CITY OF DURHAM, NORTH CAROLINA

Transcription

1 This Preliminary Official Statement and the information contained herein are subject to change, completion and amendment without notice. The Bonds may not be sold nor may an offer to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. NEW ISSUE BOOK-ENTRY ONLY PRELIMINARY OFFICIAL STATEMENT DATED DECEMBER 4, 2017 Rating: S&P: AA+ (See RATINGS herein) In the opinion of each of Co-Bond Counsel, under existing law (1) interest on the 2017A Bonds is taxable as ordinary income for federal income tax purposes, (2) assuming compliance by the City with certain requirements of the Internal Revenue Code of 1986, as amended (the Code ), interest on the 2017B Bonds (a) is excludable from gross income for federal income tax purposes and (b) is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and (3) interest on the 2017 Bonds is exempt from State of North Carolina income taxation. See TAX TREATMENT herein. $61,765,000* $30,290,000* $31,475,000* Taxable Limited Obligation Bonds, Refunding Limited Obligation Bonds, Series 2017A Series 2017B EVIDENCING PROPORTIONATE UNDIVIDED INTERESTS IN RIGHTS TO RECEIVE CERTAIN REVENUES PURSUANT TO AN INSTALLMENT FINANCING CONTRACT WITH THE CITY OF DURHAM, NORTH CAROLINA Dated: Date of Initial Execution and Delivery Due: As shown on inside cover page This Official Statement has been prepared by the City of Durham, North Carolina (the City ) to provide information on the Taxable Limited Obligation Bonds, Series 2017A (the 2017A Bonds ) and the Refunding Limited Obligation Bonds (the 2017B Bonds, and together with the 2017A Bonds, the 2017 Bonds ). Selected information is presented on this cover page for the convenience of the user. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. Capitalized terms used in this Official Statement, unless otherwise defined herein, have the meanings set out in Appendix C hereto under SUMMARY OF PRINCIPAL LEGAL DOCUMENTS DEFINITIONS. Security: The 2017 Bonds and all other Bonds Outstanding under the Indenture of Trust dated as of December 15, 2017 (the Indenture ), between New Durham Corporation (the Corporation ) and U.S. Bank National Association, as trustee (the Trustee ) evidence proportionate undivided interests in rights to receive certain Revenues pursuant to the Installment Financing Contract dated as of December 15, 2017 (the Contract ) between the Corporation and the City. The performance by the City of its obligations under the Contract, including the obligation to make Installment Payments thereunder, is secured by a Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated as of December 15, 2017 (the Deed of Trust ) from the City to the deed of trust trustee named therein granting a lien of record on the Mortgaged Property, subject to Permitted Encumbrances. The Corporation has assigned to the Trustee for the benefit of the registered owners of the 2017 Bonds and all other Bonds outstanding under the Indenture substantially all of its rights under the Contract, including the right to receive Installment Payments, and all of its rights as beneficiary of the Deed of Trust. THE PRINCIPAL, PREPAYMENT PRICE AND INTEREST WITH RESPECT TO THE 2017 BONDS ARE PAYABLE SOLELY FROM AMOUNTS PAYABLE BY THE CITY UNDER THE CONTRACT AND, TO THE EXTENT PROVIDED IN THE INDENTURE, THE PROCEEDS OF THE SALE OF THE 2017 BONDS, CONDEMNATION AWARDS OR THE SALE OR LEASE OF THE MORTGAGED PROPERTY. NEITHER THE CONTRACT, THE 2017 BONDS NOR THE INTEREST WITH RESPECT THERETO CONSTITUTES A GENERAL OBLIGATION OR OTHER INDEBTEDNESS OF THE CITY. NO DEFICIENCY JUDGMENT MAY BE RENDERED AGAINST THE CITY IN ANY ACTION FOR BREACH OF ANY CONTRACTUAL OBLIGATION TO MAKE INSTALLMENT PAYMENTS PURSUANT TO THE CONTRACT, AND THE TAXING POWER OF THE CITY IS NOT PLEDGED DIRECTLY OR INDIRECTLY TO SECURE ANY MONEY DUE THE OWNERS OF THE 2017 BONDS. THE REMEDIES AFFORDED TO THE TRUSTEE AND THE OWNERS UPON AN EVENT OF DEFAULT RESULTING FROM THE CITY S FAILURE TO MAKE INSTALLMENT PAYMENTS UNDER THE CONTRACT ARE LIMITED IN THE CONTRACT TO THOSE OF A SECURED PARTY UNDER THE LAWS OF NORTH CAROLINA, INCLUDING FORECLOSING UPON THE MORTGAGED PROPERTY IN ACCORDANCE WITH THE DEED OF TRUST AND ARE ON A PARITY WITH THOSE RIGHTS AND REMEDIES AVAILABLE TO THE OWNERS OF ALL BONDS OUTSTANDING UNDER THE INDENTURE. See SECURITY AND SOURCES OF PAYMENT OF 2017 BONDS herein. Prepayment: The 2017A Bonds are subject to optional and mandatory prepayment before maturity as described herein. The 2017B Bonds are not subject to optional prepayment before maturity. Purpose: The proceeds of the 2017A Bonds will be used by the City to (1) pay the capital costs of the Parking Project (as defined herein) and (2) pay a portion of the costs related to the execution and delivery of the Contract. The proceeds of the 2017B Bonds will be used by the City to (1) pay the costs of refinancing certain of the City s installment payment obligations (as described herein), (2) pay the costs of refinancing certain general obligation bonds (as described herein) and (3) pay a portion of the costs related to the execution and delivery of the Contract. Interest Payment Dates: April 1 and October 1 of each year, beginning October 1, 2018 for the 2017A Bonds and beginning April 1, 2018 for the 2017B Bonds. Denominations: $5,000 and any integral multiple thereof. Delivery Date: On or about December 21, Registration: Full book-entry only; The Depository Trust Company. Trustee: U.S. Bank National Association, Raleigh, North Carolina. Co-Bond Counsel: Parker Poe Adams & Bernstein LLP, Raleigh, North Carolina, and The Banks Law Firm, P.A., Research Triangle Park, North Carolina. Corporation Counsel: Parker Poe Adams & Bernstein LLP, Raleigh, North Carolina. City Attorney: Patrick W. Baker, Esq., City Attorney, Durham, North Carolina. Financial Advisor: DEC Associates, Inc., Charlotte, North Carolina. Underwriters Counsel: Moore & Van Allen PLLC, Charlotte, North Carolina. December, 2017 * Preliminary, subject to change. BOFA MERRILL LYNCH BAIRD

2 MATURITY SCHEDULE* Taxable Limited Obligation Bonds, Series 2017A October 1 Principal Amount Interest Rate Yield CUSIP (1) October 1 Principal Amount 2018 $1,440, $1,765, ,475, ,825, ,505, ,190, ,545, ,235, ,575, ,280, ,625, ,325, ,670, ,375, ,720,000 $7,740,000% Term 2017A Bonds due October 1, 2037 Yield: -- (1) Interest Rate Yield CUSIP (1) Refunding Limited Obligation Bonds, Series 2017B October 1 Principal Amount Interest Rate Yield CUSIP (1) October 1 Principal Amount 2021 $3,070, $3,115, ,070, ,170, ,065, ,230, ,050, ,285, ,085, ,335,000 Interest Rate Yield CUSIP (1) (1) Copyright, American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by Standard & Poor s Financial Services LLC on behalf of The American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for CUSIP Global Services. CUSIP numbers are provided for convenience of reference only for the purchasers of the 2017 Bonds. Neither the City nor the Underwriters are responsible for the selection or uses of these CUSIP numbers, and no representation is made as to their correctness on the 2017 Bonds or as represented above. The CUSIP number for a specific maturity is subject to being changed after the issuance of the 2017 Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of the 2017 Bonds. *Preliminary, subject to change.

3 No dealer, broker, salesman or other person has been authorized to give any information or to make any representation other than as contained in this Official Statement, and if given or made, such other information or representation must not be relied upon. This Official Statement does not constitute an offer to sell or the solicitation of any offer to buy, nor will there be any sale of the 2017 Bonds by any person in any jurisdiction in which it is not lawful for such person to make such offer, solicitation or sale. The information set forth herein has been obtained from the Corporation, the City and other sources that are deemed to be reliable. Neither the 2017 Bonds nor the Indenture have been registered with the Securities and Exchange Commission by reason of the provisions of Section 3(a)(2) of the Securities Act of 1933, as amended. The registration or qualification of the 2017 Bonds and the Indenture in accordance with applicable provisions of securities laws of the states in which the 2017 Bonds and the Indenture have been registered or qualified, and the exemption from registration or qualification in other states, will not be regarded as a recommendation thereof. In making an investment decision, investors must rely on their own examination of the terms of the offering, including the merits and risks involved. These securities have not been recommended by any federal or state securities commission or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this document. Any representation to the contrary is a criminal offense. All quotations from and summaries and explanations of laws and documents herein do not purport to be complete, and reference is made to such laws and documents for full and complete statements of their provisions. Any statements made in this Official Statement involving estimates or matters of opinion, whether or not expressly so stated, are intended merely as estimates or opinions and not as representations of fact. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale of the 2017 Bonds will 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. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 2017 BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

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5 TABLE OF CONTENTS INTRODUCTION... 1 The City... 1 Purpose... 1 Security... 2 The 2017 Bonds... 3 Book-Entry Only... 3 Tax Status... 3 Professionals... 3 THE 2017 BONDS... 4 Authorization... 4 General... 4 Prepayment Provisions... 5 THE PLAN OF FINANCE... 7 ESTIMATED SOURCES AND USES OF FUNDS... 7 SECURITY AND SOURCES OF PAYMENT OF 2017 BONDS... 8 Installment Payments and Additional Payments... 8 Budget and Appropriation... 9 Deed of Trust... 9 Indenture Enforceability Additional Bonds AVAILABLE SOURCES FOR PAYMENT OF INSTALLMENT PAYMENTS General General Fund Revenues INSTALLMENT PAYMENT SCHEDULE CERTAIN RISKS OF 2017 BOND OWNERS Limited Obligation of the City Risk of Nonappropriation Value of Collateral Environmental Risks Uninsured or Underinsured Casualty Outstanding General Obligation Debt of the City Other Indebtedness Bankruptcy THE CORPORATION THE CITY LEGAL MATTERS Litigation i

6 Contingent Liabilities Opinions of Counsel VERIFICATION TAX TREATMENT A Bonds B Bonds CONTINUING DISCLOSURE OBLIGATION UNDERWRITING RELATIONSHIPS FINANCIAL ADVISOR RATING MISCELLANEOUS APPENDIX A APPENDIX B APPENDIX C APPENDIX D APPENDIX E INFORMATION REGARDING THE CITY MANAGEMENT S DISCUSSION AND ANALYSIS AND THE BASIC FINANCIAL STATEMENTS OF THE CITY OF DURHAM, NORTH CAROLINA SUMMARY OF PRINCIPAL LEGAL DOCUMENTS FORM OF OPINION OF EACH OF CO-BOND COUNSEL BOOK-ENTRY ONLY SYSTEM ii

7 $30,290,000* $31,475,000 * Taxable Limited Obligation Bonds, Refunding Limited Obligation Bonds, Series 2017A Series 2017B Evidencing Proportionate Undivided Interests in Rights to Receive Certain Revenues Pursuant to an Installment Financing Contract with the CITY OF DURHAM, NORTH CAROLINA INTRODUCTION The purpose of this Official Statement, which includes the Appendices hereto, is to provide certain information in connection with the execution, sale and delivery of the $30,290,000* Taxable Limited Obligation Bonds, Series 2017A (the 2017A Bonds ) and the $31,475,000* Refunding Limited Obligation Bonds, Series 2017B (the 2017B Bonds and together with the 2017A Bonds, the 2017 Bonds ), each of which evidence proportionate undivided interests in rights to receive certain Revenues (as defined herein) pursuant to an Installment Financing Contract dated as of December 15, 2017 (the Contract ) between New Durham Corporation (the Corporation ) and the City of Durham, North Carolina (the City ). The 2017 Bonds will be executed and delivered pursuant to an Indenture of Trust dated as of December 15, 2017 (the Indenture ) between the Corporation and U.S. Bank National Association, as trustee (the Trustee ). Capitalized terms used in this Official Statement, unless otherwise defined herein, have the meanings set out in Appendix C hereto. This Introduction provides only certain limited information with respect to the contents of this Official Statement and is expressly qualified by the Official Statement as a whole. Prospective investors should review the full Official Statement and each of the documents summarized or described herein. This Official Statement speaks only as of its date, and the information contained herein is subject to change. THE CITY The City is a municipal corporation existing under the laws of the State of North Carolina (the State ). See Appendix A hereto for certain information regarding the City. The City s most recent audited financial statements are contained in Appendix B hereto. PURPOSE The 2017A Bonds are being executed and delivered to provide funds to: (1) finance the acquisition, construction and equipping of a City-owned parking deck (the Parking Deck ) and * Preliminary, subject to change.

8 other parking-related improvements (collectively, the Parking Project ) and (2) pay a portion of the costs related to the execution and delivery of the Contract. The 2017B Bonds are being executed and delivered to provide funds to: (1) refinance certain of the City s installment payment obligations (as described herein), (2) refinance certain of the City s general obligation bonds (as described herein) and (3) pay a portion of the costs related to the execution and delivery of the Contract. See the captions THE PLAN OF FINANCE and ESTIMATED SOURCES AND USES OF FUNDS herein. SECURITY The 2017 Bonds and any additional Bonds outstanding under the Indenture (the Additional Bonds ) evidence proportionate undivided interests in the right to receive certain Revenues under the Contract. The 2017 Bonds are secured by such money as may be on deposit under the Indenture. The 2017 Bonds are payable solely from the Installment Payments and certain other money as provided in the Indenture. As security for its obligations under the Contract, the City will execute and deliver to a deed of trust trustee (the Deed of Trust Trustee ), for the benefit of the Corporation or its assignee, a Deed of Trust, Assignment of Leases and Rents, Security Agreement, and Fixture Filing dated as of December 15, 2017 (the Deed of Trust ), granting a lien of record on the real property on which City Hall and City Hall Annex are located and the real property on which the Parking Deck will be located, including the improvements thereon, and any additions, modifications, attachments, replacements and parts thereof, as more particularly described in the Deed of Trust (the Mortgaged Property ), subject to certain permitted encumbrances as described in the Contract and the Deed of Trust. See the caption SECURITY AND SOURCES OF PAYMENT OF 2017 BONDS DEED OF TRUST herein. Pursuant to the Indenture, the Corporation will assign to the Trustee for the benefit of the Owners of the 2017 Bonds and any Additional Bonds (1) all rights, title and interest of the Corporation in the Contract (except for certain reserved rights), including its right to receive the Installment Payments thereunder, (2) all rights, title and interest of the Corporation in the Deed of Trust and the Mortgaged Property and (3) all money and securities from time to time held by the Trustee under the Indenture in any fund or account (except the Rebate Fund). Pursuant to the Contract, the Installment Payments are payable by the City directly to the Trustee. Additional Bonds which would have equal rights in the security available to the Owners of the 2017 Bonds may be executed and delivered in accordance with the provisions of the Indenture. See the captions SECURITY AND SOURCES OF PAYMENT OF 2017 BONDS ADDITIONAL BONDS herein and SUMMARY OF PRINCIPAL LEGAL DOCUMENTS THE INDENTURE - Additional Bonds in Appendix C hereto. Under certain conditions, the Deed of Trust Trustee may release portions of the Mortgaged Property from the lien of the Deed of Trust. See the caption SECURITY AND SOURCES OF PAYMENT OF 2017 BONDS DEED OF TRUST Release of Security herein and SUMMARY OF PRINCIPAL LEGAL DOCUMENTS THE DEED OF TRUST in Appendix C hereto. 2

9 If a default occurs under the Contract, the Trustee may attempt to dispose of the Mortgaged Property and apply the proceeds received as a result of any such disposition to the payment of the amounts due to the Owners of the 2017 Bonds and any Additional Bonds. No representation is made as to the value of the City s interest in the Mortgaged Property in foreclosure. No assurance can be given that any such proceeds will be sufficient to pay the principal and interest with respect to the 2017 Bonds. In addition, no deficiency judgment can be obtained against the City if the proceeds from any such disposition (together with other funds that may be held by the Trustee under the Indenture) are insufficient to pay the 2017 Bonds in full. Neither the 2017 Bonds nor the City s obligation to make payments under the Contract constitute a pledge of the City s faith and credit within the meaning of any constitutional provision. See the caption SECURITY AND SOURCES OF PAYMENT OF 2017 BONDS herein. THE 2017 BONDS The 2017 Bonds will be dated their date of initial execution and delivery. Interest is payable on April 1 and October 1 of each year, beginning October 1, 2018 for the 2017A Bonds and beginning April 1, 2018 for the 2017B Bonds, at rates set forth on the inside cover page of this Official Statement. Principal is payable on October 1 in the years and in the amounts set forth on the inside cover page of this Official Statement. BOOK-ENTRY ONLY The 2017 Bonds will be delivered in book-entry form only, without physical delivery of bonds. Payments to beneficial owners of the 2017 Bonds will be made by the Trustee through The Depository Trust Company, New York, New York ( DTC ) and its participants. See BOOK-ENTRY ONLY SYSTEM in Appendix E hereto. TAX STATUS In the opinion of Co-Bond Counsel, under existing law, (1) interest on the 2017A Bonds is taxable as ordinary income for federal income tax purposes, (2) assuming compliance by the City with certain requirements of the Internal Revenue Code of 1986, as amended (the Code ), interest with respect to the 2017B Bonds (a) is excludable from gross income for federal income tax purposes and (b) is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and (3) interest with respect to the 2017 Bonds is exempt from State of North Carolina income taxation. See TAX TREATMENT herein. PROFESSIONALS Merrill Lynch, Pierce, Fenner & Smith Incorporated and Robert W. Baird & Co. (together, the Underwriters ) are serving as underwriters for the 2017 Bonds. U.S. Bank National Association is serving as Trustee with respect to the 2017 Bonds. Parker Poe Adams & Bernstein LLP and The Banks Law Firm, P.A. are serving as Co-Bond Counsel to the City. Parker Poe Adams & Bernstein LLP is serving as counsel to the Corporation. Patrick W. Baker, Esq., City Attorney, serves as counsel to the City. Moore & Van Allen PLLC is serving as counsel to the Underwriters. DEC Associates, Inc. serves as financial advisor to the City. 3

10 THE 2017 BONDS AUTHORIZATION The 2017 Bonds will be executed and delivered pursuant to the Indenture. The 2017 Bonds evidence proportionate undivided interests in the right to receive certain Revenues pursuant to the Contract. The 2017 Bonds are payable solely from the Installment Payments and certain other money as provided in the Indenture. The City is entering into the Contract under the provisions of Section 160A-20 of the General Statutes of North Carolina, as amended. The City Council (the City Council ) authorized the City s execution and delivery of the Contract in a resolution adopted on November 20, In addition, the City s entering into the Contract received the required approval of the North Carolina Local Government Commission (the LGC ) on December 5, The LGC is a division of the State Treasurer s office charged with general oversight of local government finance in the State. Its approval is required for substantially all bond issues and other local government financing arrangements in the State. Before approving an installment financing, the LGC must determine, among other things, that (1) the proposed financing is necessary and expedient, (2) the financing, under the circumstances, is preferable to a general obligation or revenue bond issue for the same purpose, and (3) the sums to fall due under the proposed financing are not excessive for the local government. GENERAL Payment Terms. The 2017 Bonds will be dated their date of initial execution and delivery. Interest with respect to the 2017 Bonds is payable on each April 1 and October 1, beginning beginning October 1, 2018 for the 2017A Bonds and beginning April 1, 2018 for the 2017B Bonds, at the rates set forth on the inside cover page of this Official Statement (calculated on the basis of a 360-day year consisting of twelve 30-day months). Principal with respect to the 2017 Bonds is payable on October 1 in the years and amounts set forth on the inside cover page of this Official Statement. Payments will be effected through DTC. See BOOK-ENTRY ONLY SYSTEM in Appendix E hereto. Registration and Exchange. So long as DTC or its nominee is the registered owner of the 2017 Bonds, transfers and exchanges of beneficial ownership interests in the 2017 Bonds will be available only through DTC Participants and DTC Indirect Participants. See BOOK- ENTRY ONLY SYSTEM in Appendix E hereto. The Indenture describes the provisions for transfer and exchange applicable if a book-entry system is no longer in effect. These provisions generally provide that the transfer of the 2017 Bonds is registrable by the Owners thereof, and the 2017 Bonds may be exchanged for an equal aggregate, unprepaid principal amount of 2017 Bonds of denominations of $5,000 or any integral multiple thereof and of the same maturity and interest rate, only upon presentation and surrender of the 2017 Bonds to the Trustee at the designated corporate trust office of the Trustee together with an executed instrument of transfer in a form approved by the Trustee in connection with any transfer. The Trustee may require the person requesting any transfer or exchange to reimburse it for any tax or other governmental charge required to be paid with respect to such registration or exchange. 4

11 PREPAYMENT PROVISIONS * Optional Prepayment of 2017A Bonds (Par Call). The 2017A Bonds maturing on or before October 1, 20, are not subject to optional prepayment before their maturities, except as set forth below. The 2017A Bonds maturing on or after October 1, 20, are subject to optional prepayment in whole or in part on any date on or after October 1, 20, at the option of the City, at a prepayment price equal to 100% of the principal amount of such 2017 Bond to be prepaid, together with accrued interest to the date fixed for prepayment. Optional Prepayment of 2017A Bonds (Make-Whole Call). The 2017A Bonds maturing on or before October 1, 20, are subject to optional prepayment before their maturities, in whole or in part, on any Business Day, at the Make-Whole Prepayment Price, which is the greater of: (1) 100% of the principal amount of the 2017A Bonds to be prepaid or (2) the sum of the present value of the remaining scheduled payments of principal of and interest to the maturity date of the 2017A Bonds to be prepaid, not including any portion of those payments of interest accrued and unpaid as of the date on which the 2017A Bonds are to be prepaid, discounted to the prepayment date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus basis points, as determined by the Trustee, plus, in each case, accrued interest to the prepayment date. For purposes of determining the prepayment price described above, the Trustee shall be entitled to retain and rely on the advice of a financial institution to perform any function in connection with determining the prepayment price. Any such determination of the prepayment price shall be conclusive. No Optional Prepayment of 2017B Bonds. The 2017B Bonds are not subject to optional prepayment before their maturities. Mandatory Sinking Fund Prepayment of 2017A Bonds. The 2017A Bonds maturing on October 1, 20 are subject to mandatory sinking fund prepayment by lot from the principal components of the Installment Payments required to be paid by the City under the Contract with respect to each such prepayment date, at a prepayment price equal to 100% of the principal amount thereof to be prepaid, together with accrued interest thereon from the interest components of the Installment Payments required to be paid by the City pursuant to the Contract with respect to each such prepayment date, to the date fixed for prepayment, as follows: Year (October 1) Amount Year (October 1) Amount 1 1 Maturity General Prepayment Provisions. If called for prepayment in part, the 2017A Bonds to be prepaid will be prepaid in such order as the City selects and within the same maturity as selected by DTC pursuant to its rules and procedures or, if the book-entry system with respect to * Preliminary, subject to change. 5

12 the 2017A Bonds is discontinued, by lot within a maturity in such manner as the Trustee in its discretion may determine. Notice of prepayment identifying the 2017A Bonds or portions thereof to be prepaid will be given by the Trustee in writing not less than 30 days nor more than 60 days before the date fixed for prepayment by first class mail, postage prepaid (or, in the case of notice to DTC, by registered or certified mail or otherwise in accordance with DTC s then-existing rules and procedures) (1) to DTC or its nominee or to the then-existing securities depositories, or (2) if DTC or its nominee or another securities depository is no longer the Owner of the 2017A Bonds, to the then-registered Owners of the 2017A Bonds to be prepaid at their addresses appearing on the registration books maintained by the Trustee, (3) to the LGC and (4) to the Municipal Securities Rulemaking Board (the MSRB ) in an electronic format as prescribed by the MSRB. Notwithstanding the foregoing, (1) if notice is given, the failure to receive an appropriate notice will not affect the validity of the proceedings for such prepayment, (2) the failure to give any such notice or any defect therein will not affect the validity of the proceedings for the prepayment of the 2017A Bonds or portions thereof with respect to which notice was correctly given, and (3) the failure to give any such notice to the parties described in clauses (3) and (4) in the preceding sentence, or any defect therein, will not affect the validity of any proceedings for the prepayment of the 2017A Bonds. In the case of an optional prepayment of the 2017A Bonds, the prepayment notice may state that it is conditioned upon the deposit of money with the Trustee not later than the opening of business on the prepayment date in an amount equal to the amount necessary to effect the prepayment, and such notice will be of no effect unless such money is so deposited. Before the date fixed for prepayment, funds will be deposited with the Trustee to pay, and the Trustee is authorized and directed to apply such funds to the payment of, the 2017A Bonds or portions thereof called, together with accrued interest with respect thereto to the prepayment date, and any required premium. Upon the giving of notice and the deposit of such funds for prepayment pursuant to the Indenture, interest with respect to the 2017A Bonds or portions thereof so called for prepayment will no longer accrue after the date fixed for prepayment. The 2017A Bonds or portions thereof called for prepayment will be due and payable on the prepayment date at the prepayment price, together with accrued interest with respect thereto to the prepayment date and any applicable prepayment premium. If the required notice of prepayment has been given and money sufficient to pay the prepayment price, together with accrued interest with respect thereto to the prepayment date and any required prepayment premium, have been deposited with the Trustee, the 2017A Bonds or portions thereof so called for prepayment will cease to be entitled to any benefit or security under the Indenture, and the Owners of such 2017A Bonds will have no rights with respect to such 2017A Bonds or portions thereof so called for prepayment except to receive payment of the prepayment price and accrued interest to the prepayment date from such funds held by the Trustee. Upon surrender and cancellation of any 2017A Bonds called for prepayment in part only, a new 2017A Bond or 2017A Bonds of the same maturity and interest rate and of authorized denominations, in an aggregate principal amount equal to the unprepaid portion thereof, will be executed on behalf of the Corporation and authenticated and delivered by the Trustee. 6

13 If an Event of Default has occurred and is continuing under the Indenture, there will be no prepayment of less than all of the 2017A Bonds Outstanding. THE PLAN OF FINANCE Proceeds of the 2017A Bond proceeds will be used to finance the Parking Project, which consists of (1) the acquisition, construction and equipping of the Parking Deck to be owned by the City with 750 parking spaces and approximately 20,000 square feet of commercial and retail space in downtown Durham and (2) other parking-related improvements. Proceeds of the 2017B Bonds will be used to refinance certain of the City s installment payment obligations and general obligation bonds. The Corporation has executed and delivered $17,885,000 Taxable Limited Obligation Bonds, Series 2010B (the 2010B LOBs ), of which $14,660,000 are outstanding under the Indenture of Trust dated as of July 1, 2001 (the 2001 Indenture ) between the Corporation and The Bank of New York and Central Carolina Bank and Trust (the successor to which is The Bank of New York Mellon Trust Company, N.A., as supplemented by Supplemental Indenture, Number 1 dated as of August 1, 2010 (the First Supplement, and together with the 2001 Indenture, the Prior Indenture ), between the Corporation and The Bank of New York Mellon Trust Company, N.A. The proceeds of the 2010B LOBs financed improvements to City parking, transportation, solid waste, civic and cultural, firefighting facilities and City Hall and the City Hall Annex (the 2010B LOBs Project ). The City has also issued $30,665,000 City of Durham, North Carolina Taxable General Obligation Bonds, Series 2010B (the 2010B Bonds ), of which $28,470,000 are outstanding, pursuant to a Bond Resolution adopted by the City on October 4, 2010 (the Bond Resolution ), the proceeds of which financed public safety, cultural, parks and recreational, streets and sidewalk, water and sewer, neighborhood, public building and parking improvements (the 2010B Bonds Project and together with the 2010B LOBs Project and the Parking Project, the Project ). A portion of the proceeds of the 2017B Bonds will be used to prepay the 2010B LOBs maturing on and after October 1, 2021 (the Refunded LOBs ) and the 2010B Bonds maturing on and after October 1, 2021 (the Refunded Bonds ). A portion of the proceeds of the 2017B Bonds will be deposited in an escrow fund (the Escrow Fund ) and applied to the purchase of Federal Securities, the proceeds of which will be applied to the payment of interest on the 2017B Bonds through October 1, 2020 (the Crossover Date ) and then to the prepayment of the Refunded LOBs and the redemption of the Refunded Bonds, respectively, on such date. The Refunded LOBs and the Refunded Bonds will not be defeased on the date of the execution and delivery of the 2017B Bonds. Not all of the Project is part of the Mortgaged Property. The Mortgaged Property consists of the real property on which City Hall and City Hall Annex are located and the real property on which the Parking Deck will be located, including the improvements thereon, and any additions, modifications, attachments, replacements and parts thereof, as more particularly described in the Deed of Trust. [Intentionally left blank.] 7

14 ESTIMATED SOURCES AND USES OF FUNDS The following table presents information as to the estimated sources and uses of funds: Sources of Funds: Par Amount of 2017A Bonds $ Par Amount of 2017B Bonds [Plus/Less] Net Original Issue [Premium/Discount] on 2017B Bonds TOTAL $ Uses of Funds: Costs of the Parking Project $ Deposit to the Escrow Fund Costs of Issuance 1 TOTAL $ 1 Includes legal fees, printing costs, Underwriters discount, rating agency fees, verification agent fees, the financial advisor s fee and other miscellaneous transaction costs. SECURITY AND SOURCES OF PAYMENT OF 2017 BONDS The 2017 Bonds and any Additional Bonds evidence proportionate undivided interests in the rights to receive certain Revenues pursuant to the Contract. The 2017 Bonds will be proportionately and ratably secured with any Additional Bonds executed and delivered pursuant to the Indenture. Revenues are defined in the Contract to mean (1) all Net Proceeds not applied to the replacement of the Mortgaged Property; (2) all Installment Payments; and (3) all investment income on all funds and accounts created under the Indenture (other than the Rebate Fund). Net Proceeds are defined in the Contract to mean any (1) proceeds from policies of insurance which are payable to the Corporation or the Trustee; (2) proceeds from any payment and performance bond maintained pursuant to the Contract; (3) proceeds of any condemnation award arising out of the condemnation of all or any portion of the Mortgaged Property; or (4) proceeds from any sale or lease of the Mortgaged Property pursuant to the Deed of Trust or otherwise subsequent to an Event of Default, the amount remaining after deducting from the gross proceeds thereof all expenses (including, without limitation, attorneys fees and costs) incurred in the collection of such proceeds. Notwithstanding the foregoing, the Owner of each 2017 Bond is not entitled to receive more than the amount of principal and interest represented by such 2017 Bond. INSTALLMENT PAYMENTS AND ADDITIONAL PAYMENTS Under the Contract, the City is required to make the Installment Payments directly to the Trustee in amounts sufficient to provide for the payment of the principal (whether at maturity, by prepayment or otherwise) and interest with respect to the 2017 Bonds and any Additional Bonds hereafter executed and delivered under the Indenture as the same become due and payable. 8

15 The City is also obligated under the Contract to pay as Additional Payments to such persons as are entitled thereto, the reasonable and customary expenses and fees of the Trustee and the Corporation, any expenses of the Corporation in defending an action or proceeding in connection with the Contract or the Indenture and any taxes or any other expenses, including, but not limited to, licenses, permits, state and local income, sales and use or ownership taxes or property taxes which the City or the Corporation is expressly required to pay as a result of the Contract (together with interest that may accrue thereon in the event that the City fails to pay the same). BUDGET AND APPROPRIATION Pursuant to the Contract, the City will (1) cause its budget officer (as statutorily defined) to include the Installment Payments and the reasonably estimated Additional Payments coming due in each Fiscal Year in the corresponding annual budget request, (2) require that the deletion of such funds from the City s final budget or any amended budget be made only pursuant to an express resolution of the City Council which explains the reason for such action and (3) deliver notice to the Trustee, S&P and the LGC within five days after the adoption by City Council of the resolution described in clause (2) above. Nothing contained in the Contract, however, obligates the City to appropriate money contained in the proposed budget for the payment of the Installment Payments or the reasonably estimated Additional Payments coming due under the Contract. In connection with the Installment Payments and the Additional Payments, the appropriation of funds therefor is within the sole discretion of City Council. DEED OF TRUST General. In connection with the execution and delivery of the 2017 Bonds, the City will execute the Deed of Trust as security for its obligations under the Contract granting a lien of record on the Mortgaged Property, subject to certain permitted encumbrances as set forth in the Contract and the Deed of Trust. Not all of the Project is included in the Mortgaged Property. No representation is made as to the value of the City s interest in the Mortgaged Property in foreclosure. See the caption CERTAIN RISKS OF 2017 BOND OWNERS VALUE OF COLLATERAL herein. The Deed of Trust authorizes future obligations evidenced by Additional Bonds executed and delivered under the Indenture to be secured by the Deed of Trust, provided that the total amount of present and future obligations secured thereby at any one time does not exceed $500,000,000 and such future obligations are incurred not later than 30 years from the date of the Deed of Trust. The Deed of Trust will be recorded in the office of the Register of Deeds of Durham County, North Carolina, and the lien created thereby will be insured by a title insurance policy. Release of Security. Under certain circumstances, Mortgaged Property may be released from the lien of the security interest of the Deed of Trust. 9

16 So long as there is no Event of Default under the Deed of Trust, the Trustee, with the Corporation s consent, must release the Mortgaged Property or any part thereof from the lien and security interest of the Deed of Trust when and if the following requirements have been fulfilled: (1) in connection with any release of the Mortgaged Property, or any part thereof, there is filed with the Corporation a certified copy of the resolution of the City Council for the City stating the purpose for which the City desires such release of the Mortgaged Property, giving an adequate legal description of the part of the Mortgaged Property to be released, requesting such release and providing for payment by the City of all expenses in connection with such release; (2) in connection with the release of any part of the Mortgaged Property constituting less than the entire Mortgaged Property, either (1) the tax, insured or appraised value of the Mortgaged Property remaining after the proposed release is not less than 50% of the aggregate principal component of the Installment Payments then Outstanding under the Indenture or (2) the City (i) provides for the substitution of other real property therefor and the tax, insured or appraised value of the Mortgaged Property remaining after the proposed substitution is not less than the replacement value of the Mortgaged Property (as determined above) immediately before the proposed substitution, (ii) delivers to the Trustee and the Corporation an opinion of Bond Counsel to the effect that the substitution (A) is permitted by law and under the Deed of Trust and (B) will not adversely affect the tax treatment of the 2017B Bonds, and (iii) records a modification to the Deed of Trust reflecting such substitution of the Mortgaged Property; (3) in connection with the release of any part of the Mortgaged Property constituting less than the entire Mortgaged Property, such release will not prohibit the City s ingress, egress and regress to and from the remainder of the Mortgaged Property not being released, or materially interfere with the use of the remainder of the Mortgaged Property not being released; and (4) in connection with the release of the entire Mortgaged Property, there is paid to the Corporation an amount sufficient to provide for the payment in full all of the Bonds then Outstanding under the Indenture. So long as there is no Event of Default under the Deed of Trust, with the consent of the Trustee, the City may grant easements, licenses, rights of way and other rights and privileges in the nature of easements with respect to any part of the Mortgaged Property and the City may release existing interests, easements, licenses, rights of way and other rights or privileges with or without consideration. The City must provide a certificate to the Trustee stating that the grant or release is not detrimental to the proper conduct of the operations of the City at the Mortgaged Property and will not impair the effective use, nor decrease the value, of the Mortgaged Property. INDENTURE Pursuant to the Indenture, the Corporation has assigned to the Trustee for the benefit of the Owners of the 2017 Bonds and any Additional Bonds executed and delivered under the 10

17 Indenture (1) all rights, title and interest of the Corporation in the Contract (except for certain indemnification rights, certain notice rights and the right to Additional Payments payable to the Corporation), including its rights to receive the Installment Payments thereunder, (2) all rights, title and interest of the Corporation in the Deed of Trust and the Mortgaged Property and (3) all money and securities from time to time held by the Trustee under the Indenture in any fund or account (except the Rebate Fund). ENFORCEABILITY NEITHER THE CONTRACT NOR THE 2017 BONDS CONSTITUTE A PLEDGE OF THE FAITH AND CREDIT OF THE CITY WITHIN THE MEANING OF ANY CONSTITUTIONAL DEBT LIMITATION. NO DEFICIENCY JUDGMENT MAY BE RENDERED AGAINST THE CITY IN ANY ACTION FOR BREACH OF ANY CONTRACTUAL OBLIGATION UNDER THE CONTRACT, AND THE TAXING POWER OF THE CITY IS NOT PLEDGED DIRECTLY OR INDIRECTLY TO SECURE ANY MONEY DUE THE OWNERS OF THE 2017 BONDS PURSUANT TO THE CONTRACT. The remedies afforded to the Trustee and the Owners of the 2017 Bonds upon a default by the City under the Contract are limited to those specified in the Contract and the Indenture, including exercising the rights of the beneficiary under the Deed of Trust and the rights of the Trustee in the funds held under the Indenture. The 2017 Bonds will not constitute a debt or general obligation of the Corporation and will not give the Owners of the 2017 Bonds any recourse to the assets of the Corporation, but will be payable solely from amounts payable by the City under the Contract, from amounts realized on the foreclosure on the Mortgaged Property pursuant to the Deed of Trust and from funds held in certain funds and accounts under the Indenture for such purpose. The enforceability of the Indenture, the Contract and the Deed of Trust is subject to bankruptcy, insolvency, fraudulent conveyance and other related laws affecting the enforcement of creditors rights generally and, to the extent that certain remedies under such instruments require, or may require, enforcement by a court, to such principles of equity as the court having jurisdiction may impose. See SUMMARY OF PRINCIPAL LEGAL DOCUMENTS THE CONTRACT Remedies on Default in Appendix C for a more complete description of the rights and powers of the Trustee upon the occurrence of an Event of Default under the Contract. ADDITIONAL BONDS Under the conditions described in the Indenture and so long as no Event of Default has occurred and is continuing under the Indenture, the Corporation may execute and deliver Additional Bonds under the Indenture without the consent of the Owners of the 2017 Bonds or any Additional Bonds then Outstanding under the Indenture to provide funds to pay (1) the cost of expanding the Project or acquiring, constructing, renovating and equipping other facilities or acquiring equipment and other capital assets for utilization by the City for public purposes; (2) the cost of refunding of all or any portion of the 2017 Bonds or any other financing obligations 11

18 of the City; and (3) the Costs of Issuance relating to the execution, delivery and sale of such Additional Bonds. The 2017 Bonds are payable on a parity with any Additional Bonds hereafter executed and delivered pursuant to the Indenture. The Installment Payments and any Installment Payments with respect to Additional Bonds issued under the Indenture will be deposited as received by the Trustee in the Bond Fund held by the Trustee. Money in the Bond Fund will be withdrawn and used to pay the principal and interest with respect to the 2017 Bonds and any Additional Bonds executed and delivered under the Indenture as the same become due and payable. If on any date the money on deposit in the Bond Fund is insufficient to pay all of the principal and interest with respect to the 2017 Bonds or any Additional Bonds executed and delivered under the Indenture which are due and payable on such date, such money will be used to pay such principal and interest with respect to the 2017 Bonds and any such Additional Bonds entitled to receive principal or interest on such date in the manner provided in the Indenture. See SUMMARY OF PRINCIPAL LEGAL DOCUMENTS THE INDENTURE Application of Money in Appendix C. GENERAL AVAILABLE SOURCES FOR PAYMENT OF INSTALLMENT PAYMENTS The City may pay its Installment Payments from any source of funds available to it in each year and appropriated therefor during the term of the Contract. GENERAL FUND REVENUES The City s general fund revenues and transfers for the Fiscal Years ended June 30, 2016 and June 30, 2017 were $177,880,632 and $177,357,331, respectively. General fund revenues are derived from various sources, including property taxes, which accounted for approximately 50.8% and 50.3%, respectively, of the general fund. For the Fiscal Year ended June 30, 2017, the City adopted a property tax of $.5607 per $100 of assessed value. The budget adopted by the City increased the ad valorem tax rate to $.5786 per $100 of assessed value. A rate of $.01 per $100 of assessed value was estimated to generate $2,792,485 in the fiscal year ending June 30, The General Statutes of North Carolina permit cities to impose property taxes of up to $1.50 per $100 of assessed value for certain purposes without the requirement of a voter referendum. [Intentionally left blank.] 12

19 INSTALLMENT PAYMENT SCHEDULE The following schedule sets forth for each Fiscal Year of the City ending June 30 the amount of principal and interest required to be paid under the Contract with respect to the 2017 Bonds. The table does not show any debt service with respect to the Refunded LOBs or the Refunded Bonds. The Contract requires all payments to be made to the Bond Fund five days before such payment is due. Totals may not foot due to rounding. 2017A Bonds 2017B Bonds Fiscal Year Ending June 30 Principal Interest Principal Interest Total Total (1) (1) (1) (1) (1) Interest on the 2017B Bonds on and before October 1, 2020 will be paid from the Escrow Fund funded with a portion of the proceeds of the 2017B Bonds. LIMITED OBLIGATION OF THE CITY CERTAIN RISKS OF 2017 BOND OWNERS If the Installment Payments to be made by the City are insufficient to pay the principal and interest with respect to the 2017 Bonds and any Additional Bonds, as the same become due or, if any other Event of Default occurs under the Contract, the Trustee may accelerate the

20 Bonds and all unpaid principal amounts due by the City under the Contract and foreclose on the City s interest in the Mortgaged Property under the Deed of Trust. No deficiency judgment may be rendered against the City in any action for any breach of the Contract. The taxing power of the City is not and may not be pledged directly or indirectly or contingently to secure any money due under the Contract. The remedies afforded to the Trustee and the Owners of the 2017 Bonds and any Additional Bonds upon a default by the City under the Contract are limited to those of a secured party under the laws of the State, including foreclosing on the City s interest in the Mortgaged Property covered by the Deed of Trust. There can be no assurance that the money available in the funds and accounts held by the Trustee and the proceeds of any such foreclosure will be sufficient to provide for the payment of the principal and interest with respect to the 2017 Bonds and any Additional Bonds outstanding under the Indenture. RISK OF NONAPPROPRIATION The appropriation of money to make the Installment Payments is within the sole discretion of the City Council. If the City Council fails to appropriate such money, the only sources of payment for the 2017 Bonds will be the money, if any, available in the respective funds and accounts held by the Trustee under the Indenture (other than the Rebate Fund) and the proceeds of any attempted foreclosure on the City s interest in the Mortgaged Property under the Deed of Trust. VALUE OF COLLATERAL No special appraisal of the Mortgaged Property has been obtained and the amount of proceeds received through foreclosure of the City s interest in the Mortgaged Property will be affected by a number of factors, including without limitation (1) the costs and expenses in enforcing the lien and security, (2) the condition of the Mortgaged Property, (3) the occurrence of any damage, destruction, loss or theft of the Mortgaged Property which is not repaired or replaced and for which there are not received or appropriated money from insurance policies or any risk management program, (4) the enforceability of any leases, (5) additional issues relating to the lack of alternative uses of the Mortgaged Property related to design, zoning restrictions, use restrictions, easements and encumbrances on the Mortgaged Property, and (6) environmental problems and risks with respect to the Mortgaged Property. No representation is made as to the value of the City s interest in the Mortgaged Property in foreclosure. ENVIRONMENTAL RISKS Environmental contamination of the Mortgaged Property, and any undiscovered or future environmental contamination, could have a material adverse effect on the value of the Mortgaged Property; however, the City is required under the Deed of Trust to undertake whatever environmental remediation may be required by law. No environmental assessment of the Mortgaged Property has been performed. The City is not aware of any environmental issues with respect to the Mortgaged Property that could have a material adverse effect on its value. 14

21 UNINSURED OR UNDERINSURED CASUALTY If (1) any portion of the Mortgaged Property is destroyed or damaged by fire or other casualty, (2) title to or the temporary or permanent use of any portion of the Mortgaged Property or the estate of the City or the Corporation or its assignee in any portion of the Mortgaged Property is taken under the power of eminent domain by any governmental authority; (3) a material defect in construction of any portion of the Mortgaged Property becomes apparent; or (4) title to or the use of any portion of the Mortgaged Property is lost by reason of a defect in title thereto, the City may elect not to repair, restore, improve or replace the affected portion of the Mortgaged Property if (1) the Net Proceeds are less than $500,000 and (2) a City Representative certifies to the Corporation that such Net Proceeds are not necessary to restore the affected portion of the Mortgaged Property to its intended use. In such event, the City will direct the Trustee to deposit such Net Proceeds in the Bond Fund to be applied toward the next payment of principal and interest with respect to the 2017 Bonds. The Contract requires the City to maintain certain insurance with respect to the Mortgaged Property, but such insurance may not cover all perils to which the Mortgaged Property is subject or provide sufficient Net Proceeds to fully repair or replace the Mortgaged Property. OUTSTANDING GENERAL OBLIGATION DEBT OF THE CITY The City does not have general obligation bonds outstanding or authorized and unissued but may issue general obligation bonds and notes in the future. In connection with the issuance of any general obligation indebtedness, the City will pledge its faith and credit and taxing power to the payment of such bonds and notes to be issued. FUNDS WHICH MAY OTHERWISE BE AVAILABLE TO PAY INSTALLMENT PAYMENTS OR ADDITIONAL PAYMENTS OR TO MAKE OTHER PAYMENTS TO BE MADE BY THE CITY UNDER THE CONTRACT MAY BE SUBJECT TO SUCH FAITH AND CREDIT PLEDGE BY THE CITY AND THEREFORE MAY BE REQUIRED TO BE APPLIED TO THE PAYMENT OF ITS GENERAL OBLIGATION INDEBTEDNESS. OTHER INDEBTEDNESS There is no limitation on the City entering into additional contracts which provide for obligations the payment on which is subject to appropriation. Although such obligations are not secured by a pledge of the faith and credit of the City, funds that might otherwise be available to pay Installment Payments under the Contract may be used to make payments on such obligations. In addition, the Corporation may execute and deliver Additional Bonds under the Indenture that are secured by the Mortgaged Property, thereby diluting the relative value of the collateral with respect to the 2017 Bonds. BANKRUPTCY Under North Carolina law, a local governmental unit such as the City may not file for bankruptcy protection without (1) the consent of the LGC and (2) the satisfaction of the requirements of 109(c) of the United States Bankruptcy Code. If the City were to initiate bankruptcy proceedings with the consent of the LGC and satisfy the requirements of 11 U.S.C. 109(c), the bankruptcy proceedings could have material and adverse effects on holders of the 15

22 2017 Bonds, including (1) delay in enforcement of their remedies, (2) subordination of their claims to claims of those supplying goods and services to the City after the initiation of bankruptcy proceedings and to the administrative expenses of bankruptcy proceedings and (3) imposition without their consent of a plan of reorganization reducing or delaying payment of the 2017 Bonds. The effect of the other provisions of the United States Bankruptcy Code on the rights and remedies of the holders of the 2017 Bonds cannot be predicted and may be affected significantly by judicial interpretation, general principles of equity (regardless of whether considered in a proceeding in equity or at law) and considerations of public policy. THE CORPORATION The Corporation was incorporated as a nonprofit corporation under the nonprofit corporation laws of the State of North Carolina on July 14, The Corporation s general purpose, as stated in its Articles of Incorporation, includes promoting the general welfare of the citizens of the City by encouraging the revitalization of downtown Durham and assisting the City through the acquisition, construction and operation or lease of real estate and improvements, facilities and equipment for the use and benefit of the general public. The Board of Directors of the Corporation consists of three individuals, who serve for one year terms or until their successors are duly elected and qualified. The current officers of the Corporation are as follows: Thomas J. Bonfield David P. Boyd Emily Desiderio Rebecca B. Joyner President Vice President Secretary/Treasurer Asst. Secretary The Corporation s officers and directors serve without compensation. The Corporation has no employees. The Corporation s role in the financing described in this Official Statement will be limited. The Corporation s officers, directors and counsel will have the opportunity to review this Official Statement and the principal financing documents and to assist in their preparation. The Corporation will execute and deliver the Indenture and the Contract. Counsel to the Corporation will deliver certain legal opinions in connection with the transaction. The Corporation and the City expect, however, that the Corporation will have no continuing responsibilities or involvement with respect to monitoring compliance with the terms of the Contract, the Deed of Trust or the Indenture. THE CITY See Appendix A for a description of the City. 16

23 LEGAL MATTERS LITIGATION No litigation is now pending or, to the best of the City s knowledge, after reasonable investigation, threatened, against or affecting the City which seeks to restrain or enjoin the authorization, execution or delivery of the 2017 Bonds or which contests the City s creation, organization or corporate existence, or the title of any of the present officers thereof to their respective offices or the authority or proceedings for the City s authorization, execution and delivery of the Contract and the Deed of Trust, or the City s authority to carry out its obligations thereunder or which would have a material adverse impact on the City s condition, financial or otherwise. In addition, no litigation is now pending or, to the best of the Corporation s knowledge, after reasonable investigation, threatened, against or affecting the Corporation which seeks to restrain or enjoin the authorization, execution or delivery of the 2017 Bonds, the Indenture, the Contract or the Deed of Trust or which contests the validity or the authority or proceedings for the adoption, authorization, execution or delivery of the 2017 Bonds or the Corporation s creation, organization or corporate existence, or the title of any of the present officers thereof to their respective offices or the authority or proceedings for the Corporation s authorization, execution or delivery of the 2017 Bonds, the Indenture or the Contract, or the Corporation s authority to carry out its obligations thereunder. CONTINGENT LIABILITIES The City is not aware of any contingent liabilities that would materially adversely affect the City s ability to meet its financial obligations. OPINIONS OF COUNSEL Legal matters related to the execution, sale and delivery of the 2017 Bonds are subject to the approval of each of Parker Poe Adams & Bernstein LLP and The Banks Law Firm, P.A., Co- Bond Counsel. The form approving opinion, substantially as set forth in Appendix D hereto, will be delivered by each of Co-Bond Counsel at the time of the delivery of the 2017 Bonds. Certain legal matters will be passed on for the City by Patrick W. Baker, Esq.; for the Corporation by Parker Poe Adams & Bernstein LLP; and for the Underwriters by their counsel, Moore & Van Allen PLLC. VERIFICATION The accuracy of (1) the mathematical computations of the adequacy of the maturing principal and interest with respect to the Federal Securities deposited in the Escrow Fund to pay, together with any uninvested cash held in the Escrow Fund, when due, interest with respect to the 2017B Bonds until the Crossover Date, the prepayment price with respect to the Refunded LOBs on the Crossover Date and the redemption price of the Refunded Bonds on the Crossover Date and (2) the mathematical computations supporting the conclusion that the 2017B Bonds are not arbitrage bonds under the Code will be verified by Grant Thornton LLP. Such verification will be based, among other things, on mathematical computations supplied by the Underwriters. Co-Bond Counsel will rely on such verification in rendering their respective opinions as to the 17

24 exclusion of interest with respect to the 2017B Bonds from gross income of the recipients thereof for purposes of federal income taxation. 2017A BONDS TAX TREATMENT General. On the date of issuance of the 2017A Bonds, each of Co-Bond Counsel will render an opinion that, under existing law, interest with respect to the 2017A Bonds is taxable as ordinary income for federal income tax purposes. Co-Bond Counsel expresses no opinion regarding any other federal income tax consequences relating to the ownership or disposition of, or the accrual or receipt of interest with respect to, the 2017A Bonds. Set forth below is a general summary of the anticipated material federal income tax consequences of the purchase, ownership and disposition of the 2017A Bonds. Such summary does not address every aspect of the federal income tax laws that may be relevant to prospective purchasers of 2017A Bonds in light of their personal investment circumstances or to certain types of owners subject to special treatment under the federal income tax laws (for example, banks and life insurance companies) and is generally limited to investors who will hold 2017A Bonds as capital assets within the meaning of Section 1221 of the Code. In addition, this summary does not address alternative minimum tax issues or the indirect consequences to a holder of an equity interest in a prospective purchaser. Accordingly, prospective purchasers of the 2017A Bonds should consult their own tax advisors regarding federal, state, local, foreign and any other tax consequences with respect to the purchase, ownership and disposition of the 2017A Bonds in their own particular circumstances. Such summary is based on the provisions of the Code, as amended, the Treasury Regulations thereunder, and published rulings and court decisions in effect as of the date hereof, all of which are subject to change, possibly retroactively. No ruling on any of the issues summarized below has been or will be sought from the IRS, and no assurance can be given that the IRS will not take contrary positions and will not prevail with such positions. Prospective purchasers of the 2017A Bonds should be aware that the acquisition, ownership or disposition of, and the accrual or receipt of interest with respect to, the 2017A Bonds may result in collateral federal income tax liability consequences to certain taxpayers as well as any tax consequences that may arise under the laws of any state, local or foreign jurisdiction. The extent of such other collateral tax consequences will depend upon the owner s particular tax status or other items of income or deduction and prospective purchasers of the 2017A Bonds, particularly prospective purchasers that are dealers in securities or currencies, traders in securities, persons holding 2017A Bonds as a hedge, straddle, conversion or other integrated transaction for federal income tax purposes, insurance companies, financial institutions, tax-exempt organizations and United States holders whose functional currency is not United States dollars, should consult their own tax advisors as to the collateral tax consequences of acquiring, owning or disposing of, and the accrual or receipt of interest with respect to, the 2017A Bonds. Co-Bond Counsel expresses no opinion regarding any such collateral tax consequences. 18

