$52,670,000 CITY OF SUMTER, SOUTH CAROLINA Waterworks and Sewer System Improvement and Refunding Revenue Bonds Series 2015

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1 NEW ISSUE BOOK-ENTRY ONLY Moody s: Aa3 Standard & Poor s: AA(See RATINGS herein) In the opinion of Bond Counsel, assuming continuing compliance by the City with certain covenants, interest on the Series 2015 Bonds is excludable from gross income for federal income tax purposes under existing statutes, regulations and judicial decisions. Interest on the Series 2015 Bonds is not an item of tax preference in computing the alternative minimum taxable income of individuals or corporations. Interest on the Series 2015 Bonds will, however, be included in the computation of certain taxes including alternative minimum tax for corporations. See TAX EXEMPTION for a brief description of alternative minimum tax treatment and certain other federal income tax consequences to certain recipients of interest on the Series 2015 Bonds. The Series 2015 Bonds and the interest thereon will also be exempt from all State, county, municipal and school district and other taxes or assessments imposed within the State of South Carolina, except estate, transfer and certain franchise taxes. $52,670,000 CITY OF SUMTER, SOUTH CAROLINA Waterworks and Sewer System Improvement and Refunding Revenue Bonds Series 2015 Dated: Date of delivery Due: As shown on the inside cover The City of Sumter, South Carolina, Waterworks and Sewer System Improvement and Refunding Revenue Bonds, Series 2015 (the Series 2015 Bonds ) are issuable as fully registered bonds and when issued will be registered to Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ), to which principal and interest payments on the Series 2015 Bonds will be made. Individual purchases of Series 2015 Bonds will be made in book-entry form only, in the principal amounts of $5,000 or any whole multiple thereof. So long as Cede & Co., as nominee of DTC, is the registered owner of the Series 2015 Bonds, references herein to the holders of the Series 2015 Bonds or registered owners of the Series 2015 Bonds shall mean Cede & Co. and shall not mean the beneficial owners of the Series 2015 Bonds. So long as Cede & Co. is the registered owner of the Series 2015 Bonds, the principal and interest from their date of delivery (first payable on December 1, 2015 and payable thereafter semiannually on each June 1 and December 1) on the Series 2015 Bonds are payable to Cede & Co. as nominee for DTC, which in turn will remit such principal and interest to the DTC Participants (as defined herein) for subsequent disbursement to the beneficial owners of the Series 2015 Bonds. See THE SERIES 2015 BONDS--Book-Entry Only System. In the event the book-entry only system is discontinued, interest on the Series 2015 Bonds will be payable by check mailed to the registered owners thereof. Principal of the Series 2015 Bonds will be payable at the corporate trust office of The Bank of New York Trust Company, N.A., in Jacksonville, Florida, as Trustee (the Trustee ). Registered owners of $1,000,000 in aggregate principal amount of Series 2015 Bonds may request that payments of interest be made by wire transfer to such registered owner at an account of a financial institution located in the continental U.S. specified in such request. The Series 2015 Bonds are subject to optional redemption prior to maturity as described herein. The Series 2015 Bonds are being issued by the City (1) to defray the cost of certain improvements to the Waterworks and Sewer System (the System ) of the City, (2) to refund the City s Waterworks and Sewer System Improvement Revenue Bonds, Series 2007, maturing in the years 2018 through 2032, inclusive (the Refunded Bonds ), and (3) to pay certain costs and expenses incurred in connection with the issuance of the Series 2015 Bonds. The Series 2015 Bonds are being issued pursuant to the terms of a Bond Ordinance and a 2015 Series Ordinance (as such terms are defined herein) enacted by the City Council of the City. The Series 2015 Bonds are payable from and secured by a pledge of and lien on that portion of the gross revenues of the System that remains after paying the cost of the operation and maintenance of the System, such pledge and lien being on a parity with the pledge and lien securing the $6,854,808 principal amount of Parity Obligations (as such term is defined herein) outstanding following defeasance of the Refunded Bonds. See SECURITY FOR THE BONDS Security for Payment of Bonds, Priority of Lien herein for a description of the priority of such pledge and lien. The Series 2015 Bonds shall not constitute an indebtedness of the City within the meaning of any provision, limitation or restriction of the Constitution or laws of the State of South Carolina, other than those provisions authorizing indebtedness payable solely from a revenue-producing project not involving revenues from any tax or license; and the faith, credit and taxing power of the City are expressly not pledged therefor. The Series 2015 Bonds are offered when, as and if issued and delivered to the Wells Fargo Bank, National Association (the Underwriter ) and are subject to the approval of legality and of certain other legal matters by Haynsworth Sinkler Boyd, P.A., Columbia, South Carolina, Bond Counsel. Certain legal matters will be passed upon for the Underwriter by its counsel, Parker Poe Adams & Bernstein LLP, Columbia, South Carolina and for the City by its General Counsel, B. Eric Shytle, Esquire, Sumter, South Carolina. First Tryon Advisors, Charlotte, North Carolina, is acting as Financial Advisor to the City, and Haynsworth Sinkler Boyd, P.A., Charleston, South Carolina, is acting as Disclosure Counsel. It is expected that the Series 2015 Bonds will be available for delivery through the facilities of DTC on or about September 15, 2015, against payment therefor. This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. WELLS FARGO SECURITIES August 19, 2015

2 MATURITY SCHEDULE Due Principal Interest Due Principal Interest December 1 Amount Rate Yield CUSIP December 1 Amount Rate Yield CUSIP 2016 $ 895, % 0.66% HY $2,945, % 3.32% JM , HZ ,040, JN ,065, JA ,145, JP ,135, JB ,245, JQ ,190, JC ,225, c JR ,240, JD ,290, c JS ,330, JE ,355, c JT ,415, JF ,425, c JW ,490, JG ,500, c JX ,570, JH ,575, c JY ,660, c JJ ,655, c JV ,760, c JK ,735, c JU ,860, JL1 c Yield to December 1, 2025 call at 100%

3 This Official Statement does not constitute an offering of any security other than the original offering of the Series 2015 Bonds identified on the cover. No dealer, broker, salesman or other person has been authorized to give any information or to make any representations other than those contained in this Official Statement and, if given or made, such other information or representations must not be relied upon as having been authorized by the City of Sumter, South Carolina (the City ) or Wells Fargo Bank, National Association (the Underwriter ). This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, and there shall not be any sale of the Series 2015 Bonds by any person in any jurisdiction in which it is unlawful to make such offer, solicitation or sale. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor the sale of any of the Series 2015 Bonds shall, under any circumstances, create any implication that the information herein is correct as of any time subsequent to the date of this Official Statement. Upon execution and delivery, the Series 2015 Bonds will not be registered under the Securities Act of 1933, as amended, or any state securities law, and will not be listed on any stock or other securities exchange. Neither the Securities and Exchange Commission nor any other federal, state or other governmental entity or agency will have passed upon the accuracy or adequacy of this Official Statement or approved the Series 2015 Bonds for sale. Certain information contained in this Official Statement may have been obtained from sources other than records of the City and, while believed to be reliable, is not guaranteed as to completeness or accuracy. THE INFORMATION AND EXPRESSIONS OF OPINION IN THIS OFFICIAL STATEMENT ARE SUBJECT TO CHANGE, AND NEITHER THE DELIVERY OF THIS OFFICIAL STATEMENT NOR ANY SALE MADE UNDER SUCH DOCUMENT SHALL CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE CITY. The Bank of New York Mellon Trust Company, N.A., as Trustee, has not provided, or undertaken to determine the accuracy of, any of the information contained in this Official Statement and makes no representation or warranty, express or implied, as to (i) the accuracy or completeness of such information, (ii) the validity of the Series 2015 Bonds; or (iii) the tax-exempt status of the interest on the Series 2015 Bonds. Reference herein to laws, rules, regulations, agreements, reports and other documents, do not purport to be comprehensive or definitive. All references to such documents are qualified in their entirety by reference to the particular document, the full text of which may contain qualifications of and exceptions to statements made therein. Where full texts have not been included as appendices to the Official Statement, they will be furnished upon request. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2015 BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. 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 final official statement for purposes of, and as that term is defined in, the Rule.

4 CITY OF SUMTER, SOUTH CAROLINA MAYOR Joseph T. McElveen, Jr. MAYOR PRO TEM Thomas J. Lowery CITY COUNCIL Ione J. Dwyer Robert A. Galiano Calvin K. Hastie, Sr. David Merchant Colleen Yates STAFF Deron L. McCormick, City Manager Al Harris, Assistant City Manager of Public Services B. Eric Shytle, Esquire, General Counsel Beth Reames, Finance Director ADVISORS First Tryon Advisors, Charlotte, North Carolina Financial Advisor Haynsworth Sinkler Boyd, P.A., Columbia, South Carolina Bond Counsel

5 TABLE OF CONTENTS INTRODUCTION...1 Authorization...1 Purpose...1 THE SERIES 2015 BONDS...1 General...1 Optional Redemption...2 Notice of Redemption...2 Book-Entry-Only System...3 SECURITY FOR THE BONDS...4 Security for Payment of Bonds, Priority of Lien...4 Limited Obligations...5 Rate Covenant...5 Disposition of Revenues and Funds Established by the Bond Ordinance...6 Amendment of Bond Ordinance...7 Additional Bonds...7 Junior Lien Bonds...10 Special Facilities Bonds...10 Lease Financing Agreements...11 THE PROJECTS...11 THE REFUNDING...11 ESTIMATED SOURCES AND USES OF FUNDS...12 FINANCIAL FACTORS...12 Five-Year Summary...12 Summary of Historical Revenues and Expenses of the System...13 Summary of Projected Revenues and Expenses of the System...13 Summary of Unaudited Recent Operating Results...14 Management s Discussion and Analysis...14 General Fund Transfers...14 Budgeted Revenues and Expenses of the System...15 Outstanding Debt...15 Debt Service Requirements of the System...18 Employee Benefits; Post-Employment Benefits...18 GASB Statement No DESCRIPTION OF THE SYSTEM...19 The City...19 General Discussion of Service Territory...20 The Waterworks Unit...22 The Sewer Unit...25 Information General to the Waterworks Unit and the Sewer Unit...28 TAX EXEMPTION...29 Federal Income Tax Generally...29 Collateral Federal Tax Considerations...30 Original Issue Premium...31 Page

6 Original Issue Discount...31 State Tax Exemption...32 CONTINUING DISCLOSURE...32 LITIGATION...33 ENFORCEABILITY OF REMEDIES...33 UNITED STATES BANKRUPTCY CODE...33 APPROVAL OF LEGAL PROCEEDINGS...33 RATINGS...34 UNDERWRITING...34 FINANCIAL ADVISOR...34 MISCELLANEOUS...35 APPENDIX A - Demographic Information Relating to the City and the County APPENDIX B - Annual Audited Financial Report for fiscal year ended June 30, 2014 APPENDIX C - Summary of Certain Provisions of the Bond Ordinance, the Series 2015 Ordinance and the Series 2007 Ordinance APPENDIX D - Form of Opinion of Haynsworth Sinkler Boyd, P.A., Bond Counsel APPENDIX E - Form of Continuing Disclosure Certificate

7 SUMMARY STATEMENT The following Summary Statement is qualified in its entirety by the more detailed information and financial statements contained elsewhere in this Official Statement and the Appendices hereto (collectively, the Official Statement ). Unless otherwise defined in this Summary Statement, all capitalized terms used in this Summary Statement shall have the meanings ascribed to them elsewhere in the Official Statement and in APPENDIX C- SUMMARY OF CERTAIN PROVISIONS OF THE BOND ORDINANCE, THE SERIES 2015 ORDINANCE AND THE SERIES 2007 ORDINANCE. The offering of the Series 2015 Bonds to potential investors is made only by means of this entire Official Statement, and no person is authorized to detach this Summary Statement from the Official Statement or to otherwise use it without the entire Official Statement. The Issuer The Series 2015 Bonds Dated Date and Date of Delivery of Bonds The City of Sumter, South Carolina (the City ) provides water and sewer service throughout much of the Sumter Metropolitan Statistical Area. The City serves as the county seat for Sumter County, South Carolina (the County ), and is the eighth largest city in the State of South Carolina in terms of population based on the 2010 U.S. Census. The $52,670,000 City of Sumter, South Carolina, Waterworks and Sewer System Improvement and Refunding Revenue Bonds, Series 2015 (the Series 2015 Bonds ), are being issued as fully-registered bonds in principal amounts of $5,000 or any integral multiple thereof, and all initially issued in book-entry form only. See THE SERIES 2015 BONDS-General. The Series 2015 Bonds will be initially dated their date of delivery and will bear interest from that date. The Series 2015 Bonds are offered when, as and if issued and subject to satisfaction of certain conditions set forth in the Contract of Purchase. It is expected that the Series 2015 Bonds will be available for delivery on or about September 15, Interest Payments Interest on the Series 2015 Bonds is payable on each June 1 and December 1 commencing December 1, 2015, by check mailed or, in the case of a Holder of $1,000,000 or more in principal amount of Series 2015 Bonds, by wire transfer upon the request of such Holder, by the Trustee to the person in whose name each Series 2015 Bond is registered. Maturities Redemption Security The Series 2015 Bonds mature as serial bonds due December 1, 2016 through 2040, as indicated on the inside cover hereof. The Series 2015 Bonds are subject to optional redemption prior to their stated maturities. See THE SERIES 2015 BONDS-Optional Redemption. The Series 2015 Bonds, including interest thereon, are payable solely from that portion of the Gross Revenues of the Waterworks and Sewer System (the System ) of the City that remains after paying the cost of operation and maintenance of the System, which are pledged to the payment thereof. See SECURITY FOR THE BONDS. The pledge and lien securing the Series 2015 Bonds is on a parity with the pledge and lien securing the $6,854,808 principal amount Parity Obligations outstanding following defeasance of the Refunded Bonds (as defined herein). The City has pledged to establish, impose, maintain and collect fees and charges of the System so that the revenues of the System will be sufficient to meet certain minimum levels. See SECURITY FOR THE BONDS. i

8 Purpose of the Issue Tax Status of Interest on the Series 2015 Bonds Professionals Involved in the Offering Information Concerning the Terms of the Offering General The Series 2015 Bonds are being issued (1) to defray the cost of certain improvements to the System (the Project, as more particularly defined herein), (2) to refund the City s Waterworks and Sewer System Improvement Revenue Bonds, Series 2007, maturing in the years 2018 through 2032, inclusive (the Refunded Bonds ), and (3) to pay certain costs and expenses incurred in connection with the issuance of the Series 2015 Bonds. See THE SERIES 2015 BONDS-Purpose, THE PROJECTS and SOURCES AND USES OF FUNDS. In the opinion of Bond Counsel, assuming continuing compliance by the City with certain covenants, interest on the Series 2015 Bonds is excludable from gross income for federal income tax purposes under existing statutes, regulations and judicial decisions. Interest on the Series 2015 Bonds is not an item of tax preference in computing the alternative minimum taxable income of individuals or corporations. Interest on the Series 2015 Bonds will, however, be included in the computation of certain taxes including alternative minimum tax for corporations. See TAX EXEMPTION for a brief description of alternative minimum tax treatment and certain other federal income tax consequences to certain recipients of interest on the Series 2015 Bonds. The Series 2015 Bonds and the interest thereon will also be exempt from all State, county, municipal and school district and other taxes or assessments imposed within the State of South Carolina, except estate, transfer and certain franchise taxes. The Bank of New York Mellon Trust Company, N.A., Jacksonville, Florida, is serving as Trustee, Registrar and Paying Agent. Haynsworth Sinkler Boyd, P.A., Columbia, South Carolina, is serving as Bond Counsel. Certain legal matters will be passed upon for the City by its General Counsel, B. Eric Shytle, Esquire, Sumter, South Carolina. The portion of the financial statements of the City for the year ended June 30, 2014, that relate to the System (included as Appendix B in the Official Statement) have been audited by Sheheen, Hancock & Godwin, LLP, Camden, South Carolina. The Underwriter is Wells Fargo Bank, National Association, Charlotte, North Carolina. Parker Poe Adams & Bernstein LLP, Columbia, South Carolina, is serving as Underwriter's Counsel. First Tryon Advisors, Charlotte, North Carolina, is acting as Financial Advisor to the City and Haynsworth Sinkler Boyd, P.A., Charleston, South Carolina, is acting as Disclosure Counsel. The Series 2015 Bonds are being issued pursuant to the provisions of the Revenue Bond Refinancing Act, Title 6, Chapter 17 of the Code of Laws of South Carolina 1976, as amended (the Enabling Act ), and the hereinafter defined Ordinance. See INTRODUCTION - Authorization. This Official Statement speaks only as of its date, and the information contained herein is subject to change. Copies of the Official Statement, the Ordinance, the 2015 Series Ordinance, and other relevant documents and information regarding the documents are available from Deron L. McCormick, City Manager, 21 North Main Street, Post Office Box 1449, Sumter, South Carolina ( ). The Official Statement, including the cover page and the attached appendices, contains specific information relating to the Series 2015 Bonds, the City and the System and other information pertinent to this issue. See FINANCIAL FACTORS, DESCRIPTION OF THE SYSTEM, APPENDIX A DEMOGRAPHIC INFORMATION RELATING TO THE CITY AND THE COUNTY for certain information relating to the City and the County and APPENDIX B ANNUAL AUDITED FINANCIAL REPORT FOR FISCAL YEAR ENDED JUNE 30, 2014 for financial information relating to the City. The information included herein has been provided by the City except where attributed to other sources. The summaries and references to all documents, statutes, reports and other instruments referred to herein do not purport to be complete, comprehensive or definitive, and each such reference or summary is qualified in its entirety by reference to each such document, statute, report or other instrument. ii

9 OFFICIAL STATEMENT $52,670,000 CITY OF SUMTER, SOUTH CAROLINA WATERWORKS AND SEWER SYSTEM IMPROVEMENT AND REFUNDING REVENUE BONDS, SERIES 2015 This Official Statement of the City of Sumter, South Carolina (the City ), which includes the cover page hereof and the appendices hereto, provides information relating to the City and its $52,670,000 Waterworks and Sewer System Improvement and Refunding Revenue Bonds, Series 2015 (the Series 2015 Bonds ). The Series 2015 Bonds and the Parity Obligations and any Additional Bonds (as such terms are hereinafter defined) shall be referred to herein as the Bonds. Included in this Official Statement are brief descriptions of the Series 2015 Bonds and the security therefor, the System (as defined herein), the City and the surrounding area, the Project (as defined herein), and the ordinances pursuant to which the Series 2015 Bonds are authorized and issued by the City. Also included is certain financial information relating to the System. All summaries of documents herein are qualified by reference to such documents in their entirety. Authorization The Series 2015 Bonds are authorized and issued pursuant to Title 6, Chapter 17 of the Code of Laws of South Carolina 1976, as amended (the Enabling Act ), a Bond Ordinance enacted by the City Council of the City (the City Council ) on June 15, 1999, as amended (the Bond Ordinance ), and the 2015 Series Ordinance enacted by the City Council on August 18, 2015 (the 2015 Series Ordinance, which, together with the Bond Ordinance, will be referred to herein as the Ordinance ). All Bonds are issued under the provisions of the Bond Ordinance and pursuant to the authorization of a Series Ordinance (as defined and described in Appendix C). Purpose The Series 2015 Bonds are being issued (1) to defray the cost of the Projects, (2) to refund the City s Waterworks and Sewer System Improvement Revenue Bonds, Series 2007, maturing in the years 2018 through 2032, inclusive (the Refunded Bonds ), and (3) to pay certain costs and expenses incurred in connection with the issuance of the Series 2015 Bonds. See THE PROJECTS and SOURCES AND USES OF FUNDS. General The Series 2015 Bonds will be dated their date of delivery, and will mature and bear interest in the amounts and at the rates (calculated on the basis of a 360-day year of twelve 30-day months) set forth on the inside cover of this Official Statement. The Series 2015 Bonds will be issued as fully-registered bonds in the denomination of $5,000 or integral multiples thereof, not exceeding the principal amount of the Series 2015 Bonds maturing in each year and each will be registered in the name of its owner as set forth on the registration books of the City (the Registration Books ) kept by The Bank of New York Mellon Trust Company, N.A., in Jacksonville, Florida (in such capacity, the Trustee ). Principal of the Series 2015 Bonds will be payable on the respective maturity dates in the manner described herein under the heading THE SERIES 2015 BONDS Book-Entry Only System. Interest on the Series 2015 Bonds will be payable initially on December 1, 2015, and semiannually thereafter on June 1 and December 1 of each year (each, a Bond Payment Date ) until maturity to the person in whose name each of the Series 2015 Bonds is registered on the fifteenth day of the calendar month next preceding each interest payment date by check of the Trustee mailed or, in the case of a Holder (as such term is defined in Appendix C) of $1,000,000 or more in principal amount of the Series 2015 Bonds, by wire transfer upon request of such Holder, to such Holder. 1

10 The Series 2015 Bonds initially will be held in a book-entry only system administered by The Depository Trust Company, New York, New York ( DTC ), whose nominee, Cede & Co., will be the initial Holder of the Series 2015 Bonds. Should the Series 2015 Bonds no longer be held in book-entry only form, interest on the Series 2015 Bonds will be paid by check or draft mailed from the office of the Trustee, acting as paying agent, or in the case of a Holder of $1,000,000 or more in principal amount of the Series 2015 Bonds, by wire transfer upon the request of such Holder, to each Holder of the Series 2015 Bonds at the address shown on the registration books on the fifteenth day next preceding each Bond Payment Date (each a Record Date ). Principal will be payable upon presentation of the Series 2015 Bonds at maturity at the principal corporate trust office of the Trustee. Optional Redemption The Series 2015 Bonds maturing on or after December 1, 2026, shall be subject to redemption prior to maturity, at the option of the City in such order of maturity as the City determines on and after December 1, 2025, in whole or in part at any time upon 30 days' notice, at 100% of the principal amount of such Series 2015 Bonds to be so redeemed), plus interest accrued to the redemption date. Notice of Redemption If any of the Series 2015 Bonds, or portions thereof, are called for redemption, the Trustee shall give notice to the Holders of the Series 2015 Bonds to be redeemed, in the name of the City, of the redemption of such Series 2015 Bonds, or portions thereof, which notice shall specify the complete official name of each Series 2015 Bond to be redeemed, CUSIP numbers, Series 2015 Bond numbers, principal amount of each Series 2015 Bond to be redeemed (if less than all), publication date, redemption date, redemption price, redemption agent's name and address with contact person and phone number, Trustee's name and address, date of the Series 2015 Bonds, interest rate, maturity date, the place or places where amounts due will be payable and any other descriptive information deemed necessary by the Trustee. Notice shall be given by mailing a copy of the redemption notice by first class mail at least 30 days but not more than 60 days prior to the date fixed for redemption to the Holder of each Series 2015 Bond to be redeemed, at the address shown on the Registration Books; provided, however, that failure to give any such notice by mail, or any defect in the notice mailed to the Holder of any Series 2015 Bond, shall not affect the validity of the proceedings for the redemption of any other Series 2015 Bond. If less than all the Series 2015 Bonds of any maturity are called for redemption, the Series 2015 Bonds (or portions thereof) of such maturity to be redeemed shall be selected by lot by DTC or the Trustee. Provided funds for their redemption are on deposit with the Trustee or Paying Agent (as such term is defined in Appendix C), all Series 2015 Bonds so called for redemption shall cease to bear interest on the specified redemption date and shall no longer be deemed to be Outstanding (as such term is defined in Appendix C) under the Bond Ordinance. If said money shall not be so available on the redemption date, such Series 2015 Bonds or portions thereof shall continue to bear interest until paid at the same rate as they would have borne had they not been called for redemption. Registration and Transfer The Series 2015 Bonds will be issued in fully-registered form in the denominations of $5,000 or any whole multiple thereof, not exceeding the principal amount of the Series 2015 Bonds maturing in each year. All Series 2015 Bonds will be registered upon the registration books of the City which are to be kept for this purpose at the office of the Registrar and Paying Agent. Series 2015 Bonds shall be transferable only upon the registration books by the registered owner thereof in person or by his attorney duly authorized in writing, upon surrender thereof together with a written instrument of transfer satisfactory to the Trustee, duly executed by the registered owner or his duly authorized attorney. Upon the transfer of any Series 2015 Bond, the City shall execute and thereupon the Trustee shall authenticate and deliver to the transferee a new fully registered Series 2015 Bond or Bonds, registered in the name of the transferee of the same aggregate principal amount, maturity and interest rate as the surrendered Series 2015 Bond. 2

11 The City and the Trustee may deem and treat the person in whose name any Series 2015 Bond is registered as the absolute owner of such Series 2015 Bond for the purpose of receiving payment of the principal of, and interest on, such Series 2015 Bond and for all other purposes. For every exchange or transfer of any Series 2015 Bond, whether temporary or definitive, the City and the Trustee may make a charge sufficient to reimburse them for any tax, fee or other governmental charge required to be paid with respect to such exchange or transfer. Book-Entry-Only System The Depository Trust Company, New York, New York ( DTC ) will initially act as securities depository for the Series 2015 Bonds. The Series 2015 Bonds will be issued as fully registered securities in the name of Cede & Co. (DTC's partnership nominee). Upon issuance of the Series 2015 Bonds, one fully registered Series 2015 Bond will be issued for each maturity of the Series 2015 Bonds as set forth on the inside cover page hereof, each in the aggregate principal amount of such maturity and will be deposited with DTC. So long as Cede & Co., as nominee of DTC, is the registered owner of the Series 2015 Bonds, references herein to the holders or registered owners of the Series 2015 Bonds shall mean Cede & Co. and shall not mean the Beneficial Owners (hereinafter defined) of the Series 2015 Bonds. The information under this caption concerning DTC and DTC's book-entry system has been obtained from sources believed to be reliable, but the City does not take any responsibility for the accuracy or completeness thereof. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-u.s. equity, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC's participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation and Emerging Markets Clearing Corporation (NSCC, FICC and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has a Standard & Poor's rating of AA+. The DTC rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of Series 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 ( Beneficial Owner ) is in turn to be recorded on the DTC Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 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 Series 2015 Bonds, except in the event that use of the book-entry system for the Series 2015 Bonds is discontinued. 3

12 To facilitate subsequent transfers, all Series 2015 Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other names 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 nominee do not effect any change 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 Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. The City and the Registrar/Paying Agent will recognize DTC or its nominee, Cede & Co., as the registered owner of the Series 2015 Bonds for all purposes. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices 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. 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 City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Series 2015 Bonds are credited on the record date (identified on a listing attached to the Omnibus Proxy). Principal and interest payments on the Series 2015 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit DTC Participants' accounts, upon DTC's receipt of funds and corresponding detail information from the City or the Registrar/Paying Agent on the payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC nor its nominee, the City or the Registrar/Paying Agent, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City acting through the Registrar/Paying Agent, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. Procedure in the Event of Discontinuation of Book-Entry Only System The City may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). DTC may also discontinue providing its services as securities depository with respect to the Series 2015 Bonds at any time by giving reasonable notice to the City or the Registrar/Paying Agent. Upon the discontinuance of the book-entry system, Series 2015 Bonds shall be evidenced by bond certificates issued in the name of the registered owners thereof as set forth on the registration books. Security for Payment of Bonds, Priority of Lien The Series 2015 Bonds are issued in accordance with the provisions of the Enabling Act and the Ordinance. The Series 2015 Bonds are payable solely from, and are secured by a pledge of and lien upon that portion of the Gross Revenues (as defined herein) of the System that remains after paying the cost of the operation and maintenance of the System. As defined in the Bond Ordinance, the term Gross Revenues is defined as: 4

13 (a) all receipts and revenues derived from the operation of the System, except for those allocable to the operation of Special Facilities (as defined herein), (b) all proceeds from the sale or other disposition of any property owned directly or beneficially by the City in connection with the System, (c) all interest and other income received directly or indirectly by the City from the investment of moneys or accounts relating to the System, and (d) all other unencumbered or unrestricted money to which the City in connection with the System, may become entitled from any source whatsoever. The pledge and lien securing the Series 2015 Bonds is on a parity with the pledge and lien securing the $6,854,808 outstanding principal amount of Parity Obligations. The Parity Obligations comprise the Series 2010 Bond, the Series 2007 Bonds maturing in the years 2015 through 2017 inclusive, and the Series 2000 Bond (as such terms are defined) as described under the caption FINANCIAL FACTORS - Outstanding Debt - Revenue Debt. The pledge and lien securing the Series 2015 Bonds is and shall remain superior to or on a parity with all pledges hereafter made to secure any other bonds or other obligations payable from the revenues of the System. The Gross Revenues shall be accounted for separately from all other moneys of the City on the books of records and accounts. The Bond Ordinance permits the City to issue Junior Lien Bonds (as such term is defined in Appendix C) and Special Facilities Bonds (as defined herein) which do not constitute Bonds under the Bond Ordinance. See Junior Lien Bonds and Special Facilities Bonds herein. Limited Obligations The Bonds shall not constitute an indebtedness of the City within the meaning of any provision, limitation or restriction of the Constitution or laws of the State of South Carolina, other than those provisions authorizing indebtedness payable solely from a revenue-producing project not involving revenues from any tax or license; and the faith, credit and taxing power of the City are expressly not pledged therefor. Rate Covenant The City has covenanted in the Bond Ordinance to maintain rates and charges for all services furnished by the System which shall at all times be sufficient: (a) to maintain the debt service funds created under the Ordinance (the Debt Service Funds ) and thus provide for the punctual payment of the principal of and interest on the Bonds; (b) to maintain the debt service reserve funds created under the Ordinance (the Debt Service Reserve Funds ) in the manner prescribed in the Bond Ordinance and in any applicable Series Ordinance (as such term is defined in Appendix C); (c) to provide for the payment of the expenses of administration and operation and such expenses for maintenance of the System as may be necessary to preserve the same in good repair and working order; (d) to build and maintain a reserve for depreciation of the System, for contingencies and for improvements, betterments and extensions to the System other than those necessary to maintain the same in good repair and working order; (e) to pay all amounts owing under a reimbursement agreement with any provider of a surety bond, insurance policy, letter of credit or other funding instrument provided in connection with the funding of a Debt Service Reserve Fund for Bonds of a Series (as such term is defined in Appendix C) of Bonds; (f) to discharge all obligations imposed by the Enabling Act and by the Bond Ordinance; and 5

14 (g) to provide for the punctual payment of the principal of and interest on all Junior Lien Bonds that may from time to time hereafter be outstanding. The Bond Ordinance further provides that the City will, at all times, prescribe and maintain and thereafter collect rates and charges for the services and facilities furnished by the System which, together with other income, will yield annual Net Earnings (as such term is defined in Appendix C) of the System during each Fiscal Year (as such term is defined in Appendix C) equal to at least 120% of the Annual Principal and Interest Requirements (as such term is defined in Appendix C) for such Fiscal Year for all Series of Bonds Outstanding. Prior to the beginning of each Fiscal Year, the City shall adopt an Annual Budget (as such term is defined in Appendix C) including amended rate schedules for such Fiscal Year which shall set forth in reasonable detail the estimated revenues and operating expenses and other expenditures of the System for such Fiscal Year and which shall include appropriations for the estimated operating expenses and the amount to be deposited during such Fiscal Year in the Depreciation and Contingent Fund (as such term is defined in Appendix C). The City may at any time adopt an amended Annual Budget for the remainder of the then current Fiscal Year. Promptly upon any material change in the circumstances which are contemplated at the time such rates and charges were most recently reviewed, but not less frequently than once in each Fiscal Year, the City shall review the rates and charges for its services and shall promptly revise such rates and charges as necessary to comply with such coverage requirement. Disposition of Revenues and Funds Established by the Bond Ordinance The Bond Ordinance provides for the creation of a general revenue fund (the General Revenue Fund ), an operation and maintenance fund (the Operation and Maintenance Fund ), a Debt Service Fund with respect to each Series of Bonds and a depreciation and contingent fund (the Depreciation and Contingent Fund ). In addition, the Bond Ordinance allows, but does not require, each Series Ordinance to establish a Debt Service Reserve Fund with respect to that Series of Bonds. The General Revenue Fund, which is held and administered by the City, is maintained so as to reflect accurately the Gross Revenues of the System and the Net Earnings. All Gross Revenues are deposited in the General Revenue Fund and the City is required to establish, from an accounting standpoint, proper records of receipts and disbursements for the General Revenue Fund. For a more detailed description of the funding requirements and flow of funds with respect to the foregoing funds and accounts, see APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE BOND ORDINANCE, THE SERIES 2015 ORDINANCE AND THE SERIES 2007 ORDINANCE - The Bond Ordinance - Funds, Accounts and Other Payments. Dispositions from the General Revenue Fund. The Gross Revenues of the System, except customer deposits, shall be, as received, deposited into the General Revenue Fund. Moneys on deposit in this Fund shall be used first to pay the operation and maintenance expenses of the System as such are budgeted in the Annual Budget. Following the payment of such operation and maintenance expenses, dispositions from the General Revenue Fund shall be made in the following order of priority and shall be made on or before the Business Day (as such term is defined in Appendix C) which is five Business Days prior to the end of each month: (1) to each Debt Service Fund to pay principal, redemption premium, if any, and interest on each Series of Bonds as described in Debt Service Funds herein, (2) after valuing the amount of money and securities on deposit in any Debt Service Reserve Fund as of the last day of each Fiscal Year (such valuation to occur within 45 days after such date), to such Debt Service Reserve Fund the amount necessary to make the amount of money and securities then on deposit therein equal to the applicable Reserve Requirement, (3) to the payment of interest due or any fees or penalties on amounts advanced by a provider of a surety bond, line of credit, insurance policy, letter of credit or other funding instrument obtained by the City in connection with the satisfaction of a Reserve Requirement for a particular Series of Bonds as described under the heading, Debt Service Reserve Funds herein, (4) to the payment of Junior Lien Bonds, (5) to the Depreciation and Contingent Fund one-twelfth of the sum which has been currently determined by the City to be the estimated requirements therefor for the then current Fiscal Year, and (6) for any other lawful purpose in such manner as the City Council shall from time to time determine. 6

15 The Bond Ordinance requires that each Series Ordinance for a Series of Bonds establish a construction fund with respect to such Series of Bonds if, and only if, the proceeds of such Bonds are intended to be used for the expansion and improvement of the System and further permits the establishment of a capitalized interest account if interest for any period of time is to be paid from proceeds of such Series of Bonds. Debt Service Funds. The Bond Ordinance requires the establishment of a separate Debt Service Fund for each Series of Bonds. The Debt Service Funds are intended to provide for the ratable payment of the principal of, redemption premium, if any, and interest on the Bonds of each Series as the same respectively fall due. The Debt Service Fund for each Series of Bonds shall be kept in the complete custody and control of the Trustee and withdrawals from such Debt Service Fund shall be made only by the Trustee who shall transmit to each Holder of the Bonds, at such times as may be appropriate, the sums required to pay the principal of, redemption premium, if any, and interest on the applicable Series of Bonds. There is to be deposited into the applicable Debt Service Fund the monthly fraction of (a) the aggregate amount of interest of the respective Series of Bonds becoming due and payable on the next ensuing Bond Payment Date and (b) the aggregate amount of the principal of the respective Series of Bonds next becoming due and payable, so that on each Bond Payment Date, the amount of interest and principal to be paid shall have been accumulated and be on hand; provided, however, that in either case, if provision has been made for the payment of all or part of the next installment of interest or principal, as applicable, to become due on the respective Series of Bonds pursuant to the Bond Ordinance and a Series Ordinance, or by reason of investment earnings, then, in such event, the required deposits may be omitted or reduced accordingly. Further, if on the occasion when the deposits required by clauses (a) and (b) herein are to be made, the sum total of the deposits required thereby plus previous monthly deposits and the remaining deposits to be made prior to the next succeeding Bond Payment Date, will be less than the sum required to effect the payment of the next succeeding installment of either principal or interest, or both on the respective Series of Bonds, as the case may be, a sum equal to such deficiency shall be added to the deposits so to be made. All earnings from moneys in a particular Debt Service Fund shall become a part of such Debt Service Fund and shall be credited against payments which otherwise would be required to be made from the General Revenue Fund as described in this paragraph. Debt Service Reserve Funds. The Bond Ordinance provides that each Series Ordinance may provide for the establishment of a Debt Service Reserve Fund for each Series of Bonds. There will be no Debt Service Reserve Fund for the Series 2015 Bonds. Amendment of Bond Ordinance The City Council enacted an ordinance ( Amendatory Ordinance ) on June 5, 2007 which provided for certain amendments to the Bond Ordinance. Some of the amendments will become effective only upon the occurrence of certain events, as specified in the Amendatory Ordinance. Upon such effective date, the Holders of the Series 2015 Bonds shall be subject to the provisions of the Amendatory Ordinance. Such amendments will modify, among other things, the disposition of revenues and funds established by the Bond Ordinance and the remedies available under the Ordinance upon an event of default thereunder. A summary of certain provisions of the Amendatory Ordinance appears in APPENDIX C under the heading AMENDATORY ORDINANCE. Additional Bonds The Bond Ordinance provides that additional indebtedness may be issued on a parity with the Series 2015 Bonds and the Parity Obligations ( Additional Bonds ) for any one or more of the following purposes: (a) obtaining funds for the expansion and improvement of the System; (b) providing funds for the payment of any bond anticipation note or notes that may have been issued in anticipation of the issuance and sale of Bonds; (c) refunding Bonds or other obligations issued to provide land or facilities which are or are to become a part of the System or which are or were payable in whole or in part from revenues of the System; (d) providing funds for the payment of 7

16 interest due on such Bonds; (e) funding, or otherwise providing for, the Debt Service Reserve Funds or restoring the value of the cash and securities in any Debt Service Reserve Fund to an amount equal to the applicable Reserve Requirement; and (f) paying the costs of issuance of Bonds, including any credit enhancement therefor. The issuance of such Additional Bonds is subject to certain provisions set forth in the Bond Ordinance, which include: (1) There shall exist, on the occasion of the issuance of the Additional Bonds, no default in the payment of the principal of or interest on any Bonds or any Junior Lien Bonds then Outstanding; (2) Unless on the date of delivery of the Additional Bonds there shall be on deposit in each Debt Service Reserve Fund an amount equal to the applicable Reserve Requirement, there shall be deposited in each Debt Service Reserve Fund such amounts as may be necessary to make the value of the moneys and securities in each Debt Service Reserve Fund equal to the applicable Reserve Requirement, unless: (a) the Series Ordinance or any previous Series Ordinance shall have provided for successive monthly payments beginning in the first month following the date of the issuance of the Bonds of any such Series in substantially equal monthly amounts (the Monthly Series Payments ) so that by the end of the period so determined by the Series Ordinance there shall be in the applicable Debt Service Reserve Fund an amount equal to the applicable Reserve Requirement with respect to such Bonds; and (b) been made. there shall be no unremedied defaults of any Monthly Series Payments required to have (3) Except in the case of Additional Bonds issued for the purpose of refunding any Bonds which meets the test described under paragraph (4) herein: (a) Net Earnings during the most recent Fiscal Year for which audited financial statements of the System are completed shall be certified by the Chief Financial Officer, the Accountants or the Feasibility Consultants (as such terms are defined in Appendix C) on the basis of such audited financial statements to be not less than 120% of the maximum Annual Principal and Interest Requirements on all Bonds Outstanding and on such proposed Additional Bonds; provided that in accordance with the Bond Ordinance, such Net Earnings may be adjusted to reflect: (i) (ii) (iii) any rate increases currently adopted and to be in effect prior to or coincident with the issuance of the proposed Additional Bonds and determined pro forma as though such rate increases had been in continuous effect during such recent Fiscal Year; in the event proceeds of the proposed Additional Bonds will be used to acquire a water or sewer utility, system or enterprise that is in existence and operating and whose current customers will become customers of the System upon such acquisition, 100% of the estimated Net Earnings to be received by the System during the Fiscal Year following the date of issuance of the proposed Additional Bonds, as certified by the Accountants or the Feasibility Consultants, from the utility, system or enterprise to be acquired with the proceeds of the Additional Bonds, taking into account for the estimation of such Net Earnings in this clause (ii) only the then-existing customer base and population of the acquired utility, system or enterprise; in the event proceeds of the proposed Additional Bonds will be used to construct or to acquire a newly-constructed water or sewer utility, system, enterprise, or component of the System which will serve a currently-populated area, 100% of the Net Earnings, estimated by the Accountants or the Feasibility Consultants, to be received by the System during the first Fiscal Year beginning after the earlier of (a) the date on which the project constructed or acquired with the proceeds of the proposed Additional Bonds is placed in service or (b) the third anniversary 8

