$56,595,000* CITY OF CARTERSVILLE, GEORGIA Water and Sewer Revenue Bonds, Series 2018

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1 This Preliminary Official Statement and the information contained herein are subject to completion or amendment without notice. These securities may not be sold nor may offers to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. NEW ISSUE (Book-Entry Only) PRELIMINARY OFFICIAL STATEMENT DATED MAY 29, 2018 RATINGS Moody s: Aa3 Standard & Poor s: AA- See MISCELLANEOUS - Ratings herein. In the opinion of Bond Counsel, under existing law, interest on the Series 2018 Bonds is excluded from gross income for federal income tax purposes and is not an enumerated item of tax preference for purposes of the federal alternative minimum tax. In the opinion of Bond Counsel, interest on the Series 2018 Bonds is exempt from present State of Georgia income taxation. The opinion contains greater detail, and is subject to assumptions and exceptions, as noted in LEGAL MATTERS - Opinion of Bond Counsel herein. Dated: Date of Delivery $56,595,000* CITY OF CARTERSVILLE, GEORGIA Water and Sewer Revenue Bonds, Series 2018 Due: June 1, as shown below The Water and Sewer Revenue Bonds, Series 2018 (the Series 2018 Bonds ) are being issued by the City of Cartersville, Georgia (the City ) for the purpose of (i) refunding all of the City s Water and Sewerage Revenue Bond, Series 2012; and (ii) financing the costs of making additions, extensions, and improvements to the City s existing water and sewer system. See PLAN OF FINANCING herein. Interest on the Series 2018 Bonds is payable semiannually on December 1 and June 1 of each year, commencing on December 1, All Series 2018 Bonds bear interest from the dated date. See INTRODUCTION - Description of the Series 2018 Bonds herein. The Series 2018 Bonds are subject to mandatory and optional redemption prior to maturity as described herein. See THE SERIES 2018 BONDS - Redemption herein. The Series 2018 Bonds are special limited obligations of the City payable solely from and secured by a first priority pledge of and lien on revenues derived by the City from the ownership and operation of its water and sewer system and certain other revenues ( Pledged Revenues ). The Series 2018 Bonds will be issued and secured on a parity with any additional revenue bonds of the City hereafter issued on a parity with the Series 2018 Bonds. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2018 BONDS herein. The Series 2018 Bonds will be issued as fully registered bonds, registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ), to which payments of principal, premium, if any, and interest will be made. Purchasers will acquire beneficial interests in the Series 2018 Bonds in book-entry form only. DTC will remit such payments to its participants who will be responsible for remittance to beneficial owners. See INTRODUCTION - Description of the Series 2018 Bonds herein. The Series 2018 Bonds do not constitute a debt or general obligation of the City or a pledge of the faith and credit or taxing power of the City. No governmental entity, including the City, is obligated to levy any tax for the payment of the Series 2018 Bonds. No recourse may be had against the General Fund of the City for the payment of the Series 2018 Bonds. MATURITIES, PRINCIPAL AMOUNTS, INTEREST RATES, AND PRICES OR YIELDS Maturity Principal Amount* Interest Rate Price or Yield CUSIP Maturity Principal Amount* 2019 $ 430, $1,500, , ,575, , ,655, ,020, ,735, ,120, ,825, ,175, ,880, ,235, ,945, ,295, ,020, ,360, ,100, ,430, ,185,000 Interest Rate $12,560,000 % Term Bonds due June 1, 2043, Priced at % to Yield % $16,030,000 % Term Bonds due June 1, 2048, Priced at % to Yield % Price or Yield CUSIP THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO MAKING AN INFORMED INVESTMENT DECISION. The Series 2018 Bonds are offered when, as, and if issued by the City and accepted by the Underwriter, subject to prior sale and to withdrawal or modification of the offer without notice, and are subject to the approving opinion of Nelson Mullins Riley & Scarborough LLP, Atlanta, Georgia, Bond Counsel. Certain legal matters will be passed on for the City by its counsel, Archer & Lovell, P.C., Cartersville, Georgia, and by its disclosure counsel, Nelson Mullins Riley & Scarborough LLP, Atlanta, Georgia. The Series 2018 Bonds are expected to be available for delivery in book-entry form only through the facilities of DTC in New York, New York on or about, Dated:, 2018 * Preliminary; subject to change. CUSIP data herein is provided by Standard & Poor s, CUSIP Services Bureau, a division of the McGraw-Hill Companies, Inc. The Issuer is not responsible for the selection of CUSIP numbers, nor is any representation made as to their correctness on the Series 2018 Bonds or as indicated above.

2 CITY OF CARTERSVILLE, GEORGIA ELECTED OFFICIALS Mayor Matt Santini Councilmen Kari Hodge Jayce Stepp Cary Roth Calvin Cooley Gary Fox Taff Wren APPOINTED OFFICIALS Samuel E. Grove, City Manager Thomas C. Rhinehart, Finance Director Meredith Ulmer, City Clerk Robert S. Jones, Superintendent, Water and Sewer System David G. Archer, City Attorney SPECIAL SERVICES Auditors Carr Riggs and Ingram, CPAs and Advisors Tifton, Georgia Bond Counsel Nelson Mullins Riley & Scarborough LLP Atlanta, Georgia Consulting Engineers Hazen and Sawyer, P.C. Atlanta, Georgia

3 TABLE OF CONTENTS Page INTRODUCTION... 1 The City... 1 Purpose of the Series 2018 Bonds... 1 The System... 1 Security and Sources of Payment for the Series 2018 Bonds... 2 Description of the Series 2018 Bonds... 2 Tax Exemption... 2 Bond Registrar, Paying Agent, Custodian, and Depository... 3 Professionals Involved in the Offering... 3 Legal Authority... 3 Offering and Delivery of the Series 2018 Bonds... 3 Continuing Disclosure... 3 Other Information... 4 PLAN OF FINANCING... 6 Estimated Sources and Applications of Funds... 6 System Improvements... 6 Refunding Program... 7 THE SERIES 2018 BONDS... 8 Description... 8 Redemption... 8 Book-Entry Only System... 9 Legal Authority Investments SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2018 BONDS Pledge of Revenues Funds Created By the Bond Ordinance and Flow of Funds Rate Covenant Parity and Subordinate Bonds Limited Obligations Remedies THE CITY Introduction City Administration and Officials THE SYSTEM Introduction Management System Facilities Water Sources Service Area Service Area Demographic Information Service Area Economic Information Customers Rates, Fees, and Charges Rate Setting Process Billing and Collection Cybersecurity Governmental Approvals and Environmental Regulation Employees, Employee Relations, and Labor Organizations (i)

4 Page SYSTEM FINANCIAL INFORMATION Accounting System and Policies Historical and Pro Forma Capital Structure Debt Service Requirements Five Year Operating History Management s Discussion and Analysis of Results of Operations Historical, Pro Forma, and Forecasted Debt Service Coverage Ratios Operating Budget Capital Improvements Program Employee Benefits Insurance Coverage LEGAL MATTERS Pending Litigation Opinion of Bond Counsel Collateral Federal Tax Consequences of Owning Series 2018 Bonds Changes in Federal and State Tax Law Validation Proceedings Closing Certificates MISCELLANEOUS Ratings Underwriting Independent Professionals Summary of Continuing Disclosure Undertaking Additional Information CERTIFICATION APPENDIX A: FINANCIAL STATEMENTS OF THE SYSTEM... A-1 APPENDIX B: SUMMARY OF THE BOND ORDINANCE... B-1 APPENDIX C: FORM OF LEGAL OPINION... C-1 APPENDIX D: ENGINEERING REPORT... D-1 (ii)

5 OFFICIAL STATEMENT of the CITY OF CARTERSVILLE, GEORGIA relating to its $56,595,000* WATER AND SEWER REVENUE BONDS, SERIES 2018 INTRODUCTION The purpose of this Official Statement, which includes the cover page and the Appendices hereto, is to furnish certain information in connection with the sale by the City of Cartersville, Georgia of $56,595,000* in aggregate principal amount of its Water and Sewer Revenue Bonds, Series 2018 (the Series 2018 Bonds ). This Introduction is not a summary of this Official Statement and is intended only for quick reference. It is only a brief description of and guide to, and is qualified in its entirety by reference to, more complete and detailed information contained in the entire Official Statement, including the cover page and the Appendices, and the documents summarized or described herein. Potential investors should fully review the entire Official Statement. The offering of the Series 2018 Bonds to potential investors is made only by means of the entire Official Statement, including the Appendices hereto. No person is authorized to detach this Introduction from the Official Statement or to otherwise use it without the entire Official Statement, including the Appendices hereto. The City The City of Cartersville, Georgia (the City ), the issuer of the Series 2018 Bonds, is a municipal corporation of the State of Georgia, incorporated by an Act of the General Assembly of the State of Georgia on August 27, The City is located in the northwestern portion of the State of Georgia approximately 42 miles northwest of the City of Atlanta. For more complete information, see THE CITY herein. Purpose of the Series 2018 Bonds The proceeds of the Series 2018 Bonds will be used, together with other available funds, (i) for the acquisition and construction of improvements, betterments, and extensions of the System, (ii) to refund $6,620,000 in principal amount of the City s Water and Sewerage Revenue Bond, Series 2012, maturing January 1, 2022, and (iii) to pay the costs of issuance of the Series 2018 Bonds. For more complete information, see PLAN OF FINANCING herein. The System The City owns and operates a water supply, treatment, and distribution system and a sanitary sewer treatment and collection system (the System ). The water system consists of a raw water supply with a daily allotment of water of 16.8 million gallons per day ( MGD ). The water treatment plant has a rated capacity for treatment of raw water of 27.0 MGD, a sustained capacity for treatment of raw water of 23.0 MGD, a treated water pumping capacity of 30.0 MGD, treated water storage capacity of approximately 18.3 million gallons, and a water distribution network of approximately 233 miles of pipelines. The sewer system consists of one wastewater treatment plant with a rated treatment capacity of 22.5 MGD and a wastewater collection system that consists of three wastewater pumping stations and approximately 110 miles of collection sewers. The water system serves an approximately 28 square mile area containing an estimated population in excess of 23,100 and has approximately 9,038 water customers. The sewer system serves an approximately 22 square mile area containing an estimated population in excess of 20,100 and has approximately 6,053 sewer customers. For more complete information, see THE SYSTEM herein. * Throughout this Preliminary Official Statement, the asterisk indicates information that is preliminary and subject to change.

6 Security and Sources of Payment for the Series 2018 Bonds The Series 2018 Bonds are special limited obligations of the City payable solely from and secured by a first priority pledge of and lien on all income and revenues derived by the City from the ownership and operation of the System (the Pledged Revenues ). Notwithstanding this first priority lien on all Pledged Revenues, the Series 2018 Bonds will be paid from System revenues remaining after the payment of expenses of operating, maintaining, and repairing the System and certain other expenses (the Net Revenues ). The City has previously issued $6,620,000 in original principal amount of its Water and Sewerage Revenue Bond, Series 2012 (the Prior Bond ). The Prior Bond is presently outstanding in the principal amount of $6,620,000 and is payable solely from and secured by a first priority pledge of and lien on the Net Revenues. Proceeds from the sale of the Series 2018 Bonds will be used to refund the Prior Bond. The Series 2018 Bonds will be equally and ratably secured on a parity basis with any additional revenue bonds of the City hereafter issued on a parity basis with the Series 2018 Bonds. The Series 2018 Bonds, and any additional revenue bonds of the City hereafter issued on a parity basis with the Series 2018 Bonds, are collectively referred to as the Bonds in this Official Statement. The Series 2018 Bonds do not and will not constitute a debt or general obligation of the City or a pledge of the faith and credit or taxing power of the City. No governmental entity, including the City, is obligated to levy any tax for the payment of the Series 2018 Bonds. No recourse may be had against the General Fund of the City for the payment of the Series 2018 Bonds. The pledge of and lien on Pledged Revenues securing the Series 2018 Bonds does not create a legal or equitable pledge, charge, lien, or encumbrance upon any of the City s property or income, receipts, or revenues, except the Pledged Revenues. For more complete and detailed information, see SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2018 BONDS herein. Description of the Series 2018 Bonds Redemption. The Series 2018 Bonds are subject to mandatory, and not optional, redemption prior to maturity. For more complete information, see THE SERIES 2018 BONDS - Redemption herein. Denominations. The Series 2018 Bonds are issuable in denominations of $5,000 or any integral multiple thereof. Book-Entry Bonds. Each of the Series 2018 Bonds will be issued as fully registered bonds in the denomination of one bond per aggregate principal amount of the stated maturity thereof, and, when issued, will be registered in the name of Cede & Co., as nominee for The Depository Trust Company ( DTC ), New York, New York, an automated depository for securities and clearing house for securities transactions, which will act as securities depository for the Series 2018 Bonds. Purchasers will not receive certificates representing their ownership interest in the Series 2018 Bonds purchased. Purchases of beneficial interests in the Series 2018 Bonds will be made in book entry only form (without certificates), in authorized denominations, and, under certain circumstances as more fully described in this Official Statement, such beneficial interests are exchangeable for one or more fully registered bonds of like principal amount and maturity in authorized denominations. For more complete information, see THE SERIES 2018 BONDS Book Entry Only System herein. Payments. So long as DTC or its nominee, Cede & Co., is the registered owner of the Series 2018 Bonds, payments of the principal of, premium, if any, and interest on the Series 2018 Bonds will be made directly to Cede & Co., which will remit such payments to the DTC participants, which will in turn remit such payments to the beneficial owners of the Series 2018 Bonds. For a more complete description of the Series 2018 Bonds, see THE SERIES 2018 BONDS herein. Tax Exemption In the opinion of Nelson Mullins Riley & Scarborough LLP, Bond Counsel, assuming the accuracy of certain representations and continued compliance by the City with certain covenants in the Bond Ordinance, interest on the Series 2018 Bonds is excluded from gross income for federal income tax purposes (including the tax imposed by Chapter 2A of Subtitle A of the Internal Revenue Code of 1986, as amended (the Code )) and is not an enumerated item of tax preference for purposes of the federal alternative minimum tax imposed on individuals. In the opinion of Bond Counsel, interest on the Series 2018 Bonds is exempt from present State of Georgia income taxation. For a more complete discussion of such opinion and certain other tax consequences of owning the Series 2018 Bonds, -2-

7 including certain exceptions to the exclusion of the interest on the Series 2018 Bonds from gross income, see LEGAL MATTERS - Opinion of Bond Counsel and - Collateral Federal Tax Consequences herein. Bond Registrar, Paying Agent, Custodian, and Depository U.S. Bank National Association, Atlanta, Georgia, will act as bond registrar and as paying agent for the Series 2018 Bonds. U.S. Bank National Association, Atlanta, Georgia, will act as custodian of the Sinking Fund created under the hereinafter described Bond Ordinance and as depository of the Project Fund created under the hereinafter described Bond Ordinance. Branch Banking and Trust Company, Cartersville, Georgia, will act as depository of the Revenue Fund and the Renewal and Extension Fund created under the hereinafter described Bond Ordinance. Professionals Involved in the Offering Certain legal matters pertaining to the City and its authorization and issuance of the Series 2018 Bonds are subject to the approving opinion of Nelson Mullins Riley & Scarborough LLP, Atlanta, Georgia, Bond Counsel. Copies of such opinion will be available at the time of delivery of the Series 2018 Bonds, and a copy of the proposed form of such opinion is attached hereto as Appendix C. Certain legal matters will be passed on for the City by its counsel, Archer & Lovell, P.C., Cartersville, Georgia, and its disclosure counsel, Nelson Mullins Riley & Scarborough LLP, Atlanta, Georgia. The Financial Statements of the System for the year ended June 30, 2017, attached hereto as part of Appendix A, has been audited by Carr Riggs and Ingram, CPAs and Advisors, Tifton, Georgia, independent certified public accountants, to the extent and for the period indicated in their report thereon which appears in Appendix A hereto. The Engineering Report attached to this Official Statement as Appendix D has been prepared by Hazen and Sawyer, P.C., Atlanta, Georgia. See MISCELLANEOUS - Independent Professionals herein. Legal Authority The Series 2018 Bonds are being issued and secured pursuant to the authority granted by the laws of the State of Georgia and under the provisions of an ordinance adopted by the City Council of the City on April 19, 2018, as ratified, reaffirmed, supplemented, and amended by ordinance adopted by the City Council of the City on, 2018 (collectively, the Bond Ordinance ). For more complete information, see THE SERIES 2018 BONDS - Legal Authority herein. Offering and Delivery of the Series 2018 Bonds The Series 2018 Bonds are offered when, as, and if issued by the City and accepted by the Underwriter, subject to prior sale and to withdrawal or modification of the offer without notice. The Series 2018 Bonds in definitive form are expected to be delivered through The Depository Trust Company in New York, New York on or about, Continuing Disclosure The City has covenanted in the Bond Ordinance and a Continuing Disclosure Undertaking (the Disclosure Undertaking ) for the benefit of the beneficial owners of the Series 2018 Bonds to provide certain financial information and operating data relating to the System (the Annual Report ) by not later than 270 days after the end of each fiscal year of the City, commencing with fiscal year 2018, and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed by the City with the Municipal Securities Rulemaking Board (the MSRB ) in an electronic format as prescribed by the MSRB (which, as of the date hereof, is the Electronic Municipal Market Access ( EMMA ) system of the MSRB). The notices of certain events will be filed by the City with the MSRB in an electronic format as prescribed by the MSRB (which, as of the date hereof, is EMMA). The specific nature of the information to be contained in the Annual Report or the notices of material events is summarized herein under the caption MISCELLANEOUS - Summary of Continuing Disclosure Undertaking. These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission ( SEC ) Rule 15c2-12(b)(5). During the previous five years, the City has been subject to continuing disclosure undertakings that the City entered into pursuant to the Rule with respect to: (i) one series of general obligation bonds issued by the City for its school system, which is no longer outstanding (the City Bonds ), (ii) one series of revenue bonds issued by the Bartow-Cartersville Joint Development Authority, which is no longer outstanding (the Development Authority Bonds ), and (iii) one outstanding series of certificates of participation issued by the Georgia Local Government 1998A Grantor Trust, which is still outstanding (the Certificates ). These undertakings required the City, among other things, to file with the MSRB (1) annual reports containing certain financial information and operating data -3-

8 relating to the City by not later than (A) 180 days after the end of each fiscal year, in the case of the City Bonds and the Development Authority Bonds, and (B) June 1 after the end of each fiscal year, in the case of the Certificates, and (2) notices of the occurrence of certain enumerated events on a timely basis. There have been instances in the previous five years in which the City has failed to comply in all material respects with the requirements of its continuing disclosure undertakings. With respect to its undertaking for the Certificates, the City failed to timely file its comprehensive annual financial reports ( CAFR ) and its population totals for fiscal years On May 24, 2018, the City filed its CAFRs for fiscal years and the City s population totals for years (the City previously filed its CAFR for 2017 but not its population total; both are now timely filed). The City also filed a notice of failure to timely file for fiscal years , which it had not previously done as required. In addition, with respect to its undertaking for the Development Authority Bonds, the City did not file its CAFR in a timely manner for fiscal year The City has implemented certain disclosure policies and procedures, including, among others, designating Raymond James & Associates, Inc. as its dissemination agent, to ensure that annual reports and notices of the occurrence of certain enumerated events with respect to outstanding bonds subject to the City's continuing disclosure undertakings are complete and filed on a timely basis. Other Information This Official Statement speaks only as of its date, and the information contained herein is subject to change without notice. This Official Statement contains forecasts, projections, and estimates that are based on current expectations but are not intended as representations of fact or guarantees of results. If and when included in this Official Statement, the words expects, forecasts, projects, intends, anticipates, estimates, budgeted, and analogous expressions are intended to identify forward-looking statements as defined in the Securities Act of 1933, as amended, and any such statements inherently are subject to a variety of risks and uncertainties, which could cause actual results to differ materially from those contemplated in such forward-looking statements. These forward-looking statements speak only as of the date of this Official Statement. The City disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in its expectations with regard thereto or any change in events, conditions, or circumstances on which any such statement is based. This Official Statement and the Appendices hereto contain brief descriptions of, among other matters, the City, the Series 2018 Bonds, the System, the Bond Ordinance, the Disclosure Undertaking, and the security and sources of payment for the Series 2018 Bonds. Such descriptions and information do not purport to be comprehensive or definitive. The summaries of various constitutional provisions and statutes, the Bond Ordinance, the Disclosure Undertaking, and other documents are intended as summaries only and are qualified in their entirety by reference to such documents and laws, and references herein to the Series 2018 Bonds are qualified in their entirety to the form thereof included in the Bond Ordinance. Copies of the Bond Ordinance, the Disclosure Undertaking, and other documents and information are available, upon request and upon payment to the City of a charge for copying, mailing, and handling, from Samuel E. Grove, City Manager, City of Cartersville, Georgia, P.O. Box 1390, Cartersville, Georgia 30120, telephone (770) During the period of the offering of the Series 2018 Bonds copies of such documents are available, upon request and upon payment to the Underwriter of a charge for copying, mailing, and handling, from Raymond James & Associates, Inc., Two Buckhead Plaza, Suite 702, 3050 Peachtree Road, N.W., Atlanta, Georgia 30305, telephone (404) The Series 2018 Bonds and their underlying obligations have not been registered under the Securities Act of 1933, and the Bond Ordinance has not been qualified under the Trust Indenture Act of 1939, in reliance on exemptions contained in such Acts. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Series 2018 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation, or sale. No dealer, broker, salesman, or other person has been authorized by the City or the Underwriter to give any information or to make any representations other than those contained in this Official Statement, and, if given or made, such other information or representations should not be relied upon as having been authorized by the City or the Underwriter. Except where otherwise indicated, all information contained in this Official Statement has been provided by the City. The information set forth herein has been obtained by the City from sources which are believed to be reliable but is not guaranteed as to accuracy or completeness by the City or the Underwriter. The City -4-

9 has not provided information regarding DTC, does not certify as to the accuracy or sufficiency of the disclosure practices of or content of the information provided by DTC, and is not responsible for the information provided by DTC. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, their responsibilities to investors under the federal securities law as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information contained herein is subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall under any circumstances create an implication that there has been no change in the affairs of the City or the other matters described herein since the date hereof or the earlier dates set forth herein as of which certain information contained herein is given. In connection with this offering, the Underwriter may over-allot or effect transactions that stabilize or maintain the market prices of the Series 2018 Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. Neither the United States Securities and Exchange Commission nor any state securities commission has approved or disapproved of the Series 2018 Bonds or reviewed or passed upon the adequacy or accuracy of this Official Statement. Any representation to the contrary may be a criminal offense. The order and placement of information in this Official Statement, including the appendices, are not an indication of relevance, materiality, or relative importance, and this Official Statement, including the appendices, must be read in its entirety. The captions and headings in this Official Statement are for convenience only and in no way define, limit, or describe the scope or intent, or affect the meaning or construction, of any provision or section in this Official Statement. THIS OFFICIAL STATEMENT IS BEING PROVIDED TO PROSPECTIVE PURCHASERS EITHER IN BOUND PRINTED FORM ( ORIGINAL BOUND FORMAT ) OR IN ELECTRONIC FORMAT ON THE FOLLOWING WEBSITE: THIS OFFICIAL STATEMENT MAY BE RELIED UPON ONLY IF IT IS IN ITS ORIGINAL BOUND FORMAT OR IS PRINTED IN ITS ENTIRETY DIRECTLY FROM SUCH WEBSITE. [Remainder of Page Intentionally Left Blank] -5-

10 PLAN OF FINANCING Estimated Sources and Applications of Funds The sources and applications of funds in connection with the issuance of the Series 2018 Bonds are estimated below. Estimated Sources of Funds*: Proceeds of Series 2018 Bonds 1 $63,061,632 Funds Held Under Prior Ordinance 3,586,322 Interest Earnings During Construction 2 678,272 Total Sources of Funds $67,326,226 Estimated Applications of Funds*: System Imrovements 3 $56,178,272 Redeem Refunded Bond 4 6,692,489 Debt Service Reserve Fund 3,704,913 Costs of Issuance 5 Underwriting Fee 6 Total Applications of Funds $67,326,226 1 After adding net premium of $. 2 Based on estimated earnings on the unexpended construction funds at an investment rate of 1% over a period of 36 months. 3 See PLAN OF FINANCING - System Improvements herein. 4 See PLAN OF FINANCING - Refunding Program herein. 5 Includes legal and accounting fees, initial Bond Registrar s and Paying Agent s fees, printing and engraving costs, validation court costs, and other costs of issuance. 6 % of the aggregate principal amount of the Series 2018 Bonds. See MISCELLANEOUS - Underwriting herein. System Improvements The System s staff, together with Hazen and Sawyer, P.C., Atlanta, Georgia (the Consulting Engineer ), the City s consulting engineer, has developed a multi-year capital improvements program for the System and a plan to finance the program that relies on a combination of proceeds of debt, investment earnings, and System revenues. See SYSTEM FINANCIAL INFORMATION - Capital Improvements Program herein. The City expects that the proceeds of the Series 2018 Bonds, together with investment earnings, will be sufficient to provide funding for the City s planned capital improvements to the System through fiscal year For fiscal years 2018 through 2021, the City has planned and approved capital improvements to the System in the following general categories, which it expects to finance using proceeds of Series 2018 Bonds, investment earnings, and System revenues: Uses of Funds: Project Name Engineers Estimate of Probable Cost* WTP High Service PS #2 $1,560,000 WTP Filter 1-3 & 7 Rehab $1,680,000 WTP - Washwater Tank $900,000 Rehabilitation Fairview Tank Painting $525,000 Cook Street Infrastructure $122,022 Improvements WPCP Nutrient Removal Upgrade $2,420,000 Design -6-

11 WPCP - Nutrient Removal $33,125,000 Upgrade Construction Mission Road Gravity Sewer - $1,560,000 Phase III Downtown Business District Water $1,200,000 Line Replacement West Avenue Water Main $600,000 Replacement Rogers Station Water Main $1,800,000 Replacement Expansion Property $6,000,000 Dredge Lagoon at WTP $4,686,250 Total $56,178,272 * Estimates include an overall contingency of 16.11% or $9,051,587. The City has engaged the Consulting Engineer to act as the engineer for the design and construction of the capital improvements described above. The Consulting Engineer expects to complete the plans and specifications for these capital improvements in stages for the particular projects described above. The City expects to select general contractors for these particular projects through separate bidding processes after the plans and specifications for each particular project are completed. The City plans to require each general contractor to agree to construct the capital improvements described above for a guaranteed maximum price and to secure its obligations for construction and timely completion by labor and material payment and performance bonds. The timely completion of the construction of the capital improvements described above is dependent upon, among other factors, promptly obtaining approvals and permits from various governmental agencies and the absence of delays due to strikes, shortages of materials, and adverse weather conditions. The cost of constructing the capital improvements described above may be affected by factors beyond the control of the City, including strikes, energy and material shortages, subcontractor defaults, adverse weather conditions, and other unforeseen contingencies. The City has a contingency budget of 16.11% of the budgeted amounts included in its cost estimates for the capital improvements described above. There can be no assurance that the City will complete the construction of the capital improvements described above in accordance with its present construction schedule and construction budget. For a description of governmental approvals that are required in connection with the capital improvements described above, see THE SYSTEM - Governmental Approvals and Environmental Regulation herein. The construction of the capital improvements described above commenced in July of 2017, and the expected completion date is June of For a discussion of restrictions that apply to the use of the proceeds of the Series 2018 Bonds, see SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2018 BONDS - Funds Created By the Bond Ordinance and Flow of Funds herein. Refunding Program The City will use the proceeds of the sale of the Series 2018 Bonds to refund $6,620,000 in principal amount of its Water and Sewerage Revenue Bond, Series 2012, maturing January 1, 2022 (the Refunded Bond ), in order to terminate certain restrictive provisions of the City s prior master water and sewer bond ordinance, clarify certain covenants and conditions relating to its ability to issue revenue bonds, and issue additional first lien revenue bonds to improve, better, and extend the water and sewer system of the City upon the terms and conditions specified in the Bond Ordinance. The City will deposit sufficient moneys in trust into the Debt Service Account of the 2012 Sinking Fund held by U.S. Bank National Association, in its capacity as paying agent for the Refunded Bond, from the proceeds of the sale of the Series 2018 Bonds, which together with amounts held in the 2012 Sinking Fund, will pay the principal of and interest and premium on the Refunded Bond on its scheduled redemption date of July 1, These amounts will not be available to pay the principal of, premium, if any, or interest on the Series 2018 Bonds, and the owners of the Series 2018 Bonds will have no claim to these amounts. -7-

12 THE SERIES 2018 BONDS Description The Series 2018 Bonds, as initially issued, will be dated the date of delivery and will bear interest at the rates set forth on the cover page of this Official Statement, commencing December 1, 2018, and semiannually thereafter on June 1 and December 1 of each year to the registered owner as shown on the books and records of U.S. Bank National Association, Atlanta, Georgia, as Paying Agent and Bond Registrar (the Paying Agent or the Bond Registrar ) as of the close of business on the 15th day of the calendar month next preceding such December 1 and June 1. Subject to the redemption provisions described below, the Series 2018 Bonds will mature on the dates and in the amounts set forth on the cover page of this Official Statement. The principal of the Series 2018 Bonds are payable when due to the registered owner upon presentation and surrender of the Series 2018 Bonds at the principal corporate trust office of the Paying Agent. The Series 2018 Bonds are issuable only as fully registered bonds, without coupons, in any authorized denomination. Purchases of beneficial ownership interests in the Series 2018 Bonds will be made in book-entry form and purchasers will not receive certificates representing interests in the Series 2018 Bonds so purchased. If the book-entry system is discontinued, Series 2018 Bonds will be delivered as described in the Bond Ordinance, and beneficial owners of the Series 2018 Bonds will become the registered owners of the Series 2018 Bonds. See THE SERIES 2018 BONDS - Book-Entry Only System herein and SUMMARY OF THE BOND ORDINANCE - Provisions Relating to Book-Entry Bonds in Appendix B to this Official Statement. Redemption Optional Redemption The Series 2018 Bonds maturing on or after June 1, 2029* will be subject to optional redemption by the City prior to maturity, in whole or in part on any date (and if in part in an authorized denomination), in either case on or after June 1, 2028*, at a redemption price equal to 100% of the principal amount of the Series 2018 Bonds to be redeemed plus accrued interest to the redemption date, without premium. Mandatory Redemption The Series 2018 Bonds maturing on June 1 are subject to scheduled mandatory sinking fund redemption prior to maturity in part (the actual bonds to be redeemed to be selected by lot in such manner as may be designated by the Paying Agent) at a redemption price equal to 100% of the principal amount thereof, plus accrued interest to the redemption date, in the following principal amounts and on the dates set forth below (the June 1, amounts to be paid rather than redeemed): Redemption Notices Notice of any redemption of the Series 2018 Bonds, identifying the Series 2018 Bonds (or any portion of the respective principal sums thereof) to be redeemed, will be given by first-class mail, postage prepaid, not less than thirty (30) days and not more than sixty (60) days prior to the redemption date to all registered owners of the Series 2018 Bonds to be redeemed (in whole or in part). Failure to give appropriate notice of any redemption by mail or any defect in the notice will not affect the validity of the proceedings for the redemption of any Series 2018 Bond. [Remainder of Page Intentionally Left Blank] -8-

13 Book-Entry Only System The Depository Trust Company ( DTC ), New York, New York, or its successor, will act as securities depository for the Series 2018 Bonds. The Series 2018 Bonds will be issued as fully registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered Series 2018 Bond will be issued for each maturity of each series of the Series 2018 Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC. So long as DTC or its nominee is the registered owner of the Series 2018 Bonds, payments of the principal and redemption premium of and interest due on the Series 2018 Bonds will be payable directly to DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized bookentry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non U.S. securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non U.S. securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of Series 2018 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2018 Bonds on DTC s records. The ownership interest of each actual purchaser of each Series 2018 Bond (a Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2018 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Series 2018 Bonds, except in the event that use of the book-entry system for the Series 2018 Bonds is discontinued. To facilitate subsequent transfers, all Series 2018 Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2018 Bonds with DTC and their registration in the name of Cede & Co., or such other DTC nominee, do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2018 Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Series 2018 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices will be sent to DTC. If less than all of the Series 2018 Bonds within a maturity are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Series 2018 Bonds unless authorized by a Direct Participant in accordance with DTC s MMI procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Series 2018 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). -9-

14 Principal, premium, and interest payments on the Series 2018 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the Issuer or the Paying Agent, on the payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Paying Agent, or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, premium, and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Issuer or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Series 2018 Bonds at any time by giving reasonable notice to the Issuer and the Paying Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Series 2018 Bonds are required to be printed and delivered. The Issuer may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Series 2018 Bonds will be printed and delivered to DTC. The information concerning DTC and DTC s book-entry system set forth above has been obtained from sources that the Issuer believes to be reliable, but the Issuer takes no responsibility for the accuracy thereof. SO LONG AS CEDE & CO., AS NOMINEE FOR DTC, IS THE SOLE BONDHOLDER, THE ISSUER SHALL TREAT CEDE & CO. AS THE ONLY BONDHOLDER FOR ALL PURPOSES, INCLUDING RECEIPT OF ALL PRINCIPAL AND PREMIUM OF AND INTEREST ON THE SERIES 2018 BONDS, RECEIPT OF NOTICES, VOTING, AND REQUESTING OR DIRECTING THE ISSUER TO TAKE OR NOT TO TAKE, OR CONSENTING TO, CERTAIN ACTIONS. THE ISSUER HAS NO RESPONSIBILITY OR OBLIGATION TO THE DIRECT OR INDIRECT PARTICIPANTS OR THE BENEFICIAL OWNERS WITH RESPECT TO (A) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DIRECT OR INDIRECT PARTICIPANT; (B) THE PAYMENT BY ANY DIRECT OR INDIRECT PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL AND PREMIUM OF AND INTEREST ON THE SERIES 2018 BONDS; (C) THE DELIVERY OR TIMELINESS OF DELIVERY BY ANY DIRECT OR INDIRECT PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER THAT IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE BOND ORDINANCE TO BE GIVEN TO BONDHOLDERS; OR (D) OTHER ACTION TAKEN BY DTC OR CEDE & CO. AS BONDHOLDER. Beneficial Owners of the Series 2018 Bonds may experience some delay in their receipt of distributions of principal and interest on the Series 2018 Bonds since such distributions will be forwarded by the Paying Agent to DTC and DTC will credit such distributions to the accounts of Direct Participants, which will thereafter credit them to the accounts of Beneficial Owners either directly or indirectly through Indirect Participants. Issuance of the Series 2018 Bonds in book-entry form may reduce the liquidity of the Series 2018 Bonds in the secondary trading market since investors may be unwilling to purchase Series 2018 Bonds for which they cannot obtain physical certificates. In addition, since transactions in the Series 2018 Bonds can be effected only through DTC, Direct Participants, Indirect Participants, and certain banks, the ability of a Beneficial Owner to pledge Series 2018 Bonds to persons or entities that do not participate in the DTC system, or otherwise to take action in respect of such Series 2018 Bonds, may be limited due to lack of a physical certificate. Beneficial Owners will not be recognized by the Paying Agent as registered owners for purposes of the Bond Ordinance, and Beneficial Owners will be permitted to exercise the rights of registered owners only indirectly through DTC and the Direct or Indirect Participants. Legal Authority Paragraph I of Section VI of Article IX of the Constitution of the State of Georgia authorizes any municipality to issue revenue bonds as provided by general law and provides (1) that the obligation represented by revenue bonds shall be repayable only out of the revenue derived from the project and shall not be deemed to be a debt of the issuing municipality and (2) that no issuing municipality shall exercise the power of taxation for the purpose of paying any part of the principal or interest of any such revenue bonds. The Series 2018 Bonds are being issued and secured pursuant to the authority granted by (i) the Charter of the City and (ii) Article 3 of Chapter 82 of Title 36 of the Official Code of Georgia Annotated, known as the Revenue Bond Law (the Revenue Bond Law ). -10-

15 The Series 2018 Bonds are being issued under the provisions of an ordinance adopted by the City Council of the City on April 19, 2018, and an ordinance adopted by the City Council of the City on, 2018 (collectively, the Bond Ordinance ). Investments For a description of the provisions governing the investment of the amounts held to pay debt service on the Series 2018 Bonds, see SUMMARY OF THE BOND ORDINANCE - Investment of Moneys in Appendix B hereto and SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2018 BONDS - Funds Created By the Bond Ordinance and Flow of Funds herein. Pledge of Revenues SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2018 BONDS Under the terms of the Bond Ordinance, the Series 2018 Bonds are secured by a pledge of and lien on (1) all income and revenue derived by the City from the operation of the System, but excluding local, state, or federal grants, loans, capital improvement contract payments, or other moneys received for capital improvements to the System, (2) amounts held in the funds under the Bond Ordinance, except amounts to be used for arbitrage rebate payments to the United States government, and (3) certain investment earnings on the funds held under the Bond Ordinance and amounts (other than termination, indemnity, and expense payments) payable by providers of hedge agreements (such as interest rate swap agreements) relating to bonds issued under the Bond Ordinance. For a definition of the term Pledged Revenues, see SUMMARY OF THE BOND ORDINANCE - Definitions in Appendix B to this Official Statement. The Bond Ordinance provides that this pledge (as it may be expanded for additional parity bonds) ranks superior to all other pledges that may hereafter be made of any of the Pledged Revenues, except for pledges of the Pledged Revenues hereafter made by the City in hedge agreements (relating to bonds issued under the Bond Ordinance) to secure payments thereunder (other than termination, indemnity, and expense payments), which may rank on a parity with this pledge as to the related hedged bonds. The principal of, premium, if any, and interest on the Series 2018 Bonds are payable from Pledged Revenues remaining after the payment of expenses of operating, maintaining, and repairing the System and certain other expenses. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2018 BONDS - Funds Created by the Bond Ordinance and Flow of Funds -- Revenue Fund herein. The City has covenanted in the Bond Ordinance that it will pay and discharge all taxes, assessments, and other governmental charges, if any, lawfully imposed upon the System or any part thereof or upon the Pledged Revenues, as well as any lawful claims for labor, materials, or supplies which if unpaid might become a lien or charge upon the System or the Pledged Revenues or any part thereof or which might impair the security for the Bonds, except when the City in good faith contests its liability to pay the same. See SUMMARY OF THE BOND ORDINANCE - Satisfaction of Liens in Appendix B to this Official Statement. The City has also made certain covenants in the Bond Ordinance concerning the sale or disposition of the System, insurance on the System, and the books and records relating to the System, which are described under the captions SUMMARY OF THE BOND ORDINANCE - Sales, Leases, and Encumbrances, - Insurance, and - Financial Statements in Appendix B to this Official Statement. The Series 2018 Bonds are the first bonds to be issued under the Bond Ordinance. Therefore, there are no bonds presently outstanding that will be equally and ratably secured on a parity basis with the Series 2018 Bonds. Funds Created By the Bond Ordinance and Flow of Funds Under the terms of the Bond Ordinance, the City established the following funds and accounts and, under the terms of the Bond Ordinance, the moneys deposited in such funds and accounts must be held in trust for the purposes set forth in the Bond Ordinance: (1) the Revenue Fund, to be held by Branch Banking and Trust Company, Cartersville, Georgia, as Depository for the account of the City; (2) the Sinking Fund, to be held by U.S. Bank National Association, Atlanta, Georgia, as Depository for the account of the City, and therein the following five accounts: -11-

