$10,440,000 CITY OF ST. AUGUSTINE, FLORIDA CAPITAL IMPROVEMENT REFUNDING REVENUE BONDS, SERIES 2011B

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1 NEW ISSUE - BOOK ENTRY ONLY SEE RATINGS herein. In the opinion of Bond Counsel, assuming compliance by the City with certain covenants, under existing statutes, regulations, and judicial decisions, the interest on the Bonds will not be included in the gross income for federal income tax purposes of the holders thereof and will not be an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. However, interest on the Bonds is taken into account in determining adjusted current earnings for purposes of computing the alternative minimum tax on corporations. See TAX MATTERS herein for a description of other tax consequences to holders of the Bonds. $10,440,000 CITY OF ST. AUGUSTINE, FLORIDA CAPITAL IMPROVEMENT REFUNDING REVENUE BONDS, SERIES 2011B Dated: Date of Delivery Due: October 1 in each year, as shown on the inside cover The City of St. Augustine, Florida (the City ) is issuing its Capital Improvement Refunding Revenue Bonds, Series 2011B (the Bonds ) as fully registered bonds, which initially will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ( DTC ). Individual purchases will be made in book-entry form only in denominations as described herein. Purchasers of the Bonds (the Beneficial Owners ) will not receive physical delivery of the Bonds. Transfer of ownership in the Bonds will be effected through DTC s book-entry system as described herein. As long as Cede & Co. is the registered owner as nominee of DTC, principal and interest payments will be made directly to such registered owner which will in turn remit such payments to the Participants (as defined herein) for subsequent disbursement to the Beneficial Owners. Interest on the Bonds is payable on April 1 and October 1 of each year, commencing April 1, Principal of the Bonds is payable, when due, to the registered owners upon presentation and surrender at the designated corporate office of Wells Fargo Bank, National Association, Jacksonville, Florida, as Registrar and Paying Agent. All payments of principal of, redemption premium, if applicable, and interest on the Bonds shall be payable in lawful money of the United States of America. Certain of the Bonds are subject to redemption prior to their stated dates of maturity as stated herein. The Bonds are being issued pursuant to the authority of and in full compliance with the Constitution and laws of the State of Florida, including, particularly, Chapter Laws of Florida, Special Acts of 1925, as amended, Chapter 166, Part II, Florida Statutes, and other applicable provisions of law (the Act ) and pursuant to Resolution No adopted by the City Commission of the City (the Commission ) on September 26, 2011, as amended and supplemented from time to time, and as particularly supplemented by Resolution No adopted by the Commission on September 26, 2011 (collectively, the Resolution ). All terms used herein in capitalized form and not otherwise defined shall have the meanings ascribed thereto in the Resolution. Pursuant to the Resolution, the City covenants and agrees to appropriate in its annual budget, by amendment if necessary, for each Fiscal Year in which the Bonds remain Outstanding, sufficient amounts of Non-Ad Valorem Revenues into the Debt Service Fund for the payment of principal of and interest on the Bonds and to make certain other payments required under the Resolution in each such Fiscal Year. Pledged Funds consist of (1) Non-Ad Valorem Revenues budgeted and appropriated, and deposited into the Debt Service Fund, and (2) until applied in accordance with the Resolution, all moneys, including the investments thereof, in the funds and accounts established in the Resolution, with the exception of the Rebate Fund. The obligation of the City to make such payments from its Non Ad Valorem Revenues is subject in all respects to the payment of obligations secured by a pledge of such Non-Ad Valorem Revenues or a covenant to budget and appropriate NonAd Valorem Revenues heretofore or hereafter entered into (including the payment of debt service on bonds and other debt instruments), and funding requirements for essential public purposes affecting health, welfare and safety of the inhabitants of the City; however, such obligation is cumulative and would carry over from Fiscal Year to Fiscal Year, as more fully described herein and in the Resolution. Notwithstanding the foregoing, the City has not covenanted to maintain or continue any activities, services or programs now maintained or provided by the City, including those programs and services which generate user fees, regulatory fees or Non-Ad Valorem Revenues. For more information, see SECURITY FOR THE BONDS and DEBT SERVICE REQUIREMENTS herein. THE BONDS SHALL NOT BE OR CONSTITUTE GENERAL OBLIGATIONS OR INDEBTEDNESS OF THE CITY AS BONDS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY PROVISION, BUT SHALL BE SPECIAL OBLIGATIONS OF THE CITY, PAYABLE SOLELY FROM AND SECURED BY A LIEN UPON AND PLEDGE OF THE PLEDGED FUNDS. NO HOLDER OF ANY BOND SHALL EVER HAVE THE RIGHT TO COMPEL THE EXERCISE OF ANY AD VALOREM TAXING POWER TO PAY SUCH BOND, FOR THE PAYMENT OF ANY AMOUNTS PAYABLE UNDER THE RESOLUTION, OR IN ORDER TO MAINTAIN ANY SERVICES OR PROGRAMS THAT GENERATE NON-AD VALOREM REVENUES, OR BE ENTITLED TO PAYMENT OF SUCH BOND FROM ANY MONEYS OF THE CITY EXCEPT FROM THE PLEDGED FUNDS IN THE MANNER PROVIDED IN THE RESOLUTION. The Bonds are being issued for the purpose of (i) currently refunding the Refunded Bonds (as defined herein) and (ii) paying certain costs of issuance incurred with respect thereto, including the premium for a Municipal Bond Insurance Policy. The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Bonds by Assured Guaranty Municipal Corp. (the Insurer ). See MUNICIPAL BOND INSURANCE POLICY herein. This cover page contains certain information for quick reference only. It is not, and is not intended to be, a summary of this issue. Investors must read the entire Official Statement to obtain information essential to making an informed investment decision. The Bonds are offered when, as, and if issued and received by the Underwriter, subject to the opinion on certain legal matters relating to their issuance by Bryant Miller Olive P.A., Tampa, Florida, Bond Counsel. Certain legal matters will be passed upon for the City by Ronald W. Brown, Esq., St. Augustine, Florida, City Attorney and Bryant Miller Olive P.A., Tallahassee, Florida, Disclosure Counsel. It is expected that the Bonds in definitive form will be available for delivery to the Underwriter in New York, New York at the facilities of DTC on or about December 28, Dated: December 14, 2011

2 $10,440,000 CITY OF ST. AUGUSTINE, FLORIDA CAPITAL IMPROVEMENT REFUNDING REVENUE BONDS, SERIES 2011B MATURITIES, AMOUNTS, INTEREST RATES, YIELDS AND INITIAL CUSIP NUMBERS $5,130,000 Serial Bonds Maturity (October 1) Amount Interest Rate Yield Initial CUSIP Numbers * 2012 $430, % 0.95% AX , AY , AZ , BA , BB , BC , BD , BE , BF , BG1 $1,025, % Term Bonds due October 1, 2023 Yield 3.78% - Initial CUSIP Number BH9 * $1,100, % Term Bonds due October 1, 2025 Yield 4.12% - Initial CUSIP Number BJ5 * $1,195, % Term Bonds due October 1, 2027 Yield 4.29% - Initial CUSIP Number BK2 * $1,990, % Term Bonds due October 1, 2030 Yield 4.52% - Initial CUSIP Number BL0 * * The City is not responsible for the use of the CUSIP Numbers referenced herein nor is any representation made by the City as to their correctness. The CUSIP Numbers provided herein are included solely for the convenience of the readers of this Official Statement.

3 CITY OF ST. AUGUSTINE, FLORIDA 75 King St. St. Augustine, FL MEMBERS OF THE CITY COMMISSION Joseph L. Boles, Mayor-Commissioner Leanna Freeman, Vice-Mayor-Commissioner Errol D. Jones, Commissioner Nancy Sikes-Kline, Commissioner William "Bill" Leary, Commissioner CITY OFFICIALS John P. Regan, City Manager Alison Ratkovic, City Clerk Mark Litzinger, City Comptroller Meredith Breidenstein, Financial Services Group Manager Ronald W. Brown, Esq., City Attorney BOND COUNSEL Bryant Miller Olive P.A. Tampa, Florida DISCLOSURE COUNSEL Bryant Miller Olive P.A. Tallahassee, Florida AUDITOR Masters, Smith & Wisby, P.A. Ponte Vedra Beach, Florida

4 No dealer, broker, salesman or other person has been authorized by the City to give any information or to make any representations in connection with the Bonds, other than as contained in this Official Statement, and, if given or made, such information or representations must not be relied upon as having been authorized by the City. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been obtained from the City, DTC, the Insurer and other sources that are believed to be reliable, but is not guaranteed as to accuracy or completeness by and is not to be construed as a representation by the City or the Underwriter with respect to any information provided by others. The information and expressions of opinion stated herein are subject to change, and neither the delivery of this Official Statement nor any sale made hereunder shall create, under any circumstances, any implication that there has been no change in the matters described herein since the date hereof. THE INFORMATION RELATING TO THE INSURER CONTAINED HEREIN HAS BEEN FURNISHED BY THE INSURER. NO REPRESENTATION IS MADE BY THE CITY NOR THE UNDERWRITER AS TO THE ACCURACY OR ADEQUACY OF SUCH INFORMATION OR THAT THERE HAS NOT BEEN ANY MATERIAL ADVERSE CHANGE IN SUCH INFORMATION SUBSEQUENT TO THE DATE OF SUCH INFORMATION. NEITHER THE CITY NOR THE UNDERWRITER HAS MADE ANY INVESTIGATION INTO THE FINANCIAL CONDITION OF THE INSURER, AND NO REPRESENTATION IS MADE AS TO THE ABILITY OF THE INSURER TO MEET ITS OBLIGATIONS UNDER THE MUNICIPAL BOND INSURANCE POLICY. The Insurer makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, the Insurer has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Insurer, supplied by the Insurer, and presented under the heading "MUNICIPAL BOND INSURANCE POLICY" and in "APPENDIX F SPECIMEN MUNICIPAL BOND INSURANCE POLICY" attached hereto. IN CONNECTION WITH THIS OFFERING OF THE BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH BONDS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. All summaries herein of documents and agreements are qualified in their entirety by reference to such documents and agreements, and all summaries herein of the Bonds are qualified in their entirety by reference to the form thereof included in the aforesaid documents and agreements. NO REGISTRATION STATEMENT RELATING TO THE BONDS HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR WITH ANY STATE SECURITIES COMMISSION. IN MAKING ANY INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATIONS OF THE CITY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE BONDS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR ANY STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. THE FOREGOING AUTHORITIES HAVE NOT PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE.

5 TABLE OF CONTENTS Page INTRODUCTION... 1 General... 1 The City... 1 Authority for and Purpose of Issuance... 1 Security for the Bonds... 2 Description of the Bonds... 3 Tax Matters... 3 Continuing Disclosure... 3 Other Obligations Payable from Non-Ad Valorem Revenues... 3 Issuance of Bonds or Other Obligations Payable from Non-Ad Valorem Revenues... 4 Municipal Bond Insurance... 4 Other Information... 4 AUTHORITY AND PURPOSE OF THE BONDS... 4 PLAN OF REFUNDING... 4 DESCRIPTION OF THE BONDS... 5 General... 5 Book-Entry-Only System... 5 Redemption Provisions... 8 Bonds Mutilated, Destroyed, Stolen or Lost SECURITY FOR THE BONDS General No Reserve Fund Anti-Dilution No Impairment Investments MUNICIPAL BOND INSURANCE POLICY Municipal Bond Insurance Policy Assured Guaranty Municipal Corp MUNICIPAL BOND INSURANCE RISK FACTORS ESTIMATED SOURCES AND USES OF FUNDS DEBT SERVICE REQUIREMENTS GENERAL INFORMATION REGARDING NON-AD VALOREM REVENUES General Taxes Intergovernmental Revenues Licenses and Permits Charges for Services Fines and Forfeitures Miscellaneous Revenues Future Financing Plans CERTAIN FINANCIAL MATTERS Investment Policy Financial and Operating Plan (Budget) and Capital Program Financial Reporting i

6 General Fund Classification of Local Government Expenditures LIABILITIES OF THE CITY Insurance Considerations Affecting the City Ability to be Sued, Judgments Enforceable Direct Debt PENSION AND OTHER POST EMPLOYMENT BENEFIT PLANS General Employees' Retirement System Police Officers' Retirement System Firefighters' Retirement System Recent Legislative Changes Affecting the Pension Systems Other Post-Employment Benefit Plan Tax-Deferred Compensation Plan FLORIDA CONSTITUTIONAL LIMITATIONS AND PROPERTY TAX REFORM LEGAL MATTERS LITIGATION TAX MATTERS General Tax Treatment of Original Issue Discount for the Bonds Tax Treatment of Bond Premium for the Bonds Information Reporting and Backup Withholding Other Tax Matters Relating to the Bonds UNDERWRITING RATINGS AUDITED FINANCIAL STATEMENTS CONTINUING DISCLOSURE DISCLOSURE REQUIRED BY FLORIDA BLUE SKY REGULATIONS ENFORCEABILITY OF REMEDIES CONTINGENT FEES ACCURACY AND COMPLETENESS OF OFFICIAL STATEMENT AUTHORIZATION OF AND CERTIFICATION CONCERNING OFFICIAL STATEMENT APPENDICES: APPENDIX A: General Information Concerning the City of St. Augustine, Florida APPENDIX B: Comprehensive Annual Financial Report for Fiscal Year Ended September 30, 2010 APPENDIX C: Form of Bond Resolution APPENDIX D: Form of Bond Counsel Opinion APPENDIX E: Form of Continuing Disclosure Certificate APPENDIX F: Specimen Municipal Bond Insurance Policy ii

7 OFFICIAL STATEMENT relating to $10,440,000 CITY OF ST. AUGUSTINE, FLORIDA CAPITAL IMPROVEMENT REFUNDING REVENUE BONDS, SERIES 2011B INTRODUCTION General This Official Statement, including the cover page and the appendices hereto, is furnished with respect to the sale of $10,440,000 aggregate principal amount of Capital Improvement Refunding Revenue Bonds, Series 2011B (the "Bonds") issued by the City of St. Augustine, Florida (the "City"). This introduction is not, and is not intended to be, a summary of this Official Statement. It is only a brief description of, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page, inside cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the Bonds is made only by means of this Official Statement and is subject in all respects to the information contained herein. The City The City was established in 1925 by Special Legislative Act of the Florida Legislature. The City is a full-service municipality located within the boundaries of St. Johns County (the "County"). The City operates under a "City Manager" form of government. Five commission members, including the Mayor-Commissioner, are elected at large on a non-partisan basis. Four of the seats are staggered fouryear terms with the Mayor-Commissioner's seat elected every two years. The City Commission of the City (the "Commission") appoints the City Manager who directs the business of the City and its various departments. The Commission determines policy, enacts legislation, approves the budget, sets taxes and appoints the City Attorney, the City Clerk and members of various boards and committees. For additional information concerning the City, see "General Information Concerning the City of St. Augustine, Florida" appended hereto as APPENDIX A. Authority for and Purpose of Issuance The Bonds are being issued pursuant to the authority of and in full compliance with the Constitution and laws of the State of Florida (the "State"), including particularly Chapter Laws of Florida, Special Acts of 1925, as amended; Chapter 166, Part II, Florida Statutes, and other applicable provisions of law (the "Act"); and pursuant to Resolution No adopted by the Commission on September 26, 2011, as amended or supplemented from time to time, and as particularly supplemented by Resolution No adopted by the Commission on September 26, 2011 (collectively, the "Resolution"). All terms used herein in capitalized form and not otherwise defined have the meanings ascribed thereto in the Resolution. For a complete description of the terms and conditions of the Bonds, reference is made to "APPENDIX C Form of Resolution" attached hereto.

8 The Bonds are being issued for the purpose of (i) currently refunding all of the City's outstanding Public Service Tax and Guaranteed Entitlement Revenue Refunding and Improvement Bonds, Series 2001 (the "Refunded Bonds"), and (ii) paying certain costs of issuance incurred with respect thereto, including the premium for a Municipal Bond Insurance Policy. The proceeds of the Refunded Bonds were used to finance (i) the current refunding of the City's outstanding Public Service Tax and Guaranteed Entitlement Revenue Refunding and Improvement Bonds, Series 1992, (ii) the acquisition, relocation, construction and/or equipping of a parking garage, a fire station and related facilities on different sites of the City and other capital projects of the City, (iii) the capitalization of interest on a portion of the Refunding Bonds, (iv) the purchase of a surety bond to fund the Reserve Account relating to the Refunded Bonds, and (v) the cost of issuance with respect to the Refunded Bonds. Security for the Bonds The Bonds and the interest thereon are secured by and payable solely from (1) Non-Ad Valorem Revenues budgeted and appropriated by the City in accordance with the Resolution and deposited into the Debt Service Fund, and (2) until applied in accordance with the provisions of the Resolution, all moneys, including the investments thereof, in the funds and accounts established under the Resolution, with the exception of the Rebate Fund (collectively the "Pledged Funds"). Pursuant to the Resolution, the City covenants and agrees to appropriate in its annual budget, by amendment if necessary, for each Fiscal Year in which the Bonds remain Outstanding, sufficient amounts of Non-Ad Valorem Revenues into the Debt Service Fund for the payment of principal of and interest on the Bonds and to make certain other payments required under the Resolution in each such Fiscal Year. Such covenant and agreement on the part of the City shall be cumulative and shall continue until all payments of principal of and interest on the Bonds shall have been budgeted, appropriated, deposited and actually paid. No lien upon or pledge of such budgeted Non-Ad Valorem Revenues shall be in affect until such monies are budgeted, appropriated and deposited as provided in the Resolution. The City does not covenant to maintain or continue any activities, services or programs now maintained or provided by the City, including those programs and services which generate user fees, regulatory fees or Non-Ad Valorem Revenues. This covenant and agreement shall not be construed as a limitation on the ability of the City to pledge all or a portion of such Non-Ad Valorem Revenues or to covenant to budget and appropriate Non-Ad Valorem Revenues for other legally permissible purposes. Nothing in the Resolution shall be deemed to pledge ad valorem tax revenues or to permit or constitute a mortgage or lien upon any assets owned by the City and no Holder of the Bonds or other person may compel the levy of ad valorem taxes on real or personal property within the boundaries of the City for the payment of the City's obligations hereunder or to maintain or continue any activities, services or programs now maintained or provided by the City, including those programs and services which generate user fees, regulatory fees or Non-Ad Valorem Revenues. The Resolution defines Non-Ad Valorem Revenues as all revenues of the City not derived from ad valorem taxation, and which are lawfully available to be used to pay debt service on the Bonds. See "SECURITY FOR THE BONDS" and "DEBT SERVICE REQUIREMENTS" herein. THE BONDS SHALL NOT BE OR CONSTITUTE GENERAL OBLIGATIONS OR INDEBTEDNESS OF THE CITY AS "BONDS" WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY PROVISION, BUT SHALL BE SPECIAL OBLIGATIONS OF THE CITY, PAYABLE 2

9 SOLELY FROM AND SECURED BY A LIEN UPON AND PLEDGE OF THE PLEDGED FUNDS. NO HOLDER OF ANY BOND SHALL EVER HAVE THE RIGHT TO COMPEL THE EXERCISE OF ANY AD VALOREM TAXING POWER TO PAY SUCH BOND, FOR THE PAYMENT OF ANY AMOUNTS PAYABLE UNDER THE RESOLUTION, OR IN ORDER TO MAINTAIN ANY SERVICES OR PROGRAMS THAT GENERATE NON-AD VALOREM REVENUES, OR BE ENTITLED TO PAYMENT OF SUCH BOND FROM ANY MONEYS OF THE CITY EXCEPT FROM THE PLEDGED FUNDS IN THE MANNER PROVIDED IN THE RESOLUTION. See "SECURITY FOR THE BONDS" herein. Description of the Bonds Denominations. The Bonds will be issued in denominations of $5,000 or any integral multiple thereof. See "DESCRIPTION OF THE BONDS General" herein. Early Redemption. Certain of the Bonds are subject to redemption prior to their stated dates of maturity as stated herein. See "DESCRIPTION OF THE BONDS Redemption Provisions" herein for a further description of early redemption. Registration and Transfers. Transfer of ownership in the Bonds will be effected through The Depository Trust Company ("DTC") book-entry system as described herein. As long as Cede & Co. is the registered owner as nominee of DTC, principal and interest payments will be made directly to such registered owner which in turn is to remit such payments to the Participants (as hereinafter defined) for subsequent disbursement to the Beneficial Owners (as hereinafter defined). See "DESCRIPTION OF THE BONDS Book-Entry-Only System" herein. Tax Matters In the opinion of Bryant Miller Olive P.A., Bond Counsel, under existing law and assuming compliance with certain arbitrage rebate and other tax requirements referred to herein, interest on the Bonds is excludable from gross income for federal income tax purposes and interest on the Bonds will not be treated as an item of tax preference for purposes of the alternative minimum tax on individuals and corporations; however, such interest will be includable in the calculation of certain corporations' alternative minimum taxable income. See "TAX MATTERS" herein. Continuing Disclosure The City has agreed and undertaken, for the benefit of Bondholders, to provide certain financial information and operating data relating to the City, the Pledged Funds, and the Bonds pursuant to Rule 15c2-12 of the Securities and Exchange Commission. See "CONTINUING DISCLOSURE" herein. Other Obligations Payable from Non-Ad Valorem Revenues The City has other debt issues outstanding which are secured by and payable from specific nonad valorem revenues, and debt obligations outstanding which are secured by a covenant to budget and appropriate legally available non-ad valorem revenues, which is the same source of security as for the Bonds. See the table entitled "CITY OF ST. AUGUSTINE, FLORIDA DEBT SERVICE SCHEDULE FOR NON-AD VALOREM REVENUE OBLIGATIONS" and see "GENERAL INFORMATION REGARDING NON-AD VALOREM REVENUES General" herein. 3

10 Issuance of Bonds or Other Obligations Payable from Non-Ad Valorem Revenues The City may issue additional obligations in the future payable from the Non-Ad Valorem Revenues of the City subject to certain covenants restricting such ability set forth in the Resolution. See "SECURITY FOR THE BONDS Anti-Dilution Test" herein and "APPENDIX C Form of Resolution" attached hereto. Municipal Bond Insurance Concurrently with the issuance of the Bonds, Assured Guaranty Municipal Corp. (the "Insurer") will issue the Municipal Bond Insurance Policy for all of the Bonds. The Municipal Bond Insurance Policy guarantees the scheduled payment of principal of and interest on the Bonds when due as set forth in the form of the Municipal Bond Insurance Policy included as an exhibit to this Official Statement. See "MUNICIPAL BOND INSURANCE POLICY" herein and "APPENDIX F Specimen Municipal Bond Insurance Policy" attached hereto. Other Information This Official Statement speaks only as of its date, and the information contained herein is subject to change. Copies of the Resolution and other documents and information are available, upon request and upon payment to the City of a charge for copying, mailing and handling, from the Clerk of the Commission, Alison Ratkovic, City Hall, 75 King Street, (2nd floor, Elevator "B"), St. Augustine, Florida 32085, telephone (904) For a complete description of the terms and conditions of the Bonds, reference is made to the Resolution, a form of which is included in "APPENDIX C Form of Resolution" attached hereto. The description of the Resolution, the Bonds and information from reports contained herein do not purport to be comprehensive or definitive. AUTHORITY AND PURPOSE OF THE BONDS The Bonds are being issued pursuant to the authority of and in full compliance with the Act, and pursuant to the Resolution. The Bonds are being issued for the purpose of (i) currently refunding the Refunded Bonds, and (ii) paying certain costs of issuance incurred with respect thereto. PLAN OF REFUNDING The Refunded Bonds were issued pursuant to a resolution adopted by the City Commission of the City on May 13, 1992 (as amended and supplemented, the "Refunded Bonds Resolution"). The City has determined that it can achieve a present value net debt service savings by providing for the current refunding of Refunded Bonds. The Refunded Bonds will be called for redemption on February 1, 2012 at a redemption price of 101% of the principal amount to be redeemed, plus accrued interest thereon. Upon delivery of the Bonds, Wells Fargo Bank, National Association, Jacksonville, Florida (the "Escrow Agent") will enter into an Escrow Deposit Agreement (the "Escrow Agreement") with the City 4