25 The Code requires debt obligations, such as the 2017A Bonds, to be issued in registered form and denies certain benefits to the issuer and the holders of debt obligations failing such registration requirement. Such registration requirement with respect to the 2017A Bonds is expected to be satisfied. Subject to certain exceptions, the portion of the Installment Payments designated and paid as interest to the owners of 2017A Bonds will be reported to the IRS. Such information will be filed each year with the IRS on Form 1099 (or such other applicable form), which reflects the name, address and taxpayer identification number of each registered owner of the 2017A Bonds. A copy of Form 1099 (or such other applicable form) will be sent to each registered owner of the 2017A Bonds for federal income tax reporting purposes. Tax Classification of 2017A Bonds. Each of Co-Bond Counsel is of the opinion that, under existing law, the 2017A Bonds will be treated for federal income tax purposes as indebtedness, and the interest on the 2017A Bonds will be included in the income of the owner as it is paid (or, if the owner is an accrual method taxpayer, as it is accrued) as interest. Market Discount. The resale of any 2017A Bond by any owner of such 2017A Bond may be affected by the market discount provisions of the Code. For such purpose, the market discount on any 2017A Bond will generally be equal to the amount, if any, by which the stated prepayment price at maturity of such 2017A Bond immediately after its acquisition by such owner exceeds such owner s adjusted tax basis in such 2017A Bond. Subject to a de minimis exception, such market discount provisions generally require an owner of a 2017A Bond which is acquired by such owner at a market discount to treat any payment on, or any gain recognized on the sale, exchange, prepayment or other disposition of, such 2017A Bond as ordinary income to the extent of any accrued market discount on such 2017A Bond which has not previously been included in income at the time of sale or other disposition by such owner. In general, any market discount on 2017A Bond will be treated as accruing on a straight-line basis over the term of such 2017A Bond, or, at the election of the owner of such 2017A Bond, under a constant yield method. Prospective purchasers of 2017A Bonds should consult their own tax advisors as to the tax consequences of acquiring, owning or disposing of, and the accrual or receipt of interest with respect to, 2017A Bonds acquired at a market discount. Premium. If a 2017A Bond is purchased by an owner at a premium, the owner may be entitled to amortize such premium as an offset to interest income (with a corresponding reduction in the owner s basis) under a constant yield method over the term of the 2017A Bond if an election under Section 171 of the Code is made or is previously in effect. Sale of 2017A Bonds. If a 2017A Bond is sold or redeemed, the seller will recognize gain or loss equal to the difference between the amount realized on the sale or redemption and the seller s adjusted basis in the 2017A Bond. Such adjusted basis generally will equal the cost of the 2017A Bond to the seller, increased by any market discount included in the seller s gross income and decreased by any payments on the 2017A Bond. Except with respect to market discount, gain or loss recognized on a sale, exchange or prepayment of a 2017A Bond will generally give rise to capital gain or loss if the 2017A Bond is held as a capital asset and will be long-term if the holding period is more than one year. The holding period analysis may be affected by the determination of whether the 2017A Bonds are treated as a single debt instrument or a series of debt instruments and prospective purchasers are especially encouraged to consult with their own tax advisers on this subject. 19

26 Foreign Investors. Generally, payments of the interest on the 2017A Bonds to an owner of 2017A Bonds that is a nonresident alien individual, foreign corporation or other non-united States person (a foreign person ) not engaged in a trade or business within the United States will not be subject to federal income or withholding tax if such foreign person complies with certain identification requirements (including the delivery of a statement, signed by such owner under penalty of perjury, certifying that such owner is a foreign person and providing the name and address of such owner). Foreign investors should consult their own tax advisors regarding the potential imposition of withholding taxes. The summary herein assumes that the owners of the 2017A Bonds are not foreign persons. Special rules may apply to foreign persons with respect to the information reporting requirements and withholding taxes and foreign persons should consult their tax advisors with respect to the application of such reporting requirements and withholding taxes. Backup Withholding. Payments made to an owner with respect to the 2017A Bonds and proceeds from the sale of the 2017A Bonds will ordinarily not be subject to withholding of federal income tax if such owner is a United States person. However, even a United States person will be subject to withholding of such tax at a rate of 28% under certain circumstances. Except in the case of certain exempt payees as defined in the Code, such backup withholding will generally be applicable if an owner (1) fails to furnish to the City such owner s social security number or other taxpayer identification number (collectively, TIN ), (2) furnishes the City an incorrect TIN, (3) fails to report properly interest, dividends or other reportable payments as defined in the Code, or (4) under certain circumstances, fails to provide the City with a certified statement, signed under penalty of perjury, that the TIN provided to the City is correct and that such owner is not subject to backup withholding. State Taxation of 2017A Bonds. Each of Co-Bond Counsel is further of the opinion that, under existing law, the interest on the 2017A Bonds is exempt from State of North Carolina income taxation. 2017B BONDS General. On the date of issuance of the 2017B Bonds, each of Co-Bond Counsel will render an opinion that, under existing law (1) assuming compliance by the City with certain provisions of the Code of 1986, interest on the 2017B Bonds (a) is excludable from gross income for federal income tax purposes, and (b) is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and (2) interest on the 2017B Bonds is exempt from State of North Carolina income taxation. The interest on the 2017B Bonds will be taken into account in determining adjusted current earnings of certain corporations (as defined for federal income tax purposes), and such corporations are required to include in the calculation of federal alternative minimum taxable income 75% of the excess of such corporation s adjusted current earnings over its federal alternative minimum taxable income (determined without regard to this adjustment and prior to reduction for certain net operating losses). The Code imposes various restrictions, conditions and requirements relating to the exclusion of interest on obligations, such as the 2017B Bonds, from gross income for federal 20

27 income tax purposes, including, but not limited to, the requirement that the City rebate certain excess earnings on proceeds and amounts treated as proceeds of the 2017B Bonds to the United States Treasury, restrictions on the investment of such proceeds and other amounts, and restrictions on the ownership and use of the facilities financed or refinanced with proceeds of the 2017B Bonds. The foregoing is not intended to be an exhaustive listing of the post-issuance tax compliance requirements of the Code, but is illustrative of the requirements that must be satisfied by the City subsequent to issuance of the 2017B Bonds to maintain the excludability of the interest on the 2017B Bonds from gross income for federal income tax purposes. Each of Co- Bond Counsel s opinion is given in reliance on certifications by representatives of the City as to certain facts material to the opinion and the requirements of the Code. The City has covenanted to comply with all requirements of the Code that must be satisfied subsequent to the issuance of the 2017B Bonds in order that the interest on the 2017B Bonds be, or continue to be, excludable from gross income for federal income tax purposes. The opinion of Co-Bond Counsel assumes compliance by the City with such covenants, and Co-Bond Counsel has not been retained to monitor compliance by the City with such covenants subsequent to the date of issuance of the 2017B Bonds. Failure to comply with certain of such requirements may cause the interest on the 2017B Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2017B Bonds. No other opinion is expressed by Co-Bond Counsel regarding the federal tax consequences of the ownership of or the receipt or accrual of interest with respect to the 2017B Bonds. If the interest on the 2017B Bonds subsequently becomes included in gross income for federal income tax purposes due to a failure by the City to comply with any requirements described above, the City is not required to redeem the 2017B Bonds or to pay any additional interest or penalty. The Internal Revenue Service has established an ongoing program to audit tax-exempt obligations to determine whether interest on such obligations is includible in gross income for federal income tax purposes. Co-Bond Counsel cannot predict whether the Internal Revenue Service will commence an audit of the 2017B Bonds. Prospective purchasers of the 2017B Bonds are advised that, if the Internal Revenue Service does audit the 2017B Bonds, under current Internal Revenue Service procedures, at least during the early stages of an audit, the Internal Revenue Service will treat City Council as the taxpayer, and the owners of the 2017B Bonds may have limited rights, if any, to participate in such audit. The commencement of an audit could adversely affect the market value and liquidity of the 2017B Bonds until the audit is concluded, regardless of the ultimate outcome. Prospective purchasers of the 2017B Bonds should be aware that ownership of the 2017B Bonds and the accrual or receipt of interest on the 2017B Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, financial institutions, property or casualty insurance companies, individual recipients of Social Security or Railroad Retirement benefits, certain Subchapter S Corporations with excess net passive income, foreign corporations subject to the branch profits tax, life insurance companies and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry the 2017B Bonds. Co-Bond Counsel does not express any opinion as to any such collateral tax 21

28 consequences. Prospective purchasers of the 2017B Bonds should consult their own tax advisors as to the collateral tax consequences. Proposed legislation is considered from time to time by the United States Congress that, if enacted, would affect the tax consequences of owning the 2017B Bonds. No assurance can be given that any future legislation, or clarifications or amendments to the Code, if enacted into law, will not contain provisions which could cause the interest on the 2017B Bonds to be subject directly or indirectly to federal or State of North Carolina income taxation, adversely affect the market price or marketability of the 2017B Bonds or otherwise prevent the owners of the 2017B Bonds from realizing the full current benefit of the status of the interest on the 2017B Bonds. Each of Co-Bond Counsel s opinion is based on existing law, which is subject to change. Such opinion is further based on factual representations made to Co-Bond Counsel as of the date thereof. Bond Counsel assumes no duty to update or supplement its opinion to reflect any facts or circumstances that may thereafter come to Co-Bond Counsel s attention, or to reflect any changes in law that may thereafter occur or become effective. Moreover, Bond Counsel s opinion is not a guarantee of a particular result, and is not binding on the Internal Revenue Service or the courts; rather, such opinion represents Co-Bond Counsel s professional judgment based on its review of existing law, and in reliance on the representations and covenants that Co- Bond Counsel deems relevant to such opinion. Co-Bond Counsel s opinion expresses the professional judgment of the attorneys rendering the opinion regarding the legal issues expressly addressed therein. By rendering its opinion, Co-Bond Counsel does not become an insurer or guarantor of the result indicated by that expression of professional judgment, of the transaction on which the opinion is rendered, or of the future performance of the City, nor does the rendering of such opinion guarantee the outcome of any legal dispute that may arise out of the transaction. Original Issue Discount. As indicated on the inside cover page, the 2017B Bonds maturing on October 1, 20 (the OID Bonds ), are being sold at initial offering prices which are less than the principal amount payable at maturity. Under the Code, the difference between (a) the initial offering prices to the public (excluding bond houses and brokers) at which a substantial amount of each maturity of the OID Bonds is sold and (b) the principal amount payable at maturity of such OID Bonds, constitutes original issue discount treated as interest which will be excluded from the gross income of the owners of such OID Bonds for federal income tax purposes. In the case of an owner of an OID Bond, the amount of original issue discount on such OID Bond is treated as having accrued daily over the term of such OID Bond on the basis of a constant yield compounded at the end of each accrual period and is added to the owner s cost basis of such OID Bond in determining, for federal income tax purposes, the gain or loss upon the sale, redemption or other disposition of such OID Bond (including its sale, redemption or payment at maturity). Amounts received upon the sale, redemption or other disposition of an OID Bond which are attributable to accrued original issue discount on such OID Bonds will be treated as interest exempt from gross income, rather than as a taxable gain, for federal income tax purposes, and will not be a specific item of tax preference for purposes of the federal alternative minimum tax imposed on corporations and individuals. However, it should be noted that with respect to certain corporations (as defined for federal income tax purposes), a portion of the original issue discount that accrues to such corporate owners of OID Bonds in each year will be 22

29 taken into account in determining the adjusted current earnings for the purpose of computing the federal alternative minimum tax imposed on such corporations and may result in other collateral federal income tax consequences for certain taxpayers in the year of accrual. Consequently, corporate owners of an OID Bond should be aware that the accrual of original issue discount on any OID Bond in each year may result in a federal alternative minimum tax liability or other collateral federal income tax consequences, even though such corporate owners may not have received any cash payments attributable to such original issue discount in such year. Original issue discount is treated as compounding semiannually at a rate determined by reference to the yield to maturity of each individual OID Bond. The amount treated as original issue discount on an OID Bond for a particular semiannual accrual period is equal to (a) the product of (i) the yield to maturity for such OID Bond (determined by compounding at the close of each accrual period) and (ii) the amount which would have been the tax basis of such OID Bond at the beginning of the particular accrual period if held by the original purchaser, less (b) the amount of interest payable on such OID Bond during the particular accrual period. The tax basis is determined by adding to the initial public offering price on such OID Bond the sum of the amounts which have been treated as original issue discount for such purposes during all prior accrual periods. If an OID Bond is sold between semiannual compounding dates, original issue discount which would have accrued for that semiannual compounding period for federal income tax purposes is to be appointed in equal amounts among the days in such compounding period. The Code contains additional provisions relating to the accrual of original issue discount in the case of owners of the OID Bonds who subsequently purchase any OID Bonds after the initial offering or at a price different from the initial offering price during the initial offering of the 2017B Bonds. Owners of OID Bonds should consult their own tax advisors with respect to the precise determination for federal and state income tax purposes of the amount of original issue discount accrued upon the sale, redemption or other disposition of an OID Bond as of any date and with respect to other federal, state and local tax consequences of owning and disposing of an OID Bond. It is possible that under the applicable provisions governing the determination of state or local taxes, accrued original issue discount on an OID Bond may be deemed to be received in the year of accrual even though there will not be a corresponding cash payment attributable to such original issue discount until a later year. Original Issue Premium. As indicated on the inside cover page, the 2017B Bonds maturing on October 1, 20 (the Premium Bonds ) are being sold at initial offering prices which are in excess of the principal amount payable at maturity. The difference between (a) the initial offering prices to the public (excluding Bond houses and brokers) at which a substantial amount of the Premium Bonds is sold and (b) the principal amount payable at maturity of such Premium Bonds constitutes original issue premium, which original issue premium is not deductible for federal income tax purposes. In the case of an owner of a Premium Bond, however, the amount of the original issue premium which is treated as having accrued over the term of such Premium Bond is reduced from the owner s cost basis of such Premium Bond in determining, for federal income tax purposes, the taxable gain or loss upon the sale, redemption or other disposition of such Premium Bond (whether upon its sale, redemption or payment at maturity). Owners of Premium Bonds should consult their tax advisors with respect to the determination, for federal income tax purposes, of the adjusted basis of such Premium Bonds upon any sale or disposition and with respect to any state or local tax consequences of owning a Premium Bond. 23

30 CONTINUING DISCLOSURE OBLIGATION The City agrees, in accordance with Rule 15c2-12 ( Rule 15c2-12 ) promulgated by the Securities and Exchange Commission (the SEC ), to provide to the MSRB: (1) by not later than seven months after the end of each Fiscal Year, beginning with the Fiscal Year ending June 30, 2018, the audited financial statements of the City for the preceding Fiscal Year, if available, prepared in accordance with Section of the General Statutes of North Carolina, as it may be amended from time to time, or any successor statute, or if such audited financial statements are not then available, unaudited financial statements of the City for such Fiscal Year to be replaced subsequently by audited financial statements of the City to be delivered within 15 days after such audited financial statements become available for distribution; (2) by not later than seven months after the end of each Fiscal Year, beginning with the Fiscal Year ending June 30, 2018, (a) the financial and statistical data as of a date not earlier than the end of the preceding Fiscal Year for the type of information included under the captions THE CITY DEBT INFORMATION and -TAX INFORMATION (including subheadings thereunder) in Appendix A to this Official Statement (excluding in each case any information on overlapping or underlying units) and (b) the combined budget of the City for the current Fiscal Year, to the extent such items are not included in the audited financial statements referred to in paragraph (1) above; (3) in a timely manner not in excess of 10 Business Days after the occurrence of the event, notice of any of the following events with respect to the 2017 Bonds: (a) (b) principal and interest payment delinquencies; non-payment related defaults, if material; (c) unscheduled draws on debt service reserves reflecting financial difficulties; (d) unscheduled draws on any credit enhancements reflecting financial difficulties; (e) substitution of any credit or liquidity providers, or their failure to perform; (f) 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 2017B Bonds or other material events affecting the tax status of the 2017B Bonds; 24

31 (g) modifications of the rights of the beneficial owners of the 2017 Bonds, if material; offers; (h) (i) call of any of the 2017 Bonds, if material, and tender defeasance of any of the 2017 Bonds; (j) release, substitution, or sale of any property securing repayment of the 2017 Bonds, if material; City; (k) (l) rating changes; bankruptcy, insolvency, receivership or similar event of the (m) the consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the City, 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 such actions, other than pursuant to its terms, if material; (n) appointment of a successor or additional trustee or the change of name of a trustee, if material; and (4) in a timely manner, notice of a failure of the City to provide required annual financial information described in (1) or (2) above on or before the date specified. The City agrees in the Contract that its undertaking described above is intended to be for the benefit of the Owners and the beneficial owners of the 2017 Bonds and is enforceable by the Trustee or by any of them, including an action for specific performance of the City s obligations described above, but a failure to comply will not be an Event of Default under the Contract and will not result in acceleration of the principal component of Installment Payments. An action must be instituted, had and maintained in the manner provided in the Contract for the benefit of all of the Owners and beneficial owners of the 2017 Bonds. The City may modify from time to time, consistent with Rule 15c2-12, the information provided or the format of the presentation of such information, to the extent necessary or appropriate in the judgment of the City, but: (1) any such modification may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law or change in the identity, nature or status of the City; (2) the information to be provided, as modified, would have complied with the requirements of Rule 15c2-12 as of the date of this Official Statement, 25

32 after taking into account any amendments or interpretations of Rule 15c2-12 as well as any changes in circumstances; (3) any such modification does not materially impair the interest of the Owners or the beneficial owners, as determined by nationally recognized bond counsel or by the approving vote of the Owners of a majority in principal amount of the 2017 Bonds pursuant to the Indenture as may be amended from time to time. Any annual financial information containing modified operating data or financial information will 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. All documents provided to the MSRB as described above are to be provided in an electronic format as prescribed by the MSRB and accompanied by identifying information as prescribed by the MSRB. The City may discharge its undertaking described above by transmitting those documents or notices in a manner subsequently required by the SEC in lieu of the manner described above. The provisions of this paragraph terminate on payment, or provision having been made for payment in a manner consistent with Rule 15c2-12, in full of the principal and interest with respect to the 2017 Bonds and any Additional Bonds. For fiscal years 2014 and 2015, the City did not file specified rates and fees that were included in the undertaking with respect to certain of the City s utility system revenue bonds. The City has since filed the required information with the MSRB, through its Electronic Municipal Market Access system. The City participated in the SEC s Municipal Continuing Disclosure Cooperation ( MCDC ) Initiative and filed a self-report with the SEC relating to certain of the foregoing. The City has received written notice from the SEC that it does not intend to take any action with respect to the City s MCDC filing. For each of the previous five years, the City has otherwise complied, in all material respects, with its existing continuing disclosure undertakings made pursuant to Rule 15c2-12. UNDERWRITING The Underwriters are offering the 2017 Bonds pursuant to a firm underwriting contract. The Underwriters have agreed to purchase the 2017 Bonds at a price equal to $, representing the par amount of the 2017 Bonds, [plus/less] net original issue [premium/discount] of $, less an Underwriters discount of $. The Underwriters contract is subject to certain terms and conditions, including the approval of certain legal matters by counsel. The Underwriters may offer and sell the 2017 Bonds to certain dealers (including dealers depositing the 2017 Bonds into investment trusts) and others at prices different from the public offering prices shown on the inside cover page. The Underwriters may change the public offering prices from time to time at its discretion. The Underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Under 26

33 certain circumstances, the Underwriters and their respective affiliates may have certain creditor and/or other rights against the City and its affiliates in connection with such activities. In the various course of their various business activities, the Underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the City (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the City. The Underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments. RELATIONSHIPS Each of Parker Poe Adams & Bernstein LLP and The Banks Law Firm, P.A. serves as Co-Bond Counsel for the City and, from time to time, each Co-Bond Counsel firm and Moore & Van Allen PLLC, counsel to the Underwriters, has represented the Underwriters as counsel in other financing transactions. Neither the City nor the Underwriters has conditioned the future employment of either of these firms in connection with any proposed financing issues for the City or for the Underwriters on the successful execution and delivery of the 2017 Bonds. FINANCIAL ADVISOR DEC Associates, Inc., Charlotte, North Carolina, is acting as financial advisor to the City in connection with the issuance of the 2017 Bonds. RATING S&P Global Ratings ( S&P ) has assigned an independent rating of AA+ to the 2017 Bonds. Such rating reflects only the view of S&P at the time the rating was given, and neither the City nor the Underwriters make any representations as to the appropriateness of such ratings. The rating is not a recommendation to buy, sell or hold the 2017 Bonds and should be evaluated independently. There is no assurance that such rating will not be withdrawn or revised downward by S&P. Any such action may have an adverse effect on the market price of the 2017 Bonds. Neither the City nor the Underwriters has undertaken any responsibility after the execution and delivery of the 2017 Bonds to assure maintenance of the ratings or to oppose any such revision or withdrawal. MISCELLANEOUS All quotations from and summaries and explanations of the Contract, the Deed of Trust and the Indenture contained herein or in Appendix C hereto do not purport to be complete, and reference is made to such documents for full and complete statements of their respective provisions. The Appendices attached hereto are a part of this Official Statement. 27

34 The information contained in this Official Statement has been compiled or prepared from information obtained from the City and other sources deemed to be reliable and, although not guaranteed as to completeness or accuracy, is believed to be correct as of this date. Any statements involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. 28

35 APPENDIX A INFORMATION REGARDING THE CITY

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37 THE CITY GENERAL The City of Durham (the City ) is the fourth largest city in the State of North Carolina (the State ) and serves as the county seat of Durham County (the County ). It is located in the north central part of the State in an area known as "The Triangle" anchored by Duke University (Durham), North Carolina State University (Raleigh), and The University of North Carolina at Chapel Hill, and the cities of Raleigh and Durham and the towns of Cary and Chapel Hill. In 2017 U.S. News & World Report ranked the Raleigh-Durham area as one of the top ten Best Places to Live in the United States. GOVERNMENT STRUCTURE The City was incorporated in 1869 and has a council-manager form of government. The City Council, the governing body of the City, is comprised of the Mayor and six council members. The Mayor and three council members are elected at large. Three council members must fulfill ward residency requirements. The terms for City Council seats are staggered and elections are held every two years. Council members serve four-year terms, and the Mayor serves two-year terms. All municipal elections are non-partisan. The City Council appoints the members of various boards and commissions, the City Manager, the City Attorney, the City Clerk and the Collector of Revenue. The Mayor presides over City Council meetings and has full voting privileges. The City s current Mayor, William V. Bill Bell, is serving the last of eight two-year terms. He did not seek reelection in Steve Schewel has been elected as the City s next mayor. He has served on City Council since 2011 in an at-large seat. The City Manager is the chief administrative officer of the City. The individual is a professional administrator who serves at the pleasure of the City Council. Thomas J. Bonfield became City Manager in September Prior to taking the position with the City, he served as the city manager of Pensacola, Florida for 10 years and the city manager of Temple Terrace, Florida for 13 years before that. Mr. Bonfield has almost 40 years of experience with local governments. EMPLOYEES For the fiscal year ended June 30, 2017, the City had 2,395 full-time regular employees and a varying number of temporary, seasonal and part-time employees. No City employees are represented by a union or collective bargaining group. The City participates in the North Carolina Local Governmental Employees Retirement System and two other pension plans. For information concerning the City s participation in the North Carolina Local Government Employees Retirement System and the two other pension plans, see EMPLOYEE RETIREMENT below. For information regarding other post-retirement employee benefits (OPEB) provided to retirees of the City, see OTHER POST RETIREMENT BENEFITS below. A-1

38 DEBT INFORMATION Legal Debt Limit. The City is subject to the Local Government Bond Act of North Carolina that limits the net bonded debt the City may have outstanding to 8% of the appraised value of property subject to taxation. The City had the statutory capacity to incur additional net debt in the approximate amount of $1,963,250,227 as of June 30, The City currently has no authorized and unissued debt. Long-Term Obligations. Ratios of General Bonded Debt Outstanding At June 30 Percentage Actual Taxable Value of Property General Bonded Debt $253,224, % $1, ,445, ,695, ,465, ,695, Total includes all general obligation bonded debt. Per Capita Bonded Debt Gross The following two tables include debt service related to general obligation indebtedness and installment payment obligations. Certain of these obligations are expected to be refinanced with proceeds of the 2017B Bonds. See THE PLAN OF FINANCE in the front part of this Official Statement. General Obligation Indebtedness Outstanding as of June 30, 2017 Governmental Activities Business-Type Activities Fiscal Year Principal Interest Principal Interest 2018 $ 13,245,639 $ 4,987,965 $ 4,763,951 $ 1,243, ,417,561 4,493,752 4,547,848 1,129, ,571,114 3,954,026 4,143, , ,459,997 3,405,043 4,190, , ,970,035 2,865,323 3,739, , ,038,674 7,621,430 9,406,326 2,134, ,699,729 2,008,088 5,470, , ,050,423 39, ,168 12,299 Total $ 128,453,172 $ 29,375,222 $ 36,891,418 $ 7,706,540 All outstanding Certificates of Participation were retired during fiscal year A-2

39 Limited Obligation Bonds Outstanding as of June 30, 2017 Governmental Activities Business-Type Activities Fiscal Year Principal Interest Principal Interest 2018 $ 6,356,437 $ 1,656,348 $ 3,268,563 $ 1,445, ,247,369 1,457,576 2,627,631 1,367, ,682,337 1,301,093 2,277,663 1,307, ,667,788 1,157,879 2,322,212 1,253, ,868,388 1,032,049 2,371,612 1,192, ,721,293 3,458,314 12,683,707 4,858, ,535, ,206 13,774,386 2,581, ,040,000 44,200 5,515, ,211 Total $ 42,119,226 $ 11,104,665 $ 44,840,774 $ 14,291,165 In addition, during fiscal year 2016 the City entered into an installment financing contract with PNC Bank, National Association in an amount up to $95,000,000 (the PNC Financing Contract ) that operates similar to a credit line in that the City reimburses its capital expenditures by drawing down proceeds. Since the City is still drawing down funds on the contract, a debt service to maturity schedule has not been established. Amounts outstanding under the contract accrue interest at a variable rate. The City is required to make periodic interest payments on the outstanding principal balance. The City plans to refinance the contract by issuing long term debt in the future. As of November 21, 2017 the City had drawn $35,460, under the PNC Financing Contract. The City also has a bank loan agreement with Banc of America Public Capital Corp. with an outstanding principal amount of $6,575,000 at June 30, 2017 and a Section 108 loan with an outstanding principal amount of $7,425,000 at June 30, See Note III G. to the City s Audited Financial Statements in Appendix B for future requirements to pay principal and interest on these financings. The City has other obligations payable from the City s Water and Sewer Utility Fund. See Note III G. to the City s Audited Financial Statements in Appendix B hereto. Debt Outlook. Over the next three years, the City expects to issue limited obligation bonds to refinance the PNC Financing Contract on a permanent basis. The City also expects to finance fleet vehicles for the general fund departments as part of the City s fleet acquisition plan, in an amount equal to approximately $6-8 million per year. The City also expects to issue revenue bonds payable from the City s Water and Sewer Utility Fund in late fiscal year EMPLOYEE RETIREMENT The City participates in the North Carolina Local Governmental Employees Retirement System (LGERS) and two other pension plans. LGERS provides retirement and survivor benefits. Retirement benefits are determined as 1.85% of the member s average final compensation times the member s years of creditable service. A member s average final compensation is calculated as the average of a member s four highest consecutive years of compensation. At June 30, 2017, the City reported a liability of $43,416,183 for its proportionate share of the net pension liability. For the fiscal year ended June 30, 2017, the City A-3

40 recognized pension expense of $11,115,804. See Note IV G. to the City s Audited Financial Statements in Appendix B hereto for additional information. OTHER POST-RETIREMENT BENEFITS The City provides other post-retirement health benefits to retirees of the City who elect to continue group health insurance until age 65. For employees of the City hired before July 1, 2008, eligibility for post-retirement health insurance is limited to retirees who participate in the North Carolina State Retirement system and who have not reached the age of 65 and have been a member of the group health plan for 90 days prior to the retirement date. The City provides a subsidy of 50% to 100%, based on coverage, of the premium charged by the provider for retiree and dependent health insurance. Of the subsidy, 50% to 100% above, the City subsidizes the retiree s health care cost based on years of service. See Note IV E. to the City s Audited Financial Statements in Appendix B hereto. Under a resolution adopted as of July 1, 2008 employees hired after June 30, 2008 by the City must participate in a Retirement Health Savings Plan, which provides a vehicle for employees to save pretax dollars for future tax-free withdrawals to pay qualified medical expenses. Both the City and the employee are required to contribute to the plan. The City s cost is $35 per biweekly pay period. The requirement to receive the City s contribution is based on years of service. The City also provides a Medicare supplement reimbursement benefit for retirees who elect to have supplemental insurance when turning age 65. To be eligible, employees must have at least 10 calendar years of full time service, must be receiving a monthly benefit from the North Carolina Local Governmental Employees Retirees System, must remain on the City s medical insurance until turning 65 and must be at least 65 years old. Spouses and other dependents are not eligible for this benefit. For former employees unable to purchase Medicare supplement insurance, the City will reimburse the Medicare Part B premium withheld from the former employee s social security check. At June 30, 2017, there were 386 former employees and the benefit paid was $454,213. At June 30, 2016, the numbers were 352 and $417,368. The City s annual Other Postemployment Benefits (OPEB) cost (expense) is calculated based on the required annual contribution (ARC), an amount determined in accordance with GASB 45, Accounting and Financial Reporting by Employers for Post-Employment Plans Other Than Pension Plans. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal costs each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. A-4

41 The following table shows the components of the City s annual OPEB cost for fiscal year 2017, the amount actually contributed to the plan, and changes in the City s net OPEB obligation for the postemployment healthcare benefits: Governmental Business-Type Activities Activities Total Annual required contribution $ 9,905,662 $ 2,942,148 $ 12,847,810 Interest on net OPEB obligation 1,743, ,733 2,260,835 Adjustment to annual required contribution (2,820,354) (8,376,945) (3,658,049) Annual OPEB cost (expense) 8,828,409 2,622,187 11,450,596 Contributions made (4,106,921) (1,195,715) (5,302,636) Increase (decrease) in net OPEB obligation 4,721,488 1,426,472 6,147,960 Net OPEB obligation, beginning of year 45,018,414 11,502,469 56,520,883 Net OPEB obligation, end of year $ 49,739,902 $ 12,928,941 $ 62,668,843 The City s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan and the net OPEB obligation for the past three fiscal years were as follows: For the Year Ended June 30 Percentage of Annual OPEB Cost Contributed Annual OPEB Cost Net OPEB Obligation 2015 $ 13,841, % $ 49,610, ,621, % 56,520, ,450, % 62,668,843 As of December 31, 2015, the most recent actuarial valuation date, the plan was not funded as it was on a pay as you go basis. The actuarial accrued liability for benefits was $116,648,190, and there was no actuarial value of assets resulting in an unfunded actuarial accrued liability (UAAL) of $116,648,190. The covered payroll (annual payroll of active employees covered by the plan) was $68,566,224 and ratio of UAAL to covered payroll was %. Adjustments to the ARC are due to changes by the actuary regarding assumptions used to make the calculation. Assumptions include employment, mortality, healthcare cost and investment return trends. See Note IV E. to the City s Audited Financial Statements in Appendix B. TAX INFORMATION The City is empowered by statute to levy an annual ad valorem tax on the appraised value of all taxable real and tangible personal property within its corporate limits. The County is the only other unit levying such taxes within the corporate limits of the City. In addition, the Special Airport District of Durham and Wake Counties is empowered to levy such taxes within the City, although it has not yet done so. A-5

42 General Information (based on tax year) Assessed Valuation Assessment Ratio 1 100% 100% 100% 100% 100% Real Property 2 $20,262,612,123 $20,739,931,060 $21,180,478,027 $23,759,670,782 $24,186,851,676 Personal Property 3,111,687,066 3,278,195,481 3,676,259,537 3,652,438,316 3,653,437,289 Public Service 309,662, ,702, ,600, ,037, ,635,357 Companies 3 Total Assessed Valuation $23,683,961,515 $24,346,829,399 $25,216,338,217 $27,779,146,712 $28,206,924,322 Rate per $ Levy $132,827,151 $ 136,533,025 $ 149,971,062 $ 156,422,810 $ 163,205,264 1 Ratio of assessed value to estimated actual value. 2 Percentage of appraised value has been established by statute. Property values are typically reassessed every eight years. The last reevaluation became effective January 1, Valuation of railroads, telephone companies and other utilities as determined by the North Carolina Property Tax Commission. 4 Estimated. Fiscal Year Ended June 30 Current Year s Levy Collected Tax Collections % of Levy Collected Within Year of Levy Prior Years Levy Collected % of Prior Years Levy Collected 2013 $133,481, % $ 17, % ,871, , ,948, , ,512, , ,113, A-6

43 Ten Largest Taxpayers For the Fiscal Year Ended June 30, 2017 Company Taxable Assessed Valuation Percentage of Total Assessed Valuation Cree Inc. $ 225,191, % EMC Corp. 193,360, Southpoint Mall LLC 182,061, Duke Energy 156,281, Corium LLC 101,520, CLPF Research Center LLC 94,879, Hines Global Reit Hock Plaza 1 87,888, American Campus LLC 81,406, International Business Machine 80,922, IVT Renaissance Center Durham 77,092, Source: Durham County Tax Assessor. BUDGET Budget Process. The General Statutes of North Carolina require the City to adopt an annual balanced budget. The General Statutes also provide for balanced project ordinances for the life of projects, including both capital and grant activities, which are expected to extend beyond the end of the fiscal year. The City Council adopts the annual budget ordinance prior to July 1 of each year and adopts project ordinances as necessary. The Council has the authority to amend such ordinances Budget Outlook. The approved fiscal year budget of $429.4 million represents a 6.1% percent increase from the previous year s budget, and includes a $189.4 million budget for services covered by the General Fund. At the end of the first fiscal quarter, General Fund revenues are slightly higher than budgeted levels and General Fund expenditures were below budgeted levels. The City currently projects General Fund revenues to be approximately $450,000 above budget and General Fund expenditures to be approximately $1,700,000 below budgeted amounts for the fiscal year ending June 30, Such financial projections are preliminary and subject to change based on a number of variables, including the general economy. A-7

44 DEMOGRAPHIC CHARACTERISTICS The United States Department of Commerce, Bureau of the Census, has recorded the population of the City to be as follows: ,329 The population of the City is estimated to be as follows 1 : , , ,016 1 United States Department of Commerce; Census Bureau. Per capita income data for the City and the State are presented in the following table: Per Capita Income Year City State 2011 $43,782 $36, ,527 38, ,485 37, ,628 39, ,723 40,591 Source: United States Department of Commerce; Bureau of Economic Analysis. ECONOMIC PROFILE General. The City s economy is rooted in health care, biotechnology, medical research, education and manufacturing. Spin-off biotech companies from Duke University, located in the City, and The University of North Carolina at Chapel Hill and North Carolina State University nearby, add to the economic base. The education and skill level of the labor force is a major factor in attracting employers to the City. Over 40% of adults in the City possess at least a bachelor s degree, compared with 27% nationally. A-8

45 Employment. The North Carolina Employment Security Commission has estimated the percentage of unemployment in the City to be as follows: Percentage of Unemployment January 6.9% 4.7% 4.7% 4.8% 4.8% July 6.6% 5.2% 5.2% 4.8% 4.1% February August March September April October May November June December The table below lists, by corporate name, product or service and approximate number of employees the major employers in and within approximately one mile of the City. Ten Largest Employers As of June 30, 2017 Employer Type Approximate Number of Employees Duke University and Medical Center Education/Health Care 37,142 International Business Machines Computer Hardware and Software 7,000 Durham Public Schools Education 4,600 Blue Cross Blue Shield of North Carolina Insurance 4,000 Fidelity Investments Financial Services 3,700 Quintiles Transnational Corporation Pharmaceutical Development 3,000 Cree, Inc. Light and Semiconductor Products 2,600 Manufacturing Durham City Government City Government 2,466 GlaxoSmithKline, Inc. 1 Pharmaceuticals 2,400 Research Triangle Institute Research Park 2,200 Source: Greater Durham Chamber of Commerce, City payroll account, Durham Public Schools, United States Census Bureau. 1 In May 2017, GlaxoSmithKline sold its 20-building campus in Research Triangle Park. It signed a 10-year lease to continue to occupy 700,000 square feet across four buildings. A-9

46 Retail Sales. Taxable sales in the County for the fiscal years ended June 30, 2012 through 2016 are shown in the following table: Fiscal Year Ended June 30 Taxable Sales Total Taxable Sales (000 s) 2012 $4,434, % ,902, ,501, ,097, ,458, Source: North Carolina Department of Revenue, Sales and Use Tax Division. Increase Over Previous Year Construction Activity. New construction activity in the City is indicated by the following table showing the value of new construction and the number of building permits as indicated by City building permit records: Fiscal Year Ended June 30 Value of Building Permits (New Construction Only) Commercial Residential Number of Permits Value Number of Permits Value Total Value $84,221,284 1,062 $310,833,777 $395,055, ,498,168 1, ,120, ,618, ,890,874 1, ,500, ,391, ,517,208 1, ,333, ,850, ,853,658 1, ,508, ,362,554 Source: City Inspection Department. HEALTH CARE Known as the City of Medicine, the health care industry plays a major role in the City s economy. Duke University Health System employs approximately 17,500 people in the City and surrounding areas while Duke University s Schools of Medicine and Nursing together employ an additional approximately 11,000 people. Duke University Hospital is the flagship of the broader Duke University Health System, which also includes Duke Regional Hospital in the City and Duke Raleigh Hospital in Raleigh and more than 200 ambulatory care clinics. US News and World Report ranked Duke University Hospital as the top hospital in North Carolina for It is a 957-bed full-service tertiary and quaternary care hospital that also functions as a research hospital and as a teaching hospital for students of medicine, nursing and the allied health sciences. Duke Regional Hospital is a 369-bed acute care facility in the Duke University Health System that serves the health care needs of the City and the surrounding communities. The hospital offers a comprehensive range of medical, surgical, and diagnostic services, including A-10

47 orthopedics, weight-loss surgery, women's services, and heart and vascular services, and also offers care at the Duke Rehabilitation Institute and Davis Ambulatory Surgical Center. Durham VA Medical Center is also located in the City. It is a 271-bed tertiary care referral, teaching and research facility affiliated with Campbell University College of Pharmacy and Health Sciences, the University of North Carolina Eshelman School of Pharmacy and the Duke University School of Medicine. The Durham VA Medical Center provides general and specialty medical, surgical, psychiatric inpatient and ambulatory services, and serves as a major referral center for North Carolina, southern Virginia, northern South Carolina, and eastern Tennessee. BIOTECHNOLOGY AND MEDICAL RESEARCH The City surrounds the Research Triangle Park (the RTP ), which is the nation s largest research park. Although the RTP sits outside the city limits, it is a significant contributor to the City s economy. Over 260 companies and approximately 50,000 employees are located in RTP. The park covers 7,000 acres with 22,500,000 square feet of developed space. Major companies located in the RTP include BASF Corporation, IBM Corporation, Biogen Idec, Cisco Systems, and Fidelity Investments. Over 80% of the companies have a multi-national presence. In May 2017 Credit Suisse announced plans to expand its presence in RTP by investing $70.5 million in the construction of a new 200,000 square-foot office building in RTP to accommodate 1,200 new technology, finance and risk management job positions. In 2012 the RTP devised a master plan for the next 50 years. As part of the next stage of the RTP, the Research Triangle Park Foundation (the RTPF ), acquired 100 acres in 2014 to be developed as a mixed-use project known as Park Center, which is expected to include stores, restaurants, condos, apartments and office space. Development of the Park Center has not yet commenced. Treyburn Corporate Park ( Treyburn ) is a master planned 5,300-acre mixed use development that is home to various economic activities, including research and development activities. BioMerieux, a French medical diagnostics testing equipment company that manufactures nearly one half of the world s blood culture reagents, has its North American headquarters in Treyburn. Merck & Co. has a vaccine manufacturing campus in Treyburn. BD Biosciences manufactures a wide range of labware products at its facility in Treyburn. Purdue Pharma, which produces OxyContin and other pain medications, operates a 150,000 square-foot manufacturing facility in Treyburn. Quintiles IMS Holdings, Inc. ( QuintilesIMS ), the world s largest provider of biopharmaceutical development services and a Fortune 500 company, is headquartered in the City. Its worldwide network of more than 50,000 employees conducts business in approximately 100 countries. In October 2016, Quintiles Transnational Holdings Inc. completed its merger of equals with IMS Health Holdings, Inc., becoming QuintilesIMS, and keeping its headquarters in the City. A-11

48 EDUCATIONAL INSTITUTIONS The City is home to three institutions of higher education, including Duke University, a private university offering advanced degrees; North Carolina Central University, a constituent institution of The University of North Carolina System; and Durham Technical Community College, a part of the State system of community colleges and technical institutes. Duke University was founded in 1924 when James B. Duke designated the City s Trinity College as one of the principal beneficiaries of the Duke Endowment. Its campus spans over 8,600 acres on three campuses in the City known as the East campus, the West campus and Central campus. East campus is surrounded by established residential neighborhoods and is a short walking distance to the downtown district of the City. A majority of the University s academic programs and classes take place on the 720-acre West campus, which is about 1.5 miles from the East campus. Central campus consists of nearly 200 acres and provides housing for over 1,000 upper-class students. In the fall of 2016, the university had a full-time enrollment of 14,832 students. It employs approximately 8,435 persons outside of the Duke University Health System. For fall 2016 North Carolina Central University ( NCCU ) had 6,285 full-time undergraduate students and 1,801 full-time graduate students with additional part-time undergraduate and graduate students. Located adjacent to downtown Durham, NCCU is a comprehensive university offering programs at the baccalaureate, master s, professional and selected doctoral levels. It is the nation s first public liberal arts institution founded for African Americans. Durham Technical Community College ( DTCC ) had a headcount enrollment of approximately 7,300 curriculum students. As a community-based institution, DTCC provides educational opportunities for area residents and uses state and local resources for students learning activities. Approximately 8,420 persons participated in DTCC s continuing education programs during the school year. Community service is a continuing focus for the college s programs and activities. The North Carolina School of Science and Mathematics, a school for students gifted and talented in science and mathematics, is also located in the City. It is a constituent institution of The University of North Carolina. The school was the first public, residential, coeducational senior high school in the nation. Approximately 680 residential students live on campus. In addition, the school serves approximately 360 students through its online program, and more than 370 more through other distance education offerings. The University of North Carolina at Chapel Hill is located approximately 12 miles from the central business district of the City, and North Carolina State University is located in Raleigh approximately 23 miles from the central business district of the City. These neighboring universities and those within the City provide the community with employment opportunities as well as numerous cultural events and collegiate sports activities. A-12

49 MANUFACTURING Historically the base of the City s economy was the sale and processing of tobacco and the manufacturing of tobacco products. In the past 20 years, the tobacco industry has been phased out but manufacturing continues to be significant to the local economy with a number of manufacturers headquartered in the City including Cree, Inc., AW North Carolina Inc. and Burt s Bees. Cree, Inc. was formed in 1987 by researchers from North Carolina State University. The company manufactures LED fixtures, bulbs and chips and semiconductor products for power and radio-frequency applications. The company is in the process of constructing a new 400,000 square-foot building that will allow it to manufacture LED products in a more efficient manner. Cree employs approximately 2,600 in the City. AW North Carolina, Inc., a Toyota automotive component assembler, employs approximately 2,000 people in the City. Cormetech, a joint venture between Mitsubushi and Corning, develops and manufactures catalytic converters from its facility in the City. Burt s Bees, a subsidiary of The Clorox Company, makes products for personal care, health, beauty and personal hygiene. It manufactures almost 200 products in the City that are distributed in nearly 30,000 retail outlets in the United States, the United Kingdom, Ireland, Canada, Hong Kong and Taiwan. DOWNTOWN DEVELOPMENT According to Downtown Durham, Inc., from 2000 to 2017, the City experienced over $1.3 billion in public and private investments in the downtown area of the City. Recent and proposed downtown development includes more than 1,000 residential units, 450 hotel rooms, 25,000 square feet of retail, and 600,000 square feet of office space. In 2008 the Durham Performing Arts Center ( DPAC ) opened downtown adjacent to the Durham Bulls Athletic Park and the American Tobacco Campus, a downtown district started from an historic one-million-square-foot American Tobacco manufacturing plant. Owned by the City, DPAC is the largest performing arts center in the Carolinas. After setting attendance records in 2016 (over 490,000 guests), DPAC was once again ranked among the top five theaters in the nation based on sales and attendance according to three leading magazines that cover live entertainment events and venues. Adjacent to the DPAC, a 134-room Aloft Hotel with restaurant and retail space opened in As part of the public investment, the County developed a new Justice Center in the downtown area, which opened in 2013 and replaced the old Durham County Courthouse. It includes a parking structure to support its operations and is located adjacent to the current Durham County Detention Facility. The old Durham County Courthouse is undergoing a major renovation. It will be renamed the Durham County Administration Building and house various Durham County administrative offices. Completion is expected in the summer of Aspen-based Austin Lawrence Partners has begun an $88 million project in the center of the City called the One City Center project, which will include a 27-story tower and the A-13

50 renovation and reconstruction of several buildings. Construction on the tower is expected to be complete in Duke University will occupy 55,000 square feet with the rest of the tower reserved for 101 apartments and 31 condominiums with floor to ceiling glass. Boston-based Longfellow Real Estate Partners ( Longfellow ) has partnered with Measurement Inc., an educational company headquartered in the City, and Duke University to develop a 15-acre site in downtown into Durham s Innovation District (the Innovation District ). The master plan for the Innovation District, which is just west of the area around the Durham Bulls Athletic Park, calls for over one million square feet of laboratory and office space for life sciences and technology companies, as well as 300,000 square feet of residential space. Initial development of the Innovation District centered on renovating existing buildings such as a 112,000 square-foot former tobacco warehouse known as the Carmichael Building. It once housed Durham County Social Services but will now be home to Duke University s diabetes and obesity research center as well as its center for human genetics. Beyond restoration and renovation, construction in the Innovation District has commenced on two seven-story office buildings and a 1,200-vehicle, eight-story parking deck, representing an investment of close to $100 million. Duke Clinical Research Institute, the largest academic research organization in the world, has signed a lease to occupy all of the office space in one of the buildings. Construction of this phase is expected to be completed in the summer of Wexford Science+Technology recently completed redevelopment of a downtown cigarette manufacturing factory into a 286,000 square-foot science and technology center at a cost of approximately $128 million. Its first tenants include Duke University, Nutanix, California-based digital storage software firm, and BioLabs, a shared lab space model for startups and growing life science companies. Five new hotels have opened in or near the downtown area since 2015, including the Aloft Hotel adjacent to the DPAC. The Durham is a 53-room mid-century boutique hotel located in the former Home Savings Bank building. The 124-room 21c Museum Hotel resulted from the renovation of two buildings and includes a contemporary art museum. A 145-room Residence Inn by Marriott opened near Duke University s East campus. In July 2017, the Unscripted Durham became the newest hotel downtown. The 74-room, mid-century modern boutique hotel resulted from an approximately $24 million renovation of the old Jack Tar Motor Lodge. EDUCATION The County has a consolidated school system which is governed by a school board consisting of seven members who are elected to four-year terms. The City has no financial responsibility for any part of the school system. The budget for the school system is submitted to the Board of Commissioners for the County for approval, with the revenue coming from the federal, State and County governments. A-14

51 The following table shows the average daily membership for the Durham Public Schools for the current and past four school years: School Year Average Daily Membership 1 33,084 33,314 33,144 32,907 32,706 1 Average daily membership ( ADM ) (determined by actual records at the schools) is computed by the North Carolina Department of Public Instruction on a uniform basis for all public school units in the State. The ADM computations are used as a basis for teacher allotments and for distribution of local funds. For the school year, the month one figure is shown. For the other school years, the final ADM is shown. Source: North Carolina Department of Public Instruction. TRANSPORTATION There are currently over 300 linear miles of State-system streets within the corporate limits of the City. The City has an agreement with NCDOT whereby the City will maintain these streets and is reimbursed for all costs by the State. Expansion and betterment of the State-system streets and of federal highways within the corporate limits of the City are largely the responsibility of the State. The City s contribution to such projects is a portion of right-of-way acquisition costs and the occasional paving of State-system streets. Major expansions, maintenance and betterment of the local street system are solely the responsibility of the City. Such projects are financed with long-term bonds and current revenues. There are over 700 linear miles of local streets maintained by the City. The City is served by Interstate highways 40 and 85, U.S. highways 15, 70 and 501, and North Carolina highways 54, 55, 98 and 751. The City is also served by the Durham Freeway, which connects the City to the RTP to the south and connects with Interstate Highway 85 to the west. Raleigh-Durham International Airport ( RDU ) serves central North Carolina, providing service to an average of nine million passengers annually. RDU is home to eight air carriers and their regional partners. Combined, they fly customers to over 40 destinations on 400 flights daily RDU is governed by the eight-member Raleigh-Durham Airport Authority with two members each appointed by the City, the County, Wake County, and the City of Raleigh. An air cargo complex houses four cargo carriers. Two passenger terminals provide a total of 45 aircraft gates. The City is not financially responsible for any RDU indebtedness or operational expenses. The Durham Area Transit Authority ( DATA ) operates 27 bus routes that link residential areas with downtown Durham, Duke University, North Carolina Central University, hospitals, shopping centers, and other major employment centers. Of these routes, 24 radial routes connect at Durham Station in downtown Durham. There are also two cross-town routes and one connector route, which is a fare free route that links Duke University, downtown Durham and the Golden Belt campus east of downtown Durham. All buses are compliant with the Americans with Disabilities Act (ADA). Complementary ADA paratransit service is provided within the City limits through a special van service, called ACCESS. A-15

52 GoTriangle (formerly known as Triangle Transit) is the regional public transportation agency that provides bus, vanpool and ride-matching services in the Raleigh-Durham-Chapel Hill area and is engaged in the planning and implementation of major regional transit investments. In collaboration with the region s local governments and two Metropolitan Planning Organizations, GoTriangle has developed a Bus and Rail Investment Plan, which analyzes the initial bus and rail investments that would be the most successful in generating ridership, enhancing economic opportunities and providing mobility choices for the region. The Bus and Rail Investment Plan includes a recommendation to create the Durham-Orange Light Rail Transit Project, a 17-mile light rail project (with 17 stations and a Rail Operations Maintenance Facility) extending from southwest Chapel Hill to eastern Durham that would serve several educational, medical, and other key activity centers, including North Carolina Central University, The University of North Carolina at Chapel Hill and Duke University Medical Center. In July 2017 the Federal Transit Administration provided the approval needed for the light rail project to move to the engineering and design phase. PUBLIC SERVICE ENTERPRISES The City operates a water and sewer utility system (the System ). The service area of the System includes all of the City s incorporated area and significant portions of the County and the RTP, and the System serves approximately 89,000 connections. The City has contractual agreements in effect with the Orange Water and Sewer Authority, the Town of Cary, Chatham County, the Orange-Alamance Water System, the Town of Morrisville and the Town of Hillsborough to enable the systems to share water resources as needed. An additional interconnection with the City of Raleigh was recently completed. The City s water supply and distribution facilities currently supply approximately 28.0 million gallons per day ( MGD ) of water to its residential and non-residential customers. Wastewater collected by the City s sanitary sewer facilities is treated at two wastewater treatment plants, the North Durham Water Reclamation Facility and the South Durham Water Reclamation Facility. Both plants were upgraded and expanded in the mid-1990s and now have an aggregate permitted hydraulic capacity of 40 MGD. The collection system is served by 62 pump stations and approximately 1,100 miles of pipeline. Some areas in the southeastern part of the City receive service from the Durham County Wastewater Treatment Plant, which has a capacity of 12 MGD. The City also provides solid waste collection and disposal services. On July 1, 2013, Waste Industries, LLC began operating the City s transfer station. The refuse is hauled by a contractor from the City s transfer station to a regional landfill facility located in Roseboro, North Carolina. Electric service is provided by Duke Energy, and natural gas service is provided by Public Service of North Carolina, Inc. OTHER SERVICES The City also provides police and fire protection, parks and recreation facilities and programs, cemeteries, planning and community development. A-16

53 Along with the County, the City owns the Durham Convention Center in the downtown area of the City. The convention center includes more than 40,000 square feet of meeting space among 13 rooms and a 14,080 square-foot grand ballroom. The City also owns the 10,000-seat Durham Bulls Athletic Park in the downtown area of the City. The baseball stadium is leased to the Durham Bulls, a Class AAA affiliate of the Tampa Bay Rays, an American League baseball team. The City also owns the DPAC, a 2,712-seat theatre that has consistently been ranked as one of the top venues in the nation for its size. CONTINGENT LIABILITIES The City Attorney is unaware of any pending litigation or other contingent liabilities with respect to which there is a reasonable expectation of a loss which could have a substantial adverse impact on the City s financial position. With respect those matters actually pending as lawsuits and claims, the City intends to defend each matter vigorously. In the opinion of the City s attorney and management, the disposition of these matters is not expected to have a material adverse effect on the City s financial position. A-17

54 7KLVSDJHLQWHQWLRQDOO\OHIWEODQN1

55 APPENDIX B MANAGEMENT S DISCUSSION AND ANALYSIS AND THE BASIC FINANCIAL STATEMENTS OF THE CITY OF DURHAM, NORTH CAROLINA The City has not requested nor obtained the consent of its auditor to the inclusion of these financial statements in this Official Statement. In addition, the auditor did not participate in the preparation of this Official Statement.