16 (a) Interest Account, (b) Hedge Payments Account, (c) Principal Account, (d) Capitalized Interest Account, and (e) Debt Service Reserve Account; (3) the Renewal and Extension Fund, to be held by Branch Banking and Trust Company, Cartersville, Georgia, as Depository for the account of the City; (4) the Rebate Fund, to be held by U.S. Bank National Association, Atlanta, Georgia, as Depository for the account of the City; and (5) the Project Fund, to be held by U.S. Bank National Association, Atlanta, Georgia, as Depository for the account of the City, and therein the Series 2018 Project Account. Revenue Fund The Bond Ordinance requires the City to deposit and continue to deposit all Operating Revenues in the Revenue Fund from time to time as and when received. Under the terms of the Bond Ordinance, moneys in the Revenue Fund are to be applied by the City from time to time to the following purposes and in the following order of priority: (a) to pay Expenses of Operation and Maintenance, (b) to deposit monthly into the Interest Account the amounts described below, (c) to deposit monthly into the Hedge Payments Account the amounts described below, (d) to deposit monthly into the Principal Account the amounts described below, (e) to deposit monthly into the Rebate Fund the amounts described below, (f) to pay monthly any amounts due to any Financial Facility Issuer securing Senior Bonds all amounts required to be paid to such Financial Facility Issuer as compensation for the Financial Facility securing Senior Bonds and as satisfaction of any other amounts due under the Financial Facility Agreement that are not considered to be subrogated payments of principal and interest on Senior Bonds, including Additional Interest on Senior Bonds, (g) to deposit monthly into the Debt Service Reserve Account and paid monthly to any Reserve Account Credit Facility Provider, on a pro-rata basis, the amounts described below, (h) to pay monthly repayments of any draw-down on any Reserve Account Credit Facility (other than repayments that reinstate the Reserve Account Credit Facility) and any interest or fees due the Reserve Account Credit Facility Provider under such Reserve Account Credit Facility, (i) to deposit monthly the amounts required to be deposited into the funds and accounts created by any Series Ordinance authorizing the issuance of Subordinate Bonds, as described below, (j) to pay monthly any amounts required to be paid with respect to any Other System Obligations, and (k) to deposit monthly into the Renewal and Extension Fund all remaining moneys and securities held in the Revenue Fund in excess of not less than 30 nor more than 60 days estimated Expenses of Operation and Maintenance and after all of the other transfers set forth in this paragraph have been made. Sinking Fund Interest Account Under the terms of the Bond Ordinance, there must be paid into the Interest Account monthly from moneys in the Revenue Fund, on or before the 20th day of the month, an installment equal to 1/6 of the amount of interest (excluding Additional Interest) falling due and payable on all Outstanding Senior Bonds on the next Interest Payment Date, adjusted to give credit for any other available monies then in the Interest Account or the Capitalized Interest Account, and further adjusted if necessary to assure the timely accumulation of the required amount in approximately equal installments. To the extent that any of the Senior Bonds bear interest at a Variable Rate, this requirement will be deemed satisfied with respect to such Senior Bonds if the installment paid into the Interest Account in each month is sufficient to accumulate for such Senior Bonds an amount equal to 1/6 of the Projected Interest Payment multiplied by the number of months and fractions of months expired since delivery of such Senior Bonds or the most recent Interest Payment Date. Notwithstanding the foregoing, any Series Ordinance that authorizes the issuance of Parity Bonds which pay interest other than semiannually may establish a different method of accumulating money in the Interest Account to pay interest on such Parity Bonds, so long as such method provides for the accumulation, in equal installments of no greater frequency than monthly, of sufficient funds to pay interest due on such Parity Bonds on each Interest Payment Date established for such Parity Bonds. The City must also deposit and continue to deposit all Hedge Receipts under Senior Hedge Agreements in the Interest Account from time to time as and when received. Hedge Payments Account Under the terms of the Bond Ordinance, on or before each payment date for Hedge Payments under Senior Hedge Agreements, the City must deposit in the Hedge Payments Account from moneys in the Revenue Fund an amount which, together with any other moneys already on deposit therein and available to make such payment, is -12-

17 not less than such Hedge Payments coming due on such payment date. In addition, the Bond Ordinance provides that, on or before the 20th day of each month, the City must deposit in the Hedge Payments Account from moneys in the Revenue Fund an amount which, together with an equal amount to be deposited in each such month, if any, occurring prior to the next succeeding payment date for Hedge Payments under Senior Hedge Agreements, will not be less than the amount of such Hedge Payments to become due on such next succeeding payment date for such Hedge Payments. No deposit pursuant to this paragraph need be made to the extent that there is a sufficient amount already on deposit in the Hedge Payments Account to pay such Hedge Payments on each such payment date. Moneys in the Hedge Payments Account may be used solely to pay Hedge Payments under Senior Hedge Agreements when due. Principal Account Under the terms of the Bond Ordinance, there must be paid into the Principal Account monthly from moneys in the Revenue Fund, on or before the 20th day of the month, an installment equal to 1/12 of the principal amount falling due and payable on all Outstanding Senior Bonds on the next Principal Maturity Date plus whatever additional amounts may be necessary in equal monthly installments to accumulate in the Principal Account the full principal amount falling due in such Bond Year. For purposes of this requirement, the amount of principal falling due in any Bond Year includes all amounts of principal maturing during the Bond Year and all amounts of principal that are subject to mandatory redemption during the Bond Year. Notwithstanding the foregoing, any Series Ordinance that authorizes the issuance of Parity Bonds which pay principal other than annually may establish a different method of accumulating money in the Principal Account to pay principal on such Parity Bonds, so long as such method provides for the accumulation, in equal installments of no greater frequency than monthly, of sufficient funds to pay principal on such Parity Bonds when due. Capitalized Interest Account No deposit will be made into the Capitalized Interest Account in connection with the issuance of the Series 2018 Bonds. Amounts deposited in the Capitalized Interest Account in connection with Parity Bonds will be applied to the payment of interest on the Senior Bonds and will be transferred to the Interest Account to pay interest on the Senior Bonds or to reimburse any Credit Facility Issuer for amounts drawn on a Credit Facility for such purposes. Such transferred amounts will be limited to amounts necessary to enable the City to make all required deposits into the Interest Account, thereby leaving sufficient Net Operating Revenues to enable the City to make all required deposits to the other funds and accounts established under the Bond Ordinance. Debt Service Reserve Account The balance of the Debt Service Reserve Account must be maintained at an amount equal to the Debt Service Reserve Requirement (or such lesser amount that is required to be accumulated in the Debt Service Reserve Account in connection with the periodic accumulation to the Debt Service Reserve Requirement after the issuance of Parity Bonds or upon the failure of the City to provide a substitute Reserve Account Credit Facility in certain events). Initially, upon issuance of the Series 2018 Bonds, the Debt Service Reserve Requirement will be an amount equal to $3,704,913*. After the issuance of any Parity Bonds, the increase in the amount of the Debt Service Reserve Requirement resulting from the issuance of such Parity Bonds must be accumulated, to the extent not covered by deposits from Bond proceeds or funds on hand, over a period not exceeding 61 months from date of delivery of such Parity Bonds in monthly payments, none of which is less than 1/60 of the amount to be accumulated. The Bond Ordinance provides that there will be paid monthly from the Revenue Fund on a pro rata basis (1) to the Debt Service Reserve Account the amount necessary to restore the amount of cash and securities in the Debt Service Reserve Account to an amount equal to the difference between (a) the Debt Service Reserve Requirement (or such lesser monthly amount that is required to be deposited into the Debt Service Reserve Account after the issuance of Parity Bonds or upon the failure of the City to provide a substitute Reserve Account Credit Facility in certain events) and (b) the portion of the required balance of the Debt Service Reserve Account satisfied by means of a Reserve Account Credit Facility, and (2) to any Reserve Account Credit Facility Provider the amount necessary to reinstate any Reserve Account Credit Facility that has been drawn down. Whenever for any reason the amount in the Interest Account or the Principal Account is insufficient to pay all interest or principal falling due on the Senior Bonds within the next seven days, the City is required by the terms of the Bond Ordinance to make up any deficiency by transfers from the Renewal and Extension Fund. Whenever, on the date that such interest or principal is due, there are insufficient monies in the Interest Account or the Principal Account available to make such payment, the City must, without further instructions, apply so much as may be needed of the monies in the Debt Service Reserve Account to prevent default in the payment of such interest or principal, with priority to interest payments. Whenever by reason of any such application or otherwise the amount remaining to the credit of the Debt Service Reserve Account is less than the amount then required to be in the Debt Service Reserve Account, such deficiency must be remedied by monthly payments from the Revenue Fund, to the -13-

18 extent funds are available in the Revenue Fund for such purpose after all required transfers described above have been made. The City may elect to satisfy in whole or in part the Debt Service Reserve Requirement by means of a Reserve Account Credit Facility, subject to the following requirements: (A) the Reserve Account Credit Facility Provider must have a credit rating issued by a Rating Agency not less than its second highest Rating; (B) the City may not secure any obligation to the Reserve Account Credit Facility Provider by a lien equal to or superior to the lien granted to the related series of Senior Bonds; (C) each Reserve Account Credit Facility must have a term of at least one (1) year (or, if less, the remaining term of the related series of Senior Bonds) and must entitle the City to draw upon or demand payment and receive the amount so requested in immediately available funds on the date of such draw or demand; (D) the Reserve Account Credit Facility must permit a drawing by the City for the full stated amount in the event (i) the Reserve Account Credit Facility expires or terminates for any reason prior to the final maturity of the related series of Senior Bonds, and (ii) the City fails to satisfy the Debt Service Reserve Requirement by the deposit to the Debt Service Reserve Account of cash, obligations, a substitute Reserve Account Credit Facility, or any combination thereof, on or before the date of such expiration or termination; (E) if the Rating issued by the Rating Agency to the Reserve Account Credit Facility Provider is withdrawn or reduced below its second highest Rating, the City must provide a substitute Reserve Account Credit Facility within 60 days after such rating change, and, if no substitute Reserve Account Credit Facility is obtained by such date, must fund the Debt Service Reserve Requirement in not more than 60 equal monthly payments commencing not later than the first day of the month immediately succeeding the date representing the end of such 60 day period; and (F) if the Reserve Account Credit Facility Provider commences any insolvency proceedings or is determined to be insolvent or fails to make payments when due on its obligations, the City must provide a substitute Reserve Account Credit Facility within 60 days thereafter, and, if no substitute Reserve Account Credit Facility is obtained by such date, must fund the Debt Service Reserve Requirement in not more than 60 equal monthly payments commencing not later than the first day of the month immediately succeeding the date representing the end of such 60 day period. If the events described in either clauses (E) or (F) immediately above occur, the City may not relinquish the Reserve Account Credit Facility at issue until after the Debt Service Reserve Requirement is fully satisfied by the provision of cash, obligations, or a substitute Reserve Account Credit Facility or any combination thereof. Any amount received from the Reserve Account Credit Facility must be deposited directly into the Interest Account and the Principal Account, and such deposit will constitute the application of amounts in the Debt Service Reserve Account. Repayment of any draw-down on the Reserve Account Credit Facility (other than repayments that reinstate the Reserve Account Credit Facility) and any interest or fees due the Reserve Account Credit Facility Provider under such Reserve Account Credit Facility must be secured by a lien on the Pledged Revenues subordinate to payments into the Sinking Fund and the Rebate Fund and payments to any Financial Facility Issuer securing Senior Bonds. Any such Reserve Account Credit Facility must be pledged to the benefit of the owners of all of the Senior Bonds. The City reserved the right in the Bond Ordinance, if it deems it necessary in order to acquire such a Reserve Account Credit Facility, to amend the Bond Ordinance without the consent of any of the owners of Senior Bonds in order to grant to the Reserve Account Credit Facility Provider such additional rights as it may demand, provided that such amendment may not, in the written opinion of Bond Counsel filed with the City, impair or reduce the security granted to the owners of Senior Bonds or any of them. Rebate Fund Under the terms of the Bond Ordinance, there must be paid monthly from the Revenue Fund any amounts required to be paid into the Rebate Fund, as estimated by the City, or as estimated for the City and approved by the City, for purposes of complying with the requirement for rebate to the United States government under Section 148(f) of the Internal Revenue Code of 1986, as amended. Payment may be made in monthly installments and may be adjusted as the City deems necessary to provide the amount which it estimates to be necessary, as revised from time to time, within any Fiscal Year. Subordinate Bonds Under the terms of the Bond Ordinance, there will be deposited monthly the amounts required to be deposited into the funds and accounts created by any Bond Ordinance authorizing the issuance of Subordinate Bonds, for the purpose of paying principal of (whether at maturity or upon mandatory redemption) and interest on Subordinate Bonds, making Hedge Payments under Subordinate Hedge Agreements, and accumulating reserves for such payments. Any money withdrawn from such funds and accounts for use in making such payments must be released from the lien of the Bond Ordinance. If at any time the amounts in any account of the Sinking Fund are less than the amounts required by the Bond Ordinance, and there are not on deposit in the Renewal and Extension Fund available moneys sufficient to cure any such deficiency, then the City must withdraw from the funds and accounts relating to -14-

19 Subordinate Bonds and deposit in such account of the Sinking Fund, as the case may be, the amount necessary (or all the moneys in such funds and accounts, if less than the amount required) to make up such deficiency. Renewal and Extension Fund Under the terms of the Bond Ordinance, in addition to the monthly deposits to be made to the Renewal and Extension Fund from moneys in the Revenue Fund as described above, the City must deposit in the Renewal and Extension Fund all termination payments received under any Hedge Agreements. All sums accumulated and retained in the Renewal and Extension Fund must be used first to prevent default in the payment of interest on or principal of the Senior Bonds when due and then must be applied by the City from time to time, as and when the City may determine, to the following purposes and in the following order of priority: (1) to the payment of Expenses of Operation and Maintenance, to the extent moneys are not available for such purpose in the Revenue Fund; (2) to the restoration of the Interest Account, the Principal Account, and the Hedge Payments Account to the respective amounts required at that time to be held therein; (3) to the restoration of the Rebate Fund to the amount required at that time to be held therein; (4) to the payment of any and all amounts which may then be due and owing to any Credit Facility Issuer securing Senior Bonds; (5) to the restoration of the Debt Service Reserve Account (including the reinstatement of any Reserve Account Credit Facility) to the amount required at that time to be held therein; (6) to the payment of any and all amounts that may then be due and owing to any Reserve Account Credit Facility Provider; (7) to prevent default in the payment of interest on or principal of the Subordinate Bonds when due; (8) to the restoration of the funds and accounts relating to Subordinate Bonds to the respective amounts required at that time to be held therein; (9) to the payment of any and all amounts that may then be due and owing under any Hedge Agreement (including termination payments, fees, expenses, and indemnity payments); (10) to the payment of any and all governmental charges and assessments against the System or any part thereof that may then be due and owing; and (11) to the payment of any and all amounts that may then be due and owing under any Other System Obligation; (12) to make acquisitions, betterments, extensions, repairs, or replacements or other capital improvements (including the purchase of equipment) to the System deemed necessary by the City (including payments under contracts with vendors, suppliers, and contractors for the foregoing purposes); and (13) at the option of the City, to the acquisition of Senior Bonds by redemption or by purchase in the open market at a price not exceeding the callable price as provided and in accordance with the terms and conditions of the Bond Ordinance, which Senior Bonds may be any of the Senior Bonds, prior to their respective maturities, and when so used for such purposes the moneys must be withdrawn from the Renewal and Extension Fund and deposited into the Interest Account and the Principal Account for the Senior Bonds to be so redeemed or purchased. Project Fund The Bond Ordinance requires the City to establish within the Project Fund a separate account for each Project. The City has established the Series 2018 Project Account for the Series 2018 Project, into which a portion of the proceeds of the sale of the Series 2018 Bonds will be deposited. Monies in the Project Fund must be applied to the payment of the Costs of the Project, or for the repayment of advances made for that purpose in accordance with and subject to the provisions and restrictions set forth in the Bond Ordinance. The City covenanted in the Bond Ordinance that it will not cause or permit to be paid from the Project Fund any sums except in accordance with such provisions and restrictions; provided, however, that any monies in the Project Fund not presently needed for the payment of current obligations during the course of construction may be invested in Permitted Investments maturing -15-

20 not later than (i) the date upon which such monies will be needed according to a schedule of anticipated payments from the Project Fund filed with the City by the engineer in charge of the Project or, (ii) in the absence of such schedule, 36 months from the date of purchase, in either case upon written direction of the City. Monies in each separate account in the Project Fund are required to be used for the payment or reimbursement of the Costs of the Project for which such account was established. All payments from the Project Fund must be made upon draft except as provided in the Bond Ordinance, signed by the officers of the City properly authorized to sign on its behalf, but before they may sign any such draft, there must be filed with the Depository: (1) a requisition for such payment (the above-mentioned draft may be deemed a requisition for this purpose), stating each amount to be paid and the name of the person to whom payment is due; (2) a certificate executed by such officers attached to the requisition and certifying: (a) that an obligation in the stated amount has been incurred by the City and that the same is a proper charge against the Project Fund and has not been paid and stating that the bill or statement of account for such obligation, or a copy thereof, is on file in the office of the City; (b) that the signers have no notice of any vendor s, mechanic s, or other liens or rights to liens, chattel mortgages, or conditional sales contracts that should be satisfied or discharged before such payment is made; and (c) that such requisition contains no item representing payment on account of any retained percentages that the City is, at the date of any such certificate, entitled to retain; and No requisition for payment may be made until the City has been furnished with a proper certificate of the supervising engineer that insofar as such obligation was incurred for work, material, supplies, or equipment in connection with the undertaking, such work was actually performed, or such material, supplies, or equipment was actually installed in or about the construction or delivered at the site of the work for that purpose. The Bond Ordinance requires the City, when a Project has been completed, and allows the City, when a Project has been substantially completed, to file with the Depository a certificate signed by the Chief Officer estimating what portion of the funds remaining in the separate account relating to such Project will be required by the City for the payment or reimbursement of the Costs of such Project. The Chief Officer must attach to his certificate a certificate of the supervising engineer certifying that such Project has been completed or substantially completed, as the case may be, in accordance with the plans and specifications therefor and approving the estimates of the Chief Officer with respect to the portion of funds in the account required for Costs of the Project. Such funds that will not be used must be (1) transferred to the Principal Account and used to redeem Bonds of the related series on the next redemption date or to pay principal of such Bonds on the next Principal Maturity Date, or (2) transferred to the Interest Account and used to pay interest on Bonds of the related series, provided that the City shall first obtain an opinion of Bond Counsel to the effect that, under existing law, the application of such moneys to pay interest on such Bonds (a) is allowed under State law, and (b) if such Bonds are Tax-Exempt Bonds, will not, by itself and without more, adversely affect the exclusion from gross income for federal income tax purposes of interest payable on such Bonds. Rate Covenant The City covenanted and agreed in the Bond Ordinance that it will adopt rates, fees, and other charges for the services, facilities, and commodities furnished by the System fully sufficient at all times to (a) provide for 100% of the Expenses of Operation and Maintenance and for the accumulation in the Revenue Fund of a reasonable reserve of not less than 30 nor more than 60 days estimated Expenses of Operation and Maintenance, (b) produce Net Operating Revenues in each Fiscal Year that will equal at least 120% of the annual debt service requirement on all Bonds then Outstanding, and such amount as to enable the City to make all required payments, if any, into the Debt Service Reserve Account and the Rebate Fund and to any Financial Facility Issuer, any Reserve Account Credit Facility Provider, and any Qualified Hedge Provider, and (c) to maintain the Renewal and Extension Fund. In the event the City fails to adopt such a schedule of rates, fees, and other charges or to revise its schedule or schedules of rates, fees, and other charges as provided above, the owners of not less than 25% in aggregate principal amount of the Bonds then Outstanding, without regard to whether any default shall have occurred, may institute and prosecute in any court of competent jurisdiction an appropriate action to compel the City to adopt a schedule or schedules of rates, fees, and other charges, or to revise its schedule or schedules of rates, fees, and other charges in accordance with the foregoing. -16-

21 Parity and Subordinate Bonds Upon satisfaction of certain conditions, the Bond Ordinance permits the City, for specified purposes, to issue additional revenue bonds without express limit as to principal amount, which will be equally and ratably secured on a parity basis with the Prior Bond that are not being refunded and the Series 2018 Bonds under the Bond Ordinance. See SUMMARY OF THE BOND ORDINANCE - Issuance of Additional Parity Bonds in Appendix B hereto. The City may issue additional parity bonds in the future to finance part of the cost of ongoing capital improvements to the System. The issuance of additional parity bonds may, for a period of time, dilute the security for the Series 2018 Bonds. The Bond Ordinance also allows the City to issue obligations secured by the Pledged Revenues that are junior and subordinate to the Bonds as to lien and right of payment. Under the terms of the Bond Ordinance, should revenue bonds be issued ranking as to lien on the revenues of the System junior and subordinate to the lien securing the payment of the Bonds, then payments to the Renewal and Extension Fund may be suspended or reduced and such money will be available to the extent necessary to pay the principal of and interest on such junior lien bonds and to create and maintain a reasonable reserve therefor, and such moneys may be allocated and pledged for that purpose. See SUMMARY OF THE BOND ORDINANCE - Subordinate Bonds in Appendix B hereto. Limited Obligations The Series 2018 Bonds are special limited obligations of the City payable solely from the Pledged Revenues. The Series 2018 Bonds are not payable from and are not secured by a charge, lien, or encumbrance upon any funds or assets of the City other than the Pledged Revenues. The Series 2018 Bonds do not and will not constitute a debt or general obligation of the City or a pledge of the faith and credit or taxing power of the City. No governmental entity, including the City, is obligated to levy any tax for the payment of the Series 2018 Bonds. No recourse may be had against the General Fund of the City for the payment of the Series 2018 Bonds. The pledge of and lien on Pledged Revenues securing the Series 2018 Bonds does not create a legal or equitable pledge, charge, lien, or encumbrance upon any of the City s property or income, receipts, or revenues, except the Pledged Revenues. Remedies The Revenue Bond Law provides that the provisions of the Revenue Bond Law and the Bond Ordinance constitute a contract between the City and the owners of the Bonds. For a description of the remedies available to owners of the Bonds under the terms of the Bond Ordinance upon the occurrence of an Event of Default thereunder, see SUMMARY OF THE BOND ORDINANCE - Defaults and Remedies in Appendix B hereto. In addition to the remedies set forth in the Bond Ordinance, the Revenue Bond Law provides that the duties of the City, the City Council, and the officers of the City under the Revenue Bond Law and the Bond Ordinance are enforceable by any owner of the Bonds by mandamus or other appropriate action or proceeding at law or in equity. The Revenue Bond Law also provides that in the event the City defaults in the payment of the principal or interest on any of the Bonds after the same becomes due, whether at maturity or upon call for redemption, and such default continues for a period of 30 days, or in the event the City or the City Council or the officers, agents, or employees of the City fail or refuse to comply with the essential provisions of the Revenue Bond Law or default in any material respect in the Bond Ordinance, any holders of the Bonds shall have the right to apply in an appropriate judicial proceeding to the Superior Court of Bartow County or to any court of competent jurisdiction for the appointment of a receiver of the System, whether or not all Bonds have been declared due and payable and whether or not such holder is seeking or has sought to enforce any other right or to exercise any remedy in connection with the Bonds. Upon such application, the Superior Court, if it deems such action necessary for the protection of the bondholders, may appoint and, if the application is made by the holders of 25 percent in principal amount of the Bonds then outstanding, shall appoint a receiver of the System. The receiver so appointed under the Revenue Bond Law, directly or by his agents and attorneys, is required under the Revenue Bond Law to forthwith enter into and upon and take possession of the System. If the court so directs, the receiver may exclude the City, the City Council, and the City s officers, agents, and employees, and all persons claiming under them, wholly from the System. Under the Revenue Bond Law, the receiver will have, hold, use, operate, manage, and control the System, in the name of the City or otherwise, as the receiver may deem best. Under the Revenue Bond Law, the receiver will exercise all the rights and powers of the City with respect to the System as the City itself might do. The receiver will maintain, restore, insure, and keep insured the System and from time to time will make all such necessary or proper repairs as the receiver may deem expedient. Under the Revenue Bond Law, the receiver will establish, levy, maintain, and collect such fees, tolls, rentals, and other charges in connection with the System as he deems necessary or proper and reasonable. Under the Revenue Bond Law, the receiver will collect and receive all revenues and will deposit the same in a separate account and apply the revenues so collected and received in such manner as the court shall direct. -17-

22 Notwithstanding the provisions of the Revenue Bond Law described above, the receiver has no power to sell, assign, mortgage, or otherwise dispose of any assets of whatever kind or character belonging to the City and useful for the System. The authority of any such receiver is limited to the operation and maintenance of the System. No court may have jurisdiction to enter any order or decree requiring or permitting the receiver to sell, assign, mortgage, or otherwise dispose of any such assets. The receiver must, in the performance of the powers conferred upon him, act under the direction and supervision of the court making such appointment and will at all times be subject to the orders and decrees of such court and may be removed by such court. Under the terms of the Revenue Bond Law, whenever all that is due upon the Bonds and interest thereon and upon any other notes, bonds, or other obligations and interest thereon having a charge, lien, or encumbrance on the revenues of the System and under any of the terms of the Bond Ordinance has been paid or deposited as provided therein and whenever all defaults have been cured and made good and it appears to the court that no default is imminent, the court must direct the receiver to surrender possession of the System to the City. The same right of the holders of the Bonds to secure the appointment of a receiver exists upon any subsequent default as is provided in the Revenue Bond Law. If the City were to default on the Series 2018 Bonds, the realization of value from the pledge of the Pledged Revenues to secure the payment of the Series 2018 Bonds would depend upon the exercise of various remedies specified by the Bond Ordinance and Georgia law (including the Revenue Bond Law). These remedies may require judicial actions, which are often subject to discretion and delay and which may be difficult to pursue. The enforceability of rights or remedies with respect to the Series 2018 Bonds may be limited by state and federal laws, rulings, and decisions affecting remedies and by bankruptcy, insolvency, or other laws affecting creditors rights or remedies heretofore or hereafter enacted. Section of the Official Code of Georgia Annotated provides that no municipality created under the Constitution or laws of the State of Georgia shall be authorized to file a petition for relief from payment of its debts as they mature or a petition for composition of its debts under any federal statute providing for such relief or composition or otherwise to take advantage of any federal statute providing for the adjustment of debts of political subdivisions and public agencies and instrumentalities. Section of the Official Code of Georgia Annotated also provides that no chief executive, mayor, city council, or other governmental officer, governing body, or organization shall be empowered to cause or authorize the filing by or on behalf of any municipality created under the Constitution or laws of the State of Georgia of any petition for relief from payment of its debts as they mature or a petition for composition of its debts under any federal statute providing for such relief or composition or otherwise to take advantage of any federal statute providing for the adjustment of debts of political subdivisions and public agencies and instrumentalities. Section of the Official Code of Georgia Annotated does not constitute a statutory covenant with the owners of any Series 2018 Bonds and may be amended or repealed at any time without the consent of any owners of the Series 2018 Bonds. Introduction THE CITY The City of Cartersville, Georgia is a municipal corporation created and existing under the laws of the State of Georgia and has as its formal name the City of Cartersville, Georgia. The City is located in the northwestern portion of the State of Georgia approximately 42 miles northwest of the City of Atlanta. The City is centrally located in and is the county seat of Bartow County. The City was originally chartered on August 27, 1872 and presently has a land area of approximately 30 square miles. The City s elevation averages 756 feet above sea level, and the terrain is rolling. City Administration and Officials The affairs of the City are conducted by a City Council consisting of a Mayor and six councilmen. Under the City s charter, all corporate powers are vested in the City Council. The Mayor serves two-year terms of office, and the councilmen serve four-year terms of office. To be eligible for the office of mayor or councilman (elected or appointed), a person must be at least twenty-five years of age, must meet the requirements of a qualified elector for members of the General Assembly of the State of Georgia, must have been a bona fide resident of the City for at least one year preceding the election in which he or she offers as a candidate, and must be a qualified voter in the City. The City is divided into six wards, and the councilmen are elected only by the voters of the ward from which he or she seeks office. To be eligible for the office of councilman, a person must be a resident of the ward from which he or she seeks office. The Mayor is elected by the voters of the City at large. -18-

23 The Mayor is the ceremonial head of the City. The Mayor presides at all meetings of the City Council and is entitled to vote on any question. The vote of the Mayor is necessary to pass any ordinance or resolution favored by only three other members of the City Council. The Mayor has the right to veto any resolution or ordinance of the City Council except where his vote was necessary for passage, which veto may be overridden only upon the affirmative vote of three-fourths of the total number of councilmen. Under the City s Charter, the City Manager, who is appointed by and serves at the pleasure of the City Council, is the head of the administrative branch of the government of the City and is responsible for the proper administration of all affairs of the City. Information concerning the current members of the City Council is set forth below: Number of Name and Office Held Expiration of Term Years in Office Principal Occupation Matt Santini, Mayor 12/31/ Radio Station Manager/Grand Theatre Administrator Kari Hodge, Ward 1 12/31/ Realtor Jayce Stepp, Ward 2 12/31/ Insurance Consultant Cary Roth, Ward 3 12/31/ Aircraft Mechanic Calvin Cooley, Ward 4 12/31/ Retired Gary Fox, Ward 5 12/31/ Accountant Taff Wren, Ward 6 12/31/ Attorney Samuel E. Grove has been the City Manager of the City since June of He is retiring in June See THE SYSTEM - Management herein. [Remainder of Page Intentionally Left Blank] -19-

24 THE SYSTEM Introduction The Revenue Bond Law authorizes the City to acquire and operate for users within and outside its territorial boundaries systems, plants, works, instrumentalities, and properties (i) used or useful in connection with obtaining a water supply and conserving, treating, and disposing of water for public and private uses and (ii) used or useful in connection with collecting, treating, and disposing of sewage and wastewater. The water and sewer system of the City consists of a water system and a sewer system operated by the City on a consolidated basis. The water system was established in 1893, and the sewer system was established in The System operates as a department of the City. Management The System is administered by the City through the City Council. The City Manager is charged with the responsibility of daily operation and administration of the System. Samuel E. Grove, age 63, has been the City Manager of the City since June of 1996 and is retiring in June His replacement will be selected by the City Council. After a national search involving over forty candidates, the City has narrowed down the selection to one final candidate, Tamara W. Brock. Ms. Brock, age 37, currently serves as the City s Assistant City Manager for gas, water, and electric utilities. The City expects that the City Council will vote on Ms. Brock s appointment at its regularly scheduled meeting on June 7, Thomas C. Rhinehart, age 54, has been the Finance Director for the City since March of 2009, following his hire in June of 2008 as a Staff Accountant for the City. Prior to his employment with the City, Mr. Rhinehart served as Chief Accountant at the Bartow County School System for eight years. He received a Bachelor s Degree in Accounting from Georgia State University in June of Robert S. Jones, age 46, has been the Water and Sewer Department Director since 2014 and employed by the City since Prior to his employment with the City, Mr. Jones was employed by Kiber Environmental Services, Inc., Atlanta, Georgia, where he was Project Manager with the Consulting Services Division. In that capacity, Mr. Jones managed multiple hazardous waste remediation projects dealing with contaminated soil and water. He received a Bachelor s Degree in Environmental Health Science from the University of Georgia in 1995 and a Bachelor s Degree in Accounting from Kennesaw State University in System Facilities Water System The City s water system consists of a water supply, treatment, and distribution system. The water system was established in The City s primary source of raw water is the Allatoona Reservoir. The City draws raw water by gravity through its water intake located on the front of the Allatoona Dam, which it transports to its water treatment plant, located at 237 Allatoona Dam Road. The City then pumps treated water to its storage facilities. The location of the water storage facilities allows the water distribution network to be fed by gravity. The City is not required to maintain raw water storage because it takes water directly from the Allatoona Reservoir. See THE SYSTEM - Water Sources herein. The City owns one water treatment plant, which is described below. Plant Clarence B. Walker Rated Capacity for Treatment of Raw Water (MGD) Sustained Capacity for Treatment of Raw Water (MGD) Maximum Treated Water Pumping Capacity (MGD) Production of Treated Water (MGD) Average Maximum Original Construction Dates of Improvements , 1987, 1993, 2000, 2007, Year ended June 30,

25 The condition of the water treatment plant is good. The City owns four ground storage tanks with an aggregate storage capacity for treated water of 18.0 million gallons. These storage tanks were constructed between 1968 and 1990 and are in good condition. In addition, the City has 3.25 million gallons of clear well water storage capacity at its water treatment plant. The System s water distribution network consists of approximately 233 miles of pipelines, ranging in size from 3/4 inch to 36 inches in diameter. Most of the pipelines are made of ductile iron. Approximately 73% of the pipelines have been in service for 20 years or more, with the oldest pipelines installed over 100 years ago. The weighted average age by pipe segment length is 42 years old and the average age of all pipe segments is 63 years old. The general condition of the water distribution network is good. The City maintains standby power systems in the form of a diesel generator at its water treatment plant, to ensure reliability of its water system during periods of power outage. The City also owns six buildings, 38 vehicles, and various equipment related to the System. Sewer System The City s sewer system consists of a sewage and wastewater treatment and collection system. The sewer system was established in The City owns one wastewater treatment plant, which is described below. Rated Treated Date of Treatment Wastewater (MGD) Original Dates of Plant Capacity (MGD) Average Maximum Construction Improvements Receiving Stream James R. Stafford , 1986, 1993, 1996, 2000, 2006 Etowah River 1 Year ended June 30, The condition of the wastewater treatment plant is good. The City s wastewater collection and conveyance system consists of three wastewater pumping stations and approximately 163 miles of collection sewers that transport primarily sanitary sewage. Approximately 99 percent of the sewer system is drained by gravity, and the remainder requires pumping. The collection and conveyance system uses a combination of 4-inch to 48-inch sewers. Most of the sewers are made of concrete and clay. Approximately 65% of the sewers have been in service for 38 years or more, with the oldest sewers installed approximately 98 years ago. The collection and conveyance system has standby pumps, a dual feed power supply, and a backup generator. The general condition of the collection and conveyance system is good. Water Sources Introduction The City s primary source of raw water is surface water from Lake Allatoona in the Coosa River Basin (the Allatoona Reservoir ). The Allatoona Reservoir was created by the Allatoona Dam on the Etowah River. The Allatoona Reservoir is located in Cobb, Bartow, and Cherokee Counties and was constructed pursuant to authorizations in Flood Control Acts approved by Congress in 1941 and The Cobb County-Marietta Water Authority also uses the Allatoona Reservoir as a primary source of water for its wholesale water system. The City also has authority to withdraw raw surface water from the Etowah River Coosa River Basin. Water Supply Contracts The City and the United States of America, acting through the Contracting Officer of the U.S. Army Corps of Engineers (the Corps ), have entered into two separate contracts, one dated July 12, 1966, and one dated October 18, 1991 (collectively, the Water Storage Contracts ), providing for withdrawal by the City of water from the Allatoona Reservoir. The Water Storage Contracts provide for use by the City of certain storage spaces in the Allatoona Reservoir, as follows: -21-

26 Storage Space No. Acre Feet 1 1 1, ,375 1 At the maximum elevation at the top of the power pool. The Water Storage Contracts are for the life of the Allatoona Reservoir and provide that the City may withdraw water from the appropriate storage space at any time subject to annual limits 1 so long as sufficient water is available within the allocated power storage of the Allatoona Reservoir. Releases or withdrawals that would lower the water level below the elevation of 800 feet above mean sea level may not be made by the City unless specifically approved by the Contracting Officer of the Corps. The City must utilize the storage spaces in a manner consistent with federal and state laws. Regulation of the use of the water stored in the storage spaces is the responsibility of the City and is not considered part of the Water Storage Contracts. The City pays to the United States amounts based on formulas established in the Water Storage Contracts for withdrawal of water from the storage spaces. The amounts paid to the United States for the City s past five fiscal years are set forth below. Fiscal Year Amount 2013 $185, , , , ,898 The Water Supply Contracts do not allow the City to transfer or assign the Water Supply Contracts or any rights acquired thereunder and do not allow the City to suballot any water supply storage spaces or any parts thereof or grant any interest, privilege, or license whatsoever in connection with the Water Supply Contracts without the approval of the Secretary of the Army. In the event the City refuses or fails to comply with the provisions of the Water Supply Contracts with respect to payments and transfer and assignment, the United States reserved the right under the Water Supply Contracts to terminate the Water Supply Contracts. In connection with the City s improvements to its water treatment plant completed in October of 2000, which the City undertook in part to supply additional water to support a proposed expansion of the Anheuser-Busch Brewery, the City, in 1998, requested the Corps to enter into a third contract (the Proposed Water Storage Contract ) with the City allowing the City to withdraw additional water from the Allatoona Reservoir equal to an annual average of 3.6 MGD. If this request had been granted, the City s total permitted withdrawal allotment from the Allatoona Reservoir would have increased from 16.8 average MGD to 20.4 average MGD. At or about the time of this request, the City and the State of Georgia Department of Natural Resources, Environmental Protection Division ( EPD ), commissioned a water supply reallocation study that was conducted by the Corps Mobile District office. As a result of this study, the Mobile District office advised the City that it has recommended to the Corps national office that the City s request be granted. While the City expected to receive final approval from the Corps once the Anheuser-Busch Brewery expanded, Anheuser-Busch subsequently postponed the proposed expansion indefinitely and has expressed no further intent to expand. Contention Water Supply Contracts Are Invalid The General Accounting Office of the United States, the investigative arm of Congress, issued a report dated August 20, 1991 (the GAO Report ), in which it contended, based upon a legal opinion of the Comptroller General of the United States, dated August 6, 1990, that the Corps, on behalf of the United States, did not and does not have the legal authority to enter into the Water Storage Contracts. 1 The City s right to withdraw water is subject to an annual withdrawal not to exceed 3,947 acre-feet in Storage Space No. 1, in operation, and 5,879 acre-feet with Storage Space Nos. 1 and 2, in operation. -22-