11 relating to the Refunded Bonds. The Escrow Agreement will create an irrevocable escrow deposit fund (the "Escrow Fund"), which will be held by the Escrow Agent, and the money held therein is to be applied to the payment of principal of, interest and redemption premium, if any, on the Refunded Bonds, as the same become due and payable and at redemption prior to maturity. The refunding will be accomplished through the issuance of the Bonds and the deposit of a portion of the proceeds thereof, together with other legally available moneys, into the Escrow Fund. All of such money is expected to be held uninvested. See "APPENDIX C Form of Resolution" attached hereto. Such money is expected to be sufficient to pay the principal of, interest on and redemption premium, if any, with respect to the Refunded Bonds according to the schedules prepared by RBC Capital Markets, LLC., and will be pledged solely for the benefit of the holders of the Refunded Bonds, and will not be available for payment of debt service on the Bonds. In reliance upon the above-referenced schedules and a certificate of U.S. Bank National Association as successor to First Union National Bank, as paying agent for the Refunded Bonds, at the time of delivery of the Bonds, Bond Counsel shall deliver an opinion to the City to the effect that the pledge of and lien on the Pledged Funds (as such term is defined in the Refunded Bonds Resolution) and all covenants in the Refunded Bonds Resolution in favor of the holders of the Refunded Bonds is no longer in effect. General DESCRIPTION OF THE BONDS Interest on the Bonds are payable semiannually on each April 1 and October 1 (each an "Interest Date"), commencing April 1, Interest payable on the Bonds on any Interest Date will be paid by check or draft of Wells Fargo Bank, National Association, Jacksonville, Florida (the "Paying Agent"), as Paying Agent, mailed to the registered holder in whose name such Bond is registered at the close of business on the 15th day (whether or not a business day) of the calendar month next preceding the Interest Date (the "Record Date"), or, at the option of the Paying Agent, and at the request and expense of such registered holder, by bank wire transfer for the account of such holder. In the event the interest payable on any such Bond is not punctually paid or duly provided for by the City on such Interest Date, such defaulted interest will be paid to the Holder in whose name such Bond shall be registered at the close of business on a special record date for the payment of such defaulted interest as established by notice to such Holder, not less than ten days preceding such special record date. All payments of principal of, redemption price, if applicable, and interest on the Bonds are payable in lawful money of the United States of America which at the time of payment is legal tender for the payment of public and private debts. The Bonds will be issued initially as book-entry obligations and held by DTC as securities depository. For more information regarding DTC and DTC's book-entry system, see "DESCRIPTION OF THE BONDS Book-Entry-Only System" below. Book-Entry-Only System THE FOLLOWING INFORMATION CONCERNING DTC AND DTC'S BOOK-ENTRY ONLY SYSTEM HAS BEEN OBTAINED FROM SOURCES THAT THE CITY BELIEVES TO BE RELIABLE, BUT THE CITY TAKES NO RESPONSIBILITY FOR THE ACCURACY THEREOF. 5

12 DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities 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 certificate will be issued for each maturity of the 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 BONDS, AS NOMINEE OF DTC, CERTAIN REFERENCES IN THIS OFFICIAL STATEMENT TO THE BONDHOLDERS OR REGISTERED OWNERS OF THE BONDS SHALL MEAN CEDE & CO. AND SHALL NOT MEAN THE BENEFICIAL OWNERS OF THE BONDS. THE DESCRIPTION WHICH FOLLOWS OF THE PROCEDURES AND RECORD KEEPING WITH RESPECT TO BENEFICIAL OWNERSHIP INTERESTS IN THE BONDS, PAYMENT OF INTEREST AND PRINCIPAL ON THE BONDS TO DIRECT PARTICIPANTS (AS HEREINAFTER DEFINED) OR BENEFICIAL OWNERS OF THE BONDS, CONFIRMATION AND TRANSFER OF BENEFICIAL OWNERSHIP INTERESTS IN THE BONDS, AND OTHER RELATED TRANSACTIONS BY AND BETWEEN DTC, THE DIRECT PARTICIPANTS AND BENEFICIAL OWNERS OF THE BONDS IS BASED SOLELY ON INFORMATION FURNISHED BY DTC. ACCORDINGLY, THE CITY NEITHER MAKES NOR CAN MAKE ANY REPRESENTATIONS CONCERNING THESE MATTERS. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC 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"). The Direct Participants and the Indirect Participants are collectively referred to herein as the "DTC Participants." DTC has a Standard & Poor's rating of AA+. The DTC Rules applicable to its DTC Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("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 in the 6

13 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all 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 the Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such 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. 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 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within a series or maturity of a series are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such series or maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC's procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the 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 paying agent on the payment date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC nor its nominee, the City, or the paying agent, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, premium, if any, and interest on the Bonds, as applicable, to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City and/or the paying agent, 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. 7

14 DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City or paying agent. Under such circumstances, in the event that a successor depository is not obtained, the Bond certificates are required to be printed and delivered. 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, the Bond certificates will be printed and delivered to DTC. Redemption Provisions Optional Redemption. The Bonds may be redeemed prior to maturity at the option of the City, as a whole or in part on October 1, 2021, or on any date thereafter, if in part, from such maturity or maturities as the City shall designate and by lot within a maturity at the redemption price of 100 percent of the principal amount of the Bonds to be redeemed, plus accrued interest to the redemption date. Mandatory Redemption. The Bonds maturing on October 1, 2023 are subject to mandatory redemption in part by the City on October 1 in the years and in the principal amounts, plus accrued interest to the redemption date, as set forth below. *Maturity Principal Year Amount 2022 $505, * 520,000 [Remainder of page intentionally left blank] 8

15 The Bonds maturing on October 1, 2025 are subject to mandatory redemption in part by the City on October 1 in the years and in the principal amounts, plus accrued interest to the redemption date, as set forth below. *Maturity Principal Year Amount 2024 $540, * 560,000 The Bonds maturing on October 1, 2027 are subject to mandatory redemption in part by the City on October 1 in the years and in the principal amounts, plus accrued interest to the redemption date, as set forth below. *Maturity Principal Year Amount 2026 $585, * 610,000 The Bonds maturing on October 1, 2030 are subject to mandatory redemption in part by the City on October 1 in the years and in the principal amounts, plus accrued interest to the redemption date, as set forth below. *Maturity Principal Year Amount 2028 $635, , * 695,000 Notice of Redemption. Unless waived by any Holder of Bonds to be redeemed, notice of any redemption shall be given by the Registrar on behalf of the City by mailing a copy of an official redemption notice by registered or certified mail at least thirty (30) days and not more than sixty (60) days prior to the date fixed for redemption to each Holder of Bonds to be redeemed at the address of such Holder shown on the registration books maintained by the Registrar or at such other address as shall be furnished in writing by such Holder to the Registrar; provided, however, that no defect in any notice given to any Holder of Bonds to be redeemed nor failure to give such notice shall in any manner defeat the effectiveness of a call for redemption as to all other Owners of Bonds to be redeemed. Every official notice of redemption shall be dated and shall state: (1) the redemption date; (2) the Redemption Price; (3) if less than all Outstanding Bonds are to be redeemed, the number (and, in the case 9

16 of a partial redemption of any Bond, the principal amount) of each Bond to be redeemed; (4) that, on the redemption date, the Redemption Price will become due and payable upon each such Bond or portion thereof called for redemption, and that interest thereon shall cease to accrue from and after said date; and (5) that such Bonds to be redeemed, whether as a whole or in part, are to be surrendered for payment of the Redemption Price at the designated office of the Registrar. Prior to any redemption date, the City shall deposit with the Registrar an amount of money sufficient to pay the Redemption Price of all the Bonds or portions of Bonds which are to be redeemed on that date. The City may provide that a notice of redemption may be contingent upon occurrence of condition(s) and that if such condition(s) do not occur, the notice will be rescinded; provided notice of such rescission shall be mailed in the manner described in the Resolution to all Bondholders as soon as practicable after the City has determined to rescind the redemption. Effect of Notice of Redemption. Notice of redemption having been given substantially as aforesaid, the Bonds or portions of Bonds to be redeemed will, on the redemption date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the City shall default in the payment of the Redemption Price), such Bonds or portions of Bonds shall cease to bear interest. Redemption of a Portion of the Bonds. Any Bond which is to be redeemed only in part shall be surrendered at any place of payment specified in the notice of redemption (with due endorsement by, or written instrument of transfer in a form satisfactory to, the Registrar duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing) and the City shall execute and the Registrar shall authenticate and deliver to the Holder of such Bond, without service charge, a new Bond or Bonds, of the same interest rate and maturity, and of any authorized denomination as requested by such Holder, in an aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Bonds so surrendered. Bonds Mutilated, Destroyed, Stolen or Lost In case any Bond shall become mutilated, or be destroyed, stolen or lost, the City may, in its discretion, issue and deliver, and the Registrar shall authenticate, a new Bond of like tenor as the Bond so mutilated, destroyed, stolen or lost, in exchange and substitution for such mutilated Bond upon surrender and cancellation of such mutilated Bond or in lieu of and substitution for the Bond destroyed, stolen or lost, and upon the Holder furnishing the City and the Registrar proof of such Holder's ownership thereof and satisfactory indemnity and complying with such other reasonable regulations and conditions as the City or the Registrar may prescribe and paying such expenses as the City and the Registrar may incur. All Bonds so surrendered or otherwise substituted shall be canceled by the Registrar. If any of the Bonds shall have matured or be about to mature, instead of issuing a substitute Bond, the City may pay the same or cause the Bond to be paid, upon being indemnified as aforesaid, and if such Bonds be lost, stolen or destroyed, without surrender thereof. Any such duplicate Bonds issued pursuant to the Resolution shall constitute original, additional contractual obligations on the part of the City whether or not the lost, stolen or destroyed Bond be at any time found by anyone, and such duplicate Bond shall be entitled to equal and proportionate benefits and rights as to lien on the Pledged Funds to the same extent as all other Bonds issued under the Resolution. 10

17 SECURITY FOR THE BONDS General The Bonds and the interest thereon are secured by and payable solely from (1) Non-Ad Valorem Revenues budgeted and appropriated by the City in accordance with the Resolution and deposited into the Debt Service Fund, and (2) until applied in accordance with the provisions of the Resolution, all moneys, including the investments thereof, in the funds and accounts established under the Resolution, with the exception of the Rebate Fund (collectively, the "Pledged Funds"). THE BONDS SHALL NOT BE OR CONSTITUTE GENERAL OBLIGATIONS OR INDEBTEDNESS OF THE CITY AS "BONDS" WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY PROVISION, BUT SHALL BE SPECIAL OBLIGATIONS OF THE CITY, PAYABLE SOLELY FROM AND SECURED BY A LIEN UPON AND PLEDGE OF THE PLEDGED FUNDS. NO HOLDER OF ANY BOND SHALL EVER HAVE THE RIGHT TO COMPEL THE EXERCISE OF ANY AD VALOREM TAXING POWER TO PAY SUCH BOND, FOR THE PAYMENT OF ANY AMOUNTS PAYABLE UNDER THE RESOLUTION, OR IN ORDER TO MAINTAIN ANY SERVICES OR PROGRAMS THAT GENERATE NON-AD VALOREM REVENUES, OR BE ENTITLED TO PAYMENT OF SUCH BOND FROM ANY MONEYS OF THE CITY EXCEPT FROM THE PLEDGED FUNDS IN THE MANNER PROVIDED IN THE RESOLUTION. The City covenants and agrees to appropriate in its annual budget, by amendment if necessary, for each Fiscal Year in which the Bonds remain Outstanding, sufficient amounts of Non-Ad Valorem Revenues into the Debt Service Fund for the payment of principal of and interest on the Bonds and to make certain other payments required under the Resolution in each such Fiscal Year. Such covenant and agreement on the part of the City is cumulative and shall continue until all payments of principal of and interest on the Bonds shall have been budgeted, appropriated, deposited and actually paid. The City agrees in the Resolution that this covenant and agreement shall be deemed to be entered into for the benefit of the Holders of the Bonds and that this obligation may be enforced in a court of competent jurisdiction in accordance with the remedies set forth in the Resolution. No lien upon or pledge of such budgeted Non-Ad Valorem Revenues shall be in effect until such monies are budgeted, appropriated and deposited as provided in the Resolution. Notwithstanding any provision of the Resolution to the contrary, the City does not covenant to maintain any services or programs now maintained or provided by the City, including those programs and services which generate user fees, regulatory fees or Non-Ad Valorem Revenues. This covenant and agreement shall not be construed as a limitation on the ability of the City to pledge all or a portion of such Non-Ad Valorem Revenues or to covenant to budget and appropriate Non-Ad Valorem Revenues for other legally permissible purposes. Nothing in the Resolution shall be deemed to pledge ad valorem tax revenues or to permit or constitute a mortgage or lien upon any assets owned by the City and no Holder of Bonds or other person may compel the levy of ad valorem taxes on real or personal property within the boundaries of the City for the payment of the City's obligations under the Resolution or to maintain or continue any activities, services or programs now maintained or provided by the City, including those programs and services which generate user fees, regulatory fees or Non-Ad Valorem Revenues. However, this covenant to budget and appropriate in its annual budget for the purposes and in the manner stated in the Resolution has the effect of making available for the payment of the Bonds the Non-Ad Valorem Revenues of the City in the manner provided in the Resolution and placing on the City 11

18 a positive duty to appropriate and budget, by amendment if necessary, and deposit amounts sufficient to meet its obligations under the Resolution; subject, however, in all respects to the restrictions of Section , Florida Statutes, which make it unlawful for any municipality to expend moneys not appropriated and in excess of such municipality's current budgeted revenues. The obligation of the City to make such payments from its Non-Ad Valorem Revenues is subject in all respects to the payment of obligations secured by a pledge of such Non-Ad Valorem Revenues or a covenant to budget and appropriate Non-Ad Valorem Revenues heretofore or hereafter entered into (including the payment of debt service on bonds and other debt instruments), and funding requirements for essential public purposes affecting health, welfare and safety of the inhabitants of the City; however, such obligation is cumulative and would carry over from Fiscal Year to Fiscal Year. The Resolution provides that such covenant to budget and appropriate does not create any lien upon or pledge of such Non-Ad Valorem Revenues until such funds are deposited in the Debt Service Fund, nor does it preclude the City from pledging in the future or covenanting to budget and appropriate in the future its Non-Ad Valorem Revenues, nor does it require the City to levy and collect any particular Non-Ad Valorem Revenues, nor does it give the Holders of the Bonds a prior claim on the Non-Ad Valorem Revenues as opposed to claims of general creditors of the City. The payment of the debt service of all of the Bonds issued under the Resolution is secured equally and ratably by a pledge of and a lien upon the Pledged Funds, as now or hereafter constituted. The City does, pursuant to the Resolution, irrevocably pledge the Pledged Funds to the payment of the principal of and interest on the Bonds, and the City irrevocably agrees to the deposit of Non-Ad Valorem Revenues into the Debt Service Fund at the times provided of the sums required to secure to the Holders of the Bonds, and the payment of the principal of and interest thereon when due. The Resolution further provides that Pledged Funds shall immediately be subject to the lien of such pledge without any physical delivery thereof or further act, and the lien of such pledge shall be valid and binding as against all parties having claims of any kind in tort, contract or otherwise against the City. Until applied in accordance with the Resolution, the Non-Ad Valorem Revenues deposited by the City in the Debt Service Fund, plus any earnings thereon, shall be pledged to the repayment of the Bonds. No Reserve Fund Anti-Dilution There is no debt service reserve fund related to the Bonds. Pursuant to the Resolution the City agrees as a condition precedent to the issuance of any debt or the incurrence of any other obligations which are secured by and/or payable solely from Non-Ad Valorem Revenues, to deliver a certificate setting forth the calculations of the financial ratios provided below and certifying that it is in compliance with the following: (i) the average of the Non-Ad Valorem Revenues for the two most recent Fiscal Years for which audited financial statements of the City are available is equal to or greater than 2.0 times the projected maximum annual debt service on the proposed debt or obligations and the other debt and obligations secured by and/or payable solely from all or a portion of such Non-Ad Valorem Revenue to be outstanding following the issuance of the proposed debt or obligations; and 12

19 (ii) projected maximum annual debt service on the proposed debt or obligations and the other debt and obligations secured by and/or payable solely from such Non-Ad Valorem Revenues will not exceed 30 percent of the average of the Governmental Fund Revenues for the two most recent Fiscal Years for which audited financial statements of the City are available. For purposes of such covenants, "maximum annual debt service" shall mean the lesser of the actual maximum annual debt service on such debt and obligations, or 15 percent of the original par amount thereof. For the purpose of calculating maximum annual non-ad valorem debt service on any indebtedness which bears interest at a variable rate, such indebtedness shall be deemed to bear interest at the greater of (i) 1.25 times the most recently published Bond Buyer Revenue Bond 30 Year Index or (ii) 1.25 times actual average interest rate during the prior Fiscal Year of the City. Governmental Fund Revenues are defined as all revenues which are deposited into the City's general fund, special revenue fund, debt service funds and capital project funds, but excluding (i) ad valorem tax revenues restricted to payment of debt service on any debt and (ii) any debt proceeds. Funds and Accounts Debt Service Fund. Pursuant to the Resolution, the City covenanted and agreed to establish a separate fund known as the "City of St. Augustine Capital Improvement Refunding Revenue Bonds, Series 2011B Debt Service Fund" (the "Debt Service Fund"). The City shall maintain in the Debt Service Fund three accounts: the "Interest Account," the "Principal Account" and the "Bond Amortization Account." Moneys in such funds and accounts, until applied in accordance with the provisions of the Resolution, are subject to a lien and charge in favor of the Owners and for the further security of the Owners. The Resolution requires that Non-Ad Valorem Revenues be deposited or credited at least five (5) business days prior to the applicable due date, in the following manner: Interest Account. The City will deposit into or credit to the Interest Account the sum which, together with the balance in said Account, is equal to the interest on all Outstanding Bonds accrued and unpaid and to accrue on such Interest Date. Moneys in the Interest Account will be used to pay interest on the Bonds as and when the same become due, whether by redemption or otherwise, and for no other purpose. Principal Account. The City will deposit into or credit to the Principal Account the sum which, together with the balance in said Account, is equal the portion of the principal on the Outstanding Bonds next due. Moneys in the Principal Account will be used to pay the principal of the Bonds as and when the same mature, and for no other purpose. Bond Amortization Account. The City will deposit into or credit to the Bond Amortization Account the sum which, together with the balance in said Account, equals the portion of the Amortization Installments of all Bonds Outstanding next due. Moneys in the Bond Amortization Account will be used to purchase or redeem Term Bonds and for no other purpose. Payments to the Bond Amortization Account will be on a parity with payments to the Principal Account. 13

20 On the date established for payment of any principal of or Redemption Price, if applicable, or interest on the Bonds, the City will withdraw from the appropriate account of the Debt Service Fund sufficient moneys to pay such principal or Redemption Price, if applicable, or interest and deposit such moneys with the Paying Agent for the Bonds to be paid. No Impairment The City has covenanted in the Resolution that the pledging of the Pledged Funds in the manner provided therein shall not be subject to repeal, modification or impairment by any subsequent ordinance, resolution or other proceedings of the Commission. Investments The Debt Service Fund shall be continuously secured in the manner by which the deposits of public funds are authorized to be secured by the laws of the State. Moneys on deposit in the Debt Service Fund may be invested and reinvested in Permitted Investments maturing not later than the date on which the moneys therein will be needed. Any and all income received by the City from the investment of moneys in each account of the Interest Account, the Principal Account and the Bond Amortization Account shall be retained in such respective Fund or Account unless otherwise required by applicable law. Nothing contained in the Resolution shall prevent any Permitted Investments acquired as investments of or security for funds held under the Resolution from being issued or held in book-entry form on the books of the Department of the Treasury of the United States. The value of Permitted Investments held under the Resolution shall be determined as follows: (a) For the purpose of determining the amount in any fund or account, all Permitted Investments credited to such fund or account will be valued at fair market value. The City will determine the fair market value based on accepted industry standards and from accepted industry providers. Accepted industry providers include but are not limited to pricing services provided by Financial Times Interactive Corporation, Merrill Lynch and Citigroup Global Markets. (b) As to certificates of deposit and bankers' acceptances: the face amount thereof, plus accrued interest thereon; and (c) As to any investment not specified above: the value thereof established by prior agreement between the City and Insurer. MUNICIPAL BOND INSURANCE POLICY THE INFORMATION RELATING TO THE INSURER CONTAINED HEREIN HAS BEEN FURNISHED BY THE INSURER. NO REPRESENTATION IS MADE BY THE CITY NOR THE UNDERWRITER AS TO THE ACCURACY OR ADEQUACY OF SUCH INFORMATION OR THAT THERE HAS NOT BEEN ANY MATERIAL ADVERSE CHANGE IN SUCH INFORMATION SUBSEQUENT TO THE DATE OF SUCH INFORMATION. NEITHER THE CITY NOR THE 14

21 UNDERWRITER HAS MADE ANY INVESTIGATION INTO THE FINANCIAL CONDITION OF THE INSURER, AND NO REPRESENTATION IS MADE AS TO THE ABILITY OF THE INSURER TO MEET ITS OBLIGATIONS UNDER THE MUNICIPAL BOND INSURANCE POLICY. The following information is not complete and reference is made to APPENDIX F for a specimen of the Municipal Bond Insurance Policy of the Insurer. Municipal Bond Insurance Policy Concurrently with the issuance of the Bonds, the Insurer will issue the Municipal Bond Insurance Policy for all of the Bonds. The Municipal Bond Insurance Policy guarantees the scheduled payment of principal of and interest on the Bonds when due as set forth in the form of the Municipal Bond Insurance Policy included as an exhibit to this Official Statement. The Municipal Bond Insurance Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. Assured Guaranty Municipal Corp. The Insurer is a New York domiciled financial guaranty insurance company and a wholly owned subsidiary of Assured Guaranty Municipal Holdings Inc. ("Holdings"). Holdings is an indirect subsidiary of Assured Guaranty Ltd. ("AGL"), a Bermuda-based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol "AGO". AGL, through its operating subsidiaries, provides credit enhancement products to the U.S. and global public finance, infrastructure and structured finance markets. No shareholder of AGL, Holdings or the Insurer is liable for the obligations of the Insurer. The Insurer's financial strength is rated "AA-" (stable outlook) by Standard and Poor's Ratings Services, a Standard & Poor's Financial Services LLC business ("S&P") and "Aa3" (negative outlook) by Moody's Investors Service, Inc. ("Moody's"). An explanation of the significance of the above ratings may be obtained from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawal at any time by the rating agencies, including withdrawal initiated at the request of the Insurer in its sole discretion. In addition, the rating agencies may at any time change the Insurer's long-term rating outlooks or place such ratings on a watch list for possible downgrade in the near term. Any downward revision or withdrawal of any of the above ratings, the assignment of a negative outlook to such ratings or the placement of such ratings on a negative watch list may have an adverse effect on the market price of any security guaranteed by the Insurer. The Insurer only guarantees scheduled principal and scheduled interest payments payable by the issuer of bonds insured by the Insurer on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the relevant insurance policy), and does not guarantee the market price or liquidity of the securities it insures, nor does it guarantee that the ratings on such securities will not be revised or withdrawn. Current Financial Strength Ratings On November 30, 2011, S&P published a Research Update in which it downgraded the Insurer s financial strength rating from AA+ to AA-. At the same time, S&P removed the financial strength 15

