CITY OF GAINESVILLE, FLORIDA $22,695,000 Capital Improvement Revenue Bonds, Series 2005

Transcription

1 NEW ISSUE BOOK ENTRY ONLY SEE "RATINGS" herein. In the opinion of Bond Counsel, assuming continuing compliance by the City with certain arbitrage rebate and other tax requirements referred to in this Official Statement, under existing law, interest on the Series 2005 Bonds is excluded from gross income for federal income tax purposes and will not be treated as an item of tax preference in computing the federal alternative minimum tax. Interest on such Series 2005 Bonds will, however, be taken into account in computing an adjustment made in determining a corporate Series 2005 Bondholder s alternative minimum tax, based on such Series 2005 Bondholder s adjusted current earnings, and holders of the Series 2005 Bonds could be subject to the consequences of other provisions of the Internal Revenue Code of 1986, as amended, as further described in this Official Statement. In the opinion of Bond Counsel, under existing law, the Series 2005 Bonds are exempt from present intangible personal property taxes imposed by the State of Florida. See the discussion under the heading "TAX MATTERS" herein. Dated: Date of Delivery CITY OF GAINESVILLE, FLORIDA $22,695,000 Capital Improvement Revenue Bonds, Series 2005 Due: October 1 in each year as shown on the inside cover The City of Gainesville, Florida (the "City") is issuing its Capital Improvement Revenue Bonds, Series 2005 (the "Series 2005 Bonds") as fully registered bonds, which initially will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"). Individual purchases will be made in book entry form only in denominations as described herein. Purchasers of the Series 2005 Bonds (the "Beneficial Owners") will not receive physical delivery of the Series 2005 Bonds. Transfer of ownership in the Series 2005 Bonds will be effected through DTC's book-entry system as described herein. As long as Cede & Co. is the registered owner as nominee of DTC, principal and interest payments will be made directly to such registered owner which will in turn remit such payments to the Participants (as defined herein) for subsequent disbursement to the Beneficial Owners. Interest on the Series 2005 Bonds is payable on April 1 and October 1 of each year, commencing April 1, Principal of the Series 2005 Bonds is payable, when due, to the registered owners upon presentation and surrender at the designated corporate office of J.P. Morgan Trust Company, N.A., Jacksonville, Florida, as Registrar and Paying Agent. All payments of principal of, redemption premium, if applicable, and interest on the Series 2005 Bonds shall be payable in lawful money of the United States of America. The Series 2005 Bonds are subject to redemption prior to their stated dates of maturity as stated herein. The Series 2005 Bonds are being issued pursuant to the authority of and in full compliance with the Constitution and laws of the State of Florida, including, particularly, Chapter 166, Florida Statutes, the municipal charter of the City and other applicable provisions of law (the "Act") and pursuant to Resolution No adopted by the City Commission of the City (the "Commission") on February 24, 2003, as amended and supplemented from time to time, and as particularly supplemented by Resolution No adopted by the Commission on October 24, 2005 (collectively, the "Bond Resolution"). All terms used herein in capitalized form and not otherwise defined shall have the meanings ascribed thereto in the Bond Resolution. The Series 2005 Bonds are being issued as Additional Bonds under the Bond Resolution secured on a parity with the City's outstanding Taxable Pension Obligation Revenue Bonds, Series 2003A (Employees' Plan), Taxable Pension Obligation Revenue Bonds, Series 2003B (Consolidated Plan), Taxable Other Post Employment Benefits Obligation Bonds, Series 2005 and any Additional Bonds hereafter issued under the Bond Resolution (collectively, the "Bonds"). Pursuant to the Bond Resolution, the City has covenanted and agreed, to the extent permitted by and in accordance with applicable law and budgetary processes, to prepare, approve and appropriate in its Annual Budget for each Fiscal Year, by amendment, if necessary, and to deposit to the credit of the Sinking Fund Account, Non-Ad Valorem Revenues of the City in an amount which is equal to the Bond Service Requirement with respect to all Bonds outstanding under the Bond Resolution for the applicable Bond Year, plus an amount sufficient to satisfy all other payment obligations of the City under the Bond Resolution for the applicable Bond Year. "Pledged Revenues" consist of the Non-Ad Valorem Revenues budgeted and appropriated, and deposited into the Sinking Fund Account, to pay the principal of, premium, if any, and interest on the Bonds, and income received from the investment of moneys deposited in the funds and accounts established under the Bond Resolution. The covenant and obligation of the City to budget and appropriate such amounts as described above is subject, however, in all respects to certain existing obligations and obligations to be made in the future, as more fully described herein and in the Bond Resolution. The Series 2005 Bonds are not secured by the Reserve Account or the Composite Reserve Subaccount (each as defined herein). Notwithstanding the foregoing or anything in the Bond Resolution to the contrary, the City has not covenanted to maintain any service or program now provided or maintained by the City which generates Non-Ad Valorem Revenues. See "SECURITY FOR THE BONDS" herein. The Series 2005 Bonds are being issued to provide funds to (i) acquire certain lands and to acquire, construct, refurbish, renovate and equip various municipal facilities, including, without limitation, police and fire facilities, recreational and greenspace facilities, transportation facilities and economic development and redevelopment projects, and (ii) pay a portion of the costs associated with the issuance of the Series 2005 Bonds, including the municipal bond insurance premium. THE SERIES 2005 BONDS SHALL NOT BE DEEMED TO CONSTITUTE GENERAL OBLIGATIONS OR A PLEDGE OF THE FAITH AND CREDIT OR TAXING POWER OF THE CITY, THE STATE OF FLORIDA OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL, LEGISLATIVE OR CHARTER PROVISION OR LIMITATION, BUT SHALL BE PAYABLE FROM AND SECURED SOLELY BY A LIEN UPON AND A PLEDGE OF THE PLEDGED REVENUES, IN THE MANNER AND TO THE EXTENT PROVIDED IN THE BOND RESOLUTION. NO SERIES 2005 BONDHOLDER SHALL EVER HAVE THE RIGHT, DIRECTLY OR INDIRECTLY, TO REQUIRE OR COMPEL THE EXERCISE OF THE AD VALOREM TAXING POWER OF THE CITY OR ANY OTHER POLITICAL SUBDIVISION OF THE STATE OF FLORIDA OR TAXATION IN ANY FORM ON ANY REAL OR PERSONAL PROPERTY FOR ANY PURPOSE, INCLUDING WITHOUT LIMITATION, FOR THE PAYMENT OF PRINCIPAL OF AND INTEREST ON SUCH SERIES 2005 BONDS, OR TO MAINTAIN OR CONTINUE ANY ACTIVITIES OF THE CITY WHICH GENERATE USER SERVICE CHARGES, REGULATORY FEES OR OTHER NON-AD VALOREM REVENUES, NOR SHALL ANY SERIES 2005 BONDHOLDER BE ENTITLED TO PAYMENT OF SUCH PRINCIPAL AND INTEREST FROM ANY OTHER FUNDS OF THE CITY OTHER THAN THE PLEDGED REVENUES, ALL IN THE MANNER AND TO THE EXTENT PROVIDED IN THE BOND RESOLUTION. THE SERIES 2005 BONDS AND THE INDEBTEDNESS EVIDENCED THEREBY SHALL NOT CONSTITUTE A LIEN UPON ANY REAL OR PERSONAL PROPERTY OF THE CITY, OR ANY PART THEREOF, OR ANY OTHER TANGIBLE PERSONAL PROPERTY OF OR IN THE CITY, BUT SHALL CONSTITUTE A LIEN ONLY ON THE PLEDGED REVENUES, ALL IN THE MANNER AND THE EXTENT PROVIDED IN THE BOND RESOLUTION. Payment of the principal of and interest on the Series 2005 Bonds when due will be insured by a municipal bond insurance policy to be issued by MBIA Insurance Corporation (the "Insurer") simultaneously with the delivery of the Series 2005 Bonds. This cover page contains certain information for quick reference only. It is not, and is not intended to be, a summary of this issue. Investors must read the entire Official Statement to obtain information essential to making an informed investment decision. The Series 2005 Bonds are offered when, as, and if issued and received by the Underwriter, subject to the opinion on certain legal matters relating to their issuance by Holland & Knight LLP, Lakeland, Florida, Bond Counsel. Certain legal matters will be passed upon for the City by Marion J. Radson, Esq., Gainesville, Florida, City Attorney and Bryant Miller & Olive P.A., Tampa, Florida, Disclosure Counsel to the City. Public Financial Management, Inc., Orlando, Florida is Financial Advisor to the City in regard to the issuance of the Series 2005 Bonds. It is expected that the Series 2005 Bonds in definitive form will be available for delivery to the Underwriter in New York, New York at the facilities of DTC on or about November 30, MERRILL LYNCH & CO. Dated: November 8, 2005

2 CITY OF GAINESVILLE, FLORIDA $22,695,000 CAPITAL IMPROVEMENT REVENUE BONDS, SERIES 2005 MATURITIES, AMOUNTS, INTEREST RATES, PRICES OR YIELDS AND INITIAL CUSIP NUMBERS Maturity October 1 Amount Interest Rate Price or Yield Initial CUSIP Numbers 2006 $ 650, % 3.000% AA , AB , AC , AD , AE , AF , AG , AH ,035, AJ ,080, AK ,125, * AL ,170, AM ,220, AN ,275, AP ,330, AQ ,390, AR ,450, * AS ,515, AT ,580, AU ,655, AV1 *Yield to first optional prepayment date of October 1, 2015

3 CITY OF GAINESVILLE, FLORIDA 200 East University Avenue Gainesville, Florida MEMBERS OF THE CITY COMMISSION Pegeen Hanrahan, Mayor Charles S. Chestnut, IV, Mayor-Commissioner Pro Tempore Edward B. Braddy, Commissioner Richard J. Bryant, Commissioner John F. Donovan, Commissioner Stuart Craig Lowe, Commissioner Warren C. Nielsen, Commissioner CITY OFFICIALS Russ Blackburn, City Manager Brent Godshalk, City Auditor Marion J. Radson, Esq., City Attorney Kurt M. Lannon, Clerk of the Commission Michael L. Kurtz, General Manager of Utilities Jimmie Williams, Equal Opportunity Director FINANCIAL ADVISOR Public Financial Management, Inc. Orlando, Florida BOND COUNSEL Holland & Knight LLP Lakeland, Florida DISCLOSURE COUNSEL Bryant Miller & Olive P.A. Tampa, Florida AUDITOR Davis, Monk & Company Gainesville, Florida

4 No dealer, broker, salesman or other person has been authorized by the City to give any information or to make any representations in connection with the Series 2005 Bonds, other than as contained in this Official Statement, and, if given or made, such information or representations must not be relied upon as having been authorized by the City. 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 2005 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been obtained from the City, the Insurer, DTC and other sources that are believed to be reliable, but is not guaranteed as to accuracy or completeness by and is not to be construed as a representation by the City or the Underwriter with respect to any information provided by others. The information and expressions of opinion stated herein are subject to change, and neither the delivery of this Official Statement nor any sale made hereunder shall create, under any circumstances, any implication that there has been no change in the matters described herein since the date hereof. IN CONNECTION WITH THIS OFFERING OF THE SERIES 2005 BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH SERIES 2005 BONDS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. All summaries herein of documents and agreements are qualified in their entirety by reference to such documents and agreements, and all summaries herein of the Series 2005 Bonds are qualified in their entirety by reference to the form thereof included in the aforesaid documents and agreements. NO REGISTRATION STATEMENT RELATING TO THE SERIES 2005 BONDS HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR WITH ANY STATE SECURITIES COMMISSION. IN MAKING ANY INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATIONS OF THE CITY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE SERIES 2005 BONDS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSION OR ANY STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. THE FOREGOING AUTHORITIES HAVE NOT PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE.

5 TABLE OF CONTENTS Page INTRODUCTION... 1 General... 1 The City... 1 Authority for and Purpose of Issuance... 2 Security for the Bonds... 2 Additional Bonds... 4 Municipal Bond Insurance... 4 Description of the Series 2005 Bonds... 4 Tax Matters... 4 Continuing Disclosure... 5 Other Obligations Payable from Non-Ad Valorem Revenues... 5 Issuance of Bonds or Other Obligations Payable from Non-Ad Valorem Revenues... 5 Other Information... 5 AUTHORITY FOR AND PURPOSE OF ISSUANCE... 6 DESCRIPTION OF THE SERIES 2005 BONDS... 6 General... 6 Book-Entry Only System... 7 Early Redemption... 9 Registration and Transfer Series 2005 Bonds Mutilated, Destroyed, Stolen or Lost SECURITY FOR THE BONDS General Funds and Accounts No Reserve Subaccount Disposition of Covenant Revenues Use of Moneys in the Sinking Fund Account Deposits Constitute Trust Funds Investment of Moneys Uniform Commercial Code Annual Audit Anti-Dilution Test Issuance of Bonds or Other Obligations Additional Bonds Refunding Bonds Qualified Hedge Agreements Insurer Deemed Bondholder Modification or Amendment without Bondholder Consent i

6 THE CITY Background City Government GENERAL INFORMATION REGARDING COVENANT REVENUES General Taxes Intergovernmental Revenues Licenses and Permits Charges for Services Fines and Forfeitures Miscellaneous Revenues Interfund Transfers CERTAIN FINANCIAL MATTERS Investment Policy Financial and Operating Plan (Budget) and Capital Improvement Planning Policy Financial Reporting General Fund Classification of Local Government Expenditures LIABILITIES OF THE CITY Insurance Considerations Affecting the City Ability to be Sued, Judgments Enforceable Debt Issuance and Management Direct Debt Defined Benefit Pension Plans Retiree Health Care Plan Commitments and Contingencies BOND INSURANCE POLICY The MBIA Insurance Corporation Insurance Policy The Insurer Regulation Financial Strength Ratings of the Insurer MBIA Financial Information Incorporation of Certain Documents by Reference ESTIMATED SOURCES AND USES OF FUNDS...52 BOND DEBT SERVICE SCHEDULE...53 LEGAL MATTERS LITIGATION DISCLOSURE REQUIRED BY FLORIDA BLUE SKY REGULATIONS TAX MATTERS ii

7 Alternative Minimum Tax Original Issue Discount Original Issue Premium Other Tax Consequences RATINGS FINANCIAL ADVISOR AUDITED FINANCIAL STATEMENTS ENFORCEABILITY OF REMEDIES CONTINUING DISCLOSURE UNDERWRITING CONTINGENT FEES ACCURACY AND COMPLETENESS OF OFFICIAL STATEMENT AUTHORIZATION OF OFFICIAL STATEMENT APPENDICES APPENDIX A: APPENDIX B: APPENDIX C: APPENDIX D: APPENDIX E: APPENDIX F: General Information Concerning the City of Gainesville Basic Financial Statements of the City Composite Bond Resolution Form of Specimen Bond Insurance Policy Form of Bond Counsel Opinion Form of Continuing Disclosure Certificate iii

8 OFFICIAL STATEMENT relating to CITY OF GAINESVILLE, FLORIDA $22,695,000 City of Gainesville, Florida Capital Improvement Revenue Bonds Series 2005 INTRODUCTION General This Official Statement, including the cover page and the appendices hereto, is furnished with respect to the sale of $22,695,000 aggregate principal amount of Capital Improvement Revenue Bonds, Series 2005 (the "Series 2005 Bonds") issued by the City of Gainesville, Florida (the "City"). This introduction is not, and is not intended to be, a summary of this Official Statement. It is only a brief description of, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page, inside cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the Series 2005 Bonds is made only by means of this Official Statement and is subject in all respects to the information contained herein. The City The City is the most populous city in Alachua County, and serves as the county seat and the cultural, educational and commercial center for the north central Florida region. The City is located midway between the Gulf of Mexico and the Atlantic Ocean and halfway between Miami and Pensacola. There are approximately 54 square miles of land included within the corporate boundaries of the City. As of April 1, 2004, the official population estimate was 117,754, according to the Bureau of Economic and Business Research at the University of Florida. For additional information concerning the City, see "THE CITY" herein and "APPENDIX A General Information Concerning the City of Gainesville" attached hereto. 1

9 The City was established in 1854, incorporated in 1869 and has operated under a Commission- Manager form of government since The City Commission of the City (the "Commission") consists of seven elected officials (a Mayor and six Commissioners) who are responsible for enacting the ordinances and adopting the resolutions which govern the City. All elected officials serve three-year terms. The Mayor presides over public meetings and ceremonial events. The Commission appoints the City Manager, General Manager for Utilities, City Auditor, City Attorney, Clerk of the Commission, and Equal Opportunity Director. The City's advisory Charter Review Committee has recommended changing the length of the terms of the elected officials from three years to four years and retaining the limit of two terms. The Commission has not yet adopted this recommendation and such a recommendation would have to be approved by voters prior to becoming effective. Authority for and Purpose of Issuance The Series 2005 Bonds are being issued pursuant to the authority of and in full compliance with the Constitution and laws of the State of Florida, including particularly Chapter 166, Florida Statutes, the municipal charter of the City and other applicable provisions of law (the "Act") and pursuant to Resolution No adopted by the Commission on February 24, 2003, as amended or supplemented from time to time, and as particularly supplemented by Resolution No adopted by the Commission on October 24, 2005 (collectively, the "Bond Resolution"). All terms used herein in capitalized form and not otherwise defined have the meanings ascribed thereto in the Bond Resolution. For a complete description of the terms and conditions of the Series 2005 Bonds, reference is made to "APPENDIX C Composite Bond Resolution" attached hereto. The Series 2005 Bonds are being issued to provide funds to (i) acquire certain lands and to acquire, construct, refurbish, renovate and equip various municipal facilities, including, without limitation, police and fire facilities, recreational and greenspace facilities, transportation facilities and economic development and redevelopment projects (the "2005 Project"); and (ii) pay a portion of the costs associated with the issuance of the Series 2005 Bonds, including the municipal bond insurance premium. Security for the Bonds The Series 2005 Bonds are being issued as Additional Bonds under the Bond Resolution and are secured by a lien on the Pledged Revenues (as defined below) on a parity with the City's Taxable Pension Obligation Revenue Bonds, Series 2003A (Employee's Plan) (the "Series 2003A Bonds"), the Taxable Pension Obligation Revenue Bonds, Series 2003B (Consolidated Plan) (the "Series 2003B Bonds"), the Taxable Other Post Employment Benefits Obligation Bonds, Series 2005 (Retiree Health Care Plan) (the "Series 2005 Taxable Bonds" and together with the Series 2003A Bonds and the Series 2003B Bonds, the "Prior Bonds") previously issued and outstanding under the Bond Resolution and any Additional Bonds hereafter issued under the Bond Resolution. The outstanding Series 2003A Bonds consist of $20,125,000 aggregate principal amount of Current Interest Bonds and $17,947, original aggregate principal 2

10 amount of Capital Appreciation Bonds. The outstanding Series 2003B Bonds consist of $43,480,000 aggregate principal amount of Current Interest Bonds and $6,371, original aggregate principal amount of Capital Appreciation Bonds. The outstanding Series 2005 Taxable Bonds consists of $35,210,000 aggregate principal amount of Current Interest Bonds. Pursuant to the Bond Resolution, the City has covenanted and agreed, to the extent permitted by and in accordance with applicable law and budgetary processes, to prepare, approve and appropriate in its Annual Budget for each Fiscal Year, by amendment, if necessary, and to deposit to the credit of the Sinking Fund Account, Non-Ad Valorem Revenues of the City in an amount equal to the Bond Service Requirement with respect to all Bonds outstanding under the Bond Resolution for the applicable Bond Year, plus an amount sufficient to satisfy all other payment obligations of the City under the Bond Resolution for the applicable Bond Year. "Pledged Revenues" consist of the Non-Ad Valorem Revenues budgeted and appropriated, and deposited into the Sinking Fund Account, to pay the principal of, premium, if any, and interest on the Bonds, and income received from the investment of moneys deposited in the funds and accounts established under the Bond Resolution. The covenant and obligation of the City to budget and appropriate such amounts as described above is subject, however, in all respects to certain existing obligations and obligations to be made in the future, as more fully described herein and in the Bond Resolution. Notwithstanding the foregoing or anything in the Bond Resolution to the contrary, the City has not covenanted to maintain any service or program now provided or maintained by the City which generates Non-Ad Valorem Revenues. THE SERIES 2005 BONDS SHALL NOT BE DEEMED TO CONSTITUTE GENERAL OBLIGATIONS OR A PLEDGE OF THE FAITH AND CREDIT OR TAXING POWER OF THE CITY, THE STATE OF FLORIDA OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL, LEGISLATIVE OR CHARTER PROVISION OR LIMITATION, BUT SHALL BE PAYABLE FROM AND SECURED SOLELY BY A LIEN UPON AND A PLEDGE OF THE PLEDGED REVENUES, IN THE MANNER AND TO THE EXTENT PROVIDED IN THE BOND RESOLUTION. NO SERIES 2005 BONDHOLDER SHALL EVER HAVE THE RIGHT, DIRECTLY OR INDIRECTLY, TO REQUIRE OR COMPEL THE EXERCISE OF THE AD VALOREM TAXING POWER OF THE CITY OR ANY OTHER POLITICAL SUBDIVISION OF THE STATE OF FLORIDA OR TAXATION IN ANY FORM ON ANY REAL OR PERSONAL PROPERTY FOR ANY PURPOSE, INCLUDING WITHOUT LIMITATION, FOR THE PAYMENT OF PRINCIPAL OF AND INTEREST ON SUCH SERIES 2005 BONDS, OR TO MAINTAIN OR CONTINUE ANY ACTIVITIES OF THE CITY WHICH GENERATE USER SERVICE CHARGES, REGULATORY FEES OR OTHER NON-AD VALOREM REVENUES, NOR SHALL ANY SERIES 2005 BONDHOLDER BE ENTITLED TO PAYMENT OF SUCH PRINCIPAL AND INTEREST FROM ANY OTHER FUNDS OF THE CITY OTHER THAN THE PLEDGED REVENUES, ALL IN THE MANNER AND TO THE EXTENT PROVIDED IN THE BOND RESOLUTION. THE SERIES 2005 BONDS AND THE INDEBTEDNESS EVIDENCED THEREBY SHALL NOT CONSTITUTE A LIEN UPON ANY REAL OR PERSONAL PROPERTY OF THE CITY, OR ANY PART THEREOF, OR ANY OTHER TANGIBLE PERSONAL PROPERTY OF OR IN THE CITY, BUT SHALL CONSTITUTE A LIEN ONLY 3

