OFFICIAL STATEMENT. Insured by

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1 OFFICIAL STATEMENT $50,000,000 City of Fernley, Nevada General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues) Series 2007 Insured by

2 Maturities, Principal Amounts, Interest Rates, and Yields or Prices Maturity Date (February 1) Principal Amount Interest Rate* Yield* CUSIP (base ) 2009 $820, AA , AB , AC , AD , AE ,030, AF ,080, AG ,135, AH ,190, AJ ,250, AK ,315, AL ,380, AM ,450, AN ,520, AP ,595, AQ ,675, AR ,760, AS ,850, AT ,940, AU ,040, AV3 $9,195, % Term Bond due February 1, Priced to yield: 4.230%* AZ4 $14,100, % Term Bond due February 1, Priced to yield: 4.430%* BE0 *As provided by LaSalle Financial Services, Inc. CUSIP a registered trademark of the American Bankers Association. CUSIP data herein is provided by Standard & Poor's, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc.

3 $50,000,000 City of Fernley, Nevada General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues) Series 2007 NEW ISSUE - FULL BOOK-ENTRY DATED: As of date of delivery Rating Received: Moody s: Aaa Underlying Rating: A3 See BOND RATINGS. DUE: February 1, as shown on inside cover The Bonds, when issued, will be fully registered bonds in denominations of $5,000, or any integral multiple thereof. The Bonds will initially be registered in the name of Cede & Co., as nominee of DTC, securities depository for the Bonds. Purchases of the Bonds are to be made in book-entry form only. Purchasers will not receive certificates representing their beneficial ownership interest in the Bonds. See Appendix E - Book-Entry-Only System. The Bonds will be dated as of the date of delivery, and will be due on February 1, as shown on the inside cover. The Bonds bear interest at the rates set forth on the inside cover, payable on August 1, 2007, and semiannually thereafter on February 1 and August 1 of each year, to and including the maturity dates shown on the inside cover, to the registered owners of the Bonds (initially Cede & Co.). The principal of the Bonds will be payable upon presentation and surrender at the corporate trust office designated by the Paying Agent, or its successor as the paying agent for the Bonds. See "THE BONDS - Professionals. The Bonds, or portions thereof, maturing on and after February 1, 2018, will be subject to prior redemption before their respective maturities, at the option of the City, on or after February 1, Certain of the Bonds are subject to mandatory sinking fund redemption. See THE BONDS - Prior Redemption. The Bonds constitute direct and general obligations of the City. The full faith and credit of the City are pledged for the payment of principal and interest subject to Nevada constitutional and statutory limitations on the aggregate amount of property taxes. The Bonds are also secured by the pledge of the revenues derived by the City from the Utility System. See THE BONDS - Security for the Bonds. The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Bonds by FINANCIAL SECURITY ASSURANCE INC. See THE BONDS - Bond Insurance. In the opinion of Bond Counsel, assuming continuous compliance with certain covenants described herein, interest on the Bonds is excluded from gross income under federal income tax laws pursuant to Section 103 of the Internal Revenue Code of 1986, as amended to the date of delivery of the Bonds, and interest on the Bonds is excluded from alternative minimum taxable income as defined in Section 55(b)(2) of the Tax Code except that such interest is required to be included in calculating the adjusted current earnings adjustment applicable to corporations for purposes of computing the alternative minimum taxable income of corporations. See TAX MATTERS. 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 the making of an informed investment decision. The Bonds are offered when, as, and if issued, and subject to the approval of validity and enforceability by Swendseid & Stern, a member in Sherman & Howard L.L.C., Reno, Nevada. It is expected that the Bonds will be available for delivery on or about March 28, i March 13, 2007

4 This Official Statement, which includes the cover page and the appendices, does not constitute an offer to sell or the solicitation of an offer to buy any of the Bonds in any jurisdiction in which it is unlawful to make such offer, solicitation, or sale. No dealer, salesperson or other person has been authorized to give any information or to make any representations other than those contained in this Official Statement in connection with the offering of the Bonds, and if given or made, such information or representations must not be relied upon as having been authorized by the City or the Initial Purchaser of the Bonds. The information set forth in this Official Statement has been obtained from the City and from sources referenced throughout this Official Statement which the City believes to be reliable. No representation or warranty is made, however, as to the accuracy or completeness of such information provided from sources other than the City, and nothing contained herein is or shall be relied upon as a guarantee of the City. The Initial Purchaser has reviewed the information in this Official Statement in accordance with, and as a part of, their responsibilities to investors under the Federal Securities Laws as applied to the facts and circumstances of this transaction, but the Initial Purchaser does not guarantee the accuracy or completeness of such information. This Official Statement contains, in part, estimates and matters of opinion which are not intended as statements of fact, and no representation or warranty is made as to the correctness of such estimates and opinions, or that they will be realized. The information, estimates, and/or expressions of opinion contained in this Official Statement are subject to change without notice, and neither the delivery of this Official Statement nor any sale of the Bonds shall, under any circumstances, create any implication that there has been no change in the affairs of the City or in the information, estimates, or opinions set forth herein, since the date of this Official Statement. Information for investors regarding the City and the Bonds is contained in this Official Statement. Although the City maintains an internet website for various purposes, none of the information on that website is a part of this Official statement nor is it intended to assist investors in making any investment decision with respect to the Bonds or to provide any continuing information with respect to the Bonds or any other bonds or obligations of the City. Other than with respect to information concerning Financial Security Assurance Inc. ( Financial Security or the Insurer ) contained under the caption "Bond Insurance" and Appendix G - Specimen Municipal Bond Insurance Policy, herein, none of the information in this Official Statement has been supplied or verified by the Insurer and the Insurer makes no representation or warranty, express or implied, as to (i) the accuracy or completeness of such information; (ii) the validity of the Bonds; or (iii) the tax exempt status of the interest on the Bonds. This Official Statement has been prepared only in connection with the original offering of the Bonds and may not be reproduced or used in whole or in part for any other purpose. The Bonds have not been registered with the SEC due to certain exemptions contained in the Securities Act of 1933, as amended. The Bonds have not been recommended by any federal or state securities commission or regulatory authority, and the foregoing authorities have neither reviewed nor confirmed the accuracy of this document. THE PRICES AT WHICH THE BONDS ARE OFFERED TO THE PUBLIC BY THE INITIAL PURCHASER (AND THE YIELDS RESULTING THEREFROM) MAY VARY FROM THE INITIAL PUBLIC OFFERING PRICES OR YIELDS APPEARING ON THE INSIDE COVER HEREOF, IN ADDITION, THE INITIAL PURCHASER MAY ALLOW CONCESSIONS OR DISCOUNTS FROM SUCH INITIAL PUBLIC OFFERING PRICES TO DEALERS AND OTHERS. IN ORDER TO FACILITATE DISTRIBUTION OF THE BONDS, THE INITIAL PURCHASER MAY ENGAGE IN TRANSACTIONS INTENDED TO STABILIZE THE PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. ii

5 $50,000,000 City of Fernley, Nevada General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues) Series 2007 CITY COUNCIL Todd Cutler, Mayor Charles Shepperd, Ward 1 Joe Mortensen, Ward 2 Monte Martin, Ward 3 Curt Chaffin, Ward 4 Ralph Menke, Ward 5 ADMINISTRATION Gary Bacock, City Manager Bonnie Duke, Administrative Services Director Patricia Norman, City Clerk Lowell Patton, Public Works Director Robert Terry Gilbert, Community Development Director Paul Taggart, City Attorney Keith Penner, Parks & Recreation Director FINANCIAL ADVISOR BOND COUNSEL JNA Consulting Group, LLC Swendseid & Stern 1400 Wyoming Street, Suite 3 a member in Sherman & Howard L.L.C. Boulder City, Nevada West Liberty Street, Suite Reno, Nevada REGISTRAR & PAYING AGENT Wells Fargo Bank, NA 100 West Washington Street, 8 th Floor Phoenix, Arizona iii

6 TABLE OF CONTENTS Page INTRODUCTION... 1 General... 1 The Issuer... 1 The Bonds... 2 Authority for Issuance... 2 Prior Redemption... 2 Purpose... 2 Security... 2 Bond Insurance... 3 Professionals... 3 Tax Status... 3 Continuing Disclosure Undertaking... 3 Additional Information... 4 Regulatory Risks... 4 Forward-Looking Statements... 4 Secondary Market... 4 THE BONDS... 5 General... 5 Prior Redemption... 6 Notice of Redemption... 7 Tax Covenant... 7 Defeasance... 8 Book-Entry-Only System... 8 Use of Proceeds... 8 Estimated Sources and Uses of Funds... 9 Security for the Bonds... 9 Rate Covenant Additional Bonds Bond Insurance THE CITY S UTILITY SYSTEM The Utility System LEGAL MATTERS Police Power Litigation Legal Opinion TAX MATTERS Federal Tax Matters State Tax Matters iv

7 BOND RATINGS INDEPENDENT AUDITORS FINANCIAL ADVISOR UNDERWRITING MISCELLANEOUS APPENDIX A - CITY OF FERNLEY, NEVADA CITY OF FERNLEY... A-1 General... A-1 City Council... A-1 Administration... A-1 Employee Relations and Pension Benefits... A-2 FINANCIAL INFORMATION... A-4 Annual Reports... A-4 Budgeting... A-4 Accounting... A-4 Management s Discussion and Analysis... A-5 General Fund... A-5 Risk Management... A-7 Property Tax Base and Tax Roll Collection... A-8 Property Tax Limitations... A-11 Overlapping Tax Rates... A-15 DEBT STRUCTURE... A-16 Debt Limitation... A-16 Outstanding and Proposed Debt and Other Obligations... A-17 Selected Debt Ratios... A-19 ECONOMIC AND DEMOGRAPHIC INFORMATION... A-20 Population and Age Distribution... A-21 Labor and Employment... A-23 Retail Sales... A-28 Construction... A-28 Transportation... A-28 Development Activity... A-29 Utilities... A-29 Education... A-29 Gaming... A-30 v

8 APPENDIX B - EXCERPTS FROM CITY OF FERNLEY, NEVADA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR FISCAL YEAR ENDING JUNE 30, 2006 APPENDIX C - SUMMARY OF CERTAIN PROVISIONS OF THE BOND ORDINANCE APPENDIX D - FORM OF APPROVING OPINION OF BOND COUNSEL APPENDIX E - FORM OF CONTINUING DISCLOSURE CERTIFICATE APPENDIX F - BOOK-ENTRY-ONLY SYSTEM APPENDIX G - SPECIMEN MUNICIPAL BOND INSURANCE POLICY vi

9 TABLES Page SOURCES AND USES... 9 *PLEDGED REVENUE AND COVERAGE SCHEDULE *ANNUAL DEBT SERVICE REQUIREMENTS *GENERAL FUND REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE... A-6 *ASSESSED VALUATION... A-8 *TAX LEVIES, COLLECTIONS AND DELINQUENCIES... A-9 *TEN LARGEST TAXPAYERS... A-10 *STATEWIDE AVERAGE AND OVERLAPPING TAX RATES... A-15 *STATUTORY DEBT LIMITATION... A-16 *OUTSTANDING AND PROPOSED DEBT AND OTHER OBLIGATIONS... A-17 OUTSTANDING OVERLAPPING GENERAL OBLIGATION INDEBTEDNESS... A-18 NET DIRECT & OVERLAPPING GENERAL OBLIGATION INDEBTEDNESS... A-18 SELECTED DEBT RATIOS FOR THE CITY... A-19 POPULATION... A-21 AGE DISTRIBUTION... A-21 MEDIAN HOUSEHOLD EFFECTIVE BUYING INCOME... A-22 PERCENT OF HOUSEHOLDS BY EFFECTIVE BUYING INCOME GROUPS... A-22 AVERAGE ANNUAL LABOR FORCE SUMMARY... A-23 ESTABLISHMENT BASED INDUSTRIAL EMPLOYMENT NAICS CLASSIFICATION... A-24 ESTABLISHMENT BASED INDUSTRIAL EMPLOYMENT PRE-NAICS CLASSIFICATION... A-25 LARGEST EMPLOYERS... A-26 FIRM EMPLOYMENT SIZE BREAKDOWN... A-27 TAXABLE SALES... A-28 *Annual Financial Information to be updated pursuant to SEC Rule 15c2-12, as amended. vii

