CITY OF JACKSONVILLE, FLORIDA COMMERCIAL PAPER NOTES SERIES A

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1 CITY OF JACKSONVILLE, FLORIDA COMMERCIAL PAPER NOTES SERIES A RATINGS: Standard & Poor's: "A-1+" See "RATINGS" herein. The City of Jacksonville, Florida (the "City") has authorized the issuance of its Commercial Paper Notes, Series A (the "Notes") in an aggregate principal amount of up to $150,000,000 outstanding at any one time. The Notes are being issued pursuant to ordinance E enacted by the Council of the City (the "Council") on October 26, 2004, as amended (the "Ordinance"), the Commercial Paper Notes Financing Agreement between the City and U.S. Bank Trust National Association, as Deputy Registrar and Paying Agent (the "DRPA"), dated as of November 1, 2004 (the "CP Financing Agreement") and the Issuing and Paying Agent Agreement between the DRPA and the City, dated as of November 1, 2004 (the "IPA Agreement" and collectively with the Ordinance and the CP Financing Agreement, the "CP Authorizations"). The Ordinance provides that, in addition to certain other limitations, the City may not issue Notes if the principal amount of Notes outstanding, together with interest to accrue to maturity thereon, would exceed the Stated Amount available to be drawn under the Letter of Credit. Proceeds of the Notes will be used to (i) finance or refinance the cost of Projects authorized from time to time by ordinance of the Council for which proceeds of the Notes have been appropriated, (ii) pay obligations owed to the Bank resulting from draws on the Letter of Credit and (iii) pay the costs of issuance of the Notes. Under an irrevocable, direct pay letter of credit (the "Letter of Credit") issued by LANDESBANK BADEN-WÜRTTEMBERG acting by and through its New York Branch (the "Bank") to the DRPA, pursuant to a Letter of Credit Reimbursement Agreement, dated as of November 1, 2004 (the "Reimbursement Agreement"), between the City and the Bank. The DRPA is entitled to make drawings under the Letter of Credit in amounts sufficient to pay when due the principal of and interest on the outstanding Notes. Pursuant to the Reimbursement Agreement, the Bank has made a Letter of Credit commitment in the maximum amount of $161,095,891. On May 15, 2008, the Stated Amount of the Letter of Credit will be increased to $112,632,876.71, and such Stated Amount may be increased from time to time pursuant to its terms and the terms of the Reimbursement Agreement, subject to certain conditions set forth therein. The Letter of Credit has a stated expiration date of December 29, 2015, subject to reduction and earlier termination in accordance with its terms. The Notes are payable from certain Excise Taxes and the Local Government Half Cent Sales Taxes (collectively, the "Pledged Funds") and are being issued on a junior and subordinate basis to certain outstanding and future senior lien debt ("Senior Lien Debt") issued by the City and payable from Excise Taxes or Local Government Half Cent Sales Taxes. THE NOTES ARE SPECIAL OBLIGATIONS OF THE CITY PAYABLE SOLELY FROM AND SECURED BY A PLEDGE OF AND LIEN ON THE PLEDGED FUNDS AND AMOUNTS HELD IN FUNDS AND ACCOUNTS CREATED UNDER THE CP AUTHORIZATIONS AS DESCRIBED HEREIN. THE NOTES SHALL NOT CONSTITUTE AN INDEBTEDNESS OF THE CITY, THE STATE OF FLORIDA OR ANY POLITICAL SUBDIVISION THEREOF, WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY LIMITATION OR PROVISION, AND NEITHER THE CITY NOR THE STATE OF FLORIDA, OR ANY POLITICAL SUBDIVISION THEREOF, SHALL BE LIABLE THEREON, NOR IN ANY EVENT SHALL SUCH NOTES BE PAYABLE OUT OF ANY FUNDS OR PROPERTIES OTHER THAN THOSE OF THE CITY PLEDGED THERETO. THE TAXING POWER OF THE CITY IS NOT PLEDGED TO THE PAYMENT OF THE NOTES, EITHER AS TO PRINCIPAL OR INTEREST. IN MAKING AN INVESTMENT DECISION REGARDING A POSSIBLE PURCHASE OF THE NOTES, PROSPECTIVE PURCHASERS SHOULD RELY SOLELY ON THE CREDIT OF THE BANK AND NOT THE CREDIT OF THE CITY. JPMorgan This cover page is not intended to be a summary of the terms of, or the security for, the Notes. Investors are advised to read this Offering Memorandum in its entirety to obtain information essential to the making of an informed investment decision. May 12, 2008

