$43,040,000 CITY OF WEST PALM BEACH, FLORIDA Utility System Revenue Refunding Bonds, Series 2012A

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1 NEW ISSUE - Book-Entry Only Ratings: Moody s: Aa2 S&P: AA (See RATINGS herein) In the opinion of Squire Sanders (US) LLP, Bond Counsel, under existing law (i) assuming continuing compliance with certain covenants and the accuracy of certain representations, interest on the Series 2012A Bonds is excluded from gross income 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 and (ii) the Series 2012A Bonds and the income thereon are exempt from taxation under the laws of the State of Florida, except estate taxes imposed by Chapter 198, Florida Statutes, as amended, and net income and franchise taxes imposed by Chapter 220, Florida Statutes, as amended. Interest on the Series 2012A Bonds may be subject to certain federal taxes imposed only on certain corporations, including the corporate alternative minimum tax on a portion of that interest. For a more complete discussion of the tax aspects relating to the Series 2012A Bonds, see the discussion under the heading TAX MATTERS herein. $43,040,000 CITY OF WEST PALM BEACH, FLORIDA Utility System Revenue Refunding Bonds, Series 2012A Dated: Date of Delivery Due: October 1, as shown on inside cover page The City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A (the Series 2012A Bonds ) are being issued by the City of West Palm Beach, Florida (the City ), under the authority of the Act (as defined herein) and Resolution No adopted by the City Commission of the City (the City Commission ) on November 29, 1993, as amended by Resolution No adopted by the City Commission on December 13, 1993 and by Resolution No adopted by the City Commission on October 18, 1999 (collectively, the Bond Resolution ) and as supplemented by Resolution No adopted by the City Commission on August 20, 2012 (the Series 2012A Series Resolution ). The Bond Resolution, as further amended and supplemented from time to time, and in particular, as supplemented by the Series 2012A Series Resolution, is hereinafter referred to as the Resolution. The Series 2012A Bonds will be issued as fully registered bonds, without coupons, in denominations of $5,000 or any whole multiple thereof and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ), which will act as securities depository for the Series 2012A Bonds. Purchasers will not receive certificates representing their ownership interests in the Series 2012A Bonds purchased. See THE SERIES 2012A BONDS Book-Entry Only System herein. Interest on the Series 2012A Bonds will accrue from their date of delivery and will be payable on April 1, 2013 and semiannually on each April 1 and October 1 thereafter, until maturity or earlier redemption. While the Series 2012A Bonds are registered through the DTC Book-Entry Only System, principal of and interest on the Series 2012A Bonds will be payable by the Bond Registrar to DTC. Wells Fargo Bank, National Association, will serve as the initial paying agent and registrar for the Series 2012A Bonds (collectively, the Bond Registrar ). The Series 2012A Bonds are subject to optional and mandatory sinking fund redemption prior to maturity as described herein. See THE SERIES 2012A BONDS Redemption Provisions herein. The proceeds of the Series 2012A Bonds will be used, together with certain other available moneys of the City, to (i) provide for the advance refunding of a portion of the City s Utility System Revenue Bonds, Series 2004, currently outstanding in the aggregate principal amount of $44,810,000; and (ii) pay certain costs of issuing the Series 2012A Bonds. See INTRODUCTION herein. The Series 2012A Bonds are solely payable from and secured by a pledge of and lien on the Net Revenues of the Utility System on a parity with any other Bonds heretofore or from time to time issued and Outstanding under the Bond Resolution. See SECURITY AND SOURCES OF PAYMENT herein. In addition, see UTILITY SYSTEM Wastewater System ECR Board Indebtedness herein for a description of certain indebtedness that is payable by the City as a Current Expense and, as such, is required to be paid prior to the payment of debt service on all Outstanding Bonds, including the Series 2012A Bonds (as such terms are hereinafter defined). THE SERIES 2012A BONDS SHALL NOT BE AND SHALL NOT BE DEEMED TO CONSTITUTE A DEBT, LIABILITY OR OBLIGATION OF THE CITY, PALM BEACH COUNTY, FLORIDA, THE STATE OF FLORIDA OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL, STATUTORY OR CHARTER PROVISION OR LIMITATION, OR A PLEDGE OF THE FAITH AND CREDIT OF THE CITY, PALM BEACH COUNTY, FLORIDA, THE STATE OF FLORIDA OR ANY POLITICAL SUBDIVISION THEREOF, BUT SHALL BE PAYABLE SOLELY FROM THE NET REVENUES OF THE UTILITY SYSTEM, AS PROVIDED IN THE RESOLUTION. THE SERIES 2012A BONDS AND THE OBLIGATIONS EVIDENCED THEREBY SHALL NOT DIRECTLY, INDIRECTLY OR CONTINGENTLY OBLIGATE THE CITY, PALM BEACH COUNTY, FLORIDA, THE STATE OF FLORIDA OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR PLEDGE ANY TAXES WHATEVER THEREFOR, OR TO MAKE ANY APPROPRIATION FOR THE PAYMENT THEREOF, AND SHALL NOT CONSTITUTE A LIEN UPON ANY PROPERTY OWNED BY OR SITUATED WITHIN THE CORPORATE TERRITORY OF THE CITY, BUT SHALL CONSTITUTE A LIEN ONLY ON THE NET REVENUES OF THE UTILITY SYSTEM, ALL IN THE MANNER PROVIDED IN THE RESOLUTION. This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Series 2012A Bonds are offered when, as and if issued by the City, subject to the opinion on certain legal matters relating to their issuance of Squire Sanders (US) LLP, West Palm Beach, Florida, Bond Counsel, to the City. Certain legal matters will be passed upon for the City by Claudia M. McKenna, Esquire, West Palm Beach, Florida, City Attorney, and certain legal matters relating to disclosure will be passed upon for the City by the Law Offices of Steve E. Bullock, P.A., Miami, Florida, Disclosure Counsel. Certain legal matters will be passed upon for the Underwriters by Greenspoon Marder, P.A., Fort Lauderdale, Florida, as Counsel to the Underwriters. Public Financial Management, Inc., Coral Gables, Florida, and Fidelity Financial Services, L.C., Fort Lauderdale, Florida, are serving as Co-Financial Advisors to the City. It is expected that settlement on the Series 2012A Bonds will occur through the facilities of DTC in New York, New York on or about September 19, Citigroup Morgan Stanley Estrada Hinojosa & Company, Inc. Ramirez & Co., Inc. RBC Capital Markets Dated: September 6, 2012

2 MATURITIES, PRINCIPAL AMOUNTS, INTEREST RATES, PRICES, YIELDS AND INITIAL CUSIP NUMBERS $34,190,000 Series 2012A Serial Bonds Due (October 1) Principal Amount Interest Rate Price Yield Initial CUSIP Number* 2015 $ 730, % % 0.670% NM , NN , NP , NQ , NR , NS , NT , NU , ** NV , ** NW ,020, ** NX ,080, ** NY ,515, ** PD ,790, ** PE ,080, ** PF ,380, PG7 $2,300, % Term Series 2012A Bonds Due October 1, 2028 Price: % / Yield: 3.050% Initial CUSIP Number: PA0* $6,550, % Term Series 2012A Bonds Due October 1, 2030 Price: % / Yield: 3.130% Initial CUSIP Number: PC6* * The City is not responsible for the use of CUSIP Numbers, nor is a representation made as to their correctness. The CUSIP Numbers are included solely for the convenience of the readers of this Official Statement. ** Priced to the first optional redemption date of October 1, 2022.

3 CITY OF WEST PALM BEACH, FLORIDA MAYOR Geraldine Muoio Sylvia Moffett Commissioner Isaac Robinson, Jr. Commissioner Jeffrey L. Green Director of Finance CITY COMMISSION Keith A. James President ADMINISTRATION Edward Mitchell City Administrator Lakisha Burch Deputy City Clerk* Kimberly Mitchell Commissioner Shanon Materio Commissioner Claudia M. McKenna, Esquire City Attorney INDEPENDENT AUDITORS Marcum LLP West Palm Beach, Florida BOND COUNSEL Squire Sanders (US) LLP West Palm Beach, Florida DISCLOSURE COUNSEL Law Offices of Steve E. Bullock, P.A. Miami, Florida CO-FINANCIAL ADVISORS Public Financial Management, Inc. Coral Gables, Florida Fidelity Financial Services, L.C. Fort Lauderdale, Florida RATE CONSULTANT Public Resources Management Group, Inc. Maitland, Florida * The prior City Clerk resigned on May 18, The Deputy City Clerk is authorized to perform the duties of the City Clerk.

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5 No dealer, broker, salesman or other person has been authorized by the City or the Underwriters to make any representations, other than those contained in this Official Statement, in connection with the offering contained herein, and if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Series 2012A Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information contained in this Official Statement has been obtained from public documents, records and other sources considered to be reliable and, while not guaranteed as to completeness or accuracy, is believed to be correct. Any statement in this Official Statement involving estimates, assumptions and opinions, whether or not so expressly stated, are intended as such and are not to be construed as representations of fact, and the Underwriters and the City expressly make no representation that such estimates, assumptions and opinions will be realized or fulfilled. Any information, estimates, assumptions and matters of opinion contained in this Official Statement are subject to change without notice, and neither the delivery of this Official Statement, nor any sale hereunder, shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their respective responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. The order and placement of materials in this Official Statement, including the Appendices, are not to be deemed a determination of relevance, materiality or importance, and this Official Statement, including the Appendices, must be considered in its entirety. The captions and headings in this Official Statement are for convenience only and in no way define, limit or describe the scope or intent, or affect the meaning or construction, of any provisions or sections in this Official Statement. The offering of the Series 2012A Bonds is made only by means of this entire Official Statement. Certain statements included or incorporated by reference in this Official Statement, including the Appendices, constitute forward-looking statements. Such statements generally are identifiable by the terminology used, such as plan, expect, estimate, project, forecast, budget or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The City does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations or events, conditions or circumstances on which such statements are based occur. THE SERIES 2012A BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW, NOR HAS THE BOND RESOLUTION BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. THE EXEMPTION OF THE SERIES 2012A BONDS FROM REGISTRATION OR QUALIFICATION IN CERTAIN STATES CANNOT BE REGARDED AS A RECOMMENDATION THEREOF. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE CITY AND THE TERMS OF THIS OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL, STATE OR GOVERNMENTAL ENTITY OR AGENCY WILL HAVE PASSED UPON THE ACCURACY OR ADEQUACY OF THIS i

6 OFFICIAL STATEMENT OR APPROVED OR RECOMMENDED THE SERIES 2012A BONDS FOR SALE. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2012A BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET, AND SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITERS MAY OFFER AND SELL THE SERIES 2012A BONDS TO CERTAIN DEALERS AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE INSIDE COVER PAGE OF THIS OFFICIAL STATEMENT, AND SUCH PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITERS. THIS OFFICIAL STATEMENT SHALL NOT CONSTITUTE A CONTRACT BETWEEN THE CITY OR THE UNDERWRITERS AND ANY ONE OR MORE HOLDERS OF THE SERIES 2012A BONDS. THIS OFFICIAL STATEMENT IS BEING PROVIDED TO PROSPECTIVE PURCHASERS EITHER IN BOUND PRINTED FORM ( ORIGINAL BOUND FORMAT ) OR IN ELECTRONIC FORMAT ON THE WEBSITE: THIS OFFICIAL STATEMENT MAY BE RELIED UPON ONLY IF IT IS IN ITS ORIGINAL BOUND FORMAT OR IF IT IS PRINTED IN FULL DIRECTLY FROM SUCH WEBSITE. ii

7 TABLE OF CONTENTS INTRODUCTION... 1 PLAN OF REFUNDING... 2 ESTIMATED SOURCES AND USES OF FUNDS... 3 THE SERIES 2012A BONDS... 4 General... 4 Redemption Provisions... 4 Book-Entry Only System... 6 SECURITY AND SOURCES OF PAYMENT... 9 General... 9 Rate Covenant Flow of Funds Reserve Account Additional Bonds Refunding Bonds Other Indebtedness Insured Bonds Interest Rate Swap UTILITY SYSTEM General Water System Wastewater System Stormwater Management System Rates, Fees and Charges Historical and Projected Operating Results DEBT SERVICE SCHEDULE HISTORICAL AND PROJECTED SCHEDULE OF NET REVENUES, DEBT SERVICE AND DEBT SERVICE COVERAGE FINDINGS AND CONCLUSIONS OF THE RATE CONSULTANT THE CITY Government Administration Accounting and Administrative Controls Budgetary Controls Insurance Employee Relations City Pension Funds LITIGATION LEGAL MATTERS ENFORCEABILITY OF REMEDIES TAX MATTERS General Original Issue Discount and Original Issue Premium CONTINUING DISCLOSURE GASB STATEMENT NO FINANCIAL STATEMENTS Page iii

8 RATINGS CO-FINANCIAL ADVISORS EXPERTS UNDERWRITING VERIFICATION OF MATHEMATICAL COMPUTATIONS CONTINGENT FEES DISCLOSURE REQUIRED BY FLORIDA BLUE SKY REGULATIONS AUTHORIZATION CONCERNING OFFICIAL STATEMENT CONCLUDING STATEMENT APPENDIX A - General Information and Economic Data Regarding the City of West Palm Beach, Florida and Palm Beach County, Florida APPENDIX B - Historical and Projected Operating Results of the Utility System APPENDIX C - Basic Financial Statements of the City of West Palm Beach, Florida for the Fiscal Year Ended September 30, 2011 APPENDIX D - Summary of Certain Provisions of the Bond Resolution APPENDIX E - Proposed Form of Opinion of Bond Counsel APPENDIX F - Proposed Form of Opinion of Disclosure Counsel APPENDIX G - Form of Disclosure Dissemination Agent Agreement iv

9 OFFICIAL STATEMENT relating to $43,040,000 CITY OF WEST PALM BEACH, FLORIDA Utility System Revenue Refunding Bonds, Series 2012A INTRODUCTION The purpose of this Official Statement, including the cover page and all appendices, is to set forth certain information relating to the City of West Palm Beach, Florida (the City ), its combined Water System, Sewer System and Stormwater Drainage Facilities (collectively, the Utility System ) and the issuance by the City of its $43,040,000 in the aggregate principal amount of Utility System Revenue Refunding Bonds, Series 2012A (the Series 2012A Bonds ). The Series 2012A Bonds are being issued pursuant to and under the authority of the Constitution of the State of Florida (the State ), Chapter 166, Florida Statutes, as amended, and the Charter of the City (collectively, the Act ) and Resolution No adopted by the City Commission of the City (the City Commission ) on November 29, 1993, as amended by Resolution No adopted by the City Commission on December 13, 1993 and by Resolution No adopted by the City Commission on October 18, 1999 (collectively, the Bond Resolution ) and as supplemented by Resolution No adopted by the City Commission on August 20, 2012 (the Series 2012A Series Resolution ). The Bond Resolution, as further supplemented and amended from time to time, and in particular, as supplemented by the Series 2012A Series Resolution, is hereinafter referred to as the Resolution. See APPENDIX D Summary of Certain Provisions of the Bond Resolution. The Series 2012A Bonds, together with the Additional Bonds and Refunding Bonds Outstanding under the Bond Resolution, as described below, and any other bonds or indebtedness that may be issued under the provisions of the Bond Resolution on a parity with the Series 2012A Bonds, Additional Bonds and Refunding Bonds Outstanding under the Bond Resolution, are referred to collectively in this Official Statement as the Bonds. See SECURITY AND SOURCES OF PAYMENT Additional Bonds Refunding Bonds and Other Indebtedness herein. The Series 2012A Bonds are being issued for the purpose of providing moneys which will be used, together with certain other available moneys of the City, to (i) provide for the advance refunding of a portion of the City s Utility System Revenue Bonds, Series 2004 (the Series 2004 Bonds ); and (ii) pay certain costs of issuing the Series 2012A Bonds. The Series 2004 Bonds were originally issued in the aggregate principal amount of $47,955,000 and, prior to the issuance of the Series 2012A Bonds, are outstanding in the aggregate principal amount of $44,810,000. The Series 2004 Bonds shall be refunded in the aggregate principal amount of $42,995,000, constituting the portion of the Series 2004 Bonds maturing October 1, 2015 to and including October 1, 2034 (the Refunded Bonds ). See PLAN OF REFUNDING herein. The Series 2012A Bonds will be issued in book-entry only form and purchasers of the Series 2012A Bonds will not receive certificates representing their interest in the Series 2012A Bonds purchased. The Series 2012A Bonds will contain such other terms and provisions, including provisions regarding redemption, as described in THE SERIES 2012A BONDS herein.

10 The Series 2012A Bonds are limited obligations of the City, payable solely from and secured by the Net Revenues of the Utility System, on a parity with the City s Outstanding Bonds. The Series 2012A Bonds shall not be and shall not be deemed to constitute a debt, liability or obligation of the City, Palm Beach County, Florida (the County ), the State or any political subdivision thereof within the meaning of any constitutional, statutory or charter provision or limitation, or a pledge of the faith and credit of the City, the County, the State or any political subdivision thereof, but shall be payable solely from the Net Revenues of the Utility System, as provided in the Resolution. The City is not directly, indirectly, or contingently obligated to levy or pledge any form of taxation whatever for the payment of the Series 2012A Bonds, nor do the Series 2012A Bonds constitute a charge, lien, or encumbrance, upon any property of the City. See SECURITY AND SOURCES OF PAYMENT herein. Also, see UTILITY SYSTEM Wastewater System ECR Board Indebtedness herein for a description of certain indebtedness that is payable by the City as a Current Expense and, as such, is required to be paid prior to the payment of debt service on all Outstanding Bonds, including the Series 2012A Bonds. In addition to the Series 2004 Bonds, the City has previously issued and has Outstanding under the provisions of the Bond Resolution the following Bonds: (i) $53,975,000 in principal amount of Utility System Revenue Refunding Bonds, Series 2008A, of which $50,980,000 in principal amount are currently Outstanding; (ii) $14,835,000 in principal amount of Utility System Revenue Bonds, Series 2008B, of which $10,475,000 in principal amount are currently Outstanding; (iii) $99,990,000 in principal amount of Utility System Variable Rate Revenue Bonds, Series 2008C, all of which are currently Outstanding; (iv) $15,140,000 in principal amount of Utility System Revenue Refunding Bonds, Series 2010 (the Series 2010 Bonds ), of which $14,670,000 in principal amount are currently Outstanding; and (v) $19,200,000 in principal amount of Utility System Revenue Refunding Bonds, Series 2011A (the Series 2011A Bonds ), of which $17,695,000 in principal amount are currently Outstanding. As part of its five year capital improvement program for the Utility System, the City is also contemplating the issuance of Additional Bonds in Fiscal Year 2013 primarily to fund capital improvements to facilities of the Water System. Preliminary estimates are for such Additional Bonds to be issued in the aggregate principal amount of approximately $157,735,000. See SECURITY AND SOURCES OF PAYMENT Additional Bonds and UTILITY SYSTEM General Capital Improvement Program herein and footnotes 15 and 17 in Table 9 of APPENDIX B Historical and Projected Operating Results of the Utility System. This introduction is intended to serve as a brief description of the Official Statement and is expressly qualified by reference to the Official Statement as a whole. A full review should be made of the entire Official Statement, including its appendices, as well as the documents and reports summarized or described herein. The description of the Series 2012A Bonds, the documents authorizing and securing the same, and the information from various reports contained herein are not comprehensive or definitive. All references herein to such documents and reports are qualified by the entire, actual content of such documents and reports. Copies of such documents and reports may be obtained from the City. Capitalized terms used but not defined in this Official Statement shall have the meaning ascribed to such terms in the Bond Resolution. See APPENDIX D Summary of Certain Provisions of the Bond Resolution. PLAN OF REFUNDING A portion of the proceeds of the Series 2012A Bonds will be used to provide for the advance refunding of the Refunded Bonds. The City will call the Refunded Bonds for redemption on October 1, 2014 at a redemption price equal to 100% of the principal amount of the Refunded Bonds, without premium. 2

11 To effect the advance refunding of the Refunded Bonds, the City will enter into an Escrow Deposit Agreement (the Escrow Agreement ) on or prior to the delivery of the Series 2012A Bonds with Wells Fargo Bank, National Association (the Escrow Agent ). Pursuant to the terms of the Escrow Agreement, the City will deposit a portion of the proceeds of the Series 2012A Bonds, together with other legally available moneys of the City, into an escrow deposit trust fund to be maintained by the Escrow Agent (the Escrow Deposit Trust Fund ). A portion of such proceeds and moneys will be applied on the date of delivery of the Series 2012A Bonds to the purchase of direct, non-callable obligations of the United States of America (the Government Obligations ) maturing at such times and in such amounts so that the maturing principal, together with the interest income thereon and cash held uninvested in the Escrow Deposit Trust Fund, will be sufficient to pay the principal of and interest due on the Refunded Bonds to and including October 1, 2014, on which date the Refunded Bonds will be redeemed. Subsequent to the deposit of moneys into the Escrow Deposit Trust Fund and the investment of such moneys as described in the preceding paragraph, the Refunded Bonds, in the opinion of Bond Counsel, rendered in reliance upon schedules verified as to accuracy by Causey Demgen & Moore Inc., Denver, Colorado (the Verification Agent ), will no longer be Outstanding under the provisions of the Bond Resolution. See VERIFICATION OF MATHEMATICAL COMPUTATIONS herein. The Series 2004 Bonds maturing October 1, 2012 to and including October 1, 2014 will remain Outstanding, as such Series 2004 Bonds will not be refunded upon issuance of the Series 2012A Bonds. The maturing principal of and interest on the Government Obligations and cash held uninvested in the Escrow Deposit Trust Fund will not be available to pay principal of and interest on the Series 2012A Bonds. ESTIMATED SOURCES AND USES OF FUNDS The following table sets forth the estimated sources and uses of funds from the proceeds of the Series 2012A Bonds: Sources of Funds Par Amount of Series 2012A Bonds $43,040, Net Original Issue Premium 4,493, Moneys in the Bond Service Account (1) 873, Total Estimated Sources of Funds $48,407, Uses of Funds Deposit to Escrow Deposit Trust Fund (2) $48,017, Costs of Issuance (3) 275, Underwriters Discount 114, Total Estimated Uses of Funds $48,407, (1) Constitutes amount held to pay principal of and interest due on the Refunded Bonds. (2) See PLAN OF REFUNDING herein. (3) Includes fees of Bond Counsel, Disclosure Counsel, the Co-Financial Advisors, the Rate Consultant, rating agencies and miscellaneous costs of issuance. 3

12 THE SERIES 2012A BONDS General The Series 2012A Bonds will be dated the date of their delivery, will be issued in denominations of $5,000 or any whole multiple thereof and will bear interest at the rates and mature on the dates and in the amounts set forth on the inside cover page of this Official Statement. Interest on the Series 2012A Bonds is payable on April 1, 2013 and semiannually thereafter on each April 1 and October 1 until maturity or earlier redemption. Such interest shall be calculated on the basis of a 360 day year consisting of twelve 30- day months. The City has appointed Wells Fargo Bank, National Association as the registrar and paying agent for the Series 2012A Bonds (collectively, the Bond Registrar ). In any case where the maturity date of, or the date for the payment of the principal of or interest on the Series 2012A Bonds shall be a Saturday, Sunday or a day on which the Bond Registrar is required, or authorized or not prohibited, by law (including executive orders) to close and is closed, then payment of such interest or principal need not be paid by the Bond Registrar on such date but may be paid on the next succeeding business day on which the Bond Registrar is open for business with the same force and effect as if paid on the Interest Payment Date or the date of maturity and no interest shall accrue for the period after the date of maturity. The Series 2012A Bonds will be registered in the name of Cede & Co., as registered owner and nominee of The Depository Trust Company, New York, New York ( DTC ). Purchases of beneficial interests in the Series 2012A Bonds will be made in book-entry only form, without certificates. Unless a securities depository other than DTC is selected by the City, so long as the Series 2012A Bonds shall be in book-entry only form, the principal of and interest on the Series 2012A Bonds will be payable to Cede & Co. (or such other nominee selected by DTC), as registered owner thereof, and will be distributed by DTC and the DTC Participants to the Beneficial Owners (as such terms are hereinafter defined). See THE SERIES 2012A BONDS Book-Entry Only System herein. Redemption Provisions Optional Redemption The Series 2012A Bonds maturing on or before October 1, 2022 are not subject to redemption prior to maturity. The Series 2012A Bonds maturing on or after October 1, 2023 are subject to redemption prior to maturity, at the option of the City, on or after October 1, 2022, in whole or in part at any time, in any order of maturity selected by the City and by lot within a maturity, at a redemption price equal to one hundred percent (100%) of the principal amount of the Series 2012A Bonds to be redeemed, together with accrued interest to the date fixed for redemption. Mandatory Sinking Fund Redemption The Series 2012A Bonds maturing on October 1, 2028 are subject to mandatory sinking fund redemption in part prior to maturity by lot through the application of Amortization Requirements, at a redemption price equal to one hundred percent (100%) of the principal amount thereof, on October 1 of each year in the following amounts representing the Amortization Requirements and in the years specified: 4

13 Due Amortization (October 1) Requirement 2027 $1,135, ,165,000* * Final maturity. The Series 2012A Bonds maturing on October 1, 2030 are subject to mandatory sinking fund redemption in part prior to maturity by lot through the application of Amortization Requirements, at a redemption price equal to one hundred percent (100%) of the principal amount thereof, on October 1 of each year in the following amounts representing the Amortization Requirements and in the years specified: Due Amortization (October 1) Requirement 2029 $1,195, ,355,000* * Final maturity. The City or the Bond Registrar, at the direction of the City, may purchase any of the Series 2012A Bonds that are Term Bonds at prices not to exceed par, plus accrued interest to the purchase date. Mailing of Notice of Redemption At least thirty (30) days before the redemption date, a notice of any such redemption, either in whole or in part, (a) shall be filed with the Bond Registrar, and (b) shall be mailed, first class mail, postage prepaid, to all registered holders of the Series 2012A Bonds to be redeemed at their addresses as they appear on the registration books maintained by the Bond Registrar. To supplement such notice to the registered owners, the notice of redemption may also be mailed by overnight mail to at least two national depositories and one national wire service used to distribute information relating to municipal bonds, at least thirty-five (35) days prior to the redemption date. Failure to mail any redemption notice to any Bondholder or any depositories and wire services described above, or any defect in any notice so mailed, shall not affect the validity of the proceedings for the redemption of the Series 2012A Bonds of any other Bondholder. Each such notice shall set forth the date fixed for redemption, the redemption price to be paid and, if less than all of the Series 2012A Bonds then Outstanding shall be called for redemption, the numbers of such Series 2012A Bonds. Each notice of redemption mailed to a registered owner of a Series 2012A Bond to be redeemed shall, if less than the entire principal amount thereof is to be redeemed, also state the principal amount thereof to be redeemed and that such Series 2012A Bond must be surrendered to the Bond Registrar in exchange for the payment of the principal amount thereof to be redeemed and the issuance of new Series 2012A Bonds equaling in principal amount that portion of the principal sum not to be redeemed of the Series 2012A Bonds to be surrendered. As long as a book-entry system is used for determining beneficial ownership of Series 2012A Bonds, notice of redemption will be sent to DTC. DTC will be responsible for notifying the DTC Participants, which will in turn be responsible for notifying the Beneficial Owners. Any failure of DTC to notify any DTC 5

14 Participant, or of any DTC Participant to notify the Beneficial Owner of any such notice, will not affect the validity of the redemption of the Series 2012A Bonds. In the event that the City shall be required to give a redemption notice where the funds to accomplish such redemption are being provided by the issuance of Refunding Bonds within ninety (90) days of the date fixed for such redemption, the redemption notice may state that the redemption is conditioned upon the issuance of such Refunding Bonds and that the failure to issue such Refunding Bonds on or prior to the date fixed for redemption will cause cancellation of such redemption. Effect of Redemption On the date designated for redemption, notice having been given in the manner and under the conditions described above, the Series 2012A Bonds or portions of Series 2012A Bonds so called for redemption shall, on the redemption date designated in such notice, become and be due and payable at the redemption price provided for redemption of such Series 2012A Bonds or portions of Series 2012A Bonds on such date. On the date so designated for redemption, moneys for payment of the redemption price being held in separate accounts by the Finance Director or by the Bond Registrar in trust for the registered owners of the Series 2012A Bonds or portions thereof to be redeemed, interest on the Series 2012A Bonds or portions of Series 2012A Bonds so called for redemption shall cease to accrue, such Series 2012A Bonds and portions of Series 2012A Bonds shall cease to be entitled to any lien, benefit or security under the Resolution and shall be deemed paid thereunder, and the registered owners of such Series 2012A Bonds or portions of Series 2012A Bonds shall have no rights in respect thereof except to receive payment of the redemption price thereof and, to the extent provided in the Resolution, to receive Series 2012A Bonds for any unredeemed portions of the Series 2012A Bonds. Book-Entry Only System The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the City believes to be reliable, but the City and the Underwriters take no responsibility for the accuracy of such information. DTC will act as securities depository for the Series 2012A Bonds. The Series 2012A Bonds will be issued as fully-registered securities registered in the name of Cede & Co., as DTC s partnership nominee, or such other name as may be requested by an authorized representative of DTC. One fully-registered Series 2012A Bond certificate will be issued for each interest rate of each maturity of the Series 2012A Bonds, in the aggregate principal amount to be issued for each interest rate of such maturity, and will be deposited with DTC. 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 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that its participants ( Direct Participants ) deposit with DTC. DTC also facilitates the posttrade 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, thereby eliminating 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 6

15 certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC, is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants and, together with Direct Participants, DTC Participants ). DTC has Standard & Poor s highest rating: AAA. The DTC rules applicable to the DTC Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and Purchases of Series 2012A Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2012A Bonds on DTC s records. The ownership interest of each actual purchaser of each Series 2012A 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 but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the DTC Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2012A Bonds are to be accomplished by entries made on the books of DTC Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Series 2012A Bonds, except in the event that use of the book-entry system for the Series 2012A Bonds is discontinued. To facilitate subsequent transfers, all Series 2012A Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2012A Bonds with DTC and their registration in the name of Cede & Co., or such other DTC nominee, will not effect any change in beneficial ownership of the Series 2012A Bonds. DTC has no knowledge of the actual Beneficial Owners of the Series 2012A Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Series 2012A Bonds are credited, which may or may not be the Beneficial Owners. The DTC Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners, will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Series 2012A Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2012A Bonds, such as redemptions, defaults and proposed amendments to the documents securing the Series 2012A Bonds. For example, Beneficial Owners of the Series 2012A Bonds may wish to ascertain that the nominee holding the Series 2012A Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Bond Registrar and request that copies of notices are provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Series 2012A Bonds within an issue 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 any other DTC nominee) will consent or vote with respect to Series 2012A Bonds unless authorized by a Direct Participant in accordance with DTC s Money Market Instrument Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as 7

16 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 2012A Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Series 2012A Bonds will be made to Cede & Co., or to such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the City or the Bond Registrar on the payable date in accordance with their respective holdings shown on DTC s records. Payments by DTC Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Bond Registrar or the City, 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 or the Bond Registrar, 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 DTC Participants. When reference is made to any action which is required or permitted to be taken by the Beneficial Owners, such reference shall only relate to those permitted to act (by statute, regulation or otherwise) on behalf of such Beneficial Owners for such purposes. When notices are given, they shall be sent by the City only to DTC. DTC may discontinue providing its services as securities depository with respect to the Series 2012A Bonds at any time by giving reasonable notice to the City or the Bond Registrar. Under such circumstances, in the event that a successor securities depository is not obtained, Series 2012A Bond certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Series 2012A Bond certificates will be printed and delivered. Thereafter, Series 2012A Bond certificates may be transferred and exchanged as described in the Resolution. See APPENDIX D Summary of Certain Provisions of the Bond Resolution. SO LONG AS CEDE & CO., AS NOMINEE FOR DTC, IS THE SOLE REGISTERED OWNER OF THE SERIES 2012A BONDS, THE CITY AND THE BOND REGISTRAR SHALL TREAT CEDE & CO. AS THE ONLY OWNER OF THE SERIES 2012A BONDS FOR ALL PURPOSES UNDER THE RESOLUTION, INCLUDING RECEIPT OF ALL PRINCIPAL OF AND INTEREST ON THE SERIES 2012A BONDS, RECEIPT OF NOTICES, VOTING AND REQUESTING OR DIRECTING THE CITY AND THE BOND REGISTRAR TO TAKE OR NOT TO TAKE, OR CONSENTING TO, CERTAIN ACTIONS UNDER THE RESOLUTION. THE CITY AND THE BOND REGISTRAR HAVE NO RESPONSIBILITY OR OBLIGATION TO THE DTC PARTICIPANTS OR THE BENEFICIAL OWNERS WITH RESPECT TO (A) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DTC PARTICIPANT; (B) THE PAYMENT BY ANY DTC PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL OF AND INTEREST ON THE SERIES 2012A BONDS; (C) THE DELIVERY OR TIMELINESS OF DELIVERY BY ANY DTC PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE RESOLUTION TO BE GIVEN TO BONDHOLDERS; OR (D) OTHER ACTION TAKEN BY DTC OR CEDE & CO., AS THE REGISTERED OWNER OF THE SERIES 2012A BONDS. 8

17 SECURITY AND SOURCES OF PAYMENT General Limited Obligation The Series 2012A Bonds are limited obligations of the City payable solely from and secured by a pledge of all Net Revenues of the Utility System, on a parity with all Bonds at any time Outstanding under the Bond Resolution. The Series 2012A Bonds shall not be deemed to constitute a debt of the City or a pledge of the faith and credit of the City, but shall be payable solely from the funds provided therefor from the Net Revenues. The City is not directly, indirectly or contingently obligated to levy or pledge any form of taxation whatever for the payment of the Series 2012A Bonds, nor do the Series 2012A Bonds constitute a charge, lien or encumbrance upon any property of the City. Net Revenues are defined in the Bond Resolution as being, for any particular period, the excess of the Revenues for such period over the Current Expenses for such period. Revenues are defined in the Bond Resolution as all moneys received by the City in connection with or as a result of its ownership or operation of the Utility System, including the income derived by the City from the sale of water produced, treated or distributed by, or the collection, transmission, treatment or disposal of sewage by the Utility System, the Stormwater Drainage Facilities Revenues, any proceeds of use and occupancy insurance on the Utility System or any part thereof, income from the management of the utility facilities of parties other than the City, income from investments made under the Bond Resolution; provided, however, Revenues shall not include investment income from investments of moneys on deposit in any Rebate Fund created in connection with the Bonds, the Construction Fund, the Impact Fee Fund and the State Grant Reserve Account to the extent that earnings on the moneys on deposit in the State Grant Reserve Account are required pursuant to the State regulations governing such Account to be used for a purpose inconsistent with their use as Revenues or retained in such Account, proceeds of insurance (except use and occupancy insurance) and condemnation awards, proceeds of sales of property constituting a part of the Utility System, special assessments (except special assessments on property specially benefitted by Improvements financed with the proceeds of Bonds), and the proceeds of Bonds or other Indebtedness. Current Expenses are defined in the Bond Resolution as the City s reasonable expenses of maintenance, repair and operation of the Utility System and shall include, without limiting the generality of the foregoing, all ordinary and usual expenses of maintenance and repair, which may include expenses not annually recurring but which are not considered extraordinary in nature, operating expenses from the management and operation of the utility facilities of parties other than the City, all City administrative expenses and any payments to pension or retirement funds properly chargeable to the Utility System, insurance premiums, engineering expenses relating to maintenance, repair and operation, fees and expenses of the Bond Registrar, legal expenses, any taxes which may be lawfully imposed on the Utility System or its income or operations and reserves for such taxes (including specifically the Public Service Taxes levied by the City pursuant to Section , Florida Statutes, as amended), annual premiums for bond insurance, interest rate insurance or insurance assuring availability of the amounts required to be on deposit in the Reserve Account, annual fees for Credit Facilities or Liquidity Facilities, the cost of purchasing water from third parties and the cost of purchasing treatment services for sewerage from third parties (including specifically ECR Board Operation and Maintenance Payments but excluding ECR Board Renewal and Replacement Payments and ECR Board Debt Service Payments, both of which are payable from moneys on deposit to the credit of the General Reserve Fund under the Bond Resolution) and any other expenses required to be paid by the City under the provisions of the Resolution or by law, all to the extent properly 9

18 attributable as an operating expense of the Utility System in accordance with generally accepted accounting principles employed in the operation of public utility systems similar to the Utility System. Current Expenses shall also include in any Fiscal Year the amount actually deposited to the credit of the Rate Stabilization Account in such Fiscal Year. Current Expenses shall not include (i) any reserves for extraordinary maintenance or repair, (ii) any allowance for depreciation, amortization, depletion or other similar charges, (iii) any deposits or transfers to the credit of the Sinking Fund, the Renewal, Replacement and Improvement Fund or the General Reserve Fund, (iv) payments of expenses which would be considered as an operating expense paid from funds in the Renewal, Replacement and Improvement Fund or on behalf of third parties for an entitlement for the capacity of water production and treatment facilities and wastewater transmission, treatment and effluent disposal facilities, (v) payments in lieu of taxes which are to be paid from moneys on deposit to the credit of the General Reserve Fund under the Bond Resolution, (vi) payments made on State Loans or other forms of indebtedness on behalf of third parties for an entitlement for capacity of water production and treatment facilities and wastewater transmission, treatment and effluent disposal facilities, or (vii) such miscellaneous deductions as are applicable to prior accounting periods. For a brief discussion of an increase in Current Expenses expected during the Forecast Period and thereafter resulting from, among other things, improvements contemplated to the ECRWRF (as such terms are hereinafter defined), see UTILITY SYSTEM Wastewater System ECR Board Indebtedness herein. Town Water Agreements The City s right, title and interest in the water distribution system located within the Town of Palm Beach, Florida necessary for the proper delivery of water, including permits which are unique to the potable water distribution elements located in the Town and which do not apply to the City s water distribution facilities and are transferable to the Town, as described in the Bond Resolution (the Town Water Distribution System ) are governed by the Bond Resolution and the Retail Water Service and Franchise Agreement between the City and the Town of Palm Beach (the Town of Palm Beach Water Agreement ) executed on June 16, Under the Bond Resolution, upon the expiration of the initial term (or under certain circumstances, of certain extensions) of the Town of Palm Beach Water Agreement, the Town Water Distribution System shall no longer be a part of the Utility System. Under its provisions, the term of the Town of Palm Beach Water Agreement expires no earlier than September 30, During Fiscal Year 2011, revenues generated from the Town Water Distribution System represented approximately 14.84% of total Utility System revenues. Upon expiration of the Town of Palm Beach Water Agreement, the Town of Palm Beach could become a water customer of Palm Beach County. However, because of the location of the City s source of potable water and the facilities that comprise the Town Water Distribution System and other factors, the City expects that upon expiration of the Town of Palm Beach Water Agreement, the Town of Palm Beach will become one of the City s bulk service or wholesale customers of the Water System, although no assurance is provided that such outcome will occur. See UTILITY SYSTEM Water System Water Customers and Sales herein. The City also entered into a Retail Water Service and Franchise Agreement with the Town of South Palm Beach, Florida (the Town of South Palm Beach Water Agreement ) executed on July 11, Under the Town of South Palm Beach Water Agreement, upon the expiration of such agreement, the water distribution system located in the Town of South Palm Beach and used to provide water service to the Town of South Palm Beach shall be purchased from the City by the Town of South Palm Beach at a purchase price to be determined by mutual agreement of the City and the Town of South Palm Beach. Upon such purchase, 10

19 the water distribution system located in the Town of South Palm Beach and used to provide water service to the Town of South Palm Beach shall no longer be a part of the Utility System. Under its provisions, the Town of South Palm Beach Water Agreement expires July 11, The Bond Resolution provides certain conditions under which the City may dispose of portions of the Utility System. See APPENDIX D Summary of Certain Provisions of the Bond Resolution PARTICULAR COVENANTS Sale, Lease or Other Disposition of the Utility System. The City expects the sale of a portion of the Water System pursuant to the Town of South Palm Beach Water Agreement will be in compliance with the terms of the Bond Resolution. The portion of the Water System that is subject to the Town of South Palm Beach Water Agreement currently represents less than ½ of 1% of the book value of the net property, plant and equipment of the Utility System and revenues generated by the facilities that are subject to the Town of South Palm Beach Water Agreement generally represent less than 1.0% of the total revenues of the Utility System. See UTILITY SYSTEM Water System Water Customers and Sales herein. Rate Covenant The City has covenanted in the Bond Resolution that it will fix, charge and collect reasonable rates and charges for the use of the services and facilities furnished by the Utility System and that it will adjust such rates and charges from time to time by increasing or decreasing the same or any selected categories of rates and charges so that the Net Revenues, together with (i) any funds shown on the Annual Budget to be transferred in such Fiscal Year to the Sinking Fund for the purpose of paying the principal of or interest on Bonds from the Rate Stabilization Account of the General Reserve Fund under the Bond Resolution and (ii) any amount of Impact Fees which, pursuant to the provisions of the Bond Resolution and the laws of the State of Florida, may be transferred in such Fiscal Year to the Sinking Fund for the purpose of paying the principal of or interest on Bonds, will be sufficient to provide an amount in each Fiscal Year at least equal to the greater of (a) one hundred twenty per centum (120%) of the Maximum Principal and Interest Requirements for any future Fiscal Year or (b) one hundred per centum (100%) of all amounts required to be deposited to the Bond Service Account, the Redemption Account, the Reserve Account, the Renewal, Replacement and Improvement Fund and, subject to the qualification described below, the General Reserve Fund for such Fiscal Year; provided, however, that (i) in determining the amount required to be deposited to the Bond Service Account and the Redemption Account, the amount, if any, of Impact Fees on deposit in the Impact Fee Fund on the first day of a Fiscal Year which may, under Florida law, be used for payment of principal of, redemption premium, if any, and interest on Bonds and which have been irrevocably budgeted in such Fiscal Year for payment of such principal of, redemption premium, if any, or interest on Bonds may be deducted from the amounts required to be deposited to the Bond Service Account and the Redemption Account as appropriate and (ii) in determining the amount required to be deposited to the General Reserve Fund, only such amounts as the City is required by law or contract to pay out from such Fund shall be counted. In setting its rates and charges, the City shall be permitted to assume that not more than the balance in the Rate Stabilization Account as of the last day of the preceding Fiscal Year will be transferred as set forth above. If in any Fiscal Year the Net Revenues are less than the amount required to meet the rate covenant contained in the Bond Resolution, within thirty (30) days after the receipt by the City of the audit report for such Fiscal Year, the City is required to employ a Consulting Engineer or an Accountant to review and analyze the financial status of the Utility System and the administration and operations of the Utility System, to inspect the Utility System and to submit, within sixty (60) days thereafter, a written report to the City recommending revisions of the Utility System s rates, fees and charges, and its methods of operation that will result in producing the required amount in the following Fiscal Year. Promptly upon its receipt of such 11

20 recommendations, the City must transmit copies thereof to the City Clerk, and must revise its rates, fees and charges or alter its methods of operation, and take any other action to conform with such recommendations. If the City fails to comply with the recommendations of the Consulting Engineer or the Accountant, the registered owners of not less than ten per centum (10%) in Outstanding principal amount of Bonds may institute and prosecute an action or proceeding in any court (or before any board or commission having jurisdiction) to compel the City to comply with the recommendations and the requirements of the Consulting Engineer or the Accountant. If the City complies with all recommendations of the Consulting Engineer or the Accountant in respect to its rates, fees, charges and methods of operation, the failure of Net Revenues to meet the rate covenant will not constitute an Event of Default so long as the Revenues are sufficient to pay the Current Expenses and to pay the Principal and Interest Requirements on all Bonds Outstanding and other indebtedness of the City with respect to the Utility System for such Fiscal Year. The City has never been required to retain a Consulting Engineer or an Accountant as a result of its inability to meet the rate covenant under the Bond Resolution at the end of any Fiscal Year. However, see UTILITY SYSTEM General Rate Covenant and UTILITY SYSTEM Historical and Projected Operating Results General herein for a description of changes made by the City during Fiscal Year 2007 so that Net Revenues would meet one of the two alternative tests of the rate covenant under the Bond Resolution. The City is currently able to meet both of the tests of the rate covenant under the Bond Resolution and expects to continue to satisfy both tests during the current Fiscal Year and throughout the Forecast Period. See UTILITY SYSTEM Wastewater System ECR Board Indebtedness herein for a description of obligations that have been, and may in the future be, incurred by the ECR Board and charged to the City (for its proportionate share of the cost of such obligations) as a Current Expense. Such obligations could negatively impact the ability of the City to satisfy the rate covenant under the Bond Resolution. However, although no assurance can be given, based on current expectations and projections, the City is expected to satisfy all of the requirements of the rate covenant under the Bond Resolution throughout the Forecast Period (as hereinafter defined). See UTILITY SYSTEM Historical and Projected Operating Results Summary of Projected Operating Results herein. Flow of Funds The following Funds and Accounts are established by the City pursuant to the Bond Resolution: the Revenue Fund, the Sinking Fund, including the Bond Service Account, the Redemption Account and the Reserve Account, the Renewal, Replacement and Improvement Fund and the General Reserve Fund, including the Rate Stabilization Account. Except with respect to certain investment income, the City is required to deposit all Revenues as received into the Revenue Fund. Not later than the 20th day of each month, the City is required to withdraw the balance in the Revenue Fund (except for an amount equal to two months Current Expenses under the Annual Budget, which amount shall be held for the payment of Current Expenses) and deposit the funds withdrawn, to the fullest extent available, in the following order: (A) To the Bond Service Account, one-sixth (1/6th) of the interest payable on the Bonds of each Series on the next Interest Payment Date, plus one-twelfth (1/12th) (or, if principal is payable semiannually, one-sixth (1/6th) of the next maturing installment of principal on all Serial Bonds then Outstanding; 12

21 provided, however, that in each month intervening between the date of delivery of any Bonds under the Bond Resolution (beginning in the month following the month in which such delivery takes place) and the next succeeding Interest Payment Date and the next succeeding principal payment date, respectively, the amount deposited to the credit of the Bond Service Account is required to be that amount which when multiplied by the number of months during such respective periods will equal the amounts required for such next succeeding interest or principal payment. (B) To the Redemption Account, one-twelfth (1/12th) (or, if any Bonds are retired semiannually, one-sixth (1/6th) of the principal amount of Term Bonds of each Series to be retired in satisfaction of the Amortization Requirements, if any, for such Fiscal Year. (C) To the Reserve Account, if necessary, the amount needed to make the amount deposited to the credit of the Reserve Account in such month equal to the Reserve Account Deposit Requirement for such month. (D) To the Renewal, Replacement and Improvement Fund, one-twelfth (1/12th) of the Renewal, Replacement and Improvement Fund Requirement; provided, however, that no deposit shall be required in any month in which the unappropriated balance in such Fund is at least equal to an amount, which is required to be at least equal to the Renewal, Replacement and Improvement Fund Requirement, recommended by the Consulting Engineer for such Fiscal Year. If the City shall receive a grant from the State, the proceeds of which are to be used for paying a portion of the Cost of any Improvements and the conditions for the receipt of such grant include the creation and funding of a reserve account, a State of Florida Grant Reserve Account shall be created within the Renewal, Replacement and Improvement Fund and funded in the amount required by the State as a condition to the receipt of such grant. See APPENDIX D Summary of Certain Provisions of the Bond Resolution REVENUES AND FUNDS Flow of Funds. (E) To the General Reserve Fund, the remaining balance, if any, including any amount to be deposited to the Rate Stabilization Account. The City does not have any amounts on deposit in the Rate Stabilization Account and is not currently required to make such deposits. For a more detailed discussion of the General Reserve Fund, see APPENDIX D Summary of Certain Provisions of the Bond Resolution REVENUES AND FUNDS Application of Moneys in the General Reserve Fund. If the amount deposited in any month to the credit of any of the Funds or Accounts created under the Bond Resolution shall be less than the amount required to be deposited, as described in paragraphs (A) through (E) above, the requirement for such amount to be deposited shall be cumulative and the amount of any deficiency in any month shall be added to the amount otherwise required to be deposited in each month thereafter until such time as all such deficiencies have been satisfied. The City is also required pursuant to the Bond Resolution to create a Construction Fund and an Impact Fee Fund. The City is required to deposit all Impact Fees as received directly into the Impact Fee Fund. Reserve Account Under the Bond Resolution, the City is required to establish the Reserve Account within the Sinking Fund. The Reserve Account is to be held for the benefit of all Bonds Outstanding except that: (i) the Series Resolution for a particular Series of Bonds may provide that such Series of Bonds is not to be secured by the Reserve Account and, in such event, such Series of Bonds will not be secured by the Reserve Account and the moneys held for the credit of the Reserve Account will not be applied for the benefit of such Series of 13

22 Bonds, and (ii) the Series Resolution for one or more particular Series of Bonds may establish a separate subaccount within the Reserve Account for such particular Series of Bonds and, in such event, such Series of Bonds shall be secured only by the moneys held for the credit of such subaccount and by no other amounts held for the credit of the Reserve Account, and the Bonds Outstanding of any other Series will have no claim whatsoever on the moneys held for the credit of such separate subaccount in the Reserve Account. The Bond Resolution establishes as the Reserve Account Requirement an amount equal to the Maximum Principal and Interest Requirements for all Bonds Outstanding (excluding any amount required to be deposited in the General Reserve Fund on account of the Annual Loan Payment in any Fiscal Year) or such lesser amount as shall be required in order for the interest on the Bonds to be excludable from the gross income of the recipients thereof for federal income tax purposes under the Code. Upon the issuance of Additional Bonds, the City is required to deposit in the Reserve Account an amount equal to any increase in the Reserve Account Requirement attributable to such Series of Additional Bonds in accordance with the provisions of the Bond Resolution and the Series Resolution for such Additional Bonds, unless the Series Resolution for such Additional Bonds establishes a separate subaccount in the Reserve Account to secure only such Series of Additional Bonds (with such Series of Bonds having no claim on the other moneys deposited to the credit of the Reserve Account) or unless the Series Resolution pertaining to a specific Series of Bonds provides that such Series of Bonds is not to be secured by the Reserve Account or any separate subaccount therein. If the Reserve Account or any separate subaccount therein for any Series contains less than the Reserve Account Requirement, then the City is required to make deposits therein from the Revenue Account each month (after making deposits to the Bond Service Account and Redemption Account), of one-twelfth (1/12th) of the deficiency, until the Reserve Account Requirement is met. The Bond Resolution permits the City to provide all or a portion of the Reserve Account Requirement by depositing in the Reserve Account (or any subaccount therein), a policy of insurance or letter of credit or other similar arrangement (a Reserve Account Guaranty ) unconditionally covering such amount of the Reserve Account Requirement; provided, however, that the provider of such facility must be a bond insurance provider or a bank or other financial institution whose financial guaranties result in bond issues, as of the date such facility is delivered, being rated in one of the two highest full rating categories by Standard & Poor s Corporation and Moody s Investors Service, Inc., if either or both are then rating the Bonds Outstanding or the Bonds to be issued; provided further, however, that nothing shall require the City to obtain a rating on any Bonds. Upon issuance of its Utility System Variable Rate Revenue Bonds, Series 2008C (the Series 2008C Bonds ), the City created a subaccount within the Reserve Account (the Series 2008C Reserve Subaccount ) for the sole benefit of the Holders of the Series 2008C Bonds. The Reserve Account Requirement for the Series 2008C Bonds (the Series 2008C Reserve Account Requirement ) was established to be $9,655,533.00, constituting 125% of the assumed average annual debt service on the Series 2008C Bonds. The Series 2008C Reserve Account Requirement was satisfied by the issuance of a Reserve Account Guaranty by Assured Guaranty Corp. ( Assured Guaranty ) simultaneously with the issuance of the Series 2008C Bonds (the Series 2008C Reserve Policy ). For purposes of making any deposit required to be made to the Reserve Account, such deposit shall include the amount, if any, required to be made to the Series 2008C Reserve Subaccount to satisfy the Reserve Account Deposit Requirement with respect to the Series 2008C Bonds. However, the owners of the Series 2008C Bonds have the sole right to the security created by the Series 2008C Reserve Subaccount and the owners of other Outstanding Bonds, including the Series 2012A Bonds, have no rights to and receive no 14

23 benefit from the Series 2008C Reserve Subaccount. Similarly, the owners of the Series 2008C Bonds have no rights to and receive no benefit from (i) any Reserve Account Guaranty currently held in the Reserve Account for the benefit of the Outstanding Bonds, including the Series 2012A Bonds, or (ii) any Reserve Account Guaranty or cash that may be deposited in the Reserve Account for the benefit of all Bonds. Upon issuance of the Series 2012A Bonds, the Reserve Account Requirement with respect to all Bonds Outstanding, including the Series 2012A Bonds, will be equal to or less than $22,549,290.50, which is the current amount held on deposit in the Reserve Account. Such amount is held in the form of (i) a debt service reserve surety bond in the amount of $3,490, issued by MBIA Insurance Corporation at the time of issuance of the City s Utility System Revenue Bonds, Series 1996, which expires on October 1, 2027; (ii) a debt service reserve fund policy in the amount of $6,657, issued by Financial Guaranty Insurance Company ( Financial Guaranty ) at the time of issuance of the City s Utility System Revenue Bonds, Series 1999, which expires on October 1, 2029; (iii) a debt service reserve fund policy in the amount of $2,745, through October 1, 2029 and $6,868, commencing October 2, 2029 issued by Financial Guaranty at the time of issuance of the Series 2004 Bonds, which expires on October 1, 2034; and (iv) the Series 2008C Reserve Policy in the amount of $9,655,533.00, which expires on October 1, 2038 and is held in the Series 2008C Reserve Subaccount solely for the benefit of the Holders of the Series 2008C Bonds. No deposit to the Reserve Account will be required in connection with the issuance of the Series 2012A Bonds. Moneys held for the credit of the Reserve Account will first be used for the purpose of paying the interest on and the principal of the Bonds which are secured by the Reserve Account whenever and to the extent that the moneys held for the credit of the Bond Service Account shall be insufficient for such purpose and thereafter for the purpose of making deposits to the credit of the Redemption Account in respect of such Bonds whenever and to the extent that withdrawals from the Revenue Account are insufficient for such purposes; provided, however that moneys held for the credit of a separate subaccount in the Reserve Account shall be applied to the foregoing purposes and in the foregoing manner, but only for the benefit of the Series of Bonds for which such separate subaccount was established. Unless otherwise specified by resolution of the City Commission, if the moneys held in the Reserve Account exceed the Reserve Account Requirement, such excess is required to be withdrawn and deposited to the credit of the Revenue Account. Additional Bonds Additional Bonds of the City may be issued under and secured by the Bond Resolution, on a parity with the pledge of the Net Revenues of the Utility System for the benefit of Bonds then Outstanding, subject to the conditions described below, from time to time, to pay all or any part of the cost of constructing or acquiring any Improvements. Before any Additional Bonds may be issued under the Bond Resolution, there shall be filed with the City Clerk, among other things, the following: (A) a certificate of the Finance Director demonstrating that the principal amount of the Additional Bonds then to be delivered, together with all other Additional Bonds issued under this clause and then Outstanding, does not exceed ten per centum (10%) of the Revenues of the Utility System for the last Fiscal Year for which the financial statements of the Utility System were reported by an Accountant, or (B) (i) a certificate of the Finance Director demonstrating that the percentage derived by dividing the Net Revenues for any period of twelve (12) consecutive months selected by the City out of the eighteen (18) months preceding the delivery of such certificate (the Test Period ), by the Maximum 15

24 Principal and Interest Requirements, including the Principal and Interest Requirements with respect to the Additional Bonds then to be delivered, for any future Fiscal Year is not less than one hundred twenty per centum (120%), and (ii) a certificate of the Consulting Engineer demonstrating that the percentage derived by dividing the projected Net Revenues for the first full Fiscal Year following the Fiscal Year in which the Completion Date for such Improvements is expected to occur by the Maximum Principal and Interest Requirements, including the Principal and Interest Requirements with respect to the Additional Bonds then to be delivered, is not less than one hundred twenty per centum (120%); and (C) a certificate of the Finance Director that no event of default under the Bond Resolution, and no event which with the passage of time, the giving of notice or both would become an event of default, has occurred within the twelve (12) consecutive calendar months prior to the date of such certificate and is continuing. In connection with the certificates mentioned in (A) and (B)(i) above, (I) if the rates and charges for the Utility System shall have been revised and such revised rates and charges shall have gone into effect prior to the issuance of such Additional Bonds, the amount of the Revenues or Net Revenues which would have been realized during the Fiscal Year or the Test Period, as appropriate, had such revised rates and charges gone into effect on the first day of such Fiscal Year or Test Period, as appropriate and (II) if the Improvements to be acquired or constructed include the acquisition of a new utility system or the extension of the Utility System to a geographical area not previously served, then the amount of Revenues or Net Revenues which would have been realized during the Fiscal Year or the Test Period, as appropriate, from the additional customers to be added to the Utility System, may be utilized by the Finance Director. In connection with the certificate mentioned in (B)(ii) above, (I) if the rates and charges for the Utility System shall have been revised and such revised rates and charges shall go into effect prior to or simultaneously with the Completion Date for such Improvements, the Consulting Engineer shall be entitled to assume for the purpose of such certificate the Net Revenues during such period based upon such revised rates and charges and (II) if the Improvements to be acquired or constructed include the acquisition of a new utility system or the extension of the Utility System to a geographical area not previously served, then the amount of Net Revenues that would have been realized during such period from the additional customers to be added to the Utility System, may be utilized by the Consulting Engineer. As part of its five year capital improvement program for the Utility System, the City is currently contemplating the issuance of Additional Bonds in Fiscal Year 2013 primarily to fund capital improvements to the facilities of the Water System. Preliminary estimates are for such Additional Bonds to be issued in the aggregate principal amount of approximately $157,735,000 (such Additional Bonds are hereinafter referred to as the Series 2013 Bonds ). See UTILITY SYSTEM General Capital Improvement Program herein and footnotes 15 and 17 in Table 9 of APPENDIX B Historical and Projected Operating Results of the Utility System. Refunding Bonds Under the provisions of the Bond Resolution, Refunding Bonds may be issued to refund all or any portion of the Bonds of any one or more Series then Outstanding. Any such Refunding Bonds shall be issued and secured under the Bond Resolution on a parity with the Bonds then Outstanding without meeting the requirements described above in clauses (A) and (B) under the heading SECURITY AND SOURCES OF PAYMENT Additional Bonds so long as the City Commission shall have adopted a resolution which indicates that such refunding is in the best interest of the City and the customers of the Utility System and stating their reasons for such determination. The Series 2012A Bonds are being issued as Refunding Bonds. 16

25 Other Indebtedness Under the provisions of the Bond Resolution, the City may incur other forms of indebtedness related to the Utility System, including Subordinated Indebtedness. Such other indebtedness, excluding Subordinated Indebtedness, may be payable from Net Revenues on a parity with the Series 2012A Bonds and other Bonds Outstanding, as long as the issuance of such indebtedness complies with the requirements of the Bond Resolution for the issuance of parity obligations. See APPENDIX D - Summary of Certain Provisions of the Bond Resolution AUTHORIZED BONDS AND OTHER INDEBTEDNESS Other Indebtedness. Also, see UTILITY SYSTEM Wastewater System ECR Board Indebtedness herein for a description of obligations that have been, and may in the future be, incurred by the ECR Board and charged to the City (for its proportionate share of the cost of such obligations) as a Current Expense. As a result, the City s proportionate share of such obligations will be paid prior to the payment of debt service on all Outstanding Bonds, including the Series 2012A Bonds. Insured Bonds Under the Bond Resolution, if Bonds issued and Outstanding are insured pursuant to the terms of a municipal bond insurance policy issued by an insurance company (an Insurer ), then, so long as the Insurer is not then in default under the terms of its policy, the Insurer shall be deemed to be the owner of the Bonds to which such policy relates, in lieu of the holders thereof, for the purposes of giving any required consents and approvals to the adoption of supplemental resolutions amending the Bond Resolution and giving consents and directing remedies upon the occurrence of an Event of Default. Any notice required to be delivered to any owner of any Bond shall also be delivered to the Insurer which has insured such Bond. Except for the Series 2012A Bonds, the Series 2011A Bonds issued on June 29, 2011 and the Series 2010 Bonds issued February 24, 2010, all of the Bonds Outstanding as of the date of issuance of the Series 2012A Bonds constitute Bonds that are insured by an Insurer. See INTRODUCTION herein. Interest Rate Swap In connection with the issuance of the Series 2008C Bonds, the City entered into an Interest Rate Swap in the notional amount of $56,335,000 as a hedge against an identical principal amount of the Series 2008C Bonds (the Series 2008 Swap ). The Series 2008C Bonds subject to mandatory redemption through the application of Amortization Requirements on October 1, 2035 to and including October 1, 2038 are covered by the Series 2008 Swap. Pursuant to the terms of the Series 2008 Swap, the City has agreed to pay a fixed rate of 3.539% to Citibank, N.A. (the Counterparty ) and the Counterparty has agreed to make payments to the City at a variable rate. Only the net amounts due to either the City or the Counterparty will be paid under the Series 2008 Swap. Payments to be made by the City with respect to the Series 2008 Swap (other than termination payments) shall be paid from the Bond Service Account. Termination payments with respect to the Series 2008 Swap shall be paid from and secured by a lien on such portion of the moneys from time to time on deposit in the General Reserve Fund that are available to make such termination payments. The Series 2008 Swap contains certain mandatory and optional termination provisions which could create an obligation on the part of the City to make a significant payment to the Counterparty. Simultaneously with the issuance of the Series 2008C Bonds, the City obtained a financial guaranty insurance policy from Assured Guaranty to guarantee certain of the City s payment obligations under the 17

26 Series 2008 Swap (the Series 2008 Swap Insurance Policy ), including the obligation to make certain termination payments, as set forth in the Series 2008 Swap. However, as a result of the downgrade in the rating of Assured Guaranty below Aaa and AAA by Moody s and S&P, respectively, the Series 2008 Swap Insurance Policy has been deemed canceled pursuant to the terms of the Confirmation for the Series 2008 Swap. General Rate Covenant UTILITY SYSTEM The Bond Resolution contains a covenant under which the City will fix, charge and collect reasonable rates and charges for the use of services and facilities furnished by the Utility System and that from time to time, and as often as it shall appear necessary, it will adjust such rates and charges by increasing or decreasing the same or any selected categories of rates and charges so that Net Revenues, together with certain other monies as described in the Bond Resolution, will be sufficient to provide an amount in each Fiscal Year at least equal to the greater of: (i) one hundred twenty percent (120%) of the Maximum Principal and Interest Requirements for any future Fiscal Year ( Test 1 ) or (ii) one hundred percent (100%) of all amounts required to be deposited to the Bond Service Account, Redemption Account, Reserve Account, Renewal, Replacement and Improvement Fund and the General Reserve Fund (only such amounts required to be deposited as required by law or contract to be paid from such Fund) for the then current Fiscal Year; provided, however, that in determining the amount required to be deposited pursuant to the Bond Service Account and Redemption Account, the amount, if any, of Impact Fees on deposit in the Impact Fee Account on the first day of a Fiscal Year which may, under Florida law, be used for payment of principal of, redemption premium, if any, or interest on Bonds and which have been irrevocably budgeted in such Fiscal Year for payment of said amounts may be deducted from the amounts required to be deposited to the Bond Service Account and Redemption Account as appropriate ( Test 2 ). Capital Improvement Program The City has identified certain capital improvements, extensions and additions to the Utility System during the next five (5) Fiscal Years. Many of the improvements contained in the City s five year capital improvement program are primarily designed to repair, upgrade and enhance existing facilities of the Utility System to enable such facilities to function satisfactorily, reliably and efficiently. The costs of some of those improvements are currently expected to be funded from existing cash balances in the funds and accounts of the Utility System and from Revenues expected to be generated by the Utility System during the next five (5) Fiscal Years. As part of its five year capital improvement program for the Utility System, the City is also contemplating the issuance of the Series 2013 Bonds primarily to fund capital improvements to the facilities of the Water System. Preliminary estimates are for the Series 2013 Bonds to be issued during Fiscal Year 2013 in the aggregate principal amount of approximately $157,735,000. See SECURITY AND SOURCES OF PAYMENT Additional Bonds and UTILITY SYSTEM Water System State Regulatory Compliance Operation and Maintenance of the WTP herein. For projections as to debt service to be paid 18

27 and Net Revenues projected to be generated by the Utility System after issuance of the Series 2013 Bonds, see Table 9 of APPENDIX B Historical and Projected Operating Results of the Utility System, including footnotes 15 and 17 thereof. The City endeavors to update the Utility System capital improvement program annually. As the capital improvement program is updated, any required or recommended additions, upgrades or renovations to the Utility System and the need to issue Additional Bonds to finance all or a portion of the costs thereof will be determined in consultation with the consulting engineers, feasibility consultants and/or rate consultants for the City. System Operations The operations of the Utility System are managed by the City s Public Utilities Department (the Utilities Department ) and, with respect to a portion of the responsibilities related to the Stormwater Drainage Facilities, the City s Engineering Services and Public Works Department (the Engineering and Public Works Department ). The Utility System is accounted for as two (2) separate enterprise funds of the City (one for the Water System and the Sewer System and one for the Stormwater Drainage Facilities). The Utilities Department is responsible for the Water System, the Sewer System and a portion of the responsibilities related to the Stormwater Drainage Facilities. The Utilities Department is operated under the direction of the Utilities Director. The Utilities Department currently consists of 291 employees, including 39 licensed water and wastewater operators to service the Utility System and operate the water and wastewater treatment facilities. The portion of the responsibilities related to the Stormwater Drainage Facilities that are not handled by the Utilities Department are under the responsibility of the Engineering and Public Works Department. The Engineering and Public Works Department is operated under the direction of the Director of Engineering Services and Public Works. Currently, 33 employees handle responsibilities related to the Stormwater Drainage Facilities, 28 of which are employees of the Utilities Department and 5 of which are employees of the Engineering and Public Works Department. The Utilities Director and the Director of Engineering Services and Public Works are each directly responsible to the City Administrator. Brief resumes of the Utilities Director and the Director of Engineering Services and Public Works are as follows: David Hanks has served as the Utilities Director of the City since September From 1998 until joining the City as the Utilities Director, Mr. Hanks served as the Director of the Water Resources Department for the City of Asheville, North Carolina where he was responsible for a $32 million annual budget for a utility that served over 225,000 customers in five (5) municipalities, two (2) counties and covered an area of over 725 square miles. While in such position, he also served as the primary staff liaison for the nine (9) member Regional Water Authority of Asheville, Buncombe and Henderson, North Carolina. Prior to serving as Director of the Water Resources Department for the City of Asheville, Mr Hanks served as the Public Works/Solid Waste Manager for the City of Asheville and, prior thereto, as the Public Works and Solid Waste Manager for the City of North Augusta, South Carolina. Mr. Hanks received a Masters of Public Administration from Troy State University, Troy, Alabama, in 1993 and a Bachelor of Arts from Saint Leo University, Saint Leo, Florida, in He is a member of numerous organizations, including the American Water Works Association, the American Planning Association and the American Public Works Association, and is a certified recycling manager of the Solid Waste Association of North America. He is a twenty (20) year veteran of the United States Air Force and a veteran of the Gulf War. 19

28 Danielle Pitt Slaterpryce, P.E. has served as the Director of Engineering Services and Public Works for the City since April Prior to joining the City, Ms. Slaterpryce served as Senior Project Manager for Kimley-Horn & Associates, Inc., Miramar Beach, Florida, in 2010 and as Public Works Director/County Engineer for Okaloosa County, Florida from April 1999 to January 2010, where she was responsible for an annual operating budget of approximately $23 million, the supervision of approximately two hundred (200) employees and, among other accomplishments, was a member of the management team leading recovery efforts following Hurricanes Ivan and Dennis. She also initiated and led the management team in the quality improvement process required for the Public Works Department to be certified by the American Public Works Association. From August 1996 to April 1999 Ms. Slaterpryce served as Public Works Director/County Engineer for Putnam County, Florida, from August 1993 to July 1996, as Solid Waste Management Director for St. Johns County, Florida and from January 1992 to August 1993, as Civil Engineer for St. Johns County. Ms. Slaterpryce received an Associate of Arts from Palm Beach Junior College, West Palm Beach, Florida, in 1976 and a Bachelor of Science in Mechanical Engineering from Florida Atlantic University, Boca Raton, Florida, in She was the State President of the Florida Association of County Engineers and Road Superintendents in 2010, the State President of the Florida Engineering Society in 2009, where she is a Fellow Member, and was the Class 2010 Facilitator for the Florida Engineering Leadership Institute. She is also a member of the Governmental Affairs Committee for the American Public Works Association and is a member of the Solid Waste Association of North America. Water System General The Water System is comprised of water supply, treatment, transmission and distribution facilities. The Water System retail service area encompasses the City, the Town of Palm Beach, the Town of South Palm Beach and miscellaneous unincorporated areas of Palm Beach County. In 2005, the City and the County entered into an Interlocal Agreement to resolve all disputes as to which unincorporated areas of Palm Beach County would be serviced by the City and the County, respectively. The City has also entered into interlocal agreements to provide up to 2.0 million gallons per day ( MGD ) of water to the Village of Royal Palm Beach and 3.0 MGD, contingent upon available capacity, to the Seacoast Utility Authority as part of interconnection agreements for the bulk sale of water service. However, with respect to the Village of Royal Palm Beach, Palm Beach County acquired the Village of Royal Palm Beach water system assets in As a result, water service is provided to the Village by the County instead of by the City. For the twelve (12) months ended September 30, 2011, the Water System provided services to an average monthly 32,457 utility accounts and 85,809 average equivalent residential connections ( ERCs ). The Water System provides service to an area covering approximately 61.2 square miles. Source of Supply The City uses a surface water source for its primary source of potable water needs and a surficial groundwater wellfield as a standby source. The source of surface water is the 19.4 square mile land area referred to as the Grassy Waters Preserve Water Catchment Area (the Water Catchment Area ). The Water Catchment Area is a series of wetlands located in the western half of the City that capture rainfall and provide water storage. Water from Lake Okeechobee also can enter the Water Catchment Area from the L-8 Canal via the L-8 Tie-Back Facility which discharges into the M Canal. The M Canal flows through the 20

29 Water Catchment Area and continues east to Lake Mangonia and Clear Lake, where the intake structure for the City s water treatment plant is located. With respect to raw water withdrawals (which include both surface water and groundwater), the Water System is currently regulated by the South Florida Water Management District ( SFWMD ). The SFWMD is a public entity of the State of Florida established as a multi-purpose water management district that has the responsibility of managing the water resources within its boundaries (i.e., Southern Florida). The SFWMD is authorized to require permits for the consumptive use of water. The City s current water use permit (WUP No W) from the SFWMD allocates billion gallons of water per year, which represents 39.3 MGD on an annual average basis. The maximum monthly allocation is limited to 1,339 million gallons. This water use permit expires on October 12, Surface water is supplied by eight (8) surface water withdrawal pumps. Six (6) of those pumps are associated with the Clear Lake Facilities providing water to the City s water treatment plant. The other two surface water withdrawal pumps are associated with L-8 Tie-Back Canal Facilities and pump from the L-8 Canal into the M Canal when water is needed to augment the Water Catchment Area supplies. The L-8 Tie- Back Canal pumps are routinely used. The water supply allocation through the L-8 Canal can be discontinued or reduced by the SFWMD during dry periods if water levels in Lake Okeechobee and the Everglades recede. As a result, the City developed a groundwater Standby Wellfield south of the M Canal that pumps groundwater from the Surficial Aquifer (Turnpike Aquifer) into the M Canal to supplement the water supply. There are ten (10) wells at the Standby Wellfield with a total groundwater withdrawal capacity of 22.5 MGD. The SFWMD permit stipulates that water withdrawal from the Standby Wellfield is allowed on a one-to-one basis relative to the delivery of reclaimed water from the East Central Regional Wastewater Reclamation Facility (the ECRWRF ) to the wellfield recharge areas. See UTILITY SYSTEM Wastewater System General herein. Groundwater withdrawals are further regulated by the SFWMD in accordance with the conditions of the City s water use permit. To help ensure an adequate supply of water in the event of long-term drought conditions, the City has implemented various strategies to diversify its water supply and to increase water supply in the Water Catchment Area. Three (3) of the primary strategies implemented by the City to ensure the supply include: (i) utilizing aquifer storage and recovery technology; (ii) constructing the Advanced Wastewater Treatment and Reuse Facility ( AWTRF ) (see UTILITY SYSTEM Wastewater System Sludge and Effluent Disposal herein); and (iii) constructing the Renaissance Project, which treats previously uncaptured stormwater runoff to supplement the City s water supply. Through these new efforts, the City estimates that it will generate approximately 20.0 MGD to augment water supplies during the dry season. See UTILITY SYSTEM Water System State Regulatory Compliance Wellfield Recharge herein for a description of the Stipulated Settlement Agreement entered into between the City and the SFWMD to resolve a dispute as to whether the City violated its requirement to deliver reclaimed water from the ECRWRF to the wellfield recharge area on a one-to-one basis after the withdrawal of water from the Standby Wellfield during severe drought conditions in the summer of Drought Conditions The South Florida area has experienced drought conditions due to an insufficient amount of rainfall in the area during the past several years. Since 2006, reduced annual rainfall has decreased the amount of surface water available from the Water Catchment Area. In addition, due to low rainfall, the backup water supply provided by Lake Okeechobee has been reduced to a level where it can no longer be relied upon as a reliable backup water supply resource for the Water System through the normal dry season. 21

30 On May 21, 2012, the SFWMD reported that the wet season for South Florida, generally measured from around May 20 to around October 13, began earlier in As a result, rainfall levels in May were above historical levels in most areas of South Florida, including the Water Catchment Area. Overall, however, due to past extreme drought conditions, the region is still in a rainfall deficit of about 5.50 inches. The National Weather Service has announced that the 2012 wet season should produce near to above normal precipitation into June 2012, with near normal precipitation for the remainder of the wet season. However, Lake Okeechobee is currently about 1.87 feet below its average water level for this time of year. Due to the past lack of rainfall in the South Florida area and resulting decline in Lake Okeechobee and surface water levels, the SFWMD imposed a series of emergency water use restrictions on the water service area comprising the Lower East Coast Region of the SFWMD governing area. Such region includes the service area of the Water System. Initial water shortage restrictions were intended to ensure that established minimum flows and levels ( MFL ) within the affected area were maintained and that water resources within the area did not suffer serious harm. The imposition of emergency water use restrictions began in 2007 when drought conditions initially became the most severe. As rainfall increased in South Florida, providing relief from the extreme drought conditions experienced in 2007, the SFWMD gradually reduced water use restrictions, beginning in 2008 and, on March 15, 2010, replaced emergency water use restrictions with year-round water conservation measures. The year-round water conservation measures establish permanent water use limitations on certain types of landscape irrigation. However, responding to the return to severe drought conditions in South Florida, effective June 10, 2011, the SFWMD re-established extreme emergency water use restrictions on landscape irrigation within the Water System service area. See UTILITY SYSTEM Water System Water Restrictions herein. In response to the drought conditions experienced in South Florida during the past several years, the Utilities Department commissioned a computerized drought model through two (2) nationally recognized engineering firms. The computerized drought model enables City staff to determine optimal lake levels and the number of days of water available throughout the Water Catchment Area and lake reservoir systems. Based on its assessment that the City s water supply would reach dire levels if rainfall in South Florida remained drastically below historical averages and water consumption in the City was not significantly reduced, on June 13, 2011, the City imposed emergency water use restrictions on landscape irrigation for customers of the Water System. Such restrictions are more stringent than the emergency restrictions imposed by the SFWMD on June 10, See UTILITY SYSTEM Water System Water Restrictions herein. The drought conditions and resulting water shortage restrictions imposed by the SFWMD during the past several years have contributed to a reduction in Revenues produced by the Water System. See UTILITY SYSTEM Historical and Projected Operating Results General herein. In addition, in 2011 the City implemented emergency measures to address the shortages of available water from the Water Catchment Area, including, without limitation, (i) the purchase of water from the Palm Beach County utility system (approximately 10 million gallons daily during severe shortages), (ii) the installation of pipes and a weir to ease movement of water from Clear Lake, since water levels become too low during severe shortages for such water to flow naturally to the City s distribution and treatment facilities, and (iii) accessing water in the City s wellfield, which requires replacement by the City with reclaimed water. See UTILITY SYSTEM Water System State Regulatory Compliance Wellfield Recharge herein. The cost of implementing water shortage emergency measures also increases expenses of the Water System and contributes to a reduction in Net Revenues below amounts that otherwise would have been collected. Such costs, thus far, have not prevented the City from meeting its obligations under the Bond 22

31 Resolution. See UTILITY SYSTEM General Rate Covenant herein. Also see, UTILITY SYSTEM Water System Water Restrictions herein for a brief description of surcharges the City may impose to increase Revenues during drought conditions. The City does not expect that the continued utilization of water shortage emergency measures, if required, will prevent the City from meeting its obligations under the Bond Resolution during any of the years for which projections are provided in this Official Statement (the Forecast Period ). See UTILITY SYSTEM Historical and Projected Operating Results Summary of Projected Operating Results herein. Throughout the drought period, the Water System has not experienced any violations of the MFL standards imposed by the SFWMD. Water levels for certain sections of the Water System have occasionally dropped below MFL measurement criteria but only for periods that did not exceed the duration criteria for a MFL violation to occur under the SFWMD standards. In addition, despite drought conditions, the overall water service provided to the customers of the Water System has not been negatively impacted. See UTILITY SYSTEM Water System State Regulatory Compliance herein. Although no assurances can be given, the City expects that throughout the drought period, it will continue to provide reliable, high quality water service to the customers of the Water System. Water Demand The City s service area population includes both seasonal and permanent residents. Under current economic conditions, the City anticipates only slight population growth in the service area of the Water System. The actual water demand for Fiscal Years 2007 through 2011, expressed as a percent of authorized withdrawal, is shown in the following table. From this information, it can be seen that the City s water use permit allocations have been sufficient to meet the City s water needs and the City anticipates that its water use permit allocations will continue to be sufficient to meet the City s water needs for the foreseeable future. Water Demand as a Percent of Authorized Withdrawal (1) SFWMD Authorized Withdrawal (MGD) Water Demand and Percent of Authorized Withdrawal (MGD) (2) Average Maximum Year Average Maximum Amount Percent Amount Percent % % Source: Utilities Department, City of West Palm Beach, Florida. (1) Maximum authorized withdrawals are based on amount established in the City s prior water use permit. That permit was renewed on October 12, 2006 and expires on October 12, The renewed permit provides for higher maximum withdrawals, which are measured on a monthly basis and not per MGD. (2) Amounts are based on historical water production, as presented in Table 1 of the Historical and Projected Operating Results (hereinafter defined). See APPENDIX B Historical and Projected Operating Results of the Utility System. 23

32 Water Treatment Facilities The City operates one water treatment plant (the WTP ) which is capable of treating and pumping a maximum daily flow of 47.0 MGD. In addition to the water use permit issued by the SFWMD, the Florida Department of Environmental Protection ( FDEP ) regulates potable water facilities. In Palm Beach County, the FDEP delegates its regulatory authority to the Palm Beach County Health Department ( PBCHD ). The WTP has a current annual license from the PBCHD (No ) that expires June 30, The license is renewed annually. The WTP staff is well-qualified with a total of eight (8) staff certified as Class- A operators six (6) certified as Class-B operators and ten (10) certified as Class-C operators. For a description of possible upgrades to the WTP, see UTILITY SYSTEM Water System State Regulatory Compliance Operation and Maintenance of the WTP herein. The WTP treats source water and provides all potable water supplies for the City s retail service area and bulk sales customers. Maximum daily demand was 38.0 MGD in Fiscal Year This accounts for approximately 80.9% of maximum day permitted capacity. The water demand for Fiscal Years 2007 through 2011 as a percent of the permitted capacity is shown in the following table. Water Demand as Percent of Permitted Treatment Capacity WTP Permitted Water Demand and Percent of Capacity (MGD) Permitted Capacity (MGD) (1) Average Day Maximum Day Fiscal Year Maximum Day Amount Percent Amount Percent % % Source: Utilities Department, City of West Palm Beach, Florida. (1) Amounts are based on historical water production, as presented in Table 1 of the Historical and Projected Operating Results. See APPENDIX B Historical and Projected Operating Results of the Utility System. Because of the varying raw water quality associated with a surface water supply, ten (10) different chemical feed systems are used in the WTP treatment processes, including the following: (a) chlorination/ammoniation for disinfection; (b) polymer and ferric sulfate for organic reduction and color removal; (c) lime softening for reduction of water hardness; (d) filtration for removal of solids; (e) recarbonation for chemical stabilization of the water; (f) powered activated carbon for organic taste and odor reduction; (g) fluoridation for dental protection; (h) potassium permanganate for microcystins; (i) sludge thickening to aid in the dewatering process; and (j) anionic polymer for sludge conditioning to aid in the dewatering process. Raw water is pumped from Clear Lake by raw water pump stations 1 and 2. The WTP also has two (2) high service pump buildings to maintain water supply and pressure in the distribution system. The treatment facilities include two (2) parallel trains of a rapid mix basin, flocculation basin and settling basin. Each train is designed to treat 23.5 MGD of water and either train can operate independently of the other. During emergency situations, either train can treat up to 38.0 MGD. Sludge removed from the 24

33 coagulation/softening process is pumped to a sludge holding tank for thickening. The thickened sludge is pumped to a thickening facility consisting of three (3) high solids, belt-filtered presses where the sludge is dewatered and subsequently removed for disposal. The filtration process consists of 32 multi-media filters. A 1.0 million gallon ( MG ) clearwell, a 3.0 MG ground storage tank and a 5.0 MG ground storage tank are used for storage before the water is pumped to the distribution system. Two (2) emergency diesel generators provide 4,000 kilowatts of backup power, which is sufficient to provide for operation of the WTP at 100% capability should the primary power source be lost. The City flushes the filters at the WTP with water to clean them of bacteria and other impurities. The backwash water from such cleaning process is pumped into storage basins for later disposal and drainage ditches owned by the City are used to collect any overflow when the storage basins reach their capacity. Such pumping sometimes results in backwash water being pumped into residential canals that are connected to the City s drainage ditches, which produces sludge in the affected residential canals. The PBCHD does not consider the sludge to be a public health risk but it could harm fish and plant life in the area. The City implemented improvements during calendar years 2008 and 2009 to fix the problems which led to the creation of sludge in residential canals. Any sludge remaining in residential canals is removed by the City once its presence is discovered. Also, see UTILITY SYSTEM Water System State Regulatory Compliance Operation and Maintenance of the WTP herein. Water Distribution and Storage The City s water distribution system consists of more than 448 miles of water mains, ranging in size from 2 to 48 inches in diameter, and approximately 2,794 fire hydrants within the City s direct service area. The water distribution system also includes five (5) subaqueous crossings from the City to the barrier island where the Towns of Palm Beach and South Palm Beach are located. The distribution system is comprised of various pipe materials that include cast iron, ductile iron, galvanized steel, polyvinyl chloride, reinforced concrete and cement composition. Service lines are generally copper and polybutylene. On an ongoing basis, the City takes physical samples of pipe material from some of the oldest pipes in the service area to inspect the condition and gauge the remaining useful life of the pipes. The inspections have found the pipe materials to be in good condition with only minor corrosion observed. In general, the water distribution system appears to be in good condition relative to the age of the system, especially considering that some of the original pipe was installed in the early 1900s. The City has a program to replace small diameter (less than 6 inch) pipe to improve hydraulics in several areas of the distribution system, and will continue to replace small diameter and old pipe as part of its ongoing renewal and replacement program. Within the distribution system and at the WTP site, there is a total of 21.0 MG of potable water storage available. This storage capacity represents approximately fifty-five percent (55%) of the maximum day flows of the Utility System for Fiscal Year 2011 and can be relied upon to supply fire flow requirements and peak hour demands as they occur. All of the facilities have booster chlorination capabilities to increase disinfectant residual when necessary, and emergency generators or diesel driven pumps for backup pumping facilities. The following table lists the storage tank locations, type and capacities. [Remainder of page intentionally left blank] 25

34 Water Storage Capacity Location Type Capacity (MG) Water Treatment Plant Clear well and Above Ground Reservoir 9.0 Parker Avenue and Valley Forge Road Above Ground Reservoir 3.0 Parker Avenue and Kaye Street Above Ground Reservoir 2.0 Palm Beach County Club Ground Reservoir 1.0 Villages of Palm Beach Lakes Above Ground Reservoir 2.0 St Mary s Hospital Area Above Ground Reservoir 2.0 Ibis Development Area Above Ground Reservoir 2.0 Total Storage Tank Capacity 21.0 Source: Utilities Department, City of West Palm Beach, Florida. Federal Regulatory Compliance The FDEP, the SFWMD and the United States Environmental Protection Administration ( USEPA ) promulgate various regulations governing operation of the Water System. The FDEP and the USEPA regulations primarily deal with the quality of raw water prior to treatment, the finished water distributed to the public and methods of water treatment. The regulation of consumptive uses of water resources in the County is the responsibility of the SFWMD. Associated with the regulations are various monitoring and reporting requirements. Operations and compliance is monitored by the PBCHD, with oversight provided by the FDEP. The Water System is properly permitted at the State and federal levels and has no outstanding compliance issues as of the date of this Official Statement. The Water System is also in compliance with USEPA regulations with respect to potable water quality. The USEPA regulations, including the actual promulgation and effective dates to the WTP are summarized below. USEPA Rules Rule Promulgation Date Effective Date Consumer s Confidence Report ( CCR ) August 1998 October 1999 Interim Enhanced Surface Water Treatment Rule December 1998 December 2001 ( IESWTR ) Disinfection/Disinfection By-Products Rule December 1998 December 2001 ( D/DBPR ) (Stage 1) Disinfection/Disinfection By-Products Rule January 2006 April 2012 ( D/DBPR ) (Stage 2) Backwash Recycle Rule ( BRR ) August 2000 August 2003 Compliance with the CCR requires the City to prepare and submit an annual report to the consumers that provides simple, straightforward water quality information. No capital improvements will be required for CCR compliance. 26

35 The IESWTR requires large water utilities to improve treatment processes for physical removal or destruction by disinfection of bacteria and other organisms which may be present. Plant process changes instituted by the City have led to the required reduction in Total Organic Carbon, a precursor for many undesirable disinfection by-products. The WTP disinfection process meets the requirements of overall concentration and contact time. It is anticipated that with the improvements to the Water System that have been instituted by the City, together with ongoing and planned improvements to the WTP, the WTP will consistently satisfy the requirements of the IESWTR. The D/DBPR (Stage 1) was enacted to minimize by-products that are formed in the treated water as a result of chlorine disinfection. The rule requires enough disinfectant to inactivate the relevant microbes. However, the presence of the disinfectant in the finished water often is the source of the disinfection byproducts, which are considered potential threats to human health. The WTP currently meets all of the disinfection by-product requirements. The D/DBPR (Stage 2) builds upon the D/DBPR (Stage 1). However, unlike the system-wide running annual average used under the D/DBPR (Stage 1), compliance under the D/DBPR (Stage 2) must be met at each monitoring location based on a location-specific running annual average of total Trihalomethanes (TTHM) and five haloacetic acids (HAA5) concentrations. Therefore, under the D/DBPR (Stage 2), peak disinfection by-product levels will no longer be dampened by averaging across the entire distribution system. As a result of local running annual average compliance, average disinfection by-product levels will decrease and peak disinfection by-product levels will significantly decrease. The D/DBPR (Stage 2) also includes requirements for water systems to perform (i) an individual distribution system evaluation, which can better represent the highest concentrations of disinfection byproducts, and (ii) operational evaluations if high individual disinfection by-products concentrations are detected in the distribution system. The decrease in disinfection by-product levels anticipated to result from the transition from a running annual usage to a local running annual average is leveraged by the individual distribution system. The BRR affects treatment of the filter backwash water prior to returning such water to the head of the treatment stream. The purpose of this action is two-fold: (1) To reduce water losses by recycling the backwash water to the WTP; and (2) To assure that the recycled backwash water does not contain any live Giardia lamblia or Cryptosaridium parvum organisms. In anticipation of the BRR, the City engaged in process selection and preliminary design of a system to treat recovered and settled backwash water. Results are achieved by preventing recirculation of any live Giardia lamblia or Cryptosaridium parvum organisms within the treatment process. The system also further protects the public against the possibility of any deleterious microbe form being present in the City s drinking water. The USEPA has promulgated national drinking water regulations for lead and copper (the Lead and Copper Rule ) concentrations in tap water from individual homes. The City collects over 100 samples from throughout the distribution network of the Water System to monitor lead and copper. The Lead and Copper Rule stipulates that no more than ten percent (10%) of the total samples may exceed the action level or concentration limits, as set forth by the Lead and Copper Rule. In 2007 the PBCHD warned that the City had thirteen (13) sampling points that exceeded the action level for lead. Such warning, however, also noted 27

36 that the City had already initiated the required corrective actions. Since the PBCHD warning in 2007, the City has maintained compliance with the ten percent (10%) requirement of the Lead and Copper Rule. Lead and copper concentrations in excess of federal or State maximum containment levels do not normally occur in the treated water pumped from the WTP. Problems can occur if the treated water exhibits characteristics that would tend to corrode the plumbing or plumbing fixtures in houses where the piping or fixtures contain lead or copper. In 2007 the PBCHD warned the City that its water quality parameters for the first six (6) months of 2007 indicated that the City s corrosion control treatment was not in compliance with federal requirements. Having periodic cycles where treated water is slightly corrosive occurs frequently when the raw water characteristics change due to rainfall, drought, or when modifications are being made in the treatment processes. Each of these situations has occurred at the WTP from time to time over the last several years. In response, the City implemented a Lead and Copper Optimization Program. The program was developed by an engineering consulting firm to ensure that compliance with the ten percent (10%) requirement of the Lead and Copper Rule is maintained. State Regulatory Compliance Wellfield Recharge. While experiencing the most severe drought conditions in recent history, during the months of June and July 2011 the City withdrew water from its Standby Wellfield to ensure adequate public water supply and maintain capabilities for fire protection within the City. The City s consumptive use permit for the Water System requires such withdrawals to be accompanied by the delivery of an equal amount of reclaimed water from the ECRWRF to the City s wellfield recharge area. Based on data in the required monthly pumpage reports submitted by the City to the SFWMD, the SFWMD determined that the City did not deliver a sufficient amount of reclaimed water to its wellfield recharge area to offset the water withdrawn from the Standby Wellfield in June and July As a result, the SFWMD delivered to the City a notice of violation of the Water System s consumptive use permit. The City disputed the conclusions reached in the SFWMD s notice of violation, stating, among other things, that its consumptive use permit measured withdrawals on a quarterly basis, not monthly, and that weather conditions in June and July 2011 caused reclaimed water delivered to wellfield recharge areas to be lost due to evaporation and seepage into the abnormally dry ground. However, without admitting that any violation occurred, the City entered into a Stipulated Settlement Agreement with the SFWMD on May 11, 2012 (the Settlement Agreement ). Under the Settlement Agreement the City and the SFWMD agreed, among other things, that: 1. The limitation on the withdrawal of water from the Standby Wellfield, on a one-toone basis with the delivery of reclaimed water to the wellfield recharge area, shall be measured on a monthly basis; 2. Any source of water to be delivered to the wellfield recharge area other than reclaimed water, or utilizing a pumping system other than as set forth in the consumptive use permit, is required to be authorized by the SFWMD prior to such delivery; 3. Monthly pumpage reports submitted by the City to the SFWMD shall contain the additional detail set forth in the Settlement Agreement; 4. The City shall submit to the SFWMD for approval (a) within sixty (60) days of the effective date of the Settlement Agreement, a drought management plan and (b) within one hundred twenty (120) days of the effective date of the Settlement Agreement, (i) a long term water supply 28

37 plan and (ii) an application to modify its consumptive use permit, with each plan addressing specific conditions and recommendations for improvement of the Water System as set forth in the Settlement Agreement; and 5. Temporary suspensions of the limitation on the withdrawal of water from the Standby Wellfield on a one-to-one basis with the delivery of reclaimed water to the wellfield recharge area may be granted during periods of severe drought to protect the health and safety of the customers of the Water System, upon request made by the City to the SFWMD setting forth the specific conditions creating the need for the temporary suspension, as set forth in the Settlement Agreement. The City submitted its drought management plan, long term water supply plan and application for a modification of its consumptive use permit to the SFWMD significantly in advance of the time allotted in the Settlement Agreement for such submissions. The Settlement Agreement provides that the City s failure to comply with its terms shall require the payment of liquidated damages in the amounts specified in the Settlement Agreement for each instance of non-compliance, until the non-compliance is cured; provided, however, that liquidated damages assessed against the City may be offset by implementing an in-kind penalty project which addresses water supply for the Water System. Such in-kind project must be approved by the SFWMD and be at least one and one-half times the liquidated damage amount. If assessed, and no in-kind penalty project is to be implemented, liquidated damages are required to be paid within thirty (30) days of written demand by the SFWMD. The Settlement Agreement provides for payment of liquidated damages for a failure by the City to submit its drought management plan and long term water supply plan within the time periods set forth in the Settlement Agreement. Since the City has already submitted such plans well within the time period required for their submission, the liquidated damage provisions relating to plan submissions are no longer applicable. The remaining schedule of liquidated damage payments set forth in the Settlement Agreement are as follows: Settlement Agreement Liquidated Damage Schedule Required Action Exceeding 1:1 monthly reclaimed water recharge to withdrawal rate Failure to submit pumpage reports Liquidated Damages Amount $5, per monthly violation $ each day past due The Settlement Agreement provides that the liquidated damage schedule does not limit the rights of the SFWMD to otherwise enforce violations of the terms of the Settlement Agreement. The Settlement Agreement also provides that any violation of its terms may subject the City to the imposition of civil penalties up to $10, per offense, per day (except to the extent the SFWMD has agreed to accept liquidated damages for such violation), costs and criminal penalties. The Settlement Agreement provides that it shall remain in effect until (a) any application to (i) modify the City s consumptive use permit to change the terms and conditions under which the City operates its wellfields, or (ii) renew the City s consumptive use permit is granted; or (b) the City and the SFWMD mutually agree to terminate the Settlement Agreement. The City anticipates that the Settlement Agreement will expire with the approval of its pending application for modification of its consumptive use permit. The City reasonably anticipates such approval to occur in early

38 Although no assurance can be given, the City expects that Revenues will be sufficient to implement the improvements to the Water System that will reduce reliance upon the use of the Standby Wellfield during future drought events and that it will be able to comply with the terms of the Settlement Agreement. In addition, certain improvements currently contemplated to be financed by the issuance of the Series 2013 Bonds will be designed to implement additional improvements to increase the City s ability to store water and access additional sources of water during drought periods. See UTILITY SYSTEM General Capital Improvement Program herein. Bacteriological Quality. Pursuant to rules set forth in Chapter of the Florida Administrative Code, the City routinely collects over 250 water samples per month (minimum 100 required) from the distribution network of the Water System to monitor the microbiological quality of water delivered to the customers of the Water System. The Water System encountered problems in late September 2007 when the monthly samples from seven locations showed the presence of E.coli, fecal and total coliform contamination. Regulatory guidelines allow up to five percent (5%) of the monthly samples to show positive for total coliform bacteria before a boil water notice is required to be issued. However, in those rare instances where the bacteria present are E.coli and/or fecal coliform, the affected utility system must begin resampling immediately. When the City conducted its resampling in late September 2007, all seven of the first sites resampled showed total coliform was present and fecal coliform and E.coli was detected at three of the resampled sites. As a result, pursuant to State guidelines, the City issued a boil water notice to all of the customers of the Water System and also initiated an intense chlorine disinfection of the entire system ( free chlorination process ). During the ten day boil water notice, the PBCHD began an intense review of the Water System and, in conjunction with the City, appointed a five member panel of water treatment experts to review the operations of the WTP and the treated water chemical and bacteriological characteristics. The general conclusion of the panel was that the Water System contamination in late 2007 was the result of inadequate disinfection in the treated water which, in conjunction with stagnant water in areas of the distribution system, provided the opportunity for the bacteria to grow. Additionally, the City retained the services of U.S. Water Services Corporation ( US Water ), a nationally recognized specialty water treatment plant operations firm, to conduct a thorough evaluation of the Water System. US Water was also retained by the City at the request of the PBCHD and the FDEP. After its initial evaluation of the Water System, US Water delivered a preliminary report to the City and the PBCHD (the Preliminary Report ) which summarized the factors that contributed to producing the contamination problem. The Preliminary Report concluded that the major factors were the lack of proper disinfection that occurred when certain water flows (i) bypassed the disinfection process due to unknown, very old piping systems, valves that were open that should not have been open and other problematic hydraulic conditions, or (ii) did not have adequate contact time with the proper disinfectants. The Preliminary Report provided the City with thirty-nine (39) short term and eight (8) long term recommendations for measures or improvements to be implemented to address the contamination problem and the insufficiencies of the Water System which combined to produce the problem. The City began correction procedures as soon as the contamination problems were detected. Most of the measures and substantially all of the improvements recommended in the Preliminary Report have been implemented by the City. No violation of biological standards was noted in the samples collected of the City s water after November 3, The problem was corrected by the City s elimination of the by-passed water that was 30

39 producing contamination, extensive flushing of the disinfection system and implementation through mid February 2008 of the free chlorination process. On September 2, 2008, the City executed a consent order with the PBCHD to ensure that all compliance measures implemented by the City to address previous potable water contamination problems will be maintained and any measures that may be required to prevent future Water System compliance issues will be implemented. The consent order identifies forty (40) submittal and compliance deadlines. To date, the City has satisfied all of the compliance requirements of the consent order and met all of the established deadlines. In addition, on September 1, 2008 the City entered into a settlement agreement with the State for a ten (10) year period to upgrade the treatment facilities of the Water System and determine long-term filtration requirements for the WTP. Water Turbidity Measurement and Recording. In 2007 the PBCHD warned the City of several possible violations of State rules governing monitoring, recording and reporting of data relative to the levels of particulate matter ( turbidity ) in the treated water of the Water System. In response, the City made several modifications and revisions to the equipment that measures and records turbidity levels. The City is now in compliance with the rules and regulations previously cited by the PBCHD. Operation and Maintenance of the WTP. In 2007 the PBCHD warned the City that there were several operation and maintenance deficiencies at the WTP. The PBCHD noted that, as a result of such deficiencies, the City must conduct a Comprehensive Performance Evaluation, develop a Comprehensive Correction Program and identify a third party Comprehensive Performance Evaluation team to undertake development of the program, all in accordance with the applicable rules of the State. The City retained US Water to perform these services. The thirty-nine (39) short term recommendations and eight (8) long term recommendations in the Preliminary Report were also provided by US Water to help the City develop and implement the Comprehensive Correction Program required by Florida law. All of the short term recommendations in the Preliminary Report have been accomplished by the City and all of the long term recommendations are in process of being implemented. Backwash water from cleaning the filters at the WTP sometimes results in sludge build-up in certain residential canals within the City. See UTILITY SYSTEM Water System Water Treatment Facilities herein. In addition, rain runoff from sludge piles sometimes drains into residential canals. In response to citations from the FDEP relating to such sludge build-up and rain runoff, the City agreed in 2008 to (i) pay a $10,000 fine; (ii) stop the rain runoff from sludge from getting into residential canals within six (6) months; and (iii) stop the backwash water generated at the WTP from getting into residential canals within one (1) year. Since 2008, the City has expended approximately $57 million to upgrade the WTP, with another $30 million available to ensure all local, State, and federal requirements for safe drinking water are maintained and strictly followed. In addition, in compliance with the terms of its consent order with the PBCHD, the City is in the process of further modernizing the WTP. The City has conducted extensive testing and evaluation to determine the new treatment processes that will be installed at the WTP. Such installations will include treatment systems to provide magnetic ion exchange, powdered activated carbon, ultrafiltration membranes, granular activated carbon and utilization of a process water recovery system. In addition, other improvements to the WTP include upgrade of the electrical system to provide two (2) Florida Power & Light Company ( FPL ) feeds into the WTP and installation of three (3) new emergency generators, a new 10.0 MGD water storage tank, a new entrance road and additional stormwater drainage at the site where the WTP is located. Most of the major improvements to further modernize the WTP are planned for implementation 31

40 beginning in Fiscal Year Such improvements are expected to be financed primarily from proceeds of the Series 2013 Bonds. See SECURITY AND SOURCES OF PAYMENT Additional Bonds herein. Water Restrictions Pursuant to Rules 40E , 40E and 40E of the Florida Administrative Code (the Water Restriction Rules ), the SFWMD is authorized to impose water shortage restrictions in its governing area (i) to ensure that established MFLs within the area are maintained; (ii) to ensure that water resources within the area do not suffer serious harm and (iii) in response to the occurrence or projected occurrence of a violation of MFL standards during climatic conditions more severe than a one (1) in ten (10) year drought, to the extent such violation results from consumptive uses. South Florida has experienced drought conditions for approximately five (5) years. See UTILITY SYSTEM Water System Drought Conditions herein. In response, pursuant to the authority provided in the Water Restriction Rules, the SFWMD imposed several emergency, temporary, water shortage restrictions. The most severe restrictions were imposed in the areas where the supply of water for such area is from certain surface water sources or from Lake Okeechobee. The Water System is included among the water systems in the SFWMD that have been the subject of the most stringent water shortage restrictions. The restrictions imposed by the SFWMD have been pursuant to the authority described in clause (i) and (ii) above and not pursuant to clause (iii) above. Water users of Lake Okeechobee and surface water connected to the lake have been under water shortage restrictions since November 16, 2006, when Modified Phase I Moderate Restrictions were imposed for such water users. However, the Water System first became subject to water shortage restrictions as a result of drought conditions on March 15, 2007, when the SFWMD issued Water Shortage Order No DAO-WS to impose Modified Phase I Moderate Restrictions on the water service area comprising the Lower East Coast Region of the SFWMD governing area, which includes the Water System. The Modified Phase I restrictions were designed to produce a relatively moderate overall reduction in water usage, with an up to fifteen percent (15%) reduction in certain types of water consumption. Due to the continued lack of rainfall in the South Florida area, Modified Phase II Severe Restrictions were imposed on certain systems in the drought area, including the Water System, on April 12, The Modified Phase II restrictions were designed to produce an up to thirty percent (30%) reduction in certain types of water consumption. The Modified Phase II Severe Restrictions were increased to Modified Phase III Extreme Restrictions on May 10, The Modified Phase III restrictions were designed to provide significant reductions in water usage, with an up to forty-five percent (45%) reduction in certain types of water consumption. The Modified Phase III restrictions were reduced to Modified Phase II restrictions on several occasions after they were originally imposed. Following increases in rainfall during portions of 2009 and early 2010, on March 15, 2010, the SFWMD replaced emergency water use restrictions in South Florida with year-round water conservation measures. The year-round water conservation measures establish permanent water use limitations, but only on certain types of landscape irrigation. Specifically, the permanent water conservation measures limit landscape irrigation when the water source for such irrigation is from a lake, pond, canal, well or potable water from a utility. Irrigation from such water sources is limited to certain hours during the day and to only two (2) days per week or three (3) days per week, depending upon the county. Exceptions to such limitations are provided, however, for certain situations, like the planting of new landscaping. The SFWMD estimates that implementation of the year-round limitations on landscape irrigation may permanently reduce overall potable water demand by five to ten percent (5% to 10%), potentially saving several hundred million gallons per day of potable water usage. 32