56 7KLVSDJHLQWHQWLRQDOO\OHIWEODQN1

57 CITY OF DURHAM JUNE 30, 2017 Management s Discussion and Analysis (In Thousands) As management of the City of Durham our discussion and analysis of the City s financial performance provides an overview of the City s financial activities. The intent of this discussion and analysis is to look at the City s financial performance as a whole; please read it in conjunction with the transmittal letter and the basic financial statements to enhance your understanding of the City s financial performance. Financial Highlights The assets and deferred outflows of resources of the City of Durham exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $1,368,292. Of this amount, $74,963 may be used to meet the City s ongoing obligations to citizens and creditors. Total net position increased by $104,169, during the most recent fiscal year resulting from governmental and business-type activities. This amount includes a restatement in the amount of $(19,738) with a change in accounting principles for the treatment of a pension for law enforcement officers related to GASB Statement 73 on Accounting and Financial Reporting for Pensions. The increase in the governmental activities net position was $35,444 including the restatement while the increase in the business-type activities net position was $68,725, all of the restatement was related to governmental activities. The City of Durham has maintained its AAA General Obligation (G.O.) bond rating from all three bond rating agencies for the 17 th consecutive year. As of the close of the fiscal year, the City of Durham s governmental funds reported combined ending fund balances of $168,319, an increase of $517. The City of Durham s total debt decreased by $14,190 (3.7%) during the current fiscal year. This was primarily due to payments that reduced the principal amounts of General Obligation and Limited Obligation Bonds. For the fiscal year 2016 CAFR the City of Durham received the Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers Association for the 32 nd consecutive year, the Outstanding Achievement in Popular Financial reporting for the 13 th consecutive year and the Distinguished Budget Presentation Award for the 28 th consecutive year. Overview of the Financial Statements The City of Durham s discussion and analysis is intended to serve as an introduction to the City of Durham s basic financial statements. The City of Durham s basic financial statements consist of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements (see Figure 1). The basic financial statements present two different views of the City through the use of government-wide statements and fund financial statements. The discussion and analysis is also designed to (a) assist the reader in focusing on significant financial issues, (b) provide an overview of the City s financial activity, (c) identify changes in the City s financial position (its ability to address the next and subsequent year s challenges), (d) identify any material deviations from the financial plan (the approved budget), and (e) identify individual fund issues or concerns. Since the Management s Discussion and Analysis (MD&A) is designed to focus on the current year s activities, resulting changes and currently known facts, please read it in conjunction with the Transmittal Letter and the City s financial statements. B-1

58 CITY OF DURHAM MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2017 Basic Financial Statements The first two statements (Exhibits A-1 and A-2) in the basic financial statements are the Governmentwide Financial Statements. They provide both short and long-term information about the City s financial status. The next statements (Exhibits A-3 through A-9) are Fund Financial Statements. These statements focus on the activities of the individual parts of the City s government. These statements provide more detail than the government-wide statements. There are three parts to the Fund Financial Statements: 1) the governmental funds statements; 2) the budgetary comparison statements and 3) the proprietary fund statements. The next section of the basic financial statements is the notes. The notes to the financial statements explain in detail some of the data contained in those statements. After the notes, supplemental information is provided to show details about the City s individual funds. Budgetary information required by the General Statutes also can be found in this part of the statements. Government-wide Financial Statements The government-wide financial statements are designed to provide readers with a broad overview of the City of Durham s finances in a manner similar to a private-sector business. The statement of net B-2

59 CITY OF DURHAM MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2017 position presents information on all of the City of Durham s assets, deferred outflows of resources, liabilities deferred inflows of resources, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City of Durham is improving or deteriorating. The statement of activities presents information showing how the government s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of the City of Durham that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of Durham include General Government, Public Safety, Streets and Highways, Development, General Services, Parks and Recreation. The business-type activities of the City of Durham include Water and Sewer, Parking Facilities, Transit, Solid Waste Management, Golf Course, Durham Performing Arts Center, Ballpark and Storm Water Management. The government-wide financial statements include not only the City of Durham itself, but also a legally separate non-profit corporation for which the City of Durham is financially accountable. The New Durham Corporation (NDC) is legally separate from the City, although the NDC is reported as if it were a part of the government because its purpose is to finance City revitalization projects and purchases of capital equipment. All NDC activities are included in the funds in which the activity takes place. The government-wide financial statements can be found on pages of this report. Fund Financial Statements The fund financial statements are a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Durham, 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 of Durham can be divided into two categories: governmental funds and proprietary funds. Governmental Funds - Governmental funds are used to account for those functions reported as governmental activities in the government-wide financial statements. Most of the City s basic services are accounted for in governmental funds. These funds focus on how assets can readily be converted into cash flow in and out, and what monies are left at year-end that will be available for spending in the next year. Governmental funds are reported using an accounting method called modified accrual accounting, which provides a short-term spending focus. As a result, the governmental fund financial statements give the reader a detailed short-term view that helps him or her determine if there are more or less financial resources available to finance the City s programs. The relationship between government activities (reported in the Statement of Net Position and the Statement of Activities) and governmental funds is described in a reconciliation that is a part of the fund financial statements. The City of Durham adopts an annual budget for its General and Debt Service Funds, as required by the General Statutes. The budget is a legally adopted document that incorporates input from the citizens of the City, the management of the City, and the decisions of the City Council about which services to provide and how to pay for them. It also authorizes the City to obtain funds from identified sources to finance these current period activities. The budgetary statement provided for the General B-3

60 CITY OF DURHAM MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2017 Fund demonstrates how well the City complied with the budget ordinance and whether or not the City succeeded in providing the services as planned when the budget was adopted. The budgetary comparison statement uses the budgetary basis of accounting and is presented using the same format, language, and classifications as the legal budget document. The statement shows four columns: 1) the original budget as adopted; 2) the final budget as amended; 3) the actual resources, charges to appropriations, and ending balances in the General Fund; and 4) the difference or variance between the final budget and the actual resources and charges. The basic governmental fund financial statements can be found on pages Proprietary Funds - The City of Durham has two different kinds of proprietary funds. Enterprise Funds are used to report the same functions presented as business-type activities in the government-wide financial statements. These services include Water and Sewer, Parking Facilities, Transit, Solid Waste Management, Durham Performing Arts Center, Ballpark, Golf Course and Storm Water Management. They are the same as those functions shown in the business-type activities in the Statement of Net Position and the Statement of Activities. Internal Service Funds are used as an accounting device to accumulate and allocate costs internally among other funds. The City uses two internal service funds, one to account for risk management and claims settlement activities and a second to account for health and dental insurance. The health fund also includes payments for Other Post-Employment Benefits. Because the Internal Service Funds are predominantly governmental rather than business-type activities, both funds have been included within the governmental activities in the government-wide financial statements. The proprietary funds financial statements can be found on 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. The notes to the financial statements are on pages Other Information In addition to the basic financial statements and accompanying notes, this report includes certain required supplementary information concerning the City of Durham s progress in funding its obligation to provide pension benefits and other post-employment benefits to its employees. Required supplementary information can be found on pages Interdependence with Other Entities The City depends on financial resources flowing from, or associated with, both the Federal Government and the State of North Carolina. Because of this dependency, the City is subject to changes in specific flows of intergovernmental revenues based on modifications to Federal and State laws and Federal and State appropriations. It is also subject to changes in investment earnings and asset values associated with U.S. Treasury Securities because of actions by foreign government and other holders of publicly held U.S. Treasury Securities. The remainder of this page intentionally left blank B-4

61 CITY OF DURHAM MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2017 Government Wide Financial Statement Analysis The following reflects the Net Position compared to the prior year: Statement of Net Position (in thousands) Governmental Business-type Activities Activities Total Current and other assets $ 212,280 $ 212,010 $ 210,046 $ 213,278 $ 422,326 $ 425,288 Capital assets, Net 657, , , ,718 1,472,879 1,344,221 Total Assets 869, ,513 1,025, ,996 1,895,205 1,769,509 Deferred outflow of resources 34,881 9,868 15,801 5,336 50,682 15,204 Long-term liabilities outstanding 309, , , , , ,643 Other liabilities 54,062 52,141 39,918 30,708 93,980 82,849 Total Liabilities 363, , , , , ,492 Deferred inflows of resources 4,159 4,880 1,105 1,218 5,264 6,098 Net position: Net investment in capital assets 472, , , ,134 1,155, ,840 Restricted 125,977 63,759 12, ,261 63,759 Unrestricted (61,210) 43, , ,178 74, ,524 Total net position $ 537,255 $ 501,811 $ 831,037 $ 762,312 $ 1,368,292 $ 1,264,123 For more detailed information see the Statement of Net Position on pages Net position may serve over time as one useful indicator of a government's financial condition. The net position and deferred outflows of the City exceeded liabilities and deferred inflows by $1,368,292 at June 30, At June 30, 2016 the amount was $1,264,123. Net position is reported in three categories: Net Investment in capital assets of $1,155,068; restricted net position of $138,261; and unrestricted net position $74,963. At June 30, 2016, these amounts were $982,839, $63,760 and $217,524, respectively. The net investment in capital assets is reported net of the outstanding related debt and is defined as the City's investment in City owned capital assets (e.g. land, land rights, buildings, automotive equipment, office and other equipment, and sewer lines), less any related debt still outstanding that was issued to acquire those items. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City's investment in its capital assets is reported net of the outstanding related debt, the resources needed to repay that debt must be provided by other sources, since the capital assets cannot be used to liquidate these liabilities. B-5

62 CITY OF DURHAM MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2017 Restricted net position of $138,261 represents resources that are subject to external restrictions on how they may be used. The following is a schedule of revenues and expenses for the current fiscal year. Changes in Net Position (in thousands) Governmental Business-type Activities Activities Total Revenues: Program revenues: Charges for services $ 31,790 $ 26,051 $ 143,691 $ 132,874 $ 175,481 $ 158,925 Operating grants and contributions 16,501 19,747 10,288 8,780 26,789 28,527 Capital grants and contributions 35,389 12,096 28,547 25,959 63,936 38,055 General revenues: Property taxes 128, ,323 28,570 24, , ,915 Other taxes 75,262 71,185 1,527 1,646 76,789 72,831 Other 3,092 2,494 1,256 1,433 4,348 3,927 Total revenues 290, , , , , ,180 Expenses: General government 39,845 40, ,845 40,408 Public safety 98,969 94, ,969 94,882 Development 28,060 22, ,060 22,734 General services 17,493 16, ,493 16,347 Parks and recreation 15,991 15, ,991 15,200 Streets and highways 29,080 27, ,080 27,831 Interest on long-term debt 4,470 7, ,470 7,407 Water and sewer ,969 74,279 78,969 74,279 Parking facilities - - 4,389 4,944 4,389 4,944 Transit ,486 23,826 25,486 23,826 Solid waste management ,841 20,570 21,841 20,570 Performing Arts - - 2,612 2,671 2,612 2,671 Ballpark - - 1,879 1,706 1,879 1,706 Storm water management ,714 10,534 11,714 10,534 Golf course Total expenses 233, , , , , ,461 Increase in net position before transfers 57,040 33,087 66,867 56, ,907 89,719 Transfers (1,858) (1,933) 1,858 1, Increase in net position 55,182 31,154 68,725 58, ,907 89,719 Net position, July 1 501, , , ,747 1,264,123 1,185,897 Restatement (19,738) (11,493) - - (19,738) (11,493) Restated net position July 1 482, , , ,747 1,244,385 1,174,404 Net position, June 30 $ 537,255 $ 501,811 $ 831,037 $ 762,312 $ 1,368,292 $ 1,264,123 B-6

63 CITY OF DURHAM MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2017 Pension Restatement Effective July 1, 2016, the City of Durham adopted the provisions of Governmental Accounting Standards Board (GASB) Statement 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain provisions of GASB Statements 67 and 68. This implementation required a prior period adjustment of $19,738 for the Law Enforcement Separation Allowance pension resulting in a restatement of Net Position. Governmental Activities Governmental activities increased the City s net position by $55,182 prior to the restatement, this accounted for approximately 44.5% of the total growth of net position. Total property tax revenues ($128,914) credited to governmental activities was 2.1% more than property taxes collected ($126,324) in the prior fiscal year. Property tax revenues covered 55.1% of governmental activity expenses ($233,908). This is a 1.1% decrease from the prior year. Charges for services revenues increased 22.0%. This increase follows a decrease of approximately 1.3% in the previous year, 2016, and a decrease of 22.5% in The Streets and Highway and the Development functions had the largest increases. They were approximately $2.9M and $2.3M respectively. Other taxes ($75,262) were up 5.7% from the prior year ($71,185). This was primarily due increases of approximately $3.8M in sales taxes. In addition capital contributions were approximately $35.4M an increase from last fiscal year of approximately $9.4M primarily due to streets and sidewalks donated by developers. Governmental Revenues 17.8% 10.9% 1.0% 44.4% Property Taxes $128.9M Other Taxes $75.3M Operating and Capital Grants $51.6M Charges for Services $31.8M All Other $3.1M 25.9% Total Governmental Revenues = $290.7 Million * All other includes investment, rental and miscellaneous earnings. There was an overall increase in governmental expenses from $224,809 to $233,908 (4.0%). The City s largest program Public Safety accounted for approximately 40.6% of all expenses in governmental activities, a decrease from the prior year when it was approximately 42.2%. The spending in the function increased approximately $4.1M due to the implementation of a new pay plan for both law enforcement and firefighter employees. The Development function had the highest percentage increase of 23.4% and was approximately $5.4M. In the prior fiscal year the increase was B-7

64 CITY OF DURHAM MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2017 approximately 25.5% and the continued increases are primarily due to the increase of housing and rehabilitation projects. Governmental Expenses 6.8% 1.9% Public Safety $99.0M 12.0% 7.5% 42.3% General Government $39.8M Streets and Highways $29.1M Development $28.1M General Services $17.4M 12.5% 17.0% Parks and Recreation 16.0M Interest on Long-Term Debt $4.5M Total Governmental Expenses = $233.9 Million Business-type Activities Business-type activities increased the City of Durham s net position by $68,725. The key elements of this increase was in the Water and Sewer Fund where capital contributions were approximately $28.6M primarily due to sewer lines donated by developers as new homes and sub-divisions are being completed and operating revenue increase of approximately $8.1M (8.3%). Business Type Program Revenues = $182.5 Million 4.0% 3.9% 8.6% Water and Sewer $134.0M 10.1% Storm Water Management $18.5M Transit $15.7M Solid Waste Management $7.2M 73.4% Other $7.1M B-8

65 CITY OF DURHAM MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2017 Total Business Type Expenses $147.0 Million 6.1% 8.0% Water and Sewer $79.0M 14.9% 17.3% 53.7% Transit $25.5M Solid Waste Management $21.8M Storm Water Management $11.7M Other $9.0M * Other includes Durham Performing Arts Center, Durham Bulls Athletic Park, Golf Course and Parking Facilities Financial Analysis of the City s Funds Governmental Funds The focus of the City s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City s financing requirements. In particular, 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 of Durham. There was a slight decrease in fund balance in the General Fund from $84,553 to $83,084 was primarily due to an increase in public safety and development where there was increase in spending of approximately $3.6M and $5.0M respectively. The City has adopted a policy to maintain the General Fund Unassigned Fund Balance in an amount no less than the greater of 12 percent of the current year s originally adopted Adjusted Budgeted Expenditures, or the amount required by the Local Government Commission. At the end of the current fiscal year, unassigned fund balance of the General Fund was $50,088, while total fund balance is $83,084. As a measure of the general fund s liquidity, it may be useful to compare both unassigned fund balance and total fund balance to total fund expenditures. Unassigned fund balance represents 28.4% of total adjusted General Fund expenditures using the calculation formula derived from the policy, while total fund balance represents 47.1% of that same amount. The remainder of fund balance is not available for new spending because it is already categorized in the following classifications by GASB 54: B-9

66 CITY OF DURHAM MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2017 Non-spendable; includes inventories. Restricted; restricted by state statute and grant expenditures, for public safety, community development, economic development, and parks and recreation. Assigned; restricted due to debt covenants that will be used to make future debt payments and maintenance of the City s cemetery. Committed; for capital projects. Refer to the notes to the financial statements for additional details. Proprietary Funds The City s proprietary funds provide the same type of information found in the government-wide statements but in more detail. Unrestricted net position of the proprietary funds at the end of the fiscal year amounted to: Water and Sewer Utility $118,924 Parking Facilities $1,710 Transit $2,834 Solid Waste Disposal $(5,398) Durham Performing Arts Center $7,260 Ballpark $1,048 Storm Water Management $11,337 Golf Course $0 The Water and Sewer Utility Fund overall unrestricted net position decreased approximately $20.6M which was primarily due to construction and acquisition in capital assets. Storm Water unrestricted net position decreased approximately $18.8M due investment in capital assets and a restriction of $12.3M in the Storm Water Surety Fund, overall Net Position increased $6.8M primarily due to income from operations. The Transit Fund deficit that was eliminated last fiscal year has continued this fiscal year with the unrestricted amount increase approximately $2.4M after increasing last fiscal year by approximately $1.8M. This was primarily due to increases in property taxes allocated to the fund. Budgetary Highlights During the fiscal year, the City revised the budget on eight occasions. Generally, budget amendments fall into one of four categories: 1) amendments made to adjust the estimates that are used to prepare the original budget ordinance once exact information is available; 2) amendments made to recognize new funding amounts from external sources, such as Federal and State grants; 3) increases in appropriations that become necessary to maintain services and 4) amounts that are carried over from the prior year and re-designated for the subsequent year s expenditures. The most significant change in the budget was to the Water and Sewer Utility Fund ($56.4M) and was related to debt refunding. General Fund The following functions in the General Fund had significant variances between final budget and actual expenditures. Governance had $2,695 less in expenditures than what was budgeted, a 19.0% variance. This was primarily due to a savings in economic development where incentives that were not paid and are being carried into the next fiscal year. Community Development had $8,435 less in expenditures than was budgeted, a 12.8% variance, which was primarily due to reduction in costs in the Parks and Recreations and Property, Public Works and Facility Management functions. The savings were due to both personnel costs because of vacancies and reduced operating expenditures. Non-departmental B-10

67 CITY OF DURHAM MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2017 had $2,582 less in expenditures than was budgeted 21.8% variance, which was primarily due to savings in amounts set aside for personnel services and related benefits. Additional detailed information on the General Fund budget to actual can be found in the accompanying financial statements on pages Capital Asset and Debt Administration Capital Assets The City s investment in capital assets for its governmental and business type activities as of June 30, 2017, totals $1,472,879, an increase of $128,658 from June 30, 2016, when the amount was $1,344,221. These assets include buildings, infrastructure, land, machinery and equipment, park facilities, vehicles, water and sewer lines, and construction in progress. The increase in governmental activities was primarily to infrastructure additions and improvements. Increases in the business-type activities were primarily due to added infrastructure, added water and sewer lines in the downtown area and those lines donated by developers. Major capital asset transactions during the year include the following: Governmental-type activities: Increase in construction in progress for capital assets $12,582 Increase building and infrastructure $51,601 Increase in furniture and equipment $4,494 Business-type activities: Increase in construction in progress for capital assets $56,174 Increase in building and infrastructure $36,580 Increase in furniture and equipment $1,178 Increase in capitalized interest $1,178 Governmental Capital Assets, Net (in thousands) Business-type Activities Activities Total Land $ 48,638 $ 42,285 $ 45,505 $ 44,885 $ 94,143 $ 87,170 Buildings, equipment and depreciable assets 574, , , ,304 1,258,635 1,205,705 Construction in progress 34,398 21,817 85,703 29, ,101 51,346 Total $ 657,619 $ 599,503 $ 815,260 $ 744,718 $ 1,472,879 $ 1,344,221 See Note III, D of this report for additional information. B-11

68 CITY OF DURHAM MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2017 Debt Administration As of year-end, the City had $368,736 in debt (e.g., bonds, notes) outstanding compared to $382,925 in the prior fiscal year a 3.7% decrease. Outstanding Debt (in thousands) Governmental Business-type Activities Activities Total General obligation bonds $ 140,563 $ 149,284 $ 39,133 $ 46,543 $ 179,696 $ 195,827 Revenue bonds ,120 59,040 63,120 59,040 Certificates of Participation/Limited Obligation Bonds 45,088 53,054 45,263 48,353 90, ,407 Bond Anticipation Notes 18,719 6, ,719 6,757 Installment Financing 4,210 5,833 2,365 3,252 6,575 9,085 Section 108 loan 7,425 7, ,425 7,785 State of North Carolina Durham County - - 2,175 2,214 2,175 2,214 Total $ 216,005 $ 222,713 $ 152,731 $ 160,212 $ 368,736 $ 382,925 See Note III, G of this report for additional detailed information. As mentioned in the financial highlights section of this document, the City maintained for the seventieth consecutive year its AAA G.O. bond rating from Moody s Investor Service, Standard and Poor s Corporation and Fitch Ratings. This bond rating is a clear indication of the sound financial condition of the City. The City of Durham maintains this highest financial rating from all three major rating agencies. This achievement is a primary factor in keeping interest costs low on the City s debt. On April 21, 2017 General Obligation Refunding Bonds were issued in the amount of $18,110 for the refunding of $18,075 Series 2007 General Obligation Bonds. The refunding was undertaken to reduce total future debt service payments by acquiring a lower interest rate. The transaction also resulted in a savings of $1,826 in future debt service payments. On September 21, 2016, the City of Durham issued Revenue Refunding Bonds Series 2016 in the amount of $46,715. The Bonds are being issued for the purpose of refunding a portion of the City's water and sewer utility system Revenue Refunding Bonds, Series 2011 maturing on or after June 1, and to pay the costs incurred in connection with the issuance of the 2016 Bonds. The transaction resulted in a savings of $8,080 in future debt service payments. The City is subject to State Statutes of North Carolina that limits the net bonded debt the City may have outstanding to eight percent of the appraised value of property subject to taxation. At June 30, 2017 B-12

69 CITY OF DURHAM MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2017 such statutory limit for the City was $2,222,332 providing a debt margin of $1,963,250. The City does not have any unissued general obligation bonds that are authorized and unissued at June 30, 2017 Additional information regarding the City s long-term debt can be found in the notes to the financial statements. Budget Highlights for the Fiscal Year Ending June 30, 2018 As noted in the above discussion and analysis the financial results for the year ended June 30, 2017 continued to show improvements year over year, reflecting more positive trends in the local and national economy. The improvements in property tax, sales tax and certain growth related revenues are projected to continue for fiscal year 2018 and combined with ongoing diligent management of City expenses, should result in the City again meeting our fund balance goals and maintaining our general credit ratings. Through these budget plans City management and staff remain committed to providing Durham citizens a high quality of service at a reasonable cost. The comparisons below are based on year to year budgeted amounts. Governmental Activities General Fund o The General Fund budget increased 4.3% from $181,640 to $189,448. o o The tax base is projected to grow 5.3% from the FY 2017 budget. Sales tax is projected at 8.9% growth rate and Hotel/Motel Occupancy Tax is projected to grow at a 7.00% rate. o The FY budget appropriates $6.1 million from fund balance which is a 20.5% decrease from FY Due to the substantial savings in Fiscal Year , the City is poised to have a 27.55% general fund balance to safeguard against economic uncertainty or emergency conditions o o Employee compensation - Salaries are projected to grow at 4.00% for general employees, 5% for sworn police (0.5% increase) and 5% for fire employees (1.0% increase). Following recommendations from City Council, the budget eliminates additional fees for youth/teens in an attempt to increase turnout by decreasing potential barriers to access. For FY , eliminated fees for youth/teens will include: Daily Passes, Lap Swim, and Outdoor Pool Admissions. Debt Service Fund o General Property Taxes represents the portion of the City s tax rate that is dedicated to the Debt Service Fund and for FY 2018, the rate is cents per $100 valuation. o The budget for FY 2018 increased 4.0% from $37,357 to 38,835. Capital Projects o Included is $20.5 million for a new downtown parking garage. o Construction of the new Police Headquarters with a cost of approximately $71.3 Million. o Funding for Fire Station 17 Staffing (30 FTEs) to add two new fire companies to Fire Station 17 to account for the current and projected increase in population density. o Amounts for street resurfacing will be increased to $6,600 from $3,000 in the previous fiscal year. Affordable Housing o The FY budget includes funding for the Dedicated Housing Fund to support the Five Year Affordable Housing Plan. This plan will allow the City to create, preserve or repair 1,150 affordable units over five years. Each year the plan aims to create 75 B-13

70 CITY OF DURHAM MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2017 affordable rental homes, preserve 70 rental homes and create or repair 70 owner occupied homes. Business-type Activities Water and Sewer o A $100.2 million budget to support water and sewer operations. o A moderate rate increase of 2.6% for the average customer. o Water and wastewater Capital Improvement Program (CIP) projects total $121.5 million to improve the infrastructure required to ensure adequate water supply, treatment and delivery for FY Solid Waste Fund o General Property Taxes represents the portion of the City s tax rate that is dedicated to the Solid Waste Fund and for FY 2018, the rate is 6.29 cents per $100 valuation. o The budget for FY 2018 increased 7.4% from $23,384 to $25,115. StormWater Management Fund o The budget was flat from FY 2017 to FY 2018 decreasing slightly from $15,549 to $15,529 for FY Transit Fund o General Property Taxes represents the portion of the City s tax rate that is dedicated to the Transit Fund and for FY 2018, the rate is 3.56 cents per $100 valuation. o The budget for FY 2018 decreased 4.1% from $22,579 to $21,664. Parking Facilities Fund o The budget for FY 2018 increased 10.5% from $5,411 to $5,977. o There is a monthly rate increase for parking garages and surface lots made from recommendations of a parking study that was completed during FY o A new downtown garage is also in planning stages and is being funded through the Capital Improvements Program. Financial Contact The City s financial statements are designed to present users (citizens, taxpayers, customers, investors and creditors) with a general overview of the City s finances and to demonstrate the City s accountability. If you have questions about the report or need additional financial information, contact the City s Director of Finance at City Hall 101 City Hall Plaza, Annex, Durham, North Carolina B-14

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72 CITY OF DURHAM, NORTH CAROLINA Exhibit A-1 Statement of Net Position June 30, 2017 Total Governmental Business-type Primary Activities Activities Government ASSETS Current assets Cash and cash equivalents/investments $ 163,864,435 $ 167,891,029 $ 331,755,464 Taxes receivable, net 737, ,161 Accounts receivable, net 2,156,482 22,061,197 24,217,679 Assessments receivable, net 144, , ,436 Notes receivable 12,984,993-12,984,993 Due from governmental agencies 23,131,210 6,202,531 29,333,741 Prepaids - 940, ,851 Inventories 530,661 1,883,331 2,413,992 Total current assets 203,549, ,302, ,852,317 Non-current assets Investment in joint venture 7,188,352-7,188,352 Restricted cash and cash equivalents/investments 1,132 12,283,850 12,284,982 Internal balances 1,540,444 (1,540,444) - Capital assets Land and other nondepreciable assets 83,036, ,207, ,244,003 Buildings, equipment and depreciable assets net of accumulated depreciation 574,582, ,051,983 1,258,634,797 Total noncurrent assets 666,349, ,003,130 1,492,352,134 Total assets 869,898,594 1,025,305,857 1,895,204,451 DEFERRED OUTFLOWS OF RESOURCES Pension deferrals 30,152,023 8,034,001 38,186,024 Charge on refunding 4,728,917 7,766,900 12,495,817 Total deferred outflows of resources 34,880,940 15,800,901 50,681,841 The notes to the financial statements are an integral part of this statement. B-16

73 CITY OF DURHAM, NORTH CAROLINA Exhibit A-1 Statement of Net Position June 30, 2017 Total Governmental Business-type Primary Activities Activities Government LIABILITIES Current liabilities Accounts payable $ 9,370,476 $ 15,877,916 $ 25,248,392 Accrued payroll 2,382, ,466 2,969,274 Employee taxes and related withholdings 3,911,901-3,911,901 Accrued interest 2,323,645 3,189,944 5,513,589 Deposits and payments held in escrow 4,114,065 5,357,738 9,471,803 Due to Durham County - 13,180 13,180 General obligation and revenue bonds payable 13,245,639 8,513,951 21,759,590 Due to the State of North Carolina - 675, ,000 Accrued compensated absences 5,707,774 1,446,870 7,154,644 Limited obligation bonds 6,356,437 3,268,563 9,625,000 Bank loan 1,200, ,000 1,875,000 Section 108 loan payable 365, ,000 Landfill post closure costs - 313, ,549 Pending claims 5,084,141-5,084,141 Total current liabilities 54,061,886 39,918,177 93,980,063 Non-current liabilities Due to Durham County - 2,162,227 2,162,227 General obligation and revenue bonds payable 127,316,909 93,738, ,055,762 Limited obligation bonds 38,731,697 41,993,853 80,725,550 Bank loan 3,010,000 1,690,000 4,700,000 Section 108 loan payable 7,060,000-7,060,000 Bond anticipation notes 18,719,255-18,719,255 Accrued compensated absences 4,131, ,744 4,875,106 Landfill post closure costs - 6,394,576 6,394,576 Net OPEB obligation 49,739,902 12,928,941 62,668,843 Net pension liability 55,936,119 9,394,204 65,330,323 Pending claims 4,658,187-4,658,187 Total long-term liabilities 309,303, ,046, ,349,829 Total liabilities 363,365, ,964, ,329,892 DEFERRED INFLOWS OF RESOURCES Prepaid taxes 175, ,906 Pension deferrals 2,764, ,155 3,312,670 Bond refunding 627, ,901 1,184,895 Assessments and unavailable revenues 590, ,747 Total deferred inflows of resources 4,159,162 1,105,056 5,264,218 NET POSITION Net investment in capital assets 472,488, ,579,846 1,155,068,290 Restricted for Stabilization by State Statute 106,285, ,285,593 Grantors 19,691,006-19,691,006 Stormwater Surety - 12,283,850 12,283,850 Unrestricted (61,209,988) 136,173,431 74,963,443 Total net position $ 537,255,055 $ 831,037,127 $ 1,368,292,182 The notes to the financial statements are an integral part of this statement. B-17

74 CITY OF DURHAM, NORTH CAROLINA Exhibit A-2 Statement of Activities For the Year Ended June 30, 2017 Program Revenues Operating Capital Charges for Grants and Grants and Functions/Programs Expenses Services Contributions Contributions Primary government Governmental activities General government $ 39,845,120 $ 6,018,100 $ 2,243,826 $ - Public safety 98,969,108 2,804,722 2,736,692 - Development 28,060,454 9,562,757 7,071,196 - General services 17,492,528 3,475, ,959 - Parks and recreation 15,990,674 2,806,940 40,000 - Streets and highways 29,080,147 7,122,187 4,242,319 35,388,850 Interest on long-term debt 4,470, Total governmental activities 233,908,474 31,790,097 16,500,992 35,388,850 Business-type activities Water and sewer 78,968, ,892, ,364 28,547,021 Parking facilities 4,388,572 3,987, Transit 25,485,992 6,004,255 9,701,805 - Solid waste management 21,841,008 7,242, Performing arts 2,612,508 2,771, Ballpark 1,878, , Storm water management 11,714,421 18,494, Golf course 122, Total business-type activities 147,011, ,691,344 10,288,169 28,547,021 Total primary government $ 380,920,446 $ 175,481,444 $ 26,789,161 $ 63,935,871 The notes to the financial statements are an integral part of this statement. B-18

75 CITY OF DURHAM, NORTH CAROLINA Exhibit A-2 Statement of Activities For the Year Ended June 30, 2017 Net Expense (Revenue) and Changes in Net Position Primary Government Governmental Business-type Functions/Programs Activities Activities Total Primary government: Governmental activities General government $ (31,583,194) $ - $ (31,583,194) Public safety (93,427,694) - (93,427,694) Development (11,426,501) - (11,426,501) General services (13,850,178) - (13,850,178) Parks and recreation (13,143,734) - (13,143,734) Streets and highways 17,673,209-17,673,209 Interest on long-term debt (4,470,443) - (4,470,443) Total governmental activities (150,228,535) - (150,228,535) Business-type activities Water and sewer - 55,057,750 55,057,750 Parking facilities - (400,811) (400,811) Transit - (9,779,932) (9,779,932) Solid waste management - (14,598,366) (14,598,366) Performing arts - 159, ,446 Ballpark - (1,581,476) (1,581,476) Storm water management - 6,780,121 6,780,121 Golf course - (122,170) (122,170) Total business-type activities - 35,514,562 35,514,562 Total primary government (150,228,535) 35,514,562 (114,713,973) General revenues Taxes Property taxes, levied for general purposes 128,914,020 28,569, ,483,808 Sales taxes 60,708,578-60,708,578 Other taxes 111, , ,474 Utility Franchise taxes 5,423,464-5,423,464 Gasoline tax (Powell Bill) 6,223,354-6,223,354 Hotel & Motel taxes 2,795,519 1,359,828 4,155,347 Unrestricted investment and rental earnings 1,474,371 1,256,062 2,730,433 Miscellaneous 1,617,605-1,617,605 Transfers (1,857,733) 1,857,733 - Total general revenues and transfers 205,410,188 33,210, ,621,063 Change in net position 55,181,653 68,725, ,907,090 Net position - beginning 501,811, ,311,690 1,264,123,076 Restatement (19,737,984) - (19,737,984) Net position - beginning, restated 482,073, ,311,690 1,244,385,092 Net position - ending $ 537,255,055 $ 831,037,127 $ 1,368,292,182 The notes to the financial statements are an integral part of this statement. B-19

76 CITY OF DURHAM, NORTH CAROLINA Exhibit A-3 Balance Sheet Governmental Funds June 30, 2017 Non-major Total Housing Debt Governmental Governmental General Projects Service Funds Funds ASSETS Cash and cash equivalents $ 73,753,906 $ 3,188,345 $ 8,298,191 $ 64,342,649 $ 149,583,091 Restricted cash - - 1,132-1,132 Receivables, net Taxes receivable 737, ,161 Accounts receivable 1,165,636 53, ,501 1,736,534 Assessments receivable 197, ,433 Notes receivable - 5,395,437-7,589,556 12,984,993 Total receivables 2,100,230 5,448,834-8,107,057 15,656,121 Due from government agencies 21,234, ,918 1,667,127 23,130,690 Due from other funds ,317,430 5,317,430 Inventories 530, ,661 Total assets $ 97,619,442 $ 8,637,179 $ 8,528,241 $ 79,434,263 $ 194,219,125 The notes to the financial statements are an integral part of this statement. B-20

77 CITY OF DURHAM, NORTH CAROLINA Exhibit A-3 Balance Sheet Governmental Funds June 30, 2017 Non-major Total Housing Debt Governmental Governmental General Projects Service Funds Funds LIABILITIES Accounts payable and accrued liabilities $ 4,906,860 $ - $ 64,421 $ 4,081,213 $ 9,052,494 Accrued payroll 2,279, ,575 2,403,213 Due to other funds ,317,430 5,317,430 Employee taxes and related withholdings 3,911, ,911,901 Deposits and payments held in escrow 2,715, ,733,711 4,448,872 Total liabilities 13,813,560-64,421 11,255,929 25,133,910 DEFERRED INFLOWS OF RESOURCES Assessments and unavailable revenues 546, , ,746 Prepaid taxes 175, ,906 Total deferred inflows of resources 722, , ,652 FUND BALANCES Nonspendable Inventories 530, ,661 Restricted Stabilization by State Statute 32,445, ,728-73,439, ,285,594 Other functions - 5,395,436-14,295,570 19,691,006 Committed Capital projects - 2,841,015-21,691,170 24,532,186 Assigned Other purposes 19,139-8,463,820-8,482,959 Unassigned 50,087, (41,291,707) 8,796,158 Total fund balances 83,083,507 8,637,179 8,463,820 68,134, ,318,564 Total liabilities, deferred inflows of resources and fund balances $ 97,619,442 $ 8,637,179 $ 8,528,241 $ 79,434,263 Amounts reported for governmental activities in the statement of Net Position (Exhibit A-1) are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in funds. 657,619,076 Other long-term assets (notes receivable & deposits) are not available to pay for current-period expenditures and therefore are deferred in the funds. 282,022 Contributions to the pension plan in the current fiscal year are deferred outflows of resources on the Statement of Net Position 30,152,023 Internal service funds are used by management to charge the costs of certain activities such as insurance and fleet, to individual funds. The assets and liabilities of certain internal service funds are included in governmental activities in the statement of net position 6,174,902 Investment in Joint Venture 7,188,352 Net OPEB obligation (49,739,902) Net pension liability (55,936,119) Long-term liabilities, including bonds & COPS payable, are not due and payable in the current period and therefore are not reported in the funds (221,715,702) Pension related deferrals (2,764,515) Other long-term liabilities (accrued interest) are not due and payable in the current period and therefore are not reported in the funds. (2,323,646) Net position of governmental activities $ 537,255,055 The notes to the financial statements are an integral part of this statement. B-21

78 CITY OF DURHAM, NORTH CAROLINA Exhibit A-4 Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended June 30, 2017 Housing Debt Non-major Total Projects Service Governmental Governmental General Fund Fund Funds Funds REVENUES Taxes $ 149,129,995 $ - $ 36,326,028 $ 5,105,860 $ 190,561,882 Licenses and permits 1,145, ,145,837 Intergovernmental revenues 17,105,537-1,627,530 12,028,498 30,761,565 Investment and rental income 157, ,418 55, , ,326 Charges for services 8,028, ,131,325 22,159,343 Intragovernmental services 719, ,390 Assessments 28, ,530 Miscellaneous 485,720 2,061-1, ,820 Total revenues 176,800, ,479 38,008,883 31,722, ,786,693 EXPENDITURES Current General government 24,243, ,597 6,193,443 30,851,679 Public safety 89,409, ,428, ,837,558 Development 13,258,298 2,597,820-14,668,162 30,524,281 General services 16,144, ,617,226 17,761,338 Recreation 13,457, ,236,613 15,693,902 Streets and highways 14,476, ,479,543 22,955,991 Debt service Principal ,669, ,000 21,029,428 Interest and other charges - - 7,987, ,978 8,199,700 Total expenditures 170,989,117 2,597,820 29,071,746 59,195, ,853,875 Excess (Deficiency) of revenues over (under) expenditures 5,811,596 (2,343,342) 8,937,137 (27,472,572) (15,067,180) OTHER FINANCING SOURCES (USES) Bonds issued ,000,000 5,000,000 Refunding bonds issued - - 9,596,211-9,596,211 Payment to refunded bond escrow agent - - (9,653,898) - (9,653,898) Bond anticipation notes ,961,915 11,961,914 Transfers in 19,139 1,191,866-33,240,635 34,451,640 Transfers out (7,837,834) - (3,079,221) (25,392,319) (36,309,373) Sale of property 537, ,479 Total other financing sources (7,281,216) 1,191,866 (3,136,908) 24,810,231 15,583,973 Net change in fund balances (1,469,620) (1,151,476) 5,800,229 (2,662,340) 516,793 Fund balances - beginning 84,553,127 9,788,655 2,663,591 70,796, ,801,771 Fund balances - ending $ 83,083,507 $ 8,637,179 $ 8,463,820 $ 68,134,058 $ 168,318,564 The notes to the financial statements are an integral part of this statement. B-22

79 CITY OF DURHAM, NORTH CAROLINA Exhibit A-5 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Year Ended June 30, 2017 Amounts reported for governmental activities in the statement of activities are different because: Net change in fund balances - total governmental funds $ 516,793 Capital outlay expenditures which were capitalized $ 43,416,551 Depreciation expense for governmental assets (20,485,845) The net effect of various miscellaneous transactions involving capital assets (i.e., sales, trade-ins) is to increase (decrease) net assets. (212,315) 22,718,391 Contributions to the pension plan in the current fiscal year are not included on the Statement of Activities (1,393,898) Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the fund. Amount of donated assets 35,400,484 Change in street/side walk assessments, housing loans and changes in deferred property taxes (6,288) Change in joint venture (222,888) 35,171,308 The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction has any effect on net position. This amount is the net effect of these differences in the treatment of long-term debt and related items New long-term debt issued (26,558,125) Principal payments on long-term debt 30,625,638 The effect of issuance costs, premiums, discounts, and similar items. 3,729,257 7,796,770 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. Compensated absences (254,519) Net pension obligation (2,072,683) Other post employment benefits (4,721,488) (7,048,689) Consolidated adjustment for the Internal Service Fund and the Governmental Funds Net revenue of internal service Fund (2,910,021) Portion of revenue allocated to business-type activities 330,998 (2,579,023) Total changes in net position of governmental activities $ 55,181,653 The notes to the financial statements are an integral part of this statement. B-23

80 CITY OF DURHAM, NORTH CAROLINA Exhibit A-6 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual General Fund For the Year Ended June 30, 2017 Variance with Final Budget - Budget Positive Original Final Actual (Negative) Revenues Ad valorem taxes $ 88,713,260 $ 88,713,260 $ 89,150,239 $ 436,979 Other local taxes 61,367,263 61,367,263 59,979,756 (1,387,507) Licenses and permits 1,316,404 1,316,404 1,145,837 (170,567) Unrestricted intergovernmental 5,851,902 5,851,902 9,058,816 3,206,914 Restricted intergovernmental 8,014,307 8,014,307 8,046,721 32,414 Investment and rental earnings 126, , ,686 31,414 Charges for services 7,228,773 7,228,773 8,028, ,245 Intragovernmental services 330, , , ,390 Assessments 26,100 26,100 28,530 2,430 Miscellaneous 292, , , ,220 Total revenues 173,266, ,266, ,800,713 3,533,932 Expenditures Governance 12,474,401 14,187,741 11,491,995 2,695,746 Public protection 89,739,304 91,947,409 89,409,330 2,538,079 Community services and development 55,495,482 65,772,110 57,336,148 8,435,962 Administrative and support services 13,524,445 14,636,268 13,062,968 1,573,300 Non-departmental charges 5,253,858 2,271,030 (311,324) 2,582,354 Total expenditures 176,487, ,814, ,989,117 17,825,441 Excess (deficiency) of revenues over (under) expenditures (3,220,709) (15,547,777) 5,811,596 21,359,373 Other financing sources (uses) Transfers in ,139 19,139 Transfers out (5,152,856) (7,881,627) (7,837,834) 43,793 Sale of property and miscellaneous 700, , ,479 (162,521) Transfer from reserves - 4,622,265 - (4,622,265) Appropriated fund balance 7,673,565 18,107,139 - (18,107,139) Total other financing sources (uses) 3,220,709 15,547,777 (7,281,216) (22,828,993) Change in fund balance $ - $ - (1,469,620) $ (1,469,620) Fund balance - beginning 84,553,127 Fund balance - ending $ 83,083,507 The notes to the financial statements are an integral part of this statement. B-24

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82 CITY OF DURHAM, NORTH CAROLINA Exhibit A-7 Statement of Net Position Proprietary Funds June 30, 2017 Water and Parking Solid Waste Durham Performing Sewer Utility Facilities Transit Disposal Arts Center Fund Fund Fund Fund Fund ASSETS Current assets Cash and cash equivalents/investments $ 129,176,469 $ 2,036,108 $ 227 $ 5,156,187 $ 5,324,114 Accounts receivable (net of allowance) 13,534,092 56,500 3,801, ,968 2,173,825 Assessments receivable (net of allowance) 323, Prepaid expenditures , Due from governmental agencies 1,331, ,026 4,524, ,650 10,561 Inventories 1,883, Due from other funds 1,333, Total current assets 147,582,029 2,200,634 9,267,176 5,688,805 7,508,500 Noncurrent assets Capital assets Land 28,877,891 2,530, ,319 9,287,917 - Construction in progress 80,190,895 1,242, ,107 - Buildings, equipment and depreciable assets net of accumulated depreciation 575,199,110 13,834,086 17,358,444 9,898,183 35,918,726 Advance to other funds 137, Restricted cash and cash equivalents/ investments Total noncurrent assets 684,405,066 17,608,003 18,210,763 19,308,207 35,918,726 Total assets 831,987,095 19,808,637 27,477,939 24,997,012 43,427,226 DEFERRED OUTFLOWS OF RESOURCES Contributions to pension plan 5,183,580 44,998-1,476,841 - Deferred charge on refunding 4,497,595 60, ,250 2,946,346 Total deferred outflows of resources 9,681, , ,729,091 2,946,346 continued on next page The notes to the financial statements are an integral part of this statement. B-26

83 CITY OF DURHAM, NORTH CAROLINA Exhibit A-7 Statement of Net Position (continued) Proprietary Funds June 30, 2017 Storm Water Golf Internal Ballpark Management Course Service Fund Fund Fund Total Funds ASSETS Current assets Cash and cash equivalents/investments $ 1,339,193 $ 24,858,731 $ - $ 167,891,029 $ 14,281,349 Accounts receivable (net of allowance) - 2,144,710-22,061, ,948 Assessments receivable (net of allowance) ,788 - Prepaid expenditures ,851 - Due from governmental agencies - 46,025-6,202, Inventories ,883,331 - Due from other funds ,333,076 - Total current assets 1,339,193 27,049, ,635,803 14,701,817 Noncurrent assets Capital assets Land 1,450,428 1,059,042 1,446,201 45,504,788 - Construction in progress - 4,147,024-85,702,953 - Buildings, equipment and depreciable assets net of accumulated depreciation 25,184,380 4,993,202 1,665, ,051,983 - Advance to other funds ,170 - Restricted cash and cash equivalents/ investments - 12,283,850-12,283,850 - Total noncurrent assets 26,634,808 22,483,118 3,112, ,680,744 - Total assets 27,974,001 49,532,584 3,112,053 1,028,316,547 14,701,817 DEFERRED OUTFLOWS OF RESOURCES Contributions to pension plan - 1,328,582-8,034,001 - Deferred charge on refunding 10, ,766,900 - Total deferred outflows of resources 10,415 1,328,582-15,800,901 - continued on next page The notes to the financial statements are an integral part of this statement. B-27

84 CITY OF DURHAM, NORTH CAROLINA Exhibit A-7 Statement of Net Position Proprietary Funds June 30, 2017 Water and Parking Solid Waste Durham Performing Sewer Utility Facilities Transit Disposal Arts Center Fund Fund Fund Fund Fund LIABILITIES Current liabilities Accounts payable $ 9,044,757 $ 315,424 $ 5,080,205 $ 566,228 $ 181,235 Accrued payroll 380,031 3,479-97,018 - Accrued interest 2,788,740 82,916 20,025 77,048 66,923 Deposits and payments held in escrow 4,326, (1,000) - Due to other funds - - 1,333, Due to Durham County 13, Due to the State of North Carolina 675, Bank loan ,000 - General obligation and revenue bonds payable 5,939, ,416-1,982,933 - Limited obligation bonds - 205, ,963 1,057,155 1,415,000 Accrued compensated absences 949,693 8, ,563 - Landfill post closure costs ,549 - Pending claims Total current liabilities 24,117, ,553 6,549,269 5,017,494 1,663,158 Noncurrent liabilities Due to Durham County 2,162, Bank Loan ,690,000 - General obligation and revenue bonds 77,315,997 5,392,250-7,791,240 - Limited obligation bonds - 1,951,015 1,505, ,338 27,440,000 Accrued compensated absences 481,077 11, ,624 - Advance from other funds Landfill post closure costs ,394,576 - Net OPEB obligation 9,331,579 60,327-2,521,753 - Net pension liability 6,055,436 52,569-1,726,548 - Pending claims Total noncurrent liabilities 95,346,316 7,467,330 1,505,484 21,058,079 27,440,000 Total liabilities 119,463,529 8,458,883 8,054,753 26,075,573 29,103,158 DEFERRED INFLOWS OF RESOURCES Pension deferrals 372,337 1,306-95,019 - Bond refunding 248, , ,165 1, ,092 - NET POSITION Net investment in capital assets 602,659,572 9,743,958 16,589,529 5,645,791 10,010,072 Restricted for Stormwater Surety Unrestricted 118,924,004 1,709,569 2,833,870 (5,398,353) 7,260,342 Total net position $ 721,583,576 $ 11,453,527 $ 19,423,399 $ 247,438 $ 17,270,414 continued on next page The notes to the financial statements are an integral part of this statement. B-28

85 CITY OF DURHAM, NORTH CAROLINA Exhibit A-7 Statement of Net Position Proprietary Funds June 30, 2017 Storm Water Golf Internal Ballpark Management Course Service Fund Fund Fund Total Funds LIABILITIES Current liabilities Accounts payable $ - $ 690,067 $ - $ 15,877,916 $ 289,189 Accrued payroll - 105, ,466 8,392 Accrued interest 154, ,189,944 - Deposits and payments held in escrow - 1,032,441-5,357,738 - Due to other funds ,333,076 - Due to Durham County ,180 - Due to the State of North Carolina ,000 - Bank loan ,000 - General obligation and revenue bonds payable 216, ,513,951 - Limited obligation bonds 475, ,268,563 - Accrued compensated absences - 238,741-1,446,870 - Landfill post closure costs ,549 - Pending claims ,084,141 Total current liabilities 845,379 2,067,187-41,251,253 5,381,722 Noncurrent liabilities Due to Durham County ,162,227 - Bank Loan ,690,000 - General obligation and revenue bonds 3,239, ,738,854 - Limited obligation bonds 10,379, ,993,853 - Accrued compensated absences - 35, ,744 27,448 Advance from other funds 137, ,170 - Landfill post closure costs ,394,576 - Net OPEB obligation - 1,015,282-12,928,941 - Net pension liability - 1,559,651-9,394,204 - Pending claims ,658,187 Total noncurrent liabilities 13,755,553 2,610, ,183,569 4,685,635 Total liabilities 14,600,932 4,677, ,434,822 10,067,357 DEFERRED INFLOWS OF RESOURCES Pension deferrals - 79, ,155 - Bond refunding , ,493-1,105,056 - NET POSITION Net investment in capital assets 12,335,753 22,483,118 3,112, ,579,846 - Restricted for Stormwater Surety - 12,283,850-12,283,850 - Unrestricted 1,047,731 11,336, ,713,874 4,634,460 Total net position $ 13,383,484 $ 46,103,679 $ 3,112, ,577,570 $ 4,634,460 Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds: Prior Years since July 1, 2001 (1,209,445) Currrent Year (330,998) Net position of business-type activities $ 831,037,127 The notes to the financial statements are an integral part of this statement. B-29

86 CITY OF DURHAM, NORTH CAROLINA Exhibit A-8 Statement of Revenues, Expenses and Changes in Net Position Proprietary Funds For the Year Ended June 30, 2017 Water and Sewer Utility Fund Parking Facilities Fund Transit Fund Solid Waste Disposal Fund Operating revenues Charges for services $ 97,746,172 $ 3,987,758 $ 3,343,435 $ 7,241,517 Operating expenses Personnel services 25,611, , ,400 7,314,679 Materials, services and supplies 24,535,637 2,471,310 2,910,933 9,980,958 General and administrative 4,773, , ,137 2,209,626 Claims, fees and other Transit services ,814,573 - Depreciation 21,238, ,064 2,086,629 1,697,894 Total operating expenses 76,158,661 4,092,494 25,404,672 21,203,157 Operating income (loss) 21,587,511 (104,736) (22,061,237) (13,961,640) Non-operating revenues (expenses) Taxes ,466,958 17,270,295 Intergovernmental revenue 50,327-24, Grants revenue 586,364-9,701,805 - Investment income 603,431 17,942 2,006 38,027 Interest on assessments 38, Licenses and permits 190,290-2,674,052 - Rent - non-operating property 427, Impact fees 5,748, Gain (loss) on disposals of property and equipment (54,245) - (65,218) - Other revenue 1,172,979-27, Interest and fiscal charges (2,609,294) (296,077) (81,321) (561,052) Total non-operating revenues (expenses) 6,155,196 (278,135) 23,750,266 16,748,610 Income/(loss) before capital contributions and transfers 27,742,707 (382,871) 1,689,029 2,786,970 Capital Contributions 28,547, Transfers from other funds 31, ,419-90,130 Transfers to other funds - - (224,402) (3,818) Total capital contributions and transfers 28,578, ,419 (224,402) 86,312 Change in net position 56,321, ,548 1,464,627 2,873,282 Total net position, beginning 665,262,312 10,895,979 17,958,772 (2,625,844) Total net position, ending $ 721,583,576 $ 11,453,527 $ 19,423,399 $ 247,438 continued on next page The notes to the financial statements are an integral part of this statement. B-30

87 CITY OF DURHAM, NORTH CAROLINA Exhibit A-8 Statement of Revenues, Expenses and Changes in Net Position Proprietary Funds For the Year Ended June 30, 2017 Durham Performing Arts Center Fund Ballpark Fund Storm Water Management Fund Operating revenues Charges for services $ 2,221,954 $ 297,218 $ 18,601,206 Operating expenses Personnel services - - 6,495,979 Materials, services and supplies 375,375 42,022 3,747,561 General and administrative ,296 Claims, fees and other Transit services Depreciation 1,182,059 1,271, ,817 Total operating expenses 1,557,434 1,313,656 11,735,653 Operating income (loss) 664,520 (1,016,438) 6,865,553 Non-operating revenues (expenses) Taxes 1,359, Intergovernmental revenue Grants revenue Investment income 25,288 5, ,689 Interest on assessments Licenses and permits Rent - non-operating property Impact fees Gain (loss) on disposals of property and equipment - - (106,842) Other revenue 550, Interest and fiscal charges (1,055,074) (565,039) 74,776 Total non-operating revenues (expenses) 880,042 (559,462) 103,801 Income/(loss) before capital contributions and transfers 1,544,562 (1,575,900) 6,969,354 Capital Contributions Transfers from other funds - 1,215, ,047 Transfers to other funds - - (300,533) Total capital contributions and transfers - 1,215,354 (191,486) Change in net position 1,544,562 (360,546) 6,777,868 Total net position, beginning 15,725,852 13,744,030 39,325,811 Total net position, ending $ 17,270,414 $ 13,383,484 $ 46,103,679 continued on next page The notes to the financial statements are an integral part of this statement. B-31

88 CITY OF DURHAM, NORTH CAROLINA Exhibit A-8 Statement of Revenues, Expenses and Changes in Net Position Proprietary Funds For the Year Ended June 30, 2017 Golf Course Fund Totals Internal Service Funds Operating revenues Charges for services $ - $ 133,439,260 $ 36,328,921 Operating expenses Personnel services - 39,813,698 1,019,594 Materials, services and supplies - 44,063, ,597 General and administrative - 8,767,457 - Claims, fees and other ,356,627 Transit services - 19,814,573 - Depreciation 122,170 29,128,373 - Total operating expenses 122, ,587,897 39,689,818 Operating income (loss) (122,170) (8,148,637) (3,360,897) Non-operating revenues (expenses) Taxes - 30,097,081 - Intergovernmental revenue - 75,477 - Grants revenue - 10,288,169 - Investment income - 827,960 69,281 Interest on assessments - 39,025 - Licenses and permits - 2,864,342 - Rent - non-operating property - 427,893 - Impact fees - 5,748,604 - Gain (loss) on disposals of property and equipment - (226,305) - Other revenue - 1,751, ,597 Interest and fiscal charges - (5,093,081) - Total non-operating revenues (expenses) - 46,800, ,878 Income/(loss) before capital contributions and transfers (122,170) 38,651,681 (2,910,019) Capital Contributions - 28,547,021 - Transfers from other funds - 2,386,486 - Transfers to other funds - (528,753) - Total capital contributions and transfers - 30,404, Change in net position (122,170) 69,056,435 (2,910,019) Total net position, beginning 3,234, ,521,135 7,544,479 Total net position, ending $ 3,112, ,577,570 $ 4,634,460 Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds: Change in net position 69,056,435 Current year (330,998) Change in net position business-type activities $ 68,725,437 The notes to the financial statements are an integral part of this statement. B-32