27 Through various legislative acts, Congress has authorized the Corps to construct and operate 497 reservoirs on behalf of the United States, including Lake Allatoona, for multiple purposes authorized by Congress, including flood control, navigation, hydroelectric power generation ( hydropower ), irrigation, municipal and industrial water supply, recreation, and fish and wildlife conservation. The GAO Report stated that municipal and industrial water supply was not an authorized purpose for Lake Allatoona set forth in the legislation authorizing the Corps to construct and operate Lake Allatoona or set forth in subsequent specific legislation relating to Lake Allatoona. The GAO Report states, however, that the Water Supply Act of 1958, as amended, generally authorizes the Corps to include space for water storage for municipal and industrial purposes in existing reservoirs under its jurisdiction. For more than thirty years, the Corps has consistently interpreted the Water Supply Act of 1958 to allow it to reallocate existing water supply capacity in reservoirs under its jurisdiction from the purposes authorized in specific legislation relating to the reservoirs for the purpose of serving municipal water supply needs. In furtherance of this interpretation, the Corps has entered into 38 long-term water storage contracts, including the Water Storage Contracts, with local governmental bodies for the withdrawal of water from various reservoirs throughout the United States for municipal water supply purposes. On August 6, 1990, the Comptroller General of the United States issued a legal opinion (the GAO Legal Opinion ) concluding that the Water Supply Act of 1958, as amended, authorizes the Corps to reallocate existing water supply capacity in reservoirs under its jurisdiction from the purposes authorized in specific legislation relating to the reservoirs to municipal and industrial purposes only in connection with the construction of the reservoirs or the expansion of the reservoirs resulting in additional water storage capacity. The GAO Report contends that the Water Storage Contracts reallocated existing water supply capacity from hydropower, which was an authorized purpose for Lake Allatoona set forth in specific legislation relating to Lake Allatoona, to municipal water supply, which was not an authorized purpose for Lake Allatoona in specific legislation relating to Lake Allatoona. The GAO Report also contends that the first Water Supply Contract was executed 17 years after Lake Allatoona was completed in 1949 and that the Corps has not expanded the water supply capacity of Lake Allatoona since its construction. Based upon the foregoing, the GAO Report concluded that the Water Storage Contracts do not have a proper legal basis. The General Counsel of the Department of the Army, in a letter dated February 5, 1991 (the Corps Response ), strongly disagreed with the GAO Legal Opinion and reaffirmed its interpretation of the Water Supply Act of 1958 to allow it to reallocate water supply capacity in reservoirs under its jurisdiction from purposes specifically authorized in legislation relating to the reservoirs to serve municipal water supply needs, in connection with non-structural operational changes to the reservoirs. The GAO Report noted the Corps Response and recommended that Congress amend the Water Supply Act to be consistent with the interpretation set forth in the GAO Legal Opinion. The GAO Report noted that alternatively Congress could, if it wants to allow the Corps to reallocate existing water supply capacity to serve municipal water supply needs, (1) amend the Water Supply Act to provide the Corps with this authority or (2) amend the specific legislation relating to the reservoirs to add municipal water supply as an authorized purpose for the reservoirs or approve specific water storage contracts on a case-by-case basis at individual reservoirs. The amendment to the Water Supply Act recommended in the GAO Report would invalidate 38 water storage contracts, including the Water Storage Contracts that the Corps has entered into with local governmental bodies over the past thirty years. In addition, if a governmental agency or a third party with standing to sue the City were to initiate litigation and convince a court that the interpretation of the Water Supply Act made in the GAO Legal Opinion is correct, a court could invalidate the Water Storage Contracts. Any impairment of the Water Storage Contracts, either through action by Congress or through action by a court that is not corrected by Congress, could jeopardize the City s assurance of a long-term source of water through the Allatoona Reservoir for the System, which in turn could adversely affect the revenues of the System and the City s ability to make timely payments of debt service on the Bonds. The City intends to pursue reasonable courses of action, either through the political or judicial process, to ensure that it can continue to withdraw water from Lake Allatoona to supply the System. The State of Alabama, in a lawsuit filed in federal court involving the U.S. Department of the Army and the States of Alabama, Florida, and Georgia, contended that the Corps does not have the authority to reallocate existing water supply capacity in certain reservoirs (including Lake Allatoona) for water supply needs. On April 29, 1991, the States of Alabama and Georgia and the Corps entered into an agreement approving the withdrawal of water by the City from the Allatoona Reservoir at an annual average rate of 16.8 MGD until the completion of the comprehensive study described below. On January 2, 1992, the States of Alabama, Florida, and Georgia and the U.S. Department of the Army entered into a Memorandum of Agreement, pursuant to which the federal court assigned the case to an inactive docket until the completion of a comprehensive, basin-wide study of the water -23-

28 supply regions known as the Alabama-Coosa-Tallapoosa River Basin (the ACT Basin ) and the Apalachicola- Chattahoochee-Flint River Basin (the ACF Basin ). In 1997, the United States Congress consented to interstate compacts entered into by the States of Georgia and Alabama pertaining to the allocation of water in the Alabama-Coosa-Tallapoosa River Basin, and by the States of Georgia, Alabama, and Florida pertaining to the allocation of water in the Apalachicola-Chattahoochee-Flint River Basin. These compacts provide for the equitable allocation of water within the respective basins (the Basins ) according to principles and formulae to be agreed upon as described below. In the absence of such agreement, or the unanimous extension of the deadline, the compacts terminate of their own accord on December 29, The states could not reach an agreement during these compacts, and they expired without resolution in 2003 (ACF) and 2004 (ACT). Following termination of the compacts, litigation resumed. In July 2009, the U.S. District Court for the Middle District of Florida issued a ruling declaring that water supply is not an authorized purpose of Lake Lanier. Georgia was given three years to obtain Congressional approval for additional authorization. In September 2009, the state of Georgia and other Georgia parties (Atlanta Regional Commission, Cobb County-Marietta Water Authority ( CCMWA ), the City of Atlanta, DeKalb County, Atlanta-Fulton Water Resources Commission, the City of Gainesville and Gwinnett County) and the U.S. Army Corps of Engineers appealed the U.S. District Court ruling. The 11th Circuit Court of Appeals agrees to hear the case, over Alabama and Florida s objection. In June 2011, the 11th Circuit overturns U.S. District Court ruling Judge decision, and found that water supply is a fully authorized purpose of Lake Lanier. The Court of Appeals explains that Congress intended Lake Lanier to be a primary water supply source for metro Atlanta, and that Congress understood when it authorized the project that water supply needs would grow as the population of metro Atlanta increased. In June 2012, the U.S. Supreme Court effectively upholds the 11th Circuit s decision, by denying requests by Alabama, Florida, and others seeking review of the 11th dismissal of their suits against the Corps and by denying Alabama s and Florida s requests to review the 11th Circuit s key holding that water supply is an authorized purpose of Lake Lanier. In July 2012, the U.S. District Court for the Northern District of Alabama dismissed Alabama s challenges to the Army s operation of Allatoona Lake and CCMWA s water supply withdrawals for lack of jurisdiction. Following the close of the original Water Wars litigation in 2012, a new series of legal actions began in 2014 over the ACF in the Supreme Court, the ACT Water Control Manual and other ACT issues, and the ACF Water Control Manual update. In May 2015, the Corps adopted a new Master Water Control Manual for the ACT Basin, which includes Allatoona Lake. There are currently three lawsuits related to the 2015 Manual and the operation of Allatoona Lake for water supply. First, the State of Georgia, the Atlanta Regional Commission, and Cobb County- Marietta Water Authority have sued the Corps for failing to act on water supply requests that have been pending since 1981, and for failing to consider or analyze water supply alternatives as required by the National Environmental Policy Act. This case is (the Failure to Act Lawsuit ) is State of Georgia v. U.S. Army Corps of Engineers, Civil Action No. 1:14-cv-3593 (N.D. Ga. filed Nov. 7, 2014). Second, the State of Alabama, Alabama Power Co. and others have also filed suit against the Corps to challenge the 2015 Manual and the Corps management of Allatoona Lake. The consolidated case (the Alabama Parties Lawsuit ) is Alabama et al. v. U.S. Army Corps of Engineers, Civil Action No. 1:15-cv-696 (D.D.C. filed May 7, 2015). The cities of Montgomery and Mobile, Alabama have also intervened in this case. Third, the Cobb County-Marietta Water Authority has filed suit to challenge the method the Corps uses to calculate the amount of water available to Cobb-Marietta from its storage in Allatoona Lake, including the Corps refusal to credit made inflows (return flows and releases from Hickory Log Creek Reservoir) granted to Cobb-Marietta by the State of Georgia. The case (the Storage Accounting Lawsuit ) is Cobb County-Marietta Water Authority v. U.S. Army Corps of Engineers, No. 1:17-cv-400 (N.D. Ga.). In January 9, 2018, the U.S. District Court for the Northern District of Georgia issued a judgment in the Failure to Act Lawsuit, holding that the Corps had unreasonably delayed action on Georgia's water supply request, and directing the Corp to take final action responding to that request by March 1, The judgment orders, among other things, (1) Georgia parties to provide updated information regarding waste supply alternatives and impacts consistent with the Georgia parties request by September 1, 2018; (2) issuance of a draft environmental impact statement ( EIS ) (if applicable) by September 1, 2019; (3) issuance of a final EIS (if applicable) by September 1, 2020; and (4) a record of decision including proffer of contracts by March 1, On March 30, 2018, the State of Georgia and CCMWA submitted an updated request to the Corps. The Corps issued a Notice of Intent that was published in the Federal Register on April 30, 2018, at 83 FR (Document No ). The Notice indicates that the Corps intends to prepare a proposed Supplemental EIS to evaluate potential changes to the Water Control Manuals ( WCMs ) for three reservoirs in the ACT Basin and to the Master WCM for the ACT River Basin. The Notice further indicates that the Corps intends to conduct a water supply storage reallocation study to evaluate a March 30, 2018 request by Georgia and for increased water supply usage at Allatoona Lake and changed storage accounting methodology. -24-

29 Service Area The System supplies water to residential, commercial, and industrial customers located within the City s corporate limits and located in certain areas of unincorporated Bartow County adjacent to the City. The System supplies water to a geographic area of approximately 28 square miles containing an estimated population in excess of 23,100. The System also supplies water on a wholesale basis to Bartow County s water system. The System provides sewer services to residential, commercial, and industrial customers located within the City s corporate limits and located within certain areas of unincorporated Bartow County adjacent to the City. The System provides sewer services to a geographic area of approximately 22 square miles containing an estimated population in excess of 20,100. The System also treats wastewater on a wholesale basis for the City of White, City of Emerson, and Bartow County s sewer system. The System has the non-exclusive right to provide water and sewer service within the City s corporate limits and the non-exclusive right to provide water and sewer service in the unincorporated area of Bartow County. Set forth below are the approximate percentages of the System s customers that reside in each jurisdictional area of the System s service area. Customer Percentage by Jurisdictional Area Water Sewer Jurisdictional Area Customer Percentage Customer Percentage City 75% 99% Unincorporated Bartow County % 100% Bartow County operates a water and sewer system in the unincorporated area of Bartow County, which could compete with the System. At the present time, however, Bartow County s water and sewer system does not serve any areas served by the System. But there are areas where the City and Bartow County s systems run parallel, and where the City s customers could be served by Bartow County if it made the necessary infrastructure investments, including the construction of a water plant. Bartow County would also need to request a water permit from the Corps; such a request would likely be subject to administrative and legal delays such as those experienced by the City in connection with its request for increased water withdrawal. There are currently no other water and sewer systems that operate in the System s service area. Service Area Demographic Information Set forth below is selected demographic data for the City and Bartow County. Bartow County City Per Capita Median Household Median Year Population 1 Population 4 Income 2 Effective Buying Income 3 Age ,978 20, , , $23, $50, , ,176 22,592 48, ,858 19, , ,056 21,715 21,022 48,306 47, , ,157 22,241 49, ,925 12,817 76,019 55,915 18,989 14,906 34,320 22, ,508 40,760 7,365 16, ,138 32,911 3,125 n/a n/a Sources: 1 U.S. Department of Commerce, Bureau of the Census. All population figures for years other than 1970, 1980, and 1990 are estimates by the U.S. Department of Commerce, Bureau of the Census. -25-

30 2 All per capita number other than for 2000 are as reported by the U.S. Department of Commerce, Bureau of the Census. Per capita for 2000 was reported by the City of Cartersville Master Plan from January 2007 that reported its source as the 2000 U.S. census. 3 U.S. Department of Commerce, Bureau of the Census. 4 All population figures other than for 2000 are as reported by the U.S. Department of Commerce, Bureau of the Census. Population for 2000 was reported by CensusViewer that reported its source as the 2000 U.S. census. Service Area Economic Information The following information is provided to give prospective investors an overview of the general economic conditions in the service area. These statistics have not been adjusted to reflect economic trends. Taxable Sales (in thousands) 1 Year Bartow County $1,336,292 1,242, ,335, ,391,266 1,279, ,410,302 Source: Georgia Department of Revenue, Local Government Division. 1 Sales subject to one percent local option sales tax imposed by Bartow County, Georgia. [Remainder of Page Intentionally Left Blank] -26-

31 Summary of City Building Permits 1 Residential Commercial/Industrial/Other 1 Single Family Multi-Family Year Permits Value Units Value Units Value $21,481, $30,325, ,085,545 59,411, ,549,689 32,687, ,978, ,585, ,199, ,707, Source: City of Cartersville Community Development Department. Following is a table showing the percentage of the 2017 payroll distribution in Bartow County for each major sector of the local economy. Percentage of 2017 Payroll Distribution in Bartow County By Sector Percentage of 2017 Industry Payroll Distribution Agriculture, Forestry, Fishing and Hunting Mining 0.2% 0.3 Construction 5.0 Manufacturing Wholesale Trade Retail Trade 10.9 Transportation and Warehousing Information Finance and Insurance 1.8 Real Estate and Rental and Leasing Professional, Scientific, and Technical Services Administrative, Support, Waste Management, and Remediation Services Educational Services Health Care and Social Assistance 7.4 Arts, Entertainment, and Recreation Accommodation and Food Services Other Services (Except Public Administration) 1.8 Unclassified Establishments and Miscellaneous % Source: U.S. County Business Patterns, U.S. Department of Commerce, Bureau of the Census. [Remainder of Page Intentionally Left Blank] -27-

32 Set forth below are the ten largest employers (private and public) located in Bartow County as of June 30, 2017, their industries, and their approximate number of employees. There can be no assurance that any employer listed below will continue to be located in Bartow County or will continue employment at the level stated. No independent investigation has been made of, and no representation can be made as to, the stability or financial condition of the employers listed below. Employer Industry Employees Shaw Industries Group, Inc. Carpet 2,562 Bartow County School System Toyo Tire North America, Inc. Education Tires 2,108 1,675 Bartow County Government Government 882 Anheuser-Busch/InBev Cartersville School System Brewery Education Quest Global, Inc. Engineering 500 Kennesaw Transportation, Inc. Georgia Power Company Trucking Electricity City of Cartersville Government Government 356 Source: Cartersville-Bartow County Chamber of Commerce. Set forth below are labor statistics for the City for the past five years, with comparative data for Bartow County and the State of Georgia Employment Unemployment 7, , , , , Total Labor Force 8,327 8,216 8,299 8,621 8,886 City Unemployment Rate Bartow County Unemployment Rate 9.2% 8.7% 7.8% 7.2% 6.4% 5.9% 5.5% 5.1% 4.9% 4.6% State Unemployment Rate 8.2% 7.1% 6.0% 5.4% 4.7% Source: State of Georgia Department of Labor. According to the State of Georgia Department of Labor, the preliminary March 2018 unemployment rate of the City was 4.1 percent, compared to 3.9 percent for Bartow County and 4.1 percent for the State of Georgia. Total Deposits in Financial Institutions as of June 30 (in thousands) Year City Bartow County 2017 $1,132,785 $1,266, ,118,275 1,252, ,008, ,455 1,153,262 1,135, ,028,310 1,171,275 Source: Federal Deposit Insurance Corporation According to the Federal Deposit Insurance Corporation, as of June 30, 2017, the City had 12 financial institutions with a total of 18 branch offices and Bartow County had 12 financial institutions with a total of 21 branch offices -28-

33 Customers Water System Set forth below is information concerning the demand for water from the System for its past five fiscal years and for the eight-month periods ended February 28, 2017 and Water Demand Eight-Month Periods Years Ended June 30 Ended February Average Daily (MGD) Maximum Daily (MGD) Set forth below is the number of water customers by customer class as of the dates shown. Number of Water Customers As of June 30 Customer Class As of February 28, 2018 Residential 1 7,349 7,369 7,550 7,721 7,871 7,859 Commercial 1,095 1,082 1,116 1,124 1,163 1,140 Industrial Totals 8,481 8,486 8,703 8,882 9,070 9,038 1 Includes apartment complexes, which are served by a single connection. [Remainder of Page Intentionally Left Blank] -29-

34 Set forth below is information concerning the ten largest water customers of the System for the year ended June 30, No independent investigation has been made of, and consequently no representation can be made as to, the stability or financial condition of any of the customers listed below or that such customers will continue to maintain their status as major customers of the System. Ten Largest Water Customers Gallons Total Percentage of Customer Metered 1 Billing Total Water Revenues Bartow County Water System 2 2,014,060 $4,495, % Anheuser-Busch Inc 3 Tintoria Piana US Inc 509,290 65,440 1,152, , Linde LLC 53, , Aquafil USA Inc. Shaw Industries 42,207 41,008 95, , Bartow County Jail 31, , Southern Yarn Dyers Piedmont Resin Supply LLC 23,907 15,584 55,824 58, Cartersville Recreation Department 4 15,357 75, Totals 2,811,373 $6,441, % 1 In thousands. 2 The City contracted with Bartow County to sell treated water under pressure to Bartow County on a wholesale basis through July 2015 (as amended, the Original BC Water Contract ). Under the Original BC Water Contract, the City agreed (1) to supply to Bartow County (a) an annual average of 100,000 cubic feet of treated water per day, and (b) such additional amount of treated water to meet the needs of Bartow County to the extent of the City s reasonable production capacity in excess of the other needs of the System, and (2) to supply to Bartow County, for sale to Atlantic Steel Company, (a) an annual average of 7,000 cubic feet of treated water per day, and (b) such additional amount as is mutually agreed upon by the County and Birmingham Steel Company. Under the Original BC Water Contract, Bartow County was required to purchase a minimum amount of treated water equal to an average of 100,000 gallons per 24-hour day for each 12-month period. Bartow County purchases water on a wholesale basis. It also pays the prevailing inside the city industrial rate and does not pay monthly minimums based on meters size. The City and Bartow County are currently negotiating a new water contract on a wholesale basis. The City and Bartow County have been operating on an informal basis under the terms of the now expired Original BC Water Contract. 3 The City contracted with Anheuser-Busch to sell treated water to Anheuser-Busch until February 25, 2018 for use in its brewery, which commenced operations in May of The contract, which has not been renewed, obligated the City to make available to Anheuser-Busch an annual average daily supply of treated water of 3.7 MGD (or 5.56 MGD if the City can increase its raw water withdrawal permit to an annual average of 21 MGD, for which the City agreed to use reasonable commercial efforts) and to make all reasonable efforts to accommodate any future increases in Anheuser-Busch s water requirements. Currently, Anheuser-Busch purchases treated water on the same basis as any other industrial customer of the System. Due to improvements and operational efficiencies at Anheuser-Busch s brewing facility, its water consumption declined significantly about a decade ago. 3 Total billing for Cartersville Recreation Department is higher than customers with more volume, such as Piedmont Resin, for example, because Piedmont Resin buys on the industrial rate and the Cartersville Recreation Department buys on the irrigation rate, which is a higher rate. [Remainder of Page Intentionally Left Blank] -30-

35 Sewer System Set forth below is information concerning the demand for sewer service from the System for its past five fiscal years and for the eight-month periods ended February 28, 2017 and Treated Wastewater Flow Eight-Month Periods Years Ended June 30 Ended February Average Daily (MGD) Maximum Daily (MGD) Set forth below is the number of sewer customers by customer class as of the dates shown. Number of Sewer Customers As of June 30 Customer Class As of February 28, 2018 Residential 1 4,682 4,714 4,797 4,946 5,110 5,129 Commercial Industrial Totals 5,550 5,561 5,692 5,849 6,038 6,053 1 Includes apartment complexes, which are served by a single connection. Set forth below is information concerning the ten largest sewer customers of the System for the year ended June 30, No independent investigation has been made of, and consequently no representation can be made as to, the stability or financial condition of any of the customers listed below or that such customers will continue to maintain their status as major customers of the System. [Remainder of Page Intentionally Left Blank] -31-

36 Ten Largest Sewer Customers Gallons Total Percentage of Customer Metered 1 Billing 2 Total Sewer Revenues Anheuser-Busch, Inc ,290 $1,267, % Bartow County 4 308, , Tintoria Piana 65, , Shaw Industries 56, , Aquafil USA Inc. 55, , Linde LLC 53, , City of White 5 44, , Bartow County Jail 31,178 78, Southern Yarn Dyers 23,907 61, City of Emerson 6 22,176 59, Totals 1,169,631 $3,060, % 1 In thousands. 2 Based upon water consumption unless otherwise noted. 3 The City contracted with Anheuser-Busch through February 25, 2018 to treat wastewater that is generated from Anheuser-Busch s brewery, which commenced operations in May of The contract, which has expired and has not been renewed, provided that the annual daily average of wastewater discharged to the City s sewer system may not exceed 5.1 MGD. The contract allowed Anheuser-Busch to dispose of the wastewater generated at the brewery by means of land application or other suitable means, if Anheuser-Busch reimburses the City for the direct costs of providing wastewater treatment facilities for Anheuser-Busch. The City had agreed to make all reasonable efforts to treat additional wastewater generated from the brewery. Currently, however, Anheuser- Busch purchases wastewater treatment services on the same basis as any other industrial customer of the System. 4 The City contracted with Bartow County to treat wastewater for Bartow County on a wholesale basis through 2018 (the Original BC Sewer Contract ). Under the Original BC Wastewater Contract, the City agreed to treat up to an average of 750,000 gallons of domestic sewage per day from Bartow County s sewer system. The City and Bartow County are currently negotiating a new sewer treatment contract on a wholesale basis. The City and Bartow County have been operating on an informal basis under the terms of the now expired Original BC Sewer Contract. 5 Billings are based on a wholesale Sewer Services Agreement (as amended, the White Contract ), entered into between the City and the City of White ( White ), on May 3, 2004, for a term of fifty years from the date of initial connection. The White Contract guarantees White the right to discharge an average daily wastewater volume not to exceed 700,000 gallons per day. The White Contract also establishes a service fee rate that can be changed in the same proportion as the City changes sewer service rates for its residential sewer customers inside City limits. The current service fee rate is $2.11 per 100 cubic feet of wastewater discharged to the System. White must also pay a capacity fee for each sewer customer connected to White s sewerage system; the initial capacity fee equals $1,260. If White decides to use another method of disposal of wastewater, White must give a one year notice to the City before reducing the volume of discharge to the City s sewer system. 6 Billings are based on a wholesale Sewer Services Agreement (as amended, the Emerson Contract ), entered into between the City and the City of Emerson ( Emerson ), on April 26, 2004, for a term of fifty years from the date of initial connection. The Emerson Contract guarantees Emerson the right to discharge an average daily wastewater volume not to exceed 1,100,000 gallons per day. The Emerson Contract also establishes a service fee rate that can be changed in the same proportion as the City changes sewer service rates for its residential sewer customers inside City limits. The current service fee rate is $2.18 per 100 cubic feet of wastewater discharged to the System. Emerson must also pay a capacity fee for each sewer customer connected to Emerson s sewerage system; the initial capacity fee equals $1,260. If Emerson decides to use another method of disposal of wastewater, Emerson must give a one year notice to the City before reducing the volume of discharge to the City s sewer system. [Remainder of Page Intentionally Left Blank] -32-

37 Rates, Fees, and Charges Monthly service charges for water and sewer services generally consist of a monthly demand charge based upon the size of a customer s water meter plus a volume charge applied to the monthly water consumption. In addition, connection fees and capacity fees varying by water meter size are charged to new customers connecting to the System. The water and sewer rates to all customers within each class of service within the City are uniform. The water and sewer rates are also uniform among customers within each class of service outside the City, but are higher than rates charged to customers within the City. Other than water service provided to public parks, fire hydrants, and fire sprinklers, the City does not provide any free water or sewer service. Water and sewer rates have been adjusted annually at the beginning of each fiscal year for the past ten years. A summary of the general rate schedules in effect for the past ten years is set forth below. Monthly Water Service Rates Effective Period Inside City Outside City April 2008 June 30, 2009 July 1, 2009 June 30, 2010 $1.09 per 100 cubic feet 1.15 per 100 cubic feet $2.18 per 100 cubic feet 2.30 per 100 cubic feet July 1, 2010 June 30, per 100 cubic feet 2.40 per 100 cubic feet July 1, 2011 June 30, 2012 July 1, 2012 June 30, per 100 cubic feet 1.32 per 100 cubic feet 2.52 per 100 cubic feet 2.64 per 100 cubic feet July 1, 2013 June 30, per 100 cubic feet 2.78 per 100 cubic feet July 1, 2014 June 30, per 100 cubic feet 2.99 per 100 cubic feet July 1, 2015 June 30, per 100 cubic feet 3.14 per 100 cubic feet July 1, 2016 June 30, per 100 cubic feet 3.38 per 100 cubic feet July 1, 2017 current 1.81 per 100 cubic feet 3.63 per 100 cubic feet Monthly Minimum Charges on Meters Minimum Charge Meter Size Inside City Outside City 5/8 or 3/4 $8.79 $ /4 Full Flow or Water tap fees for single-family residences or multi-family residential units are $1,100 for each inside the City customer connection to the System and $1,200 for each outside the City customer connection to the System. Water tap fees for commercial and industrial customers are the greater of actual costs plus 10 percent on material and 150 percent on labor or the minimum charges set forth below: -33-

38 Commercial/Industrial Water Tap Fees Minimum Charge Meter Size Inside City Outside City 3/4 $1,100 $1, ,200 2,200 1,400 2, ,500 2, ,000 3,500 3,200 3,700 8 Multi-unit per unit 4,000 1,100 4,200 1,200 Monthly Sewer Service Rates (Based on Water Consumption) Effective Period Inside City Outside City April 2008 June 30, 2009 $1.20 per 100 cubic feet $2.40 per 100 cubic feet July 1, 2009 June 30, per 100 cubic feet 2.52 per 100 cubic feet July 1, 2010 June 30, 2011 July 1, 2011 June 30, per 100 cubic feet 1.39 per 100 cubic feet 2.64 per 100 cubic feet 2.78 per 100 cubic feet July 1, 2012 June 30, per 100 cubic feet 2.92 per 100 cubic feet July 1, 2013 June 30, per 100 cubic feet 3.07 per 100 cubic feet July 1, 2014 June 30, per 100 cubic feet 3.30 per 100 cubic feet July 1, 2015 June 30, per 100 cubic feet 3.47 per 100 cubic feet July 1, 2016 June 30, per 100 cubic feet 3.73 per 100 cubic feet July 1, 2017 current 1.99 per 100 cubic feet 4.01 per 100 cubic feet Below are the City s monthly minimum charges on meters for sewer service. The City s Original BC Sewer Contract provided Bartow County with sewer treatment rates equal to the sewer service rate in effect for inside the City customers. The City and Bartow County are negotiating a new contract for sewer treatment on a wholesale basis. Monthly Minimum Charge on Sewer Minimum Charge Meter Size Inside City Outside City 5/8 or 3/4 ¾ Full Flow $ $ or The City also charges commercial sewer customers a surcharge for disposal of certain types of high strength wastewater. The City imposes a surcharge of $0.11 per pound for biological oxygen demand in excess of 350 parts per million and $0.17 per pound for suspended solids in excess of 350 parts per million. -34-

39 Sewer tap fees for single-family residences or multi-family residential units are $950 for each inside the City customer connection to the System and $1,200 for each outside the City customer connection to the System. Sewer tap fees for commercial and industrial customers are the greater of actual costs plus 10 percent on material and 150 percent on labor or the minimum charges set forth below: Commercial Sewer Tap Fees Minimum Charge Meter Size Inside City Outside City 3/4 $ 950 $1, ,000 1,150 1,300 1, ,200 1, ,775 2,150 3,050 3, ,620 4,740 Multi-unit per unit 950 1,200 The City also charges water and sewer capacity fees to each new customer connecting to the System and each existing customer who increases its meter size. The City began imposing these fees in May of 2000 in order to fund expansions of and extensions to the System. In addition, on September 13, 2000, the City entered into a water and sewer capacity fee contract with Bartow County under the terms of which Bartow County agreed to charge capacity fees to each new water and sewer customer who connects to Bartow County s water and sewer system and who uses water or sewer services provided by the City to Bartow County for resale to its customers. Bartow County remits these capacity fees to the City on a quarterly basis to fund expansions of and extensions to the System. Capacity fees for customers of the System and capacity fees for customers of Bartow County s water and sewer system are as set forth below: Water Capacity Fees Sewer Capacity Fees Meter Size Inside City Outside City Bartow County Inside City Outside City Bartow County 3/4 $ 1,020 $ 930 $ 930 $ 1,300 $ 1,260 $ 1, ,700 1,540 1,540 2,160 2,520 2, /2 2 3,500 5,590 3,090 4,940 3,090 4,940 4,320 6,910 4,030 8,050 4,030 8,050 3 n/a 7,410 7,410 n/a 10,040 10, ,100 15,600 9,030 14,450 9,030 14,450 13,470 20,200 13,050 19,580 13,050 19, ,280 18,780 18,790 26,260 25,454 25,454 Set forth below is a comparison of average monthly residential water and sewer bills of customers of the System and customers of Bartow County s water and sewer system, the only other water and sewer system operating in the System s service area. Average Monthly Residential Water and Sewer Bill based on 7,000 gallons of usage for rates effective on February 28, 2018 Utility Water Sewer The System (Inside the City) $26.24 $26.70 The System (Outside the City) Bartow County

40 Rate Setting Process Under Georgia law, the City has the exclusive authority to establish rates and charges for water and sewer service supplied by the System. The rates charged by the City for water and sewer service supplied by the System are not subject to review or approval by any federal or state regulatory body. The City Council establishes the rates, which are subject to change at any time as the City Council deems advisable. The City Council adopts rate schedules by ordinance after recommendations from the staff of the System. The staff of the System makes periodic reviews of the rate structure to determine if modifications are needed. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2018 BONDS - Rate Covenant herein for a description of the City s agreements concerning the rates, fees, and charges for the services, facilities, and commodities to be furnished by the System. No statutory or Charter procedures are required as a condition precedent to a change in rates. Billing and Collection The City uses a cycle billing method, consisting of eleven cycles, for System service. The cycles are relatively evenly distributed throughout each month. Normally, 28 to 30 days are allowed between each meter reading for each cycle, and bills are due throughout each month. The City prepares a monthly, combined water and sewer bill for each customer. A 10% penalty is added to the bill if payment is late. If the delinquent amount is not paid by 5 days after the due date, water and sewer service is discontinued. To restore service, the customer must pay all overdue amounts in full and pay a reconnection fee of $30. Upon application for service, the City requires a $60 advance payment from new customers. The City will waive the requirement if the new customer s credit rating is above a minimum level. The City refunds the advance payment when a final bill is requested and all charges are paid. In March 2018, the City discovered that a customer service employee had stolen System customer payments she had arranged be made to her outside of City Hall, in violation of City policy. Upon being alerted by System customers who noticed discrepancies in their bills, the City immediately commenced an investigation and terminated the customer service employee involved. The investigation is ongoing and has resulted in multiple felony warrants against the employee for theft by deception. To date, the City s police department has determined that the amount stolen was not in excess of $3,250. The City does not expect this amount to significantly increase upon the conclusion of its investigation. The City has implemented or modified several internal financial controls to help prevent employee theft of System revenues from occurring in the future Cybersecurity The City, like similar municipal entities, relies on complex technology infrastructure to conduct its operations and faces multiple cybersecurity threats including, but not limited to, hacking, viruses, malware, and other attacks. Cybersecurity incidents could result from unintentional events, or from deliberate attacks by unauthorized individuals attempting to gain access to the City s computer or digital systems for the purpose of stealing assets or information or causing operational disruption and damage. To mitigate the risk to business operations from cybersecurity incidents, the City has adopted information security policies and maintains an active information security program, which has been reviewed by independent third-party consultants engaged by the City. The City has a dedicated information technology team responsible for annual updates to the City s information security policies and are charged with identifying and monitoring threats to City computer systems and educating staff concerning vulnerabilities. The City s information security policies include policies intended to support network, computer, and mobile device security (both digital and physical), e- mail security, anti-virus requirements, operating system and application patching, encryption requirements, and secure computing asset disposal. The City s information technology team also must approve all hardware and software purchases and system installations to ensure that City systems are not compromised. The City purchases liability insurance covering cyber-losses. See SYSTEM FINANCIAL INFORMATION - Insurance Coverage herein. -36-

41 Governmental Approvals and Environmental Regulation Water Withdrawal The Georgia Water Quality Control Act authorizes the State of Georgia Department of Natural Resources, Environmental Protection Division ( EPD ), to regulate the withdrawal of water from lakes, streams, and aquifers in Georgia. The City holds two permits for withdrawal of surface water, for the purpose of municipal water supply, in the following amounts from the following sources: Actual Permitted Withdrawal (MGD) Withdrawal (MGD) Raw Water Source Average Maximum Average Maximum Allatoona Reservoir Etowah River n/a n/a 1 Year ended June 30, The City constructed an intake structure to withdraw from the Etowah in As constructed, the current facilities function as an emergency intake should there be an interruption of supply from Allatoona. This facility has been constructed so that it can be incorporated into a permanent intake structure when the need arises. On February 3, 2011, EPD granted the City s application for renewal of its Etowah River Surface Water Withdrawal Permit (Permit No ), and issued an updated Permit effective January 18, 2011, through its expiration on April 1, On August 25, 2010, EPD granted the City s application for renewal of its Allatoona Reservoir Surface Water Withdrawal Permit (Permit No ), and issued an updated Permit effective August 23, 2010, through its expiration on April 1, The raw water withdrawal permit for the Etowah River provides that the combined total withdrawal from the Etowah River and the Allatoona Reservoir may not exceed these amounts. In connection with the anticipated execution of the Proposed Water Storage Contract, the City has applied to EPD for an increased withdrawal permit of 20.4 average MGD and 26.5 maximum MGD. See THE SYSTEM - Water Sources -- Water Supply Contracts and THE SYSTEM - Governmental Approvals and Environmental Regulation -- Water Treatment herein. Water Treatment EPD also regulates water treatment systems in Georgia. EPD has issued to the City an operating permit for the treatment of water in the following amounts at the following water treatment facilities: Permitted Treatment Actual Capacity (MGD) Treatment Flow (MGD) Water Treatment Facility Average Maximum Clarence B. Walker Year ended June 30, On October 13, 2010, EPD issued the current Permit to Operate a Public Waste System (Permit No. CS ), effective October 13, 2010, through its expiration on October 12, Wastewater Treatment The City s wastewater operations are subject to the regulatory requirements imposed by the federal Water Pollution Control Act, as amended (the Clean Water Act ), and the Georgia Water Quality Control Act. The regulatory requirements are administered by the federal Environmental Protection Agency ( EPA ) and the EPD. EPD has issued to the City operating permits for the treatment of wastewater in the following amounts at the following wastewater treatment plants: -37-

42 Wastewater Treatment Facility 1 Year ended June 30, Permitted Treatment Capacity (Monthly Average MGD) Actual Treatment Flow (Monthly Average MGD) James R. Stafford State and federal regulations applicable to the City s wastewater operations deal with, among other issues, the quality of effluent which may be discharged from the City s wastewater treatment facilities, the disposal of sludge generated by the wastewater treatment plants, and the nature of waste material (particularly industrial waste) discharged into the collection system. To comply with federal regulations concerning the industrial discharge of waste materials into the sewer system, the City must administer and enforce industrial pretreatment limitation standards upon users of the sewer system. The City has had an industrial waste program in effect since As a condition of having received federal EPA grant funds under the Clean Water Act for planning, design, and construction of various wastewater projects, the City may be subject to additional regulatory requirements. Among the grant-related requirements are guidelines that may be applicable to planning methodologies, design criteria, construction activities, and the operation, maintenance, and financing of facilities. National Pollutant Discharge Elimination System ( NPDES ) Permits Under the Clean Water Act, an NPDES permit is generally required for discharges to surface water. Therefore, to comply with federally mandated effluent quality and disposal criteria, the City must operate its wastewater treatment facilities according to discharge limitations and reporting requirements set forth in NPDES permits. The City holds a NPDES permit issued by EPD that allow the City to discharge from its facility located at 102 Walnut Grove Road in Cartersville, Georgia, to the Etowah River in accordance with effluent limitations, monitoring requirements and other conditions set forth in permit. 2 The City has also been given approval by EPD for its facility located at 237 Allatoona Dam Road in Carterville, Georgia, for coverage under the General Filter Backwash NPDES Permit. 3 Compliance The City is currently in substantial compliance with all of its environmental permits and all environmental requirements applicable to the System. Employees, Employee Relations, and Labor Organizations The City employed 49 persons related to the System as of May 1, 2018, all of which are full-time. No employees of the City related to the System are represented by labor organizations or are covered by collective bargaining agreements, and the City is not aware of any union organizing efforts at the present time. The City Manager believes that employee relations are good. The System s management staff, plant operators, and maintenance and repair personnel are required to be certified by the State of Georgia. The System has a continuing education program to ensure that its personnel are qualified and able to meet the State of Georgia s certification requirements. 2 On February 13, 2018, EPD issued the current NPDES Permit (Permit No. GA ), effective March 1, 2018, through its expiration at midnight, February 28, On January 6, 2016, EPD approved the City s request for coverage under Filter Backwash General NPDES Permit No. GAG640017, effective January 7, 2016, through its expiration at midnight, December 31,