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11 $50,000,000 City of Fernley, Nevada General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues) Series 2007 INTRODUCTION General This Official Statement, which includes the cover page and the appendices, provides information concerning the City of Fernley (the "City" or Fernley ) located in Lyon County, Nevada (the "County" and the "State", respectively) in connection with the sale of the $50,000,000 City of Fernley, Nevada, General Obligation (Limited Tax) Water and Sewer Bonds (Additionally Secured by Pledged Revenues) Series 2007 (the Bonds ). The Bonds will be issued pursuant to a bond ordinance (the "Bond Ordinance") to be considered for adoption by the City Council (the "Council") on March 7, The offering of the Bonds is made only by way of this Official Statement, which supersedes any other information or materials used in connection with the offer or sale of the Bonds. The following introductory material is only a brief description of and is qualified by the more complete information contained throughout this Official Statement. A full review should be made of the entire Official Statement and the documents summarized or described herein. Detachment or other use of this "INTRODUCTION" without the entire Official Statement, including the cover page and appendices, is unauthorized. Unless otherwise provided, capitalized terms used herein, which are not defined, have the meanings given such terms as set forth in the Bond Ordinance. See Appendix C - Summary of Certain Provisions of the Bond Ordinance. The Issuer Fernley is one of the fastest growing communities in the State. It is home to approximately 19,700 people which includes surrounding agricultural areas. The City is situated on Interstate 80, 39 miles east of Reno. The City currently occupies approximately 164 square miles in the County. Fernley was established in 1904 primarily as an agricultural and ranching community and incorporated July 1, Since the 1980's development has been stimulated by the construction of two major industrial parks. See Appendix A - City of Fernley, Nevada. 1

12 The Bonds The Bonds are issued solely as fully registered certificates in the denomination of $5,000, or any integral multiple thereof. The Bonds will initially be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ), the securities depository for the Bonds. Purchases of the Bonds are to be made in book-entry form only. Purchasers will not receive certificates representing their beneficial ownership interest in the Bonds. See Appendix F - Book-Entry-Only System. The Bonds will be dated as of the date of delivery, and mature on February 1, in each of the years and amounts as shown on the inside cover of this Official Statement. Interest on the Bonds (calculated based on a 360-day year consisting of twelve 30-day months) is payable on February 1 and August 1, commencing August 1, Principal on the Bonds will be payable at maturity at the office of the Paying Agent upon presentation and surrender thereof. See "THE BONDS - General. Authority for Issuance The Bonds are issued in full conformity with the constitution and laws of the State, the Local Government Securities Law, Sections to , Nevada Revised Statutes ("NRS") (the "Bond Act"), Chapter 348, NRS (the "Supplemental Bond Act"), the City Charter, NRS to inclusive, and the Bond Ordinance. Prior Redemption Optional Prior Redemption - The Bonds, or portions thereof, maturing on and after February 1, 2018 will be subject to prior redemption before their respective maturities, at the option of the City, on or after February 1, See THE BONDS - Prior Redemption. Mandatory Sinking Fund Redemption - Certain of the Bonds are subject to mandatory sinking fund redemption. See "THE BONDS - Prior Redemption". Purpose Proceeds of the Bonds will be issued for the purpose of building water and sewer infrastructure within the City and paying the costs of issuance of the Bonds. See THE BONDS - Use of Proceeds. Security The Bonds constitute direct and general obligations of the City, and the full faith and credit of the City are pledged for the payment of principal, interest, and any prior redemption premium due thereon, subject to Nevada constitutional and statutory limitations on the aggregate amount of property taxes. The Bonds are also secured by the pledge of certain of the revenues received from the City s Utility System. See THE BONDS - Additional Security for the Bonds. 2

13 Bond Insurance Payment of the principal of and interest on the Bonds when due will be insured by a Municipal Bond Insurance Policy (the "Policy") issued by Financial Security Assurance Inc. ( Financial Security or the Insurer ) concurrently with the delivery of the Bonds. See "THE BONDS--Bond Insurance" and Appendix G - Specimen Municipal Bond Insurance Policy. Owners of the Bonds should be aware that issuance of the Policy gives the Insurer certain rights, including the sole right to direct remedies with respect to the Bonds in the event of a default. See Appendix C - Summary of Certain Provisions of the Bond Ordinance - Insurer Deemed Owner. Professionals Swendseid & Stern, a member in Sherman & Howard L.L.C., Las Vegas and Reno, Nevada, has acted as bond counsel (the Bond Counsel )in connection with the execution and delivery of the Bonds. The fees of Bond Counsel will be paid from Bond proceeds at closing. Wells Fargo Bank, N.A., Phoenix, Arizona, will act as the paying agent for the Bonds (the Paying Agent ). JNA Consulting Group, LLC, Boulder City, Nevada is acting as financial advisor (the Financial Advisor ) to the City. The fees paid to the Financial Advisor will also be paid from Bond proceeds at closing. See "FINANCIAL ADVISOR. The financial statements of the City included in this Official Statement as Appendix B have been audited by Kafoury, Armstrong & Co., certified public accountants, Fallon, Nevada, (the Independent Auditors ) to the extent and for the period indicated in their report thereon. See "INDEPENDENT AUDITORS. Tax Status In the opinion of Bond Counsel assuming continuous compliance with certain covenants described herein, interest on the Bonds is excluded from gross income under federal income tax laws pursuant to Section 103 of the Internal Revenue Code of 1986, as amended to the date of delivery of the Bonds (the Tax Code ), interest on the Bonds is excluded from alternative minimum taxable income as defined in Section 55(b)(2) of the Tax Code except that such interest is required to be included in calculating the adjusted current earnings adjustment applicable to corporations for purposes of computing the alternative minimum taxable income of corporations. See TAX MATTERS. Under the laws of the State in effect as of the date of delivery of the Bonds, the Bonds, their transfer, and the income therefrom, are free and exempt from taxation by the State or any subdivision thereof except for the tax on estates imposed pursuant to Chapter 375A of NRS, and the tax on generation-skipping transfers imposed pursuant to Chapter 375B of NRS. See "TAX EXEMPTION - State Tax Exemption. Continuing Disclosure Undertaking The City will execute a continuing disclosure certificate (the "Disclosure Certificate") at the time of the closing for the Bonds. The Disclosure Certificate will be executed for the benefit of the beneficial owners of the Bonds and the City has covenanted to comply with its terms. The Disclosure Certificate will provide that so long as the Bonds remain outstanding, the City will annually provide certain financial information and operating data to each nationally recognized municipal securities information repository ("NRMSIR") approved in accordance with Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 (the "Rule"), and will provide notice of certain material events to the Municipal Securities Rulemaking Board ("MSRB"), in compliance with the Disclosure Certificate. The form of the Disclosure Certificate is attached hereto as Appendix E. The City has not failed to materially comply with any prior continuing disclosure undertaking entered into pursuant to the Rule. 3

14 Additional Information This introduction is only a brief summary of the provisions of the Bonds and the Bond Ordinance. A full review of the entire Official Statement should be made by potential investors. Brief descriptions of the Bonds, the Bond Ordinance, and the City are included in this Official Statement. All references herein to the Bonds, the Bond Ordinance, and other documents are qualified in their entirety by reference to such documents and all capitalized terms used herein, which are not defined, have the meanings given such terms as set forth in the Bond Ordinance. This Official Statement speaks only as of its date and the information contained herein is subject to change. Additional information and copies of the documents referred to herein are available from the City and the Financial Advisor at the addresses set forth below: Regulatory Risks City of Fernley JNA Consulting Group, LLC Finance Department 1400 Wyoming Street 595 Silver Lace Boulevard Suite 3 Fernley, Nevada Boulder City, Nevada The City s Utility System is subject to numerous federal and State regulatory requirements. Those regulations are subject to change at any time. Failure to comply with regulatory changes, or the inability to comply with them in a timely manner, could cause portions of the City s Utility System to be unavailable. Any disruption of service could negatively impact Net Revenues. Should any water or sewer related regulations become effective in the future, the City will be required to take action to comply with them in a timely manner. Forward-Looking Statements This Official Statement contains statements relating to future results that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of These statements are included in this Official Statement under the sections discussing estimated or unaudited financial results and in sections discussing the 2007 budgets for the City, among others. When used in this Official Statement, the words "estimate", "forecast", "intend", "expect", and similar expressions identify forward-looking statements. Any forward-looking statement is subject to uncertainty. Accordingly, such statements are subject to risks that could cause actual results to differ, possibly materially, from those contemplated in such forward-looking statements. Inevitably, some assumptions used to develop forward-looking statements will not be realized or unanticipated events and circumstances may occur. Therefore, investors should be aware that there are likely to be differences between forward-looking statements and actual results. Secondary Market No guarantee can be made that a secondary market for the Bonds will develop or be maintained by the Initial Purchaser or others. Thus, prospective investors should be prepared to hold their Bonds to maturity. 4

15 THE BONDS General The Bonds will be issued as fully registered bonds in denominations of $5,000 and any integral multiple thereof. The Bonds will be dated as of the date of delivery, and mature on February 1, in each of the years and amounts as shown on the inside cover of this Official Statement. The Bonds will be initially registered in the name of Cede & Co., as nominee for DTC, the securities depository for the Bonds. Purchases of the Bonds are to be made in book-entry-only form. Purchasers will not receive certificates evidencing their beneficial ownership interest in the Bonds. See Appendix F - Book-Entry-Only System. Interest on the Bonds is payable on February 1 and August 1 (each an interest payment date), commencing August 1, 2007, by check or draft mailed by the Paying Agent on the interest payment date, or if such day is not a business day, on the next succeeding business day, to the person in whose name each Bond is registered (i.e., Cede & Co.) on the 15th day of the month preceding the interest payment date (the "Regular Record Date"), at the address shown on the registration records maintained by the Registrar as of the close of business on the Regular Record Date. However, if there is a default in payment or provision of interest due with respect to a Bond on any interest payment date, such interest thereafter will be paid to the registered owner of such Bond as of a special record date (the "Special Record Date") to be established by the Registrar whenever moneys become available for payment of the defaulted interest. The Special Record Date will be fixed by the Paying Agent whenever money becomes available for payment of the defaulted interest, and notice of the Special Record Date will be given to the registered owners of the Bonds not less than 10 days prior thereto by first-class mail to each registered owner as shown on the Registrar's registration records on a date selected by the Registrar, stating the date of the Special Record Date and the date selected for the payment of the defaulted interest. Principal on the Bonds will be payable at maturity at the principal corporate trust office of the Paying Agent (or at such other office designated by the Paying Agent) upon presentation and surrender thereof. Any Bond not paid upon presentation and surrender at or after maturity shall continue to draw interest at the rate stated in the Bond until the principal is paid in full. All such payments of principal and interest shall be made in lawful money of the United States of America. Payments to beneficial owners are to be made as described in Appendix F - Book-Entry-Only System, attached hereto. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK 5

16 Prior Redemption Optional Prior Redemption - The Bonds, or portions thereof, maturing on and after February 1, 2018 will be subject to redemption before their respective maturities, at the option of the City, on or after February 1, 2017 in whole or in part at any time from any maturity selected by the City and by lot within a maturity at a price equal to the principal amount of each Bond, or portion thereof so redeemed, and accrued interest thereon to the redemption date. Mandatory Sinking Fund Redemption - The Bonds maturing on February 1, 2032, and February 1, 2037, (the Term Bonds ), are subject to mandatory sinking fund redemption on the dates and at the prices indicated in the table below plus accrued interest to the redemption date. The District must deposit into the Bond Fund, on or before the dates set forth below, a sum which, together with other moneys available in the Bond Fund, is sufficient to redeem the Term Bonds (plus accrued interest to the redemption date), in the principal amounts and on the dates set forth below: February 1 of the Year Principal Amount Term Bond $2,140, ,245, ,350, ,460,000* Term Bond ,570, ,690, ,815, ,945, ,080,000* *Final maturity 6

17 Notice of Redemption Notice of redemption prior to maturity of the Bonds will be given by the Registrar by registered or certified mail as long as Cede & Company is the registered owner of the Bonds and otherwise by first class, postage prepaid mail, at least 30 days but not more than 60 days prior to the redemption date, to the MSRB, and the registered owner of any Bonds all or a part of which is called for redemption at his address as it last appears on the registration records of the Registrar. The notice will identify the Bonds or portions thereof (in the case of redemption of the Bonds in part but not in whole) to be redeemed, specify the redemption date, and state that on the redemption date, the principal amount thereof will become due and payable at the office of the Paying Agent (accrued interest to the redemption date being payable by mail or as otherwise provided in the Bond Ordinance) and that after the redemption date, no further interest will accrue on the principal of any Bonds called for redemption. Actual receipt of mailed notice by the MSRB or the registered owners of Bonds is not a condition precedent to redemption of such Bonds. Failure to give such notice as described above to a registered owner of any Bond or the MSRB, or any defect therein, shall not affect the validity of the proceedings for the redemption of any other Bonds. A notice of redemption may contain a statement that the redemption is conditioned upon the receipt by the Paying Agent of funds on or before the date fixed for redemption sufficient to pay the redemption price of the Bonds so called for redemption, and that if such funds are not available, such redemption shall be canceled by written notice to the owners of the Bonds called for redemption in the same manner as the original redemption notice was mailed. Tax Covenant In the Bond Ordinance, the City covenants for the benefit of the owners of the Bonds that it will not take any action or omit to take any action with respect to the Bonds, the proceeds thereof, any other funds of the City, or any project financed with the proceeds of the Bonds if such action or omission (i) would cause the interest on the Bonds to lose its exclusion from gross income for federal income tax purposes under Section 103 of the Tax Code, or (ii) would cause interest on the Bonds to lose its exclusion from alternative minimum taxable income as defined in Section 55(b)(2) of the Tax Code except to the extent such interest is required to be included in the adjusted current earnings adjustment applicable to corporations under Section 56 of the Tax Code in calculating corporate alternative minimum taxable income. The foregoing covenant shall remain in full force and effect notwithstanding the payment in full or defeasance of the Bonds until the date on which all obligations of the City in fulfilling the above covenant under the Tax Code have been met. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK 7

