-type activities. The proprietary FfS can be fo\Dld on pages 46·57 of this report. PidiU:illry FFS. Fiducia!y fwtds are used to account for n:soiD"Ces held for the benefrt of parties oulSide the government. Fiducia!y 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 had one agency fund, which was closed in FY 2006. . Notes to Baste FfnaDc:laJ Statements. The Notes provide additional information that is essential to a full understanding of tbc ~ia provided in the GWFS and FFS. The notes can be found on pages 59-94 of this report. Reqlllred Supple:meDtary IDformadon Other Thu MD&:A. The City has presented required supplementa:ry information relating to its progress in funding its obligation to provide pension benefits to its employees in the Notes to the BPS. 23 Clty of Lubbock, Texas Mabagemcnt's Discussion and Analysis For theY ear Ended September 30t 2006 Government-Wide Financial Analysis As noted earlier, net assets serve as a useful indicator of the City's financial position. F.or the City, assets exceeded liabUities by $583.S million (net assets) at the close o.fthe fiscal year. This compared to assets exceeding liabilities by $54S.S mil1ion (net asseu) at the end of the prior fiscal year. As a result of operations, total net assets increased by $38.0 million during the period. City of Lubbock Net Assetl September 30 (in OOO'a) Governmental Basiness-Typt Activities Actl'rieles Total ~~ 200$ 2006 2005 2006 2005 Current and other IISsets $ 124,446 116,021 203,858 170,945 328,304 286,966 Capital assots l601SSO 1381614 7001154 6371444 8601104 776eOS8 Total assets 2841996 2S4163S 9041()12 808~389 lt1891008 110631024 Current liabllities 35,197 16.837 54,322 25,SO.S 89.$19 42~2 N~c\II'Tenl Jla1>i11Ci~ l37t078 127~169 37.81896 348i036 SJS19,l4 .. _4153:9.5 T otaJ liabilities 172.275 1441006 433~18 3732S41 6051493 5171547 Net assets: lnveated in capital assets. net of R!lated debt 76,483 82,330 380,149 363,227 456,632 44S;SS7 Restricted 10.149 8,170 18,915 26,276 29,064 35.046 Unmtrictod 261089 191529 71&?30 45~45 97.819 641874 Total net amts s 112,721 110,629 4701794 434.848 S83.iiS 545.477 By far the largest portion oftbo City's net assets. 78.3%, J:Oflect its investment in c.apital assets, e.g., land, buildings, infraslructwe, machinery, and equipment, less any ~elated debt used to acquire tbose ·as.Sets that is still o~tstanding a.t the close of the fiscal year. The City uses these eapital assets to provide services to citi:r..ens; consequendy, these assets arc not available for futwe sponding. Although the C.ity·'s investtnent in capital web is reported net of reJaled debt, it should be noted that the resoun:es needed to repay this debt must be proYided from other sourees, since the capital asSets themselves cannot be used to liquidate these liabilities. An additional portion of the City's net assets, 5.0010. repmenls tesourees that are subject to ex.temal reslrictions on how they may be used. The remaining balaDcc of unrestricted net assets of $98.7 million may be used to mc.t the City's ongoing obligations to ~itizens and creditors. The City atso reports posit h-e balances in aJJ three categories of net assets for the City as a whole, as weU AS for its separate governmental activities and business--type acdvities. The City's go~ernmental activities experienced an increase in net assets of $2.1 minion, while net assets increased by $6.3 minion during the priar fiscal year. The incmse in FY 2006 is primarily due to higher than expected saJes tax QOIJecrions due to better than anticipated retail sales and an increase in franchise taxes from power companies due to increased fuel and electric prices. 24 0 0 0 0 0 0 0 0 c c City of Lubbock, Texas Managemeat's Discussion and Analysis For the Year Ended September 30, 2006 J The City's business-typo a~tivities experienced an increase in net assets of $35.9 milrion during the current fiscal year as compared to a deercase of$7.6 million during the prior rascal ytar. The increase in net assets was budgeted to meet City Council and LP&L Board goals of minimum unrcsb'icted net asset balances. :1 Cley o( Lubbock 0aanatt in Not Auets For tbe Year Endccl Septe~Mer 30 (laOOO's) Busln.-. Govemmeat.J Type Aetlvitlel Activities Toltls R.tvtnuea: 2006 1005 '1006 lQ05 1006 2005 l ::· Program~: 0\argei for services s 9,632 10,$33 313,78l 272.90l 323,414 281,485 .. Operating grams and contributions 10.203 13.296 1,3S2 8,1~ IS)~ss 21,452 Olpital gn.nU and contributions 84!1 17,625 S,20li 11,470 S,206 GenoraJ Revenues; Property taxes 42,'nl 39,748 42,771 39,748 Sales II!Xes 45,571 41,803 4S,S71 41.803 Othercaxos 4,447 4,242 4,447 4,242 Franchise fees 13,348 11,154 13,348 11,154 l~nt earnings 4,394 1,633 6,140 3,758 10,534 5.391 Other 61898 41110 43:,77 lJ&8 11,175 s1498 Total revenues iJ!ai 1.5 1~69 3501176 2911410 488~1 4i71979 Expenses: Adminiltrative ~ 9,910 8,220 9,910 8,220 Community servictS 6,112 6,145 6,112 6,145 Qdtural and rccrcati<!ft 18.915 17,74S 18.91.S 17.745 Ecooomic development 10~13 9,739 10,283 9,139 Fi~ 26,711 23,511 26.7l1 23,517 Health s.OI4 5,040 5,014 5,040 Police 42,063 38.452 42.063 38.452 Other public safety 5,240 4$Tl $,240 4,917 Streets and traffic 11 ,850 12,467 II,SSO 12.467 Non~epanmental S,206 6,253 5,206 6.2'3 lnf(lfCSt on long-cenn debt 4,326 3,195 4,326 3,19S Electric 213,027 192,902 2tJ.crn 192,902 Wfller 32.330 28,738 32,830 28,738 Sewer 21.274 17,804 21,214 17,804 Solid Waste 14,971 14,695 14,971 14,695 ; StOI"l11WWIler 5,175 S,S86 5,175 5.586 Transit 9,349 9,003 9,349 9,003 Airport 71997 81151 71997 !al51 Total Expenses J4Sr630 135,7SO 304,623 276,879 4S().2.S3 412,629 . Q,ange in nee assell betbre special iterm and trarl$fets (7,515} (9,181) 4S,SS3 14,531 l8,038 5,350 Special items (6,637) (6,637) ) Transfers 9ll01 151469 ~9&i:QZl (lS,469} . 01ango in net assets 2,092 6,288 350946 (7,575) 38,038 (1,287) Nee asStU . bcglnnina of )'ElM Net IISSets -end of year i 11~629 11 '121 104~1 no 9 4!848 42! !E423 Bill S4S,4n ~Kl.313 ~764 47? Cbanees ia Net Asset$. Details of lhe above summari~d infonnation can be found on pages 3~39 of \ this report. 25 City of Lubbock, Texas Management's DiScussion and Analysis For the Year Ended September 30,2006 GJ)venmental adivitlet.. Governmental activities increased the City's net assets by $2.1 miiHon. Key elements of the increase include: • Transfers to/from busineu .. type activities during the fiscal year increased governmental activities net assets by $9.6 million. During the prior fiscal· year these transfers increased governmental activities net assets by approxi~tely $15.5 million. Thjs is a net decrease of $5.9 million in resources to governmental ~tivities. Transfers from the business~type activities included payments in lieu of taxes, franchise fees, and indirect costs of operations for centrali1.ed services sueh as payroll and purchasing. • Total expense$ increased by $9.9 milliOn from the prior )'Cjl" primarily due to in~ased spalding in publio safety ~cticm.t. City Council bas continued to be committed to public safety and bas allocated more l'eiQJlrCe8 to public safety than other areas in the govemmen~ Fire expenses increased $3,2 million and police expeilscs increa&cd S3.6 million in Fi 2006. Administrative expen.scs incn:ased S1.7 million due ~moving &cilities management from an internal service fund to the General Fund. These expenses were previously spread to many different functions. Interest on long· tenn debt in~ $1.1 million due to neW debt issuances. These were offset by a $1.0 million decrease in nonoodepartmental functions., which was mainly due to Fedmll Emergency Management Administration (FEMA) expenses incurred in FY 200S while hosting evacuees from Louisiana and southeast Texas during Hutrioane& Katrina and Ri~. • Revenues increased b)' approximately Sll.S milliOtJ. Grants and contributions decreued by $2.2 million, partially due to decrease in FEMA and other emergency management funds. The property tax rate wu reduced to $.44720 per $100 assessed value in FY 2006. down from the $.45970 per $100 assessed value rate in FY 2005; however. property tax revenues increased S3.1 million due to increued assessments. Sales tax revenue increased $3.8 million in FY 2006 due to an improve4 economy. Franchise taxes inCreased $2.2 million, primarily due to increased costs on gas and electric bills to consumers and an increase in the ftanchise rate from 2.0% to S.00/0 percent on one electric company. Investment income inoreaeed $2.8 nriJJion due to incrtases in interest rates and improved casb baJ.nc;es. Other revenues increased $2.8 million due to developer contributions in the Gateway Capital Project Fund. · 26 0 0 c c c c c c ( I ) ) ) City of Lubbock, Texas Mauagement's Diseussiou aud Analysis For the Year Euded September 30, 2006 This graph depicts the expenses and program revenues generated through the City's various govemmcn1al activities. Es.peaaes aDd Program Revenue~ • GovennaeJI.bl Activities $45,000 $40,000 $35.000 $30,000 s2s.ooo $20,000 $15,000 $10.000 $5,000 so 27 City of Lubbock, Texas Management's Discussion and Analysis For tbe Y.,..-Endt.d September 30, 2006 The following graph reflects the source of~revenue and the percentage each 10urce rcp1esents of the total. Grants& a~o% Franchll~ ·t.6% Rtvtaaes by Sour.ee ... Govtnuneotat Adhltlts MtsceJlaDeoas 5.0% Property Taxes 31.0% Busllless-type aceivities. Business-type activities increased the City's net assets by $35.9 million as a result of operations. Key clements.oftbe increase include: • Charges for services for buSiness-type activities were $313.8 million in FY 2006, an increase of $40.9 million. Expenses for business•typo activities were $304.6 million in FY 1006, an increase of$27.7 million. • Electric operations aceounted for $33.8 million of the increase in charges for services. Electric operations include both Lubbock Power and Light (LP&L) and West Texas Municipal Power Agency (WTMP A). Because of the intt.Tfund amtivity between LP&L and WTMP A. approximately one third of the combined electric revenue was climixlatcd for the entity wide statements. Operating revenues consist principally of the retaJ1 sales of electricity to residential.. commercial, and goverrunent customers, and off·$}'Stem sales to whOlesale power customers. LP&L charges a base nrtt for electric service plus a fuel cost adJusUneo.t me for electric service. While the base rate has remained cons1stent between years, there have been many fuel cost adjUS1ments during FY 2006 which have 28 0 0 c c c c c ( ) ) ) City of Lubbock, Ttx6S Management's Diseussion and Analysis For tbe Year Ended September 30,2006 cumulatively increased the rates charged to customers. Also, WTMPA gas sales to third parties incrOised from $65.2 million in FY 2005 to $76.2 million in FY 2006, again due to fuel cost adjustments. Electric operation expenses increased $20.1 million. from $192.9 million in FY 2005 to $213.0 million in FV 2006. The increase in expenses is primarily duo to the nation's in<:reued fuel and energy costs in FY 2006, which affected both LP&L and WTMPA cost of power. • Revenues were also up slightly in most of the City's other enterprise fUnds, with the Water and Wastewater Funds MX:ounting for the largest increase. Water usage, which effects both W&ter and Wastewater Funds, increased due to drought conditions. Water rates also increased 3% in FY 2006. Construction activity was also higher in FY 2006 and contractOrs contributed $6.6 million in Water and Wastewater assets, $2.4 more than prior year. • Oponning grants, capital grants. and contributions continue to be a significant re~ source for business-type activities durin& the current fJ$Cal year, producing nearly $26.0 million in revenue. This is a $12.6 million increase ov.er prior year suppor1 of $13.4 million. The Airport Fund incurred the largest increase due to reeoiving federaJ grants of $12.0 million for aviation apron and ~iway improvements. In tho prior year the Airport received $2.2 miUion in federal grants. The Water and Wa!tewater Funds also·~ived additional developer contributions. • Expenses in Water and Wastewater Funds increased in total by $7.6 million over the prior fiscal yoar. In FY 2006 the Wastewater Fund paid $2.4 mmion for a W*tet Reso~ Master Plan. These funds also incurm:l e.Jmost S2 million additional utility costs to nm 1hcir plants due lo the higher fuel and electrical costs. The Wastewater and Water Funds also bad an .additional SJ ,S million in depreciation expense, which is directly attributed to the recent capital activities that arc: now placed in service and depreciated. 29 City of Lubbock, Tens Management's Discussion and Analysis For the Year Ended September 30, 2006 The following graph reflects the revenue soun::es genented by the businesS-type ~~~ties. As noted earlier, these activities include LP&L, Water, Wastewater, Solid Waste, Transit, WTMPA. Airport, and Storm. Water Drainage. Revenues by Source -Business-type· Activities Cbargesfor Senkes 89.6% FiDaucial .ADaJysis of the City's Funds MisctDaneous 1.2% Qper.atbsg Gnmta --&~ i.4% GtwemmmiAI funds. The focus of the City's governmental fimds is to proVide infomia.tion on near-term inflows, outflows, and balances of spendable resources. Such informa:ti'on is ~ in:~ the City's fmancing requirements. In particular, unreserved fund balance serves as a usefUl measure of the City's resources available for spending at the end of the fiscal year. At the end of the fiscal year, the City's governmental fimds reported combillec1 eodiDg fund balances of $96.8 nn1lion, compared to S85.2 million at the end of the prior &cal year. This ipcrease is primanly the result of debt issuance for park capital projects, which resulted in an ~ of fuDd balance of S9.S million. Also affecting this inCJeaSe was the result of operations oftbe General Fund where fund balance increased by $2.5 million. Of the ending governmental fwtd balance, $39.8 million or 41.1% pen:ent, constituted unreserved fimd balance which is available for spending at the City's discretion. This compared to $25.9 million or 30.4% a1 the end of the prior fiscal year. 11te rcmaiDder ofthe tUDd balance is reserved to indicate it bas already been committtd to pay debt service, use m construction of approved capital projects, or ]s 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 m the General Fund was approximately $19.8 million colD)WCd. to $17,3'millionin the previous 30 0 c c c c c c ' ( ( ) ) } ) City ofLubbock, Texas Maaagemeut's Discussion and Aaalysls For tbe Year Euded September 30,2006 . fiscal year • .representing ari increase of approximately $2.5 million. Total .fund balance (reserved and unreserved) was $19.9 Jnillion at the end of the fiscal year compared to $11.4 million at the end of the prio,r fiscal year. As a measure of the General Fund"s liquidity, it i$ useful to compare both unreserved fund balance and total fund balance to total fund revenues. Unreserved fund balance represtmted 20.2% of total General Fund revenues, which is an improvement over 19.7% of total General Fund revenues in the prior year. Total fund balance was 20.4% of total General Fund revenues compared to 19.8% in the prior year. ProptieiiR'y J)nUb. The City's' propri~ fUnd$ provide C$$Cntially the 5artle type of information found in the GWFS, but in more detail. Unrestricted net assets of the major proprietary t\mcls at the end of September 30 are shown next with amounts presented in 000$: l006 2()05 Electrlo Fund $ 32.141 14,151 WaterFUDd t0,878 6,818 Wastewata FW'd 9.S9.3 5,964 WTMPA 1.307 1,314 StonnW$ter 10,022 7,420 s 63,941 3S,667 The LP&L fund increased unrestricted net assets by $18.0 million compared to an increase of $7.1 million during the prior year. This is mainly due to the rc&\lhs of operations and the decision by City Council not to charge for payments in lieu of Wc.es and franchise fees \mtil adequate cash reserves are established. Incn:ase in net assets was $16.4 million in FY 2006 and $3.0 million in FY 2004.05. The Water Fund reflected a C\.UTCUt year increase in unrestricted net assets of nearly $4.1 million compared to a decrease of $7.3 million during the. prior year. In ihe CWTent year, revenues were higher than expeeted due to increased water usage, while in prior year the Water Fund had a loss due tn termination of an interest rate 'SWap agreement. The Wastewater Fund reflected a current year increase in unrestricted net assets of appro~timately $3.6 rruUion compared to a $.4 million decrease durin1 the prior year. In cum:nt year, revenues were higher than expected due to the discharge of a hiaher volume of water consumption. The WTMPA Fund had a slight decrease in ~tricted net assets. The prior fiscal year's change was a decrease in unrestricted nets assetS of $.4 million, primarily as a result of operations. The Stonn Water Fund experienced an increase in unrestricted net assets of S2.6 mi1lion during the fiscal year compared to a, $6.1 million increase in the prior fiscal year. The increase is due to the result of operations. 31 ., City or Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 1006 Geacral Fund Budgetary Highlights Differences between the original budget and the final amendtd budget were approx.imately $1.S million in increases to expenditures and transfers out. The main reason for the U.lcrease was budgeting for purchase of maehinery and equipment through the issuatlce of capital leases. Revenues in the General Fund e~ceeded budget by $4.3 million primarily due to higher tban expected sales tax collections and franchise fees. The General Fund ended the fiscal year with expendiruros and transfers out of$459,394 more than budgeted. The primary reason for this overage was related to higher than anticipated energy and fuel costs across an departments. The City Manager bas implemented the following additional controls to ensure more stringent budget control: • • Biweekly Budget Forecasting and Manager Review • Position Control Management System and Requisition Review • Biweekly Overtime Reporting and Management Review • General Udger Reconciliation Policy • Centralized Facilities Management, and Utilities Budgeting • :Improved Monthly Management Reporting to City Council • Changes in the Home Storage of Fleet Vehicles Capital Assets and Debt Administration Capital assets. The City's investment in capital assets for its governmental and business-type activities at September 30, 2006 amounted to $860.7 million, net of accumulated depreciation. This was an $84.6 million increase over the prior fiscal year'.s balance of $776.1 million, net of accumulated depreciation. This investment in capital a$Scts includes land, buildings and improvements, equipment, construction in progress, and infrastructure. Major capital asset events during the fiscal year included the following: • Many large street projects progressed due to dedicated funding from the local franchise tax, which earmarks 2% of the 5% franchise fees to fund Gateway Street Projects. The largest Gateway Street Projeot continued with the eonstruction of a T-2 thoroughfare street with $12.6 million expended in the fiscal year on Milwaukee A venue from 34th Street to 98th Street. • Large amounts of e.tistin& .infrastructure and reconstruction of roadways has been accomplished within the North Overton Tax Increment Financing (TlF) Reinvestment Zone. The funding for 'these projects comes from taxes generated &om the increment of property w.Juation growm within the TIF. The funds used to finance the projects are generated within the zone, and do not impact taxes or fees to citizens outside the TJF. • The Water Fund acquired $19.1 million m water rights from the Canadian Municipal Wattr Rights Authority and continued work on numerous water line change outs and extensions. • Approximately 38,000 square yards of new paving was constructed at the Lubbock Preston Smith Jntemational Airport to help serve air carrier aircraft. This project also involved removal and installation of new taxiway lighting and drainage improvements. Expenditures on this project totaled $9.7 million during the fiscal year. Expenditures to date on the project total $10.5 million. 32 c c c c c c c ' ( < l" ) ) ) City of Lubbock, Texas Mauagemeat's Dlscussioa and Aaalysis For tbe Year Eaded September 30.2006 • The City continues work on a flood teliefprojeet linking South Lubboclc's chain of playa lakes with an undcrgrotmd ~inage system. spending $12.8 million during the fiscal year. Expenditures to date on the project total $26.1 million. At the end of the fisc~l year, the CityM.s conwuction commitments of$159,7 million. City of L•llbo~k Ca-pitaJ Antta (Nd of AccaDa•lated Dcpreciatle•) September 30 Goveramcntal Aethtldet CS. OtO'J) 2006 2005 Land S 8,971 8,9Sl Buildings 29,&70 28,146 Improvements other , Sushlt~l· Type Activities Z006 lODS 31.9:49 31,949 64,'()92 65,9S I Tota .. 40,920 93,962 than buildillts 50,443 43,89.5 389,474 347,393 439,917 Maehlnery andequipment 20,615 19,829 11_;_993 6),719 98,608 Construction in propss S0.6SO 37-,793 136,646 tlM32 187.296 Total S 160 • .549 138.6.14 700,154 637,444 860,703 Additional information about the City's capital assetr. can be found on pages 72-75 of this report. Long-tenn debt. A summary of the City's total OUllt'aJiding debt follows: O•neral obligation bonds Revenue bond~ Total C'lty of L•bboek Olttalldl•• O.ebt Ceaeril Obliplloa aad Renne •••dl September 30 (J• OO&'t) Ce»verlllllffttal A~tlvldtt 1006 100$ S U4,4S7 101,720 s 11<1,457 102,720 ' B~ttblm· Type Aetlvtdea ·2006 100$ 323,$68 116,750 58,079 42,800 Totala .2006 1005 448,(l2S 389,470 .SS.079 42.800 S06,104 432.270 211)5 40,900 94,097 391,288 83,S48 166,225 716,058 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 fot all City purposes to $2.50 per $100 of assessed valuation. The Attorney General of the State of Texas permits an allocation of Sl .SO of the $2.50 m.ximutn tax rate for general obligation bonds debt service. The ClDTCJlt interest and sinking fund tax rate per S 1 00 of assessed valuation is $0.06094, w~ch is significantly below the maximum ai10W11ble tax rate. As of SeptembeT 30, 2006, the City's total outstanding debt has increased by $73.8 million or 17.1% over the prior fiscaJ year. The ineteaSe in outatanding debt ifl attn'buted to the issuance of $98.3 million in debl. offset by me payment ofscheduled debt service totaling $25.3 minion, and the i$SU&nCe of $18.8 milHOJl of debt to defease debt of $18.0 minion. 33 City of Lubbock, Texas Management's Discussion and Analysis For the Year Ended September 30, 2006 During the fiscal Yeaf, the City issued the following bonds and certificates: • $2.7 million of General Obligation Bonds, Series 2006 were issued to fund the eurrent capital improvements plan. This issuance was the thi~ installment of the $30.0 mi11ion capital improvement debt issuanee approved by voters in 2004. • $77.0 million of Tax and Waterworks System Surplus Revenue Certificates of Obliga~on. Series 2006 w~ issued to filWloe projeots in Water, Wastewater, Solid Waste, Storm Water, Airport, Tax Jncrcment Financing , Lubbock Power & Light, and Gateway Streets; as well as Parks, Streets and Municipal Building projects throughout the City. • $18.6 million in bonds were issued by the Canadian River Municipal Water Authority (CRMW A) for Lubbock's share of the S49.l million CRMWA Con1ract Revenue Bonds, Series 2006 (Conjunctive Use Groundwater Supply Proje<:t) 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. • $18.8 million of General Obligation Refunding Bonds, Series 2006 were issued t1> defease $18.0 million in outstanding bonds in order to achieve interest savings. All bonds issued during the fiscal year were insured to provide a lower cost of interest expense for the CitY's taxpayer5. It is the City's policy to ev,aluate each bond issue to det~e whether it is economically feasible to purchase bond insumnce. On November 22, 2005, the City of Lubbock received a rating outlook upgrade from "stable" to ~sitive'' from Moody's Investors Service. The City CW'J'elltlY maintains an .. AA-" rating from Standard & Poor's and Fi1t:h Ratings, Inc. and an "Al" ratiag from Moody's Investors Service for geneml obligatiOll debt. All three rating agencies have placed the City on a positive outlook, which indicates the possibility ofa rating upgrade in the near tenn. On December 21, 2005, LP&L received a rating upgrade from ·•BBB·" to .. BBB" from Standard & Poor's. The LP&L revenue bonds arc currentJy rated .. BBB" by Standard & Poor's, ''BBB+ .. by Fitch Ratings, Inc., and "A3" by Moody's InvestorS Service. Additional infonnation about the City's long·tenn debt can be found on pages 81 -86 of this report. Economic Faeton ud tile Next Fisea1 Year's Budget ud Rates • At the end of the City's fucal year, the unemployment rate for the Lubbock area was 3.8%. This is the same rate as September 2005. This compares favorably to the state's unemployment rate of 4.7% and the national rate of 4.4 % for September 2006. • Retail sales fisurca are only available through the third quarter of FY 2006. Total retail sales reOe4;:ted a 7.3% increase for that period over the same period in 2005. • The number of building permits for new constn.letion decreased from 2,222 during 1-"Y 2005 10 2,052 in FY 2006, or about a 7.7% decrease. TlUs compares to a 20.5% decrease during the prior period. Building permit values for new construction decrea&ed from S388.4 miltion in FY 2005 to $376.2 ou1lion in FY 2006, or about a 3.1% decrease. The number of new construction permits and new consttuetion valuations bit an all-time high in FY 2004. The current numbers are still much improved over years prior to FY 2004. 34 0 0 c c c c c ' c ( ( 1. ) ) City ofl .. ubbock, Texas Management's Discussion and Analysis For tbe Year Ended September 30, 2006 • Total occupancy in local hotels and motels improved and the loaal occupancy tax totaled nearl)i $3.4 million. a 4.6% increase over last fiscal year. • City Council again decided to support the operations of LP&L by forgoing 1ransfers for payments ir1 lieu of taxes and franchise fees for the upcoming fiscal year. The City Council mtends to continue this support until 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 2007. • During FY 2007 the City adopted a $.00444 increase in the General Fund property tax rate. The General Fund increase will bring an additional $1.7 million increase in revenue from both propeny value growth and the adjusted tax rate. The additional revenues will bclp cover medical insuranCe inflation costs, 11 $1,200 oost of living adjustment for all emp~ increased fUel~ and 29 public safety positions added mid-year of FY 2006 that will have the full effect of cost in FY l007. • During FY 2007 the City adopted a S.Ol03S increase in the Debt service Fund real estate tax rate. In the last seventl yean. City Council has adopted a number of capital imprnvemcnt project& to addrm changing community needs. The bonds for these projects were sold in 2006 and related debt servioe begins in FY 2007, necessitating an increase in the interest and sinking ftmd tax rate. • In FY 2005 the City adopted a muter lease program to replace public safety vehicles and 01ber equipment that had been neglected. The cumulative effect of mastet leasing the last two years will increase debt service payments on master lease obligations in FY 2007. • The City has prepare4 a S year projection of utility rates for Wattr, Storm Water, Wastewater. and Solid Waste Funds. The Water Fund will experience an increase in rates as the City qsre:saively seeks to obtain water rights. plans on adding infrastructure to transport wa.tor to the City, and maintains existing infrastructure. The Water Fund rates will increuc 11% in FY 2007 and ~ expected to rise over tile remaining 4 years to fund debt service on water capital projects. Tho Storm Water Fund \\ill incur debt as the City focuses on infrastructure through the South Lubbock Drainage project and ongoing maintenance. Storm water rates are adequate .for the future debt and are· not cx~ted to increase until FY 2010. The Wastewater F\.Dld and Solid Waste fund are also expecting slight fee increases over the neAt 5 years due to operational cost increases and increased debt service. • At the March 23, 2006 City Council meeting, the City Council approved the .. Policy on General Fund Unrestricted Fund Balance and Appropriable Net Assets for All Other Funds'~. The policy targets an unrestricted fund balance in an amount equal to at )east 20% of regular gcne:a1 fund operating revenues. The policy targets appropriable net assets in tM Water and Wastewater funds in an amount equal to 2S% of regular operating revenues., appropriable net assets in the Solid Waste. Airport and Stonn Water funds in an amount equal to 15% of regular operating revenues, and appropriable net assets in the Internal Service funds in an amoU.JJt equal to 8% of regular operating revenues. F\.Dlds that have budgeted utilization of net asse1s tha1. exceed the appropriate target policy include: $3.0 million in Water Fund. Sl.S million in Wastev,:ater Fund. $2.2 miUion in Solid Waste Fund, and $2.2 million il1 Storm Water Fund. The City has not planned any use of General Fund fund balance in FY 2007. The LP&L Board has set their unrestricted net usets goal to be $50 minion, or 4 months of operating expenditures, whichever is greater. In FY 2007, LP&L has budgeted to increase unrestricted net assets by $19.3 million. · ,35 City of Lubbock, Texas Management's Dtaeussion and Analysis For the Year Eode.d September 30, 1006 • LP&L FY 2007 baJe rates will be consistent with FY 2006 rates, but the fuel cost adjustment rates will vary based on supplier cost. One of the main suppliers of fuel to LP&L has applied for a 15% increase in rates, and if approved, could increase fuel costs up to 15% in early 2007. Thjs may cause electric rates to increase in FV 2007. Requests for Information This financial report is designed to provide a genera) overview of the City of Lubbock's finances. Questions concerning any of the infonnatioo provided in the report or requests for additional financial information sho\lld be addressed to the Chief Financial Officer, City of Lubbock, P .0. Box. 2000, Lubbock, Texas, 79457. 36 c c c c c ,. .... c ' ( ( City of Lubbock, Texas Sratement of Net Assets September 30, 2006 PJ'IIDII!I Govena•ent Go\'erameatal 81lslae5t-type Compoaeet Adl'l'ltles Activities Total U•m ASSitTS Calh 11od -h cq11i..tcrilu s 21,577,439 $ 37,13$,183 $ S8,712,622 S S,9S0,66S l~veslmenb 19,013,367 33,3?3,806 52,387,173 225,144 Rllcoiw.ltlca {IIC1 or allowiJICt fot llnCOllct1ll)le.) 11,719,391 27,620,2l5 39,339,676 l,OS2,89.5 ') lr,ttmaJ t.lence 2.009,936 (2,009,936) Due nom olhtr lovemmcnt.s M87,278 3,487,278 D~.e &M~ ochen 2,369,856 1,863,690 4,233,S46 lnVI'IIIOtia 212.052 3,116,055 3,32&,107 82,7S8 l~vestmcntlll propell)' 208,103 208,103 I'ICJllidcxpmJiill 920,722 920,722 .53, .. 90 J' Rertriewt wm: Cuh 111cl calli cquivalanla 4,002,576 18,91S,606 22,918,181 176,852 '~ 52,987,526 80,658,868 J3 3,646.,39-4 Recei~tt.bln 124,6!>4 106.010 230,704 7,000,000 MO!f&III'I!I'OCei>sbles 5,813,330 5,813,330 CeJ)illliSSC&$ (I!Ct or IOCIIIIIIIIIICd dcpnclatloll). Non-depfecl~ 59,621,807 168,594,938 228,216.745 1,404,299 Dcprccisblo 100.927,834 S31,559,SS2 632,487,386 829,241 Defe!Mchatits 310771777 3,0771717 • Tocai•cts 284,9951911 90410111834 ttt891007,74S l!,'m~4 t.lABJLmU Aeeoi.II!U payable 5,666,721 16,869,683 22,536,404 1,01$,211 MCI'ucd~ 6,953,799 3,155,693 10,109,492 162,308 Accroc:d inlm!lt ~ 959,422 4,261,JS4 5,220,976 Cos:lorner depotlll 2,990,665 2,990,66S VIIIIIU!II!d m't!ll\111 S,t76,60.S 5,176,60S 7,133,046 NOI1GvJTcnl la.bilitict clue witllift OM )'*: C'cmpeftS&Ied ·-6,133,264 2,571.795 8,70'-0S9 Ac:cnoed lnMala claiml 2,SIJ,041 2,444,632 4,956,673 Ccntrac11 w IN~a peyable \,426,999 1,974,403 3,401,402 ),412,68$ ~PII)'Iblc 6,361,$99 20,0S3,,0 26.421,149 NDIICIIITIIIIlilblllliea due In 1110111 111111 one )'81r: C~~edabletce, 10,126,773 2,794.,001 12,920,774 Lanclnll clos~m~ Mel posfdosure CMe 3,299.131 3,299,131 Amucv 111aiii'IIIICC cr.iml 249,11.5 2,816,344 3,065,459 COIIIHICta eiiCI rmoa pa)'lble 6,103.~ 6,414,56.S l2.S18,12S 1,241,971 Bonda peyablc 12015981987 363~71~65 484,170,352 TcatllblMIItiCJ 172~741185 433at713aJ 605~92,266 101963~8 ~'ET A!ISITS IIIVCStcd in Clpill.l aueu, net of rtlated debt 76,483,334 380,149.13S 4S6,632,469 2.1~,396 Retlric:tedfor. Pu~ensar liclllty c~ 3.630-625 3.630,625 ~,.,...ice 4,002,576 IS,21-4,98l J9,287.SS7 Cill!nl pro,_ 6,1~,719 6,14S,719 Prim•l)'~mtnl~ 100,000 Unretlttttcd 26,089,397 711729,712 97,8191109 3~2,720 ToWMIII$toll s 112,721,026 s 470j794,4S3 s S83,.S lS,419 $ 5,80?,116 Sec accompanylna N 011:1 to Basic f"''IIIDCIIII StatemcniS 37 City ol Lubbock, Texas Statement of Aedvitles For theY car Ended September 30, 2006 l"ri•ary aonrn•eal: Oovem~~~ental actlvilics: Admin~vc services Conunlll! ity services Culaural and rocrealion &onomic and b\l$i~~eU dcw:lopment fire Heallh Police Otbet public: afety Streets and ll"'ff"K Non-dcpanmcnlal lntercs1 on Ions-term debr Tolalaovcmmentalteti~tlties Busbleas-typc BCIIvllics: Electrk Wiler WasteWater Solid Waste SCormwatct Transit Ajrport Total bwincss-«ype activities Totti primary government Compoatat Ullltr: Civic: Lubboclc, IDC. MMktt lubbock, Inc. Lubboclc Economic Dovclopmenl Alliance Total component units Cllaraea for Ex!!-Semea s 9,910,392 s 54,356 6,112,193 1&,915,265 2,590,241 10,283,007 188,856 26,711,389 13,165 5,01.),691 722,113 42,063,023 209,2.51 S,239,386 4,984,968 11,349,496 494,312 5,206,309 374,629 413261128 14.5,63012'79 916311891 213,026,628 226,3?3,63& 32,830,002 37,330,953 21,273,196 21,087,364 14,971,421 13.948.861 5,114,635 6.348,461 9,34!>,206 3,268,441 719961692 514241016 30416221380 31317111734 s 45012~659 s 32314t31625 $ 1,772,007 $ 6,3.50,716 216381367 $ 101761 1090 $ Oenei'JI ~cnun; Propcny uxes S.lc:s taxes Omlplllt)' IIXU Other Taxes FraDdllst Taxes Investment £arninas M iscclliii!COUS Ttan$f~nel 1,703,.598 96,728 lt800.326 Pro&I'IIIJI Rtvetl11et Opentlnc Gnataud ConlrllNrilo•• $ 5,677,173 66S,258 36,632 1,028.999 386,16.5 17,452 104,88.5 2,283,899 1012031463 59,296 31,740 7,294,964 9651~05 i 13Sl160S $ 1815551068 s 24.9,220 6,082,671 ~4351160 $ 12!767,051 Total pcral monllOS, spccill il4:m5. 1114 tnnsfen C'hlnae in net assets Ncn assets • beginning Net use~S -c:ndina 38 0 c C.pJlll Granbtltd Co1trllnationi $ c 86,614 397,054 c 321,962 39,300 8441930 c 2,154,551 3,808,242 2l,633 ,. " 111040~85 171624&811 s 1814691741 c s $ Net (lhptiU~) Revernaet aAd ) Chanaa In Net A..ets Prlmarl Government Covmmtatal Buslncu·type Aetlvlttts ActMtlta Total Compenent U•lts s (9,856,036) $ $ (9,856,036) $ {435,010) (435,020) (15,6~6.766) (I 5,656, 766) (10,094,151) (10,094,151) (26.574,978) (26,574,97&) (3,262,579) {3.262,579) l ( 41,070,SS3) (41,070,SS3) 84,996 84,996 (11,210,999) (11.210.999) (2,547,781) (2,547,781) ~41326,128l (41326,t28l (J24.249,99S) (124,949,995) t3,347,oro 13,347,010 7,314,798 7,314,798 ),621,810 3,621,810 (1,000,927) ( 1,000,927) 1,2~5,.566 l,20S,566 1,214,199 1,214,199 91433~14 9143313)4 3S113S1170 3S113S1770 (124,949,99$) 35,135,770 (89,814,22.5) ) 180,811 (171,3 17) 317961793 3,806,287 ) 42,770,826 42,770,826 45,516,582 45,516,582 3,410,920 3,410,9'20 1,036.283 1,036,213 13,348,364 13,348,364 4,393,782 6,140,436 10,534,218 14,735 6,898.288 4,277,297 11,175,585 9,607~11 ~91607121 12 127,042.2S6 at01S22 J27£8$2t778 141735 2,092,,261 35,946,292 38.038.$53 ),821,022 I 101628.765 434.848.161 S4Sz-1761926 119861094 s 112.7211026 $ 47017941453 S 58315 I.S1479 $ S18071116 39 0 City of Lubbock, Tesas Balanc:e Sheet Governmental FuDds September 30, 2006 c Nobmajor Total CovenuDental GoYtriiiDattal GaMralhDd , .... had• ASS£1'S c Cash and cash cqUiYalents $ 8,456,754 $ 11,897.583 $ 20,354,337 lmes~mC~b 7,605,360 l0,344,S78 11,949,933 T~ rccelvlble (not) 8,642,SIJ 317,184 9,159,695 AccounCJ rcoeiv1ble (JIOt) 1,125,656 341,907 2,167,563 I~ tc«ivabiB 336,741 49.608 386,349 ~&om other f'unda 2,415,681 631,346 3,047,027 c Due &om other govemmonCJ 3,481.278 3,487,278 Due from olhcts 797,380 1,375,633 2,173,013 lil¥e$1me!llln proper\)' 208,103 208,103 lnveolol)' 168,964 168,964 R.esuietcd ~ 4,002,576 4,002,576 ltescrictcd IJivostrnclllS 50,430,838 50,430,838 c Mortp~e receivable:~ 5.813,330 5,813.)30 Totalaael$ s 30,249,047 $ 89,orJ9,964 s 119,349,011 LIABILITIES ,. Accounts pt)'lble $ 3,285,899 s 2,199,533 $ 5,485,432 " Due 10 odtcr fundi 2,621,995 2,621,995 A(Q"Ucd Uabilltics 4,303,221 1,713,024 6,016,245 Acctucd .latemt payable 2~.S57 206,SS1 De!Orrcd mcnuos 21735~16 S1454J.44 811191560 c TolllllabtuUe• 101324,3)6 l21195,453 221519,789 w li'UND 84~NCI!:S R~ror: Prepaid itcmsllnvcrnory 168,964 168,964 Debt service 3,081,539 3,081,539 Capital projects 52,331,096 52,331,096 S~itl mci)UO -Jl'llliS 1,3~2,508 1,392,508 P~u.ICIR &9.220 89,220 Un~ed)~in General ftwJ 19,7.SS,747 19,7SS,747 Special JCVCnw fusuls 20,010,148 20,0JO,l48 w Total fund blilance 19,924,711 76,904J11 96,829,22:2 Totallllbilitles and Nlld bal~nc:cs $ 30,249,047 $ 89,099,964 s 119,349,01 I See accom,.nying Notes to Buic finulotal S~~tcmcnts 40 City of Lubbock, Tens Reconciliation o( the Balance Sheet of Go-..crnmental Funds To the Statement of Net Assets ) September 30, 2006 Total fund balance· governmental funds s 96,829,222 Amounts reportcxf for governmental aetivitles fn the &tatement of net assets tre ditrerent because: Capital assets used in governmental activititS ere not flnancial resources and \herefon are not reported In the CUnds. 160,549,6-ll Internal service run<ls (I SF's) arc U$ed by manaaomcnt to charge the cents ofcel'tail'l ...., .. activiti~. such as insurance and telecommunications, to individual funds. The portion of the assets and liabilities of file ISF'$ primarily serving sovcmmcntal fimds arc included in governmental activities in the statement of net assets as follows: NCtiSSCt$ 3,100,464 Net book value of capital IS$Cts (906,088) Compensated absences 61,808 Amounts due from business-type ISFs for amounts underchareod 1,584,904 Certain liabilities are not due and payable in the cumnt period and thmfore are not reponed In the funds. Those liabilities are as follows: Oen-.1 obligation bonds (124,457 ,280) Capital leases payable (7,S30,SS9) Compensated absence., ( 16,260,037) Accrued interest on gEneral obligatiQil bonds (7S2,86S) Arbitrage payable (151.716) Environmental remediation (922,S5S) Bood premiums are rccognixed as an other financina source in the fund statementJ but the premiums are amortized over the life of the bonds in the govenuoent·'Wide slatemcnlS . (2,357,592) .. Actual City contribution$ to the fire fishier's pension trust fimd ia greater than the actuarially detennined required contribution. Thia will reduce future funding requirements ancl is not recognized as Ml asset at lhe fund level but is a prepaid expense in the S1.atement of Net AS$et&. 920,722 Revenue earned but unavailable in che fUnds Ia defcn'od. 3&012,957 Neti$SCts of governmental activities $ 112,7211026 ) 41 0 City of Lubbock, Texas Statement C)f Revenues, Expenditures and Change• in Fund Balances Govemmental Funds For the Year Ended September 30, 2006 c Non major Total CovenmenUII GovtrDmtDtd Ceeenlhnd PundJ FVDdl REVi:NUa c Taxea $ 75,999,624 $ 16,865,905 $ 92,86.5,529 Praneh isc t~Utes 8,008,973 5,339,391 J3,34S,364 Fees and ftna 3.981,978 3,981,978 Licenses and pcnnhs 2,250,63S 2,2.50,635 Intergovernmental 408,997 10,639,396 11,048,393 Owaes tor aervtccs 4,781,043 J,3D7,162 6,088,205 c Interest 921,742 2,953,198 3,&74,940 Misc:clloneQUS 114651215 5,501t04:1 61966,257 Total revenues 97,818,207 421606,094 140,424,301 EXPENDJTURIS Current: c Adm lniSU'Itivc: t!!nolccs 9,356,059 9,356,059 Coliln'lllllil)' services 5,932,&20 5,932,820 Cultural and rweatloR 13,986,576 1,409,701 15,396,277 Eeo~tomic: and business dcvclOJ!mcnt 1,146,267 8,973,916 10,120,183 Fire 24,638,814 24,63&,814 ,.. Health 3,738,790 908,623 4,647,413 I,. Police 37,~3,740 9t3,25l 38,376,991 Othtr public: safety 4,287,806 360,0S6 4,647,862 Streets and tnailic 7,439.04$ S27,74S 7,966,790 No!Micperur":nhtl 1,882,25S 2,376,.525 4,258,780 Debt sen icc: c PriGCipal 1,009,368 6,324,040 7,333,408 lnlcn:&t and other c:hiiJ'&ta 144,858 3.996.563 4.141,421 Capiw ou11ay 711841866 2814601783 351645,649 ToUII cx~ndilllrcs 112.278.444 601184,023 172.4621467 Excus (dcfic:lcocy) of menues ewer (unclcr) cxpcndi&urcs (14,460J37) (17 ,577 ,929) (32,038, 166) ' OTHER FINANCING SOURCES (VSES) t..ong..tenn debt i5sucd 27,526,113 27,526,113 Bond pmniurn (di~UIIl) 620,&60 620,860 Capital leases S,J 19,980 S,J 19,980 ( Transfers in 13,325,046 5,352,042 18,677,088 Trti\Sfm out ! 1,436,498~ !61840t909l ~8~771407~ Net other fmancing sourca (IISCJI) 1710081528 26.6581106 43t6661634 Net ~:lwlsc In fuacl balances 2,548,291 9,080,177 11 ,628,468 Fund balances· beginning of~ 17.3761420 6718241334 85~00,754 ( Fund balances· end of )'ell $ 19,9241711 $ 761904,511 s 96,829,222 See eccompanins Not« 10 Basic Financial Stl!ernents 42 City of Lubbock, Texas Reconciliation of the Statement ofReven•cs. Expenditures and Changes ID Fund Balaoces of Governmental Funds ) To the Statement of Activities For the Year Ended September 30,2006 Net dlangc in fund balances • total govcmmcntal funds s 11.628,468 Amounts reported for aovemmentalietlvi1its In the statement o( actlvlttcs are different because: Govcmmcllta1 funds report capital outlays as eJq~enditura. However, in the Statement of Activities tho cost of those assess is allocaled over 1bcir cstimaled useful lives and reported as depreciation upcnse. This is the amount by which capilal outla)'s e>f $JS,64S,649 exceeded depreciation ofSJ3.29l,425 In Che current period. 22,354,224 Bond proceeds provide current financial rcsOW'CCS to govcmmmtal funds, but issuing debt mcreucs lona- tenn liabilities in the Scatcment of Net Assets. Repayment of bond principal is an C)(penditwe In 'the .., :go'NM~ental funds, but the repayment reduces lo.na•tcnn ll•bllltlc:s In cbe Statement of Net A•sca. Tbl• IJ ~ emount by which proceeds of$27 ,S26, 113 exceeded repayments and debt dtfeNCn~ of$5,789, 102. (11,737,01 1) Capllallease ttans.cdonJ provide ¢urrent financial resources to govcmmonul funds and repayment of principal is 1111 expenditure. This is the IU11ount by which proceeds ofS5,119,980 exceectcd repayments of S I ,.544,306. (3,575,674) Bond pttmlllms are m:opized as Ill other financing •()UI'Ce m the sovemmenw f\anda, but U1l COD$Ideled deferred US$ on the Statement of Net Aascta. PJ'el!liwns are amortized over the life of the bonds. ThiJ is the IIMOtl!ll bywblllb bond pmniwn issued of$620,860 cxcadld amortizBCion of$129,152. (491,601) Estimated long-term liabilities are recognized as expenSCJ in the State-ment of A~ivitios as oamed, but arc reoognb:ed when current flnanclal resources are used In the ao~rnent.al funds. ... Arbitrage payable (IS1,7t6) Compensated absenc:~:s (124,692) Eovironmental remediation (922,555) Property taxes levied and coun fines and feQ eamcd, but aot available, are deferre4 IJllhe govcmmentll 1\Jnd$, but an rewgnimi when earned (net ofCJtirnated uncollti:tibles) in lhc Statemeut ofAetiv1tita. This amount is the net ehangc in dc:renod property taxa and eoun fines and fees for the yeer. (2,759,145) ) A~ City conttibut6ons to the fire flptcr's pcasion trust fund are sreatcr man the a:ctuarially determined Net Jfension ObligaSion (NPO). This amount is recognized as an expenditure at tbe 1\Jad lcvoJ but b accrued when overpaid and reduces expenSC~S on the Statement of Activities. 11,610 Internal service funds arc used by management to charge lhcr costs of c:cnain ac1ivities, sucb u Insurance and telcc:ommunications, to individual f1.1nds. The net rtvon11o (expense) of certain inlemal servict fundi is ) reported wllh 'overnmental activities. (I ,724,6.58) A«nrecl interest is recognired .s expenses in the Statement of Activities as incuned, but Is reoopif.ed when current financial mouN:t'S arc used ill the govcmmcn~l funds. Tbis amount Is the nee change In the aecn.tcd in.