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1 SUPPLEMENT to OFFICIAL STATEMENT of FAYETTE COUNTY, GEORGIA relating to its Water Revenue Bonds New Issue New Issue $8,070,000 $15,590,000 Water Revenue Bonds, Water Revenue Refunding Bonds, Series 2012A Series 2012B The purpose of this Supplement is to amend the date appearing at the bottom of the front cover of the Official Statement. Accordingly, the reference to April 22, 2012 appearing at the bottom of the front cover of the Official Statement shall be deleted and March 22, 2012 shall be substituted in lieu thereof. Dated: April 17, 2012

2 TWO SEPARATE ISSUES (Book-Entry Only) RATINGS Moody s: Aa2 Standard & Poor s: AA See MISCELLANEOUS - Ratings herein. In the opinion of Bond Counsel, under existing law, (a) interest on the Series 2012 Bonds is excluded from gross income for federal income tax purposes, (b) interest on the Series 2012 Bonds is not a specific item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and (c) interest on the Series 2012 Bonds is exempt from State of Georgia income taxation, subject to the conditions and limitations described herein. The opinion contains greater detail, and is subject to exceptions, as noted in LEGAL MATTERS - Opinion of Bond Counsel herein. $23,660,000 FAYETTE COUNTY, GEORGIA Water Revenue Bonds New Issue New Issue $8,070,000 $15,590,000 Water Revenue Bonds, Series 2012A Water Revenue Refunding Bonds, Series 2012B Dated: Date of Issuance Delayed Delivery: July 6, Series 2012B Bonds Due: October 1, as shown on the inside front cover hereof The Water Revenue Bonds, Series 2012A (the Series 2012A Bonds ) are being issued by Fayette County, Georgia (the County ) for the purpose of financing the costs of making additions, extensions, and improvements to the County s water system. The Water Revenue Refunding Bonds, Series 2012B (the Series 2012B Bonds ) are being issued by the County for the purpose of refunding a portion of the County s Water Revenue Bonds, Series See PLAN OF FINANCING herein. Interest on the Series 2012A Bonds and the Series 2012B Bonds (collectively the Series 2012 Bonds ) is payable semiannually on October 1 and April 1 of each year, commencing on October 1, All Series 2012 Bonds bear interest from their date of issuance. See INTRODUCTION - Description of the Series 2012 Bonds herein. The Series 2012 Bonds will be issued as fully registered bonds, registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ), to which payments of principal, premium, if any, and interest will be made. Purchasers will acquire beneficial interests in the Series 2012 Bonds in book-entry form only. DTC will remit such payments to its participants who will be responsible for remittance to beneficial owners. See INTRODUCTION - Description of the Series 2012 Bonds herein. The Series 2012A Bonds are subject to optional and mandatory redemption prior to maturity as described herein. The Series 2012B Bonds are subject to optional redemption prior to maturity as described herein. See THE SERIES 2012 BONDS - Redemption herein. The Series 2012 Bonds are special limited obligations of the County payable solely from and secured by a pledge of and lien on revenues derived by the County from the ownership and operation of its water system, remaining after the payment of expenses of operating, maintaining, and repairing the system. The Series 2012 Bonds will be issued and secured on a parity with the Prior Bonds (as defined herein) and any additional revenue bonds of the County hereafter issued on a parity with the Prior Bonds and the Series 2012 Bonds. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2012 BONDS herein. The Series 2012 Bonds do not constitute a debt or general obligation of the County or a pledge of the faith and credit or taxing power of the County. No governmental entity, including the County, is obligated to levy any tax for the payment of the Series 2012 Bonds. No recourse may be had against the General Fund of the County for the payment of the Series 2012 Bonds. The maturities, principal amounts, interest rates, and prices or yields of the Series 2012 Bonds are set forth on the inside front cover of this Official Statement. This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to making an informed investment decision. The Series 2012 Bonds are offered when, as, and if issued by the County and accepted by the Underwriter, subject to prior sale and to withdrawal or modification of the offer without notice, and are subject to the approving opinion of McKenna Long & Aldridge LLP, Atlanta, Georgia, Bond Counsel. Certain legal matters will be passed on for the County by its general counsel, Scott D. Bennett, Fayetteville, Georgia, and by its disclosure counsel, McKenna Long & Aldridge LLP, Atlanta, Georgia. The Series 2012A Bonds are expected to be available for delivery in book-entry form only through the facilities of DTC in New York, New York on or about April 17, The Series 2012B Bonds are expected to be available for delivery in book-entry form only through the facilities of DTC in New York, New York on or about July 6, See INTRODUCTION - Delayed Delivery Risks herein. Dated: April 22, 2012

3 MATURITIES, PRINCIPAL AMOUNTS, INTEREST RATES, AND PRICES OR YIELDS $8,070,000 Water Revenue Bonds, Series 2012A $7,670,000 Serial Bonds Principal Interest Price or Principal Interest Maturity Amount Rate Yield Maturity Amount Rate Yield 2023 $1,100, % 100% 2024 $3,660, % 3.05% ,410, , $100, % Term Bonds due October 1, 2016, to Yield 1.30% $300, % Term Bonds due October 1, 2022, to Yield 2.84% 1 Priced to October 1, 2022 optional call date. $15,590,000 Water Revenue Refunding Bonds, Series 2012B Principal Interest Principal Interest Maturity Amount Rate Yield Maturity Amount Rate Yield 2013 $1,530, % 0.76% 2020 $2,015, % 2.61% ,565, , ,615, , ,675, , ,740, , ,830, ,460, ,915, Priced to October 1, 2022 optional call date.

4 FAYETTE COUNTY, GEORGIA ELECTED OFFICIALS Board of Commissioners of Fayette County Herbert E. Frady, Chairman Robert Horgan, Vice Chairman Steve Brown Lee Hearn Allen McCarty APPOINTED OFFICIALS Jack J. Krakeel, County Administrator Mary S. Holland, Chief Financial Officer Tony V. Parrott, Water System Director Scott D. Bennett, County Attorney SPECIAL SERVICES Auditors Nichols, Cauley & Associates, LLC Atlanta, Georgia Bond and Disclosure Counsel McKenna Long & Aldridge LLP Atlanta, Georgia Underwriter Merchant Capital L.L.C. Atlanta, Georgia

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6 TABLE OF CONTENTS Page INTRODUCTION...1 The County...1 Purpose of the Series 2012 Bonds...1 The System...2 Security and Sources of Payment for the Series 2012 Bonds...2 Description of the Series 2012 Bonds...2 Tax Exemption...3 Bond Registrar, Paying Agent, Custodian, and Depository...3 Professionals Involved in the Offering...3 Legal Authority...3 Offering and Delivery of the Series 2012 Bonds...3 Delayed Delivery Risks...4 Continuing Disclosure...4 Other Information...4 PLAN OF FINANCING...6 Estimated Sources and Applications of Funds...6 System Improvements...7 Refunding Program...7 THE SERIES 2012 BONDS...8 Description...8 Redemption...8 Book-Entry Only System...9 Legal Authority...11 Investments...11 SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2012 BONDS...11 Pledge of Revenues...11 Funds Created By the Bond Resolution and Flow of Funds...11 Rate Covenant...14 Parity and Subordinate Bonds...14 Limited Obligations...14 Remedies...15 THE COUNTY...16 Introduction...16 County Administration and Officials...16 THE SYSTEM...17 Introduction...17 Management...17 System Facilities...17 Water Sources...18 Service Area...19 Service Area Demographic Information...20 Service Area Economic Information...20 Customers...23 Rates, Fees, and Charges...24 Rate Setting Process...25 Billing and Collection...26 Governmental Approvals and Environmental Regulation...26 Employees, Employee Relations, and Labor Organizations...29 (i)

7 SYSTEM FINANCIAL INFORMATION...29 Page Accounting System and Policies...29 Historical and Pro Forma Capital Structure...29 Debt Service Requirements...32 Five Year Operating History...33 Management s Discussion and Analysis of Results of Operations...34 Historical and Forecasted Debt Service Coverage Ratios...34 Operating Budgets...36 Capital Improvements Program...37 Employee Benefits...37 Insurance Coverage...39 LEGAL MATTERS...39 Pending Litigation...39 Opinion of Bond Counsel...39 Original Issue Discount and Premium...40 Collateral Federal Tax Consequences...41 Pending Federal Legislation...41 Validation Proceedings...42 Closing Certificates...42 MISCELLANEOUS...42 Ratings...42 Underwriting...42 Independent Professionals...43 Summary of Continuing Disclosure Certificate...43 Additional Information...46 CERTIFICATION...47 APPENDIX A: FINANCIAL STATEMENTS OF THE SYSTEM...A-1 APPENDIX B: ENGINEERING REPORT...B-1 APPENDIX C: SUMMARY OF THE BOND RESOLUTION...C-1 APPENDIX D: FORMS OF LEGAL OPINIONS...D-1 (ii)

8 OFFICIAL STATEMENT of FAYETTE COUNTY, GEORGIA relating to its $23,660,000 WATER REVENUE BONDS, SERIES 2012 New Issue New Issue $8,070,000 $15,590,000 Water Revenue Bonds, Water Revenue Refunding Bonds, Series 2012A Series 2012B INTRODUCTION The purpose of this Official Statement, which includes the cover page and the Appendices hereto, is to furnish certain information in connection with the sale by Fayette County, Georgia of $23,660,000 in aggregate principal amount of its Water Revenue Bonds, consisting of $8,070,000 in aggregate principal amount of its Water Revenue Bonds, Series 2012A (the Series 2012A Bonds ), and $15,590,000 in aggregate principal amount of its Water Revenue Refunding Bonds, Series 2012B (the Series 2012B Bonds ). The Series 2012A Bonds and the Series 2012B Bonds are referred to collectively as the Series 2012 Bonds in this Official Statement and will be differentiated, where necessary, by reference to the Series 2012A Bonds and the Series 2012B Bonds. This Introduction is not a summary of this Official Statement and is intended only for quick reference. It is only a brief description of and guide to, and is qualified in its entirety by reference to, more complete and detailed information contained in the entire Official Statement, including the cover page and the Appendices, and the documents summarized or described herein. Potential investors should fully review the entire Official Statement. The offering of the Series 2012 Bonds to potential investors is made only by means of the entire Official Statement, including the Appendices hereto. No person is authorized to detach this Introduction from the Official Statement or to otherwise use it without the entire Official Statement, including the Appendices hereto. The County Fayette County, Georgia (the County ), the issuer of the Series 2012 Bonds, is a political subdivision of the State of Georgia created by an Act of the General Assembly of the State of Georgia in The County is located in the west central portion of the State of Georgia approximately 25 miles south of downtown Atlanta. For more complete information, see THE COUNTY herein. Purpose of the Series 2012 Bonds The proceeds of the Series 2012A Bonds will be used, together with other available funds, (i) to pay the costs of making additions, extensions, and improvements to the County s water system, and (ii) to pay the costs of issuance of the Series 2012A Bonds. The proceeds of the Series 2012B Bonds will be used, together with other available funds, (i) to refund $200,000 of the $1,480,000 in aggregate principal amount of the County s Water Revenue Bonds, Series 2002 (the Series 2002 Bonds ), maturing October 1, 2012, and $17,165,000 in aggregate principal amount of the Series 2002 Bonds, maturing October 1, 2013 and thereafter, and (ii) to pay the costs of issuance of the Series 2012 Bonds. For more complete information, see PLAN OF FINANCING herein.

9 The System The County owns and operates a water supply, treatment, and distribution system (the System ). The System consists of a raw surface water supply from six primary sources, a ground water supply from two active wells with an aggregate well-water pumping capacity of 0.83 million gallons per day ( MGD ), raw surface water storage capacity of approximately 5.80 billion gallons, five raw surface water pump stations with aggregate raw water pumping capacity of 46.9 MGD, four wells with aggregate well-water pumping capacity of 0.83 MGD, two water treatment plants with an aggregate rated capacity for treatment of raw water of 22.8 MGD and an aggregate treated water pumping rated capacity of 23.3 MGD, treated water storage capacity of million gallons, and a water distribution network of approximately 618 miles of pipelines. The System currently serves an approximately 183 square mile area containing an estimated population in excess of 94,000 and had 27,626 water connections as of November 30, For more complete information, see THE SYSTEM herein. Security and Sources of Payment for the Series 2012 Bonds The Series 2012 Bonds are special limited obligations of the County payable solely from and secured by a first priority pledge of and lien on revenues derived by the County from the ownership and operation of the System, remaining after the payment of expenses of operating, maintaining, and repairing the System (the Net Revenues ). The County has previously issued (i) $10,245,000 in original aggregate principal amount of its Water Revenue Bonds, Series 1996A, (ii) $22,670,000 in original aggregate principal amount of its Water Revenue Bonds, Series 2002, and (iii) $36,340,000 in original aggregate principal amount of its Water Revenue Bonds, Series 2009 (collectively the Prior Bonds ). The Prior Bonds are presently outstanding in the aggregate principal amount of $51,970,000 and are payable solely from and secured by a first priority pledge of and lien on the Net Revenues. The Series 2012 Bonds will be equally and ratably secured on a parity basis with the Prior Bonds that are not being refunded and with any additional revenue bonds of the County hereafter issued on a parity basis with the Prior Bonds and the Series 2012 Bonds. The Prior Bonds that are not being refunded, the Series 2012 Bonds, and any additional revenue bonds of the County hereafter issued on a parity basis with the Prior Bonds that are not being refunded and the Series 2012 Bonds are collectively referred to as the Bonds in this Official Statement. The Series 2012 Bonds do not and will not constitute a debt or general obligation of the County or a pledge of the faith and credit or taxing power of the County. No governmental entity, including the County, is obligated to levy any tax for the payment of the Series 2012 Bonds. No recourse may be had against the General Fund of the County for the payment of the Series 2012 Bonds. The pledge of and lien on Net Revenues securing the Series 2012 Bonds does not create a legal or equitable pledge, charge, lien, or encumbrance upon any of the County s property or income, receipts, or revenues, except the Net Revenues and the amounts on deposit in the funds held under the hereinafter described Bond Resolution. The Series 2012 Bonds will also be secured by a debt service reserve to be held in trust for the owners of all of the Bonds, equally and ratably, under the terms of the hereinafter described Bond Resolution. Upon the issuance of the Series 2012A Bonds, the amount on deposit as a debt service reserve will equal approximately $4,767,143 and, commencing with the month of April 2012 and from month to month thereafter, substantially equal monthly payments will be paid into the reserve so that the reserve will be fully funded in an amount equal to the Debt Service Reserve Requirement by April 1, For more complete and detailed information, see SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2012 BONDS herein. Description of the Series 2012 Bonds Redemption. The Series 2012 Bonds maturing on or after October 1, 2023 are redeemable at the option of the County, not earlier than October 1, 2022, at the prices and on the terms described in this Official Statement. The Series 2012A Bonds maturing on October 1, 2016 and 2022 are subject to mandatory redemption in part prior to maturity on the dates and in the amounts described in this Official Statement. For more complete information, see THE SERIES 2012 BONDS - Redemption herein. Denominations. The Series 2012 Bonds are issuable in denominations of $5,000 or any integral multiple thereof. Book-Entry Bonds. Each of the Series 2012 Bonds will be issued as fully registered bonds in the denomination of one bond per aggregate principal amount of the stated maturity thereof, and, when issued, will be registered in the name of Cede & Co., as nominee for The Depository Trust Company ( DTC ), New York, New -2-

10 York, an automated depository for securities and clearing house for securities transactions, which will act as securities depository for the Series 2012 Bonds. Purchasers will not receive certificates representing their ownership interest in the Series 2012 Bonds purchased. Purchases of beneficial interests in the Series 2012 Bonds will be made in book-entry only form (without certificates), in authorized denominations, and, under certain circumstances as more fully described in this Official Statement, such beneficial interests are exchangeable for one or more fully registered bonds of like principal amount and maturity in authorized denominations. For more complete information, see THE SERIES 2012 BONDS - Book-Entry Only System herein. Payments. So long as DTC or its nominee, Cede & Co., is the registered owner of the Series 2012 Bonds, payments of the principal of, premium, if any, and interest on the Series 2012 Bonds will be made directly to Cede & Co., which will remit such payments to the DTC participants, which will in turn remit such payments to the beneficial owners of the Series 2012 Bonds. For a more complete description of the Series 2012 Bonds, see THE SERIES 2012 BONDS herein. Tax Exemption In the opinion of Bond Counsel, under existing law, (a) interest on the Series 2012 Bonds is excluded from gross income for federal income tax purposes, (b) interest on the Series 2012 Bonds is not a specific item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and (c) interest on the Series 2012 Bonds is exempt from State of Georgia income taxation, subject to the conditions and limitations described herein. See Appendix D hereto for the forms of the opinions Bond Counsel proposes to deliver in connection with the issuance of the Series 2012 Bonds. For a more complete discussion of such opinions and certain other tax consequences of owning the Series 2012 Bonds, including certain exceptions to the exclusion of the interest on the Series 2012 Bonds from gross income, see LEGAL MATTERS - Opinion of Bond Counsel, - Original Issue Discount and Premium, and - Collateral Federal Tax Consequences herein. Bond Registrar, Paying Agent, Custodian, and Depository The Bank of New York Mellon Trust Company, N.A., Jacksonville, Florida, will act as bond registrar and as paying agent for the Series 2012 Bonds. The Bank of New York Mellon Trust Company, N.A., Jacksonville, Florida, will act as custodian of the Sinking Fund created under the hereinafter described Bond Resolution. Wells Fargo Bank, National Association, Fayetteville, Georgia, will act as depository of the Revenue Fund, the Renewal and Extension Fund, and the Construction Fund created under the hereinafter described Bond Resolution. Professionals Involved in the Offering Certain legal matters pertaining to the County and its authorization and issuance of the Series 2012 Bonds are subject to the approving opinions of McKenna Long & Aldridge LLP, Atlanta, Georgia, Bond Counsel. Copies of such opinions will be available at the time of delivery of the related series of Series 2012 Bonds, and a copy of the proposed forms of such opinions is attached hereto as Appendix D. Certain legal matters will be passed on for the County by its general counsel, Scott D. Bennett, Fayetteville, Georgia, and by its disclosure counsel, McKenna Long & Aldridge LLP, Atlanta, Georgia. The financial statements of the System as of June 30, 2011 and for the year then ended, attached hereto as part of Appendix A, have been audited by Nichols, Cauley & Associates, LLC, Atlanta, Georgia, independent certified public accountants, to the extent and for the periods indicated in their report thereon which appears in Appendix A hereto. The Engineering Report attached to this Official Statement as Appendix B has been prepared by Mallett Consulting, Inc., Fayetteville, Georgia. See MISCELLANEOUS - Independent Professionals herein. Legal Authority The Series 2012 Bonds are being issued and secured pursuant to the authority granted by the laws of the State of Georgia and under the provisions of a resolution adopted by the Board of Commissioners of the County on October 25, 1984, as ratified, reaffirmed, supplemented, and amended by resolutions adopted by the Board of Commissioners of the County on June 21, 1985, June 25, 1986, May 4, 1988, November 20, 1992, January 23, 1997, February 26, 1998, May 23, 2002, June 13, 2002, July 29, 2009, and March 22, 2012 (collectively the Bond Resolution ). For more complete information, see THE SERIES 2012 BONDS - Legal Authority herein. Offering and Delivery of the Series 2012 Bonds The Series 2012 Bonds are offered when, as, and if issued by the County and accepted by the Underwriter, subject to prior sale and to withdrawal or modification of the offer without notice. The Series 2012A Bonds are -3-

11 expected to be available for delivery in book-entry form only through the facilities of DTC in New York, New York on or about April 17, The Series 2012B Bonds are expected to be available for delivery in book-entry form only through the facilities of DTC in New York, New York on or about July 6, 2012, approximately three months from the date of this Official Statement. Delayed Delivery Risks Delivery of the Series 2012B Bonds is contingent upon the maintenance of Aa2/AA ratings on the Series 2012B Bonds by Moody s Investors Service, Inc. and Standard & Poor s Ratings Services and the delivery of certain certificates, reports, and legal opinions and the satisfaction of certain other conditions as of the delivery date, as provided in the Bond Purchase Agreement between the County and the Underwriter with respect to the Series 2012B Bonds. Events that may prevent those conditions from being satisfied include, among others, (i) changes in law affecting the County, the validity or enforceability of the Bond Resolution or the Series 2012B Bonds, or the taxexempt status of the interest on the Series 2012B Bonds, (ii) the filing of certain types of litigation affecting the issuance of the Series 2012B Bonds, or (iii) the occurrence and continuation of a material event of default or an event that will result in a material event of default under the Bond Resolution. During the period of time between the date of this Official Statement and the issuance and delivery of the Series 2012B Bonds (the Delayed Delivery Period ), certain information contained in this Official Statement could change in a material respect. The County has agreed to update this Official Statement prior to delivery of the Series 2012B Bonds and provide the same to purchasers of the Series 2012B Bonds at least 10 days prior to the delivery date, if necessary. The Underwriter presently intends to, although it is not obligated to, make a secondary market in the Series 2012B Bonds on a when, as, and if issued basis during the Delayed Delivery Period. There can be, however, no guarantee that the Underwriter will be successful in establishing a secondary market for the Series 2012B Bonds during the Delayed Delivery Period or, if a secondary market exists, that the Series 2012B Bonds can be sold for any particular price during the Delayed Delivery Period. Prospective purchasers of the Series 2012B Bonds should assume that the Series 2012B Bonds will be illiquid throughout the Delayed Delivery Period. The market value of the Series 2012B Bonds as of the delivery date thereof may be affected by a variety of factors including, without limitation, general market conditions, the ratings on the Series 2012B Bonds, the financial condition and business operations of the County and the System, and federal and state income tax and other laws. The market value of the Series 2012B Bonds on the delivery date therefor could be greater or less than the agreed purchase price therefor by the purchasers thereof, and the difference could be substantial. Neither the County nor the Underwriter makes any representation as to the market price of the Series 2012B Bonds as of the delivery date thereof. Continuing Disclosure The County has covenanted in the Bond Resolution and a Continuing Disclosure Certificate (the Disclosure Certificate ) for the benefit of the beneficial owners of the Series 2012 Bonds to provide certain financial information and operating data relating to the System (the Annual Report ) by not later than 180 days after the end of each fiscal year of the County, commencing with fiscal year 2012, and to provide notices of the occurrence of certain enumerated events. The Annual Report will be filed by the County with the Municipal Securities Rulemaking Board (the MSRB ) in an electronic format as prescribed by the MSRB (which, as of the date hereof, is the Electronic Municipal Market Access ( EMMA ) system of the MSRB). The notices of certain events will be filed by the County with the MSRB in an electronic format as prescribed by the MSRB (which, as of the date hereof, is EMMA). The specific nature of the information to be contained in the Annual Report or the notices of certain events is summarized herein under the caption MISCELLANEOUS - Summary of Continuing Disclosure Certificate. These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5). Other Information This Official Statement speaks only as of its date, and the information contained herein is subject to change without notice. This Official Statement contains forecasts, projections, and estimates that are based on current expectations but are not intended as representations of fact or guarantees of results. If and when included in this Official Statement, the words expects, forecasts, projects, intends, anticipates, estimates, and analogous expressions are intended to identify forward-looking statements as defined in the Securities Act of 1933, as amended, and any such statements inherently are subject to a variety of risks and uncertainties, which could cause actual results to differ materially from those contemplated in such forward-looking statements. These forward-looking statements speak -4-

12 only as of the date of this Official Statement. The County disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in its expectations with regard thereto or any change in events, conditions, or circumstances on which any such statement is based. This Official Statement and the Appendices hereto contain brief descriptions of, among other matters, the County, the Series 2012 Bonds, the System, the Bond Resolution, the Disclosure Certificate, and the security and sources of payment for the Series 2012 Bonds. Such descriptions and information do not purport to be comprehensive or definitive. The summaries of various constitutional provisions and statutes, the Bond Resolution, the Disclosure Certificate, and other documents are intended as summaries only and are qualified in their entirety by reference to such documents, and references herein to the Series 2012 Bonds are qualified in their entirety to the form thereof included in the Bond Resolution. Copies of the Bond Resolution, the Disclosure Certificate, and other documents and information are available, upon request and upon payment to the County of a charge for copying, mailing, and handling, from Jack J. Krakeel, County Administrator, Fayette County, Georgia, 140 Stonewall Avenue West, Fayetteville, Georgia 30214, telephone (770) During the period of the offering of the Series 2012 Bonds copies of such documents are available, upon request and upon payment to the Underwriter of a charge for copying, mailing, and handling, from Merchant Capital L.L.C., One Buckhead Plaza, 3060 Peachtree Road, Suite 1700, Atlanta, Georgia 30305, telephone (404) The Series 2012 Bonds have not been registered under the Securities Act of 1933, and the Bond Resolution has not been qualified under the Trust Indenture Act of 1939, in reliance on exemptions contained in such Acts. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Series 2012 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation, or sale. No dealer, broker, salesman, or other person has been authorized by the County or the Underwriter to give any information or to make any representations other than those contained in this Official Statement, and, if given or made, such other information or representations should not be relied upon as having been authorized by the County or the Underwriter. Except where otherwise indicated, all information contained in this Official Statement has been provided by the County. The information set forth herein has been obtained by the County from sources that are believed to be reliable. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities law as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information contained herein is subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall under any circumstances create an implication that there has been no change in the affairs of the County since the date hereof or the earlier dates set forth herein as of which certain information contained herein is given. In connection with this offering, the Underwriter may over-allot or effect transactions which stabilize or maintain the market prices of the Series 2012 Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. Neither the United States Securities and Exchange Commission nor any state securities commission has approved or disapproved of the Series 2012 Bonds or reviewed or passed upon the adequacy or accuracy of this Official Statement. Any representation to the contrary may be a criminal offense. The order and placement of information in this Official Statement, including the appendices, are not an indication of relevance, materiality, or relative importance, and this Official Statement, including the appendices, must be read in its entirety. The captions and headings in this Official Statement are for convenience only and in no way define, limit, or describe the scope or intent, or affect the meaning or construction, of any provision or section in this Official Statement. -5-

13 PLAN OF FINANCING Estimated Sources and Applications of Funds The sources and applications of funds in connection with the issuance of the Series 2012A Bonds are estimated below. Estimated Sources of Funds: Proceeds of Series 2012A Bonds 1 $9,143,050 Estimated Interest Earnings During Construction 2 2,980 System Revenues 3 297,020 Total Sources of Funds $9,443,050 Estimated Applications of Funds: System Improvements 3 $9,300,000 Costs of Issuance 4 143,050 Total Applications of Funds $9,443,050 1 After adding net premium of $1,073, Based on estimated earnings on the unexpended construction funds at an investment rate of 0.08% over a period of 10 months. 3 See PLAN OF FINANCING - System Improvements herein. 4 Includes underwriting discount, legal and accounting fees, initial Bond Registrar s and Paying Agent s fees, printing costs, validation court costs, and other costs of issuance. The sources and applications of funds in connection with the issuance of the Series 2012B Bonds are estimated below. Estimated Sources of Funds: Proceeds of Series 2012B Bonds 1 $17,574,497 Funds Held Under Bond Resolution 2 369,960 Total Sources of Funds $17,944,457 Estimated Applications of Funds: Redeem Refunded Bonds 2 $17,804,921 Costs of Issuance 3 139,536 Total Applications of Funds $17,944,457 1 After adding premium of $1,984, See PLAN OF FINANCING - Refunding Program herein. 3 Includes underwriting discount, legal and accounting fees, initial Bond Registrar s and Paying Agent s fees, printing costs, validation court costs, and other costs of issuance. -6-

14 System Improvements The System s staff, together with Mallett Consulting, Inc. (the Consulting Engineer ), Fayetteville, Georgia, the County s consulting engineer, has developed a multi-year capital improvements program for the System and a plan to finance the program that relies on a combination of proceeds of revenue bonds, investment earnings, and System revenues. See SYSTEM FINANCIAL INFORMATION - Capital Improvements Program herein. The County expects to use a portion of the proceeds of the Series 2012A Bonds and investment earnings to finance the following capital improvements to the System: Uses of Funds: Crosstown Water Treatment Plant Upgrades $4,910,000 South Fayette Water Treatment Plant Upgrades 3,690,000 Engineering, Project Management, and Other Miscellaneous Costs 700,000 Total System Improvements $9,300,000 For a more complete description of the System improvements, see the Engineering Report attached to this Official Statement as Appendix B. The County has engaged the Consulting Engineer to act as the engineer for the design and construction of the capital improvements described above. The Consulting Engineer has completed or expects to complete the plans and specifications for the capital improvements described above in stages for the particular projects described above. The County has selected or expects to select general contractors for the particular projects described above through separate bidding processes after the plans and specifications for each particular project are completed. The County plans to require each general contractor to agree to construct the capital improvements described above for a stipulated price and to secure its obligations for construction and timely completion by labor and material payment and performance bonds. The timely completion of the construction of the capital improvements described above is dependent upon, among other factors, promptly obtaining approvals and permits from various governmental agencies and the absence of delays due to strikes, shortages of materials, and adverse weather conditions. The cost of constructing the capital improvements described above may be affected by factors beyond the control of the County, including strikes, energy and material shortages, subcontractor defaults, adverse weather conditions, and other unforeseen contingencies. The County has a contingency budget of approximately 10% of the budgeted amounts included in its cost estimates for the capital improvements described above. There can be no assurance that the County will complete the construction of the capital improvements described above in accordance with its present construction schedule and construction budget. For a description of governmental approvals that are required in connection with the capital improvements described above, see THE SYSTEM - Governmental Approvals and Environmental Regulation herein. For a discussion of restrictions that apply to the use of the proceeds of the Series 2012 Bonds and the amounts held in the Renewal and Extension Fund under the Bond Resolution, see SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2012 BONDS - Funds Created By the Bond Resolution and Flow of Funds herein. Refunding Program The County will use a portion of the proceeds of the sale of the Series 2012B Bonds, together with certain amounts held under the Bond Resolution, to refund $200,000 of the $1,480,000 in aggregate principal amount of the Series 2002 Bonds, maturing October 1, 2012, and $17,165,000 in aggregate principal amount of the Series 2002 Bonds, maturing October 1, 2013 and thereafter (collectively the Refunded Bonds ), in order to achieve debt service savings. Immediately after giving effect to the refunding and defeasance of the Refunded Bonds, the County will have outstanding $58,265,000 in aggregate principal amount of revenue bonds secured by a lien on the Net Revenues of the System. The weighted average interest rate of the Series 2012B Bonds is 2.20%, and the weighted average interest rate on the Refunded Bonds is 5.08%. The County has determined that refunding the Refunded Bonds will reduce the County s total debt service payments by approximately $2,867, on an aggregate basis and by approximately $2,365, on a net present value basis. The County will deposit sufficient moneys in trust into the 2002 Defeasance Account held by The Bank of New York Mellon Trust Company, N.A., Jacksonville, Florida, in its capacity as paying agent for the Refunded Bonds, from the proceeds of the sale of the Series 2012B Bonds and from certain amounts held under the Bond Resolution, -7-