18 Defeasance When all bond requirements of any Bond have been duly paid, the pledge, lien, and all obligations hereunder shall thereby be discharged as to the Bond and the Bond shall no longer be deemed to be outstanding within the meaning of the Bond Ordinance. There will be deemed to be due payment of any outstanding Bond or other security when the City has placed in escrow or in trust with a trust bank located within or without the State, an amount sufficient (including the known minimum yield available for such purpose from Federal Securities in which such amount wholly or in part may be initially invested) to meet all bond requirements of the Bond or other security, as the same become due to the final maturity of the Bond or other security, or upon any redemption date as of which the City shall have exercised or shall have obligated itself to exercise its prior redemption option by a call of the Bonds or other security for payment then. The Federal Securities shall become due before the respective times on which the proceeds thereof shall be needed, in accordance with a schedule established and agreed upon between the City and the bank at the time of the creation of the escrow or trust, or the Federal Securities shall be subject to redemption at the option of the owners thereof to assure availability as so needed to meet the schedule. For the purpose of this section "Federal Securities" shall include only Federal Securities which are not callable for redemption prior to their maturities except at the option of the owner thereof. Book-Entry-Only System The Bonds will be available only in book-entry form in the principal amount of $5,000 or any integral multiples thereof. DTC will act as the initial securities depository for the Bonds. The ownership of one fully registered Bond for each maturity as set forth on the inside cover page of this Official Statement, each in the aggregate principal amount of such maturity, will be registered in the name of Cede & Co., as nominee for DTC. See Appendix F - Book-Entry-Only System. SO LONG AS CEDE & CO., AS NOMINEE OF DTC, IS THE REGISTERED OWNER OF THE BONDS, REFERENCES IN THIS OFFICIAL STATEMENT TO THE REGISTERED OWNERS OF THE BONDS WILL MEAN CEDE & CO. AND WILL NOT MEAN THE BENEFICIAL OWNERS. None of the City, the Registrar, or the Paying Agent will have any responsibility or obligation to DTC's Participants or Indirect Participants (defined in Appendix F), or the persons for whom they act as nominees, with respect to the payments to or the providing of notice for the Direct Participants, the Indirect Participants, or the beneficial owners of the Bonds as further described in Appendix F to this Official Statement. Use of Proceeds The City is issuing the Bonds to finance the building of water and sewer infrastructure within the City and to pay the costs of issuance of the Bonds. 8

19 Estimated Sources and Uses of Funds The sources and uses of the proceeds of the Bonds are set forth in the following table. SOURCES AND USES Fernley, Nevada SOURCES Par Amount of Bonds $50,000,000 Original Issue Premium 845,045 TOTAL SOURCES $50,845,045 USES Acquisition Account $50,084,344 Cost of Issuance 1 $760,701 TOTAL USES $50,845,045 1 Includes underwriting, bond insurance premium, legal and financing fees, printing costs, rating fees, and other miscellaneous expenses relating to the issuance of the Bonds. Security for the Bonds SOURCE: Initial Purchaser; compiled by JNA Consulting Group, LLC The Bonds constitute direct and general obligations of the City, and the full faith and credit of the City is pledged for the payment of principal, interest and any redemption premium due thereon, subject to Nevada constitutional and statutory limitations on the aggregate amount of property taxes that may be levied by and within the City. See Appendix A - City of Fernley, Nevada, FINANCIAL INFORMATION - Property Tax Limitations. In any year in which the total property taxes levied within the City by all overlapping units (e.g., the State, any town, the City, or any special district) exceed such tax limitations, the reduction to be made by those units must be in taxes levied for purposes other than the payment of their bonded indebtedness, including interest on such indebtedness. Nevada statutes provide that no act concerning the Bonds or their security may be repealed, amended, or modified in such a manner as to impair adversely the Bonds or their security until all of the Bonds have been discharged in full or provision for their payment and redemption has been fully made. 9

20 Additional Security - The Bonds are additionally secured by certain pledged revenues. The City expects the revenues pledged to be sufficient to pay the debt service on the Bonds; therefore, the City does not expect to levy property taxes to pay the Bonds. In the event, however, that the pledged revenues are insufficient therefore, the City is obligated to levy a general (property) tax on all taxable property within the City, subject to the limitations provided in the constitution and statutes of the State. The Bond Requirements of the 2007 Bonds (the 2007 Bond Requirements ) will be additionally secured by an irrevocable pledge of revenues derived by the City from the operation of the City s sewer system (the Sewer Net Revenues ), the City s Alternate Water System (the Alternate Water Net Revenues ) and the City s water system (the Water Net Revenues ) (collectively, the City s water system, sewer system, and alternate water system are referred to herein as the Utility System ), each after the deduction of operation and maintenance expenses of the Utility System (the remaining Utility System revenues being herein the Net Revenues ) Additional Securities Paid From Pledged Revenues The City is issuing the Bonds with a lien on the Water Net Revenues subordinate to the City s $950,000 General Obligation (Limited Tax) (Additionally Secured by Water Revenues) Water Refunding Bonds Series 2003 (the 2003 Bonds ), and with a lien on the Sewer Net Revenues subordinate to the City s $2,000,000 General Obligation (Limited Tax) Sewer Bonds (Additionally Secured by Pledged Revenues) Series 1992 (the 1992 Bonds ). Upon the issuance of the Bonds, the lien of the 1992 Bonds on the Sewer Net Revenues and of the 2003 Bonds on the Water Net Revenues will be closed. Under the Bond Ordinance, the City is permitted to incur other debt payable on a parity with the lien on the Net Revenues of the Bonds. See "SECURITY FOR THE BONDS - Additional Bonds. Debt service on all Parity Securities will be payable from Net Revenues on a pro-rata basis. Accordingly, to the extent that future obligations are issued on a parity with the lien on the Net Revenues of the Bonds, the security for the Bonds may be diluted. See "SECURITY FOR THE BONDS - Pro-Forma Debt Service Coverage. The City anticipates the need to issue approximately $10,000,000 to $15,000,000 of additional bonds to fund completion of various components of the project funded by the Bonds, as well as other projects. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK 10

21 The following table shows the pledged revenues from the funds within the City s Utility System and their ability to pay debt service. PLEDGED REVENUE AND COVERAGE SCHEDULE City of Fernley, Nevada Fiscal Year Fiscal Year 2002 (Audited) Fiscal Year 2003 (Audited) Fiscal Year 2004 (Audited) Fiscal Year 2005 (Audited) Fiscal Year 2006 (Audited) Fiscal Year 2007 (Budgeted 2 ) Water Fund User Fees $1,316,862 $1,508,903 $1,794,430 $1,975,451 $2,201,916 $2,798,000 3 Operating Expenses 1 (949,624) (1,148,692) (1,336,859) (1,399,676) (1,657,560) (2,048,700) 3 Connection Charges 641, ,331 1,529,900 2,026,164 1,014,573 1,125,000 Other Pledged Revenues 4 356, ,207 1,701,365 1,028, , ,000 Total Water Net Revenues 1,364,822 1,717,749 3,688,836 3,630,896 2,430,804 2,568,300 Sewer Fund User Fees 884, ,222 1,187,212 1,441,455 1,686,101 1,655,500 Operating Expenses 1 (695,817) (667,166) (759,197) (939,053) (990,354) (1,224,000) Connection Charges 732,234 1,096,977 1,907,505 2,182,969 1,120,919 1,848,000 Other Pledged Revenues 4 69,293 51,588 42, , , ,000 Total Sewer Net Revenues 990,209 1,473,621 2,378,124 2,849,203 2,179,163 2,726,500 Alternate Water Fund User Fees Operating Expenses (120) 0 Connection Charges , , ,000 Other Pledged Revenues ,433 20,000 Total Alt. Water Net Revenues , , ,000 Combined Pledged Revenues $2,355,031 $3,191,370 $6,066,960 $6,612,389 $4,746,280 $5,814,800 Senior Lien 2003 Bonds 5 $183,290 $182,104 $186,483 $175,425 $178,425 $180,925 Senior Lien 1992 Bonds 6 78, , , , , ,900 Proposed Debt Service ,210,900 7 Combined Debt Service $261,740 $339,004 $343,383 $332,325 $335,325 $3,548,725 Coverage Operating Expenses exclude depreciation. 2 The City has experienced a decline in new construction activity and plans to amend the FY 2007 budget within the next two months. See FINANCIAL INFORMATION - Management s Discussion and Analysis. 3 Includes $350,000 of revenue and expense for water meter installation. 4 Includes interest earnings, developer contributions, and other miscellaneous revenues. 5 The 2003 Bonds are secured by Water Net Revenues. 6 The 1992 Bonds are secured by Sewer Net Revenues 7 Maximum annual debt service which occurs in FY SOURCE: The City; compiled by JNA Consulting Group, LLC 11

22 The following table sets forth the estimated debt service requirements for Bonds payable from the Net Revenues. ANNUAL DEBT SERVICE REQUIREMENTS Fiscal Year Ended The Bonds June 30 Senior Lien 1 Principal Interest Subtotal Grand Total 2007 $337,825 $0 $0 $0 $337, , ,869,131 1,869,131 2,204, , ,000 2,220,750 3,040,750 3,377, , ,000 2,185,900 3,045,900 3,390, , ,000 2,150,425 3,045,425 3,202, , ,000 2,114,625 3,054,625 3,211, , ,000 2,077,025 3,057,025 3,135, ,030,000 2,037,825 3,067,825 3,067, ,080,000 1,996,625 3,076,625 3,076, ,135,000 1,953,425 3,088,425 3,088, ,190,000 1,896,675 3,086,675 3,086, ,250,000 1,837,175 3,087,175 3,087, ,315,000 1,774,675 3,089,675 3,089, ,380,000 1,708,925 3,088,925 3,088, ,450,000 1,639,925 3,089,925 3,089, ,520,000 1,567,425 3,087,425 3,087, ,595,000 1,491,425 3,086,425 3,086, ,675,000 1,411,675 3,086,675 3,086, ,760,000 1,342,581 3,102,581 3,102, ,850,000 1,269,981 3,119,981 3,119, ,940,000 1,193,669 3,133,669 3,133, ,040,000 1,111,219 3,151,219 3,151, ,140,000 1,024,519 3,164,519 3,164, ,245, ,544 3,170,544 3,170, ,350, ,713 3,171,713 3,171, ,460, ,025 3,173,025 3,173, ,570, ,250 3,169,250 3,169, ,690, ,025 3,180,025 3,180, ,815, ,700 3,190,700 3,190, ,945, ,063 3,201,063 3,201, ,080, ,900 3,210,900 3,210,900 TOTAL $1,746,400 $50,000,000 $42,187,819 $92,187,819 $93,934,219 1 Includes 1992 and 2003 Bonds. SOURCE: The City; compiled by JNA Consulting Group, LLC 12

23 Rate Covenant In the Bond Ordinance, the City covenants that it will charge against users or against purchasers of services or commodities pertaining to the City s Utility System such fees, rates, and other charges as shall be sufficient to produce Gross Revenues annually which, together with any other funds available therefor, will be in each fiscal year of the City at least equal to 100 percent of the sum of: (a) an amount equal to the annual Operation and Maintenance Expenses for such fiscal year; (b) an amount equal to the debt service due in such fiscal year on the then Outstanding Bonds and any Outstanding Parity Securities and any Outstanding Superior Securities; and (c) any other amounts payable from the Net Revenues and pertaining to the City s Utility System, including, without limitation, debt service on any Subordinate Securities and any other securities pertaining to the City s Utility System operation and maintenance reserves, capital reserves and prior deficiencies pertaining to any account relating to Gross Revenues, in an amount at least equal to 100 percent of such amounts due and owing. The foregoing rate covenant is subject to compliance by the City with any legislation of the United States of America, the State, or other governmental body, or any regulation or other action taken by the United States, the State, or any agency or political subdivision of the State pursuant to such legislation, in the exercise of the police power thereof for the public welfare, which legislation, regulation or action limits or otherwise inhibits the amounts of fees, rates, and other charges collectible by the City for the use of or otherwise pertaining to, and all services rendered by, the City s Utility System. Subject to the foregoing, the City shall cause all fees, rates, and other charges pertaining to the City s Utility System to be collected as soon as reasonable, and shall provide methods of collection and penalties to the end that the Gross Revenues shall be adequate to meet the requirements of the Bond Ordinance. Additional Bonds Additional Parity Securities - The Bond Ordinance permits the City to issue additional Parity Securities having a lien on Net Revenues on a parity with the lien of the Bonds upon the satisfaction of certain conditions. Additional Parity Securities may be issued only if the following conditions are met: 1. At the time of adoption of the instrument authorizing the additional Parity Securities, the City shall not be in default in the payment of principal of or interest on the Bonds. 2. The Net Revenues (subject to adjustments as discussed below) projected by the City s Treasurer, City Engineer, Independent Accountant, or consulting engineer to be derived in the later of (i) the fiscal year immediately following the fiscal year in which the facilities to be financed with the proceeds of the additional Parity Securities are projected to be completed or (ii) the first fiscal year for which no interest has been capitalized for the payment of any additional Parity Securities, including the Parity Securities proposed to be issued, will be sufficient to pay at least an amount equal to the principal and interest requirements of the Outstanding Bonds, any other Outstanding Parity Securities, and the Parity Securities proposed to be issued (excluding any reserves therefor). In any determination of whether or not additional Parity Securities may be issued in accordance with the foregoing earnings test, consideration must be given to any probable estimated increase or reduction in Operation and Maintenance Expenses that will result from the expenditure of the funds proposed to be derived from the issuance and sale of the additional Parity Securities. In addition, the respective annual principal (or redemption price) and interest requirements must be reduced to the extent such requirements are scheduled to be paid with moneys held in trust or in escrow for that purpose by any trust bank within or without the State, including the known minimum yield from any investment in Federal Securities. 13