2 This Offering Memorandum is intended for use only in an offering to qualifying investors and is not to be used for any other purpose. It does not purport to provide a complete description of all risks and factors that should be considered by an investor. Qualifying investors include institutional investors, and individual investors who customarily purchase commercial paper, which investors are purchasing the Notes in denominations of at least $100,000. This Offering Memorandum is provided in connection with the sale of the Notes referred to herein and may not be reproduced or be used, in whole or in part, for any other purpose. The information contained in this Offering Memorandum has been obtained from the City, the Bank and other sources which are believed to be reliable. The CP Dealer (as defined herein) has provided the following sentence for inclusion in this Offering Memorandum. The CP Dealer has reviewed the information in this Offering Memorandum in accordance with, and as part of, its responsibility to investors under the Federal securities law, as applied to the facts and circumstances of this transaction, but the CP Dealer does not guarantee the accuracy or completeness of such information. No dealer, broker, salesman or other person has been authorized by the City or the CP Dealer to give any information or to make any representations other than those contained in this Offering Memorandum, and, if given or made, such information or representations must not be relied upon as having been authorized by any of the foregoing. This Offering Memorandum does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Notes by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information and expressions of opinion herein speak as of their date unless otherwise noted and are subject to change without notice. Neither the delivery of this Offering Memorandum nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the City since the date hereof. Other than with respect to information concerning the Bank contained in Appendix A, none of the information in this Offering Memorandum has been supplied or verified by the Bank and the Bank makes no representation or warranty, express or implied, as to (i) the accuracy or completeness of such information, (ii) the validity of the Notes, or (iii) the tax status of the Notes. Neither the CP Dealer nor the City have confirmed the accuracy or completeness of the information relating to the Bank contained in Appendix A. The CP Dealer and the City, therefore, make no representation as to the accuracy or completeness of such information. The Notes will be exempt from registration under the Securities Act of 1933, as amended.

3 TABLE OF CONTENTS Page INTRODUCTION... 1 THE NOTES... 1 Terms and Form of the Notes... 1 Security and Source of Payment for the Notes... 2 Events of Default on the Notes... 3 LETTER OF CREDIT... 4 THE CITY... 6 Government... 6 Excise Taxes... 7 Local Government Half Cent Sales Taxes Indebtedness Financial Statements TAX MATTERS RATINGS CP DEALER LEGAL MATTERS ADDITIONAL INFORMATION AND MISCELLANEOUS APPENDIX A APPENDIX B INFORMATION REGARDING THE BANK FORM OF OPINION OF BOND COUNSEL (i)

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5 OFFERING MEMORANDUM DATED MAY 12, 2008 CITY OF JACKSONVILLE, FLORIDA COMMERCIAL PAPER NOTES SERIES A INTRODUCTION The City of Jacksonville, Florida (the "City") has authorized the issuance of its Commercial Paper Notes, Series A (the "Notes") in an aggregate principal amount of up to $150,000,000 outstanding at any one time. The Notes are issued pursuant to ordinance E enacted by the Council of the City (the "Council") on October 26, 2004, as amended (the "Ordinance"), the Commercial Paper Notes Financing Agreement between the City and U.S. Bank Trust National Association, as Deputy Registrar and Paying Agent (the "DRPA"), dated as of November 1, 2004 (the "CP Financing Agreement") and the Issuing and Paying Agent Agreement between the DRPA and the City, dated as of November 1, 2004 (the "IPA Agreement" and collectively with the Ordinance and the CP Financing Agreement, the "CP Authorizations"). The Ordinance provides that, in addition to certain other limitations, the City may not issue Notes if the principal amount of Notes outstanding, together with interest to accrue to maturity thereon, would exceed the Stated Amount available to be drawn under the Letter of Credit. As of May 15, 2008, the City will have $104,875,000 in outstanding notes issued under the Ordinance (the "Outstanding Notes"). Capitalized terms used in this Offering Memorandum but not defined herein have the meanings set forth in the Ordinance. Proceeds of the Notes will be used to (i) finance or refinance the cost of Projects authorized from time to time by ordinance of the Council for which proceeds of the Notes have been appropriated, (ii) pay obligations owed to the Bank resulting from draws on the Letter of Credit and (iii) pay the costs of issuance of the Notes. Terms and Form of the Notes THE NOTES The Notes shall be issued from time to time in accordance with the Ordinance. The Notes initially will be registered in the name of The Depository Trust Company ("DTC") or Cede & Co., its nominee, through the book-entry system described below and are payable at the offices of the DRPA, who also serves as the issuing and paying agent pursuant to the CP Financing Agreement and the IPA Agreement with the City. The City has authorized the issuance of Notes in the aggregate principal amount of up to $150,000,000 outstanding at any one time. The Ordinance provides that, in addition to certain other limitations, the City may not issue Notes if the principal amount of Notes outstanding, together with interest to accrue to maturity thereon, would exceed the Stated Amount available to be drawn under the Letter of Credit.