22 rating from CreditWatch negative and changed the outlook to stable. The Insurer can give no assurance as to any further ratings action that S&P may take. Reference is made to the Research Update, a copy of which is available at for the complete text of S&P's comments. The most recent rating action by Moody s on the Insurer took place on December 18, 2009, when Moody's issued a press release stating that it had affirmed the "Aa3" insurance financial strength rating of the Insurer, with a negative outlook. Reference is made to the press release, a copy of which is available at for the complete text of Moody's comments. Moody s is in the process of reviewing AGL and its subsidiaries and there can be no assurance as to any ratings action that Moody's may take with respect to the Insurer. For more information regarding the Insurer's financial strength ratings and the risks relating thereto, see AGL's Annual Report on Form 10-K for the fiscal year ended December 31, 2010, as amended by its Form 10-K/A; its Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2011, and June 30, 2011, each as amended by its Form 10-Q/A; and its Quarterly Report on Form 10-Q for the quarterly period ended September 30, Capitalization of the Insurer At September 30, 2011, the Insurer's consolidated policyholders' surplus and contingency reserves were approximately $3,105,604,840 and its total net unearned premium reserve was approximately $2,207,101,966, in each case, in accordance with statutory accounting principles. The Insurer s statutory financial statements for the fiscal year ended December 31, 2010 and for the quarterly periods ended March 31, 2011, June 30, 2011 and September 30, 2011, which have been filed with the New York State Department of Financial Services and posted on AGL s website at are incorporated by reference into this Official Statement and shall be deemed to be a part hereof. Incorporation of Certain Documents by Reference Portions of the following documents filed by AGL with the SEC that relate to the Insurer are incorporated by reference into this Official Statement and shall be deemed to be a part hereof: (i) (ii) (iii) the Annual Report on Form 10-K for the fiscal year ended December 31, 2010, as amended by Amendment No. 1 on Form 10-K/A (filed by AGL with the SEC on March 1, 2011 and October 31, 2011, respectively); the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011, as amended by Amendment No. 1 on Form 10-Q/A (filed by AGL with the SEC on May 10, 2011 and November 14, 2011, respectively); the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011, as amended by Amendment No. 1 on Form 10-Q/A (filed by AGL with the SEC on August 9, 2011 and November 14, 2011, respectively); and 16

23 (iv) the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011 (filed by AGL with the SEC on November 14, 2011). All information relating to the Insurer included in, or as exhibits to, documents filed by AGL pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, after the filing of the last document referred to above and before the termination of the offering of the Bonds shall be deemed incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such documents. Copies of materials incorporated by reference are available over the internet at the SEC's website at at AGL's website at or will be provided upon request to Assured Guaranty Municipal Corp.: 31 West 52 nd Street, New York, New York 10019, Attention: Communications Department (telephone (212) ). Any information regarding the Insurer included herein under the caption "MUNICIPAL BOND INSURANCE POLICY Assured Guaranty Municipal Corp." or included in a document incorporated by reference herein (collectively, the "the Insurer Information") shall be modified or superseded to the extent that any subsequently included the Insurer Information (either directly or through incorporation by reference) modifies or supersedes such previously included the Insurer Information. Any Insurer Information so modified or superseded shall not constitute a part of this Official Statement, except as so modified or superseded. Miscellaneous Matters The Insurer or one of its affiliates may purchase a portion of the Bonds offered under this Official Statement and may hold such Bonds for investment or may sell or otherwise dispose of such Bonds at any time or from time to time. The Insurer makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, the Insurer has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Insurer supplied by the Insurer and presented under the heading "MUNICIPAL BOND INSURANCE POLICY". Neither the City nor the Underwriter have made independent investigation into the claims paying ability of the Insurer and no assurance or representation regarding the financial strength or projected financial strength of the Insurer is given. Thus, when making an investment decision, potential investors should carefully consider the ability of the City to pay principal and interest on the Bonds and the claims paying ability of the Insurer, particularly over the life of the investment. MUNICIPAL BOND INSURANCE RISK FACTORS Concurrently with the issuance of the Bonds, the Insurer will issue the Municipal Bond Insurance Policy for all of the Bonds. The Municipal Bond Insurance Policy guarantees the scheduled payment of principal of and interest on the Bonds when due as set forth in the form of the Municipal Bond Insurance Policy included as an exhibit to this Official Statement. The following are risk factors relating to the Municipal Bond Insurance Policy. 17

24 In the event of default of the payment of principal or interest with respect to the Bonds when all or some becomes due, any owner of the Bonds shall have a claim under the Municipal Bond Insurance Policy for such payments. However, in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments are to be made in such amounts and at such times as such payments would have been due had there not been any such acceleration. The Municipal Bond Insurance Policy does not insure against redemption premium, if any. The payment of principal and interest in connection with mandatory or optional prepayment of the Bonds by the City which is recovered by the City from the bond owner as a voidable preference under applicable bankruptcy law is covered by the Municipal Bond Insurance Policy; however, such payments will be made by the Insurer at such time and in such amounts as would have been due absence such prepayment by the City unless the City chooses to pay such amounts at an earlier date. Under most circumstances, default of payment of principal and interest does not obligate acceleration of the obligations of the Insurer without appropriate consent. The Insurer may direct and must consent to any remedies and the Insurer's consent may be required in connection with amendments to any applicable bond documents. In the event the Insurer is unable to make payment of principal and interest as such payments become due under the Municipal Bond Insurance Policy, the Bonds are payable solely from the moneys received pursuant to the applicable bond documents. In the event the Insurer becomes obligated to make payments with respect to the Bonds, no assurance is given that such event will not adversely affect the market price of the Bonds or the marketability (liquidity) for the Bonds. The long-term ratings on the Bonds are dependent in part on the financial strength of the Insurer and its claim paying ability. The Insurer's financial strength and claims paying ability are predicated upon a number of factors which could change over time. No assurance is given that the long-term ratings of the Insurer and of the ratings on the Bonds insured by the Insurer will not be subject to downgrade and such event could adversely affect the market price of the Bonds or the marketability (liquidity) for the Bonds. See "RATINGS" herein. The obligations of the Insurer are contractual obligations and in an event of default by the Insurer, the remedies available may be limited by applicable bankruptcy law or state law related to insolvency of insurance companies. Neither the City nor the Underwriter have made independent investigation into the claims paying ability of the Insurer and no assurance or representation regarding the financial strength or projected financial strength of the Insurer is given. Thus, when making an investment decision, potential investors should carefully consider the ability of the City to pay principal and interest on the Bonds and the claims paying ability of the Insurer, particularly over the life of the investment. [Remainder of page intentionally left blank] 18

25 ESTIMATED SOURCES AND USES OF FUNDS The proceeds to be received from the sale of the Bonds are expected to be applied as follows: SOURCES OF FUNDS FOR THE BONDS: Par Amount of Bonds $10,440, Net Original Issue Discount (111,433.30) Plus Other Legally Available Funds of the City (1) 238, TOTAL SOURCES $10,566, USES OF FUNDS FOR THE BONDS: Deposit to the Escrow Fund $10,329, Costs of Issuance (2) 236, TOTAL USES $10,566, (1) Consists of funds on deposit in certain funds and accounts related to the Refunded Bonds. (2) Includes legal fees and other transactional costs, including Underwriter's Discount. DEBT SERVICE REQUIREMENTS The following table shows the scheduled annual principal and interest requirements for the Bonds and total annual debt service on the Bonds: Bond Year Ended October 1 Principal Interest Total Debt Service 2012 $ 430, $ 254, $ 684, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Totals $10,440, $3,958, $14,398,

26 GENERAL INFORMATION REGARDING NON-AD VALOREM REVENUES General The City generally receives two primary sources of revenue: ad valorem taxes and non-ad valorem revenues. Ad valorem taxes may not be pledged for the payment of debt obligations of the City maturing more than twelve months from the date of issuance thereof without approval of the electorate of the City. The ad valorem tax revenues of the City are not pledged as security for the payment of the Bonds and the City is not obligated to budget and appropriate ad valorem tax revenues for the payment of the Bonds. Non-ad valorem revenues of the City may be pledged, subject to certain limitations disclosed herein, for the payment of debt obligations of the City. Such non-ad valorem revenues include a broad category of revenues, including, but not limited to, revenues received from the State, investment income and income produced from certain services and facilities of the City, as described below. As more fully described herein under "SECURITY FOR THE BONDS," the City has covenanted and agreed in the Resolution, subject to certain restrictions and limitations, to appropriate sufficient Non- Ad Valorem Revenues in each year to pay debt service on the Bonds. The holders of the Bonds do not have a lien on any specific Non-Ad Valorem Revenues of the City and the City has certain other debt obligations payable in the same manner as the Bonds and also has outstanding certain other debt obligations payable from a prior lien upon and pledge of certain of the Non-Ad Valorem Revenues of the City. A large percentage of the revenues of the City, including ad valorem taxes and non-ad valorem revenues, are deposited in the General Fund. See "CERTAIN FINANCIAL MATTERS General Fund" herein. Furthermore, as described herein under "SECURITY FOR THE BONDS," the obligation of the City to budget and appropriate Non-Ad Valorem Revenues is subject to a variety of factors, including the payment of essential governmental services of the City and the obligation of the City to have a balanced budget. The City is permitted by the Florida Constitution to levy ad valorem taxes at a rate of up to $10 per $1,000 of assessed valuation for general governmental expenditures. The General Fund ad valorem tax millage rate for the fiscal year ending September 30, 2012 is $7.50 per $1,000. The City is also permitted by the Florida Constitution to levy ad valorem taxes, above the $10 per $1,000 cap to pay debt service on general obligation long-term debt if approved by a voter referendum. The City does not currently levy ad valorem taxes to pay debt service on general obligation long-term debt. The term "Non-Ad Valorem Revenues" does not include all non-ad valorem revenues of the City, but instead includes only those which are legally available to pay debt service on the Bonds. See "SECURITY FOR THE BONDS General" herein and "APPENDIX C Form of Resolution" attached hereto for the full definition of "Non-Ad Valorem Revenues". The Florida Department of Financial Services has developed, as part of the Uniform Accounting System Manual's Chart of Accounts, six major categories of local government revenues: taxes, intergovernmental revenues, licenses and permits, charges for services, fines and forfeitures, and 20

27 miscellaneous revenues. Using that organization, the following describes the sources of the City's Non- Ad Valorem Revenues: Taxes Public Service Tax. The "Public Service Tax" (also, commonly referred to as the "Utilities Services Tax" or "Public Services Tax") is imposed by the City pursuant to the Constitution of the State and Section , Florida Statutes, and other applicable provisions of law. Florida law authorizes any municipality in the State to levy a public service tax on the purchase within such municipality of electricity, metered natural gas, liquefied petroleum gas either metered or bottled, manufactured gas either metered or bottled, and water service. Services competitive with those enumerated in the previous sentence, as defined by ordinance, shall be taxed on a comparable base at the same rates. However, fuel oil shall be taxed at a rate not to exceed 4 cents per gallon. Pursuant to Ordinance No enacted by the Commission on June 22, 2009, as amended by Ordinance No enacted by the Commission on August 24, 2009 (the "Public Service Tax Ordinance"), the City imposed and levied on each and every purchase of fuel oil and kerosene used for the purpose of heating, electricity and metered or bottled gas (natural, liquefied petroleum gas or manufactured) within the corporate limits of the City, a tax based upon the charge made by the seller of such utility services, as follows: (1) On each purchase of electricity, eight (8) percent of all charges. (2) On each such purchase of metered or bottled gas (natural, liquefied petroleum gas of manufactured): a. Ten (10) percent of the first one hundred dollars ($100.00) or fraction thereof. b. One (1) percent on the balance of all charges over one hundred dollars ($100.00) in amount. (3) On each such purchase of fuel oil and kerosene used for the purpose of heating: a. Four cents ($0.04) per gallon on the first two hundred thirty (230) gallons sold or fraction thereof. b. Fourth tenths of one cent ($0.004) per gallon on the balance of all gallons sold over two hundred thirty (230) gallons in amount. Such taxes are collected from the purchaser of the utility services and paid by the purchaser for the use of the City, to the seller of such electricity, gas or fuel oil kerosene for heating at the time of the purchaser paying the charge therefor to the seller thereof, but not less often than monthly. Florida law provides that a municipality may exempt from the public service tax the first 500 kilowatts of electricity per month purchased for residential use, metered on bottled gas or fuel oil for agricultural purposes, purchases of electricity, natural gas, liquefied petroleum gas or manufactured gas by industrial customers for use in industrial manufacturing or processing facilities in the City and electrical energy used in a facility located in a designated enterprise zone. The City has not adopted any such exemptions but it does exempt purchases by the United States Government, the State, St. Johns County, the City and their agencies, boards, commissions and authorities from the levy of such tax, as well as purchases by all other governmental entities and all religious entities. In addition, purchases of natural gas or fuel oil by a utility either for resale or for use as fuel in the generation of electricity are 21

28 exempt, as is the purchase of fuel oil or kerosene for use as an aircraft engine fuel or propellant or for use in internal combustion engines. The foregoing exemptions are required by Florida Statutes. The Public Service Tax shall not be applied against any fuel adjustment charge. The term "fuel adjustment charge" means all increases 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, The Public Service Tax must be collected by the seller from purchasers at the time of sale and remitted to the City on a monthly basis. Taxes on most utility services are separately itemized on the bill rendered to customers, but separate disclosure is not required. A failure by a consumer to pay that portion of the bill attributable to the Public Service Tax may result in a suspension of the service involved in the same fashion as the failure to pay that portion of the bill attributable to the particular utility service. The amount of Public Service Tax collected by the City may fluctuate as the price of fuel, gas, electricity and the other services subject to the Public Service Tax fluctuates and a sustained increase in the price thereof may have an adverse effect on the amount of Public Service Tax collected. Local Communications Services Tax. The Communications Services Tax Simplification Act, enacted by Chapter , Laws of Florida, as amended by Chapter , Laws of Florida, and now codified as Chapter 202, Florida Statutes, became effective October 1, 2001 (the "CSTA"). Section , Florida Statutes, authorizes counties and municipalities to levy a local tax on communications services (the "Local Communications Services Tax") 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 public service tax on the purchase of telecommunication services. See "GENERAL INFORMATION REGARDING NON-AD VALOREM REVENUES -- General Public Service Tax" above. Although the Local Communications Services Tax is levied locally, the Florida Department of Revenue ("FDOR") collects the tax on behalf of the local governments. The proceeds of said Local Communication Services Tax less FDOR's cost of administration is deposited in the Local Communication Services Tax Clearing Trust Fund (the "CST Trust Fund") and distributed monthly to the appropriate jurisdiction. One effect of the CSTA was to replace the former public service tax on telecommunication services, including pre-paid 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 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 Local Communications Services Tax is applied to a broader base of communications services than the former public service tax on telecommunications. Prior to the effective date of the CSTA, the City levied a public service tax on telecommunications authorized under Section , Florida Statutes; a cable franchise fee authorized by Title 47, United States Code and associated Federal Communications Commission regulations; and franchise fees on local exchange telecommunications providers and long distance providers whose lines occupied the City's rights-of-way authorized by Section , Florida Statutes. The enactment of the Local Communications Services Tax was intended to replace these taxes and fees received by local governments in the period October 1, 2000 through September 30, Pursuant to Ordinance No enacted by the Commission on June 25, 2001 and Ordinance No

29 16 enacted by the Commission on June 25, 2001, effective October 1, 2002, the Local Communications Services Tax rate is 5.22%. "Communication services" under the CSTA 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) (h) 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. 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 from the charges for communications services, on a customer's bill. 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 Code are exempt from the Communications Services Tax. The CSTA provides that, to the extent that a provider of communications services is required to pay to a local taxing jurisdiction 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 Local Communications Services Tax, such provider is entitled to a credit against the amount of such Local Communications Services Tax payable to the State in the amount of such tax, charge, or fee with respect to such service or revenues. The amount of such credit is deducted from the amount that such local taxing jurisdiction is entitled to receive under Section 202(18)(3), Florida Statutes. Under the CSTA, local governments must work with 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. 23

30 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 database that is either supplied or certified by the FDOR). The communications services providers remit the remaining proceeds to the FDOR for deposit into the CST Trust Fund. The FDOR then makes monthly contributions from the CST Trust Fund to local governments after deducting up to 1% of the total revenues generated as an administrative fee. 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. Federal legislation was enacted on October 31, 2007, to extend the moratorium, which was set to expire on November 1, 2007, on certain state and local government taxation on Internet access to November 1, This legislation prohibits a state from reimposing a tax on Internet access which the state repealed more than twenty-four (24) months prior to this legislation's enactment. Additionally, a specific exemption was created for certain state business taxes enacted between June 20, 2005 and before November 1, 2007 which do not discriminate against providers of communication services, Internet access or telecommunications. Effective November 1, 2003, "Internet access" was amended to include telecommunications services purchased, used or sold by a provider of Internet access to provide Internet access. "Internet access" now also includes related communication services, such as and instant messaging. The definition of "Internet access" was revised, in part, to eliminate existing language which could be read to allow providers of communication services to exclude from taxation charges for Internet access services which are bundled for a single price with taxable communication services. "Telecommunications," as amended, includes un-regulated non-utility telecommunications, such as cable services. Application of the amended definition of "Internet access" was delayed until June 30, 2008 for state or local tax on Internet access that was: (1) generally imposed and actually enforced on telecommunication services, or (2) the subject of litigation instituted in a state court prior to July 1, Prior to December 3, 2004, under the CSTA, according to the FDOR, when charges for Internet access services were not separately stated on a customer's bill, the entire charge was taxed, regardless of whether the charge includes Internet access or telecommunications services used to provide Internet access. The negative impact on future collections of Local Communications Services Tax revenues because of the ITNA cannot be determined at this time. The amount of Local 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 (iii) technological advances which could affect consumer preferences. An example of possible legislative changes includes the various bills introduced in the Florida Legislature's 2011 legislative session designed to reduce the tax rates for the Local Communications Services Tax. Although none of these bills passed, several State legislators have indicated they will propose similar bills in the 2012 legislative session. An example of technological advances which could affect consumer preferences includes 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 non-taxable service altogether. Six Cent Local Option Fuel Tax. In addition to other taxes, each county may impose a tax of one to six cents per gallon on motor fuel sold within the county's jurisdiction. The City may not use the 24

31 proceeds of the Six Cent Local Option Fuel Tax to pay debt service on the Bonds because the Refunded Bonds did not finance a transportation expenditure as described above. This tax is imposed on diesel fuel in each county at the maximum rate of six cents per gallon regardless of whether the county is levying the tax on motor fuel. The term "diesel fuel" means all petroleum distillates commonly known as diesel #2 or any other product blended with diesel or any product placed into the storage supply tank of a diesel-powered motor vehicle. This tax may be authorized by an ordinance adopted by a majority vote of the governing body or voter approval in a countywide referendum. The County has chosen to impose a four cent local option fuel tax and a fifth and sixth cent local option fuel tax (collectively, the "Six Cent Local Option Fuel Tax"). The proceeds of the Six Cent Local Option Fuel Tax shall be distributed by the FDOR according to the distribution factors determined at the local level by interlocal agreement between the county and municipalities within the county's boundaries. The County imposed a four cent local option fuel tax pursuant to Ordinance No enacted by the Commission on June 18, 1985 as extended by Ordinance No enacted on November 4, 2003 and as extended by Ordinance No enacted on December 5, The four cent local option fuel tax is effective from September 1, 1985 through August 31, The four cent local option fuel tax as extended by Ordinances Nos and and is effective from September through December 31, The City may pledge the proceeds of the four cent local option fuel tax to finance projects listed in the City's five-year road improvement plan. The County also imposed a fifth and sixth cent local option fuel tax pursuant to Ordinance No enacted by the Commission on June 10, 1986 as extended by Ordinance No enacted on November 4, 2003 and as extended by Ordinance No enacted on December 5, The fifth and sixth cent local option fuel tax is effective from September 1, 1986 through October 31, FDOR distributes proceeds of the Six Cent Local Option Fuel Tax according to distribution factors which are determined by interlocal agreement between the County and the municipalities within the County. The County entered into an interlocal agreement with the City on June 18, 1985, as amended by the Amendment to the Interlocal Agreement dated June 10, 1986, whereby the proceeds of the Six Cent Local Option Fuel Tax are to be distributed as follows: 76% of the proceeds are to be distributed to the County, 19% of the proceeds are to be distributed to the City, 4% to the City of St. Augustine Beach and 1% to the Town of Hastings. In order to be eligible to receive a Six Cent Local Option Fuel Tax distributions, each county or municipality must have: (i) (ii) (iii) reported its finances for its most recently completed fiscal year to the Florida Department of Banking and Finance ("FDBF") as required by Florida law; made provisions for annual post audits of financial accounts in accordance with provisions of law; levied, as shown on its most recent financial report, ad valorem taxes, exclusive of taxes levied for debt service or other special millages authorized by the voters, to produce the revenue equivalent to a millage rate of 3 mills on the dollar based upon 1973 taxable 25

32 values or, in order to produce revenue equivalent to that which would otherwise be produced by such 3 mill ad valorem tax, to have received certain revenues from a county (in the case of a municipality), an occupational license tax, utility tax, or ad valorem tax, or any combination of those four sources; (iv) (v) (vi) (vii) certified that persons in its employ as law enforcement officers meet certain qualifications for employment, and receive certain compensation; certified that persons in its employ as firefighters meet certain employment qualifications and are eligible for certain compensation; certified that each dependent special district that is budgeted separately from the general budget of such county or municipality has met the provisions for annual post audit of its financial accounts in accordance with law; and certified to FDOR that it has complied with certain procedures regarding the establishment of the ad valorem tax millage of the county or municipality as required by law. The City may use the proceeds from the Six Cent Local Option Fuel Tax for transportation expenditures, including those expenditures for the following programs: (a) (b) (c) (d) (e) (f) (g) public transportation operation and maintenance; roadway and right-of-way maintenance and equipment and structures used primarily for the storage and maintenance of such equipment; roadway and right-of-way drainage; street lighting; traffic signs, traffic engineering, signalization and pavement markings; bridge maintenance and operation; and debt service and current expenditures for transportation capital projects in the foregoing program areas including the construction and reconstruction of roads. The City may only use the proceeds of the Six Cent Local Option Fuel Tax to pay debt service on the Bonds that financed the transportation expenditures described above. The City may not use the proceeds of the Six Cent Local Option Fuel Tax to pay debt service on the Bonds because the Refunded Bonds did not finance a transportation expenditure as described above. Intergovernmental Revenues All revenues received by a local unit from federal, state, and other local government sources in the form of grants, shared revenues, and payments in lieu of taxes would be included in the 26