~eres~lbis year. (162,2$S) The net eff~ ofvario\1$ ml.sccllanoous transactions involving capital assets (e.J., s.les and ttade-ins) l$tQ decrease net assets. (2$2,027) ) Change in net assets of governmental activities $ 1,092,26) ) 43 No Text City of Lubbock, Texas Budget Comparisou Statement General Fund For tbe \'ear Ended September 30, 2006 V•ri11ce witll Jllul B•deet • POIItJve Orlalaal Bad&et Fiul Badaet ActiW Atnonta (Nqative) ) REVENUES Taxes s 73,888,110 s 73,888,110 $ 15,999,624 s 2,1J 1,514 Ptanchlse lUte 6,886,000 6,916,000 8,008,973 1,092,973 Foes ~na ftnca 3,782,866 3,868,099 3,981,973 113,179 Ucenaca tnd permits 2.170)12 2,3S1,1SS 2,250,635 (100,520) )" tineraovemmenill 406,638 406,638 408,991 2,3$9 Chii8CI for MtYiceS 4,530,123 4,347,SI8 4,781,043 433,525 lntcrosl 660,073 660,073 921,742 261,669 Miscellaneous !1066&411 11031 1411 1146.S~IS 3831104 ToW~uc:a 93,390,733 93,519,004 97,Bl8.Z07 4,299,203 &XPENDn'UR£8 CuJTcnl; Adminlantlw !lm'ices 8,877,967 9,036,722 9,356,0$9 (319,337) Cultural and rwoaciOA 13,393,317 13,393,317 13,986,576 (S93,259) Econom\c aocJ busiAea dewlopmcnt 1,180,867 1,173,897 1,1-46,267 27,630 File 24,466,277 24,623,844 24,638,814 (14,970) H.ealth 3,634,443 3,649,443 3,738,790 (89,347) Pollee 38,802,898 38,802,898 3'7,463,740 1,339,158 Other public aarety .t,J67,6U 4,413,756 ... 287,806 125,950 S~udtraftl~ 8,281,641 6,981,641 7,439,045 (457,404) Non~ 1,422,064 672,294 J,8112)SS (),209,961) Debt ~~'Viet: Principii 1,044,682 1,009,368 3!1,314 ln\Cttllt ~ othe; ~ 150,606 144,858 5,748 Capital outlay 486,290 8,028,860 7tl34l866 843,994 Total cxpcndhums 1041913~79 II 119711960 I 1212781444 Q061484~ £xccas (dotlciawy) of rc~ues ) over (\lbdcr} ~illlm {11,522,646) (18,452,956) (14,460J37) 3,992,719 OTHER FINANCING SOtJRCES (USES) Capital !oases 6,210,000 5,119,980 (J ,090,020) TraMI'ers in 12,.37),843 12,548,843 13,325,046 776,203 Tr1.f1Sfusout !849~002 (1.283,5882 (1 143614981 '1.52,9102 Net o1bef fioancing SOWtCS (uses) 1115221643 J71475.Z.S5 171008~28 ~466,727~ Net cblngc ID t\md balam:es (3) (977,701) 2,S48,291 3,S2S,992 FWld ~ • bcpMil\3 of )'QC 17,376,420 17,376,420 17J76,420 Fund ballltlCe$ • eRd of year s )7,3761417 s 161398,719 s 19,921,7ll $ 3,S2S,992 Sec ~a Note$ tD Basic PiRII!cial Sllllemen.ts 45 City of l.ubbock, Tens Statement c.f Net Assets Proprietary Funds September 30, 2006 4SSETS Curront wets: Cash and CASh equivalents Investments ~nlS receivable lnttre~t receivable DuG ftom od1crs Due from other ftlnds ln vcntories T ocal current asscti Noncurrent a$$ets: Restricted cash anc1 aiSh equivalents R ~:Stricted in "vestments Restricted Interest rcc:elvable Restric&cd ~Q:ounts "'"ivablc Deferred charps Total nooc:um:nl asstts Capital asseiB: Land Construction In prosress Buildinp lmproYCC~cnts O(htr than buildines Machinery and equipment Less IIOC:umulllled dcp~iadon ·row capital 8S5¢U Total noncurrent and gpitalasscts Tolalasaeu Electric s 14,436,691 14,329,105 lS,S4S,2S3 5),919 246,533 44,611,501 4,4SS,7S9 3,669,23S 3,077.777 1112021774 756,714 8,814,299 8,054,811 180,986,045 .S3,267,2SO ~I 091872.65 Jl 142100614<)$ 153¢09.242 $ 1971820,743 Set: ICCOmpanyins Noles 1o Baste Financial Sta«ements 46 c c EDttrprlle Funds Water Wastewater WTMPA c $ 6,167,041 $ 4,990,325 $ 1,296,219 .S,362,0SO 4,338,932 366,253 4,292,453 2,257,6'74 1,800,814 2s,gs1 17,612 c 7G,919 145,322 6,113,451 2731979 16.192,293 11,749,865 9,636,737 c 6,136,977 2,937,014 21,029,028 16,435.385 3,61 t 23,640 24,090 27ti93~S6 19.396.489 t' ... 12,724,350 12,578,715 32,078,59~ 8.377-.~ 21,640,.589 24,013,]70 261,57S,S6 I 114,818,170 c 31,342.133 17,684,958 25,200 {90102413871 {63&9l9t720l GS.200~ 269133918S<J t 1315521956 296,533,106 t32,949A45 s 312?25.399 $ 1441699~10 $ 916361737 ' &ntererbe Funds Non major Enterprise Total Enterprlst lattmal Service StonnwJiter Funds Fund• Fu11dJ s 6,013,928 $ 3,342,335 $ 36,246,539 s 2,J11,746 S,228,922 2,975,896 32,601,1$8 t,836,017 689,268 2,917,$43 21,503,005 '"'"' 4,S29 ~.665 1 J 1.576 11,488 .1 " 1,647,449 1,863,690 196,843 1,540,853 7,714,304 663a001 la1831SI3 119751630 11,936,647 13,096,742 107.223,785 6,\31,784 ) 1,358,770 4,027,086 18,915,606 21.504,033 9,370,844 72,008,$28 11.207,028 JS,169 l8,676 37,456 3o,3sn 47,130 115,168 """\ .3t0f1~111 .J 22,877,972 13,41~606 94,087,097 llJS2;S46 283,337 5,60.5,535 31,948;711 65,343 65,636,771 21,083,879 135,991,151 6SS,016 64,S80 42tf29.,03S 95,~185 J,608,~J& 8,3S3,S91 98,$16,429 664,312,796 649,868 2,832,458 54,977,238 !~0,129,242 7,737,42'1. {9~521045} {I 17a0371649} (3901 t 31 ,6S2l !ZaS08al82l 671918.692 10513341467 6981 J 521433 21908,145 90,796,664. Jl817Sl,073 1~2,239,530 S4,f60,691 $ 102,733t311 $ l3Jt847t8JS s 8995463~315 $ 20139.21475 ) 41 City of Lubbock, Texas Statement of Net Assets Proprietary Funds September 30, 1006 LlABILITIES Current liabilities: A<X:Ounts payable Agc;AA:tf liabjlltles A«Ned lntnest payable 1>w to other fllndi C\lstumer deposil$ CompeBS81td absences AoCNed lnaun~nce claims l,easa pa,yable Bonds pa~btc T olal current llabllllles Non<:um:nt liabllltics: Compcnsalcd absences ACCt\led iMUrance claims Landflll ~losuro and post c:losure we IMsos pa)lab~ Bonds payable Rcbalablc lfbi\ragc Total noncumnt liabilities T otalliabllllics NETASS£TS h\Yt$tcd In capital a$$ttS, net of related debt Restricted for: PIISSCllger m:ilicy charges Debt service Unrt$tricled Tolal net wets Eledrk $ 1,035,206 1,535,678 1,405,988 6,173,4Sl 2,92.4,883 1,076,262 321,414 Sz6231977 20,096,859 1,385,951 1,274,449 65,369,133 11~38 68t040t871 88,137,730 73,086,733 4,4SS,7S9 32,140,521 $ 109l683tOJ3 See IICeompanyillJ Nott.s to Bas!c Financial Statements 48 0 c Enttrprlse Funds Water Wastewater WTMPA c $ 2,635,560 $ 1,066,886 $ 8,329,910 165,716 129,143 1,501.852 473,697 0 58,710 S42,602 269,716 248,255 50!>,081 7.z503z179 4146016$8 c 12,6$5,874 6,909.tt l 8.329,910 421,.359 209,448 c 1,020,101 1,187,000 l48,948.2S2 54,315,110 151669 311806 ~ I SOJ105~381 5St74)1364 c J63,06!,2SS 62,6S2,S1S 8,329,910 132,649,091 69,516,462 c 6,136,977 2,937,014 10,878,076 9,593.259 1,306.827 $ 149!664,)44 $ 82.0461735 s 1~06&827 c c c £qWprite Fvock Noacnajor taterprbe Total Eaterprist Iatamal St"tee l St~rmwatcT Fund• Fllftlb ruads s 1,146.437 $ 1,919,467 $ 16,133,466 $ 917.506 27 ;1.37 1,195,171 3,052,945 117,147 ~6~542 213,475 4,261,554 J .. 1,927,000 8,100,451 38,885 7,072 2,990,665 S0,483 431,693 2.370,7$6 228,~6 4,9!56,673 21,145 706,244 1,806,139 168,264 ) 11.5401083 9251623 2010532550 3,451,927 7,325,745 58,169,526 6,427,131 39,202 419,155 2,53~,115 293,677 3,065,459 3,299,131 3,299,131 81,020 2,461,085 6,029,655 ~84,910 76,804,339 18,063,340 363,500,174 1~3.78 · 711191 76,9241561 241321,08!) 375,435~66 317441046 \ 801376,488 31,646,834 434.204,792 10,171,117 10,976,13& 92,543,019 318,771,443 2,354,971 ) 3,630.625 3,630,625 1,358,770 396,461 15,284,981 10,021,915 3,6301876 67.571,474 7,866,327 $ 2213561823 $ 1 oo1zoo19s J $ 46S~S81S23 $ 10~1~98 ' ' 49 No Text City of Lubbo~k, Texu Reconciliation of the Statement of Net Assets ~ Proprietary FuDds To tbe Statement of Net Assets September 30, 2006 T()tal net assets · proprietary iunds Amounts reported for businc5$-1)'pC aetivlties in the Slatemont of Nee Assets are different OeeaU$C: lnlemal semce funds (lSFs) are used by managomenl to charge the~ of certain activities, such as insurance and ~lewmmunicatiotu, to individual f\Jods. 'The portion of a$$Ct8 and liabilities of the ISFs primarily serving entei'J)rise funds ere included in business· rype activities in the Statement of Net Assets as follows: Net assets of businw·typc lSFs Amounts due to governmental ISFs for amounts overcharged Net asset! of business-type activities See eccomp•nyint Note:t to 8ulc Financial StatementS. 51 $ 465,258,523 7,120.834 (1,584.904) s 470.794r453 c City ofLubbex:k, Texas Statement of Revenues, Expenses and Changes in Fund Net Assets Proprietary Funds For The Year Ended September 30,2006 c Enterprllt h1cb Electrlt Water W•newA1tr WTMJ>A OPERATING REVENUES Charges for services {net) $ 212,074,481 $ 37,330,953 $21,087,364 s 183,322,521 c Miscellaneous Toal operating revenue$ 212,074,481 37,330,953 21,087,364 183,322,521 OPERATING EXPENSES Pel'\!oOI'Ial services 10,7)8,282 S,910,861 3,816,4)4 ,.. \, Insurance Supplin 884,891 1,210,729 972,075 MaiCrials Maintenance 1,907,683 2,4SS,3.S7 1,176,302 Purchase or ruel and po~ 167,854,029 183,149.178 c Collection cxpeJUC 1,482,000 926,.172 Other services and eharaes 4,072,409 9,658,448 6,887,394 S03,6SS Depreciation and amonization 8a972~9l7 7EJ18EJl2 514611027 Toetll)pcgting ~pcriSCS 1941410-all 27,838~27 19,2401384 183z6S2,833 Opcriltina income (lea) 17,664,270 9,~92.426 1,846,980 (330,312) ,.. \,. NO~OJ>tRATINC REVEN\JES (EXPENSES) Interest caminSS 1,063,573 1,321,864 8441020 16,56$ ~nger {DCIIil)' chargc:s/FecJeral &rants 59,296 Oispwition of assets (463,749) (110,320) 92,221 Mi~ctrancous 2,042,S09 407,216 121,000 c Pw-throup grtU\t paymcnu lntcrtst e~pense p1301~09} {417751332~ ~210641305~ Net nonopel'llling revenues (""pcnses) ~658,876} p,0971276! ~1100010641 t61S65 .· I !\Come (loss) before <»ntTfblltions and uanJfcrs t7,00S,394 6,39S,lSO 846,916 (313,747) Capilul c:ontributh>ns 2,754,551 3,808,242 c Transfers in 637,075 663,221 620,23& 306,756 Trt~n5fers ()UI {11211.566l ~4.8741264} ~2262323912 Change in net asseu 16,430,903 4,938,658 2,6St,999 (6,991) Tor at"'' assets· bqinnins 93,252,110 144,725,486 79,394,736 1.313,818 ( Totnl net asset! • ending $ 109&683!013 $ 14916641144 $ 82,0461735 s 113061827 ( Sec eccomp~nyins 'Notts to B-asic Financial Statements. 52 J Enttt(!rbe Pundt Non major Total Enterprlle Internal Service Storm water Enterprlae F11nd• Fund• F11ndt $ 6,348,461 s 22,641.318 s 482,805,098 s 39,460,284 I 11,610 112,610 6,3~8,461 22,753,9'28 482,917,708 39,460,284 ., .. 868,480 l 1,782,232 33,096,269 4,J99.269 22,296,187 80,572 2,803,942 5,952,209 94,876 9,907,836 5,680 3,331,021 8,879,043 2,l80,1 S7 351,003,207 504,73'2 .512,832 3~42.5,736 212,JIS 4,911,389 26,24.5,410 2,569,214 314.514 8,4972448 30.43.5,038 322,088 2,0.56,0~3 31,838.864 4$9&03~912 41,569~687 ) 4,292,363 (9,084,9.36) 23t880,796 (2,109,403) 1,618,842 8~,718 5,158,582 901,559 8,697,882 8,757,178 31,740 16,774 {46.5,074) 69,239 180,3.59 973,645 3,731,729 427,892 (437,313) (437,.313) ~3,096,082l {4321S27l {13,669,455~ l863l (1,296.881) 9,712,179 3,67.5.647 1,429,567 2,99.5,487 627,243 27,.556,443 (679,836) 11,062,018 17,624,811 II9,S97 849,200 .3,076,490 32,915 {90713 102 ~31100,07.9} ~121716,616l {7921470} 2,088,171 9,438 . .382 3$,54l,IZ8 {I ,319,494) 20,268.646 90,1621599 429,717,395 I 1,540,792 $ 22~561823 s 10012001981 s 465~581523 s 10,221~98 53 No Text } City of Lubbock, Texas Reconcnt•tion of tbe Stateaneot of Reveo ue.s, Expenses and Cbangn in Fund Net Assets -Proprietary Fands To the Statement of Activities For the Year Ended September 30,2006 Net chango in tund net assets • total enterprise funds Amounts reported for business-type act!videa ln the statemont or ~ivities arc different because: lntemol service funds (JSFs) are used by management to d!Mge rhc eosu of certain ac:tivities such as fleet services, central warehousing activitle&, management information activities, O(C. to Individual fun<ls. lbo net rcwnue (cxpe~) of certain lSFs is reponed with business-typO ac:1ivtties. Change in net assets of business-type activities See accompanying Noles 10 Basic: Filwlcial Stttancnts. 55 s 35,541,121 405,164 c Cfty or L11bboek, Tesaa Statetneat or Cash Flows Proprietary Fundi For tbe V tar Edded September 30. 2006 WncTeau c M••ldp•IPtwcr &lecllrlc Wakr w-* Aa1M1 CW'TMPAJ CASH FLOWS ROM OPUA-nNG ACTlVtTif.S ~tt .. tpt• r-~...-s 211,732,604 s .37,152.261 s 2l,IS4,689 s 111,743,764 ... ~10~~ (1&4,633,4S8) (ll,074,)6l) (9,198,476) (IU,06S,l)6) hy~ lot~~~!'ioYtn (10,718.282) (S.9JO,J6l) (3.816,.414) Olbet ft!Ctlpu {pllyftiiii!S) 1,5781760 )56,192 136,46) c Ntl cash ,_!dcd (II!Od)~ ~· ~~i~iliH 17.2S916l4 I~Sll1ll0 1,27~~62 !)24~72} CASJI FLOWS FII.OM HONCAni'AL AND REI.ATSD FIH4NCI~C ACTIVI111S Tnlllfb. in ~OCII otlllr li,ond:J 637,07S 66l,l2l 6l0,2l& 306,,6 Tltlflr. 0111111 011\4t C\11114J (1,211,566) (4,874,26<!) (2.W,397) SboMtn'n i111Cf111n4 ~~ 6,17),451 (145,322) OperaliiiJI·ptftla ,. ,.,..,_, ~llledo) 011 edYinlia ~~ IMhcf ftllllb "- 'Net Galt 'pr0¥fded tilled) by~"' lind ,. .... IIIMciiiJ ~~:liYifjd ,,,9~960 ,4~11,043) (Z,I48,481) 3067!6 CABU PLOWS JROM ~JTALAHD RElATED ftNA.'11Ct~C .ACnVtTID PIII'C'-a tfCI!fliGI.-:11 (11,96~.'276) (~.!100,154) (6,312,263) s.H ef~piol wets 131,729 118,0711 152,222 c ~ljlts (pe,tneiiiS) OttleMCS (34,.338) 1,261)56 1,278,169 PriiiOfl!&' paid On 11011dsllld Ollla ddn (5.289 ,G70) (5~11,003) (3,932,162) Bond iuuanee-paid (.36.!163) (216,741) (8S,600) !..mat paid 011 ~~~~ bOOI2J (),1) 1,93~) (1,5.)3,116) IIIICI'CSI pall on bondl IIIII oilier deb( (2,727,011) (l,a39,429) ttJIII-or-. o.n llondJ. tllld Clllital '-" 7.'132,S63 34,418Jl2 14.985,740 '-J"ffllcil~~pU!ts llcMinlt ..-. 15,669 31,106 ,. Conui!lu!W ~~~· l Z9168S 1,199,940 1.. No£ cult ,V.ided (~Jed) liof eap.!Md telaled li~t"¥ tctivllieJ 02.S9l,U9) (4J07,99S) s,.-71.423 (;ASH FI.OWI nlOM QCV.ES'I'ING ACTlVm£5 "-* ftooM *-UICI.-itlcl ollnvc.tbMIII 7,671,162 21,210,Sl-l 14,471,454 Plltd\IM Dfi~ (17,9!18)44) (33JOI,076) {l6.ll9,114) (3~)) mrt~~•m~t~~t 011 cull IIIII ifi'I'OICI!Iefttl t10ll19lJ 11lH111l 9211370 16J65 N'CI Rill provldcll by (ulled r.) iawuri"l! lldividos j9,l91,26l} j I~ 7!t,360! (I 0,126,360! Q49,~ < I'M IIIC!Wt (ilfcltNe) ill ~Jh •lid CUI! e1111i-.l• 1,674,0)4 (6al.l68) 719,844 (367,304) c~ llldmbcq\11~~. ~nllol~r 17jl$,416 12,916,186 ':147:9$ ':66Ji3 Catll 1114 t:ISh cquivalenca • tiiCI or)'OII' $ 110920450 J 11,364.oll I J 7)73!9 i 2!6 19 a-.dllatlotl er .,.,.~ -.., (llll) t. a.c ~:~~~• pnwWecl ,_., ~ .,..rllll.te'lri&lct: ( ()pct~i,. i-(I•J s 17,664.210 s 9,492,426 $ 1,146,910 s (.)JOJI2) Adj,..lllllalllo~lc o~,..'-'e(JGA) lv ACt ;uti Jll'll"'idocl (li$Cd).., Qpe;.!in& lleliwi!Ma: ~i1llon ml III!OniMICIII 8,972,911 7,11*.132 S,462,027 Oilier """'""' (e•jll:ll$0) I,S7a,76o 356,192 131>,463 Chllllf in Olllftl'l auctJ llld li,ltilltio.: 1\teountt -iwble (341,117) (178.692) 67J2S (704,746) \nW~IOry 1,977 (51.17)) Dill rron. Ollaet ~ (l8,47S) ,._ p.)'ablc . {11,074,043) 1.7~2,65$ 702,046 (4,4UJOJ) Due (tom DllleH S,12$,!189 Olhcr--Cllpen!lll 142.913 (7.190) 20,3'73 C\IJIGmcf~ 656.110 l9.3SS I~ in ccmpe1111111'4abicMU 2SI~97 47.')00 41048 Ntl u providcll (11106} 117 ... .ms tledvi~et s 17,~9.624 s aa1sl3,230 s ·~76,262 s ~~n} s....-1 .......... .,..lioal No~~Ca>h ctflillll..atr~ ...-otlllr dllrp s s '.509,919 s 2,137,901 s ~ -omc-n7U., Nola 10 ~ l'iiiMCilll Slaleii!IIRit. 56 J:Gie!J!riM Ju ... 0 OCIItr 1'1-•.tor lateral I lfi,.,,..IK Sen-"' SIOrMWOI"r , ... , Toc•ll Fade $ 6.JIS.727 s 21,6116,091 s .m.m,l36 $ 39,45),127 (288,143) (10,097,933) (405 ,361 ,208) (31,617 ,334) (861,>480) (11,6?0,079) (33,004,116) (4,199,269) 16168A 985,~~2 3,143,451 S01782 5,245,088 883 431 SO,S63,263 (3,312,694) 349,200 3,0'76,490 32.91.5 (907,310) ()I I 00,079) (12,716.616} (792,•70) (4.500.000) 1,071,633 2.5W,762 (1~.101) 7,294,964 7,294.964 (1,540,8S3) (1,540,1$3) (S,.01,)10) 4,S74,S65 (1,216,2~3) (819,3!!)) (13,912.10!) (26.215,$49) (U,44l,)SO) (369,790) ) 1,05! 97,(117 500,104 496,)0$ 2.m,m 482,631 (19,983,S21) (lJ~.8~) (37 ,SOl,$ SO) {2~.030) (41,6lS) (690,949) (M96.082) (7,761,142) (294,016) (~16().$26) 2'7,018,321 9,462.,160 93,6J7,10tS 70,744 965,605 96$,605 12,37! S9,1S3 11,062,018 i21S911643 (IOJI2,l62) Q.414,826) (29,020;049) 679,890 1,360,7$7 IO.to6.625 55,Sl7,5)2 16.124,619 (2.009,595) (I S,S62,J l 0) (95,463, 762) (16,5 11,105) 1,'709,$10 99$059 5,912,677 887~93 1,060,742 {1,760,6'261 Q3,9531$S3} 1~01,117 (9,Jil,842) (5,717,1$6) (13,696~92) (2,320,990) 16~S6:540 IJ1016,S71 68,1SB,?3I 443 716 $ 7 726911 J 7,J69,421 ~ 5S,I62,14S J 21nn s 4,292.368 s (9.0S4,936) s 23,880,796 s ~2.109.403) 384,.51• 8,497,44! 30,.C)5,03S 322,0ll 86.6:84 900,66S ),0Sl,764 $0,782 (:Jl.7l4) (7)),;!$7) (1,921,911) (7,157) ) . (S4,SS6) (IOJ,,l) (310,619) (124,11-4) (152.JI9) 2~.346 1.017,8S9 (I J, 7S0.440) 58.566 ~.12S,9f9 240,700 1)1,087 62?,186 (1,260.~) 300 61S,76$ 7J:9.7 ll2,93S 6'79,787 1~939 s SJ4S10&8 s 183,431 l $0,5631263 s !l.;!I~69C) } s s s U4VJ:ZO s 119,197 57 "'' No Text "")' , City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2006 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Basic Financial Stllcments (BFS) of the City of lubbock, Texas (City) have been prepared in ccmformlty with Accounting Principles Generally Accepted in the United States of America (OAAP) as applied to government unitS,· including specialized industry practices as .specified in the American lrutlrute of Certified Public Accountants audit and acc:ountjng guide titled Stat~ ond Local G<1VUnm1nts. The Govemmtntal Accolltlting Standards Board (GASB} is Chc acknowledged SW1<iard-sett1ng body for utabliWn& governmental accounting lll)d financial reporting principles. With respect to proprietary activities related to business-typo actiVIties and enterprise fUnds. including component units, the City applies all applicable GASB pronouncements 8$ wtll as Pirlanclal Acc()Untins Standatds Board (F ASB) Statements and Interpretations, Accoun.di\J Principles Board (APB) Opinions and Accounting Research Bulletins of the Commftlco on Alicountfns Prooedure, issued on or before November 30, 1989. unleu those proooun"ments eonflfct wi1h or contradict OASB pronouncements. The more significant accounting pollcles a~ described below. A. BBPOBTJNG INTJTY ~ City la a municipal corporation governed by a Councii·Manager fonn of government. The City, incorporated in 1909, is located in the northwestern part of the state. The City ¢Umfttly occupies alaftd IJ'C8 of ll9.i JqU8le miles and serves a population excoeding211,000. The City is empowerod to levy a propert)' c.x on both real and persoQal propertiet located within its boundaries. It is also empowered by state statute to wend itJ col"ppJ'Me limits by anneution, which occurs periodieally when deemed apprOJ)I'iate b)' the City ·Council. The City provfdca a full range or services, including police and fire protection; recreational activities and cultural events; construction and maintenance of htghways, streets, and other inbstructure; and sauitation servfce.s. The City also provides utilities for electricity, water, wastewater, and stormwatcr a well u a p\lbJic ttanspO.rtation system. The BFS present the Cky and its componctlt units and indude all activities, organiutions, and NrK:tions for wbid\ the City is ~nsidered to be rmancially accountable. The criteria considered In determining activitlts to be repor1ed within the City's BFS are buod upon and consistent with those set forth In tb6 Codification of Goy!!!'nmattal Acs;oynljn& Stan4aaa. Section 2100, ''~Af/nlng the FlnancliJl Reponing Entity." The criteria include whether: • The organization is legally separace (can sue and be sued in its own name), • The City holds the corporate powers of the oraanization, • The City appoints a voting majority ofthe organization's board, • Tho City is able to impose Its will on the organization, • The Of8Jilizallon bas tbe p<ltential to impose a rmeneial benelil or burden on the City, or • There is fisc.al dependency by tbe organization on the City. As required by GAAP, the BFS ~nt the reporting entity which consists or the City {the primary government), orgaoi:zations for whi~h the CitY is financially a~ountable, and other organizations for which the nature and significan" of their relatiOnship with the City are such that exclusion could cause the Cit)''s BFS to be misleading or incomplete. 59 City of Lubbock, Texas Notes to Basic FiDancial Statements September 30, 2006 NOTE L SUMMARY OF SIGNIFICANT ACCOUNTING POLJClES (Coqtl1aed) A. REPORTJNG ENTITY (Continued) Bl..ENDED COMPONENT UNITS l'bo Urblln Renewal A&en~y (liRA) hw; been im:ludod in the City'~ fxnancial reporting entity wllhln \he primary government using the blended method because. althoush it is lcg.a.Uy separate, m opttttions are so intertwined with the City that it is, in substance, a part of1he Cit)'. The URA was !ormccl to pi'9Vidc urban renewal services including rehabilitation of housil)g. ti:q&Jisidon of bousiD& and disposition of land. Tbc URA Board is composed of nine members appointed by the Mayor with tbe Qonseli1 of tbe City Coundl, llnd acts only in an advisol)' capacity to tht City Cooncil. All powers to aovern the URA are bold by the City Council. There are no separale financial statements available for the URA.. West Texas Muotelpal Power Aaeney (WI'MPA) Is a legally separate municipal corporation, a pOlitic:al subdivision ofTcxu, and body politic and corporate, formed in 1983, governed by an eight member B!)al'd of Directors. The board consists of two dircc:tors &om each city. One member is el~ 11 the prosi.dcat who pruides over m~mthly meetings. Directo" serve without wmpensacion. WTMPA bas no employees and Instead conll'acts witll the City for geJm'81 opcradons. WTMPA may cnpao in t)le. ~ of Seneration. transmission, sale, and cxchangt of electric energy to tbo four particlpati~g public entitie.l: L,abbodc, Tulia, Brownfield, and Floydada. WTMPA mjy aJao participate in power pooling and power exChanae aaretments with otber entities. WTMPA provides electricity to Its tour member cities with the City hiviog a !n.lo/o interest in its operations. Bacb member city appoint$ two membets to the WTMPA board, however an affirmatiVe: vote of the ·~ority in interest" is required to approve the oporatins b\14get, apJ)n)~ cephal projectS, approvt debt Issuance, and approve~ amendments to WTMPA nllos and ~platfonJ, The City maintaiu the "majority in interest" vote bMed on KUowatt purdulses, and consequently has majority v«bbg control. A$ the City purchases approximately 92.2% of 1M electricity brokered, WTMP A provides services almost ~xclusively to the City and is therefore presented as a blended enterprise fund. Their separate audited financial statemenls may be obtained tlvoup 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 mat they are legally separate from the City. The following Component Units are included in tho reporting entity because the primal)' government Is financially accountable, is able to impose its will on the organization. or can significantly influence operations and/or activities of the organization. Civl.: Lubbock, Inc. is a legally separate entity lhat. was orgpiz:ed to foster and promote dte prescntation of wholesome educational, cultural. and cntertablmcnt programs for the general moral. lntellectual, physi~ improvement. and wclf'h of the citizens of Lubbock and ita sunoundlns area. The elcveu-member board is appointed by the C;ty Council. City Council approves the annual budget. Separate ftnanc:ial statemen1S for Civic Lubbock may bo obtained fi'om tham at JSOt6• Sueet, Lubbock, Texas. Markel Lubboc:k Economk Develop meat CorporaHon, dba Market Lub~k, is a leaaJ.Iy .. paraie entity that was formed on October I 0, 1995 by the City Council to create, manage, operate, and supervise programs and activitk$ to promote, assist, and enhance economic development within llld 8l'O\IIld the City. The City C~X~ncil appoints the seven-member board and its opemions are funded primarily through budpted allocations of the City's property and hotel oc:cupam:y taxes. Separate finanejal $latements may be obWned from Market Lubbock at 1500 Broadway. Sixth Floor, Lubbock, Texas. 60 c c c c c c c ( City of Lubbock, Texas Notes to Basic: Financial Statements September 30, 1006 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNTlNG POLICIES (Cobtiaued) A. REPORTING ENJITY <Contfnuecll Labboek Economk Development AlllaJice is a legally separate entity that w•s formed on June 1, 2004 by the City of L11bbock '10 create, mmaae 1111d supervise prosJ1II1lS and activities •o promote, assbt, and enlwlco eCOJI()mic development whhln and around the City. The City Counc:il appoints the seven-member board and il$ operations are funded primarily throusb budifAed allocatiom of the City's sal~ and use taxes. Separate financial statements may be obtained from Mmet Lubboc:Jt at 1500 Broadway, Sixth Floor, Lubbock, Texas. RELATED ORGANIZATIONS The City Council l$ rcspon.tible for ~ tbo members of the boards or other organi~ions but the City)s &QC:ountablllty for tbue otaanizatlona do not exton4 bc)'ond making board appointments.. The Cey Co11ncil is not able to impose irs wiU on these cntitios .nd then! is no fmancial bonefit or burden tolationsbip. Bonds issued by those organizations do not ooastiniiiC indebtedness of the City. The followlng related organizations are not included in the reportifta entity: The HouJIDJ Autbortty of the City ot Ltbboek (A¥tborlty) is a leaally ~arate entity. The Mayor appoints lhe five-member boll'd. The Lubbock BealtJa Facllltles Development Corporation promotes health facilities development. Cily Council appoints the seven-member board. The Labbotk HOUlnl .FlDanee Corporation, Inc. was formed pursuant to lbc Texas HousltJg Finance Corporation Act. to finance the cost of decent, safe, and aft"oroable residential housing. The Mayor appoints rho seven-member board. Nort• and E.ut Lubbock Co~nmuaJ~ Oevelopmea1 Corporatioa (CDC) was formed from tho rccornmcnda!lon ot the mayor's commission formed in May 2002 to examine the condition of North & East L\lbbock. 1noorp01'ated in Feb.rilary 2004, cbo CDC bcpA work to effectuate chan~e in Nord't and Ea5t Lubbock. The Nonb & Ease Lubbock Commlmll)l Development Corporttion is a 1oeel entity lbat dri"' $0Cial chaJl&c; promotes &&lfOJIOiny and cmpow«maot by iDcrcasing-the supply of quality and affordable housing, sen~tlng economic activity, and coordhuumg the eMcient delivery or socia.l M:rvices. Tbc City Council appoints two members of an eteven•mmlber. board. The Cit)' Council ls not able to impose Us will 011 tbe entity and there ill no ftnaucial benefit/burden relationship. The Lubbock £da.utloa Fatnltles Authority, Inc:. ill II ncm-profil corporation and instrumentality of the City and wu created pursuant to the HiJhcr l!<iw:atioa Authority Act. ChapterS) Tex.&$ P.ducation Code for tho purpose of aicllng institutions of higher education, ~ school, and primary ~hooJs In provldins educational facilities and houslns faellitica. Tho seven-member Board f9 appointed by lho City Council. The Lllbl>otk flrcmeo's ReUremeot and Relltf I!Vnd (Pepslon Tnasl ftnsd) operates under provisions of the Firemen's Relief and Retirement Laws oflho Stare ofTexas for purposes of providing retiremet~t benefits for the City's faretiptera. The Mayor's designeo. the Director of Fiscal Planning. three f~refightets elected by mem~rs of the Peasion Tru&t Fund and two a1·latge members elocted by the Board, govern iu affairs. It is fundod by contributions &oJn tbc fuefiptcrs and City matchlilg contributions. As provided b)' eubJin& legislation, the City's responsibility 10 the Pension Trust F~d is limited to matctUng monthly con~ions made by tbe members. Title to wets is vested in lhc Pwio» Trust Fund and not in the City. The State Flrtmen's Pension Commission is the aowming body over the Pcmion Trust fund and the City c:a1111ot sipific:antly iofluem:e its operations. Their separate audit=~ fUWlcial slltemeots may be obtained throop 1he City. 61 City of Lubbock, Texas Notes to Baaic: Financial Statements September 30, 2006 NOTE L SUMMARY OF SIGNIFICANT .ACCOUNTING POLICIES (CootlDued) B. GOVERNMENT-WIDE AND FUNp FINANCIALSIATEMENJS The City's financial statements are preplll'ed using the reporting model specified In GASB Statomont No. 34- Baric Financial Statements • Qnd Managemem's Discuuion tmd AnQ/y.sls -for Stote and Loco/ 0011ernrn~nu, GASb Statement No. 37-BtUir: Financial Statemems ·and Managemftll'l DllctJJslon and Anal)l8lt -For Su~tt and L«al CCfVel"'fJnetttl-Omnibus. GASB Statement No. 38 -Cenain F~ial Srfllt111tnl Note DiJc/osures, and GASB Jntc~tioft No. 6 -Recognition and MIQnlrement of Clf'lain LiabiJjJies and Expendlt11res in Gov1rnm~tal Ftmd Financial S/Qtements. As specified by Statement No. 34, the Basic Fiaan~lal Statements (BFS) include both Government· Wide and Fund Financial SCattrnents. In FY 2006 the City adopted the proyislons of GASB Statement No. 44 -Economic Cond/IIQit Rf/XH'IIJtg: '111~ StQJW/CQ/ Sect/on. This new standard improvq tbe 110~l?ility and usefulness of statistical section information by addressing the comparability problems that have developed in praetic:e and by ldding information from the new finanGial repol1in8 model. The Qovenunent-Wide Financial S1atcments (GWFS) (i.e: •• the Statement of Net Assets IU)d the Statement of A~Mties.) repon information on all of lhe non-fsdu<;iary activities oflhe City and ita blended componon1: units as • whole. The discretely presented ~mponent units arc also aarcgately presented within these statements. The eftbot of inter fund activity has been removed from those statements by allocation of the activities of the VllriOUS Internal service funds to the governmental and busineu-type activities on a fund bQis based on the prcdomiftant users of the services. Governmental activltlos. which are prlmarily supported by -~ and iNergovernmental revenues, are reported aeparately from business-type activlties, which rely to a sipiti~:~~nt ~t on fees and ~hargea for support. All activities. both governmental and business·l)'pe, ate ~ed fn the vWFS using lhc economic resources measurement focus and the acoru.al basis of KOOuoting. which includes long-term •ssets and receivables as well as long-tenn debt and obligations. Tbc GWFS focus more on the sustainability of the City as an entity and the cbqe in aggregate fmancial position multfna from the ~lviCiC$ of the fiwa1 p<rriod. The Oovcmmertl·Widc Statement of Net Asset$ reports 1111 fmanc:i•l and capital I'CSOUI'CCJ of tbt City, excluding those reponed in the fiduciary fund. Ills dlsplaycd in the fonnat of assets len liabUitita equals net mets. with the assets and liabilitje~ sbown in order of their relative liquidity. Net assets are requinld to be displayed in three components: ( l) invested In capital UKU net of related debt, (2) ralrictcd, and (3) unreslrictcd. Invested in capital as5ets net of related debt equals capital assets net of .acewtuJatod deprec:ialion and Nduced by outstanding balances of any bond$, mortgllgcs, notes, or otbot borrowings that are attributable to the acquisition, construction, or improvemcnc of th0$C assets. Restricted net assets ate those with constraints placed on their use by clthBr: (I) externally nnposed by credito!"' (such as through deb1 covenants), grantora, contrib~tton, or Jaws or regulllti<mS of ocher government$; or (2) in\pl?sod by law throuah const1tutiooal provisions or enabling legislation. AU net assets not otherwise classified u inves&cd In capital assets net of ~Jated debt or restricted, arc shown as unrestricted. ReservaUons or designations of net UHt$ irnpo$ed by the City, whether by administrative policy or Jeglslatlvc acdons of me City Council that do not otherwise meet the definition ofremietcd net assets, are considered unrestric:ted in the GWFS. The Oovemmem-Wide Stalement of Aotivi~ domonsiJates the clop to which the direct expenses for a gi\oon fUltetlon or segment Is offset by proaram revenues. Oim:t expenses are those that aro elearl)' identifiable with a spcoific fUnction or .segment, Program revenues include: (I) ~harps to customers or applicants-who purdaase, ~. or directly beneflt fi'om goods, HrViccs, or pri-vileges provided by a given fun~ ion or segrncm; and (2) grants and ~ntributioas that are restrictod to meeting 1he operational or capital requirements of • particular function or segment. Taxes and other items not properly Included amona program revenues 111e reported instead as genoJtl revenues. The general revenues support the not com of the functions and ~gments not covered by program rovenUC~. 62 0 c c c c c c c < c j City ofLubboek, Texas Notes to Basic Financial Statements September 30, 2006 NOTE I. SUMMARY OF SIGNIFICANT ACCOUNI'ING POLICIES (Colltioaed) B. GQYEI\NMENT·WIPE AND FUND PINANCIAL $TATEMJ!NTStCo!)tlpuf4> Also part of the BFS are Fund Financial Statements (PPS) for govemrnental 1\mds, proprietary funds, and the fiduciary fund, even thoush the Iauer is excluded from the OWFS. The tbeU$ of the PfS is on major Wnds, as defined by OASB Statement No. 34. GASB State$Dt No. 34 sets f~ minimum criteria tor determination of m~or funds, i.e., a percentage of wets, liabilities, revenue, or expcnditures/•1\Se$ of fUnd category and of the govemmentaJ and enterprise funds combined. However, it also aives governments 1he option of displaying otbcr funds as major funds. Tbe City can eleet ~ add same funds u major funds because or oumandins debt or commimity focus. Major lndivicSiliiSOvermD!mtal Aulds 8DCl major inclividual enterprise (und.s are reported as separate columns in the FFS. Other n011·trlfd0( fianda are combltled ln a single column in the appropriate FPS. C. MEASUREM£NI rocys, BASI§ OF ACCQUN'!ING• M(D FINANCIAL STATEMENT PRESENTJJIQN Fund Ffnanclal S1atementa The GWFS are reported wing the economic rl!SOUi'CeS mcfl\lmnent focus 1.11d the accrual basis of accounting, as are the proprietary FFS. The City's fiduciary FPS ~ludes only an agency 1\md that tiSCS the accrual basis .of accounting. Howovcr, because agoncy fbads roporl only uWI and Uabilitica, tbi& fund does not have a measurement focus. Revenues are 1000\'ded wben eamed ancl expenses •rc recorded wben a liability is incUT'I'ed. regardless of the timing of related c:aah tJows. Property taxes are nc:ognized as Jevenues in the year for which they ~ levied. Grants and similar lttma are recoplzed u revtoue as 800tl as all eligibility req1,1imnents have been met. BecaU&e the enterprise funds are combined into a 3ingle businen-type aetiv.ltiea ~lumn on dtc OWFS, =tam intettllnd activities becween these fUnds are eliminated in tho consolidation for tbe G'WFS, but ate lncludod irl the fUnd columns in the proprietary FFS. The effect of inter-fund aotivlty hu been eliminated from the GWFS. For i~am:e. 92.2% oftbe operations ofwn.&A reptct~entfng ~Cn:ls between WTMPA ud Lubbock Power 8c. Light have been eliminated for the GWFS preiODWion and for tbe electric BTA. Exceptions to this gencml rule aJe paymen~&-in-Ucu of taxes and other obargcs between the City's electric, water and wutewater functions and various other fUnctions of1he aovomment. Elimination of these ch~~J~es would distort the dim:t costs and program revenues reported for the various functions concerned, Govemmenlal FFS ate reported using the current financial resources measurement focus and the modified a<:erUal basis of accounting. This is the traditional balls of accountinc for governmental 1\mds. This presentation is necessary, (I) to demonstrate legal and coveriant compl.iante, (2) to demonstrate the $0\II'CeJ and uses of liquid moureos. lind (3) to demoaatrllle how the City• a actUal revenues and expenditures confonn to the annual budget. Revenues ~e *ognlzed as soon .., tbcy are both meuuribJe and avat'labJe. Revenue• ate c:onsidercd to be available when they ate collectible within the Qment period ot soon enouah thereafter to pay liabililin of the current period. For this purpose, the aovernmect considers teven11es to be available. generally, if they are collected within 45 da)'$ or the end of the eum:nt fasc:al period, with the excepti'on of sales taxes which are considered to be avai .. ble if they are collected. within ~ days of year end. The City considers the grant avallabilit.y period to be one year for revenue recoanitiort. Expenditurea generally are recorded whwa a liability Is incurred, as under acauaJ ~tlng. However, debt service cxpencHNres, 8l well as expenditures related to compensated absences, and claims and judgments are recorded only wbeo tbe li.ability has matured. Because lhc &ovetrunental FFS are preaent\ld on a differoat basis of accounting than the GWFS. rec:ontiliatfons arc provided immediately followin& cadi tund s1atemont. These reconciliations explain the adjtmments nCCCSSIU')' to convctt 1hc FFS into rhe eovemmental activities column of the OWFS. 63 City of Lubbock, Texu Notes to Basic Financial Statements September 30, 2006 NOTE L SUMMARY OF SIGNIFICANT ACCOlJNTING POLICIES (Contin•ed) C. MEASUREMENT FOcuS. BASIS OF ACcoyNTING. AND FINANCIAL STATEMENT PRESENIATIQN (Continued> Property taxes, sales taxes, franchise taxes, occupancy taxes, srants, licenses, court fines, and interest associated wltb the current fiscal period are all considered to be susceptible to ac:crual and have been recognized as revenues of the ~nt llscal period. Only the portion of special assessments receivable due widlin the current fiscal period b considered to be susceptible to accrual as revenue of the current period. AU other revenua items are considered to be measurable and available only v.-hen the City receives cash. Fund ActoUDtiDJ Tho CIIY uses funds to report its financial position and the results of its operations. Fwuf accounting ~gregates funds according to thtlr inlen4td purpose and i5 designed to demonstrate legal complia~ and to aid financial management by segregating transaction~ related to certain governmental f\mctions or activities. A rund Is a separate accounting entity with a •elf.balaacing set of accounts, which i~tudes assets. liabilities, fund balam:t/n~ aasets, revenues and cxpcndlturcslcxponses. Govemmental Fond! are those through which mo5t of the governmental functions of the City are financed. The City ~s one rnajcr govtrnmefttlll fund: Tbo Geaeral Fund. The General Fund, u lhe City*s prlmll)' operating fund, accounts for all financial resources of d!e general gomnmen4 except lho$c required to be accounted for in another fund. Enterpr!s Funds .are used to accOIDlt for operations: (1) that are financed and operated in a inanner similar to private business enterprises Wborc the intent of the governing body is that the costs (expenses, blcludjng depreciation) or provi<flng goods or servicts to the general public on a continuing basis be financed or recovered through !A'et charges; or (2) where the g.ovemina bodY has decided that periodic determination of revenues earned, ex,pcnses incurred, and/or nee Income Ia appropriate for capital maintenance, public policy, m~gement control, accountability, or other pwpo$e.S. Tho City reports the followins Jl}lljor enterprise funds: Tbo Elflctrlc Fund account$ for the activltic1 of Lubbock Power & Ught (LP&.L}, lhc City.owned electric: production and distribution system. The Wa~er hnd accounts for !he activltic• of the City's water system. The Wtrtewater Fuad accounts for the .ctivities of the City'$ Janiury wasacwatcr 5)'1tem. Tbe West Teut Municipal Power Apncy (WTMPA) Fuod accounts for the activities of power generation and power brokerin& to member citiu. Member cities include l.ubboek with 92% ownmbip, and Tulia. Brownfield, and Floydada comprisin& the remaining SOlo ownmbip. The Stormwater Fund accounu for the ~vltlcs or the stonnwMCt utility, which provides stonnwater drainage for tbe City. 64 0 c c c ,. \.. ' ) City of Lubbock, Texas Notes to Basic Financi1l StatemedCS September 30, 1006 NOTE J. SUMMARY OF SIGNU7ICANT ACCOUNTING POLICIES (Contiaaed) C. MEASUREMENT fOCUS. BASIS OF ACCOUNTING, ANQ fiNANCIAL STA1JMENT PRESENJ'A TIQN (Continued) The City reports the following non·m~Uor funds: <!gnrnmental Funds Special Revenue FuDdl are used to account for the procoods of specific revenue sourcos (other &baD special assessments or major eapital projects) that ere legally rcstrioted to expendi&ur&& for SJ*ified purposes. Tile Debt Servict F"nd is used to account ror the aceumulatfon of resource~ for, and the ,payment of, general longwtenn obligation principal and interest (otbet than debt sorvice pl)'llltm~ made by proprietary funds). Capital Projects .Funds aro used to account for flll8J)4;ial resources to be usccl for the acquisition or construction of major oapital improvomcnts (othor than thoae recorded iD the proprietary f\mds). Pnnu1ecary Fppd! di&tinguiab optfMin& ~ues and C'lpeMCS from noo-operatina kema. Operatin& revenues and axpeoses generally result from providine services aod producln& and dellvel"lnJ goods in connection with a proprietary fbnd•s principal ongoing operations. The principel opoJ'8tin& revomaos of the City's ~rise t\mcis and oflhe City's intomal service funds are charses to customers for 1ales and servSces. Operating cxpeme. for enterprise fimds 1111d internal service ftlnds include the cost of Illes ad savicea, admlnjstrativo expenses, and depreciation oo capital assets. All revenues and ~-not meeting tb'i$ ~fanition are reported as non-operating revenues and expense$. Enterprise F'uad.s ere used to acc:oUI)t for services to outside wm where the fuU cost of psovldlns servicH, Including capital, ._ to be recovered through fees aod chirges, c.c.. Lubbock Prestoo Smith International Airport (Airport Fund), Citibos, and the Solid Wasto Fund. Internal Service Fuaub are used ro account for services provided to other departments,~~~~ of tho · dcpal1ment$ or to other governments on a cost reimbursement basis (I.e., Fleet Mainteuanc:e Fund, Central Warehouse Fund, Prim Sbop Fund, Sclf·lnsln'8nCc Fund, etc.). Fiduc:iary Fupd is an Acency Fund that is used to account (or assets held by the City as an agent tbr prl\'ate organizat.lons. This fund closed in FY 2006 and is not part of the govenunent-wide financiaJs. D. BUDGETARY ACCQUNIING The City Manager submits • proposed operBting budget and capital improvement plan to the City Cow\cil annually for the upcoming fiscal year. Public hearings are CODCtiM:ted to obtain taxpayer comJneDU., and tbe budget is le"'lly enacted through passage of 8D ordinance by City Council. City Council acdora is also required for the approval of any supplemental cppropriationt. All bucfset amounts prosertted lD 1M bud,sot comparison tlaicment mt~ the original budget and the ameDded budget_ which have bocn acljusced tor legally authorized supp1ern.enta.l appropriatioN to the AIMU&I budget dwiq the fiscal year. The opent.iDg budget b adopted on a basis COilSistem wltb GAAP for lhc General Fund. Budptary c:ootrol is ma'inU!mcd at the department level iD the following expenditure categories: pei'SOmlC) services. tupplles. OCher charges, and 65 City of Lubbock, Tens Notes to Basie Financial Statements September 30, 2006 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. BUDGETit.RY ACCQUNTING <CoptiJ!ypdl capital outlay. Management may make administrative transfers and increases or decreases in accounts within categoric$ without Council approva~ as long a expendJtuns do oot extoed budgeted appropriations at the fund IC\Icl, the legal level of control. All annual operalins appropriations lapse et the end of the fiSQI year. Capital budgets do not lapse at fiScal year end but remain in effect until the project is completed And ~loscd. In addition to tbe tax levy for general operation~, in accordamc:e with State law, the City Council sets an ad valorem taX levy for a sinking 1Und (Gmnl Obligation Debt ScMcc) which, with c:uh and invesunenu in the fund, is sufficient to pay all debt service due during tbe fiscal year. E. ENCUMBBANCtS AI the epd of the flsoat year, encumbrances for goods and services that have not been n:eeived are canceled. At the beginning of the next fiscal year, management roviewg aU open encumb~. During the budget revision process, encumbrances may be re-established. Oa October I, 20061 the General F\lnd bad no signif~eant amounts of open en~brances. F. ASSETS. LIABIYTIIS AND FIJND IALAN'Cf.INJjT AS$&TS Equhyla Cuh and lnvatments ·The City pools the resources of1be various funds in order to facilitate the maoaJement of c:ash 8ftd enhanco investment earnings. Reclords are maintained which reflect each fimd's equity in the pooled account. The Cil)''S mvestmet~ts are swed at fair value, which Is based on quoted IMrket prices as of the valuation date. Cash Equivalents -Cash equivalents are defined a. sbort·tenn hlgbly liquid invC5tmonts that are mdily convertible to known amounts of cash and have original mawrltles of lhreo months or lea. when purchased wflich present an insipjticant risk of ch1nges in value because of tbanges in interest rate,. Rcttricted cash includes cub equivalents dill have been rtltricted by bond covenama for debt service requirements aad passenger facility charges. Investments -Investments include securities In the Federal Home Loan Banks, federal Home Loan Mortgage Corporation, and Federal National Mortpgo Auocllltion. Restricted