17 of the date of delivery of the proposed Additional Bonds, from the newlyconstructed or to-be-constructed utility, system, enterprise, or component of the System, taking into account for the estimation of such Net Earnings in this clause (iii) only the then-existing customer base and population; (iv) (v) in the event proceeds of such proposed Additional Bonds will be used to pay interest on such proposed Additional Bonds, 100% of the interest that will accrue on such Additional Bonds during the first 12 full months following the date of delivery of the proposed Additional Bonds and that will be paid from such proceeds, provided however that any such interest accruing in such 12- month period that is to be paid on a date within the Fiscal Year of maximum Annual Principal and Interest Requirements shall not be so added into such Net Earnings; and in the event proceeds of such proposed Series are to be used to construct or to acquire an expansion to the System, and to the extent not included by clause (iii), 100% of estimated Net Earnings to be received by the System in the first Fiscal Year following the completion of such project, certified by the Accountants or the Feasibility Consultants, from customers under long-term contracts which extend for the life of such proposed Additional Bonds; or (b) (i) Net Earnings during the most recent Fiscal Year for which audited financial statements of the System are completed shall be certified by the Chief Financial Officer, the Accountants or the Feasibility Consultants on the basis of such audited financial statements to be not less than 120% of the Annual Principal and Interest Requirements during such Fiscal Year on all Bonds Outstanding; provided that for purposes of this subparagraph (b)(i), such Net Earnings may be adjusted to reflect (1) any rate increases currently adopted and to be in effect prior to or coincident with the issuance of such proposed Series of Bonds and determined pro forma as though such rate increases had been in continuous effect during such recent Fiscal Year; and (2) in the event a utility, system or enterprise has been or is being acquired by the System other than from the proceeds of the proposed Series of Bonds and whose current customers have become customers of the System prior to the issuance of the proposed Series of Bonds or will become customers of the System concurrently with the issuance of such proposed Series of Bonds, 100% of the Net Earnings estimated by the Accountants or Feasibility Consultants that would have been received by the System during such Fiscal Year if the utility, system or enterprise had been a part of the System during such recent Fiscal Year, taking into account for the estimation of such Net Earnings in this paragraph (2) only the then-existing customer base and population of the acquired utility, system or enterprise; and (ii) For each of the five Fiscal Years following the later of the date of the delivery of the proposed Additional Bonds, or the period (if any) for which interest is funded from the proceeds of the Additional Bonds, Net Earnings, as shall have been forecasted by the Accountants or the Feasibility Consultants, will not be less than 120% of the Annual Principal and Interest Requirements on all Bonds then proposed to be Outstanding in each of such five Fiscal Years. The Bond Ordinance provides that if an issue of Additional Bonds is in the aggregate principal amount of $2,500,000 or less, the calculation required by paragraph (3) described above may be made by the Chief Financial Officer. In connection with the issuance of a proposed Series of Bonds, the Bond Ordinance also provides that the City may, in its discretion, provide for a special audit and a certification based upon such special audit, in lieu of the audit for 9

18 such Fiscal Year, provided such special audit covers 12 consecutive calendar months of the 18 full consecutive calendar months preceding the date of issuance of the proposed Series of Bonds. (4) In the case of Additional Bonds issued for the purpose of refunding any Bonds, either of the Net Earnings tests prescribed in subparagraphs (a) and (b) of paragraph (3) above shall be satisfied or the Annual Principal and Interest Requirements of the Additional Bonds shall not exceed 110% of the Annual Principal and Interest Requirements of the refunded Bonds for any Fiscal Year until a time subsequent to the last maturity of Bonds which were Outstanding prior to, and which remain Outstanding following, the issuance of the Additional Bonds. (5) If any Series of Additional Bonds contains Variable Rate Bonds (as such term is defined in Appendix C): (a) the Series Ordinance for such Additional Bonds shall provide for and specify a maximum interest rate on (A) such Additional Bonds and (B) any reimbursement obligation to a liquidity provider for such Additional Bonds; (b) the liquidity provider, if any, for such Additional Bonds shall be rated in one of the two highest short-term rating categories by any rating agencies then rating such liquidity provider; and (c) any accelerated principal payments or any interest computed at a rate in excess of that on such Additional Bonds due to the liquidity provider for such Additional Bonds pursuant to any reimbursement agreement with such liquidity provider shall be subordinate to the payment of debt service on all Bonds; provided, however, if either of the tests described in paragraphs (3) or (4) above (as applicable) is calculated (and met) assuming such accelerated principal payment and such excess interest amount to the liquidity provider, then such accelerated principal payment and excess interest amount may be on a parity with the payment of debt service on all Bonds. (6) All amounts owing under a reimbursement agreement with any provider of a surety bond, insurance policy, letter of credit or other funding instrument used to fund a Debt Service Reserve Fund shall have been paid. Junior Lien Bonds Notwithstanding that Bonds may be Outstanding, the City may, at any time, and without limitation and free of all conditions issue Junior Lien Bonds, in such amount as it may from time to time determine, payable from the revenues of the System, provided that the pledge of revenues and any lien upon the revenues of the System granted for the protection of said Junior Lien Bonds, shall at all times be and remain subordinate and inferior in all respects to the pledges of revenues and liens upon such revenues made or authorized for the Bonds. Such Junior Lien Bonds may, under certain circumstances specified in the Bond Ordinance, accede to the status of Bonds as defined in the Bond Ordinance. See APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE BOND ORDINANCE, THE SERIES 2015 ORDINANCE AND THE SERIES 2007 ORDINANCE - The Bond Ordinance Additional Obligations Junior Lien Bonds. Special Facilities Bonds The City at all times has the right to enter into contracts, leases or other agreements pursuant to which it will agree to construct, operate and pay the costs of special facilities, which may include all or a portion of water and sewer facilities as well as other utility facilities as may be permitted under state law, and rights to all or a portion of the use of, or the capacity available from, any such facilities (collectively, Special Facilities ) to be financed by its issuance of certain obligations (the Special Facilities Bonds ), provided that (a) to the satisfaction of the City, it is determined that the rents, revenues and receipts from the Special Facilities will be at least equal to the principal, interest and reserve requirements required by the authorizing ordinance for such bonds, as well as all operation, maintenance and other costs and expenses applicable to such facilities and (b) although the City need not deposit the 10

19 revenues derived from Special Facilities into the General Revenue Fund, and may pledge such revenues to secure Special Facilities Bonds, it may not make a payment for debt service or other costs or expenses applicable to the Special Facilities from System revenues deposited in the General Revenue Fund unless from surplus money remaining after making (i) payments into all funds established by the Bond Ordinance, (ii) payments of interest and any fees or penalties on amounts advanced by a provider of any surety bond, insurance policy, letter of credit or other funding instrument issued to satisfy a Reserve Requirement pursuant to the provisions of the Bond Ordinance described under the caption Disposition of Revenues and Funds Established by the Bond Ordinance Debt Service Reserve Funds above and (iii) payments of the Junior Lien Bonds. Lease Financing Agreements The City shall have at all times the right to enter into capital leases or other lease financing agreements secured by a lien on the property, plant and equipment comprising a part of the System; provided, however, that the aggregate principal amount of such obligations outstanding at any time shall not exceed 10% of the property, plant and equipment of the System less accumulated depreciation as shown on the audited balance sheet of the City for the most recent Fiscal Year for which audited financial statements are available. A portion of the proceeds of the Series 2015 Bonds will be used to defray all or a portion of the costs of (i) maintaining, improving, and replacing certain water and sewer lines of the System; (ii) completing a SCADA system upgrade, the total costs of which are expected to be approximately $400,000; (iii) maintaining and replacing all of water meters within the System and installing an automated meter reading system, the total costs of which are expected to be approximately $10 million; (iv) constructing a new water treatment plant with a capacity of 4 MGD to serve the southern part of the City s service area, the total costs of which are expected to be $19 million; and (v) various improvements to the City s existing water treatment plants, possibly including the installation of a new reservoir (collectively, the Projects ). The total expected costs of the Projects exceed the expected proceeds of the Series 2015 Bonds. The City will fund the remaining costs of the Projects from sources including the System s capital reserve fund, a 1% sales tax imposed in Sumter County, and federal and state grants. A portion of the proceeds of the Series 2015 Bonds will be used to defease and advance refund the Refunded Bonds. Such proceeds will be deposited with The Bank of New York Mellon Trust Company, N.A. (the Escrow Agent ) and held in trust pursuant to an escrow deposit agreement and applied to the prepayment of such Refunded Bonds on December 1,

20 The following table sets forth the sources of funds to be derived from the issuance and sale of the Series 2015 Bonds and the uses of such funds: Sources of Funds Principal Amount of Series 2015 Bonds $52,670, Net Original Issue Premium 2,501, Trustee Held Funds 190, Additional Equity Contribution 250, Total Estimated Sources $55,611, Uses of Funds Deposit to Construction Fund $28,863, Deposit to Escrow Fund 26,210, Expenses of Issuance (1) 537, Total Estimated Uses $55,611, (1) Including Underwriter's discount, legal, printing, consulting, rating and miscellaneous fees. Five-Year Summary A summary of revenues and expenses of the System for the past five fiscal years is provided in the following table. This summary has been derived from, and should be read together with, the audited financial statements of the City and the related notes. Certain excerpted information from the City s Annual Financial Report for Fiscal Year ended June 30, 2014, is attached as Appendix B. Fiscal Year Ended June 30, Revenues Charge for Services: Water $ 8,877,108 $ 9,972,348 $ 9,513,634 $ 9,689,815 $ 9,783,266 Sewer 8,177,676 8,954,551 8,791,276 8,957,356 9,127,112 Other Operating Income 1,563,671 1,329,297 1,456,136 1,540,630 1,602,206 Total Revenues $18,618,455 $20,256,196 $19,761,046 $20,187,801 $20,512,584 Expenses Salaries, Wages and Benefits $ 4,451,949 $ 4,283,297 $ 4,876,362 $ 5,014,269 $ 5,515,598 Other Operating Expenses 4,210,615 4,468,634 4,406,191 4,112,238 4,492,138 Heat, Lights and Power 2,092,038 2,007,124 1,871,267 1,872,118 1,871,554 Bad Debts 421, , , , ,032 Depreciation 3,042,147 3,449,056 3,462,941 3,510,486 3,425,397 Non-operating Expense (1) 1,736,147 1,557,050 1,648,518 1,923, ,260 Total Expenses $15,954,685 $16,084,486 $16,726,396 $16,855,750 $16,668,979 Net Income $ 2,663,770 $ 4,171,710 $ 3,034,650 $ 3,332,051 $ 3,843,605 (1) Non-operating expenses consist principally of interest on debt payable from System revenues. 12

21 Summary of Historical Revenues and Expenses of the System The following table sets forth the historical revenues and expenses of the System for the last five Fiscal Years. For purposes of this summary, Gross Revenues and Net Earnings have been determined in accordance with the provisions of the Bond Ordinance. Debt service is based on actual debt service of applicable revenue bonds. Net Earnings and Debt Service Coverage Fiscal Years ended June 30, 2010 through Gross Revenues $18,618,455 $20,256,196 $19,761,046 $20,187,801 $20,512,584 Expenses (1) 11,176,391 11,078,380 11,614,937 11,421,967 12,245,322 Net Earnings 7,442,064 9,177,816 8,146,109 8,765,834 8,267,262 Actual Debt Service 3,556,539 3,517,944 3,504,913 3,500,028 3,476,446 Debt Service Coverage 2.09x 2.61x 2.32x 2.50x 2.38x (1) Total expenses exclusive of depreciation, amortization of bond issue costs, and interest expense. Summary of Projected Revenues and Expenses of the System The following table sets forth the projected revenues and expenses of the System for Fiscal Years ended June 30, 2016 through 2020, as prepared by Willdan Financial Services, the City s rate consultant. For purposes of this summary, Gross Revenues and Net Earnings have been determined in accordance with the provisions of the Bond Ordinance. Debt service is based on the actual debt service of the Parity Obligations and the Series 2015 Bonds. There can be no assurance that the projected coverage will be realized or that actual results will not differ materially from those projected. Net Earnings and Debt Service Coverage Fiscal Years ended June 30, 2016 through Gross Revenues (1) $21,345,298 $21,864,200 $22,440,190 $22,995,000 $23,557,550 Expenses (2) 13,232,252 13,663,050 14,113,050 14,580,830 15,067,530 Net Earnings 8,113,046 8,201,150 8,327,140 8,414,170 8,490,020 Actual Debt Service 3,898,987 4,898,810 4,900,235 4,898,986 3,936,518 Debt Service Coverage 2.08x 1.67x 1.70x 1.72x 2.16x (1) The projected Gross Revenues assume no increases in water rates and a 2.50% annual increase in sewer rates during the 5 year projection period. The 2.50% increases in sewer rates for Fiscal Years 2016, 2017 and 2018 were approved by City Council on September 3, The water and sewer customer base is assumed to grow annually by an average of 0.47% and 0.56%, respectively. The projected metered/billable water and sewer flows are based on historical trends with regard to the average flow per user for each customer class. Such trends are developed from historical customer data and are assumed to remain relatively constant for the five year projection period. The Gross Revenues, in the aggregate, are assumed to increase annually between 2.43% and 2.63%. (2) Based on a review of the budget on a line by line basis, the expenses of operating and maintain the System are assumed, in the aggregate, to increase annually between 3.31% and 3.44%. The expenses include an indirect cost in the amount of $2,046,260 which the System annually pays to the City for services provided to the System by other City departments. 13

22 Summary of Unaudited Recent Operating Results The following table reflects the unaudited revenues and expenses for the System for the ten-month period ended April 30, 2015, as compiled by the City with a comparison to the ten-month period ended April 30, Ten Months Ended April 30, 2015 April 30, 2014 Revenues Charge for Services: Water $ 8,157,329 $ 7,951,614 Sewer 8,071,797 7,546,847 Other Operating Income 1,242,203 1,334,068 Non-Operating Income 614, ,835 Total Revenues $18,086,205 $17,048,364 Expenses Salaries, Wages and Benefits $ 4,359,922 $ 4,310,534 Other Operating Expenses 3,780,906 3,338,615 Heat, Lights and Power 1,694,259 1,443,972 Bad Debts 171, ,911 Depreciation 2,854,498 2,854,498 Non-operating Expense 1,723,984 1,980,557 Total Expenses $14,584,906 $14,120,087 Net Income $ 3,501,299 $ 2,928,277 Management s Discussion and Analysis Total revenues increased by 1.6% from $20.19 million in 2013 to $20.51 million in The revenue increase was partly due to rate increases effective July 1, The City increased water and sewer rates effective July 1, 2015 and will implement the next approved rate increases effective July 1, 2016 and July 1, Total expenses decreased by 1.1% from $16.86 million in 2013 to $16.67 million in Unaudited revenues through April 2015 totaled $18.09 million, representing an increase of $1.04 million over the same period in Unaudited expenses through April 2015 totaled $14.58 million, compared to $14.12 million, representing an increase of $464,819 over the same period in General Fund Transfers The City has established a policy through the adoption of a resolution with respect to the transfer of money from the System to the City s general fund. The resolution provides that the aggregate amount of discretionary transfers from the System to the City s general fund (exclusive of allocated indirect cost recoveries that are reflected as expenses of the System) in any given Fiscal Year may not exceed five percent of the gross revenues of the System without the approval of the City Council of the City. For the past four Fiscal Years, such general fund transfers have ranged from 5.39% to 7.35%. The City has historically made such transfers in accordance with all applicable laws and covenants governing the City s bonded indebtedness upon the recommendation of the City Manager. The following table sets forth such transfers made in the last five Fiscal Years: 14

23 Fiscal Year Percentage of Budgeted Percentage of Actual Ended June 30 Transfer Amount Gross Revenues Gross Revenues 2010 $ 841, % 4.49% ,101, ,184, ,178, ,557, Budgeted Revenues and Expenses of the System The following table sets forth the revenues and expenses of the System which were budgeted for the Fiscal Years ending June 30, 2015 and Outstanding Debt Fiscal Year ending Fiscal Year ending June 30, 2015 June 30, 2016 Revenues Water Sales $ 9,700,000 $ 9,700,000 Sewer Sales 9,200,000 9,895,800 Connection Fees 300, ,900 Late Charge/Penalties 730, ,370 Fire Protection Charges 78,500 78,500 Bill/Collection Fees 35,500 36,950 Tipping Fee/Sludge Sale 22,500 22,000 Bad Debt Recovery 56,500 69,000 Interest Income/Depreciation Fund 10,000 6,605 Interest Income (Other) 5,000 5,000 Application Fee 97, ,100 Management Fees 25,000 25,000 Debt Set-off 65,000 65,000 Miscellaneous 9,000 4,000 Rental on Property 80,000 80,000 Mayesville System Revenues 210, ,507 Total Revenues $20,624,600 $21,223,732 Expenses Administration $ 5,322,117 $ 5,364,867 Utility Finance 1,737,186 1,864,390 Water and Sewer Distribution 3,606,803 3,838,927 Mechanical Maintenance 596, ,810 Water Plants 2,794,157 2,970,636 Sewer Plants 3,228,620 3,220,346 Electrical Maintenance 209, ,908 Engineering 484, ,614 Debt Service 1,444,280 1,360,040 Other Post-Employment Benefits 203, ,334 Other 7,500 10,000 Contributions to Capital Reserve 800, ,000 Mayesville System Expenses 189, ,860 Total Expenses $20,624,600 $21,223,732 The City has outstanding two categories of debt, which consist of general obligation debt and revenue debt. The City has no outstanding general obligation debt issued for System purposes or for which the revenues of the System are pledged. Subsequent to the issuance of the Series 2015 Bonds, the revenues of the System will be 15

24 pledged (in addition to the Series 2015 Bonds) to the Parity Obligations, which term is defined to include the Series 2000 Bond, the Series 2007 Bonds and the Series 2010 Bond described below. Revenue Debt Series 2000 Bond. On October 16, 2000, the City issued its $815,000 principal amount Series 2000 Waterworks and Sewer System Improvement and Refunding Revenue Bond (the Series 2000 Bond ). The proceeds of the Series 2000 Bond were used to finance the cost of acquiring the Waterworks and Sewer System of the Town of Mayesville, South Carolina. The Series 2000 Bond bears interest at a rate of 5.29%, and has a final maturity of June 1, The Series 2000 Bond is held by Bank of America, N.A., and as of July 1, 2015, $282,427 in principal amount of the Series 2000 Bond was outstanding. Series 2007 Bonds. On June 20, 2007, the City issued the $31,855,000 principal amount of Series 2007 Waterworks and Sewer System Improvement Revenue Bonds (the Series 2007 Bonds ). The proceeds of the Series 2007 Bonds were expended to defray the cost of certain improvements to the Waterworks and Sewer System, to satisfy the debt service reserve requirement for the Series 2007 Bonds through the purchase of a surety bond, to pay interest on the Series 2007 Bonds through June 1, 2009, and to pay for certain costs and expenses incurred in connection with the issuance of the Series 2007 Bonds, including premium on the municipal bond insurance policy The Series 2007 Bonds maturing in the years 2018 through 2032, inclusive, will be defeased with a portion of proceeds of the Series 2015 Bonds. Following the issuance of the Series 2015 Bonds, $3,005,000 in principal amount of the Series 2007 Bonds will be outstanding. The unrefunded Series 2007 Bonds bear interest at rates from 4.00% to 5.00% depending upon date of maturity, and have a final maturity of December 1, Series 2010 Bond. On December 23, 2010, the City issued the $7,018,000 principal amount of Series 2010 Waterworks and Sewer System Refunding Revenue Bond (the Series 2010 Bond ). The proceeds of the Series 2010 Bond were expended to redeem the original principal amount $11,243,435 Waterworks and Sewer System Revenue Bond, Series 1995 and $6,015,000 Waterworks and Sewer System Improvement Revenue Bonds, Series 1999, and to pay for certain costs and expenses incurred in connection with the issuance of the Series 2010 Bond. The Series 2010 Bond currently bears interest at a rate of 2.99% and has a final maturity of June 1, The Series 2010 Bond is held by Branch Banking and Trust Company and as of July 1, 2015, $3,567,381 in principal amount of the Series 2010 Bond was outstanding. The pledge and lien on that portion of the Gross Revenues of the System securing the Series 2015 Bonds is on a parity in all respects with the pledge and lien securing the Series 2000 Bond, the Series 2007 Bonds and the Series 2010 Bond. General Obligation Debt The City had outstanding, as of June 30, 2015 a total aggregate of $2,714,307 general obligation bonds for which ad valorem tax revenues are pledged, comprising the following issues: (1) $930,000 of an original issue of $2,000,000 General Obligation Bond, Series 2010, dated April 13, (2) $719,260 of an original issue of $1,000,000 General Obligation Bond, Series 2011, dated October 5, (3) $1,065,047 of an original issue of $1,500,000 General Obligation Bonds, Series 2012, dated June 6, Under the applicable debt limitation provisions of Article X of the South Carolina Constitution, every incorporated municipality has the power, in such manner and upon such terms and conditions as the General Assembly shall prescribe by general law (a) to incur general obligation debt authorized by a majority vote of the qualified electors thereof voting in a referendum, without limitations as to amount and (b) to incur, without an election, debt, in addition to bonded indebtedness existing on November 30, 1977 and bonded indebtedness authorized by a majority vote of qualified electors, in an amount not exceeding 8% of the assessed value of all 16

25 taxable property located therein. As of June 30, 2014, the estimated total assessed value of property taxable for the benefit of the City was not less than $132,240,000, and 8% of such amount is approximately $10,579,200. The City currently has outstanding, general obligation debt in the aggregate principal amount of $2,714,307, none of which was issued pursuant to referendum. Therefore, the City may presently issue without a referendum approximately $7,864,893 of additional general obligation debt. The City purchases certain fixed assets through the use of lease purchase agreements. The City currently has outstanding such lease purchase obligations (the Lease Purchase Obligations ) in the aggregate principal amount of $2,783,639. These Lease Purchase Obligations are subject to annual appropriation by the City, and were issued in connection with certain rolling stock and other equipment used by the City. Hospitality Fee Revenue Bonds The City has issued an original principal amount of $1,734,000 Hospitality Fee Revenue Bond, Series 2011, dated August 5, 2011 (the Hospitality Fee Revenue Bond ), in order to fund construction projects which will enhance tourism. The Hospitality Fee Revenue Bond bears interest at the rate of 2.04% and matures on August 1, Notes The City has issued an original principal amount of $843,000 note payable to the United States Department of Housing and Urban Development to finance various development projects. The note bears interest at the rate of 4.5% and maturing August Tax Increment Financing Bonds The City expects to issue tax increment financing bonds during Fiscal Year 2016 in the principal amount of not exceeding $5,000,000. Such bonds may be secured by a junior lien pledge of that portion of the gross revenues of the System that remains after paying the cost of the operation and maintenance of the System. Such pledge would be junior and subordinate to the pledge of that portion of the gross revenues of the System that remains after the costs of the operation and maintenance of the System securing the Parity Obligations, the Series 2015 Bonds and Additional Bonds. 17

26 Debt Service Requirements of the System The following table sets forth the debt service requirements for the designated Fiscal Years for the Parity Obligations and the Series 2015 Bonds. Fiscal Year Series 2015 Bonds Parity Obligations* Principal Interest Total Total Debt Service 2016 $2,537,032 $ 1,361,956 $ 1,361,956 $ 3,898, ,097,510 $ 895,000 1,906,300 2,801,300 4,898, ,096, ,000 1,878,850 2,803,850 4,900, ,025,261 2,065,000 1,808,725 3,873,725 4,898, ,768 2,135,000 1,735,750 3,870,750 3,936, ,190,000 1,687,025 3,877,025 3,877, ,240,000 1,631,650 3,871,650 3,871, ,330,000 1,545,400 3,875,400 3,875, ,415,000 1,453,944 3,868,944 3,868, ,490,000 1,383,388 3,873,388 3,873, ,570,000 1,304,275 3,874,275 3,874, ,660,000 1,215,963 3,875,963 3,875, ,760,000 1,114,213 3,874,213 3,874, ,860,000 1,016,113 3,876,113 3,876, ,945, ,197 3,872,197 3,872, ,040, ,781 3,871,781 3,871, ,145, ,275 3,876,275 3,876, ,245, ,409 3,870,409 3,870, ,225, ,025 1,765,025 1,765, ,290, ,150 1,767,150 1,767, ,355, ,025 1,766,025 1,766, ,425, ,525 1,766,525 1,766, ,500, ,400 1,768,400 1,768, ,575, ,525 1,766,525 1,766, ,655, ,775 1,765,775 1,765, ,735,000 34,700 1,769,700 1,769,700 Totals $7,821,956 $52,670,000 $26,534,337 $79,204,337 $87,026,923 *Excludes the debt service on the Refunded Bonds; includes the released Trustee-held funds and the City's equity contribution for the escrow fund for the Refunded Bonds. Note: Totals may not add due to rounding. Employee Benefits; Post-Employment Benefits City employees participate in either the South Carolina Retirement System (the Retirement System ) or the South Carolina Police Officers Retirement System ( PORS ), depending on their particular duties. Each plan is administered by the Retirement System and is classified as a cost-sharing, multiple-employer defined benefit plan established by the State of South Carolina and administered by the South Carolina Public Employee Benefit Authority ( PEBA ). Retirement System and PORS members are required to contribute 8.16% and 8.74% of their annual covered salaries, respectively, while the City contributes an additional amount based on a percentage share of the employees gross income. During the Fiscal Years ended June 30, 2014, 2013 and 2012, the City contributions to the Retirement System and PORS were $2,210,752, $2,042,353 and $1,904,603. The City also provides health, dental, life, and disability insurance programs to its employees through PEBA. During the Fiscal Years ended June 30, 2014 and 2013, the City contributions for health, dental and other insurance benefits were $2,931,154 and $2,651,

27 The City provides post-retirement healthcare insurance to eligible retirees. The City s personnel policy provides lifetime benefits for retirees who retired on or before July 1, 2008, with at least 20 years of City service. Employees who retire after such date are eligible for benefits to age 65, depending on their years of service to the City as of July 1, The City has retained the right to modify its payments for employee and retiree health care benefits. The City establishes its contribution requirement annually. Retirees participating in the plan are not required to contribute to the cost of coverage. For fiscal year 2014, the City contributed $316,008 for current year insurance premiums for eligible retirees and an additional $659,901 to amortize its unfunded liability. As of July 1, 2013, the most recently completed valuation, the City s unfunded actuarial accrued liability, assuming a 4% discount rate, was $14,931,788. GASB Statement No. 68 GASB Statement No. 68 ( GASB 68 ) was issued by the Government Accounting Standards Board in June The objectives of GASB 68 include improved accounting and financial reporting by state and local governments for pensions, and improved information provided by state and local government employers about financial support for pensions that is provided by other entities. State and local governments that participate in a cost-sharing multiple employer plan will be required to recognize a liability for their proportionate share of the net pension liability of that plan. Pursuant to GASB 68, the City will be required to report a net pension liability for its participation in the Retirement System on financial statements prepared on the economic resources measurement focus and accrual basis of accounting (i.e., the Statement of Net Position) and present more extensive note disclosures. Based on recent information provided by PEBA, it is estimated that the City s proportionate share of the net pension liability associated with the Retirement System and PORS will decrease the City s beginning unrestricted net position for the Fiscal Year ended June 30, 2015 by approximately $34,258,775. The City The City is a municipal corporation which, by virtue of an election on April 26, 1905, has the power to construct, purchase, maintain and operate a waterworks and sewer system. The City is governed in accordance with the Council-Manager form of government with a City Council consisting of a Mayor and six other council members. The City Council of the City, by resolution adopted on December 2, 1949, combined the then-existing waterworks system and the then-existing sewer system into the system that is currently known as the Waterworks and Sewer System of the City of Sumter (the System ). The System is a department of the City. The City Council is responsible for the operation of the System. In accordance with the Council-Manager form of government, the administrative duties of control and management of the City, including the System, have been delegated to the City Manager. Day-to-day operations and maintenance of the water plants, sewer plants, water supply needs and sewage collection mains are directed by the Assistant City Manager of Public Services. The Mayor and members of the City Council and their terms of office are as follows: Year First Elected to Member Occupation Current Position Joseph T. McElveen, Jr., Mayor Attorney 2000 Thomas J. Lowery, Mayor Pro Tem Retired, SC Dept. of Probation and Parole 2002 Ione J. Dwyer Retired Business Owner 2008 Robert A. Galiano Real Estate Development 1992 Calvin K. Hastie, Sr. Attorney 2010 David Merchant Business Owner 2012 Colleen Yates Community Activist

28 The Mayor, Joseph T. McElveen, Jr., was elected in November 2000 and is presently serving in his fourth term in office. Mr. McElveen has previously served in the South Carolina House of Representatives (the House of Representatives ) from 1986 to Before serving in the House of Representatives, Mr. McElveen served on City Council from 1984 until Mr. McElveen is a partner in the Sumter-based law firm Bahnmuller, Goldman, McElveen, Ford, Bultman & Rodriguez, P.A. The City Manager is Deron L. McCormick Mr. McCormick has worked for the City since 1995, having served in the position of Assistant City Manager and Finance Officer from 1997 to He was appointed to serve as City Manager in April, Mr. McCormick earned an Associate s Degree from USC-Sumter, a Bachelor s Degree in Finance from USC-Aiken, and a Master s Degree in Public Personnel Management from Troy State University. He has attended the National Security Forum at Air War College and is a graduate from the South Carolina Executive Institute, Leadership Sumter Class X, and the Tuomey Fellows program. From , he served as the President of the South Carolina City and County Management Association. The Assistant City Manager of Public Services is Ernest Al Harris. Mr. Harris has been employed with the City of Sumter for 37 years. During his employment, he has served as Assistant Superintendent of Water and Sewer, Director of Engineering, Public Services Director and is currently serving as Assistant City Manager of Public Services. Mr. Harris oversees the Public Services Department, which manages water and sewer distribution, public works, engineering, water treatment, wastewater treatment, mechanical maintenance, construction, electrical, parks, gardens, and sanitation. Public Services is the largest work group in the City of Sumter and is made up of twelve departments with more than 180 employees. Mr. Harris is a 1972 graduate of Central Carolina with a degree in Civil Engineering Technology. The General Counsel is Eric Shytle. He rejoined the City in 2013 after previously serving as Chief of Staff for the City from 2006 to From 1999 to 2006, and again from 2008 to 2013, Mr. Shytle was a public finance and local government attorney in private practice at Haynsworth Sinker Boyd, P.A., in Columbia, South Carolina. The Finance Director is Beth Reames. Mrs. Reames has worked for the City since 2003 and has served as Accountant and Accounting Manager and as of January 1, 2015 Finance Director. Mrs. Reames earned a Bachelors Degree in Business from USC-Coastal Carolina and became a Certified Government Finance Officer in She is a graduate of Leadership Sumter Class XXII. General Discussion of Service Territory The City The City has the exclusive right to provide water and sewer services inside its corporate limits. In addition, the City may provide water and sewer services to areas outside of its corporate limits except within designated service areas for such services of other municipalities, water and sewer authorities, other political subdivisions or not-for-profit water companies. A designated service area is defined as an area in which the particular service is being provided or is budgeted or funds have been applied for as certified by the governing body of such other entity. As provided in Title 33, Chapter 36 of the Code of Laws of South Carolina 1976, as amended, the service area of a not-for-profit water company is that shown in its articles of incorporation. Service to areas outside the City limits currently accounts for more than one-half of the revenues of the waterworks unit and a significant portion of the revenues of the sewer unit of the System. Eight of the ten largest industrial users of the waterworks unit and eight of the ten largest industrial users of the sewer unit are located outside the City limits. The County Sumter County, South Carolina (the County ) has the legal capacity to provide water and sewer services in the unincorporated areas of the County. The City and the County have previously entered into cooperative agreements with respect to such services in certain areas undertaken jointly by the City and the County, as discussed further below. The County has indicated to the City that it may desire to provide water or sewer services to certain areas of the County which are remote from the City, but would look to the City to provide administrative services in 20

29 connection therewith. In response, the City has offered to work with the County in future water and sewer ventures related to areas outside of its current or future service areas. The City does not anticipate that its present or potential service area will be affected by County action. Joint City/County Efforts On February 21, 1995, the City and County entered into a Memorandum of Understanding (the Memorandum of Understanding ) to facilitate the operation and maintenance of a portion of the System in designated areas of the County, which are designated in the Memorandum of Understanding as the Sumter City- County Water System (the City-County System ). In December 1995, the City acquired by purchase the assets and operations of the Rembert Rural Water Company, Inc. (the Rembert System ), which is currently operated jointly by the City and County. At the time of the acquisition, the Rembert System had approximately 125 customer accounts. In May of 2015, the City and the County each authorized, by separate ordinances, the transfer of the Rembert System to the High Hills Rural Water Company, Inc. ( High Hills ), a corporation-not-for profit whose service area completely surrounds the Rembert System. The transfer is expected to close in the third quarter of Other than the Rembert System, there are currently no material projects within the City-County System. Town of Mayesville Purchase On October 16, 2000, the Town of Mayesville ( Mayesville ) conveyed, pursuant to a referendum of the electors of Mayesville, title to its combined waterworks and sewer system (the Mayesville System ) to the City and granted to the City a 40-year exclusive franchise to provide waterworks and sewer service within Mayesville. As consideration for this conveyance and grant of an exclusive water and sewer franchise, the City repaid or otherwise defeased the outstanding bonded indebtedness of the Mayesville System and agreed to pay to Mayesville the total sum of $100,000 over a period of years. The City operates the Mayesville System as a part of the City s System and charges customers of the Mayesville System a rate equal to the prevailing outside-city rates. Pursuant to the consolidation agreement between the City and Mayesville, the City pays an annual franchise fee to Mayesville in the amount of 3% of the revenues directly attributable to the Mayesville System. As of June 30, 2014, the number of customers served by the City through the Mayesville System was 303. Competing Service Providers There are two rural water companies that provide service in areas near or contiguous to the present service area of the City. High Hills provides water to an area to the west of the City and west and south of Shaw Air Force Base. High Hills purchases treated water from the City and produces its own treated water for its system. The following table shows the total consumption by High Hills and amount the City billed High Hills for each month during Fiscal Year Billing Period Gallons of Consumption Amount Billed July ,054 $ 7,824 August ,802 16,988 September ,981 17,333 October ,097 17,557 November ,135 15,701 December ,176 11,920 January ,440 10,499 February ,008 9,665 March ,321 8,340 April ,616 8,909 May ,735 12,999 June ,751 24,609 21

30 The Oswego Rural Water Company, Inc. (the Oswego Water System ), which currently has approximately 1,100 customers and is east of the City, purchases treated water from the City at the inside-city rate. The City is responsible for operating, maintaining, billing, and collecting for the Oswego Water System. The City does not maintain a separate budgetary fund for the Oswego Water System, and accordingly audited financial information relating to the Oswego Water System is not available. According to the City s monthly remittance reports, however, revenues for water sold to the Oswego Water System in the Fiscal Year ended June 30, 2014 amounted to $92,734, and total fees charged for billing and collection were $35, Two special purpose districts also provide utility services in areas adjacent to the City s service area. The Wedgefield-Stateburg Rural Community Water District (the Wedgefield-Stateburg District ), which is located to the west of the City, has the authority to serve the communities of Wedgefield and Stateburg. The service area of the Dalzell Water District of Sumter County (the Dalzell Water District ) is located approximately eight miles to the west/northwest of the City. The Dalzell Water District serves the area in and surrounding the community of Dalzell, which includes the area surrounding the Green Tree Swamp. The City is responsible for operating, maintaining, billing, and collecting for the water system of the Dalzell Water District. Currently, the City operates the Dalzell System at cost, so that no additional revenues are derived by the System from the Dalzell System. The rural water companies and special purpose districts mentioned above impede the City s ability to expand its service area in certain directions. Specifically, the City is able to expand its service area only to the north, the east/southeast, the south and the southwest of the City. The City will not be able to freely expand (if at all) to the west/northwest, the northeast and the east of the City. The Waterworks Unit General The service area of the waterworks unit of the System includes all properties located within the corporate limits of the City, as well as unincorporated areas adjacent to the City, a 240-acre City/County-owned industrial park located south of the City (the Highway 15-South Industrial Park ), and a second 53-acre City/County-owned industrial park situated within one mile of the Highway 15-South Industrial Park (the Highway 521-South Industrial Park ). In January 2014, Continental Tire ( Continental Tire ) opened a manufacturing facility located in the highway 521-South Industrial Park. The plant employs 625 people now and is expected to hire another 200 before the end of For Fiscal Year 2014, Continental Tire was the seventh largest water customer and the tenth largest sewer customer of the System. The Black River Electric Cooperative has also established an industrial park, located adjacent to the City (the Black River Electric Cooperative Industrial Park ), which is served by the waterworks unit. The waterworks unit provides water to residential and commercial customers within its service area. The City s water supply is generated by 20 wells extending approximately 700 feet below ground level each operating at an average of 1,200 gallons per minute. Present water usage averages approximately 12 MGD. Because the present well yield is greater than the present usage, wells are rotated to obtain the desired quantity of water. The ground water from the wells is filtered to remove corrosive characteristics at five treatment plants which have a total capacity of 23 MGD. After treatment and disinfection, the water satisfies all current state and federal regulations for potable water. Storage facilities consist of five ground storage and eight elevated storage tanks with a total capacity of 8,500,000 gallons. 22

31 The following table shows the permitted capacity and year placed in service of each of the City s water treatment plants. Plant Year Placed in Service Permitted Capacity (MGD) 1 (1) (1)(2) Total: 24 (1) Filters upgraded and modified in (2) Expanded in 1977 with additional upgrade in The System has approximately 185 miles of water lines within the City limits and approximately 205 miles of lines outside the City limits, which lines range in diameter from six to sixteen inches. The City owns all of the pipes, tanks, pumping stations and water treatment facilities that it uses to distribute water to customers. The pipes and all other parts of the water delivery system are expected to have at least a 30-year average remaining useful life. The pipes are typically installed in rights-of-way owned by the City, the County, or the State of South Carolina. The City owns in fee simple the land on which the water system headquarters, treatment facilities, water tanks and pumping stations are located. The City experiences no significant line loss in comparison to industry standards. The City routinely studies and acts upon identifiable areas of the System to further decrease the amount of any such line loss. In 1997, Hayes, Seay, Mattern & Mattern, the City s consulting engineers, performed a master water study to report on the Middendorf and Black Creek Aquifers from which the City s deep wells draw. The report, which was updated in 2002, indicated that such aquifers will provide a sufficient water supply to the City for at least the next 20 years. The aquifers water levels have been monitored on a daily basis from 1998 to the present and no adverse effects were observed during this time. Studies of the aquifers have coincided with a severe drought period and studies indicated negligible reduction in the static as well as the pumping ground water levels. Water Customers The City provides water service to approximately 22,571 accounts, comprising 1,723 commercial accounts, 30 industrial accounts, and 20,818 residential accounts. The following table provides the numbers of customers (monitored accounts inside and outside the City limits), including residential, industrial and commercial, to which the City has supplied water for the past several fiscal years, as well as the average usage and peak usages for the years stated. Historical Water Customers Fiscal Year Inside City Outside City Total Average Usage (MGD) Peak Usage (MGD) ,134 6,534 19, ,187 6,548 19, ,781 7,239 21, ,405 7,622 22, ,888 7,359 22, ,037 7,435 22, ,179 7,337 22, ,577 7,445 23, ,743 7,458 23, ,402 7,485 22,