6 Pursuant to the terms of the Letter of Credit Reimbursement Agreement dated as of November 1, 2004 (the "Reimbursement Agreement") between the City and Landesbank Baden-Württemberg, acting through its New York Branch (the "Bank"), the Bank has committed to issue a letter of credit (the "Letter of Credit") in the amount of up to $161,095,891, of which $150,000,000 relates to principal and $11,095,891 relates to interest on the Notes. As of May 15, 2008, the Stated Amount of the Letter of Credit will be $112,632,876.71, of which $104,875, will be available to pay the principal amount of the Outstanding Notes and the Notes to be issued by the City and $7,757, will be available to pay interest thereon. The Notes shall be issued in denominations of $100,000 or integral multiples of $1,000 in excess thereof, and be payable on such dates as the City may establish, provided that (i) no Note shall mature later than the earlier of (a) 270 days from its date of issuance, or (b) one business day prior to the earlier of the Expiration Date or the next ensuing Optional Termination Date under the Letter of Credit, and (ii) no Note shall remain outstanding or be issued after, or extended or renewed beyond December 31, 2034 without the authorization of the Council. The Notes shall bear interest payable at maturity at an annual rate not exceeding the Maximum Rate and calculated on the basis of a 365/366 day year and actual days elapsed. As set forth in the CP Financing Agreement, the Maximum Rate, as to any Note, is ten percent per annum. The stated interest rate or yield, maturity date and other terms of the Notes shall be as set forth in the Issuance Request required by the CP Financing Agreement. The Notes are not subject to redemption prior to maturity. The Notes will be sold at a price of not less than their par amount. Security and Source of Payment for the Notes Pursuant to the terms of the Ordinance, the Notes are payable from and equally secured by a lien on and pledge of (i) proceeds of the Notes, (ii) amounts drawn under the Letter of Credit, (iii) the Pledged Funds, (iv) other amounts in certain funds established pursuant to the Ordinance, and (v) any other property pledged as additional security for the Notes. Pledged Funds are defined under the Ordinance to mean collectively, Excise Taxes and the Local Government Half Cent Sales Taxes. The pledge of Pledged Funds is junior and subordinate to the pledge of the Excise Taxes and Local Government Half Cent Sales Taxes to any and all outstanding and additional long term bonds and any Excise Taxes Senior Lien Hedge Obligations or Sales Taxes Senior Lien Hedge Obligations ("Senior Lien Debt") issued by the City and secured by a pledge of the Excise Taxes or Local Government Half Cent Sales Taxes which is senior to the pledge securing the Notes. The rights of the holders of the Notes to the Pledged Funds shall be subject and subordinate to the rights of the holders of the Senior Lien Debt, and shall rank on a parity with the rights of the holders of Parity Hedge Obligations and Additional Parity Notes ("Parity Debt") and the Reimbursement Obligations in accordance with the terms of the Ordinance. The Ordinance provides limitations on the issuance of Senior Lien Debt and Parity Debt. The City may not issue Parity Debt unless, as evidenced by an Accountant's Certificate, the Pledged Funds received during twelve (12) consecutive months within the most recent twenty-four (24) consecutive months immediately preceding the date of issuance of the Notes or 2

7 Senior Lien Debt is at least equal to 1.25x the combined Maximum Annual Debt Service on (1) all then outstanding Senior Lien Debt and (2) all such Senior Lien Debt which would be outstanding if, on the date of such certification, all Outstanding Notes were replaced by an equal principal amount of such Senior Lien Debt at then current interest rates, as determined by the City's financial advisor or an investment banking firm selected by the City, and maturing within thirty (30) years from the date of such certification in amounts such that the sum of principal and interest due in each year is substantially equal. The Ordinance provides the City may not issue Senior Lien Debt except (a) Excise Taxes Senior Lien Bonds issued as Additional Parity Obligations as defined in and issued pursuant to the Excise Taxes Bond Ordinances, (b) Hedge Obligations incurred under Excise Taxes Senior Lien Hedge Agreements ranking on a parity with Excise Taxes Senior Lien Bonds in compliance with the Excise Taxes Bond Ordinances, (c) Sales Tax Senior Lien Bonds issued as Additional Parity Bonds as defined in and issued pursuant to the Sales Tax Bond Ordinances, and (d) Hedge Obligations incurred under the Sales Tax Senior Lien Hedge Agreements raking on a parity with Sales Tax Senior Lien Bonds in compliance with the Sales Tax Bond Ordinances. The Excise Taxes Bond Ordinances include various requirements for and conditions to the issuance of additional parity debt thereunder, including certification that for 12 consecutive months within the 24 month period preceding the date of issuance of such additional debt, Excise Taxes and certain investment income is at least 1.4 times the maximum annual debt service on the outstanding debt under such Bond Ordinances and the additional debt proposed to be issued. The Sales Tax Bond Ordinances include various requirements for and conditions to the issuance of additional parity debt thereunder, including certification that for 12 consecutive months within the 18 month period preceding the date of issuance of such additional debt, Local Government Half Cent Sales Taxes and certain investment income is at least 1.35 times the maximum annual debt service on the outstanding debt under such Bond Ordinances and the additional debt proposed to be issued. See "THE CITY Indebtedness" for a description of current Senior Lien Debt and Parity Hedge Obligations of the City. THE NOTES ARE SPECIAL OBLIGATIONS OF THE CITY PAYABLE SOLELY FROM AND SECURED BY THE PLEDGED FUNDS, AS DESCRIBED HEREIN. THE NOTES SHALL NOT CONSTITUTE INDEBTEDNESS OF THE CITY OR THE STATE OF FLORIDA WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY LIMITATION OR PROVISION, AND NEITHER THE TAXING POWER OF THE CITY NOR THE STATE OF FLORIDA IS PLEDGED TO THE PAYMENT OF THE NOTES, EITHER AS TO PRINCIPAL OR INTEREST. The foregoing is a brief summary of the pledge provisions provided for under the Ordinance, and is not a complete description of the security for the Notes. The foregoing does not purport to be comprehensive or definitive and is subject to all of the terms and provisions of the Ordinance, and reference is made to the Ordinance for the detailed provisions thereof. Events of Default on the Notes Each of the following events constitutes an "Event of Default" under the Ordinance: 3