investments include inv~$tments th11t have been rcstri'ted for bond financed capital projects and money restricted for claims in the Risk and Health Insurance Funds. Property Tn Receivable -The value of all real and business property located in the City i3 assessed annually on January I in conformity with Subtitle E of the Texas Property Code. Propcny taxes are levied on !Xtober I on choie psmed values and the taxes are due on receipt oflhe tax bill. On the followin& Jan~ I, a tax. lien attaches to property to s~un: the payment of all taxes, penalties, and interest ultimately lmpo5cd. The taxes are considered delinquent if not paid before February I. Therefore, at fJScal year end all property taxes ~ivab&e are delinquent, but are 6Calrcd by a tax lien. At the OWFS level, property tax revenue is recognized upon levy. Jn governmental fUnds, the Cil)' records property 1.nu receivable upon levy and defers we revenue IDltil the taxes are collected or available. For each fiscal year, the City recognize$ revenue in the amount of taxes c:oiJected durins lbe year plus an estimate of taxes to be collected in lhe subsequent 45 days. The City aftoc:ates property tax revenue between the Genera~ cenain SJ*Ial Revenue, and 'Debt Service Funds based on tax rates adopted for the year of levy. The LubbOck Central Appraisal Dis&rict asseues property valuC$. bills, colloets, and remi($ the property taxes to 66 0 0 0 c c c: ' ,.. '- c :)' ) City of Lubbock, Tens Notes to Basic Financial Statements September 30, 2006 NOTE I, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) F. ASSETS, t.JAPILITJJS. AND FUND BALANCE/NET ASSE]'S CContlnpecO the City. The City adjusts the alle>wance for uncollectible taxes and deferred tax revenue at fiscal year end based upOn historical call~rion experience. To write otT property taM$ receivable, the City eliminates the recefvabfe and redm:es the allowance for unoollectible accounts. Enierpr~W Fundi Receivables • Within the Electric, Water, Wastewater, and WTMPA Enterprise Funds, services rendered but not biJied as of the close of the fiscal yev arc accrued and this amount is reftec&ed in the accollnts receivable balances of ~:am fund. Amounts billed are ntfkcttd as "counts receivable net of an altowanec for uncollectible accounts. Inventories • Inventories consist of e11.pendable supplies held for consumplion. lnveniOries are valued at cost using the average cost method of valuation, and are a~ounted for using the consumption method of ac:COWiting. i.e., inventory is expeMed when used rather than when ~based. Prepaid Uenu • Prepaid items are "counted for under the consumption method. Mortpae Rece,vabfel • Mortgage receivables consist of loans made to Lubbod: residents and businesses under the Cit)'s Community Development l01n prosmn. These loans were originally f\mdcd primarily through pnts received from the U.S. Department of Housing and Urban Development. Capital A.uets and Depretiation • Capital assets, incl11dirtg public domain infrastructure (streets, bridges, sidewalks and other assets that are immovable and of value only to the Ciry) are defined u asJCts with an initial, Individual cost of more dian $5,000 and an estimated uscf\Jl life In excess oftbrcc years. These capital assets afe reported in the OWFS 8M the proprietary funds. Capital qsots are recorded at cost or ostima~ historteaJ costlf purchased or constrUcted. Donated IWCtS arc .recorded at the C$fimatod fair value on the date of donation. Major ouda)'$ for capital assets and improvements arc capitalW!d as the projecrs are constructed. The cost of normal maintcnant:e and repairs that do not add to the value of lhe asset or materially .extend the asset lives are not capltaliztd. M~Ot Improvements are capitalilled and ~lased over tM remaining useful Jrves of the rotated capital assets. Dep~iation is computed using the straight-line method over ttle estimated usctullives as follows: lllftllsuuelllrtA!IIpiO\'etnCnCJ Bulldii!JS EquipmMt W11t:t rigtlls 1 ().so years IS·SOycars l·IS~ 85 years Interest Capltlllzation -Because the City issues gcneral-pUfP060 capital Improvement bonds, which are re1:ord~ within the proprietary funds. the City c:apiLafizcs i~rtc:reSt costs for bU&inoss-type activities and enterprise funds accordins to the FiiWicial Accounting Standard$ Board (FASB) Statement No. 34 Capltoli:ation oflnt~resl Co$1 and FASB Statement No. 62 Ctlpita/izatlon of/nteresl CoJis. Tht City capitalimd interest of approximately $961,000 net of interest earned, for the business-type activitieJ and tho enterprise Nltds during the current fiscal year. 67 City of Lubbock, Texas Note1 to Basic Financial Statements September 30, 2006 NOTE t SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Coatlnued) F. AS§ETS. LJABIUTIES. ANp FUND BALANCJYNET ASSETS (Q)ntlggtdl Rutrlcted Net Assets • Certain cntetprisc f\lnd and &ovemmc:otal activitieS~ ~ts are restricted for oonstruction and debt; consequently. net assets haw been mlricted for these amoums. The excess of othOT restricted uscl! om-related liabilities iU'c included as rcstrieled net assets for bond proceeds, bond indentures requirements, and passenger facility charges. Use or Estimates -The preparation of financial statements in conformity with acc:ountln& principles generally accepted in the United State$ of Amerka requir.cs management to make estimates and assumplions that amct the reported amounts of assets and liabilities and diwJoaure of ~tingcnt wets and liabilities •t the date of the financial statement! and rc!p0r1cd amounts of revenues and expen.scs/expenditures durin& the reporting periocl. Actual rcsutts could differ from those estimates. G. REV£NUES, EXPENSES AND EXPF..NDITUBES Interest lneomt on pooled c~ and inve~llncms is allocated monthly based on the percentage of a fi.I.Dd's aix· month roiJing avcraac monehly balance in pooled cash and investments to the tout eltywide aix-montb rollin& average moothly balance in pooled cash and investments, except for certilm Fiduciary Funds, ~ Special Revenue F'unds, Capital Project Funds. and cenain Internal Servlco Funds. The interest income on pooled cash and invcstmonts of these funds i5 reported in the General Fund or the Debt ScMco Fund. Sales Tax Revenue for the City tcsuJts fi'om an allocation of I . .S,..o of the total sales tax levy of 8.2.5"~ wbfch is coUected by the State of Texas and remitted to the City monthly. The tax is eoUected by the vendor and is required to be remitted to the swc by the 20th of tbc month following collection. Tbe tiX Is then paid 10 the City by the lOth of the next month. Gttnt Revenue from federal aod state grants ~recognized as revenue as soon as all eligibility reqllirem.nts have been met. The availability period for grants is considered to be one year. lnteri'Uud Tntm~etloos are ac:cO\Inted for as rcVC!Iucs, cxpenditum, expenses. or ocbcr financing sources or uses. Tnwactions that eonstitutc reimbui'Sements to a fund for cl(penditureslexpenses initially made. from th11 fund that are properly applicable to another fund, are recorded llS ~diturcsloxpenses in tbe reimbursing fund and &$ reductions of expcnditurosfexpcnses In tho fund that is reimbursed. In addition, transrcrs a~ made between funds to shift resources &om a fund loaally authoriDd to receive revenue to a fund authorized to expend t~ revenue. Compens.1ted Absences consists ofvac.tion leave and sick leave. Vacation )nve of 10·20 days i5 granted lo aU regular employees dependent upon ttac date employed, years of service, and civil aervice status. Currently, up to 40 hours of vacation leave may be ''carried ovet" to the next calendar year. The Cit)' is obligated to mike payment upon retirement or termirmtion for employee$ In sood standiQa for any available, unused vacaaion leave. Sick leave for employees is aecrued at 1-~ days per month wilh a maximum accrual status of200 days. After I.S :years of continuous full time ~icl' (or non~ivil service persoMel, vested sick leave ia paid on retirement or tenninatlon at d11: current ho\.U'Iy rate for up co 90 days. Upon retiremeot or termination. Civil Service Pmonnel (Police) are paid for "P to 90 days acctued sick leave after ono )'C&l' of employment. Civil Service Pmonnel (Fire.figbtm) are paid for up to 90 days or acm~cd sick loave upon retirement or termination. The Texas Civil Service laws dic:tat£ certain benefits and personnel policies above and beyond those policies of the City. 68 0 0 0 c c c c ' ( ( < '"'\ ) City of Lubbock, Texas Notes tc Ba1ic Fiaaneial Statements September 30, 2006 NOTE J. SUMMARY OF SlGNIFJCANT ACCOUNTING POLICIES (Continued) G. f!EV£NU£S. EXPENSE$ AND EXPENDITURES <Continued) The liability for the accumulated vacation and sick leave is recorded in die OWFS and in the FFS for pf09rietaty fUnd employees when earned. The liability is recorded in the governmental FFS to the ex1tnt II is due and payable. Post Employment BeneOts for retirees of the City of Lubbock include the option to purchase health and life insurance benefm at lheir own expense. However, employees tbac retire with 15 ;years of service or Civil Service employees that retire who bave a 1ick·leave balance in excess of 90 days will be able to elect to continue receiving medical coverasc In full J()..day periods Cor the term of me balanCe of their sick leave. Amou.nts to cover premhJTns and admlnlstrative costs, wilh an incremental cbarae for reserve tilndina, are dotennined by the City's health cere adminlmtor. ~ployer contributions are funded on a pay-as-you-go basis and approximated $1.4 million Cot fiscal 200S. These contributions arc meluded in the amount of insurance expense reflected Ia the finan<:ial acdvity reported in the Health lnsuraoce Internal Service Fund. NOTE U. STEWARDSHIP, COMPLIANCE AND ACCOUNTABU.ITY A. RE$'[81CTED NET ASSEtS R.esbicted net assets are only used for theft intended purpose. For projects ftmdcd by r.ax exempi debt proceeds, the debt proceeds are used first, then unrestricted resources are used. B. NET A§SETlFUNP BALANCE I>EFIQT The dcfich ofS198,884 in lhct Health Benefits lnttmal Service Fund i5 due to Wlusually hi&h hc:allh claim activity In FV 2()()6. Th~: revenues cbOJ'SCd to user ctqwu'nents were based on prcclctcrmined tales. The health rile$ have been reeval ua~ed in FY 2001 to prem:~t fUture detlclts. C. GENERAL FUNp BUDGET OVERAGE The General Fund FY 2006 amended budgeted expenditures and transforr. out were $113.2.55,548 and actual expenditures and transfers out were $113,714,942,an overa&e of$459,394. Management has recently issued new policies for depiU'tmcntalrovJow ofbud&ets. NOTE lll. DETAIL NOTES ON ALL AcrtVJTIES AND FUNDS A. PEPOSJIS AND IN\!ESIMENJl Deposits Oo September 30,2006, the bank balanco of the City's deposits was $3,002,921. All oflbo bantc balances are covered by federal depository 1~ or collateralized. CustodiaJ credit risk is tho risk thll in the event or a bank failure, a government's deposits may not bo returned 10 it. The City's deposit policy for custodial credit risk requires ~mplilllkle with the provisions of state law. State Jaw requires collatera.lim~ion of all deposits with fcdel'lll depository in.urance, cli&ible securities, or a surety bond having an ar,srcgate value at Jcast equal to the amount of the deposits. The City's Investment Policy requires the minimum collateral JeveJ to bel I 02% of market value of principal and accrued interest. 69 City ofLubb~k, Texas Notes to Basic Financial Statements September 30, 2006 NOTE m. DETAD,NOTES ON ALL ACTJVJTIES AND FUNDS (Continaed) A. CA,SH AND PEPOSITS <Continued> At September 30, 2006, bank balances was exposed to custodial credit risk as follows: Insured $ 400,000 Uninsu~ and uncollilteraliJed Unitls\11'\:d 1nd collllleral held by pledging Onancial lnslltution 2,602,92& Unlnsllred and colllleral heJd by pledging ftnanclallnstitlllion's truJC department or ap1t ill olhcr than tho CitY'• name lnnstmea,u At September )0, 2006, the City had the following investments and maturities: R~~ts• Federal Home Lolli Banb .Federal Home Lou Manpse Corporation Federal National MortNc Assoc:iaaion Farm Credit Noie f'cderal Homo Loao Step Up Nett Money market munw 1\u!ds •• State lriVC$Uttent Poots •• •considered cash eqvivabt for financill .rcportina. Seplelllber 30, 20(Ni FalrVtllU $ 1,796,529 9,929.600 10,$79,104 36,548.440 1,980.000 3,978,600 35,926,078 t6§.3Q6JI7 s 267 041.668 Leas Thaal $ 1,796,529 9,929,600 8,$91,704 30,605,040 1,980,000 1,981.400 35,926,078 166.306.317 $2SU I§ §61 $],002928 $1,987,400 5,943,400 1,997,200 $9Jl28,000 •• Money market mutu" fUnds 1111d St.alc Investment Pools arc considnod cull equivaleo\S (or linanciat I'Cf)ORing. unJm restricted (or bond fin_,oed c.pjtal proj~ nnd claims tor Risk and HcaJth hm1~ Funds. ln~mt Rate Risk • A.s a me1111s of limiting its exposure to fair value lOJses arising from .Uing interest rates. the City's investment policy limits mve1tmenu to those that can be held to maturity and by limiting final maturity to no tnOre than tiv• (S) years. The money nutrlcct mutual funds and investment pools are presented u an investment with a maturity of leas than one year because they are redeemable in full immediately. Credit Risk -Credit risk Is lhe risk 11\at the issuer 01 other ~untcrparty to an h'lvestment will not fulfill ita obligati~. The City's policy allows investment in direct obligations of tnc! other obli~:ations guaranteed IS to prin<:lpal of tbe U.S. TreasWy and U.S. agencies ancl instrumentalities with the exception or monaa&e backed securities. n allows obligaliW of lnvescment in lhc Stacc of Texas or its qoncies and obligations of states, agencies, ~unties, cities, and otber political subdivisions ra!ed not less than A or its equivalent. lt may also iovest in fully collateraliilcd repvrehue •grccm~rns, fully collateralized cerdficatcs of deposit, commercial pepcr and bank acceptances with a stated maturity of270 days or fewer from the dare ofissuance, AAA·rated, no-load moDe)' market mutual fuDds n:gulaled by the Securities md Exchange C4mm.ission. and AAA-mcd, consiant dollar investments pools authoritcd by the City Councn. At September 30, 2006, Standard &. Poor's rated the iP~nt pools 11nd the money market mutual funds AAAm. The senior unsc.x:uteddebt (or investments in FNMA and PHLMC are rated AAA by Standard & Poor's and Moody's. 70 0 0 c 0 c c c ;). ... City of Lubbo~k, Teu.s Notes to Basi~ Financial Statements September 30, 2006 NOTE m. DETAIL NOTES ON ALL ACI'IVITIES AND FUNDS (Continued) A. DEPOSJTS AND INVESTMENTS (Continued) Custodial Credit Risk -For an investment. custodial credit risk is tbe risk that, in the event of the failure of the counteq>arty, the City will not be able to TeC:Over the value of its investment or collateral securities that are in the possession of an crutside party. The City requin:d tbat deposits and repurchase agreements be beld in an institution that bas a minimum collateral level of 102% of the market value. FHLB, FHLMC, and FNMA investmeots are held in the City's name in third petty safekcepibg by a Federal Reserve member financial instirution designated as a City depository. The City shall maintain a list of authorized brokeddealm and fmancial institutioos, which are approved by the Audit Committee for investment purposes. Conceotration of Credit Risk -The City places limiu on the amoont that may be invested ill any one issuer with the exception of Uniled States Treasury obligadons. At September 30, 2006, the City•s investments coostiMed the following ~cucages of total invest:meoCs: repurebae agreemems -0.7¥., FHLB -5.20/., FID..MC -0.4o/., FNMA -13.7%, FFCN • 0.7%, Money Market Mutual Fonds -13.45%, and State luvestment Pools-62.28%. Foreign Currency Risk -This risk relates to adverse affects on the fair value of an investment from cllanges in exchange rates. The City has no foreign curteDcy risk. B. INTERFUND TRANSACTIONS Jnterfund balances, specifically the due to and due ftom other funds, are sho~ loans to cover temponuy cash deficits in various funds. This oc:a~Sionally occurs prior to bond sales or grant reimbursements. These outstandiug balances are repaid within the followiJl8 fiscal year. Interfund balances, specificaUy advances to and from otber funds, are looger-tenn loans to cover Council directed io1emal fmancing of certain projects. At September 30,2006 the City had $1(),761,331 in iotemaJ financing. These balances an: assessed an interest charge and are repaid over time through operations and transfers. The following amounts due to other funds or due fi'om other funds., including advances, are included in the fil'ld fmancial statements (all amounts in thousands): bt.erloDd Reaiv.ablet (l'!!ousaadl) Govem•eatal Fu•ds ProprictuyJ'ancls lokrflllld P1yables (Tbousaads) Noamajcw Noauaajor Getaeral Govemmenl WfMPA EDterprise Toall Governmental Funcb: Nonmajor Govemm~ntal s 4SO s 631 s s J,S4l s 2,622 Propriettlry Fu11ds: Electric 6,173 6,173 Nonmajor Entefp(ise 1,927 1,927 Internal Service 39 39 TotaL~ s 2,416 $ 631 s 6.173 s 1,541 $ 10,761 71 City of Lubbock, Texas Notes to Basie Finandal Statements September 30, %006 NOTE IlL DE TAlL NOTES ON ALL ACTMTIES AND FUNDS (Continued) 8. INTERlUNP TRANSACflONS CCpnt!nu!d) Net transfers of $9,607,211 from bu$illess·type activities co govemmcntal~J.Ctivities. down SS.9 million from the prior yeBJ. on tbe aovemment-wid6 statement of actiVities is primarily the resuh of I) debt serviee payments made f'i'om the debt service fund. but funded from an operating fund; 2) subsidy transfers ftorn unrestricted funds; and 3) ttansfcre to move indirect cost allocations, J)llyntenlS in lieu ofta,.:e$ (PILOT), and &anchise re~ tQ the general fund or otbct t\md8 u appropriate. The following interfund transfers arc reflected in lhe fund financial statements (•ll amount.t io tbousands): J•tarf'llad 1'ra1tstera Out: !!!!oUMnda) Gevenm••tlll Fuads Pro~rl FuDdl NOIU!IIP Stann· ~or lntcral lnterfllnd Transfen General oo .... SIKtriG Wllllr Sewer Wiler En~ S«vioc Totals 1.,: {!!!OIISADda~ Conrnunmtlll Fund•: Oeneral F11nd s . $ 723· $ 880 $ .,649 s 2,623 s 907 s 2,828 s 114 s 13,324 Nonmajor Oovcmmental 587 4,632 15 30 78 S,3S2 Proprietary fnda: Electric )12 22, 100 637 W.aer 521 142 663 Wesg:w11er 620 620 Stormwa&er WTMPA l01 307 Nonmajor Enlerpri.se 849 849 hncmal Service Funds j) 33 To~ $ 1,436 $ 6,841 $ 1,212 s 4,874 s 2.623 $ 907 s 3,100 $ 792 s 21.78S c. lliEERBEl! ~H~B'H The total deferred charge of$3,077,777 itJ the LP&L Enterprise Fund reprCHnts an advertising contract with the United Spirit Arena. The advertilin8 (and amortwn~n) began with the opening Qf the spons arena in fascat year ~000 and will continue for 3~ yea. D. CAPITAL A $SETS Capital asset activity for the year ended September 30, 2006. was as follows: 72 0 0 0 c c c c c ( ,. .... ) City of Lubbock, Texas Notes to Basic Financial Statements September 30,2006 WOn: m. D£TAIL NOTES ON ALL ACTJVITIES AND FUNDS (Continued) D. CAPITAL A$SETS <Continued) Primary Governntent: Governmental Actl•ltle~~ Bc&ln•lng EndJll& Balaaee lncrealtl DecreaJa Ballnm Capl~'l Auto Not Dtprtel•t•d: Land s 8,951,100 $ 20,354 $ . s 8,971,454 Conslruc:tlon In Prolf'Ss 37,7931428 27~701.223 14~844,298 50,650.353 Total capital AJ&ets Not Depreciated 46,744,528 27,721,577 14,844,298 59,621,807 Caphal AIStts Deptec:l•tedt Blrildinas 57,606,045 3,674,134 330,S43 60.949,636 l"'pro~ Olhet tban Building.~ 1)6,398,990 11.520.452 914,367 J41,005~015 Madllhery and Equipment 60~42z876-81065,951 3,3361666 64,972t167 Total Capital As$CtS Depreciated 254,.247,911 23,260,543 4,S8l,S?6 272.a.926,878 l.ieu Am1111111ated Dtprecl.lion; Builctinas 29,459,873 1,934,827 314,587 Jl,080.Jt3 l~pro~u, Other than Bulldlags 92,503,760 4,834,434 11Sr906 96,562.2&8 M~hl.cty and Bquipmcnt 40,414,~SS 7,057,454 3,115,466 44,3561643 Total &:cumulated Dcprc:dltion 162,378,288 13,826.715 4,205.959 J71JP9,044 Total Capltal A$KIJ Depreoiated, Nel 91,869,623 9,433,828 375,617 100~927!834 OovtmniC!Iltal Activities Capital Assets, Net s 138,614,151 $ 37,1S.S,405 S IS,21919t5 s 160,549,641 Depreciation expense was charged to functiON! programs of the governmental activities as follows: Oovemmcntal activities: Adrnlnl$trative Servius s 386,871 Ccmmunity Smjccs 144,336 Cultural and Recreation Services 3,351,006 Economic w Development 146,397 Flre 1,213,165 Haith 271,771 Other Public Safety 496,369 Police 3,163,233 Sttcct end Traffic Engineering 3,791,173 NOI\>Dc:partmental 327,104 lnU!rnal Scrvi~:e Funds 1301646 l'oul clepreclatloo Cl(pensc • governmental activities 13,422,071 Transkr in to aceumulated dcprecladon • eo\'el'l'liMntal activities 404,644 lnorease in accumulated depreciation· governmental adivitles $ 13,826,715 73 City or Lubboc~ Texas Notes to Basie Financial Statemeats September 30, 1006 NOTE Ill. DETAIL NOU:S ON ALL AcnvrriES AND FUNDS (Continued) )), CAPITAL ASSETS CCopilnued) Bushacss-Type Atd"ltl,s; Bog!oaing EadiDJ Balance lucrasa Decreasa Balances Capital AuetJ ~ot Drp...ci•ted: Land $ 31,94&,711 s . s ~ $ 31,948,711 Constl'\lction in Proge3S 12814~179 58,.415,600 50.201,.552 136,646,2.27 Total CJpilal Assets Not Deprecialed 160J801890 S3z41S,600 50.201.552 168,594,938 CapiUII Anets Depredated: Buildings 97,027,146 483,657 97,510,103 fmprovemeats Other than Buildingt 605,412.,1 70 59,621,921 37$.396 66A,6.S8,69S MaciURCtY and Equipment 138:671)~~" 27~1691630 41116~64 161,723~54 Total Capital Asstts Deprecllled 841,1 1()1004 87t37.saos 4t492~60 9231892,852 Lell Accumglated DeprreiafllllA: BuilcJinp 31,075,692 l.342,667 33,418,359 Improvements Other I ban Bulldiass 258,019,184 17,325,603 1·59,373 275,115,<4 14 Machinery iUid Eq11ipment 14,9S2A21 121~51,269 3.280,169 83,729~527 Total Accwnulatcd Dc:preeiation 364,047.303 3J,72.SJ39 3.439,542 392,333,300 Tol&l Capillll Assets ~prcci•tcd, Net 4711062C'Ol SS1.S491669 110521818 S31:559.SS2 Busine.s-.Typo Aetivitie! Capical Assets, Net $637.443.591 $1131965.269 s 51.25-4~70 s 700,154.490 Depreclallon expense was charged to fimcdonsfprograms of the business-type activities as folloWI: Busineas-Type Acti\litiea: Elcetric Wiler Wastewater Stonnw•tct Solid Wastt AJrport Tlaruit lntct'nal Service Tolal depreciation expense • busineas-type sctf\ol~ Transfer in to accumul3ted depreci11.tion • busln~-pc a~ivitics Increase in accumulated dcprec:illllon • bu5ine$$-typc .mviti~:J 74 $ 8,839.585 7,118,132 5,462,027 384,514 3,87.5,819 3,211,317 1,340,312 191.442 30,49~.148 1.232.391 s JJ,n.S.S39 0 c c c c: c ' ( ( 1 City of Lubbock, Texas Notes to Baaie Financial Statements September 30, 2006 NOTE IlL DETAIL NOTES ON ALL ACTIVFnES AND FUNDS (Contin-'ed) D. CAflTAL AssETS <Continued) CorastructlOil Commltmeub The City of Lubbock has active ~:<wtruction projects at ftscal year end. The Parks Department projocts includt a 12-field &stpitcb softball complex. The City contlnuC$ to work on a hvge street project involving Milwaukee Avenue &em 34111 Stre.,t to 98111 Stree& . This project is in the Gateway Street Projects Fund. Water projects Include the design end constr\ICtion of a new pwnp station in southwest Lubbock. The recompaotion of 9.a-Stroet from Slide to just beyond Frankfol'd A VC:i\uc: is a major wasttwatcr project. The City :j& busy. working at tbe airport to construct 3S,OOO square yards of new pavement to help aerw air c;arrier eircrafts. Stonnwat• operations continue to work on two very large conscrvccion projects. The tim project prov!del for flood relief for CliiPP Park and tho eleven playa lakes immediately up5tream. lbe second project provlde$ for the CODStructlon oh flood rcliofprojm for fO\Ith LubboC.k'l chain o(playa lakes. Orlalftal R.em•lllfna P!!Jed& COlll•ltmenc. S(!!nt-te-Date Commhlmintt P\Jblk Sal\lt)' s 1,108.3.38 $ I,S.S3,720 $ 154,618 Park tmpro'lemcau 27,149.311 8,620,769 18,528>42 SCreet lmprcwemems 26,133,199 10,999,784 1S,J3M15 Oeneta1 Olpifal Projeets 92S,OOO 6,S1S 918,425 Genera! Facltlllcs lmprovcrnonts 4,456,613 2,259,430 2,197,243 Tax lncrcment Fund Capbal. Projects 24,131,566 6,S37,19S J7.j94,nt Ci ateWOy SlleeC ProJeCt$ 23,349,000 19,684,371 3,664,629 Eloctrk 26,476,192 8,81<4,299 17,661,193 Water 71,421,032 32,078,599 39,342,433 WaSicwetcr 17,400,000 8.377,603 9,02.2,397 SolidWute 7,215,680 991 ,100 6,224,580 AJrpon 30,994,699 20,092,779 10,901,920 Storm water &3,688,013 65,636,771 18,051,247 fnlcm&l Scrvic:c Fucd 1,000,000 655,016 3441924 Total $ 346,048,708 $ 186.308,071 $ 1 S91740,637 £, RETIREMENT PLANS Eacb quail flee employoo 1s included tn one of two ~tlrement plans in which the City of Lubbock participates. These are tbe Texaa Municipal Retirement System ('TMRS) and the Lubbock Firemen's Relief and Retirement hnd (LF'RR.P). The City docs not maintlin tht accounting retords, hold the invtstmeni$ or administer either retirement plan. Summa!')' ohignificut data for each retirement plan follows: 75 City of Lubbock, Texas Notes to Basie Financial Statemenu September 30, 2006 NOTE Ill. DETAIL NOTES ON Al.'L ACTJVmES AND FUNDS (Cootlaued) E. RETIREMENT PLANS ~ontinucd) TEXAS MUNICIPAL RETJREMENT SYSTEM (TMRS) Plan Deserlptlon The City provides pension b~nefits for all of its fuiJ.timc employees (with the exception of firefighters) through a non-traditional, joint contributory. hybrid dofmcd bcndit plm in tbe state-wide TMRS, one of 111 administered by TMRS, an agent multlple•employor public employee retircmmt system. Benefits depend \lpon the sum of the employee'• contributions to the plan, with intare$t, and tho City-financed monetary ~ts, witb interest. At the dllte the plan began, the City granted monccary wcclltl for service rendered before the plan began of a theoretical amount equal to two times m.at would have bCCD contributed by the employee, with interest, prior to establishment orthc plan. Monewy creditJ for service sinCe lbt plan bepn are a percent ( lOOo/o, I SOo/a. or 200%) of the employee's accumulated cooaibutlons. In addition. the City can grant, as often as annually, another type of monetary credit ref'erted to as an updated semce credit which Is a theoretical amount which, wbon added to the employee's aeeumulatcd con!ributioos and the monotaty credits for service since the plan began, would be the total monetary credits and employee c:onlTibutiotu accumulated with interest If the cumnt employee contribution rate and City matc.bJns percent hid always boen in existence and if'tbe employee's nlary had always been the avarap of hi& salary io the las& three yean that are one year before the effecdve date. At retirement, the benefit is cal~lated as if.tbe sum of the employee's accumulated contributions witb interest and the employcr-(UllllCed monet11y cnHtits with Interest weJC used to purchase an annuity. Tho plan provisions arc adopted by the governing body of the City, within ttle optlons available in cbe state stiMC! govemin, TMRS and within lhc actuarial conmints also in the statutes. Members can ~ire at qos 60 and above with 5 or more yean of service or witb 20 years of service regardless of age. A member is vested after 5 years. CoatrlbQtiOM The contribution rate for the employees is 7% and the City matcbin& ratio is currently 2 to 1, both as adopted by the eovemin& body of the City. Under the state Jaw governing TMRS, the actuary annually dcteni~Jnes the City contfibutloo rate and the prior service cost contribution rate, both of which are caJcul~d to be a )eve) J)CrCCnt of payroll &om year to year. The normal cost contribution rate finanees the currently accruing monetary credlta due to the City matching percent, which are the obligation of lhe City as of an employee's retirement dat~. not at the time the employoe'J contriblltions are made. The ncnnal c:osc contribution rate is the attuarially determined percent of payroll necessary to satbf)' the obligation of the City to ~ch employee at tho time bialher retirement becomes ef'fective. Tbe prior mvicc contribution race amortize~ me unfunded (overfimded) actuarial liability {asset) over the remainder oflhc plan's 25-ycar arnortiution period. The unit credit actuarial cost method is used for determining the City contribution rate. Both the emplO)'Ct$ and the City make contn'butions monthl)'. Since lhe City needs to know its contribudon rate in advanct for budgetary purposes, there is a one-year delay between lhe aewarial valuation thac ~es as the basis for tho n.te and the calendar year wben the rate goes in~ .:fToct (i.e. December 31, 200~ valuation is effective for rates beginning January 2007). 76 0 0 c c c c c ' ( ( Q 0 0 0 City of Lubbock, Texas Notes to Basie Financial Statements September 30, 2006 NOTE ru. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (CoDtlaued) E. RETIREMENT PLANS (Continued) Actuarial Assumptions The acruarial assumptions for the December 31,2005 vat~:~l&dons arc as follows: Ad\llrial cost melhod: Unitmdit Amortization motbocl: Remaining amorti:ration period: Lev~ percent or Pl)TOU 1S yean. opcn period Amortl:llOd \lOst Asllct valuation method: lnv~cmmt ~ offcwm: Proj~tW salary ineteas<=J: Includes inflation at: Cost of Living adjU$tmcnts: Aaol Septembor 30 2004 200.5 2006 ,.~ 'NOftC 3.5% None Auul P1111loD Coat $ 8.708,867 9,933,373 10,904,031 &.708.867 9,933,37) 11).'904,~31 TEXAS MUNlClPAL RE-TJQMENT BVmM THREE· YEAR HISTORICAL SCHEDULE OF' ACfUARIAL LIABILITIES AND FUNDING PROGRESS REQUIRED SuPPLEMENTARY INfORMATION (UNAUDITED) Unt..hded Aduarlll Ad111arial Aeu1td Aaof Attull'lal VaiiJI or Aecnaed Perm~ tate LllbDJty Dceembtrll Auets U.blllty Fu!!ded IVA ALl 2003 s 182,884,183 239.809,434 76.3% 56,925,251 2004 186,398,S4S 248,432.807 75.~ 62,034,262 200.5 19.5,046,632 261,430,108 74.6% 66,383,476 UAAL.asa% Asor ADDual Covertd Of Covtred Dectmber31 Pamll PayroU 2003 $ 57,5.77, 743 98.9% 20()4 61,931,00) 100.2% 2005 6S,424,9t8 IOJ.S% The City of Lubbock is one of 811 municipalities having the benefit plan admU,jstered by TMRS. Each of lbe municlpalitie~ has an annual, individual actuarial valuation performed. AU ISSUI'Itptlons for the Oocembcr 31, 200~ valuations are contained in lhe 200S TMRS Cornprehcnaive Annual Financial Report, a copy of which may be obtained by writing to P.O. Sox 149153, Austin, Texas 78714·9153. 77 City of Lab bock, Texas Notes to Basic Finam:ial Statements September 30. 2006 NOTE fn. DETAIL NOTES ON ALL ACTIVITIES AND FUNDS (Continued) E. RETIREMENT PLANS CContlguedl LUBBOCK FIREFIGHTER'S RELIEF AND RETIREMENT FUND (LFRRF) Plan Dcs~riptloa The Board of Trustees of the LFRRF is dle administrator of a single-employer defined bcnefrt pension plan. "this pension fund .il a trust fund. It is reported by me Cit)' as a related organi?.ation and is not consjd.efed to be a part of the City financLal reporting entity. Firefigbkml in the Lubbock Fire Depattmcnt arc covered by theLFRRF. The LFRR.F pi'Ovidos aervice retirement, death, disability and withdrawal benefits. Those benefits fully vest after 20 years of credited service. A partially vested benefit is pravlded for firofightors who terminate employment with at least 10 but less thaJ\ 20 years of service. Employees may retire at ege ~ wi1h 20 yean of service. A rcducod early $CI'Vlce retirement bonefit is provided for employees who tenninato employment with 20 or mon yem of aervice. T.be LFRRF Plan effective November 1, 2003 provides a monthly normal service retirement benefrt. payable in a loint and 'fWo.. Thirds to Spouse torm of annuity, equal to 68.92% of tina14S.moocb average salary pill$ $335.05 per monlh ror ~ch year of service in excess of20 years. A fuoefigbtu has lhe option to partlclpato In a Retroactive Deferred ketirement Option Plan (RBTJlO DROP) which pi'Ovldes a lump sum benefit and a reduced annuity upon termrnation of employment. Firoflgbtm must be at least S I years of aae With 21 years of service at the selected "RETRO DROP bono fit calculation <fate" (which Is prior to date of employment termination). Early RETRO DROP with benefit reduotions is available at age 50 with 20 years of $e:J'Vice for the .selected "early RBTRO DROP bertetit cal"liatlon date". A Partial Lump Sum option is abo available where a reduced montht)' benefit is determined based on an elcacd lump sum amount such that the combinocl pmcnl valuo of tho benefits under the option is actuarially equivalent to that of the ne>mW form of lhc monthly bonefit. Optional foltn$ are also available at varyin, levels or surviving spouse benefits instead orthe standard two-11\irds fonn. There i8 no provitlon for automatic pos\retlremcnt benefit increases. LFRRF bas the authority to provide, and has periodical))' provided for in tht pur, ad hoc postretirement benefit Increases. The l>en¢f'Jt provisions of this plan ~ authorized by th11 Texas Local Fire Figbtds Retirement Act (TLFFRA). TLFFRA provides the authority and proC'edutO to amend benefit provisions. Contrlbu&lons Required and Contributions M•de The contribution provisions of Ibis plan are authorized by TLFFRA. TLFFRA provides the authority and proce~ to change the amount of contrilmtions determined as a perce:ntase of pay by each ruefighter and • pereentagc of payroll by the City. State law requires that each plan of benefits adopted by LfkRF be approved by an eligible actullf)l. The acculU')' certiftes that the contribution commitment by the firef.llhters and the City provides an adequate financing arrangement. Using dlo entry age actuarial cost method, LFRRF's normal cost contribution rate is de&ermined as a porcentage of payroJJ. The excess of the total contribution rate over the nonnal cost contribution rate is used to amortize LFRJU"s unfunded actuarial a<:erued liability (UAAL), if any, and tho mnnbcr of years needed 1o amortize LFRR.f's unfunded accuariallu.bility, if any, is de~cnnined using a level percentage of PJyroll method. The costs or administering the plan arc financed by LFRRF. 78 0 0 0 0 0 0 0 c c c ) City of Lubbock, Texas Notes to Basi~ Fioaueial St1tements September 30, 2006 NOTE Ill. OET AIL NOTES ON ALL ACTIVITIES AND FUNDS (Conttuued) E. REIIBEMENJ PLANS CConttnuedl Annual Peaslon Cost For the fiscal year ended September 30, 20~. the Ci\Y of Labb«k's Annual Ponsfcm Cost (APC) f'or tho Lubbock Fire Fund wu tqual tG $3,208,595 as described in Item 4 in the table below. Based OJl tbe resuJta of the D«embct 31, 2004 actuarial valuation of the Plan Eft'oclti~ November J. 2003~ the molt recent biermial ac:tuarial valuation, Cbo Board's actuary found that tbe fund had an ldequate financing ln'lllC~ as desc:n'bed in the paragraph below, based on the fLXed level of 1M fir•fishter contribution rates and on the assumed level of City contribution races. Based oo the Plan Effective November l, 2003, LPRRF'a ftlndins policy requires contributions equal to I 2.43% of pay by lbe f!Nfipters. Coaltibutlons by the City are baSed on a fonnula, which causes the City's contribution ralc to f1uotuate fi'om yw co year, 1b"t ~btt 31, 2004 actuarial valuation assumes that the City's contributicns wltiiMflle 19% ofptyr0111n the future, Therefore, b&cd on me December 31, 2004 actuarial valuation of the Piau Bff'octlve N~r J, 2003, tho AMual Required Contributions (ARC) are not actuariaJty determined but are equal to the City•s actual contributions beginning January 1, 200S. Tbls actuarial vataatioo utisfitd tbe parameters of ~ Governmental Acoounting Sumdards Board (GASB) Statement No, 27. Prior to January I, 200,, the ARC were not actuari&lly determined but. based on lhe Deeember 31, 2002 KtuarlaJ valuatioo, were equal to lbe City's actuaJ conU'ibUiions in calendar year 2004. 1bis actuarial valuation also &adafied rhe panmetcrs of OASB Statement No. 27. The following shows the development of the Net Ponstco Obfiptlon (NPO) as of September 30, 2006: I. Annual Required C011tribulions (ARC) 2. lntemt on NPO 3. Adjusunont 10 ARC 4. Annual Pension Cost (APC) .S. AclUal City CODtrlbutlons made 6. lncrwc: (Occrcuc) in NPOI{~SUt) 7. NPOI(~) at OQtobcr l. 2005 8. NP0/(11$$el.) a! September 30, 2006 The ARC for the poriod October l, 2005 through September 30.2006 ~baed on abe Ool:cmbcr 31,2002 and the December 31, 2004 actuarial valuations. The entry ase acNirial cost method was used with lbe nonnal COSt calculated a~ a level percentage of payroll. The aetwlrial vallM! of assets was market value smoothed by a five-year deferred recognition method, wi&h the aetuarial valuo not more than 110% or less than 900~ of the market value of asseu. The ~ assumptioas iDoludod in an iDve$tJnem re1Um assumption of r'-4 per year (not of expenses), projected salll)' inCreases Including promotion aod Jonae\lity averaging 5. 7% per year over a 30-year career, and no posttotirtrnent cost.of·UVina. adjustments. AD lntlltfon assumption of 4% per year was included in the invutment return and salary increase a.ssumpdou. The UAAL is ~~monized whh the CXCC$5 of the assumed t<QI contribution rate over the nonnaJ cost tile. The number of years needed to 1mortize the UAAL is determined usinJ an open, level pemmbtgO of pa)lrOll method, assuming tbat the payroll will inc:reue 4% per year, and was 24.7 ynrs as of the Docernbor 31, 2002 actuarial valuation and 20.6 years as of December 31. 2004 acruirfal valuation. both based on 1he plan provisions effective November I. 200>. 79 City of Lubbock, Texas Notes to Basic: Fbaandal Statements Stptember 30, 2006 NOTE m. DETAIL NOTES ON ALL AC'I'JVJTXES AND FUNDS (Contin11ed) E. RETIREMENT eLAN§ CContlnyld} Further details concerning the imancial position of the LPRRF and the latest actuarial valuation arc available by contacting the Board of Trustees, LFRJW, City of Lubbock. P.O. Box 2000, Lubbod, Texas 79457. A stand-alone financial report i$ avaiJablo by cootact!ng the LFRRF. Fisul Ye~r Ended 9130104 9/31)/()S 9130106 Trend Iarormatlon Annul Pe••tD• Co•t CAPQ $ 2,582,713 3,016,942 3,208,595 Percental* of APC Coatrilmed JOI% 100 tOO Analytls or Pondlnt Progress Net Pc•aloa Obtlptioll (Aud) (897,648) (909,112) (920,722) Required Soppteuaentary lnfoi'IUtion (Uaaulted) Actoarllll Vahallllon Date I 2131100 1,2 12/31102 t .3 12/31/0.. ~ Aet~aarllll Valuor AlletJ(a) $119,660,788 111,261,775 130,174,934 Enrry A.Je AetarlaJ ACCI'IIed U.blllty CAAL)Qt) 114.675,049 127.l50,414 143,991,9'75 Uaftanded AAL (UAA.L) /hadlaa o1eeu (IH!) (4,915,739) l6,S88.639 13,116,991 1. Economic: and demopaphic assumptiou were revised. l'lallded Ratio (lib) 104.3% 81.0 90.4 2. Reflectachanses In plan benefrt provi$ioos c8'cctive December I, 2001. 3. Rcftects ~ In pJan bendlt provisicns effective November 1. 200). ARn•at Covered P•yr9U(c)4 12,243,913 13,521,366 14,711,366 4. The ecvercd payroll Is based on esalmated eanualbd salaries WlCd in the valuation. $. Demo8J'IIphic usumptlon was revilod. F. DEFERRED CQMP.INSt\TION VAAU Functlna llXea&lll Ptt'UillaJe of Cowered Payroll <0!-!Ve> (40.1)% 122.7 93.9 The City offers its employees two deferred compensation pJans io accordance with Jntemal R.mmue Code ("IRC") Section 4S7. The p}Jns, available to aU City employea, pei'D)it lhem to defer a portion of tbtir salary until future years. 'Ibc det'med compensatioo it no1 available to cmp~s unriJ ttrminadon, retirement, death, or unforaeeable emtrpnc:y. The plans'usets arc held in Cnl61 for the exclUsive bencfus of the participaoll and tbeit bcnoftciaricJ. The City does not provide admini$trative services 1)1' have any fiduciary responsibi\ilios for these plans; chercfore, tbey are not p~ted in the BFS. 80 0 0 0 0 c c c c ') .. ) City of Lubbock, Texas Notes to Basic Financial Statements September 30, 200' NOTE m. 'DETAIL NOTES ON ALL ACTMTIES AND FUNDS (CoatiDued) G. SURFACE W ATIR SUPPLY C•nadlan Rl\'er Muuklpal Water Authority The Canadian River Municipal Water Authorll}' (CRMW A) is a Conservation and Reclamation Authority established by the Tex.as Legislature to c:oD$11\ld a dam, water mcrvoir, and aqueduct system for the purposo of supplying weter to surroun<iing cities. The Authority was created in 1953 and comprises eleven citie$, including tho City or Lubbock. Tht budaet. financing, and operations of the Authority are governed by a Board of Directors selected by the govern ins bodies of each of tho member clUes, each ·city being entitled to one or two members dependent upon population. At September 30, 2006. 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 tbe Clmadian JU.,:cr Dam and aqueduct system in excllansc for surface wata. The City's pro rata share of annual f"'ed IUld variable operating and reaorve assessments are rct:Orded as an expense or ob&ainina surface water. Prior to FY 1999, Jong-cenn debt was owed to tbe U.S. Bureau or Reclamation for me toJt of cona&ruction of the facility, wblcb was completed in 1969. The City's allocation ofprojocc COSIS was $32,90S~86l. During FY 1999, bonds in the principal amO\Int of S 12,300,()()0 were issued to pay off tbe construction obUplion owed to the U.S. Bureau of Reclamation via CRMWA in the amount of $20,809,067. The dJfference of $8,509,067 W1L$ a discount in the remaining principal provided by tho U.S. B.utau of Reclamation to tht member cilles. This discount has been reeorded as a dcfened gain on refunding acd ia being amortized over the life of the refunding bond$. At Septombor 30, 2006, $4,091,071 romains unamortized. The annual principal and interest payments are in<:luded in the disclosures for other Cky related long-term debt. The above cost for the rights are recorded as capital assets and are being amortized over 85 years. The eost and debt are recorded in the Water Enterprise Fund. In 200S, the Cantdian RJver Municipal Authority Issued S48, 125,000 in Contract Revenue Bonds. The City of Lubbock shmd in this i~ue io the amount of$17,960,000. The Canadian River Municipal Authority issued a new Conuact Revenu~ Boftd, Seriea 2006 in April 2006 in the amount of $49,015,000. The Cit)' of Lubbock shared in the luue for Sl8,S73,906 al'ld other cost$ of $492,465, and received depreciable assets (water rights) valued at $19,066.371. These assets and lfal>ilitlcs are recorded in the Water Enterprise Fund. Brazos River Authority-Lake Alan fltnry During 1989, the City entered Into an aareement witb the Brazos River Authorit)' (BRA) for the construction, maintenance, and operation of the facilities known as Lake Alan Henry. The BRA. which is authorized by~ SClle of Texas lO provide for the conservation and development of surface WMCJ'S m the Brazos Rivor Basin, wued bonds for the construction of a dam and lake facilitie3 on the South Fork of lbe Double Mountain .Fork or the Brazos River. The BRA issued $16,970,000 in revenue bonds in 1989 Jftd $39,685,000 in revenue bonds in 1991, which WCJ'f: refUnded in July 1995. The asset, Lake Alan Henry dam and facilities, are recorded as capital asset$ and an!! beins depreciated over .SO years. Tbe financ:ialactivity, along with related obligation, is accounted for in the Water Enterprise Fund .. 81 0 City of Lubbotk. Texas Notes to Basie Financial Statements Sep,ember 30, 2006 0 NOTE ill. DET AlL NOTES ON ALL ACfMTIES AND FUNDS (Continued) H. LONG-TERM DEBT GENERAL OBLIGATION BONDS AND CERTIFICATES OF OBLJGATION: c Jnt~rest Issue MU•rity Amount Oulltandlllg ~ Dill D81t llw.d. ~ '-39 10.01·93 02-1~1· S 2,SSO,OOO $ 1,040,000 ,,20 10-01-93 02-1 S-14 1,470,000 2.2$,000 ~.I.C 10.01-93 02·1S..I4 19,21S.OOO 2,8",000 4.91 01-1 s-97 02-ISo-09 17,530,000 5,225,000 4.61 01·01·98 02-15-08 1,330,000 320,000 c 4.71 01-01·98 02·15·'18 10,160,000 2,S7S;OOO 4.36 01-15-99 02-1.5-14 20,&3S,OOO 16,710,000 4.53 01-IS-99 02·15-19 15,35$,000 2,)10,000 4.77 04-01-99 02-1$-19 6.100.000 91S,OOO 4.71 ()4..01-99 02-15-19 12,300,000 8,06(),000 5.37 09-ts-99 02·15-20 24,800,000 3,100,000 S.S4 OJ-13-00 02-\So-20 7,000,000 &75,000 .... 4.90 02-01..01 02·1S.2l 9,100,000 1,.560,000 I... 4.31 02-0I-ol 02-IS.21 2,770,000 560,000 5.25 06-01.()1 02·15-31 35,000,_000 3,110,000 4.68 Ol·lS-02 02·15-22 9.400,000 8.470,000 4,71 02-15-02 02·1S·22 6,450,000 '~80$.000 4.70 02-IS·02 02-IS-22 J.~s.ooo 1,38$,000 11,62 07-01-02 02-15-22 2,605,000 2,2SO,OOO 3.18 07-01·02 02·1S.l0 10,810,001> 4,635.()00 c 4.42 07·15--03 Ol·IS..D 11.81.5,000 10,41.5000 4.47 07·1s-o3 02·1~24 9,77.5,000 9,130,000 ·U8 07·1.5·03 02·15·l4 685,000 635,000 4.47 07-IS.O:J 02·15·24 3,595.000 3.3SS,OOO 4.87 ()7-I.S.Ol 02~15·34 40,13S.OOO 31.710,000 4.47 07·15-03 02-IS-24 3,800,000 3,SSO,OOO 4.60 08·15-03 04-15·23 8,900,000 7,810.000 c 4.60 08-15-03 04-15·23 13,270,000 11,6$5,000 07 ~30·04 01-01·12 1,000,000 750,000 4.09 09-28-04 O~U-24 2,025,000 1,735,000 4.08 09-28·04 02-15·24 3,100,000 2,S8S,OOO J.SS 09-28-04 02-IS.lO 22,620.000 22.100,000 3.89 02-IS-OS 04-1.5-l.S 23,055,000 21,•t70,000 3.94 06-JS-OS 01-15-21 49,6.,,000 49,615,000 4.26 08-1$-0.5 02·1S.2S -46.525.000 44,9 50,000 , ... 