$28,710,000 BAY COUNTY, FLORIDA Water and Sewer System Revenue Refunding Bonds, Series 2015

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1 NEW ISSUE BOOK ENTRY-ONLY Ratings: Moody s: A3 In the opinion of Nabors, Giblin & Nickerson, P.A, Tampa, Florida, Bond Counsel, under existing statutes, regulations, rulings and court decisions, interest on the Series 2015 Bonds is (a) excluded from gross income of the owners of the Series 2015 Bonds for federal income tax purposes (except as described under the caption TAX EXEMPTION herein) and (b) not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. See TAX EXEMPTION herein. $28,710,000 BAY COUNTY, FLORIDA Water and Sewer System Revenue Refunding Bonds, Series 2015 Dated: Date of Delivery Due: September 1, as set forth on the inside cover The Water and Sewer System Revenue Refunding Bonds, Series 2015 (the Series 2015 Bonds ) are being issued by Bay County, Florida (the County or Issuer ) as fully registered bonds and when issued will be registered in the name of Cede & Co. as Bondholder and securities depository nominee of The Depository Trust Company, New York, New York ( DTC ). Individual purchases will be made in book-entry form only through DTC Participants, in the principal amount of $5,000 or any integral multiple thereof. Interest on the Series 2015 Bonds is payable semiannually on March 1 and September 1 of each year, commencing March 1, Payments of principal of, premium, if any, and interest on the Series 2015 Bonds will be made to purchasers by DTC Participants. Hancock Bank, a trade name of Whitney Bank, Orlando, Florida, will serve as Paying Agent and Registrar for the Series 2015 Bonds. The Series 2015 Bonds are subject to mandatory and optional redemption prior to maturity as described herein. The Series 2015 Bonds are being issued pursuant to the authority of the Constitution and Laws of the State of Florida, including Chapter 125, Part I, Florida Statutes, and other applicable provisions of law (collectively the Act ), and under and pursuant to Resolution No. 3318, adopted by the County on September 15, 2015, as amended and supplemented, and particularly as amended and supplemented by Resolution No. 3319, adopted by the County on September 15, 2015 (collectively, the Resolution ). The Series 2015 Bonds are being issued by the County to provide funds, together with certain other legally available funds, for the purpose of (i) refunding the County s outstanding Water and Sewer System Revenue Bond, Series 2011 (the Refunded Indebtedness ); (ii) funding the debt service reserve requirement for the Series 2015 Bonds; and (iii) paying certain costs incurred in connection with the issuance of the Series 2015 Bonds, all as more particularly described herein. The Series 2015 Bonds are limited obligations of the County, payable from and secured by a lien on and pledge of (a) the Net Revenues (as defined in the Resolution) that are derived from the operation of the System, (b) the Connection Fees (as defined in the Resolution) and (c) the moneys on deposit in certain of the funds and accounts created pursuant to the Resolution, as more fully described herein (collectively, the Pledged Funds ). In addition, the County has covenanted to budget and appropriate certain Non-Ad Valorem Revenues sufficient to restore any amount withdrawn from the 2015 subaccount of the Reserve Account to pay debt service on the Series 2015 Bonds, which covenant may be released upon achieving certain coverage requirements. See SECURITY AND SOURCE OF PAYMENT Covenant to Budget and Appropriate, herein. NEITHER THE COUNTY, THE STATE OF FLORIDA NOR ANY POLITICAL SUBDIVISION THEREOF HAS PLEDGED ITS FULL FAITH OR CREDIT OR TAXING POWER TO THE PAYMENT OF THE SERIES 2015 BONDS. NO HOLDER OF THE SERIES 2015 BONDS SHALL EVER HAVE THE RIGHT TO COMPEL THE EXERCISE OF ANY AD VALOREM TAXING POWER OF THE ISSUER OR TAXATION IN ANY FORM ON ANY REAL PROPERTY THEREIN TO PAY THE SERIES 2015 BONDS OR THE INTEREST DUE THEREON NOR BE ENTITLED TO PAYMENT OF THE SERIES 2015 BONDS FROM ANY FUNDS OF THE COUNTY EXCEPT AS DESCRIBED HEREIN. THE SERIES 2015 BONDS AND THE OBLIGATIONS EVIDENCED THEREBY SHALL NOT CONSTITUTE A LIEN UPON ANY PROPERTY OF THE COUNTY, BUT SHALL CONSTITUTE A LIEN ONLY ON, AND SHALL BE PAYABLE SOLELY FROM THE PLEDGED FUNDS. THE COUNTY MAY ISSUE ADDITIONAL OBLIGATIONS ON PARITY WITH THE SERIES 2015 BONDS IN ACCORDANCE WITH THE TERMS OF THE RESOLUTION. This cover contains information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Series 2015 Bonds are offered when, as and if issued and received by the Underwriters, based upon the approving opinion of Nabors, Giblin & Nickerson, P.A., Tampa, Florida, Bond Counsel to the County. Certain other legal matters will be passed upon by Burke Blue Hutchison Walters & Smith, P.A., Panama City, Florida, Disclosure Counsel to the County. Bryant Miller Olive P.A., Tallahassee, Florida, is serving as counsel to the Underwriters. First Southwest Company, LLC, Orlando, Florida, is serving as financial advisor to the County. It is expected that the Series 2015 Bonds will be available for delivery in New York, New York, in definitive form on or about November 4, WELLS FARGO SECURITIES Dated: October 15, 2015 RBC CAPITAL MARKETS

2 MATURITIES, PRINCIPAL AMOUNTS, INTEREST RATES, YIELDS AND PRICES Maturity (Sept. 1) $12,010,000 Serial Bonds Initial CUSIP Number Principal Amount Interest Rate Yield Price 2017 $585, % 1.150% AA , AB , AC , AD , AE , AF , AG , AH , AJ , AK , AL , AM3 2029* 845, AN , AP , AQ , AR2 $2,020, % Term Bond Due Sept. 1, 2034; Yield 4.030%; Price ; Initial CUSIP AS0 $3,340, % Term Bond Due Sept. 1, 2037; Yield 4.070%; Price ; Initial CUSIP AV3 $3,795, % Term Bond Due Sept. 1, 2040*; Yield 3.990%; Price ; Initial CUSIP AT8 $7,545, % Term Bond Due Sept. 1, 2045; Yield 4.200%; Price ; Initial CUSIP AU5 *Callable premium bond; yield and price calculated to first call date. The County is not responsible for the use of the CUSIP numbers referenced in this Official Statement nor is any representation made by the County as to their correctness; such CUSIP numbers are included solely for the convenience of readers of this Official Statement.

3 THE BOARD OF COUNTY COMMISSIONERS BAY COUNTY, FLORIDA Guy M. Tunnell....Chairman Mike Nelson...Vice-Chairman George B. Gainer..Commissioner William T. Dozier.Commissioner Mike Thomas Commissioner CLERK OF COURT Bill Kinsaul FINANCE DIRECTOR Joey Rogers COUNTY MANAGER Robert J. Majka, Jr. COUNTY BUDGET OFFICER Johnathan A. Stukey COUNTY ATTORNEY Terrell K. Arline BOND COUNSEL Nabors, Giblin & Nickerson, P.A. Tampa, Florida DISCLOSURE COUNSEL Burke Blue Hutchison Walters & Smith, P.A. Panama City, Florida FINANCIAL ADVISOR First Southwest Company, LLC Orlando, Florida

4 No dealer, broker, salesman or other person has been authorized by the County or the Underwriters to give any information or to make any representations with respect to the Series 2015 Bonds other than those contained in this Official Statement, and, if given or made, such information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell nor the solicitation of an offer to buy, nor shall there be any sale of the Series 2015 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The Underwriters have provided the following sentence for inclusion in this Official Statement: The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. The information and expressions of opinion stated herein are subject to change without notice. The delivery of this Official Statement shall not, under any circumstances, create any implication that there has been no change in the affairs of the County since the date hereof. IN CONNECTION WITH THE OFFERING OF THE SERIES 2015 BONDS, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH BONDS OFFERED HEREBY AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE SERIES 2015 BONDS HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR HAS THE RESOLUTION BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. THE REGISTRATION OR QUALIFICATION OF THE SERIES 2015 BONDS IN ACCORDANCE WITH APPLICABLE PROVISIONS OF THE SECURITIES LAWS OF THE STATES, IF ANY, IN WHICH THE SERIES 2015 BONDS HAVE BEEN REGISTERED OR QUALIFIED AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN CERTAIN OTHER STATES CANNOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THESE STATES NOR ANY OF THEIR AGENCIES HAVE PASSED UPON THE MERITS OF THE SERIES 2015 BONDS OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT. ANY REPRESENTATIONS TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. For purposes of compliance with Rule 15c-12 of the United States Securities and Exchange Commission, as amended, and in effect on the date hereof, this Preliminary Official Statement constitutes an official statement of the Issuer that has been deemed final by the Issuer as of its date except for the omission of no more than the information permitted by Rule 15c2-12. THIS OFFICIAL STATEMENT CONTAINS CERTAIN FORWARD LOOKING STATEMENTS CONCERNING THE COUNTY S RETAIL WATER AND SEWER SYSTEM, ITS OPERATIONS, PERFORMANCE AND FINANCIAL CONDITION, INCLUDING FUTURE i

5 ECONOMIC PERFORMANCE PLANS AND OBJECTIVES. THESE STATEMENTS ARE BASED ON A NUMBER OF ASSUMPTIONS AND ESTIMATES WHICH ARE SUBJECT TO SIGNIFICANT UNCERTAINTIES, MANY OF WHICH ARE BEYOND THE CONTROL OF THE COUNTY. THE WORDS MAY, WOULD, COULD, WILL, EXPECT, ANTICIPATE, BELIEVE, INTEND, PLAN, ESTIMATE, AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY THESE FORWARD LOOKING STATEMENTS. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS. References to web site addresses presented herein are for informational purposes only and may be in the form of a hyperlink solely for the reader s convenience. Unless specified otherwise, such web sites and the information or links contained therein are not incorporated into, and are not part of, this offering document. ii

6 TABLE OF CONTENTS PAGE INTRODUCTION...1 PURPOSE OF THE SERIES 2015 BONDS...2 PLAN OF REFUNDING...2 ESTIMATED SOURCES AND USES OF FUNDS...2 DESCRIPTION OF THE SERIES 2015 BONDS...3 General...3 Mandatory Redemption...3 Optional Redemption...5 Notice of Redemption...5 Registration, Transfer and Exchange...6 Book-Entry-Only System...6 SECURITY AND SOURCE OF PAYMENT...9 General...9 Pledge of Net Revenues...10 Pledge of Connection Fees...11 Rate Covenant...12 Reserve Account...12 Covenant to Budget and Appropriate for Reserve Account Deficiency...13 Release of Covenant to Budget and Appropriate...14 Other Obligations Payable From Non-Ad Valorem Revenues...14 Flow of Funds...15 Water Connection Fee Fund and Sewer Connection Fee Fund...18 Rebate Fund...19 Rate Stabilization Fund...19 Investments...19 Additional Bonds...20 Insurance...21 No Free Service...22 No Impairment of Rights; No Competing System...23 Compulsory Connections...23 Enforcement of Charges...23 Combining With Wholesale Water System...23 DEBT SERVICE SCHEDULE...25 THE SYSTEM...26 iii

7 Service Area...26 Background of the System...26 Water and Wastewater Customers...28 Water System...29 Sewer System...30 System Staff...31 Government Regulation...31 Water and Wastewater Rates...33 Retail Water and Sewer Rates...34 Connection Fees...36 Capital Improvement Program...36 Historical Financial Information Regarding the System...38 DISCLOSURE REQUIRED BY FLORIDA BLUE SKY REGULATIONS...41 LITIGATION...41 TAX EXEMPTION...42 Opinion of Bond Counsel...42 Internal Revenue Code of Discount Bonds...42 Premium Bonds...43 Collateral Tax Consequences...43 Other Tax Matters...44 RATING AGENCIES...44 UNDERWRITING...45 APPROVAL OF LEGALITY...46 FINANCIAL ADVISOR...47 ACCURACY AND COMPLETENESS OF THE OFFICIAL STATEMENT...47 CONTINUING DISCLOSURE...47 ADDITIONAL INFORMATION...48 AUTHORIZATION OF OFFICIAL STATEMENT...48 iv

8 APPENDIX A -- APPENDIX B -- APPENDIX C -- APPENDIX D -- APPENDIX E -- APPENDIX F -- APPENDIX G -- GENERAL INFORMATION CONCERNING BAY COUNTY, FLORIDA EXCERPTS OF AUDITED FINANCIAL STATEMENTS OF BAY COUNTY, FLORIDA FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2014 FORM OF THE RESOLUTION CONSULTING ENGINEER S REPORT AND FINANCIAL FEASIBLITY STUDY-- RETAIL WATER AND SEWER SYSTEM ORDINANCES NOs AND CREATING SERVICE AREAS PROPOSED FORM OF BOND COUNSEL OPINION FORM OF CONTINUING DISCLOSURE CERTIFICATE v

9 $28,710,000 BAY COUNTY, FLORIDA WATER AND SEWER SYSTEM REVENUE REFUNDING BONDS SERIES 2015 INTRODUCTION This Official Statement, which includes the cover page and the appendices hereto, furnishes certain information relating to the sale by Bay County, Florida (the "County" or Issuer ) of $28,710,000 aggregate principal amount of its Water and Sewer System Revenue Refunding Bonds, Series 2015 (the "Series 2015 Bonds"). The Series 2015 Bonds are being issued pursuant to the authority of the Constitution and laws of the State of Florida, including Chapter 125, Part I, Florida Statutes, and other applicable provisions of law (collectively the "Act") and under and pursuant to Resolution No. 3318, adopted by the County on September 15, 2015, as amended and supplemented, and particularly as amended and supplemented by Resolution No. 3319, adopted by the County on September 15, 2015 (collectively, the "Resolution"). The Series 2015 Bonds are limited obligations of the County, payable from and secured by a lien on and pledge of (a) the Net Revenues, as defined below, that are derived from the operation of the County's System, as defined below, (b) the Connection Fees, as described below, and (c) the moneys on deposit in the certain funds and accounts created pursuant to the Resolution, as more particularly set forth below (collectively, the "Pledged Funds"). The Series 2015 Bonds and any Additional Bonds issued pursuant to the Resolution in the future are herein collectively referred to as the "Bonds." In addition, the County has covenanted to budget and appropriate certain Non-Ad Valorem Revenues, as defined below, sufficient to restore any amount withdrawn from the 2015 subaccount of the Reserve Account to the Reserve Account Requirement applicable thereto, which covenant may be released upon achieving certain coverage requirements. See SECURITY AND SOURCE OF PAYMENT Covenant to Budget and Appropriate, herein. Neither the County, the State of Florida nor any political subdivision thereof has pledged its faith or credit or taxing power to the payment of the Series 2015 Bonds. No holder of the Series 2015 Bonds shall ever have the right to compel the exercise of any ad valorem taxing power of the County or taxation in any form on any real property therein to pay the Series 2015 Bonds or the interest due thereon nor be entitled to payment of the Series 2015 Bonds from any funds of the County except as described herein. The references, excerpts and summaries of all documents referred to herein do not purport to be complete statements of the provisions of such documents and are made subject to all of the detailed provisions of such documents, to which reference is directed for full and complete statements of all matters relating to the Resolution, the Series 2015 Bonds, the security for the payment of the Series 2015 Bonds and rights and obligations of the holders of the Series 2015 Bonds. Copies of these documents are available from the County Budget Office, 810 W.11 th Street, Panama City, Florida 32401, telephone number (850) , or from the County s Financial Advisor, First Southwest Company, LLC, 450 South Orange Avenue, Suite 460, Orlando, Florida 32801, telephone number 1

10 (407) A copy of the form of the Resolution is set forth in Appendix C attached hereto. Capitalized terms used but not defined herein shall have the same meaning as set forth in Appendix C attached hereto. PURPOSE OF THE SERIES 2015 BONDS The Series 2015 Bonds are being issued by the County to provide funds, together with certain other legally available funds, for the purpose of (i) refunding the County's outstanding Water and Sewer System Revenue Bond, Series 2011, which was issued as a private placement with a bank (the Refunded Indebtedness ); (ii) funding the debt service reserve requirement for the 2015 Bonds; and (iii) paying certain costs incurred in connection with the issuance of the Series 2015 Bonds, all as more particularly described herein. PLAN OF REFUNDING Proceeds of the Series 2015 Bonds will be used along with other legally available funds to refund the Refunded Indebtedness in full. The Refunded Indebtedness will be paid in full from proceeds of the Series 2015 Bonds, the Debt Service Fund for Refunded Indebtedness and other available funds on the date of delivery of the Series 2015 Bonds. ESTIMATED SOURCES AND USES OF FUNDS SOURCES: Par Amount of Series 2015 Bonds $28,710, Net Original Issue Premium 184, Debt Service Fund for Refunded Indebtedness 368, Total Sources $29,262, USES: Refund the Refunded Indebtedness $27,236, Deposit to 2015 Reserve Subaccount 1,697, Costs of Issuance (1) 213, Underwriters Discount 114, Total Uses $29,262, (1) Includes costs of issuance incurred by the County including but not limited to fees of bond counsel, disclosure counsel, the County's financial advisor and rating agency fees. 2

11 DESCRIPTION OF THE SERIES 2015 BONDS General The Series 2015 Bonds will be issued in fully registered form in denominations of $5,000 or any integral multiple thereof. The Series 2015 Bonds, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). Purchases of beneficial interests in the Series 2015 Bonds will be made in book-entry-only form (without certificates). See "Book-Entry-Only System" herein for additional information. The Series 2015 Bonds will be dated their date of delivery and will bear interest from such date at the rates per annum as set forth on the cover page hereof, payable beginning March 1, 2016, and semiannually thereafter on each March 1 and September 1, and will mature on September 1 in the years and principal amounts as set forth on the inside cover page hereof. Interest on the Series 2015 Bonds shall be payable on each interest payment date to the person whose name appears on the registration books as the registered owner thereof on the fifteenth day of the month immediately preceding that interest payment date. Hancock Bank, a trade name of Whitney Bank, Orlando, Florida, will serve as Registrar and Paying Agent pursuant to the Resolution. So long as the Series 2015 Bonds shall be in book-entry-only form, the principal, redemption premium, if any, and interest on the Series 2015 Bonds are payable by wire or check mailed or delivered to Cede & Co., as registered owner thereof and will be redistributed by DTC and the DTC Participants (see "Book-Entry-Only System"). Mandatory Redemption The Series 2015 Bonds due September 1, 2034 are subject to mandatory redemption by lot prior to maturity in such manner as shall be determined by the Paying Agent, in the years and amounts set forth below at a price equal to 100% of the principal amount thereof plus accrued interest to the redemption date. * Final maturity. Year Due Principal (September 1) Amount 2033 $ 990, * 1,030,000 3

12 The Series 2015 Bonds due September 1, 2037 are subject to mandatory redemption by lot prior to maturity in such manner as shall be determined by the Paying Agent, in the years and amounts set forth below, at a price equal to 100% of the principal amount thereof plus accrued interest to the redemption date. * Final maturity. Year Due Principal (September 1) Amount 2035 $1,070, ,115, * 1,155,000 The Series 2015 Bonds due September 1, 2040 are subject to mandatory redemption by lot prior to maturity in such manner as shall be determined by the Paying Agent, in the years and amounts set forth below, at a price equal to 100% of the principal amount thereof plus accrued interest to the redemption date. * Final maturity. Year Due Principal (September 1) Amount 2038 $1,205, ,265, * 1,325,000 The Series 2015 Bonds due September 1, 2045 are subject to mandatory redemption by lot prior to maturity in such manner as shall be determined by the Paying Agent, in the years and amounts set forth below, at a price equal to 100% of the principal amount thereof plus accrued interest to the redemption date. * Final maturity. Year Due Principal (September 1) Amount 2041 $1,395, ,450, ,505, ,565, * 1,630,000 The County may apply moneys in the Term Bonds Redemption Account established under the Resolution to the purchase of Series 2015 Bonds subject to mandatory redemption (the "Term Bonds") at prices not greater than par plus accrued interest and apply the principal amount of any 4

13 Term Bonds so purchased as a credit against and in fulfillment of the Sinking Fund Installments required with respect to the Term Bonds of the same maturity. Optional Redemption The Series 2015 Bonds maturing on or prior to September 1, 2025 shall not be subject to optional redemption prior to their respective dates of maturity. The Series 2015 Bonds stated to mature on or after September 1, 2026, are subject to optional redemption at the option of the County in whole or in part at any time on or after September 1, 2025, at the price of 100% of the principal amount to be redeemed, plus accrued interest to the date of redemption. If fewer than all of the Series 2015 Bonds are to be so redeemed, the County may select the maturity or maturities to be redeemed. If fewer than all of the Series 2015 Bonds of any particular maturity are to be redeemed, the Paying Agent will select by lot the particular Series 2015 Bonds or portions of Series 2015 Bonds of such maturity to be redeemed. The portion of any Series 2015 Bond of a denomination of more than $5,000 to be redeemed will be in the principal amount of $5,000 or any integral multiple thereof. Notice of Redemption Notice of such redemption, which shall specify the Series 2015 Bond or Bonds (or portions thereof) to be redeemed and the date and place for redemption, shall be given by the Registrar on behalf of the Issuer, and (A) shall be filed with the Paying Agent of such Bonds, (B) shall be mailed first class, postage prepaid, not less than 30 days nor more than 45 days prior to the redemption date to all Holders of Bonds to be redeemed at their addresses as they appear on the registration books kept by the Registrar as of the date of mailing of such notice, and (C) shall be mailed, certified mail, postage prepaid, at least 35 days prior to the redemption date to the registered securities depositories and one or more nationally recognized municipal bond information services as provided in the Resolution. Failure to mail such notice to such depositories or services or the Holders of the Bonds to be redeemed, or any defect therein, shall not affect the proceedings for redemption of Bonds as to which no such failure or defect has occurred. Failure of any Holder to receive any notice mailed as provided in the Resolution shall not affect the proceedings for redemption of such Holder s Bonds. Notice of optional redemption of Series 2015 Bonds may be sent if the Issuer reasonably determines it shall have sufficient funds available to pay the Redemption Price of and interest on the Bonds called for redemption on the redemption date, and may be conditioned upon receipt of such funds. Notwithstanding the foregoing, the Issuer may establish separate redemption provisions by a Supplemental Resolution in connection with any Series of Bonds. Each notice of redemption shall state: (1) the CUSIP numbers and any other distinguishing number or letter of all Bonds being redeemed, (2) the original issue date of such Bonds, (3) the maturity date and rate of interest borne by each Bond being redeemed, (4) the redemption date, (5) the Redemption Price, (6) the date on which such notice is mailed, (7) if less than all Outstanding Bonds are to be redeemed, the certificate number (and, in the case of a partial redemption of any Bond, the principal amount) of each Bond to be redeemed, (8) that on such redemption date there 5

14 shall become due and payable upon each Bond to be redeemed the Redemption Price thereof, or the Redemption Price of the specified portions of the principal thereof in the case of Bonds to be redeemed in part only, together with interest accrued thereon to the redemption date, and that from and after such date interest thereon shall cease to accrue and be payable, (9) that the Bonds to be redeemed, whether as a whole or in part, are to be surrendered for payment of the Redemption Price at the designated office of the Registrar at an address specified, (10) the name and telephone number of a person designated by the Registrar to be responsible for such redemption, (11) unless sufficient funds have been set aside by the Issuer for such purpose prior to the mailing of the notice of redemption, that such redemption is conditioned upon the deposit of sufficient funds for such purpose on or prior to the date set for redemption, and (12) any other conditions that must be satisfied prior to such redemption. Registration, Transfer and Exchange Subject to the provisions regarding the book-entry system of the registration set forth below, the Registrar shall keep books for the registration of and for the registration of transfers of Series 2015 Bonds as provided in the Resolution. The transfer of any Series 2015 Bonds may be registered only upon such books and only upon surrender thereof to the Registrar together with an assignment duly executed by the Bondholder or his attorney or legal representative in such form as shall be satisfactory to the Registrar. Upon any such registration of transfer, the County shall execute and the Registrar shall authenticate and deliver in exchange for such Series 2015 Bond, a new Series 2015 Bond or Series 2015 Bonds registered in the name of the transferee, and in an aggregate principal amount equal to the principal amount of such Series 2015 Bond or Series 2015 Bonds so surrendered. The Registrar shall make provision for the exchange of Bonds at the principal corporate trust office of the Bond Registrar. Book-Entry-Only System Certain portions of the information under this heading concerning DTC and DTC's bookentry system have been furnished by DTC for use in this Official Statement. The County makes no representation as to the accuracy of such information. Unless the book-entry system described herein is terminated, The Depository Trust Company ("DTC"), New York, New York, will act as securities depository for the Series 2015 Bonds. The Series 2015 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 or more fully-registered global bond certificates will be issued for the Series 2015 Bonds, representing in the aggregate the total principal amount of the Series 2015 Bonds, and will be deposited with the Paying Agent on behalf of DTC. Individual purchases of beneficial interests in the Series 2015 Bonds will be made in increments of $5,000 or integral multiples thereof. 6

15 DTC, the world's largest securities depository, is a limited-purpose trust company organized under 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 1934, as amended (the "1934 Act"). DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized 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 Deposit Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has an Standard & Poor's rating of AA+. The DTC Rules applicable to its Direct and Indirect Participants are on file with the Securities and Exchange Commission (the "Commission"). More information about DTC can be found at and The contents of such websites do not constitute part of this Official Statement. Purchases of Series 2015 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2015 Bonds on DTC s records. The ownership interest of each actual purchaser of each Series 2015 Bond (a Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchases. Beneficial Owners are, however, expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the Direct or Indirect Participants through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2015 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 the Series 2015 Bonds, except in the event that use of the book-entry system for the Series 2015 Bonds is discontinued. To facilitate subsequent transfers, all Series 2015 Bonds deposited by 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 2015 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any changes in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2015 Bonds. DTC s records reflect only the identity of the Direct Participants to whose accounts such Series 2015 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and 7

16 Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Series 2015 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2015 Bonds, such as redemptions, tenders, defaults and proposed amendments to the Bond documents. For example, Beneficial Owners of Series 2015 Bonds may wish to ascertain that the nominee holding the Series 2015 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Series 2015 Bonds are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Although voting with respect to the Series 2015 Bonds is limited in those cases where a vote is required, neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Series 2015 Bonds unless authorized by a Direct Participant in accordance with DTC s procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the County 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 Series 2015 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Payments on the Series 2015 Bonds will be made to Cede & Co. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the County or Paying Agent on the relevant payment date in accordance with their respective holdings shown on DTC s records. Payments 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 Direct or Indirect Participant and not of DTC, the Paying Agent, or the County, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the County or the Paying Agent, disbursement of such payments to the Direct Participants is the responsibility of DTC, and disbursements of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. NEITHER THE COUNTY, THE REGISTRAR NOR THE PAYING AGENT WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO THE DTC PARTICIPANTS OR THE PERSON FOR WHOM THEY ACT AS NOMINEES WITH RESPECT TO THE PAYMENTS TO OR THE PROVIDING OF NOTICE FOR THE DTC PARTICIPANTS, THE INDIRECT PARTICIPANTS 8

17 OR THE BENEFICIAL OWNERS OF THE SERIES 2015 BONDS. THE COUNTY CANNOT AND DOES NOT GIVE ANY ASSURANCES THAT DTC, DIRECT PARTICIPANTS OR OTHERS WILL DISTRIBUTE PAYMENTS OF PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON THE SERIES 2015 BONDS PAID TO DTC OR ITS NOMINEE, AS THE REGISTERED OWNER, OR ANY NOTICES TO THE BENEFICIAL OWNERS OR THAT THEY WILL DO SO ON A TIMELY BASIS, OR THAT DTC WILL ACT IN THE MANNER DESCRIBED ON THIS OFFICIAL STATEMENT. DTC may discontinue providing its services as Securities Depository with respect to the Series 2015 Bonds at any time by giving reasonable notice to the County or the Paying Agent. Under such circumstances, in the event that a successor Securities Depository is not obtained, certificated Series 2015 Bonds will be required to be printed and delivered to the holders of record. Additionally, the County may decide to discontinue use of the system of book-entry transfers through DTC (or a successor Securities Depository) with respect to the Series 2015 Bonds. The County understands, however, that under current industry practices, DTC would notify its Direct or Indirect Participants of the County s decision but will only withdraw beneficial interests from a Series 2015 Bond at the request of any Direct or Indirect Participant. In that event, certificates for the Series 2015 Bonds will be printed and delivered. General SECURITY AND SOURCE OF PAYMENT The Series 2015 Bonds are limited obligations of the County, payable from and secured by a lien on and pledge of (a) the Net Revenues, as defined below, that are derived from the operation of the County's System, as defined below, (b) Connection Fees, as more particularly described below and (c) until applied in accordance with the provisions of the Resolution, all moneys, including investments thereof, in the funds and accounts established thereunder, except (A) as for the Rebate Fund, (B) to the extent moneys therein shall be required to pay the Operating Expenses of the System in accordance with the terms thereof, and (C) any moneys set aside in a particular subaccount of the Reserve Account if such moneys shall be pledged solely for the payment of a Series of Bonds for which it was established in accordance with the provisions of the Resolution (collectively, the "Pledged Funds ). In addition, the County has covenanted to budget and appropriate certain Non-Ad Valorem Revenues, as defined below, sufficient to restore any amount withdrawn from the 2015 subaccount of the Reserve Account to pay debt service on the Series 2015 Bonds, which covenant may be released upon achieving certain coverage requirements. See SECURITY AND SOURCE OF PAYMENT Covenant to Budget and Appropriate, below. NEITHER THE COUNTY, THE STATE OF FLORIDA, NOR ANY POLITICAL SUBDIVISION THEREOF HAS PLEDGED ITS FAITH OR CREDIT OR TAXING POWER TO THE PAYMENT OF THE BONDS. NO HOLDER OF THE BONDS SHALL EVER HAVE THE RIGHT TO COMPEL THE EXERCISE OF ANY AD VALOREM TAXING POWER OF THE COUNTY OR TAXATION IN ANY FORM OF ANY REAL PROPERTY THEREIN TO PAY THE BONDS OR THE INTEREST DUE THEREON NOR BE 9

18 ENTITLED TO PAYMENT OF THE BONDS FROM ANY FUNDS OF THE COUNTY EXCEPT AS DESCRIBED HEREIN. Pledge of Net Revenues "Net Revenues" is defined in the Resolution to mean the Gross Revenues less Operating Expenses of the System. System is defined in the Resolution to mean any and all water production, transmission, treatment and distribution facilities, sewage collection, transmission, treatment and disposal facilities and reclaimed water (reuse) facilities now owned or hereafter owned by the County, which System shall also include any and all improvements, extensions and additions thereto hereafter constructed or acquired either from the proceeds of the Series 2015 Bonds or from any other sources, together with all property, real or personal, tangible or intangible, now or hereafter owned or used in connection therewith, including all contractual rights, rights to capacity and obligations or undertakings associated therewith and shall also include any other utility facilities if and to the extent the County determines by Supplemental Resolution to include such utility or facilities within the System; provided, however, System shall not include the County s wholesale water production, treatment and transmission system, or the County s ownership interest in the Military Point Advanced Wastewater Treatment Facility (MPAWTF), or any facilities added to or acquired in connection with such facilities, unless the County elects by Supplemental Resolution to do so and meets the requirements of the Resolution described below under the subheading Additions to the System. Gross Revenues is defined in the Resolution to mean all income and moneys received by the County from the rates, fees, rentals, charges and other income to be made and collected by the County for the use of the products, services and facilities to be provided by the System, or otherwise received by the County or accruing to the County in the management and operation of the System, calculated in accordance with generally accepted accounting principles applicable to public utility systems similar to the System, including, without limiting the generality of the foregoing, (1) moneys deposited from the Rate Stabilization Fund into the Revenue Fund in accordance with the terms of the Resolution, provided any moneys transferred from the Rate Stabilization Fund into the Reserve Fund within 120 days following the end of a Fiscal Year may be designated by the County as Gross Revenues of such prior Fiscal Year, (2) proceeds from use and occupancy insurance on the System, (3) Investment Earnings, and (4) Operating Government Grants. Gross Revenues shall not include (A) Capital Government Grants, (B) proceeds of Bonds or other Issuer debt, (C) moneys deposited to the Rate Stabilization Fund from the Utility Reserve Fund, including any moneys transferred from the Utility Reserve Fund to the Rate Stabilization Fund within 120 days following the end of a Fiscal Year which the Issuer determines not to be Gross Revenues of such prior Fiscal Year, (D) Sewer Connection Fees, (E) Water Connection Fees, (F) Special Assessment Proceeds, unless subsequently pledged by Supplemental Resolution, and (G) any gain resulting from the valuation of investment securities or Hedge Agreements at market value and any other gain that does not require or result in the receipt of cash. Gross Revenues may include Special Assessment Proceeds and/or other revenues related to the System which are not enumerated in the definition of Gross Revenues if so authorized by Supplemental Resolution and if and to the extent the same shall be approved for inclusion by all Insurers and Credit Banks. 10

19 Operating Expenses is defined in the Resolution to mean the County s expenses for operation, maintenance and repairs with respect to the System and shall include, without limiting the generality of the foregoing, administration expenses, payments for the purchase of materials essential to or used in the operation of the System including bulk purchases of water or sewage services, fees for the management of the System or any portion thereof, accounting, legal and engineering expenses, ordinary and current rentals of equipment or other property, refunds of moneys lawfully due to others, payments to others for disposal of sewage or other wastes, payments to pension, retirement, health and hospitalization funds, and any other expenses required to be paid for or with respect to proper operation and maintenance of the System, including appropriate reserves therefor, all to the extent properly attributable to the System in accordance with generally accepted accounting principles applicable to public utility systems similar to the System, and disbursements for the expenses, liabilities and compensation of any Paying Agent or Registrar under the Resolution, but does not include any costs or expenses in respect of original construction of improvement other than expenditures necessary to prevent an interruption or continuance of an interruption of service or of Gross Revenues or minor capital expenditures necessary for the proper and economical operation or maintenance of the System, or any payments in lieu of taxes or franchise fees made to the Issuer s general fund, or any provision for interest, depreciation, amortization or similar charges, or any loss resulting from the valuation of investment securities or Hedge Agreements at market value and any other loss that does not require or result in the expenditure of cash. See "APPENDIX C -- Form of the Resolution. Pledge of Connection Fees Connection Fees are defined in the Resolution to include both the County s Water Connection Fees and Sewer Connection Fees. Water Connection Fees are defined in the Resolution to mean the fees and charges, if any, which relate to acquiring, constructing, equipping or expanding the capacity of the water facilities of the System for the purpose of paying or reimbursing the equitable share of the capital cost relating to such acquisition, construction, expansion or equipping of capacity of the water facilities or expansion thereof in order to serve new users of the water facilities of the System, to the extent the same are lawfully levied, collected and pledged. Water Connection Fees include those fees and charges currently known under Florida law as impact fees but do not include fees and charges imposed for the cost of physically hooking up or connecting to the System. Sewer Connection Fees are defined in the Resolution to mean the fees and charges, if any, which relate to acquiring, constructing, equipping or expanding the capacity of the sewer facilities of the System for the purpose of paying or reimbursing the equitable share of the capital cost relating to such acquisition, construction, expansion or equipping of capacity of the sewer facilities or expansion thereof in order to serve new users of the sewer facilities of the System, to the extent the same are lawfully levied, collected and pledged. Sewer Connection Fees include those fees and charges currently known under Florida law as impact fees but do not include fees and charges imposed for the cost of physically hooking up or connecting to the System. 11

20 Rate Covenant In the Resolution, the County covenants to fix, establish, maintain and collect such rates, fees and charges for the product, services and facilities of the System, and revise from time to time, whenever necessary, so as always to provide in each Fiscal Year (i) Net Revenues equal to at least 110% of the Annual Debt Service becoming due in such Fiscal Year, plus 100% of (a) any amounts required by the terms of the Resolution to be deposited in the Reserve Account or with any issuer of a Reserve Account Letter of Credit or Reserve Account Insurance Policy in such Fiscal Year to pay Policy Costs and (b) any amounts required by the terms of the Resolution to be repaid to the Water Connection Fees Fund and Sewer Connection Fees Fund in such Fiscal Year, and (ii) Net Revenues and Connection Fees equal to at least 120% of the Annual Debt Service becoming due in such Fiscal Year. Such rates, fees, and other charges will not be so reduced so as to be insufficient to provide adequate Net Revenues, Water Connection Fees and Sewer Connection Fees for the purpose provided therefor in the Resolution. If, in any Fiscal Year, the County shall fail to comply with the requirements referenced above, it shall, subject to the provisions described below under the subheading Covenant to Budget and Appropriate, promptly cause the Rate Consultant to review its rates, fees, charges, income, Gross Revenues, Operating Expenses, Connection Fees and methods of operation and to make written recommendations as to the methods by which the County may seek to comply with the requirements set forth above. The County shall forthwith commence to implement such recommendations to the extent required so as to cause it to thereafter comply with said requirements. So long as the County implements such recommendations within 120 days of the receipt thereof, the County s failure to comply with the requirements set forth above shall not be considered an Event of Default under the Resolution. Reserve Account The Resolution provides for the establishment and maintenance of a Reserve Account; provided, that the County is not required to fund the Reserve Account with respect to any particular series of Bonds. Upon delivery of the Series 2015 Bonds, the County expects to deposit into a 2015 subaccount of the Reserve Account securing the Series 2015 Bonds sufficient Series 2015 Bond proceeds to cause the amount on deposit therein to equal the Reserve Account Requirement, which initially is $1,697, The Resolution also provides the County with the option of securing a Reserve Account Insurance Policy or Reserve Account Letter of Credit sufficient to cause the amount on deposit in any Reserve Account subaccount to equal the Reserve Account Requirement. The "Reserve Account Requirement" is defined in the Resolution to be the lesser of (i) the Maximum Annual Debt Service becoming due for all Outstanding Bonds secured by such subaccount, (ii) 125% of the Average Debt Service for all Outstanding Bonds secured by such subaccount or (iii) the maximum amount of Bond proceeds which may be deposited to the Reserve Account as shall not adversely affect the exclusion of interest on the Bonds from gross income for federal income tax purposes; provided, however, the County may establish by Supplemental 12

21 Resolution a different Reserve Account Requirement with respect to any Series of Bonds pursuant to the Resolution. Moneys on deposit in the 2015 subaccount of the Reserve Account shall be applied in accordance with the provisions of the Resolution solely for the purpose of the payment of principal of and interest on the Series 2015 Bonds when the moneys in the Interest Account, the Principal Account and the Term Bonds Redemption Account are insufficient therefor; but only to the extent the moneys transferred from the Utility Reserve Fund for such purposes shall be inadequate to fully provide for such inadequacy. Whenever the funds in the Reserve Account exceed the then current Reserve Account Requirement, the excess shall be withdrawn from the Reserve Account and deposited in the Utility Reserve Fund. Any deficiency in the Reserve Account is required to be restored within 12 months of the date such deficiency first occurred. No further deposits shall be required to be made into the Reserve Account as long as there shall remain on deposit therein a sum equal to the Reserve Account Requirement. The County has covenanted and agreed in the Resolution to appropriate in its annual budget from available Non-Ad Valorem Revenues to make any deposits as necessary to meet the Reserve Account Requirement with respect to the Series 2015 Bonds; however, such covenant to budget and appropriate does not create a pledge of or lien on such Non-Ad Valorem Revenues. See Covenant to Budget and Appropriate, Other Obligations Payable From Non-Ad Valorem Revenues, and Series 2015 Reserve Account Insurance Policy below. Covenant to Budget and Appropriate for Reserve Account Deficiency Pursuant to the Resolution, the County has covenanted and agreed to budget and appropriate in its annual budget, by amendment, if required, from Non-Ad Valorem Revenues sufficient to make up any deficiency in the Reserve Account in the event the amount on deposit in the Reserve Account is less than the Reserve Account Requirement. As described under the subheading Reserve Account, above, any deficiency with the Reserve Account is required to be restored not later than 12 months from the date such deficiency first occurred. Non-Ad Valorem Revenues is defined in the Resolution to mean all revenues of the County derived from any source whatsoever other than ad valorem taxation and legally available to pay principal of and interest on the Series 2015 Bonds, but only after provision has been made by the County for the payment of all essential or legally mandated services. Such covenant to budget and appropriate does not create any lien upon or pledge of such Non-Ad Valorem Revenues, nor does it preclude the County from pledging in the future its Non-Ad Valorem Revenues, nor does it require the County to levy and collect any particular Non-Ad Valorem Revenues, nor does it give the Series 2015 Bondholders a prior claim on the Non-Ad Valorem Revenues as opposed to claims of general creditors of the County. Such covenant to appropriate Non-Ad Valorem Revenues is subject in all respects to the payment of obligations secured by a pledge of such Non-Ad Valorem Revenues heretofore or hereafter entered into (including the payment of debt service on bonds or other debt instruments). However, the covenant 13

22 to budget and appropriate for the purposes and in the manner stated in the Resolution shall have the effect of making available for the payment into the Reserve Account, in the manner described in the Resolution, Non-Ad Valorem Revenues, and placing on the County a positive duty to appropriate and budget, by amendment if necessary, amounts sufficient to meet its obligations under the Resolution; subject, however, in all respects to the payment of services and programs which are for essential public purposes affecting the health, welfare and safety of the inhabitants of the County or which are legally mandated by applicable law. Release of Covenant to Budget and Appropriate At such time as the County has met the rate covenant in the Resolution for three consecutive Fiscal Years, the covenant to budget and appropriate Non-Ad Valorem Revenues described above shall no longer be applicable. Prior to the release of the covenant to budget and appropriate as described above, any failure to meet the rate covenant in the Resolution shall not require the review of a Rate Consultant or constitute an Event of Default under the Resolution. The County has other existing indebtedness payable from Non-Ad Valorem Revenues. See Other Obligations Payable From Non-Ad Valorem Revenues, below and "APPENDIX B Excerpts of Audited Financial Statements of Bay County, Florida for Fiscal Year Ended September 30, 2014". Other Obligations Payable From Non-Ad Valorem Revenues The County has other debt issues 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 Reserve Account described above under Covenant to Budget and Appropriate for Reserve Account Deficiency. Such indebtedness is summarized below: [remainder of page intentionally left blank] 14

23 Description of Debt Outstanding Principal Amount (1) Taxable Series 2015 Revenue Note $2,500,000 Taxable Series 2014A Revenue Note $580,000 Capital Improvement Revenue Refunding Bond, Series 2011 $20,552,000 Capital Improvement Revenue Bond, Series 2011 $1,822,000 Capital Improvement Revenue Refunding Bond Series 2010 $18,630,000 (1) As of September 30, 2015 Each of the bonds referenced above is secured by a covenant to budget and appropriate Non- Ad Valorem Revenues on a substantially similar basis as that contained in the Resolution for the reserve subaccount, including the right to accelerate payment of such indebtedness upon the occurrence of an event of default thereunder. Flow of Funds The County has covenanted in the Resolution that all Gross Revenues shall be deposited into the Revenue Fund established pursuant to the Resolution. The Resolution also establishes a Special Assessments Fund into which the proceeds of any Special Assessments pledged to a Series of Bonds shall be deposited. No Special Assessments are pledged to secure the Series 2015 Bonds. Moneys in the Revenue Fund shall first be used each month to deposit in the Operation and Maintenance Fund such sums as are necessary to pay Operating Expenses for the ensuing month; provided the County may transfer moneys from the Revenue Fund to the Operation and Maintenance Fund at any time to pay Operating Expenses to the extent there is a deficiency in the Operation and Maintenance Fund for such purpose. Amounts in the Operation and Maintenance Fund shall be paid out from time to time by the Issuer for Operating Expenses, including any expenses relating to the purchase or redemption of Term Bonds as provided in the Resolution. Any deposits remaining in the Revenue Fund after the aforementioned transfers to the Operation and Maintenance Fund and all moneys at any time on deposit in the Special Assessments Fund (subject to the provisions regarding earlier redemption of Bonds) shall be disposed of by the Issuer on or before the 25 th day of each month, commencing in the month immediately following the delivery of any of the Bonds to the purchasers thereof, or such later date as hereinafter provided, first from the Special Assessments Fund and then from the Revenue Fund in the following manner and in the following order of priority: (1) Interest Account. The Issuer shall deposit or credit to the Interest Account the sum which, together with the balance in said Account, shall equal the interest on all Bonds Outstanding (except as to Capital Appreciation Bonds) accrued and unpaid and to accrue to the end of the then 15

24 current calendar month. All Hedge Receipts and Federal Subsidy Payments shall be deposited directly to the Interest Account upon receipt. The County shall adjust the amount of the deposit to the Interest Account not later than a month immediately preceding any Interest Date so as to provide sufficient moneys in the Interest Account to pay the interest on the Bonds coming due on such Interest Date. No further deposit need be made to the Interest Account when the moneys therein are equal to the interest coming due on the Outstanding Bonds on the next succeeding Interest Date. (2) Principal Account. Commencing in the month which is one year prior to the first principal payment date (or if the first principal payment is less than one year after the issuance of a Series of Bonds, the first month after such issuance), the Issuer shall next deposit into the Principal Account the sum which, together with the balance in said Account, shall equal the principal amounts on all Bonds Outstanding accrued and unpaid and that portion of the principal next due which would have accrued on such Bonds during the then current calendar month if such principal amounts were deemed to accrue monthly (assuming that a year consists of 12 equivalent calendar months having 30 days each) except for the Sinking Fund Installments to be deposited as described below in equal amounts from the next preceding principal payment due date, or, if there be no such preceding payment due date, from a date no later than one year preceding the due date of such principal amount. Moneys in the Principal Account shall be applied by the Issuer for deposit with the Paying Agents to pay the principal of the Bonds on or prior to the date the same shall mature, and for no other purpose. (3) Term Bonds Redemption Account. Commencing in the month which is one year prior to the first Sinking Fund Installment due date, there shall be deposited to the Term Bonds Redemption Account the sum which, together with the balance in such Account, shall equal the Sinking Fund Installments on all Bonds Outstanding accrued and unpaid and that portion of the Sinking Fund Installments of all Bonds Outstanding next due which would have accrued on such Bonds during the then current calendar month if such Sinking Fund Installments were deemed to accrue monthly (assuming that a year consists of 12 equivalent calendar months having 30 days each) in equal amounts from the next preceding Sinking Fund Installment due date, or, if there is no such preceding Sinking Fund Installment due date, from a date not later than one year preceding the due date of such Sinking Fund Installment. Moneys in the Term Bonds Redemption Account shall be used to purchase or redeem Term Bonds in the manner herein provided, and for no other purpose. (4) Reserve Account. There shall be deposited to the Reserve Account an amount which would enable the Issuer to restore the funds on deposit in the Reserve Account or subaccounts contained therein to an amount equal to the Reserve Account Requirement applicable thereto. As described above, the County is permitted under the Resolution to not secure a given Series of Bonds by means of the Reserve Account, but has elected to establish a 2015 subaccount at the Reserve Account Requirement to secure the Series 2015 Bonds. On or prior to each principal payment date and Interest Date for the Bonds (in no event earlier than the 25 th day of the month next preceding such payment date), moneys in the Reserve Account shall be applied by the Issuer to the payment of the principal of or Redemption Price, if applicable, and interest on the Bonds secured by the Reserve Account to the extent moneys in the Interest Account, the Principal Account and the Term Bonds Redemption Account shall be insufficient for such purpose, but only to the extent the moneys 16

25 transferred from the Utility Reserve Fund for such purposes pursuant to the Resolution shall be inadequate to fully provide for such insufficiency. The County has covenanted to budget and appropriate from Non-Ad Valorem Revenues for deposit to the Reserve Account an amount sufficient to make up the Reserve Account Requirement in the event of any shortfall (see Covenant to Budget and Appropriate herein). (5) Renewal and Replacement Fund. There shall be deposited to the Renewal and Replacement Fund monthly such sums as shall be sufficient to pay 1/12 of the Renewal and Replacement Fund Requirement until the amount accumulated in such Fund is equal to the Renewal and Replacement Fund Requirement, taking into account the market value of investments in such Fund; provided, however, that (a) such Renewal and Replacement Fund Requirement may be increased or decreased as the Consulting Engineers shall certify to the Issuer is necessary for the purposes of the Renewal and Replacement Fund, and (b) in the event that the Consulting Engineers shall certify that the Renewal and Replacement Fund Requirement is excessive for the purposes of the Renewal and Replacement Fund, such excess amounts as may be on deposit therein may be transferred by the Issuer from the Renewal and Replacement Fund for deposit into the Utility Reserve Fund. The moneys in the Renewal and Replacement shall be applied by the Issuer for the purpose of paying the cost of major extensions, improvements or additions to, or the replacement or renewal of capital assets of, the System, or extraordinary repairs of the System; provided, however, that on or prior to each principal and interest payment date for the Bonds (in no event earlier than the 25 th day of the month next preceding such payment date), moneys in the Renewal and Replacement Fund shall be applied for the payment into the Interest Account, the Principal Account, and the Term Bonds Redemption Account when the moneys therein are insufficient to pay the principal of and interest on the Bonds coming due, but only to the extent moneys transferred from the Utility Reserve Fund for such purpose pursuant to the Resolution, together with moneys available in the Reserve Account for such purpose pursuant to the Resolution, shall be inadequate to fully provide for such insufficiency. Moneys in the Renewal and Replacement Fund may also be transferred to the Operation and Maintenance Fund to fund Operating Expenses to the extent Gross Revenues shall be insufficient for such purpose; provided, however, such transfer shall be treated as an interfund loan and shall be repaid from Gross Revenues as described in the Resolution within one year from the date of such transfer. (6) Subordinated Indebtedness. Gross Revenues in the Revenue Fund shall next be applied by the Issuer for the payment of any accrued debt service on Subordinated Indebtedness incurred by the Issuer in connection with the System and in accordance with the proceedings authorizing such Subordinated Indebtedness. (7) Sinking Fund. There shall be deposited to the Interest Account, the Principal Account and the Term Bonds Redemption Account, in that order, sufficient moneys such that the amounts on deposit therein shall equal, respectively, the interest, principal and Sinking Fund Installment next coming due on the Bonds Outstanding; provided, however, no deposit need be made to the Principal Account or Term Bonds Redemption Account until a date one year preceding the due date of such principal amount or Sinking Fund Installment. 17

26 (8) Utility Reserve Fund. The balance of any Gross Revenues remaining in said Revenue Fund shall be deposited in the Utility Reserve Fund and applied to the payment, on or prior to each principal and interest payment date for the Bonds (in no event earlier than the 25 th day of the month next preceding such payment date), into the Interest Account, the Principal Account and the Term Bonds Redemption Account when the moneys therein shall be insufficient to pay the principal of and interest on the Bonds coming due. Moneys not required to meet such a deficiency shall be deposited to the Water Connection Fees Fund and Sewer Connection Fees Fund to make up any withdrawal from such Funds pursuant to the Resolution, then to the Reserve Account to make up any deficiency therein, and thereafter to the Rebate Fund to the extent moneys are required to be deposited therein. Thereafter, moneys in the Utility Reserve Fund may be applied for any lawful purpose relating to the System, including, but not limited to, purchase or redemption of Bonds, payment of Subordinated Indebtedness, payment of other obligations incurred with respect to the System, deposit to the Rate Stabilization Fund and improvements, renewals and replacements to the System; provided, however, that none of such revenues shall ever be used for the purposes provided in the preceding sentence unless all payments required in paragraphs (1) through (6) above, including any deficiencies for prior payments, have been made in full to the date of such use. Water Connection Fee Fund and Sewer Connection Fee Fund The County will deposit into the Water Connection Fees Fund all Water Connection Fees as received, together with any moneys transferred thereto from the Utility Reserve Fund as described above, and such Water Connection Fees will be applied (i) to the payment of principal and interest on the Bonds to the extent that other moneys, including amounts transferred from the Utility Reserve Fund, Renewal and Replacement Fund, Rate Stabilization Fund, and Reserve Account are insufficient for such purpose, and any such money transferred for the payment of principal and interest will be treated as an interfund loan and will be repaid from Gross Revenues no later than one year after such transfer, unless the County shall determine that such transfer constitutes a lawful use of such Water Connection Fees, (ii) to pay or reimburse the capital cost of acquiring or constructing improvements or additions to the water facilities of the System for which the Water Connection Fees were imposed and (iii) for any other lawful purpose relating to the System. The County will deposit into the Sewer Connection Fees Fund all Sewer Connection Fees as received, together with any moneys transferred thereto from the Utility Reserve Fund as described above, and such Sewer Connection Fees will be applied (i) to the payment of principal and interest on the Bonds to the extent that other moneys, including amounts transferred from the Utility Reserve Fund, Renewal and Replacement Fund, Rate Stabilization Fund and Reserve Account, are insufficient for such purpose, and any such money transferred for the payment of principal and interest will be treated as an interfund loan and will be repaid from Gross Revenues no later than one year after such transfer unless the County shall determine that such transfer constitutes a lawful use of such Sewer Connection Fees, (ii) to pay or reimburse the capital cost of acquiring or constructing improvements or additions to the sewer facilities of the System for which the Sewer Connection Fees were imposed and (iii) for any other lawful purpose relating to the System. 18

27 Any money transferred to pay principal of and interest on the Bonds as aforesaid shall be transferred from the Water Connection Fees Fund and Sewer Connection Fees Fund on a pro-rata basis or such other basis as the County deems appropriate in relation to the amount of monies in each Fund at the time of transfer. Rebate Fund The amounts on deposit in the Rebate Fund will be held in trust by the County and used solely to make required rebates to the United States (except to the extent the same may be transferred to the Reserve Fund), and the Bondholders have no right to have the same applied for debt service on the Bonds. For any Series of Bonds for which rebate requirements are applicable, the County agrees to undertake all actions required of its arbitrage certificate relating to such Series of Bonds. Rate Stabilization Fund The County may transfer into the Rate Stabilization Fund such moneys that are on deposit in the Utility Reserve Fund as it deems appropriate; provided, however, moneys in the Rate Stabilization Fund will be used for the payment of principal and interest on the Bonds to the extent that other moneys are not available, but after required payments from the Utility Reserve Fund, Renewal and Replacement Fund and Reserve Account are expended for such purpose. The requirement to have a particular amount of funds on deposit in the Rate Stabilization Fund established under the Resolution is not applicable to the Series 2015 Bonds. Investments Moneys on deposit in any fund or account created under the Resolution may be invested and reinvested in Authorized Investments (or as otherwise provided in the Resolution) which mature not later than the dates on which the moneys on deposit therein will be needed for the purpose of such fund or account. Moneys in the Reserve Account may be invested and reinvested in Authorized Investments maturing in ten (10) years or less. All investments will be valued at cost; however, amounts on deposit in the Reserve Account will be valued at the market value thereof. Investments in the Reserve Account will be valued by the County on an annual basis as of April 1 of each year. All income on such investments, except as otherwise provided, shall be deposited in the respective funds and accounts from which such investments were made and be used for the purposes thereof unless and until the maximum required amount, if applicable, is on deposit therein, and thereafter shall be deposited in the Revenue Fund. The cash required to be accounted for in each of the funds, accounts and subaccounts described in the Resolution may be deposited in a single bank account and funds allocated to the various funds, accounts and subaccounts established therein may be invested in a common investment pool, provided that adequate accounting records are maintained to reflect and control the restricted allocation of the cash on deposit therein and such investments for the various purposes of such funds, accounts and subaccounts as provided in the Resolution. The designation and 19

28 establishment of the various funds, accounts and subaccounts in and by the Resolution shall not be construed to require the establishment of any completely independent, self-balancing funds as such term is commonly defined and used in governmental accounting, but rather is intended solely to constitute an earmarking of certain revenues and assets of the System for certain purposes and to establish certain priorities for application of such revenues and assets as provided in the Resolution. Additional Bonds Additional Bonds, payable on parity with the Bonds then Outstanding from the Pledged Funds, may be issued from time to time upon the following conditions and in the manner hereinafter provided. The County may issue one or more Series of Additional Bonds for any one or more of the following purposes: (i) financing or refinancing the Cost of a Project, or the completion thereof, or (ii) refunding any or all Outstanding Bonds, any Subordinated Indebtedness of the Issuer, or any other indebtedness of the Issuer that it may lawfully refund with proceeds of Bonds. No such Additional Bonds shall be issued unless the following conditions are complied with: (1) Except in the case of Additional Bonds issued for the purpose of refunding Outstanding Bonds, the County shall certify that it is current in all deposits into the various funds and accounts established by the Resolution and all payments theretofore required to have been deposited or made by it under the provisions of the Resolution, including a certification that all due and payable Policy Costs have been deposited or made, and the Issuer is in compliance with the covenants and agreements of the Resolution. (2) An independent certified public accountant or the Rate Consultant certifies to the County that the amount of the Net Revenues (excluding Investment Earnings with respect to the Construction Fund) and Connection Fees received by the County during the immediately preceding Fiscal Year or any 12 consecutive months selected by the County of the 24 months immediately preceding the issuance of the Additional Bonds, adjusted pursuant to the Resolution, were equal to at least 120% of the Maximum Annual Debt Service of the Outstanding Bonds and the Additional Bonds then proposed to be issued; provided, however that the amount of the Net Revenues, adjusted as described below, received by the County during such 12 month period will be equal to (i) at least 110% of the Maximum Annual Debt Service of the Outstanding Bonds and the Additional Bonds then proposed to be issued, and (ii) 100% of (a) any amounts required by the terms of the Resolution to be deposited in the Reserve Account or with any issuer of a Reserve Account Letter of Credit or Reserve Account Insurance Policy to pay any Policy Costs and (b) any amounts required by the Resolution to be repaid to the Water Connection Fees Fund and Sewer Connection Fees Fund, in each case during such 12 month period. (3) The Net Revenues and the Connection Fees calculated pursuant to the Resolution may be adjusted upon the written advice of the Rate Consultant: (i) if the County has increased the rates, fees or other charges for the product, services or facilities of the System, the Net Revenues and the Connection Fees for the 12 consecutive months shall be adjusted to show the Net Revenues and the Connection Fees which would have been derived from the System in such 12 consecutive 20

29 months as if such increased rates, fees or other charges for the product, service or facilities of the System had been in effect during all of such 12 consecutive months, (ii) if the County acquires or contracts to acquire any privately or publicly owned existing utility system that will become part of the System, the Net Revenues derived from the System during the 12 consecutive months shall be increased by adding to the Net Revenues for said 12 consecutive months the Net Revenues which would have been derived from the existing utility system as if such existing utility system had been a part of the System during such 12 consecutive months, (iii) if the County enters into a contract (with a duration not less than the final maturity of such Additional Bonds) with any public or private entity whereby the County agrees to furnish services in connection with any utility system, then the Net Revenues of the System during the 12 consecutive months shall be increased by the least amount which said public or private entity shall guarantee to pay in any one year for the furnishing of said services by the County, after deducting costs to provide such services, (iv) in the event the County constructs or acquires additions, extensions or improvements to the System from the proceeds of such Additional Bonds, the Net Revenues and Connection Fees for the 12 consecutive months may be adjusted by adding thereto 100% of the Net Revenues and Connection Fees estimated by the Rate Consultant to be derived from the users (that occupy existing structures) of such new additional or expanded facilities during the first 12 months of operation after completion of the construction or acquisition of such new facilities, (v) if the County covenants to levy Special Assessments against property to be benefited by the improvements, the costs of which shall be paid from the proceeds of the proposed Additional Bonds, and the County has included the corresponding Special Assessment Proceeds within the definition of Gross Revenues pursuant to Supplemental Resolution, then the Special Assessments Proceeds derived from the System during the 12 consecutive months shall be increased by an amount equal to the least amount which the Rate Consultant estimates will be received in any one year subsequent to completion of such improvements from the levy of said Special Assessments, said amount to be the total received, assuming no prepayments, from the installment payments on the Special Assessments plus the interest paid on the unpaid portion of the Special Assessments, and (vi) if the County shall add new customers subsequent to the commencement of the 12 consecutive months, the Rate Consultant may adjust the Net Revenues and Connection Fees to reflect the Net Revenues and Connection Fees that would have been received by the County if such customers had been in place for the entire 12 consecutive months. The Net Revenues and Connection Fees shall be adjusted for any period the System or any portion thereof was not owned by the County to reflect government ownership of the System or such portion. (4) The County need not comply with the provisions of paragraph (2) above if and to the extent the Additional Bonds to be issued are refunding bonds, provided the issuance of such Additional Bonds will not result in an increase in aggregate debt service in any future bond year. Insurance The County will carry such insurance as is ordinarily carried by private or public entities owning and operating utilities similar to the System with a reputable insurance carrier or carriers, in such amounts as the County shall determine to be sufficient, and such other insurance against loss or 21

30 damage by fire, explosion, hurricane, tornado or other hazards and risks, and said property loss or damage insurance shall at all times be in an amount or amounts equal to the fair appraisal value of the buildings, properties, furniture, fixtures and equipment of the System, or such other amount or amounts as the Consulting Engineers or an insurance consultant who has a favorable reputation and experience and is qualified to survey risks and to recommend insurance coverage for persons engaged in operations similar to the System, shall recommend or approve as sufficient. The County may establish certain levels of insurance for which the County may self-insure. Such levels of insurance shall be in amounts as recommended in writing by an insurance consultant who has a favorable reputation and experience and is qualified to survey risks and to recommend insurance coverage for persons engaged in operations similar to the System. The proceeds from property loss and casualty insurance shall be deposited in the Renewal and Replacement Fund and, together with other available funds of the County, shall be used to repair or replace the damaged portion of the System; provided, however, if the County makes a determination that such portion of the System is no longer necessary or useful in the operation of the System, such proceeds shall (1) if such proceeds equal or exceed $500,000, (a) be applied to the optional redemption, if available, or purchase of Bonds or (b) be deposited in irrevocable trust for the payment of Bonds, provided the Issuer has received an opinion of Bond Counsel to the effect that such deposit shall not adversely affect the exclusion, if any, from gross income of interest on the Outstanding Bonds for purposes of federal income taxation (other than Taxable Bonds) and will not otherwise affect the status of any Outstanding Bonds issued as Federal Subsidy Bonds or the County s receipt of Federal Subsidy Payments with respect to any Outstanding Federal Subsidy Bonds, or (2) if such proceeds are less than $500,000, be deposited in the Revenue Fund. No Free Service The County will not render or cause to be rendered any free services of any nature by its System, nor will any preferential rates be established for users of the same class; provided, however, the foregoing clause shall not be construed to prevent the County from establishing various classes of users based on any factors deemed necessary or desirable by the County. Different rates may be established for different classes. Whenever the County, including its departments, agencies and instrumentalities, shall avail itself of the product, facilities or services provided by the System, or any part thereof, the same rates, fees or charges applicable to other customers receiving like services under similar circumstances shall be charged to the County and any such department, agency or instrumentality. Such charges shall be paid as they accrue, and the County shall transfer from its general funds to the Revenue Fund sufficient sums to pay such charges. The revenues so received shall be deemed to be Gross Revenues derived from the operation of the System, and shall be deposited and accounted for in the same manner as other Gross Revenues derived from such operation of the System. 22

31 No Impairment of Rights; No Competing System The County will not enter into any contract or contracts, nor take any action, the results of which might impair the rights of the Holders of the Bonds. To the extent permitted by law, the County will not hereafter grant, or cause, consent to or allow the granting of any franchise or permit to any person for the operation of any competing water or sewer service facilities or the furnishing of services similar to those provided by the System within the jurisdiction of the County if such operations or services will have a material adverse effect on the County s ability to meet its obligations hereunder. Notwithstanding the foregoing, the County reserves the right to permit the ownership and operation of water or sewer service facilities or both by itself or by others in any territory which is not in any service area now or hereafter served by the System. Compulsory Connections In order better to secure the prompt payment of principal and interest on the Bonds, as well as for the purpose of protecting the health and welfare of the inhabitants of the County, and acting under authority of the general laws of Florida, the County, to the extent permitted by law, will require, where service by the System is available, the owner of every lot or parcel of land within the jurisdiction of the County to connect new development to the facilities of the System. Mandatory connection of non-residential structures existing on July 1, 2015 is only required if the parcel is directly adjacent to a retail water or retail wastewater facility, and mandatory connection of residential structures existing on July 1, 2015 is not required. The County may establish reasonable rules and regulations regarding such connections and may provide for reasonable exemptions from such connection policy. Enforcement of Charges The County shall compel the prompt payment of rates, fees and charges imposed in connection with the System, and to that end will vigorously enforce all of the provisions of any ordinance or resolution of the County having to do with System connections and charges, and all of the rights and remedies permitted the County under law, including the requirement for the making of a reasonable deposit by each user, the requirement for lawful disconnection of services for all premises delinquent in the payment of any duly invoiced bill, and the securing of injunction against the disposition of sewage or industrial waste into the sewer facilities of the System by any premises delinquent in the payment of such charges. Combining With Wholesale Water System At the option of the County by means of Supplemental Resolution, System, as defined in the Resolution, may be deemed to include the County s existing wholesale water system and any improvements thereto, and any debt then secured by said wholesale water system shall thereupon be deemed secured by the combined Net Revenues and Connection Fees of the combined System on a 23

32 parity with the Bonds, which shall also be secured by combined Net Revenues and Connection Fees, provided that the combined Net Revenues shall be equal for the prior Fiscal Year to at least 1.10 times the Maximum Annual Debt Service on such combined indebtedness and the combined Net Revenues and Connection Fees shall be equal for the prior Fiscal Year to at least 1.20 times the Maximum Annual Debt Service on such combined indebtedness. [remainder of page intentionally left blank] 24

33 DEBT SERVICE SCHEDULE The following table presents the annual debt service requirements of the County for the Series 2015 Bonds: Bond Year Ending September 1 Principal Interest Total Debt Service 2016 $918, $918, $585, ,112, ,697, , ,095, ,695, , ,071, ,696, , ,046, ,696, , ,013, ,693, , ,000, ,695, , , ,694, , , ,696, , , ,697, , , ,695, , , ,697, , , ,697, , , ,695, , , ,693, , , ,697, , , ,693, , , ,695, ,030, , ,696, ,070, , ,695, ,115, , ,697, ,155, , ,692, ,205, , ,696, ,265, , ,696, ,325, , ,693, ,395, , ,696, ,450, , ,696, ,505, , ,693, ,565, , ,692, ,630, , ,695, Total $28,710, $21,378, $50,088,

34 THE SYSTEM The County owns a retail water utility enterprise system (the "Water System") and a retail wastewater utility enterprise system (the "Sewer System"; collectively with the Water System, and as more fully defined in the Resolution, the System ) which serves certain areas of the unincorporated portion of the County. The physical plant of each system is operated separately, but both systems are financially managed as a single utility enterprise fund. The bulk of the System was acquired through the purchase by the County of a privately-owned system in 2010 and upon the dissolution of the Town of Cedar Grove in The County also operates a separate wholesale water system, which provides both water to the System and the water systems of certain municipalities within the County, and is the current operator of and a 47% owner/participant in the Military Point Advanced Wasterwater Treatment Facility (MPAWTF), providing wastewater treatment to sewer systems within the cities of Parker, Callaway, Springfield and Mexico Beach, and including a portion of the customers of the System. Hartman Consultants, LLC & Willdan Financial Services have prepared the Consulting Engineer s Report and Financial Feasibility Study dated September, 2015 (See APPENDIX D -- Consulting Engineer s Report and Financial Feasibility Study Retail Water and Sewer System (the Consulting Engineer s Report )). The Consulting Engineer s Report (i) provides descriptions of the System, (ii) discloses the general condition of the System, (iii) presents the historical operating results of the System and (iv) provides projections of the estimated results of the financial operations of the System for the four (4) fiscal year periods commencing October 1, 2016 through September 30, Service Area Pursuant to Ordinance No , adopted August 7, 2007, and as amended by Ordinance No , adopted on May 5, 2009, the County created the following exclusive water, wastewater and reclaimed water service areas: the Cedar Grove Exclusive Water and Wastewater Service Area, the West Bay Exclusive Water and Wastewater Service Area, the North Bay Exclusive Water and Wastewater Service Area and the Northeast Bay Exclusive Water and Wastewater Service Area, for the purpose of delivering to such areas water, wastewater and reclaimed water services and exercising within the areas the powers provided by law. See APPENDIX E -- Ordinances Nos and Creating Service Areas. For purposes of the Consulting Engineer s Report (see Appendix D), the West Bay and North Bay Exclusive Water and Wastewater Service Area are referred to collectively as the North Bay Retail Service Area. Background of the System The System supplies treated water and wastewater treatment services to a service area population of approximately 16,300. The area served by the System is approximately 300 square miles of which approximately 30 square miles are urbanized or are undergoing urbanization and includes the North Bay Retail Service Area, the Cedar Grove Exclusive Water and Wastewater Service Area and the Northeast Bay Exclusive Water and Wastewater Service Area. Wastewater treatment services are provided to the Cedar Grove Exclusive Water and Wastewater Service Area and the Northeast Bay Exclusive Water and Wastewater Service Area by the MPAWTF, which is 26