33 intergovernmental revenues category. The category is further classified into eight subcategories: federal grants, federal payments in lieu of taxes ("PILOT"), state grants, state shared revenues, state PILOT, local grants, local shared revenues, and local PILOT. If a particular grant is funded from separate intergovernmental sources, then the revenue is recorded proportionately. The largest component is the Local Government Half-Cent Sales Tax. Local Government Half-Cent Sales Tax. Chapter 218, Part VI, Florida Statutes (the "Sales Tax Act"), authorizes the levy and collection by the State of a sales tax upon, among other things, the sales price of each item or article of tangible personal property sold at retail in the State, subject to certain exceptions and dealer allowances. In 1982, the Florida legislature created the Local Government Half- Cent Sales Tax Program (the "Half-Cent Sales Tax Program") which distributes a portion of the sales tax revenue and money from the State's General Revenue Fund to counties and municipalities that meet strict eligibility requirements. In 1982, when the Half-Cent Sales Tax Program was created, the general rate of sales tax in the State was increased from 4% to 5%, and one-half of the fifth cent was devoted to the Half- Cent Sales Tax Program, thus giving rise to the name "Half-Cent Sales Tax." Although the amount of sales tax revenue deposited into the Half-Cent Sales Tax Program is no longer one-half of the fifth cent of every dollar of the sales price of an item subject to sales tax, the name "Half-Cent Sales Tax" has continued to be utilized. The sales tax is collected on behalf of the State by businesses at the time of sale at retail, use, consumption, or storage for use or consumption, of taxable property and remitted to the State on a monthly basis. The Sales Tax Act provides for penalties and fines, including criminal prosecution, for non-compliance with the provisions thereof. Section , Florida Statutes, provides for the distribution of sales tax revenues collected by the State and further provides for the distribution of a portion of sales tax revenues to the Half-Cent Sales Tax Clearing Trust Fund (the "Half-Cent Sales Tax Trust Fund"), after providing for transfers to the State's General Fund and the Ecosystem Management and Restoration Trust Fund. Since 2004, the proportion of sales tax revenues deposited in the Half-Cent Sales Tax Trust Fund (the "Half-Cent Sales Tax Revenues") had equaled 8.814% of all state sales tax remitted to the State by a sales tax dealer located within a particular county. Such amount deposited in the Half-Cent Sales Tax Trust Fund is earmarked for distribution to the governing body of such county and each participating municipality within that county pursuant to a distribution formula. The legislative intent of the proportion reductions described above was to freeze for one fiscal year the total amount of Half-Cent Sales Tax Revenues distributed to the counties and municipalities throughout the State. The negative impact on municipalities from changes to the half-cent sales tax distribution was offset by the increased distribution to the Revenue Sharing Trust Fund for municipalities. Likewise, the negative impact of the change in half-cent sales tax distribution on smaller counties with a limited tax base was offset by the increased share of state taxes going for the emergency distribution. The net impact was to reduce the amount of funds distributed to county governments equal to projected growth in income from the half-cent sales tax distribution. The general rate of sales tax in the State is currently 6%. After taking into account the distributions to the State's General Fund (historically 5% of taxes collected) and the Ecosystem Management and Restoration Trust Fund (historically 0.2% of taxes collected), and after taking into account the 8.814% level described above, for every dollar of taxable sales price of an item, approximately cents is deposited into the Half-Cent Sales Tax Trust Fund. 27

34 As of October 1, 2001, the Half-Cent Sales Tax Trust Fund began receiving a portion of the Communications Services Tax pursuant to the CSTA. Accordingly, moneys distributed from the Half- Cent Sales Tax Trust Fund now consist of funds derived from both general sales tax proceeds and Communications Services Tax revenues required to be deposited into the Half-Cent Sales Tax Trust Fund. The Half-Cent Sales Tax Revenues are distributed from the Half-Cent Sales Tax Trust Fund on a monthly basis to participating units of local government in accordance with the Sales Tax Act. The Sales Tax Act permits the City to pledge its share of the Half-Cent Sales Tax for the payment of principal of and interest on any capital project. The Half-Cent Sales Tax Revenues collected within a county and distributed to local government units is distributed among the county and the municipalities therein in accordance with the following formula: County Share (percentage of total Half-Cent Sales Tax receipts) = unincorporated area population + 2/3 incorporated area population total county population + 2/3 incorporated area population Municipality Share (percentage of total Half-Cent = municipality population Sales Tax receipts) total county population + 2/3 incorporated area population For purposes of the foregoing formula, "population" is based upon the latest official State estimate of population certified prior to the beginning of the local government fiscal year. Should any unincorporated area of St. Johns County become incorporated as a municipality, the share of the Half- Cent Sales Tax Revenues received by St. Johns County and the City would be reduced. Should the City annex any area or should any area of the City de-annex from the City, the share of the Half-Cent Sales Tax Revenues received by the City would be respectively increased or decreased according to the foregoing formula. The Local Government Half-Cent Sales Tax is distributed from the Half-Cent Sales Tax Trust Fund on a monthly basis to participating units of local government. The Half-Cent Sales Tax Act permits the City to pledge its share of the Local Government Half-Cent Sales Tax for the payment of principal of and interest on any capital project. To be eligible to participate in the Half-Cent Sales Tax Program, each municipality and county is required to have: (i) (ii) reported its finances for its most recently completed fiscal year to the FDFS as required by Florida law; made provisions for annual post audits of financial accounts in accordance with provisions of law; 28

35 (iii) (iv) (v) (vi) (vii) levied, as shown on its most recent financial report, ad valorem taxes, exclusive of taxes levied for debt service or other special millages authorized by the voters, to produce the revenue equivalent to a millage rate of three (3) mills on the dollar based upon 1973 taxable values or, in order to produce revenue equivalent to that which would otherwise be produced by such three (3) mill ad valorem tax, to have received a remittance from the county pursuant to a municipal services benefit unit, collected business tax, utility tax, or ad valorem tax, or have received revenue from any combination of those four sources; certified that persons in its employ as law enforcement officers meet certain qualifications for employment, and receive certain compensation; certified that persons in its employ as firefighters meet certain employment qualifications and are eligible for certain compensation; certified that each dependent special district that is budgeted separately from the general budget of such county or municipality has met the provisions for annual post audit of its financial accounts in accordance with law; and certified to the FDOR that it has complied with certain procedures regarding the establishment of the ad valorem tax millage of the county or municipality as required by law. Although the Sales Tax Act does not impose any limitation on the number of years during which the City can receive distribution of the Half-Cent Sales Tax Revenues from the Half-Cent Sales Tax Trust Fund, there may be amendments to the Sales Tax Act in subsequent years imposing additional requirements of eligibility for counties and municipalities participating in the Half-Cent Sales Tax Revenues, or the distribution formulas in Sections (6)(d) or , Florida Statutes, may be revised. To be eligible to participate in the Half-Cent Sales Tax Trust Fund in future years, the City must comply with the financial reporting and other requirements of the Sales Tax Act. Otherwise, the City would lose its Half-Cent Sales Tax Trust Fund distributions for twelve (12) months following a "determination of noncompliance" by FDOR. The City has always maintained eligibility to receive the Half-Cent Sales Tax Revenues. The City has continuously maintained eligibility to receive the Local Government Half-Cent Sales Tax since the enactment of the Half-Cent Sales Tax Act in The amount of Half-Cent Sales 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 relating to the overall sales tax, which may include changes in the scope of taxable sales, changes in the tax rate and changes in the amount of sales tax revenue deposited into the Trust Fund, (iii) changes in the relative population of the City, which affect the percentage of Local Government Half-Cent Sales Tax received by the City, and (iv) other factors which may be beyond the control of the City or the Bondholders, including but not limited to the potential for increased use of electronic commerce and other internet-related sales activity (pursuant to federal law, retail sales via the internet were exempt from sales tax until November 1, 2007) that could have a material adverse impact upon the amount of sales tax collected by the State and then distributed to the City. State Revenue Sharing. A portion of the taxes levied and collected by the State is shared with local governments under provisions of Chapter , Florida Statutes. The amount deposited by the 29

36 FDOR into the State Revenue Sharing Trust Fund for Municipalities is % of available sales and use tax collections after certain required distributions, 12.5% of the Florida alternative fuel user decal fee collections, and the net collections from the one-cent municipal fuel tax. To be eligible for State Revenue Sharing funds, a local government must have: (i) (ii) (iii) (iv) (v) (vi) (vii) reported its finances for its most recently completed fiscal year to the FDFS as required by Florida law; made provisions for annual post audits of financial accounts in accordance with provisions of law; levied, as shown on its most recent financial report, ad valorem taxes, exclusive of taxes levied for debt service or other special millages authorized by the voters, to produce the revenue equivalent to a millage rate of three (3) mills on the dollar based upon 1973 taxable values or, in order to produce revenue equivalent to that which would otherwise be produced by such three (3) mill ad valorem tax, to have received a remittance from the county pursuant to a municipal services benefit unit, collected an occupational license tax, utility tax, or ad valorem tax, or have received revenue from any combination of those four sources; certified that persons in its employ as law enforcement officers meet certain qualifications for employment, and receive certain compensation; certified that persons in its employ as firefighters meet certain employment qualifications and are eligible for certain compensation; certified that each dependent special district that is budgeted separately from the general budget of such county or municipality has met the provisions for annual post audit of its financial accounts in accordance with law; and certified to the FDOR that it has complied with certain procedures regarding the establishment of the ad valorem tax millage of the county or municipality as required by law. Eligibility is retained if the local government has met eligibility requirements for the previous three years, even if the local government reduces its millage or utility taxes because of the receipt of State Revenue Sharing funds. The amount of the State Revenue Sharing Trust Fund for Municipalities distributed to any one municipality is the average of three factors: an adjusted population factor; a sales tax collection factor, which is the proportion of the local City's ordinary sales tax distribution the municipality would receive if the distribution were strictly population-based; and a relative revenue-raising ability factor, which measures the municipality's ability to raise revenue relative to other qualifying municipalities in the State. To be eligible to participate in State Revenue Sharing in future years, the City must comply with certain eligibility and reporting requirements. If the City fails to comply with such requirements, the 30

37 FDOR may utilize the best information available to it, if such information is available, or take any necessary action including disqualification, either partial or entire, and the City shall further waive any right to challenge the determination of the FDOR as to its distribution, if any. Licenses and Permits These are revenues derived from the issuance of local business taxes and landlord licenses plus other miscellaneous licenses and permit fees. Such fees currently are a minor portion of the City's Non- Ad Valorem Revenues. Charges for Services All revenues resulting from a local unit's charges for services are reflected in this category and include those charges received from private individuals or other governmental units. The following functional areas include such charges: General government document reproduction fees, sales of maps & publications Public safety fees for police and fire protection services Physical environment charges including cemetery fees Planning and zoning fees for zoning changes and planning reviews Indirect services fees associated with services provided to City Proprietary Funds Transportation and parking including parking fees and decals Recreation and culture fees for special events, and parks and recreation activities such as athletics programs and swimming pool usage Other fees for services not specifically mentioned above Fines and Forfeitures Fines and forfeitures reflect those penalties and fines imposed for the commission of statutory offenses, violation of lawful administrative rules and regulations, and for neglect of official duty. Forfeitures include revenues resulting from parking and court fines as well as proceeds from the sale of contraband property seized by law enforcement agencies. Miscellaneous Revenues This category includes a variety of revenues and transfers from other funds, including: Interest earnings Gains (or losses) on sale of investments Rents and royalties Disposition of fixed assets Sales of surplus materials and scrap Contributions from private sources The following table represents the City's determination of Non-Ad Valorem Revenues for the City's fiscal years ending September 30, 2007 through September 30, Certain of such revenues may heretofore or hereinafter be specifically pledged to secure other indebtedness by the City. Any such debt 31

38 would be payable from such specific revenue sources prior to payment of debt service on the Bonds. Such table is not intended to represent revenues of the city which would necessarily be available to pay debt service on the Bonds, however they are an indication of the relative amounts of non-ad valorem revenues of the City which may be available for the payment of principal of and interest on the Bonds taking into account general government expenditures. Certain categories may cease to exist altogether and new sources may come about from time to time. CITY OF ST. AUGUSTINE, FLORIDA LEGALLY AVAILABLE NON-AD VALOREM REVENUES (UNAUDITED) Fiscal Year Ended September (1) Revenues: Franchise Fees $1,582,899 $1,231,158 $1,464,650 $1,415,038 $1,653,031 $1,456,000 Public Service Taxes 787, , , ,872 1,042,589 1,005,000 Communication Service Tax 960, , ,119 1,046,752 1,046,993 1,122,047 Six Cent Local Option Fuel Tax (2) (8) 671, , , , , ,883 Occupational Licenses 145, , , , , ,000 Building and Sign Permits (3) 441, , , , , ,000 Other Permits and Licenses (4) 75, ,735 24,457 22,195 50,159 49,640 State Revenue Sharing 1,773,137 1,689,308 1,569,489 1,525,328 1,475,126 1,508,713 County Revenue Sharing 40,141 40,054 39,038 38,428 38,777 36,000 General Government Service Fees 45,833 51,341 41,013 36,417 49,034 44,300 Parking Fees (5) 442, ,445 1,213,660 1,271,345 1,391,528 1,430,503 County Court Fines 62,592 67,437 45,413 56,891 56,883 49,200 Violations of Local Ordinance 37,409 27,504 32,418 52,618 47,971 32,500 Parking Fines and Forfeitures 276, , , , , ,000 Interest Earnings (6) (7) 819, ,543 98,034 32,093 24,326 23,076 Rental Income 690, , , ,834 1,151,374 1,183,957 Stormwater Revenues (8) 945, , , , , ,500 Municipal Marina Revenues (8) 2,715,243 2,728,022 2,010,009 2,269,165 2,554,847 3,003,170 Other Miscellaneous Revenue (8) 404, , , ,741 1,092, ,777 All Non-Ad Valorem Revenues $12,917,035 $11,938,565 $11,141,541 $11,788,419 $13,446,960 $13,069,266 Not Legally Available to Pay Debt Service on the Bonds (8) 4,736,794 4,552,812 3,636,838 4,135,216 4,941,013 4,649,330 Legally Available to Pay Debt Service on the Bonds $8,180,241 $7,385,753 $7,504,703 $7,653,204 $8,505,947 $8,419,936 Administrative Transfers $3,368,212 $2,675,852 $2,306,131 $1,983,565 $1,798,736 $1,979,090 Operating Transfers 1,083, , , , , ,190 Other Transfers 189, ,878 79,003 5, , ,316 Total Legally Available to Pay Debt Service on the Bonds $12,820,592 $11,219,195 $10,717,464 $10,493,284 $11,149,066 $12,000,532 Source: Finance Department, City of St. Augustine, Florida (1) Budgeted amounts. (2) The Six Cent Local Option Fuel Tax revenues may only be used on transportation expenditures, including (a) public transportation operation and maintenance; (b) roadway and right-of-way maintenance and equipment and structures used primarily for the storage and maintenance of such equipment; (c) roadway and right-of-way 32

39 drainage; (d) street lighting; (e) traffic signs, traffic engineering, signalization and pavement markings; (f) bridge maintenance and operation; and (g) debt service and current expenditures for transportation capital projects in the foregoing program areas including the construction and reconstruction of roads. The Six Cent Local Option Fuel Tax revenues cannot be used to pay debt service on the Bond. The Six Cent Local Option Fuel Tax revenues may not be available for the issuance of additional debt payable from a covenant to budget and appropriate Non-Ad Valorem Revenues if such additional debt is not financing an eligible transportation capital project. (3) In fiscal years 2008 through 2012, the number of building permits issued decreased and, therefore, the revenues from building and sign permits decreased. (4) As building permits decreased, archaeological permits issued within City limits also decreased, resulting in a decrease in revenues. Archeological permits are classified as "other permits." (5) The increase in parking fees are a result of the City increasing such fees from free - $0.25 to $ $1.50. (6) The portion attributable to earnings on ad valorem tax revenues may not be available to pay debt service on the Bonds. The City does not keep records to enable it to determine with precision the amount of earnings allocable to ad valorem tax revenues. (7) All of the City's accounts (e.g., SBA, checking, money market) have experienced significant drops in interest rates. (8) These revenues are not legally available to pay debt service on the Bonds because they are not available to finance the types of capital improvements originally financed by the Refunded Bonds. The following table represents current debt service on Non-Ad Valorem Revenue Obligations of the City following the issuance of the Bonds and the refunding of the Refunded Bonds: CITY OF ST. AUGUSTINE, FLORIDA DEBT SERVICE SCHEDULE FOR NON-AD VALOREM REVENUE OBLIGATIONS Description Source of Security Principal Amount Outstanding (1) Final Maturity Maximum Annual Debt Service Capital Improvement and Refunding Revenue Bonds, Series 2004 Capital Improvement Revenue Bonds, Series 2011 Capital Improvement Refunding Revenue Bonds, Series 2011B Covenant to budget and appropriate Non- Ad Valorem Revenues Covenant to budget and appropriate Non- Ad Valorem Revenues Covenant to budget and appropriate Non- Ad Valorem Revenues $21,149,999 October 1, 2034 $2,273, $16,215,000 October 1, 2041 $2,881, $10,440,000 October 1, 2030 $906, Source: Finance Department, City of St. Augustine, Florida as of September 30, (1) The principal amount outstanding for the Series 2004 Bonds is as of September 30,

40 Since there is no lien on the Non-Ad Valorem Revenues in favor of the Holders of the bonds, the exercise of remedies by the holders of the other obligations heretofore or hereafter issued which are payable from Non-Ad Valorem Revenues may result in the payment of debt service on any such obligations prior to the payment of debt service on the Bonds. Future Financing Plans Subject to the provisions of the Resolution, the City may in the future issue additional debt payable from a covenant to budget and appropriate Non-Ad Valorem Revenues, which is the security for the Bonds or issue debt payable from a specific source of Non-Ad Valorem Revenues. See "SECURITY FOR THE BONDS Anti-Dilution" herein. CERTAIN FINANCIAL MATTERS Investment Policy The City's comprehensive investment policy follows the requirements of Section , Florida Statutes, that established permitted investments, asset allocation limits, credit ratings requirements and maturity limits to protect the City's case and investment assets. Section , Florida Statutes, governs the City's investment policies. The basic allowable investment instruments include the Local Government Surplus Funds Trust Fund ("State Board"); Securities and Exchange Commission ("SEC") registered money market funds with the highest credit quality rating; interest-bearing time deposits or savings accounts in qualified public depositories; direct obligations of the United States Treasury; Federal agencies and instrumentalities; other investments authorized by law or ordinance for a county or municipality. The State Board consists of the Local Government Surplus Trust Fund (the "Florida PRIME") and the Fund B Surplus Funds Trust Fund (the "Fund B"). The Florida PRIME is currently considered a SEC 2a7-like fund, thus the account balance should also be considered the fair value of the investment. Florida PRIME is rated by Standard & Poor's and currently has a rating of AAAm. The Florida PRIME balance of $20,811,904 had a weighted average of 52 days to maturity as of September 1, The Fund B is accounted for as a fluctuating net asset value (NAV) pool. The Fund B is not rated by any nationally recognized statistical rating agency. The fair value of the City's Fund B investment was $820,772 and had a weighted average life of 7.49 years as of September 1, A government money market account with a qualified public depository was established by the City in This account is fully collateralized and held a balance of $4,502,874 as of September 1, A second account with a qualified public depository was established by the City in This account is fully collateralized and held a balance of $4,026,378 as of September 1, Financial and Operating Plan (Budget) and Capital Program The City has consistently received the Government Finance Officers Association of the United States and Canada ("GFOA") Certificate of Achievement for its budget presentations. The City primarily uses incremental budgeting with input from all City departments. The budget process begins in January of each year and the final budget for the upcoming fiscal year beginning October 1 is usually approved by the Commission in September of each year. 34

41 The Commission has adopted a long-term major capital improvement plan, which requires periodic asset reviews to include maintenance and replacement costs. The long-term major capital improvement plan, which is part of the policy coordinates capital needs and the impact of those capital needs on operating budgets. Financial Reporting The Government Finance Officers Association of the United States and Canada (the "GFOA") awarded a Certificate of Achievement for Excellence in Financial Reporting to the City for its Comprehensive Annual Financial Report for the fiscal year ended September 30, This is the 18th consecutive year that the City has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. General Fund The General Fund is the general operating fund of the City. It accounts for all financial resources except for those required to be accounted for in another fund. The largest source of revenue in this fund, is ad valorem taxation (bondholders cannot compel that ad valorem taxes be used to pay debt service on the Bonds). Revenues deposited in the General Fund do not directly correspond to the Non-Ad Valorem Revenues from which debt service on the Bonds is payable as some General Fund revenues are not legally available to pay debt service on the Bonds and some Non-Ad Valorem Revenues are not deposited into the General Fund. Operations are removed from the General Fund only when they are deemed to be true enterprise operations. Although the Bonds are not payable from ad valorem taxation, approximately 50% of General Fund revenues which are collected by the City come from ad valorem taxes. To the extent that the future collection of ad valorem tax revenues or non-ad valorem revenues is adversely affected, a larger portion of non-ad valorem revenues would be required to balance the budget and provide for the payment of services and programs which are for essential public purposes affecting the health, safety and welfare of the inhabitants of the City or which are mandated by applicable law. The following chart shows information regarding the General Fund for the City's fiscal years ending September 30, 2006 through September 30, 2012: [Remainder of page intentionally left blank] 35

42 CITY OF ST. AUGUSTINE, FLORIDA GENERAL FUND REVENUES AND EXPENSES (1) 2012 (1) REVENUES Taxes $ 13,554,918 $13,332,620 $13,517,204 $13,263,435 $10,838,911 $10,246,810 Intergovernmental 2,068,730 2,245,402 2,333,177 2,591,499 2,326,402 1,684,553 Licenses, Permits and Fees 3,373,399 3,214,860 3,664,195 3,982,266 4,399,033 4,235,905 Fines and forfeitures 376, , , , , ,700 Administrative Service Charges (2) 3,368,212 2,675,852 2,306,131 1,983,565 1,798,737 1,979,090 Investment Income (3) 819, ,543 98,035 32,093 24,326 23,076 Proceeds from Sale of Land Miscellaneous 1,275,481 1,543,235 1,726,757 1,676,703 2,620,888 1,605,604 TOTAL REVENUES $24,836,271 $23,719,446 $23,939,922 $23,810,435 $22,301,958 $20,042,738 EXPENDITURES Current: General Government 7,041,423 7,025,791 7,144,545 7,169,422 6,637,552 6,533,417 Public Safety 7,705,333 7,823,977 8,157,878 8,143,485 8,193,196 8,152,232 Physical Environment 3,466,862 3,489,882 3,354,800 3,346,170 3,829,783 3,823,502 Transportation 1,144,871 1,152,404 1,102,977 1,112, , ,560 Culture/Recreation 532, , , , , ,615 Capital Outlay 1,166, ,071 1,063,839 1,689,786 1,446, ,577 Total expenditures $21,058,007 $20,932,845 $21,349,627 $21,979,202 $20,838,560 $19,677,903 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 3,778,264 2,786,601 2,590,295 1,831,233 1,463, ,835 OTHER FINANCING SOURCES (USES) Transfers in 1,273,310 1,158, , ,571 1,284,711 1,601,506 Transfers out (4,750,895) (2,463,716) (5,216,409) (3,540,876) (3,294,541) (2,916,341) BEGINNING FUND BALANCE 12,397,753 12,698,432 14,179,471 12,460,194 11,607,122 11,607,122 ENDING FUND BALANCE $12,698,432 $14,179,471 $12,460,194 $11,607,122 $12,041,084 $12,041,084 Reserved Portion $796,284 $1,208,861 $1,060,567 $902,849 $1,726,413 $879,600 Unreserved Portion $11,902,148 $12,970,610 $11,399,627 $10,704,273 $10,314,671 $11,161,484 Source: Finance Department, City of St. Augustine, Florida. (1) 2011 is unaudited and 2012 is budgeted amounts. (2) Administrative service charges are calculated as a percentage of the total budget. As the budgeted expenditures have decreased, the administrative charges have decreased as well. (3) All of the City's accounts (e.g., SBA, checking, money market) have experienced significant drops in interest rates. 36

43 While the table above is not intended to represent revenues of the City which would necessarily be available to pay debt service on the Bonds, they are an indication of the relative amounts of legally available non-ad valorem revenues of the City which may be available for the payment of principal of and interest on the Bonds taking into account general governmental expenditures. The ability of the City to appropriate Non-Ad Valorem Revenues in sufficient amounts to pay the principal of and the interest on the Bonds is subject to a variety of factors, including the City's satisfaction of funding requirements for obligations having an express lien on or pledge of such revenues and after satisfaction of funding requirements for essential governmental services of the City. No representation is being made by the City that any particular non-ad valorem revenue source will be available in future years, or if available, will be budgeted to pay debt service on the Bonds. Continued consistent receipt of non-ad valorem revenues is dependent upon a variety of factors, including aggressive annexation policies by the City or greater growth in the incorporated areas of the City as compared to unincorporated areas could have an adverse effect on non-ad valorem revenues. The amounts and availability of any of the non-ad valorem revenues to the City are also subject to change, including reduction or elimination by change of State law or changes in the facts or circumstances according to which certain of the non-ad valorem revenues are allocated. In addition, the amount of certain of the non-ad valorem revenues collected by the City is directly related to the general economy of the City. Accordingly, adverse economic conditions could have a material adverse effect on the amount of non-ad valorem revenues collected by the City. The City may also specifically pledge certain of the non-ad valorem revenues or covenant to budget and appropriate legally available non-ad valorem revenues of the City to future obligations that it issues. In the case of a specific pledge, such non-ad valorem revenues would be required to be applied to such obligations prior to paying the principal of and interest on the Bonds. Classification of Local Government Expenditures The City of St. Augustine classifies its expenditures in accordance with the Uniform Accounting System devised by the Florida Department of Financial Services. General government expenditures arise from operations of legislative and administrative activities of the local government. These costs are related to operations of the Commission, the City Manager's office, pension benefits, comprehensive planning, financial operations, legal expenses and other general government services. Public safety expenditures reflect all costs associated with the City's police and fire department operations, as well as emergency disaster relief services and protective inspections. Physical environment expenditures include the costs of providing economic development activities, housing opportunities and related programs, and other activities intended to raise the economic status of the citizenry. Culture and recreation expenditures include the City's costs of operating parks and recreation facilities and of offering special events, cultural services and programs and similar services. assets. Capital Outlay expenditures reflect the City's activities for the acquisition of or addition to fixed 37