15 to pay the principal of and interest on the Refunded Bonds on their scheduled redemption date of October 1, These amounts will not be available to pay the principal of, premium, if any, or interest on the Series 2012B Bonds, and the owners of the Series 2012B Bonds will have no claim to these amounts. Description THE SERIES 2012 BONDS The Series 2012A Bonds are being issued in the aggregate principal amount of $8,070,000 and the Series 2012B Bonds are being issued in the aggregate principal amount of $15,590,000. The Series 2012 Bonds will be dated as of their date of issuance and will bear interest at the rates set forth on the inside front cover page of this Official Statement (computed on the basis of a 360-day year of twelve 30-day months), payable October 1, 2012 and semiannually thereafter on April 1 and October 1 of each year to the registered owner as shown on the books and records of The Bank of New York Mellon Trust Company, N.A., Jacksonville, Florida, as Paying Agent and Bond Registrar (the Paying Agent or the Bond Registrar ) as of the close of business on the 15th day of the calendar months next preceding such April 1 and October 1. Subject to the redemption provisions described below, the Series 2012 Bonds will mature on the dates and in the amounts set forth on the inside front cover page of this Official Statement. The principal of and redemption premium, if any, on the Series 2012 Bonds are payable when due to the registered owner upon presentation at the main corporate trust office of the Paying Agent. The Series 2012 Bonds are issuable only as fully registered bonds, without coupons, in any authorized denomination. Purchases of beneficial ownership interests in the Series 2012 Bonds will be made in book-entry form and purchasers will not receive certificates representing interests in the Series 2012 Bonds so purchased. If the book-entry system is discontinued, Series 2012 Bonds will be delivered as described in the Bond Resolution, and beneficial owners of the Series 2012 Bonds will become the registered owners of the Series 2012 Bonds. See THE SERIES 2012 BONDS - Book-Entry Only System herein. Redemption Optional Redemption The Series 2012 Bonds of each series maturing on or after October 1, 2023 are subject to optional redemption by the County prior to their respective maturities either (i) in part in any order of their maturities (and by lot within a maturity) on any date on or after October 1, 2022, from moneys in the Sinking Fund not required for paying the principal of and interest on the Prior Bonds and the Series 2012 Bonds as same become due and payable in accordance with their terms in the then current sinking fund year and not required for maintaining a reserve therein in an amount equal to the highest combined principal and interest requirement on the Prior Bonds and the Series 2012 Bonds coming due in any succeeding sinking fund year, or (ii) in whole or in part in any order of their maturities (and by lot within a maturity) on any date on or after October 1, 2022 from any moneys deposited with the Paying Agent on or before the date fixed for redemption that may be made available for such purpose, at a redemption price of par plus accrued interest to the redemption date, all in the manner provided in the Bond Resolution. Mandatory Redemption of Series 2012A Bonds The Series 2012A Bonds maturing October 1, 2016 are subject to mandatory redemption prior to maturity on October 1, 2015, in part, by lot in such manner as may be designated by the Bond Registrar, at par plus accrued interest to the redemption date, in the principal amount of $50,000, and leaving $50,000 principal amount of the Series 2012A Bonds maturing October 1, 2016 to be paid at maturity. In addition, the Series 2012A Bonds maturing October 1, 2022 are subject to mandatory redemption prior to maturity on October 1, 2017 and on each succeeding October 1 to and including October 1, 2021, in part, by lot in such manner as may be designated by the Bond Registrar, at par plus accrued interest to the redemption date, in the following years and principal amounts: -8-

16 Year Principal Amount $50,000 50, , ,000 50,000 (Leaving $50,000 to mature on October 1, 2022) Redemption Notices Notice of any redemption of the Series 2012 Bonds, designating the Series 2012 Bonds to be redeemed, will be mailed, postage prepaid, not less than thirty (30) days nor more than sixty (60) days prior to the redemption date to all registered owners of the Series 2012 Bonds to be redeemed (in whole or in part) at addresses which appear upon the bond registration book. Failure to mail any such notice of redemption of the Series 2012 Bonds will not affect the validity of the proceedings for such redemption or cause the interest to continue to accrue on the principal amount of such Series 2012 Bonds so designated for redemption after the redemption date. Book-Entry Only System The Depository Trust Company ( DTC ), New York, New York, or its successor, will act as securities depository for the Series 2012 Bonds. The Series 2012 Bonds will be issued as fully registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered Series 2012 Bond will be issued for each maturity of each series of the Series 2012 Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC. So long as DTC or its nominee is the registered owner of the Series 2012 Bonds, payments of the principal and redemption premium of and interest due on the Series 2012 Bonds will be payable directly to DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 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 deposited securities, through electronic computerized bookentry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non U.S. securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non U.S. securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has Standard & Poor s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and Purchases of Series 2012 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2012 Bonds on DTC s records. The ownership interest of each actual purchaser of each Series 2012 Bond (a Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2012 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Series 2012 Bonds, except in the event that use of the book-entry system for the Series 2012 Bonds is discontinued. To facilitate subsequent transfers, all Series 2012 Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2012 Bonds with DTC and their registration in the name of Cede & Co., or such other DTC nominee, do not affect any change in beneficial ownership. DTC has no knowledge -9-

17 of the actual Beneficial Owners of the Series 2012 Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Series 2012 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices will be sent to DTC. If less than all of the Series 2012 Bonds within a maturity are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Series 2012 Bonds unless authorized by a Direct Participant in accordance with DTC s procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Paying Agent 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 the Series 2012 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, premium, and interest payments on the Series 2012 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the County or the Paying Agent, on the payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Paying Agent, or the County, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, premium, and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the County or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Series 2012 Bonds at any time by giving reasonable notice to the County and the Paying Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Series 2012 Bonds are required to be printed and delivered. The County may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Series 2012 Bonds will be printed and delivered to DTC. The information concerning DTC and DTC s book-entry system set forth above has been obtained from sources that the County believes to be reliable, but the County takes no responsibility for the accuracy thereof. SO LONG AS CEDE & CO., AS NOMINEE FOR DTC, IS THE SOLE BONDHOLDER, THE COUNTY SHALL TREAT CEDE & CO. AS THE ONLY BONDHOLDER FOR ALL PURPOSES, INCLUDING RECEIPT OF ALL PRINCIPAL AND PREMIUM OF AND INTEREST ON THE SERIES 2012 BONDS, RECEIPT OF NOTICES, VOTING, AND REQUESTING OR DIRECTING THE COUNTY TO TAKE OR NOT TO TAKE, OR CONSENTING TO, CERTAIN ACTIONS. THE COUNTY HAS NO RESPONSIBILITY OR OBLIGATION TO THE DIRECT OR INDIRECT PARTICIPANTS OR THE BENEFICIAL OWNERS WITH RESPECT TO (A) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DIRECT OR INDIRECT PARTICIPANT; (B) THE PAYMENT BY ANY DIRECT OR INDIRECT PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL AND PREMIUM OF AND INTEREST ON THE SERIES 2012 BONDS; (C) THE DELIVERY OR TIMELINESS OF DELIVERY BY ANY DIRECT OR INDIRECT PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER THAT IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE INDENTURE TO BE GIVEN TO BONDHOLDERS; OR (D) OTHER ACTION TAKEN BY DTC OR CEDE & CO. AS BONDHOLDER. Beneficial Owners of the Series 2012 Bonds may experience some delay in their receipt of distributions of principal and interest on the Series 2012 Bonds since such distributions will be forwarded by the Paying Agent to DTC and DTC will credit such distributions to the accounts of Direct Participants, which will thereafter credit them to the accounts of Beneficial Owners either directly or indirectly through Indirect Participants. Issuance of the Series 2012 Bonds in book-entry form may reduce the liquidity of the Series 2012 Bonds in the secondary trading market since investors may be unwilling to purchase Series 2012 Bonds for which they cannot obtain physical certificates. In addition, since transactions in the Series 2012 Bonds can be effected only through -10-

18 DTC, Direct Participants, Indirect Participants, and certain banks, the ability of a Beneficial Owner to pledge Series 2012 Bonds to persons or entities that do not participate in the DTC system, or otherwise to take action in respect of such Series 2012 Bonds, may be limited due to lack of a physical certificate. Beneficial Owners will not be recognized by the Paying Agent as registered owners for purposes of the Indenture, and Beneficial Owners will be permitted to exercise the rights of registered owners only indirectly through DTC and the Direct or Indirect Participants. Legal Authority Paragraph I of Section VI of Article IX of the Constitution of the State of Georgia authorizes any political subdivision to issue revenue bonds as provided by general law and provides (1) that the obligation represented by revenue bonds shall be repayable only out of the revenue derived from the project and shall not be deemed to be a debt of the issuing political subdivision and (2) that no issuing political subdivision shall exercise the power of taxation for the purpose of paying any part of the principal or interest of any such revenue bonds. The Series 2012 Bonds are being issued and secured pursuant to the authority granted by Article 3 of Chapter 82 of Title 36 of the Official Code of Georgia Annotated, known as the Revenue Bond Law (the Revenue Bond Law ). The Series 2012 Bonds are being issued under the provisions of the Bond Resolution. Investments For a description of how the proceeds of the Series 2012 Bonds that are being used to finance System improvements are to be invested pending their use, the provisions governing those investments, the conditions that must be satisfied before such proceeds of the Series 2012 Bonds may be applied to their intended use, and other provisions governing the investment of such proceeds of the Series 2012 Bonds and the amounts held to pay debt service on the Series 2012 Bonds, see SUMMARY OF THE BOND RESOLUTION - Investments in Appendix C hereto and SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2012 BONDS - Funds Created By the Bond Resolution and Flow of Funds herein. Pledge of Revenues SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2012 BONDS Under the terms of the Bond Resolution, the Series 2012 Bonds are secured by a pledge of and lien on revenues derived by the County from the ownership and operation of the System, remaining after the payment of expenses of operating, maintaining, and repairing the System (the Net Revenues ). The County has covenanted in the Bond Resolution that it will not create or permit to be created in the operation and maintenance of the System any charge, lien, or encumbrance on the System or upon the revenues derived therefrom ranking prior to or (except as provided in the Bond Resolution with respect to the issuance of parity bonds) equally with the lien or charge upon such revenues created by the Bond Resolution. The County has also made certain covenants in the Bond Resolution concerning the sale or disposition of the System, insurance on the System, and the books and records relating to the System, which are described in SUMMARY OF THE BOND RESOLUTION - Disposition of Property; Encumbrances, - Insurance; Bonding of Employees, and - Accounts and Reports in Appendix C to this Official Statement. Under the terms of the Bond Resolution, the Series 2012 Bonds will be equally and ratably secured on a parity basis with the Prior Bonds that are not being refunded, which are presently outstanding in the aggregate principal amount of $34,605,000. Funds Created By the Bond Resolution and Flow of Funds The Bond Resolution creates and requires the County to maintain the following funds: (1) the Fayette County Water System Revenue Fund (the Revenue Fund ), to be held by the County separate and apart from its other funds with the depository appointed by the County pursuant to the Bond Resolution (currently Wells Fargo Bank, National Association, Fayetteville, Georgia); -11-

19 (2) the Fayette County Water System Sinking Fund (the Sinking Fund ), to be held in trust by the custodian appointed by the County pursuant to the Bond Resolution (currently The Bank of New York Mellon Trust Company, N.A., Jacksonville, Florida); (3) the Fayette County Water System Renewal and Extension Fund (the Renewal and Extension Fund ), to be held by the County separate and apart from its other funds with the depository appointed by the County pursuant to the Bond Resolution (currently Wells Fargo Bank, National Association, Fayetteville, Georgia); and (4) the Fayette County Water System 2012 Construction Fund (the Construction Fund ), to be held by the County separate and apart from its other funds with the depository appointed by the County pursuant to the Bond Resolution (currently Wells Fargo Bank, National Association, Fayetteville, Georgia). Revenue Fund Pursuant to the Bond Resolution, the County has agreed that all revenues arising from the operation of the System will be collected by the County or by its agents or employees and deposited promptly into the Revenue Fund. The Bond Resolution provides that moneys in the Revenue Fund will be used first to pay the reasonable and necessary cost of operating, maintaining, and repairing the System, including salaries, wages, the payment of any contractual obligations incurred pertaining to the operation of the System, cost of materials and supplies, rentals of leased property, real or personal, insurance premiums, audit fees, and such other charges as may properly be made for the purpose of operating, maintaining, and repairing the System in accordance with sound business practice, but before making provision for depreciation. Sinking Fund The Bond Resolution provides that, after making the payments of operating costs from the Revenue Fund described above, for the purpose of paying the principal of and interest on the Bonds as same become due and payable, either at maturity or by proceedings for mandatory redemption, in the then current sinking fund year, there must be paid into the Sinking Fund, taking into account moneys on deposit therein, substantially equal monthly payments so as to have on deposit therein the amount necessary to pay the principal and interest on the Bonds as they become due and payable either at maturity or by proceedings for mandatory redemption. In addition, the Bond Resolution requires that there also be maintained a debt service reserve in the Sinking Fund in an amount equal to the Debt Service Reserve Requirement, which is defined in the Bond Resolution as an amount not less than the least of (a) 10% of the outstanding principal amount of the Bonds, (b) the maximum annual principal of and interest on the Bonds payable in any sinking fund year, or (c) 125% of average annual debt service on the Bonds. After the current debt service on the Bonds has been provided for, there is to be paid first from the Revenue Fund amounts owing to an issuer of a Debt Service Reserve Surety Bond and second from the Revenue Fund, into the Sinking Fund in substantially equal monthly payments, taking into consideration the amount then on deposit in the Sinking Fund as a debt service reserve, amounts sufficient to increase within 60 months after the issuance of the Series 2012 Bonds and thereafter to maintain, the debt service reserve in an amount equal to the Debt Service Reserve Requirement. Upon the issuance of the Series 2012A Bonds, the amount on deposit in the Sinking Fund as a debt service reserve will equal approximately $4,767,143, and, commencing with the month of April 2012 and from month to month thereafter, substantially equal monthly payments will be paid from the Revenue Fund after the current debt service on the Bonds has been provided for, so that the reserve will be fully funded in an amount equal to the Debt Service Reserve Requirement (currently $5,655,863) by April 1, The obligation to fund the Debt Service Reserve Requirement may be fulfilled by depositing a Debt Service Reserve Surety Bond which is rated by Moody s Investors Service, Inc. ( Moody ) or Standard & Poor s Ratings Services, a division of The McGraw-Hill Companies, Inc. ( S&P ) in its highest rating category, which as a term not less than the final maturity date of the series of bonds (or may be drawn upon in full upon its expiration date if a substitute Debt Service Reserve Surety Bond is not in place prior to its expiration date) which it is given to secure and which is payable on any interest payment date in an amount equal to any portion of the balance of the Debt Service Reserve Requirement. Before any such Debt Service Reserve Surety Bond is substituted for cash or deposited in lieu of cash in the debt service reserve, there will be filed with the Sinking Fund Custodian (i) an opinion of nationally recognized bond counsel to the effect that such substitution or deposit will not adversely affect the exclusion from gross income for federal income tax purposes of interest on any outstanding Bond; (ii) a certificate evidencing that at least thirty days prior notice of the proposed substitution or deposit of such Debt Service Reserve Surety Bond was given to Moody s and S&P, including a description of such Debit Service Reserve Surety Bond and the proposed date of substitution or deposit; (iii) the Debt Service Reserve Surety Bond issued to fulfill the obligation to fund the debt service reserve, together with an opinion of counsel to the issuer of the Debt -12-

20 Service Reserve Surety Bond to the effect that the Debt Service Reserve Surety Bond is valid and enforceable in accordance with its terms; and (iv) written evidence that each company insuring the payment of any revenue bond issued under the Bond Resolution has approved such Debt Service Reserve Surety Bond. So long as the balance of the debt service reserve held in the Sinking Fund equals the Debt Service Reserve Requirement, any reimbursement agreement entered into between the County and the issuer of any such Debt Service Reserve Surety Bond may provide that the County will be obligated to repay such issuer an amount equal to any drawdown on the Debt Service Reserve Surety Bond plus a market rate of interest over a specified period of time not to exceed three years but such obligation shall be junior and subordinate in right of payment to all outstanding Bonds. Notwithstanding anything to the contrary contained in the Bond Resolution, the Bond Resolution may be amended without notice to or the consent of the owners of the Series 2012 Bonds to provide for any additional provisions required by the issuer(s) of such Debt Service Reserve Surety Bond; provided, however, that there shall be first delivered to the Sinking Fund Custodian an opinion of nationally recognized bond counsel to the effect that such additional provisions are not materially adverse to the rights or security of the owners of the revenue bonds issued under the Bond Resolution. Prior to drawing on any Debt Service Reserve Surety Bond, all other amounts on deposit in the Sinking Fund as a debt service reserve, if any, must be expended. In the event a withdrawal of moneys is made from the debt service reserve held within the Sinking Fund or any draw is made upon any Debt Service Reserve Surety Bond held within the Sinking Fund for the payment of principal of or interest on any series of Bonds, the first moneys available in the Revenue Fund which are not required to pay expenses of operation and maintenance and are not required to be used to make payments into the Sinking Fund as hereinabove provided, shall be immediately paid into the Sinking Fund or paid to the issuer of the Debt Service Reserve Surety Bond as hereinafter described until the amount on deposit in the Sinking Fund as a debt service reserve after payments of any amounts payable under the following sentence equals the Debt Service Reserve Requirement; provided, however, such payments will in any event be at least sufficient to restore the debt service reserve to its proper balance within 12 months after the date upon which money is taken from the debt service reserve or the date upon which a draw on any Debt Service Reserve Surety Bond is made. In the event of a draw down on any Debt Service Reserve Surety Bond, the County shall on a pro rata basis make (1) all payments (if any) into the Sinking Fund necessary to restore the amount of cash or securities, if any, on deposit, therein as a debt service reserve immediately prior to such draw and (2) all payments to the issuers of any Debt Service Reserve Surety Bonds as a repayment of such draw down (such payments to be made on a pro rata basis to each issuer of a Debt Service Reserve Surety Bond based upon the amount drawn and not reimbursed under each Debt Service Reserve Surety Bond in the event there is ever more than one Debt Service Reserve Surety Bond issued). Repayment or any draw-down on a Debt Service Reserve Surety Bond (other than repayments which reinstate the Debt Service Reserve Surety Bond) and any interest or fees due the issuer of a Debt Service Reserve Surety Bond under such Debt Service Reserve Surety Bond shall be secured by a lien on the net revenues of the System subordinate to payments into the Sinking Fund. Any moneys or securities on deposit in the Sinking Fund as a debt service reserve on October 2 of any year the aggregate amount of which is in excess of the amount required to be maintained in the Sinking Fund are to be withdrawn therefrom and deposited in the Revenue Fund. All moneys and all securities held in and for the Sinking Fund and all income and increments therefrom are pledged to the payment of all payments required to be made from the Sinking Fund. Furthermore, the Bond Resolution provides that moneys in the Sinking Fund are to be disbursed for (a) the payment of the interest on the Bonds as such interest becomes due and payable, (b) the payment of the principal on the Bonds as same mature, or are acquired by mandatory redemption; (c) the optional redemption of the Bonds issued as provided for in the Bond Resolution; (d) the purchase of bonds in the open market at a price not to exceed the authorized call price for such issue; (e) the payment of charges for paying the Bonds and the interest thereon and the charges for the registration of such bonds and their transfer or exchange; (f) the payment of any charges for investment services; and (g) the transfer of any excess moneys in the Sinking Fund to the Revenue Fund, as hereinabove described. Renewal and Extension Fund The Bond Resolution provides that there must next be paid from the Revenue Fund at the end of each month to the Renewal and Extension Fund all remaining monies except for a working capital reserve in an amount not to exceed one month s estimated operating and maintenance costs, as determined by the chief fiscal officer of the County. Expenditures may be made from the Renewal and Extension Fund only for (i) paying principal of and interest on all revenue bonds payable from revenues of the System then outstanding and falling due at any time for the payment of which money is not available in the Sinking Fund securing the payment thereof; (ii) an emergency having a major effect on the System and only to alleviate such effect; (iii) making replacements, additions, extensions, and improvements to the System and acquiring equipment deemed to be reasonable and in the best interest of the County and the bondowners; (iv) payment of the charges of the depository of the Renewal and -13-

21 Extension Fund for investment services; and (v) the transfer of moneys, if any required, pursuant to the arbitrage rebate provisions of the Bond Resolution. The gross revenues derived by the County from the ownership and operation of the System may be used only in accordance with the provisions of the Bond Resolution described above and, except as described above, may not be transferred to either the General Fund or any other fund of the County. Construction Fund A portion of the proceeds received from sale of the Series 2012A Bonds is required by the Bond Resolution to be deposited in the Construction Fund. Money in the Construction Fund must be applied toward the costs of acquiring, constructing, and equipping the System improvements in accordance or substantially in accordance with the Engineering Report (attached to this Official Statement as Appendix B) and subject to the provisions and restrictions contained in the Bond Resolution. Moneys and securities held for the Construction Fund are subject to a lien or charge in favor of the owners of the Bonds until paid out as provided in the Bond Resolution. Any funds remaining in the Construction Fund after completion of the System improvements contemplated by the Bond Resolution must be withdrawn from the Construction Fund and deposited into the Sinking Fund. Rate Covenant The County has covenanted in the Bond Resolution that it has established a schedule of rates, fees, and charges for the services, facilities, and commodities furnished by the System, and that it will at all times, and from time to time, prescribe, issue, and revise rates and collect fees and charges for the services, facilities, and commodities furnished by the System, to the extent necessary, to produce funds sufficient at all times to (i) maintain and operate the System on a sound businesslike basis; (ii) create and maintain the Sinking Fund in the amounts required; and (iii) create and maintain the Renewal and Extension Fund. In addition, the County has covenanted in the Bond Resolution to maintain such rates, fees, and charges at a level so as to produce net revenues equal to at least 1.20 times the amount then required to be paid into the Sinking Fund in the then current sinking fund year. For this purpose net revenues means the gross revenues of the System (excluding any connection fees and earnings on amounts on deposit in any construction fund) remaining after payment of the reasonable and necessary costs of operating and maintaining the System but before provision for depreciation. In the event that at any time the net revenues are not being then maintained at such minimum level, the County must instruct its consulting engineers to make an appropriate study and investigation and thereafter to recommend to the County a schedule of rates, fees, and charges deemed by such consulting engineers to be sufficient to meet these requirements. Parity and Subordinate Bonds Upon satisfaction of certain conditions, the Bond Resolution permits the County, for specified purposes, to issue additional revenue bonds without express limit as to principal amount, which will be equally and ratably secured on a parity basis with the Prior Bonds that are not being refunded and the Series 2012 Bonds under the Bond Resolution. See SUMMARY OF THE BOND RESOLUTION - Additional Bonds in Appendix C hereto. The County may issue additional parity bonds in the future to finance part of the cost of ongoing capital improvements to the System. See SYSTEM FINANCIAL INFORMATION - Capital Improvements Program herein. The issuance of additional parity bonds may, for a period of time, dilute the security for the Series 2012 Bonds. The Bond Resolution also allows the County to issue obligations secured by the Net Revenues that are junior and subordinate to the Bonds as to lien and right of payment. Under the terms of the Bond Resolution, should revenue bonds be issued ranking as to lien on the revenues of the System junior and subordinate to the lien securing the payment of the Bonds, then payments to the Renewal and Extension Fund may be suspended and such money will be available to the extent necessary to pay the principal of and interest on such junior lien bonds and to fund the creation and maintenance of a reasonable reserve therefor, except that no such payments with respect to such junior and subordinate lien bonds may be made so long as any interest is due and payable to any issuer of any surety bond for amounts drawn under such surety bond. Limited Obligations The Series 2012 Bonds are special limited obligations of the County payable solely from the Net Revenues. The Series 2012 Bonds are not payable from and are not secured by a charge, lien, or encumbrance upon any funds or assets of the County other than the Net Revenues and the funds created and held under the Bond Resolution. The Series 2012 Bonds do not and will not constitute a debt or general obligation of the County or a pledge of the faith and credit or taxing power of the County. No governmental entity, including the County, is obligated to levy any tax for the payment of the Series 2012 Bonds. No recourse may be had against the General Fund of the -14-

22 County for the payment of the Series 2012 Bonds. The pledge of and lien on Net Revenues securing the Series 2012 Bonds does not create a legal or equitable pledge, charge, lien, or encumbrance upon any of the County s property or income, receipts, or revenues, except the Net Revenues and the amounts on deposit in the funds held under the Bond Resolution. Remedies The Revenue Bond Law provides that the provisions of the Revenue Bond Law and the Bond Resolution constitute a contract between the County and the owners of the Bonds. For a description of the remedies available to owners of the Bonds under the terms of the Bond Resolution upon the occurrence of an Event of Default thereunder, see SUMMARY OF THE BOND RESOLUTION - Events of Default and Remedies in Appendix C hereto. In addition to the remedies set forth in the Bond Resolution, the Revenue Bond Law provides that the duties of the County, the Board of Commissioners of the County, and the officers of the County under the Revenue Bond Law and the Bond Resolution are enforceable by any owner of the Bonds by mandamus or other appropriate action or proceeding at law or in equity. The Revenue Bond Law also provides that in the event the County defaults in the payment of the principal or interest on any of the Bonds after the same becomes due, whether at maturity or upon call for redemption, and such default continues for a period of 30 days, or in the event the County or the Board of Commissioners of the County or the officers, agents, or employees of the County fail or refuse to comply with the essential provisions of the Revenue Bond Law or default in any material respect in the Bond Resolution, any holders of the Bonds shall have the right to apply in an appropriate judicial proceeding to the Superior Court of Fayette County or to any court of competent jurisdiction for the appointment of a receiver of the System, whether or not all Bonds have been declared due and payable and whether or not such holder is seeking or has sought to enforce any other right or to exercise any remedy in connection with the Bonds. Upon such application, the Superior Court, if it deems such action necessary for the protection of the bondholders, may appoint and, if the application is made by the holders of 25 percent in principal amount of the Bonds then outstanding, shall appoint a receiver of the System. The receiver so appointed under the Revenue Bond Law, directly or by his agents and attorneys, is required under the Revenue Bond Law to forthwith enter into and upon and take possession of the System. If the court so directs, the receiver may exclude the County, the Board of Commissioners of the County, and the County s officers, agents, and employees, and all persons claiming under them, wholly from the System. Under the Revenue Bond Law, the receiver will have, hold, use, operate, manage, and control the System, in the name of the County or otherwise, as the receiver may deem best. Under the Revenue Bond Law, the receiver will exercise all the rights and powers of the County with respect to the System as the County itself might do. The receiver will maintain, restore, insure, and keep insured the System and from time to time will make all such necessary or proper repairs as the receiver may deem expedient. Under the Revenue Bond Law, the receiver will establish, levy, maintain, and collect such fees, tolls, rentals, and other charges in connection with the System as he deems necessary or proper and reasonable. Under the Revenue Bond Law, the receiver will collect and receive all revenues and will deposit the same in a separate account and apply the revenues so collected and received in such manner as the court shall direct. Notwithstanding the provisions of the Revenue Bond Law described above, the receiver has no power to sell, assign, mortgage, or otherwise dispose of any assets of whatever kind or character belonging to the County and useful for the System. The authority of any such receiver is limited to the operation and maintenance of the System. No court may have jurisdiction to enter any order or decree requiring or permitting the receiver to sell, assign, mortgage, or otherwise dispose of any such assets. The receiver must, in the performance of the powers conferred upon him, act under the direction and supervision of the court making such appointment and will at all times be subject to the orders and decrees of such court and may be removed by such court. Under the terms of the Revenue Bond Law, whenever all that is due upon the Bonds and interest thereon and upon any other notes, bonds, or other obligations and interest thereon having a charge, lien, or encumbrance on the revenues of the System and under any of the terms of the Bond Resolution has been paid or deposited as provided therein and whenever all defaults have been cured and made good and it appears to the court that no default is imminent, the court must direct the receiver to surrender possession of the System to the County. The same right of the holders of the Bonds to secure the appointment of a receiver exists upon any subsequent default as is provided in the Revenue Bond Law. If the County were to default on the Series 2012 Bonds, the realization of value from the pledge of the Net Revenues to secure the payment of the Series 2012 Bonds would depend upon the exercise of various remedies specified by the Bond Resolution and Georgia law (including the Revenue Bond Law). These remedies may require judicial actions, which are often subject to discretion and delay and which may be difficult to pursue. The enforceability of rights or remedies with respect to the Series 2012 Bonds may be limited by state and federal laws, -15-