35 partially owned (47% owner) by the County and operated by the County. Wastewater treatment services are provided to the North Bay Retail Service Area by the North Bay and the River Camps Wastewater Treatment Plants, both of which are owned and operated by the County. The capacity of the MPAWTF is 7.00 mgd, and the projected flow is presently at 3.71 with a projected increase of flow through 2045 to 4.45 mgd. The capacity of the North Bay and the River Camps Wastewater Treatment Plants is 1.5 mgd, and the projected flow is presently at 0.36 mgd with a projected increase through 2030 to 1.06 mgd. The County owns and operates the wholesale water system that serves all cities within Bay County as well as the System, and there is sufficient capacity to provide water to the System, including its projected growth. In 2014, there were 5,714 water connections and 3,475 sewer connections in the System, and the billed water flow was 489,980 thousand gallons. [remainder of page intentionally left blank] 27

36 Water and Wastewater Customers Set forth below is information with respect to the water and wastewater customers of the System: HISTORICAL WATER AND SEWER CONNECTIONS AND BILLED WATER FLOW Fiscal Year Water Sewer Billed Water Flow (Thousand Gallons) ,220 2, , ,249 2, , ,185 2, , ,208 2, , ,226 2, , ,385 3, , ,632 3, , ,714 3, ,980 Source: Consulting Engineer s Report and Financial Feasibility Study attached hereto as Appendix D. [remainder of page intentionally left blank] 28

37 WATER AND WASTEWATER TOP LARGEST CUSTOMERS FISCAL YEAR 2014 Customer Account (1) Metered Flow Water Revenue Sewer Revenue Total Revenue Percent of Total System Revenue CCA Bay County Correction 35,525,000 $ 98,389 $ 362,333 $ 460, % Northwest Fl Beach International Airport 39,221, ,909 74, , % Dean Bozeman School 16,745,000 49, , , % Bay County Jail Annex 29,520,000 80,711 65, , % Community Health & Rehab 3,104,000 8,861 30,366 39, % Tommy Smith/Merritt Brown Middle School 2,095,000 7,793 24,731 32, % Gatewood Apartments 1,160,000 3,605 14,579 18, % Winn Dixie Grocery 1,377,000 4,463 13,488 17, % Cedar Grove Elementary 1,395,000 5,705 10,680 16, % Hiland Park Elementary 1,563,000 7,087-7, % Total 131,705,000 $ 378,154 $ 729,002 $ 1,107, % Total System Revenue for FY 2014 (2) $ 8,620,964 Note: (1) Provided by County staff for the 12-month period ended September 30, (2) Source: FY 2014 Comprehensive Annual Financial Report Source: Consulting Engineer s Report and Financial Feasibility Study Water System Water Supply. The County, through its wholesale water system, provides wholesale treated potable water for storage, re-pumping and distribution throughout its entire service area for ultimate delivery to retail customers. The water supply is obtained from a surface water reservoir located in the northern part of the County and treated at a central facility on Transmitter Road before delivery to customers. The wholesale system supplies virtually all the potable water distributed by the municipal utilities operating in Bay County, and could be forced to limit or pro rate supplies in the event of a shortage. The wholesale customers include the System, City of Callaway, City of Lynn Haven, City of Mexico Beach, City of Panama City, City of Panama City Beach, City of Parker, City of Springfield and Tyndall Air Force Base. There are no other major potable water treatment and transmission systems in Bay County other than the wholesale Bay County system, and there is sufficient capacity in the wholesale system to provide treated water to all the retail customers through the year Development of an alternate water supply from the northern-most headwaters of the Deer Point Reservoir (Econfina Creek) has been constructed as a source to diversify the existing source and meet potable water demand for Bay County in the event of natural disaster, drought, or contamination of the existing water supply. 29

38 The System is provided water from the County wholesale system on terms similar to those provided to the municipalities. The System's volume of water purchased from the wholesale system and cost of purchase for the past four fiscal years is stated below: Fiscal Year Ending Volume of Water Purchased September 30 (billions of gallons) Cost $1.72/ $1.79/ $1.84/ $1.86/1000 Source: Bay County, Florida In addition to the Connection Fees (see Connection Fees ) associated with the System, the County collects a wholesale water impact fee in the amount of $ per equivalent residential connection from new customers within the System's service area. Such amount is revenue of the wholesale water system and is not part of the Pledged Funds or pledged to secure the Bonds. Delivery Points, Storage and Pumping Facilities. Wholesale potable water is provided to the System at 15 metered delivery points, located at Highway 390, Highway 77 and Highway 388, North Highway 231 (Sweetwater), Rivercamps, John Pitts Road and Star Avenue, Britton Road and Highway 390, 19 th Street and Sherman Avenue, Baldwin Road and Selma Avenue, 22 nd Court and Sherman Avenue, Picadilly Place, Ormond Avenue and Highway 231, 24 th Plaza and Davis Street, A street and E Street, Pipeline Road and Country Lake Road, and Highway 388 and Highway 79. Distribution System. The regional 36-inch potable water transmission main serves as both the supply source (from the water treatment plant) for the System and the transmission main. The County has a water storage and re-pumping station to serve each service area. (See APPENDIX D - Consulting Engineer s Report and Financial Feasibility Study Retail Water and Sewer System). Sewer System The North Bay Service Area has two County treatment facilities. One is a regional advanced secondary treatment wastewater treatment facility, the North Bay 1.5 MGD facility, and the other is a package treatment plan with secondary treatment, the River Camps.072 MGD treatment facility. The Cedar Grove Service Area and the Northeast Bay Service Area are served by the regional advanced water treatment facility at Military Point Lagoon (MPAWTF). As described above, the joint owners of the MPAWTF are Bay County and the cities of Callaway, Springfield and Parker. The County is currently the operator of the MPAWTF, and in addition owns 47% of the capacity of the MPWAT Wastewater Treatment Plant. The MPAWTF is governed by an interlocal agreement 30

39 among the owners, which provides for payment of debt service associated with the facility and operation thereof, including employing an operator. System Staff The County Manager is Robert J. Majka, Jr. Mr. Majka has a Master s degree in Business Administration from Troy University, a Bachelor s degree in Business Administration from the University of Phoenix, and an Associate s Degree in Fire Science technology and a certification from the U.S. Fire Administration s Executive Fire Officer Program. Mr. Majka began working in local government as a firefighter in 1988 and has been County Manager since early in Jake Hollingsworth is the Interim Director of the Utility Services Department, which has both water and sewer divisions. He has a Bachelor of Science in Business Administration- Management from Auburn University Montgomery and holds a Class A Drinking Water license issued by the State of Florida. Mr. Hollingsworth has been employed with Bay County Utility Services since 2009 and was appointed Interim Director in September, 2015 upon the retirement of the previous director. The Utility Services Department (Department) has engineers, planners, project managers, construction managers, specialists, licensed operators, customer service personnel, and other support professionals for the water and sewer plants as well as for the water transmission, distribution, and the collection and transmission systems of the County. Government Regulation The System is subject to federal and state regulation. At the federal level, regulatory jurisdiction is vested in the Environmental Protection Agency ("EPA"). The Florida Department of Environmental Protection ( FDEP ) is the State agency with authority over water treatment and disposal. Water Supply Regulation. 1. Federal. All water supply systems in the United States which provide water to at least 15 service connections or 25 individuals are subject to the provisions of, and to regulation by the EPA under the Safe Drinking Water Act (the "SDWA"). The EPA has promulgated nationwide drinking water regulations which specify the maximum level of harmful contaminants allowed in drinking water and which govern the construction, operation and maintenance of water supply systems as required by SDWA. 2. State. Under the terms of the SDWA, a state has primary enforcement responsibility for public water systems if the EPA determines that the state's drinking water regulations are at least as stringent as the federal drinking water regulations. Florida has adopted all of the primary and secondary regulations promulgated by the EPA pursuant to the SDWA as part of its drinking water 31

40 program. Consequently, regulation of the water system is primarily under the jurisdiction of the State of Florida. The County's water retail system has consistently met all FDEP requirements. Wastewater Regulations. Federal. The provisions of the Federal Water Pollution Control Act, the Clean Water Act of 1977 (the "Clean Water Act"), the Marine Protection, Research and Sanctuaries Act of 1972 ("MPRSA") and related regulations affect the wastewater system. Federal enforcement of these statutes is entrusted to EPA. Under the Clean Water Act, EPA administers an extensive program of federal capital construction grants (the "Construction Grants Program") and oversees compliance with regulations and guidelines it has promulgated concerning (i) wastewater treatment plant construction, operation, maintenance, upgrading and rehabilitation, (ii) introduction of toxins and other pollutants into wastewater treatment facilities and (iii) pollutant discharges from all point sources. Included in that regulatory framework is the National Pollutant Discharge Elimination System ("NPDES") Permit Program and the issuance of wastewater treatment plant operating permits. The required NPDES permit and a state permit have been combined into one permit issued by DEP. The County's current permit for the North Bay WWTF is No. FL , which expires December 14, The County s current permit for the River Camps WWTF is No. FL , which expires December 14, The Clean Water Act also directs the EPA to address the problem of discharges of toxins and other substances that must be met by specific industries ("Categorical Standards") and has directed that publicly-owned treatment facilities establish and enforce industrial pretreatment programs. The EPA pursuant to the Clean Water Act has indicated its intent to establish numeric criteria for certain nutrients (specifically, phosphorous and nitrogen) for both flowing waters and marine waters in Florida. The County is uncertain at this time of whether the proposed limits will be lower than that currently achieved by advanced wastewater treatment processes in place in Florida, which could necessitate mandatory upgrades to meet the new criteria. The County is likewise unable to predict at this time whether and when new, more stringent criteria will be imposed and what impact, financial and otherwise, the same might have on the County and the System. State. State regulations set forth various permitting requirements applicable to the wastewater portion of the System. Construction of new wastewater facilities or the modifications of existing facilities requires a construction permit issued by the FDEP. Prior approval from the FDEP is required to place new collection and transmission systems into operation. In addition, operation of all treatment and disposal facilities requires an operating permit from the FDEP. The County's operating permits for its treatment plants expire on December 14, 2016, as described above. The County expects to file a timely application to further extend the operating permits and does not anticipate any issues regarding the ability to receive new permits. 32

41 State regulations establish various standards with which the County must comply in operating the wastewater portion of the System. The regulations set forth (i) criteria and standards for the FDEP in granting permits to construct or modify domestic wastewater facilities, including specific guidelines for the design and construction of gravity wastewater systems and collection and transmission systems; (ii) criteria for the discharge of domestic wastewater effluent to certain wetlands; and (iii) standards for treating wastewater before discharge into disposal systems, surface waters, spray irrigation, ocean outfalls or underground geological formations. In addition to the wastewater effluent limitations set forth above, all activities of the System and all discharges from the wastewater system and the County's stormwater drainage system must also meet certain water quality-based effluent limitations. The regulations prohibit the FDEP from issuing a permit for a discharge to the waters of the State unless the FDEP has established an effluent limit for those pollutants in the discharge that are present in quantities or concentrations that can reasonably be expected to cause or contribute to a violation of the water quality standards for the State's public water supply. In addition, the regulations require owners of wastewater treatment plants to provide monthly reports concerning the composition, concentration and treatment of the wastewater from the treatment plants. The regulations set forth a schedule of required sampling of effluent discharge for the following: flow, ph-chlorine residual, biochemical oxygen demand, suspended solids and fecal coliform. Failure to maintain records of such sampling and to correct such failure shall subject the wastewater treatment plant to revocation of its permit. The County's wastewater collection and treatment system has consistently met EPA and FDEP requirements. Water and Wastewater Rates Rates for the System are set forth below. In order to comply with rate covenant requirements, in March 2014, the County adopted Resolution No that included uniform county-wide water and sewer rates effective March 2014 as well as an across-the-board increase of 20% effective October 2014 with annual inflationary adjustments of 2.0% through Fiscal Year It is anticipated that the combination of these rate adjustments will result in over a 50% increase in use rate revenues from As shown in the rate comparison table on page 35, the County s rates for usage of the System are substantially higher than other neighboring utilities. Beginning October 1, 2020, rates will be indexed annually to the lesser of 3% or the Consumer Price Index. Source: Consulting Engineer s Report and Financial Feasibility Study 33

42 Retail Water and Sewer Rates Fiscal Year 2015 Base Rate Component Water Sewer Residential & Residential Irrigation (meter size) 3/4 inch $ $ inch $ $ /2 inch $ $ inch $ $ Commercial & Commercial Irrigation (meter size) 3/4 inch $ $ inch $ $ /2 inch $ $ inch $ $ inch $ $ inch $ $ inch $ $ 1, inch $ 1, $ 1, inch $ 1, $ 2, inch $ 2, $ 4, Gallonage Residential and Commercial Block 1: 0-3,000 gallons $ 2.32 $ Block 2: 3,001-6,000 gallons $ 2.57 $ Block 3: 6,001-9,000 gallons $ 3.22 $ Block 4: above 9,000 gallons $ 3.85 $ Irrigation (per thousand gallons) All usage $ 3.85 N/A Retail late charge 10% 10% Impact Fee per ERU $ $ 5, Source: Consulting Engineer s Report and Financial Feasibility Study 34

43 Set forth below is a comparison of residential billing rates for the County and certain neighboring utilities for the billing month of November 2014: Monthly Service Bill Comparison with Other Utilities 5,000 Gallons per Month Water Sewer Total Bay County $ $ $ Utilities (1) City of Callaway - Inside City $ $ $ City of Callaway - Outside City City of Defuniak Springs - Inside City City of Defuniak Springs - Outside City City of Fort Walton Beach - Inside City City of Fort Walton Beach - Outside City City of Marianna City of Panama City - Inside City City of Panama City - Outside City City of Panama City Beach - Inside City City of Panama City Beach - Outside City City of Parker City of Pensacola (ECUA) City of Tallahassee - Inside City City of Tallahassee - Outside City Other Utilities Average $ $ $ Source: Consulting Engineer s Report and Financial Feasibility Study [remainder of page intentionally left blank] 35

44 Connection Fees Set forth below are historical receipts of Water Connection Fees and Sewer Connection Fees for the Fiscal Years ended : County Connection Fee Receipts Fiscal Water Wastewater Total Year Connection Fees Connection Fees Connection Fees 2010 $94, $528, $623, , , , , , , , , , , , , Source: Bay County, Florida Capital Improvement Program The County develops and approves a five-year capital improvement program (CIP) for the System annually. The program for the first year is approved as the capital budget and the remaining four (4) years provide a forecast of the planned capital needs. The capital improvements are planned to provide for the addition of new customers, for the systematic renewal and replacement of facilities, and for improvements in the overall efficiency of the operating system. Those identified capital improvements for the next five (5) fiscal year period from existing sources and grants are set forth below: [remainder of page intentionally left blank] 36

45 Bay County Funded CIP from Existing Sources Description Date Estimate Retail Water Meter Replacement $ 350,000 Billing System Upgrades ,000 Total Retail Water $ 550,000 Retail Wastewater Cedar Grove Sewer Rehab Highway 388 Force Main North Bay Collection System Improvements ,000, ,500, ,220,405 Total Retail Wastewater $ 5,720,405 Source: County 2015 Capital Improvement Plan These capital improvement projects will only be undertaken if there is funding from rates and/or restricted funds (i.e. impact fees, renewal and replacement fund) are available for the projects. The County plans to fund these projects through a combination of the proceeds of the Horizon Oil Spill Restoration Program, grant funding through the FDEP State Revolving Fund, rate revenues, unrestricted fund balance, and Renewal and Replacement fund (when appropriate). [remainder of page intentionally left blank] 37

46 Historical and Projected Financial Information Regarding the System Set forth below are historical financial results and debt service coverage with respect to the System: HISTORICAL OPERATING RESULTS (1) Fiscal Year Ended September 30, Revenues Operating Revenues $ 6,421,773 $ 6,681,917 $ 6,665,219 $ 7,187,654 $ 8,620,964 Other Revenues 93, , , , ,604 Gross Revenues $ 6,515,253 $ 6,782,445 $ 6,782,146 $ 7,293,503 $ 8,747,568 Operating Expenses Personal Services $ 1,684,913 $ 1,777,638 $ 1,906,325 $ 2,060,490 $ 2,156,446 Contracted Services 1,008,662 1,052, , , ,232 Repairs and Maintenance 207, , , , ,530 Utilities 132, , , , ,351 Other 3,689,888 4,099,770 4,442,930 4,289,746 4,621,487 Total Operating Expenses $ 6,723,188 $ 7,337,704 $ 7,916,562 $ 7,795,605 $ 8,050,046 Net Revenue $ (207,935) $ (555,259) $ (1,134,416) $ (502,102) $ 697,522 Impact Fees Collected $ 623,039 $ 61,605 $ 332,565 $ 493,356 $ 276,474 Coverage (2) Net Revenues (555,259) (1,134,416) (502,102) 697,522 Allowable Deposits (3) 939,000 1,614,000 1,611,771 - Net Available Revenues 383, ,584 1,109, ,522 Debt Service (4) - 1,009,275 1,006,500 2,211,110 Debt Service Coverage Notes: (1) Information from Comprehensive Annual Financial Reports (CAFR) for FY 2010 through (2) As calculated by the County in the CAFR. (3) Allowable Deposits includes available amounts in the Rate Stabilization Fund. Based on the Resolution No. 3213, a provision was passed that gives the County until October 1, 2018 to generate rates sufficient to meet the rate coventants associated with the Bonds. Therefore, the County did not show any amount in the allowable deposits for FY 2014 in its CAFR, as the rate covenant was not required to be met. (4) Reflects debt service on the Refunded Indebtedness. Source: Consulting Engineer s Report and Financial Feasibility Study It should be noted that there were shortfalls in amounts to pay debt service on the Refunded Indebtedness (a bank loan) in Fiscal Years 2012, 2013 and 2014 and that these shortfalls were paid from amounts drawn from the rate stabilization fund established under the resolution securing the Refunded Indebtedness, which amounts were replenished from other available revenues of the County as described above. During the year ended September 30, 2013, it was determined that the County was not in compliance with a covenant applicable to the Refunded Indebtedness requiring 38

47 that any withdrawals from the rate stabilization fund established under the resolution securing the Refunded Indebtedness be replenished from pledged revenues within twelve months from the date of such withdrawal. As of September 30, 2013, such withdrawal was not replenished within the required twelve-month period. The County, along with the owner of the Refunded Indebtedness, modified the documentation governing the Refunded Indebtedness to provide for an extension until October 1, 2014, to replenish the rate stabilization fund to its required level. The County deposited the sufficient balance in the rate stabilization account prior to the end of Fiscal Year 2014, which amount is expected to be released to the County at the time of issuance of the Series 2015 Bonds. The requirement to have a particular amount of funds on deposit in the Rate Stabilization Fund established under the Resolution is not applicable to the Series 2015 Bonds. Projections of the operating results for the System for the Fiscal Years ending September 30, 2016 through 2019 are shown in the table below, and said projections are based on the assumptions set forth in the Consulting Engineer s Report and Financial Feasibility Study (see Appendix D). [remainder of page intentionally left blank] 39

48 Summary of Projected Operating Results (Rounded) Test Year Projected Fiscal Year Account Name Operating Revenue Rate Revenue $ 10,745,900 $ 10,467,200 $ 11,287,900 $ 11,910,300 $ 12,569,400 Other Operating Revenue (1) 216, , , , ,300 Total Operating Revenue $ 10,961,900 $ 10,692,700 $ 11,523,400 $ 12,156,400 $ 12,826,700 O & M Expenses (2) 8,468,600 8,610,500 9,073,500 9,563,100 10,081,800 Net Revenue Avail for Debt Svc. $ 2,493,300 $ 2,082,200 $ 2,449,900 $ 2,593,300 $ 2,744,900 Debt Service (3) 2,209, ,100 1,697,800 1,695,300 1,696,300 Balance after Debt Service $ 284,200 $ 1,164,100 $ 752,100 $ 898,000 $ 1,048,600 Non-Operating Revenues (4) 1,725, , , , ,000 Non-Operating Expenses (5) (2,145,700) (966,500) (960,800) (1,010,100) (1,049,700) Total Available for Other Uses $ (136,500) $ 657,600 $ 151,300 $ 247,900 $ 358,900 Coverage Tests (6) Net Revenues $ 2,493,300 $ 2,082,200 $ 2,449,900 $ 2,593,300 $ 2,744,900 Parity Debt Service $ 2,209,100 $ 918,100 $ 1,697,800 $ 1,695,300 $ 1,696,300 Projected Coverage Minimum Required Net Revenues $ 2,493,300 $ 2,082,200 $ 2,449,900 $ 2,593,300 $ 2,744,900 Impact Fees 175, , , , ,000 Net Revenues + Impact Fees $ 2,668,300 $ 2,192,200 $ 2,559,900 $ 2,703,300 $ 2,854,900 Parity Debt Service $ 2,209,100 $ 918,100 $ 1,697,800 $ 1,695,300 $ 1,696,300 Projected Coverage Minimum Required Notes: (1) Includes Miscellaneous Charges and Interest Income. (2) Excludes depreciation and amortization. (3) Projected debt service from 2016 through 2019 is the actual debt service for the 2015 Bonds which is less than the estimated debt service shown in Appendix D. (4) Includes Contributions, Assessments, Impact Fees, and Transfers. (5) Includes Transfers, Capital (CIP) from Rates, and Capital from Fund Balances. (6) The Series 2015 Bonds require the following coverage tests: (a) Net Revenues provide a minimum of 110% of debt service, and (b) Net Revenues + Impact Fees provide a minimum of 120% of debt service. The findings of the Consulting Engineer s Report and Financial Feasibility Study can be summarized as follows: 1. The County has historically provided for the appropriate operation of the System by employing personnel capable of operating, maintaining, and expanding the water and sewer system as needed and required. 2. The County has historically invested in the System for major capital as well as repairs and replacements to maintain the quality of the infrastructure. 3. The System has all the regulatory permits necessary for the continued operation of the System. It is expected that renewals of such permits, when necessary, will be issued by the regulatory agencies. The System operates in compliance with all applicable permits and regulatory requirements. 40

49 4. The existing and projected revenues and expenses are reasonable based on: (1) historical results, (2) the existing rates, and (3) input and discussions with County Staff. 5. The County has adopted a Comprehensive CIP for the System. The County anticipates funding this CIP on a Pay-As-You-Go basis utilizing user rates, impact (connection) fees, and renewal and replacement reserves, when appropriate. The County does not intend to issue any additional debt to fund this Program. Therefore, in any year that the Pay-As-You- Go funding is unavailable, the County will look to prioritize the capital improvements and reschedule as appropriate as Pay-As-You-Go funding is available. The anticipated Capital (CIP) from Rates is summarized on Table 11 in Appendix D. 6. Nothing came to the attention of Hartman Consultants, LLC or Willdan Financial Services, which would adversely affect the continued operating and financial condition of the System including, but not limited to, compliance with regulatory agencies. See APPENDIX D CONSULTING ENGINEER S REPORT AND FINANCIAL FEASIBLITY STUDY RETAIL WATER AND SEWER SYSTEM for the entire report and for projections by the Rate Consultant of operating results for Fiscal Years ended September 30, 2016 through September 30, 2019, and projected debt service coverage of the Series 2015 Bonds. DISCLOSURE REQUIRED BY FLORIDA BLUE SKY REGULATIONS Section , Florida Statutes, and the regulations promulgated thereunder require that the County make full and fair disclosure of any bonds or other debt obligations of such entity that have been in default as to payment of principal or interest at any time after December 31, The County is not and has not since December 31, 1975, been in default as to payment of principal and interest on its bonds and other debt obligations. LITIGATION In the opinion of the County Attorney, no legal proceedings are pending or threatened that materially affect the County's ability to perform its obligations to the holders of the Series 2015 Bonds or that materially affect the financial condition of the System or the pledge of the Pledged Funds. In the opinion of the County Attorney, there is no litigation or controversy of any nature now pending or, to his knowledge, threatened, to restrain or enjoin the issuance, sale, execution or delivery of the Series 2015 Bonds or in any way contesting the validity of the Series 2015 Bonds or any proceedings of the County taken with respect to the authorization, sale or issuance of the Series 2015 Bonds or the pledge or application of any moneys provided for the payment of the Series 2015 Bonds. 41

50 Opinion of Bond Counsel TAX EXEMPTION In the opinion of Bond Counsel (see Appendix F), the interest on the Series 2015 Bonds is excludable from gross income and is not a specific item of tax preference for federal income tax purposes under existing statutes, regulations, rulings and court decisions. However, interest on the Series 2015 Bonds will be includable in the computation of adjusted current earnings for the purpose of computing the alternative minimum tax imposed on corporations by the Internal Revenue Code of 1986, as amended (the "Code"). Failure by the County to comply subsequent to the issuance of the Series 2015 Bonds with certain requirements of the Code regarding the use, expenditure and investment of bond proceeds and the timely payment of certain investment earnings to the Treasury of the United States may cause interest on the Series 2015 Bonds to become includable in gross income for federal income tax purposes retroactive to their date of issue. The County has covenanted in the Resolution to comply with all provisions of the Code necessary to, among other things, maintain the exclusion from gross income of interest on the Series 2015 Bonds for purposes of federal income taxation. In rendering its opinion, Bond Counsel has assumed continuing compliance with such covenants. Internal Revenue Code of 1986 The Code contains a number of provisions that apply to the Series 2015 Bonds, including, among other things, restrictions relating to the use or investment of the proceeds of the Series 2015 Bonds and the payments of certain arbitrage earnings in excess of the yield on the Series 2015 Bonds to the Treasury of the United States. Noncompliance with such provisions may result in interest on the Series 2015 Bonds being included in gross income for federal income tax purposes retroactive to their date of issue. Discount Bonds Under the Code, the difference between the principal amount of the Series 2015 Bonds maturing in the years 2021 through and including 2028, 2030, 2031, 2034, 2037, and 2045 (the Discount Bonds ), and the initial offering price to the public, excluding bond houses and brokers, at which price a substantial amount of the Discount Bonds of the same maturity was sold, constitutes original issue discount. Original issue discount on the Discount Bonds represents interest which is not includable in gross income. A portion of such interest that accrues to the owner of such Bonds in a year, as described below, is, however, included in the calculation of a corporate tax payer s alternative minimum tax and environmental tax and may result in other collateral federal tax consequences although the owner may not have received cash in such year. Original issue discount on such Discount Bonds will accrue actuarially over the term of a Discount Bond at a constant interest rate. A purchaser who acquired Discount Bonds at an issue price equal to the initial offering price thereof as set forth on the cover page of this Official Statement will be treated as receiving an amount of interest excluded from gross income for federal income tax purposes equal to the original issue discount accruing during the period such purchaser holds such Discount Bonds and will increase its adjusted basis in such Discount Bonds by the amount of such accruing discount for 42

51 purposes of determining taxable gain or loss on the sale or the disposition of such Discount Bonds. The federal income tax consequences of the purchase, ownership and redemption, sale or 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. Premium Bonds The difference between the principal amount of the Series 2015 Bonds maturing in the years 2017 through and including 2020, 2029, and 2040 (the Premium Bonds ) and the initial offering price to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriter or wholesalers) at which price a substantial amount of such Premium Bonds of the same maturity was sold constitutes to an initial purchaser amortizable bond premium which is not deductible from gross income for federal income tax purposes. The amount of amortizable bond premium for a taxable year is determined actuarially on a constant interest rate basis over the term of each Premium Bond. For purposes of determining gain or loss on the sale or other disposition of a Premium Bond, an initial purchaser who acquires such obligation in the initial offering to the public at the initial offering price is required to decrease such purchaser s adjusted basis in such Premium Bond annually by the amount of amortizable bond premium for the taxable year. The amortization of bond premium may be taken into account as a reduction in the amount of tax-exempt income for purposes of determining various other tax consequences of owning such Premium Bonds. Owners of the Premium Bonds are advised that they should consult with their own advisors with respect to the state and local tax consequences of owning such Premium Bonds. Collateral Tax Consequences Except as described above, Bond Counsel will express no opinion regarding the federal income tax consequences resulting from the ownership of, receipt or accrual of interest on, or disposition of the Series 2015 Bonds. Prospective purchasers of the Series 2015 Bonds should be aware that the ownership of Series 2015 Bonds may result in other collateral federal tax consequences. For example, ownership of the Series 2015 Bonds may result in collateral tax consequences to various types of corporations, relating to (1) denial of interest deduction to purchase or carry such Series 2015 Bonds, (2) the branch profits tax, and (3) the inclusion of interest on the Series 2015 Bonds in passive income for certain Subchapter S corporations. In addition, the interest on the Series 2015 Bonds may be included in gross income by recipients of certain Social Security and Railroad Retirement benefits. PURCHASE, OWNERSHIP, SALE OR DISPOSITION OF THE SERIES 2015 BONDS AND THE RECEIPT OR ACCRUAL OF THE INTEREST THEREON MAY HAVE ADVERSE FEDERAL TAX CONSEQUENCES FOR CERTAIN INDIVIDUAL AND CORPORATE BONDHOLDERS, INCLUDING, BUT NOT LIMITED TO, THE CONSEQUENCES REFERRED TO ABOVE. PROSPECTIVE SERIES 2015 BONDHOLDERS SHOULD CONSULT WITH THEIR TAX SPECIALISTS FOR INFORMATION IN THAT REGARD. 43

52 Other Tax Matters Interest on the Series 2015 Bonds may be subject to state or local income taxation under applicable state or local laws in other jurisdictions. Purchasers of the Series 2015 Bonds should consult their tax advisors as to the income tax status of interest on the Series 2015 Bonds in their particular state or local jurisdictions. During recent years, legislative proposals have been introduced in Congress, and in some cases enacted, that altered certain federal tax consequences resulting from the ownership of obligations that are similar to the Series 2015 Bonds. In some cases, these proposals have contained provisions that altered these consequences on a retroactive basis. Such alteration of federal tax consequences may have affected the market value of obligations similar to the Series 2015 Bonds. From time to time, legislative proposals are pending which could have an effect on both the federal tax consequences resulting from ownership of the Series 2015 Bonds and their market value. No assurance can be given that legislative proposals will not be introduced or enacted that would or might apply to, or have an adverse effect upon, the Series 2015 Bonds. For example, proposals have been discussed in connection with deficit spending reduction, job creation and other tax reform efforts that could significantly reduce the benefit of, or otherwise affect the exclusion from gross income of, interest on obligations such as the Series 2015 Bonds. The President previously released legislative proposals that would, among other things, subject interest on tax-exempt obligations to a Federal income tax for taxpayers with incomes above certain thresholds for tax years beginning after The further introduction or enactment of one or more of such proposals could affect the market price or marketability of the Series 2015 Bonds. RATING AGENCIES Moody s Investors Service has assigned a rating of A3 to the Series 2015 Bonds. Such rating reflects only the views of such organization and any desired explanation of the significance of such rating should be obtained from Moody s Investors Service at the following address: 7 World Trade Center, 250 Greenwich Street, New York, NY Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by the rating agencies, if in the judgment of such rating agencies, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Series 2015 Bonds. Additionally, the County applied for a credit assessment on the Series 2015 Bonds from Standard & Poor s Ratings Services ( S&P ) and received a credit assessment of low investment grade. Such credit assessment is not a credit rating and should not be represented as a credit rating. A credit assessment is not investment, financial, or other advice and you should not and cannot rely upon the credit assessment as such. The credit assessment is based on information supplied to S&P by the County, its agents or advisors but does not represent an audit. The credit assessment is not a market rating nor is it a recommendation to buy, hold, or sell the obligations. Should the County apply for a market rating from S&P, it may be higher or lower than the credit assessment. S&P will 44

53 not maintain ongoing surveillance on this credit assessment. S&P will not review or modify the credit assessment after the date thereof. The credit assessment is as of August 26, S&P has not reviewed the credit assessment since that date, and a current assessment could be different. Such credit assessment reflects only the view of S&P and any desired explanation of the significance of the credit assessment should be obtained from S&P at the following address: 25 Broadway, New York, New York UNDERWRITING The Series 2015 Bonds are being purchased by Wells Fargo Bank, National Association and RBC Capital Markets, LLC (the "Underwriters"), subject to certain terms and conditions set forth in a bond purchase agreement between the County and the Underwriters, including the approval of certain legal matters by Bond Counsel and the existence of no material change in the affairs of the County from those set forth in this Official Statement. The aggregate purchase price payable by the Underwriters is $28,779, (which represents the par amount of the Series 2015 Bonds plus a net original issue premium of $184, and less an Underwriters' discount of $114,338.00). The Series 2015 Bonds are offered for sale to the public at the prices set forth on the cover page of this Official Statement. The Series 2015 Bonds may be offered and sold to certain dealers at prices lower than such offering prices and such public offering prices may be changed from time to time by the Underwriters. The Underwriters and their respective affiliates are full-service financial institutions engaged in various activities, that may include securities trading, commercial and investment banking, municipal advisory, brokerage, and asset management. In the ordinary course of business, the Underwriters and their respective affiliates may actively trade debt and, if applicable, equity securities (or related derivative securities) and provide financial instruments (which may include bank loans, credit support or interest rate swaps). The Underwriters and their respective affiliates may engage in transactions for their own accounts involving the securities and instruments made the subject of this securities offering or other offering of the Issuer. The Underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and publish independent research views in respect of this securities offering or other offerings of the Issuer. The Underwriters and their respective affiliates may make a market in credit default swaps with respect to municipal securities in the future. Wells Fargo Securities is the trade name for certain securities-related capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including Wells Fargo Bank, National Association. Wells Fargo Bank, National Association ( WFBNA ), the senior underwriter of the Series 2015 Bonds, has entered in to an agreement (the Distribution Agreement ) with its affiliate, Wells Fargo Advisors, LLC ( WFA ), for the distribution of certain municipal securities offerings, including the Series 2015 Bonds. Pursuant to the Distribution Agreement, WFBNA will share a portion of its underwriting or remarketing agent compensation, as applicable, with respect to the 45

54 Series 2015 Bonds with WFA. WFBNA also utilizes the distribution capabilities of its affiliate Wells Fargo Securities, LLC ( WFSLLC ), for distribution of municipal securities offerings, including the Series 2015 Bonds. In connection with utilizing the distribution capabilities of WFSLLC, WFBNA pays a portion of WFSLLC s expenses based on its municipal securities transactions. WFBNA, WFSLLC, and WFA are each wholly-owned subsidiaries of Wells Fargo & Company. APPROVAL OF LEGALITY Certain legal matters incident to the authorization, issuance, sale and delivery of the Series 2015 Bonds and the treatment of the interest thereon for federal income tax purposes are subject to the approval of Nabors, Giblin & Nickerson, P.A. Tampa, Florida, Bond Counsel, whose approving opinion will be in substantially the form attached hereto as Appendix F. Certain other legal matters will be passed upon by Burke Blue Hutchison Walters & Smith, P.A., Panama City, Florida, Disclosure Counsel to the County. Bryant Miller Olive P.A., Tallahassee, Florida, is serving as Counsel to the Underwriters. The proposed text of the separate legal opinion of Bond Counsel is set forth as APPENDIX F FORM OF PROPOSED OPINION OF BOND COUNSEL. The actual legal opinion to be delivered may vary from the text of APPENDIX F, if necessary, to reflect facts and law on the date of delivery of the Series 2015 Bonds. The opinion will speak only as of its date, and subsequent distribution of it by recirculation of this Official Statement or otherwise shall not create any implication that subsequent to the date of the opinion Bond Counsel has affirmed its opinion. The opinion of Bond Counsel will be limited to matters relating to the authorization, legality and enforceability of the Series 2015 Bonds and the tax-exempt status of interest thereon, as described under TAX MATTERS, and will make no statement regarding the accuracy and completeness of this Official Statement. Bond Counsel will separately opine as to the exemption of the Series 2015 Bonds from registration under federal securities laws. Bond Counsel s opinion is based on existing law, which is subject to change. Such opinion is further based on factual representations made to Bond Counsel as of the date thereof. Bond Counsel assumes no duty to update or supplement its opinion to reflect any facts or circumstances, including changes in law that may thereafter occur or become effective. The legal opinions to be delivered concurrently with the delivery of the Series 2015 Bonds express the professional judgment of the attorneys rendering the opinions regarding the legal issues expressly addressed therein. By rendering a legal opinion, the opinion giver does not become an insurer or guarantor of the result indicated by that expression of professional judgment of the transaction on which the opinion is rendered, or of the future performance of parties to the transaction. Nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. 46

55 FINANCIAL ADVISOR The County has retained First Southwest Company, LLC, Orlando, Florida, as Financial Advisor in connection with the County's financing plans and with respect to the authorization and issuance of the Series 2015 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 2015 Bonds. ACCURACY AND COMPLETENESS OF THE OFFICIAL STATEMENT The references to and excerpts of all documents referred to herein do not purport to be complete statements of the provisions of such documents and reference is directed to all such documents for full and complete statements of all matters of fact relating to the Series 2015 Bonds, the security for the payment of the Series 2015 Bonds, and the rights and obligations of Registered Owners thereof. The information contained in this Official Statement has been compiled from official and other sources deemed to be reliable and, while not guaranteed as to completeness or accuracy, is believed to be correct as of this date. Any statements made in this Official Statement involving matters of opinion or 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 such estimates will be realized. Neither this Official Statement nor any statement which may have been made verbally or in writing is to be construed as a contract with the holders of the Series 2015 Bonds. CONTINUING DISCLOSURE The County will enter into an understanding dated as of the date of issuance of the Series 2015 Bonds (herein, the "Continuing Disclosure Certificate") for the benefit of the registered and beneficial owners of the Series 2015 Bonds to provide certain financial information and operating data relating to the County, the System and the Pledged Funds within 240 days of the end of each fiscal year of the County, commencing with the County's fiscal year ending September 30, 2015, for the preceding year (the "Annual Report"), and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed by the County with the Municipal Securities Rulemaking Board ("MSRB") under its Electronic System (EMMA) and with any State of Florida Information Repository (herein, a "SID"). The notices of material events will be filed by the County with the MSRB and any SID. The specific nature of the information to be contained in the Annual Report or the notices of material events is set forth in "APPENDIX G -- Form of Continuing Disclosure Certificate" attached hereto. These covenants have been made in order to assist the Underwriters in complying with S.E.C. Rule 15c2-12(b)(5). 47

56 The County has made all filings required under its existing continuing disclosure certificates for the past five fiscal years, except as described below: Upon a review of the County's information on file with the EMMA, it was discovered that (1) with respect to the Sales Tax Revenue Bonds, Series 2002, Sales Tax Revenue Bonds, Series 2006 and the Sales Tax Revenue Refunding Bonds, Series 2007 (collectively, the "Sales Tax Bonds"): the annual report for Fiscal Year inadvertently omitted certain financial information and operating data related to sales tax revenue distributions and collection with respect to the Sales Tax Revenue Bonds; (2) with respect to the Transportation Improvement Revenue Refunding Bonds, Series 2003 (the "Series 2003 Bonds"): the annual report for the Fiscal Year was not timely filed as to certain financial information and operating data; (3) with respect to the Wastewater System Revenue Refunding Bonds, Series 2004 (the "Series 2004 Bonds"): (i) the annual reports for the Fiscal Years through were not timely filed and/or omitted certain financial information and operating data, and (ii) certain notices of material events regarding rating changes of the insurer were not timely filed; and (4) with respect to the Water System Revenue Refunding Bonds, Series 2005 (the "Series 2005 Bonds"): (i) the annual reports for Fiscal Years through omitted certain financial information and operating data related to the water system, and (ii) a notice of material event regarding a rating change on the Series 2005 Bonds was not timely filed. The County made a material event filing with respect to the Series 2005 Bonds on or before October 1, The County intends to fully satisfy all obligations in connection with its present and prior continuing disclosure undertakings in the future. The County has retained Digital Assurance Certification, LLC, as its dissemination agent. ADDITIONAL INFORMATION The brief descriptions of the Resolution, the Series 2015 Bonds and other documents pertaining to the Series 2015 Bonds contained in this Official Statement are qualified in their entirety by reference to the originals of such documents, copies of which are available from the County Budget Office, 810 West 11 th Street, Panama City, Florida 32401, during the period of the initial offering of the Series 2015 Bonds. AUTHORIZATION OF OFFICIAL STATEMENT The delivery of this Official Statement has been duly authorized by the Board of County Commissioners of the County. At the time of delivery of the Series 2015 Bonds, the Chairman of the Board of County Commissioners and the County Manager, acting on behalf of the County, will furnish a certificate to the effect that nothing has come to their attention which would lead them to believe that the Official Statement, as of its date and as of the delivery of the Series 2015 Bonds, contains any 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 light of the circumstances under which they were made, not misleading. 48

57 BAY COUNTY, FLORIDA /s/ Guy M. Tunnell Chairman, Board of County Commissioners /s/ Robert J. Majka, Jr. County Manager 49

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59 APPENDIX A GENERAL INFORMATION CONCERNING BAY COUNTY, FLORIDA THE FOLLOWING INFORMATION CONCERNING BAY COUNTY, FLORIDA, IS INCLUDED ONLY FOR THE PURPOSE OF PROVIDING GENERAL BACKGROUND INFORMATION. THE INFORMATION HAS BEEN COMPILED ON BEHALF OF THE COUNTY AND SUCH COMPILATION INVOLVED ORAL AND WRITTEN COMMUNICATION WITH THE VARIOUS SOURCES INDICATED. THE INFORMATION IS SUBJECT TO CHANGE, ALTHOUGH EFFORTS HAVE BEEN MADE TO UPDATE THE INFORMATION WHERE PRACTICABLE. THE SERIES 2015 BONDS ARE NOT GENERAL OBLIGATIONS OF THE STATE OF FLORIDA OR ANY POLITICAL SUBDIVISION THEREOF, INCLUDING BAY COUNTY, FLORIDA. County Description Bay County is located on the Gulf of Mexico in the panhandle region of northwest Florida. Panama City, the county seat and principal city of Bay County, is located approximately 100 miles southwest of Tallahassee, 80 miles south of Dothan, Alabama, 105 miles east of Pensacola and approximately 300 miles from Atlanta, Jacksonville and New Orleans. The County s 764 square miles of land are home to an estimated 170,781 residents (2014), a significant increase from the 1990 census of 126,994. Continued rapid growth is anticipated, with a year 2020 projected population of 181,200. Bay County is a popular tourist destination with its 27 miles of sugar white beaches, recreation and water sports attractions and mild climate. St. Andrew Bay surrounds much of Panama City providing a protected harbor for facilities at the Port of Panama City complex. The average annual temperature is 67 degrees Fahrenheit. Average summer temperature is 89 degrees Fahrenheit, and the average winter temperature is 39 degrees Fahrenheit. The average water temperature is 72 degrees Fahrenheit. Annual precipitation average is 67 inches. Average days of sunshine per year is 320 days. Population The estimated population of Bay County in 2014 was 170,781. The Bureau of Economic and Business Research, University of Florida, projects Bay County s population to be 181,200 in the year 2020 and 189,300 in From 1970 to 2014, Bay County s population increased 230%. It is projected that the population will continue to increase another 19% over the next 20 years. A-1

60 Bay County has almost an equal distribution of males and females with 49.6% males and 50.4% females. Among them, the median age in 2013 was Even with the projected increase in population, these figures are not expected to significantly change. Bay County, Florida Demographic Statistics Last Six Fiscal Years (unaudited) Estimated Per Capita Income Unemployment Year Population Rates ,482 $31, % ,188 33, ,952 35, ,297 36, ,424 34, ,852 36, ,278 37, ,392 37, ,866 37, ,781 N/A 5.7 Sources: Bay County Economic Development Alliance U.S. Department of Commerce, Bureau of the Census 2010 Bureau of Economic and Business Research, University of Florida N/A Information not yet available [remainder of page intentionally left blank] A-2

61 Age Distribution of Population Source: Age Percent 0-4 yrs 6.15% 5-17 yrs yrs yrs yrs yrs and over Bureau of Economic and Business Research, University of Florida Government Bay County, Florida has seven incorporated municipal governmental jurisdictions. Each municipality has a mayor/commission form of government. The Board of County Commissioners of Bay County, Florida (the "Board") is the principal legislative and governing body of the County. The Board consists of five commissioners elected by the voters for terms of four years each. The unincorporated areas of Bay County are governed by the Board of Bay County Commissioners. Budgetary Process The County's annual budget is prepared pursuant to Chapter 129, Florida Statutes, and represents the legal authority to levy taxes and expend funds for all County purposes. The budget must be balanced and the County Commissioners are held personally liable and subject to penalty for making unbudgeted expenditures. On or before June 1 of each year, the Sheriff, the Clerk of the Circuit Court, the Tax Collector, and the Supervisor of Elections must each submit to the Board a tentative budget request for their respective offices for the ensuing fiscal year. No later than 15 days after the Property Appraiser certifies the tax roll, the county budget officer shall prepare and present to the Board a tentative budget for each fund. The Board will receive and examine the tentative budget for each fund and, subject to the notice and hearing requirements, make such changes as it deems necessary. A summary of the tentative budget is prepared by the Board, advertised publicly, reviewed and revised prior to final approval and adoption before the fiscal year end on September 30. A-3

62 Employees Retirement Plan The County participates in the Florida Retirement System (FRS), a cost sharing, multipleemployer defined pension plan administered by the State of Florida Department of Administration, Division of Retirement. The FRS provides retirement, disability benefits, and death benefits to plan members or their designated beneficiaries. Chapter 121, Florida Statutes, establishes the authority for benefit provisions. Changes to the law can only occur through an act of the Florida Legislature. FRS issues financial statements and required supplementary information for the system. That report may be obtained by writing to the State of Florida Division of Retirement, P.O. Box 9000, Tallahassee, Florida 32315, by accessing the FRS website or by calling (850) The FRS provides vesting of benefits after six years of creditable service. Members are eligible for normal retirement after six years of service and attaining age sixty-two, or thirty years of service regardless of age. Early retirement may be taken any time after completing six years of service; however, there is a five-percent benefit reduction for each year prior to normal retirement. Generally, membership is compulsory for all full-time and part-time employees, except for elected county officials who may elect not to participate in the FRS. Retirement coverage is employee noncontributory. The rates effective October 1, 2013 June 30, 2014 were 7.37% and 21.14% and 43.24% for regular employees, senior management and elected officials, respectively. Employee contributions of 3% were required for all participants. The employer rate for eligible employees who elected to participate in the Deferred Retirement Option Program (DROP) was 12.84% for October 1, 2013 through June 30, 2014 and 12.28% for July 1, 2014 through September 30, 2014, with no employee contribution required. The contribution requirements of plan members and the County are established and may be amended by the Florida Legislature. The County s contributions to the FRS for the years ending September 30, 2014, 2013 and 2012 were $5,926,593, $4,052,793 and $3,559,782, respectively, and were equal to the required contributions for each year. The required employee contributions made to the plan for the year ending September 30, 2014, were $1,280,572. Retirement and Other Postemployment Benefit Programs Pursuant to Chapter 121, Florida Statutes, the Florida Legislature created the Florida Retirement System Investment Plan (the FRS Investment Plan ), a cost-sharing multipleemployer defined contribution pension plan qualified under Section 401(a) of the Internal Revenue Code. The FRS Investment Plan is an alternative available to members of the Florida Retirement System in lieu of the defined benefit plan. Changes to the law can only occur through an act of the Florida Legislature. The FRS Investment Plan is administered by the Florida State Board of Administration. Information about this plan can be obtained by writing to FRS Plan Administration, P.O. Box 56290, Jacksonville, Florida or by calling (866) The FRS Investment Plan is funded through employee and employer contributions. Rates effective for October 1, 2013 through June 30, 2014, were 6.95%, 18.31% and 33.03% for A-4

63 regular employees, senior management, and elected count officials, respectively. Rates effective for July 1, 2014 through September 30, 2014 were 7.37%, 21.14% and 43.24% for regular employees, senior management and elected county officials, respectively. Employee contributions of 3% were required for all participants. Required employer and employee contributions made to the plan totaled $713,311 and $215,266, respectively. In addition to its contributions under the State's retirement plan described above, the County provides other post-employment benefits (OPEB) for certain of its retired employees in the form of an implicit rate subsidy by providing access to health insurance plans requiring the use of a single "blended" or "common" rate for both active and retired employees. The offering of this health insurance coverage is required by Section , Florida Statutes. As with all governmental entities providing similar plans, the County is required to comply with the Governmental Accounting Standard's Board Statement No Accounting and Financial Reporting by Employers for Post-employment Benefit Plans other than Pension Plans (GASB 45). GASB 45 applies accounting methodology similar to that used for pension liabilities to OPEB and attempts to more fully reveal the costs of employment by requiring governmental units to include future OPEB costs in their financial statements. While GASB 45 requires recognition and disclosure of the unfunded OPEB liability, there is no requirement that the liability of such plan be funded. The County has not advance-funded or established a funding methodology for the annual OPEB costs or the net OPEB obligation. Rather, the funding is based on a pay-as-you-go basis. During the fiscal year, the County provided contributions of $430,801 toward the annual OPEB cost. [remainder of page intentionally left blank] A-5

64 Economic Base Principal Employers Employer # of Employees Rank % of Total County Employment Tyndall Air Force Base 6, % Bay District Schools 4, % Naval Support Activity 3, % Bay Medical Sacred Heart 2, % Eastern Shipbuilding 1, % Gulf Coast Medical Center % Bay County Board % Trane Company % City of Panama City % RockTenn (Smurfit-Stone Container) % Total 20, % Source: Bay County, Florida Comprehensive Annual Financial Report FY 2014 Military Installations Tyndall Air Force Base (TAFB) is located on a 29,000 acre reservation in southeastern Bay County, and is one of the largest Air Education and Training Command bases and the home of air dominance training. TAFB houses the 325th Fighter Wing which provides training for the F-22 Raptor fighter pilots, maintenance personnel, air battle managers, intelligence officers, crew chiefs and air traffic controllers. Also at the base is the 53rd Weapons Evaluation Group which conducts the Air Force s air-to-air and air-to-ground Weapon System Evaluation Programs. The military and civilian labor force at TAFB is 6,471, and the number of retirees from TAFB that live in Bay County is 9,250. The annual economic impact of TAFB to the Bay County area is estimated at $614,200,000. Source: Bay County Economic Development Alliance, Tyndall Air Force Base A-6

65 Naval Support Activity, Panama City (NSA PC), encompasses 234 buildings and is located on 648 acres of waterfront property along St. Andrews Bay and the Gulf of Mexico in Panama City Beach. NSA PC provides research and development and in-service support for expeditionary, amphibious warfare, diving maritime special operations and mine warfare. NSA PC is the National Center of Expertise for all military diving through the operation of the Navy Experimental Diving Unit, the Naval Diving and Salvage Training Center and the Center for Navy Ordnance Disposal and Diving. The largest tenant of the NSA PC is the Naval Surface Warfare Center Panama City Division (NSWC PCD). It is one of the major research, development, test and evaluation laboratories of the Navy, boasting a wide base of expertise in engineering and scientific disciplines in the mission areas of mine warfare, expeditionary warfare, special warfare and diving and life support. The military and civilian labor force at NSA PC is 2,872 (including 840 scientists and engineers). The economic impact of NSA PC to the Bay County area is estimated at $498,000,000. Source: Bay County Economic Development Alliance, Naval Support Activity Panama City. Education Bay District Schools Bay County School District is coterminous with Bay County. The school district is the 26th largest in Florida with an enrollment of approximately 28,000 students in 42 schools. The Bay County School Board employs more than 3,000 full time employees to operate the school district, including 2,000 certified teachers and administrators. All Bay County public schools are fully accredited by the Florida Department of Education and the Southern Association of Colleges and Schools. Annual percent of high school graduates continuing their education is approximately 70.8%. [remainder of page intentionally left blank] A-7

66 Statistical Data The following table presents student enrollment in the Bay County School District for the past six school years. Table 3 - Bay County School District Enrollment - Full-Time Equivalent Students Grades PreK-5 12,639 12,676 12,789 12,895 13,174 13,417 Grades 6-8 5,977 5,812 5,842 5,860 5,888 5,984 Grades ,618 7,468 7,262 7,188 7,283 7,233 Total 26,234 25,956 25,893 25,943 26,345 26,634 Source: State of Florida Department of Education, District Membership Reports Secondary Education Higher education opportunities are available for Bay County s students and area citizens. Through community involvement, planning and cooperation, a partnership of sharing among the school district, Gulf Coast State College and Florida State University/Panama City Campus has evolved. This sharing arrangement provides area residents an affordable means to pursue professional and technical training through advanced degree programs while living at home. Gulf Coast State College Gulf Coast State College (GCSC) has served Northwest Florida since GCSC offers degree, university transfer and continuing education programs to more than 23,000 students. Students may earn one of 76 Associate of Arts or one of 24 Associate of Science or one of three Associate in Applied Science degrees. Several certificate programs are also offered. GSCS recently established its first-ever bachelor s degrees in Applied Science and Technology Management. In October 2013, the college opened a state-of-the art Advanced Technology Center which provides training to the current workforce needs of the technology, engineering and alternative energy industries. Educational opportunities are offered in fields such as renewable energies, alternative energies, sustainable building design, architecture and engineering, information science, computer integrated manufacturing, e-learning and culinary arts. Credit and non-credit continuing workforce education programs are also available through the Office of Lifelong Learning. Presently, for credit enrollment, GCSC has more than 7,000 students enrolled. Florida State University FSU Panama City is the regional campus of a nationally recognized Tier 1 Research Institution. The Panama City Campus of Florida State University currently offers 17 A-8

67 undergraduate degree programs. Masters degrees are available in 21 fields including Business, Education, Engineering, Nursing, Psychology and a specialist program in Education. Present enrollment at the FSU-PC campus is approximately 1,000 students. Two Plus Two GCSC and Florida State University - Panama City Campus, cooperate in a Two Plus Two program. GCSC provides the first two years of classes towards a Baccalaureate degree and FSU-PC Campus provides the last two. Troy University The Troy University Panama City/Tyndall Air Force Base site is one of Troy s 60 teaching sites across the United States and around the world. Troy offers several in-class and online undergraduate and graduate courses to Bay County area residents in Business Administration, Computer Science and Resources and Technology Management. Embry-Riddle Aeronautical University Embry-Riddle Aeronautical University offers undergraduate and graduate degree programs at its Worldwide Campus at Tyndall Air Force Base in Bay County, Florida. Courses of study include Aeronautical Science, Management, Professional Aeronautics and Technical Management. Embry-Riddle Worldwide also offers undergraduate and graduate certificate programs in 12 aviation-related specialties. Haney Technical Center Haney Technical Center offers curriculums in various programs including Architecture and Construction, Business Technology, Manufacturing, and Transportation, Distribution and Logistics. Haney Technical Center also offers a Federal Aviation Administration certified Aviation Maintenance Technology Training Program. Housing in Bay County Housing opportunities in Bay County include traditional and modern homes, condominiums and apartments in both new subdivisions and older established neighborhoods. The median sales price of a home in Bay County for 2014 was $169,900*. * Source: Florida Association of Realtors Medical Facilities Bay Medical Center Sacred Heart Health System Bay Medical, a 323-bed regional medical center, provides hospital care and outpatient services to patients from a seven-county region in Northwest Florida. There are approximately A-9

68 300 physicians on staff representing a variety of medical specialty, and a support staff of more than 1,700 employees. Serving the community for 66 years, Bay Medical provides for a wide range of medicalsurgical services, including inpatient and outpatient surgery, open heart surgery program, a widespread reputation for excellence in critical care with state-of-the-art intensive care units, gastroenterology, a sleep disorders center, a dedicated pediatric unit, obstetrics and gynecology, radiation/oncology services and 24 hour emergency services staffed with board certified emergency physicians. The medical center has many support services including the childhood communications disorders clinic, rehabilitation facilities and respiratory therapy. Bay Medical s Outpatient Center has diagnostic services including open and closed magnetic resonance imaging systems, CT scanner, ultrasound, mammography equipment and diagnostic X-ray equipment. The outpatient center affords patients the convenience of having their outpatient diagnostic tests completed in one location. Bay Medical at the Beach and Bay Medical Gulf County also provide a selection of diagnostic services for patients living outside of Panama City. Gulf Coast Regional Medical Center Gulf Coast Regional Medical Center is a 218-bed acute-care hospital with a 460-member medical staff and more than 1,000 employees. Their efforts have resulted in national accreditations for Chest Pain Center, Peripheral Vascular Disease, Stroke and Wound Care. The medical center is also an affiliate of the University of Alabama at Birmingham Cancer Care Network. A 24-hour emergency room is staffed by full-time physicians. In October 2013, Gulf Coast Regional Medical Center opened a 42-bed critical care wing, which includes a 20-bed adult level Intensive Care Unit and the region s only four-bed Pediatric Intensive Care Unit and an 18-bed Neonatal Intensive Care Unit. HealthSouth Emerald Coast Rehabilitation Hospital HealthSouth Emerald Coast is 75-bed inpatient rehabilitation hospital that offers comprehensive inpatient rehabilitation services to return patients to leading active and independent lives. In addition to caring for patients with general rehabilitation diagnoses such as trauma, head injury, spinal cord injury, amputation and pulmonary diseases. HealthSouth Emerald Coast also has a specialized inpatient program for stroke rehabilitation. It also provides outpatient services to patients with hip fractures, hip replacements, wound care, bowel and bladder management and Parkinson s Disease. [remainder of page intentionally left blank] A-10

69 Ambulance Service Bay County Emergency Medical Services (BCEMS) was created in BCEMS operates several Advanced Life Support Paramedic Mobile Intensive Care units from locations throughout Bay County including Callaway, Lynn Haven, Panama City, Panama City Beach and other locations. BCEMS responds to approximately 28,000 calls for assistance per year. BCEMS is assisted and works closely on many calls by both Fire and Law Enforcement agencies who respond as First Responders. Recreation and Tourism Bay County attracts well over 12,000,000 overnight visitors annually. With a workforce of approximately 13,267 in 2014, the tourism industry employs more people than any other local industry. In addition to these benefits, revenue generated through tourist taxes assist local government in paying for costly improvements and services such as beach preservation and renourishment, turtle watch, visitor services and visitor information and many more that would otherwise be the responsibility of local residents. The Gulf of Mexico and its beaches, Deer Point Lake and other waterways, and a mild year-round climate combine to make Bay County an attractive recreational area. Both salt and fresh water fishing and golf also attract tourists. The area municipalities maintain ball fields, recreational areas with playground equipment, basketball courts, tennis courts, shuffleboard courts, volleyball courts, nature parks and picnic areas. There are also six community centers for club meetings or programs. Bay County Leisure Services Department maintains 88 parks and boat launch facilities. At present, the county has a total of 291 acres dedicated to the recreation of its citizens. Spectator sports include auto racing, high school athletic events and intercollegiate sport events. Source: Panama City Beach Convention & Visitors Bureau Industrial Parks Bay County Industrial Park, Phase 1 consists of 300 acres, fronting U. S. Highway 231, 8 miles northeast of Panama City. Bay County Industrial Park, Phase 2 consists of 1,511 acres located adjacent to Bay County Industrial Park Phase 1 on U. S. Highway 231, 8 miles north of Panama City and 38 miles south of Interstate 10. Hugh Nelson Industrial Park consists of 193 acres and is located 4 miles north of Panama City on North Bay off State Road 390. A-11

70 Lynn Haven Industrial Park consists of 105 acres and is located one block east of the intersection of State Roads 390 and 389, one mile west of U. S. Highway 231 within the city limits of Lynn Haven. VentureCrossings Enterprise Centre consists of 1,000 acres and is located in West Bay, surrounding the Northwest Florida Beaches International Airport. Transportation Airport Northwest Florida Beaches International Airport (airport code: ECP) is the first international airport to be built in the U.S. in more than a decade. Opened on May 23, 2010, the airport is located in West Bay, near Panama City and Panama City Beach, and provides air service in Northwest Florida by Delta Air Lines, Silver Airways Southwest Airlines and United Airlines which together provide daily flights to numerous U.S. destinations, including presently Atlanta, Baltimore-Washington, Dallas, Houston, Nashville, Orlando, St. Louis and Tampa. The airport was built on 4,000 acres donated by The St. Joe Company, with room to meet projected demands over the next 50 years. The new airport replaced the Panama City-Bay County International Airport (PFN) which was located in the City of Panama City. From May 2010, when the airport opened, to 2012, ECP has drawn nearly three times more passengers (815,160) than the old airport. Northwest Florida Beaches International Airport Yearly Passenger Activity YEAR ENPLANEMENTS DEPLANEMENTS TOTAL , , , , , , , , , , , ,389 Source: Northwest Florida Beaches International Airport Activity Reports, Panama City-Bay County Airport and Industrial District Port Port Panama City is a growing deep-water port and international gateway, handling a wide variety of cargo. In recent years, the Port has invested over $50,000,000 in new facilities and equipment. Over the next five years, the Port plans to increase its cargo tonnage to an annual level of approximately 2.1 to 2.4 million tons, and has committed to another $35,000,000 in improvements. On-site rail is provided by the Bay Line Railroad, which connects to the Port s A-12

71 Intermodal Distribution Center, a 240-acre pad-ready inland industrial park featuring a brand new 150,000 square foot distribution warehouse. The Gulf Intracoastal Waterway, a 1,050-mile inland navigable waterway from Carrabelle, FL to Brownsville, TX is located adjacent to the Port providing access to the Mississippi River and numerous southeastern ports. Source: Bay County Economic Development Alliance Rail The Bay Line Railroad, operated by Genesee & Wyoming, is a 103-mile short line freight railroad that interchanges with CSX transportation and Norfolk Southern. Service connects to CSX s 21,000-mile network in Cottondale, FL and Dothan, AL serving major population centers in 23 states east of the Mississippi River and parts of Canada. Norfolk Southern s network connects in Dothan, AL serving 22 states and every major container port in the eastern U.S. Source: Bay County Economic Development Alliance Roads Highways connect Bay County to destinations throughout the United States, including the southern-most Interstate Highway, Interstate-10. I-10 is approximately 10 miles north of the Bay County line and 45 miles from Port Panama City. I-10 links Florida to California, stretching from 1-95 in Jacksonville, FL to the Pacific Ocean in Santa Monica, CA. I-10 intersects with 9 of the 10 north-south Interstate highways. Source: Bay County Economic Development Alliance Procedure for Property Assessment Real and personal property valuations are determined each year as of January 1 by the Bay County Property Appraiser. The Property Appraiser shall complete his assessment of the value of all property no later than July 1 of each year. The Property Appraiser mails to each property owner a notice indicating the assessed property value. If a property owner disagrees with the amount of the assessed property value as determined by the Property Appraiser, then the property owner has the right to file an appeal with the Value Adjustment Board. The Value Adjustment Board is made of two members of the Board of the County Commissioners, one of which is the chairperson, one member of the School Board and two citizen members, one each appointed by the County Commission and the School Board. All appeals of such valuation determinations are heard by the Value Adjustment Board. The Value Adjustment Board certifies an assessment roll upon completion of the hearings on all appeals so filed. [remainder of page intentionally left blank] A-13

72 Taxable Assessed Property Valuations Property Tax Levies and Collections Fiscal Year Taxes Levied for the FY (Original Levy) Total Adjusted Levy Amount % of Original Levy Collections in Subsequent Years Amount % of Original Levy ,865, ,015, ,948,406 96% 563, ,512,040 97% ,985, ,230, ,190,140 96% 599, ,789,542 97% ,546,305 80,602,915 76,972,250 96% 192,603 77,164,853 96% ,459,225 76,620,740 73,174,864 96% 379,860 73,554,724 96% ,001,643 72,150,921 68,614,949 95% 966,188 69,581,137 97% ,071,352 65,149,011 62,769,163 96% 289,468 63,058,631 97% ,654,870 60,795,001 58,455,794 96% 149,057 58,604,851 97% ,802,491 59,014,411 56,727,927 96% 175,572 56,903,499 97% ,856,057 56,949,486 54,644,204 96% 200,510 54,844,714 96% ,338,492 57,427,616 55,272,110 96% 280,550 55,552,660 97% Source: Bay County, FL- Comprehensive Annual Financial Report FY 2014 [remainder of page intentionally left blank] A-14

73 Principal Property Taxpayers Taxpayer Assessed Value % of Total Taxable Assessed Value Gulf Power Company $496,210, % St. Joe Land & Development Bay Medical Sacred Heart 119,602, % 113,836, % Pier Park, LLC 70,350, % Laketown Wharf Marketing Corp. RockTenn (Smurfit- Stone Container) Wal-Mart Stores East, LP Arizona Chemical Company Wyndham Vacation Resorts, Inc. 68,901, % 64,487, % 44,326, % 43,060, % 42,557, % Berg Steel Pipe Corp. 40,029, % Total 2014 Principal Property Taxpayers 2014 Total Taxable Assessed Value 1,103,364, % 14,205,179,002 Taxes Florida residents have no personal state income tax or inheritance tax. There is a state corporate tax of 5.5% on net income (with an exemption on the first $50,000 of corporate profit), a retail sales tax of 6%, and a 1% school tax. A 1% sales merchant tax is applied in the cities of Panama City and Panama City Beach. Ad valorem (real estate) taxes combine city, county and school district levies, plus special districts. Florida's Homestead Exemption Act exempts homeowners taxes on the first $25,000 of assessed value. Property in the city and county is assessed at approximately 100% of true market value. Bay County ranks as the 7 th lowest (out of 67 counties) millage rate in the state of Florida. Source: Florida Association of Counties (2014) A-15

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75 APPENDIX B EXCERPTS OF AUDITED FINANCIAL STATEMENTS OF BAY COUNTY, FLORIDA FOR FISCAL YEAR ENDED SEPTEMBER 30, 2014

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77 Net Assets INDEPENDENT AUDITOR S REPORT Carr, Riggs & Ingram, LLC Panama City Beach Parkway Suite 200 Panama City Beach, FL (850) (850) (fax) The Honorable County Commissioners Bay County, Florida Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of Bay County, Florida (the County), as of and for the year ended September 30, 2014, and the related notes to the financial statements, which collectively comprise the County's basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. B-1

78 The Honorable County Commissioners Bay County, Florida Page Two Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of Bay County, Florida, as of September 30, 2014, and the respective changes in financial position, and, where applicable, cash flows thereof and the respective budgetary comparison for the general, tourist development and transportation funds for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis on pages B-5 through B-15 and schedules of funding progress and of employer contributions for the retiree s health insurance other postemployment benefits plan on page B-90 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the County's basic financial statements. The introductory section, combining and individual nonmajor governmental, internal service, and fiduciary fund financial statements and budgetary schedules listed in the table of contents, and statistical section are presented for the purpose of additional analysis and are not a required part of the basic financial statements. The accompanying schedule of expenditures of federal awards and state financial assistance is presented for the purpose of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments and Non-Profit Organizations, and Chapter , State of Florida Rules of the Auditor General, and is also not a required part of the financial statements. B-2

79 The Honorable County Commissioners Bay County, Florida Page Three The combining and individual nonmajor governmental, internal service, and fiduciary fund financial statements, the budgetary schedules, and the schedule of expenditures of federal awards and state financial assistance are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual nonmajor governmental, internal service, and fiduciary fund financial statements, the budgetary schedules, and the schedule of expenditures of federal awards and state financial assistance are fairly stated in all material respects in relation to the financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated April 13, 2015, on our consideration of Bay County, Florida s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Bay County, Florida s internal control over financial reporting and compliance. Certified Public Accountants Panama City Beach, Florida April 13, 2015 B-3

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81 Bay County, Florida MANAGEMENT S DISCUSSION and ANALYSIS For the Year Ended September 30, 2014 Management s discussion and analysis provides an objective and easily readable analysis of the County s financial activities. The analysis provides summary financial information for the County and should be read in conjunction with the County s financial statements. FINANCIAL HIGHLIGHTS Total assets of the County exceeded total liabilities by $354,135,488 (net position). Of this amount, $11,964,402 is a deficit in unrestricted net position for governmental activities and $35,598,707 is unrestricted net position for business-type activities, while $68,225,355 is restricted net position for governmental activities and $12,794,516 is restricted net position for business-type activities. Total net position, excluding the restatement adjustment, increased by $5,782,543. Of this amount, a decrease of $6,347,347 is attributable to governmental activities and an increase of $12,129,890 is attributable to business-type activities. Including the restatement adjustment, total net position increased by $3,618,085. Of this amount, a decrease of $7,505,302 is attributable to governmental activities and an increase of $11,123,387 is attributable to business-type activities. As of September 30, 2014, general fund s unassigned fund balance was $10,653,467 or 12 percent of total general fund expenditures. Governmental activities revenues decreased to $134,352,475 or approximately 3 percent, while governmental activities expenses increased less than 1 percent to $140,699,822. Business-type activities revenues increased to $59,729,369 or 18 percent, while businesstype activities expenses increased 15 percent to $47,599,479. The County s outstanding bonded debt decreased by $11,500,478 or 6 percent during fiscal year The key factor contributing to the decrease in bonded debt was the payoff of prior year bonds through the issuance of notes payables and the payment of the semi-annual and annual debt service payments, along with the fact no new bonds were issued in OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the County s basic financial statements. The County s basic financial statements are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. The government-wide financial statements present an overall picture of the County s financial position and results of operations. The fund financial statements present financial information for the County s major funds. The notes to the financial statements provide additional information concerning the County s finances that are not otherwise disclosed in the government-wide or fund financial statements. B-5