4.12 07·U·OS 02·15--21 43,080,()QO. 41,380,000 4.27 07-15-0.5 02-IS-25 7,265,000 7,035,000 4 . .58 04·15·06 02-15-26 76,9SO,OOO 76,950,000 4.~8 04-U-06 02-15-26 2,740,000 2,740,000 4.84 05-1.5-06 02-IS-ll 18,830,000 1!.830,000 lotal s 605,275,000 s ""'8.025,QQQ(A) ( (A) Exeludcs ($4,264,274) n~t deferred losses on ad~ rofundinp, net bond premiums aDd discounts, and bond iqunncc costs -($1,906,682) bu~i~-type and ($.2,357,5~) governmental. AddllionaJly, Ibis .mouM in.cludes $32},.567,720 of booth used to finance cntuprise fian4 ~viti~s. 82 -:>. J ) City of Lubbock, Texas Notes to Basic Financial Statements September 30, 2006 NOTE Ill. DETAIL NOTES ON ALL ACTMTIES AND FUNDS (Co.atiaaed) H. LONG-TERM PEBT CConllnuedl At September 30, 2006, mana&ermnt of the City believes that it was in compliance with all financial bond covenanu on ouutanding general obligation bonded debt, certificates of obligation, and water revenue bonded debt. Interest !l!tc{% 2 3.80to ,.~0 4.25 lo U.S 3.10 to s.oo 4.00 to 5.2$ Total u1ueDate ~)S-9S 1..01~98 1-15--99 7..01-01 LP&L REVE~UE BONDS Final ~bwri!Y Date 4-15..08 4-U-18 4-IS·19 4·15~21 s l3,S60,000 9,170,000 14,975,000 9,200,000 s 4,90MOO B1laace 0 utltaaclina 9-3~ $ 1,%$,000 S,.$20.000 7,525,000 6,900,000 $21,910,000. • [}alonce outstanding cxl:ludcs $274,84.5 of net dofemd losses on advance refundinJI, bond premiums and discountS, and boM l$$lltnec cosu. lnttrat RIC!(%) 3.983 ·4.2S to 5.0 OTHER REVENUE BONDS Final Matlarlty Date 09-30-25 02·15·27 Amount .... .c~ 17.960,000 I 8,573,906 $3~$33,906 Balance OUUtamlla.& 9-30-06 17J9S,417 18,573,905 S36, 169,322 • • BIIMcc outstanding QeJuQe:, ($461,839) dlscwnt 111d dGferred lollle3 on bondS sold or refunded. Tho annual requirements to amon.it.e an outstanding debt of lhe City as of 8epl$mber 30, 2006 are as fOllows: GovemmMtal Acti~Cies Blttine.Type AttMtiet Fiscal Geaeral Obliptlon Bondi Geaenl Obliption Bollds Reveaue Bonds Vear Pri~~<:ipa.l Jntemt Prfa.dpal Interest Prindf!!l laterest 2007 6,367,599 5,970,307 16.tn.401 ls.617,69S 3,871,149 3,021,708 2008 6,815,093 5,270,849 17,019,907 14,101,110 3,777,33l 2,612,994 2009 6,855,963 4.994~ 17,004,037 13,406,654 3,016,932 2,448,196 2010 6,677,l60 4,718,846 17,147,840 12..696,671 3,062,637 2,315,474 2011 6,892,527 4,428,865 17,557,473 11,94l,9SO 3,)10,359 2,)81,036 2012-2016 33.943.446 17,559,698 86,021.554 41,195,519 14,872,099 U60,16S 2017-2021 32,655,873 9,916,808 79,014,127 27,439,606 14,887,118 S,089,9SS 2022-2026 24.249,619 2,482,180 46,720,381 12,003,058 10,891,111 J,6SS,6S7 2027·2031 19,835,000 4,279,800 S90,S86 29,529 2032-20U 7,065,000 S41,62S Totals S 1Z4,4S7,Z80 S SS,342,097 s 323,567,720 $ 159,124,748 S 5S,079,322 s 28,214,714 Capital leases were used to acquire equipment and vehicle.s. The intereat rate on 1be lease& ran,od &am 2.0% to 4.3%. The anntu~J requirements on capital1eases of tho City as of September 30,2006, inducting interest payrncnts of$1,790,785 are as follows: 83 City of Lubbotk, Texas Notes to Basic Financial Statements September 30,2006 NOTE 10. DETAIL NOTES ON ALL ACTJVmES AND FUNDS (Continoed) 8. LONG· TERM DEBT lCo!)tiDpedl 2007 2008 2009 2010 2011 2012·2016 t.ess: Goverameatal Capital Luu Minimum Payment 1,694,843 1,694,843 1,673,144 1,522,290 725,904 1.116,246 Business-Type Capitll Luse Minimum Payment 2,277.756 1,946,263 1,842,70S 1,748,474 1,086,012 381,832 Tot1l Capital Lease M:lniiiUIIII Payment 3,972,599 3,641,106 3,,1,,S49 .l,270,764 1,811,916 1.498,018 Interest (896.71 J) (894,074) (1,790,785) Total =s=='=·5=3=o=·'='9=S====•s • ..,.3a,..s.,..9.,6a.....,iii:!s ...... .,;l..,s • .,9.;;.;190!0i,s,..2-.7 Tho earrying values on the leased assets of the City as of September 30, 2006 are as folloW$: (iovemmon1al Activities BU$incss-Type Aelivities Total Leased Assclli s s A~tumulat•ct Net Book Grcm Value Oteredatlon Value 12,350,672 12,093, 7'17 s 3,363,345 s 8,987.327 24,444,469 $ :Z,l58,891 9r234,9().6 Long-term obligatiom (net of di$COUnts and premiums) for govcmmenhll and business~type activities for the yew ended September 30, 2006m as follows: GonmMmtal actWitln: Tax-Supported· Obli&llion Bond$ Clpilal~ Com~~cd Absences lnsul'llmle Claim Payllblo Bond Oiscounts/Ptem!ums Atbiuaac Puyable Total Govem~t~e~ttal at!Mtlea Baaintu• Ty pc ICCiYIC let: Selt.Supponed • Obli8'"ior. Bonds Revenue Bonds Cepillll..ases Cto:sure/Post Closute Compennred Absences lnautancc Claim Payable Bond Discounts/Ptemiii!N Arbitfl~ Payable Total B .. lneu-1)-pe acelvhiCJ Debe J>ayebk Debe Pa)'able Due in ,13012005 Addltlona Delctlont 913012006 oac Y!!!' s 102,720.269 s 3,9S4,811S 16.28A,36S 2,340,260 1,865,984 s !27,169, 76.3 s 286,749,731 42,800,000 1,354)76 3,073,391 5,000,165 6,S01,89l 2,SSS,441 27,S26,11) S,ll9,980 6,313,086 19,060,956 620,360 151,716 51,792,711 70,993,887 IS,S73,906 8,158,734 22S,740 2,5&2,659 3,23S,2ll 64&,300 71,191 S 34&,03S,809 $ 104,419,641 84 s 5,789,102 1,544,306 6,341,414 18.640,060 129,2S2 $ 32,444,1)4 34,175,893 3,294.S84 1,124.,342 2,217,628 4,476,lS3 1,297,066 s 46..'1S,611 S 124,4S7,210 S 7.330,,9 16,260,037 2.761,.,6 2.357,S92 151,716 6,367,S99 ),,26,999 6,133,264 2,Sl2,041 S 1S3.SII,340 s 16.439,903 323,567,720 58,019,.322 8,381,968 3,299,131 5.365,796 5,260,976 1,5106,682 7!,191 s 405,939,186 16,1¥2.401 3,171,149 1,974,403 2,S71,79S 2,444,632 s 27,044,380 0 0 0 0 c c ' c ( J· ) ) ) City of Lubbock, Texas Notes to Buie Financial Statements September 30, 2006 NOTE Ill. DETAIL NOTES ON ALL ACI'lvntES AND FUNDS (CondDaed) H. LONG-TERM DEBT CConUnuedl Payments on bonds P4Syable for govermnental activities are made in 1hc Debt Smiee Fund. Bonded debe i6 subject to the applicability of federal trbitrage rcplltiON. Accrued compensated absences that pertain to governmental activities will be liquidated by the General Fund and Special Revenue funds. Tbe Risk Management Internal Service rund will liquidate insurance cJainu payable that pertain to governmental activities. Payments for the c:apitalleas~ mat pertain t0 the govem.uerrt.lactivitics wiU ba liquidated by the General Fund and Capital Projects Funds. The tOIBllong-tenn debt is reconciled co ihe rotalaMual requiromcnts to amortize tons-term debt u follows: Long-term debt • Govcrnmcoc.al.-\cm~ s 1Sl,511l)40 J..ong·tl:fm debt · Bwilt~l!-typeA<tiviiiet 40~.9)S),786 lntere•r 24},381.SS9 To~ ~~mount of debt s 802,839.685 Net gaiall/loues, pmni:lunl/ diac:oulltl (-4,264)7~ ~~ Atbitnge pr.>'8ble (222,90'7) Lc'&S; Ct.pitllleull:i (1S,9t9.m) UJII: lMI.Inln« cwn" p!l)'llbiC (8 ,022,1)2) Lclo~: Cornpcnsan:d abacmn (21,025,83:5) ~u: Oosurc:/pOit dotnm: ~,.29!),131) 1'otat other debt ~53.353,1~ Toral fumre bonded debt ~lil:rcmcnu $ 749,485,881 New Bond lpuanw In April 2006, the Cil)' issued $76,950,000 Tax and WaterwOrb System Surplus Revenue Certilice.te.t of Obliption. Sorics 2006. The Certificates were issued al a pmrtium of S2,580,24S. After paying issuance costs of $541,101, the net proceeds wore $78,98$1000. Ptoc:eods ftom the sale of these cenlfiutcs will be used Cor airport, Municipal Buildina. parks, and cemetery Improvements, ~ repaira, and solid waatt, stonnwater. wastewater, parks. streets, Lubbock Power & Light and economic development projects; and cosu associated with the issuance of the Certificates. The proceeds of the debt~ recorded in various Enterprise Funds and Capital Projects Funds. 'rhe City also issued $2,740,000 General Obligation Bonds. Series 2006 in April 2006. The Ocn01al ObJiption Bonds were issued at a prem.lvm of $8.076. After payins issuance c:osts of Sl4,766. the net proceeds were $2,71.5,000. Proceeds from the sa!e of these certificates will be used for colll1rUCtinl street improvements inclu<ling drainage. curbs.g~ landscaping, sidewalb, curb ramps, utility line relocation and traffic signalization and tho acquisition of land and ripts-of-way 1111d for acquiring and improving land for park pwposes. The proceed$ of the dobt are recorded in various Capilal Projects Funds. 'rhc Canadian River Municipal Authority issued a new Contract Revenue Bond, Series 2006 in ApriJ 2006 in the amounl of $49,075,000. The City of Lubboelc $bared in tbat iss\IC for $18,573,906 and other casu or $492,465, and received depreciable assets (water rights) valued at $19,066,371. These assets and liabilities are recorded in the Water Enterprise Fund. 85 Cit)' ofLubbockt Texas Notes to Basic Fioaueial Statements Sep~ber30,2006 NOTE DL DJ:T.Affi NOTES ON ALL ACTIVITIES AND FUNDS (Co11tinued) B. WNG~TERM DEBT CQtptingecD Adnnted Rtfaradll'gl The City bsuo<l an advance ret\mding to retire a portion of the City's outstanding debt to !ower the debt service req~ on soc:b indebtedness. The net proceeds from the issuance of the Rel'undins Bonds were depOsited with the liscrow Agcnl (JP Morpn Cbase Bank, National Association) io Ill\ amount neceawy to accomplish the discblqe tDcl final pa)'ment of the Refunded Bonds on their scheduled redemption dati:. Theso tuncb wiU be held by the Escrow A£tnt in • spc<:lal escrow fund and U5Cd to purchase direct oblfaatiODS of the UDitcd States of America. Uodor the eacrow agreements, between the City and JP Morpn Oaase Bank. the escrow flmds art itre't'ocably pledged to the pa~t of principal and lntel'Cit an the Refunded Bonds. In May 2006, tbe Cit)' isaued Gmoral ObUption Refunding Bonds, Series 2006 ("Rel\mdiug Bonds'') with a par value of$1 8,830,000. Tho R.et\mdins Bonds rdmded $1 8,015,000 outstanding bond&. Tbey were issued at a net pt"emiwn of $272,244 md had $208,013 iSS\I.al1ce costs. M a result of the rtfundina, the City decreaSecllts total debt service requUemeDts by $702,199, which rcwlted in at1 economic gain of$4S0,70S and an acoounti,ot loss of $862.823. 'Jbo debt transactiou are recorded in an Bntetpr.ise Fund. 1. CONJ)UIT DEBT The City Issued Housing Fmaaec Corporation Bonds, Health Facilities .Dovolopmcnt Corporation Bonds, ancl Education Facilities Authority DoDds to provide fmanc:ial assistance to private-sector entities for the acquisition and ~struction of Atellities deemed to be in the public interest. The bonds are accumt by the proJ*t)' finlftCOd. Upon repeymem ofdae bonds. ownenhip of the acquired facilities tranafers to the privato- sector entity served by 1be bond ~. Nchher the City, the State, nor any poUtical subdivision thereof is obligated In any maMer for repayment of the bonds. Accordingly~ the bonds arc not reported as liabilities in the accompanying fU'lancial statements. As of September 30, 2006. there wore five series of Lu~ Health Facilities Development Corporation Bonds outstanding wicb an agregate principal amt'lUilt p!l)'llble of $273,890,991. Tho bondJ were issued between l993 and 2005. Also Q of Scpmnbcr 30, 2006, there wu one seric$ of Lubbod( Education FaeiJIUos Authority Inc:. Bonda outscandmg with an asgresate principal amount p8)'8ble of'$8,63S,OOO. The bonds were issued in I 999. J. RJSK !fANACEMKNT The Risk Managoment Fund was established to a.cc:ount for liability claims, worker's COIIIpcnation clabN, and premlwns for property/casualty iDBurlmce oovcragc. The Risk Management Fund gcrieratos hs revenue through charges to other departmeftts. YAUch are based on coscs. In April 1999, the City purchased wortets• compensation coverage, witb no dcduc:dble, from a third pllty. Prior to April 1999 tbe City was solf·insured for wcnbr's compensation claims. Any claims outstanding prior to April I 999 eontinuo to be the responsibility of the City. 86 0 0 c c c ( ) City ofLubbock, Texas Notes to Basic Financial Statemeats September 30t 2006 NOTE m. DETAIL NOTES ON ALL ACTMTIES AND FUNDS (Continued) J. RISK MANAGEMENT CContlouecl> Tbe City's self·lflSW'liDce liability program is on a cash flow basis, whida mcanJ Chat the servlcfQ8 (()lltrJctor ~ adjusts and pa)'tl claims from a deposit provided by the City. The City ac:c:ouniS for tho liability proaram by charging premiums based upon losses, adminlltratlvc tCes and reserve requirements. In order to wntrol the risks associated with liability claims. the City priMed excess liabUity coveraae in September !999, which is rene~d annually. Tht policy has a SlO miJIIon annual aggregate limit and iJ subject to a $250,000 deductible per c:laim prior to October 1, 2005, and a $500,000 doductlble por claim sinco Octobar 1,200$. For stlf·insurcd COVCfa&e, the Risk Management Fund establishes claim liabilities based on e8tbnat:es of the ultJmale cost of claims (including future claim adjUS1ment expenses) that have been ~ but not settled. and of claims lbar have been incurred but not reported (IBNR). The length of time for whicb aucb cosu must be estimated varies depending on lbc coverage involved. Beca\IR actual efaiJn oosta deporx:l on such c:ompiCJC faotors as inflation, changes in doctrines of legalliabUity, and damage award$, tbe p(oce:ss usod fn computJna ~!aim liabflities does not necessarily result in an exact amount. particularly fot' liabUity. covera&e. Claim liabilities are recomputed periodically using a wricty or actuarial .and statistfcaJ teclurlquea to produce c:umnt estimate$ that ~neet recent settlcnncmts, claim fi'oquency, and other economic and social fal:fots. Adj\&Stments lo claim liabilities arc eharg~ or crcdiced to expense in the period in which they are incumd. · Additionally, property and boiler coverage i$ aecouJ'Ited for in tbe Rist Management Fund. The property inJuran~ policy was purobascd fi'cm an outside in.sw'an" cll'rict. 1'hc poJtcy bas 1 $250~000 ded\tetlblo per occurrenoe, and the boiler coverage insuraflee deductible is up to SS00$000 dependent upon dte unit Premiums are charged to funds based upon estimated premiums for the upcoming year. Other small inslltMce poljcies, SU<:h as surety bond coverage afld miscellaneous fToMors, are also KCOUnted for in the Risk Management Fund. Funds are charged based on premium amounts and administrative c:bN'gel. Tho City has had no signific:.ant reductions in insurance covcraao during tho fiscal year. Sealemona in lhe current )IW and preceding two years llave not exeeeded insUrahCe covetage. Tbt City ~OID.IIs for •II insurance activity inlnlemal Service Fuflds. K. HEaLTH INSURANCE ~ City provides medical and dental insurance for all fulJ .. time employee! lhlt arc aceounted for iD the Health Benefit.<> Fund. Revenue for the health insurance pn:miwns are generated from each Goat Qellter baxd upOn the number of active fuJI .. timc employees. 1be City's plan b seJf·insurcd under an Administmivc Services Only (ASO) Agreement. The ASO Agreement provides excess coverage of $175,000 per covered individual annually and an aggregate cap of $I8,84S,7S7. The insuranee vendor based on .riiedi~l trend, claims history, and utili1.ation detetmiJIC$ the Qggn:gate deductible. The contract requfre.s aa IBNit reserve of approximate!)' $2.3 mmion. The City also provides full-time empJoyccs basic term life insurance. Revenue& for tho life insurance premiums an: also ~neratcd from each C!O$l cen1tr ba.sed upon ~c number of ~~etive employees. The Ufe insuraru:e policy has a fate value of$1 0,000 per employee. Full·tlme employee3 may elet1 to purctwc medical aDd dental insurance for eligible depondenta and tbe Cit)' subsi~ dependent premiums to reduce the cost to employees. Employees may also e~ to perticipate In several voluntary insurance proarams such u a cancer income policy, voluntary life, aDd penoaaJ ac:cident insunmce. Voluntal)' insurance products arc fblly pa.id by the employee. 87 City of Lubbock, Texu Notes to Basic Fmanc:lal Statemen-ts September 30, 1006 NOTE Ul. DETAIL NOTES ON ALLACl'IVlTIES AND FUNDS (Continued) K. HEALTH JNStJMNCE (Continued> Retiring City employees may el~t to retain medica\ and dental Insurance and a reduced amount of life insurance on themselves and eligible dependents. The retiree pays a portion of dle premium costs, but the City subsidies retiree pramiums by about Sl.J miUfon annua!Jy. The life 11\SW'ance ia fully paid by the retiree. L. ACCRUED ll~SyRANCE CLAIMS The Self-Insurance Funds cstabtfsh a UabiUty !or sell-insurance for bod! reported and unreported inaured CYeniS, which includes estimates of both t\durt payments of IOJHS and related claim acljustment expenses. The following represents changes in those aggrepaa UabJUtlos for the Sclf·lnSUI"'Ilee Funds durin,g the past two years ended September 30: FYl006 'F\'2005 Workers' ~satioo and Uability Rcsetvos at besinnina of fiscal~ $ 6,501,898 $ 6,436,854 Claims Expenses 3,235.231 -\658.359 Clai1111 Payments Workers'~ and Uabilil:y Reser.e at end or '4t476cl'S3l ~4&S93,31S2 ~year S;J!!b916 6,501,898 Medical and Dental~ Uabilicy 1i ~of ra yr~~~ 2,340,260 2,3S4,S36 Claims Expenses 19,060,956 17,432,646 Oailn'S Pa)mcnts (18.640,060} (17,446,922) Medical and 0mta1 OaillB Liabirlt)' at end offiJCal ~ 2,761,1S6 2,3:!9:260 Total Sclf~lnsurance l.iahilil)' at end of fiscal )a!' 8,022,132 8,842,158 Total ~to pay claims at rnd of fiscal )'CII' 11,237.066 12,646,638 Accruecl instJrai'ICe claims p;lyllible m rcsai.ctt4 assdS • ~ 4,956,613 3,943,861 Atcrued insurance claims payable • nonwrtent 310651459 4.898a97 Total ecxrued imw-ance claims s 8,022,132 s ;842,1S8 M. ~6~DFI~L! s;LQ~J.!BI &~D POST~LOSIIU CAU ~OST State tnd federal laws and regulations require the City to place fiMI covet~ on iu landfill sites when they Slop accepting waste and to pcrfonn certain maintenance and monitQring functions at the $it(!$ fOf thirty years after closure. Although closure and postclosuro em costs will be paid only near or after tho date that the landfills stop ~pting waste, tbc Cicy repons a portion offhosc eloeQre and postelosure c:os11 .a operating expenses (and rea>pizing a corresponding liability) in each period baaed on llndfill capacit)' IMed as of each balance sheet date. 88 0 c c c c r .. ' ( ( ') J ; ) ) . City ofLubboc:k. Texas Notes to Basie Finaneial Statements September 30. 2006 NOTE m. DETAU. NOTES ON ALL ACTIVITIES AND FUNDS (Contlaued) M. LANDFILL CLQSURE AND POSTCLQSURE CABE COST <Contfngcdl The S3,299,13! included in landfill c:losuro and post~losure care liability at September 30,2006, represents the cumulative amQunt expe.nsed by the City to date for its two landfills that arc registered under TCEQ permit numbers 69 (Landfill69) and 22!12 (Landfill 2252). less amounts that have been paid. Approximately 92 percent of 1M estimated capacity of Landfill 69 has been used to date, with $806,525 remaining to be recopized over the remaining closure period, which is estimated at two year:s. Approximately 2.7 percent of' the estimated "J>ad\y of Landfilll252 hu been used to date, with $23,900,641 remain in' to be n:cognizal over the ~abrlnJ closurt period, which b estimated at over 80 years. Postelosure care costs are based on prior estimates and have been adjusted for inflation. Actual costs may be ditl'crent due to inflation, deflation, th&J\P$ in technology, or cfwlgcs in regulations. The City b required by aute and federal laws and regulations to pro'Yide as.suranco that fmaooiaJ resources will bo evailablf to provide for closure, postclosure care, and ~dlation or containment of environmental hazard$ at Its landfills. The City is in compliance with 1htse requirermmts and has cbOHI'I the Local Govemment Flnanofal Test mechanism for providing dtis assuraoce. The City expects to finance costa tfu'ousll nOrmal operations. N. DISAGREGATION OF ACCOUNTS-FUND FlNANCI&L SIAJEMENTS Aecou~an Receivable Svmm.1!l Co11rt Property U.l,.ac.at Fiaes OoY-ero•nt.l Activities: 1>11111•1! Pavtn1 · Mbc. MOI06 Oenc:ral fund $ 4,394,859 s 2.58,940 s 329,780 $ 175,317 s .5,158,896 NoD~or 341 907. 341907 Total $ 4,)94,859 s 2.581940 s 329,780 s 517,224 s S,.S00,803 Actoenll Rettivable Summa!l General Credit a.la~~eeat Cvnsumtr Carel Misc. 91~ B•hln.Hype Attivltiea: LP&L s 16,472,414 $ -s 81,008 s 16.553,422 Water 4,737,859 2SO 4,738,109 Wastewllicr 2,445,149 2,445,149 Stotmwtter 775,$59 71S,SS9 WTMPA 1,&00,814 1,800,814 NomrJl!ior 311421939 51191 125 3114!,855 Totol s 2913741734 s 5,791 $ 81.383 s 29~4611908 89 City of Lubbock, Texas Notes to Basic Flnaneial Statements Septembn 30, 2006 NOTE DJ. DETAIL NOTES ON ALL AC11VITIES AND FUNDS (Coatiaued) N. DlSAGRIGATION OF ACCQUNTS-lUND FINANCIAL STATEMEN'fS (Cootlngss\) Allowance ror Doubtrlll AeCOIDh Sum mal')' a.lanuac t/30106 Govc:rnmct~tal General Fund s 3,333,l40 Nonm~r Business-Type LP&L 1,00&,169 Wat~ 445,656 WuteWII.et' 187,475 Stormw.ter 86,291 WTMPA Nonmlljor 231,312 Total s 5,292.143 Accounts h~•tile S1111l!•a!l Dalaace at Voucher• ACCO'IIIltl Miscellaneous 9130106 GDvttRmeetal: Gc1lCI'IJ Fund $ 688,014 $ 2,188,258 $ 409,627 $ ~,285,899 Nonmajor t,022,S63 1,000,889 176,081 2,199,533 BIIIIMSS-Type: LPI.L 490,Sl4 272,SS7 272,13S 1,03S,206 Water 331,100 2!179,186 124,574 2,635,560 Wastewater 149,571 755,676 161,633 1,066,886 Storm water 55,129 1,o7S,828 14,880 1,146,437 WTMPA 8,329,910 8,329,910 NOCI!Njot 96~51 1,7281886 94.330 1«219,467 Total $ 2,833,748 s 17,531,890 s 1,253,260 s 21,618,898 90 0 0 0 c c c ,. 1,. ( ( 0 0 0 0 City of Lubbock, Tens Notes to Basic Finu.:ial Statements September 30, 2006 NOTE Ill. DETAIL NOTES ON ALL ACTIVITIES AND FUND (Conti11ued) O. PlSAGRWADON OF ACCOUNTS· GOYERNMJNT-WJDE Net RecdYables Accounts Jnterut Taua lAterul Senltt S.laace at Reulvabte Reulvable Recelv•ble !Ucelvlblet ,130106 Gcwernmental Actlvltlu $ 2,167,563 s 386,349 s 9,159,~95 $ 5.784 s 11,719.391 Butlnas-type Acllvltln 27.~03.005 111.576 St704 27,620,285 Total $ 2~.670,:568 $ 497,925 $ 9,1S9,69S s I 12488 $ 39t339.6?6 AcecH~•t.t la~b'- Accouatl Ja•naat StrT.Ict JblaiiCI at Pay•ble P•)'llblet 9130106 GGwnuneatat Activities $ 5,485,432 $ 181,289 s 5,666,721 BulaesH)'pe Aeilvlties 16,133,466 736,217 16,869,683 TOial $ 21,618,898 s 917,506 s ~36,404 NOTE IV. CONTINGENT LIABILITIES A. FEDERAL GRANTS In the nonnal course of·operations, the City receives grant funds from various fedentl and state agencies. The granl progr&m$ are subject to audita by agents of the gamit\g authority to ensure compliMce with conditions precedent to tllo granting o~ Aulds. Any liability for reimbW'SeJll41nt which may arise as the resuh of audits of grMts is not bel~ved io be significant. B. LITIGATION The City is currently Involved In the following lawsuits which could have an impact on the financial position lrthe City is found liable. Charles Emmaawel Bosler, u Surviving j)areat of Courtaey Nicole Bosler, u Guardian of Colton Bo.sler v. Tnvb ~Jdctl~ •ad Tbc Cit)' or Lubbock: Plaintiff sue(j the City of Lubbock and Officer Travis Riddle on behalf of himself and his children arising out of the death of his teot1ap daugbter and Injuries to hi~ son from an automobile accident witb Officer Travis Riddle. Plaintiff alleges that Officer Riddle was operating his vehicle lrJ a negliJent manner and was apeedin& Ill lhc lime of the collision. The Defendants wcrtcd tha1 the driver of the vehicle carrying the 8011ler <:hildrtn, wbleh was die modler, was nesligent in failing to yield the right..of·way to Officer Travis Riddle. 91 City of Lubbock, Texas Notes to Basic Financial Statements September 30, 1006 NOTE IV. CONTINGENT LIABILITIES (Continued) B. LITIGtJION CCootJnued) The City filed a Motion for Summary Judgment based on che fact tbat the Plaintiff did not present his notice of clahn to the City of Lubbock within six (6) months of the date of the 8C(:fdent. T'he Plaintiff never filed a notice of elabn tnd filed suit seven (7) months after the date of the accident. The Plaintiff claima that notice wu not necesSary in lbat the Defendant'> had actual notice of me tncidont. The trial court wanted the City's Summary Judgment based on the fact that the Plaintiff did not file a claim wi1h the City of Lubbock within she (6} months from lh~ date of the 8C(fdent. The Plaintlffhu appealed this declsioo to the Court of Appeals. Martha Dillon v. City of Lubbock: Plaintiff is suing the City of Lubbock for injuries arising from an automobile accident with a City of Lubbock driver. Tht City of JAbboc:lc driver was exiting an alley when he "T·Boned" the vehicle driven by Manila Dillon. The Plaintiff had undellone previous back surget)', uncfet&one rehabilitation, and bad recovered fi'om the previous ba¢k sur'ery to return to work full·time. She had been working full-time for approximately thret (3) weeks beforo this accident cx:~urtod. As a !'$SUit of this accident sbe has undergone other procedures including another back sw.gery at the end of Oc;tOber. According to her treating physician, who is a well respected local physician, her prognosis for belng able to retum to work on a fu11·time basis is not very good. Grace-Nunez a.ad Juan Nunez, et al v. Clay of L11bbock and Taser lntemational, be.: Plaintiff's tu~ suing the City of Lubbock and 1'1lSer lntun.ational arising from lhe City of Lubllock's police officer's use of a wer in arresting Juan Nunez. The City of Lubbock police officer utilized a tascr in arnsting J\WI N11nn and Nunez died after the taser was uullzed. The City of Lubbock's Plea to the Jurisdiction asserting tba1 the City hu no liability under Section 101.057 of the Texas Tort Claims Act has been denied by the trial court. The City has appealed the decision to tho Court of Appeals. A reeerit case with similar facts to the present case was decided by the Waco Court ofAppeals in C/1)1 of Waco v. Williams. Jn that ease the ~Jiate court ruled that the City of Waco had immunity undor this scenario. This was a 2·1 decision and it is anticipated that the Plaintiff$ will appeal the City of Waco case to the Texas Supreme Coun. Grace Nunez and Juan Nunez, et all v. City or Lubboek, Officer Matt Dober.ty and Tasel' lntematlonat. Int. This lawsufl pre&ents the: same fact situation as described in tbe previous Nunez lawsuit. The difference is that thi$ lawsl!it alleges civil rights violations agaiNt the City and Officer Matt Doherty. The suit was filed on ~bor 22, 2006 in lbe Amarillo Division of the Notthcm District. 0 0 0 0 0 0 0 0 0 0 () 0 0 0 c City ofLubboekt Texas Notes to Basic Financial Statements September 30, 2006 NOTE JV. CONTINGENT UABILJTIES (Co)ltblued) B. YTJGAIJON (Continued ) Oscar Renda Contradlng, Inc •• et at v. City of Lubbock. et al: The Plaintiff is a contractor who bid to p$tfonn a contract for the Clty of Lubbock. Even tboush Oseu R.enda Contracting's bid was over $2,000,000 less than the C:Ompan)l who reQOived the award &om the City of Lubbock, Oscar Renda Contracting was not awarded such bid. Oscar Renda ~ that 1he tea$On it was not awarded the bid was because il has filed a suit against anodter public entity ln El Puo regarding one of its wnstruction proj~IS. They base tbls on the fact that litigatioQ and the e:ost of lftigatfon with non-Jocat contractor' was mentioned at 1M time the bid was awarded in August l006. City of Lubbock filed a Motion for Summary Judgment and it ·was granted by tho trial ~ourt. Howewr, the f'~ Circuit ot Appeal$ reversed ilie decision of the trial court and remanded the case back to trial in a split <leclsion in Aup&t 2006. The City of Lubbock has filed a petition with the United Staie$ Supreme Ccun iD an effort to get them to review tbc ca~. L•yne StanJord v. City ot Lubbock and Lubbock Clvll Serv.lce CoCDmts.lon: Plaintiff, a fire fighter, tiled suit under the Civil Service Ae,t al}oglng ht w-.s wi'o~ly denied a prombcion. He asserts that the Fire Chief wrongfully passed bim ovor for a prOmotiOJJ ~lise· he was charscd. but not convicted, of DWl. The main issue in tbe c:ase pertains to whether he wu entitled to have hls a heard by a thlrd·party hearing examiner. He asserts that since the City refUsed to a11ow the case t~ bf! heard by a hearing examiner, he is enlitled to the promotion. · The trial court ruled in tbe Defendant's favor. The case is c~o~irentty on appeaL Dama,ges are Jimlled to attorney's fees and back pay. L.J. McCanaa, Jr. v. City or Lubbotk. et at! A lawsuit was r.Jed in late November against the Cit)' of Lub.bo<:k an.d three Lubbock police offim"S pertaining t() an incident in wbicb a su~pect was injurod wilh a wor utilized by one of the Lubbock police ofticers. Plaintiff is suing the City end the officers under the Civil Rights Act and is also suing tho City under the Texas Ton Claims Ac:t. At Ibis time we do not have much informarioll as we have yet to review the police reports. the investi&ation by infernal affairs, or review the video of the bioident. However, it doos not appear that there were any sisnificant injurlos to the plaintiff. Terry £1Jerbrook Y. City ofLubboc:k: Plaintiff is a cutTent employet of the Clty of Lubbock alleging claims qf age discrimination. Mlistlt blower claims. retaliation and damages because be was mewed from one position to another position within the City. Also, the Plaintiff Is assenins open meeting violations by the City. Mr. Ellerbrock is employed as the Director of Solid Waste and is currently earning more money dum he W.AJ in hia prior position. Discovery is ongoing. This case is pending the 237tli Distri~;t Court and Is set fer trial in Aug~ 2007. The City is denying the allegations and claims made by the Plaintiff. 93 City of Lubbock, Tesas Notes to Basic Financial Statements September 30, 2006 NOTE IV. CONTINGENT LIABIUTIES (CoDtinued) C. SJTE REMEPIATION The City has identtlied spcci& locations requiring site remediation relative to underground fuel storage tanks and historical fire training sites. One of the sites refmed to below as Lubbock Power & Light (LP&L) Plant 1. represents a liability equally shared by both the City and l.P&L. As of September 30, 2006 the City identified three locations that posed a probable liability. The City rec:orded the liabilities for the three locations in the Enterprise Funds as follows: • LP&.L Plant J ($236,000)-thisrepre.sents LP&.L's portion of the liability only • LP&L Cooke Plant ($539,000) • WesTex Ah'~raft ($300,000) The City recorded the probable liabilities m the govemment-wide governmental statements as follows: • LP.ti. Plant 1 ($236,000)-lhis represents the City's portion only • Police Yaing Range ($30,000) • CFR TrahtingFacility($114,220) • Fire Training Acadent1 ($338:335) • South Fueling FaCility ($204;000) The potential exposure for one remaining location it not readily determinable as of September 30, 2006. In tbe opinion of management. the ultimate liability for this location will not haw a materially adverse effect on the City's financial position. NOTEV. SUBSEQUENTEVENT On January 10, 2007, the City sold $54,020.000 General Obligation Refunding Bonds and $25,255,000 Certificate ofObJigation Bonds. 94 0 0 0 0 0 0 0 0 0 0 0 0 0 APPENDIXB FORM OF BOND COUNSEL OPINION 0 0 0 0 0 0 This page intentionally left blank 0 0 0 0 0 0 :)_ ') ) ' ) Vinson &Elkins [Form of Opinion of Bond Counsel] [Closing Date] $52,900,000 CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 WE HAVE represented the City of Lubbock, Texas (the "City,), as its Bond Counsel in connection with an issue of certificates of obligation (the .. Certificates") descn'bed as follows: CITY OF LUBBOCK. TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION, SERIES 2008, dated January I 5, 2008, issued in the principal amount of $52,900,000. The Certificates mature, bear interest, are subject to redemption prior to maturity and may be transferred and exchanged as set out in the Certificates and in the ordinance adopted by the City CounciJ 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 Certificates under the Constitution and Jaws of the State of Texas and with respect to the exclusion of interest on the Certificates 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 foJiowing 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 Certificates. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Certificates 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 Certificates, on which we have relied in giving our opinion. The transcript contains certified copies of certain proceedings of the City, customary certificates of officers. agents and representatives of the City and other VInson & Elkins UP Attorneys lit Law Austin Beijing Dallas Oubai liouston London Moscow NewYOO< TOkyO Washington Dallas 1201430v.2 • Trammell Crow Cenlef, 2001 Ross Avenue, Suite 3700 Dallas, Texas 75201·2975 T.t 214.220.7700 Fax 214.220.nt6 -.ve~aw.- V&E public officials, and other certified showings relating to the authorization and issuance of the Certificates. We have also examined executed Certificate 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 Certificates in full compliance with the Constitution and laws of the State of Texas presently effective and, therefore, the Certificates constitute valid and legally binding obligations of the City; and (B) A continuing ad valorem tax upon aJI taxable property within the City, necessary to pay the interest on and principal of the Certificates, has been levied and pledged irrevocably for such purposes, within the limit prescribed by law, and the total indebtedness of the City, induding the Certificates, does not exceed any constitutional, statutory or other limitations. In addition, the Certificates are further secured by a limited pledge (not to exceed $1,000) of the surplus net revenues of the City's Wastewater System, as described in the Ordinance. THE RIGHTS OF THE OWNERS of the Certificates 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 Jimited by general principles of equity which permit the exercise of judicial discretion. IT IS OUR FURTHER OPINION THAT: ( 1) Interest on the Certificates is excludable from gross income for federal income tax purposes under existing law; and (2) The Certificates are not "private activity bonds" within the meaning of the Internal Revenue Code of 1986, as amended (the .. Code"), and interest on the Certificates is not subject to the alternative minimum tax on individuals and corporations, except that interest on the Certificates will be included in the .. adjusted current earnings'' of a corporation (other than an S corporation, regulated investment company, REIT, REMIC or FASin 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 Certificates with respect to matters solely within the knowledge of the City, the City's financial advisor and the underwriters respectively, which we have not independently verified, and have assumed continuing compliance with the covenants in the Ordinance pertaining to those sections of the Code that affect the exclusion from gross income of interest on the Certificates for federal income tax purposes. If such representations are detennined to be inaccurate or incomplete or the City fails to comply with the foregoing • -2- Dallas 1201430v.2 0 0 0 0 0 c r .. c ) V&E provisions of the Ordinance, interest on the Certificates 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 Certificates. Owners ofthe 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 wm commence an audit of the Certificates. 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 resuJt in the treatment of interest on the Certificates as includable in gross income for federal income tax purposes. -3- Dallas 1201430v.2 ) 1 APPENDIXC SPECIMEN MUNICIPAL BOND INSURANCE POLICY ' ~ ~~~ .. \ ~ ~ : J I "r•. J ... .._ ! •> ' I • ''lo t ·-:-\. . .. ·-·· \' • I . ' . f~.\ ~d~.·! ~:--s,\. 'iF,;! v-., .. 1 FS{\ \ ·:-;,; r-••• ~ ' . •. . .. ~ t ~ • • . " . . '" "l I . , . .. '•t ... , a. ~~-\ .~ .. .., -( ~ .. ' f . ~ -.. ' '· ·! ·. ,, .. ' . ~ ... \ ' \ .. \ . · FI:NAN:CIAL. : ; crr;.r;,URIT¥ . ~~~ ' .. ( . ' : ..... ASSURANCIA> • ' ·~ • > I (f " ' . . .. t y1 t -'• t I''· ' ~ ' • • 5-~'-I ' ~ ~ MUNICIPAL BO INSURANCE~ ' . •·IS~~E~r· : J '· . .. , ' .... I I . ~~ ~ .. ~ ~. ~ t eoor>S:··· 't'·· • .. \ ' .. ~ . -! ' :'t r . 'I<• -~ 4, •. # ·~ ~ . . -. _ .. . . re~· . pn. a ~~n 0 , othei"Wlse, it wi\1 ·fW:mPI~Yin·e t · ived by .f.inanti&41 I Security; fof pu~~ Trus1ee, Paying Agent or 11\lh ..... ~ ..... ent Upon 'disburs:ement in . nd, ary appurte~nt. ~upoq ~ st on the Bond and shall be wtty to receive payments under tile Bond, u r. Pajment by Financial Secu~y to·~e shall, tq the el(f.ent thereof, discharge· the . . . . .. \ . re.ssty mQ ifi n endorsement hereto, the following tenns .shall .have < ed for I.PUfP~S f this Policy. ftBusiness Day" means any day other than (a} a Or"(b) a ay on h banking institutionS in the State of New York or the Insurer's · a ri~ed r requi by law or executive order to remain closed. "Due for,P.ayment" · ~ · erring to , · I of a Bond, payable on the stated maturity date thereof or the d ·me sh I ve been duly called for mandatory sinking fund redemption and' doeS m n ier date Qn which l)ayment is due by reason of caA for redemption (otfle{, than bY ~-. i~g .. ~ red~mption). accelerotion pr olher advancement of mat4rity unless Financial e 's · ( ea in itS SOle discretion. to pay such principal due upc)n such acceleration together With .. ' ! ..... f C'. : . . ..... '~ • • -· ., > 'i. .j . .. . . , ' ....... ! ' ! .. .. \-·• . \ ~ , ... !.: ·' . " ~ . . \. ~ ,'' \ I .. ~ t • . \ \ ~ ;,,'\·~;.., ·: ;_~~-~ .· .... ~ './\~: ;.:·,, ~ .... l ... M '! ... . ' . . ' I i<~;;;. 't'·d ... '-.. .. .... c: , .. ": ' ' .. 't ·~ ·\. ,,~:;_' yaccro · i '· ' t tolhe date df acceteration and (b) when referring'1o interest on a Bond, payable· an stpted or p~yl]lentptinterest. "Nonpayment" means, in re.specbof a Bond, the .failure of.Jhe er: to ave provided sufficient funds to the Trustee or. if there is no Trustee, to the Paying Agent for e i\ full of an principat and interest that is Due for Payment on such Bond. "Nonpayment" shall -' ude, i!\ ~ ·of a Be?~. any payment of principal or 'interest that is Due ftM PaymenJ ' ' ' ' • t. ' •• ·~ ,. .,. -t ·~ ' ' .. ~ '· F:~.A , .. ... ~ ;. -. '( ,. \. '• .t. ~ " I ~ ' . . .. \ • • I ; -~. :': _! \.'~j " .......... -' { l I .-\ ' j : I l ! I j ' i d j ~ I I ! ' i j RBC Capital .Markets PURCHASE CONTRACf RELATING TO $52,900,000 City of Lubbock, Texas Tax and Wastewater System Surplus Revenue Certificates of Obligation Series 2008 January 17, 2008 The Honorable Mayor and Members of the City Council City ofLubbock P.O. Box 2000 Lubbock, Texas 79457 Dear Mayor and Members of the City Council: MORGAN KEEGAN & COMPANY, INC.(the "Authorized Representative"), MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, MORGAN STANLEY & CO. INCORPORATED and SOU11lWEST SECURITIES, INC. (collectively, the "Underwriters"), offer to enter into this Purchase Contract (the ''Purchase Contract") with the CITY OF LUBBOCK, TEX4S(the "City") for the purchase by the Underwriters of the City's Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008 (the "Securities"). '!Jlis offer is made subjectto the City's acceptance of this Purchase Contract on or before 12:00 p.m. Central Time on January 17,2008. 1. Purchase and Sale of the Securities. (a) Upon the terms and conditions and upon the basis of the representations set forth herein, the Underwriters, jointly and severally, hereby agree to purchase from the City, and the City hereby agrees to sell and deliver to the Underwriters an aggregate of $52,900,000 (representing the original aggregate principal amount of the Securities). The Securities shall have the maturities, interest rates and be subject to redemption in accordance with the provisions of Exhibit A hereto and shall be issued and secured under the provisions of the Ordinance (as defined below). (ii) The purchase price for the Securities shall be $55,433,IJ 0. 06 (representing the principal amount of the Securities, plus original issue premium on the Securities in the amount of $2,851,566.50, and less an Underwriters' discount on the Securities of $318,456.44) plus accrued interest from their dated date to the date of the payment for and delivery of the Securities. (b) The Authorized Representative represents that it has been duly authoriz.ed to execute this Purchase Contract and has been duly authorized to act hereunder as the Authorized Representative. All actions that may be taken by the Underwriters hereunder may be taken by the Authorized Representative alone. 2. Ordinan~e. The Securities shall be as described in and shall be issued and secured under the provisions of an ordinance adopted by the City on January 10, 2008, authorizing the issuance and sale of the Securities (the "Ordinance"). In the Ordinance, the City Council of the City delegated the authority to the City Manager and the Chief Financial Officer and, if both are absent, the Director ofFiscal Policy and Strategic Planning (each an "Authorized Officer") to establish the pricing terms for ~e Securities through the execution of a Pricing Certificate dated the date hereof (the "Pricing Certificate"). The Securities shall be secured and payable as provided in the Ordinance and the Pricing Certificate. 3. Public Offering. It shall be a condition of the obligations of the City to sell and deliver the Securities to the Underwriters, and of the obligations of the Underwriters to purchase and accept delivery of the Securities, that the entire principal amount of the Securities authorized by the Ordinance and as set forth in the Pricing Certificate shall be sold and delivered by the City and accepted and paid for by the Underwriters at the Closing. The Underwriters agree to make a bona fide public offering of all of the Securities, at not in excess of the initial public offering prices, as set forth in the Official Statement; provided however at least ten percent (100/o) of the principal amount of the Securities 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 Authorized Representative payable to the order of the City in the amount of $669, 750. Such check is a common "Good Faith" check for the Securities, and such check may be applied toward any obligation of the Underwriters owing as a result of the failure of the Underwriters to accept delivery of the Securities as provided herein. The City agrees to hold such check uncashed until the Closing to ensure the performance by the Underwriters of their obligation to purchase, accept delivery of and pay for the Securities at the Closing. Concurrently with the payment by the Underwriters of the purchase price of the Securities, the City shall return such check to the Authorized Representative as provided in Paragraphs 7 and 8 hereof. Should the City fail to deliver the Securities at the Closing, or should the City be unable to satisfy the conditions of the obligations of the Underwriters to purchase, accept delivery of and pay for the Securities, as set forth in this Purchase Contract (unless waived by the Authorized Representative), or should such obligations of the Underwriters be tenninated for any reason permitted by this Purchase Contract, such check shall immediately be returned to the Authorized Representative. In the event the Underwriters fail (other than for a reason permitted hereunder) to purchase, accept delivery of and pay for the Securities at the Closing as herein provided, such check shall be retained by the City as and for full liquidated damages for such failure of the Underwriters and for any defaults hereunder on the part of the Underwriters. The Authorized Representative hereby agrees not to stop or cause payment on said check to be stopped unless the City has breached any of the terms of this Purchase Contract 2 5. Official Statement. The Official Statement, including the cover pages and Appendices thereto, of the City, dated January 17, 2008, with respect to the Securities, as further amended only in the manner herein provided, is hereinafter called the "Official Statement." The City hereby authorizes the Ordinance and the Official Statement and the information therein contained to be used by the Underwriters in connection with the public offering and sale of the Securities. The City confinns its consent to the use by the Underwriters prior to the date hereof of the Preliminary Official Statement, relative to the Securities, dated January 8, 2008 (the "Preliminary Official Statement"), in connection with the preliminary public offering and sale of the Securities, and it is "deemed final" as of its date, within the meaning, and for the purposes, of Rule 15c2-12 promulgated under authority granted by the federal Securities and Exchange Act of 1934 (the "Rule"). The City agrees to cooperate with the Underwriters to provide a supply of final Official Statements within seven business days of the date hereof in sufficient quantities to comply with the Underwriters' obligations under the Rule and the applicable rules of the Municipal Securities Rulemaking Board. The Underwriters will use their best efforts to assist the City in the preparation of the final Official Statement in order to ensure compliance with the aforementioned rules. If at any time after the date of this Purchase Contract but before the first to occur of (i) the date upon which the Underwriters notify the City that the period of the initial public offering of the Securities 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 tmder which they were made, not misleading, the City shall notify the Authorized Representative, and if, in the opinion of the Authorized Representative, such event requires the preparation and publication of a supplement or amendment to the Official Statement, the City will at its expense supplement or amend the Official Statement in the form and in a manner approved by the Authorized Representative and furnish to the Underwriters a reasonable number of copies requested by the Authorized Representative in order to enable the Underwriters to comply with the Rule. To the best knowledge and belief of the City, the Official Statement contains information, including financial information or operating data, as required by the Rule. Except as disclosed in the Official Statement, the City has not failed to comply with any undertaking specified in paragraph (b )(5)(i) of the Rule within the last five years. 