8 a) failure by the City to pay the principal of or interest on any Note as the same shall become due, or b) a failure by the City to observe and perform on any of the applicable covenants, agreements, conditions contained in the Ordinance, which failure shall continue for a period of 60 days after written notice, specifying such failure and requesting that it be remedied, shall have been given to the City by a Registered Owner of Notes or the Bank. LETTER OF CREDIT To ensure timely payment of the principal of and interest on the Notes, the City has obtained from the Bank a commitment to provide a Letter of Credit totaling $161,095,891. The City and the Bank have entered into the Letter of Credit Reimbursement Agreement, dated as of November 1, 2004 (the "Reimbursement Agreement") pursuant to which the Bank will issue an irrevocable direct pay Letter of Credit to the DRPA as beneficiary. On or before the date of maturity of any Note, the DRPA shall draw on the Letter of Credit in an amount equal to the amount due on the Notes at maturity. Pursuant to the CP Financing Agreement, all amounts received from any drawing on the Letter of Credit are required to be deposited in the Letter of Credit Subaccount of the Sinking Fund established thereunder and held in trust and set aside exclusively for the payment of the Notes, and the DRPA is required to apply such amounts to the payment of the Notes. The Stated Amount of the Letter of Credit is being increased to $112,632,876.71, which consists of $104,875, representing the aggregate principal amount of the Notes to be issued by the City and the Outstanding Notes and $7,757, representing interest thereon for a period of 270 days at the rate of 10% per annum computed on the basis of a year of 365 days and the actual days elapsed. Such Stated Amount may be increased from time to time pursuant to the Reimbursement Agreement, subject to certain conditions set forth therein. The Letter of Credit may be drawn upon by the DRPA to pay the principal amount of the maturing Notes plus accrued and unpaid interest due thereon. The total outstanding principal amount of Notes and accrued interest thereon may not exceed the Stated Amount. For information regarding the Bank, see Appendix A. Pursuant to the Reimbursement Agreement, the City is obligated to reimburse the Bank for all drawings honored by the Bank under the Letter of Credit and, if such drawings are not reimbursed on the same day as made, to pay interest to the Bank on the amounts of such unreimbursed drawings. Such reimbursement obligation of the City is evidenced by a promissory note issued to the Bank and secured by, and payable from, Pledged Funds and other pledged monies (excluding amounts drawn by the DRPA under the Letter of Credit) on a parity with the Notes. Alternate Credit Facility. The City may obtain an Alternate Credit Facility to replace the Credit Facility then in effect, which will be the Letter of Credit as of the initial date of issuance of the Notes. The Alternate Credit Facility shall go into effect at least one business day prior to the termination of the Credit Facility then in effect being substituted therefor. Any addition or substitution of a new Credit Facility Issuer for an existing Credit Facility Issuer whereby all or a 4

9 portion of such existing Credit Facility Issuer's liability is transferred to another Credit Facility Issuer without recourse shall constitute an Alternate Credit Facility. The Expiration Date with respect to each Alternate Credit Facility shall be no earlier than one year after the date of delivery of the Alternate Credit Facility. Each Alternate Credit Facility shall be in an amount sufficient to pay all Maturity Amounts scheduled to be paid on all Notes Outstanding under the Ordinance as of the date of such Alternate Credit Facility. As set forth in the CP Financing Agreement, further conditions to the DRPA's ability to release an existing Credit Facility and accept the Alternate Credit Facility therefor, include delivery of the following: (i) the City delivers written notice of the proposed substitution to the DRPA, the existing Credit Facility Issuer and each Dealer not less than 45 days prior to the proposed substitution date; (ii) written evidence from each Rating Agency then maintaining a rating on the Notes secured by the Credit Facility that the substitution of an Alternate Credit Facility will not, in and of itself, result in any rating then assigned to the Notes secured thereby being suspended, reduced or withdrawn; (iii) the DRPA shall deliver written notice of the substitution to the Registered Owners of the Notes secured thereby at least 30 days prior to the proposed substitution date; (iv) an opinion of counsel to the effect that the Alternate Credit Facility is a legal, valid and binding obligation of the substitute Credit Facility Issuer and is enforceable against the substitute Credit Facility Issuer in accordance with its terms; and (v) an opinion of Bond Counsel to the effect that the substitution of the Alternate Credit Facility is authorized thereunder and (with respect to Notes other than Taxable Notes) will not, in and of itself, adversely affect the exclusion from gross income for Federal tax purposes of interest on the Notes. Drawings. The Letter of Credit provides that drawings thereunder may be made by presentation of certain certificates by the DRPA to the Bank in accordance with the Letter of Credit. Upon receipt of any such certificate, complying in all respects with the terms and conditions of the Letter of Credit, the Bank is obligated to make payment of the related drawing under the Letter of Credit to the DRPA in immediately available funds. Upon the payment by the Bank of the amount specified in any drawing under the Letter of Credit, the Bank will be fully discharged of its obligation under the Letter of Credit with respect to such drawing and the Bank will not thereafter be obligated to make any further payments under the Letter of Credit in respect of such drawing to the DRPA or any other person or entity (including the holder of any Note). Only the DRPA may make drawings under the Letter of Credit. Reduction and Reinstatement. Each payment by the Bank under the Letter of Credit will reduce the amount available to be drawn under the Letter of Credit by the amount of such payment, subject to reinstatement as hereinafter described. With respect to drawings under the Letter of Credit to pay the principal of and interest on Notes at their stated maturity, upon receipt by the Bank of reimbursement of all or any portion of the amount of any drawing, pursuant to the terms of the Reimbursement Agreement, the Stated Amount shall be automatically reinstated by the amount reimbursed; provided, however, that no reinstatement of the Stated Amount of the Letter of Credit shall occur if the DRPA shall have received notice from the Bank stating that an Event of Default under the Reimbursement Agreement has occurred and is continuing. Termination. The Letter of Credit provides that the Bank's obligations thereunder will expire on the date (the "Termination Date") which is the earliest of the following dates: (i) December 29, 2015, or, if such day is not a Business Day, on the next preceding Business Day, as such date may, in the sole discretion of the Bank, be extended with a notice of extension 5