32 The table below provides further detail on the composition of the System s water customer base. The number of accounts shown in the table above is greater than the number of customers shown below because some commercial and industrial customers maintain multiple accounts for the same service location. Water Customer Type Number of Customers Inside Residential 14,009 Inside Commercial 1,527 Inside Industrial 14 Total Inside 15,550 Outside Residential 6,809 Outside Commercial 197 Outside Industrial 15 Total Outside 7,021 Total Water 22,571 Ten Largest Water Customers Fiscal Year 2014 Customer Type Gallons of Consumption Residential 1,358,632,826 Commercial 538,039,391 Industrial 1,278,393,308 Total Consumption 3,175,065,525 The following table provides the ten largest customers of the City s waterworks unit, the net billings to each, the usage of each, and the percentage of total water charge revenues represented by those net billings, for the fiscal year ended June 30, Except as otherwise noted, each of the users listed is located outside the City limits. Average Monthly Percentage Use (Thousands Of Total Water Customers Product of Gallons) Revenues Water Revenue Pilgrim's Pride Poultry Processing 50,461 $1,217, % Santee Print Textiles 30, , Peace Textiles (2 accts) Textiles 10, , Becton Dickinson Medical Supplies 3,550 91, EMS Chemicals 3,079 80, Tuomey (2 accts)* Healthcare 2,731 38, Continental Tire Manufacturing 2,135 35, Unifirst Uniform Laundry 1,977 53, Windsor City Mobile Home Park 1,963 49, Kaydon Manufacturing 1,330 38, Total 107,673 $2,606, % *In-City customers 24

33 Water Rates The current water rates charged by the City effective as of July 1, 2015 are set forth below: Base Meter Rates (Monthly) Size (inches) Inside City Outside City Mayesville 5/8 x 3/4 $ 9.50 $ $ N/A N/A N/A N/A N/A N/A N/A N/A , N/A , N/A Volumetric Rate per 1,000 Gallons Volume (gallons) Inside City Outside City Mayesville 0 50,000 $1.26 $2.52 $ ,001 1,000, ,000,001 50,000, Greater than 50,000, Charges for Fire Protection Within the corporate limits of the City there is a fire protection charge of $25.00 per year for each of the first five fire hydrants located on private property and $.10 per year each for the first 5,000 sprinkler heads, with no charge made for those in excess thereof. Outside the City limits, there is a fee of $37.50 per year for each of the first five fire hydrants, and $.15 per year each for the first 5,000 fire sprinkler heads, with no charge made for those in excess thereof. Customers are billed in August of each year for those charges in advance. Within the City limits, the charge for connections to the City s waterworks unit exclusively for fire protection through private fire hydrants or sprinkler systems is 150% of the actual cost of materials and connection of such taps. Those made outside the City are 200% of the actual cost. The Sewer Unit General The existing sewage disposal system of the City serves the entire area within the City limits as well as certain properties contiguous to the City limits, the Highway 521-South Industrial Park, the Highway 15-South Industrial Park and the Black River Electric Cooperative Industrial Park. The City has 250 miles of sewer lines ranging in diameter from eight to fifty-four inches, with strategically located lift stations. The entire service area for the sewer unit is served by the Pocotaligo Plant, with a treatment capacity of 24 MGD and a discharge limit of 15 MGD. Currently, the only discharge point from the Pocotaligo Plant is the Pocotaligo River, which has limited assimilative capacity. Accordingly, the City is subject to treatment and toxicity requirements which are stricter than those for utilities which discharge wastewater into bodies of water with greater assimilative capacities. The Pocotaligo Plant was placed in service in November 1977, with a capacity of 6 MGD. Its capacity was increased to 12 MGD in May 1989, to 15 MGD in 1999, and to 24 MGD in The Pocotaligo Plant is currently treating an average daily flow of approximately 9 MGD and uses activated sludge and secondary treatment. The 25

34 South Carolina Department of Health and Environmental Control has issued the City NPDES discharge permits to discharge up to 9 MGD to the Wateree River and 15 MGD to the Pocotaligo River. The City owns the Pocotaligo Plant and all of the gravity mains and lift stations that it uses to operate the sewer unit. The mains are expected to have at least a 30-year average remaining useful life. The mains are typically installed in rights-of-way owned by the City, the County, or the State of South Carolina. Sewer Customers Currently, the City estimates that it provides sewage disposal for approximately 17,027 accounts, of which approximately 1,594 are commercial, approximately 61 are industrial, and approximately 15,372 are residential. The following table provides the number of accounts, including residential, industrial and commercial, to which the City has provided sewer service for the past several Fiscal Years. Sewer Customers Fiscal Year Inside City Outside City Total ,545 1,912 14, ,570 1,853 14, ,054 1,850 14, ,086 2,126 16, ,253 2,126 16, ,322 2,133 16, ,597 2,058 16, ,759 2,088 16, ,929 2,070 16, ,020 2,070 17,090 The table below provides further detail on the composition of the System s sewer customer base. The number of accounts shown in the table above is greater than the number of customers shown below because some commercial and industrial customers maintain multiple accounts for the same service location. Sewer Customer Type Number of Customers Inside Residential 13,658 Inside Commercial 1,367 Inside Industrial 9 Total Inside 15,034 Outside Residential 1,714 Outside Commercial 106 Outside Industrial 46 Total Outside 1,866 Total Sewer 16,900 26

35 Ten Largest Sewer Customers The following table presents the ten largest customers of the City s sewer unit, the net billings to each and the percentage of total sewer charges represented by those net billings for the fiscal year ended June 30, Except as otherwise noted, each of the users listed below is located outside of the City limits. Average Monthly Percentage Use (Thousands Of Total Sewer Customers Product of Gallons) Revenues Water Revenue Santee Print Textiles 24,366 $698, % Peace Textiles Textiles 5, , EMS -Chemie Chemicals 3, , Becton Dickinson Medical Supplies 2, , Tuomey Healthcare* Healthcare 2,731 75, Windsor City MHP Mobile Home Park 1, , Unifirst Uniform Laundry 1, , Kaydon Manufacturing 1,330 73, Caterpillar Manufacturing , Continental Tire Manufacturing , Total 44,812 $1,729, *In-City customer Wastewater Flows The following table shows the maximum permitted flows and the average annual and average peak monthly plant flows for the Pocotaligo Plant for the years ended June 30, 2005 through Year Actual Design (Permitted) Flow (MGD) Annual Average Flow (MGD) Daily Peak Flow (MGD) (15) (15) (15) (15) (15) (15) (15) (15) (15) (15)

36 Sewer Rates The current sewer rates charged by the City effective as of July 1, 2015 are set forth below: Base Meter Rates (Monthly) Size (inches) Inside City Outside City Mayesville 5/8 x 3/4 $ $ $ N/A N/A N/A N/A N/A N/A N/A Volumetric Rate per 1,000 Gallons Range* Volumetric Rate ($/1,000 Gal.) Total Charge ($/1,000 Gal.) Standard Units Inside City Outside City Strength Charge Inside City Outside City Mayesville $2.41 $4.82 $0.00 $2.41 $4.82 $ N/A N/A N/A N/A N/A N/A N/A Over 2000 Varies based on formula (Actual Strength 500 Std. Units) x $ *Based upon periodic measurement of sewage characteristics; all residential customers are classified in minimal standard range (0-600 standard units). Residential account volumes are capped at 15,000 gallons. The volumetric charges are added to the base meter rates in order to calculate the total monthly wastewater charge. Information General to the Waterworks Unit and the Sewer Unit Collections System customers are divided into seven billing cycles, 1, 2, 3, 4, 5, 10 and 20. Customers are allowed 20 days between billing and the due date. Cycles 1, 2, 10 and 20 are comprised of City customers. The cycle 1 and 10 accounts are usually billed by the thirtieth of the month and are due by the twenty-fifth of the following month. The cycle 2 and 20 accounts are usually billed by the fifteenth of the month and are due by the tenth of the following month. Cycle 3 consists of Oswego customers and is usually billed by the eleventh of the month with payments due on the tenth of the following month. Cycle 4 consists of Rembert customers, which is usually billed by the eighteenth of the month and is due by the seventeenth of the following month. Cycle 5 consists of Mayesville customers, which is usually billed by the thirtieth of the month and is due by the twenty-seventh of the following month. If accounts are not paid by the due date, a $5.00 late charge is added. No further action is taken until the account is billed again the following month. If it is not paid by the past due date, a second $5.00 late charge is added. A cut-off list, which includes all accounts that are 60 days past due, is worked after the past due date and before the account is billed again. When the cut-off list is prepared, the customer is required to pay the bill and a $25 penalty to continue service. 28

37 When a customer is disconnected for non-payment, his account is closed if he does not have the service restored within 15 working days. A final bill is mailed to the customer in each of the three following months unless sooner paid. Regulation of Rates The rates charged for water and sewer service by the City are established by City Council and not subject to supervision or regulation by any state bureau, board, commission, or like agency. Budget Procedure The City operates on a fiscal year that begins on each July 1 and ends on June 30 of the succeeding year. The budget, which is established by ordinance of City Council, is required to be completed prior to the beginning of the next succeeding Fiscal Year. Licenses DHEC has licensed the City to sell water and provide sewer services to customers within its service area. DHEC periodically monitors the quality of water provided to customers and treatment of wastewater. The City is not aware of any problems in water quality or wastewater treatment. No other licenses or approvals are necessary for the City to provide water or sewer services to its customers. Permit Compliance As noted above, the Pocotaligo River has limited assimilative capacity, and the City is accordingly subject to strict treatment and toxicity guidelines. As a result, the City has recently been subject to minor fines by DHEC for toxicity violations in its wastewater discharge. The amount of such fines to date has been immaterial, and the City is making concerted efforts in its industrial pretreatment program to rectify the toxicity issues. Among other things, the City is working with its engineers and environmental consultants to isolate, identify, and rectify the sources of the toxicity violations. The City does not expect these toxicity issues to have a material, detrimental effect on the City s ability to operate and maintain its System, or on the financial results of its operations. To date, the total amount of fines imposed by DHEC is less than $50,000. Capital Improvements From July, 2006, through June, 2015, the City invested approximately $10.3 million in capital improvements with respect to the System. These improvements included sewer and water system expansions designed to accommodate proposed industrial customers ($6.8 million); installation of one new well ($0.9 million); replacement of old water and sewer lines ($1.5 million); installation of three phases of a new SCADA water system ($0.6 million); installation of new pump stations and lines from south west and west area of the City; and other line rehabilitations. The City defrayed the cost of these capital expenditures principally through the proceeds of the Parity Obligations, internally generated funds, and state grants. The Projects comprise all of the City s expected capital improvements over the next five years. The City will prioritize individual components of the Projects as circumstances allow and need requires, and will fund the first components of the capital improvement plan from proceeds of the Series 2015 Bonds. The remaining components, as constructed or installed, will be funded from other sources including capital reserve fund balance and available System revenues. The City does not expect to issue Additional Bonds within the next five years. Federal Income Tax Generally On the date of issuance of the Series 2015 Bonds, Haynsworth Sinkler Boyd, P.A., Columbia, South Carolina ( Bond Counsel ), will render an opinion that, assuming continuing compliance by the City with the 29

38 requirements of the Internal Revenue Code of 1986, as amended (the Code ), and the applicable regulations promulgated thereunder (the Regulations ) and further subject to certain considerations described in Collateral Federal Tax Considerations below, under existing statutes, regulations and judicial decisions, interest on the Series 2015 Bonds is excludable from the gross income of the registered owners thereof for federal income tax purposes. Interest on the Series 2015 Bonds will not be treated as an item of tax preference in calculating the alternative minimum taxable income of individuals or corporations; however, interest on the Series 2015 Bonds will be included in the calculation of adjusted current earnings in determining the alternative minimum tax liability of corporations. The Code contains other provisions that could result in tax consequences, upon which no opinion will be rendered by Bond Counsel, as a result of (i) ownership of the Series 2015 Bonds or (ii) the inclusion in certain computations (including, without limitation those related to the corporate alternative minimum tax) of interest that is excluded from gross income. The opinion of Bond Counsel will be limited to matters relating to the authorization and validity of the Series 2015 Bonds and the tax-exempt status of interest on the Series 2015 Bonds as described herein. Bond Counsel makes no statement regarding the accuracy and completeness of this Official Statement. The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel's judgment as to the proper treatment of the Series 2015 Bonds for federal income tax purposes. Bond Counsel's opinions are based upon existing law, which is subject to change. Such opinions are further based on factual representations made to Bond Counsel as of the date thereof. Bond Counsel assumes no duty to update or supplement its opinions to reflect any facts or circumstances that may thereafter come to Bond Counsel's attention or to reflect any changes in law that may thereafter occur or become effective. Moreover, Bond Counsel's opinions are not a guarantee of a particular result, and are not binding on the Internal Revenue Service (the IRS ) or the courts; rather, such opinions represent Bond Counsel's professional judgment based on its review of existing law, and in reliance on the representations and covenants that it deems relevant to such opinions. The opinion of Bond Counsel described above is subject to the condition that the City comply with all requirements of the Code and the Regulations, including, without limitation, certain restrictions on the use, expenditure and investment of the gross proceeds of the Series 2015 Bonds and the obligation to rebate certain earnings on investments of such gross proceeds to the United States Government, that must be satisfied subsequent to the issuance of the Series 2015 Bonds in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The City has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Series 2015 Bonds in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2015 Bonds. The opinion of Bond Counsel delivered on the date of issuance of the Series 2015 Bonds is conditioned on compliance by the City with such requirements and Bond Counsel has not been retained to monitor compliance with the requirements subsequent to the issuance of such Series 2015 Bonds. Collateral Federal Tax Considerations Prospective purchasers of the Series 2015 Bonds should be aware that ownership of tax-exempt obligations may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, life insurance companies, certain foreign corporations, certain S corporations, individual recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations. The Series 2015 Bonds have not been designated bank qualified tax-exempt obligations under Section 265(b)(3) of the Code. Bond Counsel expresses no opinion concerning such collateral income tax consequences and prospective purchasers of Series 2015 Bonds should consult their tax advisors as to the applicability thereof. Future legislation, if enacted into law, or clarification of the Code may cause interest on the Series 2015 Bonds to be subject, directly or indirectly, to federal income taxation, or otherwise prevent owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such future legislation or clarification of the Code may also affect the market price for, or marketability of, the Series 2015 Bonds. Prospective purchasers of the Series 2015 Bonds should consult their own tax advisers regarding any pending or proposed federal tax legislation, as to which Bond Counsel expresses no opinion. 30

39 The IRS has established an ongoing program to audit tax-exempt obligations to determine whether interest on such obligations is includable in gross income for federal income tax purposes. Bond Counsel cannot predict whether the IRS will commence an audit of the Series 2015 Bonds. Bond Counsel's engagement with respect to the Series 2015 Bonds ends with the issuance of the Series 2015 Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the City or the Owners regarding the tax-exempt status of the Series 2015 Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the Issuer and their appointed counsel, including the Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the City legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Series 2015 Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Series 2015 Bonds, and may cause the City or the Owners to incur significant expense, regardless of the ultimate outcome. Under certain circumstances, the City may be obligated to disclose the commencement of an audit under the Continuing Disclosure Certificate. See CONTINUING DISCLOSURE herein. Original Issue Premium The Series 2015 Bonds maturing in the years 2016 through 2027, inclusive, and in the years 2033 through 2040, inclusive (collectively, the Premium Bonds ) have been sold at initial public offering prices which are greater than the amount payable at maturity. An amount equal to the excess of the purchase price of the Premium Bonds over their stated redemption prices at maturity constitutes premium on the Premium Bonds. A purchaser of a Premium Bond must amortize any premium over such Series 2015 Bond's term using constant yield principles, based on the purchaser's yield to maturity. As premium is amortized, the purchaser's basis in such Premium Bond is reduced by a corresponding amount, resulting in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Premium Bond prior to its maturity. Even though the purchaser's basis is reduced, no federal income tax deduction is allowed. Purchasers of any Series 2015 Bonds at a premium, whether at the time of initial issuance or subsequent thereto, should consult with their own tax advisors with respect to the determination and treatment of premium for federal income tax purposes and with respect to state and local tax consequences of owning such Premium Bonds. Original Issue Discount The Series 2015 Bonds maturing in the years 2028 through 2032, inclusive (collectively, the Discount Bonds ) have been sold at initial public offering prices which are less than the amount payable at maturity. The difference between the initial public offering prices to the public (excluding bond houses and brokers) at which price a substantial amount of each maturity of the Discount Bonds is sold and the amount payable at maturity constitutes original issue discount, which will be treated as interest on such Discount Bonds and to the extent properly allocable to particular owners who acquire such Discount Bonds at the initial offering thereof, will be excludable from gross income for federal income tax purposes to the same extent as other interest on the Series 2015 Bonds. As discount is accrued, the purchaser's basis in such Discount Bond is increased by a corresponding amount, resulting in a decrease in the gain (or an increase in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Discount Bond prior to its maturity. A portion of the original issue discount that accrues in each year to an owner of a Discount Bond that is a corporation will be included in the calculation of the corporation's federal alternative minimum tax liability. Consequently, an owner of any Discount Bond that is a corporation should be aware that the accrual of original issue discount in each year may result in an alternative minimum tax liability although the owner of such Discount Bond has not received cash attributable to such original issue discount in such year. The Code contains certain provisions relating to the accrual of original issue discount in the case of subsequent purchasers of obligations such as the Discount Bonds. Owners who do not purchase Discount Bonds in the initial offering at the initial offering price at which a substantial amount of such Discount Bonds were sold should consult their own tax advisors with respect to the tax consequences of the ownership of the Discount Bonds. 31

40 Owners who may acquire Bonds that are Discount Bonds should consult their tax advisors with respect to the determination for federal income tax purposes of the amount of original issue discount or interest properly accruable with respect to such Series 2015 Bonds, other tax consequences of owning Discount Bonds and the state and local tax consequences of owning Discount Bonds. State Tax Exemption Bond Counsel is of the further opinion that the Series 2015 Bonds and the interest thereon are exempt from all taxation by the State of South Carolina, its counties, municipalities and school districts except estate, transfer or certain franchise taxes. Interest paid on the Series 2015 Bonds is currently subject to the tax imposed on banks by Section of the Code of Laws of South Carolina 1976, as amended, which is enforced by the South Carolina Department of Revenue as a franchise tax. The opinion of Bond Counsel is limited to the laws of the State of South Carolina and federal tax laws. No opinion is rendered by Bond Counsel concerning the taxation of the Series 2015 Bonds or the interest thereon under the laws of any other jurisdiction. Pursuant to Section , Code of Laws of South Carolina 1976, as amended, the City has covenanted, so long as required, to file with a central repository for availability on the secondary bond market when requested an annual audit within 30 days of its receipt and event specific information within 30 days of an event adversely affecting more than 5% of its revenues or tax base. In accordance with the requirements of Rule 15c2-12, as amended (the Rule ), promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, a Continuing Disclosure Certificate will be entered into by the City in connection with the issuance of the Series 2015 Bonds (the Continuing Disclosure Certificate ). Pursuant to the Continuing Disclosure Certificate, the City will covenant for the benefit of the Holders and the Beneficial Owners (as defined in the Continuing Disclosure Certificate) of the Series 2015 Bonds, to provide certain financial information and operating data relating to the System for the preceding fiscal year by February 1 st of each year, commencing with the report for the fiscal year ending June 30, 2015 (the Annual Report ), and to provide notices of the occurrence of certain enumerated events with respect to the Series 2015 Bonds, if material. The Annual Report and notices of material events will be filed by the City with the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access ( EMMA ) system. The specific nature of the information to be contained in the Annual Report or the notices of material events is set forth in APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE. These covenants have been made in order to assist the original purchaser of the Series 2015 Bonds in complying with Securities and Exchange Commission Rule 15c2-12(b)(5) (the Rule ). As provided in the Continuing Disclosure Certificate, if the City fails to comply with any provision of the Continuing Disclosure Certificate, any Holder or Beneficial Owner of the Series 2015 Bonds may take such actions as may be necessary and appropriate, including seeking injunctive relief or specific performance by court order, to cause the City to comply with the continuing disclosure obligations under the Continuing Disclosure Certificate. Such failure shall not, however, constitute an event of default under the Ordinance. Beneficial Owner is defined in the Continuing Disclosure Certificate to mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Series 2015 Bonds (including persons holding Series 2015 Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Series 2015 Bonds for federal income tax purposes. If any person seeks to cause the City to comply with its continuing disclosure obligations under the Continuing Disclosure Certificate, it is the responsibility of such person to demonstrate that it is a Beneficial Owner within the meaning of the Continuing Disclosure Certificate. During the past five years, the City failed to comply with certain of its continuing disclosure obligations by by filing its audited financial statements and supplemental operating information for Fiscal Years 2010, 2011 and 2012 late. The City has now implemented additional procedures to assist it in remaining in compliance with its undertakings pursuant to the Rule. 32

41 The City experiences routine litigation and claims incidental to the conduct of its affairs. As of the date of issuance and delivery of the Series 2015 Bonds, the City s General Counsel will deliver an opinion to the effect that there is no litigation pending or threatened contesting the creation, organization or existence of the City or the System or that seeks to restrain or enjoin the issuance or delivery of the Series 2015 Bonds or the proceedings or authority under which they are to be issued or delivered or which in any manner questions the authority of the City to pledge the revenues of the System to the payment of the Series 2015 Bonds and the interest thereon or the use of the proceeds of the Series 2015 Bonds. The opinion of the City s General Counsel will also state that, except as described herein, there is no litigation pending or threatened, to his knowledge, which would have a material adverse effect upon the City s or the System s financial condition. The remedies available to the owners of the Series 2015 Bonds upon an event of default under the Bond Ordinance and the 2015 Series Ordinance are in many respects dependent upon judicial actions which are often subject to discretion and delay. Under existing constitutional and statutory law and judicial decisions, including specifically Title 11 of the United States Code, the remedies specified by the federal bankruptcy code, the Bond Ordinance, the 2015 Series Ordinance and the Series 2015 Bonds may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Series 2015 Bonds (including Bond Counsel s approving opinion) will be qualified, as to the enforceability of the various legal instruments, by limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors enacted before or after such delivery. The undertaking of the City should be considered with reference to Chapter 9 of the United States Bankruptcy Code, 11 U.S.C. 901, et seq., as amended (the Bankruptcy Code ), and other laws affecting creditors rights and public instrumentalities generally. Chapter 9 permits a municipality, political subdivision, public agency, or other instrumentality of a state that is insolvent or unable to meet its debts as such debts mature, to file a petition in the United States Bankruptcy Court for the purpose of effecting a plan to adjust its debts; directs such a petitioner to file with the court a list of its creditors; provides that the filing of the petition under that chapter operates as a stay of the commencement or continuation of any judicial or other proceeding against the petitioner; directs a petitioner to file a plan for the adjustment of its debts; permits the petitioner in its plan to modify the rights to payment of its creditors; and provides that the plan must be accepted in writing by or on behalf of creditors of each impaired class of claims holding at least two-thirds in amount and being more than one-half in number of the creditors who have accepted or rejected the plan. The plan may be confirmed notwithstanding the negative vote of one or more classes of claims if the court finds that the plan is in the best interest of creditors, is feasible, and is fair and equitable with respect to the dissenting classes of creditors. A petitioner has the right to reinstate indebtedness under its plan according to the original maturity schedule of such indebtedness notwithstanding any provision in the documents under which the indebtedness arose relating to the insolvency or financial condition of the debtor before the confirmation of the plan, the commencement of a case under the Bankruptcy Code, or the appointment of or taking possession by a trustee in a case under the Bankruptcy Code or by a receiver or other custodian prior to the commencement of a case under the Bankruptcy Code. Certain legal matters incident to the authorization, issuance and sale of the Series 2015 Bonds are subject to the approval of the legality of issuance thereof by its counsel, Haynsworth Sinkler Boyd, P.A., Columbia, South Carolina, as bond counsel. Certain legal matters will be passed upon on behalf of the City by its General Counsel, B. Eric Shytle, Esquire, Sumter, South Carolina. Certain legal matters will be passed upon on behalf of the Underwriter by Parker Poe Adams & Bernstein, Columbia, South Carolina. Haynsworth Sinkler Boyd, P.A., Charleston, South Carolina, is acting as Disclosure Counsel. 33

42 The Series 2015 Bonds have been assigned ratings of Aa3 and AA- by Moody s Investors Service, Inc. and Standard & Poor s Ratings Services, a Division of The McGraw-Hill Companies, Inc., respectively. Such ratings reflect only the respective views of such organizations and any desired explanation of the significance of such ratings should be obtained from the rating agency furnishing the same. 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. The Series 2015 Bonds will be purchased for reoffering by the Underwriter from the City at an aggregate purchase price of $54,940,907.44, representing the par amount of the Series 2015 Bonds plus net original issue premium of $2,501, and less Underwriter s discount of $230, The Underwriter has entered into a Bond Purchase Agreement, which provides that the Underwriter will purchase all of the Series 2015 Bonds, if any are purchased. The obligation of the Underwriter to accept delivery of the Series 2015 Bonds will be subject to various conditions contained in the Bond Purchase Agreement. The Underwriter intends to offer the Series 2015 Bonds to the public initially at the offering prices set forth on the inside cover page of this Official Statement, which offering prices may subsequently be changed from time to time by the Underwriter without any requirement of prior notice. The Underwriter has reserved the right to permit other securities dealers who are members of the National Association of Securities Dealers, Inc. to assist in selling the Series 2015 Bonds. The Underwriter may offer and sell the Series 2015 Bonds to certain dealers (including dealers depositing Series 2015 Bonds into investment trusts) at prices lower than the public offering prices set forth on the inside cover page of this Official Statement or otherwise allow concessions to such dealers who may re-allow concessions to other dealers. Any discounts or commissions that may be received by such dealers in connection with the sale of the Series 2015 Bonds will be deducted from the Underwriter s underwriting profits. 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 ( WFBNA ). WFBNA, the sole underwriter of the Series 2015 Bonds, has entered into 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 compensation with respect to the Series 2015 Bonds with WFA. WFBNA also utilizes the distribution capabilities of its affiliate, Wells Fargo Securities, LLC ( WFSLLC ), for the 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. First Tryon Advisors has acted as Financial Advisor to the City in connection with the issuance of the Series 2015 Bonds. The Financial Advisor does not assume any responsibility for the information, covenants, and representations contained in any of the legal documents with respect to the federal income tax status of the Series 2015 Bonds, or the possible impact of any present, pending, or future actions taken by any legislative or judicial bodies. The Financial Advisor has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to the City and, as applicable, to the investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such information. 34

43 All summaries of the provisions of the Enabling Act, the Series 2015 Bonds, the Bond Ordinance, the 2015 Series Ordinance and all summaries and references to other documents, instruments and materials not purported to be quoted in full are only brief outlines of certain provisions thereof and are not intended to be and do not constitute complete statements of the Enabling Act or such documents or provisions. Reference is made hereby to the complete documents relating to such matters for the complete terms and provisions thereof, or for the information contained therein. The attached Appendices A through F are integral parts of this Official Statement and should be read in their entirety together with all foregoing statements. Certain financial information set forth herein has been derived from the financial statements of the City for periods other than those covered by the excerpted statements included in Appendix B. Copies of excerpts of the City s financial statements for such periods are available upon request from the City s Finance Director. Certain of the information set forth in the Official Statement and in the appendices hereto has been obtained from sources other than the City that are believed to be reliable but is not guaranteed as to accuracy or completeness by the Underwriter or the City. The execution and delivery of this Official Statement have been duly authorized by the City. CITY OF SUMTER, SOUTH CAROLINA /s/ Joseph T. McElveen, Jr. Mayor 35

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45 The City of Sumter APPENDIX A DEMOGRAPHIC INFORMATION WITH RESPECT TO THE CITY OF SUMTER AND SUMTER COUNTY, SOUTH CAROLINA Description of the City The City of Sumter (the City ) is the county seat of Sumter County (the County ), located in the midlands regions of the State of South Carolina (the State ) approximately 45 miles east of Columbia, the State capital. The City is located within a relatively short drive from Interstates 20, 26, 77 and 95, and is served by US Highways 15, 521, 76 and 378. The City has a population of approximately 41,190, making it the eighth largest city in the State. Originally incorporated as Sumterville in 1845, the City s name was shortened to Sumter in Once a primarily agricultural community, Sumter became home to Shaw Air Force Base in 1941 ( Shaw ). Shaw is home to the 20 th Fighter Wing whose mission is to provide, project and sustain combat-ready air forces. The wing operates the 55 th, 77 th and 79 th Fighter Squadrons which maintain a capability to mobilize, deploy and tactically employ forces worldwide for any contingency in support of U.S. national objectives, basically retaining the responsibility for providing facilities, personnel and materials for the operation of Shaw. Shaw is also home to the Air Force s largest combat F-16 wing whose primary missions are the suppression of enemy air defenses, strategic attack, counter air, air interdiction, joint maritime operations and combat search-and-rescue missions. The following table shows the number of building permits issued within the City and the amount of the permitted improvements for the prior five calendar years. Source: Sumter City-County Planning Commission Sumter County Description of the County Building Permits Calendar Year Number Amount ,273 $44,398, ,931 44,519, ,838 54,647, ,317 33,427, ,245 38,428,622 The County is located in the central part of the State and covers a 681 square mile area. The County is bordered by Kershaw and Lee Counties to the north, Clarendon and Calhoun Counties and Lake Marion to the south, Florence County to the east and Richland County to the west. The County's 2014 population was estimated to be approximately 107,919 according to the United States Census Bureau. A-1

46 Capital Investment Activity The following table sets forth the total capital investment for new and expanded industry within the County for the last five years for which information is available: Year Capital Investment New Employment 2009 $ 5,000, ,300, ,000,000 1, ,500, ,000, Source: S.C. Department of Commerce Research Division Major Manufacturing Establishments Listed below are the top ten employers in the County, excluding the Air Force Base (6,866 employees), the School Districts (a combined 2,600 employees), and the County and City Governments (a combined 1,018 employees), as well as their type of business and approximate number of employees: Name Business Approximate Number of Employees Pilgrims Pride Poultry processing 2,210 Tuomey Regional Medical Center Health services 1,519 Becton Dickinson Vacutainer Medical supplies manufacturing 804 Santee Print Works Textiles manufacturing 725 Eaton Corporation Electrical manufacturer 665 Cooper Hand Tools Tools manufacturing 495 Wal-Mart Retail sales 475 Central Carolina Technical College Public technical school 413 Security Management of SC Personnel services 389 SC Department of Disb. & Special Needs State Agency 300 Source: City of Sumter Retail Sales The State of South Carolina imposes a 5% sales tax on all retail sales. A 1% Local Option Sales Tax was implemented in May The following table shows the level of retail sales over the last five years for businesses located in the County: Source: South Carolina Department of Revenue Calendar Year Gross Retail Sales 2010 $1,553,866, ,641,297, ,720,760, ,777,668, ,822,112,038 A-2

47 Unemployment Rates The average unemployment rate for the Sumter Metropolitan Statistical Area for the last 12 months for which data is available is shown below: Date MSA June % July August September October November December January February March April May Source: State Budget and Control Board, Board of Economic Advisors and Office of Economic Research; U.S. Department of Labor, Bureau of Labor Statistics. The average unemployment rate in the County, the State and the United States, for each of the last five years is shown below. Year Sumter County South Carolina United States % 11.2% 9.6% Source: State Budget and Control Board, Board of Economic Advisors and Office of Economic Research; U.S. Department of Labor, Bureau of Labor Statistics. A-3

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49 APPENDIX B CITY OF SUMTER, SUMTER, SOUTH CAROLINA COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2014

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51 CITY OF SUMTER, SOUTH CAROLINA TABLE OF CONTENTS Year Ended June 30, 2014 INTRODUCTORY SECTION Page Letter of Transmittal 1 Organizational Chart 5 List of Elected and Appointed Officials 7 FINANCIAL SECTION Independent Auditor s Report 11 Management s Discussion and Analysis 15 Basic Financial Statements Government-wide Financial Statements Statement of Net Position 26 Statement of Activities 27 Fund Financial Statements Governmental Funds Financial Statements Balance Sheet 28 Reconciliation of Balance Sheet Governmental Funds to Statement of Net Position 29 Statement of Revenues, Expenditures and Changes in Fund Balances 30 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 31 Statement of Revenues, Expenditures and Changes in Fund Balance Budget and Actual General Fund 32 Proprietary Funds Financial Statements Statement of Net Position 34 Statement of Revenues, Expenses and Changes in Net Position 35 Statement of Cash Flows 36 Fiduciary Funds Financial Statements Statement of Fiduciary Net Position Fiduciary Funds 37 Statement of Changes in Fiduciary Net Position Fiduciary Funds 38 Notes to Financial Statements 39 Required Supplementary Information Schedule of Funding Progress and Employer Contributions Other Postemployment Benefits Defined Benefit Health Care Plan 60 Other Supplementary Information Special Revenue Funds Combining Balance Sheet Nonmajor Special Revenue Funds 62 Combining Schedule of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Special Revenue Funds 64 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Hospitality Tax Fund 66 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Accommodations Tax Fund 67 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Victims Assistance Fund 68 Proprietary Funds Water and Sewer Fund - Schedule of Revenues, Expenses and Changes in Net Position Budget and Actual Budget Basis 69 Debt Coverage Ratio Required by Lender 70 Fiduciary Funds Private-purpose trust funds Combining Schedule of Fiduciary Net Position Private-purpose trust funds 72 Combining Schedule of Changes in Net Position Private-purpose trust funds 73 Agency Funds Combining Schedule of Changes in Assets and Liabilities Agency funds 76 i

52 Schedule of Court Fines and Assessment Activity and Expenditures for Victims Services Required by State Law 79 STATISTICAL SECTION Financial Trends Net Position by Component 82 Changes in Net Position, Last Ten Fiscal Years 83 Fund Balances of Governmental Funds, Last Ten Fiscal Years 85 Changes in Fund Balances of Governmental Funds, Last Ten Fiscal Years 86 Revenue Capacity Assed Value and Estimated Actual Value of Taxable Property, Last Ten Fiscal Years 87 Property Tax Rates, Direct and Overlapping Governments, Last Ten Fiscal Years 88 Principal Taxpayes, Current Year and Nine Years Ago 89 Property Tax Levies and Collections, Last Ten Fiscal Years 90 Debt Capacity Ratios of Outstanding Debt by Type, Last Ten Fiscal Years 91 Ratios of General Bonded Debt Outstanding, Last Ten Fiscal Years 92 Direct and Overlapping Governmental Activities Debt 93 Legal Debt Margin Information, Last Ten Fiscal Years 94 Pledged Revenue Coverage, Water and Sewer Authority, Last Ten Fiscal Years 95 Demographic and Economic Information Demographic Statistics, Last Ten Fiscal Years 96 Principal Employers, Current Year and Nine Years Ago 97 Operating Information Full-Time Equivalent City Government Employees by Function, Last Ten Fiscal Years 98 Operating Indicators by Function/Program, Last Ten Fiscal Years 99 Capital Asset Statistics by Function/Program, Last Ten Fiscal Years 100 REGULATORY SECTION Schedule of Expenditures of Federal Awards 103 Notes to Schedule of Expenditures of Federal Awards 105 Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 106 Independent Auditor s Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by OMB Circular A Schedule of Findings and Questioned Costs 110 Summary Schedule of Prior Audit Findings 111 ii

53 Ql itlj of ~umter ~oullj (["roliml November 20, 2014 OPERA HOUSE P,Q BOX 1449 TELEPHONE (803) FAX (B03) Honorable Mayor, Members of City Council, and Citizens of the City of Sumter, South Carolina: State law requires that all general-purpose local governments annually publish a complete set of financial statements presented in conformity with generally accepted accounting principles (GAAP) and audited in accordance with generally accepted auditing standards by a firm of licensed certified public accountants. Pursuant to that requirement, we hereby issue the comprehensive annual financial report of the City of Sumter (the City) for the fiscal year ended June 30, This report consists of management's representations concerning the finances of the City. Consequently, management assumes full responsibility for the completeness and reliability of all of the information presented in this report. To provide a reasonable basis for making these representations, management of the City has established a comprehensive internal control framework that is designed both to protect the City's assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City's financial statements in conformity with GAAP. Because the cost of intemal controls should not outweigh their benefits, the City's comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. The City's financial statements have been audited by Sheheen, Hancock & Godwin, LLP, CPA's, a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City for the fiscal year ended June 30, 2014, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement presentation; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unmodified opinion that the City's financial statements for the fiscal year ended June 30, 2014, are fairly presented in conformity with GAAP. The independent auditor's report is presented as the first component of the financial section of this report. The independent audit of the financial statements of the City was part of a broader, federally mandated "Single Audit" designed to meet the special needs of federal grantor agencies. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government's internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards. These reports are available in the Regulatory section of this report. 1 THE FIRST COUNCil MANAGER MUNICIPAL GOVERNMENT

54 GAAP require that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management's Discussion and Analysis (MD&A). This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. The City's MD&A can be found immediately following the report of the independent auditors. Profile of the Government The City, chartered in 1845, is located near the geographic center of the state, approximately 100 miles west of the Atlantic Ocean and approximately 175 miles east of the Blue Ridge Mountains. The City currently serves a population in excess of 40,000 and encompasses a land mass of approximately 27 square miles. The government is empowered to levy a property tax on both real and personal property located within its boundaries. It is also empowered by state statute to extend its corporate limits by annexation, which occurs periodically when deemed appropriate by the governing council. The City of Sumter holds the distinction of being the first to adopt the council-manager form of govemment in 1912 and still operates under this form of government today. Policy-making and legislative authority are vested in a governing council consisting of the mayor and six other members. The governing council is responsible, among other things, for passing ordinances, adopting the budget, appointing committees, and hiring the City Manager. The City Manager is responsible for carrying out policies and ordinances of the City Council, for overseeing the day-to-day operations of the City, and for appointing the directors of various departments. The Council is elected through a non-partisan election process. Council members and the mayor are elected to four-year terms in staggered elections. The mayor is elected at large and council members are elected by ward. The City provides a full range of services, including: police and fire protection; the construction and maintenance of streets and other infrastructure; parks, recreational!cultural activities and events; sanitation services; water and sewer services; and storm water services. The annual budget serves as the foundation for the City's financial planning and control. All departments of the City are required to submit requests for appropriations to the City Manager in the spring of each year. The City Manager uses these requests as a starting point for developing a proposed budget. The City Manager then presents this proposed budget to the council for review. The council is required to hold a public hearing on the proposed budget and to adopt a final budget no later than June 30, the close of the City'S fiscal year. The appropriated budget is prepared by fund and department. The budget can be amended throughout the year with the approval of council. Budgetary control (that is, the level at which expenditures cannot legally exceed the appropriated amount) is maintained by the City Manager, who may make transfers of appropriations within and among functions and funds as necessary during the fiscal year. Budget-to-actual comparisons are provided in this report for each individual governmental fund for which an appropriated annual budget has been adopted. For the general fund, this comparison is presented beginning on page 32 as part of the basic financial statements for the governmental funds. Local Economy The City is currently experiencing a modestly favorable economic environment. Along with the rest of the state, the unemployment rate in Sumter has steadily decreased in the past year and Sumter's already diverse manufacturing base continues to broaden, most notably with the addition of the Continental Tire plant. The plant is projected to bring over 1600 jobs to the area. In addition to the expansion of the manufacturing base, Shaw Air Force Base continues to have a profound effect on the local economy. A recent impact study estimates the Base's total economic impact on the region to be just less than $1 billion/year. 2