44 Insurance Considerations Affecting the City LIABILITIES OF THE CITY The City provides insurance coverage for much of city government through the use of specific insurance contracts with various companies. The cost associated with these insurance contracts has increased dramatically in recent years. The City currently does not insure on a self-insurance basis for any of its insurance needs. The City is exposed to various risks of losses related to torts, theft of, damage to, and destruction of assets, errors and omissions, injuries to employees, and natural disasters. A small portion of the risk is covered by commercial insurance. The majority of this risk (Workers Compensation, Property and Liability) is covered through the Florida Municipal Insurance Trust (the "Trust"). The City pays an annual premium to the Trust for its coverage. The premiums are designed to fund the liability risk assumed by the Trust and are based on certain actual exposures and appropriate classifications of each member. The coverage provided for Workers Compensation is $1,000,000 for each occurrence. Coverage provided for Property and Liability is $100,000 for each person and $200,000 for each occurrence. The City also has Specific Excess Coverage of $1,000,000 through the Trust. There were no claims paid that exceeded coverage in the past three fiscal years. Employee medical benefits are covered by commercial insurance. The City Attorney estimates that the current amount of these actual or potential claims against the City would not materially affect the financial condition of the City. Therefore, the financial statements contain no provision for estimated claims. Ability to be Sued, Judgments Enforceable Notwithstanding the liability limits described below, the laws of the State provide that each city has waived sovereign immunity for liability in tort to the extent provided in Section , Florida Statutes. Therefore, the City is liable for tort claims in the same manner and, subject to limits stated below, to the same extent as a private individual under like circumstances, except that the City is not liable for punitive damages or interest for the period prior to judgment. Such legislation also limits the liability of a city to pay a judgment in excess of $100,000 to any one person or in excess of $200,000 because of any single incident or occurrence. Judgments in excess of $100,000 and $200,000 may be rendered, but may be paid from City funds only pursuant to further action of the Florida Legislature in the form of a "claims bill." See "LIABILITIES OF THE CITY Insurance Considerations Affecting the City" herein. Notwithstanding the foregoing, the City may agree, within the limits of insurance coverage provided, to settle a claim made or a judgment rendered against it without further action by the Florida Legislature, but the City shall not be deemed to have waived any defense or sovereign immunity or to have increased the limits of its liability as a result of its obtaining insurance coverage for tortuous acts in excess of the $100,000 or $200,000 waiver provided by Florida Statutes. See "LITIGATION" herein. In the 2010 Legislative Session, the Florida Legislature passed Senate Bill 2060 ("SB 2060"). Effective October 1, 2011, the limited waiver of sovereign immunity applicable to the state, its agencies and subdivisions raises from $100,000 per individual claim and $200,000 per aggregate claims, to $200,000 per individual claim, and $300,000 per aggregate claim, on the collectability of any tort judgment. At this time, it is uncertain the affect SB 2060 will have on the City's finances. 38

45 Direct Debt The City has met certain of its financial needs through debt financing. The table which follows is a schedule of the expected outstanding debt of the City General Government after October 1, 2011, including the Bonds and omitting the Refunded Bonds. Principal Amount Issued Principal Amount Outstanding after October 1, 2011 Revenue Bonds Water and Sewer, Revenue Refunding Bonds, Series 2005 (1) $21,435,000 $8,735,000 Water and Sewer, Revenue Bonds, Series 2003 (1) 9,363,854 9,363,854 Capital Improvement & Reserve Refunding Bonds, Series 2004 (2) 22,155,000 20,835,000 Capital Improvement Revenue Bonds, Series 2011 (2) 16,215,000 16,215,000 Capital Improvement Refunding Revenue Bonds, Series 2011B (2) 10,440,000 10,440,000 Total Direct Debt $79,608,854 $65,588,854 (1) These bonds are secured by water and sewer net revenues. (2) These bonds are secured by a covenant to budget and appropriate funds sufficient to pay the debt service on the loan from legally available non-ad valorem revenues of the City, the same source of security for the Bonds. Source: City of St. Augustine, Florida Finance Department. PENSION AND OTHER POST EMPLOYMENT BENEFIT PLANS The information relating to the General System, Police System and Fire System (collectively, the "Pension Systems") and OPEB Plan (each, as defined herein) contained in this Official Statement has been obtained from each plan's actuarial reports and the City's Comprehensive Annual Financial Report. No representation is made by the City as to the accuracy or adequacy of such information or that there has not been any material adverse change in such information subsequent to the date of such information. As described in more detail below, the city has three separate pension funds for the General Employees' Retirement System, the Police Officer's Retirement System and the Firefighters' Retirement System. The City's payment of obligations is determined during the budget process. General Employees' Retirement System Plan Description. The City General Employees' Retirement System (the "General System"), a single-employer defined benefit pension plan, was authorized in its original form by City Ordinance No , amending Chapter 20, Article IV of the Code of the City of St. Augustine, effective September 26, City Ordinance No was amended by City Ordinances Nos , , and , which is the current ordinance in effect for the plan. The General System is classified as a fiduciary trust fund of the City administered by the Board of Trustees General Employees' Retirement System, which is composed of five members (two members appointed by the Commission, two members elected by the general employees and one member who is appointed by the other board members) (the 39

46 "General Trustees"). The General System is presented as a blended component unit of the City and standalone financial reports can be obtained through the City Clerk's office. Any full-time City employee (those who work 40 or more hours per week), other than regular members of the Police and Fire Departments of the City, is eligible to become a member of this System. The City Manager may elect not to participate in the System. As of September 30, 2010, the General System had 233 active participants, 116 retirees/beneficiaries and 9 vested terminated participants. The annual covered payroll for eligible employees covered by this General System was $9,118,329. As stipulated by City Ordinance No , authority to establish and amend benefit provisions of the General System rest with the Commission, along with the authority to provide for cost of living adjustments. Benefits are calculated using the average of the 60 highest months of earnings within the last 120 months as of retirement or termination. For each year of credited service to a maximum of 35 years, monthly benefits shall be earned at the rate of two and a half percent of the member's average final salary. A supplemental annuity benefit is available to senior managers and directors pay grade 32 and above who retire after March 31, 2002, with ten or more years of credited service earned after March 31, The annuity amount is 0.5 percent of final average compensation times credited service up to 35 years for service in pay grades 32 through 35 and one percent of final average compensation times credited service up to 35 years for pay grades 36 and higher. Benefits are paid for the life of the participant with 60 percent continued to a surviving eligible spouse, unless optional forms of payments are elected. Eligibility for normal retirement is the earlier of age 65 and five years of service, age 60 and ten years of service, or age 55 and 25 years of service. No benefits will be paid to a member upon termination if the termination occurs prior to the completion of ten years of service. The member, however, will receive his or her contribution to the plan, along with 3 percent interest. If a member of the System dies a non-duty death or becomes disabled prior to five years of service, the member or beneficiary will receive a refund of the member's contribution to the fund. If a member dies in the line of duty or has five years of service, the eligible spouse will receive 60 percent of the projected benefits (with service credit extended to age 60) and eligible children will receive ten percent of the projected benefits to a maximum of 20 percent. Duty related disability with five or more years of service provides benefits under the group disability insurance contract. Upon termination of insurance, the pension benefit is computed as a normal retirement with additional service credit granted. Members with ten or more years of service who have attained age and service conditions for normal retirement but are within five years of the earliest normal retirement date may elect to have their terminated benefits calculated as if the member had retired at an eligible normal retirement date up to five years earlier on or after February 13, Benefits that would have been payable are accumulated at interest to date of termination and paid or rolled over in a single sum, and payments are made directly to the member thereafter. In the event the General System terminates, the assets of the retirement system shall be apportioned and distributed in accordance with the established provisions of Section of the City of St. Augustine Code, which provides for the distribution of assets in the following order: (a) to provide for all expenses of the Plan including any cost of liquidation; then (b) to provide for the payment of each participant and non-retired former participant an amount equal to his or her accumulated participant 40

47 contributions; then (c) to provide for the continuance of retirement allowances to retirees and beneficiaries; then (d) to provide for the potential rights of participants and former participants entitled to a vested termination retirement allowance; then (e) to revert back to the City if any excess exists after satisfying subsections (a) through (d) above. The General System is a governmental benefit plan and is tax exempt under the Internal Revenue Service ("IRS") Code. Summary of Accounting Policies. The financial statements of the General System are prepared using the accrual basis of accounting in conformity with generally accepted accounting principles. Under this basis, revenue is recognized in the period earned, expenses are recognized in the period the obligation is incurred, and employee and employer contributions are recognized as revenue in the period in which the employee services are performed. Asset valuation is based on a five year weighted average of the difference between market value and expected market value. Due to the recent financial market problems and reduced investment earnings, the City's contribution for at least the next two years will be greater than the most recent contributions made by the City due to the weighted average calculation. The City considers such increases to be not material and is prepared to make such increased contributions. Funding Policy, Contributions, Status and Progress. The General System is funded under the provisions of Chapter 20, Article IV, St. Augustine Code and Chapter 112, Florida Statutes. Funding arrangements include contributions by retirement system members, the City, and investment income from retirement system assets. Administrative costs of the System are financed through investment earnings. Effective November 8, 1988, contributions by retirement system members are based on four percent of compensation while the City contributes one percent of compensation on behalf of the employees for a total of five percent of salary. The General System provides for periodic employer contributions at actuarially determined rates that, expressed as percentages of annual covered payroll, are sufficient to accumulate sufficient assets to pay benefits when due. The following is funded status information for the plan as of October 1, 2010, the most recent actuarial valuation date (in thousands): [Remainder of page intentionally left blank] 41

48 Actuarial Valuation Date Market Value of Assets (1) Actuarial Value of Assets Actuarial Accrued Liability (AAL) Entry Age 42 Unfunded AAL (UAAL) UAAL as a % of Covered Payroll Funded Ratio Covered Payroll 9/30/2004 $16,992 $17,076 $17,874 $ % $7, % 9/30/ ,818 18,481 19,674 1, , /30/ ,279 20,135 22,726 2, , /30/ ,074 22,172 25,909 3, , /30/ ,443 23,258 27,153 3, , /30/ ,858 23,817 29,574 5, , /30/ ,019 24,932 31,861 6, , (1) True value of assets. Variation from GASB 27 amounts entitled "Total Assets Available for Pensions" are due to inclusion of accounts payable in the chart above. Source: St. Augustine General Employees' Retirement Plan, 2010 GASB 27 Disclosure, February 2011 prepared by Actuarial Concepts. Market value of assets from audited financial statements of the General System for each fiscal year, except fiscal year ended September 30, 2010 which is from the quarter end performance report for as of September 30, Annual Pension Cost. For 2010, the City's annual pension cost for the General System was $1,250,914. The City's actual contribution was $1,206,532. The annual required contribution for the current year was determined using the actuarial valuation using the entry age actuarial cost method actuarial assumption in effect for the fiscal year. Actuarial Assumptions and Actuarial Cost Method. The actuarial assumptions in effect for the fiscal year, included (a) eight percent investment rate of return (compounded annually); (b) projected salary increases ranging from four percent to eight percent per year depending on age; and (c) three and a half percent rate of inflation. The assumptions did not include postretirement benefit increases. The actuarial value of assets was determined by adjusting the expected values of assets as of any valuation date by a portion of the cumulative differences of the market value of assets and the expected actuarial value of assets. Each difference is fully recognized over a period not to exceed five years. To determine the General System's contribution requirements, the Individual Entry Age Actuarial Cost Method was used. Under this method, the cost of each member's projected retirement benefit is funded through a series of annual payments, determined as a level percentage of each year's earnings from age at hire to assumed exit age. This level percentage, known as normal cost, is thus computed as though the General System had always been in effect. A yearly normal cost for each member is individually determined by multiplying each member's level percentage by the applicable yearly earnings, then adding together to obtain the normal cost amount for the General System for that year. The accrued value of normal cost payments due prior to the valuation date is termed the actuarial accrued liability (the "AAL"). This amount minus the actuarial value of assets is known as the unfunded actuarial accrued liability (the "UAAL"). The annual cost of a plan consists of two components: normal cost and an amortization payment, which may vary between prescribed limits, toward the UAAL.

49 Fiscal Year Ended Annual Pension Cost (APC) Percentage of APC Contributed Net Pension (Asset) 9/30/2007 $ 631, % $(428,044) 9/30/ , (558,116) 9/30/2009 1,157, (593,598) 9/30/2010 1,250, (549,216) Source: St. Augustine General Employees' Retirement Plan, 2010 GASB 27 Disclosure, February 2011 prepared by Actuarial Concepts. The City's annual pension cost and net pension obligation (the "NPO") to the General System for the fiscal year ended September 30, 2010 were developed as follows: Fiscal Year Ended September 30, 2010 Annual Annual Required City Contribution (ARC) $1,215,253 Interest on NPO (47,488) Adjustment to ARC 83,149 Annual Pension Cost 1,250,914 Contributions Made 1,206,532 Decrease in NPO 44,382 NPO Beginning of Year (593,598) NPO End of Year $(549,216) Source: St. Augustine General Employees' Retirement Plan, 2010 GASB 27 Disclosure, February 2011 prepared by Actuarial Concepts. Police Officers' Retirement System Plan Description. The St. Augustine Police Officers' Retirement System (the "Police System"), a single-employer defined benefit plan, was created June 1, 1957, by the City of St. Augustine, Article X of the St. Augustine Code, under the provisions of general law pertaining to Municipal Police Officers' Retirement Trust Fund (Chapter 185, Florida Statutes). Article X of the St. Augustine Code was amended by City Ordinances Nos , , , , and The Police System is administered by the Board of Trustees St. Augustine Police Officers' Retirement System, which is composed of five members (two members appointed by the Commission, two members elected by employees of the police department and one member who is appointed by the other board members) (the "Police Trustees"). The Police System is presented as a blended component unit of the City and standalone financial reports can be obtained through the City Clerk's office. All full-time police officers who are regular members of the police department of the City of St. Augustine are members of this retirement system. As of September 30, 2010, the System had 47 active participants, 19 retirees/beneficiaries, two Deferred Retirement Option Program ("DROP") retirees, three disabled participants and six vested/terminated participants. The total payroll for eligible employees covered by this Police System was $2,565,

50 As stipulated by City Ordinance No , authority to establish and amend benefit provisions of the retirement system rests with the City Commission, along with the authority to provide cost of living adjustments. Benefits are calculated using the average of the highest five years of earnings within the last ten years of creditable service. For each year of creditable service, monthly benefits shall be earned at the rate of two and one half percent to three percent of the member's average final salary. Benefits are paid for life with 120 monthly payments guaranteed. Eligibility for normal retirement is the earlier of age 55 and ten years of service or 25 years of service regardless of age. No benefits will be paid to a member upon termination if termination occurs prior to the completion of ten years of service. If a Police System member dies before becoming eligible for any retirement benefits, the beneficiary will receive a refund, not including interest, of the deceased's member contributions to the fund. If ten years of creditable service had been attained, then the accrued benefit of the member is due to the surviving spouse, payable in 120 monthly payments. Disability benefits are based on the accrued benefit and are due to the member as of the disability retirement date. Minimum benefit is 42 percent of the average monthly earnings if the disability occurred in the line of duty, otherwise, the minimum benefit would be 25 percent of the average monthly benefits. In the event the plan terminates, or upon written notice to the Police Trustees that contributions they are under are being permanently discontinued, the assets of the retirement system shall be apportioned and distributed in accordance with the established provisions of Section , Florida Statutes. The amount of benefits which at the time of termination has accrued to the member or beneficiary shall not be affected, except to the extent that the assets of the retirement system may be determined to be inadequate. The plan is a governmental benefit plan and is tax exempt under the IRS Code. Summary of Accounting Policies. The financial statements of the Police System are prepared using the accrual basis of accounting in conformity with generally accepted accounting principles. In addition, fair value is used in the financial statements in presenting investments. Under this basis, revenue, including net changes in fair value of investments, is recognized in the period earned, expenses are recognized in the period the obligation is incurred, and employee and employer contributions are recognized as revenue in the period in which the employee services are performed. Quoted market prices, not original costs, are used to value investments as provided by Salem Trust Company, investment custodians for the plan. Many factors are considered in determining the fair value of these investments. The results of these factors may cause the fair value of these investments to increase or decrease during the course of the year. On many occasions, the fair value may be higher or lower than the original purchase price of the investment. Funding Policy, Contributions, Status and Progress. The Police System is funded under the provisions of Article X, Section 10.03, St. Augustine Code and Chapter , Florida Statutes. Funding arrangements include contributions by retirement system members, the City, percentage of casualty insurance premiums collected on property located within the corporate limits of the City, accretions to the fund by way of interest on bank deposits or otherwise, and any other source of income authorized by law to increase the retirement fund. Contributions by retirement system members are based on five and a half percent of compensation while the City contributes an additional one and a half percent of compensation. 44

51 The Police System's funding policy provides for periodic employer contributions at actuarially determined rates that, expressed as percentages of annual covered payroll, are sufficient to accumulate sufficient assets to pay benefits when due. The following is funded status information for the plan as of October 1, 2010, the most recent actuarial valuation date (in thousands): Actuarial Valuation Date Market Value of Assets (1) Actuarial Value of Assets Actuarial Accrued Liability (AAL) Entry Age Unfunded AAL (UAAL) UAAL as a % of Covered Payroll Funded Ratio Covered Payroll 9/30/2004 $9,682 $10,267 $ 9,774 $(493) % $2, % 9/30/ ,710 10,566 11, , /30/ ,447 11,383 11, , /30/ ,991 12, , /30/ ,195 12,951 13, , /30/ ,782 12,759 13, , /30/2010 N/A 13,078 13, , (1) True value of assets. Variation from GASB 27 amounts entitled "Total Assets Available for Pensions" are due to inclusion of accounts payable in the chart above. Source: St. Augustine General Employees' Retirement Plan, 2010 GASB 27 Disclosure, February 2011 prepared by Actuarial Concepts. Market value of assets from audited financial statements of the Police System for each fiscal year, except fiscal year ended September 30, 2010 which is from the quarter end performance report for as of September 30, Asset valuation is based on a five year weighted average of the difference between market value and expected market value. Due to the recent financial market problems and reduced investment earnings, the City's contribution for at least the next two years will be greater than the most recent contributions made by the City due to the weighted average calculation. The City considers such increases to be not material and is prepared to make such increased contributions. Annual Pension Cost. For 2010, the City's annual pension cost was $394,821. The actual contribution was $326,733. Actuarial Assumptions and Actuarial Cost Method. The actuarial assumptions in effect for the fiscal year included (a) eight percent investment rate of return (compounded annually); (b) projected salary increases ranging from four and a half percent to eight percent per year; and (c) three and a half percent rate of inflation. The assumptions did include post retirement benefits with a cost of living adjustment of up to three percent. The actuarial value of assets was determined by adjusting the expected value of assets as of any valuation date by a portion of the cumulative differences of the market value of assets and the expected actuarial value of assets starting from October 1, Each difference is fully recognized over a period not to exceed five years. 45

52 To determine the Police System's contribution requirements, the Individual Entry Age Actuarial Cost Method was used. Under this method, the cost of each member's projected retirement benefit is funded through a series of annual payments, determined as a level percentage of each year's earnings from age at hire to assumed exit age. This level percentage, known as normal cost, is thus computed as though the Police System had always been in effect. A yearly normal cost for each member is individually determined by multiplying each member's level percentage by the applicable yearly earnings, then adding together to obtain the normal cost amount for the Plan for that year. The annual cost of a plan consists of two components: normal cost and an amortization payment, which may vary between prescribed limits, toward the UAAL. It is intended that any negative UAAL be amortized over a 15-year period from valuation date (each valuation will restart a 15-year amortization of the then current balance of the surplus). Once the UAAL is no longer in a surplus position, it is intended that UAAL bases subsequently established due to increases or decreases in liabilities attributable to changes in plan provisions and/or actuarial assumptions be amortized over 30 years from inception and actuarial gains and losses over 15 years. Fiscal Year Ended Annual Pension Cost (APC) Percentage of APC Contributed Net Pension (Asset) 9/30/2007 $469,050 79% $(198,443) 9/30/ , (164,254) 9/30/ , (103,824) 9/30/ , (35,736) Source: St. Augustine Police Officers' Retirement Plan, 2010 GASB 27 Disclosure, February 2011 prepared by Actuarial Concepts. The City's annual pension cost and NPO to the Police System for the fiscal year ended September 30, 2010 were developed as follows: Fiscal Year Ended September 30, 2010 Annual Annual Required City Contribution (ARC) $390,534 Interest on NPO 8,306 Adjustment to ARC (12,593) Annual Pension Cost 394,821 Contributions Made 326,733 Decrease in NPO 68,088 NPO Beginning of Year (103,824) NPO End of Year $(35,736) Source: St. Augustine Police Officers' Retirement Plan, 2010 GASB 27 Disclosure, February 2011 prepared by Actuarial Concepts. Firefighters' Retirement System Plan Description. The City of St. Augustine Firefighters' Retirement System (the "Fire System"), a single-employer defined benefit pension plan, was authorized in its present form by City Ordinance No , amending Chapter 20, Article V of the Code of the City of St. Augustine, effective December 4, 46

53 1987. The Fire System is classified as a fiduciary trust fund of the City administered by Board of Trustees St. Augustine Firefighters' Pension Fund, which is composed of five members (two members appointed by the Commission, two members elected by the employees of the fire department and one member who is appointed by the other board members) (the "Fire Trustees"). The Fire System is presented as a blended component unit of the City and stand-alone financial reports can be obtained through the City Clerk's office. Any City full-time firefighter and retired firefighter is eligible to become a member of this System. As of September 30, 2010, the Fire System had 30 active participants and 22 retirees/beneficiaries, one terminated vested and one disability retiree. The total payroll for employees covered by this System for the year ended September 30, 2010 was $1,381,622. As stipulated by City Ordinance No , authority to establish and amend benefit provisions of the Fund rest with the City Commission, along with the authority to provide for cost of living adjustments. Benefits are calculated using the average of the highest five years of earnings within ten years of retirement or termination. For each year of credited service to a maximum of 35 years, monthly benefits shall be earned at the rate of three percent of the member's average final compensation. Benefits are paid for the life of the participant with ten years certain. Eligibility for normal retirement is the earlier of age 55 and 10 years of credited service or 25 years of credited service, regardless of age. No benefits will be paid to a participant if termination occurs prior to the completion of ten years of service. Such participants, however, will receive their contributions to the plan along with three percent interest. If a member of the Fire System dies a non-duty death prior to five years of service, the beneficiary will receive the member's contribution with three percent interest. If a member dies in the line of duty or has five years of credited service, the beneficiary will receive the value of accrued benefits based on the member's average final compensation and credited service. Disability benefits, as determined by the Fire Trustees, are the member's accrued benefits, but not less than 42 percent of average final compensation for service incurred and 25 percent for non-service incurred disabilities. Benefits are paid in the form of a ten-year certain and life annuity. In the event the plan terminates, the assets of the retirement system shall be apportioned and distributed in accordance with the established provisions of Section of the Code of the City of St. Augustine. The amount of benefits, which at the time of termination has accrued to the member or beneficiary shall not be affected except to the extent that the assets of the retirement system may be determined to be inadequate. The plan is a governmental benefit plan and is tax exempt under the IRS Code. Summary of Accounting Policies. The financial statements of the Fire System are prepared using the accrual basis of accounting in conformity with generally accepted accounting principles. Under this basis, revenue is recognized in the period earned, expenses are recognized in the period the obligation is incurred, and employee and employer contributions are recognized as revenue in the period in which the employee services are performed. Investments are reported at fair value as provided by the Fire System's investment manager. The investment manager arrives at fair value through the use of broker and pricing services. 47