89 CITY OF DURHAM, NORTH CAROLINA Exhibit A-9 Statement of Cash Flows Proprietary Funds For Year Ended June 30, 2017 Water and Sewer Utility Fund Parking Facilities Fund Transit Fund Solid Waste Disposal Fund Cash flows from operating activities Receipts from customers $ 96,839,678 $ 3,940,625 $ 2,243,431 $ 7,087,354 Payments to employees (29,084,801) (235,690) (141,187) (7,219,935) Payments to suppliers (23,630,593) (2,758,687) (21,876,679) (12,604,168) Payments for claims and related professional fees Reimbursements from other governments 438,134 (104,478) (105,768) 247,342 License and permits 190,290-2,674,052 - Deposits received/returned from/to customers 669, (1,000) Impact fees 5,748, Interest on assessments 38, Other revenues 107, , Net cash from operating activities 51,317, ,770 (17,064,497) (12,489,697) Cash flows from non-capital financing activities Transfers to other funds - - (224,402) (3,818) Transfers from other funds 31, ,419-90,130 Taxes received, net ,466,958 17,102,831 Grant funds received 586,364-9,701,805 - Advance from other funds - - (2,413,741) - Repayment of advance to other funds 2,543, Net cash from non-capital financing activities 3,161, ,419 18,530,620 17,189,143 Cash flows from capital and related financing activities Interest and agent's fees paid (11,108,419) (324,388) (82,858) (651,952) Bonds issued ,550,783 Debt issued - bank loan Proceeds on refunding bonds 5,433, ,331 Refunding bonds issued 7,027, Payments of principal - bank loan (886,925) Payments of principal - bonds (7,035,037) (380,410) - (1,741,099) Payments of principal - cops - (3,913) - - Payments of principal - lobs - (206,046) (115,963) (1,022,155) Payments of principal - interfund loans Repayments to the State of North Carolina (135,000) Payments of principal - Durham County (38,098) Acquisition and construction of capital assets (61,973,475) (2,786,998) (1,179,270) (2,273,843) Assessments and frontage 908, Disposal of property and equipment (54,989) - (89,811) - Net cash from capital and related financing activities (66,975,056) (3,701,755) (1,467,902) (5,015,860) Cash flows from investing activities Interest on investments 603,431 17,942 2,006 38,027 Net cash from investing activities 603,431 17,942 2,006 38,027 Net increase (decrease) in cash and cash equivalents/investments (11,892,779) (1,901,624) 227 (278,387) Cash and cash equivalents/investments, beginning of year 141,069,248 3,937,732-5,434,574 Cash and cash equivalents/investments, end of year $ 129,176,469 $ 2,036,108 $ 227 $ 5,156,187 continued on next page The notes to the financial statements are an integral part of this statement. B-33

90 CITY OF DURHAM, NORTH CAROLINA Exhibit A-9 Statement of Cash Flows (continued) Proprietary Funds For Year Ended June 30, 2017 Durham Performing Arts Center Fund Ballpark Fund Storm Water Management Fund Cash flows from operating activities Receipts from customers $ 2,538,198 $ 297,218 $ 18,540,763 Payments to employees - - (6,391,700) Payments to suppliers (196,208) (42,022) (3,905,183) Payments for claims and related professional fees Reimbursements from other governments - - (5,805) License and permits Deposits received/returned from/to customers ,381 Impact fees Interest on assessments Other revenues 550, ,842 Net cash from operating activities 2,891, ,196 8,610,476 Cash flows from non-capital financing activities Transfers to other funds - - (300,533) Transfers from other funds - 1,215, ,047 Taxes received, net 1,359, Grant funds received Advance from other funds Repayment of advance to other funds Net cash from non-capital financing activities 1,359,828 1,215,354 (191,486) Cash flows from capital and related financing activities Interest and agent's fees paid (870,989) (592,322) - Bonds issued Debt issued - bank loan Proceeds on refunding bonds Refunding bonds issued Payments of principal - bank loan Payments of principal - bonds - (216,087) - Payments of principal - cops (930,000) - - Payments of principal - lobs (430,000) (465,000) - Payments of principal - interfund loans - (130,018) - Repayments to the State of North Carolina Payments of principal - Durham County Acquisition and construction of capital assets (317,522) - (1,665,823) Assessments and frontage Disposal of property and equipment - - (106,842) Net cash from capital and related financing activities (2,548,511) (1,403,427) (1,772,665) Cash flows from investing activities Interest on investments 25,288 5, ,689 Net cash from investing activities 25,288 5, ,689 Net increase (decrease) in cash and cash equivalents/investments 1,728,595 72,700 6,782,014 Cash and cash equivalents/investments, beginning of year 3,595,519 1,266,493 30,360,567 Cash and cash equivalents/investments, end of year $ 5,324,114 $ 1,339,193 $ 37,142,581 continued on next page The notes to the financial statements are an integral part of this statement. B-34

91 CITY OF DURHAM, NORTH CAROLINA Exhibit A-9 Statement of Cash Flows (continued) Proprietary Funds For Year Ended June 30, 2017 Golf Course Fund Totals Internal Service Funds Cash flows from operating activities Receipts from customers $ - $ 131,487,267 $ 36,265,524 Payments to employees - (43,073,313) (988,669) Payments to suppliers - (65,013,540) (180,299) Payments for claims and related professional fees - - (37,867,929) Reimbursements from other governments - 469,425 (62) License and permits - 2,864,342 - Deposits received/returned from/to customers - 933,873 - Impact fees - 5,748,604 - Interest on assessments - 39,025 - Other revenues - 906, ,597 Net cash from operating activities - 34,362,425 (2,389,838) Cash flows from non-capital financing activities Transfers to other funds - (528,753) - Transfers from other funds - 2,386,486 - Taxes received, net - 29,929,617 - Grant funds received - 10,288,169 - Advance from other funds - (2,413,741) - Repayment of advance to other funds - 2,543,759 - Net cash from non-capital financing activities - 42,205,537 - Cash flows from capital and related financing activities Interest and agent's fees paid - (13,630,928) - Bonds issued - 1,550,783 - Debt issued - bank loan Proceeds on refunding bonds - 5,442,983 - Refunding bonds issued - 7,027,579 - Payments of principal - bank loan - (886,925) - Payments of principal - bonds - (9,372,633) - Payments of principal - cops - (933,913) - Payments of principal - lobs - (2,239,164) - Payments of principal - interfund loans - (130,018) - Repayments to the State of North Carolina - (135,000) - Payments of principal - Durham County - (38,098) - Acquisition and construction of capital assets - (70,196,931) - Assessments and frontage - 908,731 - Disposal of property and equipment - (251,642) - Net cash from capital and related financing activities - (82,885,176) - Cash flows from investing activities Interest on investments - 827,960 69,281 Net cash from investing activities - 827,960 69,281 Net increase (decrease) in cash and cash equivalents/investments - (5,489,254) (2,320,557) Cash and cash equivalents/investments, beginning of year - 185,664,133 16,601,906 Cash and cash equivalents/investments, end of year $ - $ 180,174,879 $ 14,281,349 continued on next page The notes to the financial statements are an integral part of this statement. B-35

92 CITY OF DURHAM, NORTH CAROLINA Exhibit A-9 Statement of Cash Flows (continued) Proprietary Funds For Year Ended June 30, 2017 Water and Sewer Utility Fund Parking Facilities Fund Transit Fund Solid Waste Disposal Fund Reconciliation of operating income (loss) to net cash from operating activities: Operating income (loss) 21,587,511 (104,736) (22,061,237) (13,961,640) Adjustments to reconcile operating income (loss) to net cash from operating activities: Depreciation 21,238, ,064 2,086,629 1,697,894 License and permits 190,290-2,674,052 - Other revenues 973, , ,805 Impact fees 5,748, Changes in assets and liabilities: Receivables (907,572) (47,133) (1,100,006) (154,165) Due from governmental agencies (387,888) (104,478) (130,288) 79,249 Inventories (86,458) Accounts payable 4,873, ,925 1,299,963 (712,620) Accrued payroll 88,813 1,707-25,136 Accrued compensated absences 33,470 10,740 - (2,433) Deposits received from/returned to customers 669, (1,000) Pending claims Deferred outflows of resources or pensions (8,172,098) (37,665) Deferred inflows of resources or pensions 4,576,199 39,983-72,041 OPEB 891,623 5, ,036 Net cash from operating activities $ 51,317,188 $ 841,770 $ (17,064,497) $ (12,489,697) Noncash capital activity Contributions of capital assets from government and donated infrastructure $ 28,472,636 $ - $ - $ - Increase in capital assets from donated infrastructure, contributions from government, internal transfer of capital assets $ 28,472,636 $ - $ - $ - continued on next page The notes to the financial statements are an integral part of this statement. B-36

93 CITY OF DURHAM, NORTH CAROLINA Exhibit A-9 Statement of Cash Flows (continued) Proprietary Funds For Year Ended June 30, 2017 Durham Performing Arts Center Fund Ballpark Fund Storm Water Management Fund Reconciliation of operating income (loss) to net cash from operating activities: Operating income (loss) 664,520 (1,016,438) 6,865,553 Adjustments to reconcile operating income (loss) to net cash from operating activities: Depreciation 1,182,059 1,271, ,817 License and permits Other revenues 550, ,215 Impact fees Changes in assets and liabilities: Receivables 326,804 - (60,638) Due from governmental agencies (10,560) - (5,805) Inventories Accounts payable 179, ,224 Accrued payroll ,515 Accrued compensated absences ,747 Deposits received from/returned to customers ,381 Pending claims Deferred outflows of resources or pensions - - (1,040,124) Deferred inflows of resources or pensions - - 1,104,141 OPEB ,450 Net cash from operating activities $ 2,891,990 $ 255,196 $ 8,610,476 Noncash capital activity Contributions of capital assets from government and donated infrastructure $ - $ - $ - Increase in capital assets from donated infrastructure, contributions from government, internal transfer of capital assets $ - $ - $ - continued on next page The notes to the financial statements are an integral part of this statement. B-37

94 CITY OF DURHAM, NORTH CAROLINA Exhibit A-9 Statement of Cash Flows Proprietary Funds For Year Ended June 30, 2017 Golf Course Fund Totals Internal Service Funds Reconciliation of operating income (loss) to net cash from operating activities: Operating income (loss) (122,170) (8,148,637) (3,360,897) Adjustments to reconcile operating income (loss) to net cash from operating activities: Depreciation 122,170 29,128,373 - License and permits - 2,864,342 - Other revenues - 1,965, ,597 Impact fees - 5,748,604 - Changes in assets and liabilities: - Receivables - (1,942,710) (63,397) Due from governmental agencies - (559,770) (62) Inventories - (86,458) - Accounts payable - 6,292, ,297 Accrued payroll - 145,171 3,477 Accrued compensated absences - 52,524 27,448 Deposits received from/returned to customers - 933,873 - Pending claims ,699 Deferred outflows of resources or pensions - (9,249,674) - Deferred inflows of resources or pensions - 5,792,364 - OPEB - 1,426,472 - Net cash from operating activities $ - $ 34,362,425 $ (2,389,838) Noncash capital activity Contributions of capital assets from government and donated infrastructure $ - $ 28,472,636 $ - Increase in capital assets from donated infrastructure, contributions from government, internal transfer of capital assets $ - $ 28,472,636 $ - The notes to the financial statements are an integral part of this statement. B-38

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96 CITY OF DURHAM JUNE 30, 2017 Notes to the Financial Statements Note I - Summary of Significant Accounting Policies The financial statements of the City have been prepared in accordance with generally accepted accounting principles ( GAAP ) as applicable to state and local governmental units in the United States of America. The Governmental Accounting Standards Board ( GASB ) is the accepted standard-setting body for establishing accounting and financial reporting principles for states and local governments. The following is a summary of the City s more significant accounting and financial reporting policies. A. Reporting Entity The City of Durham is a municipal corporation established in The City operates under a councilmanager form of government by an elected mayor and a six-member council. The component unit discussed below is included in the City's reporting entity because of the significance of its operational and financial relationships with the City. Blended Component Unit The New Durham Corporation ( NDC ), 101 City Hall Plaza, Annex, Durham, North Carolina 27701, is a nonprofit corporation duly incorporated in the state, and validly existing and in good standing under the North Carolina Nonprofit Corporation Act, Chapter 55A of the General Statutes of North Carolina and is governed by a three member board of directors. Although legally separate from the City, the NDC is reported as if it were a part of the City because its sole purpose is to carry out its municipal and governmental functions through the financing of City revitalization projects and purchases of capital equipment. Normally, a financing contract is established between the City and the NDC. In accordance with GAAP, eliminations are done in the fund financial statements resulting in the inclusion of all NDC activities in the funds in which the activity takes place. Accordingly, there are no financial activities to report for the NDC itself in these financial statements. B. Basis of Presentation Government-Wide Statements The government-wide financial statements, the statement of net position and the statement of activities, report information on all the activities of the primary government and its blended component unit. These statements distinguish between the governmental and business-type activities of the City. Governmental activities generally are financed through taxes, intergovernmental revenues and other non-exchange transactions. Business-type activities are financed in whole or in part by fees charged to external parties. As a general rule, the effect of interfund activity, including the activity of the internal service funds, has been eliminated from the government-wide financial statements. Exceptions to this general rule are charges between funds that essentially represent a customer-type relationship. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. While the activity is eliminated, the residual balances of internal service funds are not. These amounts are included in the governmental activities column of the government-wide financial statements. The residual balances for interfund activity between funds for various purposes are reported as either due from/to other funds or advances to/from other funds. While these balances are reported in fund financial statements, certain eliminations are made in the preparation of the government-wide financial B-40

97 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 statements. Balances between the funds included in governmental activities (i.e., the governmental and internal service funds) are eliminated so that only the net amount is included as internal balances in the governmental activities column. Similarly, balances between the funds included in business-type activities (i.e., the enterprise funds) are eliminated so that only the net amount is included as internal balances in the business-type activities column. The statement of activities presents a comparison between direct expenses and program revenues for the different business-type activities of the City and for each function of the City s governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to that particular function. Program revenues include fees and charges paid by the recipients of goods or services offered by the programs and grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. 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 General Fund services provided (e.g., finance, human resources, legal, technology management, etc.). At the fund-level statements, the administrative service fee is included in the Non-Departmental line item as administrative fees. The administrative service fee is eliminated at year-end in the government-wide statements like a reimbursement (reducing the revenue and expense in the General Fund). Fund Financial Statements The fund financial statements provide information about the City s funds. There are separate statements for each fund category; governmental and proprietary. The emphasis of fund financial statements is on major governmental and enterprise funds, each displayed in a separate column. The General Fund is always a major fund. Otherwise, major funds are funds whose revenues, expenditures-expenses, assets and deferred outflows of resources, or liabilities and deferred inflows of resources (excluding extraordinary items) are at least ten percent of corresponding totals for all governmental or enterprise funds and at least five percent of the aggregate amount for all governmental and enterprise funds for the same item. The Debt Service Fund meets the requirements of a major fund and the Housing Projects Fund is treated separately as a major fund and all the remaining governmental funds are aggregated and reported as non-major funds. Although only the Water and Sewer, DPAC, Transit and Solid Waste Management Funds meet the criteria for major funds, the City has elected to report all enterprise funds as major funds. The governmental funds in the financial statements are presented on a current financial resources measurement focus and a modified accrual basis of accounting. This is the manner in which these funds are normally budgeted. This presentation is deemed most appropriate to (a) demonstrate legal and covenant compliance, (b) demonstrate the source and use of liquid resources, and (c) demonstrate how the City s actual experience conforms to the budgeted fiscal plan. Since the governmental fund 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 face of the governmental fund statements which briefly explains the adjustments necessary to transform the fund-based financial statements into the governmental activities column of the government-wide presentation. Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operations. The City s Proprietary fund operating revenues are comprised of charges for services that result from exchange transactions associated with the principal activity of the fund. The City also recognizes as operating revenue the portion of tap fees B-41

98 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 intended to recover the cost of connecting new customers to the water and sewer system. Exchange transactions are those in which each party receives and gives up essentially equal values. 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 non-operating revenues and expenses. Non-operating revenues include subsidies and investment earnings that result from non-exchange transactions or ancillary activities. C. Measurement Focus, Basis of Accounting and Financial Statement Presentation Basis of accounting refers to the point at which revenues or expenditures/expenses are recognized in the accounts and reported in the financial statements. It relates to the timing of the measurements made, regardless of the measurement focus applied. In accordance with North Carolina General Statutes, all funds of the City are maintained during the year using the modified accrual basis of accounting. The government-wide financial statements and proprietary funds are accounted for on a flow of economic resources measurement focus and the accrual basis of accounting. With this measurement focus, all assets and deferred outflows of resources and all liabilities and deferred inflows of resources associated with the operation of these funds are included on the balance sheet or statement of net position. The accrual basis of accounting is followed. Revenues are recognized in these funds when earned, and expenses are recognized when they are incurred, regardless of when the related cash flows take place. Non-exchange transactions, in which the City gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, grants, and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements imposed by the provider have been satisfied. Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions (provided that they are restricted to meeting an operational requirement of a particular function or identifiable activity) and 3) capital grants and contributions, including special assessments (provided that they are restricted to meeting the capital requirements of a particular function or identifiable activity). Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and judgments and compensated absences, which are recognized as expenditures to the extent they have matured. General capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term debt and acquisitions under capital leases are reported as other financing sources. The City considers all revenues available if they are collected within 90 days after year-end, except for property taxes. Ad valorem taxes receivable are not accrued as revenues because the amount is not susceptible to accrual. At June 30, taxes receivable are materially past de and are not considered to be an available resource to finance the operations of the current year. Effective September 1, 2013, State law altered the procedures for the assessment and collection of property taxes on registered motor vehicles in North Carolina. Effective with this change in the law, the State of North Carolina is responsible for billing and collecting the property taxes on registered motor vehicles on behalf of all municipalities and special tax districts. Property taxes are due when vehicles are registered and uncollected taxes that were billed during this period are shown as a receivable in these financial statements and are offset by deferred inflows of resources. Sales taxes and certain intergovernmental B-42

99 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 revenues, such as the utilities franchise tax and the beer and wine tax collected and held by the State at year-end on behalf of the City are recognized as revenue. Sales taxes are considered shared revenue for the City because the tax is levied by Durham County and then remitted to and distributed by the State. Intergovernmental revenues and sales and services are not susceptible to accrual because generally they are not measurable until received in cash. Grant revenues which are unearned at yearend are recorded as unearned revenues. Under the terms of grant agreements, the City funds certain programs by a combination of specific cost reimbursement grants, categorical block grants, and general revenues. Thus, when program expenses are incurred, there is both restricted and unrestricted net position available to finance the program. It is the City s policy to first apply cost-reimbursement grant resources to such programs, followed by categorical block grants, and then by general revenues. The City reports the following major governmental funds: General Fund - The General Fund is the general operating fund of the City. The General Fund accounts for all financial resources except those that are accounted for in another fund. The primary revenue sources are property taxes, sales and other Intergovernmental taxes, and various other taxes and licenses. The primary expenditures are for public safety, community services and development including street maintenance. Housing Projects Fund - This capital projects fund is established to track the City of Durham s affordable housing program. The projects included in this program are designed to assist and finance the rehabilitation of buildings, to assist in acquiring land for redevelopment, principally for the housing of persons of low and moderate income, and to assist moderate income first time homeowners with low cost second mortgages. Debt Service Fund - The Debt Service Fund accounts for the payment of the principal and interest for general obligation bonds, certificates of participation and limited obligation bonds for the general government. The City reports the following major enterprise funds: Water and Sewer Utility Fund - This fund is established to account for revenues and expenses related to the provision of water and sewer services to the residents of the City and adjacent areas. Parking Facilities Fund - This fund is established to account for revenues and expenses related to the operations of the City's parking lots and garages. Transit Fund - This fund is established to account for revenues and expenses related to the operation of the bus system, which serves the City of Durham. Solid Waste Disposal Fund - This fund is established to account for revenues and expenses related to the operation of the City s transfer station for the use of residents of the City and Durham County. Durham Performing Arts Center Fund - This fund is established to account for revenues and expenses related to the operations of a downtown performing arts theater. Ballpark Fund - This fund is established to account for revenues and expenses related to the operation of the Durham Bulls Athletic Park in downtown Durham. B-43

100 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Storm Water Management Fund - This fund is established to account for revenues and expenses related to storm water management including developing, monitoring, and performing inspection protocols and prioritization of repairs for drainage and flooding problems. Golf Course Fund - This fund is established to account for revenues and expenses related to the operations of the City's golf course. The City reports the following non-major special revenue governmental funds: Community Development Block Grants Fund - The Community Development Fund is established to account for projects that are financed primarily with Community Development Block Grant funds that are used for revitalization of low and moderate income areas. HOME Program Grants Fund - The HOME Programs Grants Fund is established to account for projects financed with HOME Program Grants funds that are to be used for revitalization of low and moderate income areas. Employment and Training Grants Fund - The Employment and Training Grants Fund is established to account for various agreements, related to improving employment opportunities for underemployed and unemployed individuals. The Fund has been used to account for agreements under the Work Force Investment Act and the Job Training Partnership Act between the N. C. Department of Economic and Community Development, the Division of Employment and Training, and the City. Public Safety Grants Fund - The Public Safety Grants Fund is established to account for various agreements to be used exclusively for law enforcement purposes, fire protection/safety to which federal, state and other aid is contributed. Emergency Telephone System Fund - This fund is established to account for revenues received from the state of North Carolina to enhance the City s 911 system. Inspections Fund The fund is established to account for the revenues and expenses for building construction oversight and was created in accordance with North Carolina General Statute 160A-411. Other Special Revenue Grants Fund - The Other Special Revenue Grants Fund is established to account for miscellaneous activities for which federal, state and other aid is received. The City reports the following non-major capital projects funds: Downtown General Projects Fund - This capital projects fund is established to track the City of Durham s downtown revitalization programs. The projects included in this program are designed to assist and finance the rehabilitation of buildings and to assist in acquiring land for redevelopment, principally for the assistance of business and residences within the downtown area. Impact Fee Fund - The Impact Fee Fund is established to account for impact fees until they are transferred to other capital projects funds and expended for specific projects. Municipal Buildings Projects Fund - The Municipal Projects Funds is established to track the construction, maintenance or expansion of City municipal buildings and facilities including the 911 Center, Fire and Police facilities. B-44

101 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Recreation and General Capital Projects Fund - This Fund is established to track the capital improvements associated with the cultural and recreational endeavors of the City of Durham. The general capital projects component represents projects not otherwise classified below and acts as the fund balance account for past projects that have closed and had funds remaining. Street Projects Fund - The Street Projects Fund is established to track street, thoroughfare and mass transit improvements. Street projects are intended to construct new infrastructure or make significant improvements to the City s roadways and mass transit system. The City reports the following Internal Service Funds: Risk Retention Fund - This fund is established to provide a source of funds for payment of the City's uninsured legal liabilities, including risks such as workers' compensation, automobiles, general operations and professional activities. Claim settlements, actuarial expenses, legal fees, administrative expenses and other professional services required for claim disposition are paid from this fund. Employee Insurance Fund This fund is established to receive premium payments from the City, employees and retirees to fund payments for health insurance claims, administrative expenses and premiums for excess coverage and other benefits. It also receives premium payments from the City and employees for the dental benefits of present City employees. D. Budgetary Data The General Statutes of North Carolina require that the City adopt an annual balanced budget. The General Statutes also provide for balanced project ordinances for the life of projects, including both capital and grant activities, which are expected to extend beyond the end of the fiscal year. Amounts for projects are closed out at the end of the project. The City Council officially adopts the annual budget ordinance prior to July 1 of each year and adopts project ordinances as necessary. The Council has the authority to amend such ordinances. The annual budget ordinance is prepared using the modified accrual basis of accounting. The General Fund, Emergency Telephone System Fund, Business Improvement District Fund, Inspections Fund, Dedicated Housing Fund, the Debt Service Fund, Impact Fee Fund, Watershed Protection Fund, Capital Facilities Fee Fund, Water and Sewer Utility Fund, Transit Fund, Solid Waste Disposal Fund, Storm Water Management Fund, Ballpark Fund, Parking Facilities Fund, Durham Performing Arts Center Fund officially have legally adopted balanced annual budgets. Changes to the budget can be made in two ways: 1) Appropriation transfer if the transfer is between two budget units within the same budget fund (per budget ordinance), 2) Budget Ordinance Amendment used for any transfers between budget categories and for changes to revenues or appropriations, requires City Council approval. The City s Internal Service Funds operate under financial plans that were adopted by the Council at the same time the City s budget ordinance was approved, as is required by General Statutes. During the fiscal year, there were eight amendments for budgeting additional operating funds totaling $95,479,613 approved by the City Council as follows: B-45

102 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 General Fund $ 15,055,839 Emergency Telephone System Fund 507,151 Inspections Fund 40,243 Dedicated Housing Fund 2,830,835 Debt Service Fund 10,554,257 Water and Sewer Fund 56,437,464 Solid Waste Disposal Fund 6,644,895 Storm Water Fund 369,623 Parking Facilities Fund 60,007 Transit Fund 1,695,899 Durham Performing Arts Center Fund 1,283,400 $ 95,479,613 Appropriations, unencumbered and unauthorized for carry forward, lapse at each fiscal year-end. Budgeted amounts in the accompanying statements are as originally adopted, as amended by the City Council, or as changed by approved transfer. Encumbrance accounting, under which purchase orders, contracts, and other commitments for the expenditure of monies are recorded in order to reserve that portion of the applicable appropriation, is employed in all governmental funds. Encumbrances outstanding at year-end are included in the calculation of Restricted by State Statute and therefore reported as restrictions of fund balance. Funds to cover outstanding encumbrances are re-appropriated through the budgetary process for the subsequent year. Encumbrances at year end do not represent and do not constitute GAAP expenditures or liabilities, but represent budgetary accounting controls. E. Assets, Liabilities, Deferred Outflows and Inflows of Resources and Fund Equity 1. Deposits and Investments All deposits of the City are made in designated official depositories and are secured as required by State law [G.S ]. The City may designate, as an official depository, any bank or savings association whose principal office is located in North Carolina. Also, the City may establish time deposit accounts such as NOW, SuperNOW, money market accounts, and certificates of deposit. The Local Government Budget and Fiscal Control Act of North Carolina governs all investments permitted to local governments. General Statutes authorize the City to invest in obligations of the U.S. Treasury; obligations of any agency of the United States of America, provided the payment of interest and principal of such obligations is fully guaranteed by the United States; certain non-guaranteed federal agencies; certain high quality issues of commercial paper and bankers' acceptances; and the North Carolina Capital Management Trust (NCCMT), an SEC registered (2a-7) mutual fund. The NCCMT- Government Portfolio, a SEC-registered (2a-7) external investment pool, is measured at amortized cost, which is the NCCMT s share price. The NCCMT- Term Portfolio s securities are valued at fair value. Investments are reported at fair value as determined by quoted market prices. Interest earned is distributed to the various funds based on each fund's proportionate equity in pooled cash and investments. 2. Cash and Cash Equivalents Pooled cash and investments are maintained and used by all funds. Therefore, all cash and investments are essentially demand deposits and are considered cash and cash equivalents. The City considers all B-46

103 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 highly liquid investments with maturity of three months or less when purchased to be cash and cash equivalents. 3. Restricted Assets Certain investments are classified as restricted assets on the balance sheets and statement of net position when the restrictions change the normal nature or understanding of the assets availability. Typically these assets are maintained in separate bank accounts. The unexpended proceeds from limited obligation bonds in the Enterprise and Non-major Governmental Funds are classified as restricted assets because their use is restricted for the purposes for which certificates of participation agreements were originally issued. The cash and investments in the Stormwater Surety Bond Fund are also restricted for future needs in the fund. 4. Allowances for Doubtful Accounts All receivables that historically experience uncollectible accounts are shown net of an allowance for doubtful accounts. This amount is estimated by analyzing the percentage of receivables that were written off in prior years. 5. Inventories and Prepaid Items Inventories held in the various Funds consist primarily of expendable materials and supplies held for consumption. Inventories are stated using the weighted-average method (which approximates FIFO). Inventory items are recorded as expenditures when consumed rather than when purchased. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements and expensed as the items are used. 6. Capital Assets Capital assets, which include property, plant, equipment and infrastructure assets (e.g., roads, bridges, sidewalks and similar items) are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined as assets with an initial individual cost of more than $5,000 and estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets received prior to July 1, 2015 are recorded at their estimated fair value at the date of donation. Donated capital assets received after June 30, 2015 are recorded at acquisition value. All other purchased or constructed capital assets are reported at cost or estimated historical cost. General infrastructure assets acquired prior to July 1, 2003 consisting of road networks that were acquired subsequent to July 1, 1980 are reported at estimated historical cost using deflated replacement cost. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the asset life are not capitalized. Major expenditures for capital assets and related repairs, which increase useful lives, are capitalized. Capital outlay for the construction of streets, parks, water and sewer lines and other types of infrastructure expenditures are capitalized as land improvements. Maintenance, repairs and minor renewals are expensed as incurred. New public domain and general infrastructure are being capitalized and depreciated. The City evaluates prominent events or changes in circumstances affecting capital assets to determine whether impairment of a capital asset has occurred. A capital asset is generally considered impaired if both (a) the decline in service utility of the capital asset is large in magnitude and (b) the event or change in circumstance is outside the normal life cycle of the capital asset. Impaired capital assets that will no longer be used by the government are reported at the lower of carrying value or fair value. Impairment losses on capital assets that will continue to be used by the government are measured using the method that best reflects the diminished service utility of the capital asset. Any insurance recoveries received as a result of impairment events or changes in circumstances resulting in the impairment of a capital asset are netted against the impairment loss. B-47

104 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Capital assets of the City are depreciated using the straight-line method over the following useful lives: Assets Computer equipment Furniture, machinery and equipment Buildings Public domain infrastructure and systems Enterprise infrastructure and systems Years 3-5 years 5-12 years years years years 7. Deferred Outflows/Inflows of Resources In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, Deferred Outflows of Resources, represents a consumption of net position that applies to a future period and so will not be recognized as an expense or expenditure until then. The City has three items that meet this criterion, deferred charges on debt refunding, contributions made to the Law Enforcement pension plan and the North Carolina Department of the State Treasurer s pension plans in the 2017 fiscal year. The balance in Deferred Outflows of Resources on the statements at year-end is composed of the following elements: Governmental Business Type Pension deferrals $ 30,152,023 $ 8,034,001 Charges on refunding 4,728,917 7,766,900 $ 34,880,940 $ 15,800,901 In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, Deferred Inflows of Resources, represents an acquisition of net position that applies to a future period and so will not be recognized as revenue until then. The City has four items that meet the criterion for this category; prepaid taxes, deferrals of pension expense, unavailable revenues, and bond refunding s. The balance in Deferred Inflows of Resources on the statements at year-end is composed of the following elements: Governmental Business Type Prepaid taxes $ 175,906 $ - Pension deferrals 2,764, ,155 Bond refunding 627, ,901 Assessments and unavailable revenues 590,747 - $ 4,159,162 $ 1,105, Long Term Obligations In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the straight-line method that approximates the effective interest method. Bonds payable are reported net of the applicable bond premiums or discount. Bond issuance costs, except for prepaid insurance costs, are expensed in the reporting period in which they are incurred. Prepaid insurance costs are amortized over the life of the debt using the straight-line method. B-48

105 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 In 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 separate 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. 9. Compensated Absences The vacation policy of the City provides for carrying forward up to 240 hours earned vacation leave on January 1 of each year (360 for Firemen) with such leave being fully vested when earned. Accrued vacation hours in excess of 240 (360 for Firemen) hours are automatically transferred to accrued sick hours on January 1 of each year. For the City's government-wide and proprietary funds, an expense and a liability for compensated absences and the salary-related payments are recorded as the leave is earned. The City has assumed a first-in, first-out method of using accumulated compensated time. The portion of that time that is estimated to be used in the next fiscal year has been designated as a current liability in the government-wide financial statements. The City's sick leave policy provides for an unrestricted accumulation of earned sick leave. Upon termination of employment, accumulated sick leave is forfeited. Upon retirement, all of the accumulated sick leave may be used in the determination of length of service for retirement purposes. No obligation to the employer results from such application and therefore, no accrual has been made. The City records compensatory time in accordance with the Fair Labor Standards Act (FLSA) for nonexempt employees. All amounts accrued are listed as current, as compensatory time is infrequent and is expected to be used within one year. Some exempt employees receive time off for management leave, from a minimum of 10 hours to a maximum of 80 hours per calendar year. The amounts are determined by supervisors and approved by the City Manager s Office. 10. Net Position/Fund Balances Net position in government-wide and proprietary fund financial statements are classified as net investment in capital assets, restricted; and unrestricted. Restricted net position represents constraints on resources that are either externally imposed by creditors, grantors, contributors, or laws or regulations of other governments or imposed by law through state statute. Fund Balances In the governmental fund financial statements, fund balance is composed of five classifications designed to disclose the hierarchy of constraints placed on how fund balance can be spent. The governmental fund types classify fund balances as follows: Non-spendable fund balance: This classification includes amounts that cannot be spent because they are either (a) not in spendable form or (b) legally or contractually required to be maintained intact. Portion of fund balance that is not available resource because it represents the year-end balances of ending inventories. Restricted fund balance: This classification can be spent only for specific purposes, as stipulated by external resource providers and creditors, by constitution or through enabling legislation that is legally enforceable by an external party. Enabling legislation that creates a revenue stream must also stipulate the purposes for which that revenue can be used. Restrictions may only be changed by parties external to the entity or changes to the law. Restricted for Stabilization by State statute - This represents the amount of fund balance which cannot be appropriated by the governing board. North Carolina General Statutes (G.S (a)) limit the amount that each local government may appropriate to the sum of cash and cash B-49

106 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 equivalents/investments, less the sum of liabilities, encumbrances and deferred revenues arising from cash receipts as those amounts stand at the close of the preceding Fiscal Year. Encumbrances represent commitments outstanding at June 30, 2017 related to purchase orders and unperformed contracts. Restricted for Public Safety - portion of fund balance that is restricted by revenue source for public safety expenditures. Restricted for Community Development portion of fund balance restricted for economic development and grant expenditures. Restricted for Parks and Recreation portion of fund balance restricted for parks maintenance. Committed fund balance: The portion of fund balance that can only be used for specific purposes imposed by a formal action in a majority vote by a quorum of the City of Durham s governing body, City Council (the highest level of decision making authority). The governing body, can by the adoption of a resolution prior to year-end, commit fund balance. Once adopted the commitment remains in place until a similar action (another resolution), that requires the majority action by the Durham City Council, is taken to remove or revise the commitment. These amounts are not subject to legal enforceability by external parties, as is the case with restricted amounts; however, amounts cannot be used for any other purpose unless the governing body removes or changes the limitation by taking the same form of action employed to previously impose the limitation. Formal action to commit an amount to a specific purpose must be made prior to the end of the Fiscal Year. The actual amount, however, may be computed after the year end as part of the preparation of the financial statements. Committed for capital projects portion of fund balance committed by the City Council for the construction of streets, municipal buildings, parks and recreation facilities and economic development. Assigned fund balance: Amounts that are constrained by the City of Durham with the intent to be used for specific purposes and are neither restricted nor committed. These amounts can be assigned either by any action of the City Council, or by the City Manager as designated within authority to assign by the City Council s fund balance resolution. Amounts can be unassigned by the same process. Assignment calculations may be made after the end of the fiscal year during the process of preparation of the financial statements. The City Council may delegate to the City Manager (or his designee) the authority to assign amounts of fund balance to promote sound financial operations of the City or to meet a future obligation. Assigned for debt covenants portion of fund balance restricted that will be used to make future debt payments. Unassigned fund balance: Portion of fund balance that has not been restricted, committed or assigned to specific purposes within the General Fund. The General fund is the only governmental fund that can report a positive amount of unassigned fund balance. However, for governmental funds other than the general fund, if expenditures incurred for specific purposes exceed the restricted, committed, or assigned resources available for those purposes the deficit would be reported in the unassigned category. The City has a revenue spending guideline for programs with multiple revenue sources. The finance officer will use resources in the following hierarchy: bond proceeds, federal funds, state funds, local non- City funds, and City funds. For the purposes of the fund balance classifications, the expenditures are to be spent from restricted fund balance first, followed in order by committed, assigned and unassigned fund balances. The finance officer may deviate from this order if it is in the best interest of the City. B-50

107 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 The City Council has adopted a policy of maintaining a fund balance of no less than 12 percent of adjusted budgeted appropriations. The unassigned fund balance for fiscal year 2017 was 28.4 percent, and the unassigned fund balance for fiscal year 2016 was 32.6 percent. 11. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Local Governmental Employees Retirement System (LGERS), additions to/deductions from LGERS fiduciary net position have been determined on the same basis as they are reported by LGERS. For this purpose, plan member contributions are recognized in the period in which the contributions are due. The City of Durham s employer contributions are recognized when due and the City of Durham has a legal requirement to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of LGERS. Investments are reported at fair value. F. Revenues, Expenditures and Expenses Substantially all governmental fund revenues are accrued. Property taxes are generally billed and collected within the same period in which the taxes are levied. Expenditures are recognized when the related fund liability is incurred except for the following permitted by generally accepted accounting principles: General obligation long-term debt principal and interest and compensated absences are reported, if any, only when due. Inventory costs are reported in the period when inventory items are consumed, rather than in the period purchased. 1. Inter-Fund Transactions Inter-fund transactions are reflected as loans, services provided/used, reimbursements or transfers. Loans are reported as receivables and payables as appropriate and are subject to elimination upon consolidation. Services provided, deemed to be at market or near market rates, are treated as revenues and expenditure/expenses. Reimbursements occur when one fund incurs a cost, charges the appropriate benefiting fund and reduces its related cost as a reimbursement. All other inter-fund transactions are treated as transfers. Transfers between governmental or proprietary funds are netted as part of the reconciliation to the government-wide presentation. 2. Property Taxes The Durham County Tax Administrator acts as agent for the City in listing, assessing and collecting all taxes related to real and personal property located in the City. Taxes are levied on property assessed at 100% of the estimated actual value as of the year of revaluation. The City's tax rate may not exceed $1.50 per $100 assessed valuation for operating purposes without voted approval by the citizens of the City. The property tax calendar is as follows: Taxes are listed each January 1. Liens may be placed on property January 1. Taxes are levied each July 1, except for ad valorem taxes on certain vehicles. Taxes are due September of each year. Taxes are considered delinquent after January 5 of the following year. Penalties are applied to delinquent taxes at a rate of 2% in January and 3/4 of 1% per month for each month thereafter until collected or foreclosure proceedings are consummated. Garnishment and sale of taxable property are procedures used for collecting delinquent taxes. The tax rate for debt service purposes is unlimited provided that the voters have approved the bonds issued or provided that the bonds issued during any year have not exceeded 2/3 of that fiscal year's net debt reduction. B-51

108 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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. Note II Stewardship, Compliance and Accountability 1. Deficit Fund Balance of Individual Funds The Employment and Training Grants Fund and the Municipal Buildings Projects funds had deficit fund balances of $233,764 and $6,408,875 respectively at June 30, The Employment and Training Grants Fund deficit is expected to be eliminated when grant reimbursements are received and the Municipal Buildings Projects is expected to be eliminated with the drawdown of funds from Bond Anticipation Notes. 2. Restatement of Net Position Effective July 1, 2016, the City of Durham adopted the provisions of Governmental Accounting Standards Board (GASB) Statement 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain provisions of GASB Statements 67 and 68. This implementation required the City to do a prior period adjustment resulting in a restatement of Net Position. The description and amounts of the adjustment are listed below. Net position, as previously reported Adjustment: Record beginning net pension liability Net position, as adjusted Governmental Activities $ 501,811,386 (19,737,984) $ 482,073,402 Note III Detailed Notes on All Funds A. Deposits All the deposits of the City are either insured or collateralized by using one of two methods. Under the Dedicated Method, all deposits that exceed the federal depository insurance coverage level are collateralized with securities held by the City's agents in the City s name. Under the Pooling Method, which is a collateral pool, all uninsured deposits are collateralized with securities held by the State Treasurer's agent in the name of the State Treasurer. Since the State Treasurer is acting in a fiduciary capacity for the City, these deposits are considered to be held by the City's agents in its name. The amount of the pledged collateral is based on an approved averaging method for non-interest bearing deposits and the actual current balance for interest-bearing deposits. Depositories using the Pooling Method report to the State Treasurer the adequacy of their pooled collateral covering uninsured deposits. The State Treasurer does not confirm this information with the City, or the escrow agent. Because of the inability to measure the exact amounts of collateral pledged for the City under the Pooling Method, the potential exists for under-collateralization, and this risk may increase in periods of high cash flows. However, the State Treasurer of North Carolina enforces strict standards of financial stability for each depository that collateralizes public deposits under the Pooling Method. The City has no formal policy regarding custodial credit risk for deposits, but relies on the State Treasurer to enforce standards of B-52

109 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 minimum capitalization for all pooling method financial institutions and to monitor them for compliance. The City complies with the provisions of G.S when designating official depositories and verifying that deposits are properly secured. At year-end, the City s deposits had a carrying amount of $24,909,291 and a bank balance of $26,774,021. Of the balance, $463,593 is covered by federal depository insurance. The remaining balance of $26,310,428 is collateralized using the Pooling Method. The City had a balance of $73,000,000 in Certificate of Deposit s. Of the balance, $1,250,000 is covered by federal depository insurance. The remaining balance of $71,750,000 is collateralized using the Pooling Method. At June 30, 2017, the City s petty cash and change funds totaled $140,800. B. Investments At June 30, 2017, the City s investment balances were as follows: Investment Type Valuation Measurement Method Fair Value Maturities Less Than 1 year Maturities More Than 1 year US Government Securities US Government Agencies Fair value Level 1 $ 27,078,288 $ - $ 27,078,288 Fair value Level 2 180,347,235 95,417,813 84,929,422 Money Market Cost 20,905,082 20,905,082 - Fair value Municipal Bonds Level 1 17,659, ,091 16,956,659 Totals $ 245,990,355 $ 117,025,986 $ 128,964,369 All investments are measured using the market approach: using prices and other relevant information generated by market transactions involving identical or comparable assets or a group of assets. Level of fair value hierarchy: Level 1: Debt securities valued using directly observable, quoted prices (unadjusted) in active markets for identical assets. Level 2 debt securities are valued using a matrix pricing technique. Matrix pricing is used to value securities based on the securities benchmark quoted prices. Interest Rate Risk - The City has no formal policy regarding interest rate risk, but does follow investment guidelines which state that in terms of risk tolerance the City s objective is not to incur any losses through trading of securities. The City also strictly follows the North Carolina (N.C.G.S.) guidelines. In addition, investments of the City covered by these guidelines must be diversified to eliminate the risk of loss as a result of over concentration of securities in a specific issuer, or specific class of securities. If a loss has to be taken to restructure or reposition a portfolio, the action needs prior approval of the Finance Officer. Credit Risk - The City has no formal policy regarding credit risk, but has internal management procedures that limit the City s investments to the provisions of G.S and restricts the purchase of securities to the highest possible ratings whenever particular types of securities are rated. The City s investment in the NC Capital Management Trust Cash Portfolio carried a credit rating of AAA by Standard & Poor s as of June 30, The City s investment in the NC Capital Management Trust Term Portfolio is unrated. The Term Portfolio is authorized to invest in obligations of the U.S. government and agencies, and in high grade money market instruments as permitted under North Carolina General B-53

110 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Statutes as amended. The Bond Trustee Accounts are in highly rated money market instruments; the City s other investments are triple A rated. Custodial Credit Risk - For an investment, the custodial risk is the risk that in the event of the failure of the counterparty, the City will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The City requires collateralization for: Certificates of Deposit and repurchase (and reverse repurchase) agreements. In both cases the collateral must cover at least 105% of market value of principal and accrued interest. The City has no formal policy on custodial credit risk, but management procedures are that the City will utilize an independent third party with whom the City has a custodial agreement. Safekeeping receipts must be supplied to the City evidencing ownership. Concentration of Credit Risk - The City places a limit on the amount of commercial paper that the City may invest in any one issuer to 20% of the City s total investments; this does not apply to bond proceeds. No more than 25% of the City s total investments may be in commercial paper. At June 30, 2017, none of the City s investments were in commercial paper. North Carolina General Statute authorizes the City to invest its funds in Treasury; obligations of agencies of the United States of America, provided the payment of interest and principal of such obligations is fully guaranteed by the United States; bonds and notes of any North Carolina local government or public authority; certain non-guaranteed federal agencies; certain high quality issues of commercial paper and bankers acceptances; and the North Carolina Cash Management Trust, an SEC registered mutual fund. C. Receivables Allowances for Doubtful Accounts Receivables at June 30, 2017 for the City s individual major and non-major funds, including the applicable allowances for uncollectible accounts, are as follows: General Housing Projects Non-Major Governmental Water And Sewer Parking Facilities Receivables: Taxes $ 1,055,592 $ - $ - $ - $ - Accounts 4,033,199 53, ,705 16,109,545 56,500 Special assessments 197, ,595 - Notes - 6,363,893 8,451, Gross receivables 5,286,224 6,417,290 8,973,863 16,551,140 56,500 Less: allowance for uncollectables (3,185,994) (968,456) (866,806) (2,693,260) - Net total receivables $ 2,100,230 $ 5,448,834 $ 8,107,057 $ 13,857,880 $ 56,500 Transit Solid Waste Disposal Performing Arts Center Storm Water Internal Service Receivables: Accounts $ 3,801,102 $ 399,335 $ 2,173,825 $ 3,387,872 $ 444,738 Gross receivables 3,801, ,335 2,173,825 3,387, ,738 Less: allowance for uncollectables - (48,367) - (1,243,162) (24,790) Net total receivables $ 3,801,102 $ 350,968 $ 2,173,825 $ 2,144,710 $ 419,948 Notes receivable represent loans made by the City for housing, redevelopment or improvements to blighted areas of the City. These notes receivable have varying interest rates and payment terms, with B-54

111 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 stated interest rates ranging from 0 to 5 percent and scheduled repayment dates through Some notes are payable in equal installments while others have balloon payments. The City s policy is to expense loans in the fund financial statements when there is a stipulation that if a certain condition is met the loans are forgiven and treated as grants to the individuals. Nonperformance related to the stipulations result in the recognition of a receivable and a corresponding deferred inflow of resources because the amounts are not available. Any amounts received are treated as revenues when they become available. D. Capital Assets Capital asset activity for the year ended June 30, 2017 was as follows: Disposals/ Beginning Adjustments/ Ending Balances Additions Transfers Balances Governmental Activities: Capital assets not being depreciated: Land $ 36,785,001 $ 6,308,415 $ (2,939) $ 43,090,477 Land Rights 5,500,657 46,671-5,547,328 Construction in progress 21,816,682 26,166,336 (13,584,561) 34,398,457 Total capital assets not being depreciated 64,102,340 32,521,422 (13,587,500) 83,036,262 Capital assets being depreciated: Buildings 161,179, ,536 9,997, ,526,148 Infrastructure 588,458,520 37,716,166 3,538, ,713,205 Furniture and equipment 85,531,882 8,279,020 (3,584,619) 90,226,283 Total capital assets being depreciated 835,170,081 46,343,722 9,951, ,465,636 Less accumulated depreciation for: Buildings (66,992,813) (4,753,220) - (71,746,033) Infrastructure (162,239,249) (12,078,812) - (174,318,061) Furniture and equipment (70,537,220) (3,653,812) 3,372,304 (70,818,728) Total accumulated depreciation (299,769,282) (20,485,844) * 3,372,304 (316,882,822) Total capital assets being depreciated, net 535,400,799 25,857,878 13,324, ,582,814 Governmental activity capital assets, net $ 599,503,139 $ 58,379,300 $ (263,363) $ 657,619,076 * Depreciation expense was charged to functions as follows: Governmental Activities: General Government $ 38,256 Public Protection 3,272,625 Development 340,227 General Services 2,353,616 Recreation 4,256,468 Streets and Highways $ 10,224,652 20,485,844 B-55

112 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 The remainder of this page intentionally left blank Business-type Activities Capital assets not being depreciated: Disposals/ Beginning Adjustments/ Ending Balances Additions Transfers Balances Land $ 43,690,553 $ 542,281 $ (2,601) $ 44,230,233 Land Rights 1,194,710 79,845-1,274,555 Construction in progress 29,528,781 62,921,784 (6,747,612) 85,702,953 Total capital assets not being depreciated 74,414,044 63,543,910 (6,750,213) 131,207,741 Capital assets being depreciated: Infrastructure 798,753,249 30,054,696 3,311, ,119,657 Buildings 314,682, ,822 2,837, ,896,372 Furniture and equipment 66,786,093 5,373,235 (3,604,669) 68,554,659 Other Improvements 2,411,619 1,177,746-3,589,365 Total capital assets being depreciated 1,182,633,413 36,982,499 2,544,141 1,222,160,053 Less accumulated depreciation for: Infrastructure (301,428,383) (16,756,939) - (318,185,322) Buildings (163,544,532) (7,321,513) (4,030) (170,870,075) Furniture and equipment (47,304,948) (4,924,161) 3,353,812 (48,875,297) Other Improvements (51,616) (125,760) - (177,376) Total accumulated depreciation (512,329,479) (29,128,373) * 3,349,782 (538,108,070) Total capital assets being depreciated, net 670,303,934 7,854,126 5,893, ,051,983 Business-type activities capital assets, net $ 744,717,978 $ 71,398,036 $ (856,290) $ 815,259,724 * Depreciation expense was charged to functions as follows: Business-type activities: Water/Sewer distribution systems $ 21,238,106 Golf 122,170 Parking facilities 874,064 Stormwater 655,817 Performing Arts 1,182,059 Ballpark operations 1,271,634 Solid Water Disposal 1,697,894 Transit 2,086,629 $ 29,128,373 The remainder of this page intentionally left blank B-56

113 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 E. Interfund Receivables, Payables and Transfers 1. Interfund Receivables and Payables The composition of interfund balances at June 30, 2017, is as follows: Receivable Fund Payable Fund Amount Water and Sewer Utility Transit Fund $ 1,333,076 Non-Major Governmental Fund Non-Major Governmental Funds $ 5,317,430 6,650,506 Advance to Other Funds Receivable Fund Payable Fund Amount Water and Sewer Utility Ballpark $ 137,170 Due to Other Fund balances are overnight loans at fiscal year end from the receivable fund to the payable fund to cover cash deficits in the payable fund. The amounts are reversed on the first day of the next fiscal year. The fund with the cash deficit then has a liability to the pooled cash and investments. Advance to Other Fund balances are for loans that were made by the receivable to the payable fund for capital improvements in the payable fund. 2. Transfers to Other Funds The following is a schedule of interfund transfers for the year ended June 30, 2017: Transfers Out Transfers In: General Fund NonMajor Funds Transit Fund Solid Waste Disposal Fund Debt Service Fund Storm Water Fund Total Transfers In General Fund $ - $ 19,139 $ - $ - $ - $ - $ 19,139 NonMajor Funds 7,787,834 24,059, ,355 3, , ,533 33,240,635 Housing Projects - 1,191, ,191,866 Water & Sewer - 31, ,536 Solid Waste - 90, ,130 Storm Water , ,047 Ballpark Fund 50, ,165,354-1,215,354 Parking Fund , ,419 Total Transfers Out $ 7,837,834 $ 25,392,318 $ 224,402 $ 3,818 $ 3,079,221 $ 300,533 $ 36,838,126 Transfers out of the General Fund to the Non-Major Governmental Funds are for grant and capital related items. Transfers out of the General Fund to the Ballpark Fund help subsidize that fund. Transfers B-57

114 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 out of the Transit Fund to the Stormwater Management Fund are to cover bus shelter cleaning services. Transfers out of the Transit Fund to the Non-Major Funds are to cover grant matches. Transfers out of the Debt Service Fund to the Ballpark, and Parking Funds are to cover debt service payments. Transfers out of the Stormwater Fund to Non-Major Funds are to cover Stormwater Capital Improvement Projects F. Leases Operating Leases The City leases building and office facilities under non-cancelable operating leases. The future minimum lease payments as of June 30, 2017 were as follows: Year Ending June $ 1,487, , , , ,348 Thereafter 22,359 Total $ 2,605,018 Operating lease amounts paid in 2017 were $1,596,067. G. Long-Term Obligations General Obligation Bonds The City issues general obligation bonds to provide for the acquisition and construction of major equipment and capital facilities. These debt obligations are backed by the full faith, credit and taxing power of the City. However, the principal and interest requirements of the Water and Sewer Utility Fund, and the Parking Facilities Fund are intended to be paid from the revenues in those funds. General obligation bonds outstanding at June 30, 2017: Due Serially Original Balance Issue Date To Interest Rate Issue June 30, 2017 Public Improvements /01/ $ 58,920,000 $ 3,700,000 Refunding, Series /26/ ,300,000 3,854,590 Refunding, Series /20/ ,825,000 30,665,000 GO Series /10/ ,300,000 53,165,000 Refunding Series /04/ ,775,000 49,260,000 Fleet Vehicles 2017A 06/20/ ,590,000 6,590,000 Refunding Series 2017B 06/21/ ,110,000 18,110,000 $ 266,820,000 $ 165,344,590 The bonds are recorded as follows: Governmental Activities $ 128,453,172 Business-type Activities 36,891,418 Total $ 165,344,590 B-58

115 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 The City is subject to the Local Government Bond Act of North Carolina that limits the net bonded debt the City may have outstanding to eight percent of the appraised value of property subject to taxation. At June 30, 2017, such statutory limit for the City was $2,222,331,737 providing a debt margin of $1,963,250,227. The following schedule shows the future for principal and interest for all general obligation bond debt outstanding as of June 30, Governmental Activities Business-Type Activities Fiscal Year Principal Interest Principal Interest 2018 $ 13,245,639 $ 4,987,965 $ 4,763,951 $ 1,243, ,417,561 4,493,752 4,547,848 1,129, ,571,114 3,954,026 4,143, , ,459,997 3,405,043 4,190, , ,970,035 2,865,323 3,739, , ,038,674 7,621,430 9,406,326 2,134, ,699,729 2,008,088 5,470, , ,050,423 39, ,168 12,299 Total $ 128,453,172 $ 29,375,222 $ 36,891,418 $ 7,706,540 Status of Bond Authorizations The City has no authorized or unissued General Obligation Bonds at June 30, General Obligation Bond Issue On April 20, 2017 the City of Durham issued General Obligation Bonds 2017A in the amount of $6,590,000 with a true interest cost of 1.86%, the proceeds were used for fleet vehicles. General Obligation Refunding Bond Issue On April 21, 2017 General Obligation Refunding Bonds, 2017B were issued in the amount of $18,110,000 with a true interest cost of 1.90%. The proceeds from this issue were used to refund the 2007A General Obligation Refunding Bonds with an outstanding par amount of $18,075,000 and an average coupon rate of 4.91%. The refunded bonds were called on the date of delivery of the 2017B Bonds at the redemption price of 100% of the outstanding principal amount plus accrued interest to the redemption date. The refunding was undertaken to reduce total future debt service payments by acquiring a lower interest rate. The transaction also resulted in an economic gain of $1,495,077 and a reduction of $1,825,517 in future debt service payments. The remainder of this page intentionally left blank B-59