24 A written certificate or written opinion by the City Treasurer, an independent accountant, the City Engineer, Independent Accountant, or a consulting engineer that the earnings test is met will be conclusively presumed to be accurate in determining the right of the City to authorize, issue, sell, and deliver additional Parity Securities. Completion Bonds may be issued on a parity with the Bonds, without complying with the provisions of the foregoing, if the City Treasurer or City Manager certifies in writing that (i) the principal amount of the Completion Bonds proposed to be issued to finance the costs of one or more improvement projects initially financed in whole or in part by the Bonds does not exceed 20 percent of the aggregate principal amount of the Bonds; and (ii) the issuance of the Completion Bonds is necessary to provide funds to complete the improvement projects. Such written certificate shall be conclusively presumed to be aggregate in determining the right of the City to authorize, issue, sell, and deliver Completion Bonds as Parity Securities. Superior Obligations Permitted; Subordinate Obligations Permitted - When the 1992 Bonds are paid in full, defeased, or otherwise discharged, the City may issue additional special obligations with a lien on the Net Revenues which is superior to the lien of the Bonds. The City may issue obligations with a lien on the Net Revenues which is subordinate to the lien of the Bonds. Refunding Bonds - The City may issue refunding bonds upon satisfaction of the conditions described in Appendix C - Summary of Certain Provisions of the Bond Ordinance - Issuance of Refunding Securities. Bond Insurance Bond Insurance Policy - Concurrently with the issuance of the Bonds, Financial Security Assurance Inc. ("Financial Security") will issue its Municipal Bond Insurance Policy for the Bonds (the "Policy"). The Policy guarantees the scheduled payment of principal of and interest on the Bonds when due as set forth in the form of the Policy included as an exhibit to this Official Statement. The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. Financial Security Assurance Inc. - Financial Security is a New York domiciled financial guaranty insurance company and a wholly owned subsidiary of Financial Security Assurance Holdings Ltd. ("Holdings"). Holdings is an indirect subsidiary of Dexia, S.A., a publicly held Belgian corporation, and of Dexia Credit Local, a direct wholly-owned subsidiary of Dexia, S.A. Dexia, S.A., through its bank subsidiaries, is primarily engaged in the business of public finance, banking and asset management in France, Belgium and other European countries. No shareholder of Holdings or Financial Security is liable for the obligations of Financial Security. At September 30, 2006, Financial Security's combined policyholders' surplus and contingency reserves were approximately $2,581,107,000 and its total net unearned premium reserve was approximately $1,992,163,000 in accordance with statutory accounting principles. At September 30, 2006, Financial Security's consolidated shareholder s equity was approximately $3,058,987,000 and its total net unearned premium reserve was approximately $1,590,538,000 in accordance with generally accepted accounting principles. 14

25 The consolidated financial statements of Financial Security included in, or as exhibits to, the annual and quarterly reports filed after December 31, 2005 by Holdings with the Securities and Exchange Commission are hereby incorporated by reference into this Official Statement. All financial statements of Financial Security included in, or as exhibits to, documents filed by Holdings pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date of this Official Statement and before the termination of the offering of the Bonds shall be deemed incorporated by reference into this Official Statement. Copies of materials incorporated by reference will be provided upon request to Financial Security Assurance Inc.: 31 West 52nd Street, New York, New York 10019, Attention: Communications Department (telephone ). The Policy does not protect investors against changes in market value of the Bonds, which market value may be impaired as a result of changes in prevailing interest rates, changes in applicable ratings or other causes. Financial Security makes no representation regarding the Bonds or the advisability of investing in the Bonds. Financial Security makes no representation regarding the Official Statement, nor has it participated in the preparation thereof, except that Financial Security has provided to the Issuer the information presented under this caption for inclusion in the Official Statement. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK 15

26 THE CITY S UTILITY SYSTEM The Utility System General - The City s Utility System is generally defined in the Bond Ordinance to mean the Water System and Sewer System of the City, consisting of all properties, real, personal, mixed, or otherwise, now owned or acquired by the City through purchase, construction, or otherwise, and used in connection with such system, and in any way pertaining thereto, whether or not located within the boundaries of the City, including, without limitation, machinery, apparatus, structures, buildings, and related or appurtenant furniture, fixtures or other equipment, as such system is from time to time extended, bettered, or otherwise improved. The City is responsible for operation and maintenance of the water production (wells), disinfections (chlorination), distribution (booster pumps, storage tanks, and transmission mains), and system expansion. The City will expand its water production by beginning construction of water treatment facility capable of treating groundwater to meet the USEPA Arsenic Rule, as well as, treating surface water for potable consumption. The construction of the treatment plant will allow for the addition of surface water rights to the current potable production capabilities. The City performs water quality testing and monitoring in conformance with established health and safety standards. The City is responsible for operation and maintenance of the collection system (sewer mains, lift stations, and force mains) and treatment plant. No change in the overall treatment capacity is anticipated at this time; however, interceptor, and lift station upgrades will allow increased collection capabilities. Customer Base - Customer base information is often expressed in terms of number of equivalent units (generally an equivalent unit is equal to a typical single family home). The City currently has approximately 7,783 water equivalent units and approximately 7,730 sewer equivalent units. These connections range in size from 3/4" residential meters to 10" commercial meters. System Rates and Charges - The City currently charges typical residential water customers a base rate of $13.00 per month. The City charges commercial customers a base rate ranging from $13.00 to $ per month depending on meter size. The base rate includes the first 10,000 gallons of water. There is an additional volume charge for all customers using more than the initial 10,000 gallons of $0.95 per 1000 gallons. The City currently charges typical residential sewer customers a base rate of $19.36 per month. The City charges commercial customers a base rate ranging from $16.17 to $ per month depending on meter size. The meter information for water is also used for sewer billing calculations. The base rate includes the first 10,000 gallons. There is an additional volume charge for all commercial customers using more than the initial 10,000 gallons of $0.99 per 1000 gallons. Connection Fees - The City currently charges $1,500 per equivalent unit for new water service. The City currently charges $1,848 per equivalent unit for new sewer service. These rates will likely increase substantially upon completion of the rate study which is nearly finished. 16

27 Rate Increases - The City has not had an operating rate increase since General inflation has increased 27 percent since 1997, so rates for all water and sewer services will likely increase a minimum of 27 percent. Rates will also increase to fund system replacements (depreciation) and increased operating costs for regulatory compliance (such as arsenic treatment in water and discharge requirements in sewer). The city has not had a connection fee increase since Connection fees will likely increase substantially and impact fees will be implemented for direct impacts of development. In addition, new operating rates, and connection charges will be established for non-potable water systems when infrastructure is completed to deliver nonpotable water to customers. Environmental and Other Regulatory Matters - The City s Public Works Department is unaware of any environmental or regulatory issues which may impact its ability to continue water and sewer services. Police Power LEGAL MATTERS The obligations of the City are subject to the reasonable exercise in the future by the State and its governmental bodies of the police power and powers of taxation inherent in the sovereignty of the State, and to the exercise by the United States of the powers delegated to it by the Federal Constitution. Litigation The City's legal counsel is of the opinion that there is no litigation either pending or threatened which may materially affect the City's ability to perform its obligations to the owners of the Bonds. In view of the financial condition of the City, the City's legal counsel is of the opinion that the City's financial condition will not be materially affected by any pending litigation, based on information known at the time this report was prepared. Chapter 41 of the NRS provides a $50,000 limit per claim to the City s tort liability which may not be applicable to suits against the City in courts of another state and in some suits in federal court. No such extended liability suits are pending or known at this time. Legal Opinion The legal opinion of Swendseid & Stern, a member in Sherman & Howard L.L.C., Las Vegas and Reno, Nevada, Bond Counsel, as to the validity and enforceability of the Bonds will be made available to the Initial Purchaser at the time of the initial delivery of the Bonds. 17

28 TAX MATTERS Federal Tax Matters In the opinion of Bond Counsel, assuming continuous compliance with certain covenants described below, interest on the Bonds is excluded from gross income under Section 103 of the Tax Code, and interest on the Bonds is excluded from alternative minimum taxable income as defined in Section 55(b)(2) of the Tax Code except that such interest is required to be included in calculating the adjusted current earnings adjustment applicable to corporations for purposes of computing the alternative minimum taxable income of corporations as described below. The Tax Code imposes several requirements which must be met with respect to the Bonds in order for the interest thereon to be excluded from gross income and alternative minimum taxable income (except to the extent of the aforementioned adjustments applicable to corporations). Certain of these requirements must be met on a continuous basis throughout the term of the Bonds. These requirements include: (a) limitations as to the use of proceeds of the Bonds; (b) limitations on the extent to which proceeds of the Bonds may be invested in higher yielding investments; and (c) a provision, subject to certain limited exceptions, that requires all investment earnings on the proceeds of the Bonds above the yield on the Bonds to be paid to the United States Treasury. The City will covenant and represent in the Bond Ordinance that it will take all steps to comply with the requirements of the Tax Code to the extent necessary to maintain the exclusion of interest on the Bonds from gross income and alternative minimum taxable income (except to the extent of the aforementioned adjustment applicable to corporations) under federal income tax laws in effect when the Bonds are delivered. Bond Counsel's opinion as to the exclusion of interest on the Bonds from gross income and alternative minimum taxable income (to the extent described above) is rendered in reliance on these covenants, and assumes continuous compliance therewith. The failure or inability of the City to comply with these requirements could cause the interest on the Bonds to be included in gross income, alternative minimum taxable income or both from the date of issuance. Bond Counsel's opinion also is rendered in reliance upon certifications of the City and other certifications furnished to Bond Counsel. Bond Counsel has not undertaken to verify such certifications by independent investigation. Section 55 of the Tax Code contains a 20 percent alternative minimum tax on the alternative minimum taxable income of corporations. Under the Tax Code for taxable years beginning after 1989, 75 percent of the excess of a corporation's adjusted current earnings over the corporation's alternative minimum taxable income (determined without regard to this adjustment and the alternative minimum net operating loss deduction) is included in the corporation's alternative minimum taxable income for purposes of the alternative minimum tax applicable to the corporation. Adjusted current earnings includes interest on the Bonds. The Tax Code contains numerous provisions which may affect an investor's decision to purchase the Bonds. Owners of the Bonds should be aware that the ownership of tax-exempt obligations by particular persons and entities, including, without limitation, financial institutions, insurance companies, recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, foreign corporations doing business in the United States, and certain subchapter S corporations may result in adverse federal tax consequences. Certain of the Bonds may be sold at a premium, representing a difference between the original offering price of those Bonds and the principal amount thereof payable at maturity. Under certain circumstances, an initial owner of such bonds (if any) may realize a taxable gain upon their disposition, even though such bonds are sold or redeemed for an amount equal to the owner's acquisition cost. Bond Counsel's opinion relates only to the exclusion of interest on the Bonds from gross income and alternative minimum taxable income as described above and will state that no opinion is expressed regarding other federal tax consequences arising from the receipt or accrual of interest on or ownership of the Bonds. Owners of the Bonds should consult their own tax advisors as to the applicability of these consequences. 18