10 from the Bank to the DRPA and the City in the form attached to the Letter of Credit; (ii) the date on which a substitute Letter of Credit or other credit or liquidity facility is substituted for the Letter of Credit; (iii) ten days from the date the City receives notice from the Bank that an Event of Default has occurred under the Reimbursement Agreement and requesting that the City make a final drawing under the Letter of Credit to pay the principal of and accrued interest to maturity on all Notes Outstanding on the date of such final drawing; and (iv) the following Optional Termination Dates: November 4, 2010, if the Bank has delivered a Notice of Expiry to the DRPA on or before April 4, 2010; or November 4, 2013, if the Bank has delivered a Notice of Expiry to the DRPA on or before April 4, The foregoing is a brief summary of certain provisions of the Letter of Credit. The foregoing does not purport to be comprehensive or definitive and is subject to all of the terms and provisions of the Letter of Credit, and reference is made to the Letter of Credit for the definitive provisions thereof. Prospective Purchasers of the Notes should rely solely on the credit of the Bank and not the credit of the City in making an investment decision regarding possible purchase of the Notes. No representation is made by the City or the CP Dealer with respect to the accuracy of any information set forth above or in Appendix A hereto with respect to the Bank. Government THE CITY The City of Jacksonville established a consolidated government on October 1, 1968, which extends throughout the county land area, except that the cities of Atlantic Beach, Neptune Beach, Jacksonville Beach and the Town of Baldwin (referred to as the Second, Third, Fourth and Fifth Urban Services Districts, respectively) remain as urban services districts and each retaining its individual municipal charter. The City of Jacksonville, as so consolidated, is herein referred to as the "City." The City has grown from 39 square miles to 841 square miles and is the largest city in land area located in the contiguous United States. The territory of the consolidated government is divided into a General Services District, consisting of the total area of Duval County, and five urban services districts consisting of the areas within each of the Beaches Communities, the Town of Baldwin and the territory of the former, pre-consolidation City of Jacksonville. The consolidated government furnishes certain services in the General Services District, including airports, courts, electricity, fire protection, hospital, libraries, police protection, recreation and parks, schools, streets and highways and welfare; and all of the usual municipal services in the First Urban Services District (the preconsolidation former City of Jacksonville) and the former unincorporated area of Duval County, but specifically excluding the Beaches Communities and the Town of Baldwin. The charter for the consolidated government provides for the following elected officials: a mayor, 19 council members (14 elected by districts and 5 at large but residing in specified districts) who form the City's legislative body (the "Council"), seven school board members (elected by district), a sheriff as chief law enforcement officer, a property appraiser, a tax 6

11 collector, a clerk of the circuit and county courts, and a supervisor of elections. The Mayor is the chief executive and administrative officer of the consolidated government and is responsible for the appointment of city department heads who must be confirmed by the City Council. The Council has legislative powers, which are subject to veto by the Mayor. Excise Taxes The Excise Taxes consist of the Utilities Services Taxes (as described below) and the Occupational License Taxes (as described below) imposed, collected and received by the City. General. The Utilities Services Taxes are levied and collected under Section , Florida Statutes (the "Utilities Tax Statute"), Chapter 202, Florida Statutes and Chapters 790 and 792 of the Ordinance Code of the City, as amended and supplemented (the "UST Ordinances"). The term "Utilities Services Taxes" includes (1) the tax as levied and collected by the City on every purchase of electricity, gas (natural, liquefied petroleum gas or manufactured) and water service within the corporate limits of the City, except within the Second, Third, Fourth and Fifth Urban Services Districts, under the authority of Section , Florida Statutes; (2) the tax levied and collected by the City on every purchase of grades No. 1 (kerosene), No. 2 and No. 3 fuel oil within the corporate limits of the City except within the Second, Third, Fourth and Fifth Urban Services Districts (the "Fuel Oil Tax"); and (3) the Discretionary Communications Services Tax (as defined below) levied and collected by the City on communications services, as discussed below. The rate of the tax imposed on all utilities services (other than fuel oil and communications services) is 10% of the payments received by the seller of the utility services from the purchaser of such utility services, which tax, in every case, is required to be collected from the purchaser of such utility services within the City and paid by such purchaser at the time of the purchaser's paying the seller's charge, but not less often than monthly (except said tax on water service which may be collected on a quarterly basis). There are imposed on every purchase of fuel oil the Fuel Oil Tax at a rate of not to exceed four cents per gallon and taxes on communications services as described in "Communications Services Simplified Tax Act" below. The UST Ordinances provide that it is unlawful for any seller of utility services to collect the price of any such sale without, at the same time, collecting the tax thereby imposed and levied in respect to such purchaser. Any seller failing to collect such tax at the time of collecting the price of any purchase shall be liable to the City for the amount of such tax in like manner as if the same had actually been paid to the seller. The Utilities Tax Statute prohibits the imposition of the Utilities Services Taxes on (and the UST Ordinances exempt from taxation) any fuel adjustment charge, which includes any increase in the cost of utility services to the ultimate consumer resulting from an increase in the cost of fuel to the utility subsequent to October 1, Fuel adjustment charges are required to be separately stated on bills for utility services. Also pursuant to the Utilities Tax Statute, purchases of natural gas or fuel oil by a public or private utility, either for resale or for use as fuel in the generation of electricity, are exempt from taxation. 7