41 In response to a return to severe drought conditions in South Florida (see UTILITY SYSTEM Water System Drought Conditions herein), effective June 10, 2011, the SFWMD issued Water Shortage Order No DAO-WS to re-impose Modified Phase III Extreme Restrictions on landscape irrigation within the service area of the Water System. Approximately fifty percent (50%) of total water consumption in the City is estimated to result from landscape irrigation. Therefore, to facilitate the significant decrease in water consumption intended from issuance of the new water shortage order, the Modified Phase III restrictions limit landscape irrigation to one (1) day per week during a ten (10) hour period in the morning and an eight (8) hour period in the evening, with hand watering of distressed plants allowed each day. To further conserve the resources of the Water System, on June 13, 2011, the City imposed restrictions that are more stringent than those imposed by the SFWMD on June 10, Under the restrictions imposed by the City, landscape irrigation is also limited to one (1) day per week, but must occur during the early morning hours between 4:00 a.m. and 8:00 a.m. Hand watering of distressed plants is also allowed, but only for ten (10) minutes each day. Like the water use restrictions imposed by the SFWMD, the restrictions imposed by the City only apply to irrigation from sources, and with the exceptions, described above for the application of permanent water conservation measures. On June 13, 2011, the City also established a schedule of civil fines for violations of the water restrictions and directed its code enforcement staff to issue warnings and citations for violations. The City has rules which require residents to water their landscaping to maintain an acceptable appearance. In its June 13, 2011 declaration, the City also directed its code enforcement staff to refrain from issuing any citations for violations of such watering requirements. The SFWMD water restrictions have reduced water consumption in the service area of the Water System. As a result, in prior years, such reduction in consumption contributed to a decrease in Revenues generated by the Water System. In an effort to offset reduced Revenues resulting from decreased consumption, the rates charged for the Water System provide for a ten percent (10%) surcharge for each water restriction phase for all rates above the initial rate. To increase Revenues, the City also revised its rate structure for services of the Water System. The revised rate structure provides for annual rate increases through Fiscal Year 2012 and, beginning in Fiscal Year 2013, an automatic annual increase in rates, unless the City Commission determines otherwise. For a more detailed discussion of the rates charged for services of the Water System see UTILITY SYSTEM Rates, Fees and Charges herein. Although the City has periodically imposed its water restriction surcharge in the past, such surcharge is not currently being assessed. The City has stated, however, that the water restriction surcharge may be assessed in the future, as circumstances require. Projections of Revenues for the Forecast Period do not take into account increases in Revenues that could result from the City s imposition of water restriction surcharges. See UTILITY SYSTEM Historical and Projected Operating Results Summary of Projected Operating Results herein. Water Customers and Sales The Water System has experienced an increase in customers and water sales over the past several years due to continued development within the Water System service area. However, customer growth has slowed in recent years as a result of the general economic downturn. The historical and projected customer accounts and sales for the Water System are summarized below: [Remainder of page intentionally left blank] 33

42 Water System Customer Growth (1) Fiscal Year Ended September 30 (Historical) West Palm Beach Palm Beach South Palm Beach Total Average Annual Units (2) Water Sales (ccf) Average Annual Units (2) Water Sales (ccf) Average Annual Units (2) Water Sales (ccf) Average Annual Units (2) Water Sales (ccf) Average Monthly Use per Unit (Gallons) ,973 7,378,062 9,499 3,444,512 1, ,445 56,346 10,973,019 12, ,485 8,359,085 9,466 3,788,825 1, ,903 58,825 12,326,813 13, (3) 49,630 8,469,761 9,459 3,864,836 1, ,270 60,963 12,510,867 12, ,775 8,580,434 9,451 3,940,846 1, ,634 63,100 12,694,914 12, ,921 8,848,254 9,467 4,035,589 1, ,410 64,262 13,039,253 12, ,385 8,148,035 9,588 3,452,869 1, ,831 64,847 11,737,735 11, ,226 7,136,865 9,502 2,821,531 1, ,715 65,602 10,082,111 9, ,383 7,419,206 9,440 3,317,135 1, ,759 65,697 10,871,100 10, ,956 7,631,302 9,389 3,418,347 1, ,817 65,219 11,187,466 10, ,857 7,555,790 9,412 3,490,998 1, ,996 65,143 11,184,784 10,702 Average Annual Compound Growth Rate 2002 to % 0.26% -0.10% 0.15% 0.01% -0.96% 1.63% 0.21% -1.39% 2007 to % -1.87% -0.46% 0.27% 0.01% 0.21% 0.11% -1.20% -1.31% 2009 to % 0.92% -0.15% 2.59% 0.03% 1.19% -0.42% 1.43% 1.86% Fiscal Year Ending September 30 (Projected) ,861 6,564,780 9,412 3,003,803 1, ,581 65,147 9,691,165 9, ,863 6,555,429 9,413 3,013,163 1, ,581 65,150 9,691,173 9, ,914 6,560,798 9,415 3,013,577 1, ,581 65,203 9,696,956 9, ,951 6,569,204 9,417 3,014,154 1, ,581 65,242 9,705,939 9, , ,795 9,419 3,014,569 1, ,581 65,306 9,712,946 9,271 Average Annual Compound Projected Growth Rate (4) 0.06% -2.74% 0.01% -2.89% 0.00% -2.34% 0.05% -2.78% -2.83% Source: Historical and Projected Operating Results. See APPENDIX B Historical and Projected Operating Results of the Utility System and, in particular, Table 1 of the Historical and Projected Operating Results. (1) Amounts shown represent retail sales only and do not include minor bulk water sales to other governmental agencies. Amounts may not add due to rounding. (2) Units represent the number of accounts served for the single family, multifamily commercial and irrigation customer classes. For the multifamily class, amounts represent units behind the meter, as opposed to number of meters being served. (3) Statistics obtained for Fiscal Year 2004 were incomplete due to implementation during such Fiscal Year of a new billing system. The statistics for Fiscal Year 2004 in this table have been estimated to reflect historical trends and to account for other information provided by the City. (4) Compound projected growth rate for Fiscal Years 2012 to 2016 calculated from Fiscal Year 2011 customer statistics. 34

43 As reflected in the table above, the Water System has experienced a historical growth rate in the average number of units served of approximately 1.63% per year since Fiscal Year This growth occurred almost exclusively within the City limits, with only minor customer growth occurring in the Town of Palm Beach and the Town of South Palm Beach service areas. The Town of Palm Beach and the Town of South Palm Beach service areas are essentially built-out and do not have the ability to continue to add to the customer base of the Water System. In addition, as evidence of the slowed growth in recent years resulting from the general economic downturn and the impact of water shortage restrictions imposed by the SFWMD, during Fiscal Year 2011, the Water System essentially did not experience any growth in the number of accounts served. See UTILITY SYSTEM Water System Water Restrictions herein. Retail service to the Towns of Palm Beach and South Palm Beach was originally established in 1965 pursuant to thirty (30) year franchise agreements between the City and the Town of Palm Beach and between the City and the Town of South Palm Beach. The City entered into the Town of Palm Beach Water Agreement, which became effective on October 1, 1999, and the Town of South Palm Beach Water Agreement, which became effective on July 11, 2000, to maintain the water distribution facilities serving the Towns residents. Pursuant to such agreements, the City has a franchise to be the sole provider of potable water service to the Towns of Palm Beach and South Palm Beach, respectively, for a term of thirty (30) years from the effective date of each agreement. See SECURITY AND SOURCES OF PAYMENT General Town Water Agreements herein. Based on discussions with City staff and the recognition of recent trends in customer growth for the Utility System, it has been assumed that the customer base of the Water System will experience minimal growth during the Forecast Period. Although potential growth remains in the service area of the Water System, the City does not anticipate any significant growth for several years. Based on detailed Water System customer statistical information for the first nine (9) months of Fiscal Year 2012, it is anticipated that sales for the Water System during Fiscal Year 2012 will be significantly lower than sales for the Water System during the historical period from Fiscal Year 2002 through Fiscal Year During the Forecast Period, water sales are expected to remain significantly below historical levels. The low level of sales for the Water System for Fiscal Year 2012 served as the basis for the Water System sales projections for the Forecast Period. Since the SFWMD has made certain water use restrictions permanent, decreased water consumption is projected to continue for the foreseeable future. See Table 1 of the Historical and Projected Operating Results of the Utility System, dated August 27, 2012 prepared in connection with the issuance of the Series 2012A Bonds (the Historical and Projected Operating Results ) and attached to this Official Statement as APPENDIX B Historical and Projected Operating Results of the Utility System. The Historical and Projected Operating Results were prepared by Public Resources Management Group, Inc., as Utility, Rate, Financial and Management Consultants for the City in connection with the issuance of the Series 2012A Bonds (the Rate Consultant ). Set forth below is certain statistical information regarding the ten (10) largest users of the services of the Water System. [Remainder of page intentionally left blank] 35

44 Top Ten Water System Customers for Fiscal Year 2011 (Based on Rate Revenue) (1) Customer Name Location (Service Area) Estimated Annual Water Purchased (CCF) (1) Percent of Total Water Sales Annual Water Rate Revenue (2) Percent of Total Water Rate Revenue Breakers PB, Inc. (3) Town of Palm Beach 126, % $ 584, % PBC Solid Waste Authority (3) City of West Palm Beach 110, , Trump, Donald S. Town of Palm Beach 48, , Good Samaritan Hospital City of West Palm Beach 48, , Ocean Grand Resorts Town of Palm Beach 38, , St. Mary s Hospital City of West Palm Beach 30, , New Hope Sugar Co. City of West Palm Beach 43, , Two City Plaza Condo. Assoc. City of West Palm Beach 24, , Trump Palm Beaches Corp. City of West Palm Beach 23, , Colonnade Phillips Point LLC City of West Palm Beach 21, , Total of Ten Largest Users 516, % $ 2,171, % All Other Water System Users 10,668, % $48,145, % Total Water System Users 11,184, % $50,317, % Source: Utilities Department, City of West Palm Beach, Florida. (1) Amounts shown reflect estimates for Fiscal Year ended September 30, Amounts may not add due to rounding. (2) Amounts shown reflect only revenue derived from the monthly rates for water service (i.e., amounts shown do not include miscellaneous revenue such as fire line charges, meter connection fees, late payment fees, etc.). However, amounts shown include revenue from water restriction surcharges, if any. (3) Services to Breakers PB, Inc. and to the Palm Beach County Solid Waste Authority include service to three (3) separate meters located at the respective properties. Based on projected retail water sales during the Forecast Period, the City expects to have sufficient water treatment capacity to serve the demands of the Water System during the Forecast Period. As reflected in the table below, it is estimated that the Water System will utilize approximately 65.54% of the total current water treatment capacity of the Water System by the end of the Forecast Period. The projections set forth in the table below were derived from the City s forecast of water sales (based on current trends and the anticipated imposition of permanent water shortage restrictions), an analysis of unbilled or unaccounted for water, and average day to maximum day water flow relationships. 36

45 Projected City of West Palm Beach Water Production (Finished Water) Fiscal Year Average Daily Flow (MGD) Maximum Daily Flow (MGD) (1) Permitted Capacity (MGD-MDF) Percent of Capacity Utilized % Source: Historical and Projected Operating Results. See APPENDIX B Historical and Projected Operating Results of the Utility System. (1) Amounts shown are calculated based on application of a maximum day peaking factor of 1.30, which approximates the average historical maximum day peaking factor for water production of the WTP for Fiscal Years 2006 through 2011, applied to anticipated average daily flows. The Water System has experienced unaccounted for or unbilled water ranging from 14.20% to 20.74% on an annualized basis from Fiscal Year 2007 through Fiscal Year The allowance for unbilled water represents the difference between the finished water entering the water distribution system and the sales as metered at the customer s premises. Unbilled water is attributable to a variety of factors, including water used for line flushing, fire hydrant testing, fire fighting, construction water use, slow registering meters that understate actual water use and water losses due to leakages in the Water System. For the Forecast Period, unbilled water was assumed to be approximately 16.00% of water production, based on the recent historical water production and sales relationships and the City s increased need to flush water lines with finished water as a result of past water quality issues. See UTILITY SYSTEM Water System State Regulatory Compliance herein. The unbilled water assumption does not include any raw water used during the water treatment process which is not considered as finished water that is available for use by customers of the Water System. The unbilled water allowance is generally consistent with the percentage of water unaccountability experienced by other Florida utilities, especially when water restrictions are in effect and additional line flushing with potable water is required to maintain chlorine residuals. Wastewater System General For the twelve (12) months ended September 30, 2011 the City s wastewater system, consisting of collection and transmission, treatment and effluent disposal components (the Wastewater System ), provided service to an average of 28,175 accounts or 63,678 ERCs. The service area of the Wastewater System essentially consists of the corporate boundaries of the City and certain areas of unincorporated Palm Beach County. The Wastewater System service area encompasses approximately 57.3 square miles. The service area of the Wastewater System is smaller than the service area of the Water System because the Towns of Palm Beach and South Palm Beach receive water service from the Water System but provide their own wastewater treatment and disposal services. In 2005, the City and the County entered into an Interlocal Agreement to resolve all disputes as to which unincorporated areas of Palm Beach County would be serviced by the City and the County, respectively. 37

46 Sewage from the service area of the Wastewater System is pumped through force mains to the East Central Regional Wastewater Reclamation Facility ( ECRWRF ) for treatment. That facility is owned and managed by the East Central Regional Wastewater Reclamation Facilities Operations Board ( ECR Board ) and operated by the City. Effluent from the Wastewater System is disposed of through deep underground injection wells or discharged from the City s AWTRF located at the ECRWRF to the Water Catchment Area. For a brief discussion of the City s Stipulated Settlement Agreement relating to the AWTRF, see UTILITY SYSTEM Water System State Regulatory Compliance Wellfield Recharge herein. This section discusses the organizational structure of the ECR Board, the projected capacity needs and the capital improvements that have been completed recently, are under construction, or are planned in order to meet the needs of the Wastewater System or the needs of the ECRWRF. The ECRWRF is not part of the Utility System under the Bond Resolution. ECR Board Organization The ECRWRF provides wastewater treatment and disposal service on a wholesale basis to the Cities of West Palm Beach, Lake Worth and Riviera Beach, the Town of Palm Beach and portions of unincorporated Palm Beach County (collectively, the Entities ). A regional treatment concept is used because of the benefits derived from economies of scale and to provide single entity control for the many communities in the east central region of Palm Beach County. In September 1992, each of the five (5) Entities executed an Interlocal Agreement Establishing Duties and Responsibilities Among the Entities for the Operation of the East Central Regional Wastewater Treatment Facilities (the Interlocal Wastewater Agreement ). This thirty (30) year agreement established rules and procedures under which the City operates and manages the ECRWRF on behalf of the Entities. Each of the five (5) Entities approved a thirty (30) year extension of the Interlocal Wastewater Agreement, which became effective during calendar year The new expiration date of the Interlocal Wastewater Agreement is September 8, Under the Interlocal Wastewater Agreement and on behalf of the Entities, the City retains legal title to the facilities of the ECRWRF and any improvements or expansions to such facilities. The City operates and manages the ECRWRF for the ECR Board, which, in turn, reimburses the City for the costs incurred to operate and manage the facilities. The ECR Board decides all matters related to the facilities of the ECRWRF, including approving all construction contracts, facilities budgets and facilities expansions. The ECR Board also directs the City on the operation and management of the facilities. Each of the Entities currently has a reserve capacity share in the ECRWRF as shown in the table below. Current ECRWRF Entities Treatment Capacity Allotment Entity Allotment (MGD) Percent of ECRWRF Total Capacity City of Lake Worth % Town of Palm Beach Palm Beach County City of Riviera Beach City of West Palm Beach TOTAL % Source: Utilities Department, City of West Palm Beach, Florida. 38

47 Under the Interlocal Wastewater Agreement, the City is potentially liable for regulatory violations, including compliance costs or penalties assessed for violations, that arise out of or are solely related to material errors or omissions by the personnel of the City, or the failure of the City to proceed in a timely manner with a requirement imposed by any regulatory agency in any consent order or operating permit. Regulatory violations caused by the actions of the ECR Board are shared by all of the Entities. Failure of the ECR Board to follow an action recommended by the City to comply with a consent order, regulatory agency or operating permit entitles the City to indemnification by the other Entities for all costs and penalties incurred. ECR Board Indebtedness Indebtedness Paid From General Reserve Fund. The ECR Board has entered into two (2) State Revolving Loan Fund Agreements, as amended, with the FDEP to acquire construction loans for ECRWRF capital projects (collectively, the SRF Loans ). The aggregate principal amount borrowed under such agreements, as amended, totaled $21,968,148, of which $6,507,894 remained outstanding as of September 30, The ECR Board is obligated to repay the SRF Loans from revenues generated by the ECRWRF and, pursuant to the Interlocal Wastewater Agreement, the Entities are required to provide their proportionate share of the amount needed to make such debt service payments. Historically, the City s allocable share of the debt service payments on the SRF Loans has been approximately $434,070 or 31.17% of the required debt service payments on the SRF Loans. The City s obligation to provide moneys for its proportionate share of debt service on the SRF Loans, however, is junior and subordinate to the obligation of the City to pay debt service on the Bonds. See SECURITY AND SOURCES OF PAYMENT Other Indebtedness herein. Payments of debt service on the SRF Loans are made from the General Reserve Fund. See SECURITY AND SOURCES OF PAYMENT Flow of Funds herein. Indebtedness Paid As A Current Expense. The ECR Board currently plans to issue two series of bonds (collectively, the ECR Bonds ) to finance the cost of improvements to the ECRWRF and to pay in full the outstanding SRF Loans. ECR Bonds to retire the SRF Loans and to pay certain preliminary costs of implementing improvements to the ECRWRF are expected to be issued by the ECR Board in the aggregate principal amount of approximately $14,000,000 shortly prior to issuance of the Series 2012A Bonds. An additional series of ECR Bonds to finance the cost of improvements to the ECRWRF are expected to be issued by the ECR Board during calendar year 2014 in an aggregate principal amount slightly greater than $100,000,000. Each of the Entities will be obligated to pay its proportionate share (based on its respective amount of wastewater flow delivered to the ECRWRF) of the debt service on the ECR Bonds as a current (operating) expense of its wastewater system. During the Forecast Period and thereafter, the City s payments to the ECR Board to cover its proportionate share of costs related to the ECRWRF will increase significantly. In addition, since the City s proportionate share of debt service payments on the ECR Bonds will constitute Current Expenses, the City s obligation to make such payments will be prior and superior to the City s obligation to pay debt service on the Bonds, including the Series 2012A Bonds. See SECURITY AND SOURCES OF PAYMENT General and Flow of Funds herein. For more detailed information concerning the proposed issuance of the ECR Bonds and the increase in Current Expenses projected to be incurred by the City during the Forecast Period, see APPENDIX B Historical and Projected Operating Results of the Utility System, including, in particular: (i) paragraph 8 of the Findings, Observations and Conclusions in the Transmittal Letter of the Historical and Projected Operating Results; (ii) footnote 11 in Table 9 of the Historical and Projected Operating Results and (iii) Table 10 of the Historical and Projected Operating Results. 39

48 The decision to issue the ECR Bonds, to enter into future indebtedness, and the amount, structure and timing of such indebtedness, are decisions that will be made by the ECR Board. The Interlocal Wastewater Agreement requires such decisions to be made by more than fifty percent (50%) of the Entities, based on percentage of treatment capacity represented by each Entity, and, in addition, by no less than three (3) of the Entities voting in favor of the decision. The City does not have the power, independently, to place limits on the amount or structure of the indebtedness the ECR Board decides to incur. However, any decision made by the ECR Board to incur indebtedness obligates the City to pay its proportionate share of such indebtedness as a Current Expense. As a result, in addition to payments required to be made by the City on the ECR Bonds prior and superior to the payment of debt service on Outstanding Bonds, unless determined otherwise by the ECR Board, any future indebtedness entered into by the ECR Board will require the City to make its proportionate share of the debt service payments on such indebtedness prior and superior to the obligation of the City to pay debt service on Outstanding Bonds, including the Series 2012A Bonds. In compliance with the requirements of the rate covenant under the Bond Resolution, the City would be required to raise rates for services of the Utility System if, as a result of an increase in Current Expenses (from obligations entered into by the ECR Board or otherwise), Net Revenues were insufficient to satisfy the obligations of Test 1 and Test 2 under the Bond Resolution. See UTILITY SYSTEM General Rate Covenant herein. The Bond Resolution provides that ECR Board Renewal and Replacement Payments are excluded from the definition of Current Expenses and are required to be paid from the General Reserve Fund. However, pursuant to the terms of the Interlocal Wastewater Agreement, the ECR Board charges the ECR Board Renewal and Replacement Payments as an operating expense and, as a result, the City has in the past treated the ECR Board Renewal and Replacement Payments as a Current Expense. Although the ECR Board may continue to include the ECR Board Renewal and Replacement Payments in its billings to the City for operating expenses, for all future payments the City intends to make the ECR Board Renewal and Replacement Payments only from moneys on deposit in the General Reserve Fund. A failure by the City to make payments due to the ECR Board, including, without limitation, the failure to make ECR Board Renewal and Replacement Payments, could result in the City s loss of its ability to utilize the services and facilities of the ECRWRF. However, although no assurance can be given, throughout the Forecast Period, the City fully expects the Utility System to produce Revenues sufficient to make all payments to the ECR Board that are authorized by the Bond Resolution to be paid as Current Expenses, and to have Net Revenues sufficient for the City to satisfy its other payment obligations under the Bond Resolution, including, without limitation, making the ECR Board Renewal and Replacement Payments from moneys on deposit in the General Reserve Fund. See SECURITY AND SOURCES OF PAYMENT General and Flow of Funds herein and APPENDIX B Historical and Projected Operating Results of the Utility System, including, in particular, Tables 8 and 9 of the Historical and Projected Operating Results. Wastewater Treatment Facility Description The ECRWRF is located within the corporate boundaries of the City. The facility was originally constructed in the early 1970s by the City as a major regional facility serving coastal and inland communities from the Town of Manalapan to the south to the City of Riviera Beach to the north, including areas of eastern unincorporated Palm Beach County. The facility was expanded from 44.0 MGD to 55.0 MGD in 1990 and converted from an extended aeration secondary treatment process utilizing mechanical surface aerators to a conventional activated sludge process utilizing a fine bubble diffused air system. Additional significant 40

49 capital improvements were completed in 1995 that provided firm capacity to treat projected influent flows and pollutant loadings for a 55.0 MGD, expressed on an annual average daily flow ( AADF ) basis, rating. The improvements also provided firm peak flow effluent disposal capabilities, while improving the existing facilities operations and maintenance and promoting cost efficiencies for the disposal of sludge. Expressed on an AADF basis, the facility was expanded to 62.0 MGD in 2006, to 64.0 MGD shortly thereafter in 2006, and to 70.0 MGD in The ECRWRF staff is well-qualified with a total of six (6) employees certified as Class-A operators two (2) certified as Class-B operators and seven (7) certified as Class-C operators. The ECRWRF currently serves an estimated population of approximately 405,000. The ECRWRF process train consists of large solids removal, grit removal, activated sludge biological treatment, clarification and effluent disinfection prior to transport to the disposal wells. Approximately 10.0 MGD of effluent is processed through an AWTRF and is discharged into the head waters of the City s raw water supply system. See UTILITY SYSTEM Wastewater System Sludge and Effluent Disposal herein. During Fiscal Year 2011, the City reported that the ECRWRF had a maximum three (3) contiguous months flow of MGD or 68.9% of the Fiscal Year MGD permitted treatment capacity (or 63.03% of the current permitted treatment capacity of 70.0 MGD). The reported AADF was MGD or 63.61% of the Fiscal Year 2011 permitted treatment capacity (or 58.16% of the current permitted treatment capacity). Total average wastewater flow from the five (5) Entities served by the ECRWRF for the historical period Fiscal Year 2007 through 2011 is shown in the table below. With the expansion of the ECRWRF to 70.0 MGD during Fiscal Year 2012, the ECR Board anticipates that the rated capacity of the entire treatment facility will be sufficient to meet the needs of the five (5) Entities throughout the Forecast Period. City of West Palm Beach Wastewater Flows (MGD) Fiscal Year City of West Palm Beach Flows Allotted Capacity (MGD) Annual Average Daily Flow (MGD) Percent of Allotment Annual Average Daily Flow (MGD) Total ECRWRF Flows Permitted Capacity (MGD) Percent of Capacity % % Source: Utilities Department, City of West Palm Beach, Florida. The following table shows a comparison of the contractual capacity, pursuant to the Interlocal Wastewater Agreement, and the AADF during Fiscal Year 2011 for each of the five (5) Entities. 41

50 Fiscal Year 2011 Wastewater Flows for ECRWRF (MGD) West Palm Beach Palm Beach Lake Worth Riviera Beach Palm Beach County Total Allocated Capacity Wastewater Flow (AADF) Percent Utilized 79.06% 38.60% 58.48% 55.75% 63.12% 63.61% Source: Utilities Department, City of West Palm Beach, Florida. Sludge and Effluent Disposal By-products of the wastewater treatment process consist of effluent (liquids) and sludge (solids). Prior to ultimate disposal of each, the two by-products must comply with USEPA and FDEP criteria. Processing the waste activated sludge by-products consists of aerobic digestion, dewatering and transport to the Solid Waste Authority of Palm Beach County ( SWAPBC ) for ultimate disposal. The City has entered into a twenty (20) year Interlocal Government Agreement with the SWAPBC for disposal of wastewater treatment sludge. The Interlocal Government Agreement includes fixed capacity and usage charges that are based on the quantity of solids disposed. The sludge is treated by the SWAPBC to FDEP Class AA standards through processes that produce a product suitable for use as a soil amendment for general distribution to ornamental growers. The City s agreement with the SWAPBC expires September 30, The City has several options for sludge treatment upon expiration of the agreement with the SWAPBC. The City is currently assessing such options to determine the most beneficial and cost-effective option for the City. The wastewater effluent disposal facilities consist of seven (7) Class-1 injection wells for the disposal of secondary treated domestic wastewater effluent into the Boulder Zone at a depth of between 2,937 feet and 3,282 feet below surface level. Seven (7) dual-zone monitoring wells for groundwater monitoring are also permitted and installed. The permitted peak daily flow capacity for the combined seven (7) deep injection well system is MGD. The City operates the injection wells pursuant to FDEP Operating Permit Number UO, with respect to injection wells 1 through 6, and pursuant to FDEP Operating Permit Number UO, with respect to injection well number 7. The capacity of each injection well is as shown in the table below. [Remainder of page intentionally left blank] 42

51 Injection Well Permitted Capacities Well No. Maximum Permitted Capacity (MGD) IW-1R 15.0 IW W IW IW IW IW Source: Utilities Department, City of West Palm Beach, Florida. For the next few years, peak flows into the ECRWRF are estimated by the ECR Board to be within permitted disposal capacity. The ECR Board anticipates that the injection well disposal system will have sufficient capacity to serve the needs of the City and the ECRWRF throughout the Forecast Period. In cooperation with the ECR Board, the City has funded, constructed and operates an AWTRF to augment water supply by the use of highly treated effluent from the ECRWRF. The AWTRF withdraws secondary effluent from the ECRWRF prior to the injection well pump station. The withdrawn effluent is then treated by chemicals and ultra violet technology to remove solids and bacterial concentration. The processed water is then piped and discharged to the City s wellfield recharge area. The wells are then used to withdraw water during dry seasons, based upon source water lake levels. The AWTRF was built to produce up to 10.0 MGD and is capable of being expanded to 20.0 MGD if future flow demands warrant such expansion. For a brief discussion of the City s Stipulated Settlement Agreement with the SFWMD relating to the AWTRF and a dispute as to whether the City adequately delivered reclaimed water from the ECRWRF to the wellfield recharge area after water withdrawals from the City s Standby Wellfield during severe drought conditions in the summer of 2011, see UTILITY SYSTEM Water System State Regulatory Compliance Wellfield Recharge herein. Palm Beach County, under agreement with the ECR Board, completed a reclaimed water production facility in 2011 to provide cooling water to the FPL West County Energy Center. Pursuant to such agreement, FPL has the right to purchase 22 MGD (average daily flow) and 29 MGD (peak daily flow) of water from Palm Beach County. The new reclaimed water production facility diverts secondary treated effluent from the injection well piping system to a filtration, disinfection, storage and pumping facility operated by the City. Such diversion has significantly reduced the amount of effluent required to be disposed of by the City s injection well system. Wastewater Collection and Transmission System The existing collection and transmission facilities of the Wastewater System consist of approximately 331 miles of gravity sewers, 5,826 manholes, 142 pump stations and approximately 74 miles of force mains ranging in size from 4 to 48 inches in diameter. The City owns and maintains the collection and transmission facilities of the Wastewater System pursuant to the Interlocal Wastewater Agreement. The wastewater collected from the City s collection system is pumped into a 48 inch reinforced force main that is approximately 5.5 miles long and discharges into the ECRWRF. The gravity sewers in the City are 43

52 generally vitrified clay or polyvinyl chloride ( PVC ) pipes. The force mains from the pump stations are composed primarily of ductile iron, concrete or PVC pipe. The Town of Palm Beach discharges a portion of its wastewater into the City s Central Pump Station (Pump Station No. 22) which then re-pumps it to the ECRWRF. The City operates and maintains Pump Station No. 22 and the Town of Palm Beach reimburses the City for its operating and maintenance costs. Separate wastewater collection and pumping systems service the City of Riviera Beach to the north and the City of Lake Worth and parts of Palm Beach County to the south. These two (2) systems discharge through separate force mains into a common structure at the headworks of the ECRWRF. Regulatory Compliance The FDEP and the USEPA promulgate rules that regulate and govern the operation of the Wastewater System. Regulations deal primarily with the quality of the effluent discharged from the ECRWRF, the disposal of sludge generated by the ECRWRF, the discharge of pollutants into the groundwater and the nature of waste material discharged into the collection facilities of the Wastewater System. Associated with these regulations are monitoring and reporting requirements. The ECRWRF operates pursuant to FDEP Operating Permit Number FL DW1P issued on November 3, 2011, which will expire on November 3, The City, as the operator of the ECRWRF, received a warning letter from the FDEP on June 13, 2008 resulting from an accidental discharge of treated wastewater effluent into the perimeter canal by a contractor that was installing valves leading to the deep injection wells. All of the effluent was chlorinated, as required by the regulatory agencies, and maintained on-site. The contractor immediately repaired the conditions that caused the discharge. Additionally, the warning letter identified a failure to report a tracer study that is required every five (5) years for each injection well. The City performed all of the required tracer studies and no indications of leaks were encountered in the injection wells. The City entered into a settlement agreement in response to issues raised in the June 13 warning letter and agreed with FDEP to perform an inkind project in the amount of $29,400, which the City has performed. The costs associated with the accidental discharge of effluent and immediate repair of the problem were reimbursed to the City by the contractor. Also, as the operator of the ECRWRF, the City executed a consent order with the FDEP on July 17, The July 17 consent order was associated with the City s operation of its 10.0 MGD AWTRF from 2006 to Numerous violations were noted by FDEP relating to the submittal of complete and accurate discharge monitoring reports and reporting requirements associated with constituent limits. The FDEP acknowledged in the July 17 consent order that the City had addressed the underlying causes of the violations by the time of the consent order was executed. As a result, the ECRWRF is currently in compliance. As a condition of the July 17 consent order, the City agreed to perform an in-kind project in the amount of $210,975, which the City has performed. The City intends to continue to perform renewals, replacements and recommended capital improvements on the Wastewater System so that the facilities can reasonably be expected to meet the capacity requirements of the Wastewater System and remain in compliance with all regulatory requirements. Wastewater Customers and Sales Set forth below are historical customer statistics for the Wastewater System for Fiscal Years ended September 30, 2002 through 2011 and projected customer statistics for the Forecast Period. The forecast of 44

53 billed wastewater flow (i.e., metered water consumption which is charged the wastewater flow charge) was projected in the same manner as water sales for the Water System. For the residential class, there currently exists a residential billing threshold equal to 1,600 cubic feet per month of metered service from the Water System. For the commercial customer classes, all service of the Water System (exclusive of individually metered water-only service, such as irrigation) is billed the wastewater flow charge since: (i) no wastewater billing threshold is applicable to commercial customers; and (ii) the commercial customers generally receive both water and wastewater service from the City. [Remainder of page intentionally left blank] 45

54 Wastewater System Customer Growth (1) Fiscal Year Ended September 30 (Historical) Average Annual Units (2) Billed Sales (ccf) Average Monthly Billed Flow per Unit (gallons) ,323 5,606,559 7, ,427 5,933,439 7, (3) 48,284 6,080,016 7, ,141 6,226,591 7, ,523 6,225,467 7, ,058 6,096,199 7, ,833 5,618,636 6, ,199 5,727,245 6, ,094 5,759,141 6, ,913 5,796,672 6,829 Average Annual Compound Growth Rate 2002 to % 0.37% -1.59% 2007 to to Fiscal Year Ending September 30 (Projected) ,924 5,548,354 6, ,925 5,548,462 6, ,970 5,551,832 6, ,997 5,554,265 6, ,047 5,558,032 6,531 Average Annual Projected Compound Growth Rate (4) 0.05% -0.84% -0.89% Source: Historical and Projected Operating Results. See APPENDIX B Historical and Projected Operating Results of the Utility System and, in particular, Table 2 of the Historical and Projected Operating Results. (1) Amounts may not add due to rounding. (2) Units represent the sum of dwelling units for single family and multifamily service and number of commercial accounts served. For the multifamily class, amounts represent units behind the meter, as opposed to number of meters being served. (3) Statistics obtained for Fiscal Year 2004 were incomplete due to implementation during such Fiscal Year of a new billing system. The statistics for Fiscal Year 2004 in this table have been estimated to reflect historical trends and to account for other information provided by the City. (4) Compound projected growth rate for Fiscal Years 2012 to 2016 calculated from Fiscal Year 2011 customer statistics. As can be seen from the information set forth above, the customer base served by the Wastewater System is lower than that of the Water System. This difference is primarily attributable to the Towns of Palm Beach and South Palm Beach being water only customers of the Utility System. The Town of Palm Beach maintains its own wastewater collection facilities. 46

55 As reflected in the table above, units of the Wastewater System have increased by an average compound historical growth rate of approximately 1.99% annually since Fiscal Year This rate of growth is generally consistent with the rate of growth experienced by the Water System during the same time period. Also generally consistent with the Water System, Wastewater System customer growth in recent Fiscal Years has been less than historical norms. See UTILITY SYSTEM Water System Water Customers and Sales herein. For example, from Fiscal Years 2009 to 2011, Wastewater System customer growth was -0.27%. Projections of the customer growth rate of the Wastewater System are expected to continue to be generally consistent with the customer growth trends of the Water System since: (i) essentially all of the Utility System customer growth is anticipated to be located within the corporate boundaries of the City; and (ii) the City has a policy which requires the use of available central sewers for wastewater disposal and prohibits the use of septic tanks. Based on discussions with City staff and the recognition of recent trends in customer growth for the Utility System, it has been assumed that the customer base of the Wastewater System will experience minimal growth during the Forecast Period. Although potential growth remains in the service area of the Wastewater System, the City does not anticipate any significant growth during the Forecast Period. Moreover, based on detailed Wastewater System customer statistical information for the first nine (9) months of Fiscal Year 2012, similar to the Water System, it is anticipated that billed sales for the Wastewater System during Fiscal Year 2012 will be significantly lower than billed sales for the Wastewater System during the historical period from Fiscal Year 2002 through Fiscal Year The level of billed sales for the Wastewater System for Fiscal Year 2012 served as the basis for the Wastewater System billed sales projections for the Forecast Period. See Table 2 of the Historical and Projected Operating Results attached to this Official Statement as APPENDIX B Historical and Projected Operating Results of the Utility System. Set forth below is certain statistical information regarding the ten (10) largest users of the services of the Wastewater System. [Remainder of page intentionally left blank] 47

56 Top Ten Wastewater System Customers for Fiscal Year 2011 (Based on Rate Revenue) (1) Customer Name Location (Service Area) Estimated Wastewater Billed (CCF) (1) Percent of Total Wastewater Billable Flow Annual Wastewater Rate Revenue (2) Percent of Total Wastewater Rate Revenue Alliance Linen Service LLC City of West Palm Beach 48, % $ 153, % Good Samaritan Hospital City of West Palm Beach 48, , New Hope Sugar Company City of West Palm Beach 40, , St. Mary s Hospital City of West Palm Beach 30, , Two City Plaza Condo. Assoc. City of West Palm Beach 24, , Executive Trust, Ltd. City of West Palm Beach 26, , Pointe 317 LLC City of West Palm Beach 24, , San Marino 355 LLC City of West Palm Beach 23, , Trump Palm Beaches Corp. City of West Palm Beach 23, , Cornerstone Residential Mgmt. City of West Palm Beach 23, , Total of Ten Largest Users 313, % $ 1,012, % All Other Wastewater System Users Total Wastewater System Users 5,482, % $24,336, % 5,796, % $25,348, % Source: Utilities Department, City of West Palm Beach, Florida. (1) Amounts shown reflect estimates for Fiscal Year ended September 30, Amounts may not add due to rounding. (2) Amounts shown reflect only revenue derived from the monthly rates for wastewater service (i.e., amounts shown do not include miscellaneous revenue such as lateral connection fees, late payment fees, etc.). Wastewater treatment requirements associated with the City s utilization of the ECRWRF were based on historical trends regarding the number of customers served, historical flows attributable to the Wastewater System and other factors. Utilization of the wastewater treatment capacity for the Wastewater System during the Forecast Period has been estimated as follows: [Remainder of page intentionally left blank] 48

57 Projected City of West Palm Beach Wastewater Treatment Fiscal Year Ending September 30 Average Daily Flow (MGD) Permitted Capacity (MGD) Percent of Capacity Utilized % Source: Historical and Projected Operating Results. See APPENDIX B Historical and Projected Operating Results of the Utility System and, in particular, Table 2 of the Historical and Projected Operating Results. As reflected in the table above, the use of permitted capacity at the ECRWRF allocable to the Wastewater System, based on customer forecast contained in the Historical and Projected Operating Results, is projected to be approximately 58.93% by Fiscal Year Therefore, the wastewater treatment capacity of the ECRWRF should be adequate to meet the projected demands of the Wastewater System during the Forecast Period and for years thereafter. Stormwater Management System General The City s stormwater drainage facilities (the Stormwater System ) consist of a system of canals, storm sewers, flood protection and water control structures that ultimately collect and convey stormwater to the Lake Worth Lagoon. The Stormwater System serves residents and properties located within the corporate limits of the City. However, a portion of the stormwater requirements in the City are served by the Northern Palm Beach County Improvement District (the NPBCID ), a special district created by the Florida Legislature, which provides, among other things, stormwater maintenance of the canal systems located within the NPBCID. Additionally, a portion of the stormwater requirements in the City is satisfied by certain large residential developments that provide stormwater maintenance services for the units within their development. Stormwater Utility Funding Prior to Fiscal Year 1994, funding for the City s stormwater management and associated capital improvements was provided through the City s General Fund and Local Option Gas Tax Fund. The City s stormwater utility was established in October 1993 (Fiscal Year 1994) pursuant to enactment by the City Commission of Ordinance No Subsequently, the enactment by the City Commission of Ordinance No implemented a monthly fee for each equivalent stormwater unit ( ESU ) in the City s stormwater service area. The stormwater utility fee has been the primary source of funding for the City s stormwater management activities since the creation of the utility and has provided a continuing revenue source for the issuance and retirement of Bonds issued to finance Stormwater System capital improvements. The Stormwater Utility Fund is an enterprise fund of the City which accounts for the operations, capital expenditures and revenues of the Stormwater System. The City s Utilities Department issues monthly utility 49

58 bills for stormwater service. The stormwater utility charge is identified as a separate line item on the monthly utility bill. An ESU equates to the net effective stormwater run-off for a single-family residential household, which is based on the net effective impervious (impermeable) property of such residence, and is defined as the average area covered by all impervious improvements of an average detached single-family residence. Use of the ESU methodology allows all accounts to be billed based on contribution, which recognizes that large, highly developed parcels (e.g., a commercial land use such as a mall) account for a greater amount of stormwater run-off when compared to a single-family residence. Currently, an ESU is considered to have 2,171 square feet of net effective impervious area. For commercial properties, the number of ESUs is computed by determining the total identified net effective area served divided by 2,171 square feet. The City currently differentiates its fee for service based on the level of services performed by the City. Since the NPBCID and certain residential developments provide stormwater services within the boundaries of the City, a rate differential exists in order to charge users of the facilities the proper cost for service actually provided by the Stormwater System. Stormwater Facilities The existing Stormwater System facilities comprise approximately 14.8 miles of canals, 9,850 manholes and 210 miles of storm sewers. The Utilities Department manages and operates most of the Stormwater System and the portion for which the Utilities Department is not responsible is managed and operated by the Engineering and Public Works Department. The operation and maintenance program consists of cleaning and repairing catch basins, manholes, culverts, canals and ditches, as required, and the performance of street sweeping activities. The stormwater canal system includes flow control gates that are operated to optimize water levels within the canals. The drainage area for the City consists of three (3) major watersheds: the C-17, the C-51 and the Lake Worth Lagoon. A coastal ridge lies approximately one-half mile west of the Lake Worth Lagoon, with elevations ranging from 25 to 45 feet NGVD (National Geodetic Vertical Datum of 1929). The ridge is discontinuous and gently slopes east towards the Lake Worth Lagoon and west to Lake Mangonia and Clear Lake. Stormwater runoff from the areas of the City east of the ridge is collected in the storm sewer system and conveyed east and outfalls into the Lake Worth Lagoon. Stormwater runoff from the area of the City west of the ridge is collected by a series of storm sewer systems that drain to a system of canals and is conveyed either north to the C-17 Canal (C-17 Watershed) or south to the C-51 Canal (C-51 Watershed). Both canals outfall into the Lake Worth Lagoon. The primary function of the canals is to provide flood protection and conveyance for the sub-basins in which they occur. The control structures are used to regulate the flow of water through the canals. Stormwater Facility Evaluation and Improvements In 1990, the City conducted an analysis to predict flood levels in the primary inland watercourses from a 25-year frequency storm and identify potential flood problem areas. From such analysis the City received a Stormwater Facility Evaluation Report (the Stormwater Report ). The Stormwater Report provided alternatives, recommendations and a preliminary stormwater Capital Improvement Program (the Stormwater CIP ) to provide solutions to the City s flooding problems. The Stormwater Report included three (3) study areas: the Parker Avenue area, the Stub Canal basin and the C-17 Watershed. 50

59 The results of the Stormwater Report indicated that there were many areas of widespread flooding consisting of overtopping of roadways and overflows of canal banks. These flooding problems were attributed to inadequate culvert sizes and poor maintenance of open channels. Flooding from backwater effects in canals, limited conveyance and encroachment of the floodplain by development was also identified as a problem. Most of the stormwater management problems were identified to occur within the older portions of the City. Deteriorated structures in these areas needed to be repaired while parts of the Stormwater System needed to be replaced due to higher density development. Portions of the Stormwater System needed to be upgraded to provide adequate flood protection. The Stormwater CIP identified specific improvement projects and related costs for the Stormwater System and determined which projects would have priority in a rational stormwater management program. The City has completed many of the recommended improvements. Critical Stormwater System projects to be completed are included in the City s current Five Year Capital Improvement Program. Such projects were selected by the City according to their priority and available funding. Projects most critical to providing adequate flood protection have been implemented. In addition, the study of the Stormwater System was used as a basis to recommend an improved operations and maintenance program that the City has implemented. The City completed an updated Stormwater Master Plan in August The Stormwater Master Plan provides an updated Stormwater System Capital Improvement Program list of projects and recommends funding mechanisms. Copies of the Stormwater Report and the Stormwater Master Plan may be obtained from the City s Director of Engineering Services. Stormwater Compliance and Permitting Requirements Congress, through Section 405 of the Water Quality Act of 1987, mandated the USEPA to promulgate a National Pollutant Discharge Elimination System (NPDES) permitting program for municipal stormwater discharges. Municipalities are grouped by population to determine whether and when a permit may be required. The USEPA designated all of Palm Beach County as an area to be permitted. The NPBCID is the lead applicant for the NPDES permit. In October 2000, the USEPA authorized the FDEP to administer the NPDES Stormwater Permitting Program in the State. On March 2, 2011 the FDEP issued the third term NPDES permit to the forty (40) co-permittees of Palm Beach County. The NPDES permit has a term of five (5) years. The NPDES Stormwater Program regulates the City s point source discharges of stormwater into the surface waters of the State. For the City, these surface waters include the C-17 Canal, the C-51 Canal, the Water Catchment Area, the Lake Worth Lagoon and several tributary canals within the City. The NPDES permit requires the City to implement stormwater management programs to control the quality of stormwater discharged from the Stormwater System. To comply with this requirement, the City has adopted a program to: (i) perform regular inspections and maintenance of the Stormwater System, (ii) monitor and eliminate illicit discharges and improper disposal into the Stormwater System, (iii) implement procedures to prevent, contain, and respond to spills that may discharge into the Stormwater System, (iv) implement a program to reduce pollutant runoff from municipal operations, (v) implement and enforce a sediment and erosion control program to reduce the discharge of pollutants from construction activities, and (vi) educate the public and City staff regarding the harmful impacts of polluted stormwater runoff. The City is in compliance with all the regulatory requirements of the NPDES program. The United States Army Corps of Engineers does not regulate stormwater management. However, it does regulate dredge-and-fill activities. Therefore, the City must consider the United States Army Corps of Engineers dredge-and-fill permitting program for any projects that involve work in navigable waterways or wetlands. The FDEP has delegated much of its stormwater discharge quality permitting to the SFWMD. 51

60 City Ordinance No requires all new development to provide adequate drainage and stormwater management. Compliance with the stormwater management requirements of the SFWMD constitutes compliance with Ordinance No In May 2008, the City executed a consent order with the FDEP relating to the City s periodic discharge and overflow of turbid water into the Stormwater System. The City has met all of the deadlines and requirements imposed by the FDEP in the May 2008 consent order and has ceased all discharges of turbid water into the Stormwater System. Stormwater Customers and Sales During Fiscal Year 2011, the City provided stormwater service to an average of 27,353 accounts and 98,290 ESUs. A summary of the average number of accounts and associated ESUs by customer class served by the Stormwater System during Fiscal Year 2011 is provided below: Stormwater System Customers By Classification Fiscal Year 2011 Customer Accounts ESUs Amount Percent Amount Percent Residential 22, % 22, % Multifamily 2, , Commercial 2, , Totals 27, % 98, % Source: Historical and Projected Operating Results. See APPENDIX B Historical and Projected Operating Results of the Utility System and, in particular, Table 3 of the Historical and Projected Operating Results. The City further differentiates customers of the Stormwater System by the level of service provided within the service area and establishes rate code categories for such customers. Since within the boundaries of the City stormwater service is provided by the NPBCID and certain large residential developments, portions of the Stormwater System service area do not require the full level of stormwater management services that the City provides in areas serviced solely by the Stormwater System. As a result, a reduced rate for certain stormwater service is recognized in the City s rate structure. This reduction in the monthly service charge is necessary to ensure that the City only bills its customers for costs allocable to services actually provided by the Stormwater System. See UTILITY SYSTEM Rates, Fees and Charges Water, Wastewater and Stormwater Rates herein. A summary of the average number of accounts of the Stormwater System and associated ESUs by rate code or classification for Fiscal Year 2011 is shown below: [Remainder of page intentionally left blank] 52

61 Stormwater System Customers By Rate Code Fiscal Year 2011 Rate Code A110 Rate Code A114 Rate Code A112 Totals Amount Percent Amount Percent Amount Percent Amount Percent Rate 100.0% 68.0% 37.0% Application (1) Accounts: Residential 14, % 1, % 6, % 22, % Multifamily 1, , Commercial 2, , Totals 19, % 1, % 6, % 27, % ESU s Residential 14, % 1, % 6, % 22, % Multifamily 16, , , , Commercial 38, , , , Totals 69, % 14, % 14, % 98, % Source: Historical and Projected Operating Results. See APPENDIX B Historical and Projected Operating Results of the Utility System and, in particular, Table 3 of the Historical and Projected Operating Results. (1) Rate application based on percent of total rate applied, with one hundred percent (100%) requiring all stormwater services to be provided by the City. As reflected in the above table, the single-family residential class represents approximately 82.0% of the total accounts served but only about 22.8% of the total ESUs served. The historical and projected accounts and associated ESUs for the Stormwater System are summarized below: [Remainder of page intentionally left blank] 53

62 Stormwater System Customer Growth (1) Single Family Multifamily Commercial Total Fiscal Year Ended September 30 (Historical) Average Annual Accounts Average Annual ESUs Average Annual Accounts Average Annual ESUs Average Annual Accounts Average Annual ESUs Average Annual Accounts Average Annual ESUs ,650 18,650 2,272 24,283 2,699 39,734 23,621 82, ,696 19,696 2,237 24,576 2,708 40,457 24,641 84, (2) 21,226 21,226 2,235 27,080 2,699 42,540 26,160 90, ,227 22,227 2,217 28,298 2,668 44,542 27,112 95, ,238 22,238 2,155 27,204 2,725 44,392 27,118 93, ,424 22,424 2,130 27,722 2,776 45,094 27,330 95, ,439 22,439 2,122 27,888 2,790 45,834 27,351 96, ,444 22,444 2,119 27,855 2,801 46,501 27,364 96, ,433 22,433 2,092 27,735 2,829 47,685 27,354 97, ,422 22,422 2,091 27,668 2,840 48,200 27,353 98,290 Average Annual Compound Growth Rate 2002 to % 2.07% -0.92% 1.46% 0.57% 2.17% 1.64% 1.94% 2007 to to Fiscal Year Ending September 30 (Projected) ,412 22,412 2,111 27,675 2,848 48,313 27,371 98, ,414 22,414 2,111 27,675 2,858 48,453 27,383 98, ,422 22,422 2,111 27,701 2,870 48,618 27,406 98, ,432 22,432 2,111 27,701 2,883 48,808 27,429 98, ,443 22,443 2,111 27,727 2,898 49,023 27,458 99,193 Average Annual Compound Projected Growth Rate (3) 0.02% 0.02% 0.25% 0.04% 0.41% 0.34% 0.08% 0.18% Source: Historical and Projected Operating Results. See APPENDIX B Historical and Projected Operating Results of the Utility System and, in particular, Table 3 of the Historical and Projected Operating Results. (1) Amounts may not add due to rounding. (2) Statistics obtained for Fiscal Year 2004 were incomplete due to implementation during such Fiscal Year of a new billing system. The statistics for Fiscal Year 2004 in this table have been estimated to reflect historical trends and to account for other information provided by the City. (3) Compound projected growth rate for Fiscal Years 2012 to 2016 calculated from Fiscal Year 2011 customer statistics. 54

63 As reflected in the table above, accounts of customers of the Stormwater System and growth in associated ESUs is projected to be less than 0.5% per annum. Such level of growth for service of the Stormwater System is generally consistent with the projected growth for the Water System and for the Wastewater System. See UTILITY SYSTEM Water System Water Customers and Sales and Wastewater System Wastewater Customers and Sales herein. Set forth below is certain statistical information regarding the ten (10) largest users of the services of the Stormwater System. Top Ten Stormwater System Customers for Fiscal Year 2011 (Based on Rate Revenue) (1) Customer Name Rate (Type of Service) Estimated Number of Equivalent Stormwater Units (ESUs) (1) Percent of Total ESUs Annual Stormwater Rate Revenue (2) Percent of Total Stormwater Rate Revenue Edward J. De Bartola Corp. Full Service 1, % $ 151, % Village of Sandalwood Lakes Partial Service , Portofino Way Apts. Investors LLC Full Service , WPB Christian Convention Center Full Service , Florida East Coast Railroad Co. Full Service , Village of Sandalwood Lakes South Partial Service , Palm Beach County Full Service , Forum Investments I LLC Full Service , Clear Lake Club Condo Association Full Service , St. Mary s Hospital Partial Service , Total of Ten Largest Accounts 5, % $ 520, % All Other Stormwater System Customers 92, % $9,031, % Total Stormwater System Customers 98, % $9,552, % Source: Utilities Department, City of West Palm Beach, Florida. (1) Amounts shown reflect estimates for Fiscal Year ended September 30, Amounts may not add due to rounding. (2) Amounts shown reflect only revenue derived from the monthly rates for stormwater service (i.e., amounts shown do not include miscellaneous revenue). 55

64 Rates, Fees and Charges Water, Wastewater and Stormwater Rates During Fiscal Year 2007 the City retained an independent rate consultant to conduct a study of all of the rates charged for services of the Utility System. A comprehensive study of the City s rate structure and recommendations for changes to such structure were prepared by the rate consultant. Based on such recommendations, on May 5, 2008, the City Commission adopted Resolution No to change the rate structure for services of the Water System and the Wastewater System and Resolution No to change the rate structure for services of the Stormwater System (collectively, the Rate Resolution ). Unless determined otherwise by action of the City Commission, the Rate Resolution provides for automatic annual increases of 5.0% in the rates for services of the Utility System, commencing October 1, After the initial rate increase of 48.0% for the Water System, 28.0% for the Wastewater System and 10.0% for the Stormwater System following adoption of the Rate Resolution in Fiscal Year 2008, rates have been increased each Fiscal Year by 9.75% for the Water System and 5.00% each for the Wastewater System and the Stormwater System. Pursuant to the terms of the Rate Resolution, the same annual percentage increases were implemented for Fiscal Year Thereafter, the provisions of the Rate Resolution providing for an automatic 5.0% annual increase, unless the City Commission determines otherwise, shall apply. Projections for Net Revenues to be sufficient to satisfy the rate covenant under the Bond Resolution during the Forecast Period, which include debt service estimated to be paid after issuance of the Series 2013 Bonds, are based on rate increases after Fiscal Year 2013 that are less than 5.0%. See APPENDIX B Historical and Projected Operating Results of the Utility System and, in particular, Table 9 of the Historical and Projected Operating Results. The City is currently contemplating a modification to the Rate Resolution to provide for automatic annual increases in rates for services of the Utility System based on the annual increase represented by the consumer price index, or a similar index. Under its current proposal, the maximum automatic annual increase in rates for services of the Utility System would be the lesser of the percentage annual increase represented by the consumer price index, or a similar index, or 5.0%. With respect to the currently adopted rates for the Water System and the Wastewater System, such rates include: (i) a flat or constant base facility or readiness-to-serve charge which varies by meter size for the commercial and potable water irrigation classes of service; (ii) a unit based readiness-to-serve charge for the single family and multifamily classes of service; (iii) for the Water System, a consumption or commodity charge consisting of inclining blocked rates to promote water conservation; (iv) for residential customers of the Wastewater System, a maximum billing threshold of 1,600 cubic feet per month (approximately 12,000 gallons); and (v) for the remaining customer classes of the Wastewater System, a constant volumetric or commodity charge based on metered water consumption. In addition, a 25.0% surcharge is added to all rates, fees and charges to customers located outside the City limits. The Rate Resolution also authorizes the City to apply a ten percent (10%) surcharge on all rates above the initial rate for each temporary water restriction phase imposed by the SFWMD. As of March 15, 2010, the SFWMD replaced its temporary water restriction order with permanent limitations on landscape irrigation. The Utility System, therefore, is not currently subject to drought restriction surcharges. See UTILITY SYSTEM Water System Water Restrictions herein. 56

65 The City s current stormwater management fee is a flat or constant monthly charge billed to the individual parcel owner or to the occupying tenant of a property. The fee is applied based on the estimated amount of stormwater runoff contributed to the stormwater management system by the parcel. The following is a summary of the water, wastewater and stormwater rates adopted by the City pursuant to the Rate Resolution. [Remainder of page intentionally left blank] 57

66 Summary of Monthly Water System Rates (1) as of 10/1/11 Residential Service Service Charge (per dwelling unit) (2) $ Commodity Charge (per units of water used) (3) 0-8 units $ units units units units 4.48 Above 201 units 5.03 Non-Residential and Irrigation Service Service Charge (per service meter) (2) 5/8 - inch $ /4 - inch inch ½ - inch inch inch inch inch inch 1, inch 2, inch 4, Commodity Charge (per units of water used) (3) 0-8 units $ units units units units 4.48 Above 201 units 5.03 Irrigation Service 0-76 units $ units 4.48 Above 201 units 5.03 Source: The Rate Resolution. (1) Unless otherwise determined by action of the City Commission, the Rate Resolution provides for automatic annual increases of 5.0% in the rates for services of the Utility System, commencing October 1, The City is contemplating a modification to such provision of the Rate Resolution to provide for automatic annual increases based on the annual increase represented by the consumer price index, or a similar index, with a maximum automatic increase in rates for services of the Utility System of 5.0% annually. A 25.0% surcharge is added to all rates, fees and charges of customers located outside the City limits. (2) The monthly service charge represents the minimum bill rendered. (3) One unit of water is equal to 100 cubic feet of metered water. 100 cubic feet of water is equivalent to 748 gallons. 58

67 Summary of Monthly Wastewater System Rates (1) as of 10/1/11 Residential Service Service Charge (per dwelling unit) (2) $ Commodity Charge (per units of water used) (3) 0-8 units $ units (4) 3.21 Non-Residential and Irrigation Service Service Charge (per service meter) (2) 5/8 - inch $ /4 - inch inch ½ - inch inch inch inch inch inch inch 1, inch 2, Commodity Charge (per units of water used) (3) All usage $ 3.21 Source: The Rate Resolution. (1) Unless otherwise determined by action of the City Commission, the Rate Resolution provides for automatic annual increases of 5.0% in the rates for services of the Utility System, commencing October 1, The City is contemplating a modification to such provision of the Rate Resolution to provide for automatic annual increases based on the annual increase represented by the consumer price index, or a similar index, with a maximum automatic increase in rates for services of the Utility System of 5.0% annually. A 25.0% surcharge is added to all rates, fees and charges of customers located outside the City limits. (2) The monthly service charge represents the minimum bill rendered. (3) One unit of water is equal to 100 cubic feet of metered water. 100 cubic feet of water is equivalent to 748 gallons. (4) Maximum flow billed up to 1,600 cubic feet. [Remainder of page intentionally left blank] 59

68 Summary of Monthly Stormwater System Rates (1) Rate Code As of 10/1/11 A110 $9.82 A A Source: The Rate Resolution. (1) Unless otherwise determined by action of the City Commission, the Rate Resolution provides for automatic annual increases of 5.0% in the rates for services of the Utility System, commencing October 1, The City is contemplating a modification to such provision of the Rate Resolution to provide for automatic annual increases based on the annual increase represented by the consumer price index, or a similar index, with a maximum automatic increase in rates for services of the Utility System of 5.0% annually. A 25.0% surcharge is added to all rates, fees and charges of customers located outside the City limits. Water and Wastewater Capacity Charges In addition to the monthly rates for water, wastewater and stormwater service, the City also assesses capacity charges, commonly referred to as impact fees, based on a customer s equitable and proportionate share of Utility System costs for: (i) water production and transmission facilities and (ii) wastewater transmission, treatment and effluent disposal capacity. No capacity charges or impact fees are assessed for services of the Stormwater System. The purpose of the capacity charges is for each customer to pay or reimburse the City for such customer s proportionate share of the costs of expanding, over-sizing, separating or constructing improvements to the Water System and the Wastewater System. If an existing customer requests an increase in water or wastewater capacity due to increased development, an additional capacity facility charge will be collected prior to the development in accordance with the net increase in demand. The following table summarizes the capacity charges currently applicable to each customer of the Water System and the Wastewater System. Only a portion of the capacity charges may be used to satisfy Principal and Interest Requirements. See APPENDIX B Historical and Projected Operating Results of the Utility System and, in particular, footnote 16 of Table 8 and footnote 13 of Table 9 of the Historical and Projected Operating Results. [Remainder of page intentionally left blank] 60

69 Miscellaneous Service Charges Capacity Charges (Impact Fees) Meter Size Water Wastewater 5/8 inch $ 2,190 $ 1,270 3/4 inch 3,285 1,905 1 inch 5,475 3,175 1½ inch 10,950 6,350 2 inch 17,520 10,160 3 inch 35,040 20,320 4 inch 54,750 31,750 6 inch 109,500 63,500 8 inch 175, , inch 251, , inch 470, ,050 Source: Utilities Department, City of West Palm Beach, Florida. The City has adopted a schedule of fees, charges and deposits which are applicable to miscellaneous or customer requested services. Such fees and charges are generally imposed to recover the cost of specific services such as water and wastewater taps and utility turn-on fees or a deposit to defray the risk for nonpayment of services. The following is a summary of the miscellaneous service fees, charges and deposits which have been adopted by the City Commission. Customer Deposits. The City will request a deposit at the time of service application by a customer in order to defray the risk of non-payment for services of the Utility System. The deposit is based on the type of service (residential or commercial) requested by such customer. Set forth below is a summary of the various deposits currently charged to customers of the Utility System. [Remainder of page intentionally left blank] 61

70 Customer Deposits Meter Size Residential General Service 5/8 inch $ 190 $ 220 3/4 inch inch ½ inch 955 1,100 2 inch 1,530 1,760 3 inch 2,865 3,300 4 inch 4,775 5,500 6 inch 9,550 11,000 8 inch 15,280 17, inch 21,965 25, inch 41,085 47,320 Fire Hydrant Meter Deposit 1,300 Detector Check Meter Deposit 175 Source: Utilities Department, City of West Palm Beach, Florida. Water Meter Installation and Service Tap-In Charges. The City has adopted a fee for the installation of a water meter requested by a customer for the initiation of service from the Water System. The fee reflects the cost of a water installation and the service connection (i.e., the connection or tap to the water main). The installation fees are summarized as follows: [Remainder of page intentionally left blank] 62

71 Meter Installation Charges Meter Size Meter Installation Tap-In Charge 5/8 inch $ 581 $1,879 5/8 inch Dual Check 326 N/A 3/4 inch inch 762 2,052 1½ inch 899 3,076 2 inch 1,313 3,418 3 inch 3,163 (1) N/A (2) 4 inch 7,595 (1) N/A (2) 6 inch 10,128 (1) N/A (2) 8 inch 12,419 (1) N/A (2) 10 inch 16,685 (1) N/A (2) 12 inch 18,694 (1) N/A (2) Source: Utilities Department, City of West Palm Beach, Florida. (1) Estimated charge, the final charge is determined by actual costs. (2) Customers are responsible for installations of all services for meters that are 3 inches or larger. Other Miscellaneous Service Charges. In addition to the charges described above, the City has several other charges which are applicable to miscellaneous or customer requested services of the Utility System. Such charges include, without limitation, charges for: (i) initiation of service or disconnecting service; (ii) meter testing, rereads or special reads; (iii) returned checks or late payments; (iv) field visits; (v) sewer lateral installation or sewer tap inspection; (vi) hydrant meter installations; (vii) private fire line service; and (viii) raw water irrigation. Rate Comparisons The following is a comparison of the monthly cost of providing water, wastewater and stormwater services for a typical single family residential customer of the City as of the billing month of June With respect to the water and wastewater rate comparisons, monthly costs are calculated reflecting a 5/8 and 3/4 inch or smaller rate meter at various visage levels. Also included on the water and wastewater comparisons are bills calculated under the rates of other neighboring Florida utilities as of the billing month of June The monthly bills for the various Florida utilities used for the comparisons are exclusive of local taxes. The 5/8 and 3/4 inch meter or smaller comparisons were prepared since such meter sizes represent the majority of the water and wastewater residential customers and the majority of the customers for the other utilities reflected in the comparison. As can be seen in the following comparison, the current rates charged by the City produce bills that are comparable with the amounts charged for similar service by other neighboring utilities. Moreover, as noted in the following comparison, several utilities in Florida are currently conducting studies of their existing rate structure to determine the sufficiency of their current rates or are already planning to propose rate increases within the next twelve (12) months. The average single family residential customer in the service area of the City used approximately 7,300 gallons (9.8 ccf) of monthly water service during Fiscal Year A comparison of water, wastewater and stormwater rates between the City and a number of utilities surveyed is as follows: 63

72 Comparison of Typical Monthly Charges for Water and Wastewater Service (5/8" or 3/4" 7,300 Gallons) (1) Jurisdiction Water Wastewater Total City of Boca Raton (2)(3) $18.03 $15.96 $ Town of Jupiter Village of Tequesta (3) City of Boynton Beach Riviera Beach Utilities District Palm Beach County (3) Seacoast Utility Authority City of Delray Beach City of Coral Springs City of Fort Lauderdale (3) City of Tamarac (3) Broward County (3) Town of Lantana (3) Martin County (3) Cooper City (3) City of Sunrise (3) City of Lake Worth (3) City of West Palm Beach St. Lucie West Services District City of Hollywood (3) City of Dania Beach (3) Town of Davie (3) St. Lucie County Okeechobee Utility Authority (3) Surveyed Utilities Average (excluding the City) $33.21 $43.85 $ Source: Historical and Projected Operating Results. See APPENDIX B Historical and Projected Operating Results of the Utility System and, in particular, Tables 16 through 18 of the Historical and Projected Operating Results. (1) Unless otherwise noted, amounts shown reflect residential rates in effect as of June 2012 and are exclusive of taxes, franchise fees and water restriction surcharges, if any, and reflect rates charged for inner-city service. All rates are as reported by the respective utilities. The amounts are intended to show comparable charges for similar service for comparison purposes only and are not intended to be a complete listing of all rates and charges of each utility listed. Numbers may not add due to rounding. (2) City of Boca Raton rates assume two (2) bathrooms. (3) Utility is currently conducting a rate study, is planning to conduct a rate study or expects to implement a rate revision or price index / pass-through adjustment within the next twelve (12) months. A comparison of the City s current monthly stormwater management fee with those of other neighboring Florida utilities is as follows: 64

73 Comparison of Monthly Charges for Stormwater Service (1) Impervious Jurisdiction Monthly Rate per ESU Service per ESU City of West Palm Beach Class A110 $ ,171 Class A ,171 Class A ,171 Other Surveyed Utilities: City of Pompano Beach $ ,880 City of Boca Raton ,837 City of Fort Lauderdale (2) 3.53 Per Acre City of Margate ,328 Town of Jupiter ,651 City of Riviera Beach (3) 4.50 City of Boynton Beach ,937 City of Delray Beach ,502 City of Lake Worth ,736 Village of Tequesta (4) 7.13 City of Tamarac ,830 City of Port St. Lucie (5) ,280 Other Surveyed Utilities Average $ ,331 Source: Historical and Projected Operating Results. See APPENDIX B Historical and Projected Operating Results of the Utility System and, in particular, Table 19 of the Historical and Projected Operating Results. (1) Unless otherwise noted, amounts shown reflect residential rates in effect as of May 2012 and are exclusive of taxes or franchise fees, if any, and reflect rates charged for inner-city service. All rates are as reported by the respective utilities. The amounts are intended to show comparable charges for similar service for comparison purposes only and are not intended to be a complete listing of all rates and charges of each utility listed. (2) The City of Fort Lauderdale charges a flat rate for all single-family homes, manufactured homes, multifamily homes, apartment buildings and condominiums designed to accommodate three (3) or fewer dwelling units. For all other categories, the City of Fort Lauderdale assesses a fee per acre. (3) Rates vary according to impervious area as follows: Description Monthly Stormwater Rate Small Homes (up to 1,473 square feet of impervious area) $3.15 Medium Homes (1,473-3,740 square feet of impervious area) 4.50 Large Homes (more than 3,740 square feet of impervious area) 7.65 Condominiums (regardless of impervious area size) 3.60 (4) Rates vary according to impervious area as follows: Description Monthly Stormwater Rate Small Single Family Units (up to 2,506 square feet of impervious area) $4.63 Medium Single Family Units (2,507-4,621 square feet of impervious area) 7.13 Large Single Family Units (more than 4,621 square feet of impervious area) 9.27 (5) Estimated from the utility s stormwater budget annual fee of $

74 As discussed previously, the City charges water and wastewater capacity charges or Impact Fees to new customers requesting water capacity from the Water System and/or wastewater capacity from the Wastewater System in an effort to fund the capital cost of such capacity and to equitably assign such costs to the users creating the need for the increased capacity. Impact Fees are commonly used by Florida utilities to fund capital or plant requirements associated with new growth. As reflected in the table below, the City s Impact Fees are comparable to those charged by neighboring Florida utilities. The charges included in the table below are shown on an ERC basis, which is representative of the average daily capacity of a singlefamily residential unit and generally represents the lowest and most common level of use. For a listing of the capacity charges of each of the utilities surveyed to provide the comparison set forth in the table below, see Table 20 in APPENDIX B Historical and Projected Operating Results of the Utility System. Under the terms of the Bond Resolution, Impact Fees are deposited directly into the Impact Fee Fund, not the Revenue Fund, and investment earnings on such amounts are not considered Revenues. See SECURITY AND SOURCES OF PAYMENT General Limited Obligation herein. Impact Fees may be considered as Revenues available to pay debt service on Bonds only to the extent that Florida law authorizes the Impact Fees to be used for such purpose and, further, only to the extent that the City has irrevocably budgeted such Impact Fees for the payment of debt service on Bonds in the Fiscal Year such Impact Fees are to be used. See SECURITY AND SOURCES OF PAYMENT Rate Covenant herein. Comparison of Water and Wastewater Capacity Charges (Impact Fees) Per ERC Capacity Charge Per ERC Jurisdiction Water Wastewater Total City of West Palm Beach $2,190 $1,270 $3,460 Other Surveyed Utilities Average (1) 2,042 2,135 4,177 Source: Historical and Projected Operating Results. See APPENDIX B Historical and Projected Operating Results of the Utility System and, in particular, Table 20 of the Historical and Projected Operating Results. (1) Amounts shown derived from a survey of twenty-three (23) neighboring Florida utilities. Reflects Impact Fees in effect as of June 2012 and are exclusive of taxes or franchise fees, if any, and reflect rates charged for inner-city service. All rates are as reported by the respective utilities. The amounts are intended to show comparable charges for comparison purposes only and are not intended to be a complete listing of all charges of each utility surveyed. Historical and Projected Operating Results General The historical and projected operating results presented in the tables below for the Utility System were prepared based on financial information compiled and provided by the City and information included in the Comprehensive Annual Financial Report of the City for the Fiscal Years indicated and, with respect to projected financial information, for the first nine (9) months of Fiscal Year In general, the historical and projected operating results have been prepared in a manner consistent with the requirements of the Bond Resolution relative to the determination of Net Revenues of the Utility System. Therefore, the amounts shown reflect certain differences in the presentation of the financial results when compared to the Comprehensive Annual Financial Reports of the City. Specifically, the major differences are that the 66

75 historical and projected results of operations reflected in the tables below do not include: (i) depreciation and amortization expenses as part of Current Expenses; (ii) as part of Current Expenses, any other transfers, payments-in-lieu-of taxes and capital accounts, the payment of which are not considered Current Expenses under the Bond Resolution; and (iii) in interest income, any earnings derived from: (a) capacity charges, (b) Construction Fund balances, (c) any other balances held in any fund or account which are restricted to such fund or account, or (d) fair market value adjustments required by the Government Accounting Standards Board Statement No. 31. As a result of increased costs to operate the Utility System following several hurricanes in South Florida, beginning in Fiscal Year 2005, and reduced Revenues resulting from water use restrictions imposed during severe drought conditions, primarily in Fiscal Year 2007, the Utility System experienced a significant decrease in Net Revenues in Fiscal Years 2006 to In Fiscal Year 2007, the Net Revenues required to satisfy Test 2 at the end of such Fiscal Year were higher than the amount needed to satisfy Test 1 of the rate covenant under the Bond Resolution. See SECURITY AND SOURCES OF PAYMENT Rate Covenant and UTILITY SYSTEM General Rate Covenant herein. To meet the requirements of Test 2 at the end of Fiscal Year 2007, the City determined that it would not transfer $1,358,844 of the amount that had been budgeted for transfer to other funds of the City from the accounts of the Utility System. The amount not transferred in Fiscal Year 2007 so that the requirements of Test 2 could be met represented a portion of the payment in lieu of taxes that was to be transferred from the General Reserve Fund under the Bond Resolution to other general funds of the City. Such transfer was required by Ordinance No adopted by the City Commission on July 27, Ordinance No provides for such transfer of payments in lieu of taxes to be made each Fiscal Year in the amount of ten percent (10%) of the Revenues generated by the Utility System for such Fiscal Year. Any portion of the payments in lieu of taxes not transferred at the end of any Fiscal Year represents a continuing obligation of the Utility System to be satisfied in any subsequent Fiscal Year. Measures taken by the City to reduce Current Expenses of the Utility System and to increase Revenues, including adoption of the Rate Resolution, have enabled the City to make all required deposits and transfers from the funds and accounts of the Utility System since Fiscal Year 2007 and to satisfy Test 1 and Test 2 under the Bond Resolution. In addition, the continuing obligation of the Utility System to transfer payments in lieu of taxes that were not transferred in Fiscal Year 2007 was satisfied by a transfer of $903,015 in Fiscal Year 2008 and of $455,829 in Fiscal Year See Table 8 in APPENDIX B Historical and Projected Operating Results of the Utility System and, in particular, footnote 23 in Table 8 of the Historical and Projected Operating Results. Summary of Historical Operating Results The historical operating results for the Utility System for the Fiscal Years ended September 30, 2007 through 2011 are summarized below. For a description of certain observations made and sources of information used in connection with the preparation of the following summary, see APPENDIX B Historical and Projected Operating Results of the Utility System, including, in particular, Table 8 of the Historical and Projected Operating Results. [Remainder of page intentionally left blank] 67

76 Utility System Historical Operating Results and Debt Service Coverage (1) Fiscal Year REVENUES: Sales Revenues: Water System Sales: Rate Revenues $25,910,592 $27,832,296 $41,059,521 $45,987,840 $50,317,720 Drought Restriction Surcharge (2) 1,216,992 2,782, ,817 25,781 25,941 Wastewater System Sales 17,096,324 18,398,417 22,579,499 23,907,167 25,348,818 Stormwater System Sales: 6,936,738 7,447,354 8,599,419 9,030,174 9,552,142 Total Sales Revenues 51,160,646 56,460,508 72,462,256 78,950,963 85,244,620 Other Operating Revenues: Water, Wastewater and Stormwater 6,865,525 7,530,210 4,921,378 4,782,260 5,549,428 ECRWRF Reimbursement: (3) Personnel Services 2,439,257 2,923,300 2,911,746 3,233,991 3,389,975 Engineering/Lab Fees 63,654 50,464 68, , ,938 Administrative Fees 206, , , , ,000 Total Other Operating Revenues 9,575,036 10,725,974 8,141,760 8,349,207 9,412,341 Adjustments to Other Operating Revenues: Mitigation Credits Revenue (4) (2,444,239) (1,243,325) (281,600) Florida Power & Light Easement (5) (943,154) Total Other Operating Revenues Adjustments (3,387,393) (1,243,325) (281,600) Interest Income and Operating Grants: Unrestricted Interest Income 1,518, , ,578 1,295, ,512 Operating Grants (6) (79,502) 50, Total Interest Income and Operating Grants 1,438, , ,578 1,295, ,512 Total Utility System Revenues 58,787,254 66,890,361 81,448,594 88,595,227 94,939,872 CURRENT EXPENSES (41,197,701) (46,410,553) (48,893,427) (49,388,144) (52,812,432) NET REVENUES 17,589,553 20,479,808 32,555,167 39,207,084 42,127,440 Adjustments (7) 448, , , , ,616 ADJUSTED NET REVENUES 18,037,797 21,144,262 33,320,632 39,405,967 42,655,056 As a Percent of Total Revenues 30.68% 31.61% 40.91% 44.48% 44.93% DEBT SERVICE COVERAGE: Test 1: Debt Service on Bonds (8) 9,584,155 15,521,701 15,479,081 15,479,081 15,479,081 Coverage 188% 136% 215% 255% 276% Bond Resolution Required Coverage 120% 120% 120% 120% 120% Test 2: Debt Service and Required Transfers (9) (18,037,797) (21,144,262) (27,959,705) (27,726,295) (29,735,079) Coverage 100% 100% 119% 142% 143% Bond Resolution Required Coverage 100% 100% 100% 100% 100% Amount Available for Other Purposes $ $ $ 5,360,926 $11,679,672 $12,919,977 Source: Historical and Projected Operating Results. See APPENDIX B Historical and Projected Operating Results of the Utility System. 68

77 (1) Numbers may not add due to rounding. (2) See UTILITY SYSTEM Water System Water Restrictions herein and footnote 4 of Table 8 in APPENDIX B Historical and Projected Operating Results of the Utility System. (3) Amounts reflect reimbursement of certain costs associated with the operation of the ECRWRF, which are paid by the City as a Current Expense but for which each of the Entities is responsible for the payment of their proportionate share. See UTILITY SYSTEM Wastewater System ECR Board Organization herein. (4) Represents amounts paid to the City by a limited liability company as reimbursement for costs incurred by the City to restore land on the Western Dike Area of the Water Catchment Area. See footnote 8 of Table 8 in APPENDIX B Historical and Projected Operating Results of the Utility System. (5) Represents amounts paid to the City by FPL as compensation for an easement granted to the company on Utility System property, which compensation was deposited into the Renewal, Replacement and Improvement Fund. See Footnote 9 of Table 8 in APPENDIX B Historical and Projected Operating Results of the Utility System. (6) Represents grants paid to the City, mostly by the Federal Emergency Management Agency, to provide reimbursement for certain operating expenses incurred by the City due to significant storm events. (7) Represents Impact Fees projected to be collected and available to satisfy Test 1 and Test 2 under the Bond Resolution. See UTILITY SYSTEM General Rate Covenant herein and APPENDIX B Historical and Projected Operating Results of the Utility System, including, in particular, footnote 16 of Table 8 in the Historical and Projected Operating Results. (8) Represents the maximum principal and interest requirements on all Bonds Outstanding during the fiscal years indicated, treating each fiscal year as ending on October 1. Prior to their redemption on July 1, 2008, interest on the City s Utility System Variable Rate Revenue Refunding Bonds, Series 2005 (the Series 2005 Bonds ) was calculated based on the rate paid by the City under the Interest Rate Swap Agreements relating to the Series 2005 Bonds, which was 3.957% per annum. The Series 2005 Bonds were paid in full and redeemed upon the issuance by the City of its Utility System Revenue Refunding Bonds, Series 2008A (the Series 2008A Bonds ). In accordance with the Bond Resolution, (i) interest on the portion of the Series 2008C Bonds not covered by the Series 2008 Swap has been calculated using the average rate of interest paid by the City on all Outstanding Variable Rate Bonds for the prior Fiscal Year, and (ii) interest on the portion of the Series 2008C Bonds covered by the Series 2008 Swap has been calculated at the fixed rate paid by the City under the Series 2008 Swap of 3.539% per annum. See SECURITY AND SOURCES OF PAYMENT Interest Rate Swap herein. (9) Includes actual principal and interest requirements on all Bonds Outstanding during the fiscal years indicated (treating each fiscal year as ending on October 1), required transfers in accordance with the provisions of the Resolution and required transfers pursuant to the Interlocal Wastewater Agreement. See UTILITY SYSTEM Wastewater System ECR Board Organization herein. In Fiscal Year 2007, the budgeted transfer amount from accounts of the Utility System to other funds of the City for payments in lieu of taxes was reduced by $1,358,844 to meet Test 2 of the rate covenant under the Bond Resolution. The unpaid payment in lieu of taxes was treated as a continuing obligation of the Utility System to be repaid in subsequent Fiscal Years. By the end of the Fiscal Year ended September 30, 2009, such unpaid payment in lieu of taxes was paid in full. See SECURITY AND SOURCES OF PAYMENT Rate Covenant and UTILITY SYSTEM General Rate Covenant herein and APPENDIX B Historical and Projected Operating Results of the Utility System, including, in particular, footnote 23 of Table 8 in the Historical and Projected Operating Results. Summary of Projected Operating Results The projected operating results for the Utility System for the Fiscal Years ending September 30, 2012 through 2016 are summarized below. For a description of certain observations and assumptions made and sources of information used in connection with the preparation of the following summary, see APPENDIX B Historical and Projected Operating Results of the Utility System, including, in particular, Table 9 of the Historical and Projected Operating Results. For a discussion of water shortage emergency measures implemented by the City, see UTILITY SYSTEM Water System Drought Conditions herein. For information relating to an increase in Current Expenses following issuance of the ECR Bonds, see UTILITY SYSTEM Wastewater System ECR Board Indebtedness herein and APPENDIX B Historical and Projected Operating Results of the Utility System, including, in particular, footnote 11 of Table 9 of the Historical and Projected Operating Results. 69

78 Utility System Projected Operating Results and Debt Service Coverage (1) Fiscal Year REVENUES: Sales Revenues: Water System Sales: Adopted Rates (2) $50,349,996 $52,769,137 $54,428,432 $56,114,922 $57,839,851 Drought Restriction Surcharge (3) Wastewater System Sales: Adopted Rates (2) 25,759,350 26,994,151 27,843,480 28,691,617 29,572,518 Stormwater System Sales: Adopted Rates (2) 9,992,911 10,488,528 10,684,316 10,879,830 11,127,745 Total Sales Revenues 86,102,257 90,251,815 92,956,228 95,686,369 98,540,114 Other Operating Revenues: Water and Wastewater 4,753,500 4,774,350 4,795,409 4,816,678 4,838,159 Stormwater 595, , , , ,000 ECRWRF Reimbursement: (4) Personnel Services 3,580,204 3,585,173 3,658,437 3,735,240 3,815,825 Engineering/Lab Fees 240, , , , ,500 Administrative Fees 200, , , , ,060 Unrestricted Interest Income 220, , , , ,601 Total Utility System Revenues 95,691,957 99,981, ,951, ,777, ,895,259 CURRENT EXPENSES (5) (54,303,276) (56,295,554) (59,247,441) (61,814,083) (63,528,351) NET REVENUES 41,388,682 43,685,642 43,704,255 43,963,377 45,366,908 Adjustments (6) 414, , , , ,491 ADJUSTED NET REVENUES 41,803,272 44,110,407 44,137,191 44,399,565 45,812,400 As a Percent of Total Revenues 43.69% 44.12% 42.87% 41.97% 42.07% DEBT SERVICE COVERAGE: Test 1: Debt Service on Bonds (7) 15,479,080 24,901,376 24,901,376 24,901,376 24,901,376 Coverage 270% 177% 177% 178% 184% Bond Resolution Required Coverage 120% 120% 120% 120% 120% Test 2: Debt Service and Required Transfers (8) (32,542,022) (37,022,909) (39,879,361) (40,542,845) (43,113,212) Coverage 128% 119% 111% 110% 106% Bond Resolution Required Coverage 100% 100% 100% 100% 100% Amount Available for Other Purposes $ 9,261,250 $ 7,087,498 $ 4,257,830 $ 3,856,719 $ 2,699,188 Source: Historical and Projected Operating Results. See APPENDIX B Historical and Projected Operating Results of the Utility System. 70

79 (1) Numbers may not add due to rounding. (2) The projected Revenues are based on the schedule of rates for the Utility System through September 30, 2012, as contained in the Rate Resolution. Unless otherwise determined by action of the City Commission, the Rate Resolution provides for automatic annual increases of 5.0% in the rates for services of the Utility System, commencing October 1, The City is contemplating a modification to such provision of the Rate Resolution to provide for automatic annual increases based on the annual increase represented by the consumer price index, or a similar index, with a maximum automatic increase of 5.0% annually. Amounts shown reflect projected rate revenue collections assuming rates will automatically increase for the (a) Water System and the Wastewater System by 5.0% for Fiscal Year 2013 and 3.0% for Fiscal Years 2014 through 2016; and (b) Stormwater System by 5.0% for Fiscal Year 2013, 1.5% for Fiscal Year 2014, 1.6% for Fiscal Year 2015 and 2.0% for Fiscal Year See UTILITY SYSTEM Rates, Fees and Charges herein and APPENDIX B Historical and Projected Operating Results of the Utility System, including, in particular, footnotes 3 and 5 in Table 9 of the Historical and Projected Operating Results. (3) See UTILITY SYSTEM Water System Water Restrictions herein. The Rate Resolution allows the City to apply a ten percent (10%) surcharge on all rates above the initial rate for each water restriction phase put into effect by the SFWMD. However, the City is not currently applying drought restriction surcharges to Utility System customer bills and the projected rate revenue collections assume that drought restriction surcharges will not be collected by the City during the Forecast Period. (4) Amounts reflect reimbursement of certain costs associated with the operation of the ECRWRF, which are paid by the City as a Current Expense but for which each of the Entities is responsible for the payment of their proportionate share. See UTILITY SYSTEM Wastewater System ECR Board Organization herein. (5) Amounts include the City s proportionate share of debt service payments on the ECR Bonds, which are considered Current Expenses pursuant to the terms of the Interlocal Wastewater Agreement and not ECR Board Debt Service Payments that would be payable from the General Reserve Fund under the Bond Resolution. See UTILITY SYSTEM Wastewater System ECR Board Indebtedness herein. (6) Represents Impact Fees projected to be collected and available to satisfy Test 1 and Test 2 under the Bond Resolution. See UTILITY SYSTEM General Rate Covenant herein and APPENDIX B Historical and Projected Operating Results of the Utility System, including, in particular, footnote 13 in Table 9 of the Historical and Projected Operating Results. (7) Represents the estimated maximum principal and interest requirements on all Bonds projected to be Outstanding during the fiscal years indicated (treating each fiscal year as ending on October 1), including the Series 2012A Bonds in the assumed aggregate principal amount of $40,860,000 and at an assumed true interest cost of 3.735%. However, see DEBT SERVICE SCHEDULE herein. In accordance with the Bond Resolution, (i) interest on the portion of the Series 2008C Bonds not covered by the Series 2008 Swap has been calculated based on an assumed interest rate of 4.990% per annum, which represents the most recently published Bond Buyer 25 Revenue Bond Index, plus fifty (50) basis points, as of the date of the Historical and Projected Operating Results, and (ii) interest on the portion of the Series 2008C Bonds covered by the Series 2008 Swap has been calculated at the fixed rate to be paid by the City under the Series 2008 Swap of 3.539% per annum. See SECURITY AND SOURCES OF PAYMENT Interest Rate Swap herein. For Fiscal Years 2013 through 2016, the term maximum principal and interest requirements assumes issuance by the City of its Utilities System Revenue Bonds, Series 2013 as fixed rate Bonds in the approximate aggregate principal amount of $157,735,000 and at an all-in assumed true interest cost of 4.691% per annum. See SECURITY AND SOURCES OF PAYMENT Additional Bonds herein and APPENDIX B Historical and Projected Operating Results of the Utility System, including, in particular, footnotes 15 and 17 in Table 9 of the Historical and Projected Operating Results. The actual aggregate principal amount of Series 2012 Bonds issued and the actual true interest cost at which such Bonds are issued may produce higher maximum principal and interest requirements. (8) Includes estimated principal and interest requirements on all Bonds projected to be Outstanding during the fiscal years indicated (treating each fiscal year as ending on October 1), required transfers in accordance with the provisions of the Resolution and required transfers pursuant to the Interlocal Wastewater Agreement. See SECURITY AND SOURCES OF PAYMENT Rate Covenant and UTILITY SYSTEM Wastewater System ECR Board Organization herein and APPENDIX B Historical and Projected Operating Results of the Utility System, including, in particular, footnotes 15 through 23 in Table 9 of the Historical and Projected Operating Results. 71

80 DEBT SERVICE SCHEDULE Set forth below are the debt service requirements of the Series 2012A Bonds, all other Bonds Outstanding upon issuance of the Series 2012A Bonds and the total combined debt service on all Bonds Outstanding immediately following issuance of the Series 2012A Bonds. Period Ending October 1 (1) Series 2012A Bonds Principal Series 2012A Bonds Interest (2) Series 2012A Bonds Total (2) Outstanding Bonds (2)(3)(4) Total Series 2012A Bonds and Outstanding Bonds (2)(3)(4) 2012 $ 0 $ 0 $ 0 $ 15,757,048 $ 15,757, ,809,992 1,809,992 13,837,144 15,647, ,751,605 1,751,605 13,835,011 15,586, ,000 1,751,605 2,481,605 13,184,986 15,666, ,000 1,737,005 2,482,005 13,183,634 15,665, ,000 1,718,380 2,478,380 13,182,335 15,660, ,000 1,699,380 2,479,380 13,184,054 15,663, ,000 1,668,180 2,478,180 13,183,954 15,662, ,000 1,635,780 2,475,780 13,192,915 15,668, ,000 1,618,980 2,473,980 13,179,916 15,653, ,000 1,584,780 2,479,780 13,127,041 15,606, ,000 1,548,980 2,483,980 13,134,676 15,618, ,000 1,502,230 2,477,230 13,369,586 15,846, ,020,000 1,453,480 2,473,480 13,242,372 15,715, ,080,000 1,402,480 2,482,480 13,438,970 15,921, ,135,000 1,348,480 2,483,480 13,300,330 15,783, ,165,000 1,314,430 2,479,430 13,320,262 15,799, ,195,000 1,279,480 2,474,480 13,314,663 15,789, ,355,000 1,243,630 6,598,630 9,147,534 15,746, ,515,000 1,082,980 6,597,980 9,016,203 15,614, ,790, ,230 6,597,230 9,063,083 15,660, ,080, ,730 6,597,730 8,910,561 15,508, ,380, ,730 6,593,730 8,841,773 15,435, ,622,806 15,622, ,617,655 15,617, ,602,329 15,602, ,583,668 15,583,668 Total $43,040,000 $30,690,547 $73,730,547 $349,374,510 $423,105,057 (1) Under the Bond Resolution, principal and interest due on October 1 are considered paid in the Fiscal Year commencing on such October 1. (2) Totals may not add due to rounding. (3) In accordance with the Bond Resolution, (i) interest on the portion of the Series 2008C Bonds not covered by the Series 2008 Swap has been calculated based on an assumed interest rate of 4.930% per annum, which represents the most recently published Bond Buyer 25 Revenue Bond Index, plus fifty (50) basis points, and (ii) interest on the portion of the Series 2008C Bonds covered by the Series 2008 Swap has been calculated at the fixed rate to be paid by the City under the Series 2008 Swap of 3.539% per annum. See SECURITY AND SOURCES OF PAYMENT Interest Rate Swap herein. For the principal amount currently Outstanding of each Series of Bonds issued prior to the Series 2012A Bonds, see INTRODUCTION herein. (4) Total includes fees for liquidity facility and for remarketing of the Series 2008C Bonds. Such fees are assumed in the aggregate to be 0.690% per annum. Total does not include debt service on the Refunded Bonds, which shall no longer be Outstanding upon issuance of the Series 2012A Bonds. See PLAN OF REFUNDING herein. 72

81 HISTORICAL AND PROJECTED SCHEDULE OF NET REVENUES, DEBT SERVICE AND DEBT SERVICE COVERAGE Fiscal Current Year Revenues (1) Expenses Net Revenues Available for Debt Service (2) Debt Service (3) Annual Debt Service Coverage (4) 2007 $ 58,787,255 $41,197,701 $18,037,798 $ 9,584, x ,890,361 46,410,553 21,144,262 15,521, ,448,594 48,893,427 33,320,632 15,479, ,595,227 49,338,144 39,405,967 15,479, ,939,873 52,812,432 42,655,056 15,479, ,691,957 54,303,276 41,803,272 15,479, ,981,196 56,295,554 44,110,407 24,901,376 (5) ,951,696 59,247,441 44,137,191 24,901,376 (5) ,777,461 61,814,083 44,399,565 24,901,376 (5) ,895,259 63,528,351 45,812,400 24,901,376 (5) 1.84 Source: Historical and Projected Operating Results. See APPENDIX B Historical and Projected Operating Results of the Utility System. (1) Revenues are calculated in accordance with the definition provided for such calculation in the Bond Resolution. See SECURITY AND SOURCES OF PAYMENT General and Rate Covenant herein. Projections for Fiscal Year 2012 are based on the rates made effective in the Rate Resolution. Projections for Fiscal Years 2013 through 2016 assume rates will automatically increase for the (a) Water System and the Wastewater System by 5.0% for Fiscal Year 2013 and 3.0% for Fiscal Years 2014 through 2016; and (b) Stormwater System by 5.0% for Fiscal Year 2013, 1.5% for Fiscal Year 2014, 1.6% for Fiscal Year 2015 and 2.0% for Fiscal Year See UTILITY SYSTEM Rates, Fees and Charges herein and APPENDIX B Historical and Projected Operating Results of the Utility System, including, in particular, footnotes 3 and 5 in Table 9 of the Historical and Projected Operating Results. (2) Represents Revenues minus Operating Expenses, plus Impact Fees considered available for determination of compliance with the rate covenant under the Bond Resolution. See SECURITY AND SOURCES OF PAYMENT General and Rate Covenant herein and footnote 16 in Table 8 and footnote 13 in Table 9 of APPENDIX B Historical and Projected Operating Results of the Utility System. (3) Represents the maximum principal and interest requirements in each fiscal year, treating each fiscal year as ending on October 1. Prior to their payment in full pursuant to issuance of the Series 2008A Bonds, interest on the Series 2005 Bonds was calculated based on the rate paid by the City under the Interest Rate Swap Agreements relating to the Series 2005 Bonds, which was 3.957% per annum. In accordance with the Bond Resolution for calculation of interest on the portion of the Series 2008C Bonds not covered by the Series 2008 Swap, (i) for Fiscal Years 2008 through 2011 such interest has been calculated using the average rate of interest paid by the City on all Outstanding Variable Rate Bonds for the prior Fiscal Year, and (ii) for Fiscal Years 2012 through 2016 such interest has been calculated based on an assumed interest rate of 4.990% per annum, which represents the most recently published Bond Buyer 25 Revenue Bond Index, plus fifty (50) basis points, as of the date of the Historical and Projected Operating Results. In accordance with the Bond Resolution for the calculation of interest on the portion of the Series 2008C Bonds covered by the Series 2008 Swap, such interest has been calculated at the fixed rate paid and to be paid by the City under the Series 2008 Swap of 3.539% per annum. See SECURITY AND SOURCES OF PAYMENT Interest Rate Swaps herein. (4) Before required transfers into the Reserve Account, the Renewal, Replacement and Improvement Fund and the General Reserve Fund. (5) Assumes issuance by the City of the Series 2012A Bonds in the aggregate principal amount of $40,860,000 and at a true interest cost of 3.735%. However, see DEBT SERVICE SCHEDULE herein. Also assumes issuance by the City during Fiscal Year 2013 of its Utilities System Revenue Bonds, Series 2013 as fixed rate Bonds in the approximate aggregate principal amount of $157,735,000 and at an all-in true interest cost of 4.691% per annum. See SECURITY AND SOURCES OF PAYMENT Additional Bonds herein and APPENDIX B Historical and Projected Operating Results of the Utility System, including, in particular, footnotes 15 and 17 in Table 9 of the Historical and Projected Operating Results. The actual aggregate principal amount of Series 2013 Bonds issued and the actual true interest cost at which such Bonds are issued may produce higher maximum principal and interest requirements. 73

82 FINDINGS AND CONCLUSIONS OF THE RATE CONSULTANT Public Resources Management Group, Inc. has been engaged by the City to serve as the Rate Consultant in connection with the issuance of the Series 2012A Bonds and, in such capacity, has prepared the Historical and Projected Operating Results. The Historical and Projected Operating Results provide a summary of the overall financial condition of the Utility System to support the issuance of the Series 2012A Bonds. The information contained in the Historical and Projected Operating Results includes, among other things, a presentation of facts and data obtained by the Rate Consultant from its recent investigations and analysis of matters relating to the financial health and welfare of the Utility System and from its consultations with representatives of the City concerning the foregoing. Set forth below is a summary of certain findings and conclusions reached by the Rate Consultant in the Historical and Projected Operating Results. Reference is made to the complete copy of the Historical and Projected Operating Results for a more detailed description of the information relied upon by the Rate Consultant to make the following findings or reach the following conclusions and the assumptions upon which such findings and conclusions are based. See APPENDIX B Historical and Projected Operating Results of the Utility System. In the opinion of the Rate Consultant, without providing any assurance that the assumptions are accurate or that the projections will be realized, the assumptions upon which the following findings and conclusions are based are reasonable. 1. Based on the customer and water sales forecast assumed for purposes of the Historical and Projected Operating Results, the Water System currently has sufficient permitted water supply and treatment capacity to meet the assumed service area needs of the Water System for the Forecast Period. 2. Based on the customer and wastewater flow forecast assumed for purposes of the Historical and Projected Operating Results, the Wastewater System currently has sufficient permitted wastewater treatment and effluent disposal capacity to meet the assumed service area needs of the Wastewater System for the Forecast Period. 3. The projected growth in customers and usage of the Water System, the Wastewater System and the Stormwater System, respectively, represent reasonable projections, based on recent trends in customers and sales experienced by the Utility System. 4. The adopted rates for Fiscal Year 2012 for service of the Water System, the Wastewater System and the Stormwater System, respectively, and the Impact Fees for services of the Water System and the Wastewater System for Fiscal Year 2012, are comparable to amounts charged for similar service by other utilities in Southeast Florida. 5. The Revenues of the Utility System for the Forecast Period, as projected to be generated pursuant to the terms of the Rate Resolution, should be sufficient to (i) pay all projected Current Expenses, (ii) pay estimated debt service coming due in such years on the Outstanding Bonds and the Bonds anticipated to be issued, (iii) make the projected deposits necessary to maintain the Renewal, Replacement and Improvement Fund Requirement, (iv) provide for the projected payment to the ECR Board of the City s allocation of the debt service, renewal and replacement and reserve fund contributions pursuant to the Interlocal Wastewater Agreement and (v) meet the rate covenants of the Bond Resolution. 6. Based on the observations, assumptions and considerations set forth in the Historical and Projected Operating Results, the forecast of projected operating results of the Utility System presented in 74

83 the Historical and Projected Operating Results is reasonable and attainable and provides a basis for the City to meet the rate covenants established in the Bond Resolution. Government THE CITY The City currently operates under a Strong Mayor/Commission form of government. The City Commission is the governing body and consists of five (5) Commissioners, who are elected for staggered two-year terms. The Commissioners may not hold any other elective office at the same time and must be residents of the City. The City Charter was amended in March, 2012 to provide that, following passage of the amendment, Commissioners of the City may hold office for no more than four consecutive two-year terms. The City Commission has the power to pass ordinances and adopt resolutions to govern the affairs of the City. The Commissioners currently elect from among themselves a Commissioner to act as President for a one-year term. The Mayor presides at all meetings of the City Commission, executes legal instruments and other necessary writings, and is recognized as the official head of the City for service of civil process and for all ceremonial purposes. The Mayor is the elected Chief Executive Officer and Administrative Head of the City. The City Charter provides that the Mayor hold office for no more than two four-year terms and must reside in a City district during the Mayor s term of office. The Mayor has the exclusive power to hire and remove all division and department directors, officers and other employees of the City; provided, however, that the Mayor s appointments of the City Attorney, the Chief of the Police Department and the Chief of the Fire- Rescue Department are each subject to ratification by the City Commission. The Mayor has the power to veto budget appropriations, subject to City Commission override by two-thirds vote. The City Administrator assists the Mayor with the day-to-day operations of the City. The Director of Finance is appointed by the Mayor and works under the direction and supervision of the City Administrator. The responsibilities of the Director of Finance include furnishing the City Administrator (i) such data and information as may be necessary to fully inform the City Administrator as to the financial condition of the City, and (ii) such estimates of the revenues and expenses of the City government as may be necessary to form the basis of the annual budget and to determine the revenue necessary to be raised each year. The current Director of Finance for the City is Jeffrey L. Green. His term as Finance Director began in June The City Attorney acts as the legal advisor, attorney and counsel for the City and all of its officials in matters relating to their official duties. Pursuant to the resignation of the City Clerk on May 18, 2012, the duties of the City Clerk are currently being performed by the City s Deputy City Clerk. Administration The City Administrator is responsible for the administration, operation and maintenance of the entire City government, excepting those responsibilities specifically delegated to other appointed officials. 75

84 Accounting and Administrative Controls City management is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the City are protected from loss, theft, or misuse. Furthermore, management ensures that accounting data is adequate for the preparation of financial statements in conformity with generally accepted accounting principles. Internal accounting controls are designed to provide reasonable but not absolute assurance regarding the safe-guarding of assets against loss from unauthorized use or disposition. The controls are also intended to provide assurance as to the reliability of financial records for preparing financial statements and accountability for assets. The concept of reasonable assurance recognizes that the cost of a control should not exceed the benefits likely to be derived and that the evaluation of costs and benefits requires estimates and judgments by management. In addition to the examination of controls performed by members of the Finance Department, the City s internal auditors continually review and assess the soundness and adequacy of all the accounting and budgetary aspects of the City s financial system. Financial transactions and related data are examined for accuracy, completeness and authorization. Furthermore, data processing applications and systems are analyzed to ensure that necessary controls are in effect. Budgetary Controls The City also maintains budgetary controls, the objective of which is to ensure compliance with legal provisions contained in the annual appropriated budget approved by the City Commission. Annual budgets are legally adopted for activities of the general fund, special revenue funds, capital project funds, debt service funds, internal service funds and enterprise funds. Budgets are controlled at the category level and expenditures may not legally exceed appropriations at the department level without Commission approval. Encumbrance accounting is utilized in all funds in order to reserve the encumbered portion of the appropriation. Encumbrances outstanding at year-end in governmental funds are reported as reservations of fund balance and are reappropriated as part of the following year s budget. Insurance For the Fiscal Year ended September 30, 2011, the City was self-insured for general liability for the first $350,000 of each claim with excess insurance purchased to cover claims above $350,000 and up to $4,000,000 per occurrence and in the aggregate. For workers compensation, the City was self-insured for the first $500,000 of each claim and purchased statutory limits in excess insurance coverage. The City purchased excess property insurance for a total insured value of $351,744,908, with a self-insured deductible of $100,000 per occurrence for all insured perils other than named windstorms. For the City s master property program, the named windstorm coverage carries a deductible per occurrence of five percent (5%) of the value of the affected property, subject to a minimum of $1,500,000. The facilities of the Water System carry a self insured deductible of $100,000 for all covered perils other than named windstorms, for which the deductible is five percent (5%) of the value of the affected property, subject to a minimum of $500,000 per occurrence. For more detailed information concerning the City s insurance coverage, see APPENDIX C Basic Financial Statements of the City of West Palm Beach, Florida for the Fiscal Year Ended September 30, 2011 and, in particular, Note N Insurance/Self- Insurance Program to such Basic Financial Statements. 76

85 Employee Relations The City has recognized, pursuant to Chapter 447, Florida Statutes, as amended (the Public Employees Relations Act ), the following unions: The Palm Beach County Police Benevolent Association (the PBA ), which represents approximately 271 police officers and sergeants, eight crime scene investigators, five community service aides and one senior latent print examiner. The PBA also represents 12 police lieutenants in a separate bargaining unit. The West Palm Beach Association of Fire Fighters, Local 727, IAFF represents approximately 171 fire fighters through the rank of captain. IAFF Local 727 also represents five battalion chiefs under a separate collectively bargaining agreement. The Service Employee International Union, Local 1227 represents approximately 620 employees in a combined blue and white collar unit. Managerial, professional, confidential and certain supervisory employees are excluded from the unit. The Professional Managers and Supervisors Association, Local 1073 represents approximately 115 employees comprised of managerial, professional and non-professional supervisory positions. All of the unions recognized by the City are operating under an annual collective bargaining agreement for such union. Each of the collective bargaining agreements became effective on October 1, 2011 and will expire on September 30, The City has begun the process of negotiating with each union for a new collective bargaining agreement prior to the expiration of the existing agreements. The Public Employees Relations Act forbids public employees from engaging in strike activity and provides that punitive damages be paid to the local government in the event that a strike occurs. The City has never had the threat of a strike by any of the unions. City Pension Funds The City contributes to four single employer pension plans covering substantially all full-time City employees; three defined benefit pension plans and one defined contribution pension plan. Prior to September 11, 1997, all non-police and fire personnel were covered under the employee s Retirement System Fund (defined benefit). As of September 11, 1997, this plan was closed for new hires and a defined contribution plan was established. The Public Employee Defined Contribution Plan ( PEDCP ) covers all full time employees (except Police and Firefighters or those covered under the defined benefit plan). New employees are enrolled in the PEDCP upon successful completion of a six month probationary period. Vesting is immediate for both employee and employer contributions. The City matches the 7.5% of covered payroll contribution made by SEIU employees, with the pension contribution increasing to 9.5% for the PMSA and non-represented employees. The Police Pension Fund covers all non-civilian police department employees and the Firefighters Pension Fund covers all firefighters and fire department officers. Each defined benefit pension plan is administered by an independent board of trustees and the City contributes to each plan in accordance with the contribution requirement computed by an actuary. The pension plans are accounted for as pension trust funds. 77