116 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Certificates of Participation/Limited Obligation Bonds The City has contracts payable to New Durham Corporation with terms of twenty years and interest and principal payments due annually. All outstanding Certificates of Participation were retired during the current fiscal year. Limited Obligation Bonds (LOBs) outstanding as of June 30, 2017: Due Serially Original Balance Issue Date To Interest Rate Issue June 30, 2017 Multi-purpose A & B 08/03/ $ 57,030,000 $ 28,435,000 Multi-purpose A 05/17/ ,555,000 5,970,000 Multi-purpose A & B 10/09/ ,720,000 23,700,000 LOBS DPAC 03/03/ ,205,000 28,855,000 $ 137,510,000 $ 86,960,000 The LOBs are recorded as follows: Governmental Activities $ 42,119,226 Business-type Activities 44,840,774 Total $ 86,960,000 Future requirements to pay principal and interest on the limited obligation bonds outstanding at June 30, 2017, are as follows: Governmental Activities Business-Type Activities Fiscal Year Principal Interest Principal Interest 2018 $ 6,356,437 $ 1,656,348 $ 3,268,563 $ 1,445, ,247,369 1,457,576 2,627,631 1,367, ,682,337 1,301,093 2,277,663 1,307, ,667,788 1,157,879 2,322,212 1,253, ,868,388 1,032,049 2,371,612 1,192, ,721,293 3,458,314 12,683,707 4,858, ,535, ,206 13,774,386 2,581, ,040,000 44,200 5,515, ,211 Total $ 42,119,226 $ 11,104,665 $ 44,840,774 $ 14,291, Bond Anticipation Notes The City entered into an installment financing contract with PNC Bank during Fiscal Year 2016, in order to obtain funds to (1) pay the capital costs of the construction of a new police headquarters and 911 facility (the Police Headquarters ), (2) refinance upgrades to the City s public safety radio infrastructure (the Radio Infrastructure ), (3) pay the capital costs of other general government projects. The amount authorized is up to $95,000,000. This installment finance program operates similar to a credit line in that the city reimburses its capital expenditures by drawing down proceeds. The City plans to issue long term debt in the future to retire the Bond Anticipation Notes. As of June 30, 2017 the City has drawn down a total of $18,719,255. The interest is a variable. The rate in effect at June 30, 2017 was 1.05%. B-60

117 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Since the City is still drawing down funds on this arrangement a debt service to maturity schedule has not been established. The City is required to make periodic interest payments on the outstanding principal balance using the variable rate in effect at the time of the payment. Bank Loan Future requirements to pay principal and interest on the bank loan agreement with Banc of America Public Capital Corp. at June 30, 2017 the outstanding principal amount was as follows: Issue Date To Rate Issue June 30, 2017 Lease Purchase /19/16 6/1/ $ 9,390,000 $ 6,575,000 Installment financing is recorded as follows: Governmental Activities $ 4,210,000 Business-type Activities 2,365,000 Total $ 6,575,000 Future requirements to pay principal and interest on the financings at June 30, 2017, are as follows: Governmental Activities Business-Type Activities Fiscal Year Principal Interest Principal Interest 2018 $ 1,200,000 $ 66,308 $ 675,000 $ 37, ,200,000 47, ,000 26, ,205,000 28, ,000 15, ,000 9, ,000 5,276 Total $ 4,210,000 $ 151,753 $ 2,365,000 $ 85,129 Section 108 Loan The loan guarantee provision of the Community Development Block Grant (CDBG) program provides communities with a source of financing for economic development, housing rehabilitation, public facilities, and large-scale physical development projects. Local governments borrowing funds guaranteed by Section 108 loans must pledge their current and future CDBG allocations as security for the loan. The outstanding principal amount of the loan at June 30, 2017 is as follows: Issue Date Due Serially to Interest Rate Original Issue Balance June 30, 2017 Section 108 Loan 5/20/ $ 8,800,000 $ 7,425,000 The remainder of this page intentionally left blank B-61

118 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Future requirements to pay principal and interest on the Section 108 loan at June 30, 2017, are as follows: Fiscal Year Pricipal Interest Balance June 30, $ 365,000 $ 208,787 $ 573, , , , , , , , , , , , , ,080, ,716 2,833, ,400, ,116 2,805, ,065,000 39,015 1,104,015 $ 7,425,000 $ 2,184,278 $ 9,609,278 Revenue Bonds The City has revenue bonds to fund certain capital improvements in the Water and Sewer Fund. These obligations are not backed by the full faith and credit of the City, but only by net revenues, as defined, of the Water and Sewer Fund. The City is required to make monthly deposits with the trustee to cover annual debt service requirements. Revenue bonds outstanding at June 30, 2017: Issue Date Due Serially to Interest Rate Original Issue Balance June 30, 2017 Series /25/ $ 18,605,000 $ 7,255,000 Series /01/ ,465,000 4,810,000 Series /10/ ,715,000 45,430,000 $ 122,785,000 $ 57,495,000 The City has pledged future water and sewer customer revenues, net of specified operating expenses, to repay $122,785,000 in water and sewer revenue bond issued in 2005, 2011, and Proceeds from the bonds provided financing for various line extensions and upgrades to the City s water and sewer plants. The bonds are payable solely from water and sewer customer net revenues and are payable through Annual principal and interest payments on the bonds are expected to require 8.86 percent of operating revenues. The total interest and principal remaining to be paid on the bonds is $83,195,494. Principal and interest paid for the current year and total customer operating revenues were $6,282,088 and $97,746,172 respectively. The remainder of this page intentionally left blank B-62

119 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Future requirements to pay principal and interest on the water and sewer bonds liabilities at June 30, 2017, are as follows: Fiscal year Principal Interest Total 2018 $ 3,750,000 $ 2,226,650 $ 5,976, ,635,000 2,043,838 4,678, ,770,000 1,908,425 4,678, ,910,000 1,766,063 4,676, ,540,000 1,617,863 3,157, ,710,000 7,090,763 15,800, ,575,000 5,223,169 15,798, ,700,000 3,096,150 15,796, ,905, ,573 12,632,573 $ 57,495,000 $ 25,700,494 $ 83,195,494 Revenue Bonds Refunding On September 21, 2016, the City of Durham issued Revenue Refunding Bonds Series 2016 in the amount of $46,715,000. The refunded bonds had an average interest rate of 4.9%.The 2016 Bonds are being issued for the purpose of providing funds, together with other available funds to refund a portion of the City's water and sewer utility system Revenue Refunding Bonds, Series 2011 maturing on or after June 1, 2022 and to pay the costs incurred in connection with the issuance of the 2016 Bonds. The transaction resulted in an economic gain of $5,497,509 and a reduction of $8,079,711 in future debt service payments. The next page has the debt covenants calculation for fiscal year The remainder of this page intentionally left blank B-63

120 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Debt Covenant Ratio For Fiscal Year Ending June 30, 2017 Operating Revenues: Charges for Services $ 97,746,172 Total Operating Revenues $ 97,746,172 Current Expenses: Personal Services $ 25,611,185 Materials, Services and Supplies 24,535,637 Indirect Costs 4,773,733 Current Expenses (before depreciation) $ 54,920,555 Operating Income (Loss) before depreciation $ 42,825,617 Depreciation 21,238,106 Operating Income (Loss) $ 21,587,511 Non-Operating Revenue: Investment and rental income $ 1,070,171 Other revenue 1,945,715 Capital Facilities Fees 5,748,604 Interest and Fiscal Charges (2,609,294) Non-operating revenue (expenses) $ 6,155,196 Income (Loss) before Contributions and Transfers $ 27,742,707 Capital Contributions 28,547,021 Transfers In (Out) 31,536 Change in Net Assets $ 56,321,264 Adjustments to determine net revenues per Bond Order Plus: Depreciation $ 21,238,106 Plus: Interest and Fiscal Charges 2,609,294 Plus: Indirect Costs 4,773,733 Less: Capital Contributions (28,547,021) (A) Net Revenues $ 56,395,376 Bonds State Loan $ 135,000 Existing Revenue Bond Debt Service 6,239,307 (B) Total Bonds $ 6,374,307 Debt Service Coverage - Bonds Calculated using net Revenues (A/B) 8.85 (C) Net revenues available for General Obligation, Subordinated, and Other Indebtness (A-B) $ 50,021,069 General Obligation, Subordinates and Other Indebtness 2002 NC Drinking Water SRF $ 23,247 Durham County Repayment 53,925 General Obligation Bonds 3,114,224 (D) Total General Obligation, Subordinated, and Other Indebtness $ 3,191,396 Debt Service Coverage - General Obligation, Subordinated, and Other Indebtness (C/D) (E) Total Bonds, GO, Subordinated, and Other Indebtness $ 9,565,703 Total Debt Service Coverage (A/E) 5.90 Rate Covenant Test Calculated using Net Revenues (s/b > 1.0) (A/E) 5.90 Net Revenues after total debt $ 46,829,673 B-64

121 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Durham County Notes Notes payable to Durham County (the "County") consist of a series of 20-year notes with final maturity dates ranging from 2012 to The notes were given to the County in exchange for certain water and sewer assets transferred to the City. The notes bear interest at 5.54 percent. Principal payments for each note are due based on the collections of certain assessments, frontage fees and water and sewer charges received by the City, which are attributable to the related project. At the end of 20 years, the notes have been deemed to be fully satisfied and any remaining balances and related accrued interest is deemed to be a capital contribution to the City. At June 30, 2017 several of the notes reached the end of their term and a reduction in the notes was recorded in the amount of $38,098 all of which represents payments on the notes. No lines expired this year. Given the uncertainty of the timing of future collections, annual maturities for these notes are not determinable. The outstanding balance of the Durham County Notes as of June 30, 2017 was $2,175,407 all of which will be paid from the Water and Sewer Utility Fund. State of North Carolina The City also has a line of credit that was drawn on during Fiscal Year 2008, which is a twenty-year promissory note from the North Carolina Drinking Water State Revolving Fund in the principal amount of $2,700,000 at a rate of 2.87% per annum to provide funds to pay a part of the cost of a water project. The remaining balance was $675,000 as of June 30, Future requirements to pay principal and interest to the State of North Carolina are as follows: Fiscal year Principal Interest Total 2018 $ 675,000 $ 9,686 $ 684,686 The remainder of this page intentionally left blank B-65

122 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Changes in Long-Term Obligations The following is a summary of changes during the year ended June 30, Governmental activities Bonds Payable: Balance Reductions/ Balance Due Within June 30, 2016 Additions Adjustments June 30, 2017 One Year General obligation $ 135,622,852 $ 14,596,211 $ (21,765,891) $ 128,453,172 $ 13,245,639 Unamortized premiums - GO 13,661,428 - (1,552,052) 12,109,376 - Limited obligation 48,500,062 - (6,380,836) 42,119,226 6,356,437 Unamortized premiums - LOB 3,184,949 - (216,041) 2,968,908 - Installment Financings: Certificates of participation 496,087 - (496,087) - - Unamortized premiums - COP 873,117 - (873,117) - - Bank loan 5,832,825 - (1,622,825) 4,210,000 1,200,000 Bond anticipation notes 6,757,341 11,961,914-18,719,255 - Section 108 Loan payable 7,785,000 - (360,000) 7,425, ,000 Other Long-Term Obligations: Accrued compensated absences 9,557,169 5,989,741 (5,707,774) 9,839,136 5,707,774 Net OPEB Obligations 45,018,414 8,793,787 (4,072,299) 49,739,902 - Net pension liability 30,408,574 34,854,342 (9,326,797) 55,936,119 - Pending Claims 9,253,629 37,648,328 (37,159,629) 9,742,328 5,084,141 Total governmental activities $ 316,951,447 $ 113,844,323 $ (89,533,348) $ 341,262,422 $ 31,958,991 Business-type activities Bonds Payable: General obligation $ 39,841,739 $ 10,103,789 $ (13,054,110) $ 36,891,418 $ 4,763,951 Unamortized premiums - GO 2,772, ,021 (974,052) 2,241,094 - Revenue 59,040,000 46,715,000 (48,260,000) 57,495,000 3,750,000 Unamortized premiums - Rev 3,929,040 5,433,652 (3,737,399) 5,625,293 - Limited obligation 47,079,938 - (2,239,164) 44,840,774 3,268,563 Unamortized premiums - LO 449,598 - (27,957) 421,641 - Installment Financings: Certificates of participation 933,913 - (933,913) - - Less discounts on borrowings (110,405) - 110, Bank loan 3,251,925 - (886,925) 2,365, ,000 Other Long-Term Obligations: Landfill post closure costs 7,212, ,651 (655,647) 6,708, ,549 Accrued compensated absences 2,138,091 1,499,396 (1,446,871) 2,190,616 1,446,871 Due to the State of North Carolina 810,000 - (135,000) 675, ,000 Due to Durham County 2,213,505 - (38,098) 2,175,407 13,180 Net pension liability 2,010,362 7,383,842-9,394,204 - Net OPEB Obligations 11,502,469 2,656,809 (1,230,337) 12,928,941 - Total Business-type activities $ 183,074,421 $ 74,387,160 $ (73,509,068) $ 183,952,513 $ 14,906,114 Internal service funds predominantly serve the governmental funds. Accordingly, long-term liabilities for them are included as part of the above totals for governmental activities. B-66

123 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 H. Fund Balance The following schedule provides management and citizens with information on the portion governmental funds fund balance that is available for appropriation: Non-Major General Fund Housing Projects Fund Debt Service Fund Governmental Funds Total Fund Balance $ 83,083,507 $ 8,637,179 $ 8,463,820 $ 68,134,058 Less: Inventories 530, Notes receivable - 5,395,436-7,589,556 Stabilization by State Statute 32,445, ,728-73,439,024 Other functions ,706,014 Debt service - - 8,463,820 - Grantors, community development, emergency communications transportation and public safety - 2,841, Capital projects, streets, economic development, parks & recreation and buildings ,691,171 Other purposes 19, Remaining Fund Balance $ 50,087,865 $ - $ - $ (41,291,707) I. Encumbrances The outstanding encumbrances are amounts needed to pay any commitments related to purchase orders and contracts that remain open at year-end. The encumbrances at year-end totaled $9,110,967 for the General Fund, $347,330 for the Housing Projects Fund and $65,936,965 in the Non-major Governmental Funds, these encumbrances are restricted and included in stabilization by state statute. Note IV Other A. Pending Claims 1. Risk Management The City is exposed to various risks of loss related to workers compensation, property, general operations and vehicle liability. The City's Internal Risk Fund provides funds for losses retained by the City, including claims paid to others and deductible amounts on otherwise insured losses. Annually, as of June 30, the program has a third party actuary review the histories for all claim years for which open claims are outstanding. The actuary projects the ultimate claim payment obligation (including the incurred but not reported claims) for each year's claim experience and projects the new year's probable loss fund cost. The City maintains the following deductibles or self-insured retentions on insurance policies: $1,000,000 per occurrence for vehicle and general liability, including public official and law enforcement liability, $1,000,000 for workers compensation, $150,000 per loss for commercial property direct damage coverage s, $25,000 for Property while in Transit, $25,000 for Contractors Equipment; $10,000 per loss B-67

124 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 on boiler and machinery, $10,000 per loss on employee theft, including money and securities; $1,000 per loss on flood at NFIP insured properties. There is a $250,000 bond on each Finance Officer. The amounts paid are based on historical cost information and actuarial estimates of the amounts needed to pay prior and current year claims and to have a reserve amount available to fund catastrophic losses. The pending claims liability of the Risk Management Internal Service Fund of $7,105,112 reported in the statement of net position along with the Health Fund claims in the next section below at June 30, 2017 is based on the requirements of Governmental Accounting Standards Board Statement Number 10, which require that a liability for claims be reported if information prior to the issuance of the basic financial statements indicate that it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. The current portion of those pending claims at June 30, 2017 is $2,446,925. Changes in the claims liability follow: Claims, Fees Beginning and Changes End of Year in Estimates Payments of Year 2015 $6,657,290 $2,084,553 $2,714,833 $6,027, ,027,010 3,989,063 3,367,089 6,648, ,648,984 3,526,039 3,069,911 7,105, Health Insurance The City is self-insured for health insurance coverage for City employees and retirees. The City also has a self-insured dental plan for current employees only and retirees are not included in the plan. Prior to fiscal year 2013 the dental pending claims was recorded in the General Fund. On September 1, 2011, the City organized the Employees Insurance Fund an Internal Service Fund. Contributions to the fund are made by the City for current employees and retirees and also from current employees and retirees for their required portions. The City has a private company administer the benefit pursuant to administrative services agreements and also maintains excess insurance coverage with private carriers for health and dental claims. The outstanding liability is for health and dental pending claims both reported and incurred but not reported and is recorded in the Government wide financial statements. The current portion of those pending claims at June 30, 2017 is $2,637,216. Changes in the liability follow: Beginning Fees, Claims and End of Year Changes in Estimates Payments of Year 2015 $ 2,169,372 $ 26,462,407 $ 26,429,334 $ 2,202, ,202,445 34,432,111 34,029,911 2,604, ,604,645 34,122,289 34,089,718 2,637,216 B. Jointly Governed Organizations 1. Research Triangle Regional Public Transportation Authority The City, in conjunction with other area local governments, is a member of the Research Triangle Regional Public Transportation Authority also known as GO Triangle. The City and Durham County appoint one member each and jointly appoint a third member. The Transportation Authority possesses final decision making ability and is solely responsible for the management, budget, and fiscal operations of the Transportation Authority. B-68

125 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, Triangle J Council of Governments The City of Durham along with twenty-five other municipalities and seven counties, established the Triangle J Council of Governments. The participating governments established the Triangle J Council of Governments to coordinate various funding received from federal and state agencies. Each participating member appoints one official to the governing board of the Triangle J Council of Governments. The City paid membership fees of $98,331 to the Council during the fiscal year ending June 30, C. Joint Ventures Convention Center The Durham Convention Center Authority (the Authority ) is a joint venture with equity interest established by the City and County of Durham and is assigned such powers as necessary, reasonable and practicable for the operation and maintenance of the Convention Center facility. The Authority consists of seven members who are appointed to three-year terms. Three members are appointed by the City and three members by the County, with the seventh member selected by the six members appointed by the City and County. The members elect from its membership a Chairman and Vice Chairman. Global Spectrum has a contract with the Authority and manages the operation of the Civic Center for the City and the County. The City and the County share all operating costs and all operating revenues equally. Financial statements for the Civic Center are located at the City of Durham, 101 City Hall Plaza, Durham, North Carolina The City and County determined that the construction of a civic center would stimulate private investment in and rejuvenate the downtown area of the City. In October 1987, the City and County entered into agreements with a private developer to construct the Civic Center. The City and County initially deposited $17,300,000, $14,300,000 by the City and $3,000,000 by the County, in an escrow account that, together with interest, was used to fund the purchase of the facility. The County has repaid the City for its portion of the cost of construction with annual payments. Both the City and the County have 50% ownership of the equity of the Civic Center. The total investment in joint venture for the City of Durham recorded in the statement of net position for governmental activities for the Civic Center at June 30, 2017 is $6,940,423. Durham Convention and Visitors Bureau The Durham Convention and Visitors Bureau (the Bureau ) is a joint venture with equity interest established by the City and the County of Durham with the City having a 42.5% equity interest and the County having a 57.5% equity interest. It was established in fiscal year 1989 to promote and solicit business, conventions, meetings and tourism. The governing body of the Bureau is an eleven-member Board of Directors with five members appointed by the City, five members appointed by the County and the eleventh member selected by the ten members appointed by the City and County. The Durham City Council and the Durham County Board of Commissioners must approve the budget and all amendments. Funding is derived from an occupancy tax levied upon the rental of rooms, lodging or similar accommodations in the City and County of Durham. Monthly, the County is required to distribute to the Bureau a percentage of the tax collected. At June 30, 2017, the City has recorded an equity interest in the Bureau of $247,926 which is included in the investment in joint venture in the statement of net position. Complete financial statements may be obtained at the administrative offices of the Bureau at 212 West Main Street, Suite 101, Durham, North Carolina Raleigh Durham Airport Authority The Raleigh Durham Airport Authority is a joint venture without equity interest; it is governed by an eightmember board, of which two members are appointed by the City of Durham, Wake and Durham Counties and the City of Raleigh. The City is not able to impose its will on appointed members. Each government B-69

126 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 contributes $12,500 annually for administration of the Authority. The Authority possesses final decisionmaking ability and is solely responsible for the management, budget and fiscal operations of the Authority. The participating governments do not have any equity interest in the joint venture, so no equity interest has been reflected in the financial statements at June 30, Complete financial statements of the Authority may be obtained from the Authority's administrative offices at Raleigh Durham International Airport, North Carolina D. Related Organization Durham Housing Authority In accordance with the process outlined in the North Carolina General Statutes, as amended by local act, the City Council appoints members to the governing board of the Authority but is not able to impose its will on appointed members. Budgetary and financial management and fiscal operations of the Housing Authority are totally the responsibility of the Housing Authority. The City receives reports and makes recommendations as provided by State General Statute The Authority has independent legislative and administrative authority. The City of Durham is also disclosed as a related organization in the notes to the financial statements of the Authority. Financial Statements from the Durham Housing Authority can be obtained from the Authority s office at 330 East Main Street, Durham, NC E. Post-Retirement Benefits Other Postemployment Benefits (OPEB) 1. Healthcare Benefits Plan Description - The City has elected to provide post-retirement health benefits for retirees who elect to continue group health insurance until age 65. For employees of the City hired prior to July 1, 2008 the eligibility for post-retirement health insurance is limited to retirees who participate in the North Carolina State Retirement system and who have not reached the age of 65 and have been a member of the group health plan for 90 days prior to the retirement date. The City provides a subsidy of 50% to 100%, based on coverage, of the premium charged by the provider for retiree and eligible dependent health insurance. Of the subsidy, 50% to 100% above, the City subsidizes the retiree's health care cost based on the years of service with the following percentages: 10 years 50%, 15 years 75% and 20 years 100%. At June 30, 2017 there were 444 employees hired prior to July 1, 2008 that were receiving benefits. At June 30, 2016 the number was 427. Under a City resolution adopted as of July 1, 2008 employees hired after June 30, 2008 by the City of Durham require mandatory participation in a Retirement Health Savings Plan (RHS). The plan provides a vehicle for employees to save pretax dollars for future tax-free withdrawals to pay qualified medical expenses. Both the City and the employee are required to contribute to the plan, the City s cost is $35 per biweekly pay period and the employees cost is 2% of wages with a $1,000 maximum per fiscal year. This single-employer plan is administered by ICMA-RC and the requirement to receive the City s contribution at retirement date is the same as for employees hired prior to July 1, 2008; 10 years 50%, 15 years 75% and 20 years 100%. 2. Supplemental Medicare The City has elected to provide a Medicare supplement reimbursement benefit for retirees who elect to have supplemental insurance when turning age 65. The employee must meet the following requirements; be retired from the City, must have been employed at least 10 calendar years of regular full time service with the City of Durham, must be receiving a monthly benefit from the North Carolina Local Governmental Employees Retirees System, must remain on the City s medical insurance until turning 65 and must be at least 65 years of age. Spouses and other dependents are not eligible for this benefit. Former employee s meeting the qualifications will receive reimbursement of: age 65 $93, age $97, age 70-74, $104 and age 75 and over $109 per month. For former employees unable to purchase B-70

127 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Medicare supplement insurance the City will reimburse the Medicare part B premium withheld from the former employee s social security check. At June 30, 2017 there were 386 former employees and the benefit paid was $454,213. At June 30, 2016 the numbers were 352 and $417,368. Summary of Significant Accounting Policies - Postemployment expenses are made from the Employee Insurance Fund, an Internal Service Fund. The contribution requirements are based on the cost of providing health insurance. The Employee Insurance Fund financial statements are prepared using the accrual basis of accounting. Plan member contributions are recognized in the period in which the contributions are due, as are the City contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. Annual OPEB Cost and Net OPEB Obligation - The City s annual OPEB cost (expense) is calculated based on the ARC of the employer, an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The following table shows the components of the City s annual OPEB cost for the current year, the amount actually contributed to the plan, and changes in the City s net OPEB obligation for the postemployment healthcare benefits: Governmental Business-Type Activities Activities Total Annual required contribution $ 9,905,662 $ 2,942,148 $ 12,847,810 Interest on net OPEB obligation 1,743, ,733 2,260,835 Adjustment to annual required contribution (2,820,354) (8,376,945) (3,658,049) Annual OPEB cost (expense) 8,828,409 2,622,187 11,450,596 Contributions made (4,106,921) (1,195,715) (5,302,636) Increase (decrease) in net OPEB obligation 4,721,488 1,426,472 6,147,960 Net OPEB obligation, beginning of year 45,018,414 11,502,469 56,520,883 Net OPEB obligation, end of year $ 49,739,902 $ 12,928,941 $ 62,668,843 The City s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan and the net OPEB obligation for 2017 were as follows: Percentage of For the Year Ended Annual OPEB Annual OPEB Cost Net OPEB June 30 Cost Contributed Obligation 2015 $ 13,841, % $ 49,610, ,621, % 56,520, ,450, % 62,668,843 Funded Status and Funding Progress - As of December 31, 2015, the most recent actuarial valuation date, the plan was not funded as it was on a pay as you go basis. The actuarial accrued liability for benefits was $116,648,190, and there was no actuarial value of assets resulting in an unfunded actuarial accrued liability (UAAL) of $116,648,190. The covered payroll (annual payroll of active employees covered by the plan) was $68,566,224 and the ratio of UAAL to the covered payroll was percent. The adjustment to the annual required contribution is due to changes by the actuary regarding B-71

128 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 assumptions used to make the calculation. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trends. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents information about the actuarial value of plan assets and the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions - Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the December 31, 2015, actuarial valuation, the Projected Unit Credit Actuarial Cost Method was used. The actuarial assumptions included a 4.0 percent investment rate of return since there are no plan assets. The medical cost trend rate varied between percent that includes a 3.00 percent inflation assumption. The UAAL is being amortized as a level dollar amount, closed basis. The remaining amortization period at December 31, 2016, was 22 years. 3. Death Benefits For disabled retirees the City pays for one year of life insurance premium in the City s group life insurance plan, the coverage is equal to their annual salary at the time of retirement rounded to the nearest thousand dollars. During the fiscal year there was anywhere from 6 to 10 retirees covered by this benefit each month. The City paid $639 for the year ended June 30, 2017 in premiums for this coverage. The amounts are paid from the Employee Insurance Fund. F. Other Employment Benefits 1. Death Trust Plan The City has elected to provide death benefits to law enforcement officers through the Death Trust Plan for Members of the Local Governmental Employees Retirement System (Death Trust Plan), a multipleemployer, State-administered, cost-sharing plan funded on a one-year term cost basis. Lump sum death benefits are provided to the beneficiaries of those employees who die in active service after one year of contributing membership in the System, or who die within 180 days after retirement or termination of service and have at least one year of contributing membership service in the System at the time of death. Lump sum death benefit payments to beneficiaries are equal to the employee's 12 highest month s salary in a row during the 24 months prior to the employee's death, but the benefit will be a minimum of $25,000 and will not exceed $50,000. All death benefit payments are made from the Death Trust Plan. The City has no liability beyond the payment of monthly contributions. Contributions are determined as a percentage of monthly payrolls, based upon rates established annually by the State. Because the benefit payments are made by the Death Trust Plan and not by the City, the City does not determine the number of eligible participants. The contributions to the Death Trust Plan cannot be separated between the post-employment benefit amount and the other benefit amount. B-72

129 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 For the fiscal year ended June 30, 2015, 2016 and 2017 the City made contributions to the State for death benefits of $0, $38,675 and $38,160 respectively. The City s required contributions for employees engaged in law enforcement officers represented 0.00% in FY 2015 and 0.14% of covered payroll for FY 2016 and FY Life Insurance The City provides paid life insurance to all full-time and part-time benefit eligible City of Durham employees. The life insurance benefit amount is equal to the employee s annual salary on July 1 st of the present fiscal year rounded to the next higher $1,000. Employees can purchase additional amounts to increase the amount in equal increments from $10,000 to $500,000, amounts equal to $150,000 or more may be subject to an earnings cap. Spousal and Domestic partner insurance can be purchased in the same increments may, but may not exceed 100% of the employee amount. Life insurance amounts for Dependent Children can be purchased in amounts from $2,500 to $10,000 in $2,500 increments. The cost of the City provided life insurance over $50,000 is considered a fringe benefit by the Internal Revenue Service and is taxable income to the employee based on a life insurance benefit table published by the Internal Revenue Service in Publication 15-B. G. Employee Retirement 1. The North Carolina Retirement Systems Plan description - The City of Durham is a participating employer in the statewide Local Governmental Employees Retirement System (LGERS), a cost-sharing multiple-employer defined benefit pension plan administered by the State of North Carolina. LGERS membership is comprised of general employees and local law enforcement officers (LEOs) of participating local governmental entities. Article 3 of G.S. Chapter 128 assigns the authority to establish and amend benefit provisions to the North Carolina General Assembly. Management of the plan is vested in the LGERS Board of Trustees, which consists of 13 members nine appointed by the Governor, one appointed by the State Senate, one appointed by the State House of Representatives, and the State Treasurer and State Superintendent, who serve as ex-officio members. The Local Governmental Employees Retirement System is included in the Comprehensive Annual Financial Report (CAFR) for the State of North Carolina. The State s CAFR includes financial statements and required supplementary information for LGERS. That report may be obtained by writing to the Office of the State Controller, 1410 Mail Service Center, Raleigh, North Carolina , by calling (919) , or at Benefits Provided - LGERS provides retirement and survivor benefits. Retirement benefits are determined as 1.85% of the member s average final compensation times the member s years of creditable service. A member s average final compensation is calculated as the average of a member s four highest consecutive years of compensation. Plan members are eligible to retire with full retirement benefits at age 65 with five years of creditable service, at age 60 with 25 years of creditable service, or at any age with 30 years of creditable service. Plan members are eligible to retire with partial retirement benefits at age 50 with 20 years of creditable service or at age 60 with five years of creditable service (age 55 for firefighters). Survivor benefits are available to eligible beneficiaries of members who die while in active service or within 180 days of their last day of service and who have either completed 20 years of creditable service regardless of age (15 years of creditable service for firefighters who are killed in the line of duty) or have completed five years of service and have reached age 60. Eligible beneficiaries may elect to receive a monthly Survivor s Alternate Benefit for life or a return of the member s contributions. The plan does not provide for automatic post-retirement benefit increases. Increases are contingent upon actuarial gains of the plan. LGERS plan members who are LEOs are eligible to retire with full retirement benefits at age 55 with five years of creditable service as an officer, or at any age with 30 years of creditable service. LEO plan B-73

130 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 members are eligible to retire with partial retirement benefits at age 50 with 15 years of creditable service as an officer. Survivor benefits are available to eligible beneficiaries of LEO members who die while in active service or within 180 days of their last day of service and who also have either completed 20 years of creditable service regardless of age, or have completed 15 years of service as a LEO and have reached age 50, or have completed five years of creditable service as a LEO and have reached age 55, or have completed 15 years of creditable service as a LEO if killed in the line of duty. Eligible beneficiaries may elect to receive a monthly Survivor s Alternate Benefit for life or a return of the member s contributions. Contributions - Contribution provisions are established by General Statute and may be amended only by the North Carolina General Assembly. City of Durham employees are required to contribute 6% of their compensation. Employer contributions are actuarially determined and set annually by the LGERS Board of Trustees. The City of Durham s contractually required contribution rate for the year ended June 30, 2017, was 8.00% of compensation for law enforcement officers and 7.25% for general employees and firefighters, actuarially determined as an amount that, when combined with employee contributions, is expected to finance the costs of benefits earned by employees during the year. Contributions to the pension plan from the City of Durham were $9,383,538 for the year ended June 30, Refunds of Contributions City employees who have terminated service as a contributing member of LGERS may file an application for a refund of their contributions. By state law, refunds to members with at least five years of service include 4% interest. State law requires a 60 day waiting period after service termination before the refund may be paid. The acceptance of a refund payment cancels the individual s right to employer contributions or any other benefit provided by LGERS. Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions - At June 30, 2017, the City reported a liability of $43,416,183 for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, The total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of December 31, The total pension liability was then rolled forward to the measurement date of June 30, 2016 utilizing update procedures incorporating the actuarial assumptions. The City s proportion of the net pension liability was based on a projection of the City s long-term share of future payroll covered by the pension plan, relative to the projected future payroll covered by the pension plan of all participating LGERS employers, actuarially determined. At June 30, 2016, the City s proportion was 2.05%, which is a decrease of.092% from its proportion measured as of June 30, The remainder of this page intentionally left blank B-74

131 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 For the year ended June 30, 2017, the City recognized pension expense of $11,115,804. At June 30, 2017 the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Deferred Inflows Resources of Resources Differences between expected and actual experience $ 815,715 $ 1,521,352 Changes of assumptions 2,973,621 - Net difference between projected and actual earnings on pension plan investments 24,003,683 - Changes in proportion and differences between City contributions and proportionate share of contributions - 1,405,569 City contributions subsequent to the measurement date 9,383,538 - Total $ 37,176,557 $ 2,926,921 The $9,383,538 reported as deferred outflows of resources related to pensions resulting from City contributions subsequent to the measurement date will be recognized as an increase of the net pension liability in the year ended June 30, Other amounts reported as deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year ended June 30: 2018 $ 3,499, ,504, ,121, ,739, Thereafter $ - 24,866,098 Actuarial Assumptions - The total pension liability in the December 31, 2015 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation Salary increases Investment rate of return 3.0 percent 3.50 to 7.35 percent, including inflation and productivity factor 7.25 percent, net of pension plan investment expense, including inflation The plan currently uses mortality tables that vary by age, gender, employee group (i.e. general, law enforcement officer) and health status (i.e. disabled and healthy). The current mortality rates are based on published tables and based on studies that cover significant portions of the U.S. population. The healthy mortality rates also contain a provision to reflect future mortality improvements. B-75

132 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 The actuarial assumptions used in the December 31, 2015 valuation were based on the results of an actuarial experience study for the period January 1, 2010 through December 31, Future ad hoc COLA amounts are not considered to be substantively automatic and are therefore not included in the measurement. The projected long-term investment returns and inflation assumptions are developed through review of current and historical capital markets data, sell-side investment research, consultant whitepapers, and historical performance of investment strategies. Fixed income return projections reflect current yields across the U.S. Treasury yield curve and market expectations of forward yields projected and interpolated for multiple tenors and over multiple year horizons. Global public equity return projections are established through analysis of the equity risk premium and the fixed income return projections. Other asset categories and strategies return projections reflect the foregoing and historical data analysis. These projections are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class as of June 30, 2016 are summarized in the following table: Asset Class Target Allocation Long-Term Expected Real Rate of Return Fixed Income 29.0% 1.4% Global Equity 42.0% 5.3% Real Estate 8.0% 4.3% Alternatives 8.0% 8.9% Credit 7.0% 6.0% Inflation Protection 6.0% 4.0% Total 100.0% The information above is based on 30 year expectations developed with the consulting actuary for the 2016 asset liability and investment policy study for the North Carolina Retirement Systems, including LGERS. The long-term nominal rates of return underlying the real rates of return are arithmetic annualized figures. The real rates of return are calculated from nominal rates by multiplicatively subtracting a long-term inflation assumption of 3.0%. All rates of return and inflation are annualized. Discount rate - The discount rate used to measure the total pension liability was 7.25%. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current contribution rate and that contributions from employers will be made at statutorily required rates, actuarially determined. Based on these assumptions, the pension plan s fiduciary net position was projected to be available to make all projected future benefit payments of the current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of the City s proportionate share of the net pension liability to changes in the discount rate - The following presents the City s proportionate share of the net pension liability calculated using the discount rate of 7.25 percent, as well as what the City s proportionate share of the net pension liability or net pension liability would be if it were calculated using a discount rate that is one percentage point lower (6.25 percent) or one percentage point higher (8.25 percent) than the current rate: B-76

133 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, % Decrease Discount Rate 1% Increase (6.25%) (7.25%) (8.25%) City's proportionate share of the net pension liability (asset) $ 103,046,855 $ 43,416,183 $ (6,391,789) Pension plan fiduciary net position - Detailed information about the pension plan s fiduciary net position is available in the separately issued Comprehensive Annual Financial Report (CAFR) for the State of North Carolina. 2. Supplemental Retirement Income Plan for Law Enforcement Officers Plan description - The City contributes to the Supplemental Retirement Income Plan, a defined contribution pension plan administered by the Department of State Treasurer and a Board of Trustees. The plan provides retirement benefits to all law enforcement officers and any other employees who are currently members of a state-administered retirement plan and are eligible to participate in the Plan. Article 5 of G.S. Chapter 135 assigns the authority to establish and amend the benefit provisions to the North Carolina General Assembly. Funding policy - Article 12E of G.S. Chapter 143 requires the City to contribute an amount equal to 5% of each officer s salary, and all amounts contributed are vested immediately. Employees may also make voluntary contributions to the plan. The City also contributed 5.0% of its full-time non-law enforcement employees salaries to the plan. Contributions for the year ending June 30, 2017 were $1,446,171 for law enforcement officers and $4,875,323 for non-law enforcement employees. Voluntary contributions from all employees were $3,190,974 and 401K ROTH voluntary was $741,303. The Supplemental Retirement Income Plan for Law Enforcement Officers is included in the Comprehensive Annual Financial Report (CAFR) for the State of North Carolina. The State s CAFR includes the pension trust fund financial statements for the Internal Revenue Code Section 401(k) plan that includes the Supplemental Retirement Income Plan for Law Enforcement Officers. That report may be obtained by writing to the Office of the State Controller, 1410 Mail Service Center, Raleigh, North Carolina , or by calling (919) Deferred Compensation All permanent City employees and elected officials may participate in a deferred compensation program designated as an Internal Revenue Code Section 457 plan. Voluntary contributions from all employees were $913,991. The City contributes to the deferred compensation plan for firefighters who do not have social security taxes deducted from their wages. The amount contributed is a match to the employee s contribution; the employee must contribute the required percentage to receive a City match. For fiscal year end 2017 the required percentage was 5%. The amount contributed by the City was $750,203 which is for wages amounting to $15,004,063. The City also contributes an amount of 10% to the City Manager in accordance with his contract. The amount contributed for fiscal year 2017 was $22, Law Enforcement Officers' Special Separation Allowance Plan Description - The City of Durham administers a public employee retirement system (the Separation Allowance ), a single-employer defined benefit pension plan that provides retirement benefits to the City s qualified sworn law enforcement officers under the age of 62 who have completed at least 30 years of creditable service or have attained 55 years of age and have completed five or more years of creditable service. The Separation Allowance is equal to.85 percent of the annual equivalent of the base rate of compensation most recently applicable to the officer for each year of creditable service. The B-77

134 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 retirement benefits are not subject to any increases in salary or retirement allowances that may be authorized by the General Assembly. Article 12D of G.S. Chapter 143 assigns the authority to establish and amend benefit provisions to the North Carolina General Assembly. For reporting purposes, the Separation Allowance is presented in the General Fund. The Separation Allowance covers all full-time law enforcement officers of the City. At December 31, 2016, the System's membership consisted of: Members presently receiving benefits 92 Active plan members 478 Total 570 Summary of significant accounting policies - Basis of accounting, the City has chosen to fund the Separation Allowance on a pay as you go basis. Pension expenditures are made from the General Fund which is maintained on the modified accrual basis of accounting. Benefits are recognized when due and payable in accordance with the plan. The Separation Allowance has no assets accumulated in a trust that meets the criteria in paragraph 4 of GASB Statement 73. Actuarial Assumptions - The entry age actuarial cost method was used in the December 31, 2015 valuation. The total pension liability in the December 31, 2015 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation Salary increases Discount rate Cost of living adjustments 3.0 percent 3.50 to 7.35 percent, including inflation and productivity factor 3.86 percent N/A The discount rate used to measure the Total Pension Liability is the weekly average of the Bond Buyer General Obligation 20-year Municipal Bond Index determined at the end of each month. Contributions - The City is required by Article 12D of G.S. Chapter 143 to provide these retirement benefits and has chosen to fund the amounts necessary to cover the benefits earned on a pay as you go basis through appropriations in the General Fund operating budget. There were no contributions made by employees and the City s obligation to contribute to the plan is established and may be amended by the North Carolina General Assembly. Administration costs of the Separation Allowance are financed as part of the City s budget for the pension expenses. The City paid $1,961,758 as benefits came due for the reporting period. Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions - At June 30, 2017, the City reported a total pension liability of $21,914,140. The total pension liability was measured as of December 31, 2016 based on a December 31, 2015 actuarial valuation. The total pension liability was then rolled forward to the measurement date of December 31, 2016 utilizing update procedures incorporating the actuarial assumptions. For the year ended June 30, 2017, the City recognized pension expense of $1,435,787. B-78

135 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Deferred Outflows of Resources Deferred Inflows of Resources Differences between expected and actual experience $ - $ - Changes in assumptions - 385,749 City benefit payments and plan administrative expense made subsequent to measurerment date 1,009,467 - Total $ 1,009,467 $ 385,749 The $1,009,467 reported as deferred outflows of resources related to pensions resulting from benefit payments made and administrative expenses incurred subsequent to the measurement date will be recognized as a decrease of the total pension liability in the year ended June 30, Other amounts reported as deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year Ended June 30: 2018 $ 81, , , , ,841 Thereafter $ - 385,749 Sensitivity of the City s total pension liability to changes in the discount rate - The following presents the City s total pension liability calculated using the discount rate of 3.86 percent, as well as what the City s total pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (2.86%) or 1 percentage point higher (4.86%) than the current rate: 1% Decrease (2.86%) Discount Rate (3.86%) 1% Increase (4.86%) Total pension liability $ 23,575,410 $ 21,914,140 $ 20,388,848 The remainder of this page intentionally left blank B-79

136 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Changes in the Total Pension Liability Total Pension Liability as of December 31, 2015 Changes $ 22,827,008 Service Cost at End of Year 736,459 Interest 779,907 Change in benefit terms - Difference between expected and actuarial experience - Changes of assumptions and other inputs (467,476) Benefit payments (1,961,758) Other - Net changes (912,868) Total Pension Liability as of December 31, 2016 $ 21,914,140 The plan currently uses mortality tables that vary by age, and health status (i.e. disabled and healthy). The current mortality rates are based on published tables and based on studies that cover significant portions of the U.S. population. The healthy mortality rates also contain a provision to reflect future mortality improvements. The actuarial assumptions used in the December 31, 2015 valuation were based on the results of an actuarial experience study for the period January 1, 2010 through December 31, The City has no assets accumulated in a trust that meets the criteria in Paragraph 4 of GASB Statement No. 73 to pay related benefits. f any assets ae accumulated to pay benefits they would be reported as committed fund balance in the General Fund. For fiscal year 2017 there were no accumulated amounts. Benefit payments reduce the net pension liability. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets are increasing or decreasing over time relative to the actuarial accrued liability for benefits. H. Closure and Post Closure Care Costs The City owns a landfill site located in the northeast portion of the City. State and federal laws and regulations required the City to place a final cover on its landfill site and to perform certain maintenance and monitoring functions at the site for thirty years after closure. The City reports a portion of these closure and post-closure care costs as an operating expense in each period based on landfill capacity used as of each June 30. The $6,708,125 reported as landfill closure and post-closure care liability at June 30, 2017 is based on the use of 100% of the estimated capacity of the landfill. The increase in the liability in FY 2016 was due to the State of North Carolina Department of Environmental resources requiring that funds be set aside to cover the liability for 16 gas extraction wells. The City closed the landfill December 31, The City will adjust the estimated amount to perform all closure and post-closure care as the amount changes. Actual cost may be higher due to inflation, changes in technology, or changes in regulations. At June 30, 2017, the City had expended $9,876,457 in closure costs for the Club Boulevard facility. The City has met the requirements of a local government financial test that is an option under state and federal laws and regulations that help determine if a unit is financially able to meet closure and post-closure care requirements. B-80

137 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 Changes in the liability are as follows: Beginning of Year Changes in Estimates Payments End of Year 2015 $ 5,432,930 $ (112,226) $ (178,979) $ 5,141, ,141,725 1,927, ,831 7,212, ,212,121 72,121 (576,117) 6,708,125 I. Federal and State Assisted Programs The City has received proceeds from several federal and state grants. Periodic audits of these grants are required and certain costs may be questioned as not being appropriate expenditures under the grant agreements. Such audits could result in the refund of grant moneys to the grantor agencies. Management believes that any required refunds will be immaterial. No provision has been made in the accompanying financial statements for the refund of grant money. J. New Pronouncements The GASB has issued Statement No. 75, "Accounting and Financial Reporting for Post-employment Benefit Plans Other Than Pensions." The objective of this Statement is to improve accounting and financial reporting by state and local governments for postemployment benefits other than pensions. This Statement replaces Statement 45 as amended by Statement 57. The requirements of this Statement are effective for financial statements for reporting periods beginning after June 15, The GASB has issued Statement No. 81,"Irrevocable Split-Interest Agreements." The objective of this Statement is to improve accounting and financial reporting by state and local governments by establishing recognition and measurement requirements. Another objective is to enhance the transparency and decision usefulness of external financial reports. The requirements of this Statement will take effect for financial statements ending with the fiscal year that ends on or after December 31, The GASB has issued Statement No. 82, "Pension Issues-an amendment of GASB Statements No. 67, No. 68, and No. 73." The requirements of this Statement will take effect for financial statements starting with the fiscal year that ends June 30, 2017, except for the requirements of this Statement for the selection of assumptions in a circumstance in which an employer's pension liability is measured as of a date other than the employer's most recent fiscal year"-end. In that circumstance, the requirements for the selection of assumptions will take effect for that employer in the first reporting period in which the measurement date of the pension liability is on or after June 15, The GASB has issued Statement No. 83, "Certain Asset Retirement Obligations." The objective of this Statement is to provide financial statement users with information about asset retirement obligations that were not addressed in GASB standards by establishing uniform accounting and financial reporting requirements for these obligations. The requirements of this Statement are effective for financial statements for reporting periods beginning after June 15, The GASB has issued Statement No. 84, "Fiduciary Activities." The objective of this Statement is to provide guidance regarding the identification of fiduciary activities for accounting and financial reporting purposes and how hose activities should be reported. The requirements of this Statement are effective for financial statements for reporting periods beginning after December 15, B-81

138 CITY OF DURHAM NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2017 The GASB has issued Statement No. 85, "Omnibus 2017." The objective of this Statement is to address practice issues that have been identified during implementation of certain GASB Statements. The requirements of this Statement are effective for financial statements for reporting periods beginning after June 15, The GASB has issued Statement No. 86, "Certain Debt Extinguishment Issues." The objective of this Statement is to improve consistency in accounting and financial reporting for in-substance defeasance of debt by provide guidance for transactions in which cash and other monetary assets acquired with only existing resources, resources other than proceeds of refunding debt are placed in an irrevocable trust for the sole purpose of extinguishing debt. The requirements of this Statement are effective for financial statements for reporting periods beginning after June 15, The GASB has issued Statement No. 87, "Leases." The objective of this Statement is to better meet the needs of financial statement users by improving accounting and financial reporting for leases by governments. The requirements of this Statement are effective for financial statements for reporting periods beginning after December 15, Management is in the process of determining what, if any, impact implementation of the above statements may have on the financial statements of the City. K. Contingencies The City is involved in several pending lawsuits and claims, which it intends to defend vigorously. In the opinion of the City s attorney and management, the disposition of these matters is not expected to have a material adverse effect on the City s financial position. L. Subsequent Events The City has evaluated events through October 31, 2017 in connection with preparation of these financial statements which is the date the financial statements were ready to be issued. B-82

139 CITY OF DURHAM, NORTH CAROLINA Schedule of Changes in Total Pension Liability Law Enforcement Officers' Special Separation Allowance June 30, Beginning balance $ 22,827,008 Service Cost 736,459 Interest on the total pension liability 779,907 Changes of benefit terms - Differences between expected and actual experience in the measurement of the total Differences between expected and actual experience in the measurement of the total pension liability - Changes of assumptions or other inputs (467,476) Benefit payments (1,961,758) Other changes - Ending balance of the total pension liability $ 21,914,140 The amounts presented for each fiscal year were determined as of the prior fiscal year ending December 31. CITY OF DURHAM, NORTH CAROLINA Schedule of Total Pension Liability as a Percentage of Covered Payroll Law Enforcement Officers' Special Separation Allowance June 30, Total pension liability $ 21,914,140 Covered payroll 28,218,341 Total pension liability as a percentage of covered payroll 77.66% Notes to the schedules: The City of Durham has no assets accumulated in a trust that meets the criteria in paragraph 4 of GASB Statement 73 to pay related benefits. Note: Ten years of information will be presented as it becomes available. B-83

140 CITY OF DURHAM, NORTH CAROLINA Other Post Employment Benefits Required Supplementary Information Actuarial Valuation Date Actuarial Value of Assets (a) Actuarial Accrued Liability (AAL)-Projected Unit Credit (b) Schedule of Funding Progress Unfunded AAL (UAAL) (b-a) Funded Ratio (a/b) Covered Payroll (c) UAAL as a Percentage of Covered Payroll ((b-a)/c) 12/31/2015 $ - $ 116,648,190 $ 116,648, % $ 68,566, % 12/31/ ,961, ,961, % 79,848, % 12/31/ ,420, ,420, % 98,030, % 12/31/ ,648,307 84,648, % 103,041, % 12/31/ ,606, ,606, % 101,162, % Schedule of Employer Contributions Annual Required Year Ended June 30 Contribution (ARC) Percentage Contributed 2017 $ 12,847, % ,847, % ,309, % ,309, % ,762, % B-84

141 CITY OF DURHAM, NORTH CAROLINA City of Durham's Proportionate Share of Net Pension Liability Required Supplementary Information Last Four Fiscal Years * Local Government Employees' Retirement System Durham's proportion of the net pension liability (asset) (%) % % % % Durham's proportion of the net pension liability (asset) ($) $ 43,416,183 $ 9,591,928 $ (12,738,278) $ 26,769,168 Durham's covered-employee payroll $ 120,540,209 $ 117,491,635 $ 116,412, ,928,394 Durham's proportionate share of the net pension liability (asset) as a percentage of it's covered payroll 2.78% 12.25% -9.14% 4.33% Plan fiduciary net position as a percentage of the total pension liability** 91.47% 98.09% % 94.16% * The amounts presented for each fiscal year were determined as of the prior fiscal year ending June 30. ** This will be the same percentage for all participant employers in the LGERS plan. Note: Ten years of information will be presented as it becomes available. B-85

142 CITY OF DURHAM, NORTH CAROLINA City of Durham's Contributions Required Supplementary Information Last Four Fiscal Years Local Government Employees' Retirement System Contractually required contribution $ 9,383,538 $ 8,203,745 $ 8,399,359 $ 8,474,823 Contributions in relation to the contractually required contribution $ 9,383,538 $ 8,203,745 $ 8,399,359 $ 8,287,923 Contribution deficiency (excess) $ - $ - $ - $ 186,900 Durham's covered-employee payroll $ 120,540,209 $ 117,491,635 $ 116,412, ,928,394 Contributions as a percentage of coveredemployee payroll 7.78% 6.98% 7.22% 7.31% Note: Ten years of information will be presented as it becomes available. B-86

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144 CITY OF DURHAM, NORTH CAROLINA Exhibit B-1 Combining Balance Sheet Nonmajor Governmental Funds June 30, 2017 Nonmajor Nonmajor Total Special Capital Nonmajor Revenue Projects Governmental Funds Funds Funds ASSETS Cash and cash equivalents/investments $ 9,705,042 54,637,607 $ 64,342,649 Accounts receivable 517, ,501 Notes receivable 7,589,556-7,589,556 Total receivables 8,107,057-8,107,057 Due from government agencies 843, ,702 1,667,127 Due from other funds 611,846 4,705,584 5,317,430 Total assets $ 19,267,370 $ 60,166,893 $ 79,434,263 LIABILITIES AND FUND BALANCES Liabilities Accounts payable $ 574,786 $ 3,506,427 $ 4,081,213 Accrued payroll 123, ,575 Deposits and payments held in escrow 14,872 1,718,839 1,733,711 Due to other funds 611,846 4,705,584 5,317,430 Total liabilities 1,325,079 9,930,850 11,255,929 DEFERRED INFLOWS OF RESOURCES Assessments and unavailable revenues 44,277-44,277 Total deferred inflows of resources 44,277-44,277 Fund balances Restricted for Stabilization by State Statute 7,133,216 66,305,808 73,439,024 Community Development 13,033,328-13,033,328 Economic Development 190, ,216 Parks and recreation 19,903-19,903 Public Safety 1,052,123-1,052,123 Capital projects - 21,691,170 21,691,170 Unassigned (3,530,771) (37,760,936) (41,291,707) Total fund balances 17,898,015 50,236,042 68,134,057 Total liabilities, deferred inflows of resources and fund balances $ 19,267,371 $ 60,166,892 $ 79,434,263 B-88

145 CITY OF DURHAM, NORTH CAROLINA Exhibit B-2 Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Governmental Funds For the Year Ended June 30, 2017 Nonmajor Nonmajor Total Special Capital Nonmajor Revenue Projects Governmental Funds Funds Funds REVENUES Taxes $ 5,105,860 $ - $ 5,105,860 Intergovernmental revenues 12,028,498-12,028,498 Investment and rental income (154,790) 610, ,897 Charges for services 7,200,923 6,930,402 14,131,325 Sale of property and miscellaneous - 1,040 1,040 Total revenues 24,180,491 7,542,129 31,722,620 EXPENDITURES Current General government 178,204 6,015,239 6,193,443 Public safety 2,646,178 22,782,048 25,428,227 Development 14,363, ,030 14,668,162 General services - 1,617,226 1,617,226 Recreation 19,785 2,216,828 2,236,613 Streets and highways 3,968,168 4,511,375 8,479,543 Debt service Principal 360, ,000 Interest and other charges 211, ,978 Total expenditures 21,747,445 37,447,746 59,195,192 Excess (deficiency) of revenues over (under) expenditures 2,433,046 (29,905,617) (27,472,572) OTHER FINANCING SOURCES (USES) Bonds issued - 5,000,000 5,000,000 Bond anticipation notes - 11,961,915 11,961,915 Transfers in 1,894,738 31,345,897 33,240,635 Transfers out (1,926,135) (23,466,184) (25,392,319) Total other financing sources (uses) (31,397) 24,841,628 24,810,231 Net change in fund balances 2,401,649 (5,063,989) (2,662,340) Fund balances - beginning 15,496,366 55,300,032 70,796,398 Fund balances - ending $ 17,898,015 $ 50,236,043 $ 68,134,058 B-89