54 Funding Policy, Contributions, Status and Progress. The Fire System plan was created in 1987 under City Ordinance No amending Section 20, Article V of the Code of the City of St. Augustine, Florida. The Fire System was amended in 1993, 1995, 2000, 2001, 2005 and In addition, the Fire System is a local law plan subject to provisions of Chapter 175, Florida Statutes. Funding arrangements include contributions by retirement system members, the City, 1.85 percent premium tax for property insurance and investment income from the retirement system assets. Administrative costs of the fund are financed through investment earnings. For the fiscal year ended September 30, 2010, the state premium tax revenue was $163,863 and the City expended the full amount to the Pension Fund. Effective September 22, 2008, contributions by Fire System members are based on five percent of compensation while the City contributes one percent of compensation on behalf of members. Previously, retirement system members contributed four percent. The Fire System's funding policy provides for periodic employer contributions at actuarially determined rates that, expressed as percentages of annual covered payroll, are sufficient to accumulate sufficient assets to pay benefits when due. The City was required to make an actuarial contribution of 10.6 percent during the Fiscal Year ended September 30, The following is funded status information for the plan as of October 1, 2010, the most recent actuarial valuation date (in thousands): Actuarial Valuation Date Market Value of Assets (1) Actuarial Value of Assets Actuarial Accrued Liability (AAL) Entry Age Unfunded AAL (UAAL) Funded Ratio Covered Payroll UAAL as a % of Covered Payroll 9/30/2004 $6,694 $6,608 $7,868 $1, % $ % 9/30/2005 7,314 6,904 8,311 1, /30/2006 7,776 7,428 8,771 1, /30/2007 8,763 8,089 9,377 1, , /30/2008 7,458 8,222 8,031 (191) , /30/2009 7,443 8,301 8,192 (109) , /30/2010 7,991 8,390 8,207 (183) , (1) True value of assets. Variation from GASB 27 amounts entitled "Total Assets Available for Pensions" are due to inclusion of accounts payable in the chart above. Source: St. Augustine Police Firefighters' Retirement Plan, Actuarial Valuation as of October 1, 2010, February 2011 prepared by Foster&Foster. Market value of assets from audited financial statements of the Fire System for each fiscal year. Annual Pension Cost. For 2010, the City's annual pension cost was $211,905. The City's actual contribution was $202,533. The annual required contribution for the current year was determined as part of the actuarial valuation assumption in effect for the fiscal year using the frozen entry age actuarial cost method. The actuarial assumptions in effect for the fiscal year included (a) seven and a half percent investment rate of return; (b) projected salary increases ranging from four and a half percent to six and a half percent; and (c) 3% rate of inflation. 48

55 The actuarial value of assets was determined by adjusting the expected value of assets as of any valuation date by a portion of the cumulative differences of the market value of assets and the expected actuarial value of assets starting from October 1, Each difference is fully recognized over a period not to exceed five years. The unfunded actuarial liability is being amortized over 15 years as a level percentage of projected payroll on a closed basis. Due to the recent financial market problems and reduced investment earnings, the City's contribution for at least the next two years will be greater than the most recent contributions made by the City due to the weighted average calculation. The City considers such increases to be not material and is prepared to make such increased contributions. Fiscal Year Ended Annual Pension Cost (APC) Percentage of APC Contributed Net Pension (Asset) 9/30/2007 $ 2, % $(304,668) 9/30/ , (336,036) 9/30/ , (380,252) 9/30/ , (366,036) Source: St. Augustine Police Firefighters' Retirement Plan, Actuarial Valuation as of October 1, 2010, February 2011 prepared by Foster&Foster. Fiscal Year Ended September 30, 2009 Annual Annual Required City Contribution (ARC) $202,533 Interest on NPO (30,420) Adjustment to ARC 39,792 Annual Pension Cost 211,905 Contributions Made (202,533) Increase in NPO 9,372 NPO Beginning of Year (380,252) NPO End of Year $(370,880) Source: St. Augustine Police Firefighters' Retirement Plan, Actuarial Valuation as of October 1, 2010, February 2011 prepared by Foster&Foster. Recent Legislative Changes Affecting the Pension Systems Senate Bill 1128 ("SB 1128"), which impacts government pension systems, including police and firefighter systems, became effective on July 1, SB 1128 provides that up to 300 hours of overtime may be included as compensation for pension purposes, but excludes payments for accrued unused sick or annual leave. The use of an actuarial or cash surplus in a local government's pension plan for any expenses outside the plan is also prohibited under SB SB 1128 also prevents a local government's contributions to be reduced below the normal cost of its pension plan. Specifically to police and firefighter pensions, SB 1128 eliminates the requirement to increase pension benefits whenever member contributions are increased. SB 1127 also allows cities with a local law plan in existence on or before June 30, 1986, to change the representation of their pension boards, if such change does not reduce the percentage of police and firefighter members on such boards. 49

56 SB 1128 also provides for the Department of Management Services ("DMS") to provide certain disclosures defined benefit pension plans of cities, including information on the plan's actuarial data, minimum funding requirements, and five year history of funded ratios. Under SB 1128, DMS is responsible for developing a standardized rating system for local government defined benefit pension plans. Finally, SB 1128 creates a Task Force on Public Employee Disability Presumptions. The task force will study and make recommendations concerning the inclusion of certain disabilities to be job related. The task force's report and recommendations must be submitted to the Florida Legislature by January 1, At present, it is uncertain how SB 1128 will impact the City's finances. Other Post-Employment Benefit Plan Pursuant to Section of the Florida Statutes, the City is required to permit participation in the single-employer health insurance program (the "OPEB Plan") by retirees and their eligible dependents at a cost to the retiree that is no greater than the cost at which coverage is available for active employees. Based on Governmental Accounting Standards Board ("GASB") approval of Statement Nos. 43 and 45 which set forth the guidelines and a future implementation timetable for reporting and disclosure of Other Post-Employment Benefits ("OPEB"), the City had an actuary calculate future funding requirements using an appropriate actuarial cost method. The valuation was performed as of September 30, 2010 and covers subsidies for medical insurance benefits. The City has elected to implement the provisions of GASB Statement No. 45 prospectively. The City's annual OPEB cost for the OPEB Plan is calculated based on the annual required contribution of the employer, an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The projected unit credit cost method was used to determine all liabilities, with the liability for each active employee assumed to accrue over the working lifetime based on elapsed time from the date of hire until retirement. Plan Description. The City provides optional post-employment benefits to all eligible individuals including lifetime medical, prescription, dental, and certain life insurance coverage. Eligible individuals include all employees of the City who retire from active service under one of the pension plans sponsored by the City. Under certain conditions, eligible individuals also include spouses and dependent children. As of September 30, 2008, the data used for the most recent actuarial report, there were 292 future retirees, 14 retired and disabled participants receiving benefits, and 3 spouses receiving benefits for a total of 309 included in the valuation. The OPEB Plan does not issue a publicly available financial report. Funding Policy. The Commission is authorized to establish benefit levels and approve the actuarial assumptions used in the determination of contributions levels. The Commission establishes the contributions requirements of OPEB Plan members and the City. These contributions are neither mandated nor guaranteed. The retiree contributes the blended-rate premium costs each month. Spouses and other dependents are also eligible for coverage, although the retiree pays the blended-premium costs. The premium varies depending on whether the retiree elects single, single plus spouse, single plus dependents, or family coverage. Currently, the City's subsidy to OPEB benefits is unfunded. There are no separate trust funds or equivalent arrangements into which the City makes contributions to advancefund the OPEB obligations, as it does for its retiree pension plans. The City's annual retiree cost of the OPEB benefits, funded on a pay-as-you-go basis, was $216,181 for the year ended September 30, The ultimate implicit and explicit subsidies which are provided over time are financed directly by general 50

57 assets of the City, which are invested in short-term fixed income instruments according to its current investment policy. The City selected an interest discount rate of four and a half percent per annum, which is the long range expected return on such short-term fixed income instruments, to calculate the present values and costs of the OPEB. This is consistent with GASB Statement No. 45 guidance. Significant actuarial assumptions and methods used to estimate the OPEB liability are as follows: Valuation date: September 30, 2010 Actuarial cost method: Projected Unit Credit Cost Method Amortization method: Level Dollar Payment Amortization period: 30-Year Period Assumed rate of return on investments: 4.50% per annum Assumed healthcare cost trend rates: Fiscal year Ending Percent Increase % % % % 2014-Thereafter 5.00% Source: St. Augustine Police Firefighters' Retirement Plan, GASB 45 Disclosure, February 2011 prepared by Actuarial Concepts. Actuarial Methods and Assumptions. The projection of future benefit payments for an ongoing plan involves estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Actuarially determined amounts are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. Projections of benefits for financial reporting purposes are based on the substantive OPEB Plan 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 OPEB Plan members to that point. Actuarial calculations reflect a long-term perspective and the 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. Annual OPEB Cost and Net OPEB Obligation. The City's annual OPEB cost (expense) is calculated based on the ARC, an amount actuarially determined in accordance with the parameters of GASB Statement No. 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 the actuarial liabilities (or funding excess) over a period not to exceed 30 years. The City's annual OPEB cost for the fiscal year ended September 30, 2010, was $216,181. The City's annual OPEB cost and the net OPEB obligation for the fiscal year ended September 30, 2010 is as follows: [Remainder of page intentionally left blank] 51

58 Annual Required City Contribution (ARC) $218,388 Interest on Plan Obligation 6,059 Adjustment to ARC 8,267 Annual Plan Retiree Cost 216,181 Contributions Made (111,199) Increase in Plan Obligation 104,982 Plan Obligation Beginning of Year 134,654 Plan Obligation End of Year $239,636 Source: St. Augustine Police Firefighters' Retirement Plan, GASB 45 Disclosure, February 2011 prepared by Actuarial Concepts. The City's percentage of annual OPEB cost contributed to the OPEB Plan, and the net OPEB obligation for the fiscal year ended September 30, 2010 is as follows: Fiscal Year Ending Annual City Retiree Cost City Contributions* Percentage of Retiree Cost Contributed Net Obligation (Asset) 9/30/2009 $208,983 $74,329 36% $134,654 9/30/ , ,199 51% 239,636 *Limited to the difference between age-adjusted and composite premiums paid for retirees during the year. Source: St. Augustine Police Firefighters' Retirement Plan, GASB 45 Disclosure, February 2011 prepared by Actuarial Concepts. The 2010 contribution represented 51% of the annual required contribution. The actuarial valuation for the OPEB Plan was done as of October 1, As of October 1, 2010, the most recent actuarial valuation date, the OPEB Plan was unfunded. The AAL for benefits was $2,234,989, and the actuarial value of assets was $0, resulting in an UAAL of $2,234,989. The covered payroll was $13,391,220, and the ratio of the UAAL to the covered payroll was 16.69%. Tax-Deferred Compensation Plan The City offers its employees a deferred compensation plan created in accordance with the Internal Revenue Code, Section 457. On August 20, 1996, Section 457 of the Code was amended with the passage of the Small Jobs Protection Act of The Code now requires employers to maintain the plan assets in a trust, custodial account or annuity for each individual member as of January 1, Since the inception of its plan on October 1, 1993, the City has deposited all funds in a custodial account with The Variable Annuity Life Insurance Company. In October 1997, the GASB issued Statement No. 32, Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans. This statement allows the employer to not report the assets and liabilities in their financial statements if the employer has met the new criteria of the Internal Revenue Code, Section 457 and does not retain fiduciary accountability for the plan assets. In fiscal year 1998, the City amended its deferred compensation plan to reflect the changes in the Internal Revenue Code and, in the opinion of management, does not retain fiduciary accountability for plan assets. Accordingly, the City has implemented GASB No. 32 and is no longer including the assets and liabilities of the deferred compensation plan in its financial statements. There is no effect on the City's overall fund balance as the plan was an agency fund in which plan assets equal liabilities. 52

59 FLORIDA CONSTITUTIONAL LIMITATIONS AND PROPERTY TAX REFORM Save Our Homes Amendment. By voter referendum held on November 3, 1992, Article VII, Section 4 of the Florida Constitution was amended by adding thereto a subsection which, in effect, limits the increases in assessed just value of homestead property to the lesser of (1) three percent of the assessment for the prior year or (2) the percentage change in the Consumer Price Index for all urban consumers, U.S. City Average, all items 1967=100, or successor reports for the preceding calendar year as initially reported by the United States Department of Labor, Bureau of Labor Statistics. Further, the amendment provides that (1) no assessment shall exceed just value, (2) after any change of ownership of homestead property or upon termination of homestead status such property shall be reassessed at just value as of January 1 of the year following the year of sale or change of status, (3) new homestead property shall be assessed at just value as of January 1 of the year following the establishment of the homestead, and (4) changes, additions, reductions or improvements to homestead shall initially be assessed as provided for by general law, and thereafter as provided in the amendment. This amendment is known as the "Save Our Homes" amendment. The effective date of the amendment was January 5, 1993 and, pursuant to a ruling by the Florida Supreme Court, it began to affect homestead property valuations commencing January 1, 1995, with 1994 assessed values being the base year for determining compliance. Limitations on State Revenue Amendment. In the 1994 general election, Florida voters approved an amendment to the Florida Constitution which is commonly referred to as the "Limitation On State Revenues Amendment." This amendment provides that state revenues collected for any fiscal year shall be limited to state revenues allowed under the amendment for the prior fiscal year plus an adjustment for growth. Growth is defined as an amount equal to the average annual rate of growth in Florida personal income over the most recent twenty quarters times the state revenues allowed under the amendment for the prior fiscal year. State revenues collected for any fiscal year in excess of this limitation are required to be transferred to a budget stabilization fund until the fund reaches the maximum balance specified in the amendment to the Florida Constitution, and thereafter is required to be refunded to taxpayers as provided by general law. The limitation on state revenues imposed by the amendment may be increased by the Legislature, by a two-thirds vote in each house. The term "state revenues," as used in the amendment, means taxes, fees, licenses, and charges for services imposed by the legislature on individuals, businesses, or agencies outside state government. However, the term "state revenues" does not include: (1) revenues that are necessary to meet the requirements set forth in documents authorizing the issuance of bonds by the State; (2) revenues that are used to provide matching funds for the federal Medicaid program with the exception of the revenues used to support the Public Medical Assistance Trust Fund or its successor program and with the exception of State matching funds used to fund elective expansions made after July 1, 1994; (3) proceeds from the State lottery returned as prizes; (4) receipts of the Florida Hurricane Catastrophe Fund; (5) balances carried forward from prior fiscal years; (6) taxes, licenses, fees and charges for services imposed by local, regional, or school district governing bodies, or (7) revenue from taxes, licenses, fees and charges for services required to be imposed by any amendment or revision to the State Constitution after July 1, This amendment took effect on January 1, 1995, and was first applicable to the State's fiscal year In its 2011 Regular Session, the Florida Legislature enacted Senate Joint Resolution 958 ("SJR 958"). SJR 958 amends Article VII, Section 1 of the Florida Constitution and creates Article VII, Section 19 53

60 and Article XII, Section 32 of the Florida Constitution. SJR 958 (1) replaces the existing state revenue limitation based on State personal income growth (as described above) with a new state revenue limitation based on changes in population and inflation; (2) requires excess revenues to be deposited into the Budget Stabilization Fund to support public education or returned to taxpayers; (3) adds fines and revenues used to pay debt service on bonds issued after July 1, 2012 to the state revenues subject to the limitation; (4) authorizes the Florida Legislature to increase the revenue limitation by a supermajority vote; and (5) authorizes the Florida Legislature to place a proposed increase before the voters, which would require approval of 60% of the voters. SJR 958 will be on the ballot in the 2012 general election or at an earlier election authorized by law. If approved by 60% of the voters, the new state revenue limitation will be phased in starting in state fiscal year Overtime the new state revenue limitation is more likely to constrain state revenues than the current state revenue limitation; however, the potential impact on the City or its finances cannot be ascertained at this time. To the extent Non-Ad Valorem Revenues or any portion thereof, constitute "state revenues" which are subject to and limited by the Limitation on State Revenues Amendment, the future distribution of increases in such Non-Ad Valorem Revenues or any portion thereof to the City may be adversely affected by the Limitation on the State Revenues Amendment. Whether the limitation will have practical impact in the future is not known. Millage Rollback Legislation. The Florida Legislature initiated a substantial review and reform of Florida's property tax structure. During a special legislative session that ended on June 14, 2007, the Florida Legislature adopted Chapter , Laws of Florida, a property tax plan which may significantly impact ad valorem tax collections for Florida local governments. One component of the adopted legislation required counties, cities and special districts to rollback their millage rates for the fiscal year to a level that, with certain adjustments and exceptions, would generate the same level of ad valorem tax revenue as in fiscal year ; provided, however, depending upon the relative growth of each local government's own ad valorem tax revenues from 2001 to 2006, such rolled back millage rates were determined after first reducing ad valorem tax revenues by zero to nine percent (0% to 9%). In addition, the legislation limits how much the aggregate amount of ad valorem tax revenues may increase in future fiscal years. School districts are not required to comply with these particular provisions of the legislation. A local government may override certain portions of these requirements by a supermajority, and for certain requirements, a unanimous vote. The City fell into the 9% ad valorem tax revenue reduction category and, as a result, the City's general millage rate was reduced from 6.60 mills in fiscal year to 6.31 mills in fiscal year The City's general millage rate increased to 6.82 for the fiscal year While the constitutional amendments which passed on January 29, 2008 did not impact the City's fiscal year budget, they did have an impact on the approach the City took to formulate the budget for fiscal year and beyond. For fiscal years and , the Commission adopted a general millage rate of On September 22, 2011, the Commission adopted a general millage rate of 7.50 for fiscal year Constitutional Amendments Related to Ad Valorem Exemptions. On January 29, 2008, in a special election held in conjunction with Florida's presidential primary, the requisite number of voters approved amendments to the Florida Constitution exempting certain portions of a property's assessed value from taxation. The following is a brief summary of certain important provisions contained in such amendments: 54

61 1. Provides for an additional exemption for the assessed value of homestead property between $50,000 and $75,000, thus doubling the existing homestead exemption for property with an assessed value equal to or greater than $75, Permits owners of homestead property to transfer their "Save Our Homes" benefit (up to $500,000) to a new homestead property purchased within two years of the sale of their previous homestead property to which such benefit applied if the just value of the new homestead is greater than or is equal to the just value of the prior homestead. If the just value of the new homestead is less than the just value of the prior homestead, then owners of homestead property may transfer a proportional amount of their "Save Our Homes" benefit, such proportional amount equaling the just value of the new homestead divided by the just value of the prior homestead multiplied by the assessed value of the prior homestead. As discussed above, the Save Our Homes amendment generally limits annual increases in ad valorem tax assessments for those properties with homestead exemptions to the lesser of three percent (3%) or the annual rate of inflation. 3. Exempts from ad valorem taxation $25,000 of the assessed value of property subject to tangible personal property tax. 4. Limits increases in the assessed value of non-homestead property to 10% per year, subject to certain adjustments. The cap on increases would be in effect for a 10 year period, subject to extension by an affirmative vote of electors. The amendments were effective for the 2008 tax year (fiscal year for local governments). At this time, it is impossible to estimate with any certainty the level of impact that the constitutional amendments will have on the City, but the impact could be substantial. Over the last few years, the Save Our Homes assessment cap and portability provisions described above have been subject to legal challenge. The plaintiffs in such cases have argued that the Save Our Homes assessment cap constitutes an unlawful residency requirement for tax benefits on substantially similar property in violation of the equal protection provisions of the Florida Constitution and the Privileges and Immunities Clause of the Fourteenth Amendment to the United States Constitution. The plaintiffs also argued that the portability provision simply extends the unconstitutionality of the tax shelters granted to long-term homeowners by Save Our Homes. The courts in each case have rejected such constitutional arguments and upheld the constitutionality of such provisions; however, there is not assurance that any future challenges to such provisions will not be successful. Any potential impact on the City or its finances as a result of such challenges cannot be ascertained at this time. In addition to the legislative activity described above, the constitutionally mandated Florida Taxation and Budget Reform Commission (required to be convened every 20 years) (the "TBRC") completed its meetings on April 25, 2008 and placed several constitutional amendments on the November 4, 2008 General Election ballot. Three of such amendments were approved by the voters of Florida, which will, among other things, do the following: (a) allow the Legislature, by general law, to exempt from assessed value of residential homes, improvements made to protect property from wind damage and installation of a new renewable energy source device; (b) assess specified working waterfront properties based on current use rather than highest and best use; (c) provide property tax exemption for real property that is perpetually used for conservation; and, for land not perpetually 55

62 encumbered, require the Legislature to provide classification and assessment of land use for conservation purposes solely on the basis of character or use. Recently Approved Constitutional Amendments Relating to Ad Valorem Taxation. Additionally, during its 2009 session, the Florida Legislature passed House Bill 833, which provides an additional homestead exemption for deployed military personnel. The exemption would equal the percentage of days during the prior calendar year that the military homeowner was deployed outside of the United States in support of military operations designated by the Legislature. The measure was approved by the voters at the November 2010 General election and took effect January 1, At this time, it is impossible to estimate with any certainty the level of impact that the constitutional amendment will have on the City. Other Proposals Affecting Ad Valorem Taxation. The Florida Legislature convened for its 2011 Regular Session on March 8, During this Regular Session, the Florida Legislature passed House Joint Resolution 381 ("HJR 381"). Among other things, HJR 381 (1) authorizes the legislature to prohibit by general law the increase of assessed value for property whose fair market value declined over the prior year; (2) reduces the limitation on annual increases of non-homestead property from 10% to 5% (the 5% cap sunsets in 2023); and (3) provides an additional homestead exemption of 50% (is reduced to 0% in five years) of just value of the property for first-time homeowners. The additional homestead exemption for first-time homeowners does not apply to school property taxes. Such proposal requires approval by 60% of the voters. At present, it is uncertain if this proposal will be approved by the voters. If approved, the impact of this proposal on the City's finances cannot be accurately ascertained. Non-Ad Valorem Revenues do not include ad valorem tax revenues. However, pursuant to the Resolution, funding requirements for essential governmental services of the City must be satisfied prior to budgeting and appropriating Non-Ad Valorem Revenues for the payment of the Bonds and other obligations payable from Non-Ad Valorem Revenues. Ad valorem revenues have historically been used in part by the City to pay for services and programs which are for essential public purposes affecting the health, safety and welfare of the inhabitants of the City. Therefore, a decrease in ad valorem tax revenues may in turn increase the amount of Non-Ad Valorem Revenues required to fund such services and programs and thereby reduce the amount of Non-Ad Valorem Revenues available to be budgeted and appropriated to satisfy the obligations of the City under the Resolution. LEGAL MATTERS Certain legal matters in connection with the issuance of the Bonds are subject to an approving legal opinion of Bryant Miller Olive P.A., Tampa, Florida, Bond Counsel, whose approving opinion (a form of which is attached hereto as "APPENDIX D Form of Bond Counsel Opinion") will be available at the time of delivery of the Bonds. The actual legal opinion to be delivered may vary from that text if necessary to reflect facts and law on the date of delivery. The opinion will speak only as of its date, and subsequent distribution of it by recirculation of the Official Statement or otherwise shall create no implication that subsequent to the date of the opinion Bond Counsel has reviewed or expresses any opinion concerning any of the matters referenced in the opinion. Bond Counsel's opinions are based on existing law, which is subject to change. Such opinions are further based on factual representations made to Bond Counsel as of the date thereof. Bond Counsel assumes no duty to update or supplement its opinions to reflect any facts or circumstances, including charges in law that may thereafter occur or become effective. Bryant Miller Olive P.A. has not undertaken independently to verify and therefore 56