86 For more detailed information concerning the City s pension plans, see APPENDIX C Basic Financial Statements of the City of West Palm Beach, Florida for the Fiscal Year Ended September 30, 2011 and, in particular, Note Q Employee Retirement Plans to such Basic Financial Statements. For more information about the City generally, see APPENDIX A - General Information and Economic Data regarding the City of West Palm Beach, Florida and Palm Beach County, Florida. LITIGATION There is no litigation pending that seeks to restrain or enjoin the issuance or delivery of the Series 2012A Bonds or contesting the proceedings or authority under which they are to be issued or the creation, organization or existence of the City or, if determined adversely to the City, would have a material adverse impact on the ability of the Utility System to generate sufficient Revenues to pay debt service on the Series 2012A Bonds. The City experiences routine litigation and claims incidental to the conduct of its affairs. In the opinion of the City Attorney, there are no lawsuits presently pending or, to the best of her knowledge, threatened, the adverse outcome of which would impair the City s ability to perform its obligations to the owners of the Series 2012A Bonds. LEGAL MATTERS Certain legal matters incident to the issuance of the Series 2012A Bonds and with regard to the taxexempt status of the interest on the Series 2012A Bonds (see TAX MATTERS herein) are subject to the legal opinion of Squire Sanders (US) LLP, Bond Counsel to the City. The signed legal opinion of Bond Counsel, substantially in the form attached hereto as APPENDIX E, dated and premised on law in effect as of the date of issuance of the Series 2012A Bonds, will be delivered on the date of issuance of the Series 2012A Bonds. The actual legal opinion to be delivered may vary from the form attached hereto to reflect facts and law on the date of delivery. The opinion will speak only as of its date, and subsequent distribution of it by recirculation of this Official Statement or otherwise shall create no implication that Bond Counsel has reviewed or expresses any opinion concerning any of the matters referenced in the opinion subsequent to its date of issuance. While Bond Counsel has participated in the preparation of certain portions of this Official Statement, it has not been engaged by the City to confirm or verify, and, except as may be set forth in an opinion of Bond Counsel delivered to the Underwriters, expresses and will express no opinion as to the accuracy, completeness or fairness of any statements in this Official Statement, or in any other reports, financial information, offering or disclosure documents or other information pertaining to the City or the Series 2012A Bonds that may be prepared or made available by the City, the Underwriters or others to the Holders of the Series 2012A Bonds or other parties. Certain legal matters incident to the issuance of the Series 2012A Bonds relating to disclosure will be passed on for the City by the Law Offices of Steve E. Bullock, P.A., Miami, Florida, whose legal services as Disclosure Counsel have been retained by the City. The signed legal opinion, dated and premised on law in effect as of the date of original delivery of the Series 2012A Bonds, will be delivered to the City by Disclosure Counsel at the time of original delivery of the Series 2012A Bonds. The proposed text of the form of the legal opinion of Disclosure Counsel is set forth as APPENDIX F to this Official Statement. The actual legal opinion to be delivered may vary from that text if necessary to reflect facts and law on the date of delivery. The opinion will speak only as of its date, and subsequent 78

87 distribution of it by recirculation of this Official Statement or otherwise shall create no implication that Disclosure Counsel has reviewed or expresses any opinion concerning any of the matters referenced in the opinion subsequent to its date of issuance. Certain legal matters will be passed on for the City by Claudia M. McKenna, Esquire, West Palm Beach, Florida, City Attorney and for the Underwriters by Greenspoon Marder, P.A., Fort Lauderdale, Florida, Counsel to the Underwriters. The legal opinions and other letters of counsel to be delivered concurrently with the delivery of the Series 2012A Bonds express the professional judgment of the attorneys rendering the opinions or advice regarding the legal issues and other matters expressly addressed therein. By rendering a legal opinion or advice, the giver of such opinion or advice does not become an insurer or guarantor of the result indicated by that opinion, or the transaction on which the opinion or advice is rendered, or of the future performance of parties to the transaction. Nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. ENFORCEABILITY OF REMEDIES The remedies available to the owners of the Series 2012A Bonds upon the occurrence of a default under the Resolution 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, the remedies specified by the Resolution and the Series 2012A Bonds may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Series 2012A 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 and to general principles of equity (whether sought in a court of law or equity). General TAX MATTERS In the opinion of Squire Sanders (US) LLP, Bond Counsel, under existing law: (i) interest on the Series 2012A Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the Code ), and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; and (ii) the Series 2012A Bonds and the income thereon are exempt from taxation under the laws of the State of Florida, except estate taxes imposed by Chapter 198, Florida Statutes, as amended, and net income and franchise taxes imposed by Chapter 220, Florida Statutes, as amended. Bond Counsel expresses no opinion as to any other tax consequences regarding the Series 2012A Bonds. The opinion on tax matters will be based on and will assume the accuracy of certain representations and certifications, and continuing compliance with certain covenants, of the City contained in the transcript of proceedings for the Series 2012A Bonds and that are intended to evidence and assure the foregoing, including that the Series 2012A Bonds are and will remain obligations the interest on which is excluded from gross income for federal income tax purposes. Bond Counsel will not independently verify the accuracy of the City s certifications and representations or the continuing compliance with the City s covenants. 79

88 The opinion of Bond Counsel is based on current legal authority and covers certain matters not directly addressed by such authority. It represents Bond Counsel s legal judgment as to exclusion of interest on the Series 2012A Bonds from gross income for federal income tax purposes but is not a guaranty of that conclusion. The opinion is not binding on the Internal Revenue Service ( IRS ) or any court. Bond Counsel expresses no opinion about (i) the effect of future changes in the Code and the applicable regulations under the Code or (ii) the interpretation and the enforcement of the Code or those regulations by the IRS. The Code prescribes a number of qualifications and conditions for the interest on state and local government obligations to be and to remain excluded from gross income for federal income tax purposes, some of which require future or continued compliance after issuance of the obligations. Noncompliance with these requirements by the City may cause loss of such status and result in the interest on the Series 2012A Bonds being included in gross income for federal income tax purposes retroactively to the date of issuance of the Series 2012A Bonds. The City has covenanted to take the actions required of it for the interest on the Series 2012A Bonds to be and to remain excluded from gross income for federal income tax purposes, and not to take any actions that would adversely affect that exclusion. After the date of issuance of the Series 2012A Bonds, Bond Counsel will not undertake to determine (or to so inform any person) whether any actions taken or not taken, or any events occurring or not occurring, or any other matters coming to Bond Counsel s attention, may adversely affect the exclusion from gross income for federal income tax purposes of interest on the Series 2012A Bonds or the market value of the Series 2012A Bonds. A portion of the interest on the Series 2012A Bonds earned by certain corporations may be subject to a federal corporate alternative minimum tax. In addition, interest on the Series 2012A Bonds may be subject to a federal branch profits tax imposed on certain foreign corporations doing business in the United States and to a federal tax imposed on excess net passive income of certain S corporations. Under the Code, the exclusion of interest from gross income for federal income tax purposes may have certain adverse federal income tax consequences on items of income, deduction or credit for certain taxpayers, including financial institutions, certain insurance companies, recipients of Social Security and Railroad Retirement benefits, those that are deemed to incur or continue indebtedness to acquire or carry tax-exempt obligations, and individuals otherwise eligible for the earned income tax credit. The applicability and extent of these and other tax consequences will depend upon the particular tax status or other tax items of the owner of the Series 2012A Bonds. Bond Counsel will express no opinion regarding those consequences. Payments of interest on tax-exempt obligations, including the Series 2012A Bonds, are generally subject to IRS Form 1099-INT information reporting requirements. If a Series 2012A Bond owner is subject to backup withholding under those requirements, then payments of interest will also be subject to backup withholding. Those requirements do not affect the exclusion of such interest from gross income for federal income tax purposes. Legislation affecting tax-exempt obligations is regularly considered by the United States Congress and may also be considered by the State legislature. Court proceedings may also be filed, the outcome of which could modify the tax treatment of obligations such as the Series 2012A Bonds. There can be no assurance that legislation enacted or proposed, or actions by a court, after the date of issuance of the Series 2012A Bonds will not have an adverse effect on the tax status of interest on the Series 2012A Bonds or the market value or marketability of the Series 2012A Bonds. These adverse effects could result, for example, from changes to federal or state income tax rates, changes in the structure of federal or state income taxes (including replacement with another type of tax), or repeal (or reduction in the benefit) of the exclusion of interest on the Series 2012A Bonds from gross income for federal or state income tax purposes for all or certain taxpayers. 80

89 For example, both the American Jobs Act of 2011 proposed by President Obama on September 12, 2011, and introduced into the Senate on September 13, 2011, and the federal budget for fiscal year 2013, as proposed by President Obama on February 13, 2012, contain provisions that could, among other things, result in additional federal income tax for tax years beginning after 2012 on taxpayers that own tax-exempt bonds, including the Series 2012A Bonds, if they have incomes above certain thresholds. Prospective purchasers of the Series 2012A Bonds should consult their own tax advisers regarding pending or proposed federal and state tax legislation and court proceedings, and prospective purchasers of the Series 2012A Bonds at other than their original issuance at the respective prices or yields indicated on the inside cover of this Official Statement should also consult their own tax advisers regarding other tax considerations such as the consequences of market discount, as to all of which Bond Counsel expresses no opinion. Bond Counsel s engagement with respect to the Series 2012A Bonds ends with the issuance of the Series 2012A Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the City or the beneficial owners regarding the tax status of interest on the Series 2012A Bonds in the event of an audit examination by the IRS. The IRS has a program to audit tax-exempt obligations to determine whether the interest thereon is includible in gross income for federal income tax purposes. If the IRS does audit the Series 2012A Bonds, under current IRS procedures, the IRS will treat the City as the taxpayer and the beneficial owners of the Series 2012A Bonds will have only limited rights, if any, to obtain and participate in judicial review of such audit. Any action of the IRS, including but not limited to selection of the Series 2012A Bonds for audit, or the course or result of such audit, or an audit of other obligations presenting similar tax issues, may affect the market value for the Series 2012A Bonds. Original Issue Discount and Original Issue Premium Certain of the Series 2012A Bonds ( Discount Bonds ) as indicated on the inside cover page of this Official Statement were offered and sold to the public at an original issue discount ( OID ). OID is the excess of the stated redemption price at maturity (the principal amount) over the issue price of a Discount Bond. The issue price of a Discount Bond is the initial offering price to the public (other than to bond houses, brokers or similar persons acting in the capacity of underwriters or wholesalers) at which a substantial amount of the Discount Bonds of the same maturity is sold pursuant to that offering. For federal income tax purposes, OID accrues to the owner of a Discount Bond over the period to maturity based on the constant yield method, compounded semiannually (or over a shorter permitted compounding interval selected by the owner). The portion of OID that accrues during the period of ownership of a Discount Bond (i) is interest excluded from the owner s gross income for federal income tax purposes to the same extent, and subject to the same considerations discussed above, as other interest on the Series 2012A Bonds, and (ii) is added to the owner s tax basis for purposes of determining gain or loss on the maturity, redemption, prior sale or other disposition of that Discount Bond. A purchaser of a Discount Bond in the initial public offering at the price or yield for that Discount Bond stated on the inside cover page of this Official Statement who holds that Discount Bond to maturity will realize no gain or loss upon the retirement of that Discount Bond. Certain of the Series 2012A Bonds ( Premium Bonds ) as indicated on the inside cover page of this Official Statement were offered and sold to the public at a price in excess of their stated redemption price (the principal amount) at maturity. That excess constitutes bond premium. For federal income tax purposes, bond premium is amortized over the period to maturity of a Premium Bond, based on the yield to maturity of that Premium Bond (or, in the case of a Premium Bond callable prior to its stated maturity, the amortization period and yield must be determined on the basis of an earlier call date that results in the lowest yield on that Premium Bond), compounded semiannually. No portion of that bond premium is deductible 81

90 by the owner of a Premium Bond. For purposes of determining the owner s gain or loss on the sale, redemption (including redemption at maturity) or other disposition of a Premium Bond, the owner s tax basis in the Premium Bond is reduced by the amount of bond premium that accrues during the period of ownership. As a result, an owner may realize taxable gain for federal income tax purposes from the sale or other disposition of a Premium Bond for an amount equal to or less than the amount paid by the owner for that Premium Bond. A purchaser of a Premium Bond in the initial public offering at the price or yield for that Premium Bond stated on the inside cover page of this Official Statement who holds that Premium Bond to maturity (or, in the case of a callable Premium Bond, to its earlier call date that results in the lowest yield on that Premium Bond) will realize no gain or loss upon the retirement of that Premium Bond. Owners of Discount Bonds and Premium Bonds should consult their own tax advisers as to the determination for federal income tax purposes of the amount of OID or bond premium properly accruable in any period with respect to the Discount Bonds or Premium Bonds and as to other federal tax consequences and the treatment of OID or bond premium for purposes of state and local taxes on, or based on, income. CONTINUING DISCLOSURE In order to provide certain continuing disclosure with respect to the Series 2012A Bonds under Rule 15c2-12 of the Securities and Exchange Commission (the Rule ), the City will enter into a Disclosure Dissemination Agent Agreement (the Continuing Disclosure Agreement ) with Digital Assurance Certification, L.L.C. ( DAC ) for the benefit of the Holders of the Series 2012A Bonds. Under the Continuing Disclosure Agreement, the City will designate DAC to serve as the Disclosure Dissemination Agent to facilitate compliance by the City with its continuing disclosure obligations under the Rule. The services of DAC may be discontinued at any time and the City may appoint a successor Disclosure Dissemination Agent under the Continuing Disclosure Agreement or may assume the responsibilities of the Disclosure Dissemination Agent for the benefit of the Holders of the Series 2012A Bonds. The City has complied with its previous undertakings made with respect to the Rule, except as described in the following paragraph. In connection with the filing of the annual financial information and operating data, as required by the City s various continuing disclosure undertakings (the Annual Report ), the City s final audited financial statements for the Fiscal Year ended September 30, 2011 were not available on the date required for filing of the Fiscal Year 2011 Annual Report. As a result, the Annual Report for Fiscal Year 2011 was delivered to and filed by DAC in draft form on the date set forth for filing of the Annual Report in the City s continuing disclosure undertakings. The final Annual Report for Fiscal Year 2011 was filed by DAC, on behalf of the City, several months after the draft version of the Fiscal Year 2011 Annual Report was filed. All documents required to be filed annually pursuant to the City s continuing disclosure undertakings are currently on file and available electronically from the Municipal Securities Rulemaking Board at Information regarding the Series 2012A Bonds may be found at the DAC internet site, http// The form of the Continuing Disclosure Agreement is attached to this Official Statement as APPENDIX G. GASB STATEMENT NO. 45 The Government Accounting Standards Board ( GASB ), which establishes financial reporting and accounting requirements for governmental entities, issued its Statement No. 45 in June 2004 ( GASB 45 ). 82

91 GASB 45 details new financial reporting guidelines that require state and local governmental entities to report their unfunded actuarial accrued liabilities for health care and other non-pension post-employment benefits (collectively referred to as OPEB ) as well as their annual OPEB costs. Historically, governmental entities generally accounted for OPEB on a pay-as-you-go basis, reporting only the cost of OPEB due in the current fiscal year. As a result of GASB 45, governmental entities are required to utilize an actuarial method of accounting that takes into account unfunded liabilities related to OPEB. In order to receive a clean opinion in its annual audit, governmental entities have to comply with the requirements of GASB 45. Retiring employees of the City are eligible to continue their participation in one of the City s health insurance plans if enrolled at the time of retirement. Because no differential exist in premiums between active and retired members, there is an implicit rate subsidy for retirees who continue their coverage. The City s health insurance plans do not provide for reduced (Medicare supplement) rates for participants over the age of 65. In addition, police and fire employees are provided a post-employment health insurance benefit. The City provides four percent (4%) of such employees payroll to two (2) voluntary employee benefit accounts ( VEBAs ) which are deposited into voluntary employee benefit trust funds. The Board of such trust funds actuarially determines the amount of benefits the retiree can receive, based on the City s VEBA contribution and the assumed rate of return on the investments of the trust funds. The City has no obligation to fund the benefit but merely the set contribution amount. The current benefit is approximately $425 per month for the reimbursement of health care costs. Prior to Fiscal Year 2011, the City also provided approximately two percent (2%) of payroll to a VEBA trust for all general employees (i.e., employees who are not police or fire employees). The current benefit, which began January 1, 2009, is approximately $225 per month. However, as of October 1, 2010, the City discontinued its two percent (2%) of payroll contributions to a VEBA trust for all general employees. Benefit payments from contributions previously provided by the City will cease when the VEBA account where such contributions were held has been exhausted. The City does not believe that GASB 45 creates an unfunded liability to the City for any VEBA. The City implemented its compliance with the provisions of GASB 45 as of the Fiscal Year ended September 30, The implicit rate subsidy of the City s OPEB is being financed by the City through its OPEB Trust Fund. The City s OPEB Trust Fund was established in September An actuarial valuation of the City s OPEB plan was performed as of October 1, The valuation determined the unfunded actuarially accrued liability to be $9,584,778 and an annual OPEB cost for Fiscal Year 2011 to be $1,105,880. Total OPEB contributions made by the City for Fiscal Year 2011 were $1,250,956. No employee or retiree contributions to the OPEB Trust Fund were required or paid in Fiscal Year Future contributions to the OPEB Trust Fund will be budgeted by the City Commission based on actuarially determined amounts. As of September 30, 2011, the City s OPEB Trust Fund had net assets of $6.4 million. For more detailed information concerning OPEB, including assumptions made in the actuarial valuation performed as of October 1, 2010, see APPENDIX C Basic Financial Statements of the City of West Palm Beach, Florida for the Fiscal Year Ended September 30, 2011 and, in particular, Note S Other Post Employment Benefits to such Basic Financial Statements. FINANCIAL STATEMENTS The Basic Financial Statements of the City for the Fiscal Year ended September 30, 2011 and the report of Marcum LLP, independent certified public accountants, in connection therewith, dated April 30, 2012, are included in APPENDIX C as part of the public records of the City. The consent of Marcum LLP was not requested for the reproduction of its audit report in this Official Statement. The auditor has 83

92 performed no services in connection with the preparation of this Official Statement and is not associated with the offering of the Series 2012A Bonds. RATINGS Moody s Investors Service, Inc. ( Moody s ) and Standard & Poor s Ratings Services ( S&P ) have assigned ratings of Aa2 and AA, respectively, to the Series 2012A Bonds. Such ratings reflect the view of such organizations and an explanation of the significance of such ratings may be obtained only from Moody s and S&P, respectively. An explanation of the ratings given by Moody s may be obtained from Moody s at 7 World Trade Center, 250 Greenwich Street, 23 rd Floor, New York, New York 10007, (212) An explanation of the ratings given by S&P may be obtained from S&P at 55 Water Street, 38 th Floor, New York, New York 10041, (212) There is no assurance that the ratings provided by Moody s and S&P, respectively, will continue for any given period of time or that they will not be revised downward or withdrawn entirely by such rating agencies if, in their judgment, circumstances so warrant. Any downward revision or withdrawal of any such ratings may have an adverse effect on the market price of the Series 2012A Bonds. CO-FINANCIAL ADVISORS The City has retained Public Financial Management, Inc., Coral Gables, Florida, and Fidelity Financial Services, L.C., Fort Lauderdale, Florida, as co-financial advisors with respect to the authorization and issuance of the Series 2012A Bonds (the Co-Financial Advisors ). The Co-Financial Advisors are not obligated to undertake and have not undertaken to make an independent verification or to assume responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement. Each of the Co-Financial Advisors is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities. EXPERTS The references in this Official Statement to Public Resources Management Group, Inc. as the Rate Consultant for the Series 2012A Bonds has been approved by such firm. The Historical and Projected Operating Results prepared by the Rate Consultant has been included as Appendix B to this Official Statement in reliance upon such document and upon the Rate Consultant as experts in utility system rate planning and financial analysis. References to and excerpts in this Official Statement from the Historical and Projected Operating Results do not purport to be adequate summaries of such Results or complete in all respects. The Historical and Projected Operating Results are an integral part of this Official Statement and should be read in their entirety for complete information with respect to the subjects discussed therein. UNDERWRITING Raymond James & Associates, Inc., Citigroup Global Markets Inc., Estrada Hinojosa & Company, Inc., Morgan Stanley & Co. LLC, Samuel A. Ramirez & Co., Inc. and RBC Capital Markets, LLC (collectively, the Underwriters ) have agreed to purchase the Series 2012A Bonds at a price of $47,419, (which represents the $43,040, principal amount of the Series 2012A Bonds, plus net original issue premium of $4,493,596.90, minus an Underwriters discount of $114,587.15). The Underwriters will purchase all of the Series 2012A Bonds if any are purchased. The obligation to make such 84

93 purchase is subject to certain terms and conditions contained in a Bond Purchase Agreement relating to the Series 2012A Bonds and to the approval of certain legal matters by counsel. The Series 2012A Bonds are offered for sale to the public at the prices and yields set forth on the inside cover page of this Official Statement. The Series 2012A Bonds may be offered and sold to certain dealers at prices lower than or yields higher than such offering prices and yields. After the initial public offering, such public offering prices and yields may be changed, from time to time, by the Underwriters. On April 2, 2012, Raymond James Financial, Inc. ( RJF ), the parent company of Raymond James & Associates, Inc. ( Raymond James ), one of the Underwriters, acquired all of the stock of Morgan Keegan and Company, Inc. ( Morgan Keegan ) from Regions Financial Corporation. Raymond James and Morgan Keegan are each registered broker-dealers. Both Raymond James and Morgan Keegan are wholly owned subsidiaries of RJF and, as such, are affiliated broker-dealer companies under the common control of RJF, utilizing the trade name Raymond James Morgan Keegan that appears on the cover of this Official Statement. Citigroup Inc. and Morgan Stanley, the respective parent companies of Citigroup Global Markets Inc. and Morgan Stanley & Co. Incorporated, each constituting one of the Underwriters, have entered into a retail brokerage joint venture. As part of the joint venture each of Citigroup Global Markets Inc. and Morgan Stanley & Co. LLC will distribute municipal securities to retail investors through the financial advisor network of a new broker-dealer, Morgan Stanley Smith Barney LLC. This distribution arrangement became effective on June 1, As part of this arrangement, each of Citigroup Global Markets Inc. and Morgan Stanley & Co. LLC will compensate Morgan Stanley Smith Barney LLC. for its selling efforts in connection with their respective allocations of Series 2012A Bonds. In addition, certain of the Underwriters have entered into distribution agreements with other brokerdealers (that have not been designated by the City as Underwriters) for the distribution of the Series 2012A Bonds at the original issue prices. Such agreements generally provide that the relevant Underwriter will share a portion of its underwriting compensation or selling concession with such broker-dealers. VERIFICATION OF MATHEMATICAL COMPUTATIONS The arithmetical accuracy of certain computations included in the schedules provided by Public Financial Management, Inc. relating to the computation of forecasted receipts of principal and interest on the Government Obligations and uninvested cash to pay and redeem the Refunded Bonds and supporting the conclusion of Bond Counsel that the Series 2012A Bonds do not constitute arbitrage bonds under Section 148 of the Internal Revenue Code of 1986, as amended, was verified by Causey Demgen & Moore Inc., Denver, Colorado, as the Verification Agent. Such computations were based solely upon assumptions and information supplied by Public Financial Management, Inc. The Verification Agent has restricted its procedures to examining the arithmetical accuracy of certain computations included in the schedules provided by Public Financial Management, Inc. The Verification Agent has not made any study or evaluation of the assumptions and information upon which the computations are based and, accordingly, has not expressed an opinion on the data used, the reasonableness of the assumptions, or the achievability of the forecasted results. 85

94 CONTINGENT FEES The City has retained Bond Counsel, Disclosure Counsel and the Co-Financial Advisors with respect to the authorization, sale, execution and delivery of the Series 2012A Bonds. Payment of the fees of such professionals and an underwriting discount to the Underwriters (including the fees of Underwriters Counsel) are each contingent upon the issuance of the Series 2012A Bonds. DISCLOSURE REQUIRED BY FLORIDA BLUE SKY REGULATIONS Section , Florida Statutes, and Rule 3E , Florida Administrative Code, requires the City to disclose each and every default as to payment of principal and interest after December 31, 1975 with respect to obligations issued or guaranteed by the City. Rule 3E further provides, however, that if the City in good faith believes that such disclosure would not be considered material by reasonable investors, such disclosure may be omitted. The City is not in default and has not been in default since December 31, 1975 in the payment of principal or interest with respect to any obligations issued or guaranteed by the City. AUTHORIZATION CONCERNING OFFICIAL STATEMENT The delivery of this Official Statement has been duly authorized by the City Commission. At the time of the delivery of the Series 2012A Bonds, the Mayor and the Director of Finance of the City will furnish a certificate to the effect that nothing has come to their attention which would lead them to believe that this Official Statement, as of its date and as of the date of delivery of the Series 2012A Bonds, contains an untrue statement of a material fact or omits to state a material fact which should be included therein for the purpose for which this Official Statement is intended to be used, or which is necessary to make the statements contained herein, in the light of the circumstances under which they were made, not misleading. A limited number of copies of the final Official Statement will be provided, at the City s expense, on a timely basis. CONCLUDING STATEMENT All information included in this Official Statement has been provided by the City, except where attributed to other sources. The summaries of 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. The information in this Official Statement has been compiled from official and other sources and, while not guaranteed by the City, is believed to be correct. To the extent that any statements made in this Official Statement and the appendices attached hereto involve matters of opinion or of estimates, whether or not expressly stated, they are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. [Remainder of page intentionally left blank] 86

95 This Official Statement has been duly executed and delivered by the Mayor and the Director of Finance of the City of West Palm Beach, Florida. CITY OF WEST PALM BEACH, FLORIDA /s/ Geraldine Muoio GERALDINE MUOIO, Mayor /s/ Jeffrey L. Green JEFFREY L. GREEN, Director of Finance 87

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97 APPENDIX A General Information and Economic Data Regarding the City of West Palm Beach, Florida and Palm Beach County, Florida

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99 APPENDIX A THE FOLLOWING INFORMATION CONCERNING THE CITY OF WEST PALM BEACH, FLORIDA (THE CITY ) AND PALM BEACH COUNTY, FLORIDA (THE COUNTY ) IS INCLUDED ONLY FOR THE PURPOSE OF PROVIDING GENERAL BACKGROUND INFORMATION. THE INFORMATION HAS BEEN COMPILED ON BEHALF OF THE CITY, AND SUCH COMPILATION INVOLVED ORAL AND WRITTEN COMMUNICATION WITH VARIOUS SOURCES INDICATED. THE INFORMATION IS SUBJECT TO CHANGE, ALTHOUGH EFFORTS HAVE BEEN MADE TO UPDATE THE INFORMATION WHERE PRACTICABLE. Police PRINCIPAL GOVERNMENTAL SERVICES PERFORMED BY THE CITY The City s Police Department consists of 296 sworn personnel (i.e. Police Officers, Police Sergeants, Police Lieutenants, etc.) and 68 full-time and part-time civilian personnel (i.e. Emergency Communications Officers, Crime Analysts, Secretaries, etc.). Fire The City s Fire Department consists of 176 firefighters, 13 civilian employees and eight (8) fire stations. The City has a rating of three (3) from the Insurance Services Office. The Class Three (3) rating, on a scale of 1 to 10, is excellent, making it possible for homes and businesses to receive low fire insurance rates. Solid Waste Collection and Disposal The City s Sanitation System is composed of solid waste collection/disposal and recycling services. As of September 30, 2011, the City provided sanitation services to approximately 24,000 solid waste collection/disposal accounts (including commercial, single-family residential and multifamily residential). Recreational Facilities The City s Department of Parks and Recreation is responsible for 48 parks which encompass 578 acres. Major facilities in these parks include a new waterfront park with public dock space, one (1) swimming pool, seven (7) community recreation centers, three (3) professionally staffed tennis facilities, an inline hockey and extreme skate park, and two (2) interactive fountains. The City also owns a municipal golf course which is managed through a Golf Commission. Library The Mandel Public Library of West Palm Beach, located in downtown West Palm Beach, provides public library services to the citizens of West Palm Beach as well as reciprocal transactions with the Palm Beach County Library System and Palm Beach County Municipal Libraries through the main facility and the bookmobile. The Library provides reference services as well as a full range of circulating materials, including audiovisual media, to meet the informational and recreational interests and needs of the West Palm Beach population. It also provides an on-ramp to the information superhighway through Internet access and instruction. A-1

100 Special Events The City produces numerous international, award-winning events, such as the weekly Clematis by Night Fountainside Concert Series, the West Palm Beach Green Market, 4 th on Flagler, Kaleidoscope A Celebration of Many Cultures, and the Palm Beach Post Sunday at the Meyer. City events have received more than eighty (80) international, national and state awards, including the continued designation of Best Education Program and Best Community Outreach event for Kaleidoscope A Celebration of Many Cultures. The City also permits and schedules in excess of one hundred (100) additional events annually on public and private property within the City. Education NON-CITY SERVICES The Palm Beach County School District (the PBC School District ) is the fifth (5 th ) largest in Florida and the tenth (10 th ) largest nationwide, with close to 175,000 students enrolled in 167 schools. The PBC School District has forecasted student enrollment to exceed 205,000 by As a result, the Palm Beach County School Concurrency Program (the PBC Concurrency Program ) was created to forecast growth related issues such as renovating existing schools and building new schools to ensure that the PBC School District keeps up with forecasted growth in the community. The PBC Concurrency Program, which is the only program of its kind in the State, enables the PBC School District to continue offering every student in the County a quality education. Higher education is offered at five (5) Palm Beach Community College campus sites, six (6) Florida Atlantic University sites (State University System), Palm Beach Atlantic University, Lynn University, Northwood University, Nova Southeastern University, South University, University of Phoenix and Keiser College. The Palm Beach County Public Library System provides library services for residences in the unincorporated areas of the County and certain municipalities. The Palm Beach County Library System consists of a main library, two (2) regional libraries, eleven (11) branch libraries and one (1) bookmobile. Medical The County has numerous medical facilities. According to the Palm Beach Medical Society, in 2011 there were over 3,500 Doctors of Medicine and 13 hospital systems in the County. Cultural The County is home to numerous Cultural Institutions, including the Armory Art Center, Flagler Museum, Morikami Museum & Japanese Gardens, Norton Museum of Art, Palm Beach Maritime Museum and the Kravis Center for Performing Arts, among others. Electric Power The Florida Power and Light Company ( FPL ) is among the largest and fastest-growing utilities in the United States. FPL provides electricity to the eastern seaboard and southern portions of Florida. Sixteen (16) FPL power plants generate approximately 22,000 megawatts of electricity. FPL s customer mix, shown herein as a % of total sales, is as follows: Residential (50.5%), Commercial (43.2%), Industrial A-2

101 (3.4%) and Other (2.9%). Distribution of FPL s sources of fuel for the generation of power are as follows: 20.35% nuclear, 56.48% natural gas, 4.19% oil, 4.90% coal, 14.05% purchased power and 0.03% solar. FPL plans to add to its generating capacity to meet the region s growing demand. Gas Florida Public Utilities Company distributes, within the City, natural gas having a BTU content of approximately 1,030 BTU per cubic foot. Liquefied petroleum gas (commercial propane) is also available within the City. Transportation Highways: U.S. Highways I-95 and No. 1, and Florida Highways 80 and A1A pass through the City. Florida State Ronald Reagan Turnpike access is available two miles west of the corporate limits of the City on Okeechobee Boulevard. In addition, there are six (6) interchanges for I-95 within the City s corporate limits. Railroads: The CSX Railroad and the Florida East Coast Railway have service through the City. CSX Transportation has roughly 1,778 miles of tracks in Florida that connect with an additional 19,000 miles of CSX tracks located throughout twenty (20) states, the District of Columbia and Canada. In addition, the Florida East Coast Railway operates roughly 442 miles of tracks within Florida. Passenger service between the northeastern U.S. and South Florida is provided by Amtrak. In addition to Amtrak, the Tri-County Rail Service provides commuter passenger service to the City from Miami-Dade County, Broward County and the Palm Beach County area. The Tri-County Rail Service consists of 28 north and south bound trains that carry roughly 700 passengers each. Buses: The local bus service (Palm Tran), owned and operated by the County, serves the City and its suburban areas. Palm Tran s fleet consists of more than 145 buses with more than 3,400 designated stops throughout the County. In addition, Palm Tran has a downtown shuttle loop for the City of West Palm Beach that offers convenient, free transportation between office buildings, restaurants, businesses and parking facilities. In addition to Palm Tran, Greyhound/Trailways Bus Lines furnish various bus services to the area from throughout the State and nation, including daily travel and freight shipment. Airlines: Just outside the corporate limits of the City, commercial air service is provided at Palm Beach International Airport ( PBIA ), administered by the Department of Airports, Palm Beach County. Thirteen (13) airlines currently provide service at PBIA. Approximately 6.0 million people pass through PBIA annually. In addition, commercial airlines (including commuter airplanes) fly in and out of PBIA roughly 55,000 times a year with an estimated 19,000 tons of cargo passing through PBIA annually. Maritime Services: The Port of Palm Beach, the fourth (4 th ) busiest container port of Florida s fourteen (14) deepwater ports and the eighteenth (18 th ) busiest container port in the United States, is located within one-half mile of the corporate limits of the City. The Port provides dockage and cargo facilities for ocean vessels. Approximately 2,400 people are employed directly and indirectly because of the Port and over $7.0 billion in commodities pass through the Port each year. The Port is a Port of Entry and the only South Florida port facility that operates its own rail system with pier-side rail box, hopper and intermodal cars operating twenty-four (24) hours a day. A-3

102 Population and Personal Income ECONOMIC AND DEMOGRAPHIC INFORMATION The City is the most populated metropolitan area of the County, with approximately 99,919 residents in The population of the City, based on the U.S. Census for 1980, 1990, 1995 (special census), 2000 and 2010 are as follows, respectively: 63,000; 67,643; 76,341, 82,103 and 102,475. The County is the third (3 rd ) largest county in the State in terms of population and tenth (10 th ) in density, with approximately 625 persons per square mile. The following table provides current and historical demographic and economic data pertaining to the County. Demographic and Economic Statistics (1) Palm Beach County Year Population Personal Income Per Capita Personal Income Civilian Labor Force Unemployment Rates ,183,197 $53,158,991 $44, , % ,211,448 54,088,022 44, , ,242,270 60,762,224 48, , ,265,900 65,287,476 51, , ,287,987 71,721,487 55, , ,295,033 75,585,800 58, , ,294,654 76,712,607 59, , ,297,950 67,866,247 51, , ,316,481 69,488,201 52, , ,321,757 68,243,128 53, , Source: U.S. Department of Commerce, Census Bureau, 2012 and Florida Legislature, Office of Economic and Demographic Research, July (1) Historical information has been revised to reflect the most current data. Population and income data are per calendar year. The age distribution in the County is similar to that of the State, but differs significantly with that of the nation as a whole. Both the County and the State have a considerably larger proportion of persons aged 65 years and older than the remainder of the nation. A-4

103 Population Distribution by Age Group Palm Beach County Age Group (1) % 21% 21% 21% 21% Source: 2011 Florida Statistical Abstract, University of Florida Bureau of Economic and Business Research. Employment Tourism and agriculture, together with the service industries related to these activities, are the leading sources of employment. Manufacturing, primarily electronics, aircraft engines and other high technology products, also play an important role in the County s economy. The following table provides a listing of the principal employers in the County for the fiscal year ended September 30, 2011 and comparative data for the fiscal year ended September 30, [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] A-5

104 Principal Employers Palm Beach County Employers Employees Rank Percentage of Total County Employment Employees Rank Percentage of Total County Employment Palm Beach County School Board 21, % 18, % Palm Beach County 11, , State of Florida 9, , United States Government 6, , Tenet Healthcare Corp. (1) 6, Florida Power & Light Company 3, , G4S 3, Hospital Corporation of America (2) 2, , Florida Atlantic University 2, Bethesda Memorial Hospital 2, U.S. Sugar Corporation 3, Florida Crystals 2, Intracoastal Health Systems, Inc. (1) 3, Boca Raton Resort Club 2, TOTAL 68, % 59, % Source: City of West Palm Beach, Florida Comprehensive Annual Financial Report for the Fiscal Year ended September 30, (1) Intracoastal Health Systems, Inc., now part of Tenet Healthcare Corp. (2) Formerly, Columbia Palm Beach Health Care System Inc. Tourism Visitors to the Palm Beaches have a significant economic impact on the City and the County. Tourism is the County s number one industry, contributing approximately $1.3 billion to the area s local economy. Tourism employs over 62,000 people annually in the County. More than seven million tourists are estimated to visit the County annually. A-6

105 Agriculture Agriculture is a major source of income in the County s economy. According to the Palm Beach County Business Development Board, the County leads the State and all counties east of the Mississippi River in total agricultural sales and is among the top ten in the entire United States. The estimated economic impact of agriculture to the County exceeds $1.0 billion annually. Additionally, the County leads the nation in the production of sugar cane and sweet corn and leads Florida in the production of bell peppers, radishes, rice, lettuce, celery, specialty leaves and Chinese vegetables. Sugar refining, food processing, fertilizer production and other industries directly related to agricultural output also provide an important source of income and employment. Banking The total deposits of banking institutions in the County in each of the years indicated below were as follows: FDIC Insured Commercial and Savings Bank Deposits (1) Year Deposits 2002 $24,934,136, ,805,934, ,015,885, ,722,872, ,540,208, ,326,013, ,214,606, ,029,649, ,592,581, ,664,852,000 Source: Florida Bankers Association. (1) Data is as of June 30 of preceding year and includes time and demand deposits. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] A-7

106 Construction The following table illustrates the value of new construction within the City, as determined by the County Property Appraiser, for each of the years indicated below. New Construction (within the City) Fiscal Year Taxable Value 2002 $272,843, ,049, ,968, ,673, ,459, ,974, ,446, ,031, ,776, ,717, (1) 188,847,627 Source: Palm Beach County Property Appraiser. (1) Data is as of the first nine (9) months of Fiscal Year [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] A-8

107 The following table sets forth the City s gross assessed property values and related City permit data for each of the years indicated below. Property and Construction Values Commercial Construction Residential Construction Total Building Permits Fiscal Year Total Gross Assessed Property Value # of Units Value # of Units Value # of Units Value 2002 $ 7,341,806, $278,909,724 1,289 $202,393,688 20,909 $742,845, ,132,900, ,200,878 1, ,728,279 25, ,717, ,076,497, ,604, ,126,566 17, ,567, ,593,511, ,315, ,187,394 19, ,752, ,791,154, ,880, ,683,000 16, ,571, ,897,209, ,808, ,750,725 11, ,007, ,486,232, ,343, ,856,452 9, ,011, ,431,206, ,339, ,488,909 7, ,234, ,588,017, ,485, ,116,260 7, ,425, ,059,697, ,497, ,871,594 8, ,348, (1) 11,322,988,000 (2) 6 16,843, ,987,308 6, ,017,319 Source: Finance and Construction Services Departments, City of West Palm Beach, Florida. (1) Data is as of the first nine (9) months of Fiscal Year (2) Data is based on preliminary estimates of assessed property value for Fiscal Year [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] A-9

108 Retail Sales The total retail sales in the County for each of the calendar years 2002 through 2011 were as follows: Retail Sales Palm Beach County Year Retail Sales ($ in thousands) 2002 $34,608, ,073, ,155, ,480, ,593, ,081, ,692, ,616, ,652, ,081,362 Source: 2011 Florida Statistical Abstract, University of Florida, Bureau of Economic and Business Research. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] A-10

109 Sales Tax Collections The following table sets forth historic data relative to the collection of sales taxes for the State and the County for the State s fiscal years indicated below. Historic Sales Tax Collection Fiscal Year State % Change Palm Beach County % Change 2002 $15,124,738,034 $1,112,481, ,329,118, % 1,118,745, % ,639,363, ,210,627, ,847,945, ,416,873, ,005,068, ,653,239, ,999,080, ,640,891, ,766,940, ,556,449, ,368,889, ,205,080, ,768,677, ,172,581, ,226,851, ,304,621, Source: State of Florida, Department of Revenue. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] A-11

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111 APPENDIX B Historical and Projected Operating Results of the Utility System

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113 CITY OF WEST PALM BEACH, FLORIDA HISTORICAL AND PROJECTED OPERATING RESULTS OF THE UTILITY SYSTEM Utility System Revenue Refunding Bonds, Series 2012A August 27, 2012 APPENDIX B Public Resources Management Group, Inc. Utility, Rate, Financial and Management Consultants B-1

114 Public Resources Management Group, Inc. Utility, Rate, Financial and Management Consultants August 27, 2012 The Honorable Mayor and Members of the City Commission City of West Palm Beach 401 Clematis Street West Palm Beach, FL Subject: Utility System Revenue Refunding Bonds, Series 2012A Historical and Projected Operating Results of the Utility System Ladies and Gentlemen: Presented herein is our analysis of the historical and projected operating results in connection with the City of West Palm Beach, Florida (the "City") issuance of approximately $40,860,000 [1] in aggregate principal amount of Utility System Revenue Refunding Bonds, Series 2012A (the "Series 2012A Bonds"). The primary purpose of the Series 2012A Bonds is to: i) provide for the advance refunding of a portion of the City's Utility System Revenue Bonds, Series 2004 (the "Series 2004 Bonds") in order to achieve a reduction in interest expense; and ii) pay certain costs of issuing the Series 2012A Bonds. With respect to the analysis presented herein, the historical period included the five fiscal years ended September 30, 2011 (the "Historical Period") and the forecast period included the five fiscal years ending September 30, 2016 (the "Forecast Period"). Capitalized undefined terms referenced herein shall have the same meaning as ascribed thereto in Resolution No adopted by the City Commission on November 29, 1993, as amended and supplemented from time to time by the City (collectively, the "Bond Resolution") authorizing the issuance of the Series 2012A Bonds. The primary purpose of the attached analysis is to present: i) the Historical Period and projected Forecast Period sales and customer growth statistics for the Water System, the Sewer System (referred to herein as the "Wastewater System") and the Stormwater Drainage Facilities (the "Stormwater System" and together with the Water System and the Wastewater System, the "Utility System"); ii) a summary of the Forecast Period capital improvement program and associated anticipated funding sources for the Utility System; iii) the reported Historical Period and projected Forecast Period financial results; and iv) comparisons of the existing rates of the Utility System with those of other "neighboring" utilities in order to assist the City with its disclosure requirements associated with the issuance of the Series 2012A Bonds. The financial results herein include a presentation of the Utility System compliance with the rate covenant requirements as delineated in the Bond Resolution. [1] Preliminary, subject to change. 341 NORTH MAITLAND AVENUE SUITE 300 MAITLAND, FL TELEPHONE: (407) FAX: (407) PRMG@PRMGinc.com B-2

115 The Honorable Mayor and Members of the City Commission City of West Palm Beach August 27, 2012 Page 2 The financial projections in this analysis associated with the issuance of the Series 2012A Bonds were based on discussions with and information provided by the management of the City, Hazen and Sawyer, P.C. (the "ECRWRF Consulting Engineers"), the co-financial advisors for the City, Public Financial Management, Inc. and Fidelity Financial Services, L.C. (collectively, the "Co- Financial Advisors"), as well as certain assumptions and analyses made by us with respect to such financial projections. The primary assumptions relied upon in the development of the financial forecast are disclosed and are made a part of the analytical tables attached to this letter. The ability of the Utility System to meet the projected debt service requirements and comply with the rate covenant contained in the Bond Resolution are subject to such assumptions and considerations and information obtained during preparation of the projected operating results as reflected in the attached analyses. This analysis summarizes the results of our studies and evaluations up to the date of this letter; changed conditions occurring or becoming known after such date could affect the material presented herein to the extent of such changes. FINDINGS, OBSERVATIONS, AND CONCLUSIONS Based upon the principal considerations and assumptions and the results of our studies and analyses as documented in the tables included herein, which should be reviewed in their entirety and in conjunction with the following, PRMG offers the following findings, observations and conclusions: 1. Based on the customer and water sales forecast shown in Table 1, the Water System currently has sufficient permitted water supply and treatment capacity to meet the assumed service area needs of the Water System for the five Fiscal Year period ending September 30, 2016 as presented in this analysis. 2. Based on the customer and wastewater flow forecast shown in Table 2, the Wastewater System currently has sufficient permitted wastewater treatment and effluent disposal capacity to meet the assumed service area needs of the Wastewater System for the five Fiscal Year period ending September 30, 2016 as presented in this analysis. 3. The projected growth in customers and applicable usage during the Forecast Period for the respective Water System, the Wastewater System, and the Stormwater System represents reasonable projections based on discussions with the City and on recent trends in customers and sales experienced by the Utility System. 4. The adopted rates for water and wastewater service that became effective October 1, 2011, are comparable with the charges for similar service provided by other utilities in Southeast Florida. 5. The adopted rates for the Stormwater System that became effective October 1, 2011, are comparable with the charges for similar service provided by other utilities established by local governments in Southeast Florida. B-3

116 The Honorable Mayor and Members of the City Commission City of West Palm Beach August 27, 2012 Page 3 6. The Impact Fees for the Water System and the Wastewater System are comparable with the fees charged for such service by neighboring utilities. Based on discussions with City staff, the continued imposition of the Impact Fees is not expected to negatively affect Utility System growth. For the Forecast Period and based on the forecast of new customer growth assumed for the System, Impact Fee receipts are not anticipated to be material or needed to meet the rate covenant during the Forecast Period based on the assumptions delineated on the tables supporting the financial projections. 7. Under Florida law, Impact Fees may be validly imposed against new connections in order to fund capital improvements that are needed to serve such new connections or for debt service for bonds or other obligations issued for expansion for new customers. Such Impact Fees must be placed in separate accounts and used only for the capital improvements or debt service attributable to expansion or over-sizing of the System for future capacity through construction or acquisition. Impact Fee revenues can fluctuate with the amount of new construction or development that occurs within the System s service area. No assurances can be given that collection of Impact Fees will not decrease or be eliminated altogether in the event that new construction might decrease or cease altogether within the Water System and Wastewater System service area. 8. The Utility System Gross Revenues for the Forecast Period, which include automatic annual increases, as delineated in Resolution No adopted by the City Commission on May 5, 2008 for Water and Wastewater System rates (the "Water and Wastewater Rate Resolution") and in Resolution No adopted by the City Commission on May 5, 2008 for Stormwater System rates (the "Stormwater Rate Resolution" and together with the Water and Wastewater Rate Resolution, the "Rate Resolution"), modified as shown in 8(a) below, should be sufficient to pay all projected Current Expenses, pay the estimated Principal and Interest Requirements on the outstanding and anticipated Bonds coming due in such years, make the projected deposits to the Renewal, Replacement and Improvement Fund equal to the Renewal, Replacement and Improvement Fund Requirement, provide for the projected payments to the East Central Regional Wastewater Reclamation Facilities Operations Board (the "ECR Board"), for the City's allocation of the East Central Regional Wastewater Reclamation Facility (the "ECRWRF") operating expenses (the "ECR Board Operation and Maintenance Payments"), the debt service payments related to the ECR Bonds (as hereinafter defined) (the "ECR Bonds Payments"), which are treated as Current Expenses pursuant to the Interlocal Agreement Establishing Duties and Responsibilities Among the Entities for the Operation of the East Central Regional Wastewater Treatment Facilities dated May 20, 2008, as amended and modified from time to time (the "Interlocal Wastewater Agreement"), the ECR Board Renewal and Replacement Payments, and other reserve fund contributions for the ECRWRF pursuant to the Bond Resolution and the Interlocal Wastewater Agreement, and meet the rate covenants of the Bond Resolution. 9. The forecast of projected operating results is considered by PRMG as being reasonable and attainable and provides a basis for the City to meet the rate covenants as delineated in the Bond Resolution. Projected Current Expenses do not reflect any potential changes that may B-4

117 The Honorable Mayor and Members of the City Commission City of West Palm Beach August 27, 2012 Page 4 result from the improvements financed by the issuance of Additional Bonds, only the additional Principal and Interest Requirements for the Additional Bonds has been considered in our analysis as shown in 9(f) below. However, the projection of the Current Expenses does recognize an increasing compliancy allowance (expressed as a percent of current period expenses) to provide funds that can be applied to increased expenses. In the development of the projected operating results and compliance with the rate covenants as presented in the attached analysis, several observations, assumptions and considerations need to be disclosed: a. The adopted Rate Resolution authorizes monthly rates for services of the Utility System to be increased annually by five percent (5.0%) each October 1st, commencing October 1, 2012 (beginning of Fiscal Year 2013), unless determined otherwise by action of the City Commission. The financial forecast presented herein assumes the following rate adjustments effective October 1 st of each respective Fiscal Year: Assumed Utility System Rate Adjustments for the Forecast Period [1] Retail Rates Adjustments Fiscal Year Ending September 30, Description Water System Rates Increases 5.00% 3.00% 3.00% 3.00% Wastewater System Rates Increases 5.00% 3.00% 3.00% 3.00% Stormwater System Rates Increases 5.00% 1.50% 1.60% 2.00% [1] Rate increases shown reflect anticipated changes in the level of the rates charged for Utility System service; all rates are anticipated to become effective with service rendered beginning October 1st of each fiscal year. As shown above, the projected Forecast Period Utility System rate adjustments utilized on the financial forecast are equal to or less than the maximum five percent (5.0%) annual rate index currently allowed pursuant to the Rate Resolution. Application of the allowed maximum rate index of five percent (5.0%) annually pursuant to the Rate Resolution for each year during the Forecast Period would result in higher Gross Revenues and an improved rate covenant compliance position. Although the Rate Resolution provides that the rates will automatically increase annually by the application of the rate index allowance, such automatic increase may be modified by City Commission action. To the extent that the rate increase is not implemented as shown above or it is implemented at some lessor amount by the City Commission, the City may need to adjust the annual Current Expenses and/or capital plan in order to maintain rate covenant compliance during the Forecast Period. Historically, the City has annually adjusted rates to meet its expenditure and funding requirements and has maintained rate covenant compliance, except as otherwise described in Table 8, Footnote No. 20. B-5

118 The Honorable Mayor and Members of the City Commission City of West Palm Beach August 27, 2012 Page 5 b. During the Forecast Period, no deposits to or uses of the Rate Stabilization Account were assumed in the determination of the Net Revenues. c. The ECR Board has entered into two (2) State Revolving Loan Fund Agreements, as amended, with the Florida Department of Environmental Protection ("FDEP") (collectively, the "SRF Loans") to fund certain capital improvements at the ECRWRF. The aggregate principal amount borrowed on the SRF Loans totaled $21,968,148, of which $6,507,894 were outstanding as of September 30, The ECR Board is obligated to repay the SRF Loans from revenues and entity member contributions derived from the operations of the ECRWRF pursuant to the Interlocal Wastewater Agreement. Historically, the City's allocable share of the SRF Loans has been $434,070 or 31.17% of the total annual loan payment on the SRF Loans. The City's obligation to provide moneys for its proportionate share of debt service on the SRF Loans is junior and subordinate to the obligation of the City to pay debt service on the Bonds. Pursuant to the provisions of the Bond Resolution, the City's payments on the SRF Loans are payable from moneys on deposit to the credit of the General Reserve Fund. d. The financial analysis assumes that the ECR Board will issue debt during the Forecast Period pursuant to a bond resolution to be adopted by the ECR Board (the "Anticipated ECR Bond Resolution") in order to, among other things: i) cash defease the outstanding SRF Loans; and ii) finance certain capital improvements at the ECRWRF (the "ECR Bonds"). These improvements primarily relate to the ECRWRF's handling of biosolids resulting from improvements to the wastewater treatment process (the "ECR Project"). Particularly, the ECR Bonds will fund the upgrading of wastewater treatment processes and facilities along with the sludge dewatering and disposal facilities. (Remainder of page intentionally left blank) B-6

119 The Honorable Mayor and Members of the City Commission City of West Palm Beach August 27, 2012 Page 6 The following is a summary of the primary assumptions associated with the issuance of the ECR Bonds as provided by the ECR Board's Financial Advisor, as well as the estimated ECR Bonds Payments recognized in the development of the financial forecast: Series 2012 ECR Bonds: Series 2012 ECR Bonds Assumptions [1] Average Annual Interest Rate (All-In TIC) 2.41% Term of Issue 10 Years Debt Service Reserve Fund None Assumed Assumed Issue Date September 5, 2012 Principal Amount Issued $13,820,000 Project Fund Deposit [2] $10,378,000 Series 2012 ECR Bonds Payments Total Bonds [3] $1,846,000 Series 2012 ECR Bonds Payments Allocable to the City [4] $547,000 [1] Amounts shown derived from assumptions provided by the ECR Board's Financial Advisor which are considered preliminary and subject to change. [2] Deposit to project fund to provide funding for the engineering, design, and other initial costs associated with the ECR Project. [3] Amount shown reflects estimated ECR Bonds Payments for the Series 2012 ECR Bonds for Fiscal Year 2016; such year was selected to reflect a full amount of the ECR Bonds Payments, since such payments for years prior to Fiscal Year 2016 were structured by the ECR Board's Financial Advisor as interest-only and partial principal payments. [4] As provided in the Interlocal Wastewater Agreement, the ECR Bonds Payments for the ECR Bonds will be allocated among all entities comprising the ECR Board, including the City, based on the respective amount of wastewater flow delivered to the ECRWRF. Amount shown reflects anticipated Fiscal Year 2016 payment allocable to the City; such year was selected to reflect a full amount of the ECR Bonds Payments after interest-only and partial principal payments during the first three years of the Series 2012 ECR Bonds based on repayment schedules provided by the ECR Board's Financial Advisor. The amount of such debt service is assumed to be allocated to the City based on the City's projected proportion to total ECRWRF flow relationships for Fiscal Year (Remainder of page intentionally left blank) B-7

120 The Honorable Mayor and Members of the City Commission City of West Palm Beach August 27, 2012 Page 7 Series 2014 ECR Bonds: Series 2014 ECR Bonds Assumptions[1] Average Annual Interest Rate (All-In TIC) 4.69% Term of Issue 30 Years Debt Service Reserve Fund $7,425,250 Assumed Issue Date January 1, 2014 Principal Amount Issued $101,585,000 Project Fund Deposit [2] $97,942,000 Average Annual Debt Service Requirement Series 2014 ECR Bonds Payments Total Bonds [3] $5,577,950 Series 2014 ECR Bonds Payments Allocable to the City [4] $1,652,000 [1] Amounts shown derived from assumptions provided by the ECR Board's Financial Advisor which are considered preliminary and subject to change. [2] Deposit to project fund to provide funds for completion of the construction of the ECR Project. [3] Amount shown reflects estimated ECR Bonds Payments for the Series 2014 ECR Bonds for Fiscal Year 2016; such year was selected to reflect a full amount of the ECR Bonds Payments, since such payments for years prior to Fiscal Year 2016 were structured by the ECR Board's Financial Advisor as partial principal payments. [4] As provided in the Interlocal Wastewater Agreement, the ECR Bonds Payments for the ECR Bonds will be allocated among all entities comprising the ECR Board, including the City, based on the respective amount of wastewater flow delivered to the ECRWRF. Amount shown reflects anticipated Fiscal Year 2016 payment allocable to the City; such year was selected to reflect a full amount of the ECR Bonds Payments after partial principal payments for the first amortization years of the Series 2014 ECR Bonds based on repayment schedules provided by the ECR Board's Financial Advisor. The amount of such debt service is assumed to be allocated to the City based on the City's projected proportion to total ECRWRF flow relationships for Fiscal Year The assumptions related to the ECR Bonds are preliminary and are subject to change; any such change may have an economic impact on the financial forecasts presented herein. The payment of the ECR Bonds is considered as a component of Current Expenses (component of purchased wastewater treatment services per the Interlocal Wastewater Agreement) and, therefore, are considered senior in payment of the City's Principal and Interest Requirements on the Bonds, including the Series 2012A Bonds, assumed during the Forecast Period. e. In addition to the ECR Bonds Payments for the ECR Bonds, the City is also required by the Wastewater Interlocal Agreement to pay for its allocated share of the ECR Operation and Maintenance Payments, the ECR Renewal and Replacement Payments, and certain reserve fund contributions for the ECRWRF. The financial forecast presented herein includes a projection of such payments and contributions for the Forecast Period, as shown on Table 10; these payments and contributions affect Net Revenues and the level of required transfers to be made by the City for rate covenant compliance. The City's share of the ECR Operation and Maintenance Payments is considered as a component of Current Expenses. It is anticipated that upon completion of the ECR Project, the City's allocable share of the ECR Operation and Maintenance Payments which is recognized as a component of the City's Current Expenses will significantly B-8

121 The Honorable Mayor and Members of the City Commission City of West Palm Beach August 27, 2012 Page 8 change during the Forecast Period. The assumptions relating to such changes are based on: i) capital and operating expense projections made by and discussions with the ECRWRF Consulting Engineers; ii) discussions with and information provided by City staff; and iii) information contained in the ECRWRF Engineering Report for Biosolids Treatment and Management dated May 2012 prepared by the ECRWRF Consulting Engineers. Refer to Table 10 for a summary of such projected changes. f. The projected operating results include the issuance of Additional Bonds in the estimated principal amount of $157,735,000 during the Forecast Period to finance additional capital improvements for the Utility System, as identified by the City which are considered necessary for the Utility System. The capital improvements to be funded by the Additional Bonds are primarily for upgrade, betterment, and improvement to the City's water treatment plant. The projected Principal and Interest Requirements on the Additional Bonds, as provided by the Co-Financial Advisors, assumes a wrapped structure intended to produce essentially level debt payments for all Bonds then outstanding, including the Additional Bonds. It is anticipated by the City that at the time of the issuance of the Additional Bonds, a detailed debt structure analysis will be performed by the Co-Financial Advisors and that the Additional Bonds structure may further change to produce a payment structure of the Principal and Interest Requirements that would best meet the financial objectives of the Utility System. Any change in the assumed debt structure may affect the rate covenant compliance forecast presented herein. The following is a summary of the primary assumptions associated with the issuance of Additional Bonds by the City assumed in the development of the financial forecast herein: Series 2013 Bonds: Series 2013 Bonds Assumptions [1] Average Annual Interest Rate (All-In TIC) 4.69% Term of Issue 30 Years Debt Service Reserve Fund $14,243,458 Assumed Issue Date January 2, 2013 Principal Amount Issued $157,735,000 Project Fund Deposit [2] $150,000,000 Average Principal and Interest Requirements [3] $9,762,800 [1] Amounts shown derived from assumptions provided by the Co-Financial Advisors which are considered preliminary and subject to change. [2] Deposit to Project Fund to provide funds for capital improvements to the Utility System. [3] Amount shown reflects calculated payment for Fiscal Year 2016 to show full payment after interest-only payments for the first years of the Additional Bonds, based on repayment schedule provided by the Co-Financial Advisors. B-9

122 The Honorable Mayor and Members of the City Commission City of West Palm Beach August 27, 2012 Page 9 The ability of the Net Revenues of the Utility System during the Forecast Period to meet the Principal and Interest Requirements on outstanding Bonds, the Series 2012A Bonds and anticipated Additional Bonds coming due in such years, make the projected deposits to the Renewal, Replacement and Improvement Fund equal to the Renewal, Replacement and Improvement Fund Requirement, provide for the projected payments of the ECR Operation and Maintenance Payments, the ECR Bonds Payments, the ECR Renewal and Replacement Payments, and other reserve fund contributions for the ECRWRF pursuant to the Bond Resolution and the Interlocal Wastewater Agreement, and comply with the rate covenants of the Bond Resolution, are subject to the assumptions and considerations identified in the attached analyses and information obtained during the preparation of such analyses regarding the Utility System and the associated financial conditions evaluated herein. As such, the analyses and the corresponding assumptions should be reviewed in their entirety with respect to the projections and conclusions presented in this letter. Respectfully submitted, Public Resources Management Group, Inc. Robert J. Ori President Felipe A. Salcedo, CGFM Senior Rate Analyst RJO/dlc Attachments Shawn A. Ocasio Rate Analyst B-10

123 CITY OF WEST PALM BEACH, FLORIDA UTILITY SYSTEM REVENUE REFUNDING BONDS, SERIES 2012A HISTORICAL AND PROJECTED OPERATING RESULTS OF THE UTILITY SYSTEM LIST OF TABLES Table No. 1 Description Summary of Historical and Projected Water System Customers, Sales and Water Production 2 Summary of Historical and Projected Wastewater System Customers, Sales and Wastewater Treatment Requirements 3 Summary of Historical and Projected Stormwater System Accounts and Equivalent Stormwater Units 4 Summary of Projected Water System Customers, Sales and Annual Retail Rate Revenues Under Existing Rates 5 Summary of Projected Wastewater System Customers, Sales and Annual Retail Rate Revenues Under Existing Rates 6 Summary of Projected Stormwater System Accounts, Equivalent Stormwater Units and Annual Rate Revenues Under Existing Rates 7 Summary of Bond Debt Service Payments Outstanding and Additional Bonds 8 Historical Operating Results and Debt Service Coverage for the Water, Wastewater, and Stormwater System 9 Projected Operating Results and Debt Service Coverage for the Water, Wastewater, and Stormwater System 10 Development of Total ECRWRF Net Revenue Requirements Allocable to City of West Palm Beach 11 Projection of Current (Operating) Expenses for the Water and Wastewater Systems 12 Projection of Current (Operating) Expenses for the Stormwater System 13 Escalation Factors for the Water System, Wastewater System, and Stormwater System 14 Development of Fund Balances and Interest Income for the Water and Wastewater System 15 Development of Fund Balances and Interest Income for the Stormwater System 16 Comparison of Typical Monthly Residential Bills for Water Service 17 Comparison of Typical Monthly Residential Bills for Wastewater Service B-11

124 CITY OF WEST PALM BEACH, FLORIDA UTILITY SYSTEM REVENUE REFUNDING BONDS, SERIES 2012A HISTORICAL AND PROJECTED OPERATING RESULTS OF THE UTILITY SYSTEM LIST OF TABLES (cont'd.) Table No. Description 18 Comparison of Typical Monthly Residential Bills for Combined Water and Wastewater Service 19 Comparison of Typical Monthly Residential Bills for Stormwater Service 20 Comparison of Capital Connection Charges (Impact Fees) for Water and Wastewater Service 21 Five-Year Estimated Capital Improvement Program for the Water and Wastewater System 22 Five-Year Estimated Capital Improvement Program for the Stormwater System B-12

125 Table 1 Page 1 of 3 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Water System Summary of Historical and Projected Water System Customers, Sales and Water Production Line Historical Fiscal Year Ended September 30, [1] Projected Fiscal Year Ending September 30, No. Description [2] [3] RESIDENTIAL - SINGLE FAMILY City of West Palm Beach 1 Average Monthly Accounts 17,829 19,277 20,748 22,218 22,557 22,853 22,978 23,166 23,198 23,200 23,210 23,211 23,232 23,258 23,284 2 Growth in Accounts -- 1,448 1,471 1, Water Sales (ccf) 2,459,426 2,828,601 3,064,604 3,300,607 3,416,026 3,112,989 2,595,241 2,740,710 2,666,928 2,722,391 2,315,996 2,316,152 2,318,141 2,320,589 2,323,036 4 Average Monthly Use per Account (ccf) Town of Palm Beach 5 Average Monthly Accounts 1,977 1,988 2,048 2,107 2,126 2,192 2,187 2,164 2,173 2,173 2,173 2,174 2,174 2,175 2,175 6 Growth in Accounts (5) (23) Water Sales (ccf) 1,391,573 1,513,502 1,597,801 1,682,100 1,727,672 1,490,242 1,237,526 1,459,093 1,518,396 1,583,028 1,355,060 1,358,691 1,358,691 1,359,079 1,359,079 8 Average Monthly Use per Account (ccf) Town of South Palm Beach 9 Average Monthly Accounts Growth in Accounts Water Sales (ccf) 1,680 2,160 2,936 3,711 2,034 1,577 1,504 1,102 1,884 2,292 2,154 2,154 2,154 2,154 2, Average Monthly Use per Account (ccf) Total Average Monthly Accounts 19,810 21,270 22,800 24,329 24,687 25,049 25,169 25,334 25,375 25,377 25,387 25,389 25,410 25,437 25, Total Growth in Accounts 678 1,460 1,530 1, Total Water Sales (ccf) 3,852,679 4,344,263 4,665,341 4,986,418 5,145,732 4,604,808 3,834,271 4,200,905 4,187,208 4,307,711 3,673,210 3,676,998 3,678,987 3,681,822 3,684,269 B-13 RESIDENTIAL - MULTI-FAMILY City of West Palm Beach 16 Average Monthly Accounts 2,238 2,234 2,189 2,144 2,182 2,187 2,223 2,229 2,220 2,168 2,168 2,168 2,170 2,170 2, Growth in Accounts -- (4) (45) (45) (9) (52) Average Monthly Units 23,644 24,483 25,311 26,140 26,924 27,081 27,536 27,424 26,962 26,906 26,906 26,906 26,931 26,931 26, Growth in Units (112) (462) (56) Average Units per Account Water Sales (ccf) 2,012,083 2,320,861 2,186,572 2,052,282 2,152,578 2,064,183 1,995,399 1,907,493 2,060,010 1,986,867 1,867,655 1,867,655 1,869,390 1,869,390 1,871, Average Monthly Use per Unit (ccf) Town of Palm Beach 23 Average Monthly Accounts Growth in Accounts (2) (2) 0 4 (68) (13) (6) (10) Average Monthly Units 6,892 6,848 6,795 6,742 6,742 6,787 6,685 6,654 6,579 6,609 6,609 6,609 6,609 6,609 6, Growth in Units -- (44) (53) (53) 0 45 (102) (31) (75) Average Units per Account Water Sales (ccf) 1,130,309 1,293,274 1,285,743 1,278,212 1,251,946 1,088, , ,556 1,008,371 1,011, , , , , , Average Monthly Use per Unit (ccf) Town of South Palm Beach 30 Average Monthly Accounts Growth in Accounts -- 3 (2) (1) Average Monthly Units 1,862 1,862 1,862 1,862 1,862 1,862 1,862 1,862 1,862 1,862 1,862 1,862 1,862 1,862 1, Growth in Units Average Units per Account Water Sales (ccf) 142, , , , , , , , , , , , , , , Average Monthly Use per Unit (ccf) Total Average Monthly Accounts 2,846 2,857 2,808 2,760 2,798 2,807 2,775 2,768 2,753 2,691 2,691 2,691 2,693 2,693 2, Total Growth in Accounts (31) 11 (49) (48) 38 9 (32) (7) (15) (62) Total Average Monthly Units 32,398 33,193 33,968 34,744 35,528 35,730 36,083 35,940 35,403 35,377 35,377 35,377 35,402 35,402 35, Total Growth in Units (143) (537) (26) Total Water Sales (ccf) 3,285,377 3,784,497 3,638,907 3,493,316 3,550,492 3,282,183 2,983,214 3,005,472 3,196,442 3,126,656 2,830,732 2,830,732 2,832,467 2,832,467 2,834,203 Footnotes on Page 3 of 3.

126 Table 1 Page 2 of 3 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Water System Summary of Historical and Projected Water System Customers, Sales and Water Production Line Historical Fiscal Year Ended September 30, [1] Projected Fiscal Year Ending September 30, No. Description [2] [3] COMMERCIAL City of West Palm Beach 42 Average Monthly Accounts 3,126 3,258 3,141 3,025 3,018 3,029 3,250 3,317 3,309 3,268 3,261 3,262 3,266 3,275 3, Growth in Accounts (117) (116) (7) (8) (41) (7) Water Sales (ccf) 2,423,941 2,526,602 2,608,617 2,690,631 2,649,369 2,490,672 2,174,966 2,291,204 2,368,125 2,295,921 1,980,684 1,971,176 1,972,646 1,977,822 1,980, Average Monthly Use per Account (ccf) Town of Palm Beach 46 Average Monthly Accounts Growth in Accounts (3) (9) (19) (20) (4) 2 12 (9) 9 (5) Water Sales (ccf) 572, , , , , , , , , , , , , , , Average Monthly Use per Account (ccf) Town of South Palm Beach 50 Average Monthly Accounts Growth in Accounts Water Sales (ccf) 2,246 2,323 2,611 2,898 2,863 2,436 1,627 1,495 2,341 4,374 4,151 4,151 4,151 4,151 4, Average Monthly Use per Account (ccf) Total Average Monthly Accounts 3,545 3,669 3,533 3,397 3,386 3,399 3,632 3,690 3,691 3,645 3,638 3,639 3,644 3,654 3, Total Growth in Accounts (136) (136) (11) (46) (7) Total Water Sales (ccf) 2,998,225 3,119,869 3,203,792 3,287,713 3,295,316 3,049,052 2,660,974 2,825,951 2,908,991 2,855,819 2,553,803 2,550,024 2,551,674 2,557,039 2,559,454 B-14 IRRIGATION City of West Palm Beach 57 Average Monthly Accounts Growth in Accounts (37) (38) (4) Water Sales (ccf) 482, , , , , , , , , , , , , , , Average Monthly Use per Account (ccf) Town of Palm Beach 61 Average Monthly Accounts Growth in Accounts (2) Water Sales (ccf) 350, , , , , , , , , , , , , , , Average Monthly Use per Account (ccf) Town of South Palm Beach 65 Average Monthly Accounts Growth in Accounts Water Sales (ccf) 3,534 4,058 4,131 4,203 4,545 3,744 4,383 4,739 5,531 2,680 2,680 2,680 2,680 2,680 2, Average Monthly Use per Account (ccf) Total Average Monthly Accounts Total Growth in Accounts (32) (32) (6) Total Water Sales (ccf) 836,738 1,078,184 1,002, ,467 1,047, , , , , , , , , , , Total Accounts 26,794 28,489 29,803 31,116 31,532 31,924 32,294 32,525 32,569 32,457 32,461 32,464 32,494 32,533 32, Total Growth in Accounts 776 1,696 1,314 1, (112) Total Units 56,346 58,825 60,963 63,100 64,262 64,847 65,602 65,697 65,219 65,143 65,147 65,150 65,203 65,242 65, Total Growth in Units 1,120 2,479 2,138 2,137 1, (478) (76) Total Water Sales (ccf) 10,973,019 12,326,813 12,510,867 12,694,914 13,039,253 11,737,735 10,082,111 10,871,100 11,187,466 11,184,636 9,691,165 9,691,173 9,696,956 9,705,939 9,712, Average Monthly Use per Account (ccf) Total Finished Water Pumped (ccf) 13,094,559 13,550,869 14,326,738 14,656,096 15,181,230 13,679,933 12,720,990 13,368,984 13,257,647 13,287,299 11,537,101 11,537,111 11,543,996 11,554,690 11,563, Total Finished Water Pumped (kgal) 9,794,730 10,136,050 10,716,400 10,962,760 11,355,560 10,232,590 9,515,301 10,000,000 9,916,720 9,938,900 8,629,751 8,629,759 8,634,909 8,642,908 8,649, Average Daily Flow Water Pumped (ADF-MGD) Unbilled Water (ccf) 2,121,540 1,224,056 1,815,871 1,961,182 2,141,977 1,942,198 2,638,879 2,497,884 2,070,181 2,102,664 1,845,936 1,845,938 1,847,039 1,848,750 1,850, Unbilled Water as Percent of Production (%) [4] 16.20% 9.03% 12.67% 13.38% 14.11% 14.20% 20.74% 18.68% 15.61% 15.82% 16.00% 16.00% 16.00% 16.00% 16.00% Footnotes on Page 3 of 3.

127 Table 1 Page 3 of 3 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Water System Summary of Historical and Projected Water System Customers, Sales and Water Production Line Historical Fiscal Year Ended September 30, [1] Projected Fiscal Year Ending September 30, No. Description [2] [3] Average Daily Flow Water Pumped (ADF-MGD) Maximum Daily Flow (MGD) [5] [3] Permitted Water Treatment Plant Capacity (MGD- 85 MDF) Percent of Capacity Utilized (MGD-MDF) 74.22% 76.81% 81.21% 83.08% 76.85% 81.87% 78.94% 74.47% 72.13% 80.94% 67.45% 65.40% 65.26% 65.50% 65.54% RECAP BY SERVICE AREA: City of West Palm Beach 87 Average Monthly Units 44,973 47,485 49,630 51,775 52,921 53,385 54,226 54,383 53,956 53,857 53,861 53,863 53,914 53,951 54, Average Monthly Accounts 23,568 25,237 26,508 27,779 28,179 28,491 28,913 29,188 29,214 29,119 29,123 29,125 29,153 29,190 29, Growth in Accounts 771 1,669 1,271 1, (95) Water Sales (ccf) 7,378,062 8,359,085 8,469,761 8,580,434 8,848,254 8,148,035 7,136,865 7,419,206 7,631,302 7,555,790 6,564,780 6,555,429 6,560,798 6,569,204 6,575, Average Monthly Use per Account (ccf) Town of Palm Beach 92 Average Monthly Units 9,499 9,466 9,459 9,451 9,467 9,588 9,502 9,440 9,389 9,412 9,412 9,413 9,415 9,417 9, Average Monthly Accounts 3,185 3,208 3,252 3,295 3,311 3,391 3,339 3,295 3,313 3,296 3,296 3,297 3,299 3,301 3, Growth in Accounts (52) (44) 18 (17) Water Sales (ccf) 3,444,512 3,788,825 3,864,836 3,940,846 4,035,589 3,452,869 2,821,531 3,317,135 3,418,347 3,490,998 3,003,803 3,013,163 3,013,577 3,014,154 3,014, Average Monthly Use per Account (ccf) B-15 Town of South Palm Beach 97 Average Monthly Units 1,873 1,874 1,874 1,874 1,874 1,874 1,874 1,874 1,874 1,874 1,874 1,874 1,874 1,874 1, Average Monthly Accounts Growth in Accounts 0 3 (1) (1) Water Sales (ccf) 150, , , , , , , , , , , , , , , Average Monthly Use per Account (ccf) Footnotes: MGD = Million Gallons Per Day ADF = Average Daily Flow MDF = Maximum Daily Flow [1] Based on detailed customer statistical information as provided by the City for each respective historical Fiscal Year shown. [2] The statistics obtained from the City for Fiscal Year 2004 were incomplete due to the implementation of the new Customer Information System (Utility Billing System) during such Fiscal Year. The statistics shown above for this period have been estimated to reflect historical trends. [3] Based on detailed customer statistical information as provided by the City for nine (9) months of Fiscal Year [4] Unbilled water as a percentage of water production for the Fiscal Years 2008 and 2009 was higher than in previous years due to increased line flushing needs for regulatory purposes. [5] Amounts shown for some historical Fiscal Years and for the Forecast Period (Fiscal Year 2012 through Fiscal Year 2016) are based on application of a maximum day peaking factor of 1.30 which represents the historical maximum day peaking factor for the City's Water Treatment Plant (WTP) for Fiscal Year 2006 through Fiscal Year 2010 based on historical water flow data provided by the City.

128 Table 2 Page 1 of 1 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Wastewater System Summary of Historical and Projected Wastewater System Customers, Sales and Wastewater Treatment Requirements Line Projected Fiscal Year Ending September 30, No. Description [2] [3] RESIDENTIAL - SINGLE FAMILY 1 Average Monthly Accounts 17,888 19,335 20,688 22,041 22,248 22,735 22,912 23,188 23,217 23,219 23,229 23,230 23,250 23,275 23,300 2 Growth in Accounts 711 1,446 1,353 1, Revenue Flow (ccf) 1,666,720 1,965,697 2,068,959 2,172,220 2,177,875 2,149,878 1,935,885 1,994,395 1,953,258 2,011,862 1,912,449 1,912,557 1,914,174 1,916,188 1,918,203 4 Average Use per Account (ccf) Total Average Monthly Accounts 17,888 19,335 20,688 22,041 22,248 22,735 22,912 23,188 23,217 23,219 23,229 23,230 23,250 23,275 23,300 6 Total Revenue Flow (ccf) 1,666,720 1,965,697 2,068,959 2,172,220 2,177,875 2,149,878 1,935,885 1,994,395 1,953,258 2,011,862 1,912,449 1,912,557 1,914,174 1,916,188 1,918,203 RESIDENTIAL - MULTI-FAMILY 7 Average Monthly Accounts 2,259 2,263 2,210 2,157 2,171 2,154 2,183 2,209 2,212 2,168 2,168 2,168 2,170 2,170 2,172 8 Growth in Accounts 6 4 (53) (53) 14 (17) (44) Average Monthly Units 23,870 24,535 25,032 25,528 26,746 26,767 27,165 27,224 27,082 26,906 26,906 26,906 26,930 26,930 26, Growth in Units , (142) (176) Units per Account Revenue Flow (ccf) 1,893,111 1,860,166 1,941,892 2,023,618 2,043,585 1,971,974 1,888,153 1,912,918 1,975,706 1,921,954 1,854,686 1,854,686 1,856,340 1,856,340 1,857, Average Use per Account (ccf) Total Average Monthly Accounts 2,259 2,263 2,210 2,157 2,171 2,154 2,183 2,209 2,212 2,168 2,168 2,168 2,170 2,170 2, Total Average Monthly Units 23,870 24,535 25,032 25,528 26,746 26,767 27,165 27,224 27,082 26,906 26,906 26,906 26,930 26,930 26, Total Revenue Flow (ccf) 1,893,111 1,860,166 1,941,892 2,023,618 2,043,585 1,971,974 1,888,153 1,912,918 1,975,706 1,921,954 1,854,686 1,854,686 1,856,340 1,856,340 1,857,994 B-16 COMMERCIAL 17 Average Monthly Accounts 2,565 2,557 2,564 2,572 2,529 2,556 2,756 2,787 2,795 2,788 2,789 2,789 2,790 2,792 2, Growth in Accounts 34 (8) 7 8 (43) (7) Revenue Flow (ccf) 2,046,728 2,107,576 2,069,165 2,030,753 2,004,007 1,974,347 1,794,598 1,819,932 1,830,177 1,862,856 1,781,219 1,781,219 1,781,318 1,781,737 1,781, Average Use per Account (ccf) Total Average Monthly Accounts 2,565 2,557 2,564 2,572 2,529 2,556 2,756 2,787 2,795 2,788 2,789 2,789 2,790 2,792 2, Total Revenue Flow (ccf) 2,046,728 2,107,576 2,069,165 2,030,753 2,004,007 1,974,347 1,794,598 1,819,932 1,830,177 1,862,856 1,781,219 1,781,219 1,781,318 1,781,737 1,781, Total Accounts 22,712 24,154 25,462 26,770 26,948 27,445 27,851 28,184 28,224 28,175 28,186 28,187 28,210 28,237 28, Total Growth in Accounts 751 1,442 1,308 1, (49) Total Units 44,323 46,427 48,284 50,141 51,523 52,058 52,833 53,199 53,094 52,913 52,924 52,925 52,970 52,997 53, Total Growth in Units 1,347 2,104 1,858 1,857 1, (105) (181) Total Wastewater Revenue Flow (ccf') 5,606,559 5,933,439 6,080,016 6,226,591 6,225,467 6,096,199 5,618,636 5,727,245 5,759,141 5,796,672 5,548,354 5,548,462 5,551,832 5,554,265 5,558, Total Wastewater Treated (ccf) 5,593,810 5,099,532 5,290,722 5,622,086 5,235,829 5,822,660 6,137,794 6,521,324 6,759,666 6,560,588 5,666,892 5,723,561 5,780,796 5,838,604 5,896, Total Wastewater Treated (kgal) 4,184,170 3,814,450 3,957,460 4,205,320 3,916,400 4,355,350 4,591,070 4,877,950 5,056,230 4,907,320 4,238,835 4,281,223 4,324,036 4,367,276 4,410, Average Annual Daily Flow (ADF-MGD) ECRWRF City Allocated Wastewater 31 Treatment Plant Capacity (ADF-MGD) Percent of Capacity Utilized (ADF-MGD) 67.43% 61.47% 63.78% 67.77% 63.12% 70.19% 73.99% 78.61% 81.49% 79.09% 56.65% 57.22% 57.79% 58.37% 58.95% Footnotes: MGD = Million Gallons Per Day ADF = Average Daily Flow [1] Based on detailed customer statistical information as provided by the City for each respective historical Fiscal Year shown. [2] The statistics obtained from the City for Fiscal Year 2004 were incomplete due to the implementation of the new Customer Information System (Utility Billing System) during such Fiscal Year. The statistics shown above for this period have been estimated to reflect historical trends. [3] Based on detailed customer statistical information as provided by the City for nine (9) months of Fiscal Year 2012.

129 Table 3 Page 1 of 2 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Stormwater System Summary of Historical and Projected Stormwater System Accounts and Equivalent Stormwater Units Line Historical Fiscal Year Ending September 30, [1] Projected Fiscal Year Ending September 30, No. Description [2] [3] Single Family Residential - Class A110 1 Annual Average Accounts 14,481 14,422 14,391 14,633 14,584 14,641 14,640 14,628 14,616 14,601 14,591 14,591 14,593 14,598 14,603 2 Annual Average ESUs 14,481 14,422 14,391 14,633 14,584 14,641 14,640 14,628 14,616 14,601 14,591 14,591 14,593 14,598 14,603 3 Growth in Accounts (17) (59) (31) 242 (49) 57 (1) (12) (12) (15) (10) Growth in ESUs (17) (59) (31) 242 (49) 57 (1) (12) (12) (15) (10) Single Family Residential - Class A114 5 Annual Average Accounts ,357 1,354 1,204 1,204 1,203 1,203 1,204 1,205 1,205 1,205 1,206 1,206 1,207 6 Annual Average ESUs ,357 1,354 1,204 1,204 1,203 1,203 1,204 1,205 1,205 1,205 1,206 1,206 1,207 7 Growth in Accounts (3) (150) 0 (1) Growth in ESUs (3) (150) 0 (1) Single Family Residential - Class A112 9 Annual Average Accounts 3,384 4,311 5,478 6,240 6,450 6,579 6,596 6,613 6,613 6,616 6,616 6,618 6,623 6,628 6, Annual Average ESUs 3,384 4,311 5,478 6,240 6,450 6,579 6,596 6,613 6,613 6,616 6,616 6,618 6,623 6,628 6, Growth in Accounts , Growth in ESUs , B-17 Total Single Family Residential 13 Annual Average Accounts 18,650 19,696 21,226 22,227 22,238 22,424 22,439 22,444 22,433 22,422 22,412 22,414 22,422 22,432 22, Annual Average ESUs 18,650 19,696 21,226 22,227 22,238 22,424 22,439 22,444 22,433 22,422 22,412 22,414 22,422 22,432 22, Growth in Accounts 611 1,046 1,530 1, (11) (11) (10) Growth in ESUs 611 1,046 1,530 1, (11) (11) (10) Multi-Unit Residential - Class A Annual Average Accounts 2,132 2,096 2,085 2,057 2,007 1,982 1,974 1,971 1,944 1,942 1,962 1,962 1,965 1,965 1, Annual Average ESUs 14,962 15,050 15,970 16,189 16,014 16,232 16,386 16,353 16,233 16,158 16,159 16,159 16,184 16,184 16, Growth in Accounts (22) (36) (11) (28) (50) (25) (8) (3) (27) (2) Growth in ESUs (175) (33) (120) (75) Multi-Unit Residential - Class A Annual Average Accounts Annual Average ESUs 8,787 8,992 9,979 10,503 9,602 9,564 9,560 9,560 9,560 9,560 9,560 9,560 9,560 9,560 9, Growth in Accounts (1) (11) (1) Growth in ESUs (59) (901) (38) (4) Multi-Unit Residential - Class A Annual Average Accounts Annual Average ESUs ,131 1,606 1,588 1,926 1,942 1,942 1,942 1,950 1,956 1,956 1,957 1,957 1, Growth in Accounts (1) Growth in ESUs (18) Total Multi Family Residential 29 Annual Average Accounts 2,272 2,237 2,235 2,217 2,155 2,130 2,122 2,119 2,092 2,091 2,111 2,111 2,114 2,114 2, Annual Average ESUs 24,283 24,576 27,080 28,298 27,204 27,722 27,888 27,855 27,735 27,668 27,675 27,675 27,701 27,701 27, Growth in Accounts (23) (35) (2) (18) (62) (25) (8) (3) (27) (1) Growth in ESUs ,504 1,218 (1,094) (33) (120) (67) Commercial - Class A Annual Average Accounts 2,576 2,580 2,582 2,581 2,632 2,678 2,684 2,685 2,700 2,708 2,716 2,726 2,738 2,751 2, Annual Average ESUs 34,480 35,148 36,690 37,518 37,083 37,324 37,530 37,926 38,462 38,652 38,762 38,887 39,037 39,212 39, Growth in Accounts (1) Growth in ESUs 1, , (435) Footnotes on Page 2 of 2.

130 Table 3 Page 2 of 2 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Stormwater System Summary of Historical and Projected Stormwater System Accounts and Equivalent Stormwater Units Line Historical Fiscal Year Ending September 30, [1] Projected Fiscal Year Ending September 30, No. Description [2] [3] Commercial - Class A Annual Average Accounts Annual Average ESUs 3,145 3,149 3,246 3,299 3,330 3,406 3,379 3,404 3,477 3,861 3,890 3,905 3,920 3,935 3, Growth in Accounts 3 4 (4) (7) Growth in ESUs (231) (27) Commercial - Class A Annual Average Accounts Annual Average ESUs 2,109 2,160 2,604 3,725 3,979 4,364 4,925 5,171 5,746 5,687 5,661 5,661 5,661 5,661 5, Growth in Accounts 9 1 (7) (23) (1) Growth in ESUs , (59) (26) B-18 Total Commercial 45 Annual Average Accounts 2,699 2,708 2,699 2,668 2,725 2,776 2,790 2,801 2,829 2,840 2,848 2,858 2,870 2,883 2, Annual Average ESUs 39,734 40,457 42,540 44,542 44,392 45,094 45,834 46,501 47,685 48,200 48,313 48,453 48,618 48,808 49, Growth in Accounts 34 9 (9) (31) Growth in ESUs 1, ,083 2,002 (150) , Total Annual Average Accounts 23,621 24,641 26,160 27,112 27,118 27,330 27,351 27,364 27,354 27,353 27,371 27,383 27,406 27,429 27, Total Annual Average ESUs 82,667 84,729 90,846 95,067 93,834 95,240 96,161 96,800 97,853 98,290 98,400 98,542 98,741 98,941 99, Total Growth in Accounts 622 1,020 1, (10) (1) Total Growth in ESUs 2,053 2,062 6,117 4,221 (1,233) 1, , Footnotes: (ERU) or (ESU) = Equivalent Residential or Stormwater Unit as defined on Resolution A110 - Full Rate Application A114-68% Rate Application A112-37% Rate Application [1] Based on detailed customer statistical information as provided by the City for each respective historical Fiscal Year shown. [2] The statistics obtained from the City for Fiscal Year 2004 were incomplete due to the implementation of the new Customer Information System (Utility Billing System) during such Fiscal Year. The statistics shown above for this period have been estimated to reflect historical trends. [3] Based on detailed customer statistical information as provided by the City for nine (9) months of Fiscal Year 2012.

131 Table 4 Page 1 of 3 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Water System Summary of Projected Water System Customers, Sales and Annual Retail Rate Revenues Under Existing Rates [1] Line Fiscal Year Ending September 30, No. Description 2012 [2] RESIDENTIAL - SINGLE FAMILY West Palm Beach 1 Average Monthly Accounts 23,210 23,211 23,232 23,258 23,284 2 Water Sales (ccf) 2,315,996 2,316,152 2,318,141 2,320,589 2,323,036 3 Average Monthly Use per Account (ccf) Annual Service Charge Revenue $ 5,411,644 $ 5,411,877 $ 5,416,773 $ 5,422,835 $ 5,428,897 5 Annual Volumetric Revenue 6,270,284 6,270,734 6,276,041 6,282,562 6,289,083 6 Total Annual Revenue $ 11,681,927 $ 11,682,611 $ 11,692,814 $ 11,705,397 $ 11,717,981 Town of Palm Beach 7 Average Monthly Accounts 2,173 2,174 2,174 2,175 2,175 8 Water Sales (ccf) 1,355,060 1,358,691 1,358,691 1,359,079 1,359,079 9 Average Monthly Use per Account (ccf) Annual Service Charge Revenue $ 506,657 $ 506,890 $ 506,890 $ 507,123 $ 507, Annual Volumetric Revenue 5,021,818 5,038,510 5,038,510 5,039,784 5,039, Total Annual Revenue $ 5,528,474 $ 5,545,400 $ 5,545,400 $ 5,546,907 $ 5,546,907 Town of South Palm Beach 13 Average Monthly Accounts Water Sales (ccf) 2,154 2,154 2,154 2,154 2, Average Monthly Use per Account (ccf) Annual Service Charge Revenue $ 933 $ 933 $ 933 $ 933 $ Annual Volumetric Revenue 7,379 7,379 7,379 7,379 7, Total Annual Revenue $ 8,312 $ 8,312 $ 8,312 $ 8,312 $ 8, Total Average Monthly Accounts 25,387 25,389 25,410 25,437 25, Total Water Sales (ccf) 3,673,210 3,676,998 3,678,987 3,681,822 3,684,269 RESIDENTIAL - MULTI-FAMILY West Palm Beach 21 Average Monthly Accounts 2,168 2,168 2,170 2,170 2, Average Monthly Units 26,906 26,906 26,931 26,931 26, Average Units per Account Water Sales (ccf) 1,867,655 1,867,655 1,869,390 1,869,390 1,871, Average Monthly Use per Unit (ccf) Annual Service Charge Revenue $ 6,273,403 $ 6,273,403 $ 6,279,232 $ 6,279,232 $ 6,285, Annual Volumetric Revenue 4,325,132 4,325,132 4,329,151 4,329,151 4,333, Total Annual Revenue $ 10,598,535 $ 10,598,535 $ 10,608,383 $ 10,608,383 $ 10,618,230 Town of Palm Beach 29 Average Monthly Accounts Average Monthly Units 6,609 6,609 6,609 6,609 6, Average Units per Account Water Sales (ccf) 849, , , , , Average Monthly Use per Unit (ccf) Annual Service Charge Revenue $ 1,540,954 $ 1,540,954 $ 1,540,954 $ 1,540,954 $ 1,540, Annual Volumetric Revenue 2,349,007 2,349,007 2,349,007 2,349,007 2,349, Total Annual Revenue $ 3,889,961 $ 3,889,961 $ 3,889,961 $ 3,889,961 $ 3,889,961 Footnotes on Page 3 of 3. B-19

132 Table 4 Page 2 of 3 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Water System Summary of Projected Water System Customers, Sales and Annual Retail Rate Revenues Under Existing Rates [1] Line Fiscal Year Ending September 30, No. Description 2012 [2] Town of South Palm Beach 37 Average Monthly Accounts Average Monthly Units 1,862 1,862 1,862 1,862 1, Average Units per Account Water Sales (ccf) 113, , , , , Average Monthly Use per Unit (ccf) Annual Service Charge Revenue $ 434,144 $ 434,144 $ 434,144 $ 434,144 $ 434, Annual Volumetric Revenue 258, , , , , Total Annual Revenue $ 692,437 $ 692,437 $ 692,437 $ 692,437 $ 692, Total Average Monthly Accounts 2,691 2,691 2,693 2,693 2, Total Average Monthly Units 35,377 35,377 35,402 35,402 35, Total Water Sales (ccf) 2,830,732 2,830,732 2,832,467 2,832,467 2,834,203 COMMERCIAL West Palm Beach 48 Average Monthly Accounts 3,261 3,262 3,266 3,275 3, Water Sales (ccf) 1,980,684 1,971,176 1,972,646 1,977,822 1,980, Average Monthly Use per Account (ccf) Annual Service Charge Revenue $ 2,978,466 $ 2,981,968 $ 2,984,884 $ 2,992,585 $ 2,997, Annual Volumetric Revenue 8,453,891 8,411,421 8,417,176 8,438,735 8,446, Total Annual Revenue $ 11,432,357 $ 11,393,389 $ 11,402,060 $ 11,431,320 $ 11,444,134 Town of Palm Beach 54 Average Monthly Accounts Water Sales (ccf) 568, , , , , Average Monthly Use per Account (ccf) Annual Service Charge Revenue $ 443,290 $ 443,290 $ 443,640 $ 443,873 $ 444, Annual Volumetric Revenue 2,586,340 2,613,936 2,614,497 2,615,097 2,615, Total Annual Revenue $ 3,029,629 $ 3,057,226 $ 3,058,137 $ 3,058,970 $ 3,059,881 Town of South Palm Beach 60 Average Monthly Accounts Water Sales (ccf) 4,151 4,151 4,151 4,151 4, Average Monthly Use per Account (ccf) Annual Service Charge Revenue $ 4,434 $ 4,434 $ 4,434 $ 4,434 $ 4, Annual Volumetric Revenue 17,535 17,535 17,535 17,535 17, Total Annual Revenue $ 21,969 $ 21,969 $ 21,969 $ 21,969 $ 21, Total Average Monthly Accounts 3,638 3,639 3,644 3,654 3, Total Water Sales (ccf) 2,553,803 2,550,024 2,551,674 2,557,039 2,559,454 Footnotes on Page 3 of 3. B-20

133 Table 4 Page 3 of 3 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Water System Summary of Projected Water System Customers, Sales and Annual Retail Rate Revenues Under Existing Rates [1] Line Fiscal Year Ending September 30, No. Description 2012 [2] IRRIGATION West Palm Beach 68 Average Monthly Accounts Water Sales (ccf) 400, , , , , Average Monthly Use per Account (ccf) Annual Service Charge Revenue $ 386,290 $ 386,290 $ 386,523 $ 387,339 $ 387, Annual Volumetric Revenue 1,774,948 1,774,948 1,775,638 1,778,847 1,779, Total Annual Revenue $ 2,161,238 $ 2,161,238 $ 2,162,160 $ 2,166,186 $ 2,167,109 Town of Palm Beach 74 Average Monthly Accounts Water Sales (ccf) 230, , , , , Average Monthly Use per Account (ccf) Annual Service Charge Revenue $ 277,703 $ 277,703 $ 277,936 $ 277,936 $ 278, Volumetric Revenue 1,012,162 1,012,162 1,013,087 1,013,087 1,014, Total Annual Revenue $ 1,289,865 $ 1,289,865 $ 1,291,023 $ 1,291,023 $ 1,292,181 Town of South Palm Beach 80 Average Monthly Accounts Water Sales (ccf) 2,680 2,680 2,680 2,680 2, Average Monthly Use per Account (ccf) Annual Service Charge Revenue $ 4,084 $ 4,084 $ 4,084 $ 4,084 $ 4, Annual Volumetric Revenue 11,206 11,206 11,206 11,206 11, Total Annual Revenue $ 15,291 $ 15,291 $ 15,291 $ 15,291 $ 15, Total Average Monthly Accounts Total Water Sales (ccf) 633, , , , ,021 TOTAL WATER SYSTEM 88 Total Accounts 32,461 32,464 32,494 32,533 32, Total Units 65,147 65,150 65,203 65,242 65, Total Water Sales (ccf) 9,691,165 9,691,173 9,696,956 9,705,939 9,712, Average Monthly Use per Account (ccf) Total System Annual Service Charge Revenue $ 18,262,001 $ 18,265,969 $ 18,280,427 $ 18,295,472 $ 18,312, Total System Annual Volumetric Revenue 32,087,995 32,090,265 32,107,521 32,140,685 32,161, Total System Annual Revenue $ 50,349,996 $ 50,356,234 $ 50,387,948 $ 50,436,157 $ 50,474,394 Annual Revenue by Municipality 95 West Palm Beach $ 35,874,058 $ 35,835,773 $ 35,865,418 $ 35,911,287 $ 35,947, Town of Palm Beach 13,737,930 13,782,452 13,784,521 13,786,862 13,788, Town of South Palm Beach 738, , , , , Total System Annual Revenue $ 50,349,996 $ 50,356,234 $ 50,387,948 $ 50,436,157 $ 50,474,394 Footnotes: [1] Customer information derived from Table 1 which also contains water production information. Reflect revenues under existing rates (i.e., rates effective October 1, 2011 pursuant to the Rate Ordinance). As of the date of this report, the City is not currently applying Drought Surcharges to Utility System customer bills. For this analysis, it has been assumed that the City will not enact Drought Surcharges during the Forecast Period. [2] Based on detailed customer statistical information as provided by the City for nine (9) months of Fiscal Year B-21

134 Table 5 Page 1 of 1 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Wastewater System Summary of Projected Wastewater System Customers, Sales and Annual Retail Rate Revenues Under Existing Rates [1] Line Fiscal Year Ending September 30, No. Description 2012 [2] RESIDENTIAL - SINGLE FAMILY West Palm Beach 1 Average Monthly Accounts 23,229 23,230 23,250 23,275 23,300 2 Revenue Flow (ccf) 1,912,449 1,912,557 1,914,174 1,916,188 1,918,203 3 Average Monthly Use per Account (ccf) Annual Service Charge Revenue $ 3,035,566 $ 3,035,696 $ 3,038,310 $ 3,041,577 $ 3,044,844 5 Annual Volumetric Revenue 6,138,962 6,139,307 6,144,498 6,150,964 6,157,430 6 Total Annual Revenue $ 9,174,528 $ 9,175,004 $ 9,182,808 $ 9,192,541 $ 9,202,274 RESIDENTIAL - MULTI-FAMILY West Palm Beach 7 Average Monthly Accounts 2,168 2,168 2,170 2,170 2,172 8 Average Monthly Units 26,906 26,906 26,930 26,930 26,954 9 Average Units per Account Revenue Flow (ccf) 1,854,686 1,854,686 1,856,340 1,856,340 1,857, Average Monthly Use per Unit (ccf) Annual Service Charge Revenue $ 3,516,076 $ 3,516,076 $ 3,519,212 $ 3,519,212 $ 3,522, Annual Volumetric Revenue 5,953,541 5,953,541 5,958,851 5,958,851 5,964, Total Annual Revenue $ 9,469,617 $ 9,469,617 $ 9,478,064 $ 9,478,064 $ 9,486,511 COMMERCIAL West Palm Beach 15 Average Monthly Accounts 2,789 2,789 2,790 2,792 2, Revenue Flow (ccf) 1,781,219 1,781,219 1,781,318 1,781,737 1,781, Average Monthly Use per Account (ccf) Annual Service Charge Revenue $ 1,397,492 $ 1,397,492 $ 1,397,622 $ 1,398,080 $ 1,398, Annual Volumetric Revenue 5,717,714 5,717,714 5,718,031 5,719,374 5,719, Total Annual Revenue $ 7,115,205 $ 7,115,205 $ 7,115,653 $ 7,117,455 $ 7,117,903 TOTAL WASTEWATER SYSTEM 21 Total Accounts 28,186 28,187 28,210 28,237 28, Total Units 52,924 52,925 52,970 52,997 53, Total Revenue Flow (ccf) 5,548,354 5,548,462 5,551,832 5,554,265 5,558, Average Monthly Use per Account (ccf) Total System Annual Service Charge Revenue $ 7,949,133 $ 7,949,264 $ 7,955,145 $ 7,958,869 $ 7,965, Total System Annual Volumetric Revenue 17,810,217 17,810,561 17,821,380 17,829,190 17,841, Total System Annual Revenue $ 25,759,350 $ 25,759,826 $ 25,776,525 $ 25,788,059 $ 25,806,687 Footnotes: [1] Customer information derived from Table 2 which also contains wastewater treatment requirements information. Reflect revenues under existing rates (i.e., effective October 1, 2011 pursuant to the Rate Ordinance). [2] Based on detailed customer statistical information as provided by the City for nine (9) months of Fiscal Year B-22

135 Table 6 City of West Palm Beach, Florida Stormwater System Utility System Revenue Refunding Bonds, Series 2012A Summary of Projected Stormwater System Accounts,.Equivalent Stormwater Units and Annual Rate Revenues Under Existing Rates [1] Line Fiscal Year Ending September 30, No. Description [2] Single Family Residential - Class A110 1 Rate $9.82 $9.82 $9.82 $9.82 $ Average Monthly Billing ESUs 14,591 14,591 14,593 14,598 14,603 3 Annual Rate Revenues $1,719,403 $1,719,403 $1,719,639 $1,720,228 $1,720,818 Single Family Residential - Class A114 4 Rate $6.69 $6.69 $6.69 $6.69 $ Average Monthly Billing ESUs 1,205 1,205 1,206 1,206 1,207 6 Annual Rate Revenues $96,737 $96,737 $96,818 $96,818 $96,898 Single Family Residential - Class A112 7 Rate $3.66 $3.66 $3.66 $3.66 $ Average Monthly Billing ESUs 6,616 6,618 6,623 6,628 6,633 9 Annual Rate Revenues $290,575 $290,663 $290,882 $291,102 $291, Total Single Family Residential Revenues $2,106,716 $2,106,803 $2,107,339 $2,108,148 $2,109,037 Multi-Family Residential - Class A Rate $9.82 $9.82 $9.82 $9.82 $ Average Monthly Billing ESUs 16,159 16,159 16,184 16,184 16, Annual Rate Revenues $1,904,177 $1,904,177 $1,907,123 $1,907,123 $1,910,069 Multi Family Residential - Class A Rate $6.69 $6.69 $6.69 $6.69 $ Average Monthly Billing ESUs 9,560 9,560 9,560 9,560 9, Annual Rate Revenues $767,477 $767,477 $767,477 $767,477 $767,477 Multi Family Residential - Class A Rate $3.66 $3.66 $3.66 $3.66 $ Average Monthly Billing ESUs 1,956 1,956 1,957 1,957 1, Annual Rate Revenues $85,908 $85,908 $85,951 $85,951 $85, Total Multi Family Residential Revenues $2,757,561 $2,757,561 $2,760,551 $2,760,551 $2,763,541 Commercial - Class A Rate $9.82 $9.82 $9.82 $9.82 $ Average Monthly Billing ESUs 38,762 38,887 39,037 39,212 39, Annual Rate Revenues $4,567,714 $4,582,444 $4,600,120 $4,620,742 $4,644,310 Commercial - Class A Rate $6.69 $6.69 $6.69 $6.69 $ Average Monthly Billing ESUs 3,890 3,905 3,920 3,935 3, Annual Rate Revenues $312,289 $313,493 $314,698 $315,902 $317,106 Commercial - Class A Rate $3.66 $3.66 $3.66 $3.66 $ Average Monthly Billing ESUs 5,661 5,661 5,661 5,661 5, Annual Rate Revenues $248,631 $248,631 $248,631 $248,631 $248, Total Commercial Revenues $5,128,634 $5,144,569 $5,163,449 $5,185,275 $5,210, Total Stormwater System Rate Revenues $9,992,911 $10,008,933 $10,031,339 $10,053,974 $10,082,625 Footnotes on Page 2 of 2. B-23

136 Table 6 City of West Palm Beach, Florida Stormwater System Utility System Revenue Refunding Bonds, Series 2012A Summary of Projected Stormwater System Accounts,.Equivalent Stormwater Units and Annual Rate Revenues Under Existing Rates [1] Footnotes: A110 - Full Rate Application A114-68% Rate Application A112-37% Rate Application [1] Customer information derived from Table 3. Reflect revenues under exiting rates (i.e., effective October 1, 2011 pursuant to the Rate Ordinance). [2] Based on detailed customer statistical information as provided by the City for nine (9) months of Fiscal Year B-24

137 Table 7 Page 1 of 2 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Water and Wastewater System Summary of Bond Debt Service Payments - Outstanding and Additional Bonds [1] Line Fiscal Year Ending September 30, No. Description Annual Bond Debt Service Current Bonds Outstanding 1 Series 2004 Bonds $ 2,598,365 $ 651,135 $ 648,750 $ 0 $ 0 2 Series 2008A Bonds 4,035,773 4,027,210 4,034,990 4,043,740 4,017,740 3 Series 2008B Bonds 1,437,654 1,450,623 1,440,313 1,436,988 1,465,488 4 Series 2008C Bonds 4,182,825 4,178,797 4,180,811 4,180,811 4,182,825 5 Series 2010 Bonds 910, , , , ,008 6 Series 2011A Bonds 1,950,300 1,951,000 1,953,800 1,947,600 1,946,100 Additional Bonds 7 Series 2012A Bonds [2] $ 27,778 $ 2,000,000 $ 2,000,000 $ 2,585,000 $ 2,582,450 8 Series 2013 Bonds [2] 0 5,878,995 7,867,800 7,867,800 9,762,800 9 Bond Debt Service Amount $ 15,142,851 $ 21,051,517 $ 23,038,221 $ 22,973,196 $ 24,862, Amount Allocated to the Water and Wastewater System $ 12,118,393 $ 18,077,515 $ 20,056,964 $ 20,046,466 $ 21,937, Amount Allocated to the Stormwater System 3,024,459 2,974,003 2,981,258 2,926,730 2,924, Maximum Principal and Interest Requirements [3] $ 15,479,081 $ 24,901,376 $ 24,901,376 $ 24,901,376 $ 24,901,376 Footnotes on Page 2 of 2. B-25