82 Government-wide Financial Statements The government-wide financial statements include the statement of net position and statement of activities. These statements are designed to provide readers with a broad overview of the County s financial position in a manner similar to that of private-sector companies. Emphasis is placed on the net position of governmental activities and business-type activities, as well as the change in net position. Governmental activities are primarily supported by property taxes, sales taxes, federal and state grants, charges for services, and state shared revenues, while businesstype activities are supported by charges to the users of those particular activities, such as water, sewer, and solid waste disposal charges. The statement of net position presents information on all assets, liabilities and deferred inflows/outflows of the County, with the difference between the two reported as net position. Assets, liabilities, deferred inflows/airflows and net position are reported separately for governmental activities and business-type activities. Increases or decreases in net position over time may serve as a useful indicator of the County s improving or declining financial position. The statement of activities presents information on all revenues and expenses of the County and the change in net position for the fiscal year. All changes in net position 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 the statement of activities for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned, but unused vacation leave). Expenses are reported by major function, along with program revenues relating to those functions, providing the net cost of all functions provided by the County. In order to better understand the County s operations, governmental activities expenses, include among others, general government services, public safety, culture and recreation, transportation, and economic environment. Business-type activities expenses, which are financed by user fees and charges, include water and sewer services, solid waste disposal, and emergency medical services. The government-wide financial statements include not only the County itself (known as the primary government), but also the following legally separate component units: Mexico Beach Community Development Council, Inc. and Panama City Beach Convention and Visitor s Bureau, Inc. Financial information for these component units is reported separately from the County s financial information. 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 purposes or objectives. Individual funds have been established by the County to account for revenues that are restricted to certain uses, comply with legal requirements, or account for the use of federal and state grants. The three major categories of funds found in the County s fund financial statements include: governmental funds, proprietary funds, and fiduciary funds. B-6

83 Fund financial statements provide financial information for the County s major funds and more detailed information about the County s activities. Governmental fund financial statements provide information on the current assets and liabilities of the funds, changes in current financial resources (revenues and expenditures), and current available resources. The proprietary funds financial statements provide information on all assets and liabilities of the funds, changes in the economic resources (revenues and expenses), and total economic resources. The fiduciary fund statement provides information concerning assets held in trust by the County for the benefit of parties outside the government. Fund financial statements for all governmental funds include a balance sheet and a statement of revenues, expenditures, and changes in fund balance. The County s general fund and major special revenue funds include a statement of revenues, expenditures, and changes in fund balance-budget and actual. For the proprietary funds, which include internal service funds in addition to business-type activities, a statement of net position, a statement of revenues, expenses, and changes in fund net position, and a statement of cash flows are presented. A statement of fiduciary net position is presented for the County s agency fund. The County 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 enterprise funds account for the fiscal activities relating to solid waste disposal, industrial waste treatment and disposal, and water and sewer utilities. Internal service funds are an accounting device used to accumulate and allocate costs internally among the various County functions. Because these services predominantly benefit governmental rather than business-type functions, the internal service funds have been included within governmental activities in the government-wide financial statements. The government-wide financial statements and the fund financial statements provide different presentations of the County s financial position. Categorized by governmental activities and business-type activities, the government-wide financial statements provide an overall picture of the County s financial standing. These statements, which are comparable to private-sector companies, provide a good understanding of the County s overall financial health and present the means used to pay for various activities, or functions provided by the County. All assets of the County, including buildings, land, roads, and bridges are reported in the statement of net position, as well as all liabilities, including outstanding principal on bonds, capital leases, and future employee benefits obligated but not yet paid by the County. The statement of activities includes depreciation on all long lived assets of the County, but all transactions between different functions of the County have been eliminated to avoid doubling up the revenues and expenditures. The fund financial statements provide a presentation of the County s major funds, along with a column for all nonmajor funds. In the case of governmental activities, outlays for long lived assets are reported as expenditures and long-term liabilities, such as general obligation bonds, are not included in the fund financial statements. To facilitate a comparison between the fund financial statements and the government-wide financial statements, a reconciliation is provided. B-7

84 Notes to the financial statements provide additional detail concerning the financial activities and financial balances of the County. Additional information about the accounting practices of the County, investments of the County, and long-term debt are just a few of the items included in the notes to the financial statements. FINANCIAL ANALYSIS OF THE COUNTY The following schedule provides a summary of the assets, liabilities and net position of the County. At the end of fiscal year 2014, the County is able to report positive balances in all three categories of net position, both for the government as a whole, as well as for its governmental and business-type activities. Bay County, Florida Net Position Governmental Activities Business-type Activities Total September 30, Current and other assets $ 112,129,800 $ 113,189,203 $ 96,511,195 $ 77,292,395 $ 208,640,995 $ 190,481,598 Capital assets 248,602, ,625, ,794, ,928, ,397, ,553,824 Total assets 360,732, ,814, ,305, ,220, ,038, ,035,422 Deferred outflows of resources 419,326-1,168,767-1,588,093 - Current and other liabilities 19,004,074 14,778,351 13,492,674 10,842,290 32,496,748 25,620,641 Long-term liabilities 114,311, ,694, ,264, ,202, ,575, ,897,378 Total liabilities 133,315, ,472, ,757, ,045, ,072, ,518,019 Deferred inflows of resources , ,306 - Net investment in capital assets 171,575, ,938,052 77,905,570 69,321, ,481, ,259,205 Net position-restricted 68,225,355 65,276,675 12,794,516 11,160,273 81,019,871 76,436,948 Net position-unrestricted (11,964,402) 10,127,270 35,598,707 34,693,980 23,634,305 44,821,250 Total net position $ 227,836,695 $ 235,341,997 $ 126,298,793 $ 115,175,406 $ 354,135,488 $ 350,517,403 Investment in capital assets (e.g., land, buildings, and equipment), net of any related outstanding debt used to acquire those assets, represents the County s largest portion of net position (70 percent). These capital assets are utilized to provide services to citizens; consequently, these assets are not available for future spending. It should be noted, that although the County s investment in its capital assets is reported net of related debt, 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. The restricted net position, representing 23 percent of the County s net position, are subject to external restrictions, and thus are limited as to how they may be used. The remaining balance of unrestricted net position $23,634,305 may be used to help meet the government s ongoing obligations to citizens and creditors. Governmental activities long-term liabilities increased by $616,563 during 2014, while businesstype activities long-term liabilities increased by $13,061,857 The issuance of an $18,925,000 loan to construct an alternate water supply source for the County was responsible for the large increase in the business-type activities long-term liabilities. A $1,834,839 increase in the County s OPEB obligation contributed to the increase in the governmental activities long-term liabilities, while the repayment of principal through semi-annual and annual debt service payments contributed to help offset the increase. B-8

85 The following schedule provides a summary of the changes in net position: Bay County, Florida Changes in Net Position Governmental Activities Business-type Activities Total Year ended September 30, Program revenues Charges for services $ 19,321,930 $ 18,743,081 $ 45,694,122 $ 36,911,740 $ 65,016,052 $ 55,654,821 Operating grants/contributions 6,337,973 6,094,392 1,759,674-8,097,647 6,094,392 Capital grants/contributions 9,439,100 3,067, , ,605 10,177,332 4,055,988 General revenues Property taxes 55,438,164 54,779, ,438,164 54,779,271 Sales taxes 37,248,717 35,163,910 3,000 2,100 37,251,717 35,166,010 State shared revenues unrestricted 3,607,298 3,413, ,607,298 3,413,917 Other 2,959,293 17,781,300 11,534,341 10,868,665 14,493,634 28,649,965 Total revenues 134,352, ,043,254 59,729,369 48,771, ,081, ,814,364 Expenses General government 39,201,075 40,761, ,201,075 40,761,101 Public safety 38,289,031 36,924, ,289,031 36,924,438 Physical environment 6,814,598 5,513, ,814,598 5,513,532 Transportation 19,783,565 15,852, ,783,565 15,852,176 Economic environment 22,137,297 26,608, ,137,297 26,608,771 Human services 5,272,176 5,045, ,272,176 5,045,532 Culture and recreation 5,608,860 5,523, ,608,860 5,523,037 Interest on long-term debt 3,593,220 3,593, ,593,220 3,593,361 Wholesale water system ,942,948 11,412,183 11,942,948 11,412,183 Retail water and wastewater ,153,219 11,013,285 11,153,219 11,013,285 Industrial wastewater ,611,176-1,611,176 Solid waste ,283,995 15,225,489 16,283,995 15,225,489 Building services - - 1,283,093 1,118,630 1,283,093 1,118,630 Emergency medical services - - 6,936, ,886 6,936, ,886 Total expenses 140,699, ,821,948 47,599,479 40,497, ,299, ,319,597 Increase (decrease) in net position before transfers (6,347,347) (778,694) 12,129,890 8,273,461 5,782,543 7,494,767 Transfers - 2,112,073 - (2,112,073) - - Changes in net position (6,347,347) 1,333,379 12,129,890 6,161,388 5,782,543 7,494,767 Net position - beginning 235,341, ,008, ,175, ,014, ,517, ,022,636 Restatement adjustment (1,157,955) - (1,006,503) - (2,164,458) - Net position beginning (as restated) 234,184, ,008, ,168, ,014, ,352, ,022,636 Net position ending $ 227,836,695 $ 235,341,997 $ 126,298,793 $ 115,175,406 $ 354,135,488 $ 350,517,403 B-9

86 Net Assets Revenue - Governmental Activities Fiscal Year September 30, 2014 Sales taxes 28% State shared revenues 3% Other 2% Charges for services 14% Operating grants/contributions 5% Property taxes 41% Capital grants/contributions 7% Expenses - Governmental Activities Fiscal Year Ended September 30, 2014 Physical environment 5% Economic environment 16% Transportation 14% Human services 4% Culture and recreation 4% Interest on long term debt 2% General government 28% Public safety 27% B-10

87 Net Assets As reflected in the changes in net position, the County s net position increased by $5,782,543, prior to the restatement adjustment. While total revenues only increased 3%, total expenses increased at a rate of 4%, however, the County was still able to enjoy an increase in its overall net position. Total revenues increased $6,267,480 from the previous year due mainly to significant rate increases in utility services. Sales tax revenue also increased approximately $2 million in 2014, adding to the increase in the County s net position. Business-type activities charges for services saw the largest increase in revenues over fiscal year Governmental activities expenses exceeded revenues by $6,347,347, while business-type activities revenues exceeded expenses by $12,129,890. Total expenses increased by $7,979,704 from the previous year. The major factor contributing to the increase in total expenses was the addition of Emergency Medical Services, previously provided by Bay Medical Center. 41% of the revenues for governmental activities are generated by property taxes, while most of the governmental resources are expended for general government (28%), public safety (27%), transportation (14%), and economic environment (16%) activities. Charges for services provided 77% of the revenues for business-type activities. FINANCIAL ANALYSIS OF THE COUNTY S FUNDS Governmental Funds General Fund The main operating fund of the County is the general fund. As of September 30, 2014, total assets were $46,472,972 and total liabilities were $8,275,642. At the end of fiscal year 2014, unassigned fund balance of the general fund was $10,653,467 while total fund balance equaled $38,197,330. Total assets of the general fund decreased $3,517,815 from fiscal year The general fund transferred $2,617,200 to transportation for general operations in General fund revenues decreased in fiscal year 2014 by $4,145,974, due largely in part to a $9.7 million settlement with BP over the economic damages suffered by the County during the 2010 Deep Water Horizon oil spill received in General fund expenditures also increased in fiscal year 2014, with the largest increase being attributed to public safety. The general fund s budget was amended during the year to reflect adjustments to expenditures for the construction of the Courthouse addition, which had been delayed in the prior year, as well as, a large transfer of Library Impact Fees, for the purchase of new books. An adjustment was also made to reflect the utilization of Park Impact Fees for the construction of a new gun range. Budget amendments were also made for increases in intergovernmental revenue to reflect amounts received for capital grants related to the completion of the Emergency Operations Center and hazard mitigation. Revenues collected from ad valorem taxes were slightly higher than the amount budgeted, while the proceeds received from state revenue sharing came in at 9% above the amount budgeted. Local government half cent sales tax revenue also exceeded the budget by 10%. Excess fees returned to the County from the Tax Collector fell well below the budgeted amount. Current expenditures for general government came in below the amount budgeted. General government capital outlay expenditures came in well under the amount B-11

88 budgeted for fiscal year 2014 due to the continued delay of the construction of the courthouse addition. Transportation Fund The transportation fund accounts for the use of gas taxes restricted for transportation improvements, such as roads and bridges. This fund also accounts for the maintenance of the County s roadways, as well as, its road signs and traffic signals, and storm water management. Fund balance decreased $1,405,592 in fiscal year 2014 due to a significant increase in current and capital outlay expenditures for transportation projects. These funds provide the needed funding for maintenance and improvements to the County s roads and bridges, as well as, its Intelligent Transportation System. Tourist Development Fund The tourist development fund is used to account for the local option sales and use tourism tax, which is utilized to promote tourism in Bay County. Three of the five cents collected are designated for tourism promotion, while one cent is designated for maintenance and protection of the local beaches and the remaining cent designated for securing and supporting a low cost air carrier at the County s airport. Fund balance increased 10% in 2014, due to another record breaking year in tourism on Panama City Beach. A very quiet hurricane season, along with several new promotional events, contributed to the success of the 2014 tourism season. Tax revenues increased $1,223,163 over 2013 due in part to an increased number of special events and an enhanced enforcement and collection program. Other Governmental Funds The MSTU-fire protection fund accounts for the provision of fire services throughout the County. Its primary source of revenue is ad valorem taxes, which comprised 88% of its revenues in The decrease in MSTU s fund balance can be contributed to the continued excess of reoccurring expenditures over revenues. The continued increased cost of personal services appears to be the major contributing factor. Proprietary Funds The County s proprietary funds provide the same type of information found in the governmentwide financial statements, but in greater detail. All proprietary funds are reported as major funds. B-12

89 Unrestricted net position of proprietary funds at the end of the year are presented below: Unrestricted Unrestricted FUND Net Position Net Position Wholesale water system $ 23,835,032 $ 19,850,076 Retail water and wastewater 1,623,394 3,297,937 Solid waste fund 5,297,483 6,310,814 Building services 5,206,664 5,351,935 Emergency medical services (363,866) (116,782) Total $ 35,598,707 $ 34,693,980 The wholesale water system fund is used to account for the operations of the County s wholesale water system. Impact fees charged to and paid by new customers must be used to expand and enhance the water system which provides service to those individuals. Charges for services decreased $222,892 over fiscal year A slight decrease in consumption contributed to the decrease in The wholesale water system fund s total net position increased $6,070,744, excluding the restatement adjustment, due mainly to the fact that operating revenues once again exceeded operating expenses in excess of $6.1 million and the $1.5 million contribution received from Northwest Florida Water Management District (NWFWMD) to help construct an alternate water supply source. The County s solid waste fund accounts for the operations and maintenance of the County s landfill and incinerator. In fiscal year 2014, $8,545,599 was generated by tip fees; this represents an increase of $160,202 over the previous year s tip fee revenue. As required by the Department of Environmental Protection, the County has set aside, as of the end of the current fiscal year, $3,338,608 for closure costs of its landfill. As of September 30, 2014, the County has accrued a total liability for landfill post closure care of $5,460,892. As of September 30, 2014, total assets were $97,398,018; total liabilities were $33,183,569 and net position was $65,383,216. CAPITAL ASSETS ACTIVITY The following schedule provides a summary of the County s capital assets activity. The County s total investment in capital assets for both its governmental and business-type activities as of September 30, 2014, was $419,397,252 (net of accumulated depreciation). This investment in capital assets includes land, buildings, improvements, machinery and equipment, infrastructure, and construction in process. Major capital asset events during the current fiscal year included the following: The design phase was completed and construction began on the Courthouse Addition in fiscal year $553,789 of the total construction cost of $13,984,660 was expended in It is anticipated that construction of the addition should be completed sometime in fiscal year The County entered into a design build contract with Phoenix Construction Services, Inc., for the construction of an alternate water supply source, with a guaranteed maximum B-13

90 price (GMP) of $23,425,000 $4,129,503 of the total project cost was expensed in fiscal year 2014, with construction continuing through In fiscal year 2014, the County, along with Florida Department of Transportation, completed construction of improvements to the West Bay Bridge and State Road 79 area. Improvements included sidewalk construction, intelligent transportation improvements, landscaping, and a flashing traffic signal. Total project cost was $1,818,057. In 2014 construction began on the County s Filter Backwash Recycle and Solids Handling Facility. Total project cost is estimated to be $2,860,500, with $476,918 being expensed in fiscal year The facility should be completed sometime in Capital Assets (net of depreciation) Governmental Activities Business-type Activities Total September 30, Land $ 18,168,460 $ 18,103,942 $ 5,727,643 $ 5,727,643 $ 23,896,103 $ 23,831,585 Construction in progress 3,862,666 2,572,560 5,034, ,092 8,896,781 3,025,652 Books 770, , , ,889 Buildings and improvements 104,917, ,046, , , ,742, ,927,262 Furniture and equipment 12,213,790 11,921,348 5,295,985 4,865,358 17,509,775 16,786,706 Infrastructure 108,669, ,397, ,911, ,001, ,581, ,398,730 Total $ 248,602,648 $ 250,625,587 $ 170,794,604 $ 163,928,237 $ 419,397,252 $ 414,553,824 Additional information on the County s capital assets can be found in note 8 Capital Assets, of the notes to basic financial statements of this report. DEBT MANAGEMENT At the end of the current fiscal year, the County had total bonded debt outstanding of $179,746,647 This debt amount represents bonds secured solely by specified revenue sources (i.e., revenue bonds). Outstanding Bonded Debt Governmental Activities Business-type Activities Total Revenue Bonds $89,194,188 $91,312,541 $90,552,459 $99,934,584 $179,746,647 $191,247,125 The County s total bonded debt outstanding decreased by $11,500,478 during the fiscal year ended September 30, The key factor contributing to the decrease in bonded debt was the payoff of prior year bonds through the issuance of notes payable and the payment of semi-annual and annual debt service payments, along with the fact no new bonds were issued in All of the County s insured debt maintains an AAA rating from Standard & Poor s, an AAA rating from Moody s Investors Service, and/or an AAA rating from Fitch. Most of the County s issues are rated by one or a combination of two rating agencies. B-14

91 Net Assets The Florida Constitution and Bay County set no legal debt limits on revenue bonds. More detailed information about the County s liabilities is presented in notes 12 and 13 of the notes to basic financial statements. OTHER FINANCIAL INFORMATION The County s economy began to experience an upturn in activity during the year ending September 30, Commercial construction saw a good increase in activity by issuing 252 commercial building permits in 2014, as opposed to the 163 permits issued in 2013, while residential construction also experienced a substantial increase in activity in 2014 by issuing 1,118 permits for new single and multi-family residential units, as compared to 825 permits issued in With fuel prices beginning to decline, Bay County once again enjoyed a record breaking tourist season. While surrounding counties also experienced an increase in tourism, Bay County saw a significant increase of 7% over fiscal year 2013, in its tourist development bed tax collections. The County s unemployment rate for 2014 was 5.7%, slightly lower than the State s average unemployment rate of 5.8%. In 2014, the County continued to focus on various transportation projects, as well as, various other intersection and road upgrades. The County also continued its work on expanding and enhancing the County s wastewater and water treatment and distribution capabilities. In 2014 construction began on the County s alternate water supply project, which will serve as a backup source of water in the event the Deer Point Lake reservoir is ever contaminated by salt water intrusion. This project is vital to insure a clean, safe and reliable source of drinking water for the citizens of Bay County. Construction began, in fiscal year 2014, on the addition to the County courthouse. This new addition will provide additional courtrooms and office space for the judiciary. In 2014 the County assumed the responsibility of operating and maintaining the County s Emergency Medical Services operations, which had previously been managed by Bay Medical Center. This report was prepared by Board Finance under the direction of the Clerk of Court and Comptroller. Questions concerning this report or requests for additional information should be addressed to Bay County Board Finance, P.O. Box 2269, Panama City, Florida 32402, Attention: Joey Rogers. B-15

92 Net Assets THIS PAGE INTENTIONALLY LEFT BLANK B-16

93 BASIC FINANCIAL STATEMENTS B-17

94 Bay County, Florida Statement of Net Position September 30, 2014 Primary Government Component Units Panama City Mexico Beach Beach Convention Community Governmental Business-type and Visitors Development Activities Activities Total Bureau, Inc. Council, Inc. ASSETS Cash and cash equivalents $ 7,992,875 $ 1,913,737 $ 9,906,612 $ 383,262 $ 132,730 Investments 60,667,570 38,834,502 99,502, Accounts receivable, net 4,520,915 6,642,278 11,163,193 7,156, ,169 Special assessments receivable 1,003,749-1,003, Accrued interest receivable 88,213 88, , Due from other governments 6,526,725 1,307,665 7,834, Prepaid expenses 1,842,168 20,748 1,862, ,798 - Inventory - 264, , Notes receivable 531,630 11,230,966 11,762, Investment in joint venture - 2,160,257 2,160, Restricted assets Cash and cash equivalents 486,933 1,875,188 2,362, Investments 28,469,022 32,172,785 60,641, Capital assets Nondepreciable 22,031,126 10,761,758 32,792, Depreciable, net 226,571, ,032, ,604, Total assets 360,732, ,305, ,038,247 7,642, ,899 DEFERRED OUTFLOWS OF RESOURCES Deferred loss on refunding 419,326 1,168,767 1,588, Total deferred outflows of resources 419,326 1,168,767 1,588, LIABILITIES Accounts payable and accrued expenses 13,801,932 2,783,200 16,585,132 2,084,882 1,540 Internal balances 973,627 (973,627) Due to other governments 65, , , Unearned revenues 3,877,312 10,143,178 14,020, Accrued interest payable 257, , , Customer deposits 28, , , Long-term liabilities Due within one year Estimated liability for self insured losses 404, , Accrued compensated absences 1,028, ,781 1,301, Notes payable 55,000 4,154,545 4,209, Capital leases 108,979 7, , Bonds payable 2,211,000 5,000,000 7,211, Due in more than one year Estimated liability for self insured losses 4,076,228-4,076, Accrued compensated absences 2,685, ,919 2,854, Net OPEB obligation 16,054, ,632 16,720, Notes payable 580,000 26,961,001 27,541, Capital leases 123,448 19, , Bonds payable 86,983,188 85,552, ,535, Landfill postclosure liability - 5,460,892 5,460, Total liabilities 133,315, ,757, ,072,546 2,084,882 1,540 Continued The accompanying notes are an integral part of the basic financial statements B-18

95 Bay County, Florida Statement of Net Position (Continued) September 30, 2014 Primary Government Component Units Panama City Mexico Beach Beach Convention Community Governmental Business-type and Visitors Development Activities Activities Total Bureau, Inc. Council, Inc. DEFERRED INFLOWS OF RESOURCES Deferred gain on refunding $ - $ 418,306 $ 418,306 $ - $ - Total deferred inflows of resources - 418, , NET POSITION Net investment in capital assets 171,575,742 77,905, ,481, Restricted for Debt service 18,061,720 7,311,493 25,373, Impact fees 1,647,959 5,483,023 7,130, Public safety 4,417,872-4,417, Court function 3,947,926-3,947, Transportation 738, , Recreation 515, , Economic environment 36,504,523-36,504, Physical environment 2,392,147-2,392, Unrestricted (11,964,402) 35,598,707 23,634,305 5,557, ,359 Total net position $ 227,836,695 $ 126,298,793 $ 354,135,488 $ 5,557,726 $ 234,359 The accompanying notes are an integral part of the basic financial statements B-19

96 Program Revenues Operating Capital Charges for Grants and Grants and Expenses Services Contributions Contributions Functions/Programs Primary Government Governmental activities General government $ 39,201,075 $ 15,126,991 $ 721,806 $ 82,666 Public safety 38,289,031 1,121,128 3,354, ,559 Physical environment 6,814,598 44, ,603 - Transportation 19,783,565 2,346,351 1,224,766 7,873,628 Economic environment 22,137,297-84, ,488 Human services 5,272, ,728 - Culture and recreation 5,608, , , ,759 Interest on long-term debt 3,593, Total governmental activities 140,699,822 19,321,930 6,337,973 9,439,100 Business-type activities Wholesale water system 11,942,948 15,816,100 1,571, ,758 Retail water and wastewater 11,153,219 8,620, ,474 Solid waste 16,283,995 13,203, Building services 1,283,093 1,231, Emergency medical services 6,936,224 6,822, ,405 - Total business-type activities 47,599,479 45,694,122 1,759, ,232 Total primary government $ 188,299,301 $ 65,016,052 $ 8,097,647 $ 10,177,332 Component Units Panama City Beach Convention and Visitors Bureau, Inc. $ 9,837,858 $ 11,108,012 $ - $ - Mexico Beach Community Development Council, Inc. 692, , Total component units $ 10,530,563 $ 11,923,265 $ - $ - General revenues Property taxes, levied for general purposes Sales taxes State shared revenues - unrestricted Investment earnings Miscellaneous Total general revenues Change in net position Net position - beginning Restatement adjustment Net position - beginning (as restated) Net position - ending The accompanying notes are an integral part of the basic financial statements B-20

97 Bay County, Florida Statement of Activities Year Ended September 30, 2014 Net (Expenses) Revenues and Changes in Net Position Primary Government Component Units Panama City Mexico Beach Beach Convention Community Governmental Business-type and Visitors Development Activities Activities Total Bureau, Inc. Council, Inc. $ (23,269,612) $ - $ (23,269,612) $ - $ - (33,573,861) - (33,573,861) - - (5,954,168) - (5,954,168) - - (8,338,820) - (8,338,820) - - (21,389,481) - (21,389,481) - - (5,256,948) - (5,256,948) - - (4,224,709) - (4,224,709) - - (3,593,220) - (3,593,220) - - (105,600,819) - (105,600,819) ,906,179 5,906, (2,255,781) (2,255,781) (3,080,795) (3,080,795) (51,712) (51,712) ,658 74, , , (105,600,819) 592,549 (105,008,270) ,270, , ,270, ,548 55,438,164-55,438, ,248,717 3,000 37,251, ,607,298-3,607, ,401 1,613,968 1,756, ,816,892 9,920,373 12,737, ,253,472 11,537, ,790, (6,347,347) 12,129,890 5,782,543 1,270, , ,341, ,175, ,517,403 4,286, ,461 (1,157,955) (1,006,503) (2,164,458) ,184, ,168, ,352,945 4,286, ,461 $ 227,836,695 $ 126,298,793 $ 354,135,488 $ 5,557,726 $ 234,359 The accompanying notes are an integral part of the basic financial statements B-21

98 Bay County, Florida Balance Sheet Governmental Funds September 30, 2014 Other Total Tourist Governmental Governmental General Development Transportation Funds Funds ASSETS Cash and cash equivalents $ 3,061,292 $ 2,140,871 $ 111,022 $ 2,381,269 $ 7,694,454 Accounts receivable, net 2,422,649 1,115, , ,417 3,963,807 Special assessments receivable 592, ,978-1,003,749 Accrued interest receivable 39,300 36,015 2,345 5,331 82,991 Investments 9,043,953 40,160,203 2,082,647 3,782,747 55,069,550 Due from other funds 13, , ,500 85, ,032 Due from other governments 2,986,831 15,990 3,143, ,405 6,526,324 Prepaid items 202,696-5, , ,852 Notes receivable 531, ,630 Restricted assets Cash and cash equivalents 417,209-37,312 32, ,933 Investments 27,161, , ,004 28,469,022 Total assets $ 46,472,972 $ 43,707,981 $ 6,830,301 $ 7,597, ,608,344 LIABILITIES AND FUND BALANCE Liabilities Accounts payable $ 3,948,902 $ 7,380,453 $ 1,095,440 $ 520,948 12,945,743 Unearned revenues 3,877, ,877,312 Due to other funds 355, ,411 12, ,244 Advances from other funds , ,699 Due to other governments 65, ,161 Customer deposits 28, ,388 Total liabilities 8,275,642 7,380,453 1,244,851 1,264,601 18,165,547 Fund balance Nonspendable 202,696-5, , ,852 Restricted 25,007,377 36,327, ,003 5,606,793 67,679,355 Assigned 2,333, ,842, ,637 7,782,123 Unassigned 10,653, ,653,467 Total fund balance 38,197,330 36,327,528 5,585,450 6,332,489 86,442,797 Total liabilities and fund balance $ 46,472,972 $ 43,707,981 $ 6,830,301 $ 7,597,090 Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. 247,899,341 Internal service funds are used by management to charge the costs of various activities to individual funds. The assets and liabilities of the internal service funds are included in governmental activities in the statement of net position. 2,838,310 Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the funds. (109,343,753) Net position of governmental activities $ 227,836,695 The accompanying notes are an integral part of the basic financial statements B-22

99 Bay County, Florida Statement of Revenues, Expenditures, and Changes in Fund Balance Governmental Funds Year Ended September 30, 2014 Other Total Tourist Governmental Governmental General Development Transportation Funds Funds REVENUES Taxes $ 49,270,824 $ 17,180,514 $ 5,369,666 $ 6,167,340 $ 77,988,344 Licenses and permits 1, ,190 Intergovernmental 24,592,053 36,184 8,894, ,197 34,376,446 Charges for services 10,096,497-2,051,234 6,884,248 19,031,979 Fines and forfeitures 223, ,463 Special assessments 44,827-12,406-57,233 Investment earnings 76,101 60,244 18,562 5, ,594 Contributions and donations 214, ,295 Miscellaneous 950,786 89, , ,905 1,477,872 Total revenues 85,470,036 17,366,057 16,458,946 14,236, ,531,416 EXPENDITURES Current General government 14,252, ,693,161 18,945,602 Public safety 48,815, ,667,767 56,483,530 Physical environment 1,282,741-56,125-1,338,866 Transportation ,272,182-14,272,182 Economic environment 7,595,365 13,738, ,333,649 Human services 3,989, ,148,578 5,138,392 Culture and recreation 4,294, ,294,971 Capital outlay General government 1,231, ,229 1,306,329 Public safety 1,205, ,395 1,628,249 Physical environment 2,900-1,070,215-1,073,115 Transportation - - 5,099,875-5,099,875 Economic environment - 292, ,866 Human services ,108 94,108 Culture and recreation 1,302, ,302,116 Debt service Principal 2,296,049-4, ,071 2,596,381 Interest and fiscal charges 3,308, ,797 3,574,117 Total expenditures 89,577,434 14,031,150 20,502,658 14,663, ,774,348 Excess (deficit) of revenues over (under) expenditures (4,107,398) 3,334,907 (4,043,712) (426,729) (5,242,932) OTHER FINANCING SOURCES (USES) Transfers in - - 2,617,200 95,774 2,712,974 Transfers out (2,712,974) (2,712,974) Issuance of debt 790,751-20,920 20, ,077 Proceeds from sale of capital assets 143, ,506 Total other financing sources (uses) (1,778,717) - 2,638, , ,583 Net change in fund balance (5,886,115) 3,334,907 (1,405,592) (310,549) (4,267,349) Fund balance - beginning 44,083,445 32,992,621 6,991,042 6,643,038 90,710,146 Fund balance - ending $ 38,197,330 $ 36,327,528 $ 5,585,450 $ 6,332,489 $ 86,442,797 The accompanying notes are an integral part of the basic financial statements B-23

100 Bay County, Florida Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balance of Governmental Funds to the Statement of Activities Year Ended September 30, 2014 Amounts reported for governmental activities in the statement of activities (page B-21) are different because: Net change in fund balance - total governmental funds (page B-23) $ (4,267,349) Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which depreciation exceeded capital outlays in the current period. The net effect of various transactions involving capital assets (i.e., sales, trade-ins, impairments, and donations) is to increase net position. Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. Internal service funds are used by management to charge the costs of workers compensation and insurance costs to individual funds. The net revenue of certain activities of internal service funds is reported with governmental activities. The issuance of long-term debt (e.g., bonds, leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net position. Also, governmental funds report the effect of issuance costs, premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. This amount is the net effect of these differences in the treatment of long-term debt and related items. (2,751,872) 1,110,609 (1,931,622) (281,096) 1,773,983 Change in net position of governmental activities (page B-21) $ (6,347,347) The accompanying notes are an integral part of the basic financial statements B-24

101 Bay County, Florida Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual General Fund Year Ended September 30, 2014 Actual Variance with Amounts Final Budget - Budgeted Amounts Budgetary Positive Original Final Basis (Negative) REVENUES Taxes $ 48,394,254 $ 48,394,254 $ 49,270,824 $ 876,570 Licenses and permits 3,410 3,410 1,190 (2,220) Intergovernmental 17,344,007 17,961,728 20,195,795 2,234,067 Charges for services 9,805,648 10,118,409 9,276,060 (842,349) Fines and forfeitures 69,500 69, , ,963 Investment earnings 365, ,200 70,743 (294,457) Contributions and donations 300, ,000 35,201 (264,799) Miscellaneous 1,346,521 1,329, ,017 (424,500) Total revenues 77,628,540 78,542,018 79,978,293 1,436,275 EXPENDITURES Current General government 16,014,164 16,524,414 14,252,441 2,271,973 Public safety 43,222,209 43,818,627 44,370,729 (552,102) Physical environment 218, , ,617 (324,036) Economic environment 7,612,111 7,647,098 7,595,365 51,733 Human services 4,175,754 4,140,325 3,989, ,511 Culture and recreation 1,873,054 1,909,530 1,878,930 30,600 Capital outlay General government 437,500 13,723,680 1,231,100 12,492,580 Public safety 491, ,685 1,205,854 (412,169) Physical environment - - 2,900 (2,900) Culture and recreation 178, , ,815 (49,668) Debt service Principal 2,186,037 2,186,037 2,295,474 (109,437) Interest and fiscal charges 3,310,422 3,310,422 3,305,625 4,797 Total expenditures 79,719,110 95,079,546 81,527,664 13,551,882 Excess (deficit) of revenues over (under) expenditures (2,090,570) (16,537,528) (1,549,371) 14,988,157 OTHER FINANCING SOURCES (USES) Transfers out (4,270,310) (4,794,289) (4,795,453) (1,164) Issuance of debt , ,663 Proceeds from sale of capital assets , ,506 Total other financing sources (uses) (4,270,310) (4,794,289) (4,529,284) 265,005 Net change in fund balance (6,360,880) (21,331,817) (6,078,655) 15,253,162 Fund balance - beginning 44,905,937 44,905,937 44,905,937 - Fund balance - ending $ 38,545,057 $ 23,574,120 $ 38,827,282 $ 15,253,162 Note: The general fund includes funds that are maintained as special revenue funds for accounting purposes, but do not meet the criteria for separate reporting in these financial statements. Therefore, the budgetary comparison statement above, only includes the legally adopted budget for the general fund. A reconciliation between the actual amounts on the budgetary basis above and the actual amounts on the GAAP basis for the general fund amount listed in the Statement of Revenues, Expenditures, and Changes in Fund Balance-Governmental Funds is provided in note 3 of the Notes to Basic Financial Statements. The accompanying notes are an integral part of the basic financial statements B-25

102 Bay County, Florida Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Tourist Development Fund Year Ended September 30, 2014 Variance with Final Budget - Budgeted Amounts Actual Positive Original Final Amounts (Negative) REVENUES Taxes $ 14,193,000 $ 14,193,000 $ 17,180,514 $ 2,987,514 Intergovernmental ,184 36,184 Investment earnings 110, ,761 60,244 (50,517) Miscellaneous 99,246 99,246 89,115 (10,131) Total revenues 14,403,007 14,403,007 17,366,057 2,963,050 EXPENDITURES Current Economic environment 12,269,639 14,324,418 13,738, ,134 Capital outlay Economic environment 75, , ,866 (171,665) Total expenditures 12,344,639 14,445,619 14,031, ,469 Excess (deficit) of revenues over (under) expenditures 2,058,368 (42,612) 3,334,907 3,377,519 Net change in fund balance 2,058,368 (42,612) 3,334,907 3,377,519 Fund balance - beginning 32,992,621 32,992,621 32,992,621 - Fund balance - ending $ 35,050,989 $ 32,950,009 $ 36,327,528 $ 3,377,519 The accompanying notes are an integral part of the basic financial statements B-26

103 Bay County, Florida Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Transportation Fund Year Ended September 30, 2014 Variance with Final Budget - Budgeted Amounts Actual Positive Original Final Amounts (Negative) REVENUES Taxes $ 5,505,161 $ 5,505,161 $ 5,369,666 $ (135,495) Intergovernmental 9,157,256 16,576,779 8,894,012 (7,682,767) Charges for services 2,075,000 2,176,465 2,051,234 (125,231) Special assessments 101, ,030 12,406 (88,624) Investment earnings 33,050 33,050 18,562 (14,488) Contributions and donations 450, ,000 - (820,000) Miscellaneous 532, , ,066 (822,278) Total revenues 17,854,007 26,147,829 16,458,946 (9,688,883) EXPENDITURES Current Physical environment 61,773 82,168 56,125 26,043 Transportation 12,233,644 18,486,319 14,272,182 4,214,137 Capital outlay Physical environment 1,201,100 2,582,605 1,070,215 1,512,390 Transportation 8,402,206 12,557,274 5,099,875 7,457,399 Debt service Principal - - 4,261 (4,261) Total expenditures 21,898,723 33,708,366 20,502,658 13,205,708 Excess (deficit) of revenues over (under) expenditures (4,044,716) (7,560,537) (4,043,712) 3,516,825 OTHER FINANCING SOURCES (USES) Transfers in 2,617,200 2,617,200 2,617,200 - Issuance of debt ,920 20,920 Total other financing sources 2,617,200 2,617,200 2,638,120 20,920 Net change in fund balance (1,427,516) (4,943,337) (1,405,592) 3,537,745 Fund balance - beginning 6,991,042 6,991,042 6,991,042 - Fund balance - ending $ 5,563,526 $ 2,047,705 $ 5,585,450 $ 3,537,745 The accompanying notes are an integral part of the basic financial statements B-27

104 Wholesale Retail Water Water System & Wastewater Solid Waste ASSETS Current assets Cash and cash equivalents $ 1,105,740 $ - $ 610,355 Accounts receivable, net 2,936, , ,157 Accrued interest receivable 27,645 38,809 16,948 Prepaid expenses 9, ,553 Investments 20,742, ,565 12,714,611 Inventory 264, Due from other funds 107,372 70,763 67,046 Due from other governments 116,393 1,191,272 - Total current assets 25,310,564 2,729,883 14,395,670 Noncurrent assets Restricted assets Cash and cash equivalents 1,262, , ,691 Investments 23,686,287 5,108,939 3,377,559 Notes receivable 1,040,422 10,190,544 - Advances to other funds 1,830, Investment in joint venture - 2,160,257-27,819,383 17,773,517 3,627,250 Capital assets Land 261,192 4,714, ,451 Construction in progress 5,034, Buildings 2,422,524 4, ,912 Improvements 90,985 4,678 46,750 Furniture and equipment 1,894,204 1,160,597 7,088,585 Infrastructure 106,552,917 30,681,313 90,848,360 Less: accumulated depreciation (49,371,542) (12,543,575) (20,223,960) Total capital assets, net 66,884,395 24,021,779 79,375,098 Total noncurrent assets 94,703,778 41,795,296 83,002,348 Total assets 120,014,342 44,525,179 97,398,018 DEFERRED OUTFLOWS OF RESOURCES Deferred loss on refunding - - 1,168,767 Total deferred outflows of resources - - 1,168,767 The accompanying notes are an integral part of the basic financial statements B-28

105 Bay County, Florida Statement of Net Position Proprietary Funds September 30, 2014 Business-type Activities Enterprise Funds Building Emergency Governmental Activities Services Medical Services Total Internal Service Funds $ 191,961 $ 5,681 $ 1,913,737 $ 298,421 50,351 2,004,674 6,642, ,108 4, ,211 5,222 1, ,748 1,514,316 4,515, ,568 38,834,502 5,598, , , , , ,307, ,763,696 2,242,326 49,442,139 8,376,845 49,046-1,875, ,172, ,230, ,699-2,560, ,160, ,745-49,999, ,727, ,034, ,290, , ,413 99, , ,154 11,087, , ,082,590 - (315,649) (115,553) (82,570,279) (1,253,668) 159, , ,794, , , , ,794, ,307 5,703,172 2,595, ,236,638 9,080, ,168, ,168,767 - Continued The accompanying notes are an integral part of the basic financial statements B-29

106 Wholesale Retail Water Water System & Wastewater Solid Waste LIABILITIES Current liabilities Accounts payable and accrued liabilities $ 1,397,075 $ 454,168 $ 430,015 Deferred revenue 3,898,731-6,244,447 Due to other funds 58,784 39,194 3,662 Due to other governments - 563,752 - Accrued interest payable 222, ,424 48,586 Estimated liability for self insured losses, current Accrued compensated absences, current 57,184 40,121 35,306 Capital leases, current 2, Notes payable, current 760,000 1,394,545 - Bonds payable, current 1,700,000 1,255,000 2,045,000 Total current liabilities 8,097,365 3,860,460 8,807,560 Noncurrent liabilities Estimated liability for self insured losses, net Customer deposits - 465,337 69,639 Accrued compensated absences 50,050 42,102 50,174 Net OPEB obligation 126, , ,713 Advances from other funds - 1,830,000 - Capital leases, net 6, ,591 Notes payable, net 18,165,000 8,796,001 - Bonds payable, net 39,847,459 27,075,000 18,630,000 Landfill postclosure liability - - 5,460,892 Total noncurrent liabilities 58,195,858 38,393,037 24,376,009 Total liabilities 66,293,223 42,253,497 33,183,569 DEFERRED INFLOWS OF RESOURCES Deferred gain on refunding - 418,306 - Total deferred outflows of resources - 418,306 - NET POSITION Net investment in capital assets 22,267,953 (4,727,397) 59,866,730 Restricted for Debt service 4,180,102 2,912, ,003 Impact fees 3,438,032 2,044,991 - Unrestricted 23,835,032 1,623,394 5,297,483 Total net position $ 53,721,119 $ 1,853,376 $ 65,383,216 The accompanying notes are an integral part of the basic financial statements B-30

107 Bay County, Florida Statement of Net Position (Continued) Proprietary Funds September 30, 2014 Business-type Activities Enterprise Funds Building Emergency Governmental Activities Services Medical Services Total Internal Service Funds $ 63,925 $ 438,017 $ 2,783,200 $ 856, ,143,178-1,894 23, , ,073 7, , , ,533 28, , ,781 50,908 3,223 1,025 7,720 3,492-2,000,000 4,154, ,000, ,790 2,574,362 23,444,537 1,895, ,076,228 49, ,022-26, ,919 47, ,571 32, , , ,830,000-8,344 2,456 19,844 8, ,961, ,552, ,460, ,554 35, ,243,769 4,346, ,344 2,609, ,688,306 6,241, , , , ,120 77,905, , ,311, ,483,023-5,206,664 (363,866) 35,598,707 2,146,864 $ 5,354,828 $ (13,746) $ 126,298,793 $ 2,838,310 The accompanying notes are an integral part of the basic financial statements B-31

108 Wholesale Water Retail Water System & Wastewater Solid Waste OPERATING REVENUES Charges for services $ 15,816,100 $ 8,620,964 $ 13,203,200 Miscellaneous 59, ,604 69,878 Total operating revenues 15,875,773 8,747,568 13,273,078 OPERATING EXPENSES Personal services 1,492,266 2,156,446 1,419,189 Contracted services 1,437, ,232 6,688,295 Repairs and maintenance 716, ,530 1,982,432 Utilities 1,460, , ,548 Depreciation 2,791,790 1,775,576 3,929,017 Materials Insurance claims Other operating expenses 1,781,943 4,621,487 1,002,238 Total operating expenses 9,681,328 9,825,622 15,507,719 Operating income (loss) 6,194,445 (1,078,054) (2,234,641) Miscellaneous Investment earnings 104,892 1,475,607 20,212 Interest and fiscal charges (2,261,620) (1,327,600) (765,401) Taxes - - 3,000 Gain (loss) on disposal of capital assets - - (3,888) Contributions 1,571, Insurance proceeds - - 9,588,566 Total nonoperating revenues (expenses) (585,459) 148,007 8,842,489 Income (loss) before contributions and transfers 5,608,986 (930,047) 6,607,848 Capital contributions 461, ,474 - Change in net position 6,070,744 (653,573) 6,607,848 Total net position - beginning 48,204,690 2,866,844 58,867,661 Restatement adjustment (554,315) (359,895) (92,293) Total net position - beginning (as restated) 47,650,375 2,506,949 58,775,368 Total net position - ending $ 53,721,119 $ 1,853,376 $ 65,383,216 The accompanying notes are an integral part of the basic financial statements B-32

109 Bay County, Florida Statement of Revenues, Expenses, and Changes in Net Position Proprietary Funds Year Ended September 30, 2014 Business-type Activities Enterprise Funds Governmental Emergency Activities Building Medical Internal Services Services Total Service Funds $ 1,231,381 $ 6,820,977 $ 45,692,622 $ 9,370,767 21,872 28, ,823 13,550 1,253,253 6,849,773 45,999,445 9,384, ,833 5,254,274 11,308,008 2,047, , ,722 9,543, ,522 20, ,098 3,102, ,511 28,543 7,935 2,211, ,502 10, ,553 8,622, , ,165, ,105 76, ,448 8,420,816 2,989,335 1,283,091 6,911,030 43,208,790 9,534,482 (29,838) (61,257) 2,790,655 (150,165) (286,917) 12,173 1,084 1,613,968 5,986 - (25,196) (4,379,817) ,000-19,500-15, ,405 1,759, , ,588,566-31, ,293 8,601,003 (130,931) 1, ,036 11,391,658 (281,096) ,232-1, ,036 12,129,890 (281,096) 5,352,993 (116,782) 115,175,406 3,119, (1,006,503) - 5,352,993 (116,782) 114,168,903 3,119,406 $ 5,354,828 $ (13,746) $ 126,298,793 $ 2,838,310 The accompanying notes are an integral part of the basic financial statements B-33

110 Wholesale Retail Water Water System & Wastewater Solid Waste CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers $ 19,111,754 $ 8,361,974 $ 13,596,289 Cash received from miscellaneous operating activities 59, ,604 69,878 Cash paid to suppliers for goods and services (3,862,951) (6,045,238) (18,624,996) Cash paid to employees for services (1,442,459) (2,105,356) (1,395,497) Net cash provided by (used in) operating activities 13,866, ,984 (6,354,326) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Advance from other fund - 1,830,000 - Advance to other fund (1,830,000) - - Taxes - - 3,000 Contributions 1,571, Net cash provided by (used in) noncapital financing activities (258,731) 1,830,000 3,000 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Interest paid on long-term debt (2,301,433) (1,390,385) (639,001) Principal paid on long-term debt (1,617,621) (7,552,260) (1,990,335) Proceeds from long-term debt 18,925,000 5,222,500 - Capital contributions 461, ,474 - Proceeds from sale of capital assets ,617 25,402 Purchase of capital assets (5,011,741) (263,056) (3,104,902) Proceeds from insurance ,340,181 Net cash provided by (used in) capital and related financing activities 10,456,871 (3,667,110) 9,631,345 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale and maturities of investment securities 31,192,412 4,868,289 13,053,039 Purchase of investments (72,809,506) (10,067,427) (27,441,214) Return of investment - 53,167 - Interest and dividends on investments 116, ,611 26,211 Collections on loans 96,425 6,411,443 - Issuance of new loans - (5,222,500) - Net cash provided by (used in) investing activities (41,404,386) (3,579,417) (14,361,964) Net change in cash and cash equivalents (17,340,229) (5,078,543) (11,081,945) Cash and cash equivalents - beginning 19,708,643 5,392,320 11,941,991 Cash and cash equivalents - ending $ 2,368,414 $ 313,777 $ 860,046 Classified as Current assets $ 1,105,740 $ - $ 610,355 Restricted assets 1,262, , ,691 Total $ 2,368,414 $ 313,777 $ 860,046 NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES Assets acquired via lease $ 12,133 $ 1,163 $ 2,469 Transfer of capital assets $ - $ - $ - Contribution of capital assets $ - $ - $ - The accompanying notes are an integral part of the basic financial statements B-34

111 Bay County, Florida Statement of Cash Flows Proprietary Funds Year Ended September 30, 2014 Business-type Activities Enterprise Funds Governmental Activities Building Emergency Internal Services Medical Services Total Service Funds $ 730,234 $ 4,691,518 $ 46,491,769 $ 9,399,442 21,872 28, ,823 13,550 (274,684) (1,119,831) (29,927,700) (8,326,611) (966,360) (5,109,849) (11,019,521) (2,024,750) (488,938) (1,509,366) 5,851,371 (938,369) - - 1,830, (1,830,000) , ,925 1,602, ,000-30,925 1,605, ,000 - (25,196) (4,356,015) - (3,064) (1,173) (11,164,453) (3,482) ,147, ,232-19,500-85,427 - (154,220) (312,020) (8,845,939) - - 5,000 15,345,181 - (137,784) (333,389) 15,949,933 (3,482) 4,156, ,569 53,945,197 4,758,021 (7,999,586) (538,354) (118,856,087) (9,518,703) ,167-14,065 1, ,301 8, ,507, (5,222,500) - (3,828,633) 137,346 (63,037,054) (4,752,198) (4,455,355) (1,674,484) (39,630,556) (5,544,049) 4,696,362 1,680,165 43,419,481 5,842,470 $ 241,007 $ 5,681 $ 3,788,925 $ 298,421 $ 191,961 $ 5,681 $ 1,913,737 $ 298,421 49,046-1,875,188 - $ 241,007 $ 5,681 $ 3,788,925 $ 298,421 $ 14,632 $ 4,654 $ 35,051 $ 15,856 $ - $ - $ - $ (286,917) $ - $ 157,480 $ 157,480 $ - The accompanying notes are an integral part of the basic financial statements B-35 Continued

112 Wholesale Water Retail Water System & Wastewater Solid Waste RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Operating income (loss) $ 6,194,445 $ (1,078,054) $ (2,234,641) Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities Depreciation 2,791,790 1,775,576 3,929,017 (Increase) decrease in assets Accounts receivable (507,446) (187,356) 476,354 Prepaid expenses 457,861 5, ,152 Inventory 10, Due from other funds (107,372) (70,763) (67,046) Due from other governments 11,741 (190) - Increase (decrease) in liabilities Accounts payable and accrued liabilities 1,123,980 (71,095) (7,918,999) Deferred revenue 3,898, Due to other funds (57,803) (13,098) (83,009) Due to other governments - (67,446) - Customer deposits - (5,965) (16,219) Accrued compensated absences 16,639 10,210 1,827 Net OPEB obligation 33,168 40,881 21,865 Landfill postclosure liability - - (935,627) Total adjustments 7,671,572 1,416,038 (4,119,685) Net cash provided by (used in) operating activities $ 13,866,017 $ 337,984 $ (6,354,326) The accompanying notes are an integral part of the basic financial statements B-36

113 Bay County, Florida Statement of Cash Flows (Continued) Proprietary Funds Year Ended September 30, 2014 Business-type Activities Enterprise Funds Governmental Emergency Activities Building Medical Internal Services Services Total Service Funds $ (29,838) $ (61,257) $ 2,790,655 $ (150,165) 10, ,553 8,622, ,085 (19,333) (2,004,574) (2,242,355) (249,071) (1,172) (259) 933,866 (1,394,922) ,283 - (487,594) (124,959) (857,734) 220, ,625 57,259 6, ,953 (6,462,141) (117,762) - - 3,898, ,678 (129,905) 563,445 7,220 - (60,226) - 5,780 - (16,404) - 3, , ,087 (2,366) 15,632 32, ,401 24, (935,627) - (459,100) (1,448,109) 3,060,716 (788,204) $ (488,938) $ (1,509,366) $ 5,851,371 $ (938,369) The accompanying notes are an integral part of the basic financial statements B-37

114 Bay County, Florida Statement of Fiduciary Net Position Agency Funds September 30, 2014 ASSETS Cash and cash equivalents $ 6,742,299 Investments 22,938 Accounts receivable, net 28,526 Total assets $ 6,793,763 LIABILITIES Accounts payable and accrued liabilities $ 2,092,635 Due to others 63,917 Due to other governments 4,637,211 Total liabilities $ 6,793,763 The accompanying notes are an integral part of the basic financial statements B-38

115 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of Bay County, Florida (County) have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the standard-setting body for governmental accounting and financial reporting. Reporting Entity Bay County is a political subdivision of the State of Florida, established under the legal authority of the State's Constitution, and operates under an elected legislative body consisting of five commissioners who are governed by state statutes and regulations. The County provides the following services to its residents: general government, public safety, physical environment, human services, transportation, economic environment and culture and recreation. In addition, the County operates water and sewer systems, sanitation, solid waste, building services, and emergency medical services. The Law Library is accounted for within the general fund. The Bay County Board of County Commissioners (Board) and the offices of the Clerk of Court and Comptroller, Sheriff, Supervisor of Elections, Tax Collector and Property Appraiser are operated as separate County agencies in accordance with applicable provisions of Florida Statutes. The office of the Tax Collector operates on a fee system, whereby the officer retains fees, commissions and other revenue to pay all operating expenditures, including statutory compensation. Any excess income is remitted to the Board of County Commissioners after the end of the fiscal year. The offices of the Sheriff, Supervisor of Elections, Clerk of Court and Comptroller and the Property Appraiser operate on a budget system, whereby County appropriated funds are received from the Board of County Commissioners and any unexpended appropriations at the end of the year are required to be returned to the Board. Component Units The accompanying financial statements present the County (as the primary government composed of the Board of County Commissioners and Constitutional Officers) and the County s component units. Component units are entities for which the County is considered to be financially accountable and are included in the County s reporting entity because of the significance of their operational or financial relationships with the County. A primary government is financially accountable for the organizations that make up its legal entity. It is also financially accountable for legally separate organizations if its officials appoint a voting majority of an organization s governing body and either it is able to impose its will on that organization or there is a potential for the organization to provide specific financial benefits to, or to impose specific financial burdens on, the primary government. B-39

116 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The primary government may also be financially accountable for governmental organizations that are fiscally dependent on it. Discretely Presented Component Units Discretely presented component units are reported in a separate column in the government-wide financial statements to emphasize that they are legally separate from the County. The following are discretely presented component units of the County: Panama City Beach Convention and Visitors Bureau, Inc. The Panama City Beach Convention and Visitors Bureau, Inc. (Bureau) is a nonprofit corporation organized in accordance with the provisions of Chapter 617, Florida Statutes, whose purpose is to provide support for the Bay County Tourist Development Council, the Board of County Commissioners of Bay County, Florida, and where not in conflict with those two, the City of Panama City Beach, Florida. Its capital assets are the property of the County and are included in the County s capital assets. The Bureau is presented as a governmental fund type with a fiscal year end of September 30. Complete financial statements for the Bureau may be obtained from the Bay County Finance Office at P.O. Box 2269, Panama City, Florida The Bay County Tourist Development Council board members are each appointed as members of the Bureau s governing body. The majority of the Bay County Tourist Development Council board members are appointed by the Bay County Board of County Commissioners. The Board has the ability to appoint, hire, reassign or dismiss persons responsible for the Bureau s operations. Because the County appoints a voting majority and is able to impose its will on and is obligated to provide specific financial benefits to the Bureau, the Bureau is considered a component unit and the discrete presentation method has been used to report the Bureau s financial position and results of operations. Mexico Beach Community Development Council, Inc. The Mexico Beach Community Development Council, Inc. (Council) is organized in accordance with provisions of Chapter 617, Florida Statutes, as a nonprofit corporation whose purpose is to provide support for the Bay County Tourist Development Council, the Board of County Commissioners of Bay County, Florida, and where not in conflict with those two, the City of Mexico Beach, Florida. Its capital assets are the property of the County and are included in the County s capital assets. The Council is presented as a governmental fund type with a fiscal year of September 30. Complete financial statements for the Council may be obtained from the Bay County Finance Office at P.O. Box 2269, Panama City, Florida The Board has the authority to appoint a voting majority of the Council s governing body, and to remove appointed members. The County is also legally obligated or has otherwise assumed the obligation to finance the deficits of or provide financial support to the Council. B-40

117 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Because the County appoints a voting majority and is able to impose its will on and is obligated to provide specific financial benefits to the Council, the Council is considered a component unit and the discrete presentation method has been used to report the Council s financial position and results of operations. Blended Component Units Blended component units, although legally separate entities, are in substance, part of the government s operations and data from these units are combined with data of the primary government. There are no blended component units included in the County s financial reporting entity. Measurement Focus and Basis of Accounting The basic financial statements of the County are composed of the following: Government-wide financial statements Fund financial statements Notes to basic financial statements Government-wide Financial Statements Government-wide financial statements display information about the reporting government as a whole, except for its fiduciary activities. These statements include separate columns for the governmental and business-type activities of the primary government, as well as its discretely presented component units. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely, to a significant extent, on fees and charges for support. Likewise, the primary government is reported separately from the legally separate component units for which the primary government is financially accountable. Government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as is the proprietary fund financial statements. Under the accrual basis of accounting, revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place. Program revenues include charges for services, special assessments, and payments made by parties outside of the reporting government s citizenry, if that money is restricted to a particular program. Program revenues are netted with program expenses in the statement of activities to present the net cost of each program. B-41

118 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Amounts paid to acquire capital assets are capitalized as assets in the government-wide financial statements, rather than reported as expenditures. Proceeds of long-term debt are recorded as liabilities in the government-wide financial statements, rather than as other financing sources. Amounts paid to reduce long-term indebtedness of the reporting government are reported as reductions of the related liabilities, rather than as expenditures. As a general rule, the effects of interfund activity have been eliminated from the government-wide financial statements. The County eliminates indirect expenses between governmental activities to avoid duplicating revenues and expenditures. Direct expenses are not eliminated from the various functional categories. Fund Financial Statements The underlying accounting system of the County is organized and operated on the basis of separate funds, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures or expenses, as appropriate. Governmental resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. Fund financial statements for the primary government s governmental, proprietary, and fiduciary funds are presented after the government-wide financial statements. These statements display information about major funds individually and nonmajor funds in the aggregate for governmental and enterprise funds. The fiduciary statement includes financial information for the agency funds. The agency funds of the County primarily represent assets held by the County in a custodial capacity for other individuals or governments. Governmental Funds Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collected within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the County considers revenues to be available if they are collected within 60 days of the end of the fiscal period. Expenditures generally are recorded when a liability is incurred, as with accrual accounting. Franchise fees, licenses, sales taxes, gas taxes, operating and capital grants, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable only when cash is received by the County. B-42

119 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Under the current financial resources measurement focus, only current assets and current liabilities are generally included on the balance sheet. The reported fund balance is considered to be a measure of available spendable resources. Governmental funds operating statements present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Accordingly, they are said to present a summary of sources and uses of available spendable resources during a period. Because of their spending measurement focus, expenditure recognition for governmental fund types excludes amounts represented by noncurrent liabilities. Since they do not affect net current assets, such long-term amounts are not recognized as governmental fund type expenditures or fund liabilities. Amounts expended to acquire capital assets are recorded as expenditures in the year that resources were expended, rather than as fund assets. The proceeds of long-term debt are recorded as other financing sources rather than as a fund liability. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Proprietary Funds The County s enterprise funds and internal service funds are proprietary funds. In the fund financial statements, proprietary funds are presented using the accrual basis of accounting. Revenues are recognized when they are earned and expenses are recognized when the related goods or services are delivered. In the fund financial statements, proprietary funds are presented using the economic resources measurement focus. This means that all assets and all liabilities (whether current or noncurrent) associated with their activity are included on their balance sheets. Proprietary fund type operating statements present increases (revenues) and decreases (expenses) in total net position. Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Nonoperating revenues, such as subsidies, taxes, and investment earnings, result from nonexchange transactions or ancillary activities. Operating expenses include the cost of sales and services, administrative expenses, and depreciation on capital assets. Expenses not meeting this definition are reported as nonoperating expenses. Amounts paid to acquire capital assets are capitalized as assets in the fund financial statements, rather than reported as expenditures. Proceeds of long-term debt are recorded as a liability in the fund financial statements, rather than as another financing source. Amounts paid to reduce long-term indebtedness are reported as a reduction of the related liabilities, rather than as an expense. B-43

120 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Basis of Presentation GASB sets forth minimum criteria (percentage of the assets, liabilities, revenues or expenditures/expenses of either fund category and the governmental and proprietary combined) for the determination of major funds. The County has used GASB criteria for major fund determination to determine which funds are required to be reported as major funds, except for the building services and emergency medical services funds which the County elected to report as major funds as permitted by GASB. The nonmajor funds are combined in a column in the fund financial statements and detailed in the combining section. Governmental Major Funds General Fund The general fund is the general operating fund of the County. It is used to account for all financial resources, except those accounted for in another fund. Tourist Development Fund The tourist development fund is used to account for the local option sales and use tourism tax, which is utilized to promote tourism in Bay County and maintain and protect the beaches of the County. Financing is provided principally by local option tourist development taxes. Transportation Fund The transportation fund is used to account for the operations of the road, bridge and stormwater departments. Financing is provided principally by ad valorem taxes, gasoline taxes and stormwater assessments. Proprietary Major Funds Wholesale Water System Fund This fund is used to account for activities related to the operations of the County s wholesale water system. Retail Water and Wastewater Fund This fund is used to account for activities related to the County s retail water and sewer operations. Solid Waste Fund This fund is used to account for activities related to solid waste collection within the County. Building Services Fund This fund is used to account for the operations of the building department which is financed by fees from permits, licenses and inspections. Emergency Medical Services Fund This fund is used to account for activities related to the County s emergency medical operations. Other Fund Types Internal Service Funds Internal service funds are used to account for the financing of goods or services provided by one department to other departments of the County on a cost-reimbursement basis. The services provided by these funds are facilities, lab, purchasing, workers' compensation, insurance and utilities administration. B-44

121 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fiduciary Funds Fiduciary funds are used to account for assets held by the County as an agent for individuals, private organizations, and other governments. The assets are held and disbursed for fines and forfeitures collected pursuant to law, collections related to property foreclosures, documentary stamps and intangible taxes remitted to the State, and other miscellaneous funds collected on behalf of individuals and organizations. Fiduciary funds are custodial in nature (assets equal liabilities) and do not involve the measurement of results of operations. Fiduciary funds are accounted for using the accrual basis of accounting. Noncurrent Governmental Assets/Liabilities GASB requires noncurrent governmental assets, such as land, buildings and equipment and noncurrent governmental liabilities, such as general obligation bonds and capital leases, to be reported in the governmental activities column in the government-wide statement of net position._ Budgets Annual budgets are legally adopted for all governmental funds, except those indicated in note 3, and all proprietary funds. Budgets are prepared and adopted on a basis of accounting consistent with U.S. generally accepted accounting principles, except as described in note 3. All annual appropriations lapse at fiscal year-end. The annual budgets serve as the legal authorization for expenditures. Expenditures cannot legally exceed the total amount budgeted for each fund. All budget amendments, which change the legally adopted total appropriation for a fund, are approved by the Board. Florida Statutes provide that it is unlawful to make expenditures that exceed the total amount budgeted for each fund. Therefore, the fund level is the legal level of control for budget considerations. Chapter 129, Florida Statutes, governs the manner in which the budget may be legally amended once it has been approved. Pursuant to Chapter 129, only the Board of County Commissioners can approve budget amendments that change the total approved budget appropriation of an individual fund. If during the fiscal year additional revenue becomes available for appropriations in excess of those estimated in the budget, the Board by resolution may make supplemental appropriations for the year up to the amount of such excess. During the current fiscal year, various supplemental appropriations were approved by the Board in accordance with Florida Statutes. Budgetary data presented in the accompanying basic financial statements in the final budgeted amounts column represents the final budgetary data. In this column, the effects of budget amendments have been applied to original budgetary data. Encumbrances Encumbrances represent commitments related to unperformed contracts for goods or services. Encumbrance accounting, under which purchase orders, contracts and other commitments for the expenditure of resources are recorded to reserve that portion of the applicable appropriation, is used B-45

122 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) in the governmental funds. However, all encumbrances lapse at year end and, accordingly, a reserve for encumbrances is not reported in the accompanying basic financial statements. Encumbrances are reestablished at the beginning of the fiscal year if funds are appropriated in the annual budget. Encumbrances do not constitute expenditures or liabilities. Investments Investments of the County are reported at fair value unless otherwise disclosed. External Investment Pools The County maintains deposits in the Local Government Surplus Funds Trust Fund (pool), hereinafter Florida PRIME, administered by the State of Florida State Board of Administration (SBA). This external investment pool, has adopted operating procedures consistent with the requirements for a 2a-7 like pool and the fair value of the assets in the pool is equal to the value of the pool shares. Such investments are stated at cost. Derivatives and Similar Debt and Investment Items The County has not directly or indirectly used or written any derivatives or similar debt and investment items during the current year. However, the County did have indirect exposure to similar debt and investment items through the investments held in the State of Florida State Board of Administration. Management has adhered to the County s investment policy requirements to monitor such investment activity on a periodic basis. The articles of incorporation and the by-laws of the Panama City Beach Convention and Visitors Bureau, Inc. (Bureau) do not include investment policies. The Bureau had no investment activity in the current year. The articles of incorporation and the by-laws of the Mexico Beach Community Development Council, Inc. (Council) do not include investment policies. The Council had no investment activity in the current year. Cash and Cash Equivalents For the purpose of the statement of cash flows, the County considers all highly liquid investments (including restricted assets) with an original maturity of three months or less to be cash equivalents. Restricted and Unrestricted Resources When both restricted and unrestricted resources are available for use, it is the County s policy to use restricted resources first, then unrestricted resources as they are needed. B-46

123 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) When expenditures are incurred for which committed, assigned, or unassigned amounts could be used it is the County s policy to use them in that order. Accounts Receivable Water and sewer services are billed at various dates throughout the month. This billing method does not capture all amounts receivable by the County at the end of each fiscal year. The unbilled amounts and the variance between such amounts at September 30, 2014 and 2013, are not significant and have not been recorded. Special assessments due from property owners are recorded as receivables when the final assessment role is approved. All receivables are reported at their gross value and, where appropriate, are reduced by the estimated portion that is expected to be uncollectible. As of September 30, 2014, the allowance for doubtful accounts for the emergency medical services fund is $7,363,516 and total accounts receivable for the fund is $9,368,190. As of September 30, 2014, the accounts receivable of all other funds is considered collectible; as such, no allowance for doubtful accounts is recorded. Prepaid Items Payments made to vendors for services that will benefit periods beyond September 30, 2014, are recorded as prepaid items using the consumption method by recording an asset for the prepaid amount and reflecting the expenditure/expense in the year in which services are consumed. At the fund reporting level, an equal amount of fund balance is reported as nonspendable as this amount is not in spendable form. Due to and Due from Other Funds Interfund receivables and payables arise from interfund transactions for operating purposes and are recorded by all funds affected in the period in which transactions are executed. Advances to Other Funds Advances between funds, as reported in the fund financial statements, are offset by an assigned fund balance account in applicable governmental funds to indicate that they are not available for appropriation and are not expendable available financial resources. Inventory Inventory in the proprietary funds is valued at the lower of cost (first-in, first-out) or market. Governmental fund inventory is valued at cost (first-in, first-out). The County accounts for governmental funds inventory using the consumption method. B-47

124 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (e.g. roads, bridges, beach renourishment, water and sewer distribution systems and similar items) are reported in the applicable governmental or business-type activities column in the government-wide financial statements. Capital assets are defined by the County as computers with an individual cost of $600 or more and other assets with an individual cost of $1,000 or more and an estimated useful life in excess of one year. Infrastructure is capitalized when it exceeds $100,000. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend its useful life are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. The Board holds legal title to the capital assets used in the operations of the Board, Clerk of Court and Comptroller, Property Appraiser, Supervisor of Elections and Tax Collector, and is accountable for them by Florida Law. The Sheriff is accountable for and maintains capital asset records pertaining only to equipment used in his operations. These assets have been combined with the Board s governmental activities capital assets in the statement of net position. Capital assets are stated at cost, except for contributed assets, which are recorded at fair market value on the date received. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets. Estimated useful lives are generally as follows: Buildings Improvements Utility Plants Furniture and Equipment Infrastructure Books Years Years Years 3-15 Years Years 5 Years Long-term Obligations The County reports long-term debt of governmental funds at face value in the government-wide long-term liabilities. Certain other governmental fund obligations not expected to be financed with current available financial resources are also reported in the government-wide long-term liabilities. Long-term debt and other obligations financed by proprietary funds are reported as liabilities in the appropriate funds. B-48