23 rulings, and decisions affecting remedies and by bankruptcy, insolvency, or other laws affecting creditors rights or remedies heretofore or hereafter enacted. Section of the Official Code of Georgia Annotated provides that no municipality created under the Constitution or laws of the State of Georgia shall be authorized to file a petition for relief from payment of its debts as they mature or a petition for composition of its debts under any federal statute providing for such relief or composition or otherwise to take advantage of any federal statute providing for the adjustment of debts of political subdivisions and public agencies and instrumentalities. Section of the Official Code of Georgia Annotated also provides that no chief executive, mayor, city council, or other governmental officer, governing body, or organization shall be empowered to cause or authorize the filing by or on behalf of any municipality created under the Constitution or laws of the State of Georgia of any petition for relief from payment of its debts as they mature or a petition for composition of its debts under any federal statute providing for such relief or composition or otherwise to take advantage of any federal statute providing for the adjustment of debts of political subdivisions and public agencies and instrumentalities. Introduction THE COUNTY Fayette County, Georgia, is a political subdivision created and existing under the laws of the State of Georgia and has as its formal name Fayette County. Fayette County was created by an Act of the General Assembly of the State of Georgia in Fayette County is located in the west central portion of the State of Georgia approximately 25 miles south of downtown Atlanta. Fayette County is bordered on the north by Fulton County, on the east by Clayton County, on the south by Spalding County, and on the west by Coweta County. The terrain is rolling, and the elevation ranges from 720 feet to 1,005 feet above sea level. Average rainfall is inches per year, and average temperatures range from a high of 87 degrees in the summer to a low of 34 degrees in the winter. The incorporated municipalities in Fayette County and their current estimated populations are (i) Fayetteville, the county seat, with a population of 15,945, (ii) Brooks, with a population of 524, (iii) Peachtree City, with a population of 34,364, (iv) Tyrone, with a population of 6,879, and (v) Woolsey, with a population of 158. Fayette County presently has a land area of approximately 197 square miles. County Administration and Officials The affairs of the County are conducted by a Board of Commissioners consisting of five members. For the purposes of electing the members of the Board of Commissioners, the County is divided into five road districts. One member from each of the five road districts is elected at-large by the voters of the entire County, and any person offering as a candidate to represent a road district must reside within the territorial limits of the road district from which he offers. Two of the road districts encompass the entire County. Members of the Board of Commissioners are elected to serve staggered four-year terms of office. To be eligible to serve as a member of the Board of Commissioners, a person must be at least twenty-five years of age on the date of the election, must have resided in the County at least two years immediately preceding the date of the election, must be a resident of the road district from which he offers for election, and must be qualified and registered to vote for members of the General Assembly. The Chairman and Vice Chairman of the Board of Commissioners are elected by the Board of Commissioners at the first meeting of each year to serve for that year. Information concerning the current members of the Board of Commissioners is set forth below: Name and Office Held Expiration of Term Number of Years in Office Principal Occupation Herbert E. Frady, Chairman December 31, Retired Manufacturing Executive Robert Horgan, Vice Chairman December 31, Business Owner Steve Brown Lee Hearn December 31, 2014 December 31, Freelance Writer Public Works Director, City of McDonough, Georgia Allen McCarty December 31, Retired Broadcasting Executive The daily operation of the County is directed by a County Administrator, who is appointed by and serves at the pleasure of the Board of Commissioners. The County Administrator is the administrative head of the County -16-

24 government, responsible to the Board of Commissioners for the proper and efficient administration of all affairs of the County. Jack J. Krakeel has served as County Administrator since November of Introduction THE SYSTEM The Revenue Bond Law authorizes the County to acquire and operate for users within and outside its territorial boundaries systems, plants, works, instrumentalities, and properties used or useful in connection with obtaining a water supply and conserving, treating, and disposing of water for public and private uses. The System was established in 1966 to provide water service to the County. The System operates as a department of the County. Management The System is administered by the County through the Board of Commissioners. The County Administrator is charged with the responsibility of daily operation and administration of the System. Jack J. Krakeel has been the County Administrator of the County since November of 2008 and served as Interim County Administrator from April 2007 until his appointment as County Administrator. Mr. Krakeel has been employed by the County for 27 years, serving in various management positions including Director of Public Safety. Mr. Krakeel received a Bachelor of Science degree in Business Administration from Clayton State College in 1989 and a Master in Business Administration degree from Breneau University in Mary S. Holland has been the Chief Financial Officer for the County since November of 2006 and has been employed by the County for nine years. Prior to her service with the County, Ms. Holland was employed by Delta Air Lines for 22 years and held management positions within its finance division. Ms. Holland received a Bachelor of Arts degree and a Bachelor of Business Administration degree from Valdosta State University in Ms. Holland is a Certified Public Accountant. Tony V. Parrott has been the Water System Director of the County since 1982 and has been employed by the County for 34 years. Mr. Parrott received a Bachelor of Arts degree in 1975 and a Masters of Arts degree in 1977 from West Georgia College. Mr. Parrott holds a Class 1 Surface Water Plant license. System Facilities The County s water system consists of a water supply, treatment, and distribution system. The County presently has six primary sources of raw water: two reservoirs on Flat Creek, a reservoir on Horton Creek, Line Creek, Whitewater Creek, and the Flint River, all of which are located in the County. The County maintains raw water storage capacity in the form of a 235-acre reservoir on Flat Creek, known as Lake Kedron, a 250-acre reservoir on Flat Creek, known as Lake Peachtree, and a 780-acre reservoir on Horton Creek, known as Lake Horton. Raw water stored in Lake Kedron is released to Flat Creek where it flows to Lake Peachtree and then is pumped to the County s Crosstown water treatment plant. Raw water stored in Lake Horton is pumped to either the County s South Fayette water treatment plant or the Crosstown water treatment plant. The County has raw water intakes on the Flint River, from which water is pumped to Lake Horton for storage, on Whitewater Creek, from which water is pumped to Lake Horton for storage or directly to the Crosstown water treatment plant, and on Line Creek, from which water is pumped directly to the Crosstown water treatment plant. The County pumps treated water from its water treatment plants to the County s storage facilities, from which the treated water is either repumped or gravity fed throughout the County s water distribution network. The County is presently constructing an additional reservoir on Line Creek designed to increase the raw water storage and pumping capacity of the System. See THE SYSTEM - Water Sources herein. The County has raw water storage capacity of approximately 1.9 billion gallons at Lake Kedron. The County has the ability to release raw water from Lake Kedron into Lake Peachtree without the necessity of a raw water pump station. The County has raw water storage capacity of approximately 0.5 billion gallons at Lake Peachtree. The Lake Peachtree storage can only be used after the storage from Lake Kedron has been expended. The County owns a raw water pump station located at Lake Peachtree with a raw water pumping capacity of 4.5 million gallons per day ( MGD ). This raw water pump station was originally constructed in 1985 and was improved in The County has raw water storage capacity of approximately 3.4 billion gallons at Lake Horton. The County owns a raw water pump station located at Lake Horton with a raw water pumping capacity of 14.0 MGD. This raw water pump station was originally constructed in 1991 and was improved in The County also owns three additional raw water pump stations, one each located at its respective intakes on the Flint River, Whitewater Creek, and Line -17-

25 Creek, with aggregate raw water pumping capacity of 28.4 MGD. The condition of the County s raw water pump stations is good. The County owns two water treatment plants, which are described below. Plant Rated Capacity Treated Water Production Date for Treatment of Pumping Rated of Treated Water (MGD) of Original Dates of Raw Water (MGD) Capacity (MGD) Average Maximum 2 Construction Improvements Crosstown South Fayette None Totals Year ended June 30, Maximums occur on different days. The condition of the water treatment plants is good. The County owns four wells that have an aggregate well-water pumping capacity rated at approximately 0.83 MGD. Two of these wells are currently out of service due to poor water quality. Water from the operating wells is treated at the wellhead with chlorine and other agents and is then pumped into the distribution system. The condition of the two operating wells is good. The County owns five elevated storage tanks with an aggregate storage capacity for treated water of 7.25 million gallons. These storage tanks were constructed between 1965 and 2004 and are in good condition. In addition, the County has 6.0 million gallons of clear well water storage capacity at its Crosstown water treatment plant and 3.0 million gallons of clear well water storage capacity at its South Fayette water treatment plant. The System s water distribution network consists of approximately 618 miles of pipelines, ranging in size from six inches to thirty inches in diameter. The pipelines are made of cast iron, ductile iron, or PVC. Approximately 90% of the pipelines have been in service for ten years or more, with the oldest pipelines installed approximately 45 years ago. The general condition of the water distribution network is good. The County maintains standby power systems in the form of diesel generators at its water treatment plants, to insure reliability of its water system during periods of power outage. The County also owns numerous buildings, vehicles, and various equipment related to the System. Water Sources The County s sources of raw water are Lake Kedron and Lake Peachtree, both located on Flat Creek in the County, Lake Horton, located on Horton Creek in the County, Line Creek, Whitewater Creek, and the Flint River, all of which are located in the County, and four wells. Lake Kedron, Lake Horton, and the wells are owned exclusively by the County. Line Creek, Whitewater Creek, and the Flint River serve as sources of water for other municipal water systems in addition to the County. Lake Peachtree is owned by Peachtree City. Pursuant to a Lake Peachtree Water Withdrawal Agreement (the Lake Peachtree Agreement ), dated March 29, 1985, between the County and Peachtree City, the County is entitled to maintain raw water pumping facilities on Lake Peachtree with capacity to deliver not in excess of 4.0 MGD, provided that the level of Lake Peachtree is maintained, except during water emergencies, at the level in effect on the date of the Lake Peachtree Agreement. In exchange, the County agreed pursuant to the Lake Peachtree Agreement to maintain the dam, spillway, and immediate land areas abutting the water line of the lake, and to remove excess silt deposits from the lake. The Lake Peachtree Agreement expires October 11, During normal conditions the County s raw water sources have provided an abundant and reliable flow; however, as with many water systems reliant primarily on surface water, flow is limited during drought periods. During the years of 2007 through 2009, the northern half of Georgia, including the County, experienced an extreme drought condition. As a result, stream flow and reservoir levels in much of Georgia reached record low levels. For more information regarding the effects of the drought in north Georgia, see THE SYSTEM - Governmental Approvals and Environmental Regulation -- Water Withdrawal -- Effects of North Georgia Drought herein. -18-

26 Because of the inadequacy of present sources of raw water during dry periods to meet the present and expected future demands for water from the System, the County is presently constructing a new 650-acre reservoir ( Lake McIntosh ) located on Line Creek, below the confluence of Line Creek and Shoal Creek, in Fayette and Coweta Counties, with the dam located in Fayette and Coweta Counties. The County expects to complete construction of Lake McIntosh by June Service Area The System supplies water to residential, commercial, and industrial customers located within the County, except for those portions of the County served by the water systems of the City of Fayetteville and a few private well systems. The System supplies water to a geographic area of approximately 183 square miles (which constitutes approximately 92% of the land area of the County) containing an estimated population in excess of 94,000. The System also supplies water on a wholesale basis to the City of Fayetteville pursuant to a contract containing the following expiration dates and terms: Expiration Date Basis of Purchases Wholesale Customer of Contract Provided for in Contract City of Fayetteville December 11, 2034 Minimum 1,000 gallons per day The System has the non-exclusive right to provide water service in the unincorporated area of the County. The County has the exclusive right to provide water service within the corporate limits of the Towns of Brooks, Tyrone, and Woolsey and within Peachtree City pursuant to agreements containing the following expiration dates: Municipality Expiration Date of Agreement Town of Brooks 1 June 2059 Town of Tyrone April 1, 2056 Town of Woolsey October 11, 2034 Peachtree City June 1, Pursuant to this agreement, entered into in June 2010, the County assumed operational control of the Town of Brooks water distribution system for the term of the contract. [Remainder of Page Intentionally Left Blank] -19-

27 Service Area Demographic Information Set forth below is selected demographic data for the County. Median Household Per Capita Income 2 Effective Buying Income 3 Year Population 1 County State County State Median Age ,567 $ n/a $34,800 $104,248 $70, ,788 43,215 34, ,024 70, , ,810 45,474 42,384 34,849 33, , ,414 74,206 73, ,580 40,662 32,299 92,530 69, ,263 62,415 36,741 21,717 27,990 17,603 n/a n/a n/a n/a ,043 11,532 8,420 n/a n/a ,364 3,867 3,378 n/a n/a 27.0 Sources: 1 U.S. Department of Commerce, Bureau of the Census. All population figures for years other than 2010, 2000, 1990, 1980, and 1970 are estimates by the U.S. Department of Commerce, Bureau of the Census. 2 U.S. Department of Commerce, Bureau of Economic Analysis. 3 Editor & Publisher Market Guide. Set forth below is the 2010 population of the incorporated municipalities located in the County. Municipality 2010 Population Town of Brooks 524 City of Fayetteville Peachtree City 15,945 34,364 Town of Tyrone 6,879 Town of Woolsey 158 Total 57,870 Source: U.S. Department of Commerce, Bureau of the Census. Service Area Economic Information The following information is provided to give prospective investors an overview of the general economic conditions in the service area. These statistics have not been adjusted to reflect economic trends and are not to be relied upon as a representation or guarantee of the County. County Retail Sales (in thousands) Year Amount 2010 $1,528, ,649,409 1,611, ,522, ,394,560 Source: Editor & Publisher Market Guide. -20-

28 Summary of Building Permits Commercial/ Residential 2 Industrial/Other 1 Single Family Multi-Family Permits Value Permits Value Units Value $ 2,969, $ 21,113,082 0 $ , ,556, ,829,997 18,899, ,123, ,844, ,000 20,000, ,755, ,057, Sources: 1 Fayette County Department of Building Permits and Inspections. Numbers are for unincorporated Fayette County and the towns of Brooks and Woolsey only. 2 U.S. Department of Commerce, Bureau of the Census, Manufacturing and Construction Division. Following is a table showing the percentage of the 2009 payroll distribution in the County for each major sector of the local economy. Percentage of 2009 Payroll Distribution in the County by Sector Percentage of 2009 Industry Payroll Distribution Forestry, Fishing, Hunting, and Agriculture Support; Mining; Utilities; Unclassified Construction 0.14% 8.85 Manufacturing 7.96 Wholesale Trade Retail Trade Transportation and Warehousing 7.38 Information Finance and Insurance Real Estate and Rental and Leasing 1.17 Professional, Scientific, and Technical Services Management of Companies and Enterprises Administrative, Support, Waste Management, and Remediation Services Educational Services Health Care and Social Assistance Arts, Entertainment, and Recreation Accommodation and Food Services Other Services 7.32 Total % Source: U.S. County Business Patterns, U.S. Department of Commerce, Bureau of the Census. -21-

29 Set forth below are the ten largest private employers located in the County as of December 31, 2011 their industries, and their approximate number of employees. There can be no assurance that any employer listed below will continue to be located in the County or will continue employment at the level stated. No independent investigation has been made of, and no representation can be made as to, the stability or financial condition of the companies listed below. Employer Industry Employees Piedmont Fayette Hospital NCR Medical and Surgical Services Electronic Equipment 1, Cooper Lighting Lighting Fixtures 550 Hoshizaki America, Inc. Panasonic Commercial Ice Machines Electronic Equipment World Airways Charter and Cargo Airlines 275 APAC - Georgia FAA Tracon Asphalt Fixtures Air Traffic Control Alenco, Inc Windows and Glass Doors 181 Avery Dennison Alcan Packaging Pressure-Sensitive Adhesives Tobacco Packaging TDK Components Electronic Components 131 Source: Fayette County Development Authority. Set forth below are the largest public employers located in the County, excluding the County, as of January December 31, 2011 and their approximate number of full-time employees. Employer Employees Fayette County Board of Education 3,336 Peachtree City 226 Fayetteville 125 Source: Individual employers. Set forth below are labor statistics for the County for the past five years, with comparative data for the State of Georgia Employment 51,750 51,295 50,869 47,464 45,758 Unemployment Total Labor Force 2,114 53,864 2,059 53,354 2,755 53,624 4,161 51,625 4,334 50,092 County Unemployment Rate 3.9% 3.9% 5.1% 8.1% 8.7% State Unemployment Rate 4.6% 4.6% 6.2% 9.6% 10.2% Source: State of Georgia Department of Labor. -22-

30 According to the State of Georgia Department of Labor, the preliminary December 2011 unemployment rate of the County was 8.6%, compared to 9.4% for the State of Georgia. Total Deposits in County Financial Institutions as of June 30 (in millions) Year Total Deposits $1,813 1, , ,854 1,855 Source: State of Federal Deposit Insurance Corporation. According to the Federal Deposit Insurance Corporation, the County had 16 financial institutions with a total of 37 branch offices as of June 30, Customers Set forth below is information concerning the demand for water from the System for its past five fiscal years and for the five-month periods ended November 30, 2010 and Water Demand 1 Years Ended June 30 Five-Month Periods Ended November Average Daily (MGD) Maximum Daily (MGD) Represents amount of water produced by the System for the period shown. Set forth below is the number of connections to the System by customer class as of the dates shown. Number of Water Connections As of June 30 As of Customer Class November 30, 2011 Residential 1 25,236 25,927 26,359 26,666 26,835 26,687 Commercial/Industrial 2 1,998 1, Total 27,234 27,010 27,284 27,493 27,698 27,626 1 Includes apartment complexes, which are served by a single connection. 2 Includes governmental customers. -23-

31 Set forth below is information concerning the ten largest customers of the System for the year ended June 30, No independent investigation has been made of, and consequently no representation can be made as to, the stability or financial condition of any of the customers listed below or that such customers will continue to maintain their status as major customers of the System. Ten Largest Customers Customer Gallons Metered Total Billing Percentage of Total Water Revenues 1 City of Fayetteville 2 143,073,358 $350, % Piedmont Fayette Hospital 47,275, , Fayette County Board of Education Fund IV PTC, LLC 43,466,956 15,083, ,956 49, Hoshizaki America, Inc. 14,369,750 46, Summit Properties PT Parkway Partners 14,156,620 13,200,720 46,835 43, Thi III Pt Lessee LLC 13,142,460 43, Bo Trammell Inland Southern Management 12,140,330 11,189,880 42,078 37, Total 327,099,474 $964, % 1 Total water revenues of the System for the year ended June 30, 2011 was $13,840, Wholesale customer. Rates, Fees, and Charges Monthly service charges for water service generally consist of a monthly demand charge based upon the size of a customer s water meter plus a volume charge applied to the monthly water consumption. In addition, connection fees varying by water meter size are charged to new customers connecting to the System. The water rates to all retail customers within the County are uniform. Other than water service provided to fire hydrants and fire sprinklers, the County does not provide any free water service. In March 2009, the County implemented a two-step rate increase for the System. The first step was a 10% rate increase that took effect in March 2009 and the second step was a 5% rate increase that took effect in January Prior to implementing this increase, the County had not adjusted its water service rate schedules since A summary of the general rate schedules currently in effect is set forth below. Monthly Minimum Charge Meter Size Charge 3/4 $ ½ For 3/4 meter size, which are primarily residential customers, monthly minimum charge includes the first 2,000 gallons of water. -24-

32 Monthly Volume Rates 1 Volume Range (Gallons Consumed) Rate per 1,000 Gallons 1 First 19,999 $ ,000 and over Applies to all meter sizes, except that for the 3/4 meter size, which are used primarily by residential customers, the first 2,000 gallons are included in the monthly minimum charge. Pursuant to its contract with the County to purchase water on a wholesale basis, the City of Fayetteville pays the County a monthly meter charge of $50 per meter, plus a monthly volume rate per 1,000 gallons equal to times the monthly amount that would be billed to a residential customer of the System based on the customer s usage of 10,000 gallons. Based on this formula, the current monthly volume rate charged to the City of Fayetteville is $2.43 per 1,000 gallons. Connection Fees Meter Size Minimum Charge 3/4 1 $ 900 1, /2 1, ,000 10, , ,000 Set forth below is a comparison of monthly residential water bills of customers of the System and customers of other retail water systems operating in the County or which are similar to the System, based on rates in effect for each system as of September Monthly Residential Water Bill as of Utility September The System City of Fayetteville $ Town of Brooks Clayton County Coweta County Douglas County Henry County Based upon meter size of 5/8 or 3/4 using 6,000 gallons of water. Rate Setting Process Under Georgia law, the County has the exclusive authority to establish rates and charges for water service supplied by the System. The rates charged by the County for water service supplied by the System are not subject to review or approval by any federal or state regulatory body. The Board of Commissioners of the County establishes the rates, which are subject to change at any time as the Board of Commissioners deems advisable. The Board of Commissioners adopts rate schedules by ordinance after recommendations from the staff of the System. The staff of the System makes periodic reviews of the rate structure to determine if modifications are needed. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2012 BONDS - Rate Covenant herein for a description of the County s agreements concerning the rates, fees, and charges for the services, facilities, and commodities to be furnished by the System. No statutory procedures are required as a condition precedent to a change in rates. -25-

33 Billing and Collection The County bills on a monthly basis for water service. Payment is due within 15 days from the billing date. Final notice is mailed if the bill is not paid by the second billing date. If the delinquent amount is not paid within 10 days after the final notice, water service is discontinued. To restore service, the customer must pay all billed amounts in full and pay a reconnection fee of $25. The County collected in excess of 99% of its total billings during its past five fiscal years. The County s policy is to write off, as uncollectible, overdue accounts which are more than four months old. Upon application for residential service, the County requires a $25 non-refundable service fee from new customers. Governmental Approvals and Environmental Regulation Water Withdrawal The Georgia Water Quality Control Act authorizes the State of Georgia Department of Natural Resources, Environmental Protection Division ( EPD ), to regulate the withdrawal of water from lakes, streams, and aquifers in Georgia. The County holds permits for withdrawal of raw water in the following amounts from the following sources: Raw Water Source Permitted Withdrawal (MGD) Monthly Average Maximum Daily Actual Withdrawal (MGD) Monthly Average Maximum Daily 2 Lake Kedron n/a n/a Lake Peachtree Whitewater Creek Flint River Horton Creek (Lake Horton) Line Creek County Wells (Groundwater) n/a 1 Year ended June 30, Maximums occur on different days. 3 In order to withdraw water from Lake Kedron, it must be released from Lake Kedron into Lake Peachtree and then withdrawn from the County s intake and pump station on Lake Peachtree. Accordingly, withdrawal amounts shown for Lake Peachtree include withdrawals from Lake Kedron and Lake Peachtree, even though the County holds separate withdrawal permits for these two reservoirs. 4 Lake Horton withdrawal up to permitted withdrawal limits relies upon availability of water pumped from the Flint River and Whitewater Creek to Lake Horton. In addition, EPD has issued to the County a surface water withdrawal permit to withdraw water from Lake McIntosh, the County s new a new 650-acre reservoir, Upon its completion at a withdrawal rate of 10.4 MGD annual average, 12.5 MGD monthly average, and 17.0 MGD daily maximum. Effects of North Georgia Drought During the years of 2007 through 2009, the northern half of Georgia, including the County, experienced an extreme drought condition. In June of 2007, based upon meteorological data and not upon actual source water availability, EPD assigned most of north Georgia, including the County, a Level II drought classification. The Level II classification limits outside water use to an odd/even address system and to certain hours of the day. In September of 2007, EPD redesignated 61 north Georgia counties, including the County, the more restrictive Level IV drought classification, even though the County still had a more than sufficient water supply. This classification virtually eliminated all outside water use. In October of 2007, EPD placed the 61-county area under a 10% water use reduction permit modification. In June of 2008, upon petition by the County, EPD adjusted the County s classification from the Level IV classification to the somewhat less restrictive Level IVc drought classification due to the sufficient water supply provided by the County s reservoirs. -26-

34 The drought response restrictions placed on the County by EPD in response to the drought caused water usage by the System s customers to decrease from a daily average of 9.8 MGD day in fiscal year 2007 to a daily average of 8.5 MGD in fiscal year 2008 and caused the number of water connections to the System to decrease from 27,234 in fiscal year 2007 to 27,010 in fiscal year See THE SYSTEM - Customers herein. The decreased water demand and water connections, in turn, adversely affected System operating revenues in fiscal years 2008 and See SYSTEM FINANCIAL INFORMATION - Five Year Operating History herein. By June 2009, EPD had lifted its drought response restrictions upon much of north Georgia, including the County. In June 2010, the Georgia Water Stewardship Act went into effect. This act restricts most outdoor watering for planting, growing, and maintenance of ground cover, trees, shrubs, and other plants (except by drip irrigation or using a soaker hose) to the hours of 4 p.m. to 10 a.m. Under Georgia law, other outdoor water uses, such as the washing of cars, are subject to an odd/even address schedule. Despite the increased restrictions on outdoor water use, the County expects the System s water demand to gradually return to levels that existed prior to the drought. There can be no assurance, however, that severe drought conditions in north Georgia will not return or that EPD will not reimpose drought response restrictions on water usage in the County. Water Allocation Issues The State of Alabama, in a lawsuit filed against the U.S. Department of the Army Corps of Engineers (the Corps ) in 1990, challenged the Corps operation of federal reservoirs located within the Alabama-Coosa- Tallapoosa River ( ACT ) Basin and on the Chattahoochee River within the Apalachicola-Chattahoochee-Flint ( ACF ) River Basin for water supply purposes. Shortly after the case was filed, the State of Alabama and the Corps agreed to stay the case. Beginning in 1991, the State of Alabama and the Corps, along with the States of Florida and Georgia, entered into a series of Memoranda of Agreement, pursuant to which they agreed to participate in a comprehensive, basin-wide study of the ACT and ACF River Basins. The County is located in the ACF River Basin but obtains its water from the Flint River and its tributaries, not the Chattahoochee River. In November of 1997, the United States Congress ( Congress ) consented to interstate compacts entered into by the States of Georgia and Alabama pertaining to the allocation of water in the ACT River Basin, and by the States of Georgia, Alabama, and Florida pertaining to the allocation of water in the ACF River Basin. These compacts provided for the equitable allocation of water within the respective basins (the Basins ) according to principles and formulae that were to be agreed upon by the respective parties prior to certain specified deadlines and pursuant to the procedures provided by the compacts. Because the States of Georgia and Alabama could not reach such an agreement for the ACT River Basin before the specified deadline, the compact pertaining to the ACT River Basin terminated of its own accord on July 1, Likewise, because the States of Georgia, Alabama, and Florida could not reach such an agreement for the ACF River Basin before the specified deadline, the compact pertaining to the ACF River Basin terminated of its own accord on July 31, As a result, the allocation of the waters of the ACT Basin and the ACF Basin will not be resolved unless new compacts are enacted or one of the States brings an original action against the others in the Supreme Court of the United States and obtains from that court a decree apportioning such waters. Following the termination of the compacts, the States of Alabama, Florida, Georgia, the Corps, and other parties have been engaged in several federal lawsuits concerning the operation of federal reservoirs within the Basins. These cases subsequently were consolidated by the Judicial Panel on Multidistrict Litigation in the Middle District of Florida (the MDL Litigation ). The first issue to be addressed in the MDL Litigation involved the Corps operation of the Buford Dam/Lake Lanier project ( Lake Lanier ), located on the Chattahoochee River in the ACF Basin. Specifically, the issue was whether the Corps exceeded the authority granted to it by Congress and violated the National Environmental Policy Act ( NEPA ) and other statutes by providing storage, allowing installation of water intake structures in Lake Lanier, and otherwise accommodating water supply needs in its operation of Lake Lanier. On July 17, 2009, the district court hearing the MDL Litigation issued a ruling that water supply, in the form of withdrawals from Lake Lanier, is not an authorized purpose of Lake Lanier and that the Corps exceeded its statutory authority in operating Lake Lanier to accommodate certain water supply needs without further Congressional authorization. The district court provided a stay of three years to allow the parties to obtain Congress approval for the operational changes needed to allow the particular water supply uses found to be unlawful. Under the ruling, at the end of the three years, if Congress approval were not obtained, operation of the Buford Dam would return to baseline operations as such existed in the mid-1970s, with only Gainesville and Buford allowed to withdraw water from Lake Lanier. On June 28, 2011, the Eleventh Circuit Court of Appeals reversed the July 2009 decision of the district court in the MDL Litigation. The Eleventh Circuit held, among other things, that water supply is an authorized purpose of Lake Lanier under the original authorizing legislation. The Eleventh Circuit remanded the case to the district court, with instructions to remand to the Corps to determine the scope of the Corps authority to operate Lake Lanier to meet current and future water supply needs. The decision of the Eleventh Circuit has been appealed to the Supreme Court of the United States. The Supreme Court has discretion whether or not to hear the appeal and has not yet decided whether it will hear the appeal. -27-

35 The second phase of the MDL Litigation involves claims by the State of Florida and parties aligned with it that that the Corps operation of the federal reservoirs on the Chattahoochee River in the ACF Basin violates the Endangered Species Act and other laws. In July 2010, the district court in the MDL Litigation rejected those challenges to the Corps operations. Florida and the parties aligned with it appealed that decision to the Eleventh Circuit. The appeal is currently stayed because administrative proceedings are underway that could moot the case. At the present time, it is not known how the MDL Litigation could indirectly impact water withdrawals in the ACF Basin beyond those that were the subject of the lawsuit. The MDL Litigation does not directly challenge any water withdrawals within the Flint River Basin, and there are no federal storage reservoirs within the Flint River Basin. Although the County currently does not expect any of the foregoing to affect the County s ability to withdraw water at the level currently permitted, to construct and withdraw water from Lake McIntosh when completed, or, if needed, to increase its withdrawals beyond currently-permitted levels in the future, it is not possible to predict whether the outcome of the MDL Litigation, state management decisions or Congressional actions made as a result thereof, or future litigation could have an effect upon water use within the entire ACF Basin, including the County s use of water within the Flint River Basin. Water Treatment EPD also regulates water treatment systems in Georgia. EPD has issued to the County operating permits for the treatment of water in the following amounts at the following water treatment plants: Actual Plant Permitted Treatment Capacity (MGD) Treatment Flow (MGD) Average Maximum 2 Crosstown South Fayette Totals Year ended June 30, Maximums occur on different days. Other Approvals EPD has the authority to review and approve the plans and specifications for the capital improvements described herein under the caption PLAN OF FINANCING - System Improvements, which includes upgrades to the County s two water treatment plants, and the County is in the process of obtaining these approvals. The County is not aware of any further approvals necessary for the planned improvements to the System or for the operation of the System. Issues Relating to Noncompliance Except as discussed below, the County is currently in substantial compliance with all of its environmental permits. EPD issued a Notice of Violation to the County on April 17, 2009 for failure of the South Fayette water treatment plant to meet the standard for the percentage of total organic carbon ( TOC ) that must be removed from raw water during the water treatment process. The County s raw and treated water typically has low levels of TOC, and, because the County s raw water is already low in total suspended solids and TOC, it occasionally can be difficult for the County to achieve the standard for percentage of TOC removed. TOC does not present any direct health effects; however, disinfectants in drinking water may react with TOC to produce certain byproducts, some of which, over time, may create health concerns. The capital improvements described herein under the caption PLAN OF FINANCING - System Improvements include upgrades to the County s two water treatment plants to ensure compliance with the standard for TOC removal. These upgrades include the installation of a treatment technology known as magnetic ion exchange (the MIEX Technology ) at both plants. For a more complete description of the MIEX Technology, see the Engineering Report attached to this Official Statement as Appendix B. The County expects the upgrades to the water treatment plants to be completed within nine months from the date on which EPD approves installation of the MIEX Technology. -28-