43 Accounting System and Policies SYSTEM FINANCIAL INFORMATION The City maintains all of its funds and accounts relating to the System separate from other City funds. The accounting practices and policies of the City relating to the System conform to generally accepted accounting principles as applied to governments. The System is accounted for as an Enterprise Fund of the City. The Governmental Accounting Standards Board describes enterprise funds in Statement No. 34-Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments. It states enterprise funds may be used to report any activity for which a fee is charged to external users for goods or services. Activities are required to be reported as enterprise funds if any one of the following criteria is met. Governments should apply each of these criteria in the context of the activity s principal revenue sources. a. The activity is financed with debt that is secured solely by a pledge of the net revenues from fees and charges of the activity. Debt that is secured by a pledge of net revenues from fees and charges and the full faith and credit of a related primary government or component unit even if that government is not expected to make any payments is not payable solely from fees and charges of the activity. (Some debt may be secured, in part, by a portion of its own proceeds but should be considered as payable solely from the revenues of the activity.) b. Laws or regulations require that the activity s costs of providing services, including capital costs (such as depreciation or debt service), be recovered with fees and charges, rather than with taxes or similar revenues. c. The pricing policies of the activity establish fees and charges designed to recover its costs, including capital costs (such as depreciation or debt service). Note 1 of the audited Financial Statements of the System included as part of Appendix A contains a detailed discussion of the City s significant accounting policies relating to the System. Historical and Pro Forma Capital Structure Set forth below is an historical, comparative summary of the capital structure of the System as of the end of its past five fiscal years. Information in the following table has been extracted from audited financial statements of the System for the years ended June 30, 2013 to 2017 and from unaudited interim financial statements of the System for the eight-month period ended February 28, Although taken from audited financial statements, no representation is made that the information is comparable from year to year, or that the information as shown taken by itself presents fairly the capital structure of the System as of the end of the years shown. The unaudited interim amounts reflected below are not necessarily indicative of the amounts that will be outstanding as of the end of the full fiscal year. For more complete information, reference is made to the financial statements from which this information was extracted, copies of which are available from the City upon request. [Remainder of Page Intentionally Left Blank] -39-

44 Historical Capital Structure of the System Amount Outstanding as of June 30 (Audited) Amount Outstanding as of February 28, 2018 (Unaudited) Liabilities Current Liabilities: Accounts payable $ 302,275 $ 870,027 $ 596,559 $ 278,151 $ 804,350 $ 184,251 Accrued wages and withholdings 36,368 42,616 51,855 85,614 97,454 92,928 Customer deposits 258, , , , , ,490 Retainage Payable ,552 Accrued interest 278, , , , ,386 25,723 Interfund payable , Compensated Absences --- 3,266 3, ,994 92,000 Capital leases payable 19,799 19,799 19,799 19,799 19, Intergovernmental contracts 1 810, , , , , ,000 Bonds payable 2,155,000 2,370,000 2,450,000 2,530,000 2,620,000 1,600,000 Total current liabilities 3,861,054 4,627,826 4,345,516 4,115,770 4,818,798 3,130,944 Long-Term Liabilities: Compensated absences , , ,379 32,998 33,841 Net pension liability ,364,555 3,732,882 3,492,616 3,492,616 OPEB liability 339, , , , , ,833 Capital leases payable 79,194 59,395 39,597 19, Intergovernmental contracts 1 5,330,000 4,600,000 3,865,000 3,120,000 2,365,000 1,600,000 Bonds payable 16,590,000 14,220,000 11,770,000 9,240,000 6,620,000 5,020,000 Total long-term liabilities 22,339,077 19,343,793 19,572,145 16,705,048 13,162,447 10,798,290 Total Liabilities 26,200,131 23,971,619 23,917,661 20,820,818 17,981,245 13,929,234 Deferred Inflows of Resources Deferred inflows from pensions ,368 80, , ,211 Total Deferred Inflows of Resources ,368 80, , ,211 Net Position Contributed Capital: Net investment in capital assets 89,437,126 92,434,808 92,113,393 92,489,220 94,266,662 97,795,747 Retained Earnings: Reserved for revenue bond debt service and reserve accounts 4,091,784 4,271,480 4,244,477 4,242,100 1,588, ,524 Reserved for revenue bond renewal and replacement account 937, , , , Unreserved 4,437,775 3,513,276 3,697,288 6,545,827 13,426,661 15,553,434 Total Net Position 98,903, ,045, ,766, ,988, ,282, ,925,705 Total Liabilities, Deferred Inflows of Resources, and Net Position $125,104,066 $125,016,683 $124,686,187 $124,889,059 $127,476,503 $128,068,150 Ratio of Long-Term Liabilities to Net Position 22.59% 19.14% 19.42% 16.06% 12.04% 9.48% Long-Term Liabilities as a Percentage of Total Capitalization 17.86% 15.47% 15.70% 13.38% 10.33% 8.43% -40-

45 1 Payable to the Cartersville Building Authority. The Cartersville Building Authority issued its revenue bonds to, among other things, finance the purchase of a park from the City, which the Cartersville Building Authority improved and then sold back to the City pursuant to an Agreement of Sale for installment payments of purchase price sufficient in time and amount to enable the Cartersville Building Authority to pay debt service on its revenue bonds. The City applied the proceeds it received from the sale of the park to prepay debt it incurred to finance improvements to the System. Although the City intends to make a portion of the installment payments of purchase price from System revenues, its obligation to make such payments is not secured by any lien on System revenues. The City's obligation to make the installment payments is a general obligation of the City to which its full faith and credit and taxing power are pledged. [Remainder of Page Intentionally Left Blank] -41-

46 Set forth below is the pro forma capital structure of the System as of February 28, 2018, determined by the application of pro forma adjustments to the actual amounts outstanding as of February 28, 2018, which assume that the Series 2018 Bonds were issued on February 28, 2018 and that the Refunded Bond was refunded and defeased on February 28, Liabilities Pro Forma Capital Structure of the System Amount Outstanding as of February 28, 2018 (Unaudited) Current Liabilities: Accounts payable $ 184,251 Accrued wages and withholdings 92,928 Customer deposits 294,490 Retainage Payable 76,552 Accrued interest 25,723 Interfund payable --- Compensated Absences 92,000 Capital leases payable --- Intergovernmental contracts 1 765,000 Bonds payable Total current liabilities --- 1,454,392 Long-Term Liabilities: Compensated absences 33,841 Net pension liability 3,492,616 OPEB liability 651,833 Capital leases payable --- Intergovernmental contracts 1 1,600,000 Bonds payable Total long-term liabilities 63,061,632* 68,839,922* Total Liabilities 70,294,314* Deferred Inflows of Resources Deferred inflows from pensions Total Deferred Inflows of Resources Net Position 213, ,211 Contributed Capital Net investment in capital assets 97,795,747 Retained Earnings: Reserved for revenue bond debt service and reserve accounts 576,524 Reserved for revenue bond renewal and replacement account --- Unreserved Total retained earnings 15,553,434 16,129,958 Total Net Position 113,925,705 Total Liabilities, Deferred Inflows of Resources, and Net Position $184,433,230* Ratio of Long-Term Liabilities to Net Position 60.4%* Long-Term Liabilities as a Percentage of Total Capitalization 37.3%* 1 See footnote 1 of the table titled Historical Capital Structure of the System on page

47 The City plans to issue approximately $10,000,000 in aggregate principal amount of debt in the next five years to finance capital improvements to the System. This debt will either be in the form of revenue bonds or notes payable to the Georgia Environmental Facilities Authority, depending upon the interest rates available at the time the City issues the debt. See SYSTEM FINANCIAL INFORMATION - Capital Improvements Program herein. There has never been a default in payment of the principal of or interest on any revenue bonds of the City secured by revenues of the System. Debt Service Requirements Following are the principal and interest payment requirements with respect to the Series 2018 Bonds, for the annual periods shown below. For purposes of calculating the principal payable in any annual period, the relevant maturity or mandatory redemption amount is used. Series 2018 Bonds Total Year Ending Debt Service June 1 Principal* Interest* Requirements* $ 430, , ,000 1,020,000 1,120,000 1,175,000 1,235,000 1,295,000 1,360,000 1,430,000 1,500,000 1,575,000 1,655,000 1,735,000 1,825,000 1,880,000 1,945,000 2,020,000 2,100,000 2,185,000 2,275,000 2,385,000 2,505,000 2,630,000 2,765,000 2,900,000 3,045,000 3,200,000 3,360,000 3,525,000 $2,484,693 2,660,912 2,648,162 2,634,912 2,583,912 2,527,912 2,469,162 2,407,412 2,342,662 2,274,662 2,203,162 2,128,162 2,049,412 1,966,662 1,879,912 1,820,600 1,759,500 1,681,700 1,600,900 1,516,900 1,429,500 1,315,750 1,196,500 1,071, , , , , , ,250 $2,914,693 2,915,913 2,913,163 3,654,913 3,703,913 3,702,913 3,704,163 3,702,413 3,702,663 3,704,663 3,703,163 3,703,163 3,704,413 3,701,663 3,704,913 3,700,600 3,704,500 3,701,700 3,700,900 3,701,900 3,704,500 3,700,750 3,701,500 3,701,250 3,704,750 3,701,500 3,701,500 3,704,250 3,704,250 3,701,250 Total $56,595,000 $52,076,818 $108,671,

48 Five Year Operating History Set forth below is an historical, comparative summary of the revenues and expenses of the System for its past five fiscal years and for the eight-month periods ended February 28, 2017 and Information in the following table has been extracted from audited financial statements of the System for the years ended June 30, 2013 through 2017 and from unaudited interim financial statements of the System for the eight-month periods ended February 28, 2017 and Although taken from audited financial statements, no representation is made that the information is comparable from year to year, or that the information as shown taken by itself presents fairly the results of operations of the System for the periods shown. The interim amounts set forth below have been prepared by the staff of the System without audit and, in the opinion of staff of the System, include all adjustments necessary for a fair statement of the operating results of the System for such interim periods, all of which adjustments are of a normal recurring nature. The interim amounts reflected below are not necessarily indicative of the financial results that will be achieved for the full fiscal year. For more complete information, reference is made to the financial statements from which this information was extracted, copies of which are available from the City upon request. [Remainder of Page Intentionally Left Blank] 44

49 Summary of System Revenues and Expenses Eight- Month Periods Years Ended June 30 (Audited) Ended February 28 (Unaudited) Operating Revenues: Charges for services $12,669,294 $13,357,031 $14,640,505 $15,511,911 $17,155,128 $11,530,849 $12,036,275 Fees 373, , , ,646 1,006, , ,611 Other revenues 144,711 79,359 50, ,850 31,401 9,504 41,509 Total operating revenues 13,187,596 13,830,081 15,535,848 16,621,407 18,193,391 12,157,542 12,668,395 Operating Expenses: Cost of sales and services 6,840,999 7,122,973 7,527,224 8,099,645 8,371,732 5,288,108 5,199,502 Administrative expenses 470, , , , , , ,600 Depreciation expense 2,876,987 2,939,394 3,044,232 3,241,765 3,258,465 2,171,983 2,187,187 Total operating expenses 10,188,386 10,532,767 11,041,856 11,811,810 12,100,597 7,773,691 7,700,289 Operating Income (Loss) 2,999,210 3,297,314 4,493,992 4,809,597 6,092,794 4,383,851 4,968,106 Nonoperating Revenues (Expenses) Interest revenue 25,631 62,625 45,777 53,657 7,505 27,932 15,541 Investment earnings Issue costs (101,972) Interest expense (693,491) (603,687) (488,921) (396,218) (299,545) (206,393) (141,112) Gain (loss) on sale of capital assets --- 9,794 9,992 (238,027) (77,800) (34,483) --- Amortization of refunding costs (39,135) (22,571) (22,571) (22,571) Total nonoperating revenues (expenses) (808,967) (533,839) (455,723) (603,159) (369,840) (212,944) (125,571) Net Income (Loss) Before Operating Transfers 2,190,243 2,743,475 4,038,269 4,206,438 5,722,954 4,170,907 4,842,535 Capital contributions , Transfers in Transfers out (1,511,647) (1,439,839) (1,093,589) (984,449) (429,054) (250,174) (198,877) Change in Net Position 678,596 2,244,253 2,944,680 3,221,989 5,293,900 3,920,733 4,643,658 Net Position Beginning 98,499,404 98,800, ,821, ,766, ,988, ,988, ,282,047 Prior Period Adjustment (274,065) Net Position Ending $98,903,935 $101,045,064 $100,766,158 $103,988,147 $109,282,047 $107,908,880 $113,925,

50 1 In 2014, the City determined that certain costs relating to accumulated unpaid vacation pay and other salary-related benefits had not been accrued as compensated absences in prior years in the proprietary funds and in the government-wide statement of net position. As a result, beginning balances for net position were restated. 2 In 2015, a prior period adjustment was made to decrease the governmental activities and business-type activities beginning net position. The adjustment was made to reflect the prior period costs related to the implementation of the net pension liability. [Remainder of Page Intentionally Left Blank] -46-

51 Management s Discussion and Analysis of Results of Operations The System s operating revenues for the past five fiscal years increased at an annual average rate of 7.21%. During the same period, the City increased water rates five times and sewer rates five times. See THE SYSTEM - Rates, Fees, and Charges herein. The System s operating expenses for the past five fiscal years increased at an annual average rate of 3.36%. During the past five fiscal years, the City transferred an annual average of $2,512,452 from its Water and Sewer Fund to its General Fund, in part to reimburse its General Fund for overhead costs paid with General Fund moneys that were allocable to the System. Because of the projected growth in the Cartersville-Bartow County area, the City projects a continued increase in sales of both water and sewer services in the residential and commercial categories. The industrial category is expected to remain relatively flat. The water and wastewater treatment plants are currently operating at approximately 41.1% and 40.6% of their respective existing capacities. The City expects to use the current excess capacity of the plants as growth in the area continues. Historical, Pro Forma, and Forecasted Debt Service Coverage Ratios Set forth below is the System s historical ratios of Net Revenues Available for Debt Service to Debt Service on Revenue Bonds secured by revenues of the System, for the past five fiscal years and for the eight-month periods ended February 28, 2017 and Historical Debt Service Coverage Ratios Eight-Month Periods Ended February 28 Years Ended June 30 (Audited) (Unaudited) Historical Net Revenues Available for Debt Service 1 $5,901,828 $6,299,333 $7,584,001 $8,105,019 $9,358,764 $6,583,766 $7,170,834 Historical Debt Service on Revenue Bonds 2 2,410,442 2,695,474 2,836,373 2,836,997 2,831,545 1,887, ,704,508 3 Historical Debt Service Coverage Ratio 2.45x 2.34x 2.67x 2.86x 3.31x 3.49x 4.21x 1 Net income (loss) of the System before operating transfers plus (i) interest expense, (ii) depreciation and amortization expense, and (iii) loss on sale of capital assets; gains on sale of capital assets, if any, are subtracted. 2 Excludes debt service on 2013 Cartersville Building Authority Revenue Bonds, as those bonds are paid in part, but not secured, by revenues of the System. 3 8/12th of Historical Annual Debt Service. The staff of the System has made calculations to demonstrate the Debt Service Coverage Ratios, based upon historical operating results, that would have occurred for the past five fiscal years (i) had the Series 2018 Bonds been outstanding during such periods, (ii) had the Refunded Bond been refunded and defeased during such periods, and (iii) had the maximum annual debt service payable on the Series 2018 Bonds been paid during such periods. Set forth below is the System s pro forma ratios of Historical Net Revenues Available for Debt Service to Maximum Annual Debt Service on the Series 2018 Bonds, for the past five fiscal years, determined by the application of pro forma adjustments which substitute the maximum annual debt service on the Series 2018 Bonds for actual debt service paid on revenue bonds during such periods. -47-

52 Pro Forma Debt Service Coverage Ratios Eight-Month Periods Ended February 28 Years Ended June 30 (Audited) (Unaudited) Historical Net Revenues Available for Debt Service 1 $5,901,828 $6,299,333 $7,584,001 $8,105,019 $9,358,764 $6,583,766 $7,170,834 Maximum Annual Debt Service on Series 2018 Bonds 2 3,704,913 3,704,913 3,704,913 3,704,913 3,704,913 2,469,942 2,469,942 Pro Forma Debt Service Coverage Ratio 1.59x 1.70x 2.05x 2.19x 2.53x 2.67x 2.90x 1 Net income (loss) of the System before operating transfers plus (i) interest expense, (ii) depreciation and amortization expense, and (iii) loss on sale of capital assets; gains on sale of capital assets, if any, are subtracted. 2 Excludes the Refunded Bond. The financial information presented above, which is based upon historical financial results, should not be considered to represent future results that may be obtained by the System. Although management believes that future financial results will be comparable to those set forth above, certain of the assumptions that management is presently relying upon may not materialize, and unanticipated events and circumstances may occur that may adversely affect such results. [Remainder of Page Intentionally Left Blank] -48-

53 The City has prepared a financial forecast of the System s net revenues available for debt service, for a period of ten years commencing with fiscal year 2018, based upon assumptions and estimates concerning future events and circumstances which the City believes to be reasonable. The City s financial forecast has been examined and reported on by Hazen and Sawyer, P.C., Atlanta, Georgia, the City s consulting engineer. The forecasted Debt Service Coverage Ratios set forth below are derived from the financial forecast included as part of Appendix D to this Official Statement, the Engineering Report of Hazen and Sawyer, P.C.. THE FINANCIAL FORECAST IS BASED SOLELY UPON ASSUMPTIONS MADE BY THE CITY, INCLUDING, WITHOUT LIMITATION, ASSUMPTIONS AS TO RATES FOR WATER AND SEWER SERVICE, STABILITY AND GROWTH OF THE CUSTOMER BASE, AND OPERATING EXPENSES. THERE IS NO ASSURANCE THAT ACTUAL EVENTS WILL CORRESPOND WITH SUCH ASSUMPTIONS, THAT UNCONTROLLABLE FACTORS WILL NOT AFFECT SUCH ASSUMPTIONS, OR THAT THE FORECASTED RESULTS WILL BE ACHIEVED. THE ACHIEVEMENT OF THE FINANCIAL FORECAST WILL BE AFFECTED BY ECONOMIC CONDITIONS AND OTHER UNCONTROLLABLE FACTORS AND IS DEPENDENT UPON THE OCCURRENCE OF FUTURE EVENTS WHICH CANNOT BE ASSURED. THUS, THE ACTUAL RESULTS ACHIEVED MAY VARY FROM THOSE FORECAST, AND SUCH VARIATIONS COULD HAVE AN ADVERSE EFFECT UPON THE SYSTEM S NET REVENUES AVAILABLE FOR DEBT SERVICE. THE ASSUMPTIONS AND RATIONALE INCLUDED IN THE ENGINEERING REPORT ARE AN INTEGRAL PART OF THE FORECAST. THE ENGINEERING REPORT, INCLUDING ALL COMMENTS, ASSUMPTIONS, NOTES, AND DISCLAIMERS, SHOULD BE READ IN ITS ENTIRETY. See ENGINEERING REPORT in Appendix D to this Official Statement. Forecasted Debt Service Coverage Ratios Years Ending June 30 Forecasted Net Revenues Available for Debt Service 1 $9,533,000 $9,798,000 $10,063,000 $10,328,000 $10,594,000 Maximum Annual Debt Service on Bonds* 2 3,704,913 3,704,913 3,704,913 3,704,913 3,704,913 Forecasted Debt Service Coverage Ratio 2.57x 2.64x 2.72x 2.79x 2.86x 1 Net income (loss) of the System before operating transfers plus (i) interest expense, (ii) depreciation and amortization expense, and (iii) loss on sale of capital assets; gains on sale of capital assets, if any, are subtracted. See the Engineering Report included as Appendix D to this Official Statement. 2 Excludes debt service on 2013 Cartersville Building Authority Revenue Bonds, as those bonds are paid in part, but not secured, by revenues of the System. -49-

54 Operating Budget The City is not legally required to adopt a budget for the System. The staff of the System, however, prepares an annual operating budget for the System for management control purposes. The staff of the System uses the accrual basis of accounting in its annual operating budget for the System, which is consistent with the basis of accounting used in the System s financial statements. Set forth below is a summary of the System s budget for the year ending June 30, This budget is based upon certain assumptions and estimates of the staff of the System regarding future events, transactions, and circumstances. Realization of the results projected in this budget will depend upon implementation by management of the System of policies and procedures consistent with the assumptions. There can be no assurance that actual events will correspond with such assumptions, that uncontrollable factors will not affect such assumptions, or that the projected results will be achieved. Accordingly, the actual results achieved could materially vary from those projected in the budget set forth below. System Budget for Year Ending June 30, 2018 Operating Revenues Charges for services Total operating revenues $18,242,245 18,242,245 Operating Expenses Personal services 3,611,665 Supplies and materials 913,350 Maintenance Contractual services 1,192,180 3,588,945 Total operating expenses 9,306,140 Operating Income (Loss) 8,936,105 Nonoperating Revenues (Expenses) Interest earned --- Interest expense Total nonoperating revenues (expenses) 443, ,785 Net Income (Loss) Before Operating Transfers 9,379,890 Operating transfers out (350,020) Net Income (Loss) $9,029,870 Capital Improvements Program The following table summarizes the estimated costs of capital improvements made to the System in each year for the past five fiscal years and the funding sources for such capital improvements. Funding Sources Fiscal Total Costs of Debt Proceeds Year Capital Improvements System Revenues and Investment Earnings 2013 $ 1,347,303 $ 441,179 $ 906, ,926,802 2,284, ,256 1,724,935 5,056, , , , ,780,109 1,780, The staff of the System has developed a multi-year capital improvements program and a plan to finance the program that relies on a combination of System revenues, special purpose sales tax revenues, and proceeds of debt and investment earnings on such proceeds. The capital improvements program allows the staff of the System to plan, on a long-term basis, for future System capital needs. Each year the capital improvements program is updated. -50-

55 The following table summarizes the System s capital improvements program for its next five fiscal years. Type of Capital Expenditure Water System Years Ending June Total Water Treatment Plant Upgrades $ 3,730,000 $ 1,500,000 $ 4,896,250 $ 1,060,000 $ 4,060,000 $ 15,246,250 Water Distribution System 3,740,000 1,190,000 1,090,000 40,000 40,000 6,100,000 Total 7,470,000 2,690,000 5,986,250 1,100,000 4,100,000 21,346,250 Sewer System Wastewater Treatment Plant Land Acquisition 6,000, ,000,000 Wastewater Treatment Plant Upgrades 11,810,000 12,060,000 12,060,000 60,000 60,000 36,050,000 Wastewater Conveyance System 3,467, , ,000 4,600, ,000 8,637,022 Total 21,277,022 12,310,000 12,220,000 4,660, ,000 50,687,022 Total Costs $ 28,747,022 $ 15,000,000 $ 18,206,250 $ 5,760,000 $ 4,320,000 $ 72,033,272 Type of Funding Source System Revenues $ 1,405,000 $ 1,550,000 $ 1,520,000 $ 5,760,000 $ 4,320,000 $ 14,555,000 Capacity Fees 950, ,000 Developer Contributions Debt and Investment Earnings 26,042,022 13,450,000 16,686, ,178,272 Special Purpose Sales Tax Revenues 350, ,000 Total Funding Sources $ 28,747,022 $ 15,000,000 $ 18,206,250 $ 5,760,000 $ 4,320,000 $ 72,033,272 Employee Benefits The City maintains a single-employer defined benefit pension plan covering substantially all full-time employees of the System. The plan is governed by a 5-member pension board consisting of the City Manager, Finance Director and three members elected by and from all eligible City employees. Funding for the plan comes from employee contributions, City contributions, and income from the investment of accumulated funds. Set forth below is selected information about the City s pension plan. Pension Plan Revenues By Source Years Ended January Employee Contributions $ 496,830 $ 509,637 $ 530,029 $ 529,356 $ 546,401 City Contributions 2,299,764 2,201,470 2,104,997 2,673,116 2,947,687 Investment Earnings 1,593,786 3,429,604 2,354,193 (336,496) 3,510,523 Total Revenues $4,390,380 $6,140,711 $4,989,219 $2,865,976 $7,004,

56 Analysis of Funding Progress Unfunded Plan Unfunded Actuarial Year Actuarial Actuarial Actuarial Accrued Liability Ended Value Accrued Accrued Funded Covered as a Percentage January 1 of Assets Liability Liability Ratio Payroll of Covered Payroll 2013 $29,631,814 $32,289,627 $ 2,657, $13,441, ,848,792 60,037,201 24,188, ,400, ,259,509 63,505,692 25,246, ,938, ,299,763 66,151,817 27,852, ,620, ,310,922 68,839,405 26,528, ,092, The Governmental Accounting Standards Board (GASB) established accounting and financial reporting for pension plans with Statement numbers 67 & 68. As required by GASB, actuarial valuation of total pension liability is performed at least biennially. Southern Actuarial Services has been the pension plan actuary since Note 12 of the audited financial statements of the System for the fiscal year ending June 30, 2017 included as part of Appendix A contains a description of the City s pension plan. The City also offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan is available to all City employees and permits them to defer income taxation on a portion of their earnings to future years. Participation in the plan is optional. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. City employees accrue vacation and sick leave in different amounts, depending upon the period of time the City has employed them. The City pays accrued vacation leave upon termination of employment, with a maximum accumulation of 5 weeks, and has reflected a liability for accumulated vacation pay in the Water and Sewer fund financial statements. As of February 28, 2018, accrued vacation pay totaled $125,841. The maximum amount of sick leave that City employees may accumulate is 130 days. The City, however, does not pay accrued sick leave upon termination of employment and therefore has not reflected accumulated sick leave as a liability in the Water and Sewer fund s financial statements. In addition to pension benefits, the City provides certain health care and life insurance benefits (commonly referred to as Other Post-Employment Benefits, or OPEB) for retired employees of the System. The City s employees are eligible for these post-retirement benefits if they were hired prior to July 20, 2000 and if they reach normal or early retirement age while employed by the City. The cost of these benefits is recognized when claims and premiums are paid. For the year ended June 30, 2017, there were 38 retirees and 89 active employees of the City eligible for these post-retirement benefits, with an OPEB cost of $2,050,000 and an amount contributed of $558,000, with a net OPEB obligation of $5,471,000. Note 13 of the audited financial statements of the System for the fiscal year ending June 30, 2017 included as part of Appendix A contains a description of the City s OPEB plan. Insurance Coverage The City carries liability insurance for the System for the types of claims and in amounts that are customary for similar enterprises. The City also carries property and casualty damage insurance on buildings and other physical assets related to the System. See SUMMARY OF THE BOND ORDINANCE - Additional Covenants in Appendix B to this Official Statement for a description of the City s covenants regarding insurance for the System [Remainder of Page Intentionally Left Blank]. -52-

57 Present insurance coverage for the City is summarized below: Type Amount in Force Property $60,963,952 Inland Marine 3,380,731 Type Limits of Liability Each Occurrence Aggregate Public Officials Liability $1,000,000 $5,000,000 Law Enforcement Liability 1,000,000 5,000,000 Gas Liability Boiler & Machinery 1,000,000 1,000,000 5,000,000 5,000,000 General Liability 1,000,000 5,000,000 Automobile Liability Cyber Liability 1,000,000 25,000 5,000,000 25,000 The City is partially self-insured for workers compensation claims and pays for such claims as they become due. The City requires payment and performance surety bonds and builders risk insurance of all contractors and subcontractors involved in construction related to the System. The City requires the surety bonds to be issued by surety firms listed on the U.S. Treasury-approved list and the builders risk insurance to be in the amount of the contract sums. Pending Litigation LEGAL MATTERS The City, like other similar bodies, is subject to a variety of suits and proceedings arising in the ordinary conduct of the affairs of the System. The City, after reviewing the current status of all pending and threatened litigation relating to the System with its counsel, Archer & Lovell, P.C., believes that, while the outcome of litigation cannot be predicted, the final settlement of all lawsuits which have been filed and of any actions or claims pending or threatened against the City relating to the System or its officials in such capacity are adequately covered by insurance or will not have a material adverse effect upon the financial position or results of operations of the System. There is no litigation now pending or, to the knowledge of the City, threatened against the City which restrains or enjoins the issuance or delivery of the Series 2018 Bonds, the pledge of the Pledged Revenues to secure the Series 2018 Bonds, or the use of the proceeds of the Series 2018 Bonds or which questions or contests the validity of the Series 2018 Bonds or the proceedings and authority under which they are to be issued and secured. Neither the creation, organization, or existence of the City, nor the title of the present members or other officials of the City to their respective offices, is being contested or questioned. Opinion of Bond Counsel Certain legal matters incident to the authorization, validity, and issuance of the Series 2018 Bonds are subject to the approval of Nelson Mullins Riley & Scarborough LLP, Atlanta, Georgia, Bond Counsel, whose approving opinion will be available at the time of delivery of the Series 2018 Bonds. It is anticipated that the approving opinion will be in substantially the form attached hereto as Appendix C. The Internal Revenue Code of 1986, as amended (the Code ), contains various requirements and restrictions which apply to the Series 2018 Bonds. These include restrictions on investments, requirements for periodic payment of arbitrage profits to the United States, requirements regarding the use of Series 2018 Bond proceeds, and other restrictions and requirements. Failure to comply with certain of such requirements and restrictions may cause interest on the Series 2018 Bonds to become subject to federal income taxation, retroactive, in some cases, to the date of issuance of the Series 2018 Bonds. -53-

58 In the opinion of Bond Counsel, under existing statutes, regulations, rulings, and court decisions, interest on the Series 2018 Bonds (including any original issue discount properly allocable to an owner thereof) is excluded from gross income for federal income tax purposes (including for purposes of the tax imposed by Chapter 2A of Subtitle A of the Code (the Affordable Care Tax )) and is not an enumerated item of tax preference for purposes of the federal alternative minimum tax imposed on taxpayers other than corporations. Interest on the Series 2018 Bonds, by virtue of being excluded from gross income under Chapter 1 of Subtitle A of the Code, is excluded from the modified adjusted gross income of individuals, from the adjusted gross income of estates and trusts, and from the net investment income of taxpayers that are subject to the 3.8% tax imposed pursuant to the Affordable Care Tax. However, gain, if any, from the sale or other disposition of Series 2018 Bonds may be included in each of the foregoing measures of income. The Affordable Care Tax is imposed on individuals on the lesser of (1) net investment income and (2) any excess of modified adjusted gross income over the applicable threshold amount. For individuals filing joint federal tax returns or as surviving spouses, the applicable threshold is $250,000; for married individuals filing separate returns, the applicable threshold is $125,000; and for other individuals, the applicable threshold is $200,000. This 3.8% tax is also imposed on estates and trusts on the lesser of (1) undistributed net investment income and (2) any excess of adjusted gross income over the dollar amount at which the highest tax bracket in Section 1(e) of the Code begins for the taxable year. In concluding that interest on the Series 2018 Bonds is excluded from gross income for federal income tax purposes (including the Affordable Care Tax), Bond Counsel will rely, as to questions of fact material to its opinion, upon certified proceedings and other certifications of public officials furnished to Bond Counsel, without undertaking to verify any of them by independent investigation. If certain of these items are incorrect, interest on the Series 2018 Bonds may become included in gross income for federal income tax purposes (including the Affordable Care Tax) retroactive, in some cases, to the date of issuance of the Series 2018 Bonds. The foregoing opinions are also subject to the condition that the City comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Series 2018 Bonds in order that the interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. Failure to comply with certain of such requirements may cause the inclusion of the interest on the Series 2018 Bonds in gross income for federal income tax purposes (including the Affordable Care Tax) to be retroactive to the date of issuance of the Series 2018 Bonds. Bond Counsel expresses no opinion regarding any other federal tax consequences arising with respect to the Series 2018 Bonds. Bond Counsel is also of the opinion that interest on the Series 2018 Bonds is exempt from State of Georgia income taxation under existing statutes. Interest on the Series 2018 Bonds may or may not be subject to state or local income taxation in jurisdictions other than Georgia under applicable state or local laws. Purchasers of the Series 2018 Bonds should consult their tax advisors as to the taxable status of the Series 2018 Bonds in a particular state or local jurisdiction other than Georgia. Collateral Federal Tax Consequences of Owning Series 2018 Bonds Ownership of the Series 2018 Bonds may result in collateral federal tax consequences to certain taxpayers, including, without limitation, certain C corporations, financial institutions and other taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry the Series 2018 Bonds, property and casualty insurance companies, certain recipients of Social Security or railroad retirement benefits, foreign corporations operating branches in the United States, and certain Subchapter S corporations. The following is a general description of certain of these consequences: 1. Although the Tax Cuts and Jobs Act (P.L ) has repealed the alternative minimum tax on corporations (the Corporate AMT ) for taxable years beginning after December 31, 2017, C Corporations with taxable (non-calendar) years commencing before January 1, 2018, and ending after the date of issue of the Series 2018 Bonds will remain subject, on a transitional basis, to the Corporate AMT with respect to such taxable year (the Transitional Fiscal Year ). For such Transitional Fiscal Year only, interest on the Bonds is included in the calculation of adjusted current earnings of such C corporations, which, in turn, is an adjustment in determining alternative minimum taxable income subject to the Corporate AMT. 2. No deduction is allowable for interest on indebtedness incurred or continued to purchase or carry the Series 2018 Bonds or, in the case of a financial institution, that portion of the owner s interest expense allocated to interest on the Series 2018 Bonds; however, certain de minimis exceptions may be applicable for owners of Series 2018 Bonds other than financial institutions. -54-

59 3. Property and casualty insurance companies are required to reduce the amount of deductible underwriting losses by 25% of their amount of tax-exempt interest, including interest on the Series 2018 Bonds. If the amount of this reduction exceeds the amount otherwise deductible as losses incurred, such excess may be includable in income. 4. Certain recipients of Social Security benefits and railroad retirement benefits will be required to include a portion of such benefits within gross income by reason of receipt or accrual of interest on the Series 2018 Bonds. 5. A branch-level tax is imposed on certain earnings and profits of foreign corporations operating branches in the United States, and interest on the Series 2018 Bonds may be included in the determination of such domestic branches taxable base on which this tax is imposed. 6. Passive investment income, including interest on the Series 2018 Bonds, may be subject to federal income taxation for any Subchapter S corporation that has Subchapter C earnings and profits at the close of the taxable year, if greater than 25% of the gross receipts of such Subchapter S corporation is passive investment income. 7. Payments of interest on the Series 2018 Bonds are subject to reporting to the Internal Revenue Service (the IRS ) and to payees on Form 1099-INT (or successor form), and the Paying Agent (or its agent) may be required to withhold federal tax (referred to as backup withholding ) from any such payment on a Series 2018 Bond. Backup withholding is imposed at the rate of 24% of the gross amount of any such payment, if (i) the owner fails to furnish the Paying Agent (or its agent) his or her taxpayer identification number ( TIN ), the accuracy of which has been certified under the penalty of perjury, (ii) the Paying Agent (or its agent) has been notified by the IRS that the owner of the Series 2018 Bond has supplied an incorrect TIN, (iii) the IRS has notified the Paying Agent (or its agent) that the owner of the Series 2018 Bond has failed properly to report certain income to the IRS, or (iv) when required to do so, the owner of the Series 2018 Bond fails to certify under the penalty of perjury that he or she is not subject to backup withholding. The foregoing is not intended as a detailed or comprehensive description of all possible consequences of purchasing or holding the Series 2018 Bonds. Persons considering the purchase of Series 2018 Bonds should consult with their tax advisor as to the consequences of buying or holding the Series 2018 Bonds in their particular circumstances. Changes in Federal and State Tax Law From time to time, legislative proposals may be made to change federal or state law that, if enacted, would eliminate the exclusion of interest on tax-exempt bonds from gross income for federal income tax purposes, eliminate any state law exemption, or that would otherwise diminish the advantages of ownership of tax-exempt bonds for one or more categories of taxpayers for federal or state law purposes. Any such proposal could, in certain circumstances, even become effective with respect to tax-exempt bonds issued or purchased prior to enactment or announcement of the proposal. In addition, from time to time, administrative actions, including regulations, rulings, and other administrative authorities, may be announced or proposed and litigation may be commenced or threatened that, if they become a legal authority, could eliminate or diminish the advantages of ownership of tax-exempt bonds for one or more categories of taxpayers for federal or state law purposes. The mere existence or announcement of any such legislative proposal or commencement or threat of any such administrative action or litigation could impair the marketability or market value of the Series 2018 Bonds, at least temporarily, whether or not it is ultimately enacted into law or becomes a legal authority. The opinion expressed by Bond Counsel is based upon the U.S. Constitution and the Constitution of the State of Georgia, implemented by statutes enacted thereunder, and as interpreted by judicial, regulatory, and other administrative authorities existing as of the date of issuance and delivery of the Series 2018 Bonds. Bond Counsel expresses no opinion as of any date subsequent thereto or with respect to any proposed or pending legislation or proposed, pending, or threatened administrative actions or litigation. Potential purchasers of the Series 2018 Bonds should consult their tax advisors regarding any pending or proposed legislation, administrative action, or litigation of the type referred to or characterized above as part of their investment decision and thereafter, as appropriate. Validation Proceedings The State of Georgia will institute proceedings in the Superior Court of Bartow County, Georgia to validate the Series 2018 Bonds and the security therefor. The State of Georgia will be the plaintiff in the proceeding, and the City will be the defendant. A final judgment confirming and validating the Series 2018 Bonds and the security therefor will be entered before the Series 2018 Bonds are issued and delivered. Under Georgia law, the judgment of validation will be forever conclusive against the City upon the validity of the Series 2018 Bonds and the security therefor. -55-