138 Table 7 Page 2 of 2 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Water and Wastewater System Summary of Bond Debt Service Payments - Outstanding and Additional Bonds [1] Footnotes: [1] Numbers may not add due to rounding. [2] Amounts shown based on projected debt service schedules provided by the Co-Financial Advisors which are preliminary and subject to change. [3] Amount shown reflects the estimated Maximum Principal and Interest Requirements on the Outstanding and Additional Bonds. Amounts derived from debt service schedules as provided by the Co-Financial Advisors which are preliminary and subject to change for the Additional Bonds. Amounts shown do not include indebtedness that is subordinate to the Bonds. The Maximum Principal and Interest Requirements for each respective Fiscal Ye was determined as follows: Fiscal Year Ending September 30, Fiscal Year Maximum Debt Service (Accrued Basis) Current Bonds Outstanding Series 2004 Bonds [a] $ 0 $ 0 $ 0 $ 0 $ 0 Series 2008A Bonds 0 4,455,000 4,455,000 4,455,000 4,455,000 Series 2008B Bonds Series 2008C Bonds [b] [c] [d] 15,479,081 5,393,613 5,393,613 5,393,613 5,393,613 Series 2010 Bonds 0 2,884,763 2,884,763 2,884,763 2,884,763 Series 2011A Bonds Additional Bonds Series 2012A Bonds [a] [e] 0 2,582,500 2,582,500 2,582,500 2,582,500 Series 2013 Bonds [e] 0 9,585,500 9,585,500 9,585,500 9,585,500 Maximum Principal and Interest Requirements $ 15,479,081 $ 24,901,376 $ 24,901,376 $ 24,901,376 $ 24,901,376 [a] The Series 2004 Bonds are anticipated to be partially redeemed upon the issuance of the Series 2012A Bonds. For purposes of calculating the Maximum Principal and Interest Requirements, the debt service for the Series 2012A Bonds, as provided by the Co-Financial Advisors, is utilized. Numbers are preliminary and subject to change. [b] The Series 2008C Bonds are Variable Rate Bonds and the interest expense excludes the liquidity and remarketing fees, since such fees pursuant to the Bond Resolution are considered as Current Expenses for rate covenant compliance purposes. The Interest Requirements on the Series 2008C Bonds have been calculated by the Co-Financial Advisors and reflects a portion of the Series 2008C Bonds are synthetic fixed rate Bonds under the City's Series 2008 Swap agreement and a portion are deemed unhedged Variable Rate Bonds. [c] Pursuant to the Bond Resolution, for the calculation of the Principal and Interest Requirements with respect to the Variable Rate Bonds the following is assumed: 1) As to the unhedged portion of the Variable Rate Bonds: The unhedged portion of the Variable Rate Bonds was assumed to bear interest at the highest of: i) the actual rate on the date of calculation; ii) if the Variable Rate Bonds have been outstanding for at least twelve months, the average rate over the twelve months immediately preceding the date of calculation; and iii) the most recently published Bond Buyer 25 Revenue Bond Index plus fifty (50) basis points. The interest rate used of 4.99% per annum corresponds to the most recently published Bond Buyer 25 Revenue Bond Index plus fifty (50) basis points which, as calculated by the Co-Financial Advisors, reflects a Bond Buyer 25 Revenue Bond Index of 4.49% as published August 23, ) As to the portion of the Variable Rate Bonds covered by an interest rate swap whereby the City's interest payment is fixed: The hedged portion of the Variable Rate Bonds was assumed to bear interest at the fixed rate paid by the City pursuant to the swap. The interest rate on the portion of the Series 2008C Bonds covered by the Series 2008 Swap has been calculated at the fixed rate paid by the City under the Series 2008 Swap of 3.539% per annum. These interest rates assumed herein were reflected in the projected debt service schedules provided by the Co-Financial Advisors. [d] The projected Principal and Interest Requirements for the Series 2008C Bonds reflected above were calculated by using the assumptions as set forth in item [c] above and are higher than the initial debt service payments reflected in the Official Statement prepared in support of the issuance of the Series 2008C Bonds. To the extent the debt service as shown in such Official Statement were included in the calculation of the Principal and Interest Requirements, the corresponding debt service coverage would be higher. [e] Amounts shown based on projected debt service schedules for the Additional Bonds assumed to be issued to refund a portion of the Series 2004 Bonds and to fund future capital improvements and were provided by the Co-Financial Advisors, preliminary and subject to change. B-26

139 Table 8 Page 1 of 7 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Historical Operating Results and Debt Service Coverage for the Water, Wastewater and Stormwater System [1] Line Fiscal Year Ended September 30, [2] No. Description Utility System Revenues Retail Sales Revenues [3] Water and Wastewater System 1 Water - Rate Revenues $ 25,910,592 $ 27,832,296 $ 41,059,521 $ 45,987,840 $ 50,317,720 2 Water - Drought Restriction Surcharge Revenues [4] 1,216,992 2,782, ,817 25,781 25,941 3 Sewer - Rate Revenues 17,096,324 18,398,417 22,579,499 23,907,167 25,348,818 Stormwater System 4 Stormwater - Rate Revenues 6,936,738 7,447,354 8,599,419 9,030,174 9,552,142 5 Total Retail Sales Revenues $ 51,160,647 $ 56,460,508 $ 72,462,256 $ 78,950,963 $ 85,244,620 Other Operating Revenue [5] 6 Bulk Water and Wastewater Sales Revenues [6] $ 251,855 $ 46,687 $ 153,278 $ 226,960 $ 179,759 7 Water, Sewer and Stormwater Other Operating Revenue 6,613,670 7,483,523 4,768,100 4,555,300 5,369,669 8 Personnel Services - ECRWRF [7] 2,439,257 2,923,300 2,911,746 3,233,991 3,389,975 9 Engineering/Lab Fees - ECRWRF [7] 63,654 50,464 68, , , Administrative Fees - ECRWRF [7] 206, , , , , Total Other Operating Revenues $ 9,575,036 $ 10,725,974 $ 8,141,760 $ 8,349,207 $ 9,412,341 Adjustments to Other Operating Revenue 12 Reduction for Mitigation Credits Revenue [8] $ (2,444,239) $ (1,243,325) $ 0 $ 0 $ (281,600) 13 Reduction for Florida Power & Light Easement Revenue [9] (943,154) Total Adjustments to Other Operating Revenues $ (3,387,393) $ (1,243,325) $ 0 $ 0 $ (281,600) Interest Income and Operating Grants 15 Interest Income [10] $ 1,518,467 $ 897,204 $ 844,578 $ 1,295,057 $ 564, Operating Grants [11] (79,502) 50, Total Interest Income and Operating Grants $ 1,438,965 $ 947,204 $ 844,578 $ 1,295,057 $ 564, Total Utility System Revenues $ 58,787,255 $ 66,890,361 $ 81,448,594 $ 88,595,227 $ 94,939,873 Current (Operating) Expenses [12] Water and Wastewater System 19 Personnel Services [13] $ 15,204,921 $ 16,573,884 $ 17,237,442 $ 18,282,678 $ 18,588, Contractual Services 6,873,192 8,731,953 8,581,827 8,809,345 7,874, Utilities 2,426,539 2,242,678 2,560,711 2,273,276 2,261, Repairs and Maintenance 2,993,399 3,152,896 3,434,784 3,373,954 3,714, Other Supplies and Expenses [14] 6,943,204 8,456,099 8,955,482 7,930,227 11,162, Insurance Expenses 472, , , , , Wastewater Treatment and Disposal [15] 2,531,369 2,494,988 3,029,848 3,325,199 3,198, Credit and/or Liquidity Facilities Fees 0 69, , , ,346 Stormwater System 27 Personal Services 1,914,020 1,964,538 1,920,089 2,317,032 2,179, Contractual Services 961,201 1,055,431 1,199,955 1,220,720 1,341, Utilities 163, , , , , Repairs and Maintenance 579, , , , , Other Supplies and Expenses [14] 134, , , , , Insurance Expenses 0 2,010 52,997 71, , Credit and/or Liquidity Facilities Fees 0 13,555 90,191 76, , Total Current (Operating) Expenses $ 41,197,701 $ 46,410,553 $ 48,893,427 $ 49,388,144 $ 52,812, Net Revenues $ 17,589,554 $ 20,479,808 $ 32,555,167 $ 39,207,084 $ 42,127,441 Adjustments to Net Revenues 35 Transfers From - (To) Rate Stabilization Account $ 0 $ 0 $ 0 $ 0 $ 0 36 Applicable Impact Fees [16] 448, , , , , Adjusted Net Revenues for Covenant Test $ 18,037,798 $ 21,144,263 $ 33,320,631 $ 39,405,967 $ 42,655,056 Footnotes start on Page 3 of 7. B-27

140 Table 8 Page 2 of 7 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Historical Operating Results and Debt Service Coverage for the Water, Wastewater and Stormwater System [1] Line Fiscal Year Ended September 30, [2] No. Description TEST 1 [17] 38 Adjusted Net Revenues for Covenant Test $ 18,037,798 $ 21,144,263 $ 33,320,631 $ 39,405,967 $ 42,655, Maximum Principal and Interest Requirements [18] $ 9,584,155 $ 15,521,701 $ 15,479,081 $ 15,479,081 $ 15,479, Coverage Ratio - Calculated 188% 136% 215% 255% 276% 41 Coverage Ratio - Required 120% 120% 120% 120% 120% OR TEST 2 [17] [19] 42 Adjusted Net Revenues for Covenant Test $ 18,037,798 $ 21,144,263 $ 33,320,631 $ 39,405,967 $ 42,655,056 Other Required Transfers per Bond Resolution Water and Wastewater System 43 Bond Service Account [20] $ 6,795,061 $ 7,291,763 $ 11,376,797 $ 10,318,629 $ 10,867, Renewal, Replacement and Improvement Fund [21] 4,270,389 4,427,989 4,806,339 6,000,000 6,600, ECR Board Renewal and Replacement Payment [22] 866, , , , , ECR Board Debt Service Payments 434, , , , , Payments in Lieu of Taxes (P.I.L.O.T.) [19] [23] 2,920,667 5,396,161 6,813,853 6,953,040 7,578,606 Stormwater System 48 Bond Service Account [24] $ 2,500,745 $ 2,534,441 $ 3,394,514 $ 3,076,190 $ 3,175, Renewal, Replacement and Improvement Fund [25] 250, , , , , Total Other Required Transfers $ 18,037,798 $ 21,144,262 $ 27,959,705 $ 27,726,295 $ 29,735, Coverage Ratio - Calculated 100% 100% 119% 142% 143% 52 Coverage Ratio - Required 100% 100% 100% 100% 100% 53 Net Amount Available for Other Utility System Purposes $ 0 $ 0 $ 5,360,926 $ 11,679,672 $ 12,919,977 Footnotes start on Page 3 of 7. B-28

141 Table 8 Page 3 of 7 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Historical Operating Results and Debt Service Coverage for the Water, Wastewater and Stormwater System [1] Footnotes: [1] Numbers may not add due to rounding. [2] Amounts shown derived from information provided in each respective Fiscal Year Comprehensive Annual Financial Report (CAFR) and other financial information provided by the City. [3] Amounts shown for the Water and Wastewater Systems include only rate revenues for customers served on a retail basis by the City of West Palm Beach; includes service to the City of West Palm Beach, and water-only service to the Town of Palm Beach and the Town of South Palm Beach. Rate revenues for Fiscal Years 2008 through 2011 reflect rate increases contained in the Rate Resolution. [4] Amounts reflect the revenues derived from the application of a ten percent (10%) surcharge for each water restriction phase issued by the South Florida Water Management District (SFWMD) (the "Drought Surcharges"); Drought Surcharges apply to all consumption rates above the initial price block. Drought Surcharges were in effect during a portion of Fiscal Years 2007, 2008 and 2009 when the City's water service area was under general water use restrictions imposed by the SFWMD. [5] Amounts shown do not include revenues associated with capital grants, and gains and/or losses on disposal of assets which were not considered as Revenues as defined in the Bond Resolution. [6] Amounts shown represent revenue derived from bulk (sale for resale) water and/or wastewater customers (Seacoast Utility Authority, Indian Trails Improvement District, PBC- Bayhills, and the Village of Royal Palm Beach). [7] Amounts shown reflect revenue received by the City for the reimbursement of certain costs associated with the City's operation of the East Central Regional Wastewater Reclamation Facility (ECRWRF) which is recognized as a Current Expense but is funded by all participants in the ECRWRF. [8] City Resolution dated November 21, 2005 authorized an agreement between the City and Lennar/Centex at Bayhill, LLC ("Lennar"), under which Lennar was required to enhance and restore acres on the Western Dike Area of the Water Catchment Area (Utility System property). As part of the agreement, Lennar will reimburse the City for the costs of performing the mitigation and the costs of maintaining the restored area for 5 years. The City reports that it is performing the restoration activities with a subsequent reimbursement from Lennar. Since such revenues received are for the reimbursement of capital costs incurred by the City, such amounts were not considered as Revenues for rate covenant evaluation purposes. [9] Amounts shown reflect funds received by the City associated with compensation paid by Florida Power & Light Company (FP&L) for the purchase of utility land for establishment of an easement by FP&L. Since: i) the compensation is considered by the City as a disposition of Utility System property; and ii) the amounts received were deposited into the Renewal, Replacement & Improvement Fund, such amounts were not considered as Revenues for rate covenant evaluation purposes. [10] Amounts shown only reflect earnings from funds and accounts established by the City that are considered unrestricted (earnings not required to be retained in such funds and accounts and are available as a component of Net Revenues). Earnings from the Impact Fee Fund and the Construction Fund established from previously issued Bond proceeds are considered as being restricted to such accounts and not considered as a component of net available revenue for this analysis. Additionally, all fair market value adjustments to reflect unrealized changes in the market value of the City's investments have not been recognized in order to report investment income that was earned and received by the City. The interest income recognized in the rate covenant evaluation is summarized on the following table: Fiscal Year Ended September 30, Reported Interest Income from CAFRs Interest Income Water and Wastewater System $ 1,811,368 $ 1,277,541 $ 1,091,284 $ 1,240,405 $ 657,109 Interest Income Stormwater System 179, , , , ,264 Adjustments for Rate Covenant: Restricted Earnings [a] $ (250,300) $ (231,468) $ (200,120) $ (66,355) $ (51,173) Fair Market Value Adjustments [b] (221,736) (268,837) (247,724) (47,221) (141,688) Recognized Interest Income $ 1,518,467 $ 897,204 $ 844,578 $ 1,295,057 $ 564,512 [a] Reflects earnings on the Impact Fee Fund which are considered as being restricted (not included as a component of Revenues) pursuant to the provisions of the Bond Resolution. [b] Reflects adjustment to revenue unrealized (interest earnings/ loss on investment) as required by GASB 31 which requires investments to be reported at fair market value; adjustments made to recognize only earnings as received by the City on behalf of the Utility System and not any unrealized gains or losses on investments held by the City. B-29

142 Table 8 Page 4 of 7 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Historical Operating Results and Debt Service Coverage for the Water, Wastewater and Stormwater System [1] Footnotes (Cont'd.) : [11] Amounts shown reflect operating grants received to reimburse certain Current Expenses incurred by the City; the majority of such operating grants were received from the Federal Emergency Management Agency associated with the payment of costs incurred due to significant storm events. [12] Amounts shown do not include depreciation and amortization expenses, which are non-cash expenses and are not considered as Current Expenses as defined in the Bond Resolution. Payments in Lieu of Taxes (P.I.L.O.T.) are not included as a component of Current Expenses pursuant to the Bond Resolution. Such amounts have been recognized as a required transfer for rate covenant evaluation purposes since the payment of the P.I.L.O.T. is a budgeted transfer from the Revenues of the Utility System. Pursuant to the Bond Resolution, amounts shown include the liquidity and remarketing fees for the Series 2008C Bonds, which are considered as Current Expenses for coverage purposes. These fees have been excluded from the Principal and Interest Requirements for the Bonds (please refer to Footnote [20]). [13] Amounts shown include all of the personnel costs associated with the operation of the ECRWRF; such amounts are offset by revenue received from all entities that utilize the facility. [14] Amounts shown include other non-operating expenses as reported in the CAFR for each respective Fiscal Year. [15] Amounts shown reflect the City's allocable share of the ECR Board Operation and Maintenance Payments for the ECRWRF, which are considered as Current Expenses pursuant to the Bond Resolution. [16] Amounts reflect Impact Fees considered available for determination of compliance with the Rate Covenant as defined in the Bond Resolution as described below: Impact Fees Collected Fiscal Year Ended September 30, Amount Collected from Water System $ 344,170 $ 502,305 $ 607,810 $ 167,554 $ 484,865 Interest Earnings on Water Impact Fees [a] 104, , ,655 31,329 42,751 Total Amount Collected from Water System $ 448,244 $ 664,454 $ 765,465 $ 198,883 $ 527,616 Amount Collected from Wastewater System $ 169,050 $ 214,735 $ 141,605 $ 187,325 $ 32,385 Interest Earnings on Wastewater Impact Fees [a] 51,119 69,319 36,730 35,026 2,855 Total Amount Collected from Wastewater System $ 220,169 $ 284,054 $ 178,335 $ 222,351 $ 35,240 Total Impact Fees Collected $ 668,413 $ 948,508 $ 943,800 $ 421,234 $ 562,856 Bond Debt Service Amount $ 9,295,806 $ 9,826,204 $ 14,771,310 $ 13,394,819 $ 14,043,215 Expansion Percentage Factor - Water [b] 13.54% 13.71% 13.34% 15.69% 16.12% Expansion Related Bond Debt Service Amount Requirement - Water $ 1,258,765 $ 1,346,788 $ 1,970,465 $ 2,101,722 $ 2,263,072 Expansion Percentage Factor - Wastewater [b] 0.00% 0.00% 0.00% 0.00% 0.00% Expansion Related Bond Debt Svc. Amount Requir. - Wastewater $ 0 $ 0 $ 0 $ 0 $ 0 Impact Fees Available for Debt Service Payments [c] $ 448,244 $ 664,454 $ 765,465 $ 198,883 $ 527,616 [a] Interest earnings based on information provided by the City regarding the Impact Fee Fund; amounts prorated between the Water System and the Wastewater System based on the amounts collected by the System in such year. Includes the interest earnings related to the lease agreemen as part of the Interlocal Agreement under City Resolution between the City and Indian Trails Improvement District ("ITID" [b] Factors calculated based upon: i) financial information provided by the City; ii) information contained in previously issued refunded bonds and the Outstanding Bonds; iii) historical Impact Fee collections; and iv) discussions with City staff [c] Reflects the minimum of: i) the Impact Fees collected during the Historical Period by Utility System; or ii) the annual Bond Debt Service payment multiplied by their respective Water and Wastewater Expansion Percentage [17] Reference is made to the Rate Covenant as more fully described in Section 502 of the Bond Resolution (referred to as the "rate covenant'). B-30

143 Table 8 Page 5 of 7 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Historical Operating Results and Debt Service Coverage for the Water, Wastewater and Stormwater System [1] Footnotes (Cont'd.) : [18] Amount shown reflects the estimated Maximum Principal and Interest Requirements on the Outstanding Bonds. Amounts shown do not include indebtedness that is subordinate to the Bonds. The Maximum Principal and Interest Requirements for each respective Fiscal Year was determined as follows: Fiscal Year Ended September 30, Fiscal Year Maximum Service (Accrued Basis) Series 1998 Bonds [a] $ 2,950,500 $ 0 $ 0 $ 0 $ 0 Series 1999 Bonds Series 2000 Bonds Series 2002 Bonds Series 2004 Bonds 2,748, Series 2005 Bonds [b] [c] 3,885, Series 2008A Bonds Series 2008B Bonds Series 2008C Bonds [b] [d] [e] 0 15,521,701 15,479,081 15,479,081 15,479,081 Series 2010 Bonds Series 2011A Bonds Maximum Principal and Interest Requirements $ 9,584,155 $ 15,521,701 $ 15,479,081 $ 15,479,081 $ 15,479,081 [a] The Series 1998 Bonds were refunded during Fiscal Year 2010 through the issuance of the Series 2010 Bonds. [b] Pursuant to the Bond Resolution, for the calculation of the Principal and Interest Requirements with respect to the Variable Rate Bonds (i.e., the Series 2005 Bonds and Series 2008C Bonds), the interest rate was assumed to be the average rate of interest for all Variable Rate Bonds for the prior Fiscal Year, or if the Variable Rate Bonds are covered by an interest rate swap whereby the City's interest payment is fixed, the fixed rate paid by the City pursuant to the swap was utilized. The interest rates used to calculate the Maximum Principal and Interest Requirements reflected herein have been provided by the City's Co-Financial Advisors. [c] The Series 2005 Bonds are Variable Rate Bonds; the interest expense on such Bonds for the determination of the Maximum Principal and Interest Requirements has been calculated based on a fixed swap annual interest rate paid by the City of 3.957% per annum (information as provided by the City). The Series 2005 Bonds were paid in full and redeemed upon the issuance by the City of its Series 2008A Bonds during Fiscal Year [d] For the Series 2008C Bonds, the interest expense excludes the liquidity and remarketing fees, since such fees pursuant to the Bond Resolution are considered as Current Expenses for coverage purposes. [e] For the Series 2008C Bonds; the interest rate on the portion of the Series 2008C Bonds not covered by the Series 2008 Swap has been calculated for Fiscal Years 2008 through 2011 to represent the average rate of interest paid by the City on its Outstanding Bonds that were issued on a variable rate basis in the prior Fiscal Years (Fiscal Years 2007, 2008, 2009 and 2010, respectively). With respect to the interest rate on the portion covered by the Series 2008 Swap, the fixed rate paid by the City under the Series 2008 Swap has been utilized. A summary table of the interest rates utilized for the determination of the Principal and Interest Requirements for Fiscal Years 2008 through 2011 follows: Average Annual Interest Rate [*] Series 2008 Swap Annual Interest Rate [*] Interest Rates for Calculation of Maximum Principal and Interest Requirements Fiscal Year % 3.539% Interest Rates for Calculation of Maximum Principal and Interest Requirements Fiscal Year % 3.539% Interest Rates for Calculation of Maximum Principal and Interest Requirements Fiscal Year % 3.539% Interest Rates for Calculation of Maximum Principal and Interest Requirements Fiscal Year % 3.539% [*] Interest rates and corresponding debt service schedules used herein were calculated and provided by the City's Co-Financial Advisors based on information provided by the City. [19] P.I.L.O.T. payments for purposes of calculating the rate covenant are reflected as other required transfers. If the P.I.L.O.T. payments were excluded from the results, the corresponding coverage ratios would be as follows: Fiscal Year Ended September 30, Total Other Required Transfers $ 18,037,798 $ 21,144,262 $ 27,959,705 $ 27,726,295 $ 29,735,079 Less: Payments in Lieu of Taxes (P.I.L.O.T.) (2,920,667) (5,396,161) (6,813,853) (6,953,040) (7,578,606) Total Required Transfers Excluding P.I.L.O.T. $ 15,117,131 $ 15,748,101 $ 21,145,852 $ 20,773,255 $ 22,156,473 Coverage Ratio Excluding P.I.L.O.T. - Calculated 119% 134% 158% 190% 193% Coverage Ratio - Target 100% 100% 100% 100% 100% B-31

144 Table 8 Page 6 of 7 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Historical Operating Results and Debt Service Coverage for the Water, Wastewater and Stormwater System [1] Footnotes (Cont'd.) : [20] Amounts shown summarize the debt service for Bonds payable from the Net Revenues of the Utility System and the amount of annual Principal and Intere Requirements allocable to the Water and Wastewater System, and the Stormwater System. Amounts shown reflect payments required to the Sinking Fund (accrual basis) and not when such Bonds are paid; amounts shown determined as follows: Fiscal Year Ended September 30, Series 1998 Bonds $ 960,750 $ 961,250 $ 966,250 $ 240,125 $ 0 Series 1999 Bonds 874, Series 2000 Bonds 173, Series 2002 Bonds 2,216,754 2,216,334 2,216,534 2,212, ,058 Series 2004 Bonds 2,744,273 2,746,773 2,746,323 2,745,423 2,748,391 Series 2005 Bonds [a] 2,326,167 2,525, Series 2008A Bonds 0 641,231 2,564,923 4,029,923 4,021,673 Series 2008B Bonds 0 135,863 2,908,454 1,452,504 1,458,104 Series 2008C Bonds [b] 0 599,306 3,368,828 2,128,153 2,537,276 Series 2010 Bonds , ,958 Series 2011A Bonds ,696,756 Bond Debt Service Amount $ 9,295,806 $ 9,826,204 $ 14,771,310 $ 13,394,819 $ 14,043,215 Amount Allocated to the Water and Wastewater System $ 6,795,061 $ 7,291,763 $ 11,376,797 $ 10,318,629 $ 10,867,300 Amount Allocated to the Stormwater System $ 2,500,745 $ 2,534,441 $ 3,394,514 $ 3,076,190 $ 3,175,915 [a] The variable rate Series 2005 Bonds were paid in full and redeemed upon the issuance by the City of its Series 2008A Bonds during Fiscal Year The amount represented for the Series 2005 Bonds for Fiscal Year 2008 reflects required deposits for interest to the Bond Service Account during such Fiscal Year as provided by the City's Co-Financial Advisors, and is different than the interest actually paid by the City for the Series 2005 Bonds during such Fiscal Year. Such amount also includes partial principal payment in the amount of $966,250 (paid for by the Series 2008A Bond proceeds). [b] For the variable rate Series 2008C Bonds; the interest expense excludes the liquidity and remarketing fees since such fees are considered as Current Expenses for coverage purposes in accordance with the Bond Resolution. Amounts reflect required deposits for interest to the Bond Service Account during each Fiscal Year as provided by the City's Co-Financial Advisors and are different than the interest actually paid by the City for the Series 2008C Bonds during such Fiscal Years. [21] As required by the Bond Resolution, the water and wastewater portion of the required transfer for the Renewal, Replacement and Improvement (RR&I) Fund should be equal to the RR&I Requirement which is defined as the amount designated in the Annual Budget but in no event less than eight per centum (8.0%) of the Revenues for the prior Fiscal Year of the Water and Wastewater System. Although no transfer is required if there is an unappropriated balance in the RR&I Fund equal to the RR&I Requirement, it was assumed, based on the capital needs of the Utility System, that an annual deposit to such fund equal to the RR&I Requirement was necessary and therefore recognized. For the purposes of this analysis, the following transfers were recognized: Fiscal Year Ended September 30, Transfer Calculated at 8% of Prior Fiscal Year Revenues $ 4,270,389 $ 4,427,989 $ 4,806,339 $ 5,824,545 $ 6,314,406 Transfer as Designated by the City in the Annual Budget $ 4,200,000 $ 4,200,000 $ 4,350,000 $ 6,000,000 $ 6,600,000 Transfer Recognized [a] $ 4,270,389 $ 4,427,989 $ 4,806,339 $ 6,000,000 $ 6,600,000 [a] Equals the amount designated in the Annual Budget but in no event less than eight per centum (8.0%) of the Revenues for the prior Fiscal Year of the Water and Wastewater System. [22] Amounts shown reflect the City's allocable share of the ECR Board Renewal and Replacement Fund Payments on behalf of the ECRWRF, such amounts are not considered as a Current Expense but as a required payment for rate covenant calculation purposes. Additionally, such fund is separate and distinct from the Renewal, Replacement and Improvement Fund held by the City. B-32

145 Table 8 Page 7 of 7 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Historical Operating Results and Debt Service Coverage for the Water, Wastewater and Stormwater System [1] Footnotes (Cont'd.) : [23] For Fiscal Year 2007 there were not sufficient Net Revenues from that Fiscal Year to pay the entire P.I.L.O.T. obligation (10.0% of the Gross Revenues billed for that Fiscal Year). Therefore, and based on a legal opinion of the City, the amount of the P.I.L.O.T. payment was reduced by $1,358,844 for Fiscal Year 2007 to meet the rate covenant as defined in the Bond Resolution (payment of the P.I.L.O.T. cannot cause the City to be non-complaint with this particular rate covenant test). The unpaid balance of the P.I.L.O.T. obligation for Fiscal Year 2007 was assumed to be a liability of the Utility System to be repaid in subsequent Fiscal Years. The amount of the P.I.L.O.T. transfer deferred for Fiscal Year 2007 and the respective repayment of such deferment in Fiscal Years 2008 and 2009 is calculated as follows: Fiscal Year Ended September 30, Payments in Lieu of Taxes (P.I.L.O.T.) [a] $ 4,279,511 $ 4,493,146 $ 6,358,024 $ 6,953,040 $ 7,578,606 Less: Reduction on P.I.L.O.T. Due to Insufficient Net Revenues (1,358,844) Plus: Repayment of P.I.L.O.T. Deferred Amount [b] 0 903, , Total Identified P.I.L.O.T. Transfers $ 2,920,667 $ 5,396,161 $ 6,813,853 $ 6,953,040 $ 7,578,606 [a] Obligation calculated as 10.0% of the Gross Revenues billed for each respective Fiscal Year. [b] Deferred P.I.L.O.T. transfer reflected equals $1,358,844 for Fiscal Year It has been assumed that the City recognized the $1,358,844 P.I.L.O.T. deferment in two payments of $903,015 and $455,829 for Fiscal Years 2008 and 2009, respectively, from annual Net Revenues after the payment of all other required transfers. As of the Fiscal Year ended September 30, 2009, the City reports that the deferred P.I.L.O.T. obligations have been paid in full. [24] Reflects debt service only for Outstanding Bonds allocable to the Stormwater System as shown in footnote [20]. [25] As required by the Bond Resolution, the stormwater portion of the required transfer for the RR&I Fund shall be equal to the RR&I Fund Requirement which is defined as the amount designated in the Annual Budget but in no event less than three per centum (3.0%) of the current Fiscal Year Revenues for the Stormwater Drainage Facilities. Although no transfer is required if there is an unappropriated balance in the RR&I Fund equal to the RR&I Requirement, it was assumed based on the capital needs of the Stormwater System that an annual deposit to such fund equal to the RR&I Requirement was necessary and therefore recognized. For the purposes of this analysis, the following transfers were recognized: Fiscal Year Ended September 30, Transfer Calculated at 3% of Revenues for Current Fiscal Year $ 213,782 $ 248,199 $ 266,145 $ 293,362 $ 306,552 Transfer as Designated by the City in the Annual Budget $ 250,000 $ 250,000 $ 300,000 $ 300,000 $ 300,000 Transfer Recognized [a] $ 250,000 $ 250,000 $ 300,000 $ 300,000 $ 306,552 [a] Equals the amount designated in the Annual Budget but in no event less than three per centum (3.0%) of the current Fiscal Year Revenues for the Stormwater Drainage Facilities. B-33

146 Table 9 Page 1 of 7 Projected Operating Results and Debt Service Coverage for the Water, Wastewater and Stormwater System [1] Line Fiscal Year Ending September 30, No. Description Utility System Revenues Retail Sales Revenues [2] Water and Wastewater System Water - User Rate Revenues Under Adopted Rates 1 Through Fiscal Year 2012 [3] $ 50,349,996 $ 50,356,234 $ 50,387,948 $ 50,436,157 $ 50,474,394 2 Water - Drought Surcharges Revenues [4] Water - Additional Rate Revenues From Indexing 3 Adjustments [5] 0 2,412,903 4,040,484 5,678,765 7,365,457 Wastewater - User Rate Revenues Under Adopted Rates 4 Through Fiscal Year 2012 [3] 25,759,350 25,759,826 25,776,525 25,788,059 25,806,687 Wastewater - Additional Rate Revenues From Indexing 5 Adjustments [5] 0 1,234,325 2,066,955 2,903,558 3,765,831 Stormwater System 6 Stormwater - Rate Revenues Under Adopted Rates Through Fiscal Year 2012 [3] 9,992,911 10,008,933 10,031,339 10,053,974 10,082,625 7 Stormwater - Additional Rate Revenues From Indexing Adjustments [5] 0 479, , ,856 1,045,120 8 Total Retail Sales Revenues $ 86,102,257 $ 90,251,815 $ 92,956,228 $ 95,686,369 $ 98,540,114 Other Revenues 9 Water and Wastewater Other Operating Revenues $ 4,753,500 $ 4,774,350 $ 4,795,409 $ 4,816,678 $ 4,838, Stormwater Other Operating Revenues 595, , , , , Personnel Services - ECRWRF [6] 3,580,204 3,585,173 3,658,437 3,735,240 3,815, Engineering/Lab Fees - ECRWRF [6] 240, , , , , Administrative Fees - ECRWRF [6] 200, , , , , Unrestricted Interest Income [7] 220, , , , , Total Utility System Revenues $ 95,691,957 $ 99,981,196 $ 102,951,696 $ 105,777,461 $ 108,895,259 Current (Operating) Expenses [8] Water and Wastewater System 16 Water/Wastewater Administration and Support $ 16,094,343 $ 17,582,371 $ 18,011,786 $ 18,440,447 $ 18,868, Less: Payments in Lieu of Taxes (P.I.L.O.T.) [9] (7,610,935) (7,976,329) (8,227,191) (8,480,654) (8,741,237) 18 Wastewater Treatment and Disposal [10] 3,580,204 3,585,173 3,658,437 3,735,240 3,815, Customer Service 3,511,266 3,588,752 3,673,639 3,761,957 3,856, Field Customer Service 1,633,951 1,660,063 1,697,259 1,736,201 1,777, Watershed Management 2,529,556 2,585,411 2,651,646 2,721,189 2,796, Sustainability Initiatives 365, , , , , Distribution / Collection 2,586,291 2,626,804 2,686,345 2,748,638 2,814, Water Treatment Plant 12,376,968 12,724,624 13,121,320 13,539,438 13,987, Utilities Laboratory Services 1,574,766 1,599,037 1,633,862 1,670,281 1,709, Central Sewage Pump Station 69,206 70,949 72,777 74,694 76, Utilities Pumping Operations 3,142,711 3,215,660 3,307,128 3,402,950 3,504, Sanitary Collection 2,909,913 2,952,481 3,017,184 3,084,954 3,156, Industrial Pretreatment 326, , , , , Nature Center City of WPB Share of ECRWRF and AWTR Operation and Maintenance Payments [11] 5,133,520 5,320,911 7,059,342 8,364,886 8,751, Credit and/or Liquidity Facilities Fees [12] 589, , , , ,491 Stormwater System 33 Stormwater Administration 1,931,981 1,854,200 1,884,096 1,915,232 1,949, Canal Maintenance 715, , , , , Canal Mowing 487, , , , , Drainage 1,652,381 1,675,945 1,711,979 1,749,614 1,789, Street Sweeping 642, , , , , Credit and/or Liquidity Facility Fees [12] 60,444 60,444 60,444 60,444 60, Total Current (Operating) Expenses $ 54,303,276 $ 56,295,554 $ 59,247,441 $ 61,814,083 $ 63,528, Net Revenues $ 41,388,682 $ 43,685,642 $ 43,704,255 $ 43,963,377 $ 45,366,908 Footnotes start on Page 3 of 7. City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System B-34

147 Table 9 Page 2 of 7 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Projected Operating Results and Debt Service Coverage for the Water, Wastewater and Stormwater System [1] Line Fiscal Year Ending September 30, No. Description Adjustments to Net Revenues 41 Transfers From - (To) Rate Stabilization Account $ 0 $ 0 $ 0 $ 0 $ 0 42 Applicable Impact Fees [13] 414, , , , , Adjusted Net Revenues for Covenant Test $ 41,803,272 $ 44,110,407 $ 44,137,191 $ 44,399,565 $ 45,812,400 TEST 1 [14] 44 Maximum Principal and Interest Requirements [15] $ 15,479,081 $ 24,901,376 $ 24,901,376 $ 24,901,376 $ 24,901, Coverage Ratio - Calculated 270% 177% 177% 178% 184% 46 Coverage Ratio - Required 120% 120% 120% 120% 120% OR TEST 2 [14] [16] 47 Adjusted Net Revenues for Covenant Test $ 41,803,272 $ 44,110,407 $ 44,137,191 $ 44,399,565 $ 45,812,400 Other Required Transfers per Bond Resolution Water and Wastewater System 48 Bond Service Account [17] $ 12,118,393 $ 18,077,515 $ 20,056,964 $ 20,046,466 $ 21,937, Renewal, Replacement and Improvement Fund [18] 8,100,000 6,484,000 6,785,000 6,998,000 7,200, ECR Board Renewal and Replacement Payment [19] 974,864 1,192,062 1,494,949 1,749,995 1,961, ECR Board Debt Service Payments [20] 406, Payments in Lieu of Taxes (P.I.L.O.T.) [16] [21] 7,610,935 7,976,329 8,227,191 8,480,654 8,741,237 Stormwater System 53 Bond Service Account [22] $ 3,024,459 $ 2,974,003 $ 2,981,258 $ 2,926,730 $ 2,924, Renewal, Replacement and Improvement Fund [23] 307, , , , , Total Other Required Transfers $ 32,542,022 $ 37,022,909 $ 39,879,361 $ 40,542,845 $ 43,113, Coverage Ratio - Calculated 128% 119% 111% 110% 106% 57 Coverage Ratio - Required 100% 100% 100% 100% 100% 58 Net Amount Available for Other Utility System Purposes $ 9,261,250 $ 7,087,498 $ 4,257,830 $ 3,856,719 $ 2,699,188 Footnotes start on Page 3 of 7. B-35

148 Table 9 Page 3 of 7 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Projected Operating Results and Debt Service Coverage for the Water, Wastewater and Stormwater System [1] Footnotes: [1] Numbers may not add due to rounding. [2] Amounts shown for the Water and Wastewater Systems include only rate revenues for customers served on a retail basis by the City of West Palm Beach; includes service to the City of West Palm Beach, and water-only service to the Town of Palm Beach and the Town of South Palm Beach. [3] The projected revenues are based on the City's adopted schedule of rates through September 30, 2012 (which contains increased or adjusted rates through such Fiscal Year) as contained in the Rate Resolution. [4] The Rate Resolution allows the City to apply a ten percent (10%) surcharge to all consumption rates above the initial price block for each general water restriction phase imposed by the SFWMD (the "Drought Surcharges"). However, as of the date of this report, the City is not currently applying Drought Surcharges to Utility System customer bills. For this analysis, it has been assumed that the City will not enact Drought Surcharges during the Forecast Period. [5] The Rate Resolution authorizes monthly rates for services of the Utility System to be increased annually by five percent (5.0%) each October 1st, commencing October 1, 2012, unless determined otherwise by action of the City Commission. Based on conversations with the City, it is anticipated that City staff may recommend that the City Commission modify the language included in the Rate Resolution to a price index adjustment that is automatically adjusted by an amount tied to an inflationary index. For purposes of this study; amounts shown reflect projected rate revenue collections assuming the implementation of the following price index adjustments during the Fiscal Years 2013 through 2016 (instead of an annual 5.0% adjustment) effective each October 1st as follows: Fiscal Year Ending September 30, Inflation (CPI) Index Adjustments Reflected Water System Rates N/A [a] 5.0% 3.0% 3.0% 3.0% Wastewater System Rates N/A [a] 5.0% 3.0% 3.0% 3.0% Stormwater System Rates N/A [a] 5.0% 1.5% 1.6% 2.0% [a] No inflation index adjustment is assumed; rate revenues based on specific rate increases adopted by the City as contained in the Rate Resolution through September 30, [6] Amounts shown reflect the revenue received by the City for the reimbursement of certain costs associated with the City's operation of the ECRWRF which is recognized as a Current Expense but is funded by all entities that utilize the ECRWRF. [7] Amounts shown reflect earnings from funds and accounts established by the City that are considered unrestricted (earnings not required to be retained in such funds and accounts and are available as a component of Net Revenues). Earnings from the Impact Fee Fund and the Construction Fund established from previously issued Bond proceeds are considered as being restricted to such accounts and not considered as a component of net available revenue for this analysis. [8] Amounts do not include depreciation and amortization expenses, which are non-cash expenses and are not considered as Current Expenses as defined in the Bond Resolution. Current Expenses are presented on a cost center basis which is different than the presentation of the Current Expenses in the Comprehensive Annual Financial Report (CAFR). Pursuant to the Bond Resolution, amounts shown include the liquidity and remarketing fees for the Series 2008C Bonds, which are considered as Current Expenses for coverage purposes. These fees have been excluded from the Principal and Interest Requirements for the Bonds. [9] Payments in Lieu of Taxes (P.I.L.O.T.) are not included as a component of Current Expenses pursuant to the Bond Resolution. Such amounts have been recognized as a required transfer for rate covenant evaluation purposes since the payment of the P.I.L.O.T. is a budgeted transfer from the Revenues of the Utility System. [10] Amounts shown include all of the personnel costs associated with the operation of the ECRWRF; such amounts are offset by revenue received from all entities of the ECR Board that utilize the ECRWRF. B-36

149 Table 9 Page 4 of 7 Footnotes (Cont'd.) : City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Projected Operating Results and Debt Service Coverage for the Water, Wastewater and Stormwater System [1] [11] Amounts shown derived from Table 10 and reflect anticipated changes on the City of WPB Share of ECRWRF Operation and Maintenance Payments due to: i) changes in the ECRWRF treatment process, specifically related to the ECR Project; and ii) additional ECR Debt Service Payments based on debt service schedules provided by the Co-Financial Advisors related to the issuance of additional ECR Bonds during the Forecast Period which are considere as a component of Current Expenses for covenant compliance purposes. A summary of the ECR Debt Service Payments for the ECR Bonds is as follows: Fiscal Year Ending September 30, ECR Debt Service Payments - ECR Bonds Series 2012 ECR Bonds $ 22,458 $ 310,950 $ 995,950 $ 1,605,538 $ 1,846,063 Series 2014 ECR Bonds 0 0 4,570,313 5,817,550 5,577,950 ECR Debt Service Payments - ECR Bonds $ 22,458 $ 310,950 $ 5,566,263 $ 7,423,088 $ 7,424,013 Allocation Factor to City (Based on Projected Flow to ECRWRF) 29.49% 29.54% 29.57% 29.60% 29.61% City Allocated ECR Debt Service Payments - ECR Bonds Series 2012 ECR Bonds $ 6,624 $ 91,869 $ 294,548 $ 475,204 $ 546,703 Series 2014 ECR Bonds 0 0 1,351,648 1,721,868 1,651,884 City Allocated ECR Debt Service Payments - ECR Bonds $ 6,624 $ 91,869 $ 1,646,196 $ 2,197,073 $ 2,198,587 [12] Amounts provided by the Co-Financial Advisors and reflect the projected fees for providing a Liquidity Facility and for remarketing of the Series 2008C Bonds. Pursuant to the Remarketing Circular for the Series 2008C Bonds, liquidity and remarketing fees are assumed to total 0.69% per annum. [13] Amounts reflect Impact Fees considered available for determination of compliance with the Rate Covenant as defined in the Bond Resolution as estimated below: Fiscal Year Ending September 30, Projected Impact Fees Collected [a] Projected Amount Collected from Water System $ 406,245 $ 410,625 $ 411,227 $ 413,910 $ 415,005 Interest Earnings on Water Impact Fees [a] [b] 8,345 14,140 21,709 22,277 30,486 Total Projected Amount Collected from Water System $ 414,590 $ 424,765 $ 432,936 $ 436,187 $ 445,491 Projected Amount Collected from Wastewater System $ 74,895 $ 79,485 $ 81,685 $ 82,560 $ 86,285 Interest Earnings on Wastewater Impact Fees [a] [b] 5,266 7,905 10,598 9,369 10,865 Total Projected Amount Collected from Wastewater System $ 80,161 $ 87,390 $ 92,283 $ 91,929 $ 97,150 Total Projected Impact Fees Collected $ 494,751 $ 512,155 $ 525,219 $ 528,116 $ 542,641 Bond Debt Service Amount - Water and Wastewater System $ 12,118,393 $ 18,077,515 $ 20,056,964 $ 20,046,466 $ 21,937,684 Expansion Percentage Factor - Water [c] 18.06% 22.03% 22.32% 23.04% 23.18% Expansion Related Bond Debt Service Requirement - Water $ 2,188,459 $ 3,981,906 $ 4,477,389 $ 4,618,876 $ 5,085,344 Expansion Percentage Factor - Wastewater [c] 0.00% 0.00% 0.00% 0.00% 0.00% Expansion Related Bond Debt Service Requirement - Wastewater $ 0 $ 0 $ 0 $ 0 $ 0 Impact Fees Available for Debt Service Payments [d] $ 414,590 $ 424,765 $ 432,936 $ 436,187 $ 445,491 [a] Amounts shown derived from Table 14. [b] Reflects projected interest income, if any, earned on balances in the Impact Fee Fund [c] Factors calculated based upon: i) financial information provided by the City; ii) information contained in previously issued refunded bond and the Outstanding Bonds; iii) forecast of Impact Fee collections; and iv) discussions with City staff [d] Reflects the minimum of: i) the Impact Fees estimated to be collected during the Forecast Period by Utility System; or ii) the annual Bond Debt Service payments multiplied by their respective Water and Wastewater Expansion Percentage [14] Reference is made to the Rate Covenant as more fully described in Section 502 of the Bond Resolution (referred as the "rate covenant"). B-37

150 Table 9 Page 5 of 7 Footnotes (Cont'd.) : City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Projected Operating Results and Debt Service Coverage for the Water, Wastewater and Stormwater System [1] [15] Amount shown reflects the estimated Maximum Principal and Interest Requirements on the Outstanding and Additional Bonds. Amounts derived from debt service schedules as provided by the Co-Financial Advisors which are preliminary and subject to change for the Additional Bonds. Amounts shown do not include indebtedness that is subordinate to the Bonds. The Maximum Principal and Interest Requirements for each respective Fiscal Year was determined as follows: Fiscal Year Ending September 30, Fiscal Year Maximum Debt Service (Accrued Basis) Current Bonds Outstanding Series 2004 Bonds [a] $ 0 $ 0 $ 0 $ 0 $ 0 Series 2008A Bonds 0 4,455,000 4,455,000 4,455,000 4,455,000 Series 2008B Bonds Series 2008C Bonds [b] [c] [d] 15,479,081 5,393,613 5,393,613 5,393,613 5,393,613 Series 2010 Bonds 0 2,884,763 2,884,763 2,884,763 2,884,763 Series 2011A Bonds Additional Bonds Series 2012A Bonds [a] [e] 0 2,582,500 2,582,500 2,582,500 2,582,500 Series 2013 Bonds [e] 0 9,585,500 9,585,500 9,585,500 9,585,500 Maximum Principal and Interest Requirements $ 15,479,081 $ 24,901,376 $ 24,901,376 $ 24,901,376 $ 24,901,376 [a] The Series 2004 Bonds are anticipated to be partially redeemed upon the issuance of the Series 2012A Bonds. For purposes of calculating the Maximum Principal and Interest Requirements, the debt service for the Series 2012A Bonds, as provided by the Co-Financial Advisors, is utilized. Numbers are preliminary and subject to change. [b] The Series 2008C Bonds are Variable Rate Bonds and the interest expense excludes the liquidity and remarketing fees, since such fees pursuant to the Bond Resolution are considered as Current Expenses for rate covenant compliance purposes. The Interest Requirements on the Series 2008C Bonds have been calculated by the Co-Financial Advisors and reflects a portion of the Series 2008C Bonds are synthetic fixed rate Bonds under the City's Series 2008 Swap agreement and a portion are deemed unhedged Variable Rate Bonds. [c] Pursuant to the Bond Resolution, for the calculation of the Principal and Interest Requirements with respect to the Variable Rate Bonds the following is assumed: 1) As to the unhedged portion of the Variable Rate Bonds: The unhedged portion of the Variable Rate Bonds was assumed to bear interest at the highest of: i) the actual rate on the date of calculation; ii) if the Variable Rate Bonds have been outstanding for at least twelve months, the average rate over the twelve months immediately preceding the date of calculation; and iii) the most recently published Bond Buyer 25 Revenue Bond Index plus fifty (50) basis points. The interest rate used of 4.99% per annum corresponds to the most recently published Bond Buyer 25 Revenue Bond Index plus fifty (50) basis points which, as calculated by the Co-Financial Advisors, reflects a Bond Buyer 25 Revenue Bond Index of 4.49% as published August 23, ) As to the portion of the Variable Rate Bonds covered by an interest rate swap whereby the City's interest payment is fixed: The hedged portion of the Variable Rate Bonds was assumed to bear interest at the fixed rate paid by the City pursuant to the swap. The interest rate on the portion of the Series 2008C Bonds covered by the Series 2008 Swap has been calculated at the fixed rate paid by the City under the Series 2008 Swap of 3.539% per annum. These interest rates assumed herein were reflected in the projected debt service schedules provided by the Co-Financial Advisors. [d] The projected Principal and Interest Requirements for the Series 2008C Bonds reflected above were calculated by using the assumptions as set forth in item [c] above and are higher than the initial debt service payments reflected in the Official Statement prepared in support of the issuance of the Series 2008C Bonds. To the extent the debt service as shown in such Official Statement were included in the calculation of the Principal and Interest Requirements, the corresponding debt service coverage would be higher. [e] Amounts shown based on projected debt service schedules for the Additional Bonds assumed to be issued to refund a portion of the Series 2004 Bonds and to fund future capital improvements and were provided by the Co-Financial Advisors, preliminary and subject to change. [16] P.I.L.O.T. payments for purposes of calculating the rate covenant are reflected as other required transfers. If the P.I.L.O.T. payments were excluded from the results, the corresponding coverage ratios for the covenant test 2 would be as follows: Fiscal Year Ending September 30, Total Other Required Transfers [a] $ 32,542,022 $ 37,022,909 $ 39,879,361 $ 40,542,845 $ 43,113,212 Less: Payments in Lieu of Taxes (P.I.L.O.T.) (7,610,935) (7,976,329) (8,227,191) (8,480,654) (8,741,237) Total Required Transfers Excluding P.I.L.O.T. $ 24,931,087 $ 29,046,580 $ 31,652,170 $ 32,062,191 $ 34,371,975 Coverage Ratio Test 2 Excluding P.I.L.O.T. - Calculated 168% 152% 139% 138% 133% Coverage Ratio Test 2 Excluding P.I.L.O.T. - Target 120% 120% 120% 120% 120% [a] Amounts from Line 55 of this Table 9 and reflect the required transfers inclusive of P.I.L.O.T. pursuant to the provisions of the Bond Resolution. B-38

151 Table 9 Page 6 of 7 Footnotes (Cont'd.) : City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Projected Operating Results and Debt Service Coverage for the Water, Wastewater and Stormwater System [1] [17] Amounts shown summarize the debt service for Bonds payable from the Net Revenues of the Utility System and the amount of annual Principal and Interest Requirements allocable to the Water and Wastewater System and the Stormwater System. Amounts shown reflect payments required to the Sinking Fund (accrual basis) and not when such Bonds are paid; amounts shown determined as follows: Fiscal Year Ending September 30, Current Bonds Outstanding Series 2004 Bonds [a] $ 2,598,365 $ 651,135 $ 648,750 $ 0 $ 0 Series 2008A Bonds 4,035,773 4,027,210 4,034,990 4,043,740 4,017,740 Series 2008B Bonds 1,437,654 1,450,623 1,440,313 1,436,988 1,465,488 Series 2008C Bonds [b] [c] [d] 4,182,825 4,178,797 4,180,811 4,180,811 4,182,825 Series 2010 Bonds 910, , , , ,008 Series 2011A Bonds 1,950,300 1,951,000 1,953,800 1,947,600 1,946,100 Additional Bonds Series 2012A Bonds [e] $ 27,778 $ 2,000,000 $ 2,000,000 $ 2,585,000 $ 2,582,450 Series 2013 Bonds [f] 0 5,878,995 7,867,800 7,867,800 9,762,800 Bond Debt Service Amount $ 15,142,851 $ 21,051,517 $ 23,038,221 $ 22,973,196 $ 24,862,410 Amount Allocated to the Water and Wastewater System $ 12,118,393 $ 18,077,515 $ 20,056,964 $ 20,046,466 $ 21,937,684 Amount Allocated to the Stormwater System $ 3,024,459 $ 2,974,003 $ 2,981,258 $ 2,926,730 $ 2,924,725 [a] The Series 2004 Bonds are anticipated to be partially redeemed upon the issuance of the Series 2012A Bonds. The amount represented for the Series 2004 Bonds for Fiscal Year 2012 reflects required partial (accrued) deposits for interest and principal payments to the Bond Service Account during such Fiscal Year as provided by the Co-Financial Advisors. For Fiscal Years 2013 and 2014 amounts reflect the debt service payments on the unrefunded portion of the Series 2004 Bonds. [b] The Series 2008C Bonds are Variable Rate Bonds and the interest expense excludes the liquidity and remarketing fees, since such fees pursuant to the Bond Resolution are considered as Current Expenses for rate covenant compliance purposes. The Interest Requirements on the Series 2008C Bonds have been calculated by the Co-Financial Advisors and reflect that a portion of the Series 2008C Bonds are synthetic fixed rate Bonds under the City's Series 2008 Swap agreement and a portion are deemed unhedged Variable Rate Bonds. [c] The interest rate on the portion of the Series 2008C Bonds not covered by the Series 2008 Swap used to calculate the annual debt service reflected herein corresponds to the most recently published Bond Buyer 25 Revenue Bond Index plus fifty (50) basis points which, as calculated by the Co-Financial Advisors, and has been estimated to be 4.99% per annum reflecting a Bond Buyer 25 Revenue Bond Index of 4.49% as published August 23, The interest rate on the portion of the Series 2008C Bonds covered by the Series 2008 Swap has been calculated at the fixed rate paid by the City under the Series 2008 Swap of 3.539% per annum. These interest rates were reflected in the projected debt service schedules provided by the Co-Financial Advisors. [d] The projected Principal and Interest Requirements for the Series 2008C Bonds reflected above were calculated by using the assumptions as set forth in item [c] above and are higher than the initial debt service payments reflected in the Official Statement prepared in support of the issuance of the Series 2008C Bonds. To the extent the debt service as shown in such Official Statement were included in the calculation of the Principal and Interest Requirements, the corresponding debt service coverage would be higher. [e] Amounts shown based on projected debt service schedules provided by the Co-Financial Advisors. [f] Amounts shown based on projected debt service schedules provided by the Co-Financial Advisors. Assumptions for the Series 2013 Bonds include: i) an issuance date of January 2, 2013; ii) a principal amount of $157,735,000 ; iii) an all-in interest cost of 4.69%; iv) a term of 30 years; v) issuance costs equal to approximately 0.49% of the par amount of Bonds issued; vi) funding of the debt service Reserve Account Requirement from Bond proceeds; and vii) a debt repayment structure reflecting essentially level annual debt service payments. [18] As required by the Bond Resolution, the water and wastewater portion of the required transfer for the Renewal, Replacement and Improvement (RR&I) Fund should be equal to the RR&I Requirement which is defined as the amount designated in the Annual Budget but in no event less than eight per centum (8.0%) of the Revenues for the prior Fiscal Year of the Water and Wastewater System. Revenues for this calculation exclude the ECR reimbursements (Personnel Services - ECRWRF, Engineering/Lab Fees - ECRWRF, and Administrative Fees - ECRWRF). Although no transfer is required if there is an unappropriated balance in the RR&I Fund equal to the RR&I Requirement, it is assumed based on the capital needs of the Utility System that an annual deposit to such fund equal to the RR&I Requirement was required and therefore recognized. For Fiscal Year 2011 the RR&I Requirement equals the amount designated in the Annual Budget of $8,100,000; for the subsequent years in the Forecast Period, the RR&I Requirement was calculated at 8.0% of the Revenues for the prior Fiscal Year of the Water and Wastewater System. [19] Amounts shown reflect the City's allocable share of the ECR Board Renewal and Replacement Payments on behalf of the ECRWRF, such amounts are not considered as a Current Expense but as a required payment for rate covenant calculation purposes. Additionally, such fund is separate and distinct from the Renewal, Replacement and Improvement Fund held by the City. B-39

152 Table 9 Page 7 of 7 Footnotes (Cont'd.) : City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Projected Operating Results and Debt Service Coverage for the Water, Wastewater and Stormwater System [1] [20] ECR Board debt service payments include the following: Fiscal Year Ending September 30, Existing SRF Loans Payment [a] $ 1,303,765 $ 0 $ 0 $ 0 $ 0 City Share (%) % % % % % City Share of Existing SRF Loans Payment [a] $ 406,372 $ 0 $ 0 $ 0 $ 0 [a] It is anticipated that during Fiscal Year 2012 the ECR Board will defease the ECR SRF Loans by issuing the Series 2012 ECR Bonds. The City's obligation to pay a portion of the ECR Debt Service Payments is treated as a Current Expense. Please reference to footnote [11] of this Table 9. [21] Identified P.I.L.O.T. transfers reflects 10.0% of the Gross Revenues as shown as follows: Fiscal Year Ending September 30, Total Water and Wastewater Gross Revenue from Rates $ 76,109,346 $ 79,763,287 $ 82,271,912 $ 84,806,539 $ 87,412,369 Total Identified P.I.L.O.T. Transfers [a] $ 7,610,935 $ 7,976,329 $ 8,227,191 $ 8,480,654 $ 8,741,237 [a] Obligation calculated as 10.0% of the Gross Revenues billed for each respective Fiscal Year; the PILOT payment is not an expense allocable to the Stormwater System pursuant to information provided by the City. [22] Reflects debt service only for Bonds allocable to the Stormwater System as shown in footnote [17]. [23] As required by the Bond Resolution, the stormwater portion of the required transfer for the RR&I Fund shall be equal to the RR&I Fund Requirement which is defined as the amount designated in the Annual Budget but in no event less than three per centum (3.0%) of the current Fiscal Year Revenues for the Stormwater Drainage Facilities. Although no transfer is required if there is an unappropriated balance in the RR&I Fund equal to the RR&I Requirement, it was assumed based on the capital needs of the Stormwater System that an annual deposit to such fund equal to the RR&I Requirement was required and therefore recognized. For Fiscal Year 2011 the RR&I Requirement equals the amount designated in the Annual Budget of $300,000; for the subsequent years in the Forecast Period, the RR&I Requirement was calculated at 3.0% of the Revenues for the prior Fiscal Year of the Stormwater System or $300,000, whichever is greater. B-40

153 Table 10 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Development of Total ECRWRF Net Revenue Requirements Allocable to City of West Palm Beach Page 1 of 7 Line Cost Adjusted [1] Escalation Adjusted [2] Escalation Escalation Escalation No. Code Description 2012 Reference 2013 Reference 2014 Reference 2015 Reference 2016 OPERATING EXPENSES - Fund 470: B-41 WASTEWATER TREATMENT PLANT (Cost Center 340) Materials and Services 1 301a Personnel Services $ 2,603,785 Input $ 2,607,399 Input $ 2,660,681 Input $ 2,716,538 Input $ 2,775, AddPers Additional Personnel 0 Input 0 Input 0 Input 0 Input b Utilities Administration 145,455 Marginal 161,455 Marginal 163,069 Marginal 164,700 Marginal 166, c City Services 340,549 Marginal 327,273 Marginal 330,545 Marginal 333,851 Marginal 337, d OPEB 21,049 ECRLabor 21,818 ECRLabor 22,264 ECRLabor 22,731 ECRLabor 23, Legal Services 43,636 Marginal 43,636 Marginal 44,073 Marginal 44,513 Marginal 44, Engineering Services 116,000 Inflation 155,600 Inflation 159,101 Inflation 162,840 Inflation 167, Accounting and Auditing 15,873 Inflation 29,091 Inflation 29,745 Inflation 30,444 Inflation 31, Other Contractual Services 394,634 Inflation 607,600 Inflation 621,271 Inflation 635,871 Inflation 653, Travel and Per Diem 0 Inflation 0 Inflation 0 Inflation 0 Inflation Training 15,200 Inflation 18,982 Inflation 19,409 Inflation 19,865 Inflation 20, Cellular Telephones and Pagers 6,545 Inflation 6,545 Inflation 6,693 Inflation 6,850 Inflation 7, Postage 4,000 Inflation 3,273 Inflation 3,346 Inflation 3,425 Inflation 3, Electric Services 2,399,346 Chem/Pwr-ECR 2,629,147 Chem/Pwr-ECR 2,785,405 Chem/Pwr-ECR 2,951,597 Chem/Pwr-ECR 3,128, Water Service 136,414 Util-W 99,127 Util-W 102,101 Util-W 105,164 Util-W 108, Waste Disposal Service [3] 2,812,660 Comm-SWA 2,129,420 Input 2,157,012 Input 3,996,715 Input 3,930, Rentals and Leases 35,000 Inflation 30,000 Inflation 30,675 Inflation 31,396 Inflation 32, Repair and Maintenance Services [4] 1,034,900 Repair 1,066,000 Repair 1,097,980 Repair 1,130,919 Repair 1,164, Operational Expenses 153,236 Inflation 155,898 Inflation 159,406 Inflation 163,152 Inflation 167, Gasoline 9,455 Inflation 6,545 Inflation 6,693 Inflation 6,850 Inflation 7, Diesel Fuel 71,000 Inflation 80,000 Inflation 81,800 Inflation 83,722 Inflation 86, Lubricants 12,500 Inflation 11,000 Inflation 11,248 Inflation 11,512 Inflation 11, Chemicals 346,133 Chem/Pwr-ECR 395,187 Chem/Pwr-ECR 418,674 Chem/Pwr-ECR 443,654 Chem/Pwr-ECR 470, Uniforms 5,891 Inflation 5,891 Inflation 6,023 Inflation 6,165 Inflation 6, Road Materials and Supplies 364 Inflation 364 Inflation 372 Inflation 381 Inflation Books, Subscriptions and Memberships 1,964 Inflation 2,982 Inflation 3,049 Inflation 3,121 Inflation 3, Minor Equipment 41,750 Inflation 63,500 Inflation 64,929 Inflation 66,455 Inflation 68, ECRSolids Change in ECR Operating Expenses due to ECR Project [5] 0 Input 0 Input 0 Input 0 Input 684,852 Internal Service Fund Charges MIS Maintenance Services 56,461 Inflation 54,764 Inflation 55,996 Inflation 57,312 Inflation 58, ISF Telecommunications Charges 19,203 Inflation 16,108 Inflation 16,471 Inflation 16,858 Inflation 17, Insurance 258,498 Inflation 284,348 Inflation 290,746 Inflation 297,578 Inflation 305, Insurance - General Liability 16,082 Inflation 24,942 Inflation 25,503 Inflation 26,102 Inflation 26, Insurance - Auto Liability 8,146 Inflation 18,622 Inflation 19,041 Inflation 19,488 Inflation 20, Equipment Maintenance 139,096 Repair 100,128 Repair 103,132 Repair 106,226 Repair 109, Duplicating Services 3,674 Inflation 3,674 Inflation 3,757 Inflation 3,845 Inflation 3,951 Capital Improvements Other Than Buildings 58,545 Inflation 0 Inflation 0 Inflation 0 Inflation Machinery and Equipment 22,350 Inflation 16,000 Inflation 16,360 Inflation 16,744 Inflation 17, Automotive Equipment 0 Inflation 25,000 Inflation 25,563 Inflation 26,163 Inflation 26,883 Other Uses Operating Contingency 5.31% 507,299 Input 555,411 Input 573,457 Input 658,864 Input 700, Series 2012 Series 2012 ECR Bonds [6] $ 22,458 Input $ 310,950 Input $ 995,950 Input $ 1,605,538 Input $ 1,846, Series 2014 Series 2014 ECR Bonds [6] 0 Constant 0 Constant 4,570,313 Constant 5,817,550 Constant 5,577, TOTAL WASTEWATER TREATMENT PLANT $ 11,879,149 $ 12,067,680 $ 17,681,851 $ 21,794,699 $ 22,811,006 Footnotes on Page 7 of 7.

154 Table 10 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Development of Total ECRWRF Net Revenue Requirements Allocable to City of West Palm Beach Page 2 of 7 Line Cost Adjusted [1] Escalation Adjusted [2] Escalation Escalation Escalation No. Code Description 2012 Reference 2013 Reference 2014 Reference 2015 Reference 2016 B-42 AWTR (Cost Center 341) Materials and Services a Personnel Services $ 488,210 Input $ 488,887 Input $ 498,878 Input $ 509,351 Input $ 520, AddPers Additional Personnel 0 Input 0 Input 0 Input 0 Input b Utilities Administration 27,273 Marginal 30,273 Marginal 30,575 Marginal 30,881 Marginal 31, c City Services 63,853 Marginal 61,364 Marginal 61,977 Marginal 62,597 Marginal 63, d OPEB 3,947 ECRLabor 4,091 ECRLabor 4,175 ECRLabor 4,262 ECRLabor 4, Legal Services 8,182 Marginal 8,182 Marginal 8,264 Marginal 8,346 Marginal 8, Engineering Services 42,000 Inflation 48,700 Inflation 49,796 Inflation 50,966 Inflation 52, Accounting and Auditing 2,976 Inflation 5,455 Inflation 5,577 Inflation 5,708 Inflation 5, Other Contractual Services 164,427 Inflation 180,450 Inflation 184,510 Inflation 188,846 Inflation 194, Travel and Per Diem 0 Inflation 0 Inflation 0 Inflation 0 Inflation Training 2,850 Inflation 3,559 Inflation 3,639 Inflation 3,725 Inflation 3, Cellular Telephones and Pagers 1,227 Inflation 1,227 Inflation 1,255 Inflation 1,284 Inflation 1, Postage 750 Comm-S 614 Comm-S 628 Comm-S 643 Comm-S Electric Services 206,875 Chem/Pwr-ECR 237,201 Chem/Pwr-ECR 251,298 Chem/Pwr-ECR 266,292 Chem/Pwr-ECR 282, Water Service 25,578 Input 18,586 Util-W 19,144 Util-W 19,718 Util-W 20, Repair and Maintenance Services [4] 357,188 Repair 320,000 Repair 329,600 Repair 339,488 Repair 349, Operational Expenses 15,730 Inflation 2,476 Inflation 2,532 Inflation 2,591 Inflation 2, Gasoline 1,773 Inflation 1,227 Inflation 1,255 Inflation 1,284 Inflation 1, Diesel Fuel 0 Inflation 0 Inflation 0 Inflation 0 Inflation Chemicals 521,079 Chem/Pwr-ECR 575,612 Chem/Pwr-ECR 609,822 Chem/Pwr-ECR 646,207 Chem/Pwr-ECR 684, Uniforms 1,105 Inflation 1,105 Inflation 1,129 Inflation 1,156 Inflation 1, Road Materials and Supplies 68 Inflation 68 Inflation 70 Inflation 71 Inflation Books, Subscriptions and Memberships 368 Inflation 559 Inflation 572 Inflation 585 Inflation Minor Equipment 400 Inflation 0 Inflation 0 Inflation 0 Inflation 0 Internal Service Fund Charges MIS Maintenance Services 10,821 Inflation 10,496 Inflation 10,732 Inflation 10,984 Inflation 11, ISF Telecommunications Charges 3,601 Inflation 3,020 Inflation 3,088 Inflation 3,161 Inflation 3, Insurance 18,705 Inflation 20,575 Inflation 21,038 Inflation 21,532 Inflation 22, Insurance - General Liability 3,015 Inflation 4,677 Inflation 4,782 Inflation 4,894 Inflation 5, Insurance - Auto Liability 1,527 Inflation 3,492 Inflation 3,570 Inflation 3,654 Inflation 3, Equipment Maintenance 26,081 Repair 18,774 Repair 19,337 Repair 19,917 Repair 20, Duplicating Services 689 Inflation 689 Inflation 704 Inflation 721 Inflation 741 Capital Improvements Other Than Buildings 10,977 Inflation 0 Inflation 0 Inflation 0 Inflation Machinery and Equipment 0 Constant 0 Constant 0 Constant 0 Constant Automotive Equipment 0 Constant 0 Constant 0 Constant 0 Constant 0 Other Uses Operating Contingency 0 Input 92,569 Input 95,576 Input 109,811 Input 116, TOTAL AWTR $ 2,011,274 $ 2,143,926 $ 2,223,524 $ 2,318,678 $ 2,412,102 Footnotes on Page 7 of 7.

155 Table 10 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Development of Total ECRWRF Net Revenue Requirements Allocable to City of West Palm Beach Page 3 of 7 Line Cost Adjusted [1] Escalation Adjusted [2] Escalation Escalation Escalation No. Code Description 2012 Reference 2013 Reference 2014 Reference 2015 Reference 2016 B-43 REUSE - PBC (Cost Center 342) Materials and Services a Personnel Services $488,210 Input $ 488,887 Input $ 498,878 Input $ 509,351 Input $ 520, AddPers Additional Personnel 0 Input 0 Input 0 Input 0 Input b Utilities Administration 27,273 Marginal 30,273 Marginal 30,575 Marginal 30,881 Marginal 31, c City Services 63,853 Marginal 61,364 Marginal 61,977 Marginal 62,597 Marginal 63, d OPEB 3,947 ECRLabor 4,091 ECRLabor 4,175 ECRLabor 4,262 ECRLabor 4, Legal Services 8,182 Marginal 8,182 Marginal 8,264 Marginal 8,346 Marginal 8, Engineering Services 7,000 Inflation 13,700 Inflation 14,008 Inflation 14,337 Inflation 14, Accounting and Auditing 2,976 Inflation 5,455 Inflation 5,577 Inflation 5,708 Inflation 5, Other Contractual Services 137,727 Inflation 154,950 Inflation 158,436 Inflation 162,160 Inflation 166, Travel and Per Diem 0 Inflation 0 Inflation 0 Inflation 0 Inflation Training 2,850 Inflation 3,559 Inflation 3,639 Inflation 3,725 Inflation 3, Cellular Telephones and Pagers 1,227 Inflation 1,227 Inflation 1,255 Inflation 1,284 Inflation 1, Postage 750 Inflation 614 Inflation 627 Inflation 642 Inflation Electric Services 545,668 Chem/Pwr-ECR 621,852 Chem/Pwr-ECR 658,810 Chem/Pwr-ECR 698,118 Chem/Pwr-ECR 739, Water Service 25,578 Input 18,586 Util-W 19,144 Util-W 19,718 Util-W 20, Waste Disposal Service [3] 0 Chem/Pwr-ECR 0 Chem/Pwr-ECR 0 Chem/Pwr-ECR 0 Chem/Pwr-ECR Rentals and Leases 0 Inflation 0 Inflation 0 Inflation 0 Inflation Repair and Maintenance Services [4] 156,499 Repair 135,000 Repair 139,050 Repair 143,222 Repair 147, Operational Expenses 15,730 Inflation 2,476 Inflation 2,532 Inflation 2,591 Inflation 2, Gasoline 1,773 Inflation 1,227 Inflation 1,255 Inflation 1,284 Inflation 1, Diesel Fuel 0 Inflation 0 Inflation 0 Inflation 0 Inflation Lubricants 0 Inflation 0 Inflation 0 Inflation 0 Inflation Chemicals 251,679 Chem/Pwr-ECR 277,202 Chem/Pwr-ECR 293,676 Chem/Pwr-ECR 311,199 Chem/Pwr-ECR 329, Uniforms 1,105 Inflation 1,105 Inflation 1,129 Inflation 1,156 Inflation 1, Road Materials and Supplies 68 Inflation 68 Inflation 70 Inflation 71 Inflation Books, Subscriptions and Memberships 368 Inflation 559 Inflation 572 Inflation 585 Inflation Minor Equipment 400 Inflation 6,500 Inflation 6,646 Inflation 6,802 Inflation 6,990 Internal Service Fund Charges MIS Maintenance Services 14,411 Inflation 13,978 Inflation 14,292 Inflation 14,628 Inflation 15, ISF Telecommunications Charges 3,601 Inflation 3,020 Inflation 3,088 Inflation 3,161 Inflation 3, Insurance 22,797 Inflation 25,077 Inflation 25,641 Inflation 26,244 Inflation 26, Insurance - General Liability 3,015 Inflation 4,677 Inflation 4,782 Inflation 4,894 Inflation 5, Insurance - Auto Liability 1,527 Inflation 3,492 Inflation 3,570 Inflation 3,654 Inflation 3, Equipment Maintenance 26,081 Repair 18,774 Repair 19,337 Repair 19,917 Repair 20, Duplicating Services 689 Inflation 689 Inflation 704 Inflation 721 Inflation 741 Capital Improvements Other Than Buildings 10,977 Inflation 0 Inflation 0 Inflation 0 Inflation Machinery and Equipment 0 Constant 0 Constant 0 Constant 0 Constant Automotive Equipment 0 Constant 0 Constant 0 Constant 0 Constant 0 Other Uses Operating Contingency 0 Input 92,569 Input 95,576 Input 109,811 Input 116, TOTAL REUSE - PBC $ 1,825,959 $ 1,999,151 $ 2,077,288 $ 2,171,072 $ 2,263,083 Gross ECR Operation and Maintenance Payments (ECR, 116 AWTR and Reuse PBC Operating Expenses) $ 15,716,382 $ 16,210,756 $ 21,982,663 $ 26,284,449 $ 27,486, Percentage Annual Change N/A 3.15% 35.61% 19.57% 4.57% Footnotes on Page 7 of 7.

156 Table 10 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Development of Total ECRWRF Net Revenue Requirements Allocable to City of West Palm Beach Page 4 of 7 Line Cost Adjusted [1] Escalation Adjusted [2] Escalation Escalation Escalation No. Code Description 2012 Reference 2013 Reference 2014 Reference 2015 Reference 2016 Other ECR Revenues 118 Investment Income $ 6,834 Constant $ 12,497 Eliminate $ 62,997 Eliminate $ 99,264 Eliminate $ 137, Non-Entity Charge for Use of Septage Facility 1,250,000 Constant 1,250,000 Constant 1,250,000 Constant 1,250,000 Constant 1,250, Transfer from 471 to 470 (MIT Deep Wells) [4] 0 Constant 0 Eliminate 0 Eliminate 0 Eliminate Miscellaneous Earnings 17,560 Constant 17,560 Constant 17,560 Constant 17,560 Constant 17, Transfers from ECR Fund ,000 Constant 34,500 Eliminate 0 Eliminate 0 Eliminate Subtotal Other ECR Revenues $ 1,293,394 $ 1,314,557 $ 1,330,557 $ 1,366,824 $ 1,405,051 Net ECR Operation and Maintenance Payments (ECR, 124 AWTR and Reuse PBC Operating Expenses) $ 14,422,989 $ 14,896,200 $ 20,652,106 $ 24,917,626 $ 26,081, ECR Plant Component $ 10,585,756 $ 10,753,123 $ 16,351,294 $ 20,427,876 $ 21,405, City Allocation Percent 29.49% Input 29.54% 29.57% 29.60% 29.61% 127 City Allocation Amount $ 3,122,246 $ 3,176,985 $ 4,835,818 $ 6,046,207 $ 6,339, Additional ERC Plant Component Allocation Total City Allocation Amount - ECR Component $ 3,122,246 $ 3,176,985 $ 4,835,818 $ 6,046,207 $ 6,339, Amount Allocable to Water System 0.00% $ 0 $ 0 $ 0 $ 0 $ 0 B Amount Allocable to Wastewater System % $ 3,122,246 $ 3,176,985 $ 4,835,818 $ 6,046,207 $ 6,339, AWTR Plant Component $ 2,011,274 $ 2,143,926 $ 2,223,524 $ 2,318,678 $ 2,412, City Allocation Percent % % % % % 134 City Allocation Amount $ 2,011,274 $ 2,143,926 $ 2,223,524 $ 2,318,678 $ 2,412, Additional AWTR Plant Component Allocation Total City Allocation Amount - AWTR Component $ 2,011,274 $ 2,143,926 $ 2,223,524 $ 2,318,678 $ 2,412, Amount Allocable to Water System % $ 2,011,274 $ 2,143,926 $ 2,223,524 $ 2,318,678 $ 2,412, Amount Allocable to Wastewater System 0.00% Reuse - PBC Plant Component $ 1,825,959 $ 1,999,151 $ 2,077,288 $ 2,171,072 $ 2,263, City Allocation Percent 0.00% 0.00% 0.00% 0.00% 0.00% 141 City Allocation Amount $ 0 $ 0 $ 0 $ 0 $ Additional Reuse Plant Component Allocation Total City Allocation Amount - PBC Reuse $ 0 $ 0 $ 0 $ 0 $ Amount Allocable to Water System 0.00% $ 0 $ 0 $ 0 $ 0 $ Amount Allocable to Wastewater System % Payments (ECR, AWTR and Reuse PBC Operating 146 Expenses) $ 5,133,520 $ 5,320,911 $ 7,059,342 $ 8,364,886 $ 8,751,375 OTHER REVENUE REQUIREMENTS DEBT SERVICE PAYMENTS (Fund 475) [7] 147 Existing SRF Debt Service [7] $ 1,303,765 Input $ 0 Input $ 0 Input $ 0 Input $ City Allocation % 31.17% 31.17% 31.17% 31.17% 31.17% 149 City Allocation Amount $ 406,372 $ 0 $ 0 $ 0 $ Total ECR Debt Service Payments $ 406,372 $ 0 $ 0 $ 0 $ 0 Footnotes on Page 7 of 7.

157 Table 10 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Development of Total ECRWRF Net Revenue Requirements Allocable to City of West Palm Beach Page 5 of 7 Line Cost Adjusted [1] Escalation Adjusted [2] Escalation Escalation Escalation No. Code Description 2012 Reference 2013 Reference 2014 Reference 2015 Reference 2016 RENEWALS AND REPLACEMENTS (Fund 471) [8] 151 Estimated Replacement Utility Plant Value $ 221,920,215 Input $ 232,597,543 Input $255,235,145 Input $298,779,635 ECR-RPL $334,901, Funding Recognized (% of Assessed Value) [8] 1.50% 1.75% 2.00% 2.00% 2.00% 153 R&R Fund Deposit All Entities $ 3,328,803 Input $ 4,070,457 Input $ 5,104,703 Input $ 5,975,593 Input $ 6,698, City Allocation % 29.29% 29.29% 29.29% 29.29% 29.29% 155 City Allocation Amount 974,864 1,192,062 1,494,949 1,749,995 1,961, Additional Needed Transfers 0 Input 0 Input 0 Input 0 Input Less Reserve Funding Allowance 0 Input 0 Input 0 Input 0 Input Total Capital Outlay 974,864 $ 1,192,062 $ 1,494,949 $ 1,749,995 $ 1,961,565 CAPITAL OUTLAY TRANSFER (Fund 472) 159 Total ECR Requirement $ 0 Inflation $ 0 Inflation $ 0 Inflation $ 0 Inflation $ City Allocation % 29.29% 29.29% 29.29% 29.29% 29.29% 161 City Allocation Amount 0 $ 0 $ 0 $ 0 $ Additional Needed Transfers 0 Input 0 Input 0 Input 0 Input Less Reserve Funding Allowance 0 Input 0 Input 0 Input 0 Input Total Capital Outlay $ 0 $ 0 $ 0 $ 0 $ 0 B-45 EQUIPMENT RESERVE FUND TRANSFER (Fund 474) 165 Total ECR Requirement $ 0 Inflation $ 0 Inflation $ 0 Inflation $ 0 Inflation $ City Allocation % 29.29% 29.29% 29.29% 29.29% 29.29% 167 City Allocation Amount 0 $ 0 $ 0 $ 0 $ 0 AWTR- WPB FUND (Fund 478) 168 Estimated Replacement Utility Plant Value $ 15,640,000 ECR-RPL $ 16,109,200 ECR-RPL $ 16,592,476 ECR-RPL $ 17,090,250 ECR-RPL $ 17,602,958 Minimum R&R Fund Requirement 169 (Percent of Assessed Value) 1.0% $ 156,400 Input $ 161,092 Input $ 165,925 Input $ 170,903 Input $ 176, City Allocation % % % % % % 171 City Allocation Amount 156, , , , , Additional Needed Transfers 0 Inflation 0 Inflation 0 Inflation 0 Inflation Less Reserve Funding Allowance 0 Input 0 Input 0 Input 0 Input Total Capital Outlay $ 156,400 $ 161,092 $ 165,925 $ 170,903 $ 176, Amount Allocable to Water System $ 156,400 $ 161,092 $ 165,925 $ 170,903 $ 176, Amount Allocable to Wastewater System Reuse - PBC (Fund 479) 177 Estimated Replacement Utility Plant Value $ 19,062,000 ECR-REUSE $ 19,633,860 ECR-REUSE $ 20,222,876 ECR-REUSE $ 20,829,562 ECR-REUSE $ 21,454,449 Minimum R&R Fund Requirement 178 (Percent of Assessed Value) 1.0% $ 190,620 Input $ 196,339 Input $ 202,229 Input $ 208,296 Input $ 214, City Allocation % 0.00% 0.00% 0.00% 0.00% 0.00% 180 City Allocation Amount Additional Needed Transfers 0 Inflation 0 Inflation 0 Inflation 0 Inflation Less Reserve Funding Allowance 0 Input 0 Input 0 Input 0 Input Total Capital Outlay $ 0 $ 0 $ 0 $ 0 $ Amount Allocable to Water System $ 0 $ 0 $ 0 $ 0 $ Amount Allocable to Wastewater System ECR - WRF Expansion (Fund 477) 186 Total ECR Requirement $ 0 Inflation $ 0 Inflation $ 0 Inflation $ 0 Inflation $ City Allocation % 0.00% 0.00% 0.00% 0.00% 0.00% 188 City Allocation Amount $ 0 $ 0 $ 0 $ 0 $ 0 Footnotes on Page 7 of 7.

158 Table 10 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Development of Total ECRWRF Net Revenue Requirements Allocable to City of West Palm Beach Page 6 of 7 Line Cost Adjusted [1] Escalation Adjusted [2] Escalation Escalation Escalation No. Code Description 2012 Reference 2013 Reference 2014 Reference 2015 Reference 2016 ECR - Working Capital and Catastrophic Reserve Fund 189 Total ECR Requirement $ 0 Constant $ 500,000 Constant $ 500,000 Constant $ 500,000 Constant $ 500, City Allocation % 29.49% 29.54% 29.57% 29.60% 29.61% 191 City Allocation Amount $ 0 $ 147,724 $ 147,873 $ 147,989 $ 148, TOTAL OTHER REVENUE REQUIREMENTS $ 1,537,635 $ 1,500,878 $ 1,808,746 $ 2,068,887 $ 2,285,667 Total City Share of ECR Revenue Requirements (ECR, 193 AWTR and Reuse PBC Revenue Requirements) $ 6,671,155 $ 6,821,789 $ 8,868,088 $ 10,433,772 $ 11,037,042 Footnotes on Page 7 of 7. B-46

159 Table 10 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Development of Total ECRWRF Net Revenue Requirements Allocable to City of West Palm Beach Page 7 of 7 Footnotes: [1] Amounts shown based on: i) Fiscal Year 2012 ECR Board approved budget; ii) nine (9) months of actual year-to-date ECR operating results; and iii) three (3) months of projected operating results. [2] Amounts shown based on: i) Fiscal Year 2013 preliminary ECR budget; and ii) adjustments to Fiscal Year Fiscal Year 2012 ECR Board approved budget as referenced on footnote [1]. [3] Amounts shown represent the projected cost of the biosolids waste disposal services contract or future on-site biosolids treatment, based on information provided and discussions with the ECRWRF Consulting Engineers and City staff. The existing composting facility service contract with the Solid Waste Authority of Palm Beach County (SWAPBC) expires in September 30, 2014; subsequent to such date, the ECRWRF biosolids will need to be handled in a different manner. Based on information provided by the ECRWRF Consulting Engineers and City Staff, it is anticipated that beginning October 1, 2014 continuing through July 31, 2016, the ECR Board will enter into a new biosolids waste disposal service agreement with a third party vendor. The new on-site thermal drying facility to be constructed at the ECRWRF as part of the ECR Project is anticipated to become fully operational by August 1, The cost of biosolids waste disposal services or future on-site treatment for the Forecast Period was calculated as follows : Cost of Biosolids Waste Disposal Services or Treatment Description Current Agreement (SWAPBC) [a] $ 2,812,660 $ 2,129,420 $ 2,157,012 $ 86,553 $ 87,369 Interim Agreement (Contract Disposal Vendor) ,910,162 3,379,649 New On-Site Thermal Drying Facility ,456 Projected Cost of Biosolids Waste Disposal Services or Treatment $ 2,812,660 $ 2,129,420 $ 2,157,012 $ 3,996,715 $ 3,930,474 [a] Anticipated cost reduction for Fiscal Years 2013 and 2014 due to reduction on fee by the SWAPBC. Amounts shown for Fiscal Years 2015 and 2016 reflect grit removal services that are anticipated to continue beyond the expiration date of the SWAPBC contract. B-47 [4] Fiscal Year 2013 preliminary ECR Budget includes the Deep Wells Mechanical Integrity Test cost as a component of the ECR operational expenses and also part of ECR Revenues; therefore having no net effect on the ECR Operation and Maintenance Payments allocable to the City. For presentation purposes, the Deep Wells Mechanical Integrity Test cost has been excluded from both the ECR operational expenses and ECR Revenues shown above for Fiscal Year [5] Amounts shown represent the projected change in ECR operating expenses because of treatment modifications due to implementation of the ECR Project, based on information provided and discussions with the ECRWRF Consulting Engineers and City staff. Treatment modifications that are anticipated to affect ECR operating expenses include: i) the conversion of decant tanks to Aerated Waste Activated Sludge (WAS) storage tanks; ii) the upgrade of the gravity belt thickening facilities (WAS thickening); iii) the construction of temperature-phased anaerobic digestion facilities; and iv) the construction of centrifuge dewatering facilities. The change in ECR operating expenses due to the ECR Project is calculated as follows: Costs of Wastewater Treatment Modification and Sludge Thickening Description Additional Costs Upgraded WAS Thickening $ 0 $ 0 $ 0 $ 0 $ 727,667 Net Change Other Treatment Modifications (42,815) Change in ECR Operating Expenses due to ECR Project $ 0 $ 0 $ 0 $ 0 $ 684,852 [6] Amounts shown based on debt service schedules provided by the Co-Financial Advisors and reflect additional ECR Debt Service Payments related to the issuance of additional ECR Bonds during the Forecast Period which are considered as a component of the ECR Operation and Maintenance Payments and therefore a component of Current Expenses. A summary of the ECR Debt Service Payments for the ECR Bonds is as follows: Fiscal Year Ending September 30, ECR Debt Service Payments - ECR Bonds Series 2012 ECR Bonds $ 22,458 $ 310,950 $ 995,950 $ 1,605,538 $ 1,846,063 Series 2014 ECR Bonds 0 0 4,570,313 5,817,550 5,577,950 ECR Debt Service Payments - ECR Bonds $ 22,458 $ 310,950 $ 5,566,263 $ 7,423,088 $ 7,424,013 [7] It is anticipated that the SRF Loans will be cash-defease upon the issuance of the Series 2012 ECR Bonds. The debt service payments related to the Series 2012 Bonds are considered as a component of the ECR Operation and Maintenance Payments and therefore a component of Current Expenses; please refer to footnote [6] above for a summary of the ECR Debt Service Payments. [8] According to the Interlocal Agreement between the ECR Board and the entities comprising the ECR Board, the deposit to the Renewal and Replacement Fund 471 is based on a percentage of the estimated ECRWRF Replacement Plant Value (minimum required of 1.0%).

160 Table 11 Page 1 of 11 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Projection of Current (Operating) Expenses for the Water and Wastewater Systems Fiscal Year Ending September 30, Line Adjusted Escalation Adjusted Escalation Escalation Escalation No. Description 2012 Reference 2013 Reference 2014 Reference 2015 Reference 2016 UTILITIES ADMINISTRATION (Cost Center ) Personnel Services 1 Personnel Services $ 1,646,372 Labor $ 1,646,372 Labor $ 1,662,836 Labor $ 1,679,464 Labor $ 1,696,259 2 Health Insurance 215,428 MedIns 231,585 MedIns 248,954 MedIns 267,626 MedIns 287,697 3 Additional Personnel 0 Calculated 0 Calculated 0 Calculated 0 Calculated 0 B-48 Materials and Services 4 Administrative Expense 4,792,000 Admin 4,792,000 Admin 4,839,920 Admin 4,888,319 Admin 4,937,202 5 P.I.L.O.T. [2] 7,610,935 Calculated [2] 7,976,329 Calculated [2] 8,227,191 Calculated [2] 8,480,654 Calculated [2] 8,741,237 6 Professional Services 80,000 Inflation 81,720 Inflation 83,559 Inflation 85,522 Inflation 87,874 7 Legal Services 225,000 Inflation 229,838 Inflation 235,009 Inflation 240,532 Inflation 247,146 8 Engineering Services 20,000 Inflation 20,430 Inflation 20,890 Inflation 21,381 Inflation 21,969 9 Accounting and Auditing 55,000 Inflation 56,183 Inflation 57,447 Inflation 58,797 Inflation 60, Insurance 0 Insurance 0 Insurance 0 Insurance 0 Insurance 0 11 Other Contractual Services 158,800 Inflation 162,214 Inflation 165,864 Inflation 169,762 Inflation 174, Travel and Per Diem 9,000 Inflation 9,194 Inflation 9,400 Inflation 9,621 Inflation 9, Training 4,000 Inflation 4,086 Inflation 4,178 Inflation 4,276 Inflation 4, Cellular Telephones and Pagers 1,500 Inflation 1,532 Inflation 1,567 Inflation 1,604 Inflation 1, Postage 3,000 Inflation 3,065 Inflation 3,133 Inflation 3,207 Inflation 3, Rentals and Leases 5,064 Inflation 5,173 Inflation 5,289 Inflation 5,414 Inflation 5, Water Service 0 Util-W 0 Util-W 0 Util-W 0 Util-W 0 18 Repair & Maintenance Expenses 0 Repair 0 Repair 0 Repair 0 Repair 0 19 Operational Expenses 150,000 Repair 154,500 Repair 159,135 Repair 163,909 Repair 168, City of WPB Share of AWTR Operating Expenses [3] 2,011,274 Calculated [3] 2,143,926 Calculated [3] 2,223,524 Calculated [3] 2,318,678 Calculated [3] 2,412, City of WPB Share of ECR Operating Expenses [3] 3,122,246 Calculated [3] 3,176,985 Calculated [3] 4,835,818 Calculated [3] 6,046,207 Calculated [3] 6,339, Reuse - PBC Operating Expense [3] 0 Calculated [3] 0 Calculated [3] 0 Calculated [3] 0 Calculated [3] 0 23 Interest on Customer Deposits 0 Eliminate 0 Eliminate 0 Eliminate 0 Eliminate 0 24 Books, Subscriptions and Memberships 15,000 Inflation 15,323 Inflation 15,667 Inflation 16,035 Inflation 16, Printing Services 1,000 Inflation 1,022 Inflation 1,044 Inflation 1,069 Inflation 1, Minor Equipment 2,500 Inflation 2,554 Inflation 2,611 Inflation 2,673 Inflation 2, Contributions to ECR (Funds 471, 474 and 475) 0 Eliminate 0 Eliminate 0 Eliminate 0 Eliminate 0 Internal Service Fund Charges 28 MIS Maintenance Service 799,572 Inflation 816,763 Inflation 835,140 Inflation 854,766 Inflation 878, ISF - Radio System Charges 0 Inflation 0 Inflation 0 Inflation 0 Inflation 0 30 ISF Telecommunication Charges 14,986 Inflation 15,308 Inflation 15,653 Inflation 16,020 Inflation 16, Insurance 0 Insurance 0 Insurance 0 Insurance 0 Insurance 0 32 Insurance - General Liability 11,062 Insurance 11,615 Insurance 12,196 Insurance 12,806 Insurance 13, Insurance - Auto Liability 0 Insurance 0 Insurance 0 Insurance 0 Insurance 0 34 Equipment Maintenance 0 Repair 0 Repair 0 Repair 0 Repair 0 35 Duplicating Services 0 Inflation 0 Inflation 0 Inflation 0 Inflation 0 36 Parking Expense 14,480 Inflation 14,791 Inflation 15,124 Inflation 15,480 Inflation 15,905 Footnotes on Page 11 of 11.

161 Table 11 Page 2 of 11 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Projection of Current (Operating) Expenses for the Water and Wastewater Systems Fiscal Year Ending September 30, Line Adjusted Escalation Adjusted Escalation Escalation Escalation No. Description 2012 Reference 2013 Reference 2014 Reference 2015 Reference 2016 Other Uses 37 Budgetary Contingency [4] 2.00% 0 Calculated [4] 1,071,132 Calculated [4] 1,130,335 Calculated [4] 1,181,868 Calculated [4] 1,216, Improvements Other Than Buildings [5] 0 Eliminate 0 Eliminate 0 Eliminate 0 Eliminate 0 39 Transfer to Fund 451 (Equipment and Replacement) [6] 0 Eliminate 0 Eliminate 0 Eliminate 0 Eliminate 0 40 Transfer to Fund 453 (Utilities Capital) [6] 0 Eliminate 0 Eliminate 0 Eliminate 0 Eliminate 0 41 Transfer to Fund 454 (WPB RR&I) [6] 0 Eliminate 0 Eliminate 0 Eliminate 0 Eliminate 0 42 Transfer to Fund 455 (Debt Service) [6] 0 Eliminate 0 Eliminate 0 Eliminate 0 Eliminate 0 43 Transfer to Fund 458 (Wetlands Mitigation Project Fund) [6 0 Eliminate 0 Eliminate 0 Eliminate 0 Eliminate 0 44 Transfer to Fund 459 (Operating Reserve) [6] 0 Eliminate 0 Eliminate 0 Eliminate 0 Eliminate 0 45 Transfer to Fund 506 for OPEB 159,644 Constant 159,644 Constant 159,644 Constant 159,644 Constant 159, Transfer to Fund 508 (Technology Replacement) 100,000 Constant 100,000 Constant 100,000 Constant 100,000 Constant 100, TOTAL UTILITIES ADMINISTRATION $ 21,227,863 $ 22,903,282 $ 25,071,128 $ 26,805,332 $ 27,619,848 CUSTOMER SERVICE (Cost Center ) Personnel Services 48 Personnel Services $ 1,590,236 Labor $ 1,590,236 Labor $ 1,606,138 Labor $ 1,622,200 Labor $ 1,638, Health Insurance 269,178 MedIns 289,366 MedIns 311,069 MedIns 334,399 MedIns 359, Additional Personnel 0 Calculated 0 Calculated 0 Calculated 0 Calculated 0 B-49 Materials and Services 51 Other Contractual Services 401,358 Inflation 409,987 Inflation 419,212 Inflation 429,063 Inflation 440, Travel and Per Diem 2,000 Inflation 2,043 Inflation 2,089 Inflation 2,138 Inflation 2, Training 9,000 Inflation 9,194 Inflation 9,400 Inflation 9,621 Inflation 9, Cellular Telephones and Pagers 615 Inflation 628 Inflation 642 Inflation 657 Inflation Postage 203,580 Cust-Water 207,971 Cust-Water 212,836 Cust-Water 218,074 Cust-Water 224, Repair and Maintenance Services 71,575 Repair 73,722 Repair 75,934 Repair 78,212 Repair 80, Printing Services 19,953 Inflation 20,382 Inflation 20,840 Inflation 21,330 Inflation 21, Operational Expenses 25,395 Inflation 25,941 Inflation 26,525 Inflation 27,148 Inflation 27, Uniforms 2,300 Inflation 2,349 Inflation 2,402 Inflation 2,459 Inflation 2, Books, Subscriptions and Memberships 100 Inflation 102 Inflation 104 Inflation 107 Inflation Minor Equipment 500 Cust-Water 511 Cust-Water 523 Cust-Water 536 Cust-Water 551 Internal Service Fund Charges 62 MIS Maintenance Service 38,430 Inflation 39,256 Inflation 40,140 Inflation 41,083 Inflation 42, ISF - Radio System Charges 0 Inflation 0 Inflation 0 Inflation 0 Inflation 0 64 ISF Telecommunications Charges 21,408 Inflation 21,868 Inflation 22,360 Inflation 22,886 Inflation 23, Insurance 0 Insurance 0 Insurance 0 Insurance 0 Insurance 0 66 Insurance - General Liability 11,351 Insurance 11,919 Insurance 12,514 Insurance 13,140 Insurance 13, Insurance - Auto Liability 6,400 Insurance 6,720 Insurance 7,056 Insurance 7,409 Insurance 7, Equipment Maintenance 56,305 Repair 57,994 Repair 59,734 Repair 61,526 Repair 63, Duplicating Services 209 Inflation 213 Inflation 218 Inflation 223 Inflation Parking 20,280 Inflation 20,716 Inflation 21,182 Inflation 21,680 Inflation 22,276 Other Uses 71 Bad Debt Expense [7] 1.00% 761,093 Calculated [7] 797,633 Calculated [7] 822,719 Calculated [7] 848,065 Calculated [7] 874, TOTAL CUSTOMER SERVICE $ 3,511,266 $ 3,588,752 $ 3,673,639 $ 3,761,957 $ 3,856,709 Footnotes on Page 11 of 11.

162 Table 11 Page 3 of 11 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Projection of Current (Operating) Expenses for the Water and Wastewater Systems Fiscal Year Ending September 30, Line Adjusted Escalation Adjusted Escalation Escalation Escalation No. Description 2012 Reference 2013 Reference 2014 Reference 2015 Reference 2016 FIELD CUSTOMER SERVICE (Cost Center ) Personnel Services 73 Personnel Services $ 953,031 Labor $ 953,031 Labor $ 962,561 Labor $ 972,187 Labor $ 981, Health Insurance 160,674 MedIns 172,725 MedIns 185,679 MedIns 199,605 MedIns 214, Additional Personnel 0 Calculated 0 Calculated 0 Calculated 0 Calculated 0 Materials and Services 76 Other Contractual Services 94,915 Inflation 96,956 Inflation 99,137 Inflation 101,467 Inflation 104, Travel and Per Diem 1,000 Inflation 1,022 Inflation 1,044 Inflation 1,069 Inflation 1, Training 10,000 Inflation 10,215 Inflation 10,445 Inflation 10,690 Inflation 10, Cellular Telephones and Pagers 3,150 Inflation 3,218 Inflation 3,290 Inflation 3,367 Inflation 3, Postage 9,000 Inflation 9,194 Inflation 9,400 Inflation 9,621 Inflation 9, Repair and Maintenance Services 174,450 Repair 179,684 Repair 185,074 Repair 190,626 Repair 196, Printing Services 12,125 Marginal 12,246 Marginal 12,369 Marginal 12,492 Marginal 12, Operational Expenses 54,700 Inflation 55,876 Inflation 57,133 Inflation 58,476 Inflation 60, Uniforms 5,000 Inflation 5,108 Inflation 5,222 Inflation 5,345 Inflation 5, Books, Subscriptions and Memberships 5,049 Inflation 5,158 Inflation 5,274 Inflation 5,398 Inflation 5, Minor Equipment 16,600 Inflation 16,957 Inflation 17,338 Inflation 17,746 Inflation 18,234 B-50 Internal Service Fund Charges 87 MIS Maintenance Services 24,164 Inflation 24,684 Inflation 25,239 Inflation 25,832 Inflation 26, ISF - Radio System Charges 0 Inflation 0 Inflation 0 Inflation 0 Inflation 0 89 ISF Telecommunications Charges 10,704 Inflation 10,934 Inflation 11,180 Inflation 11,443 Inflation 11, Insurance 12,623 Insurance 13,254 Insurance 13,917 Insurance 14,613 Insurance 15, Insurance - General Liability 8,965 Insurance 9,413 Insurance 9,884 Insurance 10,378 Insurance 10, Insurance - Auto Liability 12,801 Insurance 13,441 Insurance 14,113 Insurance 14,819 Insurance 15, Equipment Maintenance 65,000 Repair 66,950 Repair 68,959 Repair 71,027 Repair 73, Duplicating Services 0 Inflation 0 Inflation 0 Inflation 0 Inflation 0 95 TOTAL FIELD CUSTOMER SERVICE $ 1,633,951 $ 1,660,063 $ 1,697,259 $ 1,736,201 $ 1,777,746 WATERSHED MANAGEMENT (Cost Center 220) Personnel Services 96 Personnel Services $ 742,715 Labor $ 742,715 Labor $ 750,142 Labor $ 757,643 Labor $ 765, Health Insurance 110,747 MedIns 119,053 MedIns 127,982 MedIns 137,581 MedIns 147, Additional Personnel 0 Calculated 0 Calculated 0 Calculated 0 Calculated 0 Footnotes on Page 11 of 11.

163 Table 11 Page 4 of 11 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Projection of Current (Operating) Expenses for the Water and Wastewater Systems Fiscal Year Ending September 30, Line Adjusted Escalation Adjusted Escalation Escalation Escalation No. Description 2012 Reference 2013 Reference 2014 Reference 2015 Reference 2016 B-51 Materials and Services 99 Administrative Expense 0 Inflation 0 Inflation 0 Inflation 0 Inflation Professional Services 20,000 Inflation 20,430 Inflation 20,890 Inflation 21,381 Inflation 21, Engineering Services 0 Inflation 0 Inflation 0 Inflation 0 Inflation Other Contractual Services 628,150 Inflation 641,655 Inflation 656,092 Inflation 671,511 Inflation 689, Travel and Per Diem 1,000 Inflation 1,022 Inflation 1,044 Inflation 1,069 Inflation 1, Training 4,500 Inflation 4,597 Inflation 4,700 Inflation 4,811 Inflation 4, Cellular Telephones and Pagers 18,770 Inflation 19,174 Inflation 19,605 Inflation 20,066 Inflation 20, Postage 3,000 Inflation 3,065 Inflation 3,133 Inflation 3,207 Inflation 3, Electric Services 111,872 Power-W 117,466 Power-W 123,410 Power-W 129,704 Power-W 136, Water Service 9,000 Util-W 9,450 Util-W 9,734 Util-W 10,026 Util-W 10, Rentals and Leases 11,700 Inflation 11,952 Inflation 12,220 Inflation 12,508 Inflation 12, Repair and Maintenance Services 200,000 Repair 206,000 Repair 212,180 Repair 218,545 Repair 225, Printing Services 15,000 Inflation 15,323 Inflation 15,667 Inflation 16,035 Inflation 16, Promotional / Advertising 3,000 Inflation 3,065 Inflation 3,133 Inflation 3,207 Inflation 3, Operational Expenses 238,700 Repair 245,861 Repair 253,237 Repair 260,834 Repair 268, Gasoline 15,000 Comm-W 15,323 Comm-W 15,677 Comm-W 16,060 Comm-W 16, Diesel Fuel 34,000 Comm-W 34,731 Comm-W 35,534 Comm-W 36,402 Comm-W 37, Lubricants 2,000 Comm-W 2,043 Comm-W 2,090 Comm-W 2,141 Comm-W 2, Chemicals 150,000 Chem-W 156,000 Chem-W 162,334 Chem-W 168,989 Chem-W 175, Uniforms 3,000 Inflation 3,065 Inflation 3,133 Inflation 3,207 Inflation 3, Books, Subscriptions and Memberships 2,325 Inflation 2,375 Inflation 2,428 Inflation 2,485 Inflation 2, Minor Equipment 26,000 Inflation 26,559 Inflation 27,157 Inflation 27,795 Inflation 28,559 Internal Service Fund Charges 121 MIS Maintenance Services 21,733 Inflation 22,200 Inflation 22,700 Inflation 23,233 Inflation 23, ISF - Radio System Charges 8,563 Inflation 8,747 Inflation 8,944 Inflation 9,154 Inflation 9, Insurance 11,944 Inflation 12,201 Inflation 12,475 Inflation 12,768 Inflation 13, Insurance - General Liability 6,123 Insurance 6,429 Insurance 6,751 Insurance 7,088 Insurance 7, Insurance - Auto Liability 13,930 Insurance 14,627 Insurance 15,358 Insurance 16,126 Insurance 16, Equipment Maintenance 116,784 Repair 120,288 Repair 123,896 Repair 127,613 Repair 131, Duplicating Services 0 Inflation 0 Inflation 0 Inflation 0 Inflation TOTAL WATERSHED MANAGEMENT $ 2,529,556 $ 2,585,411 $ 2,651,646 $ 2,721,189 $ 2,796,673 SUSTAINABILITY INITIATIVES (Cost Center 225) Personnel Services 129 Personnel Services $ 190,927 Labor $ 190,927 Labor $ 192,836 Labor $ 194,765 Labor $ 196, Health Insurance 36,081 MedIns 38,787 MedIns 41,696 MedIns 44,823 MedIns 48, Additional Personnel 0 Calculated 0 Calculated 0 Calculated 0 Calculated 0 Footnotes on Page 11 of 11.