11 ON THE PLEDGED REVENUES, ALL IN THE MANNER AND THE EXTENT PROVIDED IN THE BOND RESOLUTION. SEE "SECURITY FOR THE BONDS" HEREIN. Additional Bonds Pursuant to the Bond Resolution, the City may issue Additional Bonds in the future on parity with the Prior Bonds and the Series 2005 Bonds. See "INTRODUCTION Issuance of Bonds or Other Obligations Payable from Non-Ad Valorem Revenues," "SECURITY FOR THE BONDS Anti-Dilution Test," "SECURITY FOR THE BONDS Additional Bonds" and "SECURITY FOR THE BONDS Refunding Bonds" herein for a description of the requirements which must be met for the issuance of Additional Bonds. Municipal Bond Insurance Payment of the principal of and interest on the Series 2005 Bonds when due will be insured by a municipal bond insurance policy to be issued by MBIA Insurance Corporation (the "Insurer") simultaneously with the delivery of the Series 2005 Bonds. See "APPENDIX D Form of Specimen Bond Insurance Policy" attached hereto. Description of the Series 2005 Bonds Denominations. The Series 2005 Bonds will be issued in denominations of $5,000 or any integral multiple thereof. See "DESCRIPTION OF THE SERIES 2005 BONDS General" herein. Early Redemption. Certain of the Series 2005 Bonds are subject to Optional Redemption without premium. See DESCRIPTION OF THE SERIES 2005 BONDS Early Redemption herein for a further description of early redemption. Registration and Transfers. Transfer of ownership in the Series 2005 Bonds will be effected through The Depository Trust Company ("DTC") book-entry system as described herein. As long as Cede & Co. is the registered owner as nominee of DTC, principal and interest payments will be made directly to such registered owner which in turn is to remit such payments to the Participants (as hereinafter defined) for subsequent disbursement to the Beneficial Owners (as hereinafter defined). See "DESCRIPTION OF THE SERIES 2005 BONDS Book-Entry Only System" herein. Tax Matters In the opinion of Holland & Knight LLP, Bond Counsel, assuming continuing compliance by the City with certain arbitrage rebate and other tax requirements referred to in this Official Statement, under existing law, interest on the Series 2005 Bonds is excluded from gross income for federal income tax purposes and will not be treated as an item of tax preference in computing the federal alternative minimum tax. Interest on such Series 2005 Bonds will, however, be taken into account in computing an adjustment made in determining a corporate Series 2005 Bondholder s alternative minimum tax, based on such Series

12 Bondholder s adjusted current earnings, and holders of the Series 2005 Bonds could be subject to the consequences of other provisions of the Internal Revenue Code of 1986, as amended, as further described in this Official Statement. In the opinion of Bond Counsel, under existing law, the Series 2005 Bonds are exempt from present intangible personal property taxes imposed by the State of Florida. See the discussion under the heading "TAX MATTERS" herein. Continuing Disclosure The City has agreed and undertaken, for the benefit of Series 2005 Bondholders, to provide certain financial information and operating data relating to the City, the Pledged Revenues and the Series 2005 Bonds pursuant to Rule 15c2-12 of the Securities and Exchange Commission. See "CONTINUING DISCLOSURE" herein. Other Obligations Payable from Non-Ad Valorem Revenues The City has other debt issues outstanding which are secured by and payable from specific non-ad valorem revenues, and debt obligations outstanding which are secured by a covenant to budget and appropriate legally available non-ad valorem revenues, which is the same source of security as for the Bonds. See the table entitled "CITY OF GAINESVILLE, FLORIDA DEBT SERVICE SCHEDULE FOR NON-SELF-SUPPORTING REVENUE DEBT" in "GENERAL INFORMATION REGARDING COVENANT REVENUES" herein and see "GENERAL INFORMATION REGARDING COVENANT REVENUES General" herein. Issuance of Bonds or Other Obligations Payable from Non-Ad Valorem Revenues The City may issue additional obligations in the future payable from the Non-Ad Valorem Revenues of the City subject to certain covenants restricting such ability set forth in the Bond Resolution. See "SECURITY FOR THE BONDS Issuance of Bonds or Other Obligations" and "SECURITY FOR THE BONDS Anti-Dilution Test," "SECURITY FOR THE BONDS Additional Bonds" and "SECURITY FOR THE BONDS Refunding Bonds" herein and "APPENDIX C Composite Bond Resolution" attached hereto. Other Information This Official Statement speaks only as of its date, and the information contained herein is subject to change. Copies of the Bond Resolution and other documents and information are available, upon request and upon payment to the City of a charge for copying, mailing and handling, from the Clerk of the Commission, Kurt M. Lannon, 200 East University Avenue, Room 107, Gainesville, Florida , telephone (352) For a complete description of the terms and conditions of the Series 2005 Bonds, reference is made to the Bond Resolution, a composite of which is included in "APPENDIX C -- Composite Bond Resolution" attached hereto. The description of the Bond Resolution, the Series 5

13 2005 Bonds and information from reports contained herein do not purport to be comprehensive or definitive. AUTHORITY FOR AND PURPOSE OF ISSUANCE The Series 2005 Bonds are being issued pursuant to the authority of and in full compliance with the Act, pursuant to the Bond Resolution. The Series 2005 Bonds are being issued to provide funds to (i) acquire certain lands and to acquire, construct, refurbish, renovate and equip various municipal facilities, including, without limitation, police and fire facilities, recreational and greenspace facilities, transportation facilities and economic development and redevelopment projects and (ii) pay a portion of the costs associated with the issuance of the Series 2005 Bonds, including the municipal bond insurance premium. General DESCRIPTION OF THE SERIES 2005 BONDS The Series 2005 Bonds shall be issued in fully registered form, in denominations of $5,000 or any integral multiple thereof. The Series 2005 Bonds are dated the date of their delivery, will mature on the dates, and will bear interest at the rates per annum, all as set forth on the inside cover page. Interest on the Series 2005 Bonds is payable semiannually on each April 1 and October 1, commencing April 1, 2006 (the "Interest Payment Dates"). Interest payable on the Series 2005 Bonds on any Interest Payment Date will be paid by check or draft of J.P. Morgan Trust Company, N.A. (the "Paying Agent") as Paying Agent mailed to the Registered Holder thereof at the address appearing on the registration books of the City maintained by the Registrar at the close of business on the 15th day (whether or not a business day) of the month next preceding the interest payment date (the "Record Date"), irrespective of any transfer or exchange of such Series 2005 Bonds subsequent to such Record Date and prior to such Interest Payment Date, unless the City is in default in payment of interest due on such interest payment date. Principal of the Series 2005 Bonds is payable, when due, to the registered holder upon presentation and surrender at the designated corporate office of the Paying Agent. All payments of principal of, redemption premium, if applicable, and interest on the Series 2005 Bonds are payable in lawful money of the United States of America. The Series 2005 Bonds will be issued initially as book-entry obligations and held by The Depository Trust Company ("DTC") as securities depository. For more information regarding DTC and DTC's book-entry system, see "DESCRIPTION OF THE SERIES 2005 BONDS -- Book- Entry Only System" below. 6

14 Book-Entry Only System THE FOLLOWING INFORMATION CONCERNING DTC AND DTC'S BOOK-ENTRY ONLY SYSTEM HAS BEEN OBTAINED FROM SOURCES THAT THE CITY BELIEVES TO BE RELIABLE, BUT THE CITY TAKES NO RESPONSIBILITY FOR THE ACCURACY THEREOF. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Series 2005 Bonds. The Series 2005 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 certificate will be issued for each maturity of the Series 2005 Bonds, each in the aggregate principal amount of such issue, and will be deposited with DTC. SO LONG AS CEDE & CO. IS THE REGISTERED OWNER OF THE SERIES 2005 BONDS, AS NOMINEE OF DTC, CERTAIN REFERENCES IN THIS OFFICIAL STATEMENT TO THE SERIES 2005 BONDHOLDERS OR REGISTERED OWNERS OF THE SERIES 2005 BONDS SHALL MEAN CEDE & CO. AND SHALL NOT MEAN THE BENEFICIAL OWNERS OF THE SERIES 2005 BONDS. THE DESCRIPTION WHICH FOLLOWS OF THE PROCEDURES AND RECORD KEEPING WITH RESPECT TO BENEFICIAL OWNERSHIP INTERESTS IN THE SERIES 2005 BONDS, PAYMENT OF INTEREST AND PRINCIPAL ON THE SERIES 2005 BONDS TO DIRECT PARTICIPANTS (AS HEREINAFTER DEFINED) OR BENEFICIAL OWNERS OF THE SERIES 2005 BONDS, CONFIRMATION AND TRANSFER OF BENEFICIAL OWNERSHIP INTERESTS IN THE SERIES 2005 BONDS, AND OTHER RELATED TRANSACTIONS BY AND BETWEEN DTC, THE DIRECT PARTICIPANTS AND BENEFICIAL OWNERS OF THE SERIES 2005 BONDS IS BASED SOLELY ON INFORMATION FURNISHED BY DTC. ACCORDINGLY, THE CITY AND THE UNDERWRITERS NEITHER MAKE NOR CAN MAKE ANY REPRESENTATIONS CONCERNING THESE MATTERS. The term "Direct Participants" shall mean those corporations, entities, institutions and other organizations who deposit equity, corporate and municipal debt issues and money market instruments with DTC for the provision of asset servicing. "Indirect Participants" shall mean those securities brokers, dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship, either directly or indirectly, with a Direct Participant. DTC, the world s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-u.s. equity, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC s 7

15 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 book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and Purchases of Series 2005 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2005 Bonds on DTC s records. The ownership interest of each actual purchaser of each Series 2005 Bond ("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 2005 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 2005 Bonds, except in the event that use of the book-entry system for the Series 2005 Bonds is discontinued. To facilitate subsequent transfers, all Series 2005 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 2005 Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2005 Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Series 2005 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 8

16 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 shall be sent to DTC. If less than all of the Series 2005 Bonds are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such bonds, as the case may be, to be redeemed. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Series 2005 Bonds unless authorized by a Direct Participant in accordance with DTC s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Series 2005 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Series 2005 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 City or the Registrar on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Registrar, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City and 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 2005 Bonds at any time by giving reasonable notice to the City. Under such circumstances, in the event that a successor securities depository is not obtained, certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, upon compliance with any agreements entered into between the City and DTC, certificates will be printed and delivered. Early Redemption Optional Redemption. The Series 2005 Bonds maturing on or before October 1, 2015 are not subject to redemption prior to their stated dates of maturity. The Series 2005 Bonds maturing after October 1, 2015 are subject to redemption prior to their stated dates of maturity, 9

17 at the option of the City, on or after October 1, 2015, in whole, or in part at any time, in such order of maturities as shall be determined by the City, and by lot within a maturity if less than a full maturity is redeemed, at a redemption price (equal to 100% of the principal amount thereof to the redeemed) together with accrued interest to the date fixed for redemption. Registration and Transfer The following provisions shall only be applicable if DTC's book-entry only system of registration is discontinued. The registration of the Series 2005 Bonds may be transferred upon the registration books therefor upon delivery to the Registrar, accompanied by a written instrument or instruments of transfer in form and with guaranty of signature satisfactory to the Registrar, duly executed by the registered owner of such Series 2005 Bonds or by his attorney-in-fact or legal representative, containing written instructions as to the details of transfer of such Series 2005 Bonds, along with the social security number or federal employer identification number of such transferee. In all cases of a transfer of the Series 2005 Bonds, the Registrar will at the earliest practical time in accordance with the provisions of the Bond Resolution enter the transfer of ownership in the registration books for the Series 2005 Bonds and (unless uncertificated registration shall be requested and the City has a registration system that will accommodate uncertificated registration) will deliver in the name of the new transferee or transferees a new fully registered Series 2005 Bond or Series 2005 Bonds of the same maturity and of authorized denomination or denominations for the same aggregate principal amount and payable from the same sources of funds. Neither the City nor the Registrar will be required to register the transfer of any Series 2005 Bond during the fifteen (15) days next preceding an interest payment date on the Series 2005 Bonds or, in the case of any proposed redemption of Series 2005 Bonds, after such Series 2005 Bonds or any portion thereof have been selected for redemption. The Registrar or the City may charge the registered owners of such Series 2005 Bonds for the registration of every such transfer of such Series 2005 Bonds sufficient to reimburse it for any tax, fee or any other governmental charge required to be paid, except for any such governmental charge imposed by the City, with respect to the registration of such transfer, and may require that such amounts be paid before any such new Series 2005 Bonds shall be delivered. Series 2005 Bonds Mutilated, Destroyed, Stolen or Lost If any Series 2005 Bond is mutilated, destroyed, stolen or lost, the City or its agent may, in its discretion (i) deliver a duplicate replacement Series 2005 Bond, or (ii) pay a Series 2005 Bond that has matured or is about to mature. A mutilated Series 2005 Bond must be surrendered to and cancelled by the Registrar or its duly authorized agent. The Series 2005 Bondholder must furnish the City or its agent proof of ownership of any destroyed, stolen or lost Series 2005 Bond; post satisfactory indemnity; comply with any reasonable conditions the City or its agent may prescribe; and pay the City's or its agent's reasonable expenses. 10

18 Any such duplicate Series 2005 Bond will constitute an original contractual obligation on the part of the City whether or not the destroyed, stolen, or lost Series 2005 Bond be at any time found by anyone, and such duplicate Series 2005 Bond will be entitled to equal and proportionate benefits and rights as to lien on, source of and security for payment from, the funds pledged to the payment of the Series 2005 Bond so mutilated, destroyed, stolen or lost. General SECURITY FOR THE BONDS The payment of the principal of, premium, if any, and interest on the Bonds is secured forthwith equally and ratably by an irrevocable lien on the Pledged Revenues, all in the manner and to the extent provided in the Bond Resolution. "Bonds" means, collectively, the Prior Bonds, the Series 2005 Bonds and any Additional Bonds hereafter issued. See "SECURITY FOR THE BONDS Additional Bonds" herein. "Pledged Revenues" means the Covenant Revenues, and income received from the investment of moneys deposited in the funds and accounts established in the Bond Resolution. "Covenant Revenues" means the Non-Ad Valorem Revenues budgeted and appropriated, and deposited into the Sinking Fund Account, to pay the principal of, premium, if any, and interest on the Bonds pursuant to the Bond Resolution. The City has irrevocably pledged such Pledged Revenues to the payment of the principal of, premium, if any, and interest on the Bonds, and for all other payments as provided in the Bond Resolution, in the order of priorities set forth in the Bond Resolution. Notwithstanding the foregoing, nothing in the Bond Resolution shall be deemed to grant or create a lien on any account or subaccount in the Project Fund or in a Reserve Account created with respect to a particular Series of Bonds in favor of the owners of Bonds of any other Series and each account in the Project Fund, and in the Reserve Account shall secure only the Series of Bonds with respect to which it was created and the Composite Reserve Subaccount shall secure only those Series of Bonds designated by supplemental ordinance or resolution to be secured thereby. The Series 2005 Bonds will not be secured by the Reserve Account or any subaccount therein. See "SECURITY FOR THE BONDS Funds and Accounts" and "SECURITY FOR THE BONDS No Reserve Subaccount" herein for information concerning the funding of subaccounts in the Reserve Account with respect to Additional Bonds. The City covenanted and agreed in the Bond Resolution, to the extent permitted by and in accordance with applicable law and budgetary processes, to prepare, approve and appropriate in its Annual Budget for each Fiscal Year, by amendment if necessary, and to deposit to the credit of the Sinking Fund Account, Non-Ad Valorem Revenues of the City in an amount equal to the Bond Service Requirement with respect to all Bonds outstanding under the Bond Resolution for the applicable Bond Year, plus an amount sufficient to satisfy all other payment obligations of the City under the Bond Resolution for the applicable Bond Year, including, without limitation, to the extent applicable, the funding or replenishment of the subaccounts in the Reserve Account in the manner contemplated by the Bond Resolution. "Non-Ad Valorem Revenues" means all legally available non-ad valorem revenues of the City derived from any source whatsoever, including, without limitation, investment income, which 11

19 are legally available for the payment by the City of debt service on Bonds or Non-Self- Supporting Revenue Debt. This includes, without limitation, legally available non-ad valorem revenues derived from sources subject to a prior pledge thereof for the payment of other obligations of the City and available after payment of principal and interest on such other obligations, but it excludes revenues derived from the City's electric system, natural gas system, water system, wastewater system, telecommunications system ("GRUCom") and stormwater management utility system, except to the extent that revenues derived from such sources are deposited into the City's general fund. Under the Bond Resolution, "Non-Self-Supporting Revenue Debt" means obligations evidencing indebtedness for borrowed money, including Bonds issued under the Bond Resolution, (i) the primary security for which is provided by a covenant of the City to budget and appropriate Non-Ad Valorem Revenues of the City for the payment of debt service on such obligations, or (ii) primarily secured or payable from another source of funds, but with respect to which the City has also covenanted to budget and appropriate Non-Ad Valorem Revenues of the City for the payment of debt service on such obligations, provided that obligations described in this clause (ii) shall only be considered Non- Self-Supporting Revenue Debt to the extent the City has included in its budget (by amendment or otherwise) the payment of such Non-Ad Valorem Revenues pursuant to such covenant to pay debt service on such obligations. "Non-Self-Supporting Revenue Debt" does not include any debt payable from the revenues of a utility system. Such covenant and agreement on the part of the City to budget and appropriate sufficient amounts of Non-Ad Valorem Revenues is cumulative, and continues until such Non- Ad Valorem Revenues in amounts sufficient to make all required payments under the Bond Resolution as and when due, including any delinquent payments, shall have been budgeted, appropriated and actually paid into the appropriate funds and accounts under the Bond Resolution; provided, however, that such covenant does not constitute a lien, either legal or equitable, on any of the City's Non-Ad Valorem Revenues or other revenues, nor does it preclude the City from pledging in the future any of its Non-Ad Valorem Revenues or other revenues to other obligations so long as the provisions of the Bond Resolution are satisfied, nor does it give the Bondholders a prior claim on the Non-Ad Valorem Revenues. Anything in the Bond Resolution to the contrary notwithstanding, all obligations of the City under the Bond Resolution are secured only by the Non-Ad Valorem Revenues actually budgeted and appropriated and deposited into the funds and accounts created under the Bond Resolution, as provided for in the Bond Resolution. The City is prohibited by law from expending moneys not appropriated or in excess of its current budgeted revenues and surpluses. The obligation of the City to budget, appropriate and make payments under the Bond Resolution from its Non-Ad Valorem Revenues is subject to the availability of Non-Ad Valorem Revenues after satisfying funding requirements for obligations having an express lien on or pledge of such revenues and after satisfying funding requirements for essential governmental services of the City. Notwithstanding the foregoing or anything in the Bond Resolution to the contrary, the City has not covenanted to maintain any service or program now provided or maintained by the City which generates Non-Ad Valorem Revenues. 12

20 The Bonds shall not be deemed to constitute general obligations or a pledge of the faith and credit or taxing power of the City, the State of Florida or any political subdivision thereof within the meaning of any constitutional, legislative or charter provision or limitation, but shall be payable from and secured solely by a lien upon and a pledge of the Pledged Revenues, in the manner and to the extent provided in the Bond Resolution. No Bondholder shall ever have the right, directly or indirectly, to require or compel the exercise of the ad valorem taxing power of the City or any other political subdivision of the State of Florida or taxation in any form on any real or personal property for any purpose, including, without limitation, for the payment of principal of and interest on such Bonds, or to maintain or continue any activities of the City which generate user service charges, regulatory fees or other non-ad valorem revenues, nor shall any Bondholder be entitled to payment of such principal and interest from any other funds of the City other than the Pledged Revenues, all in the manner and to the extent provided in the Bond Resolution. The Bonds and the indebtedness evidenced thereby shall not constitute a lien upon any real or personal property of the City, or any part thereof, or any other tangible personal property of or in the City, but shall constitute a lien only on the Pledged Revenues, all in the manner and the extent provided in the Bond Resolution. Funds and Accounts In the Bond Resolution, the City created and established the "Debt Service Fund" and two accounts therein, the "Sinking Fund Account" and the "Reserve Account" (and a subaccount in the Reserve Account designated the "Composite Reserve Subaccount") and the "Project Fund" and two accounts therein, the "2005 Project Account" and the "2005 Bonds Costs of Issuance Account". The City may create and establish in the Reserve Account one or more additional separate subaccounts with respect to and securing separate Series of Bonds. The Series 2005 Bonds will not be secured by the Reserve Account or any subaccount therein. Proceeds of the Series 2005 Bonds deposited into the 2005 Project Account will be used and applied to pay the Cost of the Project related to the 2005 Project, other than costs of issuance of the Series 2005 Bonds. Proceeds of the Series 2005 Bonds deposited into the 2005 Bonds Cost of Issuance Account will be applied to pay, when due, the costs of issuance of the Series 2005 Bonds. The Debt Service Fund created under the Bond Resolution and all accounts and subaccounts therein and the Project Fund and any accounts and subaccounts created therein constitute trust funds for the purposes provided therein and in any subsequent ordinance or resolution, shall be delivered to and held by the Finance Director (or an Authorized Depository designated by the Finance Director), in each case who shall act as trustee of such funds for the purposes of the Bond Resolution, and shall at all times be kept separate and distinct from all other funds of the City and used only as provided in the Bond Resolution. Moneys held in the Debt Service Fund and the accounts and subaccounts therein shall be subject to a lien and charge in favor of the holders and registered owners of the Bonds as provided in the Bond Resolution. 13