55 Long Term Financial Planning Each year the City's planning and needs evaluation process involves an assessment of on going projects and initiatives as well as the identification of new projects and initiatives to be implemented in an effort to maximize the value of services and support provided by the City. It is a collaborative process whereby City leadership engages with the City's management team and the City's management team with departmental staff to develop methods and actions to take in advancing priorities of the City in a strategic and comprehensive manner. The goals developed during this process may require many different methods and actions but they all involve the planned expenditure of budgeted funds. While many goals may progress substantially throughout a single year, some of them require more time, collaboration, and planning. It is through this process, however, that the City has been able to create a comprehensive approach to meeting challenges, achieving goals, and effecting change. Initiatives include neighborhood & downtown redevelopment, various quality of life projects, continued investment in water & sewer infrastructure, and other public infrastructure. In addition, the City will continue to support efforts to keep Shaw Air Force Base open as it remains to be a key factor in the overall progress of the local economy. Funding for these projects will come from a variety of sources including Community Development Block Grants, Hospitality Fee revenues, Accommodations Fee revenues, charges for services, General Fund revenues, and other various grants. While most all of these projects will require continued long term planning and fiscal projections it is the City'S overall objective that they also provide long term benefits to the community. Acknowledgements We would like to express our appreciation to the entire Finance staff for their dedicated services in the timely preparation of this report. Credit must also be given to those from other departments who helped compile the necessary information to prepare this report in its entirety. In closing, we would like to also thank the Mayor and City Council for their continued support, leadership, and service to the City of Sumter. Respectfully Submitted, ~(?~ Linda Patterson, Director, Finance Department /'kd\-1a.a.' / ",*,."e t.., ~: L. McCormia, City Manager 3

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57 Sumter City Council City Manager Deron L. McCormick Asst. City Manager of Public Services & Utilities Al Harris General Counsel Eric Shytle Public Services Director Ray Goodman Admin. Services Director Nick Shorter Building Director Steve Campbell Planning Director George McGregor Human Resources Director Audrey Shirley Fire Chief Karl Ford Police Chief Russell Roark Finance Director Linda Patterson Utility Plants, Water & Sewer, Engineering, GIS & Stormwater Sanitation, Parks/ Gardens, Warehouse & Construction/ Electrical Events, Public Relations, Recreation, Tourism, Workers Comp. & Liability Insurance Building Inspection, Plans Review & Business License Planning and Zoning Administration & Codes Enforcement Employee Benefits & Payroll Fire Marshal, Fire Training, Fire Rescue, Logistics, Instruction & Fire Suppression Crime Analysis, Budget, Accreditation, Emergency Preparedeness, Internal Affairs/ Career Develop., Uniformed Svcs., Investigative Svcs., Support Svcs., & Crime Prevention Purchasing, Accounting, Internal Audit & Utility Billing 5

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59 City of Sumter List of Elected and Appointed Officials June 30, 2014 Ejected Officials Mayor Council Member - District J Council Member - District 2 Council Member - District 3 Council Member - District 4 Council Member - District 5 Council Member - District 6 Joseph T. McElveen. Jf. Thomas J. Lowery lone J. Dwyer Calvin K. Hastie, Sr. Charles R. Burns Robert A. Galiano. Jf. David P. Merchant Appointed Officials City Manager (Appointed By City Council) Assistant City Manager for Public Services General Counsel Finance Director City Clerk Human Resources Director Director of Administrative Services Police Chief Fire Chief Planning Director Building Director Director of Public Services Deron L McCormick Ernest A. Harris B. Eric Shy tie Linda H. Patterson Linda D. Hammett Audrey M. Shirley Billy N. Shorter, Jr. Russell F. Roark, III C. Karl Ford George K. McGregor Charles W. "Steve" Campbell, Jf. Ray I. Goodman 7

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61 FINANCIAL SECTION 9

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63 AUSTIN M. SHEHEEN, JR., CPA TERRY M. HANCOCK, CPA LARRY F. GODWIN, CPA THOMAS B. MYERS, CPA DARYL W. TAYLOR, CPA ANTHONY E. BOYKIN, CPA JANE M. PEACOCK, CPA MATTHEW C. IRICK, CpA ANTHONY N. MESSIER, CPA J. RICHARD PARKER, CPA R. MARC WOOD MARC A. QUIGLEY, CPA REBECCA M. LEE, CPA TRACY L. FAILE, CPA SHANE E. KIRKLEY, CPA B. KEACH JORDAN, CpA ADRIENNE BERG LUCAS CHRISTOPHER H. HARRELL SHEHEEN, HANCOCK & GODWIN, LLP CERTIFIED PUBLIC ACCOUNTANTS 1011 FAIR STREET P.O. DRAWER 428 CAMDEN, SOUTH CAROLINA FOUNDED 1959 November 20,2014 INDEPENDENT AUDITOR'S REPORT MEMBERS OF AMERICAN INSTITUTE OF CPA'S SOUTH CAROLINA ASSOCIATION OF CPA'S TELEPHONE (803) FAX (803) WEBSITE: To City Council City of Sumter, South Carolina Report on the Financial Statements We have audited the accompanying financial statements of the goverrnnental activities, the business-type activities, each mlljor fund, and the aggregate remaining fund information of the City of Sumter, South Carolina, as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the City'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 froancial 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 froaneial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these froancial 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 froancial 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 froaneial 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 froaneial 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. 11

64 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the govermnental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Sumter, South Carolina, as of June 30, 2014, and the respective changes in fmancial position, and, where applicable, cash flows, thereof 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 15 through 23 and Schedules of Funding Progress and Employer Contributions on page 60 be presented to supplement the basic fmancial 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 City of Sumter, South Carolina's basic financial statements. The introductory section, combining and individual noumajor fund financial statements, and statistical section, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The schedule of expenditures of federal awards is presented for purposes 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 is also not a required part of the basic fmancial statements. The combining and individual nonmajor fund financial statements and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic fmancial 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 fund financial statements and the schedule of expenditures of federal awards are fairly stated in all material respects in relation to the basic 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. 12

65 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 20, 2014, on our consideration of the City of Sumter, South Carolina's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Sumter, South Carolina's internal control over fmaneial reporting and compliance. Sheheen, Hancock & Godwin, LLP Certified Public Accountants 13

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67 Sumter, South Carolina Management s Discussion and Analysis Year Ended June 30, 2014 As management of the City of Sumter, we offer readers of the City of Sumter s financial statements this narrative overview and analysis of the financial activities of the City of Sumter for the fiscal year ended June 30, We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in the basic financial statements Financial Highlights The assets of the City of Sumter exceeded its liabilities at the close of the most recent fiscal year by $120,583,440 (net position). Of this amount, $29,343,127 represents unrestricted net position, which may be used to meet the government s ongoing obligations to citizens and creditors. The City of Sumter s total net position increased by $7,668,742 during the current period, as a result of an increase from governmental activities of $3,858,971 and an increase from business-type activities of $3,809,771. At the close of the current fiscal year, the City of Sumter s governmental funds reported combined ending fund balances of $17,729,820, an increase of $327,802 in comparison with the prior year. Approximately 69% of this total amount, $12,228,926 is available for spending at the government s discretion (unassigned fund balance). At the end of the current fiscal year, unassigned fund balance for the general fund was $12,228,926, or approximately 37% of total general fund expenditures. The City of Sumter s total outstanding long-term debt decreased by $4,097,467 during the current fiscal year. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the City of Sumter s basic financial statements. The City of Sumter s basic financial statements consist of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) the notes to the financial statements. This report also includes supplementary information intended to furnish additional detail to support the basic financial statements themselves. Government-wide Financial Statements. The government-wide financial statements are designed to provide readers with a broad overview of the City of Sumter s finances, in a manner similar to a private-sector business. The statement of net position presents financial information on all of the City of Sumter s assets, liabilities and deferred inflows/outflows of resources, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City of Sumter is improving or deteriorating. The statement of activities presents information showing how the City of Sumter s net position changed during the most recent 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 for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of the City of Sumter that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of Sumter include general government administration, public safety and law enforcement, public works, parks, recreation and culture, community development, economic development and interest and other charges. The business-type activities of the City of Sumter include water and sewer services and storm water services. The government-wide financial statements can be found on pages of this report. Fund Financial Statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Sumter, like other state and 15

68 Sumter, South Carolina Management s Discussion and Analysis (Continued) Year Ended June 30, 2014 local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City of Sumter can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental Funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government s near term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Sumter maintains one major governmental fund, the general fund and non-major special revenue funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for these funds. Individual fund data for each of the nonmajor special revenue funds is provided in the form of combining statements in the combining and individual fund statements and schedules section of this report. The City of Sumter adopts an annual appropriated budget for its general fund. A budgetary comparison statement has been provided for the general fund to demonstrate compliance with this budget. The basic governmental fund financial statements can be found on pages of this report. Proprietary Funds. The City of Sumter maintains one type of proprietary fund. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City of Sumter uses an enterprise fund to account for its water and sewer operation and a second enterprise fund is used to account for its storm water operation. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the water and sewer fund which is considered to be a major fund of the City of Sumter and the non-major storm water utility fund. The basic proprietary fund financial statements can be found on pages of this report. Fiduciary Funds. Fiduciary funds are used to account for resources held for the benefit of parties outside of the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City of Sumter s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The City of Sumter maintains two different types of fiduciary funds. The Private-purpose trust fund is used to report resources held in trust for charitable purposes. The Agency fund reports resources held by the City of Sumter in a custodial capacity for individuals, private organizations, and non-profit organizations. The fiduciary fund financial statements can be found on pages of this report. Notes to the Financial Statements. The notes provide additional information that is necessary to acquire a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages of this report. Other Information. In addition to the basic financial statements and accompanying notes, this report also presents 16

69 Sumter, South Carolina Management s Discussion and Analysis (Continued) Year Ended June 30, 2014 required supplementary information concerning the City of Sumter s progress in funding its obligation to provide OPEB benefits to its employees. Required supplementary information can be found on page 60 of this report. The combining statements referred to earlier in connection with non-major governmental funds are presented immediately following the required supplementary information. Combining and individual fund statements and schedules can be found on pages of this report. Government-Wide Overall Financial Analysis As noted earlier, net position over time, may serve as a useful indicator of a government s financial position. In the case of the City of Sumter, assets exceeded liabilities by $120,583,440 at the close of the most recent fiscal year. City of Sumter s Net Position Governmental Activities Business-Type Activites Total , as restated* , as restated* Current and other assets $ 21,404,818 $ 21,144,535 $ 23,852,540 $ 22,751,791 $ 45,257,358 $ 43,896,326 Capital assets 43,529,351 40,833,617 80,275,272 79,439, ,804, ,273,060 Total assets 64,934,169 61,978, ,127, ,191, ,061, ,169,386 Total deferred outflows of ,613-34,613 - resources Noncurrent liabilities 10,743,275 9,239,658 33,170,239 33,396,066 43,913,514 42,635,724 Other liabilities 2,701,857 5,443,197 1,563,014 3,175,767 4,264,871 8,618,964 Total liabilities 13,445,132 14,682,855 34,733,253 36,571,833 48,178,385 51,254,688 Total deferred inflows of 334, ,769 - resources Net position: Net investment in capital assets 37,154,398 33,243,982 47,592,613 44,351,489 84,747,011 77,595,471 Restricted 3,321,746 4,368,409 3,171,556 1,972,234 6,493,302 6,340,643 Unrestricted 10,678,124 9,682,906 18,665,003 19,295,678 29,343,127 28,978,584 Total net position $ 51,154,268 $ 47,295,297 $ 69,429,172 $ 65,619,401 $ 120,583,440 $ 112,914,698 *See note to financial statements II. A. By far the largest portion of the City of Sumter s net position (70.3%) reflects its investment in capital assets (e.g., land, buildings, machinery, vehicles, equipment and infrastructure) less any related debt used to acquire those assets that is still outstanding. The City of Sumter uses these capital assets to provide services to citizens. Accordingly, these assets are not available for future spending. Although the City of Sumter s investment in capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the City of Sumter s net position (5.4%) represents resources that are subject to external restrictions on how they may be used. The remaining balance of $29,343,127 is unrestricted and may be used to meet the government s ongoing obligations to citizens and creditors. The City of Sumter was able to report positive balances in all three categories of net position, both for the government as a whole, as well as for its separate governmental and business-type activities. The same situation held true for the prior fiscal year. 17

70 Sumter, South Carolina Management s Discussion and Analysis (Continued) Year Ended June 30, 2014 City of Sumter's Net Position $140,000,000 $120,000,000 $100,000,000 $80,000,000 $60,000,000 $40,000,000 $20,000,000 $ Governmental Activities Business-Type Activities The City of Sumter s overall net position increased by $7,668,742 from the prior fiscal year. The key components of this increase are discussed in the following sections for governmental and business-type activities. Governmental Activities: Governmental activities increased the City of Sumter s net position by $3,858,971 from the prior fiscal year for an ending balance of $51,154,268. Total revenues increased by $3,468,886 primarily as a result of increases in operating and capital grants and contributions of $2,748,707. Key elements of this increase represents resources from an operating grant in the amount of $690,338 for clean up of damages from a winter ice storm and a capital grant in the amount of $1,252,400 and a $741,772 contribution for the purchase of property to perpetuate conservation and recreational use. Another factor in the change was the spending of resources obtained through the issuance of long-term debt in prior periods on capital improvements to downtown buildings and for the purchase of capital assets in the amount of $1,099,964. Public safety expenditures increased by $1,036,703 primarily as a result of increases in compensated absences balances and increased personnel and benefit costs. Public works expenditures increased by $1,087,899 with the key factor in this increase being costs incurred in the amount of $701,195 for clean up damages from a winter ice storm. As mentioned above, this cost was offset by an operating grant. 18

71 City of Sumter s Changes in Net Position Sumter, South Carolina Management s Discussion and Analysis (Continued) Year Ended June 30, 2014 Governmental Activities Business-Type Activities Total , as restated , as restated Revenues: Program Revenues: Charges for services $ 7,121,669 $ 6,801,143 $ 21,034,775 $ 20,815,639 $ 28,156,444 $ 27,616,782 Operating grants and contributions 2,863,555 2,217, ,863,555 2,217,909 Capital grants and contributions 2,372, ,999 1,532,724 2,128,816 3,904,784 2,397,815 Total program revenues 12,357,284 9,288,051 22,567,499 22,944,455 34,924,783 32,232,506 General Revenues: Property taxes 9,241,692 10,132, ,241,692 10,132,215 Sales taxes - local option 4,380,262 3,234, ,380,262 3,234,258 Sales taxes - local accommodations and hospitality 2,733,045 2,624, ,733,045 2,624,848 Business and franchise fees 9,014,503 8,957, ,014,503 8,957,349 State shared taxes 957, , , ,987 Other 283, , ,467 (291,766) 690,267 (1,799) Total general revenues 26,611,277 26,211, ,467 (291,766) 27,017,744 25,919,858 Total revenues 38,968,561 35,499,675 22,973,966 22,652,689 61,942,527 58,152,364 Expen s e s : General Government 5,506,479 5,560, ,506,479 5,560,774 Public Safety 18,726,272 17,689, ,726,272 17,689,569 Public Works 6,198,843 5,110, ,198,843 5,110,944 Parks, Recreation and Culture 3,655,740 3,268, ,655,740 3,268,065 Community Development 518, , , ,666 Economic Development 1,846,045 2,254, ,846,045 2,254,660 Interest and other charges 215, , , ,930 Water and sewer services 17,606,238 16,954,386 17,606,238 16,954,386 Total expenses 36,667,547 34,618,608 17,606,238 16,954,386 54,273,785 51,572,994 Increase (decrease) in net position before transfers 2,301, ,067 5,367,728 5,698,303 7,668,742 6,579,370 Transfers 1,557,957 1,178,717 (1,557,957) (1,178,717) - - Increase in net position 3,858,971 2,059,784 3,809,771 4,519,586 7,668,742 6,579,370 Net position beginning, as restated 47,295,297 45,235,513 65,619,401 61,099, ,914, ,335,328 Net position ending $ 51,154,268 $ 47,295,297 $ 69,429,172 $ 65,619,401 $ 120,583,440 $ 112,914,698 *See note to financial statements II. A. 19

72 Sumter, South Carolina Management s Discussion and Analysis (Continued) Year Ended June 30, 2014 Expenses and Program Revenues - Governmental Activities $20,000,000 $15,000,000 $10,000,000 $5,000,000 $- General government Public safety Public works Parks, recr. & culture Community dev. Economic dev. Interest & other expenses program revenues Business-Type Activities: Business-type activities increased the City of Sumter s net position during the current year by $3,809,771, a 5.8% increase, for an ending balance of $69,429,172. Revenues derived from charges for services increased by $300,044 from the prior fiscal year. This increase is attributable to a modest rate increase on base meter rates in the water and sewer fund while charges for services remained steady in the non-major stormwater utility fund. Capital grants and contributions decreased by $596,092 primarily as a result of a decrease in resources from the county-wide 1% Capital Sales Tax from the prior fiscal year. The increase in other revenues is a result of the change in unrealized gain/loss of investments. Total expenses were $17,606,238, an increase of $651,852 from the previous year s amount. The key component in this increase is increased personnel and benefit costs. Financial Analysis of the Government s Funds As noted earlier, the City of Sumter uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements. Governmental Funds. The focus of the City of Sumter s governmental funds is to provide information on the nearterm inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City of Sumter s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government s net resources available for discretionary use as they represent the portion of fund balance which has not yet been limited to use for a particular purpose by either an external party, the City of Sumter itself, or a group or individual that has been delegated authority to assign resources for use for particular purposes by the City of Sumter s Council. At June 30, 2014, the City of Sumter s governmental funds reported combined fund balances of $17,729,820 an increase of $327,802 in comparison with the prior year. Approximately 69% of this amount ($12,228,926) constitutes unassigned fund balance, which is available for spending at the government s discretion. The remainder of fund balance is either nonspendable or restricted to indicate that it is 1) not in spendable form ($822,501) or 2) restricted for particular purposes ($4,678,393). 20

73 Sumter, South Carolina Management s Discussion and Analysis (Continued) Year Ended June 30, 2014 General Fund Components of Fund Balance June 30, 2013 and 2014 Nonspendable Restricted Unassigned - 5,000,000 10,000,000 15,000,000 The general fund is the chief operating fund of the City of Sumter. At the end of the current fiscal year, unassigned fund balance of the general fund was $12,228,926 with a total fund balance of $14,408,074. As a measure of the general fund s liquidity, it may be useful to compare both unassigned and total fund balance to total fund expenditures. Unassigned fund balance represents 37 percent of total general fund expenditures while total fund balance represents 43.6 percent of that same amount. The fund balance of the City of Sumter s general fund increased by $1,324,465 during the current fiscal year. As discussed earlier in connection with governmental activities, the primary driver in this increase is an increase in operating and capital grants and contributions in the amount of $2,748,707. Another factor in the change was the spending of resources obtained through the issuance of long-term debt in prior periods on capital improvements to downtown buildings and for the purchase of capital assets in the amount of $1,099,964. Other factors in this change were increased expenditures in public safety in the amount of $1,036,703 and public works in the amount of $1,087,899. Proprietary Funds. The City of Sumter s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. Unrestricted net position of the water and sewer operations and the storm water operations at the end of the fiscal year was $18,665,003, a decrease of $630,675 from the prior fiscal year. The total growth in net position was $3,809,971. Other factors related to the enterprise funds have been noted earlier in the discussion of business-type activities. General Fund Budgetary Highlights Original budget compared to final budget. Revenues were $1,430,772 (4.8%) greater compared to the final budget while expenditures were $95,790 less than the final budget. There were transfers within the budgeted amounts but there was no change in the appropriations between the original and final budget. The positive variance in revenues was primarily a result of an increase in property and sales taxes collections of $606,450 greater than the budgeted amount and an increase in license permits and fees o $452,359 greater than the budgeted amount. Other revenues were $349,224 due to higher than anticipated miscellaneous revenues. Actual expenditures in general government administration, public safety and law enforcement, public works and debt service were less than the budgeted amounts. Expenditures in capital outlay were greater than budgeted due to capital expenditures in the amount of $1,099,964, from which funding had been set aside from a prior year borrowing. 21

74 Capital Assets and Debt Administration Sumter, South Carolina Management s Discussion and Analysis (Continued) Year Ended June 30, 2014 Capital assets. The City of Sumter s investment in capital assets for its governmental and business type activities as of June 30, 2014, was $123,804,623 (net of accumulated depreciation). This investment in capital assets includes land, buildings, works of art, park facilities, roads, plants, machinery and equipment, and infrastructure. City of Sumter s Capital Assets (net of depreciation) Governmental Activities Business-Type Activities Total Land $ 12,067,279 $ 10,007,616 $ 338,412 $ 240,938 $ 12,405,691 $ 10,248,554 Works of art 396, , , ,866 Buildings 12,510,785 10,869, , ,122 12,683,566 11,054,711 Plants, machinery and equipment 5,705,875 5,819,203 40,271,543 41,475,666 45,977,418 47,294,869 Infrastructure 12,058,911 12,510,272 34,897,336 32,995,354 46,956,247 45,505,626 Construction in progress 789,635 1,230,071 4,595,200 4,542,363 5,384,835 5,772,434 Totals $ 43,529,351 $ 40,833,617 $ 80,275,272 $ 79,439,443 $ 123,804,623 $ 120,273,060 Major capital asset events during the current fiscal year included the following: The acquisition of land at a total cost of $2,059,663, most of which is related to property surrounding Shaw Air Force Base which was mostly paid for by grants in the amount of $1,994,172. Renovations to existing buildings and structures currently used in operations at a total cost of $2,463,881were completed and placed into service. Routine replacement of vehicles and sanitation and fire trucks at a cost of $1,304,957 Various projects related to streets, sidewalks, and parking lots at a cost of $566,686 including capital contributions of $410,112, were completed and placed into service. A water park located at the City s Birnie Hope Center was completed and placed into service at a total cost of $631,373. Various water and sewer line and storm water drainage projects at a cost of $2,120,064 were completed and placed into service. This amount includes $432,704 in capital contributions. Various water & sewer infrastructure projects in the amount of $1,736,616 were started during the current fiscal year and still ongoing at year end. This amount includes $689,305 in capital contributions. Routine replacement/restoration of equipment such as sludge pumps, HVAC units, wastewater clarifiers, etc. at a cost of $1,165,279. Additional information on the City of Sumter s capital assets can be found in Note III.D on pages Long-term Debt. At the end of the current fiscal year, the City of Sumter had total debt outstanding of $40,448,872. Of this amount, $3,395,067 of general obligation debt is backed by the full faith and credit of the government. The remainder of the City of Sumter s long-term obligations comprises revenue bonds, capital leases, and notes payable. City of Sumter s Outstanding Debt Bonds, Notes Payable and Capital Leases Governmental Activities Business-Type Activities Total General obligation bonds $ 3,395,067 $ 4,051,216 $ - $ - $ 3,395,067 $ 4,051,216 Revenue bonds 1,263,000 1,501, ,263,000 1,501,000 Notes payable 673,000 1,432, ,000 1,432,000 Capital lease obligations 2,400,533 2,474, ,400,533 2,474,168 Revenue bonds - 32,717,272 35,087,955 32,717,272 35,087,955 Total $ 7,731,600 $ 9,458,384 $ 32,717,272 $ 35,087,955 $ 40,448,872 $ 44,546,339 22

75 Sumter, South Carolina Management s Discussion and Analysis (Continued) Year Ended June 30, 2014 The City of Sumter s total debt decreased by $4,097,467 (9 percent) during the current fiscal year. The City entered into a capital lease agreement in the amount of $733,000 to purchase certain capital equipment during the year. State statutes limit the amount of general obligation debt a governmental entity may issue to 8 percent of its total assessed valuation of property. The current debt limitation for the City is $10,599,200 which is in excess of the City of Sumter s outstanding general obligation debt. Economic Factors and Next Year s Budgets and Rates The revitalization efforts in the downtown area in the Central Business District continue with streetscape improvements, building renovations and façade improvements. Apex Tool Group, LLC, a leading manufacturer of power and hand tools, announced in August 2014 that the company is expanding it Sumter County workforce, adding between jobs by the end of Apex will be consolidating several of its manufacturing facilities into its Sumter plant. Apex s presence in Sumter County spans more than three decades. EnerSys-Sumter Metal Products announced in September 2014 a $4 million dollar investment at its Sumter plant, an addition that will include two new buildings at its manufacturing facility and approximately 23 new positions over the next year. Information furnished by the SC Department of Employment and Workforce for nonfarm employment by area, not seasonally adjusted, indicates that Sumter County gained 600 jobs during fiscal year Sumter County voters voted in favor of renewing a penny sales tax to fund capital projects in the county. The new penny sales tax is expected to begin at the sunset of the original one, which was implemented in May 2009 and ends on May 1, Included in the twenty-eight projects approved will be public safety infrastructure to provide updated technology, a new City of Sumter police and E911 emergency services station and a new fire station. The fiscal year budget was adopted with an appropriation of $34,054,074 for the general fund. There was no increase in the City s total millage rate for which is currently 102 mills. Revenues from property taxes, business licenses, franchise fees and tax collection programs are expected to be steady. Requests for Information This financial report is designed to provide a general overview of the City of Sumter s finances for all those with an interest in the government s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Office of the Finance Director, Post Office Box 1449, Sumter, South Carolina

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77 BASIC FINANCIAL STATEMENTS 25

78 CITY OF SUMTER, SOUTH CAROLINA STATEMENT OF NET POSITION June 30, 2014 Governmental Business Type Activities Activities Total Assets Cash and cash equivalents $ 13,302,740 $ 6,329,719 $ 19,632,459 Investments 973,670 9,719,820 10,693,490 Receivables, net of allowance for doubtful accounts 4,948,718 4,133,229 9,081,947 Inventories 283, ,035 Prepaid items 6, ,678 Property held for resale 533, ,927 Interest in joint venture - 100, ,000 Restricted cash and cash equivalents 1,356,647 3,171,556 4,528,203 Receivables, non-current portion - 397, ,619 Capital assets not being depreciated 13,253,780 4,933,612 18,187,392 Capital assets, depreciable, net of accumulated depreciation 30,275,571 75,341, ,617,231 Total assets 64,934, ,127, ,061,981 Deferred Outflows of Resources Deferred loss on bond refunding - 34,613 34,613 Liabilities Current liabilities: Accounts payable 2,038,654 1,040,733 3,079,387 Retainage payable 72,266 29, ,221 Accrued interest payable 68, , ,697 Accrued salaries and payroll withholdings 324,748 75, ,297 Court bonds and confiscated funds payable 182, ,352 Customer deposits 11, , ,717 Unearned Revenue 4,200-4,200 Noncurrent liabilities: Due within one year 2,368,214 2,163,822 4,532,036 Due in more than one year 8,375,061 31,006,417 39,381,478 Total liabilities 13,445,132 34,733,253 48,178,385 Deferred Inflows of Resources Unavailable revenue - local option sales tax 316, ,985 Unavailable revenue - grants & contributions 17,784-17,784 Total deferred inflows of resources 334, ,769 Net Position Net investment in capital assets 37,154,398 47,592,613 84,747,011 Restricted for: Debt service - 3,171,556 3,171,556 Community development 538, ,668 Economic development 2,054,239-2,054,239 Public safety and law enforcement 728, ,839 Unrestricted 10,678,124 18,665,003 29,343,127 Total net position $ 51,154,268 $ 69,429,172 $ 120,583,440 The accompanying notes are an integral part of these statements. 26

79 CITY OF SUMTER, SOUTH CAROLINA STATEMENT OF ACTIVITIES For the Year Ended June 30, 2014 Program Revenues Charges Operating Capital Net (Expense) Revenue and Changes in Net Position for Grants and Grants and Governmental Business-type Functions/Programs Expenses Services Contributions Contributions Activities Activities Total Governmental activities: General government administration $ 5,506,479 $ 62,235 $ 545,862 $ - $ (4,898,382) $ - $ (4,898,382) Public safety and law enforcement 18,726,272 3,985, ,377 10,989 (14,456,068) - (14,456,068) Public works 6,198,843 2,561,400 1,111,121 - (2,526,322) - (2,526,322) Parks, recreation and culture 3,655, ,939-2,056,021 (1,180,780) - (1,180,780) Community development 518, ,468 - (27,320) - (27,320) Economic development 1,846,045 93, , ,050 (1,006,011) - (1,006,011) Interest on long-term debt 215, (215,380) - (215,380) Total governmental activities 36,667,547 7,121,669 2,863,555 2,372,060 (24,310,263) - (24,310,263) Business-type activities: Water and sewer 17,606,238 21,034,775-1,532,724 4,961,261 4,961,261 Total business-type activities 17,606,238 21,034,775-1,532,724 4,961,261 4,961,261 Total $ 54,273,785 $ 28,156,444 $ 2,863,555 $ 3,904,784 $ (24,310,263) $ 4,961,261 $ (19,349,002) General revenues: Property taxes 9,241,692-9,241,692 Sales taxes - local option 4,380,262-4,380,262 Sales taxes - local accommodations and hospitality 2,733,045-2,733,045 Franchise taxes and business licenses 9,014,503-9,014,503 Grants and contributions not restricted to specific programs 957, ,975 Gain on sale or disposition of capital assets 72,799 14,984 87,783 Unrestricted interest income 78, , ,756 Other 132,820 80, ,728 Transfers 1,557,957 (1,557,957) - Total general revenues and transfers 28,169,234 (1,151,490) 27,017,744 Change in net position 3,858,971 3,809,771 7,668,742 Net position - beginning of year as restated 47,295,297 65,619, ,914,698 Net position - end of year $ 51,154,268 $ 69,429,172 $ 120,583,440 The accompanying notes are an integral part of these statements. 27

80 CITY OF SUMTER, SOUTH CAROLINA BALANCE SHEET GOVERNMENTAL FUNDS June 30, 2014 Special Total General Revenue Governmental Fund Fund Funds Assets Cash and cash equivalents $ 10,901,761 $ 2,400,979 $ 13,302,740 Investments 973, ,670 Receivables, net of allowance for doubtful accounts 2,486,691 2,462,027 4,948,718 Due from other funds 341, ,532 Restricted cash and cash equivalents 1,356,647-1,356,647 Prepaid items 5, ,081 Inventories 283, ,035 Property held for resale 533, ,927 Total assets $ 16,882,802 $ 4,863,548 $ 21,746,350 Liabilities Liabilities: Accounts payable $ 1,152,865 $ 885,790 $ 2,038,655 Retainage payable 72,266-72,266 Accrued salaries and payroll withholdings 313,204 11, ,748 Customer Deposits 11,450-11,450 Unearned Revenue - 4,200 4,200 Escrow for seized funds and bonds 10, , ,352 Due to other funds - 341, ,532 Total liabilities 1,560,060 1,415,143 2,975,203 Deferred Inflows of Resources Unavailable revenue - property taxes 467, ,565 Unavailable revenue - local option sales tax 316, ,985 Unavailable revenue - notes & mortgages 111, , ,393 Unavailable revenue - grants & contributions 18,225 3,159 21,384 Total deferred inflows of resources 914, ,659 1,041,327 Fund Balances: Nonspendable Prepaid items 5,539-5,539 Inventories 283, ,035 Property held for resale 533, ,927 Restricted Purchase of capital assets 1,067,632-1,067,632 Community development - 538, ,668 Economic development 289,015 2,054,239 2,343,254 Public safety and law enforcement - 728, ,839 Unassigned 12,228,926-12,228,926 Total fund balances 14,408,074 3,321,746 17,729,820 Total liabilities, deferred inflows of resources and fund balances $ 16,882,802 $ 4,863,548 $ 21,746,350 The accompanying notes are an integral part of these statements. 28

81 CITY OF SUMTER, SOUTH CAROLINA RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION June 30, 2014 Amounts reported for government activities in the statement of net position are different because: Total fund balance of governmental funds (page 28) 17,729,820 Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds 43,529,351 Other long-term assets are not available to pay for current-period expenditures and therefore, are considered deferred inflows of resources in the funds: Property taxes 706,559 Long-term liabilities, including bonds payable, are not due and payable in the current period and are therefore not reported in the funds: Accrued compensated absences (3,011,675) Accrued interest (68,187) Bonds and leases payable (7,731,600) Net position of governmental activities $ 51,154,268 The accompanying notes are an integral part of these statements. 29

82 CITY OF SUMTER, SOUTH CAROLINA STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS For the Year Ended June 30, 2014 Non-Major Total General Governmental Governmental Fund Funds Funds Revenues Taxes Property and vehicle and fire fees $ 9,323,692 $ - $ 9,323,692 Sales 4,380,262 2,733,045 7,113,307 Licenses, permits, and franchise fees 8,705, ,743 9,304,157 Intergovernmental revenue State and federal governments 911,280 4,346,618 5,257,898 Local governments 4,164,568-4,164,568 Charges for services Sanitation fees and container rentals 2,600,242-2,600,242 Other 449, ,416 Fines, fees, and forfeitures 340,424 54, ,440 Interest income and investment return 44,454 33,727 78,181 Other 44,199 97, ,669 Total revenues 30,963,951 7,863,619 38,827,570 Expenditures Current General government administration 5,127, ,996 5,334,675 Public safety and law enforcement 15,811, ,567 16,677,457 Public works 3,800, ,195 4,501,353 Parks, recreation and culture 2,374, ,704 2,859,198 Community development - 377, ,225 Economic development 1,021, ,707 1,617,646 Debt Service Principal retirement-bond obligations 656, ,000 1,653,150 Principal retirement-capital lease obligations 806, ,635 Interest and fiscal charges 152,936 85, ,459 Capital Outlay General government administration 21,949-21,949 Public safety 714,808 10, ,797 Public works 1,062,757-1,062,757 Parks, recreation and culture 702,527 3,248,288 3,950,815 Community development - 356, ,369 Economic development 768,197 34, ,879 Total expenditures 33,022,119 7,964,245 40,986,364 Excess (deficiency) of revenues over (under) expenditures (2,058,168) (100,626) (2,158,794) Other financing sources (uses) Transfers in 2,511, ,485 2,945,413 Transfers out (65,000) (1,331,123) (1,396,123) Sale of capital assets 202,705 1, ,306 Proceeds of capital leases 733, ,000 Total other financing sources 3,382,633 (896,037) 2,486,596 Net change in fund balances 1,324,465 (996,663) 327,802 Fund balances, beginning of year 13,083,609 4,318,409 17,402,018 Fund balances, end of year $ 14,408,074 $ 3,321,746 $ 17,729,820 The accompanying notes are an integral part of these statements. 30

83 CITY OF SUMTER, SOUTH CAROLINA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES For the Year Ended June 30, 2014 Amounts reported for governmental activities in the statement of activities (page 27) are different because: Net change in fund balances -- total governmental funds (page 30) $ 327,802 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 capital outlays exceeded depreciation in the current period: Capital outlays capitalized (includes $8,667 related to transfer of asset from enterprise funds to governmental funds) 6,929,233 Depreciation expense not recorded in funds (4,252,177) Loss on disposition of capital assets (131,507) Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds: Property taxes (82,000) Donated capital assets 150,186 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 current financial resources of governmental funds. Neither transaction, however, has any effect on net position. This amount is the net effect of these differences in the treatment of long-term debt and related items: Payments on long-term debt 2,459,785 Issuance of long-term debt (733,000) 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: Accrued interest 23,079 Compensated absences (832,430) Change in net position of governmental activities (page 27) $ 3,858,971 The accompanying notes are an integral part of these statements. 31

84 Page 1 of 2 CITY OF SUMTER, SOUTH CAROLINA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL -- GENERAL FUND For the Year Ended June 30, 2014 Variance with Final Budget- Budgeted Amounts Actual Over Original Final Amounts (Under) REVENUES Taxes Property taxes $ 13,097,504 $ 13,097,504 $ 9,323,692 $ (3,773,812) Sales - - 4,380,262 4,380,262 Licenses, permits and franchise fees 8,253,055 8,253,055 8,705, ,359 Intergovernmental revenue State government 750, , , ,280 Local governments 4,323,678 4,323,678 4,164,568 (159,110) Charges for services Sanitation fees and container rentals 2,518,000 2,518,000 2,600,242 82,242 Other 100, , , ,224 Fines, fees, and forfeitures 301, , ,424 38,924 Interest income and investment return 15,000 15,000 44,454 29,454 Other 174, ,250 44,199 (130,051) Total revenues 29,533,179 29,533,179 30,963,951 1,430,772 EXPENDITURES General government administration: Administration 1,506,043 1,506,043 1,725, ,904 City store 68,454 68,454 63,005 (5,449) Planning 585, , ,189 (109,496) Business license department 194, , ,636 (5,694) Approriations to other agencies 256, , ,522 (759) General insurance 783, , ,473 (135,137) Retiree insurance 830, , ,632 (51,368) Maintenance contracts 670, , ,351 47,079 Miscellaneous 726, , ,924 (397,476) 5,621,075 5,566,075 5,127,679 (438,396) Public Safety and Law Enforcement: Police 9,698,044 9,698,044 9,207,083 (490,961) Fire 5,527,476 5,527,476 5,471,408 (56,068) Building inspection 860, , ,880 (102,088) Codes enforcement 252, , ,924 (52,998) Municipal court 169, , ,595 5,288 16,508,717 16,508,717 15,811,890 (696,827) Public Works: Construction 539, , ,516 (190,222) Public works 931, ,276 1,018,860 32,584 Buildings and grounds maintenance 30,000 30,000 32,470 2,470 Sanitation 2,331,353 2,313,153 2,288,040 (25,113) Vehicle maintenance 87,545 87, ,272 23,727 3,919,912 3,956,712 3,800,158 (156,554) Continued 32

85 Page 2 of 2 CITY OF SUMTER, SOUTH CAROLINA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL -- GENERAL FUND For the Year Ended June 30, 2014 Variance with Final Budget- Budgeted Amounts Actual Over Original Final Amounts (Under) Parks, recreation and culture Parks 881, , ,343 92,672 Gardens 677, , ,476 (47,677) Tennis 431, , ,591 39,756 Aquatics 274, , ,628 (38,222) Opera House 50,650 50,650 62,456 11,806 2,316,159 2,316,159 2,374,494 58,335 Economic Development: Downtown revitalization programs 605, , ,123 (149,185) Liberty Center 45,000 45,000 28,618 (16,382) Hope Centers 619, , ,198 (82,691) 1,270,197 1,270,197 1,021,939 (248,258) Debt service Principal retirement-bond obligations 655, , , Principal retirement-capital lease obligations 832, , ,635 (26,231) Interest and fiscal charges 172, , ,936 (19,202) 1,660,784 1,660,784 1,615,721 (45,063) Capital Outlay General government administration ,949 21,949 Public safety 634, , ,808 80,260 Public works 1,040,500 1,040,500 1,062,757 22,257 Parks, recreation and culture 133, , , ,827 Economic Development: 12,517 12, , ,680 1,821,065 1,839,265 3,270,238 1,430,973 Total expenditures 33,117,909 33,117,909 33,022,119 (95,790) Excess (deficiency) of revenues over expenditures (3,584,730) (3,584,730) (2,058,168) 1,526,562 OTHER FINANCING SOURCES (USES) Transfers in 2,493,223 2,493,223 2,511,928 18,705 Transfer in from reserves 396, ,507 - (396,507) Transfers out (65,000) (65,000) (65,000) - Sale of capital assets 115, , ,705 87,705 Proceeds of capital leases 645, , ,000 88,000 Total other financing sources (uses) 3,584,730 3,584,730 3,382,633 (202,097) Net change in fund balances - - 1,324,465 1,324,465 Fund balances, beginning of year 11,639,594 11,639,594 13,083,609 - Fund balances, end of year 11,639,594 11,639,594 14,408,074 1,324,465 The accompanying notes are an integral part of these statements. 33