164 Table 11 Page 5 of 11 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Projection of Current (Operating) Expenses for the Water and Wastewater Systems Fiscal Year Ending September 30, Line Adjusted Escalation Adjusted Escalation Escalation Escalation No. Description 2012 Reference 2013 Reference 2014 Reference 2015 Reference 2016 Materials and Services 132 Professional Services 5,000 Inflation 5,108 Inflation 5,222 Inflation 5,345 Inflation 5, Other Contractual Services 75,000 Inflation 76,613 Inflation 78,336 Inflation 80,177 Inflation 82, Travel and Per Diem 1,000 Inflation 1,022 Inflation 1,044 Inflation 1,069 Inflation 1, Training 500 Inflation 511 Inflation 522 Inflation 535 Inflation Cellular Telephones and Pagers 2,650 Inflation 2,707 Inflation 2,768 Inflation 2,833 Inflation 2, Postage 600 Inflation 613 Inflation 627 Inflation 641 Inflation Rentals & Leases 1,000 Inflation 1,022 Inflation 1,044 Inflation 1,069 Inflation 1, Printing Services 1,978 Marginal 1,998 Marginal 2,018 Marginal 2,038 Marginal 2, Promotional / Advertising 3,000 Inflation 3,065 Inflation 3,133 Inflation 3,207 Inflation 3, Operational Expenses 25,000 Inflation 25,538 Inflation 26,112 Inflation 26,726 Inflation 27, Books, Subscriptions and Memberships 2,600 Inflation 2,656 Inflation 2,716 Inflation 2,779 Inflation 2, Minor Equipment 5,000 Inflation 5,108 Inflation 5,222 Inflation 5,345 Inflation 5,492 Internal Service Fund Charges 144 MIS Maintenance Service 9,497 Inflation 9,701 Inflation 9,919 Inflation 10,153 Inflation 10, Insurance - General Liability 1,307 Insurance 1,372 Insurance 1,441 Insurance 1,513 Insurance 1, Duplicating Services 0 Inflation 0 Inflation 0 Inflation 0 Inflation Parking Expense 3,900 Inflation 3,984 Inflation 4,073 Inflation 4,169 Inflation 4,284 B TOTAL SUSTAINABILITY INITIATIVES $ 365,040 $ 370,728 $ 378,732 $ 387,187 $ 396,554 DISTRIBUTION (Cost Center ) Personnel Services 149 Personnel Services $ 1,659,768 Labor $ 1,659,768 Labor $ 1,676,366 Labor $ 1,693,129 Labor $ 1,710, Health Insurance 296,169 MedIns 318,382 MedIns 342,260 MedIns 367,930 MedIns 395, Additional Personnel 0 Calculated 0 Calculated 0 Calculated 0 Calculated 0 Materials and Services 152 Other Contractual Services 20,000 Inflation 20,430 Inflation 20,890 Inflation 21,381 Inflation 21, Travel and Per Diem 750 Inflation 766 Inflation 783 Inflation 802 Inflation Training 9,225 Inflation 9,423 Inflation 9,635 Inflation 9,862 Inflation 10, Cellular Telephones and Pagers 10,000 Inflation 10,215 Inflation 10,445 Inflation 10,690 Inflation 10, Postage 150 Inflation 153 Inflation 157 Inflation 160 Inflation Electric Services 0 Power-W 0 Power-W 0 Power-W 0 Power-W Water Service 0 Util-W 0 Util-W 0 Util-W 0 Util-W Waste Disposal Service 2,500 Inflation 2,554 Inflation 2,611 Inflation 2,673 Inflation 2, Rentals and Leases 2,500 Inflation 2,554 Inflation 2,611 Inflation 2,673 Inflation 2, Repair and Maintenance Services 225,500 Repair 232,265 Repair 239,233 Repair 246,410 Repair 253, Operational Expenses 65,000 Inflation 66,398 Inflation 67,891 Inflation 69,487 Inflation 71, Printing Services 1,000 Inflation 1,022 Inflation 1,044 Inflation 1,069 Inflation 1, Gasoline 600 Inflation 613 Inflation 627 Inflation 641 Inflation Diesel Fuel 900 Inflation 919 Inflation 940 Inflation 962 Inflation Chemicals 0 Chem-W 0 Chem-W 0 Chem-W 0 Chem-W Uniforms 12,775 Inflation 13,050 Inflation 13,343 Inflation 13,657 Inflation 14, Road Materials & Supplies 5,000 Inflation 5,108 Inflation 5,222 Inflation 5,345 Inflation 5, Books, Subscriptions and Memberships 1,675 Inflation 1,711 Inflation 1,750 Inflation 1,791 Inflation 1, Minor Equipment 30,180 Inflation 30,829 Inflation 31,523 Inflation 32,263 Inflation 33,151 Footnotes on Page 11 of 11.

165 Table 11 Page 6 of 11 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Projection of Current (Operating) Expenses for the Water and Wastewater Systems Fiscal Year Ending September 30, Line Adjusted Escalation Adjusted Escalation Escalation Escalation No. Description 2012 Reference 2013 Reference 2014 Reference 2015 Reference 2016 Internal Service Fund Charges 171 MIS Maintenance Services 31,607 Inflation 32,287 Inflation 33,013 Inflation 33,789 Inflation 34, ISF - Radio System Charges 0 Inflation 0 Inflation 0 Inflation 0 Inflation ISF Telecommunications Charges 0 Inflation 0 Inflation 0 Inflation 0 Inflation Insurance - General Liability 11,895 Insurance 12,490 Insurance 13,114 Insurance 13,770 Insurance 14, Insurance - Auto Liability 40,001 Insurance 42,001 Insurance 44,101 Insurance 46,306 Insurance 48, Equipment Maintenance 159,096 Repair 163,869 Repair 168,785 Repair 173,848 Repair 179, Duplicating Services 0 Inflation 0 Inflation 0 Inflation 0 Inflation TOTAL DISTRIBUTION / COLLECTION $ 2,586,291 $ 2,626,804 $ 2,686,345 $ 2,748,638 $ 2,814,475 WATER TREATMENT PLANT (Cost Center ) Personnel Services 179 Personnel Services $ 2,832,319 Labor $ 2,832,319 Labor $ 2,860,642 Labor $ 2,889,249 Labor $ 2,918, Health Insurance 422,214 MedIns 453,880 MedIns 487,921 MedIns 524,515 MedIns 563, Additional Personnel 0 Calculated 0 Calculated 0 Calculated 0 Calculated 0 B-53 Materials and Services 182 Engineering Services 138,000 Inflation 140,967 Inflation 144,139 Inflation 147,526 Inflation 151, Other Contractual Services 2,000,000 Inflation 2,043,000 Inflation 2,088,968 Inflation 2,138,058 Inflation 2,196, Travel and Per Diem 6,000 Inflation 6,129 Inflation 6,267 Inflation 6,414 Inflation 6, Training 15,000 Inflation 15,323 Inflation 15,667 Inflation 16,035 Inflation 16, Cellular Telephones and Pagers 18,000 Inflation 18,387 Inflation 18,801 Inflation 19,243 Inflation 19, Postage 2,000 Inflation 2,043 Inflation 2,089 Inflation 2,138 Inflation 2, Electric Services 1,328,995 Power-W 1,395,445 Power-W 1,466,054 Power-W 1,540,823 Power-W 1,619, Water Service 12,000 Util-W 12,600 Util-W 12,978 Util-W 13,367 Util-W 13, Waste Disposal Service 1,000 Inflation 1,022 Inflation 1,044 Inflation 1,069 Inflation 1, Rentals and Leases 100,000 Inflation 102,150 Inflation 104,448 Inflation 106,903 Inflation 109, Repair and Maintenance Services 300,000 Repair 309,000 Repair 318,270 Repair 327,818 Repair 337, Printing Services 1,041 Repair 1,072 Repair 1,104 Repair 1,138 Repair 1, Legal Ads 2,000 Inflation 2,043 Inflation 2,089 Inflation 2,138 Inflation 2, Operational Expenses 437,500 Inflation 446,906 Inflation 456,962 Inflation 467,700 Inflation 480, Diesel Fuel 180,000 Inflation 183,870 Inflation 188,007 Inflation 192,425 Inflation 197, Lubricants 15,000 Inflation 15,323 Inflation 15,667 Inflation 16,035 Inflation 16, Chemicals 3,800,000 Chem-W 3,952,000 Chem-W 4,112,451 Chem-W 4,281,062 Chem-W 4,455, Uniforms 2,500 Inflation 2,554 Inflation 2,611 Inflation 2,673 Inflation 2, Road Materials and Supplies 1,000 Inflation 1,022 Inflation 1,044 Inflation 1,069 Inflation 1, Books, Subscriptions and Memberships 1,000 Inflation 1,022 Inflation 1,044 Inflation 1,069 Inflation 1, Minor Equipment 260,000 Inflation 265,590 Inflation 271,566 Inflation 277,948 Inflation 285,591 Internal Service Fund Charges 203 MIS Maintenance Service 76,531 Inflation 78,176 Inflation 79,935 Inflation 81,814 Inflation 84, ISF - Radio System Charges 0 Inflation 0 Inflation 0 Inflation 0 Inflation ISF Telecommunications Charges 44,244 Inflation 45,195 Inflation 46,212 Inflation 47,298 Inflation 48, Insurance 243,355 Insurance 255,523 Insurance 268,299 Insurance 281,714 Insurance 295, Insurance - General Liability 19,493 Insurance 20,468 Insurance 21,491 Insurance 22,566 Insurance 23, Insurance - Auto Liability 14,401 Insurance 15,121 Insurance 15,877 Insurance 16,671 Insurance 17, Equipment Maintenance 103,375 Repair 106,476 Repair 109,671 Repair 112,961 Repair 116, Duplicating Services 0 Inflation 0 Inflation 0 Inflation 0 Inflation TOTAL WATER TREATMENT PLANT $ 12,376,968 $ 12,724,624 $ 13,121,320 $ 13,539,438 $ 13,987,324 Footnotes on Page 11 of 11.

166 Table 11 Page 7 of 11 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Projection of Current (Operating) Expenses for the Water and Wastewater Systems Fiscal Year Ending September 30, Line Adjusted Escalation Adjusted Escalation Escalation Escalation No. Description 2012 Reference 2013 Reference 2014 Reference 2015 Reference 2016 UTILITIES LABORATORY SERVICES (Cost Center ) Personnel Services 212 Personnel Services $ 909,531 Labor $ 909,531 Labor $ 918,626 Labor $ 927,813 Labor $ 937, Health Insurance 90,446 MedIns 97,229 MedIns 104,522 MedIns 112,361 MedIns 120, Additional Personnel 0 Calculated 0 Calculated 0 Calculated 0 Calculated 0 B-54 Materials and Services 215 Engineering Services 0 Inflation 0 Inflation 0 Inflation 0 Inflation Other Contractual Services 150,000 Inflation 153,225 Inflation 156,673 Inflation 160,354 Inflation 164, Travel and Per Diem 1,000 Inflation 1,022 Inflation 1,044 Inflation 1,069 Inflation 1, Training 3,000 Inflation 3,065 Inflation 3,133 Inflation 3,207 Inflation 3, Cellular Telephones and Pagers 2,000 Inflation 2,043 Inflation 2,089 Inflation 2,138 Inflation 2, Postage 10,000 Comm-W 10,215 Comm-W 10,451 Comm-W 10,707 Comm-W 11, Repair and Maintenance Services 96,000 Repair 98,880 Repair 101,846 Repair 104,902 Repair 108, Printing Services 1,643 Inflation 1,678 Inflation 1,716 Inflation 1,756 Inflation 1, Operational Expenses 15,000 Inflation 15,323 Inflation 15,667 Inflation 16,035 Inflation 16, Gasoline 0 Inflation 0 Inflation 0 Inflation 0 Inflation Chemicals 200,000 Chem-W 208,000 Chem-W 216,445 Chem-W 225,319 Chem-W 234, Uniforms 4,000 Inflation 4,086 Inflation 4,178 Inflation 4,276 Inflation 4, Books, Subscriptions and Memberships 4,000 Inflation 4,086 Inflation 4,178 Inflation 4,276 Inflation 4, Minor Equipment 20,000 Inflation 20,430 Inflation 20,890 Inflation 21,381 Inflation 21,969 Internal Service Fund Charges 229 MIS Maintenance Services 28,393 Inflation 29,003 Inflation 29,656 Inflation 30,353 Inflation 31, ISF - Radio System Charges 0 Inflation 0 Inflation 0 Inflation 0 Inflation ISF Telecommunications Charges 0 Inflation 0 Inflation 0 Inflation 0 Inflation Insurance - General Liability 6,727 Insurance 7,063 Insurance 7,417 Insurance 7,787 Insurance 8, Insurance - Auto Liability 7,201 Insurance 7,561 Insurance 7,939 Insurance 8,336 Insurance 8, Equipment Maintenance 25,725 Repair 26,497 Repair 27,292 Repair 28,110 Repair 28, Duplicating Services 100 Constant 100 Constant 100 Constant 100 Constant TOTAL UTIL. LABORATORY SERVICES $ 1,574,766 $ 1,599,037 $ 1,633,862 $ 1,670,281 $ 1,709,011 CENTRAL SEWAGE PUMP STATION (Cost Center ) Personnel Services 237 Personnel Services $ 0 Labor $ 0 Labor $ 0 Labor $ 0 Labor $ Health Insurance 0 MedIns 0 MedIns 0 MedIns 0 MedIns Additional Personnel 0 Calculated 0 Calculated 0 Calculated 0 Calculated 0 Materials and Services 240 Electric Services 30,921 Inflation 31,586 Inflation 32,297 Inflation 33,056 Inflation 33, Water Service 1,000 Inflation 1,022 Inflation 1,044 Inflation 1,069 Inflation 1, Rentals and Leases 1,000 Inflation 1,022 Inflation 1,044 Inflation 1,069 Inflation 1, Repair and Maintenance Services 30,000 Repair 30,900 Repair 31,827 Repair 32,782 Repair 33, Operational Expenses 5,000 Inflation 5,108 Inflation 5,222 Inflation 5,345 Inflation 5, Chemicals 0 Chem-S 0 Chem-S 0 Chem-S 0 Chem-S Minor Equipment 1,000 Inflation 1,022 Inflation 1,044 Inflation 1,069 Inflation 1,098 Internal Service Fund Charges 247 MIS Maintenance Services 285 Inflation 291 Inflation 298 Inflation 305 Inflation 313 Footnotes on Page 11 of 11.

167 Table 11 Page 8 of 11 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Projection of Current (Operating) Expenses for the Water and Wastewater Systems Fiscal Year Ending September 30, Line Adjusted Escalation Adjusted Escalation Escalation Escalation No. Description 2012 Reference 2013 Reference 2014 Reference 2015 Reference TOTAL CENTRAL SEWAGE PUMP STATION $ 69,206 $ 70,949 $ 72,777 $ 74,694 $ 76,830 UTILITIES PUMPING OPERATIONS (Cost Center ) Personnel Services 249 Personnel Services $ 1,477,528 Labor $ 1,477,528 Labor $ 1,492,303 Labor $ 1,507,226 Labor $ 1,522, Health Insurance 175,812 MedIns 188,998 MedIns 203,173 MedIns 218,411 MedIns 234, Additional Personnel 0 Calculated 0 Calculated 0 Calculated 0 Calculated 0 B-55 Materials and Services 252 Other Contractual Services 5,000 Inflation 5,108 Inflation 5,222 Inflation 5,345 Inflation 5, Travel and Per Diem 1,000 Inflation 1,022 Inflation 1,044 Inflation 1,069 Inflation 1, Training 3,000 Inflation 3,065 Inflation 3,133 Inflation 3,207 Inflation 3, Cellular Telephones and Pagers 5,000 Inflation 5,108 Inflation 5,222 Inflation 5,345 Inflation 5, Postage 50 Inflation 51 Inflation 52 Inflation 53 Inflation Electric Services 325,016 Power-S 344,679 Power-S 365,532 Power-S 387,647 Power-S 411, Water Service 12,000 Util-W 12,600 Util-W 12,978 Util-W 13,367 Util-W 13, Rentals and Leases 58,500 Inflation 59,758 Inflation 61,102 Inflation 62,538 Inflation 64, Repair and Maintenance Services 300,000 Repair 309,000 Repair 318,270 Repair 327,818 Repair 337, Operational Expenses 104,700 Inflation 106,951 Inflation 109,357 Inflation 111,927 Inflation 115, Gasoline 300 Power-S 318 Power-S 337 Power-S 358 Power-S Diesel Fuel 6,000 Power-S 6,363 Power-S 6,748 Power-S 7,156 Power-S 7, Chemicals 327,250 Chem-S 343,743 Chem-S 361,068 Chem-S 379,266 Chem-S 398, Printing Services 548 Inflation 560 Inflation 572 Inflation 586 Inflation Books, Subscriptions and Memberships 150 Inflation 153 Inflation 157 Inflation 160 Inflation Minor Equipment 100,000 Inflation 102,150 Inflation 104,448 Inflation 106,903 Inflation 109,843 Internal Service Fund Charges 268 MIS Maintenance Service 28,793 Repair 29,657 Repair 30,546 Repair 31,463 Repair 32, ISF - Radio System Charges 0 Inflation 0 Inflation 0 Inflation 0 Inflation ISF Telecommunications Charges 0 Inflation 0 Inflation 0 Inflation 0 Inflation Insurance 0 Insurance 0 Insurance 0 Insurance 0 Insurance Insurance - General Liability 8,385 Insurance 8,804 Insurance 9,244 Insurance 9,707 Insurance 10, Insurance - Auto Liability 12,801 Insurance 13,441 Insurance 14,113 Insurance 14,819 Insurance 15, Equipment Maintenance 190,878 Repair 196,604 Repair 202,502 Repair 208,578 Repair 214, Duplicating Services 0 Inflation 0 Inflation 0 Inflation 0 Inflation TOTAL UTILITIES PUMPING OPER. $ 3,142,711 $ 3,215,660 $ 3,307,128 $ 3,402,950 $ 3,504,259 SANITARY COLLECTION (Cost Center 330) Personnel Services 277 Personnel Services $ 1,946,041 Labor $ 1,946,041 Labor $ 1,965,501 Labor $ 1,985,156 Labor $ 2,005, Health Insurance 333,353 MedIns 358,354 MedIns 385,231 MedIns 414,123 MedIns 445, Additional Personnel 0 Calculated 0 Input 0 Input 0 Input 0 Footnotes on Page 11 of 11.

168 Table 11 Page 9 of 11 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Projection of Current (Operating) Expenses for the Water and Wastewater Systems Fiscal Year Ending September 30, Line Adjusted Escalation Adjusted Escalation Escalation Escalation No. Description 2012 Reference 2013 Reference 2014 Reference 2015 Reference 2016 Materials and Services 280 Other Contractual Services 100,000 Inflation 102,150 Inflation 104,448 Inflation 106,903 Inflation 109, Travel and Per Diem 1,000 Inflation 1,022 Inflation 1,044 Inflation 1,069 Inflation 1, Training 5,000 Inflation 5,108 Inflation 5,222 Inflation 5,345 Inflation 5, Cellular Telephones and Pagers 10,000 Inflation 10,215 Inflation 10,445 Inflation 10,690 Inflation 10, Postage 150 Inflation 153 Inflation 157 Inflation 160 Inflation Electric Services 10,000 Power-S 10,605 Chem/Pw.-W 11,247 Chem/Pw.-W 11,927 Chem/Pw.-W 12, Water Service 1,000 Util-W 1,050 Inflation 1,082 Inflation 1,114 Inflation 1, Waste Disposal Service 12,000 Inflation 12,258 Inflation 12,534 Inflation 12,828 Inflation 13, Rentals & Leases 2,875 Inflation 2,937 Inflation 3,003 Inflation 3,073 Inflation 3, Repair & Maintenance Expenses 100,000 Repair 103,000 Repair 106,090 Repair 109,273 Repair 112, Operational Expenses 75,000 Inflation 76,613 Inflation 78,336 Inflation 80,177 Inflation 82, Gasoline 200 Inflation 204 Inflation 209 Inflation 214 Inflation Diesel Fuel 500 Inflation 511 Inflation 522 Inflation 535 Inflation Chemicals 23,575 Chem-S 24,763 Chem/Pw.-W 26,011 Chem/Pw.-W 27,322 Chem/Pw.-W 28, Uniforms 8,427 Inflation 8,608 Inflation 8,802 Inflation 9,009 Inflation 9, Road Materials & Supplies 17,250 Inflation 17,621 Inflation 18,017 Inflation 18,441 Inflation 18, Books, Subscriptions and Memberships 1,000 Inflation 1,022 Inflation 1,044 Inflation 1,069 Inflation 1, Minor Equipment 50,000 Inflation 51,075 Inflation 52,224 Inflation 53,451 Inflation 54,921 B-56 Internal Service Fund Charges 298 MIS Maintenance Service 15,729 Repair 16,201 Repair 16,687 Repair 17,188 Repair 17, ISF - Radio System Charges 0 Inflation 0 Inflation 0 Inflation 0 Inflation ISF Telecommunication Charges 0 Inflation 0 Inflation 0 Inflation 0 Inflation Insurance 0 Insurance 0 Insurance 0 Insurance 0 Insurance Insurance - General Liability 12,685 Insurance 13,319 Insurance 13,985 Insurance 14,684 Insurance 15, Insurance - Auto Liability 0 Insurance 0 Insurance 0 Insurance 0 Insurance Equipment Maintenance 184,128 Repair 189,652 Repair 195,341 Repair 201,202 Repair 207, Duplicating Services 0 Inflation 0 Inflation 0 Inflation 0 Inflation Parking Expense 0 Inflation 0 Inflation 0 Inflation 0 Inflation TOTAL SANITARY COLLECTION $ 2,909,913 $ 2,952,481 $ 3,017,184 $ 3,084,954 $ 3,156,893 INDUSTRIAL PRETREATMENT (Cost Center 350) Personnel Services 308 Personnel Services $ 200,910 Labor $ 200,910 Labor $ 202,919 Labor $ 204,948 Labor $ 206, Health Insurance 18,975 MedIns 20,398 MedIns 21,928 MedIns 23,573 MedIns 25, Additional Personnel 0 Calculated 0 Input 0 Input 0 Input 0 Footnotes on Page 11 of 11.

169 Table 11 Page 10 of 11 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Projection of Current (Operating) Expenses for the Water and Wastewater Systems Fiscal Year Ending September 30, Line Adjusted Escalation Adjusted Escalation Escalation Escalation No. Description 2012 Reference 2013 Reference 2014 Reference 2015 Reference 2016 Materials and Services 311 Engineering Services 34,450 Inflation 35,191 Inflation 35,982 Inflation 36,828 Inflation 37, Other Contractual Services 24,380 Inflation 24,904 Inflation 25,465 Inflation 26,063 Inflation 26, Travel and Per Diem 2,500 Inflation 2,554 Inflation 2,611 Inflation 2,673 Inflation 2, Training 2,000 Inflation 2,043 Inflation 2,089 Inflation 2,138 Inflation 2, Cellular Telephones and Pagers 1,440 Inflation 1,471 Inflation 1,504 Inflation 1,539 Inflation 1, Postage 1,500 Inflation 1,532 Inflation 1,567 Inflation 1,604 Inflation 1, Repair & Maintenance Expenses 5,750 Repair 5,923 Repair 6,100 Repair 6,283 Repair 6, Legal Ads 2,000 Inflation 2,043 Inflation 2,089 Inflation 2,138 Inflation 2, Operational Expenses 14,000 Inflation 14,301 Inflation 14,623 Inflation 14,966 Inflation 15, Chemicals 1,000 Chem-S 1,050 Chem/Pw.-W 1,103 Chem/Pw.-W 1,159 Chem/Pw.-W 1, Uniforms 1,000 Inflation 1,022 Inflation 1,044 Inflation 1,069 Inflation 1, Books, Subscriptions and Memberships 400 Inflation 409 Inflation 418 Inflation 428 Inflation Minor Equipment 13,000 Inflation 13,280 Inflation 13,578 Inflation 13,897 Inflation 14,280 B-57 Internal Service Fund Charges 324 MIS Maintenance Service 1,577 Repair 1,624 Repair 1,673 Repair 1,723 Repair 1, ISF - Radio System Charges 0 Inflation 0 Inflation 0 Inflation 0 Inflation ISF Telecommunication Charges 0 Inflation 0 Inflation 0 Inflation 0 Inflation Insurance 0 Insurance 0 Insurance 0 Insurance 0 Insurance Insurance - General Liability 1,224 Insurance 1,285 Insurance 1,349 Insurance 1,417 Insurance 1, Insurance - Auto Liability 0 Insurance 0 Insurance 0 Insurance 0 Insurance Equipment Maintenance 0 Repair 0 Repair 0 Repair 0 Repair Duplicating Services 0 Inflation 0 Inflation 0 Inflation 0 Inflation Parking Expense 0 Inflation 0 Inflation 0 Inflation 0 Inflation TOTAL INDUSTRIAL PRETREATMENT $ 326,106 $ 329,938 $ 336,043 $ 342,446 $ 349,475 TOTAL WATER AND WASTEWATER 334 CURRENT (OPERATING) EXPENSES $ 52,253,637 $ 54,627,729 $ 57,647,063 $ 60,275,268 $ 62,045, Annual Percentage Change 4.54% 5.53% 4.56% 2.94% Footnotes on Page 11 of 11.

170 Table 11 Page 11 of 11 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Projection of Current (Operating) Expenses for the Water and Wastewater Systems Footnotes: [1] Amounts shown based on: i) Fiscal Year 2012 City Commission approved budget; ii) nine (9) months of actual year-to-date Current Expenses; and iii) three (3) months of projected Current Expenses [2] Amounts shown adjusted from Fiscal Year 2012 City Commision approved budget based on information derived from Table 9. [3] Amounts shown adjusted from Fiscal Year 2012 City Commision approved budget based on information derived from Table 10. [4] No contingency allowance has been included for Fiscal Year A contingency allowance of 2.0% of Current Expenses is included for each Fiscal Year For Fiscal Year 2013 through Fiscal Year [5] Capital expenditures funded from operations such as improvements other than buildings are adjusted from Current Expenses pursuant to provisions of the Bond Resolution. Adjusted amounts are reflected in the capital improvements program as shown on Table 21. [6] Non-Operating Expenses including: i) any deposits or transfers to the credit of the Sinking Fund, the Renewal, Replacement and Improvement Fund or the General Reserve Fund; and ii) any allowance for depreciation, amortization, are adjusted from Current Expenses and reflected as other revenue requirements as applicable. [7] A bad debt expense allowance of 1.00% of annual retail rate revenues has been included annually as a component of Current Expenses. B-58

171 Table 12 Page 1 of 3 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Stormwater System Projection of Current (Operating) Expenses for the Stormwater System Fiscal Year Ending September 30, Line Escalation Budget As Adjusted [1] Escalated No. Description Reference 2012 Adjustments [1] STORMWATER ADMINISTRATION (41750) Personnel Services 1 Personnel Services Labor $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 2 Additional Personnel Input Materials and Services 3 Administrative Expense Admin $ 1,063,900 $ 0 $ 1,063,900 $ 1,063,900 $ 1,074,539 $ 1,085,284 $ 1,096,137 4 P.I.L.O.T. [2] Eliminate Professional Services Inflation 215, , , , , ,711 6 Engineering Services Inflation 100,000 (25,000) 75,000 76,613 78,336 80,177 82,382 7 Other Contractual Services Inflation 38, ,700 39,532 40,422 41,371 42,509 8 Accounting and Auditing Inflation 25, ,000 25,538 26,112 26,726 27,461 9 Electric Services Power 44,000 5,000 49,000 51,450 54,023 56,724 59, Water Service Util-W 3,000 1,500 4,500 4,725 4,867 5,013 5, Waste Disposal Service Inflation 2, ,000 2,043 2,089 2,138 2, Rentals and Leases Inflation Repairs and Maintenance Services Repair 60,000 (10,000) 50,000 51,500 53,045 54,636 56, Operational Expenses Constant Diesel Fuel ESU Chemicals Inf/ESU 60,000 10,000 70,000 71,608 73,367 75,243 77, Books, Subscriptions and Memberships Inflation Minor Equipment Inflation Internal Service Fund Charges 19 MIS Maintenance Services Inflation $ 95,304 $ 0 $ 95,304 $ 97,353 $ 99,543 $ 101,883 $ 104, ISF - Radio System Charges Inflation ISF Telecommunications Charges Inflation Insurance Insurance 13, ,368 14,036 14,738 15,475 16, Duplicating Services Inflation Other Uses 24 Budgetary Contingency at 2.00% Expenses [3] Calculated [3] $ 200,000 $ 0 $ 200,000 $ 106,060 $ 108,220 $ 110,476 $ 112, Transfer to Other Funds (Debt Service) [2] Eliminate 3,551,235 (3,551,235) Transfer to Fund 483 Fleet Replacement [2] Eliminate 600,000 (600,000) Transfer to Fund 484 General Reserve [2] Eliminate 507,830 (507,830) Transfer to Fund 485 R&R [2] Eliminate 300,000 (300,000) Transfer to Fund 487 Capital Fund [2] Eliminate 300,000 (300,000) Transfer to Fund 506 For OPEB Constant 17, ,709 17,709 17,709 17,709 17, Transfer to Fund 508 Techn. Replacement Constant 12, ,000 12,000 12,000 12,000 12, TOTAL STORMWATER ADMINISTRATION $ 7,209,546 $ (5,277,565) $ 1,931,981 $ 1,854,200 $ 1,884,096 $ 1,915,232 $ 1,949,450 CANAL MAINTENANCE (41760) Personnel Services 33 Personnel Services Labor $ 325,322 $ 0 $ 325,322 $ 325,322 $ 328,575 $ 331,861 $ 335, Health Insurance MedIns 47, ,604 51,174 55,012 59,138 63, Additional Personnel Input Materials and Services 36 Professional Services Inflation $ 40,000 $ 10,000 $ 50,000 $ 51,075 $ 52,224 $ 53,451 $ 54, Engineering Services Inflation 30,000 (5,000) 25,000 25,538 26,112 26,726 27, Other Contractual Services Inflation 48,400 (5,000) 43,400 44,333 45,331 46,396 47, Travel and Per Diem Inflation 1, ,500 1,532 1,567 1,604 1, Training Inflation 1, ,700 1,737 1,776 1,817 1, Cellular Telephones and Pagers Inflation 2, ,000 2,043 2,089 2,138 2, Postage Inflation Electric Services Power Waste Disposal Service Inf/ESU 22,000 (5,000) 17,000 17,391 17,818 18,273 18, Rentals and Leases Inflation 1, ,000 1,022 1,044 1,069 1, Repair and Maintenance Services Repair Printing Services Inflation Operational Expenses Inflation 18, ,000 18,387 18,801 19,243 19, Gasoline Inflation Diesel Fuel Inflation Chemicals Inf/ESU 40, ,000 40,919 41,924 42,996 44, Uniforms Inflation 1,500 1,000 2,500 2,554 2,611 2,673 2, Safety Shoes Inflation Books, Subscriptions, and Memberships Inflation Minor Equipment Inflation 5, ,000 5,108 5,222 5,345 5,492 Footnotes on Page 3 of 3. B-59

172 Table 12 Page 2 of 3 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Stormwater System Projection of Current (Operating) Expenses for the Stormwater System Fiscal Year Ending September 30, Line Escalation Budget As Adjusted [1] Escalated No. Description Reference 2012 Adjustments [1] Internal Service Fund Charges 56 MIS Maintenance Services Inflation $ 3,793 $ 0 $ 3,793 $ 3,875 $ 3,962 $ 4,055 $ 4, ISF - Radio System Charges Inflation ISF Telecommunications Charges Inflation Insurance - General Liability Insurance 8, ,823 9,264 9,727 10,214 10, Insurance - Auto Liability Insurance 23, ,242 24,404 25,624 26,906 28, Equipment Maintenance Repair 85,142 12,000 97, , , , , Additional Costs Constant TOTAL CANAL MAINTENANCE $ 707,626 $ 8,000 $ 715,626 $ 728,406 $ 745,231 $ 762,890 $ 782,146 CANAL MOWING (41765) Personnel Services 64 Personnel Services Labor $ 320,529 $ 0 $ 320,529 $ 320,529 $ 323,734 $ 326,972 $ 330, Health Insurance MedIns 56, ,390 60,619 65,166 70,053 75, Additional Personnel Input Materials and Services 67 Other Contractual Services Inflation $ 14,150 $ 0 $ 14,150 $ 14,454 $ 14,779 $ 15,127 $ 15, Cellular Telephones and Pagers Inflation 1, ,400 1,430 1,462 1,497 1, Repair and Maintenance Services Repair 5, ,000 5,150 5,305 5,464 5, Operational Expenses Inflation 14, ,250 14,556 14,884 15,234 15, Gasoline Inflation Diesel Fuel Inflation 10, ,000 10,215 10,445 10,690 10, Uniforms Inflation 2, ,000 2,043 2,089 2,138 2, Books, Subscriptions, and Memberships Inflation Minor Equipment Inflation 2, ,500 2,554 2,611 2,673 2,746 Internal Service Fund Charges 76 MIS Maintenance Services Inflation 2, ,625 2,681 2,742 2,806 2, Insurance - General Liability Insurance 8, ,419 8,840 9,282 9,746 10, Insurance - Auto Liability Insurance Equipment Maintenance Repair 49, ,222 50,699 52,220 53,786 55, Additional Costs Constant TOTAL CANAL MAINTENANCE $ 487,485 $ 0 $ 487,485 $ 494,792 $ 505,763 $ 517,254 $ 529,451 DRAINAGE (41770) Personnel Services 82 Personnel Services Labor $ 1,105,992 $ 0 $ 1,105,992 $ 1,105,992 $ 1,117,052 $ 1,128,222 $ 1,139, Health Insurance MedIns 149, , , , , , Additional Personnel Input Materials and Services 85 Other Contractual Services Inflation $ 27,000 $ 0 $ 27,000 $ 27,581 $ 28,201 $ 28,864 $ 29, Travel and Per Diem Inflation 4, ,800 4,903 5,014 5,131 5, Training Inflation 3, ,500 3,575 3,656 3,742 3, Cellular Telephones and Pagers Inflation 2, ,000 2,043 2,089 2,138 2, Postage Inflation 1, ,000 1,022 1,044 1,069 1, Waste Disposal Service Inf/ESU 17, ,000 17,391 17,818 18,273 18, Rentals and Leases Inflation 3, ,500 3,575 3,656 3,742 3, Repair and Maintenance Services Repair 3, ,000 3,090 3,183 3,278 3, Operational Expenses Inflation 30, ,500 31,156 31,857 32,605 33, Uniforms Inflation 2, ,000 2,043 2,089 2,138 2, Safety Shoes Inflation 1, ,000 1,022 1,044 1,069 1, Sewer / Pipeline Materials and Supplies Inflation 18, ,800 19,204 19,636 20,098 20, Printing Services Inflation Minor Equipment Inflation 8, ,800 8,989 9,191 9,407 9,666 Internal Service Fund Charges 99 MIS Maintenance Services Inflation $ 10,279 $ 0 $ 10,279 $ 10,500 $ 10,736 $ 10,989 $ 11, ISF - Radio System Charges Inflation ISF Telecommunications Charges Inflation 2, ,141 2,187 2,236 2,289 2, Insurance - General Liability Insurance 29, ,901 31,396 32,966 34,614 36, Insurance - Auto Liability Insurance 46, ,484 48,808 51,249 53,811 56, Equipment Maintenance Repair 184, , , , , , Duplicating Services Inflation TOTAL DRAINAGE $ 1,652,381 $ 0 $ 1,652,381 $ 1,675,945 $ 1,711,979 $ 1,749,614 $ 1,789,379 Footnotes on Page 3 of 3. B-60

173 Table 12 Page 3 of 3 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Stormwater System Projection of Current (Operating) Expenses for the Stormwater System Fiscal Year Ending September 30, Line Escalation Budget As Adjusted [1] Escalated No. Description Reference 2012 Adjustments [1] STREET SWEEPING (41780) Personnel Services 107 Personnel Services Labor $ 303,532 $ 0 $ 303,532 $ 303,532 $ 306,567 $ 309,633 $ 312, Health Insurance MedIns 60, ,718 65,272 70,167 75,430 81, Additional Personnel Input Materials and Services 110 Other Contractual Services Inflation $ 1,500 $ 0 $ 1,500 $ 1,532 $ 1,567 $ 1,604 $ 1, Travel and Per Diem Inflation Training Inflation Water Service Util-W 4, ,000 4,200 4,326 4,456 4, Waste Disposal Service Inf/ESU 80, ,000 81,838 83,848 85,993 88, Operational Expenses Inflation 1, ,500 1,532 1,567 1,604 1,648 Internal Service Fund Charges 116 MIS Maintenance Services Inflation $ 2,984 $ 0 $ 2,984 $ 3,048 $ 3,117 $ 3,190 $ 3, ISF - Radio System Charges Inflation ISF Telecommunications Charges Inflation Insurance - General Liability Insurance 8, ,799 9,239 9,701 10,186 10, Insurance - Auto Liability Insurance 9, ,684 10,168 10,677 11,210 11, Equipment Maintenance Repair 168, , , , , , Additional Costs Constant TOTAL STREET SWEEPING $ 642,962 $ 0 $ 642,962 $ 655,703 $ 672,128 $ 689,305 $ 707,604 TOTAL STORMWATER CURRENT (OPERATING) 124 EXPENSES $ 10,700,000 $ (5,269,565) $ 5,430,435 $ 5,409,046 $ 5,519,197 $ 5,634,294 $ 5,758,031 Footnotes: [1] Amounts shown based on: i) Fiscal Year 2012 City Commission approved budget; ii) nine (9) months of actual year-to-date Current Expenses; and iii) three (3) months of projected Current Expenses. [2] Non-Operating Expenses including: i) any deposits or transfers to the credit of the Sinking Fund, the Renewal, Replacement and Improvement Fund or the General Reserve Fund; and ii) any allowance for depreciation, amortization, are adjusted from Current Expenses and reflected as other revenue requirements as applicable. [3] No contigency allownace has been included for Fiscal Year A contigency allowance of 2.00% of Current Expenses is included for each Fiscal Year For Fiscal Year 2013 through Fiscal Year B-61

174 Table 13 Page 1 of 1 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Escalation Factors for the Water System, Wastewater System and Stormwater System Line Escalation Factors No. Description Reference Constant Factor Constant Inflation [1] Inflation Labor Labor Customer Growth + Inflation - Water Cust-Water Customer Growth + Inflation - Sewer Cust-Sewer Rate Revenue Revenue Repair and Maintenance Repair Commodity/Inflation - Water Comm-W Commodity/Inflation - Sewer Comm-S Inflation/Employee Growth Inf/Emp Chemicals - Water Chem-W Purchased Power - Water Power-W Chemicals - Sewer Chem-S Purchased Power - Sewer Power-S Water Service Util-W Wastewater Service Util-S Administrative Expense Admin Medical Insurance MedIns Property/General Insurance Liability Insurance Marginal Escalator Marginal Elimination Factor Eliminate ECR Labor and Benefits ECRLabor AWTR- ECR Repl. Value Escalator ECR-RPL REUSE/PBC - ECR Repl. Value Esc. ECR-REUSE ECR Plant Electricity/Chemical Chem/Pwr-ECR Waste Disposal - SWA Comm-SWA Inflation/ESU Growth Inf/ESU ESU Growth ESU Footnotes: [1] Estimates based on projections contained in "The Budget and Economic Outlook" published by the Congressional Budget Office Updated in January 2012, plus additional contingencies. B-62

175 Table 14 Page 1 of 6 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Development of Fund Balances and Interest Income for the Water and Wastewater System Line Fiscal Year Ending September 30, No. Description Projected Fund Balances - Selected Unrestricted Funds 1 Revenue Fund (Fund 450) $ 21,071,193 $ 22,515,815 $ 20,805,494 $ 18,593,294 $ 15,195,226 2 Operating Reserve Account (Fund 459) [1] 12,884,458 13,469,851 14,214,344 14,862,395 15,298,964 3 WPB RR&I Fund - City Only - (Fund 454) 8,805,284 5,819,771 3,982,544 2,882,544 1,982,544 4 Projected Fund Balances - Selected Unrestricted Funds $ 42,760,935 $ 41,805,436 $ 39,002,382 $ 36,338,233 $ 32,476,734 5 Projected Current Expenses For Each Fiscal Year $ 52,253,637 $ 54,627,729 $ 57,647,063 $ 60,275,268 $ 62,045,797 6 Calculated Days Cash on Hand* * Projected Fund Balances Selected Funds (Projected Current Expenses 365) REVENUE FUND (Fund 450) 7 Beginning Balance $ 8,727,880 $ 21,071,193 $ 22,515,815 $ 20,805,494 $ 18,593,294 Other Transfers In/Out 8 Transfers In - Operating Reserve Fund 459 $ 7,660,914 $ 0 $ 0 $ 0 $ 0 9 Transfers In - Revenue Requirements Transfers In - End of Year Surplus 5,051,563 3,402,474 1,838, , , Transfers Out - Capital Projects 200, , , , , Transfers Out - Fleet Replacement Fund Transfers Out - Water Impact Fee Fund Transfers Out - Wastewater Impact Fee Fund Transfers Out - Wetland Mitigation Fund ,165 5,000 5,000 5,000 5, Transfers Out - Operating Reserve Fund , , , , Transfers Out - Revenue Requirements 0 1,167,459 2,599,124 2,072,827 3,443, Interest Rate 0.30% 0.50% 0.75% 0.75% 1.00% 19 Interest Income 44, , , , ,943 Recognition of Interest Earnings 20 in Revenue Requirements 44, , , , , Ending Balance 21,071,193 22,515,815 20,805,494 18,593,294 15,195,226 CUSTOMER DEPOSITS (Within Fund 450) 22 Beginning Balance $ 7,194,598 $ 7,194,598 $ 7,194,598 $ 7,194,598 $ 7,194, Transfers In Transfers Out Interest Rate 0.30% 0.50% 0.75% 0.75% 1.00% 26 Interest Income 21,584 35,973 53,959 53,959 71,946 Recognition of Interest Earnings 27 in Revenue Requirements 21,584 35,973 53,959 53,959 71, Ending Balance 7,194,598 7,194,598 7,194,598 7,194,598 7,194,598 OPERATING RESERVE ACCOUNT (Fund 459) [1] 29 Beginning Balance $ 20,545,373 $ 12,884,458 $ 13,469,851 $ 14,214,344 $ 14,862, Interest Rate 0.30% 0.50% 0.75% 0.75% 1.00% 31 Interest Income 61,636 64, , , ,624 Recognition of Interest Earnings 32 in Revenue Requirements 61,636 64, , , , Subtotal 20,545,373 12,884,458 13,469,851 14,214,344 14,862, Transfers To Operating Account (Fund 450) 7,660, Transfers From Operating Account (Fund 450) [1] 0 585, , , , Ending Balance 12,884,458 13,469,851 14,214,344 14,862,395 15,298,964 Footnotes on Page 6 of 6. B-63

176 Table 14 Page 2 of 6 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Development of Fund Balances and Interest Income for the Water and Wastewater System Line Fiscal Year Ending September 30, No. Description FLEET REPLACEMENT FUND (Fund 451) 37 Beginning Balance $ 1,044,497 $ 424,849 $ 450,949 $ 503,849 $ 584, Transfers In - Operating Reserve Account (Fund 450) Transfers In - Revenue Requirements 950, ,100 1,002,900 1,030,500 1,058, Transfers Out - Capital Projects 1,569, , , , , Interest Rate 0.30% 0.50% 0.75% 0.75% 1.00% 41 Interest Income 2,204 2,189 3,580 4,081 6,387 Recognition of Interest Earnings 42 in Revenue Requirements 2,204 2,189 3,580 4,081 6, Ending Balance 424, , , , ,149 UTILITY ADVANCED WATER TREATMENT CAPITAL (Fund 452) 44 Beginning Balance $ 264,936 $ 226,012 $ 223,012 $ 220,012 $ 217, Transfers In - System Growth Transfers Out - Capital Projects 38,924 3,000 3,000 3,000 3, Interest Rate 0.30% 0.50% 0.75% 0.75% 1.00% 48 Interest Income 736 1,123 1,661 1,639 2,155 Recognition of Interest Earnings 49 in Revenue Requirements 736 1,123 1,661 1,639 2, Ending Balance 226, , , , ,012 UTILITIES CAPITAL ACCOUNT (Fund 453) 51 Beginning Balance $ 1,143,885 $ 845,265 $ 679,670 $ 682,870 $ 705, Transfers In - Revenue Requirements 670, , , , , Transfers Out - Capital Projects 968, , , , , Interest Rate 0.30% 0.50% 0.75% 0.75% 1.00% 55 Interest Income 2,984 3,812 5,110 5,206 7,266 Recognition of Interest Earnings 56 in Revenue Requirements 2,984 3,812 5,110 5,206 7, Ending Balance 845, , , , ,770 WPB RR&I FUND - City Only - (Fund 454) 58 Beginning Balance $ 20,476,522 $ 8,805,284 $ 5,819,771 $ 3,982,544 $ 2,882, Transfers In - Revenue Requirements 8,100,000 6,490,000 6,790,000 7,000,000 7,200, Transfers In - North Lake Main Sale Proceeds Transfers Out - Capital Projects 18,946,238 8,605,514 7,712,227 7,140,000 7,100, Transfers Out to TPB R&R Fund 457 [2] 825, , , ,000 1,000, Interest Rate 0.30% 0.50% 0.75% 0.75% 1.00% 64 Interest Income 43,923 36,563 36,759 25,744 24,325 Recognition of Interest Earnings 65 in Revenue Requirements 43,923 36,563 36,759 25,744 24, Ending Balance 8,805,284 5,819,771 3,982,544 2,882,544 1,982,544 Footnotes on Page 6 of 6. B-64

177 Table 14 Page 3 of 6 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Development of Fund Balances and Interest Income for the Water and Wastewater System Line Fiscal Year Ending September 30, No. Description SINKING FUND - EXISTING/PROPOSED DEBT (Fund 455) 67 Sinking Fund Deposit $ 12,118,393 $ 18,077,515 $ 20,056,964 $ 20,046,466 $ 21,937, Average Balance 3,029,598 4,519,379 5,014,241 5,011,617 5,484, Interest Rate 0.30% 0.50% 0.75% 0.75% 1.00% 70 Interest Income 9,089 22,597 37,607 37,587 54,844 Recognition of Interest Earnings 71 in Revenue Requirements 9,089 22,597 37,607 37,587 54,844 WATER IMPACT FEES (Fund 456) 72 Beginning Balance $ 2,769,624 $ 2,801,848 $ 2,868,144 $ 2,942,611 $ 3,020, Transfers In - System Growth 406, , , , ,005 Transfers In - Fund Transfers In - Lease Payments ITID Transfers In - Lease Buyout ITID from County Transfers Out to Service Debt 343, , , , , Transfers Out - Capital Projects 38,896 15,000 15,000 15,000 15, Interest Rate 0.30% 0.50% 0.75% 0.75% 1.00% 79 Interest Income 8,345 14,140 21,709 22,277 30,486 Recognition of Interest Earnings 80 in Revenue Requirements Ending Balance 2,801,848 2,868,144 2,942,611 3,020,329 3,107,350 WASTEWATER IMPACT FEES (Fund 456) 82 Beginning Balance $ 1,846,416 $ 1,669,584 $ 1,500,444 $ 1,336,196 $ 1,171, Transfers In - System Growth 74,895 79,485 81,685 82,560 86, Transfers In - Fund Transfers Out to Service Debt 256, , , , , Transfers Out - Capital Projects Interest Rate 0.30% 0.50% 0.75% 0.75% 1.00% 88 Interest Income 5,266 7,905 10,598 9,369 10,865 Recognition of Interest Earnings 89 in Revenue Requirements Ending Balance 1,669,584 1,500,444 1,336,196 1,171,594 1,012,214 TPB RENEWAL AND REPLACEMENT FUND (Fund 457) 91 Beginning Balance $ 5,114,182 $ 4,657,001 $ 4,253,923 $ 4,325,977 $ 4,443, Transfers In From Fund 454 [2] 825, , , ,000 1,000, Transfers Out - Capital Projects 1,296,816 1,295, , , , Interest Rate 0.30% 0.50% 0.75% 0.75% 1.00% 95 Interest Income [3] 14,635 22,222 32,054 32,764 45,062 Recognition of Interest Earnings 96 in Revenue Requirements Ending Balance 4,657,001 4,253,923 4,325,977 4,443,741 4,613,803 Footnotes on Page 6 of 6. B-65

178 Table 14 Page 4 of 6 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Development of Fund Balances and Interest Income for the Water and Wastewater System Line Fiscal Year Ending September 30, No. Description WETLAND MITIGATION PROJECT (Fund 458) 98 Beginning Balance $ 653,291 $ 25,000 $ 25,000 $ 25,000 $ 25, Transfers In - Operating Reserve Account (Fund 450) 169,165 5,000 5,000 5,000 5, Transfers In/Other Sources - Revenue Requirements 380, , , , , Transfers Out - Capital Projects 837,457 5,000 5,000 5,000 5, Transfers Out - Mitigation Activities 340, , , , , Interest Rate 0.30% 0.50% 0.75% 0.75% 1.00% 104 Interest Income 1, Recognition of Interest Earnings 105 in Revenue Requirements 1, Ending Balance 25,000 25,000 25,000 25,000 25,000 SERIES 2004 BOND CONSTRUCTION FUND (Fund 462) 107 Beginning Balance $ 2,609,361 $ 29,622 $ 29,622 $ 29,622 $ 29, Transfers Out - CIP Projects Series ,424, Transfers Out - Fund , Interest Rate 0.00% 0.00% 0.00% 0.00% 0.00% 111 Interest Income Recognition of Interest Earnings 112 in Revenue Requirements Ending Balance 29,622 29,622 29,622 29,622 29,622 SERIES 2008B BOND CONSTRUCTION FUND (Fund 463) 114 Beginning Balance $ 1,413,363 $ 996,399 $ 492,146 $ 492,146 $ 492, Transfers In - Fund , Transfers Out - CIP Projects Series 2008B 916, , Interest Rate 0.00% 0.00% 0.00% 0.00% 0.00% 118 Interest Income Recognition of Interest Earnings 119 in Revenue Requirements Ending Balance 996, , , , ,146 SERIES 2008C BOND CONSTRUCTION FUND (Fund 464) 121 Beginning Balance $ 46,937,445 $ 36,213,529 $ 24,243,795 $ 12,846,738 $ 12,846, Transfers In - Fund , Transfers In - Fund 488 7,000, Transfers Out - CIP Projects Series 2008C 17,878,810 11,969,734 11,397, Interest Rate 0.00% 0.00% 0.00% 0.00% 0.00% 126 Interest Income Recognition of Interest Earnings 127 in Revenue Requirements Ending Balance 36,213,529 24,243,795 12,846,738 12,846,738 12,846,738 ADDITIONAL BONDS CONSTRUCTION FUND [4] 129 Beginning Balance $ 0 $ 0 $ 127,500,000 $ 52,500,000 $ Transfers In - Series 2013 Bonds Proceeds 0 150,000, Transfers Out - CIP Projects Series 2013 Bonds 0 22,500,000 75,000,000 52,500, Interest Rate 0.00% 0.00% 0.00% 0.00% 0.00% 133 Interest Income Recognition of Interest Earnings 134 in Revenue Requirements Ending Balance 0 127,500,000 52,500, Footnotes on Page 6 of 6. B-66

179 Table 14 Page 5 of 6 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Development of Fund Balances and Interest Income for the Water and Wastewater System Line Fiscal Year Ending September 30, No. Description INTEREST INCOME Unrestricted Interest Income Used in Revenue Requirements 136 Water System $ 124,824 $ 184,876 $ 270,268 $ 256,972 $ 326, Wastewater System 63,048 90, , , , Total $ 187,872 $ 275,772 $ 402,343 $ 382,757 $ 484,740 Total Unrestricted Interest Income 139 Water System $ 124,824 $ 184,876 $ 270,268 $ 256,972 $ 326, Wastewater System 63,048 90, , , , Total $ 187,872 $ 275,772 $ 402,343 $ 382,757 $ 484,740 Total Restricted Interest Income 142 Water System $ 22,980 $ 36,362 $ 53,763 $ 55,041 $ 75, Wastewater System 5,266 7,905 10,598 9,369 10, Total $ 28,246 $ 44,267 $ 64,361 $ 64,410 $ 86, Total Interest Income $ 216,118 $ 320,039 $ 466,704 $ 447,167 $ 571,153 Footnotes on Page 6 of 6. B-67

180 Table 14 Page 6 of 6 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Utility System Development of Fund Balances and Interest Income for the Water and Wastewater System Footnotes: [1] Transfer to maintain ending balances at a minimum level equal to at least 90 days of annual Current (Operating) Expenses. [2] Pursuant to the Franchise Agreement between the City and the Town of Palm Beach, the City has agreed to transfer to the Town of Palm Beach Renewal and Replacement Fund (Fund 457) 5.0% of the monthly gross revenues received by the City from the Town customers. These transfers are made from the City's RR&I Fund (Fund 454) on a monthly basis and are based on calculations as presented in the following table: Fiscal Year Ending September 30, Estimated Gross Revenues From Retail Sales to Customers in the Town of Palm Beach [a] $ 13,737,930 $ 14,471,575 $ 14,907,960 $ 15,357,185 $ 15,820,041 Calculated Transfer (5.0% of TPB Gross Revenues) $ 686,900 $ 723,600 $ 745,400 $ 767,900 $ 791,000 Transfer as Designated by the City in the CIP Budget $ 825,000 $ 870,000 $ 915,000 $ 960,000 $ 1,000,000 Transfer Recognized [b] $ 825,000 $ 870,000 $ 915,000 $ 960,000 $ 1,000,000 [a] Amounts reflect additional revenue to be collected as a result of adopted annual water rate adjustments as reflected in the Rate Resolution. [b] Transfer in excess of minimum requirement recognized in order to fund ongoing renewal and replacement projects located in the Town of Palm Beach. [3] Pursuant to the Franchise Agreement between the City and the Town of Palm Beach, the City has agreed to transfer to the Town of Palm Beach Renewal and Replacement Fund (Fund 457) 5.0% of the monthly gross revenues received by the City from the Town customers. Investment earnings on this sub-account are not considered as a revenue source to offset revenue requirements (is considered as being restricted for rate determination purposes) but it is included as part of System Net Revenues (part of unrestricted interest income for coverage calculations purposes as shown on Table 9). [4] Reflects construction fund established though assumed issuance of the Series 2013 Bonds. B-68

181 Table 15 Page 1 of 2 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Stormwater System Development of Fund Balances and Interest Income for the Stormwater System Line Fiscal Year Ending September 30, No. Description Projected Fund Balances - Selected Unrestricted Funds 1 Operating Account (Fund 481) $ 1,869,755 $ 3,313,685 $ 4,846,883 $ 6,448,759 $ 8,246,165 2 Operating Reserve Fund (Fund 484) 3,501,328 3,501,328 3,501,328 3,501,328 3,501,328 3 Stormwater Rr&I Fund (Fund 485) 1,364,554 1,303,554 1,337,554 1,378,554 1,426,554 4 Projected Fund Balances - Selected Unrestricted Funds $ 6,735,637 $ 8,118,567 $ 9,685,765 $ 11,328,641 $ 13,174,047 5 Projected Current Expenses For Each Fiscal Year $ 5,430,435 $ 5,409,046 $ 5,519,197 $ 5,634,294 $ 5,758,031 6 Calculated Days Cash on Hand* * Projected Fund Balances Selected Funds (Projected Current Expenses 365) OPERATING ACCOUNT (Fund 481) 7 Beginning Balance $ 1,047,365 $ 1,869,755 $ 3,313,685 $ 4,846,883 $ 6,448,759 8 Transfers In - Revenue Requirements 898,198 1,454,621 1,533,198 1,648,258 1,797,406 9 Transfers In - Fund Transfers Out - Revenue Requirements Transfers Out - Fund Transfers Out - Fund ,809 10, , Interest Rate 0.30% 0.50% 0.75% 0.75% 1.00% 14 Interest Income $ 4,376 $ 12,959 $ 30,602 $ 42,359 $ 73, Recognition Of Interest in Revenue Requirements 4,376 12,959 30,602 42,359 73, Ending Balance $ 1,869,755 $ 3,313,685 $ 4,846,883 $ 6,448,759 $ 8,246,165 DEBT SERVICE SINKING FUND (Fund 482) 17 Sinking Fund Deposit $ 3,024,459 $ 2,974,003 $ 2,981,258 $ 2,926,730 $ 2,924, Average Balance 756, , , , , Interest Rate 0.30% 0.50% 0.75% 0.75% 1.00% 20 Interest Income $ 2,268 $ 3,718 $ 5,590 $ 5,488 $ 7, Recognition Of Interest in Revenue Requirements 2,268 3,718 5,590 5,488 7,312 FLEET REPLACEMENT FUND (Fund 483) 22 Beginning Balance $ 700,377 $ 692,377 $ 692,377 $ 692,377 $ 692, Transfers In - Revenue Requirements 600, , , , , Transfers In - Fund Transfers Out - Capital Projects 608, , , , , Interest Rate 0.30% 0.50% 0.75% 0.75% 1.00% 27 Interest Income $ 3,140 $ 5,193 $ 7,789 $ 7,789 $ 10, Recognition Of Interest in Revenue Requirements 3,140 5,193 7,789 7,789 10, Ending Balance $ 692,377 $ 692,377 $ 692,377 $ 692,377 $ 692,377 OPERATING RESERVE FUND (Fund 484) 30 Beginning Balance $ 3,501,328 $ 3,501,328 $ 3,501,328 $ 3,501,328 $ 3,501, Transfers Out - Operating Reserve Fund Interest Rate 0.30% 0.50% 0.75% 0.75% 1.00% 33 Interest Income $ 15,756 $ 26,260 $ 39,390 $ 39,390 $ 52, Recognition Of Interest in Revenue Requirements 15,756 26,260 39,390 39,390 52, Ending Balance $ 3,501,328 $ 3,501,328 $ 3,501,328 $ 3,501,328 $ 3,501,328 STORMWATER RR&I FUND (Fund 485) 36 Beginning Balance $ 1,679,405 $ 1,364,554 $ 1,303,554 $ 1,337,554 $ 1,378, Transfers In - Revenue Requirements 307, , , , , Transfers Out - Capital Projects 621, , , , , Interest Rate 0.30% 0.50% 0.75% 0.75% 1.00% 40 Interest Income $ 7,085 $ 10,082 $ 14,792 $ 15,201 $ 20, Recognition Of Interest in Revenue Requirements 7,085 10,082 14,792 15,201 20, Ending Balance $ 1,364,554 $ 1,303,554 $ 1,337,554 $ 1,378,554 $ 1,426,554 Footnotes on Page 2 of 2. B-69

182 Table 15 Page 2 of 2 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Stormwater System Development of Fund Balances and Interest Income for the Stormwater System Line Fiscal Year Ending September 30, No. Description SERIES 2008B BOND CONSTRUCTION FUND (Fund 486) 43 Beginning Balance $ 1,252,104 $ 2,592 $ 2,592 $ 2,592 $ 2, Transfers Out - Fund , Transfers Out - CIP Projects Series 2008B 753, Interest Rate 0.30% 0.00% 0.00% 0.00% 0.00% 47 Interest Income $ 3,755 $ 0 $ 0 $ 0 $ 0 48 Recognition Of Interest in Revenue Requirements Ending Balance $ 2,592 $ 2,592 $ 2,592 $ 2,592 $ 2,592 CAPITAL ACCOUNT (Fund 487) 50 Beginning Balance $ (203,132) $ 50,000 $ 50,000 $ 64,309 $ 50, Transfers In - Revenue Requirements 300, , , , , Transfers In - Grants 500, , , , Transfers In - Operating Reserve Fund ,809 10, , Transfers Out - Capital Projects 622, , , , , Interest Rate 0.30% 0.50% 0.75% 0.75% 1.00% 56 Interest Income $ 0 $ 375 $ 616 $ 670 $ 1, Recognition Of Interest in Revenue Requirements , Ending Balance $ 50,000 $ 50,000 $ 64,309 $ 50,000 $ 150,000 SERIES 2008C BOND CONSTRUCTION FUND (Fund 488) 59 Beginning Balance $ 10,969,004 $ 1,244,380 $ 1,244,380 $ 1,244,380 $ 1,244, Transfers Out - Fund 464 7,000, Transfers Out - CIP Projects Series 2008C 2,724, Interest Rate 0.00% 0.00% 0.00% 0.00% 0.00% 63 Interest Income $ 0 $ 0 $ 0 $ 0 $ 0 64 Recognition Of Interest in Revenue Requirements Ending Balance $ 1,244,380 $ 1,244,380 $ 1,244,380 $ 1,244,380 $ 1,244,380 SERIES 2004 BOND CONSTRUCTION FUND (Fund 489) 66 Beginning Balance $ 5,006,660 $ 2,702,725 $ 441,126 $ 441,126 $ 441, Transfers Out - CIP Projects Series ,303,935 2,261, Interest Rate 0.00% 0.00% 0.00% 0.00% 0.00% 69 Interest Income $ 0 $ 0 $ 0 $ 0 $ 0 70 Recognition Of Interest in Revenue Requirements Ending Balance $ 2,702,725 $ 441,126 $ 441,126 $ 441,126 $ 441,126 ADDITIONAL BONDS CONSTRUCTION FUND [1] 72 Beginning Balance $ 0 $ 0 $ 0 $ 0 $ 0 73 Transfers In - Series 2013 Bonds Proceeds Transfers Out - CIP Projects Series 2013 Bonds Ending Balance $ 0 $ 0 $ 0 $ 0 $ 0 79 TOTAL UNRESTRICTED INTEREST INCOME $ 32,624 $ 58,586 $ 98,780 $ 110,897 $ 165, TOTAL RESTRICTED INTEREST INCOME $ 3,755 $ 0 $ 0 $ 0 $ 0 81 TOTAL INTEREST INCOME $ 36,379 $ 58,586 $ 98,780 $ 110,897 $ 165,861 Footnotes: [1] Reflects construction fund established though assumed issuance of the Series 2013 Bonds. B-70

183 Table 16 Page 1 of 1 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Comparison of Typical Monthly Residential Bills For Water Service [1] Residential Service for a 5/8" or 3/4" Meter Line 0 4,000 7,300 12,000 24,000 36,000 48,000 60,000 No. Description Gallons Gallons Gallons [2] Gallons Gallons Gallons Gallons Gallons City of West Palm Beach (0.0 CCF) (5.3 CCF) (9.8 CCF) (16.0 CCF) (32.1 CCF) (48.1 CCF) (64.2 CCF) (80.2 CCF) 1 Existing Rates Effective October 1, 2011 $19.43 $31.46 $42.39 $60.13 $ $ $ $ Anticipated Rates Effective October 1, 2012 (5.00% 2 Rate Increase) Other Surveyed Florida Utilities: 3 City of Boca Raton [3] [4] $12.61 $15.58 $18.03 $21.52 $42.43 $69.26 $96.58 $ Broward County [3] City of Boynton Beach City of Cooper City [3] City of Coral Springs City of Dania Beach [3] Town of Davie [3] City of Delray Beach City of Fort Lauderdale [3] City of Hollywood [3] Town of Jupiter City of Lake Worth [3] Town of Lantana [3] Martin County [3] Okeechobee Utility Authority [3] Palm Beach County [3] Riviera Beach Utility District St. Lucie County St. Lucie West Services District Seacoast Utility Authority City of Sunrise [3] City of Tamarac [3] Village of Tequesta [3] Other Surveyed Florida Utilities' Average $14.33 $23.14 $33.21 $50.93 $ $ $ $ Footnotes: [1] Unless otherwise noted, amounts shown reflect residential rates in effect June 2012 and are exclusive of taxes, franchise fees or water restriction surcharges, if any, and reflect rates charged for inside the city service. All rates are as reported by the respective utility. This comparison is intended to show comparable charges for similar service for comparison purposes only and is not intended to be a complete listing of all rates and charges offered by each listed utility. [2] During Fiscal Year 2011, the average single family residential customer receiving service in the City of West Palm Beach used approximately 7,300 gallons (9.8ccf) per month. [3] Utility is currently involved in a rate study, is planning to conduct a rate study, or is expected to implement a rate revision or price index / pass-through adjustment within the next twelve months following the comparison preparation date. [4] City of Boca Raton rates assume two bathrooms for bi-monthly usage of 16,000 gallons or less and 3 bathrooms for bi-monthly usage above 16,000 gallons. B-71

184 Table 17 Page 1 of 1 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Comparison of Typical Monthly Residential Bills For Wastewater Service [1] Residential Service for a 5/8" or 3/4" Meter Line 0 4,000 7,300 12,000 24,000 36,000 48,000 60,000 No. Description Gallons Gallons Gallons [2] Gallons Gallons Gallons Gallons Gallons City of West Palm Beach (0.0 CCF) (5.3 CCF) (9.8 CCF) (16.0 CCF) (32.1 CCF) (48.1 CCF) (64.2 CCF) (80.2 CCF) 1 Existing Rates Effective October 1, 2011 $10.89 $28.06 $42.22 $62.25 $62.25 $62.25 $62.25 $62.25 Anticipated Rates Effective October 1, 2012 (5.00% 2 Rate Increase) Other Surveyed Florida Utilities: 3 City of Boca Raton [3] [4] $15.96 $15.96 $15.96 $15.96 $15.96 $15.96 $15.96 $ Broward County [3] City of Boynton Beach City of Cooper City [3] City of Coral Springs City of Dania Beach [3] Town of Davie [3] City of Delray Beach City of Fort Lauderdale [3] City of Hollywood [3] Town of Jupiter City of Lake Worth [3] Town of Lantana [3] Martin County [3] Okeechobee Utility Authority [3] Palm Beach County [3] Riviera Beach Utility District St. Lucie County St. Lucie West Services District Seacoast Utility Authority City of Sunrise [3] City of Tamarac [3] Village of Tequesta [3] Other Surveyed Florida Utilities' Average $17.78 $31.71 $43.85 $58.68 $74.27 $84.84 $95.42 $ Footnotes: [1] Unless otherwise noted, amounts shown reflect residential rates in effect June 2012 and are exclusive of taxes, franchise fees or water restriction surcharges, if any, and reflect rates charged for inside the city service. All rates are as reported by the respective utility. This comparison is intended to show comparable charges for similar service for comparison purposes only and is not intended to be a complete listing of all rates and charges offered by each listed utility. [2] During Fiscal Year 2011, the average single family residential customer receiving service in the City of West Palm Beach used approximately 7,300 gallons (9.8ccf) per month. [3] Utility is currently involved in a rate study, is planning to conduct a rate study, or is expected to implement a rate revision or price index / pass-through adjustment within the next twelve months following the comparison preparation date. [4] City of Boca Raton wastewater rates are based on number of bathrooms. Residential bill for wastewater service assumes two bathrooms. B-72

185 Table 18 Page 1 of 1 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Comparison of Typical Monthly Residential Bills For Combined Water and Wastewater Service [1] Residential Service for a 5/8" or 3/4" Meter Line 0 4,000 7,300 12,000 24,000 36,000 48,000 60,000 No. Description Gallons Gallons Gallons [2] Gallons Gallons Gallons Gallons Gallons City of West Palm Beach (0.0 CCF) (5.3 CCF) (9.8 CCF) (16.0 CCF) (32.1 CCF) (48.1 CCF) (64.2 CCF) (80.2 CCF) 1 Existing Rates Effective October 1, 2011 $30.32 $59.52 $84.61 $ $ $ $ $ Anticipated Rates Effective October 1, 2012 (5.00% 2 Rate Increase) Other Surveyed Florida Utilities: 3 City of Boca Raton [3] [4] $28.57 $31.54 $33.99 $37.48 $58.39 $85.22 $ $ Broward County [3] City of Boynton Beach City of Cooper City [3] City of Coral Springs City of Dania Beach [3] Town of Davie [3] City of Delray Beach City of Fort Lauderdale [3] City of Hollywood [3] Town of Jupiter City of Lake Worth [3] Town of Lantana [3] Martin County [3] Okeechobee Utility Authority [3] Palm Beach County [3] Riviera Beach Utility District St. Lucie County St. Lucie West Services District Seacoast Utility Authority City of Sunrise [3] City of Tamarac [3] Village of Tequesta [3] Other Surveyed Florida Utilities' Average $32.11 $54.85 $77.06 $ $ $ $ $ Footnotes: [1] Unless otherwise noted, amounts shown reflect residential rates in effect June 2012 and are exclusive of taxes, franchise fees or water restriction surcharges, if any, and reflect rates charged for inside the city service. All rates are as reported by the respective utility. This comparison is intended to show comparable charges for similar service for comparison purposes only and is not intended to be a complete listing of all rates and charges offered by each listed utility. [2] During Fiscal Year 2011, the average single family residential customer receiving service in the City of West Palm Beach used approximately 7,300 gallons (9.8ccf) per month. [3] Utility is currently involved in a rate study, is planning to conduct a rate study, or is expected to implement a rate revision or price index / pass-through adjustment within the next twelve months following the comparison preparation date. [4] City of Boca Raton wastewater rates are based on number of bathrooms. Residential bill for wastewater service assumes two bathrooms. B-73

186 Table 19 Page 1 of 1 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Comparison of Typical Monthly Residential Bills for Stormwater Service[1] Monthly Impervious Line Stormwater Rate Surface No. Description per ERU per ERU City of West Palm Beach Existing Rates Effective October 1, Class A110 $ ,171 2 Class A ,171 3 Class A ,171 Other Surveyed Florida Utilities: 4 City of Boca Raton $ ,837 5 City of Boynton Beach ,937 6 City of Delray Beach ,502 7 City of Fort Lauderdale [2] 3.53 Per Acre [2] 8 Town of Jupiter ,651 9 City of Lake Worth , City of Margate , City of Tamarac , Village of Tequesta [3] 7.13 See Footnote [3] 13 City of Pompano Beach , City of Port St. Lucie [4] , City of Riviera Beach [5] 4.50 See Footnote [5] 16 Other Surveyed Florida Utilities' Average $ ,331 Footnotes: [1] Unless otherwise noted, amounts shown reflect residential rates in effect May 2012 and are exclusive of taxes or franchise fees, if any, and reflect rates charged for inside the city service. All rates are as reported by the respective utility. This comparison is intended to show comparable charges for similar service for comparison purposes only and is not intended to be a complete listing of all rates and charges offered by each listed utility. [2] The City of Fort Lauderdale charges a flat rate for all single-family homes, manufactured homes, multi-family, apartment buildings and condominiums designed to accommodate three (3) or fewer dwelling units. For all other categories the City assesses a fee per acre. [3] Rates vary according to impervious area as follows: Monthly Description Stormwater Rate Small Single-Family Units (up to 2,506 sq. ft. of impervious area) $ 4.63 Medium Single-Family Units (2,507-4,621 sq. ft. of impervious area) 7.13 Large Single-Family Units (more than 4,621 sq. ft. of impervious area) 9.27 [4] Estimated from the utility's stormwater budget annual fee of $153. [5] Rates vary according to impervious area as follows: Monthly Description Stormwater Rate Small Homes (up to 1,473 sq. ft. of impervious area) $ 3.15 Medium Homes (1,473-3,740 sq. ft. of impervious area) 4.50 Big Homes (more than 3,740 sq. ft. of impervious area) 7.65 Condominiums (regardless of impervious area size) 3.60 B-74

187 Table 20 Page 1 of 1 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Comparison of Capital Connection Charges (Impact Fees) for Water and Wastewater Service [1] Line Residential 5/8" x 3/4" Meter No. Description Water Wastewater Combined City of West Palm Beach 1 Existing Charges $ 2,190 $ 1,270 $ 3,460 Other Surveyed Florida Utilities: 2 City of Boca Raton 5,195 4,168 9,363 3 Broward County 1,440 1,960 3,400 4 City of Boynton Beach [2] 2,020 1,197 3,217 5 City of Cooper City 1,316 2,201 3,517 6 City of Coral Springs 1, ,700 7 City of Dania Beach 1,557 1,935 3,492 8 Town of Davie 3,050 2,920 5,970 9 City of Delray Beach 788 1,084 1, City of Fort Lauderdale 1, , City of Hollywood 1,130 2,130 3, Town of Jupiter 3,427 2,994 6, City of Lake Worth 3,416 2,650 6, Town of Lantana 1,511 2,000 3, Martin County 1,710 2,100 3, Okeechobee Utility Authority 1,510 2,935 4, Palm Beach County 1,500 2,500 4, Riviera Beach Utility District 1,809 1,556 3, St. Lucie County (All Service Areas) 3,559 3,975 7, St. Lucie West Services District 2,100 2,000 4, Seacoast Utility Authority 1,500 1,200 2, City of Sunrise 1,500 1,350 2, City of Tamarac 1,700 2,200 3, Village of Tequesta 2,842 2,994 5, Other Surveyed Florida Utilities' Average $ 2,042 $ 2,148 $ 4,190 Footnotes: [1] Unless otherwise noted, amounts shown reflect residential rates in effect June 2012 and are exclusive of taxes or franchise fees, if any, and reflect rates charged for inside the city service. All rates are as reported by the respective utility. This comparison is intended to show comparable charges for comparison purposes only. [2] Fee shown assumes a residential property with 3 bedrooms. B-75

188 Table 21 Page 1 of 10 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Water and Wastewater System Five-Year Estimated Capital Improvement Program for the Water and Wastewater System [1] Fiscal Year Ending September 30, Line Cost Funding Budgeted Adjusted No. Description Center Department Source 2012 Adjustments Totals WATER SYSTEM CAPITAL COSTS Fund 450- Revenue Fund 1 Scada Master Plan Utility Admin. OR $ 1,144,898 $ (1,030,408) $ 114,490 $ 114,490 $ 114,490 $ 114,490 $ 114, ,449 2 Subtotal Fund 450- Revenue Fund $ 1,144,898 $ (1,030,408) $ 114,490 $ 114,490 $ 114,490 $ 114,490 $ 114,490 $ 572,449 B-76 Fund Replacement - Equipment 3 Reserve For Future Projects Utility Admin. ER-451 $ 16,412 $ 0 $ 16,412 $ 45,215 $ 71,834 $ 42,934 $ 64,687 $ 241,081 4 UD Truck Customer Service ER-451 9, , ,739 5 UD Sedan Customer Service ER , , ,599 6 UD Explorer to Truck Customer Service ER , ,323 7 UD Truck Customer Service ER , ,323 8 UD Truck Customer Service ER , ,182 9 UD Truck Customer Service ER , , UD Truck Customer Service ER ,469 15, UD Chevy S-10 Truck Field Customer Serv. ER , , , UD Chevy 1500 Truck Field Customer Serv. ER , , , UD Chevy 1500 Truck Field Customer Serv. ER , , , UD Chevy S-10 Truck Field Customer Serv. ER , , UD Ford Sport Trac SUV Field Customer Serv. ER , , UD Chevy 1500 Truck Field Customer Serv. ER , , UD Chevy Field Customer Serv. ER , , UD Chevy Field Customer Serv. ER , , UD Ford F350 Truck Field Customer Serv. ER , , UD Chevy 1500 Truck Field Customer Serv. ER , , UD Chevy 1500 Truck Field Customer Serv. ER , , UD Ford F550 Truck Field Customer Serv. ER , , UD Ford F150 Truck Field Customer Serv. ER ,972 26, UD Ford F350 Truck Field Customer Serv. ER ,972 26, UD Ford Explorer SUV Field Customer Serv. ER ,262 17, UD Ford Explorer SUV Field Customer Serv. ER ,262 17, UD Chevy Watershed Mgmt. ER , , , UD Chevy Watershed Mgmt. ER , , , UD Chevy 2500 HD Watershed Mgmt. ER , , UD Chevy K Watershed Mgmt. ER , , UD Ingersoil Rand Compressor Distrib. / Collect. ER , , , UD Ford F 550 Flat Bed Distrib. / Collect. ER , , , UD Ford F Distrib. / Collect. ER , , , UD Ford F Distrib. / Collect. ER , , , UD Cat Backhoe/Loader Distrib. / Collect. ER , , , UD Acme Well Point System Distrib. / Collect. ER , , UD Chevy Distrib. / Collect. ER , , UD Light Tower Distrib. / Collect. ER , , UD Ford SUV Distrib. / Collect. ER , , UD Fork Lift Distrib. / Collect. ER , ,000 Footnotes on Page 10 of 10.

189 Table 21 Page 2 of 10 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Water and Wastewater System Five-Year Estimated Capital Improvement Program for the Water and Wastewater System [1] Fiscal Year Ending September 30, Line Cost Funding Budgeted Adjusted No. Description Center Department Source 2012 Adjustments Totals B UD Cat Backhoe Distrib. / Collect. ER , , UD Ford 550 Flat Bed Distrib. / Collect. ER , , UD Cat Roller Distrib. / Collect. ER , , UD Chevy Distrib. / Collect. ER , , UD Chevy Distrib. / Collect. ER , , UD Sullair Compressor Distrib. / Collect. ER ,000 20, UD Ford F 550 Service Truck Distrib. / Collect. ER ,000 68, UD Ford F 550 Service Truck Distrib. / Collect. ER ,000 68, UD Ford F 450 Service Truck Distrib. / Collect. ER ,000 60, UD Truck Chevy K Water Treat. Plant ER , , , UD Truck Water Treat. Plant ER , , UD Truck Water Treat. Plant ER , , UD Ford Explorer Water Treat. Plant ER , , UD Chevy Water Treat. Plant ER ,000 35, UD Ford Explorer Util. Lab. Serv. ER , , , UD Explorer Util. Lab. Serv. ER , , UD Explorer Util. Lab. Serv. ER , , UD Ford Explorer Industrial Pretreatment ER Subtotal Fund Replacement - Equip. $ 422,778 $ 0 $ 422,778 $ 267,057 $ 354,902 $ 343,614 $ 419,624 $ 1,807,974 Fund Utility AWTR Capital 60 IOTB - Advanced Water Treatment Source of W Supply WSCAP-452 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 61 Reserve for Future Projects Source of W Supply WSCAP Reserve for Future Projects Watershed Mgmt. WSCAP-452 3, ,000 3,000 3,000 3,000 3,000 15, Wetlands Reclamation Watershed Mgmt. WSCAP Subtotal Fund 452 Utility AWTR Capital $ 3,000 $ 0 $ 3,000 $ 3,000 $ 3,000 $ 3,000 $ 3,000 $ 15,000 Fund Utilities Capital Account 65 Miscellaneous Capital Overruns Utility Admin. WSCAP-453 $ 11,449 $ 0 $ 11,449 $ 11,449 $ 11,449 $ 11,449 $ 11,449 $ 57, Reserve For Future Projects Utility Admin. WSCAP-453 2, , , , , ,374 1,469, Plotter Utility Admin. WSCAP , , , W Palm Com Park Conveyance Watershed Mgmt. WSCAP , , , Aquatic Weed Harvester Watershed Mgmt. WSCAP , , , Tractor for Preserve Mtc Watershed Mgmt. WSCAP , , , Solar Powered Circulation Project Watershed Mgmt. WSCAP , , Nature Center Outdoor Classroom Watershed Mgmt. WSCAP , , Hydrogen Peroxide Distribution Watershed Mgmt. WSCAP , , , Groundwater Logger Project Watershed Mgmt. WSCAP , , , Nature Center De-Acceleration Lane Watershed Mgmt. WSCAP , , Control 3 Actuators Watershed Mgmt. WSCAP , , , Hurco Flow Test Kit Distrib. / Collect. WSCAP , , , Leak Detector Kit Distrib. / Collect. WSCAP Wach Valve Maintenance Trailer Distrib. / Collect. WSCAP , , , Hydrolic Shoring Sewer Collection WSCAP Subtotal Fund Utilities Capital Account $ 504,618 $ 0 $ 504,618 $ 570,688 $ 400,714 $ 400,714 $ 381,823 $ 2,258,558 Footnotes on Page 10 of 10.

190 Table 21 Page 3 of 10 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Water and Wastewater System Five-Year Estimated Capital Improvement Program for the Water and Wastewater System [1] Fiscal Year Ending September 30, Line Cost Funding Budgeted Adjusted No. Description Center Department Source 2012 Adjustments Totals B-78 Fund Renewal and Replacement 82 Project Overruns Utility Admin. RR-454 $ 57,245 $ 0 $ 57,245 $ 57,245 $ 57,245 $ 57,245 $ 57,245 $ 286, Reserve for Future Projects Utility Admin. RR , , , , , ,146 3,039, Town of Palm Beach Transfer Utility Admin. CONSOLIDATE 472, , , , , ,449 2,616, AWTR Boardwalk Rehab Watershed Mgmt. RR , , , Transfer Pump Station Rehab Watershed Mgmt. RR , , , Nature Center Bathroom Rehab Watershed Mgmt. RR , , Control #7 Improvements Watershed Mgmt. RR , , , Australian Pine Removal Watershed Mgmt. RR , ,500 82,500 82,500 82, , Replacement Motors and Pumps Watershed Mgmt. RR , , , Annual Plumbing Contract - Water - LL Distrib. / Collect. RR , ,000 70,000 70,000 70,000 70, , Utility Relocations PBC & FDOT - LL Distrib. / Collect. RR , , , , , ,000 1,500, Underground Utility Repairs Water - LL/DM Distrib. / Collect. RR , , , , , , , Transite WM Improvements - LL Distrib. / Collect. RR-454 1,200, ,200, , , , ,000 3,400, Town of Palm Beach Conflicts - LL Distrib. / Collect. RR , ,000 55,000 55,000 55,000 55, , Utility Relocations Stormwater Projects - LL Distrib. / Collect. RR , , , , , ,000 2,500, Australian/I-95 WM Replacement - LL Distrib. / Collect. RR Large Valve Replacement - DM Distrib. / Collect. RR , , , , , ,000 1,010, Replacement Sterilizer - Autoclave Util. Lab. Serv. RR , , Large Valve Replacement - H Sewer Collection RR Subtotal Fund Renewal and Replacement $ 3,493,313 $ 0 $ 3,493,313 $ 3,206,264 $ 3,279,414 $ 3,186,941 $ 3,247,840 $ 16,413,773 Fund Water and Sewer Expansion Fund (Impact Fees Fund) 102 Transfer to Debt Service Fund Utility Admin. CONSOLIDATE $ 343,469 $ 0 $ 343,469 $ 343,469 $ 343,469 $ 343,469 $ 343,469 $ 1,717, Development Repayments (Object ) Utility Admin. CF Meters for New Development Field Customer Serv. CF , ,000 15,000 15,000 15,000 15,000 90, Subtotal Fund Water and Sewer Expansion Fund $ 373,469 $ 0 $ 373,469 $ 358,469 $ 358,469 $ 358,469 $ 358,469 $ 1,807,347 Fund Town of Palm Beach Renewal and Replacement 106 Town of Palm Beach Improvements Distrib. / Collect. TPB-RR-457 $ 875,000 $ 0 $ 875,000 $ 875,000 $ 875,000 $ 875,000 $ 875,000 $ 4,375, Subtotal Fund Town of Palm Beach Renewal and Replacement $ 875,000 $ 0 $ 875,000 $ 875,000 $ 875,000 $ 875,000 $ 875,000 $ 4,375,000 Fund Wetlands Mitigation 108 Golden West Mitigation (Obj ) Watershed Mgmt. Wetlands-458 $ 50,000 $ 0 $ 50,000 $ 0 $ 0 $ 0 $ 0 $ 50, Northlake Blvd Widen Sites A & B (Obj Watershed Mgmt. Wetlands , , ,000 Helicopter Applicators - Wetlands Mitigation Watershed Mgmt. 110 (Obj ) Wetlands , , , GWP / WCA / Alt Maintenance (Obj ) Watershed Mgmt. Wetlands , , , Preserve Maintenance - Required (Obj ) Watershed Mgmt. Wetlands , , ,000 Renaissance Mitigation Maintenance - 75 Acres Watershed Mgmt. 113 (Obj ) Wetlands , , , West Palm Commerce Park (Obj ) Watershed Mgmt. Wetlands , , ,000 AWTR Mitigation Maintenance - 23 Acres (Obj Watershed Mgmt ) Wetlands-458 5, , ,000 Footnotes on Page 10 of 10.

191 Table 21 Page 4 of 10 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Water and Wastewater System Five-Year Estimated Capital Improvement Program for the Water and Wastewater System [1] Fiscal Year Ending September 30, Line Cost Funding Budgeted Adjusted No. Description Center Department Source 2012 Adjustments Totals Alpha 20 / Beta 20 Maintenance - Required (Obj Watershed Mgmt ) Wetlands , , ,000 Apoxee Preserve Maintenance - FCT Purchase Watershed Mgmt. 117 Agreement Compliance (Obj ) Wetlands , , ,000 M-Canal Phase II Widening Mitigation Watershed Mgmt. 118 Maintenance (Obj ) Wetlands , , , Reserve for Future Projects Watershed Mgmt. Wetlands-458 5, ,000 5,000 5,000 5,000 5,000 25, Subtotal Fund Wetlands Mitigation $ 385,000 $ 0 $ 385,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 405,000 Fund Revenue Bonds 121 Reserve For Future Projects Utility Admin Bonds $ 2,862 $ 0 $ 2,862 $ 0 $ 0 $ 0 $ 0 $ 2, Subtotal Fund Revenue Bonds $ 2,862 $ 0 $ 2,862 $ 0 $ 0 $ 0 $ 0 $ 2,862 B-79 Fund B Revenue Bonds 123 Reserve For Future Projects Utility Admin. 2008B Bonds $ 2,862 $ 0 $ 2,862 $ 0 $ 0 $ 0 $ 0 $ 2, Subtotal Fund B Revenue Bonds $ 2,862 $ 0 $ 2,862 $ 0 $ 0 $ 0 $ 0 $ 2,862 Fund C Revenue Bonds 125 Reserve For Future Projects Utility Admin. 2008C Bonds $ 28,622 $ 0 $ 28,622 $ 0 $ 0 $ 0 $ 0 $ 28, Subtotal Fund C Revenue Bonds $ 28,622 $ 0 $ 28,622 $ 0 $ 0 $ 0 $ 0 $ 28,622 Projects Funded By Series 2013 Bonds - Additional 127 Water Treatment Plant Projects Water Treat. Plant 2013 Bonds $ 0 $ 0 $ 0 $ 22,500,000 $ 75,000,000 $ 52,500,000 $ 0 $ 150,000, Additional Item Water Treat. Plant 2013 Bonds Subtotal Projects Funded By Series 2012 Bonds $ 0 $ 0 $ 0 $ 22,500,000 $ 75,000,000 $ 52,500,000 $ 0 $ 150,000,000 Carryovers from Previous Periods 130 Fund Replacement - Equipment N/A Carryover ER-451 $ 0 $ 82,368 $ 82,368 $ 0 $ 0 $ 0 $ 0 $ 82, Fund Utility AWTR Capital N/A Carryover WSCAP ,924 35, , Fund Utilities Capital Account N/A Carryover WSCAP , , , Fund Renewal and Replacement N/A Carryover RR ,137,886 6,137, , , ,164,934 Fund Water and Sewer Expansion Fund N/A Carryover 134 (Impact Fees Fund) CF ,896 8, ,896 Fund Town of Palm Beach Renewal and N/A Carryover 135 Replacement TPB-RR , Fund Wetlands Mitigation N/A Carryover Wetlands Fund General Reserve Fund N/A Carryover OR Fund Revenue Bonds N/A Carryover 2004 Bonds 0 1,693,091 1,693, ,693, Fund B Revenue Bonds N/A Carryover 2008B Bonds 0 442, , , , Fund C Revenue Bonds N/A Carryover 2008C Bonds 0 16,081,638 16,081,638 10,796,735 10,280, ,158, Additional Item N/A Carryover 2008C Bonds Subtotal Carryovers from Previous Periods $ 0 $ 24,732,161 $ 24,732,161 $ 11,784,615 $ 10,564,761 $ 0 $ 0 $ 47,081, TOTAL WATER SYSTEM CAPITAL COSTS $ 7,236,424 $ 23,701,752 $ 30,938,176 $ 39,684,584 $ 90,955,750 $ 57,787,228 $ 5,405,247 $ 224,770,985 Footnotes on Page 10 of 10.

192 Table 21 Page 5 of 10 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Water and Wastewater System Five-Year Estimated Capital Improvement Program for the Water and Wastewater System [1] Fiscal Year Ending September 30, Line Cost Funding Budgeted Adjusted No. Description Center Department Source 2012 Adjustments Totals WASTEWATER SYSTEM CAPITAL COSTS Fund 450- Revenue Fund 144 Scada Master Plan Utility Admin. OR $ 855,102 $ (769,592) $ 85,510 $ 85,510 $ 85,510 $ 85,510 $ 85,510 $ 427, Subtotal Fund 450- Revenue Fund $ 855,102 $ (769,592) $ 85,510 $ 85,510 $ 85,510 $ 85,510 $ 85,510 $ 427,551 B-80 Fund Replacement - Equipment 146 Reserve For Future Projects Utility Admin. ER-451 $ 12,258 $ 0 $ 12,258 $ 33,770 $ 53,651 $ 32,066 $ 48,313 $ 180, UD Truck Customer Service ER-451 7, , , UD Sedan Customer Service ER-451 7, , , UD Explorer to Truck Customer Service ER , , UD Truck Customer Service ER , , UD Truck Customer Service ER , , UD Truck Customer Service ER , , UD Truck Customer Service ER ,531 11, UD Chevy S-10 Truck Field Customer Serv. ER , , , UD Chevy 1500 Truck Field Customer Serv. ER , , , UD Chevy 1500 Truck Field Customer Serv. ER , , , UD Chevy S-10 Truck Field Customer Serv. ER , , UD Ford Sport Trac SUV Field Customer Serv. ER , , UD Chevy 1500 Truck Field Customer Serv. ER , , UD Chevy Field Customer Serv. ER , , UD Chevy Field Customer Serv. ER , , UD Ford F350 Truck Field Customer Serv. ER , , UD Chevy 1500 Truck Field Customer Serv. ER , , UD Chevy 1500 Truck Field Customer Serv. ER , , UD Ford F550 Truck Field Customer Serv. ER , , UD Ford F150 Truck Field Customer Serv. ER ,028 23, UD Ford F350 Truck Field Customer Serv. ER ,028 23, UD Ford Explorer SUV Field Customer Serv. ER ,738 14, UD Ford Explorer SUV Field Customer Serv. ER ,738 14, UD Ford Explorer Util. Lab. Serv. ER-451 3, , , UD Explorer Util. Lab. Serv. ER , , UD Explorer Util. Lab. Serv. ER , , UD Toyota Prius Util. Pump. Oper. ER , , , UD Ford F 450 Pickup Util. Pump. Oper. ER , , UD Explorer Util. Pump. Oper. ER , , UD Ford F Util. Pump. Oper. ER , , UD Ford Van Util. Pump. Oper. ER , , UD Ford F Util. Pump. Oper. ER , , UD Toyota Highlander Util. Pump. Oper. ER ,000 40, UD Ford F Util. Pump. Oper. ER ,000 52, UD Ford F Sewer Collection ER , , , UD Mayers Pump 4" Sewer Collection ER , , , UD Bobcat Skid Steer Sewer Collection ER , , , UD Light Tower Sewer Collection ER , , ,500 Footnotes on Page 10 of 10.

193 Table 21 Page 6 of 10 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Water and Wastewater System Five-Year Estimated Capital Improvement Program for the Water and Wastewater System [1] Fiscal Year Ending September 30, Line Cost Funding Budgeted Adjusted No. Description Center Department Source 2012 Adjustments Totals B UD Vapor Root Sewer Collection ER , , , UD Ford DT F Sewer Collection ER , , UD Sterling Vac Truck Sewer Collection ER , , , UD E Sewer Collection ER , , UD Chevy Sewer Collection ER , , UD Ford F 450 Flat Bed Sewer Collection ER , , UD Bucket Machine Sewer Collection ER , , UD Bucket Machine Sewer Collection ER , , UD Mayers Pump Sewer Collection ER , , UD Aqua Tech Vac Truck Sewer Collection ER , , UD Global Well Point Sewer Collection ER , , UD Ford F Sewer Collection ER , , UD Trailer Sewer Collection ER , , UD US Jetting Machine Sewer Collection ER , , UD Ford F 450 Service Truck Sewer Collection ER , , UD Ford F Sewer Collection ER , , UD Ingersoil Compressor Industrial Pretreatment ER , , UD Bob Cat Industrial Pretreatment ER , , UD Ford F 550 Service Truck Industrial Pretreatment ER , , UD Ford F 550 Dump Truck Industrial Pretreatment ER , , UD Ford F 550 Dump Truck Industrial Pretreatment ER , , UD Ford F Industrial Pretreatment ER ,000 40, UD Ford F 550 Service Truck Industrial Pretreatment ER ,000 60, UD Ford F Industrial Pretreatment ER ,000 30, UD Vac Tron Industrial Pretreatment ER ,000 75, UD Caterpillar 416C Industrial Pretreatment ER ,000 80, UD Ingersoil Compressor Industrial Pretreatment ER ,000 18, UD Dodge Sprinter Van Industrial Pretreatment ER , , UD Ford Explorer Industrial Pretreatment ER , , Subtotal Fund Replacement - Equip. $ 542,222 $ 0 $ 542,222 $ 682,943 $ 595,098 $ 606,386 $ 530,376 $ 2,957,026 Fund Utility AWTR Capital 215 IOTB - Advanced Water Treatment Source of W Supply WSCAP-452 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ Wetlands Reclamation Watershed Mgmt. WSCAP Subtotal Fund 452 Utility AWTR Capital $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Fund Utilities Capital Account 218 Miscellaneous Capital Overruns Utility Admin. WSCAP-453 $ 8,551 $ 0 $ 8,551 $ 8,551 $ 8,551 $ 8,551 $ 8,551 $ 42, Reserve For Future Projects Utility Admin. WSCAP-453 1, , , , , ,626 1,097, Miscellaneous Equipment Utility Admin. WSCAP Plotter Utility Admin. WSCAP , , , New Odor Scrubbers Util. Pump. Oper. WSCAP , ,000 66, Hydraulic Excavator & Trailer Sewer Collection WSCAP , , , Hydrolic Shoring Sewer Collection WSCAP , , , Subtotal Fund Utilities Capital Account $ 175,382 $ 0 $ 175,382 $ 279,312 $ 299,286 $ 299,286 $ 318,177 $ 1,371,442 Footnotes on Page 10 of 10.

194 Table 21 Page 7 of 10 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Water and Wastewater System Five-Year Estimated Capital Improvement Program for the Water and Wastewater System [1] Fiscal Year Ending September 30, Line Cost Funding Budgeted Adjusted No. Description Center Department Source 2012 Adjustments Totals B-82 Fund Renewal and Replacement 226 Project Overruns Utility Admin. RR-454 $ 42,755 $ 0 $ 42,755 $ 42,755 $ 42,755 $ 42,755 $ 42,755 $ 213, Reserve for Future Projects Utility Admin. RR , , , , , ,854 2,270, Town of Palm Beach Transfer Utility Admin. CONSOLIDATE 352, , , , , ,551 1,953, Replacement Sterilizer - Autoclave Util. Lab. Serv. RR , , Lift Station #22 Rebuild / Upgrade Sew. Pump Stat. RR , , , Lift Station #23 Improvements - LL Util. Pump. Oper. RR , , , Replace Pumps & Motors - T Util. Pump. Oper. RR , , , Lift Station #13 Improvements - T Util. Pump. Oper. RR , , Lift Station Rehab/ Improvements - T Util. Pump. Oper. RR , , , , , ,000 1,800, Replace Aquatrol RTU's Util. Pump. Oper. RR , ,000 60,000 60,000 60,000 60, , Upgrade Replace Station Hoist - T Util. Pump. Oper. RR , ,000 55, , POD Work Stations (17) - T Util. Pump. Oper. RR , , , Preplace Generators /Portable Pumps Util. Pump. Oper. RR ,000 45,000 90,000 32, , Utility Relocations Stormwater Projects Sewer Collection RR , , , , , ,000 2,200, Utility Relocations (PBC & FDOT) - LL Sewer Collection RR , , , , , ,000 1,500, Annual Plumbing Contract - Sewer - LL Sewer Collection RR , ,000 30,000 30,000 30,000 30, , Underground Utility Repairs Sewer - LL/H Sewer Collection RR , , , , , , , Citywide San. Sewer Replacements - LL/H Sewer Collection RR-454 1,000, ,000, , , , ,000 3,200, Citywide Force Main Replacements - LL/H Sewer Collection RR , , , , , ,000 2,780, Rehab Sewer Main Lining - H Sewer Collection RR , , , , , ,000 3,500, TV Project Rehab - H Sewer Collection RR , ,000 50,000 50,000 50,000 50, , Sanitary Sewer Rehab - H Sewer Collection RR , , , , , ,000 2,000, Large Valve Replacement - H Sewer Collection RR , ,000 60,000 60,000 60,000 60, , Subtotal Fund Renewal and Replacement $ 4,906,687 $ 0 $ 4,906,687 $ 4,893,736 $ 4,820,586 $ 4,913,059 $ 4,852,160 $ 24,386,227 Fund Water and Sewer Expansion Fund (Impact Fees Fund) 250 Transfer to Debt Service Fund Utility Admin. CONSOLIDATE $ 256,531 $ 0 $ 256,531 $ 256,531 $ 256,531 $ 256,531 $ 256,531 $ 1,282, Development Repayments (Object ) Utility Admin. CF Meters for New Development Field Customer Serv. CF Subtotal Fund Water and Sewer Expansion Fund $ 256,531 $ 0 $ 256,531 $ 256,531 $ 256,531 $ 256,531 $ 256,531 $ 1,282,653 Fund Town of Palm Beach Renewal and Replacement 254 Town of Palm Beach Improvements Distrib. / Collect. CF-456 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ Subtotal Fund Town of Palm Beach Renewal and Replacement $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Fund Wetlands Mitigation 256 Golden West Mitigation (Obj ) Watershed Mgmt. Wetlands-458 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ Reserve for Future Projects Watershed Mgmt. Wetlands Subtotal Fund Wetlands Mitigation $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Fund Revenue Bonds 259 Reserve For Future Projects Utility Admin Bonds $ 2,138 $ 0 $ 2,138 $ 0 $ 0 $ 0 $ 0 $ 2, Subtotal Fund Revenue Bonds $ 2,138 $ 0 $ 2,138 $ 0 $ 0 $ 0 $ 0 $ 2,138 Footnotes on Page 10 of 10.

195 Table 21 Page 8 of 10 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Water and Wastewater System Five-Year Estimated Capital Improvement Program for the Water and Wastewater System [1] Fiscal Year Ending September 30, Line Cost Funding Budgeted Adjusted No. Description Center Department Source 2012 Adjustments Totals Fund B Revenue Bonds 261 Reserve For Future Projects Utility Admin. 2008B Bonds $ 2,138 $ 0 $ 2,138 $ 0 $ 0 $ 0 $ 0 $ 2, Subtotal Fund B Revenue Bonds $ 2,138 $ 0 $ 2,138 $ 0 $ 0 $ 0 $ 0 $ 2,138 Fund C Revenue Bonds 263 Reserve For Future Projects Utility Admin. 2008C Bonds $ 21,378 $ 0 $ 21,378 $ 0 $ 0 $ 0 $ 0 $ 21, Subtotal Fund C Revenue Bonds $ 21,378 $ 0 $ 21,378 $ 0 $ 0 $ 0 $ 0 $ 21,378 Projects Funded By Series 2013 Bonds - Additional 265 Water Treatment Plant Projects Water Treat. Plant 2013 Bonds $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ Additional Item Water Treat. Plant 2013 Bonds Subtotal Projects Funded By Series 2012 Bonds $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 B-83 Carryovers from Previous Periods 268 Fund Replacement - Equipment N/A Carryover ER-451 $ 0 $ 522,280 $ 522,280 $ 0 $ 0 $ 0 $ 0 $ 522, Fund Utility AWTR Capital N/A Carryover WSCAP Fund Utilities Capital Account N/A Carryover WSCAP ,498 39, , Fund Renewal and Replacement N/A Carryover RR ,233,352 5,233, , , ,109,044 Fund Water and Sewer Expansion Fund N/A Carryover 272 (Impact Fees Fund) CF Fund Town of Palm Beach Renewal and N/A Carryover 273 Replacement TPB-RR , , , , Fund Wetlands Mitigation N/A Carryover Wetlands , , , Fund General Reserve Fund N/A Carryover OR Fund Revenue Bonds N/A Carryover 2004 Bonds 0 726, , , Fund B Revenue Bonds N/A Carryover 2008B Bonds 0 469, , , , Fund C Revenue Bonds N/A Carryover 2008C Bonds 0 1,747,171 1,747,171 1,172,999 1,116, ,037, Additional Item N/A Carryover 2008C Bonds Subtotal Carryovers from Previous Periods $ 0 $ 9,612,518 $ 9,612,518 $ 2,485,186 $ 1,359,522 $ 0 $ 0 $ 13,457, TOTAL WASTEWATER SYSTEM CAPITAL COSTS $ 6,761,576 $ 8,842,926 $ 15,604,502 $ 8,683,218 $ 7,416,533 $ 6,160,772 $ 6,042,753 $ 43,907, TOTAL WATER AND WASTEWATER SYSTEM CAPITAL COSTS $ 13,998,000 $ 32,544,678 $ 46,542,678 $ 48,367,801 $ 98,372,283 $ 63,948,000 $ 11,448,000 $ 268,678, LESS: INTERFUND TRANSFERS CONSOLIDATE $ 1,425,000 $ 0 $ 1,425,000 $ 1,470,000 $ 1,515,000 $ 1,560,000 $ 1,600,000 $ 7,570, ADJUSTED TOTAL WATER AND WASTEWATER SYSTEM CAPITAL COSTS $ 12,573,000 $ 32,544,678 $ 45,117,678 $ 46,897,801 $ 96,857,283 $ 62,388,000 $ 9,848,000 $ 261,108,762 Footnotes on Page 10 of 10.

196 Table 21 Page 9 of 10 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Water and Wastewater System Five-Year Estimated Capital Improvement Program for the Water and Wastewater System [1] Fiscal Year Ending September 30, Line Cost Funding Budgeted Adjusted No. Description Center Department Source 2012 Adjustments Totals B-84 FUNDING SOURCES WATER SYSTEM FUNDING SOURCES 285 Operating Reserves OR $ 1,144,898 $ (1,030,408) $ 114,490 $ 114,490 $ 114,490 $ 114,490 $ 114,490 $ 572, Equipment and Replacement Fund 451 ER ,778 82, , , , , ,624 1,890, AWTR Capital Account Fund 452 WSCAP-452 3,000 35,924 38,924 3,000 3,000 3,000 3,000 50, Capital Account Fund 453 WSCAP , , , , , , ,823 2,507, Renewal and Replacement Fund 454 RR-454 3,021,043 6,137,886 9,158,929 3,450,699 3,040,206 2,637,390 2,675,391 20,962, Water Impact Fees Fund 456 CF ,000 8,896 38,896 15,000 15,000 15,000 15,000 98, TPB Renewal and Replacement Fund 457 TPB-RR , , , , , ,000 4,376, Wetlands Mitigation Project Fund 458 Wetlands , ,000 5,000 5,000 5,000 5, , Series 2004 Bonds Construction Fund Bonds 2,862 1,693,091 1,695, ,695, Series 2008B Bonds Construction Fund B Bonds 2, , , , , Series 2008C Bonds Construction Fund C Bonds 28,622 16,081,638 16,110,260 10,796,735 10,280, ,187, Series 2013 Bonds - Additional 2013 Bonds ,500,000 75,000,000 52,500, ,000, Grants - Fund GF Grants - Fund GF Rate Revenue REV SRF Loan SRF TOTAL WATER SYSTEM FUNDING SOURCES $ 6,420,684 $ 23,701,752 $ 30,122,436 $ 38,843,084 $ 90,088,490 $ 56,894,208 $ 4,489,328 $ 220,437,546 WASTEWATER SYSTEM FUNDING SOURCES 302 Operating Reserves OR $ 855,102 $ (769,592) $ 85,510 $ 85,510 $ 85,510 $ 85,510 $ 85,510 $ 427, Equipment and Replacement Fund 451 ER , ,280 1,064, , , , ,376 3,479, AWTR Capital Account Fund 452 WSCAP Capital Account Fund 453 WSCAP ,382 39, , , , , ,177 1,410, Renewal and Replacement Fund 454 RR-454 4,553,957 5,233,352 9,787,309 5,154,815 4,672,020 4,502,610 4,424,609 28,541, Water Impact Fees Fund 456 CF TPB Renewal and Replacement Fund 457 TPB-RR , , , , Wetlands Mitigation Project Fund 458 Wetlands , , , Series 2004 Bonds Construction Fund Bonds 2, , , , Series 2008B Bonds Construction Fund B Bonds 2, , , , , Series 2008C Bonds Construction Fund C Bonds 21,378 1,747,171 1,768,549 1,172,999 1,116, ,058, Series 2013 Bonds - Additional 2013 Bonds Grants - Fund GF Grants - Fund GF Rate Revenue REV SRF Loan SRF ECR Operating Account ECR OR TOTAL WASTEWATER SYSTEM FUNDING SOURCES $ 6,152,316 $ 8,842,926 $ 14,995,242 $ 8,054,718 $ 6,768,793 $ 5,493,792 $ 5,358,672 $ 40,671,216 Footnotes on Page 10 of 10.