21 No Reserve Subaccount The Series 2005 Bonds will not be secured by the Reserve Account in the Debt Service Fund or by any subaccount therein. The City may fund a subaccount in the Reserve Account to secure Additional Bonds issued in the future pursuant to the Bond Resolution; provided, however, such subaccount will not secure the Series 2005 Bonds. The City reserves the right to create and establish separate subaccounts in the Reserve Account for any Series of Additional Bonds for the purpose of securing such Series only or to secure designated multiple Series. Disposition of Covenant Revenues So long as any Bonds are Outstanding under the Bond Resolution, the City is required to deposit to the credit of the Funds and Accounts listed below on or before the twenty-fifth day of each month, from Non-Ad Valorem Revenues budgeted and appropriated for such purposes received by the City, amounts which, together with funds on deposit therein, will be sufficient to satisfy the cumulative deposit requirements described in clauses (a) and (b) below. Covenant Revenues received by the City are required to be deposited in the following order and priority: (a) First, by deposit into the Sinking Fund Account an amount which, together with any other amounts required to be deposited therein pursuant to the Bond Resolution, will equal one-sixth (1/6th) of the interest maturing on the Bonds on the next semiannual interest payment date, with respect to Bonds that bear interest payable semiannually, the amount of interest next becoming due or maturing on Bonds that bear interest payable monthly, the amount of interest accruing in such month on Bonds that bear interest payable on other than a monthly or semiannual basis (other than Capital Appreciation Bonds), one-twelfth (1/12th) of all principal and, with respect to Capital Appreciation Bonds, the Compounded Amounts, maturing or becoming due during the current Bond Year on the various Series of Serial Bonds that mature annually, one-sixth (1/6th) of all principal and, with respect to Capital Appreciation Bonds, the Compounded Amounts, maturing on the next maturity date in such Bond Year on the various Series of Serial Bonds that mature semiannually, and one-twelfth (1/12th) of the Amortization Installments and unamortized principal balances of Term Bonds coming due during the current Bond Year with respect to the Bonds, until there are sufficient funds then on deposit equal to the sum of the interest, principal and redemption payments due on the Bonds on the next interest, principal and redemption dates in such Bond Year. Deposits shall be increased or decreased to the extent required to pay principal, interest and redemption premium, if any, after making allowance for any accrued and capitalized interest and taking into account deficiencies in prior months' deposits. Additionally, if Bonds constituting Variable Rate Bonds are outstanding on the date of such application of Covenant Revenues, unless the City shall establish a different procedure for the payment of monthly interest on Variable Rate Bonds, the City shall deposit into the Sinking Fund Account in lieu of the monthly interest deposit or the one- 14

22 sixth (1/6th) semiannual interest deposit described above, the interest actually accruing on such Bonds for such month (plus any deficiencies in interest deposits for the preceding month), assuming the interest rate thereon on the such date will continue through the end of such month. On or before each interest payment date, the City shall make up any deficiencies in such interest deposit, based on the actual interest accruing through such date. If the amount on deposit in the Sinking Fund Account shall not be adequate to pay an interest or principal and interest payment due on all Series of Bonds Outstanding, such amount shall be applied pro rata to each Series. Notwithstanding anything in this subsection (a) to the contrary, if principal, interest or redemption premium payments have been made on behalf of the City by a Bond Insurer (including the Insurer with respect to the Series 2005 Bonds) or other entity insuring, guarantying or providing for the payment of Bonds or any Series thereof, moneys deposited in the Sinking Fund Account and allocable to the payments on such Bonds made by a Bond Insurer or such other entity shall be paid to such Bond Insurer or such other entity having theretofore made the corresponding payment on the Bonds. (b) Second, by deposit into the separate subaccounts in the Reserve Account, the amounts, if any, which, together with funds on deposit therein, will be sufficient to make the funds on deposit therein, except as otherwise provided in the Bond Resolution, equal to the Reserve Requirement for each such subaccount. The Series 2005 Bonds shall not be secured by any subaccount in the Reserve Account. (c) Thereafter any remaining Covenant Revenues shall be available to the City to be used for any lawful purpose. Deposits required pursuant to the Bond Resolution shall be cumulative and the amount of any deficiency in any month shall be added to the amount otherwise required to be deposited in each month thereafter until such time as all such deficiencies have been cured. The City shall not be required to make any further payments into the Sinking Fund Account and the Reserve Account when the aggregate amount of funds in the Sinking Fund Account and the Reserve Account, including the applicable subaccounts therein, are at least equal to the aggregate principal amount of Bonds issued pursuant to the Bond Resolution and then Outstanding, plus the amount of interest then due or thereafter to become due on said Bonds then Outstanding, or if all Bonds then Outstanding have otherwise been defeased pursuant to the Bond Resolution. For purposes of the preceding sentence, in determining that moneys held in the Sinking Fund Account and Reserve Account are at least equal to the principal of and interest on a particular Series of Bonds, the City shall take into account moneys in the Reserve Account only to the extent that such moneys are held in a subaccount therein related to such Series of Bonds. 15

23 Use of Moneys in the Sinking Fund Account (1) Moneys on deposit in the Sinking Fund Account shall be used solely for the payment of the principal of, interest on and any redemption premiums required with respect to the Bonds; provided, however, that if such principal and interest payments, or a portion thereof, have been made on behalf of the City by a Bond Insurer or other entity insuring, guaranteeing or providing for the payment of the Bonds, or any Series or maturity thereof, moneys deposited therein and allocable to such payments on such Series or maturity shall be paid to such Bond Insurer or entity having theretofore made a corresponding payment on the Bonds. Capitalized interest deposited in the Sinking Fund shall be used to pay interest next coming due on the Series of Bonds to which such capitalized interest relates. (2) At the maturity date of each Bond and at the due date of such Amortization Installment and installment of interest on such Bonds, the City shall transfer from the Sinking Fund Account to the Paying Agent for such Bonds sufficient moneys to pay all principal of, premium, if any, and interest then due and payable with respect to such Bonds. Interest accruing with respect to any fully registered Bond shall be paid by check or draft of the Paying Agent to the registered owner thereof. Deposits Constitute Trust Funds All funds or other property which at any time may be owned or held in the possession of or deposited with the City for application in accordance with the terms and provisions of the Bond Resolution shall be held in trust and applied only in accordance with the provisions of the Bond Resolution, and shall not be subject to lien or attachment by any creditor of the City. All funds or other property which at any time may be owned or held in the possession of or deposited with the City pursuant to the Bond Resolution, and any investment income thereon, shall be continuously secured for the benefit of the City and the Bondholders in the order and manner and for the purposes provided in the Bond Resolution either (a) by depositing with an Authorized Depository, as custodian, collateral security consisting of obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America having a market value (exclusive of accrued interest) not less than the amount of such deposit, or (b) in such other manner as permitted under the Bond Resolution and as may then be required or permitted by applicable state and federal laws and regulations regarding the security for, or granting a preference in the case of, the deposit of trust funds, including without limitation, the provisions of Chapter 280, Florida Statutes, as from time to time amended. All moneys deposited with each Authorized Depository shall be credited to the particular fund or account to which such moneys belong. 16

24 Investment of Moneys Moneys held for the credit of the Reserve Account, the Sinking Fund Account and the 2005 Project Fund and the subaccounts therein, and all other funds and accounts under the Bond Resolution shall be invested and reinvested by the City in Investment Obligations. See "APPENDIX C Composite Bond Resolution" attached hereto for the definition of "Investment Obligations." Such investments or reinvestments shall mature or become available not later than the respective dates, as estimated by the City, that the moneys held for the credit of said funds and accounts will be needed for the purposes of such funds or accounts. Obligations so purchased as an investment of moneys in any such fund or account created under the Bond Resolution shall be deemed at all times to be a part of such fund or account, and shall at all times, for the purposes of the Bond Resolution, be valued annually on September 30 at the market value thereof, exclusive of accrued interest. Deficiencies in the amount on deposit in any fund or account resulting from a decline in market value shall be restored no later than the succeeding valuation date. Except as otherwise expressly provided in the Bond Resolution, all income and profits derived from the investment of moneys in the funds and accounts created by the Bond Resolution shall be retained in such respective funds and accounts and used for the purposes specified for such respective funds and accounts. Notwithstanding the foregoing, income and profits derived from the investment of moneys in the funds and accounts created under the Bond Resolution may, at the option of the City, be transferred to the City in order to pay the Rebate Amount. Notwithstanding anything in the Bond Resolution to the contrary, for purposes of investing or reinvesting, the City may commingle moneys in the fund, accounts and subaccounts created under the Bond Resolution in order to achieve greater investment income, provided that the City shall separately account for the amounts so commingled. Uniform Commercial Code The Series 2005 Bonds issued under the Bond Resolution shall be and have all the qualities and incidents of negotiable instruments under the law merchant and the Uniform Commercial Code (the "UCC"). Transfers by governments and governmental units relating to secured transactions are exempt from the provisions of Florida's UCC. Annual Audit The City covenanted in the Bond Resolution that it shall require that an annual audit of its accounts and records with respect to its General Fund and the Pledged Revenues and the funds and accounts under the Bond Resolution be completed as soon as reasonably practicable after the end of each Fiscal Year by an independent certified public accountant of recognized 17

25 standing. Such audit shall be conducted in accordance with generally accepted auditing standards as applied to governmental units. Anti-Dilution Test The City covenanted in the Bond Resolution that except as provided below regarding Refunding Bonds, it may incur additional Non-Self-Supporting Revenue Debt only if, as set forth in a certificate of the Mayor or City Manager executed prior to the issuance thereof, (i) after the issuance thereof, the Maximum Bond Service Requirement in any Bond Year resulting from the total outstanding Non-Self-Supporting Revenue Debt of the City, including such additional Non-Self-Supporting Revenue Debt proposed to be issued, does not exceed 50% of Non-Ad Valorem Revenues received in the preceding Fiscal Year; and (ii) the Non-Ad Valorem Revenues of the City for the preceding Fiscal Year were at least 2.00 times the average annual Bond Service Requirement in future Fiscal Years on the total outstanding Non-Self-Supporting Revenue Debt of the City, including the additional Non-Self- Supporting Revenue Debt proposed to be issued. See the table entitled "CITY OF GAINESVILLE, FLORIDA HISTORICAL ANTI-DILUTION TEST" in "GENERAL INFORMATION REGARDING COVENANT REVENUES" herein. Issuance of Bonds or Other Obligations The City covenanted in the Bond Resolution that it will not issue any obligations (other than the Prior Bonds authorized by the Bond Resolution) payable from the Pledged Revenues or the Covenant Revenues or any portion thereof, or voluntarily create or cause to be created any debt, lien, pledge, assignment, encumbrance or other charge, in each case, having priority to or being on a parity with the lien securing any Bonds issued pursuant to the Bond Resolution upon the Pledged Revenues or the Covenant Revenues or any portion thereof, except to the extent permitted, and upon the terms and conditions specified, in the Bond Resolution, and as particularly described herein under the headings "SECURITY FOR THE BONDS Anti-Dilution Test," "SECURITY FOR THE BONDS Additional Bonds," and "SECURITY FOR THE BONDS Refunding Bonds." Additional Bonds Except as provided below with respect to Refunding Bonds, no Additional Bonds shall be issued unless the City shall have complied with the following conditions: (1) Certificate. There must be obtained and filed with the Commission a certificate of the Mayor or the City Manager evidencing compliance with the requirements of the "Anti- Dilution Test" described above upon the issuance of such Additional Bonds. (2) No Default. The Mayor or the City Manager of the City must certify that (i) the City is not in default in the performance of any of the covenants and obligations assumed by it 18

26 under the Bond Resolution or under any ordinance, resolution or other enabling instrument of the City pursuant to which Additional Bonds have been issued, and (ii) all payments required under the Bond Resolution to have been made into the funds and accounts provided by the Bond Resolution or by such other ordinance, resolution or enabling instrument have been made in full to the extent required. (3) Due Authorization. The City Attorney of the City or a duly authorized assistant City Attorney must submit an opinion to the Commission of the City to the effect that the issuance of such Additional Bonds has been duly authorized and that all conditions precedent to the delivery of such Additional Bonds have been fulfilled. (4) Covenants Applicable. Each ordinance, resolution or enabling instrument authorizing the issuance of Additional Bonds issued pursuant to the Bond Resolution, must contain a provision to the effect that all of the covenants contained in the Bond Resolution (except as to the details of such Additional Bonds) will be fully applicable to such Bonds as if originally issued under the Bond Resolution. (5) Opinion of Bond Counsel. An opinion of Bond Counsel must be delivered to the Commission to the effect that the issuance of Additional Bonds will not impair the exclusion from gross income for federal income tax purposes of interest paid on any Bonds issued under the Bond Resolution and then Outstanding that are not Taxable Bonds. The Series 2005 Bonds are being issued as Additional Bonds under the Bond Resolution. The Prior Bonds, the Series 2005 Bonds and all Additional Bonds issued pursuant to the Bond Resolution, regardless of the time or times of their issuance, shall rank equally without preference of any Bonds or Additional Bonds over any other. Refunding Bonds In addition to the foregoing regarding Additional Bonds, the City may issue at any time and from time to time Additional Bonds for the purpose of refunding any Series of Bonds, or any maturity or portion of a maturity of Bonds within a Series ("Refunding Bonds"), provided that prior to the issuance of such Additional Bonds there must be filed with the Commission a certificate or report of an independent certified public accountant to the effect that (i) the net proceeds from such Additional Bonds, together with other available funds of the City, if any, will be sufficient to cause the lien created by the Bond Resolution with respect to the Bonds to be refunded to be defeased pursuant to the Bond Resolution and (ii) unless all Bonds then Outstanding will be refunded or the conditions of the Bond Resolution described above with respect to the issuance of Additional Bonds are satisfied, the aggregate Bond Service Requirement with respect to such Additional Bonds, must be equal to or less than the aggregate Bond Service Requirement with respect to the Bonds which would have been Outstanding had the same not been refunded pursuant to this section. Prior to or concurrently with the issuance of such Bonds, there must be filed with a representative of the City an opinion of Bond Counsel to the effect that (i) the net proceeds from the sale of such Additional Bonds have been set aside 19

27 in irrevocable escrow for the payment of the Bonds to be refunded in the manner described in the Bond Resolution and (ii) the issuance of such Additional Bonds and the use of the proceeds thereof as described above will not have the effect of causing the interest on any Bond then Outstanding under the Bond Resolution (other than any Taxable Bond), including the Bonds to be refunded, to become includable in gross income of the holders thereof for federal income tax purposes. Qualified Hedge Agreements The City may enter into one or more Qualified Hedge Agreements with respect to one or more Series of Bonds (or portions thereof) creating Qualified Hedge Payments. Qualified Hedge Receipts (net of any Qualified Hedge Payments) will constitute Pledged Revenues, and Qualified Hedge Payments (net of any Qualified Hedge Receipts) may be payable from the Sinking Fund Account on parity with interest payments with respect to Bonds issued and Outstanding under the Bond Resolution. The City may grant to the counterparties to such Qualified Hedge Agreements a parity lien on the Pledged Revenues to secure payment of such Qualified Hedge Payments and to provide the priority of payment thereof. The City does not anticipate entering a Qualified Hedge Agreement in connection with the Series 2005 Bonds. Payments under Qualified Hedge Agreements not constituting Qualified Hedge Payments, including any termination payments, will not be secured by the Bond Resolution. See "APPENDIX C Composite Bond Resolution." Insurer Deemed Bondholder So long as certain events relating to the occurrence of a default under or the unenforceability or invalidity of the Insurer's Bond Insurance Policy with respect to the Series 2005 Bonds or the bankruptcy, insolvency or receivership of the Insurer have not occurred, the Insurer shall be deemed the sole Bondholder of all Series 2005 Bonds for purposes of exercising all rights, remedies and privileges granted to the Bondholders including, without limitation, the giving of any consents. Modification or Amendment without Bondholder Consent Certain modifications or amendments may be made to the Bond Resolution without obtaining the consent of the Bondholders. See "APPENDIX C Composite Bond Resolution" attached hereto for more information as to the related circumstances. Background THE CITY The City is the most populous city in Alachua County, serves as the county seat, and also serves as the cultural, educational and commercial center for the north central Florida region. The City is located midway between the Gulf of Mexico and the Atlantic Ocean and 20

28 halfway between Miami and Pensacola. There are approximately 54 square miles of land included within the corporate boundaries of the City. As of September 30, 2004, the official population estimate was 117,754, according to the Bureau of Economic and Business Research at the University of Florida. For additional information concerning the City, see "APPENDIX A General Information Concerning the City of Gainesville" attached hereto. City Government The City was established in 1854, incorporated in 1869 and has operated under a Commission-Manager form of government since The Commission consists of seven elected officials (a Mayor and six Commissioners) who are responsible for enacting the ordinances and adopting the resolutions which govern the City. All elected officials serve three-year terms. The Mayor presides over public meetings and ceremonial events. The current members of the Commission and expiration of their current terms of office are: Commission Members Date Term Expires Pegeen Hanrahan, Mayor May, 2007 Charles S. Chestnut, IV, Mayor-Commissioner Pro Tempore May, 2006 Edward B. Braddy, Commissioner May, 2008 Richard J. Bryant, Commissioner May, 2008 John F. Donovan, Commissioner May, 2008 Stuart Craig Lowe, Commissioner May, 2007 Warren C. Nielsen, Commissioner May, 2006 The Commission appoints the Charter officers including: City Manager, General Manager for Utilities, City Auditor, City Attorney, Clerk of the Commission, and Equal Opportunity Director. As chief executive officers, the City Manager and General Manager for Utilities are charged with the enforcement of all ordinances and resolutions passed by the Commission. They accomplish this task through the selection and supervision of an Assistant City Manager, an Administrative Services Director, and Assistant General Managers for Utilities and department heads. The City Manager, Russ Blackburn, is a full-time employee and the chief administrative officer of the City. The City Manager is responsible for directing the administrative and operational aspects of the City in compliance with the policies established by the Commission. Mr. Blackburn was appointed City Manager on September 6, Prior to his current position, he served as County Administrator for Martin County, Florida, Deputy County Administrator for Loudoun County, Virginia, and Assistant County Administrator for Lee County, Florida and Greenville County, South Carolina. He holds a Bachelors Degree in Political Science from Valdosta State University and a Masters Degree in Public Administration from Georgia Southern University. The City's Finance Director is Mark S. Benton. Mr. Benton reports to the Administrative Services Director. The Finance Department is responsible for investment management, 21

29 accounting, pension administration, purchasing, accounts payable, treasury management, and preparation of the City's annual financial statements. Mr. Benton joined the City in 1982 and was appointed Finance Director in He holds a Bachelors Degree in Business Administration from the University of Florida and is a member of the Government Finance Officers Association of the United States and Canada. The City provides its constituents with a wide variety of public services: building inspections, code enforcement, community development, cultural affairs, economic development, electrical power, golf course, mass transit, natural gas distribution, parks and recreation, police and fire protection, refuse collection, small business development, stormwater management, street maintenance, traffic engineering and parking, water and wastewater and telecommunications and data transfer. Internal support services include the following: accounting, accounts payable, billing and collections, City-wide management, computer systems support, debt management, equal opportunity, affirmative action, fleet maintenance, facilities maintenance, human resources, information systems, investment management, labor relations, mail services, payroll, property control, purchasing and risk management. In addition to these activities, the City exercises oversight responsibility for the Gainesville Enterprise Zone Development Agency and the Community Redevelopment Agency. General GENERAL INFORMATION REGARDING COVENANT REVENUES The City generally receives two primary sources of revenue: ad valorem taxes and nonad valorem revenues. Ad valorem taxes may not be pledged for the payment of debt obligations of the City maturing more than twelve months from the date of issuance thereof without approval of the electorate of the City. The ad valorem tax revenues of the City are not pledged as security for the payment of the Bonds and the City is not obligated to budget and appropriate ad valorem tax revenues for the payment of the Bonds. Non-ad valorem revenues of the City may be pledged, subject to certain limitations disclosed herein, for the payment of debt obligations of the City. Such non-ad valorem revenues include a broad category of revenues, including, but not limited to, revenues received from the State, investment income and income produced from certain services and facilities of the City, as described below. As more fully described herein under "SECURITY FOR THE BONDS," the City has covenanted and agreed in the Bond Resolution, subject to certain restrictions and limitations, to appropriate sufficient Non-Ad Valorem Revenues in each year to pay debt service on the Bonds. The holders of the Bonds do not have a lien on any specific Non-Ad Valorem Revenues of the 22