86 CITY OF SUMTER, SOUTH CAROLINA STATEMENT OF NET POSITION PROPRIETARY FUNDS June 30, 2014 Enterprise Funds Non-major Water and Storm Water Assets Sewer Fund Utility Fund Totals Current assets: Cash and cash equivalents $ 6,218,596 $ 111,123 $ 6,329,719 Investments 9,719,820-9,719,820 Accounts receivable, net of allowance for uncollectibles 4,133,229-4,133,229 Prepaids and other Total current assets 20,072, ,123 20,183,365 Non-current assets: Restricted cash and cash equivalents 3,171,556-3,171,556 Accounts receivable, net of allowance for uncollectibles 397, ,619 Interest in joint venture 100, ,000 Capital assets not being depreciated 4,933,612-4,933,612 Capital assets, depreciable, net of accumulated depreciation 74,241,012 1,100,648 75,341,660 Total non-current assets 82,843,799 1,100,648 83,944,447 Total assets 102,916,041 1,211, ,127,812 Deferred Outflows of Resources Deferred loss on bond refunding 34,613-34,613 Liabilities Current liabilities: Accrued interest payable 116, ,510 Accounts payable 1,047,360 23,328 1,070,688 Accrued payroll 74, ,549 Customer deposits 300, ,267 Compensated absences payable 131, ,358 Bonds and leases payable - current portion 2,032,464-2,032,464 Total current liabilities 3,702,259 24,577 3,726,836 Non-current liabilities: Compensated absences payable 320, ,609 Bonds and leases payable 30,684,808-30,684,808 Total non-current liabilities 31,005, ,006,417 Total liabilities 34,707,963 25,290 34,733,253 Net Position Net investment in capital assets 46,491,965 1,100,648 47,592,613 Restricted for debt service 3,171,556-3,171,556 Unrestricted 18,579,170 85,833 18,665,003 Total net position $ 68,242,691 $ 1,186,481 $ 69,429,172 The accompanying notes are an integral part of these statements. 34

87 CITY OF SUMTER CITY, SOUTH CAROLINA STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION PROPRIETARY FUNDS For the Year Ended June 30, 2014 Enterprise Funds Non-major Water and Storm Water Sewer Fund Utility Fund Totals Operating revenue Charges for services Water $ 9,783,266 $ - $ 9,783,266 Sewer 9,127,112-9,127,112 Storm water - 522, ,191 Other operating revenue 1,602,206-1,602,206 Total operating revenues 20,512, ,191 21,034,775 Operating expenses Salaries and benefits 5,515,598 72,402 5,588,000 Bad debts 366, ,032 Utilties 1,871,554-1,871,554 Other operating expense 4,492,138 97,687 4,589,825 Depreciation 3,425,397 89,540 3,514,937 Total operating expenses 15,670, ,629 15,930,348 Operating income 4,841, ,562 5,104,427 Non-operating revenues (expenses) Interest expense (1,519,380) - (1,519,380) Miscellaneous expense (156,510) - (156,510) Capital grants 271, ,163 Interest income and investment return 310, ,575 Gain on sale of capital assets 14,984-14,984 Miscellaneous revenue 80,908-80,908 Total non-operating revenues (expenses) (998,260) - (998,260) Income before contributions transfers 3,843, ,562 4,106,167 Capital contributions 1,251,561 10,000 1,261,561 Transfers out (1,557,957) - (1,557,957) Change in net position 3,537, ,562 3,809,771 Total net position, beginning of year as restated 64,705, ,919 65,619,401 Total net position, end of year $ 68,242,691 $ 1,186,481 $ 69,429,172 The accompanying notes are an integral part of these statements. 35

88 CITY OF SUMTER, SOUTH CAROLINA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS For the Year Ended June 30, 2014 Enterprise Funds Non-major Water and Storm Water Sewer Fund Utility Fund Totals Cash Flows from Operating Activities Receipts from customers and users $ 19,861,511 $ 522,191 $ 20,383,702 Payments to suppliers (5,919,401) (87,763) (6,007,164) Payments to employees (5,440,531) (71,890) (5,512,421) Net Cash Flows Provided by Operating Activities 8,501, ,538 8,864,117 Cash Flows from Non-capital Financing Activities Other non-operating revenue 352,071 10, ,071 Other non-operating expense (156,510) - (156,510) Interfund Loans - proceeds and collections (37,431) (93,461) (130,892) Transfer to other fund (1,557,957) - (1,557,957) Net Cash Flows Used by Non-Capital Financing Activities (1,399,827) (83,461) (1,483,288) Cash Flows from Capital and Related Financing Activities Proceeds from dispostion of capital assets 14,984-14,984 Purchase and construction of capital assets (2,894,416) (167,954) (3,062,370) Principal paid on capital debt (1,958,463) - (1,958,463) Interest paid on capital debt (1,517,983) - (1,517,983) Net Cash Flows Used by Capital Financing Activities (6,355,878) (167,954) (6,523,832) Cash Flows from Investing Activities Interest on cash and cash equivalents 130, ,915 Net Cash Provided by Investing Activities 130, ,915 Increase in cash and cash equivalents 876, , ,912 Cash and cash equivalents, beginning of year 8,513,363-8,513,363 Cash and cash equivalents, end of year $ 9,390,152 $ 111,123 $ 9,501,275 Reconciliation of net operating income to net cash provided by operating activities: Operating income $ 4,841,865 $ 262,562 5,104,427 Adjustments to reconcile operating income to net cash provided by operaitng activities: Depreciation expense 3,425,397 89,540 3,514,937 Change in current assets and liabilities: Increase in accounts receivable (292,873) - (292,873) Increase in accrued absences 53, ,622 Increase in customer deposits 7,832-7,832 Increase in accounts payable 444,291 9, ,215 Increase in accrued payroll 21, ,957 Net cash provided by operating activities $ 8,501,579 $ 362,538 $ 8,864,117 The accompanying notes are an integral part of these statements. 36

89 CITY OF SUMTER, SOUTH CAROLINA STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS June 30, 2014 Private Purpose Agency Trusts Funds Assets Cash and cash equivalents $ 8,905 $ 1,439,630 Receivables - 68,408 Total revenues $ 8,905 $ 1,508,038 Liabilities Accounts payable $ - $ 26,637 Due to customers - 39,450 Due to other organization - 1,441,951 Total liabilities - 1,508,038 Net Position Held in trust for other purposes $ 8,905 $ - The accompanying notes are an integral part of these statements. 37

90 CITY OF SUMTER, SOUTH CAROLINA STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FIDUCIARY FUNDS June 30, 2014 Additions Interest $ 13 Contributions - Total additions 13 Deductions Distributions to beneficiaries - Total additions - Change in net postion 13 Net position, beginning of year 8,892 Net position, end of year $ 8,905 The accompanying notes are an integral part of these statements. 38

91 CITY OF SUMTER, SOUTH CAROLINA NOTES TO FINANCIAL STATEMENTS June 30, 2014 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City of Sumter, South Carolina was chartered in 1845 and incorporated in The City operates under a Council-Manager form of government which it adopted in Under this form of government, the City is governed by six council members elected from single-member districts and a mayor elected at large who serves as council chair. The council is the legislative body of the City and has the major responsibility for determining the policies and direction of the municipal government. The City manager reports to Council and is responsible for the City s daily operations. The City s financial statements have been prepared in accordance with Generally Accepted Accounting Principles (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. In the government-wide financial statements and the fund financial statements for the proprietary funds, Financial Accounting Standards Board (FASB) pronouncements and Accounting Principles Board (APB) opinions issued on or before November 30, 1989, have been applied unless those pronouncements conflict with or contradict GASB pronouncements, in which case, GASB prevails. A. Reporting Entity As required by GAAP, basic financial statements of governmental units include not only information about the reporting, (i.e., primary) government but also about component units. Component units are organizations for which the primary government is financially accountable or organizations which are sufficiently significant to the primary government that their exclusion could cause the financial statements to be misleading or incomplete. Based on the applicable criteria, the City has determined it has no component units and that it is not a component unit of another entity. Therefore, the City reports as a primary entity. The City s fiduciary funds are not included in the government wide-financial statements. The City s fiduciary activities are used to report assets held by the City in a trustee or agency capacity and which, therefore, can t be used to support the City s own programs. In the City of Sumter these funds are primarily revenue collected for water companies other than the City of Sumter s and funds escrowed for their respective programs. B. Basis of Presentation The City s financial statements are presented from two perspectives, the government-wide perspective and the fund perspective. The government-wide financial statements consist of the Statement of Net Position and the Statement of Activities. The two statements report information on all of the non-fiduciary activities of the City (the primary government ). Separate columns are used to distinguish between the City's governmental activities, which normally are supported by taxes and intergovernmental revenues, and the City s business-type activities, which rely to a significant extent on fees and charges for support. Governmental activities generally incorporate data from governmental funds (see discussion below) while business-type activities generally incorporate data from enterprise funds. The Statement of net position reports all financial and capital resources of the City and reports the difference between assets and deferred outflows of resources, and liabilities and deferred inflows of resources, as net position, not as fund balance or equity. The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment, are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. 39

92 CITY OF SUMTER, SOUTH CAROLINA NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 Taxes and other items not properly included among program revenues are reported as general revenues. The comparison of direct expenses with program revenues identifies the extent to which each business segment or governmental function is self-financing or draws from the general revenues of the City. The use of multiple funds gives rise to interfund activity. Most, but not all, of this internal activity is eliminated from the government-wide statement of activities. Except for net residual balances which are reported as internal balances, amounts reported in the funds as interfund receivables and payables have been eliminated in the governmental and business-type activities columns of the statement of net position. Amounts reported in the funds as receivable from or payable to fiduciary funds are included in the statement of net position as receivable from and payable to external parties. Fund financial statements present separate information for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Funds are independent fiscal and accounting entities with self-balancing sets of accounts. The focus of governmental and enterprise fund financial statements is on major funds rather than reporting funds by type. Each major fund is presented in a separate column. Non-major funds, if any, are aggregated and presented in a single column. Fiduciary funds are reported by fund type. A fund is considered major if it is the primary operating fund of the City or meets the following criteria: a. Total assets and deferred outflows of resources, liabilities and deferred inflows of resources, revenues, or expenditures/expenses of the individual governmental or enterprise fund are at least 10 percent of the corresponding total for all funds of that category of type; and b. Total assets and deferred outflows of resources, liabilities and deferred inflows of resources, revenues, or expenditures/expenses of the individual governmental or enterprise fund are at least 5 percent of the corresponding total for all governmental and enterprise funds combined. Governmental fund types are those through which most governmental functions of the City are financed. The City's expendable financial resources and related assets and deferred outflows of resources, and liabilities and deferred inflows of resources, (except for those accounted for in the Proprietary Fund and Fiduciary Funds) are accounted for through governmental funds. Governmental funds are accounted for using the current financial resources measurement focus and the modified accrual basis of accounting. The City reports one major governmental fund, the general fund. The General Fund is the general operating fund of the City and accounts for all revenues and expenditures of the City, except those required to be accounted for in another fund. All general tax revenues and other receipts that are not allocated by law or contractual agreement to other funds are accounted for in the General Fund. General operating expenditures, capital improvement costs, and general debt service that are not paid through other funds are paid from the General Fund. In addition, the City reports one nonmajor governmental fund type, the special revenue fund. The Special Revenue Fund, is used to account for the proceeds of designated specific revenue sources that are restricted by law or administrative actions to expenditures for specified purposes. Special revenue funds consist of the following: USDA Rural Business Firemen's Fund Narcotics Fund HUD Section 108 Empowerment Zone Victim's Assistance Federal/State Grants Main Street Society Emergency 911 Community Development Block Grants Local Hospitality Fee Hospitality Fee Revenue Bond CDBG HOME State Accommodations Tax Hospitality Fee Revenue Bond Downtown Loan Local Accommodations Fee Projects Proprietary Funds are used to account for activities where the determination of net income is necessary or useful to provide sound financial administration. Proprietary funds distinguish operating revenues and expenses from non 40

93 CITY OF SUMTER, SOUTH CAROLINA NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operations. The principal operating revenues of enterprise funds are primarily charges for services and fees. Operating expenses for enterprise funds include the expense for providing goods and services, administrative expenses, maintenance, and depreciation of capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. The City s proprietary funds include two enterprise funds which are used to account for operations (a) that are financed and operated in a manner similar to private business enterprises where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. The City reports one major enterprise fund, the Water and Sewer Fund, which is used to account for operations of the City s water and sewer system. The City also reports one nonmajor enterprise fund, the Storm Water Utility Fund. Fiduciary Fund Types include the Private Purpose Trust Fund and the Agency Fund. These funds are used to account for assets held by the City in a trustee capacity for individuals, other governments, and/or other funds. The private purpose trust fund is used to account for resources legally held in trust. The Agency Fund is generally used to account for miscellaneous assets that the government holds on behalf of others. The Agency Fund is custodial in nature and does not present results of operations. C. Measurement Focus and Basis of Accounting The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. Basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. As a general rule, revenues are recognized when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the grantor have been met. Additionally, the effect of interfund activity has been eliminated from the government-wide financial statements, except for amounts due between the City's governmental activities and business-type activities. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual (i.e., when they become both measurable and available). Measurable means the amount of the transaction can be identified and available means collectible within the current period or soon enough thereafter (generally not to exceed 60 days) to be used to pay liabilities of the current period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Those revenues susceptible to accrual are property taxes, sales taxes, franchise fees, business licenses, charges for services, and hospitality fees. Revenues from state and federal grants are recorded when expenditures are incurred. Entitlements and shared revenues are recognized at the time of receipt or earlier if the susceptible to accrual criteria is met. Interest revenue is considered available when earned. 41

94 CITY OF SUMTER, SOUTH CAROLINA NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payments are due. General capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term debt and acquisitions under capital leases are reported as other financing sources. Proprietary funds are accounted for on a flow of economic resources measurement focus. Under this method, the accrual basis of accounting is utilized, revenues are recognized when earned and expenses are recorded at the time liabilities are incurred. All assets and deferred outflows of resources, and liabilities and deferred inflows of resources associated with the operation of these funds are included on the balance sheet. Proprietary fund type operating statements present increases (i.e., revenue) and decreases (i.e., expenses) in net position by distinguishing operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. D. Budgetary Information Annual budgets are adopted for the general fund, the Local Hospitality, the Local Accommodation Tax, and the Victim s Assistance special revenue funds, and the water and sewer enterprise fund. The general fund and the three special revenue funds budgets are prepared on a basis consistent with generally accepted accounting principles. The City s administration prepares the budget no later than June 30. The appropriated budget is prepared by fund, function, department, activity and object and can be amended throughout the year by City Council approval. The City Manager may make transfers of appropriations within and among functions and funds. The legal level of budgetary control is total expenditures for the four budgeted funds on an individual basis. All annual appropriations lapse at fiscal year end. E. Assets, Deferred Outflows/Inflows of Resources, and Net Position/Fund Balance Cash and cash equivalents The government's cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. All investments are reported at fair value. Cash equivalents, for purposes of the statement of cash flows for proprietary funds, are defined as shortterm, highly liquid investments that are readily convertible to known amounts of cash and are so near their maturity that they present insignificant risk of changes in value due to changes in interest rates. Receivables and Payables Activity between funds that is representative of lending/borrowing arrangements outstanding at the end of the fiscal year is referred to as either "due to/from other funds" (i.e., the current portion of inter-fund loans) or "advances to/from other funds" (i.e., the non-current portion of inter-fund loans). Short-term advances between funds are accounted for in the appropriate inter-fund receivable and payable accounts as due to/from funds. All trade and property tax receivables are shown net of an allowance for uncollectibles. The property tax receivable allowance is equal to 52 percent of outstanding property taxes at June 30, Notes receivable are housing rehabilitation loans which were made under terms of expired Federal grant programs and recorded as receivables with offsetting deferred inflows of resources (explained later). Revenue is recognized only when cash is received. 42

95 CITY OF SUMTER, SOUTH CAROLINA NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 Inventories and Prepaid Items Inventories are valued at cost using the average cost method. The costs of governmental fund-type inventories are recorded as expenditures when consumed rather than when purchased. Inventories in the general fund consist of fuel, cleaning and office supplies and promotional items. Payments to vendors that reflect costs applicable to future period are recorded as prepaid items in both the government-wide and the fund financial statements. Real Estate Held for Resale Real estate held for resale is recorded at the lower of cost or its net realizable value. Restricted Assets Certain proceeds of general fund bonds and capital leases and enterprise fund revenue bonds, as well as certain resources set aside for their repayment, are classified as restricted assets on the balance sheet because their use is limited by applicable bond covenants. If both restricted and unrestricted resources are to be used for the same purpose, it is the government s policy to first use restricted resources. At year end the City reports restricted cash in the amount of $4,528,203. Capital Assets Capital assets include all property, plant, equipment, vehicles, furniture, and infrastructure assets acquired or constructed. Capital assets are defined by the government as assets with a unit cost in excess of $5,000 and an estimated useful life in excess of one year. These assets are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred (net of interest earned for tax exempt debt) is capitalized during the construction of qualifying assets. Construction in progress represents funds expended for construction of capital assets which have not yet been placed into service. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows: Asset Years Machinery and equipment 3 to 10 Vehicles 5 to 10 Buildings and improvements 15 to 40 Water and sewer systems 40 to 75 Infrastructure 10 to 20 Capitalized Interest Interest incurred during the construction phase of proprietary fund fixed assets is reflected in the capitalized value of the asset being constructed. Interest is not capitalized on assets acquired by gifts and grants that are restricted by the donor or grantor to the acquisition of those assets. The City does not capitalize interest on fixed assets used in governmental activities. During the year ended June 30, 2014, there was no capitalized interest incurred by the Water and Sewer Enterprise Fund. Deferred Outflows/Inflows of Resources In addition to assets, The City reports deferred outflows of resources in a separate section of its government-wide and proprietary funds statements. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period. The City only has one item that qualifies for reporting in this category. It is the deferred loss on a prior year refunding of enterprise fund bonds. This deferred loss is amortized over the remaining life of the refunding bonds as part of interest expense. 43

96 CITY OF SUMTER, SOUTH CAROLINA NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 In addition to liabilities, the City reports deferred inflows of resources in a separate section of its government-wide and fund statements. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period. The difference between Deferred inflows of resources in the fund statements and the government-wide statements consists primarily of unavailable revenue related to property taxes which did not meet the availability criteria under the modified accrual basis of accounting (collected within 60 days after fiscal year end). Compensated Absences City employees may accumulate up to 90 days of earned but unused sick leave, but the City does not pay employees separating from service for unused sick leave. In lieu of overtime compensation, the City may credit employees with compensatory time at the rate of 1 1/2 hours for each overtime hour worked. Employees who are scheduled to work on a holiday may receive an alternate day off to be scheduled by their supervisor or receive holiday pay. There is no cap on accrued compensatory or holiday time/pay. Exempt employees are not eligible for compensatory or holiday time/pay. All City employees are eligible for paid vacation. Fire suppression employees may carry forward a maximum of 900 unused vacation hours from one year to the next, and other employees may carry forward up to 600 such hours. Employees who terminate employment with the City prior to retirement can be paid for up to 24 days of unused vacation, provided they work a two week notice and have not been discharged for disciplinary reasons. In the year of their retirement from service with the city, employees may use up to 30 days of annual leave and be paid for up to 45 days of unused annual leave. All compensatory, holiday, and vacation pay is accrued when incurred in the government-wide and proprietary financial statements. A liability for these amounts is reported in governmental funds only when they mature because an employee resigns or retires. Long-term obligations In the government-wide financial statements and proprietary funds statements, long-term debt and other long-term obligations are reported as liabilities in the applicable statement of net position. In the past bond premiums and discounts, as well as issuance costs, were deferred and amortized over the lives of the bonds and bonds payable were reported net of the amortization. However, with the implementation of GASB Statement 65, bond premiums, discounts, and issuance costs (except for costs related to prepaid insurance), are to be fully recognized as revenues or expenses during the period they are incurred. This statement is effective for periods beginning after December 15, See Restatement Adjustments note for the cumulative effect of this statement on the City s net position. In the fund financial statements, governmental fund types already recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Property Taxes Taxes on real property are assessed as of January 1, levied the following September, due January 15, and become delinquent March 15. Liens attach to the property at the time the taxes are levied. The levy date for motor vehicle taxes is the first day of the month in which the motor vehicle license expires. These taxes are due by the last day of the same month. Net Position The components of the City s net position are classified as follows: Net investment in capital assets: This represents the City s total investment in capital assets, net of any outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets. Restricted net position: Restricted net position includes resources in which the City is legally or contractually obligated to spend in accordance with restrictions imposed by external third parties such as state laws and lenders. 44

97 CITY OF SUMTER, SOUTH CAROLINA NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 Unrestricted net position: Unrestricted net position represents resources which may be used to meet current expenses for any purpose. Governmental Fund Balances Governmental fund balance is divided into five classifications based primarily on the extent to which the City is bound to observe constraints imposed upon the use of the resources in the applicable governmental fund. The classifications are as follows: Nonspendable: The nonspendable fund balance category includes amounts that cannot be spent because they are not in spendable form (e.g., inventories and prepaid amounts), or are legally or contractually required to be maintained intact. Restricted: Fund balance is reported as restricted when constraints placed on the use of resources are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislation (i.e., city ordinances). Enabling legislation authorizes the City to assess, levy, charge, or otherwise mandate payment of resources (from external resource providers) and includes a legally enforceable requirement that those resources be used only for the specific purposes stipulated in the legislation. Legal enforceability means that the City can be compelled by an external party such as citizens, public interest groups, or the judiciary to use resources created by enabling legislation only for the purposes specified by the legislation. Committed: The committed fund balance classification includes amounts that can be used only for the specific purposes imposed by formal action (ordinance or resolution) of the City Council. Those committed amounts cannot be used for any other purpose unless City Council removes or changes the specified use by taking the same type of action (ordinance or resolution) it employed to commit those amounts previously. In contrast to fund balance that is restricted by enabling legislation, committed fund balance classification may be redeployed for other purposes with appropriate due process. Constraints imposed on the use of committed amounts are imposed by City Council, separate from the authorization to raise the underlying revenue; therefore, compliance with these constraints is not considered to be legally enforceable. Committed fund balance also incorporates contractual obligations to the extent that existing resources in the fund have been specifically committed for use in satisfying those contractual requirements. Assigned: Amounts in the assigned fund balance classification are intended to be used by the City for specific purposes but do not meet the criteria to be classified as restricted or committed. In governmental funds other than the general fund, assigned fund balance represents the remaining amount that is not restricted or committed. In the general fund, assigned amounts represent intended uses established by City Council or by a City official or body to which Council has delegated the authority to assign amounts to be used for specific purposes. Unassigned: Unassigned fund balance is the residual classification for the general fund and includes all spendable amounts not contained in the other classifications. In other governmental funds, the unassigned classification is used only to report a deficit fund balance resulting from overspending for specific purposes for which amounts had been restricted, committed, or assigned. The City applies restricted resources first when expenditures are incurred for purposes for which either restricted or unrestricted (committed, assigned, and unassigned) amounts are available. Similarly, within unrestricted fund balance, committed amounts are reduced first followed by assigned, and then unassigned amounts when expenditures are incurred for purposes for which amounts in any of the unrestricted fund balance classifications could be used. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United 45

98 CITY OF SUMTER, SOUTH CAROLINA NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. F. Capital Contributions On the government-wide and enterprise fund financial statements the City reports contributions of capital as a result of outside capital asset contributions, contributions from other funds or from grants or outside contributions of resources restricted to capital acquisition and construction. II. ACCOUNTING CHANGES A. Restatement of Beginning Net Position For fiscal year 2014, the City made several prior period adjustments due to the adoption of GASB Statement No. 65 which required the restatement of the June 30, 2013, net position in proprietary funds. As a result, there is a decrease in the Net Position at July 1, 2013, of $14,934. This change is in accordance with generally accepted accounting principles. Proprietary Funds Government-Wide Net Position, June 30, 2013, as previously reported 65,634, ,929,632 Reclassification of 2007 bond premium 453, ,754 Reclassification of bond issuance costs (468,688) (468,688) Net Position, July 1, 2013, as restated 65,619, ,914,698 III. DETAILED NOTES ON ALL FUNDS A. Cash and Investments Cash Deposits As of June 30, 2014, the carrying amount of the government s bank deposits was $12,835,237 and the respective bank balances totaled $14,454,253. Of the total bank balances, $7,418,970 was insured through the Federal Depository Insurance Corporation (FDIC). The remaining $7,035,283 was collateralized with securities held by the financial institutions in the government s name. Investments As of June 30, 2014, in accordance with South Carolina law applicable to local government deposits and investments, the government had the following investments: Investment Maturities Fair Value Insured or registered, or held by the government or its agent in the government's name: $1,000,000 Federal National Mortgage Association bond 1% 7/30/2027 $ 973,670 $2,000,000 Federal National Mortgage Association bond.75% 12/27/2018 1,958,220 $2,000,000 Federal National Mortgage Association bond.75% 12/27/2019 1,952,040 $2,000,000 Federal Home Loan Banks bond 1% 12/18/2020 1,954,360 $2,000,000 Federal Home Loan Banks bond 1.25% 12/27/2022 1,919,880 $2,000,000 Federal Home Loan Banks bond 1.25% 12/27/2024 1,935,320 Other: Federated Treasury Obligation Fund #398 Short-term 734,300 Fidelity Prime Fund Daily Money Class 1 to 180 days 382,404 Investment in South Carolina Pooled Investment Fund 10,208,667 $ 22,018,861 46

99 CITY OF SUMTER, SOUTH CAROLINA NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 The City s investments also include a life insurance contract on the life of an employee. At year end, this contract had no cash surrender value. South Carolina Pooled Investment Fund The South Carolina Pooled Investment Fund (the Pool ) funds are invested with the South Carolina State Treasurer s Office, which established the Pool pursuant to Section of the South Carolina Code. The Pool is an investment trust fund, in which public monies in excess of current needs, which are under the custody of any city treasurer or any governing body of a political subdivision of the State, may be deposited. The Pool is a 2a 7-like pool which is not registered with the Securities and Exchange Commission ( SEC ) as an investment company, but has a policy that it will operate in a manner consistent with the SEC s Rule 2a 7 of the Investment Company Act of In accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, investments are carried at fair value determined annually based upon quoted market prices. The total fair value of the Pool is apportioned to the entities with funds invested on an equal basis for each share owned, which are acquired at a cost of $1. Credit Risk State law limits local government investments to (1) obligations of the United States and agencies thereof; (2) general obligations of the State of South Carolina or any of its political units; (3) savings and loan association deposits to the extent insured by the Federal Deposit Insurance Corporation (FDIC); (4) certificates of deposits and repurchase agreements collateralized by securities of the type described in (1) and (2) above held by a third party as escrow agent or custodian, at a market value not less than the amount of certificates of deposit and repurchase agreements so secured, including interest; and (5) no load open and closed-end portfolios of certain investment companies with issues of the US Government. The City has no investment policy that would further limit its investment choices. As of year end, the City s investment in the South Carolina Pooled Investment Fund was unrated. The government s investments in Federated Treasury Obligation Fund #398 and Fidelity Prime Fund Daily Money Class were both rated Aaa-mf by Moody s and AAAm by Standard & Poor s. Interest Rate Risk. Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. As such, the key factor in measuring the City s interest rate risk is the length of maturity of its debt securities. The earliest maturity date of the debt securities held by the City at year end is December 27, 2018, at which time a face value in the amount of $2,000,000 will mature, with another $2,000,000 maturing in each of the following two years. In addition, debt securities with a face value of $2,000,000 will mature in the year 2022, and another $2,000,000 will mature in As its longest length of maturity, the City holds debt securities with a face value of $1,000,000 that will mature in It is also important to note that the debt securities held by the City are considered step up bonds, which are designed to minimize interest rate risk by periodically increasing the coupon payment by a predetermined amount. In addition, all of the City s holdings in debt securities become callable at their face value within three months after year end. B. Receivables Receivables as of year end for the government s individual major funds, including the applicable allowances for uncollectible accounts are as follows: 47

100 CITY OF SUMTER, SOUTH CAROLINA NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 Special Water and Storm General Revenue Sewer Water Fund Fund Fund Fund Total Current: Taxes Property $ 1,010,067 $ - $ - $ - $ 1,010,067 Sales and franchise 196, , ,544 Intergovernmental 1,678,033 1,392, ,163-3,341,522 Accounts 45,065-2,904,263-2,949,328 Unbilled receivables - - 1,063,216-1,063,216 Loans and notes 111, ,500 45, ,393 Interest - - 2,583-2,583 Other ,790-19,890 Non-current: Notes , ,619 Other Gross receivables 3,041,501 2,462,027 4,703,634-10,207,162 Less, allowance for uncollectibles (554,810) - (172,786) - (727,596) Net total receivables $ 2,486,691 $ 2,462,027 $ 4,530,848 $ - $ 9,479,566 C. Unearned Revenue Governmental funds report unearned revenue in connection with resources that have been received, but not yet earned. At year end, the City reports $4,200 in unearned revenue in relation to charges that were received in advance of the applicable reporting period. D. Capital Assets Capital asset activity for the City for the year ended June 30, 2014 was as follows: Beginning Ending Balance Increases Decreases Transfers Balance Governmental activities: Capital assets not being depreciated: Land $ 10,007,616 $ 2,059,663 $ - $ - $ 12,067,279 Works of Art 396, ,866 Construction in progress 1,230, ,368 - (931,804) 789,635 Total capital assets not being depreciated 11,634,553 2,551,031 - (931,804) 13,253,780 Capital assets being depreciated: Infrastructure 28,096,684 1,083, ,164 29,294,743 Buildings and improvements 21,058,084 1,646, ,641 23,521,965 Motor vehicles and outdoor equipment 18,277,165 1,655,112 1,636,659 (5,422) 18,290,196 Office equipment 3,022, ,473-50,924 3,207,557 Total capital assets being depreciated 70,454,093 4,519,720 1,636, ,306 74,314,461 Less accumulated depreciation for: Infrastructure 15,586,412 1,649, ,235,832 Buildings and improvements 10,188, , ,011,180 Motor vehicles and outdoor equipment 12,473,567 1,734,496 1,505,152 2,886 12,705,797 Office equipment 3,006,555 45,577-33,949 3,086,081 Total accumulated depreciation 41,255,029 4,252,178 1,505,152 36,835 44,038,890 Total capital assets being depreciated, net 29,199, , , ,471 30,275,571 Governmental activities capital assets, net $ 40,833,617 $ 2,818,573 $ 131,507 $ 8,667 $ 43,529,351 48

101 CITY OF SUMTER, SOUTH CAROLINA NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 Beginning Ending Balance Increases Decreases Transfers Balance Business-type activities: Capital assets not being depreciated: Land $ 240,938 $ 97,474 $ - $ - 338,412 Construction in progress 4,542,363 1,736,616 (1,683,779) 4,595,200 Total capital assets not being depreciated 4,783,301 1,834,090 - (1,683,779) 4,933,612 Capital assets being depreciated: Buildings 493, ,653 Plants and improvements 71,789, ,789,659 Distribution and collection system 47,319,772 1,109,979-1,010,085 49,439,836 Wells and tanks 4,996, , ,000 5,874,529 Machinery and equipment 8,985,014 1,149, ,412 16,192 10,013,881 Total capital assets being depreciated 133,584,350 2,525, ,412 1,638, ,611,558 Less accumulated depreciation for: Buildings 308,531 12, ,872 Plants and improvements 32,131,836 1,705, ,837,276 Distribution and collection system 15,822, , ,666,289 Wells and tanks 3,498, , ,750,740 Machinery and equipment 7,167, , ,412 (36,835) 7,694,721 Total accumulated depreciation 58,928,208 3,514, ,412 (36,835) 62,269,898 Total capital assets being depreciated, net 74,656,142 (989,594) - 1,675,112 75,341,660 Business-type activities capital assets, net $ 79,439,443 $ 844,496 $ - $ (8,667) $ 80,275,272 Depreciation expense was charged to functions/programs of the government as follows: Governmental activities: General government $ 156,724 Public safety 1,277,656 Public works 1,666,252 Parks, recreation and culture 787,707 Community development 140,891 Economic development Total depreciation expense - governmental activities $ 222,948 4,252,178 Business-type activities: Water and sewer services $ 3,514,937 Total depreciation expense - business type activities $ 3,514,937 49

102 CITY OF SUMTER, SOUTH CAROLINA NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 Construction in progress and construction commitments for governmental activities and business-type activities consisted of the following at year end: Contract Expenditures Total Payments To Date Contract Remaining Governmental Activities Manning Avenue Streetscape 15,678 15,678 - South Main Street Infrastructure 9,560 9,560 - Corridor Landscape Plan 244, ,348 1,266 Tennis Courts/Pro Shop 10,090 10, North Main Street 231, ,783 63,001 Downtown Revitalization 70,456 88,160 17,704 South Main/Bartlette Streetscape 152, , ,473 Palmetto Park Phase III Fencing 24,981 40,481 15,500 Swan Lake Gardens Improvements 4,186 74,030 69,844 Police Station 16,610 76,870 60,260 Fire Station 9,699 30,674 20,975 Total Governmental 789,635 1,319, ,023 Business-type Activities Hwy. 521 Water Line/Elevated Tank 2,883,647 2,883,647 - Westside Sewer 71,770 79,255 7,485 Mill Run Force Main 25,727 39,427 13,700 Mayesville Sprayfields 133, ,551 18,471 Command Center 117, ,702 8,867 Alice Drive Waterline 339, , ,930 Burgess Glenn Sewer 307, , ,727 Well #5 Water Plant #3 49,167 49,167 - Calhoun Street Water Line 24, , ,218 Second Mill Trunkline 45,360 81,355 35,995 Well #3 Water Plant #2 13,060 61,060 48,000 Well # 3 Water Plant #1 32,800 48,600 15,800 Well #3 Water Plant #3 5,200 5,200 - SCADA System 7, , ,083 Water Plant #6 510, ,835 - Pump to Electric 27,338 71,170 43,832 Total Business-type Activities 4,595,200 5,893,308 1,258,108 5,384,835 7,212,966 1,788,131 E. Long-Term Obligations A summary of changes in long-term obligations for the year ended June 30, 2014, for both the City s governmental activities and business-type activities appears below. Details by type of obligation and a summary of debt service requirements follow. 50

103 CITY OF SUMTER, SOUTH CAROLINA NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 Summary of changes in long-term obligations: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental activities: General obligation bonds $ 4,051,216 $ - $ 656,149 $ 3,395,067 $ 680,760 Revenue bonds 1,501, ,000 1,263, ,000 Notes payable 1,432, , ,000 37,000 Capital leases 2,474, , ,635 2,400, ,145 Compensated absences 2,179,247 1,631, ,500 3,011, ,309 Governmental activity long-term liabilities $ 11,637,631 $ 2,364,928 $ 3,259,284 $ 10,743,275 $ 2,368,214 Business-type activities: Revenue bonds $ 34,675,735 $ - $ 1,958,463 $ 32,717,272 $ 2,032,464 Unamortized bond premium 453, , Compensated absences 399, , , , ,358 Business-type activity long-term liabilities $ 35,528,835 $ 237,203 $ 2,595,799 $ 33,170,239 $ 2,163,822 General Obligation Bonds. The City has issued general obligation bonds to provide for construction and purchase of capital assets used in carrying out its governmental activities. General obligation bonds have been issued only for general government activities. General obligation bonds are direct obligations and pledge the City s full faith and credit. General obligation bonds outstanding as of yearend are as follows: $500,000 Series 2005, payable in annual installments of $66,812 including interest at 5.65%, maturing April ,240 $1,500,000 Series 2006, payable in annual installments of 180,090 including interest at 3.7%, maturing May ,739 $2,000,000 Series 2010, payable in annual installments varying from $247,436 to $255,773 including interest at 3.63%, maturing May ,140,000 $1,000,000 Series 2011, payable in annual installments of $112,501 including interest at 2.31%, maturing July ,981 $1,500,000 Series 2012, payable in annual installments of $165,006 including interest at 2.07%, maturing September ,205,107 Total General Obligation Bonds $ 3,395,067 Revenue Bonds. The City has issued a revenue bond in order to fund construction projects which will enhance tourism as follows: $1,734,000 Hospitality Fee Revenue Bond, Series 2011, payable in semiannual installments varying from $2,672 to $264,672 including interest at 2.04%, maturing August 2018, collateralized by assignment of hospitality fee revenue $ 1,263,000 The City has also issued revenue bonds to finance construction and expansion of the water and sewer system. These bonds are secured by liens on and pledges of water and sewer revenue net of system operating and maintenance costs. Water and sewer revenue bonds outstanding at year end were as follows: 51

104 CITY OF SUMTER, SOUTH CAROLINA NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 $815,000 Series 2000, payable in annual installments of $65,768 including interest at 5.29%, maturing June 2020 $ 330,701 $2,000,000 Series 2005, payable in annual installments of $238,910 including interest at 3.37%, maturing June ,121 $31,855,000 Series 2007, payable in annual installments varying from $808,882 to $2,165,000 including interest varying from 4 to 5%, maturing December ,760,000 $7,018,000 Series 2010, payable in annual installments varying from $714,820 to $931,636 including interest at 2.99% 4,395,450 Total Revenue Bonds Payable $ 32,717,272 Notes. The City has issued notes to finance various development projects. Notes payable at year end were as follows: $843,000 note payable in annual installments to the US Department of Housing and Urban Development in annual installments ranging from $30,000 to $69,000 including interest at 4.5%, maturing August ,000 Total Notes Payable $ 673,000 Capital Leases. The City has entered into lease agreements to finance acquisition of buildings, vehicles and heavy equipment and office equipment used in governmental activities. The lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value of the future minimum lease payments as of the inception date as follows: Governmental Year Ending June 30, Activities 2015 $ 834, , , , ,817 Thereafter - Total minimum lease payments 2,464,682 Less: amount representing interest (64,149) Present value of minimum lease payments $ 2,400,533 The assets acquired through capital leases are as follows: Governmental Activities Asset: Motor vehicles and outdoor equipment $ 3,921,936 Less: accumulated depreciation (1,719,602) Total $ 2,202,334 52