12 Pursuant to the UST Ordinances, sales of bottled water, purchases of fuel oil or kerosene for use as an aircraft engine fuel or propellant or for use in internal combustion engines, purchases by the United States, the State of Florida, the City and agencies, boards, commissions and authorities thereof, and purchases by recognized churches for exclusively church purposes are exempted from the Utilities Services Taxes. In addition, the Utilities Tax Statute, permits municipalities to exempt any amount, up to, and including, the first 500 kilowatt hours of electricity purchased per month for residential use and not less than 50 percent of the Utilities Services Taxes imposed on certain purchases of electrical energy located in enterprise zones. The City has implemented a 50 percent exemption from the Utilities Services Taxes imposed on electrical purchases by certain qualified businesses in a designated enterprise zone located in the northeast downtown section of the City for a period of five (5) years beginning not less than 30 days following notification to the applicable utility company that an exemption has been authorized by the Department of Revenue in accordance with Section , Florida Statutes, and Ordinance of the City (collectively, the "Enterprise Zone Act"). Pursuant to the Enterprise Zone Act, the City may grant additional exemptions from the Utilities Services Taxes imposed on electrical purchases to additional qualified businesses that locate within the City's northeast downtown enterprise zone, or other enterprise zones in the City hereafter designated as such pursuant to Florida law. The Utilities Services Taxes pledged to the payment of the Senior Lien Debt and the Notes do not include the similar taxes levied in the Second, Third, Fourth and Fifth Urban Services Districts. Communications Services Simplified Tax Act. The Communications Services Tax Simplification Act, enacted by Chapter , Laws of Florida, as amended by Chapter , Laws of Florida, and now codified in part as Chapter 202, Florida Statutes (the "CSTA") established, effective October 1, 2001, a communications services tax on the sale of communications services as defined in Section , Florida Statutes, and as of the same date repealed Section (9), Florida Statutes, which previously granted municipalities the authority to levy a utility services tax on the purchase of telecommunication services. Section , Florida Statutes, authorizes counties and municipalities to levy a discretionary communications services tax (i.e., the "Discretionary Communications Services Tax") on communications services, the revenues from which (i.e., the "Communications Services Tax Revenues") may be pledged for the repayment of current or future bonded indebtedness. Pursuant to Section , Florida Statutes, the Communications Services Tax was automatically levied at a statutory rate of 4.8% on October 1, 2001 without any action necessary by the City and automatically decreased to 4.5% on October 1, The City increased its rate to 5.1% pursuant to Ordinance E enacted on July 3, 2001 (the "CST Ordinance"). The CSTA also permits various add-on rates, which effectively permit municipalities to increase the rate. A municipality may increase its rates by 0.12% if the municipality does not charge permit fees for the installation and maintenance of wires in its rights-of-way (as is the case for the City). The City has elected in the CST Ordinance to impose this increase. Thus, the total Discretionary Communications Services Tax levied by the City is 5.22%. The Discretionary Communications Services Tax is levied on the purchase of "telecommunications service" which originated or terminated within the City of Jacksonville, 8