30 City and the City has certain other debt obligations payable in the same manner as the Bonds and also has outstanding certain other debt obligations payable from a prior lien upon and pledge of certain of the Non-Ad Valorem Revenues of the City. A large percentage of the revenues of the City, including ad valorem taxes and non-ad valorem revenues, are deposited in the General Fund. See "CERTAIN FINANCIAL MATTERS - General Fund" herein. Furthermore, as described herein under "SECURITY FOR THE BONDS," the obligation of the City to budget and appropriate Non-Ad Valorem Revenues is subject to a variety of factors, including the payment of essential governmental services of the City and the obligation of the City to have a balanced budget. The City is permitted by the Florida Constitution to levy ad valorem taxes at a rate of up to $10 per $1,000 of assessed valuation for general governmental expenditures. The General Fund ad valorem tax millage rate for the fiscal year ending September 30, 2006 is $ per $1,000. The City is also permitted by the Florida Constitution to levy ad valorem taxes, above the $10 per $1,000 cap to pay debt service on general obligation long-term debt if approved by a voter referendum but does not currently do so. Of municipalities in Florida with a population greater than 100,000, the City has one of the lower ad valorem tax millage rates in the State. On the other hand, on a percentage basis, the City has one of the highest ratios of exempt property to taxable property in the State, largely due to the presence of the University of Florida, the largest public university in the State. The term "Non-Ad Valorem Revenues" does not include all non-ad valorem revenues of the City, but instead includes only those which are legally available to pay debt service on the Bonds. See "SECURITY FOR THE BONDS General" herein and "APPENDIX C Composite Bond Resolution" attached hereto for the full definition of "Non-Ad Valorem Revenues". The Florida Department of Financial Services has developed, as part of the Uniform Accounting System Manual's Chart of Accounts, six major categories of local government revenues: taxes, intergovernmental revenues, licenses and permits, charges for services, fines and forfeitures, and miscellaneous revenues. Using that organization, the following describes the sources of the City's Non-Ad Valorem Revenues: Taxes Franchise Fees The City does not currently levy franchise fees on utility companies in return for permitting the use of public property or public rights-of-way, although it has done so in the past. The franchise fee total of $25,030 recognized during the fiscal year ended September 30, 2004, was primarily comprised of collections on underpaid cable franchise fees imposed prior to October 1, Such fees currently are a minor portion of the City's Non-Ad Valorem Revenues. Prior to October 1, 2001, the City imposed franchise fees on cable television providers, local exchange telecommunication providers and long distance providers. As 23

31 discussed below under the subheading "Local Communications Services Taxes" those franchise fees were replaced by the Local Communications Services Tax. Public Service Tax The "Public Service Tax" (also, commonly referred to as the "Utilities Services Tax" or "Public Services Tax") is imposed by the City pursuant to the Constitution of the State of Florida and Section , Florida Statutes and other applicable provisions of law. Florida law authorizes any municipality in the State of Florida to levy a public service tax on the purchase within such municipality of electricity, metered natural gas, liquefied petroleum gas either metered or bottled, manufactured gas either metered or bottled, and water service. Services competitive with those enumerated in the previous sentence, as defined by ordinance, shall be taxed on a comparable base at the same rates. However, fuel oil shall be taxed at a rate not to exceed 4 cents per gallon. The Public Service Tax is levied and collected by the City on the purchase of electricity, metered natural gas, liquefied petroleum gas either metered or bottled, water and fuel oil. For fuel oil, the City s tax rate is four cents per gallon. For all other taxable services, the City s tax rate is 10% of the payments received by the sellers within the incorporated area of the City of such services from purchasers, the maximum rate permitted by Florida Statutes. Florida law provides that a municipality may exempt from the public service tax the first 500 kilowatts of electricity per month purchased for residential use, metered on bottled gas or fuel oil for agricultural purposes, purchases of electricity, natural gas, liquefied petroleum gas or manufactured gas by industrial customers for use in industrial manufacturing or processing facilities in the City and electrical energy used in a facility located in a designated enterprise zone. The City has not adopted any such exemptions but it does exempt purchases by the United States Government, the State of Florida, Alachua County, the City and their agencies, boards, commissions and authorities from the levy of such tax, as well as purchases by all other governmental entities and all religious entities. In addition, purchases of natural gas or fuel oil by a utility either for resale or for use as fuel in the generation of electricity are exempt, as is the purchase of fuel oil or kerosene for use as an aircraft engine fuel or propellant or for use in internal combustion engines. The foregoing exemptions are required by Florida Statutes. Prior to October 1, 2001, a municipality also had the option to levy a tax on the purchase of telecommunications services of either (a) not to exceed 10% of the monthly recurring customer service charges upon the purchases within such municipality of local telephone service or (b) not to exceed 7% of the monthly recurring customer service charges upon purchases within the municipality of telecommunications service which originates and terminates in the State based on the total amount charged for any telecommunications provided cannot be determined, the total amount billed for such telecommunications service to a telephone or telephone number, a telecommunications number of device, a service address or a customer's billing address located within the municipality, excluding variable usage charges on telecommunication service. The tax on telecommunication services was eliminated and 24

32 replaced effective October 1, See the subheading "Local Communications Services Taxes" below for a discussion of the taxation of telecommunication services under the Communications Services Tax Simplification Act after October 1, The Public Service Tax must be collected by the seller from purchasers at the time of sale and remitted to the City on a monthly basis. Taxes on most utility services are separately itemized on the bill rendered to customers, but taxes may not necessarily be separately stated on all purchases. A failure by a consumer to pay that portion of the bill attributable to the Public Service Tax may result in a suspension of the service involved in the same fashion as the failure to pay that portion of the bill attributable to the particular utility service. The amount of Public Service Tax collected by the City may fluctuate as the price of fuel, gas, electricity and the other services subject to the Public Service Tax fluctuates and a sustained increase in the price thereof may have an adverse effect on the amount of Public Service Tax collected. Local Communications Services Tax The Communications Services Tax Simplification Act, codified as Chapter 202, Florida Statutes, was enacted by the Florida Legislature in 2000 and, along with subsequent revisions, became effective October 1, Section , Florida Statutes authorizes counties and municipalities to levy a local tax on communications services (the "Local Communications Services Tax") as defined in Section , Florida Statutes, and as of the same date, repealed Section (9), Florida Statutes, which previously granted municipalities the authority to levy a Public Service Tax on the purchase of telecommunication services. See "GENERAL INFORMATION REGARDING COVENANT REVENUES Public Service Tax" above. One effect of the Communications Services Tax Act was to replace the former Public Service Tax on telecommunication services, as well as revenues from franchise fees on cable and telecommunication service providers, with the Local Communications Services Tax. The Local Communications Services Tax is applied to a broader base of communications services than the former Public Service Tax on telecommunications. Prior to the effective date of the Communications Services Tax Simplification Act, the City levied a Public Service Tax on telecommunications authorized under Section , Florida Statutes; a cable franchise fee authorized by Title 47, United States Code and associated Federal Communications Commission regulations; and franchise fees on local exchange telecommunications providers and long distance providers whose lines occupied the City s rights-of-way authorized by Section , Florida Statutes. The cable franchise fee was levied at 5% of the cable operator s revenues related to operations inside the City limits. The franchise fee on local exchange providers was 1% of recurring local revenues. The franchise fee on long distance providers with wirelines in the City s rights-of-way was $500 per linear mile or portion thereof per year. The Public Service Tax on telecommunications was levied at 7%, 25

33 applied to intrastate services and with certain additional limitations primarily affecting cellular providers. The enactment of the Communications Services Tax was intended to replace revenues from the taxes and fees described in the immediately preceding paragraph that were received by local governments in the period October 1, 2000 through September 30, Pursuant to this legislative intent, Chapter 202, Florida Statutes includes two provisions to guarantee a local government s ability to maintain revenue neutrality. The first provision is an emergency ratesetting procedure that both reduces the time period required to implement an emergency ordinance once it is adopted by the local government and permits the local government to exceed the statutory maximum rate of 5.1% if necessary to maintain revenue neutrality. The Local Communications Services Tax rate was initially 5.02% and was increased to 5.62% by emergency ordinance effective November 1, This rate included 0.3% intended to recapture revenue from the period October 1, 2001 through September 30, 2002, which fell below the revenue neutral amount. Beginning November 1, 2003, the City s tax rate was decreased to 5.32%. It was increased to 5.52%, effective January 1, 2005, which includes.2% attributable to the adoption of a.25% local option sales tax in Alachua County. Communications services subject to the Local Communications Services Tax are broadly defined in Chapter , Florida Statutes. The tax is now applied to interstate, intrastate and international telecommunications services and to cable services. The City does not charge any additional amounts to communications services providers, except that wireline users of the rights-of-way which do not pay a Local Communications Services Tax to the City continue to be charged the $500 per linear mile per year wireline fee, as authorized by Section , Florida Statutes. Although the Local Communications Services Tax is levied locally, the Florida Department of Revenue ("FDOR") collects the tax on behalf of the local governments. The proceeds of said Local Communication Services Tax less FDOR's cost of administration is deposited in the Local Communication Services Tax Clearing Trust Fund and distributed monthly to the appropriate jurisdiction. Intergovernmental Revenues. All revenues received by a local unit from federal, state, and other local government sources in the form of grants, shared revenues, and payments in lieu of taxes would be included in the intergovernmental revenues category. The category is further classified into eight subcategories: federal grants, federal payments in lieu of taxes (PILOT), state grants, state shared revenues, state PILOT, local grants, local shared revenues, and local PILOT. If a particular grant is funded from separate intergovernmental sources, then the revenue is recorded proportionately. The largest component is the Local Government Half-Cent Sales Tax. Local Government Half-Cent Sales Tax Chapter 212, Part I, Florida Statutes (the "Sales Tax Act"), authorizes the levy and collection by the State of Florida of a sales tax upon, among other things, the sales price of each 26

34 item or article of tangible personal property sold at retail in the State of Florida, subject to certain exceptions and dealer allowances. The sales tax is collected on behalf of the State of Florida by businesses at the time of sale at retail, use, consumption, or storage for use or consumption, of taxable property and remitted to the State on a monthly basis. The Sales Tax Act provides for penalties and fines, including criminal prosecution, for non-compliance with the provisions thereof. All funds received and collected by the State of Florida are required to be deposited in the General Revenue Fund of the State and then distributed to various funds as enumerated in the Sales Tax Act. After various enumerated distributions, pursuant to Chapter 218, Part VI, Florida Statutes (the "Half-Cent Sales Tax Act"), a portion of the amount remitted by a sales tax dealer within a participating county (the "Local Government Half-Cent Sales Tax") is required to be transferred into the Local Government Half-Cent Sales Tax Clearing Trust Fund (the "Trust Fund") and earmarked for distribution to the governing body of that participating county and of each participating municipality within that county pursuant to formulas set forth in the Half-Cent Sales Tax Act. The Local Government Half-Cent Sales Tax is 9.653% of the amount remitted by a sales tax dealer within a participating county. The general rate of sales tax in the State is currently 6% and therefore, for every dollar of taxable sales price of an item, approximately cents is deposited into the Trust Fund. The Local Government Half-Cent Sales Tax collected within a county and distributed to local government units is distributed among the county and the municipalities therein in accordance with the following formula: County Share (percentage of total Half-Cent Sales Tax receipts) = unincorporated area population + 2/3 incorporated area population total county population + 2/3 incorporated area population Municipality Share (percentage of total Half-Cent = municipality population Sales Tax receipts) total county population + 2/3 incorporated area population For purposes of the foregoing formula, "population" is based upon the latest official State estimate of population certified prior to the beginning of the local government fiscal year. Should any unincorporated area of Alachua County become incorporated as a municipality, the share of the Local Government Half-Cent Sales Tax received by Alachua County and the City would be reduced. Should the City annex any area or should any area of the City de-annex from the City, the share of the Local Government Half-Cent Sales Tax received by the City would be respectively increased or decreased according to the foregoing formula. 27

35 The Local Government Half-Cent Sales Tax is distributed from the Trust Fund on a monthly basis to participating units of local government. The Half-Cent Sales Tax Act permits the City to pledge its share of the Local Government Half-Cent Sales Tax for the payment of principal of and interest on any capital project. To be eligible to participate in the Local Government Half-Cent Sales Tax, the counties and municipalities must comply with certain requirements set forth in the Half-Cent Sales Tax Act. These requirements include those concerning the reporting and auditing of its finances, the levying of ad valorem taxes or receipt of other revenue sources, and certifying certain requirements pertaining to the employment and compensation of law enforcement officers, the employment of fire fighters, the auditing of certain dependent special districts, and the method of fixing millage rates for the levying of ad valorem taxes. Although the Half-Cent Sales Tax Act does not impose any limitation upon the number of years during which the City can receive distribution of the Local Government Half-Cent Sales Tax from the Trust Fund, there may be future amendments to the Half-Cent Sales Tax Act. To be eligible to participate in the Trust Fund in future years, the City must comply with certain eligibility and reporting requirements of Chapter 218, Part VI, Florida Statutes, otherwise, the City will not be entitled to any Trust Fund distributions for twelve (12) months following a "determination of noncompliance" by FDOR. The City has continuously maintained eligibility to receive the Local Government Half- Cent Sales Tax since the enactment of the Half-Cent Sales Tax Act in In addition to the share of the general statewide sales tax levy of 6%, Alachua County's voters approved a local option sales tax of ¼% for indigent care that took effect January 1, Proceeds of such local option sales tax are distributed to Alachua County and do not constitute part of the Local Government Half-Cent Sales Tax. The amount of Local Government Half-Cent Sales Tax received by the City is subject to increase or decrease due to (i) increases or decreases in the dollar volume of taxable sales within the County, (ii) legislative changes relating to the overall sales tax, which may include changes in the scope of taxable sales, changes in the tax rate and changes in the amount of sales tax revenue deposited into the Trust Fund, (iii) changes in the relative population of the City, which affect the percentage of Local Government Half-Cent Sales Tax received by the City, and (iv) other factors which may be beyond the control of the City or the Series 2005 Bondholders, including but not limited to the potential for increased use of electronic commerce and other internet-related sales activity (pursuant to federal law, retail sales via the internet are exempt from sales tax until November 1, 2007) that could have a material adverse impact upon the amount of sales tax collected by the State of Florida and then distributed to the City. State Revenue Sharing A portion of the taxes levied and collected by the State of Florida is shared with local governments under provisions of Chapter , Florida Statutes. The amount deposited by 28

36 FDOR into the State Revenue Sharing Trust Fund for Municipalities is % of available sales and use tax collections after certain required distributions, 12.5% of the Florida alternative fuel user decal fee collections, and the net collections from the one-cent municipal fuel tax. To be eligible for State Revenue Sharing funds, a local government must be audited, with certain exceptions; must have filed its annual financial report with the Florida Department of Banking and Finance; must certify certain requirements pertaining to the employment and compensation of law enforcement officers and the employment of fire fighters; must levy an ad valorem tax of at least 3% or collected equivalent alternative revenues from a combination of the following sources available to municipalities: occupational license taxes, public service taxes, and ad valorem taxes. Eligibility is retained if the local government has met eligibility requirements for the previous three years, even if the local government reduces its millage or utility taxes because of the receipt of State Revenue Sharing funds. The amount of the State Revenue Sharing Trust Fund distributed to any one municipality is the average of three factors: an adjusted population factor; a sales tax collection factor, which is the proportion of the local City s ordinary sales tax distribution the municipality would receive if the distribution were strictly population-based; and a relative revenue-raising ability factor, which measures the municipality s ability to raise revenue relative to other qualifying municipalities in the State. To be eligible to participate in State Revenue Sharing in future years, the City must comply with certain eligibility and reporting requirements, otherwise, the City will not be entitled to distributions for a period of time. Licenses and Permits These are revenues derived from the issuance of local professional, occupational, and other licenses. Charges for Services All revenues resulting from a local unit's charges for services are reflected in this category and include those charges received from private individuals or other governmental units. The following functional areas include such charges: General government document reproduction fees, sales of maps & publications Public safety fees for police and fire protection services Physical environment charges including cemetery fees Planning and zoning fees for zoning changes and planning reviews Indirect services fees associated with services provided to City Proprietary Funds Transportation and parking including parking fees and decals Recreation and culture fees for special events, and parks and recreation activities such as athletics programs and swimming pool usage 29

37 Other fees for services not specifically mentioned above Fines and Forfeitures Fines and forfeitures reflect those penalties and fines imposed for the commission of statutory offenses, violation of lawful administrative rules and regulations, and for neglect of official duty. Forfeitures include revenues resulting from parking and court fines as well as proceeds from the sale of contraband property seized by law enforcement agencies. Miscellaneous Revenues This category includes a variety of revenues and transfers from other funds, including: Interest earnings Gains (or losses) on sale of investments Rents and royalties Disposition of fixed assets Sales of surplus materials and scrap Contributions from private sources Interfund Transfers Transfers from the Utilities System to the General Fund The City owns and operates an electric, natural gas, water, wastewater and telecommunications system (the "Utility System"). The Utility System is treated as an enterprise fund of the City, and does business under the name "Gainesville Regional Utilities." Since 2000, the transfer from the electric system to the general fund of the City has been based on a formula comprised of three components a base component, an adjustment to the base and an annually-calculated incentive component. The base component represents a rough equivalent to what the general fund would receive if the Utility System were an investor-owned utility system. The growth component adjusts the base in an amount that depends upon the increase/decrease in the amount of kilowatts per hour ("kwh") delivered. The incentive component is an amount calculated after the end of the year and represents 3% of the net revenues from interchange/economy sales and sales for resale as well as a portion of the increase in the amount of retail kwh delivered greater than 3%. The transfers from the gas, water and wastewater systems to the general fund equal to the sum of the following: (1) The amount of water and wastewater surcharges collected in the current fiscal year; and 30

38 (2) 14.65% of gas, water and wastewater gross revenues for the second preceding fiscal year after deducting the following for the same second preceding fiscal year: (a) (b) (c) surcharges, fuel expenses, and revenues from water sales to the University of Florida. The Utility System's telecommunications system transfer to the general fund for 2004 was $297,222. The transfer to the City from the Utility System may be made only to the extent such monies are not necessary to pay debt service on the Utility System's outstanding bonds and subordinated debt or to make other necessary transfers under the bond resolution of the Utility System, including but not limited to the cost of operation and maintenance of the Utility System. The Commission can modify the transfer formulas from time to time. Transfers from Other Funds Less than 25% of interfund transfers which are legally available to pay debt service are generated from transfers from the funds of the City other than from the Utility System. [Remainder of page intentionally left blank] 31

39 The following table represents the City's determination of Non-Ad Valorem Revenues for the City's fiscal years ending September 30, 2000 through September 30, 2004 (excludes nonad valorem revenues of the City which are not legally available to pay debt service on the Series 2005 Bonds): CITY OF GAINESVILLE, FLORIDA LEGALLY AVAILABLE NON-AD VALOREM REVENUES Fiscal Year Ended September Revenues: Taxes: Franchise Fees $ 25,030 $ 0 $ 3,565 $1,199,290 $1,092,071 Public Service Tax (1) 6,369,658 6,365,208 5,629,716 9,567,860 9,236,333 Local Communications Services Taxes 6,133,565 5,926,299 5,257, Other 236, , , , ,396 12,765,110 12,574,392 11,045,226 10,892,189 10,477,800 Licenses and Permits: Occupational License 898, , , , ,141 Other (2) _14,640 _13,991 _42,791 _33,329 _38, , , , , ,687 Intergovernmental: Local Government Half-Cent Sales Tax 6,433,168 5,447,266 5,297,964 5,162,889 5,014,435 State Revenue Sharing (3) 2,267,514 1,729,462 1,710,343 1,600,761 1,583,496 Cigarette Tax - Two Cents (4) ,522 Other (5) 211, , ,787 1,641, ,011 8,912,390 7,355,870 7,190,094 8,404,825 7,189,464 Charges for services: Indirect Services 3,407,894 3,356,001 3,365,003 3,298,673 3,258,757 Public Safety 1,831,335 2,142,122 1,914,165 1,591,192 1,504,698 Transportation and Parking 422, , , , ,919 Recreation and Culture (6) 228, , , , ,226 Other 1,438,308 1,021, , , ,961 7,328,245 7,874,717 7,207,981 6,479,956 6,220,561 Fines and forfeitures (7) 1,385,684 6,417,778 1,275,135 1,359,331 1,928,495 Interest income 1,075, ,883 1,375,036 1,307,757 1,454,053 Other (7) 937, ,286 1,372,684 1,392,507 1,080,002 Transfers from the Utility System 26,697,170 25,916,113 25,694,788 24,330,224 23,351,288 Other Transfers (9) _2,558,050 _4,798,797 _4,617,371 _3,953,712 _1,466,044 Total sources of Legally Available Non-Ad Valorem Revenues $62,572,129 $66,972,951 $60,623,920 $58,956,636 $53,968,394 Source: Finance Department, City of Gainesville, Florida Footnotes on next page. 32

40 (1) Effective October 1, 2005, the City began levying a 10% surcharge on natural gas in unincorporated Alachua County. (2) Miscellaneous permits (3) These figures are net of the funds deducted to pay the debt service on the City's outstanding Guaranteed Entitlement Revenue and Refunding Bonds, Series 1994 and Guaranteed Entitlement Refunding Bonds, Series 2004 which are secured by a first lien upon and pledge of the guaranteed entitlement portion of the State Revenue Sharing funds. (4) The cigarette tax ended when new components were added to the State Revenue Sharing funds. (5) Mobile home licenses, beverage licenses, firefighters supplemental compensation, and airport flight service station rental. (6) The increase during the fiscal year ended September 30, 2002 was due to $200,000 in ticket sales and registration fees increases for cultural events such as the Hogtowne Medieval Fair and $200,000 in tourism funds from the County for administering the Alachua County tourism program. (7) Property rental, loan repayments, and the Utility System's share of environmental cleanup costs. (8) The increase in fines and forfeitures in 2003 is the result of the confiscation of over $5 million in contraband forfeiture monies from a single drug case. (9) The amount of other transfers declined in the fiscal year ended September 30, 2004 primarily due to reduced transfers to the General Capital Projects Fund related to lower capital expenditures for that fiscal year. [Remainder of page intentionally left blank] 33