125 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Capitalization of Interest Interest costs related to bond issues are capitalized during the construction period. These costs are netted against applicable interest earnings on construction fund investments in business-type activities. The County does not capitalize interest in governmental activities. During the year ended September 30, 2014, no interest costs were capitalized. Unamortized Bond Discounts Bond discounts associated with the issuance of proprietary fund revenue bonds are amortized using the straight-line method. For financial reporting, unamortized bond discounts are netted against the applicable long-term debt. Unearned Revenues Unearned revenues reported in government-wide financial statements represent revenues received in advance of the earnings process. The unearned revenues will be recognized as revenue in the fiscal year they are earned in accordance with the accrual basis of accounting. Unearned revenues reported in governmental fund financial statements represent unearned revenues or revenues which are measurable but not available, in accordance with the modified accrual basis of accounting. Landfill Closure Costs Under the terms of current state and federal regulations, the County is required to place a final cover on closed landfill areas, and to perform certain monitoring and maintenance functions for a period of up to thirty years after closure, depending on closure date. The County recognizes these costs of closure and post-closure maintenance over the active life of each landfill area, based on landfill capacity used during the period. Required obligations for closure and post-closure costs are recognized in the solid waste fund. See note 17 for further information on this contingency. Capital Contributions The capital contributions accounted for in the proprietary fund types represent contributions from other funds, developers, state and federal grant programs, and impact fees charged to new customers for their anticipated burden on the existing system. The contributions are reported after nonoperating revenues and expenses on the statement of revenues, expenses, and changes in fund net position. Accrued Compensated Absences It is the County s policy to grant employees who resign or retire, payment of annual leave earned up to 240 hours and 318 hours, depending upon type of employment. The annual leave policy allows for full-time employees to accumulate 8 to 21 hours a month, depending on employment type. All part-time employees accumulate vacation leave at the same rate prorated for hours actually worked. B-49

126 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The County s and Mexico Beach Community Development Council s sick leave policy provides for all 40 hour week, full-time employees, to earn 8 hours of sick leave each month for a maximum of 96 hours per calendar year and 53 hour week, full-time employees, to earn hours of sick leave each month for a maximum of 127 hours per calendar year. Part-time employees accumulate sick leave at the same rate pro-rated for hours actually worked. All County employees who terminate employment with the County will forfeit all unused sick leave. Employees hired before November 3, 1987, who retire under the County s retirement plan will be paid for the lesser of the amount of sick leave at the time of retirement or the amount of sick leave accumulated as of November 3, 1987, not to exceed 480 hours. An accrual has been made in the accompanying financial statements for the lesser of sick leave hours at November 3, 1987, or current sick leave hours, calculated at current hourly wage for these employees. Any employees hired after November 3, 1987, will not be eligible for payment of unused sick leave upon retirement. It is the Bay County Supervisor of Elections policy to grant employees who resign or retire payment of paid time off hours earned up to 480 hours, based on a payout service schedule and the availability of the budget. The paid time off policy allows for full-time employees to accumulate 13 to 21 hours a month depending on the length of service. Part-time and temporary employees are not eligible for paid time off. It is the Clerk s policy to grant paid absences for paid time off. Employees are permitted to accumulate up to 480 hours of earned, but unused, paid time off benefits, which will be paid to employees in good standing upon termination. Employees who have less than two years of service forfeit their paid time off; employees with two plus years of service receive a percentage of their paid time off based on the length of service upon termination. It is the Bay County Property Appraiser s policy to grant employees who leave in good standing payment for up to 500 hours of earned, unused paid time off. The paid time off policy allows for full-time employees to accumulate 16 to 20 hours a month, depending on the length of service. Eligible part-time employees earn a pro-rated amount of leave. It is the Bay County Tax Collector s policy to grant employees who leave, with at least ten years of creditable service, compensation for up to 480 hours of unused sick leave at their current regular hourly rate of pay. It is the Sheriff's policy to provide vacation and sick leave. A limited amount of accumulated sick leave is paid upon termination of employment with the Sheriff, to those employees that are retiring after at least six years of employment or have been employed a minimum of ten years and meet certain criteria. Employees may accrue compensatory time for overtime worked up, to a maximum of 120 hours. Upon termination or retirement, unused compensatory time is paid at the employees regular rate. B-50

127 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The vacation leave policy of the Panama City Beach Convention and Visitors Bureau, Inc. provides for all full-time employees to earn between 12 and 18 hours of vacation leave each month, depending upon the type of employment, for a maximum of 216 hours per calendar year, part-time employees accumulate vacation leave at the same rate prorated for hours actually worked. Vacation time earned, but not used, is accrued by the Bureau up to 240 hours per employee. All unused sick leave is forfeited at termination of employment, therefore no amount is accrued. Governmental fund types accrue benefits in the period they are earned; however, only the current portion of the accrued benefits is recorded in the governmental fund types. The long-term portion is recorded in the long-term liabilities in the government-wide presentation. Estimated accrued compensated absences amounts for governmental funds represent a reconciling item between the fund and government-wide presentations. The liability for compensated absences is reported in the statement of net position. Deferred Outflows, Deferred Inflows, and Net Position GASB statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources and Net Position, provides financial reporting guidance for deferred outflows of resources and deferred inflows of resources and this standard renamed the components of net position which were previously considered net assets. Net Position Net position represents the difference between assets and deferred outflows of resources less liabilities and deferred inflows of resources. The County reports three categories of net position, as follows: Net investment in capital assets This category consists of net capital assets reduced by outstanding balances of any related debt obligations and deferred inflows of resources attributable to the acquisition, construction, or improvement of those assets and increased by balances of deferred outflows of resources related to those assets. Restricted net position Net position is considered restricted if its use is constrained to a particular purpose. Restrictions are imposed by external organizations such as federal or state laws or creditors, grantors, contributors, or enabling legislation. Restricted net position is restricted assets reduced by liabilities and deferred inflows of resources related to the restricted assets. Unrestricted net position This category consists of all other net position that does not meet the definition of the above two components and is available for general use by the County. GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, was implemented in the current year. This statement establishes accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were B-51

128 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) previously reported as assets and liabilities and recognizes, as outflows of resources or inflows of resources, certain items that were previously reported as assets and liabilities. Deferred Outflows/Inflows of Resources In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows/inflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The County currently has deferred inflows/outflows that qualify for reporting in these categories. It is the deferred charge (loss/gain) on refunding reported in the government-wide statement of net position and the statement of net position for proprietary funds. A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. Fund Balance Fund balance classifications are defined below. Nonspendable This category includes the resources that cannot be spent because they are either not in spendable form or are legally or contractually required to be maintained intact. The nonspendable fund balance as of September 30, 2014, is $327,852. Restricted This category includes resources restricted by creditors, grantors, contributors, laws, or regulations of other governments, constitutional provisions, or enabling legislation. The restricted fund balance as of September 30, 2014, is $67,679,355. Committed This category includes resources that can only be used for specific purposes pursuant to constraints imposed by formal action of the highest level of decision-making authority which is the Board of County Commissioners. Commitments may be established, modified, or rescinded only through ordinance approved by the Board of County Commissioners. There are no committed funds as of September 30, Assigned This category includes resources that are intended to be used for specific purposes, but are neither restricted nor committed. These are resources that have been set aside for a specific purpose through action by the Board of County Commissioners including board resolution, board memorandum, or budget appropriations. The assigned fund balance as of September 30, 2014, $7,782,123. B-52

129 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Unassigned This category is the residual classification for County s fund balances. The unassigned fund balance as of September 30, 2014, is $10,653,467. Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ significantly from those estimates. Date of Management s Review In preparing the financial statements, management has evaluated events and transactions for potential recognition or disclosure through April 13, 2015, the date the financial statements were available to be issued. Reclassifications Certain reclassifications have been made to the 2013 financial statement presentation to conform to the 2014 presentation. NOTE 2 RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS Explanation of certain differences between the governmental funds balance sheet and the government-wide statement of net position: The governmental funds balance sheet includes a reconciliation between fund balance - total governmental funds and net position - governmental activities as reported in the government-wide statement of net position. One element of that reconciliation explains," long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the funds." The details of this $(109,343,753) difference are as follows: Bonds payable $ (88,593,000) Less: deferred charge on refunding (to be amortized as interest expense) 419,326 Plus: issuance premium (to be amortized as interest expense) (601,188) Notes payable (635,000) Accrued interest payable (257,654) Capital leases payable (220,566) Net OPEB obligation (15,840,139) Compensated absences (3,615,532) Net adjustment to reduce fund balance - total governmental funds to arrive at net position of governmental activities $ (109,343,753) B-53

130 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 2 RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS (Continued) Another element of that reconciliation states, "capital assets used in governmental activities are not financial resources and therefore are not reported in the funds." The details of this $247,889,341 difference are as follows: Cost of capital assets $ 466,819,719 Less: accumulated depreciation (218,920,378) Net adjustment to increase fund balance - total governmental funds to arrive at net position of governmental activities $ 247,899,341 Explanation of certain differences between the governmental fund statements of revenues, expenditures, and changes in fund balances and the government-wide statement of activities: The governmental fund statement of revenues, expenditures, and changes in fund balances includes a reconciliation between net change in fund balance - total governmental funds and change in net position of governmental activities as reported in the government-wide statement of activities. One element of that reconciliation explains," governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense." The details of this $(2,751,872) difference are as follows: Capital outlay $ 10,796,658 Depreciation expense (13,548,530) Net adjustment to decrease net change in fund balance - total governmental funds to arrive at change in net position of governmental activities $ (2,751,872) Another element of that reconciliation states, "the net effect of various transactions involving capital assets (i.e., sales, trade-ins, impairments, and donations) is to increase net position." The details of this $1,110,609 difference are as follows: In the statement of activities, only the gain on the sale of capital assets is reported. However, in the governmental funds, the proceeds from the sale increase financial resources. Thus, the change in net position differs from the change in fund balance by the cost of the capital assets sold. $ (617,519) Donations of capital assets, assets acquired via trade-ins or insurance proceeds, and transfers of capital assets from internal service funds increase net position in the statement of activities, but do not appear in the governmental funds because they are not financial resources. 1,728,128 Net adjustments to increase net change in fund balance - total governmental funds to arrive at change in net position of governmental activities $ 1,110,609 B-54

131 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 2 RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS (Continued) Another element of that reconciliation states," the issuance of long-term debt (i.e., bonds, leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net position. Also, governmental funds report the effect of premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities." The details of this $1,773,983 difference are as follows: Debt issued or incurred: Capital lease financing $ (197,077) Bond proceeds (635,000) Principal repayments: 4 Bonds 2,528,000 Capital leases 68,381 Amortization of deferred charge on refunding 33,568 Amortization of bond premium (23,889) Net adjustment to increase net change in fund balance - total governmental funds to arrive at change in net position of governmental activities $ 1,773,983 Another element of that reconciliation states, "some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds." The details of this $(1,931,622) difference are as follows: OPEB expense $ (1,810,198) Compensated absences (126,886) Accrued interest 5,462 Net adjustment to decrease net change in fund balance - total governmental funds to arrive at change in net position of governmental activities $ (1,931,622) NOTE 3 BUDGETS The County adopts budgets on a basis consistent with U.S. generally accepted accounting principles (U.S. GAAP) except as follows: Special Revenue Funds The following special revenue funds in the Sheriff s office were not budgeted: Crime Prevention Fund Law Enforcement Training Fund Special Law Enforcement Trust Fund Special Contribution Fund Federal Seizure Account Fund B-55

132 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 3 BUDGETS (Continued) Seizure Trust Fund Inmate Welfare Fund The following special revenue funds in the Clerk s office were not budgeted: Records Modernization-Court Fund Records Modernization-Records Fund 10% Fine Records Modernization Fund Family Mediation Fund The general fund includes funds that are maintained as special revenue funds for accounting purposes, but do not meet the criteria for separate reporting in the fund financial statements. Therefore the budgetary comparison statement only includes the legally adopted budget for the general fund. The information below provides the reconciliation between the actual amounts on the budgetary basis reported in the Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - General Fund on page B-25 and the actual amounts on the US GAAP basis for the general fund per the Statement of Revenues, Expenditures, and Changes in Fund Balance - Governmental Funds on page B-23. Year ending September 30, 2014 General Fund Budgetary Basis US GAAP to Budget Differences Over (Under) General Fund Actual Amounts US GAAP Basis REVENUES Taxes $ 49,270,824 $ - $ 49,270,824 Licenses and permits 1,190-1,190 Intergovernmental 20,195,795 4,396,258 24,592,053 Charges for services 9,276, ,437 10,096,497 Fines and forfeitures 223, ,463 Special assessments - 44,827 44,827 Investment earnings 70,743 5,358 76,101 Contributions and donations 35, , ,295 Miscellaneous 905,017 45, ,786 Total revenues 79,978,293 5,491,743 85,470,036 EXPENDITURES Current General government 14,252,441-14,252,441 Public safety 44,370,729 4,445,034 48,815,763 Physical environment 544, ,124 1,282,741 Economic environment 7,595,365-7,595,365 Human services 3,989,814-3,989,814 Culture and recreation 1,878,930 2,416,041 4,294,971 Capital outlay General government 1,231,100-1,231,100 Public safety 1,205,854-1,205,854 B-56

133 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 3 BUDGETS (Continued) Physical environment $ 2,900 $ - $ 2,900 Culture and recreation 854, ,301 1,302,116 Debt service Principal 2,295, ,296,049 Interest and fiscal charges 3,305,625 2,695 3,308,320 Total expenditures 81,527,664 8,049,770 89,577,434 Excess (deficit) of revenues over (under) expenditures (1,549,371) (2,558,027) (4,107,398) OTHER FINANCING SOURCES (USES) Transfers out (4,795,453) 2,082,479 (2,712,974) Issuance of debt 122, , ,751 Proceeds from sale of capital assets 143, ,506 Total other financing sources (uses) (4,529,284) 2,750,567 (1,778,717) Net change in fund balance (6,078,655) 192,540 (5,886,115) Fund balance - beginning 44,905,937 (822,492) 44,083,445 Fund balance - ending $ 38,827,282 $ (629,952) $ 38,197,330 NOTE 4 RESTRICTED ASSETS Certain assets of the various funds are required by resolution and ordinance to be set aside and used for specific purposes and are not available to be used for general operations. These assets consist of the following: Governmental Activities Business-type Activities Cash and cash equivalents $ 486,933 $ 1,875,188 $ 2,362,121 Investments 28,469,022 32,172,785 60,641,807 Total $ 28,955,955 $ 34,047,973 $ 63,003,928 The following amounts are payable from restricted assets: Governmental Activities Wholesale Water System Retail Water & Wastewater Building Services Solid Waste Total Customer deposits $ 28,388 $ - $ 465,337 $ 69,639 $ 49,046 $ 612,410 Accrued interest payable 257, ,919 79,765 48, ,924 Current maturities of bonds 188, , , , ,333 Payable from restricted assets $ 474,792 $ 427,919 $ 649,269 $ 288,641 $ 49,046 $ 1,889,667 Total B-57

134 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 5 DEPOSITS AND INVESTMENTS Deposit Policies The County s cash and cash equivalents include cash on hand, demand deposits, and short-term investments with original maturities of three months or less. Custodial Credit Risk of Deposits There is a risk that in the event of failure of the depository financial institution, the government will not be able to recover the deposits. All cash resources of the County are placed in banks which are qualified public depositories, as required by law (Florida Security for Public Deposits Act). Every qualified public depository is required by this law to deposit with the State Treasurer eligible collateral equal to, or in excess of, an amount to be determined by the State Treasurer. The State Treasurer is required to ensure that the County s funds are entirely collateralized throughout the fiscal year. In the event of failure by a qualified public depository, losses in excess of federal depository insurance and proceeds from the sale of the securities pledged by the defaulting depository are assessed against the other qualified public depositories of the same type as the depository in default. When other qualified public depositories are assessed additional amounts, they are assessed on a pro-rata basis. Investments Policies Florida Statutes, Section , authorizes the County to invest surplus funds in the following: The Local Government Surplus Funds Trust Fund, hereinafter, Florida PRIME and Fund B, or any intergovernmental investment pool authorized pursuant to the Florida Interlocal Cooperation Act as provided in Florida Statutes, Section The Securities and Exchange Commission registered money market funds with the highest credit quality rating from a nationally recognized rating agency. Interest-bearing time deposits or savings accounts in state-certified qualified public depositories as defined in Florida Statutes, Section Direct obligations of the United States Treasury. Federal agencies and instrumentalities. Securities of, or other interests in, any open-end or closed-end management-type investment company or investment trust registered under the Investment Company Act of 1940, 15 U.S.C. ss. 80a-1 et. seq., as amended from time to time, provided that the portfolio of such investment company or investment trust is limited to obligations of the United States Government or any agency or instrumentality thereof and to repurchase agreements fully collateralized by such United States Government obligations, and provided that such investment company or investment trust takes delivery of such collateral either directly or through an authorized custodian. In addition, the County is authorized by law or by county ordinance to invest funds in the following securities: B-58

135 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 5 DEPOSITS AND INVESTMENTS (Continued) Commercial Paper of U.S. Corporations having a rating of at least two of the following three ratings: A-1, P-1, and F-1, as rated by Standard & Poors, Moody s, and Fitch Investors Service rating services. Bankers Acceptances that are eligible for purchase by the Federal Reserve Banks and have a Letter of Credit rating of A or better. Obligations, rated A+ or better, of the State of Florida and its various local governments, including Bay County. Overnight repurchase agreements and term repurchase agreements with maturities of less than 30 days. Corporate Securities rated AA/Aa by Standard & Poors and Moody s. Qualified purchaser funds (3(c)(7) funds) securities of an open-end management type investment company or investment fund advised by a registered advisor under rule 3(c)(7) of the Federal Investment Company Act of 1940, provided that the funds investment guidelines state that the fund will seek to maintain a $1 per share net asset value. Auction Rate Securities rated AAA/aaa. The Florida Local Government Investment Trust Fund (FLGIT) is a professionally managed fund available only to public entities in Florida. The investment policy of FLGIT restricts investments to direct obligations of or securities fully guaranteed by the United States; obligations of certain federal agencies, including collateralized obligations; repurchase agreements; and commercial paper. Interest Rate Risk In accordance with its investment policy, the County manages its exposure to declines in fair value by limiting investments beyond one year to 25% of the investment portfolio. The weighted average maturity is disclosed in months in order to achieve this objective. Foreign Currency Risk Florida Prime was not exposed to any foreign currency risk during the period October 1, 2013 through September 30, Credit Risk The County has established an investment policy that all commercial paper purchased is required to be a rated investment as established by a nationally recognized statistical rating organization at the end of the fiscal year. The commercial paper listed below is from U.S. corporations and is denominated in U.S. currency. B-59

136 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 5 DEPOSITS AND INVESTMENTS (Continued) As of September 30, 2014, the County had the following investments as rated by Standard and Poors, Moody s and/or Fitch Investor Services: Investment Type Carrying Value B-60 Fair Value Weighted Average Maturity (months) Credit Rating (if applicable) U.S Government Securities $ 4,539,960 $ 4,539, Aaa/AA+ Commercial Paper 21,970,881 21,970, P-1/A-1 Corporate Bonds 990, , Aa1/AA Corporate Bonds 4,053,762 4,053, Aa2/AA Corporate Bonds 1,995,250 1,995, Aa1/AA+ Corporate Bonds 1,120,310 1,120, Aa3/AA Corporate Bonds 1,153,099 1,153, Aa2/AA+ Corporate Bonds 994, , Aaa/AA Corporate Bonds 999, , Aaa/AAA Corporate Bonds 504, , Aaa/AA+ Municipal Bonds 502, , Aa3/AA- Asset Backed Securities 17,922,750 17,922, Aaa/AA+ Florida Prime 24,991,683 24,991, AAAm Money Market Funds 78,404,599 78,404,599 Demand N/A Total investments $160,143,879 $160,143,879 As of September 30, 2014, the County had investments for general and agency funds on deposit in a 2a7-like pool in the amount of $24,991,683 with the Florida State Board of Administration. Investments are stated at fair value in accordance with GASB 31. GASB 31 outlines the two options for accounting and reporting for money market investment pools as either 2a-7 like or fluctuating net asset value ( NAV ). GASB 31 describes a 2a-7 like pool as an external investment pool that is not registered with the Securities and Exchange Commission ( SEC ) as an investment company, but nevertheless has a policy that it will, and does, operate in a manner consistent with Rule 2a-7 under the Investment Company Act of 1940 (the 1940 Act ). Rule 2a-7 is the rule that permits money market funds to use amortized cost to maintain a constant NAV of $1 per share, provided that such funds meet certain conditions. Florida PRIME, administered by the Florida State Board of Administration (SBA), is considered to be a SEC 2a-7 like fund and therefore shown at share value. The Board of Trustees of the SBA consists of the Governor, the Chief Financial Officer, and the Attorney General. Concentration of Credit Risk The County limits investments in commercial paper to 25% of the total investment portfolio. The County investments in commercial paper did not exceed 25% for the year ended September 30, 2014.

137 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 6 PROPERTY TAXES Property tax revenue is recognized when received. The property tax calendar is as follows: Lien date January 1 Levy date October 1 Tax bills mailed November 1 Payments due by March 31 Delinquent date April 1 Tax sale - delinquent property taxes June 1 NOTE 7 NOTES RECEIVABLE Notes receivable recorded by the County at September 30, 2014, are as follows: Governmental Funds Note receivable from individuals related to the sale of property. Principal and interest payments at a 5% interest rate. $ 531,630 Total notes receivable governmental funds $ 531,630 Enterprise Funds Note receivable from the joint venture (Military Point Advanced Wastewater Treatment Facility). Principal and interest based upon the 2004 Wastewater System Revenue Refunding Bonds and State Revolving Fund Note. Reduction of the principal balance mirrors the principal reduction of the bonds payable and note payable. Interest varies from 2.59% to 3.07%. $ 10,190,544 Note receivable from Stone Container Corporation. Principal and interest based upon the 1997 Water System Revenue Bonds. Reduction of the principal balance of the note receivable is equivalent to 7.26% of the principal balance and reductions for the bonds payable. 897,364 Note receivable from Arizona Chemical Company. Principal and interest based upon the 1997 Water System Revenue Bonds. Reduction of the principal balance of the note receivable is equivalent to 1.16% of the principal balance and reductions for the bonds payable. 143,058 Total notes receivable enterprise funds $ 11,230,966 B-61

138 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 8 CAPITAL ASSETS Changes in capital assets of the governmental activities funds are summarized as follows: September 30, 2013 Increases Decreases September 30, 2014 Capital assets, not being depreciated Land $ 18,103,942 $ 90,665 $ (26,147) $ 18,168,460 Construction in progress 2,572,560 4,680,131 (3,390,025) 3,862,666 Total capital assets, not being depreciated 20,676,502 4,770,796 (3,416,172) 22,031,126 Capital assets, being depreciated Books 2,608, ,321 (364,289) 2,633,519 Buildings and improvements 136,702,476 1,692,134 (951,479) 137,443,131 Furniture and equipment 49,178,428 4,090,163 (1,889,089) 51,379,502 Infrastructure 252,134,881 4,984,930 (1,830,400) 255,289,411 Total capital assets, being depreciated 440,624,272 11,156,548 (5,035,257) 446,745,563 Less accumulated depreciation Books (2,024,598) (202,932) 364,288 (1,863,242) Buildings and improvements (29,656,246) (3,374,491) 505,133 (32,525,604) Furniture and equipment (37,257,080) (3,365,247) 1,456,615 (39,165,712) Infrastructure (141,737,263) (6,715,945) 1,833,725 (146,619,483) Total accumulated depreciation (210,675,187) (13,658,615) 4,159,761 (220,174,041) Total capital assets, being depreciated, net 229,949,085 (2,502,067) (875,496) 226,571,522 Total governmental-type activities capital assets, net $ 250,625,587 $ 2,268,729 $ (4,291,668) $ 248,602,648 The following schedules summarize the capital assets of the County s business-type activities at September 30, 2014: Wholesale Retail Water Emergency Water & Building Medical System Wastewater Solid Waste Services Services Total Land $ 261,192 $ 4,714,000 $ 752,451 $ - $ - $ 5,727,643 Buildings 2,422,524 4, , ,290,202 Improvements 90,985 4,678 46, ,413 Furniture and equipment 1,894,204 1,160,597 7,088, , ,154 11,087,920 Infrastructure 106,552,917 30,681,313 90,848, ,082,590 Construction in progress 5,034, ,034,115 Total 116,255,937 36,565,354 99,599, , , ,364,883 Less accumulated depreciation Buildings (2,095,748) (2,597) (380,380) - - (2,478,725) Improvements (85,169) (2,027) (41,434) - - (128,630) B-62

139 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 8 CAPITAL ASSETS (Continued) Furniture and equipment $ (1,249,613) $ (600,455) $ (3,510,665) $ (315,649) $ (115,553) $ (5,791,935) Infrastructure (45,941,012) (11,938,496) (16,291,481) - - (74,170,989) Total accumulated depreciation (49,371,542) (12,543,575) (20,223,960) (315,649) (115,553) (82,570,279) Total Businesstype activities capital assets, net $66,884,395 $ 24,021,779 $ 79,375,098 $ 159,731 $ 353,601 $170,794,604 September 30, 2013 Increases Decreases September 30, 2014 Capital assets, not being depreciated Land $ 5,727,643 $ - $ - $ 5,727,643 Construction in progress 453,092 4,606,421 (25,398) 5,034,115 Total capital assets, not being depreciated 6,180,735 4,606,421 (25,398) 10,761,758 Capital assets, being depreciated Buildings 3,279,719 25,398 (14,915) 3,290,202 Improvements 136,913 5, ,413 Furniture and equipment 10,013,325 1,699,107 (624,512) 11,087,920 Infrastructure 224,126,846 4,022,483 (66,739) 228,082,590 Total capital assets, being depreciated 237,556,803 5,752,488 (706,166) 242,603,125 Less accumulated depreciation Buildings (2,409,016) (81,393) 11,684 (2,478,725) Improvements (126,584) (2,046) - (128,630) Furniture and equipment (5,147,967) (1,197,555) 553,587 (5,791,935) Infrastructure (72,125,734) (7,341,121) 5,295,866 (74,170,989) Total accumulated depreciation (79,809,301) (8,622,115) 5,861,137 (82,570,279) Total capital assets, being depreciated, net 157,747,502 (2,869,627) 5,154, ,032,846 Total business-type activities capital assets, net $ 163,928,237 $ 1,736,794 $ 5,129,573 $ 170,794,604 Depreciation expense was charged to functions/programs of the primary government as follows: Governmental activities General government $ 2,236,039 Public safety 2,842,943 Physical environment 317,082 Transportation 6,021,184 Economic environment 711,145 Human services 122,623 Culture and recreation 1,297,514 Internal service funds 110,085 Total depreciation expense - governmental activities $ 13,658,615 B-63

140 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 8 CAPITAL ASSETS (Continued) Business-type activities Wholesale water system $ 2,791,790 Retail water and wastewater 1,775,576 Solid waste 3,929,017 Building services 10,179 Emergency medical services 115,553 Total depreciation expense - business-type activities $ 8,622,115 NOTE 9 CAPITAL LEASES The County has entered into lease agreements to finance equipment. These lease agreements qualify as capital leases for accounting purposes and have been recorded at the present value of their future minimum lease payments as of the inception date. The cost of assets acquired through capital leases are as follows: Equipment $ 429,833 Total 429,833 Less: accumulated depreciation (133,700) Net $ 296,133 The future minimum lease obligations and the net present value of these minimum lease payments as of September 30, 2014, are as follows: Year Ending September 30, 2015 $ 126, , , , ,798 Total minimum lease payments 280,278 Less amount representing interest (20,287) Present value of minimum lease payments $ 259,991 NOTE 10 RETIREMENT PLANS Defined Benefit Pension Plan Plan Description The County contributes to the Florida Retirement System (FRS), a costsharing multiple-employer defined benefit pension plan administered by the State of Florida, Department of Management Services, Division of Retirement. FRS provides retirement, B-64

141 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 10 RETIREMENT PLANS (Continued) disability, and death benefits to retirees or their designated beneficiaries. Chapter 121, Florida Statutes, establishes the authority for benefit provisions. Changes to the law can only occur through an act of the Florida Legislature. FRS issues financial statements and required supplementary information for the System. That report may be obtained by writing to the State of Florida Division of Retirement, P.O. Box 9000, Tallahassee, Florida 32315, by accessing the FRS website or by calling (850) Funding Policy FRS is funded through employee and employer contributions. The County is required to contribute at an actuarially determined rate. Rates effective for October 1, 2013 through June 30, 2014, were 6.95%, 18.31%, and 33.03% for regular employees, senior management, and elected county officials, respectively. Rates effective for July 1, 2014 through September 30, 2014, were 7.37%, 21.14%, and 43.24% for regular employees, senior management, and elected county officials, respectively. Employee contributions of 3% were required for all participants. The employer rate for eligible employees who elected to participate in the Deferred Retirement Option Program (DROP) was 12.84% for October 1, 2013 through June 30, 2014 and 12.28% for July 1, 2014 through September 30, 2014, with no employee contribution required. The contribution requirements of plan members and the County are established and may be amended by the Florida Legislature. The County s contributions to the FRS for the years ending September 30, 2014, 2013, and 2012 were $5,926,593, $4,052,793, and $3,559,782, respectively, and were equal to the required contributions for each year. The required employee contributions made to the plan for the year ending September 30, 2014, were $1,280,572. Defined Contribution Plan Plan Description - Pursuant to Chapter 121, Florida Statutes, the Florida Legislature created the Florida Retirement Investment Plan ( FRS Investment Plan ), a cost-sharing multiple-employer defined contribution pension plan qualified under Section 401(a) of the Internal Revenue Code. This FRS Investment Plan is an alternative available to members of the Florida Retirement System in lieu of the defined benefit plan. Changes to the law can only occur through an act of the Florida Legislature. The FRS Investment Plan is administered by the Florida State Board of Administration. Information about this plan can be obtained by writing to FRS Plan Administrator, P.O. Box 56290, Jacksonville, Florida or by calling Funding Policy FRS Investment Plan is funded through employee and employer contributions. Rates effective for October 1, 2013 through June 30, 2014, were 6.95%, 18.31%, and 33.03% for regular employees, senior management, and elected county officials, respectively. Rates effective for July 1, 2014 through September 30, 2014, were 7.37%, 21.14%, and 43.24% for regular employees, senior management, and elected county officials, respectively. Employee contributions of 3% were required for all participants. Required employer and employee contributions made to the plan totaled $713,311 and $215,266, respectively. B-65

142 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 11 OTHER POSTEMPLOYMENT BENEFITS (OPEB) Plan Description The County has established the Retiree s Health Insurance Other Postemployment Benefits Plan, a single employer plan. Pursuant to the provisions of Section , Florida Statutes, employees who retire from the County and eligible dependents, may continue to participate in the group insurance plan. Retirees and their eligible dependents shall be offered the same health and hospitalization insurance coverage as is offered to active employees at a premium cost of no more than the premium cost applicable to active employees. The County subsidizes the premium rates paid by the retirees by allowing them to participate in the plan at blended group (implicitly subsidized) premium rates for both active and retired employees. These rates provide an implicit subsidy for retirees because, on an actuarial basis, their current and future claims are expected to result in higher costs to the plan on average than those of active employees. Additionally, certain employees (Sheriff) receive insurance coverage at a lower (explicitly subsidized) premium rate than all other active employees. The explicit subsidy is based on years of service and date of retirement. The County currently has approximately 1,113 total active and retired employees eligible to receive these benefits. Two actuarial studies were performed, one for the Sheriff s employees (Sheriff) and one for all other County employees (County). Unless noted otherwise, the information in both studies has been combined. Eligibility A participant is eligible to receive benefits from the plan upon retirement under the Florida Retirement System plan provisions. To be eligible for retiree benefits, the participant must be covered under the medical plan as an active participant immediately prior to retirement. Participants who are not eligible for retirement at the time of their termination are not eligible for immediate or future benefits from the plan. Funding Policy Although the contribution requirement is established by statute, the contribution amount required by plan members and the government is established and may be amended by the Bay County Board of County Commissioners. Currently, members receiving benefits pay the full cost (total premium) for medical coverage. The Sheriff s office has made amendments to the plan, providing different benefits depending on the date of retirement. The Sheriff s office pays a portion of the retiree premium for the coverage elected by retirees who retired on or before April 24, The retiree pays the rest of the premium. For retirements following this date, the Sheriff s office has frozen the dollar amount upon which the benefit paid on behalf of the retiree at the October 1, 2008, amount. Furthermore, the Sheriff s office will only pay for retiree coverage until the retiree becomes eligible for Medicare; any elections for family or spouse will be paid by the participant. The monthly contribution rates effective for eligible Sheriff plan members during the year are shown below: B-66

143 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 11 OTHER POSTEMPLOYMENT BENEFITS (OPEB) (Continued) Coverage Retirees blended premium Retiree $ Retiree and Spouse $ The monthly contribution rates effective for other eligible County plan members during the year are shown below: Coverage Plan with $500 deductible Plan with $1,000 deductible Blue Medicare PPO Plan 3160/3161 HAS/HDHP Retiree $ $ $ $ Retiree and Spouse $ 1, $ 1, $ $ The County has not advance-funded or established a funding methodology for the annual OPEB costs or the net OPEB obligation. Rather, the funding is based on a pay-as-you-go basis. During the fiscal year, the County provided contributions of $430,801 toward the annual OPEB cost. A Schedule of Employer Contributions can be found in the required supplementary information immediately following the notes. Annual OPEB Cost and Net OPEB Obligation The following table shows the County s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the County s net OPEB obligation: Description Total Normal cost (service cost for one year) $ 1,579,070 Amortization of unfunded actuarial accrued liability 1,093,818 Interest on normal cost and amortization - Annual required contribution 2,672,888 Interest on net OPEB obligation 589,669 Adjustment to annual required contribution (852,516) Annual OPEB cost (expense) 2,410,041 Contribution toward the OPEB cost (430,801) Increase in net OPEB obligation 1,979,240 Net OPEB obligation, beginning of year 14,741,721 Net OPEB obligation, end of year $ 16,720,961 The County s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation as of September 30, 2014, was as follows: Year ended September 30, Annual OPEB Cost Percentage of OPEB Cost Contributed Net OPEB Obligation 2012 $ 2,956, % $ 12,144, $ 3,065, % $ 14,741, $ 2,410, % $ 16,720,961 B-67

144 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 11 OTHER POSTEMPLOYMENT BENEFITS (OPEB) (Continued) Funding Status and Funding Progress As of September 30, 2014, the actuarial value of assets was $0 and the actuarial accrued liability for benefits was $19,349,641, resulting in an unfunded actuarial accrued liability (UAAL) of $19,349,641 and a funded ratio of 0%. The covered payroll was $45,615,661, and the ratio of the UAAL to the covered payroll was 42.42%. The Schedule of Funding Progress, included as required supplementary information after the notes, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability. Actuarial Methods and Assumptions The County had an actuarial valuation completed for the fiscal year ended September 30, Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment and termination, mortality, and the healthcare cost trends. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. Projections of benefits for financial reporting purposes are based on the substantive plan provisions, as understood by the employer and participating members, in effect at the valuation date and include the type of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and participating members. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The actuarial liability was determined for the County using the projected unit credit cost method and the entry age actuarial cost method for the Sheriff. These methods are used to estimate the actuarial liabilities and costs. These methods were selected because it produced the best estimate of the OPEB liability and annual cost for each group of County employees. Because the OPEB liability is currently unfunded, the actuarial assumptions include a 4% rate of return on investments for both valuations. The actuarial assumptions also include an annual healthcare cost trend rate. For the County, the rate for 2014 is 5.3% for costs with Medicare coverage and 5% without Medicare coverage. It is reduced each year reaching a future year s rate of 4.5%. For the Sheriff, the 2014 rate is 7.5%. It is reduced each year reaching a future year s rate of 4.5%. The inflation rate assumption used for the Sheriff and the County was 3% and 2.5%, respectively. For both valuations, the unfunded actuarial accrued liability is being amortized with a level dollar method. The open amortization period used is 30 years. OPEB obligations are generally liquidated by the fund that reports the liability and pays the related costs. Therefore, the general and transportation funds liquidate a majority of the OPEB liability. B-68

145 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 12 LONG-TERM LIABILITIES - GOVERNMENTAL ACTIVITIES Changes in long-term liabilities for governmental activities are summarized as follows: Balance September 30, 2013 Additions Deductions Balance September 30, 2014 Due Within One Year Bonds payable $ 91,121,000 $ - $ (2,528,000) $ 88,593,000 $ 2,211,000 Adjusted for deferred amounts on: Issuance discounts/premiums 634,756 - (33,568) 601,188 - Total bonds payable 91,755,756 - (2,561,568) 89,194,188 2,211,000 Capital leases payable 91, ,933 (72,375) 232, ,979 Other postemployment benefits 14,219,490 1,834,839-16,054,329 - Notes payable - 635, ,000 55,000 Accrued compensated absences 3,589, ,209 (774,689) 3,714,300 1,028,973 Estimated liability for self-insured losses 4,480, ,839 (314,840) 4,480, ,533 Governmental activities long-term liabilities $ 114,137,657 $ 3,896,820 $ (3,723,472) $ 114,311,005 $ 3,808,485 Accrued compensated absences for governmental activities are generally liquidated by the fund that reports the liability and pays the related payroll costs. Therefore, the general and transportation funds liquidate a majority of the accrued compensated absences liability. Notes payable in the governmental activities at September 30, 2014, are summarized below: Taxable Series 2014A Revenue Note On August 21, 2014, the County issued $635,000 Taxable Series 2014A Revenue Note to finance certain costs associated with dredging improvements within the Kings Point subdivision. The County had previously issued its Taxable Series 20l3A Credit Note, on December 17, The County refinanced that note to provide permanent financing for the improvements. The interest rate is 1.19%, principal and interest are payable semi-annually, March 15 and September 15, commencing on March 15, The note is secured by non-ad valorem revenue in accordance with Resolution No This pledge remains in effect until extinguishment or maturity of the debt in 2024, whichever occurs first. The remaining principal and interest payments on this debt as of September 30, 2014, totaled $749,118. Total of non-ad valorem revenues were $55,352,649 in the current year. No principal or interest payments were made in the current year. $ 635,000 Total notes payable-governmental activities 635,000 Less: current portion (55,000) Long-term portion of notes payable-governmental activities $ 580,000 B-69

146 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 12 LONG-TERM LIABILITIES - GOVERNMENTAL ACTIVITIES (Continued) Year ending September 30, Principal Interest Total 2015 $ 55,000 $ 20,485 $ 75, ,000 18,395 75, ,000 16,527 74, ,000 14,625 74, ,000 12,659 74, ,000 31, ,427 Total $ 635,000 $ 114,118 $ 749,118 Governmental activities revenue bonds consist of the following at September 30, 2014: Sales Tax Revenue Bonds, Series 2006 Authorized and issued $38,215,000, interest from 4.0% to 5.0%, principal payable annually on September 1, commencing September 1, 2007, interest payable semiannually on September 1 and March 1, commencing on March 1, The bonds are special obligations of the County and are payable solely from and secured on parity equally and ratably with the Bay County, Florida Sales Tax Revenue Bonds, Series 1998 and Bay County, Florida Sales Tax Revenue Bonds, Series 2002 by a prior lien and pledge of a) the proceeds of the local government half-cent sales tax distributed to the County pursuant to Chapter 218, Part VI, Florida Statutes, and b) until applied in accordance with the provisions of Resolution No. 2123, all moneys, including investments thereof, in certain funds and accounts established under the resolution. The Series 2006 Bonds were issued primarily to provide funds to construct an addition to the County s criminal justice facility. This pledge remains in effect until extinguishment or maturity of the debt in 2032, whichever occurs first. The remaining principal and interest payments on this debt as of September 30, 2014, totaled $63,577,515. Annual principal and interest payments paid on the bond required 17% of half-cent sales tax revenues. Principal and interest payments paid for the current year and total half-cent sales tax revenues were $1,941,585 and $11,325,809, respectively. $ 37,580,000 Sales Tax Revenue Refunding Bonds, Series 2007 On April 10, 2007, the County issued $15,420,000 of Sales Tax Revenue Refunding Bonds, Series 2007 at a premium of $71,733. A portion of the proceeds were used to refund $14,540,000 of the outstanding Sales Tax Revenue Bonds, Series 2002, plus an additional $554,738 of proceeds were used to purchase U.S Government Securities. Those securities were deposited in an irrevocable trust with B-70

147 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 12 LONG-TERM LIABILITIES - GOVERNMENTAL ACTIVITIES (Continued) an escrow agent to provide for all future debt service payments on the 2002 Series Refunded Bonds. As a result, $14,540,000 of the 2002 series bonds are considered to be defeased, and the County s liability associated with those bonds has been removed from the financial statements. The current refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $554,738. The difference is reported as a deferred amount on refunding. The County completed the refunding to reduce its debt service over 25 years by $967,941 and obtain an economic gain of $489,145. The bonds are special obligations of the County and are payable solely from and secured on parity equally and ratably with the Bay County, Florida Sales Tax Revenue Bonds, Series 1998, Bay County, Florida Sales Tax Revenue Bonds, Series 2002, and Bay County, Florida Sales Tax Revenue Bonds, Series 2006 by a prior lien and pledge of a) the proceeds of the local government half-cent sales tax distributed to the County pursuant to Chapter 218, Part VI, Florida Statutes, and b) until applied in accordance with the provisions of the resolution, all cash, including investments thereof, in certain funds and accounts established under the resolution. Interest varies from 3.6% to 5.0%, principal payable annually on September 1, commencing September 1, 2007, interest payable semi-annually on September 1 and March 1, commencing on September 1, This pledge remains in effect until extinguishment or maturity of the debt in 2032, whichever occurs first. The remaining principal and interest payments on this debt as of September 30, 2014, totaled $20,479,949. Annual principal and interest payments paid on the bond required 10% of half-cent sales tax revenues. Principal and interest payments paid for the current year and total half-cent sales tax revenues were $1,135,050 and $11,325,809, respectively. $ 14,060,000 Capital Improvement Revenue Refunding Bonds, Series 2011 On September 21, 2011, the County issued $26,144,000 Capital Improvement Revenue Refunding Bonds Series The proceeds of the bonds were used to refund the outstanding Capital Improvement Revenue Bonds Series 2007 (refunded $26,025,136) and to pay the cost of issuing the bonds. The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $34,150. This difference is reported as a deferred amount on the refunding. The County completed the refunding to reduce its debt service payments over sixteen years by $3,894,433 and obtain an economic gain of $3,288,038. The bonds are special obligation bonds of the County payable solely from and secured by non-ad valorem revenues in accordance with Resolution No B-71

148 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 12 LONG-TERM LIABILITIES - GOVERNMENTAL ACTIVITIES (Continued) The refunding bonds interest rate is 2.64%, principal payable annually on September 1, commencing September 1, Interest is payable semi-annually, March 1 and September 1. Average remaining annual debt service is $2,020,586. This pledge remains in effect until extinguishment or maturity of the debt in 2027, whichever occurs first. The remaining principal and interest payments on this debt as of September 30, 2014, totaled $26,267,612. Interest payments paid on the bond required 4% of non-ad valorem revenue. Interest payments paid for the current year and non-ad valorem revenue were $2,020,628 and $55,352,649 respectively. $ 21,992,000 Capital Improvement Revenue Bonds, Series 2011 On July 12, 2011, the County issued $2,340,000 Capital Improvement Revenue Bonds Series The proceeds of the bonds to be used for certain capital improvements associated with a new fire station. The interest rate is 3.26%, principal payable annually on September 1, commencing September 1, Interest is payable semi-annually, March 1 and September 1. Average remaining annual debt service is $199,755. The bonds are special obligation bonds of the County payable solely from and secured by non-ad valorem revenues in accordance with Resolution No This pledge remains in effect until extinguishment or maturity of the debt in 2026, whichever occurs first. The remaining principal and interest payments on this debt as of September 30, 2014, totaled $2,397,056. Interest payments paid on the bond required 0.4% of non-ad valorem revenue. Interest payments paid for the current year and non-ad valorem revenue were $200,134 and $55,352,649, respectively. No principal payments were made on this bond in the current year. $ 1,958,000 Capital Improvement Revenue Bonds, Series 2012 On November 20, 2012, the County issued $13,700,000 Capital Improvement Revenue Bonds Series The proceeds of the bonds to be used for certain capital improvements associated with the county courthouse. The interest rate is 2.99%, principal payable annually on October 1, commencing October 1, Interest is payable semi-annually, April 1 and October 1. Average remaining annual debt service is $752,279. The bonds are special obligation bonds of the County payable from the greater of (1) the County Revenue Sharing Funds received by the Issuer in any State fiscal year in an amount equal to 50% of the County Revenue Sharing Funds B-72

149 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 12 LONG-TERM LIABILITIES - GOVERNMENTAL ACTIVITIES (Continued) received by the issuer in the prior State fiscal year, or (2) the Guaranteed Entitlement Revenues received by the Issuer in any State fiscal year, in accordance with Resolution This pledge remains in effect until extinguishment or maturity of the debt in 2037, whichever occurs first. The remaining principal and interest payments on this debt as of September 30, 2014, totaled $18,054,695. Principal and interest payments paid on the bond required 45% of pledged revenues. Principal and interest payments paid for the current year and pledged revenues were $793,952 and $1,779,290, respectively. $ 13,003,000 Total bonds payable governmental activities 88,593,000 Less: current portion (2,211,000) Long-term portion governmental activities bonds payable $ 86,382,000 The annual debt service requirements to maturity for the governmental activities revenue bonds payable at September 30, 2014, are as follows: Year ending September 30, Principal Interest Total 2015 $ 2,211,000 $ 3,091,855 $ 5,302, ,677,000 3,413,210 6,090, ,757,000 3,329,917 6,086, ,851,000 3,239,170 6,090, ,935,000 3,151,115 6,086, ,278,000 14,329,404 33,607, ,615,000 9,114,698 41,729, ,322,000 2,332,211 22,654, ,947, ,246 3,129,246 Total $ 88,593,000 $ 42,183,826 $ 130,776,826 Arbitrage provisions of the Internal Revenue Tax Act of 1986 require the County to rebate excess arbitrage earnings from bond proceeds to the federal government. As of September 30, 2014, there was no arbitrage liability for governmental activities. NOTE 13 LONG-TERM LIABILITIES BUSINESS-TYPE ACTIVITIES Notes payable in the enterprise funds at September 30, 2014, are summarized below: State Revolving Fund Program State Revolving Fund Program (SRF #1) consists of approved loans in the original amount of $30,481,500, payable to the State of Florida Department of Environmental Protection State Revolving Fund Program. Interest rates range from 2.59% to 3.07% per annum. The semi-annual loan payment is $893,356, B-73

150 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 13 LONG-TERM LIABILITIES - BUSINESS-TYPE ACTIVITIES (Continued) including interest and principal. Payments began on September 15, 1999, and continue thereafter until all amounts have been fully paid. The loan is collateralized by the anticipated net system revenues of MPAWTF. Bay County is liable for one-half of the total obligation and semi-annual loan payment amount. $ 3,733,595 State Revolving Fund Program (SRF #2) consists of approved loans in the original amount of $4,411,200 payable to the State of Florida Department of Environmental Protection State Revolving Fund Program. The interest rate is 3.03% per annum. The semi-annual loan payment is $132,212 and the loan matures on November 15, The loans are collateralized by the anticipated net system revenues of MPAWTF. Bay County is liable for the total obligation. 1,331,451 Taxable Series 2013 Credit Note On August 20, 2013, the County issued $3,000,000 Taxable Series 2013 Credit Note to provide funds under a line of credit agreement to finance certain costs associated with the County s emergency medical service. The County has the authority to borrow up to $3,000,000, with a non-revolving limit. Interest rate is variable on the LIBOR floating rate, plus 1.1%. Principal is due on the maturity date of September 1, Interest payments are due monthly. The note is secured by non-ad valorem revenue in accordance with Resolution No R This pledge remains in effect until extinguishment or maturity of the debt in 2015, whichever occurs first. The remaining principal and interest payments on this debt as of September 30, 2014, totaled $2,000,000. Interest payments on the bond required 0.05% of the total of non-ad valorem revenues. Interest payments paid for the current year and the total of non-ad valorem revenues were $25,196 and $55,352,649, respectively. No principal payments were made in the current year. 2,000,000 Wastewater Revenue Refunding Note - Series 2014 On June 17, 2014, the City of Callaway and the County issued $10,750,000 Wastewater Revenue Refunding Note - Series 2014 to refund the outstanding Wastewater and System Revenue Refunding Bonds - Series 2004 that was jointly issued with the City of Callaway and the County. Interest rate is 3.31%. Principal is payable annually on September 1, commencing on September 1, Interest is payable semiannually on March 1 and September 1. The notes are collateralized by the assets and the anticipated net revenues of the joint venture (Military Point Advanced Wastewater Treatment Facility). Bay County is liable for one half of the total obligation. 5,125,500 B-74

151 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 13 LONG-TERM LIABILITIES - BUSINESS-TYPE ACTIVITIES (Continued) Water System Revenue Note - Series 2014 On June 17, 2014 the County issued $18,925,000 Water System Revenue Note - Series The proceeds of the note to pay the cost of certain capital improvements to the Wholesale Water System. The interest rate is 3.70%, principal payable annually on September 1, commencing September 1, Interest is payable semi-annually, March 1 and September 1. Average remaining annual debt service is $1,458,646. The notes secured by a) the net revenues of the wholesale water system, b) impact fees charged by the wholesale water system, c) all cash and investments held in accordance with Resolution No This pledge remains in effect until extinguishment or maturity of the debt in 2032, whichever occurs first. The remaining principal and interest payments on this debt as of September 30, 2014, totaled $26,255,625. Interest payments paid on the note required 2% of the total impact fee revenue and wholesale water system net revenue. Interest payments paid for the current year and impact fee revenue and wholesale water system net revenue were $143,953 and $9,522,885, respectively. No principal payments were made on this bond in the current year. $ 18,925,000 Total notes payable-enterprise funds 31,115,546 Less: current portion (4,154,545) Long-term portion of enterprise funds notes payable $ 26,961,001 Minimum debt service requirements to maturity on the notes are as follows: Year ending September 30, Principal Interest Total 2015 $ 4,154,545 $ 1,053,873 $ 5,208, ,201,439 1,003,765 3,205, ,273, ,439 3,205, ,347, ,734 3,200, ,955, ,493 2,726, ,246,219 2,964,043 10,210, ,867,000 1,491,119 8,358, ,070, ,695 4,374,695 Total $ 31,115,546 $ 9,373,161 $ 40,488,707 B-75

152 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 13 LONG-TERM LIABILITIES - BUSINESS-TYPE ACTIVITIES (Continued) Enterprise Funds Bonds Payable: Wholesale Water System Series 2005 Solid Waste Series 2010 Water & Sewer Systems Series 2011 Total Current portion $ 1,700,000 $ 2,045,000 $ 1,255,000 $ 5,000,000 Long-term portion 38,395,000 18,630,000 27,075,000 84,100,000 40,095,000 20,675,000 28,330,000 89,100,000 Deferred amounts on: Issuance premiums 1,452, ,452,459 Total bonds payable $ 41,547,459 $ 20,675,000 $ 28,330,000 $ 90,552,459 Solid Waste Capital Improvement Revenue Refunding Bonds Series 2010 On August 18, 2010, the County issued $28,320,000 Capital Improvement Revenue Refunding Bonds Series The proceeds of the bonds were used to refund the outstanding Solid Waste Sales Tax Revenue Bonds Series 1998 (refunded $30,680,000) and to pay the cost of issuing the bonds. The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $1,703,997. This difference is reported as a deferred amount on refunding. The County completed the refunding to reduce its debt service payments over twenty-five years by $5,314,359 and obtain an economic gain of $3,435,305. The bonds are special obligation bonds of the County payable solely from and secured by non-ad valorem revenues in accordance with Resolution No The refunding bonds interest rate is 2.82%, principal payable annually on September 1, commencing September 1, Interest is payable semiannually, March 1 and September 1. Average remaining annual debt service is $2,633,178. This pledge remains in effect until extinguishment or maturity of the debt in 2023, whichever occurs first. The remaining principal and interest payments on this debt as of September 30, 2014, totaled $23,698,604. Annual principal and interest payments on the bond required 5% of the total of non-ad valorem revenues. Principal and interest payments paid for the current year and the total of non-ad valorem revenues were $2,629,153 and $55,352,649 respectively. $ 20,675,000 Water and Sewer System Revenue Bonds Series 2011 On September 1, 2011, the County issued $29,545,000 Capital Improvement Revenue Refunding Bonds Series The proceeds of the bonds were used to refund the outstanding USDA Revenue Bond Series 2000 (refunded $955,000), USDA Revenue Bond Series 2002 (refunded $2,225,000), North Bay Water System Revenue Bond, (refunded $2,165,000), Bond Anticipation Note Series 2007 (refunded $21,360,000), Clean Water State Revolving Fund B-76

153 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 13 LONG-TERM LIABILITIES - BUSINESS-TYPE ACTIVITIES (Continued) Loan Agreement (refunded $135,000), to pay the cost of issuing the bonds and $2,705,0000 to reimburse the County for capital expenditures to the County s wastewater system. The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $494,549. This difference is reported as a deferred amount on the refunding. The County completed the refunding to reduce its debt service payments over twenty years by $2,055,149 and obtain an economic gain of $327,409. The bonds are special obligation bonds of the County payable solely from and secured by the net revenues derived from the water and sewer system and connection fees in accordance with Resolution No and 3065 and moneys deposited into the reserve and rate stabilization funds as allowed per the bond agreement. In addition, Resolution No. 3213, allows the County to budget and appropriate, if necessary, Non-Ad Valorem Revenues, sufficient to pay the fiscal year principal and interest on the bond, in the event amounts available from the Pledged Funds are insufficient. The refunding bonds interest rate is 3.36%, principal payable semi-annually on March 1 and September 1, commencing March 1, Interest is payable semi-annually, March 1 and September 1. Average remaining annual debt service is $2,209,498. This pledge remains in effect until extinguishment or maturity of the debt in 2031, whichever occurs first. The remaining principal and interest payments on this debt as of September 30, 2014, totaled $37,561,473. Annual principal and interest payments on the bond required 317% of the total of the net revenues derived from the water system, connection fees, and allowable deposits. Principal and interest payments paid for the current year and the total net revenues derived from the water system, connection fees, and allowable deposits were $2,211,110 and $697,522 respectively. $ 28,330,000 Water System Revenue Refunding Bonds Series 2005 On April 28, 2005, the County issued $46,985,000 of Water System Revenue Refunding Bonds Series 2005 at a premium of $2,308,756. The proceeds of the bonds were used to partially refund the outstanding Water System Refunding Revenue Bonds Series 1997 (refunded $14,275,000) and Water System Revenue Bonds Series 2000 (refunded $31,520,000), and to pay the cost of issuing the bonds. The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $4,425,281. This difference is reported as a deferred amount on refunding. The County completed the refunding to reduce its debt service payments over twenty-five years by $4,895,093 and obtain an economic gain of $3,075,645. B-77

154 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 13 LONG-TERM LIABILITIES - BUSINESS-TYPE ACTIVITIES (Continued) The bonds are special obligation bonds of the County payable solely from and secured by, a) the net revenues of the wholesale water system, b) impact fees charged by the wholesale water system, c) all cash and investments held in accordance with Ordinance No , Resolution No and Resolution No The bonds are issued on parity with the County's outstanding Water System Revenue Bonds Series 1997 and Water System Revenue Bonds Series Interest varies from 3.0% to 5.0%, principal payable annually on September 1, commencing September 1, 2005, interest payable semi-annually on March 1 and September 1, commencing on September 1, Average remaining annual debt service is $3,674,372. This pledge remains in effect until extinguishment or maturity of the debt in 2030, whichever occurs first. The remaining principal and interest payments on this debt as of September 30, 2014, totaled $57,789,950. Annual principal and interest payments on the bond required 38% of the total of impact fee revenue and wholesale water system net revenue. Principal and interest payments paid for the current year and the total of impact fee revenue and wholesale water system net revenue were $3,670,550 and $9,552,885, respectively. $ 40,095,000 Total bonds payable business-type activities 89,100,000 Less: current portion (5,000,000) Long-term portion of business-type activities bonds payable $ 84,100,100 The annual debt service requirements to maturity for bonds payable at September 30, 2014, are as follows: Year ending September 30, Principal Interest Total 2015 $ 5,000,000 $ 3,512,210 $ 8,512, ,180,000 3,328,971 8,508, ,385,000 3,138,488 8,523, ,580,000 2,937,630 8,517, ,790,000 2,728,883 8,518, ,715,000 10,215,814 39,930, ,680,000 4,747,475 29,427, ,770, ,556 8,110,556 Total $ 89,100,000 $ 30,950,027 $ 120,050,027 B-78

155 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 13 LONG-TERM LIABILITIES - BUSINESS-TYPE ACTIVITIES (Continued) Balance September 30, 2013 Additions Deductions Balance September 30, 2014 Due Within One Year Bonds payable $ 99,247,500 $ - $(10,147,500) $ 89,100,000 $5,000,000 Adjusted for deferred amounts on: Issuance discounts/premiums 1,543,895 - (91,436) 1,452,459 - Total bonds payable 100,791,395 - (10,238,936) 90,552,459 5,000,000 Notes payable 8,051,989 24,147,500 (1,083,943) 31,115,546 4,154,545 Capital leases - 35,052 (7,488) 27,564 7,720 Other postemployment benefits 522, , ,632 - Accrued compensated absences 297, ,348 (146,261) 441, ,781 Landfill closure and postclosure liability 6,396,519 - (935,627) 5,460,892 - Business-type activitylong-term liabilities $ 116,059,747 $ 24,617,301 $(12,412,255) $128,264,793 $9,435,046 Arbitrage provisions of the Internal Revenue Tax Act of 1986 require the County to rebate excess arbitrage earnings from bond proceeds to the Federal Government. As of September 30, 2014, there was no arbitrage liability for business-type activities. NOTE 14 COMPENSATED ABSENCES The County s compensated absences at September 30, 2014, are as follows: Governmental Activities Business-type Activities Total Current $ 1,028,973 $ 272,781 $ 1,301,754 Long-term 2,685, ,919 2,854,246 Total $ 3,714,300 $ 441,700 $ 4,156,000 NOTE 15 INTERFUND TRANSFERS, RECEIVABLES, PAYABLES, AND ADVANCES The County's routine transfers include transfers to, (a) match for special revenue grant requirements, (b) to other funds based on budgetary requirements, and (c) revenues from a fund that by statute or budgetary authority must collect them for funds that are required by statute or budgetary authority to expend them. Interfund transfers during the year ended September 30, 2014, were as follows: Transfer Out Transfer In General fund Transportation fund $ 2,617,200 Other nonmajor governmental fund 95,774 $ 2,712,974 B-79

156 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 15 INTERFUND TRANSFERS, RECEIVABLES, PAYABLES, AND ADVANCES (Continued) Interfund receivables and payables arise from interfund transactions for operating purposes and are recorded by all funds affected in the period in which transactions are executed. At September 30, 2014, interfund receivables and payables are as follows: Receivable Fund Payable Fund General fund Internal service funds $ 13,564 $ 13,564 Transportation fund Other nonmajor governmental funds 631 Retail water and wastewater fund 85 Solid waste fund 699 Internal service funds 112, ,500 Tourist development fund General fund 239, ,522 Wholesale water fund Internal service funds 107, ,372 Retail water and wastewater fund Internal service funds 70,763 70,763 Other nonmajor governmental funds Internal service funds 85,446 85,446 Solid waste fund General fund 1,439 Retail water and wastewater fund 320 Internal service fund 65,287 67,046 Emergency medical services fund Internal service funds 124, ,959 Internal service funds General fund 114,918 Transportation fund 149,411 Other nonmajor governmental funds 12,323 Wholesale water system fund 58,784 Retail water and wastewater fund 38,789 Solid waste fund 2,963 Builder service fund 1,894 Emergency medical services fund 23,678 Internal service funds ,357 $ 1,225,529 An interfund advance was made to the MSTU fire protection fund from the builder service fund in 2012 and 2014 to provide funds for operations. This advance is expected to be repaid within five years. The balance of this advance as of September 30, 2014, was $730,699. An interfund advance was made to the retail water wastewater fund from the wholesale water fund in 2014 to provide funds for operations. This advance is expected to be repaid within five years. The balance of this advance as of September 30, 2014, was $1,830,000. B-80

157 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 16 FUND BALANCE The detail related to fund balance classifications for governmental funds as of September 30, 2014, consists of the following: Detail for Fund Balance Nonspendable General Tourist Development Transportation Nonmajor Governmental Not in spendable form for prepaids $ 202,696 $ - $ 5,097 $ 120,059 $ 327,852 Total nonspendable $ 202,696 $ - $ 5,097 $ 120,059 $ 327,852 Restricted Enabling legislation $ 3,874,923 $ 36,327,182 $ 738,003 $ 4,914,488 $ 45,854,596 Debt service 17,662, ,233 18,061,720 Impact fees 1,354, ,072 1,647,959 Contractual 2,115, ,115,080 Total restricted $ 25,007,377 $ 36,327,182 $ 738,003 $ 5,606,793 $ 67,679,355 Assigned For disaster cleanup $ 1,000,000 $ - $ - $ - $ 1,000,000 For library 867, ,232 For neighborhood infrastructure and improvements 58, ,209 For future insurance costs 377, ,784 21, ,383 For animal control 30, ,599 For purpose of special revenue fund - - 4,800, ,134 5,384,700 Total assigned $ 2,333,790 $ 346 $ 4,842,350 $ 605,637 $ 7,782,123 NOTE 17 COMMITMENTS AND CONTINGENCIES Landfill Costs and Liabilities The County has two landfills. The Majette Landfill closed in September The Steelfield Road Phase I Landfill is currently estimated to have sufficient capacity at current waste generation disposal rates to accept waste through State and federal laws and regulations require that the County place a final cover on its landfills when closed and to perform certain maintenance and monitoring functions at the landfill sites for 20 to 30 years after closure, depending on closure date. As of September 30, 2014, the Majette Landfill has completed the required maintenance and monitoring for financial assurance. Management currently estimates that the cost to close the Steelfield Landfill will be approximately $5,104,064 and the postclosure costs to maintain and monitor the Steelfield Landfill will be approximately $160,374 per year. Although closure and postclosure care costs will be paid only near Total B-81

158 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 17 COMMITMENTS AND CONTINGENCIES (Continued) or after the date that the landfill stops accepting waste, the County reports a portion of these closure and postclosure care costs as an operating expense in each period based on landfill capacity used as of each balance sheet date. The Solid Waste Fund has reported a liability for landfill closure and postclosure care at September 30, 2014, in the amount of $5,460,892, which represents the cumulative amount reported to date, based on 64.0% of the estimated capacity of the landfill. See note 13 for disclosure of the changes in this estimated liability. These amounts are based on what it would cost to perform all closure and postclosure care in Actual cost may be higher due to inflation, deflation, changes in technology, or changes in applicable laws and regulations. The County is required by state and federal laws and regulations to make annual contributions to a trust to finance closure and post-closure care. The County was in compliance with these requirements and at September 30, 2014, $3,338,608 was held for these purposes in a separate general ledger account on deposit in the County s pooled cash and investments. These are reported as restricted cash and investment assets on the solid waste fund balance sheet. The County expects that future inflation costs will be paid from interest earnings on these annual contributions. However, if interest earnings are inadequate or additional postclosure care requirements are determined to be necessary, these costs may need to be covered by charges to future landfill users or from future tax revenue. Legal Contingencies The County is involved in certain litigation and claims, as a defendant or plaintiff, arising in the ordinary course of operations. Legal counsel has indicated that the facts of the cases and the law are not sufficiently developed to allow an accurate prediction of the ultimate outcome of the litigation. As such, no estimate of losses, if any, can be determined. During the course of normal operations, the County entered into various other contractual agreements for which the County would be liable in the event of default. The actual potential amount of loss liability associated with a default for these contracts cannot be reasonably estimated at this time. Military Point Advanced Wastewater Treatment Facility The County entered into debt financing agreements with the City of Callaway on behalf of the Military Point Advanced Wastewater Treatment Facility. As a result, Bay County is contingently liable for bonds payable and notes payable guaranteed by the City of Callaway. As of September 30, 2014, the County was contingently liable for the following amounts: State Revolving Fund Loan Program City of Callaway s portion of note payable $ 3,733,595 Related interest expense 261,736 Wastewater System Revenue Refunding Bonds Series 2004 (see note 13) 5,125,500 Related interest expense 1,674,181 Total contingent liability joint venture $ 10,795,012 B-82

159 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 17 COMMITMENTS AND CONTINGENCIES (Continued) Construction Commitments Bay County has open construction contract commitments as follows: Project Contract Amount Expended to Date Remaining Commitment Bay County Courthouse addition $ 14,183,992 $ 1,268,190 $ 12,915,802 Baldwin Road widening 3,587, ,758 3,426,864 Thomas Drive pedestrian bike 1,388,863 90,617 1,298,246 Ed Lee Road drainage 954, ,452 Total contract commitments $ 20,114,929 $ 1,519,565 $ 18,595,364 NOTE 18 CONDUIT DEBT OBLIGATIONS During the course of normal operations, the County entered into various conduit debt obligations. Conduit debt obligations are certain limited-obligation revenue bonds, certificates of participation, or similar debt instruments issued by a state or local governmental entity for the express purpose of providing capital financing for a specific third party that is not a part of the issuer s financial reporting entity. Bay County, Florida has no responsibility for the payment of these debt issues except for the payments received on the underlying lease or loan agreement. The County s conduit debt obligations at September 30, 2014, are summarized as follows: Issue Date of Issue Amount Outstanding September 30, 2014 Bay County, Florida Educational Facilities Revenue Bonds (Bay Haven Charter Academy) Series 2010 A & B March 8, 2011 $ 11,200,000 Bay County, Florida Industrial Development Revenue Bonds (Goodwill Industries- Big Bend, Inc.) Series 2012 May 31, ,456,575 Bay County, Florida Educational Facilities Revenue Bonds (Bay Haven Charter Academy Project) Series 2013 A & B April 25, ,265,000 NOTE 19 WORKERS COMPENSATION SELF INSURANCE During fiscal year 1990, the County established a workers' compensation fund (an internal service fund) to account for and finance its uninsured risks of loss relating to workers' compensation claims. Under this program, the workers' compensation fund provides coverage for up to a maximum of $350,000 for each workers' compensation claim through September 30, The County purchases commercial insurance for claims in excess of coverage provided by the workers' B-83

160 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 19 WORKERS COMPENSATION SELF INSURANCE (Continued) compensation fund. Settled claims have not exceeded this commercial coverage in any of the past three fiscal years. All funds, except those which include certain volunteer fire department personnel of the County, participate in the program and make payments to the workers' compensation fund based on estimates of the amounts needed to pay prior and current year claims. The claims liability of $4,480,761 reported in the workers' compensation fund at September 30, 2014, is based on the requirements of GASB, which requires that a liability for claims be reported if information prior to the issuance of the basic financial statements indicates that it is probable that a liability has been incurred at the date of the basic financial statements and the amount of the loss can be reasonably estimated. The liability includes an estimate of incurred but not reported losses based on historical experience. Changes in the workers' compensation fund's claims liability amount in fiscal years 2013 and 2014 were as follows: Fiscal Year Beginning Fiscal Year Liability Claims and Changes in Estimates Claim Payments Balance at Fiscal Year-End October 1, 2012 September 30, 2013 $ 4,478,005 $ 350,263 $ (347,506) $ 4,480,762 October 1, 2013 September 30, 2014 $ 4,480,762 $ 314,839 $ (314,840) $ 4,480,761 NOTE 20 INSURANCE The County is exposed to various risks of loss related to torts, theft of, damage to, and destruction of assets, errors and omissions, injuries to employees and natural disasters. The County accounts for its uninsured risk of loss with regard to workers' compensation as explained in note 19. Other types of insurance coverage are explained in the following paragraphs. The County is a member of the Florida Association of Counties Trust (FACT), a public entity risk pool, which provides general liability insurance coverage. The County pays an annual premium to the Trust and remains liable for the deductible of $25,000 per claim. The claims liability of $250,000 reported in the self-insurers' fund is based on the requirements of GASB. Changes in the self-insurers' fund's claims liability amount in fiscal years 2013 and 2014 were as follows: Fiscal Year Beginning Fiscal Year Liability Claims and Changes in Estimates Claim Payments Balance at Fiscal Year-End October 1, 2012 September 30, 2013 $ 250,000 $ 2,497,026 $ (2,497,026) $ 250,000 October 1, 2013 September 30, 2014 $ 250,000 $ 2,687,311 $ (2,687,311) $ 250,000 B-84