6. Representations, Warranties and AgreementsoftheCity. On the date hereof, the City represents, warrants and agrees as follows: (a) The City is a home rule municipality and a political subdivision of the State of Texas and a body politic and corporate, and has full legal right, power and authority to enter into this Purchase Contract, to adopt the Ordinance, to sell the Securities, and to issue and deliver the Securities to the Underwriters as provided herein and to carry out and consummate all other transactions contemplated by the Ordinance, the Pricing Certificate and this Purchase Contract; 3 (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 Securities, the Pricing Certificate and this Purchase Contract and has duly authorized and approved the performance by the City of its obligations contained in the Ordinance, including, without limitation, the submission of a transcript of proceedings to the Public Finance Division of the Office of the Attorney General ofTexas (the" Attorney General") for the approval of the Securities; and the Ordinance and this Purchase Contract constitute legal, valid and binding agreements of the City, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratoriwn and other similar laws and principles of equity relating to or affecting the enforcement of creditors' rights or by general principles of equity which permit the exercise of judicial discretion; (c) The City is not in breach of or default under any law or administrative regulation of the State of Texas or the United States (including regulations of its agencies) applicable to the issuance of the Securities or any applicable judgment or decree or any loan agreement, note, order, agreement or other instrument, except as may be disclosed in the Official Statement. to which the City is a party or to the knowledge of the City it is otherwise subject, that would have a material and adverse effect upon the business or financial condition of the City; and the execution and delivery of the Securities and this Purchase Contract by the City and the adoption of the Ordinance by the City and compliance with the provisions of each thereof will not violate or constitute a breach of or default under any existing law or administrative regulation, or any judgment, decree or agreement or other instrument to which the City is a party or, to the knowledge of the City, is otherwise subject; (d) All approvals, consents and orders of any governmental authority or agency having jurisdiction of any matter that would constitute a condition precedent to the performance by the City of its obligations to sell and deliver the Securities hereunder will have been obtained prior to the Closing, except for the approval of the Securities by the Attorney General and registration of the Securities by the Office of the Comptroller of the State (the "Comptroller"), and the City shall timely cause a transcript of proceedings to be filed with the Attorney General in form and substance consistent with the administrative rules of the Public Finance Division of the Attorney General, which will penni t the review of such transcript and the approval of the Securities by the Attorney General, and the registration of the Securities by the Comptroller on or before the Closing, as required by Section 8(e)(6) hereof, but subject to the discretion of the Attorney General with respect to the issuance of his approving opinion; (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; 4 (f) Between the date of this Purchase Contract and the Closing, the City will not, without the prior written consent of the Underwriters, sell or issue any additional bonds, notes or other obligations for borrowed money payable in whole or in part from ad valorem taxes other than the City's Tax and Waterworks System Surplus Revenue Certificates of Obligation, Taxable Series 2008, and the City will not incur any material liabilities, direct or contingent. nor will there be any adverse change of a material nature in the financial position of the City; (g) Except as described in the Official Statement, no litigation is pending or, to the knowledge of the City, threatened in any oourt affecting the oorporate existence of the City, the title ofits officers to their respective offices, or seeking to restrain or enjoin the issuance or delivery of the Securities, the levy, collection or application of the ad valorem taxes and the surplus net revenues (the "Pledged Revenuestt) of the City's Wastewater System pledged or to be pledged to pay the principal of and interest on the Securities, or in any way contesting or affecting the issuance, execution, delivery, payment, security or validity of the Securities, or in any way contesting or affecting the validity or enforceability of the Ordinance, or oontesting the powers of the City, or any authority for the Securities, the Ordinance, the Pricing Certificate or this Purchase Contract or contesting in any way the completeness, accuracy or fairness of the Preliminary Official Statement or the Official Statement; (h) The City will cooperate with the Underwriters in arranging for the qualification of the Securities for sale and the determination of their eligibility for investment under the laws of suchj urisdi ctions as the Authorized Representative designates, and will use its best efforts to continue such qualifications in effect so long as required for distribution of the Securities; provided. however, that the City will not be required to execute a oonsent to service of process or to qualify to do business in connection with any such qualification in any jurisdiction; (i) The descriptions of the Securities and the Ordinance contained in the Official Statement accurately summarize certain provisions of such instruments, and the Securities, when validly executed, authenticated and delivered in accordance with the Ordinance and sold to the Underwriters as provided herein, will be validly issued and outstanding obligations of the City entitled to the benefits of, and subject to the limitations contained in, the Ordinance~ (j) If prior to the Closing an event occurs affecting the City that is materially adverse for the purpose for which the Official Statement is to be used and is not disclosed in the Official Statement, the City shall notify the Authorized Representative, and if in the opinion of the City and the Authorized Representative such event requires a supplement or amendment to the Official Statement, the City will supplement or amend the Official Statement in a form and in a manner approved by the Authorized Representative; 5 (k) The financial statements contained in the Official Statement present fairly the financial position of the City as of the date and for the period covered thereby and are stated on a basis substantially consistent with that of the prior year's audited financial statements; (I) Any certificate signed by any official of the City and delivered to the Underwriters shall be deemed a representation and warranty by the City to the Underwriters as to the truth of the statements therein contained; (m) The City has not been notified of any listing or proposed listing by the Internal Revenue Service to the effect that it is a bond issuer whose arbitrage certifications may not be relied upon; and (n) The City will not knowingly take or omit to take any action, which action or omission will in any way cause the proceeds from the sale of the Securities to be applied in a manner other than as provided in the Ordinance or that would cause the interest of the Securities to be includable in gross income of the holders thereof for federal income tax purposes. 7. Oosing. By I 0:00A.M., Central Time, on Febnwy 12, 2008 (the "Closing"), the City will deliver the initial securities certificates of the Securities (as provided for in the Ordinance) to the Underwriters and the City shall take appropriate steps to provide The Depository Trust Company ("DTC') with one definite securities certificate for each year of maturity of the Securities, and to provide the Underwriters with the other docwnents hereinafter mentioned. On or prior to the date of Closing, the Underwriters shall make arrangements with DTC for the Securities to be immobilized and thereafter traded as book-entry only securities and on the date of Closing the Underwriters will accept such delivezy and pay the purchase price of the Securities, as set forth in Paragraph I hereof in immediately available funds. Concurrently with the payment for the Securities by the Underwriters, the City shall return to the Authorized Representative the check referred to in paragraph 4 hereof. Delivery and payment as aforesaid shall be made at the office of the paying agent/registrar for the Securities, as identified in the Official Statement, or such other place as shall have been mutually agreed upon by the City and the Authorized Representative. In addition, the City and the Underwriters agree that there shall be a preliminazy closing held at such place as the City and the Underwriters shall mutually agree, commencing at least 24 hours prior to the Closing; provided, however, in lieu of this preliminary closing Bond Counsel, as defmed below, may provide the counsel to the Underwriters with a complete Transcript of Proceedings on the business day preceding the Closing. Drafts of all documents to be delivered at the Closing shall be prepared and distributed to all parties and their counsel for review at least three business days prior to the Closing. 8. Conditions. The Underwriters have entered into this Purchase Contract in reliance upon the representations and warranties of the City contained herein and to be contained in the documents and instrwnents to be delivered at the Closing. and upon the performance by the City of its obligations hereunder, both as of the date hereof and as of the date of Closing. Accordingly, the 6 Underwriters' obligations under this Purchase Contract to purchase and pay for the Securities shall be subject to the performance by the City of its obligations to be performed hereunder and under such documents and instruments at or prior to the Closing, and shall also be subject to the following conditions: (a) The representations and warranties of the City contained herein shall be true, complete and correct in all material respects on the date hereof and on and as of the date of Closing, as if made on the date of Closing; (b) At the time of the Closing, (i) the Ordinance shall be in full force and effect, and neither Ordinance shall have been amended, modified or supplemented and the Official Statement shall not have been amended, modified or supplemented, except as may have been agreed to by the Authorized Representative; and (ii) the net proceeds of the sale of the Securities shall be deposited and applied as described in the Official Statement and in the Ordinance; (c) At the time of the Closing, all official action of the City related to the Ordinance shall be in full force and effect and shall not have been amended, modified or supplemented; (d) The City shall not have failed to pay principal or interest when due on any of its outstanding obligations for borrowed money; (e) At or prior to the Closing, the Underwriters shall have received each of the following documents: ( 1) The Official Statement of the City. executed on behalf of the City by the Mayor and City Secretazy, 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 Underwriters. The Ordinance shall contain the agreement of the City, in form satisfactory to the Underwriters, that is described under the caption "Other Information -Continuing Disclosure of Information" in the Preliminary Official Statement; (3) the Pricing Certificate, having been duly executed on behalf of the City by an Authorized Officer; (4) The Paying Agent/Registrar Agreement (with respect to the Securities), having been duly executed on behalf of the City and The Bank ofNew York Trust Company, National Association, as Paying Agent/Registrar; 7 ( 5) The opinion pertaining to the issuance of the Securities, dated the date of Closing, of Vinson & Elkins L.L.P. ("Bond Counsel") in substantially the form and substance set forth in Appendix B to the Official Statement; ( 6) Opinion with respect to the Securities, dated on or prior to the date of Closing, of the Attorney General, approving the Securities as required by law and the registration certificate of the Comptroller; (7) The supplemental opinion, dated the date of Closing, of Bond Counsel, addressed to the City and the Underwriters, which provides that the Underwriters may rely upon the opinion of Bond Counsel delivered in accordance with the provisions of paragraph 8( e)( 5) hereof, and opini,ng to the effect that (a) the Purchase Contract has been duly authorized, executed and delivered by the City and (assuming due authorization by the Underwriters) constitutes a binding and enforceable agreement of the City in accordance with its terms; (b) in its capacity as Bond Counsel, such firm has reviewed the information in the Official Statement under the captions or subcaptions "The Certificates" (exclusive of the information under the subcaptions "Book-Entry-Only System" and "Sources and Uses of Funds"), "Tax Matters" and the subcaptions "Legal Investments and Eligibility to Secure Public Funds in Texas," "Legal Matters" and "Continuing Disclosure 'Of Information" (exclusive of the information under the subcaption "Compliance with Prior Undertakings") under the caption "Other Information" in the Official Statement, and such firm 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 Securities, such information conforms to the Ordinance; and (c) the Securities are exempt from registration pursuantto the Securities Act of 1933, as amended, and the Ordinance is exempt from qualification as an indenture pursuant to the Trust Indenture Act of 1939, as amended; (8) An opinion of McCall, Parkhurst & Horton L.L.P., Underwriters' Cotmsel, addressed to the Underwriters, and dated the date of Closing in substantially the form attached hereto as Exhibit B; (9) A certificate, dated the date of Closing, signed by the Mayor and Chief Financial Officer of the City, to the effect that (i) the representations and warranties of the City contained herein are true and correct in all material respects on and as of the date of Closing as if made on the date of Closing; (ii) except to the extent disclosed in the Official Statement, no litigation is pending or, to the knowledge of such persons, threatened in any court to restrain or enjoin the issuance or delivery of the Securities, or the levy, collection or application of the ad valorem taxes and Pledged Revenues pledged or to be pledged to pay the principal of and interest on the Securities, or the pledge thereof, or in any way contesting or affecting the validity of the Securities or the Ordinance, or contesting the powers of the City or the authorization of the Securities or the Ordinance, or contesting in any way the 8 ' ) accuracy, completeness or fairness of the Official Statement (but in lieu of or in conjunction with such certificate, the Underwriters may, in their sole discretion, accept certificates or opinions of the City Attorney that, in the opinion thereof, the issues raised in any such pending or threatened litigation are without substance or that the contentions of all plaintiffs therein are without merit); (iii) to the best of their knowledge, no event affecting the City has occurred since the date of the Official Statement that should be disclosed in the Official Statement for the purpose for which it is to be used or that it is necessary to disclose therein in order to make the statements and information therein not misleading in any respect; and (iv) that there has not been any material and adverse change in the affairs or financial condition of the City since September 30, 2006, the latest date as to which audited financial information is available; (10) An opinion or opinions of the City Attorney addressed to the Underwriters and dated the date of Closing substantially in the form and substance of Exhibit C hereto; (11) 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 Securities, it is not expected that the proceeds of either series of the Securities will be used in a marmer that would cause such Securities to be "arbitrage bonds" within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended; (12) Evidence of the rating on the Securities, which shall be "Aaa" by Moody's Investors Service, Inc. ("Moody's"), .. AAA" by Standard and Poor's Corporation, a division of the McGraw-Hill Companies, Inc. ("S&P"), and "AAA" by Fitch Ratings ("Fitch"), as a result of the issuance of the mmicipal bond insurance policy described in clause (13) below, shall be delivered in a form acceptable to the Underwriters; (13) A copy of the policy of municipal bond insurance issued by Financial Security Assurance Inc. with respect to the Securities; (14) Such additional legal opinions, certificates, instruments and other documents as Bond Counsel or the Underwriters may reasonably request to evidence the truth, accuracy and completeness, as of the date hereof and as of the date of Closing, of the City's representations and warranties contained herein and of the statements and information contained in the Official Statement and the due performance and satisfaction by the City at or prior to the date of Closing of all agreements then to be performed and all conditions then to be satisfied by the City. 9 All of the opinions, letters, certificates, instruments and other documents mentioned above or elsewhere in this Purchase Contract shall be deemed to be in compliance with the provisions hereof if, but only if, they are satisfactory to the Underwriters. If the City shall be unable to satisfy the conditions to the obligations of the Underwriters to purchase, to accept delivery of and to pay for the Securities as set forth in this Purchase Contract, or if the obligations of the Underwriters to purchase, to accept delivery of and to pay for the Securities shall be terminated for any reason permitted by this Purchase Contract, this Purchase Contract shall terminate, the security deposit referred to in Paragraph 4 of this Purchase Contract shall be returned to the Authorized Representative and neither the Underwriters nor the City shall be under further obligation hereunder, except that the respective obligations of the City and the Underwriters set forth in Paragraphs 10 and 12 hereof shall continue in full force and effect. 9. Termination. The Underwriters may terminate its obligation to purchase at any time before the Closing if any of the following should occur: (a) (i) Legislation shall have been enacted by the Congress of the United States, or recommended to the Congress for passage by the President of the United States or favorably reported for passage to either House of the Congress by any Committee of such House~ or (ii) a decision shall have been rendered by a court established under Article ill of the Constitution ofthe United States or by the United States Tax Court; or (iii) an order, ruling or regulation shall have been issued or proposed by or on behalf of the Treaswy Department of the United States or the Internal Revenue Service or any other agency of the United States; or (iv) a release or official statement shall have been issued by the President of the United States or by the Treasury Department of the United States or by the Internal Revenue Service, the effect of which, in any such case described in clause (i), (ii), (iii), or (iv), would be to impose, directly or indirectly, federal income taxation upon interest received on obligations of the general character of the Securities 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 Securities on the date hereof and other than as disclosed in the Official Statement, in such a manner as in the judgment of the Authorized Representative would materially impair the marketability or materially reduce the market price of obligations of the general character of the Securities. (b) Any action shall have been taken by the Securities and Exchange Commission or by a court that would require registration of any security under the Securities Act of 193 3, as amended, or qualification of any indenture under the Trust Indenture Act of 1939, as amended, in connection with the public offering of the Securities, or any action shall have been taken by any court or by any governmental authority suspending the use of the Preliminary Official Statement or the Official Statement or any amendment or supplement thereto, or any proceeding for that purpose shall have been initiated or threatened in any such court or by any such authority. 10 (c) (i) The Constitution of the State ofT exas shall be amended or an amendment shall be proposed. or (ii) legislation shall be enacted, or (iii) a decision shall have been rendered as to matters of Texas law, or (iv) any order, ruling or regulation shall have been issued or proposed by or on behalf of the State ofTexas by an official, agency or department thereof, affecting the tax status of the City, its property or income, its securities (including the Securities) or the interest thereon, that in the judgment of the Authorized Representative would materially affect the market price of the Securities. (d) A general suspension of trading in securities shall have occurred on the New York Stock Exchange. (e) A material disruption in securities clearance, payment or settlement services in the United States shall have occurred. (f) There shall have occurred any (i) material outbreak ofhostilities (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 fmancial, political or economic conditions affecting the United States, the effect of 'Which on U.S. financial markets of such an event described in clauses (i) or (ii) shall make it, in the reasonable judgment of the Authorized Representative, impractical or inadvisable to proceed with the offering or deli very of the Securities as contemplated by the final Official Statement (exclusive of any amendment or supplement thereto). (g) An event described in Paragraph 6(j) hereof occurs that, in the reasonable judgment of the Authorized Representative, requires a supplement or amendment to the Official Statement that is deemed by them, in their discretion, to adversely affect the market for the Securities. (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) Aloweringoftheratingsof"Aaa,""AAA" and "AAA," initially assigned to the Securities by Moody's, S&P and Fitch, respectively, shall occur prior to the Closing. 10. Expenses. (a) The City shall pay all expenses incident to the issuance of the S~urities, 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 Securities; (iii) the fees and expenses of Bond Counsel to the City; (iv) the fees and disbursements of the City's accoWltants, 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 Securities. 11 ' (b) The Underwriters shall pay (i) all advertising expenses in connection with the offering of the Securities; (ii) the cost of the preparation and printing of all the underwriting documents; and (iii) the fee of McCall, Parkhurst & Horton L.L.P. for such firm's opinion required by Paragraph 8(e)(8) 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 Underwriters under this Purchase Contract may be given by delivering the same in writing to 4400 Post Oak Parkway, Suite 2670, Houston, Texas 77027, Attention: Ms. Debi Jones. 12. Parties in Interest. This Purchase Contract is made solely for the benefit of the City and the Underwriters (including the successors or assigns of any Underwriter) and no other person shall acquire or have any right under this contract. The City's representations, warranties and agreements contained in this Purchase Contract that exist as of the Closing, and without regard to any change in fact or circumstance occurring subsequent to the Closing, shall remain operative and in full force and effect, regardless of(i) any investigations made by or on behalf of the Underwriters, and (ii) delivery of any payment for the Securities 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 Wlenforceable in any other case or circumstances, or of rendering any other provision inoperative or unenforceable to any extent whatever. 14. Choice of Law. This Purchase Contract shall be governed by and construed in accordance with the laws of the State of Texas. 15. Execution in Counterparts. This Purchase Contract may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Purchase Contract by signing any such counterpart. 16. Section Headings. Section headings have been inserted in this Contract as a matter of convenience of reference only, and it is agreed that such section headings are not a part of this Contract and will not be used in the interpretation of any provisions of this Contract. 17. Status of the Underwriters. The City acknowledges that in connection with the offering of the Securities and the discussions and negotiations relating to the terms of the Securities set forth in this Contract: (a) the Underwriters have acted at arms length, are not agents of or advisors to, and owe no fiduciary duties to, the City or any other person, (b) the Underwriters• duties 12 and obligations to the City shall be limited to those contractual duties and obligations set forth in this Contract and (c) the Underwriters may have interests that differ from those of the City. The City waives to the full extent permitted by applicable law any claims it may have against the Underwriters arising from an alleged breach of fiduciary duty in connection with the offering of the Securities. [Signature page follows.] 13 If you agree with the foregoing, please sign the enclosed counterpart of this Purchase Contract and return it to the Authorized Representative. Tills Purchase Contract shall become a binding agreement between you and the Underwriters when at least the counterpart of this Purchase Contract shall have been signed by or on behalf of each of the parties hereto. Very truly yours, Morgan Keegan & Company, Inc. Merrill Lynch, Pierce, Fermer & Smith Incorporated Morgan Stanley & Co. Incorporated Southwest Securities, Inc. By: Morgan Keegan & Company, Inc. Authorized Representative By:~~ Name: -~~-.o.u.;~~~~~~~o:;::::S,--- Title: ~ 2 ACCEPTANCE ACCEPTED pursuant to amotion adopted by the City Council oftheCity of Lubbock; Texas on the lOth day of January, 2008 and executed this /7 ~ day of~, 2008. By: ) EXHIBIT A Schedule of Maturities, Interest Rates, Yields and Redemption Provisions $52,900,000 City of Lubbock, Texas Tax and Wastewater System Surplus Revenue Certificates of Obligation Series 2008 Maturity Principal Interest Rate Yield {February 15} Amount (%} {%} 2009 $1,765,000 4.000 2.670 2010 1,830,000 3.500 2.700 2011 1,895,000 3.500 2.790 2012 1,960,000 3.250 2.890 2013 2,025,000 3.250 2.980 2014 2,095,000 3.250 3.100 2015 2,165,000 3.500 3.200 2016 2,245,000 3.500 3.320 2017 2,325,000 3.625 3.420 2018 2,430,000 5.000 3.520 2019 2,550,000 5.000 3.620 2020 2,685,000 5.000 3.690 2021 2,820,000 5.000 3.770 2022 2,965,000 5.000 3.840 2023 3,115,000 5.000 3.900 2024 3,265,000 4.200 4.200 2025 3,420,000 5.000 4.020 2026 3,595,000 5.000 4.080 2027 3,780,000 5.000 4.120 2028 3,970,000 5.000 4.160 Optional Redemption. The City reserves the right. at its option, to redeem Securities having stated maturities on and after February 15,2018, in whole or in part in principal arnountsof$5,000 or any integral multiple thereof, on February 15, 2017, or any date thereafter, at the par value thereof pi us accrued interest to the date of redemption. A-1 EXHIBITB Proposed Form of Underwriters' Counsel Opinion of McCall, Parkhurst & Horton L.L.P. February ~ 2008 Morgan Keegan & Company, Inc. Menill Lynch, Pierce, Fenner & Smith Incorporated Morgan Stanley & Co. Incorporated Southwest Securities, Inc. c/o Morgan Keegan & Company, Inc. 4400 Post Oak Parkway, Suite2670 Houston, Texas 77027 RE: $52~,000CITYOFLUBBOCK., TEXASTAXANDWASTEWATERSYSTEMSURPLUS REVENUE CERTIFICATES OF OBLIGATION, SERIES 2008 Ladies and Gentlemen: We have acted as counsel for you as the underwriters of the securities described above (the "Securities"), issued under and pursuant to the ordinance (the "Ordinance") of the City of Lubbock, Texas (the "Issuer"), authorizing the issuance of the Securities, which Securities you are purchasing pursuant to a Purchase Contract, dated January 17, 2008. 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 certificates and other infonnation furnished to us, as we have deemed appropriate as a basis for our opinion set forth below. We are not expressing any opinion or views herein on the authorization, issuance, delivery, validity of the Securities and we have assumed, but not independently verified, that the signatures on all documents and Securities that we have examined are genuine. B-1 ) Based on and subject to the foregoing, we are of the opinion that, under existing laws, the Securities are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Ordinance is not required to be qualified under the Trust Indenture Act of 1939, as amended. Because the primmy 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 January_, 2008 (the · "Official Statement") and because 1he information in the Official Statement under the headings "Tiffi CERTIFICATES -Book-Entry-Only System," "TAX MATTERS," "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 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 "THE CERTIFICATES-Book-Entry-Only System," "TAX MATTERS," "OTIIER INFORMATION -Continuing Disclosure of Infonnation -Compliance with Prior Undertakings" and Appendices A, B, and C thereto, as to which we express no opinion), as of its date contained any untrue statement of a material fact or omitted to state any materilj] fact necessary to make the statements therein, in the light of the circwnstances under which they were made, not misleading. This opinion letter may be relied upon 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 purposes whatsoever without our prior written consent Respectfully, B-2 ) EXHIBITC Opinion of the City Attomey February ~ 2008 Morgan Keegan & Company, Inc. Merrill Lynch, Pierce, Fenner & Smith Incorporated Morgan Stanley & Co. Incorporated Southwest Securities, Inc. c/o Morgan Keegan & Company, Inc. 4400 Post Oak Parkway, Suite 2670 Houston, Texas 77027 RE: $52,900,000CITYOFLUBBOCK, TEXASTAXANDWASTEWATERSYSTEMSURPLUS REVENUE CERTIFICATES OF OBLIGATION, SERIES 2008 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 securities (the "Securities"), pursuant to the provisions of the ordinance (the "Ordinance") duly adopted by the City Council of the City on January 10, 2008. 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. C-1 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: I. Based on reasonable inquiry made of the responsible City employees and public officials, the City is not, to the best of my knowledge, in breach of or in default under any applicable law or administrative regulation of the State of Texas or the United States, or any applicable judgment or decree or any trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the City is party or is otherwise subject and, to the best of my knowledge after due inquiry, no event has occurred and is continuing that, with the passage of time or the giving of notice, or both, would constitute such a default by the City under any of the foregoing; and the execution and delivery of the Purchase Contract, the Securities and the adoption of the Ordinance and compliance with the provisions of each of such agreements or instruments does not constitute a breach of or default under any applicable law or administrative regulation of the State of Texas or the United States or any applicable judgment or decree or, to the best of my knowledge, any trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the City is a party or is otherwise subject; and 2. Except as disclosed in the Official Statement, no litigation is pending, or, to my knowledge, threatened, in any court in any way (a) challenging the titles of the Mayor or any of the other members of the City Council to their respective offices; (b) seeking to restrain or enjoin the issuance, sale or delivery of any of the Securities, or the levy, collection or application of the ad valorem taxes and the Pledged Revenues pledged or to be pledged to pay the principal of and interest on the Securities; (c) contesting or affecting the validity or enforceability of the Securities, the Ordinance, the Pricing Certificate or the Purchase Contract; (d) contesting the powers of the City or any authority for the issuance of the Securities, or the adoption of the Ordinance; or (e) that would have a material and adverse effect on the financial condition of the City. 3. IhavereviewedtheinformationintheOfficial 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, C-2 ' ) ' REGISTERED No.1 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 INTEREST RATE: REGISTERED $1,765,000 RED SIXTY-FIVE THOUSAND DOLLARS unless this Certificate shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Certificate 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, 2008. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). The principal of this Certificate shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Certificate at the corporate trust office in Dallas, Texas (the "Designated Paymentffransfer Office"), of The Bank of New York Trust Company, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Paymentffransfer Office of such successor. Interest on this Certificate 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. At the option of an Owner of at least $1,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with ) REGISTERED No.2 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERJES 2008 REGISTERED $1,830,000 INTEREST RATE: MATURITY DATE: 3.500% February 15,2010 549187 6R8 State of Texas, for value ate specified above, the sum of T HUNDRED THIRTY THOUSAND DOLLARS unless this Certificate shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Certificate 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, 2008. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). The principal of this Certificate shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Certificate at the corporate trust office in Dallas, Texas (the "Designated Payment!fransfer Office"), of The Bank of New York Trust Company, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment!fransfer Office of such successor. Interest on this Certificate 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. At the option of an Owner of at least $1,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with ) ) REGISTERED No.3 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 INTEREST RATE: MATURITY DATE: 3.500% February 15, 2011 The City of Lubbock (the "City"), · received, hereby promises to pay to REGISTERED $1,895,000 549187 686 HUNDRED NINETY-FIVE THOUSAND DOLLARS unless this Certificate shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Certificate 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, 2008. All capitalized tenns used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). The principal of this Certificate shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Certificate at the corporate trust office in Dallas, Texas (the ''Designated Payment/Transfer Office"), ofThe Bank of New York Trust Company, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Paymentffransfer Office of such successor. Interest on this Certificate 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. At the option of an Owner of at least $1 ,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with REGISTERED REGISTERED No. 4 $1,960,000 United States of America State of Texas County of Lubbock ) CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 INTEREST RATE: MATURITY DATE: 3.250% February 15, 2012 549187 6T4 unless this Certificate shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Certificate 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, 2008. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). The principal of this Certificate shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Certificate at the corporate trust office in Dallas, Texas (the "Designated Paymentn'ransfer Office"), of The Bank ofNew York Trust Company, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office of such successor. Interest on this Certificate 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. At the option of an Owner of at least $1,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with \ REGISTERED No.5 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 INTEREST RATE: MATURITY DATE: 3.250% February 15,2013 REGISTERED $2,025,000 549187 6Ul The City of Lubbock (the "City"), in the State of Texas, for value received, hereby promises to pay to v ar registered assigns, on the ~~ed above, tho sum of TWO MIL~NTY-FIVE THOUSAND DOLLARS ~ unless this Certificate shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Certificate 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, 2008. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). The principal of this Certificate shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Certificate at the corporate trust office in Dallas, Texas (the "Designated Payment!fransfer Office"), of The Bank of New York Trust Company, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office of such successor. Interest on this Certificate 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. At the option of an Owner of at least $1,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with ) REGISTERED No.6 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 INTEREST RATE: MATURITY DATE: 3.250% February 15,2014 The City of Lubbock (the "City"), in the received, hereby promises to pay to REGISTERED $2,095,000 unless this Certificate shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Certificate 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, 2008. All capitalized tenns used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). The principal of this Certificate shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Certificate at the corporate trust office in Dallas, Texas (the "Designated Payment!fransfer Office"), of The Bank of New York Trust Company, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment!fransfer Office of such successor. Interest on this Certificate 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. At the option of an Owner of at least $1,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with REGISTERED No.7 United States of America State of Texas County of Lubbock CITY OF LUBBOC~ TEXAS REGISTERED $2,165,000 TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 INTEREST RATE: MATURITY DATE: CUSIP NUMBER: 3.500% February 15, 2015 549187 6W7 The City of Lubbock (the "City"), in~, received, hereby promises to pay to "'~- State of Texas, for value TWO MILL UNDRED SIXTY-FIVE THOUSAND DOLLARS unless this Certificate shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Certificate 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, 2008. All capitalized tenns used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). The principal of this Certificate shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Certificate at the cotpOrate trust office in Dallas, Texas (the "Designated Payment/Transfer Office"), of The Bank of New York Trust Company, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office of such successor. Interest on this Certificate 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. At the option of an Owner of at least $1,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with ' REGISTERED REGISTERED $2,245,000 No.8 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 INTEREST RATE: MATURITY DATE: CUSIP NUMBER: 549187 6XS 3.500% February 15, 2016 The City of Lubbock (the "City''), in the of Texas, for value received, hereby promises to pay to & ~ TWO MILLIO . RED FORTY -FIVE THOUSAND DOLLARS ~ . . " '. unless this Certificate shall~ been sooner called for redemption and the pa)1llent of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Certificate 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, 2008. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). The principal of this Certificate shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Certificate at the corporate trust office in Dallas, Texas (the "Designated Pa}1llentffransfer Office"), of The Bank of New York Trust Company, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Paymentffransfer Office of such successor. Interest on this Certificate 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. At the option of an Owner of at least $1,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with REGISTERED No.9 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 REGISTERED $2,325,000 INTEREST RATE: MATURITY DATE: CUSIP NUMBER: 549187 6Y3 3.625% February 15, 2017 of Texas, for value unless this Certificate shalf: e been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Certificate 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, 2008. All capitalized tenns used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). The principal of this Certificate shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Certificate at the corporate trust office in Dallas, Texas (the "Designated Payment!fransfer Office"), of The Bank of New York Trust Company, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office of such successor. Interest on this Certificate 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. At the option of an Owner of at least $1,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with REGISTERED No.lO United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 INTEREST RATE: MAWRITYDATE: 5.000% February 15,2018 The City of Lubbock (the "City''), in the received, hereby promises to pay to REGISTERED $2,430,000 549187 6ZO or registered assigns, on th~61 ed above, the sum of TWO MILLIO,~RED TIIIRTY THOUSAND DOLLARS ~-unless this Certificate shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Certificate 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, 2008. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). The principal of this Certificate shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Certificate at the corporate trust office in Dallas, Texas (the "Designated Paymentffransfer Office"), of The Bank of New York Trust Company, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Paymentffransfer Office of such successor. Interest on this Certificate 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. At the option of an Owner of at least $1,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with REGISTERED No. 11 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 REGISTERED $2,550,000 INTEREST RATE: MATURITY DATE: CERTIFICATE DATE: CUSIP NUMBER: or registered assigns, on the Maturity D THOUSAND DOLLARS unless this Certificate called for redemption and the payment of the principal hereof shall have or provided for, and to pay interest on such principal amount from the later of the Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annwn rate of interest specified above, computed on the basis of a 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, 2008. All capitalized tenns used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). The principal of this Certificate shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Certificate at the corporate trust office in Dallas, Texas (the "Designated Paymentrrransfer Office"), of The Bank of New York Trust Company, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Paymentrrransfer Office of such successor. Interest on this Certificate 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. At the option of an Owner of at least $1,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with ' I REGISTERED No. 12 United States of America State of Texas CoWlty of Lubbock CITY OF LUBBOCK, TEXAS REGISTERED $2,685,000 TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 INTEREST RATE: MATURITY DATE: 5.000% February 15, 2020 The City of Lubbock (the received, hereby promises to pay to CUSIP NUMBER: 549187 782 Lubbock, State of Texas, for value unless this Certificate shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Certificate 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, 2008. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). The principal of this Certificate shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Certificate at the corporate trust office in Dallas, Texas (the "Designated Paymentffransfer Office"), of The Bank of New York Trust Company, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Paymentffransfer Office of such successor. Interest on this Certificate 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. At the option of an Owner of at least $1 ,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with REGISTERED No.13 United States of America State ofTexas County of Lubbock CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 INTEREST RATE: MATURITY DATE: 5.000% February 15,2021 The City of Lubbock (the "City"), in the received, hereby promises to pay to REGISTERED $2,820,000 or registered assigns, on~~ ed above, the sum of TWO MILLIO • DRED TWENTY TiiOUSAND DOLLARS ' ~· unless this Certificate shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount :from the later of the Certificate 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, 2008. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). The principal of this Certificate shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Certificate at the corporate trust office in Dallas, Texas (the "Designated Paymentffransfer Office"), ofThe Bank of New York Trust Company, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office of such successor. Interest on this Certificate 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. At the option of an Owner of at least $1,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank accoWlt of such Owner on file with ' REGISTERED No.l4 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 REGISTERED $2,965,000 INTEREST RATE: MATURITY DATE: 5.000% February 15, 2022 State of Texas, for value unless this Certificate shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Certificate Date specified above or the most recent interest payment date to which interest has been paid or provided for until pa}'1llent 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, 2008. All capitalized tenns used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). The principal of this Certificate shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Certificate at the corporate trust office in Dallas, Texas (the "Designated Payment/Transfer Office"), of The Bank of New York Trust Company, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office of such successor. Interest on this Certificate 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. At the option of an Owner of at least $1,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with REGISTERED No. 15 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 INTEREST RATE: MATURITY DATE: 5.000% February 15, 2023 .,,.. ... REGISTERED $3,115,000 549187 7E6 THREE MILLION ONE HUNDRED FIFTEEN THOUSAND DOLLARS unless this Certificate shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Certificate 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, 2008. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). The principal of this Certificate shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Certificate at the corporate trust office in Dallas, Texas (the "Designated Paymentrrransfer Office"), of The Bank of New York Trust Company, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office of such successor. Interest on this Certificate 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. At the option of an Owner of at least $1,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with REGISTERED No.16 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 INTEREST RATE: MATURITY DATE: 4.200% February 15,2024 REGISTERED $3,265,000 49187 7F3 THREE MILLION RED SIXTY ·FIVE THOUSAND DOLLARS Wlless this Certificate shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Certificate Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annwn rate of interest specified above, computed on the basis of a 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, 2008. All capitalized tenns used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). The principal of this Certificate shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Certificate at the corporate trust office in Dallas, Texas (the "Designated Payment/Transfer Office"), of The Bank of New York Trust Company, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office of such successor. Interest on this Certificate 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. At the option of an Owner of at least $1,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with ' REGISTERED No. 17 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS REGISTERED $3,420,000 TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 INTEREST RATE: MATURITY DATE: 5.000% February 15,2025 The City of Lubbock (the "City"), in received, hereby promises to pay to CUSIP NUMBER: 549187 7Gl State of Texas, for value unless this Certificate shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Certificate Date specified above or the most recent interest payment date to which interest has been paid or provided for until payment of such principal amount has been paid or provided for, at the per annwn rate of interest specified above, computed on the basis of a 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, 2008. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). The principal of this Certificate shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Certificate at the corporate trust office in Dallas, Texas (the "Designated Paymentffransfer Office"), of The Bank of New York Trust Company, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment!fransfer Office of such successor. Interest on this Certificate 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. At the option of an Owner of at least $1 ,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with 'I ' ' ) ) REGISTERED No. 18 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 INTEREST RATE: MATURITY DATE: 5.000% February 15,2026 REGISTERED $3,595,000 549187 7H9 unless this Certificate shall have been sooner called for redemption and the payment of the principal hereof shall have been paid or provided for, and to pay interest on such principal amount from the later of the Certificate 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, 2008. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). The principal of this Certificate shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Certificate at the corporate trust office in Dallas, Texas (the "Designated Paymentlfransfer Office"), of The Bank of New York Trust Company, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Payment/Transfer Office of such successor. Interest on this Certificate 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. At the option of an Owner of at least $1,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with REGISTERED No.l9 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 REGISTERED $3,780,000 INTEREST RATE: MATURITY DATE: CERTlFICATE DATE: CUSIP NUMBER: 5.000% February 15, 2027 549187 7J5 The City of Lubbock (the "City"), in the County received, hereby promises to pay to or registered assigns, on the Maturity amount from the later of the Certificate 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, 2008. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). The principal of this Certificate shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Certificate at the corporate trust office in Dallas, Texas (the "Designated Paymentrrransfer Office"), of The Bank of New York Trust Company, National Associatio~ or, with respect to a successor Paying Agent/Registrar, at the Designated Paymentffransfer Office of such successor. Interest on this Certificate 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. At the option of an Owner of at least $1,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with ) REGISTERED No.20 United States of America State of Texas County of Lubbock CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 REGISTERED $3,970,000 INTEREST RATE: MATURITY DATE: CERTIFICATE DATE: CUSIP NUMBER: 5.000% February 15,2028 January 15, 2008~549187 7K2 The City of Lubbock {the "City"), in the County of Lu~, Texas, for value received, hereby promises to pay to CED~C\,_,.. '~ or registered assigns, on the Maturity D ""~A~! of THREE MILLIO~ SEVENTY THOUSAND DOLLARS unless this Certificate shJ;~ o~ soon~ called for redemption and the payment of the principal hereof shall have ~een /paid or provided for, and to pay interest on such principal amount from the later of the Certificate 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, 2008. All capitalized terms used herein but not defined shall have the meaning assigned to them in the Ordinance (defined below). The principal of this Certificate shall be payable without exchange or collection charges in lawful money of the United States of America upon presentation and surrender of this Certificate at the corporate trust office in Dallas, Texas {the "Designated Payment!fransfer Office"), of The Bank of New York Trust Company, National Association, or, with respect to a successor Paying Agent/Registrar, at the Designated Paymentrrransfer Office of such successor. Interest on this Certificate 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. At the option of an Owner of at least $1,000,000 principal amount of the Certificates, interest may be paid by wire transfer to the bank account of such Owner on file with ' ) > the Paying Agent/Registrar. For the purpose of the payment of interest on this Certificate, the registered owner shall be the person in whose name this Certificate 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 Certificate 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 Certificate is one of a series of fully '"""~"'""~'"''"· ~ll'oo'u..u,,~ in the title referred to as the "Ordinance") for the public improvements to pay the contractual obligations and other professionals in connection hereof issued in the aggregate principal amount "Certificates''), issued pursuant to a certain n .. n.no2'1 purpose of paying contractual VV,_,__,., .. UVI.lQ.o.ILV (collectively, the "Project"), as for professional services of with the Project and the t's SJIII-.e The City has to redeem the Certificates maturing ori or after February 15, 2018, in in part, before their respective scheduled maturity dates, on February 15, 2017, or on any date thereafter, at a price equal to the principal amount of the Certificates so called for redemption plus accrued interest to the date fixed for redemption. If less than all of the Certificates are to be redeemed, the City shall determine the maturity or maturities and the amounts thereof to be redeemed and shall direct the Paying Agent/Registrar to call by lot or other customary method that results in a random selection the Certificates, or portions thereof, within such maturity and in such principal amounts, for redemption. Notice of such redemption or redemptions shall be given by first class mail, postage prepaid, not less than thirty (30) days before the date fixed for redemption, to the registered owner of each of the Certificates to be redeemed in whole or in part. Notice having been so given, the Certificates 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 Certificates or portions thereof so called for redemption shall not have been surrendered for payment, interest on such Certificates or portions thereof shall cease to accrue. As provided in the Ordinance, and subject to certain limitations therein set forth, this Certificate is transferable upon surrender of this Certificate 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 Certificates 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. -2- l365008v.l LUB200171012 ) Neither the City nor the Paying Agent/Registrar shall be required to issue, transfer or exchange any Certificate called for redemption where such redemption is scheduled to occur within forty-five (45) calendar days of the transfer or exchange date; provided, however, such limitation shall not be applicable to an exchange by the registered owner of the uncalled principal balance of a Certificate. The City, the Paying Agent/Registrar, and any other person may treat the person in whose name this Certificate 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 Certificate is registered on the Record Date) and for all other purposes, whether or this Certificate be overdue, and neither the City nor the Paying Agent/Registrar by notice to the contrary. Certificate and the series of which it is a part is duly authorized and things to be done precedent to and in the issuance of properly done and performed and have happened in regular manner as required by law; that ad valorem taxes upon all taxable have been levied for and pledged to the payment of the debt Certificates within the limit prescribed by law; that, in addition to said provisions have been made for the payment of the debt service requirements of the by pledging to such purpose Surplus Revenues, as defined in the Ordinance, derived by the City from the operation of the Wastewater System in an amount limited to $1 ,000; that when so collected, such taxes and Surplus Revenues shall be appropriated to such purposes; and that the total indebtedness of the City, including the Certificates, does not exceed any constitutional or statutory limitation. -3- 1365008v.l LUB200171012 ' IN WITNESS WHEREOF, the City has caused this Certificate to be executed by the manual or facsimile signature of the Mayor of the City and by the manual or facsimile signature of the City Secretary, and the official has been duly impressed or placed in facsimile on this Certificate. -4- 1365008v.l LUB200171 012 CERTIFICATE OF PAYING AGENT/REGISTRAR The records of the Paying Agent/Registrar show that the Initial Certificate of this series of certificates 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 Certificates referred to in the within-mentioned Ordinance. The Bank of New York Trust Company, National Association as Paying Dated: -5- 1365008v.l LUB200171 012 '\ 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: ---~ within Certificate and all rights hereunder and hereby ---------attorney to registration hereof, with full power of Dated: Signature Guaranteed By: Authorized Signatory 1365008v.l LUB200n1012 -6- and appoints the books kept for NOTICE: The signature on this Assignment must correspond with the name of the registered owner as it appears on the face of the within Certificate in every particular and must be guaranteed in a manner acceptable to the Paying Agent/Registrar. STATEMENT OF INSURANCE ) Financial Security Assurance Inc. ("Financial Security") New Y New York, bas delivered its municipal bond insurance policy with respect to the ·-.. ~0"-'"'~rc.! due of principal of and interest on this Certificate to The Bank of National Association, Dallas, Texas, or its successor, as paying Agent"). Said Policy is on file and available for · Paying Agent and ) a copy thereof may be obtained from > -7- 1365008v.l LUB200nt012 ) ) ) I'FSA MUNICIPAL BOND INSURANCE COMMITMENT FINANCIAL SECURITY ASSURANCE INC. ('Financial Security' or ~FSA") hereby commits to issue its Municipal Bond Insurance Policy (the 'Policy") relating to 'Miole maturities of the debt obligations described in Exhibit A attached hereto (the 'Bonds"), subject to the terms and conditions se1 forth in this Commitment, of 'Miich Commitment Exhibit A is an integrated part, or added hereto (the 'Commitment•). To keep this Commitment in effect after the Expiration Date set forth in Exhibit A attached hereto, a request for renewal must be submitted to Financial Security prior to such Expiration Date. Financial Security reserves the right to refuse 'M!olly or in part to grant a renewal. THE MUNICIPAL BOND INSURANCE POLICY SHALL BE ISSUED IF lliE FOLLOWING CONDITIONS ARE SATISFIED: 1. 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 fail to state a material fact necessary in order to make the information contained therein not misleading. 2. No event shall occur which would permit any under.vriter or purchaser of the Bonds, otherwise required, not to be required to underwrite or purchase the Bonds on the date scheduled for the issuance and delivery thereof ("Closing Date•). 3. There shall be no material change in or affecting the Bonds (including, without limitation, the security for the Bonds) or the financing documents or the Official Statement (or any similar disclosure documents) to be executed and delivered in connection with the issuance and sale of the Bonds from the descriptions or forms thereof approved by Financial Security. 4. The Bonds shall contain no reference to Financial Security, the Policy or the insurance evidenced thereby except as may be approved by Financial Security. BOND PROOFS SHALL HAVE BEEN APPROVED BY FINANCIAL SECURITY PRIOR TO PRINTING. The Bonds shall bear a Statement of Insurance in the form provided by Financial Secunly. 5. Financial Security shall be provided with: (a) Executed copies of all financing documents, any disclosure document (the "Official Statement') and the various legal opinions delivered in connection with the issuance and sale of the Bonds ('Miich shall be dated the Closing Date and which, except for the opinions of counsel relating to the adequacy of disclosure, shall be addressed to Financial Security or accompanied by a letter of such counsel permitting Financial Security to rely on such opinion as if such opinion were addressed to Financial Security), including, without limitation, the approving opinion of bond counsel. Each of the foregoing shall be in form and substance acceptable to Financial Security. Copies of all drafts of such documents prepared subsequent to the date of the Commitment (blackline<l to reflect all revisjoos from previously reviewed d@fts) shall be furnished to Financial Security for review and approval. Final drafts of such documents shall be provided to Financial Security at least three (3) business days prior to the issuance of the Policy, unless Financial Security shall agree to some shorter period. (b) Evidence of wire transfer in federal funds of an amount equal to the insurance premium, unless alternative arrangements for the payment of such amount acceptable to Financial Security have been made prior to the delivery date of the Bonds. (c) Standard & Poors Credit Market Services, Moody's Investors Service Inc. and Fitch IBCA, Inc. will separately present bills for their respective fees relating to the Bonds. Payment of such bills by the Issuer should be made directly to such rating agency. Payment of the rating fee is not a condition to release of the Policy by Financial Security. 6. Promptly after the closing of the Bonds, Financial Security shall receive three completed sets of executed documents (one original and either (i) two photocopies (each unbound) or (ii) three compact discs). 7. The Official Statement shall contain the language provided by Financial Security and only such other references to Financial Security or otherwise as Financial Security shall supply or approve. FINANCIAL SECURITY SHALL BE PROVIDED WITH FOUR PRINTED COPIES OF THE OFFICIAL STATEMENT. ) ) ) ) ) EXHIBIT A TERM SHEET FOR MUNICIPAL BOND INSURANCE COMMITMENT Issuer: City of Lubbock, Texas Principal Amount of Bonds Insured: Not to Exceed $66,975,000 Name of Bonds Insured: Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008 Date of Commitment: January 10, 2008 Expiration Date: Friday, March 14, 20oa• Premium: .28% of total debt service on the Bonds Insured Bond Counsel Opinion -language Requirements: The approving opinion of Bond Counsel shall include language to the effect that the Bonds are a full faith and credit obligation of the Issuer, the payment for which the Issuer is obligated to exercise its ad valorem taxing power, within the limits prescribed by law, upon all taxable property within the Issuer. FINANCIAL SECURITY ASSURANCE INC. Authorized Officer •T o keep the Commitment in effect to the Expiration Date set forth above, Financial Security must receive a duplicate of this Exhibit A executed by an authorized officer by the earlier of the date on which the Official Statement containing disclosure language about Financial Security is circulated and ten days from the Date of Commitment The undersigned agrees that if the Bonds are insured by a policy of municipal bond insurance, such insurance shall be provided by Financial Security in accordance with the terms of the Commitment. CITY OF LUBBOCK, TEXAS L:\I.EGAI.'IMUNIS\STA TES\TX\1 05073_N.doc ) ) ) ) ) ) ) PROCEDURES FOR PREMIUM PAYMENT TO FINANCIAL SECURITY ASSURANCE INC. Financial Security's issuance of its municipal bond insurance policy at bond closing is contingent upon payment and receipt of the premium. NO POLICY MAY BE RELEASED UNTIL PAYMENT OF SUCH AMOUNT HAS BEEN CONFIRMED. Set forth below are the procedures to be followed for confirming the amount of the premium to be paid and for paying such amount: Confirmation of Amount to be Paid: Upon determination of the final debt service schedule, fax such schedule to Financial Security Attention: Jim Doyle, Director Phone No.: (212) 339-3462 Fax No.: (212) 857-0354 Confirm with the individual in our underwriting department that you are in agreement with respect to par and premium on the transaction prior to the closing date. Payment Date: Date of Delivery of the insured bonds. Method of Payment: Wire transfer of Federal Funds. Wire Transfer Instructions: Bank: ABA#: Acct. Name: Account No.: Transaction No.: The Bank of New York 021 000 018 Financial Security Assurance Inc. 8900297263 105073 CONFIRMATION OF PREMIUM WIRE NUMBER AT CLOSING Financial Security will accept as confirmation of the premium payment a wire transfer number and the name of the sending bank, to be communicated on the closing date to Ullie Santana, Assistant Vice President Documentation and Closing Supervisor, (212) 339-3537. In the event the Insurer Is unable to fulfill its contractual oblfgation under this policy or contract or application or certificate or evidence of coverage, the policyholder or certlficateholder Is not protected by an Insurance guaranty fund or other solvency protection arrangement. FINANCIAL SECURITY ASSURANCEe ISSUER: City of Lubbock, Texas BONDS: $52,900,000 in aggregate principal amount of Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008 MUNICIPAL BOND INSURANCE POLICY Policy No.: 209880-N Effective Date: February 12, 2008 Premium: $231,765.85 FINANCIAL SECURITY ASSURANCE INC. (•Financial Security"), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the "Trustee") or paying agent (the "Paying Agent") (as set forth in the documentation providing far the issuance of and securing the Bonds) for the Bonds, for the benefit of the Owners or, at the election of Financial Security, directly to each Owner, subject only to the terms of this Policy (which includes each endorsement hereto), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. On the later of the day on which such principal and interest becomes Due for Payment or the Business Day next following the Business Day on which Financial Security shall have received Notice of Nonpayment, Financial Security will disburse to or for the benefit of each Owner of a Bond the face amount of principal of and interest on the Bond that Is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon receipt by Financial Security, in a form reasonably satisfactory to it, of (a) evidence of the Owner's right to receive payment of the principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the Owner's rights with respect to payment of such principal or interest that is Due for Payment shall thereupon vest in Financial Security. A Notice of Nonpayment will be deemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it will be deemed received on the next Business Day. If any Notice of Nonpayment received by Financial Security is incomplete, it shall be deemed not to have been received by Financial Security for purposes of the preceding sentence and Financial Security shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, who may submit an amended Notice of Nonpayment. Upon disbursement In respect of a Bond, Financial Security shall become the owner of the Bond, any appurtenant coupon to the Bond or right to receipt of payment of principal of or Interest on the Bond and shall be fully subrogated to the rights of the Owner, Including the Owner's right to receive payments under the Bond, to the extent of any payment by Financial Security hereunder, Payment by Financial Security to the Trustee or Paying Agent for the benefit of the Owners shall, to the extent thereof, discharge the obligation of Financial Security under this Policy. Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. "Business Day• means any day other than {a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer's Fiscal Agent are authorized or required by law or executive order to remain closed. "Due for Payment• means (a) when referring to the principal of a Bond, payable on 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 unless Financial Security shall elect, In Its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration and (b) when referring to Interest on a Bond, payable on the stated date for payment of interest. "Nonpayment" means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. "Nonpayment• shall also include, in respect of a Bond, any payment of principal or interest that is Due for Payment made to an Owner by or on behalf of the Issuer which has been recovered from such Owner pursuant to the ) Page 2 of2 Policy No. 209880-N United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction. 'Notice" means telephonic or telecopied notice, subsequently confirmed in a signed writing, or written notice by registered or certified mail, from an Owner, the Trustee or the Paying Agent to Financial Security which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount and (d) the date such claimed amount became Due for Payment. 'Owner• means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof, except that 'Owner" shall not include the Issuer or any person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds. Financial Security may appoint a fiscal agent (the "lnsurets Fiscal Agent') for purposes of this Policy by giving written notice to the Trustee and the Paying Agent specifying the name and notice address of the Insurer's Fiscal Agent. From and after the date of receipt of such notice by the Trustee and the Paying Agent, (a) copies of all notices required to be delivered to Financial Security pursuant to this Policy shall be simultaneously delivered to the Insurer's Fiscal Agent and to Financial Security and shall not be deemed received until received by both and (b) all payments required to be made by Financial Security under this Policy may be made directly by Financial Security or by the Insurer's Fiscal Agent on behalf of Financial Security. The lnsurets Fiscal Agent is the agent of Financial Security only and the lnsurets Fiscal Agent shall in no event be liable to any Owner for any act of the Insurer's Fiscal Agent or any failure of Financial Security to deposit or cause to be deposited sufficient funds to make payments due under this Policy. To the fullest extent permitted by applicable law, Financial Security agrees not to assert, and hereby waives, only for the benefit of each Owner, all rights (whether by counterclaim, setoff or otherwise) and defenses (including, without limitation, the defense of fraud), whether acquired by subrogation, assignment or otherwise, to the extent that such rights and defenses may be available to Financial Security to avoid payment of its obligations under this Policy in accordance with the express provisions of this Policy. This Policy sets forth in full the undertaking of Financial Security, and shall not be modified, altered or affected by any other agreement or instrument, including any modification or amendment thereto. Except to the extent expressly modified by an endorsement hereto, (a) any premium paid in respect of this Policy is nonrefundable for any reason whatsoever, including payment, or provision being made for payment, of the Bonds prior to maturity and (b) this Policy may not be canceled or revoked. THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. Jn witness whereof, FINANCIAL SECURITY ASSURANCE executed on its behalf by its Authorized Officer. A subsidiary of Financial Security Assurance Holdings Ltd. 31 West S2nd Street, New York, N.Y. 10019 Form 500NY {5190) has caused this Policy to be (212) 826-0100 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: 1. This certificate relates to the City of Lubbock, Texas, Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008 (the "Certificates"). 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 Certificates. 2. The total tax supported debt of the City, after giving effect to the issuance of the proposed Certificates, is $576,955,000. 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 2007, being its latest approved official assessment rolls is $10,897,210,563, which amount is net of the amount of any exemptions to which property otherwise subject to taxation was entitled pursuant to applicable provisions of the Constitution and laws of the State of Texas. 4. A true and correct copy of the debt service schedule for the Certificates 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 "FINANCIAL 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 ofTexas and the duly adopted Home Rule Charter of the City. The Home Rule Charter was last amended at an election held in the City on November 2, 2004. 6. The following are duly qualified and acting, elected or appointed officials of the City of Lubbock, Texas: 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 Todd R. Klein Phyllis S. Jones John Leonard ) ) ) Members of ) the Council ) ) 7. No litigation of any nature has been filed or is now pending to restrain or enjoin the issuance or delivery of the Certificates or which would affect the provisions made for their payment or security, or in any manner questioning the proceedings or authority concerning the issuance of the Certificates, 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 Dallas 1352079v.l ) ) ' ) \ no litigation is threatened regarding such matters, and no authority or proceedings for the issuance of the Certificates 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 Certificates. 10. The Ordinance was duly adopted by the City Council on January 10,2008. 11. The City has appropriated an amount of presently and lawfully available funds of the City which will be sufficient to pay debt service on the Certificates on August 15, 2008, and such appropriated amount will be deposited to the Interest and Sinking Fund created for the Certificates. 12. A true and correct statement of the revenues and expenses of the Wastewater System (previously referred to by the City as the Sewer System) for fiscal years 2002, 2003, 2004, 2005, 2006 and 2007, together with a true and correct statement of current rates and charges for the services of the System, is attached hereto as Exhibit A. 13. The City's population for 2008, as referenced in various table of the Official Statement, is approximately 214,847. 14. Except for the Certificates and the obligations set forth in Exhibit B hereto, none of the City's debts or obligations will be secured by a lien on and pledge of the revenues or income of the System. 15. The City is not in default in the payment of principal and interest on its debt obligations. 16. The descriptions and statements of or pertaining to the City contained in its Official Statement pertaining to the Certificates (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 Certificates and on the date of the delivery, were and are true and correct in all material respects. 1 7. 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. 18. 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. 19. There has been no material adverse change in the financial condition and affairs of the City since the date of the Official Statement. -2- Dallas 1352079v.l ' ' ) ) 20. The undersigned Mayor and City Secretary officially executed and signed the Certificates, including the Initial Certificates delivered to the initial purchasers of the Certificates, by manually executing the Certificates or by causing facsimiles of our manual signatures to be imprinted or copied on each of the Certificates, 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 Certificates. 21. The Certificates, including the Initial Certificate delivered to the initial purchasers of the Certificates, are substantially in the fom1, and have been duly executed and signed in the manner, prescribed in the Ordinance. 22. At the time we so executed and signed the Certificates 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. 23. We have caused the official seal of the City to be impressed, or printed, or copied on each of the Certificates; and said seal on the Certificates has been duly adopted as, and is hereby declared to be, the official seal of the City. {EXECUTION PAGE FOLLOWS] -3- Dallas 1352079v.l EXECUTED AND DELIVERED this fEB 1 S 2008 MANUAL SIGNATURE OFFICIAL TITLES ~ff4-~-·--Mayor, CityofLubbock, Texas -; STATE OF TEXAS § '\ § COUNTY OF LUBBOCK § Before me, the undersigned authority, on this day personally appeared David A. Miller, Mayor of the City of Lubbock, Texas, known to me to be such person who signed the above and foregoing certificate in my presence and 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 ~If f-l ~ ~ ,)~ 1.;l00~ In and for the State of Texas [SEAL] Signature Page for General Certificate Dallas I 352079v.l EXECUTED AND DELIVERED this ___ FE8 __ 1_2_20_0_8 _. 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, known to me to be such person who signed the above and foregoing certificate in my presence and 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 J4~ 1 J~, 2«:Jl In and for the State of Texas [SEAL] Signature Page for General Certificate Dallas 1352079v.l 0 0 0 0 0 EXECUTED AND DELIVERED this __ ___..f'EB-A..Iol:.....l~2 .....,2~00=8- MANUAL SIGNATURE STATEOFTEXAS § § 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, known to me to be such person who signed the above and foregoing certificate in my presence and acknowledged to me that such person executed the above and foregoing certificate for the purposes therein stated. rl GIVEN UNDER MY HAND AND SEAL OF OFFICE THIS 2.5 Jay of J4.nu4ty1 J. ovt · Notary Pubhc, In and for the State of Texas O [SEAL] 0 Signature Page for General Certificate Dallas 13S2079v.l 0 0 0 n EXlllBIT A City of Lubbock, TX Finance Departmeot Cootiouing Disclosure Report Fiscal Year Eoded September 30,2006 Table 21 -Sewer System Coodeosed Statement of Operations Fiscal Year Ended S9!tember 30, 2006 2005 2004 2003 REVENUE Operating $ 21,087,364 19,829,430 18,889,095 17,894,203 Non-Operating Revenues 1,0641241 377.660 {4901811} 369,500 Gross Revenues 22,151,605 20,207,090 18,398,284 18,263,703 EXPENSE Operating Expense m 13.778,357 10,864,515 9,677,781 9,500,909 Net Revenues $ 8,3731248 9,342,575 8,720,503 8,762,794 Number of Sewer Records 70,490 69,222 66,000 66,930 Ul Operating e:xpense excludes dqRciation and capiflll expenditures. 2002 18,492,113 234,453 18,726,5<>6 10,080,470 8,646,096 71,236 0 n Table 20 -Monthly Sewer lbtes City of L11.bbodc, TX Finance Deputment Continuing Disclosure Report Fbul Year Ended Septelnber 30,2006 In providing adequate wacer and sewer service to its customers, every utility must receive sufficient total revenue to ensure proper operation and mainterw\Ce, developmentll!ld perpetuation oflhe system. and preservation of the utility's financial integrity. Nearly all of total revenue requirements for most ut11ities are met from revenues derived ftom selling water to their customers The goal in setting water and sewer rates is 10 generate enough revenue to fund operating costs, debt payments, utilitiy billing charges, indirect allocation, and transfers to lhe general fund; to adequately funds system improvements and maintenance programs; and to build and/or maintain target balances in both working capital and rate stabilization funds. On October I, 2002, a 20.0% rate increase implemented over a fo~year period was approved 10 meet the goals stated above. Additionally, further changes to the flow rate and base rate became effective on March 1, 2006. Residential Base Rate 11' Flow Rate (Water Consumption) Commercial/1ndustrial (l) Base Rate (ll flow Rate (Water Consumption) Asof3/l/06 Current Rate $4.62 1.69 8.14 {l) 1.69 m The Bl!e Ralc is lilr -setvicc; BIISe Rites .shown~ for • 3/4" wma--ror ~idemal CODSUmelland a I 112" wa~tr aac:r rcr <Xl<lli1ICn:ill consumcn: higbcr Bue Rites 'PIJiy 10 Jarer metasl'll18ins &om I" ro 10". 01 lndll$1JUI W1ISie INI exceeds •UoWible limi!J iJ subjea to surcllargc for b'elting biochemicaloJtygen demM ("B.O.D.") and IOIIl SUSpCIIded solids ("T .S.S."). Pmlelll sun:~ lite for B.O.O. is $0.2333/Jb. alld tcrT.S.S. iJ $0.1687/lb. Ol Tile oommcricial Base ba: l!iductioa on MIJI)b I, 2006 wu ol'l!lct by au iocrcue in tbe Flow Ralc tt.ge. EX!llBITA City of Lubbock, Texas Statement of Revenues, Expeoses and Changes in Fund Net Assets Proprietary Funds For The Year Ended September 30, 2007 Eaterprise Funds OPERATING REVENt:ES Charges for services (net) Miscellaneous Tocal operating revenues OPERATING EXPENSES Personal services lnS\lnmce Supplies Materials Mainten.,ce Pure~ of fuel and power Od!er services and charges Depreciation and amortization Total operating expensa Operating income (loss) NONOPERATING REVENUES (EXPENSES) Interest earnings Passenger facility charge&'FcdenJ grants Disposition of awts Miscellaneous Interest expense Net nonoper31ing revenues (~:xpenses) Income (loss) before contributions and transfers Capital contributions Transfers in Transfers out Change in net assets Total net assets • begiMing of year, u restated Total net assets • ending See accompan)i.ng Notes to Basic Financial Starcmc:nts. LP&L Water $ 145,953,649 s 35,454,426 145,953,649 35,454.426 13,763,044 6,814,703 1,041,200 1,302,892 3,026,095 1,839,067 102,861,131 5,210,063 8,824,918 8,997,473 8,146.118 134z899~006 26,927,698 11,054,643 8,526,728 2,o06,n6 1,465,228 68,.390 (221,985) 4,390,174 503,600 p,126,892~ ~5,.30920151 3.338,448 (3,562, 172) 14,393,091 4,964,556 225,713 3,082,555 5,116,801 528,237 {J.302,082l {7.5.581790! 18,433,523 1,016,558 109,683,013 149,664,144 s 128.116.536 s 150,680,702 Wastewater WTMPA $19,841,503 $ 110,585,043 19.841,503 II 0,585,043 3,930,397 911,261 1,446,735 110,500,740 4,415,139 491 ,041 5,441,892 16,145,424 110,991,781 3,696,079 (406,738) 1,167,249 19,763 84,286 289,910 108,040 (2,185,455} (644,010) 127,803 3,052,069 (278,935) 3,031,530 370,707 485,691 (3,881,533} 2,572,773 206,762 82,046,735 1.306,827 $84,619,508 $ 1,513,589 '• ,: f I. •: ExhibitS Tax and Sewer System Surplus Revenue Certificates of Obligation, Series 2003, dated July 15, 2003, issued in the original principal amount of$680,000 Tax and Sewer System Surplus Revenue Certificates of Obligation, Series 2002A, dated July 1, 2002, issued in the original principal amount of$2,605,000 Tax and Sewer System Surplus Revenue Certificates of Obligation, Series 2002, dated February 15, 2002, issued in the principal amount of $1,54 5, 000 Tax and Sewer System Surplus Revenue Certificates of Obligation, Series 1999, dated April I, 1999, issued in the original principal amount of $6, I 00,000 B-1 Dallas 1352079v.J ) 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 January 10,2008 Attention: Economic Analysis Center Re: City of Lubbock, Texas Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008 To the Attorney General: The executed Initial Certificates for the captioned series have 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 Certificate has received your approval and are ready for delivery to the Comptroller of Public Accounts .for registration, this letter will serve as your authority to insert the date of your approval in the General Certificate and deliver the Initial Certificate to the Comptroller. Should litigation in any way affecting such Certificate 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 Certificate is finally approved by you, unless you have been advised otherwise. To the Comptroller: The approved Initial Certificate for the captioned series of Certificates will be delivered to you by the Attorney General of Texas. You are hereby requested to register the Initial Certificate as required by law and by the proceedings authorizing such Initial Certificate. Following registration, you are hereby authorized and directed to notify and deliver the Initial Certificate to Vinson & Elkins L.L.P., Dallas, Texas, which has been instructed to pick up same at your office. LUB2Qonl012 Dallas 1352078v.l Please also deliver to Vinson & Elkins L.L.P ., Dallas, Texas, three copies of each of the following: 1. Attorney General's approving opinion; and 2. Comptroller's signature certificate. LUB200/71012 Dallas 1352078v.l Very truly yours, CITY OF LUBBOCK, TEXAS By: --~~1'~- David Si.-Mayor -2- 0 FEDERAL TAX CERTIFICATE I, the undersigned officer of the City of Lubbock, Texas (the "Issuer"), make this certification for the benefit of an persons interested in the exclusion from gross income for federal income tax purposes of the interest to be paid on the Issuer's Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008 (the "Certificates of Obligation") which are being issued and delivered simultaneously with the delivery of this Certificate. I do hereby certify as follows in good faith as of the date hereof (the "Issue Date"): 1. Definitions. Each capitalized tenn used in this Certificate has the meaning or is the amount, as the case may be, specified for such tenn in this Certificate or in Exhibits to this Certificate and shall for all purposes hereof have the meaning or be the amount therein specified. Ail 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. 