29 The opinions expressed by Bond Counsel are based on existing law as of the date of delivery of the Bonds. No opinion is expressed as of any subsequent date nor is any opinion expressed with respect to pending or proposed legislation. Amendments to the federal tax laws may be pending now or could be proposed in the future which, if enacted into law, could adversely affect the value of the Bonds, the exclusion of interest on the Bonds from gross income or alternative minimum taxable income, or both from the date of issuance of the Bonds or any other date, or which could result in other adverse federal tax consequences. Bondowners are advised to consult with their own tax advisors with respect to such matters. The Internal Revenue Service (the Service ) has an ongoing program of auditing tax-exempt obligations to determine whether, in the view of the Service, interest on such tax-exempt obligations is includable in the gross income of the owners thereof for federal income tax purposes. No assurances can be given as to whether or not the Service will commence an audit of the Bonds. If an audit is commenced, the market value of the Bonds may be adversely affected. Under current audit procedures, the Service will treat the City as the taxpayer and the Owners may have no right to participate in such procedures. The City has covenanted in the Bond Ordinance not to take any action that would cause the interest on the Bonds to lose its exclusion from gross income for federal income tax purposes or lose its exclusion from alternative minimum taxable income except to the extent described above for the owners thereof for federal income tax purposes. None of the City, the Underwriter, the Financial Advisor, or Bond Counsel is responsible for paying or reimbursing any Registered Owner or Beneficial Owner for any audit or litigation costs relating to the Bonds. State Tax Matters The Bonds, their transfer, and the income therefrom, are free and exempt from taxation by the State or any subdivision thereof except for the tax on estates imposed pursuant to Chapter 375A of NRS and the tax on generation skipping transfers imposed pursuant to Chapter 375B of NRS. BOND RATINGS As noted on the inside cover of this Official Statement, the City has received a rating on the Bonds from Moody s Investors Service, Inc. ("Moody's") of Aaa on the Bonds with the understanding that, upon delivery, the Policy will be issued by the Insurer. Moody's has also issued an underlying rating of A3 for the City. There is no assurance that such ratings will continue for any given period of time after they are received or that they will not be lowered or withdrawn entirely if, in the judgement of the rating agency, circumstances so warrant. Other than the City's obligations under the Disclosure Certificate, neither the City nor the Financial Advisor has undertaken any responsibility either to bring to the attention of the owners of the Bonds any proposed change in or withdrawal of such a rating or to oppose any such proposed revision. Any such change in or withdrawal of the rating could have an adverse effect on the marketability or market price of the Bonds. INDEPENDENT AUDITORS The excerpts of the Comprehensive Annual Financial Report of the City as of and for the year ended June 30, 2006, included hereto as Appendix B, have been audited by Kafoury, Armstrong & Co., certified public accountants, Fallon, Nevada. 19

30 FINANCIAL ADVISOR JNA Consulting Group, LLC is serving as financial advisor to the City in connection with the Bonds. The Financial Advisor has not audited, authenticated, or otherwise verified the information set forth in the Official Statement, or any other related information available to the City, with respect to the accuracy and completeness of disclosure of such information, and no guarantee, warranty, or other representation is made by the Financial Advisor respecting accuracy and completeness of the Official Statement or any other matter related to the Official Statement. UNDERWRITING The Bonds were purchased by LaSalle Financial Services, Inc. at a price of $50,469, MISCELLANEOUS Additional information is available from the City s Treasurer, 595 Silver Lace Boulevard, Fernley, Nevada 89408, or the City s Financial Advisor, JNA Consulting Group, LLC,1400 Wyoming Street, Suite 3, Boulder City, Nevada 89005, Any statements made in this Official Statement involving matters of opinion, assumptions, projections, anticipated events, or estimates, whether or not expressly stated, are set forth as such and not as presentations of fact and actual results may differ substantially from those set forth therein. Neither this Official Statement nor any statement which may have been made verbally or in writing is to be construed as a contract with the holders of the Bonds. The summary of certain provisions of the Bonds, the Bond Ordinance, the Nevada statutes and other documents referred to in this Official Statement do not purport to be complete, and reference is made to each of them for a complete statement of their provisions. Copies of such documents are available for review by making requests to the office of the City Treasurer. The appendices are an integral part of this Official Statement and must be read together with all other parts of the Official Statement. City of Fernley, Nevada /s/ Bonnie Duke City Administrative Services Director 20

31 APPENDIX A General CITY OF FERNLEY Fernley is one of the fastest growing communities in the State. It is home to approximately 19,700 people which includes surrounding agricultural areas. The City is situated on Interstate 80, 39 miles east of Reno. The City currently occupies approximately 164 square miles in Lyon County. Fernley was established in 1904 primarily as an agricultural and ranching community, however since the 1980's development has been stimulated by the construction of two major industrial parks. The City was incorporated July 1, 2001, and provides water and sewer utilities, streets, culture and recreation, planning and zoning, animal control, and general administrative services to its citizens. Prior to July 1, 2001, the city was organized as an unincorporated town in accordance with NRS 269. City Council The City has a council/manager form of government where the mayor and council make policy decisions which the City Manager and his staff implement. The mayor and five-member council are elected for staggered four year terms. The current members of the Council and their terms of office are as follows: Administration Term Expiration Todd Cutler, Mayor 2010 Charles Shepperd, Ward Joe Mortensen, Ward Monte Martin, Ward Curt Chaffin, Ward Ralph Menke, Ward The City Manager is appointed by the Council and oversees the day-to-day operations of the City. He is charged with performing administrative duties assigned by the Council and may appoint clerical and administrative assistants as he deems necessary, subject to the approval of the Council. The Office of the City Manager is directly responsible for human resources, labor relations, media and public relations, as well as general administration. GARY BACOCK, City Manager - In September of 1998, Mr. Bacock became Fernley s first town manager and on July 1, 2001, when the town was incorporated, became the City s first city manager. He earned his BS degree in business administration and masters degree in public administration from Cal State University, Long Beach. He worked 20 years for two southern California cities in administration, personnel, labor relations, telecommunications, and other miscellaneous duties as assigned. A-1

32 BONNIE DUKE, Administrative Services Director - Ms. Duke was hired as the City s Administrative Services Director in November She is a native of Elko Nevada and earned a BS degree in accounting from Weber State University in Prior to her employment with the City, she spent four years as county manager for Lander County, Nevada and approximately one year doing general consulting work. She spent three years as the treasurer for Bethel, Alaska. LOWELL PATTON, Public Works Director - Mr. Patton has 17 years of experience in construction field inspection, project management, project engineering design, and contract management. His unique combination of project design, management, administration, and field inspection experience creates an exceptional ability in the area of field implementation of plans and specification. Mr. Patton s project engineering design experience includes system modeling, alternative analysis, and field studies. ROBERT TERRY GILBERT, Community Development Director - Mr. Gilbert recently came to Fernley from Sarasota County, Florida, where he held numerous senior level management positions related to planning and development activities. Certified through the American Institute of Certified Planners and the American Planning Association, Mr. Gilbert is fully qualified in planning and development activities and has held each level of land use planner through principal planner and zoning administrator. KEITH PENNER, Parks and Recreation Director - Mr. Penner worked with parks departments on the county level in California. In Nevada he held positions ranging from ranger to supervisor III. Mr. Penner has 23 years experience in park management, and a bachelor degree from Sonoma State University in recreation and resource management. Employee Relations and Pension Benefits Employee Relations - As of February 6, 2007, the City has approximately 61 full time employees. The City considers its relations with its employees satisfactory. The City s has one bargaining unit with a contract which expires June 30, A compensation study was done in cooperation with the current contract. Pension Matters - The State s Public Employees Retirement System ("PERS", the System or the Plan ) covers substantially all public employees of the State, its agencies and its political subdivisions, including the City. The System, established on July 1, 1948, by the State Legislature (the Legislature ), is governed by the Public Employees Retirement Board (the Retirement Board ) whose seven members are appointed by the Nevada governor. Retirement Board members serve for a term of four years. All public employees who meet certain eligibility requirements participate in the System, which is a cost sharing multiple-employer defined benefit plan. All public employees employed in positions which are half-time or more are mandated by State law to participate in the Plan. Benefits are fully vested with five years of service. Vested members are entitled to a life-time monthly retirement benefit equal to 2.5 percent of a member s average compensation for each year of service (to a maximum of 30 years) earned before July 1, 2001, and 2.67 percent for each year of service earned on or after July 1, Average compensation is the average of the member s highest compensation for 36 consecutive months. The plan also provides death and disability benefits. Benefits are established by State statute. A-2

33 Members of the System with five years of service are eligible to retire at 65. Regular members with 10 or more years of service can receive an unreduced benefit at age 60 or older. Members with 30 or more years of service can retire at any age without penalty. Police and fire members with 10 or more years or police/fire service credit can receive an unreduced benefit at age 55 or older, members with 20 or more years of police/fire service credit can receive an unreduced benefit at age 50 or older and police/fire members can retire at any age with 25 years of service. Plan benefits are funded under one of two methods. Under the employer pay contribution plan, the City is required to contribute all amounts due under the plan. The rate for those contributions was percent for regular members in The City's contribution rates for fiscal years 2004 and 2005 were percent. The second funding mechanism for providing benefits to regular employees is the employer/employee paid contribution plan. Under this method, employees are required to contribute a percentage of their compensation to the plan, while the City is required to match that contribution. The rate for regular employees under this plan during fiscal year 2006 was 10.5 percent. The contribution requirements of the plan are established by NRS Chapter 286 and may only be amended through legislation. The City s contributions to PERS for the years ended June 30, 2004, 2005 and 2006 were $237,940, $271,684 and $194,978 respectively. See Note 5 in Appendix B for a summary description of the Plan. In addition, copies of the most recent audited financial statements for the System are available from the Public Employees Retirement System of the State, 693 West Nye Lane, Carson City, Nevada , Retiree Health Insurance Subsidy - A law passed in 2003 by the Legislature requires local governmental entities to provide retirees with the option of joining the State sponsored health plan and subsidizing the retiree's health insurance with the same subsidy as the State provides. The City currently only has two retirees and expects that given its previous small employee base, any impact for retiree benefits will be minimal for the foreseeable future. The City is currently studying its options for addressing this issue. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK A-3

34 FINANCIAL INFORMATION Annual Reports The City prepares a financial report setting forth the financial condition of the City as of June 30 of each fiscal year. The latest completed report on the financial statements is for the year ended June 30, See Appendix B - City of Fernley, Nevada Excerpts From Comprehensive Annual Financial Report, June 30, The entire audit is available on the City's website. The Comprehensive Annual Financial Report is the official financial report of the City. It was prepared following generally accepted accounting principles. See Appendix B for significant accounting policies and exceptions. The City received a Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers Association ( GFOA ) for its 2005 Comprehensive Annual Financial Report. Budgeting Prior to April 15 of each year, the City is required to submit to the State Department of Taxation the tentative budget for the next fiscal year which commences on July 1. The tentative budget contains the proposed expenditures and means of financing them. After reviewing the tentative budget, the State Department of Taxation is required to notify the City upon its acceptance of the budget. Following acceptance of the proposed budget by the State Department of Taxation, the Council is required to conduct public hearings on the third Wednesday in May. The Council normally is required to adopt the final budget on or before June 1. The City is authorized to transfer budgeted amounts within functions or funds, but any other transfers must be approved by the Council. Increases to a fund s budget other than by transfers are accomplished through formal action of the Council. With the exception of monies appropriated for specific capital projects or Federal and State grant expenditures, all unencumbered appropriations lapse at the end of the fiscal year. GFOA has awarded the City's 2006 budget its "Distinguished Budget Presentation," the fourth year the City has received this award. Accounting All governmental funds are accounted for using the modified accrual basis of accounting in which revenues are recognized when they become measurable and available as net current assets. Sales and use taxes, motor vehicle fuel taxes, and privilege taxes are considered "measurable when in the hands of intermediary collecting governments and are recognized as revenue at that time. Property taxes are considered measurable when received by the City. Expenditures are generally recognized under the modified accrual basis of accounting when the related fund liability is incurred. The exceptions to this general rule are principal and interest on general long-term debt which is recognized when due and the liability for compensated absences is generally recorded at year end. All proprietary funds are accounted for using the accrual basis of accounting in which revenues are recognized when they are earned and expenses are recognized when they are incurred. Unbilled service receivables are recorded at year end. A-4