41 Bond Year Ending October 1 The following table represents current debt service on Non-Self-Supporting Revenue Debt of the City (which includes the Series 2005 Bonds): CITY OF GAINESVILLE, FLORIDA DEBT SERVICE SCHEDULE FOR NON-SELF-SUPPORTING REVENUE DEBT (1) $4,990,000 First Florida Governmental Financing Commission Loan Series 1996 $11,000,000 First Florida Governmental Financing Commission Loan Series 1998 $2,775,000 First Florida Governmental Financing Commission Loan Series 2001 $9,870,000 First Florida Governmental Financing Commission Loan Series 2002 $40,042, Taxable Pension Obligation Bonds Series 2003A $49,851, Taxable Pension Obligation Bonds Series 2003B $5,640,000 First Florida Governmental Financing Commission Loan Series 2005 $35,210,000 Taxable Other Post Employment Benefits Obligation Bonds Series 2005 $22,695,000 Capital Improvement Revenue Bonds Series $516,625 $1,213,455 $624,000 $776,959 $1,165,775 $2,483,921 $411,559 $3,911,755 $1,457,072 $12,561, ,480 1,215, ,184 1,305,775 2,628, ,434 4,097,592 1,729,269 12,674, ,160 1,214, ,121 1,445,775 2,778, ,184 4,288,443 1,727,669 13,156, ,060 1,211, ,521 1,600,775 2,933, ,271 4,491,785 1,724,869 13,661, ,460 1,211, ,916 1,755,775 3,093, ,671 4,698,474 1,725,869 14,188, ,212, ,385 1,925,775 3,263, ,921 4,913,583 1,725,469 14,223, ,212, ,465 2,095,775 3,438, ,734 5,140,383 1,728,669 14,802, ,225 2,280,775 3,618, ,934 5,374,593 1,725,269 14,187, ,625 2,475,775 3,808, ,934 7,779,953 1,725,469 16,976, ,500 2,675,775 4,008, ,534 1,729,069 9,601, ,563 2,885,775 4,213, ,746 1,728,169 10,016, ,000 3,110,775 4,428, ,946 1,725,356 10,448, ,000 3,345,775 4,649, ,259 1,725,631 10,905, ,750 3,590,775 3,102, ,259 1,728,781 9,609, ,750 3,845,775 3,269, ,859 1,728,000 10,026, ,250 4,115,775 3,445, ,059 1,729,812 10,477, ,000 4,400,775 3,629, ,659 1,729,000 10,946, ,700,775 3,819, ,659 1,728,750 10,660, ,015,775 4,014, ,059 1,725,575 11,162, ,340,775 4,224, ,590 1,729,475 11,706, ,690,775 4,436,178 10,126, ,050,775 4,658,849 10,709, ,430,775 4,890,653 11,321, ,370,775 5,129,964 9,500, ,662,999 5,380,156 10,043, ,879,749 3,424,332 10,304, ,300,335 3,605,648 10,905, ,133,265 1,133,265 $2,573,785 $8,491,380 $624,000 $13,192,214 $100,466,683 $103,515,624 $8,201,269 $44,696,560 $34,277,241 $316,038,755 Total Principal & Interest 34

42 Source: Finance Department, City of Gainesville, Florida (1) This table does not include the debt service on the City's outstanding Guaranteed Entitlement Revenue and Refunding Bonds, Series 1994 and Guaranteed Entitlement Refunding Bonds, Series 2004 (together, the Guaranteed Entitlement Bonds ). These bonds are secured by a first lien upon and pledge of the guaranteed entitlement portion of the state revenue sharing funds. Maximum annual debt service on these bonds is $1,095,000; the final maturity of the Guaranteed Entitlement Bonds is 2024 and 2017, respectively. Column totals may not balance due to rounding. See "GENERAL INFORMATION REGARDING COVENANT REVENUES State Revenue Sharing" herein. [Remainder of page intentionally left blank] 35

43 The following table sets forth the City's historical Non-Ad Valorem Revenues for the fiscal years ending September 30, 2000 through September 30, 2004, as well as historical debt service in order to show the City's historical compliance with the Anti-Dilution Test: CITY OF GAINESVILLE, FLORIDA HISTORICAL ANTI-DILUTION TEST CALCULATION Non-Ad Valorem Revenues Available to Pay Debt Service $62,572,129 $66,972,951 $60,623,920 $58,956,636 $53,968,394 50% of Non-Ad Valorem Revenues (1) 31,286,065 33,486,451 30,311,960 29,478,318 26,984,197 Debt Service (2) 11,321,428 11,321,428 3,293,469 2,520,115 1,897, Times Maximum Annual Debt Service 22,642,856 22,642,856 6,586,938 5,040,230 3,794,894 Actual Coverage Ratio (3) 5.53x 5.92x 18.41x 23.39x 28.44x Source: Finance Department, City of Gainesville, Florida. (1) The City has covenanted in the Bond Resolution that, except as regarding Refunding Bonds, it may incur additional Non-Self-Supporting Revenue Debt only if, as set forth in a certificate of the Mayor or City Manager executed prior to the issuance thereof, (i) after the issuance thereof, the Maximum Bond Service Requirement in any Bond Year resulting from the total outstanding Non-Self-Supporting Revenue Debt of the City, including such additional Non- Self-Supporting Revenue Debt proposed to be issued, does not exceed 50% of the Non-Ad Valorem Revenues received in the preceding Fiscal Year; and (ii) the Non-Ad Valorem Revenues of the City for the preceding Fiscal Year were at least 2.00 times the average annual Bond Service Requirement in future Fiscal Years on the total outstanding Non-Self-Supporting Revenue Debt and the additional Non-Self-Supporting Revenue Debt proposed to be issued. The data in the row labeled "50% of Non-Ad Valorem Revenues Available to Pay Debt Service," reflects the City's compliance with part (i) of the Anti-Dilution Test. The data in the row labeled "2.00 Times Debt Service" reflects a conservative presentation of the City's compliance with part (ii) of the Anti-Dilution Test, based on the historical maximum annual debt service (when part (ii) actually calls for the calculation to be based on average annual debt service). See "SECURITY FOR THE BONDS Anti-Dilution Test" herein. (2) Historical Maximum Bond Service Requirement on Non-Self Supporting Debt prior to issuance of the Series 2005 Bonds. Maximum Annual Debt Service following the issuance of the Series 2005 Bonds equals $16,976,676 and 2.00 times maximum annual debt service requirement following the issuance of the Series 2005 Bonds equals $33,953,352. (3) Based on Non-Ad Valorem Revenues available to pay debt service divided by debt service. The debt service coverage ratio calculated based upon the Maximum Annual Debt Service following the issuance of the Series 2005 Bonds and the 2004 Non-Ad Valorem Revenues Available for Debt Services will be 3.69 times. The Bond Resolution does not contain any requirement regarding a debt service coverage ratio (rather, it contains the two-part Anti- Dilution Test described in Note 1 above). Such debt service coverage figures are provided only as additional information. [Remainder of page intentionally left blank] 36

44 CERTAIN FINANCIAL MATTERS Investment Policy The City has adopted a detailed written investment policy which meets Florida statutory requirements. This policy covers all cash and investments held by the City with the exception of the City's defined benefit pension plans, deferred compensation plan, and 401(a) defined contribution plan. The objectives of the investment policy are (1) preservation of capital, (2) maintenance of appropriate liquidity, and (3) maximizing yield within defined risk parameters. To accomplish these objectives, the investment portfolio is sufficiently diversified to provide protection during performance downturns while ensuring that investment goals are met over the long term. City investment policies, state statutes, and the Utility System's bond resolutions authorize the City to invest in the following instruments: Any bonds or obligations which, as to principal and interest, constitute direct obligations of or are unconditionally guaranteed by the United States of America; Certain bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local government unit of any state; Bonds, debentures, or other evidences of indebtedness issued or guaranteed by an agency or corporation which is created pursuant to an Act of Congress as an agency or instrumentality of the United States of America; New Housing Authority Bonds issued by public agencies or municipalities and fully secured as to the payment of both principal and interest by a pledge of annual contributions under an annual contributions contract or contracts with the United States of America; Direct and general obligations of any state of the United States of America, to the payment of the principal of and interest on which the full faith and credit of such state is pledged, provided that at the time of their purchase under the Bond Resolution such obligations are rated by a nationally recognized bond rating agency in either of its two highest rating categories; Certain certificates of deposit, provided that the aggregate of principal amount of all certificates of deposit issued by any institution do not at any time exceed 10% of the total of the capital, surplus and undivided earnings of such institution unless such certificates of deposit are fully insured (for classification purposes, only non-negotiable certificates of deposit are considered deposits, with negotiable certificates considered as investments); Bonds, notes, debentures or other evidences of indebtedness issued or guaranteed by any corporation which are, at the time of purchase, rated by a nationally 37

45 recognized rating agency in its highest rating category and by at least one other nationally recognized rating agency in either of its two highest rating categories, for comparable types of debt obligations; Any repurchase agreement with any bank or trust company organized under the laws of any state of the United States or any national banking association or government bond dealer reporting to, trading with and recognized as a primary dealer by the Federal Reserve Bank of New York, which agreement is secured; and Domestic equity mutual funds rated four (4) stars or higher by Morningstar, Inc. and investment trusts AAA. Assets of the Retiree Health Insurance Trust Fund and the City of Gainesville Employees Disability Plan Trust Fund may be invested in investments of all kinds except as specifically otherwise provided by statutes. As of September 30, 2004, the City's operating portfolio assets were invested as follows: Money Market Accounts 18.43% Agencies Mortgage backed securities 0.91 Corporate notes 1.13 Certificates of deposit 0.37 Mutual funds 16.6 The Commission can modify the investment policy of the City from time to time. Financial and Operating Plan (Budget) and Capital Improvement Planning Policy The City adopted a biennial budget process in 1999 and has consistently received the Government Finance Officers Association of the United States and Canada ("GFOA") Certificate of Achievement for its budget presentations. The two-year budgetary cycle allows more time in the second year for in-depth discussion of broader policy issues. The City primarily uses incremental budgeting with input from all City departments. The budget process begins in January of each year and the final budget for the upcoming fiscal year beginning October 1 is usually approved by the City Commission in September of each year. The City Commission has adopted a capital improvement planning policy, which requires periodic asset reviews to include maintenance and replacement costs. The 5-year strategic capital plans which are part of the policy coordinate capital needs and the impact of those capital needs on operating budgets. 38

46 Financial Reporting The GFOA has awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Gainesville for its comprehensive annual financial report ("CAFR") in each year since the program s inception in The City has received GFOA's Award for Distinguished Budget presentation for its budget document each year since October 1, In 1990, the City was one of the first cities to receive recognition by the GFOA for its Popular Report. The City has received the Award for Outstanding Achievement in Popular Annual Reporting from the GFOA since General Fund The General Fund is the general operating fund of the City. It accounts for all financial resources except for those required to be accounted for in another fund. The largest source of revenue in this fund, other than transfers from the Utility System, is ad valorem taxation (ad valorem taxes are not legally available to pay debt service on the Series 2005 Bonds). Revenues deposited in the General Fund do not directly correspond to the Non-Ad Valorem Revenues from which debt service on the Bonds is payable as some General Fund revenues are not legally available to pay debt service on the Bonds and some Non-Ad Valorem Revenues are not deposited into the General Fund. Operations are removed from the General Fund only when they are deemed to be true enterprise operations. [Remainder of page intentionally left blank] 39

47 The following chart shows information regarding the General Fund for the City's fiscal years ending September 30, 2000 through September 30, 2004: CITY OF GAINESVILLE, FLORIDA GENERAL FUND REVENUES Taxes $30,253,964 $28,636,344 $24,643,456 $23,447,094 $22,344,885 Licenses and Permits 2,426,963 2,018,622 1,787,686 1,859,727 1,545,920 Intergovernmental 9,320,726 7,548,704 7,190,094 8,404,825 7,189,464 Charges for Services 6,205,558 6,387,470 6,202,562 5,627,373 5,580,040 Fines and forfeitures 1,251,951 1,329,518 1,148,623 1,208,980 1,281,314 Miscellaneous 1,001, ,993 1,293,284 1,549,263 1,194,859 TOTAL REVENUES 50,460,910 46,718,651 42,265,705 42,097,262 39,136,482 EXPENDITURES (1) Current: General Government 15,999,322 14,973,311 17,014,680 15,641,299 14,877,772 Public Safety 41,402,195 41,144,614 35,079,142 31,829,470 31,747,993 Physical Environment 2,125,688 2,224,299 1,922,139 1,902,396 1,804,708 Transportation 8,057,872 7,543,340 6,460,423 6,156,720 6,114,608 Economic Environment 205, ,738 66, , ,498 Human Services Culture and Recreation 4,291,022 4,017,568 3,654,723 3,464,763 3,262,815 TOTAL EXPENDITURES 72,081,143 70,083,870 64,198,035 59,195,754 58,043,394 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (21,620,233) (23,365,219) (21,932,330) (17,098,492) (18,906,912) OTHER FINANCING SOURCES (USES) Op.trans. from Gville. Regional Utilities 26,697,170 25,916,113 25,694,788 24,330,224 23,351,288 Other Operating transfers In (2)(3) 1,697, ,930 1,174, , ,614 Operating Transfers Out (4) (8,088,508) (6,420,595) (4,624,353) (5,771,487) (4,634,621) TOTAL OTHER FINANCING SOURCES (USES) 20,305,701 20,046,448 22,245,019 19,364,422 19,106,281 EXCESS OF REVENUES AND OTHER SOURCES OVER (UNDER) EXPENDITURES AND OTHER USES (1,314,532) (3,318,771) 312,689 2,265, ,369 BEGINNING FUND BALANCE 14,578,812 17,897,583 17,584,894 15,318,964 15,119,595 ENDING FUND BALANCE $13,264,280 $14,578,812 $17,897,583 $17,584,894 $15,318,964 Reserved Portion 6,519,587 14,480,596 17,897,583 15,479,387 14,451,177 Designated Portion ,842 Unreserved and Undesignated Portion 6,744,693 98,216-2,105,507 18,945 [Footnotes on next page] 40

48 Source: Finance Department, City of Gainesville, Florida (1) See "CERTAIN FINANCIAL MATTERS Classification of Local Government Expenditures" herein. (2) See "GENERAL INFORMATION REGARDING COVENANT REVENUES Interfund Transfers" herein. (3) Transfers from funds of the City other than the Utility System. (4) Transfers to other funds of the City. Classification of Local Government Expenditures The City of Gainesville classifies its expenditures in accordance with the Uniform Accounting System devised by the Florida Department of Financial Services. General government expenditures arise from operations of legislative and administrative activities of the local government. These costs are related to operations of the City Commission, the City Manager's office, pension benefits, comprehensive planning, financial operations, legal expenses and other general government services. Public safety expenditures reflect all costs associated with the City's police and fire department operations, as well as emergency disaster relief services and protective inspections. Physical environment expenditures relate to the City's utilities and garbage/solid waste operations. Transportation expenditures generally reflect the costs of roads and streets, parking facilities, and the City's Regional Transit System. Economic environment expenditures include the costs of providing economic development activities, housing opportunities and related programs, and other activities intended to raise the economic status of the citizenry. Human services expenditures reflect the City's activities related to public assistance and handicapped and similar services. Culture and recreation expenditures include the City's costs of operating parks and recreation facilities and of offering special events, cultural services and programs and similar services. Debt service expenditures reflect outlays for local government debt. Insurance Considerations Affecting the City LIABILITIES OF THE CITY The City is exposed to various risks of loss related to theft of, damage to, and destruction of assets, errors and omissions, injuries to employees, and natural disasters. The City accounts for its uninsured risk of loss depending on the source of the estimated loss. For estimated losses attributable to activities of the Utility System, the estimates are accounted for in the Utility System enterprise funds. For estimated losses attributable to all operations of 41

49 general government, the City maintains a General Insurance Fund (an internal service fund) to account for its uninsured risk of loss. Workers' Compensation, Auto, and General Liability Insurance Section , Florida Statutes, provides limits on the liability of the State of Florida and its subdivisions of $100,000 to any one person, or $200,000 for any single incident or occurrence. See "LIABILITIES OF THE CITY Ability to be Sued, Judgments Enforceable" below. Under the protection of this limit and Chapter 440, Florida Statutes, covering Workmen's Compensation, the City currently is self-insured for workers' compensation, auto, and general liability. Third-party coverage is currently maintained for workers' compensation claims in excess of $400,000 for general employees and $500,000 for police and fire personnel. Settlements have not exceeded insurance coverage in any of the last three years. Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported (IBNRs), and are shown at current dollar value. All funds other than the Utility Fund participate in the general insurance program. Risk management/insurance related activities of the Utility Fund are accounted for within the Utility Fund. An actuarially computed liability of $2,106,000 is recorded in the Utility Fund as a deferred credit as of September 30, Changes in the Utility Fund's claims liability for the last two years are as follows: Fiscal Year Beginning of Fiscal Year Liability Incurred Payments End of Fiscal Year Liability $2,422,309 $657,000 $973,009 $2,106, ,152, ,000 1,152,000 2,422,309 There is a claims liability of $6,714,000 included in the General Insurance Fund as the result of actuarial estimates as of September 30, Changes in the General Insurance Fund's claims liability were: Fiscal Year Beginning of Fiscal Year Liability Incurred Payments End of Fiscal Year Liability $6,714,000 $2,899,875 $2,899,875 $6,714, ,714,000 2,097,202 2,097,202 6,714,000 Health Insurance The City also currently is self-insured for its Employee Health and Accident Benefit Plan (the "Plan"). The Plan is accounted for in an internal service fund and is externally administered, for an annually contracted amount which is based upon the volume of claims 42

50 processed. Contributions for City employees and their dependents are shared by the city and the employee. Administrative fees are paid primarily out of this fund. Stop-loss insurance is maintained for this program at $150,000 per individual. Three claims have exceeded insurance coverage in the last three years. The aggregate net amount by which such claims exceeded insurance coverage was approximately $360,000. Changes in claims liability for the last two years are as follows: Fiscal Year Beginning of Fiscal Year Liability Incurred Payments End of Fiscal Year Liability $985,064 $10,691,532 $10,395,300 $1,281, ,007,000 9,213,091 9,235, ,064 Ability to be Sued, Judgments Enforceable Notwithstanding the liability limits described below, the laws of the State of Florida provide that each city has waived sovereign immunity for liability in tort to the extent provided in Section , Florida Statutes. Therefore, the City is liable for tort claims in the same manner and, subject to limits stated below, to the same extent as a private individual under like circumstances, except that the City is not liable for punitive damages or interest for the period prior to judgment. Such legislation also limits the liability of a city to pay a judgment in excess of $100,000 to any one person or in excess of $200,000 because of any single incident or occurrence. Judgments in excess of $100,000 and $200,000 may be rendered, but may be paid from City funds only pursuant to further action of the Florida Legislature in the form of a "claims bill." See "LIABILITIES OF THE CITY Insurance Considerations Affecting the City" herein. Notwithstanding the foregoing, the City may agree, within the limits of insurance coverage provided, to settle a claim made or a judgment rendered against it without further action by the Legislature, but the City shall not be deemed to have waived any defense or sovereign immunity or to have increased the limits of its liability as a result of its obtaining insurance coverage for tortuous acts in excess of the $100,000 or $200,000 waiver provided by Florida Statutes. See "LITIGATION" herein. Debt Issuance and Management The City utilizes a financing team when assessing the utilization of debt as a funding source for City capital projects. This team consists of the City Administrative Services Director, Finance Director, and the following external professionals: bond counsel, disclosure counsel, financial advisor, and underwriter. The City has multi-year contractual arrangements with bond counsel, disclosure counsel, and financial advisor. [Remainder of page intentionally left blank] 43

51 Direct Debt The City has met certain of its financial needs through debt financing. The table which follows is a schedule of the outstanding debt of the City General Government as of October 1, This table is exclusive of the debt of the Utility System. Principal Amount Issued Principal Amount Outstanding as of October 1, 2005 Revenue Bonds (1) Guaranteed Entitlement Revenue and Refunding Bonds, Series 1994 $15,892,220 $1,502,220 Taxable Pension Obligation Bonds, Series 2003A (Employees' Plan) 40,042,953 38,072,953 Taxable Pension Obligation Bonds, Series 2003B (Consolidated Plan) 49,851,806 49,851,806 Guaranteed Entitlement Revenue and Refunding Bonds, Series ,805,000 9,225,000 Taxable Other Post Employment Benefits Obligation Bonds, Series 2005 (Retiree Health Care Plan) $35,210,000 $35,210,000 Total Revenue Bonds (2) $150,801,979 $133,861,979 Loans (3) : First Florida Governmental Financing Commission, Series ,990,000 2,190,000 First Florida Governmental Financing Commission, Series ,000,000 7,085,000 First Florida Governmental Financing Commission, Series ,775, ,000 First Florida Governmental Financing Commission, Series ,870,000 8,855,000 First Florida Governmental Financing Commission, Series 2005 _5,640,000 _5,640,000 Total Loans $34,275,000 $24,370,000 Total Debt $185,076,979 $158,231,979 (1) The City's outstanding Guaranteed Entitlement Revenue and Refunding Bonds, Series 1994 and Series 2004 are secured by a first lien upon and pledge of the guaranteed entitlement portion of the State Revenue Sharing funds. See "GENERAL INFORMATION REGARDING COVENANT REVENUES State Revenue Sharing" herein. (2) Does not include the Series 2005 Bonds described herein. (3) All loans listed below are secured by a covenant to budget and appropriate funds sufficient to pay the debt service on the loan from legally available non-ad valorem revenues of the City, the same source of security for the Series 2005 Bonds. Defined Benefit Pension Plans The City sponsors two single-employer defined benefit pension plans, which are accounted for in separate pension trust funds in the fiduciary category. The Employees' Pension Plan (the "Employees' Plan") 44