2. Responsible Officer. I am the duly chosen, qualified and acting officer of the Issuer for the office shown below my signature; as such, I am familiar with the facts herein certified and I am duly authorized to execute and deliver this Certificate on behalf of the Issuer. I am the officer of the Issuer charged, along with other officers of the Issuer, with responsibility for issuing the Certificates of Obligation. 3. Code and Regulations. I am aware of the provisions of sections 141, 148, 149 and 150 of the Internal Revenue Code of 1986, as amended (the "Code"), and the Treasury Regulations (the "Regulations") heretofore promulgated under sections 141, 148, 149 and 150 of the Code. This Certificate is being executed and delivered pursuant to sections 1.141-1 through 1.141-15, 1.148-0 through 1.148-11, 1.149(b)-l, 1.149(d)-l, 1.149(g)-1, 1.150-1 and 1.150-2 of the Regulations. 4. Reasonable Exoectations. The facts and estimates that are set forth in this Certificate are accurate. The expectations that are set forth in this Certificate are reasonable in light of such facts and estimates. There are no other facts or estimates that would materially change such expectations. In connection with this Certificate, the undersigned has to the extent necessary reviewed the certifications set forth herein with other representatives of the Issuer as to such accuracy and reasonableness. The undersigned has also relied, to the extent appropriate, on representations set forth in the Issue Price Certificate made on behalf of the investment banking finns listed in the bond purchase agreement relating to the sale of the Certificates of Obligation (the "Underwriters") by their designated representative Morgan Keegan & Company, Inc., attached as Exhibit A to this Certificate, and the certificate of RBC Dain Rauscher Inc., d/b/a RBC Capital Markets (the "Financial Advisor"), attached as Exhibit B to this Certificate. The undersigned is aware of no fact, estimate or circumstance that would create any doubt regarding the accuracy or reasonableness of all or any portion of such documents. 5. Description of Governmental Puroose. The Issuer is issuing the Certificates of Obligation pursuant to the resolution, order or ordinance, as the case may be, adopted by the Issuer for purposes of authorizing the issuance of the Certificates of Obligation (the "Authorizing Document'') for the purposes of funding (a) the Project as described more fully in the Official Dallas 1356532v.l Statement prepared in connection with the offering of the Certificates of Obligation and (b) the costs of issuance of the Certificates of Obligation. The primary purpose of each transaction undertaken in connection with the issuance of the Certificates of Obligation is a bona fide governmental purpose. The Project is described as follows: improvements and extensions to the Issuer's Wastewater System. 6. Amount and Expenditure of Sale Proceeds of the Certificates of Obligation. (a) Amount of Sale Proceeds. The Issuer sold the Certificates of Obligation to the Underwriters for $55,433,ll0.06, which price does not include Pre-Issuance Accrued Interest. The Sale Proceeds from the issuance of the Certificates of Obligation is $55,75 1,566.50, based on the amount set forth on Exhibit A hereto. Such amount represents the Stated Redemption Price at Maturity (excluding Pre-Issuance Accrued Interest for those Certificates of Obligation the interest on which is paid at least once annually) of the Certificates of Obligation, plus any Original Issue Premium, less any Original Issue Discount. No portion of the purchase price of any of the Certificates of Obligation is provided by the issuance of any other issue of obligations. (b) Expenditure of Sale Proceeds. The Sale Proceeds of the Certificates of Obligation will be expended as follows : (i) The amount of $318,456.44 will be allocated on the date of issuance of the Certificates of Obligation to the payment of Underwriters' discount or compensation. (ii) The amount of $201 ,344.21 will be disbursed to pay other Issuance Costs on the Certificates of Obligation (including any rating agency fees charged to the Issuer by the bond insurer). (iii) The amount of$231,765.85 will be allocated on the date of issuance of the Certificates of Obligation to the payment of Bond htsurance Premium on the Certificates of Obligation (net of any rating agency fees). (iv) The amount of $55,000,000 will be deposited in the Construction or Project Fund and is expected to be disbursed to pay or reimburse the costs of acquisition and construction of the Project The aggregate amount of the costs of acquisition and construction of the Project is anticipated to be not less than such amount. Any costs of the Project not financed out of original or investment proceeds of the Certificates of Obligation will be financed out of the Issuer's available funds. (c) Reimbursement. Other than to the extent of preliminary expenditures (i.e., architectural, engineering, surveying, soil testing, Certificates of Obligation issuance, and similar costs that are incurred prior to commencement of acquisition, construction, or rehabilitation of the Project, other than land acquisition, site preparation, and similar costs incident to commencement of construction), no portion of the amount described in paragraph 6(b) above will be disbursed to reimburse the Issuer for any expenditures made by the Issuer prior to the date that is 60 days before the earlier of the Issue Date or the date the Issuer adopted a resolution (the "Declaration"), if any, describing the Project, stating the maximum principal amount of obligations expected to be issued for the Project, and stating the Issuer's reasonable expectation on that date that it would reimburse expenditures for costs of the Project with proceeds of an -2- Dallas 1356532v.l obligation. The Declaration, if any, is not an official intent to reimburse that was declared as a matter of course, or in an amount substantially in excess of the amount expected to be necessary for the Project. The Issuer has not engaged in a pattern of failure to reimburse original expenditures covered by official intents. Such reimbursed portion will be treated as spent for purposes of paragraphs 11 (b) and 15 below. Any such Declaration is attached hereto as Exhibit c. (d) No Working Capital. Except for an amount that does not exceed 5 percent of the Sale Proceeds of the Certificates of Obligation (and that is directly related to capital expenditures financed by the Certificates of Obligation), the Issuer will only expend proceeds of the Certificates of Obligation for (i) costs that would be chargeable to the capital accounts of the Project if the Issuer's income were subject to federal income taxation and (ii) interest on the Certificates of Obligation in an amount that does not cause the aggregate amount of interest paid on all of the Certificates of Obligation to exceed that amount of interest on the Certificates of Obligation that is attributable to the period that commences on the date hereof and ends on the later of (A) the date that is three years from the Issue Date of the Certificates of Obligation or (B) the date that is one year after the date on which the Project is placed in service. (e) No Sale of Conduit Loan. No portion of the sale proceeds of the Certificates of Obligation has been or will be used to acquire, finance, or refinance any conduit loan. (f) No Overissuance. The proceeds of the Certificates of Obligation will not exceed by more than a minor portion (as defined in paragraph 13 below) the amount necessary to accomplish the governmental purposes of the Certificates of Obligation and, in fact, are not expected to exceed by any amount the amount of proceeds allocated to expenditures for the governmental purposes of the Certificates of Obligation. (g) Allocations and Accounting. The proceeds of the Certificates of Obligation will be allocated to expenditures not later than 18 months after the later of the date the expenditure is made or the date the Project is placed in service, but in no event later than the date that is 60 days after the fifth anniversary of the date hereof or the retirement of the last Certificate of Obligation, if earlier. The allocation of proceeds will be made by consistently employing the direct-tracing method of accounting. No proceeds of the Certificates of Obligation will be allocated to any expenditures to which proceeds of any other obligations have heretofore been allocated. The Issuer will maintain records and documentation regarding the allocation of expenditures to proceeds of the Certificates of Obligation and the investment of gross proceeds of the Certificates of Obligation for at least six years after the close of the final calendar year during which any Certificate of Obligation is outstanding. 7. Pre-Issuance Accrued Interest. The Issuer will also receive from the Underwriters on the Issue Date of the Certificates of Obligation Pre-Issuance Accrued Interest from the Dated Date through the Issue Date in the amount of $17 5,562. 72. Such amount will be deposited in the Debt Service Fund, and will be disbursed on the first interest payment date for the Certificates of Obligation. 8. Expenditure of Investment Proceeds. The best estimate of the Issuer is that Investment Proceeds resulting from the investment of any proceeds of the Certificates of -3- Dallas 1356532v.l Obligation pending expenditure of such proceeds for costs of the Project will be retained in the Construction Fund and disbursed to pay or reimburse Project costs in addition to those described in paragraph 6 above. 9. No Re;placement Proceeds. Other than amounts described herein, there are no amounts that have a sufficiently direct nexus to the Certificates of Obligation or to the governmental purposes of the Certificates of Obligation, other than solely by reason of the mere availability or preliminary earmarking, that the amounts would have been used for such purpose if the proceeds of the Certificates of Obligation were not used or to be used for such purpose. (a) No Sinking Funds. Other than to the extent described herein, there is no debt service fund, redemption fund, reserve fund, replacement fund, or similar fund reasonably expected to be used directly or indirectly to pay principal or interest on the Certificates of Obligation. (b) No Pledged Funds. Other than amounts described herein, there is no amount that is directly or indirectly pledged to pay principal or interest on the Certificates of Obligation, or to a guarantor of part or all of the Certificates of Obligation, such that such pledge provides reasonable assurance that such amount will be available to pay principal or interest on the Certificates of Obligation if the Issuer encounters financial difficulty. For purposes of this certification, an amount is treated as so pledged if it is held under an agreement to maintain the amount at a particular level for the direct or indirect benefit of the holders or the guarantor of the Certificates of Obligation. (c) No Other Replacement Proceeds. There are no other replacement proceeds allocable to the Certificates of Obligation because the Issuer reasonably expects that the term of the Certificates of Obligation will not be longer than is reasonably necessary for the governmental purposes of the Certificates of Obligation. The Certificates of Obligation would be issued to achieve the governmental purpose of the Certificates of Obligation independent of any arbitrage benefit as evidenced by the expectation that the Certificates of Obligation reasonably would have been issued if the interest on the Certificates of Obligation were not excludable from gross income (assuming that the hypothetical taxable interest rate would be the same as the actual tax-exempt interest rate). (d) Weighted Average Economic Life. The Weighted Average Maturity of the Certificates of Obligation will not be greater than 120 percent of the weighted average estimated economic life of the portion of the Project financed, determined in accordance with section 147(b) of the Code. Such weighted average estimated economic life is determined in accordance with the following assumptions: (a) The weighted average was determined by taking into account the respective costs of each asset financed by the Certificates of Obligation, (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-l C.B. 745, where applicable, and the -4- Dallas 1356S32v. I ) "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 the Certificates of Obligation is to be used to finance land. I 0. Yield on the Certificates of Obligation. For the purposes of this Certificate, the Yield on the Certificates of Obligation is the discount rate that, when used in computing the present value as of the Issue Date of the Certificates of Obligation, of all unconditionally payable payments of principal, interest and fees for qualified guarantees on the Certificates of Obligation, produces an amount equal to the present value, using the same discount rate, of the aggregate Issue Price of the Certificates of Obligation as of the Issue Date. For purposes of detennining the yield on the Certificates of Obligation, the Issue Price of the Certificates of Obligation is the sum of the issue prices for each group of substantially identical Certificates of Obligation, plus Pre-Issuance Accrued Interest. For each group of substantially identical Certificates of Obligation, the issue price is the first price at which a substantial amount (i.e., ten percent) is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters and wholesalers). The Issue Price is based upon the representations of the Underwriters set forth in Exhibit A hereto. No Underwriters' discount, issuance costs, or costs of carrying or repaying the Certificates of Obligation is taken into account for purposes of computing the yield on the Certificates of Obligation, except the cost of the Bond Insurance Premium. As set forth in paragraph 6(b )(iii) above, proceeds of the Certificates of Obligation will be allocated on the date of issuance of the Certificates of Obligation to the payment to the Insurer for municipal bond insurance for the Certificates of Obligation. The Bond Insurance Premium paid to the Insurer is a qualified guarantee fee because: (a) As of the date hereof, the present value of the Bond Insurance Premium paid to the Insurer will be less than the present value of the expected interest savings on the Certificates of Obligation as a result of the guarantee, computed using the Yield on the Certificates of Obligation (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 Certificates of Obligation; (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 Certificates of Obligation that are guaranteed by the Insurer; (e) The Bond Insurance Premium paid or to be paid to the Insurer does not exceed a reasonable ann's length charge for the transfer of credit risk; -5- Dallas 1356532v.l 0 (f) The Bond Insurance Premium paid or to be paid to the Insurer does not include any payment for any direct or indirect services other than the transfer of credit risk (including fees for the Insurer's overhead and other costs relating to the transfer of credit risk); (g) The Bond Insurance Premium paid or to be paid to the Insurer does not include any payments for the costs of underwriting or remarketing the Certificates of Obligation or for the cost of insurance for casualty to the Issuer's property; (h) No portion of the Bond Insurance Premium paid or to be paid to the Insurer is refundable upon redemption of the Certificates of Obligation before the final maturity date in an amount that would exceed the portion of such Bond Insurance Premium that had not been earned; and (i) The Insurer is reasonably assured that the Certificates of Obligation will be repaid if the Project is not completed. The Yield with respect to that portion of the Certificates of Obligation, if any, subject to optional redemption (other than the Certificates of Obligation scheduled to mature on February 15, 2018 through February 15, 2023, inclusive, and February 15, 2025 through February 15, 2028, inclusive (collectively the "Yield-to-Call Certificates of Obligation")) is computed by treating such Certificates of Obligation as retired at the stated redemption price at the final maturity date because (a) the Issuer has no present intention to redeem prior to maturity the Certificates of Obligation that are subject to optional redemption; (b) no Certificate of Obligation is subject to optional redemption at any time for a price less than the retirement price at final maturity plus accrued interest; (c) no Certificate of Obligation is subject to optional redemption within five years of the Issue Date of the Certificates of Obligation; (d) no Certificate of Obligation subject to optional redemption (other than the Yield-to-Call Certificates of Obligation) is issued at an issue price that exceeds the stated redemption price at maturity of such Certificate of Obligation by more than one-fourth of one percent multiplied by the product of the stated redemption price at maturity of such Certificate of Obligation and the number of complete years to the first optional redemption date for such Certificate of Obligation; and (e) no Certificate of Obligation subject to optional redemption bears interest at a rate that increases during the term of the Certificate of Obligation. Yield with respect to the Yield-to-Call Certificates of Obligation is computed by treating such Certificates of Obligation as retired at the stated redemption price on the dates that produce the lowest combined yield on the Certificates of Obligation because the Underwriters have represented that such portion of the Certificates of Obligation is issued at an issue price that exceeds the stated redemption price at maturity of each such Certificate of Obligation by more than one-fourth of one percent multiplied by the product of the stated redemption price at maturity of each such Certificate of Obligation and the number of complete years to the first optional redemption date for each such Certificate of Obligation. Such lowest yield determination is made separately for each individual group of Certificates of Obligation. In the case of that portion of the Certificates of Obligation, if any, subject to mandatory redemption, the yield on the Certificates of Obligation is calculated by treating the outstanding stated principal amounts payable on the mandatory redemption dates as payments on such dates -6- Dallas 1356532v.l ') .. because the Underwriters have represented that the stated redemption price at maturity of such Certificates of Obligation does not exceed the issue price of such Certificates of Obligation 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 ( detennined by taking into account the mandatory redemption schedule) of such Certificates of Obligation. The Yield on the Certificates of Obligation is calculated in the manner set forth above. The Issuer has not entered into a hedging transaction with respect to the Certificates of Obligation. The Issuer will not enter into a hedging transaction with respect to the Certificates of Obligation 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 Certificates of Obligation from gross income for federal income tax purposes. 11. Temporary Periods and Yield Restriction. (a) Pre-Issuance Accrued Interest. The amount described in paragraph 7 represents Pre-Issuance Accrued Interest on the Certificates of Obligation for a period not in excess of one year and will be expended within one year; therefore, such amount may be invested at an unrestricted yield. (b) Project. The Issuer has incurred or will incur within six months of the date hereof a binding obligation to a third party which is not subject to any contingencies within the control of the Issuer or a related party pursuant to which the Issuer is obligated to expend at least five percent of the sale proceeds of the Certificates of Obligation on the Project. The Issuer reasonably expects that work on or acquisition of the Project will proceed with due diligence to completion and that the proceeds of the Certificates of Obligation will be expended on the Project with reasonable dispatch. The Issuer reasonably expects that 85 percent of the Sale Proceeds of the Certificates of Obligation will have been expended on the Project prior to the date that is three years after the Issue Date. Any Sale Proceeds not expended prior to the date that is three years after the Issue Date, will be invested at a yield not ''materially higher" than the Yield on the Certificates of Obligation, except as set forth in paragraph 13 below. The Issuer reasonably expects that any amount derived from the investment of moneys received from the sale of the Certificates of Obligation and from the investment of such investment income will not be commingled with substantial other receipts or revenues of the Issuer and will be expended prior to the date that is three years after the Issue Date, or one year after receipt of such investment income, whichever is later. Any such investment proceeds not expended prior to such date will be invested at a yield not "materially higher" than the Yield on the Certificates of Obligation, except as set forth in paragraph 13 below. 12. Debt Service Fund. Pursuant to the Authorizing Document, the Issuer has created or continued, as the case may be, a debt service fund (the "Debt Service Fund") and the proceeds from all taxes levied, assessed and collected for and on account of the Certificates of Obligation are to be deposited in such Fund. The Issuer expects that taxes levied, assessed and collected for and on account of the Certificates of Obligation 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 -7- Dallas 1356532v.l ) Fund for the immediately preceding bond year or one-twelfth of the principal and interest payments on the Certificates of Obligation 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 Certificates of Obligation within each bond year. Amounts held in the Bona Fide Portion of the Debt Service Fund will be invested at an umestricted 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 Certificates of Obligation and any other obligations of the Issuer secured by the Debt Service Fund on the basis of one of the methods set forth in section 1.148-6( e)( 6) of the Regulations. The portion of the Reserve Portion allocable to the Certificates of Obligation will not exceed at any time the least of (a) ten percent of the stated principal amount of the Certificates of Obligation (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 Certificates of Obligation), (b) the maximum annual principal and interest requirements of the Certificates of Obligation, and (c) 125 percent of average annual principal and interest requirements of the Certificates of Obligation. 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 Certificates of Obligation, except as set forth in paragraph 13 below. 13. Minor Portion. All gross proceeds will be invested in accordance with paragraphs 11 and 12 above. To the extent such amounts remain on hand following the periods set forth in paragraphs 11 and 12 above or exceed the limits set forth in paragraph 12 above, the Issuer will invest such amounts at a restricted yield as set forth in such paragraphs; provided, however, that a portion of such amounts, not to exceed in the aggregate the lesser of $100,000 or five percent of the sale proceeds of the Certificates of Obligation (the "Minor Portion"), may be invested at a yield which is higher than the Yield on the Certificates of Obligation. 14. Issue. There are no other obligations that (a) are sold at substantially the same time as the Certificates of Obligation (i.e., within 15 days), (b) are sold pursuant to the same plan of financing with the Certificates of Obligation, and (c) will be paid out of substantial I y the same source of funds as the Certificates of Obligation. 15. Compliance With Rebate Requirements. (a) General. The Issuer has covenanted in the Authorizing Document 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 Certificates of Obligation, within the meaning of section 148(f) of the Code be rebated to the federal government. Specifically, the Issuer will (a) maintain records regarding the investment of the "gross proceeds" of the Certificates of Obligation as may be required to calculate such "rebatable arbitrage earnings" separately from records of amounts on deposit in the funds and accounts of the Issuer which are allocable to other bond issues of the Issuer or moneys which do not represent "gross proceeds" of any bonds ~8- Dallas 1356532v.l 0 ) of the Issuer, (b) calculate at such intervals as may be required by applicable Regulations, the amount of "rebatable arbitrage earnings," if any, earned from the investment of the "gross proceeds'' of the Certificates of Obligation and (c) pay, not less often than every fifth anniversary date of the delivery of the Certificates of Obligation and within 60 days following the final maturity of the Certificates of Obligation, or on such other dates required or permitted by applicable Regulations, all amounts required to be rebated to the federal government. The Issuer .will maintain a copy of any such calculations, and all docmnentation 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 Certificate of Obligation is outstanding. Further, the Issuer will not indirectly pay any amount otherwise payable to the federal government pursuant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the "gross proceeds" of the Certificates of Obligation that might result in a reduction in the amount required to be paid to the federal government because such arrangement results in a smaller profit or a larger loss than would have resulted if the arrangement had been at arm's- length and had the yield on the issue not been relevant to either party. (b) Two-Year Spending Exception. The Issuer hereby makes the elections, if any, set forth below for purposes of the two-year spending exception from arbitrage rebate: ELECT [8J D 0 0 DO NOT ELECT 0 Dallas I356532v.l N/A 0 D D 0 1. To use actual facts to apply the provts1ons of paragraphs (e) through (m) of section 1.148-7 of the Regulations. Section 1.148-7(t)(2) ofthe Regulations. 2. To exclude earnings on a reasonably required reserve or replacement fund from the definition of "available construction proceeds" for purposes of the spending requirements. Section 1.148-7(i)(2) of the Regulations. 3. To treat the portion of the Tax-Exempt Certificates of Obligation that is not a refunding issue as two, and only two, separate issues, one of which (a) meets the definition of a construction issue and (b) is reasonably expected as of the date hereof to finance all of the construction expenditures to be financed by the Tax-Exempt Certificates of Obligation. Section 1. I 48-7(j)(l) of the Regulations. 4. To pay a penalty (the "1-112% penaltY') to the United States in lieu of the obligation to pay arbitrage rebate on available construction proceeds in the event that the Tax- Exempt Certificates of Obligation fail to satisfy any of the semiannual spending requirements for the two-year rebate exception. Section 1.148-?(k)(l) of the Regulations. -9- ) ) The Issuer reasonably expects that at least 75 percent of the "available construction proceeds" of the Certificates of Obligation, within the meaning of section 1.148-?(i) of the Regulations, will be allocated to "construction expenditures," within the meaning of section 1.148-7(g) of the Regulations, for property owned by the Issuer. 16. Not an Abusive Transaction. (a) General. No action taken in connection with the issuance of the Certificates of Obligation will enable the Issuer to (i) exploit, other than during an allowable temporary period, the difference between tax-exempt and taxable interest rates to obtain a material financial advantage (including as a result of an investment of any portion of the gross proceeds of the Certificates of Obligation over any period of time, notwithstanding that, in the aggregate, the gross proceeds of the Certificates of Obligation are not invested in higher yielding investments over the term of the Certificates of Obligation), and (ii) issue more bonds, issue bonds earlier, or allow bonds to remain outstanding longer than is otherwise reasonably necessary to accomplish the governmental purposes of the Certificates of Obligation. To the best of our knowledge, no actions have been taken in connection with the issuance of the Certificates of Obligation other than actions that would have been taken to accomplish the governmental purposes of the Certificates of Obligation if the interest on the Certificates of Obligation 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 Certificates of Obligation). (b) No Sinking Fund. No portion of the Certificates of Obligation has a term that has been lengthened primarily for the puipOse of creating a sinking fund or similar fund with respect to the Certificates of Obligation. (c) No Window. No portion of the Certificates of Obligation has been structured with maturity dates the primary purpose of which is to make available released revenues that will enable the Issuer to avoid transferred proceeds or to make available revenues that may be invested to be ultimately used to pay debt service on another issue of obligations. 17. No Arbitrage. On the basis of the foregoing facts, estimates and circumstances, it is expected that the gross proceeds of the Certificates of Obligation will not be used in a manner that would cause any of the Certificates of Obligation to be an "arbitrage bondn within the meaning of section 148 of the Code and the Regulations. To the best of the knowledge and belief of the undersigned, there are no other facts, estimates or circumstances that would materially change such expectations. 18. No Private Use. Payments or Loan Financing. (a) General. The Issuer reasonably expects, as of the date hereof, that no action or event during the entire stated term of the Certificates of Obligation 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 Certificates of Obligation will be used in a trade or business of a nongovernmental person. For purposes of detennining use, the Issuer will apply rules set forth in applicable Regulations and Revenue Procedures -10- Dallas 1356532v.l ) promulgated by the Internal Revenue Service, including, among others, the following rules: (A) Any activity carried on by a person other than a natural person or a state or local govenunental unit will be treated as a trade or business of a nongovernmental person; (B) the use of all or any portion of the Project is treated as the direct use of proceeds; (C) a nongovernmental person will be treated as a private business user of proceeds of the Certificates of Obligation as a result of ownership, actual or beneficial use pursuant to a lease, or a management or incentive payment contract, or certain other arrangements such as a take-or-pay or other output-type contract; and (D) the private business use test is met if a nongovernmental person has special legal entitlements to use directly or indirectly the Project. (ii) The Issuer has not taken and will not take any deliberate action that would cause or permit the use of any portion of the Project to change such that such portion will be deemed to be used in the trade or business of a nongovernmental person for so long as any of the Certificates of Obligation 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 Certificates of Obligation). For this purpose, any action within the control of the Issuer is treated as a deliberate action. A deliberate action occurs on the date the Issuer enters into a binding contract with a nongovernmental person for use of the Project that is not subject to any material contingencies. (iii) All payments of the debt service on the Certificates of Obligation will be paid from and secured by a generally applicable tax. For this purpose, a generally applicable tax is a tax (A) that is an enforced contribution exacted pursuant to legislative authority in the exercise of the taxing power that is imposed and collected for the purpose of raising revenue to be used for governmental purposes and (B) that has a uniform tax rate that is applied to all persons of the same classification in the appropriate jurisdiction using a generally applicable manner of determination and collection. No portion of the payment of the debt service on the Certificates of Obligation will be directly or indirectly derived from payments (whether or not to the Issuer or any related party) in respect of property, or borrowed money, used or to be used for a private business use. Furthermore, no portion of the payment of the debt service on the Certificates of Obligation will be directly or indirectly secured by any interest in property used or to be used for a private business use or payments in respect of property used or to be used for a private business use. (iv) No portion of the proceeds of the Certificates of Obligation will be directly or indirectly used to make or finance a loan to any person other than a state or local govenunental unit. Except to the extent permitted by section 141 of the Code and the Regulations and rulings thereunder, the Issuer shall not use gross proceeds of the Certificates of Obligation to make or finance loans to any person or entity other than a state or local government. For purposes of the foregoing covenant, gross proceeds are considered to be "loaned" to a person or entity if ( 1) property acquired, constructed or improved with gross proceeds is sold or leased to such person or entity in a transaction which creates a debt for federal income tax purposes, (2) capacity in or service from such property is committed to such person or entity under a take-or-pay, output, or similar -11- Dallas J356532v.l ) 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 Ordinazy Course. The Issuer does not reasonably expect that it will sell or otherwise dispose of personal property components of the Project financed with the Certificates of Obligation 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 Certificates of Obligation financing personal property is not greater than 120 percent of the reasonably expected actual use of such personal property for governmental purposes; (ii) The reasonably expected fair market value of such personal property on the date of disposition will be not greater than 25 percent of its cost; (iii) Such personal property will no longer be suitable for its governmental purposes on the date of disposition; and (iv) The Issuer is required to deposit amounts received from such disposition in a commingled fund with substantial tax or other governmental revenues and the Issuer reasonably expects to spend such amounts on governmental programs within 6 months from the date of commingling. Furthermore, the Issuer will not sell or otherwise dispose of all or any portion of the Project in circumstances in which the foregoing requirements are not satisfied unless it has received an opinion of nationally recognized bond counsel to the effect that such disposition will not adversely affect the treatment of interest on the Certificates of Obligation as excludable from gross income for federal income tax purposes. (c) Other Agreements. The Issuer will not enter into any agreement with any nongovenunental person regarding the use of all or any portion of the Project during the stated term of the Certificates of Obligation 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 Certificates of Obligation as excludable from gross income for federal income tax purposes. 19. Weighted Average Maturity. The Weighted Average Maturity of the Certificates of Obligation set forth on Exhibit B attached to this Certificate is the sum of the products of the Issue Price of each group of identical Certificates of Obligation and the number of years to maturity (determined separately for each group of identical Certificates of Obligation and taking into account mandatory redemptions), divided by the aggregate Sale Proceeds of the Certificates of Obligation. 20. Certificates of Obligation are Not Hedge Bonds. Not more than 50 percent of the proceeds of the Certificates of Obligation will be invested in nonpurpose investments (as defined in section 148(f)(6)(A) of the Code) having a substantially guaranteed yield for four years or more within the meaning of section 149(g)(3)(A)(ii) of the Code. Further, the Issuer reasonably -12- Dallas \ 356532v.l expects that at least 85 percent of the spendable proceeds of the Certificates of Obligation will be used to carry out the governmental purposes of the Certificates of Obligation within the three- year period beginning on the date the Certificates of Obligation are issued. [Execution Page Follows] -13- Dallas 1356532v. t Attachments: Exhibit A: Exhibit B: Exhibit C: ) Dallas 1356532v.l Issue Price Certificate Certificate of Financial Advisor Declaration, if applicable Date: Z. 8. 0~ ) EXHIBIT A CERTIFICATE OF UNDERWRITERS I, the undersigned officer of Morgan Keegan & Company, Inc. (the '~epresentative"), acting on behalf of the Underwriters make this certification for the benefit of all persons interested in the exclusion from gross income for federal income tax purposes of the interest on the Certificates of Obligation: Each capitalized tenn used herein has the meaning or is the amount, as the case may be, specified for such tenn in the Federal Tax Certificate to which this Exhibit A is attached (the "Federal Tax Certificate"). I hereby certify as follows in good faith as of the Issue Date: 1. I am the duly chosen, qualified and acting officer of the Representative for the office shown below my signature; as such, I am familiar with the facts herein certified and I am duly authorized to execute and deliver this certificate on behalf of the Underwriters. I am the officer of the Representative charged, along with other officers of the Underwriters, with responsibility for the Certificates of Obligation. 2. The Underwriters have made a bona fide public offering to the public of the Certificates of Obligation at the issue prices to the public set out on the inside cover page of the Official Statement. The issue prices set forth on the inside cover page of the Official Statement were determined on the date the Certificates of Obligation were purchased by the Underwriters based on the reasonable expectations regarding the initial public offering prices. The issue price for each maturity of the Certificates of Obligation, represents the first price (including original issue premium and discount and accrued interest to the Issue Date only) of the Certificates of Obligation 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 Certificates of Obligation is $55,927,129.22 (the "Issue Price"), which price includes Pre-Issuance Accrued Interest in the amount of $175,562.72. The initial public offering price described above does not exceed the fair market value for the Certificates of Obligation on the sale date. The term "public," as used herein, does not include bondhouses, brokers, dealers, and similar persons or organizations acting in the capacity of underwriters or wholesalers. 3. The Issuer may rely on the statements made herein in connection with making the representations set forth in the Federal Tax Certificate and in its efforts to comply with the conditions imposed by the Code on the exclusion of interest on the Certificates of Obligation from the gross income of their owners. Vinson & Elkins L.L.P. also may rely on this certificate for purposes of its opinion regarding the treatment of interest on the Certificates of Obligation as excludable from gross income for federal income tax purposes. Exhibit A-1 Dallas 1356532v.l 'i Title: Senior Vice President ) Date: __ ......::al=--\---'\ \!:....:o.....::t~-- Exhibit A-2 ' Dallas 1356S32v.l j EXHIBITB CERTIFICATE OF FINANCIAL ADVISOR I, the undersigned officer of the Financial Advisor, make this certificate for the benefit of all persons interested in the exclusion from gross income for federal income tax purposes of the interest on the Certificates of Obligation. Each capitalized term used herein has the meaning or is the amount, as the case may be, specified for such term in the Federal Tax Certificate to which this Exhibit B is attached (the "Federal Tax Certificate''). I hereby certify as follows as of the Issue Date: I . I am the duly chosen, qualified and acting officer of the Financial Advisor for the office shown below my signature; as such, I am familiar with the facts herein certified and I am duly authorized to execute and deliver this certificate on behalf of the Financial Advisor. I am the officer of the Financial Advisor who has worked with representatives of the Issuer in structuring the financial terms of the Certificates of Obligation. 2. The Issue Price (including Pre-Issuance Accrued Interest) of the Certificates of Obligation based on the representations set forth in Exhibit A to the Certificate to which this Exhibit is attached is not more than $55,927,129.22. The yield on the Certificates of Obligation, based on such Issue Price (including Pre-Issuance Accrued Interest) is not less than 3.8232 percent (the "Yield"). For purposes of this certificate, the term "yield'' means that yield which is computed as described in paragraph 10 of the Federal Tax Certificate. The purchase price of the Certificates of Obligation and the Bond Insurance Premium, if any, used in computing yield on the Certificates of Obligation is based solely on the Issue Price Certificate of the Underwriters attached as Exhibit A to the Federal Tax Certificate. 3. The Financial Advisor computed the Weighted Average Maturity of the Certificates of Obligation to be 12.045 years, as set forth in paragraph 19 of the Federal Tax Certificate. 4. To the best of my knowledge the statements set forth in paragraph 16 of the Federal Tax Certificate are true. 5. The amount of $231,765.85 of the cost of insurance for the Certificates of Obligation 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 Certificates of Obligation, 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 Certificates of Obligation in an amount which would exceed the portion of such fee that had not been earned. Exhibit B-1 Dallas 1356532v.l 6. The Issuer may rely on the statements made herein in connection with making the representations set forth in the Federal Tax Certificate and in its efforts to comply with the conditions imposed by the Code on the exclusion of interest on the Certificates of Obligation from the gross income of their owners. Vinson & Elkins L.L.P. also may rely on this certificate for purposes of its opinion regarding the treatment of interest on the Certificates of Obligation as excludable from gross income for federal income tax purposes. Exhibit B-2 Dallas 1356532v.l RBC DAIN RAUSCHER INC. 0/B/A RBC CAPITAL MARKETS By: V\A.~~ Title: M~""~;"":S Q,·r-r, ~/ Date: ~ -'Z ~ () ~ . . 0 Vinson &Elkins St.ven H. Glll'dea SGerdesOvelaw.com Tel713.758.4516 Fax 713.615.5503 February 22 2008 CERTIFIED MAIL RETURN RECEIPT REQUESTED 7002 0510 000329723887 District Director Internal Revenue Service Ogden, UT 84201 Re: $52,900,000 City of Lubbock, Texas Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008 Dear Sir: Enclosed please find an originally executed Form 8038-G (Information Return for Tax-Exempt Governmental Obligations) for the above-captioned bond issue. Please acknowledge receipt of the Fonn 8038-G by stamping and returning the copy of the Fonn 8038-G attached to the self-addressed, postage-paid envelope that we have provided. cc: Victoria Ozimek Leslie Morga!\/ Houston 2935778v. I Vinson & Elkins UP A1tornep at Law Austin Beijing Dallas Dobai Houston London Moscow New York Shanghai Tokyo Washinglon Very truly yours, ~~ Steven H. Gerdes 2801 Via Fortuna, Suite 100 Austin, TX 78746-7568 Tel 512.542.8400 Fax 512.542.8612 www.velaw.com Form 8038-G lnfonnation Return for Tax-Exempt Governmental Obligations OMB No. 1545-0720 ..,. Under Internal Revenue Code sec:tlon 149(e) ..,. See Mparate Instructions. (Reot NO¥amber 2000) ::,:~ S:!IIIY caution: If the issue price is under $100,000, use Form 8038-GC. JPA.ltt~ Reporting Authority If Amended Return, check here..,. 