146 CITY OF DURHAM, NORTH CAROLINA Exhibit B-3 Combining Balance Sheet Nonmajor Special Revenue Funds June 30, 2017 Community Home Employment Public Development Program and Training Safety Block Grants Grants Grants Grants ASSETS Cash and cash equivalents/investments $ 726,393 $ 1,414,307 $ - $ 1,485,504 Receivables Accounts receivable ,000 - Notes receivable (net of allowance for uncollectibles) 3,115,764 3,513, Total receivables 3,115,764 3,513,749 56,000 - Due from government agencies , ,225 Due from other funds Total assets $ 3,842,437 $ 4,928,056 $ 338,063 $ 1,601,729 LIABILITIES AND FUND BALANCES Liabilities Accounts payable $ 7,177 $ - $ 243,561 $ 32,252 Accrued payroll - - 6,280 - Due to other funds ,986 - Total liabilities 7, ,827 32,252 DEFERRED INFLOWS OF RESOURCES Assessments and unavailable revenues Total deferred inflows of resources FUND BALANCES (DEFICITS) Restricted for Community Development 3,769,441 4,789, Economic Development Emergency Communications Parks and Recreation Public Safety ,052,123 Transportation Stabilization by State Statute 65, ,696 1,058, ,354 Total Restricted 3,835,260 4,928,056 1,058,885 1,569,477 Unassigned - - (1,292,649) - Total fund balances 3,835,260 4,928,056 (233,764) 1,569,477 Total liabilities and fund balances $ 3,842,437 $ 4,928,056 $ 338,063 $ 1,601,729 B-90

147 CITY OF DURHAM, NORTH CAROLINA Exhibit B-3 Combining Balance Sheet Nonmajor Special Revenue Funds June 30, 2017 Other Total Emergency Special Nonmajor Telephone Inspections Revenue Special System Fund Funds Revenue Funds ASSETS Cash and cash equivalents/investments $ - $ 3,013,329 $ 3,065,509 $ 9,705,042 Receivables Accounts receivable - 213, , ,501 Notes receivable (net of allowance for uncollectibles) ,043 7,589,556 Total receivables - 213,385 1,208,159 8,107,057 Due from government agencies 346,633 1,065 97, ,425 Due from other funds , ,846 Total assets $ 346,633 $ 3,227,779 $ 4,982,674 $ 19,267,371 LIABILITIES AND FUND BALANCES Liabilities Accounts payable $ 71,584 $ 57,397 $ 162,815 $ 574,786 Accrued payroll 4,451 60,096 52, ,575 Due to other funds 224,525-65, ,846 Total liabilities 300, , ,898 1,310,207 DEFERRED INFLOWS OF RESOURCES Assessments and unavailable revenues - 14,872 44,277 59,149 Total deferred inflows of resources - 14,872 44,277 59,149 FUND BALANCES (DEFICITS) Restricted for Community Development - 2,839,140 1,635,387 13,033,328 Economic Development , ,216 Emergency Communications Parks and Recreation ,903 19,903 Public Safety ,052,123 Transportation Stabilization by State Statute 830, ,274 4,265,404 7,133,216 Total Restricted 830,784 3,095,414 6,110,910 21,428,786 Unassigned (784,711) - (1,453,411) (3,530,771) Total fund balances 46,073 3,095,414 4,657,499 17,898,014 Total liabilities and fund balances $ 346,633 $ 3,227,779 $ 4,982,674 $ 19,267,371 B-91

148 CITY OF DURHAM, NORTH CAROLINA Exhibit B-4 Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Special Revenue Funds For the Year Ended June 30, 2017 Community Home Employment Public Development Program and Training Safety Block Grants Grants Grants Grants REVENUES Taxes $ - $ - $ - $ - Intergovernmental revenues 2,919,777 2,703,949 1,291, ,734 Investment and rental income 310,112 (587,961) - 22,635 Charges for services Total revenues 3,229,889 2,115,988 1,291, ,369 EXPENDITURES Current General government Public safety ,363 Development 963,395 3,038,278 1,527,111 - Recreation Streets and highways Debt service Principal 360, Interest and other charges 211, Total expenditures 1,535,374 3,038,278 1,527, ,363 Excess (deficiency) of revenues over (under) expenditures 1,694,516 (922,290) (235,620) 29,006 OTHER FINANCING SOURCES (USES) Transfers in ,776 Transfers out (19,139) Total other financing source (use) ,637 Net change in fund balances 1,694,516 (922,290) (235,620) 103,643 Fund balances - beginning 2,140,744 5,850,346 1,856 1,465,834 Fund balances - ending $ 3,835,260 $ 4,928,056 $ (233,764) $ 1,569,477 B-92

149 CITY OF DURHAM, NORTH CAROLINA Exhibit B-4 Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Special Revenue Funds For the Year Ended June 30, 2017 Other Total Emergency Special Nonmajor Telephone Inspections Revenue Special System Fund Funds Revenue Funds REVENUES Taxes $ 1,668,106 $ - $ 3,437,754 $ 5,105,860 Intergovernmental revenues - - 4,250,547 12,028,498 Investment and rental income - 8,717 91,707 (154,790) Charges for services - 7,200,923-7,200,923 Total revenues 1,668,106 7,209,640 7,780,008 24,180,491 EXPENDITURES Current General government , ,204 Public safety 1,789, ,646,178 Development - 5,161,059 3,673,289 14,363,132 Recreation ,785 19,785 Streets and highways - - 3,968,168 3,968,168 Debt service Principal ,000 Interest and other charges ,978 Total expenditures 1,789,815 5,161,059 7,839,446 21,747,445 Excess (deficiency) of revenues over (under) expenditures (121,709) 2,048,581 (59,438) 2,433,046 OTHER FINANCING SOURCES (USES) Transfers in - - 1,800,962 1,894,738 Transfers out - (625,000) (1,281,996) (1,926,135) Total other financing source (use) - (625,000) 518,966 (31,397) Net change in fund balances (121,709) 1,423, ,528 2,401,649 Fund balances - beginning 167,782 1,671,833 4,197,971 15,496,366 Fund balances - ending $ 46,073 $ 3,095,414 $ 4,657,499 $ 17,898,015 B-93

150 CITY OF DURHAM, NORTH CAROLINA Exhibit B-5 Community Development Block Grant Special Revenue Fund Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual From Inception and for the Year Ended June 30, 2017 Grant Prior Current Authorizations Years Year Total Revenues Intergovernmental $ 48,854,918 $ 43,395,053 $ 2,919,777 $ 46,314,830 Other 5,135,406 8,968,171 1,230,308 $ 10,198,479 Total revenues 53,990,324 52,363,224 4,150,085 56,513,309 Expenditures 53,990,324 50,321,852 2,356,197 52,678,049 Excess (deficiency) of revenues over (under) expenditures - 2,041,372 1,793,888 3,835,260 Other financing source Operating transfers from other funds - 99,372 (99,372) - Net Change in fund balances $ - $ 2,140,744 1,694,516 $ 3,835,260 Fund balance - beginning 2,140,744 Fund balance - ending $ 3,835,260 B-94

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152 CITY OF DURHAM, NORTH CAROLINA Exhibit B-6 HOME Program Grant Special Revenue Fund Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual From Inception and for the Year Ended June 30, 2017 Grant Prior Current Authorizations Years Year Total REVENUES Intergovernmental $ 26,231,141 $ 22,501,821 $ 2,703,949 $ 25,205,768 Other 8,945,218 12,376,847 (587,961) 11,788,886 Total revenues 35,176,359 34,878,668 2,115,988 36,994,654 EXPENDITURES 34,951,902 30,446,829 3,038,278 33,485,105 Excess (deficiency) of revenues over (under) expenditures 224,457 4,431,839 (922,290) 3,509,549 OTHER FINANCING SOURCES (USES) Operating transfers from other funds 2,437,191 1,418,507-1,418,507 Net Change in fund balances $ - $ 5,850,346 (922,290) $ 4,928,056 Fund balance - beginning 5,850,346 Fund balance - ending $ 4,928,056 B-96

153 CITY OF DURHAM, NORTH CAROLINA Exhibit B-7 Employment and Training Grant Special Revenue Fund Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual From Inception and for the Year Ended June 30, 2017 Revenues and Transfers In Grant Prior Current Authorizations Years Year Total Workforce Investment Act - Youth $ 536,099 $ 536,102 $ - $ 536,102 Workforce Investment Act - Admin , , ,532 Workforce Investment Act - Adult Worker , , ,078 Workforce Investment Act - Youth , , ,457 Workforce Investment Act - Dislocated Worker , , ,258 Workforce Investment Act - Youth, , , ,005 Workforce Investment Act- Job Driven , ,992 88, ,899 Workforce Investment Act - Dislocated Worker , , ,020 Workforce Investment Act - Adult Worker , , ,549 Workforce Investment Act - Admin , , ,347 Workforce Innovation Opportunity Act-Sector Partnership ,000-14,301 14,301 Workforce Innovation Opportunity Act-NEG Career Pathways ,000-10,360 10,360 Workforce Innovation Opportunity Act-Admin , ,225 9, ,759 Workforce Innovation Opportunity Act-Adult Worker , ,764 6, ,247 Workforce Innovation Opportunity Act-Dislocated Worker , ,870 15, ,264 Workforce Innovation Opportunity Act- Incumbent Worker , ,870 10,848 Workforce Innovation Opportunity Act-Youth, , , , ,394 Workforce Innovation Opportunity Act-Admin , , ,477 Workforce Innovation Opportunity Act-Adult Worker , , ,804 Workforce Innovation Opportunity Act-Dislocated Worker , , ,824 Workforce Innovation Opportunity Act-Youth, , , ,052 Total $ 7,915,847 $ 5,732,087 1,291,490 $ 7,023,577 Less current year's expenditures and transfers to other funds: 1,527,111 Net change in fund balances (235,620) Fund balance - beginning 1,856 Fund balance - ending $ (233,764) B-97

154 CITY OF DURHAM, NORTH CAROLINA Exhibit B-7 Employment and Training Grant Special Revenue Fund Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual From Inception and for the Year Ended June 30, 2017 Expenditures and Transfers Out Grant Prior Current Authorizations Years Year Total Workforce Investment Act - Youth $ 536,099 $ 536,099 $ - $ 536,099 Workforce Investment Act - Admin , , ,180 Workforce Investment Act - Adult Worker , , ,897 Workforce Investment Act - Youth , , ,982 Workforce Investment Act - Dislocated Worker , , ,438 Workforce Investment Act - Youth, , ,667 (3,284) 628,383 Workforce Investment Act- Job Driven , , , ,828 Workforce Investment Act - Dislocated Worker , ,066 (4,092) 541,974 Workforce Investment Act - Adult Worker , ,460 1, ,547 Workforce Investment Act - Admin , , ,348 Workforce Innovation Opportunity Act-Sector Partnership ,000-14,301 14,301 Workforce Innovation Opportunity Act-NEG Career Pathways ,000-10,360 10,360 Workforce Innovation Opportunity Act-Admin , ,137 7, ,759 Workforce Innovation Opportunity Act-Adult Worker , ,764 6, ,361 Workforce Innovation Opportunity Act-Dislocated Worker , ,870 37, ,078 Workforce Innovation Opportunity Act- Incumbent Worker , ,870 20,848 Workforce Innovation Opportunity Act-Youth, , , , ,394 Workforce Innovation Opportunity Act-Admin , , ,012 Workforce Innovation Opportunity Act-Adult Worker , , ,383 Workforce Innovation Opportunity Act-Dislocated Worker , , ,288 Workforce Innovation Opportunity Act-Youth, , , ,880 Total $ 7,915,847 $ 5,730,231 $ 1,527,111 $ 7,257,340 B-98

155 CITY OF DURHAM, NORTH CAROLINA Exhibit B-8 Public Safety Grants Special Revenue Fund Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual From Inception and for the Year Ended June 30, 2017 Revenues & Transfers In Grant Prior Current Authorizations Years Year Total Byrne Memorial Justice Assistance $ 81,610 $ 45,336 $ 12,125 $ 57,461 Byrne Memorial Justice Assistance ,128-2,289 2,289 Byrne Memorial Justice Assistance ,130-21,035 21,035 Controlled Substance Tax ,000 98,332-98,332 Controlled Substance Tax , , ,320 Controlled Substance Tax , , ,193 Controlled Substance Tax , , ,635 Controlled Substance Tax , , ,323 Controlled Substance Tax , , ,614 Controlled Substance Tax ,000-93,500 93,500 Federal Asset Forfeiture , , ,989 Federal Asset Forfeiture , , ,978 Federal Asset Forfeiture , , ,967 Federal Asset Forfeiture , , ,863 Federal Asset Forfeiture , , ,275 Federal Asset Forfeiture , , ,122 Federal Asset Forfeiture , , ,444 Federal Asset Forfeiture , , ,160 Financial Crimes Task ,360 10,681 2,442 13,123 Financial Crimes Task , Task Team Initiatives Grant ,000 78,633 35, ,293 Task Team Initiatives Grant ,000-53,727 53,727 COPS Hiring Grant ,467, , ,646 Cure Violence Grant , Mobile Forensic Equipment , Paul Coverdell Forensic Grant , Fugitive Apprehension Task Force ,638 7,540 6,445 13,985 Fugitive Apprehension Task Force ,638-6,405 6,405 High Intensity Drug Trafficking Area Grant , ,120 3, ,202 High Intensity Drug Trafficking Area Grant , ,939 51, ,250 High Intensity Drug Trafficking Area Grant , , , NC Gov's Highway Safety Program 120, NC Gov's Highway Safety Program-Bike Safe 5, ,158 2, NC Gov's Highway Safety Program 13, NC Gov's Highway Safety Program 86, Democratic National Convention 413, , , Democratic National Convention - Equipment 30, MOU-Town of Chapel Hill/Halloween , NCAA Basketball Asistance Overtime 25,000-2,223 2,223 Fox Family Foundation Grant ,000 5,000-5, Police Specialized Programs 30,000 1,829 9,976 11,805 Police Athletic League ,000 15,569 5,002 20,571 Police Athletic League ,000 2,553-2,553 Strike Force Strategic Initiative 130, Wal-Mart Foundation 1,600-1,600 1,600 Total $ 11,843,130 $ 4,967, ,148 $ 5,947,008 Less current year's expenditures and transfers to other funds 875,504 Net change in fund balance 103,643 Fund balance - beginning 1,465,834 Fund balance - ending $ 1,569,477 B-99

156 CITY OF DURHAM, NORTH CAROLINA Exhibit B-8 Public Safety Grants Special Revenue Fund Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual From Inception and for the Year Ended June 30, 2017 Expenditures & Transfers Out Grant Prior Current Authorizations Years Year Total Byrne Memorial Justice Assistance $ 81,610 $ 45,984 $ 11,477 $ 57,461 Byrne Memorial Justice Assistance ,128-2,289 2,289 Byrne Memorial Justice Assistance ,130-21,035 21,035 Controlled Substance Tax ,000 97, ,332 Controlled Substance Tax , , ,320 Controlled Substance Tax , , ,233 Controlled Substance Tax , ,792 15, ,635 Controlled Substance Tax ,000 53,030 42,524 95,554 Controlled Substance Tax ,000-12,898 12,898 Controlled Substance Tax , Federal Asset Forfeiture , , ,101 Federal Asset Forfeiture , ,253 5, ,825 Federal Asset Forfeiture , ,011 6, ,523 Federal Asset Forfeiture , ,670 19, ,782 Federal Asset Forfeiture , ,156 44, ,926 Federal Asset Forfeiture ,000 6,644 8,738 15,382 Federal Asset Forfeiture ,000-59,456 59,456 Federal Asset Forfeiture , Financial Crimes Task ,360 10,681 2,442 13,123 Financial Crimes Task , Task Team Initiatives Grant ,000 78,633 35, ,293 Task Team Initiatives Grant ,000-53,727 53,727 COPS Hiring Grant ,467, , ,646 Cure Violence Grant , Mobile Forensic Equipment , Paul Coverdell Forensic Grant , Fugitive Apprehension Task Force ,638 7,540 6,445 13,985 Fugitive Apprehension Task Force ,638-6,405 6,405 High Intensity Drug Trafficking Area Grant , , ,202 High Intensity Drug Trafficking Area Grant , ,939 51, ,250 High Intensity Drug Trafficking Area Grant , , , NC Gov's Highway Safety Program 120, NC Gov's Highway Safety Program-Bike Safe 5, ,158 2, NC Gov's Highway Safety Program 13, NC Gov's Highway Safety Program 86, Democratic National Convention 413, ,762 19, , Democratic National Convention - Equipment 30, MOU-Town of Chapel Hill/Halloween , NCAA Basketball Asistance Overtime 25,000-2,223 2,223 Fox Family Foundation Grant , , Police Specialized Programs 30,000-2,880 2,880 Police Athletic League ,000 9,698 6,622 16,320 Police Athletic League ,000 2,553-2,553 Strike Force Strategic Initiative 130, Wal-Mart Foundation 1, Total $ 11,843,130 $ 3,502,032 $ 875,504 $ 4,377,537 B-100

157 CITY OF DURHAM, NORTH CAROLINA Exhibit B-9 Emergency Telephone System Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual For the Fiscal Year Ended June 30, 2017 Variance Final Positive Budget Actuals (Negative) Revenues Restricted intergovernmental $ 1,668,106 $ 1,668,106 $ - Interest Earned 3,000 - (3,000) Total 1,671,106 1,668,106 (3,000) Expenditures Implemental functions 544, , ,308 Telephone and Furniture 953, , ,319 Software maintenance 312, , ,573 Hardware maintenance 359, ,613 63,719 Hosted Solutions 358, ,727 (299,649) Training 50,000 59,755 (9,755) Total 2,578,330 1,789, ,515 Revenues over (under) expenditures (907,224) (121,709) 785,515 Other financing sources (uses): Appropriations from Fund Balance 400,073 - (400,073) Transfers from reserves 507,151 - (507,151) Total other financing sources (uses) 907,224 - (907,224) Appropriated fund balance Revenues over (under) expenditures $ - (121,709) $ (121,709) Fund balance - beginning 167,782 Fund balance - ending $ 46,073 B-101

158 CITY OF DURHAM, NORTH CAROLINA Exhibit B-10 Inspections Special Revenue Fund Schedule of Revenues, Expenditures and Other Financing Sources (Uses) Compared to Budget (Modified Accrual Basis) For the Year Ended June 30, 2017 Variance with Final Budget - Actual Positive Budget Amounts (Negative) Revenues Charges for services $ 6,123,399 $ 7,200,923 $ 1,077,524 Investment and rental income 10,000 8,717 (1,283) Total revenues 6,133,399 7,209,640 1,076,241 Expenditures Current Development 5,299,721 5,161, ,662 Total expenditures 5,299,721 5,161, ,662 Excess of revenues over (under) expenditures 833,678 2,048,581 1,214,903 Other financing sources (uses) Transfer from reserves (243) Appropriated from fund balance 40,000 - (40,000) Transfers out (873,921) (625,000) 248,921 Total other financing sources (uses) (833,678) (625,000) 208,678 Excess of revenues over expenditures and other financing uses $ - $ 1,423,581 $ 1,423,581 B-102

159 CITY OF DURHAM, NORTH CAROLINA Exhibit B-11 Other Special Revenue Funds Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual From Inception and for the Year Ended June 30, 2017 Revenues & Transfers In Grant Prior Current Authorizations Years Year Total FEDERAL: US Department of Housing and Urban Development: HUD Emergency Solutions Grant - 15 $ 147,357 $ 145,657 $ 1,700 $ 147,357 HUD Emergency Solutions Grant ,046 20, , ,015 HUD Emergency Solutions Grant ,711-18,259 18,259 FHA Case Processing - FY14 76,160 76,160-76,160 FHA Case Processing - FY15 81,350 81,530-81,530 FHA Case Processing - FY16 91,875 91,875-91,875 FHA Case Processing - FY17 104,950-89,950 89,950 HUD Fair Housing Assistance Program - FY15 96,720 94,720-94,720 HUD Fair Housing Assistance Program - FY02 148, , ,300 HUD Fair Housing Assistance Program - FY16 15,000-15,000 15,000 Housing Opportunities for Persons with Aids FY16 294,274-25,013 25,013 Housing Opportunities for Persons with Aids FY17 282, , ,791 US Environmental Protection Agency: Brownfields Job Training ,000 94,403 50, ,621 Brownfields Job Training , , , ,205 Climate Showcase Communities Grant , , ,057 FEDERAL PASS-THROUGH: Federal Highway Administration: NC Department of Transportation FY Section 104(f) Planning 2,072,156 1,677,632-1,677,632 FY Section 104(f) Planning 2,591,066 1,736, ,691 2,324,568 FY Section 104(f) Planning 2,607,282-1,495,026 1,495,026 FY Section 5303 Planning 347, , , ,533 FY Section 5303 Planning 350, , ,205 US Department of Transportation: Federal Transit Admin. Sec Job Access Reverse Commute FY11 646, , , ,186 Sec Job Access Reverse Commute FY13 545, ,570 90, ,249 Sec Job Access Reverse Commute FY14 1,266,559 1,096, ,829 1,266,559 Sec New Freedom FY10 421, ,840 6, ,929 Sec New Freedom FY11 253, , ,258 Sec New Freedom FY13 175, ,556 2, ,344 Sec Bus & Bus Facilities FY15 933, , , ,393 Sec Bus & Bus Facilities FY14 1,125, , , ,297 Sec Elderly and Disabled FY14 667, , , ,472 Sec Elderly and Disabled FY16 674, US DOT Smart Growth 50,000 49,994-49,994 Total Federal 17,489,210 8,307,783 4,134,717 12,442,500 B-103

160 CITY OF DURHAM, NORTH CAROLINA Exhibit B-11 Other Special Revenue Funds Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual From Inception and for the Year Ended June 30, 2017 Expenditures & Transfers Out Grant Prior Current Authorizations Years Year Total FEDERAL: US Department of Housing and Urban Development: HUD Emergency Solutions Grant - 15 $ 147,357 $ 147,357 $ - $ 147,357 HUD Emergency Solutions Grant ,046 46, , ,046 HUD Emergency Shelter Grant ,711-18,259 18,259 FHA Case Processing - FY14 76,160 75,839-75,839 FHA Case Processing - FY15 81,350 56,974 23,884 80,858 FHA Case Processing - FY16 91,875-78,790 78,790 FHA Case Processing - FY17 104,950-20,034 20,034 HUD Fair Housing Assistance Program - FY15 96,720 52,054 40,496 92,550 HUD Fair Housing Assistance Program - FY02 148, , ,075 HUD Fair Housing Assistance Program - FY16 15,000-15,000 15,000 Housing Opportunities for Persons with Aids FY16 294,274-25,013 25,013 Housing Opportunities for Persons with Aids FY17 282, , ,674 US Environmental Protection Agency: Brownfields Job Training , ,264 3, ,621 Brownfields Job Training , , , ,339 Climate Showcase Communities Grant , , ,057 FEDERAL PASS-THROUGH: Federal Highway Administration: NC Department of Transportation FY Section 104(f) Planning 2,072,156 1,677,632-1,677,632 FY Section 104(f) Planning 2,591,066 1,627, ,498 2,241,077 FY Section 104(f) Planning 2,607,282-2,122,917 2,122,917 FY Section 5303 Planning 347, ,677 86, , , , ,945 US Department of Transportation: Federal Transit Admin. Sec Job Access Reverse Commute FY11 646, , , ,738 Sec Job Access Reverse Commute FY13 545, , , ,859 Sec Job Access Reverse Commute FY14 1,266,559 1,250,302 16,257 1,266,559 Sec New Freedom FY10 421, ,085 4, ,929 Sec New Freedom FY11 253, , ,258 Sec New Freedom FY13 175, ,557 6, ,549 Sec Bus & Bus Facilities FY15 933, , , ,918 Sec Bus & Bus Facilities FY14 1,125, , ,372 Sec Elderly and Disabled 667, , , ,671 Sec Elderly and Disabled 674,526-2,435 2,435 US DOT Smart Growth 50,000 49,994-49,994 Total Federal 17,489,210 8,269,183 4,619,715 12,888,898 continued on next page. B-104

161 CITY OF DURHAM, NORTH CAROLINA Exhibit B-11 Other Special Revenue Funds Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual From Inception and for the Year Ended June 30, 2017 Revenues & Transfers In Grant Prior Current Authorizations Years Year Total STATE OF NORTH CAROLINA NC Department of Environment and Natural Resources: Northeast Central Livability $ 40,000 $ 38,100 $ - $ 38,100 Total State of North Carolina 40,000 38,100-38,100 OTHER Downtown Revitalization 566, , ,926 Business Improvement District 3,495,347 2,608, ,789 3,505, Parks Build Community Grant 20,000-20,000 20, Meet Me in the Park 20,000-20,000 20,000 Excess Match Funds - 102, , ,601 Excess Match Funds - 11,598-11,598 Long Range Transportation Plan - City of Raleigh 167, , ,000 Prior Years Distrib Interest 45,528 61,131 1,007 62,138 National League of Cities Grant 5,700-5,700 5,700 Bloomberg Innovation Program 1,609, , ,333 OEWD - Joint Portfolio Meeting (State of Economy) 69,311 69,311-69,311 2nd Substance Abuse and Mental Health ,000 10,000-10,000 3rd Substance Abuse and Mental Health ,000 60,000 (44,278) 15,722 Durham YouthWork Internship Grant 75,000 75,000-75,000 Durham YouthWork Internship Grant 75,000 75,000 75, ,000 Square 1 Bank Grant - Economic Development 10,000 10,000-10,000 Longfellow Grant ,000 59,000-59,000 Reintegration of Ex-Offenders 1,360,000-11,534 11,534 Duke Energy Electric Vehicle Charging 10, Emerging Technology Grant , Northeast Central Livability ,750 50,000-50,000 Community Planning Project 7,822-7,822 7,822 Dedicated Funding Source - Community Development 2,749,320-3,687,283 3,687, Arthritis Intervention Grant 4,000 4,000-4,000 Total Other 10,598,061 3,955,571 5,446,251 9,401,822 $ 28,127,271 $ 12,301,454 9,580,969 $ 21,882,422 Less current year's expenditures and transfers to other funds 9,121,441 Net change in fund balance 459,528 Fund balance - beginning 4,197,971 Fund balance - ending $ 4,657,499 B-105

162 CITY OF DURHAM, NORTH CAROLINA Exhibit B-11 Other Special Revenue Funds Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual From Inception and for the Year Ended June 30, 2017 Expenditures & Transfers Out Grant Prior Current Authorizations Years Year Total STATE OF NORTH CAROLINA NC Department of Environment and Natural Resources: Northeast Central Livability $ 40,000 $ 30,618 $ 1,066 $ 31,684 Total State of North Carolina 40,000 30,618 1,066 31,684 OTHER Downtown Revitalization 566, , ,622 Business Improvement District 3,495,347 2,517, ,192 3,382, Parks Build Community Grant 20, ,785 20, Meet Me in the Park 20, Excess Match Funds Excess Match Funds Long Range Transportation Plan - City of Raleigh 167,000 80,750-80,750 Prior Years Distrib Interest 45,528 45,528-45,528 National League of Cities Grant 5,700-5,700 5,700 Bloomberg Innovation Program 1,609,333-3,399 3,399 OEWD - Joint Portfolio Meeting (State of Economy) 69,311 26,596 4,679 31,275 2nd Substance Abuse and Mental Health ,000 15,767 (5,767) 10,000 3rd Substance Abuse and Mental Health ,000 60,000-60,000 Durham YouthWork Internship Grant 75,000 74,015 (14,111) 59,904 Durham YouthWork Internship Grant 75,000-77,393 77,393 Square 1 Bank Grant - Economic Development 10, Longfellow Grant ,000 8,836 18,432 27,269 Reintegration of Ex-Offenders 1,360,000-41,868 41,868 Duke Energy Electric Vehicle Charging 10,000-8,713 8,713 Emerging Technology Grant , Northeast Central Livability ,750 40,566 6,390 46,955 Community Planning Project 7,822-7,822 7,822 Dedicated Funding Source - Community Development 2,749,320-3,460,789 3,460, Arthritis Intervention Grant 4,000 4,000-4,000 Total Other 10,598,061 3,398,505 4,500,660 7,899,166 $ 28,127,271 $ 11,698,307 $ 9,121,441 $ 20,819,748 B-106

163 CITY OF DURHAM, NORTH CAROLINA Exhibit B-12 Combining Balance Sheet Nonmajor Capital Projects Funds June 30, 2017 Recreation And General Downtown Capital Street General Projects Projects Projects ASSETS Cash and cash equivalents/investments $ 4,529,736 $ 28,270,048 $ 88,414 Due from government agencies 499,344 8,542 1,699 Due from other funds - 4,705,584 - Restricted cash and cash equivalents/investments Total assets $ 5,029,080 $ 32,984,174 $ 90,113 LIABILITIES AND FUND BALANCES Liabilities Accounts payable $ 546,160 $ 884,621 $ - Deposits and payments held in escrow - 1,718,839 - Deferred income Due to other funds Total liabilities 546,160 2,603,460 - Fund Balances Restricted Stabilization by State Statute 6,127,464 19,536,903 7,869 Capital Projects Unassigned (1,644,544) 10,843,811 82,244 Total fund balances 4,482,920 30,380,714 90,113 Total liabilities and fund balances $ 5,029,080 $ 32,984,174 $ 90,113 B-107

164 CITY OF DURHAM, NORTH CAROLINA Exhibit B-12 Combining Balance Sheet Nonmajor Capital Projects Funds June 30, 2017 Total Nonmajor Municipal Capital Buildings Impact Projects Projects Fee Funds ASSETS Cash and cash equivalents/investments $ 58,238 $ 21,691,171 $ 54,637,607 Due from government agencies 314, ,702 Due from other funds - - 4,705,584 Restricted cash and cash equivalents/investments Total assets $ 372,355 $ 21,691,171 $ 60,166,893 LIABILITIES AND FUND BALANCES Liabilities Accounts payable $ 2,075,646 $ - $ 3,506,427 Deposits and payments held in escrow - - 1,718,839 Deferred income Due to other funds 4,705,584-4,705,584 Total liabilities 6,781,230-9,930,850 Fund Balances Restricted Stabilization by State Statute 40,633,572-66,305,808 Capital Projects - 21,691,171 21,691,171 Unassigned (47,042,447) - (37,760,936) Total fund balances (6,408,875) 21,691,171 50,236,043 Total liabilities and fund balances $ 372,355 $ 21,691,171 $ 60,166,893 B-108

165 CITY OF DURHAM, NORTH CAROLINA Exhibit B-13 Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Capital Projects Funds For the Year Ended June 30, 2017 Recreation And General Downtown Capital Street Capital Projects Projects Projects REVENUES Intergovernmental revenues $ - $ - $ - Investment and rental income ,971 Charges for services 21, ,563 25,000 Special Grants Sale of property and miscellaneous Total revenues 21, ,563 44,971 EXPENDITURES Current General government 5,986, Public safety Development ,030 General services 557, Recreation 2,186, Streets and highways - 4,511,375 - Total expenditures 8,729,990 4,511, ,030 Excess (deficiency) of revenues over (under) expenditures (8,708,825) (3,732,812) (260,059) OTHER FINANCING SOURCES Bonds issued 5,000, Bond anticipation notes 685, , ,979 Transfers in 4,141,234 23,912, ,021 Transfers out - (500,000) - Total other financing sources 9,826,808 23,639, ,000 Net change in fund balances 1,117,983 19,906,218 39,941 Fund balances - beginning 3,364,937 10,474,496 50,172 Fund balances - ending $ 4,482,920 $ 30,380,714 $ 90,113 B-109

166 CITY OF DURHAM, NORTH CAROLINA Exhibit B-13 Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Capital Projects Funds For the Year Ended June 30, 2017 Total Nonmajor Municipal Capital Buildings Impact Projects Projects Fee Funds REVENUES Intergovernmental revenues $ - $ - $ - Investment and rental income 495,970 94, ,687 Charges for services 642,995 5,462,679 6,930,402 Special Grants Sale of property and miscellaneous 1,040-1,040 Total revenues 1,140,005 5,557,425 7,542,129 EXPENDITURES Current General government 29,059-6,015,239 Public safety 22,782,048-22,782,048 Development ,030 General services 1,059,948-1,617,226 Recreation 30,296-2,216,828 Streets and highways - - 4,511,375 Total expenditures 23,901,351-37,447,746 Excess (deficiency) of revenues over (under) expenditures (22,761,346) 5,557,425 (29,905,617) OTHER FINANCING SOURCES Bonds issued - - 5,000,000 Bond anticipation notes 10,892,325-11,961,915 Transfers in 3,149,649-31,345,897 Transfers out (31,537) (22,934,647) (23,466,184) Total other financing sources 14,010,437 (22,934,647) 24,841,628 Net change in fund balances (8,750,909) (17,377,222) (5,063,989) Fund balances - beginning 2,342,034 39,068,393 55,300,032 Fund balances - ending $ (6,408,875) $ 21,691,171 $ 50,236,043 B-110

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168 CITY OF DURHAM, NORTH CAROLINA Exhibit C-1 Water and Sewer Operating Fund Schedule of Revenues and Transfers - Compared to Budget (Modified Accrual Basis) For the Year Ended June 30, 2017 Actual Budget Variance Favorable (Unfavorable) Revenues Operating revenues Water and sewer services Water and sewer services $ 94,448,952 $ 88,579,871 $ 5,869,081 Sewer surcharge 193, ,000 33,536 Industrial monitoring 11,748 12,000 (252) Suspended solids 62,127 35,000 27,127 Miscellaneous - 255,108 (255,108) Total water and sewer services 94,716,363 89,041,979 5,674,384 Other operating revenues Water line connection fees 719, , ,983 Sewer line connection fees 244, , ,187 Septic tank disposal 298, ,000 73,446 Water and sewer permits 190,290 90, ,290 Backflow testing service 13,100 12,000 1,100 Engineering inspection fee 265, , ,450 Total other operating revenues 1,731,456 1,077, ,456 Total operating revenues 96,447,819 90,118,979 6,328,840 Non-operating revenues Investment income 297, , ,456 Interest on assessments 38,848 30,000 8,848 Intergovernmental revenue 415,685 48, ,836 Rent - non-operating property 427, , ,893 Assessments and frontage 909, , ,128 Disposals of property and equipment 684 6,000 (5,316) Total non-operating revenues 2,089,694 1,121, ,845 Other financing sources Refunding bonds issued 50,439,777 50,828,560 (388,783) Premium on refunding 5,433,652 5,433,652 - Transfers from other funds 161, ,555 Transfers from reserves - 3,054,843 (3,054,843) Total other financing sources 56,034,984 59,317,055 (3,282,071) Total revenues and other financing sources $ 154,572,497 $ 150,557,883 $ 4,014,614 B-112

169 CITY OF DURHAM, NORTH CAROLINA Exhibit C-2 Water and Sewer Operating Fund Schedule of Expenditures and Transfers - Compared to Budget (Modified Accrual Basis) For the Year Ended June 30, 2017 Actual Budget Expenditures Department of Water Management Water management administration $ 4,995,932 6,194,047 Variance Favorable (Unfavorable) $ $ 1,198,115 Utility customer service 2,827,086 2,656,870 (170,216) Water management regulatory affairs 1,060 - (1,060) Total administration 7,824,078 8,850,917 1,026,839 Water supply and treatment Water treatment plants 7,309,492 8,905,152 1,595,660 Labs 951,320 1,002,647 51,327 Total water supply and treatment 8,260,812 9,907,799 1,646,987 Wastewater treatment North Durham Water Reclamation Facility 3,841,111 3,951, ,065 South Durham Water Reclamation Facility 2,857,618 2,976, ,335 County sewer treatment service 2,073,039 2,374, ,961 Total wastewater treatment 8,771,768 9,302, ,361 Maintenance and Construction Plant maintenance 15,582,153 15,271,494 (310,659) Water and sewer systems maintenance 5,044,618 5,324, ,691 Total water and sewer systems development 20,626,771 20,595,803 (30,968) Public Works Department Administration 214, ,925 97,655 GIS and Billing 269, ,285 (23,996) Systems engineering 3,212,393 3,051,524 (160,869) Total public works department 3,695,944 3,608,734 (87,210) Finance Department Treasury 152, ,112 58,944 Total finance department 152, ,112 58,944 Total Water and Sewer Management 49,331,541 52,476,494 3,144,953 Non-Departmental Charges General and administrative 4,773,733 4,773,733 - continued on next page B-113

170 CITY OF DURHAM, NORTH CAROLINA Exhibit C-2 Water and Sewer Operating Fund Schedule of Expenditures and Transfers - Compared to Budget (Modified Accrual Basis) (continued) For the Year Ended June 30, 2017 Actual Budget Expenditures (continued) Debt service Principal bonds $ 62,464,599 61,539,530 Variance Favorable (Unfavorable) $ $ (925,069) Loan from State principal 135, ,000 - Loan from State interest 23,247 23,247 - Durham County principal 38,098 - (38,098) Durham County interest 15, , ,173 Interest, fiscal charges, etc. - bonds and loans 2,762,362 4,262,773 1,500,411 Total debt service 65,439,133 66,460,550 1,021,417 Total non-departmental charges 70,212,866 71,234,283 1,021,417 Total expenditures 119,544, ,710,777 4,166,370 Transfers to other funds and appropriation to fund balance Water and Sewer Construction Fund 22,000,000 22,000,000 - Water and Sewer Fleet Fund 911, ,502 - Appropriations to Fund Balance - 3,935,604 3,935,604 Total transfers to other funds and appropriation to fund balance 22,911,502 26,847,106 3,935,604 Total expenditures, transfers and appropriations to fund balance $ 142,455,909 $ 150,557,883 $ 8,101,974 B-114

171 CITY OF DURHAM, NORTH CAROLINA Exhibit C-3 Water and Sewer Utility Construction Fund Schedule of Revenues, Expenditures, Transfers and Other Financing Sources Compared with Authorizations (Modified Accrual Basis) From Inception and for the Year Ended June 30, 2017 Revenues and Transfers from Other Funds Authorizations Prior Years Current Year Total Water Construction Projects Asbestos Cement Line Replacement $ 750,000 $ 731,039 $ - $ 731,039 Brown Water Trtmnt Plant Exp 13,577,957 5,534,813 8,043,143 13,577,956 Downtown Reinforcing Main 3,850,000 62,503 69, ,813 Lake Michie Dam Renovations 5,246, , ,060 1,827,006 Jordan Lake Water Treatment Plant 5,182,146 1,447, ,406 1,632,376 Teer Quarry Water Storage Dev 15,016,950 1,440,173 69,566 1,509,739 Two-inch Water Line Replacement 1,988,000 1,815,481 1,700 1,817,181 Water Ext and Improvements 6,193, , , ,115 Water Main Rehabilitation 44,733,993 12,255,047 2,594,631 14,849,678 Future Water Supply Source Prot 8,379,921 5,456,167 (200,000) 5,256,167 Raleigh Emer Water Interconnect 5,925,000 5,293,125-5,293,125 Water Regulatory Improvement 35,268,000 1,710, ,195 1,881,705 Southeast Distribution System 7,162,000 6,265, ,627 6,694,523 Water Facilities Rehabilitation 36,909,353 6,046,331 1,655,509 7,701,840 Water Residuals Handling 45,550,000 3,070,809 2,491,421 5,562,230 Total Water Construction Projects 235,733,508 52,333,122 16,599,371 68,932,493 Sewer Construction Projects Facility Paving 2,488, , ,594 Water Management Facility Exp 60,921, , , ,749 Enhanced Nitrogen Removal 18,723,704 14,710, ,004 14,814,987 Wastewater Process Rehab 97,923,899 13,147,468 2,547,540 15,695,008 Reclaimed Water Systems 2,181, ,250 52, ,000 Sewer Ext and Improvements 8,656,521 1,561, ,401 1,769,544 Orange County Economic Dev 950, ,191 53, ,265 Sewer Rehabilitation 34,963,204 7,620,253 1,645,701 9,265,954 Southeast Regional Lift Station 4,700,000 49,173 2,359,282 2,408,455 Watershed Protection Prop Acq 450, , , ,000 IT Infrastructure Improvements 1,751,556 1,751,556-1,751,556 Water Sewer CIP Fleet 1,629, , ,502 1,629,757 Total Sewer Construction Projects 235,339,306 41,077,399 8,397,470 49,474,869 Water and Sewer Construction 12,400,000 70,865,489 5,402,838 76,268,327 Watershed Protection 87, , ,592 Total Other Projects 12,487,000 70,865,489 5,513,430 76,378,919 Total Construction Projects $ 483,559,814 $ 164,276,010 $ 30,510,271 $ 194,786,281 B-115

172 CITY OF DURHAM, NORTH CAROLINA Exhibit C-3 Water and Sewer Utility Construction Fund Schedule of Revenues, Expenditures, Transfers and Other Financing Sources Compared with Authorizations (Modified Accrual Basis) From Inception and for the Year Ended June 30, 2017 Expenditures and Transfers from Other Funds Authorizations Prior Years Current Year Total Water Construction Projects Asbestos Cement Line Replacement $ 750,000 $ 731,039 $ - $ 731,039 Brown Water Trtmnt Plant Exp 13,577,957 5,534,813 8,043,143 13,577,956 Downtown Reinforcing Main 3,850,000 62, , ,557 Lake Michie Dam Renovations 5,246, ,946 1,050,100 2,001,046 Jordan Lake Water Treatment Plant 5,182,146 1,447, ,120 1,709,090 Teer Quarry Water Storage Dev 15,016,950 1,440,173 78,676 1,518,849 Two-inch Water Line Replacement 1,988,000 1,815,481 1,700 1,817,181 Water Ext and Improvements 6,193, , , ,766 Water Main Rehabilitation 44,733,993 12,408,041 6,704,924 19,112,965 Future Water Supply Source Prot 8,379,921 5,456,167 14,632 5,470,799 Raleigh Emer Water Interconnect 5,925,000 5,293,125-5,293,125 Water Regulatory Improvement 35,268,000 1,710,510 15,386,417 17,096,927 Southeast Distribution System 7,162,000 6,571, ,209 6,701,329 Water Facilities Rehabilitation 36,909,353 6,046,331 3,877,309 9,923,640 Water Residuals Handling 45,550,000 3,070,809 12,688,901 15,759,710 Total Water Construction Projects 235,733,508 52,791,340 48,862, ,653,979 Sewer Construction Projects Facility Paving 2,488, , ,594 Water Management Facility Exp 60,921, , ,317 1,212,850 Enhanced Nitrogen Removal 18,723,704 14,765,091 49,896 14,814,987 Wastewater Process Rehab 97,923,899 13,813,537 4,015,760 17,829,297 Reclaimed Water Systems 2,181, , , ,850 Sewer Ext and Improvements 8,656,521 1,561, ,958 1,785,102 Orange County Economic Dev 950, , , ,518 Sewer Rehabilitation 34,963,204 7,766,261 3,405,829 11,172,090 Southeast Regional Lift Station 4,700,000 49,173 1,159,890 1,209,063 Watershed Protection Prop Acq 450, , ,000 IT Infrastructure Improvements 1,751,556 1,713,435 3,612 1,717,047 Water Sewer CIP Fleet 1,629, , , ,490 Total Sewer Construction Projects 235,339,306 41,732,048 10,552,840 52,284,888 Water and Sewer Construction 12,400,000 6,055,244 2,230,755 8,285,999 Watershed Protection 87,000-87,000 87,000 Total Other Projects 12,487,000 6,055,244 2,317,755 8,372,999 Total Construction Projects $ 483,559,814 $ 100,578,632 $ 61,733,234 $ 162,311,866 B-116

173 CITY OF DURHAM, NORTH CAROLINA Exhibit C-4 Water and Sewer Capital Facilities Fee Fund Schedule of Revenues and Other Financing Use Compared to Budget (Modified Accrual Basis) For the Year Ended June 30, 2017 Actual Budget Variance Favorable (Unfavorable) Revenues Investment income $ 39,474 $ 50,000 $ (10,526) Water impact fees 4,154,652 3,200, ,652 Sewer impact fees 1,593,952 1,205, ,952 Total revenues 5,788,078 4,455,000 1,333,078 Other financing use Transfers to other funds (4,455,000) (4,455,000) - Excess of revenues over other financing use $ 1,333,078 $ - $ 1,333,078 B-117

174 CITY OF DURHAM, NORTH CAROLINA Exhibit C-5 Water and Sewer Fund Reconciliation of Modified Accrual to Full Accrual Basis For the Year Ended June 30, 2017 Revenues and other financing sources Operating revenues $ 96,447,819 Non-operating revenues 2,089,694 Other financing sources 56,034,984 Construction fund 29,488,177 Fleet fund 911,502 Watershed protection fund 110,592 Capital facilities fund 5,788,078 Total revenues 190,870,846 Expenditures and other financing uses Operating fund 142,455,909 Construction fund 61,055,583 Fleet fund 590,651 Watershed protection fund 87,000 Capital facilities fund 4,455,000 Total expenditures 208,644,143 Excess of revenues and other financing sources over expenditures and other financing uses (17,773,297) Reconciling items Payment of debt principal 54,292,616 Payment of debt principal to Durham County 38,098 Capital asset purchases Operating fund 655,838 Construction fund 60,726,986 Fleet fund 590,651 61,973,475 Capital asset disposals (54,929) Donated infrastructure 28,472,636 Donated equipment 74,385 Refunding bonds issued (50,439,777) Premium on debt issued (5,433,652) Advance to other funds repaid (130,018) Adjustment for unbilled receivables (319,320) Adjustment of allowance for bad debts (497,453) Accrued interest payable adjustment 9,289,342 Amortization of discount (790,217) OPEB (891,623) Deferred outflows of resources for contributions made to pension plan in current year (250,896) Depreciation (21,238,106) Change in net assets - Full accrual basis $ 56,321,264 B-118

175 CITY OF DURHAM, NORTH CAROLINA Exhibit C-6 Parking Facilities Fund Schedule of Revenues, Expenditures and Other Financing Sources Compared to Budget (Modified Accrual Basis) For the Year Ended June 30, 2017 Variance Favorable Actual Budget (Unfavorable) Revenues Operating revenues $ 3,987,758 $ 4,493,336 $ (505,578) Non-operating revenues Investment income 17,942 3,000 14,942 Total revenues 4,005,700 4,496,336 (490,636) Expenditures Operating expenditures Personnel services 248, ,757 (23,380) Operating 2,465,947 2,754, ,327 Capital outlay 277, ,338 7,907 Total operating expenditures 2,991,515 3,264, ,854 Non-departmental general and administrative 496, ,665 - Debt Service Principal 590, ,367 (2) Interest and fiscal charges 324, , ,521 Total debt service 914,757 1,111, ,519 Total expenditures 4,402,937 4,872, ,373 Deficiency of revenues over expenditures (397,237) (375,974) (21,263) Other financing sources Transfers from reserves - 60,006 (60,006) Transfer from other funds 914, ,757 - Transfers to fund balance - (598,789) 598,789 Total other financing sources 914, , ,783 Deficiency of revenues over expenditures and other financing sources $ 517,520 $ - $ 517,520 B-119

176 CITY OF DURHAM, NORTH CAROLINA Exhibit C-7 Parking Construction Fund Schedule of Project Expenditures and Other Financing Sources (Use) Compared with Authorizations (Modified Accrual Basis) From Inception and for the Year Ended June 30, 2017 Authorizations Prior Years Current Year Total Revenues Investment and rental income $ 6,912 $ - $ - $ - Miscellaneous revenue 15,700 15,700-15,700 Total revenues 22,612 15,700-15,700 Parking projects expenditures Parking Garages Elevators 360, ,109 6, ,021 Parking Garages Elevators 1,891,000 15, , ,012 On-Street Parking Upgrades 1,500,000-1,275,428 1,275,428 On-Street Parking Upgrades 1,000, Downtown Parking Garage 2,500, , ,914 Parking Security Upgrades/Enhancements 500, Total expenditures 7,751, ,809 2,509,566 2,878,375 Other financing sources Capital related debt 7,702, Transfers from other funds 25,661-25,661 25,661 Total other financing sources 7,728,409-25,661 25,661 Deficiency of revenues over expenditures and other financing sources $ - $ (353,109) $ (2,483,905) $ (2,837,014) B-120

177 CITY OF DURHAM, NORTH CAROLINA Exhibit C-8 Parking Facilities Fund Reconciliation of Modified Accrual to Full Accrual Basis For the Year Ended June 30, 2017 Revenues and other financing sources Operating revenues $ 3,987,758 Non-operating revenues 17,942 Other financing sources 914,757 Construction Fund 25,661 Total revenues and other financing sources 4,946,118 Expenditures and other financing uses Operating fund 3,488,180 Other financing uses 914,757 Construction fund 2,509,566 Total expenditures and other financing uses 6,912,503 Excess of revenues and other financing sources over expenditures and other financing uses (1,966,385) Reconciling items Payment of debt principal 590,369 Accrued interest payable adjustment 28,311 Capital asset purchases 2,786,998 OPEB (5,363) Deferred outflows of resources for contributions made to pension plan in current year (2,318) Depreciation (874,064) Change in net assets - full accrual basis $ 557,548 B-121

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179 CITY OF DURHAM, NORTH CAROLINA Exhibit C-9 Transit Grants Special Revenue Fund Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual From Inception and for the Year Ended June 30, 2017 Revenues and Transfers In Grant Prior Current Authorizations Years Year Total Federal Project: NC FTA Section 3 - Capital $ 11,595,837 $ 11,205,689 $ - $ 11,205,689 Federal Project: NC FTA Section 9 - Capital 3,047,830 2,951,924-2,951, FTA Sec Capital 1,742,979 1,742,519-1,742,519 Federal Project: NC Section 5309 Bus Earmark 925, , ,960 Federal Project: NC-90-X Section 5307 Bus Grant 734, , ,171 Federal Project: NC-90-X FTA Section 9 - Capital 3,386,981 3,386,981-3,386, FTA Section 9 - Planning 283, , , FTA Section 9 - Planning 355, , , FTA Section 9 - Capital 3,660,217 3,660,217-3,660, Section 5307 Planning 320, , , Section 5307 Capital 3,949,651 3,949,651-3,949,651 Federal Project: NC-90-X Section 5307 Planning 368, , , Section 5307 Capital 4,168,271 4,086,403 4,369 4,090,772 Federal Project: NC-90-X Section 5307 Planning 638, , , Section 5307 Capital 3,983,170 3,918,045 6,344 3,924,389 Federal Project: NC-90-X Section 9 Planning 283, , , Section 9 Capital 4,563,833 4,506, ,506,787 Federal Project: NC-90-X Section 9 Planning 344, , , Section 9 Capital 4,836,177 4,629,375-4,629,375 Federal Project: NC-90-X Section 9 Planning 306, , , Section 9 Capital 4,527,666 4,594,879-4,594,879 Federal Project: NC Section 9 Planning 284, , , Section 9 Capital 4,436,809 4,517,189 (39,211) 4,477,978 Federal Project: TBD 2017 Section 9 Planning 291, , , Section 9 Capital 4,524,134-3,581,767 3,581,767 Federal Project: NC-95-X Section 5307 Bus Grant 1,468,342 1,468,342-1,468,342 B-123

180 CITY OF DURHAM, NORTH CAROLINA Exhibit C-9 Transit Grants Special Revenue Fund Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual From Inception and for the Year Ended June 30, 2017 Expenditures and Transfers Out Grant Prior Current Authorizations Years Year Total Federal Project: NC FTA Section 3 - Capital $ 11,595,837 $ 11,202,371 $ - $ 11,202,371 Federal Project: NC FTA Section 9 - Capital 3,047,830 2,921,930-2,921, FTA Sec Capital 1,742,979 1,742,519-1,742,519 - Federal Project: NC Section 5309 Bus Earmark 925, , ,960 - Federal Project: NC-90-X Section 5307 Bus Grant 734, , ,171 - Federal Project: NC-90-X FTA Section 9 - Capital 3,386,981 3,386,979-3,386, FTA Section 9 - Capital 283, , , FTA Section 9 - Planning 355, , , FTA Section 9 - Capital 3,660,217 3,660,216-3,660, Section 5307 Planning 320, , , Section 5307 Capital 3,949,651 3,949,651-3,949,651 Federal Project: NC-90-X Section 5307 Planning 368, , , Section 5307 Capital 4,168,271 4,065,937 12,898 4,078,835 Federal Project: NC-90-X Section 5307 Planning 638, , , Section 5307 Capital 3,983,170 3,901,763 22,831 3,924,594 Federal Project: NC-90-X Section 9 Planning 283, , , Section 9 Capital 4,563,833 4,492, ,492,525 - Federal Project: NC-90-X Section 9 Planning 344, , , Section 9 Capital 4,836,177 4,565,173-4,565,173 - Federal Project: NC-90-X Section 9 Planning 306, , , Section 9 Capital 4,527,666 4,585,211 (150,207) 4,435,004 - Federal Project: NC Section 9 Planning 284, , , Section 9 Capital 4,436,809 4,494,517 7,603 4,502,120 Federal Project: TBD 2017 Section 9 Planning 291, , , Section 9 Capital 4,524,134-4,477,208 4,477,208 - Federal Project: NC-95-X Section 5307 Bus Grant 1,468,342 1,468,342-1,468,342 continued on next page. B-124

181 CITY OF DURHAM, NORTH CAROLINA Exhibit C-9 Transit Grants Special Revenue Fund Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual From Inception and for the Year Ended June 30, 2017 Revenues and Transfers In Grant Prior Current Authorizations Years Year Total Federal Project: NC-95-X Section 5307 Bus Grant $ 500,000 $ 500,000 $ - $ 500, Section 5307 Bus Grant 3,850,000 3,850,000-3,850, Section 5307 Bus Grant 3,240,000 3,193,084-3,193, Section 5307 Bus Grant 1,080,000 1,064,144-1,064, Section 5307 CMAQ 606, , ,673 Federal Project: NC-95-X Section 5307 STPDA 98,364 98,364-98,364 Federal Project: NC-95-X Section 5307 STPDA 107,755 58,985-58, Section 5307 STPDA 4,401, , , ,185 Federal Project: NC-95-X Bull City Connector 1,000,000 1,000,000-1,000,000 Federal Project: NC-96-X004 ARRA 2009 FTA Section 9 - Capital 1,000,000 1,000,000-1,000,000 ARRA 2010 FTA Section 9 - Capital 3,257,465 3,257,465-3,257,465 NC Department of Transportation (Direct): 2013 NCDOT State Apprenticeship 28,242 28,242-28, NCDOT State Apprenticeship 34,468 34,468-34, NCDOT State Apprenticeship 33,490 33,490-33, NCDOT State Apprenticeship 35,714 27,428-27, NCDOT State Apprenticeship 35,714-29,755 29, NCDOT State Apprenticeship - - 1,719 1, Real Time Passenger Information 249, , , State Technology 181, , , State Technology 227, , , State Technology 250,000 30, , , State Technology 400, , , NCDOT On-Board Customer Survey 64,000 64,000-64,000 Other: Transfer from Transit - - 2,303,578 2,303,578 Excess Match - City of Durham - 13,940-13,940 Transit Program Income 275, , ,616 Distributed Interest - 8,567 (1,926) 6,641 Total transit grants $ 85,986,497 $ 75,758,806 $ 7,021,891 $ 82,780,697 B-125