63 expresses no opinion as to the completeness, fairness, or sufficiency of any of the information or statements contained in this Official Statement or any exhibits, schedules or attachments hereto, except as to the accuracy of the information in the portions hereof captioned "DESCRIPTION OF THE BONDS" (except for the information under the heading "Book-Entry-Only System") and "SECURITY FOR THE BONDS" (apart from any engineering, financial and statistical data as to which no opinions or beliefs shall be expressed) to the extent such portions purport to summarize certain provisions of the Resolution and the Bonds, and except as to the accuracy of the information under the caption "TAX MATTERS." Certain legal matters will be passed on for the City by Ronald W. Brown, Esq., St. Augustine, Florida, City Attorney and Bryant Miller Olive P.A., Tallahassee, Florida, Disclosure Counsel. The legal opinions to be delivered concurrently with the delivery of the Bonds express the professional judgment of the attorneys rendering the opinions regarding the legal issues expressly addressed therein. By rendering a legal opinion, the opinion giver does not become an insurer or guarantor of the result indicated by that expression of professional judgment of the transaction on which the opinion is rendered or of the future performance of the parties to the transaction. Nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. LITIGATION There is no pending or, to the knowledge of the City, any threatened litigation against the City of any nature whatsoever which in any way questions or affects the validity of the Bonds, or any proceedings or transactions relating to their issuance, sale, execution, or delivery, or the adoption of the Resolution, or the pledge of the Pledged Funds or the covenant and agreement by the City to budget and appropriate Non-Ad Valorem Revenues, or the use of the proceeds of the Bonds to finance the Costs of the Project. Neither the creation, organization or existence, nor, except as disclosed herein, the title of the present members of the Commission, nor other officers of the City is being contested. The City experiences routine litigation and claims incidental to the conduct of its affairs. In the opinion of the City Attorney, to the best of his knowledge, except as described above, there are no actions presently pending or threatened, the adverse outcome of which would have a material adverse effect on the availability of the Pledged Funds or Non-Ad Valorem Revenues or the ability of the City to pay the Bonds from the Pledged Funds or Non-Ad Valorem Revenues. From time to time, the City is party to other various legal proceedings which individually are not expected to have a material adverse effect on the operations or financial condition of the City or the General Fund, but may, in the aggregate, have a material impact thereon. [Remainder of page intentionally left blank] 57

64 TAX MATTERS General The Internal Revenue Code of 1986, as amended (the "Code") establishes certain requirements which must be met subsequent to the issuance of the Bonds in order that interest on the Bonds be and remain excluded from gross income for purposes of federal income taxation. Non-compliance may cause interest on the Bonds to be included in federal gross income retroactive to the date of issuance of the Bonds, regardless of the date on which such non-compliance occurs or is ascertained. These requirements include, but are not limited to, provisions which prescribe yield and other limits within which the proceeds of the Bonds and the other amounts are to be invested and require that certain investment earnings on the foregoing must be rebated on a periodic basis to the Treasury Department of the United States (the "Treasury"). The City has covenanted in the Resolution to comply with such requirements in order to maintain the exclusion from gross income for federal income tax purposes of the interest on the Bonds. In the opinion of Bond Counsel, assuming compliance with certain covenants, under existing statutes, regulations, and judicial decisions, interest on the Bonds is excluded from gross income for purposes of federal income taxation and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. However, interest on the Bonds is taken into account in determining adjusted current earnings for purposes of computing the alternative minimum tax on corporations. The alternative minimum taxable income of a corporation must be increased by 75% of the excess of such corporation's adjusted current earnings over its alternative minimum taxable income (before this adjustment and the alternative tax net operating loss deduction). "Adjusted current earnings" will include interest on the Bonds. Except as described above, Bond Counsel will express no opinion regarding any other federal income tax consequences resulting from the ownership of, receipt or accrual of interest on, or disposition of the Bonds. Prospective purchasers of the Bonds should be aware that the ownership of Bonds may result in collateral federal income tax consequences, including (i) the denial of a deduction for interest on indebtedness incurred or continued to purchase or carry Bonds; (ii) the reduction of the loss reserve deduction for property and casualty insurance companies by fifteen percent (15%) of certain items, including interest on the Bonds; (iii) the inclusion of interest on the Bonds in earnings of certain foreign corporations doing business in the United States for purposes of branch profits tax; (iv) the inclusion of interest on the Bonds in passive income subject to federal income taxation of certain Subchapter S corporations with Subchapter C earnings and profits at the close of the taxable year; and (v) the inclusion of interest on the Bonds in "modified adjusted gross income" by recipients of certain Social Security and Railroad Retirement benefits for the purposes of determining whether such benefits are included in gross income for federal income tax purposes. As to questions of fact material to the opinions of Bond Counsel, Bond Counsel will rely upon representations and covenants made on behalf of the City, certificates of appropriate officers and certificates of public officials (including certifications as to the use of proceeds of the Bonds), without undertaking to verify the same by independent investigation. 58

65 PURCHASE, OWNERSHIP, SALE OR DISPOSITION OF THE BONDS AND THE RECEIPT OR ACCRUAL OF THE INTEREST THEREON MAY HAVE ADVERSE FEDERAL TAX CONSEQUENCES FOR CERTAIN INDIVIDUAL AND CORPORATE HOLDERS OF THE BONDS, INCLUDING, BUT NOT LIMITED TO, THE CONSEQUENCES DESCRIBED ABOVE. PROSPECTIVE HOLDERS OF THE BONDS SHOULD CONSULT WITH THEIR TAX SPECIALISTS FOR INFORMATION IN THAT REGARD. Tax Treatment of Original Issue Discount for the Bonds Under the Code, the difference between the maturity amount of the Bonds maturing on October 1, 2015 through and including October 1, 2030 (collectively, the "Discount Bonds"), and the initial offering price to the public, excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers, at which price a substantial amount of the Discount Bonds of the same maturity was sold is "original issue discount." Original issue discount will accrue over the term of the Discount Bonds at a constant interest rate compounded periodically. A purchaser who acquires the Discount Bonds in the initial offering at a price equal to the initial offering price thereof to the public will be treated as receiving an amount of interest excludable from gross income for federal income tax purposes equal to the original issue discount accruing during the period he or she holds the Discount Bonds, and will increase his or her adjusted basis in the Discount Bonds by the amount of such accruing discount for purposes of determining taxable gain or loss on the sale or disposition of the Discount Bonds. The federal income tax consequences of the purchase, ownership and redemption, sale or other disposition of the Discount Bonds which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those above. Bondholders of the Discount Bonds should consult their own tax advisors with respect to the precise determination for federal income tax purposes of interest accrued upon sale, redemption or other disposition of the Discount Bonds and with respect to the state and local tax consequences of owning and disposing of the Discount Bonds. Tax Treatment of Bond Premium for the Bonds The difference between the principal amount of the Bonds maturing on October 1, 2012 through and including October 1, 2014 (collectively, the "Premium Bonds"), and the initial offering price to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers) at which price a substantial amount of such Premium Bonds of the same maturity was sold constitutes to an initial purchaser amortizable bond premium which is not deductible from gross income for federal income tax purposes. The amount of amortizable bond premium for a taxable year is determined actuarially on a constant interest rate basis over the term of each of the Premium Bonds, which ends on the earlier of the maturity or call date for each of the Premium Bonds which minimizes the yield on such Premium Bonds to the purchaser. For purposes of determining gain or loss on the sale or other disposition of a Premium Bond, an initial purchaser who acquires such obligation in the initial offering price is required to decrease such purchaser's adjusted basis in such Premium Bond annually by the amount of amortizable bond premium for the taxable year. The amortization of bond premium may be taken into account as a reduction in the amount of tax-exempt income for purposes of determining various other tax consequences of owning such Premium Bonds. Bondholders of the Premium Bonds are advised that they should consult with their own advisors with respect to the state and local tax consequences of owning such Premium Bonds. 59

66 Information Reporting and Backup Withholding Interest paid on tax-exempt bonds such as the Bonds is subject to information reporting to the Internal Revenue Service in a manner similar to interest paid on taxable obligations. This reporting requirement does not affect the excludability of interest on the Bonds from gross income for federal income tax purposes. However, in conjunction with that information reporting requirement, the Code subjects certain non-corporate owners of Bonds, under certain circumstances, to "backup withholding" at (i) the fourth lowest rate of tax applicable under Section 1(c) of the Code (i.e., a rate applicable to unmarried individuals) for taxable years beginning on or before December 31, 2010; and (ii) the rate of 31% for taxable years beginning after December 31, 2010, with respect to payments on the Bonds and proceeds from the sale of Bonds. Any amount so withheld would be refunded or allowed as a credit against the federal income tax of such owner of Bonds. This withholding generally applies if the owner of Bonds (i) fails to furnish the payor such owner's social security number or other taxpayer identification number ("TIN"), (ii) furnished the payor an incorrect TIN, (iii) fails to properly report interest, dividends, or other "reportable payments" as defined in the Code, or (iv) under certain circumstances, fails to provide the payor or such owner's securities broker with a certified statement, signed under penalty of perjury, that the TIN provided is correct and that such owner is not subject to backup withholding. Prospective purchasers of the Bonds may also wish to consult with their tax advisors with respect to the need to furnish certain taxpayer information in order to avoid backup withholding. Other Tax Matters Relating to the Bonds Purchasers of the Bonds should consult their tax advisors as to the tax consequences to them of owning the Bonds in their particular state or local jurisdiction. During recent years, legislative proposals have been introduced in Congress, and in some cases enacted, that altered certain federal tax consequences resulting from the ownership of obligations that are similar to the Bonds. In some cases, these proposals have contained provisions that altered these consequences on a retroactive basis. Such alteration of federal tax consequences may have affected the market value of obligations similar to the Bonds. From time to time, legislative proposals are pending which could have an effect on both the federal tax consequences resulting from ownership of the Bonds and their market value. No assurance can be given that legislative proposals will not be enacted that would apply to, or have an adverse effect upon, the Bonds. For example, in connection with federal deficit reduction, job creation and tax law reform efforts, proposals have been made and others are likely to be made that could significantly reduce the benefit of, or otherwise affect, the exclusion from gross income of interest on obligations like the Bonds. There can be no assurance that any such legislation or proposal will be enacted, and if enacted, what form it may take. The introduction or enactment of any such legislative proposals may affect, perhaps significantly, the market price for, or marketability of the Bonds. UNDERWRITING The Bonds are being purchased by RBC Capital Markets, LLC (the "Underwriter") at an aggregate purchase price of $10,255, (equal to the par amount of the Bonds of $10,440,000, less a net original issue discount of $111, and less Underwriter's discount of $72,954.20). The 60

67 Underwriter's obligations are subject to certain conditions precedent described in the Bond Purchase Contract, and they will be obligated to purchase all of the Bonds if any Bonds are purchased. The Bonds may be offered and sold to certain dealers (including dealers depositing such Bonds into investment trusts) at prices lower than such public offering prices, and such public offering prices may be changed, from time to time, by the Underwriter. The Underwriter has reviewed the information in this official statement pursuant to its responsibilities to investors under the federal securities laws, but the Underwriter does not guarantee the accuracy or completeness of such information. RATINGS Moody's and S&P are expected to assign ratings of "Aa3" (negative outlook) and "AA-" (stable outlook), respectively, to the Bonds with the understanding that, upon delivery of the Bonds, a municipal bond insurance policy will be issued by the Insurer. In addition, Moody's, S&P and Fitch Ratings have assigned ratings of "Aa3," "A+," and "A+," respectively, to the Bonds without regard to such municipal bond insurance policy. Such ratings reflect only the views of such organizations and any desired explanation of the significance of such ratings should be obtained from the rating agency furnishing the same, at the following addresses: Moody's Investors Service, 7 World Trade Center, 250 Greenwich Street, 23rd Floor, New York, New York 10007, Standard & Poor's, 55 Water Street, New York, New York and Fitch, Inc., One State Street Plaza, New York, New York Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by the rating agencies, if in the judgment of such rating agencies, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Bonds. AUDITED FINANCIAL STATEMENTS The audited financial statements of the City as of September 30, 2010 and for the year then ended, included in the attached "APPENDIX B Comprehensive Annual Financial Report for Fiscal Year Ended September 30, 2010," have been audited by Masters, Smith & Wisby, P.A., independent auditors, as stated in their report appearing therein. The City's auditor has consented to the inclusion of the aforementioned report in this Official Statement. The Bonds are payable solely from the Pledged Funds and are secured by a covenant and agreement by the City to budget and appropriate Non-Ad Valorem Revenues as described herein and in the Resolution, but the Bonds are not otherwise secured by a specific lien on any general revenues of the City. The audited financial statements are presented for general information purposes only. CONTINUING DISCLOSURE The City has covenanted for the benefit of the Bondholders to provide certain financial information and operating data relating to the City and the Bonds within 180 days of the end of the City's 61

68 fiscal year, beginning with the fiscal year ending September 30, 2011, and to provide notices of the occurrence of certain enumerated material events. The City has agreed to file annual financial information and operating data and the audited financial statements with each entity authorized and approved by the Securities and Exchange Commission (the "SEC") to act as a repository (each a "Repository") for purposes of complying with Rule 15c2-12 adopted by the SEC under the Securities Exchange Act of 1934 (the "Rule"). Effective July 1, 2009, the sole Repository is the Municipal Securities Rulemaking Board ( The City has agreed to file notices of certain enumerated material events, when and if they occur, with the Repository. The specific nature of the financial information, operating data, and of the type of events which trigger a disclosure obligation, and other details of the undertaking are described in "APPENDIX E Form of Continuing Disclosure Certificate" attached hereto. The Continuing Disclosure Certificate shall be executed by the City upon the issuance of the Bonds. These covenants have been made in order to assist the Underwriters in complying with the continuing disclosure requirements of the Rule. With respect to the Bonds, no party other than the City is obligated to provide, nor is expected to provide, any continuing disclosure information with respect to the Rule. In the past five years, the City has never failed to comply with any prior agreements to provide continuing disclosure information pursuant to the Rule. DISCLOSURE REQUIRED BY FLORIDA BLUE SKY REGULATIONS Pursuant to Section , Florida Statutes, as amended, no person may directly or indirectly offer or sell securities of the City except by an offering circular containing full and fair disclosure of all defaults as to principal or interest on its obligations since December 31, 1975, as provided by rule of the Office of Financial Regulation within the Florida Financial Services Commission (the "FFSC"). Pursuant to administrative rulemaking, the FFSC has required the disclosure of the amounts and types of defaults, any legal proceedings resulting from such defaults, whether a trustee or receiver has been appointed over the assets of the City, and certain additional financial information, unless the City believes in good faith that such information would not be considered material by a reasonable investor. The City is not and has not been in default on any bond issued since December 31, 1975 that would be considered material by a reasonable investor. The City has not undertaken an independent review or investigation of securities for which it has served as conduit issuer. The City does not believe that any information about any default on such securities is appropriate and would be considered material by a reasonable investor in the Bonds because the City would not have been obligated to pay the debt service on any such securities except from payments made to it by the private companies on whose behalf such securities were issued and no funds of the City would have been pledged or used to pay such securities or the interest thereon. 62

69 ENFORCEABILITY OF REMEDIES The remedies available to the owners of the Bonds upon an event of default under the Resolution are in many respects dependent upon judicial actions which are often subject to discretion and delay. Under existing constitutional and statutory law and judicial decisions, including specifically the federal bankruptcy code, the remedies specified by the Resolution, the Bonds may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Bonds, including Bond Counsel's approving opinion, will be qualified, as to the enforceability of the remedies provided in the various legal instruments, by limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors enacted before of after such delivery. See "APPENDIX C Form of Resolution" for a description of events of default and remedies CONTINGENT FEES The City has retained Bond Counsel and Disclosure Counsel with respect to the authorization, sale, execution and delivery of the Bonds. Payment of the fees of such professionals and an underwriting discount to the Underwriter are contingent upon the issuance of the Bonds. ACCURACY AND COMPLETENESS OF OFFICIAL STATEMENT The references, excerpts, and summaries of all documents, statutes, and information concerning the City and certain reports and statistical data referred to herein do not purport to be complete, comprehensive and definitive and each such summary and reference is qualified in its entirety by reference to each such document for full and complete statements of all matters of fact relating to the Bonds, the security for the payment of the Bonds and the rights and obligations of the owners thereof and to each such statute, report or instrument. Copies of such documents may be obtained from either the office of the Clerk of the Commission, Alison Ratkovic, City Hall, 75 King Street, (2nd floor, Elevator "B"), St. Augustine, Florida 32085, telephone (904) Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. Neither this Official Statement nor any statement that may have been made verbally or in writing is to be construed as a contract with the owners of the Bonds. The appendices attached hereto are integral parts of this Official Statement and must be read in their entirety together with all foregoing statements. [Remainder of page intentionally left blank] 63

70 AUTHORIZATION OF AND CERTIFICATION CONCERNING OFFICIAL STATEMENT The execution and delivery of this Official Statement has been duly authorized and approved by the City. At the time of delivery of the Bonds, the City will furnish a certificate to the effect that nothing has come to its attention which would lead it to believe that the Official Statement (other than DTC, the book-entry-only system of registration and the information contained under the caption "TAX MATTERS" as to which no opinion shall be expressed), as of its date and as of the date of delivery of the Bonds, contains an untrue statement of a material fact or omits to state a material fact which should be included therein for the purposes for which the Official Statement is intended to be used, or which is necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. CITY OF ST. AUGUSTINE, FLORIDA By: /s/ Joseph L. Boles Mayor-Commissioner By: /s/ John P. Regan City Manager 64

71 APPENDIX A GENERAL INFORMATION CONCERNING THE CITY OF ST. AUGUSTINE

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73 General Information and Location APPENDIX A GENERAL INFORMATION CONCERNING THE CITY OF ST. AUGUSTINE, FLORIDA The City of St. Augustine, Florida (the "City") is an incorporated municipality of the State of Florida located within the County of St. Johns, Florida. The City is located on upper east coast of Florida on the Atlantic Ocean about 15 miles south of Jacksonville and is the county seat of St. Johns County. The City was founded by the Spanish in 1565 and was a municipality under Spanish colonial law until The City was originally incorporated under the jurisdiction of the United States by the Territorial Acts of Since that incorporation, it was reincorporated in 1824, 1889, 1915, 1923 and 1925, when the present Charter, Chapter 11148, Laws of Florida, Special Acts of 1925, was enacted. It covers an area of square miles. The City is the oldest permanent European settlement in the United States. Among the many historical attractions are the Castillo de San Marco, built by the Spaniards in the seventeenth century, the City Gates which date to the Spanish Colonial period, and numerous old Spanish and English buildings. The City is the home of the oldest Catholic Church parish in the United States. Other tourist attractions of importance include the Lightner Museum of Hobbies, Marine Studios at Marineland (near the City) and over 43 miles of beaches on the Atlantic Ocean. Organization and Administration The City was established in 1925 by Special Legislative Act of the Florida Legislature. The City is a full-service municipality located within the boundaries of St. Johns County. The City operates under a "City Manager" form of government. Five commission members, including the Mayor- Commissioner, are elected at large on a non-partisan basis. Four of the seats are staggered four-year terms with the mayor's seat elected every two years. The City Commission appoints the City Manager who directs the business of the City and its various departments. The City Commission determines policy, adopts legislation, approves the budget, sets taxes and appoints the City Attorney, the City Clerk and members of various boards and committees. The present members of the City Commission and when they commenced service are as follows: Name Title Service Commenced Joseph L. Boles Mayor/Commissioner December 2004 (Mayor since December 2008) Leanna Freeman Vice-Mayor/Commissioner December 2008 Errol D. Jones Commissioner December 2002 Nancy Sikes-Kline Commissioner December 2008 William "Bill" Leary Commissioner December 2010 The City provides its constituents with a wide variety of public services: building inspections, code enforcement, community development, cultural affairs, economic development, electrical power, golf course, mass transit, natural gas distribution, parks and recreation, police and fire protection, refuse A-1

74 collection, small business development, stormwater management, street maintenance, traffic engineering and parking, water and wastewater and telecommunications and data transfer. Internal support services include the following: accounting and reporting, accounts payable and payroll, billing and collections, budgeting and monitoring, City-wide management, computer systems support, debt management, equal opportunity, fleet maintenance, facilities maintenance, human resources, information systems, investment management, labor relations, mail services, property control, purchasing, risk management and strategic planning. Population The following table depicts historical and projected population growth for the City and St. Johns County, Florida: Year City of St. Augustine St. Johns County , ,135 (est.) , ,135 (est.) , ,396 (est.) , ,900 (est.) , ,006 (est.) , ,014 (est.) , ,453 (est.) , ,570 (est.) , ,244 (est.) , ,464 (est.) ,900 (projected) 214,100 (projected) ,100 (projected) 226,100 (projected) Source: Comprehensive Annual Financial Report for Fiscal Year ended September 30, 2010, City of St. Augustine, Florida. [Remainder of page intentionally left blank] A-2

75 Employment The following table sets forth the unemployment rate for the City over the past ten years. EMPLOYMENT Year Unemployment Rate % % % % % % % % % % Source: Comprehensive Annual Financial Report for Fiscal Year ended September 30, 2010, City of St. Augustine, Florida. [Remainder of page intentionally left blank] A-3

76 MAJOR EMPLOYERS IN THE ST. AUGUSTINE AREA (SEPTEMBER 30, 2010) Establishment Product Approximate Employment (2009/2010) St. Johns County School Board Educational 3,449 Flagler Hospital Health Care 1,689 US Army National Guard Florida National Guard HQ 1,300 St. Johns County County Government 1,206 Northrop Grumman Aircraft Overhaul & Modification 900 Florida School for the Deaf and Blind Educational Institution 650 Tree of Life Health Food Distribution 636 Flagler College Four-Year Liberal Arts College 525 Ring Power Heavy Equipment Sales 445 City of St. Augustine Municipal Government 354 Carlisle Interconnect Technologies Manufacturer 300 Hydro Aluminum Aluminum Fabrication 270 Casa Monica Hotel Resort 164 Prosperity Bank Banking 114 First Coast Technical Institute Vocational School 103 St. Augustine Record Daily Newspaper 88 Leonard's Studio Photo Finishing 85 Source: Comprehensive Annual Financial Report for Fiscal Year ended September 30, 2010, City of St. Augustine, Florida. [Remainder of page intentionally left blank] A-4