36 Employees, Employee Relations, and Labor Organizations The County employed 60 persons related to the System as of January 1, 2012, all of whom are full-time employees. The System currently employs five employees in administration, nine employees in water billing and collection, 10 employees in water service, 28 employees at plant facilities, and eight employees in water system construction. No employees of the County related to the System are represented by labor organizations or are covered by collective bargaining agreements, and the County is not aware of any union organizing efforts at the present time. The County Administrator believes that employee relations are good. The System s management staff, plant operators, and certain maintenance and repair personnel are required to be certified by the State of Georgia. The System has a continuing education program to ensure that its personnel are qualified and able to meet the State of Georgia s certification requirements. Accounting System and Policies SYSTEM FINANCIAL INFORMATION The County maintains all of its funds and accounts relating to the System separate from other County funds. The accounting practices and policies of the County relating to the System conform to generally accepted accounting principles as applied to governments. The System is accounted for as an Enterprise Fund of the County. Enterprise Funds are used to account for operations (i) that are financed and operated in a manner similar to private business enterprises, where the intent of the governing body is that the cost (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges, or (ii) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. The System is accounted for using the accrual basis of accounting. Its revenues are recognized when earned, and its expenses are recognized when incurred. Note 1 of the audited financial statements of the System included as part of Appendix A contains a detailed discussion of the County s significant accounting policies relating to the System. Historical and Pro Forma Capital Structure Set forth below is an historical, comparative summary of the capital structure of the System as of the end of its past five fiscal years and as of November 30, The information in the following table has been extracted from audited financial statements of the System for the years ended June 30, 2007 to 2011 and from unaudited interim financial statements of the System for the five-month period ended November 30, Although the information for the past five fiscal years was taken from audited financial statements, no representation is made that the information is comparable from year to year, or that the information as shown taken by itself presents fairly the capital structure of the System as of the end of the years shown. The unaudited interim amounts reflected below are not necessarily indicative of the amounts which will be outstanding as of the end of the full fiscal year. For more complete information, reference is made to the financial statements from which this information was extracted, copies of which are available from the County upon request. -29-

37 Historical Capital Structure of the System Amount Outstanding as of June 30 (Audited) Amount Outstanding as of November 30, 2011 (Unaudited) Liabilities Current Liabilities Accounts payable $ 1,115,391 $ 1,364,174 $ 958,342 $ 1,933,078 $ 1,762,649 $ 1,054,213 Contracts payable 364, , , , , ,896 Accrued interest payable 562, , , , , ,853 Salaries and benefits payable 81,893 99, , , , ,256 Compensated absences 58,559 60,189 66,189 16,157 30,740 30,740 Unearned revenue 103,300 85, ,600 33,500 37,500 37,500 Current portion of long-term obligations 2,246,962 2,322,802 2,357,955 2,890,000 3,110, Total Current Liabilities 4,533,030 4,812,425 4,241,374 5,818,626 6,302,876 2,481,458 Long-Term Liabilities Compensated absences 30,269 36,288 44, , , ,956 Notes payable 1 7,241,552 6,648,751 6,100, Bonds payable 37,907,797 36,295,692 34,595,500 54,810,892 51,755,466 51,755,466 Long-Term Liabilities, net of current portion 45,179,618 42,980,731 40,741,092 54,941,481 51,882,422 51,882,422 Total Liabilities 49,712,648 47,793,156 44,982,466 60,760,107 58,185,298 54,363,880 Net Assets Invested in capital assets, net of related debt 61,041,585 63,968,356 64,504,239 49,304,060 63,058,811 48,377,124 Restricted for: Renewal and extension 7,075,444 6,284,316 5,333,241 6,171,868 6,570,929 7,178,795 Debt service 5,586,082 5,725,859 5,751,131 6,746,375 7,557,031 5,678,830 Unrestricted 2,810,800 1,542,944 2,216,145 15,626,672 1,340,904 17,443,631 Total Net Assets 76,513,911 77,521,475 77,804,756 77,848,975 78,527,675 78,678,380 Total Liabilities and Net Assets $126,226,559 $125,314,631 $122,787,222 $138,609,082 $136,712,973 $133,042,260 Ratio of Long-Term Liabilities to Net Assets 59.05% 55.44% 52.36% 70.57% 66.07% 65.94% Long-Term Liabilities as a Percentage of Total Liabilities and Net Assets 35.79% 34.30% 33.18% 39.64% 37.95% 39.00% 1 Notes outstanding in fiscal years 2007 through 2009 were payable to the Georgia Environmental Finance Authority ( GEFA ). These notes evidenced loans made by GEFA to finance improvements to the System. The notes were unsecured general obligations of the County. Although the County intended to repay these notes from revenues of the System, the notes were not secured by any lien on the revenues of the System. -30-

38 Set forth below is the pro forma capital structure of the System as of November 30, 2011, determined by the application of pro forma adjustments to the actual amounts outstanding as of November 30, 2011 which assume that the Series 2012 Bonds were issued on November 30, 2011 and that the Refunded Bonds were refunded and defeased. Pro Forma Capital Structure of the System Amount Outstanding as of November 30, 2011 (Unaudited) Liabilities Current Liabilities Accounts payable $ 1,054,213 Contracts payable 644,896 Accrued interest payable 585,853 Salaries and benefits payable 128,256 Compensated absences 30,740 Unearned revenue 37,500 Current portion of long-term obligations --- Total Current Liabilities 2,481,458 Long-Term Liabilities Compensated absences 126,956 Bonds payable 58,050,466 Long-Term Liabilities, net of current portion 58,177,422 Total Liabilities 60,658,880 Net Assets Invested in capital assets, net of related debt 64,526,020 Restricted for: Renewal and extension 7,178,795 Debt service 5,678,830 Unrestricted 1,294,735 Total Net Assets 78,678,380 Total Liabilities and Net Assets $139,337,260 Ratio of Long-Term Liabilities to Net Assets 73.94% Long-Term Liabilities as a Percentage of Total Liabilities and Net Assets 41.75% The County has no present plans to issue additional debt in the next five years to finance capital improvements to the System. There has never been a default in payment of the principal of or interest on any revenue bonds of the County secured by revenues of the System. -31-

39 Debt Service Requirements Following are the principal and interest payment requirements with respect to the Series 2012 Bonds, compared to the principal and interest payment requirements with respect to the Prior Bonds that are not being refunded, for the years shown below. For purposes of calculating the principal payable in any year, the relevant maturity or mandatory redemption amount is used. Prior Bonds Series 2012A Bonds Series 2012B Bonds Total Total Total Combined Total Year Ending Debt Service Debt Service Debt Service Debt Service October 1 Principal Requirements Principal Interest Requirements Principal Interest Requirements Requirements 2012 $ 3,055,000 $ 4,426, $ --- $ 165, $ 165, $ --- $ 158, $ 158, $ 4,750, ,785,000 3,092, , , ,530, , ,199, ,655, ,805,000 3,075, , , ,565, , ,203, ,643, ,740,000 2,938, , , , ,615, , ,206, ,559, ,780,000 2,925, , , , ,675, , ,202, ,540, ,885,000 2,958, , , , ,740, , ,200, ,570, ,825,000 2,832, , , , ,830, , ,203, ,445, ,995,000 2,938, , , , ,915, , ,196, ,543, ,875,000 2,718, , , , ,015, , ,201, ,325, ,290,000 5,043, , , , ,000 85, , ,578, ,415,000 4,958, , , , ,000 83, , ,490, ,170,000 1,531, ,510, , ,862, ,000 80, , ,549, ,140,000 1,454, ,660, , ,858, ,000 77, , ,470, ,125,000 1,389, ,000 15, , ,460,000 73, ,533, ,438, ,115,000 1,329, ,329, ,175,000 1,341, ,341, ,225,000 1,340, ,340, ,205,000 1,262, ,262, Totals $34,605,000 $47,557, $8,070,000 $4,331, $12,401, $15,590,000 $4,285, $19,875, $79,834,

40 Five Year Operating History Set forth below is an historical, comparative summary of the revenues and expenses of the System for its past five fiscal years and for the five-month periods ended November 30, 2010 and The information in the following table has been extracted from audited financial statements of the System for the years ended June 30, 2007 to 2011 and from unaudited interim financial statements of the System for the five-month periods ended November 30, 2010 and Although the information for the past five fiscal years was taken from audited financial statements, no representation is made that the information is comparable from year to year, or that the information as shown taken by itself presents fairly the results of operations of the System for the periods shown. The interim amounts set forth below have been prepared by the staff of the System without audit and, in the opinion of staff of the System, include all adjustments necessary for a fair statement of the operating results of the System for such interim periods, all of which adjustments are of a normal recurring nature. The interim amounts reflected below are not necessarily indicative of the financial results which will be achieved for the full fiscal year. For more complete information, reference is made to the financial statements from which this information was extracted, copies of which are available from the County upon request. Summary of System Revenues and Expenses Five Month Periods Ended November 30 Years Ended June 30 (Audited) (Unaudited) Operating Revenues: Charges for sales and services $13,191,189 $11,938,823 $12,163,599 $12,999,361 $13,840,504 $ 6,732,650 $ 6,649,347 Penalties 128, , , , ,792 77,385 74,368 Miscellaneous 223, , , , , , ,747 Total operating revenues 13,542,989 12,285,527 12,491,307 13,344,254 14,289,067 6,939,503 6,851,462 Operating Expenses: Personal services 1,602,174 1,710,130 1,806,405 1,766,810 1,746, , ,471 Contractual services 1,419,059 1,061, , ,003 1,223, , ,037 Other operating 68, , , , ,123 72, ,169 Water production cost 2,724,874 2,790,778 3,178,617 3,170,673 3,271,187 1,378,532 1,392,661 Amortization 65,625 62,665 59, ,623 92, Bad debt expense , Depreciation 4,541,532 4,403,435 4,435,950 4,408,176 4,368,612 1,826,269 1,813,775 Total operating expenses 10,421,432 10,196,543 10,540,390 10,571,655 10,927,619 4,605,015 5,196,113 Operating Income (loss) 3,121,557 2,088,985 1,950,917 2,772,599 3,361,448 2,334,489 1,655,349 Non-Operating Activities: Interest income 702, , ,700 28,079 3, Gain on disposition of equipment --- 4,771 2,605 2, Miscellaneous 26, ,963 86,641 43,143 43, ,519 37,064 Interest expense (including amortization of bond discount) (2,614,861) (2,438,760) (2,350,523) (2,511,507) (2,408,479) (1,240,108) (1,192,627) Total non-operating activities (1,885,420) (1,779,360) (2,136,577) (2,437,958) (2,361,195) (1,047,588) (1,155,563) Income before capital contributions and transfers 1,236, ,624 (185,660) 334,641 1,000,253 1,286, ,786 Capital Contributions and Transfers Capital contributions 1 2,708,273 1,294,879 1,096, , ,232 3,559 1,312 Transfers out 2 (586,721) (596,940) (627,976) (708,785) (700,785) (175,196) (350,393) Total capital contributions and transfers 2,121, , ,941 (290,422) (321,553) (171,637) (349,081) Change in Net Assets 3,357,689 1,007, ,281 44, ,700 1,115, ,705 Net Assets, Beginning of Year 73,156,222 76,513,911 77,521,475 77,804,756 77,848,975 77,848,975 78,527,675 Net Assets, End of Year $76,513,911 $77,521,475 $77,804,756 $77,848,975 $78,527,675 $78,964,238 $78,678,380 1 Includes meter and availability fees (i.e., connection fees) in the following amounts: fiscal year $454,337; fiscal year $341,462; fiscal year $164,712,38; fiscal year $131,438.53; fiscal year $87,767.93; five months ended November 30, $-0-; and five months ended November 30, $ Represents transfers to the County s General Fund for operating expenses incurred by the General Fund allocable to the System. -33-

41 Management s Discussion and Analysis of Results of Operations For a narrative overview and analysis of the financial activities of the System for fiscal year 2011, see Management s Discussion and Analysis included in Appendix A to this Official Statement. The Management s Discussion and Analysis is not a required part of the basic financial statements of the System but is supplementary information required by the Governmental Accounting Standards Board that has not been audited by the System s auditor. The System s operating revenues decreased by approximately 9.3% from fiscal year 2007 to fiscal year 2008, but increased by approximately 16.3% from fiscal year 2008 to fiscal year The decrease in operating revenues in fiscal year 2008 resulted primarily from decreased water demand due to water use restrictions imposed by EPD in response to the drought in north Georgia during the years of 2007 through See THE SYSTEM - Governmental Approvals and Environmental Regulation -- Water Withdrawal -- Effects of North Georgia Drought herein. This decrease in water usage was offset by a rate adjustment in March 2009 when the County implemented a two-step rate increase for the System. See THE SYSTEM - Rates, Fees, and Charges herein. The first step was a 10% rate increase that took effect in March 2009 and the second step was a 5% rate increase that will took effect in January These rate increases are the first rate increases that the County has implemented for the System since For a description of the County s rate setting process for the System, see THE SYSTEM - Rate Setting Process herein. The System s operating expenses, excluding depreciation and amortization, decreased by approximately 1.4% from fiscal year 2007 to fiscal year However, these expenses increased by 12.8% from fiscal year 2008 to fiscal year During the same period, the System transferred an annual average of $644,241 to the County s General Fund to reimburse the General Fund for overhead costs paid with General Fund monies that were allocable to the System. Historical and Forecasted Debt Service Coverage Ratios Set forth below is the System s historical ratios of Net Revenues Available for Debt Service to Debt Service on Revenue Bonds secured by revenues of the System, for the past five fiscal years and for the five-month periods ended November 30, 2010 and Historical Debt Service Coverage Ratios Five-Month Periods Ended November 30 Years Ended June 30 (Audited) (Unaudited) Historical Net Revenues Available for Debt Service 1 $8,458,155 $7,214,485 $6,660,204 $7,356,947 $7,870,127 $4,353,277 $3,506,188 Historical Debt Service on Revenue Bonds 2 3,644,350 3,645,224 3,641,311 3,339,381 5,320,501 2,216, ,266,891 3 Historical Debt Service Coverage Ratio 2.32x 1.98x 1.83x 2.20x 1.48x 1.96x 1.55x 1 Change in net assets of the System plus (i) interest on debt, (ii) depreciation and amortization, and (iii) net transfers out, minus contributed capital (which includes connection fees). See SYSTEM FINANCIAL INFORMATION - Five Year Operating History herein. 2 Excludes debt service on notes payable to GEFA, since the notes were not secured by revenues of the System. 3 5/12ths of Historical Debt Service on Revenue Bonds. -34-

42 The County has prepared a financial forecast of the System s Net Revenues Available for Debt Service, for a period of 21 years commencing with fiscal year 2013, based upon assumptions and estimates concerning future events and circumstances which the County believes to be reasonable. The County s financial forecast has been examined and reported on by Mallett Consulting, Inc., Fayetteville, Georgia, the County s consulting engineers. The forecasted Debt Service Coverage Ratios set forth below are derived from the financial forecasts included as part of Appendix B to this Official Statement, the Engineering Report of Mallett Consulting, Inc. THE FINANCIAL FORECAST IS BASED SOLELY UPON ASSUMPTIONS MADE BY THE COUNTY, INCLUDING, WITHOUT LIMITATION, ASSUMPTIONS AS TO RATES FOR WATER SERVICE, STABILITY AND GROWTH OF THE CUSTOMER BASE, AND OPERATING EXPENSES. THERE IS NO ASSURANCE THAT ACTUAL EVENTS WILL CORRESPOND WITH SUCH ASSUMPTIONS, THAT UNCONTROLLABLE FACTORS WILL NOT AFFECT SUCH ASSUMPTIONS, OR THAT THE FORECASTED RESULTS WILL BE ACHIEVED. THE ACHIEVEMENT OF THE FINANCIAL FORECAST WILL BE AFFECTED BY ECONOMIC CONDITIONS AND OTHER UNCONTROLLABLE FACTORS AND IS DEPENDENT UPON THE OCCURRENCE OF FUTURE EVENTS WHICH CANNOT BE ASSURED. THUS, THE ACTUAL RESULTS ACHIEVED MAY VARY FROM THOSE FORECAST, AND SUCH VARIATIONS COULD HAVE AN ADVERSE EFFECT UPON THE SYSTEM S NET REVENUES AVAILABLE FOR DEBT SERVICE. THE ASSUMPTIONS AND RATIONALE INCLUDED IN THE ENGINEERING REPORT ARE AN INTEGRAL PART OF THE FORECASTS. THE ENGINEERING REPORT, INCLUDING ALL COMMENTS, ASSUMPTIONS, NOTES, AND DISCLAIMERS, SHOULD BE READ IN ITS ENTIRETY. See ENGINEERING REPORT in Appendix B to this Official Statement. Forecasted Debt Service Coverage Ratios Years Ended June Forecasted Net Revenues Available for Debt Service 1 $7,216,557 $8,351,576 $8,470,911 $8,592,036 $8,558,285 Forecasted Actual Annual Debt Service on Bonds 2 5,248,739 5,622,275 5,583,888 5,499,625 5,470,088 Maximum Annual Debt Service on 3 Bonds 5,655,863 5,655,863 5,655,863 5,655,863 5,655,863 Forecasted Actual Debt Service Coverage Ratio 1.37x 1.49x 1.52x 1.56x 1.56x Forecasted Maximum Debt Service Coverage Ratio 1.28x 1.48x 1.50x 1.52x 1.51x 1 See the Engineering Report included as Appendix B to this Official Statement. 2 Debt service shown on a fiscal year basis. 3 See SYSTEM FINANCIAL INFORMATION - Debt Service Requirements herein. -35-

43 Operating Budgets The County is not legally required to adopt a budget for the System. The staff of the System, however, prepares an annual operating budget for the System for management control purposes. The staff of the System uses a modified cash basis of accounting in its annual operating budget for the System, which is not consistent with the basis of accounting used in the System s financial statements. Set forth below is a summary of the System s budget for the year ending June 30, This budget is based upon certain assumptions and estimates of the staff of the System regarding future events, transactions, and circumstances. Realization of the results projected in this budget will depend upon implementation by management of the System of policies and procedures consistent with the assumptions. There can be no assurance that actual events will correspond with such assumptions, that uncontrollable factors will not affect such assumptions, or that the projected results will be achieved. Accordingly, the actual results achieved could materially vary from those projected in the budget set forth below. System Budget for Year Ending June 30, 2012 Operating Revenues: Charges for sales and services $14,082,200 Penalties Miscellaneous 148, ,900 Total operating revenues 14,449,100 Operating Expenses: Personal services 1,803,341 Contractual services 1,827,474 Other operating Water production cost 305,360 3,426,166 Total operating expenses 7,362,341 Operating Income (Loss) 7,086,759 Non-Operating Activities: Interest income 6,000 Miscellaneous Debt service - principal payment 23,000 (2,890,000) Interest expense (including amortization of bond discount) Capital outlay 1 (2,432,094) (1,065,880) Total non-operating activities (6,358,974) Income before transfers 727,785 Transfers Transfers out - General Fund 2 (700,785) Change in Net Assets $ 27,000 1 Represents budgeted expenditures from the System s Renewal and Extension Fund for capital improvements to the System. 2 Represents budgeted transfers to the County s General Fund for operating expenses incurred by the General Fund allocable to the System. -36-

44 Capital Improvements Program The following table summarizes the estimated costs of capital improvements made to the System in each year for the past five fiscal years and the funding sources for such capital improvements. Funding Sources Fiscal Total Costs of Debt Proceeds Year Capital Improvements System Revenues and Investment Earnings 2007 $3,097,666 $3,097,666 $ ,106,055 2,168,772 4,106,055 2,168, ,552, ,797 2,958, ,630,218 1,704, , ,537 4,914,370 1,265,816 1 For the five months ended November 30, The staff of the System has developed a multi-year capital improvements program and a plan to finance the program which relies on a combination of System revenues and proceeds of debt and investment earnings on such proceeds. The capital improvements program allows the staff of the System to plan, on a long-term basis, for future System capital needs. Each year the capital improvements program is updated. The following table summarizes the System s capital improvements program for fiscal years 2012 through Type of Capital Expenditure Years Ending June Total Horsemen s Water Tank $ --- $ --- $ --- $1,000,000 $1,000,000 $ 2,000,000 Porter Road Line Extension ,000,000 2,000,000 Highway 74 Pressure Improvement ,250, ,250,000 Treatment Enhancement 9,300, ,300,000 Total Costs $9,300,000 $ --- $ --- $2,250,000 $3,000,000 $14,550,000 Type of Funding Source System Revenues $ 297,020 $ --- $ --- $2,250,000 $3,000,000 $ 5,557,020 Series 2012 Bonds 1 9,002, ,002,980 Total Funding Sources $9,300,000 $ --- $ --- $2,250,000 $3,000,000 $14,550,000 1 Includes estimated investment earnings on proceeds of revenue bonds. Employee Benefits The County presently maintains a defined-benefit pension plan, which was established by the County on July 1, The plan is administered through the Government Employee Benefits Corporation of Georgia, an agent multiple-employer public employee retirement system that acts as a common investment and administrative agent for counties in the State of Georgia. The plan covers all full-time employees, after three months of employment, except for certain exclusions of elected officials and employees who are eligible to participate in one or more other publicly provided retirement plans. The funding methods and determination of benefits payable for the plan in general provides that pension funds are to be accumulated from employee contributions, employer contributions, and income from the investment of accumulated funds. Under current provisions, each employee is required to contribute 2.5% of the employee s base compensation, and employees are fully vested after five years of continuous employment. Set forth below is an analysis of funding progress for the County s pension plan. -37-

45 Analysis of Funding Progress Actuarial Valuation Date Actuarial Value of Assets Actuarial Accrued Liability Unfunded Actuarial Accured Liability Funded Ratio Covered Payroll Unfunded Actuarial Accured Liability as a Percentage of Covered Payroll 12/31/2009 $15,311,443 $15,500,023 $ 188, % $30,397, % 12/31/ ,640,691 18,028,224 (612,467) ,434,837 (1.9) The County is required by Georgia law to have an actuarial valuation of its pension plan done once every two years. The County met the minimum funding levels prescribed by state law through December 31, The County also maintains a single employer, defined-contribution plan created in accordance with Internal Revenue Code Section 401(a) for substantially all of its full-time employees. In a defined-contribution plan, benefits depend solely on amounts contributed to the plan plus investment earnings. The County has no liability under this plan except for contributions established and made each year. Employees are eligible to participate in the plan if they are at least 18 years old and work a minimum of 30 hours per week and after completion of a successful probationary period. Under current provisions, the County is required to contribute to the pension plan an amount equal to one dollar for every two dollars contributed by the participant to the plan or to the deferred compensation plan described below, up to a maximum of 2.5% of the participant s annual compensation. The County s contributions for each employee are fully vested after five years of continuous employment. The plan is administrated by MassMutual. As of June 30, 2011, there were approximately 684 participants in the plan. For the year ended June 30, 2011, participants in the plan contributed approximately $1,921,285 and the County contributed approximately $622,111. The County also offers its employees, including employees of the System, a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan is available to all County employees and permits them to defer income taxation of a portion of their salary to future years. Participation in the plan is optional. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. All amounts of compensation deferred under the plan, all property and rights purchased with those amounts, and all income attributable to those amounts, property, or rights are (until paid or made available to the employee or other beneficiary) solely the property and rights of the County subject only to the claims of the County s general creditors. Participants rights under the plan are equal to those of general creditors of the County in an amount equal to the fair market value of the deferred account for each participant. The County believes that it is unlikely that it will use these assets to satisfy the claims of general creditors in the future. The County believes that it has no liability for losses under the plan but does have the duty of care that would be required of an ordinary prudent investor in making plan investments. In addition to pension benefits, the County provides certain health care benefits for retired employees of the County under a single employer defined benefit OPEB plan. A majority of the County s employees become eligible for this post-retirement benefit upon reaching the minimum age of 55 and having at least 25 years of service to the County. Continued health care benefits in the form of single coverage is paid in full by the County. The benefit is limited to the shorter of ten years or the time that it takes for the employee to reach Medicare eligibility. The cost of these benefits is recognized as expenditures when claims and premiums are paid. Eligible retirees can elect a cash payment in lieu of having the major medical coverage. For the year ended June 30, 2011, there were 20 retirees of the County eligible for these post-retirement benefits, of which five retirees were receiving medical insurance coverage and which cost approximately $18,139. Reference is made to Note IV of the System s financial statements included as Appendix A for a description of the County s retirement plans and other post-employment retirement benefits covering employees of the System. County employees accrue vacation and sick leave in different amounts, depending upon the period of time the County has employed them. The maximum amount of vacation leave that employees may accumulate is 21 days. The County pays accrued vacation leave upon termination of employment and has reflected a liability for accumulated vacation pay in its financial statements. The maximum amount of sick leave that County employees may accumulate is 120 days. Employees hired prior to March 1998 who resign in good standing are paid $15 a day for each day of unused sick leave up to a maximum of $900. This liability is reflected in the County s financial statements. In addition, employees who retire from the County can elect to be paid 25% of their daily rate for each day of unused sick leave. Due to the uncertainty of this occurrence, no liability has been reflected in the County s financial statements. -38-

46 Insurance Coverage The County carries liability insurance for the System for the types of claims and in amounts that are customary for similar enterprises. The County also carries property and casualty damage insurance on buildings and other physical assets related to the System. See SUMMARY OF THE BOND RESOLUTION - Insurance in Appendix C to this Official Statement for a description of the County s covenants regarding insurance for the System. Present insurance coverage for the County, including the System, is summarized below: Type Amount in Force Property 1 $162,210,643 Other Equipment Flood and Earthquake 23,797,144 5,000,000 Type Limits of Liability Each Occurrence Aggregate General Liability $2,000,000 $2,000,000 Automobile Liability Law Enforcement Liability 2,000,000 2,000,000 None 2,000,000 Public Officials Liability 2,000,000 2,000,000 1 Includes real and personal property and boiler and machinery coverage. The County is partially self-insured for medical and workers compensation claims and pays for such claims as they become due. The County requires payment and performance surety bonds and builders risk insurance of all contractors and subcontractors involved in construction related to the System. The County requires the surety bonds to be issued by surety firms listed on the U.S. Treasury-approved list and the builders risk insurance to be in the amount of the contract sums. Pending Litigation LEGAL MATTERS The County, like other similar bodies, is subject to a variety of suits and proceedings arising in the ordinary conduct of the affairs of the System. The County, after reviewing the current status of all pending and threatened litigation relating to the System with its general counsel, Scott D. Bennett, believes that, while the outcome of litigation cannot be predicted, the final settlement of all lawsuits which have been filed and of any actions or claims pending or threatened against the County relating to the System or its officials in such capacity are adequately covered by insurance or will not have a material adverse effect upon the financial position or results of operations of the System. There is no litigation now pending or, to the knowledge of the County, threatened against the County that restrains or enjoins the issuance or delivery of the Series 2012 Bonds, the pledge of the Net Revenues to secure the Series 2012 Bonds, or the use of the proceeds of the Series 2012 Bonds or which questions or contests the validity of the Series 2012 Bonds or the proceedings and authority under which they are to be issued and secured. Neither the creation, organization, or existence of the County, nor the title of the present members or other officials of the County to their respective offices, is being contested or questioned. Opinion of Bond Counsel Certain legal matters incident to the authorization and issuance of the Series 2012 Bonds are subject to the approval of McKenna Long & Aldridge LLP, Atlanta, Georgia, Bond Counsel, whose approving opinions will be available at the time of delivery of the related series of Series 2012 Bonds. It is anticipated that the approving opinions will be in substantially the forms attached hereto as Appendix D. -39-

47 In the opinion of McKenna Long & Aldridge LLP, Atlanta, Georgia, Bond Counsel, under existing statutes, rulings, and court decisions and under applicable regulations, interest on the Series 2012 Bonds (including any original issue discount properly allocable to an owner thereof) is not includable in gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; provided, however, with respect to corporations (as defined for federal income tax purposes), such interest is taken into account in determining adjusted current earnings for purposes of computing the alternative minimum tax imposed on such corporations. Bond Counsel expresses no opinion regarding any other federal tax consequences arising with respect to the Bonds. In rendering its opinion that the interest on the Series 2012 Bonds is not includable in gross income for federal income tax purposes, Bond Counsel will (i) rely as to certain factual matters upon representations of the County with respect to, among other things, the use of the proceeds of the Series 2012 Bonds and the facilities financed or refinanced with the proceeds of the Series 2012 Bonds, without undertaking to verify the same by independent investigation, and (ii) assume the continued compliance by the County with its covenants relating to the use of the proceeds of the Series 2012 Bonds and compliance with other requirements of the Internal Revenue Code of 1986, as amended (the Code ). The inaccuracy of any such representations or noncompliance with such covenants may cause interest on the Series 2012 Bonds to become includable in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2012 Bonds. Bond Counsel is also of the opinion that interest on the Series 2012 Bonds is exempt from all present State of Georgia income taxes under current statutes. Interest on the Series 2012 Bonds may or may not be subject to state or local income taxation in jurisdictions other than Georgia under applicable state or local laws. Purchasers of the Series 2012 Bonds should consult their tax advisors as to the taxable status of the Series 2012 Bonds in a particular state or local jurisdiction other than Georgia. Original Issue Discount and Premium In the opinion of Bond Counsel, under existing law, the original issue discount in the selling price of the Series 2012A Bonds maturing October 1, 2025 (the Discount Bonds ), to the extent properly allocable to each owner of such Discount Bond, is excluded from gross income for federal income tax purposes with respect to such owner. The original issue discount is the excess of the stated redemption price at maturity of such Discount Bond over the initial offering price to the public, excluding underwriters and other intermediaries, at which price a substantial amount of such Discount Bonds were sold. Under Section 1288 of the Code, original issue discount on tax-exempt obligations accrues on a constant yield to maturity basis. The amount of original issue discount that accrues to an owner of a Discount Bond who acquires such Discount Bond in this offering during any accrual period generally equals (i) the issue price of such Discount Bond plus the amount of original issue discount accrued in all prior accrual periods, multiplied by (ii) the yield to maturity of such Discount Bond (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period), less (iii) any interest payable on such Discount Bond during such accrual period. The amount of original issue discount so accrued in a particular accrual period will be considered to be received ratably on each day of the accrual period, will be excluded from gross income for federal income tax purposes, and will increase the owner s tax basis in such Discount Bond for the purpose of determining gain or loss upon a subsequent sale, exchange, payment, or redemption. Any gain realized by an owner from a sale, exchange, payment, or redemption of a Discount Bond would be treated as gain from the sale or exchange of such Discount Bond. Owners of Discount Bonds should consult their own tax advisors with respect to the state and local tax consequences of owning Discount Bonds. Under the tax laws of certain state and local jurisdictions, the amount of interest considered to have accrued to an owner of a Discount Bond may also be deemed to be received in the year of such accrual, even though there will not be a corresponding cash payment, rather than upon the disposition, redemption, or maturity of such Discount Bond for purposes of determining such owner s income tax liability under such state or local tax laws. The Series 2012A Bonds maturing October 1, 2016 through 2024, inclusive, and the Series 2012B Bonds (collectively the Premium Bonds ), are being sold at prices in excess of the principal amount thereof. Under the Code, the excess of an owner s cost basis of a bond over the principal amount of such bond (other than a bond held as inventory, stock in trade, or for sale to customers in the ordinary course of business) is generally characterized as bond premium. For federal income tax purposes, bond premium is amortized over the term of the related bond. An owner will therefore be required to decrease its basis in the Premium Bonds by the amount of amortizable bond -40-