35 Management s Discussion and Analysis General - As required by GASB 34, an overview of the financial activity and overall financial condition of the Agency is presented in the Management s Discussion and Analysis for the fiscal year ended June 30, 2006, attached to this Official Statement as Appendix B. The Management s Discussion and Analysis includes a general description of the District s funds and pertinent results in those funds, a government-wide financial analysis, a brief discussion of factors impacting the City s budget for , and other information, including the effect of property tax caps passed by the 2005 State legislature. Recent Events - During the current fiscal year the City has experienced a slowdown in new home construction. Based on the reduced construction activity, the City anticipates receiving less revenues from construction related fee and permit revenue than currently budgeted. However, a higher than anticipated ending fund balance in fiscal year 2006 should offset the reduced revenue allowing the City to maintain its current budget plan. Connection fees for the water and sewer fund have also been less than anticipated yearto-date and the City anticipates receiving approximately $500,000 less than budgeted for the water fund and approximately $1,000,000 less then budgeted in the sewer fund. The City has nearly completed a rate study for utility rates and charges. As a result of the rate study, it is anticipated that user fees and connection charges will be increased for fiscal year 2008 which would likely bring revenues from connection fees up to historical levels even though the actual number of connections has decreased. Economic activity continues in the City with continued residential building. Various big box retailers including WalMart and Lowe s, have expressed interest in locating within the City. The estimated assessed value for fiscal year 2008 is $679,680,158 which is up over 30 percent from current year values and double the valuation for fiscal year General Fund The purpose of the General Fund is to finance the ordinary operations of the City, including debt service to the extent that any pledged revenues are not sufficient to service outstanding debt, and to finance those operations not provided for in other funds. Included are all transactions related to the approved current operating budget, its accompanying revenue, expenditures and encumbrances, and its related asset, liability, and fund equity accounts. The City derives the majority of its revenues from licenses, fees, permits, property taxes, and consolidated taxes. The City s expenditures from the general fund include community development, culture and recreation, and several general government services. The following table presents a record of revenues and expenditures associated with the City's General Fund. Also see Appendix B - Fernley, Nevada, Excerpts From Comprehensive Annual Financial Report. A-5

36 The following table provides an overview of the City's general fund. GENERAL FUND REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE City of Fernley, Nevada Fiscal Year Ending June (Audited) 2003 (Audited) 2004 (Audited) 2005 (Audited) 2006 (Audited) 2007 (Budgeted) REVENUES Taxes $359,112 $374,654 $427,738 $491,820 $590,127 $888,000 Licenses and permits 936,421 1,724,743 2,230,728 2,765,687 2,231,632 2,591,000 Intergovernmental revenues 476, , , , , ,345 Fines and forfeits 17, , , , , ,500 Other revenues 40,188 51,734 78, , , ,000 TOTAL REVENUES 1,830,358 2,963,797 3,070,847 3,729,643 3,546,548 4,003,845 EXPENDITURES General government 480, , , , , ,500 Community development 240, , , , ,307 1,126,300 Judicial 61, , , , , ,400 Health 0 40,828 48, , , ,250 Culture and recreation 221, , , , , ,960 Public Works 297, , Debt Service 94,822 95, , ,400 Animal Control 10, TOTAL EXPENDITURES 1,406,132 1,778,837 1,518,350 1,956,941 2,626,574 3,630,810 Excess (Def.) of Rev. over Expenditures 424,226 1,184,960 1,552,497 1,772, , ,035 OTHER FINANCING (USES) Capital asset sales 0 0 4, Operating Transfers In/(Out) 0 (950,000) (105,000) Capital projects fund 0 0 (1,776,830) (1,690,000) (850,000) (250,000) Total Other Financing Uses 0 (950,000) (1,772,553) (1,690,000) (850,000) (355,000) Excess (Def.) of Rev. over Expenditures and Other Financing Uses 424, ,960 (220,056) 82,702 69,974 18,035 FUND BALANCE, JULY 1 353, ,416 1,012, , , ,996 FUND BALANCE, JUNE 30 $777,416 $1,012,376 $792,320 $875,022 $944,996 $963,031 SOURCE: The City s audits for fiscal years 2003 through 2006, and 2007 final budget A-6

37 Risk Management The City, as are all government entities, is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions, injuries of employees; and natural disasters. General - The City has joined together with similar public agencies throughout the State to create a pool under the Nevada Interlocal Cooperation Act. The Nevada Public Agency Insurance Pool (the "Pool") is a public entity risk pool currently operating as a common risk management and insurance program for its members. The City pays an annual premium and specific deductibles, as necessary, to the Pool for its general insurance coverage. The Pool is considered a self-sustaining risk pool that will provide coverage for its members for up to $200,000/$350,000 per casualty insured event. The Pool obtains independent coverage for insured events in excess of these limits. The City has also joined together with similar public agencies, under the Nevada Interlocal Cooperation Act, to create an intergovernmental self-insured association for workers compensation insurance, the Public Agency Compensation Trust ( PACT ). The City pays a premium based on payroll costs to the PACT. The PACT is considered a self sustaining pool that will provide coverage up to $350,000/$700,000 per insured event. The PACT obtains independent coverage for events in excess of these limits. The City continues to carry commercial insurance for other risks of loss, including specific risks of loss not covered by the Pool, such as bonding and employee health and accident insurance. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK A-7

38 Property Tax Base and Tax Roll Collection The State Department of Taxation reports the total assessed valuation of property within the City for the fiscal year ending June 30, 2007, is $511,154,623, which represents a percent increase from the $377,743,200 assessed value for fiscal year The preliminary estimate for fiscal year 2008 is $679,680,158. State law requires that the county assessor reappraise at least once every five years all real and secured personal property (other than certain utility owned property which is centrally appraised and assessed by the Nevada Tax Commission). While the law provides that in years in which the property is not reappraised, the county assessor is to apply a factor representing typical changes in value in the area since the preceding year, it is the policy of the County assessor to reappraise all real and secured personal property in the County each year. State law requires that property be assessed at 35 percent of taxable value, which percentage may be adjusted upward or downward by the Legislature. Based upon the assessed valuation for the fiscal year 2007, the taxable value of all taxable property within the City is $1,460,441,780. "Taxable value" is defined in the statutes as the full cash value in the case of land and as the replacement cost less straight-line depreciation in the case of improvements to land and in the case of taxable personal property, replacement value less depreciation in accordance with the regulations of the Nevada Tax Commission but in no case an amount in excess of the full cash value. Depreciation of improvements to real property must be calculated at 1.5 percent of the cost of replacement for each year of adjusted actual age up to a maximum of fifty years. Adjusted age is actual age adjusted for any addition or replacement made which is valued at 10 percent or more of the replacement cost after the addition or replacement. The maximum depreciation allowed is 75 percent of the cost of replacement. Consequently, when a substantial addition or replacement is made to depreciable property, its "actual age" will be adjusted, i.e., reduced to reflect the increased useful term of the structure. The following table provides a record of the assessed valuation in the City. ASSESSED VALUATION City of Fernley, Nevada Fiscal Year Assessed Valuation Percent Change 2003 $246,640, ,452, % ,180, % ,743, % ,154, % SOURCE: The State Department of Taxation, Property Tax Rates for Nevada Local Governments fiscal years 2003 through 2007 A-8

39 The County s tax roll collection record appears in the following table. TAX LEVIES, COLLECTIONS AND DELINQUENCIES 1 Lyon County, Nevada As of February 8, 2007 Fiscal Year Ending June 30 Net Levy Roll Current Taxes Collected % of Net Levy Collected Delinquent Taxes Collected Total Taxes Collected as a % of Net Levy $15,991,254 $15,424, % $435, % ,604,003 16,543, % 911, % ,981,873 19,526, % 295, % ,545,461 23,089, % 266, % ,494,746 26,945, % 189, % ,718,014 24,806, % n/a n/a 1 Represents the real property tax roll levies and collections. 2 Figured on collections to net levy (actual levy less stricken taxes). SOURCE: County Treasurer's Office Taxes on real property are due on the third Monday in August unless the taxpayer elects to pay in quarterly installments, in which case the taxes can be paid in approximately four equal installments on or before the third Monday in August and the first Mondays in October, January, and March. Penalties are assessed if any taxes are not paid within 10 days of the due date as follows: four percent of the delinquent amount if one quarterly installment is delinquent, five percent of the delinquent amount plus accumulated penalties if two quarterly installments are delinquent, six percent of the delinquent amount plus accumulated penalties if four installments are delinquent. In the event the taxes remain delinquent as of the first Monday in June, the city treasurer is authorized to hold the property in trust for the benefit of the State and the County for two years, subject to redemption upon payment of taxes, penalties, and costs, together with interest at the rate of 10 percent per year from the date the taxes were due until paid. If delinquent taxes are not paid within the two-year redemption period, the County treasurer obtains a deed to the property free of all encumbrances. Upon receipt of a deed, the County treasurer may sell the property, after giving notice of sale, to satisfy the tax lien and assessments by local governments for improvements to the property. As an alternative remedy with respect to certain delinquencies over $1,000, the District Attorney may, and shall when directed by the Board of County Commissioners (the Commissioners ), commence a judicial foreclosure action against the delinquent taxpayer before the expiration of the two-year redemption period. A-9

40 The following chart represents the 10 largest taxpayers in the City and the respective assessed values of the property for the 2006 fiscal year. No independent investigation has been made, and consequently there can be no representation as to the financial conditions of the taxpayers listed, or that such taxpayers will continue to maintain their status as major taxpayers based on the assessed valuation of their property in the City. TEN LARGEST TAXPAYERS Fiscal Year 2006 Lyon County, Nevada Taxpayer Type of Business Assessed Value 1 % of Total Assessed Value 2 Sierra Pacific Power Company Utility $34,544, % Amazon.com Internet Books 15,933, % BMO Leasing US Inc. Printing 14,554, % Southwest Gas Corporation Utility 9,102, % Nevada Cement Company Manufacturing 7,216, % Sonterra Development Co. Inc. Development 7,117, % Trex Company Inc. Industrial 6,703, % SBC Utility 5,114, % MSC Industrial Direct Co. Inc. Manufacturing 4,971, % Peri & Peri/Desert Pearl Farms Agriculture 4,487, % TOTAL $109,746, % 1 Does not include net proceeds of mines. 2 Based on the total 2006 assessed valuation for the County of $1,053,093,222. SOURCE: County Assessor's Office REMAINDER OF PAGE INTENTIONALLY LEFT BLANK A-10

41 Property Tax Limitations Overlapping Property Tax Caps - Article X, Section 2, of the Constitution of the State of Nevada limits the total property taxes levied by all overlapping governmental units within the boundaries of any county (i.e., the county, the school district, the State, and any other city, town, or special district) to an amount not to exceed five cents ($0.0500) per dollar of assessed valuation ($5 per $100 of assessed valuation) of the property being taxed. Further, the combined overlapping tax rate is limited by statute to $3.64 per $100 of assessed valuation in all counties of the State, except for certain statutory exceptions that permit a combined overlapping tax rate of up to $5.00 per $100 of assessed valuation. Notwithstanding the foregoing, the State is authorized to levy an additional two cents ($0.0200) outside of the $3.64 statutory cap; one cent is used for Statewide capital improvements and the other for debt service on certain voter-approved State bonds. State statutes provide a priority for taxes levied for the payment of general obligation bonded indebtedness. In any year in which the proposed tax rate to be levied by overlapping units within a county exceeds any rate limitation, a reduction must be made by those units for purposes other than the payment of general obligation bonded indebtedness, including interest thereon. Local Government Property Tax Revenue Limitation - State statutes limit the revenues local governments, other than school districts, may receive from property taxes for purposes other than paying certain general obligation indebtedness which is exempt from such property revenue limits. This rate is generally limited as follows: The assessed value of property is first differentiated between that for property existing on the assessment rolls in the prior year (old property) and new property. Second, the property tax revenue derived in the prior year is increased by no more than six percent and the tax rate to generate the increase is determined against the current assessed value of the old property. Finally, this tax rate is applied against all taxable property to produce the allowable property tax revenues. This cap operates to limit property tax revenue dependent upon changes in the value of old property and the growth and value of new property. A local government, other than a school district, may exceed the property tax revenue limitation if the proposal is approved by its electorate at a general or special election. In addition, the executive director of the State Department of Taxation will add, to the allowed revenue from property taxes, the amount approved by the Legislature for the costs to a local government of any substantial programs or expenses required by legislative enactment. In the event sales tax estimates from the State Department of Taxation exceed actual revenues available to local governments, Nevada local governments receiving such sales tax may levy a property tax to make up the revenue shortfall. State statutes limit the revenues school districts may receive from property taxes for operating purposes. Pursuant to NRS , each board of county commissioners shall levy a tax of $0.75 per $100 of assessed valuation for the support of the public schools within the county school district. School districts are also allowed additional levies for voter-approved debt service and voter-approved tax overrides for capital projects. The Nevada Tax Commission monitors the impact of tax legislation on local government services. A-11