105 CITY OF SUMTER, SOUTH CAROLINA NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 Summary of Debt Service Requirements. Following is a summary of debt service requirements to maturity by year for the governmental and business-type activities: Debt Capital Lease Obligations Year Ending June 30, Principal Interest Total Principal Interest Totals Governmental Activities , ,504 1,115, ,145 30,526 1,949, , , , ,108 18,429 1,537, , , , ,893 9,812 1,381, ,306 83, , ,719 4,233 1,170, ,708 61, , ,668 1,149 1,021, ,066, ,945 1,197, ,197, ,000 17, , ,432 Total $ 5,331,067 $ 677,808 $ 6,008,875 $ 2,400,533 $ 64,149 $ 8,473,557 Business-Type Activities ,032,464 1,447,782 3,480, ,480, ,863,615 1,375,021 3,238, ,238, ,931,841 1,307,594 3,239, ,239, ,005,934 1,232,376 3,238, ,238, ,148,418 5,016,111 12,164, ,164, ,820,000 3,247,626 11,067, ,067, ,915,000 1,155,488 11,070, ,070,488 Total $ 32,717,272 $ 14,781,998 $ 47,499,270 $ - $ - $ 47,499,270 F. Inter-fund Receivables and Payables Inter-fund balances arise because the City utilizes a cash pool to maximize potential interest earnings. Inter-fund balances at June 30, 2014 were: Receivable Fund Payable Fund Amount General Fund State Accommodations Tax Fund $ 40,238 General Fund Federal/State Grants Fund 98,554 General Fund HUD Section 8 Loans Fund 136,480 General Fund Community Development Block Grant Fund 66,260 $ 341,532 G. Transfers In and Out During the course of normal operations, the City makes numerous transactions between funds. Transfers of resources from a fund receiving revenue to a fund through which the resources are expended are recorded as transfers and are reported as other financing sources (uses) in the governmental funds and as non-operating revenues (expenses) in proprietary funds. Transfers into the general fund were primarily to recover overhead and related costs. Transfers to the state accommodations tax fund were made from the local accommodations tax fund to support tourism promotion. Transfers between funds for the year ended June 30, 2014, consisted of the following: 53

106 CITY OF SUMTER, SOUTH CAROLINA NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 Transfer In: Nonmajor Water and Nonmajor General Governmental Sewer Enterprise Transfer out: Fund Fund Enterprise Fund General fund $ - $ - $ - $ - $ - Nonmajor governmental funds 962, , ,396,123 Water and sewer enterprise fund 1,549, ,549,290 Nonmajor enterprise fund $ 2,511,928 $ 433,485 $ - $ - $ 2,945,413 IV. OTHER INFORMATION A. Risk Management The City is exposed to various risks of loss related to torts, theft of, damage to and destruction of assets, errors and omissions, and job related illnesses and accidents. The City carries insurance for these risks of loss. Premiums for workers compensation are paid to a public entity risk pool. The public entity risk pool promises to pay to or on behalf of the insured for covered economic losses sustained during the policy period in accord with insurance policy and benefit program limits. Management believes such coverage is sufficient to preclude any significant uninsured losses for the covered risks. There has been no significant reduction in coverage and amounts of settlements have not exceeded coverage in any of the last three years. The City is also subject to risks of loss from providing health, life, accident, dental, and other medical benefits to employees, retirees, and their dependents. The City has enrolled substantially all its employees in the State s health insurance plans administered by the South Carolina Budget and Control Board. B. Pension Plan City employees participate in either the South Carolina Retirement System (SCRS) or the South Carolina Police Officers Retirement System (PORS), depending on their particular duties. Both plans are administered by the South Carolina Retirement System and are classified as cost-sharing multiple-employer, Public Employee Retirement Systems (PERS). SCRS and PORS provide retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and beneficiaries. Benefit provisions for SCRS are established pursuant to Section of the 1976 South Carolina Code of Laws. Benefit provisions for PORS are established pursuant to Section of the Code of Laws. The South Carolina Retirement System issues a publicly available stand-alone report, which may be obtained by writing to South Carolina Retirement Systems, P.O. Box 11960, Columbia, South Carolina or by calling SCRS and PORS members are required to contribute 7.5% and 7.84% of their annual covered salaries, respectively, and the City is required to contribute at an actuarially determined rate. The current rates actuarially determined are 10.60% and 12.84% respectively. The contribution requirements of the plan members and the City are established and may be amended by the South Carolina General Assembly. The City s contributions (which equaled required contributions) to SCRS and PORS for the last three fiscal years were as follows: SCRS PORS 2014 $ 1,230,770 $ 979, ,146, , ,041, ,915 54

107 CITY OF SUMTER, SOUTH CAROLINA NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 C. Deferred Compensation Plans Certain City employees participate in one of two optional deferred compensation plans which are available to them in conjunction with the State Retirement System. The multiple-employer plans, created under Internal Revenue Code Sections 457 and 401(k) are administered for the State Retirement System by third parties. Compensation deferred under the plans is placed in trust for the contributing employee. The State has no liability for losses under the plans. Employees may withdraw the current value of their contributions when they terminate their employment with the City. Employees may also withdraw contributions prior to termination if they meet requirements specified by the applicable plan. D. Other Post-Employment Benefits Plan Description The City s defined benefit postemployment healthcare plan (the plan) provides medical insurance to eligible retirees. Spouses and dependents are not covered. The City s personnel policy provides lifetime benefits for retirees who retired on or before July 1, 2008, with at least 20 years of City service. Employees who retire after July 1, 2009, are eligible for benefits to age 65 depending on the amount of their service as of July 1, Those with 15 or more years of service on July 1, 2008, must have 20 years of service with the City to become eligible for benefits at retirement. Those with less than 15 years of service on July 1, 2008, must have 28 (25 for public safety) years of service with the City to become eligible for benefits at retirement. The Plan is approved each year by City Council; the contribution requirements of the City and plan members are established and amended by Council. The contributions are neither guaranteed nor mandatory. Council has retained the right to modify its payments for retiree health care benefits. As of July 1, 2013, the measurement date for the plan year, there were 638 covered participants; 105 members were retirees receiving benefits and 533 were active participants. The plan is affiliated with the South Carolina Other Retirement Benefits Employer Trust (SCORBET), an agent multiple employer irrevocable trust administered by the Municipal Association of South Carolina. Each participating employer is responsible for determining the appropriate amount of contributions to remit to the Trust. SCORBET issues a publicly available financial report that includes audited financial statements and required supplementary information for the plan. A copy of the report may be obtained by writing to the Chief Financial Officer for Risk Management Services, Municipal Association of South Carolina, P. O. Box 12109, Columbia, South Carolina Funding Policy The City establishes its contribution requirement annually. Retirees participating in the plan are not required to contribute to the cost of coverage. For fiscal year 2014, the City contributed $316,008 for current premiums and an additional $659,901 to amortize the unfunded liability. Annual OPEB Cost and Net OPEB Obligation The City s annual other postemployment benefits (OPEB) cost (expense) is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially determined in accordance with the requirements of Government Accounting Standards Board Statement No. 45, Accounting and Financial Reporting for Employers for Post Employment Benefits Other Than Pensions (OPEB). The (ARC) is equal to the normal cost plus the amortization of any unfunded actuarial accrued liability. The normal cost represents the annual ongoing cost of the benefits accruing to active participants. The actuarial accrued liability is the portion of the total present value of benefits that is attributable to service up to the date of the valuation. The amount of the actuarially accrued liability in excess of the plan s assets is the unfunded actuarially accrued liability which is being amortized over a period not to exceed 30 years. The unfunded actuarially accrued liability is amortized over 25 years starting July 1, The following table shows the components of the City s annual OPEB cost for the year, the amount actually contributed to the plan and any changes in the City s obligation under the plan: 55

108 CITY OF SUMTER, SOUTH CAROLINA NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 Net liability for OPEB, beginning of year - Adjustment to annual required contribution - Components of increase for year Normal cost for current year 316,008 Amortization of unfunded actuarially accrued liabilities 659,901 Annual required contribution (ARC) for current year: 975,909 Actual contribution (975,909) Net increase in obligation for OPEB - Net liability for OPEB, end of year - The City s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan and the net OPEB obligation for 2012, 2013 and for 2014 was as follows: Annual Percentage of Net Fiscal OPEB Annual OPEB OPEB Year Cost Contributed Obligation 2012 $ 1,036, % $ , % , % - For fiscal year 2013, an assumed rate of return on investments of 6.5 percent was used to calculate the annual OPEB costs, while an assumed rate of return of 5 percent was used to calculate the OPEB cost for fiscal years 2012 and Funded Status and Funding Progress Based on an actuarial valuation date of July 1, 2013, the funded status of the plan as of year end was as follows: Actuarially accrued liabilities (AAL): 15,277,225 Actuarial value of plan assets: 2,530,766 Unfunded AAL (UAAL): 12,746,459 Funded ratio: 16.6% Covered payroll: 18,039,601 UAAL as a percentage of covered payroll: 71% 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, mortality, and 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. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (i.e., the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The Projected Unit Credit Actuarial Cost Method was used to calculate the ARC, based on an assumed level percent of payroll funding and an assumed 5 percent rate of return on investments for the current year. The assumed general inflation rate was 56

109 CITY OF SUMTER, SOUTH CAROLINA NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, percent. The assumed annual payroll growth was 2.75 percent. The assumed rate of annual increase in health costs varied from 5 to 8.5 percent. The actuarial methods and assumptions and calculations reflect a long-term perspective and are designed to reduce short-term volatility in actuarially accrued liabilities and in the actuarial value of assets. E. Joint Venture The City s Water and Sewer fund entered into a joint venture in January 2000 with Black River Development Corporation to develop and construct a commercial building to be held for sale. The City contributed $200,000 in exchange for a 15% interest in the joint venture. Because it is not certain that it will recover all of its investment if the building is sold, during fiscal year 2012, the City established a $100,000 valuation allowance to reduce the carrying value of the venture to $100,000. The financial statements for the joint venture are available from the Black River Economic Development Corporation, P O Box 130, Sumter, SC F. Impact of Recently Issued Accounting Principles In December 2010, the GASB issued Statement 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. GASB 62 incorporates into the GASB s authoritative literature certain accounting and financial reporting guidance that is included in the following pronouncements issued on or before November 30, 1989, which does not conflict with or contradict GASB pronouncements: FASB Statements and Interpretations, APB Opinions and Accounting Research Bulletins of the AICPA s Committee on Accounting Procedure. This statement is effective for periods beginning after December 15, 2011, which the City adopted during fiscal year The adoption of GASB 62 does not have any impact on the City s financial statements. In June 2011, the GASB issued Statement 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. GASB 63 provides guidance for reporting deferred inflows/outflows of resources and net position in a statement of financial position and related disclosures. The statement of net assets is renamed the statement of net position and includes four components: assets, deferred outflows of resources, liabilities, and deferred inflows of resources. This statement is effective for periods beginning after December 15, 2011, which the City adopted during fiscal year In March 2012, the GASB issued Statement 65, Reporting Items Previously Recognized as Assets and Liabilities. GASB 65 provides guidance for reclassifying certain items reported as assets and liabilities to deferred outflows of resources or deferred inflows of resources, or in some cases expense/expenditure. This statement is effective for periods beginning after December 15, 2012, which the city adopted during fiscal year In June 2012, the GASB issued Statement 68, Accounting and Financial Reporting for Pension. GASB 68 provides guidance for reporting information about support of pensions. This statement is effective for periods beginning after June 30, 2014 which impacts this City s June 30, 2015 financial statements. G. Contingent Liabilities Amounts received or receivable from grantor agencies are subject to audit and adjustment by those agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute liabilities of the applicable funds. The amount, if any, of expenditures which may be disallowed by a grantor cannot be determined at this time although the government expects such amounts, if any, to be immaterial. H. Subsequent Events Management has evaluated subsequent events through November 20, 2014, the date the financial statements were available to be issued. 57

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111 REQUIRED SUPPLEMENTARY INFORMATION 59

112 CITY OF SUMTER, SOUTH CAROLINA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULES OF FUNDING PROGRESS AND EMPLOYER CONTRIBUTIONS OTHER POSTEMPLOYMENT BENEFITS DEFINED BENEFIT HEALTH CARE PLAN For the Year Ended June 30, 2014 Schedule of Funding Progress Actuarial value of Total assets as unfunded percentage Actuarial Actuarial actuarial of actuarial UAAL as a Value of accrued accrued accrued Annual percentage Actuarial Plan liability liability liability Covered of covered Fiscal Valuation Assets (AAL) (UAAL) (Funded Ratio) Payroll payroll Year Date (a) (b) (b)-(a) (a/b) (c) ((b-a)/c) /1/2011 $ 1,377,374 $ 16,226,194 $ 14,848, % $ 14,090, % /1/2011 2,072,905 16,226,194 14,153, % 14,513,067 98% /1/2013 2,530,766 15,277,225 12,746, % 18,039,601 71% Schedule of Employer Contributions Annual Annual Fiscal Required Actual Percentage Year Contribution Contribution Contributed 2012 $ 1,036,562 $ 1,036, % , , % , , % NOTE TO REQUIRED SUPPLEMENTARY INFORMATION SCHEDULES OF FUNDING PROGRESS AND EMPLOYER CONTRIBUTIONS OTHER POSTEMPLOYMENT BENEFITS DEFINED BENEFIT HEALTH CARE PLAN For the Year Ended June 30, 2014 The most recent valuation of the City s plan is based on plan benefits in effect as of July 1, The previous valuation was based on information as of July 1, The 2013 valuation updated claims costs and changed the actuarial assumptions used to calculate the liabilities and normal cost of the plan. 60

113 APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE BOND ORDINANCE, THE 2015 SERIES ORDINANCE AND THE SERIES 2007 ORDINANCE The following is a summary of some of the terms of the Bond Ordinance, the 2015 Series Ordinance, and the Series 2007 Ordinance. The Bond Ordinance was adopted by City Council on June 15, 1999 and amended by ordinances duly adopted on October 3, 2000 and June 5, 2007, respectively. Certain of the amendments to the Bond Ordinance shall become effective only upon the occurrence of one of several circumstances, all as more fully summarized herein under the heading 2015 Amendments to Bond Ordinance. This summary does not purport to be complete and reference is made to the entire text of the Bond Ordinance, the 2015 Series Ordinance and the Series 2007 Ordinance, copies of which are available during the initial offering of the Series 2015 Bonds from the Underwriter. Capitalized terms not otherwise defined herein have the meaning given to those terms in the Official Statement. Certain amendments to the Bond Ordinance, which will become effective at a date, presently undetermined but in any event following the delivery of the Series 2015 Bonds, are described beginning at page C- 20 below. DEFINITIONS 2007 INSURER shall mean Syncora Guarantee, Inc., formerly known as XL Capital Assurance Inc SERIES ORDINANCE means the Series Ordinance enacted by the City Council June 5, 2007 and by which the issuance of the Series 2007 Bonds was authorized. ACCOUNTANT means an independent firm of certified public accountants of suitable standing who audit the books, records, and accounts of the City. ACCRETED VALUE means the amounts set forth, or determined in the manner set forth, in a Series Ordinance that authorizes the issuance of Capital Appreciation Bonds, the Accreted Value of which will be determined in, or in a manner provided by, such Series Ordinance. ANNUAL BUDGET means the annual or amended budget of the City for the System in effect as provided in, or adopted pursuant to the provisions of, the Bond Ordinance. ANNUAL PRINCIPAL AND INTEREST REQUIREMENT means, for any particular Fiscal Year and for any Series of Bonds Outstanding, an amount (other than amounts paid from proceeds of Bonds) equal to the sum of (1) all interest payable on the Series of Bonds that are issued as Current Interest Bonds during that Fiscal Year plus (2) any Principal Installments of such Series of Bonds during that Fiscal Year. The rate of interest used to determine (1) above is equal to (a) for any Series of Bonds that bears interest at a fixed rate, the rate of interest borne or to be borne by such Bonds, and (b) for any Series of Variable Rate Bonds, the higher of: (i) the actual rate of interest on the date of calculation, which in the case of Variable Rate Bonds that are not yet Outstanding is the initial rate (if established and binding); and (ii) the average rate over the twelve months prior to the date of calculation, or such shorter period as the Bonds have been Outstanding. AUTHORIZED INVESTMENTS means investments that are permitted under Section of the South Carolina Code of Laws. The definition of Authorized Investments is further limited by the terms of the Bond Ordinance and may be further limited with respect to any Series of Bonds in the applicable Series Ordinance. For so long as the 2007 Insurer insures the 2007 Bonds, the definition of Authorized Investments shall be further limited so as to include only those investments that are both permitted under Section of the South Carolina Code of Laws and are included within the following: C-1

114 1. Cash 2. U.S. Treasury Certificates, Notes and Bonds 3. Direct obligations of the U.S. Treasury which have been stripped by the U.S. Treasury itself. 4. Resolution Funding Corp. Only the interest component of Resolution Funding Corp. strips which have been stripped by request to the Federal Reserve Bank of New York in book-entry form are acceptable. 5. Pre-refunded municipal bonds rated Aaa by Moody s Investors Service and AAA by Standard & Poor s. If there is no Moody s rating, the pre-refunded bonds must have been prerefunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pure-refunded municipals. 6. Obligations issued by the following agencies which are backed by the full faith and credit of the U.S.: a. U.S. Import Export Bank: Direct obligations or fully guaranteed certificates of beneficial ownership. b. Farmers Home Administration. c. Federal Financing Bank. d. General Services Administration: Participation Certificates. e. U.S. Maritime Administration: Guaranteed Title XI Financing f. U.S.Dept. of Housing and Urban Development: Project Notes, Local Authority Bonds, New Communities Debentures (U.S. government guaranteed), and U.S. Public Housing Notes and Bonds (U.S. government guaranteed public housing notes and bonds). BOND COUNSEL means an attorney or firm of attorneys of recognized standing in the field of law relating to municipal, state and public agency financing, selected by the City and satisfactory to the Trustee. BOND PAYMENT DATE means each date on which interest or both principal and interest on any of the Bonds are payable, according to their respective terms. BONDHOLDER or HOLDER, or any similar term, when used with reference to a Bond or Bonds, means any person who is the registered owner of any Outstanding Bond. BONDS means the bonds payable from the revenues of the System and issued in accordance with the provisions of the Bond Ordinance, excluding Junior Lien Bonds and Special Facilities Bonds, but including the Series 2000 Bond, the Series 2007 Bonds, the Series 2010 Bond, the Series 2015 Bonds, and any Additional Bonds. BUSINESS DAY means, except as set forth in a Series Ordinance with respect to the Series of Bonds issued thereunder, any day other than a Saturday, a Sunday, or a day on which banking institutions in the State of South Carolina or in the State of New York are required or authorized by law (including executive orders) to close. CAPITAL APPRECIATION BONDS means Bonds that bear interest payable at maturity, upon redemption prior to maturity, or prior to maturity at the date set forth in, or in the manner provided in, the Series Ordinance authorizing the issuance of such Bonds and in the amounts determined by reference to the Accreted Value of such Bonds in accordance with the provisions of the Series Ordinance authorizing the issuance of such Bonds. CHIEF FINANCIAL OFFICER means the individual designated by the City Council as the Chief Financial Officer, or in the absence of such designation, the individual to whom the City Council has delegated the responsibility of supervising and maintaining records and accounts relating to the collection and disbursement of the revenues derived from the operation and maintenance of the System. CITY means the City of Sumter, South Carolina. Reference to actions required or permitted by the City shall mean action taken by or under the authority of the City Council. CITY COUNCIL means the City Council of the City of Sumter, South Carolina. C-2

115 CODE means the Internal Revenue Code of 1986, as amended and applicable Treasury Regulations from time to time in effect. CURRENT INTEREST BONDS means Bonds that are not Capital Appreciation Bonds. DEBT SERVICE FUND means, with respect to any Series of Bonds, the fund so designated by the Bond Ordinance and designed to provide for the payment of the principal of and interest on all Bonds Outstanding of such Series and issued pursuant to the Bond Ordinance, as the same respectively fall due. DEBT SERVICE RESERVE FUND means, with respect to any Series of Bonds, the fund so designated and established for such Series of Bonds by the authorizing Series Ordinance, and designed to insure the timely payment of the principal of and interest on all Bonds Outstanding of that Series and to provide for the redemption of such Bonds prior to their stated maturity. No Debt Service Reserve Fund is established to secure the Series 2015 Bonds. DEFEASANCE OBLIGATIONS, unless otherwise provided in a Series Ordinance for a particular Series of Bonds, means non-callable (i) Government Obligations or (ii) evidence of ownership of a proportionate interest in specified Government Obligations, which are held by a bank or trust company organized or existing under the laws of the United States or any state thereof in the capacity of custodian. DEPRECIATION AND CONTINGENT FUND means the fund established by the Bond Ordinance and designed to provide for contingencies, for the replacement of depreciated or obsolete parts of the System, and for improvements, betterments and extensions of the System. ENABLING ACT means Chapter 17 of Title 6 and Chapter 21 of Title 11, Code of Laws of South Carolina 1976, as amended from time to time and all other statutory authorizations, authorizing and enabling the City to adopt the Bond Ordinance. EVENTS OF DEFAULT means those events described under the heading Events of Default below. FEASIBILITY CONSULTANTS means any independent firm of consultants, engineers or accountants employed by the City having skill and experience in utility financing and rate design, and the design and operation of water and sewer facilities. FISCAL YEAR means the period of twelve calendar months that begins on July 1 of each year and ends on June 30 of the following year, unless changed pursuant to the Bond Ordinance. GENERAL REVENUE FUND means the account or accounts established and maintained by the City pursuant to the Bond Ordinance to reflect adequately all of the receipts and revenues derived from the operation of the System and all interest and other income earned by the City in connection with the operation of the System as established in the Bond Ordinance. GOVERNMENT OBLIGATIONS means (a) direct obligations of the United States of America for the payment of which the full faith and credit of the United States of America are pledged, and (b) obligations, specifically including interest payment strips, including without limitation REFCORP interest strips, the payment of the principal (if any), the premium (if any), and the interest (if any) on which is fully guaranteed as a full faith and credit obligation of the United States of America. GROSS REVENUES or GROSS REVENUES OF THE SYSTEM means for the period in question: (1) all receipts and revenues derived from the operation of the System, except those allocable to the operation of Special Facilities; C-3

116 (2) all proceeds from the sale or other disposition of any property owned directly or beneficially by the City in connection with the System; (3) all interest and other income received directly or indirectly by the City from the investment of moneys or accounts relating to the System; and (4) all other encumbered or unrestricted money to which the City, in connection with the System, may become entitled from any source whatsoever. INSURER, with respect to any Series of Bonds, means an insurance company that has issued a Municipal Bond Insurance Policy covering such Series of Bonds. JUNIOR LIEN BONDS means any revenue bonds or other obligations issued by the City that are secured by pledges of and liens on the revenues of the System that are junior and subordinate in all respects to the pledges and liens made to secure Bonds. MAYOR means the Mayor of the City, or the Acting Mayor or the Mayor Pro Tempore whenever the Mayor is unable to act. MUNICIPAL BOND INSURANCE POLICY or POLICY means any municipal bond insurance policy insuring the payment when due of the principal of and interest on a Series of Bonds. NET EARNINGS means, for the period in question, the net income of the System, determined in accordance with generally accepted accounting principles, but whether or not generally accepted accounting principles so require, it shall be adjusted as follows: (a) revenue derived from service fees (including connection and tap fees, availability fees, impact fees and meter purchases) is included in income; (b) investment income not restricted to a purpose inconsistent with the payment of operating expenses or debt service is included in income; (c) there is excluded from the calculation made to determine Net Earnings: (i) gains on the sale or other disposition of investments or fixed or capital assets, which do not result from the ordinary course of business, (ii) investment income restricted to a purpose inconsistent with the payment of operating expenses or debt service including (whether or not so restricted) interest earned on any construction fund or construction account created with the proceeds of borrowing by the City in connection with the System, (iii) (iv) any amounts received by way of government grants, and revenues derived from the operation of Special Facilities; and (d) there is added back to such net income: (i) losses on the sale or other disposition of investments or fixed or capital assets which do not result from the ordinary course of business, (ii) amounts appropriated to the City s general fund or other fund by the City Council to the extent such amounts have been reflected as an expense in determining net income under generally accepted accounting principles, C-4

117 (iii) (iv) depreciation allowances, amounts paid as interest on Bonds, (v) the amortization of financing expenses, underwriting discounts, call premiums, gains or losses on the extinguishment of debt due to the refinancing of the same, and other related or incidental non-recurring expenses resulting from the issuance or refinancing of Bonds, and (vi) expenses resulting directly from the operation of Special Facilities to the extent that the revenues derived therefrom have been pledged to secure, and used for, the payment of Special Facilities Bonds. OPERATION AND MAINTENANCE FUND means the fund designed to provide for the payment of all expenses incurred in connection with the administration and operation of the System, including, without limitation, expenses reasonably necessary to preserve the System in good repair and working order, the fees and charges of the Trustee and the Registrar or any Paying Agent, the costs of audits required under the Bond Ordinance, and the premiums for all insurance and fidelity bonds required by the Bond Ordinance, all in accordance, as nearly as may be practicable, with the Annual Budget then in effect, as such fund is established by the Bond Ordinance. OUTSTANDING, when used with reference to any Bonds and except as may be modified pursuant to the provisions of a Series Ordinance, means, as of any date, all such Bonds theretofore or then being authenticated and delivered except: (1) Bonds canceled at or prior to such date; (2) Bonds in lieu of or in substitution for which other Bonds have been executed and delivered; and (3) Bonds deemed to have been paid as described under the heading Defeasance below; (4) for purposes of any consent or other action to be taken by the holders of a specified percentage of Bonds, Bonds held by, or for the account of, the City or by any person controlling, controlled by, or under common control with the City, unless all Bonds are so held. PAYING AGENT means the financial institution that is authorized by the City Council to pay the principal of or interest and redemption premium, if any, on any Bonds and having the duties, responsibilities and rights provided for in the Bond Ordinance and the applicable Series Ordinance, and its successor or successors and any other corporation or association which at any time may be substituted in its place pursuant to the Bond Ordinance. Pursuant to the provisions of Section of the Bond Ordinance, the Trustee serves as the Paying Agent. PRINCIPAL INSTALLMENT means, as of any date of calculation, (i) the aggregate principal amount of Outstanding Bonds due on a certain future date, reduced by the aggregate principal amount of such Bonds that would be retired by any mandatory sinking fund payment payable before such date, plus (ii) any mandatory sinking fund payment due on such certain future date, together with the aggregate amount of the premiums, if any, applicable to such mandatory sinking fund payments, plus (iii) with respect to any Capital Appreciation Bonds required to be paid on such certain future date, the Accreted Value as of such date of the Capital Appreciation Bonds. REGISTRAR means the Trustee or any bank or trust company that is authorized by the City to maintain an accurate list of the Holders of Bonds of a particular Series and to effect the transfer of such Bonds in accordance with the provisions of the Bond Ordinance and having the duties, responsibilities, and rights provided for in the C-5

118 Bond Ordinance and any Series Ordinance, as well as its successor or successors and any other corporation or association which at any time may be substituted in its place pursuant to the Bond Ordinance. RESERVE REQUIREMENT means, as of any date of calculation, the debt service reserve requirement, if any, established by a Series Ordinance authorizing a Series of Bonds. SERIES means all of the Bonds authenticated and delivered on original issuance in a simultaneous transaction and designated as a single Series by the authorizing Series Ordinance, and any Bonds thereafter authenticated and delivered in lieu of or in substitution for (but not to refund) such Bonds, regardless of variations in maturity, interest rate, or other provisions. SERIES 2000 BOND means the now outstanding installments of an original issue of $815,000 Waterworks and Sewer System Improvement Revenue Bond, Series 2000, of the City. SERIES 2007 BONDS means the now outstanding installments of an original issue of $31,885,000 Waterworks and Sewer System Refunding and Improvement Revenue Bonds, Series 2007, of the City. SERIES 2010 BOND means the now outstanding installments of an original issue of $7,018,000 Waterworks and Sewer System Refunding Revenue Bond, Series 2010, of the City. SERIES 2015 BONDS means the $52,670,000 Waterworks and Sewer System Refunding and Improvement Revenue Bonds, Series 2015, of the City. SERIES ORDINANCE means an Ordinance of the City Council authorizing the issuance of a Series of Bonds by the City pursuant to the Bond Ordinance and adopted by the City Council in accordance with the Bond Ordinance. SPECIAL FACILITIES means facilities financed with the proceeds of Special Facilities Bonds as described below under the heading Additional Obligations Special Facilities Bonds. SPECIAL FACILITIES BONDS means obligations issued in accordance with the provisions described below under the heading Additional Obligations Special Facilities Bonds. SYSTEM means the Waterworks and Sewer System of the City as the same is now or may be constituted, all property real and personal used and useful therefor, all apparatus and equipment used in connection therewith, and all acquisitions, replacements, enlargements, improvements, extensions, additions and betterments that may be made thereto at any time hereafter. During the time that any Special Facilities Bonds issued to finance Special Facilities are outstanding, however, the term System does not include such Special Facilities. TRUSTEE means the financial institution serving as Trustee pursuant to the Bond Ordinance. The term includes any successor and any corporation or association resulting from or surviving any consolidation or merger to which it or its successors may be a party and any successor Trustee at the time serving as successor trustee. VARIABLE RATE BONDS means, for any period of time, any Bonds which during such period bear interest at a variable rate. Bonds on which the interest rate has been fixed for the remainder of their term are no longer considered Variable Rate Bonds. Authorization of Bonds in a Series THE BOND ORDINANCE The Bond Ordinance authorizes the City to issue a Series of Bonds pursuant to the provisions of a Series Ordinance. A Series of Bonds may be issued on parity with the Series 2015 Bonds from time to time and for the purposes of: C-6

119 (1) obtaining funds for the expansion and improvement of the System; (2) providing funds for the payment of any bond anticipation note or notes that may have been issued in anticipation of the issuance and sale of Bonds; (3) refunding Bonds or other obligations issued to provide land or facilities that are or are to become a part of the System or that are or were payable in whole or in part from revenues of the System; (4) providing funds for the payment of interest due on such Bonds; (5) funding a Debt Service Reserve Fund or restoring the value of the cash and securities in a Debt Service Reserve Fund to the amount equal to its Reserve Requirement; and Conditions to Issuance of Bonds (6) paying the costs of issuance of Bonds, including any credit enhancement therefor. Bonds of a Series may be issued only if the following conditions are satisfied: (1) there must exist, on the occasion of the issuance of the Bonds, no default in the payment of the principal of or interest on any Bonds, or any Junior Lien Bonds then Outstanding; (2) unless on the date of delivery of the Series of Bonds there is on deposit in each Debt Service Reserve Fund the amount equal to the applicable Reserve Requirement, there must be deposited in the Debt Service Reserve Funds the amounts necessary to make the value of the moneys and securities in each Debt Service Reserve Fund equal to the applicable Reserve Requirement, unless: (a) the Series Ordinance applicable to each Series of Bonds with a deficient Debt Service Reserve Fund provides for successive monthly payments beginning in the first month following the date of the issuance of the Bonds of such Series in substantially equal monthly amounts (the Monthly Series Payments ), so that by the end of the period so determined by the Series Ordinance there will be in the Debt Service Reserve Fund an amount equal to the applicable Reserve Requirement; and (b) have been made; there are no unremedied defaults of any Monthly Series Payments required to (3) except in the case of the first Series of Bonds issued under the Bond Ordinance, or except in the case of Bonds issued for the purpose of refunding any Bonds and that meet the test described in paragraph (4) below: (a) Net Earnings during the most recent Fiscal Year for which audited financial statements of the System are completed must be certified by the Chief Financial Officer, by the Accountants or by the Feasibility Consultants on the basis of such audited financial statements to be not less than one hundred twenty percent (120%) of the maximum Annual Principal and Interest Requirements on all Bonds Outstanding and on such proposed Series of Bonds; provided that Net Earnings may be adjusted for this purpose to reflect: (i) any rate increases currently adopted and to be in effect prior to or coincident with the issuance of the proposed Series of Bonds and determined pro forma as though the rate increases had been in continuous effect during the most recent Fiscal Year for which audited financial statements of the System are completed; C-7

120 (ii) in the event proceeds of the proposed Series of Bonds will be used to acquire a utility, system or enterprise that is in existence and operating and whose current customers have become or will become customers of the System prior to or concurrently with the issuance of the proposed Series of Bonds, 100% of the Net Earnings that the Accountants or the Feasibility Consultants estimate would have been received during such Fiscal Year if the utility, system or enterprise had been a part of the System throughout such Fiscal Year, taking into account, for the purposes of this calculation only, the then-existing customer base and population of the acquired utility, system or enterprise; (iii) in the event proceeds of the proposed Series of Bonds will be used to construct or to acquire a newly-constructed utility, system, enterprise, or component of the System that will serve an existing customer base and currently-populated area, 100% of the Net Earnings, estimated by the Accountants or by the Feasibility Consultants, to be received by the System during the first Fiscal Year beginning after the earlier of the date on which the project is placed in service or the third anniversary of the date of delivery of the proposed Series of Bonds, from the newly-constructed or to-be-constructed utility, system, enterprise, or component of the System, taking into account for this calculation only the then-existing customer base and population; (iv) in the event proceeds of the proposed Series of Bonds will be used to pay interest on the proposed Series of Bonds, 100% of the interest that will accrue on the Series of Bonds during the first twelve full months following the date of delivery of the proposed Series and that will be paid from such proceeds, but interest accruing in the twelve-month period that is to be paid on a date within the Fiscal Year of maximum Annual Principal and Interest Requirements is not to be added into such Net Earnings; and (v) in the event proceeds of the proposed Series of Bonds will be used to construct or to acquire an expansion to the System and to the extent not included in paragraph (iii) above, 100% of estimated Net Earnings to be received by the System in the first Fiscal Year following the completion of the project, as certified by the Accountants or by the Feasibility Consultants, from customers under long-term contracts that extend for the life of the proposed Series of Bonds; or (b) (i) Net Earnings during the most recent Fiscal Year for which audited financial statements of the System are completed must be certified by the Chief Financial Officer, by the Accountants or by the Feasibility Consultants to be not less than 120% of the Annual Principal and Interest Requirements during such Fiscal Year on all Bonds Outstanding. For purposes of this calculation, Net Earnings may be adjusted to reflect (1) any rate increases currently adopted and to be in effect prior to or coincident with the issuance of the proposed Series of Bonds and determined pro forma as though such rate increases had been in continuous effect during such recent Fiscal Year; and (2) in the event a utility, system or enterprise has been or is being acquired by the System other than from the proceeds of the proposed Series of Bonds and the current customers thereof have become or will become customers of the System prior to or concurrently with the issuance of the proposed Series of Bonds, 100% of the Net Earnings estimated by the Accountants or by the Feasibility Consultants that would have been received by the System during such Fiscal Year if the utility, system or enterprise had been a part of the System during such recent Fiscal Year, taking into account for the estimation of such Net Earnings in this subparagraph (2) only the then-existing customer base and population of the acquired utility, system or enterprise; and C-8

121 (ii) For each of the five (5) Fiscal Years following the later of the date of the delivery of the Bonds of such Series, or the period (if any) for which interest is funded from the proceeds of such Bonds, Net Earnings, as forecasted by Accountants or by the Feasibility Consultants, will be not less than one hundred twenty percent (120%) of the Annual Principal and Interest Requirements on all Bonds then proposed to be Outstanding in each of such five (5) Fiscal Years; provided that in the instance of any Series of Bonds in the aggregate principal amount of $2,500,000 or less, the calculations required by subparagraphs (a) and (b) above may, unless provided to the contrary in any Series Ordinance, be made by the Chief Financial Officer; Whenever subsections (a) or (b) above require a certification for the most recent Fiscal Year for which audited financial statements are available, the City may, in its discretion, provide for a special audit and a certification based upon such special audit, in lieu of the audit for such Fiscal Year, provided such special audit covers twelve (12) consecutive calendar months of the eighteen (18) full consecutive calendar months preceding the date of issuance of the proposed Series of Bonds. (4) in the case of Bonds issued for the purpose of refunding any Series of Bonds, then rather than complying with the requirements described in paragraph (3) above, either the Annual Principal and Interest Requirements of the refunding Bonds must not exceed 110% of the Annual Principal and Interest Requirements of the refunded Bonds for any Fiscal Year until after the last maturity date of the Bonds that remain Outstanding following the issuance of the refunding Bonds, or the earnings tests described in subparagraphs (a) and (b) of paragraph (3) above must be satisfied; and (5) all amounts owing under a reimbursement agreement with any providers of surety bonds, insurance policies, letters of credit, or other funding instruments must have been paid. (6) If the proposed Series of Bonds contains Variable Rate Bonds, in addition to the conditions for issuance of Bonds described above: (a) the Series Ordinance must provide for and specify a maximum interest rate on the proposed Bonds and on any reimbursement obligation to a liquidity provider for such Bonds; (b) any liquidity provider for the proposed Bonds must be rated in one of the two highest short term rating categories by any rating agency then rating such liquidity provider; and (c) any accelerated principal payments, or any interest computed at a rate in excess of that on such Bonds due under a reimbursement agreement with the liquidity provider for such Bonds, must be subordinate to the payment of debt service on all Bonds. If, however, the tests referred to under this heading in paragraph (3) or, if applicable, paragraph (4) above are calculated (and met) assuming that the accelerated principal payment and such excess interest amount will be paid to the liquidity provider, then the accelerated principal payment and excess interest amount may be on a parity with the payment of debt service on all Bonds; and Additional Obligations Junior Lien Bonds. Notwithstanding that Bonds may be Outstanding, the City may at any time, without limitation and free of all conditions, issue Junior Lien Bonds in any amount payable from the revenues of the System, provided that the pledge of revenues and any lien upon the revenues of the System granted for the protection of the Junior Lien Bonds must at all times be and remain subordinate to the pledge of revenues and liens upon such revenues made or authorized for the Bonds. C-9

122 By proceedings authorizing the issuance of Junior Lien Bonds, the City may provide for the accession of the Junior Lien Bonds to the status of Bonds if all of the following conditions are met: (1) the Junior Lien Bonds must have been issued for a purpose or purposes set forth under the heading Authorization of Bonds in a Series above; (2) there must exist on the date of accession (a) no default in the payment of the principal of or interest on any Bonds or any Junior Lien Bonds then Outstanding, (b) no default in the performance of any duties required under the Bond Ordinance, and (c) no amount owed by the City with respect to the full funding of a Debt Service Reserve Fund, either by way of cash or reimbursement of any other funding mechanism; (3) there must be deposited in the Debt Service Fund for the Series of newly-acceded Bonds the amounts that would have been required under the Bond Ordinance to be accumulated therein on the date of accession if the Junior Lien Bonds had originally been issued as Bonds; (4) on the date of accession, the earnings tests described under the heading Authorization of Bonds in a Series must be satisfied; (5) if the proceedings require a Reserve Requirement to be maintained for the Series of newly-acceded Bonds, then there must be on deposit on the date of accession in a Debt Service Reserve Fund an amount equal to the Reserve Requirement established for the Junior Lien Bonds that are being acceded to the status of Bonds; (6) the City must obtain an opinion of Bond Counsel that (a) the Bond Ordinance and the proceedings authorizing the Junior Lien Bonds have been duly adopted and are in full force and effect, (b) the Junior Lien Bonds have been duly and lawfully authorized and executed by the City and are valid and binding upon, and enforceable against, the City (except to the extent limited by the operation of bankruptcy, insolvency and similar laws), and (c) the Bond Ordinance creates the valid pledge that it purports to create of the revenues and of moneys and securities on deposit in any of the funds established under the Bond Ordinance; and (7) if the Junior Lien Bonds were issued with variable rates, the provisions described under the heading Authorization of Bonds in a Series above applicable to Variable Rate Bonds must be satisfied. Special Facilities Bonds. The City has the right to enter into contracts, leases, or other agreements to construct, operate and pay the costs of Special Facilities to be financed by the issuance of Special Facilities Bonds, subject to the following conditions: (1) it must be determined to the satisfaction of the City that the rents, revenues, or receipts to be derived from the Special Facilities will be at least (a) equal to the principal, interest and any reserve requirements contained in the Ordinance authorizing the Special Facilities Bonds, and (b) sufficient to pay all operation, maintenance and other costs and expenses applicable to the Special Facilities; and (2) the revenues derived from Special Facilities need not be deposited in the General Revenue Fund, and may be pledged to secure Special Facilities Bonds; but no debt service or other costs of expense related to any Special Facilities may be paid from System revenues deposited in the General Revenue Fund, except surplus moneys as described in the Bond Ordinance. The term Special Facilities includes all or a portion of utility facilities and rights to all or a portion of the use of, or the capacity available from, any such facilities. C-10