60 Closing Certificates At closing of the sale of the Series 2018 Bonds by the Underwriter, the City will deliver to the Underwriter a certificate (1) that no litigation is pending or threatened against it which would have a material effect on the issuance or validity of the Series 2018 Bonds or the security for the Series 2018 Bonds or on the financial condition of the System, and (2) that the information contained in this Official Statement does not contain any misstatement of a material fact and does not omit to state any material fact necessary to make the statements herein contained, in light of the circumstances under which they were made, not misleading. Ratings MISCELLANEOUS Moody s Investors Service, Inc. and S&P Global Ratings have assigned ratings of Aa3 and AA-, respectively, to the Series 2018 Bonds. The ratings reflect only the respective views of the rating agencies, and any desired explanation of the significance of each rating should be obtained from the rating agency furnishing such rating, at the following addresses: Moody s Investors Service, Inc., 7 World Trade Center, 250 Greenwich Street, New York, New York and S&P Global Ratings, 55 Water Street, 38 th Floor, New York, New York Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies, and assumptions of its own. There is no assurance that either of such ratings will remain unchanged for any given period of time or that they will not be revised downward or withdrawn entirely by the rating agency furnishing the same, if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of such ratings, or either of them, may have an adverse effect on the liquidity and market price of the Series 2018 Bonds. Underwriting The Series 2018 Bonds will be purchased for re-offering at negotiated sale by Raymond James & Associates, Inc. (the Underwriter ) from the City at an aggregate purchase price of percent of the principal amount of the Series 2018 Bonds plus accrued interest to the date of delivery. The Underwriter will enter into a Bond Purchase Agreement which provides that the Underwriter will purchase all of the Series 2018 Bonds, if any are purchased. The obligation of the Underwriter to accept delivery of the Series 2018 Bonds will be subject to various conditions contained in the Bond Purchase Agreement. The Underwriter intends to offer the Series 2018 Bonds to the public initially at the offering prices set forth on the cover page of this Official Statement, which offering prices may subsequently be changed from time to time by the Underwriter without any requirement of prior notice. The total compensation to the Underwriter for acting as underwriter for the Series 2018 Bonds is percent of the aggregate principal amount of the Series 2018 Bonds, which will aggregate $. The Underwriter has reserved the right to permit other securities dealers who are members of the National Association of Securities Dealers, Inc. to assist in selling the Series 2018 Bonds. The Underwriter may offer and sell the Series 2018 Bonds to certain dealers (including dealers depositing Series 2018 Bonds into investment trusts) at prices lower than the public offering prices set forth on the cover page of this Official Statement or otherwise allow concessions to such dealers who may re-allow concessions to other dealers. Any discounts or commissions that may be received by such dealers in connection with the sale of the Series 2018 Bonds will be deducted from the Underwriter s underwriting profits. Independent Professionals The Financial Statements of the System for the year ended June 30, 2017, attached hereto as part of Appendix A, has been audited by Carr Riggs and Ingram, CPAs and Advisors, Tifton, Georgia, independent certified public accountants, to the extent and for the period indicated in their report thereon, which appears in Appendix A. Such Financial Statements have been included herein in reliance upon the report of Carr Riggs and Ingram, CPAs and Advisors. The City has retained Hazen and Sawyer, P.C., Atlanta, Georgia, as its consulting engineers to develop several reports and studies relating to the System and certain financial matters. Hazen and Sawyer, P.C. has prepared the Engineering Report included as Appendix D to this Official Statement, which is included herein in reliance upon the authority of such firm as experts in engineering and related financial matters. -56-

61 Summary of Continuing Disclosure Undertaking Definitions The following capitalized terms have the following meanings for purposes of the Disclosure Undertaking: Annual Report means any Annual Report provided by the City pursuant to the provisions of the Disclosure Undertaking described herein under the caption MISCELLANEOUS - Summary of Continuing Disclosure Undertaking -- Provision of Annual Reports and -- Content of Annual Reports. Beneficial Owner of Bonds shall be determined pursuant to Rule 13d-3 adopted by the SEC under the Securities Exchange Act of 1934, as the same may be amended from time to time, and includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise, has or shares: (1) voting power, which includes the power to vote, or to direct the voting of, any Bond; or Bond. (2) investment power, which includes the power to dispose, or to direct the disposition of, any Bondholders means the registered owner of any Series 2018 Bond. Dissemination Agent means Raymond James & Associates, Inc., Atlanta, Georgia, or any successor Dissemination Agent designated in writing by the City and that has filed with the City a written acceptance of such designation. EMMA shall mean the Electronic Municipal Market Access system maintained by the MSRB for purposes of the Rule. Fiscal Year means any period of twelve consecutive months adopted by the City as its fiscal year for financial reporting purposes and initially means the period beginning on July 1 of each calendar year and ending on June 30 of the next calendar year. Listed Events means any of the events listed in the provisions of the Disclosure Undertaking described herein under the caption MISCELLANEOUS - Summary of Continuing Disclosure Undertaking -- Reporting of Significant Events. MSRB means the Municipal Securities Rulemaking Board or any successor thereto for purposes of the Rule. Rule means Rule 15c2-12(b)(5) adopted by the SEC under the Securities Exchange Act of 1934, as the same may be amended from time to time. SEC means the United States Securities and Exchange Commission. Provision of Annual Reports The City agreed in the Disclosure Undertaking to, or to cause the Dissemination Agent to, not later than 270 days after the end of each Fiscal Year, commencing with Fiscal Year 2018, provide to the MSRB an Annual Report that is consistent with the requirements of the provisions of the Disclosure Undertaking described below under the caption MISCELLANEOUS - Summary of Continuing Disclosure Undertaking -- Content of Annual Reports. Not later than fifteen business days prior to such date, the City agreed to provide the Annual Report to the Dissemination Agent (if other than the City). The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in the provisions of the Disclosure Undertaking described below under the caption MISCELLANEOUS - Summary of Continuing Disclosure Undertaking -- Content of Annual Reports ; provided that the audited financial statements of the System may be submitted separately from the balance of the Annual Report. If the City is unable to provide to the MSRB an Annual Report by the date required as described above, the City must send a notice of such failure to the MSRB. The Dissemination Agent is required to: (i) determine each year prior to the date for providing the Annual Report the appropriate electronic format prescribed by the MSRB for filing with the MSRB, the proper form for such filing, and the proper identifying information prescribed by the MSRB to accompany such filing; and, -57-

62 (ii) if the Dissemination Agent is other than the City, file a report with the City certifying that the Annual Report has been provided pursuant to the Disclosure Undertaking, stating the date it was provided. The City is required to promptly file a notice of any change in its Fiscal Year with the MSRB. If the audit report specified in clause (1) of the provisions of the Disclosure Undertaking described below under the caption MISCELLANEOUS - Summary of Continuing Disclosure Undertaking -- Content of Annual Reports is not submitted as part of the Annual Report to the MSRB pursuant to the Disclosure Undertaking, the City agreed to, or to cause the Dissemination Agent to, provide to the MSRB such audit report, together with the audited basic financial statements of the System to which such audit report relates, when and if they are available to the City. Content of Annual Reports The Disclosure Undertaking requires the City s Annual Report to contain or incorporate by reference the following: (1) the System s financial statements for the preceding Fiscal Year, which must be prepared in accordance with generally accepted accounting principles, as in effect from time to time, and which must be accompanied by an audit report, if available at the time of submission of the Annual Report to the MSRB pursuant to the Disclosure Undertaking, resulting from an audit conducted by an independent certified public accountant or firm of independent certified public accountants in conformity with generally accepted auditing standards; (2) if generally accepted accounting principles have changed since the last Annual Report was submitted pursuant to the Disclosure Undertaking and if such changes are material to the System, a narrative explanation describing the impact of such changes on the System; and (3) information for the preceding Fiscal Year regarding the following categories of financial information and operating data of the System: (A) average and maximum daily (in MGD) water demand, (B) number of water customers by customer class, (C) ten largest water customers, (D) average and maximum daily (in MGD) treated wastewater flow, (E) number of sewer customers by customer class, (F) ten largest sewer customers, (G) rates, fees, and charges, (H) historical debt service coverage ratio, (I) total costs of capital improvements and funding sources, and (J) the insurance coverage of the City. Any or all of the items listed above may be incorporated by specific reference from other documents, including official statements of debt issues of the City or related public entities, which are available to the public on the MSRB s Internet website or filed with the SEC. The City must clearly identify each such other document so incorporated by reference. Reporting of Significant Events The Disclosure Undertaking governs the giving of notices of the occurrence of any of the following events with respect to the Series 2018 Bonds: (1) Principal and interest payment delinquencies; (2) Non-payment related defaults, if material; (3) Unscheduled draws on debt service reserves reflecting financial difficulties; (4) Unscheduled draws on credit enhancements reflecting financial difficulties; (5) Substitution of credit or liquidity providers, or their failure to perform; (6) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB), or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security; (7) Modifications to rights of security holders, if material; (8) Bond calls, if material, and tender offers; (9) Defeasances; -58-

63 (10) Release, substitution, or sale of property securing repayment of the securities, if material; (11) Rating changes; (12) Bankruptcy, insolvency, receivership, or similar event of the County; (13) The consummation of a merger, consolidation, or acquisition involving the County or the sale of all or substantially all of the assets of the County, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action, or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14) Appointment of a successor or additional trustee or the change of name of a trustee, if material. For the purposes of event (12) above, the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the City in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the City, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the City. If the City obtains knowledge of the occurrence of a Listed Event, the City has agreed to promptly file a notice of such occurrence with the MSRB. Notwithstanding the foregoing, notice of Listed Events described in clauses 8 (other than tender offers) and 9 need not be given under the Disclosure Undertaking any earlier than the notice (if any) of the underlying event is given to the Bondholders pursuant to the Bond Ordinance. Termination of Reporting Obligation The City s obligations under the Disclosure Undertaking will terminate upon the legal defeasance in full, prior redemption in full, or payment in full of all of the Series 2018 Bonds. Dissemination Agent The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under the Disclosure Undertaking, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent is Raymond James & Associates, Inc., Atlanta, Georgia. Amendment; Waiver Notwithstanding any other provision of the Disclosure Undertaking, the City may amend the Disclosure Undertaking, and any provision of the Disclosure Undertaking may be waived, if (a) such amendment or waiver is made in connection with a change in circumstances that arises from a change in legal requirements; change in law; or change in the identity, nature, or status of the obligor on the Series 2018 Bonds, or type of business conducted; (b) such amendment or waiver does not materially impair the interests of the Beneficial Owners, as determined either by an unqualified opinion of nationally recognized bond counsel filed with the City or by the approving vote of the Bondholders owning more than two-thirds in aggregate principal amount of the Series 2018 Bonds outstanding at the time of such amendment or waiver; and (c) such amendment or waiver is supported by an opinion of counsel expert in federal securities laws, to the effect that such amendment or waiver would not, in and of itself, cause the undertakings in the Disclosure Undertaking to violate the Rule if such amendment or waiver had been effective on the date of the Disclosure Undertaking but taking into account any subsequent change in or official interpretation of the Rule, as well as any change in circumstances. If any provision of the Disclosure Undertaking described herein under the caption MISCELLANEOUS - Summary of Continuing Disclosure Undertaking -- Content of Annual Reports is amended or waived, the first Annual Report containing any amended, or omitting any waived, operating data or financial information must explain, in narrative form, the reasons for the amendment or waiver and the impact of the change in the type of operating data or financial information being provided. -59-

64 If the provisions of the Disclosure Undertaking described herein under the caption MISCELLANEOUS - Summary of Continuing Disclosure Undertaking -- Content of Annual Reports specifying the accounting principles to be followed in preparing the financial statements of the System are amended or waived, the Annual Report for the Fiscal Year in which the change is made must present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison must include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to the Beneficial Owners to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison must also be quantitative. The City must file a notice of the change in the accounting principles with the MSRB on or before the effective date of any such amendment or waiver. Additional Information Nothing in the Disclosure Undertaking will prevent the City from disseminating any other information, using the means of dissemination set forth in the Disclosure Undertaking or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by the Disclosure Undertaking. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by the Disclosure Undertaking, the City will have no obligation under the Disclosure Undertaking to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Default In the event of a failure of the City to comply with any provision of the Disclosure Undertaking, any Third Party Beneficiary may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the City to comply with its obligations under the Disclosure Undertaking. A default under the Disclosure Undertaking will not be deemed an event of default or default under the Bond Ordinance, and the sole remedy under the Disclosure Undertaking in the event of any failure of the City to comply with the Disclosure Undertaking will be an action to compel performance. The cost to the City of performing its obligations under this Disclosure Undertaking may be paid solely from funds lawfully available to the City for such purpose. A court may decide not to order the specific performance of the covenants contained in the Disclosure Undertaking. Additional Information Use of the words shall, must, or will in this Official Statement in summaries of documents or laws to describe future events or continuing obligations is not intended as a representation that such event will occur or obligation will be fulfilled but only that the document or law contemplates or requires such event to occur or obligation to be fulfilled. Any statements made in this Official Statement involving estimates or matters of opinion, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates or matters of opinion will be realized. Neither this Official Statement nor any statement that may have been made orally or in writing is to be construed as a contract with the owners of the Series 2018 Bonds. CERTIFICATION The execution and delivery of this Official Statement, and its distribution and use by the Underwriter, have been duly authorized and approved by the City. CITY OF CARTERSVILLE, GEORGIA By: Mayor -60-

65 APPENDIX A FINANCIAL STATEMENTS OF THE SYSTEM The financial statements of the System for the year ended June 30, 2017, included as part of this Appendix A, has been audited by Carr Riggs and Ingram, CPAs and Advisors, Tifton, Georgia, independent certified public accountants, to the extent and for the period indicated in their report thereon which appears in this Appendix A. Such Financial Statements have been included herein in reliance upon the report of Carr Riggs and Ingram, CPAs and Advisors. The financial statements of the System as of February 28, 2018 and for the eight-month periods ended February 28, 2017 and 2018, included as part of this Appendix A, have been prepared by the staff of the System without audit and, in the opinion of the staff of the System, include all adjustments necessary for a fair statement of the results of operations of the System for such interim periods, all of which adjustments are of a normal recurring nature. The interim amounts reflected in these financial statements are not necessarily indicative of the financial results that will be achieved for the full fiscal year. [Remainder of Page Intentionally Left Blank]

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67 CITY OF CARTERSVILLE, GEORGIA WATER AND SEWER FUND FINANCIAL STATEMENTS For the Year Ended June 30, 2017

68 City of Cartersville, Georgia Water and Sewer Fund Table of Contents For the Year Ended June 30, 2017 FINANCIAL SECTION Independent Auditors Report... 1 Statement of Net Position... 3 Statement of Revenues, Expenses, and Changes in Fund Net Position... 4 Statement of Cash Flows... 5 Notes to Financial Statements... 7 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) Schedule of Changes in Net Pension Liability and Related Ratios. 31 Schedule of Employer Contributions Pension Trust Fund. 32 Schedule of Funding Progress Post-employment Healthcare Fund. 33 COMPLIANCE SECTION Reports Required by Government Auditing Standards: Independent Auditors' Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards. 34 Schedule of Financial Statement Findings and Responses. 36

69 Financial Section

70 Carr, Riggs & Ingram, LLC 202 Love Avenue Tifton, GA P.O. Box 7650 Tifton, GA (229) (229) (fax) INDEPENDENT AUDITORS' REPORT To the Honorable Mayor and City Council City of Cartersville Cartersville, Georgia We have audited the accompanying financial statements of the Water and Sewer Fund of the City of Cartersville, Georgia, as of and for the year ended June 30, 2017, and the related notes to the financial statements, as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Water and Sewer Fund of the City of Cartersville, Georgia, as of June 30, 2017, and the changes in its financial position and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. -1-

71 Other Matters Required Supplementary Information Management has omitted the management s discussion and analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information. Accounting principles generally accepted in the United States of America require that the Required Supplementary Information on pages 31 to 33 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Emphasis of Matter As discussed in Note 1, the financial statements present only the Water and Sewer Fund and do not purport to, and do not present fairly the financial position of the City of Cartersville, Georgia, as of June 30, 2017, the changes in its financial position, or, where applicable, its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 22, 2017, on our consideration of the Water and Sewer Fund of the City of Cartersville, Georgia s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Water and Sewer Fund of the City of Cartersville, Georgia s internal control over financial reporting and compliance. Carr, Riggs & Ingram, LLC Certified Public Accountants December 22,

72 City of Cartersville, Georgia Water and Sewer Fund Statement of Net Position June 30, 2017 Assets Current assets: Cash and cash equivalents $ 9,603,897 Restricted cash Customer deposits 563,866 Renewal and replacement 4,223,396 Revenue bond covenant accounts 4,268,392 Accounts receivable, net 1,546,240 Inventory 356,850 Total current assets 20,562,641 Noncurrent assets: Capital assets Land and easements 2,271,012 Construction in progress 1,378,956 Utility systems 154,819,895 Buildings and structures 1,225,576 Equipment 3,915,685 Less accumulated depreciation (56,964,663) Total noncurrent assets 106,646,461 Total assets 127,209,102 Deferred Outflows of Resources Deferred outflows from pensions 267,401 Total deferred outflows of resources 267,401 Liabilities Current liabilities: Accounts payable 804,350 Accrued wages and withholdings 97,454 Customer deposits 289,815 Accrued interest 133,386 Compensated absences, current portion 98,994 Capital leases payable, current portion 19,799 Notes payable, current portion 755,000 Bonds payable, current portion 2,620,000 Total current liabilities 4,818,798 Long-term liabilities: Compensated absences 32,998 Net pension liability 3,492,616 OPEB liability 651,833 Notes payable 2,365,000 Bonds payable 6,620,000 Total long-term liabilities 13,162,447 Total liabilities 17,981,245 Deferred Inflows of Resources Deferred inflows from pensions 213,211 Total deferred inflows of resources 213,211 Net Position Net investment in capital assets 94,266,662 Restricted Debt service 1,588,724 Unrestricted 13,426,661 Total net position $ 109,282,047 The accompanying notes are an integral part of these financial statements. -3-

73 City of Cartersville, Georgia Water and Sewer Fund Statement of Revenues, Expenses, and Changes in Fund Net Position For the Year Ended June 30, 2017 Operating Revenues Charges for services $ 17,155,128 Fees 1,006,862 Other revenues 31,401 Total operating revenues 18,193,391 Operating Expenses Cost of sales and service 8,371,732 Administrative expenses 470,400 Depreciation expense 3,258,465 Total operating expenses 12,100,597 Operating income 6,092,794 Nonoperating Revenues (Expenses) Interest revenue 7,505 Interest expense (299,545) Gain on asset disposal (77,800) Total nonoperating revenues (expenses) (369,840) Income before capital contributions and transfers 5,722,954 Capital contributions - Transfers in - Transfers out (429,054) Change in net position 5,293,900 Net position, beginning of year 103,988,147 Net position, end of year $ 109,282,047 The accompanying notes are an integral part of these financial statements. -4-

74 City of Cartersville, Georgia Water and Sewer Fund Statement of Cash Flows For the Year June 30, 2017 Cash Flows From Operating Activities Cash received from customers and users $ 18,413,842 Cash payments to employees (3,435,079) Cash payments to suppliers (4,775,639) Net cash provided by operating activities 10,203,124 Cash Flows From Noncapital Financing Activities Transfers to other funds (379,712) Net cash used in capital and related financing activities (379,712) Cash Flows From Capital and Related Financing Activities Principal payments on notes payable (745,000) Principal payments on capital leases payable (19,798) Principal payments on bonds payable (2,530,000) Interest paid (347,038) Acquisition and construction of capital assets (1,818,908) Net cash used in capital and related financing activities (5,460,744) Cash Flows From Investing Activities Interest received 7,505 Net cash provided by investing activities 7,505 Net increase in cash and cash equivalents 4,370,173 Cash and cash equivalents, beginning of year 14,289,378 Cash and cash equivalents, end of year $ 18,659,551 Classified as: Cash and cash equivalents $ 9,603,897 Restricted cash and cash equivalents: 9,055,654 Total $ 18,659,551 The accompanying notes are an integral part of these financial statements. -5-

75 City of Cartersville, Georgia Water and Sewer Fund Statement of Cash Flows For the Year June 30, 2017 Noncash investing, capital, and financing activities Transfer of capital assets from other funds and component units $ - Capital assets acquired with issuance of debt - Total noncash investing, capital and financing activities $ - Reconciliation of operating income to net cash provided by operating activities: Operating income $ 6,092,794 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 3,258,465 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable 77,081 Inventory 57,528 Deferred outflows of resources 85,422 Increase (decrease) in: Accounts payable 526,199 Accrued wages and withholding 11,840 Customer deposits 14,253 Compensated absences 15,847 Net pension liability (240,266) OPEB liability 174,844 Deferred inflows of resources 129,117 Net cash provided by operating activities $ 10,203,124 The accompanying notes are an integral part of these financial statements. -6-

76 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES City of Cartersville, Georgia Water and Sewer Fund Notes to Financial Statements For the Year Ended June 30, 2017 The financial statements of the City of Cartersville Water and Sewer Fund (the Fund ) have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The more significant of the Fund s accounting policies are described below. The accompanying basic financial statements present only the Fund and are not intended to present the financial position of the City or the results of its operations and cash flows. The fund is included in the City of Cartersville, Georgia (the City ), reporting entity as a proprietary fund. I. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The accounting policies of the Fund are based upon accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board (GASB). The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. The accounts of the Fund are reported using the flow of economic resources measurement focus. The Fund uses the accrual basis of accounting under which revenues are recognized when earned and expenses are recognized when the liability is incurred. Cash and Investments Cash and cash equivalents include cash on hand, demand deposits and short term investments with original maturities of three months or less from the date of acquisition, and the local government investment pool. State statutes authorize the City and it s discretely presented component units to invest in the following: (1) obligations of the State of Georgia or other state; (2) obligations of the United States; (3) obligations fully insured or guaranteed by the United States government or one of its agencies; (4) obligations of any corporation of the United States government; (5) prime bankers acceptances; (6) the State of Georgia local government investment pool (Georgia Fund 1); (7) repurchase agreements; and (8) obligations of any other political subdivisions of the State of Georgia

77 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) City of Cartersville, Georgia Water and Sewer Fund Notes to Financial Statements For the Year Ended June 30, 2017 I. Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued) Any investment or deposit in excess of federal depository insured amounts must be collateralized by an equivalent amount of state of U.S. obligations. Cash deposits are reported at carrying amount, which reasonably estimates fair value. Investments are stated at fair value based on published quoted market prices. The fair values of investments in external investment pools are the same as the value of the pool shares. Accounts Receivable All receivables for the proprietary funds are shown net of an allowance for uncollectibles. All receivables past due for more than 90 days comprise the allowance for uncollectibles. Restricted Assets The Fund reports assets that are restricted for construction, debt service or as specified by the revenue source. Certain proceeds of proprietary fund revenue bonds, as well as certain resources set aside for their repayment, are classified as restricted cash on the balance sheet because their use is limited by applicable bond covenants. The "revenue bond debt service and reserve" accounts are used to segregate resources accumulated for debt service payments over the next twelve months and to report resources set aside to cover the highest debt service requirement in any subsequent sinking fund year except for those years where payment is to be made from the sinking fund investment account. Inventory Inventories are valued at cost, which approximates market, using the first-in/first-out (FIFO) method and are expensed when used (consumption method). The consumption method is used to account for inventories

78 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) City of Cartersville, Georgia Water and Sewer Fund Notes to Financial Statements For the Year Ended June 30, 2017 I. Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued) Capital Assets The Fund s property, utility systems, buildings and equipment with useful lives of more than one year and a cost of more than five thousand dollars are capitalized and depreciated. All capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Donated capital assets and capital assets received in a service concession agreement are valued at their acquisition value. Interest (net of related income) incurred during the construction of capital assets is capitalized as part of the assets cost. Capital assets are depreciated using the straight-line method. When these assets are disposed, the cost and related accumulated depreciation are removed from the accounts and the resulting gain/loss is recorded. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major outlays for capital improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets is included as part of the capitalized value of assets constructed. No interest expense was capitalized during the fiscal year ended June 30, Capital assets of the Fund are depreciated using the straight line method over the following useful lives: Asset Category Years Equipment 3-10 Buildings Utility Systems Meters and settings Mains and lines

79 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) City of Cartersville, Georgia Water and Sewer Fund Notes to Financial Statements For the Year Ended June 30, 2017 I. Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued) Long-term Obligations Outstanding debt and other obligations are reported as a liability in the Fund. Debt discounts and premiums are deferred and amortized over the life of the respective bonds using a method that approximates the effective interest method. Bond discounts are presented as a reduction of the face amount of bonds payable; premiums are presented as an increase of the face amount of bonds payable. Deferred Outflows / Inflows of Resources Deferred outflows of resources represent demographic gains/losses related to pensions. Deferred inflows of resources represent differences between estimated and actual investment earnings related to pensions. Pension Plan The City s defined benefit pension plan is accounted for under GASB Statement No. 68 Accounting and Financial Reporting of Pensions an amendment to GASB Statement No. 27 which requires the recognition of the entire net pension liability along with specific note disclosures and required supplementary information. Compensated Absences The liability for accumulated unpaid vacation pay and other salary-related benefits has been accrued as compensated absences. Net Position Net position represents the difference between assets and liabilities in reporting which utilizes the economic resources measurement focus. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowing used for the acquisition, construction or improvement of those assets. Net position is reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the City or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. All other net position is reported as unrestricted. When both restricted and unrestricted net position are available for use when an expense is incurred, it is the Fund s policy to use restricted amounts first and then unrestricted amounts as they are needed

80 City of Cartersville, Georgia Water and Sewer Fund Notes to Financial Statements For the Year Ended June 30, 2017 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) I. Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued) Management Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures/expenses during the reporting period. Actual results could differ from these estimates. Impact of Recently Issued Accounting Pronouncements New Accounting Standards Adopted Effective June 1, 2017, the Fund adopted three new statements issued by GASB as follows: GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans GASB Statement No. 78, Pensions Provided Through Certain Multiple-Employer Defined Benefit Pension Plans GASB Statement No. 82, Pension Issues, an amendment of GASB Statements No. 67, No. 68, and No. 73 GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans ( GASB 74 ), replaces Statements No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as amended, and No. 57, OPEB (Other Postemployment Benefits) Measurement by Agent Employers and Agent Multiple-Employer Plans. This Statement revises the requirements for defined contribution OPEB plans as previously required in Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, as amended, Statement 43, and Statement No. 50, Pension Disclosures. GASB 74 also includes requirements to address financial reporting for assets accumulated for purposes of providing defined benefit OPEB through OPEB plans that are not administered through trusts that meet the specified criteria. There was no impact on the Fund s financial statements as a result of the implementation of GASB 74. GASB Statement No. 78, Pensions Provided Through Certain Multiple-Employer Defined Benefit Pension Plans ( GASB 78 ), amends the scope and applicability of Statement 68. It excludes pensions provided to employees of state or local governmental employers through a cost-sharing multiple-employer defined benefit pension plan that (1) is not a state or local government pension plan, (2) is used to provide defined benefit pensions both to employees of state or local

81 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) City of Cartersville, Georgia Water and Sewer Fund Notes to Financial Statements For the Year Ended June 30, 2017 I. Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued) Impact of Recently Issued Accounting Pronouncements (Continued) governmental employers and to employees of employers that are not state or local government employers, and (3) has no predominate state or local government employer. This Statement establishes requirements for recognition and measurement of pension expense, expenditures, and liabilities; note disclosure; and required supplementary information for pensions that have the characteristics described above. There was no impact on the Fund s financial statements as a result of the implementation of GASB 78. GASB Statement No. 82, Pension Issues, an amendment of GASB Statements No. 67, No. 68, and No. 73 ( GASB 82 ), addresses issues regarding (1) the presentation of payroll-related measures in required supplementary information, (2) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (Plan member) contribution requirements. GASB 82 will be effective for fiscal years beginning after June 15, Statement No. 68 establishes standards of accounting and financial reporting, but not funding or budgetary standards, for defined benefit pensions and defined contribution pensions provided to the employees of state and local governmental employers through pension plans that are administered through trusts or equivalent arrangements. This Statement replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, as well as the requirements of Statement No. 50, Pension Disclosures, as they relate to pensions that are provided through pension plans within the scope of the Statement. The Fund has included the disclosures required by GASB 82 in the 2017 financial statements. Accounting Standards Issued But Not Yet Effective Other recently issued standards the Fund is reviewing for applicability and potential impact on the financial statements include: GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions ( GASB 75 ), replaces the requirements of Statements No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans, for OPEB. GASB No. 75 will be effective for fiscal years beginning after June 15, This Statement establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. In addition, this Statement details the recognition and disclosure requirements for employers with payables to defined benefit OPEB plans that are administered through trusts that meet the specified criteria and for employers whose employees are provided with defined contribution OPEB. The Fund has not completed the process of evaluating the impact of GASB 75 on its financial statements.

82 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) City of Cartersville, Georgia Water and Sewer Fund Notes to Financial Statements For the Year Ended June 30, 2017 I. Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued) Accounting Standards Issued But Not Yet Effective (Continued) GASB Statement No. 81, Irrevocable Split-Interest Agreements ( GASB 81 ), requires that a government that receives resources pursuant to an irrevocable split-interest agreement recognize assets, liabilities, and deferred inflows of resources at the inception of the agreement. GASB 81 will be effective for the fiscal years beginning after December 15, The Fund has not completed the process of evaluating the impact of GASB 81 on its financial statements. GASB Statement No. 83, Certain Asset Retirement Obligations ( GASB 83 ), addresses accounting and financial reporting for certain asset retirement obligations. GASB 83 will be effective for the fiscal years beginning after June 15, The Fund has not completed the process of evaluating the impact of GASB 83 on its financial statements. GASB Statement No. 85, Omnibus 2017 ( GASB 85 ), addresses practice issues that have been identified during implementation and application of certain GASB Statements. This Statement addresses a variety of topics including issues related to blending component units, goodwill, fair value measurement and application, and postemployment benefits (pensions and other postemployment benefits). GASB 85 will be effective for the fiscal years beginning after June 15, The Fund has not completed the process of evaluating the impact of GASB 85 on its financial statements. GASB Statement No. 86, Certain Debt Extinguishment Issues ( GASB 86 ), establishes criteria to improve consistency in accounting and financial reporting for in-substance defeasance of debt by providing guidance for transactions in which cash and other monetary assets acquired with only existing resources resources other than the proceeds of refunding debt are placed in an irrevocable trust for the sole purpose of extinguishing debt. This Statement also improves accounting and financial reporting for prepaid insurance on debt that is extinguished and notes to financial statements for debt that is defeased in substance. GASB 86 will be effective for the fiscal years beginning after June 15, The Fund has not completed the process of evaluating the impact of GASB 86 on its financial statements. GASB Statement No. 87, Leases ( GASB 87 ), establishes criteria to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. This Statement increases the usefulness of governments' financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this

83 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) City of Cartersville, Georgia Water and Sewer Fund Notes to Financial Statements For the Year Ended June 30, 2017 I. Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued) Accounting Standards Issued But Not Yet Effective (Continued) Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments' leasing activities. GASB 87 will be effective for the fiscal years beginning after December 15, The Fund has not completed the process of evaluating the impact of GASB 87 on its financial statements. Subsequent Events The Fund has performed an evaluation of subsequent events through December 22, 2017, which is the date the financial statements were available to be issued. NOTE 2: DEPOSITS AND INVESTMENTS The Fund has adopted deposit polices but they do not address any of the following specific reporting disclosures: Custodial Credit Risk - Deposits - is the risk that in the event of a failure of a financial institution the Fund s deposits or collateral securities may not be recovered. At June 30, 2017 the Fund s cash and cash equivalents were as follows: Water and Sewer Fund: Cash and cash equivalents $ 9,603,897 Restricted cash and cash equivalents 9,055,654 Total cash and investments $ 18,659,551 Cash deposits in financial institutions $ 18,659,551 Total cash and investments $ 18,659,

84 City of Cartersville, Georgia Water and Sewer Fund Notes to Financial Statements For the Year Ended June 30, 2017 NOTE 2: DEPOSITS AND INVESTMENTS (CONTINUED) The Fund does not have a formal policy that addresses credit risk. Concentration of Credit Risk - is defined as the risk of loss attributed to the magnitude of an investment in a single issuer. The Fund does not have a formal policy that addresses concentration of credit risk. The Fund has no investments that meet the criteria for concentration of credit risk disclosure. Custodial credit risk deposits - Custodial risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover deposits or will not be able to recover collateral securities that are in the possession of an outside party. State statutes require all deposits and investments (other than federal and state government instruments) to be collateralized by depository insurance, obligations of the U. S. government, or bonds of public authorities, counties, or municipalities. As of June 30, 2017, the Fund s deposits were fully collateralized in compliance with the state requirements. NOTE 3: ACCOUNTS RECEIVABLE The Fund had net trade accounts receivable of $1,546,240 at June 30, 2017, Bad debt expense amounted to $34,416 for the year ended June 30, At June 30, 2017, the allowance for doubtful accounts totaled $251,014. NOTE 4: INTERFUND ACTIVITY I. Interfund Transfers Permanent reallocations of resources between funds of the City are classified as interfund transfers. Transfers out for the year ended June 30, 2017 totaled $429,054 and consisted of transfers to the City s General Fund of $403,174 and transfers to the City s Internal Service Fund of $25,

85 City of Cartersville, Georgia Water and Sewer Fund Notes to Financial Statements For the Year Ended June 30, 2017 NOTE 5: CAPITAL ASSETS The following is a summary of capital asset activity as of June 30, 2017: Beginning Ending Balance Increases Decreases Transfers Balance Nondepreciable Land $ 2,271,012 $ - $ - $ - $ 2,271,012 Construction in progress 2,168,366 1,722,289 (77,800) (2,433,899) 1,378,956 Total nondepreciable capital assets 4,439,378 1,722,289 (77,800) (2,433,899) 3,649,968 Other capital assets Buildings 1,225, ,225,576 Infrastructure 152,338,905 57,819-2,423, ,819,895 Machinery & equipment 3,866,157 38,800-10,728 3,915,685 Total other capital assets at cost 157,430,638 96,619-2,433, ,961,156 Less accumulated depreciation for: Buildings (533,072) (31,638) - - (564,710) Infrastructure (49,907,173) (3,064,188) - - (52,971,361) Machinery & equipment (3,265,953) (162,639) - - (3,428,592) Total accumulated depreciation (53,706,198) (3,258,465) - - (56,964,663) Other capital assets, net 103,724,440 (3,161,846) - 2,433, ,996,493 Capital assets, net $ 108,163,818 $ (1,439,557) $ (77,800) $ - $ 106,646,461 Depreciation expense for the Fund for the year ended June 30, 2017 was $3,258,

86 City of Cartersville, Georgia Water and Sewer Fund Notes to Financial Statements For the Year Ended June 30, 2017 NOTE 6: LONG-TERM DEBT Revenue Bonds The City issues bonds where the City pledges income derived from the acquired or constructed assets to pay debt service. The City s Water and Sewer fund revenue bonds outstanding at June 30, 2017 are as follows: Series 2005 $7,620,000 Water and Sewer Revenue Bonds, due in semi-annual installments of $710,000 to $740,000 through January 1, 2018, plus interest of 3.63% $ 1,465,000 Series 2009 $9,600,000 Water and Sewer Revenue Bonds, due in semi-annual installments of $565,000 to $580,000 through January 1, 2018, plus interest of 3.25% 1,155,000 Series 2012 $6,620,000 Water and Sewer Revenue Bonds, due in semi-annual installments of $ - to $860,000 through January 1, 2022, plus interest of 2.19% 6,620,000 $ 9,240,000 The following schedule presents debt service requirements to maturity for revenue bonds: Fiscal Year Ending, Principal Interest Total 2018 $ 2,620,000 $ 213,192 $ 2,833, ,600, ,273 1,736, ,640, ,014 1,741, ,670,000 64,934 1,734, ,710,000 28,142 1,738,142 $ 9,240,000 $ 543,555 $ 9,783,

87 City of Cartersville, Georgia Water and Sewer Fund Notes to Financial Statements For the Year Ended June 30, 2017 NOTE 6: LONG-TERM DEBT (CONTINUED) Notes Payable The City s Water and Sewer fund has notes payable to the Cartersville Building Authority at June 30, 2017 as follows: Note payable to the Cartersville Building Authority, due in semi-annual installments of $370,000 to $390,000 through August 1, 2021, plus interest of 1.2% $ 3,120,000 The following schedule presents debt service requirements to maturity for notes payable: Capital Leases Fiscal Year Ending, Principal Interest Total 2018 $ 755,000 $ 35,190 $ 790, ,000 26, , ,000 16, , ,000 7, ,920 $ 3,120,000 $ 86,100 $ 3,206,100 The Fund has entered into lease agreements as lessee for financing the acquisition of vehicles and other equipment. The agreements qualify as capital leases for accounting purposes (titles transfer at the end of the lease terms) and, therefore, have been recorded at the present value of the future minimum lease payments as of the date the equipment is acquired. Equipment acquired under capital leases has a total cost of $98,993 and accumulated depreciation of $39,597 resulting in a net book value of $59,396 at June 30, Amortization for assets acquired under capital leases is included in depreciation expense. The following is a schedule of the future minimum lease payments under these capital leases, and the net present value of the net minimum lease payments at June 30, Fiscal Year Ending, 2018 $ 20,191 Total minimum lease payments 20,191 Less amount representing interest (392) Present value of future minimum lease payments $ 19,

88 City of Cartersville, Georgia Water and Sewer Fund Notes to Financial Statements For the Year Ended June 30, 2017 NOTE 6: LONG-TERM DEBT (CONTINUED) Changes in Long-term Liabilities The following is a summary of long-term debt activity for the year ended June 30, 2017: Beginning Ending Due Within Balance Additions Reductions Balance One Year Revenue bonds $ 11,770,000 $ 2,620,000 $ (5,150,000) $ 9,240,000 $ 2,620,000 Capital leases 39,598 - (19,799) 19,799 19,799 Notes payable 3,865, ,000 (1,500,000) 3,120, ,000 Net pension liability 3,732,882 3,492,616 (3,732,882) 3,492,616 - OPEB liability 476, ,833 (476,989) 651,833 - Compensated absences 116, ,153 (123,306) 131,992 98,994 Total long-term liabilities $ 20,000,614 $ 7,658,602 $ (11,002,976) $ 16,656,240 $ 3,493,793 As of June 30, 2017, OPEB claims payable are considered long-term. The various bond indentures contain certain limitations and restrictions as defined in the agreements. Management believes the City is in compliance with all such significant financial limitations and restrictions. NOTE 7: RESTRICTIONS OF NET POSITION Restrictions are used to indicate that a portion of net position is not appropriable for expenditure or is legally segregated for a specific future use. The following restrictions are used by the Fund City: Restricted for debt service - restricted for payment of bond principal and interest