42 Property Tax Abatement Provisions Recent Constitutional Amendment - Senate Bill 440 ("SB440") became effective July 1, SB440 provides that the owner of a single-family residence may file a claim with the county assessor to postpone the payment of all or part of the property tax due against his residence if (among other requirements): the residence has an assessed value of not more than $175,000; the property owner does not own any other real property in the State with an assessed value of more than $30,000; the owner is not in bankruptcy; the owner owes no delinquent property taxes on the residence; the owner has suffered severe economic hardship caused by circumstances beyond his control (such as illness or a disability expected to last for at least 12 continuous months); and the total annual income of the owner's household is at or below the federally designated poverty level. The amount of tax that may be postponed may not exceed the amount of property tax that will accrue against the residence in the succeeding three fiscal years. Any postponed property tax (and any penalties and the interest that accrued as provided in SB440) constitutes a perpetual lien against the residence until paid. The postponed tax becomes due and payable if: the residence ceases to be occupied by the claimant or is sold; any non-postponed property tax becomes delinquent; if the claimant dies; or on the date upon which the postponement expires, as determined by the county assessor. The impact of SB440 on property tax revenues within the City cannot be predicted at this time. Further, it is possible that the Legislature will further refine the definition of "severe economic hardship" in a manner that will warrant an increase in abatements or assessed value exemptions in the future. Should that occur, property tax revenues could be adversely impacted in the future. As of February 6, 2007 the County treasurer had not received any requests for postponement of payment of property tax due to severe economic hardship. Required Property Tax Abatements - In its 2005 session, the Legislature approved two bills, Assembly Bill 489 ("AB489") and Senate Bill 509 ("SB509"), that require reductions (abatements) of property taxes in certain situations. AB489 and SB509 are referred together as the "Abatement Act". Generally, through adoption of the Abatement Act, the Legislature determined that increases in property tax bills exceeding three percent over the prior year constitute a severe economic hardship to homeowners that the State constitution permits the Legislature to prevent. In order to address that hardship, the Legislature established formulas to determine tax abatements for residential property owners. In addition, the Legislature established formulas for the abatement of a portion of the property taxes on low-income rental property and all other property. The Abatement Act directs the Nevada Tax Commission and the Committee on Local Government Finance to adopt regulations for the administration and interpretation of certain of its provisions and some provisions of the Abatement Act likely will require additional interpretation through legislation, regulation, or by the State's courts. However, the general impact of the Abatement Act will be to limit increases in property tax revenues received by any taxing entity on existing property to approximately three percent per year (plus larger increases allowed for nonresidential properties). That limitation could negatively impact the future finances and operations of the taxing entities in the State, including the City, to an extent that cannot be determined at this time. The estimated impact to the City for fiscal year 2007 is $457,876 in the General Fund. A-12

43 Formulas to Determine Abatements - For existing owner occupied residential properties, an abatement generally is required to reduce the amount of property taxes owed to not more than three percent more than the amount levied in the immediately preceding fiscal year. That same formula applies (as a charitable exemption) to commercial property that qualifies as low-income rental housing. Finally, for all existing properties, an abatement from property taxation is required to reduce the amount of property taxes owed to no more than an amount determined pursuant to a two-part formula. The first part of the formula requires a determination of the lesser of: (1) the average percentage change in the assessed valuation of all taxable property in the county over the 10-year period immediately preceding the fiscal year in which a levy is to be made; or (2) eight percent. The second part of the formula requires determination of the percentage equal to twice the increase in the Consumer Price Index or all Urban Consumers, U.S. City Average (All Items) for the immediately preceding calendar year. After making both determinations, whatever part of the formula yields the greatest percentage is used to establish the maximum percentage increase (over the prior year) in tax liability for each existing property. This abatement formula also must be applied to existing owner-occupied residential properties and low-income rental properties if it yields a greater reduction in property taxes than the three percent test described above. Unless otherwise provided by a specific statute, if any legislative act imposes a duty on a taxing entity to levy a new property tax or to increase the rate of an existing property tax, the amount of any new tax or increase in the rate of the existing tax is exempt from the partial abatement formulas. In addition to the required abatements, the Abatement Act requires the Nevada Tax Commission to adopt regulations simplifying the procedures to be followed by any business in the State to obtain a reduction in the assessed value of property used to conduct a business if such a reduction is appropriate under the "income approach" to property valuation. Apportionment of Abatements - If the application of the partial abatement provisions require a reduction in the amount of property taxes levied in a county for a fiscal year, the Abatement Act requires that the amount of the reduction be deducted from the amount of property taxes each taxing entity otherwise would be entitled to receive for that fiscal year. Those tax rate increases are to be allocated to the entities that increased their tax rates in proportion to the amount of tax rate increases for each such entity. Other abatements (i.e., those caused by an increase in assessed value) generally are required to be allocated among taxing entities in the same proportion as the rate of property taxes levied for that taxing entity bears to the total combined rate of all property taxes levied for the fiscal year. Recapture of Lost Revenue in Certain Cases - Notwithstanding the abatement provisions discussed above, if the taxable value of any property (a) decreases by 15 percent or more from its taxable value on the later of (1) July 1, 2003 or (2) July 1 of the second year immediately preceding the lien date for the current year; and (b) for any fiscal year beginning on or after July 1, 2005, increases by 15 percent or more from its taxable value for the immediately preceding fiscal year, the amount of property taxes which would have been collected for the property as a result of that amount attributable to any increase in taxable value if not for the abatement provisions discussed above (but excluding any amount attributable to any increase in the taxable value of the property above its taxable value on the most recent date determined pursuant to clause (a) above), must be levied on the property over three fiscal years. The amount of taxes carried forward and levied on any property must be added to the amount of property taxes each taxing entity would otherwise be entitled to receive in a fiscal year using the same proportional formula described above. A-13

44 Levies for Debt Service - Notwithstanding the abatement provisions discussed above, a taxing entity may, if otherwise authorized by law, increase the rate of a property tax for the payment of any obligations secured by the proceeds of that tax (tax-secured obligations) if the entity determines that the additional tax rate is necessary to satisfy those obligations. Pursuant to the Abatement Act, an additional tax rate is deemed necessary if the rate of the property tax most recently levied for the payment of the tax-secured obligations will not produce sufficient revenue, after considering the effect of the partial abatement, to satisfy those obligations during the next fiscal year. For obligations issued on or after July 1, 2005, such an increase in the rate of a property tax for the payment of tax-secured obligations is exempt from the partial abatement formulas if before the issuance of the obligations (1) the governing body of the taxing entity makes a finding that no increase in the rate of a property tax is anticipated to be necessary for payment of the obligations during their term and (2) the debt management commission of the county approves the finding. The tax rate also may be increased if otherwise authorized by law if voter approval is obtained. However, tax rates which were voter-approved before April 6, 2005, generally are not exempt from the Abatement Act formulas. Any increase in the rate of property taxes required to pay the principal of or interest on the Bonds is exempt from the partial abatement formulas described above. Possible Effects on Operating Levies - Under existing State law, limited tax levies must be used to pay debt service on general obligation bonds before being used for operations. Even though increases in the rate of a property tax for the payment of tax-secured obligations and voter-approved taxes may be exempt from the partial abatement formulas, the revenue limits imposed by the Abatement Act may require taxing entities in the State to cut operating revenues, and therefore the services funded by those revenues, to an extent that cannot be determined at this time. In addition, the abatement formulas may cause the statutory maximum combined overlapping tax rate of $3.64 per $100 of assessed valuation to be reached sooner than it would otherwise be reached. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK A-14

45 Overlapping Tax Rates The overlapping rate for the City depends on the rates imposed by applicable taxing jurisdictions. For fiscal year 2007, the overlapping taxing rate of the City is $ The following table shows a history of the overlapping tax rate in the City. STATEWIDE AVERAGE AND OVERLAPPING TAX RATES 1 City of Fernley, Nevada Fiscal Year Ended June Average Statewide Rate $ $ $ $ $ City of Fernley School District Combined Special Districts County Tax Rate State of Nevada TOTAL $ $ $ $ $ Per $100 of assessed valuation. SOURCE: The State Department of Taxation, Property Tax Rates for Nevada Local Governments, fiscal years REMAINDER OF PAGE INTENTIONALLY LEFT BLANK A-15

46 DEBT STRUCTURE Debt Limitation State statutes limit the aggregate principal amount of the City's general obligation debt to 30 percent of the City's total assessed valuation. Based upon the assessed valuation for fiscal year 2007 of $511,154,623, the City's debt limit for general obligations is $153,346,387, with $51,499,637 of such debt to which the limit applies outstanding and proposed as of March 1, The following table presents a record of the City's outstanding general obligation indebtedness with respect to its statutory debt limitation. STATUTORY DEBT LIMITATION City of Fernley, Nevada Fiscal Year Ended June 30 Assessed Valuation Debt Limit Outstanding and Proposed General Obligation Debt Additional Statutory Debt Capacity 2003 $246,640,476 $73,992,143 $2,339,978 $71,652, ,452,986 83,835,896 2,071,200 81,764, ,180,006 90,954,002 1,823,027 89,130, ,743, ,322,960 1,560, ,762, ,154, ,346,387 51,499, ,846,750 1 Outstanding and proposed as of March 1, 2007; includes the Bonds. SOURCE: The State Department of Taxation, Property Tax Rates for Nevada Local Governments, for fiscal years 2002 through 2007, and the City; compiled by JNA Consulting Group, LLC The City may issue general obligation bonds by means of authority granted to it by its electorate or the Legislature or, under certain circumstances, without an election as provided in existing statutes. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK A-16

47 Outstanding and Proposed Debt and Other Obligations The following table presents the outstanding and proposed indebtedness of the City. OUTSTANDING AND PROPOSED DEBT AND OTHER OBLIGATIONS City of Fernley, Nevada as of March 1, 2007 Bonds Date Issued Original Amount Amount Outstanding GENERAL OBLIGATION REVENUE BONDS State Water Pollution Control 10/28/92 $2,000,000 $829, Refunding Bonds 11/25/03 950, , Water and Sewer Bonds (this issue) 03/08/07 50,000,000 50,000,000 TOTAL GENERAL OBLIGATION REVENUE BONDS $51,499,637 OTHER OBLIGATIONS City Hall Installment Purchase 12/29/05 $5,000,000 $4,842,000 SOURCE: The City; compiled by JNA Consulting Group, LLC REMAINDER OF PAGE INTENTIONALLY LEFT BLANK A-17

48 OUTSTANDING OVERLAPPING GENERAL OBLIGATION INDEBTEDNESS City of Fernley, Nevada June 30, 2006 Entity 1 Total General Obligation Indebtedness Presently Self-Supporting General Obligation Indebtedness Percent Applicable 2 Overlapping General Obligation Indebtedness 3 Lyon County School District $52,740,000 $9,528, % $16,186,017 Lyon County 16,387,639 16,332, % 20,804 State of Nevada 2,390,841,281 1,233,830, % 5,165,205 TOTAL $21,372,026 1 Excludes entities with no direct overlapping general obligation indebtedness. 2 Based on fiscal year 2007 assessed valuation in the respective jurisdiction. 3 Overlapping General Obligation Indebtedness equals total existing general obligation indebtedness less presently self-supporting general obligation indebtedness times percent applicable. SOURCE: State Treasurer's Office and State Department of Taxation; compiled by JNA Consulting Group, LLC NET DIRECT & OVERLAPPING GENERAL OBLIGATION INDEBTEDNESS City of Fernley, Nevada March 1, 2007 Total Direct General Obligation Indebtedness 1 $51,499,637 Less Self Supporting G.O. Indebtedness (51,499,637) 0 Plus: Overlapping General Obligation Indebtedness 2 21,372,026 Net Direct & Overlapping General Obligation Indebtedness $21,372,026 1 Includes the Bonds. 2 As of June 30, See table "OUTSTANDING OVERLAPPING GENERAL OBLIGATION INDEBTEDNESS", above. SOURCE: The City, State Department of Taxation, and the State Treasurer Office; compiled by JNA Consulting Group, LLC A-18

49 Selected Debt Ratios The following table illustrates selected ratios of the net direct debt of the City, including the Bonds, and overlapping debt within the City to assessed valuation, taxable value and population within the City. SELECTED DEBT RATIOS FOR THE CITY City of Fernley, Nevada Population ,700 Net Direct Debt 2... $0 Overlapping Debt ,372,026 Total Direct Debt & Overlapping Debt... $21,372,026 Per Capita Net Direct Debt... $0.00 Per Capita Net Total Direct Debt & Overlapping Debt... $1, Assessed Valuation 4... $511,154,623 % Net Direct Debt to Assessed Valuation % % Net Total Direct Debt & Overlapping Debt to Assessed Valuation % 2007 Taxable Value 4... $1,460,441,780 % Net Direct Debt to Taxable Value % % Net Total Direct Debt & Overlapping Debt to Taxable Value % 1 The City s final budget. 2 Outstanding and proposed debt as March 1, 2007; includes the Bonds. See the tables "OUTSTANDING AND PROPOSED DEBT AND OTHER OBLIGATIONS" and "NET DIRECT & OVERLAPPING GENERAL OBLIGATION INDEBTEDNESS" above. 3 Figure is based on information supplied by other taxing authorities and does not include selfsupporting general obligation debt. See the table "ESTIMATED OVERLAPPING GENERAL OBLIGATION DEBT", herein. 4 See "FINANCIAL INFORMATION-Property Tax Base and Tax Roll Collection" for an explanation of the Assessed Value and Taxable Value. SOURCE: The City s final budget and State Department of Taxation Property Tax Rates for Nevada Local Governments for FY ; compiled by JNA Consulting Group, LLC A-19