123 Lease Financing Agreements. The City has the right to enter into capital leases or other lease financing agreements secured by a lien on the property, plant, and equipment comprising a part of the System. The aggregate principal amount of such obligations outstanding at any time, however, may not exceed 10% of the property, plant, and equipment of the System, less accumulated depreciation, as shown on the audited balance sheet of the City for the most recent Fiscal Year for which audited financial statements are available. Rate Covenant The City covenants in the Bond Ordinance to maintain rates and charges for all services furnished by the System that are sufficient (1) to maintain the Debt Service Funds and provide for the punctual payment of the principal of and interest on the Bonds; (2) to maintain the Debt Service Reserve Funds in the manner prescribed in the Bond Ordinance and in any applicable Series Ordinances; (3) to provide for payment of the expenses of administration, operation, and maintenance of the System, as may be necessary to preserve the same in good repair and working order; (4) to build and maintain a reserve for depreciation of the System, for contingencies and for improvements, betterments, and extensions to the System other than those necessary to maintain the same in good repair and working order; (5) to pay all amounts owing under a reimbursement agreement with any provider of a surety bond, insurance policy, letter of credit or other funding instrument provided in connection with the funding of a Debt Service Reserve Fund for a Series of Bonds; (6) to discharge all obligations imposed by the Enabling Act and by the Bond Ordinance; and (7) to provide for the punctual payment of the principal of and interest on all Junior Lien Bonds that may from time to time be outstanding. The City additionally covenants in the Bond Ordinance to prescribe and maintain and thereafter collect rates and charges for the services and facilities furnished by the System that, together with other income, will yield annual Net Earnings in the then-current Fiscal Year equal to at least 120% of the Annual Principal and Interest Requirements in such Fiscal Year for all Bonds Outstanding Promptly upon any material change in the circumstances that existed at the time the rates and charges were most recently reviewed, but at least once in each Fiscal Year, the City must review the rates and charges for its services and promptly revise the rates and charges as necessary to comply with the foregoing requirement. Prior to the beginning of each Fiscal Year, the City Council must adopt an Annual Budget that includes amended rate schedules for such Fiscal Year, that sets forth the estimated revenues, operating expenses, and other expenditures of the System for such Fiscal Year, and that includes the amount to be deposited during such Fiscal Year in the Depreciation and Contingent Fund. The City Council may at any time adopt an amended Annual Budget for the remainder of the then-current Fiscal Year. Funds, Accounts and Other Payments For so long as any sum remains due and payable on the Bonds, the following funds or accounts must be established and maintained, and deposits must be made to the funds as described below: The General Revenue Fund. The Bond Ordinance requires the establishment and maintenance of the General Revenue Fund to accurately reflect the Gross Revenues of the System and Net Earnings. Except as permitted by the Bond Ordinance, all Gross Revenues of the System must be deposited into the General Revenue Fund. Money in the General Revenue Fund may be withdrawn and made use of only in the manner and in the order of priority specified in the Bond Ordinance and described below. If the City maintains, from an accounting standpoint, proper records of receipts and disbursements for the General Revenue Fund, the General Revenue Fund may be used for the purposes of the Operation and Maintenance Fund, as described below. The Gross Revenues of the System (except customers deposits and money the disposition of which is controlled by other provisions of the Bond Ordinance) are declared by the Bond Ordinance to be a part of the General Revenue Fund, and are from time to time deposited in a bank or depository in an account that reflects the fact that they are a part of the General Revenue Fund. Payments from the General Revenue Fund are made in the order of priority described in the following paragraphs and on or before the Business Day that is five Business Days prior to the end of each month. The Operation and Maintenance Fund. The Bond Ordinance requires the establishment and maintenance of an Operation and Maintenance Fund, which is intended to provide for the payment of all expenses incurred in C-11

124 connection with the administration and operation of the System, including such expenses as may be reasonably necessary to preserve the System in good repair and working order, the fees and charges of the Trustee and the custodian or trustee of any fund, the costs of audits required under the Bond Ordinance, and the premiums for all insurance and fidelity bonds required by the Bond Ordinance. Withdrawals from the Operation and Maintenance Fund are made by or on the order of the City in accordance, as nearly as may be practicable, with the Annual Budget then in effect. Each month, there is deposited into the Operation and Maintenance Fund the amount necessary to pay the expenses described in the preceding paragraph that are to come due, or that are expected to be incurred, in the ensuing month. The Debt Service Funds. The Bond Ordinance requires the establishment and maintenance of a Debt Service Fund for each Series of Bonds Outstanding. Any such Debt Service Fund is for the equal and ratable benefit only of Bonds of that Series. Each Debt Service Fund is intended to provide for the payment of the principal of, redemption premium, if any, and interest on that Series of Bonds as they fall due. Except as provided in the Bond Ordinance, all monies in each Debt Service Funds may be used only to pay the principal of and interest on the Series of Bonds to which such fund is applicable, and for no other purpose. The Debt Service Funds are maintained in the custody and under the control of the Trustee and withdrawals from each Debt Service Fund may be made only by the Trustee, who must transmit to each Bondholder, when appropriate, the sums required to pay the principal of, redemption premium, if any, and interest on the Bonds of the applicable Series. The money in each Debt Service Fund is invested and reinvested by the Trustee at the written direction of the Chief Financial Officer or his designee in Authorized Investments that mature no later than the date on which such money is required to pay the interest and/or the principal and interest next maturing. All earnings from such investments are added to and become a part of the Debt Service Fund, and are credited against payments that would otherwise be made to that Debt Service Fund under the Bond Ordinance. Each month there is deposited into the respective Debt Service Funds the monthly fraction of the aggregate amount of interest and principal to become due on the respective Series of Bonds on the next ensuing Bond Payment Date. If, however, provision has been made for the payment of all or part of the next installment of interest or principal to become due on any Bonds pursuant to any provision of the Bond Ordinance, or by reason of investment earnings, then the deposits described in this paragraph may be omitted, or reduced accordingly. If the sum total deposits of principal and interest to be made as described in the preceding paragraph plus remaining deposits to be made prior to the next succeeding Bond Payment Date will be less than the amount required to effect the payment of the next succeeding installment of principal and interest or both on a Series of Bonds, a sum equal to such deficiency shall be added to the deposits so to be made. The Debt Service Reserve Funds. A Series Ordinance may create a Debt Service Reserve Fund for the Series of Bonds authorized thereby. Each Debt Service Reserve Fund is for the equal and ratable benefit only of Bonds of that Series. Each such Fund is intended to ensure the timely payment of the principal of, premium, if any, and interest on the related Series of Bonds, and to provide for the redemption of the Bonds prior to their stated maturities. Each Debt Service Reserve Fund is maintained in an amount equal to the Reserve Requirement established by the relevant Series Ordinance. Money in a Debt Service Reserve Fund may be used only for the following purposes and no other: (1) to prevent default in the payment of the principal of or interest on the applicable Series of Bonds, by reason of the fact that money in the Debt Service Fund is insufficient for such purposes; (2) to pay the principal of, interest on, and redemption premium of the applicable Series of Bonds in the event that all Outstanding Bonds of such Series are to be redeemed as a whole; or (3) to effect partial redemption of the applicable Series of Bonds; but subsequent to any partial redemption, the market value of the cash and securities in the Debt Service Reserve Fund must not be less than the applicable Reserve Requirement. C-12

125 The Debt Service Reserve Funds are kept in the complete custody and control of the Trustee. Withdrawals therefrom may be made only by the Trustee, who must transmit to the Bondholders, when appropriate, the sums required to pay the principal of, redemption premium, if any, and interest on the Bonds. Investment Earnings. The money in each Debt Service Reserve Fund is invested and reinvested by the Trustee at the written direction of the Chief Financial Officer in Authorized Investments. The earnings from such investments are added to the applicable Debt Service Reserve Fund. If the value of the securities and money in any Debt Service Reserve Fund exceeds its Reserve Requirement, the excess may be used to effect partial redemption of the Series of Bonds or transferred into the applicable Debt Service Fund. Substitutes. If a Debt Service Reserve Fund is created by a Series Ordinance, the City may satisfy the applicable Reserve Requirement by causing to be credited thereto a surety bond, letter of credit, insurance policy, or other funding instrument. Valuation. The market value of the cash and securities in each Debt Service Reserve Fund is calculated as of the last day of each Fiscal Year (this calculation must be made within 45 days after such date) in order to determine if each Debt Service Reserve Fund contains its Reserve Requirement. Unless each Debt Service Reserve Fund then contains in cash and securities (or a surety bond, insurance policy, letter of credit, or other funding instrument) an amount not less than its Reserve Requirement, there must be paid each month into the deficient Debt Service Reserve Funds 1/12 of the amount necessary to correct the deficiency. Alternatively, the City may fully reestablish the Reserve Requirement in a more timely fashion. The value of any Authorized Investments in a Debt Service Reserve Fund is calculated as set forth in the Bond Ordinance. Reimbursement of Interest on Amounts Advanced for Debt Service Reserve Fund. Prior to any payments for Junior Lien Bonds, but after any required deposits to the Debt Service Reserve Funds, the City must provide for payment of interest and any fees or penalties on amounts advanced by the provider of any surety bond, insurance policy, letter of credit or other funding instrument used to satisfy the Reserve Requirement for a Series of Bonds. Payments for Junior Lien Bonds. Following the payments described above, the City must provide for the payment of any other indebtedness that is junior and subordinate to the Bonds in the order of priority contemplated by the proceedings authorizing their issuance. The Depreciation and Contingent Fund. The Bond Ordinance requires the establishment and maintenance of a Depreciation and Contingent Fund to provide a reasonable reserve for depreciation of the System, for contingencies, and for improvements, betterments, and extensions of the System. Money in this fund may be used only: (1) to restore depreciated or obsolete items of the System; (2) for improvements, betterments, and extensions to the System, other than for those things reasonably necessary to maintain the System in good repair and working order; (3) to defray the cost of unforeseen contingencies; (4) to prevent defaults of Bonds and Junior Lien Bonds; and (5) for optional redemption of Bonds. The City must determine the amount to be maintained in the Depreciation and Contingent Fund not less frequently than annually. Use of Surplus Money. All money remaining after making the payments described above may be used for any lawful purpose and in such a manner as the City Council may determine. Investments of Funds Whenever, in the opinion of the City, it is desirable to invest money in any of the funds described above (other than the Debt Service Reserve Funds and the Debt Service Funds, provisions for which are set forth above), the City may make Authorized Investments. Earnings from investments are deposited into the General Revenue Fund (i) except as provided above for the Debt Service Funds and the Debt Service Reserve Funds, and (ii) unless the City Council determines pursuant to the Annual Budget that earnings on amounts in the Depreciation and Contingent Fund will remain therein. C-13

126 Modification of Bond Ordinance Without Bondholder Approval. Provided that the security for the Bonds is not lessened or otherwise impaired, the City Council may at any time and without Bondholder approval adopt an ordinance supplementing the Bond Ordinance for any one or more of the following purposes: (1) to provide for the issuance of a Series of Bonds in accordance with the Bond Ordinance; (2) to add to the covenants and agreements of the City in the Bond Ordinance; (3) to surrender any right, power, or privilege reserved to or conferred upon the City by the Bond Ordinance; (4) to implement an addition to the System pursuant to the Bond Ordinance; and (5) to cure, correct, and remove any ambiguity or inconsistent provisions contained in the Bond Ordinance. With Bondholder Approval. The rights and duties of the City and the Bondholders and the terms and provisions of the Bond Ordinance may be modified by an ordinance adopted by the City Council with the consent of the Holders of 66-2/3% in principal amount of all Outstanding Bonds of each Series that would be affected by the modification, but no such modification may, without the consent of the Holders of all Bonds affected by such change or modification: (1) extend the maturity of any payment of principal or interest due upon any Bond; (2) reduce the amount that the City is required to pay by way of principal, interest, or redemption premium on any Bond; (3) change the type of currency in which the City is obligated to pay the principal, interest, and redemption premium of any Bond; (4) permit the creation of a pledge of or a lien upon the revenues the System prior to or equal to the Bonds; (5) permit preference or priority of any Bonds to others; (6) alter or modify certain enumerated provisions of the Bond Ordinance; or (7) reduce the percentage required for the written consent to the modification of the provisions of the Bond Ordinance. In addition, no modification or alteration of the Bond Ordinance may, without the consent of the Trustee, affect the rights of the Trustee under the Bond Ordinance. Procedure for Procuring Bondholder Approval; Bond Insurer Rights. The City and the Trustee may rely upon the registry books maintained by the Trustee to determine who are the Holders of the Bonds. Any and all modifications made in the manner hereinabove provided for shall not become effective until there has been filed with the Clerk of Court for the County and the Trustee a copy of such amendatory ordinance hereinabove provided for, duly certified, as well as proof of consent to such modification by the Holders of sixty-six and two-thirds percent (66-2/3%) in principal amount of the Bonds of each Series then Outstanding. Notwithstanding the foregoing, any Series Ordinance may provide that an Insurer insuring the Series of Bonds may C-14

127 be treated as the Holder of all Outstanding Bonds of that Series for all purposes of Bondholder consent, Bondholder direction of remedies hereunder and Bondholder waivers Events of Default Each of the following events is an Event of Default under the Bond Ordinance: (1) payment of the principal of any of the Bonds is not made when the same becomes due and payable, either at maturity or by proceedings for redemption; (2) payment of any installment of interest on any Bonds is not made when the same becomes due and payable; (3) payment of any installment of either interest or principal on any Junior Lien Bonds is not made when the same becomes due and payable or any other event of default exists with respect to the Junior Lien Bonds; (4) the City is for any reason rendered incapable of fulfilling its obligations under the Bond Ordinance; (5) the occurrence of certain events of bankruptcy or insolvency that is not vacated or discharged or stayed on appeal within sixty (60) days of the applicable order or decree; (6) the City defaults in the performance of any other of the covenants or provisions contained in the Bonds or in the Bond Ordinance; and the default continues for thirty (30) days after a written notice of default has been given to the City by any Bondholder. If, however, the default cannot be corrected within thirty (30) days, the City may avoid default by instituting corrective action within the thirty-day period and diligently pursuing such action until the default is corrected; (7) the City defaults under any reimbursement agreement with a provider of a surety bond, insurance policy, letter of credit, or other funding instrument; and (8) any other Events of Default specified in a Series Ordinance. Paragraph (6) above is subject to the following limitation: If by reason of force majeure the City is unable to carry out its agreements contained in the Bond Ordinance, except for those contained in Section 4.02 and Articles V, VII, and VIII of the Bond Ordinance, the City will not be deemed in default during such inability. The term force majeure is defined to mean, without limitation, acts of God; strikes; lockouts or other industrial disturbances; acts of public enemies; orders of any kind of the government of the United States or of South Carolina or any of their departments, agencies, or officials, or any civil or military authority; insurrections; riots; epidemics; landslides; lightning; earthquakes; fire; hurricanes; storms; floods; washouts; droughts; arrests; restraints of government and people; civil disturbances; explosions; breakage or accident to machinery, tunnels or canals; partial or entire failure of utilities; or any other cause or event not reasonably within the control of the City. The settlement of strikes, lockouts, and other industrial disturbances is entirely within the discretion of the City, and the City is not required to settle strikes, lockouts, and other industrial disturbances by acceding to the demands of the opposing party or parties when the City believes settlement to be unfavorable. Remedies Acceleration; Annulment of Acceleration. Upon the occurrence of an Event of Default, the Trustee may, and upon the written request of the Holders of not less than 25% in aggregate principal amount of Bonds Outstanding must, declare all Bonds Outstanding immediately due and payable. In such event the Bonds shall immediately become due and payable, and there shall be payable on the Bonds an amount equal to the total principal amount of all such Bonds plus accrued interest to the date of payment. C-15

128 At any time after the principal of the Bonds has been so declared due and payable, and before the entry of final judgment in any action instituted on account of such default, or before the completion of enforcement of any other remedy under the Bond Ordinance, the Trustee may annul the declaration and its consequences for any Bonds not then due by their terms if: (1) moneys have been deposited in each Debt Service Fund sufficient to pay all matured installments of interest and principal (other than principal then due only because of such declaration) of all Outstanding Bonds of the respective Series; (2) moneys have been deposited with the Trustee sufficient to pay the charges, compensation, expenses, disbursements, advances, and liabilities of the Trustee; (3) all other amounts then payable by the City have been paid or a sum sufficient to pay the same has been deposited with the Trustee; and (4) every Event of Default known to the Trustee (other than a default in the payment of the principal of such Bonds then due only because of such declaration) has been remedied to the satisfaction of the Trustee. Additional Remedies. Upon the occurrence and continuance of any Event of Default, the Trustee may, and upon the written request of the Holders of not less than 25% in aggregate principal amount of the Bonds Outstanding, together with indemnification of the Trustee to its satisfaction in such regard, must, proceed to protect and enforce its rights and the rights of the Bondholders under the Bond Ordinance by any actions that the Trustee, being advised by counsel, deems expedient, including without limitation requiring the City to carry out its duties and obligations under the Bond Ordinance and the Enabling Act, suit upon all or part of the Bonds, an action against the City for an accounting, an action to enjoin unlawful acts in violation of the rights of the Holders of the Bonds, an enforcement of all rights conferred by law upon the Holders of the Bonds, including the right to the appointment of a receiver. Regardless of the happening of an Event of Default, the Trustee, if requested in writing by the Holders of not less than 25% in aggregate principal amount of the Bonds then Outstanding together with indemnification of the Trustee to its satisfaction in such regard, must institute any suits and proceedings as it may be advised by counsel to be necessary or expedient: (1) to prevent any impairment of the security under the Bond Ordinance by any acts that may be unlawful or in violation of the Bond Ordinance; or (2) to preserve or protect the interests of the Bondholders, provided that such request is in accordance with law and the provisions of the Bond Ordinance and, in the sole judgment of the Trustee, is not unduly prejudicial to the interests of the Holders of Bonds not making such request. Application of Revenues and Other Moneys After Default. If an Event of Default occurs and is not remedied, the City, upon demand of the Trustee, must pay or cause to be paid over to the Trustee all moneys and securities then held by the City that are credited to any Fund under the Bond Ordinance and all Gross Revenues. Order of Payment. During the continuance of an Event of Default, the Trustee must apply all moneys, securities, Gross Revenues, payments, and receipts in its possession and the income therefrom as follows and in the following order: (1) to the payment of the reasonable and proper charges of the Trustee: (2) to the payment of the necessary costs of operating and maintaining the System; C-16

129 (3) to the payment of interest, principal, and redemption premium, if any, then due on the Bonds, as follows: (a) and payable, Unless the principal of all of the Bonds has become or has been declared due (i) First: To the payment of the persons entitled thereto of all installments of interest then due in the order of the maturity of such installments, and, if the amount available is not sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon to the persons entitled thereto, without any discrimination; and (ii) Second: To the payment of the persons entitled thereto of the unpaid Principal Installments (and redemption premiums, if any) of any Bonds that have become due, whether at maturity or by call for redemption, in the order of their due dates, and if the amounts available are not sufficient to pay in full all the Bonds due on any date, then to the payment thereof ratably, according to the amounts of principal (plus redemption premium, if any) due on such date, to the persons entitled thereto, without any discrimination; (b) If the principal of all of the Bonds has become or has been declared due and payable, to the payment of the principal and interest then due and unpaid upon the Bonds 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 discrimination except as to any differences in the respective rates of interest specified in the Bonds; and (4) for the purposes and to the respective funds described under the heading FUNDS, ACCOUNTS, AND OTHER PAYMENTS above. Control of Proceedings. If an Event of Default has occurred and is continuing, the Holders of at least a majority in aggregate principal amount of Bonds then Outstanding have the right, at any time, to direct the method and place of conducting any proceeding to be taken in connection with the enforcement of the terms and conditions of the Bond Ordinance or for the appointment of a receiver, provided that such direction is in accordance with law and the provisions of the Bond Ordinance and, in the sole judgment of the Trustee, is not unduly prejudicial to the interests of the Bondholders not joining in such direction. Nothing contained in the Bond Ordinance impairs the right of the Trustee in its discretion to take any other action under the Bond Ordinance that it may deem proper and that is not inconsistent with such direction by Bondholders. Individual Bondholder Action Restricted. No Holder of any Bond has the right to institute any proceeding for the enforcement of the Bond Ordinance or for any remedy unless (1) an Event of Default has occurred with respect to the payment of principal of or interest on the Bonds, as to which the Trustee has actual notice or has been notified in writing by the City or by the Holders of at least 25% in aggregate principal amount of the Bonds then Outstanding, (2) the Holders of at least 25% in aggregate principal amount of Bonds Outstanding have made written request to the Trustee to proceed to exercise the powers granted in the Bond Ordinance or to institute such proceeding in its own name, (3) such Bondholders have offered the Trustee reasonable indemnity, and (4) the Trustee fails or refuses to exercise its powers granted in the Bond Ordinance or to institute such proceeding in its own name for a period of sixty days after receipt of the request and offer of indemnity. No Bondholder has any right to disturb or prejudice the security of the Bond Ordinance or to enforce any right thereunder except in the manner provided in the Bond Ordinance and for the equal benefit of the Holders of all Bonds Outstanding. Nothing contained in the Bond Ordinance impairs the right of any Bondholder to receive payments of the principal of or interest on such Bond on the due date thereof or to institute suit for the enforcement of any such payment on or after such due date. C-17

130 Waiver of Event of Default. No delay or omission of the Trustee or of any Bondholder to exercise any right accruing upon an Event of Default impairs any such right or is construed to be a waiver of the Event of Default or acquiescence therein. The Trustee may waive any Event of Default that in its opinion has been remedied before the entry of final judgment or decree in any proceeding instituted by it under the provisions of the Bond Ordinance, or before the completion of the enforcement of any other remedy under the Bond Ordinance. The Trustee, upon the written request of the Holders of at least a majority of the aggregate principal amount of Bonds then Outstanding (including, if more than one Series of Bonds is Outstanding, the Holders of a majority in principal amount of all Bonds then Outstanding of each such Series), must waive any Event of Default under the Bond Ordinance, except that a default in the payment of the principal of, premium, if any, or interest on, any Bond may not be waived without the written consent of the Holders of all the Bonds at the time Outstanding. Notice of Default. Within thirty days after receipt of notice of an Event of Default or the occurrence of an Event of Default relating to the payment of principal of or interest on any Bonds, the Trustee must, unless the Event of Default has been cured, give written notice of the Event of Default by first class mail to each Holder of Bonds then Outstanding. Unless the default relates to the payment of principal of, premium, if any, or interest on any of the Bonds, the Trustee may withhold such notice if, in its sole judgment, it determines that the withholding of such notice is in the best interests of the Bondholders. Rights of Insurers. A Series Ordinance may provide that any Insurer insuring the applicable Series of Bonds, upon the occurrence of an Event of Default and with respect to all remedies provided in the Bond Ordinance, may act as the Holder of all Outstanding Bonds of that Series and may prevent the acceleration of the Bonds of all Series. Such Insurer may also be subrogated to the rights to payment of the Holders of any Blonds with respect to which it pays any principal or interest on the Bonds owned by that Holder. Trustee Functions of the Trustee. The Trustee has the following functions: (1) to authenticate the Bonds of all Series that may be issued; (2) to act as custodian of the Debt Service Funds; (3) to act as custodian of the Debt Service Reserve Funds; (4) to act as Paying Agent for the Bonds; (5) unless otherwise prescribed by the applicable Series Ordinance, to act as Registrar for the Bonds and to maintain registration books therefor, which must at all times accurately reflect the names and addresses of all Bondholders; and (6) to make reports to the City not less often than semi-annually, that establish balances on hand, list investments made for any fund handled by the Trustee, establish the market value of the Debt Service Reserve Funds, and list all securities, if any, pledged pursuant to the Bond Ordinance. Resignation and Removal of Trustee; Successor Trustee. The Trustee may at any time resign and be discharged of its duties and obligations under the Bond Ordinance by giving at least sixty (60) days notice to the City Council and the Bondholders of the date when such resignation is intended to take effect. The resignation takes effect immediately upon, but not before, the appointment and qualification of the successor. The Trustee may be removed at any time by the Holders of not less than 50% of the principal amount of Bonds at such time Outstanding. In addition, the Trustee may be removed at any time by the City Council with the consent of the Holders of not less than 50% of the principal amount of Bonds then Outstanding. The Trustee may be removed at any time by City Council, if a Series Ordinance so provides, upon the request of a municipal bond C-18

131 insurance company insuring such Series of Bonds. Any removal of the Trustee takes effect immediately upon, but not before, the appointment and qualifications of the successor. If the Trustee resigns, is removed, becomes incapable of acting, is adjudged bankrupt or insolvent, or is placed in receivership or under the control of a public official, a successor must be promptly appointed by an ordinance of the City. The successor must be a bank or a trust company, duly chartered pursuant to the laws of the United States or of the State, and must have a combined capital and surplus of not less than $100,000,000. Immediately after appointing a successor Trustee, the City must give written notice of the appointment to the Bondholders. If the City does not promptly select a successor Trustee, any Bondholder may apply to any court of competent jurisdiction for the appointment of a successor and the court may, after such notice, if any, as such court may prescribe, appoint a successor. Trustee to Secure Funds and Securities Held in Trust. Unless secured as trust funds in the manner provided by the regulations of the Comptroller of the Currency, all funds in the custody of the Trustee in excess of the amount insured by the Federal Deposit Insurance Corporation must be invested in Authorized Investments. Defeasance Subject to the provisions of any Series Ordinance, if all of the Bonds issued pursuant to the Bond Ordinance have been paid and discharged, then the obligations of the City under the Bond Ordinance, the pledge of revenues made thereby, and all other rights granted thereby cease and terminate. Bonds are deemed to have been paid and discharged under each of the following circumstances. (1) the Trustee holds, at the stated maturities of such Bonds, in trust and irrevocably appropriated thereto, sufficient money for the payment thereof; (2) if default in the payment of the principal of such Bonds or the interest thereon has occurred and thereafter tender of such payment has been made, and the Trustee then holds in trust and irrevocably appropriated thereto, sufficient money for the payment thereof to the date of the tender of such payment; or (3) if the City deposits with the Trustee, or any other bank that would otherwise meet the applicable chartering, capital, and surplus requirements for selecting a successor Trustee as set forth in the Bond Ordinance, in an irrevocable trust money or Defeasance Obligations, the principal of and interest on which when due (without reinvestment thereof) will provide money that, together with the money, if any, deposited at the same time, is sufficient to pay, when due, the principal, interest, and redemption premium, if any, due and to become due on and prior to the maturity, or, if the City Council has irrevocably elected to redeem Bonds, on and prior to the redemption date, of such Bonds. Certain Insurer Rights Any Insurer of a Series of Bonds is deemed the exclusive Holder of all Bonds insured by that Insurer, for the purposes of all approvals, consents, waivers, institution of any action, and the direction of all remedies. This right is effective only if, and during such times as, the Insurer s municipal bond insurance policy results in the applicable Series of Bonds being rated in the highest rating category of any rating agencies then rating such Series of Bonds. The provisions of the Bond Ordinance that expressly recognize or grant rights in or to an Insurer may not be amended in any manner that affects the rights of such Insurer without the prior written consent of each such Insurer. C-19

132 To the extent that an Insurer makes payment of the principal of or interest on any Bonds, it becomes the owner and Holder of such Bonds, appurtenant coupons, or right to payment of such principal of or interest on such Bonds. The Insurer is also fully subrogated to all of the registered Holders rights thereunder, including the registered Holders rights to payment thereof. In the event that the principal of and/or interest on any Bonds is paid by an Insurer pursuant to the terms of its municipal bond insurance policy, (i) the Bonds continue to be Outstanding under the Bond Ordinance and (ii) the assignment and pledge of the revenues and all covenants, agreements, and other obligations of the City to the registered Holders continue to exist, and the Insurer is fully subrogated to all of the rights of such registered Holders. No rights granted to any Insurer by the Bond Ordinance are effective at any time that such Insurer is in breach of its obligations under the municipal bond insurance policy or is subject to bankruptcy or receivership proceedings. The terms and provisions of the Bond Ordinance or of any applicable Series Ordinance may not be terminated as long as monies are owed to an Insurer under the terms of the Bond Ordinance or any applicable Series Ordinance or any agreement between such Insurer and the City. General THE 2015 SERIES ORDINANCE As previously discussed above under THE BOND ORDINANCE Authorization of Bonds in a Series, Bonds issued pursuant to the Bond Ordinance are to be authorized by the adoption of a Series Ordinance. Accordingly, the 2015 Series Ordinance sets forth the purposes for which the Series 2015 Bonds are being issued and the disposition of the proceeds of the Series 2015 Bonds. In addition, the 2015 Series Ordinance establishes the date of the issue, principal and interest payment dates, and redemption provisions with respect to the Series 2015 Bonds. Further, the 2015 Series Ordinance approves the interest rates and the maturity schedule for the Series 2015 Bonds, establishes the form of the Series 2015 Bonds, commits the City to undertake certain continuing disclosure pursuant to Rule 15c2-12 of the United States Securities and Exchange Commission, and authorizes the execution and delivery by the City of a purchase contract for the Series 2015 Bonds. THE 2007 SERIES ORDINANCE Certain Insurer Rights under the 2007 Series Ordinance In addition to the rights provided for under the Bond Ordinance, the 2007 Series Ordinance gives the 2007 Insurer, as the issuer of the Municipal Bond Insurance Policy for the Series 2007 Bonds, certain rights which include the following: (1) The 2007 Insurer shall be treated as the Holder of all Outstanding Series 2007 Bonds for all purposes of Bondholder consent, Bondholder direction of remedies and Bondholder waivers under the Bond Ordinance. (2) The 2007 Insurer is granted the right to remove the Trustee, as discussed under THE BOND ORDINANCE Trustee-- Resignation and Removal of Trustee; Successor Trustee. (3) No acceleration of the Bonds of all Series may be effected without the consent of the 2007 Insurer, as discussed under THE BOND ORDINANCE Remedies Rights of Insurers. C-20

133 PENDING AMENDMENTS TO THE BOND ORDINANCE By virtue of an ordinance adopted June 5, 2007, the City has made provision for certain amendments to the Bond Ordinance which shall become effective only at such time as one of the following conditions has been met: (1) the Series 2000 Bond shall have been paid at their respective stated maturities or redemption dates, if redeemed as a whole; (2) the Series 2000 Bond shall have been defeased in accordance with the provisions of the Bond Ordinance; or (3) the consent of all of the holders of the Series 2000 Bond shall have been obtained in accordance with the provisions of the Bond Ordinance. The earliest date on which one of the conditions stated in the preceding sentence has been met is hereafter referred to as the Effective Date. The purchasers of the 2015 Bonds are deemed to have irrevocably consented to such amendments. Definitions Upon the Effective Date, certain defined terms used in the Bond Ordinance, as previously described under DEFINITIONS above, shall be replaced to read, instead, as follows: ANNUAL PRINCIPAL AND INTEREST REQUIREMENT shall mean, with respect to any particular Fiscal Year and to a Series of Bonds Outstanding, an amount (other than amounts paid from proceeds of Bonds) equal to the sum of (1) all interest payable on such Series of Bonds that are issued as Current Interest Bonds during such Fiscal Year, plus (2) any Principal Installment of such Series of Bonds payable during such Fiscal Year. The rate of interest to be used for purposes of computing Annual Principal and Interest Requirement shall be the rate applicable as provided in part (a) of this definition, subject to such adjustments and assumptions as may be applicable under clause (b) of this definition. (a) The rate of interest used to determine any Annual Principal and Interest Requirement with respect to any Fiscal Year shall be determined: (i) with respect to any Bonds for any period when bearing interest at a fixed rate, as the rate per annum equal to the rate of interest borne or to be borne by such obligations, and (ii) with respect to any Variable Rate Bonds, as the rate or rates per annum applicable to such Variable Rate Bonds at the time of such computation under the Variable Rate Calculation Convention. (b) The rate determined pursuant to clause (a) of this definition with respect to any Fiscal Year shall be subject to the cumulative effect of the following adjustments and assumptions to the extent applicable: (i) For any period during which a Financial Swap Agreement is in effect and designated as relating to such Bonds, such rate shall be adjusted upward or downward (as applicable) to take into account the net amounts projected to be paid or received as Financial Swap Payments under such Financial Swap Agreement during such period, using the Variable Rate Calculation Convention where applicable; and (ii) If Bonds have actually been purchased under a Liquidity Facility and for such reason are subject, at the time of such computation, to any modified or additional provisions as to the timing and amounts of Principal Installments and interest due on such Bonds, then such C-21

134 modified or additional provisions shall be taken into account for purposes of this definition, with resort to the Variable Rate Calculation Convention where applicable; otherwise, however, the existence of any such modified or additional provisions with respect to payments of the Principal Installments and interest relating to Bonds subject to a Liquidity Facility shall not be taken into account for purposes of this definition. For purposes of paragraph (b)(i) of this definition, the designation of which Bonds or portions thereof (if any) are related to any Financial Swap Agreement shall be set forth in a certificate of the City using any method of allocation certified therein as being deemed reasonable and economically appropriate in the signing representative s discretion. In the event that the City states in any such certificate that a redesignation of any prior designation of one or more Financial Swap Agreements among Bonds (or portions thereof) is reasonable and economically appropriate from time to time, then each such redesignation shall be as set forth in such certificate delivered to the Trustee. In the event of conflicting designation certificates, the latest such certificate to have been executed and delivered to the Trustee shall control to the extent of such conflict. Any certificate executed pursuant to this paragraph shall be conclusive and binding for all purposes (until modified by any subsequent certificate executed pursuant to this paragraph, which subsequent certificate shall then be conclusive and binding as described in this paragraph). No part of this definition shall limit the effect of the last sentence of the definition of Secured Financial Swap Agreement herein. Except to the extent expressly set forth in this definition above, Financial Swap Agreements and any amounts owing thereunder shall not be taken into account in any computation of Annual Principal and Interest Requirements. JUNIOR LIEN BONDS shall mean any revenue bonds or other obligations issued or incurred by the City which are secured by pledges of and liens on the revenues of the System which are junior and subordinate in all respects to the pledges and liens made to secure Bonds. Junior Lien Bonds may include, without limitation, any obligations incurred by the City in respect of a Financial Swap Agreement or other obligations in either such case that the City expressly designates (in the documents governing the terms of a Financial Swap Agreement or such other obligations or by separate certificate) as constituting Junior Lien Bonds for purposes of this Ordinance and, in such case, such obligations shall be subject to the payment and priority provisions of this Ordinance applicable to Junior Lien Bonds (as opposed to any more senior payment and priority provisions that would otherwise apply thereto). NET EARNINGS shall mean for the period in question, the net income of the System, determined in accordance with then generally accepted accounting principles, but whether or not generally accepted accounting principles so require, it shall be adjusted as follows (a) revenue derived from service fees (including connection and tap fees, availability fees, impact fees and meter purchases) shall be included in income; (b) investment income not restricted to a purpose inconsistent with the payment of operating expenses or debt service shall be included in income; (c) there shall be excluded from the calculation made to determine Net Earnings: (i) gains on the sale or other disposition of investments or fixed or capital assets, which do not result from the ordinary course of business; (ii) amounts received by the City under any Financial Swap Agreement (whether regularly scheduled receipts or receipts upon termination or partial termination); (iii) investment income restricted to a purpose inconsistent with the payment of operating expenses or debt service including (whether or not so restricted) interest earned on any construction fund or construction account created with the proceeds of borrowing by the city in connection with the System; C-22

135 (iv) (v) any amounts received by way of government grants; and revenues derived from the operation of Special Facilities; (d) there shall be added back to such net income: (i) losses on the sale or other disposition of investments or fixed or capital assets which do not result from the ordinary course of business; (ii) to the extent subtracted in the original determination of net income prior to application of this clause (d)(ii), Financial Swap Termination Payments under any Financial Swap Agreement; (iii) amounts appropriated to the City s general fund or other fund by the City Council to the extent such amounts have been reflected as an expense in determining net income under generally accepted accounting principles; (iv) (v) depreciation allowances; amounts paid as interest on Bonds; (vi) to the extent subtracted in the original determination of net income prior to application of this clause (d)(vi), Financial Swap Payments under any Financial Swap Agreement; (vii) the amortization of financing expenses, underwriting discounts, call premiums, gains or losses on the extinguishment of debt due to the refinancing of the same, and other related or incidental non-recurring expenses resulting from the issuance or refinancing of Bonds; and (viii) expenses resulting directly from the operation of Special Facilities to the extent that the revenues derived therefrom have been pledged to secure, and used for, the payment of Special Facilities Bonds; and (e) changes in the market valuation of any Financial Swap Agreement alone shall not be taken into account in the calculation made to determine Net Earnings. terms: Upon the Effective Date, there shall be added to the Bond Ordinance the following additional defined CREDIT FACILITY means one or more instruments provided by a Credit Facility Issuer, which may include a bond insurance policy, letter of credit, contract, agreement or similar credit facility with respect to any Series of Bonds, singly or collectively meeting any applicable requirements of the Series Ordinance pursuant to which such Series of Bonds are issued and, in the case of multiple credit facilities supporting a single Series of Bonds, having the same expiration date, in support of the payment when due of principal of and interest on one or more Series of Bonds, that in the aggregate satisfy the requirements of the Series Ordinance which provides for the issuance of such Series of Bonds. A Credit Facility and a Liquidity Facility may be one and the same instrument with respect to any Series of Bonds. If no Credit Facility is in effect with respect to a Series of Bonds, references to the Credit Facility and Credit Facility Issuer shall be disregarded for such Series. CREDIT FACILITY ISSUER means, with respect to any Series of Bonds, if a Credit Facility is in effect, the institution or, if more than one institution, the institutions issuing the Credit Facility; provided, however, that if more than one institution is issuing the Credit Facility, the number or percentage of such institutions required to provide any consent or approval hereunder shall be specified in the Series Ordinance pursuant to which such Series of Bonds is issued. The Credit Facility Issuer and the Liquidity Facility Issuer may be the same institution or C-23