182 CITY OF DURHAM, NORTH CAROLINA Exhibit C-9 Transit Grants Special Revenue Fund Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual From Inception and for the Year Ended June 30, 2017 Expenditures and Transfers Out Grant Prior Current Authorizations Years Year Total Federal Project: NC-95-X Section 5307 Bus Grant $ 500,000 $ 490,987 $ - $ 490, Section 5307 Bus Grant 3,850,000 3,784,395-3,784, Section 5307 Bus Grant 3,240,000 3,193,084-3,193, Section 5307 Bus Grant 1,080,000 1,064,144-1,064, Section 5307 CMAQ 606, , ,673 Federal Project: NC-95-X Section 5307 STPDA 98,364 14,485-14,485 Federal Project: NC-95-X Section 5307 STPDA 107,755 46,792-46, Section 5307 STPDA 4,401, , , ,971 Federal Project: NC-95-X Bull City Connector 1,000,000 1,000,000-1,000,000 Federal Project: NC-96-X004 ARRA 2009 FTA Section 9 - Capital 1,000,000 ARRA 2010 FTA Section 9 - Capital 3,257,465 3,187,517-3,187,517 NC Department of Transportation (Direct): 2013 NCDOT State Apprenticeship 28,242 28,242-28, NCDOT State Apprenticeship 34,468 34,468-34, NCDOT State Apprenticeship 33,490 33,490-33, NCDOT State Apprenticeship 35,714 26,280-26, NCDOT State Apprenticeship 35,714-34,808 34, NCDOT State Apprenticeship - - 1,719 1, Real Time Passenger Information 249, , , State Technology 181, , , State Technology 227, , , State Technology 250,000 6, , , State Technology 400, , , NCDOT On-Board Customer Survey 64,000 64,000-64,000 Other: Excess Match - City of Durham Transit Program Income 275, Distributed Interest Total transit grants $ 85,986,497 $ 73,577,677 $ 5,750,778 $ 79,328,455 B-126

183 CITY OF DURHAM, NORTH CAROLINA Exhibit C-10 Transit Operations Fund Schedule of Revenues, Expenditures and Other Financing Sources (Uses) Compared to Budget (Modified Accrual Basis) For the Year Ended June 30, 2017 Variance Favorable Actual Budget (Unfavorable) Revenues Operating revenues $ 3,343,435 $ 3,564,287 $ (220,852) Non-operating revenues Taxes 11,466,958 11,299, ,251 Licenses and permits 2,674,052 2,480, ,531 Intergovernmental revenue 5,007,804 5,209,187 (201,383) Miscellaneous 54,270 25,462 28,808 Total non-operating revenues 19,203,084 19,014, ,207 Total revenues 22,546,519 22,579,164 (32,645) Expenditures Operating expenditures Operating expenditures 2,528,410 3,024, ,441 Capital outlay 164, ,453 35,710 Transit services 15,479,969 17,220,936 1,740,967 General and administrative 451, ,137 - Debt service Principal 115, ,963 - Interest and fiscal charges 82,858 82,857 (1) Total operating expenditures 18,823,080 21,096,197 2,273,117 Deficiency of revenues over expenditures 3,723,439 1,482,967 2,240,472 Other financing sources (uses) Transfers from reserves - 1,695,899 (1,695,899) Transfers to fund balance - (646,089) 646,089 Transfers to other funds (2,527,980) (2,532,777) 4,797 Total other financing sources (2,527,980) (1,482,967) (1,045,013) Deficiency of revenues over expenditures and other financing sources sources $ 1,195,459 $ - $ 1,195,459 B-127

184 CITY OF DURHAM, NORTH CAROLINA Exhibit C-11 Transit Construction Fund Schedule of Project Expenditures and Other Financing Sources (Use) Compared with Authorizations (Modified Accrual Basis) From Inception and for the Year Ended June 30, 2017 Authorizations Prior Years Current Year Total Revenues Intergovernmental Revenues $ 4,975,000 $ - $ - $ - Investment and rental income Total revenues 4,975, Transit projects expenditures Data Operation Facility 325, Data Operation Facility 1,075,749 1,075,750-1,075,750 Transit CIP Fleet 4,650, , ,275 Total expenditures 6,050,749 1,075, ,275 1,198,025 Other financing sources Capital related debt 1,075,749 1,075,976-1,075,976 Deficiency of revenues over expenditures and other financing sources $ - $ 567 $ (122,275) $ (121,708) B-128

185 CITY OF DURHAM, NORTH CAROLINA Exhibit C-12 Transit Fund Reconciliation of Modified Accrual to Full Accrual Basis For the Year Ended June 30, 2017 Revenues and other financing sources Operating revenues $ 3,343,435 Non-operating revenues 19,203,084 Grant fund 7,021,891 Total revenues 29,568,410 Expenditures and other financing uses Operating fund 21,351,060 Grant fund 5,750,778 Construction fund 122,275 Total expenditures 27,224,113 Deficiency of revenues and other financing sources over expenditures and other financing uses 2,344,297 Reconciling items Payment of debt principal 115,963 Capital asset purchases 1,179,270 Capital asset disposals (89,811) Accrued interest payable adjustment 1,537 Depreciation (2,086,629) Change in net assets - full accrual basis $ 1,464,627 B-129

186 CITY OF DURHAM, NORTH CAROLINA Exhibit C-13 Solid Waste Disposal Operating Fund Schedule of Revenues, Expenditures and Other Financing Sources Compared to Budget (Modified Accrual Basis) For the Year Ended June 30, 2017 Variance Favorable Actual Budget (Unfavorable) Revenues Operating revenues $ 7,264,516 $ 6,273,421 $ 991,095 Nonoperating revenues Taxes 17,102,831 16,853, ,497 Investment income 38,027 10,000 28,027 Miscellaneous 168, ,376 11,428 Total nonoperating revenues 17,309,662 17,020, ,952 Total revenues 24,574,178 23,294,131 1,280,047 Expenditures Operating expenditures Personal services 7,242,638 6,823,460 (419,178) Operating expenditures 10,185,919 11,205,601 1,019,682 General and administrative 2,209,626 2,209,626 - Capital outlay 38, ,130 76,531 Total operating expenditures 19,676,782 20,353, ,035 Debt service Principal 8,469,077 8,935, ,563 Interest and fiscal charges 651, ,494 5,542 Total debt service 9,121,029 9,593, ,105 Total expenditures 28,797,811 29,946,951 1,149,140 Deficiency of revenues over expenditures (4,223,633) (6,652,820) 2,429,187 Other financing sources (uses) Private placement loan proceeds 9,331 9,331 - Refunding bonds issued 4,818,898 5,322,852 (503,954) Transfers to other funds (3,818) (3,818) - Transfers to fund balance - (78,387) 78,387 Transfers from reserves - 1,312,712 (1,312,712) Transfers from other funds 90,130 90,130 - Total other financing sources 4,914,541 6,652,820 (1,738,279) Deficiency of revenues over expenditures and other financing sources $ 690,908 $ - $ 690,908 B-130

187 CITY OF DURHAM, NORTH CAROLINA Exhibit C-14 Solid Waste Construction Fund Schedule of Project Expenditures and Other Financing Sources (Use) Compared with Authorizations (Modified Accrual Basis) From Inception and for the Year Ended June 30, 2017 Authorizations Prior Years Current Year Total Revenues Investment and rental income $ - $ 877 $ - $ 877 Total revenues Solid Waste projects expenditures Solid Waste Annex & Truck Wash 525, , ,107 Solid Waste Fleet 3,890,103 1,079,408 2,113,138 3,192,546 Total expenditures 4,415,103 1,079,408 2,235,245 3,314,653 Other financing sources Capital related debt issued 4,415,103 2,297,539 1,550,783 3,848,322 Deficiency of revenues over expenditures and other financing sources $ - $ 1,219,008 $ (684,462) $ 534,546 B-131

188 CITY OF DURHAM, NORTH CAROLINA Exhibit C-15 Solid Waste Disposal Fund Reconciliation of Modified Accrual to Full Accrual Basis For the Year Ended June 30, 2017 Revenues and other financing sources Operating revenues $ 7,264,516 Non-operating revenues 17,309,662 Other financing sources 4,918,359 Fleet fund 1,550,783 Total revenues and other financing sources 31,043,320 Expenditures and other financing uses Operating expenditures 19,676,782 Other financing uses 9,124,847 Fleet fund 2,113,138 Construction fund 122,107 Total expenditures and other financing (uses) 31,036,873 Deficiency of revenues and other financing sources over 6,446 expenditures and other financing uses Reconciling items Payment of debt principal 8,469,077 Refunding of bond issue (6,369,681) Costs to be amortized (9,331) Capital asset purchases 2,273,843 Adjust bad debt expense (22,997) Adjust post closure costs 503,996 Accrued interest payable adjustment 90,900 OPEB (299,036) Deferred outflows of resources for contributions made to pension plan in current year (72,041) Depreciation (1,697,894) Change in net assets - full accrual basis $ 2,873,282 B-132

189 CITY OF DURHAM, NORTH CAROLINA Exhibit C-16 Durham Performing Arts Center Fund Schedule of Revenues, Expenditures and Other Financing Sources Compared to Budget (Modified Accrual Basis) For the Year Ended June 30, 2017 Variance Favorable Actual Budget (Unfavorable) Revenues Operating revenues $ 2,221,954 $ 1,925,038 $ 296,916 Non-operating revenues Taxes 1,359,828 1,400,000 (40,172) Investment income 24,758 6,000 18,758 Naming Right - nonoperating revenues 550, ,000 - Total non-operating revenues 1,934,586 1,956,000 (21,414) Total revenues 4,156,540 3,881, ,502 Expenditures Operating expenditures 373, , ,075 Capital outlay 317,522 1,803,542 1,486,020 Total operating expenditures 691,497 2,329,592 1,638,095 Debt service Certificates of Participation Principal 1,360,000 1,360,000 - Interest, fiscal charges, etc. - bonds and loans 870, ,987 (1) Total debt service 2,230,988 2,230,987 (1) Total expenditures 2,922,485 4,560,579 1,638,094 Deficiency of revenues over expenditures 1,234,055 (679,541) 1,913,596 Other financing sources (uses) Transfers to fund balance - (603,859) 603,859 Transfers from fund balance - 1,242,668 (1,242,668) Transfers from reserves - 40,732 (40,732) Transfers from other funds 3,627-3,627 Total other financing sources 3, ,541 (675,914) Excess of revenues and other financing sources over expenditures $ 1,237,682 $ - $ 1,237,682 B-133

190 CITY OF DURHAM, NORTH CAROLINA Exhibit C-17 DPAC Construction Fund Schedule of Project Expenditures and Other Financing Sources (Use) Compared with Authorizations (Modified Accrual Basis) From Inception and for the Year Ended June 30, 2017 Authorizations Prior Years Current Year Total Revenues Investment and rental income $ - $ 8,952 $ 527 $ 9,479 Total revenues - 8, ,479 DPAC projects expenditures DPAC condo purchase 650, ,973 5, ,000 DPAC furnishings 250, , ,898 Total expenditures 900, ,871 5, ,898 Other financing sources Transfers from other funds 900, , ,000 Total other financing sources 900, , ,000 Deficiency of revenues over expenditures and other financing sources $ - $ 135,081 $ (4,500) $ 130,581 B-134

191 CITY OF DURHAM, NORTH CAROLINA Exhibit C-18 Durham Performing Arts Center Funds Reconciliation of Modified Accrual to Full Accrual Basis For the Year Ended June 30, 2017 Revenues and other financing sources Operating revenues $ 2,221,954 Non-operating revenues 1,934,586 Other financing sources 3,627 Construction fund 527 Total revenues and other financing sources 4,160,694 Expenditures and other financing uses Operating expenditures 691,497 Other financing use 2,230,988 Construction fund 5,027 2,927,512 Excess of revenues and other financing sources over expenditures 1,233,182 Reconciling items Payment of debt principal 1,360,000 Capital asset purchases 317,522 Amortization of discount (110,405) Accrued interest payable adjustment (73,678) Depreciation (1,182,059) Change in net assets - full accrual basis $ 1,544,562 B-135

192 CITY OF DURHAM, NORTH CAROLINA Exhibit C-19 Ballpark Fund Schedule of Revenues, Expenditures and Other Financing Sources (Use) Compared to Budget (Modified Accrual Basis) For the Year Ended June 30, 2017 Variance Favorable Actual Budget (Unfavorable) Revenues Operating revenues $ 297,218 $ 244,711 $ 52,507 Non-operating revenues Investment income 5,577 3,000 2,577 Total revenues 302, ,711 55,084 Expenditures Operating expenditures 42,022 42, Debt service Certificates of Participation Principal 681, ,087 - Interest and fiscal charges 592, ,327 4 Total debt service 1,273,410 1,273,414 4 Total expenditures 1,315,432 1,315, Deficiency of revenues over expenditures (1,012,637) (1,068,117) 55,480 Other financing sources (uses) Transfers from other funds 1,215,354 1,215,354 - Transfers to fund balance - (17,219) 17,219 Transfers to other funds (130,018) (130,018) - Total other financing sources 1,085,336 1,068,117 17,219 Excess of revenues and other financing sources over expenditures and other financing use $ 72,699 $ - $ 72,699 B-136

193 CITY OF DURHAM, NORTH CAROLINA Exhibit C-20 Ballpark Fund Reconciliation of Modified Accrual to Full Accrual Basis For the Year Ended June 30, 2017 Revenues and other financing sources Operating revenues $ 297,218 Non-operating revenues 5,577 Other financing sources 1,215,354 Total revenues and other financing sources 1,518,149 Expenditures and other financing uses Operating fund 1,445,450 Excess of revenues and other financing sources over expenditures and other financing uses 72,699 Reconciling items Payment of debt principal 681,087 Transfer to pay advance from other funds 130,018 Accrued interest payable adjustment 27,284 Depreciation (1,271,634) Change in net assets - Full accrual basis $ (360,546) B-137

194 CITY OF DURHAM, NORTH CAROLINA Exhibit C-21 Storm Water Management Fund Schedule of Revenues, Expenditures and Other Financing Sources (Use) Compared to Budget (Modified Accrual Basis) For the Year Ended June 30, 2017 Variance Favorable Actual Budget (Unfavorable) Revenues Operating revenues $ 15,734,899 $ 15,194,979 $ 539,920 Non-operating revenues Investment income 47,442 25,000 22,442 Miscellaneous 451, , ,016 Total non-operating revenues 499, , ,458 Total revenues 16,234,107 15,439, ,378 Expenditures Operating expenditures Storm water management 8,471,983 9,706,286 1,234,303 Capital outlay 17, ,200 86,095 Non-departmental administration 836, ,296 - Total operating expenditures 9,325,384 10,645,782 1,320,398 Excess of revenues over expenditures 6,908,723 4,793,947 2,114,776 Other financing sources (uses) Transfers from reserves - 369,623 (369,623) Transfers to Fund Balance - (1,444,413) 1,444,413 Appropriations not authorized Transfer from other funds 109, ,047 - Transfers to other funds (3,828,203) (3,828,203) - Total other financing use (3,719,156) (4,793,946) 1,074,790 Excess of revenues over expenditures and other financing sources $ 3,189,567 $ - $ 3,189,567 B-138

195 CITY OF DURHAM, NORTH CAROLINA Exhibit C-22 Storm Water Construction Fund Schedule of Project Expenditures and Other Financing Sources (Use) Compared with Authorizations (Modified Accrual Basis) From Inception and for the Year Ended June 30, 2017 Authorizations Prior Years Current Year Total Revenues Investment and rental income $ 300,000 $ 300,000 $ 44,028 $ 344,028 Sale of property and misc 401, , ,445 Total revenues 701, , , ,473 Storm water projects expenditures Private property drainage projects 3,192,670 2,876,000 16,526 2,892,526 Watershed planning & design 8,094,774 6,172,238 1,054,689 7,226,927 City owned property drainage rep 2,509, , ,436 1,254,276 Flood Plain Mitigation 741, , ,526 Major Infrastructure improvements 7,705,700 4,894, ,617 5,818,627 Stormwater Retrofitting 5,693,000 1,561, ,029 1,860,304 Storm Water fleet 2,653,296 19, , ,982 Total expenditures 30,590,204 16,483,360 3,125,808 19,609,168 Other financing sources Transfers from other funds 29,888,412 26,361,873 3,527,670 29,889,543 Total other financing sources 29,888,412 26,361,873 3,527,670 29,889,543 Deficiency of revenues over expenditures and other financing sources $ - $ 10,178,513 $ 833,335 $ 11,011,848 B-139

196 CITY OF DURHAM, NORTH CAROLINA Exhibit C-23 Stormwater Surety Bond Fund Schedule of Revenues, Expenditures and Other Financing Sources Compared to Budget (Modified Accrual Basis) For the Year Ended June 30, 2017 Variance Favorable Actual Budget (Unfavorable) Revenues Operating revenues $ 2,186,905 $ - $ 2,186,905 Nonoperating revenues Investment income 44,397-44,397 Total revenues $ 2,231,302 $ - $ 2,231,302 B-140

197 CITY OF DURHAM, NORTH CAROLINA Exhibit C-24 Storm Water Management Fund Reconciliation of Modified Accrual to Full Accrual Basis For the Year Ended June 30, 2017 Revenues and other financing sources Operating revenues $ 15,734,899 Non-operating revenues 499,208 Other financing sources 109,047 Construction fund 1,715,159 Fleet fund 2,243,984 Surety bond fund 2,231,302 Total revenues and other financing sources 22,533,599 Expenditures and other financing uses Operating fund 13,153,587 Construction fund 2,754,297 Fleet fund 371,511 Total expenditures and other financing use 16,279,395 Deficiency of revenues and other financing sources over expenditures and other financing uses 6,254,204 Reconciling items Capital asset purchases 1,665,823 Capital asset disposals (106,842) OPEB (230,450) Adjustment for bad debt expense (205,714) Adjustment for unbilled receivables 45,905 Accrued interest payable adjustment 74,776 Deferred outflows of resources for contributions made to pension plan in current year (64,017) Depreciation (655,817) Change in net assets - Full accrual basis $ 6,777,868 B-141

198 CITY OF DURHAM, NORTH CAROLINA Exhibit C-25 Golf Course Fund Reconciliation of Modified Accrual to Full Accrual Basis For the Year Ended June 30, 2017 Revenues and other financing sources Operating revenues $ - Non-operating revenues - Other financing sources - Total revenues and other financing sources - Expenditures and other financing uses Operating expenditures - Other financing use - - Excess of revenues and other financing sources over expenditures - Reconciling items Payment of debt principal - Transfer to pay advance from other funds - Donated infrastructure - Amortization of discount - Capital asset purchases - Capital asset transfer - Depreciation (122,170) Change in net assets - Full accrual basis $ (122,170) B-142

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200 CITY OF DURHAM, NORTH CAROLINA Exhibit C-26 Internal Service Funds Combining Statement of Net Position ASSETS Current assets Cash and cash equivalents/investments 10,943,064 Internal Service Funds Risk Employee Retention Insurance Fund Fund Total $ $ 3,338,285 $ 14,281,349 Taxes receivable, net Accounts receivable 243, , ,948 Total current assets 11,187,004 3,514,813 14,701,817 Total assets 11,187,004 3,514,813 14,701,817 LIABILITIES Current liabilities Accounts payable 202,500 86, ,189 Accrued payroll 7,040 1,352 8,392 Current portion of accrued compensated absences 19,426 8,022 27,448 Current portion of pending claims 2,446,925 2,637,216 5,084,141 Total current liabilities 2,675,891 2,733,279 5,409,170 Noncurrent liabilities Pending claims 4,658,187-4,658,187 Total noncurrent liabilities 4,658,187-4,658,187 Total liabilities 7,334,078 2,733,279 10,067,357 NET POSITION Unrestricted 3,852, ,534 4,634,460 Total net position $ 3,852,926 $ 781,534 $ 4,634,460 B-144

201 CITY OF DURHAM, NORTH CAROLINA Exhibit C-27 Internal Service Funds Combining Statement of Revenues, Expenses and Changes in Fund Net Position For the Year Ended June 30, 2017 Risk Retention Fund Internal Service Funds Employee Insurance Fund Totals Operating revenues Charges for services $ 5,010,997 $ 31,317,924 $ 36,328,921 Operating expenses Personal services 467, ,864 1,019,594 Materials, services and supplies 168, , ,597 Claims, fees and other 4,669,171 33,687,456 38,356,627 Total operating expenses 5,305,660 34,384,158 39,689,818 Operating income (294,663) (3,066,234) (3,360,897) Non-operating revenues (expenses) Investment income 45,887 23,394 69,281 Other revenue - 381, ,597 Total non-operating revenues (expenses) 45, , ,878 Income/(loss) before transfers (248,776) (2,661,243) (2,910,019) Change in net assets (248,776) (2,661,243) (2,910,019) Total net position, beginning 4,101,702 3,442,777 7,544,479 Total net position, ending $ 3,852,926 $ 781,534 $ 4,634,460 B-145

202 CITY OF DURHAM, NORTH CAROLINA Exhibit C-28 Internal Service Funds Combining Statement of Cash Flows For the Year Ended June 30, 2017 Risk Retention Fund Internal Service Fund Employee Insurance Fund Totals Cash flows from operating activities Receipts from customers $ 5,120,733 $ 31,144,791 $ 36,265,524 Payments to employees (445,131) (543,538) (988,669) Payments to suppliers (86,439) (93,860) (180,299) Payments for claims and related professional fees (4,213,043) (33,654,886) (37,867,929) Reimbursements from other governments (243) 181 (62) Other revenues - 381, ,597 Net cash provided by operating activities 375,877 (2,765,715) (2,389,838) Cash flows from non-capital financing activities Transfers from other funds Net cash provided by (used in) noncapital financing activities Cash flows from investing activities Interest on investments 45,887 23,394 69,281 Net cash provided by investing activities 45,887 23,394 69,281 Net increase (decrease) in cash and cash equivalents/investments 421,764 (2,742,321) (2,320,557) Cash and cash equivalents/investments, beginning of year 10,521,300 6,080,606 16,601,906 Cash and cash equivalents/investments, end of year $ 10,943,064 $ 3,338,285 $ 14,281,349 Reconciliation of operating loss to net cash provided by operating activities Operating income $ (294,663) $ (3,066,234) $ (3,360,897) Other revenues - 381, ,597 Changes in assets and liabilities Receivables 109,736 (173,133) (63,397) Due from governmental agencies (243) 181 (62) Accounts payable 82,320 50, ,297 Accrued payroll 3, ,477 Accrued compensated absences 19,426 8,022 27,448 Pending claims 456,128 32, ,699 Net cash provided by operating activities $ 375,877 $ (2,765,715) $ (2,389,838) B-146

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204 CITY OF DURHAM, NORTH CAROLINA Exhibit D-1 General Fund Schedule of Revenues and Other Financing Sources Compared to Budget For the Year Ended June 30, 2017 Variance with Final Budget - Budgeted Amounts Actual Positive Original Final Amounts (Negative) Revenues Ad valorem taxes Property taxes Current levy $ 87,455,884 $ 87,455,884 $ 88,434,679 $ 978,795 Prior years' levies 800, , ,063 (373,937) Interest and penalties 457, , ,497 (167,879) Total property taxes 88,713,260 88,713,260 89,150, ,979 Other local taxes Local option sales tax 58,614,481 58,614,481 57,073,227 (1,541,254) Gross receipts 313, , ,269 88,354 Hotel/motel occupancy tax 2,438,867 2,438,867 2,504,260 65,393 Total other local taxes 61,367,263 61,367,263 59,979,756 (1,387,507) Total taxes 150,080, ,080, ,129,995 (950,528) Licenses and permits Construction permits Driveway permits 100, , ,652 59,652 Beer and Wine 18,000 18,000 8,233 (9,767) Sign permits 15,660 15,660 46,212 30,552 Street cuts permits 1,093,418 1,093, ,495 (279,923) Miscellaneous licenses and permits 89,326 89, ,245 28,919 Total licenses and permits 1,316,404 1,316,404 1,145,837 (170,567) B-148

205 CITY OF DURHAM, NORTH CAROLINA Exhibit D-1 General Fund Schedule of Revenues and Other Financing Sources Compared to Budget (Continued) For the Year Ended June 30, 2017 Revenues (continued) Unrestricted Intergovernmental revenues State shared Utility franchise tax 4,488,000 Variance with Final Budget - Budgeted Amounts Actual Positive Original Final Amounts (Negative) $ $ 4,488,000 $ 4,053,147 $ (434,853) Beer and wine tax 1,163,902 1,163,902 1,135,763 (28,139) Alcoholic beverage control 200, , ,555 34,555 Hold harmless - - 3,635,351 3,635,351 Total unrestricted Intergovernmental revenues 5,851,902 5,851,902 9,058,816 3,206,914 Restricted Intergovernmental revenues Gasoline tax 6,133,143 6,133,143 6,223,354 90,211 Other agencies Durham County 1,857,628 1,857,628 1,685,586 (172,042) Other Counties/Cities ,241 91,241 Payment in lieu of taxes 23,536 23,536 46,540 23,004 Total restricted Intergovernmental revenues 8,014,307 8,014,307 8,046,721 32,414 Investment and rental income Investment income 20,500 20,500 14,716 (5,784) Rental income 55,000 55,000 86,535 31,535 Lease income 50,772 50,772 56,435 5,663 Total investment and rental income 126, , ,686 31,414 Charges for services Development Planning and community development 1,400,000 1,400,000 1,331,806 (68,194) Data Processing N. C. State Highways Commission Street sign and marking 180, , ,721 (34,279) Traffic signals 810, , ,487 (52,940) B-149

206 CITY OF DURHAM, NORTH CAROLINA Exhibit D-1 General Fund Schedule of Revenues and Other Financing Sources Compared to Budget (Continued) For the Year Ended June 30, 2017 Revenues (continued) Charges for services (continued) Other services 137,778 Variance with Final Budget - Budgeted Amounts Actual Positive Original Final Amounts (Negative) $ $ 137,778 $ 455,322 $ 317,544 Public protection Communications center 1,077,913 1,077,913 1,038,838 (39,075) Fire and burglar alarms - False alarm charges 180, , ,103 87,103 Officers' fees 44,286 44,286 32,358 (11,928) Radio maintenance - Fire protection - State owned buildings 149, , , Other buildings 407, , ,439 2,939 Fire inspections 690, , , ,607 Wrecker dispatch fee 44,403 44,403 50,098 5,695 Recreation Admission/Events/Fees 1,202,700 1,202,700 1,269,406 66,706 General services Lot sales 200, , ,487 75,487 Interment 230, , ,218 37,218 Other services 15,000 15,000 10,009 (4,991) Community service and development Other services 160, , , ,851 Administrative & support services Technology surcharge 202, ,000 59,231 (142,769) Finance & management services 96,828 96, ,047 14,219 Total charges for services 7,228,773 7,228,773 8,028, ,245 B-150

207 CITY OF DURHAM, NORTH CAROLINA Exhibit D-1 General Fund Schedule of Revenues and Other Financing Sources Compared to Budget (Continued) For the Year Ended June 30, 2017 Revenues (continued) Intragovernmental services Development Street construction - City forces 150,000 Variance with Final Budget - Budgeted Amounts Actual Positive Original Final Amounts (Negative) $ $ 150,000 $ 388,014 $ 238,014 Engineering fees 105, , ,600 34,600 Equipment rental 75,000 75, , ,776 Total intragovernmental services 330, , , ,390 Other Sale of property - - 6,351 6,351 Assessments 26,100 26,100 28,530 2,430 Donations 70,500 70,500 26,644 (43,856) Sale of surplus equipment 700, , ,128 (168,872) GIS data sales 2,000 2,000 2, Miscellaneous 220, , , ,759 Total other 1,018,600 1,018,600 1,051,729 33,129 Total revenues 173,966, ,966, ,338,192 3,371,411 Other financing sources Operating transfers from other funds ,139 19,139 Transfers from reserves - 4,622,265 - (4,622,265) Appropriation from fund balance 7,673,565 18,107,139 - (18,107,139) Total other financing sources 7,673,565 22,729,404 19,139 (22,710,265) Total revenues and other financing sources $ 181,640,346 $ 196,696,185 $ 177,357,331 $ (19,338,854) B-151

208 CITY OF DURHAM, NORTH CAROLINA Exhibit D-2 General Fund Schedule of Expenditures and Other Financing Uses Compared to Budget For the Year Ended June 30, 2017 Variance with Final Budget - Budgeted Amounts Actual Positive Original Final Amounts (Negative) Expenditures Governance General government City Council $ 636,951 $ 627,001 $ 573,449 $ 53,552 City Manager 1,806,601 1,932,205 1,784, ,991 Customer service and information 791, , ,338 98,645 City Attorney 1,746,397 1,901,300 1,857,257 44,043 City Clerk 704, , ,488 83,852 Budget and management services 1,248,633 1,416,033 1,246, ,182 Audit services 587, , ,626 6,232 Public affairs office 709,426 1,038, , ,988 Equal opportunity and equity assurance 562, , ,712 21,271 Development Economic and employment development 3,680,338 4,508,387 2,736,397 1,771,990 Total governance 12,474,401 14,187,741 11,491,995 2,695,746 Public protection Public safety Police 57,757,908 58,930,662 57,239,254 1,691,408 Fire 25,347,334 26,294,019 25,736, ,379 Emergency management 236, , ,613 - Communications 6,397,449 6,486,115 6,196, ,292 Total public protection 89,739,304 91,947,409 89,409,330 2,538,079 Continued on next page. B-152

209 CITY OF DURHAM, NORTH CAROLINA Exhibit D-2 General Fund Schedule of Expenditures and Other Financing Uses Compared to Budget (Continued) For the Year Ended June 30, 2017 Variance with Final Budget - Budgeted Amounts Actual Positive Original Final Amounts (Negative) Expenditures (Continued) Community services and development Development Planning $ 3,517,748 $ 3,518,554 $ 3,205,669 $ 312,885 Housing 1,888,077 6,460,337 6,098, ,832 Neighborhood improvement services 3,731,533 4,341,055 3,954, ,930 Streets and highways Public works 10,309,571 10,366,413 7,180,434 3,185,979 Transportation 7,802,816 8,077,155 7,296, ,140 Recreation Parks and recreation 12,948,649 15,286,498 13,457,288 1,829,210 General services Property facility and management 11,968,234 14,046,827 12,734,413 1,312,414 Fleet maintenance 3,328,854 3,675,271 3,409, ,572 Total community services and development 55,495,482 65,772,110 57,336,148 8,435,962 Administrative and support services General government Human resources 2,262,968 2,639,294 2,345, ,853 Technology solutions 6,558,012 7,236,014 6,499, ,411 Finance and management services 4,703,465 4,760,960 4,217, ,036 Total administrative and support services 13,524,445 14,636,268 13,062,968 1,573,300 Continued on next page. B-153

210 CITY OF DURHAM, NORTH CAROLINA Exhibit D-2 General Fund Schedule of Expenditures and Other Financing Uses Compared to Budget (Continued) For the Year Ended June 30, 2017 Variance with Final Budget - Budgeted Amounts Actual Positive Original Final Amounts (Negative) Expenditures (Continued) Non-departmental charges $ 14,841,550 $ 11,858,722 $ 9,276,368 $ 2,582,354 Administrative services (9,587,692) (9,587,692) (9,587,692) - Total Non-departmental 5,253,858 2,271,030 (311,324) 2,582,354 Total expenditures 176,487, ,814, ,989,117 17,825,441 Other financing uses Transfers to other funds Public protection Public safety 39, ,807 93,776 19,031 Governance Budget and management services - 416, ,333 14,001 Nondepartmental Ball park 50,000 50,000 50,000 - Streets and highways Transportation 227, , ,844 - Planning Planning grant 10,761 10,761-10,761 General Fund BID fund 250, , ,000 - Capital projects - 1,433,451 1,433,451 - Dedicated housing - 805, ,430 - General fleet 1,575,000 1,575,000 1,575,000 - Street pavement 3,000,000 3,000,000 3,000,000 - Total transfers to other funds 5,152,856 7,881,627 7,837,834 43,793 Total other financing uses 5,152,856 7,881,627 7,837,834 43,793 Total expenditures and other financing uses $ 181,640,346 $ 196,696,185 $ 178,826,951 $ 17,869,234 B-154

211 CITY OF DURHAM, NORTH CAROLINA Exhibit D-3 Schedule of Taxes Receivable June 30, 2017 General Levy Year Fund 2016 $ 309, , , , , , , , , , ,442 Previous years - Taxes receivable 1,055,593 Allowance for uncollectible taxes (318,432) $ 737,161 B-155

212 CITY OF DURHAM, NORTH CAROLINA Exhibit D-4 Debt Service Fund Schedule of Revenues, Expenditures and Other Financing Sources (Uses) Compared to Budget For the Year Ended June 30, 2017 Variance with Final Budget - Actual Positive Budget Amounts (Negative) Revenues Taxes $ 35,796,152 $ 36,326, ,876 Intergovernmental revenues 939,258 1,000,000 60,742 Investment and rental income - 55,325 55,325 Build America bonds subsidy 622, ,530 5,517 Total revenues 37,357,423 38,008, ,460 Expenditures Operating Expenditures 393, ,597 (20,640) Debt service Principal retirement 20,727,117 20,669,428 57,689 Interest and fiscal charges 8,462,961 7,987, ,240 Total expenditures 29,584,035 29,071, ,289 Excess of revenues over (under) expenditures 7,773,388 8,937,137 1,163,749 Other financing sources (uses) Refunding bonds issued 10,554,257 9,596,211 (958,046) Payment to refunded bond escrow agent (10,462,032) (9,653,898) 808,134 Transfers out (3,079,221) (3,079,221) - Appropriated from fund balance (4,786,392) - 4,786,392 Total other financing sources (uses) (7,773,388) (3,136,908) 4,636,480 Excess of revenues and other financing sources over expenditures $ - $ 5,800,229 $ 5,800,229 B-156

213 APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS

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215 APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS The following is a brief summary of the provisions of the Contract, the Indenture and the Deed of Trust. This summary is not intended to be definitive and is qualified in its entirety by reference to each of the aforementioned documents for the complete terms thereof. Copies of said documents are available from the City on request. DEFINITIONS Acquisition and Construction Fund means the special fund created under the Indenture. Additional Bonds means Bonds or other obligations executed and delivered in accordance with the Indenture. Additional Payments means the reasonable and customary expenses and fees of the Trustee and the Corporation, any expenses of the Corporation in defending an action or proceeding in connection with the Contract or the Indenture and any taxes or any other expenses, including, but not limited to, licenses, permits, state and local income, sales and use or ownership taxes or property taxes which the City or the Corporation is expressly required to pay as a result of the Contract (together with interest that may accrue thereon if the City fails to pay the same). Arbitrage and Tax Regulatory Agreement means the Arbitrage and Tax Regulatory Agreement executed by and among the City, the Corporation and the Trustee to signify the acceptance of certain covenants and obligations necessary for the exclusion of interest with respect to the 2017B Bonds from the gross income of the owners thereof under the Code. Bond Fund means the special fund created under the Indenture. Bonds means the 2017 Bonds and any Additional Bonds. Business Day means a day on which the Trustee or the City is not required or authorized by law to remain closed. Cede & Co. means Cede & Co., the nominee of DTC or any successor nominee of DTC with respect to the Bonds. City means the City of Durham, North Carolina or any successor to its functions. City Representative means (1) the Mayor, the City Manager, the Finance Director, the Deputy Finance Director, the Treasury Manager, the City Attorney, the City Clerk or the person or persons at the time designated to act on behalf of the City for the purpose of performing any act under the Contract by a written certificate furnished to the Trustee and the Corporation containing the specimen signatures of such person or persons and signed on behalf of the City by the City Manager or the Finance Director or (2) if any or all of the City s rights and obligations are assigned under the Contract, the person or persons at the time designated to act on behalf of the City and the assignee by a written certificate similarly furnished and of the same tenor. C-1

216 Code means the Internal Revenue Code of 1986, as amended, and the rulings and regulations (including temporary and proposed regulations) promulgated thereunder, or any successor statute thereto. Contract means an Installment Financing Contract dated as of December 15, 2017 between the Corporation and the City and any amendments or supplements thereto, including the Exhibits attached thereto. Corporation means New Durham Corporation or any successor thereto. Corporation Representative means any person or persons at the time designated to act on behalf of the Corporation for purposes of performing any act on behalf of the Corporation under the Contract and the Indenture by a written certificate furnished to the City and the Trustee containing the specimen signature of such person or persons and signed on behalf of the Corporation by its President. items: Cost of Acquisition and Construction includes payment of or reimbursement for the following (a) the Costs of Issuance; (b) obligations incurred or assumed for the Project in connection with the construction, renovation, equipping and financing thereof, including, without limitation, costs of obtaining title insurance and a survey of the Mortgaged Property; and (c) all other costs which are considered to be a part of the cost of construction, renovation, equipping and financing of the Project in accordance with generally accepted accounting principles and which will not affect the exclusion from gross income for federal income tax purposes of the designated interest component of Installment Payments or other Bonds executed and delivered with the expectation that interest with respect to them will be excludable from gross income of the owners thereof under the Code, all payable by the City, including sums required to reimburse the City for advances made by the City that are properly chargeable to the construction, renovation, equipping and financing of the Project. Costs of Issuance means the costs incurred in connection with the initial execution and delivery of the Bonds, including, without limitation, all printing expenses in connection with this Indenture, the Contract, and the documents and certificates contemplated by the Indenture, the Preliminary Official Statement and the Official Statement for the Bonds, and the Bonds, legal fees and expenses of counsel to the Corporation, special counsel, counsel to the City, other counsel, counsel to the purchaser or purchasers of the Bonds, rating agency fees, any accounting expenses incurred in connection with determining that the Bonds are not arbitrage bonds within the meaning of the Code, the Trustee s initial fees and expenses (including attorney s fees), and state license fees, on the submission of requisitions by the City signed by a City Representative stating the amount to be paid, to whom it is to be paid and the reason for such payment, and that the amount of such requisition is justly due and owing and has not been the subject of another requisition which was paid and is a proper expense of executing and delivering the Bonds. Deed of Trust means the Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of December 15, 2017 from the City to the deed of trust trustee named therein for the benefit of the Corporation or its assignees, all of the terms, definitions, conditions and covenants of which are incorporated herein by reference and are made a part of the Contract as if fully set forth therein. C-2

217 Deed of Trust Trustee means the Person serving from time to time as the deed of trust trustee under the Deed of Trust. DTC means The Depository Trust Company, a limited purpose company organized under the law of the State of New York, and its successors and assigns. DTC Participant or DTC Participants means securities brokers and dealers, banks, trust companies, clearing corporations and certain other corporations which have access to the DTC system. Event of Default means those events of default specified in the Contract and the Indenture, as applicable. Federal Securities means, to the extent such investments qualify under Section of the General Statutes of North Carolina as amended from time to time, (a) direct obligations of the United States of America, obligations the principal of and interest on which are guaranteed by the United States of America, or obligations of any agency or instrumentality of the United States of America, in each case for the payment of which the full faith and credit of the United States of America are pledged (including any securities issued or held in the name of the Trustee in book entry form on the books of the Department of the Treasury of the United States of America) which obligations are held by the Trustee and are not subject to prepayment or purchase before maturity at the option of anyone other than the holder; (b) any bonds or other obligations of any state or territory of the United States of America or of any agency, instrumentality or local governmental unit of any such state or territory which are (1) not callable before maturity or (2) as to which irrevocable instructions have been given to the trustee or escrow agent of such bonds or other obligations by the obligor to give due notice of prepayment and to call such bonds for prepayment on the date or dates specified, and which are rated by Moody s, S&P or Fitch Ratings within its highest rating category and which are secured as to principal, prepayment premium, if any, and interest by a fund consisting only of cash or bonds or other obligations of the character described in clause (a) of this definition which fund may be applied only to the payment of such principal of and interest and prepayment premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified prepayment date or dates pursuant to such irrevocable instructions, as appropriate; or (c) evidences of ownership of proportionate interests in future interest and principal payments on specified obligations described in clause (a) or (b) 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 clause (a) or (b), 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. Fiscal Year means a twelve-month period commencing on the first day of July of any year and ending on the 30 th day of June of the succeeding year, or such other twelve-month period which may subsequently be adopted as the Fiscal Year of the City. GO Bonds means the City s Taxable General Obligation Bonds, Series 2010B. GO Projects means public safety, cultural, parks and recreational, streets and sidewalk, water and sewer, neighborhood, public building and parking improvements originally financed by the GO Bonds. Indenture means the Indenture of Trust dated as of December 15, 2017 between the Corporation and the Trustee, as amended or supplemented from time to time, pursuant to which the 2017 Bonds are executed and delivered. C-3

218 Installment Payments means those payments made by the City to the Corporation as described in the Contract and in the Payment Schedule attached thereto. Interest Payment Date means each April 1 and October 1, beginning October 1, Moody s means Moody s Investors Service, its successors and their assigns, and, if such entity for any reason no longer performs the function of a securities rating agency, Moody s will be deemed to refer to any other nationally recognized securities rating agency designated by the Corporation. Mortgaged Property means any property subject to the lien and security interest created by the Deed of Trust, as more particularly described therein, which includes, initially, the real property on which the City Hall and City Hall Annex are located and the real property on which the Parking Deck will be located and any improvements thereon. Net Proceeds, means, when used with respect to any (1) proceeds from policies of insurance which are payable to the Corporation or the Trustee, (2) proceeds from any payment and performance bond maintained pursuant to the Contract, (3) proceeds of any condemnation award arising out of the condemnation of all or any portion of the Mortgaged Property or the (4) proceeds from any sale or lease of the Mortgaged Property pursuant to the Deed of Trust or otherwise subsequent to an Event of Default, the amount remaining after deducting from the gross proceeds thereof all expenses (including, without limitation, attorneys fees and costs) incurred in the collection of such proceeds. Opinion of Counsel means an opinion in writing of legal counsel, who may be counsel to the Trustee, the City or the Corporation. Outstanding or Bonds Outstanding means all Bonds which have been executed and delivered, except: (a) cancellation; (b) Indenture; Bonds canceled or which have been surrendered to the Trustee for Bonds in lieu of which other Bonds have been authenticated under the (c) Bonds which have been prepaid as provided in the Indenture (including Bonds prepaid on a partial prepayment); and (d) Bonds which have been deemed paid under the Indenture. Owner or Owners means, initially, Cede & Co., as nominee for DTC, and if the book entry system of evidence and transfer of ownership in the Bonds is discontinued pursuant to the Indenture, the registered owner or owners of any Bond fully registered as shown in the registration books of the Trustee. Parking Deck means the City-owned parking deck to be constructed at the intersection of West Morgan Street, North Mangum Street and Rigsbee Avenue. Parking Project means the acquisition, construction and equipping of the Parking Deck and other parking-related improvements. Payment Schedule means the document attached to the Contract which sets forth the City s Installment Payments. C-4

219 Permitted Investments means Federal Securities and any other investments which are qualified under Section of the General Statutes of North Carolina, as amended from time to time. Person or person means natural persons, firms, associations, corporations and public bodies. Prepayment Fund means the special fund of that name created under the Indenture. Prior Contract means an Installment Purchase Contract dated as of July 1, 2001 (the 2001 Contract ), as amended by Amendment Number One to the 2001 Contract dated as of August 1, 2010 (the First Contract Amendment ), each between the City and the Corporation. Prior Contract Projects means (i) improvements to City parking, transportation, solid waste, civic and cultural, firefighting facilities and City Hall and City Hall Annex, (ii) upgrades to the City s downtown, (iii) housing redevelopment, (iv) the acquisition of Equipment (as defined in the First Contract Amendment), and (v) the costs of refinancing the 2008 Project, the 2001 Project, the 1998 Project and the 1991 Project (as each is defined in the First Contract Amendment), originally financed by the Prior Contract. Project means, collectively, the Parking Project, the Prior Contract Projects and the GO Projects, as such term may be amended in connection with the execution and delivery of Additional Bonds under the Indenture. Purchase Price means the amount advanced by the Corporation to enable the City to finance the Project, as such price may be adjusted in connection with the execution and delivery of Additional Bonds under the Indenture. Rebate Fund means the special fund of that name created under the Indenture. Record Date means the 15 th day (whether or not a Business Day) of the month next preceding an Interest Payment Date. Revenues means (1) all Net Proceeds not applied to the replacement of the Mortgaged Property; (2) all Installment Payments; and (3) all investment income on all funds and accounts created under the Indenture (other than the Rebate Fund). S&P means S&P Global Ratings, a business unit of Standard & Poor s Financial Services LLC, its successors and their assigns, and, if such entity for any reason no longer performs the function of a securities rating agency, S&P will be deemed to refer to any other nationally recognized securities rating agency designated by the Corporation. State means the State of North Carolina. Trust Estate means the property pledged and assigned to the Trustee pursuant to and defined as such in the granting clauses of the Indenture. Trustee means U.S. Bank National Association, acting in the capacity of trustee for the Owners pursuant to the Indenture, and any successor thereto appointed under the Indenture. Trustee Representative means the person or persons at the time designated to act on behalf of the Trustee for purposes of performing any act on behalf of the Trustee under the Indenture by a written C-5

220 certificate furnished to the City and the Corporation containing the specimen signature of such person or persons and signed on behalf of the Trustee by any duly authorized officer of the Trustee Bonds means, collectively, the 2017A Bonds and the 2017B Bonds. 2017A Bonds means the City s Taxable Limited Obligation Bonds, Series 2017A evidencing proportionate undivided interests in rights to receive certain Revenues under the Contract, the proceeds of which will be used to pay the costs of the Parking Project. 2017B Bonds means the City s Refunding Limited Obligation Bonds, Series 2017B, evidencing proportionate undivided interests in rights to receive certain Revenues under the Contract, the proceeds of which will be used to refinance a portion of the City s installment payment obligations with respect to the Prior Contract and refinance a portion of the GO Bonds. Underwriters means, collectively, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Robert W. Baird & Co. THE CONTRACT Advance. In the Contract, the Corporation agrees to make an advance to the City of the Purchase Price, and the City accepts from the Corporation the Purchase Price to be applied in accordance with the terms and conditions of the Contract. The City will use the proceeds of the Purchase Price to (1) finance the Parking Project, (2) refinance of a portion of the City s installment payment obligations with respect to the Prior Contract, (3) refinance of a portion of the GO Bonds and (4) pay certain costs incurred in connection with the execution and delivery of the 2017 Bonds. Title; Release of Security Interest. Title to the Mortgaged Property and any and all additions, repairs, replacements or modifications thereto will be in the City from and after the date of execution and delivery of the Contract. The City will own the Mortgaged Property free and clear of any lien or security interest created by the Contract and the Deed of Trust, as applicable, on the repayment in full of the Purchase Price and the payment of all other amounts due under the Contract. The City will deliver to the Trustee the Deed of Trust simultaneously with the execution and delivery of the Contract and will cause the Deed of Trust to be recorded in the Office of the Register of Deeds, Durham, North Carolina. On payment in full of all of the City s obligations under the Contract, including the Purchase Price and all other payments due thereunder, the Corporation or its assignee, at the City s expense and request, will discharge the Indenture and release the lien on the Deed of Trust, at which time the Contract will terminate. Installment Payments; Additional Payments. As consideration for the Corporation s advance of the Purchase Price to the City, the City will repay to the Trustee, as assignee of the Corporation under the Indenture, the Purchase Price in installments with interest as provided in the Contract and the Payment Schedule attached to the Contract (each an Installment Payment ). Each installment will be deemed to be an Installment Payment and will be paid in the amounts and at the times set forth on the Payment Schedule except as provided in the Contract. There will be credited against the amount of Installment Payments otherwise payable under the Contract amounts equal to (1) earnings derived from the investment of the Bond Fund and the Prepayment Fund and (2) any other money not constituting Installment Payments required to be deposited in the Bond Fund. Installment Payments must be sufficient in the aggregate to repay the Purchase Price together with interest thereon. As further consideration for the Corporation s advance of the Purchase Price to the City, the City will also pay Additional Payments, as required in the Contract, on a timely basis directly to the person or entity to which such Additional Payments are owed. C-6

221 Limited Obligation of the City. NOTWITHSTANDING ANY PROVISION OF THE CONTRACT, THE INDENTURE OR THE DEED OF TRUST WHICH MAY BE TO THE CONTRARY, NO PROVISION OF THE CONTRACT, THE INDENTURE OR THE DEED OF TRUST WILL BE CONSTRUED OR INTERPRETED AS CREATING A PLEDGE OF THE FAITH AND CREDIT OF THE CITY WITHIN THE MEANING OF THE CONSTITUTION OF THE STATE. NO PROVISION OF THE CONTRACT, THE DEED OF TRUST OR THE INDENTURE WILL BE CONSTRUED OR INTERPRETED AS CREATING A DELEGATION OF GOVERNMENTAL POWERS NOR AS A DONATION BY OR A LENDING OF THE CREDIT OF THE CITY WITHIN THE MEANING OF THE CONSTITUTION OF THE STATE. THE CONTRACT, THE DEED OF TRUST OR THE INDENTURE WILL NOT DIRECTLY OR INDIRECTLY OR CONTINGENTLY OBLIGATE THE CITY TO MAKE ANY PAYMENTS BEYOND THOSE APPROPRIATED IN THE SOLE DISCRETION OF THE CITY FOR ANY FISCAL YEAR IN WHICH THE CONTRACT IS IN EFFECT; PROVIDED, HOWEVER, ANY FAILURE OR REFUSAL BY THE CITY TO APPROPRIATE FUNDS WHICH RESULTS IN THE FAILURE BY THE CITY TO MAKE ANY PAYMENT COMING DUE UNDER THE CONTRACT WILL IN NO WAY OBVIATE THE OCCURRENCE OF THE EVENT OF DEFAULT RESULTING FROM SUCH NONPAYMENT. NO DEFICIENCY JUDGMENT MAY BE RENDERED AGAINST THE CITY IN ANY ACTION FOR BREACH OF A CONTRACTUAL OBLIGATION UNDER THE CONTRACT, AND THE TAXING POWER OF THE CITY IS NOT AND MAY NOT BE PLEDGED DIRECTLY OR INDIRECTLY OR CONTINGENTLY TO SECURE ANY MONEY DUE UNDER THE CONTRACT. NO PROVISION OF THE CONTRACT, THE DEED OF TRUST OR THE INDENTURE WILL BE CONSTRUED TO PLEDGE OR TO CREATE A LIEN ON ANY CLASS OR SOURCE OF THE CITY S MONEY, NOR WILL ANY PROVISION OF THE CONTRACT, THE INDENTURE OR THE DEED OF TRUST RESTRICT THE FUTURE ISSUANCE OF ANY OF THE CITY S BONDS OR OBLIGATIONS PAYABLE FROM ANY CLASS OR SOURCE OF THE CITY S MONEY. THIS PROVISION WILL TAKE PRIORITY OVER ANY PROVISION OF THE CONTRACT, THE DEED OF TRUST OR THE INDENTURE THAT CONFLICTS WITH ITS TERMS. Damage, Destruction or Condemnation; Use of Net Proceeds. If, during the term of the Contract, (1) any portion of the Mortgaged Property is destroyed or damaged by fire or other casualty; (2) title to or the temporary or permanent use of any portion of the Mortgaged Property or the estate of the City or the Corporation or its assignee in any portion of the Mortgaged Property is taken under the power of eminent domain by any governmental authority; (3) a material defect in construction of any portion of the Mortgaged Property becomes apparent; or (4) title to or the use of any portion of the Mortgaged Property is lost by reason of a defect in title thereto, then the City continues to be obligated, subject to the provisions set forth below, to pay the amounts specified in the Contract at the respective times required. Subject to the provisions set forth below, the Trustee will cause the Net Proceeds of any insurance policies, performance or payment bonds, if any, condemnation awards or Net Proceeds made available by reason of any occurrence described above, to be deposited in a separate fund held by the Trustee. Except as set forth in below, all Net Proceeds so deposited will be applied to the prompt repair, restoration, modification, improvement or replacement of the Mortgaged Property on receipt of requisitions approved by a City Representative stating with respect to each payment to be made: (a) the requisition number; (b) the name and address of the person, firm or corporation to whom payment is due; (c) the amount to be paid; and (d) that each obligation mentioned therein has been properly incurred, is a proper charge against such separate fund, and has not been the basis of any previous withdrawal and specifying in reasonable detail the nature of the obligation, accompanied by a bill or a statement of account for such obligation. The Trustee will cooperate with the City in the administration of such separate fund. If the Net Proceeds (plus any amount withheld therefrom by reason of any deductible clause) are insufficient to pay in full the cost of any repair, restoration, modification, improvement or replacement of the Mortgaged Property, the City may complete the work and pay any cost in excess of the amount of the Net Proceeds, and the City agrees that, if by reason of any such insufficiency of the Net Proceeds, the City will make any payments pursuant to the provisions of the Contract, the City is not entitled to any reimbursement therefor from the Corporation, the Trustee or the Owners nor is the City entitled to any diminution of the amounts payable under the Contract. Any repair, restoration, modification, improvement or replacement paid for in whole or in part out of such Net Proceeds will be C-7