89 City of Cartersville, Georgia Water and Sewer Fund Notes to Financial Statements For the Year Ended June 30, 2017 NOTE 8: RISK MANAGEMENT The Fund is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters for which the City carries commercial insurance. During the current and preceding two years, the Fund had no insurance settlements that exceeded insurance coverage. The City is self-insured for dental benefits and workers compensation claims. Insurance deductible is $25,000 for property and casualty claims. The City uses an internal service fund to account for risks related to all insurance coverage. The fund is responsible for collecting premiums from all the departments for the self-insured programs, paying claim settlements and purchasing certain insurance policies. The self-insurance program also provides protection for Employment Practice Liability such as allegations of race, gender, and age discrimination. Additional coverage information is provided below: Workers' Compensation This self-insurance program charges premiums to the Fund each year based on historical costs. For the current and two previous years, this program provided coverage against workers' compensation claims up to the first $500,000 per claim. The City has obtained excess insurance for claims that exceed the self-insurance retention amount. No claims have exceeded coverage. Property & Casualty Liability This program includes losses and claims related to property, automobile, bodily injury, theft, professional and certain employment liability. It excludes losses and claims related to health benefits or workers' compensation. The City purchases commercial insurance for this coverage with most deductibles at $25,000 per claim. Premiums are charged to the Fund each year based on historical costs. There have been no claims settlements in excess of the insurance coverage that has been procured. Dental Insurance Employees and retirees and their dependents are eligible for dental insurance that is fully selfinsured by the City. The City pays 60% of single premium and 55% of family premium for this coverage. Costs are charged to Fund through a charge per employee per pay period

90 City of Cartersville, Georgia Water and Sewer Fund Notes to Financial Statements For the Year Ended June 30, 2017 NOTE 9: PENSION PLANS Plan Description: Substantially all full-time Water and Sewer fund employees of the City of Cartersville are covered by the City of Cartersville Pension Plan (The Plan). The single-employer defined benefit pension plan was established by the City, in accordance with City charter and state statutes, by the adoption of an ordinance effective January 1, 1967 and was restated April 28, This ordinance assigns the authority to establish, amend or discontinue the Pension Plan to the City of Cartersville, Georgia. Under the plan, employees are eligible for normal retirement benefits after completion of a minimum of ten years full time service and reaching age 65. The normal retirement benefit payable for life is 2% of average monthly compensation multiplied by years of service. Average monthly compensation is based on the three highest consecutive completed years of service during the last ten years of service. Benefits vest after ten years of service. An early retirement option is available at age 55 with ten years of service. However, benefits are reduced 3% a year for the first five years and 6% for the next five years that the payment commencement date precedes the earlier of normal retirement date or the date the participant would have had twenty years of service. Plan membership: Number of retirees and beneficiaries currently receiving benefits 156 Number of terminated employees entitled to benefits but not yet receiving them 21 Number of active plan participants 323 Contributions: The funding policy for the plan is to contribute an amount equal to the recommended contribution each year. The required contribution by the plan members and the City is actuarially determined and may be amended by the City. Contributions are determined using the projected unit credit cost method and assets are valued using market related value. The most current valuation, dated January 1, 2017, determined that for the period beginning January 1, 2018, employer contributions of 19.37% of covered payroll and a 4.1% contribution by police and fire employees and a 3.1% contribution by all other participants, are required to meet the current cost of the Plan. These contribution rates are based on an estimated total covered annual payroll for the entire City of $15,092,

91 City of Cartersville, Georgia Water and Sewer Fund Notes to Financial Statements For the Year Ended June 30, 2017 NOTE 9: PENSION PLANS (CONTINUED) Summary of Significant Accounting Policies: The City of Cartersville Pension Plan financial statements are prepared on the accrual basis of accounting. Contributions from the City and the City's employees are recognized when due, pursuant to formal commitments, as well as statutory or contractual requirements. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. Investment income is recognized as earned by the Plan. All plan investments are reported at fair value. There are no investments in, loans to, or leases with parties related to the pension plan. Administrative costs are paid by the plan. Actuarial Assumptions: The net pension liability was measured as of January 1, 2017 and the total pension liability used to calculate the net pension liability was based on an actuarial valuation as of that date. The total pension liability in the actuarial valuations was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation 2.50% Salary increases 4.00% Investment rate of return 6.50% Mortality rates RP-2000, Sex distinct The long-term expected rate of return on pension plan investments was determined as 4.00% using a building-block method in which best estimate ranges of expected future real rates of return (expected returns, net of pension plan investments expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Long-Term Target Expected Real Asset Class Allocation Rate of Return Domestic equity 50% 5.00% International equity 10% 5.00% Fixed income 40% 2.50% Total or weighted arithmetic average 100% 4.00%

92 City of Cartersville, Georgia Water and Sewer Fund Notes to Financial Statements For the Year Ended June 30, 2017 NOTE 9: PENSION PLANS (CONTINUED) The discount rate used to measure the total pension liability was 6.50%. The projection of cash flows used to determine the discount rate assumed that employee contributions will be made at the current contribution rate and that employer contributions will be made based on rates determined by the plan Actuary. Based on those assumptions, the pension plan s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Changes in Net Pension Liability: Changes in the net pension liability of the City for the year ended June 30, 2017 were as follows: Increase (Decrease) Total Pension Liability (TPL) Fiduciary Net Position (FNP) Net Pension Liability (NPL) (a) (b) (a) - (b) Balances at January 1, 2016 $ 66,151,817 $ (38,299,763) $ 27,852,054 Changes for the year: Service cost $ 1,955,689 $ - $ 1,955,689 Interest 4,325,827 (2,693,375) 1,632,452 Differences between expected and actual experience - (817,148) (817,148) Demographic experience (431,495) - (431,495) Contributions - employer - (2,947,687) (2,947,687) Contributions - employee - (546,401) (546,401) Net investment income Benefit payments and refunds (3,162,433) 2,993,452 (168,981) Administrative expense Net changes 2,687,588 (4,011,159) (1,323,571) Balances at January 1, 2017 $ 68,839,405 $ (42,310,922) $ 26,528,483 The Fund s allocated net pension liability at June 30, 2017 was $3,492,

93 City of Cartersville, Georgia Water and Sewer Fund Notes to Financial Statements For the Year Ended June 30, 2017 NOTE 9: PENSION PLANS (CONTINUED) Sensitivity of the Net Pension Liability to Changes in the Discount Rate: The following table presents the net pension liability of the City, calculated using the discount rate of 6.50%, as well as what the City s net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower (5.50%) or 1-percentage point higher (7.50%) than the current rate. Current 1% Decrease Discount Rate 1% Increase 5.50% 6.50% 7.50% Total pension liability $ 77,654,136 $ 68,839,405 $ 61,469,248 Less fiduciary net position (42,310,922) (42,310,922) (42,310,922) Net pension liability $ 35,343,214 $ 26,528,483 $ 19,158,326 Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions: For the year ended June 30, 2017, the City recognized pension expense of $3,217,568 consisting of the following: Service cost $ 1,955,689 Other recognized changes in net pension liability: Expected interest growth 1,632,452 Investment gain / loss 398,414 Demographic gain / loss (53,605) Contributions - employee (546,401) Benefit payments and refunds (168,981) Total expense $ 3,217,568 The Fund s allocated share of pension expense for the year ended June 30, 2017 was $424,

94 City of Cartersville, Georgia Water and Sewer Fund Notes to Financial Statements For the Year Ended June 30, 2017 NOTE 9: PENSION PLANS (CONTINUED) Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions (Continued): At June 30, 2017, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources Demographic gain / loss $ 2,031,067 $ - Net difference between projected and actual earnings on pension plan investments - 1,619,463 Total $ 2,031,067 $ 1,619,463 The Fund s allocated share of deferred outflows of resources and deferred inflows of resources as of June 30, 2017 was $267,401 and $213,211, respectively. Amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions of the City at June 30, 2017 will be recognized in pension expense as follows: Fiscal Year Ending, Total 2018 $ 344, , , (217,033) 2022 (53,605) Thereafter $ (356,628) 411,

95 City of Cartersville, Georgia Water and Sewer Fund Notes to Financial Statements For the Year Ended June 30, 2017 NOTE 10: OTHER POST-EMPLOYMENT BENEFITS Plan Description Through the passage of local ordinance, the City of Cartersville OPEB plan, a single employer defined benefit plan provides continuation of medical, dental and life insurance coverage to retired employees. All full time Water and Sewer employees of the City hired prior to July 20, 2000 are eligible for these benefits. Former employees pay 15% for single and 25% for family medical insurance premiums and 40% for single and 45% for family dental insurance premiums. The City covers all additional costs. The normal retirement date of a participant is the first day of the calendar month coincident with or next following their 65th birthday. A participant may retire on an early retirement date which may be the first day of any calendar month prior to their normal retirement date, provided they have then attained their 55th birthday and completed 10 years of credited service (50th birthday for Police and Fire employees). A participant may continue in employment beyond their normal retirement date; such participant's postponed retirement date will be the first day of the calendar month coincident with or next following their actual retirement. An employee who retires and receives a pension or is vested is entitled to continue their health insurance coverage (with Medicare considered the primary insurance after age 65). Spousal coverage expires 36 months after employee death. Life insurance is provided for life of employee and is equal to 100% of current annual salary at retirement with the original amount reduced by 35% at age 65 and 45% at age 70. Dental insurance is provided for employee continuing health insurance. The plan is administered through the City's current insurance provider and no separate audit report is available. The City has the authority to amend the provisions of this plan. The number of participants as of the most recent OPEB valuation is as follows: In pay status 38 Active employees

96 NOTE 10: OTHER POST-EMPLOYMENT BENEFITS (CONTINUED) City of Cartersville, Georgia Water and Sewer Fund Notes to Financial Statements For the Year Ended June 30, 2017 Funding Policy The City currently pays for postemployment health care and life insurance benefits on a pay-as-yougo basis. The City is studying the establishment of a trust that would be used to accumulate and invest assets necessary to pay for the accumulated liability. These financial statements assume that pay-as-you-go funding will continue. The City's annual OPEB cost, the percentage contributed, and the net obligation are as follows: Fiscal Year OPEB Amount Percentage Net OPEB Ended Cost Contributed Contributed Obligation 6/30/2012 $ 1,234,470 $ 622, % $ 2,551,874 6/30/ , , % 2,883,906 6/30/ , , % 3,043,000 6/30/ , , % 3,527,000 6/30/ , , % 3,979,000 6/30/2017 2,050, , % 5,471,000 The funded status of the City s OPEB plan is as follows: Schedule of Funding Progress Actuarial Actuarial Unfunded Ratio of the Actuarial Value of Accrued Liability AAL Funded Covered UAAL to Fiscal Year Valuation Assets (AAL) Entry Age (UAAL) Ratio Payroll Covered Payroll Ended Date (a) (b) (b-a) (a/b) (c) (b-a)/c 6/30/2014 7/1/2013 $ - $ 14,169,226 $ 14,169, % $ 7,207, % 6/30/2015 1/1/ ,542,000 10,542, % 14,939, % 6/30/2016 1/1/ ,103,000 11,103, % 14,939, % 6/30/2017 1/1/ ,809,000 25,809, % 5,374, %

97 NOTE 10: OTHER POST-EMPLOYMENT BENEFITS (CONTINUED) City of Cartersville, Georgia Water and Sewer Fund Notes to Financial Statements For the Year Ended June 30, 2017 The required schedule of funding progress immediately following the notes to the financial statements presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Annual Other Postemployment Benefit Cost The City's OPEB cost is actuarially calculated based on the annual required contribution of the employer (ARC). The ARC represents a level of funding that, if paid each year, is projected to provide funding for future benefits. The following table shows the components of the City's OPEB cost for the current year, amount contributed and changes in OPEB obligation. Annual OPEB Cost Annual required contribution $ 2,164,000 Interest on net OPEB obligation 159,000 Adjustment (273,000) Annual OPEB cost $ 2,050,000 Net OPEB Obligation Annual OPEB cost $ 2,050,000 Contributions (558,000) Increase (decrease) in net OPEB obligation 1,492,000 Net OPEB obligation, beginning of period 3,979,000 Net OPEB obligation, end of period $ 5,471,000 The Fund s allocated share of the of the annual OPEB cost for the year ended June 30, 2017 was $246,000. The Fund s allocated share of the net OPEB obligation as of June 30, 2017 was $651,

98 NOTE 10: OTHER POST-EMPLOYMENT BENEFITS (CONTINUED) Actuarial assumptions used in the plan are as follows: Economic Assumptions: Interest rates Discount rate 4% Return on assets n/a Inflation rate 2.75% Salary increases 4% Post-retirement benefit increases None Medical trend 8% City of Cartersville, Georgia Water and Sewer Fund Notes to Financial Statements For the Year Ended June 30, 2017 Demographic Assumptions: Mortality Termination Disability Retiree Copay Percentage RP-2000 mortality table None. Vested Employees are entitled to Medicare benefits Wyatt 1985 Study 3.57% - Pre 65 Employee 30.42% - Pre 65 Spouse 9.31% - Post 65 Employee 66.07% - Post 65 Spouse Participants become eligible to retire Retirement under the same provisions as pension. Participation 100.0% Spousal Participation 100.0% - are married Administrative Expense None Percentage Married 30% Male, 30% Female Spousal Participation Wives 3 years younger than husbands Actuarial Methods: Normal Cost and Actuarial Accrued Liability Actuarial Value of Assets Amortization of Unfunded Accrued Actuarial Liability (UAAL) Projected Unit Credit Same as Market Value UAAL is amortized over closed periods using level dollar payments

99 NOTE 10: OTHER POST-EMPLOYMENT BENEFITS (CONTINUED) City of Cartersville, Georgia Water and Sewer Fund Notes to Financial Statements For the Year Ended June 30, 2017 Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Amounts determined regarding the funded status of the plan and annual required contributions of the employer are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. The actuarial calculations are based on the types of benefits provided under the plan at the time of each valuation and on the pattern of sharing of costs between the employer and plan members to that point. The projection of benefits for financial reporting purposes does not explicitly incorporate the potential effects of legal or contractual funding limitations on the pattern of cost sharing between the employer and plan members in the future. Actuarial calculations are designed to reflect a long-term perspective, and consistent with that perspective, are designed to minimize short-term volatility of accrued liabilities and the actuarial value of assets. NOTE 11: COMMITMENTS AND CONTINGENCIES Litigation The Fund is involved in a number of legal matters, which have or could result in litigation. The nature of the lawsuits varies considerably. Liability, if any, which might result from these proceedings, would not, in the opinion of management and legal counsel, have a material adverse effect on the financial position of the Fund. Construction Commitments As of June 30, 2017, the City had open contracts for architectural design or construction of projects for water and sewer system improvements with remaining commitments of $149,

100 Required Supplementary Information (Unaudited)

101 City of Cartersville, Georgia Schedule of Changes in Net Pension Liability and Related Ratios For the Year Ended June 30, Total pension liability Service cost $ 1,955,689 $ 1,981,766 $ 1,832,890 Interest on pension liability 4,325,827 4,166,050 3,934,032 Demographic experience (431,495) (668,281) 437,670 Benefit payments (3,162,433) (2,825,722) (2,578,502) Refunds - (7,687) (157,599) Net change in pension liability 2,687,588 2,646,126 3,468,491 Total pension liability - beginning 66,151,817 63,505,691 60,037,200 Total pension liability - ending (a) 68,839,405 66,151,817 63,505,691 Plan fiduciary net position Employer contributions 2,947,687 2,673,116 2,104,997 Employee contributions 546, , ,029 Net investment income 3,510,523 (336,496) 2,354,193 Benefit payments (2,993,452) (2,825,722) (2,578,502) Net change in fiduciary net position 4,011,159 40,254 2,410,717 Plan fiduciary net position - beginning 38,299,763 38,259,509 35,848,792 Plan fiduciary net position - ending (b) 42,310,922 38,299,763 38,259,509 Net pension liability (a) - (b) $ 26,528,483 $ 27,852,054 $ 25,246,182 Plan fiduciary net position as a percentage of the total pension liability 61.5% 57.9% 60.2% Covered-employee payroll $ 15,092,751 $ 14,620,966 $ 14,938,570 Net pension liability as a percentage of covered-employee payroll 175.8% 190.5% 169.0% Water and Sewer Fund's allocated net pension liability $ 3,492,616 $ 3,732,882 $ 3,364,555 Notes to the Schedule The schedule will present 10 years of information once it is accumulated

102 City of Cartersville, Georgia Schedule of Employer Contributions Pension Trust Fund For the Year Ended June 30, Actuarially determined contribution $ 2,947,687 $ 2,673,116 $ 2,104,997 Contributions in relation to the actuarially determined contribution 2,947,687 2,673,116 2,104,997 Contribution deficiency (excess) Covered-employee payroll $ 15,092,751 $ 14,938,570 $ 14,137,008 Contributions as a percentage of covered-employee payroll 19.53% 17.89% 14.89% Notes to the Schedule (1) Actuarial assumptions Valuation date January 1, 2017 Actuarial cost method Projected unit credit Actuarial asset valuation method Market value of assets Assumed rate of return on investments 4.00% Projected salary increases 4.00% Inflation rate 2.50% Amortization method 20 years level (2) The schedule will present 10 years of information once it is accumulated

103 City of Cartersville, Georgia Schedule of Funding Progress Post-Employment Healthcare Plan For the Year Ended June 30, 2017 Unfunded (Overfunded) Actuarial AAL as Actuarial Accrued Unfunded Annual a Percentage Fiscal Actuarial Value of Liability (Overfunded) Funded Covered of Covered Year Valuation Assets (AAL) AAL Ratio Payroll Payroll Ended Date (a) (b) (b-a) (a/b) (c) (b-a)/c 6/30/2017 1/1/2017 $ - 25,809,000 $ 25,809, % $ 5,374, % 6/30/2016 1/1/ ,103,000 $ 11,103, % $ 14,938, % 6/30/2015 1/1/ ,542,000 10,542, % 14,939, % 6/30/2014 1/1/ ,169,226 14,169, % 7,207, % 6/30/2013 7/1/ ,600,189 13,600, % 7,098, % 6/30/2012 7/1/ ,366,613 17,366, % 7,179, % 6/30/2011 7/1/ ,804,622 12,804, % 6,727, % 6/30/2010 7/1/ ,474,752 12,474, % 6,628, % 6/30/2009 7/1/ ,356,261 12,356, % 6,373, % 6/30/2008 7/1/ ,966,453 11,966, % 6,128, % The assumptions used in the preparation of the above schedules are disclosed in Note 10 to the financial statements

104 Compliance Section

105 Carr, Riggs & Ingram, LLC 202 Love Avenue Tifton, GA P.O. Box 7650 Tifton, GA (229) (229) (fax) INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Honorable Mayor and City Council City of Cartersville, Georgia We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the Water and Sewer Fund of the City of Cartersville, Georgia, as of and for the year ended June 30, 2017, and the related notes to the financial statements and have issued our report thereon dated December 22, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Water and Sewer Fund of the City of Cartersville, Georgia s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Water and Sewer Fund of the City of Cartersville, Georgia s internal control. Accordingly, we do not express an opinion on the effectiveness of the Water and Sewer Fund of the City of Cartersville, Georgia s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance

106 Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Water and Sewer Fund of the City of Cartersville, Georgia s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Carr, Riggs & Ingram, LLC December 22, 2017 Tifton, Georgia

107 SECTION I SUMMARY OF AUDIT RESULTS City of Cartersville, Georgia Water and Sewer Fund Schedule of Financial Statement Findings and Responses For the Year Ended June 30, 2017 Financial Statements Type of auditors report issued [Unmodified] Internal Control over financial reporting: Material weakness(es) identified? Significant deficiencies identified not considered to be material weaknesses? Noncompliance material to financial statements noted? Yes X No Yes X None reported Yes X No SECTION II FINANCIAL STATEMENT FINDINGS None reported. SECTION III FEDERAL AWARDS FINDINGS AND QUESTIONED COST Not Applicable. SECTION IV STATUS OF PRIOR YEAR FINDINGS None reported

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109 CITY OF CARTERSVILLE, GEORGIA WATER AND SEWER FUND COMPARATIVE STATEMENTS OF NET POSITION FEBRUARY 28, 2018 and 2017 (unaudited) Assets Current Assets: Cash and cash equivalents $ 11,172, $ 8,284, Restricted cash: Customer deposits 577, , Renewal and replacement 4,224, ,212, Revenue bond covenant accounts 3,152, ,320, Accounts receivable, net 1,537, ,329, Interfund receivable - - Inventories 356, , Total current assets 21,020, ,104, Noncurrent Assets: Capital assets Equipment 4,034, ,866, Buildings 1,225, ,225, Utility system 154,819, ,338, Construction in progress 3,581, ,022, Accumulated depreciation (59,151,850.00) (55,878,182.00) Land and easements 2,271, ,271, Total noncurrent assets 106,780, ,846, Total assets 127,800, ,950, Deferred Outflows of Resources Deferred outflows from pensions 267, , Total deferred outflows of resources 267, , continued- The accompanying notes are an integral part of these financial statements. 1

110 CITY OF CARTERSVILLE, GEORGIA WATER AND SEWER FUND COMPARATIVE STATEMENTS OF NET POSITION FEBRUARY 28, 2018 and 2017 (unaudited) Liabilities Current liabilities: Accounts payable $ 184, $ 184, Accrued wages and withholdings 92, , Customer deposits 294, , Retainage payable 76, , Accrued interest payable 25, , Interfund payable - - Capital lease payable, current portion - 19, Note payable, current portion 765, , Compensated absences, current portion 92, , Bonds payable, current portion 1,600, ,620, Total current liabilities 3,130, ,094, Long-term liabilities: Compensated absences 33, , Net pension liability 3,492, ,732, OPEB liability 651, , Note payable 1,600, ,365, Bonds payable 5,020, ,620, Total long-term liabilities 10,798, ,215, Total liabilities 13,929, ,310, Deferred Inflows of Resources Deferred inflows from pensions 213, , Total deferred inflows of resources 213, , Net Position Net investment in capital assets 97,795, ,466, Restricted Debt service 576, , Unrestricted 15,553, ,542, Total net position $ 113,925, $ 107,908, The accompanying notes are an integral part of these financial statements. 2

111 CITY OF CARTERSVILLE, GEORGIA WATER AND SEWER FUND COMPARATIVE STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION FOR THE PERIODS ENDED FEBRUARY 28, 2018 and 2017 (unaudited) Operating Revenues Charges for services $ 12,036, $ 11,530, Fees 590, , Other revenues 41, , Total operating revenues 12,668, ,157, Operating Expenses Cost of sales and service 5,199, ,288, Administrative expense 313, , Depreciation expense 2,187, ,171, Total operating expenses 7,700, ,773, Operating income 4,968, ,383, Nonoperating Revenues (Expenses) Interest revenue 15, , Interest expense (141,112.00) (206,393.00) Increase (Decrease) in fair value of investments - (34,483.00) Total nonoperating revenues (expenses) (125,571.00) (212,944.00) Income before transfers 4,842, ,170, Transfers out (198,877.00) (250,174.00) Change in net position 4,643, ,920, Net position - beginning of year 109,282, ,988, Net position - end of year $ 113,925, $ 107,908, The accompanying notes are an integral part of these financial statements. 3

112 CITY OF CARTERSVILLE, GEORGIA WATER AND SEWER FUND COMPARATIVE STATEMENTS OF CASH FLOWS FOR THE PERIODS ENDED FEBRUARY 28, 2018 and 2017 (unaudited) Cash Flows From Operating Activities Cash received from customers and users $ 12,681,976 $ 12,461,177 Cash payments to employees (2,305,356) (2,211,324) Cash payments to suppliers (3,949,938) (3,519,901) Net cash provided by operating activities 6,426,682 6,729,952 Cash Flows from Noncapital Financing Activities Transfers from other funds - 49,342 Transfers to other funds (198,877) (250,174) Net cash used in noncapital financing activities (198,877) (200,832) Cash Flows from Capital and Related Financing Activities Principal payments on note payable (755,000) (745,000) Principal payments on capital leases payable (19,799) (19,798) Principal payments on bonds payable (2,620,000) (2,530,000) Acquisition and construction of capital assets (2,133,505) (809,736) Interest paid (248,775) (346,490) Net cash used in capital and related financing activities (5,777,079) (4,451,024) Cash Flows from Investing Activities Interest received 15,541 27,932 Increase (Decrease) in fair value of investments - (34,483) Net cash provided by investing activities 15,541 (6,551) Net increase in cash and cash equivalents 466,267 2,071,545 Cash and cash equivalents, beginning of period 18,659,551 14,289,378 Cash and cash equivalents, end of period $ 19,125,818 $ 16,360,923 Classified as: Cash and cash equivalents $ 11,172,022 $ 8,284,272 Restricted cash and cash equivalents 7,953,796 8,076,651 Total $ 19,125,818 $ 16,360,923 -continued- The accompanying notes are an integral part of these financial statements. 4

113 CITY OF CARTERSVILLE, GEORGIA WATER AND SEWER FUND COMPARATIVE STATEMENTS OF CASH FLOWS FOR THE PERIODS ENDED FEBRUARY 28, 2018 and 2017 (unaudited) Reconciliation of operating income to net cash provided by operating activities: Operating income $ 4,968,106 $ 4,383,851 Adjustments to reconcile to operating income to net cash provided by operating activities Depreciation 2,187,187 2,171,983 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable 8, ,809 Increase (decrease) in: Accounts payable (731,515) (131,139) Accrued wages and withholdings (4,526) 2,800 Customer deposits 4,675 9,826 Compensated absences (6,151) (1,178) Net Cash Provided by operating activities $ 6,426,682 $ 6,729,952 Noncash investing, capital and financing activities Acquisition and construction of capital assets in accounts payable 111,416 42,455 Total noncash investing, capital, and financing activities $ 111,416 $ 42,455 The accompanying notes are an integral part of these financial statements. 5

114 City of Cartersville, Georgia Water and Sewer Fund Notes to the Financial Statements For the Period Ending February 28, 2018 Note 1: Summary of Significant Accounting Policies The financial statements of the water and sewer fund have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The more significant of the accounting policies are described below. 1. Reporting entity and measurement focus The water and sewer fund, an enterprise fund of the City of Cartersville, Georgia, is used to account for the activities necessary to provide water and sewer services to customers. As a proprietary fund it distinguishes between operating revenues and expenses and non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operations. Operating revenues are charges for goods and services provided and operating expenses include the cost of these goods and services, administrative expenses and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. 2. Financial Statement Presentation Cash Cash and cash equivalents include cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. Any investment or deposit in excess of federal depository insured amounts must be collateralized by an equivalent amount of U. S. obligations. Cash and deposits are reported at carrying amount, which reasonably estimates fair value. Investments are stated at fair value based on published quoted market prices. Accounts Receivable All receivables for the fund are shown net of an allowance for uncollectible. All receivables past due for more than 90 days comprise the allowance for uncollectible. Restricted Assets Cash accounts that are restricted for construction, debt service or as specified by the resource are reported as restricted cash. The revenue bond covenant accounts are used to segregate resources accumulated for debt service payments over the next twelve months and to report 6

115 City of Cartersville, Georgia Water and Sewer Fund Notes to the Financial Statements For the Period Ending February 28, 2018 resources set aside to cover the highest debt service requirement in any subsequent sinking fund year. The renewal and replacement account is used to report resources set aside to meet unexpected contingencies or to fund asset renewals and replacements. Inventory Inventories are valued at cost, which approximates market, using the first-in/first-out (FIFO) method and are expensed when used (consumption method). Capital Assets Property, buildings, equipment and utility systems with useful lives of more than one year and a cost of more than five thousand dollars are capitalized and depreciated. All capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Donated capital assets and capital assets received in a service concession agreement are valued at their acquisition value. Capital assets are depreciated using the straight-line method. When assets are disposed, the cost and related accumulated depreciation are removed from the accounts and the resulting gain/loss is recorded. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Capital assets are depreciated using the straight line method over the following useful lives: Asset Category Years Land improvements 25 Equipment 3-10 Buildings Utility System Meters and settings Mains and lines Long-term Obligations Outstanding debt and other obligations are reported as a liability in the financial statements. Deferred Outflows/Inflows of Resources In addition to assets, the statement of financial position reports a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow (expense) of resources until that time. 7

116 City of Cartersville, Georgia Water and Sewer Fund Notes to the Financial Statements For the Period Ending February 28, 2018 In addition to liabilities, the statement of financial position reports a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources(revenue) until that time. Compensated absences The liability for accumulated unpaid vacation pay and other salary related benefits has been accrued in the statement of net position. Fund equity Net position represents the difference between assets and liabilities in the report which uses the economic resources measurement focus. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balance of any borrowing used for the acquisition, construction or improvement of those assets. Net position is reported as restricted for limitations imposed on use either through enabling legislation adopted by the City Council or through external restrictions imposed by creditors, grantor or laws or regulations of other governments. All other net position is reported as unrestricted. Subsequent events The City has performed an evaluation of subsequent events through April4, 2018, which is the date the financial statements were available. Note 2: Deposits and Investments The City has adopted investment policies but they do not address any of the following specific reporting disclosures: Custodial Credit Risk Deposits is the risk that in the event of failure of financial institution the City s deposits or collateral securities may not be recovered. State statutes require all deposits and investments to be collateralized by depository insurance, obligations of the U. S. government, or bonds of public authorities, counties or municipalities. As of February 28, 2018, deposits were fully collateralized in compliance with state requirements. At February 28, 2018 the Water and Sewer cash and investments is as follows: Cash and cash equivalents $ 11,172,022 Restricted cash and cash equivalents 7,953,796 Total cash and cash equivalents $ 19,125,818 Cash deposits in financial institutions $ 19,125,818 8

117 City of Cartersville, Georgia Water and Sewer Fund Notes to the Financial Statements For the Period Ending February 28, 2018 Note 3: Capital Assets The following is a summary of capital asset activity as of February 28, 2018: Water and Sewer fund Beginning Balance Increases Decreases Ending Balance Capital assets not being depreciated: Land $ 2,271,012 $ - $ - $ 2,271,012 Construction in progress 1,378,956 2,202,901-3,581,857 Capital assets being depreciated Buildings 1,225, ,225,576 Utility System 154,819, ,819,895 Machinery and Equipment 3,915, ,572-4,034,257 Total assets being depreciated 159,961, , ,079,728 Less accumulated depreciation for: Buildings 564,710 21, ,801 Utility System 52,971,361 2,098,914-55,070,275 Machinery and Equipment 3,428,592 67,182-3,495,774 Total accumulated depreciation 56,964,663 2,187,187-59,151,850 Water & Sewer fund capital assets, net $ 106,646,461 $ 134,286 $ - $ 106,780,747 Note 4: Long-Term Debt Revenue Bonds The water and sewer fund issues bonds where it pledges income derived from the acquired or constructed assets to pay debt service. At February 28, 2018 revenue bonds outstanding are as follows: Series 2012 $6,620,000 Water and Sewer Revenue Bonds, due in semi-annual installments of $795,000 to $860,000 through January 1, 2022, plus interest of 2.19% $ 6,620,000 The following schedule presents remaining debt service requirements to maturity for water and sewer revenue bonds as of February 28, 2018: 9

118 City of Cartersville, Georgia Water and Sewer Fund Notes to the Financial Statements For the Period Ending February 28, 2018 Year ending June 30 Principal Interest Total 2018 $ - $ - $ ,600, ,273 1,736, ,640, ,014 1,741, ,670,000 64,934 1,734, ,710,000 28,141 1,738,141 $ 6,620,000 $ 330,362 $ 6,950,362 Note Payable The water and sewer fund has a note payable to the Cartersville Building Authority. At February 28, 2018 note payable outstanding is as follows: Note payable to Cartersville Building Authority, due in semi-annual installments of $370,000 to $390,000 through August 1, 2021, plus interest of 1.20% $ 2,365,000 The following schedule presents debt service requirements to maturity for water and sewer note payable as of February 28, 2018: Year ending June 30 Principal Interest Total 2018 $ - $ - $ ,000 26, , ,000 16, , ,000 7, , , ,300 $ 2,365,000 $ 50,910 $ 2,415,910 Capital Leases The water and sewer fund entered into lease agreements as lessee for financing the acquisition of vehicles and other equipment. The agreements qualified as capital leases for accounting purposes (titles transfer at the end of the lease terms) and, therefore, have been recorded at the present value of the future minimum lease payments as of the date the equipment was acquired. The water and sewer fund had no outstanding leases as of February 28,

119 City of Cartersville, Georgia Water and Sewer Fund Notes to the Financial Statements For the Period Ending February 28, 2018 Changes in Long-term Liabilities The following is a summary of long-term debt activity for the period ended February 28, 2018: Beginning Balance Increases Decreases Ending Balance Due Within one Year Water & Sewer fund Revenue bonds $ 9,240,000 $ - $ (2,620,000) $ 6,620,000 $ 1,600,000 Capital leases 19,799 - (19,799) - - Note payable 3,120,000 - (755,000) 2,365, ,000 Net pension liability 3,492, ,492,616 - OPEB liability 651, ,833 - Compensated Absences 131,992 81,155 (87,306) 125,841 92,000 Total long-term liabilities $ 16,656,240 $ 81,155 $ (3,482,105) $ 13,255,290 $ 2,457,000 Note 5: Commitments and Contingencies Litigation The City is involved in a number of legal matters, which have or could result in litigation. The nature of the lawsuits varies considerably. Liability, if any, which might result from these proceedings, would not, in the opinion of management and legal counsel, have a material effect on the financial position of the City. The Water and Sewer fund is not involved in any legal matters, which have or could result in litigation. Construction Commitments At February 28, 2018, the Water and Sewer fund had open contracts for utility system improvements with original contract amounts totaling $2,297,419 and remaining commitments of $909,

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121 APPENDIX B SUMMARY OF THE BOND ORDINANCE This Appendix B has been prepared by Nelson Mullins Riley & Scarborough LLP, Atlanta, Georgia, Bond Counsel. The ordinance adopted by the City Council of the City on April 19, 2018, as ratified, reaffirmed, supplemented, and amended by ordinance adopted by the City Council of the City on, 2018, is a contract for the benefit of the owners of the Bonds which specifies the terms and details of the Series 2018 Bonds and which defines the security for the Series 2018 Bonds. The following is a summary, which does not purport to be comprehensive or definitive, of certain provisions of the Bond Ordinance. Other provisions of the Bond Ordinance are described in this Official Statement under the captions SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2018 BONDS - Pledge of Revenues, SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2018 BONDS - Funds Created by the Bond Ordinance and Flow of Funds, and SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2018 BONDS - Rate Covenant. Reference is made to the Bond Ordinance in its entirety for a complete recital of the detailed provisions thereof, copies of which are available from the City upon request. [Remainder of Page Intentionally Left Blank]

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123 SUMMARY OF THE BOND ORDINANCE Definitions Certain words and terms used in this Official Statement are defined herein. In addition to the words and terms defined elsewhere herein, the following words and terms are defined terms in this Official Statement. Accreted Value means, with respect to each Compound Interest Bond, the principal amount of such Compound Interest Bond, plus, on the date of calculation, the interest accrued thereon to such date compounded at the interest rate thereof on each compounding date contained in such Compound Interest Bond, and, with respect to any calculation on a date other than a compounding date, the Accreted Value means the Accreted Value as of the preceding compounding date plus interest on such amount from such compounding date to the date of calculation at a rate equal to the interest rate on such Compound Interest Bond. Additional Interest means, for any period during which any Pledged Bonds are owned by a Liquidity Facility Issuer pursuant to a Liquidity Facility or Liquidity Facility Agreement, the amount of interest accrued on such Pledged Bonds at the Pledged Rate less the amount of interest that would have accrued during such period on an equal principal amount of Bonds at the Bond Rate. Annual Budget means the annual budget of the City relating to the System (which includes all costs, obligations, and expenses properly allocable to the System), as amended or supplemented in accordance with established procedures of the City, adopted or in effect for a particular Fiscal Year. Balloon Bonds means any series of Bonds 25% or more of the original principal amount of which (i) is due in any 12-month period or (ii) may, at the option of the Bondholders, be required to be redeemed, prepaid, purchased directly or indirectly by the City, or otherwise paid in any 12-month period; provided that, in calculating the principal amount of such Bonds due or required to be redeemed, prepaid, purchased, or otherwise paid in any 12-month period, such principal amount will be reduced to the extent that all or any portion of such amount is required to be redeemed or amortized prior to such 12-month period. Balloon Date means any Principal Maturity Date or Put Date on which more than 25% of the original principal amount of related Balloon Bonds mature or are subject to mandatory redemption or could, at the option of the Bondholders, be required to be redeemed, prepaid, purchased directly or indirectly by the City, or otherwise paid. Bond Counsel means any firm of nationally recognized bond counsel experienced in matters relating to taxexempt financing appointed by the City. Bondholder means the registered owner of one or more Bonds. Bond Ordinance means the Master Bond Ordinance as it may from time to time be modified, supplemented, or amended by Supplemental Ordinances. Bond Rate means the rate of interest per annum payable on specified Bonds other than Pledged Bonds. Bond Register means the registration books maintained and to be maintained by the Bond Registrar. Bond Registrar means any bank or trust company designated as such by the City in the Bond Ordinance with respect to any of the Bonds. Such Bond Registrar will perform the duties required of the Bond Registrar in the Bond Ordinance. U.S. Bank National Association, Atlanta, Georgia, has been designated as Bond Registrar for the Series 2018 Bonds. Bonds means any revenue bonds authorized by and authenticated and delivered pursuant to the Bond Ordinance, including the Series 2018 Bonds, any Parity Bonds, and any Subordinate Bonds. Bond Year means a twelve month period beginning on June 2 of each year and ending on the next succeeding June 1. Book Value means the value of the real property and the personal property comprising the System, net of accumulated depreciation and amortization, as reflected in the most recent audited financial statements of the System that have been prepared in accordance with generally accepted accounting principles. Capitalized Interest Account means the Capitalized Interest Account within the Sinking Fund established in the Bond Ordinance. B-1