161 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 20 INSURANCE (Continued) The County also purchases commercial insurance for other risks of loss, such as automobile liability. Settled claims have not exceeded this commercial coverage during the past three fiscal years. NOTE 21 JOINT VENTURE Bay County, Florida entered into an interlocal agreement with the cities of Callaway, Parker, Springfield and the former Town of Cedar Grove on September 27, 1996, to supply existing and expanded wastewater treatment and disposal services. The mission of this joint venture is to provide these services in an economical, efficient and environmentally appropriate manner to their respective citizenry. This joint venture, known as the Military Point Advanced Wastewater Treatment Facility (MPAWTF or System), assumed ownership of the existing wastewater treatment plant and then completed construction of a new seven million gallon per day advanced wastewater treatment facility, which was placed in service on July 20, Funding for the new facility came through a combination of conventional borrowing and State Revolving Fund loans. The joint venture is owned and governed by Bay County, Florida; and the cities of Callaway, Parker, and Springfield. One owner is selected by the others to be responsible for operating the System. The owner designated to be the Operator is Bay County, Florida. The Operator of the System, in accordance with the interlocal agreement, prepares the system s annual budget, sets treatment rates and collects funds sufficient to pay debt service, cost of operations and maintenance, renewal and replacement, and any enhancements to reserves. The results of operations and cash flows are accounted for in total within the financial statements of the joint venture. The County s interest in equity is reported within the County s Retail Water and Wastewater Fund. As of September 30, 2014, the County s investment in the joint venture was $2,160,257. Complete financial statements for the joint venture may be obtained from the Operator at P.O. Box 2269, Panama City, Florida Summary financial statements for the Military Point Advanced Wastewater Treatment Facility are as follows: Statement of Net Position September 30, 2014 Assets $ 32,238,907 Deferred outflows 985,671 Liabilities 20,205,676 Net position Net investment in capital assets 7,557,082 Restricted for owners rate reserve 3,052,981 Restricted for debt service 2,348,475 Unrestricted 60,364 Total net position $ 13,018,902 B-85

162 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 21 JOINT VENTURE (Continued) Statement of Activities Year Ended September 30, 2014 Operating revenues $ 7,227,131 Operating expenses (5,215,161) Operating income 2,011,970 Nonoperating revenues (expenses), net (812,508) Income before distributions 1,199,462 Distributions to owners (1,761,098) Change in net position (561,636) Net position, beginning of year, 14,182,607 GASB 65 restatement (602,069) Net position, beginning of year, as restated 13,580,538 Net position, end of year $ 13,018,902 As of September 30, 2014, the County s portion of contributions and net position in the joint venture is as follows: County investment, at September 30, 2013 $ 2,139,857 GASB 65 restatement (247,644) County investment, at September 30, 2013, as restated 1,892,213 Add: 2014 County share of net income 874,142 Less: 2014 distributions payable (606,098) County investment in joint venture at September 30, 2014 $ 2,160,257 NOTE 22 RELATED PARTY TRANSACTIONS During the year ended September 30, 2014, the MPAWTF provided services to Bay County s Retail Water and Wastewater Fund. For the year ended September 30, 2014, the billings for these services totaled $2,168,377. As described in note 21, Bay County is an owner of the Military Point Advanced Wastewater Treatment Facility. Bay County, Florida incurs operational expenses on behalf of the joint venture. Reimbursement for these expenses amounted to $2,228,914 for the year ended September 30, In addition, during the current year the County recognized $359,695 in interest income from the joint venture, which was subsequently used to satisfy interest expense of $359,695, related to the State Revolving Fund Loan Program as discussed in note 13. NOTE 23 ASSET IMPAIRMENT On February 12, 2012, the County s incinerator facility sustained significant damage due to a fire and was impaired. The cost to restore the facility includes repairs, replacements and a provision for building code upgrades. The repairs were completed during fiscal year The amount of the B-86

163 Bay County, Florida Notes to Basic Financial Statements September 30, 2014 NOTE 23 ASSET IMPAIRMENT (Continued) Impairment loss was $32,232,104. The total amount of insurance proceeds for the loss received was $47,606,332. The total amount expended, including upgrades, was $41,361,885. As of September 30, 2014, $6,244,447 of insurance proceeds is reported as deferred revenues, until additional enhancements to the building are completed. For fiscal year ended September 30, 2014, business interruption loss amount received was $458,787. NOTE 24 CHANGE IN ACCOUNTING PRINCIPLE During the current year, the County implemented GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. Per GASB 65, certain items that were previously reported as assets and liabilities are now reported as outflows of resources and inflows of resources. Paragraph 15 of GASB 65 indicates that debt issuance costs, except any portion related to prepaid insurance costs, should be recognized as an expense in the period incurred. The County s unamortized debt issuance costs from prior fiscal years are reported as a restatement decreasing beginning net position, as summarized below: Governmental Activities Wholesale Water System Business-type Activities Retail Water & Wastewater Solid Waste Total Businesstype Activities Beginning net position $ 235,341,997 $ 48,204,690 $ 2,866,844 $ 58,867,661 $ 109,939,195 Restatement (1,157,955) (554,315) (359,895) (92,293) (1,006,503) Beginning net position, as restated $ 234,184,042 $ 47,650,375 $ 2,506,949 $ 58,775,368 $ 108,932,692 The restatement of $359,895 for the retail water and wastewater fund includes a $247,644 adjustment in the County s investment in MPAWTF as a result of the GASB 65 restatement in the MPAWTF financial statements. NOTE 25- SUBSEQUENT EVENT On April 7, 2015, the County passed approved Resolution That resolution authorized the County to issue a $40,355,000 Sales Tax Refunding Revenue Note, Series 2015 in order to refund the County s Sales Tax Revenue Bonds, Series The interest rate on the Sales Tax Refunding Revenue Note, Series 2015 is 3.38%. The refunding will provide the County with approximately $3.5 million in savings on future debt service. B-87

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165 APPENDIX C FORM OF THE RESOLUTION

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167 EXECUTION COPY BAY COUNTY, FLORIDA WATER AND SEWER SYSTEM REVENUE BOND RESOLUTION ADOPTED SEPTEMBER 15, 2015

168 TABLE OF CONTENTS PAGE ARTICLE I GENERAL SECTION DEFINITIONS...1 SECTION AUTHORITY FOR RESOLUTION...12 SECTION RESOLUTION TO CONSTITUTE CONTRACT...13 SECTION FINDINGS...13 ARTICLE II AUTHORIZATION, TERMS, EXECUTION AND REGISTRATION OF BONDS SECTION AUTHORIZATION OF BONDS...14 SECTION EXECUTION OF BONDS...14 SECTION AUTHENTICATION...15 SECTION TEMPORARY BONDS...15 SECTION BONDS MUTILATED, DESTROYED, STOLEN OR LOST...15 SECTION INTERCHANGEABILITY, NEGOTIABILITY AND TRANSFER...16 SECTION FORM OF BONDS...17 ARTICLE III REDEMPTION OF BONDS SECTION PRIVILEGE OF REDEMPTION...26 SECTION SELECTION OF BONDS TO BE REDEEMED...26 SECTION NOTICE OF REDEMPTION...26 SECTION REDEMPTION OF PORTIONS OF BONDS...27 SECTION PAYMENT OF REDEEMED BONDS...28 ARTICLE IV SECURITY; FUNDS AND ACCOUNTS; APPLICATION OF GROSS REVENUES SECTION BONDS NOT TO BE INDEBTEDNESS OF ISSUER...29 SECTION SECURITY FOR BONDS...29 SECTION SEPARATE ACCOUNTS...29 SECTION CONSTRUCTION FUND...30 SECTION CREATION OF FUNDS AND ACCOUNTS...31 SECTION DISPOSITION OF GOVERNMENT GRANTS, GROSS REVENUES AND SPECIAL ASSESSMENTS...32 SECTION WATER CONNECTION FEES FUND...40 SECTION SEWER CONNECTION FEES FUND...40 SECTION REBATE FUND...41 SECTION RATE STABILIZATION FUND...42 SECTION INVESTMENTS...42 i

169 ARTICLE V COVENANTS SECTION GENERAL...44 SECTION OPERATION AND MAINTENANCE...44 SECTION ANNUAL BUDGET...44 SECTION 5.04 RATES...44 SECTION BOOKS AND RECORDS...45 SECTION ANNUAL AUDIT...45 SECTION NO MORTGAGE OR SALE OF THE SYSTEM...45 SECTION INSURANCE...46 SECTION NO FREE SERVICE...47 SECTION NO IMPAIRMENT OF RIGHTS; NO COMPETING SYSTEM...47 SECTION COMPULSORY CONNECTIONS...48 SECTION ENFORCEMENT OF CHARGES...48 SECTION UNIT BILLS...48 SECTION COVENANTS WITH CREDIT BANKS AND INSURERS...48 SECTION COLLECTION OF SPECIAL ASSESSMENTS...48 SECTION RE-ASSESSMENTS...49 SECTION COLLECTION OF CONNECTION FEES...49 SECTION CONSULTING ENGINEERS...49 SECTION FEDERAL INCOME TAXATION COVENANTS; TAXABLE BONDS...49 SECTION COVENANTS RELATING TO FEDERAL SUBSIDY BONDS...50 SECTION COMBINING WITH WHOLESALE WATER SYSTEM...50 ARTICLE VI SUBORDINATED INDEBTEDNESS AND ADDITIONAL BONDS SECTION SUBORDINATED INDEBTEDNESS...52 SECTION ISSUANCE OF ADDITIONAL BONDS...52 SECTION BOND ANTICIPATION NOTES...55 SECTION ACCESSION OF SUBORDINATED INDEBTEDNESS TO PARITY STATUS WITH BONDS...55 ARTICLE VII DEFAULTS AND REMEDIES SECTION EVENTS OF DEFAULT...56 SECTION REMEDIES...56 SECTION DIRECTIONS TO TRUSTEE AS TO REMEDIAL PROCEEDINGS...57 SECTION REMEDIES CUMULATIVE...57 SECTION WAIVER OF DEFAULT...57 SECTION APPLICATION OF MONEYS AFTER DEFAULT...57 SECTION CONTROL BY INSURER...58 ii

170 ARTICLE VIII SUPPLEMENTAL RESOLUTIONS SECTION SUPPLEMENTAL RESOLUTION WITHOUT BONDHOLDERS' CONSENT...60 SECTION SUPPLEMENTAL RESOLUTION WITH BONDHOLDERS' AND INSURER'S CONSENT...60 SECTION AMENDMENT WITH CONSENT OF INSURER ONLY...62 SECTION ARTICLE IX DEFEASANCE DEFEASANCE...63 ARTICLE X MISCELLANEOUS SECTION CAPITAL APPRECIATION BONDS...65 SECTION SALE OF BONDS...65 SECTION SEVERABILITY OF INVALID PROVISIONS...65 SECTION VALIDATION AUTHORIZED...65 SECTION REPEAL OF INCONSISTENT RESOLUTIONS...65 SECTION EFFECTIVE DATE...65 iii

171 RESOLUTION NO A RESOLUTION OF THE BOARD OF COUNTY COMMISSIONERS OF BAY COUNTY, FLORIDA AUTHORIZING THE ISSUANCE OF WATER AND SEWER SYSTEM REVENUE BONDS FROM TIME TO TIME FOR THE PRINCIPAL PURPOSES OF FINANCING AND REFINANCING THE ACQUISITION, CONSTRUCTION AND EQUIPPING OF CAPITAL IMPROVEMENTS TO THE COUNTY'S WATER AND SEWER UTILITY SYSTEM AND FOR OTHER LAWFUL PURPOSES; PLEDGING THE NET REVENUES OF THE COUNTY'S WATER AND SEWER UTILITY SYSTEM AND OTHER FUNDS TO SECURE PAYMENT OF THE PRINCIPAL OF AND INTEREST ON BONDS ISSUED HEREUNDER; PROVIDING FOR PAYMENT OF THE BONDS FROM SUCH REVENUES AND OTHER FUNDS; PROVIDING FOR THE RIGHTS OF THE HOLDERS OF BONDS ISSUED HEREUNDER; MAKING CERTAIN OTHER COVENANTS AND AGREEMENTS IN CONNECTION WITH BONDS ISSUED HEREUNDER; AND PROVIDING FOR AN EFFECTIVE DATE FOR THIS RESOLUTION. NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF COUNTY COMMISSIONERS OF BAY COUNTY, FLORIDA that: ARTICLE I GENERAL SECTION DEFINITIONS. When used in this Resolution, the following terms shall have the following meanings, unless the context clearly otherwise requires: "Accreted Value" shall mean, as of any date of computation with respect to any Capital Appreciation Bond, an amount equal to the principal amount of such Capital Appreciation Bond (the principal amount at its initial offering) plus the interest accrued on such Capital Appreciation Bond from the date of delivery to the original purchasers thereof to the Interest Date next preceding the date of computation or the date of computation if an Interest Date, such interest to accrue at a rate not exceeding the legal rate, compounded semiannually, plus, with respect to matters related to the payment upon redemption or acceleration of the Capital Appreciation Bonds, if such date of computation shall not be an Interest Date, a portion of the difference between the Accreted Value as of the immediately preceding Interest Date and the Accreted Value as of the immediately succeeding Interest Date, calculated based on the assumption that Accreted Value accrues during any semi-annual period in equal daily amounts on the basis of a 360-day year. "Act" shall mean Chapter 125, Florida Statutes, the Constitution of the State of Florida, and other applicable provisions of law. "Additional Bonds" shall mean the obligations issued at any time under the provisions of Section 6.02 hereof on parity with any Outstanding Bonds.

172 "Annual Audit" shall mean the annual audit prepared pursuant to the requirements of Section 5.06 hereof. "Annual Budget" shall mean the annual budget prepared pursuant to the requirements of Section 5.03 hereof. "Annual Debt Service" shall mean the aggregate amount of Debt Service on the Bonds for each applicable Fiscal Year. Notwithstanding the foregoing, any interest payments or principal payments or Sinking Fund Installments with respect to any Outstanding Bonds or proposed Additional Bonds that are due and payable on October 1, shall be considered to be due and payable on the immediately preceding September 30 for purposes of determining Annual Debt Service for such Bonds hereunder. "Authorized Investments" shall mean any investments that may be made by the Issuer under applicable law and which are allowed under the Issuer's investment policy. "Authorized Issuer Officer" shall mean the Chairman (or his or her designee), the Clerk, and when used in reference to any act or document, also means any other person authorized by resolution of the Issuer to perform such act or sign such document. entity. "Board" means the Bay County Board of County Commissioners, or any successor "Bond Counsel" shall mean Nabors, Giblin & Nickerson, P.A. or any other attorney at law or firm of attorneys, of nationally recognized standing in matters pertaining to the federal tax exemption of interest on obligations issued by states and political subdivisions, and duly admitted to practice law before the highest court of any state of the United States of America. "Bond Insurance Policy" shall mean the municipal bond new issue insurance policy or policies issued by an Insurer guaranteeing the payment of the principal of and interest on any portion of the Bonds. "Bondholder" or "Holder" or "holder" or any similar term, when used with reference to a Bond or Bonds, shall mean any person who shall be the registered owner of any Outstanding Bond or Bonds as provided in the registration books of the Issuer. "Bonds" shall mean any Bonds issued pursuant to this Resolution and any Subordinated Indebtedness which accedes to the status of Bonds pursuant to Section 6.04 hereof. "Capital Appreciation Bonds" shall mean those Bonds of a Series so designated under the authority of the Issuer, whether by Supplemental Resolution, purchase contract, or otherwise, which may be either Serial Bonds or Term Bonds and which shall bear interest payable at maturity or redemption. In the case of Capital Appreciation Bonds that are convertible to Bonds with interest payable prior to maturity or redemption of such Bonds, such Bonds shall be considered Capital Appreciation Bonds only during the period of time prior to such conversion. "Capital Government Grant," when used with respect to the System, shall mean any sum of money heretofore or hereafter received by the Issuer from the United States of America 2

173 or any agency thereof or from the State of Florida or any agency or political subdivision thereof as or on account of a grant or contribution, not repayable by the Issuer, for or with respect to the construction, acquisition or other development of an addition, extension or improvement to any part of the System or any costs of any such construction, acquisition or development. "Chairman" shall mean the Chairman of the Board of County Commissioners or, in his or her absence or unavailability, his or her duly appointed designee. "Clerk" shall mean the Clerk of the Circuit Court, ex officio Clerk of the Board of County Commissioners of Bay County, Florida, or such other person as may be duly authorized to act on his or her behalf, including but not limited to any Deputy Clerk. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the regulations and rules thereunder in effect or proposed. "Connection Fees" shall mean, collectively, the Sewer Connection Fees and the Water Connection Fees. "Construction Fund" shall mean the fund established pursuant to Section 4.04 hereof. "Consulting Engineers" shall mean any engineering firm of reputation for skill and experience with respect to the construction, maintenance and operation of facilities similar to the facilities that make up all or a portion of the System, which is duly licensed under the laws of the State of Florida and designated by the Issuer to perform the duties of the Consulting Engineers under the provisions hereof. "Cost," when used in connection with a Project, shall mean (1) the Issuer's cost of physical construction; (2) costs of acquisition by or for the Issuer of such Project; (3) costs of land and interests therein and the cost of the Issuer incidental to such acquisition; (4) the cost of any indemnity and surety bonds and premiums for insurance during construction; (5) all interest due to be paid on the Bonds and other obligations relating to the System during the period of acquisition and construction of such Project and for such period subsequent to completion as the Issuer shall determine and shall be allowable under applicable provisions of the Code; (6) engineering, legal and other consultant fees and expenses; (7) costs and expenses of the financing, including audits, fees and expenses of any Paying Agent, Registrar, escrow agent or depository; (8) amounts, if any, required by this Resolution to be paid into the Interest Account upon the issuance of any Series of Bonds; (9) payments, when due (whether at the maturity of principal or the due date of interest or upon redemption) on any indebtedness of the Issuer (other than the Bonds) incurred for a Project for the System; (10) costs of machinery, equipment and supplies and reserves required by the Issuer for the commencement of operation of such Project; and (11) any other costs properly attributable to such construction or acquisition, as determined by generally accepted accounting principles applicable to public utility systems similar to the System, and shall include reimbursement to the Issuer for any such items of Cost heretofore paid by the Issuer and interest on any interfund loan related thereto. Any Supplemental Resolution may provide for additional items to be included in the aforesaid Costs. 3

174 "Counterparty" shall mean the entity entering into a Hedge Agreement with the Issuer. Counterparty shall also include any guarantor of such entity's obligations under such Hedge Agreement. "Credit Bank" shall mean as to any particular Series of Bonds, the Person (other than an Insurer) providing a letter of credit, a line of credit or other credit or liquidity facility, as designated in the Supplemental Resolution providing for the issuance of such Bonds. "Credit Facility" shall mean as to any particular Series of Bonds, an irrevocable letter of credit, a line of credit or other credit or legal liquidity facility (other than a Bond Insurance Policy), as approved in the Supplemental Resolution providing for the issuance of such Bonds. "Debt Service" shall mean, at any time, the aggregate amount in the then applicable period of time of (1) interest required to be paid on the Outstanding Bonds during such period of time, except to the extent that such interest is to be paid from deposits in the Interest Account or Construction Fund made from Bond proceeds for such purpose, (2) principal of Outstanding Serial Bonds maturing in such period of time, and (3) the Sinking Fund Installments scheduled to be paid during such period of time. For purposes of this definition, (A) all amounts payable on a Capital Appreciation Bond shall be considered a principal payment in the year it becomes due, (B) with respect to debt service on any Bonds which relate to a Qualified Hedge Agreement, interest on such Bonds during the term of such Qualified Hedge Agreement shall be deemed to be the Hedge Payments coming due during such period of time, (C) if any Series of Bonds has 25% or more of the aggregate principal amount of such Series coming due in any one year, Debt Service shall be determined on such Series during such period of time as if the principal of and interest on such Series were being paid from the date of issuance thereof in substantially equal annual amounts over a period of 25 years, (D) the amount, if any, on deposit in the Reserve Account (or any subaccount thereof), on any date of calculation of Debt Service shall be deducted from the amount of principal due at the final maturity of the Bonds which are secured by such Reserve Account (or subaccount thereof) and in each preceding year until such amount is exhausted, and (E) with respect to debt service on any Federal Subsidy Bonds, when determining the interest on such Bonds for any particular Interest Date the amount of the corresponding Federal Subsidy Payment shall be deducted from the amount of interest which is due and payable to the holders of such Bonds on the Interest Date, but only to the extent that the Issuer reasonably believes that it will be in receipt of such Federal Subsidy Payment on or prior to such Interest Date. "Debt Service Reserve Fund Policy Agreement" shall mean any agreement securing the obligation of the Issuer to repay Policy Costs associated with a Reserve Account Letter of Credit or Reserve Account Insurance Policy. "Federal Securities" shall mean non-callable direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of Treasury) or non-callable obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. All such obligations shall not permit redemption prior to maturity at the option of the obligor. 4

175 "Federal Subsidy Bonds" shall mean bonds issued under Section 54AA of the Code, Section 1400U-2 of the Code or any other applicable provision of the Code, the interest on which is not exempt from federal income taxation, with respect to which the Issuer elects to receive, or is otherwise entitled to receive, Federal Subsidy Payments from the United States Department of the Treasury. "Federal Subsidy Payments" shall mean the direct payments made by the United States Department of the Treasury to the Issuer with respect to any Federal Subsidy Bonds pursuant to Sections 54AA(g), 6431 and 1400U-2 of the Code, or any other applicable provision of the Code. "Fiscal Year" shall mean the period commencing on October 1 of each year and continuing through the next succeeding September 30, or such other period as may be prescribed by law. "Fitch" means Fitch Ratings and any assigns and successors thereto. "Governing Body" shall mean the Board of County Commissioners of Bay County, Florida, or its successor in function. "Gross Revenues" shall mean all income and moneys received by the Issuer from the rates, fees, rentals, charges and other income to be made and collected by the Issuer for the use of the products, services and facilities to be provided by the System, or otherwise received by the Issuer or accruing to the Issuer in the management and operation of the System, calculated in accordance with generally accepted accounting principles applicable to public utility systems similar to the System, including, without limiting the generality of the foregoing, (1) moneys deposited from the Rate Stabilization Fund into the Revenue Fund in accordance with the terms hereof, provided any moneys transferred from the Rate Stabilization Fund into the Revenue Fund within 120 days following the end of a Fiscal Year may be designated by the Issuer as Gross Revenues of such prior Fiscal Year, (2) proceeds from use and occupancy insurance on the System, (3) Investment Earnings, and (4) Operating Government Grants. "Gross Revenues" shall not include (A) Capital Government Grants, (B) proceeds of Bonds or other Issuer debt, (C) moneys deposited to the Rate Stabilization Fund from the Utility Reserve Fund, including any moneys transferred from the Utility Reserve Fund to the Rate Stabilization Fund within 120 days following the end of a Fiscal Year which the Issuer determines not to be Gross Revenues of such prior Fiscal Year, (D) Sewer Connection Fees, (E) Water Connection Fees, (F) Special Assessments Proceeds, unless subsequently pledged by Supplemental Resolution, and (G) any gain resulting from the valuation of investment securities or Hedge Agreements at market value and any other gain that does not require or result in the receipt of cash. Gross Revenues may include Special Assessments Proceeds and/or other revenues related to the System which are not enumerated in the definition of "Gross Revenues" if so authorized by Supplemental Resolution and if and to the extent the same shall be approved for inclusion by all Insurers and Credit Banks. "Hedge Agreement" shall mean an agreement in writing between the Issuer and the Counterparty pursuant to which (1) the Issuer agrees to pay to the Counterparty an amount, either at one time or periodically, which may, but is not required to, be determined by reference to the 5

176 amount of interest (which may be at a fixed or variable rate) payable on a notional amount specified in such agreement during the period specified in such agreement and (2) the Counterparty agrees to pay to the Issuer an amount, either at one time or periodically, which may, but is not required to, be determined by reference to the amount of interest (which may be at a fixed or variable rate) payable on all or a portion of a notional amount specified in such agreement during the period specified in such agreement. Hedge Agreement shall also include any financial product or agreement which is used by the Issuer as a hedging device with respect to its obligations to pay interest on Bonds, or any portion thereof, which is designated by the Issuer as a "Hedge Agreement." "Hedge Payments" shall mean any amounts payable by the Issuer as interest on the related notional amount under a Qualified Hedge Agreement; excluding, however, any payments due as a penalty or a fee or by virtue of termination of a Qualified Hedge Agreement or any obligation to provide collateral. "Hedge Receipts" shall mean any amounts receivable by the Issuer on the related notional amount under a Qualified Hedge Agreement. "Insurer" shall mean such Person as shall be in the business of insuring or guaranteeing the payment of principal of and interest on municipal securities and whose credit is such that, at the time of any action or consent required or permitted by the Insurer pursuant to the terms of this Resolution, all municipal securities insured or guaranteed by it are then rated, because of such insurance or guarantee, in one of the three highest categories (without regard to gradations, such as "+" or "-" or "1, 2 or 3" of such categories) by at least one of the Rating Agencies. "Interest Account" shall mean the separate account in the Sinking Fund established pursuant to Section 4.05(C) hereof. "Interest Date" or "interest payment date" shall be such date or dates for the payment of interest on the Bonds as provided pursuant to Section 2.01 hereof and by Supplemental Resolution. "Investment Earnings" shall mean all income and earnings derived from the investment of moneys in the funds and accounts established hereunder, other than the Rebate Fund. "Issuer" shall mean Bay County, Florida, and also includes any authority or other governmental entity to which may hereafter be transferred some or all of the powers and responsibilities of the Issuer with respect to the ownership, financing, operation, enlargement, improvement and maintenance of the System. "Maximum Annual Debt Service" shall mean the largest aggregate amount of the Annual Debt Service becoming due in any Fiscal Year in which Bonds are Outstanding. "Maximum Interest Rate" shall mean, with respect to any particular Variable Rate Bonds, a numerical rate of interest, which shall be set forth in, or determined in accordance with, the Supplemental Resolution of the Issuer authorizing the issuance of such Bonds, or in such other documentation relating to such Variable Rate Bonds, that shall be the maximum rate of interest such Bonds may at any particular time bear. 6

177 "Moody's" shall mean Moody's Investors Service, and any assigns and successors thereto. "Net Revenues" shall mean Gross Revenues less Operating Expenses. "Operating Expenses" shall mean the Issuer's expenses for operation, maintenance and repairs with respect to the System and shall include, without limiting the generality of the foregoing, administration expenses, payments for the purchase of materials essential to or used in the operation of the System including bulk purchases of water or sewage services, fees for the management of the System or any portion thereof, accounting, legal and engineering expenses, ordinary and current rentals of equipment or other property, refunds of moneys lawfully due to others, payments to others for disposal of sewage or other wastes, payments to pension, retirement, health and hospitalization funds, and any other expenses required to be paid for or with respect to proper operation or maintenance of the System, including appropriate reserves therefor, all to the extent properly attributable to the System in accordance with generally accepted accounting principles applicable to public utility systems similar to the System, and disbursements for the expenses, liabilities and compensation of any Paying Agent or Registrar under this Resolution, but does not include any costs or expenses in respect of original construction or improvement other than expenditures necessary to prevent an interruption or continuance of an interruption of service or of Gross Revenues or minor capital expenditures necessary for the proper and economical operation or maintenance of the System, or any payments in lieu of taxes or franchise fees made to the Issuer's general fund, or any provision for interest, depreciation, amortization or similar charges, or any loss resulting from the valuation of investment securities or Hedge Agreements at market value and any other loss that does not require or result in the expenditure of cash. "Operating Government Grant," when used with respect to the System, shall mean any sum of money heretofore or hereafter received by the Issuer from the United States of America or any agency thereof or from the State of Florida or any agency or political subdivision thereof as or on account of a grant or contribution, not repayable by the Issuer, for the purpose of funding Operating Expenses or paying Debt Service on Bonds or otherwise allowed by the terms thereof to be used to pay Operating Expenses or Debt Service. "Operation and Maintenance Fund" shall mean the fund created pursuant to Section 4.05(B) hereof. "Outstanding," when used with reference to Bonds and as of any particular date, shall describe all Bonds theretofore and thereupon being authenticated and delivered except, (1) any Bond in lieu of which other Bond or Bonds have been issued under agreement to replace lost, mutilated or destroyed Bonds, (2) any Bond surrendered by the Holder thereof in exchange for other Bond or Bonds under Sections 2.05 and 2.06 hereof, (3) Bonds deemed to have been paid pursuant to Section 9.01 hereof and (4) Bonds cancelled after purchase in the open market or because of payment at, or redemption prior to, maturity. "Paying Agent" shall mean for each Series of Bonds, the paying agent appointed by the Issuer for such Series of Bonds and its successor or assigns, if any. 7

178 "Person" shall mean an individual, a corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization, governmental entity or other legal entity. "Pledged Funds" shall mean (1) the Net Revenues, (2) the Connection Fees and (3) until applied in accordance with the provisions of this Resolution, all moneys, including investments thereof, in the funds and accounts established hereunder, except (A) as for the Rebate Fund, (B) to the extent moneys therein shall be required to pay the Operating Expenses of the System in accordance with the terms hereof, and (C) any moneys set aside in a particular subaccount of the Reserve Account if such moneys shall be pledged solely for the payment of a Series of Bonds for which it was established in accordance with the provisions hereof. "Policy Costs" shall mean, collectively, the repayment of draws, reasonable expenses and interest related to a Reserve Account Insurance Policy and/or Reserve Account Letter of Credit. "Prerefunded Obligations" shall mean any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state (1) which are (A) not callable prior to maturity or (B) as to which irrevocable instructions have been given to the fiduciary for such bonds or other obligations by the obligor to give due notice of redemption and to call such bonds for redemption on the date or dates specified in such instructions, (2) which are fully secured as to principal, redemption premium, if any, and interest by a fund held by a fiduciary consisting only of cash or Federal Securities, secured in substantially the manner set forth in Section 9.01 hereof, which fund may be applied only to the payment of such principal of, redemption premium, if any, and interest on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as the case may be, (3) as to which the principal of and interest on the Federal Securities, which have been deposited in such fund along with any cash on deposit in such fund are sufficient, as verified by an independent certified public accountant or other expert in such matters, to pay principal of, redemption premium, if any, and interest on the bonds or other obligations on the maturity date or dates thereof or on the redemption date or dates specified in the irrevocable instructions referred to in clause (1) above and are not available to satisfy any other claims, including those against the fiduciary holding the same, and (4) which are rated in the highest rating category (without regard to gradations, such as "+" or "-" or "1, 2 or 3" of such categories) of one of the Rating Agencies. "Principal Account" shall mean the separate account in the Sinking Fund established pursuant to Section 4.05(C) hereof. "Project" shall mean any structure, property or facility for public use which the Issuer from time to time may determine to construct, acquire or equip as part of the System, together with all equipment, structures and other facilities necessary or appropriate in connection therewith which are financed in whole or in part with the indebtedness secured by this Resolution. This term is to be broadly construed as including any lawful undertaking which will accrue to the benefit of the System, including, without limitation, financing improvements to the Issuer's facilities, joint ventures and acquisition of partial interests or contractual rights, and including modification, disposal, replacement or cancellation of a Project previously authorized, 8

179 should such modification, disposal, replacement or cancellation be permitted under this Resolution. "Qualified Hedge Agreement" shall mean a Hedge Agreement with a Counterparty that at the time it enters into such Hedge Agreement is rated "A-" or better by Standard & Poor's and "A3" or better by Moody's. "Rate Consultant" shall mean any accountant, engineer or consultant or firm of accountants, engineers or consultants chosen by the Issuer with reputation for skill and experience in reviewing and recommending rates, fees and charges for utility systems similar to the System. "Rate Stabilization Fund" shall mean the "Rate Stabilization Fund" established pursuant to Section 4.05(J) hereof. "Rating Agencies" means Fitch, Moody's and Standard & Poor's. "Rebate Fund" shall mean the Rebate Fund established pursuant to Section 4.05(I) hereof. "Redemption Price" shall mean, with respect to any Bond or portion thereof, the principal amount or portion thereof, plus the applicable premium, if any, payable upon redemption thereof pursuant to such Bond or this Resolution. "Refunding Securities" shall mean Federal Securities and Prerefunded Obligations. "Registrar" shall mean for each Series of Bonds, the bond registrar appointed by the Issuer for such Series of Bonds and its successor or assigns, if any. "Renewal and Replacement Fund" shall mean the fund created pursuant to Section 4.05(G) hereof. "Renewal and Replacement Fund Requirement" shall mean, on the date of calculation, an amount of money equal to (1) five percent of the Gross Revenues received by the Issuer in the immediately preceding Fiscal Year, or (2) such greater or lesser amount as may be certified to the Issuer by the Consulting Engineers as an amount appropriate for the purposes of this Resolution. "Reserve Account" shall mean the separate account in the Sinking Fund established pursuant to Section 4.05(C) hereof. "Reserve Account Insurance Policy" shall mean the insurance policy deposited in the Reserve Account in lieu of or in partial substitution for cash on deposit therein pursuant to Section 4.06(B)(4). "Reserve Account Letter of Credit" shall mean a letter of credit or line of credit or other credit facility (other than a Reserve Account Insurance Policy) deposited in the Reserve 9

180 Account in lieu of or in partial substitution for cash on deposit therein pursuant to Section 4.06(B)(4) hereof. "Reserve Account Requirement" shall mean, as of any date of calculation for the Reserve Account or subaccount therein, an amount equal to the lesser of (1) Maximum Annual Debt Service for all Outstanding Bonds secured thereby, (2) 125% of the average Annual Debt Service for all Outstanding Bonds secured thereby, or (3) the maximum amount of Bond proceeds which may be deposited to the Reserve Account without subjecting the same to yield restriction under the Code, or causing interest on any of the Bonds secured thereby (other than Taxable Bonds) to be included in gross income for purposes of federal income taxation or otherwise violating applicable provisions of the Code; provided, however, the Issuer may establish by Supplemental Resolution a different Reserve Account Requirement with respect to any particular Series of Bonds pursuant to Section 4.06(B)(4) hereof, which Reserve Account Requirement may be $0.00. In computing the Reserve Account Requirement in respect of a Series of Bonds that constitutes Variable Rate Bonds, the interest rate on such Bonds shall be assumed to be (A) if such Variable Rate Bonds have been Outstanding for at least 12 months prior to the date of calculation, the highest of (i) the actual rate of interest on the date of calculation, (ii) the average interest rate borne by such Variable Rate Bonds for the 12-month period immediately preceding each date of calculation, and (iii) the Bond Buyer Revenue Bond Index most recently published prior to the time of calculation, and (B) if such Variable Rate Bonds have not been Outstanding for at least 12 months prior to the date of calculation, the higher of (i) the actual rate of interest on the date of calculation, and (ii) the Bond Buyer Revenue Bond Index most recently published prior to the time of calculation. The Reserve Account Requirement shall be calculated as of April 1 of each year with respect to the next succeeding Fiscal Year. "Resolution" shall mean this Resolution, as the same may from time to time be amended, modified or supplemented by Supplemental Resolution. "Revenue Fund" shall mean the fund created pursuant to Section 4.05(A) hereof. "Serial Bonds" shall mean all of the Bonds other than the Term Bonds. "Series" shall mean all the Bonds delivered on original issuance in a simultaneous transaction and identified pursuant to Section 2.01 hereof or a Supplemental Resolution authorizing the issuance by the Issuer of such Bonds as a separate Series, regardless of variations in maturity, interest rate, Sinking Fund Installments or other provisions. "Sewer Connection Fees" shall mean the fees and charges, if any, which relate to acquiring, constructing, equipping or expanding the capacity of the sewer facilities of the System for the purpose of paying or reimbursing the equitable share of the capital cost relating to such acquisition, construction, expansion or equipping of capacity of the sewer facilities or expansion thereof in order to serve new users of the sewer facilities of the System, to the extent the same are lawfully levied, collected and pledged. "Sewer Connection Fees" include those fees and charges currently known under Florida law as "impact fees" but shall not include fees and charges imposed for the cost of physically hooking up or connecting to the System. 10

181 "Sewer Connection Fees Fund" shall mean the fund created pursuant to Section 4.05(E) hereof. "Sinking Fund" shall mean the fund established pursuant to Section 4.05(C) hereof. "Sinking Fund Installment" shall mean an amount designated as such by Supplemental Resolution of the Issuer and established with respect to the Term Bonds. "Special Assessments" means any and all assessments against property benefited by the System or any part thereof, but special assessments shall be subject to the provisions and lien and pledge of this Resolution only if and to the extent provision for inclusion as part of the Gross Revenues has been made by Supplemental Resolution to be adopted by the Issuer. "Special Assessments Fund" shall mean the fund created pursuant to Section 4.05(F) hereof. "Special Assessments Proceeds" means the proceeds of Special Assessments pledged hereunder (principal and interest), whether paid at one time or in installments from time to time. "Standard and Poor's" or "S&P" shall mean Standard and Poor's Ratings Services, and any assigns and successors thereto. "State" shall mean the State of Florida. "Subordinated Indebtedness" shall mean that indebtedness of the Issuer, subordinate and junior to the Bonds, issued in accordance with the provisions of Section 6.01 hereof or deemed subordinate and junior to the Bonds in accordance with the provisions hereof or in accordance with the provisions of such Subordinated Indebtedness. "Supplemental Resolution" shall mean any resolution of the Issuer amending or supplementing this Resolution enacted and becoming effective in accordance with the terms of Sections 8.01, 8.02 and 8.03 hereof. "System" shall mean any and all water production, transmission, treatment and distribution facilities, sewage collection, transmission, treatment and disposal facilities and reclaimed water (reuse) facilities now owned or hereafter owned by the Issuer, which System shall also include any and all improvements, extensions and additions thereto hereafter constructed or acquired either from the proceeds of Bonds or from any other sources, together with all property, real or personal, tangible or intangible, now or hereafter owned or used in connection therewith, including all contractual rights, rights to capacity and obligations or undertakings associated therewith. "System" shall also include any other utility facilities if and to the extent the Issuer determines by Supplemental Resolution to include such utility or facilities within the System as described herein. Notwithstanding the foregoing, "System" shall not include the Issuer's wholesale water production, treatment and transmission system, or the Issuer's ownership interest in the Military Point Advanced Wastewater Treatment facility, or any facilities added to or acquired in connection with such facilities, unless the Issuer elects by Supplemental Resolution to do so and meets the requirements of Section 5.21 hereof. 11

182 "Taxable Bonds" means any Bond, other than Federal Subsidy Bonds, which states, in the body thereof, that the interest income thereon is includable in the gross income of the Holder thereof for federal income taxation purposes or that such interest is subject to federal income taxation. Except as otherwise provided herein, Taxable Bonds shall not include Federal Subsidy Bonds. "Term Bonds" shall mean those Bonds which shall be designated as Term Bonds hereby or by Supplemental Resolution of the Issuer. "Term Bonds Redemption Account" shall mean the separate account in the Sinking Fund established pursuant to Section 4.05(C) hereof. "Utility Reserve Fund" shall mean the fund created pursuant to Section 4.05(H) hereof. "Variable Rate Bonds" shall mean Bonds issued with a variable, adjustable, convertible or other similar rate which is not fixed in percentage for the entire term thereof at the date of issue. "Water Connection Fees" shall mean the fees and charges, if any, which relate to acquiring, constructing, equipping or expanding the capacity of the water facilities of the System for the purpose of paying or reimbursing the equitable share of the capital cost relating to such acquisition, construction, expansion or equipping of capacity of the water facilities or expansion thereof in order to serve new users of the water facilities of the System, to the extent the same are lawfully levied, collected and pledged. "Water Connection Fees" include those fees and charges currently known under Florida law as "impact fees" but shall not include fees and charges imposed for the cost of physically hooking up or connecting to the System. "Water Connection Fees Fund" shall mean the fund created pursuant to Section 4.05(D) hereof. The terms "herein," "hereunder," "hereby," "hereto," "hereof," and any similar terms, shall refer to this Resolution; the term "heretofore" shall mean before the date of adoption of this Resolution; and the term "hereafter" shall mean after the date of adoption of this Resolution. Words importing the masculine gender include every other gender. Words importing the singular number include the plural number, and vice versa. SECTION AUTHORITY FOR RESOLUTION. This Resolution is adopted pursuant to the provisions of the Act. The Issuer has ascertained and hereby determined that adoption of this Resolution is necessary to carry out the powers, purposes and duties expressly provided in the Act, that each and every matter and thing as to which provision is made herein is necessary in order to carry out and effectuate the purposes of the Issuer in accordance with the Act and to carry out and effectuate the plan and purpose of the Act, and that the powers of the Issuer herein exercised are in each case exercised in accordance with the provisions of the Act and in furtherance of the purposes of the Issuer. 12

183 SECTION RESOLUTION TO CONSTITUTE CONTRACT. In consideration of the purchase and acceptance of any or all of the Bonds by those who shall hold the same from time to time, the provisions of this Resolution shall be a part of the contract of the Issuer with the Holders of the Bonds, and shall be deemed to be and shall constitute a contract between the Issuer, the Holders from time to time of the Bonds and any Insurer or Credit Bank. The pledge made in the Resolution and the provisions, covenants and agreements herein set forth to be performed by or on behalf of the Issuer shall be for the equal benefit, protection and security of the Holders of any and all of said Bonds and any Insurer or Credit Bank, but only to the extent and in accordance with the terms hereof. All of the Bonds, regardless of the time or times of their issuance or maturity, shall be of equal rank without preference, priority or distinction of any of the Bonds over any other thereof except as expressly provided in or pursuant to this Resolution. that: SECTION FINDINGS. It is hereby ascertained, determined and declared (A) The Issuer has heretofore determined that it is necessary and in the best interests of the health, safety and welfare of the Issuer and its inhabitants that the Issuer own, operate, maintain, improve, manage and expand the System. (B) It is necessary and desirable and in the best interests of the Issuer to borrow moneys from time to time to improve and expand the System and to refinance certain indebtedness related to the System. (C) The Bonds issued hereunder shall be secured by the Pledged Funds as provided herein and such Pledged Funds have not been pledged or encumbered except with respect to certain previously issued indebtedness which shall be refunded simultaneously with or prior to the first issuance of Bonds hereunder. (D) The estimated Gross Revenues to be derived in each year hereafter from the operation of the System will be sufficient to pay all the Operating Expenses, the principal of and interest on the Bonds and Subordinated Indebtedness, as the same become due, and all other payments provided for in this Resolution. (E) The principal of and interest on the Bonds and Subordinated Indebtedness and all other payments provided for in this Resolution will be paid solely from the Pledged Funds in accordance with the terms hereof; and the ad valorem taxing power of the Issuer will never be necessary or authorized to pay the principal of and interest on the Bonds and Subordinated Indebtedness, or to make any other payments provided for in this Resolution, and neither the Bonds nor any Subordinated Indebtedness shall constitute a lien upon the System or upon any other property whatsoever of or in the Issuer. [Remainder of page intentionally left blank] 13

184 ARTICLE II AUTHORIZATION, TERMS, EXECUTION AND REGISTRATION OF BONDS SECTION AUTHORIZATION OF BONDS. This Resolution creates an issue of Bonds of the Issuer to be designated as "Bay County, Florida Water and Sewer System Revenue Bonds" which may be issued in one or more Series as hereinafter provided. The aggregate principal amount of the Bonds which may be executed and delivered under this Resolution is not limited except as is or may hereafter be provided in this Resolution or as limited by the Act. The Bonds may, if and when authorized by the Issuer pursuant to this Resolution, be issued in one or more Series, with such further appropriate particular designations added to or incorporated in such title for the Bonds of any particular Series as the Issuer may determine and as may be necessary to distinguish such Bonds from the Bonds of any other Series. Each Bond shall bear upon its face the designation so determined for the Series to which it belongs. The Bonds shall be issued for such purpose or purposes; shall bear interest at such rate or rates not exceeding the maximum rate permitted by law; and shall be payable in lawful money of the United States of America on such dates; all as determined by Supplemental Resolution of the Issuer. The Bonds shall be issued in such denominations and such form, whether coupon or registered; shall be dated such date; shall bear such numbers; shall be payable in such manner and at such place or places; shall contain such redemption provisions; shall have such Paying Agents and Registrars; shall mature in such years and amounts; shall bear interest at such rates, shall have such Interest Dates and the proceeds shall be used in such manner; all as determined or provided for by Supplemental Resolution of the Issuer. The Issuer may issue Bonds which may be secured by a Credit Facility or by a Bond Insurance Policy all as shall be determined by Supplemental Resolution of the Issuer. All other terms and provisions with respect to any Series of Bonds shall be determined in accordance with a Supplemental Resolution. The Governing Body may delegate approval of the terms, details and sale of a Series of Bonds to an Authorized Issuer Officer pursuant to a Supplemental Resolution. SECTION EXECUTION OF BONDS. The Bonds shall be executed in the name of the Issuer with the manual or facsimile signature of the Chairman, and the official seal of the Issuer shall be imprinted thereon, attested and countersigned with the manual or facsimile signature of the Clerk. In case any one or more of the officers who shall have signed or sealed any of the Bonds or whose facsimile signature shall appear thereon shall cease to be such officer of the Issuer before the Bonds so signed and sealed have been actually sold and delivered, such Bonds may nevertheless be sold and delivered as herein provided and may be issued as if the person who signed or sealed such Bonds had not ceased to hold such office. Any Bond may be signed and sealed on behalf of the Issuer by such person who at the actual time of the execution of such Bond shall hold the proper office of the Issuer, although at the date of such Bond such person may not have held such office or may not have been so authorized. The Issuer may adopt and use for such purposes the facsimile signatures of any such persons who shall have held such offices at any time after the date of the adoption of this Resolution, notwithstanding that either or 14

185 both shall have ceased to hold such office at the time the Bonds shall be actually sold and delivered. SECTION AUTHENTICATION. No Bond of any Series shall be secured hereunder or entitled to the benefit hereof or shall be valid or obligatory for any purpose unless there shall be manually endorsed on such Bond a certificate of authentication by the Registrar or such other entity as may be approved by the Issuer for such purpose. Such certificate on any Bond shall be conclusive evidence that such Bond has been duly authenticated and delivered under this Resolution. The form of such certificate shall be substantially in the form provided in Section 2.07 hereof. SECTION TEMPORARY BONDS. Until the definitive Bonds of any Series are prepared, the Issuer may execute, in the same manner as is provided in Section 2.02, and deliver, upon authentication by the Registrar pursuant to Section 2.03 hereof, in lieu of definitive Bonds, but subject to the same provisions, limitations and conditions as the definitive Bonds, except as to the denominations thereof, one or more temporary Bonds substantially of the tenor of the definitive Bonds in lieu of which such temporary Bond or Bonds are issued, in denominations authorized by the Issuer by subsequent resolution and with such omissions, insertions and variations as may be appropriate to temporary Bonds. The Issuer, at its own expense, shall prepare and execute definitive Bonds, which shall be authenticated by the Registrar. Upon the surrender of such temporary Bonds for exchange, the Registrar, without charge to the Holder thereof, shall deliver in exchange therefor definitive Bonds, of the same aggregate principal amount and Series and maturity as the temporary Bonds surrendered. Until so exchanged, the temporary Bonds shall in all respects be entitled to the same benefits and security as definitive Bonds issued pursuant to this Resolution. All temporary Bonds surrendered in exchange for another temporary Bond or Bonds or for a definitive Bond or Bonds shall be forthwith cancelled by the Registrar. SECTION BONDS MUTILATED, DESTROYED, STOLEN OR LOST. In case any Bond shall become mutilated, or be destroyed, stolen or lost, the Issuer may, in its discretion, issue and deliver, and the Registrar shall authenticate, a new Bond of like tenor as the Bond so mutilated, destroyed, stolen or lost, in exchange and substitution for such mutilated Bond upon surrender and cancellation of such mutilated Bond or in lieu of and substitution for the Bond destroyed, stolen or lost, and upon the Holder furnishing the Issuer and the Registrar proof of his ownership thereof and satisfactory indemnity and complying with such other reasonable regulations and conditions as the Issuer or the Registrar may prescribe and paying such expenses as the Issuer and the Registrar may incur. All Bonds so surrendered shall be cancelled by the Registrar. If any of the Bonds shall have matured or be about to mature, instead of issuing a substitute Bond, the Issuer may pay the same or cause the Bond to be paid, upon being indemnified as aforesaid, and if such Bonds be lost, stolen or destroyed, without surrender thereof. Any such duplicate Bonds issued pursuant to this Section 2.05 shall constitute original, additional contractual obligations on the part of the Issuer whether or not the lost, stolen or destroyed Bond be at any time found by anyone, and such duplicate Bond shall be entitled to equal and proportionate benefits and rights as to lien on the Pledged Funds to the same extent as all other Bonds issued hereunder. 15

186 SECTION INTERCHANGEABILITY, NEGOTIABILITY AND TRANSFER. Bonds, upon surrender thereof at the office of the Registrar with a written instrument of transfer satisfactory to the Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing, may, at the option of the Holder thereof, be exchanged for an equal aggregate principal amount of registered Bonds of the same Series and maturity of any other authorized denominations. The Bonds issued under this Resolution shall be and have all the qualities and incidents of negotiable instruments under the law merchant and the Uniform Commercial Code of the State of Florida, subject to the provisions for registration and transfer contained in this Resolution and in the Bonds. So long as any of the Bonds shall remain Outstanding, the Issuer shall maintain and keep, at the office of the Registrar, books for the registration and transfer of the Bonds. Each Bond shall be transferable only upon the books of the Issuer, at the office of the Registrar, under such reasonable regulations as the Issuer may prescribe, by the Holder thereof in person or by his attorney duly authorized in writing upon surrender thereof together with a written instrument of transfer satisfactory to the Registrar duly executed and guaranteed by the Holder or his duly authorized attorney. Upon the transfer of any such Bond, the Issuer shall issue, and cause to be authenticated, in the name of the transferee a new Bond or Bonds of the same aggregate principal amount and Series and maturity as the surrendered Bond. The Issuer, the Registrar and any Paying Agent or fiduciary of the Issuer may deem and treat the Person in whose name any Outstanding Bond shall be registered upon the books of the Issuer as the absolute owner of such Bond, whether such Bond shall be overdue or not, for the purpose of receiving payment of, or on account of, the principal or Redemption Price, if applicable, and interest on such Bond and for all other purposes, and all such payments so made to any such Holder or upon his order shall be valid and effectual to satisfy and discharge the liability upon such Bond to the extent of the sum or sums so paid and neither the Issuer nor the Registrar nor any Paying Agent or other fiduciary of the Issuer shall be affected by any notice to the contrary. The Registrar, in any case where it is not also the Paying Agent in respect to any Series of Bonds, forthwith (A) following the fifteenth day prior to an Interest Date for such Series; (B) following the fifteenth day next preceding the date of first mailing of notice of redemption of any Bonds of such Series; and (C) at any other time as reasonably requested by the Paying Agent of such Series, shall certify and furnish to such Paying Agent the names, addresses and holdings of Bondholders and any other relevant information reflected in the registration books. Any Paying Agent of any fully registered Bond shall effect payment of interest on such Bonds by mailing a check to the Holder entitled thereto or may, in lieu thereof, upon the request of such Holder, transmit such payment by bank wire transfer for the account of such Holder. In all cases in which the privilege of exchanging Bonds or transferring Bonds is exercised, the Issuer shall execute and deliver Bonds and the Registrar shall authenticate such Bonds in accordance with the provisions of this Resolution. Execution of Bonds by the Chairman and Clerk for purposes of exchanging, replacing or transferring Bonds may occur at the time of the original delivery of the Series of which such Bonds are a part. All Bonds surrendered in any such exchanges or transfers shall be held by the Registrar in safekeeping until directed by the Issuer to be cancelled by the Registrar. For every such exchange or transfer of 16

187 Bonds, the Issuer or the Registrar may make a charge sufficient to reimburse it for any tax, fee, expense or other governmental charge required to be paid with respect to such exchange or transfer. The Issuer and the Registrar shall not be obligated to make any such exchange or transfer of Bonds of any Series during the 15 days next preceding an Interest Date on the Bonds of such Series (other than Capital Appreciation Bonds and Variable Rate Bonds), or, in the case of any proposed redemption of Bonds of such Series, then, for the Bonds subject to redemption, during the 15 days next preceding the date of the first mailing of notice of such redemption and continuing until such redemption date. The Issuer may elect to issue any Bonds as uncertificated registered public obligations (not represented by instruments), commonly known as book-entry obligations, provided it shall establish a system of registration therefor by Supplemental Resolution. SECTION FORM OF BONDS. The text of the Bonds, except for Capital Appreciation Bonds and Variable Rate Bonds, the form of which shall be provided by Supplemental Resolution of the Issuer, shall be in substantially the following form with such omissions, insertions and variations as may be necessary and/or desirable and approved by the Chairman prior to the issuance thereof (which necessity and/or desirability and approval shall be presumed by such officer's execution of the Bonds and the Issuer's delivery of the Bonds to the purchaser or purchasers thereof): [Remainder of page intentionally left blank] 17

188 No. R- $ UNITED STATES OF AMERICA STATE OF FLORIDA BAY COUNTY, FLORIDA WATER AND SEWER SYSTEM REVENUE BOND, SERIES Interest Maturity Date of Rate Date Original Issue CUSIP Registered Holder: Principal Amount: KNOW ALL MEN BY THESE PRESENTS, that Bay County, Florida, a political subdivision of the State of Florida (the "Issuer"), for value received, hereby promises to pay, solely from the Pledged Funds hereinafter described, to the Registered Holder identified above, or registered assigns as hereinafter provided, on the Maturity Date identified above, the Principal Amount identified above and to pay interest on such Principal Amount from the Date of Original Issue identified above or from the most recent interest payment date to which interest has been paid at the Interest Rate per annum identified above on and of each year commencing, until such Principal Amount shall have been paid, except as the provisions hereinafter set forth with respect to redemption prior to maturity may be or become applicable hereto. Such Principal Amount and interest and the premium, if any, on this Bond are payable in any coin or currency of the United States of America which, on the respective dates of payment thereof, shall be legal tender for the payment of public and private debts. Such Principal Amount and the premium, if any, on this Bond, are payable at the designated corporate trust office of,,, as Paying Agent. Payment of each installment of interest shall be made to the person in whose name this Bond shall be registered on the registration books of the Issuer maintained by,,, as Registrar, at the close of business on the date which shall be the fifteenth day (whether or not a business day) of the calendar month next preceding each interest payment date and shall be paid by a check of such Paying Agent mailed to such Registered Holder at the address appearing on such registration books or, at the request of such Registered Holder, by bank wire transfer for the account of such Holder. Interest shall be calculated on the basis of a 360-day year of twelve 30- day months. 18

189 This Bond is one of an authorized issue of Bonds in the aggregate principal amount of $ (the "Bonds") of like date, tenor and effect, except as to maturity date, interest rate, denomination and number, issued to finance, in and for the Issuer, under the authority of and in full compliance with the Constitution and laws of the State of Florida, particularly Chapter 125, Florida Statutes, and other applicable provisions of law (the "Act"), and Resolution No. 3318, adopted by the Board of County Commissioners of the Issuer on September 15, 2015, as the same may be amended and supplemented (collectively, the "Resolution"), and is subject to all the terms and conditions of the Resolution. This Bond and the interest hereon are payable solely from and secured by a lien upon and a pledge of (1) the Net Revenues (as defined in the Resolution) to be derived from the operation of the Issuer's water and sewer utility system (the "System"), (2) the Connection Fees (as defined in the Resolution), and (3) until applied in accordance with the provisions of the Resolution, all moneys, including investments thereof, in the funds and accounts established by the Resolution, except (A) as for the Rebate Fund, (B) to the extent moneys therein shall be required to pay the Operating Expenses (as defined in the Resolution) and (C) any moneys set aside in a particular subaccount of the Reserve Account, if such moneys shall be pledged solely for the payment of a different Series of Bonds for which it was established in accordance with the provisions of the Resolution, subject in each case to the application thereof for the purposes and on the conditions permitted by the Resolution (collectively, the "Pledged Funds"). It is expressly agreed by the Registered Holder of this Bond that the full faith and credit of the Issuer are not pledged to the payment of the principal of, premium, if any, and interest on this Bond and that such Holder shall never have the right to require or compel the exercise of any taxing power of the Issuer to the payment of such principal, premium, if any, and interest. This Bond and the obligation evidenced hereby shall not constitute a lien upon the System or any other property of the Issuer, but shall constitute a lien only on, and shall be payable solely from, the Pledged Funds in accordance with the terms of the Resolution. IT IS EXPRESSLY AGREED BY THE REGISTERED HOLDER OF THIS BOND THAT THE FULL FAITH AND CREDIT OF THE ISSUER, THE STATE OF FLORIDA, OR ANY POLITICAL SUBDIVISION OR AGENCY THEREOF, ARE NOT PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, AND INTEREST ON THIS BOND AND THAT SUCH HOLDER SHALL NEVER HAVE THE RIGHT TO REQUIRE OR COMPEL THE EXERCISE OF ANY TAXING POWER OF THE ISSUER, THE STATE OF FLORIDA, OR ANY POLITICAL SUBDIVISION OR AGENCY THEREOF, TO THE PAYMENT OF SUCH PRINCIPAL, PREMIUM, IF ANY, AND INTEREST. THIS BOND AND THE OBLIGATION EVIDENCED HEREBY SHALL NOT CONSTITUTE A LIEN UPON ANY PROPERTY OF THE ISSUER, BUT SHALL CONSTITUTE A LIEN ONLY ON, AND SHALL BE PAYABLE SOLELY FROM, THE PLEDGED FUNDS. THE ISSUER MAY ISSUE ADDITIONAL OBLIGATIONS ON PARITY WITH THE BONDS IN ACCORDANCE WITH THE TERMS OF THE RESOLUTION. [The Issuer has established a book-entry system of registration for the Bonds. Except as specifically provided otherwise in the Resolution, an agent will hold this Bond on behalf of the beneficial owner thereof. By acceptance of a confirmation of purchase, delivery or transfer, the beneficial owner of this Bond shall be deemed to have agreed to such arrangement.] 19

190 This Bond is transferable in accordance with the terms of the Resolution only upon the books of the Issuer kept for that purpose at the designated corporate trust office of the Registrar by the Registered Holder hereof in person or by his attorney duly authorized in writing, upon the surrender of this Bond together with a written instrument of transfer satisfactory to the Registrar duly executed by the Registered Holder or his attorney duly authorized in writing, and thereupon a new Bond or Bonds in the same aggregate principal amount shall be issued to the transferee in exchange therefor, and upon the payment of the charges, if any, therein prescribed. The Bonds are issuable in the form of fully registered Bonds in the denomination of [$5,000 and any integral multiple thereof,] not exceeding the aggregate principal amount of the Bonds. The Issuer, the Registrar and any Paying Agent may treat the Registered Holder of this Bond as the absolute owner hereof for all purposes, whether or not this Bond shall be overdue, and shall not be affected by any notice to the contrary. The Issuer shall not be obligated to make any exchange or transfer of the Bonds during the 15 days next preceding an interest payment date or, in the case of any proposed redemption of the Bonds, then, for the Bonds subject to such redemption, during the 15 days next preceding the date of the first mailing of notice of such redemption. (INSERT REDEMPTION PROVISIONS) Redemption of this Bond under the preceding paragraphs shall be made as provided in the Resolution upon notice given by first class mail sent at least 30 days prior to the redemption date to the Registered Holder hereof at the address shown on the registration books maintained by the Registrar; provided, however, that failure to mail notice to the Registered Holder hereof, or any defect therein, shall not affect the validity of the proceedings for redemption of other Bonds as to which no such failure or defect has occurred. In the event that less than the full principal amount hereof shall have been called for redemption, the Registered Holder hereof shall surrender this Bond in exchange for one or more Bonds in an aggregate principal amount equal to the unredeemed portion of principal, as provided in the Resolution. [As long as the book-entry only system is used for determining beneficial ownership of the Bonds, notice of redemption will only be sent to Cede & Co. Cede & Co. will be responsible for notifying the DTC Participants, who will in turn be responsible for notifying the beneficial owners of the Bonds. Any failure of Cede & Co. to notify any DTC Participant, or of any DTC Participant to notify the beneficial owner of any such notice, will not affect the validity of the redemption of the Bonds.] Reference to the Resolution and any and all resolutions supplemental thereto and modifications and amendments thereof and to the Act is made for a description of the pledge and covenants securing this Bond, the nature, manner and extent of enforcement of such pledge and covenants, and the rights, duties, immunities and obligations of the Issuer. It is hereby certified and recited that all acts, conditions and things required to exist, to happen and to be performed precedent to and in the issuance of this Bond, exist, have happened and have been performed, in regular and due form and time as required by the laws and Constitution of the State of Florida applicable thereto, and that the issuance of the Bonds does not violate any constitutional or statutory limitations or provisions. 20

191 Neither the members of the Board of County Commissioners of the Issuer nor any person executing this Bond shall be liable personally hereon or be subject to any personal liability or accountability by reason of the issuance hereof. [This Bond is one of a series of Bonds which were validated by judgment of the Circuit Court of the Fourteenth Judicial Circuit of Florida in and for Bay County, Florida, rendered on,.] This Bond shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by the Registrar. 21

192 IN WITNESS WHEREOF, Bay County, Florida has issued this Bond and has caused the same to be executed by the manual or facsimile signature of the Chairman of its Board of County Commissioners and attested by the manual or facsimile signature of the Clerk of the Board of County Commissioners of Bay County, Florida, and its corporate seal or a facsimile thereof to be affixed or reproduced hereon, all as of Date of Original Issue. (SEAL) BAY COUNTY, FLORIDA Guy M. Tunnell Chairman, Board of County Commissioners ATTEST: Bill Kinsaul, Clerk 22

193 CERTIFICATE OF AUTHENTICATION This Bond is one of the Bonds of the Issue described in the within-mentioned Resolution. DATE OF AUTHENTICATION: Registrar By: Authorized Officer 23

194 [Unless this certificate is presented by an authorized representative of The Depository Trust Company to the Issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as requested by the authorized representative of The Depository Trust Company and any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein.] ASSIGNMENT FOR VALUE RECEIVED, the undersigned sells, assigns and transfers unto Insert Social Security or Other Identifying Number of Assignee (Name and Address of Assignee) the within Bond and does hereby irrevocably constitute and appoint, as attorneys to register the transfer of the said Bond on the books kept for registration thereof with full power of substitution in the premises. Dated: Signature guaranteed: NOTICE: Signature must be guaranteed by an institution which is a participant in the Securities Transfer Agent Medallion Program (STAMP) or similar program. NOTICE: The signature to this assignment must correspond with the name of the Registered Holder as it appears upon the face of the within Bond in every particular, without alteration or enlargement or any change whatever and the Social Security or other identifying number of such assignee must be supplied. 24

195 The following abbreviations, when used in the inscription on the face of the within Bond, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common TEN ENT -- as tenants by the entireties JT TEN -- as joint tenants with right of survivorship and not as tenants in common UNIF TRANS MIN ACT -- (Cust.) Custodian for under Uniform Transfers to Minors Act of (State) Additional abbreviations may also be used though not in list above. 25

196 ARTICLE III REDEMPTION OF BONDS SECTION PRIVILEGE OF REDEMPTION. The terms of this Article III shall apply to redemption of Bonds other than Capital Appreciation Bonds or Variable Rate Bonds. The terms and provisions relating to redemption of Capital Appreciation Bonds and Variable Rate Bonds shall be provided by Supplemental Resolution. The provisions of this Article III may also be modified pursuant to Supplemental Resolution to accommodate any redemption provisions with respect to Federal Subsidy Bonds. SECTION SELECTION OF BONDS TO BE REDEEMED. The Bonds shall be redeemed only in the principal amount of $5,000 each and integral multiples thereof. The Issuer shall, at least 45 days prior to the redemption date (unless a shorter time period shall be satisfactory to the Registrar) notify the Registrar of such redemption date and of the principal amount of Bonds to be redeemed and, if less than all of the Outstanding Bonds are to be redeemed, the particular maturities and portions thereof to be redeemed. For purposes of any redemption of less than all of the Outstanding Bonds of a single maturity, the particular Bonds or portions of Bonds to be redeemed shall be selected not more than 45 days and not less than 35 days prior to the redemption date by the Registrar from the Outstanding Bonds of the maturity or maturities designated by the Issuer by such method as the Registrar shall deem fair and appropriate and which may provide for the selection for redemption of Bonds or portions of Bonds in principal amounts of $5,000 and integral multiples thereof. If less than all of a Term Bond is to be redeemed the aggregate principal amount to be redeemed shall be allocated to the Sinking Fund Installments on a pro-rata basis unless the Issuer, in its discretion, designates a different allocation. If less than all of the Outstanding Bonds of a single maturity are to be redeemed, the Registrar shall promptly notify the Issuer and Paying Agent (if the Registrar is not the Paying Agent for such Bonds) in writing of the Bonds or portions of Bonds selected for redemption and, in the case of any Bond selected for partial redemption, the principal amount thereof to be redeemed. SECTION NOTICE OF REDEMPTION. Notice of such redemption, which shall specify the Bond or Bonds (or portions thereof) to be redeemed and the date and place for redemption, shall be given by the Registrar on behalf of the Issuer, and (A) shall be filed with the Paying Agents of such Bonds, (B) shall be mailed first class, postage prepaid, not less than 30 days nor more than 45 days prior to the redemption date to all Holders of Bonds to be redeemed at their addresses as they appear on the registration books kept by the Registrar as of the date of mailing of such notice, and (C) shall be mailed, certified mail, postage prepaid, at least 35 days prior to the redemption date to the registered securities depositories and one or more nationally recognized municipal bond information services as hereinafter provided in this Section Failure to mail such notice to such depositories or services or the Holders of the Bonds to be redeemed, or any defect therein, shall not affect the proceedings for redemption of Bonds as to which no such failure or defect has occurred. Such notice shall also be mailed to the Insurer or Credit Bank, if any, of such redeemed Bonds. Failure of any Holder to receive any notice mailed as herein provided shall not affect the proceedings for redemption of such Holder's 26

197 Bonds. Notice of optional redemption of Bonds may be sent if the Issuer reasonably determines it shall have sufficient funds available to pay the Redemption Price of and interest on the Bonds called for redemption on the redemption date, and may be conditioned upon receipt of such funds. Notwithstanding the foregoing, the Issuer may establish separate redemption provisions by a Supplemental Resolution in connection with any Series of Bonds. Each notice of redemption shall state: (1) the CUSIP numbers and any other distinguishing number or letter of all Bonds being redeemed, (2) the original issue date of such Bonds, (3) the maturity date and rate of interest borne by each Bond being redeemed, (4) the redemption date, (5) the Redemption Price, (6) the date on which such notice is mailed, (7) if less than all Outstanding Bonds are to be redeemed, the certificate number (and, in the case of a partial redemption of any Bond, the principal amount) of each Bond to be redeemed, (8) that on such redemption date there shall become due and payable upon each Bond to be redeemed the Redemption Price thereof, or the Redemption Price of the specified portions of the principal thereof in the case of Bonds to be redeemed in part only, together with interest accrued thereon to the redemption date, and that from and after such date interest thereon shall cease to accrue and be payable, (9) that the Bonds to be redeemed, whether as a whole or in part, are to surrendered for payment of the Redemption Price at the designated office of the Registrar at an address specified, (10) the name and telephone number of a person designated by the Registrar to be responsible for such redemption, (11) unless sufficient funds have been set aside by the Issuer for such purpose prior to the mailing of the notice of redemption, that such redemption is conditioned upon the deposit of sufficient funds for such purpose on or prior to the date set for redemption, and (12) any other conditions that must be satisfied prior to such redemption. In addition to the mailing of the notice described above, each notice of redemption and payment of the Redemption Price shall meet the following requirements; provided, however, the failure to provide such further notice of redemption or to comply with the terms of this paragraph shall not in any manner defeat the effectiveness of a call for redemption if notice thereof is given as prescribed above: (A) Each further notice of redemption shall be sent by certified mail or overnight delivery service or telecopy to all registered securities depositories then in the business of holding substantial amounts of obligations of types comprising the Bonds and to two or more national information services which disseminate notices of prepayment or redemption of obligations such as the Bonds. (B) Each further notice of redemption shall be sent to such other Person, if any, as shall be required by applicable law or regulation. The Issuer may provide that a redemption may be contingent upon the occurrence of certain condition(s) and that if such condition(s) do not occur the notice of redemption will be rescinded, provided notice of rescission shall be mailed in the manner described above to all affected Bondholders as soon as practicable. SECTION REDEMPTION OF PORTIONS OF BONDS. Any Bond which is to be redeemed only in part shall be surrendered at any place of payment specified in the notice of redemption (with due endorsement by, or written instrument of transfer in form 27