52 The Consolidated Police Officers' and Firefighters' Retirement Plan (the "Consolidated Plan") The Employees' Plan is a contributory defined benefit pension retirement plan that covers all permanent employees of the City, except certain personnel who elected to participate in the Defined Contribution Pension Plan (which is described below) and who were grandfathered into that plan, and police officers and firefighters who participate in the Consolidated Plan. The Employees' Plan provides retirement and death benefits to plan members and beneficiaries. This plan and any amendments were enacted through an ordinance of the Commission. The Commission serves as the Board of Trustees for the Employees' Plan. The contribution requirements of plan members and the City are established and may be amended by an ordinance enacted by the Commission. Employees' Plan members are required to contribute 5.0% of their annual covered salary. The City is required to contribute at an actuarially determined rate which equaled 2.82% ($5,070,465) of covered payroll for the fiscal year ended September 30, The rate effective October 1, 2005 is 3.51% of covered payroll. The Consolidated Plan is a contributory defined benefit pension plan that covers City sworn police officers and firefighters. The Consolidated Plan provides retirement and death benefits to plan members and beneficiaries. This plan and any amendments were enacted through an ordinance by the Commission. The contribution requirements of plan members and the City are established and may be amended by an ordinance enacted by the Commission. Consolidated Plan members are required to contribute 7.50% of their annual covered salary. The City is required to contribute at an actuarially determined rate which equaled 6.81% ($3,477,931) of covered payroll for the fiscal year ended September 30, The rate effective October 1, 2005 is 7.00% of covered payroll. In addition, State contributions, which totaled $1,020,022 in the fiscal year ended September 30, 2004, are also made to the plan on behalf of the City. See the notes portion of "APPENDIX B: Basic Financial Statements of the City" for further discussion of the City's defined benefit pension plans. Retiree Health Care Plan The City has established the Retiree Health Care Plan, providing for the payment of a portion of the health care insurance premiums for eligible retired employees for individual coverage only. The City's contributions pursuant to the Retiree Health Care Plan are based on a formula that generally considers the retiree's years of service and age. In addition, the retiree's years of service as of April 1, 1995 are also considered for the purpose of establishing eligibility for additional supplemental contributions. The City has retained the right to unilaterally modify its payment for retiree health care benefits. The City has chosen to self-insure the Retiree Health Care Plan. To "self-insure" means that rather than purchasing insurance from an insurance provider, the City funds retiree medical plan expenses with money deposited into the retiree health insurance fund on a 45

53 periodic basis based on actuarial estimates. On an annual basis, the health insurance premiums are calculated by the City and through an actuarial calculation, the bi-weekly contributions to the Retiree Health Care Plan are determined on a percentage of covered payroll basis. Pursuant to the Retiree Health Care Plan, deposits are made to the retiree health insurance fund established by the City and, together with premium payments made by retirees, gifts to the fund accepted by the City and earnings deposited into the fund, are disbursed only for the payment of premiums for retiree health insurance, retiree health care claim costs and costs associated with managing, administering and operating the fund. Actuarial Concepts, Jacksonville, Florida, the actuarial consultant for the Retiree Health Care Plan, in a report dated January 21, 2005, as supplemented as of July 1, 2005 (the "Retiree Health Care Plan Report"), calculated an estimated unfunded actuarial accrued liability of the City with respect to the Retiree Health Care Plan in the amount of $34,660,000. The Retiree Health Care Plan Report presents the results of the October 1, 2003, actuarial valuation of the Retiree Health Care Plan, incorporating revisions to such Plan effective January 1, 2004, and current actuarial assumptions and establishes a contribution recommendation for the fiscal year. The major conclusions of the report are: (1) the Retiree Health Care Plan experienced an overall actuarial loss over the 36 months preceding October 1, 2003 due to adverse retiree medical claim experience, offset by reductions in future expected premiums due to Plan restructuring, creating a decrease in unfunded liabilities of about $2.5 million; and (2) the City and member contribution rates have significantly increased since the last valuation, due to necessary increases in the retiree medical premium structure. Total recommended contributions by the City for the fiscal year (including an unfunded actuarial accrued liability amortization payment of $4,158,750) are $4,654,523, or 4.69% of anticipated active member payroll. Proceeds of the Series 2005 Taxable Bonds in an amount equal to $34,656,205 were transferred to the City of Gainesville Retiree Health Insurance Fund as an employer contribution for the benefit of the Retiree Health Care Plan. Following such transfer, the City's estimated contribution to the Retiree Health Insurance Trust Fund going forward from August 1, 2005 dropped to an estimated 0.50%, which represents the normal cost portion of the liability, but is subject to several factors as described in the next paragraph. Although the valuation results provided in the Retiree Health Care Plan Report are based on values the actuarial consultant believes are reasonable assumptions, the valuation result is only an estimate of what future costs may actually be. Deviations in any of several factors influencing valuation results could result in actual costs differing from estimated. Some of these factors include: (1) future interest discounts being lower than that assumed, (2) medical cost inflation being greater than assumed, (3) Medicare coverage risk, and (4) changes in marital status. The true costs of a retiree health care plan cannot be determined until its future unfolds. No one can precisely predict the participant utilization rates, future health care cost levels, mortality experience, etc. A reasonable approximation of this true cost can be provided through actuarial estimates based on past experience with similar groups and on the judgment of the actuary and the City. As actual experience emerges under the Retiree Health Care Plan, it will 46

54 be necessary to re-examine the techniques and assumptions employed and to adjust liability estimates as necessary. Commitments and Contingencies Under the Comprehensive Environmental Response Compensation and Liability Act, commonly known as "Superfund", the Utilities System has been named as a potentially responsible party ("PRP") at the Bill Johns Waste Oil Site in Jacksonville, Florida under these statutes. The Utility System's liability at this site was incurred through the improper management of waste oils by operators providing services under contract to the Utility System. The Utility System is no more than a "de minimis" party at this site and has already resolved its liability with the United States Environmental Protection Agency (the "EPA") and is currently working with the State to resolve State liability issues. The Utility System was also a PRP at the following sites: Rose Chemical in Holden, Missouri; Peak Oil in Tampa, Florida; PCB Treatment, Inc. site in Kansas City, Missouri; Osage Metals site in Kansas City, Missouri; and Mowbray Engineering in Greenville, Alabama. The Utility System's liability for these sites has been resolved through settlements reached with the EPA and, in the case of Rose Chemical, the Rose Chemical Steering Committee. Management of the City is not aware of any actions by private third parties which have been brought or are imminent against the parties that contributed wastes to any of the sites described above. The extent of any potential third-party liability cannot be predicted at this time. The Utility System is also involved in addressing impacts associated with the storage of vehicular fuel at its Fifth Avenue Fleet Maintenance Facility ("Fleet Facility") and with Bunker C fuel oil at the Utility System's JRK Station. The Fleet Facility received reimbursement for cleanup costs under the Florida Early Detection Incentive Program. A significant soil removal effort was completed in the early 1990s and a groundwater recovery system was installed. Several site investigations have been completed at the JRK Station, most recently in While there is evidence of soil impacts, the soil analyses indicate they are below the Florida risk-based leachability soil cleanup criteria. There are no groundwater impacts above the regulatory standards. Initial remedial measures instituted in the mid-1990s are still in-place. The most recent site assessment data will be submitted to regulators when complete. In addition, in January 1990, the Utility System purchased the natural gas distribution assets of a company and pursuant to the related purchase agreement, assumed responsibility for the investigation and remediation of environmental impact related to the operation of the former manufactured gas plant ("MGP"). The Utility System has completed several site investigations on properties impacted with MGP residuals and is currently negotiating riskbased Remedial Action Plans with the Florida Department of Environmental Protection for the different properties. One of the sites has been declared eligible under Florida's Petroleum 47

55 Cleanup Program for reimbursement of a portion of clean-up costs associated with the storage of petroleum products at the former MGP site. At September 30, 2004, management of the Utility System estimated that its total remaining costs attributable to the sites described above will not exceed $7,528,000, which amount has been fully accrued by the Utility System as of that date. Because the Utility System believes it is probable that it will recover the costs of environmental cleanup through future customer rates, a regulatory asset of equal amount has been reflected as a deferred charge in the accompanying balance sheet. Although uncertainties associated with environmental assessment and remediation activities remain, the Utility System believes that the current provision for such costs is adequate and additional costs, if any, will not have a material adverse effect on the City's financial position, results of operations or liquidity. The City is involved in several pending lawsuits in the normal course of operations. There are also certain pending unasserted claims and assessments relating to environmental cleanup issues. It is the opinion of management that any uninsured claims resulting from such litigation would not be material in relation to the City's financial condition or results of operations. See "LITIGATION" herein. For more information regarding commitments and contingencies of the City, see "APPENDIX B - Basic Financial Statements of the City" attached hereto and Note 12 therein. BOND INSURANCE POLICY The following information under this heading has been furnished by MBIA Insurance Corporation (the "Insurer" with respect to the Series 2005 Bonds) for use in this Official Statement. Reference is also made to "APPENDIX D Form of Specimen Bond Insurance Policy" attached hereto. The Insurer does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding its Bond Insurance Policy and the Insurer set forth in this section. Additionally, the Insurer makes no representation regarding the Series 2005 Bonds or the advisability of investing in the Series 2005 Bonds. The MBIA Insurance Corporation Insurance Policy The Insurer's municipal bond insurance policy, (the "Bond Insurance Policy") unconditionally and irrevocably guarantees the full and complete payment required to be made by or on behalf of the City to the Paying Agent or its successor of an amount equal to (i) the principal of (either at the stated maturity or by an advancement of maturity, if applicable, pursuant to a mandatory sinking fund payment, if any) and interest on, the Series 2005 Bonds as such payments shall become due but shall not be so paid (except that in the event of any acceleration, if applicable, of the due date of such principal by reason of mandatory or optional redemption, if any, or acceleration resulting from default or otherwise, other than any 48

56 advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed by the Bond Insurance Policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner of the Series 2005 Bonds pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law (a "Preference"). The Bond Insurance Policy does not insure against loss of any prepayment premium, if any, which may at any time be payable with respect to any Series 2005 Bond. The Bond Insurance Policy does not, under any circumstance, insure against loss relating to: (i) if applicable, optional or mandatory redemptions (other than mandatory sinking fund redemptions); (ii) if applicable, any payments to be made on an accelerated basis; (iii) if applicable, payments of the purchase price of the Series 2005 Bonds upon tender by an owner thereof; or (iv) any Preference relating to (i) through (iii) above. The Bond Insurance Policy also do not insure against nonpayment of principal of or interest on the Series 2005 Bonds resulting from the insolvency, negligence or any other act or omission of the Paying Agent or any other paying agent for the Series 2005 Bonds. Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paying Agent or any owner of a Series 2005 Bond the payment of an insured amount for which is then due, that such required payment has not been made, the Insurer on the date due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment of any such insured amounts which are then due. Upon presentment and surrender of such Series 2005 Bonds or presentment of such other proof of ownership of the Series 2005 Bonds, together with any appropriate instruments of assignment to evidence the assignment of the insured amounts due on the Series 2005 Bonds as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Series 2005 Bonds in any legal proceeding related to payment of insured amounts on the Series 2005 Bonds, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners or the Paying Agent payment of the insured amounts due on such Series 2005 Bonds, less any amount held by the Paying Agent for the payment of such insured amounts and legally available therefore. The Insurer The Insurer is the principal operating subsidiary of MBIA Inc., a New York Stock Exchange listed company (the "Company"). The Company is not obligated to pay the debts of or claims against the Insurer. The Insurer is domiciled in the State of New York and licensed to do business in and subject to regulation under the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, the 49

57 Virgin Islands of the United States and the Territory of Guam. The Insurer has three branches, one in the Republic of France, one in the Republic of Singapore and one in the Kingdom of Spain. The principal executive offices of the Insurer are located at 113 King Street, Armonk, New York and the main telephone number at that address is (914) Regulation As a financial guaranty insurance company licensed to do business in the State of New York, the Insurer is subject to the New York Insurance Law which, among other things, prescribes minimum capital requirements and contingency reserves against liabilities for the Insurer, limits the classes and concentrations of investments that are made by the Insurer and requires the approval of policy rates and forms that are employed by the Insurer. State law also regulates the amount of both the aggregate and individual risks that may be insured by the Insurer, the payment of dividends by the Insurer, changes in control with respect to the Insurer and transactions among the Insurer and its affiliates. The Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. The insurance provided by the Policy is not covered by the Florida Insurance Guaranty Association created under Chapter 631, Florida Statutes. Financial Strength Ratings of the Insurer Moody's Investors Service, Inc. rates the financial strength of the Insurer "Aaa." Standard & Poor's, a division of The McGraw-Hill Companies, Inc. rates the financial strength of the Insurer "AAA." Fitch Ratings rates the financial strength of the Insurer "AAA." Each rating of the Insurer should be evaluated independently. The ratings reflect the respective rating agency's current assessment of the creditworthiness of the Insurer and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the above ratings may be obtained only from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold the Series 2005 Bonds, and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Series 2005 Bonds. The Insurer does not guaranty the market price of the Series 2005 Bonds nor does it guaranty that the ratings on the Series 2005 Bonds will not be revised or withdrawn. 50

58 MBIA Financial Information As of December 31, 2004, the Insurer had admitted assets of $10.4 billion (unaudited), total liabilities of $7.0 billion (unaudited), and total capital and surplus of $3.4 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of June 30, 2005 the Insurer had admitted assets of $10.7 billion (unaudited), total liabilities of $7.0 billion (unaudited), and total capital and surplus of $3.7 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. For further information concerning the Insurer, see the consolidated financial statements of the Insurer and its subsidiaries as of December 31, 2004 and December 31, 2003 and for each of the three years in the period ended December 31, 2004, prepared in accordance with generally accepted accounting principles, included in the Annual Report on Form 10-K of the Company for the year ended December 31, 2004 and the consolidated financial statements of the Insurer and its subsidiaries as of June 30, 2005 and for the six month periods ended June 30, 2005 and June 30, 2004 included in the Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2005, which are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof. Copies of the statutory financial statements filed by the Insurer with the State of New York Insurance Department are available over the Internet at the Company s web site at and at no cost, upon request to the Insurer at its principal executive offices. Incorporation of Certain Documents by Reference The following documents filed by the Company with the Securities and Exchange Commission (the "SEC") are incorporated by reference into this Official Statement: (1) The Company s Annual Report on Form 10-K for the year ended December 31, 2004; and (2) The Company s Quarterly Report on Form 10-Q for the quarter ended June 30, Any documents, including any financial statements of the Insurer and its subsidiaries that are included therein or attached as exhibits thereto, filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the Company s most recent Quarterly Report on Form 10-Q or Annual Report on Form 10-K, and prior to the termination of the offering of the Series 2005 Bonds offered hereby shall be deemed to be incorporated by reference in this Official Statement and to be a part hereof from the respective dates of filing such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein, or contained in this Official Statement, shall be deemed to be modified or superseded for purposes of this Official Statement to the extent that a statement 51

59 contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. The Company files annual, quarterly and special reports, information statements and other information with the SEC under File No Copies of the Company s SEC filings (including (1) the Company s Annual Report on Form 10-K for the year ended December 31, 2004, and (2) the Company s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2005 and June 30, 2005) are available (i) over the Internet at the SEC s web site at (ii) at the SEC s public reference room in Washington D.C.; (iii) over the Internet at the Company s web site at and (iv) at no cost, upon request to the Insurer at its principal executive offices. The insurance provided by this policy is not covered by the Florida Insurance Guaranty Association created under Chapter 631, Florida Statutes. ESTIMATED SOURCES AND USES OF FUNDS The proceeds to be received from the sale of the Series 2005 Bonds are expected to be applied as follows: SOURCES OF FUNDS FOR THE SERIES 2005 BONDS: Par Amount of Series 2005 Bonds $22,695, Net Original Issue Premium 39, TOTAL SOURCES $22,734, USES OF FUNDS FOR THE SERIES 2005 BONDS: 2005 Project Account $22,401, Costs of Issuance (1) 332, TOTAL USES $22,734, (1) Includes municipal bond insurance premium, Underwriter's discount, legal, financial advisory and other related fees and expenses. 52

60 The following table shows debt service on the Series 2005 Bonds and Prior Bonds issued pursuant to the Bond Resolution: BOND DEBT SERVICE SCHEDULE (1) Bond Year Ended Series 2005 Bonds Total Bonds October 1 Principal Interest Debt Service Prior Bonds Debt Service 2006 $650,000 $807, $1,457, $7,561, $9,018, , , ,729, ,032, ,761, , , ,727, ,513, ,240, , , ,724, ,026, ,751, , , ,725, ,548, ,274, , , ,725, ,103, ,828, , , ,728, ,675, ,403, , , ,725, ,274, ,999, ,035, , ,725, ,064, ,790, ,080, , ,729, ,684, ,413, ,125, , ,728, ,099, ,827, ,170, , ,725, ,539, ,265, ,220, , ,725, ,995, ,720, ,275, , ,728, ,693, ,422, ,330, , ,728, ,115, ,843, ,390, , ,729, ,561, ,291, ,450, , ,729, ,030, ,759, ,515, , ,728, ,519, ,248, ,580, , ,725, ,029, ,755, ,655,000 74, ,729, ,565, ,294, ,126, ,126, ,709, ,709, ,321, ,321, ,500, ,500, ,043, ,043, ,304, ,304, ,905, ,905, ,133, ,133, Totals $22,695,000 $11,582, $34,277, $248,678, $282,956, (1) Column totals may not balance due to rounding. 53

61 LEGAL MATTERS Certain legal matters in connection with the issuance of the Series 2005 Bonds are subject to an approving legal opinion of Holland & Knight LLP, Lakeland, Florida, Bond Counsel, whose approving opinion (a form of which is attached hereto as "APPENDIX E--Form of Bond Counsel Opinion") will be available at the time of delivery of the Series 2005 Bonds. The actual legal opinion to be delivered may vary from that text if necessary to reflect facts and law on the date of delivery. The opinion will speak only as of its date, and subsequent distribution of it by recirculation of the Official Statement or otherwise shall create no implication that subsequent to the date of the opinion Bond Counsel has reviewed or expresses any opinion concerning any of the matters referenced in the opinion. Holland & Knight LLP has not undertaken independently to verify and therefore expresses no opinion as to the completeness, fairness, or sufficiency of any of the information or statements contained in this Official Statement or any exhibits, schedules or attachments hereto, except the portions hereof captioned "DESCRIPTION OF THE SERIES 2005 BONDS" (except for the information under the heading "Book-Entry Only System") and "SECURITY FOR THE BONDS" (apart from any engineering, financial and statistical data as to which no opinions or beliefs shall be expressed) to the extent such portions purport to summarize certain provisions of the Bond Resolution and the Series 2005 Bonds, and except as to the accuracy of the information under the caption "TAX MATTERS." Certain legal matters will be passed on for the City by Marion J. Radson, Esq., Gainesville, Florida, City Attorney and Bryant Miller & Olive P.A., Tampa, Florida, Disclosure Counsel. LITIGATION Except as described below, there is no pending or, to the knowledge of the City, any threatened litigation against the City of any nature whatsoever which in any way questions or affects the validity of the Series 2005 Bonds, or any proceedings or transactions relating to their issuance, sale, execution, or delivery, or the adoption of the Bond Resolution, or the pledge of the Pledged Revenues, or the covenant and agreement by the City to budget and appropriate Non-Ad Valorem Revenues, or the use of the proceeds of the Series 2005 Bonds to fund the 2005 Project. Neither the creation, organization or existence, nor the title of the present members of the Commission, or other officers of the City is being contested. Watson Construction Company, Inc. ( Watson ) filed suit in 2005 against the City in a multi-count complaint alleging violations of its civil rights. Its complaint arises out of a temporary moratorium the City enacted by ordinance in the spring of 2001 on certain uses in the industrial zoning districts, and the City s subsequent appeal of a temporary injunction enjoining the City from applying the moratorium to Watson. No permanent injunction was ever entered. In its latest demand letter, Watson demanded payment of three million dollars in damages and all attorneys fees. Watson has requested punitive damages against the City, but punitive damages are not available as a matter of law against a municipality. Experts disclosed 54

62 by Watson have testified that the compensatory damages suffered by Watson are in the 3.6 million dollar range plus fees, costs and prejudgment interest. The City is represented by outside special counsel and the City Attorney s Office. The City has conducted a vigorous defense and expects to file a motion for summary judgment on all counts of the complaint in late November, The City Attorney s office and special counsel are optimistic about the ultimate outcome of this case but are not able at this stage of discovery to express an opinion as to a particular outcome or the extent of the City's ultimate liability. However, whether or not Watson is successful, any potential liability is not expected to affect the City's ability to pay the principal of and interest on the Series 2005 Bonds. Subsequent to the date of the Preliminary Official Statement relating to the Series 2005 Bonds, as a result of a diligent search and inquiry prior to closing, the City Attorney became aware that Arthur D. Weiss ( Weiss ) filed suit in the United States District Court, Northern District of Florida on September 19, 2005 against the City in a multi-count complaint alleging violations of his civil rights and breach of contract and seeking declaratory relief and monetary damages. As of the date hereof, such suit has not been served on the City. The complaint alleges that, on October 30, 1989, the City and Weiss entered into an annexation agreement (the "Annexation Agreement") for the annexation of approximately 940 acres owned by Weiss (the "Land") into the City. The Land was subsequently annexed into the City. The suit further alleges that the City did not comply with the terms of the Annexation Agreement which subjected Weiss to a deprivation of rights, privileges and immunities under the United States Constitution. The suit alleges that the Annexation Agreement created certain development rights permitting Weiss to use and develop the property in a manner consistent with the Annexation Agreement, including mixed uses and densities for a Planned Use District classification of a portion of the Land. The suit alleges that Weiss, pursuant to the Annexation Agreement, entered into agreements and incurred expenses in excess of $1,000,000 relating to the development of the Land in accordance with the Annexation Agreement. The suit further alleges that the City adopted and applied, by ordinance, a single-family residential classification to the Land, which unreasonably impaired, altered and extinguished existing terms and obligations of the Annexation Agreement. It is unclear at this time as to the amount of civil damages being sought. The City Attorney s office is not able at this very preliminary stage to express an opinion as to a particular outcome or the extent of the City's potential liability. It has determined that there is no land use or zoning application currently pending on the property. A portion of the 940 acres has received development orders from the City and is undergoing development. During the time period referenced in the lawsuit, neither the owner nor any agent for the owner filed any challenge to any action or decision by the City, other than this lawsuit. Upon information and belief, the owner or agent never initiated the Planned Development zoning change process on the property. However, whether or not Weiss is successful, the City's administration is of the opinion that any potential liability is not expected to affect the City's ability to pay the principal of and interest on the Series 2005 Bonds. The City experiences routine litigation and claims incidental to the conduct of its affairs. In the opinion of the City Attorney, to the best of his knowledge, except as described above, 55