48 premium attributable to each taxable year it holds Premium Bonds. The amount of amortizable bond premium attributable to each taxable year is determined on an actuarial basis at a constant interest rate compounded on each interest payment date. The amortizable bond premium attributable to a taxable year is not deductible for federal income tax purposes. Purchasers of Premium Bonds should consult their own tax advisors with respect to the precise determination for federal income tax purposes of the treatment of bond premium upon sale, redemption, or other disposition of Premium Bonds. Collateral Federal Tax Consequences Ownership of the Series 2012 Bonds may result in collateral federal tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, certain recipients of Social Security or railroad retirement benefits, foreign corporations operating branches in the United States, certain Subchapter S corporations, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry the Series 2012 Bonds. The following is a general description of certain of these consequences: 1. Interest on the Series 2012 Bonds is included in the adjusted current earnings of corporations, and such corporations may therefore be required to include as an adjustment in their calculation of alternative minimum taxable income 75% of the excess of adjusted current earnings over alternative minimum taxable income (determined without regard to this adjustment and prior to reduction for certain net operating losses). 2. No deduction is allowable for interest on indebtedness incurred or continued to purchase or carry the Series 2012 Bonds or, in the case of a financial institution, that portion of the owner s interest expense allocated to interest on the Series 2012 Bonds. 3. Property and casualty insurance companies are required to reduce the amount of their deductible underwriting losses by 15% of their amount of tax-exempt interest, including interest on the Series 2012 Bonds. If the amount of this reduction exceeds the amount otherwise deductible as losses incurred, such excess may be includable in income. 4. Certain recipients of Social Security benefits and railroad retirement benefits will be required to include a portion of such benefits within gross income by reason of receipt or accrual of interest on the Series 2012 Bonds. 5. A branch-level tax is imposed on certain earnings and profits of foreign corporations operating branches in the United States, and interest on the Series 2012 Bonds may be included in the determination of such domestic branches taxable base on which this tax is imposed. 6. Passive investment income, including interest on the Series 2012 Bonds, may be subject to federal income taxation for any Subchapter S corporation that has Subchapter C earnings and profits at the close of the taxable year, if greater than 25% of the gross receipts of such Subchapter S corporation is passive investment income. 7. Payments of interest on the Series 2012 Bonds are subject to reporting to the Internal Revenue Service (the IRS ) and to payees on Form 1099-INT (or successor form), and the Paying Agent (or its agent) may be required to withhold federal tax (referred to as backup withholding ) from any such payment on a Series 2012 Bond, which is imposed at the rate of 28% of the gross amount of any such payment, if (i) the owner fails to furnish the Paying Agent (or its agent) his or her taxpayer identification number ( TIN ), the accuracy of which has been certified under the penalty of perjury, (ii) the Paying Agent (or its agent) has been notified by the IRS that the owner of the Series 2012 Bond has supplied an incorrect TIN, (iii) the IRS has notified the Paying Agent (or its agent) that the owner of the Series 2012 Bond has failed properly to report certain income to the IRS, or (iv) when required to do so, the owner of the Series 2012 Bond fails to certify under the penalty of perjury that he or she is not subject to backup withholding. The foregoing is not intended as a detailed or comprehensive description of all possible consequences of purchasing or holding the Series 2012 Bonds. Persons considering the purchase of the Series 2012 Bonds should consult with their tax advisor as to the consequences of buying or holding the Series 2012 Bonds in their particular circumstances. Pending Federal Legislation From time to time, legislative proposals may be made that, if enacted into law, would eliminate the exclusion of interest on tax-exempt bonds from gross income for federal income tax purposes or otherwise would diminish the advantages of ownership of tax-exempt bonds for one or more categories of taxpayers, including any such proposals that, by their terms, would be effective with respect to tax-exempt bonds issued or purchased prior to enactment of the proposal. -41-

49 On September 12, 2011, President Obama submitted to Congress a legislative proposal entitled the American Jobs Act of 2011 (the Jobs Act ), which was introduced as S in the United States Senate on September 13, If enacted in its current form, the Jobs Act would increase by a calculated amount the amount of federal income tax liability or federal alternative minimum tax liability for individual taxpayers with (1) adjusted gross incomes exceeding certain thresholds, namely $250,000 for taxpayers filing a joint return, $225,000 for heads of household, $125,000 for married individuals filing separate returns, and $200,000 for other individual taxpayers, and (2) adjusted taxable incomes exceeding a different, calculated threshold, namely the maximum amount of taxable income that a taxpayer (based on his or her status) could receive that would be taxed at marginal federal income tax rates of less than 36%. In determining whether a taxpayer could be subjected to this complex provision, his or her adjusted taxable income would first be increased by the amount of any interest on tax-exempt bonds as well as by certain other adjustments. The above-described provision would be effective for taxable years beginning on or after January 1, 2013, but could also adversely affect owners of tax-exempt bonds issued or purchased before that date, including the owners of the Series 2012 Bonds, by preventing them from realizing the full current benefit of the tax status of interest on such bonds and by affecting the market price for and marketability of such bonds in the secondary market. No assurance can be given whether this provision of the Jobs Act or other provisions of a like nature will be enacted into law. Validation Proceedings The State of Georgia will institute proceedings in the Superior Court of Fayette County, Georgia to validate the Series 2012 Bonds and the security therefor. The State of Georgia will be the plaintiff in the proceeding, and the County will be the defendant. A final judgment confirming and validating the Series 2012 Bonds and the security therefor will be entered before the Series 2012 Bonds are issued and delivered. Under Georgia law, the judgment of validation will be forever conclusive against the County upon the validity of the Series 2012 Bonds and the security therefor. Closing Certificates At closing of the sale of each series of Series 2012 Bonds by the Underwriter, the County will deliver to the Underwriter a certificate (1) that no litigation is pending or threatened against it that would have a material effect on the issuance or validity of the Series 2012 Bonds or the security for the Series 2012 Bonds or on the financial condition of the System, and (2) that the information contained in this Official Statement does not contain any misstatement of a material fact and does not omit to state any material fact necessary to make the statements herein contained, in light of the circumstances under which they were made, not misleading. Ratings MISCELLANEOUS Moody s Investors Service, Inc. and Standard & Poor s Ratings Services have assigned ratings of Aa2 and AA, respectively, to the Series 2012 Bonds. The ratings reflect only the respective views of the rating agencies, and any desired explanation of the significance of each rating should be obtained from the rating agency furnishing such rating, at the following addresses: Moody s Investors Service, Inc., 7 World Trade Center, 250 Greenwich Street, New York, New York 10007, and Standard & Poor s Ratings Services, 55 Water Street, New York, New York Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies, and assumptions of its own. There is no assurance that either or both of such ratings will remain unchanged for any given period of time or that they will not be revised downward or withdrawn entirely by the rating agency furnishing the same, if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of such ratings, or either of them, may have an adverse effect on the liquidity and market price of the Series 2012 Bonds. Underwriting The Series 2012A Bonds will be purchased for re-offering at negotiated sale by Merchant Capital, L.L.C. (the Underwriter ), from the County at an aggregate purchase price of percent of the principal amount of the Series 2012A Bonds. The Series 2012B Bonds will be purchased for re-offering at negotiated sale by the Underwriter from the County at an aggregate purchase price of percent of the principal amount of the Series 2012B Bonds. The Underwriter will enter into a Bond Purchase Agreement that provides that the Underwriter will purchase all of the Series 2012 Bonds, if any are purchased. The obligation of the Underwriter to accept delivery of the Series 2012 Bonds will be subject to various conditions contained in the Bond Purchase Agreement. -42-

50 The Underwriter intends to offer the Series 2012 Bonds to the public initially at the offering prices set forth on the cover page of this Official Statement, which offering prices may subsequently be changed from time to time by the Underwriter without any requirement of prior notice. The offering prices set forth on the cover page of this Official Statement average $3.00 per $1,000 face amount of the Series 2012 Bonds in excess of the purchase price to be paid to the County by the Underwriter. The Underwriter will receive no fee (other than the anticipated profits described in the preceding sentence) from the County for underwriting the Series 2012 Bonds. The Underwriter has reserved the right to permit other securities dealers who are members of the Financial Industry Regulatory Authority to assist in selling the Series 2012 Bonds. The Underwriter may offer and sell the Series 2012 Bonds to certain dealers (including dealers depositing Series 2012 Bonds into investment trusts) at prices lower than the public offering prices set forth on the cover page of this Official Statement or otherwise allow concessions to such dealers who may re-allow concessions to other dealers. Any discounts or commissions that may be received by such dealers in connection with the sale of the Series 2012 Bonds will be deducted from the Underwriter s underwriting profits. Independent Professionals The financial statements of the System as of June 30, 2011 and for the year then ended, attached hereto as part of Appendix A, have been audited by Nichols, Cauley & Associates, LLC, Atlanta, Georgia, independent certified public accountants, to the extent and for the periods indicated in their report thereon, which appears in Appendix A. Such financial statements have been included herein in reliance upon the report of Nichols, Cauley & Associates, LLC. The County has retained Mallett Consulting, Inc., Fayetteville, Georgia, as its consulting engineers to develop several reports and studies relating to the System and certain financial matters. Mallett Consulting, Inc. has prepared the Engineering Report included as Appendix B to this Official Statement, which is included herein in reliance upon the authority of such firm as experts in engineering and related financial matters. Summary of Continuing Disclosure Certificate Definitions The following capitalized terms have the following meanings for purposes of the Disclosure Certificate: Annual Report means any Annual Report provided by the County pursuant to the provisions of the Disclosure Certificate described herein under the caption MISCELLANEOUS - Summary of Continuing Disclosure Certificate - Provision of Annual Reports and - Content of Annual Reports. Bondholders means the beneficial owners of the Series 2012 Bonds. Dissemination Agent means any Dissemination Agent designated in writing by the County and which has filed with the County a written acceptance of such designation. EMMA means the Electronic Municipal Market Access system of the MSRB. Fiscal Year means any period of twelve consecutive months adopted by the County as its fiscal year for financial reporting purposes and initially means the period beginning on July 1 of each calendar year and ending on June 30 of the next calendar year. Listed Events means any of the events listed in the provisions of the Disclosure Certificate described herein under the caption MISCELLANEOUS - Summary of Continuing Disclosure Certificate - Reporting of Significant Events. MSRB means the Municipal Securities Rulemaking Board. Rule means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. Provision of Annual Reports The County agreed in the Disclosure Certificate to, or to cause the Dissemination Agent to, not later than 180 days after the end of each Fiscal Year, commencing with Fiscal Year 2012, provide to the MSRB in an electronic format as prescribed by the MSRB (which, as of the date hereof, is EMMA) an Annual Report that is consistent with the requirements of the provisions of the Disclosure Certificate described below under the caption MISCELLANEOUS - Summary of Continuing Disclosure Certificate -- Content of Annual Reports. Not later than fifteen business days prior to such date, the County agreed to provide the Annual Report to the Dissemination -43-

51 Agent (if other than the County). The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross reference other information as provided in the provisions of the Disclosure Certificate described below under the caption MISCELLANEOUS - Summary of Continuing Disclosure Certificate -- Content of Annual Reports; provided that the audited financial statements of the System may be submitted separately from the balance of the Annual Report. If the County is unable to provide to the MSRB an Annual Report by the date required as described above, the County must send a notice to the MSRB in an electronic format as prescribed by the MSRB (which, as of the date hereof, is EMMA) of such failure. The Dissemination Agent is required to: (i) (ii) determine each year prior to the date for providing the Annual Report the appropriate electronic format prescribed by the MSRB for filing with the MSRB and the proper form for such filing; and if the Dissemination Agent is other than the County, file a report with the County certifying that the Annual Report has been provided pursuant to the Disclosure Certificate and stating the date it was provided. The County is required to promptly file a notice of any change in its Fiscal Year with the MSRB in an electronic format as prescribed by the MSRB (which, as of the date hereof, is EMMA). If the audit report specified in clause (1) of the provisions of the Disclosure Certificate described below under the caption MISCELLANEOUS - Summary of Continuing Disclosure Certificate -- Content of Annual Reports is not submitted as part of the Annual Report to the MSRB pursuant to the Disclosure Certificate, the County agreed to, or to cause the Dissemination Agent to, provide to the MSRB in an electronic format as prescribed by the MSRB (which, as of the date hereof, is EMMA) such audit report, together with the audited financial statements of the System to which such audit report relates, when they are available to the County. Content of Annual Reports The Disclosure Certificate requires the County s Annual Report to contain or incorporate by reference the following: (1) the financial statements of the System for the preceding Fiscal Year, which must be prepared in accordance with generally accepted accounting principles, as in effect from time to time, and which must be accompanied by an audit report, if available at the time of submission of the Annual Report to the MSRB pursuant to the Disclosure Certificate, resulting from an audit conducted by an independent certified public accountant or firm of independent certified public accountants in conformity with generally accepted auditing standards; (2) if generally accepted accounting principles have changed since the last Annual Report was submitted pursuant to the Disclosure Certificate and if such changes are material to the System, a narrative explanation describing the impact of such changes on the System; and (3) information for the preceding Fiscal Year regarding the following categories of financial information and operating data of the System: (A) average and maximum daily (in MGD) water demand, (B) number of water connections by customer class, (C) ten largest water customers, (D) rates, fees, and charges, (E) historical debt service coverage ratio, (F) total costs of capital improvements and funding sources, and (G) the insurance coverage of the County. Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues of the County or related public entities, which are available to the public on the MSRB s Internet Web site or filed with the Securities and Exchange Commission. The County must clearly identify each such other document so incorporated by reference. Reporting of Significant Events The Disclosure Certificate governs the giving of notices of the occurrence of any of the following events with respect to the Series 2012 Bonds: (1) Principal and interest payment delinquencies; (2) Non-payment related defaults, if material; (3) Unscheduled draws on debt service reserves reflecting financial difficulties; -44-

52 (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, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the Series 2012 Bonds, or other material events affecting the tax status of the Series 2012 Bonds; (7) Modifications to rights of Bondholders, if material; (8) Bond calls, if material, and tender offers; (9) Defeasances; (10) Release, substitution, or sale of property securing repayment of the Series 2012 Bonds, if material; (11) Rating changes; (12) Bankruptcy, insolvency, receivership, or similar event of the County; (13) The consummation of a merger, consolidation, or acquisition involving the County or the sale of all or substantially all of the assets of the County, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to such actions, other than pursuant to its terms, if material; and (14) Appointment of a successor or additional trustee or the change of name of a trustee, if material. For purposes of the event identified in clause 12, the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the County in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the County, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the County. If the County obtains knowledge of the occurrence of a Listed Event, the County has agreed to file in a timely manner not in excess of ten business days after such occurrence a notice of such occurrence with the MSRB in an electronic format as prescribed by the MSRB (which, as of the date hereof, is EMMA). Notwithstanding the foregoing, notice of Listed Events described in clauses 8 (other than tender offers) and 9 need not be given under the Disclosure Certificate any earlier than the notice (if any) of the underlying event is given to the owners of the affected Series 2012 Bonds pursuant to the Bond Resolution. Termination of Reporting Obligation The County s obligations under the Disclosure Certificate will terminate upon the legal defeasance, prior redemption, or payment in full of all of the Series 2012 Bonds. Dissemination Agent The County may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under the Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. Amendment; Waiver Notwithstanding any other provision of the Disclosure Certificate, the County may amend the Disclosure Certificate, and any provision of the Disclosure Certificate may be waived, if (a) such amendment or waiver is made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of the obligor on the Series 2012 Bonds, or type of business conducted; -45-

53 (b) such amendment or waiver does not materially impair the interests of the Bondholders, as determined either by an unqualified opinion of nationally recognized bond counsel filed with the County or by the approving vote of the Bondholders owning more than two-thirds in aggregate principal amount of the Series 2012 Bonds outstanding at the time of such amendment or waiver; and (c) such amendment or waiver is supported by an opinion of counsel expert in federal securities laws, to the effect that such amendment or waiver would not, in and of itself, cause the undertakings in the Disclosure Certificate to violate the Rule if such amendment or waiver had been effective on the date of the Disclosure Certificate but taking into account any subsequent change in or official interpretation of the Rule, as well as any change in circumstances. If any provision of the Disclosure Certificate described herein under the caption MISCELLANEOUS - Summary of Continuing Disclosure Certificate - Content of Annual Reports is amended or waived, the first Annual Report containing any amended, or omitting any waived, operating data or financial information must explain, in narrative form, the reasons for the amendment or waiver and the impact of the change in the type of operating data or financial information being provided. If the provisions of the Disclosure Certificate described herein under the caption MISCELLANEOUS - Summary of Continuing Disclosure Certificate - Content of Annual Reports specifying the accounting principles to be followed in preparing the financial statements of the System are amended or waived, the Annual Report for the year in which the change is made must present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison must include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to the Bondholders to enable them to evaluate the ability of the County to meet its obligations. To the extent reasonably feasible, the comparison must also be quantitative. The County must file a notice of the change in the accounting principles with the MSRB in an electronic format as prescribed by the MSRB (which, as of the date hereof, is EMMA) on or before the effective date of any such amendment or waiver. Additional Information Nothing in the Disclosure Certificate will prevent the County from disseminating any other information, using the means of dissemination set forth in the Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by the Disclosure Certificate. If the County chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by the Disclosure Certificate, the County will have no obligation under the Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Default In the event of a failure of the County to comply with any provision of the Disclosure Certificate, any Bondholder may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the County to comply with its obligations under the Disclosure Certificate. A default under the Disclosure Certificate will not be deemed an event of default or default under the Bond Resolution, and the sole remedy under the Disclosure Certificate in the event of any failure of the County to comply with the Disclosure Certificate will be an action to compel performance. A court may decide not to order the specific performance of the covenants contained in the Disclosure Certificate. Identifying Information All documents provided to the MSRB pursuant to the Disclosure Certificate will be accompanied by identifying information prescribed by the MSRB. Additional Information Use of the words shall, must, or will in this Official Statement in summaries of documents or laws to describe future events or continuing obligations is not intended as a representation that such event or obligation will occur but only that the document or law contemplates or requires such event to occur or obligation to be fulfilled. Any statements made in this Official Statement involving estimates or matters of opinion, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates or matters of opinion will be realized. Neither this Official Statement nor any statement which may have been made orally or in writing is to be construed as a contract with the owners of the Series 2012 Bonds. -46-

54 CERTIFICATION The execution and delivery of this Official Statement, and its distribution and use by the Underwriter, have been duly authorized and approved by the County. FAYETTE COUNTY, GEORGIA By: /s/ Herbert E. Frady Chairman, Board of Commissioners -47-

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56 APPENDIX A FINANCIAL STATEMENTS OF THE SYSTEM The financial statements of the System as of June 30, 2011 and for the year then ended, included as part of this Appendix A, have been audited by Nichols, Cauley & Associates, LLC, Atlanta, Georgia, independent certified public accountants, to the extent and for the periods indicated in their report thereon which appears in this Appendix A. Such financial statements have been included herein in reliance upon the report of Nichols, Cauley & Associates, LLC. The financial statements of the System as of November 30, 2011 and for the five-month period then ended, included as part of this Appendix A, have been prepared by the staff of the System without audit and, in the opinion of the staff of the System, include all adjustments necessary for a fair statement of the results of operations of the System for such interim period, all of which adjustments are of a normal recurring nature. The interim amounts reflected in these financial statements are not necessarily indicative of the financial results that will be achieved for the full fiscal year. [Remainder of Page Intentionally Left Blank]

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58 NiT- OLS AULEY NICRO C & As aeiates, LLC A Professional S~rvices Firm of: REPLY TO; ertified Public,ccountants 2970 Clairmont Rd,'uite 725 Ce rtifi cd In ternsl And itors tlanr;l G ~orgia Cutl fi ed Oovernment ud iti ng Professio.n,a Is Certifi ed Fi liancia l PIa-lIlI ers FA 404-2l Certified ValliDtion AiH1.lysts, llllnm" Clarkesville. Dublin" WlIlm r Robins \\,\vw.nicltolsclluley.com INDEPENDENT A DITO ' _ PORT Boar-d 0 f Commissioners Fayette' ounty. Georgia. Fayetteville, Georgia. We have audited the accompanying financial :s alem nts of tbe ayette Couoty Wat~r Syst m (the System) an eoterpri e fund of Fayette County Georgia (the County) as ofjune ll-is listed in the tabje of contents. These financiajstatements are the r sponsibi,lity ofthe COUllly's management. Our responsibili':y is to t:xpr. 55 an opinion on hese financia.l stat ments based on our audi We conduc.ted ouraudit in accordance with auditing standa.r-d g nerally accepted in the nit.ed States of medea. Those standards requi.re that we phm and perform the audit to obtain r asonable assurance about whe herlhe finallcial.statements are free ofmaterial misstatements. An audit includes e amining).. n a 'lest basis r evidence supporting the amounts and disclosures in the financiaratements. An audit a'iso "ncludes assessing the accounting principles used and significant estimates made by management as \! nas evaluating the overall financial statment presentation. We believe that our audit provides a reasonable ba is for our opinion. As discussed in Not 1. the financial sta ements present oilly he System and do not purport to. and do not present fairly the financialpog t1on oftlu:i County, as ofjune ], and the changes in frnancial pos.idon, or where applicable its cash flows for the year then ended in conformity wi h accounting principles,generally accept d in the Uni.ted tate, ofamerica. In our opinion the financial sta.tements referred to abo pr-esent fairjy in all material respects the Iinancial pas'tion of the ystem. as ofjune 3O. 2011, and the chan e in fl nancial position and c~sh nows thereof fo,t the year then ended in conformily with accounting prineiples generally accepted in the United States of merica. Accoun'ling principles generauy accepted in the United States ofamerica require that the Management s Discuion and Analysis al1d Required upplementary Information on pages 3 thtough 6 and 29 be presented 0 upplement the basic flnanciaj sta ernen s. Such information, although DO part ofthe basic financial statements is required by the Governmental Accounting tandards. oard who C()nJders it to be an essential part of financial repoctingor placing the basic ftnanciaj statements in,an appropriate operational economic and historical context. We: have applied certain limited procedull s to Management's Discussion and Analysis,and Required upplemen:lary nformation ~n accordance with

59 Board ofcommi sioner:_ Fayette County Georgia auditing standards generally accepted in the United States: ofamerica, which conslted of inquiries of management about the methods of prepar.ing the information and comparing the information for consistency with management's respon.ses to our inquide the basic finan ial statements, and other kno wledge we obtained duri ng our audit ofthe basic fi nancial, statements. We do n01 expre,ss an opinion or provide,any assurance on the information because' the limited procedures do not provide us with ufficient evidence to xpres an opinion or pro id any assurance. Our audi wa conducted for the purpose o forming opinion on the financial slatem nts that c.o!lectivel comprise the System s basic financial statements. The introdu,ctory section and statistical sections are presented or purposes of additionaj,analysis and are nct part of th basi.c finandal smt ments. The introd uctory and statistical section~ have not b en subjected to the auditing procedures appl.ied in the aud it ofthe: basiea nancial statements and -accordingly we expre.:ss no opinion on. t lell1. -tt~..w, ~<oj.<'t. IL,,.J!IJ. LI.. c!.. Atlanta. eo~gia December II 2

60 Fayette County, Georgia Water System Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2011 Management's discussion and analysis provides a narrative overview and analysis of the financial activities of the Fayette County, Georgia Water System (lithe System") for the fiscal year ended June 30, Management encourages readers to consider the information presented here in conjunction with additional information we have included in our letter of transmittal, which can be found on pages iii-viii in the introductory section of this report and the Government's financial statements following. Overview of the Financial Statements This discussion and analysis is intended to serv~ as an introduction to the System's basic financial statements. The System's basic financial statements comprise two components; 1) System's financial statements, and 2) Notes to the financial statements. The System's financial statements present an overall picture of the System's financial position and results of operations. The Notes to the financial statements provide additional information concerning the System's finances that are not disclosed in the financial statements. The System's financial statements are the Statement of Net Assets, the Statement of Revenues, Expenses and Changes in Fund Net Assets, and the Statement of Cash Flows. These statements use accounting methods similar to those used by privatesector companies. Emphasis is placed on the net assets of the System and the changes in net assets. The System's activities are supported by charges to the users of the water. The Statement of Net Assets presents information on all assets and liabilities of the System, with the difference between assets and liabilities reported as net assets. Net assets are reported in three categories; 1) invested in capital assets, net of related debt, 2) restricted, and 3) unrestricted. Financial Analysis The System provides water services to approximately 27,698 customers in Fayette County, Georgia. The analysis provides summary financial information for the System and should be read in conjunction with the financial statements on pages 7-10 and the related notes. Financial Highlights The System's total assets exceeded total liabilities by $78.5 million. "I.J

61 The following summarizes the components of the Water System's net assets at June 30, 2011 and 2010: Current and other assets $ 14,294,951 $ 18,685,887 Restricted assets 14,127,960 12,918,243 Capital assets 108,290, ,004,952 Total assets 136,712, ,609,082 Other liabilities 6,302,876 5,818,626 Long-term liabilities 51,882,422 54,941,481 Total liabilities 58,185,298 60,760,107 Invested in capital assets, net of related debt 63,058,811 49,304,060 Restricted 14,127,960 12,918,243 Unrestricted 1,340,904 15,626,672 Total net assets $ 78,527,675 $ 77,848,975 The System adopted the State of Georgia's water regulations in Detailed water restrlctions and information can be obtained on the County's website fayettecountyga.gov. Water sales revenue increased $841,143 or 6.5% over 2010 revenue. The System's investment in capital assets (e.g., land, infrastructure, buildings, machinery and equipment), less any outstanding related debt used to acquire the asset and accumulated depreciation, equals 80.3 percent of net assets. The System uses these capital assets to provide services to customers and consequently, these assets are not available for future spending. 4

62 Water System Capital Assets MKhinffy a, --: Equipment, 2.2" ~nd. 16. " 0''" Impt~menlS, l.l" Wale( distribution system Includes 618 miles of water line of various diameters and maleria!s. Infrastructure additions lor fiscal year 2011 totaled 51,160,397 which includes water lines, meters and fire hydrants, The following tabulation shows water line footage by size, including current year addaions for the year ended June 30, 2011, The amount of pipe smaller than 6" is insignificant and net reponed as pan of the distribution system.... PipeSiU Begillng 8;llanee Endl rlii Balance 3. 37, ,9SO 106,950 "" ,803,. 8,390 8,390 "",~ 1.9,106 '.9, , ,.80 "" 288,191 3, ,941 1,380,161 7,819 1,387,iaO ~ '" , ~9 T". 3,2.6, ,261,921 The System's net anets also include restricted assets of $14,127,960 (18 perceot of net assets) and umestricted nel assets of S1,340,904 (1,7 percent of net assets). Resllided net assets represent re$ources subjeclto extemal restriction on how they may be used. Unrestricted net assets may be used to meet the System's ongoiog obligations to creditors. The System's total net assets Increased $678,700 or 0.9 percent during the fiscal year. This Indicates that the revenue sources exceed the o~ cost of the System. 5

63 The Sy1ltem's Changes In Revenue, Expense and Ch.i.nge in Fund Net Assets: "" 2010 Revenues and capital conl:ribulions: Waler sales ,504 $12,999,361 QlIle( oper.ilillg 448, ,893 Non-<>pe",ting 47,284 73,549 Capital contributions 379, ,363 Total revenun and capital contributiont 14,715,583 13,836,166 Expenses and transfers Operating eocpeoses 6,559,007 6,163,479 Non-opel1il!ing expenses 2,408,479 2,511,507 Transfer.overtlead 700, ,765 Depreciation expense 4,368,612 4,408,176 Total expense, 14,036,883 13,791,947 Increase in net assets 678,700 44,219 Net assets, beginning 01 year 77,848,975 77,804,758 Net assets, end Of year I 78,527,675 $77,848,975 The System's total revenues and cap~al contribution, increased 5879,417 or 6.4% during the fiscal year. The increase in revenue, can be attributed to water sales. The total expense increased $244,936 or 1.6 percent during the fiscal year, Increase can be attributed to the Increasing costs associated with water production, The Long-tarm deb' - At the end of the current fiscal year, the System's total revenue bonded debt is $55,080,000 (see page 22 in Notes to the Financial Statements), Principal payments made in fiscal year were $2,890,000. Request for Information This financial report Is designed to provide a general overview 01 System', finances for all those with an interest In the government's finances. Questions concerning any of the Information provided in this report or requests for add~ionsl financial Inlormation can be obtained by accessing the County's website at flnance@fayettecounlyga.gov,or by contacting the Finance Department at the following address and telephone number: Fayette County Finance Department 140 Stonewall Avenue, West Suite 101 Fayetteville, GA (770)