197 Table 21 Page 10 of 10 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Water and Wastewater System Five-Year Estimated Capital Improvement Program for the Water and Wastewater System [1] Fiscal Year Ending September 30, Line Cost Funding Budgeted Adjusted No. Description Center Department Source 2012 Adjustments Totals B-85 COMBINED WATER AND WASTEWATER SYSTEM FUNDING SOURCES 320 Operating Reserves OR $ 2,000,000 $ (1,800,000) $ 200,000 $ 200,000 $ 200,000 $ 200,000 $ 200,000 $ 1,000, Equipment and Replacement Fund 451 ER , ,648 1,569, , , , ,000 5,369, AWTR Capital Account Fund 452 WSCAP-452 3,000 35,924 38,924 3,000 3,000 3,000 3,000 50, Capital Account Fund 453 WSCAP , , , , , , ,000 3,918, Renewal and Replacement Fund 454 RR-454 7,575,000 11,371,238 18,946,238 8,605,514 7,712,227 7,140,000 7,100,000 49,503, Water and Wastewater Impact Fees Fund 456 CF ,000 9,358 39,358 15,000 15,000 15,000 15,000 99, TPB Renewal and Replacement Fund 457 TPB-RR , ,816 1,296,816 1,295, , , ,000 5,217, Wetlands Mitigation Project Fund 458 Wetlands , , ,457 5,000 5,000 5,000 5, , Series 2004 Bonds Construction Fund Bonds 5,000 2,419,845 2,424, ,424, Series 2008B Bonds Construction Fund B Bonds 5, , , , ,421, Series 2008C Bonds Construction Fund C Bonds 50,000 17,828,810 17,878,810 11,969,734 11,397, ,245, Series 2013 Bonds - Additional 2013 Bonds ,500,000 75,000,000 52,500, ,000, Grants - Fund GF Grants - Fund GF Rate Revenue REV SRF Loan SRF ECR Operating Account ECR OR TOTAL WATER AND WASTEWATER SYSTEM FUNDING SOURCES $ 12,573,000 $ 32,544,678 $ 45,117,678 $ 46,897,801 $ 96,857,283 $ 62,388,000 $ 9,848,000 $ 261,108,762 Footnotes: [1] Amounts shown based on: i) City Commission 5 Year approved CIP; ii) nine (9) months of actual year-to-date CIP expenses; and iii) three (3) months of projected CIP expenses.

198 Table 22 Page 1 of 3 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Stormwater System Five -Year Estimated Capital Improvement Program for the Stormwater System [1] Fiscal Year Ending September 30, Line Cost Funding Budgeted Adjusted No. Description Center Department Source 2012 Adjustments Totals B-86 STORMWATER SYSTEM CAPITAL COSTS Equipment and Replacement Fund Reserve For Future Projects Stormwater Utility Equipment $ 39,846 $ 0 $ 39,846 $ (63,154) $ (173,154) $ (257,154) $ (62,154) $ (515,770) 2 SW Chevy Stormwater Canal Maintenance Equipment SW Explorer Stormwater Canal Maintenance Equipment , ,000 4 SW Ford F Stormwater Canal Maintenance Equipment , ,000 5 SW Ford F Stormwater Canal Maintenance Equipment , ,000 6 SW Sterling LT Stormwater Canal Maintenance Equipment , ,000 7 SW Backhoe Loader Stormwater Canal Maintenance Equipment , ,000 8 SW Front End Loader Stormwater Canal Maintenance Equipment , ,000 9 SW Chevy C Stormwater Canal Maintenance Equipment , , SW 137 & Tractor & Boom Mower Stormwater Canal Maintenance Equipment , , SW Long Reach Stormwater Canal Maintenance Equipment , , SW Ford F Stormwater Canal Maintenance Equipment ,000 70, SW 170 & Tractor & Boom Mower Stormwater Canal Maintenance Equipment , , SW New Holland Tractor Stormwater Canal Maintenance Equipment , , SW Ford F Stormwater Canal Maintenance Equipment , , UD Ford F Stormwater Canal Maintenance Equipment , , SW 406 & Tractor & Boom Mower Stormwater Canal Maintenance Equipment , , SW Ford F Stormwater Canal Maintenance Equipment , , SW Backhoe Loader Stormwater Canal Maintenance Equipment ,000 90, UD Ford F Stormwater Canal Maintenance Equipment ,000 40, UD 116 & Tractor & Boom Mower Stormwater Canal Maintenance Equipment , , SW Vactor Stormwater Drainage Equipment 350, , , SW F 450 with Camera, etc Stormwater Drainage Equipment , , SW Bobcat Stormwater Drainage Equipment , , SW Ford F Stormwater Drainage Equipment , , SW Ford F Stormwater Drainage Equipment , , SW Ford F Stormwater Drainage Equipment , , SW Ford Explorer Stormwater Drainage Equipment , , SW Ford F Stormwater Drainage Equipment , , SW Ford F Stormwater Drainage Equipment , , SW Ford F Stormwater Drainage Equipment , , SW 209 Backhow Caterpillar Stormwater Drainage Equipment , , SW Pump Stormwater Drainage Equipment , , SW Portable Compressor Stormwater Drainage Equipment ,000 14, Replace Street Sweeper (One per Year) Stormwater Street Sweeping Equipment 218, , , , , ,154 1,090, Subtotal Equipment and Replacement Fund $ 608,000 $ 0 $ 608,000 $ 600,000 $ 600,000 $ 600,000 $ 600,000 $ 3,008,000 Footnotes on Page 3 of 3.

199 Table 22 Page 2 of 3 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Stormwater System Five -Year Estimated Capital Improvement Program for the Stormwater System [1] Fiscal Year Ending September 30, Line Cost Funding Budgeted Adjusted No. Description Center Department Source 2012 Adjustments Totals Renewal and Replacement Fund Misc. Project Overruns Stormwater Utility RR $ 20,000 $ 0 20,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 100, Reserve For Future Projects Stormwater Utility RR 81, , , , , , , Stormwater Utility Improvements/Repairs Stormwater Utility RR 50, ,000 50,000 50,000 50,000 50, , Renaissance Intake Trash Rack Stormwater Utility RR 44, , , Rutland Blvd. Improvements Stormwater Utility RR Misc. Pump Station Rehabs - Topsey Stormwater Utility RR 25, ,000 25,000 25,000 25,000 25, , Stormwater Canal Improve & Repairs - Rodgers Stormwater Canal Maintenance RR 50, ,000 50,000 50,000 50,000 50, , Stormwater Outfall/Drainage Repairs - Rodgers Stormwater Drainage RR 50, ,000 50,000 50,000 50,000 50, , Subtotal Renewal and Replacement Fund 485 $ 320,000 $ 0 $ 320,000 $ 300,000 $ 300,000 $ 300,000 $ 300,000 $ 1,520,000 B-87 Stormwater 2008B Revenue Bonds Fund Reserve For Future Projects Stormwater Utility 2008B Bonds $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 47 Subtotal Stormwater 2008B Revenue Bonds Fund 486 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Capital Fund Project Overruns Stormwater Utility CF $ 10,000 $ 0 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 50, Reserve For Future Projects Stormwater Utility CF 295, , , , , ,000 1,455, SW Pipe Replacement Stormwater Utility CF SW Pipe Replacement Stormwater Utility CF SW Lining Projects Stormwater Utility CF Green Street Improvements Stormwater Utility CF Canal Bank Armament Stormwater Drainage CF Subtotal Capital Fund 487 $ 305,000 $ 0 $ 305,000 $ 300,000 $ 300,000 $ 300,000 $ 300,000 $ 1,505,000 Footnotes on Page 3 of 3. Stormwater 2008C Revenue Bonds Fund Reserve For Future Projects Stormwater Utility 2008C Bonds $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 57 Subtotal Stormwater 2008C Revenue Bonds Fund 488 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Stormwater 2004 Revenue Bonds Fund Reserve For Future Projects Stormwater Utility 2004 Bonds Subtotal Stormwater 2004 Revenue Bonds 59 Fund 489 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Footnotes on Page 3 of 3.

200 Table 22 Page 3 of 3 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A Stormwater System Five -Year Estimated Capital Improvement Program for the Stormwater System [1] Fiscal Year Ending September 30, Line Cost Funding Budgeted Adjusted No. Description Center Department Source 2012 Adjustments Totals Projects Funded By Series 2013 Bonds - Additional Miscellaneous Stormwater Infrastructure Improvements Stormwater Utility 2013 Bonds $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Subtotal Stormwater Projects Funded By Series 2012 Bonds - Additional $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 62 SUBTOTAL STORMWATER CAPITAL COSTS BEFORE CARRYOVERS $ 1,233,000 $ 0 $ 1,233,000 $ 1,200,000 $ 1,200,000 $ 1,200,000 $ 1,200,000 $ 6,033,000 B-88 Carryovers from Previous Periods 63 Renewal and Replacement Fund 485 N/A Carryover RR 0 $ 301, ,851 $ 80,000 $ 0 $ 0 $ 0 $ 381, Stormwater 2008B Revenue Bonds Fund 486 N/A Carryover 2008B Bonds 0 753, , , Capital Fund 487 N/A Carryover CF 0 317, , , , , ,024, Stormwater 2008C Revenue Bonds Fund 488 N/A Carryover 2008C Bonds 0 2,724,624 2,724, ,724, Stormwater 2004 Revenue Bonds Fund 489 N/A Carryover 2004 Bonds 0 2,303,935 2,303,935 2,261, ,565, Subtotal Carryovers from Previous Periods $ 0 $ 6,401,354 $ 6,401,354 $ 2,577,289 $ 235,691 $ 235,691 $ 0 $ 9,450, TOTAL STORMWATER SYSTEM CAPITAL COSTS $ 1,233,000 $ 6,401,354 $ 7,634,354 $ 3,777,289 $ 1,435,691 $ 1,435,691 $ 1,200,000 $ 15,483,025 STORMWATER FUNDING SOURCES 70 Fleet Replacement Fund 483 Equipment $ 608,000 $ 0 $ 608,000 $ 600,000 $ 600,000 $ 600,000 $ 600,000 $ 3,008, Renewal & Replacement Fund 485 RR 320, , , , , , ,000 1,901, Capital Fund 487 CF 305, , , , , , ,000 2,529, Series 2004 Bonds Construction Fund Bonds 0 2,303,935 2,303,935 2,261, ,565, Series 2008B Bonds Construction Fund B Bonds 0 753, , , Series 2008C Bonds Construction Fund C Bonds 0 2,724,624 2,724, ,724, Series 2013 Bonds - Additional 2013 Bonds TOTAL STORMWATER FUNDING SOURCES $ 1,233,000 $ 6,401,354 $ 7,634,354 $ 3,777,289 $ 1,435,691 $ 1,435,691 $ 1,200,000 $15,483,025 Footnotes: [1] Amounts shown based on: i) City Commission 5 Year approved CIP; ii) nine (9) months of actual year-to-date CIP expenses; and iii) three (3) months of projected CIP expenses.

201 APPENDIX C Basic Financial Statements of the City of West Palm Beach, Florida for the Fiscal Year Ended September 30, 2011

202 [THIS PAGE INTENTIONALLY LEFT BLANK]

203 C-1 INDEPENDENT AUDITORS REPORT Honorable Mayor and Members of the City Commission City of West Palm Beach, Florida We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of West Palm Beach, Florida (the City), as of and for the year ended September 30, 2011, which collectively comprise the City s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City s management. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Firefighters' Pension Fund, the Police Pension Fund, and the Restated Employees Defined Benefit Retirement System, which represent 80% and 24%, respectively, of the assets and revenues of the aggregate remaining fund information. Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinions, insofar as they relate to the amounts included for the Firefighters' Pension Fund, the Police Pension Fund, and the Restated Employees Defined Benefit Retirement System, is based solely upon the report of other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, based on our audit and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City, as of September 30, 2011, and the respective changes in financial position, and cash flows, where applicable, thereof and the respective budgetary xi comparison for the General Fund, Community Redevelopment Agency Fund, and the Northwood/Pleasant City CRA Fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. As more fully described in Note A to the financial statements, the City implemented the requirements of Governmental Accounting Standards Board Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, which significantly changed the classifications of fund balance of governmental funds. In accordance with Government Auditing Standards, we have also issued our report dated April 30, 2012, on our consideration of the City 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 and should be considered in assessing the results of our audit. Accounting principles generally accepted in the United States of America require that the management s discussion and analysis on pages xiii through xxiv and the schedule of funding progress on pages 86 and 87 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We and the other auditors 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 and the other auditors 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. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City s financial statements as a whole. The introductory section, combining and individual fund statements and schedules, and statistical section, are presented for purposes of additional analysis and are not a required part of the financial statements. The accompanying schedule of expenditures of federal awards and state financial assistance projects 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 Chapter , Rules of the Auditor General and is also not a required part of the financial statements. The combining and individual fund statements and schedules and the schedule of expenditures of federal awards and state financial assistance projects are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the xii Marcum LLP One Southeast Third Avenue Tenth Floor Miami, Florida Phone Fax marcumllp.com

204 auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, based on our audit and the reports of other auditors, the information is fairly stated in all material respects in relation to the financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied by us and the other auditors in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it. West Palm Beach, FL April 30, 2012 C-2 MANAGEMENT S DISCUSSION AND ANALYSIS xiii

205 C-3 Management's Discussion and Analysis (Unaudited) As management of the City of West Palm Beach (the City ), we offer readers of the City s financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended September 30, Financial Highlights The City s net assets increased from the prior year balance by 2.6% or $15.2 million. Net assets of Governmental Activities decreased by 0.84% or $2.4 million and net assets of Business-type Activities increased by 6.1% or $17.6 million. Amounts that may be used to meet the City s future obligations to citizens and creditors (unrestricted net assets) increased by 11.3% or $12.9 million. In addition, amounts invested in capital assets, net of related debt, decreased by 2.22% or $8.9 million. Total spending for all City activities was $269.7 million. The City s taxes and other general revenues, not including charges to users and restricted grants, amounted to $119.4 million, which was used to cover most of the expenditures of the seven largest governmental activities: police ($48.6 million), fire ($31 million), general government ($18.4 million), parks and recreation ($16.6 million), public works ($18 million), and interest on long term debt ($9.4 million). The City s total of bonds and notes payable decreased by $19.2 million, or 4.2% during the current fiscal year. This decrease was the result of scheduled repayments combined with one utility bond refunding and the refunding of three governmental bonds and notes. The General Fund balance increased by.6% to $36.4 million. The unassigned fund balance amounted to $6.8 million using the newly implemented GASB 54 terminology for reporting fund balances. The General Fund balance also included $12 million committed for emergencies (10%) of adjusted operating revenues as required by City ordinance) and another $9.8 million of nonspendable balances. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the City s basic financial statements. The City s basic financial statements are comprised of three components: 1) governmentwide financial statements, 2) fund financial statements, and 3) notes to the financial statements. In addition to the basic financial statements, this report contains other supplementary information. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the City s finances, in a manner similar to a private-sector business. The Statement of Net Assets and the Statement of Activities, which appear first in this financial report (pages 1 and 2), present information on the City s activities in a way that will help the reader determine the financial health of the City. These statements are prepared using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year s revenues and expenses are taken into account regardless of whether cash has changed hands. The Statement of Net Assets and the Statement of Activities divide the City into two classes of activities: 1. Governmental activities City services principally supported by taxes and intergovernmental revenues are reported here, including general government, community events, community and economic development, planning and zoning, code enforcement, building permits, police, fire, public works, federal housing programs, engineering services, health and sanitation, library, parks and recreation, downtown redevelopment and Northwood redevelopment. 2. Business-type activities City services for which fees and charges are intended to cover all or a significant portion of the related services are reported here. These services include water and sewer, stormwater, parking and golf course. Fund financial statements. A fund is a grouping of related accounts used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. Reporting for these funds focuses on how money flows into and out of funds and the balances left at year-end that are available for spending. The modified accrual method of accounting is used to report these funds and measures only current financial resources (essentially cash and other assets that can readily be converted to cash). The governmental fund statements provide a detailed short-term view of the City s operations and the services it provides. Governmental funds will help you determine whether there are more or fewer resources (cash and other assets that can easily be converted to cash) available for spending in the near future (to finance the City s programs). To facilitate comparison between the two presentations, both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures and changes in fund balances are accompanied by reconciliations to the government-wide statements. The City adopts an annual appropriated budget for most governmental funds. To demonstrate compliance with this budget, a budgetary comparison statement has been provided in the basic financial statements for the General Fund, the Community Redevelopment Agency Fund, and the Northwood/Pleasant City CRA Fund. The governmental fund financial statements can be found on pages 3-11 of this report. Additional detail about the City s major governmental funds may be found in the Notes to Financial Statements, pages xiv xv

206 C-4 Proprietary funds. The City maintains two different proprietary fund types. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for its water and sewer utility system, stormwater utility system, and non-major enterprise funds including parking and the golf course. Internal service funds are an accounting device used to accumulate and allocate costs internally among the City s various functions. The City uses separate internal service funds to account for its management information systems, printing services, self-insurance program, employee health and life insurance benefits, fleet maintenance activities and fleet and technology replacement activities. Because all of these services predominantly benefit governmental rather than business-type functions, the assets and liabilities of these funds have been included within governmental activities column of the government-wide Statement of Net Assets. Proprietary fund financial statements provide the same type of information as the government-wide financial statements, but in more detail. The financial statements provide separate information for the water and sewer system and the stormwater system both of which are considered major funds of the City. The parking system and the golf course are aggregated as non-major enterprise funds. All internal service funds are combined into a single, aggregated presentation in the proprietary fund financial statements. The 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 the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The City reports pension trust funds for its three defined benefit pension plans and one (Other Post Employee Benefit) OPEB fund for annuity payments of certain pensioners. The summarized fiduciary fund financial statements can be found on pages of this report and a more detailed description of the City s three pension trust and OPEB funds may be found in the Notes to Financial Statements, pages Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements, and is required by accounting principles generally accepted in the United States of America. The notes to the financial statements begin on page 21 of this report. Other information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City s progress in funding its obligation to provide pension trust and OPEB benefits to its employees. Required supplementary information can be found on page of this report. xvi Government-wide Financial Analysis Following is a summary of the City s Net Assets as found on page 1 of this report: City of West Palm Beach, Florida Summary Schedule of Net Assets September 30, 2011 and 2010 (in thousands) Governmental Business-type activities activities Total Current and other assets $ 135,445 $ 141,233 $ 203,145 $ 203,317 $ 338,590 $ 344,550 Internal balances 596 1,556 (596) (1,556) - - Capital assets, net 386, , , , , ,632 Total assets 522, , , ,421 1,095,111 1,098,182 Long-term liabilities outstanding 223, , , , , ,528 Other liabilities 16,114 20,168 20,191 16,678 36,305 36,846 Total liabilities 239, , , , , ,374 Net assets: Invested in capital assets, net of related debt 197, , , , , ,337 Restricted 24,352 21,337 46,907 38,758 71,259 60,095 Unrestricted 60,817 56,426 66,500 57, , ,376 Total net assets $ 282,853 $ 285,258 $ 308,145 $ 290,550 $ 590,998 $ 575,808 Net Assets: As noted above, net assets may serve over time as a useful indicator of a government's financial position. In the case of the City, assets exceeded liabilities by $591 million at the close of the most recent fiscal year. Net assets increased by $15.2 million due to the increased investment in capital assets and a reduction in long term liabilities. Capital assets (e.g., land, buildings, machinery, and equipment) less any outstanding debt used to acquire those assets represent $392 million or 66% of total net assets. The City uses these capital assets to provide services to citizens. These assets are not available for future spending. Payment of outstanding debt related to capital assets must be paid from other sources. Capital assets cannot be used to liquidate these liabilities. An additional $71.2 million (12%) of the City's net assets represents resources that are subject to external restrictions on the way they may be used. The remaining unrestricted net assets balance of $127 million (21.5%) may be used to meet the government s ongoing obligations to citizens and creditors. At the end of the current fiscal year, the City is able to report positive balances in all three categories of net assets (invested in capital assets, net of related debt, restricted and unrestricted), both for the government as a whole, and for its separate governmental and business-type activities. Current and other assets, capital assets and long-term liabilities: In the governmental activities, spending of the proceeds of prior year bond issues resulted in a decrease of $5.8 million in current assets. That spending was offset by disposals and depreciation resulting in a $12.6 million decrease in capital assets. Long-term liabilities of the governmental funds decreased by $12.9 million as a result of principal payments on existing debt. In the business-type activities, current and other assets decreased $0.02 million due to operating income of $29 million less investments in capital assets and debt service xvii

207 C-5 payments. The $15.5 million increase in capital assets resulted from spending of prior year bond proceeds and of renewal and replacement funds, offset by approximately $13 million of depreciation. Business-type long-term liabilities decreased by $4.8 million due to scheduled repayments. City of West Palm Beach, Florida Schedule of Changes in Net Assets for the Years Ended September 30, 2011 and 2010 (in thousands) Governmental Business-type activities activities Total Revenues: Program revenues: Charges for services $ 36,270 $ 31,541 $ 101,028 $ 93,790 $ 137,298 $ 125,331 Operating grants and contributions 20,137 22,249-20,137 22,249 Capital grants and contributions 3,043 7,683 2,388 3,043 10,071 General revenues: Property taxes 71,863 81,607-71,863 81,607 Other taxes 39,476 39,338-39,476 39,338 Grants and contributions not restricted to specific programs 3,134 3,305 4,208-7,342 3,305 Other 4,996 7, ,426 5,760 8,610 Total Revenues 178, , ,000 97, , ,511 Expenses: General government 18,448 21, ,448 21,079 Community relations Planning and zoning 1,584 1, ,584 1,785 Building permits 4,025 4, ,025 4,616 Police 48,599 50, ,599 50,060 Fire 31,023 31, ,023 31,508 Public works 17,968 17, ,968 17,105 Federal housing programs 5,668 6, ,668 6,776 Engineering services 3,132 4, ,132 4,447 Health and sanitation 8,285 9, ,285 9,008 Library 4,336 4, ,336 4,898 Parks and recreation 16,630 15, ,630 15,640 Downtown redevelopment 15,978 14, ,978 14,704 Northwood redevelopment 1,622 2, ,622 2,197 Code enforcement 1,442 1, ,442 1,523 Community and economic development 1,550 1, ,550 1,208 Interest on long-term debt 9,356 10, ,356 10,274 Water and sewer - 67,102 58,702 67,102 58,702 Stormwater utility - 6,962 6,433 6,962 6,433 Parking System - 4,078 4,013 4,078 4,013 Golf course - 1,941 2,281 1,941 2,281 Total Expenses 189, ,221 80,083 71, , ,650 Increase (Decrease) in net assets before transfers (10,727) (4,314) 25,917 26,175 15,190 21,861 Transfers 8,322 7,832 (8,322) (7,832) - - Increase (Decrease) in net assets (2,405) 3,518 17,595 18,343 15,190 21,861 Net assets - beginning 285, , , , , ,947 Net assets - ending $ 282,853 $ 285,258 $ 308,145 $ 290,550 $ 590,998 $ 575,808 xviii Governmental activities While overall revenues decreased by 7.3% or $13.9 million, the $7.6 million decrease in expenditures, combined with increased transfers from the business-type activities resulted in a $2.4 million decrease in total net assets. A decrease of $6.7 in grant revenue was partly offset by increased charges for services in the amount of $4.7. However, the overall change in program revenue was a decrease of $2 or 3.3%. General revenues decreased by $12 million or 9.1%. The decrease was primarily in property taxes and was the result of a decline in gross assessed property values of approximately $2.3 billion. As mentioned above, total governmental expenses decreased $7.6 million or 3.8%. The activities with the largest decreases in expenses were general government ($2.3 million), police ($1.5 million) engineering services ($1.3 million) and federal housing programs ($1.1 million). These decreases were partially offset by increases in downtown redevelopment ($1.2 million), parks and recreation ($1 million) and public works ($.9 million). The spending decreases were primarily due declining staffing levels. The parks and recreation increase was due to the addition of certain activities previously reported as general government. The increase in downtown redevelopment was for economic development projects financed by tax increment revenues. Business-type activities. Net assets of business-type activities increased by $17.6 million or 6.1%. This increase was primarily attributable to the water and sewer activity, which posted a $13.3 million (76%) increase in net assets. Water, sewer and stormwater rates are established in accordance with bond covenants to cover regular operations and to allocate funds for renewal and replacement. Net assets for renewal and replacement increased $6.6 million. Disbursement of these monies does not result in an offsetting decrease in net assets rather results in an increase in capital assets or a decrease in bonds payable. As a result, capital assets net of related debt increased by $4.5 million. Operating expenses of the business type activities increased $10.2 million or 15.5% primarily due to contractual increases and additional water plant personnel. xix

208 C-6 Financial Analysis of the Fund Financial Statements (pages 3-18) As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements. Governmental funds. The fund financial statements for the governmental funds are provided on pages The focus of the City s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. The General Fund is the chief operating fund of the City. At the end of the current fiscal year, unassigned fund balance of the General Fund amounted to $6.9 million, while the total fund balance was $36.4 million. $12 million was committed for the emergency reserve, $7.7 million was assigned to the budget and $6.9 million was unassigned. General Fund expenditures decreased by $7.3 million, due primarily to the implementation of cost saving measures across all General Fund departments. As a measure of the General Fund's liquidity, it may be useful to compare both unassigned fund balance and the total fund balance to total expenditures. At year end, the unassigned General Fund balance represented 5.5% of total General Fund expenditures, while the total fund balance represented 29.3 % of that same amount. The total General Fund s fund balance increased $.5 million during the current fiscal year. Revenues exceeded expenditures by $12.5 million and transfers out were in excess of transfers in by $12 million. The largest transfers out were for debt service ($5.8 million) the payment of tax increment financing to the CRA funds ($14 million), grant matching funds ($1.7 million), technology replacement ($.8 million) and employee benefits ($.6 million). The following comparative analysis is presented for general fund revenues: Revenue Comparative Analysis of General Fund Revenues (in thousands) Amount Percent of Total Amount Percent of Total Increase (Decrease) Percent of Increase (Decrease) Taxes: Property taxes $ 68, % $ 78, % $ (9,849) -12.6% Public services taxes 19, % 19, (121) -0.6% Franchise taxes 7, % 8, (491) -5.9% Insurance premium taxes 2, % 2, % Total taxes 97, % 108, % (10,403) -9.6% Licenses & Permits 2, % 2, % Intergovernmental 11, % 10, , % Charges for Services 22, % 19, , % Fines/Forfeitures % (79) -21.2% Other Revenue 1, % 3, (2,266) -63.3% Total $ 136, % $ 145, % $ (8,492) -5.8% Significant variances in General Fund revenues are explained as follows: The $9.8 million decrease in property tax revenue was the combined result of a slight increase in the operating tax rate from mills to mills and a $1.4 billion decrease in total taxable values. In addition, the increase in Homestead Exemption from $50 thousand to $25 thousand and the State legislation regarding tax portability continued to negatively impact Property Tax Revenues. Intergovernmental Revenue increased by $1.1 million or 10.5%. The increase was due primarily to $.4 million of additional funding in federal labor and justice grants combined with a $.7 million increase in half-cent sales tax. Charges for services revenue increased by $3.1 million due in part to the $2 million fire assessment fee, which had been directed to capital project funds in past years. The fee was budgeted for General Fund fire department operations in fiscal year In addition, sanitation fees increased by $1.2 million due primarily to rate increases. The Community Redevelopment Agency Fund accounts for the activities of the downtown redevelopment area. At the end of the current fiscal year, fund balance was $15.2 million xx xxi

209 C-7 Significant variances in Community Redevelopment Agency Fund are explained as follows: Total revenues decreased by $1 million. $.9 million of the decrease was in tax contributions from the County and the Downtown Development Authority, was due to the decrease in property values discussed above. Decreased assessed values were also responsible for a $2.4 million reduction in tax increment financing transferred in from the General Fund. Total expenditures increased by $2.81 million. The increase was due to acquisition of the abandoned Cuillo Theater building on Clematis Street for $2.8 million as well as a slight increase in other economic environment expenditures. The Northwood Pleasant City CRA Fund accounts for the Northwood Pleasant City redevelopment area. At the end of the current fiscal year, fund balance was $5.9 million, a reduction of $.5 million from the previous year. Intergovernmental revenues were $.25 million lower, lead by a slight decline in tax contributions from the County, due to lower assessed values. Transfers in of tax increment payments from the General Fund decreased by $.4 million which was also the result of lower assessed values. Reductions in receipts were partially mitigated by a reduction of approximately $.5 million in spending on economic development initiatives Proprietary funds. The Fund Financial Statements for the proprietary funds (pages 12-18) provide more detail on the same type of information found in the government-wide financial statements. Total net assets of the Water and Sewer Fund at the end of the year amounted to $260 million, an increase of $13 million from the previous fiscal year. Total net assets of the Stormwater System Fund at the end of the year amounted to $37 million, an increase of $4.5 million from the previous fiscal year, Factors concerning the finances of the enterprise funds have been further addressed in the discussion of the City s business-type activities. General Fund Budgetary Highlights A detailed presentation of revenues and expenditures showing differences between the original budget and the final amended appropriations for the General Fund is presented on page 88. Significant variances between the final amended budget and actual revenues and expenditures of the General Fund are as follows: Tax revenues exceeded budget by 2.7% ($2.6 million). The difference is due to insurance premium tax revenues, which are included in actual revenues but which are not budgeted and are statutorily required to be used only for Police and Fire pensions. Intergovernmental revenue was below final amended budget by 3.9% ($.4 million). This was primarily due to budgeted revenues of certain federal grants not being fully earned as of the fiscal year end. The general government function was over budget by $1.2 million because payments of Chapter 185 and 175 to the police and fire pension funds are recorded but not budgeted. However, most other General Fund functions were under budget, resulting in total expenditures being over budget by only $.3 million xxii Capital Assets and Debt Administration Capital Assets. The City s investment in capital assets for its governmental and business-type activities as of September 30, 2011 totals $756 million (net of accumulated depreciation). This investment in capital assets includes land, buildings, utility system improvements, machinery and equipment, park facilities, roads, highways and bridges. The total increase in the City s net investment in capital assets for the current fiscal year was 0.33% (a 3.2% decrease for governmental activities and a 4.3% increase for business type activities). Major capital asset events during the current fiscal year included the following: Neighborhood Stabilization Program, $1.7 million Purchase of 201 Clematis Street, Cuillo Theater $2.9 million Other City park improvements, $2 million Infrastructure improvements, $19.4 million Improvements to the City s water supply, $18.1 million CITY OF WEST PALM BEACH Schedule of Capital Assets (net of depreciation, in thousands) Governmental Business-type Activities Activities Total Land $ 78,893 $ 78,406 $ 10,359 $ 10,359 $ 89,252 $ 88,765 Buildings 155, ,806 40,250 42, , ,534 Improvements other than buildings 99, , , ,714 Equipment 9,892 11,785 4,382 5,131 14,274 16,916 Intangible Assets 680 1, ,775 Infrastructure 33,565 39, , , , ,486 Construction in progress 8,583 5,393 51,380 27,050 59,963 32,443 Total $ 386,365 $ 398,972 $ 370,156 $ 354,660 $ 756,521 $ 753,632 Additional information on the City s capital assets can be found in Note G on pages of this report. xxiii

210 Long-term debt: Of the City and CRA s combined $437 million in non-current liabilities, $428 million is in the form of bonded debt. Of this, $12 million consists of debt backed by the full faith and credit of the government. The remainder of the City s bonded debt represents bonds secured solely by specified revenue sources. $243.5 million is secured by water, sewer and storm water fees, $7.9 million is secured by public service taxes, $4.3 million is secured by guaranteed entitlement revenues, and $43 million is secured by covenant to budget and appropriate from legally available non ad valorem revenues. Although the Community Redevelopment Agency is a component of the City of West Palm Beach s reporting unit, it is, as described in Note A on page 21, a separate legal entity. The CRA s $118 million of bonded debt is secured by a stand-alone pledge of tax increment revenue (within the redevelopment area). Additional information on the City s bonded debt and other long-term liabilities can be found in Note H on pages of this report. Requests for information This financial report is designed to provide a general overview of the City 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 information should be addressed to the Office of the Finance Director, 401 Clematis Street, P.O. Box 3366, West Palm Beach, Florida CITY OF WEST PALM BEACH Schedule of Bonded Debt and Notes Payable (in thousands) C-8 Governmental Business-type activities activities Total General Obligation Bonds $ 11,605 $ 14,885 $ - $ - $ 11,605 $ 14,885 Revenue Bonds 172, , , , , ,249 Total bonds 184, , , , , ,134 Notes Payable 7,584 8,280 1,907 2,287 9,491 10,567 Total Bonds and Notes $ 192,090 $ 204,004 $ 245,412 $ 252,697 $ 437,502 $ 456,701 The City's total of bonds and notes payable decreased by $19.2 million, or approximately 4.2%, during the current fiscal year. This decrease was the result of scheduled repayments combined with one utility bond refunding and the refunding of three governmental bonds and notes. The general obligation bonds of the City maintain an underlying rating of "AA" from Standard and Poor s Rating Services, AA+ from Fitch IBCA, Inc., and an "Aa2" from Moody s Investors Service, Inc. The special obligation bonds of the City maintain an underlying rating of "AA-" from Standard and Poor s Rating Services, AA from Fitch IBCA, Inc., and an "Aa3" from Moody s Investors Service, Inc. The Utility System revenue bonds (water, sewer and stormwater) have an underlying rating of "AA-" from Standard and Poor s and Fitch IBCA, Inc. and an "Aa2" from Moody s Investors Service, Inc. The Guaranteed Entitlement Revenue Bonds have an underlying rating of "A+" from Standard and Poor s Rating Services, AA+ from Fitch, Inc., and an "Aa2" from Moody s Investor Services, Inc. The Public Service Tax Refunding Bonds have an underlying rating of A+ from Standard and Poor s Ratings Service, AA from Fitch IBCA, Inc., and an Aa3 from Moody s Investor Services, Inc. The City s Series 2005 CRA Tax Increment Revenue Bonds have an underlying rating of "A" from Standard and Poor s Rating Services. The City s Series 2006 CRA Tax Increment Revenue Bonds have an underlying rating of A from Standard and Poor s Rating Services, AA- from Fitch IBCA, Inc., and an A1 from Moody s Investors Service, Inc. xxiv xxv

211 C-9 This page intentionally left blank BASIC FINANCIAL STATEMENTS

212 C-10 CITY OF WEST PALM BEACH, FLORIDA STATEMENT OF NET ASSETS SEPTEMBER 30, 2011 Governmental Business-type Activities Activities Total ASSETS Cash and cash equivalents $ 85,665,792 $ 146,965,058 $ 232,630,850 Investments 4,108,520 7,630,611 11,739,131 Receivables (net) 17,004,633 10,813,940 27,818,573 Internal balances 595,906 (595,906) - Due from other governments 6,156,735 1,452,323 7,609,058 Prepaid items 4,226, ,448 4,346,553 Inventories 452, ,276 1,174,425 Investment in direct financing lease 2,739, ,000 2,859,608 Investment in joint venture 2,943,149 31,683,336 34,626,485 Deferred issuance costs 2,731,716 3,636,383 6,368,099 Land held for resale 9,416,305-9,416,305 Capital assets not being depreciated 87,476,551 61,344, ,820,986 Capital assets being depreciated 298,888, ,811, ,700,446 Total Assets $ 522,405,653 $ 572,704,866 $ 1,095,110,519 LIABILITIES Vouchers payable and accrued liabilities $ 12,019,445 $ 7,967,178 $ 19,986,623 Accrued interest payable 634,171 3,202,744 3,836,915 Deposits 375,067 8,694,710 9,069,777 Due to other governments 949, ,367 1,084,467 Unearned revenue 2,136, ,980 2,327,170 Noncurrent liabilities: Due within one year 22,111,602 6,704,499 28,816,101 Due in more than one year 201,326, ,664, ,990,891 Total Liabilities $ 239,552,437 $ 264,559,507 $ 504,111,944 NET ASSETS Invested in capital assets, net of related debt $ 197,684,418 $ 194,737,584 $ 392,422,002 Restricted for: Capital improvements 5,049,804-5,049,804 Debt service 2,111,012 5,234,288 7,345,300 Community development 7,221,945-7,221,945 State and Federal grants 4,587,638-4,587,638 Operation and maintenance - 9,842,879 9,842,879 Renewal and replacement - 27,207,594 27,207,594 Developer impact fund - 4,623,263 4,623,263 Cemetary fund 1,021,400-1,021,400 Forfeiture fund 1,094,417-1,094,417 Other purposes 3,265,924-3,265,924 Unrestricted 60,816,658 66,499, ,316,409 Total Net Assets $ 282,853,216 $ 308,145,359 $ 590,998,575 Expenses Charges for Services Program Revenues Operating Grants and Contributions CapitalGrants and Contributions Governmental Activities Business-Type Activities Total Function/Program Activities Primary Government: Governmental Activities General government $ 18,448,118 $ 6,779,021 $ - $ 423,028 $ (11,246,069) $ - $ (11,246,069) Planning and zoning 1,584, ,073-5,095 (1,411,157) - (1,411,157) Building permits 4,025,373 3,446, (579,339) - (579,339) Police 48,599,061 1,789,318 1,007,909 - (45,801,834) - (45,801,834) Fire 31,022,809 8,428, ,933 - (21,700,401) - (21,700,401) Public works 17,968,231 47,678 2,394,995 2,322,021 (13,203,537) - (13,203,537) Federal housing programs 5,668,509 (1,342,629) 5,763, ,341 (954,496) - (954,496) Engineering services 3,131, (3,131,833) - (3,131,833) Health and sanitation 8,285,067 14,248, ,963,204-5,963,204 Library 4,334,196 76,138 87,551 - (4,170,507) - (4,170,507) Parks and recreation 16,630,429 1,574, ,877 - (14,520,095) - (14,520,095) Downtown redevelopment 15,977, ,373 8,452,518 - (6,755,103) - (6,755,103) Northwood redevelopment 1,622,232 (19,478) 1,021,920 - (619,790) - (619,790) Code enforcement 1,441, , (1,137,880) - (1,137,880) Community & economic development 1,549,727 - (20,784) - (1,570,511) - (1,570,511) Interest on long-term debt 9,356, (9,356,409) - (9,356,409) Total Governmental Activities 189,646,222 36,269,759 20,137,220 3,043,485 (130,195,758) - (130,195,758) Business-Type Activities Water and sewer 67,101,703 84,713,057-2,946,022-20,557,376 20,557,376 Stormwater utility 6,962,428 10,146,766-1,262,861-4,447,199 4,447,199 Parking system 4,078,152 4,622, , ,535 Golf Course 1,941,238 1,545, (395,369) (395,369) Total Business-Type Activities 80,083, ,028,379-4,208,883-25,153,741 25,153,741 Total Primary Government $ 269,729,743 $ 137,298,138 $ 20,137,220 $ 7,252,368 (130,195,758) 25,153,741 (105,042,017) General Revenues: Taxes: Property, levied for general purposes Property, levied for special purposes Business Franchise Public service Insurance premium Sales tax State and local grants and shared revenues Investment earnings Miscellaneous Transfers Total general revenues and transfers Change in net assets Net assets - beginning Net assets - ending CITY OF WEST PALM BEACH, FLORIDA STATEMENT OF ACTIVITIES FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2011 Net (Expense) Revenue and Changes in Net Assets Primary Government 68,153,656-68,153,656 3,709,858-3,709,858 2,550,815-2,550,815 7,802,807-7,802,807 19,470,328-19,470,328 2,584,530-2,584,530 7,067,350-7,067,350 3,133,948-3,133,948 1,492, ,886 2,256,838 3,502,766-3,502,766 8,322,373 (8,322,373) - 127,791,383 (7,558,487) 120,232,896 (2,404,375) 17,595,254 15,190, ,257, ,550, ,807,696 $ 282,853,216 $ 308,145,359 $ 590,998,575 The accompanying notes are an integral part of the financial statements. The accompanying notes are an integral part of the financial statements. 1 2

213 CITY OF WEST PALM BEACH, FLORIDA BALANCE SHEET GOVERNMENTAL FUNDS September 30, 2011 C-11 General Fund City Center CRA Fund Northwood/ Pleasant City CRA Fund ASSETS: Cash and cash equivalents $ 22,348,425 $ 19,192,365 $ 5,999,613 Investments Receivables (net): Accounts 13,577, ,650 - Interest 38,594 39,243 13,171 Notes 12,500 94,324 14,988 Liens and assessments 669,639 4,959 - Due from other funds 4,176, Due from other governments 2,085, Advances to other funds 9,542, Inventories 216, Prepaid items 62, Investment in direct financing lease - 2,739,608 - Land held for resale - 6,000,000 - Total assets $ 52,730,588 $ 28,875,149 $ 6,027,772 LIABILITIES AND FUND BALANCES: Liabilities: Vouchers payable and accrued liabilities $ 4,929,901 $ 99,765 $ 92,552 Trust deposits 224, Due to other funds - 1,636,658 - Due to other governments 898,660 12,190 - Advances from other funds - 9,026,798 - Short term principal payable Unearned/deferred revenue 10,282,020 2,884,444 14,988 Total Liabilities 16,335,103 13,659, ,540 Fund balances: Nonspendable Advances to other funds 9,542, Inventories 216, Prepaid items 62, Land held for resale Restricted Forfeiture Cemetery trust Transportation Economic environment - 15,215,294 5,920,232 Wetlands mitigation Debt service Capital outlay Committed Emergency reserve 12,016, Public safety Leisure services Capital outlay Assigned For subsequent year's expenditures 7,682, Debt service Unassigned 6,874, Total fund balances 36,395,485 15,215,294 5,920,232 Total liabilities and fund balances $ 52,730,588 $ 28,875,149 $ 6,027,772 Other Governmental Funds Total Governmental Funds $ 20,352,027 $ 67,892,430 4,108,520 4,108, ,976 14,720,174 34, , , , ,727 1,309,325-4,176,447 4,070,979 6,156,735-9,542,704 76, ,804-62,598-2,739,608 3,416,305 9,416,305 $ 33,692,661 $ 121,326,170 $ 4,593,515 $ 9,715,733 19, ,450 1,632,018 3,268, ,524 1,452,374-9,026,798 1,000,000 1,000,000 1,547,595 14,729,047 9,334,580 39,437,078-9,542,704 76, ,804-62,598 3,416,305 3,416,305 1,094,417 1,094, , ,973 4,549,443 4,549,443 1,766,448 22,901, , ,598 1,728,431 1,728,431 4,053,086 4,053,086-12,016, , ,330 53,007 53,007 6,303,040 6,303,040-7,682,949 2,067 2,067 (836,491) 6,037,886 24,358,081 81,889,092 $ 33,692,661 $ 121,326,170 The accompanying notes are an integral part of the financial statements. 3 4

214 CITY OF WEST PALM BEACH, FLORIDA RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET ASSETS SEPTEMBER 30, 2011 Fund Balances - total governmental funds Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the governmental funds. $ 81,889,092 Governmental fund capital assets Less accumulated depreciation Other assets used in governmental activities are not financial resources and therefore are not reported in the governmental funds. $ 566,999,774 (189,372,389) 377,627,385 C-12 This page intentionally left blank Unamortized bond costs $ 2,710,966 Cumulative overfunding of annual required other post employment pension trust fund contribution 2,741,828 Cumulative overfunding of annual required pension contribution 536,597 5,989,391 Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the governmental funds. Accrued interest payable on long term debt $ (606,842) General obligation debt (11,348,718) Revenue bonds (175,910,223) Notes and loans (6,535,623) Arbitrage payable (538,191) Compensated absences (14,280,808) Settlement payable (503,273) Landfill closure/postclosure (2,107,771) (211,831,449) Deferred revenue in governmental funds is susceptible to full accrual on the government-wide statements. Deferred revenue on capital lease Other deferred revenue Internal service funds are used by management to charge the costs of certain activities to individual funds. The net assets of the internal service funds are reported with governmental activities. $ 2,739,608 9,853,249 12,592,857 16,585,940 Net assets of governmental activities $ 282,853,216 The accompanying notes are an integral part of the financial statements. 5

215 CITY OF WEST PALM BEACH, FLORIDA STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED September 30, 2011 General Fund City Center CRA Fund Northwood/ Pleasant City CRA Fund Other Governmental Funds Total Governmental Funds C-13 Revenues: Taxes $ 97,930,546 $ - $ - Licenses and permits 2,919, Intergovernmental 11,606,626 8,452,518 1,021,920 Charges for services 22,618, Special assessments - 1,927 - Fines and forfeitures 292, Rents and royalties 277, ,808 - Interest 612, ,854 59,520 Miscellaneous 421,771 75,512 (552) Total revenues 136,679,805 9,680,619 1,080,888 Expenditures: Current: General government 13,198, Public safety 75,984, Public works 4,892, Economic environment - 11,418,720 1,622,232 Engineering services 3,171, Health and sanitation 8,089, Leisure services 18,619, Capital outlay - 2,960,116 20,910 Debt service: Principal retirement 250, Interest charges - 270,000 - Issuance costs and other Total Expenditures 124,206,251 14,648,836 1,643,142 Excess (Deficiency) of Revenues Over Expenditures 12,473,554 (4,968,217) (562,254) Other Financing Sources (Uses): Transfers in 11,348,861 12,308,235 1,703,019 Transfers out (23,247,446) (7,196,085) (1,672,069) Total Other Financing Sources (Uses) (11,898,585) 5,112,150 30,950 Net changes in fund balances 574, ,933 (531,304) Fund balances - beginning 35,820,516 15,071,361 6,451,536 Fund balances - ending $ 36,395,485 $ 15,215,294 $ 5,920,232 $ 3,709,858 $ 101,640,404 3,409,729 6,329,593 12,791,845 33,872, ,318 23,137,915-1, , , ,081 1,400, ,857 1,358, ,877 1,121,608 22,369, ,811,190 27,740 13,226,493 5,549,504 81,534, ,152 5,277,794 5,135,553 18,176,505-3,171,400-8,089,040 1,913,477 20,532,898 8,322,758 11,303,784 11,515,488 11,765,488 9,026,827 9,296,827 2,770 2,770 41,879, ,377,498 (19,509,391) (12,566,308) 21,969,540 47,329,655 (8,610,122) (40,725,722) 13,359,418 6,603,933 (6,149,973) (5,962,375) 30,508,054 87,851,467 $ 24,358,081 $ 81,889,092 The accompanying notes are an integral part of the financial statements. 6 7

216 C-14 Net change in fund balances - total governmental funds $ (5,962,375) Amounts reported for governmental activities in the statement activities are different because: Governmental funds report capital outlays as expenditures, however, in the statement of activities, the cost of those assets is depreciated over their estimated useful lives. Expenditures for capital assets, net of adjustments Less current year depreciation $ 11,435,418 (21,353,655) (9,918,237) Receipts of rents and royalties related to investments in direct financing leases in the government-wide financial statements The issuance of long-term debt (e.g., notes, leases) provides current financial resources to governmental funds, while the repayment of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets of governmental activities. Also, governmental funds report the effect of issuance costs, premiums, discounts and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities: Principal repayments: General obligation debt Revenue bonds Notes payable (573,567) 3,280,000 7,967, ,750 11,765,488 Some revenues reported in the statement of activities do not provide current financial resources and therefore are not reported as revenues in governmental funds. Taxes Charges for services 80,775 1,133,226 Intergovernmental Miscellaneous revenues (20,784) 597,801 1,791,018 Capital assets that are transferred are not in the governmental funds. However, the amounts are recognized in the government-wide financial statements. 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 Change in compensated absences payable Change in accrued interest Change in arbitrage rebate payable Change in long-term liability for landfill closure/post closure Change in net OPEB asset Change in net pension asset Change in settlement payable Current year amortization of deferred issuance costs Change in net assets of Internal Service Funds Change in net assets of governmental activities CITY OF WEST PALM BEACH, FLORIDA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2011 in the governmental funds are recorded as reductions of the lease receivable Rents and royalties 611, ,973 54,626 The accompanying notes are an integral part of the financial statements. (393,669) (20,055) 145,076 (36,231) (503,273) (359,094) 303,074 $ 583,893 (2,404,375) CITY OF WEST PALM BEACH, FLORIDA GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - BUDGETARY BASIS FOR THE FISCAL YEAR ENDED September 30, 2011 Budgeted Amounts Variance with Final Budget - Original Final Actual Positive (Negative) Revenues: Taxes $ 97,349,156 $ 95,368,309 $ 97,930,546 $ 2,562,237 Licenses and permits 2,983,600 2,873,600 2,919,864 46,264 Intergovernmental 11,617,841 12,056,409 11,606,626 (449,783) Charges for services 33,418,242 34,167,167 34,008,356 (158,811) Fines and forfeitures 326, , ,835 (33,165) Rents and royalties 125, , ,315 (21,685) Interest 1,910, , , ,251 Miscellaneous 216, , ,771 (48,803) Total Revenues 147,946, ,015, ,069,564 2,054,505 Expenditures: Current: General government 21,056,797 21,355,778 22,509,761 (1,153,983) Public safety 79,180,143 78,348,008 78,148, ,833 Public works 5,056,415 5,056,415 4,892, ,773 Engineering services 3,484,958 3,508,944 3,176, ,544 Health and sanitation 7,957,598 7,957,598 8,089,040 (131,442) Leisure services 18,384,237 18,949,809 18,648, ,597 Principal retirement 250, , ,000 - Total Expenditures 135,370, ,426, ,714,230 (287,678) Excess Revenues Over Expenditures 12,576,591 10,588,507 12,355,334 1,766,827 Other Financing Sources (Uses): Transfers in 11,847,416 12,074,916 12,241, ,351 Transfers out (23,064,699) (22,969,210) (23,247,446) (278,236) Total Other Financing Sources (Uses) (11,217,283) (10,894,294) (11,006,179) (111,885) Net Changes in Fund Balances $ 1,359,308 $ (305,787) $ 1,349,155 $ 678,273 Reconciliation of Budgetary Revenues to GAAP Basis Revenues: Revenues reported in this statement $ 148,069,564 Deduct administrative charges (11,389,759) Revenues GAAP basis $ 136,679,805 Reconciliation of Budgetary Expenditures to GAAP Basis Expenditures: Expenditures reported on this statement $ 135,714,230 Deduct encumbrances (118,220) Deduct administrative expenditures (11,389,759) Expenditures GAAP basis $ 124,206,251 Reconciliation of Budgetary Other Financing Sources (Uses) to GAAP Basis Other Financing Sources (Uses) Other financing sources (uses) reported on this statement $ (11,006,179) Transfers in reclassified to reduce advances to other funds (892,406) Other financing sources (uses) GAAP basis $ (11,898,585) The accompanying notes are an integral part of the financial statements. 8 9

217 C-15 CITY OF WEST PALM BEACH, FLORIDA COMMUNITY REDEVELOPMENT AGENCY FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - BUDGETARY BASIS FOR THE FISCAL YEAR ENDED September 30, 2011 Budgeted Amounts Original Final Actual Variance with Final Budget - Positive (Negative) Revenues: Intergovernmental $ 7,861,764 $ 8,384,509 $ 8,452,518 $ 68,009 Special assessments - - 1,927 1,927 Rents and royalties 919, , ,808 (10,615) Interest 150, , ,854 37,854 Miscellaneous 263, ,013 75,512 (228,501) Total Revenues 9,194,915 9,811,945 9,680,619 (131,326) Expenditures: Current: Economic environment 11,921,379 17,178,879 11,418,720 5,760,159 Capital outlay 4,190,619 4,315,619 2,960,116 1,355,503 Interest charges ,000 (270,000) Total Expenditures 16,111,998 21,494,498 14,648,836 6,845,662 Excess (deficiency) of revenues over expenditures (6,917,083) (11,682,553) (4,968,217) 6,714,336 Other financing sources (uses): Transfers in 12,379,600 12,308,235 12,308,235 - Transfers out (11,523,754) (7,525,314) (7,196,085) 329,229 Total other financing sources (uses) 855,846 4,782,921 5,112, ,229 Net changes in fund balances $ (6,061,237) $ (6,899,632) $ 143,933 $ 7,043,565 CITY OF WEST PALM BEACH, FLORIDA NORTHWOOD/PLEASANT CITY CRA FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - BUDGETARY BASIS FOR THE FISCAL YEAR ENDED September 30, 2011 Budgeted Amounts Variance with Final Budget - Original Final Actual Positive (Negative) Revenues: Intergovernmental $ 928,429 $ 1,030,037 $ 1,021,920 $ (8,117) Interest 125, ,000 59,520 (65,480) Miscellaneous - - (552) (552) Total revenues 1,053,429 1,155,037 1,080,888 (74,149) Expenditures: Current: Economic environment 1,838,960 2,018,960 1,622, ,728 Capital outlay 450, ,910 20, ,000 Total expenditures 2,288,960 2,489,870 1,643, ,728 Excess (deficiency) of revenues over expenditures (1,235,531) (1,334,833) (562,254) 772,579 Other financing sources (uses): Transfers in 1,727,143 1,703,019 1,703,019 - Transfers out (1,721,271) (1,721,271) (1,672,069) 49,202 Total other financing sources (uses) 5,872 (18,252) 30,950 49,202 Net changes in fund balances $ (1,229,659) $ (1,353,085) $ (531,304) $ 821,781 The accompanying notes are an integral part of the financial statements. The accompanying notes are an integral part of the financial statements

218 C-16 CITY OF WEST PALM BEACH, FLORIDA STATEMENT OF NET ASSETS PROPRIETARY FUNDS September 30, 2011 Governmental Business-Type Enterprise Funds Activities Non-Major Water and Sewer System Fund Stormwater System Fund Enterprise Funds Totals Internal Service Funds ASSETS Current assets: Cash and cash equivalents $ 21,644,514 $ 3,998,966 $ 756,128 $ 26,399,608 $ 17,773,362 Receivables (net): Accounts 7,696,660 1,042,108 33,387 8,772,155 39,046 Interest 54,668 7,215 1,614 63,497 27,568 Liens 1,402, ,013-1,923,869 - Due from other governments 659, ,916-1,452,323 - Inventories 690,963-31, , ,345 Prepaid items 19,945-16,603 36, ,082 Restricted current assets: Cash and cash equivalents 19,897,867 2,048,267 24,916 21,971,050 - Deferred outflow-interest rate swap 15,171,865 2,976,299-18,148,164 - Total current assets 67,238,745 11,386, ,961 79,489,490 18,884,403 Other noncurrent assets: Restricted assets: Interest receivable 50,433 3,986-54,419 - Cash and cash equivalents 83,626,150 14,968,250-98,594,400 - Investments 2,609,373 5,021,238-7,630,611 - Prepaid items 83, ,900 - Advances to other funds - 759, ,094 - Investment in joint venture 31,683, ,683,336 2,943,149 Investment in direct financing lease 120, ,000 - Capital assets, net 299,360,752 59,399,045 11,396, ,156,397 8,737,650 Unamortized debt issuance costs 2,861, ,481-3,636,383 20,750 Total noncurrent assets 420,395,846 80,926,094 11,396, ,718,540 11,701,549 Total assets $ 487,634,591 $ 92,312,878 $ 12,260,561 $ 592,208,030 $ 30,585,952 (Continued) CITY OF WEST PALM BEACH, FLORIDA STATEMENT OF NET ASSETS PROPRIETARY FUNDS September 30, 2011 Governmental Business-Type Enterprise Funds Activities Non-Major Water and Sewer System Fund Stormwater System Fund Enterprise Funds Totals Internal Service Funds LIABILITIES Current liabilities payable from current assets: Vouchers payable and accrued liabilities $ 2,206,746 $ 303,101 $ 268,735 $ 2,778,582 $ 2,303,712 Due to other governments 120,132-15, ,367 - Compensated absences payable 1,177, ,818 68,328 1,429, ,685 Capital lease obligations - current ,957 Note - settlements payable - current 390, , ,737 Accrued interest payable ,329 Insurance claims payable ,813,071 Trust deposits ,617 Current liabilities payable from restricted assets: Accrued interest payable 2,438, ,681-3,202,744 - Vouchers payable and accrued liabilities 5,127,565 61,031-5,188,596 - Customer deposits 8,669,794-24,916 8,694,710 - Due to other funds ,000 80, ,771 Bonds payable - current 3,662,445 1,222,555-4,885,000 - Derivative instrument liability interest rate swap 15,171,865 2,976,299-18,148,164 - Total current liabilities 38,963,963 5,511, ,214 44,932,662 7,140,879 Other noncurrent liabilities: Compensated absences payable 749, ,070 41, , ,616 Insurance claims payable, long term ,008,215 Unearned revenue , ,980 - Advance payable to General Fund - - 1,275,000 1,275,000 - Accrued clean-up costs Revenue bonds payable, less current maturities, unamortized discount, and deferred loss on defeasance 185,627,720 49,602, ,230,121 - Notes - settlements payable - long term 1,517, ,517, ,181 Total noncurrent liabilities 187,894,006 49,728,471 1,507, ,130,009 6,859,133 Total liabilities $ 226,857,969 $ 55,239,956 $ 1,964,746 $ 284,062,671 $ 14,000,012 NET ASSETS Invested in capital assets, net of related debt 157,581,162 25,759,822 11,396, ,737,584 7,748,572 Restricted for: Operation and maintenance 8,795,907 1,046,972-9,842,879 - Debt service 3,930,541 1,303,747-5,234,288 - Renewal and replacement 25,528,017 1,679,577-27,207,594 - Developer impact fund 4,623, ,623,263 - Unrestricted 60,317,732 7,282,804 (1,100,785) 66,499,751 8,837,368 Total net assets $ 260,776,622 $ 37,072,922 $ 10,295,815 $ 308,145,359 $ 16,585,940 The accompanying notes are an integral part of the financial statements

219 CITY OF WEST PALM BEACH, FLORIDA STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS For the fiscal year ended September 30, 2011 Governmental Business-Type Activities - Enterprise Fund Activities C-17 This page intentionally left blank Water and Sewer System Fund Stormwater System Fund Non-Major Enterprise Funds Total Internal Service Funds Operating revenues: Charges for services $ 81,992,780 $ 9,552,142 $ 5,446,390 $ 96,991,312 $ 43,317,145 Fines 1,010, ,135 1,697,125 - Miscellaneous and other 416, ,980 36,031 1,018,238 1,142,084 Total operating revenues 83,419,997 10,118,122 6,168,556 99,706,675 44,459,229 Operating expenses: Personal services 18,588,766 2,179,193 1,139,728 21,907,687 6,292,488 Contractual services 7,874,182 1,341,194 2,023,108 11,238,484 3,500,299 Utilities 2,261, , ,996 2,762, ,161 Repair and maintenance 3,714, , ,660 4,491,534 1,341,883 Other supplies and expenses 11,162, , ,934 12,670,790 4,505,773 Depreciation 10,153,935 1,610, ,240 12,623,325 3,322,274 Insurance expenses 438, , , ,843 25,547,206 Loss on joint ventures 6,301, ,301, ,492 Wastewater treatment and disposal 3,198, ,198,411 - Total operating expenses 63,693,580 6,534,800 5,939,833 76,168,213 45,693,576 Operating income (loss) 19,726,417 3,583, ,723 23,538,462 (1,234,347) Non-operating revenues (expenses): Interest revenue 653, ,264 9, , ,470 Interest expense (3,408,123) (427,628) (79,857) (3,915,608) (104,541) Gain (loss) on disposal of capital assets 1,293,060 28, ,322,004 69,871 Total non-operating revenues (expenses) (1,461,302) (298,720) (69,696) (1,829,718) 99,800 Income (loss) before contributions and transfers 18,265,115 3,284, ,027 21,708,744 (1,134,547) Capital contributions - impact fees 517, ,250 - Capital contributions - grants 2,428,772 1,262,861-3,691,633 - Transfers in ,758,847 Transfers out (7,850,541) (27,206) (444,626) (8,322,373) (40,407) Changes in net assets 13,360,596 4,520,257 (285,599) 17,595, ,893 Net assets - beginning 247,416,026 32,552,665 10,581, ,550,105 16,002,047 Net assets - ending $ 260,776,622 $ 37,072,922 $ 10,295,815 $ 308,145,359 $ 16,585,940 The accompanying notes are an intergal part of the financial statements 14

220 CITY OF WEST PALM BEACH, FLORIDA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS For the Fiscal Year Ended September 30, 2011 Business-Type Activities Enterprise Funds Business-Type Activities Enterprise Funds Governmental Activities C-18 Water and Stormwater Sewer System System Fund Fund Cash received from customers $ 85,195,004 $ 9,497,622 Cash payments to suppliers/contractors (28,659,319) (2,947,585) Cash payments to employees (17,887,689) (2,141,345) Contribution to joint venture 1,065,483 - Other operating receipts 1,427, ,980 Cash payments for insurance - - Net cash provided by operating activities 41,140,696 4,974,672 Cash Flows From Non-Capital Financing Activities: Transfers in - - Transfers out (7,850,541) (27,206) Increase / (decrease) in short term advance from General Fund - - Net cash (used for) provided by non-capital financing activities (7,850,541) (27,206) Cash Flows From Capital and Related Financing Activities: Proceeds from refunding bond 16,583,244 4,576,182 Principal payments on refunded debt (17,382,690) (4,782,329) Acquisition and construction of capital assets (16,536,433) (4,822,087) Principal payment on bonds, notes, advances, and capital leases (2,689,657) (639,173) Interest pd on bonds/loans/advance/lease (7,483,907) (2,319,401) Cap contributions from Govt/Deveop/Funds 517, ,195 Proceeds from sale of capital assets - - Capital grants 1,895,249 - Sale of assets 1,437,547 29,264 Net cash (used for) capital and related financing activities (23,659,397) (6,982,349) Cash Flows From Investing Activities: Sale of investments 576,699 1,347,086 Interest on investments 698,416 67,668 Net cash provided by investing activities 1,275,115 1,414,754 Net (decrease) increase in cash and cash equivalents 10,905,873 (620,129) Cash, cash equivalents, pooled investments and cash with fiscal agent, beginning of year including $103,632,634, $18,902,279 and $28,928 respectively in restricted accounts 114,262,658 21,635,612 Cash, cash equivalents and pooled investments end of year including $103,524,017, $17,016,517 and $24,916 respectively in restricted accounts $ 125,168,531 $ 21,015,483 Non Major Internal Enterprise Service Funds Totals Funds $ 5,316,181 $ 100,008,807 $ 43,475,590 (4,037,034) (35,643,938) (10,374,737) (1,151,731) (21,180,765) (6,365,784) - 1,065, ,333 2,717,530 1,369, (24,942,402) 851,749 46,967,117 3,161, ,758,847 (444,626) (8,322,373) (40,407) - - (220,088) (444,626) (8,322,373) 1,498,352-21,159, (22,165,019) - (114,426) (21,472,946) (1,229,352) (918,963) (4,247,793) (306,362) (79,857) (9,883,165) (110,106) - 1,492, ,784-1,895, ,466,811 - (1,112,946) (31,754,692) (1,552,036) - 1,923,785-10, , ,842 10, , ,842 (695,185) 7,666,774 3,264,903 1,476, ,374,499 14,508,458 $ 781,044 $ 145,041,273 $ 17,773,361 (Continued) The accompanying notes are an integral part of the financial statements

221 CITY OF WEST PALM BEACH, FLORIDA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS For the Fiscal Year Ended September 30, 2011 (Continued) Business-Type Activities Enterprise Funds Business-Type Activities Enterprise Funds Governmental Activities Water and Sewer System Fund Stormwater System Fund Non-Major Internal Enterprise Service Funds Totals Funds RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Operating income (loss) $ 19,726,417 $ 3,583,322 $ 228,723 $ 23,538,462 $ (1,234,347) Adjustments to reconcile operating income (loss) to net cash provided by operating activities: Depreciation 10,153,935 1,610, ,240 12,623,325 3,322,274 C-19 Changes in assets and liabilities: (Increase) decrease in accounts receivable 1,106,588 37,970 (Increase) decrease in liens receivable (241,556) (92,490) (Increase) decrease in due from other governments - - (Increase) decrease in inventory (9,013) - (Increase) decrease in prepaid expenses 12,521 - Increase (decrease) in vouchers payable and accrued liabilities (13,743) (202,128) Increase (decrease) in joint venture 7,367,278 - Increase (decrease) in wages payable 722,034 6,975 Increase (decrease) in due to other governments 113,917 - Increase (decrease) in compensated absences payable (20,957) 30,873 Increase (decrease) in insurance claims payable - - Increase (decrease) in advance deposits 2,223,275 - Increase (decrease) in unearned revenue - - Total adjustments 21,414,279 1,391,350 Net cash provided by operating activities $ 41,140,696 $ 4,974,672 Noncash transactions: Change in fair value of investments $ 120,533 $ 21,154 (19,603) 1,124, ,853 - (334,046) ,994 7,315 (1,698) 32,688 6,179 18, ,315 (86,755) (302,626) 221,748-7,367,278 - (19,081) 709,928 86,384 (16,729) 97,188-7,078 16,994 (67,839) - - (788,428) (4,012) 2,219,263 4,103 (110,606) (110,606) - 623,026 23,428,655 4,396,092 $ 851,749 $ 46,967,117 $ 3,161,745 $ 2,037 $ 143,724 $ 39,126 The accompanying notes are an integral part of the financial statements

222 CITY OF WEST PALM BEACH, FLORIDA STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS September 30, 2011 CITY OF WEST PALM BEACH, FLORIDA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS For the Fiscal Year Ended September 30, 2011 C-20 Total ASSETS: Cash, cash equivalents and pooled investments $ 7,171,366 Receivables: Interest and dividends 1,041,072 Other 2,004,803 Total receivables 3,045,875 Investments : U.S. Government debt securities 3,719,734 Government agencies securities 26,753,544 Fixed income mutual fund 34,059,690 Mutual funds 5,119,753 Sun Trust Index Linked Certificate of Deposit 5,000,000 Money market mutual funds 8,149,548 Comingled Real Estate Pooled trust Fund 18,541,338 Corporate debt 34,468,967 Corporate stocks 161,519,491 International stocks 6,697,727 Foreign equity funds 20,832,969 Total Investments 324,862,761 Prepaid expenses 656,958 Total assets 335,736,960 LIABILITIES: Accounts payable and accrued expenses 1,328,357 NET ASSETS: Held in trust for pension and other post employment benefits $ 334,408,603 The accompanying notes are an integral part of the financial statements. Total Additions Contributions: Plan members $ 7,307,904 Insurance premium taxes collected by the State of Florida on behalf of the City of West Palm Beach 2,545,022 City of West Palm Beach 13,927,890 Total contributions 23,780,816 Investment Income (loss): Net depreciation in fair value of investments (6,145,837) Interest and dividends 9,294,139 Commission rebate 33,260 3,181,562 Less investment expense 1,960,645 Net investment income 1,220,917 Other income 52,936 Total 25,054,669 Deductions Participant benefit payments 23,118,249 Refunds of participant contributions 274,582 Administrative expenses 473,002 Total 23,865,833 Net increase 1,188,836 Net assets held in trust for pension benefits: Beginning of year 333,219,767 End of year $ 334,408,603 The accompanying notes are an integral part of the financial statements

223 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 C-21 This page intentionally left blank NOTE A - SIGNIFICANT ACCOUNTING POLICIES The City of West Palm Beach (the City ) was incorporated under the General Law of the State of Florida on November 5, The first Charter was granted by Chapter 5367, Laws of Florida, in 1903 and became effective September 18 of that year. The City is governed by a mayor and a five member board of commissioners (the City Commission ), all of which are elected City-wide by vote of City residents. The City provides services as listed in the Statement of Activities. The accounting policies and the presentation of the financial report of the City have been designed to conform to accounting principles generally accepted in the United States of America as applicable to governmental units, in accordance with the Governmental Accounting Standards Board ( GASB ). GASB embodies the official pronouncements previously issued by the National Council on Governmental Accounting (NCGA). Privatesector standards of accounting and financial reporting issued prior to December 1, 1989 are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the GASB. Governments have the option of following subsequent private-sector guidance for their business type activities and enterprise funds subject to this same limitation. The City has elected not to follow subsequent private-sector guidance. The following is a summary of the City s significant accounting policies. 1. Reporting entity As required by accounting principles generally accepted in the United States of America, the accompanying financial statements present the City and its component units (entities for which the City is considered to be financially accountable). Blended component units, while legally separate entities, are in substance part of the government s operations. Therefore, data from these units are presented with data of the City (the primary government). Each blended component unit has a September 30 year end. The City had no discretely presented component units. Blended Component Units: The Community Redevelopment Agency of West Palm Beach ( CRA ) was established September 10, 1984 by the City under Ordinance No (Redevelopment Act) pursuant to the Community Redevelopment Act of 1969 and Chapter 163, Part III of the Florida Statutes. The five City commissioners are board members of the CRA. The CRA Board appoints the board chairman and the vice chairman. In addition, the City Finance Director serves as the CRA treasurer. The CRA has two redevelopment areas, each of which is presented as a major governmental fund. The two funds are the City Center Community Redevelopment Agency Fund ("City Center CRA Fund") and the Northwood/Pleasant City Community Redevelopment Agency Fund ("Northwood/Pleasant City CRA Fund")

224 C-22 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE A - SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 1. Reporting entity - Continued The West Palm Beach Municipal Golf Course (the Golf Course ) is a legally separate dependent special district created in February 1993 by City of West Palm Beach Ordinance The Golf Course was formerly governed by the West Palm Beach Golf Commission, whose members were appointed by the City Commission from a slate of candidates supplied by the Golf Commission. Although the Golf Commission established its own budget and set its own rates and fees, it was prohibited by charter from issuing debt without approval of the City Commission. Thus, the Golf Course is fiscally dependent on the City and in prior years was reported as a discretely presented component unit. On November 3, 2003, the City Commission passed Emergency Ordinance E01-03 (the Ordinance ) which suspended the West Palm Beach Golf Commission as of November 24, The Ordinance established the City Commission as the interim governing body of the Golf Course. Because the Golf Course now shares a common governing body with the City, it is reported in these financial statements as a blended component unit, specifically a non-major enterprise fund. Pension Trust Funds: The West Palm Beach Restated Employees Defined Benefit Retirement System ( Restated Employees Retirement System ), the West Palm Beach Firefighters Pension Fund ( Firefighters Pension ), and the West Palm Beach Police Pension Fund ( Police Pension ) (collectively, the Pension Trust Funds ) are each separate entities established to account for the financial activity of the separate pension plans. A board of trustees governs each plan. The board of the Restated Employees Retirement System is comprised of the Mayor, or designee, City Administrator, or designee, Finance Director, or designee, a citizen appointed by the Mayor and approved by the Commission, two members elected by the plan participants, and one retiree elected by the retirees. The Firefighters Pension and Police Pension boards are each comprised of five members, two are elected by and from the plan membership, two are citizens of the City appointed by the Mayor and one is elected by the other four members. Although each plan is administered by its respective Board of Trustees, the Pension Trust Funds are fiscally dependent on the City. The City is obligated to fund liabilities of each pension system based upon actuarial evaluations. The Pension Trust Funds are accounted for as pension trust funds and are not incorporated into the governmentwide statements. Pension cost for the Pension Trust Funds is reported in the accompanying financial statements with actuarial data disclosed in the notes to the financial statements. The Pension Trust Funds and the OPEB Trust Fund constitute all such funds included in the accompanying statements of fiduciary net assets and changes in fiduciary net assets under the Pension Trust Funds caption. Other Related Organizations: The West Palm Beach Downtown Development Authority ("DDA") is a separate legal entity. DDA members are appointed by the Mayor and ratified by the City Commission and may be removed for cause by a four-fifths majority. There is no financial benefit or burden to the City and the City has no authority over day-to-day operations. The West Palm Beach Housing Authority ("Housing Authority") is also a separate legal entity. Housing Authority commissioners are appointed by the Mayor and approved by the City Commission. There is no financial benefit or burden to the City and the City has no authority over day-to-day operations. As such, neither of these organizations is included in the accompanying financial statements. CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE A - SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 2. Government-wide and fund financial statements The government-wide financial statements (the statement of net assets and the statement of activities) report information on all of the nonfiduciary activities of the primary government and its component units. For the most part, the effect of interfund activity has been eliminated from these statements. Notable exceptions are payments-in-lieu of taxes and other charges of the City s water and sewer function and the City s parking function to the various other functions of the City. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. 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 expenses which 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. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate fund financial statements are provided for governmental funds, proprietary funds and fiduciary funds. Fiduciary funds and component units that are fiduciary in nature (i.e. the Pension Trust Funds) are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Since the governmental fund financial statements are presented on a different measurement focus and basis of accounting than the government-wide statements governmental activities column, a reconciliation is presented on the page following each statement, which briefly explains the adjustments necessary to reconcile the fund based financial statements to the governmental activities column of the government-wide presentation. Internal Service Funds of a government (which traditionally provide services primarily to other funds of the government) are presented in summary form as part of the proprietary fund financial statements. Since the principal users of the internal services are the City s governmental activities, financial statements of internal service funds are consolidated into the governmental activities column when presented at the governmentalwide level. To the extent possible, the costs of these services are reflected in the appropriate governmental activities

225 C-23 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE A - SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 3. Measurement focus, basis of accounting, and financial statement presentation Government-wide financial statements, proprietary fund financial statements and fiduciary fund financial statements: The government-wide, proprietary fund and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred. 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 have been met. Governmental fund financial statements: Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. The City considers revenues, other than those related to state and federal expenditure driven grants, to be available if they are collected within 90 days of the end of the current fiscal period. Revenues related to expenditure driven grants are considered to be available when collected within one year of the end of the current fiscal year. 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. Expenditures related to pension and other post employment benefits are recognized when the City has made a decision to fund those obligations with current available resources. Property taxes when levied for the fiscal year, public service taxes, franchise taxes, intergovernmental revenues for which eligibility requirements have been met, charges for services such as licenses, refuse, and recycling and interest income associated with the current fiscal period are all considered to be measurable and have been recognized as revenues of the period, if available. Only the portion of special assessments receivable due within the current period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable only when cash is received by the government. Major Funds and Basis of Presentation: The financial transactions of the City are recorded in individual funds. Each fund is accounted for by providing a separate set of self-balancing accounts that comprises its assets, liabilities, reserves, fund equity, revenues and expenses/expenditures. These funds are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations. CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE A - SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 3. Measurement focus, basis of accounting, and financial statement presentation - Continued The City reports the following major governmental funds: The General Fund is the City s primary operating fund. It accounts for all financial resources of the general government, except those accounted for in another fund. Revenue is derived primarily from property taxes, state and federal distributions, grants and other intergovernmental revenue. The general operating expenditures, fixed charges and capital outlay costs that are not paid through other funds are paid from the General Fund. The Community Redevelopment Agency Fund accounts for revenue received from tax increment financing. The fund is restricted to use for carrying out redevelopment in the designated downtown redevelopment area. The Northwood/Pleasant City CRA Fund accounts for revenue received from tax increment financing. These funds are restricted to use for carrying out redevelopment in the Northwood/Pleasant City designated area. While not required to be a major fund, this fund is deemed a major fund and is reported separately due to its high level of public interest. The City reports the following major proprietary funds: The Water and Sewer System Fund accounts for the activities related to providing water and sewer services to the public. The Stormwater Systems Fund was established to maintain the City s canals, basins and storm sewers. In addition, the City reports the following other funds: Internal Service Funds account for services provided to other departments of the City on a cost reimbursement basis. These services include: management information system services, printing services, risk management services (employee life/health insurance, workers compensation, general liability insurance and property insurance), vehicle fleet management, vehicle fleet replacement services and technology replacement services. Accounting principles generally accepted in the United States of America set forth minimum criteria (percentage of the assets, liabilities, revenues or expenditures/expenses of either fund category and the governmental and enterprise combined), for the determination of major funds. The City electively added funds, as major funds, which either have significant outstanding debt proceeds or a specific community focus. The aggregated nonmajor funds are presented in one column in the fund financial statements

226 C-24 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE A - SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 3. Measurement focus, basis of accounting, and financial statement presentation - Continued The Pension Trust Funds account for the activities of the Restated Employees Retirement System, the Firefighters Pension and the Police Pension, which accumulate resources for pension benefit payments to certain employees previously covered by the Employees Retirement System, all firefighters and fire department officers and non-civilian police department employees, respectively. In the government-wide financial statements, amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. Proprietary funds distinguish operating revenues and expenses from nonoperating 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 the enterprise funds and the internal service funds are charges to customers for sales and services. The Water and Sewer System Fund also recognizes as operating revenue the portion of tap fees intended to recover the cost of connecting new customers to the system. Operating expenses for enterprise funds and internal service 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 nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the City s policy to use restricted resources first, then unrestricted resources as they are needed. The City does not currently employ an indirect cost allocation system. An administrative service fee is charged by the General Fund to the other operating funds to address services provided that are accounted for in the General Fund, such as finance, personnel, purchasing, legal services and general administration. This fee is included in the revenue section of the General Fund Statement of Revenues, Expenditures and Changes in Fund Balance Budget and Actual. However, for the General Fund Statement of Revenues, Expenditures and Changes in Fund Balances (GAAP basis), the fee has been treated as a reimbursement of expenses from the other funds by reducing both the revenues and expenditures of the General Fund. CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE A - SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 4. Assets, liabilities, and net assets or equity a. Cash and Cash Equivalents The City maintains a cash and investment pool that is available for use by all funds. The City s cash and investment pool allows individual funds, at any time, to deposit additional cash or make withdrawals without prior notice or penalty, and thus, the City is internally managing a fund which is considered to be a cash equivalent. Cash and cash equivalents as reported in the government-wide financial statements includes cash on hand, all highly liquid deposits and investments with original maturities of three months or less when purchased, and each fund's equity in the City's cash and investment pool. The City s cash and investment pool consists of U.S. Government securities and Federal agency securities, U.S. Government securities held under repurchase agreements, corporate bonds, mortgage backed securities, certificates of deposit and cash. Cash balances and requirements of all funds are considered in determining the amount to be invested. Interest earned on pooled cash and investments is allocated to funds based on their average weekly balances of equity in the pool. The City's banking contract requires that a compensating balance be maintained. This balance is adjusted quarterly based on charges for services utilized by the City in the prior quarter and the City's earned credit rate (an interest factor on collected funds). At September 30, 2011, the compensating balance was $1,000,000. b. Investments For all funds, except the Pension Trust Funds, investments are guided by the City s adopted investment policy with compliance continuously monitored by treasury personnel and the City s investment advisors. The City's investment portfolio is held by a custodian. Investment decisions for the City s short-term portfolio are under the direction of the Finance Department s Treasury Division personnel. Management of the long-term portfolio is under the direction of an investment management firm. Holdings during the year just ended consist of U.S. Government and Federal agency securities, U.S. Government securities held under repurchase agreements, corporate bonds, mortgage backed securities, commercial paper, state and/or local government tax exempt debt, and time deposits. Assets of the Restated Employees Retirement System are invested in accordance with an investment policy adopted by the Board of Trustees. Acceptable asset classes include bonds and other corporate obligations and equity securities. Permissible investments of the Police Pension fund are set by the Board of Trustees in accordance with Chapter 185, Florida Statutes. These include U.S. Treasury and U.S. agencies, high capitalization common or preferred stocks, pooled equity funds, high quality bonds or notes and fixed income funds, real estate and derivative investments. In addition, the Police Pension Board requires that Plan assets be invested with no more than 70% in stocks and convertible securities measure at market value at the end of each reporting period. Permissible investments of the Firefighters Pension Fund are set by the Board of Trustees in accordance with Chapter 175, Florida Statutes. These include obligations of the U.S. Treasury and U.S. agencies, high capitalization common or preferred stocks, pooled equity funds, high quality bonds or notes and fixed income funds, real estate and derivative investments. In addition, the governing board of the Firefighters Pension requires that plan assets be invested with no more than 70% in stocks and convertible securities measured at market value at the end of each reporting period. For all funds, purchases and sales of investments are recorded on the trade dates. Net realized gains and losses on sales of investments are reflected in current operating results as investment earnings along with interest and dividends. Investments are stated at fair value. The City determines fair value for most investments based upon unadjusted quoted prices in active markets for identical assets. In the unlikely event that quoted market price is not available, the City bases valuation on observable inputs that are significant to the asset's valuation. In the case of short term discounted notes, including U.S. Treasury Bills and commercial paper, valuations are stated at original cost

227 C-25 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE A - SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 4. Assets, liabilities, and net assets or equity - Continued c. Interfund Receivables and Payables During the course of its operations, the City has numerous transactions between funds to provide services, construct assets and service debt. To the extent that certain transactions between funds were not paid for or received as of September 30, 2011, balances of interfund receivables and payables expected to be liquidated within one year have been recorded as due from and due to other funds. Balances of interfund receivables and payables not expected to be liquidated within one year are recorded as advances to and advances from other funds. Balances of advances to other funds are classified as non-spendable in the fund balances of the respective governmental funds since these balances are not available for appropriation. d. Other Receivables All trade, property tax and mortgages receivable on the Statement of Net Assets are shown net of an allowance for uncollectibles. Management determines the allowance based on a review of accounts and their knowledge of the creditors and their ability to pay. Delinquent property tax receivables are all included in the allowance for uncollectibles (see note A. 5). Mortgages and other long-term receivables are analyzed for collectibility based on terms and conditions of the agreements and are included in the allowance for uncollectibles if deemed appropriate. e. Inventories Inventories are stated at the lower of cost or market using the weighted average method. Perpetual inventory records are maintained and adjusted periodically to physical inventory amounts. Inventory is accounted for using the consumption method whereby inventories are recorded as expenditures when they are used. f. Prepaid Items Expenditures for goods or services extending over more than one accounting period are accounted for as prepaid items and allocated between accounting periods. g. Restricted Assets Proceeds of the City s enterprise fund revenue bonds, as well as other resources set aside in accordance with bond covenants or local ordinance are classified as restricted on the fund level Statement of Net Assets of the enterprise funds. These include the following: operating accounts for the three enterprise funds which are used for accumulations of resources equal to operating costs for specified periods; renewal and replacement accounts used for accumulation of resources to provide for replacement of existing system assets; debt service accounts used for the accumulation of resources needed to meet debt service requirements as they become due; capital project accounts used for acquisition and construction of assets funded by revenue bond proceeds; the impact fee construction account used for accumulation and expenditure of amounts restricted by local ordinance for future plant expansion; and customers deposit accounts restricted from use by local ordinance. Restricted assets are not required to be presented on the balance sheets of the governmental funds under the modified accrual basis of accounting; however, certain assets of these funds are restricted as to use. Such assets, consisting primarily of cash and receivables, include debt proceeds, permit fees, state and federal forfeiture awards, state and federal grants and amounts held for debt service. CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE A - SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 4. Assets, liabilities, and net assets or equity - Continued h. Capital Leases The City is involved in two significant direct financing leases in which the City is a lessor. One lease is recorded in the City Center CRA Fund and the other is recorded in the Water and Sewer System Fund. The City has entered into several significant leasing arrangements constituting capital leases for which the City is the lessee. i. Investments in Joint Venture The City accounts for its investments in joint ventures using the equity method of accounting (see Note E). j. Capital Assets Capital assets are stated at historical cost or, if donated, fair market value at the date of donation and are reported in the applicable governmental or business-type activities columns in the government-wide financial statements and proprietary fund financial statements. The City capitalizes all acquisitions of tangible and intangible property expected to be held for more than one year and to be used for operating purposes which have an original cost of $10,000 or greater. Infrastructure assets are reported in the government-wide and proprietary fund financial statements. Interest incurred during the construction phase of capital assets of the business-type activities, net of related interest revenue, is included as part of the capitalized value of the assets constructed. Interest capitalized in the current fiscal year amounted to approximately $5.1 million. Expenditures which materially extend the useful life of existing properties are capitalized. The cost of property sold or retired, together with the related accumulated depreciation, is removed from the appropriate accounts, and any resulting gain or loss is included in net income. Depreciation on property, plant and equipment is recorded in the Proprietary Fund statements and in the Government-Wide Statement of Activities. It is computed using the straight-line method over the estimated useful lives of the related assets which are: Equipment 5-10 years Buildings years Other improvements years Infrastructure of enterprise funds 40 years Other infrastructure 30 years In governmental funds, the acquisition or construction costs of capitalized assets are reported as expenditures and no depreciation is recorded

228 C-26 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE A SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 4. Assets, liabilities, and net assets or equity Continued k. Compensated Absences Employees earn vacation and sick leave in varying amounts based on length of service. Upon termination, employees are paid 100% of accumulated vacation (and similar leave types) at current base hourly rates. Vacation accumulation is capped at a maximum number of hours depending on employee category and bargaining unit. Employees who are categorized as confidential and those who are in the NCFO/SEIU bargaining unit are compensated for accumulated sick leave, not to exceed 960 hours, upon termination of employment as follows: after 15 or more years of service compensation is at 75% of the employee s current hourly rate of pay and after 10 years but less than 15 years of service, compensation is at 50% of employee s current hourly rate of pay. All other City employees are compensated for accumulated sick leave, not to exceed 960 hours, upon termination after at least 10 years of service at a rate of 50% of the employee s current hourly rate of pay. The current portion of compensated absences payable is the amount estimated to be used or paid in the following fiscal year. Liability for earned compensated absences is reported at the government wide level and in the proprietary fund financial statements. In governmental funds a liability is only recorded for amounts due as a result of employee resignations or retirement. l. Deferred and Unearned Revenues Deferred revenues are recorded for governmental fund receivables that are not available. In addition, inflows that do not meet the criteria for revenue recognition, such as occupational licenses collected in advance, are recorded as unearned revenues in the governmental funds, enterprise funds and the government-wide financial statements. m. Long-Term Obligations In the government-wide and the proprietary fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the governmental-wide and proprietary fund type Statements of Net Assets. Bonds payable are reported net of the applicable bond premiums or discounts and deferred refunding amounts. Bond premiums, discounts, and issuance costs are amortized over the life of the bonds using the interest method. Deferred amounts on refunding are amortized over the shorter of the remaining life of the old debt or the life of the new debt using the straight-line method, which does not result in a material difference from the effective interest method. In the fund financial statements, governmental fund types 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. Payment of debt principal is reported as an expenditure. CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE A - SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 4. Assets, liabilities, and net assets or equity Continued n. Fund Equity In the fund financial statements, governmental funds report fund classifications that comprise a hierarchy based primarily on the extent to which the City is bound to honor constraints on the specific purposes for which amounts in those funds can be spent. Amounts which are restricted to specific purposes either by (a) constraints placed on the use of resources by creditors, grantors, contributors, or laws or regulations of other governments or (b) imposed by law through constitutional provisions or enabling legislation are classified as restricted fund balances. Amounts which can only be used for specific purposes pursuant to constraints imposed by the City Commission through an ordinance or resolution are classified as committed fund balances. Amounts which are constrained by the City s intent to be used for specific purposes but are neither restricted nor committed are classified as assigned fund balances. Assignments are made by City management based on City Commission direction. Non-spendable fund balances include amounts which cannot be spent because they are either (a) not in spendable form or (b) legally or contractually required to be maintained intact. Unassigned fund balance represents fund balance which has not been assigned to other funds and which has not been restricted, committed, or assigned to specific purposes within the general fund. Additionally, the City would first use committed fund balance, followed by assigned fund balance and then unassigned fund balance when expenditures are incurred for purposes for which amounts in any of the unrestricted fund balance classifications could be used. o. Minimum Fund Balance The duties, responsibilities, and powers of the City s finance director include the establishment and maintenance of the general fund balance representing an emergency reserve equivalent to 10% of operating revenues. For purposes of establishing the balance and maintenance thereafter, the finance director shall transfer the calculated amount from unassigned fund balance to the emergency reserve, to the extent available, to satisfy the requirement and shall report such balances as part of the annual audited financial statement. If upon completion of any fiscal year the ending balance in such emergency reserve is less than the requirement and sufficient monies do not exist in the unassigned fund balance, then the finance director shall recommend an amendment to the current year budget and include in succeeding fiscal year budgets reserved appropriations sufficient to cover the deficiency over a period not to exceed three fiscal years (deficiency requirement). The emergency reserve shall be used exclusively for emergencies declared by the City Commission, and the appropriation there from shall be made by resolution adopted by four-fifths vote of the membership. Any monies available in the unassigned fund balance shall be used prior to using the emergency reserve to fund authorized emergencies. The duties, responsibilities, and powers of the City finance director also include the establishment of an unassigned general fund balance equivalent to a minimum of 3% of operating revenues. The unassigned general fund balance shall not exceed 10% of operating revenues. If upon completion of any fiscal year, the ending balance in the unassigned fund balance is less than the minimum requirement, then the finance director shall recommend an amendment to the current year budget and include in succeeding fiscal year budgets reserve appropriations sufficient to cover the deficiency over a period not to exceed five fiscal years (deficiency requirement). Appropriation from the minimum balance shall require City Commission approval and shall generally be for one-time expenditures such as capital purchases and not for ongoing expenditures unless a viable revenue plan designed to sustain the expenditures is approved

229 C-27 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE A - SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 4. Assets, liabilities, and net assets or equity Continued p. Net Assets Net assets of the government-wide and proprietary funds are categorized as invested in capital assets, net of related debt, restricted or unrestricted. The first category represents net assets related to property, plant, equipment and infrastructure reduced by depreciation and outstanding debt used to construct or purchase the capital asset. The restricted category represents the balance of assets restricted by requirements of revenue bonds and other externally imposed constraints or by enabling legislation. All remaining amounts are considered to be unrestricted. 5. Other policies Property Tax Calendar The City levies property taxes each October 1 st. During the month of November, the Palm Beach County Tax Collector s Office prepares and delivers a Notice of Property Taxes and Non-Advalorem Assessments to each taxpayer listed on the current year s assessment roll. On any property against which the taxes have been assessed, the Notice of Property Taxes and Non-Advalorem Assessments is recognized as a first lien and superior to all other liens. The lien continues in full force from January 1 st of the year in which the taxes were levied until discharged by payment. All taxes imposed herein shall be due and payable starting in November. Discounts for early payment are as follows: November: 4% discount; December: 3% discount; January: 2% discount; February: 1% discount; March: No discount; April 1 st : taxes are delinquent. Property taxes are calculated based on market values. The market values are determined by the Palm Beach County Property Appraiser as of January 1 st of the applicable year. Fiscal year property tax revenues were generated from assessments on applicable properties as of January 1, 2010 (i.e Tax-Roll Year). The current year s levy is based on taxable property values totaling $8,724,900,368. Per Florida Statute , except for voted levies, no municipality shall levy ad valorem taxes against real property and tangible in excess of 10 mills. For the fiscal year, the City levied a millage rate of mills for General Fund operations and.4426 mills (voted levy) for debt service on voter approved General Obligation bonds. All taxes are due from property owners by March 31. Taxes become delinquent on April 1 and are subject to the issuance of tax sale certificates if unpaid by June 1. Gross tax collections for the year ended September 30, 2011 were approximately 95.6% of the total levy. Property tax revenue is subject to accrual when levied. At September 30, unpaid delinquent taxes are reflected as a receivable on the balance sheet and are offset in full by an allowance for estimated uncollectible amounts. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures/expenses during the reporting period. Actual results could differ from those estimates. Significant estimates used in these financial statements include the amount of insurance claims payable, actuarial assumptions related to benefit plans, allowances for uncollectible accounts, and the liability for landfill closure and postclosure care costs CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE A - SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 5. Other policies - Continued Interest Rate Risk Management The City uses an interest rate swap agreement to reduce its debt service costs. The City entered into the interest rate swap agreement to reduce interest costs on the Series 2008C Utility System Variable Rate Revenue Bonds. The differential paid or received is recorded as interest income or expense and is recognized over the life of the agreement. The related amount payable to or receivable from counterparties is included in interest receivable or accrued interest payable. The fair value of the swap agreement is recognized in the financial statements as an effective hedging instrument. The fair value of the swap agreement is also disclosed in the notes to the financial statements (see Note H). 6. Pronouncements issued and adopted In February 2009, the GASB issued Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. In June 2010, the GASB issued Statement No. 59 Financial Instruments Omnibus. The City has applied the requirements, as applicable, of Statement No. 54 and Statement No. 59 effective October 1, This has significantly changed the classifications of fund balance in the governmental funds. 7. Pronouncements issued, but not yet adopted GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre- November 30, 1989 FASB and AICPA Pronouncements. The objective of this statement is to incorporate into the GASB's authoritative literature certain accounting and financial reporting guidance that is included in certain pronouncements issued on or before November 30, 1989, which does not conflict with or contradict GASB pronouncements. This statement is effective for reporting periods beginning after December 15, 2011 and is not expected to have a material impact on the City s financial statements. GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. This statement provides a new statement of net position format to report all assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position. This statement also requires that deferred outflows of resources and deferred inflows of resources be reported separately from assets and liabilities. This statement is effective for reporting periods beginning after December 15, 2011 and is expected to have a significant impact on the City s financial statements and their presentation. The City is currently evaluating the implementation requirements of this statement. GASB Statement No. 64, Derivative Instruments: Application of Hedge Accounting Termination Provisions. This statement clarifies that when certain conditions are met, the use of hedge accounting should not be terminated. Those conditions are: (1) the collectability of swap payments is considered to be probable, (2) the replacement of the counterparty or credit support provider meets the criteria of an assignment or an in-substance assignment, and (3) the counterparty or counterparty credit support provider has committed the act of default or termination event. This statement is effective for reporting periods beginning after June 15, 2011 and is not expected to have a material impact on the City s financial statements

230 NOTE B DEPOSITS AND INVESTMENTS CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) The City maintains a cash and investment pool that is used by all funds except the Pension Trust Funds. Certain of the City's Governmental and Enterprise funds also hold separate cash and investment accounts. Deposits and investments of the Pension Trust Funds are held separately from those of other City funds and follow different investment policies. Cash and Cash Equivalents At September 30, 2011, the carrying amount of the City s cash deposit accounts was $91.3 millions. The City s cash deposits are held by banks that qualify as public depositories under the Florida Security for Public Deposits Act as required by Chapter 280, Florida Statutes. As such, the City s cash deposits are fully insured by the Public Deposits Trust Fund. CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE B DEPOSITS AND INVESTMENTS CONTINUED Authorized Investments and Credit Risk - Continued In addition, under the Investment Policy, the Short Term and Long Term Portfolios may invest in the following investments: U.S. Government Agencies, State and Local Government Debt, Commercial Paper rated Prime-1 by Moody s and A-1 by Standard & Poor s or equivalent by another nationally recognized rating agency, Banker s Acceptances rated Prime-1 by Moody s and A-1 by Standard and Poor s, Registered Investment Companies (Mutual Funds) rated AAA or better by Standard & Poor s. As of September 30, 2011, the City had the following investment types and effective duration presented in terms of years: Authorized Investments and Credit Risk C-28 On November 7, 2005, the City of West Palm Beach adopted a comprehensive investment policy pursuant to Section , Florida Statutes that established permitted investments, asset allocation limits, issuer limits, credit rating requirements, and maturity limits to protect the City s cash and investment assets. The City adopted changes to the Investment Policy on April 21, The City has no formal policy relating to foreign currency risk. For the year ended September 30, 2011 the City had no investment exposure to foreign currency. The City s policy regarding derivative products specifically states that City Commission approval is required prior to the use of derivative. For the year ended September 30, 2011, the City had investment exposure to derivative products as a result of its interest rate swap agreement attributable to the Series 2008 C Utility System Variable Rate Revenue Bonds. Section , Florida Statutes, limits the types of investments that a government can invest in unless specifically authorized in an investment policy. The City s Investment Policy permits the following investments, which are limited to credit quality ratings from nationally recognized rating agencies as follows: U.S. Treasury obligations which are guaranteed by the full faith and credit of the United States with maturities not to exceed five years from the date of purchase. (It should be noted that on August 5, 2011, the long term rating for U.S. Treasury obligations was lowered from AAA to AA+ by Standard and Poors. The downgrade reflected Standard and Poors opinion that the government s recently agreed to fiscal consolidation plan fell short of what would be necessary to stabilize the government s debt dynamics.) Money Market Mutual Fund shares in open-end, no-load funds that are registered under the Federal Investment Company Act of 1940 and operated in accordance with 17 C.F.R a-7. The prospectus of such funds must indicate that the share value shall not fluctuate. Intergovernmental Investment Pools that are authorized pursuant to the Florida Interlocal Cooperation Act, as provided in Section , Florida Statutes and provided that said funds contain no derivatives. Corporate obligations or notes shall have two of the following 3 minimum ratings: AA, Aa, or AA, as rated by Standard & Poor s, and/or Moody s, and/or Fitch Investors Services rating agencies Investment Vehicle Certificates of Deposit U.S. Treasuries Credit Risk % of Rating Portfolio Duration (years) Total Portfolio Short Term Portfolio Long Term Portfolio NR 1.28% $ 2,041 $ 2,041 $ - AA % ,532 16,532 Federal Instrumentalities Fixed Rate AA % ,563 82,563 Floating Rate AA+ 5.85% ,324 9,324 Pass Through Securities AA+ 0.57% Money Market Funds AAAm 22.99% ,666 36, Commercial Paper A % ,499 3,499 - Commercial Paper A % ,315 2,315 - Corporate Notes AA+ 3.54% ,647 5,647 (1) % $ 159,497 $ 43,879 $ 115,618 NR - Not Rated (1) Reconciliation to the Statement of Net Assets on page 1 : Custodial Credit Risk Portfolio value $ 159,497 Deposits 91,284 Petty cash 15 Less: OPEB Trust (6,420) Cash & Investments $ 244,376 Fair Value as of September 30, 2011 (in Thousands) Investments: Custodial credit risk is defined as the risk that, in the event of the failure of the counterparty, the City will not be able to recover the value of its investment or collateral security that are in the possession of an outside party. The City s investment portfolio is held in safekeeping by SunTrust Investments or TD Bank in the name of the City of West Palm Beach, thereby eliminating exposure to custodial credit risk.