50 ECONOMIC AND DEMOGRAPHIC INFORMATION This portion of Appendix A contains general information concerning the economic and demographic conditions in the City. The information presented was obtained from the sources indicated, and neither the City nor the Initial Purchaser of the Bonds guarantees or makes any representation as to the accuracy or completeness of the data presented. The City was formed in 1904 primarily as an agricultural and ranching community. Fernley was established as a township in the 1930's with the Commissioners as the governing body. In 1985, the citizens installed a self-governing "town board" separate from the Commissioners. Effective July 1, 2001, Fernley incorporated as a city and assumed additional functions. The close proximity to the Reno-Sparks metropolitan area has encouraged the growth that the City is experiencing. The City is located in the most northern part of Lyon County and is approximately 39 miles east of the Reno-Sparks metropolitan area on Interstate 80. In the 1980's, the City experienced development in business and industry with the establishment of two industrial parks. Today a number of companies have located facilities in the City, including, Amazon.com, Trex Inc., Quebecor Printing, MSC Industrial Supply, Allied Signal, UPS Worldwide Logistics (Honeywell), ARE Campers, Johns Manville, Sherwin Williams, and Feldmeir Corporation, just to name a few. Other companies, including Big Box retailers, are looking to construct facilities in the City. Total gross area within the exterior boundary of the City is approximately 104,900 acres or 164 square miles. The population is approximately 19,700, the median resident age is 34.8, with a median household income in 2000 of $44,695. The City continues to enjoy a robust and affordable housing market. In the past five years the City has welcomed well over six thousand new residents. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK A-20

51 Population and Age Distribution The following table shows a record of the State s and the City s population. POPULATION Fiscal Year 1 State Percent Increase City of Fernley Percent Increase , n/a , % n/a ,236, % 5, ,998, % 8, % ,132, % 9, % ,206, % 10, % ,296, % 11, % ,372, % 13, % ,448, % 16, % ,631, % n/a n/a ,736, % n/a n/a , 1980, 1990 and 2000 figures are from the U.S. Census Bureau thru 2005 are estimates and 2006 and 2007 are projections from the Nevada State Demographer as of July SOURCE: Nevada State Demographer and U.S. Census Bureau; compiled by JNA Consulting Group, LLC The following table sets forth a comparative age distribution profile for the County, the State, and the United States as of December 31, AGE DISTRIBUTION 1 Percent of Population Age County State United States % 25.90% 24.89% % 8.80% 9.89% % 14.70% 13.46% % 22.40% 22.37% 50 and Older 32.80% 28.20% 29.38% 1 Total may not equal 100% due to rounding. SOURCE: Sales and Marketing Management: Survey of Buying Power, 2005 The following tables reflect Median Household Effective Buying Income ("EBI") and Percent of A-21

52 Households by Effective Buying Income Groups for the years 1999 through 2004 as reported in Sales & Marketing Management: Survey of Buying Power. EBI is a classification developed by Sales & Marketing Management. MEDIAN HOUSEHOLD EFFECTIVE BUYING INCOME Year County State United States 2000 $30,044 $40,213 $39, ,509 43,061 38, ,957 41,114 38, ,128 41,389 38, ,381 42,322 39,324 SOURCE: Sales and Marketing Management: Survey of Buying Power, 2005 PERCENT OF HOUSEHOLDS BY EFFECTIVE BUYING INCOME GROUPS 2004 Effective Buying Income Group County Households State Households United States Households Under $20, % 17.70% 21.5% $20,000-$34, % 22.1% 22.5% $35,000-$49, % 19.3% 19.3% $50,000 and Over 34.8% 40.9% 36.7% SOURCE: Sales and Marketing Management: Survey of Buying Power, 2005 REMAINDER OF PAGE INTENTIONALLY LEFT BLANK A-22

53 Labor and Employment The County s average annual labor force summary as prepared by the State's Department of Employment, Training and Rehabilitation ( DETR ) is as follows: AVERAGE ANNUAL LABOR FORCE SUMMARY 1 Lyon County, Nevada (Estimates in Thousands) CALENDAR YEAR TOTAL LABOR FORCE Unemployment Unemployment Rate 3 5.7% 5.5% 5.3% 5.1% 5.5% Total Employment All numbers are subject to periodic revision; based on unrounded numbers, data may not add due to rounding. 2 The U.S. unemployment rates for the years 2002 through 2006 were 5.8%, 6.0%, 5.5%, 5.1% and 4.6%, respectively. 3 Adjusted by census relationships to reflect number of persons by place of residence. SOURCE: DETR REMAINDER OF PAGE INTENTIONALLY LEFT BLANK A-23

54 The following tables indicate the number of persons employed, by type of employment, in non-agricultural industrial employment in Lyon County. The first table provides such information for 2002 through The second table provides that information as average annual numbers for calendar years 2000 and In 2003, DETR (following a decision by the United States Bureau of Labor Statistics) adopted the North American Industrial Classification System ( NAICS ) to report this information and restated its 2002 information according to the NAICS. The NAICS coding is not directly comparable to the Standard Industrial Classification used in years prior to No historical time series data using the NAICS coding is available for years prior to ESTABLISHMENT BASED INDUSTRIAL EMPLOYMENT 1 2 NAICS CLASSIFICATION Lyon County, Nevada (Annual Average) CALENDAR YEAR TOTAL ALL INDUSTRIES 10,870 11,290 10,910 12,050 12,240 Goods Producing Natural Resources & Mining Construction ,210 1,470 1,330 Manufacturing 1,990 2,100 2,310 2,480 2,340 TOTAL GOOD PRODUCING 3,010 3,220 3,690 4,090 3,800 Services Producing Trade, Transportation & Public Utilities 2,460 2,240 2,230 2,430 2,610 Information Financial Activities Professional & Business Services 1,220 1, Education & Health Services Leisure & Hospitality 990 1,050 1,140 1,360 1,520 Other Services Government 1,810 1,880 1,930 2,080 2,170 TOTAL SERVICES PRODUCING 7,580 8,080 7,220 7,970 8,420 1 Reflects employment by place of work; does not necessarily coincide with labor force concept; includes multiple job holders. 2 All numbers are subject to periodic revision; detail may not add due to rounding. 3 As of March SOURCE: DETR A-24

55 ESTABLISHMENT BASED INDUSTRIAL EMPLOYMENT 1 2 PRE-NAICS CLASSIFICATION Lyon County, Nevada (Annual Average) CALENDAR YEAR TOTAL ALL INDUSTRIES Mining Construction Manufacturing Trans., Comm. & Utilities Wholesale & Retail Trade Finance, Ins. & Real Estate Service Industries Government Reflects employment by place of work; does not necessarily coincide with labor force concept; includes multiple job holders. 2 All numbers are subject to periodic revision. SOURCE: DETR REMAINDER OF PAGE INTENTIONALLY LEFT BLANK A-25

56 The table below lists the 10 largest employers in the City for fiscal year The table is derived from unemployment insurance tax account numbers and is an estimate based on reported information. No independent investigation has been made of and consequently no assurances can be given as to the financial condition or stability of the employers listed below or the likelihood that such entities will maintain their status as major employers in the City. LARGEST EMPLOYERS City of Fernley, Nevada June 30, 2006 Employer Number of Employees Amazon.com BMO Leasing US Inc (Quebecor) MSC Industrial Supply Company TREX Company A.R.E. Inc Nevada Cement Company Silverado Casino Manpower Temporary Services Scolaris Warehouse Markets, Inc Fernley Truck Inn A.R.E. Inc. is converting from manufacturing to distribution at the Fernley location. SOURCE: The City s 2006 Audit, Statistical Section REMAINDER OF PAGE INTENTIONALLY LEFT BLANK A-26

57 The following table lists the firm employment size breakdown for County for the time frames indicated. FIRM EMPLOYMENT SIZE BREAKDOWN 1 Lyon County, Nevada 2nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr 2002 % Change 2002/2006 Employees 2nd Qtr 2006 TOTAL % 11, Employees % Employees % 1, Employees % 1, Employees % 2, Employees % 2, Employees % 2, Employees % Employees % Employees % 0 1 Subject to revision. SOURCE: DETR REMAINDER OF PAGE INTENTIONALLY LEFT BLANK A-27

58 Retail Sales Retail sales in the County for fiscal year 2006 increased 11.76% over the prior fiscal year. TAXABLE SALES 1 Lyon County, Nevada Fiscal Year County Total Percent Change State Total Percent Change ,690, % 31,986,722, % ,314, % 33,908,130, % ,238, % 38,505,761, % ,400, % 44,192,447, % ,895, % 48,402,487, % Jul-Dec 2005 $229,688, $24,292,845, Jul-Dec ,719, % 25,013,151, % 1 Subject to revision. SOURCE: The State Department of Taxation Construction The following table illustrates a history of building permits issued in the County and their total valuation. BUILDING PERMITS City of Fernley, Nevada Calendar New Year Residential 1 Commercial 2 Other 3 Total , , , , Includes single and multi-family dwellings and duplexes. 2 Includes commercial buildings and manufacturing facilities. 3 Includes permits issued for the purpose of mobile homes, remodeling, constructing additions, rehabilitation, rebuilding and all other permits required by codes adopted by the County. SOURCE: City Building Department A-28

59 Transportation The City s recent growth is due in part to its location near the Reno-Sparks metropolitan area and its excellent transportation systems that provide access to west coast markets. The City is situated on Interstate 80, approximately 39 miles east of Reno, and at the intersection of U.S. Highways 40, 50, and alternate 95. Fernley also has rail freight access. Northern and central California markets are reached overnight, while Los Angeles, San Francisco, Portland, Salt Lake City, and Las Vegas are all within a 500 mile radius. Development Activity The Northern Nevada Development Authority (the NNDA ) serves to promote economic development activity in Carson City, Douglas, Lyon, and Storey counties. Complimenting the area s emphasis on economic diversification are the numerous business incentives unique to the state of Nevada. Competitive wage rates, an expanding labor force, low cost and readily available electrical power, proximity and transportation costs to prominent western markets, and a graduated schedule for payment of sales and use tax on new capital equipment, combine to give business and industry an attractive advantage. The NNDA reports that during the fiscal year a total of nine companies relocated to, and 10 companies expanded in the four-county service area resulting in more than 667 new jobs with an economic impact to the region of over $111,300,000. Utilities Sierra Pacific Power Company provides electricity in the City. Natural gas is provided by Southwest Gas Corporation. Education The Lyon County School District operates three elementary, one intermediate, and one high school within the City. The Western Nevada Community College, which has its main campus in Carson City, has auxiliary campuses in Fernley and Yerington. Other nearby colleges and universities include University of Nevada, Reno and Truckee Meadows Community College. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK A-29

60 Gaming The economy of the State is based in the tourism industry and largely dependent upon legalized casino gambling. Gaming has been legal in Nevada since 1931 and is controlled and policed by the State. Control is vested in a five-member Gaming Commission and a three-member Gaming Control Board appointed by the Nevada governor. These bodies investigate and approve all licenses, establish operating rules, collect taxes due the State and oversee the operations of casinos on a continuing basis. California Gaming Measure - On March 7, 2000, California voters approved a constitutional amendment legalizing Las Vegas-style slot machines and card games at tribal casinos within California. Sixtyone of California s 107 Native American tribes entered into Tribal-State Gaming compacts with the State of California ( California ) in 1999 and 2000 that are currently effective. Under those compacts, each of the tribes may operate up to two gaming facilities and 2,000 slot machines on Indian lands as lawfully allowed under the Indian Gaming Regulatory Act. As required by federal law, the compacts were approved by the federal Bureau of Indian Affairs effective May 16, As of that date, approximately 40 existing casinos that had been operating without compacts became legal and approximately 20 additional tribes that previously had no gaming facilities were able to construct casinos of their own. Nine of these tribes are not presently operating a casino. Two tribes entered into compacts with California in 2003 that are currently effective. Both of these tribes may operate one gaming facility on the site identified in their individual compacts. These tribes are presently not operating casinos. According to Gambling in the Golden State 1998 Forward published in May 2006, in January 2004 other new and amended compacts were ratified, resulting in a total of 66 tribes with tribal-state gaming compacts in California. In 2005 the California governor negotiated four compacts (one amended, three new). There are currently 86 cardrooms and 58 Indian Casinos in operation in California. The Nevada gaming industry officials estimate that approximately 30 percent of the State s gambling visitors come from California. If tribes in California establish additional casinos, it is possible that those visitors may elect to visit the more conveniently located tribal casinos, rather than traveling to the State s casinos. It is not possible at this time to predict what impact the California Gaming Measure will have on the gaming revenues. It also is not possible to predict when the impact of the casinos to be approved pursuant to the compacts will be felt. Other Gaming Risks - Different forms of legal gaming have been authorized by many states, as well as the tribal casinos, across the United States. The different forms of gaming range from casino and river boat gaming to state lotteries. Various forms of gaming also are available on the internet. Other states may authorize gaming in the future in one form or another. The City cannot predict the impact on the State and area economy of state lotteries, casino gaming in other states, or internet gaming. A-30

61 APPENDIX B CITY OF FERNLEY, NEVADA EXCERPTS FROM COMPREHENSIVE ANNUAL FINANCIAL REPORT JUNE 30, 2006

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