198 satisfactory to the Registrar duly executed by, the Holder thereof or his attorney duly authorized in writing) and the Issuer shall execute and the Registrar shall authenticate and deliver to the Holder of such Bond, without service charge, a new Bond or Bonds, of any authorized denomination, as requested by such Holder in an aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Bonds so surrendered. SECTION PAYMENT OF REDEEMED BONDS. Notice of redemption having been given substantially as aforesaid, the Bonds or portions of Bonds so to be redeemed shall, on the redemption date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Issuer shall default in the payment of the Redemption Price) such Bonds or portions of Bonds shall cease to bear interest. Upon surrender of such Bonds for redemption in accordance with said notice, such Bonds shall be paid by the Registrar and/or Paying Agent at the appropriate Redemption Price, plus accrued interest. All Bonds which have been redeemed shall be cancelled and destroyed by the Registrar and shall not be reissued. [Remainder of page intentionally left blank] 28

199 ARTICLE IV SECURITY; FUNDS AND ACCOUNTS; APPLICATION OF GROSS REVENUES SECTION BONDS NOT TO BE INDEBTEDNESS OF ISSUER. The Bonds shall not be or constitute general obligations or indebtedness of the Issuer as "bonds" within the meaning of any constitutional or statutory provision, but shall be special obligations of the Issuer, payable solely from and secured by a lien upon and pledge of the Pledged Funds, in the manner and to the extent provided in this Resolution. No Holder of any Bond shall ever have the right to compel the exercise of any ad valorem taxing power to pay such Bond, or be entitled to payment of such Bond from any moneys of the Issuer except from the Pledged Funds in the manner and to the extent provided herein. The Bonds and the obligations evidenced thereby shall not constitute a lien upon the System or any other property of the Issuer, but shall constitute a lien only on, and shall be payable solely from, the Pledged Funds. SECTION SECURITY FOR BONDS. The payment of the principal of or Redemption Price, if applicable, and interest on the Bonds shall be secured forthwith equally and ratably by a pledge of and lien upon the Pledged Funds; provided, however, a Series of Bonds may be further secured by a Credit Facility or Bond Insurance Policy in addition to the security provided herein; and provided further that a Series of Bonds may be secured independently of any other Series of Bonds by the establishment of a separate subaccount in the Reserve Account for such Series of Bonds or by not being secured in any manner by the Reserve Account as provided in a Supplemental Resolution. Issuers of a Reserve Account Insurance Policy or Reserve Account Letter of Credit shall be secured in accordance with the provisions hereof. In addition, the Issuer does hereby irrevocably pledge and grant a lien upon the Pledged Funds to the payment of the Policy Costs in accordance with the provisions hereof; provided, however, such pledge and lien shall be junior and subordinate in all respects to the pledge of and lien upon such Pledged Funds granted hereby to the Bondholders. The Issuer does hereby irrevocably pledge the Pledged Funds to the payment of the principal of or Redemption Price, if applicable, and interest on the Bonds in accordance with the provisions hereof. Except as otherwise provided by Supplemental Resolution, the obligation of the Issuer to make Hedge Payments to a Counterparty pursuant to a Qualified Hedge Agreement shall be on parity with the Bonds as to lien on and pledge of the Pledged Funds in accordance with the terms hereof (any other payments related to a Qualified Hedge Agreement, including fees, penalties, termination payments and the obligation to collateralize, shall be Subordinated Indebtedness of the Issuer). The Pledged Funds shall immediately be subject to the lien of this pledge without any physical delivery thereof or further act, and the lien of this pledge shall be valid and binding as against all parties having claims of any kind in tort, contract or otherwise against the Issuer. SECTION SEPARATE ACCOUNTS. The moneys required to be accounted for in each of the funds, accounts and subaccounts established in this Resolution, particularly those described in this Article IV, may be deposited in a single bank account, and funds allocated to the various funds, accounts and subaccounts established herein may be invested in a common investment pool, provided that adequate accounting records are maintained to reflect and control the restricted allocation of the moneys on deposit therein and such investments for the various purposes of such funds, accounts and subaccounts as herein provided. 29

200 The designation and establishment of the various funds, accounts and subaccounts in and by this Resolution shall not be construed to require the establishment of any completely independent, self-balancing funds as such term is commonly defined and used in governmental accounting, but rather is intended solely to constitute an earmarking of certain revenues for certain purposes and to establish certain priorities for application of such revenues as herein provided. SECTION CONSTRUCTION FUND. The Issuer covenants and agrees to establish a special fund to be known as the "Bay County, Florida Water and Sewer System Construction Fund," which shall be used only for payment of the Cost of a Project. Moneys in the Construction Fund, until applied in payment of any item of the Cost of a Project in the manner hereinafter provided, shall be subject to a lien and charge in favor of the Holders of the Bonds and for the further security of such Holders. There shall be paid into the Construction Fund the amounts required to be so paid by the provisions of this Resolution, and there may be paid into the Construction Fund, at the option of the Issuer, any moneys received for or in connection with a Project by the Issuer from any other source. The Issuer shall establish within the Construction Fund a separate account for each Project the Cost of which is to be paid in whole or in part out of the Construction Fund. The proceeds of insurance maintained pursuant to this Resolution against physical loss of or damage to a Project, or of contractors' performance bonds with respect thereto pertaining to the period of construction thereof, shall be deposited into the appropriate account of the Construction Fund. Any moneys received by the Issuer from the State or from the United States of America or any agencies thereof for the purpose of financing part of the Cost of a Project shall be deposited into the appropriate account of the Construction Fund and used in the same manner as other Bond proceeds are used therein; provided that separate accounts or subaccounts may be established in the Construction Fund for moneys received pursuant to the provisions of this paragraph whenever required by Federal or State law. The Issuer covenants that the acquisition, construction and installation of each Project will be completed without delay and in accordance with sound engineering practices. The Issuer shall make disbursements or payments from the applicable account of the Construction Fund to pay Costs of the Project for which it was established, except as otherwise provided below. The Issuer shall keep records of such disbursements and payments and shall retain all such records for such period of time as required by applicable law. The Issuer shall make available the records at all reasonable times for inspection by any Holder of any of the Bonds or the agent or representative of any Holder of any of the Bonds. Notwithstanding any of the other provisions of this Section 4.04, to the extent that other moneys are not available therefor, amounts in an account of the Construction Fund shall be applied to the payment of principal and interest on Bonds. The date of completion of the acquisition, construction and equipping of a Project shall be documented by an Authorized Issuer Officer or the Clerk in the appropriate records of the 30

201 Issuer. Promptly after the date of the completion of a Project, and after paying or making provision for the payment of all unpaid items of the Cost of such Project, the Issuer shall deposit in the following order of priority any balance of moneys remaining in an account in the Construction Fund in (A) another account of the Construction Fund for which an Authorized Issuer Officer has determined that there are insufficient moneys present to pay the Cost of the related Project, (B) the Reserve Account, to the extent of a deficiency therein, and (C) such other fund or account established hereunder as shall be determined by the Issuer or for any other lawful purpose, provided the Issuer has received the prior approval of Bond Counsel to the effect that such transfer shall not adversely affect the exclusion, if any, of interest on the Bonds (other than Taxable Bonds) from gross income for purposes of Federal income taxation or shall not otherwise affect the status of any Outstanding Bonds issued as Federal Subsidy Bonds or the Issuer's receipt of Federal Subsidy Payments with respect to any Outstanding Federal Subsidy Bonds. SECTION CREATION OF FUNDS AND ACCOUNTS. The Issuer covenants and agrees to establish the following funds and accounts: (A) (B) Fund." The "Bay County, Florida Water and Sewer System Revenue Fund." The "Bay County, Florida Water and Sewer System Operation and Maintenance (C) The "Bay County, Florida Water and Sewer System Sinking Fund." The Issuer shall maintain four separate accounts in the Sinking Fund: the "Interest Account," the "Principal Account," the "Term Bonds Redemption Account" and the "Reserve Account." (D) Fund." (E) Fund." (F) (G) Fund." (H) (I) (J) The "Bay County, Florida Water and Sewer System Water Connection Fees The "Bay County, Florida Water and Sewer System Sewer Connection Fees The "Bay County, Florida Water and Sewer System Special Assessments Fund." The "Bay County, Florida Water and Sewer System Renewal and Replacement The "Bay County, Florida Water and Sewer System Utility Reserve Fund." The "Bay County, Florida Water and Sewer System Rebate Fund." The "Bay County, Florida Water and Sewer System Rate Stabilization Fund." Moneys in the aforementioned funds and accounts (except for moneys in the Rebate Fund), until applied in accordance with the provisions hereof, shall be subject to a lien and charge in favor of the Holders of the Bonds and for the further security of such Holders, to the extent provided herein. 31

202 The Issuer may at any time and from time to time appoint one or more depositaries to hold, for the benefit of the Bondholders, any one or more of the funds and accounts established hereby. Such depositary or depositaries shall perform at the direction of the Issuer the duties of the Issuer in depositing, transferring and disbursing moneys to and from each of such funds or accounts as herein set forth, and all records of such depositary in performing such duties shall be open at all reasonable times to inspection by the Issuer and its agents and employees. Any such depositary shall be a bank or trust company duly authorized to exercise corporate trust powers and subject to examination by federal or state authority, of good standing, and be qualified under applicable State law. Notwithstanding the foregoing, none of the aforementioned funds and accounts are required to be established prior to the time any such fund or account is required to be funded or otherwise utilized hereunder. SECTION DISPOSITION OF GOVERNMENT GRANTS, GROSS REVENUES AND SPECIAL ASSESSMENTS. (A) (1) In the event the Issuer receives a Government Grant, the use and withdrawal of moneys from such Government Grant shall be governed by the terms of the Government Grant and applicable law. (2) The Issuer shall deposit promptly, as received, all Gross Revenues (other than subsequently pledged Special Assessments Proceeds) into the Revenue Fund. Moneys in the Revenue Fund shall first be used each month to deposit in the Operation and Maintenance Fund such sums as are necessary to pay Operating Expenses for the ensuing month; provided the Issuer may transfer moneys from the Revenue Fund to the Operation and Maintenance Fund at any time to pay Operating Expenses to the extent there is a deficiency in the Operation and Maintenance Fund for such purpose. Amounts in the Operation and Maintenance Fund shall be paid out from time to time by the Issuer for Operating Expenses, including any expenses relating to the purchase or redemption of Term Bonds as provided in Section 4.06(B)(3) hereof. The remaining moneys in the Revenue Fund shall be applied in accordance with Section 4.06(B) hereof. (3) To the extent Special Assessments Proceeds are made a component of the Gross Revenues, the Issuer shall deposit promptly, as received, all Special Assessments Proceeds into the Special Assessments Fund. In the event the Issuer by Supplemental Resolution provides for all or a portion of any Special Assessments to secure the payment of all or a portion of a particular Series of Bonds, the Issuer may establish separate accounts or subaccounts for the deposit of such Special Assessments if necessary to provide for the earlier redemption of such Bonds from such Special Assessments. Moneys in the Special Assessments Fund shall be applied in accordance with Section 4.06(B) hereof. 32

203 (B) Any deposits remaining in the Revenue Fund after the aforementioned transfers to the Operation and Maintenance Fund and all moneys at any time on deposit in the Special Assessments Fund (subject to the provisions above regarding earlier redemption of Bonds) shall be disposed of by the Issuer on or before the 25th day of each month, commencing in the month immediately following the delivery of any of the Bonds to the purchasers thereof, or such later date as hereinafter provided, first from the Special Assessments Fund and then from the Revenue Fund in the following manner and in the following order of priority: (1) Interest Account. The Issuer shall deposit or credit to the Interest Account the sum which, together with the balance in said Account, shall equal the interest on all Bonds Outstanding (except as to Capital Appreciation Bonds) accrued and unpaid and to accrue to the end of the then current calendar month. All Hedge Receipts and Federal Subsidy Payments shall be deposited directly to the Interest Account upon receipt. With respect to interest on Bonds which have corresponding Hedge Payments, interest on such Bonds during the term of the Qualified Hedge Agreement shall also be deemed to include the corresponding Hedge Payments. Moneys in the Interest Account shall be applied by the Issuer (a) for deposit with the Paying Agents to pay the interest on the Bonds on or prior to the date the same shall become due and (b) for Hedge Payments. Any Federal Subsidy Payments deposited to the Interest Account shall be deemed to have been applied to the payment of interest on the Federal Subsidy Bonds to which such Payments relate. The Issuer shall adjust the amount of the deposit to the Interest Account not later than a month immediately preceding any Interest Date so as to provide sufficient moneys in the Interest Account to pay the interest on the Bonds coming due on such Interest Date. No further deposit need be made to the Interest Account when the moneys therein are equal to the interest coming due on the Outstanding Bonds on the next succeeding Interest Date. With respect to debt service on any Bonds which are subject to a Qualified Hedge Agreement, any Hedge Payments due to the Counterparty to the Qualified Hedge Agreement relating to such Bonds shall be paid to such Counterparty on a parity basis with the aforesaid required payments into the Sinking Fund. In computing the interest on Variable Rate Bonds which shall accrue during a calendar month, the interest rate on such Variable Rate Bonds shall be assumed to be (A) if such Variable Rate Bonds have been Outstanding for at least 24 months prior to the commencement of such calendar month, the highest average interest rate borne by such Variable Rate Bonds for any 30-day period, and (B) if such Variable Rate Bonds have not been Outstanding for at least 24 months prior to the date of calculation, the Bond Buyer Revenue Bond Index most recently published prior to the commencement of such calendar month. (2) Principal Account. Commencing in the month which is one year prior to the first principal payment date (or if the first principal payment is less than one year after the issuance of a Series of Bonds, the first month after such issuance), the Issuer shall next deposit into the Principal Account the sum which, together with the balance in said Account, shall equal the principal amounts on all Bonds Outstanding accrued and unpaid and that portion of the principal next due which would have accrued on such Bonds during the then current calendar month if such principal amounts were deemed to accrue monthly (assuming that a year consists of 12 equivalent calendar months having 30 days each) except for the Sinking Fund Installments to be deposited pursuant to Section 4.06(B)(3) hereof, in equal amounts from the next preceding principal payment due date, or, if there be no such preceding payment due date, from a date no later than one year preceding the due date of such principal amount. Moneys in the Principal Account shall be applied by the Issuer for deposit with the Paying Agents to pay the principal of 33

204 the Bonds on or prior to the date the same shall mature, and for no other purpose. Serial Capital Appreciation Bonds shall be payable from the Principal Account in the years in which such Bonds mature and monthly payments into the Principal Account on account of such Bonds shall commence in the twelfth month immediately preceding the maturity date of such Bonds. The Issuer shall adjust the amount of the deposit to the Principal Account not later than the month immediately preceding any principal payment date so as to provide sufficient moneys in the Principal Account to pay the principal on Bonds becoming due on such principal payment date. No further deposit need be made to the Principal Account when the moneys therein are equal to the principal coming due on the Outstanding Bonds on the next succeeding principal payment date. (3) Term Bonds Redemption Account. Commencing in the month which is one year prior to the first Sinking Fund Installment due date, there shall be deposited to the Term Bonds Redemption Account the sum which, together with the balance in such Account, shall equal the Sinking Fund Installments on all Bonds Outstanding accrued and unpaid and that portion of the Sinking Fund Installments of all Bonds Outstanding next due which would have accrued on such Bonds during the then current calendar month if such Sinking Fund Installments were deemed to accrue monthly (assuming that a year consists of 12 equivalent calendar months having 30 days each) in equal amounts from the next preceding Sinking Fund Installment due date, or, if there is no such preceding Sinking Fund Installment due date, from a date not later than one year preceding the due date of such Sinking Fund Installment. Moneys in the Term Bonds Redemption Account shall be used to purchase or redeem Term Bonds in the manner herein provided, and for no other purpose. Term Capital Appreciation bonds shall be payable from the Term Bonds Redemption Account in the years in which such Bonds mature and monthly payments into the Terms Bonds Redemption Account on account of such Bonds shall commence in the twelfth month immediately preceding the due date of the related Sinking Fund Installments. The Issuer shall adjust the amount of the deposit to the Term Bonds Redemption Account in the month immediately preceding any Sinking Fund Installment Date so as to provide sufficient moneys in the Term Bonds Redemption Account to pay the Sinking Fund Installments becoming due on such date. Payments to the Term Bonds Redemption Account shall be on parity with payments to the Principal Account. Amounts accumulated in the Term Bonds Redemption Account with respect to any Sinking Fund Installment (together with amounts accumulated in the Interest Account with respect to interest, if any, on the Term Bonds for which such Sinking Fund Installment was established) may be applied by the Issuer, on or prior to the 60th day preceding the due date of such Sinking Fund Installment, (a) to the purchase of Term Bonds of the Series and maturity for which such Sinking Fund Installment was established, or (b) to the redemption at the applicable Redemption Prices of such Term Bonds, if then redeemable by their terms. Amounts in the Term Bonds Redemption Account which are used to redeem Term Bonds shall be credited against the next succeeding Sinking Fund Installment which shall become due on such Term Bonds. The applicable Redemption Price (or principal amount of maturing Term Bonds) of any Term Bonds so purchased or redeemed shall be deemed to constitute part of the Term Bonds Redemption Account until such Sinking Fund Installment date, for the purposes of calculating the amount of such Account. As soon as practicable after the 60th day preceding the due date of any such Sinking Fund Installment, the Issuer shall proceed to call for redemption on such due date, by causing notice to be given as provided in Section 3.03 hereof, Term Bonds of the Series 34

205 and maturity for which such Sinking Fund Installment was established (except in the case of Term Bonds maturing on a Sinking Fund Installment date) in such amount as shall be necessary to complete the retirement of the unsatisfied balance of such Sinking Fund Installment. The Issuer shall pay out of the Term Bonds Redemption Account and the Interest Account to the appropriate Paying Agents, on or before the day preceding such redemption date (or maturity date), the amount required for the redemption (or for the payment of such Term Bonds then maturing), and such amount shall be applied by such Paying Agents to such redemption (or payment). All expenses in connection with the purchase or redemption of Term Bonds shall be paid by the Issuer from the Operation and Maintenance Fund. (4) Reserve Account. There shall be deposited to the Reserve Account an amount which would enable the Issuer to restore the funds on deposit in the Reserve Account to an amount equal to the Reserve Account Requirement applicable thereto. All deficiencies in the Reserve Account must be made up no later than 12 months from the date such deficiency first occurred, whether such shortfall was caused by an increase in the applicable Reserve Account Requirement, a decrease in the aggregate market value of the investments therein of more than 5% or withdrawal (whether from cash or a Reserve Account Insurance Policy or Reserve Account Letter of Credit). On or prior to each principal payment date and Interest Date for the Bonds (in no event earlier than the 25th day of the month next preceding such payment date), moneys in the Reserve Account shall be applied by the Issuer to the payment of the principal of or Redemption Price, if applicable, and interest on the Bonds to the extent moneys in the Interest Account, the Principal Account and the Term Bonds Redemption Account shall be insufficient for such purpose, but only to the extent the moneys transferred from the Utility Reserve Fund for such purposes pursuant to Section 4.06(B)(8) hereof shall be inadequate to fully provide for such insufficiency. Whenever there shall be surplus moneys in the Reserve Account by reason of a decrease in the Reserve Account Requirement or as a result of a deposit in the Reserve Account of a Reserve Account Letter of Credit or a Reserve Account Insurance Policy, such surplus moneys, to the extent practicable, shall be deposited by the Issuer into the Utility Reserve Fund. The Issuer shall promptly inform each Insurer and Credit Bank of any draw upon the Reserve Account for purposes of paying the principal of and interest on the Bonds. Upon the issuance of any Series of Bonds under the terms, limitations and conditions as herein provided, the Issuer shall fund the Reserve Account in an amount at least equal to the applicable Reserve Account Requirement to the extent such Series of Bonds are to be secured by the Reserve Account or any subaccount therein; provided, however, nothing herein shall be construed to require the Issuer to fund the Reserve Account or any subaccount for any Series of Bonds. Upon the adoption of the Supplemental Resolution authorizing the issuance of a Series of Bonds, the Issuer shall determine whether such Series of Bonds shall be secured by the Reserve Account or any subaccount therein and, if the Issuer determines that the Series of Bonds will be secured by the Reserve Account or any subaccount therein, the Issuer shall also establish the Reserve Account Requirement applicable thereto. Such required amount, if any, shall be paid in full or in part from the proceeds of such Series of Bonds or may be accumulated in equal monthly payments to the Reserve Account over a period of months from the date of issuance of such Series of Bonds, which shall not exceed 36 months. Notwithstanding the foregoing provisions, in lieu of or in substitution of any required deposits into the Reserve Account, the Issuer may cause to be deposited into the Reserve 35

206 Account a Reserve Account Insurance Policy and/or Reserve Account Letter of Credit for the benefit of the Bondholders in an amount equal to the difference between the Reserve Account Requirement applicable thereto and the sums then on deposit in the Reserve Account, if any. The Issuer may also substitute a Reserve Account Insurance Policy and/or Reserve Account Letter of Credit for cash on deposit in the Reserve Account upon compliance with the terms of this Section 4.06(B)(4). Such Reserve Account Insurance Policy and/or Reserve Account Letter of Credit shall be payable to the Paying Agent (upon the giving of notice as required thereunder) on any Interest Date or redemption date on which a deficiency exists which cannot be cured by moneys in any other fund or account held pursuant to this Resolution and available for such purpose. Upon the initial deposit of any such Reserve Account Insurance Policy and/or Reserve Account Letter of Credit, the provider thereof shall be either (a) an insurer whose municipal bond insurance policies insuring the payment, when due, or the principal of and interest on municipal bond issues results in such issues being rated in one of the three highest rating categories by at least one of the three Rating Agencies (without regard to gradations, such as "plus" or "minus" or "1," "2" or "3"), or (b) a commercial bank, insurance company or other financial institution which has been assigned a rating in one of the two highest rating categories by at least one of the three Rating Agencies (without regard to gradations, such as "plus" or "minus" or "1," "2" or "3"). Any Reserve Account Insurance Policy and/or Reserve Account Letter of Credit shall equally secure all Bonds secured by the Reserve Account or subaccount into which such Policy or Letter of Credit is deposited. Each Reserve Account Insurance Policy and Reserve Account Letter of Credit shall provide for a revolving feature under which the amount available thereunder will be reinstated to the extent of any reimbursement of draws or claims paid. If the revolving feature is suspended or terminated for any reason, the right of the provider of the Reserve Account Insurance Policy or Reserve Account Letter of Credit to reimbursement will be further subordinated to cash replenishment of the Reserve Account to an amount equal to the difference between the full original amount available under the Reserve Account Insurance Policy or Reserve Account Letter of Credit and the amount then available for further draws or claims. If the revolving reinstatement feature described in the preceding paragraph is suspended or terminated or if the Reserve Account Insurance Policy or Reserve Account Letter of Credit is no longer valid and enforceable, the Issuer shall either (i) deposit into the Reserve Account an amount sufficient to cause the cash or investments on deposit in the Reserve Account or applicable subaccount to equal the Reserve Account Requirement on all Outstanding Bonds then secured by such Reserve Account or subaccount, such amount to be paid over the ensuing five years in equal installments deposited at least semi-annually or (ii) replace such instrument with a Reserve Account Insurance Policy or a Reserve Account Letter of Credit meeting the requirements described herein within six months of such occurrence. If three days prior to an interest or principal payment date, or such other period of time as shall be required by the terms of the Reserve Account Insurance Policy or Reserve Account Letter of Credit, the Issuer shall determine that a deficiency exists in the amount of moneys available to pay in accordance with the terms hereof interest and/or principal due on the Bonds on such date, the Issuer shall immediately notify (a) the issuer of the applicable Reserve Account Insurance Policy and/or the issuer of the Reserve Account Letter of Credit and submit a demand for payment pursuant to the provisions of such Reserve Account Insurance Policy and/or the 36

207 Reserve Account Letter of Credit, (b) the Paying Agent, and (c) the Insurer or Credit Bank, if any, of the amount of such deficiency and the date on which such payment is due. In the event the Reserve Account or any subaccount therein contains both a Reserve Account Insurance Policy or Reserve Account Letter of Credit and cash, the cash shall be drawn down completely prior to any draw on the Reserve Account Insurance Policy or Reserve Account Letter of Credit. In the event more than one Reserve Account Insurance Policy or Reserve Account Letter of Credit meeting the criteria set forth herein is on deposit in the Reserve Account, amounts required to be drawn thereon shall be done on a pro-rata basis. The Issuer agrees to pay all Policy Costs owing in regard to any Reserve Account Insurance Policy or Reserve Account Letter of Credit from the Pledged Funds. Pledged Funds shall be applied in accordance with this Section 4.06(B)(4), first, to reimburse the issuer of the Reserve Account Insurance Policy or Reserve Account Letter of Credit for amounts advanced under such instruments, second, to replenish any cash deficiencies in the Reserve Account, and, third, to pay the issuer of the Reserve Account Insurance Policy or Reserve Account Letter of Credit applicable expenses and interest on amounts advanced under such instruments. This Resolution shall not be discharged or defeased while any obligations are owing in regard to a Reserve Account Insurance Policy or Reserve Account Letter of Credit on deposit in the Reserve Account. The Issuer agrees not to optionally redeem Bonds unless all amounts owing in regard to a Reserve Account Insurance Policy or Reserve Account Letter of Credit on deposit in the Reserve Account have been paid in full. The Issuer may evidence its obligation to reimburse the issuer of any Reserve Account Letter of Credit or Reserve Account Insurance Policy by executing and delivering to such issuer a promissory note or other evidence therefor; provided, however, any such note or evidence (a) shall not be a general obligation of the Issuer the payment of which is secured by the full faith and credit or taxing power of the Issuer, and (b) shall be payable solely from the Pledged Funds in the manner provided herein. The obligation to reimburse the provider of a Reserve Account Insurance Policy or Reserve Account Letter of Credit for any Policy Costs shall be subordinate to the payment of debt service on the Bonds. Any consent or approval of any Insurer described in this Section 4.06(B)(4) shall be required only so long as there are Outstanding Bonds secured by a Bond Insurance Policy issued by such Insurer which is in full force and effect and the commitments of which have been honored by such Insurer. The term "Paying Agent" as used in this Section 4.06(B)(4) may include one or more Paying Agents for the Outstanding Bonds. Whenever the amount of cash in the Reserve Account, together with the other amounts in the Debt Service Fund, are sufficient to fully pay all Outstanding Bonds in accordance with their terms (including principal or applicable Redemption Price and interest thereon), the funds on deposit in the Reserve Account may be transferred to the other Accounts of the Sinking Fund for the payment of the Bonds. The Issuer may also establish a separate subaccount in the Reserve Account for any Series of Bonds and provide a pledge of such subaccount to the payment of such Series of Bonds apart from the pledge provided herein. To the extent a Series of Bonds is secured separately by a subaccount of the Reserve Account, the Holders of such Bonds shall not be secured by any other 37

208 moneys in the Reserve Account. Moneys in a separate subaccount of the Reserve Account shall be maintained at the Reserve Account Requirement applicable to such Series of Bonds secured by the subaccount; provided the Supplemental Resolution authorizing such Series of Bonds may establish the Reserve Account Requirement relating to such separate subaccount of the Reserve Account at such level as the Issuer deems appropriate. In the event the Issuer by Supplemental Resolution establishes the Reserve Account Requirement for a particular Series of Bonds to be zero (0.00) or it shall determine that such Series are not to be secured in any manner by the Reserve Account or a subaccount, then it shall not be required to establish a separate subaccount; provided, however, such Series of Bonds shall have no lien on or pledge of any moneys on deposit in the Reserve Account. Moneys used to replenish the Reserve Account shall be deposited in the separate subaccounts in the Reserve Account and in the Reserve Account on a pro-rata basis. In the event the Issuer shall maintain a Reserve Account Insurance Policy or Reserve Account Letter of Credit and moneys in any subaccount, the moneys shall be used prior to making any disbursements under such Reserve Account Insurance Policy or Reserve Account Letter of Credit. (5) Renewal and Replacement Fund. There shall be deposited to the Renewal and Replacement Fund monthly such sums as shall be sufficient to pay 1/12 of the Renewal and Replacement Fund Requirement until the amount accumulated in such Fund is equal to the Renewal and Replacement Fund Requirement, taking into account the market value of investments in such Fund; provided, however, that (a) such Renewal and Replacement Fund Requirement may be increased or decreased as the Consulting Engineers shall certify to the Issuer is necessary for the purposes of the Renewal and Replacement Fund, and (b) in the event that the Consulting Engineers shall certify that the Renewal and Replacement Fund Requirement is excessive for the purposes of the Renewal and Replacement Fund, such excess amount as may be on deposit therein may be transferred by the Issuer from the Renewal and Replacement Fund for deposit into the Utility Reserve Fund. The moneys in the Renewal and Replacement Fund shall be applied by the Issuer for the purpose of paying the cost of major extensions, improvements or additions to, or the replacement or renewal of capital assets of, the System, or extraordinary repairs of the System; provided, however, that on or prior to each principal and interest payment date for the Bonds (in no event earlier than the 25th day of the month next preceding such payment date), moneys in the Renewal and Replacement Fund shall be applied for the payment into the Interest Account, the Principal Account, and the Term Bonds Redemption Account when the moneys therein are insufficient to pay the principal of and interest on the Bonds coming due, but only to the extent moneys transferred from the Utility Reserve Fund for such purpose pursuant to Section 4.06(B)(8) hereof, together with moneys available in the Reserve Account for such purpose pursuant to Section 4.06(B)(4) hereof, shall be inadequate to fully provide for such insufficiency. Moneys in the Renewal and Replacement Fund may also be transferred to the Operation and Maintenance Fund to fund Operating Expenses to the extent Gross Revenues shall be insufficient for such purpose; provided, however, such transfer shall be treated as an interfund loan and shall be repaid from Gross Revenues as described in this Section 4.06(B)(5) within one year from the date of such transfer. (6) Subordinated Indebtedness. Gross Revenues in the Revenue Fund shall next be applied by the Issuer for the payment of any accrued debt service on Subordinated Indebtedness incurred by the Issuer in connection with the System and in accordance with the proceedings authorizing such Subordinated Indebtedness. 38

209 (7) Sinking Fund. There shall be deposited to the Interest Account, the Principal Account and the Term Bonds Redemption Account, in that order, sufficient moneys such that the amounts on deposit therein shall equal, respectively, the interest, principal and Sinking Fund Installment next coming due on the Bonds Outstanding; provided, however, no deposit need be made to the Principal Account or Term Bonds Redemption Account until a date one year preceding the due date of such principal amount or Sinking Fund Installment. (8) Utility Reserve Fund. The balance of any Gross Revenues remaining in said Revenue Fund shall be deposited in the Utility Reserve Fund and applied to the payment, on or prior to each principal and interest payment date for the Bonds (in no event earlier than the 25th day of the month next preceding such payment date), into the Interest Account, the Principal Account and the Term Bonds Redemption Account when the moneys therein shall be insufficient to pay the principal of and interest on the Bonds coming due. Moneys not required to meet such a deficiency shall be deposited to the Water Connection Fees Fund and Sewer Connection Fees Fund to make up any withdrawal from such Funds pursuant to Sections 4.07(A) and 4.08(A) hereof, respectively (to the extent required by such Sections), then to the Reserve Account to make up any deficiency therein, and thereafter to the Rebate Fund to the extent moneys are required to be deposited therein. Thereafter, moneys in the Utility Reserve Fund may be applied for any lawful purpose relating to the System, including, but not limited to, purchase or redemption of Bonds, payment of Subordinated Indebtedness, payment of other obligations incurred with respect to the System, deposit to the Rate Stabilization Fund and improvements, renewals and replacements to the System; provided, however, that none of such revenues shall ever be used for the purposes provided in this Section 4.06(B)(8) unless all payments required in Sections 4.06(B)(1) through 4.06(B)(6) hereof, including any deficiencies for prior payments, have been made in full to the date of such use. (C) Whenever moneys on deposit in the Sinking Fund are sufficient to fully pay all Outstanding Bonds in accordance with their terms (including principal or applicable Redemption Price and interest thereon), no further deposits to the Sinking Fund need be made. If on any payment date the Gross Revenues are insufficient to deposit the required amount in any of the funds or accounts or for any of the purposes provided above, the deficiency shall be made up on the subsequent payment dates. The Issuer, in its discretion, may use moneys in the Principal Account and the Interest Account to purchase or redeem Bonds coming due on the next principal payment date, provided such purchase or redemption does not adversely affect the Issuer's ability to pay the principal or interest coming due on such principal payment date on the Bonds not so purchased or redeemed. (D) In the event the Issuer shall issue a Series of Bonds secured by a Credit Facility, the Issuer may establish separate subaccounts in the Interest Account, the Principal Account and the Term Bonds Redemption Account to provide for payment of the principal of and interest on such Series; provided payment from the Pledged Funds of one Series of Bonds shall not have preference over payment of any other Series of Bonds. The Issuer may also deposit moneys in such subaccounts at such other times and in such other amounts from those provided in Section 4.06(B) as shall be necessary to pay the principal of and interest on such Bonds as the same shall become due, all as provided by the Supplemental Resolution authorizing such Bonds. 39

210 In the case of Bonds secured by a Credit Facility, amounts on deposit in the Sinking Fund may be applied as provided in the applicable Supplemental Resolution to reimburse the Credit Bank for amounts drawn under such Credit Facility to pay the principal of, premium, if any, and interest on such Bonds or to pay the purchase price of any such Bonds which are tendered by the holders thereof for payment; provided such Credit Facility shall have no priority over Bondholders or an Insurer to amounts on deposit in the Sinking Fund. Other payments due to a Credit Bank in relation to obligations arising under its Credit Facility may be on parity with the Bonds as to source of and security for payment to the extent provided in the Supplemental Resolution relating thereto. SECTION WATER CONNECTION FEES FUND. The Issuer shall deposit into the Water Connection Fees Fund all Water Connection Fees as received, together with moneys transferred to such Fund pursuant to Section 4.06(B)(8), and such Water Connection Fees shall be accumulated in the Water Connection Fees Fund and applied by the Issuer in the following manner and order of priority: (A) For the payments on or prior to each principal and interest payment date (in no event earlier than the 25th day of the month next preceding such payment date) into the Interest Account, the Principal Account and the Term Bonds Redemption Account, when the moneys therein are insufficient to pay the principal of and interest on the Bonds coming due, but only to the extent moneys transferred from the Utility Reserve Fund, the Renewal and Replacement Fund and the Rate Stabilization Fund for such purpose pursuant to Sections 4.06(B)(8), 4.06(B)(5) and 4.10, respectively, hereof, together with moneys available in the Reserve Account for such purpose pursuant to Section 4.06(B)(4) hereof, shall be inadequate to fully provide for such insufficiency; provided moneys shall be transferred to the aforementioned Accounts from the Water Connection Fees Fund and the Sewer Connection Fees Fund on a pro-rata basis or such other basis as the Issuer deems appropriate in relation to the amount of moneys in each Fund at the time of transfer. Any moneys transferred to the aforementioned Accounts described above shall be treated as an interfund loan and shall be repaid, together with reasonable interest thereon, from Gross Revenues as described in Section 4.06(B)(8) hereof on or prior to the date such amounts are needed for the purposes described in Sections 4.07(B) and (C) hereof, but in no event later than one year from the date of such transfer, unless the Issuer shall determine that such transfer constitutes a lawful use of such Water Connection Fees. (B) To the extent permitted by law, to pay or reimburse the capital cost of acquiring and/or constructing such improvements or additions to the water facilities of the System for which the Water Connection Fees were imposed in accordance with the requisitions for disbursement of moneys provided by the Issuer. (C) To be used for any other lawful purpose relating to the System. SECTION SEWER CONNECTION FEES FUND. The Issuer shall deposit into the Sewer Connection Fees Fund all Sewer Connection Fees as received, together with moneys transferred to such Fund pursuant to Section 4.06(B)(8) hereof, and such Sewer Connection Fees shall be accumulated in the Sewer Connection Fees Fund and applied by the Issuer in the following manner and order of priority: 40

211 (A) For the payments on or prior to each principal and interest payment date (in no event earlier than the 25th day of the month next preceding such payment Date) into the Interest Account, the Principal Account and the Term Bonds Redemption Account, when the moneys therein are insufficient to pay the principal of and interest on the Bonds coming due, but only to the extent moneys transferred from the Utility Reserve Fund, the Renewal and Replacement Fund and the Rate Stabilization Fund for such purpose pursuant to Sections 4.06(B)(8), 4.06(B)(5) and 4.10, respectively, hereof, together with moneys available in the Reserve Account for such purpose pursuant to Section 4.06(B)(4) hereof, shall be inadequate to fully provide for such insufficiency; provided moneys shall be transferred to the aforementioned Accounts from the Sewer Connection Fees Fund and the Water Connection Fees Fund on a pro-rata basis or such other basis as the Issuer deems appropriate in relation to the amount of moneys in each Fund at the time of transfer. Any moneys transferred to the aforementioned Accounts described above shall be treated as an interfund loan and shall be repaid, together with reasonable interest thereon, from Gross Revenues as described in Section 4.06(B)(8) hereof on or prior to the date such amounts are needed for the purposes described in Sections 4.08(B) and (C) hereof, but in no event later than one year from the date of such transfer, unless the Issuer shall determine that such transfer constitutes a lawful use of such Sewer Connection Fees. (B) To the extent permitted by law, to pay or reimburse the capital cost of acquiring and/or constructing such improvements or additions to the sewer facilities of the System for which the Sewer Connection Fees were imposed in accordance with the requisitions for disbursement of moneys provided by the Issuer. (C) To be used for any other lawful purpose relating to the System. SECTION REBATE FUND. Amounts on deposit in the Rebate Fund shall be held in trust by the Issuer and used solely to make required rebates to the United States (except to the extent the same may be transferred to the Revenue Fund) and the Bondholders shall have no right to have the same applied for debt service on the Bonds. For any Series of Bonds for which the rebate requirements of Section 148(f) of the Code are applicable, the Issuer agrees to undertake all actions required of it in its arbitrage certificate relating to such Series of Bonds, including, but not limited to: (A) making a determination in accordance with the Code of the amount required to be deposited in the Rebate Fund; (B) depositing the amount determined in clause (A) above into the Rebate Fund; (C) paying on the dates and in the manner required by the Code to the United States Treasury from the Rebate Fund and any other legally available moneys of the Issuer such amounts as shall be required by the Code to be rebated to the United States Treasury; and (D) keeping such records of the determinations made pursuant to this Section 4.09 as shall be required by the Code, as well as evidence of the fair market value of any investments purchased with proceeds of the Bonds. 41

212 The provisions of the above-described arbitrage certificates may be amended without the consent of any Holder, Credit Bank or Insurer from time to time as shall be necessary, in the opinion of Bond Counsel, to comply with the provisions of the Code. SECTION RATE STABILIZATION FUND. The Issuer may transfer into the Rate Stabilization Fund such moneys which are on deposit in the Utility Reserve Fund as it deems appropriate. The Issuer may transfer such amount of moneys from the Rate Stabilization Fund to the Revenue Fund as it deems appropriate; provided, however, that on or prior to each principal and interest payment date for the Bonds (in no event earlier than the 25th day of the month next preceding such payment date), moneys in the Rate Stabilization Fund shall be applied for the payment into the Interest Account, the Principal Account and the Term Bonds Redemption Account when the moneys therein are insufficient to pay the principal of and interest on the Bonds coming due, but only to the extent moneys transferred from the Utility Reserve Fund and Renewal and Replacement Fund for such purposes pursuant to Sections 4.06(B)(8) and 4.06(B)(5) hereof, together with moneys available in the Reserve Account for such purpose pursuant to Section 4.06(B)(4) hereof, shall be inadequate to fully provide for such insufficiency. SECTION INVESTMENTS. Moneys on deposit in the Revenue Fund, the Construction Fund, the Sinking Fund, the Water Connection Fees Fund, the Sewer Connection Fees Fund, the Operation and Maintenance Fund, the Special Assessments Fund, the Utility Reserve Fund, the Rate Stabilization Fund and the Renewal and Replacement Fund shall be continuously secured in the manner by which the deposit of public funds are authorized to be secured by the laws of the State. Moneys on deposit in the Construction Fund, the Revenue Fund, the Operation and Maintenance Fund, the Special Assessments Fund, the Principal Account, the Interest Account, the Term Bonds Redemption Account, the Renewal and Replacement Fund, the Water Connection Fees Fund, the Sewer Connection Fees Fund, the Rate Stabilization Fund and the Utility Reserve Fund shall be invested and reinvested by the Issuer in Authorized Investments, maturing not later than the dates on which such moneys will be needed for the purposes of such fund or account. Moneys on deposit in the Reserve Account shall be invested in Authorized Investments, maturing no later than ten years from the date of investment. All investments shall be valued at cost; provided, however, that the amounts on deposit in the Reserve Account shall be valued at the market price thereof. Investments in the Reserve Account shall be valued by the Issuer on an annual basis as of April 1 of each year. Any and all income received from the investment of moneys in each separate account of the Revenue Fund, the Construction Fund, the Interest Account, the Principal Account, the Term Bonds Redemption Account, the Utility Reserve Fund, the Renewal and Replacement Fund (to the extent such income and other amounts in such Fund do not exceed the Renewal and Replacement Fund Requirement), the Water Connection Fees Fund, the Sewer Connection Fees Fund, the Utility Reserve Fund, the Rate Stabilization Fund and the Reserve Account (to the extent such income and the other amounts in the Reserve Account does not exceed the Reserve Account Requirement), shall be retained in such respective Fund or Account. Any and all income received from the investment of moneys in the Renewal and Replacement Fund (only to the extent such income and the other amounts in such Fund exceed the Renewal and Replacement Fund Requirement) and the Reserve Account (only to the extent 42

213 such income and the other amounts in the Reserve Account exceeds the Reserve Account Requirement), shall be deposited upon receipt thereof in the Revenue Fund. Any and all income received from the investment of moneys in the Special Assessments Fund shall be deposited upon receipt thereof into the Interest Account. Nothing in this Resolution shall prevent any Authorized Investments acquired as investments of or security for funds held under this Resolution from being issued or held in book-entry form on the books of the Department of the Treasury of the United States. [Remainder of page intentionally left blank] 43

214 ARTICLE V COVENANTS SECTION GENERAL. The Issuer hereby makes the following covenants, in addition to all other covenants in this Resolution, with each and every successive Holder of any of the Bonds so long as any of said Bonds remain Outstanding. SECTION OPERATION AND MAINTENANCE. The Issuer will maintain or cause to be maintained the System and all portions thereof in good condition and will operate or cause to be operated the same in an efficient and economical manner, making or causing to be made such expenditures for equipment and for renewals, repairs and replacements as may be proper for the economical operation and maintenance thereof. The Issuer may contract with a responsible Person which has experience in the operation of utility systems similar to the System for the operation and maintenance of the System. SECTION ANNUAL BUDGET. The Issuer shall annually prepare and adopt, prior to the beginning of each Fiscal Year, an Annual Budget in accordance with applicable law. No expenditure for Operating Expenses shall be made in any Fiscal Year in excess of the aggregate amount provided for Operating Expenses in the Annual Budget until the Governing Body shall have approved the increased expenditures by resolution or ordinance. If for any reason the Issuer shall not have adopted the Annual Budget before the first day of any Fiscal Year, other than the first Fiscal Year, the preliminary budget for such year, if it be approved by the Consulting Engineers or Rate Consultant, or otherwise the Annual Budget for the preceding Fiscal Year, shall be deemed to be in effect for such Fiscal Year until the Annual Budget for such Fiscal Year is adopted. The Issuer shall mail copies of such Annual Budgets and amended Annual Budgets and all resolutions authorizing increased expenditures for operation and maintenance to any Credit Bank or Insurer of Bonds who shall file its address with an Authorized Issuer Officer or the Clerk and request in writing that copies of all such Annual Budgets and resolutions be furnished to it and shall make available all such Annual Budgets and resolutions and ordinances authorizing increased expenditures for operation and maintenance of the System at all reasonable times to any Holder or Holders of Bonds or to anyone acting for and on behalf of such Holder or Holders. SECTION 5.04 RATES. The Issuer shall fix, establish, maintain and collect such rates, fees and charges for the product, services and facilities of the System, and revise the same from time to time, whenever necessary, so as always to provide in each Fiscal Year: (A) Net Revenues equal to at least 110% of the Annual Debt Service becoming due in such Fiscal Year, plus 100% of (1) any amounts required by the terms hereof to be deposited in the Reserve Account or with any issuer of a Reserve Account Letter of Credit or Reserve Account Insurance Policy in such Fiscal Year to pay Policy Costs, and (2) any amounts required by the terms of Sections 4.07(A) and 4.08(A) hereof to be repaid to the Water Connection Fees Fund and Sewer Connection Fees Fund in such Fiscal Year; and 44

215 (B) Net Revenues and Connection Fees equal to at least 120% of the Annual Debt Service becoming due in such Fiscal Year. Such rates, fees or other charges shall not be so reduced so as to be insufficient to provide adequate Net Revenues, Water Connection Fees and Sewer Connection Fees for the purposes provided therefor by this Resolution. If, in any Fiscal Year, the Issuer shall fail to comply with the requirements contained in this Section 5.04, it shall promptly cause the Rate Consultant to review its rates, fees, charges, income, Gross Revenues, Operating Expenses, Connection Fees and methods of operation and to make written recommendations as to the methods by which the Issuer may seek to comply with the requirements set forth in this Section The Issuer shall forthwith commence to implement such recommendations to the extent required so as to cause it to thereafter comply with said requirements. So long as the Issuer implements such recommendations within 120 days of the receipt thereof, the County's failure to comply with this Section 5.04 shall not be considered an Event of Default under Section 7.01 hereof. SECTION BOOKS AND RECORDS. The Issuer shall keep books, records and accounts of the revenues and operations of the System, which shall be kept separate and apart from all other books, records and accounts of the Issuer, and the Holders of any Bonds Outstanding or the duly authorized representatives thereof shall have the right at all reasonable times to inspect all books, records and accounts of the Issuer relating thereto. SECTION ANNUAL AUDIT. The Issuer shall, immediately after the close of each Fiscal Year, cause the books, records and accounts relating to the System to be properly audited by a recognized independent firm of certified public accountants, and shall require such accountants to complete their report of such Annual Audit in accordance with applicable law. Each Annual Audit shall be in conformity with generally accepted accounting principles as applied to governmental entities. A copy of each Annual Audit shall regularly be furnished to any Credit Bank or Insurer who shall have furnished its address to the Clerk and requested in writing that the same be furnished to it. SECTION NO MORTGAGE OR SALE OF THE SYSTEM. The Issuer irrevocably covenants, binds and obligates itself not to sell, lease, encumber or in any manner dispose of the System as a whole or any substantial part thereof (except as provided below) until all of the Bonds and all interest thereon shall have been paid in full or provision for payment has been made in accordance with Section 9.01 hereof. The foregoing provision notwithstanding, the Issuer shall have and hereby reserves the right to sell, lease or otherwise dispose of any of the property comprising a part of the System in the following manner, if any one of the following conditions exist: (A) such property is not necessary for the operation of the System, (B) such property is not useful in the operation of the System, (C) such property is not profitable in the operation of the System, or (D) in the case of a lease of such property, such lease will be advantageous to the System and will not materially adversely affect the security for the Bondholders. 45

216 Prior to any such sale, lease or other disposition of said property: (1) if the amount to be received therefor is not in excess of five percent (5%) of the market value of the gross plant of the System, an Authorized Issuer Officer shall make a finding in writing determining that one or more of the conditions for sale, lease or disposition of property provided for in the second paragraph of this Section 5.07 have been met; or (2) if the amount to be received from such sale, lease or other disposition of said property shall be in excess of five percent (5%) of the market value of the gross plant of the System, (a) an Authorized Issuer Officer and the Consulting Engineers shall each first make a finding in writing determining that one or more of the conditions for sale, lease or other disposition of property provided for in the second paragraph of this Section 5.07 have been met, (b) the Governing Body shall, by resolution, duly adopt, approve and concur in the finding of the Authorized Issuer Officer and the Consulting Engineers, and (c) the Issuer shall obtain an opinion of Bond Counsel to the effect that such sale, lease or other disposition is not in violation of the Act and will not adversely affect the federal tax exempt status of interest on the Bonds (other than Taxable Bonds) or shall not otherwise affect the status of any Outstanding Bonds issued as Federal Subsidy Bonds or the Issuer's receipt of Federal Subsidy Payments with respect to any Outstanding Federal Subsidy Bonds. Except as otherwise required under applicable provisions of the Code, the proceeds from any such sale or other disposition shall be deposited, first, into the Renewal and Replacement Fund to the extent necessary to make the amount therein equal to the Renewal and Replacement Fund Requirement, and, second, into the Utility Reserve Fund. Proceeds from any lease of assets of the System shall constitute Gross Revenues and shall be deposited in the Revenue Fund. The transfer of the System as a whole from the control of the Governing Body to some other board or authority which may hereafter be created for the purpose of owning, operating or controlling the System and which constitutes a governmental entity, interest on obligations issued by which are excluded from gross income for purposes of Federal income taxation (other than obligations similar to Taxable Bonds or Federal Subsidy Bonds), shall not be deemed prohibited by this Section 5.07 and such successor board or authority shall fall within the definition of "Issuer" in Section 1.01 hereof. Notwithstanding the foregoing provisions of this Section 5.07, the Issuer shall have the authority to sell for fair and reasonable consideration any land comprising a part of the System which is no longer necessary or useful in the operation of the System and the proceeds derived from the sale of such land shall be disposed of in accordance with the provisions of the fourth paragraph of this Section The Issuer may make contracts or grant licenses for the operation of, or grant easements or other rights with respect to, any part of the System if such contract, license, easement or right does not, in the opinion of the Consulting Engineers, as evidenced by a certificate to that effect filed with the Issuer, impede or restrict the operation by the Issuer of the System, but any payments to the Issuer under or in connection with any such contract, license, easement or right in respect of the System or any part thereof shall constitute Gross Revenues and shall be deposited in the Revenue Fund. SECTION INSURANCE. The Issuer will carry such insurance as is ordinarily carried by private or public entities owning and operating utilities similar to the 46

217 System with a reputable insurance carrier or carriers, in such amounts as the Issuer shall determine to be sufficient, and such other insurance against loss or damage by fire, explosion, hurricane, tornado or other hazards and risks, and said property loss or damage insurance shall at all times be in an amount or amounts equal to the fair appraisal value of the buildings, properties, furniture, fixtures and equipment of the System, or such other amount or amounts as the Consulting Engineers or an insurance consultant who has a favorable reputation and experience and is qualified to survey risks and to recommend insurance coverage for Persons engaged in operations similar to the System, shall recommend or approve as sufficient. The Issuer may establish certain levels of insurance for which the Issuer may self-insure. Such levels of insurance shall be in amounts as recommended in writing by an insurance consultant who has a favorable reputation and experience and is qualified to survey risks and to recommend insurance coverage for Persons engaged in operations similar to the System. The proceeds from property loss and casualty insurance shall be deposited in the Renewal and Replacement Fund and, together with other available funds of the Issuer, shall be used to repair or replace the damaged portion of the System; provided, however, if the Issuer makes a determination in accordance with Section 5.07 hereof that such portion of the System is no longer necessary or useful in the operation of the System, such proceeds shall (1) if such proceeds equal or exceed $500,000, (a) be applied to the redemption or purchase of Bonds or (b) be deposited in irrevocable trust for the payment of Bonds in the manner set forth in Section 9.01, provided the Issuer has received an opinion of Bond Counsel to the effect that such deposit shall not adversely affect the exclusion, if any, from gross income of interest on the Outstanding Bonds for purposes of federal income taxation (other than Taxable Bonds) and will not otherwise affect the status of any Outstanding Bonds issued as Federal Subsidy Bonds or the Issuer's receipt of Federal Subsidy Payments with respect to any Outstanding Federal Subsidy Bonds, or (2) if such proceeds are less than $500,000, be deposited in the Revenue Fund. SECTION NO FREE SERVICE. The Issuer will not render or cause to be rendered any free services of any nature by its System, nor will any preferential rates be established for users of the same class; provided, however, the foregoing clause shall not be construed to prevent the Issuer from establishing various classes of users based on any factors deemed necessary or desirable by the Issuer. Different rates may be established for different classes. Whenever the Issuer, including its departments, agencies and instrumentalities, shall avail itself of the product, facilities or services provided by the System, or any part thereof, the same rates, fees or charges applicable to other customers receiving like services under similar circumstances shall be charged to the Issuer and any such department, agency or instrumentality. Such charges shall be paid as they accrue, and the Issuer shall transfer from its general funds to the Revenue Fund sufficient sums to pay such charges. The revenues so received shall be deemed to be Gross Revenues derived from the operation of the System, and shall be deposited and accounted for in the same manner as other Gross Revenues derived from such operation of the System. SECTION NO IMPAIRMENT OF RIGHTS; NO COMPETING SYSTEM. (A) The Issuer will not enter into any contract or contracts, nor take any action, the results of which might impair the rights of the Holders of the Bonds. 47

218 (B) To the extent permitted by law, the Issuer will not hereafter grant, or cause, consent to or allow the granting of any franchise or permit to any Person for the operation of any competing water or sewer service facilities or the furnishing of services similar to those provided by the System within the jurisdiction of the Issuer if such operations or services will have a material adverse effect on the Issuer's ability to meet its obligations hereunder. Notwithstanding the foregoing, the Issuer reserves the right to permit the ownership and operation of water or sewer service facilities or both by itself or by others in any territory which is not in any service area now or hereafter served by the System. SECTION COMPULSORY CONNECTIONS. In order better to secure the prompt payment of principal and interest on the Bonds, as well as for the purpose of protecting the health and welfare of the inhabitants of the Issuer, and acting under authority of the general laws of Florida, the Issuer, to the extent permitted by law, will require, where service by the System is available, the owner of every lot or parcel of land within the jurisdiction of the Issuer to connect to the facilities of the System. The Issuer may establish reasonable rules and regulations regarding such connections and may provide for reasonable exemptions from such connection policy. SECTION ENFORCEMENT OF CHARGES. The Issuer shall compel the prompt payment of rates, fees and charges imposed in connection with the System, and to that end will vigorously enforce all of the provisions of any ordinance or resolution of the Issuer having to do with System connections and charges, and all of the rights and remedies permitted the Issuer under law, including the requirement for the making of a reasonable deposit by each user, the requirement for lawful disconnection of services for all premises delinquent in the payment of any duly invoiced bill, and the securing of injunction against the disposition of sewage or industrial waste into the sewer facilities of the System by any premises delinquent in the payment of such charges. SECTION UNIT BILLS. In every instance in which a building or structure on a lot is connected to the sewer facilities of the System, which building or structure is also connected to the water facilities of the System and receives water therefrom, the Issuer shall submit to the owner or occupant of such lot a single bill for all water and sewer service and shall refuse to accept payment for any of the charge relating to a particular service of the System without payment of the charges for all other services of the System. SECTION COVENANTS WITH CREDIT BANKS AND INSURERS. The Issuer may make such covenants as it may in its sole discretion determine to be appropriate with any Insurer, Credit Bank or other financial institution that shall agree to insure or to provide for Bonds of any one or more Series credit or liquidity support that shall enhance the security or the value of such Bonds. Such covenants may be set forth in the applicable Supplemental Resolution or in an agreement approved by Supplemental Resolution and shall be binding on the Issuer, the Registrar, the Paying Agent and all the Holders of Bonds the same as if such covenants were set forth in full in this Resolution and shall not diminish the security for any of the Bonds Outstanding. SECTION COLLECTION OF SPECIAL ASSESSMENTS. To the extent the Gross Revenues include any Special Assessments Proceeds, the Issuer shall proceed 48

219 diligently to perform legally and effectively all steps required in the imposition and collection of the Special Assessments. The Issuer shall diligently proceed to collect such Special Assessments and shall exercise all legally available remedies now or hereafter available under State law to enforce such collections. SECTION RE-ASSESSMENTS. To the extent the Gross Revenues include any Special Assessments Proceeds, if any Special Assessment shall be either in whole or in part annulled, vacated or set aside by the judgment of any court, or if the Governing Body shall be satisfied that any such Special Assessment is so irregular or defective that the same cannot be enforced or collected, or if the Governing Body shall have omitted to make such Special Assessment when it might have done so, the Governing Body shall take all necessary steps to cause a new Special Assessment to be made for the whole or any part of said improvement or against any property benefitted by said improvement, and in case such second Special Assessment shall be annulled, said Governing Body shall obtain and make other Special Assessments until a valid Special Assessment shall be made. SECTION COLLECTION OF CONNECTION FEES. The Issuer shall proceed diligently to perform legally and effectively all steps required in the collection of the Connection Fees, if and only to the extent such Connection Fees are levied by the Issuer. Upon the due date of any such Connection Fees, the Issuer shall diligently proceed to collect the same and shall exercise all legally available remedies to enforce such collections now or hereafter available under State law. Notwithstanding any provision of this Section 5.17 to the contrary, the Issuer may waive the levy or collection of a Connection Fee provided such waiver is in accordance with applicable law. SECTION CONSULTING ENGINEERS. The Issuer shall employ Consulting Engineers, whose duties shall be to make any certificates and perform any other acts required or permitted of the Consulting Engineers under this Resolution, and also to review the construction and operation of the System, to make an inspection of the System at least once every three years, and to submit to the Issuer a report with recommendations as to the proper maintenance, repair and operation of the System, including recommendations for expansion and additions to the System to meet anticipated service demands, and an estimate of the amount of money necessary for such purposes. The Consulting Engineers shall, from time to time, recommend the amount of the Renewal and Replacement Fund Requirement. Copies of such reports, recommendations and estimates made as hereinabove provided shall be filed with the Issuer for inspection by Bondholders, if such inspection is requested. SECTION FEDERAL INCOME TAXATION COVENANTS; TAXABLE BONDS. The Issuer covenants with the Holders of each Series of Bonds (other than Taxable Bonds and Federal Subsidy Bonds) that it shall not use the proceeds of such Series of Bonds in any manner which would cause the interest on such Series of Bonds to be or become included in gross income for purposes of federal income taxation. The Issuer covenants with the Holders of each Series of Bonds (other than Taxable Bonds) that neither the Issuer nor any Person under its control or direction will make any use of the proceeds of such Series of Bonds (or amounts deemed to be proceeds under the Code) in any manner which would cause such Series of Bonds to be "arbitrage bonds" within the meaning of 49

220 the Code and neither the Issuer nor any other Person shall do any act or fail to do any act which would cause the interest on any Series of Bonds (other than Taxable Bonds and Federal Subsidy Bonds) to become subject to inclusion within gross income for purposes of federal income taxation. The Issuer hereby covenants with the Holders of each Series of Bonds (other than Taxable Bonds and Federal Subsidy Bonds) that it will comply with all provisions of the Code necessary to maintain the exclusion from gross income of interest on the Bonds for purposes of federal income taxation, including, in particular, the payment of any amount required to be rebated to the U.S. Treasury pursuant to the Code. The Issuer may, if it so elects, issue one or more Series of Taxable Bonds the interest on which is (or may be) includable in the gross income of the Holder thereof for federal income taxation purposes, so long as each Bond of such Series states in the body thereof that interest payable thereon is (or may be) subject to federal income taxation and provided that the issuance thereof will not cause interest on any other Bonds theretofore issued hereunder to be or become subject to federal income taxation. The other covenants set forth in this Section 5.19 shall not apply to any Taxable Bonds. SECTION COVENANTS RELATING TO FEDERAL SUBSIDY BONDS. The Issuer covenants with respect to any Bonds issued as Federal Subsidy Bonds that it will: (A) File, on a timely basis, Internal Revenue Service Form 8038-CP or such other form or forms required by the United States Department of Treasury to receive Federal Subsidy Payments in connection with any Bonds issued as Federal Subsidy Bonds. (B) Deposit promptly the Federal Subsidy Payments received from the United States Department of Treasury, if any, to the Interest Account of the Sinking Fund to pay interest on the Federal Subsidy Bonds. (C) Comply with all provisions of the Code, all Treasury Regulations promulgated thereunder, and any applicable notice, ruling or other formal interpretation issued by the United States Department of Treasury or the Internal Revenue Service, in order for the Bonds issued as Federal Subsidy Bonds to be and to remain Federal Subsidy Bonds. (D) Not take any action, or fail to take any action, if any such action or failure to take such action would adversely affect the Issuer's receipt of Federal Subsidy Payments or the status of the Bonds issued as Federal Subsidy Bonds, or any portion thereof, as Federal Subsidy Bonds. The Issuer covenants that it will not directly or indirectly use or permit the use of any proceeds of Bonds issued as Federal Subsidy Bonds or any other of its funds or take or omit to take any action that would cause the Bonds issued as Federal Subsidy Bonds to be or become "arbitrage bonds" within the meaning of Section 148(a) or to fail to meet any other applicable requirements of the Code. SECTION COMBINING WITH WHOLESALE WATER SYSTEM. At the option of the Issuer by means of Supplemental Resolution, "System," as defined herein, 50

221 may be deemed to include the County's existing wholesale water system and any improvements thereto, and any debt then secured by said wholesale water system shall thereupon be deemed secured by the combined Net Revenues and Connection Fees of the combined System on a parity with the Bonds, which shall also be secured by combined Net Revenues and Connection Fees, provided that the combined Net Revenues shall be equal for the prior Fiscal Year to at least 1.10 times the Maximum Annual Debt Service on such combined indebtedness and the combined Net Revenues and Connection Fees shall be equal for the prior Fiscal Year to at least 1.20 times the Maximum Annual Debt Service on such combined indebtedness. [Remainder of page intentionally left blank] 51

222 ARTICLE VI SUBORDINATED INDEBTEDNESS AND ADDITIONAL BONDS SECTION SUBORDINATED INDEBTEDNESS. The Issuer will not issue any other obligations, except under the conditions and in the manner provided herein, payable from the Pledged Funds or the Gross Revenues or voluntarily create or cause to be created any debt, lien, pledge, assignment, encumbrance or other charge having priority to or being on a parity with the lien thereon in favor of the Bonds and the interest thereon. The Issuer may at any time or from time to time issue evidences of indebtedness payable in whole or in part out of Pledged Funds and which may be secured by a pledge of Pledged Funds; provided, however, that such pledge shall be, and shall be expressed to be, subordinated in all respects to the pledge of the Pledged Funds created by this Resolution and provided further that the issuance of such Subordinated Indebtedness shall be subject to any provisions contained in financing documents securing outstanding Subordinated Indebtedness to the extent such provisions impact on the ability of the Issuer to issue other Subordinated Indebtedness. The Issuer shall have the right to covenant with the holders from time to time of any Subordinated Indebtedness to add to the conditions, limitations and restrictions under which any Additional Bonds may be issued under the provisions of Section 6.02 hereof. The Issuer agrees to pay promptly any Subordinated Indebtedness as the same shall become due. SECTION ISSUANCE OF ADDITIONAL BONDS. No Additional Bonds, payable on a parity with the Bonds then Outstanding pursuant to this Resolution, shall be issued except upon the conditions and in the manner herein provided. The Issuer may issue one or more Series of Additional Bonds for any one or more of the following purposes: (i) financing or refinancing the Cost of a Project, or the completion thereof, or (ii) refunding any or all Outstanding Bonds, any Subordinated Indebtedness of the Issuer, or any other indebtedness of the Issuer that it may lawfully refund with proceeds of Bonds. with: No such Additional Bonds shall be issued unless the following conditions are complied (A) Except in the case of Additional Bonds issued for the purpose of refunding Outstanding Bonds, the Issuer shall certify that it is current in all deposits into the various funds and accounts established hereby and all payments theretofore required to have been deposited or made by it under the provisions of this Resolution, including a certification that all due and payable Policy Costs have been deposited or made, and the Issuer is in compliance with the covenants and agreements of this Resolution. (B) An independent certified public accountant or the Rate Consultant shall certify to the Issuer that the amount of the Net Revenues (excluding Investment Earnings with respect to the Construction Fund) and Connection Fees received by the Issuer during the immediately preceding Fiscal Year or any 12 consecutive months selected by the Issuer of the 24 months immediately preceding the issuance of said Additional Bonds, adjusted as hereinafter provided, were equal to at least 120% of the Maximum Annual Debt Service of the Outstanding Bonds and the Additional Bonds then proposed to be issued, provided the amount of the Net Revenues, adjusted as hereinafter provided, received by the Issuer during such 12-month period, will be 52

223 equal to (1) at least 110% of the Maximum Annual Debt Service of the Outstanding Bonds and the Additional Bonds then proposed to be issued, and (2) 100% of (a) any amounts required by the terms hereof to be deposited in the Reserve Account or with any issuer of a Reserve Account Letter of Credit or Reserve Account Insurance Policy to pay any Policy Costs and (b) any amounts required by the terms of Sections 4.07(A) and 4.08(A) hereof to be repaid to the Water Connection Fees Fund and Sewer Connection Fees Fund, in each case during such 12-month period. (C) For the purpose of determining the Debt Service under this Section 6.02, the interest rate on Additional Bonds that are proposed to be issued as Variable Rate Bonds shall be deemed to be the Bond Buyer Revenue Bond Index most recently published prior to the sale of such Additional Bonds. (D) For the purpose of determining the Debt Service under this Section 6.02, the interest rate on Outstanding Variable Rate Bonds (not subject to a Qualified Hedge Agreement) shall be deemed to be (1) if such Variable Rate Bonds have been Outstanding for at least 12 months prior to the date of sale of such Additional Bonds, the highest of (a) the actual rate of interest borne by such Variable Rate Bonds on the date of sale, and (b) the average interest rate borne by such Variable Rate Bonds during the 12-month period preceding the date of sale, or (2) if such Variable Rate Bonds have not been Outstanding for at least 12 months prior to the date of sale of such Additional Bonds, the higher of (a) the actual rate of interest borne by the Variable Rate Bonds on the date of sale, and (b) the Bond Buyer Revenue Bond Index most recently published prior to the sale of such Additional Bonds. (E) For the purpose of this Section 6.02, the phrase "immediately preceding Fiscal Year or any 12 consecutive months selected by the Issuer of the 24 months immediately preceding the issuance of said Additional Bonds" shall be sometimes referred to as "12 consecutive months" or the "12-month period." (F) The Net Revenues and the Connection Fees calculated pursuant to the foregoing Section 6.02(B) may be adjusted upon the written advice of the Rate Consultant, at the option of the Issuer, as follows: (1) If the Issuer, prior to the issuance of the proposed Additional Bonds, shall have increased the rates, fees or other charges for the product, services or facilities of the System, the Net Revenues and the Connection Fees for the 12 consecutive months shall be adjusted to show the Net Revenues and the Connection Fees which would have been derived from the System in such 12 consecutive months as if such increased rates, fees or other charges for the product, services or facilities of the System had been in effect during all of such 12 consecutive months. (2) If the Issuer shall have acquired or has contracted to acquire any privately or publicly owned existing utility system that will become part of the System, the cost of which shall be paid from all or part of the proceeds of the issuance of the proposed Additional Bonds, then the Net Revenues derived from the System during the 12 consecutive months shall be increased by adding to the Net Revenues for said 12 consecutive months the Net Revenues which would have been derived from said existing utility system as if such existing utility system had been a part of the System during such 12 consecutive months. For the purposes of this 53

224 paragraph, the Net Revenues derived from said existing utility system during such 12 consecutive months shall be adjusted to determine such Net Revenues by deducting the cost of operation and maintenance of said existing utility system from the gross revenues of said system. Such Net Revenues shall take into account any increase in rates imposed on customers of such utility system on or prior to the acquisition thereof by the Issuer. (3) If the Issuer, in connection with the issuance of Additional Bonds, shall enter into a contract (with a duration not less than the final maturity of such Additional Bonds) with any public or private entity whereby the Issuer agrees to furnish services in connection with any utility system, then the Net Revenues of the System during the 12 consecutive months shall be increased by the least amount which said public or private entity shall guarantee to pay in any one year for the furnishing of said services by the Issuer, after deducting therefrom the proportion of operating expenses and repair, renewal and replacement cost attributable in such year to such services. (4) If the Issuer covenants to levy Special Assessments against property to be benefited by the improvements, the cost of which shall be paid from the proceeds of the proposed Additional Bonds and the Issuer has included the corresponding Special Assessment Proceeds within the definition of Gross Revenues pursuant to Supplemental Resolution, then the Special Assessments Proceeds derived from the System during the 12 consecutive months shall be increased by an amount equal to the least amount which the Rate Consultant estimates will be received in any one year subsequent to completion of such improvements from the levy of said Special Assessments, said amount to be the total received, assuming no prepayments, from the installment payments on the Special Assessments plus the interest paid on the unpaid portion of the Special Assessments. The estimate of the Rate Consultant shall be based upon the preliminary assessment roll filed with the Issuer prior to the construction of such improvements. (5) In the event the Issuer shall be constructing or acquiring additions, extensions or improvements to the System from the proceeds of such Additional Bonds and shall have established fees, rates or charges to be charged and collected from users of such facilities when service is rendered, such Net Revenues and Connection Fees for the 12 consecutive months may be adjusted by adding thereto 100% of the Net Revenues and Connection Fees estimated by the Rate Consultant to be derived during the first 12 months of operation after completion of the construction or acquisition of said additions, extensions and improvements from the customers of the facilities to be financed by Additional Bonds together with other funds on hand or lawfully obtained for such purpose; provided such customers must represent existing occupied structures that will be added to the System upon completion of the proposed additions, extensions or improvements. (6) If the Issuer shall add new customers subsequent to the commencement of the 12 consecutive months, the Rate Consultant may adjust the Net Revenues and Connection Fees to reflect the Net Revenues and Connection Fees that would have been received by the Issuer if such customers had been in place for the entire 12 consecutive months. (7) The Net Revenues and Connection Fees shall be adjusted for any period the System or any portion thereof was not owned by the Issuer to reflect government ownership of the System or such portion. 54