64 GEORGIA WAn:RSYSTEM BASIC FINANCIAL STATEMENTS

65 Fayette County, Georgia Water System Statement of Net Assets June 30, 2011 ASSETS Current Assets Unrestricted cash $ Restricted cash Prepaid expenses Other receivables, net of allowance for doubtful accounts of $125,000 Inventory Total current assets Non-Current Assets Unamortized debt issue costs Capital assets, net of accumulated depreciation Land Land improvements Infrastructure Buildings Machinery, equipment and vehicles Construction in progress Total capital assets Total Assets LIABILITIES Current Liabilities Accounts payable Contracts payable Accrued interest payable Salaries and benefits payable Compensated absences Unearned revenue Current portion of long-term obligations Total current liabilities Long-Term Liabilities Compensated absences Bonds payable Long-Term Liabilities, net of current portion Total Liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for: Renewal and extension Debt senice Unrestricted 11,432,563 14,127,960 23,334 1,994, ,788 28,140, ,611 15,202,661 3,043,930 49,618,659 22,527,675 2,080,556 15,816, ,290, ,973 1,762, , , ,256 30,740 37,500 3,110,000 6,302, ,956 51,755,466 51,882,422 58,185,298 63,058,811 6,570,929 7,557,031 1,340,904 TOTAL NET ASSETS $ 78,527,675 The accompanying notes are an integral part of these financial statements. 7

66 Fayette County, Georgia Water System Statement of Revenues, Expenses, and Changes in Fund Net Assets For the fiscal year ended June 30, 2011 Operating revenues: Charges for sales and services $ 13,840,504 Penalties 151,792 Miscellaneous 296,771 Total operating revenues 14, Operating expenses: Personal services 1,746,004 Contractual services 1,223,910 Other operating 225,123 Water production cost 3,271,187 Amortization 92,783 Depreciation 4,368,612 Total operating expenses 10,927,619 Operating income Non-operating activities: Interest income 3,748 Miscellaneous 43,536 Interest expense (including amortization of bond discount) (2,408,479) Total non-operating activites (2, ) Income before capital contributions and transfers Capital contributions and transfers Capital contributions 379,232 Transfers out (700,785) Total capital contributions and transfers (321,553) Change in Net Assets 678,700 Net Assets, beginning of year 77,848,975 Net Assets, end of year $ 78,527,675 The accompanying notes are an integral part of these financial statements. B

67 Fayette County, Georgia Water System Statement of Cash Flows For the fiscal year ended June 3D, 2011 Cash flows from operating activities: Cash received from customers $ 13,989,522 Cash payments to suppliers for goods and services (4,456,168) Cash payments to employees for services (1,723,127) Net cash provided by operating activities 7,810,227 Cash flows from noncapital financing activities: Transfers out to other funds (700,785) Net cash used in noncapital financing ( ) activities Cash flows from capital and related financing activities: Acquisition and construction of capital assets (5,622,893) Capital contributions 379,232 Principal paid on revenue bonds and loans (2,890,000) Payment of bond interest and loans (2,406,886) Net cash used in capital and related financing activities (10,540,547) Cash flows from investing activities: Interest on investments 3,748 Net cash provided by investing activities 3,748 Net decrease in cash and cash equivalents (3,427,357) Cash and cash equivalents at beginning of year 28,987,880 Cash and cash equivalents at end of year $ 25,560,523 Classified as: Unrestricted cash $ 11,432,563 Restricted cash 14,127,960 $ 25,560,523 Continued on next page The accompanying notes are an integral part of these financial statements. 9

68 Fayette County, Georgia Water System Statement of Cash Flows For the fiscal year ended June 30, 2011 Reconciliation of operating income to cash provided by operating activities: Operating income $ 3,361,448 Adjustments to reconcile operating income to Net cash provided by operating activities: Depreciation expense Amortization expense Increase in accounts receivable Decrease in Inventory Decrease in accounts payable Increase in salaries and benefits payable Increase in prepaid items Increase in contracts payable Increase in unearned revenue Total adjustments Net cash provided by operating activities $ 4,368,612 92,783 (303,545) 22,133 (170,429) 22,877 (15,436) 427,784 4,000 4,448,779 7,810,227 Noncash investing, capital, and financing activities: Contributions of capital assets $ The accompanying notes are an integral part of these financial statements, 10

69 GEORGIA WATER SVSfEr.I NOTES TO THE FINANCIAL STATEMENTS

70 Fayette County, Georgia Water System Notes to the Financial Statements June 30, 2011 NOTE INDEX l. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity B. Measurement Focus, Basis of Accounting, and Basis of Presentation C. Assets, Liabilities, Equity, and Revenues II. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgetary Information B. Debt Service and Sinking Fund Requirements on Water Revenue Bonds III. DETAILED NOTES ON ALL FUNDS A. Cash, Cash Equivalents, and Investments B. Capital Assets C. Interfund Receivables and Payables D. Long-Term Debt IV. OTHER INFORMATION A. Risk Management B. Post-employment Healthcare Plan C. Contingent Liabilities D. Employees' Pension Plan 11

71 Fayette County, Georgia Water System Notes to the Financial Statements June 30, 2011 Note I - Summary of Significant Accounting Policies The financial statements of the Fayette County, Georgia Water System (lithe System") have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard - setting body for establishing governmental accounting and financial reporting principles. The significant accounting policies of the System are described below. A. Reporting Entity Fayette County, Georgia (the "County") was established in 1821 and is a body corporate and politic organized and existing under the ConstitL!tion and Jaws of the State of Georgia. The County operates under a Commission-Administrator form of government and provides the following services as authorized by its charter: Public Safety, Public Works, Culture, Recreation, Community Services, and other General Government Services. The System, established in 1965, is an enterprise fund of the County and serves approximately 27,698 water customers in the unincorporated County and through the County owned distribution system in Peachtree City, Tyrone, Woolsey, Brooks, and Fayetteville. The System is governed by the Fayette County Board of Commissioners, but the System's Director is responsible for the day-to-day operation. B. Measurement Focus, Basis of Accounting, and Basis of Presentation The System is an enterprise fund of Fayette, County Georgia. An enterprise fund is a proprietary fund which is sometimes referred to as an "income determination" or "commercial type" fund. Proprietary Funds are accounted for on the flow of economic resources management focus and use the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. Pursuant to the Governmental Accounting Standards Board (GASB) Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that use Proprietary Fund Accounting, the County has chosen to apply all GASB pronouncements as well as Financial Accounting Standards Board (FASB) pronouncements issued on or before November 30, 1989 to account for proprietary funds. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generahy result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the System's proprietary funds are charges to customers for sales and services. Operating expenses for these funds include the cost of sales and services, administrative expenses and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses and capital contribution. 12

72 C. Assets, Liabilities, Equity, and Revenues 1. Deposits and Investments The System's cash and cash equivalents are considered to be cash on hand, demand deposits, certificates of deposit, funds on deposit in the Georgia Fund 1 State Investment Pool, and other short-term investments with original maturities of three months or less from the date of acquisition. For the Statement of Cash Flows, the System considers all highly liquid investments (including restricted assets) with a maturity of three months or less when purchased to be cash equivalents. The statutes of the State of Georgia authorize the System to invest in U.S. Government obligations; U.S. Government agency obligations; State of Georgia obligations; obligations of other counties, municipal corporations and political subdivisions of the State of Georgia which are rated "AU or better by Moody's Investors Service, Inc.; negotiable certificates of deposit issued by any bank or trust company organized under the laws of any state of the United States of America or any national banking, association; repurchase agreements when collateralized by U.S. Government or agency obligations; and pooled investment programs sponsored by the State of Georgia for the investment of local government funds. In accordance with the provisions of Governmental Accounting Standards Board Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, the System reports investments at fair value. Money market investments and those investments, which had a remaining maturity at the time of purchase of one year or less are recorded at amortized cost or cost plus accrued interest, which approximates fair value. The fair value of investments in the Georgia Fund 1 State Investment Pool is equal to cost. The fair value of all other investments was calculated using quoted market prices because these prices have been determined to be the most reliable and verifiable and are the most understood by investors, creditors and other users of financial information. All investment income, changes in the fair value of investments, has been reported as revenue in the operating statements. 2. Receivables and Pavables A receivable has been recorded for services rendered but not billed at June 30, 2011, net of allowance for doubtful accounts of $125,000. The receivable was computed using the cycle billings sent to customers in July and prorating the charges based on the days applicable to the current period. 3. Inventories and Prepaid Items Inventories in the System are valued at cost, which approximates market using the first-in, first-out method. Inventories primarily consist of pipe and fittings intended for use in construction of line extensions and to support the maintenance work on the system. In addition, other materials and supplies are maintained to service the vehicles and equipment used in system operations. Costs are expensed when incurred (Le. the purchases method). 13

73 3. Inventories and Prepaid Items - Continued Prepaid items represent payments made to vendors for which the benefits are applicable to future accounting periods. Prepaids are recorded using the consumption method by recording an asset for the prepaid amount and reflecting the expenditure/expense in the year in which services are consumed. 4. Restricted Assets Certain proceeds of the System revenue bonds, as well as certain resources set aside for their payment are classified as restricted assets on the statement of net assets because their use is limited by applicable bond covenants. The "revenue bond construction" account is used to report those proceeds of revenue bond issuances that are restricted for use in constructions. The "revenue bond sinking fund" account is used to segregate resources accumulated for debt service payments over the next twelve months. The "revenue bond debt service reserve" account is used to report resources set aside to subsidize the potential future deficiencies in the revenue bond sinking fund account. The "revenue bond renewal and extension" account is used to report resources set aside to meet unexpected contingencies or to fund asset renewals and replacements. 5. Capital Assets Capital assets are reported in the financial statements at cost or estimated historical cost if purchased or constructed. Capital assets include property, plant and equipment. Capital assets, other than infrastructure assets, are defined by the System as assets with an initial individual cost of $5,000 or more and an estimated useful life of more than one year. Donated capital assets are recorded at estimated fair value at the date of donation. The cost of normal maintenance and repairs that do not add to the value of the asset or do not substantially extend assets' lives are not capitalized. Major outlays for capital assets and improvements, including infrastructure assets, are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets is reflected in the capitalized value of the asset constructed, net of interest earned on the invested proceeds over the same period. Capital assets are depreciated using the straight-line method over the following estimated useful lives: Asset Classification Years Building Improvements 10 Buildings 40 Computer Equipment 5 Infrastructure Office EqUipment 5 Vehicles Compensated Absences System employees are granted vacation, compensatory, holiday, and sick leave in varying amounts. It is the System's policy to permit employees to accumulate earned but unused vacation and sick pay benefits up to a specified maximum number of hours. Compensatory and holiday leave is accumulated based on departmental discretion of need. In the event of termination ofemployment, an employee is paid for accrued annual, 14

74 6. Compensated Absences-Continued compensatory, and holiday leave days. In addition, regular full-time employees hired before March 1, 1998, with three or more years of service who resign in good standing or retire from service with the System are paid at the rate of $15 for each day of unused sick leave up to a maximum of $900. Vacation, compensatory. holiday and termination sick leave pay are accrued when incurred and reported as a fund liability. 7. Long-term Obligations Long-term debt and other obligations financed by the System are reported as liabilities. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the. bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Issuance costs are reported as deferred charges. 8. Net Assets The carrying amount of capital assets less related outstanding debt is reported as a component of net assets called capital assets net of related debt. Restricted net assets reflect amounts restricted by contracts. laws and regulations for specific purposes such as amounts that have been accumulated in the debt service accounts as well as working capital reserve as described in the bond resolutions. The System records reserves to indicate that a portion of the net assets is legally segregated for a specific use. An example of this type of reserve is the net excess of restricted assets over liabilities payable from restricted assets. This segregation of fund equity is required by the bond resolutions. 9. Capital Contributions In accordance with the provisions of Governmental Accounting Standards Board Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, the System has recorded capital contributions received as capital contributions revenue. Capital contributions include amounts received from Federal, State and other governments for aid in construction and development of the System. Also included are amounts received from real estate sub-dividers for water line extensions built by sub-dividers and contributed to the System, both of which are capitalized as part of the System's capital assets. It also includes amounts received for meter, connection and tap fees from subdividers and other customers. The actual cost of meter installations has been capitalized as part of the water distribution system. NOTE II - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgetary Information The System is required by the County Board of Commissioners to adopt annual operating budgets for its operations and establish billing rates accordingly. The budgets formally adopted through passage of a resolution by the Board of Commissioners. The System's Director has the responsibility of administering these programs in accordance with the policies and the annual budget as adopted by the Board of Commissioners. The Director is required to keep total expenses less than total revenues. Budgets are prepared on the 15

75 A. Budgetary Information - Continued cash basis. The System uses an encumbrance system and appropriations are reserved at year end. Neither the budget resolution nor any bond covenants require that the System report budgetary information in its financial statements. B. Debt Service and Sinking Fund Requirements on Water Revenue Bonds 1. Sinking Fund Requirements The bond resolutions require the creation and maintenance of a sinking fund that is to be used to pay the principal and interest on the revenue bonds as they become due. The bond resolutions specifically require that monies be deposited monthly into the sinking fund until such time that sufficient funds are on hand to pay the semi-annual interest payments and the bonds as they mature. During fiscal year ended June 30, 2011, $6,131,157 was paid from the revenue fund into the sinking fund (including the debt service reserve account) with required debt and interest payments made from the sinking funds when due. 2. Debt Service Reserve The bond resolutions require the creation and maintenance of a debt service reserve within the sinking fund. According to the resolutions, monies are to be transferred each month from the revenue fund to the reserve so that the reserve will be fully funded in an amount equal to $5,553,579 by September 1, The debt reserve balance at June 30, 2011 is $ 4,523,051 and the sinking fund balances are $ 3,033,979, for a debt service total of $7,557,030, which is shown as restricted cash in the proprietary funds. 3. Renewal and Extension Fund After the monthly operating and maintenance expenses have been paid and the required debt service transfers have been made, all monies remaining in the revenue fund in excess of a working capital reserve (in an amount not to exceed one month's estimated operating and maintenance expenses) are to be transferred to the renewal and extension fund. The bond resolutions restrict disbursements from this fund to the following: a. Paying principal and interest on any revenue bonds falling due when there are insufficient funds in the sinking fund to make the payment. b. Emergency expenditures if there are insufficient fund in the revenue fund (operating account). c. Replacements, additions, extensions, and improvements to the system in the best interests of the county and bondholders. d. Payments of investment services for the investment of monies held in the renewal and extension fund (renewal and extension account). e. The transfer of moneys, if any required, pursuant to the arbitrage rebate provision of the bond resolution. 16

76 4. Rates and Fee Requirements In accordance with the bond resolutions, the System's schedule of rates, fees, and charges for services shall be maintained at such a level so as to produce net revenues (after payment of reasonable and necessary cost of operating and maintaining the system) equal to at least 1.20 times the amount required to be paid in to the sinking fund and the debt service reserve in the current sinking fund year. This ratio is computed annually. For the year ended June 30, 2011, the System was in compliance with this requirement. NOTE 111- DETAILED NOTES A. Cash, Cash Equivalents, and Investments As mentioned in Note A, the System is an enterprise fund of Fayette County, Georgia and, accordingly, the information concerning deposits is for the System and County funds combined in order to properly disclose the amounts insured and collateralized. 1. Cash Deposits At June 30, 2011, the carrying amount of the County's deposits and investments was $119,478,832 including deposits of $60,003,052. The bank balance is $121,100,453. All of the County's deposits were covered either by FDIC coverage or collateralized with securities held by the County's agent in the County's name. Fiduciary funds had a carrying value of $1,828,883 and bank balance of $3,464,528. State statutes and bond resolutions require that all deposits be collateralized by depository insurance; obligations of the United States or certain obligations guaranteed by the U.S. Government; obligations of the State of Georgia; and obligations of other counties, municipal corporations and subdivisions of the State of Georgia. The collateral pledged by the banks' trust department in the County's name is composed of various bonds of the U.S. Government Agencies and bonds of public authorities, counties and municipalities of the State of Georgia. 2. Investments The investment program is established in accordance with the County's investment policy which was adopted by the County Commission in compliance with the provisions of Georgia Code Section and in accordance with the County's policies and written procedures. The County's investment guidelines permit the investment of County funds in the Georgia Fund, United States Treasury securities, United States Government Agency securities with the full faith and credit of the United States Government, Federal Instrumentalities (Government Sponsored Enterprises), Time Deposits (Certificates of Deposit) and Savings Accounts of financial institutions that are Qualified Public Depositories, and Money Market Funds. Georgia Fund 1, which was created by the Official Code of Georgia Annotated ("OCGA") , is a stable net asset value investment pool, which follows Standard and Poor's 17

77 2. Investments-Continued criteria for MA rated market funds. However, Georgia Fund 1 operates in a manner consistent with a Rule 20-7 of the Investment Company Act of 1940 and is considered to be a 2a-7 like pool. Georgia Fund 1 is not registered with the Securities and Exchange Commission as an investment company. The Georgia Office of Treasury and Fiscal Services is the regulatory oversig ht agency of Georgia Fund 1. Georgia Fund 1's primary objectives are safety of capital, investment income, liquidity and diversification while maintaining principal ($1.00 per share value). Net asset value is calculated weekly to ensure stability. Georgia Fund 1 distributes earnings (net of management fees) on a monthly basis and determines participant's shares sold and redeemed on $1.00 per share. The County utilizes an external investment manager to actively manage a portion of assets. Performance is measured in total return against the 1-3 Year U.S. Treasury/Agency benchmark. The County' utilizes two investment portfolios with the external manager, an enhanced cash portfolio with a duration of less than a year, and a core portfolio with a duration strategy between 1.5 and 2.0 years. This dual portfolio strategy is structured to manage interest rate volatility. All assets managed by the external manager are held in custody with the Bank of New York in the County's name. As of June 30, 2011 all assets within the externally managed portfolios are rated MA. Asset Allocation. The County's assets are invested in accordance with Georgia Code and the County's investment policy. The chart below presents the security type and maturity distribution for all assets as of June 30, 2011 and presented in Fair Value as reported by the County's Cutwater Asset Management, the Georgia Fund 1, Bank of New York and Wachovia's respective June 30, 2011 month end statements. Portfolio Maturity Distribution Less than Percent of 1 Year 1-2 Years 2-3 Years 3-4Years 4-5 Years Total Assets Percent of Assets 69.92% 14.01% 13.87% 1.47% 0.73% Agency $ $ 1,69.8,357 $ $ 806,521 $427,102 $ 2,931,980 2,35% FDIC 6,825,543 3,574,153 10,399, % FFCB 3,217,356 2,017, , ,676 6,065, % FHLB 2,656, ,620 1,309, ,061 4,978, % FHLMC 3,013, ,796 2,077,902 5,688, % FNMA 380,156 1,510,532 1,818, ,006 4,209, % MMKT 1,253,693 1,253, % UST 5,537,045 7,563,135 11,726,996 24,827, % Georgia Fund 1 41,104,268 41,104, % Bank of New York 3,261,430 3,261, % Wells Fargo 16,380,258 16,380, % Fiduciary Funds 3,464,528 3,464, % Total Assets $ 87,094,.070 $ 17,453,715 $17,282,830 $1,825,588 $908,778 $124,564,981 18

78 2. Investments-Continued As of June 30, 2011, the carrying value of the Water System's deposits was $25,560,523 and bank balances are as follows: Less than 1 Year Percent of Assets % 1-2 Years 0,00% Portfolio Maturity Distribution 2-3 Years 0.00% 3-4 Years 4-5 Years 0.00% 0.00% Total Percent of Assets Georgia Fund 1 Bank of New York Wells Fargo Total Assets 7,659,130 7,557,031 10,375,898 $25,592,059 $ $ $ $ 7,659, % 7,557, % 10,375, % $ 25,592,059 Primary Government's Investment Policy: Fayette County's policy establishes a framework for implementing such safeguards, authorized particular types of allowable investment instruments, and creates oversight responsibilities of investment activities. The overriding purpose of this policy is to acknowledge clearly that any investment instrument or decision carries with it certain elements of risks. There are, however, numerous safeguards that can be instituted to minimize such risks while endeavoring to earn a market rate of return. Fayette County's investment objectives in order of priority are: (1) safeguard the principal, (2) provide the liquidity required to meet financial obligations in a timely manner, and given these two goals, (3) provides the best return on investment. Funds of Fayette County will be invested in compliance with the provisions of Georgia Code Section and in accordance with these policies and any written administrative procedures. Certain funds have outstanding bond issues which have specific investment policies contained within the bond ordinances and official statements. Those policies will be adhered to and are not in conflict with the terms of this policy. Acceptable investments, set forth in Georgia Code section are: Obligations of the State of Georgia or of other states Obligations issued by the U.S. Government: U.S. Treasury Bills, U.S. Treasury Notes, U.S. Treasury Bonds Obligations fully insured or guaranteed by the U.S Government or a U.S. Government Agency Repurchase agreements backed by the U.S. Government or U.S. Government Agency Prime Banker's Acceptances; that are eligible for purchase by the Federal Reserve bank and have a Letter of Credit rating of A+ or better Local Government Investment Pool (LGIP) Obligations of Other Political Subdivisions of the State of Georgia Time deposits and savings deposits of banks organized under the laws of Georgia or the U.S. Government and operating in Georgia 19

79 2. Investments-Continued The following guidelines represent maximum limits established for diversification by instrument by the Fayette County Board of Commissioners: U.S. Treasury Obligations 100% U.S. Government Agency Securities and Securities Issued by Instrumentalities of Government Sponsored Corporations 50% Repurchase Agreement 25% Prime Banker's Acceptances 10% Local Government Investment Pool 100% Certificates of Deposit Obligations of other political subdivisions of the State of Georgia 25% Interest Rate Risk. The County employs multiple investment duration and investment management strategies which seek to minimize the County's portfolio interest rate risk. Interest rate risk measures the change in value of an investment or portfolio as a result of changes in interest rates. As a means of limiting exposure to fair value losses arising from rising interest rates, the County's Policy limits the investment of operating funds to investments with a stated maturity of no more than 5 years from the date of purchase. The County maintains liquidity in overnight investments vehicles for short term expenditures and remaining assets are invested in short term securities with maturity limitations and by security type for the entire portfolio. The investment program is designed to diversify and minimize changes in market price as interest rates change. The County's overnight investments, including demand deposit accounts and money market funds and have an effective duration of 1 day (0.003 years). The County's externally managed assets have a duration of 470 days (1.29 years). The total portfolio has a weighted average effective duration is.696 years (254 days). This multiple portfolio duration strategy seeks to limit the risk associated with losses associated with interest rate movements while providing liquidity to meet expenditures. Proceeds from the sale of bonds must be invested in compliance with the specific requirements of the bond covenants and may be invested in securities with longer maturities. All bond proceeds are invested with the primary focus of safety of principal and structured to provide liquidity to meet project expenditures. Custodial Risk. The County's demand deposit balance of $16,380,258 is invested with Wells Fargo Bank. The County also has a balance of $3,261,430 in AAAm rated money market funds at the Bank of New York. The County also has $41,104,268 invested with the Georgia Fund 1. The County also utilizes an external investment manager that manages investments that have a total market value balance of $60,355,508 as reported by the County's Cutwater Asset Management monthly statements for month ended June 30,2011. The County's externally managed open market security investments are held with a third party custodian in accordance with Georgia Code. The County's investment holdings are designated as assets of the County in separate accounts in the County's name. 20

80 2. Investments-Continued Credit Risk. Credit risk relates to the ability of the issuer's ability to pay interest and principal. One measure of the perceived credit risk of an issuer is the credit rating. The County's investment policy provides strict guidelines and limits investments to highly rated securities with minimum ratings of AAA money market funds, AAA rated agency notes, AAA rated Government Sponsored Enterprises, AAA Federal Deposit Insurance Corp backed notes and U.S. Treasuries. To further minimize credit risk the County's investment policy also provides asset allocation limits for each security type. Issuer limits are provided for each investment type with the exception of U.S. Treasuries which have a 100% permitted allocation. The securities within the County's investment portfolios are in compliance and meet the minimum rating requirements and asset allocation limits. B. Capital Assets Capital assets for the System for the fiscal year ended June 30, 2011, are shown in the following tabulation: Beginning Ending Balances Increases Decreases Balances Capital assets ndt being depreciated: Land $ 15,200,661 $ 2,000 $ $ 15,202,661 Construction in Process 11,425,926 5,630,218 (1,239,563) 15,816,581 Capital assets being depreciated: Buildings and Structures 43,783,031 43,783,031 Infrastructure 80,969,777 1,160,397 82,130,174 Improvements other than buildings 11,130,176 11,130,176 Machinery and Equipment 9,204, ,671 9,305,227 Total Business-type assets being depreciated 145,087,540 1,261, ,348,608 Less accumulated depreciation for: Buildings and Structures 19,684,542 1,570,814 21,255,356 Infrastructure 30,359,750 2,151,765 32,511,515 Improvements other than Buildings 7,783, ,558 8,086,246 Machinery and Equipment 6,881, ,475 7,224,671 Total accumulated depreciation 64,709,176 4,368,612 69,077,788 Business-type activity capital assets, net $ 107,004,951 $ 2,524,674 $ (1,239,563) $ 108,290,062 C. Interfund Receivables and Payables During fiscal year 2011, the System was charged $700,785 for overhead cost allocation including administration, finance, budgeting, purchasing, information systems, human resources, and marshal services. This amount was paid by the System to the County's General Fund. 21

81 D. Long-Term Debt Revenue Bonds. The System has pledged future water customer revenues, net of specified operating expenses to repay $55.08 million in revenue bonds. Proceeds from the bonds provided financing for construction. The bonds are payable solely from the System's customer net revenues and are payable through Annual principal and interest payments on the bonds are expected to require less than 48 percent of net revenues. The total principal and interest remaining to be paid on the bonds is $75,438,414. Principal and interest paid on outstanding bonds in the current year was $3,523,825 and net revenues were $7,356,947. The bonds outstanding are: $10,245,000 Series 1996A, water revenue bonds, due in annual Debt installments of $25,000 to $920,000 through October 1, 2020; interest at 3.6% to 5.5%, net of unamortized bond discount of $475, deferred refunding difference of $21,689 $1,190,000 $22,670,000 Series 2002, water revenue bonds, due in annual installments of $50,000 to $2,250,000 through OCtober 1, 2032; interest at 3.25% to 5.125%, net of unamortized bond discount of $37,139, deferred refunding difference of $679,723 19,160,000 $36,340,000 Series 2009, water revenue bonds, due in annual installments of $85,000 to $4,415,000 through October 2029; interest at 2.0% to 5.0%, net of unamortized bond premium of $1,419,808, deferred refunding difference of $895,316 $34,730,000 Current and long-term portion of revenue bonds $55,080,000 The following includes a summary of Water System revenue bond transactions for the fiscal year ended June 30, 2011: Balance Balance Current Bond Issue July 1, 2010 Additions Reductions June 30,2011 Portion Series 1996A $ 2,060,000 $ $ 870,000 $ 1,190,000 $ 920,000 Series ,655, ,000 19,160, ,000 Series ,255,000 1,525,000 34,730,000 1,675,000 Total 57,970,000 $ 2,890,000 55,080,000 3,110,000 Unamortized Portion: Refunding Difference (1,724,007) 127,279 (1,596,728) Bond (Discount)/ Premium 1,454,897 (72,703) 1,382,194 Net Revenue Bonds $ 57,700,890 $ $ 2,835,424 $ 54,865,466 22

82 D. Long-Term Debt-Continued At June 3D, 2011 the System was obligated to make payments of principal and interest on its outstanding water revenue bond debt as follows: Fiscal years ending June 30, Principal Interest Total Debt Service 2012 $ 3,110,000 $ 2,330,539 $ 5,440, ,255,000 2,228,586 5,483, ,375,000 2,125,311 5,500, ,470,000 1,990,972 5,460, ,495,000 1,836,322 5,331, ,595,000 6,633,078 26,228, ,505,000 2,419,656 14,924, ,620, ,997 6,379, ,000 33, ,953 $ 55,080,000 $ 20,358,414 $ 75,438,414 Advance Refunding. The System has refunded certain revenue bonds by placing the proceeds of the new bond issues in irrevocable trusts with escrow agents for the purpose of generating resources for all future debt service payments of the refunded debt. With this financial arrangement, the refunded bonds are considered to be defeased in substance. Accordingly, the trust account assets and liability for the defeased bonds are not included in the System's financial statements. At June 30, 2011 $15,105,000 of outstanding revenue bonds are considered defeased. Following is a reconciliation of debt disclosures presented above to amounts reported in the statement of net assets: Balance Balance Due Within Business-Type Activities July 1,2010 Additions Reductions June 30, 2011 One Year Revenue Bonds $ 57,970,000 $ $ 2,890,000 $ 55,080,000 $ 3,110,000 Compensated Absences 150,319 8,485 1,108 $ 157,696 30,740 $ 58,120,319 $ 8,485 $ 2,891,108 $ 55,237,696 $3,140,740 NOTE IV - OTHER INFORMATION As mentioned in Note A, the System is an enterprise fund of Fayette County, Georgia and, accordingly, the information contained within this section is shown for the County as a Whole. A. Risk Management Fayette County, Georgia is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters for which the County carries commercial insurance. Settled claims have not exceeded purchased commercial insurance coverage in any of the past three years. The County established a limited risk management program for workers' compensation during the 1988 fiscal year. The purpose of the Worker's Compensation Self-Insurance Internal Service Funds is to pay workers' compensation claims from accumulated assets 23

83 A. Risk Management-Continued of the fund and minimize the total cost of workers' compensation insurance to the County. Specific and aggregate excess insurance is provided through a private insurance carrier. The County initiated its Dental Self-Insurance Internal Service Fund in the 1991 fiscal year. The purpose of this fund was to pay claims for employees for certain health care expenses incurred up to a maximum of $1,000 per covered individual. Claims are handled by a third party administrator as of June 1, Fayette County established its Major Medical Self-Insurance Internal Service Fund in the 1991 fiscal year, and on June 1, 2002 became fully insured. On June 1, 2010 the county once again became self-insured. The County initiated its Vision reimbursement plan in the 1997 fiscal year. Employees are reimbursed up to $200 per year per covered individual for out of pocket expenses associated with vision care. Claims are handled'by'a third party administrator as of June 1,2005 All funds of the County participate in these programs and make payments to these Internal Service Funds based on actuarial estimates of the amounts needed to pay prior and current year claims, claim reserves, and administrative costs of the programs. The claims liability of $824,868 reported at June 30, 2011, is based on requirements of Governmental Accounting Standards Board Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues, which requires that a liability for claims be reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities also include an amount for claims that have been incurred but not reported (IBNRs). Claim liabilities are calculated considering the effects of inflations, recent claim settlement trends including frequency and amount of pay-outs and other economic and social factors. Changes in the funds claims liability amounts in fiscal years 2010 and 2011 were as follows: Current Yr End of Beginning Claims & Changes Less claim Fiscal Year Liabilities in Estimates Payments Liabilities Workers' Compensation FY , , ,180 20,175 FY , , ,393 52,589 DentalNision Self-I nsu ranee FY , , ,277 34,831 FY , , ,452 28,086 Medical Self-Insurance Fund FY ,533 64, ,325 FY ,325 6,244,299 5,808, ,193 24