124 Chief Officer means the individual presently holding the office of Mayor of the City and any successor who might hereafter hold such office, and any individual, body, or authority to whom or which may hereafter be delegated by law the duties, powers, authority, obligations, or liabilities of such office. City means the City of Cartersville, Georgia, a municipal corporation created and existing under the laws of the State. Code means the Internal Revenue Code of 1986, as amended, and any regulations promulgated or applicable thereunder. Commitment, when used with respect to Balloon Bonds, means a binding written commitment from a financial institution, surety, or insurance company to refinance such Bonds on or prior to any Balloon Date thereof, including without limitation any Liquidity Facility for such Bonds. Compound Interest Bonds means Bonds that bear interest which is calculated based on periodic compounding, payable only at maturity or earlier redemption. Consultant means a firm of engineers or utility consultants experienced in the planning and management of water systems and having a recognized reputation for such work. Costs, with respect to any Project, means the total cost, paid or incurred, to study, plan, design, finance, acquire, construct, reconstruct, install, or otherwise develop the Project and will include, but will not be limited to, the following costs and expenses relating to such Project and the reimbursement to the City for any such items previously paid by the City: (i) the cost of all lands, real or personal properties, rights, easements, and franchises acquired; (ii) the cost of all machinery and equipment, financing charges, and interest prior to and during construction and for six months after completion of construction; (iii) the cost of the acquisition, construction, reconstruction, or installation of any Project; (iv) the cost of engineering, architectural, development, and supervisory services, fiscal agents' and legal expenses, plans and specifications, and other expenses necessary or incident to determining the feasibility or practicability of any Projects, administrative expenses, and such other expenses as may be necessary or incident to any financing by Bonds; (v) (vi) the cost of placing any Project in operation; the cost of condemnation of property necessary for such construction and operation; (vii) the costs of issuing any Bonds to finance any Project or to refund any Bonds; and (viii) any other costs that may be incident to any Project. Credit Facility means any letter of credit, insurance policy, guaranty, surety bond, or similar obligation, arrangement, or instrument issued by a bank, insurance company, or other financial institution that is used by the City to enhance the City's credit by assuring owners of any of the Bonds that principal of and interest on such Bonds will be paid promptly when due. The term Credit Facility does not include a Reserve Account Credit Facility. Credit Facility Agreement means an agreement between the City and a Credit Facility Issuer pursuant to which the Credit Facility Issuer issues a Credit Facility and may include the promissory note or other instrument evidencing the City's obligations to a Credit Facility Issuer pursuant to a Credit Facility Agreement. The term Credit Facility Agreement does not include a Reserve Account Credit Facility. Credit Facility Issuer means any issuer of a Credit Facility then in effect for all or part of the Bonds. The term Credit Facility Issuer does not include any Reserve Account Credit Facility Provider. Whenever in the Bond Ordinance the consent of the Credit Facility Issuer is required, such consent will only be required from the Credit Facility Issuer whose Credit Facility is issued with respect to the Bonds for which the consent is required. Current Interest Bonds means those Bonds that are not Compound Interest Bonds. B-2

125 Debt Service Requirement means the total principal and interest coming due, whether at maturity or upon mandatory redemption, in any specified period. If any Bonds Outstanding or proposed to be issued bear interest at a Variable Rate, the interest coming due in any specified future period will be determined as if the Variable Rate in effect at all times during such future period equaled, at the option of the City, either (1) the average of the actual Variable Rates that were in effect (weighted according to the length of the period during which each such Variable Rate was in effect) for the most recent twelve-month period immediately preceding the date of calculation for which such information is available (or shorter period if such information is not available for a twelve-month period), or (2) the current average annual long-term fixed rate of interest on securities of similar quality having a similar maturity date as certified by a Financial Advisor. If any Compound Interest Bonds are Outstanding or proposed to be issued, the total principal and interest coming due in any specified period will be determined, with respect to such Compound Interest Bonds, by Series Ordinance of the City authorizing such Compound Interest Bonds. With respect to any Bonds secured by a Financial Facility, Debt Service Requirement includes (i) any commission or commitment fee obligations with respect to such Financial Facility, (ii) the outstanding amount of any Reimbursement Obligation owed to the relevant Financial Facility Issuer and interest thereon, (iii) any Additional Interest owed on Pledged Bonds to a Liquidity Facility Issuer, and (iv) any remarketing agent fees. With respect to any Hedged Bonds, the interest on such Hedged Bonds during any Hedge Period and for so long as the provider of the related Hedge Agreement has not defaulted on its payment obligations thereunder will be calculated by adding (x) the amount of interest payable by the City on such Hedged Bonds pursuant to their terms and (y) the amount of Hedge Payments payable by the City under the related Hedge Agreement and subtracting (z) the amount of Hedge Receipts payable by the provider of the related Hedge Agreement at the rate specified in the related Hedge Agreement; provided, however, that to the extent that the provider of any Hedge Agreement is in default thereunder, the amount of interest payable by the City on the related Hedged Bonds will be the interest calculated as if such Hedge Agreement had not been executed. In determining the amount of Hedge Payments or Hedge Receipts that are not fixed throughout the Hedge Period (i.e., which are variable), payable or receivable for any future period, such Hedge Payments or Hedge Receipts for any period of calculation (the Determination Period ) will be computed by assuming that the variables comprising the calculation (e.g., indices) applicable to the Determination Period are equal to the average of the actual variables that were in effect (weighted according to the length of the period during which each such variable was in effect) for the most recent twelve-month period immediately preceding the date of calculation for which such information is available (or shorter period if such information is not available for a twelve-month period). For the purpose of calculating the Debt Service Requirement on Balloon Bonds (1) which are subject to a Commitment or (2) which do not have a Balloon Date within 12 months from the date of calculation, such Bonds must be assumed to be amortized in substantially equal annual amounts to be paid for principal and interest over an assumed amortization period of 20 years at an assumed interest rate (which must be the interest rate certified by a Financial Advisor to be the interest rate at which the City could reasonably expect to borrow the same amount by issuing Bonds with the same priority of lien as such Balloon Bonds and with a 20- year term); provided, however, that if the maturity of such Bonds (taking into account the term of any Commitment) is in excess of 20 years from the date of issuance, then such Bonds must be assumed to be amortized in substantially equal annual amounts to be paid for principal and interest over an assumed amortization period of years equal to the number of years from the date of issuance of such Bonds to maturity (including the Commitment) and at the interest rate applicable to such Bonds. For the purpose of calculating the Debt Service Requirement on Balloon Bonds (1) which are not subject to a Commitment and (2) which have a Balloon Date within 12 months from the date of calculation, the principal payable on such Bonds on the Balloon Date will be calculated as if paid on the Balloon Date. The principal of and interest on Bonds and Hedge Payments will be excluded from the determination of Debt Service Requirement to the extent that the same were or are expected to be paid with amounts on deposit on the date of calculation (or Bond proceeds to be deposited on the date of issuance of proposed Bonds) in the Project Fund, the Sinking Fund, or a similar fund for Subordinate Bonds. Debt Service Reserve Account means the Debt Service Reserve Account within the Sinking Fund established in the Bond Ordinance. Debt Service Reserve Requirement means an amount equal to the maximum annual Debt Service Requirement with respect to Senior Bonds in the then current or any succeeding Bond Year. Depository means the depository of each fund established under the Bond Ordinance, and any successor depository of such fund hereafter designated by the City from time to time by Supplemental Ordinance. DTC means The Depository Trust Company, New York, New York, or its nominee, or its successors and assigns, or any other depository performing similar functions under the Bond Ordinance. Event of Default means any of the events defined as such in the Bond Ordinance. Expenses of Operation and Maintenance means all expenses reasonably incurred in connection with the operation and maintenance of the System, including salaries, wages, the cost of materials and supplies, rentals of leased property, if any, management fees, payments to others for the purchase of water, if any, and for the treatment and disposal of sewage, the cost of audits, Paying Agent's and Bond Registrar's fees, payment of premiums for insurance B-3

126 required by the Bond Ordinance and other insurance that the City deems prudent to carry on the System and its operations and personnel, and, generally, all expenses, exclusive of interest on the Bonds and depreciation or amortization, that under accounting principles generally accepted for municipal utility purposes are properly allocable to operation and maintenance; however, only such expenses as are reasonably and properly necessary or desirable for the proper operation and maintenance of the System may be included. Expenses of Operation and Maintenance also includes the City's obligations under any contract with any other political subdivision or public agency or authority of one or more political subdivisions pursuant to which the City undertakes to make payments measured by the expenses of operating and maintaining any facility that constitutes part of the System and that is owned or operated in part by the City and in part by others. Financial Advisor means an investment banking or financial advisory firm, commercial bank, or any other Person who or which is appointed by the City for the purpose of passing on questions relating to the availability and terms of specified types of Bonds and is actively engaged in and, in the good faith opinion of the City, has a favorable reputation for skill and experience in underwriting or providing financial advisory services in respect of similar types of securities. Financial Facility means a Credit Facility or a Liquidity Facility. Financial Facility Agreement means a Credit Facility Agreement or a Liquidity Facility Agreement. Financial Facility Issuer means a Credit Facility Issuer or a Liquidity Facility Issuer. Fiscal Year means the 12-month period used by the City for its general accounting purposes, as it may be changed from time to time. The Fiscal Year at the time the Bond Ordinance was adopted began on July 1 of each calendar year and ended on June 30 of the next year. Fitch means Fitch Investors Service, L.P., or, if such limited partnership is dissolved or liquidated or otherwise ceases to perform securities rating services, such other nationally recognized securities rating agency as may be designated in writing by the City. Forecast Period means a period of five consecutive Fiscal Years commencing with the Fiscal Year after the later of (1) the Fiscal Year in which any proposed Parity Bonds are to be issued or (2) the Fiscal Year in which any Project to be financed with the proceeds of any proposed Parity Bonds is expected to be completed. Governing Body means the City Council of the City and any predecessor or successor in office to such present body, and any Person to whom or which may hereafter be delegated by law the duties, powers, authority, obligations, or liabilities of the present body, either in whole or in relation to the System. Government Loans means loans to the City by the government of the United States or the State, or by any department, authority, or agency of either, for the purpose of acquiring, constructing, reconstructing, improving, bettering, or extending any part of the System. Government Obligations means (a) direct obligations of the United States of America for the full and timely payment of which the full faith and credit of the United States of America is pledged or (b) obligations issued by a person controlled or supervised by and acting as an instrumentality of the United States of America, the full and timely payment of the principal of and the interest on which is fully and unconditionally guaranteed as a full faith and credit obligation of the United States of America (including any securities described in (a) or (b) issued or held in book-entry form on the books of the Department of the Treasury of the United States of America), which obligations, in either case, (i) are not subject to redemption or prepayment prior to maturity except at the option of the holder of such obligations and (ii) may include U.S. Treasury Trust Receipts. Hedge Agreement means, without limitation, (i) any contract known as or referred to or which performs the function of an interest rate swap agreement, currency swap agreement, forward payment conversion agreement, or futures contract; (ii) any contract providing for payments based on levels of, or changes or differences in, interest rates, currency exchange rates, or stock or other indices; (iii) any contract to exchange cash flows or payments or series of payments; (iv) any type of contract called, or designed to perform the function of, interest rate floors, collars, or caps, options, puts, or calls, to hedge or minimize any type of financial risk, including, without limitation, payment, currency, rate, or other financial risk; and (v) any other type of contract or arrangement that the City determines is to be used, or is intended to be used, to manage or reduce the cost of any Bonds, to convert any element of any Bonds from one form to another, to maximize or increase investment return, to minimize investment return risk, or to protect against any type of financial risk or uncertainty. 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127 Hedged Bonds means any Bonds for which the City has entered into a Hedge Agreement. Hedge Payments means amounts payable by the City pursuant to any Hedge Agreement, other than termination payments, fees, expenses, and indemnity payments. Hedge Payments Account means the Hedge Payments Account within the Sinking Fund established in the Bond Ordinance. Hedge Period means the period during which a Hedge Agreement is in effect. Hedge Receipts means amounts payable by any provider of a Hedge Agreement pursuant to such Hedge Agreement, other than termination payments, fees, expenses, and indemnity payments. Independent Certified Public Accountant means a certified public accountant, or a firm of certified public accountants, who or which is independent as that term is defined in Rule 101 and related interpretations of the Code of Professional Ethics of the American Institute of Certified Public Accountants, of recognized standing, who or which does not devote his or its full time to the City (but who or which may be regularly retained by the City). Institutional Bonds means any whole series of Bonds initially purchased for investment purposes and not with a view to distribution by a single institutional investor and designated as such pursuant to the Bond Ordinance. Interest Account means the Interest Account within the Sinking Fund established in the Bond Ordinance. Interest Payment Date means each date on which interest is to become due on any Bonds, as established in the Series Ordinance for such Bonds. Investment Earnings means all interest received on and profits derived from investments made with Pledged Revenues or any moneys in the funds and accounts established under the Bond Ordinance. Liquidity Facility means any letter of credit, standby bond purchase agreement, line of credit, revolving credit agreement, or similar obligation, arrangement, or instrument issued by a bank, insurance company, or other financial institution that is used by the City to perform one or more of the following tasks: (i) providing liquidity for the owners of Bonds through undertaking to cause Bonds to be bought from the owners thereof when submitted pursuant to an arrangement prescribed by a Series Ordinance; or (ii) remarketing any Bonds so submitted to the Liquidity Facility Issuer (whether or not the same Liquidity Facility Issuer is remarketing the Bonds). Liquidity Facility Agreement means an agreement between the City and a Liquidity Facility Issuer pursuant to which the Liquidity Facility Issuer issues a Liquidity Facility and may include the promissory note or other instrument evidencing the City's obligations to a Liquidity Facility Issuer pursuant to a Liquidity Facility Agreement. Liquidity Facility Issuer means any issuer of a Liquidity Facility then in effect for all or part of the Bonds. Minimum Renewal and Extension Funding Amount means an amount equal to the sum of (1) amounts budgeted by the City to be paid from the Renewal and Extension Fund for capital improvements to the System during the then current Fiscal Year and (2) five percent (5%) of Operating Revenues (excluding for purposes of this calculation capacity fees) for the immediately preceding Fiscal Year. For purposes of this definition, Operating Revenues (1) may be determined from unaudited financial statements of the System until the audited financial statements of the System required by the Bond Ordinance become available and (2) must be determined from the audited financial statements of the System required by the Bond Ordinance after they become available. Moody's means Moody's Investor Services, Inc. or, if such corporation is dissolved or liquidated or otherwise ceases to perform securities rating services, such other nationally recognized securities rating agency as may be designated in writing by the City. Net Operating Revenues means Operating Revenues, after provision for payment of all Expenses of Operation and Maintenance. Operating Revenues means all income and revenue of any nature derived from the operation of the System, including monthly water and sewage billings, service charges, other charges for water and sewage service and the availability thereof (other than any special assessment proceeds), connection or tap fees (whether accounted for as revenues or as contributed capital), hydrant rentals, and local, state, or federal grants or other moneys received for capital improvements to the System and excluding Investment Earnings. B-5

128 Other System Obligations means obligations of any kind, including but not limited to, Government Loans, revenue bonds, capital leases, installment purchase agreements, or notes (but excluding Bonds and related obligations to Financial Facility Issuers, Reserve Account Credit Facility Providers, and Qualified Hedge Providers), incurred or issued by the City to finance or refinance the cost of acquiring, constructing, reconstructing, improving, bettering, or extending any part of the System. Outstanding means, when used in reference to the Bonds, all Bonds that have been duly authenticated and delivered under the Bond Ordinance, with the exception of (a) Bonds in lieu of which other Bonds have been issued under agreement to replace lost, mutilated, stolen, or destroyed obligations, (b) Bonds surrendered by the owners in exchange for other Bonds under the Bond Ordinance, and (c) Bonds for the payment of which provision has been made in accordance with the Bond Ordinance. In determining the amount of Compound Interest Bonds Outstanding under the Bond Ordinance, the Accreted Value of such Compound Interest Bonds at the time of determination must be used. Parity Bonds means Bonds issued with a right to payment and secured by a lien on a parity with the Prior Bonds. Paying Agent means any bank or trust company authorized by the City in the Bond Ordinance to pay the principal of, premium, if any, or interest on any Bonds on behalf of the City. Such Paying Agent will perform the duties required of the Paying Agent in the Bond Ordinance. There will be no Paying Agent for Institutional Bonds. U.S. Bank National Association, Atlanta, Georgia, has been designated as Paying Agent for the Series 2018 Bonds. Permitted Investments means obligations in which the City is permitted to invest moneys of the City pursuant to applicable law that have (or are collateralized by obligations that have) a Rating by any Rating Agency which is equal to or greater than the third highest long-term Rating of such Rating Agency, or that bears (or are collateralized by obligations that bear) the second highest short-term Rating of such Rating Agency. As of the date of adoption of the Bond Ordinance, obligations in which the City is permitted to invest proceeds of Bonds are described in Section of the Official Code of Georgia Annotated. Person or person means any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust, unincorporated organization, body, authority, government, or agency or political subdivision thereof. Pledged Bond means any Bond purchased and held by a Liquidity Facility Issuer pursuant to a Liquidity Facility Agreement. A Bond will be deemed a Pledged Bond only for the actual period during which such Bond is owned by a Liquidity Facility Issuer pursuant to a Liquidity Facility Agreement. Pledged Bond Rate means the rate of interest payable on Pledged Bonds, as may be provided in a Liquidity Facility or Liquidity Facility Agreement. Pledged Revenues means Operating Revenues, Investment Earnings, Hedge Receipts, and all moneys paid or required to be paid into, and all moneys and securities on deposit from time to time in, the funds and accounts specified in the Bond Ordinance, but excluding any amounts required in the Bond Ordinance to be set aside pending, or used for, rebate to the United States government pursuant to Section 148(f) of the Code, including, but not limited to, amounts in the Rebate Fund. The term principal means the principal amount of any Bond and includes the Accreted Value of any Compound Interest Bonds. All references to principal will be construed as if they were also references to Accreted Value with respect to Compound Interest Bonds. Principal Account means the Principal Account within the Sinking Fund established in the Bond Ordinance. Principal Maturity Date means each date on which principal becomes due on any Bonds, by maturity or mandatory sinking fund redemption, as established in the Series Ordinance for such Bonds. Prior Bond means the City s Water and Sewerage Revenue Bond, Series 2012, issued in the original principal amount of $6,620,000 pursuant to the Prior Ordinance. Prior Ordinance means the ordinance adopted by the City on November 21, 1984, as modified, supplemented, and amended by ordinances adopted by the City on August 25, 1988, January 26, 1989, February 23, 1989, August 8, 1991, November 11, 1993, May 9, 1996, May 16, 1996, and April 23, 1998 and resolutions adopted by the City on May 11, 1998, November 16, 2000, August 18, 2005, August 16, 2007, April 2, 2009, and April 19, 2012, authorizing the issuance and delivery of the Prior Bond. Project means the acquisition, construction, reconstruction, improvement, betterment, extension, or equipping of the System, in whole or in part, with the proceeds of any Bonds. B-6

129 Project Fund means the City of Cartersville, Georgia Water and Sewer Project Fund established in the Bond Ordinance. Projected Senior Interest Payment means that sum, redetermined by the City monthly, which would have to be accumulated in the Interest Account by the next Interest Payment Date to pay interest on Senior Bonds that bear interest at a Variable Rate if such Variable Rate should continue to equal the rate borne by such Senior Bonds on the date of calculation. Put Date means any date on which a Bondholder may elect to have Balloon Bonds redeemed, prepaid, purchased directly or indirectly by the City, or otherwise paid. Qualified Hedge Provider means an entity whose senior unsecured long-term obligations, financial program rating, counterparty rating, or claims-paying ability, or whose payment obligations under the related Hedge Agreement are absolutely and unconditionally guaranteed by an entity whose senior unsecured long-term obligations, financial program rating, counterparty rating, or claims-paying ability, are rated either (i) at least as high as the middle range of the third highest rating category of each Rating Agency, but in no event lower than any Rating on the related Hedged Bonds at the time of execution of the Hedge Agreement or (ii) in any such lower Rating that each Rating Agency indicates in writing to the City will not, by itself, result in a reduction or withdrawal of its Rating on the related Hedged Bonds that is in effect prior to entering into the Hedge Agreement. An entity's status as a Qualified Hedge Provider is determined only at the time the City enters into a Hedge Agreement with such entity and cannot be redetermined with respect to that Hedge Agreement. Rating means a rating in one of the categories by a Rating Agency, disregarding pluses, minuses, and numerical gradations. Rating Agencies or Rating Agency means Fitch, Moody's, and S&P or any successors thereto and any other nationally recognized credit rating agency then maintaining a rating on any Bonds at the request of the City. If at any time a particular Rating Agency does not have a rating outstanding with respect to the relevant Bonds, then a reference to Rating Agency or Rating Agencies will not include such Rating Agency. Rebate Fund means the City of Cartersville, Georgia Water and Sewer Rebate Fund, established in the Bond Ordinance. Record Date means, with respect to any semiannual Interest Payment Date for Bonds other than Institutional Bonds, the 15th day of the calendar month immediately preceding such Interest Payment Date, and, for any Bonds other than Institutional Bonds paying interest other than semiannually, any record dates designated by the City in a Series Ordinance. There will be no Record Dates for Institutional Bonds. Reimbursement Obligation means the obligation of the City to directly reimburse any Financial Facility Issuer for amounts paid by such Financial Facility Issuer under a Financial Facility, whether or not such obligation to so reimburse is evidenced by a promissory note or other similar instrument. Renewal and Extension Fund means the City of Cartersville, Georgia Water and Sewer Renewal and Extension Fund established in the Bond Ordinance. Reserve Account Credit Facility means the letter of credit, insurance policy, line of credit, or surety bond, together with any substitute or replacement therefor, if any, complying with the provisions of the Bond Ordinance, thereby fulfilling all or a portion of the Debt Service Reserve Requirement. Reserve Account Credit Facility Provider means any provider of a Reserve Account Credit Facility. Revenue Fund means the City of Cartersville, Georgia Water and Sewer Revenue Fund established in the Bond Ordinance. S&P means S&P Global Ratings, a division of S&P Global Inc., or, if such corporation is dissolved or liquidated or otherwise ceases to perform securities rating services, such other nationally recognized securities rating agency as may be designated in writing by the City. Senior Bonds means the Prior Bonds and any Parity Bonds. Senior Hedge Agreements means Hedge Agreements relating to Hedged Bonds that are Senior Bonds. Series 2018 Bonds means the City s Water and Sewer Revenue Bonds, Series 2018, in the original aggregate principal amount not to exceed $56,595,000*, authorized under the Bond Ordinance. B-7

130 Series 2018 Registrar and Paying Agent Agreement means the Registrar and Paying Agent Agreement, to be dated the date of its execution and delivery, between the City and U.S. Bank National Association, relating to the Series 2018 Bonds, as amended, modified, or replaced. Series Ordinance means a bond ordinance or bond ordinances of the City (which may be supplemented by one or more bond ordinance(s)) to be adopted prior to and authorizing the issuance and delivery of any series of Bonds. The Master Bond Ordinance constitutes the Series Ordinance for the Series 2018 Bonds, as well as a Master Bond Ordinance for Parity Bonds and Subordinate Bonds. Such a bond ordinance as supplemented must establish the date or dates of the pertinent series of Bonds, the schedule of maturities of such Bonds, whether any such Bonds will be Institutional Bonds, whether any such Bonds will be Compound Interest Bonds, the name of the purchaser(s) of such series of Bonds, the purchase price thereof, the rate or rates of interest to be borne thereby, whether fixed or variable, the interest payment dates for such Bonds, the terms and conditions, if any, under which such Bonds may be made subject to redemption (mandatory or optional) prior to maturity, the form of such Bonds, and such other details as the City may determine. Sinking Fund means the City of Cartersville, Georgia Water and Sewer Sinking Fund established in the Bond Ordinance. State means the State of Georgia. Subordinate Bonds means any Bonds issued with a right to payment from the Pledged Revenues and secured by a lien on the Pledged Revenues expressly junior and subordinate to the Senior Bonds. Subordinate Hedge Agreements means Hedge Agreements relating to Hedged Bonds that are Subordinate Bonds. Supplemental Ordinance means (a) any Series Ordinance and (b) any modification, amendment, or supplement to the Bond Ordinance other than a Series Ordinance. System means the combined drinking water and sanitary sewer system of the City, as it now exists and as it may be hereafter added to, extended, improved, and equipped, either from the proceeds of the Bonds or from any other sources at any time hereafter, including, without limitation, (a) all wells, pumping stations, purification plants, and other sources of supply of water and all pipes, mains, and other parts of the facilities for the distribution of water and all equipment and property used in connection therewith, (b) all sanitary sewers, all wastewater disposal and treatment plants, all pumping stations, and all equipment used in connection therewith, all facilities for the collection, treatment, and disposal of sewage and wastewater, including industrial wastes; and (c) all other facilities or property of any nature or description, real or personal, tangible or intangible, now or hereafter owned or used by the City in the supply, treatment, and distribution of water and in the collection, treatment, and disposal of sewage. The City may own a partial interest in any drinking water facility or sanitary sewer facility, the remaining interest in which may be owned by or on behalf of a political subdivision of the State or any agency or authority thereof. In case of such ownership, the rights and interests possessed by the City in such facility are included as part of the System. Tax-Exempt Bonds means any Bonds the interest on which has been determined, in an unqualified opinion of Bond Counsel, to be excludable from the gross income of the owners thereof for federal income tax purposes. Term Bonds means Bonds that mature on one Principal Maturity Date yet a portion of which are required to be redeemed, prior to maturity, under a schedule of mandatory redemptions established by the Bond Ordinance. U.S. Treasury Trust Receipts means receipts or certificates which evidence an undivided ownership interest in the right to the payment of portions of the principal of or interest on obligations described in clauses (a) or (b) of the term Government Obligations, provided that such obligations are held by a bank or trust company organized under the laws of the United States acting as custodian of such obligations, in a special account separate from the general assets of such custodian. Variable Rate means a rate of interest applicable to the Bonds, other than a fixed rate of interest which applies to a particular maturity of Bonds so long as that maturity of Bonds remains Outstanding. B-8

131 Pledge of Revenues Under the terms of the Bond Ordinance, all Pledged Revenues are pledged to the prompt payment of the principal of, premium, if any, and interest on the Bonds. Such moneys and securities will immediately be subject to the lien of this pledge for the benefit of the Bondholders without any physical delivery thereof or further act, and the lien of this pledge will be valid and binding against the City and against all other persons having claims against the City, whether such claims have arisen in tort, contract, or otherwise, and regardless of whether such persons have notice of the lien of this pledge. Under the terms of the Bond Ordinance, this pledge will rank superior to all other pledges that may hereafter be made of any of the Pledged Revenues, except for pledges of the Pledged Revenues hereafter made by the City in the Hedge Agreements to secure Hedge Payments, which may rank on a parity with this pledge as to the related Hedged Bonds. The lien of the pledge made in the Bond Ordinance does not secure any obligation of the City other than the Bonds. Investments Moneys in the funds and accounts established under the Bond Ordinance must be invested and reinvested in Permitted Investments bearing interest at the highest rates reasonably available (except to the extent that a restricted yield is required or advisable under Section 148 of the Code). Moneys in the Revenue Fund may be invested by the City in Permitted Investments maturing within 90 days from the date of purchase. Moneys in the Interest Account and the Capitalized Interest Account may be invested by the City in Permitted Investments maturing or redeemable at the option of the holder prior to the next Interest Payment Date, but whenever prior to any Interest Payment Date the aggregate of the available moneys in such accounts exceeds the amount necessary to pay interest falling due on such Interest Payment Date, such excess may be invested in Permitted Investments maturing or redeemable at the option of the holder prior to the next following Interest Payment Date. Moneys in the Principal Account may be invested by the City in Permitted Investments that mature or are redeemable at the option of the holder prior to the next Principal Maturity Date, but whenever prior to any Principal Maturity Date the aggregate of the available moneys in such account exceeds the amount necessary to pay principal falling due on such Principal Maturity Date, such excess may be invested in Permitted Investments maturing or redeemable at the option of the holder prior to the next following Principal Maturity Date. Moneys in the Hedge Payments Account may be invested by the City in Permitted Investments maturing or redeemable at the option of the holder prior to the next due date of related Hedge Payments, but whenever prior to any due date of related Hedge Payments the aggregate of the available moneys in such account exceeds the amount necessary to pay related Hedge Payments falling due on such date, such excess may be invested in Permitted Investments maturing or redeemable at the option of the holder prior to the next following due date of related Hedge Payments. Moneys in the Debt Service Reserve Account may be invested by the City in Permitted Investments that mature or are redeemable at the option of the holder within 5 years from the date of purchase. Moneys in the Renewal and Extension Fund may be invested by the City in Permitted Investments, and on the date of purchase of each such Permitted Investment at least 65% of all Permitted Investments held in the Renewal and Extension Fund must mature or be redeemable at the option of the holder not later than 5 years from the date of such purchase. Whenever any moneys in the Debt Service Reserve Account or the Renewal and Extension Fund invested as above provided are needed for the payment of currently maturing principal of or interest on the Senior Bonds, the City will cause such investments to be liquidated at current market prices, to produce the amount required, without further instructions, and will cause the proceeds of such liquidation to be applied to the payment of such principal and interest. Investment Earnings in each fund and account (except for those established pursuant to the provisions of the Bond Ordinance described herein under the caption SUMMARY OF THE BOND ORDINANCE - Defeasance in this Appendix B) will be allocated as follows: (1) Investment Earnings from the investment of moneys of each account held in the Sinking Fund (except for the Debt Service Reserve Account) will be retained in the account of the Sinking Fund to which such investments relate; (2) Investment Earnings from the investment of moneys of each account held in the Project Fund will be retained in the account of the Project Fund to which such investments relate; (3) Investment Earnings from the investment of moneys in the Debt Service Reserve Account will be retained in the Debt Service Reserve Account at all times the balance is less than the Debt Service Reserve Requirement; thereafter and at all times the balance of the Debt Service Reserve Account is equal to or greater than the Debt Service Reserve Requirement, such Investment Earnings will be deposited in the Interest Account; (4) Investment Earnings from the investment of moneys in the Rebate Fund will be retained in the Rebate Fund; B-9

132 (5) Investment Earnings from the investment of moneys in the Renewal and Extension Fund will be retained in the Renewal and Extension Fund; and (6) Investment Earnings from the investment of moneys in the Revenue Fund will be retained in the Revenue Fund. The Series Ordinance authorizing the issuance of any Subordinate Bonds must specify any maturity limitations and allocations of Investment Earnings on investments of moneys in the funds and accounts relating to such Subordinate Bonds. All investments made under the Bond Ordinance are required, for purposes of the Bond Ordinance, to be valued at fair market value on each Interest Payment Date. Whenever at the end of each Fiscal Year the amount of moneys in any account of the Sinking Fund exceeds the amount then currently required to be held therein, the excess must be transferred to the Revenue Fund. Parity Bonds The Bond Ordinance provides that all Senior Bonds must have complete parity of lien on the Pledged Revenues despite the fact that any of the Senior Bonds may be delivered at an earlier date than any other of the Senior Bonds. Under the terms of the Bond Ordinance, the City may issue Parity Bonds in accordance with the Bond Ordinance, and the City may issue no other obligations of any kind or nature payable from or enjoying a lien on the Pledged Revenues or any part thereof having priority over or (except as permitted in the Bond Ordinance) on a parity with the Series 2018 Bonds. Under the terms of the Bond Ordinance, any or all of the Senior Bonds may be refunded at maturity, upon redemption in accordance with their terms, or with the consent of the owners of such Senior Bonds, and the refunding Bonds so issued will constitute Parity Bonds, if: (A) The City executes a certificate: (i) setting forth the aggregate amount of interest and principal of the Senior Bonds falling due during the then current Bond Year and for each subsequent Bond Year to and including the Bond Year of the last maturity of any Senior Bonds then Outstanding (x) with respect to all Senior Bonds Outstanding immediately prior to the date of authentication and delivery of such refunding Bonds and (y) with respect to all Senior Bonds to be Outstanding immediately thereafter; and (ii) demonstrating that the amount set forth for each Bond Year pursuant to (i)(y) above is no greater than the amount set forth for such Bond Year pursuant to (i)(x) above. (B) As an alternative to, and in lieu of, satisfying the requirements described in clause (A) above, all Outstanding Senior Bonds are being refunded under arrangements that immediately result in making provision for the payment of the refunded Bonds in accordance with the Bond Ordinance. (C) Bonds. The requirements described in clauses (5) and (7) below are met with respect to such refunding Bonds (including refunding Bonds that do not meet the requirements described above) may also be issued on a parity with the Series 2018 Bonds pursuant to a Series Ordinance, and the Bonds so issued will constitute Parity Bonds, if all of the following conditions are satisfied: (1) Except in the case of Parity Bonds issued for refunding purposes as described above, there must have been procured and filed with the City either: (a) a report by an Independent Certified Public Accountant to the effect that the historical Net Operating Revenues and Investment Earnings (excluding Investment Earnings, if any, on the Project Fund) for a period of 12 consecutive months of the most recent 18 consecutive months prior to the issuance of the proposed Parity Bonds were equal to at least 120% of the maximum annual Debt Service Requirement on all Senior Bonds that will be Outstanding immediately after the issuance of the proposed Parity Bonds, in the then current or any succeeding Fiscal Year; or (b) (i) a report by an Independent Certified Public Accountant to the effect that the historical Net Operating Revenues and Investment Earnings (excluding Investment Earnings, if any, on the Project Fund) for a period of 12 consecutive months of the most recent 18 consecutive months prior to the issuance of the proposed Parity Bonds were equal to at least 120% of the historical Debt Service Requirement on all Senior Bonds that were Outstanding during such 12-month period; and B-10

133 (ii) a report by a Consultant to the effect that (A) the forecasted Net Operating Revenues and Investment Earnings (excluding Investment Earnings, if any, on the Project Fund) for the period beginning on the expected date of issuance of the proposed Parity Bonds and ending on the date of commencement of the Forecast Period are expected to equal at least 100% of the Debt Service Requirement during such period on all Senior Bonds that will be Outstanding immediately after the issuance of the proposed Parity Bonds, after taking into account amounts deposited into the Capitalized Interest Account, and (B) the forecasted Net Operating Revenues and Investment Earnings (excluding Investment Earnings, if any, on the Project Fund) for each Fiscal Year in the Forecast Period are expected to equal at least 125% of the maximum annual Debt Service Requirement on all Senior Bonds that will be Outstanding immediately after the issuance of the proposed Parity Bonds, in the then current or any succeeding Fiscal Year. The reports by the Independent Certified Public Accountant that are described above may contain pro forma adjustments to historical Net Operating Revenues equal to 100% of the increased annual amount attributable to any revision in the schedule of rates, fees, and charges for the services, facilities, and commodities furnished by the System, imposed prior to the date of delivery of the proposed Parity Bonds and not fully reflected in the historical Net Operating Revenues actually received during such 12-month period. Such pro forma adjustments must be based upon a report of a Consultant as to the amount of Operating Revenues that would have been received during such 12-month period had the new rate schedule been in effect throughout such 12-month period. The report by the Consultant that is required as described above may not take into consideration any rate schedule to be imposed in the future, unless such rate schedule has been adopted by ordinance of the Governing Body. Such rate schedule adopted by ordinance may contain, however, future effective dates. (2) The City must have received, at or before issuance of the Parity Bonds, a report from an Independent Certified Public Accountant to the effect that the payments required to be made into each account of the Sinking Fund have been made and the balance in each account of the Sinking Fund is not less than the balance required by the Bond Ordinance as of the date of issuance of the proposed Parity Bonds. (3) The Series Ordinance authorizing the proposed Parity Bonds must require (i) that the amount to be accumulated and maintained in the Debt Service Reserve Account be increased to not less than 100% of the Debt Service Reserve Requirement computed on a basis that includes all Senior Bonds which will be Outstanding immediately after the issuance of the proposed Parity Bonds and (ii) that the amount of such increase be deposited in such account on or before the date and at least as fast as the rate described under the caption SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2018 BONDS - Funds Created by the Bond Ordinance and Flow of Funds -- Sinking Fund -- Debt Service Reserve Account in the front part of this Official Statement. (4) The Series Ordinance authorizing the proposed Parity Bonds must require the proceeds of such proposed Parity Bonds to be used solely to make capital improvements to the System, to fund interest on the proposed Parity Bonds, to acquire existing or proposed water or sewer utilities, to refund other obligations issued for such purposes (whether or not such refunding Bonds satisfy the requirements described above), and to pay expenses incidental thereto and to the issuance of the proposed Parity Bonds. (5) If any Parity Bonds would bear interest at a Variable Rate, the Series Ordinance under which such Parity Bonds are issued must provide a maximum rate of interest per annum which such Parity Bonds may bear. (6) The Chief Officer must have certified, by written certificate dated as of the date of issuance of the Parity Bonds, that the City is in compliance with all requirements of the Bond Ordinance. (7) The City must have received an opinion of Bond Counsel, dated as of the date of issuance of the Parity Bonds, to the effect that the Series Ordinance and any related Supplemental Ordinance authorizing the issuance of Parity Bonds have been duly adopted by the City. Subordinate Bonds Under the terms of the Bond Ordinance, Bonds may also be issued on a subordinate basis with the Prior Bonds pursuant to a Series Ordinance, payable from moneys that would otherwise be deposited in the Renewal and Extension Fund, and the Bonds so issued will constitute Subordinate Bonds, if all of the following conditions are satisfied: B-11

134 (1) The Series Ordinance authorizing the Subordinate Bonds must provide that such Subordinate Bonds will be junior and subordinate in lien and right of payment to all Senior Bonds Outstanding at any time. (2) The Series Ordinance authorizing the Subordinate Bonds must establish funds and accounts for the moneys that would otherwise be deposited in the Renewal and Extension Fund, to be used to pay debt service on the Subordinate Bonds, to pay Hedge Payments under Subordinate Hedge Agreements, and to provide reserves therefor. (3) The requirements of clauses (4), (5), and (7) described herein under the caption SUMMARY OF THE BOND ORDINANCE - Parity Bonds in this Appendix B are met with respect to such Subordinate Bonds (as if such Bonds constituted Parity Bonds). In the event of any insolvency or bankruptcy proceedings, and any receivership, liquidation, reorganization, or other similar proceedings in connection therewith, relative to the City or to its creditors, as such, or to its property, and in the event of any proceedings for voluntary liquidation, dissolution, or other winding up of the City, whether or not involving insolvency or bankruptcy, the owners of all Senior Bonds then Outstanding and related Qualified Hedge Providers will be entitled to receive payment in full of all principal and interest due on all such Senior Bonds in accordance with the provisions of the Bond Ordinance and related Hedge Payments in accordance with the provisions of the Senior Hedge Agreements before the owners of the Subordinate Bonds or Qualified Hedge Providers are entitled to receive any payment from the Pledged Revenues or the amounts held in the funds and accounts created under the Bond Ordinance on account of principal of, premium, if any, or interest on the Subordinate Bonds or Hedge Payments under Subordinate Hedge Agreements. In the event that any of the Subordinate Bonds are declared due and payable before their expressed maturities because of the occurrence of an event of default (under circumstances when the provisions of the paragraph described above relating to insolvency are not applicable), the owners of all Senior Bonds Outstanding and related Qualified Hedge Providers at the time such Subordinate Bonds so become due and payable because of the occurrence of such an event of default will be entitled to receive payment in full of all principal and interest on all such Senior Bonds and all Hedge Payments under related Senior Hedge Agreements before the owners of the Subordinate Bonds or related Qualified Hedge Providers are entitled to receive any accelerated payment from the Pledged Revenues or the amounts held in the funds and accounts created under the Bond Ordinance of principal of, premium, if any, or interest on the Subordinate Bonds or Hedge Payments under Subordinate Hedge Agreements. If any Event of Default has occurred and is continuing (under circumstances when the provisions of the paragraph described above relating to insolvency are not applicable), the owners of all Senior Bonds then Outstanding and related Qualified Hedge Providers will be entitled to receive payment in full of all principal and interest then due on all such Senior Bonds and Hedge Payments under related Senior Hedge Agreements before the owners of the Subordinate Bonds or related Qualified Hedge Providers are entitled to receive any payment from the Pledged Revenues or the amounts held in the funds and accounts created under the Bond Ordinance of principal of, premium, if any, or interest on the Subordinate Bonds or Hedge Payments under Subordinate Hedge Agreements.. No owner of Senior Bonds or any related Qualified Hedge Provider will be prejudiced in its right to enforce subordination of the Subordinate Bonds and Subordinate Hedge Agreements by any act or failure to act on the part of the City. The obligations of the City to pay to the owners of the Subordinate Bonds the principal of, premium, if any, and interest thereon in accordance with their terms and to pay to related Qualified Hedge Providers Hedge Payments in accordance with the terms of the Subordinate Hedge Agreements is unconditional and absolute. Nothing in the Bond Ordinance prevents the owners of the Subordinate Bonds or related Qualified Hedge Providers from exercising all remedies otherwise permitted by applicable law or under the Bond Ordinance or the Subordinate Hedge Agreements upon default thereunder, subject to the rights contained in the Bond Ordinance of the owners of Senior Bonds and related Qualified Hedge Providers to receive cash, property, or securities otherwise payable or deliverable to the owners of the Subordinate Bonds and related Qualified Hedge Providers, and any Series Ordinance authorizing Subordinate Bonds may provide that, insofar as a trustee or paying agent for the Subordinate Bonds is concerned, the provisions described above will not prevent the application by such trustee or paying agent of any moneys deposited with such trustee or paying agent for the purpose of the payment of or on account of the principal of, premium, if any, and interest on such Subordinate Bonds and Hedge Payments under Subordinate Hedge Agreements if such trustee or paying agent did not have knowledge at the time of such application that such payment was prohibited by the provisions described above. Any series of Subordinate Bonds and related Subordinate Hedge Agreements may have such rank or priority with respect to any other series of Subordinate Bonds and related Subordinate Hedge Agreements as may be provided B-12