1 ] 1 Issuer's name 2 lasuer'a employer ldlntlftution numbat CitvofLubbock. Texas 75·6000590 3 Number and &trait (or P.O. box if mall Is not deli....-ed to street address) Roomlaulte 4 Report number P.O. Box 2000 3 01 6 Date or luue Februarv 12. 2008 5 City, town, 01' post ollice, elate. e.nd ZIP coda LubbOck. Texas 79457 7 Name of luue 8 CUSIP number Tax and Wastewater SY8tem Surplus Revenue Certificates of Obligation, Series 2008 8 Name and tJte of ollicer or legal repruenta!MI wtlom the IRS mflll call rcr more lnformaUon 10 ~ nmberof em-w 1~ ntprwtenlati.,. Jeffrey A. Yates, Chief Financial Officer 1 (806) 775-2161 ~jjf:Jl~ Type of Issue (check applicable box(ea) and enter the Issue price) See instructions and attach schedule 11 0 Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-1.:....:1"-1------- 12 D Health and hospital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • . . . . . . . . . . . . . . J-1:.::2:...-r------ 13 0 Transportation ...........................................................•.. 1-1.:..:!3~------ 14 0 Public safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-1.:..;;4=--+------- 1& D Environment (indudlng sewage bonds) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-1.:..:5=-+------ 16 D Housing ................................................................... 1-1.:.:=6~-.......,..---- 17 liJ Utilities.................................................................... I-1:..:.7......J---=5~5:..s..7~5~1..l:5~6~7 18 D Other. Describe~ I-1.:.:!8:....L.-~---- 19 If obligations are TANs or RANs, check box..,. 0 If obligations are BANs, check box ...... ..,. O . (~_.,;. {.' · . ·L • 1 .~. 20 If obligations are In the form of a lease or Installment sale, check box . . . . . . . . • . . . . . . . . ..,. 0 . .-:: ·: ·: = •.:;~1: :: .-;·:.<··~~ ·: ~2· ':.::: 1-PAiit:Ut~ Description of Obligations. (Complete for the entire issue for which this form is being filed.) (a) Final maturity date (b) lsaue price (c) Statad redemption (d) Welgnl!!d price at malurity aYerage maturity (e) Yield 21 2/15/2028 S 55 751 567 $ 52 90Q,OOO 12.04521ears 3.8232% I P. .• ·rnVJ Uses of Proceeds of Bond Issue (Including underwrltens' dlscounft 22 Proceeds used for accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ~2=2~---=~1:-:7~S;r.;;.5~6~3 23 Issue price of entire Issue (enter amount from line 21, column (b)) . . . . . . . . . . . . . . . . . . . . . . . . . . l-2::.;3~---=5:.:5~.7~5~1.t::::5~6;.:...7 24 Proceeds used for bond issuance costs (including underwriters' discount) 24 S 18 456 :·<.·· 25 Proceeds used for credit enhancement . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 231.766 28 Proceeds allocated to reasonably required reserve or replacement fund. . 26 _10 '.t:· .-.--: .. 27 Proceeds used to currenUy refund prior issues . . . . . . . . . . . . . . . . . . . . . 27 1 0 ;"::.. ·.· 28 Proceeds used to advance refund prior Issues . . . . . . . . . . . . . . . . . . . . . 28 J 0 ~';>·· 29 Total (add lines 24 through 28)............. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . J-:2=9:..-r __ _..:.7.=.50.=.:'"~:2=2=-2 30 NonrefundinQ proceeds of the issue (subtract line 29 from line 23 and enter amount here) . . . . . . . . 30 55 001 345 I Pall '{:I Description of Refunded Bonds (Complete this part only for refunding bonds.) 31 Enter the remaining weghted average maturity of the bonds to be currently refunded. . . . . . . . . . . ..,. years 32 Enter the remaining weighted average maturity of the bonds to be advance refunded ........... .,. years 33 Enter the last date on which the refunded bonds will be called . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..,. 34 Enter the date(s) the refunded bonds were issued ..,. I ear.t VII Miscellaneous 35 Enter the amount of the state volume cap allocated to the issue under section 141 (b)(5) . . . . . . . . . 35 (0) 36a Enter the amount of gross proceeds invested or to be invested in a guaranteed investment contract (see instructions) •... 36a 70) b Enter the final maturity date of the guaranteed investment contract..,. .. 37 PoolecUnancings: a Proceeds of this i&sue lflat •eto be used to make toans to other governmental units ........... 37a (0) b If this issue is a loan made from the proceeds of another tax-exempt issue, check box..,. D and enter the name of the issuer..,. and the date of the issue..,.------- 38 If the issuer has designated the issue under section 265(b)(3)(B)(I)(III) (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 If the Issuer has identified a hedge, ctlecl< box .......................................................... ..,. Under pen · peljury, I lare that I ha-..e examined a retum and accompanying schedules and statements, and to the best of my knowledge and belief, lheyar e, rect. plete. !Jeffrey A. Yates Sign Here For Paperwor STF FE!J6403F ~~~~~~~~~~~~----~~~.~~~·~()~8~ ~ Chief Financial Officer Dale r Type Ot print name and tl~e ISA Form 8038-G (Rev. 11-2000) r-~ CQ CQ cO cO JT1 m ru ru ["-r-D"" Er ru ru m JT1 c c c c 0 c c 0 """' .-=t 1.1) U) 0 0 ru c '!lc r-( (. U.S. Postal Service CERTIFIED MAIL RECEIPT (Domestic Milil Only; No Insurance Covcrilgo Provldod) Cily of LAlbbock, Texas Tax and Wastewater System Surplus Reva1uc Certificates of Obligation fSteftn H. Gerd ·-·~Iii ... 1-------1 Cer1lfled Fee Relurn Recelpl Fee (Endorsement Required) t--------j Ra!llrfcted Delivery Fee (Enda<&emen\ Required) Total Postage & Foeo I $ Sent Postmark Here r RECEIPT AND CERTIFICATE OF DELIVERY OF PAYING/AGENT REGISTRAR The undersigned, authorized representative of The Bank of New York Trust Company, National Association, as Paying Agent/Registrar, hereby makes the following acknowledgments and certifications in connection with the issuance and delivery of $52,900,000 principal amount of City of Lubbock, Texas, Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008 (the "Certificates''). Capitalized tenns used herein and not otherwise defined shall have the meanings assigned thereto in the Ordinance authorizing the issuance thereof adopted by the City Council of the City of Lubbock, Texas (the "Issuer"). The undersigned hereby: 1. Acknowledges receipt of (i) $55,608,672.78 from Morgan Keegan (the "Underwriter''), representing the principal amount of the Certificates plus accrued interest of $175,562.72 and plus a net premium of $2,851,566.50 and less underwriters' discount of $318,456.44. 2. Acknowledges and certifies the application of amounts described in paragraph I hereof as required by and in accordance with the Closing Instructions attached hereto as Exhibit A prepared by RBC Capital Markets, the Issuer's Financial Advisor. 4. Certifies that the Initial Certificate for the Certificates, registered by the Comptroller of Public Accounts of the State of Texas and representing the aggregate principal amount of the Certificates, was delivered to or upon order of the Underwriter and was duly canceled this date upon delivery of the definitive Certificates to the Underwriter through The Depository Trust Company. DATED: j~ /2, , 2008. THE BANK OF NEW YORK TRUST COMPANY, NATIONAL ASSOCIATION, as Paying Agent/Registrar By.~~ Title: ~ Oi:k ){hili.JWf Exhibit A 0 1352069v.l LUB200/71012 Bonds Dated: RBC Capital Markets DELIVERY, SETTLEMENT & CLOSING PROCEDURES for City of Lubbock, Texu (the "City") $52,900,000 Tas and Wastewater System Surplus Revenue Certificates of Obligation. Series 2008 January tS, 2008 Settlement Date: Tuetday, February 12, %008 Closing: The closing on the above-referenced certificates (the "Certificates") will be held on Tuesday, February 12, 2008, at 10:00 A.M. (the "Closing") via teleconference by Vinson & Elkins L.L.P., Attn: Jennifer Taffe (214) 220·7941. Those parties expected to participate include: lim: Mr. Jeff Yates Mr. Andy Burcham Mr. Brandon Inman Mr. Man Boles Mr. Derek Honea Ms. Debi Jones Mr. John Crumrine Ms. Jennifer Taffe Ms. Pat Blue Ms. Lillie Santana TU!tJBo!e Chief Financial Officer Dir. of Fiscal Policy & Debt Planning Senior Financial Analyst Financial Advisor Financial Advisor Underwriter Underwriter Bond Counsel Paying Agent Insurance Provider CornU BY City of Lubbock City of Lubbock City of Lubbock RBC Capital Marlcets RBC Capital Markets Morgan Keegan Morgan Keegan Vinson & Elkins L.L.P. The Bank of New York FSA Soursg and Usg pf Funds Sourm of fugds Principal Amount of the Certificates Original Issue Premium on the Certificates Accrued Interest on the Certificates Total Sources Uses of Funds Deposit to Project Fund Underwriters' Discount Bond Insurance Costs of Issuance Deposit to Interest & Sinking Fund Total Uses $ s s $ l.htm! (806) 775-2161 (806) 77S-2149 (806) 77S-3320 (214) 989-1672 (214) 989-1671 (713) 840--3602 (214) 365-5565 (214) 220.7941 (214) 468-6SII (212) 339-3537 s,ng 2008 52,900,000.00 2,851,566.50 115,562.12 55,927,1ZU2 55,000,000.00 318,456.44 231,765.85 201,344.21 115,562.72 S5&2272129.22 .fal (806) ns-2os1 (806) 775-2051 (806) 775-2051 (214) 989-1650 (214) 989-1650 (713) 840.3694 (214)692·18SI (214) 999-7941 (214)468-5143 (212) 857-05 14 Receipt of Fupds City of Lubbock. Texas Page2 I. On Tuesday, February 12, 2008, Morgan Keegan (the "Underwriter") will wire transfer lO The Bank of New York, ABA #021000018, GLA 111-565, TAS 184152, Re: City of Lubbock CO, Attn: Pat Blue (214) 468-6511, the amount listed below. The Underwriter will call the closing room with a Federal Wire Reference Number and time of such wire as soon as possible on Tuesday, February 12,2008. Proceeds of Certificates Plus: Accrued Interest Less: Underwriters' Discount Total Wire Amount from Underwriter: Disbunemegt of funds $ 55,751,566.50 175,562.72 318,456.44 s 55,6()8.672.78 I. On Tuesday, February 12, 2008, The Bank of New York will wire transfer $231,765.85 for bond inurance premium to Financial Security Assurance at The Bank of New York, ABA #021000018, Account Name: Financial Security Assurance Inc., Ae«~unt #8900297263, Policy #20988Q-N, Attn: Lillie Santana (212) 339·3537. Bond Insurance Premium s 231,765.85 2. On Tuesday, February 12,2008, The Bank of New York will wire transfer $55,240,231.93 as a deposit to the Project, Costs of Issuance and Interest and Sinking Funds to JPMorgan Chase Bank C/0 TexSTAR Participant Services, Dallas, TX, ABA #021000021, BNF=TexSTAR Clearing/AC-9102733343, OBI: 155212008001, Aooount Name: 2008 Tax & Wastewater CO. Deposit to Project Fund: Deposit to Cost oflssuance Fund: Deposit to Interest and Sinking Fund: Total Deposit to City: $ 55,000,000.00 64,669.21 175,562.72 s 55.240,231.93 3. On Tuesday, February 12,2008, The Bank of New York will wire transfer $86,250.00 to U.S. Bank, Minneapolis, MN, ABA #091000022, Account Name: RBC Dain Rauscher Inc., A/C #160230097208, FNOOOI4163, Attn. Derek Honea (214) 989-1671 for the following purpose. RBC Capital Markets' Fee & Reimbursable Expenses: $ 86,250.00 4. On Tuesday, February 12, 2008, The Bank of New York will wire transfer $49,925.00 to JP Morgan Chase Bank, N.A., ABA #021000021, Ae«~unt Name: Vinson & Elkins L.L.P. Domestic Account, Account #001 -01687987, Ref: Invoice #25256258, Billing Attorney: Ben Brooks, for the following putpOse. Viusou & Elkius L.L.P. Fee & Reimbursable Expenses: S 49,925.00 js. On Tuesday, February 12,2008, The Bank of New York will retain $500.00 forthepaymentoffees listed below. Paying Ageot Administration Fee: $ 500.00 Total Disbursement of Fuads: s 55,608,672.78 Beturg of Good Failh Check Upon closing, the RBC Capital Markets will immediately return vill Dvunight IIUliJ the Good Faith Deposit in its possession to Morgan Keegan. 0 DISCLOSURE, NO DEFAULT AND TAX CERTIFICATE OF FINANCIAL SECURITY ASSURANCE INC. The undersigned hereby certifies on behalf of Financial Security Assurance Inc. ("Financial Secunty''), in connection with the issuance by Financial Security of its Policy No. 209880-N (the "Policy'') in respect of the $52,900,000 in aggregate principal amount of City of Lubbock, Texas Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008 (the "Bonds") that (i) the information set forth under the caption "BOND INSURANCE-Financial Security Assurance Inc." In the official statement dated January 17, 2008, relating to the Bonds is true ~d correct, (ii) Financial Security is not currently in default nor has Financial Security ever been in default under any policy or obligation guaranteeing the payment of principal of or interest on an obligation, (iii) the Policy is an unconditional and recourse obligation of Financial Security (enforceable by or on behalf of the holders of the Bonds) to pay the scheduled principal of and interest on the Bonds in the event of Nonpayment by the Issuer (as set forth in the Policy), (iv) !he insurance premium of $231,765.85 (the "Premium") is a charge for the transfer of credit risk and was determined in arm's length negotiations and is required to be paid to Financial Security as a condition to the issuance of the Policy, (v} no portion of such Premium represents an indirect payment of costs of issuance, including rating agency fees, other than fees paid by Financial Seoority to maintain its ratings, which, together with all other overhead expenses af Financial Security, are taken Into account in the formulation of its rate strucflJre, or for the provision of additional services by us, nor the direct or indirect payment for a cost, risk or other element that is not customarily borne by insurers of tax-exempt bonds (in transactions in which the guarantor has no involvement other than as a guarantor), {vi) Financial Security is not providing any services in connection with the Bonds other than providing the Policy, and except for the Premium, Financial Security will not use any portion of the Bond proceeds; provided, however, that Financial Security or its affiliates may independently provide a guaranteed investment contract for the investment of all or a portion of the proceeds of the Bonds, (vli) except for payments under the Policy in the case of Nonpayment by the Issuer, there is no obligation to pay any amount of principal or interest on the Bonds by Financial Security, (viii) Financial Security does not expect that a claim will be made on the Policy, (ix) the Issuer i$ not entitled to a refund of the premum for the Policy in the event a Bond is retired before the final maturity date, and (x) for Bonds which are secured by a debt service reserve, Financial Security would not have Issued the Policy unless the authorizing or security agreement for the Bonds provided for a debt service reserve account or fund funded and maintained in an amount at least equal to, as of any particular date of computation, the reserve requirement as set forth in such agreement Financial Security makes no representation as to the nature of the interest to be paid on the Bonds or the treatment of the Policy under Section 1.148-4(f) of the Income Tax Regulations. FINANCIAL SECURITY ASSURANCE INC. By: ---------------------------Authorized Officer Dated: February 12, 2008 02/11/2008 15:52 FAX 7547995 FITCH + LILLIE il 00 2/0 03 FitchRatings February 11, 2008 Mr. Robert P. Cochtan Chllii'ITUin & Chief ~\~live OffiQcr Financial Sea.lrity AssuT8flce Inc. (FSA) 31 West e2ncl Street NewYQJI(, NY 10018 Ae: W:lbock (TX) I Policy #209880-N Dear Mr. Coch1'81'1; J?.Ol East 7tlt Street 1~11. WY 8243!) T 307 754 20 l~ f 800 85 FITCH 'fi'Nw,ftlthl'atlnp.com Fltctt Aall"i& hu Msigned one or mon~~ ratings andiOJ olt!orwise taken ralins7 ectlon(s), aG oetailed on the attached Notice of Rating Action. Ratlnge assigned by F"rtctl are bued on docunents and intorrn.tion pcov~d to 1.11 by iSSU.I'$, obligors, anO'or theit experts and aganta, and ara eubjec:t to rvcaipt of lhe ftnal closing documents. Fitch aoes not audit OJ venly the truth or accuracy of such Information. Ratings are not a reeo~on OJ suggestion, dlrdy or indirectly, to you Ol8ff'/ dl\er person, to buy, aell. make or hold any invectment, loal"' or security or to under11ke any invetment atn11egy with respect to any Investment, loan or ~rity or any issuer. Ralings oo not c:omnent on the adequacy ol martcet price, 1h~ suitability ot WI'/ investment, IQan or se~;Urity for a particular lnlltstor (Jncludil'lg without lilritation, eny IQ:O"nting ar~dlor regulatory treatment), OJ the fM-exernpt nalure or laullilily o1 payments made In raapeet of •ny investment, loan or secuJfty. Fitch is nol your advisor, nor is Fitch proyidlng to you or tJttri other party any financial advice, or any legal, ~dltlng, accouMing, _,ral&al. valuation ot actuarial services. A rating sh""ld not be v~ ae a IWJ)Iacement for euch acMce or eemces. It is i~nt that Fitch be provided with aU infonnalion that may be material to ils ralfngaao that they continue co accurately reflect the status ol the rated issues. Ratin9fl may be changed, withdrawn, suspended orplacecl an A•ing Watch due to chll'lg86 ln. addldons to or the InadeQuacy of information. Ratings are not recornmendati0n9 10 bU)', ~11 or hold aecuri1ies. Ridings do '1ot comment on the adeqwcy d rnall<et price, the sUI'tability ot any steVrtly for a particular ~vestot, or the tax~ naluf'e or tuatlility af paymanls made in respeet or any aeeurtty. The usignmet'lt of a rating by Fitch shall not constitute a consent by F/ldl to UN ill name as at\ eJI1)ett in connection with Bf1Y registnltion statement or other filing undet' U.S., U.K., or any obtr relevant securities laMS. We are pleased to have had the OPPOrtunity to~ of set"'IU to you. If we can be of further assistance, please feel free to oontact us at any time. TWit ~: Notlc8 of Rating ACtiort (Doc ID; 98708) TaraUay IM$"18d Ratings Ma~ u.s. Pu~ l=lrtance ) 02/11/2008 15 :52 F~X 7547995 FITCH + LILLIE Notice of Rating Action OUtloalt/ Rllt_q W.h ~ LubbOCk (TX) 1ax & wu!WIIr sys surpus nw cdl ot l.OI"IfJ Term New Riling AAA RO:Sta 11•F81)•2ooe ODiil) ser 20011 (lnsuteCJ: Frf'l8ffllial seouri!y Aseufance Inc. (FSA)) K8y: RO: Flaling Ol.lll!d, RW: Ralio11 Wab::t1; Pos: P011HMI, Neg: Negative, S!JI: Slllble, EYo; Evdvlng The ~&lfnllls based sclely on creclr •n~t pnwlded by a boM inswance p~tllcy r.uod Dy Fin~ S.CUrily AaLnnCII rne., whicll has an lnsur.r Financ:ial strength nlling m 'AAA'. (Doe 10: 8870&) il 003/003 ') Financial Security Assurance, Inc 31 West 52nd Street New York, NY 10019 To Whom It May Concern: Moody's Corporation 7 World Trade Center at 250 Greenwich Street, New York, New York 10007 February 11, 2008 Moody's Investors Service has assigned the rating of Aaa to the $52,900,000.00, City of Lubbock, Texas • Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008, dated January 15, 2008 which sold through negotiation on January 16, 2008, insured by Financial Security Assurance, Inc (Policy No. 209880-N). The rating is the highest of (i) the guarantor's financial strength rating, (ii) any published underlying rating on the security, or (iii) any published enhanced rating based on a state credit enhancement program. Should you have any questions regarding the above, please do not hesitate to contact Karen Malkowski at (201 ) 395-6370. Sincerely yours, Joann Hempel Vice President I Senior Credit Officer JH/TM . ' .... ~l..,...,..<D;~~iiJ.~'; The McGraw Hill Comrumes · · ~."-:-.{.~:•.:.lt;.,".~Jiit~}J'%.<i~ · . STANDARD &POOR'S February 11, 2008 Financial Security Assurance Inc Financial Guaranty Group 31 West 52nd Street New York, NY 10019 Attention: Mr. Richard Bauerfeld, Managing Director 55 W. Str..t, 38111 Floor NewYOftt. NY 10041-0003 tel 212 438-2074 reference no.: 878446 Re: $52,900,000 City of Lubbock, TexiiS, Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 1008, dated: January 15,1008, due: February 15, 1009- 1018, (POLICY #209880-N) Dear Mr. Bauerfeld: 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, fmancial, 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 fmal. 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 . . • • I " I Mr. Richard Bauerfeld Page2 February 11, 2008 Standard & Poor's is pleased to be of service to you. For more information please visit our website at www.standardandpoors.com. If we can be of help in any other way, please contact us. Thank you for choosing Standard & Poor's and we look forward to working with you again. Sincerely yours, Standard & Poor's Ratings Services a division of The McGraw-Hill Companies, Inc. ~,.Lp.J ~/!I.JI) ak J J CERTIFICATE PURSUANT TO 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, Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008 (the "Certificates"), hereby certify that: 1 . This Certificate is delivered pursuant to the Purchase Contract, dated January 17, 2008 (the .. Purchase Contract"), between the Issuer and Merrill Lynch, Pierce, Fenner & Smith, Incorporated & Co., Morgan Keegan & Company, Inc., Morgan Stanley & Co. Incorporated and Southwest Securities, Inc. (the "Underwriters"). Capitalized words used herein as defined terms and not otherwise defined herein have the respective meanings assigned to them in the Purchase Contract. 2. The representations and warranties of the Issuer contained in the Purchase Contract are true and correct in all material respects on and as of the date hereof as though made on and as of the date hereof. 3. Except to the extent disclosed in the Official Statement, no litigation is pending or, to our knowledge, threatened in any court to restrain or enjoin the issuance or delivery of the Securities, or the levy, collection or application of the ad valorem taxes and, with respect to the Certificates, Pledged Revenues pledged or to be pledged to pay the principal of and interest on the Securities, or the pledge thereof: or in any way contesting or affecting the validity of the Securities or the Ordinance or contesting the powers of the City or the authorization of the Securities or the Ordinance, or contesting in any way the accuracy, completeness or fairness of the Official Statement. 4. To the best of our knowledge, no event affecting the City has occurred since the date of the Official Statement that should be disclosed in the Official Statement for the purpose for which it is to be used or that it is necessary to disclose therein in order to make the statements and information therein not misleading in any respect. 5. There has not been any material and adverse change in the affairs or financial condition of the City since September 30, 2006, the latest date as to which audited financial information is available. LUB200nl012 Dallas 1352075v.l '2008. Mayor City of Lubbock, Texas .... ") Signature Page for Certificate Pursuant to Purchase Contract Vinson &Elkins February 12, 2008 $52,900,000 CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION SERIES 2008 WE HAVE represented the City of Lubbock, Texas (the "City"), as its Bond Counsel in connection with an issue of certificates of obligation (the "Certificates") described as follows: CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION, SERIES 2008, dated January 15, 2008, issued in the principal amount of$52,900,000. The Certificates mature, bear interest, are subject to redemption prior to maturity and may be transferred and exchanged as set out in the Certificates 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 Certificates under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Certificates 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 Certificates. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Certificates 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 Certificates, on which we have relied in giving our opinion. The transcript contains certified copies of certain proceedings of the City, 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 Certificates. We have also examined executed Certificate No. 1 of this issue. VInson & Elkins LLP AttOrneys at Law Austin Beijing Dallas Dubai Houston London Moscow NawYork Tokyo Washington Dallas !364955v.l Trammell Crow Center, 2001 Ross Avenue, Suite 3700 Dallas, Texas 75201-2975 Tel214.220.7700 Fax 214.220.7716 www.velaw.eom ' V&E BASED ON SUCH EXAMINATION, IT IS OUR OPINION THAT: (A) The transcript of certified proceedings evidences complete legal authority for the issuance of the Certificates in full compliance with the Constitution and laws of the State of Texas presently effective and, therefore, the Certificates constitute valid and legally binding obligations of the City; and (B) A continuing ad valorem tax upon all taxable property within the City, necessary to pay the interest on and principal of the Certificates, has been levied and pledged irrevocably for such pu1p0ses, within the limit prescribed by law, and the total indebtedness of the City, including the Certificates, does not exceed any constitutional, statutory or other limitations. In addition, the Certificates are further secured by a limited pledge (not to exceed $1 ,000) of the surplus net revenues of the City's Wastewater System, as described in the Ordinance. THE RIGHTS OF THE OWNERS of the Certificates are subject to the applicable provisions of the federal bankruptcy laws and any other similar laws affecting the rights of creditors of political subdivisions generally, and may be limited by general principles of equity which permit the exercise of judicial discretion. IT IS OUR FURTHER OPINION THAT: (1) Interest on the Certificates is excludable from gross income for federal income tax purposes under existing law; and (2) The Certificates are not ''private activity bonds" within the meaning of the Internal Revenue Code of 1986, as amended (the "Code"), and interest on the Certificates is not subject to the alternative minimum tax on individuals and corporations, except that interest on the Certificates will be included in the "adjusted current earnings" of a corporation (other than an S corporation, regulated investment company, REIT, REMIC or F ASIT) for purposes of computing its alternative minimum tax liability. In providing such opinions, we have relied on representations of the City, the City's fmancial advisor and the underwriters of the Certificates with respect to matters solely within the knowledge of the City, the City's financial advisor and the underwriters respectively, which we have not independently verified, and have assumed continuing compliance with the covenants in the Ordinance pertaining to those sections of the Code that affect the exclusion from gross income of interest on the Certificates for federal income tax purposes. If such representations are determined to be inaccurate or incomplete or the City fails to comply with the foregoing provisions of the Ordinance, interest on the Certificates could become includable in gross income -2- Dallas 1364955v.t V&£ 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 Certificates. 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 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 will commence an audit of the Certificates. 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 Certificates as includable in gross income for federal income tax purposes. -3- Dallas \364955v. 1 0 ' , Vinson &Elkins February 12, 2008 City of Lubbock, Texas P .0. Box 2000 Lubbock, Texas 79457 Morgan Keegan & Company, Inc. Merrill Lynch, Pierce, Fenner & Smith Incorporated Morgan Stanley & Co. Incorporated Southwest Securities, Inc. c/o Morgan Keegan & Company, Inc. 4400 Post Oak Parkway, Suite 2670 Houston, Texas 77027 $52,900,000 City of Lubbock, Texas Tax and Wastewater System Surplus Revenue Certificates of Obligation Series 2008 Ladies and Gentlemen: We have served as Bond Counsel to the City of Lubbock, Texas (the "Issuer") in connection with the issuance of its $52,900,000 City of Lubbock, Texas, Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008 (the "Certificates"), issued pursuant to the provisions of an ordinance duly adopted by the City Council of the Issuer on January 10, 2008 (the "Ordinance"). This opinion is delivered pursuant to the provisions of Section 8(e)(7) 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 January 17, 2008 (the "Purchase Contracf') between the Issuer and the Underwriters named in such Purchase Contract; (c) a copy of the Official Statement dated January 17, 2008; 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. Vinaon & Elkins UP Attorneys at Law Austin Beijing Dallas Dubai Houston London Moscow New York Tokyo Washington Dallas 1365000v.1 Trammell Crow Center, 2001 Ross Avenue, Suite 3700 Dallas, Texas 75201·2975 Tel214.220.7700 Fax 214.220.7716 www.velaw.com r 0 ' V&E 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. 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 Certificates are exempted securities within the meaning of Section 3(a)(2) of the Securities Act of 1933, as amended (the "1933 Act") and the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), and it is not necessary in connection with the offering and sale of the Certificates to register the Certificates under the 193 3 Act, or to qualify the Ordinance under the Trust Indenture Act, as amended. 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 information contained in the Official Statement. We have, however, reviewed the statements and information in the Official Statement under the captions "The Certificates" (exclusive of the information under the subcaptions "Book-Entry-Only System" and "Sources and Uses of Funds") and "Tax Matters" and the subcaptions "Legal Investments and Eligibility to Secure Public Funds in Texas," "Legal Matters" and "Continuing Disclosure of Information" (exclusive of the information under the subcaption "Compliance with Prior Undertakings") under the caption "Other Information," and we are of the opinion that such statements and information present a fair and accurate summary of the provisions of the laws and instruments therein described and, with respect to the Certificates, such information conforms to the Ordinance. 3. The Purchase Contract has been duly authorized, executed and delivered by the City and (assuming due authorization by the Underwriters) constitutes a binding and enforceable agreement of the City in accordance with its terms. The addressees may rely on our opinion, dated as of the date hereof, delivered in connection with the issuance of the Certificates to the same extent as if such opinions were specifically addressed to them. This opinion is furni shed 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. 1365000_1.DOC -2- Dallas 1365000v. l 0 0 0 LAW OFFICES M~CALL, PARKHURST & HORTON LLP. 717 NORTH HARWOOD 700 N. ST. MARY'S STREET SUITE 900 SUITE 1525 DALLAS, TEXAS 7520H:>587 SAN ANTONIO, TEXAS 78205·3503 TeLEPHONE: a14 754~~u~oo FACSIMIL£: 214 ?54·9250 f"ACSIMILE' 210 2.i!5· 2984 February 12, 2008 Morgan Keegan & Company, Inc. Merrill Lynch, Pierce, Feru1er & Smith Incorporated Morgan Stanley & Co. Incorporated Southwest Securities, Inc. c/o Morgan Keegan & Company, Inc. 4400 Post Oak Parkway, Suite 2670 Houston, Texas 77027 600 CONGRESS AVENUE SUITE 1800 AUSTIN, TEXAS 78701-3248 TEL£PHON£: 512 478•3805 FACSIMILE; 512 <117.1!•08?1 RE: $52,900,000 CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF 0BLIGA TION, SERIES 2008 Ladies and Gentlemen: We have acted as counsel for you as the underwriters of the securities described above (the "Securities11), issued under and pursuant to the ordinance (the "Ordinance11) of the City of Lubbock, Texas (the "Issuer"), authorizing the issuance of the Securities, which Securities you are purchasing pursuant to a Purchase Contract, dated January 1 7, 2008. 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 certificates and other information furnished to us, as we have deemed appropriate as a basis for our opinion set forth below. We are not expressing any opinion or views herein on the authorization, issuance, delivery, validity of the Securities and we have assumed, but not independently verified, that the signatures on all documents and Securities that we have examined are genuine. Based on and subject to the foregoing, we are of the opinion that, under existing laws, the Securities are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Ordinance is not required to be qualified under the Trust Indenture Act of 1939, as amended. Because the primary purpose of our professional engagement as your counsel was not to establish factual matters, and because of the wholly or partially nonlegal character of many of the determinations involved in the preparation of the Official Statement dated January 17, 2008 (the "Official Statement") and because the information in the Official Statement under the headings "THE CERTIFICATES-Book-Entry-Only System,'' "TAX MATTERS,'' "OTHER INFORMATION- Continuing Disclosure oflnformation-Compliance with Prior Undertakings" and Appendices A, B, and C thereto were prepared by others who have been engaged to review or provide such informatio~ we are not passing on and do not assume any responsibility for, except as set forth in the last sentence of this paragraph, the accuracy, completeness or fairness of the statements contained in the Official Statement (including any appendices, schedules and exhibits thereto) and we make no representation that we have independently verified the accuracy, completeness or fairness of such statements. In the course of our review of the Official Statement, we had discussions with representatives of the City regarding the contents of the Official Statement. In the course of our participation in the preparation of the Official Statement as your counsel, we had discussions with representatives of the Issuer, including its City Attorney, Bond Counsel and Financial Advisor, regarding the contents of the Official Statement. In the course of such activities, no facts came to our attention that would lead us to believe that the Official Statement (except for the financial statements and other financial and statistical data contained therein, the information set forth under the headings "THE CERTIFICATES-Book-Entry-Only System," "TAX MATTERS," "OTHER INFORMATION -Continuing Disclosure of Information -Compliance with Prior Undertakings" and Appendices A, B, and C thereto, as to which we express no opinion), as of its date contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. This opinion letter may be relied upon by only you and only in connection with the transaction to which reference is made above and may not be used or relied upon by any other person for any purposes whatsoever without our prior written consent. Respectfully, 0 ATTORNEY GENERAL OF TEXAS GREG ABBOTT February 11, 2008 THIS IS TO CERTIFY that the City of Lubbock, Texas (the "Issuer"), has submitted to me City of Lubbock, Texas~ Tax and Wastewater System Surplus Revenue Certificate of Obligation. Series 2008 (the "Certificate") in the principal 0 amount of $52,900,000 for approval. The Certificate is dated January 15, 2008, numbered T ·1, and was authorized by an Ordinance of the Issuer passed on January 10, 2008 (the "Ordinance"). I have examined the law and such certified proceedings and other papers as I deem 0 necessary to render this opinion. 0 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 the official statement or any other offering material relating to the Certificate. Based on my examination, I am of the opinion, as of the date hereof and under existing law, as follows (capitalized terms, except as herein defmed, have the meanings given to them in the Ordinance): No. 47445 (1) The Certificate has been issued in accordance with law and is a valid and binding obligation of the Issuer. (2) The Certificate is payable from the proceeds of an ad valorem tax levied, within the limits prescribed by law, upon all taxable property in the Issuer and from a limited pledge of Surplus Revenues of the Issuer's Wastewater System in the amount of $1 ,000, as provided in the Ordinance. Therefore, the Certificate is approved. Book No. 2008-A DFH POST 0HIC~ BOX 12548, AUSTIN, TEXAS 78711·2548 TEL:(512)463-2100 WWW.OAG.STATE.TX.US A11 Eqtllll £mpl•1mmt Oppt>rtunitl £tnpf•la · Printtd bn Ru:fdttl 1'4pa 0 0 0 OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, M@lissa Mor9. D Bond Clerk [Zl 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 11th day of February. 2008, I signed the name of the Comptroller to the certificate of registration endorsed upon the: City of Lubbock. Texas. Tax and Wastewater System Surplus Revenue Certificate of Obligation. Series 2008, numbered T-1 dated January 15. 2008, and that in signing the certificate of registration I used the followingsignature: ~ ~ I I, Susan Combs, 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 73895. GIVEN under my hand and seal of office at Austin, Texas, this the 11th day of February. 2008. Susan Combs Comptroller of Public Accounts of the State of Texas 0 0 0 0 0 ') OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, SUSAN COMBS, 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. Tax and Wastewater S~stem Surplus Revenue Certificate of Obligation. Series 2008 numbered T-1. of the denomination of$ 52.900,000, dated January 15, 2008, 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 11th day of February, 2008, under Registration Number 73895. Given under my hand and seal of office, at Austin, Texas, the 11th day of February. 2008. SUSAN COMBS Comptroller of Public Accounts of the State of Texas 0 0 0 ) PFSA A De-xia CmnpMy February 12, 2008 Municipal Bond Insurance Policy No. 209880-N with Respect to $52.900 000 In Aggregate Principal Amount of Cjty of Lubbock. Texas Tax and Wastewater System Surplus Revenue Certificates of Obligation. Series 2008 Ladies and Gentlemen: I am Associate General Counsel of Financial Security Assurance Inc., a New York stock insurance company ("Financial Security"). You have requested my opinion in such capacity as to the matters set forth below in connection with the issuance by Financial Security of its abovEHeferenced policy (the "Policy"). In that regard, and for purposes of this opinion, I have examined such corporate records, documents and proceedings as I have deemed necessary and appropriate. Based upon the foregoing, I am of the opinion that: 1. Financial Security is a stock insurance company duly organized and validly existing under the laws of the state of New York and authorized to transact financial guaranty insurance business therein. 2. The Policy has been duly authorized, executed and delivered by Financial Security. 3. The Policy constitutes the valid and binding obligation of Financial Security, enforceable in accordance with its terms, subject, as to the enforcement of remedies, to bankruptcy, insolvency, reorganization, rehabilitation, moratorium and other similar laws affecting the enforceability of creditors' rights generally applicable in the event of the bankruptcy or insolvency of Financial Security and to the application of general principles of equity. In addition, please be advised that I have reviewed the description of the Policy under the caption "BONO INSURANCE-Bond Insurance Policy'' in the official statement relating to the above-referenced Bonds dated January 17, 2008 (the "Official Statemenf'). There has not come to my attention any information which would cause me to believe that the description of the Policy referred to above, as of the date of the Official Statement or as of the date of this opinion, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Please be advised that I express no opinion with respect to any information contained in, referred to or omitted from under the caption "BONO INSURANCE-Financial Security Assurance Inc." I am a member of the Bar of the State of New York, and do not express any opinion as to any law other than the laws of the State of New York. City of Lubbock, 1625 13th Street, Lubbock, Texas 79457-0001. Morgan Keegan & Company, Inc., as Representative of the Underwriters, 4400 Post Oak Parkway, Suite 2670, Houston, Texas 77027. Financial Security Ae&unmee 31 West 52nd Street· New York, New York 10019 ·Tel: :n2.826.moo • f'.ux; 212.688.310t New York. Dall~ • San Francisco. l.ondon. Madrid· Paris· Singapore· Sydney· Tokyo Very truly yours, Associate General Counsel 0 0 0 Vinson &Elkins February 12, 2008 Financial Security Assurance Inc. 31 West 52nd Street New York, New York 10019 Re: City of Lubbock, Texas, Tax and Wastewater System Surplus Revenue Certificates of Obligation, Series 2008 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 a. Elldna LLP Attorneys lit Law Austin Beijing Dallas Dubai Houston London Moscow New York Tokyo Washington Dallas 1354417v.1 Very truly yours, Trammell Crow Center. 2001 Ross Avenue, Suite 3700 Dallas, TX 75201·2975 Tel214.220.7700 Fax 214.220.n16 www.velaw.com 0 ) ) February 12, 2008 Morgan Keegan & Company, Inc. Merrill Lynch, Pierce, Fenner & Smith Incorporated Morgan Stanley & Co. Incorporated Southwest Securities, Inc. c/o Morgan Keegan & Company, Inc. 4400 Post Oak Parkway, Suite 2670 Houston, Texas 77027 RE: $52,900,000 CITY OF LUBBOCK, TEXAS TAX AND WASTEWATER SYSTEM SURPLUS REVENUE CERTIFICATES OF OBLIGATION, SERIES 2008 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 securities (the "Securities"), pursuant to the provisions of the ordinance (the "Ordinance") duly adopted by the City Council of the City on January 10, 2008. Capitalized terms not otherwise defined in this opinion have the meanings assigned in the Purchase Contract. In my capacity as City Attorney to the City, I have reviewed such agreements, documents, certificates, opinions, letters, and other papers as I have deemed necessary or appropriate in rendering the opinions set forth below. In making my review, I have assumed the authenticity of all documents and agreements submitted to me as originals, conformity to the originals of all documents and agreements submitted to me as certified or photostatic copies, the authenticity of the originals of such latter documents and agreements, and the accuracy of the statement contained in such documents. Based upon the foregoing, and subject to the qualifications and exceptions hereinafter set forth, I am of the opinion that under the applicable laws of the United States of America and the State of Texas in force and effect on the date hereof: 1. Based on reasonable inquiry made of the responsible City employees and public officials, the City is not, to the best of my knowledge, in breach of or in default under any applicable law or administrative regulation of the State of Texas or the United States, or ' ) any applicable judgment or decree or any trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the City is party or is otherwise subject and, to the best of my knowledge after due inquiry, no event has occurred and is continuing that, with the passage of time or the giving of notice, or both, would constitute such a default by the City under any of the foregoing; and the execution and delivery of the Purchase Contract, the Securities and the adoption of the Ordinance and compliance with the provisions of each of such agreements or instruments does not constitute a breach of or default under any applicable law or administrative regulation of the State of Texas or the United States or any applicable judgment or decree or, to the best of my knowledge, any trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the City is a party or is otherwise subject; and 2. Except as disclosed in the Official Statement, no litigation is pending, or, to my knowledge, threatened, in any court in any way (a) challenging the titles of the Mayor or any of the other members of the City Council to their respective offices; (b) seeking to restrain or enjoin the issuance, sale or delivery of any of the Securities, or the levy, collection or application of the ad valorem taxes and the Pledged Revenues pledged or to be pledged to pay the principal of and interest on the Securities; © contesting or affecting the validity or enforceability of the Securities, the Ordinance, the Pricing Certificate or the Purchase Contract; (d) contesting the powers of the City or any authority for the issuance of the Securities, 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 swrunarizes the matters described therein. This opinion is furnished solely for your benefit and may be relied upon only by the addresses hereof or anyone to whom specific permission is given in writing by me. Very truly yours, l.L ,6"-, ... Anita Burgess NTX Tax & Wastewater System.ltr 013008