136 institutions. If no Credit Facility is in effect with respect to a Series of Bonds, references to the Credit Facility Issuer shall be disregarded for such Series. FINANCIAL SWAP AGREEMENTS mean any swap, cap, collar, floor, forward, option, put, call, cash flow exchange or other similar agreement or arrangement or any combination of the foregoing, howsoever denominated, and regardless of the level or type of rates or indexes upon which any one or more components thereof is based (including all schedules, confirmations, exhibits, credit support documentation, annexes or other documentation related thereto), entered into by the City with a Financial Swap Counterparty with respect to any Series or portion of any Series of Bonds, to the extent it has been expressly designated pursuant to the definition of Annual Principal and Interest Requirement herein as relating to such Series or portion of such Series of Bonds (each, a Financial Swap Agreement ). The term Financial Swap Agreement shall not, however, include any component of an agreement or arrangement which, as determined by the City in writing upon the execution and delivery thereof, would otherwise be included as part of a Financial Swap Agreement under the foregoing definition but which effectively constitutes a loan by or to any party thereto (rather than a hedge or conversion or interest rate exposure) by reason of the initial off-market pricing or similar or other aspect thereof. FINANCIAL SWAP COUNTERPARTY means each financial institution (which may, but need not, include any Credit Facility Issuer or Liquidity Facility Issuer or any entity related thereto) entering into a Financial Swap Agreement with the City that, at the time of the execution of such Financial Swap Agreement: (i) satisfies any applicable requirements of law, (ii) satisfies the requirements, if any, of any Series Ordinance pursuant to which the Series of Bonds to which the Financial Swap Agreement relates has been issued, and (iii) is rated, or whose debt is guaranteed, insured, or collateralized by an entity whose financial strength or claims-paying ability is rated AA- (or its equivalent) or better by a Rating Agency. FINANCIAL SWAP PAYMENTS means, collectively, all amounts payable by the City to any Financial Swap Counterparty pursuant to the terms of any Financial Swap Agreements, but excluding any Financial Swap Termination Payments (each, a Financial Swap Payment ). The Trustee shall rely upon a certificate of a Financial Swap Counterparty as conclusive evidence of any and all Financial Swap Payments that may be due and owing to such Financial Swap Counterparty under the applicable Financial Swap Agreement and on any date, unless such a certificate shall have been provided to the Trustee, shall conclusively assume that no Financial Swap Payments are then due; provided, that failure of a Financial Swap Counterparty to notify the Trustee of any such amount shall not affect the obligation of the City to pay all amounts due and owing to such Financial Swap Counterparty to the extent provided under the applicable Financial Swap Agreement. FINANCIAL SWAP TERMINATION PAYMENTS means, collectively, all amounts payable by the City to any Financial Swap Counterparty upon termination or partial termination of any Financial Swap Agreement (each, a Financial Swap Termination Payment ). The Trustee shall rely upon a certificate of a Financial Swap Counterparty as conclusive evidence of any and all Financial Swap Termination Payments that may be due and owing to such Financial Swap Counterparty under the applicable Financial Swap Agreement and on any date, unless such a certificate shall have been provided to the Trustee, shall conclusively assume that no Financial Swap Termination Payments are then due; provided, that failure of a Financial Swap Counterparty to notify the Trustee of any such amount shall not affect the obligation of the City to pay all amounts due and owing to such Financial Swap Counterparty to the extent provided under the applicable Financial Swap Agreement. LIQUIDITY FACILITY means one or more instruments provided by a Liquidity Facility Issuer with respect to any Series of Bonds, singly or collectively meeting any applicable requirements of the Series Ordinance pursuant to which such Series of Bonds are issued and, in the case of multiple such instruments relating to a single Series of Bonds, having the same expiration date, providing for the payment of the purchase price of one or more Series of Bonds and otherwise in the aggregate satisfying the requirements thereof. A Liquidity Facility and a Credit Facility may be one and the same instrument with respect to any Series of Bonds. If no Liquidity Facility is in effect with respect to a Series of Bonds, references to a Liquidity Facility and Liquidity Facility Issuer shall be disregarded for such Series. C-24

137 LIQUIDITY FACILITY ISSUER means, with respect to any Series of Bonds, if a Liquidity Facility is in effect, the institution, or, if more than one institution, the institutions issuing the Liquidity Facility; provided, however, that if more than one institution is issuing the Liquidity Facility, the number or percentage of such institutions required to provide any consent or approval hereunder shall be specified in the Series Ordinance pursuant to which is issued the Series of Bonds to which such Liquidity Facility relates. The Liquidity Facility Issuer and the Credit Facility Issuer may be the same institution or institutions. If no Liquidity Facility is in effect with respect to a Series of Bonds, references to the Liquidity Facility Issuer shall be disregarded for such Series. RATING AGENCY, at any point in time, means any nationally recognized securities rating agency or service then rating a Series of Bonds (collectively, the Rating Agencies ) or, if no Bonds are then rated, Moody s Investors Service, Inc. and its successors. SECURED FINANCIAL SWAP AGREEMENT means a Financial Swap Agreement between the City and a Financial Swap Counterparty which the City has designated as a Secured Financial Swap Agreement for purposes of this 1999 Bond Ordinance in a written certificate delivered to the Trustee and such Financial Swap Counterparty (which certificate may but need not be located within the Financial Swap Agreement documents themselves). Any such certificate may be revoked following its delivery solely by a written certificate of revocation executed by both the City and the applicable Financial Swap Counterparty and delivered to the Trustee. VARIABLE RATE CALCULATION CONVENTION shall mean, subject to any alternative procedures (if any) specifically set forth in the Bond Ordinance, a convention for determining any amounts required to be computed under the Bond Ordinance by reference to one or more variable rates or indexes, by resort to the first of the following rules which is applicable: (1) with respect to any variable rates or indexes required to be computed for a period in which they were already determined at the time of such computation (such as rates or indexes applicable to historical periods, or for future periods which have already been determined), the convention shall be to use such rates or indexes as already so determined; (2) with respect to any variable rates or indexes required to be computed for a period in which they are not already determined at the time of such computation (such as rates or indexes applicable to future periods which have not already been determined), but which were in effect or otherwise ascertainable (such as a published index) during all or portion of the period of 12 months immediately preceding the date of computation, the convention shall be to use the average of such rates or indexes over the periods in which they were in effect during such preceding 12-month period; (3) with respect to any variable rates or indexes required to be computed for a period in which they are not already determined at the time of such computation and which were not in effect at any time within the period of 12 months immediately preceding the date of computation, the convention shall be to use (a) in computing the rate of interest with respect to Variable Rate Bonds when the rate of interest to be borne thereon when issued is available, such rate of interest; (b) in computing any index then obtainable as in effect on the date of such computation, such index as in effect on such date; and (c) otherwise the convention shall be to use a rate or index certified by the City to the Trustee as being deemed reasonable by the City, in consultation with such advisor(s) as the City deems appropriate, for such purpose. Authorization of Bonds in a Series Upon the Effective Date, paragraph (4) under THE BOND ORDINANCE -- Authorization of Bonds in a Series shall be amended to authorize the issuance of Bonds for the purpose of providing funds for the payment of interest due on such Bonds or, to the extent permitted under applicable law, amounts owed or owing under Financial Swap Agreements. C-25

138 Variable Rate Bonds Upon the Effective Date, the conditions for the issuance of Bonds applicable specifically to Variable Rate Bonds, as described under paragraph (6) under THE BOND ORDINANCE Conditions to Issuance of Bonds above, shall be replaced with the following: If the proposed Series of Bonds contains Variable Rate Bonds, in addition to the conditions for issuance of Bonds described above: Rate Covenant (d) the Series Ordinance must provide for and specify a maximum interest rate on the proposed Bonds and on any reimbursement obligation to a liquidity provider for such Bonds; (e) the Series Ordinance shall specify whether any Bonds purchased under a Liquidity Facility shall be subject, by reason of such purchase, to any modified or additional provisions as to the timing and amounts of principal and interest due on such Bonds. Amounts owed under any Bonds purchased under a Liquidity Facility shall continue to enjoy their status on a parity with the payment of debt service on all Bonds whether or not such Bonds are subject to any such modified or additional provisions arising by reason of such purchase (which parity status shall be given effect whether or not the tests referred to in paragraph (3) or, if applicable, paragraph (4) above, would be met at the time such Series of Bonds is issued assuming such modified or additional provisions in such Liquidity Facility, as to the timing and amounts of principal and interest due on such Bonds, were in effect at such time of issue). Upon the Effective Date, clause (7) under THE BOND ORDINANCE Rate Covenant shall read as follows: (7) To provide for the punctual payment of the principal of and interest on all outstanding Junior Lien Bonds (provided that in the case of Junior Lien Bonds representing amounts owing in respect of Financial Swap Agreements, such coverage need not take into account amounts contingently owed thereunder in the future). Funds, Accounts and Other Payments Upon the Effective Date, the following provisions will supercede those described under THE BOND ORDINANCE -- Funds, Accounts and Other Payments above: For so long as any sum remains due and payable on the Bonds, the following funds or accounts must be established and maintained, and deposits must be made to the funds as described below: The General Revenue Fund. The Bond Ordinance requires the establishment and maintenance of the General Revenue Fund to accurately reflect the Gross Revenues of the System and Net Earnings. Except as permitted by the Bond Ordinance, all Gross Revenues of the System must be deposited into the General Revenue Fund. Money in the General Revenue Fund may be withdrawn and made use of only in the manner and in the order of priority specified in the Bond Ordinance and described below. If the City maintains, from an accounting standpoint, proper records of receipts and disbursements for the General Revenue Fund, the General Revenue Fund may be used for the purposes of the Operation and Maintenance Fund, as described below. The Gross Revenues of the System (except customers deposits and money the disposition of which is controlled by other provisions of the Bond Ordinance) are declared by the Bond Ordinance to be a part of the General Revenue Fund, and are from time to time deposited in a bank or depository in an account that reflects the fact that they are a part of the General Revenue Fund. Payments from the General Revenue Fund are made in the order of priority described in the following paragraphs and on or before the Business Day that is five Business Days prior to the end of each month. C-26

139 The Operation and Maintenance Fund. The Bond Ordinance requires the establishment and maintenance of an Operation and Maintenance Fund, which is intended to provide for the payment of all expenses incurred in connection with the administration and operation of the System, including such expenses as may be reasonably necessary to preserve the System in good repair and working order, the fees and charges of the Trustee and the custodian or trustee of any fund, the costs of audits required under the Bond Ordinance, and the premiums for all insurance and fidelity bonds required by the Bond Ordinance (but not including Financial Swap Payments and Financial Swap Termination Payments). Withdrawals from the Operation and Maintenance Fund are made by or on the order of the City in accordance, as nearly as may be practicable, with the Annual Budget then in effect. Each month, there is deposited into the Operation and Maintenance Fund the amount necessary to pay the expenses described in the preceding paragraph that are to come due, or that are expected to be incurred, in the ensuing month. The Debt Service Funds. The Bond Ordinance requires the establishment and maintenance of a Debt Service Fund for each Series of Bonds Outstanding. Any such Debt Service Fund is for the equal and ratable benefit only of Bonds of that Series. Each Debt Service Fund is intended to provide for the payment of the principal of, redemption premium, if any, and interest on that Series of Bonds as they fall due. Except as provided in the Bond Ordinance, all monies in each Debt Service Funds may be used only to pay the principal of and interest on the Series of Bonds to which such fund is applicable, and for no other purpose. The Debt Service Funds are maintained in the custody and under the control of the Trustee and withdrawals from each Debt Service Fund may be made only by the Trustee, who must transmit to each Bondholder, when appropriate, the sums required to pay the principal of, redemption premium, if any, and interest on the Bonds of the applicable Series. The money in each Debt Service Fund is invested and reinvested by the Trustee at the written direction of the Chief Financial Officer or his designee in Authorized Investments that mature no later than the date on which such money is required to pay the interest and/or the principal and interest next maturing. All earnings from such investments are added to and become a part of the Debt Service Fund, and are credited against payments that would otherwise be made to that Debt Service Fund under the Bond Ordinance. Each month there is deposited into the respective Debt Service Funds the monthly fraction of the aggregate amount of interest and principal to become due on the respective Series of Bonds on the next ensuing Bond Payment Date. If, however, provision has been made for the payment of all or part of the next installment of interest or principal to become due on any Bonds pursuant to any provision of the Bond Ordinance, or by reason of investment earnings, then the deposits described in this paragraph may be omitted, or reduced accordingly. If the sum total deposits of principal and interest to be made as described in the preceding paragraph plus remaining deposits to be made prior to the next succeeding Bond Payment Date will be less than the amount required to effect the payment of the next succeeding installment of principal and interest or both on a Series of Bonds, a sum equal to such deficiency shall be added to the deposits so to be made. With respect to any Series of Bonds constituting Variable Rate Bonds, each monthly deposit into the applicable Debt Service Fund shall be determined by assuming that the variable interest rate most recently in effect with respect to such Variable Rate Bonds shall continue in effect to the next ensuing interest payment date on such Variable Rate Bonds, or by such other means and subject to such applicable credits that may be set forth in the applicable Series Ordinance. Upon the making of the deposits as described in the preceding paragraph, there is next paid from the General Revenue Fund to any Financial Swap Counterparty in respect of a Secured Financial Swap Agreement amounts owing to such persons in respect of Financial Swap Payments. There must next be paid to any Credit Facility Issuer and Liquidity Facility Issuer amounts necessary to reimburse such persons for drawings honored thereunder for the payment of principal, interest or purchase price in respect of the Bonds (whether in accordance with any increased, accelerated or modified rates or schedule thereunder, or otherwise). The Debt Service Reserve Funds. A Series Ordinance may create a Debt Service Reserve Fund for the Series of Bonds authorized thereby. Each Debt Service Reserve Fund is for the equal and ratable benefit only of Bonds of that Series. Each such Fund is intended to ensure the timely payment of the principal of, premium, if any, and interest on the related Series of Bonds, and to provide for the redemption of the Bonds prior to their stated C-27

140 maturities. Each Debt Service Reserve Fund is maintained in an amount equal to the Reserve Requirement established by the relevant Series Ordinance. Money in a Debt Service Reserve Fund may be used only for the following purposes and no other: (1) to prevent default in the payment of the principal of or interest on the applicable Series of Bonds, by reason of the fact that money in the Debt Service Fund is insufficient for such purposes; (2) to pay the principal of, interest on, and redemption premium of the applicable Series of Bonds in the event that all Outstanding Bonds of such Series are to be redeemed as a whole; or (3) to effect partial redemption of the applicable Series of Bonds; but subsequent to any partial redemption, the market value of the cash and securities in the Debt Service Reserve Fund must not be less than the applicable Reserve Requirement. The Debt Service Reserve Funds are kept in the complete custody and control of the Trustee. Withdrawals therefrom may be made only by the Trustee, who must transmit to the Bondholders, when appropriate, the sums required to pay the principal of, redemption premium, if any, and interest on the Bonds. Investment Earnings. The money in each Debt Service Reserve Fund is invested and reinvested by the Trustee at the written direction of the Chief Financial Officer in Authorized Investments. The earnings from such investments are added to the applicable Debt Service Reserve Fund. If the value of the securities and money in any Debt Service Reserve Fund exceeds its Reserve Requirement, the excess may be used to effect partial redemption of the Series of Bonds or transferred into the applicable Debt Service Fund. Substitutes. If a Debt Service Reserve Fund is created by a Series Ordinance, the City may satisfy the applicable Reserve Requirement by causing to be credited thereto a surety bond, letter of credit, insurance policy, or other funding instrument. Valuation. The market value of the cash and securities in each Debt Service Reserve Fund is calculated (i) as of each Bond Payment Date, (ii) if there has been a withdrawal from such Debt Service Reserve Fund on a Bond Payment Date, within forty-five (45) days after such Bond Payment Date, and (iii) as of the date of delivery of each Series of Bonds, in order to determine if each Debt Service Reserve Fund contains its Reserve Requirement. Unless each Debt Service Reserve Fund then contains in cash and securities (or a surety bond, insurance policy, letter of credit, or other funding instrument) an amount not less than its Reserve Requirement, there must be paid each month into the deficient Debt Service Reserve Funds 1/12 of the amount necessary to correct the deficiency. Alternatively, the City may fully re-establish the Reserve Requirement in a more timely fashion. Any surety bond, line of credit, insurance policy or letter of credit being used to meet the Reserve Requirement of a Debt Service Reserve Fund shall be valued at the amount still remaining to be drawn thereon; and in the event that any such surety bond, line of credit, insurance policy or letter of credit has been drawn upon, the amount necessary to restore the principal balance thereof shall be paid by the City in the same manner and on a parity with the payments described in this paragraph. The value of any Authorized Investments in a Debt Service Reserve Fund is calculated as set forth in the Bond Ordinance. Reimbursement of Interest and Fees on Amounts Advanced for Debt Service Reserve Fund and by Credit Facility Issuers and Liquidity Facility Issuers. Prior to any payments for Junior Lien Bonds, but after any required deposits to the Debt Service Reserve Funds, the City must provide for payment of interest and any fees or penalties on amounts advanced by the provider of any surety bond, insurance policy, letter of credit or other funding instrument used to satisfy the Reserve Requirement for a Series of Bonds, and like amounts owed to any Credit Facility Issuer or Liquidity Facility Issuer for any Series. C-28

141 Payments for Junior Lien Bonds. Following the payments described above, the City must provide for the payment of any other indebtedness that is junior and subordinate to the Bonds in the order of priority contemplated by the proceedings authorizing their issuance. The Depreciation and Contingent Fund. The Bond Ordinance requires the establishment and maintenance of a Depreciation and Contingent Fund to provide a reasonable reserve for depreciation of the System, for contingencies, and for improvements, betterments, and extensions of the System. Money in this fund may be used only: (1) to restore depreciated or obsolete items of the System; (2) for improvements, betterments, and extensions to the System, other than for those things reasonably necessary to maintain the System in good repair and working order; (3) to defray the cost of unforeseen contingencies; (4) to prevent defaults of Bonds and Junior Lien Bonds; and (5) for optional redemption of Bonds. The City must determine the amount to be maintained in the Depreciation and Contingent Fund not less frequently than annually. Use of Surplus Money. All money remaining after making the payments described above may be used for any lawful purpose and in such a manner as the City Council may determine. Upon the Effective Date, the circumstances in which the Bond Ordinance may be amended as described in THE BOND ORDINANCE -- Modification of Bond Ordinance--Without Bondholder Approval above shall be expanded to include the following: (6) To make any change to the administrative provisions hereof, to accommodate the provisions of a Credit Facility or Liquidity Facility. Upon the Effective Date, the second sentence under THE BOND ORDINANCE Modification of Ordinance Procedure for Procuring Bondholder Approval; Bond Insurer Rights shall be replaced with the following: Notwithstanding the foregoing, any Series Ordinance may provide that any Insurer insuring, or the Credit Facility Issuer of any Credit Facility securing, that particular Series of Bonds issued pursuant to such Series Ordinance, may be treated as the Holder of all Outstanding Bonds of that particular Series for all purposes of Bondholder consent, Bondholder direction of remedies hereunder and Bondholder waivers. Upon the Effective Date, the following provisions shall supercede those described in THE BOND ORDINANCE Remedies Order of Payment above: During the continuance of an Event of Default, the Trustee must apply all moneys, securities, Gross Revenues, payments, and receipts in its possession and the income therefrom as follows and in the following order: (1) to the payment of the reasonable and proper charges of the Trustee: (2) to the payment of the necessary costs of operating and maintaining the System; (3) to the payment of interest, principal, and redemption premium, if any, then due on the Bonds and the payment of Financial Swap Payments in respect of any Secured Financial Swap Agreement as follows, as follows: (a) payable, Unless the principal of all of the Bonds has become or has been declared due and (i) First: To the payment of the persons entitled thereto of all installments of interest and Financial Swap Payments in respect of Secured Financial Swap Agreements 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 installment or installments maturing on C-29

142 the same date, then to the payment thereof ratably, according to the amounts due thereon to the persons entitled thereto, without any discrimination or preference; and (ii) Second: To the payment to the persons entitled thereto of the unpaid installments of principal (and redemption premiums, if any) of any Bonds which shall have become due, whether at maturity or by call for redemption, in the order of their due dates, and if the amounts available shall not be sufficient to pay in full all the Bonds due on any date, then to the payment thereof ratably, according to the amounts of principal (plus redemption premium, if any) due on such date, to the persons entitled thereto, without any discrimination or preference; (b) If the principal of all of the Bonds shall have become or has been declared due and payable, to the payment of the principal and interest then due and unpaid upon the Bonds and Financial Swap Payments in respect of Secured Financial Swap Agreements 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, or of any Financial Swap Payment over any other Financial Swap Payment, or otherwise among any of the foregoing, ratably, according to the amounts due respectively for such amounts, to the persons entitled thereto without any discrimination or preference except as to any differences as to the respective rates of interest specified in the Bonds or the amounts owing as Financial Swap Payments in respect of Secured Financial Swap Agreements; (4) To the payment ratably, according to the amounts due thereon to the persons entitled thereto, of the amounts owed to (i) any Credit Facility Issuer and Liquidity Facility Issuer amounts necessary to reimburse such persons for drawings honored thereunder for the payment of principal, interest or purchase price in respect of the Bonds (whether in accordance with any increased, accelerated or modified rates or schedule thereunder, or otherwise); and (ii) any providers of any surety bond, line of credit, insurance policy or letter of credit applicable to a Debt Service Reserve Fund as required to restore such Debt Service Reserve Fund to the applicable Reserve Requirement; (5) To the payment of interest and any fees or penalties on amounts advanced by Credit Facility Issuers, Liquidity Facility Issuers or providers of any surety bond, line of credit, insurance policy or letter of credit applicable to a Debt Service Reserve Fund, ratably, according to the amounts due thereon to the persons entitled thereto; (6) Ratably to any Financial Swap Counterparties in respect of Secured Financial Swap Agreements, amounts of any Financial Swap Termination Payments owing thereto; (7) To payment of any other indebtedness that is junior and subordinate to the Bonds in the order of priority contemplated by the proceedings authorizing their issuance; and (8) To the payment of all other amounts secured by the express provisions of the Bond Ordinance but not included in the preceding items (1) through (7), inclusive. Notwithstanding the foregoing, to the extent that any Series Ordinance, Credit Facility or Liquidity Facility applicable to a particular Series of Bonds provides that moneys drawn under any Credit Facility or Liquidity Facility applicable to such particular Series shall be applied solely for the limited purposes specified therein (such as the payment of amounts owing as principal, purchase price or interest on such Series of Bonds), then such moneys shall be applied solely to such limited purposes. Upon the Effective Date, the following provisions shall supercede those described in THE BOND ORDINANCE Remedies Rights of Insurers above: C-30

143 A Series Ordinance may provide that any Insurer insuring, or the Credit Facility Issuer of any Credit Facility securing, that particular Series of Bonds issued pursuant to such Series Ordinance, upon the occurrence of an Event of Default and with respect to all remedies provided herein, may prevent the acceleration of the Bonds of all Series. Such Insurer or Credit Facility Issuer, as applicable, may be subrogated to the rights to payment of the Holders of any Bonds with respect to which it pays any principal or interest on the Bonds owned by that Holder. Upon the Effective Date, the following provisions shall apply in addition those described in THE BOND ORDINANCE Remedies Waiver of Event of Default above: Except to the extent otherwise set forth in a Series Ordinance applicable to a Series of Bonds, any Event of Default arising under the Bond Ordinance solely by reason of a default on the part of the City in respect of its obligations under a Credit Facility, Liquidity Facility or Secured Financial Swap Agreement, may not be waived without the written consent of the applicable Credit Facility Issuer, Liquidity Facility Issuer or Financial Swap Counterparty thereof. Upon the Effective Date, the following provisions shall supercede those described in THE BOND ORDINANCE Defeasance above: Subject to the provisions of any Series Ordinance, if all of the Bonds issued pursuant to the Bond Ordinance and any amounts required to be paid to any Credit Facility Issuer, Liquidity Facility Issuer or any Financial Swap Counterparty in respect of any Secured Financial Swap Agreement, shall have been paid and discharged, then the obligations of the City under the Bond Ordinance, the pledge of revenues made hereby, and all other rights granted hereby shall cease and determine. In lieu of the requirement of the payment and discharge of amounts owing to any Credit Facility Issuer, Liquidity Facility Issuer or Financial Swap Counterparty under the preceding sentence, at the joint executed written direction of any such party and the City delivered to the Trustee, and without prejudice to the City s continuing obligation to pay any such amounts to any such parties, such obligation to any such party executing such a written direction shall be deemed paid and discharged for purposes of compliance with this paragraph. Bonds are deemed to have been paid and discharged under each of the following circumstances. (1) the Trustee holds, at the stated maturities of such Bonds, in trust and irrevocably appropriated thereto, sufficient money for the payment thereof; (2) if default in the payment of the principal of such Bonds or the interest thereon has occurred and thereafter tender of such payment has been made, and the Trustee then holds in trust and irrevocably appropriated thereto, sufficient money for the payment thereof to the date of the tender of such payment; or (3) if the City deposits with the Trustee, or any other bank that would otherwise meet the applicable chartering, capital, and surplus requirements for selecting a successor Trustee as set forth in the Bond Ordinance, in an irrevocable trust money or Defeasance Obligations, the principal of and interest on which when due (without reinvestment thereof) will provide money that, together with the money, if any, deposited at the same time, is sufficient to pay, when due, the principal, interest, and redemption premium, if any, due and to become due on and prior to the maturity, or, if the City Council has irrevocably elected to redeem Bonds, on and prior to the redemption date, of such Bonds. Upon the Effective Date, the second sentence under THE BOND ORDINANCE Certain Insurer Rights shall be deleted. Miscellaneous Upon the Effective Date, any reference in this Appendix C, unless otherwise provided in a Series Ordinance insofar as any particular Series of Bonds is concerned, (i) all references to Insurer (other than the definition thereof) shall be deemed to include, in addition to any Insurer, any Credit Facility Issuer; (ii) all references to Municipal Bond Insurance Policy (other than the definition thereof) shall be deemed to include, in C-31

144 addition to any Municipal Bond Insurance Policy, any Credit Facility; and (iii) all references to an Insurer or Credit Facility Issuer insuring (or the like) shall be deemed to mean insuring or securing. Upon the Effective Date, the Trustee shall rely upon a certificate of a Credit Facility Issuer or Liquidity Facility Issuer, as applicable, as conclusive evidence of any and all amount due and owing in respect of a Credit Facility or Liquidity Facility, as applicable, to such a Credit Facility Issuer or Liquidity Facility Issuer, as applicable, and on any date, unless such a certificate shall have been provided to the Trustee, shall conclusively assume that no amounts under any Credit Facility or Liquidity Facility are then due; provided, that failure of a Credit Facility Issuer or a Liquidity Facility Issuer, as applicable to notify the Trustee of any such amount shall not affect the obligation of the City to pay all amounts due and owing to such Credit Facility Issuer or Liquidity Facility Issuer, as applicable, to the extent provided under the applicable Credit Facility or Liquidity Facility Upon the Effective Date, references herein to the issuance (or the like) of Junior Lien Bonds shall be deemed to include the issuance or incurrence of Junior Lien Bonds. Upon the Effective Date, amounts received by the City under any Financial Swap Agreement (whether regularly scheduled receipts or receipts upon termination or partial termination) shall be included as part of the Gross Revenues of the System. Amounts received by the City or the Trustee under any Credit Facility or Liquidity Facility shall not be included as part of the Gross Revenues of the System. [Remainder of Page Intentionally Blank] C-32

145 APPENDIX D FORM OF BOND COUNSEL OPINION September 15, 2015 City of Sumter Sumter, South Carolina Wells Fargo Securities Charlotte, North Carolina The Bank of New York Mellon Trust Company, N.A. Jacksonville, Florida Re: $52,670,000 Waterworks and Sewer System Improvement and Refunding Revenue Bonds, Series 2015, of the City of Sumter, South Carolina Ladies and Gentlemen: We have examined a certified copy of the Transcript of Proceedings and other proofs submitted to us, including the Constitution and Statutes of the State of South Carolina, in relation to the issuance of the $52,670,000 Waterworks and Sewer System Improvement and Refunding Revenue Bonds, Series 2015, of the City of Sumter, South Carolina (the Series 2015 Bonds ). The Series 2015 Bonds are issued by the City of Sumter, South Carolina (the City ) pursuant to a Bond Ordinance, as amended, and a Series Ordinance duly enacted by the City Council of the City, the governing body of the City (together, the Ordinance ) and under and in full compliance with the Constitution and Statutes of the State of South Carolina, including particularly Chapter 17 of Title 6 and Chapter 21 of Title 11, Code of Laws of South Carolina 1976, as amended, in order to obtain funds that will be used (i) to defray the cost of the Improvements (as such term is defined in the Ordinance); (ii) to provide funds for the defeasance and redemption of the City s Waterworks and Sewer System Improvement Revenue Bonds, Series 2007, maturing in the years 2018 through 2032, inclusive; and (iii) to pay certain costs and expenses incurred in connection with the issuance of the Series 2015 Bonds. The Series 2015 Bonds will mature on December 1 in the respective principal amounts and bear interest payable on December 1, 2015, and semiannually thereafter on the first days of June and December at the respective interest rates per annum, all as set forth in the Ordinance. The Series 2015 Bonds bear interest from September 15, The Bonds are subject to optional prior to their stated maturities as provided therein. The Series 2015 Bonds are issued originally in fully registered form in the denomination of $5,000 or any whole multiple thereof, not exceeding the principal amount of the Series 2015 Bonds maturing in each year. Capitalized terms used and not otherwise defined herein have the meaning given to such terms in the Ordinance. In our opinion: 1. The City is a duly created and validly existing municipal corporation and political subdivision of the State of South Carolina. 2. The Series 2015 Bonds constitute valid and binding special obligations of the City and have been duly authorized and delivered and are enforceable in accordance with their terms and the terms of the Ordinance, except to the extent that the enforceability of the Series 2015 Bonds may be limited by applicable bankruptcy, insolvency, or other laws affecting the enforcement of creditors rights. The Series 2015 Bonds are secured in the manner and to the extent prescribed by the Ordinance and are entitled to the equal benefit, protection and security of D-1

146 the provisions, covenants and agreements set forth therein. Further bonds on a parity with the Series 2015 Bonds may be issued under the conditions prescribed in the Ordinance. 3. Both the principal of and interest on the Series 2015 Bonds are payable solely from the Gross Revenues of the System that remain after paying the cost of the operation and maintenance of the System, and are secured by a pledge of and lien upon such portion of the Gross Revenues of the System (herein, the Pledged Revenues ) subject to the application thereof to the purposes and on the conditions permitted by the Ordinance. 4. The Pledged Revenues made to secure the Series 2015 Bonds have priority over all pledges and liens heretofore or hereafter made, except pledges and liens (on a parity with the pledge and lien securing the Series 2015 Bonds) given to secure the $815,000 original principal amount Waterworks and Sewer System Improvement and Refunding Revenue Bond, Series 2000 (Junior Lien), of the City of Sumter, the $31,885,000 original principal amount Waterworks and Sewer System Improvement Revenue Bonds, Series 2007, of the City of Sumter, the $7,018,000 original principal amount Waterworks and Sewer System Refunding Revenue Bond, Series 2010, of the City of Sumter, and additional Bonds hereafter issued by the City, provided such additional Bonds are issued in the manner and under the conditions prescribed by the Ordinance. 5. Neither the principal of nor interest on the Series 2015 Bonds constitutes an indebtedness of the City within the meaning of any provision, limitation, or restriction of the Constitution or Laws of the State of South Carolina, nor a charge, lien, or encumbrance, legal or equitable, upon any property of the City or upon any income, receipts, or revenues of the City save and except the Pledged Revenues, as such revenues are pledged to the payment of the principal of and interest on the Series 2015 Bonds, and neither the credit nor the taxing power of the City is pledged therefor. 6. We have been advised that there is no litigation pending or threatened contesting the creation, organization, or existence of the City or the System or that seeks to restrain or enjoin the issuance or delivery of the Series 2015 Bonds or the proceedings or authority under which the Series 2015 Bonds are to be issued or delivered, or that in any manner questions the authority of the City to pledge the revenues of the System to the payment of the Series 2015 Bonds and the interest thereon or the use of the proceeds of the Series 2015 Bonds. To our knowledge, there is no litigation pending or threatened that would have a material adverse effect upon the City s or the System s financial condition. 7. Interest on the Series 2015 Bonds (including any original issue discount properly allocable to an owner thereof) is excludable from gross income of the registered owners thereof for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. The opinion set forth in the preceding sentence is subject to the condition that the City comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Series 2015 Bonds in order that interest thereon be (or continue to be) excludable from gross income for federal income tax purposes. Failure to comply with certain of such requirements may cause interest on the Series 2015 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2015 Bonds. The City has covenanted to comply with all such requirements. It should be noted, however, that for the purpose of computing the alternative minimum tax imposed on certain corporations (as defined for federal income tax purposes), interest on the Series 2015 Bonds is taken into account in determining adjusted current earnings. We express no opinion regarding other federal tax consequences arising with respect to the Series 2015 Bonds. 8. The Series 2015 Bonds and the interest thereon are exempt from all state, county, school district, municipal, and all other taxes or assessments of the State of South Carolina, except inheritance, estate, transfer, or certain franchise taxes. 9. We express no opinion herein regarding the accuracy, adequacy or completeness of the Official Statement dated August 19, 2015 relating to the Series 2015 Bonds, or regarding the perfection or priority of the lien on the Pledged Revenues or other funds created under the Ordinance (or any other document or instrument mentioned herein). D-2

147 This opinion is given as of the date hereof and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention, or any changes in law that may hereafter occur. We have examined an executed Series 2015 Bond and, in our opinion, its form and execution are in due form of law. Very truly yours, D-3

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149 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the Disclosure Certificate ) is executed and delivered by the City of Sumter, South Carolina (the Issuer ) in connection with the issuance of $52,670,000 Waterworks and Sewer System Improvement Revenue Bonds, Series 2015, of the City of Sumter, South Carolina (the Bonds ). The Bonds are being issued pursuant to a Bond Ordinance enacted on June 15, 1999, as amended, and a Series Ordinance enacted on August 18, 2015 (together, the Ordinance ). The Issuer covenants and agrees as follows: SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Issuer for the benefit of the Bondholders and in order to assist the Participating Underwriters in complying with Securities Exchange Commission Rule 15c2-12(b)(5). SECTION 2. Definitions. In addition to the definitions set forth in the Ordinance, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: Annual Report means the annual report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. Beneficial Owner means any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. Bondholder or Holder shall mean the registered owner of a Bond and any Beneficial Owner thereof. Dissemination Agent means the City or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. Listed Events means any of the events listed in Section 5(a) of this Disclosure Certificate. Bonds. Official Statement means the Official Statement dated August 19, 2015, prepared in connection with the Participating Underwriter means any of the original underwriters of the Bonds required to comply with the Rule in connection with the offering of the Bonds. Repository means the Electronic Municipal Market Access System (EMMA) maintained by the Municipal Securities Rulemaking Board. Rule means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. State means the State of South Carolina. SECTION 3. Provision of Annual Reports. (a) The Issuer shall, or shall cause the Dissemination Agent to, not later than February 1 of each year, commencing February 1, 2016, provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than fifteen (15) business days prior to said date, the Issuer shall provide the Annual Report to the Dissemination Agent, if other than the Issuer. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the Issuer may be submitted separately from the balance of the Annual Report. E-1

150 (b) If the Issuer is unable to provide to the Repositories an Annual Report by the date required in subsection (a), the Issuer shall on such date send a notice to the Municipal Securities Rulemaking Board and to the State Depository, if any, in substantially the form attached as Appendix I. (c) The Dissemination Agent shall: (i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and each State Depository, if any; and, (ii) if the Dissemination Agent is other than the Issuer, file a report with the Issuer certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided. SECTION 4. Content of Annual Reports. The Annual Report for each of the Issuer s fiscal years shall include the Issuer s complete audited financial statements for such fiscal year prepared in accordance with generally accepted accounting principles and generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States, and the provisions of Office of Management and Budget Circular A-128 (or, if not in such conformity, to be accompanied by a qualitative discussion of the differences and the impact of the differences on the presentation of the financial information). If the Issuer s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report within fifteen (15) days after such statements become available for distribution. In addition thereto, the Annual Report shall contain or incorporate by reference the following information: Financial data as of a date not earlier than the end of such fiscal year comparable to the information included in the Official Statement in the sections entitled FINANCIAL FACTORS Five Year Summary, FINANCIAL FACTORS Management s Discussion and Analysis, FINANCIAL FACTORS Summary of Historical Revenues and Expenses of the System, FINANCIAL FACTORS Outstanding Debt, FINANCIAL FACTORS Debt Service Requirements of the System, DESCRIPTION OF THE SYSTEM The Waterworks Unit Water Customers, Ten Largest Water Customers and Water Rates (to the extent the charges described therein are different from the charges in effect for the previous year) and DESCRIPTION OF THE SYSTEM The Sewer Unit Sewer Customers, Ten Largest Sewer Customers and Sewer Rates (to the extent the charges described therein are different from the charges in effect for the previous year). Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues of the Issuer or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document incorporated by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Issuer shall clearly identify each such other document so incorporated by reference. SECTION 5. Reporting of Listed Events. (a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds: (i) (ii) (iii) (iv) (v) Delinquency in payment when due of any principal of or interest on the Bonds; Defeasance of the Bonds or any portion thereof; Any change in any rating on the Bonds; Adverse tax opinions; Tender offers; (vi) Any unscheduled draw, reflecting financial difficulties, on any reserve fund established by the City to secure further the timely repayment of the Bonds; E-2

151 (vii) Any unscheduled draw reflecting financial difficulties on any credit enhancement device obtained by the City to secure further the timely repayment of the Bonds; (viii) Any change in the provider of any credit enhancement device described in item (vii) above, or any failure by the provider to perform under such a credit enhancement device; (ix) Bankruptcy, insolvency, receivership or similar event of the City; or (x) The issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701 TEB), or other material notices or determinations with respect to the status of the securities, or other material events affecting the tax status of the security. (b) Pursuant to the provisions of this Section 5, the City shall give or cause to be given notice of the occurrence of any of the following events with respect to the Bonds, if material: (i) Occurrence of any event of default under the Legal Documents (other than as described in clause (a)(i) above); (ii) Amendment to the Legal Documents or this Disclosure Undertaking modifying the rights of the Beneficial Owners of the Bonds; (iii) Giving of a notice of optional or unscheduled redemption of any Bonds; (iv) The release, substitution or sale of any property hereafter leased, mortgaged or pledged by the City securing repayment of the Bonds; (v) Consummation of a merger, consolidation or acquisition involving an obligate person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such action, other than pursuant to its terms; or (vi) Appointment of a successor or additional trustee, or the change of name of a trustee. (c) Whenever the City obtains knowledge of the occurrence of a Listed Event in subsection (b) above, the City shall as soon as possible determine if such event would be material under applicable federal securities laws. (d) If the City determines that a Listed Event in subsection (b) above would be material under applicable federal securities laws, or upon the occurrence of any Listed Event in subsection (a) above, the City shall file a notice of the Listed Event in a timely manner, not in excess of ten business days of such occurrence, with each Repository and the State Depository, if any. SECTION 6. Termination of Reporting Obligation. The Issuer s obligations under this Disclosure Certificate shall terminate upon the defeasance or payment in full of all of the Bonds. SECTION 7. Dissemination Agent. The Issuer may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be the Issuer. SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements or change in law; or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted; E-3

152 (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment or waiver does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders of the Bonds. In the event of any amendment or waiver of a provision of this Disclosure Certificate, the City shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the City. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(a), and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles.. SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Issuer from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Issuer chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the Issuer shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the Issuer to comply with any provision of this Disclosure Certificate, any Bondholder may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the Issuer to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an event of default under the Ordinance, and the sole remedy under this Disclosure Certificate in the event of any failure of the Issuer to comply with this Disclosure Certificate shall be an action to compel performance. SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the Issuer agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent s gross negligence or wilful misconduct. The obligations of the Issuer under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. SECTION 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the Issuer, the Dissemination Agent, the Participating Underwriters and Holders from time to time of the Bonds, and shall create no rights in any other person or entity. CITY OF SUMTER, SOUTH CAROLINA By: Mayor, City of Sumter Date: September 15, 2015 E-4

153 APPENDIX I NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Name of Bond Issue: CITY OF SUMTER, SOUTH CAROLINA $52,670,000 WATERWORKS AND SEWER SYSTEM IMPROVEMENT REVENUE BONDS, SERIES 2015 Date of Issuance: September 15, 2015 NOTICE IS HEREBY GIVEN that the Issuer has not provided an Annual Report with respect to the abovenamed Bonds as required by Section 3 of a Continuing Disclosure Certificate dated September 15, The Issuer anticipates that the Annual Report will be filed by. CITY OF SUMTER, SOUTH CAROLINA By: E-5

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156 CITY OF SUMTER, SOUTH CAROLINA Waterworks and Sewer System Improvement and Refunding Revenue Bonds, Series 2015