13 with certain exemptions. "Telecommunications service" was defined to be local telephone service, toll telephone service, telegram or telegraph service, teletypewriter service, private communication service, cellular mobile telephone or telecommunication service or specialized mobile radio, pagers and paging service, but excluding Internet access service, cable service, electronic mail service, electronic bulletin board service, or similar on-line computer service. Those portions of the Utilities Services Taxes which were formerly derived from telecommunications services and television cable services were impacted by the CSTA. The new local option tax on communication services provided for in the CSTA replaced those and other revenues previously received by governmental entities from the imposition of taxes and fees on telecommunication services. The CSTA does not, however, provide for a method of allocation of the Discretionary Communications Services Tax between the portion thereof which replaced those portions of the Utilities Services Tax which were derived from telecommunications services and television cable services and the portion thereof which replaced other fees previously collected by the City, including franchise fees imposed upon telecommunications and cable television service providers ("Communications Franchise Fees"). The City has previously pledged its revenues from certain utility franchise fees, including Communications Franchise Fees, to the payment of its Capital Improvement Revenue Bonds, Series 1994 (Gator Bowl Project), its Capital Improvement Revenue Bonds, Series 1995 (Gator Bowl Project), its Capital Improvement Revenue Bonds, Series 1997 (Gator Bowl Project), its Capital Improvement and Refunding Revenue Bonds, Series 1998 (Stadium Project), its Capital Improvement Revenue Bonds, Series 2002A, its Capital Improvement and Refunding Revenue Bonds, Crossover Series 2002B, its Capital Improvement and Refunding Revenue Bonds, Crossover Series 2002C and all bonds issued on a parity therewith (the "Franchise Fee Bonds"). It was necessary, therefore, that the City provide for an allocation of the Discretionary Communications Services Tax between the portion allocable to the replacement of the Utilities Services Tax (which is pledged to the payment of the Bonds) and the portion allocable to the replacement of the Communications Franchise Fees (which is pledged to the payment of the Franchise Fee Bonds). Because the CSTA provides no guidance related to such allocation, and no such guidance has been provided by regulation or court interpretation, the City, in Ordinance No E enacted on November 13, 2001, created an allocation (85% allocable to the Utilities Services Tax and 15% allocable to the Communications Franchise Fees) based upon a proration of the total aggregate amount of Utilities Services Tax and Communications Franchise Fees received in calendar year 1999, which is the "base year" utilized in the CSTA for the calculation of initial rates for the Discretionary Communications Services Tax. It is possible that the CSTA could be amended to provide for some other allocation or that a court, in the future, could interpret the CSTA to require a different allocation. In such case, the City will apply the allocation mandated by law. The following outlines certain of the provisions of the CSTA. As noted above, the CSTA is extensive and the following descriptions are not, and are not intended to be, comprehensive or definitive. The full text of the CSTA has been codified as Chapter 202, Florida Statutes. One effect of the CSTA was to replace the former telecommunications tax, including prepaid calling arrangements, as well as any revenues from franchise fees on cable and telecommunication service providers and permit fees relating to placing or maintaining facilities 9

14 in rights-of-way collected from providers of certain telecommunications services, with the local communications services tax. This change in law was intended to be revenue neutral to the counties and municipalities. The Communications Services Tax is applied to a broader base of communications services than the former telecommunications tax. "Communication services" are defined as the transmission, conveyance, or routing of voice, data, audio, video, or any other information or signals, including cable services, to a point, or between or among points, by or through any electronic, radio, satellite, cable, optical, microwave, or other medium or method now in existence or hereafter devised, regardless of the protocol used for such transmission or conveyance. The term does not include: (a) (b) (c) (d) (e) (f) (g) Information services. Installation or maintenance of wiring or equipment on a customer's premises. The sale or rental of tangible personal property. The sale of advertising, including, but not limited to, directory advertising. Bad check charges. Late payment charges. Billing and collection services. (h) Internet access service, electronic mail service, electronic bulletin board service, or similar on-line services. However, such services have historically been taxed if the charges for such services are not stated separately, on a customer's bill, from the charges for communications services. The sale of communications services to (i) the federal government, or any instrumentality or agency thereof, or any entity that is exempt from state taxes under federal law, (ii) the state or any county, municipality or political subdivision of the state when payment is made directly to the dealer by the governmental entity, and (iii) any educational institution (which includes state tax-supported and nonprofit private schools, colleges and universities and nonprofit libraries, art galleries and museums, among others) or religious institutions (which includes, but is not limited to, organizations having an established physical place for worship at which nonprofit religious services and activities are regularly conducted) that is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code") is exempt from the Communications Services Tax. The CSTA provides that, to the extent that a provider of communications services is required to pay a tax, charge, or other fee under any franchise agreement or ordinance with respect to the services or revenues that are also subject to the Communications Services Tax, such provider is entitled to a credit against the amount of such Communications Services Tax payable to the State in the amount of such tax, charge, or fee with respect to such service or revenues. 10

15 Under the CSTA, local governments must work with the Florida Department of Revenue (the "FDOR") to properly identify service addresses to each municipality and county. If a jurisdiction fails to provide the FDOR with accurate service address information, the local government risks losing tax proceeds that it should properly receive. The City believes it has provided the FDOR with all information that the FDOR has requested as of the date hereof and that such information is accurate. Providers of communications services collect the local Communications Services Tax and may deduct 0.75% as a collection fee (or 0.25% in the case of providers who do not employ an enhanced zip code database or a data base that is either supplied or certified by the FDOR). The communications providers remit the remaining proceeds to the FDOR for deposit into the Local Communications Services Tax Clearing Trust Fund (the "Trust Fund"). The FDOR then makes monthly contributions from the Trust Fund to local governments after deducting up to 1% of the total revenues generated as an administrative fee. The Communications Services Tax which the City has pledged does not include revenues received pursuant to Section , Florida Statutes. Federal Legislation Affecting the Discretionary Communications Services Tax. The federal Internet Tax Freedom Act ("ITFA") imposes a moratorium on taxation of Internet access by states and political subdivisions. As amended by the Internet Tax Nondiscrimination Act ("ITNA"), the ITFA may have a material adverse effect upon future collections of the Communications Services Tax Revenues. Signed by President George W. Bush on December 3, 2004, the ITNA extends the ITFA until November 1, The ITFA expired November 1, 2003, but the changes in the ITNA were made retroactively effective to that date. Federal legislation has been proposed to permanently eliminate the expiration date of the ITFA. However, no such legislation has been passed. "Internet access" as amended by the ITNA now includes telecommunications services "purchased, used, or sold by a provider of Internet access to provide Internet access." Additionally, the ITFA allows providers of communication services to exclude from taxation charges for Internet access services which are bundled for a single price with taxable communication services. Providers opting to exempt these charges can do so based on their books and records kept in the normal course of business. Prior to December 3, 2004, under the CSSA, according to the Florida Department of Revenue, when charges for Internet access services are not separately stated on a customer's bill, the entire charge is taxed, regardless of whether the charge includes Internet access or telecommunications services used to provide Internet access. The negative impact on future collections of Communications Services Tax Revenues because of the ITNA cannot be determined at this time. The amount of Communications Services Tax Revenues received by the City is subject to increase or decrease due to (i) increases or decreases in the dollar volume of taxable sales within the City, (ii) legislative changes, and/or (iv) technological advances which could affect consumer preferences, such as Voice over Internet Protocol ("VoIP"). VoIP is a less expensive technology that allows telephone calls to be made in digital form using a broadband Internet connection, rather than an analog phone line, and has the potential to supplant traditional telephone service. It is possible that VoIP could either reduce the dollar volume of taxable sales within the City or will be a nontaxable service altogether. Regarding any potential legislative changes, the contract clause of the Florida and United States Constitutions should prevent the State from adopting 11