84 S. Post-employment Healthcare Plan In addition to providing pension benefits, the County provides funding for certain health care related benefits for retired employees under a single employer defined benefit OPES plan. A majority of the County's employees may become eligible for this benefit upon reaching the minimum age of 55 and having at least 25 years of service. Continued health care benefits in the form of single coverage will be paid fully by the County from the Major Medical Self-Insurance Fund. This benefit is limited to a period which is the shorter of (a) ten years or (b) the length of time it takes for the employee to reach the age at which they become eligible for Medicare benefits. The County has the authority to establish and amend the plan provisions. Separate statements are not prepared for the plan. In lieu of having the major medical coverage, an eligible retiree may elect to take a cash payment equal to the total amount of the contributions that the County would have made into the insurance fund on their behalf. Retired employees also have the option to pay the contribution amount to cover their spouse and dependents under the plan. At June 3D, 2011 the County has 20 employees eligible for this benefit, there are five employees receiving medical insurance coverage. The County has not advance funded or established a funding methodology for the annual OPES costs or net OPES obligations but finances the plan on a pay-as-you-go basis. The plan is administered by the County. For the year ended June 30, 2011 the County paid $18,139 for this benefit. The following table includes the County's annual OPES cost for the year, the amount actually contributed to the plan, and the changes in the County's net OPES obligation: Normal Cost Interest on normal costs Amortization of unfunded actuarial accrued liability Annual required contribution Expected employer benefit payments Increase in net OPES obligation Net OPES obligation, beginning of year Net OPES obligation, end of year $ $ 133,303 10, , (18,139) 243, , ,603 Fiscal Year Ended Annual OPES Cost $ 191, ,459 Percentage of Annual OPES Cost Contributed 9% 7% Net OPES Obligation $366, ,603 As of June 3D, 2011 the actuarial accrued liability was $2,197,298 and the actuarial value of assets set aside to fund this liability was zero, the resulting unfunded accrued actuarial liability is $2,197,298. The annual OPES cost for the fiscal year 2011 was $261,459 of which $18,139 was contributed. The covered payroll was $32.5 million and the ratio of the unfunded actuarial liability to the covered payroll was 6.8 percent. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. 25

85 Examples include assumptions about future employment and termination, mortality, and the healthcare cost trends. Amounts determined regarding the funded status of the plan B. Post-employment Healthcare Plan-Continued and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. Projections of benefits for financial reporting purposes are based on the substantive plan provisions, as understood by the employer and participating members, and include the type of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and participating members. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The County's actuarial valuation information is as follows: Current valuation date 1/1/2011 Actuarial cost method Projected Unit Credit Amortization method Closed periods using level dollar Amortization period 30 Asset valuation method N/A Actuarial assumptions Investment rate of return N/A Healthcare cost trend rate 5% Assumed rates of increase 4% C. Contingent Liabilities The County has participated in a number of grant programs funded by certain Federal and State agencies. Several of these programs are subject to program compliance audits and reviews by the grantor, some of which have not been concluded. Accordingly, the County's compliance with applicable grant requirements may be established at some future date. That amount, if any of expenditures which may be disallowed by the granting agencies cannot be determined at this time although the County expects such amounts to be immaterial based upon previous experience. The County is a defendant in various litigations. Although the outcome of these lawsuits is not presently determinable it is the opinion of the County's counsel that resolution of these matters will not have a material adverse effect on the financial condition of the County. D. Employees' Pension Plan In fiscal year 2010, the County established a hybrid retirement plan for employees. The plan consists of a defined benefit and defined contribution plan. Employees become eligible for the plan if they are at least 18 years old and work a minimum of 30 hours per week. Actual participation in the plan begins with the first payroll of the quarter following the completion of a successful probationary period. Participants are vested after 5 years. The County sponsors the Association County Commissioners of Georgia Restated Pension Plan for Fayette County Employees (The Plan), which is a defined benefit pension plan. The plan provides retirement, disability, and death benefits to plan participants and beneficiaries. The Plan, through execution of the adoption agreement, is affiliated with the Association County Commissioners of Georgia Third Restated Defined 26

86 D. Employees' Pension Plan-Continued Benefit Plan (the ACCG Plan), an agent multiple-employer pension plan, administered by GEBCorp. The ACCG, in its role as the Plan Sponsor, has the sole authority to amend the provisions of the ACCG Plan, as provided in Section of the ACCG Plan document. The County has the authority to amend the adoption agreement, which defines the specific benefit provisions of The Plan, as provided in Section of the ACCG Plan document. GEBCorp issues a publicly available financial report that includes financial statements and required supplementary information for ACCG. This report can be obtained by contacting GEBCorp. The County is required to contribute an actuarially determined amount annually to the Plan's trust. The contribution amount is determined using actuarial methods and assumptions approved by the ACCG Plan trustees and must satisfy the minimum contribution requirement contained in the State of Georgia statutes. The actuarial current recommended contribution rate is 2.5% of payroll However, the Board of Commissioners has adopted a contribution rate of 3.8% of payroll. The higher contribution was recommended at the establishment of the plan to smooth fluctuations in the plan and has been maintained since establishment of the plan. In addition to the 3.8% contributed by the County, employees are required to contribute 2.5% of salary to the plan for a total contribution of 6.3% of payroll. Unfunded liability is amortized over 10 years. The County's annual pension cost and net pension obligation for the pension plan for the current year were determined as follows: Derivation of Net Pension Obligation: Net Pension Obligation as of Beginning of PY $ (313,193) $ Annual Pension Cost for PY 762, ,235 Actual Contributions to Plan for PY 1,253, ,428 Increase (decrease) in Net Pension Obligation (490,774) (313,193) Net Pension Obligation as of End of the Year $ (803,967) $ (313,193) Derivation of Annual Pension Cost: Annual Required Contribution $ 777,081 $ 760,869 Interest on Net Pension Obligation (62,307) (24,272) Amortization of Net Pension Obligation ,971 Annual Pension Cost $ 781,442 $ 762,568 " For the plan year July 1, 2009 to December 31, Basis of Valuation Current Valuation Date Annual Return on Invested Plan Assets Projected Annual Salary Increases Expected Annual Inflation Actuarial Value of Assets Actuarial Funding Method Amortization Method January 1, % 3.5%-6.0% based on age 3.00% Market Value Projected Unit Credit Level Percent of Pay (Closed) 27

87 D. Employees' Pension Plan-Continued Trend Information for the Plan Annual Percentage Fiscal Year Beginning Pension Cost (APC) Actual County Contribution of APC Contributed Net Pension Obligation January 1, 2011 January 1, 2010 $ 781, ,568 N/A 1,253,342 N/A 164% $ (803,967) (313,193) July 1, ,235 '" 611, % *This amount represents the pension cost for the period from July 1, 2009 to December 31,2009 Fiscal Year Beginning December 31,2010 December 31,2009 Actuarial Value of Asset $ 18,640,690 15,311,443 Actuarial Accrued Liability * $ 18,028,224 15,500,023 Unfunded " AAL $ (612,466) 188,580 Funded Ratio 103.4% 98.8% Covered Payroll $ 31,434,837 30,397,046 UMLas a Percent of Covered Payroll -1.9% 0.6% *Reflects change to asset smoothing adopted by the ACCG Pension Plan and Trust Board of Trustees In conjunction with the defined benefit plan, the County offers a defined contribution plan administered by Mass Mutual. The 401(a) pension plan is a defined contribution plan that covers substantially all full time County employees. Under the current provisions, the County will match contributions made by an employee to the deferred compensation plan on a 1 for 2 basis up to a maximum contribution by the County of2.5%. Contributions are calculated and made on a biweekly payroll basis. During the fiscal year, employees contributed $1,921,285 to the defmed contribution plan and the County contributed $622,111 in matching funds. The Board of Commissioners establishes matching percentages. 28

88 GEORGIA WATER SYSTEM REQUIRED SUPPLEMENTARY INFORMATION

89 Fayette County, Georgia Schedule of Funding Progress - OPEB and Defined Benefit June 3D, 2010 Schedule of Funding Progress OPEB Actuarial UAAL as a Actuarial Accrued Unfunded Percentage of Actuarial Value of Liability (AAL)- AAL Funded Covered Covered Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll Date (a) (b) (b-a) (alb) (c) (b-a)/(c)) 1/1/2011 $ 2,197,298 $ 2,197, % $ 32,500, % 1/1/2009 1,451,450 1,451, % 32,700, % Schedule of Funding Progress Defined Benefit Plan Actuarial UAAL as a Actuarial Accrued Unfunded Percentage of Actuarial Value of Liability (AAL)- AAL Funded Covered Covered Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll Date (a) (b) (b-a) (alb) (c) ((b-a)/(c)) 12/31/2010 $ 18,640,690 $ 18,028,224 $ (612,466) 103.4% $ 31,434, % 12/31/ ,311,443 15,500, , % 30,397, % *Reflects change to asset smoothing adopted by the ACCG Pension Plan and Trust Board of Trustees. 29

90 .GEORGIA WATER SYSTEM FAYETTE COUNTY WATER SYSTEM AN ENTERPRISE FUND OF FAYETTE COUNTY, GA FINANCIAL REPORT For the Five Months Ended November 30, 2011 Prepared by County Finance Office

91 (THIS PAGE LEFT BLANK INTENTIONALLY)

92 Fayette County, Georgia Water System Financial Report For the Five Months Ended November 30, 2011 Table of Contents Page Statement of Net Assets 2 Statement of Revenues, Expenses, and Changes in Fund Net Assets 3 Notes to the Financial Statements.4

93 Fayette County, Georgia Water System Statement of Net Assets November 30, 2011 Unaudited ASSETS Current Assets Unrestricted cash $ 9,563,888 Restricted cash 12,857,625 Prepaid expenses 53,243 Other receivables, net of allowance for doubtful accounts of $125,000 1,516,067 Inventory 561,788 Total current assets 24,552,611 Non-Current Assets Unamortized debt issue costs 282,611 Capital assets, net of accumulated depreciation Land 15,202,661 Land improvements 2,918,371 Infrastructure 48,787,082 Buildings 21,875,781 Machinery, equipment and vehicles 1,955,489 Construction in progress 17,467,654 Total capital assets 108,207,038 Total Assets 133,042,260 LIABILITiES Current Liabilities Accounts payable 1,054,213 Contracts payable 644,896 Accrued interest payable 585,853 Salaries and benefits payable 128,256 Compensated absences 30,740 Unearned revenue 37,500 Total current liabilities 2,481,458 Long-Term Liabilities Compensated absences 126,956 Bonds payable 51,755,466 Long-Term Liabilities, net of current portion 51,882,422 NET ASSETS Total Liabilities 54,363,880 Invested in capital assets, net of related debt 48,377,124 Restricted for: Renewal and extension 7,178,795 Debt service 5,678,830 Unrestricted 17,443,631 TOTAL NET ASSETS $ 78,678,380 The accompanying notes are an integral part of these financial statements. 2

94 Fayette County, Georgia Water System Statement of Revenues, Expenses, and Changes in Fund Net Assets For the Months Ended November 30,2011 Unaudited Operating revenues: Charges for sales and services $ 6,649,347 Penaities 74,368 Miscellaneous 127,747 Total operatin9 revenues 6,851,462 Operating expenses: Personal services 741,471 Contractual services 446,037 Other operatin9 802,169 Water production cost 1,392,661 Depreciation 1,813,775 Total operating expenses 5,196,113 Operating income 1,655,349 Non-operating activities: Miscellaneous 37,064 Interest expense (includin9 amortization of bond discount) (1,192,627) Total non-operating activites (1,155,563) Income before capital contributions and transfers 499,786 Capital contributions and transfers Capital contributions 1,312 Transfers out (350,393) Total capital contributions and transfers (349,081 ) Change in Net Assets 150,705 Net Assets, beginning of year 78,527,675 Net Assets, end of year $ 78,678,380 The accompanying notes are an integral part of these financial statements. 3

95 + GEORGIA WATER SYSTEM NOTES TO THE FINANCIAL STATEMENTS

96 Fayette County, Georgia Water System Financial Report Five Months Ended November 30, 2011 NOTE INDEX I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity B. Measurement Focus, Basis of Accounting, and Basis of Presentation C. Assets, Liabilities, Equity, and Revenues II. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgetary Information B. Debt Service and Sinking Fund Requirements on Water Revenue Bonds III. DETAILED NOTES ON ALL FUNDS A. Cash B. Capital Assets C. Interfund Receivables and Payables D. Long-Term Debt IV. OTHER INFORMATION A. Risk Management B. Post-employment Healthcare Plan C. Contingent Liabilities D. Employees' Pension Plan 4

97 Fayette County, Georgia Water System Notes to the Financial Statements November 30, 2011 Note I - Summary of Significant Accounting Policies The financial statements of the Fayette County, Georgia Water System ("the System") have been prepared in conformity with generaily accepted accounting principles (GAAP) as appiied to governmental units. The Governmental Accounting Standards Board (GAS B) is the accepted standard - setting body for estabiishing governmental accounting and financial reporting principles. The significant accounting poiicies of the System are described below. A. Reporting Entity Fayette County, Georgia (the "County") was estabiished in 1821 and is a body corporate and poiitic organized and existing under the Constitution and laws of the State of Georgia. The County operates under a Commission-Administrator form of government and provides the foilowing services as authorized by its charter: Pubiic Safety, Pubiic Works, Culture, Recreation, Community Services, and other General Government Services. The System, estabiished in 1965, is an enterprise fund of the County and serves approximately 27,698 water customers in the unincorporated County and through the County owned distribution system in Peachtree City, Tyrone, Woolsey, Brooks, and Fayetteviile. The System is governed by the Fayette County Board of Commissioners, but the System's Director is responsible for the day-to-day operation. B. Measurement Focus, Basis of Accounting, and Basis of Presentation The System is an enterprise fund of Fayette, County Georgia. An enterprise fund is a proprietary fund which is sometimes referred to as an "income determination" or "commercial type" fund. Proprietary Funds are accounted for on the flow of economic resources management focus and use the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded at the time iiabilities are incurred. Pursuant to the Governmental Accounting Standards Board (GASB) Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that use Proprietary Fund Accounting, the County has chosen to apply ail GASB pronouncements as weil as Financial Accounting Standards Board (FASB) pronouncements issued on or before November 30, 1989 to account for proprietary funds. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generaily result from providing services and producing and deiivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the System's proprietary funds are charges to customers for sales and services. Operating expenses for these funds include the cost of sales and services, administrative expenses and depreciation on capital assets. Ail revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses and capital contribution. 5

98 C. Assets. Liabilities. Equity. and Revenues 1. Deposits and Investments The System's cash and cash equivalents are considered to be cash on hand, demand deposits, certificates of deposit, funds on deposit in the Georgia Fund 1 State Investment Pool, and other short-term investments with original maturities of three months or less from the date of acquisition. The statutes of the State of Georgia authorize the System to invest in U.S. Government obligations; U.S. Government agency obligations; State of Georgia obligations; obligations of other counties, municipal corporations and political subdivisions of the State of Georgia which are rated "A" or better by Moody's Investors Service, Inc.; negotiable certificates of deposit issued by any bank or trust company organized under the laws of any state of the United States of America or any national banking association; repurchase agreements when collateralized by U.S. Government or agency obligations; and pooled investment programs sponsored by the State of Georgia for the investment of local government funds. In accordance with the provisions of Governmental Accounting Standards Board Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, the System reports investments at fair value. Money market investments and those investments, which had a remaining maturity at the time of purchase of one year or less are recorded at amortized cost or cost plus accrued interest, which approximates fair value. The fair value of investments in the Georgia Fund 1 State Investment Pool is equal to cost. The fair value of all other investments was calculated using quoted market prices because these prices have been determined to be the most reliable and verifiable and are the most understood by investors, creditors and other users of financial information. All investment income, changes in the fair value of investments, has been reported as revenue in the operating statements. 2. Receivables and Payables A receivable has been recorded for services rendered but not billed at November 30, 2011, net of allowance for doubtful accounts of $125,000. The receivable was computed using the cycle billings sent to customers in December and prorating the charges based on the days applicable to the current period. 3. Inventories and Prepaid Items Inventories in the System are valued at cost, which approximates market using the first-in, first-out method. Inventories primarily consist of pipe and fittings intended for use in construction of line extensions and to support the maintenance work on the system. In addition, other materials and supplies. are maintained to service the vehicles and equipment used in system operations. Costs are expensed when incurred (i.e. the purchases method). 6

99 3. Inventories and Prepaid Items - Continued Prepaid items represent payments made to vendors for which the benefits are applicable to future accounting periods. Prepaids are recorded using the consumption method by recording an asset for the prepaid amount and reflecting the expenditure/expense in the year in which services are consumed. 4. Restricted Assets Certain proceeds of the System revenue bonds, as well as certain resources set aside for their payment are classified as restricted assets on the statement of net assets because their use is limited by applicable bond covenants. The "revenue bond construction" account is used to report those proceeds of revenue bond issuances that are restricted for use in constructions. The "revenue bond sinking fund" account is used to segregate resources accumulated for debt service payments over the next twelve months. The "revenue bond debt service reserve" account is used to report resources set aside to subsidize the potential future deficiencies in the revenue bond sinking fund account. The "revenue bond renewal and extension" account is used to report resources set aside to meet unexpected contingencies or to fund asset renewals and replacements. 5. Capital Assets Capital assets are reported in the financial statements at cost or estimated historical cost if purchased or constructed. Capital assets include property, plant and equipment. Capital assets, other than infrastructure assets, are defined by the System as assets with an initial individual cost of $5,000 or more and an estimated useful life of more than one year. Donated capital assets are recorded at estimated fair value at the date of donation. The cost of normal maintenance and repairs that do not add to the value of the asset or do not substantially extend assets' lives are not capitalized. Major outlays for capital assets and improvements, including infrastructure assets, are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets is reflected in the capitalized value of the asset constructed, net of interest earned on the invested proceeds over the same period. Capital assets are depreciated using the straight-line method over the following estimated useful lives: Asset Classification Years Building Improvements 10 Buildings 40 Computer Equipment 5 Infrastructure Office Equipment 5 Vehicles Compensated Absences System employees are granted vacation, compensatory, holiday, and sick leave in varying amounts. It is the System's policy to permit employees to accumulate earned but unused vacation and sick pay benefits up to a specified maximum number of hours. Compensatory and holiday leave is accumulated based on departmental discretion of need. In the event of termination of employment, an employee is paid for accrued annual, 7

100 6. Compensated Absences-Continued compensatory, and holiday leave days. In addition, regular full-time employees hired before March 1, 1998, with three or more years of service who resign in good standing or retire from service with the System are paid at the rate of $15 for each day of unused sick leave up to a maximum of $900. Vacation, compensatory, holiday and termination sick leave pay are accrued when incurred and reported as a fund liability. 7. Long-term Obligations Long-term debt and other obligations financed by the System are reported as liabilities. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Issuance costs are reported as deferred charges. 8. Net Assets The carrying amount of capital assets less related outstanding debt is reported as a component of net assets called capital assets net of related debt. Restricted net assets reflect amounts restricted by contracts, laws and regulations for specific purposes such as amounts that have been accumulated in the debt service accounts as well as working capital reserve as described in the bond resolutions. The System records reserves to indicate that a portion of the net assets is legally segregated for a specific use. An example of this type of reserve is the net excess of restricted assets over liabilities payable from restricted assets. This segregation of fund equity is required by the bond resolutions. 9. Capital Contributions In accordance with the provisions of Governmental Accounting Standards Board Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, the System has recorded capital contributions received as capital contributions revenue. Capital contributions include amounts received from Federal, State and other governments for aid in construction and development of the System. Also included are amounts received from real estate sub-dividers for water line extensions built by sub-dividers and contributed to the System, both of which are capitalized as part of the System's capital assets. It also includes amounts received for meter, connection and tap fees from subdividers and other customers. The actual cost of meter installations has been capitalized as part of the water distribution system. NOTE II - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgetary Information The System is required by the County Board of Commissioners to adopt annual operating budgets for its operations and establish billing rates accordingly. The budgets formally adopted through passage of a resolution by the Board of Commissioners. The System's Director has the responsibility of administering these programs in accordance with the policies and the annual budget as adopted by the Board of Commissioners. The Director is required to keep total expenses less than total revenues. BUdgets are prepared on the 8

101 A. Budgetary Information - Continued cash basis. The System uses an encumbrance system and appropriations are reserved at year end. Neither the budget resolution nor any bond covenants require that the System report budgetary information in its financial statements. B. Debt Service and Sinking Fund Requirements on Water Revenue Bonds '>-- 1. Sinking Fund Requirements The bond resolutions require the creation and maintenance of a sinking fund that is to be used to pay the principal and interest on the revenue bonds as they become due. The bond resolutions specifically require that monies be deposited monthly into the sinking fund until such time that sufficient funds are on hand to pay the semi-annual interest payments and the bonds as they mature. During period ended November 30,2011, $2,450,163 was paid from the revenue fund into the sinking fund (including the debt service reserve account) with required debt and interest payments made from the sinking funds when due. 2. Debt Service Reserve The bond resolutions require the creation and maintenance of a debt service reserve within the sinking fund. According to the resolutions, monies are to be transferred each month from the revenue fund to the reserve so that the reserve will be fully funded in an amount equal to $5,553,579 by September 1, The debt reserve balance at November 30, 2011 is $ 4,658,658 and the sinking fund balances are $ 1,020,173, for a debt service total of $5,678,830, which is shown as restricted cash in the proprietary funds. 3. Renewal and Extension Fund After the monthly operating and maintenance expenses have been paid and the required debt service transfers have been made, all monies remaining in the revenue fund in excess of a working capital reserve (in an amount not to exceed one month's estimated operating and maintenance expenses) are to be transferred to the renewal and extension fund. The bond resolutions restrict disbursements from this fund to the following: a. Paying principal and interest on any revenue bonds falling due when there are insufficient funds in the sinking fund to make the payment. b. Emergency expenditures if there are insufficient fund in the revenue fund (operating account). c. Replacements, additions, extensions, and improvements to the system in the best interests of the county and bondholders. d. Payments of investment services for the investment of monies held in the renewal and extension fund (renewal and extension account). e. The transfer of moneys, if any required, pursuant to the arbitrage rebate provision of the bond resolution. 9

102 4. Rates and Fee Requirements In accordance with the bond resolutions, the System's schedule of rates, fees, and charges for services shall be maintained at such a level so as to produce net revenues (after payment of reasonable and necessary cost of operating and maintaining the system) equal to at least 1.20 times the amount required to be paid in to the sinking fund and the debt service reserve in the current sinking fund year. This ratio is computed annually. For the year ended June 30, 2011, the System was in compliance with this requirement. NOTE 111- DETAILED NOTES A. Cash As mentioned in Note A, the System is an enterprise fund of Fayette County, Georgia and, accordingly, the deposits are blended with the County funds for insurance and collateralization. 1. Cash Deposits As of November 30, 2011, the carrying value of the Water System's deposits was $22,421,513 and bank balances are as follows: Less than Portfolio Maturity Distribution 1 Year 1-2 Years 2-3 Years Percent of Assets % 0.00% 0.00% Percent of 3-4 Years 4-5 Years Total Assets 0.00" % Georgia Fund 1 8,267,502 8ank of New York 5,678,830 Wells Fargo 8,540,254 Total Assets S22,486,586 S S S S S 22,486,586 8,267, % 5,678, % 8,540, % Primary Government's Investment Policy: Fayette County's policy establishes a framework for implementing such safeguards, authorized particular types of allowable investment instruments, and creates oversight responsibilities of investment activities. The overriding purpose of this policy is to acknowledge clearly that any investment instrument or decision carries with it certain elements of risks. There are, however, numerous safeguards that can be instituted to minimize such risks while endeavoring to earn a market rate of return. Fayette County's investment objectives in order of priority are: (1) safeguard the principal, (2) provide the liquidity required to meet financial obligations in a timely manner, and given these two goals, (3) provides the best return on investment. Funds of Fayette County will be invested in compliance with the provisions of Georgia Code Section and in accordance with these policies and any written administrative procedures. Certain funds have outstanding bond issues which have specific investment 10

103 1. Cash Deposits-Continued policies contained within the bond ordinances and officiai statements. be adhered to and are not in confiict with the terms of this policy. Those policies will Acceptable investments, set forth in Georgia Code section are: Obligations of the State of Georgia or of other states Obligations issued by the U.S. Government: U.S. Treasury Bills, U.S. Treasury Notes, U.S. Treasury Bonds Obligations fully insured or guaranteed by the U.S Government or a U.S. Government Agency Repurchase agreements backed by the U.S. Government or U.S. Government Agency Prime Banker's Acceptances; that are eligible for purchase by the Federal Reserve bank and have a Letter of Credit rating of A+ or better Local Government Investment Pool (LGIP) Obligations of Other Political Subdivisions of the State of Georgia Time deposits and savings deposits of banks organized under the laws of Georgia or the U.S. Government and operating in Georgia The following guidelines represent maximum limits established for diversification by instrument by the Fayette County Board of Commissioners: U.S. Treasury Obligations 100% U.S. Government Agency Securities and Securities Issued by Instrumentalities of Government Sponsored Corporations 50% Repurchase Agreement 25% Prime Banker's Acceptances 10% Locai Government Investment Pool 100% Certificates of Deposit Obligations of other political subdivisions of the State of Georgia 25% 11

104 B. Capital Assets Capital assets for the System for the period ended November 30, 2011, are shown in the following tabulation: Beginning Ending Balances Increases Decreases Balances Capital assets not being depreciated: Land $ 15,202,661 $ $ $ 15,202,661 Construction in Process 15,816,581 1,704,353 (53,280) 17,467,654 Capitat assets being depreciated: Buiidings and Structures 43,783,031 43,783,031 Infrastructure 82,130,174 65,161 82,195,335 Improvements other than buildings 11,130,176 11,130,176 Machinery and Equipment 9,305,227 14,517 9,319,744 Total Business-type assets being depreciated 146,348,608 79, ,428,286 Less accumulated depreciation for: Buildings and Structures 21,255, ,894 21,907,251 Infrastructure 32,511, ,739 33,408,253 Improvements other than Buiidings 8,086, ,558 8,211,804 Machinery and Equipment 7,224, ,584 7,364,255 Total accumulated depreciation 69,077,788 1,813,775 70,891,563 Business-type activity capital assets, net $ 108,290,062 $ (29,744) $ (53,280) $ 108,207,038 C. Interfund Receivables and Payables During the reporting the period, the System was charged $350,393 for overhead cost allocation including administration, finance, budgeting, purchasing, information systems, human resources, and marshal services. This amount was paid by the System to the County's General Fund. D. Long-Term Debt Revenue Bonds. The System has pledged future water customer revenues, net of specified operating expenses to repay $51.97 million in revenue bonds. Proceeds from the bonds provided financing for construction. The bonds are payable solely from the System's customer net revenues and are payable through Annual principai and interest payments on the bonds are expected to require less than 48 percent of net revenues. The total principal and interest remaining to be paid on the bonds is $71,137,172. Principal and interest paid on outstanding bonds in the current period was $4,301,242. The bonds outstanding are: $10,245,000 Series 1996A, water revenue bonds, due in annual Debt installments of $25,000 to $920,000 through October 1, 2020; interest at 3.6% to 5.5%, net of unamortized bond discount of $475, deferred refunding difference of $21,689 $ 270,000 12

105 D. Long-Term Debt-Continued $22,670,000 Series 2002, water revenue bonds, due in annual installments of $50,000 to $2,250,000 through October 1, 2032; interest at 3.25% to 5.125%, net of unamortized bond discount of $37,139, deferred 18,645,000 refunding difference of $679,723 $36,340,000 Series 2009, water revenue bonds, due in annual installments of $85,000 to $4,415,000 through October 2029; interest at 2.0% to 5.0%, net of unamortized bond premium of $1,419,808, deferred refunding difference of $895,316 $33,055,000 Current and long-term portion of revenue bonds $ The following includes a summary of Water System revenue bond transactions for the fiscal year ended June 30, 2011: Balance Balance Bond Issue July 1, 2011 Additions Reductions Nov 30,2011 Series 1996A $ 1,190,000 $ $ 920,000 $ 270,000 Series ,160, ,000 18,645,000 Series ,730,000 1,675,000 33,055,000 Total 55,080,000 $ 3,110,000 51,970,000 Unamortized Portion: Refunding Difference (1,724,007) 127,279 (1,596,728) Bond (Discount)! Premium 1,454,897 (72,703) 1,382,194 Net Revenue Bonds $ 54,810,890 $ $ 3,055,424 $ 51,755,466 At June 30, 2011 the System was obligated to make payments of principal and interest on its outstanding water revenue bond debt as follows: Fiscal years ending June 30, Principal Interest Total Debt Service 2012 $ $ 1,139,297 $ 1,139, ,255,000 2,228,586 5,483, ,375,000 2,125,311 5,500, ,470,000 1,990,972 5,460, ,495,000 1,836,322 5,331, ,595,000 6,633,078 26,228, ,505,000 2,419,656 14,924, ,620, ,997 6,379, ,000 33, ,953 $ 51,970,000 $ 19,167,172 $ 71,137,172 Advance Refunding. The System has refunded certain revenue bonds by placing the proceeds of the new bond issues in irrevocable trusts with escrow agents for the purpose of generating resources for all future debt service payments of the refunded debt. With this financial arrangement, the refunded bonds are considered to be defeased in substance. Accordingly, the trust account assets and liability for the defeased bonds are 13