222 the property of the City, subject to the Deed of Trust to the extent it relates to the Mortgaged Property, and will be included as part of the Mortgaged Property as set forth in the Contract. On the occurrence of an event described above with respect to the Mortgaged Property, the City may elect not to repair, restore, improve or replace the affected portion of the Mortgaged Property if (1) the Net Proceeds are less than $500,000 and (2) a City Representative certifies to the Corporation that such Net Proceeds are not necessary to restore the affected portion of the Mortgaged Property to its intended use. In such event, the City will direct the Trustee to deposit such Net Proceeds in the Bond Fund to be applied toward the next payment of principal and interest with respect to the Bonds. Within 90 days of the occurrence of an event specified above, the City will commence the repair, restoration, modification, improvement or replacement of the Mortgaged Property, or will elect, by written notice to the Trustee, to proceed under the provisions of the immediately preceding paragraph. For purposes of these provisions, commence will include the retention of an architect or engineer in anticipation of repair, restoration, modification, improvement or replacement of the Mortgaged Property. Care and Use. Subject to the provisions of applicable law and the terms of the Contract, the City will use the Mortgaged Property in a careful and proper manner, in compliance with all applicable laws and regulations, and, at its sole cost and expense, will service, repair and maintain the Mortgaged Property so as to keep the Mortgaged Property in good condition, repair, appearance and working order for the purposes intended, ordinary wear and tear excepted. The City will replace any part of the Mortgaged Property as may from time to time become worn out, unfit for use, lost, stolen, destroyed or damaged. Any and all additions to or replacements of the Mortgaged Property and all parts thereof will constitute accessions to the Mortgaged Property and will be subject to all the terms and conditions of the Contract and included in the term Mortgaged Property and as used in the Contract. General Tax Covenant. In the Contract, the City covenants that it will not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the exclusion from gross income of the interest portion of the Installment Payments created by the Contract under Section 103 of the Code and allocable to the 2017B Bonds. The City will not directly or indirectly use or permit the use of any proceeds of any fund created under the Indenture allocable to the 2017B Bonds, or take or omit to take any action that would cause the obligations created by the Contract and allocable to the 2017B Bonds to be arbitrage bonds within the meaning of Section 148(a) of the Code. To that end, the City and the Corporation have executed the Arbitrage and Tax Regulatory Agreement and will comply with all requirements of Section 148 of the Code to the extent applicable with respect to the 2017B Bonds. The City further represents and covenants that the Installment Payments created by the Contract and allocable to the 2017B Bonds are not and will not constitute a private activity bond as defined in Section 141 of the Code. PROPERTY INSURANCE. The City will continually maintain or cause to be maintained insurance to the full insurable value of the Mortgaged Property against loss by fire, wind damage, hazards customarily included in the term extended coverage with responsible and reputable insurance companies and will promptly pay all premiums therefor when due. All insurance policies and renewals thereof will name the Corporation and the Trustee as parties insured thereunder, as the respective interests of each of such parties may appear, and have attached thereto a mortgagee long form loss payable clause in favor of the Trustee, and provide that no such policy can lapse or be canceled, substantially modified or terminated without at least 60 days prior notice to the Trustee and that any loss payable thereunder will be made payable and will be applied as provided in the Contract. In the event of loss, the City will give immediate notice by mail to the Trustee, who may, but will not be obligated to, make proof of loss. In the event of a foreclosure of the Deed of Trust or other transfer of title to the Mortgaged Property, all right, title and interest of the City in any insurance policies then in force will pass to the Trustee. Additionally, C-8

223 during the term of the Contract, the City will continually maintain standard liability insurance as is customarily maintained by like entities with respect to facilities similar to the Mortgaged Property. The City may provide for and maintain the insurance required under the Contract partially or wholly by means of an adequate risk retention fund. Reserves for a risk retention fund will be determined by using actuarial principles. Any risk retention fund will be reviewed annually by the City s risk manager or an independent insurance consultant or actuarial consultant. The Trustee may rely on a letter of the City s risk manager or an independent insurance consultant or actuarial consultant as to the adequacy of any risk retention fund. Assignment. The City may not sell, assign, lease, sublease, pledge or otherwise encumber or suffer a lien or encumbrance on or against any interest in the Contract or the Mortgaged Property (except for Permitted Encumbrances) without the Trustee s prior written consent. Notwithstanding the foregoing, the City may lease all or a portion of the Mortgaged Property subject to the following conditions: (a) the obligation of the City to make Installment Payments and Additional Payments under the Contract will remain obligations of the City; (b) the City will furnish or cause to be furnished to the Trustee a true and complete copy of such lease at least 30 days before the execution and delivery of any such lease; (c) no lease will cause the interest component of Installment Payments relating to the 2017B Bonds intended to be excludable from gross income of the recipient thereof for federal income tax purposes to become includable in gross income for federal income tax purposes; and (d) the Trustee may request to receive an opinion of Counsel to the City to the effect that such lease is subordinate in all respects to the lien of the Deed of Trust and that such lease is subject to immediate termination at the direction of the Trustee following an Event of Default by the City under the Contract. Amendments and Modifications. --Without Consent of the Owners. The Indenture provides that the Corporation and the Trustee may, with the written consent of the City, but without the consent of or notice to the Owners, consent to any amendment, change or modification of the Contract or the Deed of Trust that does not materially adversely affect the interests of the existing Owners as may be required (a) by the provisions of the Contract, the Deed of Trust or the Indenture; (b) for the purpose of curing any ambiguity or formal defect or omission in the Contract or the Deed of Trust; (c) to more precisely identify the Mortgaged Property or to add or substitute improvements acquired in accordance with the Contract, the Deed of Trust and the Indenture; (d) to issue Additional Bonds as provided in the Indenture; (e) to amend the City s continuing disclosure obligation as provided in the Contract; or (f) in connection with any other change therein which, in the judgment of the Trustee, does not materially adversely affect the interests of the existing Owners. --With Consent of the Owners. The Indenture provides that, except for the amendments, changes or modifications permitted by the above provision, neither the Corporation nor the Trustee will consent to any other amendment, change or modification of the Contract or the Deed of Trust without the giving of notice thereof to the LGC and to the Owners and receipt of consent by the LGC and by the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding. If the City and C-9

224 the Corporation requests the consent of the Trustee to any such proposed amendment, change or modification of the Contract or the Deed of Trust, the Trustee will, on being satisfactorily indemnified with respect to expenses, cause notice of such proposed amendment, change or modification to be given in the same manner as provided in the Indenture. Such notice will briefly set forth the nature of such proposed amendment, change or modification and will state that copies of the instrument embodying the same are on file at the designated corporate trust office of the Trustee for inspection by all Owners. The written consent by the purchaser of a series of Additional Bonds constitutes the consent of the Owners of that series of Additional Bonds. Any consent or request by the Owners of any Bond is conclusive and binding on such Owner and on all future Owners of the Bonds and of any Bonds executed and delivered on the transfer of any Bond, whether or not notation of such consent or request is made on the Bond. Events of Default. The occurrence of the following are considered Events of Default under the Contract: (a) The City fails to make any Installment Payment on the date such Installment Payment is due under the Contract; (b) The City fails to budget and appropriate money sufficient to pay all Installment Payments and the reasonably estimated Additional Payments coming due in any Fiscal Year; (c) The City fails to perform or observe any term, condition or covenant of the Contract on its part to be observed or performed, other than as referred to in (a) or (b) above, or of the Deed of Trust on its part to be observed or performed, or breaches any warranty by the City therein contained, for a period of 30 days after written notice specifying such failure and requesting that it be remedied has been given to the City by the Trustee unless the Trustee agrees in writing to an extension of such time prior to its expiration; provided, however, that if the failure cannot be corrected within the stated period, Trustee will not unreasonably withhold consent for an extension not longer than 180 days; (d) Any bankruptcy, insolvency or reorganization proceedings or similar litigation, is instituted by the City, or a receiver, custodian or similar officer is appointed for the City or any of its property, and such proceedings or appointments are not vacated or fully stayed within 90 days after the institution or occurrence thereof; or (e) Any representation or statement made by the City in the Contract, in the Deed of Trust or in any other document executed or delivered in connection therewith is found to be incorrect or misleading in any material respect on the date made. Remedies on Default. On the occurrence of any Event of Default, the Trustee may, and if required by a majority in aggregate principal amount of the Owners of the Bonds, the Trustee will, to the extent permitted by applicable law and the terms of the Contract and only to the extent that is has been satisfactorily identified under the Indenture, exercise any one or more of the following remedies as the Trustee elects or as will be directed by a majority in aggregate principal amount of the Owners of the Bonds: (a) Declare the unpaid portion of the principal and interest components of Installment Payments immediately due and payable without notice or demand to the City; C-10

225 (b) Proceed by appropriate court action to enforce performance by the City of the applicable covenants of the Contract or to recover for the breach thereof; or (c) Exercise or direct the Deed of Trust trustee to exercise all the rights and remedies of a secured party or creditor under the Uniform Commercial Code of the State and the general laws of the State with respect to the enforcement of the security interest granted or reserved under the Contract and the Deed of Trust including, without limitation, to the extent permitted by law, re-enter and take possession of the Mortgaged Property without any court order or other process of law and without liability for entering the premises and sell, lease, sublease or make other disposition of the same in a commercially reasonable manner for the account of the City, and apply the proceeds of any such sale, lease, sublease or other disposition, after deducting all costs and expenses, including court costs and attorneys fees, incurred with the recovery, repair, storage and other sale, lease, sublease or other disposition, toward the balance due under the Contract and, thereafter, will pay any remaining proceeds to the City. NOTWITHSTANDING ANY OTHER PROVISIONS IN THE CONTRACT TO THE CONTRARY, IT IS THE INTENT OF THE PARTIES TO THE CONTRACT TO COMPLY WITH SECTION 160A-20 OF THE GENERAL STATUTES OF NORTH CAROLINA ( SECTION 160A-20 ). NO DEFICIENCY JUDGMENT MAY BE RENDERED AGAINST THE CITY IN VIOLATION OF SECTION 160A-20 INCLUDING, WITHOUT LIMITATION, ANY DEFICIENCY JUDGMENT FOR AMOUNTS THAT MAY BE OWED UNDER THE CONTRACT WHEN THE SALE OF ALL OR ANY PORTION OF THE MORTGAGED PROPERTY IS INSUFFICIENT TO PRODUCE ENOUGH MONEY TO PAY IN FULL ALL REMAINING OBLIGATIONS UNDER THE CONTRACT. THE INDENTURE Funds and Accounts. The Indenture creates (1) the Bond Fund; (2) the Prepayment Fund; (3) the Rebate Fund; and (4) the Acquisition and Construction Fund, to be held in trust by the Trustee. --The Bond Fund. There has been created and established with the Trustee a special fund to be designated City of Durham, NC 2017 Installment Financing Contract Bond Fund (the Bond Fund ), the money in which is to be used to pay the principal, premium, if any, and interest with respect to the Bonds. Within the Bond Fund, there are hereby created and established an Interest Account, within which is created a 2017A Subaccount of the Interest Account and a 2017B Subaccount of the Interest Account and a Principal Account, within which is created a 2017A Subaccount of the Principal Account and a 2017B Subaccount of the Principal Account. Funds in these accounts are to be used as set forth in the Indenture. --The Interest Account. The Trustee will deposit into the applicable subaccount of the Interest Account of the Bond Fund (a) that portion of each payment of Installment Payments which is designated and paid as interest under the Contract with respect to the corresponding series of Bonds; (b) investment earnings on the Bond Fund and the Prepayment Fund, as provided in the Indenture; (c) Net Proceeds from any lease of the Mortgaged Property, including after an Event of Default to the extent required to pay the next installment of interest or any previous installment of interest not paid; (d) all money required to be deposited therein in accordance with the Indenture; and (e) all other money received by the Trustee under the Indenture accompanied by written directions from the City that such money is to be deposited into the Interest Account of the Bond Fund. The Trustee will credit all amounts deposited into the Interest Account of the Bond Fund, including particularly the amounts set forth in the Contract, toward the interest component of the Installment Payment then due and payable under the Contract. The Trustee will notify the City of all amounts credited toward such Installment Payments within 30 days of such credit. C-11

226 --The Principal Account. The Trustee will deposit into the applicable subaccount of the Principal Account of the Bond Fund (a) that portion of each payment of Installment Payments which is designated and paid as principal under the Contract with respect to the corresponding series of Bonds; (b) Net Proceeds from any lease of the Mortgaged Property, including after an Event of Default after the deposit required by the Indenture; (c) all money required to be deposited therein in accordance with the Indenture; and (d) all other money received by the Trustee under the Indenture accompanied by written directions from the City that such money is to be deposited into the Principal Account of the Bond Fund. --Use of Money in Bond Fund. Money in each subaccount of the Interest Account of the Bond Fund is to be used for the payment of the interest with respect to the corresponding series of the Bonds as the same becomes due and payable. Money in each subaccount of the Principal Account of the Bond Fund is to be used for the payment of the principal with respect to the corresponding series of Bonds as the same becomes due and payable. Investment earnings on money on deposit in the subaccounts of the Interest Account and Principal Account of the Bond Fund are to be applied to the next payment of Installment Payments with respect to the corresponding series of Bonds. If the Bonds are to be prepaid in whole pursuant to the Indenture, any money remaining in the applicable subaccounts of the Interest Account and Principal Account of the Bond Fund is to be applied to such prepayment along with other money held by the Trustee for such purpose. --The Prepayment Fund. There has been created and established with the Trustee the City of Durham, NC 2017 Installment Financing Contract Prepayment Fund (the Prepayment Fund ). The Trustee will deposit into the applicable account of the Prepayment Fund any money provided by the City for prepayment of any portion of the Installment Payments under the Contract. Any income from investment of money in any Prepayment Account is to be deposited into the applicable subaccount of the Interest Account of the Bond Fund and applied to the interest component of the next payment of the Installment Payments under the Contract. Whenever any money on deposit in the Prepayment Fund is disbursed for prepayment of less than all of the Outstanding Bonds, the Trustee will recalculate the Installment Payments set forth in the Contract to reflect the reduction in the outstanding principal amount of the Bonds after such prepayment. --The Rebate Fund. If the City informs the Trustee, in writing, that funds are to be set aside in a separate account of the Trustee to be held for the payment of rebate payments to the Federal Government pursuant to the terms of the Arbitrage and Tax Regulatory Agreement, the Trustee will create and establish the City of Durham, NC 2017 Installment Financing Contract Rebate Fund (the Rebate Fund ). The Trustee will deposit in the Rebate Fund the amounts as so directed by the City. If the City so directs the Trustee, the City will make or cause to be made the calculation or calculations required by the Arbitrage and Tax Regulatory Agreement and will direct the Trustee, in writing, to make deposits and disbursements from the Rebate Fund in accordance therewith. The Trustee will invest the Rebate Fund as so directed by the City. --The Acquisition and Construction Fund. A special fund has been created and established with the Trustee and designated the City of Durham, NC 2017 Installment Financing Contract Acquisition and Construction Fund (the Acquisition and Construction Fund ). Within the Acquisition and Construction Fund, there has been created and established a 2017A Bonds Account and a 2017B Bonds Account, into each of which the Trustee will deposit the amounts as set forth in the Indenture. In addition, the Trustee will deposit into the Acquisition and Construction Fund such amounts as the City may designate in a certificate signed by a City Representative in connection with the execution and delivery of Additional Bonds under the Indenture. The Trustee will invest and reinvest remaining money held in the Acquisition and Construction Fund in accordance with the Indenture and retain the income therefrom in the Acquisition and Construction Fund or any account thereof and use such money (together with all other money held in the Acquisition and Construction Fund) to pay the Cost of Acquisition and C-12

227 Construction attributable to the Project, as directed by the City in accordance with the Contract. The Trustee will create additional accounts within the Acquisition and Construction Fund on the City s written direction. Investment of Money. All money held as part of the Bond Fund, the Prepayment Fund, the Acquisition and Construction Fund or any other fund or account created under the Indenture or the Contract except the Rebate Fund will be deposited or invested and reinvested from time to time by the Trustee, at the written direction of the City as agent of the Corporation, in deposits or investments, which are Permitted Investments subject to the following restrictions: (a) Money in the Acquisition and Construction Fund will be invested only in obligations which will by their terms mature not later than the date the City estimates, in a writing provided to the Trustee, the money represented by the particular investment will be needed for withdrawal from the Acquisition and Construction Fund; (b) Money in the Bond Fund will be invested only in obligations which will by their terms mature on such dates as to ensure that on the date of each interest and principal payment, there will be in the Bond Fund from matured obligations and other money already in the Bond Fund, cash to pay the interest and principal payable on such payment date; and (c) Money in the Prepayment Fund will be invested in obligations which will by their terms mature, or will be subject to prepayment at the option of the owner thereof, on or before the date funds are expected to be required for expenditure or withdrawal. The Rebate Fund will be invested and reinvested by the Trustee, at the written direction of the City (which may include express investment directions given to the Trustee in the Arbitrage and Tax Regulatory Agreement). The City acknowledges that such written direction must comply with the Arbitrage and Tax Regulatory Agreement. If the City fails to provide the Trustee with written investment direction for any funds held by the Trustee under this Indenture, then the Trustee will hold such amounts uninvested in cash and without liability for interest. Any and all such deposits or investments will be held by or under the control of the Trustee. The Trustee may make any and all such deposits or investments through its own investment department or the investment department of any bank or trust Corporation under common control with the Trustee. The Trustee is specifically authorized to enter into agreements with itself or any other person, which agreements guarantee the repurchase of specific Permitted Investments at specific prices. Except as expressly provided in the Indenture, deposits or investments, will at all times be a part of the fund or account from which the money used to acquire such deposits or investments will have come, and all income and profits on such deposits or investments will be credited to, and losses thereon will be charged against, such fund or account. In computing the amount in any fund or account held under the provisions of the Indenture, obligations purchased as a deposit or investment of money therein will be valued at the market price thereof, exclusive of accrued interest. The Trustee will sell and reduce to cash a sufficient amount of such deposits or investments whenever the cash balance in any fund or account created under the Indenture is insufficient to satisfy the purposes of such fund or account. Additional Bonds. So long as the Contract remains in effect and no Event of Default has occurred and is continuing, additional Bonds or other obligations (the Additional Bonds ) may be issued on the terms and conditions provided in the Indenture. Additional Bonds may be delivered by the Trustee at the direction of the Corporation to provide funds to pay: (1) the cost of expanding the Project, acquiring, constructing, renovating and equipping C-13

228 other facilities or acquiring Mortgaged Property and other capital assets for utilization by the City for public purposes; (2) the cost of refunding of all or any portion of the Bonds then Outstanding or any other financing obligations of the City; or (3) the Costs of Issuance relating to the issuance and sale of Additional Bonds. Additional Bonds may be issued only on there being filed with the Trustee: (a) Originally executed counterparts of a supplemental indenture and an amendment to the Contract adopted in accordance with the requirements of the Indenture and approved by the Local Government Commission of the State, if so required by law, including requirements regarding approval of the Owners, if applicable, expressly providing that the Additional Bonds being issued as well as any Bonds and Additional Bonds theretofore issued will be secured on a parity as provided in the Indenture, except that the date or dates of the Additional Bonds, the rate or rates of interest with respect to the Additional Bonds, the time or times of payment of the principal and interest with respect thereto, and provisions for the prepayment thereof, if any, all will be as provided in the supplemental indenture and amendment to the Contract, and further providing for an increase in the Purchase Price and the Installment Payments required or authorized to be paid to the Trustee under the Contract in such amount as will be necessary to pay (assuming that no Event of Default will occur), the principal, premium, if any, and interest with respect to the Additional Bonds. (b) A written opinion or opinions of nationally recognized bond counsel and mutually acceptable to the City and the Corporation to the effect that the amendment to the Contract and the authentication of the Additional Bonds have been duly authorized, that the amendment to the Contract is valid and enforceable against the City and that the exclusion from gross income for federal income tax purposes of the interest component of the Installment Payments related to a series of Outstanding Bonds executed and delivered with the expectation that interest with respect to them will not be excludable from the gross income of the owners thereof under the Code will not be adversely affected by the issuance of the Additional Bonds, and that the issuance and sale of the Additional Bonds will not constitute a default under the Contract or the Indenture or cause any violation of the covenants, agreements or representations under the Contract or the Indenture. (c) A written order to the Trustee to deliver the Additional Bonds to the purchaser or purchasers therein identified on payment to the Trustee of a specified sum plus accrued interest, if any. Each of the Additional Bonds issued pursuant to the Indenture will evidence a proportionate undivided interest in rights to receive certain Revenues under the Contract, as amended, proportionately and ratably secured with the 2017 Bonds originally issued and all other issues of Additional Bonds, if any, issued pursuant to the Indenture, without preference, priority or distinction of any 2017 Bond or Additional Bond over any other. Supplemental Indentures. --Consent of Owners Not Required. The Trustee and the Corporation may, with the written consent of the City, but without the consent of, or notice to, the Owners, enter into such indentures supplemental thereto for any one or more or all of the following purposes, as long as such supplemental indenture does not adversely affect the interests of the Owners: C-14

229 (a) To add to the covenants and agreements of the Corporation contained in the Indenture other covenants and agreements to be thereafter observed by the Corporation; (b) To cure any ambiguity, or to cure, correct or supplement any defect or omission or inconsistent provision contained in the Indenture, or to make any provisions with respect to matters arising under the Indenture or for any other purpose if such provisions are necessary or desirable and do not adversely affect the interests of the Owners; or (c) To execute and deliver Additional Bonds. --Consent of Owners Required. Except for the supplemental indentures covered under the caption --Consent of Owners Not Required above, the written consent of the City, the LGC and the consent of the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding is required for the execution by the Corporation and the Trustee of any indenture or indentures supplemental thereto; provided, however, that without the consent of the LGC and the Owners of all the Bonds at the time Outstanding affected thereby nothing contained in the Indenture will permit, or be construed as permitting: (a) A change in the terms of prepayment or maturity of the principal or the interest with respect to any Outstanding Bond, or a reduction in the principal or premium payable with respect to any prepayment of any Outstanding Bond or the rate of interest with respect thereto; (b) The deprivation of the Owner of any Bond then Outstanding of the lien created by the Indenture (other than as originally permitted thereby); (c) A privilege or priority of any Bond or Bonds over any other Bond or Bonds; or (d) A reduction in the aggregate principal amount of the Bonds required for consent to such supplemental indenture. If at any time the City or the Corporation requests the Trustee to enter into such supplemental indenture for any of the purposes described above, the Trustee will, on being satisfactorily indemnified with respect to expenses, cause notice of the proposed execution of such supplemental indenture to be mailed by first class mail to the Owners of the Bonds then Outstanding at the address shown on the registration books maintained by the Trustee. Such notice will briefly set forth the nature of the proposed supplemental indenture and will state that copies thereof are on file at the designated corporate trust office of the Trustee for inspection by all Owners. If, within 60 days or such longer period as is prescribed by the City following the giving of such notice, the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding at the time of the execution of any such supplemental indenture have consented to and approved the execution thereof as provided in the Indenture, no Owner will have any right to object to any of the terms and provisions contained therein, or in the operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the Trustee or the Corporation from executing the same or from taking any action pursuant to the provisions thereof. The written consent by the purchaser of a series of Additional Bonds constitutes the consent of the Owners of that series of Additional Bonds. Any consent or request by the Owners of any Bond is conclusive and binding on such Owner and on all future Owners of the Bonds and of any Bonds executed and delivered on the transfer of any Bond, whether or not notation of such consent or request is made on the Bond. C-15

230 --Consent of Initial Purchaser, Underwriter or Remarketing Agent. Any person that holds any 2017 Bond or Bond issued hereafter as an Owner, including an initial purchaser, underwriter or remarketing agent that holds such obligation with an intent to sell or distribute such obligation in the future, will be deemed to be the Owner of such obligation for the purpose of giving any consent required under the Indenture, including any consent to an amendment or supplemental indenture that adversely affects the interests of other Owners. Notwithstanding anything herein to the contrary, neither the City nor any initial purchaser, underwriter or remarketing agent providing its consent to an amendment or supplemental indenture pursuant to the Indenture will be required to provide any prior notice or other documentation regarding such amendment or supplemental indenture to any Owner of any Bond. Exclusion of Bonds Held By or For the City and the Corporation. In determining whether the Owners of the requisite principal amount of Bonds Outstanding have given any request, demand, authorization, direction, notice, consent or waiver under the Indenture, Bonds owned by the City and the Corporation will be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee is protected in relying on any such request, demand, authorization, direction, notice, consent or waiver, only Bonds which the Trustee actually knows to be so owned will be disregarded. Events of Default. Any of the following events are defined as and will be deemed an Event of Default under the Indenture: (a) Default in the payment of the principal or premium, if any, with respect to any Bond when the same becomes due and payable, whether at the stated maturity thereof or on proceedings for prepayment. (b) Default in the payment of any installment of interest with respect to any Bond when the same becomes due and payable. (c) The occurrence of an Event of Default under the Contract. Remedies on Default. (a) On the occurrence and continuance of an Event of Default, the Trustee will, if required by a majority in aggregate principal amount of the Owners of the Bonds, by written notice to the City, declare the obligations of the City as to the principal and interest components of Installment Payments and the aggregate principal amount with respect to the Bonds and the accrued interest with respect thereto to be immediately due and payable, whereupon they will, without further action, become due and payable. (b) The provisions of the preceding paragraph are subject, to the condition that if, after the principal with respect to any of the Installment Payments and the Bonds has been so declared to be due and payable, and before the earlier of (1) the exercise of rights granted under the Deed of Trust or (2) to the extent permitted by the Indenture and applicable law, any judgment or decree for the payment of the money due has been obtained or entered, the defaulting party (the Defaulting Party ) will cause to be deposited with the Trustee a sum sufficient to pay all matured installments of the principal and interest with respect to all Bonds which have become due otherwise than by reason of such declaration (with interest on such overdue installments of principal and interest, to the extent permitted by law, at the rate or rates per annum borne by the Bonds) and such amount as is sufficient to cover reasonable compensation and reimbursement of expenses payable to the Trustee, and all Events of Default under the Indenture other than nonpayment of the principal or interest with respect to the Bonds which have become due by said declaration have been remedied, then, in every such case, such Event of Default will be deemed C-16

231 waived and such declaration and its consequences rescinded and annulled, and the Trustee will promptly give written notice of such waiver, rescission or annulment to the Defaulting Party and will give notice thereof by first class mail to all Owners; but no such waiver, rescission and annulment will extend to or affect any subsequent Event of Default or impair any right or remedy consequent thereon. The provisions of paragraph (a) are further subject to the condition that any waiver of any Event of Default under the Contract and a rescission and annulment of its consequences will constitute a waiver of the corresponding Event of Default under the Indenture and a rescission and annulment of the consequences thereof. If notice of such Event of Default under the Contract has been given as provided in the Indenture, the Trustee will promptly give written notice of such waiver, rescission or annulment to the Defaulting Party and will give notice thereof by first class mail to all Owners; but no such waiver, rescission and annulment will extend to or affect any subsequent Event of Default or impair any right or remedy consequent thereon. (c) On the occurrence and continuance of any Event of Default and on the written direction of Owners of not less than a majority in aggregate principal amount of the Bonds Outstanding and receipt of indemnity to the Trustee s satisfaction, the Trustee will, to the extent permitted by the Indenture and applicable law, in its own name and as the Trustee of an express trust: (1) by mandamus, or other suit, action or proceeding at law or in equity, enforce all rights of the Owners, and require the Defaulting Party to carry out any agreements with or for the benefit of the Owners and to perform its or their duties under the Contract and the Indenture, provided that any such remedy may be taken only to the extent permitted under the applicable provisions of the Contract or the Indenture, as the case may be; (2) take whatever action at law or in equity is permissible and may appear necessary or desirable to enforce its rights against the Defaulting Party or the Mortgaged Property held as security therefor. No right or remedy is intended to be exclusive of any other rights or remedies, but each and every such right or remedy will be cumulative and in addition to any other remedy given under the Indenture or now or hereafter existing at law or in equity or by statute. If any Event of Default has occurred and if requested by the Owners of a majority in aggregate principal amount of Bonds then Outstanding and indemnified as provided in the Indenture, the Trustee is obligated to exercise, to the extent permitted by the Indenture and applicable law, such one or more of the rights and powers conferred by the Indenture as the Trustee, being advised by counsel, will deem most expedient in the interests of the Owners. Application of Money. All money received by the Trustee pursuant to any right given or action taken under the provisions of the Indenture after an Event of Default will, after payment of the costs and expenses of the proceedings resulting in the collection of such money and of the costs, expenses, liabilities and advances incurred or made by the Trustee, including the reasonable fees and expense of its counsel and agents, be deposited in the Bond Fund and applied as follows: (a) Unless the principal with respect to all of the Bonds has become or has been declared due and payable, all such money will be applied: FIRST - To the payment to the persons entitled thereto of all installments of interest then due with respect to the Bonds, in the order of the maturity of the C-17

232 installments of such interest beginning with the earliest such maturity and, if the amount available is not sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installment, to the persons entitled thereto, without any discrimination or privilege; SECOND - To the payment to the persons entitled thereto of the unpaid principal and premium, if any, with respect to any of the Bonds which have become due (other than Bonds matured or called for prepayment for the payment of which money is held pursuant to the provisions of the Indenture), in the order of their due dates and beginning with the earliest due date and, if the amount available is not sufficient to pay in full Bonds due on any particular date, then to the payment ratably, according to the amount of principal due on such date, to the persons entitled thereto without any discrimination or privilege; THIRD - To the payment to the persons entitled thereto of interest on overdue installments of principal, premium, if any, and interest, to the extent permitted by law, and if the amount available is not sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such particular installment, to the persons entitled thereto, without any discrimination or privilege; and FOURTH - To be held for the payment to the persons entitled thereto, as the same become due, of the principal, premium, if any, and interest with respect to the Bonds which may thereafter become due in accordance with the terms of the Indenture. (b) If the principal with respect to all of the Bonds has become due or has been declared due and payable, all such money will be applied to the payment of the principal and interest then due and unpaid with respect to the Bonds, without preference or priority of principal over interest or of interest over principal, or of any installment of interest over any other installment of interest, or of any Bond over any other Bond, ratably, according to the amounts due, respectively, for principal and interest, to the persons entitled thereto without any discrimination or privilege, with interest on overdue installments of interest or principal, to the extent permitted by law. Whenever money is to be applied pursuant to the provisions described above, such money will be applied at such times, and from time to time, as the Trustee determines, having due regard to the amount of such money available for application and the likelihood of additional money becoming available for such application in the future. Whenever the Trustee applies such funds, it will fix the date (which will be an Interest Payment Date unless it deems another date more suitable) on which such application is to be made and on such date interest on the amounts of principal to be paid on such dates will cease to accrue. The Trustee will give such notice as it may deem appropriate of the deposit with it of any such money and of the fixing of any such date, and will not be required to make payment to the Owner of any Bond until such Bond is presented to the Trustee for appropriate endorsement or for cancellation if fully paid. Whenever the principal, premium, if any, and interest with respect to all of the Bonds have been paid and all expenses and charges of the Trustee have been paid, any balance remaining in the Bond Fund will be paid to the City. Defeasance. If, when the Bonds secured by the Indenture become due and payable in accordance with their terms or otherwise as provided in the Indenture, the whole amount of the principal, premium, if C-18

233 any, and interest due and payable with respect to all of the Bonds will be paid or provision has been made for the payment of the same, together with all other sums payable under the Indenture, then the right, title and interest of the Trustee in and to the Trust Estate and all covenants, agreements and other obligations of the Corporation to the Trustee and the Owners will then cease, terminate and become void and be discharged and satisfied. In such event, on the request of the City, the Trustee will transfer and convey to the City all property assigned or pledged to the Trustee by the Corporation then held by the Trustee pursuant to the Indenture, and the Trustee will execute such documents as may be reasonably required by the City and will turn over to the City any surplus in any fund created under the Indenture other than the Rebate Fund. Outstanding Bonds will, before the maturity or prepayment date thereof, be deemed to have been paid within the meaning and with the effect expressed in the above paragraph if (a) in case said Bonds are to be prepaid on any date before their maturity, the City has given to the Trustee in form satisfactory to the Trustee irrevocable instructions to give on a date, in accordance with the provisions of the Indenture, notice of prepayment of such Bonds on said prepayment date, (b) there has been deposited with the Trustee either money in an amount which will be sufficient, or Federal Securities which do not contain provisions permitting the prepayment thereof at the option of the issuer thereof, the principal of and the interest on which when due, and without any reinvestment thereof, will provide money which, together with the money, if any, deposited with or held by the Trustee at the same time, sufficient to pay when due the principal, premium, if any, and interest due and to become due with respect to said Bonds on and before the prepayment date or maturity date thereof, as the case may be, and (c) in the event said Bonds are not by their terms subject to prepayment within the next 60 days, the City has given the Trustee in form satisfactory to it (1) irrevocable instructions to give, as soon as practicable in the same manner as the notice of prepayment is given, a notice to the Owners of such Bonds that the deposit required by (b) above has been made with the Trustee and that said Bonds are deemed to have been paid in accordance with the Indenture and stating such maturity or prepayment date on which money is to be available for the payment of the principal, premium, if any, and interest with respect to said Bonds, (2) verification from an independent accountant or other nationally recognized expert selected by the City that the money or Federal Securities deposited with the Trustee will be sufficient to pay when due the principal, premium, if any, and interest due and to become due with respect to the Bonds on and before the prepayment date or maturity date thereof, and (3) an opinion of nationally recognized bond counsel selected by the City that such deposit of money or Federal Securities will not adversely affect the exclusion from gross income for federal income tax purposes of interest with respect to any Bonds executed and delivered with the expectation that interest with respect to them will be excludable from gross income of the Owners thereof under the Code. Neither the Federal Securities nor money deposited with the Trustee or principal or interest payments on any such Federal Securities will be withdrawn or used for any purpose other than, and such Federal Securities or money will be held in trust for, the payment of the principal, premium, if any, and interest with respect to said Bonds; provided any cash received from such principal or interest payments on such Federal Securities deposited with the Trustee, if not then needed for such purpose, will, to the extent practicable, be reinvested in Federal Securities of the type described in clause (b) of this paragraph maturing at the times and in amounts sufficient (together with any other money or Federal Securities then held by the Trustee as described above) to pay when due the principal, premium, if any, and interest to become due with respect to said Bonds on or before such prepayment date or maturity date thereof, as the case may be. At such time as any Bonds will be deemed paid as aforesaid, such Bonds will no longer be secured by or entitled to the benefits of the Indenture and the Contract, except for the purpose of exchange and transfer and any payment from such money or Federal Securities deposited with the Trustee. The release of the obligations of the Corporation described in the preceding paragraph is without prejudice to the rights of the Trustee to be paid reasonable compensation for all services rendered by it under the Indenture and all its reasonable expenses, charges and other disbursements incurred with C-19

234 respect to the administration of the trust created by the Indenture and the performance of its powers and duties under the Indenture. THE DEED OF TRUST Deed of Trust and Security Interest. To secure (1) the obligation of the City to make the Installment Payments and (2) the payment and performance of all the other liabilities and obligations, whether now existing or hereafter arising, of the City to the Corporation under the Contract and the Deed of Trust, the City has granted and conveyed to the Trustee (as defined in the Deed of Trust) for the benefit of the Corporation, its successors and assigns all right, title and interest that the City now has or may hereafter acquire in the Mortgaged Property as more fully described in the Deed of Trust. City s Continuing Obligation. The City will remain liable for full payment and performance, as the case may be, of all obligations secured by the Deed of Trust, notwithstanding the occurrence of any event or circumstance whatsoever. However, no deficiency judgment may be rendered against the City in favor of the Beneficiary in violation of 160A-20 of the North Carolina General Statutes, including, without limitation, any deficiency judgment for amounts that may be owed under the Contract or the Deed of Trust when the sale of all or any portion of the Mortgaged Property is insufficient to produce enough money to pay in full all remaining obligations under the Contract or the Deed of Trust. RELEASE OF MORTGAGED PROPERTY. Notwithstanding any other provisions of the Deed of Trust to the contrary, at any time so long as there is no Event of Default, the Deed of Trust Trustee must release the Mortgaged Property or any part thereof from the lien and security interest of the Deed of Trust when and if the following requirements have been fulfilled: (a) In connection with any release of the Mortgaged Property, or any part thereof, there will be filed with the Beneficiary a certified copy of the resolution of the City Council for the City stating the purpose for which the City desires such release of the Mortgaged Property, giving an adequate legal description of the part of the Mortgaged Property to be released, requesting such release and providing for the payment by the City of all expenses in connection with such release. (b) In connection with the release of any part of the Mortgaged Property constituting less than the entire Mortgaged Property, either (1) the tax, insured or appraised value of the Mortgaged Property remaining after the proposed release is not less than 50% of the aggregate principal component of the Installment Payments then Outstanding under the Indenture or (2) the City (i) provides for the substitution of other real property therefor and the tax, insured or appraised value of the Mortgaged Property remaining after the proposed substitution is not less than the replacement value of the Mortgaged Property (as determined above) immediately before the proposed substitution, (ii) delivers to the Trustee and the Corporation an opinion of Bond Counsel to the effect that the substitution (A) is permitted by law and under the Deed of Trust and (B) will not adversely affect the tax treatment of the 2017B Bonds, and (iii) records a modification to the Deed of Trust reflecting such substitution of the Mortgaged Property. (c) In connection with the release of any part of the Mortgaged Property constituting less than the entire Mortgaged Property, such release will not prohibit the City s ingress, egress and regress to and from the remainder of the Mortgaged Property not being released, or materially interfere with the use of the remainder of the Mortgaged Property not being released. C-20

235 (d) In connection with the release of all property constituting the entire Mortgaged Property, there is paid to the Beneficiary an amount sufficient to provide for the payment in full of all Outstanding Bonds in accordance with the Indenture. Grant and Release of Easements. Notwithstanding any other provisions of the Deed of Trust, at any time so long as there is no Event of Default, with the consent of the Trustee, the City may at any time or times grant easements, licenses, rights of way and other rights and privileges in the nature of easements with respect to any part of the Mortgaged Property and the City may release existing interests, easements, licenses, rights of way and other rights or privileges with or without consideration. The Corporation agrees that it will execute and deliver and will cause, request or direct the Trustee to execute and deliver any instrument reasonably necessary or appropriate to grant or release any such interest, easement, license, right of way or other right or privilege but only upon receipt of (a) a copy of the instrument of grant or release, (b) a written request of the City requesting such instrument and (c) a certificate executed by the City that the grant or release is not detrimental to the proper conduct of the operations of the City at the Mortgaged Property and will not impair the effective use, nor decrease the value, of the Mortgaged Property. Release of Fixtures. Notwithstanding any other provisions of the Deed of Trust, at any time so long as there is no Event of Default, with the consent of the Trustee, the City may at any time or times release Fixtures to be added to the Mortgaged Property from the security interest created thereby with or without consideration. The Corporation agrees that it will execute and deliver and will cause, request or direct the Trustee to execute and deliver any instrument reasonably necessary or appropriate to release any such Fixture but only upon receipt of (a) a copy of the instrument of release, (b) a written request of the City requesting such instrument and (c) a certificate executed by the City that the release is not detrimental to the proper conduct of the operations of the City at the Mortgaged Property and will not impair the effective use, nor decrease the value, of the Mortgaged Property. Amendments. SEE THE CONTRACT--AMENDMENTS ABOVE. Events of Default. The term Event of Default as used in the Deed of Trust, will mean any one or more of the following events: (a) The occurrence of any Event of Default under the Contract; or (b) Failure by the City to perform or observe any term, condition or covenant of the Deed of Trust on its part to be observed or performed, other than as referred to in (a) above, or breach of any warranty by the City therein contained, for a period of 30 days after written notice specifying such failure and requesting that it be remedied has been given to the City by the Trustee or the Corporation unless the Trustee or the Corporation agrees in writing to an extension of such time before its expiration. Acceleration on Default; Additional Remedies. If an Event of Default has occurred and is continuing, the Corporation will, at the direction of a majority in aggregate principal amount of the Owners of the Outstanding Bonds, declare all Indebtedness to be due and payable and the same will thereupon become due and payable in accordance with the Contract and the Deed of Trust without any presentment, demand, protest or notice of any kind. Thereafter, the Corporation may, to the extent permitted by applicable law and subject to the Contract: (a) Either in person or by agent, with or without bringing any action or proceeding, or by a receiver appointed by a court and without regard to the adequacy of its security, enter upon and take possession of the Mortgaged Property, or any part C-21

236 thereof, in its own name or in the name of Trustee, and do any acts which it deems necessary or desirable to preserve the value, marketability or rentability of the Mortgaged Property, or part thereof or interest therein, increase the income therefrom or protect the security thereof, and, with or without taking possession of the Mortgaged Property, sue for or otherwise collect the rents and issues thereof, including those rents and issues past due and unpaid, and apply the same, less costs and expenses of operation and collection including attorneys fees, upon any Indebtedness, all in such order as the Corporation may determine. The entering upon and taking possession of the Mortgaged Property, the collection of such rents and issues and the application thereof as aforesaid will not cure or waive any Event of Default or notice of Event of Default under the Deed of Trust or invalidate any act done in response to such Default or pursuant to such notice of Default, and, notwithstanding the continuance in possession of the Mortgaged Property or the collection, receipt and application of rents and issues, the Trustee or Corporation, to the extent permitted by applicable law and subject to the terms of the Contract, will be entitled to exercise every right provided for in any instrument securing or relating to the Indebtedness or by law upon occurrence of any Event of Default, including the right to exercise the power of sale; (b) Commence an action to foreclose the Deed of Trust as a mortgage, specially enforce any of the covenants of the Deed of Trust, or cause the Trustee to foreclose the Deed of Trust by power of sale; and (c) To the extent permitted by applicable law and subject to terms of the Contract, exercise any or all of the remedies available to a secured party under the Uniform Commercial Code of North Carolina or under any other applicable laws. NOTWITHSTANDING ANY PROVISIONS CONTAINED IN THE DEED OF TRUST, IT IS THE INTENT OF THE PARTIES TO COMPLY WITH THE PROVISIONS OF NORTH CAROLINA GENERAL STATUTES SECTION 160A-20. NO DEFICIENCY JUDGMENT MAY BE RENDERED AGAINST THE CITY IN FAVOR OF THE BENEFICIARY IN VIOLATION OF SECTION 160A-20, INCLUDING, WITHOUT LIMITATION, ANY DEFICIENCY JUDGMENT FOR AMOUNTS THAT MAY BE OWED UNDER THE CONTRACT OR THE DEED OF TRUST WHEN THE SALE OF ALL OR ANY PORTION OF THE MORTGAGED PROPERTY IS INSUFFICIENT TO PRODUCE ENOUGH MONEY TO PAY IN FULL ALL REMAINING OBLIGATIONS UNDER THE CONTRACT OR THE DEED OF TRUST. NOTWITHSTANDING ANY PROVISION TO THE CONTRARY IN THE DEED OF TRUST, NO DEFICIENCY JUDGMENT MAY BE RENDERED AGAINST THE CITY IN ANY ACTION TO COLLECT ANY OF THE INDEBTEDNESS SECURED BY THE DEED OF TRUST AND THE TAXING POWER OF THE CITY IS NOT AND MAY NOT BE PLEDGED DIRECTLY OR INDIRECTLY OR CONTINGENTLY TO SECURE ANY MONIES DUE OR SECURED UNDER THE DEED OF TRUST. C-22

237 APPENDIX D FORM OF OPINION OF EACH OF CO-BOND COUNSEL

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239 APPENDIX D FORM OF OPINION OF EACH OF CO-BOND COUNSEL [Letterhead of each of Co-Bond Counsel] December, 2017 New Durham Corporation Durham, North Carolina City of Durham, North Carolina Durham, North Carolina U.S. Bank National Association Raleigh, North Carolina Ladies and Gentlemen: $ Taxable Limited Obligation Bonds, Series 2017A and $ Refunding Limited Obligation Bonds, Series 2017B Evidencing Proportionate Undivided Interests in the Rights to Receive Certain Revenues Pursuant to an Installment Financing Contract Between New Durham Corporation and the City of Durham, North Carolina We have acted as Co-Bond Counsel in connection with the execution and delivery of the $ Taxable Limited Obligation Bonds, Series 2017A (the 2017A Bonds ) and $ Refunding Limited Obligation Bonds, Series 2017B (the 2017B Bonds and together with the 2017A Bonds, the 2017 Bonds ), each evidencing proportionate undivided interests in rights to receive certain Revenues pursuant to an Installment Financing Contract dated as of December 15, 2017 (the Contract ) between New Durham Corporation, a nonprofit corporation organized and existing under the Constitution and laws of the State of North Carolina (the Corporation ), and the City of Durham, North Carolina (the City ). The 2017 Bonds are being executed and delivered pursuant to an Indenture of Trust dated as of December 15, 2017 (the Indenture ) between the Corporation and U.S. Bank National Association, as trustee (the Trustee ). The Corporation has assigned to the Trustee pursuant to the Indenture all of its rights, title and interest in and to (1) the Contract, including the right to

240 New Durham Corporation City of Durham, North Carolina U.S. Bank National Association December, 2017 Page 2 receive Installment Payments, but excluding certain reserved rights described in the Indenture and (2) the Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of December 15, 2017 (the Deed of Trust ) from the City to the Corporation. Each capitalized term used but not defined herein has the meaning given to such term in the Contract and the Indenture, as applicable. The proceeds of the 2017A Bonds will be used to pay (1) the costs of the acquisition, construction and equipping of a City-owned parking deck to be constructed at the intersection of West Morgan Street, North Mangum Street and Rigsbee Avenue in the City and other parkingrelated improvements (collectively, the Parking Project ) and (2) costs related to the execution and delivery of the Contract. A portion of the proceeds of the 2017B Bonds will be deposited in an escrow fund and applied to the purchase of Federal Securities to pay (1) maturing interest with respect to the 2017B Bonds through October 1, 2020 (the Crossover Date ), (2) on the Crossover Date (a) the prepayment price of the Corporation s Taxable Limited Obligation Bonds, Series 2010B maturing on and after October 1, 2021 (the Refunded LOBs ) and (b) the redemption price of the City s Taxable General Obligation Bonds, Series 2010B maturing on and after October 1, 2021 (the Refunded Bonds ) and (3) costs related to the execution and delivery of the Contract. The City has agreed under the Contract to pay its Installment Payments required thereunder directly to the Trustee. In our capacity as Co-Bond Counsel, we have examined executed copies of the Indenture, the Contract, a specimen of the 2017A Bonds, a specimen of the 2017B Bonds and such law and certified proceedings, instruments, opinions and other documents as we have deemed necessary to render the opinions hereinafter expressed. As to questions of fact material to the opinions hereinafter expressed, we have relied on representations of the Corporation and the City contained in the Contract and the related documents thereto, the certified proceedings and other certifications of public officials and others furnished to us, including certifications furnished to us by or on behalf of the Corporation and the City, without undertaking to verify the same by independent investigation. We have also relied on the opinion of Patrick W. Baker, Esq., as City Attorney, dated the date hereof, with respect to the City s due authorization, execution and delivery of the Contract. We have assumed the accuracy and truthfulness of all public records and of all certifications, documents and other proceedings that we have examined that have been executed or certified by public officials acting within the scope of their official capacities and have not verified the accuracy or truthfulness thereof. We have also assumed the genuineness of the signatures appearing upon such public records, certifications, and documents and proceedings. On the basis of the foregoing, we are of the opinion, under existing law, that: 1. The Indenture has been duly authorized, executed and delivered by the Corporation and is a valid, binding and enforceable obligation of the Corporation and, assuming the due authorization, execution and delivery by the Trustee, creates a valid lien on the Revenues in favor of the Trustee for the benefit of the Owners of the 2017 Bonds. D-2

241 New Durham Corporation City of Durham, North Carolina U.S. Bank National Association December, 2017 Page 3 2. The Contract has been duly authorized, executed and delivered by the City and the Corporation and is a valid, binding and enforceable obligation of the City and the Corporation. 3. The 2017 Bonds have been duly authorized, executed and delivered for the purposes described above. The 2017 Bonds evidence valid and legally binding proportionate undivided interests in the rights to receive certain Revenues payable by the City under and pursuant to the Contract, enforceable in accordance with their terms. The 2017 Bonds are entitled to the benefits and security of the Indenture for the payment thereof from certain amounts to be paid under the Contract in accordance with the terms of the Indenture and the Contract. 4. The portion of the Installment Payments designated and paid as interest with respect to the 2017A Bonds will be treated as ordinary income for federal income tax purposes under the Code. 5. The portion of the Installment Payments designated as interest under the Contract and paid as interest with respect to the 2017B Bonds is excludable 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; however, such interest is taken into account in determining adjusted current earnings for the purpose of computing the federal alternative minimum tax imposed on certain corporations. The opinion set forth in the preceding sentence is subject to the condition that the City and the Corporation comply with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied subsequent to the initial execution and delivery of the 2017B Bonds in order that the portion of the Installment Payments designated as interest under the Contract and paid as interest with respect to the 2017B Bonds, as provided in the Contract, be, or continue to be, excludable from gross income for federal income tax purposes. The City and the Corporation have covenanted to comply with all such requirements. Failure to comply with certain of such requirements may cause the portion of the Installment Payments designated as interest under the Contract and paid as interest with respect to the 2017B Bonds to be included in gross income for federal income tax purposes retroactively to the date of the initial execution and delivery of the 2017B Bonds. We express no opinion regarding other federal tax consequences arising with respect to the 2017B Bonds. 6. The portion of the Installment Payments designated as interest under the Contract and paid as interest with respect to the 2017 Bonds is exempt from State of North Carolina income taxation. It is to be understood that the rights of the Owners of the 2017 Bonds and the enforceability of the Indenture, the Contract and the 2017 Bonds may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, liquidation, readjustment of debt and other similar laws affecting creditors rights and remedies generally, and by general principles of equity, whether such principles are considered in a proceeding at law or in equity. D-3

242 New Durham Corporation City of Durham, North Carolina U.S. Bank National Association December, 2017 Page 4 Our services as Co-Bond Counsel in connection with the execution and delivery of the 2017 Bonds have been limited to rendering the opinions expressed above based on our review of such proceedings and documents as we deem necessary to approve the validity of the 2017 Bonds and the tax status of interest with respect thereto. We have not been engaged or undertaken to review the accuracy, completeness or sufficiency of the Preliminary Official Statement or the Official Statement (collectively, the Official Statement ), or any other offering material relating to the 2017 Bonds (except to the extent, if any, stated in the Official Statement), and we express no opinion herein relating thereto (excepting only the matters set forth as our opinion in the Official Statement and the section entitled TAX TREATMENT ) or as to the financial resources of the City or the ability of the City to make the payments required under the Contract, that may have been relied on by anyone in making the decision to purchase the 2017 Bonds. This opinion is delivered to you and for your benefit in connection with the above transaction; it may not be relied on by you for any other purposes and may not be relied on by, nor may copies be provided to, any other person, firm, corporation or other entity without our prior written consent. Respectfully submitted, [TO BE SIGNED BY EACH OF CO-BOND COUNSEL] D-4

243 APPENDIX E BOOK-ENTRY ONLY SYSTEM

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245 APPENDIX E BOOK-ENTRY ONLY SYSTEM 1. THE FOLLOWING DESCRIPTION OF DTC, OF PROCEDURES AND RECORD KEEPING ON BENEFICIAL OWNERSHIP INTERESTS IN THE 2017 BONDS, PAYMENT OF INTEREST AND OTHER PAYMENTS ON THE 2017 BONDS TO DTC PARTICIPANTS OR TO BENEFICIAL OWNERS, CONFIRMATION AND TRANSFER OF BENEFICIAL OWNERSHIP INTERESTS IN THE 2017 BONDS, AND OR OTHER TRANSACTIONS BY AND BETWEEN DTC, DTC Participants AND BENEFICIAL OWNERS IS BASED ON INFORMATION FURNISHED BY DTC. The Depository Trust Company a subsidiary of The Depository Trust & Clearing Corporation 2. The Depository Trust Company ( DTC ), New York, NY, will act as securities depository for the 2017 Bonds. The 2017 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered bond will be issued for the 2017 Bonds, in the aggregate principal amount of such issue, and will be deposited with DTC. SO LONG AS CEDE & CO. IS THE REGISTERED OWNER OF THE 2017 BONDS, AS DTC S PARTNERSHIP NOMINEE, REFERENCE HEREIN TO THE OWNERS OR REGISTERED OWNERS OF THE 2017 BONDS WILL MEAN CEDE & CO. AND WILL NOT MEAN THE BENEFICIAL OWNERS OF THE 2017 BONDS. 3. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of the 2017 Bonds. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has a Standard & Poor s rating of AA+. The DTC rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at E-1

246 4. Purchases of 2017 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2017 Bonds on DTC s records. The ownership interest of each actual purchaser of the 2017 Bonds ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests with respect to the 2017 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive bonds representing their ownership interests in 2017 Bonds, except in the event that use of the book-entry system for the 2017 Bonds is discontinued. 5. To facilitate subsequent transfers, all 2017 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 2017A Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not affect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 2017 Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such 2017 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 6. 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 2017 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2017 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of 2017A Bonds may wish to ascertain that the nominee holding the 2017 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. 7. Redemption notices will be sent to DTC. If less than all of the 2017 Bonds within a maturity are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. 8. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to 2017 Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts 2017 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). E-2

247 BECAUSE DTC IS TREATED AS THE OWNER OF THE 2017 BONDS FOR SUBSTANTIALLY ALL PURPOSES UNDER THE INDENTURE, BENEFICIAL OWNERS MAY HAVE A RESTRICTED ABILITY TO INFLUENCE IN A TIMELY FASHION REMEDIAL ACTION OR THE GIVING OR WITHHOLDING OF REQUESTED CONSENTS OR OTHER DIRECTIONS. IN ADDITION, BECAUSE THE IDENTITY OF BENEFICIAL OWNERS IS UNKNOWN TO THE CITY, TO DTC OR TO THE TRUSTEE, IT MAY BE DIFFICULT TO TRANSMIT INFORMATION OF POTENTIAL INTEREST TO BENEFICIAL OWNERS IN AN EFFECTIVE AND TIMELY MANNER. BENEFICIAL OWNERS SHOULD MAKE APPROPRIATE ARRANGEMENTS WITH THEIR BROKER OR DEALER REGARDING DISTRIBUTION OF INFORMATION REGARDING THE 2017 BONDS THAT MAY BE TRANSMITTED BY OR THROUGH DTC. 9. Redemption proceeds, distributions, and dividend payments on the 2017 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the City or the Trustee, on the payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Trustee, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. THE CITY AND THE TRUSTEE CANNOT AND DO NOT GIVE ASSURANCE THAT DIRECT AND INDIRECT PARTICIPANTS WILL PROMPTLY TRANSFER PAYMENTS TO BENEFICIAL OWNERS. 10. DTC may discontinue providing its services as depository with respect to the 2017 Bonds at any time by giving reasonable notice to the City and the Trustee. Under such circumstances, in the event that a successor depository is not obtained, 2017 Bond certificates are required to be printed and delivered. 11. The City may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, 2017 Bond certificates will be printed and delivered to DTC. 12. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources the City believes to be reliable, but the City takes no responsibility for the accuracy thereof. THE CITY AND THE TRUSTEE HAVE NO RESPONSIBILITY OR OBLIGATION TO DTC, THE DIRECT PARTICIPANTS, THE INDIRECT PARTICIPANTS OR THE BENEFICIAL OWNERS WITH RESPECT TO (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY PARTICIPANT, OR THE MAINTENANCE OF ANY RECORDS; (2) THE PAYMENT BY DTC OR ANY PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE 2017 BONDS, OR THE SENDING OF ANY TRANSACTION STATEMENTS; (3) THE DELIVERY OR TIMELINESS OF DELIVERY BY DTC OR ANY PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED E-3

248 UNDER THE INDENTURE TO BE GIVEN TO OWNERS; (4) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENTS UPON ANY PARTIAL PREPAYMENT OF THE 2017 BONDS; OR (5) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC OR ITS NOMINEE AS THE REGISTERED OWNER OF THE 2017 BONDS, INCLUDING ANY ACTION TAKEN PURSUANT TO AN OMNIBUS PROXY. E-4

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