16 legislation to amend the CSSA in a manner that would impair the contractual obligations of the City to Bondholders pursuant to the Ordinance. Following is a record of Utilities Services Taxes, excluding the Fuel Oil Tax, collected by the City for the five fiscal years ended September 30, 2003 through 2007 and for the first six months of the and fiscal years: Utilities Services Taxes (1) (in thousands) Fiscal Year Ended September 30 (Audited) JEA (Electric) (2) $45,982 $45,740 $46,851 $48,131 $47,738 JEA (Water) 5,660 6,162 6,384 7,748 8,848 Telecommunications 35,186 34,896 36,844 38,229 38,019 (All Sources) Peoples Gas ,230 1,390 Miscellaneous 1,954 1,912 2,093 1,946 1,838 TOTAL $89,459 $89,364 $92,848 $97,284 $97,833 (1) Excludes Fuel Oil Tax. (2) Electricity purchases only. Source: City of Jacksonville, Comprehensive Annual Financial Report for the Fiscal Year ended September 30, First 6 Months FY First 6 Months FY Percent Change JEA (Electric) (1) $18,102 $21,245 17% JEA (Water) 4,143 4,354 5 Telecommunications 9,184 12, Peoples Gas (56) Miscellaneous 934 1, Total $33,181 $40,077 21% (1) Electricity purchases only. Source: City of Jacksonville, Department of Administration and Finance. The JEA, an independent authority which provides electric and water and sewer utilities services, recently approved a series of electric base rate increases, the first in over a decade. The increases will be phased in, and began with a 6.5% increase effective October 1, 2007, and will be followed by 5.5%, 5.3%, and 3% increases respectively effective on October 1 in the years 2009 through In addition, on October 1, 2007, the JEA implemented the last of three 7% annual water and sewer rate increases. The Utilities Services Taxes are levied on payments received by the seller of utility services, accordingly to the extent these rate increases generate additional revenues to the JEA, the Utilities Services Taxes may also increase. 12

17 Following is a record of the Fuel Oil Tax portion of the Utilities Services Taxes collected by the City during the past five fiscal years ended September 30, 2003 through 2007 and for the first six months of the and fiscal years: Fuel Oil Tax (in thousands) Fiscal Year Ended September 30 (audited) Fuel Oil Tax $163 $107 $113 $229 $92 First 6 Months FY First 6 Months FY Percent Change Fuel Oil Tax Collection $70 $35 (50)% Source: City of Jacksonville, Department of Administration and Finance. Over the past years there has been a significant decrease in fuel oil consumption. Through conservation methods and the modernization of heating and air conditioning systems by residents and industry, the reliance upon fuel oil-based systems has been greatly reduced. Most existing residential and industrial systems, as well as systems associated with new construction, now rely on electric power. Occupational License Taxes. The Occupational License Taxes authorized by Chapters 166 and 205, Florida Statutes, are composed of the proceeds of the tax levied and collected by the City pursuant to Sections and , Florida Statutes, and Chapters 770 and 772 of the Ordinance Code of the City, as amended and supplemented, imposing occupational license taxes upon businesses, professions and occupations operated and conducted within the corporate limits of the City, except all such municipal occupational license taxes which are collected with respect to businesses operated in the Second, Third, Fourth and Fifth Urban Services Districts. The Occupational License Taxes are imposed annually at various rates for different businesses, professions and occupations. Chapters 770 and 772 of the Ordinance Code of the City prohibit a person from engaging in or managing a business, profession or occupation in the City for which an occupational license is required pursuant to such chapters unless such a license is procured from the Tax Collector. The occupational licenses are sold by September 1 of each year, the taxes for which are due and payable October 1 of each year. Such licenses expire on September 30 of the succeeding year. A person not liable for a tax in the first half of the year may obtain a license for the second half of the year at one-half of the applicable tax rate. Excluded from the Occupational License Taxes are customary religious, charitable or educational activities of non-profit religious, charitable and educational institutions in the State. 13