106 D. Long-Term Debt-Continued not included in the System's financial statements. At November 30, 2011 $15,105,000 of outstanding revenue bonds are considered defeased. Following is a reconciliation of debt disclosures presented above to amounts reported in the statement of net assets: Business-Type Activities Revenue Bonds Compensated Absences Balance July1,2011 $ 55,080, ,696 $ 55,237,696 Additions $ $ Reductions $ 3,110,000 $ 3,110,000 Balance Nov 30, 2011 $ 51,970, ,696 $ 52,127,696 NOTE IV - OTHER INFORMATION As mentioned in Note A, the System is an enterprise fund of Fayette County, Georgia and, accordingly, the information contained within this section is shown for the County as a whole as of the end of the last fiscal year. There have been no events that would cause material changes to the reported amounts. A. Risk Management Fayette County, Georgia is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters for which the County carries commercial insurance. Settled claims have not exceeded purchased commercial insurance coverage in any of the past three years. The County established a limited risk management program for workers' compensation during the 1988 fiscal year. The purpose of the Worker's Compensation Self-Insurance Internal Service Funds is to pay workers' compensation claims from accumulated assets of the fund and minimize the total cost of workers' compensation insurance to the County. Specific and aggregate excess insurance is provided through a private insurance carrier. The County initiated its Dental Self-Insurance Internal Service Fund in the 1991 fiscal year. The purpose of this fund was to pay claims for employees for certain health care expenses incurred up to a maximum of $1,000 per covered individual. Claims are handled by a third party administrator as of June 1, Fayette County established its Major Medical Self-Insurance Internal Service Fund in the 1991 fiscal year, and on June 1, 2002 became fully insured. On June 1, 2010 the county once again became self-insured. The County initiated its Vision reimbursement plan in the 1997 fiscal year. Employees are reimbursed up to $200 per year per covered individual for out of pocket expenses associated with vision care. Claims are handled by a third party administrator as of June 1,2005 All funds of the County participate in these programs and make payments to these Internal Service Funds based on actuarial estimates of the amounts needed to pay prior and current year claims, claim reserves, and administrative costs of the programs. The claims 14

107 A. Risk Management-Continued liability of $824,868 reported at June 30, 2011, is based on requirements of Governmental Accounting Standards Soard Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues, which requires that a liability for claims be reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities also include an amount for claims that have been incurred but not reported (ISNRs). Claim liabilities are calculated considering the effects of inflations, recent claim settlement trends including frequency and amount of pay-outs and other economic and social factors. Changes in the funds claims liability amounts in fiscal years 2010 and 2011 were as follows: Current Yr End of Beginning Claims & Changes Less claim Fiscal Year Liabilities in Estimates Payments Liabilities Workers' Compensation FY , , ,180 20,175 FY , , ,393 52,589 DentalNision Self-Insurance FY , , ,277 34,831 FY , , ,452 28,086 Medical Self-Insurance Fund FY ,533 64, ,325 FY ,325 6,244,299 5,808, ,193 S. Post-employment Healthcare Plan In addition to providing pension benefits, the County provides funding for certain health care related benefits for retired employees under a single employer defined benefit OPES plan. A majority of the County's employees may become eligible for this benefit upon reaching the minimum age of 55 and having at least 25 years of service. Continued health care benefits in the form of single coverage will be paid fully by the County from the Major Medical Self-Insurance Fund. This benefit is limited to a period which is the shorter of (a) ten years or (b) the length of time it takes for the employee to reach the age at which they become eligible for Medicare benefits. The County has the authority to establish and amend the plan provisions. Separate statements are not prepared for the plan. In lieu of having the major medical coverage, an eligible retiree may elect to take a cash payment equal to the total amount of the contributions that the County would have made into the insurance fund on their behalf. Retired employees also have the option to pay the contribution amount to cover their spouse and dependents under the plan. At June 30, 2011 the County has 20 employees eligible for this benefit, there are five employees receiving medical insurance coverage. The County has not advance funded or established a funding methodology for the annual OPES costs or net OPES obligations but finances the plan on a pay-as-you-go basis. The plan is administered by the County. For the year ended June 30, 2011 the County paid $18,139 for this benefit. 15

108 S. Post-employment Healthcare Plan-Continued The following table includes the County's annual OPES cost for the year, the amount actually contributed to the plan, and the changes in the County's net OPES obligation: Normal Cost Interest on normal costs Amortization of unfunded actuarial accrued liability Annual required contribution Expected employer benefit payments Increase in net OPES obligation Net OPES obligation, beginning of year Net OPES obligation, end of year $ $ 133,303 10, , ,459 (18,139) 243, , ,603 Fiscal Year Ended Annual OPES Cost $ 191, ,459 Percentage of Annual OPES Cost Contributed 9% 7% Net OPES Obligation $366, ,603 As of June 30, 2011 the actuarial accrued liability was $2,197,298 and the actuarial value of assets set aside to fund this liability was zero, the resulting unfunded accrued actuarial liability is $2,197,298. The annual OPES cost for the fiscal year 2011 was $261,459 of which $18,139 was contributed. The covered payroll was $32.5 million and the ratio of the unfunded actuarial liability to the covered payroll was 6.8 percent. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment and termination, mortality, and the healthcare cost trends. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are SUbject to continual revision as actual results are compared with past expectations and new estimates are made about the future. Projections of benefits for financial reporting purposes are based on the substantive plan provisions, as understood by the employer and participating members, and include the type of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and participating members. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The County's actuarial valuation information is as follows: Current valuation date 1/1/2011 Actuarial cost method Projected Unit Credit Amortization method Closed periods using level dollar Amortization period 30 Asset valuation method N/A Actuarial assumptions Investment rate of return N/A Healthcare cost trend rate 5% Assumed rates of increase 4% 16

109 C. Contingent Liabilities The County has participated in a number of grant programs funded by certain Federal and State agencies. Several of these programs are subject to program compliance audits and reviews by the grantor, some of which have not been concluded. Accordingly, the County's compliance with applicable grant requirements may be established at some future date. That amount, if any of expenditures which may be disallowed by the granting agencies cannot be determined at this time although the County expects such amounts to be immaterial based upon previous experience. The County is a defendant in various litigations. Although the outcome of these lawsuits is not presently determinable it is the opinion of the County's counsel that resolution of these matters will not have a material adverse effect on the financial condition of the County. D. Employees' Pension Plan In fiscal year 2010, the County established a hybrid retirement plan for employees. The plan consists of a defined benefit and defined contribution plan. Employees become eligible for the plan if they are at least 18 years old and work a minimum of 30 hours per week. Actual participation in the plan begins with the first payroll of the quarter following the completion of a successful probationary period. Participants are vested after 5 years. The County sponsors the Association County Commissioners of Georgia Restated Pension Plan for Fayette County Employees (The Plan), which is a defined benefit pension plan. The plan provides retirement, disability, and death benefits to plan participants and beneficiaries. The Plan, through execution of the adoption agreement, is affiliated with the Association County Commissioners of Georgia Third Restated Defined Benefit Plan (the ACCG Plan), an agent multiple-employer pension plan, administered by GEBCorp. The ACCG, in its role as the Plan Sponsor, has the sole authority to amend the provisions of the ACCG Pian, as provided in Section of the ACCG Plan document. The County has the authority to amend the adoption agreement, which defines the specific benefit provisions of The Plan, as provided in Section of the ACCG Plan document. GEBCorp issues a publicly available financial report that includes financial statements and required supplementary information for ACCG. This report can be obtained by contacting GEBCorp. The County is required to contribute an actuarially determined amount annually to the Plan's trust. The contribution amount is determined using actuarial methods and assumptions approved by the ACCG Plan trustees and must satisfy the minimum contribution requirement contained in the State of Georgia statutes. The actuarial current recommended contribution rate is 2.5% of payroll. However, the Board of Commissioners has adopted a contribution rate of 3.8% of payroll. The higher contribution was recommended at the establishment of the plan to smooth fluctuations in the plan and has been maintained since establishment of the plan. In addition to the 3.8% contributed by the County, employees are required to contribute 2.5% of salary to the plan for a total contribution of 6.3% of payroll. Unfunded liability is amortized over 10 years. 17

110 D. Employees' Pension Plan-Continued The County's annual pension cost and net pension 'obligation for the pension plan for the current year were determined as follows: Derivation of Net Pension Obligation: Net Pension Obligation as of Beginning of PY $ (313,193) $ Annual Pension Cost for PY 762, ,235 Actual Contributions to Plan for PY 1,253, ,428 Increase (decrease) in Net Pension Obligation (490,774) (313,193) Net Pension Obligation as of End of the Year $ (803,967) $ (313,193) Derivation of Annual Pension Cost: Annual Required Contribution $ 777,081 $ 760,869 Interest on Net Pension Obligation (62,307) (24,272) Amortization of Net Pension Obligation 66,668 25,971 Annual Pension Cost $ 781,442 $ 762,568, For the pian year July 1, 2009 to December 31,2009. Basis of Valuation Current Valuation Date Annual Return on Invested Plan Assets Projected Annual Salary Increases Expected Annual Inflation Actuarial Value of Assets Actuarial Funding Method Amortization Method January 1, % 3.5%-6.0% based on age 3.00% Market Value Projected Unit Credit Level Percent of Pay (Closed) Trend Information for the Plan Annuai Percentage Fiscal Year Pension Cost Actual County of APC Net Pension Beginning (APC) Contribution Contributed Obligation January 1,2011 $ 781,442 N/A N/A $ (803,967) January 1, ,568 1,253, % (313,193) Juiy 1, ,235' 611, % 'This amount represents the pension cost for the period from July 1,2009 to December 31, 2009 UAAL as Actuarial Actuarial a Percent Fiscal Year Value of Accrued Unfunded Funded Covered of Covered Beginning Asset Liability AAL Ratio Payroll Payroll December 31,2010 $ 18,640,690, $ 18,028,224 $ (612,466) 103.4% $ 31,434, % December 31, ,311,443 15,500, , % 30,397, % 'Reflects change to asset smoothing adopted by the ACCG Pension Plan and Trust Board of Trustees 18

111 D. Employees' Pension Plan-Continued In conjunction with the defined benefit plan, the County offers a defined contribution plan administered by Mass Mutual. The 40 I(a) pension plan is a defined contribution plan that covers substantially all full time County employees. Under the current provisions, the County will match contributions made by an employee to the deferred compensation plan on a I for 2 basis up to a maximum contribution by the County of 2.5%. Contributions are calculated and made on a biweekly payroll basis. During the fiscal year, employees contributed $ I,92 I,285 to the defined contribution plan and the County contributed $622, I I I in matching funds. The Board of Commissioners establishes matching percentages. 19

112 APPENDIX B ENGINEERING REPORT The County has retained Mallett Consulting, Inc., Fayetteville, Georgia, as its consulting engineer to develop several reports and studies relating to the System and certain financial matters. The Engineering Report, prepared by Mallett Consulting, Inc., has been included as this Appendix B in reliance upon the authority of such firm as experts in engineering and related financial matters. [Remainder of Page Intentionally Left Blank]

113 (THIS PAGE LEFT BLANK INTENTIONALLY)

114 ENGINEERING REPORT ON WATER SYSTEM IMPROVEMENTS FOR FAYETTE COUNTY, GEORGIA

115 TABLE OF CONTENTS Page Vicinity Map General Population and Demands Fayette County Water System Supply & Production Distribution Storage Groundwater Supply Upgrades to Water Treatment Plant Processes Total Organic Carbon Pilot Study - MIEX Recommendations Funding Conclusions APPENDICES Appendix A Appendix B Projected Budget Estimates Proforma Projections

116 LIST OF TABLES TABLE NO. PAGE 1 Fayette County Raw Water Supply 8 2 Fayette County Finished Water Production 8 3 Fayette County Finished Water Storage 11 LIST OF FIGURES FIGURE NO. PAGE 1 Fayette County Population 5 2 Fayette County Water Customers 5 3 Fayette County Water Use 6 4 Map of Fayette County Water System 13 BIBLIOGRAPHY Water System Analysis by Mallett & Associates, Inc., dated November Atlanta Regional Water Supply Plan Update, by the Atlanta Regional Commission, dated 10/06. Long Range Water Supply Management Plan for the City of Newnan and Coweta County by Camp-Dresser & McKee, Inc., dated December 1995.

117 2

118 GENERAL Fayette County is located to the south-southwest of Atlanta, and is bounded on the north and east by metropolitan counties of Fulton and Clayton. Fayette County encompasses four active municipalities, Fayetteville, Peachtree City, Tyrone, and Brooks. The County Seat of Fayetteville is located 25 miles from the center of Atlanta in the northwestern portion of the County. Peachtree City is located in the west central, with Tyrone in the northwest both in the near proximity of the Interstate System and Atlanta. The County is well served by the State Highway System with Highways 54, 74, 85, 92 and 314. Fayetteville serves as the crossroads of 54, 85, 92 and 314. Highway 54 continues westerly linking the County Seat with Peachtree City on the western limit of the County. On the west of the County, Highway 74 ties Peachtree City and Tyrone to Interstate 85 adjacent to the northern limit of the County. The CSX Railroad serve Fayette County, paralleling the western limit of the County, passing through Tyrone and Peachtree City. Fayette County s school system has 17 elementary, 6 middle, and 5 high schools. Total enrollment is approximately 21,069. The County is only 20 minutes away from Hartsfield-Jackson Atlanta International Airport and has its own regional Peachtree City-Falcon Field Airport. Additional amenities include Fayette Community Hospital, a 141,000 square-foot, 100 bed facility, an 80,000 squarefoot Professional Building adjacent to the hospital, and a 28,000 square-foot Public Library. Due to the County location in proximity of the Greater Atlanta Area and Hartsfield- Jackson Atlanta International Airport, the County might continue to experience growth consistent with the leading counties within the Atlanta metropolitan area. 3

119 Fayetteville Fayetteville, the County Seat and commercial hub of Fayette County with a population of 15,945 in 2010, has a quiet, residential environment, with adequate schools and shopping facilities to serve the community. To date, there are six schools, seven shopping centers, numerous residential subdivisions, and 100+ acres of industrial park to fulfill local needs. Water, sewer, electricity, natural gas, police, fire protection, and emergency medical services are provided for the residents. Local employment is furnished by several industries and the prosperous commercial activity. Many residents commute to Atlanta and nearby communities for employment. Peachtree City Peachtree City is a planned community of over 15,000 acres developed by Peachtree City Development Corporation and with a population of 34,364 in Construction was begun in 1960 with the impounding of 250 acre Lake Peachtree, opening of a 1,000 acre industrial park, paving of streets, and installation of a water and sewer system. Today, Peachtree City has in excess of 10,000 homes, over 41 industries, 2,600 acres of industrial parks, 9 schools, a 4-station fire department, police protection, emergency medical services, three golf courses, library, an airport, in addition to the basic utilities. Multiple shopping centers are now open for business. Many homes and residential developments are connected with the shopping centers via 60+ miles of cart path. Tyrone The Town of Tyrone, with a population of 6,879 in 2010, has a school and several stores and other commercial establishments. The Town also has a 52-acre industrial park located near the southern City Limits. Water is supplied by the County distribution system. Tyrone is directly linked with Atlanta through State Highway 74 and Interstate 85. 4

120 Brooks Brooks is a small rural community in southeast Fayette County encompassing 4.2 square miles with a population of 524 in The City has one elementary school, fire station, post office and library. Water is supplied by the County s distribution system. The village center includes one block of store fronts, a library, elementary school, post office, fire station, water tower, park, churches and cemetery surrounded by older homes. The rest of the community is pasture and forest land with homes on large lots and a number of working farms. A railroad track which is not used now for transportation bisects the town center. The citizens of Brooks treasure the pastoral character of the community. The Town of Brooks plans to retain the historic character of the community by preserving the town center s old buildings and the scenic, open space that surrounds it. POPULATION AND DEMANDS The population of Fayette County and the number of water customers has increased dramatically since During the period of 1970 to 2010 the population has grown from 11,364 to 106,567. At the same time, the County s water customers have increased from 3,434 in 1970 to 27,626 as of Nov. 30, Average water use has increased from 0.5 MGD in 1970 to 8.8 MGD in The Atlanta Regional Commission (ARC) has estimated that Fayette County s population will be 168,500 in the year 2040 with an annual average water use of 13.8 million gallons per day (MGD). Peak demands may exceed 27 million gallons per day (MGD). This represents an average annual increase of approximately 1.54% from 2010 to 2040, and a peak factor of 2.0. Population and water use estimates for 2010 and 2040 were obtained from the ARC projected growth rates. Using the ARC value of an average annual increase of 1.54% per year, figures 1, 2, 3 & 4 graphically represent the County s current population, water customers and water use thru 2010 and projected totals thru

121 Figure 1 Figure 2 6

122 Figure 3 Figure 4 7

123 FAYETTE COUNTY WATER SYSTEM Supply and Production The Fayette County Water System (the System ) currently has a total production capacity of million gallons per day (MGD). Current permits for treatment include the 13.5 MGD Crosstown Road Water Treatment Plant, 9.3 MGD at the South Fayette Water Treatment Plant, and an additional 0.83 MGD (annual avg.) 0.88 MGD (monthly avg.) permitted from four (4) wells at various locations. In addition, during periods of high demand, the System has been able to purchase up to 4.0 MGD of treated water from the City of Atlanta, although the County does not have a contract with the City of Atlanta to purchase water. (This source has played a minor role in the System s supply, accounting for approximately 0.2% of total production for 2011.) The total available potable water supply, therefore, is MGD with an additional 4.0 MGD treated water supply, potentially available on an as needed basis from the City of Atlanta. The System currently has three raw water storage reservoirs, Lake Kedron and Lake Peachtree in Peachtree City and Lake Horton in Southeastern Fayette County. Additional raw water supply (17 MGD - maximum daily, 12.5 MGD monthly avg., 10.4 MGD annual avg.) will be available from a raw water intake and pumping station at the future Lake McIntosh reservoir site, which is under construction. Reservoir impoundment is scheduled to begin in Tables 1 and 2 show the Raw Water Supply and Finished Water Production for Fayette County Water System. 8

124 TABLE 1 FAYETTE COUNTY WATER SYSTEM RAW WATER SUPPLY Source Type Reliable Yield (MGD) Non-Reliaable Withdrawal (MGD) Lake Peachtree Reservoir ± Lake Kedron Reservoir Lake Horton - with supplemental pumping from Whitewater & Flint River Lake McIntosh (under construction) Reservoir 18.0* 3.5 Reservoir Totals ± * - Reliable Yield is annual avg. and is based upon pumping from Whitewater Creek and from the Flint River when available. (Note: These sources have been severely limited during recent drought period.) Permitted withdrawal from Lake Horton is currently 14.0 MGD. TABLE 2 FAYETTE COUNTY WATER SYSTEM FINISHED WATER PRODUCTION Source Current Production Capacity (MGD) Ultimate Design Capacity (MGD) Crosstown Water Treatment Plant South Fayette Water Treatment Plant Various Wells (4)*** 0.83** 0.83 Totals ** - Permitted annual avg. for all four wells. *** - Two wells are currently out of service. 9

125 Distribution The existing water distribution system is extensively developed on the east side of the County in the Fayetteville area, on the west side throughout Peachtree City and Tyrone and the northern unincorporated portions of the County. The Water System has completed installation of a large diameter Loop Water Line around the periphery of the county to insure adequate flows and pressures throughout the county. The Water System includes 618 miles of water lines of various diameters and materials. The following is a tabulation showing pipe footage by size. Pipe smaller than 6" is not inventoried or costed as part of the water distribution system. Size Amount (Feet) 30" 37,802 24" 106,950 20" 222,803 18" 8,390 16" 149,106 12" 270,480 10" 291,941 8" 1,387,980 6" 786,459 TOTALS 3,261,921 All water lines are constructed by the Water System s own crews, contracted for with construction monitored and approved by the Water System s Engineer, or are constructed by subdividers and contributed to the Water System upon approval of the construction by the engineer. 10

126 The System wholesales water to the City of Fayetteville pursuant to a wholesale water contract. Fayetteville operates a 4.0 MGD Water Treatment Plant, however, the County System has had to regularly act as a backup system and provide Fayetteville with water during periods when Fayetteville s daily demand exceeds plant production capacity, or when Fayetteville s run of stream raw water supply is not available due to drought conditions. The City of Brooks relies on water supplied from Fayette County, including service to 150 customers within the city. Other than Fayetteville and a few private well systems, the County water system provides water to the remainder of the county, including Peachtree City. Storage The System currently has million gallons (MG) of potable water storage consisting of the following: A. Two (2) clearwells totaling 6,000,000 gallons at the 13.5 MGD Crosstown Road Water Treatment Plant, B. A 2,000,000 elevated storage tank adjacent to Highway 74 in northern Peachtree City, C. Two elevated storage tanks in Peachtree City totaling 1,250,000 gallons, and D. A 2,000,000 gallon elevated storage tank adjacent to State Highway 92 in the north central portion of the County. E. A 3,000,000 gallon clearwell at the recently completed South Fayette Water Treatment Plant. F. A 2.0 MG Elevated Water Storage Tank on Ellis Road. The Ellis Road storage tank includes an on-site booster pump station designed to relay water to the S.R. 92 tank. This feature improves the ability of the South Fayette Water Treatment Plant to serve areas in the eastern and northen portions of the county. (A future 1.0 MG elevated water storage tank is planned along Jenkins Road, within the Town of Tyrone.) Table 3 outlines the System s Finished Water Storage Facilities. 11

127 TABLE 3 FAYETTE COUNTY WATER SYSTEM FINISHED WATER STORAGE Source Type Capacity (MG) Crabapple Storage Tank Elevated 2.0 Peachtree City Storage Tank Elevated 1.0 Peachtree City Storage Tank Elevated 0.25 Crosstown WTP Clearwells Ground 6.0 South Fayette WTP Clearwell Ground 3.0 S.R. 92 Additional Tank Elevated 2.0 Ellis Road Additional Tank Elevated 2.0 Totals * Future Jenkins Road Tank Elevated 1.0 A map of Fayette County s water system showing major distribution lines, Water Treatment Plant Sites, Water Supply Reservoirs, Raw Water Pumping Stations, Major Raw Water Lines and the proposed Raw Water Reservoir (Lake McIntosh), is included on page 20 of this report. 12

128 Ground Water Supply Consultation with hydrogeologists has indicated that ground water supply in Fayette County, which is within the Piedmont Geologic Province, cannot be considered a dependable water source at the current and future demand levels. During the extensive review process in for the Horton Creek Reservoir project, it was determined that, in fact, ground water was not a solution for a long term, dependable water supply for the county. An inventory of existing wells in Fayette County was obtained from the United States Geological Survey. Neglecting wells with yields less than 10 gpm, the average yield of the inventoried wells in Fayette County is approximately 55.6 gpm. The Atlanta Regional Commission has reported in its Atlanta Regional Water Supply Plan that municipal ground water supply in this region would in all likelihood be limited to approximately 2% to 5% of total production. Fayette County currently has four wells permitted for 0.83 MGD (annual avg.) although two of these wells are currently out of service. With future average demands exceeding 13.8 MGD and peak demands exceeding 27 MGD, surface water supply will be the major source of drinking water with ground water being a supplemental source only. As a result of the reliance on surface water sources, the County s water treatment plants will be tasked with treatment processes which assure removal of constituents typical to stream and/or reservoir water bodies. Additionally, these processes will be required to provide compliance with anticipated, stricter regulatory requirements in the future. 13

129 14

130 UPGRADES TO WATER TREATMENT PLANT PROCESSES A. TOTAL ORGANIC CARBON Total Organic Carbon (TOC) is naturally occurring, carbon based, organic matter. It is found within the raw water supply in both the dissolved and suspended state. Removal of a portion of the existing raw water TOC is a monitored requirement of the water treatment process. Due to Fayette County s use of large water supply reservoirs, turbidity and total organic carbon levels within the raw water remain fairly consistent and relatively low. Typical ranges for each: Raw Water Turbidity: Raw Water TOC: 3-12 ntu mg/l The low level of Raw Water TOC has contributed to difficulties meeting Georgia Environmental Protection Division s Compliance Determination for Treatment Techniques for DBP precursor removal. More specifically, meeting the minimum 35% removal criteria for treated water TOC vs. raw water TOC. (Note - Fayette County s water plants routinely meet the Alternate Criteria for Compliance: TOC 2.0 mg/l, however treated water samples with TOC concentrations above 2.0 mg/l often struggle to achieve the required 35% removal criteria.) B. TRIAL TREATMENT MODIFICATIONS - ENHANCED COAGULATION In recent months, Fayette County Water System has attempted to improve the removal of TOC by way of Enhanced Coagulation at each treatment plant. This included use of Powder Activated Carbon and Potassium Permanganate at various dosing locations. These trials ended with no significant improvement to TOC removal. The Georgia Department of Natural Resources, Environmental Protection Division - Safe Drinking Water Program was consulted during these trials. 15

131 C. PILOT STUDY - MAGNETIC ION EXCHANGE (MIEX) During July 2010, Fayette County contracted with Orica Watercare, Inc. to conduct a pilot study using Orica s MIEX treatment process as a means to improve removal of TOC. The pilot study included use of Orica s mobile MIEX equipment lab, allowing for parallel, real-time treatment, alongside the plant s conventional treatment process. The MIEX process utilizes a magnetically charged resin particle, in slurry, which is mixed with the influent raw water stream. Suspended and dissolved organics, along with other turbidity causing particulates, are bonded to the resin. The resin is then settled from the effluent flow, separated from the particulate waste, regenerated and re-used in a closed cycle. Particulate waste sludge is collected for disposal. MIEX treated effluent is then ready for further treatment (conventional flocculation/settlement/filtration). 16

132 D. MIEX PILOT RESULTS After a 10 day pilot study the data for comparison of TOC removal was as follows: Avg. TOC (mg/l) % Removal Raw Water: 2.87 MIEX Effluent: % Plant Treated Effluent: % Additional parameters included the measurement of Disinfection Byproducts (DBPs) within the treated effluent. This was accomplished by dosing the samples with appropriate levels of chlorine, followed by a 7 day incubation period to simulate typical aging within remote sections of the distribution system. DBPs measured included Trihalomethanes (TTHMs) and Haloacetic Acids (HAA5s). Avg. TTHMs Avg. HAA5s (ppb) (ppb) Raw Water: MIEX Effluent: Plant Treated Effluent: (Note: Testing performed by Underwriters Laboratory - Indiana.) Additional testing performed by Orica Watercare indicated that Dissolved Organic Carbon (DOC) made up nearly 97% of the Total Organic Carbon within the plant raw water. The high level of DOC explains the lack of success attained during pre-pilot trials with Enhanced Coagulation. 17

133 E. SUMMARY The nature of Fayette County s source water storage (reservoirs) yields a raw water that is low in both turbidity and TOC concentration. The TOC that is present, is primarily DOC. Due to these raw water characteristics, current conventional plant treatment processes are limited in their ability to achieve the % TOC removal required by current Georgia EPD regulations. Maintaining the existing treatment process, without improvements, will put the Fayette County Water System at risk of future violations for non-compliance with Treatment Techniques for DBP Precursor Removal. F. RECOMMENDATIONS Based on the results of the July 2010 pilot program, Orica Watercare s MIEX treatment process will provide the improved TOC removal desired. Additional benefits from the MIEX process include significant reduction in Disinfection Byproducts within the distribution system. This benefit will help Fayette County comply with the upcoming Stage II Disinfection Byproducts regulations. Although EPD approval is required, and pending, it is recommended that the MIEX system be implemented upon EPD approval at each water treatment plant, as a pretreatment, ahead of the current conventional treatment processes. (In the event that EPD does not approve the MIEX system, the County should pursue alternate technologies aimed at TOC reduction.) Due to the significant improvements in %TOC removal shown by the pilot study, it is also recommended that Fayette County Water System implement the MIEX process 18

134 on 50% of the incoming raw water flow. The MIEX-treated effluent should then be blended with the bypass raw water stream, prior to entering the conventional treatment process. This strategy will allow Fayette County to achieve more than adequate TOC removal and DBP reductions, while maintaining a capital and operational cost that is compatible with budget limitations. The recommendation for blended treatment does not jeopardize Fayette County s ability to comply with TOC and DBP regulations. G. FUNDING Funding for the Treatment Process Upgrade project will be primarily from a portion of the proceeds of the Fayette County, Georgia Water Revenue Bonds, Series 2012A (the Series 2012A Bonds ), proposed to be issued in the aggregate principal amount of approximate $9, The proceeds of the Series 2012A Bonds will be applied to the Miex project. The remainder will be applied to issuance costs. A preliminary cost estimate for the project, all of which is to be funded from proceeds of the Series 2012A Bonds, is included in Appendix A of this report. Proceeds from the Series 2012B Bonds (approximately principal = $15,815,000) will be used to refund a protion of the outstanding Series 2002 Bonds. A summary of Fayette County Water System Operating Revenues and Expenses is included in Appendix B of this report. Revenues and Expenses shown within the summary are as follows: FY 2011: Audited FY 2012: Budgeted FY : Projected Revenue Projections Revenue projections for Water Sales and Service for FY 2012 is based on existing budgeted projections. To be consistent with Atlanta Regional Commission (ARC) projected growth rates for Fayette County, revenue projections for assume a growth of 1.5%. To be conservative, a revenue growth rate of 0.5% was used beyond 19

135 2016. FY Revenues from Penalties and Miscellaneous sources are assumed to remain constant (0% growth) from totals shown in budgeted FY Expense Projections Expense projections for Water Sales and Service for FY 2012 is based on existing budgeted projections. To be conservative, ARC s growth rate of 1.5% has been used for expense projections for FY No additional expenses are anticipated at this time. H. CONCLUSIONS We recommend that the additions, extensions and improvements to be made to the Fayette County Water System, namely the MIEX Treatment Process described in this report, are feasible and compatible with the System s operations, and are needed in the immediate future. Financial analysis indicates that it is financially feasible to construct the project and the estimated revenues available meet the tests of the County s bond resolution. Furthermore, based on the assumptions in this report, we hereby certify that the projected net earnings (as defined in the County s bond resolution) to be derived from the System for any succeeding sinking fund year after the project has been completed, will not be less than 1.20 times the highest combined debt service requirement (as defined in the County s bond resolution) coming due in any succeeding sinking fund year (through October 1, 2032) on the Prior Bonds (as defined in the County s bond resolution) and the Series 2012 Bonds (excluding the Prior Bonds being refunded by the Series 2012B Bonds). 20

136 21

137 APPENDIX A 22

138 23

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