225 (G) Additional Bonds shall be deemed to have been issued pursuant to this Resolution the same as the Outstanding Bonds, and all of the other covenants and other provisions of this Resolution (except as to details of such Additional Bonds inconsistent therewith) shall be for the equal benefit, protection and security of the Holders of all Bonds issued pursuant to this Resolution. Except as provided in Sections 4.02 and 4.06 hereof, all Bonds, regardless of the time or times of their issuance, shall rank equally with respect to their lien on the Pledged Funds and their sources and security for payment therefrom without preference of any Bonds over any other. (H) In the event any Additional Bonds are issued for the purpose of refunding any Bonds then Outstanding, the conditions of Section 6.02(B) shall not apply, provided that the issuance of such Additional Bonds shall not result in an increase in aggregate debt service in any future bond year. The conditions of Section 6.02(B) shall apply to Additional Bonds issued to refund Subordinated Indebtedness and to Additional Bonds issued for refunding purposes which cannot meet the conditions of this paragraph. SECTION BOND ANTICIPATION NOTES. The Issuer may issue notes in anticipation of the issuance of Bonds which shall have such terms and details and be secured in such manner, not inconsistent with this Resolution, as shall be provided by Supplemental Resolution of the Issuer. SECTION ACCESSION OF SUBORDINATED INDEBTEDNESS TO PARITY STATUS WITH BONDS. The Issuer may provide for the accession of Subordinated Indebtedness to the status of complete parity with the Bonds, if (A) the Issuer shall meet all the requirements imposed upon the issuance of Additional Bonds by Sections 6.02(A) and (B) hereof, assuming for purposes of said requirements, that such Subordinated Indebtedness shall be Additional Bonds, (B) and the facilities financed or refinanced by such Subordinated Indebtedness shall be, or become part of, the System. If the aforementioned conditions are satisfied, the Subordinated Indebtedness shall be deemed to have been issued pursuant to this Resolution the same as the Outstanding Bonds, and such Subordinated Indebtedness shall be considered Bonds for all purposes provided in this Resolution. [Remainder of page intentionally left blank] 55

226 ARTICLE VII DEFAULTS AND REMEDIES SECTION EVENTS OF DEFAULT. The following events shall each constitute an "Event of Default": (A) Default shall be made in the payment of the principal of, Sinking Fund Installment, redemption premium or interest on any Bond when due. In determining whether a payment default has occurred, no effect shall be given to payment made under a Bond Insurance Policy. (B) There shall occur the dissolution or liquidation of the Issuer, or the filing by the Issuer of a voluntary petition in bankruptcy, or the commission by the Issuer of any act of bankruptcy, or adjudication of the Issuer as a bankrupt, or assignment by the Issuer for the benefit of its creditors, or appointment of a receiver for the Issuer, or the entry by the Issuer into an agreement of composition with its creditors, or the approval by a court of competent jurisdiction of a petition applicable to the Issuer in any proceeding for its reorganization instituted under the provisions of the Federal Bankruptcy Act, as amended, or under any similar act in any jurisdiction which may now be in effect or hereafter enacted. (C) The Issuer shall default in the due and punctual performance of any other of the covenants, conditions, agreements and provisions contained in the Bonds or in this Resolution on the part of the Issuer to be performed, and such default shall continue for a period of 90 days after written notice of such default shall have been received from the Holders of not less than 25% of the aggregate principal amount of Bonds Outstanding. Notwithstanding the foregoing, the Issuer shall not be deemed to be in default hereunder if such default can be cured within a reasonable period of time and if the Issuer in good faith institutes appropriate curative action and diligently pursues such action until default has been corrected. SECTION REMEDIES. Any Holder of Bonds issued under the provisions of this Resolution or any trustee or receiver acting for such Bondholders may either at law or in equity, by suit, action, mandamus or other proceedings in any court of competent jurisdiction, protect and enforce any and all rights under the Laws of the State of Florida, or granted and contained in this Resolution, and may enforce and compel the performance of all duties required by this Resolution or by any applicable statutes to be performed by the Issuer or by any officer thereof; provided, however, that no Holder, trustee or receiver shall have the right to declare the Bonds immediately due and payable without the consent of any affected Insurers except to the extent the acceleration of any Variable Rate Bonds secured by a Credit Facility is provided for in a Supplemental Resolution or other documentation relating to such Credit Facility, the provisions of which are approved by the Insurers. The Holder or Holders of Bonds in an aggregate principal amount of not less than 25% of the Bonds then Outstanding may by a duly executed certificate in writing appoint a trustee for Holders of Bonds issued pursuant to this Resolution with authority to represent such Bondholders in any legal proceedings for the enforcement and protection of the rights of such 56

227 Bondholders and such certificate shall be executed by such Bondholders or their duly authorized attorneys or representatives, and shall be filed in the office of the Clerk. Notice of such appointment, together with evidence of the requisite signatures of the Holders of not less than 25% in aggregate principal amount of Bonds Outstanding and the trust instrument under which the trustee shall have agreed to serve shall be filed with the Issuer and the trustee and notice of such appointment shall be given to all Holders of Bonds in the same manner as notices of redemption are given hereunder. After the appointment of the first trustee hereunder, no further trustees may be appointed; however, the Holders of a majority in aggregate principal amount of all the Bonds then Outstanding may remove the trustee initially appointed and appoint a successor and subsequent successors at any time. SECTION DIRECTIONS TO TRUSTEE AS TO REMEDIAL PROCEEDINGS. The Holders of a majority in principal amount of the Bonds then Outstanding (or any Insurer insuring any then Outstanding Bonds) have the right, by an instrument or concurrent instruments in writing executed and delivered to the trustee, to direct the method and place of conducting all remedial proceedings to be taken by the trustee hereunder with respect to the Series of Bonds owned by such Holders or insured by such Insurer, provided that such direction shall not be otherwise than in accordance with law or the provisions hereof, and that the trustee shall have the right to decline to follow any direction which in the opinion of the trustee would be unjustly prejudicial to Holders of Bonds not parties to such direction. SECTION REMEDIES CUMULATIVE. No remedy herein conferred upon or reserved to the Bondholders is intended to be exclusive of any other remedy or remedies, and each and every such remedy shall be cumulative, and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. SECTION WAIVER OF DEFAULT. No delay or omission of any Bondholder to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default, or an acquiescence therein; and every power and remedy given by Section 7.02 to the Bondholders may be exercised from time to time, and as often as may be deemed expedient. SECTION APPLICATION OF MONEYS AFTER DEFAULT. If an Event of Default shall happen and shall not have been remedied, the Issuer or a trustee or receiver appointed for the purpose shall apply all Pledged Funds (except as for amounts in the subaccounts of the Reserve Account which shall be applied to the payment of the Series of Bonds for which they were established) as follows and in the following order: A. To the payment of the reasonable and proper charges, expenses and liabilities of the trustee or receiver and Registrar hereunder; B. To the payment of the amounts required for reasonable and necessary Operating Expenses, and for the reasonable renewals, repairs and replacements of the System necessary to prevent loss of Gross Revenues, as certified by the Consulting Engineer; C. To the payment of the interest (including Hedge Payments) and principal or Redemption Price, if applicable, then due on the Bonds, as follows: 57

228 (1) Unless the principal of all the Bonds shall have become due and payable, all such moneys shall be applied: FIRST: to the payment to the Persons entitled thereto of all installments of interest (including Hedge Payments) then due, in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installment, to the Persons entitled thereto, without any discrimination or preference; SECOND: to the payment to the Persons entitled thereto of the unpaid principal of any of the Bonds which shall have become due at maturity or upon mandatory redemption prior to maturity (other than Bonds called for redemption for the payment of which moneys are held pursuant to the provisions of Section 9.01 of this Resolution), in the order of their due dates, with any accrued and unpaid interest upon such Bonds from the respective dates upon which they became due, and, if the amount available shall not be sufficient to pay in full Bonds due on any particular date, together with any accrued and unpaid interest, then to the payment first of such interest, ratably according to the amount of such interest due on such date, and then to the payment of such principal, ratably according to the amount of such principal due on such date, to the Persons entitled thereto without any discrimination or preference; and THIRD: to the payment of the Redemption Price of any Bonds called for optional redemption pursuant to the provisions of this Resolution plus any accrued and unpaid interest. (2) If the principal of all the Bonds shall have become due and payable, all such moneys shall be applied to the payment of the principal and interest (including Hedge Payments) then due and unpaid upon the Bonds, with interest thereon as aforesaid, without preference or priority of principal over interest or of interest over principal, or of any installment of interest over any other installment of interest, or of any Bond over any other Bond, ratably, according to the amounts due respectively for principal and interest, to the Persons entitled thereto without any discrimination or preference. D. To the payment of all amounts owed to the Insurers and Credit Banks not covered by A, B or C above and all amounts owed to Counterparties not covered by A, B or C above on a pro rata basis. SECTION CONTROL BY INSURER. To the extent an Insurer makes any payment of principal of or interest on Bonds in accordance with its Bond Insurance Policy, such Insurer shall become subrogated to the rights of the recipients of such payments in accordance with the terms of its Bond Insurance Policy. Upon the occurrence and continuance of an Event of Default, an Insurer of a Series of Bonds, if such Insurer shall not be in payment default under its Bond Insurance Policy, shall be deemed to be the sole owner of such Bonds for purposes of (A) directing and controlling the enforcement of all rights and remedies with respect to such Series of Bonds, including any waiver of an Event of Default and removal of any trustee, and (B) 58

229 exercising any voting right or privilege or giving any consent or direction or taking any other action that the Holders of such Bonds are entitled to take pursuant to this Article VII hereof. No provision expressly recognizing or granting rights in or to an Insurer shall be modified without the consent of such Insurer. An Insurer's rights under this Section 7.07 shall be suspended during any period in which such Insurer is in default in its payment obligations under its Bond Insurance Policy (except to the extent of amounts previously paid by such Insurer and due and owing to such Insurer) and shall be of no force or effect if its Bond Insurance Policy is no longer in effect or if the Insurer asserts that its Bond Insurance Policy is not in effect or if the Insurer waives such rights in writing. The rights granted to an Insurer under this Section 7.07 are granted in consideration of such Insurer issuing its Bond Insurance Policy. The Issuer shall provide each Insurer immediate notice of any Event of Default described in Section 7.01(A) hereof and notice of any other Event of Default occurring hereunder within 30 days of the occurrence thereof. Each Insurer of any Bonds hereunder shall be considered a third-party beneficiary to the Resolution with respect to such Bonds. [Remainder of page intentionally left blank] 59

230 ARTICLE VIII SUPPLEMENTAL RESOLUTIONS SECTION SUPPLEMENTAL RESOLUTION WITHOUT BONDHOLDERS' CONSENT. The Issuer, from time to time and at any time, may adopt such Supplemental Resolutions without the consent of the Bondholders or the Insurers or the Credit Banks (which Supplemental Resolution shall thereafter form a part hereof) for any of the following purposes: (A) To cure any ambiguity or formal defect or omission or to correct any inconsistent provisions in this Resolution or to clarify any matters or questions arising hereunder. (B) To grant to or confer upon the Bondholders any additional rights, remedies, powers, authority or security that may lawfully be granted to or conferred upon the Bondholders. (C) To add to the conditions, limitations and restrictions on the issuance of Bonds under the provisions of this Resolution other conditions, limitations and restrictions thereafter to be observed. (D) To add to the covenants and agreements of the Issuer in this Resolution other covenants and agreements thereafter to be observed by the Issuer or to surrender any right or power herein reserved to or conferred upon the Issuer. (E) To specify and determine the matters and things referred to in Section 2.01 hereof, including the issuance of Additional Bonds, and also any other matters and things relative to such Bonds which are not contrary to or inconsistent with this Resolution as theretofore in effect, or to amend, modify or rescind any such authorization, specification or determination at any time prior to the first delivery of such Bonds. (F) To authorize Projects or to change or modify the description of any Project. (G) To specify and determine matters necessary or desirable for the issuance of Variable Rate Bonds, Federal Subsidy Bonds or Capital Appreciation Bonds. (H) To provide for the establishment of a separate subaccount or subaccounts in the Reserve Account which shall independently secure one or more Series of Bonds. (I) To make any other change that, in the opinion of the Issuer, would not materially adversely affect the interests of the Holders of the Bonds. In making such determination, the Issuer shall not take into consideration any Bond Insurance Policy. SECTION SUPPLEMENTAL RESOLUTION WITH BONDHOLDERS' AND INSURER'S CONSENT. Subject to the terms and provisions contained in this Section 8.02 and Sections 8.01 and 8.03 hereof, the Holder or Holders of not less than a majority in aggregate principal amount of the Bonds then Outstanding shall have the right, from time to time, anything contained in this Resolution to the contrary notwithstanding, to consent to and approve the adoption of such Supplemental Resolutions hereto as shall be deemed necessary or desirable by the Issuer for the purpose of supplementing, modifying, altering, amending, adding 60

231 to or rescinding, in any particular, any of the terms or provisions contained in this Resolution; provided, however, that if such modification or amendment will, by its terms, not take effect so long as any Bonds of any specified Series or maturity remain Outstanding, the consent of the Holders of such Bonds shall not be required and such Bonds shall not be deemed to be Outstanding for the purpose of any calculation of Outstanding Bonds under this Section Any Supplemental Resolution which is adopted in accordance with the provisions of this Section 8.02 shall also require the written consent of the Insurer of any Bonds which are Outstanding at the time such Supplemental Resolution shall take effect if such Insurer is not in payment default under its Bond Insurance Policy. No Supplemental Resolution may be approved or adopted which shall permit or require, without the consent of all affected Bondholders, (A) an extension of the maturity of the principal of or the payment of the interest on any Bond issued hereunder, (B) reduction in the principal amount of any Bond or the Redemption Price or the rate of interest thereon, (C) the creation of a lien upon or a pledge of the Pledged Funds other than the lien and pledge created by this Resolution or except as otherwise permitted or provided hereby which materially adversely affects any Bondholders, (D) a preference or priority of any Bond or Bonds over any other Bond or Bonds (except as to the establishment of separate subaccounts in the Reserve Account provided in Section 4.06(B)(4) hereof), or (E) a reduction in the aggregate principal amount of the Bonds required for consent to such Supplemental Resolution. Nothing herein contained, however, shall be construed as making necessary the approval by Bondholders or the Insurers or the Credit Banks of the adoption of any Supplemental Resolution as authorized in Section 8.01 hereof. If at any time the Issuer shall determine that it is necessary or desirable to adopt any Supplemental Resolution pursuant to this Section 8.02, the Clerk shall cause the Registrar to give notice of the proposed adoption of such Supplemental Resolution and the form of consent to such adoption to be mailed, postage prepaid, to all Bondholders at their addresses as they appear on the registration books. Such notice shall briefly set forth the nature of the proposed Supplemental Resolution and shall state that copies thereof are on file at the offices of the Clerk and the Registrar for inspection by all Bondholders. The Issuer shall not, however, be subject to any liability to any Bondholder by reason of its failure to cause the notice required by this Section 8.02 to be mailed and any such failure shall not affect the validity of such Supplemental Resolution when consented to and approved as provided in this Section Whenever the Issuer shall deliver to the Clerk an instrument or instruments in writing purporting to be executed by the Holders of not less than a majority in aggregate principal amount of the Bonds then Outstanding, which instrument or instruments shall refer to the proposed Supplemental Resolution described in such notice and shall specifically consent to and approve the adoption thereof in substantially the form of the copy thereof referred to in such notice, thereupon, but not otherwise, the Issuer may adopt such Supplemental Resolution in substantially such form, without liability or responsibility to any Holder of any Bond, whether or not such Holder shall have consented thereto. If the Holders of not less than a majority in aggregate principal amount of the Bonds Outstanding at the time of the adoption of such Supplemental Resolution shall have consented to and approved the adoption thereof as herein provided, no Holder of any Bond shall have any right to object to the adoption of such Supplemental Resolution, or to object to any of the terms and provisions contained therein or the operation thereof, or in any manner to question the 61

232 propriety of the adoption thereof, or to enjoin or restrain the Issuer from adopting the same or from taking any action pursuant to the provisions thereof. Notwithstanding the foregoing, the initial purchasers of Additional Bonds shall be deemed to have consented in writing to any amendments to the Resolution that are to become effective on or after the issuance of such Additional Bonds in accordance with this Section 8.02 if the proposed amendments are reasonably disclosed in the offering documentation prepared and distributed in connection with the issuance of such Additional Bonds and the related Supplemental Resolution provides that such initial purchasers have so consented through their purchase. Upon the adoption of any Supplemental Resolution pursuant to the provisions of this Section 8.02, this Resolution shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under this Resolution of the Issuer and all Holders of Bonds then Outstanding shall thereafter be determined, exercised and enforced in all respects under the provisions of this Resolution as so modified and amended. SECTION AMENDMENT WITH CONSENT OF INSURER ONLY. For purposes of amending this Resolution pursuant to Section 8.02 hereof, an Insurer of Bonds shall be considered the Holder of such Bonds which it has insured. The consent of the Holders of such Bonds shall not be required if the Insurer of such Bonds shall consent to the amendment as provided by this Section Prior to adoption of any amendment made pursuant to this Section 8.03, notice of such amendment shall be delivered to the rating agencies rating the Bonds. Upon filing with the Clerk of evidence of such consent the Insurer or Insurers as aforesaid, the Issuer may adopt such Supplemental Resolution. After the adoption by the Issuer of such Supplemental Resolution, notice thereof shall be mailed in the same manner as notices of an amendment under Section 8.02 hereof. [Remainder of page intentionally left blank] 62

233 ARTICLE IX DEFEASANCE SECTION DEFEASANCE. If (A) the Issuer shall pay or cause to be paid or there shall otherwise be paid to the Holders of any Series of Bonds the principal and interest or Redemption Price, plus accrued interest, due or to become due thereon, at the times and in the manner stipulated therein and in this Resolution, and (B) the Issuer shall pay all Policy Costs owing to any provider of a Reserve Account Letter of Credit or Reserve Account Insurance Policy and all amounts owing to the Insurers, then all covenants, agreements and other obligations of the Issuer to the holders of such Series of Bonds, shall thereupon cease, terminate and become void and be discharged and satisfied. In such event, the Paying Agents shall pay over or deliver to the Issuer all money or securities held by them pursuant to this Resolution which are not required for payment or redemption of any Series of Bonds not theretofore surrendered for such payment or redemption. Any Bonds or interest installments appertaining thereto shall be deemed to have been paid within the meaning of this Section 9.01 if (i) in case any such Bonds are to be redeemed prior to the maturity thereof, there shall have been taken all action necessary to call such Bonds for redemption and notice of such redemption shall have been duly given or provision shall have been made for the giving of such notice, and (ii) there shall have been deposited in irrevocable trust with a banking institution or trust company by or on behalf of the Issuer either moneys in an amount which shall be sufficient, or Refunding Securities verified by an independent certified public accountant or nationally recognized company that provides verification services for municipal bonds to be in such amount that the principal of and the interest on or redemption price which when due will provide moneys which, together with the moneys, if any, deposited with such banking institution or trust company at the same time shall be sufficient, to pay the principal of and interest due and to become due on said Bonds on and prior to the maturity date thereof. Except as hereafter provided, neither the Refunding Securities nor any moneys so deposited with such banking institution or trust company nor any moneys received by such bank or trust company on account of principal of or redemption price, if applicable, or interest on said Refunding Securities shall be withdrawn or used for any purpose other than, and all such moneys shall be held in trust for and be applied to, the payment, when due, of the principal of or redemption price of the Bonds for the payment of which they were deposited and the interest accruing thereon to the date of maturity; provided, however, the Issuer may substitute new Refunding Securities and moneys for the deposited Refunding Securities and moneys if the new Refunding Securities and moneys are sufficient to pay the principal of and interest on or redemption price of the refunded Bonds. For purposes of determining whether Variable Rate Bonds shall be deemed to have been paid prior to the maturity or the redemption date thereof, as the case may be, by the deposit of moneys, or specified Refunding Securities and moneys, if any, in accordance with this Section 9.01, the interest to come due on such Variable Rate Bonds on or prior to the maturity or redemption date thereof, as the case may be, shall be calculated at the Maximum Interest Rate; provided, however, that if on any date, as a result of such Variable Rate Bonds having borne interest at less than the Maximum Interest Rate for any period, the total amount of moneys and specified Refunding Securities on deposit for the payment of interest on such Variable Rate Bonds is in excess of the total amount which would have been required to be deposited on such 63

234 date in respect of such Variable Rate Bonds in order to satisfy this Section 9.01, such excess shall be paid to the Issuer free and clear of any trust, lien, pledge or assignment securing the Bonds or otherwise existing under this Resolution. If Bonds are not to be redeemed or paid within 60 days after any such defeasance described in this Section 9.01, the Issuer shall cause the Registrar to mail a notice to the Holders of such Bonds that the deposit required by this Section 9.01 of moneys or Refunding Securities has been made and said Bonds are deemed to be paid in accordance with the provisions of this Section 9.01 and stating such maturity date upon which moneys are to be available for the payment of the principal of and interest on or redemption price of said Bonds. Failure to provide said notice shall not affect the Bonds being deemed to have been paid in accordance with the provisions of this Section Nothing herein shall be deemed to require the Issuer to call any of the Outstanding Bonds for redemption prior to maturity pursuant to any applicable optional redemption provisions, or to impair the discretion of the Issuer in determining whether to exercise any such option for early redemption. Notwithstanding anything herein to the contrary, in the event that the principal of or interest due on the Bonds shall be paid by an Insurer or Insurers, such Bonds shall remain Outstanding, shall not be defeased or otherwise satisfied and shall not be considered paid by the Issuer, and the pledge of the Pledged Funds and all covenants, agreements and other obligations of the Issuer to the Bondholders shall continue to exist and such Insurer or Insurers shall be subrogated to the rights of such Bondholders. [Remainder of page intentionally left blank] 64

235 ARTICLE X MISCELLANEOUS SECTION CAPITAL APPRECIATION BONDS. For the purposes of (A) receiving payment of the Redemption Price if a Capital Appreciation Bond is redeemed prior to maturity, or (B) receiving payment of a Capital Appreciation Bond if the principal of all Bonds becomes due and payable under the provisions of this Resolution, or (C) computing the amount of Bonds held by the Holder of a Capital Appreciation Bond in giving to the Issuer or any trustee or receiver appointed to represent the Bondholders any notice, consent, request or demand pursuant to this Resolution for any purpose whatsoever, the principal amount of a Capital Appreciation Bond shall be deemed to be its Accreted Value. SECTION SALE OF BONDS. The Bonds shall be issued and sold at public or private sale at one time or in installments from time to time and at such price or prices as shall be consistent with the provisions of the Act, the requirements of this Resolution and other applicable provisions of law, all as provided in a Supplemental Resolution. SECTION SEVERABILITY OF INVALID PROVISIONS. If any one or more of the covenants, agreements or provisions of this Resolution shall be held contrary to any express provision of law or contrary to the policy of express law, though not expressly prohibited, or against public policy, or shall for any reason whatsoever be held invalid, then such covenants, agreements or provisions shall be null and void and shall be deemed separable from the remaining covenants, agreements and provisions of this Resolution and shall in no way affect the validity of any of the other covenants, agreements or provisions hereof or of the Bonds issued hereunder. SECTION VALIDATION AUTHORIZED. To the extent deemed necessary by Bond Counsel or desirable by the County Attorney, Bond Counsel is authorized to institute appropriate proceedings for validation of a Series of Bonds herein authorized pursuant to Chapter 75, Florida Statutes. SECTION REPEAL OF INCONSISTENT RESOLUTIONS. All ordinances, resolutions or parts thereof in conflict herewith are hereby superseded and repealed to the extent of such conflict. SECTION EFFECTIVE DATE. This Resolution shall become effective immediately upon its adoption. 65

236 PASSED AND ADOPTED by the Board of County Commissioners of Bay County, Florida, on September 15, (SEAL) ATTEST: Guy M. Tunnell, Chairman Bill Kinsaul, Clerk 66

237 EXECUTION COPY BAY COUNTY, FLORIDA WATER AND SEWER SYSTEM REVENUE BOND SUPPLEMENTAL RESOLUTION ADOPTED SEPTEMBER 15, 2015

238 RESOLUTION NO A RESOLUTION OF THE BOARD OF COUNTY COMMISSIONERS OF BAY COUNTY, FLORIDA AUTHORIZING THE ISSUANCE OF NOT TO EXCEED $30,500,000 IN AGGREGATE PRINCIPAL AMOUNT OF ITS WATER AND SEWER SYSTEM REVENUE REFUNDING BONDS, SERIES 2015 TO REFUND CERTAIN PRIOR INDEBTEDNESS ISSUED TO FINANCE IMPROVEMENTS TO THE COUNTY'S WATER AND SEWER SYSTEM; PROVIDING FOR THE RIGHTS OF THE HOLDERS OF SUCH BONDS; PROVIDING FOR THE TERMS AND DETAILS OF SUCH BONDS; AWARDING SAID BONDS; AND PROVIDING AN EFFECTIVE DATE. NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF COUNTY COMMISSIONERS OF BAY COUNTY, FLORIDA (THE "ISSUER"), AS FOLLOWS: SECTION 1. DEFINITIONS. All capitalized terms not otherwise defined herein shall have the meanings set forth in the Bond Resolution (as hereinbelow defined). When used in this Resolution, all capitalized terms shall have the meanings set forth below: "Bond Resolution" shall mean Resolution No adopted by the Issuer on September 15, 2015, as the same may be amended and supplemented in accordance with its terms. "Refunded Indebtedness" shall mean the Issuer's Water and Sewer System Revenue Bond, Series "Registrar and Paying Agent" with respect to the Series 2015 Bonds shall mean Whitney Bank d/b/a Hancock Bank, and such other persons as may be duly authorized to act on its behalf. "Series 2015 Bonds" shall mean the Issuer's Water and Sewer System Revenue Refunding Bonds, Series 2015, to be issued pursuant to the Bond Resolution, as supplemented hereby. SECTION 2. AUTHORITY FOR RESOLUTION. This Resolution is adopted pursuant to Section , et seq., Florida Statutes, the Bond Resolution, and other applicable provisions of law. SECTION 3. RESOLUTION TO CONSTITUTE CONTRACT. In consideration of the purchase and acceptance of any or all of the Series 2015 Bonds by those who shall hold the same from time to time, the provisions of this Resolution shall be a part of the contract of the Issuer with 1

239 the Holders of the Series 2015 Bonds and shall be deemed to be and shall constitute a contract between the Issuer and the Holders from time to time of the Series 2015 Bonds. The pledge made in this Resolution and the provisions, covenants and agreements herein set forth to be performed by or on behalf of the Issuer shall be for the equal benefit, protection and security of the Holders of any and all of said Series 2015 Bonds. All of the Series 2015 Bonds shall be of equal rank without preference, priority or distinction of any of the Series 2015 Bonds over any other thereof except as expressly provided in or pursuant to this Resolution. SECTION 4. FINDINGS. It is hereby ascertained, determined and declared: (A) The Bond Resolution authorizes the issuance from time to time of revenue bonds of the Issuer for the purposes set forth therein. (B) The Issuer intends to issue the Series 2015 Bonds for the purpose of refunding the Refunded Indebtedness. (C) The principal of and interest on the Series 2015 Bonds will be secured solely by and payable from the Pledged Funds as provided in the Bond Resolution. (D) Due to the present volatility of the market for tax-exempt obligations such as the Series 2015 Bonds, it is in the best interest of the Issuer to sell the Series 2015 Bonds by a negotiated sale, allowing the Issuer to enter the market at the most advantageous time, rather than at a specified advertised date, thereby permitting the Issuer to obtain the best possible price and interest rate for the Series 2015 Bonds. The Issuer acknowledges receipt of the information required by Section , Florida Statutes, in connection with the negotiated sale of the Series 2015 Bonds. A copy of the letter of the purchaser for said Series 2015 Bonds containing the aforementioned information is a precondition to the sale of the Series 2015 Bonds pursuant hereto. SECTION 5. AUTHORIZATION OF SERIES 2015 BONDS. This Resolution creates an issue of Bonds of the Issuer in the aggregate principal amount of not exceeding $30,500,000 to be designated as "Bay County, Florida Water and Sewer System Revenue Refunding Bonds, Series 2015." The Series 2015 Bonds shall be in registered form, in denominations of $5,000 or any integral multiple thereof, shall be in the aggregate principal amount of not to exceed $30,500,000, shall be dated their date of delivery and be payable as to principal on each September 1, commencing on the date set forth in the Purchase Contract, with the final payment due September 1, 2045, as set forth in the Purchase Contract. The Series 2015 Bonds shall bear interest from their date of delivery at the rates set forth in the Purchase Contract executed as authorized hereby; shall be issued as fully registered Bonds, numbered consecutively from one upward in order of maturity with the prefix "R"; and shall consist of such amounts of Serial Bonds and Term Bonds, maturing in such years and amounts and payable on such dates as set forth in said Purchase Contract; and shall contain such redemption provisions as set forth in said Purchase Contract. The Purchase Contract 2

240 shall be in substantially the form attached hereto as Exhibit A, with such changes as shall be approved by the Chairman as set forth in Section 8 hereof. The principal of, or redemption price, as applicable, or maturity amount, as applicable, of the Series 2015 Bonds, shall be payable at the corporate trust office of the Paying Agent for the Series 2015 Bonds appointed in Section 12 hereof, or its successor, upon presentation of the Series 2015 Bonds. Payment of interest on the Series 2015 Bonds shall be made to the owner thereof and shall be paid by check or draft of the Paying Agent to the Holder in whose name the Series 2015 Bond is registered at the close of business on the 15 th day of the month (whether or not a business day) next preceding the interest payment date, or, unless otherwise provided by supplemental resolution, at the option of the Paying Agent, and at the request and expense of such Holder, by bank wire transfer for the account of such Holder. All payments shall be made in accordance with and pursuant to the terms of the Bond Resolution and the Series 2015 Bonds, and shall be payable in any coin and currency of the United States of America which, at the time of payment, is legal tender for the payment of public or private debts. SECTION 6. APPLICATION OF SERIES 2015 BOND PROCEEDS. The proceeds derived from the sale of the Series 2015 Bonds shall be applied by the Issuer as follows: (A) A sufficient amount of the Series 2015 Bond proceeds shall be applied to the payment of the costs and expenses relating to the issuance of the Series 2015 Bonds. (B) An amount sufficient to fund the subaccount of the Reserve Account applicable to the Series 2015 Bonds shall be deposited therein. (C) An amount of the Series 2015 Bond proceeds sufficient to redeem in full the Refunded Indebtedness shall be applied to the payment of the Refunded Indebtedness. SECTION 7. SERIES 2015 BONDS NOT TO BE INDEBTEDNESS OF ISSUER; SECURITY FOR THE SERIES 2015 BONDS. (A) The Series 2015 Bonds shall not be or constitute general obligations or indebtedness of the Issuer as "bonds" within the meaning of any constitutional or statutory provision, but shall be special obligations of the Issuer, payable solely from and secured by a lien upon and pledge of the Pledged Funds under and within the meaning of the Bond Resolution. No Holder of any Series 2015 Bond shall ever have the right to compel the exercise of any ad valorem taxing power to pay such Bond, or be entitled to payment of such Bond from any moneys of the Issuer except from the Pledged Funds in the manner provided in the Bond Resolution. (B) The Series 2015 Bonds shall be issued as "Bonds" under the Bond Resolution and entitled to all benefits Bonds are afforded thereunder, including the lien on and pledge of the Pledged Funds as provided therein. 3

241 SECTION 8. SALE OF THE SERIES 2015 BONDS. Upon delivery to the Chairman and the County Administrator of a Purchase Contract substantially in the form of Exhibit A attached hereto, evidencing: (A) Series 2015 Bonds in an aggregate principal amount not exceeding $30,500,000; (B) A final maturity of such Series 2015 Bonds of not later than September 1, 2045; (C) A true interest cost with respect to the Series 2015 Bonds of not greater than 4.85% per annum; (D) Optional redemption of the Series 2015 Bonds beginning no later than September 1, 2025 at a price no greater than 101% of par; and (E) An Underwriters' discount not in excess of $4.00 per $1,000 of Series 2015 Bonds, the Series 2015 Bonds shall be sold to the Underwriters pursuant to the Purchase Contract at the purchase price provided therein (including any original issue discounts or original issue premiums); all terms and conditions set forth in said Purchase Contract being hereby approved. Upon compliance with the foregoing, the Chairman and County Administrator are hereby authorized and directed to execute said Purchase Contract and to deliver the same to the Underwriters. SECTION 9. OFFICIAL STATEMENT; CONTINUING DISCLOSURE CERTIFICATE. (A) The form, terms and provisions of the Official Statement, dated the date of execution of the Purchase Contract, in substantially the form attached hereto as Exhibit B, which shall include the terms and provisions set forth in the executed version of the Purchase Contract, relating to the Series 2015 Bonds, be and the same hereby are approved with respect to the information therein contained. The Chairman and the County Administrator, upon execution of the Purchase Contract described above, are hereby authorized and directed to execute and deliver said Official Statement in the name and on behalf of the Issuer, and thereupon to cause such Official Statement to be delivered to the Underwriters with such changes, amendments, omissions and additions as may be approved by the Chairman. The use of the Preliminary Official Statement, in the form attached hereto as Exhibit B, in the marketing of the Series 2015 Bonds is hereby authorized and the Official Statement, including any such changes, amendments, modifications, omissions and additions as approved by the Chairman, and the information contained therein are hereby authorized to be used in connection with the sale of the Series 2015 Bonds to the public. Execution by the Chairman and the County Administrator of the Official Statement shall be deemed to be conclusive evidence of approval of such changes, amendments, modifications, omissions and additions. The Chairman and County Administrator are hereby authorized to deem the Preliminary Official Statement "final," within the meaning of Securities and Exchange Commission Rule 15c2-12, except for permitted omissions as described therein. 4

242 (B) In order to enable the Underwriters to comply with the provisions of SEC Rule 15c2-12 relating to secondary market disclosure, the Chairman is hereby authorized and directed to execute and deliver the Continuing Disclosure Certificate in the name and on behalf of the Issuer substantially in the form attached hereto as Exhibit C, with such changes, amendments, omissions and additions as shall be approved by the Chairman, his execution and delivery thereof being conclusive evidence of such approval. SECTION 10. RESERVE ACCOUNT. The Reserve Account Requirement for the Series 2015 Bonds shall be the amount set forth in the Bond Resolution under the definition of "Reserve Account Requirement" in Section 1.01 thereof, and no different or lesser amount is established hereby. Until the Series 2015 Bonds are paid or deemed paid pursuant to the provisions of this Agreement, the Issuer hereby covenants and agrees to appropriate in its annual budget, by amendment, if necessary, from Non-Ad Valorem Revenues lawfully available in each Fiscal Year, amounts sufficient to make any deposit to the subaccount of the Reserve Account with respect to the Series 2015 Bonds required by Section 4.06(B)(4) of the Bond Resolution. Such covenant and agreement on the part of the Issuer to budget and appropriate such amounts of Non-Ad Valorem Revenues shall be cumulative to the extent not paid, and shall continue until such Non-Ad Valorem Revenues or other legally available funds in amounts sufficient to make all such required payments shall have been budgeted, appropriated and actually paid. Notwithstanding the foregoing covenant of the Issuer, the Issuer does not covenant to maintain any services or programs, now provided or maintained by the Issuer, which generate Non-Ad Valorem Revenues. Such covenant to budget and appropriate does not create any lien upon or pledge of such Non-Ad Valorem Revenues, nor does it preclude the Issuer from pledging in the future its Non-Ad Valorem Revenues, nor does it require the Issuer to levy and collect any particular Non-Ad Valorem Revenues, nor does it give the registered owners of the Series 2015 Bonds a prior claim on the Non- Ad Valorem Revenues as opposed to claims of general creditors of the Issuer. Such covenant to budget and appropriate Non-Ad Valorem Revenues is subject in all respects to the payment of obligations secured by a pledge of such Non-Ad Valorem Revenues heretofore or hereinafter entered into (including the payment of debt service on bonds and other debt instruments). However, the covenant to budget and appropriate in its general annual budget for the purposes and in the manner stated herein shall have the effect of making available for the payment of required deposits to the Series 2015 Subaccount of the Reserve Account, in the manner described herein, Non-Ad Valorem Revenues and placing on the Issuer a positive duty to appropriate and budget, by amendment, if necessary, amounts sufficient to meet its obligations hereunder; subject, however, to the payment of services and programs which are for essential public purposes affecting the health, welfare and safety of the inhabitants of the Issuer or which are legally mandated by applicable law. The Issuer agrees that its covenant and agreement to budget and appropriate Non-Ad Valorem Revenues shall be deemed entered into for the benefit of the Series 2015 Bonds, and that this obligation may be enforced by a court of competent jurisdiction. For purposes of the foregoing, "Non-Ad Valorem Revenues" means all revenues of the Issuer derived from any source whatsoever other than ad valorem taxation and legally available to pay 5

243 principal of and interest on the Series 2015 Bonds, but only after provision has been made by the Issuer for the payment of all essential or legally mandated services. At such time as the Issuer has met the rate covenant set forth in Section 5.04 of the Bond Resolution for three consecutive Fiscal Years, the covenant to budget and appropriate Non-Ad Valorem Revenues set forth above shall no longer be applicable. For the avoidance of doubt, compliance with the rate covenant set forth in Section 5.04 of the Bond Resolution (as amended as described in Section 11 hereof) shall be met, in the event an insurance policy is purchased from AGM as described in Section 13 below, at such time as the Issuer has generated sufficient Net Revenues (excluding Operating Government Grants (if any) and any amounts transferred from the Rate Stabilization Fund) to comply with the requirements set forth in Section 5.04(A) of the Bond Resolution (as amended as described in Section 11 hereof) and sufficient Net Revenues (excluding Operating Government Grants (if any) and any amounts transferred from the Rate Stabilization Fund) and Connection Fees to meet the requirements of Section 5.04(b) of the Bond Resolution for three consecutive Fiscal Years the covenant to budget and appropriate Non-Ad Valorem Revenues set forth above shall no longer be applicable. Prior to the release of the covenant to budget and appropriate as described in this paragraph, any failure to meet the rate covenant set forth in Section 5.04 of the Bond Resolution shall not require the review of a Rate Consultant required by said Section 5.04 or constitute an Event of Default under the Bond Resolution. SECTION 11. INSURANCE-RELATED PROVISIONS. If the Issuer elects to purchase an insurance policy from AGM as described in Section 13 below, the following provisions shall apply: (A) Except for the Series 2015 Bonds and other outstanding obligations of the Issuer payable from Non-Ad Valorem Revenues as of the date hereof, the Issuer will not issue any other obligations payable from Non-Ad Valorem Revenues nor voluntarily create or cause to be created any debt, lien, pledge, assignment, encumbrance or other charge against Non-Ad Valorem Revenues, or any part thereof, except as set out below, until the covenant to budget and appropriate Non-Ad Valorem Revenues shall no longer be applicable pursuant to Section 10 hereof. No additional indebtedness payable from or secured by Non-Ad Valorem Revenues shall be issued by the Issuer unless the actual receipts of Total Governmental Funds of the Issuer (as specified in the Issuer's audited financial statements) for the prior Fiscal Year, less ad valorem revenues, less Non-Ad Valorem Revenues from Total Governmental Funds pledged to secure debt that has a lien on such Non-Ad Valorem Revenues, and less the amount required to pay for Essential Services of the Issuer for the prior Fiscal Year, equal at least 125% of such maximum annual debt service on all Debt payable from such Non-Ad Valorem Revenues (including the proposed Debt). "Debt" is defined as on any date (without duplication) all of the following to the extent that they are general obligations of the Issuer or are payable in whole or in part from Non-Ad Valorem Revenues: (i) all obligations of the Issuer for borrowed money evidenced by bonds, debentures, or other similar instruments; (ii) all obligations of the Issuer to pay the deferred purchase price of property or services, except trade accounts payable under normal trade terms and which arise in the ordinary course of business; (iii) all obligations of the Issuer as lessee under capitalized leases; and (iv) all 6

244 indebtedness of other Persons to the extent guaranteed by, or secured by Non-Ad Valorem Revenues of the Issuer. For purposes of determining maximum annual debt service with respect to indebtedness of the Issuer in which 25% or more of the principal amount comes due in any one year, actual debt service shall be disregarded and such Debt shall be assumed to amortize ratably over a 10-year period from the date of its original issuance, assuming an interest rate equal to the higher of (i) the Bond Buyer 20 Revenue Bond Index or (ii) the actual interest rate on such Debt. For purposes of this covenant, "Essential Services" are those services identified by the Issuer in its annual audit as general government and public safety expenditures from Total Government Funds, less expenditures paid from ad valorem revenues. (B) Notwithstanding anything to the contrary set forth in the Bond Resolution, so long as AGM is insuring the Series 2015 Bonds or amounts are owed to AGM under the Bond Resolution, Section 5.04 of the Bond Resolution shall read as follows: "The Issuer shall fix, establish, maintain and collect such rates, fees and charges for the product, services and facilities of the System, and revise the same from time to time, whenever necessary, so as always to provide in each Fiscal Year: (A) Net Revenues (excluding Operating Government Grants (if any) and any amounts transferred from the Rate Stabilization Fund) equal to at least 110% of the Annual Debt Service becoming due in such Fiscal Year, plus 100% of (1) any amounts required by the terms hereof to be deposited in the Reserve Account or with any issuer of a Reserve Account Letter of Credit or Reserve Account Insurance Policy in such Fiscal Year to pay Policy Costs, and (2) any amounts required by the terms of Sections 4.07(A) and 4.08(A) hereof to be repaid to the Water Connection Fees Fund and Sewer Connection Fees Fund in such Fiscal Year; and (B) Net Revenues (excluding Operating Government Grants (if any) and any amounts transferred from the Rate Stabilization Fund) and Connection Fees equal to at least 120% of the Annual Debt Service becoming due in such Fiscal Year. Such rates, fees or other charges shall not be so reduced so as to be insufficient to provide adequate Net Revenues, Water Connection Fees and Sewer Connection Fees for the purposes provided therefor by this Bond Resolution. If in any Fiscal Year, the Issuer shall fail to comply with the requirements contained in this Section 5.04, it shall promptly cause the Rate Consultant, within 90 days of such non-compliance, to review its rates, fees, charges, income, Gross Revenues, Operating Expenses, Connection Fees and methods of operation and to make written recommendations as to the methods by which the Issuer may seek to comply with the requirements set forth in this Section The Issuer shall implement such recommendations, within 60 days of receipt of the Rate Consultant's report so as to comply with said requirements. So long as the Issuer implements such recommendations within 60 days of the receipt thereof, the County's failure to comply with this Section 5.04 in any Fiscal Year shall not be considered an Event of Default under Section 7.01 hereof". (C) Notwithstanding anything to the contrary set forth in the Bond Resolution, so long as AGM is insuring the Series 2015 Bonds or amounts are owed to AGM under the Bond Resolution, Sections 6.02(B) and (F) of the Resolution shall read as follows: "(B) An independent certified public accountant or the Rate Consultant shall certify to the Issuer that the amount of the Net Revenues (excluding Investment Earnings with respect to the Construction Fund, Operating Government Grants (if any) and any amounts transferred from the Rate Stabilization Fund) received 7

245 by the Issuer during the immediately preceding Fiscal Year or any 12 consecutive months selected by the Issuer of the 24 months immediately preceding the issuance of said Additional Bonds, adjusted as hereinafter provided, were equal to at least 120% of the Maximum Annual Debt Service of the Outstanding Bonds and the Additional Bonds then proposed to be issued, provided the amount of the Net Revenues (excluding Investment Earnings with respect to the Construction Fund, Operating Government Grants (if any) and any amounts transferred from the Rate Stabilization Fund), adjusted as hereinafter provided, received by the Issuer during such 12-month period, will be equal to (1) at least 110% of the Maximum Annual Debt Service of the Outstanding Bonds and the Additional Bonds then proposed to be issued, and (2) 100% of (a) any amounts required by the terms hereof to be deposited in the Reserve Account or with any issuer of a Reserve Account Letter of Credit or Reserve Account Insurance Policy to pay any Policy Costs and (b) any amounts required by the terms of Sections 4.07(A) and 4.08(A) hereof to be repaid to the Water Connection Fees Fund and Sewer Connection Fees Fund, in each case during such 12-month period. (F) The Net Revenues (excluding Investment Earnings with respect to the Construction Fund, Operating Government Grants (if any) and any amounts transferred from the Rate Stabilization Fund), calculated pursuant to the foregoing Section 6.02(B) may be adjusted upon the written advice of the Rate Consultant, at the option of the Issuer, as follows: (1) If the Issuer, prior to the issuance of the proposed Additional Bonds, shall have increased the rates, fees or other charges for the product, services or facilities of the System, the Net Revenues for the 12 consecutive months shall be adjusted to show the Net Revenues which would have been derived from the System in such 12 consecutive months as if such increased rates, fees or other charges for the product, services or facilities of the System had been in effect during all of such 12 consecutive months; (2) If the Issuer shall have acquired or has contracted to acquire any privately or publicly owned existing utility system that will become part of the System, the cost of which shall be paid from all or part of the proceeds of the issuance of the proposed Additional Bonds, then the Net Revenues derived from the System during the 12 consecutive months shall be increased by adding to the Net Revenues for said 12 consecutive months the Net Revenues which would have been derived from said existing utility system as if such existing utility system had been a part of the System during such 12 consecutive months. For the purposes of this paragraph, the Net Revenues derived from said existing utility system during such 12 consecutive months shall be adjusted to determine such Net Revenues by deducting the cost of operation and maintenance of said existing utility system from the gross revenues of said system. Such Net Revenues shall take into account any increase in rates imposed on customers of such utility system on or prior to the acquisition thereof by the Issuer; (3) If the Issuer, in connection with the issuance of Additional Bonds, shall enter into a contract (with a duration not less than the final maturity of such Additional Bonds) with any public or private entity whereby the Issuer agrees to furnish services in connection with any utility system, then the Net Revenues of the System during the 12 consecutive months shall be increased by the least amount which said public or private entity shall guarantee to pay in any one year for the furnishing of said services by the Issuer, after deducting therefrom the proportion of operating expenses and repair, renewal and replacement cost attributable in such year to such services; (4) If the Issuer covenants to levy Special Assessments against property to be benefited by the improvements, the cost of which shall be paid from the proceeds of the proposed Additional Bonds and the Issuer has included the corresponding Special Assessment Proceeds within the definition of Gross Revenues pursuant to 8

246 Supplemental Resolution, then the Special Assessments Proceeds derived from the System during the 12 consecutive months shall be increased by an amount equal to the least amount which the Rate Consultant estimates will be received in any one year subsequent to completion of such improvements from the levy of said Special Assessments, said amount to be the total received, assuming no prepayments, from the installment payments on the Special Assessments plus the interest paid on the unpaid portion of the Special Assessments. The estimate of the Rate Consultant shall be based upon the preliminary assessment roll filed with the Issuer prior to the construction of such improvements; (5) In the event the Issuer shall be constructing or acquiring additions, extensions or improvements to the System from the proceeds of such Additional Bonds and shall have established fees, rates or charges to be charged and collected from users of such facilities when service is rendered, such Net Revenues for the 12 consecutive months may be adjusted by adding thereto 100% of the Net Revenues estimated by the Rate Consultant to be derived during the first 12 months of operation after completion of the construction or acquisition of said additions, extensions and improvements from the customers of the facilities to be financed by Additional Bonds together with other funds on hand or lawfully obtained for such purpose; provided such customers must represent existing occupied structures that will be added to the System upon completion of the proposed additions, extensions or improvements; (6) If the Issuer shall add new customers subsequent to the commencement of the 12 consecutive months, the Rate Consultant may adjust the Net Revenues to reflect the Net Revenues that would have been received by the Issuer if such customers had been in place for the entire 12 consecutive months; (7) The Net Revenues shall be adjusted for any period the System or any portion thereof was not owned by the Issuer to reflect government ownership of the System or such portion." SECTION 12. APPOINTMENT OF PAYING AGENT AND REGISTRAR. Whitney Bank, d/b/a Hancock Bank is hereby designated Registrar and Paying Agent for the Series 2015 Bonds. SECTION 13. AUTHORIZATION TO PURCHASE INSURANCE; INSURANCE AGREEMENT. The Issuer expects to make application for the purchase of a policy of municipal bond insurance and debt service reserve account surety policy from Assured Guarantee Municipal Corp. ("AGM"). In the event the Issuer receives a commitment from AGM, the Issuer hereby delegates to the Chairman, in consultation with the Issuer s staff and financial advisor, to determine if such insurance will be utilized in connection with the Series 2015 Bonds, and for which Series 2015 Bonds. In the event such insurance is utilized, the Issuer authorizes the execution and delivery of an Insurance Agreement with AGM in substantially the form set forth in Exhibit D attached hereto, with such changes and modifications thereto as approved by the Chairman, his approval to be presumed by his execution thereof. SECTION 14. DTC BOOK-ENTRY. The Series 2015 Bonds shall be initially issued in the name of Cede & Co., as nominee for The Depository Trust Company ("DTC"), as registered owner of the Series 2015 Bonds, and held in the custody of DTC. A single certificate will be issued and delivered to DTC for each maturity of the Series 2015 Bonds. The actual purchasers of the Series 2015 Bonds (the "Beneficial Owners") will not receive physical delivery of Series 2015 Bond certificates except as provided herein. Beneficial Owners are expected to receive a written 9

247 confirmation of their purchase from the direct participants providing details of each Series 2015 Bond acquired. For so long as DTC shall continue to serve as securities depository for the Series 2015 Bonds as provided herein, all transfers of beneficial ownership interests will be made by bookentry only, the provisions of this Section shall supersede those of Section 2.06 of the Bond Resolution to the extent of any conflict therewith, and no investor or other party purchasing, selling or otherwise transferring beneficial ownership of the Series 2015 Bonds is to receive, hold or deliver any Series 2015 Bond certificate. If at any time DTC ceases to hold the Series 2015 Bonds, all references herein to DTC shall be of no further force or effect. SECTION 15. GENERAL AUTHORITY. The members of the governing board of the Issuer and the officers, attorneys and other agents or employees of the Issuer are hereby authorized to do all acts and things required of them by this Resolution or the Bond Resolution, or desirable or consistent with the requirements hereof, including the execution, delivery of any escrow agreement necessary in connection with the refunding of the Refunded Indebtedness for the full, punctual and complete performance of all the terms, covenants and agreements contained herein or in the Series 2015 Bonds, and each member, employee, attorney and officer of the Issuer is hereby authorized and directed to execute and deliver any and all papers and instruments and to do and cause to be done any and all acts and things necessary or proper for carrying out the transactions contemplated hereunder. SECTION 16. SEVERABILITY OF INVALID PROVISIONS. If any one or more of the covenants, agreements or provisions of this Resolution shall be held contrary to any express provision of law or contrary to the policy of express law, though not expressly prohibited, or against public policy, or shall for any reason whatsoever be held invalid, then such covenants, agreements or provisions shall be null and void and shall be deemed separable from the remaining covenants, agreements and provisions of this Resolution and shall in no way affect the validity of any of the other covenants, agreements or provisions hereof or of the Series 2015 Bonds issued hereunder. SECTION 17. REPEAL OF INCONSISTENT RESOLUTIONS. Except for the Bond Resolution, all resolutions or parts thereof in conflict herewith are hereby superseded and repealed to the extent of such conflict. The terms and provisions of the Bond Resolution are hereby expressly ratified and confirmed. SECTION 18. EFFECTIVE DATE. This Resolution shall take effect immediately upon its adoption. 10

248 DULY ADOPTED this 15 th day of September, BAY COUNTY, FLORIDA ATTEST: Guy M. Tunnell Chairman, Board of County Commissioners Bill Kinsaul, Clerk 11

249 EXHIBIT A FORM OF PURCHASE CONTRACT A-1

250 EXHIBIT B PRELIMINARY OFFICIAL STATEMENT B-1

251 EXHIBIT C FORM OF CONTINUING DISCLOSURE CERTIFICATE C-1

252 EXHIBIT D FORM OF INSURANCE AGREEMENT D-1

253 APPENDIX D CONSTULTING ENGINEER S REPORT AND FINANCIAL FEASIBILITY STUDY RETAIL WATER AND SEWER SYSTEM

254 [THIS PAGE INTENTIONALLY LEFT BLANK]

255 BAY COUNTY, FL CONSULTING ENGINEER S REPORT AND FINANCIAL FEASIBILITY STUDY RETAIL WATER AND SEWER SYSTEM WATER AND SEWER SYSTEM REVENUE REFUNDING BONDS SERIES 2015 SEPTEMBER 2015 Hartman Consultants, LLC &

256 Hartman Consultants, LLC September 28, 2015 HC # WFS # Board of County Commissioners Bay County 840 West 11th Street Panama City, FL Consulting Engineer s Report and Financial Feasibility Study Water and Sewer System Revenue Refunding Bonds, Series 2015 Honorable Chairman and Commissioners: Hartman Consultants, LLC (HC) and Willdan Financial Services (Willdan) are please to present herein our Consulting Engineer s Report and Financial Feasibility Study (the Report ) for the Bay County Water and Sewer System (the Retail System ), to be included in the official statement for the Water and Sewer System Refunding Revenue Bonds, Series 2015 (the Series 2015 Bonds ). The Report summarizes HC s and Willdan s analysis, inspections, and studies with regard to the proposal by Bay County (the County ) to borrow the proceeds of not to exceed $30,000,000 aggregate principal amount of the Series 2015 Bonds. The primary purposes for the issuance of the Series 2015 Bonds, together with available funds and matching grant proceeds are to: 1) refinance the existing bank debt on the Retail System; 2) fund debt service reserve requirements, if required, associated with the Series 2015 Bonds; and 3) pay the costs of issuance associated with the Series 2015 Bonds. The Report includes a discussion of the County s existing water and sewer Retail Rystem in the North Bay Area, the management of the Retail System, historical and future demands for service, the Consulting Engineer s inspection findings, the Retail System s compliance with all applicable water and sewer regulations, and the utility s capital improvement program with the anticipated sources and uses of the capital financing. Also included are the existing rates, charges and fees; the historic and current revenues and expenses of the Retail System; the projected customer growth; the 10 largest water and sewer customers; and projected financial operating results based on the County s approved Rate Ordinance and operating and capital budgets for the next five (5) years. These projected financial operating results demonstrate the ability of the County to meet the rate covenant requirements of the County s Bond Resolution. The estimates, projections, assumptions, and conclusions used in this Report reflect expectations as to future activities and events. The expectations are based on our understanding of the County, information provided by other parties, and our experience with this and similar water and sewer utilities. Some of the assumptions inevitably may not 2107 Water Key Dr. Windermere, FL Tel Fax gerry@hartmanconsultant.com

257

258 TABLE OF CONTENTS CONSULTING ENGINEER S REPORT AND FINANCIAL FEASIBILITY STUDY RETAIL WATER AND SEWER SYSTEM INTRODUCTION... 1 BAY COUNTY... 2 MANAGEMENT... 3 Utility Services Department Awards... 4 BAY COUNTY UTILITIES... 4 Bay County Regional Water Service Overview... 4 Wholesale Water... 5 Overview Bay County Regional and Retail Wastewater Facilities... 7 Bulk Wastewater Treatment... 8 NORTH BAY RETAIL SERVICE AREA... 9 EXISTING RETAIL FACILITIES Water Wastewater Cedar Grove Service Area CONDITION OF THE NORTH BAY UTILITY FACILITIES Regulatory Review CAPITAL IMPROVEMENT PROGRAM General Capital Improvements Funded Through Existing Sources and Grants Series 2015 Bonds CUSTOMERS Hartman Consultants, LLC & Page i

259 General Historical Customer Data Ten Largest Customers in FY HISTORICAL OPERATING RESULTS RATE COVENANT AND RATES, FEES, AND CHARGES General Retail Water and Sewer Rate Structure RATE AND CHARGE COMPARISON PROJECTED OPERATING RESULTS General Principal Assumptions and Considerations Summary of Projected Operating Results and Coverage FINDINGS AND CONCLUSIONS SCHEDULES FIGURES Hartman Consultants, LLC & Page ii

260 INTRODUCTION Presented herein is the Bay County (County) Consulting Engineer s Report and Financial Feasibility Study (Report) for the retail water and sewer system (the Retail System ) as prepared by Hartman Consultants, LLC (HC) and Willdan Financial Services (Willdan). This Report provides a summary of the reviews, inspections, and analyses performed in conjunction with the issuance of the Bay County, Florida Water and Sewer System Revenue Refunding Bonds, Series 2015 (Series 2015 Bonds). The Series 2015 Bonds will be issued pursuant to the authority of the Resolution adopted by the County on July 15, 2015, (Bond Resolution). Proceeds from the Series 2015 Bonds will be used by the County, together with other existing and anticipated funds to: 1) refinance the existing bank debt on the Retail System; 2) fund debt service reserve requirements, if required, associated with the Series 2015 Bonds; and 3) pay the costs of issuance associated with the Series 2015 Bonds. HC and Willdan have been retained by the County as the Consulting Engineer and Financial Feasibility Consultant, respectively. The scope of HC s and Willdan s engagement by the County with respect to the preparation of this Report, is to: 1) provide descriptions of the County s retail water and wastewater utility system, 2) disclose the general condition of the Retail System, 3) present the historical operating results, and 4) prepare projections of the estimated results of the Retail System s financial operations for the five (5) fiscal year period commencing October 1, 2014 through September 30, In preparation of this Report, HC and Willdan have relied upon financial, statistical, engineering, and operational data pertaining to the Retail System derived from operating reports and records prepared by the County as well as information reflected in the County s audited financial statements or obtained from the County s Finance Department. In addition, certain information, assumptions, and projections were provided from entities other than the County. HC and Willdan believe this information is probable and reasonable for the purpose of this Report, yet no assurances are offered with respect hereto. Actual results realized during the projection period may vary materially from those projected. As such, the projections provided in this Report are subject to adjustment and HC and Willdan can give no assurances that such projections will be realized. The Report summarizes the findings and results as of the date of the Report. Prospective Hartman Consultants, LLC & Page 1

261 purchasers of and others associated with the issuance of the Series 2015 Bonds should not rely upon the information contained in this Report for a current description of any matters set forth herein as of any date subsequent to the date of this Report. Changing conditions occurring or becoming known after such date could affect the material presented herein. BAY COUNTY Bay County was created by the State of Florida Legislature in As a political subdivision of the State, the County derives its operating authority from the constitution and laws of the State. The County is located on the Gulf of Mexico which bounds the County to the south. Calhoun and Gulf counties create the eastern boundary. On the north, Bay County is bounded by Jackson and Washington counties. Walton County is the western boundary. Within Bay County, the largest cities are Panama City and Panama City Beach. The County includes approximately 44 miles of beaches. The County encompasses approximately 1,030 square miles, of which there are 270 square miles of inland water bodies. Figure 1 presents the location of Bay County. The Intracoastal Waterway traverses the County integrating canals, West Bay, St. Andrews Bay, East Bay, and Wetappo Creek. The County is located approximately 100 miles west of Tallahassee and 85 miles east of Pensacola. The County is approximately 13 miles south of Interstate 10 (I 10) and has State Road (SR) 77, 75, and US 231 as primary north south roadways. US 98 is the primary coastal highway. County Road (CR) 388 is the primary east west highway through the North Bay Service Area. The County has both a Naval Air Station and the large Tyndall Air Force Base. There is also a port. The Northwest Florida Beaches International Airport is the first international airport to be built in the U.S. in more than a decade. Opening in mid 2010, the new $332 million airport won the Airport Project of the Year Award in the United States in 2011 and has grown substantially in the past four (4) years. The airport is a 4,000 acre planned project with some 1,400 acres of a growing industrial park. Several major businesses have located at the airport park, where a full complement of utilities is available. In the North Bay Service Area is the Gulf Power (a Southern Company) Lansing Smith Generating Plant at Highway 2300 in Southport. It has four (4) units with a firm nameplate generating capacity of 889,900 kw (approximately 900 MW). The plant uses coal and natural gas. Additionally, Gulf Coast State College is located off Highway 77 in the North Bay Service Hartman Consultants, LLC & Page 2

262 Area with the Lake Merial development; the Bay County Emergency Operations Center, Fire Facilities, etc.; the Bozeman School Complex; and several other commercial establishments locating in the corridor. Figure 4 locates major landmarks in the combined North Bay Service Area. The University of Florida Bureau of Economic and Business Research estimated the total County population (Medium Range Projections) for 2015 at 177,800, including the incorporated areas. The median age is 38.5 years old. The number of households is approximately 70,000 and the average household income is approximately $63,000 per year. The County operates under a commissioner/manager form of government. The Board of County Commissioners (Board) is a five member governing board elected at large to represent the citizens of Bay County. The Board appoints the County Manager, who is responsible for the day to day operations of the County. MANAGEMENT The County Manager is Robert J. Majka Jr. Mr. Majka began working in local government as a firefighter in In 1993, Mr. Majka became the Hazardous Materials Program manager for the County, and in 1996, his position was reclassified as the Emergency Management Division manager. He was promoted to Chief of Emergency Services in 1998 and served Bay County in that capacity until 2006 when he was promoted to Assistant County Manager. In 2012, Mr. Majka left Bay County to assume the helm of the City of Cocoa Beach as its manager. He returned home to Bay County in 2015 after being appointed County Manager. Mr. Majka has earned a Master of Business Administration, a bachelor s degree in business administration, an associate s degree in fire science technology and a certification from the U.S. Fire Administration s Executive Fire Officer Program. Mr. Jake Hollingsworth is the Interim Director of the Utility Services Department, which has both water and sewer divisions. He has a Bachelor of Science in Business Administration Management from Auburn University Montgomery and holds a Class A Drinking Water license issued by the State of Florida. Mr. Hollingsworth has been employed with Bay County Utility Services since The Utility Services Department (Department) has engineers, planners, project managers, construction managers, specialists, licensed operators, customer service personnel, and other Hartman Consultants, LLC & Page 3

263 support professionals for the water and sewer plants as well as for the water transmission, distribution, and the collection and transmission systems of the County. Utility Services Department Awards The Bay County Utility Services Department is well recognized in Florida for its excellence and outstanding performance. The Department has been the recipient of several awards including a) the Statewide 2009, 2011, 2012 and 2013 Outstanding Distribution System; b) the 2012 and 2013 Outstanding Class A Water Treatment Plant; c) the 2011, 2012, and 2013 Plant Operations Excellence Award for Large Community Systems; and d) the Earle B. Phelps Award for the wastewater treatment plant maintaining the highest removal of pollution causing constituents prior to discharge of the treated effluent. Bay County is the only utility in Florida to have won both of the top awards for water and wastewater plants in the same year in the past 22 years. BAY COUNTY UTILITIES Bay County Regional Water Service Overview Bay County owns and operates 100% of the regional water supply (Deer Point Reservoir); raw water transmission with both 48 inch and 54 inch transmission mains (both are interconnected at the Water Treatment Plant and the 54 inch/48 inch water main extends from the coast to the Arizona Chemical Facility); Transmitter Road 60 million gallons per day (MGD) Regional Water Treatment Plant; and multiple regional large diameter potable transmission mains up to 48 inches in diameter serving the entire County. The Wholesale Water System provides potable water to the County s wholesale customers (the County serves the County owned Retail Water System as a wholesale customer). The Wholesale Customers include: Bay County Retail in the Cedar Grove and Northeast service areas Bay County Retail in the North Bay and West Bay service areas City of Callaway City of Lynn Haven City of Mexico Beach City of Panama City City of Panama City Beach Hartman Consultants, LLC & Page 4

264 City of Parker City of Springfield Tyndall Air Force Base There are no other (city, entity, or Air Force Base) major potable water treatment and transmission systems in Bay County other than Bay County. There are remote or rural areas which have individual wells. Individual cities and regional areas do have retail distribution systems. Wholesale Water Bay County Utilities began service in the 1950s, developed the Deer Point Reservoir (surface water) thereafter and had built the regional county wide water treatment plant (WTP) located near US Highway 231 at 3410 Transmitter Road by At that time, the regional water production ranged from 6 to 8 million gallons per day (MGD). Now, the facility can treat 60 MGD and has a high service pumping capacity adequate to service the county wide water demands. There are two raw water mains from the reservoir to the WTP. One is 48 inches in diameter and the other is 54 inches in diameter which primarily serves Arizona Chemical and the Rock Tenn Paper mill with a 48 inch tap to the County s regional raw water system. The Northwest Florida Water Management District (NWFWMD) withdrawal permit provides for 69.5 MGD Annual Average Daily Flow (AADF) and 82 MGD Max Day Demand (MDD). The permit allows for a time and quantity extension up to 98 MGD AADF and 107 MGD MDD through The existing WTP and raw water supply system, as planned, can be expanded on site to meet all of the projected demands through In the case of the pollution or failure of the Deer Point Reservoir, the County is building an alternative water supply of surface water northeast and upstream of the reservoir for emergency preparedness. There are two major high pressure water transmission mains leaving the WTP. A 48 inch main heads south to serve the cities, beaches, and Tyndall Air Force Base. The second transmission main is a 36 inch main which crosses the dam and serves the North Port area and extends west to serve the North Bay Area while providing service to the northwestern portion of the Panama City Beach water utility system. In the above manner, both Panama City and Panama City Hartman Consultants, LLC & Page 5

265 Beach (these two customers account for approximately 70% of the current production) have two (2) regional transmission mains serving them. The County has some 12 million gallons (MG) of storage at the WTP and their customers and their transmission system storage is over 250% of that amount. Currently, the County and customer systems combine to have more total storage than 1.0 times the projected 2045 AADF at approximately 45 MG. The Bay County Water Service Areas are shown in Table 1 below. Table 1 Bay County Water Service Areas Wholesale Service Retail Service Bay County Retail Cedar Grove Callaway North Bay Lynn Haven West Bay Mexico Beach Northeast Panama City Panama City Beach Parker Springfield Tyndall Air Force Base Table 2 presents the Bay County system wide wholesale projected average and maximum day demands. The Hatch Mott MacDonald projections of November 9, 2012 ending in the year 2030 have been extrapolated at the growth to the year 2045 to reflect the potential term of the proposed revenue bonds. Hartman Consultants, LLC & Page 6

266 Table 2 Average Annual and Maximum Day Water Demand Projections Bay County Utilities AADF MDD Year (MGD) (MGD) The existing regional facilities with the non bond funded improvements meet all of the wholesale water system projected needs through Overview Bay County Regional and Retail Wastewater Facilities The Beaches, Cities, and eastern County areas are served by a joint ownership 7.0 MGD Advance Waste Treatment Military Point Regional Wastewater Treatment Plant (MPAWT). The County owns approximately 47% of the MPAWT as well as the regional transmission to the facility. The MPAWT and transmission are considered the Bulk or jointly owned wholesale system. This system does not serve the North Bay service area of the County. The County operates 100% of the regional system. The regional system customers are: Bay County retail in the Cedar Grove and Northeast service areas Bay County wholesale to Tyndall Air Force Base and South Beach area including Mexico Beach City of Callaway City of Parker City of Springfield Hartman Consultants, LLC & Page 7

267 Unlike the potable water system, there are major individually owned wastewater systems within the County. These systems are briefly described below. Panama City owns and operates its own Millville and St. Andrews 5.0 MGD AWT WWTP facilities. Panama City Beach owns and operates its own 10 MGD AWT WWTP. The City of Lynn Haven owns and operates its own 2.5 MGD AWT WWTP. In addition, as a portion of the County s retail wastewater system (not regional or bulk), the County owns and operates the North Bay AST WWTP and the River Camps WWTP. Finally, there are individual septic tanks in the remote and rural areas of the County. There are over 2,000 septic tanks in the North Bay and West Bay areas. Bulk Wastewater Treatment During the early 1980s, Bay County constructed a sanitary sewer collection and transmission system in the cities of Cedar Grove, Springfield, Callaway, and Parker to their Cherry Street Wastewater Treatment Plant (WWTP). Several additional connections occurred over the years. The effluent was pumped to the Military Point lagoon at Tyndall Air Force Base. In 1997, Bay County received a permit to construct a regional 7 MGD AADF Advanced Wastewater Treatment Plant (AWT WWTP) near the Military Point lagoon. The joint owners of this AWT WWTP are Bay County, Callaway, the former town of Cedar Grove (now Bay County), Springfield and Parker. By 2011, Bay County owned the retail wastewater facilities in the North Bay and West Bay service areas. Later in this Report, the North Bay and West Bay facilities and flow projections are presented. The Military Point AWT WWTP flow projections are shown on Table 3 below. Hartman Consultants, LLC & Page 8