135 in the Series Ordinance authorizing such series of Subordinate Bonds and may contain such other provisions as are not in conflict with the provisions of the Bond Ordinance. By proceedings authorizing Subordinate Bonds, the City may provide for the accession of such Subordinate Bonds and related Subordinate Hedge Agreements to the status of complete parity with the Senior Bonds and related Senior Hedge Agreements if, as of the date of accession, the conditions of clauses (1)(a) and (6) described herein under the caption SUMMARY OF THE BOND ORDINANCE - Parity Bonds in this Appendix B are satisfied, on a basis that includes all Outstanding Senior Bonds and such Subordinate Bonds, and if on the date of accession: (a) the Debt Service Reserve Account contains an amount equal to the Debt Service Reserve Requirement computed on a basis that includes all Outstanding Senior Bonds and such Subordinate Bonds; and (b) the Interest Account, the Principal Account, and the Hedge Payments Account contain the amounts that would have been required to be accumulated therein on the date of accession if the Subordinate Bonds had originally been issued as Parity Bonds. Financial Facilities and Hedge Agreements In connection with the issuance of any Bonds under the Bond Ordinance, the City may obtain or cause to be obtained one or more Financial Facilities providing for payment of all or a portion of the principal of, premium, if any, or interest due or to become due on such Bonds, providing for the purchase of such Bonds by the Financial Facility Issuer, or providing funds for the purchase of such Bonds by the City. In connection therewith the City will enter into Financial Facility Agreements with such Financial Facility Issuers providing for, among other things, (i) the payment of fees and expenses to such Financial Facility Issuers for the issuance of such Financial Facilities; (ii) the terms and conditions of such Financial Facilities and the Bonds affected thereby; and (iii) the security, if any, to be provided for the issuance of such Financial Facilities. The City may secure any Financial Facility by an agreement providing for the purchase of the Bonds secured thereby with such adjustments to the rate of interest, method of determining interest, maturity, or redemption provisions as are specified by the City in the applicable Series Ordinance. The City may in a Financial Facility Agreement agree to directly reimburse such Financial Facility Issuer for amounts paid under the terms of such Financial Facility, together with interest thereon; provided, however, that no Reimbursement Obligation may be created for purposes of the Bond Ordinance until amounts are paid under such Financial Facility. Any such Reimbursement Obligation will be deemed to be a part of the Bonds to which the Financial Facility relates that gave rise to such Reimbursement Obligation, and references to principal and interest payments with respect to such Bonds must include principal and interest (except for Additional Interest and principal amortization requirements with respect to the Reimbursement Obligation that are more accelerated than the amortization requirements for the related Bonds, without acceleration) due on the Reimbursement Obligation incurred as a result of payment of such Bonds with the Financial Facility. All other amounts payable under the Financial Facility Agreement (including any Additional Interest and principal amortization requirements with respect to the Reimbursement Obligation that are more accelerated than the amortization requirements for the related Bonds, without acceleration) will be fully subordinate to the payment of debt service on the related class of Bonds. Any such Financial Facility will be for the benefit of and secure such Bonds or portion thereof as specified in the applicable Series Ordinance. In connection with the issuance of any Bonds or at any time thereafter so long as such Bonds remain Outstanding, the City may enter into Hedge Agreements with Qualified Hedge Providers, and no other providers, with respect to any Bonds. The City will authorize the execution, delivery, and performance of each Hedge Agreement in a Supplemental Ordinance, in which it will designate the related Hedged Bonds. The City's obligation to pay Hedge Payments may be secured by a pledge of, and lien on, the Pledged Revenues on a parity with the lien created by the provisions of the Bond Ordinance described herein under the caption SUMMARY OF THE BOND ORDINANCE - Pledged Revenues in this Appendix B to secure the related Hedged Bonds, or may be subordinated in lien and right of payment to the payment of the Bonds, as determined by the City. Operation and Maintenance of the System The City covenanted in the Bond Ordinance that it has and will enforce reasonable rules and regulations governing the System and the operation thereof; that all compensation, salaries, fees, and wages paid by it in connection with the operation, maintenance, and repair of the System will be reasonable, and that no more persons will be employed by it than are necessary; that it will operate the System in an efficient and economical manner and will at all times maintain the System in good repair and in sound operating condition; that it will make all necessary repairs, renewals, and replacements to the System; and that it will comply with all valid acts, rules, regulations, orders, and directions of any legislative, executive, administrative, or judicial body applicable to the System and the City's operation thereof, provided that the City will not be in default hereunder so long as the City, promptly after receiving an actual written notice of any noncompliance, commences and uses its diligent efforts to cause compliance with such B-13

136 legal requirements, or in good faith contests the applicability of such legal requirements to the System and the City s operation thereof, and as long as the failure to comply or any such contest does not materially and adversely affect the ability of the City to comply with the Bond Ordinance. Insurance With respect to the System, the City agreed in the Bond Ordinance to carry adequate public liability, fidelity, and property insurance, such as is maintained by similar utilities as the System, including but not limited to the following: (a) comprehensive general liability insurance on an occurrence or claims made basis with limits of at least $1,000,000 per occurrence; and (b) the following properties must at all times be insured to the full insurable value thereof with a responsible insurance company or companies, authorized and qualified under the laws of the State to assume the risks thereof against loss or damage from the following causes: (i) all buildings and all machinery and equipment therein against loss or damage by fire, lightning, tornado, winds, and explosions; and (ii) all other property against loss or damage by fire or lightning if the same is not fireproof, and against loss or damage from other causes customarily insured against by similar utilities of like size; and (c) fidelity bonds or insurance policies insuring against theft of moneys covering all agents, employees, and officials of the City whose duties involve the receipt, custody, investment, or disbursement of Operating Revenues, Investment Earnings, Hedge Receipts, or other Pledged Revenues, including proceeds from the sale of Bonds, in an amount not less than the greatest amount reasonably anticipated to be within the custody or control of such officer, agent, or employee at one time. The City agreed in the Bond Ordinance to indemnify itself against the usual hazards incident to the construction of any Project, and without in any way limiting the generality of the above, agreed to: (a) require each construction contractor and each subcontractor for each contract obligating the City to pay in excess of $100,000 to furnish a bond, or bonds, of such type and in amounts adequate to assure the faithful performance of their contracts and the payment of all bills and claims for labor and material arising by virtue of such contracts and (b) require each construction contractor or the subcontractor to maintain at all times until the completion and acceptance of the Project adequate compensation insurance for all of their employees and adequate public liability and property damage insurance for the full and complete protection of the City from any and all claims of every kind and character which may arise by virtue of the operations under their contracts, whether such operations be by themselves or by anyone directly or indirectly for them, or under their control. All such policies must be for the benefit of and made payable to the City and must be on deposit with the City; provided, however, the City may elect to be a self-insurer with respect to any risks for which insurance is required under the Bond Ordinance. The cost of such insurance may be paid as an Expense of Operation and Maintenance. All moneys received for losses under any such insurance policies, except public liability policies, are pledged by the City under the Bond Ordinance as security for the Bonds until and unless such proceeds are paid out in making good the loss or damage in respect of which such proceeds are received, either by repairing the property damaged or replacing the property destroyed or by depositing the same in the Renewal and Extension Fund. Adequate provision for making good such loss and damage must be made within 120 days from the date of the loss. Insurance proceeds not used in making such provision must be deposited in the Renewal and Extension Fund on the expiration of such 120-day period. Such insurance proceeds must be payable to the City by appropriate clause to be attached to or inserted in the policies. Sales, Leases, and Encumbrances Except as expressly permitted in the Bond Ordinance, the City irrevocably covenanted, bound, and obligated itself in the Bond Ordinance not to sell, lease, encumber, or in any manner dispose of the System as a whole or in part until all of the Bonds and all interest thereon are paid in full or provision for payment has been made. The City reserved the right in the Bond Ordinance to sell, lease, or otherwise dispose of any of the property comprising a part of the System in the following manner, if any one of the following conditions exists: (i) such property is not necessary for the operation of the System; (ii) such property is not useful in the operation of the System; (iii) such property is not profitable in the operation of the System; or (iv) the disposition of such property will be advantageous to the System and will not adversely affect the security for the Bondholders. All proceeds of any such sale must be deposited in the Renewal and Extension Fund. B-14

137 The City reserved the right in the Bond Ordinance to sell any portion of the System not exceeding 10% of Book Value to any political subdivision or authority or agency of one or more political subdivisions of the State, provided that there must be first filed with the City: (i) an opinion of Bond Counsel to the effect that such sale will not adversely affect the extent to which interest on any Tax-Exempt Bonds is excluded from gross income for federal income tax purposes; and (ii) an opinion of a Consultant expressing the view that such sale will not result in any diminution of Net Operating Revenues to the extent that in any future Fiscal Year the Net Operating Revenues and Investment Earnings will be less than the 125% of the maximum annual Debt Service Requirement on all Senior Bonds to be Outstanding after such sale, in the then current or any succeeding Fiscal Year. In reaching this conclusion, the Consultant must take into consideration such factors as the Consultant may deem significant, including (i) anticipated diminution of Operating Revenues, (ii) anticipated increase or decrease in Expenses of Operation and Maintenance attributable to the sale, and (iii) reduction in the annual Debt Service Requirement attributable to the application of the sale proceeds to the provision for payment of Bonds theretofore Outstanding. Such sale may include a partial interest in a water or sewer facility owned or to be owned in whole or in part by the City. All proceeds of any such sale must be deposited in the Renewal and Extension Fund. The City reserved the right in the Bond Ordinance to transfer the System as a whole to any political subdivision or authority or agency of one or more political subdivisions of the State to which may be delegated the legal authority to own and operate the System, or any portion thereof, on behalf of the public, and which undertakes in writing, filed with the City, the City s obligations under the Bond Ordinance, provided that there must be first filed with the City: (i) an opinion of Bond Counsel to the effect that such transfer will not adversely affect the extent to which interest on any Tax-Exempt Bonds is excluded from gross income for federal income tax purposes and (ii) an opinion of a Consultant expressing the view that such transfer will not result in any diminution of Net Operating Revenues to the extent that in any future Fiscal Year the Net Operating Revenues and Investment Earnings will be less than 125% of the maximum annual Debt Service Requirement on all Senior Bonds to be Outstanding after such transfer, in the then current or any succeeding Fiscal Year. In reaching this conclusion, the Consultant will take into consideration such factors as the Consultant may deem significant, including any rate schedule to be imposed by the transferee political subdivision, authority, or agency. Financial Statements The City agreed in the Bond Ordinance, after the close of each Fiscal Year, to cause the books, records, and accounts of the System to be properly audited by an Independent Certified Public Accountant and to require such Independent Certified Public Accountant to complete its report within 270 days after the close of the Fiscal Year. The audit report must cover, but need not be limited to, a balance sheet, an income statement, a cash flow statement, and any other statement required by law or accounting convention, and a report by such Independent Certified Public Accountant disclosing any material financial default on the part of the City in the performance of any covenant in the Bond Ordinance. A copy of such annual audit report must be made available to any Bondholder, Financial Facility Issuer, Qualified Hedge Provider, or Reserve Account Credit Facility Provider on request. Satisfaction of Liens The City agreed in the Bond Ordinance to duly pay and discharge or cause to be paid and discharged all taxes, assessments, and other governmental charges, if any, lawfully imposed upon the System or any part thereof or upon the Pledged Revenues, as well as any lawful claims for labor, materials, or supplies that if unpaid might by law become a lien or charge upon the System or the Pledged Revenues or any part thereof or that might impair the security of the Bonds, except when the City in good faith contests its liability to pay the same. Events of Default and Remedies The Bond Ordinance defines an Event of Default to mean the occurrence of any one or more of the following: (1) failure to pay the principal or redemption price of any Senior Bond when the same becomes due and payable, either at maturity or by proceedings for redemption or otherwise; or (2) failure to pay any installment of interest on any Senior Bond when and as such installment of interest becomes due and payable; or (3) default is made by the City in the performance of any obligation in respect to the Debt Service Reserve Account and such default continues for 30 days thereafter; or (4) the City (a) admits in writing its inability to pay its debts generally as they become due, (b) files a petition in bankruptcy or takes advantage of any insolvency act, (c) makes an assignment for B-15

138 the benefit of its creditors, (d) consents to the appointment of a receiver of itself or of the whole or any substantial part of its property, or (e) is adjudicated a bankrupt; or (5) a court of competent jurisdiction enters an order, judgment, or decree appointing a receiver of the System or any of the funds or accounts established in the Bond Ordinance, or of the whole or any substantial part of the City's property, or approving a petition seeking adjustment of debts of the City under the federal bankruptcy laws or any other applicable law or statute of the United States of America or the State, and such order, judgment, or decree is not vacated or set aside or stayed within 60 days from the date of the entry thereof; or (6) under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction assumes custody or control of any of the funds or accounts established in the Bond Ordinance, or of the City or of the whole or any substantial part of the City's property, and such custody or control is not terminated or stayed within 60 days from the date of assumption of such custody or control; or (7) the City fails to perform any of the other covenants, conditions, agreements, and provisions contained in the Senior Bonds or in the Bond Ordinance on the part of the City to be performed, and such failure continues for 90 days after written notice specifying such failure and requiring it to be remedied has been given to the City by the owners of not less than, or a Credit Facility Issuer securing not less than, 25% in aggregate principal amount of the Senior Bonds; provided, however, if the failure stated in such notice can be corrected, but not within such 90 day period, the City will have 180 days after such written notice to cure such default if corrective action is instituted by the City within such 90 day period and diligently pursued until the failure is corrected; or (8) an Event of Default under any Series Ordinance relating to Senior Bonds occurs; or (9) failure by any Liquidity Facility Issuer to pay the purchase price of Senior Bonds under any Liquidity Facility then in effect; or (10) delivery to the City by a Credit Facility Issuer of written notice stating that an Event of Default has occurred under any Credit Facility Agreement relating to the Senior Bonds; or (11) delivery to the City by a Qualified Hedge Provider of written notice stating that an Event of Default has occurred under any Senior Hedge Agreement. Upon the happening and continuance of any Event of Default described above (except in clauses (9), (10) and (11)), then and in every such case, upon the written declaration of the owners of more than 50% in aggregate principal amount of all Senior Bonds then Outstanding or upon the written demand of a Credit Facility Issuer securing more than 50% in aggregate principal amount of the Senior Bonds then Outstanding, the principal of all Senior Bonds then Outstanding will become due and payable immediately, together with the interest accrued thereon to the date of such acceleration, at the place of payment provided therein, and interest on the Senior Bonds will cease to accrue after the date of such acceleration, anything in the Bond Ordinance or in the Senior Bonds to the contrary notwithstanding. Upon any declaration of acceleration under the Bond Ordinance, the City must immediately draw under the applicable Credit Facility to the extent permitted by the terms thereof that amount which, together with other amounts on deposit under the Bond Ordinance, will be sufficient to pay the principal of and accrued interest on the related Senior Bonds so accelerated. The above provisions, however, are subject to the condition that if, after the principal of the Senior Bonds has been so accelerated, all arrears of interest upon such Bonds, and interest on overdue installments of interest at the rate on such Bonds has been paid by the City, the principal of such Bonds that has matured (except the principal of any Bonds not then due by their terms except as described above) has been paid, and the City has also performed all other things in respect to which it may have been in default under the Bond Ordinance, and the Credit Facility Issuer must have reinstated the Credit Facility in the full amount available to be drawn thereunder by written notice to the City, then, in every such case, the owners of more than 50% in aggregate principal amount of all Senior Bonds then Outstanding by written notice to the City, may waive such default and its consequences and such waiver will be binding upon the City and upon all owners of the Bonds; but no such waiver will extend to or affect any subsequent default or impair any right or remedy consequent thereon. Notwithstanding the foregoing, as long as the applicable Credit Facility Issuer does not then continue to dishonor draws under the Credit Facility, no Event of Default with respect to the related Senior Bonds may be waived without the express written consent of such Credit Facility Issuer. Upon the happening and continuance of any Event of Default, any owner of Senior Bonds then Outstanding affected by the Event of Default or a duly authorized agent for such owner may proceed to protect and enforce its B-16

139 rights and the rights of the owners of Senior Bonds by such of the following remedies as it may deem most effectual to protect and enforce such rights: (1) by mandamus or other suit, action, or proceeding at law or in equity, enforce all rights of the owners of Senior Bonds, including the right to require the appointment of a receiver for the System or to exercise any other right or remedy provided by the Revenue Bond Law of the State and to require the City to perform any other covenant or agreement contained in the Bond Ordinance and to perform its duties under the Revenue Bond Law of the State; (2) by bringing suit upon the Senior Bonds; (3) by action or suit in equity, require the City to account as if it were the trustee of an express trust for the owners of the Senior Bonds; (4) by action or suit in equity, enjoin any acts or things that may be unlawful or in violation of the rights of the owners of the Senior Bonds; or (5) by pursuing any other available remedy at law or in equity or by statute. In the enforcement of any remedy under the Bond Ordinance, owners of Senior Bonds will be entitled to sue for, enforce payment on, and receive any and all amounts then or during any default becoming, and at any time remaining, due from the City for principal, redemption premium, interest, or otherwise, under any provision of the Bond Ordinance or of the Senior Bonds, and unpaid, with interest on overdue payments at the rate or rates of interest specified in such Senior Bonds, together with any and all costs and expenses of collection and of all proceedings under the Bond Ordinance and under such Senior Bonds, without prejudice to any other right or remedy of the owners of Senior Bonds, and to recover and enforce a judgment or decree against the City for any portion of such amounts remaining unpaid, with interest, costs, and expenses, and to collect from any moneys available for such purpose, in any manner provided by law, the moneys adjudged or decreed to be payable. If an Event of Default occurs and is not remedied, the City or a receiver appointed for the purpose will apply all Pledged Revenues as follows and in the following order of priority: (a) Expenses of Receiver and Paying Agent and Bond Registrar - to the payment of the reasonable and proper charges, expenses, and liabilities of the receiver and the Paying Agent and Bond Registrar under the Bond Ordinance and to the payment of any and all costs and expenses of collection and of all proceedings under the Bond Ordinance and Senior Bonds; (b) Expenses of Operation and Maintenance and Renewals and Replacements - to the payment of all reasonable and necessary Expenses of Operation and Maintenance and major renewals and replacements to the System; (c) Principal or Redemption Price, Interest, and Hedge Payments - to the payment of the interest and principal or redemption price then due on the Senior Bonds and Hedge Payments then due under Senior Hedge Agreements, as follows: (1) Unless the principal of all the Senior Bonds has become due and payable, all such moneys will be applied as follows: first: To the payment to the persons entitled thereto of all installments of interest then due on the Senior Bonds, in the order of the maturity of such installments (with interest on defaulted installments of interest at the rate or rates borne by the Senior Bonds with respect to which such interest is due, but only to the extent permitted by law), and, if the amount available is not sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installment, to the persons entitled thereto, without any discrimination or preference. If some of the Senior Bonds bear interest payable at different intervals or upon different dates than the semiannual Interest Payment Dates specified for the Series 2018 Bonds, and if at any time moneys from the Debt Service Reserve Account must be used to pay any such interest, the moneys in the Debt Service Reserve Account will be applied (to the extent necessary) to the payment of all interest falling due on the dates upon which such interest is payable to and including the next succeeding semiannual Interest Payment Date specified for the Series 2018 Bonds. After such date, moneys in the Debt Service Reserve Account plus any other moneys available in the Interest Account must be set aside for the payment of interest on Senior Bonds of each class (a class consisting of all Senior Bonds payable as to interest B-17

140 on the same dates) pro rata among Senior Bonds of the various classes on a daily basis so that there will accrue to each owner of a Senior Bond throughout each Fiscal Year the same proportion of the total interest payable to such owner of a Senior Bond as will so accrue to every other owner of a Senior Bond during such Fiscal Year. As to any Compound Interest Bond that is a Senior Bond, such interest will accrue on the Accreted Value of such Bond and be set aside on a daily basis until the next compounding date for such Bonds, whereupon it will be paid to the owner of such Bond as interest on a defaulted obligation and only the unpaid portion of such interest (if any) will be treated as principal of such Bond. second: to the payment of the Hedge Payments due under any Senior Hedge Agreements pursuant to their terms. third: to the payment to the persons entitled thereto of the unpaid principal of any of the Senior Bonds that will have become due at maturity or upon mandatory redemption prior to maturity (other than Senior Bonds called for redemption for the payment of which moneys are held under the Bond Ordinance), in the order of their due dates, with interest upon such Senior Bonds from the respective dates upon which they became due, and, if the amount available is not sufficient to pay in full Senior Bonds due on any particular date, together with such interest, then to the payment first of such interest, ratably according to the amount of such interest due on such date, and then to the payment of such principal, ratably according to the amount of such principal due on such date, to the persons entitled thereto without any discrimination or preference. If some of the Senior Bonds mature (including mandatory redemption prior to maturity as a maturity) upon a different date or dates than the annual Principal Maturity Dates specified for the Series 2018 Bonds, and if at any time moneys from the Debt Service Reserve Account must be used to pay any such principal falling due, the moneys in the Debt Service Reserve Account not required to pay interest under paragraph first above must be applied to the extent necessary to the payment of all principal falling due on the dates upon which such principal is payable to and including the next succeeding annual Principal Maturity Date specified for the Series 2018 Bonds. After such date, moneys in the Debt Service Reserve Account not required to pay interest plus any other moneys available in the Principal Account will be set aside for the payment of principal of Senior Bonds of each class (a class consisting of all Senior Bonds payable as to principal on the same date) pro rata among Senior Bonds of the various classes that mature or must be redeemed pursuant to mandatory redemption prior to maturity throughout each Fiscal Year in such proportion of the total principal payable on each such Senior Bond as is equal among all classes of Senior Bonds maturing or subject to mandatory redemption within such Fiscal Year. The Accreted Value of a Compound Interest Bond that is a Senior Bond (except for interest that has been paid under paragraph first) will be treated as principal for purposes of this paragraph third. fourth: to the payment of the redemption premium on and the principal of any Senior Bonds called for optional redemption pursuant to their terms. (2) If the principal of all the Senior Bonds has become due and payable, all such moneys must be applied to the payment of the principal and interest then due and unpaid upon the Senior Bonds, with interest thereon as aforesaid, and due and unpaid Hedge Payments under Senior Hedge Agreements, without preference or priority of principal over interest or Hedge Payments or of interest over principal or Hedge Payments, or of Hedge Payments over principal or interest, or of any installment of interest over any other installment of interest, or of any Senior Bond over any other Senior Bonds, or of any such Hedge Payment over any other such Hedge Payment, ratably, according to the amounts due respectively for principal, interest, and Hedge Payments, to the persons entitled thereto without any discrimination or preference. Rights of Credit Facility Issuer Notwithstanding any other provision of the Bond Ordinance, in the event that the City draws under a Credit Facility any amount for the payment of principal of or interest on any Bonds, then upon such payment the Credit Facility Issuer will succeed to and become subrogated to the rights of the recipients of such payments and such principal or interest will be deemed to continue to be unpaid and Outstanding for all purposes and will continue to be fully secured by the Bond Ordinance until the Credit Facility Issuer, as successor and subrogee, has been paid all B-18

141 amounts owing in respect of such subrogated payments of principal and interest. Such rights will be limited and evidenced by having the City note the Credit Facility Issuer's rights as successor and subrogee on its records, and the City must, upon request, deliver to the Credit Facility Issuer (i) in the case of interest on the Bonds, an acknowledgment of the Credit Facility Issuer's ownership of interest to be paid on the Bonds specifying the amount of interest owed, the period represented by such interest, and the numbers of the Bonds on which such interest is owed and (ii) in the case of principal of the Bonds, either the Bonds themselves duly assigned to the Credit Facility Issuer or new Bonds registered in the name of the Credit Facility Issuer or in such other name as the Credit Facility Issuer specifies. Whenever moneys become available for the payment of any interest then overdue, the Credit Facility Issuer will be treated as to interest owed to it as successor and subrogee as if it had been the Bondholder of the Bonds on which such interest is payable on any special record date therefor. Defeasance Bonds for the payment or redemption of which sufficient moneys or sufficient Government Obligations have been deposited with the Paying Agent or the Depository of the Sinking Fund (whether upon or prior to the maturity or the redemption date of such Bonds) will be deemed to be paid and no longer Outstanding under the Bond Ordinance; provided, however, that if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption must have been duly given as provided in the Bond Ordinance or firm and irrevocable arrangements must have been made for the giving of such notice. Government Obligations will be considered sufficient for purposes of the Bond Ordinance only: (i) if such Government Obligations are not callable by the issuer of the Government Obligations prior to their stated maturity and (ii) if such Government Obligations fall due and bear interest in such amounts and at such times as will assure sufficient cash (whether or not such Government Obligations are redeemed by the City pursuant to any right of redemption) to pay currently maturing interest and to pay principal and redemption premiums, if any, when due on the Bonds without rendering the interest on any Tax-Exempt Bonds includable in gross income of any owner thereof for federal income tax purposes. Supplemental Ordinances The City, from time to time and at any time, subject to the conditions and restrictions in the Bond Ordinance, may adopt one or more Supplemental Ordinances which thereafter will form a part of the Bond Ordinance, for any one or more or all of the following purposes: (1) to add to the covenants and agreements of the City in the Bond Ordinance other covenants and agreements thereafter to be observed or to surrender, restrict, or limit any right or power reserved in the Bond Ordinance to or conferred upon the City (including but not limited to the right to issue Parity Bonds); (2) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting, or supplementing any defective provision contained in the Bond Ordinance, or in regard to matters or questions arising under the Bond Ordinance, as the City may deem necessary or desirable and not inconsistent with the Bond Ordinance; (3) to grant to or confer any additional rights, remedies, powers, or authorities that may be lawfully granted to or conferred upon the owners of the Bonds; (4) to subject to the lien and pledge of the Bond Ordinance additional revenues, receipts, properties, or other collateral; (5) to evidence the appointment of successors to any Depositories, Paying Agent(s), or Bond Registrar(s); (6) to modify, amend, or supplement the Bond Ordinance in such manner as to permit the qualification of the Bond Ordinance under the Trust Indenture Act of 1939 or any federal statute hereafter in effect, and similarly to add to the Bond Ordinance such other terms, conditions, and provisions as may be permitted or required by such Trust Indenture Act of 1939 or any similar federal statute; (7) to make any modification or amendment of the Bond Ordinance required in order to make any Bonds eligible for acceptance by The Depository Trust Company or any similar holding institution or to permit the issuance of any Bonds or interests therein in book-entry form; (8) to modify any of the provisions of the Bond Ordinance in any respect if such modification does not become effective until after the Bonds Outstanding immediately prior to the effective date B-19

142 of such Supplemental Ordinance cease to be Outstanding and if any Bonds issued contemporaneously with or after the effective date of such Supplemental Ordinance contain a specific reference to the modifications contained in such subsequent proceedings; (9) subject to the provisions of the Bond Ordinance, to modify the provisions of the Bond Ordinance with respect to the disposition of any moneys remaining in the Project Fund upon the completion of any Project; (10) to modify the Bond Ordinance to permit the qualification of any Bonds for offer or sale under the securities laws of any state in the United States of America; (11) to modify the Bond Ordinance to provide for the issuance of Parity Bonds or Subordinate Bonds, and such modification may deal with any subjects and make any provisions that the City deems necessary or desirable for that purpose; (12) to make such modifications in the provisions of the Bond Ordinance as may be deemed necessary by the City to accommodate the issuance of Bonds that (i) are Compound Interest Bonds (including, but not limited to, provisions for determining the Debt Service Requirement for such Compound Interest Bonds and for treatment of Accreted Value in making such determination) or (ii) bear interest at a Variable Rate; and (13) to modify any of the provisions of the Bond Ordinance in any respect (other than a modification of the type described in the Bond Ordinance requiring the unanimous written consent of the Bondholders); provided that for (i) any Outstanding Bonds which are assigned a Rating and which are not secured by a Credit Facility providing for the payment of the full amount of principal and interest to be paid thereon, each Rating Agency has given written notification to the City that such modification will not cause the then applicable Rating on any Bonds to be reduced or withdrawn, and (ii) any Outstanding Bonds which are secured by Credit Facilities providing for the payment of the full amount of the principal and interest to be paid thereon, each Credit Facility Issuer has consented in writing to such modification. Any Supplemental Ordinance described above may be adopted by the City without the consent of or notice to the owners of any of the Bonds at the time Outstanding. In addition to the Supplemental Ordinances described above, with the consent of the owners of not less than a majority in aggregate principal amount of the Outstanding Bonds of each class (senior and subordinate), voting separately by class, the City may from time to time and at any time adopt a Supplemental Ordinance for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Bond Ordinance or of any Supplemental Ordinance; provided, however, that no such Supplemental Ordinance may: (1) extend the maturity date or due date of any mandatory sinking fund redemption with respect to any Bond Outstanding under the Bond Ordinance; (2) reduce or extend the time for payment of principal of, redemption premium, or interest on any Bond Outstanding under the Bond Ordinance; (3) reduce any premium payable upon the redemption of any Bond under the Bond Ordinance or advance the date upon which any Bond may first be called for redemption prior to its stated maturity date; (4) give to any Senior Bond or Senior Bonds (or related Senior Hedge Agreements) a preference over any other Senior Bond or Senior Bonds (or related Senior Hedge Agreements); (5) permit the creation of any lien or any other encumbrance on the Pledged Revenues having a lien equal to or prior to the lien created under the Bond Ordinance for the Senior Bonds; (6) reduce the percentage of owners of either class of Bonds required to approve any such Supplemental Ordinance; or (7) deprive the owners of the Bonds of the right to payment of the Bonds or from the Pledged Revenues, without, in each case, the consent of the owners of all the Bonds then Outstanding. No amendment may be made as described above that affects the rights or duties of any Financial Facility Issuer securing any of the Bonds or any Qualified Hedge Provider under any Hedge Agreement without its written consent. Notwithstanding any provision of the Bond Ordinance to the contrary, upon the issuance of a Credit Facility to secure any Bonds and for the period in which such Credit Facility is outstanding, the Credit Facility Issuer may have the consent rights of the owners of the Bonds that are secured by such Credit Facility pertaining to some or all of the amendments or modifications of the Bond Ordinance, to the extent provided in the applicable Series Ordinance. Notwithstanding the foregoing, if a Credit Facility Issuer is granted the consent rights of the owners of any Bonds in a Series Ordinance and refuses to exercise such consent rights, either affirmatively or negatively, then the registered owners of the Bonds secured by the related Credit Facility may exercise such consent rights. B-20

143 APPENDIX C FORM OF LEGAL OPINION The form of Legal Opinion included as this Appendix C has been prepared by Nelson Mullins Riley & Scarborough LLP, Atlanta, Georgia, Bond Counsel, and is substantially the form to be given in connection with the delivery of the Series 2018 Bonds. [Remainder of Page Intentionally Left Blank]

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145 FORM OF OPINION OF BOND COUNSEL, 2018 City of Cartersville, Georgia Cartersville, Georgia Re: $ City of Cartersville, Georgia Water and Sewer Revenue Bonds, Series 2018 Ladies and Gentlemen: We have acted as Bond Counsel in connection with the issuance and delivery on this date by the City of Cartersville, Georgia (the City ) of $ in original aggregate principal amount of revenue bonds designated City of Cartersville, Georgia Water and Sewer Revenue Bonds, Series 2018, dated the date hereof (the Bonds ). We have examined the law and such certified proceedings and other papers authorizing and relating to the Bonds as we deem necessary to render this opinion, including the following: 1. The Charter of the City. 2. An Act of the General Assembly of the State of Georgia known as the Revenue Bond Law, codified as Article 3 of Chapter 82 of Title 36 of the Official Code of Georgia Annotated (the Revenue Bond Law ). 3. Certified copies of a Master Bond Ordinance of the City adopted on April 19, 2018, as supplemented and amended by a Supplemental Series 2018 Bond Ordinance of the City adopted on, 2018 (collectively the Bond Ordinance ). 4. Certified transcript of the validation proceedings in the Superior Court of Bartow County, Georgia, resulting in a final judgment entered on June 6, 2018, validating and confirming the Bonds and the security therefor. 5. Fully executed counterparts of the Certificate as to Arbitrage Matters and the Tax Certificate of the City (collectively the Tax Documents ), each dated the date hereof. The Bonds are being issued under and pursuant to the Revenue Bond Law and the Bond Ordinance for the purposes of (1) refunding all of the City s Water and Sewerage Revenue Bond, Series 2012, outstanding in the principal amount of $6,620,000, and (2) financing the costs of making replacements, additions, extensions, and improvements to the City s existing water and sewer system. As to questions of fact material to our opinion, we have relied upon the following items, without undertaking to verify any of them by independent investigation: (a) certified proceedings C-1

146 City of Cartersville, Georgia, 2018 Page 2 and other certifications of public officials furnished to us, (b) certifications furnished to us by or on behalf of the City (including certifications made in the Tax Documents), and (c) representations of the City contained in such proceedings and in documents delivered in connection with the issuance of the Bonds. In our capacity as Bond Counsel, we have not been engaged or undertaken to review the accuracy, completeness, or sufficiency of the Official Statement or any other offering material relating to the Bonds (except to the extent, if any, stated in the Official Statement), and we express no opinion relating thereto (excepting only the matters set forth as our opinion in the Official Statement). that: Based upon the foregoing, it is our opinion, as of the date hereof and under existing law, (1) The City was duly created and is validly existing as a municipal corporation under the laws of the State of Georgia and has all requisite power and authority (i) to adopt and perform its obligations under the Bond Ordinance and (ii) to issue, sell, and deliver the Bonds and use the proceeds thereof for the purposes and upon the terms and conditions set forth in the Bond Ordinance. (2) The Bond Ordinance has been duly adopted by the City and constitutes the legal, valid, and binding obligation of the City enforceable upon the City. (3) Pursuant to the Revenue Bond Law, the Bond Ordinance creates a valid and enforceable lien on the funds pledged by the Bond Ordinance to secure the Bonds, on a parity with any other Senior Bonds (as defined in the Bond Ordinance) to be issued by the City under the Bond Ordinance and certain obligations of the City under Senior Hedge Agreements (as defined in the Bond Ordinance). (4) The Bonds have been duly authorized, executed, issued, and delivered by the City and are the legal, valid, and binding special or limited obligations of the City, payable solely from the amounts pledged under the Bond Ordinance. (5) The interest on the Bonds (including any original issue discount properly allocable to an owner thereof) is excluded from gross income for federal income tax purposes (including the tax imposed by Chapter 2A of Subtitle A of the Internal Revenue Code of 1986, as amended (the Code )) and is not an enumerated item of tax preference for purposes of the federal alternative minimum tax imposed on taxpayers other than corporations. The opinions set forth in the immediately preceding sentence are subject to the condition that the City complies with all requirements of the Code that must be satisfied subsequent to the issuance of the Bonds in order that the interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The City has covenanted to comply with all such requirements. Failure to comply C-2

147 City of Cartersville, Georgia, 2018 Page 3 with certain of such requirements may cause the inclusion of the interest on the Bonds in gross income for federal income tax purposes (including the tax imposed by Chapter 2A of Subtitle A of the Code) to be retroactive to the date of issuance of the Bonds. We express no opinion regarding any other federal tax consequences arising with respect to the Bonds. (6) The interest on the Bonds is exempt from State of Georgia income taxation. (7) The Bonds are exempt from registration under the Securities Act of The rights of the owners of the Bonds and the enforceability of the Bonds and the Bond Ordinance (i) may be limited by bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting the enforcement of creditors rights; (ii) may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); and (iii) may also be subject to the exercise of judicial discretion in appropriate cases. This opinion is limited to the matters expressly set forth above, and no opinion is implied or may be inferred beyond the matters so stated. We expressly disclaim any duty to update this opinion in the future for any changes of fact or law that may affect any of the opinions expressed herein. Very truly yours, NELSON MULLINS RILEY & SCARBOROUGH LLP By: Earle R. Taylor, III, Partner C-3

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149 APPENDIX D ENGINEERING REPORT The City has retained Hazen and Sawyer, P.C., Atlanta, Georgia, as its consulting engineers to develop several reports and studies relating to the System and certain financial matters. The Engineering Report, prepared by Hazen and Sawyer, P.C., has been included as this Appendix D in reliance upon the authority of such firm as experts in engineering and related financial matters. [Remainder of Page Intentionally Left Blank]

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