63 there are no actions presently pending or threatened, the adverse outcome of which would have a material adverse effect on the availability of the Pledged Revenues or Non-Ad Valorem Revenues or the ability of the City to pay the Series 2005 Bonds from the Pledged Revenues or Non-Ad Valorem Revenues. From time to time, the City is party to other various legal proceedings which individually are not expected to have a material adverse effect on the operations or financial condition of the City or the General Fund, but may, in the aggregate, have a material impact thereon. DISCLOSURE REQUIRED BY FLORIDA BLUE SKY REGULATIONS Pursuant to Section , Florida Statutes, as amended, no person may directly or indirectly offer or sell securities of the City except by an offering circular containing full and fair disclosure of all defaults as to principal or interest on its obligations since December 31, 1975, as provided by rule of the Florida Department of Financial Services (the "Department"). Pursuant to Rule 69W , Florida Administrative Code, the Department has required the disclosure of the amounts and types of defaults, any legal proceedings resulting from such defaults, whether a trustee or receiver has been appointed over the assets of the City, and certain additional financial information, unless the City believes in good faith that such information would not be considered material by a reasonable investor. The City is not and has not been in default on any bond issued since December 31, 1975 that would be considered material by a reasonable investor. TAX MATTERS In the opinion of Bond Counsel, under existing law, the Series 2005 Bonds are exempt from all present Florida intangible personal property taxes. In addition, in the opinion of Bond Counsel, under existing law, interest on the Series 2005 Bonds is excluded from gross income for federal income tax purposes. The opinion of Bond Counsel is conditioned upon compliance by the City with the covenants contained in the Resolution to comply with certain arbitrage rebate and other tax requirements contained in the Internal Revenue Code of 1986, as amended (the "Code"), to the extent necessary to preserve the exclusion of interest on the Series 2005 Bonds from gross income for federal income tax purposes. If the City fails to comply with such covenants, interest on the Series 2005 Bonds could become includable in the gross income of the holders thereof for federal income tax purposes, retroactive to the date of issuance of the Series 2005 Bonds. Reference is made to the proposed form of the opinion of Bond Counsel attached hereto as APPENDIX E for the complete text thereof. Alternative Minimum Tax An alternative minimum tax is imposed by the Code on both corporations and on taxpayers other than corporations. Interest on the Series 2005 Bonds will not be treated as an 56

64 item of tax preference for purposes of the alternative minimum tax. Interest on the Series 2005 Bonds will therefore not be included in the alternative minimum taxable income of taxpayers other than corporations. Interest on the Series 2005 Bonds received by a corporate Series 2005 Bondholder will, however, be included in such Series 2005 Bondholder's adjusted current earnings. A corporation's alternative minimum taxable income will be increased by seventyfive percent (75%) of the corporation's adjusted current earnings not otherwise included in its alternative minimum taxable income. The rate of the alternative minimum tax imposed on corporations is twenty percent (20%). Original Issue Discount The Series 2005 Bonds maturing on October 1 in the years 2014, 2017 through 2021, inclusive, and 2023 through 2025, inclusive (collectively, the "Discount Bonds") have been sold to the public at an original issue discount. The original issue discount is the excess of the stated redemption price at maturity of such a Discount Bond over the initial offering price to the public (excluding underwriters and other intermediaries) at which price a substantial amount of that maturity of the Discount Bonds was sold. Under existing law, an appropriate portion of any original issue discount, depending in part on the period a Discount Bonds is held by the purchaser thereof, will be treated for federal income tax purposes as interest that is excludable from gross income rather than as taxable gain. Under Section 1288 of the Code, original issue discount on tax-exempt bonds accrues on a compounded basis. The amount of original issue discount that accrues to a holder of a Discount Bond, who acquires the Discount Bond in this initial offering, during any accrual period generally equals (i) the issue price of such Discount Bond plus the amount of original issue discount accrued in all prior accrual periods multiplied by (ii) the yield to maturity of such Discount Bond (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period), less (iii) any interest payable on such Discount Bond during such accrual period. The amount of original issue discount so accrued in a particular accrual period will be considered to be received ratably on each day of the accrual period, will be excluded from gross income for federal income tax purposes, and will increase the holder's basis in such Discount Bond. Proceeds received from the sale, exchange, redemption or payment of a Discount Bond in excess of the holder's adjusted basis (as increased by the amount of original issue discount that has accrued and is treated as taxexempt interest in such owner's hands), will be treated as gain from the sale or exchange of such Discount Bond and not as interest. The federal income tax consequences from the purchase, ownership and redemption, sale or other disposition of Discount Bonds which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those described above. Holders of Discount Bonds should consult their own tax advisors with respect to the consequences of owning Discount Bonds, including the effect of such ownership under applicable state and local laws. 57

65 Original Issue Premium The Series 2005 Bonds maturing on October 1 in the years 2006 through 2013, inclusive, 2015, 2016 and 2022 (collectively, the "Premium Bonds") have been sold to the public at premium. Section 171 of the Code provides rules under which a bond premium may be amortized and a deduction allowed for the amount of the amortizable bond premium for a taxable year. Under Section 171(a)(2) of the Code, however, no deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excludable from gross income. Under Section 1016(a)(5) of the Code, the purchaser's basis in a Premium Bond will be reduced by the amount of the amortizable bond premium disallowable as a deduction under Section 171(2) of the Code. Proceeds received from the sale, exchange, redemption or payment of a Premium Bond in excess of the owner's adjusted basis (as reduced pursuant to Section 1016(a)(5) of the Code), will be treated as a gain from the sale or exchange of such Premium Bond and not as interest. Other Tax Consequences Prospective purchasers of the Series 2005 Bonds should be aware that ownership of the Series 2005 Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, individual recipients of Social Security or Railroad Retirement benefits, certain S Corporations with "excess net passive income," foreign corporations subject to the branch profits tax and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry the Series 2005 Bonds. Prospective purchasers of the Series 2005 Bonds should also be aware that ownership of the Series 2005 Bonds may result in adverse tax consequences under the laws of various states. Bond Counsel has not expressed an opinion regarding the collateral federal income tax consequences that may arise with respect to the Series 2005 Bonds. Further, Bond Counsel has expressed no opinion regarding the state tax consequences that may arise with respect to the Series 2005 Bonds other than the opinion described above relating to present Florida intangible personal property taxes. Prospective purchasers of the Series 2005 Bonds should consult their tax advisors as to the collateral federal income tax and state tax consequences to them of owning the Series 2005 Bonds. RATINGS Moody's Investors Service ("Moody's) and Fitch Ratings ("Fitch") are expected to assign ratings of "Aaa" and "AAA," respectively, with the understanding that upon delivery of the Series 2005 Bonds, the Bond Insurance Policy will be issued by the Insurer. In addition, Moody's has assigned an underlying rating of "A2" and Fitch has assigned an underlying rating of "A+" to the Series 2005 Bonds without giving any regard to such Bond Insurance Policy. The ratings reflect only the views of said rating agencies and an explanation of the ratings may be obtained only from said rating agencies. There is no assurance that such ratings will continue for any given period of time or that they will not be lowered or withdrawn entirely by the 58

66 rating agencies, or any of them, if in their judgment, circumstances so warrant. A downward change in or withdrawal of any of such ratings may have an adverse effect on the market price of the Series 2005 Bonds. An explanation of the significance of the ratings can be received from the rating agencies at the following addresses: Moody's Investors Service, 99 Church Street, New York, New York and Fitch Ratings, One State Street Plaza, New York, New York FINANCIAL ADVISOR The City has retained Public Financial Management, Inc., Orlando, Florida, as Financial Advisor in connection with the City's financing plans and with respect to the authorization and issuance of the Series 2005 Bonds. The Financial Advisor is not obligated to undertake and has not undertaken to make an independent verification or to assume responsibility for the accuracy, completeness, or fairness of the information contained in the Official Statement. The Financial Advisor did not participate in the underwriting of the Series 2005 Bonds. AUDITED FINANCIAL STATEMENTS The basic financial statements of the City as of September 30, 2004 and for the year then ended, attached hereto as "APPENDIX B Basic Financial Statements of the City," have been audited by Davis, Monk & Company, independent auditors, as stated in their report appearing therein. The City's auditor has consented to the inclusion of the aforementioned report in this Official Statement. The Series 2005 Bonds are payable solely from the Pledged Revenues and are secured by a covenant and agreement by the City to budget and appropriate Non-Ad Valorem Revenues as described herein and in the Bond Resolution, but the Series 2005 Bonds are not otherwise secured by a specific lien on any general revenues of the City. The basic financial statements are presented for general information purposes only. ENFORCEABILITY OF REMEDIES The remedies available to the owners of the Series 2005 Bonds upon an event of default under the Bond Resolution and the Bond Insurance Policy are in many respects dependent upon judicial actions which are often subject to discretion and delay. Under existing constitutional and statutory law and judicial decisions, including specifically the federal bankruptcy code, the remedies specified by the Bond Resolution, the Series 2005 Bonds and the Bond Insurance Policy may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Series 2005 Bonds, including Bond Counsel's approving opinion, will be qualified, as to the enforceability of the remedies provided in the various legal instruments, by limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors enacted before 59

67 of after such delivery. See "APPENDIX C Composite Bond Resolution" attached hereto for a description of events of default and remedies. CONTINUING DISCLOSURE The City has covenanted for the benefit of the Series 2005 Bondholders to provide certain financial information and operating data relating to the City and the Series 2005 Bonds in each year, and to provide notices of the occurrence of certain enumerated material events. The City has agreed to file annual financial information and operating data and its audited financial statements with each nationally recognized municipal securities information repository then approved by the Securities and Exchange Commission (the "NRMSIRs"), as well as any state information depository that is established in the State (the "SID"). Currently, there are no such SIDs. The City has agreed to file notices of certain enumerated material events, when and if they occur, with the NRMSIRs or the Municipal Securities Rulemaking Board, and with the SIDs, if any. The specific nature of the financial information, operating data, and of the type of events which trigger a disclosure obligation, and other details of the undertaking are described in "APPENDIX F Form of Continuing Disclosure Certificate" attached hereto. The Continuing Disclosure Certificate shall be executed by the City prior to the issuance of the Series 2005 Bonds. These covenants have been made in order to assist the Underwriter in complying with the continuing disclosure requirements of Rule 15c2-12 promulgated by the Securities and Exchange Commission (the "Rule"). With respect to the Series 2005 Bonds, no party other than the City is obligated to provide, nor is expected to provide, any continuing disclosure information with respect to the Rule. The City has never failed to comply with any prior agreements to provide continuing disclosure information pursuant to the Rule. Any filings made or notice provided by the City in accordance with its Continuing Disclosure Certificate to the Texas Municipal Advisory Council or other central filing location designated by the Securities and Exchange commission as a location that satisfies the Rule by electronic or other means shall satisfy the City's obligations with respect to filings required to be made to all NRMSIRs and SIDs, and the City shall not be required to make separate filings with the NRMSIRs or SIDs. UNDERWRITING The Series 2005 Bonds are being purchased by Merrill Lynch & Co. (the "Underwriter") at an aggregate purchase price of $22,653, (equal to the par amount of the Series 2005 Bonds of $22,695,000.00, plus net original issue premium of $39, and less Underwriter's discount of $80,848.67). The Underwriter's obligations are subject to certain conditions precedent described in the Official Notice of Sale, and they will be obligated to purchase all of the Series 2005 Bonds if any Series 2005 Bonds are purchased. The Series 2005 Bonds may be offered and sold to certain dealers (including dealers depositing such Series 2005 Bonds into 60

68 investment trusts) at prices lower than such public offering prices, and such public offering prices may be changed, from time to time, by the Underwriter. CONTINGENT FEES The City has retained Bond Counsel, Disclosure Counsel and the Financial Advisor with respect to the authorization, sale, execution and delivery of the Series 2005 Bonds. Payment of the fees of such professionals and an underwriting discount to the Underwriter (including the fees of their counsel) are contingent upon the issuance of the Series 2005 Bonds. ACCURACY AND COMPLETENESS OF OFFICIAL STATEMENT The references, excerpts, and summaries of all documents, statutes, and information concerning the City and certain reports and statistical data referred to herein do not purport to be complete, comprehensive and definitive and each such summary and reference is qualified in its entirety by reference to each such document for full and complete statements of all matters of fact relating to the Series 2005 Bonds, the security for the payment of the Series 2005 Bonds and the rights and obligations of the owners thereof and to each such statute, report or instrument. Copies of such documents may be obtained from either the office of the Clerk of the Commission, Kurt M. Lannon, 200 East University Avenue, Room 107, Gainesville, Florida , telephone (352) or the City's Financial Advisor, Public Financial Management, Inc., 300 South Orange Avenue, Suite 1170, Orlando, Florida 32801, telephone (407) Any statements made in this Official Statement involving matters of opinion or of estimates, 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 will be realized. Neither this Official Statement nor any statement that may have been made verbally or in writing is to be construed as a contract with the owners of the Series 2005 Bonds. The appendices attached hereto are integral parts of this Official Statement and must be read in their entirety together with all foregoing statements. 61

69 AUTHORIZATION OF OFFICIAL STATEMENT The execution and delivery of this Official Statement has been duly authorized and approved by the City. At the time of delivery of the Series 2005 Bonds, the City will furnish a certificate to the effect that nothing has come to its attention which would lead it to believe that the Official Statement (other than information herein related to the Insurer, the Bond Insurance Policy, DTC, the book-entry only system of registration and the information contained under the caption "TAX MATTERS" as to which no opinion shall be expressed), as of its date and as of the date of delivery of the Series 2005 Bonds, contains an untrue statement of a material fact or omits to state a material fact which should be included therein for the purposes for which the Official Statement is intended to be used, or which is necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. CITY OF GAINESVILLE, FLORIDA By: /s/ Russ Blackburn City Manager By: /s/ Mark S. Benton Finance Director 62

70 APPENDIX A GENERAL INFORMATION CONCERNING THE CITY OF GAINESVILLE Appendix A-1

71 APPENDIX A GENERAL INFORMATION CONCERNING THE CITY OF GAINESVILLE Location The City of Gainesville (the "City") is the most populous city in Alachua County, serves as the county seat, and also serves as the cultural, educational and commercial center for the north central Florida region. The City is located midway between the Gulf of Mexico and the Atlantic Ocean and halfway between Miami and Pensacola. There are approximately 54 square miles of land included within the corporate boundaries of the City. As of April 1, 2004, the most recent official population estimate was 117,754, according to the Bureau of Economic and Business Research at the University of Florida. Organization and Administration The City was established in 1854, incorporated in 1869 and has operated under a Commission-Manager form of government since The Commission consists of seven elected officials (a Mayor and six Commissioners) who are responsible for enacting the ordinances and adopting the resolutions which govern the City. The elected officials each serve for three-year terms. The Mayor presides over public meetings and ceremonial events. The Commission appoints the City Manager, General Manager for Utilities, City Auditor, City Attorney, Clerk of the Commission, and Equal Opportunity Director. As chief executive officers, the City Manager and General Manager for Utilities are charged with the enforcement of all ordinances and resolutions passed by the Commission. They accomplish this task through the selection and supervision of an Assistant City Manager, an Administrative Services Director, and Assistant General Managers for Utilities and department heads. The City of Gainesville provides its constituents with a wide variety of public services: building inspections, code enforcement, community development, cultural affairs, economic development, electrical power, golf course, mass transit, natural gas distribution, parks and recreation, police and fire protection, refuse collection, small business development, stormwater management, street maintenance, traffic engineering and parking, water and wastewater and telecommunications and data transfer. Internal support services include the following: accounting, accounts payable, billing and collections, City-wide management, computer systems support, debt management, equal opportunity, affirmative action, fleet maintenance, facilities maintenance, human resources, information systems, investment management, labor relations, mail services, payroll, property control, purchasing and risk management. In addition to these activities, the City exercises oversight responsibility for the Gainesville Enterprise Zone Development Agency and the Community Redevelopment Agency. Appendix A-1

72 Population The following tables depict historical population growth of the City, Alachua County and the State of Florida: City of Gainesville Population (1) POPULATION GROWTH Alachua County Population State of Florida Population Percentage Percentage Year Increase Increase , , ,897, , % 57, % 2,771, , , ,951, , , ,791, , , ,746, , , ,937, , , ,982, , ,397, Population Increase Source: U.S. Bureau of Census and University of Florida, Bureau of Business and Economic Research Florida Statistical Abstracts. (1) According to the Bureau of Economic and Business Research at the University of Florida, the City population was 117,754 as of April 1, 2004, which reflects a 23.4% increase from year (2) Medium Projections. Employment The following table sets forth the unemployment rate for the City of Gainesville over the past ten years. Source: United States Department of Labor EMPLOYMENT Year Unemployment Rate % Appendix A-2

73 GAINESVILLE MSA TOTAL NON-AGRICULTURAL EMPLOYMENT (SEPTEMBER 30, 2004) Industry Percentage of Workforce Construction & Mining 4.32% Manufacturing 3.37 Trade, Transportation and Services Information 1.50 Financial Activities 5.05 Professional & Business Services 8.62 Educational & Health Services Leisure & Hospitality 9.24 Other Services 3.69 Government Source: United States Department of Labor TEN LARGEST EMPLOYERS (SEPTEMBER 30, 2004) Firm Product/Business Employees University of Florida Education 12,212 Shands Hospital Health Care 7,508 School Board of Alachua County Education 4,195 Veterans Affairs Medical Center Health Care 2,700 City of Gainesville Municipal Government 2,357 Florida Department of Children and Families State Family Services 2,119 Publix Supermarkets Grocer 1,865 North Florida Regional Medical Center Health Care 1,646 Nationwide Insurance Company Insurance 1,099 Santa Fe Community College Education 831 Source: Gainesville Council for Economic Outreach [Remainder of page intentionally left blank] Appendix A-3

74 Property Tax Data The following date is provided for information and analytical purposes only. The Bonds are not secured by ad valorem tax revenues of the City. HISTORY OF PROPERTY VALUES AND PROPERTY ASSESSMENTS Tax Roll Year Just Value of All Property Total Exempt Property Net Taxable Value 1995 $4,987,069,832 $3,039,385,556 $1,947,684, ,407,243,370 3,376,124,057 2,031,119, ,813,160,554 3,662,925,765 2,150,234, ,906,564,485 3,670,804,665 2,235,759, ,117,881,236 3,727,432,984 2,390,448, ,221,260,827 3,699,548,238 2,521,712, ,633,284,013 3,898,051,718 2,735,232, ,047,490,127 3,794,670,980 3,252,819, ,469,339,911 3,907,675,575 3,561,664, ,739,206,865 4,933,995,697 3,805,211,168 Source: Comprehensive annual Financial Report for Fiscal Year ended September 30, 2004, City of Gainesville, Florida. HISTORY OF LOCAL AD VALOREM TAX RATES AND TAX LEVIES Local Property Tax City Net Taxable Tax Rates (Mills) Local Property Tax Levies ($) Roll Year Fiscal Year Value for Local Levies Bonds and Interest General Government Bonds and Interest General Government Total Taxes Levied (1) (2) (3) (4 & 5) (4) $1,947,684, $ 9,672,006 $ 9,672, ,031,119, ,036,976 10,036, ,150,234, ,625,320 10,625, ,235,759, ,047,935 11,047, ,390,448, ,821,291 11,821, ,521,712, ,460,972 12,460, ,735,232, ,516,120 13,516, ,252,819, ,073,799 16,073, ,561,664, ,599,965 17,599, ,805,211, ,803,470 18,803,470 Source: Comprehensive annual Financial Report for Fiscal Year ended September 30, 2004, City of Gainesville, Florida. (1) Tax roll year as of January 1. (2) Fiscal year October 1 through September 30. (3) Sum of real and personal property value. (4) (a) Tax rates are set by the Commission effective October 1. (b) Chapter , Florida Statutes, allows unrestricted ad valorem tax rate levies for debt service for general obligation bonds approved by citizen referendum and imposes a 10 mill limitation on ad valorem tax rates levied for general government operations. (5) The City's General Obligation Bonds Series 1974 were paid in full in Fiscal Year Appendix A-4