231 C-29 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE B DEPOSITS AND INVESTMENTS - CONTINUED Interest Rate Risk: The City s Investment Policy sets limits for investment maturities to match known cash needs and anticipated cash flow requirements. Investments of current operating funds shall have maturities of no longer than twenty-four months. Investments of bond reserves, construction funds, and other non-operating funds, core funds, shall have a term appropriate to the need for funds and in accordance with debt covenants, not to exceed a maturity of five years with an average duration of the whole portfolio not to exceed three years. The maturities of the underlying securities of a repurchase agreement will follow the requirements of the Master Repurchase Agreement. As of September 30, 2011, the City has no investments that contain embedded options allowing the issuer to call the obligation or demand a stated increase in the interest rate. Effective Duration Short Term Portfolio: As a means of limiting its exposure to fair value losses arising from rising interest rates, the Investment Policy requires that 100% of the short term portfolio be invested in maturities of less than one year. Long Term Portfolio: As a means of limiting its exposure to fair value losses arising from rising interest rates, the City s Investment Policy requires that the duration of the long term portfolio not exceed three years. Investments Highly Sensitive to Interest Rate Changes The Federal Instrumentalities Pass Through Securities in the long term portfolio are highly sensitive to interest rate changes due to the prepayment feature of the underlying mortgages. Maturity (In thousands) CUSIP Description Date Fair Value 31384V6A5 FNMA MBS Pool # /1/2011 $ LLN3 FNMA MBS Pool # /1/ Total $ 911 Concentration of Credit Risk The Investment Policy permits up to 50% of the portfolio to be invested in any single Federal Instrumentality. As of September 30, 2011 investments in the following Federal Instrumentalities exceed 5% of the portfolio: (In thousands) Investment Vehicle % of Portfolio Fair Value Federal Home Loan Bank (FHLB) 9.73% $ 15,526 Federal National Mortgage Association (FNMA) 25.22% 40,233 Federal Home Loan Mortgage Corp (FHLMC) 20.59% 32,844 Total 55.54% $ 88,603 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE B DEPOSITS AND INVESTMENTS CONTINUED Concentration of Credit Risk Continued: A maximum of 100% of available funds may be invested in the SBA and in United States Government Securities, 50% of available funds may be invested in United States Government Agencies with a 25% limit on individual issuers, 80% of available funds may be invested in Federal Instrumentalities with a 50% limit on individual issuers, 25% of available funds may be invested in non-negotiable interest bearing time certificates of deposit with a 15% limit on individual issuers, 50% of available funds may be invested in repurchase agreements excluding one (1) business day agreements and overnight sweep agreements with a 25% limit on any one institution, 25% of available funds may be directly invested in prime commercial paper with a 5% limit on individual issuers, 25% of available funds may be directly invested in Bankers acceptances with a 5% limit on individual issuers, 20% of available funds may be invested in taxable and tax-exempt debts with a limit of 20% on individual issuers, 40% of available funds may be invested in mutual funds with a limit of 20% with any one non-sec Rule 2a-7 investment mutual fund, 10% of available funds may be invested in intergovernmental investment pools, 15% of available funds may be invested in corporate obligations or corporate notes of US corporations with a limit of 5% with any one corporate note, and 30% of available funds may be invested in mortgage-backed securities with a limit of 20% invested with any one MBS. As of September 30, 2011, the City had the following issuer concentration in the long-term portfolio based on fair value: (In thousands) Issuer % of Portfolio Fair Value U.S. Treasury Notes 10.37% $ 16,532 Federal Farm Credit Bank (FFCB) 2.63% 4,192 Federal Home Loan Bank (FHLB) 9.73% 15,527 Federal National Mortgage Assoc. (FNMA) 24.65% 39,324 Federal Home Loan Mortgage Corp (FHLMC) 20.59% 32,845 FNMA Mortgage Backed Securities (MBS) 0.57% 910 Citigroup Funding Inc. (FDIC) Corporate Note 1.15% 1,839 General Electric Capital Corp. - Corporate Note 2.39% 3,808 Societe Generale N.A. Commercial Paper 1.45% 2,315 Toyota Motor Credit Corp. Commercial Paper 2.19% 3,499 Federated Government Obligations, Money Market 7.36% 11,739 Federated Treasury Obligations, Money Market 0.44% 702 Wells Fargo Advantage Heritage, Money Market 15.19% 24,224 TD Bank Certificate of Deposit 0.24% 385 Sun Trust Bank Certificate of Deposit 1.05% 1,656 Total % $ 159,497 The Investment Policy has established asset allocation and issuer limits on the investment portfolio which are designed to reduce the concentration of credit risk within the City s investment portfolio

232 C-30 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE B DEPOSITS AND INVESTMENTS CONTINUED CASH AND INVESTMENTS OF THE DEFINED BENEFIT PENSION FUNDS Firefighters' Pension Fund (Plan) Deposits At the year-ended September 30, 2011, the carrying amount of the Firefighters Pension Fund (Plan) demand deposits was $666,796 and the bank balance was $668,613. The balance of the Sun Trust Index Linked Certificate of Deposit of $5,000,000 and the bank balance were covered by federal depository insurance and, for the amount in excess of such federal depository insurance, by the State of Florida s Security for Public Deposits Act. Provisions of the Act require that public deposits may only be held at qualified public depositories. The Act requires each qualified public depository to deposit with the State Treasurer eligible collateral equal to or in excess of the required collateral as determined by the provisions of the Act. In the event of a failure by a qualified public depository, losses in excess of federal depository insurance and proceeds from the sale of the securities pledged by the defaulting depository are assessed against the other qualified public depositories of the same type as the depository in default. Salem Trust Company ( Salem ), Pimco Trust Company ( Pimco ), and J.P. Morgan Investment Management periodically hold uninvested cash in their respective capacities as custodians of the Plan. These funds exist temporarily as cash in the process of collection from the sale of securities. Investments Investments that are not evidenced by securities that exist in physical or book-entry form include investments in open-ended mutual funds and a comingled pooled trust fund. The Plan s independently managed investments other than cash held by its administrative manager, are segregated into six separate accounts and managed under separate investment agreements with Pimco, Boston Company Asset Management, LLC, Baron Capital Management, Inc., Brown Investment Advisory Incorporated, Fayez Sarofim & Company, Thompson, Siegel & Walmsley, Inc., American Euro Pacific (Euro Pacific) and Templeton Global Bond Fund. One account gives PIMCO custodianship and authority to manage investments. Six accounts give Salem Trust Company (Salem) the custodianship, but give Boston Company Asset Management, LLC, Baron Capital Management, Inc., Brown Investment Advisory Incorporated, Fayez Sarofim & Company, Euro Pacific and Templeton Global Bond Fund the authority to manage the investments. One mutual fund investment is held by Templeton Institutional Funds, Inc. (Templeton) and the pooled fund investment are held by JPMCB Strategic Property Fund (J.P. Morgan). These assets are invested in accordance with specific investment guidelines as set forth in Subsection (4)(b) of Section 17 of the Special Act entitled Investment of Monies. Investment management fees are calculated quarterly as a percentage of the fair market value of the Fund s assets managed. Except for the investments held by Templeton Institutional and J.P. Morgan, the Plan s investments are uninsured and unregistered and are held in custodians or the Bank s accounts in the Plan s name as described above. Euro Pacific and Templeton are open-ended mutual funds. CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE B DEPOSITS AND INVESTMENTS CONTINUED Firefighters' Pension Fund - Continued J.P. Morgan is an alternative investment vehicle valued using the net asset value (NAV) provided by the investment managers of the fund. The NAV is based on the value of the underlying assets owned by these funds minus its liabilities and then divided by the number of shares or percentage of ownership outstanding. The NAV s unit price is quoted on a private market that is not active; however, the unit price is based on underlying investments which are traded on an active market. The values of these alternative investments are not necessarily indicative of the amount that could be realized in a current transaction. The fair value may differ significantly from the values that would have been used had a ready market for the underlying funds existed, and the differences could be material. Future confirming events will also affect the estimates of fair value, and the effect of such events on the estimates of fair value could be material. The Plan held no investments that individually represent 5% or more of the Plan s net assets available for benefits during the year ended September 30, The Plan has no instrument that, in whole or in part, is accounted for as a derivative instrument under GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments during the current Plan year. The Plan held the following fixed investments as of September 30, 2011: Average Overall Effective % of Fair Value Credit Duration Investment Type Fund 9/30/2011 Rating (Years) SunTrust Index Linked Certificate of Deposit 4.17% $5,000,000 N/A 5.0 Templeton Global Bond Fund 5.12% $6,141,841 B-AAA 1.7 PIMCO Total Return II (Fixed Fund) 23.28% $ 27,917,849 B-AAA 6.4 Total Plan 32.57% Holdings in Fixed Fund: U.S. Government & Government agencies 24% AA State & corporate bonds and collateralized mortgage obligations 76% AAA-A 100%

233 C-31 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE B DEPOSITS AND INVESTMENTS CONTINUED Firefighters' Pension Fund - Continued The SunTrust Index Linked Certificate of Deposit (SILC) will mature on May 8, SunTrust will pay interest based on the annual growth rate of the Spectrum Long/Short Style Excess Return Index (the Index) if and to the extent such compound annual rate exceeds 1.45%. The indexed amount may be zero but will not be less than 1.45%. SunTrust will pay the outstanding principal amount of the SILC on the maturity date. SunTrust Bank does not offer early withdrawal. There is no assurance that there will be an active secondary market in the SILC. In the event there is a secondary market, an investor may receive significantly less than the outstanding principal amount of the SILC upon selling. SunTrust intends to treat the SILC as a variable rate debt instrument. Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment in debt securities. Generally, the longer the time to maturity, the greater the exposure to interest rate risks. Through its investment policies, the Firefighters Pension Fund manages its exposure to fair value losses from increasing interest rates. The effective duration of the investment portfolio is limited through the adoption of the Barclay s Capital U.S. Aggregate Bond Index benchmark. Credit Risk Credit risk is the risk that a debt issuer will not fulfill its obligations. Consistent with the state law, the investment guidelines limit fixed income investments to a quality rating of A or equivalent as rated by Moody s or by Standard & Poor s bond rating services at the time of purchase. Fixed income investments which are downgraded below the minimum rating must be liquidated at the earliest beneficial opportunity. Custodial Credit Risk Custodial credit risk is defined as the risk that the Plan may not recover cash and investments held by another party in the event of a financial failure. The Plan requires all securities to be held by a third party custodian in the name of the Plan. Securities transactions between a broker-dealer and the custodian involving the purchase or sale of securities must be made on a delivery vs. payment basis to ensure that the custodian will have the security or the money, as appropriate, in hand at the conclusion of the transaction. The investments in mutual funds and investment in partnerships are considered unclassified pursuant to the custodial risk categories of GASB Statement No. 3, because they are not evidenced by securities that exist in physical or book-entry form. CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE B DEPOSITS AND INVESTMENTS CONTINUED Firefighters' Pension Fund - Continued Foreign Markets Risk Investing in foreign markets may involve special risks and considerations not typically associated with investing in companies in the United States of America. These risks include revaluation of currencies, high rates of inflation, repatriation restrictions on income and capital, and future adverse political, social, and economic developments. Moreover, securities of foreign governments may be less liquid, subject to delayed settlements, taxation on realized or unrealized gains, and their prices are more volatile than those of comparable securities in U.S. companies. Foreign Tax Withholdings and Reclaims Withholding taxes on dividends from foreign securities are provided for based on rates established via treaty between the United States of America and the applicable foreign jurisdiction, or where no treaty exists at the prevailing rate established by the foreign country. Foreign tax withholdings are reflected as a reduction of dividend income in the statement of operations. Where treaties allow for a reclaim of taxes, the Fund will make a formal application for refund. Such reclaims are included as an addition to dividend income. Police Pension Fund (Plan) Deposits Fiduciary International of the South (FTIOS) periodically holds uninvested cash in its respective capacity as custodian for the Plan. These funds exist temporarily as cash in the process of collection from the sale of securities. Investments Investments that are not evidenced by securities that exist in physical or book-entry form include investments in open-ended international and domestic mutual funds and a commingled pooled trust fund. The Plan s independently managed investments are segregated into eight separate accounts and managed under separate investment agreements with Oakridge Investments, LLC., Anchor Capital Advisors, Inc., Garcia, Hamilton, Jackson & Associates, L.P., Earnest Partners, L.L.C., Eagle Asset Management, Inc., Valley Forge Asset Management Corp., G.W. Capital, Inc., and Wentworth, Hauser & Violich. These eight accounts give FTIOS the custodianship, but give these listed money managers the authority to manage the investments. One mutual fund investment is held by Dimensional Investment Group International, and the REIT is held by U.S. Real Estate Investment Fund, L.L.C. (U.S. Real Estate). These assets are invested in accordance with the specific investment guidelines as set forth in Section 21 of the Special Act entitled Investments. Investment management fees are calculated quarterly as a percentage of the fair market value of the Fund s assets managed. The investment managers listed above are monitored by the Board of Trustees and an investment advisor. Except for the investments held by U.S. Real Estate, the Plan s investments are uninsured and unregistered and are held in custodians or the Bank s accounts in the Plan s name as described above. The mutual fund is openended, and U.S. Real Estate is a real estate investment trust

234 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE B DEPOSITS AND INVESTMENTS CONTINUED Police Pension Fund - Continued CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE B DEPOSITS AND INVESTMENTS CONTINUED Police Pension Fund - Continued C-32 U.S. Real Estate Investment Trust is an alternative investment vehicle valued using the net asset value (NAV) provided by the investment managers of this fund. The NAV is based on the value of the underlying assets owned by this fund minus its liabilities and then divided by the number of shares or percentage of ownership outstanding. The NAV s unit price is quoted on a private market that is not active; however, the unit price is based on underlying investments which are traded on an active market. The values of this alternative investment are not necessarily indicative of the amount that could be realized in a current transaction. The fair value may differ significantly from the value that would have been used had a ready market for the underlying fund existed, and the differences could be material. Future confirming events will also affect the estimates of fair value and the effect of such events on the estimates of fair value could be material. The Plan held no investments that individually represent 5% or more of the Plan s net assets available for benefits during the year ended September 30, The Plan has no instrument that, in whole or in part, is accounted for as a derivative instrument under GASB statement No. 53, Accounting and Financial Reporting for Derivative Instruments during the current Plan year. The Plan held the following fixed investments as of September 30, 2011: Average Overall Effective % of Fair Value Credit Duration Investment Type Fund 9/30/2011 Rating (Years) U.S Government securities 0.34% $610,641 AA 0.12 Credit Risk - Credit risk is the risk that a debt issuer will not fulfill its obligations. Consistent with the state law the Plan s investment guidelines limit its fixed income investments to a quality rating of A or equivalent as rated by Moody s or by Standard & Poor s bond rating services at the time of purchase. Fixed income investments which are downgraded below the minimum rating must be liquidated at the earliest beneficial opportunity. Custodial Credit Risk - Custodial credit risk is defined as the risk that the Plan may not recover cash and investments held by another party in the event of a financial failure. The Plan requires all securities to be held by a third party custodian in the name of the Plan. Securities transaction between a broker-dealer and the custodian involving the purchase or sale of securities must be made on a delivery vs. payment basis to ensure that the custodian will have the security or money, as appropriate, in hand at the conclusion of the transaction. The investments in mutual funds and investment fund are considered unclassified pursuant to the custodial risk categories of GASB Statement No. 3, because they are not evidenced by securities that exist in physical or bookentry form. Investing in Foreign Markets Investing in foreign markets may involve special risks and considerations not typically associated with investing in companies in the United States of America. These risks include revaluation of currencies, high rates of inflation, repatriation restrictions on income and capital, and future adverse political, social, and economic developments. Moreover, securities of foreign governments may be less liquid, subject to delayed settlements, taxation on realized or unrealized gains, and their prices are more volatile than those of comparable securities in U.S. companies. Foreign Tax Withholdings and Reclaims Withholding taxes on dividends from foreign securities are provided for based on rates established via treaty between the United States of America and the applicable foreign jurisdiction, or where no treaty exists at the prevailing rate established by the foreign country. Foreign tax withholdings are reflected as a reduction of dividend income in the statement of operations. Where treaties allow for a reclaim of taxes, the Fund will make a formal application for refund. Such reclaims are included as an addition to dividend income. U.S. Government Agency securities 14.73% $26,753,544 AA 0.92 Corporate bonds 16.37% $29,726,641 A-AAA 3.27 Temporary Investments 3.46% $ 6,291,000 N/A N/A 34.90% Interest Rate Risk - Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment in debt securities. Generally, the longer the time to maturity, the greater the exposures to interest rate risk. Through its investment policies the Plan manages its exposure to fair value losses rising from increasing interest rates. The Plan limits the effective duration of its investment portfolio through the adoption of the Barclay Intermediate Aggregate Bond Index benchmark

235 C-33 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE B DEPOSITS AND INVESTMENTS CONTINUED Restated Employees Defined Benefit Retirement System Fund (System) Deposits and Investments Deposits Credit risk - Florida Statutes require the Restated Employees Retirement System (System) to maintain its deposits with financial institutions in a qualified public depository, as determined by the Treasurer of the State of Florida. The System s accounts maintained in qualified public depositories are covered by federal depository insurance for an amount equal to the aggregate of each participant s ascertainable, non-contingent interest in the System (up to $100,000 per participant). Amounts in excess of federal depository insurance are secured by the Public Depository Trust Fund (Trust Fund) maintained by the Treasurer of the State of Flroida. The Trust Fund is a multiple financial institution pool with the ability to assess its member financial institutions for collateral shortfalls if a member fails. Investments The System s investments were held by Salem Trust Company, Baring Asset Management and RBC Global Asset Management. At September 30, 2011, the System had the following investments: Remaining Maturity (in years) Credit Rating Less than Greater by Standard 1 year 1-10 than 10 Investment Type & Poor's Fair value years years U.S. Government Obligations N/A $ 389, ,813 Government Agencies AA 2,719,280 3, ,664 2,551,852 Corporate & Foreign Bonds A- BBB 4,742,326-4,544, ,905 Common Stock N/R 13,741, International Equity N/R 2,435, Short - Term Investments N/R 635, Total Investments $ 24,663,132 Interest Rate Risk - The System does not have a formal policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. The table above shows the distribution of the System s investments subject to the interest rate risk by the remaining maturity at September 30, CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE B DEPOSITS AND INVESTMENTS CONTINUED Restated Employees Defined Benefit Retirement System Fund - Continued Credit Risk - Florida Statutes and the System s investment policy limit investments to obligations issued by the United States Government or obligations guaranteed as to principal and interest by the United State Government or by an agency of the United States Government; stocks, commingled funds administered by national or state banks, mutual funds and bonds or other evidences of indebtedness, issued or guaranteed by a corporation organized under the laws of the United States, any state or organized territory of the United States or the District of Columbia; and foreign securities. Securities (other than U.S. Government securities and foreign securities) must meet the following ranking criteria: Fixed Income: Standard & Poor s Investment Grade or Moody s Investment Grade Equities: Value line ranking for safety 1, 2, or 3 except that 20% of the funds assets may be invested in securities not meeting this requirement. Money Market: Standard & Poor s A1 or Moody s P1 The table on page 44 discloses the credit ratings by investment type as of September 30, Concentration of Credit Risk - The System s investment policy specifies the following investment limitations: Common stock or capital stock of any one issuing company is limited to 5% of the System s assets. The aggregate investment in any one issuing company is limited to 5% of the outstanding capital stock of the company. The value of bonds issued by any single corporation is limited to 3% of the System s assets. Corporate common stock and convertible bonds are limited to 75% of the System s assets at market value. Foreign securities are limited to 10% of the System s assets at cost. No investment (other than those guaranteed or issued by the United States Government) individually represents 5% or more of the System s net assets available for benefits at September 30, Investing in Foreign Markets Investing in foreign markets may involve special risks and considerations not typically associated with investing in companies in the United States of America. These risks include revaluation of currencies, high rates of inflation, repatriation restrictions on income and capital, and future adverse political, social, and economic developments. Moreover, securities of foreign governments may be less liquid, subject to delayed settlements, taxation on realized or unrealized gains, and their prices are more volatile than those of comparable securities in U.S. companies. Foreign Tax Withholdings and Reclaims Withholding taxes on dividends from foreign securities are provided for based on rates established via treaty between the United States of America and the applicable foreign jurisdiction, or where no treaty exists at the prevailing rate established by the foreign country. Foreign tax withholdings are reflected as a reduction of dividend income in the statement of operations. Where treaties allow for a reclaim of taxes, the System will make a formal application for refund. Such reclaims are included as an addition to dividend income

236 C-34 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE C RECEIVABLES, PAYABLES AND DEFERRED REVENUE 1. Receivables Receivables as of year-end for the City s governmental activities, individual major governmental funds, nonmajor funds in the aggregate, internal service funds in the aggregate and applicable allowances for uncollectible accounts, are as follows: Northwood/ Internal Nonmajor General City Center Pleasant City Service Governmental Fund CRA Fund CRA Fund Funds Funds Total Receivables: Accounts (gross) $ 29,309,003 $ 804,650 $ - $ 39,087 $ 348,976 $ 30,501,716 Allowance for uncollectibles (15,731,455) - - (41) (11,000) (15,742,496) Accounts (net) 13,577, ,650-39, ,976 14,759,220 Interest 38,594 39,243 13,171 27,568 34, ,477 Notes (gross) 620, ,472 14,988-18,260,970 19,735,172 Allowance for uncollectibles (608,242) (744,148) - - (17,600,171) (18,952,561) Notes (net) 12,500 94,324 14, , ,611 Liens (gross) 669,639 16, ,027 Allowance for uncollectibles - (11,429) , ,298 Liens (net) 669,639 4, ,727 1,309,325 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE C RECEIVABLES, PAYABLES AND DEFERRED REVENUE CONTINUED Receivables for the City s business-type activities, including individual major enterprise funds and non-major enterprise funds in the aggregate and applicable allowances for uncollectible accounts are as follows: Water and Stormwater Nonmajor Sewer System System Enterprise Fund Fund Funds Total Receivables - unrestricted: Interest $ 54,668 $ 7,215 $ 1,614 $ 63,497 Accounts (gross) 8,774,934 1,153,055 33,387 9,961,376 Allowance for uncollectibles (1,078,274) (110,947) - (1,189,221) Accounts (net) 7,696,660 1,042,108 33,387 8,772,155 Liens (gross) 1,402, ,013-1,923,869 Allowance for uncollectibles Liens (net) 1,402, ,013-1,923,869 Receivables - restricted: Interest 50,433 3,986-54,419 Total receivables $ 9,204,617 $ 1,574,322 $ 35,001 $ 10,813,940 Total receivables $ 14,298,281 $ 943,176 $ 28,159 $ 66,614 $ 1,668,403 $ 17,004,633 Significant uncollectibles: The allowance for uncollectibles in the General Fund includes $13.4 million for the Emergency Medical Services ( EMS ) receivable, or about 74% of the receivable. This type of receivable typically experiences a low level of collectibility beyond one year since service cannot be denied based on nonpayment. The General Fund allowance also includes $.6 million for delinquent property taxes (the full amount of delinquent taxes receivable) and $.9 million for other miscellaneous billed receivables. The $.6 million allowance for uncollectible notes receivable in the General Fund represents mortgage notes for businesses that allow deferral of payment pending adequate cash flow. The allowance for uncollectible notes receivable of $17.6 million in the nonmajor funds is composed of mortgages containing language exempting the mortgager from repayment if certain conditions are met. In issuing these notes receivable, the primary emphasis is on community development and repayment is a secondary consideration

237 C-35 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE C RECEIVABLES, PAYABLES AND DEFERRED REVENUE CONTINUED 2. Payables Vouchers payable and accrued liabilities at September 30, 2011, were as follows: Vendors and Salaries and Others Benefits Totals Governmental activities: General Fund $ 1,679,920 $ 3,249,981 $ 4,929,901 Community Redevelopment Agency Fund 99, ,765 Northwood/Pleasant City CRA Fund 90,951 1,601 92,552 Nonmajor Governmental Funds 4,490, ,061 4,593,515 Internal Service Funds 2,103, ,833 2,303,712 Total governmental activities $ 8,464,445 $ 3,555,000 $ 12,019,445 Business-type activities: Water and Sewer System Fund $ 7,334,311 $ 2,601,978 $ 9,936,289 Stormwater System Fund 364, , ,816 Nonmajor Enterprise Funds 268, , ,266 Total business-type activities $ 7,967,178 $ 3,129,193 $ 11,096,371 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE C RECEIVABLES, PAYABLES AND DEFERRED REVENUE CONTINUED 3. Unearned/Deferred revenue Unearned revenue from resources that have been received but not yet earned is reported on both the government-wide Statement of Net Assets and on the fund financial statements. The governmental fund financial statements also report deferred revenue from receivables for revenues that are not considered to be available to liquidate liabilities of the current period. The components of unearned/deferred revenue as of September 30, 2011 are as follows: Northwood/ Nonmajor Total General City Center Pleasant City Governmental Governmental Fund CRA Fund CRA Fund Funds Funds Revenues earned but not available: Insurance premium tax $ 1,877,816 $ - $ - $ - $ 1,877,816 Liens and mortgages receivable 358,680 40,965-1,547,593 1,947,238 EMS receivables 4,192, ,192,307 Other receivables 1,780, ,871 14,988-1,899,776 Lease revenue on investment in capital lease - 2,739, ,739,608 Total Deferred 8,209,720 2,884,444 14,988 1,547,593 12,656,745 Unearned revenues: Prepaid occupational licenses 1,969, ,969,734 Grant receipts not yet earned 102, ,568 Total Unearned 2,072, ,072,302 Total Unearned/Deferred Revenue $ 10,282,020 $ 2,884,444 $ 14,988 $ 1,547,595 $ 14,729,047 Nonmajor Total Enterprise Enterprise Funds Funds Unearned revenues: Prepaid parking $ 188,671 $ 188,671 Miscellaneous revenues collected in advance 2,309 2,309 Total Unearned Revenue $ 190,980 $ 190,

238 C-36 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE D RESTRICTED ASSETS AND RESTRICTED NET ASSETS Restricted assets Certain assets of the enterprise funds at September 30, 2011 are restricted for the following purposes:. Waterworks and Sewage Disposal Stormwater Non Major Systems System Enterprise Purpose Fund Fund Funds Totals Customer deposits $ 8,669,794 $ - $ 24,916 $ 8,694,710 Operations and maintenance restricted by revenue bond covenants 8,795,907 1,046,972-9,842,879 Revenue bond construction accounts 56,731,463 17,232,763-73,964,226 Revenue bond debt service accounts 6,423,047 2,079,919-8,502,966 Revenue bond renewal and replacement accounts 20,940,349 1,682,087-22,622,436 Impact fee capital contributions account 4,623, ,623,263 Total restricted assets $ 106,183,823 $ 22,041,741 $ 24,916 $ 128,250,480 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE E INVESTMENT IN JOINT VENTURES East Central Regional Wastewater Treatment Facilities ( ECR ) - In September 1992, the City entered into a joint interlocal agreement ( Agreement ) with Palm Beach County (the County ) and three municipalities (Riviera Beach, Lake Worth, and Town of Palm Beach) (together with the City, the Entities ) whereby prior separate agreements were consolidated into a single unified agreement to establish rules and procedures for the operation and management of the existing ECR in which each participating entity has an interest. ECR was created to receive, treat, and dispose of sewage generated within each municipality and the County. The initial term of the Agreement is for thirty years with a renewable term of thirty years. In the event ECR is sold or disposed of, proceeds of the sale or disposition shall be prorated among the Entities, based on their reserve capacity as of the date of disposition. The Agreement provides for the establishment of a Board (the Board ) comprised of one representative from each Entity participating in the Agreement to administer ECR. Under the Agreement, the Board has the power to enter into contracts, employ personnel and enter into debt in accordance with Section (7) of the Florida statutes. In accordance with the Agreement, the City operates and manages ECR on behalf of the Board. All costs of operating ECR, excluding non-cash expenditures, are shared by each of the Entities based on actual flows of wastewater. Costs associated with capital projects, renewal and replacement and debt service are shared among the participating governments based on their pro-rata share of reserve capacity except as noted below. Under the equity method, the City recorded its initial investment at cost and records its ongoing financial interest as an adjustment to the investment in joint venture for its share of the following: any income or loss reported by ECR; depreciation and loss on disposal of ECR assets attributable to contributed capital; additional debt assumed for which the entities are obligated to repay; and capital and debt reserve contributions, including revenue earned by ECR on such contributions. The City does not believe that the joint venture is accumulating significant financial resources or experiencing financial stress that may cause a future benefit or burden to the City. As of September 30, 2010, the ECR had total assets of $100,823,789 and total net assets of $90,250,353 including $69,892,127 invested in capital assets net of related debt and $11,133,733 of unrestricted net assets. ECR has issued audited financial statements for the fiscal year ended September 30, Statements for 2011 have not yet been issued. As such, the amounts recorded by the City could be subject to revision in the future. The City believes that their investment in ECR, as recorded, is not materially misstated based on 2010 operating results. Complete financial statements may be obtained at the City of West Palm Beach Finance Department, 401 Clematis Street, West Palm Beach, Florida As of September 30, 2011, the ECR had a note receivable from the Entities for the amounts drawn on a State revolving loan to fund plant improvements including loan fees, debt reserve, capitalized interest and principal reduction from payments received to date. All fees and payments received by ECR are pledged revenues of the debt. The balance on the City s note payable as of September 30, 2011 is $1,907,044 and was recorded in the Water and Sewer Systems Fund as a Note Payable to Joint Venture. State Revolving Loan Fund ( SRF ) project percentages differ from reserve capacity percentages because some Entities elected not to share in certain SRF project costs

239 C-37 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE E INVESTMENT IN JOINT VENTURES CONTINUED During fiscal year 2000, the City entered into an agreement with ECR concerning the construction, operation and maintenance of a reclaimed water production facility. This facility was completed at the end of fiscal year 2006 and treats ECR effluent in order to provide reusable water for the benefit of the City. Since it is constructed on ECR land, the facility is considered ECR property with 100% of its capacity and beneficial interest allocated to the City. See Note O regarding the City s commitments related to ECR projects. Each Entity s interest at September 30, 2011 is as follows: Reserve SRF Loan Capacity Improvement Participant Percentages Percentages City of West Palm Beach % % Palm Beach County City of Lake Worth City of Riviera Beach Town of Palm Beach Total % % During the fiscal year ended September 30, 2011, the Water and Sewer System Fund incurred wastewater expenses of $5,167,878 and earned administrative fees of $3,862,913 related to ECR operations. These expenses and fees are included under the operating expenses and operating revenues sections, respectively, of the Statement of Revenues, Expenses and Changes in Fund Net Assets Proprietary Funds. Municipal Public Safety Communications Consortium of Palm Beach County (MPSCC) - In December 1999, the City entered into an interlocal agreement with other cities and towns in Palm Beach County to purchase and operate a county-wide public safety communications system. The interlocal agreement established the MPSCC whose purpose is to provide its members with expanded radio communications services (via the 800MHz trunked radio system) to aid in public safety over a larger geographical region. The MPSCC is a cost sharing organization. Its annual budget is prepared by the Executive Director and approved by the Board of Directors. The member municipalities of the MPSCC are obligated for the debt incurred by the consortium and each municipality is responsible for their respective portion of costs incurred by the MPSCC. The City s 2006 initial investment in this joint venture was $3,577,000 which represents 73% of the total consortium investment. During fiscal year 2011, member costs for the City were $154,698 and the year end value of the City's investment was $2,943,150. The City s investment and related member costs are recorded in the MIS Processing Fund which is an Internal Service Fund. CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE F INVESTMENT IN DIRECT FINANCING LEASES On March 1, 2004, the Indian Trail Improvement District (ITID), a Florida Independent Special District, and the City entered into a 20 year lease of water interconnect facilities (via the WPB/ITID Agreement ). For accounting purposes the Water and Sewer System Fund classified the lease as a direct financing lease. Monthly lease payments of interest only, commenced October 1, 2004, and the monthly principal payments commenced July 1, On March 7, 2008, the Indian Trails Improvement District assigned its rights in the WPB/ITID Agreement and the lease to Palm Beach County. In January 2011, seeking to better serve communities within its water and wastewater service area as well as fulfill the Indian Trails Improvement District s obligations under the lease, Palm Beach County purchased the Indian Trails Improvement District s facilities that had been leased from the City. Under the terms of the purchase agreement, the City received $1,880,000 in payment for the outstanding balance of the direct financing lease as well as $1,337,744 for the sale of the Northlake water main and wastewater force main and $215,800 in system capacity charges. On April 15, 1998, City Place Partners entered into several lease agreements with the City Center CRA for CRA owned property in the area now know as CityPlace. For accounting purposes, these leases were classified as direct financing leases. Payments due on these leases were based upon principal and interest payments due to the Sunshine State Loans, Series 1995 and Series Those loans were refinanced in 2010 and the payment schedule for the one remaining lease is based upon the CityPlace CRA portion of Revenue Refunding Bond Series 2010B. As of September 30, 2011, future minimum lease payments to be received under the lease are as follows: Fiscal Year Ending September 30, Payment 2012 $ 699, , , , ,932 Total minimum lease payments receivable 2,940,373 Less unearned income (200,765) Present value of minimum lease payments $ 2,739,

240 C-38 NOTE G CAPITAL ASSETS CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) Capital asset activity for the year ended September 30, 2011 was as follows: Beginning Retirements Ending Balance Additions And Transfers Balance Governmental Activities: Capital assets not being depreciated: Land $ 78,405,657 $ 487,814 $ - $ 78,893,471 Construction in progress 5,392,825 6,206,436 (3,016,181) 8,583,080 Total capital assets not being depreciated 83,798,482 6,694,250 (3,016,181) 87,476,551 Capital assets being depreciated: Buildings 181,872,196 2,999,507 (34,403) 184,837,300 Improvements other than buildings 143,738,277 3,426,655 (84,313) 147,080,619 Infrastructure 133,907, , ,064,460 Equipment 47,298,994 3,747,384 (5,808,959) 45,237,419 Intangible Assets 5,435,187 - (107,591) 5,327,596 Total capital assets being depreciated 512,252,137 10,330,523 (6,035,266) 516,547,394 Less accumulated depreciation and amortization: Buildings 25,066,129 4,638,307 (1,935) 29,702,501 Improvements other than buildings 38,023,917 9,453,949 (14,228) 47,463,638 Infrastructure 94,640,341 5,859, ,499,616 Equipment 35,513,683 6,259,920 (6,428,207) 35,345,396 Intangible Assets 3,834, ,576-4,647,759 Total accumulated depreciation and amortization 197,078,253 27,025,027 (6,444,370) 217,658,910 Total capital assets being depreciated, net 315,173,884 (16,694,504) 409, ,888,484 Governmental activities capital assets, net $ 398,972,366 $ (10,000,254) $ (2,607,077) $ 386,365,035 Business-Type Activities: Capital assets not being depreciated: Land: Water and Sewer Systems Fund $ 6,228,453 $ - $ - $ 6,228,453 Nonmajor Funds 4,130, ,130,556 Total Land 10,359, ,359,009 Construction in Progress: Waterworks and Sewage Disposal System 18,647,690 22,323,246 (2,041,236) 38,929,700 Stormwater System 8,332,386 4,800,498 (767,053) 12,365,831 Nonmajor Funds 70,342 64,168 (49,780) 84,730 Total Construction in Progress 27,050,418 27,187,912 (2,858,069) 51,380,261 Total capital assets not being depreciated 37,409,427 27,187,912 (2,858,069) 61,739,270 NOTE G CAPITAL ASSETS CONTNUED CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) Beginning Retirements Ending Balance Additions And Transfers Balance Business-Type Activities - Continued: Capital assets being depreciated: Buildings: Water and Sewer System 89,565, ,565,782 Nonmajor Funds 10,055, ,055,123 Total Buildings 99,620, ,620,905 Infrastructure: Water and Sewer System 277,046,230 2,398,095 (549,385) 278,894,940 Stormwater System 52,556,927 1,166,328 (5,387) 53,717,868 Nonmajor Funds 6,253,132 49,780-6,302,912 Total Infrastructure 335,856,289 3,614,203 (554,772) 338,915,720 Equipment: Water and Sewer System 10,529, ,945 (761,079) 10,553,092 Stormwater System 2,798,300 36,463 (75,513) 2,759,250 Nonmajor Funds 1,867,431 50,258 (46,190) 1,871,499 Total Equipment 15,194, ,666 (882,782) 15,183,841 Intangible: Water and Sewer System 1,117,665 - (22,413) 1,095,252 Stormwater System Nonmajor Funds 38, ,000 Total Intangible 1,155,665 - (22,413) 1,133,252 Total capital assets being depreciated 451,827,816 4,485,869 (1,459,967) 454,853,718 Less accumulated depreciation and amortization: Buildings: Water and Sewer System 49,097,923 2,223,499-51,321,422 Nonmajor Funds 7,795, ,601-8,049,804 Total Buildings 56,893,126 2,478,100-59,371,226 Infrastructure: Water and Sewer System 58,773,672 6,880,177 (3,518) 65,650,331 Stormwater System 6,382,965 1,321,441-7,704,406 Nonmajor Funds 1,481, ,002-1,893,224 Total Infrastructure 66,637,859 8,613,620 (3,518) 75,247,961 Equipment: Water and Sewer System 7,546,194 1,030,687 (639,005) 7,937,876 Stormwater System 1,525, ,709 (74,892) 1,739,498 Nonmajor Funds 992, ,743 (46,190) 1,124,904 Total Equipment 10,064,226 1,498,139 (760,087) 10,802,278 Intangible: Water and Sewer System 977,267 19, ,840 Stormwater System Nonmajor Funds 4,394 13,894-18,288 Total Intangible 981,661 33,467-1,015,128 Total accumulated depreciation and amortization 134,576,872 12,623,326 (763,605) 146,436,593 Total capital assets being depreciated, net 317,250,944 (8,137,457) (696,362) 308,417,125 Business-type activities capital assets, net $ 354,660,371 $ 19,050,457 $ (3,554,431) $ 370,156,397 Continued

241 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE G CAPITAL ASSETS CONTINUED NOTE H LONG TERM DEBT CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) Bonds and notes outstanding at September 30, 2011 consist of the following for governmental activities: C-39 Governmental activities: General government $ 1,079,708 Community relations 25,526 Planning and zoning 3,534 Building permits 163,746 Police 433,438 Fire 385,359 Public works 15,919,764 Federal housing programs 156,104 Engineering services 489,872 Health and sanitation 166,811 Library 186,116 Parks and recreation 150,335 Downtown redevelopment 4,488,192 Northwood redevelopment 1,024,179 Code enforcement 9,764 Total depreciation expense - governmental activities $ 24,682,448 Business-type activities: Water and Sewage Disposal System $ 10,153,935 Stormwater System Fund 1,610,150 Nonmajor Funds 859,240 Total depreciation expense - business-type activities $ 12,623,325 GOVERNMENTAL ACTIVITIES: Maximum Purpose of Amount Amount Interest Annual Issue Issued Outstanding Rate Debt Service General Obligation Bonds: Series 2005, Refunding Refunding $ 14,975,000 $ 11,605, % % $ 1,555,500 14,975,000 11,605,000 Revenue Bonds: Guaranteed Entitlement: Series 2003, Refunding Refunding 10,500,000 4,265, % % 1,166,450 Public Service Tax Revenue: Series 2010, Refunding Refunding 11,170,000 7,860, % % 2,829,625 Community Redevelopment Agency: Series 2010A Refunding 9,829,000 8,566, % 1,113,985 Series 2010B Refunding 5,735,000 (1) 4,739, % 1,303,260 Series 2006A Redevelopment 77,175,000 77,175, % % 5,415,825 Series 2006B Redevelopment 10,355,000 3,400, % 1,801,127 Series 2005A Redevelopment 17,530,000 17,530, % 1,726,125 Series 2005B Redevelopment 7,280,000 6,365, % 849,183 Special Obligation: Series 2006 City facilities 43,000,000 43,000, % % 3,119, ,574, ,900,845 Notes Payable: Series 2006 Revenue Refunding Note Land acquisition 16,230,000 3,543, % 460,826 Series 2006 Revenue Note Public Safety 1,856,500 1,039, % 241,335 Promissory Note Convention Center 5,000,000 3,000, ,000 23,086,500 7,583,585 Total for Governmental Activities $ 230,635,500 $ 192,089,430 (1) The interest rate at September 30, 2011 for the 2010B Series Refunding Bond Issue was %. Amounts for general government activities include depreciation charged to internal service funds in the amount of $ 3,322,

242 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE H LONG TERM DEBT CONTINUED CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE H LONG TERM DEBT CONTINUED Bonds and notes outstanding at September 30, 2011 consist of the following for business-type activities: C-40 BUSINESS-TYPE ACTIVITIES: Maximum Purpose of Amount Amount Interest Annual Issue Issued Outstanding Rate Debt Service Utility System Revenue Bonds: Series 2004 Utility system $ 22,780,000 (1) $ 22,780, % % $ 5,158,575 Series 2008 B Utility system 12,372,390 (2) 9,582, % % 1,203,361 Series 2008 C Utility system 83,591,640 (3) 83,591, % 12,508,823 Utility System Revenue Refunding Bonds: Series 2008 A Refunding 47,605,950 (4) 46,313, % % 5,987,457 Series 2010 Refunding 15,140,000 (5) 14,940, % % 2,835,925 Series 2011 Refunding 15,264,000 (6) 15,264, % % 1,641,203 Notes and Loans: Payable to ECR (Joint Venture) Plant expansion 6,263,196 1,907, % % 434,070 Total Water and Sewer System Fund 203,017, ,379,165 Utility System Revenue Bonds: Series 2004 Storm Water 25,175,000 (1) 22,595, % % 1,594,354 Series 2008 B Storm Water 2,462,610 (2) 1,907, % % 239,518 Series 2008 C Storm Water 16,398,360 (3) 16,398, % 2,453,884 (1) The 2004 Series Bond Issue was split as follows: To the Water and Sewer System (Series A) $ 22,780,000 To the Storm Water System (Series B) 25,175,000 Total Series 2004 Issue $ 47,955,000 (2) The 2008 B Series Bond Issue was issued July, 2008 and was split as follows: To the Water and Sewer System $ 12,372,390 To the Storm Water System 2,462,610 Total Series 2008 B Issue $ 14,835,000 (3) The 2008 C Series Bond Issue was issued August, 2008 and was split as follows: To the Water and Sewer System $ 83,591,640 To the Storm Water System 16,398,360 Total Series 2008 C Issue $ 99,990,000 The 2008 C Bond Issue bears a variable interest rate based on LIBOR; the LIBOR rate at September 30, 2011 was.24%. (4) The 2008 A Series Refunding Bond Issue was issued July, 2008, refunded the 2005 Bond Issue and was split as follows To the Water and Sewer System $ 47,605,950 To the Storm Water System 6,369,050 Total Series 2008 A Refunding Issue Amount $ 53,975,000 (5) The 2010 Series Refunding Bond Issue was issued February, 2010 and refunded the 1998 Bond Issue. (6) The 2011 Series Refunding Bond Issue was issued June, 2011, refunded the 2002 Bond Issue and was split as follows: To the Water and Sewer System $ 15,264,000 To the Storm Water System 3,936,000 Total Series 2011 Refunding Issue Amount $ 19,200,000 Utility System Revenue Refunding Bonds: Series 2008 A Storm Water 6,369,050 (4) 6,196, % % 801,043 Series 2011 Storm Water 3,936,000 (6) 3,936, % % 423,203 Total Storm Water System Fund 54,341,020 51,032,880 Total Business-Type Activities $ 257,358,196 $ 245,412,

243 C-41 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE H LONG TERM DEBT CONTINUED Changes in governmental long-term debt for the year ended September 30, 2011 are summarized as follows: Amounts Due Beginning Ending Within Balances Additions Reductions Balances One Year Bonds payable: General obligation bonds $ 14,885,000 $ - $ 3,280,000 $ 11,605,000 $ 1,095,000 Revenue bonds 180,838,583-7,937, ,900,845 7,432,009 Unamortized premium, discount, and deferred loss on defeasance 3,934, ,866 3,753,096 - Net total 199,658,545-11,399, ,258,941 8,527,009 Notes payable 8,279, ,338 7,583, ,655 Unamortized loss on defeasance (8,850) - (805) (8,045) - Litigation settlements payable - 1,509, ,274 1,006, ,274 Capital lease obligations 1,295, , , ,957 Arbitrage payable 592,817-54, ,191 - Compensated absences 15,819, ,047 1,149,935 15,141,111 9,094,116 Self insurance claims payable 8,609,714 2,619,126 3,407,554 7,821,286 2,793,071 Landfill closure/postclosure 2,087,714 20,057-2,107, ,520 Governmental -Type Totals $ 236,335,302 $ 4,620,051 $ 17,516,889 $ 223,438,464 $ 22,111,602 Compensated absences payable are liquidated from the funds used to account for related salary and benefit costs. Historically, about 89% has been charged to the general fund and other governmental funds and about 11% has been charged to enterprise funds. Landfill closure and postclosure care liabilities are expected to be liquidated from the general fund. With respect to certain governmental revenue bond and notes, the City has pledged various revenues to repay these debt instruments. All revenue pledges remain in effect for the life of the relevant debt instrument. The following table presents revenue pledge information on the City s collateralized governmental debt. FY11 FY11 Revenue Debt Service Pledged Revenue Source Total Debt Issue Amount State Revenue Sharing Proceeds $ 2,874,372 Series 2003 Guaranteed Entitlement Bonds $ 1,191,750 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE H LONG TERM DEBT CONTINUED Changes in business-type long-term debt for the year ended September 30, 2011 are summarized as follows: Amounts Due Beginning Ending Within Balances Additions Reductions Balances One Year Water and Sewer Systems Fund Revenue bonds $ 197,734,995 $ 15,264,000 $ 20,526,875 $ 192,472,120 $ 3,662,446 Unamoritzed premium, discount and deferred loss on defeasance (5,142,834) 1,282,894 (677,986) (3,181,954) - Net bonds payable 192,592,161 16,546,894 19,848, ,290,166 3,662,446 Notes payable 2,287, ,207 1,907, ,009 Compensated absences 1,947, , ,554 1,926,595 1,177,343 Fund totals 196,826,964 16,673,491 20,376, ,123,805 5,229,798 Stormwater System Fund Revenue bonds 52,675,005 3,936,000 5,578,125 51,032,880 1,222,555 Unamoritzed premium, discount and deferred loss on defeasance (690,874) 331,318 (151,632) (207,924) - Net bonds payable 51,984,131 4,267,318 5,426,493 50,824,956 1,222,555 Compensated absences 279,015 45,769 14, , ,818 Fund totals 52,263,146 4,313,087 5,441,390 51,134,843 1,406,373 Nonmajor Business-Type Funds Compensated absences 102,802 12,927 5, ,880 68,328 Fund totals 102,802 12,927 5, ,880 68,328 Business-Type Totals $ 249,192,912 $ 20,999,505 $ 25,823,889 $ 244,368,528 $ 6,704,499 Public Service Tax Revenues 19,470,328 $ Series 2010 Public Service Tax Bonds $ 3,702,650 Northwood/Pleasant City Tax Increment Revenue 1,703,019 $ CRA Series 2005A Bonds $ 877,039 CRA Series 2005B Bonds 844,770 $ 1,721,809 City Center CRA Tax Increment Revenue 12,308,235 $ CRA Series 2006A Bonds 3,566,950 CRA Series 2006B Bonds 1,766,223 CRA Series 2010A Bonds 1,113,912 CRA Series 2010B Bonds 1,187,867 $ 7,634,952 Non-Ad Valorem Tax Revenue 29,776,890 $ Series 2006 Special Obligation Bonds $ 2,013,248 The City has pledged future utility customer revenues, net of specified operating expenses, to repay $243.5 million in various Water System and Stormwater System revenue and revenue refunding bonds which were issued between FY04 and FY11. Proceeds from these bonds provided financing for various Utilities System infrastructure improvements including the modernization of the City s water filtration plant. The bonds are payable solely from utility customer net revenues and are payable through The total principal and interest remaining to be paid on the bonds is $334,266,922. Principal and interest paid for the current year and total customer net revenues were $35,025,732 and $42,655,056, respectively

244 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE H LONG TERM DEBT CONTINUED Following is a schedule of debt service requirements for governmental activity bonds, notes, capital leases, and legal settlements payable: GOVERNMENTAL ACTIVITIES CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE H LONG TERM DEBT CONTINUED Following is a schedule of debt service requirements for business-type bonds, notes, capital leases, and legal settlements payable: BUSINESS-TYPE ACTIVITIES C-42 Fiscal General Obligation Bonds Revenue Bonds Year Principal Interest Total Required Principal Interest Total Required 2012 $1,095,000 $457,630 $1,552,630 $7,432,009 $7,984,768 $15,416, ,130, ,001 1,553,001 7,822,674 7,660,999 15,483, ,165, ,123 1,551,123 8,098,823 7,295,081 15,393, ,215, ,525 1,551,525 5,172,653 6,979,205 12,151, ,275, ,275 1,549,275 5,423,061 6,719,013 12,142, ,725, ,000 6,202,000 27,261,625 29,556,512 56,818, ,610,000 22,600,238 51,210, ,310,000 14,859,195 51,169, ,760,000 5,634,689 49,394, ,010,000 66,973 3,076,973 Total 11,605,000 $2,354,554 $13,959, ,900,845 $109,356,673 $282,257,518 Current portion (1,095,000) (7,432,009) Premium/ Discount 104,092 4,335,952 Deferred Refunding Loss (360,373) (326,574) Long-term $ 10,253,719 portion $ 169,478,214 GOVERNMENTAL ACTIVITIES Govermental Fiscal Notes/Loans Capital Leases Activities Year Principal Interest Total Required Principal Interest Total Total Required Requirements 2012 $718,655 $233,049 $951,704 $317,957 $35,781 $353,738 $18,274, , , , ,688 23, ,432 18,262, , , , ,724 15, ,125 18,089, , , , ,000 8, ,126 14,848, , , ,481 58,708 1,242 59,950 14,702, ,238, ,928 3,550, ,570, , , ,710, ,169, ,394, ,076,973 Total 7,583,585 $1,225,586 $8,809,171 $989,077 $84,294 $1,073,371 $306,099,614 Current portion (718,655) (317,957) Premium/ Discount - - Deferred Refunding Loss (8,045) - Long-term $ 6,856,885 portion $ 671,120 Fiscal Water/Sewer Bonds Stormwater Bonds Year Principal Interest Total Required Principal Interest Total Required 2012 $3,662,445 $4,895,805 $8,558,250 $1,222,555 $1,534,246 $2,756, ,508,155 4,940,554 8,448,709 1,191,845 1,536,045 2,727, ,629,070 4,816,446 8,445,516 1,230,930 1,494,710 2,725, ,762,280 4,666,966 8,429,246 1,272,720 1,447,120 2,719, ,926,035 4,500,509 8,426,544 1,323,965 1,395,847 2,719, ,196,865 19,881,458 42,078,323 7,458,135 6,111,332 13,569, ,848,450 14,888,427 43,736,877 8,461,550 4,406,922 12,868, ,975,660 8,512,412 46,488,072 10,179,340 2,565,034 12,744, ,931,560 2,380,739 51,312,299 11,623, ,470 12,298, ,031,600 93,529 36,125,129 7,068,400 18,348 7,086,748 Total 192,472,120 $69,576,845 $262,048,965 51,032,880 $21,185,074 $72,217,954 Current portion (3,662,445) (1,222,555) Premium/discount 1,913, ,447 Deferred Refunding Loss (5,095,830) (532,371) Long-term portion $ 185,627,720 $ 49,602,401 BUSINESS-TYPE ACTIVITIES Business - Type Fiscal Water/Sewer Notes/Settlements Payable Activities Year Total Principal Interest Total Required Requirements 2012 $390,009 $44,061 $434,070 $11,749, ,065 34, ,070 11,610, ,381 23, ,070 11,605, ,963 13, ,070 11,583, ,627 2, ,355 11,434, ,647, ,605, ,232, ,611, ,211,877 Total 1,907,045 $117,590 $2,024,635 $336,291,554 Current portion (390,009) Premium/discount - Deferred Refunding Loss - Long-term portion $ 1,517,

245 C-43 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE H LONG TERM DEBT CONTINUED INTEREST RATE SWAP: Type of Derivative: Pay-Fixed, Receive-Variable Interest Rate Swap On August 19, 2008, the City issued the $99,990,000 Series 2008 C Utility System Variable Rate Revenue Bonds. Concurrently, the City entered into a synthetic fixed rate bond swap agreement totaling $56,335,000. The swap agreement is attributable to $56,335,000 of the $99,990,000 Series 2008 C Utility System Variable Rate Revenue Bonds which are described above. Objective of the hedge and the nature of the hedged risk: In an effort to lower its borrowing costs when compared against fixed rate bonds at the time of issuance, the City issued variable rate debt (with a weekly reset) and entered into a corresponding fixed rate bond swap agreement. The intention of the swap was to effectively change the City s variable interest rate on the bonds to a synthetic fixed rate of 3.539%. Notional Amount: $56,335,000 Effective Date of Derivative: August 20, 2008 Maturity Date of Derivative: October 1, 2038 Terms Under the swap agreements, the City pays the counterparty a fixed payment of 3.539% (based on the initial notional amount of $56,335,000). Correspondingly, the City receives a variable payment which is computed as 72% of the monthly London InterBank Offered Rate (LIBOR). The variable rate on the bonds is reset weekly by auction. Starting in fiscal year 2035, the notional value of the swap and the principal amount of the associated debt decline annually until the debt is completely retired. The bonds and the related swap agreement mature on October 1, As of September 30, 2011, rates were as follows: Interest Rate Swap Rate Table Interest Rate Swap: Terms Rates Fixed Payment to Counterparties Fixed 3.539% Variable Payment from Counterparties 72% of Monthly LIBOR rate (.173%) Net Interest Rate Swap Payments 3.366% Variable Rate Bond Coupon Payments 7 Day Market Rate 0.170% Synthetic Interest Rate on Bonds 3.536% Type of Hedge Discrete Cash Flow: The primary objective of the above referenced derivative (the City s interest rate swap) is to function as a hedging instrument. As a derivative instrument associated with a hedgeable item, this interest rate swap is effective by significantly reducing an identified financial risk by substantially offsetting changes in the cash flows of the Series 2008 C Utility System Variable Rate Revenue Bonds CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE H LONG TERM DEBT CONTINUED Interest Rate Swap Effectiveness and Valuation: To evaluate the effectiveness of the City s hedging derivative (the swap), the City employed the Regression Analysis Method. Regression analysis measures the statistical relationship between the fair value or cash flows of the potential hedging derivative and the hedgeable item. For cash flow hedges, the relationship analyzed should be relevant cash flows, rates, or fair values. Linear regression is a common statistical tool used to measure correlation and produce a linear function that can be used to predict results, if the data is highly correlated. For the analysis, the potential hedging derivative is the independent variable and the hedgeable item is the dependent variable. The regression analysis should be based on sufficient data to determine if the potential hedging derivative instrument is effective as of the end of the reporting period. The changes in cash flows or fair values of the potential hedging derivative instrument substantially offset the changes in cash flows or fair values of the hedgeable item if all of the following criteria are met: a. The R 2 of the regression analysis is at least b. The F-statistic calculated for the regression model demonstrates that the model is significant using a 95 percent confidence interval. Generally, this means an F-significance at or near zero. c. The regression coefficient for the slope is between and The City used rate regression to determine hedge effectiveness. The specific amounts and dates of the hedged item are as follows: October 1, 2035 $13,235,000 October 1, 2036 $13,790,000 October 1, 2037 $14,360,000 October 1, 2038 $14,950,000 The benchmark interest rate for the bonds is the SIFMA swap index. Paragraph 114 of GASB 53 states that the SIFMA swap index is identified as a benchmark interest rate. A benchmark index may be used in cash flow hedges when the hedged items are variable rate bonds. Accordingly, SIFMA is the dependent variable and 72% of LIBOR is the independent variable. The City s regression analysis used weekly rates, beginning on January 3, 1990 to September 30, 2011 (this encompasses 1,135 weekly observations with over 20 years of data history). The City s regression analysis yielded an R 2 equal to , an F-significance of zero, and a regression coefficient for the slope of ; as such, the swap is an effective hedge. Changes in Fair Value Fair Values at 09/30/2011 Business-type activities Classification Amount Classification Amount Notional Cash flow hedge: Pay-fixed, receive-variable interest rate swap Deferred Outflow $ (5,326,608) Debt $ (18,148,163) $ 56,335,000 Fair Value As of September 30, 2011, the swap had a negative fair value of $18,148,163. The swap s negative fair value is due to the interest rate of the counterparty (at September 30, 2011) being less than the original counterparty rates. However, because the coupons on the City s variable rate bonds adjust to changing interest rates, the swap still functions effectively as a hedge against interest rate volatility on those bonds. The swap s fair value estimate is derived from an independent market evaluation which uses the zero coupon method based on proprietary assumptions. The valuation model calculates future cash flows by projecting forward swap rates and then discounts those cash flows at their present value

246 C-44 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE H LONG TERM DEBT CONTINUED Interest Rate Swap Risks: Credit Risk Credit risk is the risk that the counterparty to the swap agreement will not fulfill its obligations when the swap has a positive fair value to the City. In any period when the swap has a positive fair value, the City is exposed to actual credit risk in the amount of the swap s fair value. The swap counterparty has guaranteed all payments due under the swap agreement. As of September 30, 2011, the swap counterparty had the following ratings: Citibank NA was rated A+ by Fitch Ratings, A+ by Standard & Poor s and A1 by Moody s Investors Service. To mitigate the potential for credit risk, if the counterparties credit ratings fall below A-/A3, the counterparties will fully collateralize the fair value of the swap (with U.S. Government Securities). Basis Risk Instead of the actual variable debt interest payment, the City s interest rate swap is based on a fixed payment and an indexed variable receipt. Any difference between the indexed variable receipt and the actual market-determined variable rate paid on the bonds is called basis risk. Whereas the underlying swap agreement pays the City at 72% of the 1 month LIBOR rate, the Series 2008 C Utility System Variable Rate Revenue Bonds bear interest at the seven day market rate. From August 19, 2008 to the termination date, the swap exposes the City to basis risk should the relationship between LIBOR and the seven day market rate converge (thereby changing the synthetic rate on the bonds). If a change occurs that results in the rates moving to convergence, the City s payments out may be in excess of its payments received from the counterparty and the City s expected cost savings may not be realized. Termination Risk The City s derivative contract uses the International Swaps and Derivatives Association s Master Agreement. The ISDA Master Agreement includes standard termination events, such as failure to pay and bankruptcy. The Schedule to the Master Agreement also includes additional termination events. Accordingly, if the counterparty s credit quality rating falls below BBB- as issued by Standard & Poor s or Baa3 as issued by Moody s Investors Service, the City may terminate the swap. The City or the counterparty may terminate the swap if the other party fails to perform under the terms of the contract. If the swap is terminated, the variable rate bonds would no longer carry a synthetic interest rate and the City would no longer be insulated from the possibility of increasing interest rate payments. A termination of the swap agreement may also result in the City making or receiving a termination payment (equal to the swap s fair value at the termination date). CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE H LONG TERM DEBT CONTINUED Swap Payments and Associated Debt The interest rate swap agreements do not affect the City s obligation (under the bond indenture) to repay the principal and variable interest on the Series 2008C bonds. As interest rates vary, the variable rate interest payments and swap payments will vary. Using rates as of September 30, 2011, debt service requirements of the variable rate bonds and the swap payments, assuming current interest rates remain the same for their term, were as follows: Debt Service Requirements to Maturity and Net Swap Payments 2008C Utility System Revenue Bonds Variable Rate Bonds Fiscal Liquidity Remarketing Interest Rate Year Principal Interest (1) Fees (2) Fees (3) Swap, Net (4) Total 2012 $ - $ 169,983 $ 599,940 $ 89,991 $ 3,365,663 $ 4,225, , ,940 89,991 3,365,663 4,225, , ,940 89,991 3,365,663 4,225, , ,940 89,991 3,365,663 4,225, , ,940 89,991 3,365,663 4,225, , ,630 2,997, ,654 16,817,041 21,449, ,415, ,349 2,855, ,319 16,019,131 27,533, ,930, ,965 2,579, ,987 14,473,295 31,112, ,210, ,834 1,824, ,735 10,237,689 49,094, ,100, , ,560 39,834 1,489,792 45,007,063 99,990,000 3,916,570 13,523,220 2,028,484 75,865, ,323,537 Total $ 99,990,000 $ 3,916,570 $ 13,523,220 $ 2,028,484 $ 75,865,263 $ 195,323,537 (1) The interest rate at September 30, 2011 for the variable rate bonds was.17% (2) Liquidity fees are 60 basis points or.60% of the outstanding bond principal amount and provide for a ready buyer in the event that there are no other bond buyers when these bonds are remarketed weekly (3) The remarketing fees are 9 basis points or.09% of the outstanding bond principal amount (4) Computed: (3.539% -.173%) multiplied by the notional amount outstanding (see Interest Rate Swap Rate Table) Rollover Risk Because the maturity dates for the hedged Series 2008 C Utility System Variable Rate Bonds and the interest rate swap agreement are the same (October 1, 2038), the City is not exposed to rollover risk. Interest Rate Risk The hedging derivative is a pay-fixed, receive variable cash flow hedge that is hedging interest rates on a portion of the 2008C bonds outstanding. The City believes that it has significantly reduced interest rate risk attributable to the principal amount being hedged by entering into the interest rate swap.. Foreign Currency Risk Foreign currency risk is the risk that changes in exchange rates would adversely affect the fair value of the derivative or cash flows of the City. With respect to the City s derivative and the related cash flows, the City has no exposure to foreign currency risk

247 C-45 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE I DEFEASED AND REFUNDED DEBT On June 29, 2011, the City issued the Series 2011A Utility System Revenue Refunding Bonds thereby refunding the Series 2002 Utility System Revenue Refunding; the refunding was a current refunding and extinguished all of the outstanding Series 2002 Utility System Revenue Refunding Bonds. The refunding resulted in an economic loss of $104,473 and a projected cash savings of $1,465,289. The assets of the trust accounts and the liability for defeased bonds are not included in the City s financial statements. On September 30, 2011, the City had no outstanding bonds which were considered in substance defeased. NOTE J CAPITAL LEASE OBLIGATIONS Governmental Activities On February 4, 2003, the City entered into a capital leasing arrangement to acquire a platform truck and a ladder truck for the Fire Department. As of September 30, 2011, the $1,349,974 original present value of the minimum payments under the arrangement is included in capital assets net of accumulated depreciation in the amount of $1,113,729. On August 15, 2005, the City entered into a ten year capital leasing arrangement to acquire a heavy duty ladder truck for the Fire Department. As of September 30, 2011, the $600,365 original present value of the minimum payments under the arrangement is included in capital assets net of accumulated depreciation in the amount of $432,566. On June 1, 2006, the City entered into a ten year capital leasing arrangement to acquire two custom rear mount pumper trucks for the Fire Department. The two pumper trucks were placed in service in September 2006 and, as of September 30, 2011, the $970,267 original present value of the minimum payments under the arrangement is included in capital assets net of accumulated depreciation in the amount of $540,179. Future minimum lease obligations of the governmental activities are as follows: Year ending September 30: Amount 2012 $ 353, , , , ,950 Total minimum lease payments 1,073,371 Less: Amount representing interest 84,294 Present value of minimum lease payments $ 989,077 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE K INTERFUND RECEIVABLES, PAYABLES AND ADVANCES The composition of interfund balances as of September 30, 2011 is as follows: Due to/from other funds: Receivable Fund Payable Fund Amount General Fund City Center CRA Fund $ 1,636,658 Nonmajor Governmental Funds 1,632,018 Nonmajor Enterprise Funds 80,000 Internal Service Funds $ 827,771 4,176,447 Amounts receivable from nonmajor governmental funds represent short-term loans made to cover temporary negative balances in each fund s equity in pooled cash at year-end. Amounts receivable from the CRA Fund and the nonmajor enterprise fund represent the portion of interfund advances that are to be repaid in fiscal year Advances to/from other funds: Receivable Fund Payable Fund Amount General Fund City Center CRA Fund $ 8,267,704 Nonmajor Enterprise Fund 1,275,000 Stormwater Fund City Center CRA Fund $ 759,094 10,301,798 City Center Community Redevelopment Agency Fund: The City Center CRA Fund currently has three outstanding advances. $6.5 million is owed to the General Fund for a FY09 advance (per interlocal agreement) to finance the purchase of a parcel of land in the City Center CRA area. Under the terms of the interlocal agreement, repayment will be made over a 20 year period with interest at 4.5%. $1.8 million owed to the General Fund is the result General Fund s cash refunding of revenue bonds. There is $.7 million remaining of an advance booked in FY08 to recognize reimbursable amounts for FY00 work done by the Stormwater fund on behalf of the City Center CRA for the CityPlace project. Upon the sale of certain assets, contractual agreements with the CityPlace developers require them to repay the CRA the actual costs of the work plus interest. The advance was set up to recognize the City Center CRA s obligation to repay the amounts to the Stormwater fund when the asset sale proceeds are received. Golf Course Fund: An advance in the amount of $1 million was made in FY09 to finance renovation of the City's golf course. In FY10, the Golf Commission increased the advance by $500,000. This advance was made in accordance with an interlocal agreement between the City and the Golf Commission. Repayment will be made over a period of up to 15 years based on a schedule included in the agreement

248 C-46 NOTE L INTERFUND TRANSFERS CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) Following is a summary of interfund transfer activity: Transfer-In Funds: Non-Major Internal Transfer-Out Funds: General CRA Northwood Governmental Service Total General $ - $ 12,308,235 $ 1,703,019 $ 7,845,772 $ 1,390,420 $ 23,247,446 CRA 3,130,801 4,065,284 7,196,085 Northwood /Pleasant City CRA 1,672,069 1,672,069 Nonmajor Governmental 204,454 8,386,415 19,253 8,610,122 Stormwater 27,206 27,206 Water & Sewer 7,578, ,935 7,850,541 Internal Service 40,407 40,407 Nonmajor Enterprise 435,000 9, ,626 Total Transfers $ 11,348,861 $ 12,308,235 $ 1,703,019 $ 21,969,540 $ 1,758,847 $ 49,088,502 Transfers-out from the General Fund to the City Center CRA Fund and the Northwood/Pleasant City CRA Fund represent the City s contribution of tax increment which is statutorily obligated to be invested in the respective CRA areas. Other transfers-out from the General Fund to Nonmajor Governmental Funds were for the purposes of funding debt service requirements, capital improvements, technology replacement, and grant matching. Transfers-out from the City Center CRA Fund to the General Fund represent funding for debt service obligations. Transfers-out from the Water and Sewer Systems Fund to the General Fund represent Payments-In- Lieu-Of-Taxes (i.e. PILOT ). Transfers to the Internal Service funds were primarily for technology replacement and improvements as well as OPEB contributions. NOTE M STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budget Annual budgets are adopted for all the major and non-major governmental funds excluding the Cemetery Sinking and the Red Light Camera Revenue special revenue funds. Except for the general fund, these budgets are prepared on the modified accrual basis of accounting. In the General Fund, budgets are prepared on the modified accrual basis of accounting except that current year encumbrances are treated as expenditures for budgetary purposes and administrative charges to other funds are budgeted as revenue in the General Fund. CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE M STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY CONTINUED Budget - Continued General Fund Changes Addition of $449 thousand from the carryforward of fund balance for previously approved projects that had not been fully expended or encumbered by year end. City Center CRA Fund Changes: Addition of $4.8 million from the carryforward of fund balance for previously approved projects that had not been fully expended or encumbered by year end. Northwood/Pleasant City CRA Fund Changes: Addition of $759 thousand from the carryforward of fund balance for previously approved projects that had not been fully expended or encumbered by year end. Community Development Fund Changes: Addition of $3.3 million to repay the U.S. Department of Housing and Urban Development. Neighborhood Stabilization Fund Changes: Addition of $2.1 million for the receipt of a Neighborhood Stabilization Program Three Grant. Other Capital Projects Fund Changes: Addition of $750 thousand for the receipt of a Florida Department of Transportation grant for Seaboard Railway Station improvements. Addition of $823 thousand for the receipt of a South Florida Regional Transportation Authority grant for Seaboard Railway Station parking lot improvements. Addition of $1.1 million for the receipt of a Florida Department of Transportation grant for the North Flagler Bike Trail. All unencumbered and unexpended appropriations lapse at fiscal year end except those for ongoing capital projects and special revenue funds which are brought forward and become part of the subsequent year s original budget. Appropriations at year-end that are encumbered but unexpended are also brought forward and become part of the subsequent year s original budget. Supplemental appropriations made during the fiscal year are included in the Final Budget columns on the statements of revenues, expenditures and changes in fund balances budget and actual. Supplemental budgetary appropriations made during the year included the following:

249 C-47 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE M STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY CONTINUED Budgetary control Expenditures may not legally exceed appropriations at the fund and department level without Commission approval. Changes within a fund and department which do not affect the departmental total may be approved on the administrative level. The City Administrator and Finance Director have the authority to approve such administrative changes. For the fiscal year ended September 30, 2011, expenditures exceeded the legal level of budgetary control as follows: Fund/Department Amount General Fund Non-departmental General Fund Expenditures $ 2,486,608 Nonmajor Governmental Funds: Red Light Camera Revenue Fund 184,504 Capital Improvement Revenue Note Debt Service Fund 142 Pass-through expenditures of Chapter 175 & 185 tax money are recorded as expenditures in the Nondepartmental General Fund cost center but were not budgeted. The City refunded Red Light Camera fines after the legality of those fines was challenged. The Capital Improvement Revenue Note Debt Service Fund experience administrative costs that were slightly higher than anticipated. Deficit fund equity At September 30, 2011, the following funds had deficits in fund equity: Fund Type/Fund Amount Nonmajor Governmental Funds Permit Fund $ 565, Guaranteed Entitlement Debt Service Fund 9, General Obligation Bond Debt Service Fund 2, Bond Construction Fund 258,009 Internal Service Fund Fleet Management Fund 523,537 The Permit Fund has operated at a loss for the past 3 years due to the recession and resulting decreases in construction activity. Management has drastically reduced staffing and made other cuts which have decreased the magnitude of the losses. It is believed that new projects beginning to come on line in fiscal year 2012 will erase the deficit fund balance by the end of fiscal year Underestimation of the amount of interest revenue to be earned during the fiscal was the cause of the deficits in the 2003 Guaranteed Entitlement and the 2005 General Obligation Bond debt service funds. Those deficits will be made up in fiscal year 2012 by additional transfers in from the General Fund. The amount of required transfers-in to the 2009 Bond Construction Fund were underestimated for fiscal year Additional transfers-in will be made in fiscal year 2012 to correct the deficit. The Fleet Management internal service fund experienced higher than anticipated costs for fuel and parts in fiscal year The resulting deficit will be corrected in fiscal year 2012 by a combination of cost reductions and additional charges from operating funds. CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE M STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY CONTINUED Nonmajor Governmental Funds: The deficit in the Permits Fund was the result of a continuing decline in building permit activity due to economic conditions. The deficits in the 2003 Guaranteed Entitlement and 2005 General Obligation Debt Service Funds were the result of pooled investment earnings being less than anticipated due to declining economic conditions. These deficits will be corrected by additional transfers from the General Fund in future years. Although funds were transferred to rectify the 2009 Bond Construction Fund s FY2010 deficit fund equity, unanticipated expenses arose late in fiscal year Internal Service Funds: The deficit in the Fleet Management Fund will be covered by additional contributions from the user funds. In addition, the City is continually looking for ways to reduce the costs of services. NOTE N INSURANCE/SELF-INSURANCE PROGRAM The City maintains two insurance funds, the Employee Health and Life Insurance Fund and the Self Insurance Fund. These funds are categorized as internal service funds. The Employee Health and Life Insurance Fund is used to account for group health and life insurance benefits for eligible City employees and certain retirees. The Self Insurance Fund is used to account for the City's general, automotive and workers' compensation liability claims. Insurance claims liabilities and expenses are recognized when it is probable a loss has occurred and the amount of the loss can be reasonably estimated. Employee Health and Life Insurance Fund The City currently has a fully insured group health plan for all employees except firefighters. Police employees have a PPO (preferred provider organization) health plan that is fully insured through Blue Cross, Blue Shield of Florida. The plan has an in-network and out-of-network benefit. The dental plan for police is also through Blue Cross, Blue Shield of Florida and is fully insured with an in-network and out-of-network benefit. General employees have health insurance through CIGNA which is minimum premium. Employees are offered two (2) health options: 1.) Open Access Plus In Network (OAPIN) and 2.) Open Access Plus (OAP). Both plans use the same network of physicians; however, the OAP plan has an out-of-network benefit in addition to the Open Access Plus. Dental insurance is provided through Humana and employees have three (3) options: 1.) DMO CS150 2.) Advantage Plus AVN4S and 3.) Elite Preferred 710 PPO. The DMO plan is an in-network only plan that requires the member to select and receive services from a Primary Dental Provider and the Advantage plan has an in-network only plan that allows you to receive service from any dental provider without first selecting/coordinating your care through a primary dental provider. The Elite Preferred PPO plan is an open access plan that allows you to receive services from a dental provider without first selecting/coordinating your care through a primary dental provider. There are in/out of network providers for this plan. Premium varies depending on the plan selected. Police and General employees have vision insurance through Humana and the plan offers an in/out of network level of benefit

250 C-48 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE N INSURANCE/SELF-INSURANCE PROGRAM CONTINUED Employee Health and Life Insurance Fund - Continued Police, General, and Fire employees are offered life insurance (voluntary life through Hartford Life) in the amount of one times their annual salary. General employees are offered Long Term Disability (LTD) which is income replacement insurance which pays the employee 60% of basic monthly earnings. This benefit is provided through Hartford Life. Self-Insurance Fund For the fiscal year ended September 30, 2011, the City was self-insured for general liability for the first $250,000 of each claim with excess insurance purchased to cover claims above $250,000 and up to $4,000,000 per occurrence and in the aggregate. For workers compensation, the City was self-insured for the first $500,000 of each claim and purchased coverage for claims in excess of that amount. The City also purchased excess property insurance for a total insured value of $255,333,129 with a self insured deductible of $100,000 per occurrence for all insured perils other than named windstorms. For the City's master property program, the named windstorm coverage carries a deductible per occurrence of 5% of the value of the affected property subject to a minimum of $1,500,000. The City's water facilities carry a self insured deductible of $100,000 for all covered perils other than named windstorms, for which the deductible is 5% of the value of the affected property subject to a $500,000 minimum per occurrence. The City Center property carries a self insured deductible of $100,000 for all covered perils other than named windstorms, for which the deductible is 5% of the value of the affected property subject to a $1,000,000 minimum per occurrence. Liabilities and claims expense as reported in the Self Insurance Fund were estimated based primarily on an actuarial valuation of the fund as of September 30, 2010, using actuarially determined loss factors. The estimates in the 2010 report were updated for September 30, 2011 using actual reported incurred claims and actual claims paid during the fiscal year. Incurred but not reported losses for fiscal year 2011 were estimated based on past experience. The estimated insurance claims payable at September 30, 2011, including incurred but not reported claims, amounted to $7,622,968, of which $2,793,071 is expected to be paid in fiscal year The long term portion of the actuarially estimated claims payable has been discounted at 4.5% for the financial statements. Those amounts, combined with estimated liabilities that are not included in the actuary report, bring the fund's total claims liabilities to $7,821, CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE N INSURANCE/SELF-INSURANCE PROGRAM CONTINUED Following is a summary of the changes in claims liability for the Self Insurance Fund for the fiscal years ended September 30, 2011 and 2010: Fiscal Year Fiscal Year Unpaid claims as of October 1 $ 8,609,714 $ 9,150,021 Incurred claims (including claims incurred but not reported as of September 30): Provision for current year events where the City retained risk of loss 3,070,109 2,545,650 Increases (decrease) in provision for prior years' events where the City has retained risk of loss (576,726) 235,631 Total incurred claims 2,493,383 2,781,281 Payments: Claims attributable to current year events where the City has retained risk of loss 1,153, ,552 Claims attributable to prior years' events where the City has retained risk of loss 2,128,112 2,746,036 Total payments 3,281,811 3,321,588 Unpaid claims as of September 30 $ 7,821,286 $ 8,609,714 The non-discounted value of the total claims liability was $8,284,002 and $10,072,863 in 2011 and 2010, respectively. Cash was available to fund claim payments and expenses in both years. NOTE O COMMITMENTS AND CONTINGENCIES Construction and Equipment Contracts At year end, the City had the following significant commitments related to uncompleted contracts for construction and equipment: Governmental Funds: Special Revenue Funds Road Improvements 349,352 Community development 142,816 Fire equipment 82,702 Capital Projects Funds Streetscapes and Parks 4,078,000 Enterprise Funds: Waterworks and Sewage Disposal Fund Water plan 7,289,386 Distribution System 7,592,039 Sewer Collection System 2,635,389 Stormwater System Fund Stormwater Collection 1,374,369

251 C-49 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE O COMMITMENTS AND CONTINGENCIES CONTINUED Litigation, Claims and Assessments The City is engaged in routine litigation, claims and assessments incidental to the conduct of its business. In the opinion of the City Attorney, the ultimate outcome of any pending litigation, claims and assessments which represent potential liability to the City in excess of either amounts already provided for in the accompanying financial statements, or covered by insurance, will not have a material or adverse effect on its financial position. State and Federal Grants Grant funds received and disbursed by the City are for specific purposes and are subject to audit by the grantor agencies. Amounts received or receivable from the agencies are subject to audit and adjustment. Any disallowed claims, including the amounts already collected, may constitute a liability of the applicable funds. Future disallowances, if any, cannot be determined at this time although in the opinion of management, any disallowed expenditures would not have a material adverse effect on the financial condition of the City. Pursuant to an OIG audit by the U.S. Inspector General of the City's Community Development Block Grant program, in a letter dated July 8, 2011the U.S. Department of Housing and Urban Development ("HUD") requested reimbursement for ineligible costs in the amount of $1,679,821. Based on the following repayment plan, the City is required to return $1,679,821 to its line of credit. 10% of down payment in the amount of $170,000 1 st year $503, (09/30/2011) 2 nd year $503, (09/30/2012) 3 rd year $ (09/30/2013) Total repayment $1,679,821 The return of these funds can be reallocated to future City projects in certain target areas. CityPlace Community Development District Debt On December 8, 1998, the CityPlace Community Development District ("CDD") issued $55,150,000 Capital Improvement Revenue Bonds, Series These bonds were issued to fund capital improvements, a reserve account and three years of the interest portion of debt service payments. The primary pledge of the bonds is special assessments on the properties within the CDD. The CRA has pledged certain tax increment revenues for properties within the CDD and up to $2 million of the existing tax increment revenues generated outside the CDD. In addition, by interlocal agreement, the City pledged to covenant and budget, each year until certain conditions were met, an amount sufficient to cover a deficit in the related bond reserve account, should one occur. As of September 30, 2011, those conditions have been met and the City has been released from that pledge. The CRA payments, together with the special assessments required to be levied by the CDD, are anticipated to fully fund the debt service requirements. As of September 30, 2011, neither the City nor the CRA has an outstanding liability to the CDD. NOTE P CLOSURE AND POSTCLOSURE CARE COST CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE P CLOSURE AND POSTCLOSURE CARE COST CONTINUED Expenses incurred to properly close the landfill are being recognized in the Engineering and Public Works Department of the General Fund. A liability in the amount of $2,107,771 for remaining closure and postclosure care cost is reported under governmental activities in the government-wide Statement of Net Assets. This liability is based on the estimated cost to perform all closure and postclosure care as of September 30, The State of Florida Department of Environmental Protection requires such estimates be stated in current year dollars and increased each year by an inflation factor based on the Consumer Price Index, as determined by DEP. Actual costs may increase or decrease due to inflation or deflation, changes in technology or applicable laws and regulations. The ultimate disposition of the property is still undetermined (including the allowable uses thereof); as such, there is no reduction in the liability. The amounts recognized have been estimated by department and external engineers and are considered sufficient by management. The total liability consists of $102,000 for remaining closure costs and $2,005,771 for postclosure care. The City has not restricted any assets to fund these costs and intends to budget for them on a year-to-year basis. NOTE Q EMPLOYEE RETIREMENT PLANS During the fiscal year ended September 30, 2011, the City participated in four single employer pension plans covering substantially all full-time employees; three defined benefit pension plans Restated Employees Retirement System, Police Pension and Firefighters Pension, and one defined contribution pension plan, Public Employee Defined Contribution Plan (PEDCP). Each defined benefit pension plan is administered by an independent board of trustees. The City also participated in three Voluntary Employees Beneficiary Association plans, one for the West Palm Beach Association of Firefighters, one for the Police Benevolent Association, and one for Public Employees. DEFINED BENEFIT PLANS West Palm Beach Restated Employees Defined Benefit Retirement System Fund ("RRSF") The RRSF was established under Ordinance No adopted August 11, Description and Funding Policy of Plan: The RRSF, a successor plan to the City of West Palm Beach Employees Retirement System ( ERS ), provides retirement benefits for its members, those City employees who were active members of ERS as of September 10, All members of RRSF are vested and the plan is closed to new members. Members of the plan make regular contributions to the fund at a rate equal to 5.50% of their respective annual earnings. Benefit provisions and contribution requirements are established and may be amended by the City of West Palm Beach in conjunction with the State Employees International Union and the Professional Managers and Supervisors Association. The City contributes monthly amounts based on an annual actuarial valuation. The recommended and actual contribution for the fiscal year was $2,269,689 (as discounted for payment at the beginning of the fiscal year), or 58.97% of valuation payroll. Administrative costs are financed through investment earnings. A publicly available financial report that includes financial statements and required supplementary information may be obtained by writing to City of West Palm Beach, Finance Department, 401 Clematis Street, West Palm Beach, Florida or by calling State and federal laws and regulations require the City to place a final cover and to perform certain maintenance and monitoring functions at the closed landfill site on Haverhill road. This site was closed to operations in October The City has not operated any other site since the close of the Haverhill site

252 C-50 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE Q EMPLOYEE RETIREMENT PLANS CONTINUED West Palm Beach Police Pension Fund ("The Plan") The Plan was created in 1947 by a special act of the Florida legislature, Chapter 24981, Section 16, Laws of Florida, as amended. Description and Funding Policy of Plan: The Plan provides retirement benefits for its members; noncivilian police department employees. The Plan is maintained through contributions from members and the City and from investment earnings. In addition, the State of Florida, pursuant to Chapter 185 of the Florida Statutes, collects locally authorized insurance premium surcharges on casualty insurance policies within the corporate limits. These surcharges can only be distributed after the State has ascertained that the local government has met their actuarial funding requirement for the most recently completed fiscal year. These on-behalf payments received from the State amounted to $1.0 million in fiscal year They are recognized as revenue and expense in the General Fund and are used to supplement the City's contribution. The members of the Plan make regular contributions to the fund at a specified percentage of their respective annual earnings. The contribution percentage in effect for fiscal year was 11%, of which 4% was enacted to offset contributions by the City to fund a Voluntary Employees Beneficiary Association for Police ( Police VEBA ) plan as described below. Benefit provisions and contribution requirements are established and may be amended by the City of West Palm Beach in conjunction with the Palm Beach County Police Benevolent Association. Any such amendments take effect upon passage by the Florida State Legislature. The City s recommended and actual contribution for fiscal year was $5,028,968 (as discounted for payment at the beginning of the fiscal year) or 17.63% of covered payroll. Administrative costs are financed through employer contributions and charges against Share and DROP accounts and supplemental distributions. A publicly available financial report that includes financial statements and required supplementary information may be obtained by writing to City of West Palm Beach, Finance Department, 401 Clematis Street, West Palm Beach, Florida or by calling West Palm Beach Firefighters' Pension Fund ("Firefighters' Pension") The Firefighters Pension was created in 1947 by a Special Act of the Florida legislature, Chapter 24981, Section 17, Laws of Florida, as amended. Description and Funding Policy of Plan: The Firefighters' Pension provides retirement benefits for its members; firefighters and fire department officers. The fund is maintained through contributions from its members and the City and investment earnings. In addition, the State of Florida, pursuant to Chapter 175 of the Florida Statutes, collects locally authorized insurance premium surcharges on property insurance policies within the corporate limits. These surcharges can only be distributed after the State has ascertained that the local government has met their actuarial funding requirement for the most recently completed fiscal year. These onbehalf payments received from the State amounted to $1.5 million in fiscal year They are recognized as revenue and expense in the General Fund and are used to supplement the City's contribution. Members of the pension plan make regular contributions to the Fund at a rate equal to a percentage of their respective annual earnings. The contribution percentage in effect in fiscal year was 19.2%, of which 4% was enacted to offset contributions by the City to fund a Voluntary Employees Beneficiary Association for Firefighters ( FF VEBA ) plan as described below. CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE Q EMPLOYEE RETIREMENT PLANS CONTINUED West Palm Beach Firefighters' Pension Fund - Continued Benefit provisions and contribution requirements of the members are established and may be amended by the City in conjunction with the West Palm Beach Firefighters Local Union Number 727. The City s recommended and actual contribution for fiscal year was $5,378,277 (as discounted for payment at the beginning of the fiscal year), or 35.7% of covered payroll. Administrative costs are financed through investment earnings. A publicly available financial report that includes financial statements and required supplementary information may be obtained by writing to City of West Palm Beach, Finance Department, 401 Clematis Street, West Palm Beach, Florida or by calling Annual Pension Cost and Actuarial Methods and Assumptions The City s annual pension cost (APC) and net pension obligation (NPO) for the Restated Employees Retirement System, the Police Pension Fund and Firefighters Pension Fund for the past three years is summarized below. Fiscal Year Ended In: Restated Employee's Retirement System Annual required contribution (ARC) $ 2,269,689 $ 2,096,896 $ 1,470,612 Interest on NPO (44,354) (825,494) - ARC Adjustment 80,585 1,299,295 - Annual Pension Cost (APC) 2,305,920 2,570,697 1,470,612 Actual Contribution 2,269,689 2,096,896 1,470,612 Change in Net Pension Obligation 36, ,801 - NPO (Overfunding) Beginning of Year (554,423) (1,028,224) (1,028,224) NPO (Overfunding) End of Year $ (518,192) $ (554,423) $ (1,028,224) Percent of APC Contributed 98% 82% 100% Police Pension Fund Annual required contribution (equal to ARC) $ 5,028,968 $ 4,057,571 $ 3,433,646 Actual Contribution (5,028,968) (4,057,571) (3,433,646) Change in Net Pension obligation NPO (Overfunding) Beginning of Year (13,199) (13,199) (13,199) NPO (Overfunding) End of Year $ (13,199) $ (13,199) $ (13,199) Percent of APC Contributed Each Year 100% 100% 100% Firefighter's Pension Fund Annual required contribution (equal to ARC) 5,378,277 4,393,701 3,773,358 Actual Contribution (5,378,277) (4,393,701) (3,773,358) Change in net Pension Obligation NPO (Overfunding) Beginning of Year (5,206) (5,206) (5,206) NPO (Overfunding) End of Year $ (5,206) $ (5,206) $ (5,206) Percent of APC Contributed Each Year 100% 100% 100% Restated General Employees 30-Sep-10, Page E-2, GASB Statement No. 27,

253 C-51 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE Q EMPLOYEE RETIREMENT PLANS CONTINUED Actuarial methods and significant actuarial assumptions used to determine the annual required contributions for the current year follow: Restated Employees' Retirement System Police Pension Firefighters' Pension Actuarial valuation date September 30, 2010 September 30, 2010 September 30, 2010 Actuarial cost method Frozen entry-age Entry Age Engry Age Amortization method for unfunded actuarial liability Level dollar Level percentage of payroll Level percentage of payroll Remaining amortization period 11 years 2-25 years 1-24 years Amortization closed or open Closed Closed Closed Asset valuation method Market value Four year smoorthed market Four year smoothed market Actuarial assumptions: Investment rate of return 8.0% 8.25% 8.25% Projected salary increases * 5.0% - 8.8% 5.0% 5.0% 2.0% simple 3.0% beginning at 3.0% beginning at Cost-of-living adjustments age 65 age 65 * Includes inflation and other across the board increases at: 5.0% to 4.5% 4.5% 4.5% The funding status as of September 30, 2010, the date of the most recent actuarial study, of each of the pension plans is as follows. Schedules of funding progress for the past three years are also included in the Required Supplementary Information beginning on page 90. Plan Actuarial Value of Assets (A) Actuarial Accrued Liability (AAL) (B) Unfunded (AAL) (B) - (A) Funded Ratio (A) / (B) Active Participant Covered Payroll (C) Unfunded AAL as Percentage of Active Participant Covered Payroll ((B-A)/C) Restated employees' 24,284,897 32,634,018 8,349,121 74% 3, % Police Pension 197,178, ,147,895 37,969,372 84% 19, % Firefighters' Pension 132,695, ,624,932 61,929,651 68% 15, % Dollar amounts are in thousands. DEFINED CONTRIBUTION PENSION PLAN The Public Employee Defined Contribution Plan ("PEDCP") covers all full time employees except those covered by the Restated Employees', Police and Firefighters pension plans. The PEDCP is administered by the City through a third party administrator. Benefit provisions, contribution requirements and all other requirements of the PEDCP are established by West Palm Beach Code of Ordinances Sections through New employees are enrolled in the PEDCP upon successful completion of the first six months of their probationary period. Vesting is immediate upon successful completion of the probationary period. CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE Q EMPLOYEE RETIREMENT PLANS CONTINUED DEFINED CONTRIBUTION PENSION PLAN - Continued Required and actual contributions represent 7.5% for employees and either 7.5% or 9.5% by the City, depending upon employee group. Actual contributions for FY 2011 were $3.25 million by employees and $3.6 million by the City. The assets of the PEDCP are held in trust and are the sole property of the participants. No balances or financial information relative to the PEDCP are reported in the basic financial statements. VOLUNTARY EMPLOYEES BENEFICIARY ASSOCIATION PLANS The City participates in Voluntary Employee Beneficiary Association Plans (VEBA Plans) for the Firefighters, Police, General Employees and Management Employee groups. Each of the VEBA plans is administered by a separate board of trustees. The assets of the VEBA Plans are held in trust and are the sole property of the participants. No balances or financial information related to the VEBA Plans are reported in the Basic Financial Statements. Voluntary Employees' Beneficiary Association Plan for Firefighters (FF VEBA) The FF VEBA plan is authorized in the collective bargaining contract between the City and the West Palm Beach Association of Firefighters, Local 727, (the Contract). The Contract requires the City to contribute 4% of pensionable earnings of members of the bargaining unit to the FF VEBA plan. In exchange, the members of the bargaining unit agreed to voluntary concessions of an equal value, resulting in no additional cost to the City. The FF VEBA is administered by a Board of Trustees appointed by the bargaining unit with approval from the City. The Board of Trustees has approved and may amend the Agreement and Declaration of Trust, which sets out provisions for payment of benefits to the VEBA members. Liability of the City is limited to periodic contributions as required by the Contract. The required and actual City contribution in fiscal year 2011 was $.63 million. No amounts were required from employees. Voluntary Employees' Beneficiary Association Plan for Police (Police VEBA) The Police VEBA is authorized in the collective bargaining unit between the City and the City of Palm Beach County Police Benevolent Association (the Contract).provides for a Voluntary Employees Beneficiary Association for members of the bargaining unit ( Police VEBA ). The contract requires the City to contribute 4% of pensionable earnings of members of the bargaining unit to the Police VEBA plan. In exchange, the members of the bargaining unit agreed to voluntary concessions of an equal value, resulting in no additional cost to the City. The Police VEBA is administered by a Board of Trustees appointed by the bargaining unit with approval from the City. The Board of Trustees has approved and may amend the Agreement and Declaration of Trust, which sets out provisions for payment of benefits to the Police VEBA members. Liability of the City is limited to periodic contributions as required by the Contract. The required and actual City contribution in fiscal year 2011 was $.89 million. No amounts were required from employees

254 C-52 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) VOLUNTARY EMPLOYEES BENEFICIARY ASSOCIATION PLANS CONTINUED Voluntary Employees' Beneficiary Association Plans for General Employees (General Employees VEBA) and Management Employees (Management VEBA) In January, 2007 the City Commission passed ordinance no authorizing the establishment of the Management Employees VEBA and the General Employees VEBA. The two plans cover elected officials of the City of West Palm Beach and all full time employees who are not covered by either the FF VEBA plan or the Police VEBA plan. The City Commission further authorized City contributions beginning January 1, 2007 in the amount of 1.65% of the salary of participating management employees and 2.15% of the salary of other eligible employees. The plans are administered by their respective Boards of Trustees, appointed partly by the City and partly by the membership of each plan. Each plan has a Declaration of Trust which has been approved and may be amended by the respective Board of Trustees and which sets out provisions for payment of benefits to the members. Liability of the City is limited to periodic contributions as required by Ordinance. Required and actual contributions for fiscal year 2011 were $0 for both plans. Effective October 1, 2010, employer contributions to the General Employees VEBA and the Management Employees VEBA were suspended. NOTE R DEFERRED COMPENSATION PLANS The City offers its employees a deferred compensation plan created in accordance with Internal Revenue Service ( IRS ) Code Section 457 ( 457 Plan ). The 457 Plan, available to all City employees, permits them to defer a portion of their salary until future years. The deferred compensation is not available to employees until termination, retirement, death, or the hardship distribution criteria as defined in IRS Code Section 457. The assets of the plans are held in trust and are the sole property of the participants. No balances or financial information relative to the 457 Plan are reported in the basic financial statements. NOTE S OTHER POST EMPLOYMENT BENEFITS The City's Other Post Employment Benefits Plan is reported in accordance with Governmental Accounting Standards Board Statement No. 45, Accounting and Reporting by Employers for Postemployment Benefits other that Pensions "OPEB." Plan Description: Pursuant to Section , Florida Statutes, the City is required to permit eligible retirees and their eligible dependents to participate in the City's health insurance program at a cost to the retiree that is no greater than the cost at which coverage is available for active employees. These retirees pay 100% of the blended rate for active and retired employees. Because the blended rate is greater than that of a plan including active employees only and less than that of a plan including retirees only, the amount the City expends for active employees includes an implicit subsidy for participating retirees and dependents. Funding Policy: The City is financing OPEB benefits through the Other Post Employment Benefits Trust Fund ("The OPEB Trust") established by the City Commission effective September 23, An actuarial valuation of the plan was performed as of October 1, The actuary's estimate, using the Entry Age Normal Cost Method, included other actuarial assumptions as classified below. The calculation produced an unfunded actuarially accrued liability of $9,584,778, and an annual OPEB cost for fiscal year 2011 of $1,105,880. Total City contributions were $1,250,956 in fiscal year No employee or retiree contributions to the Trust were required or paid in fiscal year Future contributions to the trust will be budgeted by the City Commission based on actuarially determined amounts. CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE S OTHER POST EMPLOYMENT BENEFITS CONTINUED The OPEB Trust is a single employer fund administered by a board of trustees as designated in the Declaration of Trust. The Trust provides for the payment of implicit rate subsidies and other non-pension post employment benefits for eligible retirees and their families. Amendments to the Trust must be in accordance with governing Ordinance No , unless such Ordinance is previously amended by the City. Annual OPEB Cost and Net OPEB obligation: The City's actuarially determined annual OPEB cost and net OPBE overfunding for the fiscal years ended September 30, are as follows: Annual required contribution ('ARC') $ 1,114,688 $ 1,112,783 $ 2,183,996 Interest on net OPEB obligation (overfunding) (123,346) (84,370) (77,187) Adjustment to ARC 114,538 78,345 51,856 Annual OPEB cost 1,105,880 1,106,758 2,158,665 Employer contributions made (1,250,956) (1,927,302) (2,309,873) Change in net OPEB obligation (145,076) (820,544) (151,208) Net OPEB obligation, beginning of year (2,596,752) (1,776,208) (1,625,000) Net OPEB obligation (overfunding), end of year $ (2,741,828) $ (2,596,752) $ (1,776,208) Percentage of net OPEB cost contributed 113.1% 174.1% 107.0% Actuarial methods and significant actuarial assumptions used to determine the annual required contribution for the current year were as follows: Actuarial valuation date October 1, 2009 Actuarial cost method Entry Age Normal Cost Amortization method for unfunded actuarial liability Level Percent of Payroll Amortization period - closed 30 Years Asset valuation method Fair Market Value Actuarial assumptions: Investment discount rate (long term expectation of investment return on assets) 4.75% Projected salary increases including inflation and other across the board increases. Includes no increase in number of active employees covered by the plan. 3.00% The Schedule of Funding Progress for the OPEB plan, which is part of required supplementary information immediately following the notes to the financial statements, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing relative to the actuarial liability for benefits over time

255 CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) NOTE S OTHER POST EMPLOYMENT BENEFITS CONTINUED Healthcare trend rates are projected to increase for medical and Rx benefits as follows in the 5 years following the valuation date: Year Trend % % % % % NOTE T SUBSEQUENT EVENTS CITY OF WEST PALM BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2011 (CONTINUED) On December 14, 2011, the City entered into a capital lease purchase agreement with JPMorgan Chase Bank, N.A.. The capital lease purchase proceeds are to be used to pay for energy conservation equipment as authorized by City Resolution No The financing provided for in Resolution No will be considered Covenant to Budget Debt payable from non-ad valorem revenues. The capital lease has a term of fifteen years and has a stated interest rate of %. The lease equipment has a total dollar value of $6,900,000 and the debt will be serviced by semi-annual payments of $277, C-53 Funding progress of the OPEB Trust as of the October 1, 2010 valuation date is as follows: Actuarial Accrued Participant as Percentage of Value of Liability Unfunded Funded Covered Active Participant Assets (AAL) AAL Ratio Payroll Covered Payroll (A) (B) (B) - (A) (A) / (B) (C) (B-A)/C) $ 5,878 $ 15,462 $ 9, % $ 104, % Dollar amounts in thousands OPEB Trust Fund financial statements for the fiscal year ended September 30, 2011, which are included in the Fiduciary Fund Financial Statements are as follows: STATEMENT OF FIDUCIARY NET ASSETS September 30, 2011 STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS For the Year Ended September 30, 2011 Cash, cash equivalent and equity in pooled investments $ 6,419,600 Accrued interest 10,165 Employer contributions $ 1,250,956 Total Assets 6,429,765 Investment earnings 55,274 Liabilities - 1,306,230 Net Assets $ 6,429,765 Deductions Participant benefit payments 753,968 Net increase 552,262 Assets held in trust Beginning of year 5,877,503 End of year $ 6,429,765 Accounting for the OPEB Trust Fund is done by City of West Palm Beach staff and separately issued audited statements are not available

256 CITY OF WEST PALM BEACH, FLORIDA Required Supplementary Information Schedules of Funding Progress September 30, 2011 (Unaudited) CITY OF WEST PALM BEACH, FLORIDA Required Supplementary Information Schedules of Funding Progress - Continued September 30, 2011 (Unaudited) Restated Employees Retirement System Fund: Police Pension Fund: Plan Year Ended September 30 Actuarial Value of Assets (A) Actuarial Accrued Liability (AAL) Frozen Entry Age (B) Unfunded (AAL) (B) - (A) Funded Ratio (A) / (B) Active Participant Covered Payroll ( C) Unfunded AAL as Percentage of Active Participant Covered Payroll ((B-A)/C) Plan Year Ended September 30 Actuarial Value of Assets (A) Actuarial Accrued Liability (AAL) Frozen Entry Age (B) Unfunded (AAL) (B) - (A) Funded Ratio (A) / (B) Active Participant Covered Payroll ( C) Unfunded AAL as Percentage of Active Participant Covered Payroll ((B-A)/C) 2008 $ 21,107 $ 30,351 $ 9, % 4, % ,769 30,583 8, % 3, % ,285 32,634 8, % 3, % 2008 $ 191,001 $ 209,842 $ 18, % 21, % , ,471 30, % 21, % , ,148 37, % 19, % Dollar amounts are in thousands. Dollar amounts are in thousands. C-54 OPEB Trust Fund: Firefighters Pension Fund: Plan Year Ended September 30 Actuarial Value of Assets (A) Actuarial Accrued Liability (AAL) Frozen Entry Age (B) Unfunded (AAL) (B) - (A) Funded Ratio (A) / (B) Active Participant Covered Payroll ( C) Unfunded AAL as Percentage of Active Participant Covered Payroll ((B-A)/C) 2008 $ 129,938 $ 170,265 $ 40, % 15, % , ,917 52, % 16, % , ,625 61, % 15, % Plan Year Ended September 30 Actuarial Value of Assets (A) Actuarial Accrued Liability (AAL) Frozen Entry Age (B) Unfunded (AAL) (B) - (A) Funded Ratio (A) / (B) Active Participant Covered Payroll ( C) Unfunded AAL as Percentage of Active Participant Covered Payroll ((B-A)/C) 2006 $ - $ 23,771 $ 23, % 76, % ,514 14,802 10, % 101, % ,878 15,462 9, % 104, % Dollar amounts are in thousands. See accompanying independent auditor s report. See accompanying independent auditor s report

257 APPENDIX D Summary of Certain Provisions of the Bond Resolution

258 [THIS PAGE INTENTIONALLY LEFT BLANK]

259 SUMMARY OF CERTAIN PROVISIONS OF THE BOND RESOLUTION The following is a general summary of certain provisions of the Bond Resolution. This summary is not a complete statement of the Bond Resolution and is, therefore, qualified by reference thereto. Pursuant to Florida law, the Bond Resolution is a public record of the City and is therefore available for public inspection. DEFINITIONS The following are definitions of certain terms used in the Official Statement, the Bond Resolution and this Summary: Accountant shall mean the independent certified public accountant or firm of independent certified public accountants which shall have a favorable reputation for skill and experience in accounting matters at the time and during the period employed by the City under the provisions of the Bond Resolution to perform and carry out the duties imposed on the Accountant by the Bond Resolution. Accreted Value of a Capital Appreciation Bond shall mean the original principal amount thereof plus interest accrued thereon on the basis of a 360-day year consisting of twelve 30-day months compounded semiannually on each Interest Payment Date commencing on the Interest Payment Date next succeeding the dated date of such Capital Appreciation Bonds to the date of maturity or redemption prior to maturity of such Capital Appreciation Bonds on the date of determination. The Accreted Value with respect to any date other than an Interest Payment Date is the Accreted Value on the next preceding Interest Payment Date or the dated date and the initial Interest Payment Date for such Bonds to the date of determination by the total number of days from the next succeeding Interest Payment Date or the dated date of such Capital Appreciation Bonds for the period between such dated date of such Capital Appreciation Bonds for the period between such dated date and the Initial Interest Payment Date for such Bonds to the date of determination by the total number of days from the next succeeding Interest Payment Date or the dated date of such Capital Appreciation Bonds for the period between such dated date and the initial Interest Payment Date for such Bonds to the next succeeding Interest Payment Date. Additional Bonds shall mean the Bonds issued at any time under and secured by the Bond Resolution, on a parity with the Series 1993 Bonds as to the pledge of Net Revenues of the Utility System. Amortization Requirements shall mean the amounts required to be deposited in the Redemption Account for any Series of Bonds for the purpose of redeeming prior to their maturity and paying at their maturity the Term Bonds of any Series, issued pursuant to the Bond Resolution, the specific amounts and times of such deposits to be determined by the City Commission in the resolution authorizing the issuance of such Series of Bonds. D-1

260 Annual Budget shall mean the Annual Budget adopted pursuant to the Bond Resolution. Annual Loan Payment shall mean the total amount to be paid by the City pursuant to a State Loan in a State fiscal year representing principal, redemption premium, if any, any deposits required to be made to debt service reserves and administrative expenses of the State required to be paid by the City pursuant to such State Loan. Balloon Indebtedness shall mean the portion of a series of Bonds which is not required by the terms of the Series Resolution pursuant to which such Bonds were issued to be amortized by redemption prior to their maturity, if such portion of the principal amount of such Series constitutes twenty-five per centum (25%) or more of the principal amount of such Series. Bond Registrar shall mean a bank or trust company, either within or without the State of Florida, designated as such by the City Commission, which shall perform such functions as Bond Registrar as are required by the Bond Resolution. Bonds shall mean collectively the Bonds and other forms of indebtedness issued under the provisions of the Bond Resolution. Bond Service Account shall mean the Bond Service Account, a special account created by the Bond Resolution. Capital Appreciation Bond shall mean any Bond or Bonds of a Series which are sold at an initial price to the public of less than 97% of the principal amount thereof payable at maturity, but only if such Bond or Bonds are designated as a Capital Appreciation Series or Term Bond pursuant to the Series Resolution providing for the issuance of the Series of Bonds of which such Capital Appreciation Bond or Bonds are to be a part. Capital Expenditures shall mean all expenditures made for extensions, additions, improvements, renewals and replacements (other than ordinary maintenance and repairs) acquired, constructed or installed for the purpose of preserving, extending, increasing or improving the service rendered by the Utility System or for reducing the cost of operation, and shall include the cost of purchasing and installing such equipment and appurtenances as may be necessary to meet the demands upon the Utility System; Capital Expenditures shall also include the acquisition of such lands and rights-of-way and such engineering, legal and administrative expenses as may be required in connection with the foregoing. Completion Date shall mean the date of completion of the acquisition or construction of any Improvements. Consulting Engineer shall mean the engineer, engineering firm, qualified rate consultant or firm of qualified rate consultants or corporation at the time employed by the City under the provisions of the Bond Resolution to perform and carry out the duties imposed on the Consulting Engineer by the Bond Resolution; provided, however, the City shall be permitted to D-2

261 retain more than one firm of consulting engineers to carry out the functions of Consulting Engineer under the Bond Resolution, and in which event, the term Consulting Engineer shall mean each of such firms. Construction Fund shall mean the West Palm Beach Utility System Construction Fund, a special fund created by the Bond Resolution the moneys in which will be applied to payment of the cost of constructing and acquiring Improvements. Convertible Bonds shall mean Bonds issued under the Bond Resolution which are convertible, at the option of the City, into a form of Bonds which are permitted by the Bond Resolution other than the form of such Bonds at the time they were issued. Credit Facility shall mean any legal arrangement pursuant to which the entity providing such Facility agrees to make or provide funds to the City to make payment of the purchase price (including principal or principal and interest) of Optional Tender Bonds upon their tender by the Bondholders for purchase; provided that the furnishing of such funds by such entity pursuant to such arrangement shall be required despite material adverse changes (except bankruptcy and a failure to pay Bonds) in the financial condition of the City. Current Expenses shall mean the City s reasonable expenses of maintenance, repair and operation of the Utility System and shall include, without limiting the generality of the foregoing, all ordinary and usual expenses of maintenance and repair, which may include expenses not annually recurring but which are not considered extraordinary in nature, operating expenses from the management and operations of the utility facilities of parties other than the City, all City administrative expenses and any payments to pension or retirement funds properly chargeable to the Utility System, insurance premiums, engineering expenses relating to maintenance, repair and operation, fees and expenses of the Bond Registrar, legal expenses, any taxes which may be lawfully imposed on the Utility System or its income or operations and reserves for such taxes (including specifically the taxes levied by the City pursuant to Section , Florida Statutes as amended), annual premiums for bond insurance or insurance assuring availability of the amounts required to be on deposit in the Reserve Account, annual fees for Credit Facilities or Liquidity Facilities, the cost of purchasing water from third parties and the cost of purchasing treatment services for sewerage from third parties (including specifically ECR Operation and Maintenance Payments but excluding ECR Renewal and Replacement Payments and ECR Debt Service Payments, both of which are payable pursuant to the Bond Resolution), and any other expenses required to be paid by the City under the provisions of the Bond Resolution or by law, all to the extent properly attributable as an operating expense of the Utility System in accordance with generally accepted accounting principles employed in the operation of public utility systems similar to the Utility System. Current Expenses shall also include in any Fiscal Year the amount actually deposited to the credit of the Rate Stabilization Account in such Fiscal Year. Current Expenses shall not include (i) any reserves for extraordinary maintenance or repair; (ii) any allowance for depreciation, amortization, depletion or other similar charges; (iii) any deposits or transfers to the credit of the Sinking Fund, the Renewal, Replacement and Improvement Fund or the General Reserve Fund; (iv) payments of expenses which would be considered as an operating expense paid from funds D-3

262 in the Renewal, Replacement and Improvement Fund or on behalf of third parties for an entitlement for the capacity of water production and treatment facilities and wastewater transmission, treatment and effluent disposal facilities; (v) payments in lieu of taxes which are to be paid pursuant to the Bond Resolution; (vi) payments made on State Loans or other forms of indebtedness on behalf of third parties for an entitlement for capacity of water production and treatment facilities and wastewater transmission, treatment and effluent disposal facilities; or (vii) such miscellaneous deductions as are applicable to prior accounting periods. Current Interest Bonds shall mean Bonds the interest on which is payable to the Bondholder on the Interest Payment Dates with respect thereto and not only at the maturity thereof. Defaulted Interest shall mean any interest which is payable, but not punctually paid, or for which payment is not duly provided on any interest Payment Date. East Central Regional Wastewater Treatment Facilities shall mean the 55 million gallon per day wastewater treatment plant and all appurtenances thereto located in the City and owned by the ECR Board on a parcel of land containing approximately 300 acres in Section 11, Township 43 South, Range 42 East, Palm Beach County, Florida. ECR Board shall mean the East Central Regional Wastewater Treatment Facilities Board, created under the laws of the State of Florida by an interlocal agreement as an independent special district, of the City, Palm Beach County, the City of Lake Worth, the City of Riviera Beach and the Town of Palm Beach (collectively, the Participants ), which is the owner of the East Central Regional Wastewater Treatment Facilities. ECR Board Debt Service Payments shall mean the sum of the payment required to be made by the City monthly to the ECR Board for its share (based upon allocated capacity) of the principal of, interest on and the coverage requirement for all indebtedness incurred by the ECR Board for the purpose of improvements to the East Central Regional Wastewater Treatment Facilities which payment requirement is set forth in the Participatory Agreement, dated as of April 20, 1993, by and among the Participants. ECR Board Operation and Maintenance Payments shall mean the sum of the payment required to be made by the City monthly to the ECR Board for its share (based upon allocated capacity) of the operation and maintenance expenses of the East Central Regional Wastewater Treatment Facilities which payment requirement is set forth in the Interlocal Agreement, dated as of September 9, 1992, by and among the Participants. ECR Board Renewal and Replacement Payments shall mean the sum of the payment required to be made by the City annually to the ECR Board for its share (based upon allocated capacity) of the required renewals, replacements and improvements (not otherwise financed by indebtedness) to the East Central Regional Wastewater Treatment Facilities which payment requirement is set forth in the Interlocal Agreement, dated as of September 9, 1992, by and among the Participants. D-4