268 Table 3 Military Point AWT WWTP Flow Projections Year Projected Flow AADF (MGD) Existing Capacity (MGD) The Military Point regional system has adequate capacity to meet the projected flow conditions of the customers through NORTH BAY RETAIL SERVICE AREA The North Bay Service Area is the County s newest retail utility service area. Previously, retail water service was provided in the area by the Gulf Coast Electric Cooperative (GCEC). In 2007, the County was contacted by GCEC regarding developing a regional wastewater program. In March 2008, the County purchased GCEC s utility system for the outstanding debt and contracted facilities expansion cost less capital capacity charges (net outstanding investment and debt liabilities). Following this acquisition, the County established the exclusive North Bay (and West Bay referred herein combined as North Bay ) water and wastewater service area as shown on Figure 2. The service areas were established by Ordinance in May The North Bay service area referenced in this Report includes both the North Bay and West Bay areas as defined in the Ordinance. The area involves approximately 193 square miles. The areas for service include the Highway 77 corridor, the Highway 388 corridor, and the greater Southport urbanized area. The entire North Bay Service Area is served by single water treatment plant that is Hartman Consultants, LLC & Page 9

269 interconnected via two major water transmission lines including a regional 36 inch main providing service to the Southport area. The two transmission lines help enhance reliability of the Retail System within the service area. The West Bay wastewater area is served by a package plant on Crooked Creek and the North Bay area is served by the regional 1.5 million gallons per day (MGD) Advanced Secondary Treatment (AST) North Bay Wastewater Treatment Facility (WWTF). The County s capital improvement plan (CIP) includes interconnecting the Highway 388 wastewater force main from the Airport to the Highway 77 corridor 12 force main allowing the package plant to be decommissioned and providing for growth at the Airport Industrial Park, River Camps sector plan area, as well as infill along Highway 388 funded from existing sources of the County. There are some 2,158 septic tanks in the Southport urbanized area. This area drains both into North Bay and the potable drinking water source for the County wide regional system, the Deer Point Reservoir. From the reservoir, the raw water is pumped to the County wide, Bay County Wholesale Water Treatment Plant which has a permitted capacity of 60 MGD. Figure 3, presents the locations of the 2,158 septic tanks in the Southport portion of the North Bay Service Area. The Water and Wastewater Strategic Plan prepared by Hatch Mott MacDonald (HMM) dated 11/9/2012 disaggregated the County utility service population for the North Bay and West Bay planning areas and projected the population within the utility service area as shown below in Table 4. Table 4 Population Projections Projected Projected Population Year Population Served ,863 3, ,437 3, ,337 4, ,651 5, ,498 6,638 The North Bay WWTF has adequate existing capacity to accommodate the projected 2030 Hartman Consultants, LLC & Page 10

270 population within the service area. If a high water use industry or multiple medium water use industries were to locate in the Industrial Park, then future expansion may be required. Also, if the sector plan development occurs quickly, future expansions of the North Bay WWTF or a West Bay facility may be required. Again, referencing the Water and Wastewater Strategic Plan, the following water demand and wastewater flow projections were made, as shown on Table 5. Table 5 Water Demand and Wastewater Flow Projections Average Daily Flow (MGD) Year Water Wastewater Four (4) factors may increase the above projections: 1. Industrial/Commercial development or demands in the combined North Bay Service Area stemming from Gulf Power connection/expansion, State College connection/expansion, Corridor Commercial or Airport Industrial Park water users; 2. Mandatory connection of septic tanks within the Deer Point Reservoir Watershed; 3. Sector plan development of the large parcels (some as large as 100,000 acres) within the service area; and 4. A customer accommodation program to connect existing establishments presently served by septic tanks. Nonetheless, the existing 36 inch potable water transmission main is sufficient for anticipated potable water growth and the North Bay WWTF has a large site where significant expansions could be accommodated. The above service area projections only utilize approximately 70% of the existing capacity of the North Bay WWTF. In summary, the current water supply, treatment, and transmission system is more than adequate for at least the next 15 years, and potentially longer, for the North Bay Service Area. Hartman Consultants, LLC & Page 11

271 Only interconnections, local transmission and distribution facilities are required to serve growth during that time period. With regard to the sewer system, the County has made several improvements including: the wastewater beneficial reuse recharge constructed from ; an advanced secondary treatment (reuse quality) plant; a biosolids system; a major transmission for Highway 77; the Southport area improvements including 42,000 linear feet of 10 inch to 12 inch interconnecting force main along Highway 388 ; and several wastewater pumping stations and master lift stations have been built with two more lift stations included in the proposed financing. The wastewater service area requires local collection systems to discharge into the backbone system and, with the completion of the proposed projects, the anticipated growth corridor areas would have central sewer service available. EXISTING RETAIL FACILITIES Water The regional 36 inch potable water transmission main serves as both the supply source (from the 60 MGD WTP) and the transmission main. The water storage and re pumping stations serving the area shown on Table 6. Table 6 Water Storage and Re pumping Stations Capacity Facility Service Area (Gallons) Gaines Bayou GSR (1) Southport 331,000 Northwest Booster #1 GSR Airport 400,000 Northwest Booster #2 GSR Industrial Park 400,000 Total Capacity 1,131,000 Notes: (1) GSR is ground storage reservoir with high service booster pumps meeting peak hour and Hartman Consultants, LLC & Page 12

272 fire flow demands as delineated by the Insurance Service Office (ISO) Jacksonville. The Gainer Bayou facility is an Aquastore type glass fused to steel deep blue reservoir. It has four (4) high service pumps with an operating capacity of 1,500 gpm as well as two (2) jockey (smaller) pumps to meet lower demand conditions. The main facilities were installed new in 2007 and have an excellent preventative maintenance and renewal and replacement program. The facility has full automation and auxiliary power for emergency conditions. The Northwest facility is located within the Airport Industrial Park and has five (5) high service pumps each at 500 gpm with complete instrumentation, auxiliary power and pressure transducers for the optimum operating protocol. These facilities are in excellent, like new condition, having been constructed in 2010 and 2011, respectively, with a complete preventative maintenance and renewal and replacement program in place. These ground storage reservoirs are pre stress concrete and have extended average service lives (typically in excess of 50 years). Post Buckley Schuh and Jernigan, Inc. (PBS&J) reviewed water loss records for the historical five year period ending in They found that the Bay County Retail Water System reflected a composite 4.5% level of water loss. There is not a long term water loss analysis of the North Bay Service Area. Due to the significant construction in the area and the large geographic service area versus customer base, it is expected that the North Bay Service Area would have somewhat greater water loss than the overall Retail System. Nonetheless, the American Water Works Association (AWWA), the Florida Public Service Commission (FPSC), and the Florida Department of Environmental Protection (FDEP) all adopt standards which state that water loss less than 10% is comparatively very good. Retail System water loss less than 5% is excellent. In the North Bay Water Service Area, there are water mains from 4 inch to 36 inch in diameter. The systems have variable frequency (variable speed) drives which eliminate water pressure and water hammer conditions. The Retail System has approximately 520,000 linear feet (LF) of water mains (370,000+ LF in Southport and 150,000+ LF along Highway 388 and in the Airport/West Bay Area) or approximately 100 miles of water mains. An active meter replacement program is in place and the meters are easy read technology. The County s retail system also includes numerous hydrants, valves, services, meters, and appurtenances. Figure 5 presents the location of the major water facilities in the North Bay Service Area. Hartman Consultants, LLC & Page 13

273 Wastewater The North Bay wastewater collection system consists of thousands of wastewater services. There are both gravity and low pressure services in the area. The services either discharge into a manifolded force main or a gravity collection system with manholes. The North Bay combined sewer service area has approximately 15,000 LF of 8 inch gravity sewers. The length of the force mains as of November 2012 as reported are shown on Table 7 below. Table 7 North Bay Force Mains Diameter (Inches) Length (LF) 3 30, , , , , , , ,032 Total 316,339 There are six (6) master lift stations in the service area. These are shown below with their respective design capacities on Table 8. Hartman Consultants, LLC & Page 14

274 BC 37 Lake Merial BC 39 CR 2321 BC 40 W. Smith Rd. BC 49 Airport Table 8 North Bay Master Lift Stations Name BC 42 Airport Industrial Park RC BS River Camps Total Design Capacity (GPM) ,922 In addition to the above, there are 10 local master lift stations. The above 6 lift stations date from 2007 to 2012 and are relatively new. The remaining 10 local lift stations date from 2009 through The standard Bay County wastewater pumping station has both instrumentation and auxiliary power provisions. The North Bay Service Area has two (2) Bay County facilities. One is a regional Advanced Secondary Treatment (AST) WWTF (the North Bay 1.5 MGD facility) and the other is a package treatment plant with secondary treatment (the River Camps WWTP) with a capacity of MGD. Both wastewater treatment plants are summarized in Table 9 Hartman Consultants, LLC & Page 15

275 Description Table 9 North Bay Treatment Facilities River Camp Treatment Plant Name Capacity (MGD) North Bay Level of Treatment secondary AST with filters Reuse no Yes Headworks 1 manual bar screen 1 mechanical 1 manual 1 grit removal Biological Treatment 2 surge tanks 4 aeration basins 2 sequencing batch reactors 1 post equalization Clarification 2 rectangular units N/A Filtration None 2 cloth filters Disinfection 2 contact tanks 2 contact tanks Biosolids Digestion 2 small aerobic digestors 1 large digestor Biosolids Dewatering None liquid 1 centrifuge cake Effluent Recharge 2 rapid infiltration basins 24 rapid infiltration basins Biosolids Reuse Pump out contractor Land application Reject Storage and Recycling none 1 pond and pump system Both wastewater treatment plants were commissioned about the same time and both are relatively new. The North Bay WWTF is in Southport and the River Camps WWTP is west of the Airport Complex north of the River Camps on Crooked Creek development. Figure 6 presents the major North Bay Wastewater Facilities locations. Hartman Consultants, LLC & Page 16

276 Cedar Grove Service Area The former City of Cedar Grove dissolved and Bay County took over the City s retail water system, the City s ownership in the Military Point AWT and transmission facilities, and the City s wastewater system. The County received approximately 2,400 retail water and 2,200 retail wastewater customers. The County has invested approximately $3 million into the city bringing the facilities from poor condition to good to excellent (new) condition. Some 2,400 meters have been or are soon to be replaced. Retail System repairs and upgrades addressing water leaks, service lines, looping water mains, replacement mains, hydrants and the like have been accomplished from in house utility reserves or cash flow. The County took over two (2) master vacuum sewage collection pumping stations and eleven (11) conventional lift stations. Inflow and infiltration correction has occurred throughout the Retail System. Both vacuum pump stations have been refurbished. Various projects including numerous replacement pumps, panels, fencing projects, and the like have been completed by the County. Over the last several years, there have been improvements made to the integrity, performance, and efficiency of the former Cedar Grove system. It is expected that some previously deferred maintenance and renewals and replacements (by the former City of Cedar Grove) may occur in the future. Nonetheless, we believe that the major problems have been corrected and normal operational practices will be achieved and continue into the future. CONDITION OF THE NORTH BAY UTILITY FACILITIES We have reviewed other engineers reports by GAI Consultants, Inc.; PBS&J; and HMM and discussed the facilities with Bay County and FDEP personnel. On June 8, 9, and 10, 2014, HC visually inspected the facilities. During this inspection, HC did not make detailed observations of below ground, concealed, or submerged system assets nor did HC perform any testing of the assets or instrumentation. Table 10 presents a summary of our inspections, analysis, and research. Hartman Consultants, LLC & Page 17

277 Water: Description 36 inch Arial Crossings Gainer Bayou GSR and PS Northwest Booster #1 GSR Northwest Booster #2 GSR Wastewater: BC 37 Lake Merial BC 39 CR 2321 BC 40 W. Smith Rd. BC 49 Airport BC 42 Airport Industrial Park RC BS River Camps River Camp WWTP North Bay WWTF 10 Local Pump Stations Table 10 Condition Summary Excellent Observed Condition Assessment (1) Good/excellent Excellent Excellent Good/excellent Good/excellent Excellent Excellent Excellent Good/excellent Good/excellent Good/excellent Varying from good to excellent Note: (1) Excellent Facilities are in proper working order, well maintained, and no deferred maintenance. Good Facilities are in proper working order and well maintained with only minor deferred maintenance identified. Average Facilities are in proper working order, maintained at industry standards with some deficiencies and deferred maintenance identified. Fair Facilities operate yet require maintenance or improvements. Poor Facilities have excessive deficiencies and deferred maintenance. Regulatory Review The water system has had numerous construction permits issued for the transmission, storage and re pumping, and distribution systems in the North Bay Service Area. No renewals and no additional operating permits are required. The wastewater collection and transmission systems similarly have had numerous construction permits issued and no renewals or additional operating permits are required for the existing facilities. Hartman Consultants, LLC & Page 18

278 The two (2) wastewater treatment plants have operating permits. River Camps on Crooked Creek WWTP located at 7101 Titi Road north of Highway 388 is an extended aeration plant with a capacity of MGD and operates under FDEP permit number FLA which is valid and in force and expires December 14, No reported violations or non compliance issues exist for this facility. The North Bay WWTF is located approximately 600 feet east of SR 77 south and near the intersection of Highway 388 and SR 77. It is a dual sequencing batch reactor (SBR) plant with filtration and disinfection. It has a valid permit in place for a capacity of 1.5 MGD under permit FLA This permit also expires on December 14, There are no reported violations or non compliance issues for this facility. It is expected that the permit will be renewed by the FDEP at the appropriate time. CAPITAL IMPROVEMENT PROGRAM General The County develops and approves a five year capital improvement program (CIP) annually. The program for the first year is approved as the capital budget and the remaining four (4) years provide a forecast of the planned capital needs. The capital improvements are planned to provide for the addition of new customers, for the systematic renewal and replacement of facilities, and for improvements in the overall efficiency of the operating system. Capital Improvements Funded Through Existing Sources and Grants Those identified capital improvements for the next five (5) fiscal year period from FY 2015 FY 2019 are shown on Table 11. Hartman Consultants, LLC & Page 19

279 Table 11 Bay County Funded CIP from Existing Sources Description Date Estimate Retail Water Meter Replacement $ 350,000 Billing System Upgrades ,000 Total Retail Water $ 550,000 Retail Wastewater Cedar Grove Sewer Rehab ,000,000 Highway 388 Force Main ,500,000 North Bay Collection System Improvements ,220,405 Total Retail Wastewater $ 5,720,405 Based on discussions with County staff, these projects shown in Table 11 will only be undertaken if there is funding from rates and/or restricted funds (i.e. impact (connection) fees, renewal and replacement fund) available for the projects. The County plans to fund these projects through a combination of the proceeds of the Horizon Oil Spill Restoration Program, grant funding through the FDEP State Revolving Fund (which would be subordinate to this debt), rate revenues, unrestricted fund balance, and Renewal and Replacement fund (when appropriate). Series 2015 Bonds As discussed previously, the Series 2015 Bonds, together with other legally available funds, will provide proceeds to: 1) refinance the existing bank debt on the Retail System; 2) fund debt service reserve requirements associated with the Series 2015 Bonds, if required; and 3) pay the costs of issuance associated with the Series 2015 Bonds. The estimated sources and uses of funds associated with the Series 2015 Bond Issue is presented in Table 12. Hartman Consultants, LLC & Page 20

280 Table 12 Estimated Sources and Uses of Funds SOURCES OF FUNDS Series 2015 Bond Proceeds $ 27,820, Premium 1,554, Debt Service Fund 184, Total Sources of Funds $ 29,558, USES OF FUNDS Refunding Escrow Deposits $ 27,150, Debt Service Reserve Fund 1,804, Delivery Date Expenses 602, Total Uses of Funds $ 29,558, CUSTOMERS General Bay County currently provides retail water and wastewater services to three (3) primary usage classes for revenue generation purposes, consisting of Residential, Commercial, and Irrigation. Brief descriptions for each are provided below. The Residential class is comprised of all individually metered residential dwelling units, including single family residences, multi family residences, and mobile homes. The Commercial class includes non residential customers that are individually metered, as well as any master metered residential or commercial properties that do not fall in the Residential class. The Irrigation class contains all irrigation meters that are used to provide potable external water for Residential and Commercial class properties. Historical Customer Data Hartman Consultants, LLC & Page 21

281 This section of the Report identifies customer characteristics associated with the Retail System. Historical metered connection and flow data as provided by the County for FY 2007 through 2014 is presented in Table 13. Table 13 Historical Water and Sewer Connections and Billed Water Flow Billed Water Flow Fiscal Year Water Sewer (Thousand Gallons) ,220 2, , ,249 2, , ,185 2, , ,208 2, , ,226 2, , ,385 3, , ,632 3, , ,714 3, ,980 There are many factors that can account for the flows varying from year to year. Some of those factors include weather conditions, system pressures, voluntary and mandatory water restrictions from regulatory agencies and water conservation programs. Ten Largest Customers in FY 2014 In order to provide further analysis, and to gain a better understanding of the existing customer base and the revenue concentration of the large users, the County was requested to review the billing records to identify the revenues from the ten (10) largest accounts by annual revenues generated during the most recent 12 months ended September 30, The revenues generated by these customers for the water and wastewater systems relative to the total revenue are provided in Table 14 below. As shown below in Table 14, the ten largest customers represent approximately 12.84% of the Retail System revenue generated for FY 2014, with the largest (the CCA Bay County Correction Facility) being approximately 5.34% of total Retail System revenue. The remaining top 10 customers account for approximately 7.5% of the Retail System revenue for FY A review of this summary table suggests that although user fee revenues would be affected by the loss of Hartman Consultants, LLC & Page 22

282 one or more of the top ten customers, the loss would remain well within manageable limits and may not require any adjustment to the rates. Additionally, no information has come to our attention that would suggest any reduction in usage or discontinuance of service for any of these customers. Table Largest Customers Fiscal Year 2014 Customer Account (1) Metered Flow Water Revenue Sewer Revenue Total Revenue Percent of Total System Revenue CCA Bay County Correction 35,525,000 $ 98,389 $ 362,333 $ 460, % Northwest Fl Beach International Airport 39,221, ,909 74, , % Dean Bozeman School 16,745,000 49, , , % Bay County Jail Annex 29,520,000 80,711 65, , % Community Health & Rehab 3,104,000 8,861 30,366 39, % Tommy Smith/Merritt Brown Middle School 2,095,000 7,793 24,731 32, % Gatewood Apartments 1,160,000 3,605 14,579 18, % Winn Dixie Grocery 1,377,000 4,463 13,488 17, % Cedar Grove Elementary 1,395,000 5,705 10,680 16, % Hiland Park Elementary 1,563,000 7,087 7, % Total 131,705,000 $ 378,154 $ 729,002 $ 1,107, % Total System Revenue for FY 2014 (2) $ 8,620,964 Note: (1) Provided by County staff for the 12 month period ended September 30, (2) Source: FY 2014 Comprehensive Annual Financial Report HISTORICAL OPERATING RESULTS The historical revenues and expenses of the Retail System for the five Fiscal Years ended September 30, 2014 are shown on Table 15. Operating results for FY 2010 through 2014 are based on audited information contained in the County s Comprehensive Annual Financial Reports. Table 15 shows the historical revenues and expenses of the Retail System. Hartman Consultants, LLC & Page 23

283 Table 15 Historical Operating Results (1) (4) Reflects debt service on the Refunded Indebtedness. It should be noted that there were shortfalls in amounts to pay debt service in Fiscal Years 2012, 2013 and 2014 and that these shortfalls were paid from amounts drawn from the rate stabilization fund, which amounts were replenished from other available revenues of the County. In order to address future debt obligations, the County adopted Resolution No. 3216, which once fully implemented in FY 2015 should result in approximately 50% more revenue being generated. The Water and Sewer System Revenue Bonds Series 2011 contain various covenants that are specified in Resolution No and During the year ended September 30, 2013, it was Fiscal Year Ended September 30, Revenues Operating Revenues $ 6,421,773 $ 6,681,917 $ 6,665,219 $ 7,187,654 $ 8,620,964 Other Revenues 93, , , , ,604 Gross Revenues $ 6,515,253 $ 6,782,445 $ 6,782,146 $ 7,293,503 $ 8,747,568 Operating Expenses Personal Services $ 1,684,913 $ 1,777,638 $ 1,906,325 $ 2,060,490 $ 2,156,446 Contracted Services 1,008,662 1,052, , , ,232 Repairs and Maintenance 207, , , , ,530 Utilities 132, , , , ,351 Other 3,689,888 4,099,770 4,442,930 4,289,746 4,621,487 Total Operating Expenses $ 6,723,188 $ 7,337,704 $ 7,916,562 $ 7,795,605 $ 8,050,046 Net Revenue $ (207,935) $ (555,259) $ (1,134,416) $ (502,102) $ 697,522 Impact Fees Collected $ 623,039 $ 61,605 $ 332,565 $ 493,356 $ 276,474 Coverage (2) Net Revenues (555,259) (1,134,416) (502,102) 697,522 Allowable Deposits (3) 939,000 1,614,000 1,611,771 - Net Available Revenues 383, ,584 1,109, ,522 Debt Service (4) - 1,009,275 1,006,500 2,211,110 Debt Service Coverage Notes: (1) Information from Comprehensive Annual Financial Reports (CAFR) for FY 2010 through (2) As calculated by the County in the CAFR. (3) Allowable Deposits includes available amounts in the Rate Stabilization Fund. Based on the Resolution No. 3213, a provision was passed that gives the County until October 1, 2018 to generate rates sufficient to meet the rate coventants associated with the Bonds. Therefore, the County did not show any amount in the allowable deposits for FY 2014 in its CAFR, as the rate covenant was not required to be met. Hartman Consultants, LLC & Page 24

284 determined that the County was not in compliance with a specific debt covenant that is included in Resolution No Specifically, Section 10(A) requires that any withdrawals from the rate stabilization fund be replenished from pledged revenues within twelve months from the date of such withdrawal. During the year and as of September 30, 2013, such withdrawal was not replenished within the required twelve month period. The County, along with the 100% bondholder, worked together on a remedy. On March 18, 2014, Resolution No was passed by the County and accepted by the bondholder. This Resolution included a Covenant to Budget and Appropriate as well as provided for an extension of time until October 1, 2014, in which to replenish the rate stabilization fund to its required level. Additionally, this Resolution includes a provision that gives the County until October 1, 2018 to generate revenues sufficient to meet the rate covenants associated with the bonds without being in default. In accordance with the Resolution, the County had a sufficient balance in the rate stabilization account at the end of Fiscal Year RATE COVENANT AND RATES, FEES, AND CHARGES General The Bond Resolution contains a rate covenant which requires the County to set user rates and charges such that for each Fiscal Year 1) Net Revenues equal or exceed 110 percent (110%) of the Debt Service Requirements for such Fiscal Year together with other reserve and deposit requirements and 2) Net Revenues and Impact (Connection) Fees collected equal or exceed 120 percent (120%) of the Debt Service Requirements for such Fiscal Year together with other reserve and deposit requirements. Retail Water and Sewer Rate Structure In 2013, the County hired GAI Consultants, Inc. to prepare a Retail Water and Sewer Rate Study. As a result of that Study, a uniform county wide rate structure was developed and implemented. This county wide rate structure was developed to generate approximately 50% more revenue once fully implemented. The rate structure adjustments and modifications were adopted through Resolution No. 3216, with an initial effective date of March 18, Resolution No also provided for an across the board rate increase of 20.0% for FY 2015 and then 2.0% for fiscal years 2016, 2017, 2018, and Table 16 presents the rates to be in effect as of October 1, Additionally, Resolution No provides for the County to automatically index the rate annually by three percent (3.0%) or the Consumer Price Index Hartman Consultants, LLC & Page 25

285 (CPI), whichever is less beginning on October 1, Table 16 Retail Water and Sewer Rates Fiscal Year 2015 Component Water Sewer Base Rate Residential & Residential Irrigation (meter size) 3/4 inch $ $ inch $ $ /2 inch $ $ inch $ $ Commercial & Commercial Irrigation (meter size) 3/4 inch $ $ inch $ $ /2 inch $ $ inch $ $ inch $ $ inch $ $ inch $ $ 1, inch $ 1, $ 1, inch $ 1, $ 2, inch $ 2, $ 4, Gallonage Residential and Commercial Block 1: 0 3,000 gallons $ 2.32 $ Block 2: 3,001 6,000 gallons $ 2.57 $ Block 3: 6,001 9,000 gallons $ 3.22 $ Block 4: above 9,000 gallons $ 3.85 $ Irrigation (per thousand gallons) All usage $ 3.85 N/A Retail late charge 10% 10% Impact (Connection) Fee per ERU County $ $ 1, Hartman Consultants, LLC & Page 26

286 North Bay Area $ $ 5, On July 7, 2015, the County adopted Ordinance 15 33, which establishes a standard county wide impact structure. Based on this structure, the new retail water impact (connection) fee will be $ per ERU and the wastewater retail impact (connection) fee will be $2, per ERU. These new impact (connection) fees will be applicable beginning in FY 2016 and have been taken into account when preparing these proforma financial statements. RATE AND CHARGE COMPARISON A comparison of the cost of providing monthly water and sewer service for a residential single family customer with a 3/4 inch meter calculated under the rates of the County and other neighboring Florida utilities is provided in Table 17. The rates used in the calculation of bills issued by neighboring utilities were current as of June 2015 and are exclusive of local taxes, franchise fees, nonresident surcharges, if any, or other rate adjustments unless otherwise noted. For comparison purposes, monthly bills for all utilities were calculated on the basis of 5,000 gallons per month consumption for both water and sewer. Hartman Consultants, LLC & Page 27

287 Table 17 Monthly Service Bill Comparison with Other Utilities 5,000 Gallons per Month Water Sewer Total Bay County $ $ $ Utilities (1) City of Callaway Inside City $ $ $ City of Callaway Outside City City of Defuniak Springs Inside City City of Defuniak Springs Outside City City of Fort Walton Beach Inside City City of Fort Walton Beach Outside City City of Marianna City of Panama City Inside City City of Panama City Outside City City of Panama City Beach Inside City City of Panama City Beach Outside City City of Parker City of Pensacola (ECUA) City of Tallahassee Inside City City of Tallahassee Outside City Other Utilities Average $ $ $ Notes: (1) Rates current as of June PROJECTED OPERATING RESULTS General The total fiscal requirements of the Retail System consist of those monetary expenditures necessary to provide, maintain and perpetuate quality utility services to meet the goals and objectives of the County, including all capital expenditures. The fiscal requirements identified herein for the purpose of this feasibility analysis are exclusive of capital expenditures to be funded by sources other than Operating Revenues and consist only of those cash requirements Hartman Consultants, LLC & Page 28

288 that include operating and maintenance (O & M) expenses, debt service, capital outlays from rates, renewal and replacement (R & R) and other minor non O & M requirements. The County prepares and adopts, prior to the beginning of each fiscal year, a budget in accordance with applicable law. The budget is comprehensive and provides for all areas necessary for the complete operations of the Retail System. The projected fiscal requirements encompass a five year projection period from FY 2014 through FY This projection period uses as a basis the tentative FY 2015 budget together with adjustments to reflect non cash items, non recurring activities, and historic trends. In addition, the projected fiscal requirements were adjusted annually to reflect inflationary impacts, customer growth and other items, more fully described in the Principal Assumptions and Considerations portion of this Report. The escalation factors used for the projection period are shown in Table 18. The fiscal requirements for the purpose of this Report have been disaggregated into three categories: 1) O & M Expenses those requirements directly associated with the operations of the Retail System excluding depreciation and amortization, 2) Debt Service the existing and proposed annual debt amortization amounts associated with the Retail System debt (Principal and Interest), and, 3) Other inclusive of capital expenditures from operating revenues, renewal and replacement not included in O & M expenses, and other minor non O & M related expenses. Presented in Schedule 1 at the end of this Report, and summarized in Table 19 are the financial projections for the Retail System. The table includes, for example, annual projections of revenue, projected operation and maintenance expenses, debt service, other income and required payments and balances available/needed for capital outlay and other Retail System purposes. Projected revenue includes those from sales (rate revenue), interest income on the available funds, and other miscellaneous revenues derived from operations. Principal Assumptions and Considerations In the preparation of this Report, certain assumptions were made with respect to conditions which may occur in the future. While it is believed that the assumptions are reasonable for the purpose of this Report, they are dependent upon future events and actual conditions may differ from those assumed. In addition to the projections, estimates, and studies, certain information and assumptions provided or prepared by others have been used and relied upon. While Hartman Consultants, LLC & Page 29

289 believed to be reasonable for the purpose of this Report, no further assurances with respect thereto are offered, other than for the purpose of this Report. To the extent that actual conditions differ from those assumed herein or from information or assumptions provided or prepared by others, the actual results will vary from those estimated and projected herein. Such projections are, therefore, subject to adjustment and there are no assurances that the projections will be realized. The principal considerations and assumptions used in projecting the operating results include the following: 1. Projected revenues from the operation of the Retail System have been based on rates and charges adopted by the County effective October 1, Per Resolution No. 3216, the County will increase rates by 2.0% annually for Fiscal Years 2016 through Additionally, the County has adopted a policy that allows for automatic inflationary adjustments to the user rates each fiscal year of 3.0% beginning October 1, For purposes of this Report, it is assumed the County will follow this Resolution throughout the analysis period. 2. The projected User Rate Revenues are based on current usage characteristics of the Retail System, which anticipates no significant change in the 5 year projection period. On July 7, 2015 the County adopted Ordinance which required mandatory connection of certain development within the Bay County exclusive water and wastewater retail service area. Based on the adoption of this Ordinance, it is assumed that there is annually a 4.00% growth in water and sewer customer connections and corresponding usage based on discussions with County Staff and review of historical customer connections and usage patterns. 3. Other Operating Revenues are generated from services other than user rates including miscellaneous charges and interest income. 4. Projections for the Series 2015 Bonds annual debt service payments for the par amount of $27,820,000 and a repayment period of 30 years were provided by the financial advisor on July 15, Hartman Consultants, LLC & Page 30

290 5. Projected Fiscal Requirements for the 5 year projection period are based on the Fiscal Year 2015 budget with adjustments as appropriate based on historic trends and discussions with County Staff. These requirements include escalation factors for customer growth, inflation, labor, supply costs, etc. The following escalation factors shown in Table 18 were used in projecting the O&M expenses, operating revenues, and other miscellaneous revenues: Table 18 Escalation Factors Esc. Fiscal Year Escalation Category Ref Constant Factor General Inflation (1) Labor Escalator Customer Growth Factor Customer Growth / Inflation Rate Revenue Factor Rate Revenue / Customer Growth Supplies / Repairs & Maintenance (2) Notes: (1) Based on the 20 year average of the Consumer Price Index for Urban Consumers (CPI U). (2) Based on the 20 year average of the Engineering News Record (ENR) Construction Cost Index CCI). These escalation factors were applied at a detailed level to obtain the proforma presented in Table 19. In general, the Rate Revenue/Customer Growth Factor has been applied to revenues for the projection period. The Labor Escalator, which is higher than general inflation due to a combination of anticipated benefit and merit adjustments, has been applied to employee costs for the projection period. Certain O&M costs, such as chemicals, anticipated to grow according to customer growth and inflation, were escalated using the Customer Growth/Inflation Factor. Other O&M costs, such as professional services and auditing, were escalated using the General Inflation escalator. Supplies and the repair and maintenance portion of O&M costs were escalated by the Supplies/Repairs & Maintenance escalator. 6. The rate covenant associated with the Series 2015 Bonds is expected to be as follows: Hartman Consultants, LLC & Page 31

291 (1) Net Revenues equal or exceed 110 percent (110%) of the Debt Service Requirements for such Fiscal Year together with other reserve and deposit requirements and (2) Net Revenues and Impact (Connection) Fees collected equal or exceed 120 percent (120%) of the Debt Service Requirements for such Fiscal Year together with other reserve and deposit requirements. 7. Impact (Connection) fee projections are based the fees adopted with Ordinance Impact (Connection) fees, assessments, and certain transfers are used to build up the restricted fund balances throughout the projection period; 9. A provision to transfer 5.0% of the prior year s user rate revenue to the Renewal and Replacement Fund has been included for each year of the projection period. 10. Retail System operations are in compliance with applicable local, State, and federal regulations and requirements. 11. There is a reasonable expectation that all permits shall be renewed and extended as needed and on time within the projection period. Summary of Projected Operating Results and Coverage Projections of the operating results for the System for the Fiscal Years ending September 30, 2014 through 2019 are shown in Table 19 (as summarized from Schedules 1, 1A, and 1B at the end of this Report). Such projections were prepared in accordance with the assumptions and considerations used in the projections as previously discussed. Hartman Consultants, LLC & Page 32

292 Table 19 Summary of Projected Operating Results (Rounded) Test Year Projected Fiscal Year Account Name Operating Revenue Rate Revenue $ 10,745,900 $ 10,467,200 $ 11,287,900 $ 11,910,300 $ 12,569,400 Other Operating Revenue (1) 216, , , , ,300 Total Operating Revenue $ 10,961,900 $ 10,692,700 $ 11,523,400 $ 12,156,400 $ 12,826,700 O & M Expenses (2) 8,468,600 8,610,500 9,073,500 9,563,100 10,081,800 Net Revenue Avail for Debt Svc. $ 2,493,300 $ 2,082,200 $ 2,449,900 $ 2,593,300 $ 2,744,900 Debt Service 2,209,400 1,157,200 1,802,500 1,800,300 1,802,900 Balance after Debt Service $ 283,900 $ 925,000 $ 647,400 $ 793,000 $ 942,000 Non Operating Revenues (3) 1,725, , , , ,000 Non Operating Expenses (4) (2,145,700) (966,500) (960,800) (1,010,100) (1,049,700) Total Available for Other Uses $ (136,800) $ 418,500 $ 46,600 $ 142,900 $ 252,300 Coverage Tests (5) Net Revenues $ 2,493,300 $ 2,082,200 $ 2,449,900 $ 2,593,300 $ 2,744,900 Parity Debt Service $ 2,209,400 $ 1,157,200 $ 1,802,500 $ 1,800,300 $ 1,802,900 Projected Coverage Minimum Required Net Revenues $ 2,493,300 $ 2,082,200 $ 2,449,900 $ 2,593,300 $ 2,744,900 Impact Fees 175, , , , ,000 Net Revenues + Impact Fees $ 2,668,300 $ 2,192,200 $ 2,559,900 $ 2,703,300 $ 2,854,900 Parity Debt Service $ 2,209,400 $ 1,157,200 $ 1,802,500 $ 1,800,300 $ 1,802,900 Projected Coverage Minimum Required Notes: (1) Includes Miscellaneous Charges and Interest Income. (2) Excludes depreciation and amortization. (3) Includes Contributions, Assessments, Impact Fees, and Transfers. (4) Includes Transfers, Capital (CIP) from Rates, and Capital from Fund Balances. (5) The Series 2015 Bonds require the following coverage tests: (a) Net Revenues provide a minimum of 110% of debt service, and (b) Net Revenues + Impact Fees provide a minimum of 120% of debt service. FINDINGS AND CONCLUSIONS Based upon the principal considerations and assumptions and the results of our studies and analyses, as summarized in this Report, which should be read in its entirety in conjunction with the following, we are of the opinion that: 1. The County has historically provided for the appropriate operation of the Retail System by employing personnel capable of operating, maintaining, and expanding the water and sewer system as needed and required. 2. The County has historically invested in the Retail System for major capital as well as Hartman Consultants, LLC & Page 33

293 repairs and replacements to maintain the quality of the infrastructure. 3. The Retail System has all the regulatory permits necessary for the continued operation of the Retail System. It is expected that renewals of such permits, when necessary, will be issued by the regulatory agencies. The Retail System operates in compliance with all applicable permits and regulatory requirements. 4. The existing and projected revenues and expenses are reasonable based on: (1) historical results, (2) the existing rates, and (3) input and discussions with County Staff. 5. As previously discussed, the County has adopted a Comprehensive CIP for the Retail System. Based on discussions with County Staff, the County anticipates funding this CIP on a Pay As You Go basis utilizing user rates, impact (connection) fees, and renewal and replacement reserves, when appropriate. The County does not intend to issue any additional debt to fund this Program. Therefore, in any year that the Pay As You Go funding is unavailable, the County will look to prioritize the capital improvements and reschedule as appropriate as Pay As You Go funding is available. The anticipated Capital (CIP) from Rates is summarized on Table Nothing came to our attention, which would adversely affect the continued operating and financial condition of the Retail System including, but not limited to, compliance with regulatory agencies. Hartman Consultants, LLC & Page 34

294 Schedule 1 Proforma Operating Results Retail Water and Sewer System Bay County, FL Test Year Projected Description FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Operating Revenues Water Rate Revenue $ 2,548,200 $ 2,703,100 $ 2,867,400 $ 3,041,700 $ 3,226,600 Wastewater Rate Revenue 6,438,200 5,918,000 6,483,300 6,835,900 7,210,000 Charges for Services 1,759,500 1,846,100 1,937,200 2,032,700 2,132,800 Other Operating Revenue (1) 216, , , , ,300 Total Operating Revenues $ 10,961,900 $ 10,692,700 $ 11,523,400 $ 12,156,400 $ 12,826,700 O & M Expenses (2) 8,468,600 8,610,500 9,073,500 9,563,100 10,081,800 Net Revenues Before Debt Service $ 2,493,300 $ 2,082,200 $ 2,449,900 $ 2,593,300 $ 2,744,900 Debt Service Existing/Proposed Debt Service $ 2,209,400 $ 1,157,200 $ 1,802,500 $ 1,800,300 $ 1,802,900 Other Debt Service Total Debt Service 2,209,400 1,157,200 1,802,500 1,800,300 1,802,900 Net Revenues After Debt Service $ 283,900 $ 925,000 $ 647,400 $ 793,000 $ 942,000 Non Operating Revenues Grants and Contributions $ $ $ $ $ Special Assessments Impact Fees 175, , , , ,000 Transfers In (includes sale of assets) Transfer in from Reserves / Funds 1,550, , , , ,000 Total Non Operating Revenues $ 1,725,000 $ 460,000 $ 360,000 $ 360,000 $ 360,000 Non Operating Expenses Capital From Rates $ 395,000 $ 407,200 $ 419,700 $ 432,600 $ 445,800 CIP From Rates CIP paid not through Rates or Debt 1,200,000 Transfer Out to R&R Fund 375, , , , ,900 Transfer Out to CIP Reserves Transfer Out to Restricted Funds 175, , , , ,000 Transfer Out to Enterprise Fund Transfers Out for Grants and Aid Other Transfers Out (incl. refunds) Total Non Operating Expenses $ 2,145,700 $ 966,500 $ 960,800 $ 1,010,100 $ 1,049,700 Available for Other Uses $ (136,800) $ 418,500 $ 46,600 $ 142,900 $ 252,300 Coverage Tests (3) Net Revenues $ 2,493,300 $ 2,082,200 $ 2,449,900 $ 2,593,300 $ 2,744,900 Debt Service $ 2,209,400 $ 1,157,200 $ 1,802,500 $ 1,800,300 $ 1,802,900 Projected Coverage Minimum Required Net Revenues $ 2,493,300 $ 2,082,200 $ 2,449,900 $ 2,593,300 $ 2,744,900 Impact Fees 175, , , , ,000 Net Revenues + Impact Fees $ 2,668,300 $ 2,192,200 $ 2,559,900 $ 2,703,300 $ 2,854,900 Debt Service $ 2,209,400 $ 1,157,200 $ 1,802,500 $ 1,800,300 $ 1,802,900 Projected Coverage Minimum Required Notes: (1) Includes Miscellaneous Charges and Interest Income. (2) Excludes depreciation and amortization. (3) The Series 2015 Bonds require the following coverage tests: (a) Net Revenues provide a minimum of 110% of debt service, and (b) Net Revenues + Impact Fees provide a minimum of 120% of debt service.

295 Schedule 1A Projected Operating and Maintenance Expenses Retail Water and Sewer System Bay County, FL Adjusted Escalation Test Year Fiscal Year Description Reference Expenses Personal Services Salaries & Wages Regular 3 $ 1,602,200 $ 1,622,200 $ 1,702,000 $ 1,785,800 $ 1,873,700 Salaries & Wages Disaster 3 Salaries & Wages Overtime 3 156, , , , ,700 Salaries Disaster OT 3 FICA Taxes Matching 3 134, , , , ,300 Retirement Contributions 3 135, , , , ,000 Life & Health Insurance 3 310, , , , ,700 Workers Compensation Premiums 3 118, , , , ,100 Unemployment Compensation 3 Total Personal Services $ 2,456,000 $ 2,486,800 $ 2,609,200 $ 2,737,700 $ 2,872,500 Operating Expenses Professional Services County Attorney 2 $ 21,800 21,500 $ 22,000 $ 22,500 $ 23,000 Professional Services Other Attorney 2 4,900 4,800 4,900 5,000 5,100 Professional Services Engineering 2 140, , , , ,700 Professional Services Medical 2 2,000 2,000 2,000 2,000 2,000 Professional Services Substance Test Professional Services Rate Study 2 2,500 2,500 2,600 2,700 2,800 Professional Services Background Check 2 1,100 1,100 1,100 1,100 1,100 Professional Services Engineering/Permitting 2 30,600 30,200 30,900 31,600 32,400 Contracted Services 2 60,300 59,600 61,000 62,500 64,000 Contracted Services Bank Charge Pool Contracted Services 800 MHZ 2 2,900 2,900 3,000 3,100 3,200 Contracted Services GIS 2 Contracted Services Administrative Fees 2 147, , , , ,700 Contracted Services Utility Admin Fees 2 609, , , , ,600 Contracted Services Lab 2 38,600 38,200 39,100 40,000 41,000 Travel/Training Non Local 2 8,300 8,200 8,400 8,600 8,800

296 Schedule 1A Projected Operating and Maintenance Expenses Retail Water and Sewer System Bay County, FL Adjusted Escalation Test Year Fiscal Year Description Reference Communications Services 2 3,300 3,300 3,400 3,500 3,600 Postage/Transport/Freight 5 2,800 2,900 3,100 3,300 3,500 Utility Services 5 198, , , , ,000 Rentals/Leases Land 8 Rentals/Leases Buildings 8 Rentals/Leases Equipment 8 6,600 6,600 6,800 7,000 7,200 Insurance & Bonds 2 62,600 61,900 63,400 64,900 66,500 Repair/Maintenance Bld & Grd Department 8 7,800 7,800 8,000 8,200 8,500 Repair/Maintenance Bldg & Grnd Repair/Maintenance Auto Equipment 8 23,300 23,200 23,900 24,600 25,400 Repair/Maintenance Equipment 8 192, , , , ,300 Printing & Binding 5 1,300 1,300 1,400 1,500 1,600 Fees & Costs Purchasing 2 17,000 16,800 17,200 17,600 18,000 Fees & Costs Legal Advertising 2 1,000 1,000 1,000 1,000 1,000 Fees & Costs Permits 2 25,700 25,400 26,000 26,600 27,200 Bad Debt 5 Miscellaneous Expenses 2 1,800 1,800 1,800 1,800 1,800 Office Supplies 8 2,700 2,700 2,800 2,900 3,000 Operating Supplies 8 26,500 26,400 27,200 28,000 28,900 Operating Supplies Janitorial 8 2,200 2,200 2,300 2,400 2,500 Operating Supplies Chemicals 5 35,500 36,500 38,900 41,400 44,100 Gas, Oil & Lubricants 5 82,900 85,200 90,800 96, ,000 Safety Gear & Supplies 8 8,800 8,800 9,100 9,400 9,700 Clothing & Wearing Apparel 8 8,600 8,600 8,900 9,200 9,500 Tool & Small Implements 8 10,000 9,900 10,200 10,500 10,800 Operating Supplies Lab 8 5,400 5,400 5,600 5,800 6,000 Books/Resource Material/Subscriptions 2 1,000 1,000 1,000 1,000 1,000 Dues & Memberships 2 1,400 1,400 1,400 1,400 1,400 Training & Tuition 2 4,400 4,300 4,400 4,500 4,600 Contingency Calc 2,200 2,100 2,200 2,300 2,400 Total Operating Expenses $ 1,806,600 $ 1,800,400 $ 1,859,400 $ 1,920,400 $ 1,984,300

297 Schedule 1A Projected Operating and Maintenance Expenses Retail Water and Sewer System Bay County, FL Adjusted Escalation Test Year Fiscal Year Description Reference Cost of Goods Sold COGS Water 5 $ 1,097,600 1,128,200 $ 1,201,700 $ 1,280,000 $ 1,363,400 COGS O&M/Retail 5 680, , , , ,800 COGS O&M/Tyndall 5 982,600 1,010,000 1,075,800 1,145,900 1,220,600 COGS O&M/Mexico Beach 5 133, , , , ,200 COGS Reuse Water 5 13,200 13,600 14,500 15,400 16,400 COGS Debt/Retail 5 505, , , , ,300 COGS Debt/Tyndall 5 321, , , , ,700 COGS Debt/Mexico Beach 5 183, , , , ,100 COGS R&R/Retail 5 61,600 63,300 67,400 71,800 76,500 COGS R&R/Tyndall 5 60,200 61,900 65,900 70,200 74,800 COGS R&R/Mexico Beach 5 15,400 15,800 16,800 17,900 19,100 COGS Rate/Retail 5 75,700 77,800 82,900 88,300 94,100 COGS Rate/Tyndall 5 48,200 49,500 52,700 56,100 59,800 COGS Rate/Mexico Beach 5 27,500 28,300 30,100 32,100 34,200 Total Cost of Goods Sold $ 4,206,000 $ 4,323,300 $ 4,604,900 $ 4,905,000 $ 5,225,000 Total O & M Expenses $ 8,468,600 $ 8,610,500 $ 9,073,500 $ 9,563,100 $ 10,081,800

298 Schedule 1B Projected Other Operating Revenues Retail Water and Sewer System Bay County, FL Adjusted Escalation Test Year Fiscal Year Description Reference Charges for Service Chrg for Service Plan Rev/Eng 3 $ 3,400 $ 3,600 $ 3,800 $ 4,000 $ 4,200 Chrg for Service AWT Staff 3 1,697,600 1,781,200 1,868,900 1,960,900 2,057,400 Chrg for Service R&B Lift Station 3 3,000 3,100 3,300 3,500 3,700 Chrg for Service Wtr/Swr 3 30,000 31,500 33,100 34,700 36,400 Chrg for Service Parker 3 Chrg for Service Parks & Rec 3 3,000 3,100 3,300 3,500 3,700 Chrg for Service Courthouse 3 3,000 3,100 3,300 3,500 3,700 Chrg for Service Mexico Beach 3 19,500 20,500 21,500 22,600 23,700 Total Charges for Services $ 1,759,500 $ 1,846,100 $ 1,937,200 $ 2,032,700 $ 2,132,800 Other Revenues Penalties 5 $ 85,000 $ 90,500 $ 96,400 $ 102,700 $ 109,400 Other Misc Revenue 2 50,000 51,200 52,400 53,700 55,000 Water Fees Meter 3 56,000 58,800 61,700 64,700 67,900 Interest POOL 1 25,000 25,000 25,000 25,000 25,000 Total Other Revenues $ 216,000 $ 225,500 $ 235,500 $ 246,100 $ 257,300 Total Other Operating Revenues $ 1,975,500 $ 2,071,600 $ 2,172,700 $ 2,278,800 $ 2,390,100

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305 APPENDIX E ORDINANCES NOs AND CREATING SERVICE AREAS

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307 ORDINANCE NO AN ORDINANCE OF BAY COUNTY, FLORIDA, CREATING THE BAY COUNTY EXCLUSIVE SERVICE AREA AND CAPACITY SALE RULES; PROVIDING A TITLE; MAKING CERTAIN FINDINGS; PROVIDING FOR WATER AND WASTEWATER APPLICATIONS; PROVIDING FOR THE ALLOCATION OF WATER AND WASTEWATER SERVICE CAPACITY; PROVIDING FOR RULES APPLICABLE TO CAPACITY AVAILABILITY AND CONNECTION TO THE SYSTEM; DEFINING AND DESIGNATING THE COUNTY'S EXCLUSIVE RETAIL WATER AND WASTEWATER SERVICE AREA; PROVIDING FOR SEVERABILITY; PROVIDING AN EFFECTIVE DATE. NOW THEREFORE, BE IT ORDAINED BY THE BOARD OF COUNTY COMMISSIONERS OF BAY COUNTY: SECTION 1. SHORT TITLE. This Ordinance shall be known and shall be cited as the "Bay County Exclusive Service Area and Capacity Sale Rules." SECTION 2. COMMISSION FINDINGS. In adopting this Ordinance, the County Commission of Bay County, Florida, hereby makes the following findings: (1) Based on the projections set forth in their respective Comprehensive Plans, the County and adjacent neighboring counties are expected to experience population increases within the next twenty years. (2) As this population increases, the demand for central water and wastewater services will Increase. (3) Pursuant to Section 1(f), Article VIII, Florida Constitution, and Section (1)(k), Florida Statutes, and other applicable general and special acts, the Board Is authorized to provide, regulate, purchase, construct, improve, extend, enlarge and reconstruct water and wastewater facilities; and operate, manage and control water and wastewaterfacilities within the County. (4) The Board has previously recognized In its support documents, objectives and policies of the Bay County Comprehensive Plan (the # v3 1

308 "Plan") that it must utilize its police power in order to protect water resources located in Bay County. (5) Demands for potable water are increasing inside Bay County, just as demands for potable water are increasing outside Bay County. (6) Stringent state and federal water and wastewater treatment and operation standards have been promulgated, and with these increasing costs of constructing central water and wastewater facilities, the County's ability to provide central water and wastewater service within Bay County may be limited. (7) If the County does not provide adequate central water and wastewater service within its designated service area to meet increased demand, it will be faced with private sector pressure to allow the continued construction and installation of substandard, privately financed, and operated water and wastewater treatment plants and septic tanks. (8) The proliferation of privately financed and operated water and wastewater treatment plants will contribute to higher user rates. (9) The potential for the County to have to assume operation of these privately financed and operated facilities in the future is great. (10) Furthermore, the unique water resources of Bay County have previously been determined to be susceptible to harm through contamination from the proliferation of package treatment plants and overexploitation of the water resources. (11) The proliferation of such package water and sewer treatment plants where there is no provision for the later transfer of customers and flows from such plants to a regional, subregional or area-wide plant is hereby declared to be a public harm detrimental to the citizens of Bay County. # v3 9

309 (12) The Capital Improvements Element of the Bay County Comprehensive Plan requires the County to adopt a concurrency management system in accordance with and authorized by Section , Florida Statutes, in order to insure that the public facilities and services needed to support new development are available concurrent with the impacts of such development. (13) The Future Land Use Element of the Bay County Comprehensive Plan requires the County to adopt land development regulations that contain specific and detailed provisions to prevent harm to the levels of service of public facilities and to prevent harm to the water resources of Bay County. (14) Implementing these policies will enable the County to discourage urban sprawl as required by the Bay County Comprehensive Plan and applicable Rules of the Florida Department of Community Affairs. (15) The financing of central water and wastewater facilities is complex, requires extensive planning and engineering, and calls for advanced participation by the development community so that adequate public facilities can be provided to meet the impacts of that development. (16) Therefore, to protect groundwater resources, prevent sprawl, implement water and wastewater service concurrency, enable financing of County facilities, and provide for the most cost effective and environmentally acceptable central water and wastewater facilities, the County has determined the need to establish a just and equitable system for financing and selling water and wastewater service capacities in its system and to establish and designate its service area so that public funds are not wasted. (17) The County deems it necessary to establish rules so that water and wastewater service may be made available and extended to new customers on an equitable basis. # v3

310 (1) It shall be unlawful for any person to connect County retail water and/or wastewater services without first making application in writing for water and/or wastewater service and paying all charges incident to said application. Application shall be made on forms furnished by the County, shall constitute an agreement by the customer to abide by the utility rules in regard to its service, and shall be in accord with the County's Rate Ordinance and other County rules, regulations, ordinances, resolutions, codes, and policies (hereafter "County Requirements"). Applications for services requested by firms, partner-ships, associations and corporations shall be tendered only by their duly authorized agents, and the official title of the agent shall be shown on the application. (2) All applications for an extension of the County's retail water and wastewater system shall be addressed to the County stating the location, beginning and termination thereof, with plans and specifications in triplicate attached where such plans and specifications are required. (3) Beginning on the effective date of this Ordinance, the County may designate a period of time (hereinafter referred to as an "allocation period") when all those persons or entities who own land within all or a portion of the exclusive service area subsequently defined may apply and pay applicable fees to the County for water and wastewater service capacity in the County's retail water and wastewater system. The County Commission may offer water and/or wastewater service capacity to certain-portions of said service area in advance of other portions. The County shall publish notice of the times and location for acceptance of applications and payment of applicable fees in a newspaper of general circulation in Bay County, Florida at least five (5) days prior to the beginning of an allocation period. The County may require all information on said application that it deems reasonable and necessary, and may reject applications # v3 5

311 (18) The County has full and exclusive authority over the management, operation, and control of all of the County's utilities and the authority to prescribe rules and regulations governing the use of such facilities whenever such are provided by the County, and to make such changes from time to time in such rules and regulations as it deems necessary. (19) The construction of water and wastewater system improvements and extensions is an essential utility service. (20) The failure to plan for and delineate future service areas will lead to the proliferation of other public and private utility systems and facilities in competition with and to the economic detriment of the County. (21) In implementing this Ordinance, it is the Commission's intent to conserve and protect water resources within boundaries of the County, in the interest of the public health, safety and welfare, and avoid and eliminate, to the extent permitted by law, the circumstances giving rise to water, wastewater, and reclaimed water service duplications and resulting uneconomical and wasteful operations. (22) In implementing this Ordinance, the County shall encourage the efficient utilization of water, wastewater, and reclaimed water facilities and systems, while avoiding, to the greatest extent possible, unreasonable restrictions upon free competition, fixing prices, or in reasonably limiting water, wastewater, or reclaimed water service capacity. (23) The County has authority pursuant to general and special law to be the exclusive provider of water, wastewater, and reclaimed water services as further provided in this Ordinance. (24) The County has provided the required public notice and held the necessary public hearing(s) in order to adopt these rules. SECTION 3. APPLICATION FOR SERVICE. # v3 4

312 it determines are incomplete. Any application for a permit shall contain a legal description of the land constituting the service area for which such permit is to be issued. The legal description shall include only those lands owned by the applicant for which the permit is to serve. If any such person described hereinabove fails to apply for and purchase water and/or wastewater service capacity under these rules, the County may consider such failure in determining whether or not to grant or deny any development or construction permit or approval or rezoning application filed by such person. (4) If an application is approved, a written agreement containing all terms and conditions relating to such system extensions, approved by the County or its designee, shall be made and executed by and between the applicant property owner(s) and County. SECTION 4. ALLOCATION AND SALE OF WATER AND WASTEWATER SERVICE CAPACITY. Upon a determination by the Board of County Commissioners that water and/or wastewater service capacity is available and unallocated in the County's retail water and wastewater system (whether or not a Florida Department of Environmental Protection Construction Permit has been issued for the construction of facilities necessary to create said capacity), the Board of County Commissioners may allocate any and all such available, unallocated water and/or wastewater service capacity of the County's retail water and wastewater system in the following manner: (1) The Board of County Commissioners may allocate any available and unallocated water and/or wastewater service capacity to those qualified applicants as determined by the Board of County Commissioners in the order of time and date of application and only after payment of applicable water and/or wastewater capital charges/impact fees in accordance with the County rate resolutions and ordinances by applicants whose applications have been # v3 6

313 accepted by the County and in accordance with the terms of any applicable developer's agreement. SECTION 5. INITIAL CAPACITY ALLOCATiON AND SALE. The Board of County Commissioners hereby declares pursuant to Section 4 hereof an initial capacity sale within the geographic area described in Exhibit "A" attached to and incorporated in this Ordinance (the "North Bay Capacity Sale Area"). This capacity allocation is intended to allocate water and/or wastewater service capacity in conjunction with the County's acquisition of the Gulf Coast Electric Cooperative Water and Wastewater System (the "County Purchase") within the North Bay Capacity Sale Area. The allocation will be subject to the following terms and conditions: (1) Capacity shall be available to those potential customers and developers with lands located within the North Bay Capacity Sale Area from the effective date of this Ordinance until December 30,2007. (2) Allocations shall be subject to execution by applicants of a developer's agreement substantially similar in terms to those "developer's agreements" currently in effect between Gulf Coast Electric Cooperative and other developers. (3) These County developer agreements and the allocations covered thereby shall be contingent upon the County closing and obtaining title to the County Purchase. (4) Subject to applicable requirements, the County shall fulfill all requests for allocation for those applicants that execute and make the upfront payments on a first come, first served basis up to but not exceeding available capacity. If there are more requests for capacity than capacity is then available, then those applicants seeking the additional but then unavailable capacity shall have the option to receive an allocation in the next plant phase by paying or # v3 7

314 leaving 10% of the applicable capital costs with the County, then paying 40% of the applicable capital costs upon FDEP permitting of the next plant phase. (5) If any capacity allocated hereunder remains unused ten years after the closing date of the County Purchase, the County shall have the option to buy originally paid back the capacity at the rate per equivalent residential unit by the applicant for the wastewater service capacity without interest. (6) Prior to the water and/or wastewater plans approval by the County and the execution of system extension applications by the County, the applicant shall be required to execute a developer's agreement. This agreement shall be binding upon the applicant, its successors and assigns for the original property in need of service. Transfers of service capacity must run with the land and resales of service capacity in excess of established rates and charges are prohibited. SECTION 6. CREATION OF EXCLUSIVE WATER. WASTEWATER. AND RECLAIMED WATER SERVICE AREA. The County hereby creates the Bay County Exclusive Water, Wastewater, and Reclaimed Water Service Area (hereafter "Exclusive Service Area") for the purpose of delivering to that area water, wastewater, and reclaimed water services and exercising within that area the powers provided by law. The area to receive the services set forth above shall be as described in Exhibit "B" and depicted in Exhibit "B" attached to and incorporated in this Ordinance. SECTION 7. DUTY TO SERVE. The County hereby declares that, subject to a customer's or property owner's compliance with County rate resolutions and ordinances, and service extension policies, the County has a duty to serve water, wastewater, and reclaimed water service to all property owners and potential customers within the County's Exclusive Service Area, # v3 8

315 provided the Florida Public Service Commission ("FPSC") or the County has not certified or franchised that area. SECTION 8. OTHER UTILITIES OF SIMILAR CHARACTER PROHIBITED. No person or entity other than the County and/or its designee shall provide water, wastewater, or reclaimed water service (other than bottled water) to any person, firm, corporation, government, or location within the County's Exclusive Service Area without the County's express written permission which shall not be unreasonably withheld. No person or entity other than the County and/or its designee shall construct or use water, wastewater, and/or reclaimed water transmission lines, pipes, mains, pump stations or the like on or within the established rights-of-way for the purpose of providing water, wastewater, and/or reclaimed water service to land located within the County's Exclusive Service Area without the County's express written permission. These prohibitions shall not be deemed to prohibit private water wells and/or septic tanks for individual structures or require mandatory connection where service is not available pursuant to County regulation or state law as amended from time to time. When cost effective and in the best interest of the County's citizens and existing rate payers, the County may contract with other water, wastewater, and/or reclaimed water utilities that meet County standards to operate within portions of the County's Exclusive Service Area. SECTION 9. CRITERIA FOR EXTENSION OF SERVICES. Water, wastewater, and reclaimed water services will be extended within the Exclusive Service Area identified in Exhibit "B" hereof. Such extensions are or will be in accordance with the County's most recent Comprehensive Plan and Capital Improvements Program as accepted or approved by the County. Extension of water, wastewater, and reclaimed water facilities and infrastructure within the ## v3

316 Exclusive Service Area as identified in Exhibit "B" hereof shall be subject to the following additional criteria: (1) The County central treatment facilities must have available capacity. (2) The developer pays all costs for extending the distribution, collection, or transmission facilities, unless specified in the County's Capital Improvements Program or Comprehensive Plan as amended; (3) If an FPSC-regulated utility or County franchised utility has a prior legal right to provide water, wastewater, or reclaimed water service pursuant to a certificate of authority to a parcel or development within the Exclusive Service Area, the County shall not provide such service unless the said regulated utility consents thereto, or unless the FPSC-regulated County franchised utility does not have a present ability to promptly and efficiently meet its legal duty to provide service to the parcel or development, as governed by applicable law. SECTION 10. SEVERABILITY. If any section, subsection, sentence, clause, phrase, or portion of this Policy is for any reason held invalid or unconstitutional by any court of competent jurisdiction, such portion shall be deemed a separate, distinct and independent provision and such holding shall not affect the validity of the remaining portions thereof. SECTION 11. EFFECTIVE DATE. The Ordinance shall take effect on _, DONE AND ORDERED this ^fc^dav of 200^^ # v3 10

317 OHTYcS S^AL BOARD OF COUNTY COMMISSIONERS BAY COUNTY, FLORIDA MIKE NELSON, CHAIRMAN HAROLD BAZZEL, CL APPROVED^ TO Thomas bud, Speci Date: # v3 11

318 EXHIBIT "A" NORTH BAY CAPACITY SALE AREA # v3

319 NORTH BAY SERVICE AREA CAPACITY SALE BAY COUNTY mm $MWm SIDE OF BUHMT X >1 Uartm-an LA}N>i:iriN(; & DtsuiN NOOTH BAY SLUVirL AKLA CAi'AtUTY HAl.li HAY rotjntv SERVICE AREAS

320 EXHIBIT "B" EXCLUSIVE SERVICE AREA # v3

321 m I"! Service areas (8/1/07): Bay County Bay County & GCEC Cedar Grove Call away Lynn Haven Mexico Beach Panama City Panama City Beach Parker Springfield Tyndall AFB Bay County Utility Services GS dis UB service areas 8x11.mxd 8/1/07 This GIS data is not a legal representatbn of the features depicted; any assumption of the legal status of this data is hereby disclaimed.

322 ORDINANCE NO AN ORDINANCE AMENDING PROVISIONS OF BAY COUNTY ORDINANCE NO , ENTITLED THE "BAY COUNTY EXCLUSIVE SERVICE AREA AND CAPACITY SALE RULES" AS AMENDED. TO CREATE AND ESTABLISH EXCLUSIVE WATER AND WASTEWATER SERVICE AREAS; PROVIDING FOR AN AMENDMENT TO THE TEXT OF ORDINANCE TO REFLECT THE CREATION OF THESE SERVICE AREAS; PROVIDING FOR AUTHORIZATION FOR THE BOARD TO ESTABLISH RATES AND FEES WITHIN THESE SERVICE AREAS BY RESOLUTION; PROVIDING FOR AUTHORIZATION FOR THE UTILITY SERVICES DIRECTOR TO ALLOCATE AND DIRECT THE PROVISION OF WATER AND WASTEWATER TO CUSTOMERS AMONGST AND BETWEEN THE VARIOUS SERVICE AREAS; PROVIDING FOR SEVERABILITY; PROVIDING FOR REPEAL; PROVIDING FOR INCLUSION IN THE CODE; AND PROVIDING AN EFFECTIVE DATE. WHEREAS, Bay County adopted Ordinance No , entitled the "Bay County Exclusive Service Area and Capacity Sale Rules" on August 7, 2007; and WHEREAS, Ordinance No created an Exclusive Water, Wastewater and Reclaimed Water Service Area and identified and depicted this Area on Exhibit B attached to the Ordinance; and WHEREAS, on October 3, 2008, the Town of Cedar Grove was dissolved by a vote of the electorate pursuant to Chapter 165, Florida Statutes, which dissolution had the effect of transferring the rights and obligations to Bay County to provide water and wastewater services within the areas of the former Town of Cedar Grove; and WHEREAS, the retail water and sewer rates that were established by the Town of Cedar Grove in 2008 are pledged as revenue for debt supporting portions of the Town's water and wastewater system; and 1

323 WHEREAS, Bay County assumed this debt when the Town dissolved, and therefore must continue to coilect water and sewer revenues at sufficient levels to pay this debt and operate the Town's water and sewer system; and WHEREAS, the Board desires to establish the "Cedar Grove Water and Wastewater Service Area" within which area the County may establish water and sewer rates that may differ from those established for other areas within unincorporated Bay County, and WHEREAS, to further long term planning for Bay County utilities the Board desires to establish additional water and sewer service areas in addition to the Cedar Grove service area, including the "West Bay Water and Wastewater Service Area", the "North Bay Water and Wastewater Service Area" and the "Northeast Bay County Water and Wastewater Service Area". To reflect the creation of these service areas it is necessary to amend the map attached to Ordinance as Exhibit B as amended; and WHEREAS, to provide flexibility it is necessary to amend Ordinance to provide authority to the Utility Services Director to direct and include customers amongst and between the various service areas as needed to promote the efficient and cost effective delivery of water and wastewater service in Bay County; and WHEREAS, to promote efficiency in the provision of pubic water and wastewater services and utilities, the Board desires to amend Ordinance to provide that different water and sewer rates, fees and other charges may be 2

324 established for these various water and wastewater service areas by subsequent resolutions of this Board. NOW, THEREFORE, BE IT ORDAINED by the Board of County Commissioners as follows: SECTION 1. PURPOSE. A. Ordinance No as amended is further amended as follows: 1. Section 2, Commission Findings, subsection (7) is amended as follows: "If the County does not provide adequate central water and wastewater service within its designated service areas to meet increased demand, it will be faced with private sector pressure to allow the continued construction and installation of substandard, privately financed, and operated water and wastewater treatment plants and septic tanks." 2. Section 2, Commission Findings, subsection (16) is amended as follows: "Therefore, to protect groundwater resources, prevent sprawl, implement water and wastewater service concurrency, enable financing of County facilities, and provide for the most cost effective and environmentally acceptable central water and wastewater facilities, the County has determined the need to establish a just and equitable system for financing and selling water and wastewater service capacities in its system and to establish and designate its service areas so that public funds are not wasted." 3. The terms "Exclusive Service Area" contained in Ordinance as amended are hereby changed to "Exclusive Service Areas".

325 4. Section 6, Creation of Exclusive Water and Wastewater and Reclaimed Water Service Area is hereby amended to include the following provisions: "The Utility Services Director shall direct and include customers amongst and between the various service areas as needed to promote the efficient and cost effective delivery of water and wastewater service in Bay County." "The Board may set and different retail water and sewer rates, fees and other charges within the Exclusive Service Areas by resolution." 5. Exhibit B attached to Ordinance No entitled the "Bay County Exclusive Water, Wastewater, and Reclaimed Water Service Area" as amended by Ordinance No , is hereby amended as set forth on attached Exhibit 1 to reflect the creation of the "Cedar Grove Exclusive Water and Wastewater Service Area", the 'West Bay Exclusive Water and Wastewater Service Area", the "North Bay Exclusive Water and Wastewater Service Area", and the "Northeast Bay Exclusive Water and Wastewater Service Area". SECTION 2. SEVERABILITY. It is hereby declared to be the intent of the Board of County Commissioners of Bay County that If any section, subsection, clause, phrase, or provision of this Ordinance is held invalid or unconstitutional, such invalidity or unconstitutionality shall not be construed as to render invalid or unconstitutional the remaining provisions of this Ordinance. SECTION 3. REPEAL. All ordinances or parts of ordinances in conflict with this Ordinance are to the extent of such conflict hereby repealed. SECTION 4. INCLUSION IN CODE. It is the intention of the Board of County Commissioners of Bay County Florida, and it is hereby provided that the provisions of this Ordinance shall become and be made a part of the Code of Bay 4

326 County, Florida; that the sections of this Ordinance may be renumbered or relettered to accomplish such intention; and that the word "ordinance" may be changed to "section", "article" or other appropriate designation. SECTION 5. EFFECTIVE DATE. A certified copy of this Ordinance as enacted shall be filed by the Clerk of the Board with the office of the Secretary of State of the State of Florida within ten (10) days after enactment, and this Ordinance shall take effect in accordance with Section (2), Florida Statutes. DULY ADOPTED in regular session this 5th day of May ATTEST: BOARD INTY COMMISSIONERS airman omyco Bill^Cinsaul, Clerk SEAL I Reviewed Office of the County

327 EXHIBIT 1 Bay County Exclusive Water, Wastewater and Reclaimed Water Service Areas WATER_SERVICE_AREAS_PROPOSEO DRAFT Ssrvtce areas Say County CWar Grave Say County Norw Say mil Bay County NonhtatI Bay County West Bay Calaway Panartta Ory Baaeh Parkar Spnngnald TyndalAfS