75 City Fiscal Year Total Property Taxes Levied HISTORY OF COLLECTION OF AD VALOREM TAXES Adjustments and Penalties After Levy Taxes Certified for Collection Current Taxes Collected Collections as a Percent of Certified Delinquent Taxes Collected Total Property Taxes Collected $8,912,382 (17,427) 8,894,955 8,774, % 54,725 8,829, ,672,006 (932) 9,671,074 9,558, % 79,630 9,637, ,036,976 11,022 10,047,998 9,930, % 118,289 10,049, ,625,320 17,255 10,642,575 10,201, % 61,160 10,262, ,047,935 24,053 11,071,988 10,626, % 47,864 10,674, ,821,291 17,021 11,838,312 11,271, % 129,246 11,400, ,460,972 19,814 12,480,786 12,000, % 16,277 12,016, ,516,120 22,071 13,538,191 12,925, % 117,116 13,042, ,073,799 21,833 16,095,632 15,428, ,161 15,532, ,599,965 33,761 17,633,726 16,795, ,267 16,934, ,803,470 24,541 18,828, Source: Comprehensive annual Financial Report for Fiscal Year ended September 30, 2004, City of Gainesville, Florida. (1) Additions, deletions and adjustments to the net taxable value may be made by the Board of County Commissioners and by the Board of Review after the Commission sets the tax levy. Penalties may be imposed by the County Property Appraiser for late filing of information by owners of personal property, and the County Commission may cancel taxes under certain conditions. This column is the net of such actions. (2) The County Tax Collector certifies the amount for collection after all adjustments. Tax bills paid in November receive a 4% discount; bills paid in December through March receive 3%, 2%, 1%, or 0%, respectively, and those paid after March 31st are subject to a 3% penalty. The County Tax Collector distributes tax collections at least twice each month in November and December and at least monthly thereafter. (3) Collected taxes include the legally credited discounts referred to in Note (2) above. Real property taxes and penalties not paid become subject to sale (by June 1st) as interest-bearing tax sale certificates at public auction. Tax sale certificates not sold at auction are retained in the name of the County; those not redeemed within two years are "foreclosed" and the property is sold at public auction, with any sales proceeds distributed on a pro-rata basis to interested taxing authorities. (4) Unpaid personal property taxes become a lien on the personal property assessed, and through Court action the property can be attached and sold at public auction. HISTORY OF PROPERTY TAX LEVIES AND COLLECTIONS Outstanding Total Delinquent Tax Current Percent Delinquent Collected Outstanding Taxes Roll Total Tax of Levy Tax Total Tax as a % of Delinquent as a % of Year Tax Levied Collection Collected Collections Collections Current Levy Taxes Current Levy 1995 $9,672,006 $9,558, % $79,630 $9,012, % $83, % ,036,976 9,930, ,289 10,049, , ,625,320 10,201, ,160 10,262, , ,047,935 10,626, ,864 10,674, , ,821,291 11,271, ,246 11,400, , ,460,972 12,000, ,277 12,016, , ,516,120 12,925, ,116 13,042, , ,073,799 15,428, ,161 15,532, , ,599,965 16,795, ,267 16,934, , ,803, Source: Comprehensive annual Financial Report for Fiscal Year ended September 30, 2004, City of Gainesville, Florida. Appendix A-5

76 MILLAGE RATES AND ALL OVERLAPPING UNITS OF GOVERNMENT TAX RATE (MILLS) (INCLUDING DEBT SERVICE) Alachua St. Johns Alachua Total Tax County Water County All Direct & Roll City of County of School Management Library Overlapping Year Gainesville Alachua District District District Governments (1) Source: Comprehensive annual Financial Report for Fiscal Year ended September 30, 2004, City of Gainesville, Florida. (1) Alachua County millage rate includes only operating and debt service; MSTU is not included in these rates. TAX LEVIES ($) (INCLUDING DEBT SERVICE) Alachua St. Johns Alachua Total Tax County Water County All Direct & Roll City of County of School Management Library Overlapping Year Gainesville Alachua District District District Governments ,672,006 18,076,558 23,717, ,166 3,585,304 55,784, ,036,976 18,853,632 24,736, ,916 3,739,260 58,126, ,625,320 19,351,516 26,182, ,857 3,893,321 55,784, ,047,935 20,186,675 27,224,847 1,077,636 4,048,290 58,126, ,821,291 20,964,231 28,264,660 1,152,196 4,328,385 66,530, ,460,972 22,102,810 27,242,061 1,190,248 4,791,253 67,787, ,516,120 24,619,002 28,544,246 1,263,649 4,592,079 72,535, ,073,799 29,238,019 34,043,311 1,502,772 5,409,978 86,267, ,647,319 72,823,648 77,706,173 2,719,253 13,083, ,979, ,838,752 78,937,706 79,077,885 2,932,044 14,202, ,988,642 Source: Comprehensive annual Financial Report for Fiscal Year ended September 30, 2004, City of Gainesville, Florida. Appendix A-6

77 The following table sets forth certain information regarding direct and overlapping debt for the City, as of September 30, OVERLAPPING GENERAL OBLIGATION DEBT (1) General Percent Taxable Obligation of Debt City's Taxing Property Bonded Applicable Share of Authority Value (2) Debt (3) to City Debt (4) City of Gainesville $3,805,211, % -- Alachua County 8,530,910,912 $12,785, $5,702,110 Alachua County Schools 8,559,759,742 53,890, ,954,105 $66,675, % $29,656,215 Source: Comprehensive annual Financial Report for Fiscal Year ended September 30, 2004, City of Gainesville, Florida. (1) The above information on bonded debt does not include self supporting and non-self supporting revenue bonds, certificates, and notes as follows (reserves and/or sinking fund balances have not been deducted). (2) As of January 1, 1983, homestead property of certain qualified residents is eligible for up to $25,000 value exemption. (3) Reserves and sinking fund balances have not been deducted. (4) Chapter , Florida Statutes, allows unrestricted ad valorem tax rate levies for debt service for general obligation bonds approved by voter referendum. OVERLAPPING SELF SUPPORTING AND NON-SELF SUPPORTING DEBT Taxing Self Non-Self Authority Supporting Supporting Totals Alachua County -- $46,405,000 $46,405,000 Alachua County Schools City of Gainesville: Utilities $438,617, $438,617,383 Other than Utilities -- 35,138,433 35,138,433 $438,617,383 $81,543,433 $520,160,816 Source: Comprehensive annual Financial Report for Fiscal Year ended September 30, 2004, City of Gainesville, Florida. Appendix A-7

78 DEBT SUMMARY (1) AS OF SEPTEMBER 30, 2004 Gross Net General Obligation Debt Senior Debt Payable from Non-Ad Valorem Revenues(2) $11,307,220 $10,954,051 Other Debt Payable from Non-Ad Valorem Revenue(3) 110,934, ,495,763 General Obligation Overlapping Debt(4) 29,656,215 29,636,215 Total 151,898, ,086,029 Maximum Annual Debt Service on Senior Debt 1,095,000 N/A Maximum Annual Debt Service on Other Debt 11,321,428 N/A Source: Comprehensive annual Financial Report for Fiscal Year ended September 30, 2004, City of Gainesville, Florida. (1) This includes only City of Gainesville general government debt; therefore, utility system debt and other self-liquidating debt are not included. (2) Includes all debt to which pledge and/or lien on a specific non-ad valorem revenue source has been provided by the City. Rights of owners of such debt instruments shall be superior to the security which has been provided to the Bondholders. (3) Includes all loans made by the First Florida Governmental Financing Commission to the City of Gainesville. (4) Includes general obligation debt of Alachua County and Alachua County School District. PRINCIPAL TAXPAYERS (REAL ESTATE & TANGIBLE TAXPAYERS) Tax Roll Year 2004 Percent of Taxable Total Taxable Owner/Taxpayer Value Value Oaks Mall Gainesville Ltd Partnership $83,309, % Bellsouth Telecommunications, Inc. 67,597, Florida Power Corporation 39,534, HCA Health Services of Florida 30,350, Metal Container Corporation 23,161, Colonial Realty Ltd. Partnership 22,826, Gainesville Place LLC 22,365, Campus Lodge of Gainesville, LTD 18,819, Clarian Life Science, Molecules 17,881, Cox Cable University City, Inc. 17,455, All Others 3,217,924, TOTAL ALL TAXPAYERS $3,561,226, % Source: Alachua County Property Appraiser Appendix A-8

79 DEBT STATEMENT PRINCIPAL AMOUNT OF BONDS OUTSTANDING AS OF JULY 1, 2005 Non-Self Self-Supporting Supporting Debt Debt $15,892,220 Guaranteed Entitlement Revenue and Refunding Bonds of 1994 Final maturity 2024 $1,502,220 $4,990,000 First Florida Financing Commission Loan Series 1996 Final maturity ,190,000 $11,000,000 First Florida Financing Commission Loan Series 1998 Final maturity ,085,000 $2,775,000 First Florida Financing Commission Loan Series 2001 Final maturity ,000 $9,870,000 First Florida Financing Commission Loan Series 2002 Final maturity ,855,000 $40,042,953 Pension Obligation Bond Series 2003A Employees' Plan Final maturity ,192,953 $49,851,806 Pension Obligation Bond Series 2003B Consolidated Plan Final maturity ,851,806 $9,805,000 Guaranteed Entitlement Revenue and Refunding Bonds of 2004 Final maturity ,805,000 $5,640,000 First Florida Financing Commission Loan Series 2005 Final maturity ,640,000 $186,000,000 Utilities System Revenue Bonds, Series 1983 Final maturity 2014 $4,675,000 $134,200,000 Utilities System Revenue Bonds, Series 1992 Final maturity ,630,000 $35,180,000 Utilities System Revenue Bonds, Series 1993A Final maturity $128,795,000 Utilities System Revenue Bonds, Series 1993B Final maturity $143,215,000 Utilities System Revenue Bonds, Series 1996A Final maturity ,180,000 $37,300,000 Utilities System Subordinated Revenue Bonds, Series 2002A Variable rate auction notes 34,500,000 $40,000,000 Utilities System Subordinated Revenue Bonds, Series 2002B Variable rate auction notes 40,000,000 $33,000,000 Utilities System Revenue Bonds, Series 2003A Final maturity ,000,000 $7,625,000 Utilities System Revenue Bonds, Series 2003B Final maturity ,625,000 $115,925,000 Utilities System Revenue Bonds, Series 2003C Final maturity ,603,750 $85,000,000 Utilities System Commercial Paper Notes, Series C 51,843,750 $25,000,000 Utilities System Commercial Paper Notes, Series C 17,031,000 (Taxable) Total Direct Debt $124,721,979 $481,169,750 Source: Finance Department, City of Gainesville, Florida Appendix A-9

80 APPENDIX B BASIC FINANCIAL STATEMENTS OF THE CITY Appendix B-1

81

82

83

84

85

86 MANAGEMENT S DISCUSSION AND ANALYSIS As management of the City of Gainesville (the City ), we offer readers of the City s financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended September 30, Management s Discussion and Analysis is designed to (a) assist the reader in focusing on significant financial issues, (b) provide an overview of the City s financial activity, (c) identify changes in the City s financial position, (d) identify any material deviations from the financial plan, and (e) identify individual fund issues or concerns. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on pages vi - xii of this report, and the City s financial statements which begin on page 1. Financial Highlights The assets of the City exceeded its liabilities at the close of the most recent fiscal year by $498,499,062 (net assets). Of this amount, $36,794,999 (unrestricted net assets) may be used to meet the City s ongoing obligations to citizens and creditors. The City s total net assets increased by $15,677,122. As of the close of the fiscal year, the City s governmental funds reported combined ending fund balances of $31,510,952, a decrease of $11,348,417 in comparison with the prior year. Of this total amount, $18,225,332 is available for spending at the City s discretion (unreserved fund balance). At the end of the current fiscal year, the undesignated fund balance in the General Fund was $6,744,693. The City s total bonded debt decreased by $18,820,250, or 3.18% during the current fiscal year. In addition to the scheduled pay down of existing debt, the prominent components of this change were the issuance of $9,805,000 in Guaranteed Entitlement Refunding Bonds Series These bonds refunded $10,010,000 in Series 1994 Guaranteed Entitlement Revenue and Refunding Bonds. Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the City s basic financial statements. The City s basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the City s finances, in a manner similar to a private-sector business. The statement of net assets presents information on all of the City s assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decrease in net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities presents information showing how the city s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in MDA - 1

87 this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused sick leave). Both of the government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City include general government, public safety, physical environment, transportation, economic environment, human services and culture and recreation. The business-type activities include electric generation, transmission and distribution, natural gas, water and wastewater, telecommunications, refuse collection, stormwater management, golf course, and mass transit. The government-wide financial statements include not only the City itself, but also a legally separate enterprise zone development agency, and a legally separate redevelopment agency for which the City is financially accountable. Financial information for these component units is reported separately from the financial information presented for the primary government itself. The government-wide financial statements can be found on pages 1-2 of this report. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the governmentwide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains forty individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures and changes in fund balances for the general fund, which is considered to be a major fund. Data from the other thirty-nine governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report. The basic governmental fund financial statements can be found on pages 3-6 of this report. Proprietary funds. The City maintains two different types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City maintains five enterprise funds to account for the following operations: electric power generation, transmission and distribution, natural gas distribution, water and wastewater treatment, telecommunications, refuse collection, golf course, stormwater management, and mass transit. Internal service funds are an accounting device used to accumulate and allocate costs internally among the City s various functions. The City maintains four internal service funds to account for fleet management operations, general insurance, employee, and retiree health insurance programs. Because these services predominantly benefit governmental rather than business-type functions, they have been included within governmental activities in the government-wide financial statements. MDA - 2

88 Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the utility fund, which is considered to be a major fund of the City. Data from the other four proprietary funds are combined into a single, aggregated presentation. The four internal service funds are combined into a single, aggregated presentation in the proprietary fund financial statements. Individual fund data for the nonmajor enterprise funds as well as for the internal service funds is provided in the form of combining statements elsewhere in this report. The basic proprietary fund financial statements can be found on pages 7-12 of this report. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic fiduciary fund financial statements can be found on pages of this report. Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages of this report. Other information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City s compliance with its General Fund budget and the City s progress in funding its obligation to provide pension benefits to its employees. Required supplementary information can be found on pages of this report. The combining statements referred to earlier in connection with nonmajor governmental and proprietary funds, and internal service funds are presented immediately following the required supplementary information. Combining and individual fund statements and capital asset schedules can be found on pages of this report. Government-wide Financial Analysis As noted earlier, net assets may serve over time as a useful indicator of a government s financial position. In the case of the City, assets exceeded liabilities by $498,499,062 at the close of the most recent fiscal year. Approximately 75% of the City s net assets reflect its investment in capital assets (e.g., land, utility plant and equipment, buildings, improvements, machinery and equipment, and infrastructure), less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently these assets are not available for future spending. Although the City s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. MDA - 3

89 FY04 FY03 FY04 FY03 FY04 FY03 Current and other assets $ 143,708,474 $ 155,096,811 $ 378,095,598 $ 429,050,735 $ 521,804,072 $ 584,147,546 Capital assets 107,952,914 97,442, ,041, ,723, ,994, ,165,130 Total assets 251,661, ,538,934 1,109,137,042 1,131,773,742 1,360,798,430 1,384,312,676 Long-term liabilities outstanding 124,893, ,419, ,617, ,689, ,510, ,109,118 Other liabilities 14,816,961 13,325, ,971, ,056, ,788, ,381,619 Total liabilities 139,710, ,744, ,588, ,745, ,299, ,490,737 Net assets: Invested in capital assets, Governmental activities City of Gainesville's Net Assets Business-type activities net of related debt 79,593,219 47,854, ,702, ,117, ,296, ,971,337 Restricted 12,928,276 22,754,050 49,479,733 83,814,681 62,408, ,568,731 Unrestricted 19,429,443 39,185,669 17,365,556 8,096,203 36,794,999 47,281,872 Total net assets $ 111,950,938 $ 109,794,032 $ 386,548,124 $ 373,027,908 $ 498,499,062 $ 482,821,940 Total An additional portion of the City s net assets ($62,408,009 or 12.5 %) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets ($36,794,999) may be used to meet the government s ongoing obligations to citizens and creditors. At the end of the current fiscal year, the City is able to report positive balances in all three categories of net assets, both for the government as a whole, as well as for its separate governmental and business-type activities. The City s net assets increased by $15,677,122 during the current fiscal year. MDA - 4

90 City of Gainesville Changes in Net Assets Revenues: Program revenues: Governmental Business-type activities activities Total FY04 FY03 FY04 FY03 FY04 FY03 Charges for services $ 11,802,297 $ 11,863,349 $ 245,134,371 $ 229,449,766 $ 256,936,668 $ 241,313,115 Operating grants and contributions 5,951,582 4,681,010 5,059,409 4,968,210 11,010,991 9,649,220 Capital grants and contributions 1,406,477 4,971,251 7,572,300 5,953,321 8,978,777 10,924,572 General Revenues: - - Property taxes 17,983,617 16,341, ,983,617 16,341,921 Other taxes 18,961,421 17,738, ,961,421 17,738,773 State revenue sharing 3,367,156 2,825, ,367,156 2,825,141 Interest 2,641,812 1,634,773 7,011,499 6,468,299 9,653,311 8,103,072 Other revenues 3,564,261 6,097,543 16,155,309 13,945,313 19,719,570 20,042,856 Total revenues 65,678,623 66,153, ,932, ,784, ,611, ,938,670 Expenses: General Government 18,458,043 15,061, ,458,043 15,061,813 Public Safety 45,714,000 42,574, ,714,000 42,574,106 Physical environment 2,827,492 2,832, ,827,492 2,832,078 Transportation 9,548,804 9,358, ,548,804 9,358,165 Economic environment 3,583,832 5,135, ,583,832 5,135,218 Human services 1,713,715 1,490, ,713,715 1,490,131 Culture & recreation 3,669,838 5,317, ,669,838 5,317,908 Interest on long-term debt 5,136,385 3,626, ,136,385 3,626,965 Electric ,668, ,555, ,668, ,555,094 Gas ,402,154 20,745,014 22,402,154 20,745,014 Water ,662,347 14,213,832 15,662,347 14,213,832 Wastewater ,978,035 17,514,229 17,978,035 17,514,229 GRUCom - - 6,626,562 6,296,174 6,626,562 6,296,174 Regional Transit System ,946,979 12,833,553 13,946,979 12,833,553 Stormwater - - 3,963,762 3,934,824 3,963,762 3,934,824 Ironwood - - 1,438,628 1,531,655 1,438,628 1,531,655 Solid waste - - 5,595,169 5,703,055 5,595,169 5,703,055 Total expenses 90,652,109 85,396, ,282, ,327, ,934, ,723,814 Increase(Decrease) in net assets before transfers (24,973,486) (19,242,623) 40,650,608 37,457,479 15,677,122 18,214,856 Transfers 27,130,392 26,366,066 (27,130,392) (26,366,066) - - Increase in net assets 2,156,906 7,123,443 13,520,216 11,091,413 15,677,122 18,214,856 Net assets - 10/1/03 109,794, ,670, ,027, ,371,315 $ 482,821,940 $ 540,041,904 Prior Period Adjustment (75,434,820) $ - $ (75,434,820) Net assets - 10/1/03, as restated 109,794, ,670, ,027, ,936, ,821, ,607,084 Net assets - 9/30/04 $ 111,950,938 $ 109,794,032 $ 386,548,124 $ 373,027,908 $ 498,499,062 $ 482,821,940 MDA - 5

91 Governmental activities. Governmental activities increased the City s net assets by $2,156,906, thereby accounting for 13.8% of the total growth in the net assets of the City. Key elements of this increase from the revenue side are as follows: Property taxes increased by $1,641,696 (10.1%) from last year. $985,000 increase in half cent sales tax $1,000,000 increase in interest earnings $542,000 increase in state revenue sharing $952,000 from the termination of a $30,000,000 seven year taxable fixed-to-floating LIBOR swap agreement related to the 2003 Pension Obligation Bonds. $518,287 net impact from $1,000,000 Temporary Assistance to Needy Families grant $50 Expenses & Program Revenues - Governmental Activities $45 $40 Expenses Program Revenues $35 $ Millions $30 $25 $20 $15 $10 $5 $0 General Government Public Safety Physical Environment Transportation Economic Environment Human Services Culture & Recreation Interest on Long Term Debt Overall expense increased by $5,274,739 or approximately 6.2%. The principal component of this increase was a $4,848,447 expense related to the amortization of the negative net pension obligation resulting from the issuance of the 2003 Taxable Pension Obligation Bonds. MDA - 6

92 Revenues by Source - Governmental Activities Other Taxes 29% Other 15% Charges For Services 18% Property Taxes 27% Capital Grants & Contributions 2% Operating Grants & Contributions 9% Business-type activities. Business-type activities increased the City s net assets by $13,520,216 accounting for 86.2% of the total growth of the City s net assets. Key elements of this increase are as follows: Utility operating revenue increased $15.1 million, or approximately 6.7%. The increase was offset in part by higher fuel costs in fiscal 2004 at approximately $8.2 million, or about 10%, which are passed directly through to our customers. The number of customers for electric, water, wastewater and gas services increased 3.3%, 3.1%, 2.9% and 1.8% respectively in fiscal Gainesville Regional Utility s service area incurred approximately $5.5 million of damage to its facilities as a result of two hurricanes in September It is anticipated that a significant portion of the costs will be reimbursed through Federal Emergency Management Agency (FEMA) funding. The estimated $5.5 million cost has been accrued as part of fiscal 2004 activity. MDA - 7

93 Expenses & Program Revenues - Business-Type Activities $160 $140 $120 Expenses Program Revenues $ Millions $100 $80 $60 $40 $20 $0 Electric Gas Water Wastewater Grucom Regional Transit Stormwater Ironwood Solid Waste Financial Analysis of the Government s Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements. Governmental funds. The focus of the City s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City s financing requirements. In particular, unreserved fund balance may serve as a useful measure of the City s net resources available for spending at the end of a fiscal year. As of the end of the current fiscal year, the City s governmental funds reported combined ending fund balances of $31,510,952, a decrease of $11,348,417 in comparison with the prior year. Approximately 58% ($18,225,332) of this total amount constitutes unreserved fund balance, which is available for spending at the government s discretion. The remainder of fund balance is reserved to indicate that it is not available for new spending because it has already been committed 1) to liquidate contracts and purchase orders of the prior period ($6,170,526), 2) to pay debt service ($499,000), 3) noncurrent receivables ($2,189,096), and 4) for a variety of other restricted purposes ($4,426,948). The general fund is the chief operating fund of the City. At the end of the current fiscal year there was $6,744,693 undesignated fund balance of the general fund, while total fund balance was $13,264,280. As a measure of the general fund s liquidity, it may be useful to compare both undesignated fund balance and total fund balance to total fund expenditures. Undesignated fund balance is 9.4% of total expenditures, while total fund balance represents 18.4% of that same amount. The fund balance of the City s general fund decreased by $1,314,532 during the current fiscal year. This was an improvement from the prior year decline of $3,318,771. Key factors in this improvement from the prior year are as follows: An increase in property tax revenues of $1,404,141. The millage rate remained the same as the previous year, so this growth was generated through an increase in the property tax base. An increase of $985,902 in half cent sales tax revenue. MDA - 8