263 Finance Director shall mean the Director of Finance of the City of West Palm Beach or the officer succeeding to his principal functions. Fiscal Year shall mean the period commencing on the first day of October and ending on the last day of September of the following year as the same may be amended from time to time to conform to the fiscal year of the City. General Reserve Fund shall mean the West Palm Beach Utility System General Reserve Fund, a special fund created by the Bond Resolution. Government Obligations shall mean (i) direct obligations of, or obligations the payment of the principal and on which the interest are unconditionally guaranteed by, the United States of America; (ii) evidences of ownership of proportionate interests in future interest or principal payments on obligations specified in clause (i) of this definition held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor on the underlying obligations described in the clause (i) of this definition, and which underlying obligations are not available to satisfy any claim of the custodian or any person claiming through the custodian or to whom the custodian may be obligated; (iii) municipal obligations, the payment of the principal of, interest on and redemption premium, if any, on which are irrevocably secured by obligations described in clause (i) of this definition and which obligations have been deposited in an escrow account which is irrevocably pledged to the payment of the principal, interest on and redemption premium, if any, on such municipal obligations; (iv) obligations issued by any State of the United States; and (v) municipal obligations the payment of the principal of and interest on which are insured; provided, however, the obligations described in clauses (iv) and (v) of this definition shall also be rated in one of the top two highest rating categories (without regard to any gradation within such category) by both Moody s Investors Service and Standard & Poor s Corporation. Impact Fee Fund shall mean the Impact Fee Fund, a special fund created by the Bond Resolution. Impact Fees shall mean all nonrefundable (except at the option of the City) capital expansion fees, pollution control fees, capacity charges and other similar fees and charges separately imposed by the City as a nonuser capacity charge for the proportionate share of the cost of expanding, oversizing, separating or constructing Improvements to the Utility System and any investment earnings from the investment of funds on deposit in the Impact Fee Fund. Improvements shall mean such improvements, renewals and replacements of the Utility System or any part thereof and such extensions, betterments and additions thereto as may be necessary or desirable, in the judgment of the City, to keep the same in proper condition for the safe, efficient and economic operation thereof and to integrate into the Utility System any unit or part thereof, and shall include such land, structures and facilities as may be authorized to be acquired or constructed by the City under the provisions of Florida law and such improvements, D-5

264 renewals and replacements of such land, structures and facilities and the Utility System and such extensions and additions thereto as may be necessary or desirable for continuous and efficient service to the public. Interest Payment Dates shall mean the dates in each year (which may be as frequently as daily) on which the interest on a Series of Bonds is to be paid as determined in the Series Resolution with respect to such Series of Bonds. Interest Rate Swap shall mean an agreement in writing by and between the City and another entity (the Swap Partner ) pursuant to which (i) the City agrees to pay to the Swap Partner an amount, either at one time or periodically, which may, but is not required to, be determined by reference to the amount of interest payable on all or a portion of a Series of Bonds specified in such agreement and (ii) the Swap Partner agrees to pay to the City an amount, either at one time or periodically, which may, but is not required to, be determined by reference to the amount of interest payable on all or a portion of a Series of Bonds specified in such agreement. The term Interest Rate Swap shall also include so-called interest rate cap agreements and interest rate floor agreements. Any payments on Interest Rate Swaps (other than termination payments on an Interest Rate Swap) related to Bonds are payable from the Bond Service Account or the General Reserve Fund, at the option of the City, the priority of the payment of such Interest Rate Swap payments to be determined in the Series Resolution for the Series of Bonds to which such Interest Rate Swap relates. All termination payments with respect to any Interest Rate Swap shall be payable solely from moneys from time to time on deposit in the General Reserve Fund. The City shall use its best efforts to obtain a rating from Moody s Investor s Service on any Series of Bonds to which an Interest Rate Swap relates. Interim Bonds or Notes shall mean bonds or notes issued by the City with a final maturity not longer than 60 months (or longer period if then so permitted by the provisions of Florida law relating to the issuance of bond anticipation notes by municipalities) in anticipation of the refinancing thereof from all or a portion of the proceeds of a Series of Bonds issued under the Bond Resolution. Investment Obligations shall mean any of the following, to the extent that the same is legal for the investment of public funds under Florida law: (i) direct general obligations of, or obligations the payment of principal and interest on which are unconditionally guaranteed by, the United States of America; (ii) obligations issued or guaranteed by an instrumentality or agency of the United States of America, whether now existing or hereafter organized, including but not limited to those of the Federal Financing Bank, the members of the Farm Credit System whether individually or consolidated, Federal Home Loan Banks, the Export-Import Bank, Government National Mortgage Association and the Tennessee Valley Authority; (iii) evidences of ownership of proportionate interest in future interest or principal payments on specified obligations described in clause (i) of this definition held by a bank or trust D-6

265 company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor on the underlying obligations described in the clause (i) of this definition, and which underlying obligations are not available to satisfy any claim of the custodian or any person claiming through the custodian or to whom the custodian may be obligated; (iv) bankers acceptances, certificates of deposit or time deposits of any bank, trust company or savings and loan association (including any investment in pools of such bankers acceptances, certificate of deposit or time deposits), which to the extent that such obligations are not insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation, are collateralized at all times in amounts and by obligations as shall be permitted by Florida law; (v) municipal obligations, the payment of the principal of, interest on and redemption premium, if any, on which are irrevocably secured by obligations described in clause (i) of this definition and which obligations have been deposited in an escrow account which is irrevocably pledged to the payment of the principal of, interest on and redemption premium, if any, of such municipal obligations; (vi) obligations issued by any State of the United States, which are rated in one of the rating categories (without regard to any gradation within such category) by both Moody s Investors Service and Standard & Poor s Corporation; (vii) municipal obligations the payment of the principal of and the interest on which are insured, which are rated in one of the top two rating categories (without regard to any gradation within such category) by both Moody s Investors Service and Standard & Poor s Corporation; (viii) any repurchase, reverse repurchase or investment agreement with any bank or trust company organized under the laws of any state of the United States or any national banking association, insurance company, or government bond dealer reporting to, trading with, and recognized as a primary dealer by the Federal Reserve Bank of New York and a member of the Security Investors Protection Corporation, which agreement is secured by any one or more of the securities described in (i), (ii) or (iii) above provided that the City has a perfected first security interest in the collateral and that the City or its agent has possession of the collateral, and that such collateral is held free and clear of claims by third parties; and (ix) any other security or investment in which the City is permitted by Florida law to invest its funds. Maximum Principal and Interest Requirements shall mean the maximum amount of Principal and Interest Requirements for any Fiscal Year. Monthly State Loan Requirement shall mean the amount payable by the City in each month pursuant to any State Loan. D-7

266 Net Revenues for any particular period shall mean the amount of the excess of the Revenues for such period over the Current Expenses for such period. Optional Tender Bonds shall mean the portion of a Series of Bonds issued under the Bond Resolution, a feature of which is an option on the part of the holders of such Bonds to tender such Bonds to the City or a trustee or other fiduciary for such holders for purchase. Outstanding shall mean, when used with respect to the Bonds, all bonds theretofore delivered except (a) Bonds paid or redeemed or delivered to or acquired by the City and cancelled; and (b) Bonds deemed to have been redeemed or defeased. Principal or principal shall mean (i) with respect to Current Interest Bonds, the stated principal amount thereof and (ii) with respect to Capital Appreciation Bonds, the Accreted Value thereof, determined pursuant to the Bond Resolution, as of any particular date of determination. Principal and Interest Requirements shall mean the respective amounts which are required in each Fiscal Year to provide: (i) for paying the interest on all Bonds then Outstanding which is payable on each Interest Payment Date in such Fiscal Year, and (ii) for paying the principal of all Serial Bonds then Outstanding which is payable upon the maturity of Serial Bonds in such Fiscal Year, and (iii) the Amortization Requirements for the Term Bonds of such Series for such Fiscal Year, and (iv) the amount if any required to be deposited in the General Reserve Fund on account of the Annual Loan Payment in such Fiscal Year. In determining the amount of the Principal and Interest Requirements for any Fiscal Year, the following rules shall apply: (a) with respect to Variable Rate Bonds, the interest rate shall be assumed to be the average rate of interest for all Variable Rate Bonds for the prior Fiscal Year or portion thereof or, if there were no Variable Rate Bonds Outstanding during such prior Fiscal Year, then the initial rate of interest on such Variable Rate Bonds; average rate shall mean the rate determined by dividing the total amount of interest paid on Variable Rate Bonds in any Fiscal Year or portion thereof by the average principal amount of Variable Rate Bonds Outstanding during such Fiscal Year or portion thereof; (b) with respect to Interim Bonds or Notes, interest only and not the principal shall be included in Principal and Interest Requirements if the Series of Bonds all or a portion of the proceeds of which are expected to be used to refinance such Interim Bonds or Notes have been duly authorized by the City; provided, however, none of the interest or principal on Interim D-8

267 Bonds or Notes shall be included in Principal and Interest Requirements if the City Commission shall determine in the resolution authorizing the issuance of such Interim Bonds or Notes that such Interim Bonds or Notes shall be Subordinated Indebtedness under the Bond Resolution; (c) with respect to Optional Tender Bonds, Principal and Interest Requirements shall not include the principal amount of such Optional Tender Bonds payable upon exercise by the holders thereof of the option to tender such Bonds for purchase to the extent and for so long as a Credit Facility shall be in full force and effect with respect to such Optional Tender Bonds but shall include the regularly scheduled principal payments on such Optional Tender Bonds, either upon payment at maturity or redemption in satisfaction of the Amortization Requirements for such Optional Tender Bonds; provided, however, that during any period of time after the issuer of the Credit Facility has advanced funds thereunder and before such amount is repaid, Principal and Interest Requirements shall include the principal amount so advanced and interest thereon, in accordance with the principal repayment schedule and interest rate or rates specified in the Credit Facility; (d) if interest on a Series of Bonds is payable from the proceeds of such Bonds or from other amounts set aside irrevocably for such purpose at the time such Bonds are issued, interest on such Series of Bonds shall be included in Principal and Interest Requirements only in proportion to the amount of interest payable in the then current Fiscal Year from amounts other than amounts so funded to pay such interest; (e) principal on a Series of Bonds may be excluded from Principal and Interest Requirements until the first full Fiscal Year following the Completion Date of any Improvements the construction or acquisition of which was financed with the proceeds of such Series of Bonds, except to the extent that principal of such Series of Bonds is actually payable during the period of such construction or acquisition; (f) Principal and Interest Requirements shall not include the principal of, redemption premium, if any, and interest on Subordinated Indebtedness; (g) Principal and Interest Requirements shall not include the principal of, redemption premium, if any, and interest on bonds of the City issued for the purpose of financing the acquisition or construction of Separate Systems; (h) for purposes of the covenant regarding rates, the City shall be entitled to a credit against the Principal and Interest Requirements for the amount, if any, of Impact Fees on deposit in the Impact Fee Account on the first day of a Fiscal Year which may, under Florida law, be used for payment of principal of, redemption premium, if any, or interest on Bonds and which have been irrevocably budgeted in such Fiscal Year for payment of principal of, redemption premium, if any, or interest on Bonds; (i) any Bonds the payments by the City of interest on which are fixed, through the use of Interest Rate Swaps, matching inverse cash flows on separate portions of the same Series of D-9

268 Bonds or otherwise, shall be treated as fixed interest rate Bonds for so long as such payment obligation is so fixed; (j) Principal and Interest Requirements shall apply only to Bonds which are outstanding (as defined in the Bond Resolution); and (k) with respect to Balloon Indebtedness, there shall be taken into account in each year the amount of principal of such Balloon Indebtedness that would be payable in such period if the principal of such Balloon Indebtedness were amortized from the date of issuance thereof over a period of twenty-five (25) years. Public Works Director shall mean the Director of the Public Works Department of the City from time to time appointed by the City Commission or the official of the City who shall succeed to his principal functions. Rate Stabilization Account shall mean the Rate Stabilization Account, a special account created within the General Reserve Fund pursuant to the Bond Resolution. Redemption Account shall mean the Redemption Account, a special account created by the Bond Resolution. Refunding Bonds shall mean the Bonds issued at any time under and secured by the Bond Resolution for the purpose of providing funds to refund all or any portion of the Bonds Outstanding under the Bond Resolution. Renewal, Replacement and Improvement Fund shall mean the West Palm Beach Utility System Renewal, Replacement and Improvement Fund created by the Bond Resolution. Renewal, Replacement and Improvement Fund Requirement shall mean the amount designated in the Annual Budget as the Renewal, Replacement and Improvement Fund Requirement but in no event less than the total of (i) eight per centum (8%) of the Revenues for the prior Fiscal Year of the Water and Sewer System in the current Fiscal Year and (ii) three per centum (3%) of the Revenues shown on the Annual Budget for the Stormwater Drainage Facilities in the current Fiscal Year, subject in all events to the provisions of the Bond Resolution. Reserve Account shall mean the Reserve Account, a special account created by the Bond Resolution, including any subaccounts created therein. Reserve Account Requirement shall mean the Maximum Principal and Interest Requirements on account of the Bonds issued under the Bond Resolution in the current or any subsequent Fiscal Year, but excluding any amount described in clause (iv) of the definition of Principal and Interest Requirements or such lesser amount as shall be required in order for the interest on all or any portion of the Bonds authorized by the Bond Resolution to be excludable from the gross income of the recipients thereof for federal income tax purposes under the Code; D-10

269 provided, however, that (i) the City shall be permitted to provide all or a portion of the Reserve Account Requirement by the execution and delivery of a policy of insurance or letter of credit or other similar arrangement which, after its issuance and delivery, will permit the Finance Director to receive the full amount covered by such arrangement without further conditions, financial or otherwise (a Reserve Account Guaranty ); provided, however, that the provider of the Reserve Account Guaranty must be a reputable and nationally recognized bond insurance provider or a bank or other financial institution whose financial guaranties result in the bond issues of public entities (as of the date such Reserve Account Guaranty is delivered) being rated in one of the two highest full rating categories by Moody s Investors Service and Standard and Poor s Corporation if either or both are then rating the Bonds Outstanding under the Bond Resolution or the Bonds to be issued under the Bond Resolution; provided further, however, nothing in the Bond Resolution shall require the City to obtain a rating on any Bonds issued under the Bond Resolution, (ii) with respect to all or any portion of a Series of Bonds the interest rate on which is not fixed at a single numerical rate, the City shall be permitted to provide for a Reserve Account Requirement which is less than the Maximum Principal and Interest Requirements pursuant to the Series Resolution with respect to which such Series or pursuant to the resolution awarding such Series to the Purchaser thereof, and (iii) with respect to a Series of Bonds or portion thereof which is supported by a Credit Facility, the City shall be permitted to provide for a Reserve Account Requirement which is based only on the principal and interest due on the Bonds of such Series and not on the repayment provisions of such Credit Facility. Reserve Account Deposit Requirement means the amount, if any, determined in each Series Resolution, required to be deposited monthly to the credit of the Reserve Account on account of such Series, provided, however, (i) the Reserve Account Deposit Requirement for any Series shall not be less than one-thirty-sixth of the Reserve Account Requirement for such Series in each month until the amount on deposit in the Reserve Account for such Series shall be equal to the Reserve Account Requirement for such Series; (ii) in the event any deficiency is created in the Reserve Account for any Series by a withdrawal or otherwise, the Reserve Account Deposit Requirement for any Series shall be increased, beginning in the month following the month in which such deficiency was created, by an amount at least equal to one-twelfth of the amount of such deficiency; and (iii) the amount, if any, required by the terms of the documentation governing any Reserve Account Guaranty to be paid to the issuer of the Reserve Account Guaranty to reimburse such issuer for any draws made or funds advanced under such Reserve Account Guaranty. Revenue Fund shall mean the West Palm Beach Utility System Revenue Fund, a special fund created by the Bond Resolution. Revenues shall mean all moneys received by the City in connection with or as a result of its ownership or operation of the Utility System, including the income derived by the City D-11

270 from the sale of water produced, treated or distributed by, or the collection, transmission, treatment or disposal of sewage by the Utility System, the Stormwater Drainage Facilities Revenues, any proceeds of use and occupancy insurance on the Utility System or any part thereof, income from the management of the utility facilities of parties other than the City, income from investments made under the Bond Resolution; provided, however, Revenues shall not include investment income from investment of moneys on deposit in any Rebate Fund created in connection with the Bonds or any Series of Bonds, the Construction Fund, the Impact Fee Fund and the State Grant Reserve Account to the extent that earnings on the moneys on deposit in the State Grant Reserve Account are required pursuant to the State of Florida regulations governing such Account to be used for a purpose inconsistent with their use as Revenues or retained in such Account, proceeds of insurance (except use and occupancy insurance) and condemnation awards, proceeds of sales of property constituting a part of the Utility System, special assessments (except special assessments on property specially benefitted by Improvements financed with the proceeds of Bonds) and the proceeds of Bonds or other Indebtedness. Separate System shall mean water facilities, sewer facilities or water and sewer facilities, which are not, on the date of adoption of the Bond Resolution, a part of the Utility System and which the City Commission shall determine by resolution to make a Separate System pursuant to the provisions of the Bond Resolution. Series 1993 Bonds shall mean, collectively, the Series 1993A Bonds and the Series 1993B Bonds. Series 1993A Bonds shall mean the City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 1993A, issued pursuant to the Bond Resolution. Series 1993B Bonds shall mean the City of West Palm Beach, Florida Utility System Revenue Bonds, Series 1993B, issued pursuant to the Bond Resolution. Series Resolution means the resolution of the City Commission that is required to be adopted prior to the issuance of any Additional Bonds or Refunding Bonds under the Bond Resolution. The Series Resolution shall (a) determine the details of such Bonds, (b) define any improvements to be financed or Bonds or Indebtedness to be refunded with the proceeds of such Series, (c) provide for the application of the proceeds of the Bonds to which such Series Resolution relates, and (d) if permitted, create a separate Sinking Fund for such Series and such other matters as the City Commission shall determine. Sewer System shall mean the existing sewage collection, transmission, treatment and disposal system together with any Improvements thereto, including any new sewer systems owned or leased and operated by the City, any assets, facilities, Improvements or Capital Expenditures (whether or not financed with Bonds) which are designated by the City Commission as a part of the Sewer System and the City s interest, equitable or otherwise, in the sewerage transmission, treatment or disposal facilities of parties other than the City, including D-12

271 the right to capacity in such facilities. The Sewer System shall not include the East Central Regional Wastewater Treatment Facilities. Short-Term Indebtedness means all Indebtedness incurred or assumed by the City, with respect to the Utility System for any of the following: (i) payments of principal and interest with respect to money borrowed for an original term, or renewable at the option of the City for a period from the date originally incurred, of one year or less; (ii) payments under leases having an original term, or renewable at the option of the lessee for a period from the date originally incurred, of one year or less; and (iii) payments under installment purchase contracts having an original term of one year or less. Sinking Fund shall mean the West Palm Beach Utility System Revenue Bonds Interest and Sinking Fund, a special fund created by the Bond Resolution. State Loan shall mean any loan for any of the purposes of the Utility System from the State of Florida or any of its agencies thereof which loan is authorized by the laws of the State of Florida, to be made by the State or such agency and to be incurred by the City. Stormwater Drainage Facilities shall mean, generally, the facilities, including but not limited to the canals, storm sewers, holding ponds and other means of conveying stormwater from place to place, owned or leased and operated by the City and any assets, facilities, Improvements or Capital Expenditures (whether or not financed with Bonds) which are designated by the City Commission as a part of the Stormwater Drainage Facilities. Stormwater Drainage Facilities Revenues shall mean (i) all revenues, income, rents and receipts received by or accrued to the City from or attributable to the ownership and operation of the Stormwater Drainage Facilities, including special assessments, fees or assessments based upon usage of or benefit from the Stormwater Drainage Facilities and including all revenues attributable to the Stormwater Drainage Facilities or to the payments of the Costs thereof received by the City under any contract for the sale of service from the Stormwater Drainage Facilities or any part thereof or any contractual arrangement with respect to the use of the Stormwater Drainage Facilities or any portion thereof or the service thereof, and (ii) the proceeds of any insurance covering business interruption loss relating to the Stormwater Drainage Facilities, if any. Subordinated Indebtedness shall mean bonds, notes or other forms of indebtedness, the payment of the principal or interest or redemption premium on which are payable solely from moneys which may from time to time be on deposit in the General Reserve Fund under the Bond Resolution and which is designated as Subordinated Indebtedness by the City Commission in the resolution authorizing the issuance of such Indebtedness. D-13

272 Town shall mean the Town of Palm Beach, Florida. Town Retail Term shall have the meaning assigned to the term Retail Term under that certain Retail Water Service and Franchise Agreement executed between the City and the Town on June 16, Town Water Distribution System shall mean all of the City s right, title and interest in the potable water distribution piping, storage, pumping, metering and other such appurtenances located within the Town necessary for the proper delivery of water for potable and non-potable purposes, including permits which are unique to the potable water distribution elements located in the Town and which do not apply to the City s water distribution facilities and which are transferable to the Town. The Town Water Distribution System shall expressly include the five subaqueous crossings located within the intracoastal waterway which deliver potable water from the City to the Town, including that portion of such crossings located within the corporate limits of the City to the western boundary of the intracoastal waterway, excluding the western control valves. Utilities Director shall mean the Director of the Utilities Department of the City from time to time appointed by the City Commission or the official of the City who shall succeed to his principal functions. Utility System shall mean: (i) the Water System; (ii) the Sewer System; and (iii) the Stormwater Drainage Facilities. Variable Rate Bonds shall mean any Bonds issued under the Bond Resolution the interest rate on which is not established at the time of issuance at a single numerical rate; provided, however, Bonds which are, by their terms, Variable Rate Bonds but the payment on which by the City is fixed, through the use of Interest Rate Swaps, matching inverse cash flows on separate portions of the same Series of Bonds or otherwise, shall be treated as fixed interest rate Bonds for so long as such payment obligation is so fixed. Variable Rate Bonds shall include fixed rate Bonds, the payment obligations of the City with respect thereto vary over time due to the use of Interest Rate Swaps or otherwise. Water System shall mean the existing water supply, production, distribution and distribution system together with any Improvements thereto, including any new water facilities of the types described above owned or leased and operated by the City, any assets, facilities, or Capital Expenditures (whether or not financed with Bonds) which are designated by the City Commission as a part of the Water System and the City s interest, equitable or otherwise, in the water facilities of parties other than the City, including the right to capacity in such facilities; provided, however, that upon the expiration of the Town Retail Term, the Town Water Distribution System shall no longer be a part of the Water System. D-14

273 AUTHORIZED BONDS AND OTHER INDEBTEDNESS Additional Bonds Additional Bonds of the City may be issued under and secured by the Bond Resolution, on a parity as to the pledge of the Net Revenues of the Utility System with the Bonds then Outstanding under the Bond Resolution, subject to the conditions set forth in the Bond Resolution and hereinafter described, from time to time for the purpose of paying all or any part of the Cost of constructing or acquiring any Improvements. Before any Additional Bonds may be issued, the City Commission will adopt a resolution authorizing the issuance of such Additional Bonds, fixing the amount and the details thereof, and describing in brief and general terms the Improvements to be constructed or acquired. The Additional Bonds of each Series, shall be dated, shall be stated to mature (subject to the right of prior redemption) on such date or dates, in such year or years not more than forty years after the date of the Additional Bonds, shall bear interest at such rate or rates, fixed or variable, may have such Optional Tender features and Credit Facilities, shall have such Bond Registrar, and any Term Bonds of such Series shall have such Amortization Requirements, and may be made redeemable at such times and prices, all as may be provided by the Series Resolution for such Additional Bonds. Prior to the delivery of Additional Bonds, the City Clerk will receive the following: (a) copies of the resolution authorizing the issuance of such Additional Bonds, the Series Resolution for such Series of Additional Bonds, and the resolution adopted by the City Commission awarding such Bonds, specifying the interest rate or rates for such Additional Bonds or that such Additional Bonds will bear interest at a Variable Rate and directing the delivery of such Additional Bonds to or upon the order of the purchasers therein named upon payment of the purchase price therefor; (b)(i) a certificate of the Finance Director demonstrating that the principal amount of such Additional Bonds, together with the principal amount of all other Additional Bonds issued and then Outstanding does not exceed ten per centum of the Revenues of the Utility System for the last Fiscal Year for which the financial statements of the Utility System were reported upon; or (ii)(a) a certificate of the Finance Director demonstrating that the percentage derived by dividing the Net Revenues for any twelve consecutive calendar months within the preceding eighteen consecutive calendar months selected by the Finance Director after consultation with the Public Works Director and the Utilities Director (the Test Period ), adjusted as permitted by the Bond Resolution and described below, by the Maximum Principal and Interest Requirements, including the Principal and Interest Requirements with respect to the Additional Bonds then to be delivered, for any future Fiscal Year is not less than one hundred twenty per centum; and D-15

274 (ii)(b) a certificate of the Consulting Engineer demonstrating that the percentage derived by dividing the projected Net Revenues for the Fiscal Year following the first full Fiscal Year following the Fiscal Year in which the Completion Date of such Improvements is expected to occur by the Maximum Principal and Interest Requirements, including the Principal and Interest Requirements with respect to the Additional Bonds then to be delivered, for any future Fiscal Year is not less than one hundred twenty per centum; (c) an opinion of the City Attorney stating that the issuance of Additional Bonds has been duly authorized and that all conditions precedent to the delivery of such Additional Bonds have been fulfilled; and (d) a certificate of the Finance Director to the effect that no Event of Default, as defined in the Bond Resolution and described below, and no event which with the passage of time, the giving of notice or both would become an Event of Default, has occurred within the twelve consecutive calendar months prior to the date of such certificate and is continuing. In determining whether to execute and deliver any of the certificates mentioned in clause (b)(i) or (b)(ii)(a) above, (I) if the rates and charges for the services and facilities furnished by the Utility System have been revised and such revised rates and charges have gone into effect prior to the issuance of such Additional Bonds, the amount of the Revenues or Net Revenues which would have been realized during the Test Period had such revised rates and charges gone into effect on the first day of the Test Period may be used by the Finance Director and (II) if the Improvements to be acquired or constructed include either the acquisition of a new utility system or systems or the extension of the Utility System to a geographical area not previously served, then the amount of Revenues or Net Revenues which would have been realized during the Test Period from the additional customers to be added to the Utility System may be used by the Finance Director. In determining whether to execute and deliver the certificate required by clause (b)(ii)(b) above, (I) if the rates and charges for the services and facilities furnished by the Utility System have been revised and such revised rates and charges have gone into effect prior to or simultaneously with the Completion Date for such Improvements, the Consulting Engineer may assume for the purpose of such certificate the Revenues and Net Revenues which will be realized during the period required to be covered by such certificate, (II) if the Improvements to be acquired or constructed include either the acquisition of a new utility system or systems or the extension of the Utility System to a geographical area not previously served, then the amount of Revenues or Net Revenues which would have been realized during the Fiscal Years required to be considered by the Consulting Engineer from the additional customers to be added to the Utility System may be used by the Consulting Engineer and in all events, the Consulting Engineer will include in the calculation required by such certificate the Current Expenses associated with the Improvements then being constructed. The proceeds (excluding accrued interest and any premium) of such Additional Bonds will be paid to the City for deposit to the credit of a special account in the Construction Fund and for application to the payment of the Cost of such Improvements, including the amount, if any, D-16

275 determined by the City Commission to be deposited to the credit of the Reserve Account for such Bonds. All of the provisions of the Bond Resolution which relate to the Construction Fund will apply to such Improvements and special account to the extent that such provisions may be applicable. However, the Cost of Improvements may include interest accruing on Additional Bonds prior to and during construction of Improvements if and to the extent provided for in the resolution authorizing the issuance of Additional Bonds or the Series Resolution relating thereto. The amount received as accrued interest and any premium will be deposited to the credit of the Bond Service Account and applied to the first interest due on such Bonds. Refunding Bonds Refunding Bonds may be issued under and secured by the Bond Resolution, subject to conditions set forth in the Bond Resolution and described below, from time to time to provide funds for refunding all or any portion of the Bonds then Outstanding under the Bond Resolution by payment at maturity or redemption at a selected redemption date or dates or combination of payment at maturity and redemption, including the payment of any redemption premium thereon and any interest which will accrue on such Bonds to such maturity dates or selected redemption date or dates or combination thereof and any expenses incurred in connection with such refunding. The proceeds of Refunding Bonds may be applied only in accordance with a resolution authorizing the issuance of such Bonds or a Series Resolution adopted by the City Commission prior to the issuance of such Bonds. Prior to the delivery of Refunding Bonds, the City Clerk will receive the following: (a) copies of the resolution authorizing the issuance of such Refunding Bonds, the Series Bond Resolution for such Series of Refunding Bonds, and the resolution adopted by the City Commission awarding such Bonds, specifying the interest rate or rates or the initial rate if such Refunding Bonds bear interest at a Variable Rate, determining the disposition of the moneys on deposit in the Sinking Fund on account of the Bonds to be refunded, and directing the delivery of such Refunding Bonds to or upon the order of the purchasers therein named upon payment of the purchase price therefor; (b) an opinion of a nationally recognized firm of attorneys of favorable repute in matters related to tax-exempt municipal bonds to the effect that upon the issuance of such Refunding Bonds and the application of the proceeds thereof, the Bonds to be refunded will no longer be deemed to be Outstanding under the Bond Resolution; (c) an opinion of the City Attorney stating that the issuance of the Refunding Bonds has been duly authorized and that all conditions precedent to the delivery have been fulfilled; and (d) such documents as shall be required by the Finance Director to show that provision has been duly made in accordance with the provisions of the Bond Resolution for the payment or redemption or combination of such payment and redemption of all of the Bonds to be refunded. D-17

276 Other Indebtedness In addition to Additional Bonds and Refunding Bonds authorized pursuant to provisions of the Bond Resolution and described above, and to the extent permitted by the laws of the State of Florida, the City may incur other forms of indebtedness related to the Utility System, as follows: (a) The City may incur Short-Term Indebtedness, payable on a parity as to the pledge of Net Revenues of the Utility System with the Bonds, if immediately after incurrence of such Short-Term Indebtedness the outstanding principal amount of all Short-Term Indebtedness does not exceed ten per centum of the Revenues of the Utility System as shown on the City s annual budget for the current Fiscal Year; provided, however, the City will have no principal amount of Short-Term Indebtedness outstanding for a period of twenty consecutive calendar days in each twelve-month period beginning on the date of incurrence of such Short-Term Indebtedness. (b) The City may incur Subordinated Indebtedness without limit as to amount. (c) The City may issue Convertible Bonds, secured on a parity as to the pledge of Net Revenues of the Utility System with the Bonds, provided that such Convertible Bonds are issued under the provisions of the Bond Resolution for Additional Bonds or Refunding Bonds, as described above, and such Convertible Bonds comply with the tests for such Bonds based upon the form of such Convertible Bonds at the time of their issuance. (d) The City may issue Optional Tender Bonds, secured on a parity as to the pledge of Net Revenues of the Utility System with the Bonds, provided that such Optional Tender Bonds comply with the test for the issuance of Additional Bonds or Refunding Bonds, as described above, and so long as (i) such Bonds are the subject of a remarketing agreement between the City or the trustee for such holders and an investment banking firm with experience in marketing taxexempt securities on a national basis and (ii) there is in effect with respect to such Optional Tender Bonds a Credit Facility, then the provisions with respect to Optional Tender Bonds in the definition of Principal and Interest Requirements will apply to such Optional Tender Bonds. In demonstrating compliance with the test for the issuance of Additional Bonds, the principal requirements for Optional Tender Bonds will include the regularly scheduled principal payments, either upon payment at maturity or redemption in satisfaction of the Amortization Requirements for such Bonds and will not include the payment of the purchase price of such Bonds upon their tender for purchase. (e) The City may issue Variable Rate Bonds upon compliance with the tests for the issuance of Additional Bonds or Refunding Bonds as described above, using for the purpose of demonstrating compliance with such tests, the interest rate assumption with respect to the Variable Rate Bonds in the definition of Principal and Interest Requirements. (f) The City may enter into Credit Facilities to the extent that the Series of Bonds or portion thereof which is supported by such Credit Facilities are incurred in compliance with the provisions of the Bond Resolution. D-18

277 (g) The City may incur Balloon Indebtedness if the conditions set forth in the Bond Resolution are met, assuming for the purpose of such tests the amortization assumption set forth in the definition of Principal and Interest Requirements in the Bond Resolution. (h) Nothing in the Bond Resolution shall prohibit the City from entering into Interest Rate Swaps; provided, however, that nothing in the Bond Resolution shall be construed to indicate that Interest Rate Swaps are Indebtedness. The City hereby agrees that it will not execute an Interest Rate Swap unless the Swap Partner on such Interest Rate Swap or the party guaranteeing the payments by such Swap Partner is rated at least A by Moody s Investors Service if Moody s Investors Service then maintains a rating on any Bonds issued and outstanding under the Bond Resolution. Limitation on Indebtedness Incurred Without Test At no time shall the total principal amount of Bonds and other forms of indebtedness of the City with respect to the Utility System incurred or issued pursuant to the provisions described in clause (b)(i) under Additional Bonds and clause (a) under Other Indebtedness exceed ten per centum of the Revenues of the Utility System for the last Fiscal Year for which the financial statements of the Utility System were examined; provided, however, that if the Principal and Interest Requirements with respect to Bonds issued pursuant to said clause (b)(i) are later considered in determining compliance with tests set forth in the Bond Resolution and described in clause (b)(ii) under Additional Bonds only in connection with the issuance of a Series of Additional Bonds, the City again will be permitted to issue Additional Bonds pursuant to said clause (b)(i) subject to the limitation set forth therein. REDEMPTION The Bonds issued under the Bond Resolution shall be subject to redemption, either in whole or in part and at such times and prices, as may be provided by the Series Resolution relating to such Series. CONSTRUCTION FUND The City will cause amounts to be deposited to the credit of the Construction Fund as specified in a resolution adopted prior to the issuance of a particular Series of Bonds. The moneys in the Construction Fund will be applied to the payment of the Cost of constructing or acquiring the 1993 Project, as defined in the Bond Resolution, or any Improvements. Pending such application, the moneys in the Construction Fund will be subject to a lien and charge in favor of the holders of such Series of Bonds and for the further security of such holders until paid out as provided in the Bond Resolution and described below. D-19

278 If the City issues Additional Bonds to pay the Cost of Improvements, the City will create a special account within the Construction Fund and will deposit in it the amount provided from such Series of Additional Bonds for construction of Improvements. Disposition of Construction Fund Balance When construction of the 1993 Project or any Improvements for which a Series of Additional Bonds were issued have been completed, the Construction Fund balance not reserved by the City to pay any remaining part of the cost of the 1993 Project or such Improvements will be transferred, in the discretion of the City, to the credit of (a) the Renewal, Replacement and Improvement Fund, (b) the Sinking Fund to pay the principal of the Bonds of such Series, (c) to the extent that such funds are not exhausted by the deposit mentioned in (b), to the Sinking Fund for payment of all or any part of the next installment of interest due on the Bonds, or (d) retained in the Construction Fund and used to pay the Cost of different Improvements which have been approved by the City Commission. REVENUES AND FUNDS Rate Covenant The City covenants in the Bond Resolution that it will fix, charge and collect reasonable rates and charges for the use of the services and facilities furnished by the Utility System and that from time to time, and as often as it appears necessary, it will adjust such rates and charges by increasing or decreasing the same or any selected categories of rates and charges so that the Net Revenues, together with (I) any funds shown on the Annual Budget to be transferred in such Fiscal Year to the Sinking Fund for the purpose of paying principal of or interest on Bonds from the Rate Stabilization Account as permitted by the Bond Resolution and (II) any amount of Impact Fees which, pursuant to the provisions of the Bond Resolution, may be transferred in such Fiscal Year to the Sinking Fund for the purpose of paying the principal of or interest on Bonds, will be sufficient to provide an amount in each Fiscal Year at least equal to the greater of (a) one hundred twenty per centum (120%) of the Maximum Principal and Interest Requirements for any future Fiscal Year or (b) one hundred per centum (100%) of all amounts required to be deposited to the Funds and Accounts established under the Bond Resolution and described below for the then current Fiscal Year; provided, however, that (I) in determining the amount required to be deposited to the Bond Service Account and the Redemption Account, the amount, if any, of Impact Fees on deposit in the Impact Fee Fund on the first day of a Fiscal Year which may, under Florida law, be used for payment of principal of, redemption premium, if any, and interest on Bonds and which have been irrevocably budgeted in such Fiscal Year for payment of such principal of, redemption premium, if any, or interest on Bonds may be deducted from the amount required to be deposited to the Bond Service Account and to the Redemption Account, as appropriate and (II) in determining the amount required to be deposited to the General Reserve Fund, only such amounts as the City is required by law or contract to pay from such Fund shall be counted. In setting its rates and charges, the City shall be permitted to assume that not more than the balance in the Rate Stabilization Account as of the last day of the preceding Fiscal Year will be transferred as set forth above. D-20

279 If in any Fiscal Year the Net Revenues are less than the amount required under the preceding paragraph, within thirty days of the receipt of the audit report for such Fiscal Year, the City will employ its Consulting Engineer or its Accountant to review and analyze the financial status of the Utility System, its administration and operations thereof, to inspect the Utility System and to submit, within sixty days thereafter, a written report recommending revisions of the rates, fees and charges of, and the methods of operation of, the Utility System that will result in producing the amount so required in the following Fiscal Year. If the City fails to comply with the recommendations of its Consulting Engineer or its Accountant, the registered owners of not less than ten per centum (10%) in principal amount of all Bonds then Outstanding may institute and prosecute an action or proceeding in any court or before any board or commission having jurisdiction to compel the City to comply with such recommendations and the requirements of the Bond Resolution as described above. If the City complies with all recommendations of its Consulting Engineer or its Accountant, the failure of Net Revenues to meet the requirements of the first paragraph above will not constitute an Event of Default so long as the Revenues are sufficient to pay in cash the current expenses of the City and to pay the Principal and Interest Requirements on all Outstanding Bonds and other indebtedness of the City with respect to the Utility System for such Fiscal Year. Funds and Accounts The Bond Resolution creates and establishes the following Funds and Accounts: (i) Revenue Fund; (ii) Sinking Fund, consisting of the Bond Service Account, the Redemption Account and the Reserve Account; (iii) Renewal, Replacement and Improvement Fund, which may include a State of Florida Grant Reserve Account; (iv) General Reserve Fund, which includes a special account designated the Rate Stabilization Account; and (v) Impact Fee Fund. If required by the terms of any Series of Additional Bonds or Refunding Bonds, the City will establish and maintain a separate Sinking Fund to provide for payment of the principal of, redemption premium, if any, and interest on such Series of Bonds and to provide a reserve for such payment or to provide within the Accounts in the Sinking Fund separate subaccounts as required by the terms of such Bonds. If such separate Sinking Funds or separate subaccounts are created they will be funded as required by the Bond Resolution awarding such Bonds or Series D-21

280 Bond Resolution with respect to such Bonds, as the case may be, and will be held separate and apart from the Sinking Funds with respect to any other Series of Bonds issued under the Bond Resolution. All such Funds and Accounts will be held solely for the benefit and security of the Series of Bonds with respect to which they were created and will be subject to a lien and charge in favor of the holders of the Bonds Outstanding and the further security of such holders until paid out or transferred as provided in the Bond Resolution. The Reserve Account Requirement for such Series of Bonds shall be maintained such that it will not cause any existing rating on any Bonds or Series of Bonds Outstanding under the Bond Resolution to be lowered, suspended or withdrawn. Flow of Funds On or before the 20th day of the month next succeeding the month in which Series 1993 Bonds were issued and not later than the 20th day of each month thereafter, the Finance Director will withdraw the balance remaining in the Revenue Fund, less an amount necessary to pay Current Expenses during the next ensuing two months, and deposit the sum so withdrawn in the following order: (a) To the credit of the Bond Service Account, an amount equal to one-sixth (1/6) of the amount of interest payable on the Outstanding Bonds of each Series on the next succeeding Interest Payment Date and an amount equal to one-twelfth (1/12) or, if principal is payable semiannually, one-sixth (1/6) of the next maturing installment of principal on all Serial Bonds then Outstanding; provided, however, that in each month intervening between the date of delivery of Bonds (beginning with the month following the month in which such delivery takes place) and the next succeeding Interest Payment Date and the next succeeding principal payment date, respectively, the amount specified in this subparagraph shall be that amount which when multiplied by the number of monthly deposits to the credit of the Bond Service Account required to be made during such respective periods as provided above will equal the amounts required (in addition to any amounts received as accrued interest or capitalized interest from the proceeds of such Bonds) for such next succeeding interest payment and next maturing installment of principal, respectively. (b) To the credit of the Redemption Account, an amount equal to one-twelfth (1/12) or, if any Bonds are required to be retired semiannually in satisfaction of the Amortization Requirements therefor, one-sixth (1/6) of the principal amount of Term Bonds of each Series then Outstanding required to be retired, in satisfaction of the Amortization Requirements, if any, for such Fiscal Year, plus the premiums, if any, on the principal amount of Term Bonds which would be payable in such Fiscal Year if such principal amount of Term Bonds were to be redeemed prior to their respective maturities from moneys held for the credit of the Sinking Fund. (c) To the credit of the Reserve Account, such amount, if any, of any balance remaining after making the deposits to the Bond Service Account and the Redemption Account as may be required to make the amount deposited therein in such month equal to the Reserve Account Deposit Requirement for such month. D-22

281 (d) To the credit of the Renewal, Replacement and Improvement Fund, such amount, if any, of any balance remaining after making the deposits under clauses (a), (b) and (c) above as may be required to make the amount deposited therein equal to one-twelfth of the Renewal, Replacement and Improvement Fund Requirement; provided, however, that no deposit to this Fund will be required in any month in which the unappropriated balance on deposit to the credit of said Fund is at least equal to the Renewal, Replacement and Improvement Fund Requirement, recommended by the Consulting Engineer for each Fiscal Year. If the City receives a grant from the State of Florida to pay a portion of the Cost of any Improvements and the conditions for the receipt of such grant include the creation and funding of a reserve account, the City will create the State of Florida Grant Reserve Account (the State Grant Reserve Account ) within the Renewal, Replacement and Improvement Fund. The City will be required to fund the State Grant Reserve Account from moneys remaining after all deposits required by clauses (a), (b) and (c) above have been made, in the amounts required by the State of Florida. If the City is required to create and fund the State Grant Reserve Account, it must determine the portion of the Renewal, Replacement and Improvement Fund Requirement attributable to the Sewer System (the Sewer System Renewal, Replacement and Improvement Fund Requirement ). To the extent that moneys deposited in the State Grant Reserve Account may be used, pursuant to the regulations governing such Account, for items which would qualify for expenditure of funds on deposit in the Renewal, Replacement and Improvement Fund and such moneys have actually been budgeted by the City in such Fiscal Year for such purpose, the City will not be required to deposit amounts to such Fund on account of the Sewer System Renewal, Replacement and Improvement Fund Requirement. Notwithstanding such credit, the City will be required to deposit to the credit of the Renewal, Replacement and Improvement Fund amounts required to fund the balance of the Renewal, Replacement and Improvement Fund Requirement. If the amount required for deposit to the State Grant of Florida Reserve Account and to the Renewal, Replacement and Improvement Fund on account of the balance of the Renewal, Replacement and Improvement Fund Requirement exceeds the amounts required for deposit pursuant to the first paragraph of this clause, the amounts required by the first paragraph will be increased to cover such deposits. (e) To the credit of the General Reserve Fund, the balance, if any, remaining after making the deposits under clauses (a), (b), (c) and (d) above. If the amount deposited in any month to any of the Accounts or Funds is less than the amount required to be deposited, the requirement therefor shall nevertheless be cumulative and the amount therefor shall nevertheless be cumulative and the amount of any deficiency in any month will be added to the amount otherwise required to be deposited in each month thereafter until all such deficiencies have been made up. D-23

282 The amount of Impact Fees, if any, received by the City will be deposited directly to the credit of the Impact Fee Fund. Application of Moneys in Bond Service Account On the business day immediately preceding each Interest Payment Date, the Finance Director will withdraw from the Bond Service Account and deposit with the Bond Registrar the amount required to pay the interest on the Outstanding Bonds as such interest becomes due and payable. On the business day immediately preceding a date on which principal is due on the Serial Bonds, the Finance Director will withdraw from the Bond Service Account the amount required to pay the principal of such Serial Bonds as such principal becomes due and payable. Application of Moneys in Redemption Account Moneys in the Redemption Account will be applied to retire the Bonds issued under the Bond Resolution as follows: (a) Subject to the provisions of paragraph (c) below, the Finance Director will endeavor to purchase any Bonds then Outstanding, whether or not such Bonds are then subject to redemption, on the most advantageous terms obtainable with reasonable diligence. The price of such Bonds will not exceed the Redemption Price of such Bonds which would on the next redemption date be paid to the holders if such Bonds were redeemed. (b) Subject to paragraph (c) below, the Finance Director may call for redemption on each Interest Payment Date on which Bonds are subject to redemption such amount (minimum amount $50,000 unless a lesser amount shall be required to satisfy the Amortization Requirement for any Fiscal Year) of such Bonds as, with the redemption premium, if any, will exhaust the moneys held for the credit of the Redemption Account on said Interest Payment Date as nearly as may be. (c) Moneys in the Redemption Account will be applied by the Finance Director each Fiscal Year to retire Bonds of each Series then Outstanding in the following order: (i) Term Bonds to the extent of the Amortization Requirements, if any, therefor, plus the applicable premium, if any, and any deficiency in any preceding Fiscal Years in the purchase or redemption of such Term Bonds under the provisions of this subdivision and, if the amount available in such Fiscal Year shall not be sufficient therefor, then in proportion to the Amortization Requirement, if any, for such Fiscal Year for the Term Bonds of each such Series then Outstanding, plus the applicable premium, if any, and any such deficiency, (ii) Term Bonds of each Series, if any, in proportion (as nearly as practicable) to the aggregate principal amounts of the Bonds of such Series originally issued, and (iii) after all Term Bonds, if any, are retired, Serial Bonds in the inverse order of their maturities and, to the extent that Serial Bonds of different Series mature on the same date, in proportion (as nearly as practicable) to the principal amount of Bonds of each Series maturing on such date. D-24

283 Application of Moneys in Reserve Account Moneys in the Reserve Account will first be used to pay the interest on and the principal of the Bonds if the moneys in the Bond Service Account are insufficient to make such payments. Thereafter moneys will be used to make deposits to the Redemption Account if withdrawals from the Revenue Fund are insufficient for such purposes. If the moneys in the Reserve Account exceed the Reserve Account Requirement, such excess will be transferred to the Revenue Fund. However, the City Commission may provide for a different disposition of any such excesses which relate to such Series of Bonds but only for one or more purposes of the Utility System. Application of Moneys in Renewal, Replacement and Improvement Fund Except as otherwise provided in the Resolution or except in case of an emergency caused by some extraordinary occurrence and an insufficiency of moneys in the Revenue Fund to meet such emergency, moneys in the Renewal, Replacement and Improvement Fund will be disbursed only to pay the cost of unusual or extraordinary maintenance or repairs, the cost of renewals and replacements, the cost of acquiring, installing or replacing equipment, the cost of Improvements and engineering expenses related thereto and the cost of providing a local share of moneys required for the City to receive Federal or State grants or to participate in Federal or State assistance programs related to the Utility System. If at any time the moneys in the Bond Service Account and the Reserve Account are insufficient to pay the interest on or the principal of the Outstanding Bonds, as the same becomes due and payable, or the Net Revenues and the moneys in the Reserve Account are insufficient to make deposits to the Redemption Account, then moneys may be withdrawn from the Renewal, Replacement and Improvement Fund to make up any such deficiencies. However, no such transfer will be made unless the Bond Service Account is funded in an amount at least equal to the maximum requirement therefor as specified in the Bond Resolution. Anything in the Bond Resolution to the contrary notwithstanding, moneys in the State Grant Reserve Account, if the same is created, will be used only for the purposes permitted by the regulations of the State governing such Account. Application of Moneys in General Reserve Fund Moneys held for the credit of the General Reserve Fund will be applied as follows: (a)(i) to make up deficiencies in any of the Accounts and Funds created by the Bond Resolution; (ii) to make the ECR Board Renewal and Replacement Payments and the ECR Board Debt Service Payments; (iii) pro rata, (A) to pay the principal of, redemption premium, if any, and interest on any Subordinated Indebtedness, (B) to pay the amounts required to satisfy the Monthly State Loan D-25

284 Requirement with respect to any State Loan; and (C) if the City Commission shall determine in the Series Resolution pursuant to which a Series of Bonds is issued that payments (other than termination payments) with respect to an Interest Rate Swap relating to such Series shall be paid from the General Reserve Fund, to pay payments (other than termination payments) with respect to Interest Rate Swaps and in all events to pay termination payments with respect to Interest Rate Swaps; (iv) after making the payments, if any, required by clauses (i), (ii) and (iii), any balance remaining may be applied by the City for any one or more of the following purposes and any combination thereof, (A) to pay the Cost of Improvements, (B) to purchase or redeem Bonds, (C) to pay the Cost of any item qualifying as an authorized expenditure from the Renewal, Replacement and Improvement Fund, (D) to make any payments to the City in lieu of taxes but only in accordance with the City s Payment in Lieu of Taxes Policy Ordinance (as hereinafter defined) and (E) to make deposits to the Rate Stabilization Account. (b) Except for taxes permitted to be paid as a Current Expense of the Utility System, the City shall not withdraw moneys in the General Reserve Fund as payments in lieu of taxes for use for purposes of the City other than the Utility System except in accordance with a formula or methodology which shall be embodied in an ordinance duly adopted by the City Commission after a publicly-noticed public hearing thereon (the Payment In Lieu of Taxes Ordinance ). The Payment In Lieu of Taxes Ordinance from time to time in effect may be amended by the City Commission in the same manner as it was originally adopted. (c) Moneys, if any, on deposit to the credit of the Rate Stabilization Account may be transferred to the Sinking Fund for the purpose of paying the principal of or interest on any Bonds. There shall be no limit on the amount which may be so transferred from the Rate Stabilization Account in any Fiscal Year. Application of Moneys in Sinking Fund Moneys in the Sinking Fund will be disbursed for (a) the payment of interest on the Bonds issued under the Bond Resolution as such interest becomes due and payable, or (b) the payment of the principal of such Bonds at their maturities, or (c) the payment of the purchase or redemption price of such Bonds before their maturity. Application of Moneys in Impact Fee Fund Moneys, if any, in the Impact Fee Fund may be applied by the City for any purpose permitted by the laws of the State of Florida. D-26

285 PARTICULAR COVENANTS Insurance The City covenants that it will at all times carry insurance, in a responsible insurance company or companies authorized and qualified under the laws of the State of Florida to assume the risk thereof, covering such properties belonging to the Utility System as are customarily insured against loss or damage from such causes as are customarily insured against by companies engaged in similar business. All such policies will be for the benefit of the City and will be made payable to the City. The City is required to use the proceeds of any insurance policy to repair, replace or reconstruct damaged or destroyed property unless it determines, pursuant to the Bond Resolution, that the repair, replacement or reconstruction of such property is not essential to the efficient or economic operation of the Utility System. In the event that the City determines that such repair or replacement is not essential, the proceeds of such insurance received by the City, at its option, shall be deposited to either the Redemption Account or the Renewal, Replacement and Improvement Fund. Notwithstanding the foregoing, the City may institute self-insurance programs with regard to such risks as are consistent with the practices of municipally-owned utilities operating in a manner similar to the Utility System. Records, Accounts and Audits The City covenants that it will keep the funds and accounts of the Utility System separate from all other funds and accounts of the City or any of its departments, and that it will keep accurate records and accounts of all costs and expenditures relating to the Utility System and of the Revenues collected and the application of such Revenues and the number of users of the Utility System in each classification. The City also covenants that within six months of the close of each Fiscal Year it will cause an audit to be made of its books and accounts pertaining to the Utility System. Mandatory Connections Except as provided in the following sentence, the City will, to the full extent permitted by law, require all lands, buildings and structures within its service area, fronting or abutting on the lines of the Utility System, or any part thereof, or which can use the facilities of the Utility System to connect with and use such facilities within ninety (90) days after notification that service is available. From and after the date set forth in the Stormwater Drainage Resolution, the City will, to the full extent permitted by law, assess and collect fees, assessments and revenues from all properties and owners thereof which, in the judgment of the City, are benefitted by the Stormwater Drainage Facilities. D-27

286 Except as otherwise provided in the Bond Resolution, and to the extent permitted by law, the City will not grant a franchise for the operation of a water and sewer system or a water system or a sewer system which would be in competition with the Utility System so long as any Bonds are Outstanding under the Bond Resolution. Separate Systems The City Commission may by resolution determine to own and operate Separate Systems; provided, however, that prior to the adoption of any such resolution, the City Clerk will have received a certificate of the Finance Director determining that such ownership and operation will not have a material adverse impact on the Net Revenues of the Utility System and stating the reasons for such determination. The City may incur indebtedness to acquire or improve Separate Systems without compliance with any test or limit contained in the Bond Resolution so long as such Indebtedness is payable solely from the revenues generated by such Separate System and the holders of such Indebtedness have no recourse and are in no way payable from, the Revenues or Net Revenues of the Utility System. The revenues, current expenses and debt service associated with such Separate System and any Indebtedness of the City incurred therefor will not be included in Revenues, Current Expenses and Principal and Interest Requirements, as defined in the Bond Resolution. Any such Separate Systems may be consolidated with the Utility System upon demonstration of compliance with the tests described in clause (b)(ii) under Additional Bonds herein. In determining such compliance, the revenues and current expenses of such Separate System will be included in Revenues and Current Expenses of the Utility System and the debt service on any Indebtedness payable from revenues of such Separate Systems will be included in Principal and Interest Requirements. Further, prior to any such consolidation, compliance with the tests set forth in clause (b)(ii) under Additional Bonds must be demonstrated regardless of whether there is any Indebtedness outstanding with respect to such Separate System. No Free Service Except to the extent required by law or in accordance with a policy adopted by the City Commission, the City will not render or cause as to be rendered free services of any nature by the facilities of the Utility System nor will any preferential rates be established for users of the same class. The City will use the Utility System and will be charged the same rates, fees or charges applicable to other customers receiving like services under similar circumstances. Failure to Pay for Services To the extent permitted by law, if any user fails to pay for services rendered within sixty days, the City will shut off the user s connection to the Utility System and will not furnish him or permit him to receive further services until all obligations owed by him have been paid in full. D-28

287 This covenant will not, however, prevent the City from causing any connection to be shut off sooner if permitted by law. Enforcement of Collections The City will diligently enforce and collect the rates, fees and other charges for the services of the Utility System and will take all steps, actions and proceedings for enforcement and collection of such rates, fees and charges as the same become delinquent to the full extent permitted or authorized by law. Sale, Lease or Other Disposition of the Utility System Except as provided in the Bond Resolution as described below, the City will not sell or otherwise dispose of all or any part of the Utility System. (a) To the extent permitted by law the City may, without restrictions, in any Fiscal year sell, lease or otherwise dispose of assets forming a part of the Utility System, the aggregate value of which in each such Fiscal Year does not exceed one half of one per centum of the book value of the net property, plant and equipment of the Utility System as shown on the audited financial statements of the Utility System for the latest Fiscal Year for which such audited statements are available. The proceeds of such a sale will be deposited to the credit of the Renewal, Replacement and Improvement Fund and any rental income received from a lease of such property will be deposited to the credit of the Revenue Fund. (b) To the extent permitted by law the City may sell, lease or otherwise dispose of assets in excess of the amount set forth in clause (a), if, before any such transfer, the City Clerk receives a report of the Consulting Engineer demonstrating that the sale, lease or other disposition of such property will not have an adverse impact on the Net Revenues and stating his reasons therefor. The proceeds of a sale pursuant to this clause will be deposited to the credit of the Renewal, Replacement and Improvement Fund and any rental income received by the City from a lease of such property shall be deposited to the credit of the Revenue Fund. (c) To the extent permitted by law, the City may lease the entire Utility System if the City Clerk receives certain reports and certifications of the Consulting Engineer and the Finance Director, as well as an opinion of Bond Counsel to the effect that such lease will not adversely affect the exclusion from gross income for federal income tax purposes of the interest on any Bonds issued under the Bond Resolution. The report of the Consulting Engineer will show that the proposed lessee is a financially responsible lessee with substantial experience in the operation and management of utilities of the general type and size of the Utility System, and that the Net Revenues for the five complete Fiscal Years following the effective date of such lease are forecast to be sufficient to pay to the City the rent and to make all necessary repairs, improvements and replacements to maintain the Utility System in its condition prior to such lease. D-29

288 The certificate of the Finance Director will show that the lease provides (i) for rent payments sufficient to pay all the Principal and Interest Requirements for all Bonds issued and Outstanding following such lease and all other obligations of the City which were payable from Net Revenues prior to such lease, including the excess coverage of Maximum Principal and Interest Requirements required by the Bond Resolution, (ii) operational covenants binding on the lessee similar to those covenants contained in the Bond Resolution and any Series Resolution and (iii) for immediate dispossession in the event of a default under the lease. (d) To the extent permitted by law, the City may sell the entire Utility System, if, after application of the proceeds of any such sale as required by the Bond Resolution and described below, no Bonds will be deemed to be Outstanding under the Bond Resolution and the City will have paid or fully provided for the payment of all other obligations payable from the Revenues of the Utility System, including but not limited to, Current Expenses then due and payable or to become due and payable, all other Indebtedness payable from such Revenues and all obligations to the State of Florida for the State Loans, the State Grant Reserve Account or otherwise and all fees with respect to Credit Facilities. The proceeds of such sale will be applied to the payment or provision for payment of the obligations, including the Bonds. Once all such obligations have been paid or fully provided for, the City may apply any of such proceeds to any other lawful purpose of the City. In addition, no such sale will occur nor will such proceeds be applied unless prior to such sale or application the City receives an opinion of bond counsel of favorable national reputation for skill in matters relating to tax-exempt municipal bonds to the effect that such sale and related application of proceeds will have no adverse impact on the exclusion from gross income for federal income tax purposes of the interest on the Bonds or any other Indebtedness of the City, payable from the Revenues of the Utility System which at the time of its incurrence was exempt from such taxation or any bonds of the State of Florida issued to fund State Loans. REMEDIES Extension of Interest Payment If the time for payment of interest on any Bond is extended, whether or not the City consents to the extensions, such interest will not be entitled in case of default under the Bond Resolution to the benefit or security of the Bond Resolution except subject to the prior full payment of the principal of all Bonds then outstanding and of all interest the time for payment of which will not have been extended. Events of Default The Bond Resolution defines each of the following events as an Event of Default : (a) failure to pay principal and redemption premium, if any, of any of the Bonds as the same shall become due and payable, either at maturity or by proceedings for redemption or otherwise; or D-30

289 or (b) failure to pay any installment of interest as the same shall become due and payable; (c) the City is rendered financially incapable of fulfilling its obligations under the Bond Resolution; or (d) any substantial part of the Utility System necessary for its effective operation is destroyed or damaged and is not properly repaired, replaced or reconstructed; or (e) a final money judgment is rendered against the City as a result of the ownership, control or operation of the Utility System and any such judgment is not discharged within sixty days from its entry or an appeal is not taken therefrom or from the order, decree or process upon which or pursuant to which such judgment shall have been granted or entered, in such manner as to stay the execution of or levy under such judgment, order, decree or process or its enforcement; or (f) the City admits in writing to its inability to pay its debts generally as they become due, files a petition in bankruptcy, makes an assignment for the benefit of its creditors, consents to the appointment of a receiver or trustee for itself or for the whole or any part of the Utility System, or a receiver or trustee for such purpose is appointed without the City s consent; or (g) the City or the Utility System is adjudged insolvent by a court of competent jurisdiction, is involuntarily adjudged a bankrupt or an order, judgment or decree is entered by any court of competent jurisdiction appointing, without the consent of the City, a receiver or trustee of the City, or of the whole or any part of its property and any of these adjudications, orders, judgments or decrees is not vacated, set aside or stayed within ninety days from the date of its entry; or (h) the City files a petition or answer seeking reorganization or any arrangement under the Federal bankruptcy laws or any other applicable federal or state law or statute; or (i) under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction assumes custody or control of the City or the Utility System or of the whole or any substantial part of its property, and such custody or control is not terminated within ninety days from the date of assumption of the same; or (j) the City defaults in the due and punctual performance of any of the covenants, conditions, agreements and provisions contained in the Bonds or the Bond Resolution and such default continues for thirty days after the City receives written notice specifying such default and requiring the same to be remedied from the holders of not less than ten per centum of the aggregate principal amount of the Bonds and other Indebtedness then Outstanding. If the default is of a type which cannot be remedied within thirty days, it will not constitute an Event of Default if the City begins to remedy it within such thirty-day period; D-31

290 provided, however, that any default on an Interest Rate Swap by the City shall not, in and of itself, constitute a default on the Bonds. Acceleration of Maturities Upon the happening and continuance of any Event of Default, the holders of not less than a majority in aggregate principal amount of the Bonds then Outstanding, may by a notice in writing to the City, declare the principal of the Bonds then Outstanding (if not then due and payable) to be due and payable immediately. Upon such declaration, the same will become and be immediately due and payable. However, the holders of not less than a majority in aggregate principal amount of the Bonds not then due except by virtue of the declaration described above and then Outstanding, may rescind such declaration if final judgment has not been entered in any action instituted on account of any default and there are sufficient moneys in the Sinking Fund to pay the principal of all matured Bonds and any arrears of interest upon all Bonds then Outstanding (except the principal of any Bonds due by virtue of such declaration and the interest accrued on such Bonds since the last Interest Payment Date). Enforcement of Remedies Upon the happening and continuance of any Event of Default, the holders of not less than ten per centum in aggregate principal amount of the Bonds then Outstanding may protect and enforce the rights of the Bondholders under Florida law, or under the Bond Resolution by such legal or equitable actions, as they deem necessary to protect and enforce such rights. Pro Rata Application of Funds If the moneys in the Sinking Fund are insufficient to pay the principal of or the interest on the Bonds as the same become due and payable, such moneys, together with any moneys then available or thereafter becoming available for such purpose, will be applied as follows: (a) Unless the principal of all the Bonds shall have become due and payable or shall have been declared due and payable, all such moneys shall be applied: (1) To pay all installments of interest then due and payable, in the order in which such installments became due and payable, and, if the amount is insufficient to fully pay any particular installment, then to pay the installments ratably. (2) To pay the unpaid principal of any of the Bonds which have become due (other than Bonds called for redemption and for which there are sufficient moneys in the Redemption Account), in the order of their due dates, with interest at the specified rates from the dates upon which they became due, and, if the amount is insufficient to pay in full such principal, together with such interest, then to pay interest, ratably according to D-32

291 the amount due on such date, and then to pay principal, ratably according to the amount due on such date. (3) To pay the interest on and the principal of the Bonds, to purchase and retire the Bonds, and to redeem the Bonds, all as set forth in the Bond Resolution. (b) If the principal of all the Bonds has become due and payable or has been declared due and payable, all moneys will be applied to pay ratably the principal and interest then due and unpaid, without preference or priority as to principal over interest or interest over principal or any installment of interest over any other such installment, or of any Bond over any other such Bond, ratably, according to the amounts due respectively for principal and interest, to the persons entitled thereto without any discrimination or preference except as to any difference in the respective rates of interest specified in the Bonds. Restrictions on Individual Bondholder Actions No holder of any of the Bonds secured under the Bond Resolution has any right to affect, disturb or prejudice the security of the Bond Resolution, or to enforce any right under it except as the Bond Resolution so provides and all legal or equitable proceedings will be instituted and maintained for the benefit of all holders of such Bonds. Right to Enforce Payment of Bonds Nothing in the Bond Resolution will affect or impair the right of any Bondholder to enforce the payment of the principal of and interest on his Bond, or the obligation of the City to pay the principal of and interest on each Bond to each holder at the time and place set forth thereon. Insured Bonds If any Bonds of any Series issued and outstanding under the Bond Resolution shall be insured pursuant to the terms of a municipal bond insurance policy (a Policy ) issued by an insurance company (an Insurer ), then, so long as the Insurer is not then in default under the terms of its Policy, the Insurer shall be deemed to be the owner of the Bonds to which such Policy relates for the purposes of giving consents and the directing of remedies upon the occurrence of an Event of Default. Any notice required to be delivered to any owner of any Bond shall also be delivered to the Insurer which has insured such Bond. SUPPLEMENTAL RESOLUTIONS Supplemental Resolution without Bondholders Consent The City Commission may adopt supplemental resolutions for any of the following purposes and any such supplement will thereafter be part of the Bond Resolution: D-33

292 (a) to cure any ambiguity, formal defect or omission or to correct any inconsistent provisions in the Bond Resolution or in any supplemental resolution, or (b) to grant to or confer upon the Bondholders any additional rights, remedies, powers, authority or security, or (c) to add conditions, limitations and restrictions on the issuance of Bonds under the Bond Resolution, or (d) to add covenants and agreements to be observed by the City or to surrender any right or power reserved to or conferred upon the City in the Bond Resolution, or (e) to permit the issuance of Bonds in coupon form, if as a condition precedent, the City receives an opinion of Bond Counsel to the effect that the issuance of such Bonds in coupon or bearer form is then permitted by law and that the interest on such Bonds would be exempt from Federal income taxation, or (f) to permit the City to issue Bonds the interest on which is not exempt from Federal income taxation, or (g) to register the Bonds under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or to qualify the Bond Resolution as an indenture under the Trust Indenture Act of 1939, as amended, or (h) to create additional Sinking Funds for Series of Additional Bonds, or (i) to permit Bonds to be issued in denominations smaller than $5,000, or in book entry form without physical bonds. Supplemental Resolution with Bondholders Consent The holders of not less than fifty-one per centum (51%) in aggregate principal amount of the Bonds then Outstanding will have the right to consent to and approve the adoption of supplemental resolutions deemed necessary or desirable by the City to modify, alter, amend, add to or rescind any of the provisions of the Bond Resolution. However, such right does not permit (a) an extension of the maturity of the principal of or the interest on any Bonds, (b) a reduction in the principal amount of any Bond or the redemption premium or the rate of interest thereon, (c) the creation of a lien upon or a pledge of Revenue other than the pledge created by the Bond Resolution, (d) a preference or priority of certain Bonds over any other Bonds, or (e) a reduction in the aggregate principal amount of the Bonds required for consent to such supplemental resolution. The City will mail notice of the proposed supplemental resolution in accordance with the Bond Resolution to all registered owners of Bonds then Outstanding. D-34

293 Any insurance company which has issued its policy of bond insurance insuring the payment of the principal of and interest on any Bonds shall, so long as such company is not then in default in the performance of its obligations under such insurance policy, be deemed to be the holder of the Bonds covered by such insurance policy for the purposes of consent and approval of a supplemental resolution by the holders of Bonds. The consent of the holders of any Series of Additional Bonds to be issued under the Bond Resolution shall be deemed given if the underwriters or initial purchasers for resale consent in writing to such supplemental resolution and the nature of the amendment effected by such supplemental resolution is disclosed in the official statement or other offering document pursuant to which such Series of Additions Bonds is offered and sold to the public. DEFEASANCE Cessation of Interest of Bondholders If the Bonds secured under the Bond Resolution have become due and payable in accordance with their terms or have been called for redemption or the City has given irrevocable instructions to call the Bonds or to pay the Bonds at their respective maturities or any combination of such redemption and payment, the whole amount of the principal and interest and premium, if any, so due and payable will be paid on sufficient moneys or Government Obligations, the principal of and interest (which with respect to any Variable Rate Bonds shall be assumed to be the maximum interest rate permitted under the documents governing such Variable Rate Bonds) on which when due will provide sufficient moneys, will be held by the Bond Registrar or other bank, trust company or other appropriate financial institution, acting as escrow agent, for such purpose under the Bond Resolution, and provision shall also be made for paying all other sums payable under the Bond Resolution by the City, then the right, title and interest of the holders of the Bonds in the Net Revenues and Funds and Accounts established by the Bond Resolution will cease and become void. The City will have no obligation with respect to such Bonds except as to the payment of the principal of, redemption premium, if any, and interest thereon payable solely from the moneys or Government Obligations mentioned above. In such case, the City Commission will repeal and cancel the Bond Resolution and may apply any surplus in the Sinking Fund and all balances remaining in any other Funds or Accounts to any lawful purpose as the City Commission may determine; otherwise the Bond Resolution will remain in full force and effect. However, if Government Obligations are deposited with the Bond Registrar or other bank, trust company or other appropriate financial institution, acting as escrow agent, then within thirty days after such deposit, notice must be published once in a daily newspaper in the City of West Palm Beach, and in a daily newspaper or a financial journal published in the Borough of Manhattan, City and State of New York. Such notice will set forth the date, if any, designated for the redemption of the Bonds or if appropriate, a statement to the effect that Bonds are being paid at maturity and any Term Bonds are being redeemed in amounts and at times which will satisfy the Amortization Requirements therefor and a description of the Government Obligations so held by the Bond Registrar or other bank, trust company or other appropriate financial institution. D-35

294 With respect to Variable Rate Bonds or Optional Tender Bonds, prior to the release of the Bond Resolution, the City Clerk will have received the following: (i) a resolution of the City Commission determining (which determination may be based upon opinions of bond counsel or investment bankers) that the rights of the owners of such Variable Rate Bonds or Optional Tender Bonds to receive payment of interest at the Variable Rate, as provided in the documents pursuant to which such Bonds were issued, and the right to receive payment of the purchase price of such Bonds upon tender for purchase, as provided in the documents pursuant to which such Bonds were issued, either pursuant to a Credit Facility provided therefor or otherwise, will not be materially adversely impaired by the release of the Bond Resolution; (ii) a resolution of the City Commission, which may be the same resolution specified in clause (i) above, specifying the uses to which any Current Excess Interest Earnings (as hereinafter defined) will be either Improvements or Capital Expenditures, as defined in the Bond Resolution, for the Utility System or Current Expenses of the Utility System to the extent that expenditure of such sums for such purpose reduces the required Revenues, or, if the City no longer owns the Utility System, the capital expenditures for other lawful purposes of the City, in each event, such uses will be for facilities the construction or acquisition of which would, but for the receipt of such Current Excess Interest Earnings, have been constructed or acquired using proceeds of unissued Bonds or other bonds of the City or paid from future revenues of the City; and (iii) an opinion of Bond Counsel to the effect that such release will not adversely affect the Federal income tax exemption of interest on any of such Bonds as are then exempt from such taxation. As used here, Current Excess Interest Earnings means for each period for which interest is received by the escrow agent on the Government Obligations, the excess, if any, of interest received on the Government Obligations over the amount of interest paid on the Variable Rate Bonds in such period. The agreement pursuant to which such Government Obligations are held by the escrow agent will provide for withdrawal of such Current Excess Interest Earnings when received by the Escrow Agent and payment of such funds to the City for expenditure in the manner provided in the resolution mentioned in clause (ii) of the preceding paragraph; provided, however, to the extent that such Current Excess Interest Earnings are derived from Government Obligations described in clause (iii) of the definition of Government Obligations, this paragraph shall not apply. D-36

295 APPENDIX E Proposed Form of Opinion of Bond Counsel

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297 , 2012 To: City Commission of the City of West Palm Beach, Florida West Palm Beach, Florida We have served as bond counsel to our client the City of West Palm Beach, Florida (the City ) and not as counsel to any other person in connection with the issuance by the City of its $43,040,000 aggregate principal amount of City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A (the Series 2012A Bonds ), dated the date of this letter. The Series 2012A Bonds are issued pursuant to the Constitution and laws of the State of Florida, including Chapter 166, Florida Statutes, as amended, and the Charter of the City, Resolution No adopted by the City Commission of the City (the City Commission ) on November 29, 1993, as amended by Resolution No adopted by the City Commission on December 13, 1993 and by Resolution No adopted by the City Commission on October 18, 1999, and Resolution No adopted by the City Commission on August 20, 2012 (collectively, the Bond Resolution ). Capitalized terms not otherwise defined in this letter are used as defined in the Bond Resolution. In our capacity as bond counsel, we have examined the transcript of proceedings relating to the issuance of the Series 2012A Bonds, a copy of the signed and authenticated Series 2012A Bond of the first maturity, the Bond Resolution and such other documents, matters and law as we deem necessary to render the opinions set forth in this letter. Based on that examination and subject to the limitations stated below, we are of the opinion that under existing law: 1. The Series 2012A Bonds and the Bond Resolution are valid and binding obligations of the City, enforceable in accordance with their respective terms. 2. The Series 2012A Bonds constitute special limited obligations of the City, and the principal of and interest on (collectively, debt service ) the Series 2012A Bonds, together with debt service on any other obligations issued and outstanding on a parity with the Series 2012A Bonds as provided in the Bond Resolution, are payable from and secured solely by the Net Revenues. The payment of debt service on the Series 2012A Bonds is not secured by an obligation or pledge of any money raised by taxation, and the Series 2012A Bonds do not represent or E-1

298 , 2012 constitute a general obligation or a pledge of the faith and credit of the City, the State of Florida or any of its political subdivisions. 3. Interest on the Series 2012A Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended, and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, portions of the interest on the Series 2012A Bonds earned by certain corporations may be subject to a corporate alternative minimum tax. The Series 2012A Bonds and the income thereon are exempt from taxation under the laws of the State of Florida, except for estate taxes imposed by Chapter 198, Florida Statutes, as amended, and net income and franchise taxes imposed by Chapter 220, Florida Statutes, as amended. We express no opinion as to any other tax consequences regarding the Series 2012A Bonds. The opinions stated above are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. In rendering all such opinions, we assume, without independent verification, and rely upon (i) the accuracy of the factual matters represented, warranted or certified in the proceedings and documents we have examined and (ii) the due and legal authorization, execution and delivery of those documents by, and the valid, binding and enforceable nature of those documents upon, any parties other than the City. In rendering those opinions with respect to treatment of the interest on the Series 2012A Bonds under the federal tax laws, we further assume and rely upon compliance with the covenants in the proceedings and documents we have examined, including those of the City. Failure to comply with certain of those covenants subsequent to issuance of the Series 2012A Bonds may cause interest on the Series 2012A Bonds to be included in gross income for federal income tax purposes retroactively to their date of issuance. The rights of the owners of the Series 2012A Bonds and the enforceability of the Series 2012A Bonds and the Bond Resolution are subject to bankruptcy, insolvency, arrangement, fraudulent conveyance or transfer, reorganization, moratorium and other laws relating to or affecting creditors rights, to the application of equitable principles, to the exercise of judicial discretion, and to limitations on legal remedies against public entities. The opinions rendered in this letter are stated only as of this date, and no other opinion shall be implied or inferred as a result of anything contained in or omitted from this letter. Our engagement as bond counsel with respect to the Series 2012A Bonds has concluded on this date. Respectfully submitted, E-2

299 APPENDIX F Proposed Form of Opinion of Disclosure Counsel

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301 Date of Delivery City Commission of the City of West Palm Beach, Florida 401 Clematis Street West Palm Beach, Florida Ladies and Gentlemen: $43,040,000 City of West Palm Beach, Florida Utility System Revenue Refunding Bonds, Series 2012A We have served as Disclosure Counsel in connection with the issuance by the City of West Palm Beach, Florida (the City ) of its $43,040,000 in the aggregate principal amount of Utility System Revenue Refunding Bonds, Series 2012A (the Series 2012A Bonds ). The Series 2012A Bonds are being issued with the terms, for the purposes and subject to the conditions set forth in Resolution No adopted by the City Commission of the City (the City Commission ) on November 29, 1993, as amended by Resolution No adopted by the City Commission on December 13, 1993 and by Resolution No adopted by the City Commission on October 18, 1999 (collectively, the Bond Resolution ) and as supplemented by Resolution No adopted by the City Commission on August 20, 2012 (the Series 2012A Series Resolution ). The Bond Resolution, as further supplemented and amended from time to time, and in particular, as supplemented by the Series 2012A Series Resolution, is hereinafter referred to as the Resolution. All capitalized terms used in this opinion that are not defined herein and not normally capitalized shall have the meaning ascribed to such terms in the Resolution or in the Official Statement dated September 6, 2012 relating to the Series 2012A Bonds (the Official Statement ). In connection with the issuance and delivery of this opinion, we have considered such matters of law and fact and have relied upon such certificates and other information furnished to us as we have deemed appropriate. We are not expressing any opinion or views herein on the authorization, issuance, delivery or validity of the Series 2012A Bonds. To the extent that the opinions expressed herein relate to or are dependent upon the determination that the proceedings and actions related to the authorization, issuance and sale of the Series 2012A Bonds are lawful and valid under the laws of the State of Florida, or that the Series 2012A Bonds are valid and binding obligations of the City enforceable in accordance with their terms, or that interest on the Series 2012A Bonds is excluded from the gross income of the owners thereof for federal income tax purposes or is exempt from taxation under the laws of the State of Florida, we understand that you are relying upon the opinions delivered on the date hereof of Squire Sanders (US) LLP ( Bond Counsel ) and no opinion is expressed herein as to such matters. The scope of our engagement with respect to the issuance of the Series 2012A Bonds was not to establish factual matters and, because of the wholly or partially non-legal character of many of the determinations involved in the preparation of the Official Statement, we are not passing on and do not assume any responsibility for, except as set forth in the immediately succeeding paragraph, the accuracy or completeness of the contents of the Official Statement (including, without limitation, its appendices) and we F-1

302 City Commission of the City of West Palm Beach, Florida Date of Delivery Page 2 make no representation that we have independently verified the accuracy, completeness or fairness of such statements. As your counsel, we have participated in the preparation of the Official Statement and in discussions and conferences with participants involved in the issuance of the Series 2012A Bonds, including, without limitation, officials of the City, representatives of Bond Counsel, the Co-Financial Advisors, the Rate Consultant, the Underwriters and Greenspoon Marder, P.A., Fort Lauderdale, Florida, counsel to the Underwriters, in which the contents of the Official Statement and related matters were discussed. Solely on the basis of our participation in the preparation of the Official Statement, our examination of certificates, documents, instruments and records relating to the City and the issuance of the Series 2012A Bonds and the above-mentioned discussions, nothing has come to our attention which would lead us to believe that the Official Statement (except for the financial, statistical and demographic data and information in the Official Statement, including, without limitation, the appendices thereto, and the information relating to DTC, its operations and the book-entry-only system, as to which no opinion is expressed) contains an untrue statement of a material fact or omits to state a material fact that is necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. We are also of the opinion that the continuing disclosure undertaking set forth in the Resolution and in the Disclosure Dissemination Agent Agreement of the City dated as of September, 2012 and delivered at the closing for the Series 2012A Bonds, satisfies the requirements set forth in Rule 15c2-12(b)(5) of the United States Securities and Exchange Commission, as such requirements apply to the issuance of the Series 2012A Bonds. In reaching the conclusions expressed herein we have, with your concurrence, assumed and relied on the genuineness and authenticity of all signatures not witnessed by us, the authenticity of all documents, records, instruments and letters submitted to us as originals, the conformity with originals of all items submitted to us as certified or photostatic copies, the legal capacity and authority of the persons who executed such items, the accuracy of all warranties, representations and statements of fact contained in the documents and instruments submitted to us, and the continuing accuracy on this date of any certificates or other items supplied to us regarding the matters addressed herein, which assumptions we have not verified. As to questions of fact material to our opinions, we have relied upon and assumed the correctness of the public records and certificates by, and representations of, public officials and other officers, and representatives of the parties to this transaction. We have no actual knowledge of any factual information that would lead us to form a legal opinion that the public records or certificates which we have relied upon contain any untrue statement of a material fact. This opinion may be relied upon by the City only, and only in connection with the transaction to which reference is made above, and may not be used or relied upon by any other person for any purpose whatsoever without our express prior written consent. Respectfully submitted, LAW OFFICES OF STEVE E. BULLOCK, P.A. F-2

303 APPENDIX G Form of Disclosure Dissemination Agent Agreement

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305 DISCLOSURE DISSEMINATION AGENT AGREEMENT This Disclosure Dissemination Agent Agreement (the Disclosure Agreement ), dated as of, 2012, is executed and delivered by the City of West Palm Beach, Florida (the Issuer ) and Digital Assurance Certification, L.L.C., as exclusive Disclosure Dissemination Agent (the Disclosure Dissemination Agent or DAC ) for the benefit of the Holders (hereinafter defined) of the Bonds (hereinafter defined) and in order to provide certain continuing disclosure with respect to the Bonds in accordance with Rule 15c2-12 of the United States Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time (the Rule ). The services provided under this Disclosure Agreement solely relate to the execution of instructions received from the Issuer through use of the DAC system and do not constitute advice within the meaning of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act ). DAC will not provide any advice or recommendation to the Issuer or anyone on the Issuer s behalf regarding the issuance of municipal securities or any municipal financial product as defined in the Act and nothing in this Disclosure Agreement shall be interpreted to the contrary. SECTION 1. Definitions. Capitalized terms not otherwise defined in this Disclosure Agreement shall have the meaning assigned in the Rule or, to the extent not in conflict with the Rule, in the Official Statement (hereinafter defined). The capitalized terms shall have the following meanings: Annual Report means an Annual Report described in and consistent with Section 3 of this Disclosure Agreement. Annual Filing Date means the date, set in Sections 2(a) and 2(f), by which the Annual Report is to be filed with the MSRB. Annual Financial Information means annual financial information as such term is used in paragraph (b)(5)(i) of the Rule and specified in Section 3(a) of this Disclosure Agreement. Audited Financial Statements means the financial statements (if any) of the Issuer for the prior Fiscal Year, certified by an independent auditor as prepared in accordance with generally accepted accounting principles or otherwise, as such term is used in paragraph (b)(5)(i) of the Rule and specified in Section 3(b) of this Disclosure Agreement. Bonds means the bonds as listed on the attached Exhibit A, with the 9-digit CUSIP numbers relating thereto. Certification means a written certification of compliance signed by the Disclosure Representative stating that the Annual Report, Audited Financial Statements, Voluntary Report, Notice Event notice or Failure to File Event notice delivered to the Disclosure Dissemination Agent is the Annual Report, Audited Financial Statements, Voluntary Report, Notice Event notice or Failure to File Event notice required to be submitted to the MSRB under this Disclosure Agreement. A Certification shall accompany each such document submitted to the Disclosure G-1

306 Dissemination Agent by the Issuer and include the full name of the Bonds and the 9-digit CUSIP numbers for all Bonds to which the document applies. Disclosure Representative means the Director of Finance of the Issuer or his or her designee, or such other person as the Issuer shall designate in writing to the Disclosure Dissemination Agent from time to time as the person responsible for providing Information to the Disclosure Dissemination Agent. Disclosure Dissemination Agent means Digital Assurance Certification, L.L.C, acting in its capacity as Disclosure Dissemination Agent hereunder, or any successor Disclosure Dissemination Agent designated in writing by the Issuer pursuant to Section 9 hereof. Failure to File Event means the Issuer s failure to file an Annual Report on or before the Annual Filing Date. Force Majeure Event means: (i) acts of God, war, or terrorist action; (ii) failure or shut-down of the Electronic Municipal Market Access system maintained by the MSRB; or (iii) to the extent beyond the Disclosure Dissemination Agent s reasonable control, interruptions in telecommunications or utilities services, failure, malfunction or error of any telecommunications, computer or other electrical, mechanical or technological application, service or system, computer virus, interruptions in Internet service or telephone service (including due to a virus, electrical delivery problem or similar occurrence) that affect Internet users generally, or in the local area in which the Disclosure Dissemination Agent or the MSRB is located, or acts of any government, regulatory or any other competent authority the effect of which is to prohibit the Disclosure Dissemination Agent from performance of its obligations under this Disclosure Agreement. Holder means any person (a) having 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) treated as the owner of any Bonds for federal income tax purposes. Information means the Annual Financial Information, the Audited Financial Statements (if any), the Notice Event notices, the Failure to File Event notices and the Voluntary Reports. MSRB means the Municipal Securities Rulemaking Board established pursuant to Section 15B(b)(1) of the Securities Exchange Act of Notice Event means any of the events enumerated in paragraph (b)(5)(i)(c) of the Rule and listed in Section 4(a) of this Disclosure Agreement. Obligated Person means any person, including the Issuer, who is either generally or through an enterprise, fund, or account of such person committed by contract or other arrangement to support payment of all, or part of the obligations on the Bonds (other than providers of municipal bond insurance, letters of credit, or other liquidity facilities). Official Statement means that Official Statement prepared by the Issuer in connection with the Bonds. G-2

307 Voluntary Report means the information provided to the Disclosure Dissemination Agent by the Issuer pursuant to Section 7. SECTION 2. Provision of Annual Reports. (a) The Issuer shall provide, annually, an electronic copy of the Annual Report and Certification to the Disclosure Dissemination Agent, not later than 30 days prior to the Annual Filing Date. Promptly upon receipt of an electronic copy of the Annual Report and the Certification, the Disclosure Dissemination Agent shall provide an Annual Report to the MSRB not later than six (6) months after the end of each Fiscal Year, commencing with the Fiscal Year ending September 30, Such date and each anniversary thereof is the Annual Filing Date. 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 3 of this Disclosure Agreement. (b) If on the fifteenth (15th) day prior to the Annual Filing Date, the Disclosure Dissemination Agent has not received a copy of the Annual Report and Certification, the Disclosure Dissemination Agent shall contact the Disclosure Representative by telephone and in writing (which may be by ) to remind the Issuer of its undertaking to provide the Annual Report pursuant to Section 2(a). Upon such reminder, the Disclosure Representative shall either (i) provide the Disclosure Dissemination Agent with an electronic copy of the Annual Report and the Certification no later than two (2) business days prior to the Annual Filing Date, or (ii) instruct the Disclosure Dissemination Agent in writing that the Issuer will not be able to file the Annual Report within the time required under this Disclosure Agreement, state the date by which the Annual Report for such year will be provided and instruct the Disclosure Dissemination Agent that a Failure to File Event has occurred and to immediately send a notice to the MSRB in substantially the form attached as Exhibit B. (c) If the Disclosure Dissemination Agent has not received an Annual Report and Certification by 6:00 p.m. Eastern time on the Annual Filing Date (or, if such Annual Filing Date falls on a Saturday, Sunday or holiday, then the first business day thereafter) for the Annual Report, a Failure to File Event shall have occurred and the Issuer irrevocably directs the Disclosure Dissemination Agent to immediately send a notice to the MSRB in substantially the form attached as Exhibit B, without reference to the anticipated filing date for the Annual Report. (d) If Audited Financial Statements of the Issuer are prepared but not available prior to the Annual Filing Date, the Issuer shall, when the Audited Financial Statements are available, provide in a timely manner an electronic copy to the Disclosure Dissemination Agent, accompanied by a Certification, for filing with the MSRB. (e) The Disclosure Dissemination Agent shall: (i) Filing Date; verify the filing specifications of the MSRB each year prior to the Annual (ii) upon receipt, promptly file each Annual Report received under Sections 2(a) and 2(b) with the MSRB; G-3

308 (iii) upon receipt, promptly file each Audited Financial Statement received under Section 2(d) with the MSRB; (iv) upon receipt, promptly file the text of each Notice Event received under Sections 4(a) and 4(b)(ii) with the MSRB, identifying the Notice Event as instructed by the Issuer pursuant to Section 4(a) or 4(b)(ii) (being any of the categories set forth below) when filing pursuant to the Section of this Disclosure Agreement indicated: 1. Principal and interest payment delinquencies, pursuant to Sections 4(c) and 4(a)(1); 2. Non-Payment related defaults, if material, pursuant to Sections 4(c) and 4(a)(2); 3. Unscheduled draws on debt service reserves reflecting financial difficulties, pursuant to Sections 4(c) and 4(a)(3); 4. Unscheduled draws on credit enhancements reflecting financial difficulties, pursuant to Sections 4(c) and 4(a)(4); 5. Substitution of credit or liquidity providers, or their failure to perform, pursuant to Sections 4(c) and 4(a)(5); 6. Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security, pursuant to Sections 4(c) and 4(a)(6); 7. Modifications to rights of securities holders, if material, pursuant to Sections 4(c) and 4(a)(7); 8. Bond calls, if material, and tender offers pursuant to Sections 4(c) and 4(a)(8); 9. Defeasances, pursuant to Sections 4(c) and 4(a)(9); 10. Release, substitution, or sale of property securing repayment of the securities, if material, pursuant to Sections 4(c) and 4(a)(10); 11. Rating changes, pursuant to Sections 4(c) and 4(a)(11); 12. Bankruptcy, insolvency, receivership or similar event of the obligated person, pursuant to Sections 4(c) and 4(a)(12); 13. The consummation of a merger, consolidation, or acquisition involving an obligated 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 G-4

309 definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material, pursuant to Sections 4(c) and 4(a)(13); and 14. Appointment of a successor or additional trustee or the change of name of a trustee, if material, pursuant to Sections 4(c) and 4(a)(14). (v) upon receipt (or irrevocable direction pursuant to Section 2(c) of this Disclosure Agreement, as applicable), promptly file a completed copy of Exhibit B to this Disclosure Agreement with the MSRB, identifying the filing as Failure to provide annual information as required when filing pursuant to Section 2(b)(ii) or Section 2(c) of this Disclosure Agreement; (vi) upon receipt, promptly file the text of each Voluntary Report received under Section 7 with the MSRB. (vii) provide the Issuer evidence of the filings of each of the above when made, which shall be by means of the DAC system, for so long as DAC is the Disclosure Dissemination Agent under this Disclosure Agreement. (f) The Issuer may adjust the Annual Filing Date upon change of its Fiscal Year by providing written notice of such change and the new Annual Filing Date to the Disclosure Dissemination Agent and the MSRB, provided that the period between the existing Annual Filing Date and new Annual Filing Date shall not exceed one year. (g) Any Information received by the Disclosure Dissemination Agent before 6:00 p.m. Eastern time on any business day that it is required to file with the MSRB pursuant to the terms of this Disclosure Agreement and that is accompanied by a Certification and all other information required by the terms of this Disclosure Agreement will be filed by the Disclosure Dissemination Agent with the MSRB no later than 11:59 p.m. Eastern time on the same business day; provided, however, the Disclosure Dissemination Agent shall have no liability for any delay in filing with the MSRB if such delay is caused by a Force Majeure Event, provided that the Disclosure Dissemination Agent uses reasonable efforts to make any such filing as soon as possible. SECTION 3. Content of Annual Reports. (a) Each Annual Report shall contain the following Annual Financial Information with respect to the Utility System for the prior Fiscal Year: (1) with respect to the Water System, average annual number of accounts served, average annual number of ERCs served and water sales in thousands of gallons; (2) with respect to the Wastewater (Sewer) System, average annual number of accounts served, average annual number of ERCs served and wastewater sales in thousands of gallons; G-5

310 (3) with respect to the Stormwater System, average annual number of accounts served and average annual number of ERCs served; and (4) the information in the Official Statement under the tables captioned City of West Palm Beach Wastewater Flows (MGD), Summary of Monthly Water System Rates, Summary of Monthly Wastewater System Rates, Summary of Monthly Stormwater System Rates, Capacity Charges, Customer Deposits, Meter Installation Charges and Utility System Historical Operating Results and Debt Service Coverage. (b) Audited Financial Statements prepared in accordance with generally accepted accounting principles ( GAAP ) will be included in the Annual Report, but may be provided in accordance with Section 2(d). Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues with respect to which the Issuer is an Obligated Person, which have been previously filed with the Securities and Exchange Commission or available to the public on the MSRB Internet Website. If the document incorporated by reference is a final official statement, it must be available from the MSRB. The Issuer will clearly identify each such document so incorporated by reference. Any Annual Financial Information containing modified operating data or financial information is required to explain, in narrative form, the reasons for the modification and the impact of the change in the type of operating data or financial information being provided. SECTION 4. Reporting of Notice Events. (a) The occurrence of any of the following events with respect to the Bonds constitutes a Notice Event: 1. Principal and interest payment delinquencies; 2. Non-payment related defaults, if material; 3. Unscheduled draws on debt service reserves reflecting financial difficulties; 4. Unscheduled draws on credit enhancements relating to the Bonds reflecting financial difficulties; 5. Substitution of credit or liquidity providers, or their failure to perform; 6. Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the Bonds; 7. Modifications to rights of Bond holders, if material; G-6

311 8. Bond calls, if material, and tender offers; 9. Defeasances; 10. Release, substitution, or sale of property securing repayment of the Bonds, if material; 11. Rating changes on the Bonds; 12. Bankruptcy, insolvency, receivership or similar event of the Obligated Person; Note: for the purposes of the event identified in this subsection 4(a)(12), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an Obligated Person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the Obligated Person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the Obligated Person. 13. The consummation of a merger, consolidation, or acquisition involving an Obligated 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 actions, other than pursuant to its terms, if material; and 14. Appointment of a successor or additional trustee or the change of name of a trustee, if material. The Issuer shall, in a timely manner not in excess of ten (10) business days after its occurrence, notify the Disclosure Dissemination Agent in writing of the occurrence of a Notice Event. Such notice shall instruct the Disclosure Dissemination Agent to report the occurrence pursuant to subsection (c) and shall be accompanied by a Certification. Such notice or Certification shall identify the Notice Event that has occurred (which shall be any of the categories set forth in Section 2(e)(iv) of this Disclosure Agreement), include the text of the disclosure that the Issuer desires to make, contain the written authorization of the Issuer for the Disclosure Dissemination Agent to disseminate such information, and identify the date the Issuer desires for the Disclosure Dissemination Agent to disseminate the information (provided that such date is not later than the tenth (10th) business day after the occurrence of the Notice Event). (b) The Disclosure Dissemination Agent is under no obligation to notify the Issuer or the Disclosure Representative of an event that may constitute a Notice Event. In the event the Disclosure Dissemination Agent so notifies the Disclosure Representative, the Disclosure Representative will within two business days of receipt of such notice (but in any event not later than the tenth (10th) business day after the occurrence of the Notice Event, if the Issuer determines that a Notice Event has occurred), instruct the Disclosure Dissemination Agent that (i) a Notice Event has not occurred and no filing is to be made or (ii) a Notice Event has occurred G-7

312 and the Disclosure Dissemination Agent is to report the occurrence pursuant to Section 4(c), together with a Certification. Such notice or Certification shall identify the Notice Event that has occurred (which shall be any of the categories set forth in Section 2(e)(iv) of this Disclosure Agreement), include the text of the disclosure that the Issuer desires to make, contain the written authorization of the Issuer for the Disclosure Dissemination Agent to disseminate such information, and identify the date the Issuer desires for the Disclosure Dissemination Agent to disseminate the information (provided that such date is not later than the tenth (10th) business day after the occurrence of the Notice Event). (c) If the Disclosure Dissemination Agent has been instructed by the Issuer as prescribed in subsection (a) or (b)(ii) of this Section 4 to report the occurrence of a Notice Event, the Disclosure Dissemination Agent shall promptly file a notice of such occurrence with the MSRB in accordance with Section 2(e)(iv) hereof. SECTION 5. CUSIP Numbers. Whenever providing information to the Disclosure Dissemination Agent, including but not limited to Annual Reports, documents incorporated by reference to the Annual Reports, Audited Financial Statements, notices of Notice Events, Failure to File Events and Voluntary Reports filed pursuant to Section 7(a), the Issuer shall indicate the full name of the Bonds and the 9-digit CUSIP numbers for the Bonds as to which the provided information relates. SECTION 6. Additional Disclosure Obligations. The Issuer acknowledges and understands that other state and federal laws, including but not limited to the Securities Act of 1933 and Rule 10b-5 promulgated under the Securities Exchange Act of 1934, may apply to the Issuer, and that the failure of the Disclosure Dissemination Agent to so advise the Issuer shall not constitute a breach by the Disclosure Dissemination Agent of any of its duties and responsibilities under this Disclosure Agreement. The Issuer acknowledges and understands that the duties of the Disclosure Dissemination Agent relate exclusively to execution of the mechanical tasks of disseminating information as described in this Disclosure Agreement. SECTION 7. Voluntary Reports. (a) The Issuer may instruct the Disclosure Dissemination Agent to file information with the MSRB, from time to time pursuant to a Certification of the Disclosure Representative accompanying such information (a Voluntary Report ). (b) Nothing in this Disclosure Agreement shall be deemed to prevent the Issuer from disseminating any other information through the Disclosure Dissemination Agent using the means of dissemination set forth in this Disclosure Agreement or including any other information in any Annual Report, Audited Financial Statements, Voluntary Report, Notice Event notice or Failure to File Event notice, in addition to that required by this Disclosure Agreement. If the Issuer chooses to include any information in any Annual Report, Audited Financial Statements, Voluntary Report, Notice Event notice, or Failure to File Event notice in addition to that which is specifically required by this Disclosure Agreement, the Issuer shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report, Audited Financial Statements, Voluntary Report, Notice Event notice or Failure to File Event notice. G-8

313 SECTION 8. Termination of Reporting Obligation. The obligations of the Issuer and the Disclosure Dissemination Agent under this Disclosure Agreement shall terminate with respect to the Bonds upon the legal defeasance, prior redemption or payment in full of all of the Bonds, when the Issuer is no longer an Obligated Person with respect to the Bonds, or upon delivery by the Disclosure Representative to the Disclosure Dissemination Agent of an opinion of nationally recognized bond counsel to the effect that continuing disclosure is no longer required. SECTION 9. Disclosure Dissemination Agent. The Issuer has appointed Digital Assurance Certification, L.L.C. as exclusive Disclosure Dissemination Agent under this Disclosure Agreement. The Issuer may, upon thirty days written notice to the Disclosure Dissemination Agent, replace or appoint a successor Disclosure Dissemination Agent. Upon termination of DAC s services as Disclosure Dissemination Agent, whether by notice of the Issuer or DAC, the Issuer agrees to appoint a successor Disclosure Dissemination Agent or, alternately, agrees to assume all responsibilities of Disclosure Dissemination Agent under this Disclosure Agreement for the benefit of the Holders of the Bonds. Notwithstanding any replacement or appointment of a successor, the Issuer shall remain liable until payment in full for any and all sums owed and payable to the Disclosure Dissemination Agent. The Disclosure Dissemination Agent may resign at any time by providing thirty days prior written notice to the Issuer. SECTION 10. Remedies in Event of Default. In the event of a failure of the Issuer or the Disclosure Dissemination Agent to comply with any provision of this Disclosure Agreement, any Holder s rights to enforce the provisions of this Disclosure Agreement shall be limited solely to a right, by action in mandamus or for specific performance, to compel performance of the parties obligation under this Disclosure Agreement. Any failure by a party to perform in accordance with this Disclosure Agreement shall not constitute a default on the Bonds or under any other document relating to the Bonds, including the Bond Resolution, and all rights and remedies shall be limited to those expressly stated herein. SECTION 11. Duties, Immunities and Liabilities of Disclosure Dissemination Agent. (a) The Disclosure Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement. The Disclosure Dissemination Agent s obligation to deliver the information at the times and with the contents described herein shall be limited to the extent the Issuer has provided such information to the Disclosure Dissemination Agent as required by this Disclosure Agreement. The Disclosure Dissemination Agent shall have no duty with respect to the content of any disclosures or notice made pursuant to the terms hereof. The Disclosure Dissemination Agent shall have no duty or obligation to review or verify any Information or any other information, disclosures or notices provided to it by the Issuer and shall not be deemed to be acting in any fiduciary capacity for the Issuer, the Holders of the Bonds or any other party. The Disclosure Dissemination Agent shall have no responsibility for the Issuer s failure to report to the Disclosure Dissemination Agent a Notice Event or a duty to determine the materiality thereof. The Disclosure Dissemination Agent shall have no duty to determine, or liability for failing to determine, whether the Issuer has complied with this Disclosure Agreement. The Disclosure Dissemination Agent may conclusively rely upon certifications of the Issuer at all times. G-9

314 The obligations of the Issuer under this Section shall survive resignation or removal of the Disclosure Dissemination Agent and defeasance, redemption or payment of the Bonds. (b) The Disclosure Dissemination Agent may, from time to time, consult with legal counsel (either in-house or external) of its own choosing in the event of any disagreement or controversy, or question or doubt as to the construction of any of the provisions hereof or its respective duties hereunder, and shall not incur any liability and shall be fully protected in acting in good faith upon the advice of such legal counsel. The reasonable fees and expenses of such counsel shall be payable by the Issuer. (c) All documents, reports, notices, statements, information and other materials provided to the MSRB under this Disclosure Agreement shall be provided in an electronic format and accompanied by identifying information as prescribed by the MSRB. SECTION 12. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Issuer and the Disclosure Dissemination Agent may amend this Disclosure Agreement and any provision of this Disclosure Agreement may be waived, if such amendment or waiver is supported by an opinion of counsel expert in federal securities laws acceptable to both the Issuer and the Disclosure Dissemination Agent to the effect that such amendment or waiver does not materially impair the interests of Holders of the Bonds and would not, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver had been effective on the date hereof but taking into account any subsequent change in or official interpretation of the Rule; provided neither the Issuer or the Disclosure Dissemination Agent shall be obligated to agree to any amendment modifying their respective duties or obligations without their consent thereto. Notwithstanding the preceding paragraph, the Disclosure Dissemination Agent shall have the right to adopt amendments to this Disclosure Agreement necessary to comply with modifications to and interpretations of the provisions of the Rule as announced by the Securities and Exchange Commission from time to time by giving not less than 20 days written notice of the intent to do so together with a copy of the proposed amendment to the Issuer. No such amendment shall become effective if the Issuer shall, within 10 days following the giving of such notice, send a notice to the Disclosure Dissemination Agent in writing that it objects to such amendment. SECTION 13. Sources of Payments; No Personal Liability. Notwithstanding anything to the contrary contained in this Disclosure Agreement, the Issuer shall be required to use only Revenues to pay any costs and expenses to be incurred in the performance of this Disclosure Agreement by it, and the performance of its obligations hereunder shall be subject to the availability of Revenues for that purpose; provided, that any such costs and expenses shall constitute Current Expenses under the Bond Resolution. This Disclosure Agreement does not and shall not constitute a general obligation of the Issuer. No covenant, stipulation, obligation or agreement of the Issuer contained in this Disclosure Agreement shall be deemed to be a covenant, stipulation, obligation or agreement of any present or future officer, agent or employee of the Issuer in other than that person s official capacity. G-10

315 SECTION 14. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Issuer, the Disclosure Dissemination Agent, the Underwriter, and the Holders from time to time of the Bonds, and shall create no rights in any other person or entity. SECTION 15. Governing Law. This Disclosure Agreement shall be governed by the laws of the State of Florida. SECTION 16. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. The Disclosure Dissemination Agent and the Issuer have caused this Disclosure Agreement to be executed, on the date first written above, by their respective officers duly authorized. DIGITAL ASSURANCE CERTIFICATION, L.L.C., as Disclosure Dissemination Agent By: Name: Title: CITY OF WEST PALM BEACH, FLORIDA, as Issuer By: Geraldine Muoio Mayor G-11

316 EXHIBIT A NAME AND CUSIP NUMBERS OF BONDS Name of Issuer: City of West Palm Beach, Florida Obligated Person: City of West Palm Beach, Florida Name of Bond Issue: Utility System Revenue Refunding Bonds, Series 2012A Date of Issuance:, 2012 Date of Official Statement: September 6, 2012 CUSIP Numbers: NM NN NP NQ NR NS NT NU NV NW NX NY PA PC PD PE PF PG7 G-12

317 EXHIBIT B NOTICE TO MSRB OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of West Palm Beach, Florida Obligated Person: City of West Palm Beach, Florida Name of Bond Issue: Utility System Revenue Refunding Bonds, Series 2012A Date of Issuance:, 2012 NOTICE IS HEREBY GIVEN that the Issuer has not provided an Annual Report with respect to the above-named Bonds as required by the Disclosure Dissemination Agent Agreement, dated as of, 2012, between the Issuer and Digital Assurance Certification, L.L.C., as Disclosure Dissemination Agent. The Issuer has notified the Disclosure Dissemination Agent that it anticipates that the Annual Report will be filed by. Dated: Digital Assurance Certification, L.L.C., as Disclosure Dissemination Agent, on behalf of the Issuer cc: City of West Palm Beach, Florida G-13

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320 CITY OF WEST PALM BEACH, FLORIDA Utility System Revenue Refunding Bonds, Series 2012A