77 Property Tax Data The following data is provided for information and analytical purposes only. The Bonds are not secured by ad valorem tax revenues of the City. TOTAL ASSESSED VALUATIONS AND TOTAL EXEMPTIONS LAST TEN FISCAL YEARS (September 30, 2010) (b) Real Property $ 520,688,082 $ 628,742,076 $ 728,606,206 $ 861,761,206 $ 964,366,560 $1,246,909,727 $1,550,199,349 $1,564,575,408 $1,550,350,973 $1,303,221,123 Personal Property 62,402,778 68,205,751 63,426,737 73,963,887 73,456,340 79,796,610 84,639,356 79,538,769 84,760,234 74,772,148 Railroad & Telegraph 2,263,924 2,282,126 2,371,769 2,539,213 2,631,148 2,694,393 2,355,234 2,724,258 2,350,861 2,404,981 Total Assessed Valuations 585,354, ,229, ,404, ,264,306 1,040,454,048 1,329,400,730 1,637,193,939 1,646,838,435 1,637,462,068 1,380,398,252 Homestead Exempt Property (a) 68,326,530 68,138,029 69,563,109 69,803,529 70,662,166 72,884,446 74,445,529 74,445,529 75,575, ,841,251 Other Exemptions 276,398, ,989, ,719, ,524, ,558, ,259, ,985, ,985, ,639, ,265,961 Total Exempt Property 344,724, ,127, ,282, ,327, ,220, ,143, ,430, ,430,606 1,012,214, ,107,212 Total Just Valuations $ 930,079,612 $1,073,357,289 $1,219,687,627 $1,427,591,890 $1,609,674,975 $2,084,544,216 $2,585,624,545 $2,595,269,041 $2,649,677,054 $2,199,505,464 Direct Rate NOTES: (a) Real property is assessed at 100 percent of fair market value. Tangible Personal Property: Equipment is assessed at current depreciated value. Centrally Assessed Property: (1) State of Florida makes annual assessments of all operating property of railroad and railroad terminal companies in the State. Such assessment is apportioned to each county, based upon actual situs, and, in the case of property not having situs in a particular county, is apportioned based upon track miles. (2) All private car and freight line and equipment companies operating rolling stock in Florida other than in (1) above shall return for taxation the average number of their cars which are habitually present within Florida and shall state the fair market value thereof. Property is assessed as of January 1st. Tax bills are mailed November 1st. Four percent discount if paid in November, three percent discount if paid in December, two percent discount if paid in January, one percent discount if paid in February, full amount due in March, delinquent April 1st. (b) Figures are from the PRELIMINARY tax rolls. These could change once the final tax rolls are received. Source: Comprehensive Annual Financial Report for Fiscal Year ended September 30, 2010, City of St. Augustine, Florida. A-5

78 PROPERTY TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS (September 30, 2010) Fiscal Year Ended Total Tax Levy Current Tax Collection Percent (a) of Levy Collected Assessed Taxable Value Estimated Actual Value (Thousands) Estimated % of Fair Market Value ,097,483 3,989, % 585,379, , % ,754,492 4,645, % 699,229, , % ,252,238 5,103, % 794,404, , % ,192,544 6,013, % 938,264, , % ,866,997 6,654, % 1,040,454,048 1,040, % ,774,045 8,517, % 1,329,400,730 1,329, % ,805,480 10,548, % 1,637,193,939 1,637, % ,396,491 10,487, % 1,646,838,435 1,646, % ,172,404 10,743, % 1,637,462,068 1,637, % ,352,987 9,939, % 1,380,398,252 1,380, % Note: (a) Florida Statutes provide for a discount up to four percent for early payment of Ad Valorem Taxes. Source: Comprehensive Annual Financial Report for Fiscal Year ended September 30, 2010, City of St. Augustine, Florida. A-6

79 PROPERTY TAX RATES AND TAX LEVIES DIRECT AND OVERLAPPING GOVERNMENTS LAST TEN FISCAL YEARS (September 30, 2010) Direct Overlapping Fiscal Year Ended City of St. Augustine St. Johns County School District St. Johns River Water Management District Other Total Note: Millage rates are per $1,000 of assessed value. Source: Comprehensive Annual Financial Report for Fiscal Year ended September 30, 2010, City of St. Augustine, Florida. [Remainder of page intentionally left blank] A-7

80 NET DEBT STATEMENT Computation of Direct and Overlapping Debt (September 30, 2010) Direct Debt/ Overlapping Debt Certificate of Participation General Obligation Debt Non-Self Supporting Revenue Bonds Self Supporting Revenue Bonds City of St. Augustine Water and Sewer, Revenue Refunding Bonds, 2005 $ - $ - $ - $ 10,950,000 Water and Sewer, Revenue Bonds, ,849,012 Public Service Tax and Guaranteed Entitlement Revenue Refunding and Improvements Bonds, ,505,000 - Capital Improvement & Reserve Refunding Bonds, Series ,149,999 Total Direct Debt $ - $ - $ 31,654,999 $ 23,799,012 St. Johns County Water and Sewer Revenue Bonds, 1991A ,135,553 Water and Sewer Revenue Refunding Bonds ,365,000 Water and Sewer, Revenue Refunding Bonds, Series ,315,000 Water and Sewer, Revenue Refunding Bonds, Series 1999A ,335,000 Water and Sewer, Revenue Series 2004 (continued) ,615,483 A-8

81 Direct Debt/ Overlapping Debt Certificate of Participation General Obligation Debt Non-Self Supporting Revenue Bonds Self Supporting Revenue Bonds Water and Sewer, Revenue Series ,770,000 Ponte Vedra Water and Sewer, Revenue Bonds, Series ,050,000 Ponte Vedra Water and Sewer, Revenue Bonds, Series ,620,000 City of Gulf Breeze, Florida Local Gov't Loan Program, Series ,280,000 Solid Waste Disposal Revenue Long-Term Note ,675,000 Capital Improvement Revenue Bonds, Series ,530,000 - Sales Tax Revenue Bonds, Series ,000 - Sales Tax Revenue Bonds, Series ,370,000 - Sales Tax Revenue Bonds, Series ,270,000 - Sales Tax Revenue Bonds, Series ,360,000 - Sales Tax Revenue Bonds, Series 2009A ,815,000 - Community Redevelopment Agency Revenue & Refunding Note, ,275,000 - Transportation Improvement Revenue Bonds, ,930,000 - Transportation Improvement Revenue Bonds, ,770,000 - $45,000,000 Commercial Paper Program - - 2,053,000 - A-9

82 (continued) Direct Debt/ Overlapping Debt Certificate of Participation General Obligation Debt Non-Self Supporting Revenue Bonds Self Supporting Revenue Bonds State Revolving Loan Fund Agreement - - 4,298, ,190 Board of Public Instruction Certificate of Participation 129,210, General Obligation Bonds, Series ,160, Total Overlapping Debt $ 129,210,000 $ 8,160,000 $ 205,606,597 $ 177,893,226 Total Direct and Overlapping Debt $ 129,210,000 $ 8,160,000 $ 237,261,596 $201,692,238 Source: Comprehensive Annual Financial Report for Fiscal Year ended September 30, 2010, City of St. Augustine, Florida. A-10

83 PRINCIPAL TAXPAYERS 2009/2010 Taxable Percent of Assessed Total Taxpayer Value Assessment Patris Real Estate LLC $ 15,561, % The Flagler Resort, Ltd. 13,730, % Sea Wall Motor Lodge, Inc. 7,338, % Target Corporation 7,185, % The Allegro Senior Housing, LLC 5,911, % Patel, Kantibhai M. 5,250, % Home Depot USA, Inc. 4,981, % Orthopedic Associates Partners 4,227, % Avista Properties IX, Inc. Gates of St. Johns, LLC 3,593, % Vista Hotel III Inc. 3,455, % Other Taxpayers 1,024,758, % $ 1,095,994, % Source: Comprehensive Annual Financial Report for Fiscal Year ended September 30, 2010, City of St. Augustine, Florida. A-11

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85 APPENDIX B COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR FISCAL YEAR ENDED SEPTEMBER 30, 2010

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87 City of St. Augustine, Florida B-1 Comprehensive Annual Financial Report Fiscal Year Ended September 30, 2010 Prepared By: Finance, Budget and Management Department Mark R. Litzinger Meredith Breidenstein, CPA City Comptroller Financial Services Group Manager

88 B-2 CITY OF ST. AUGUSTINE, FLORIDA COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Year Ended September 30, 2010 TABLE OF CONTENTS Table of Contents... INTRODUCTORY SECTION Letter of Transmittal Certificate of Achievement.. 15 Principal City Officials 17 Organizational Chart 19 FINANCIAL SECTION Independent Auditors' Report Management Discussion and Analysis Basic Financial Statements Government-wide Financial Statements Statement of Net Assets. 41 Statement of Activities Fund Financial Statements Balance Sheet Governmental Funds Reconciliation of the Balance Sheet Governmental Funds to the Statement of Net Assets Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds Reconciliation of Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 50 Statement of Revenues, Expenditures and Changes in Fund Balances General Fund - Budget and Actual Statement of Revenues, Expenditures and Changes in Fund Balances Special Revenue Fund - Budget and Actual Statement of Net Assets Proprietary Funds Statement of Revenues, Expenses and Changes in Fund Net Assets Proprietary Funds Statement of Cash Flows Proprietary Funds Statement of Net Assets Fiduciary Funds. 64 Statement of Changes in Fiduciary Net Assets - Fiduciary Funds.. 65 (continued) i i -iii FINANCIAL SECTION (continued) TABLE OF CONTENTS (continued) Notes to the Financial Statements Required Supplementary Information Schedule of Pension Funding Progress. 99 Schedule of Pension Contributions from Employer and Other Contributing Entities. 100 Note to the Schedule of Funding Progress and Schedule of Employer and Other Contributions for all Pension Plans 101 Schedule of OPEB Funding Progress 102 Schedule of OPEB Contributions from Employer and Other Contributing Entities Combining Statements Combining Statement of Fiduciary Net Assets Fiduciary Funds Combining Statement of Changes in Fiduciary Net Assets Fiduciary Funds 106 Schedule of Expenditures of Federal Awards and State Financial Assistance. 107 STATISTICAL SECTION Table of Contents Table 1 - Net Assets by Component Table 2 - Change in Net Assets Table 3 - Fund Balances, Governmental Funds Table 4 - Changes in Fund Balances, Governmental Funds Table 5 - Total Assessed Valuations and Total Exemptions Table 6 - Property Tax Rates and Tax Levies, Direct and Overlapping. 120 Table 7 - Principal Taxpayers Table 8 - Property Tax Levies and Collections Table 9 - Ratio of Net General Bonded Debt to Assessed Value and Net 123 Bonded Debt Per Capita.. Table 10 - Ratio of Annual Debt Service Expenditures for General Bonded 124 Debt to Total General Expenditures... Table 11 - Utility Revenue Bond Coverage 125 Table 12 - Net Debt Statement Table 13 - Computation of Legal Debt Margin. 129 Table 14 - Summary of Pledged Funds Table 15 - Demographic Statistics. 131 Table 16 - Major Employers in the St. Augustine Area 132 Table 17 - Summary of Ten Largest Water Customers 133 Table 18 - Historical Utility Customers and Sales of the System Table 19 - Water and Wastewater Treatment Plants Summary of Historical 136 Daily Flows Table 20 - Water and Sewer Utilities Historical Rate Structures. 137 Table 21 - Building Permit Activity (continued) ii

89 TABLE OF CONTENTS (continued) COMPLIANCE SECTION Table 22 - Property Value, Contruction, and Bank Deposits. 139 Table 23 - Miscellaneous Statistical Data Table 24 - Full-Time Equivalent City Employees by Function Table 25 - Operating Indicators by Function Table 26 - Capital Asset Statistics by Function Independent Auditors Report on Compliance and Internal Control Over Financial Reporting and on Compliance and Other Matters Based on Audit of Basic Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditors Report on Compliance with Requirements Applicable to Each Major State Project and on Internal Control Over Compliance in Accordance with Chapter Rules of the Auditor General Auditors Schedule of Findings and Questioned Costs Management Letter This Page Intentionally Left Blank B-3 iii iv

90 INTRODUCTORY SECTION This Section Contains the Following: Letter of Transmittal Letter of Transmittal Certificate of Achievement B-4 Principal City Officials Organizational Chart

91 City of St. Augustine, Florida Letter of Transmittal GOVERNMENT PROFILE Often called the City of the Centuries because of its antiquity, St. Augustine was founded by Spain in 1565 and is the oldest continuously occupied settlement of European origin in what is now the United States. The City was founded 55 years before the Pilgrims landed at Plymouth Rock and was already two centuries old at the time of the American Revolution. Four flags have flown over St. Augustine: Spanish, British, Confederate, and American. For nearly two centuries ( ), St. Augustine was a Spanish possession. This 200-year period is referred to as the First Spanish Period. Britain obtained possession of Florida and St. Augustine in 1763, and for 20 years ( ). This period included the American Revolution. This is known as the British Period. Spain regained and maintained possession of St. Augustine and the rest of Florida in 1784 until Florida became a possession of the United States in 1821, this is known as the second Spanish Period. Florida, with St. Augustine as the capital of East Florida, maintained its territorial status until 1845 when it was admitted to the Unites States as the twenty-seventh state. St. Augustine was briefly under the Confederate flag when Florida seceded from the Union in 1861, but the City was captured by Union forces early during the War Between the States and was occupied during most of the hostilities. B-5 During its earliest years, St. Augustine was a collection of palm thatch huts. These gave way to board-sided houses with thatched roofs in the 17th century. After the town was burned in 1702 during an attack by Carolinians, the populace erected temporary straw or thatch shelters until they could build with more permanent materials such as tabby, the colonial equivalent of modern concrete, or coquina, a native shell stone quarried on Anastasia Island across the Matanzas River. Many of the City's colonial structures have been carefully preserved and restored, and there is a continuing program to restore and reconstruct other buildings on their original foundations. Historic sites, buildings, and St. Augustine's old world charm are found throughout the colonial city. A number of groups, both private and governmental, have and continue to pursue active roles in the restoration, preservation and interpretation of St. Augustine's history. Today, the City of St. Augustine is a full-service municipality located within the boundaries of St. Johns County. The City derives its government authority from a charter granted by the legislature of the State of Florida. The City operates under a City Manager form of government. Five commission members, including the mayor, are elected at large on a non-partisan basis. Four of the seats are staggered four-year terms with the mayor s seat elected every two years. The City Commission appoints the City Manager who directs the business of the City and its various departments. The City Commission determines policy, adopts legislation, approves the budget, sets taxes and appoints the City Attorney, the City Clerk and members of various boards and committees. The City budget process begins in May and concludes in September with two public hearings. The budgets are prepared by each department and submitted to the budget committee for review. Once the budget is balanced and adopted by the Commission the departments may transfer resources within their own departments as needed and with approval. The legal level of control for budget 1 2

92 B-6 City of St. Augustine, Florida Letter of Transmittal variations is at the fund level. However, actual spending can exceed the appropriated amount of the fund to the extent revenues exceed the fund s budget. ECONOMIC CONDITIONS AND OUTLOOK The City of St. Augustine is located within St. Johns County on the northeast coast of Florida. The City s limited economy is concentrated in tourism, although major employers provide some diversification and security. A four-year liberal arts college, the State Headquarters of the Florida National Guard and the Florida State School for the Deaf and the Blind contribute greatly to a stable economy. Founded by the Spanish 445 years ago, St. Augustine s historical and resort attractions draw millions of visitors every year. Tourism is responsible for close to $1.5 billion in revenue and 32,000 jobs for St. Johns County. It is estimated over 6 million tourists visit St. Johns County annually with St. Augustine being the principal attraction. St. Johns County has an estimated 2.46 million overnight visitors staying in paid accommodations, 800,000 overnight visitors staying with friends or relatives, and 3 million people visiting and returning home the same day. This type of tourism, short-term and daily visitors, is less affected by downturns in the economy and may even see an increase as people avoid popular high-priced venues. Reflective of many communities across the state of Florida, the City s revenues have decreased due to falling real estate values and stagnant new construction. The City expects ad valorem tax revenues to suffer an additional decrease before stabilizing. It is anticipated that the City will experience resumed economic growth leading to growth in major revenue sources in the near-term. MAJOR INITIATIVES/PROGRAMS Management s purpose is to continue to provide the same or an improved level of service while managing future growth through sound fiscal management being cognizant of limited financial resources. Prudent budgeting and cash management has enabled the City to meet emerging infrastructure needs while maintaining services provided to its constituency. The City has both new and continuing initiatives and programs that are indicative of the challenges and opportunities related to development: Capital Improvement Bond Series 2011 Riberia Street Improvements Design for Phase 1 and 2 of the $3.1 million Riberia Street project is complete, with construction of Phase 1 having started in January Phase 1 will be completed by the end of 2011 followed by Phase 2, which will be completed by year-end The City received a $450,000 Section 319 EPA Non-Point Source Pollution Prevention grant for the construction of Riberia Street and a $700,000 Community Development Block Grant (CDBG) for the Phase 2 portion. City of St. Augustine, Florida Letter of Transmittal Utility Improvements With proceeds from the 2011 Utility Bond Issue, the Public Works Department is concentrating on infrastructure repair and replacement; in particular the sewer collection and water distribution systems. Sewer system collection repairs and replacements to two major lift stations (#51 and #52) located on Anastasia Island that have reached their service life are planned. Boosting the Inflow and Infiltration (I&I) program through increasing the number of miles of sewers to be slip-lined and manholes to be coated and reducing costs associated with treatment plant flows are also planned. On the water side, resources will be focused towards neighborhood water main replacements in areas where old water mains are reaching service life and exhibiting water quality or water pressure issues. Additionally, the Bond will fund a new outfall for the Reverse Osmosis Concentrate into the Sebastian River. This project is currently in the permitting stage and will be ready for construction by Fiscal Year The benefit of this project will allow moving the concentrate disposal from the wastewater treatment plant and into a surface water body, reducing wastewater treatment flows by 300,000 gallons per day. Municipal Marina Breakwater System The St. Augustine Municipal Marina is located on the Atlantic Intracoastal Waterway, just south of the Bridge of Lions. Built in the early 1990s, the Marina has 85 berthing slips allocated to transient, short-term and long-term clients. Its floating dock design is warranted because of the constant tidal changes that commonly and routinely exceed five feet. A major improvement and renovation initiative on the floating dock system commenced in September 2006, with the awarding of a contract to design and engineer a breakwater system located on the north of the current marina. This system will not only help protect the docks from strong winds and tides, but will also add approximately 20 smaller slips to the Marina s inventory. It is anticipated that this project design will begin with dredging the marina in the autumn of The City currently has all permits on hand to begin this project. The City is currently seeking grant funds to be used along with the Series 2011 bond proceeds and plans to complete the project by the summer of Water and Sewer Infrastructure Improvements The City continues an aggressive asset management program prioritizing infrastructure repairs, replacements and upgrades. According to the Annual Capacity Analysis Report both water and wastewater treatment plants have sufficient capacity for the next decade, thus efforts are focused on rehabilitations to keep pace as equipment reach its life cycle. At the Wastewater Treatment Plant substantial improvements largely completed in 2010 include: $1.715 million in upgrades of aeration equipment, new station for grease and stormwater discharge, and a prevention system for activated sludge discharge. These improvements better positions plant operations to meet pending new regulations for nutrient removals. Remaining project work includes room environmental controls and control system programming and pump replacement. The project will provide substantial energy savings and improve overall capacity and plant operability. 3 4

93 B-7 City of St. Augustine, Florida Letter of Transmittal The Water Treatment Plant underwent modifications in 2008/2009 that increased capacity by two million gallons per day, and the following year the lime softening filter system underwent extensive upgrade. The well field project initiated in 2009 was completed, along with new pump stations, securing source water for the next 20 years. With the availability of new production wells, the nine shallow water supply wells were decommissioned. Improvements to the sewer collection and water transmission system continue under an on-going program of replacements and upgrades. The City continues reduction of inflow and infiltration into the sanitary sewer system, committing approximately $150,000 towards this effort to reduce flows into the wastewater treatment plant and thus reducing the need for plant capacity expansions. Maintaining the sewer system s 73 pump stations by using repair and replacement funds in an effective and efficient manner remains a priority. During 2010, two stations were completely refurbished, an emergency standby generator was placed into one of the more critical stations, and designs are underway for replacing two additional stations. In addition, several sewer and force main replacements are scheduled as is design completion to replace the ten-inch sewer force main under the San Sebastian River. The City continues an annual program of replacing and upgrading water mains. In 2010, approximately $600,000 was invested in replacing water mains reaching the end of their life cycle, resulting in approximately 1.25 miles of water main replacements. Stormwater Infrastructure Improvements Major stormwater infrastructure improvements are scheduled for a number of areas including Riberia (described in more detail above), Cordova, Treasury, Charlotte, and Pine Streets. With these projects accomplished, the City will have completed the projects identified in the 1995 Master Drainage Study; therefore, a new master plan is anticipated for Fiscal Year Maintenance dredging of Lake Maria Sanchez had been planned for 2010, however, was delayed due to technical difficulties and is now expected to be underway and completed in Riberia Street Bank Stabilization In 2010 plans were made ready to construct a cap over the closed area and construct shoreline hardening along the perimeter. The City s consultant completed the project designs, obtained the necessary permits and prepared the construction bidding documents. Construction bids and project completion are on-target to be completed by end of Fiscal Year Lincolnville Initiative The Lincolnville neighborhood is a forty-five block area and National Register District composed of 867 primary structures, 447 of which are contributing properties to the district, meaning they are structures of cultural, historic and architectural merit. Lincolnville has contributed to St. Augustine s history through all of its major historical periods. City of St. Augustine, Florida Letter of Transmittal Many of Lincolnville s homes and streets are in need of maintenance. The climate of St. Augustine is hard on old homes and since Lincolnville is located at the tip of a peninsula, between the Matanzas River and San Sebastian River, it is particularly vulnerable. Its property owners and the City often expend tremendous resources on maintenance of private and public properties. In the fall of 2010, the City of St. Augustine launched Lift Up Lincolnville, a neighborhoodfocused improvement project to address the maintenance of public and private properties, upgrade public infrastructure, install new landscaping and improve public safety. Municipal Marina Mooring Fields The City of St. Augustine completed the construction of three mooring fields, totaling 168 moorings, in November 2010, and the success of the program has greatly surpassed all predictions. During the initial month of operation, two of the three fields were completely sold out of moorings on three separate occasions. The mooring field program is part of the City s Harbor Management Plan designed to better manage boats using our waterways by requiring live-aboard vessels to properly dispose of waste, addressing the issue of derelict boats, encouraging responsible boating, and increase public accessibility. Salt Run Dredging The City has entered into part two of an inter-local agreement with the St. Augustine Port, Waterway & Beach District and the Florida Inland Navigation District to begin a three to eight year phased dredging project in Salt Run. Phase 2, just completed and totaling $400,000, will remove more than ten thousand cubic yards of material from the Conch House Marina to the Lighthouse Boat Ramp. San Sebastian Dredging The City, partnering with the St. Augustine Port, Waterway & Beach District, has received all of the permits needed to dredge the San Sebastian River, and is currently seeking a funding source in order to proceed further with this project. Derelict Vessel Removal The City continues to work with the St. Augustine Port, Waterway & Beach District, the Florida Inland Navigation District, and the St. Johns County Sheriff s Office to identify and remove derelict vessels from the waterways. Since the installation of the City s mooring fields, the numbers of derelict boats found within City limits have significantly diminished. All removal work is managed by City staff and expenses incurred are reimbursed by the St. Augustine Port, Waterway & Beach District. Dr. Sue A. Middleton Archeology Research Center The City s Archaeology Division was created in 1990 as part of the Archaeological Preservation Ordinance, established in The ordinance created the position of City Archaeologist and 5 6

94 B-8 City of St. Augustine, Florida Letter of Transmittal established regulations designed to protect, through documentation, the City s archaeological heritage from the effects of ground-penetrating construction activities. The division was housed for 16 years at the water treatment plant on King Street, then relocated to the basement of Government House. Transfer of that property to the University of Florida necessitated another relocation. A former warehouse owned by the City was adapted and remodeled to accommodate the division. In honor of a major benefactor of the City s Archaeology program, the facility was named the Dr. Sue A. Middleton Archeology Research Center. Since the establishment of the Archaeological Preservation Ordinance, more than 600 projects have been logged resulting in the collection of hundreds of thousands of artifacts. The new facility, which includes administrative offices, an exhibit area, a laboratory, and an archives area, will increase the City s ability to store, catalogue and curate items, and maintain their accompanying documentation. Parking Managing the wide variety of vehicle parking needs in St. Augustine continues to be a major focus of the City Commission, City management and the community. The City Commission adopted a sevenpoint master plan whose implementation has been continuously monitored by the citizen-member Parking & Traffic Committee. The plan includes: construction of the Historic Downtown Parking Facility; parking policy revisions for the downtown area; a residential parking decal program; heritage tourism signage; parking at the San Sebastian Harbour development; and the remodeling of the Lightner Parking Lot. Construction of the 1,200 vehicle Historic Downtown Parking Facility and the adjacent restored and enlarged Visitor Information Center are now in their fifth year of operation. Public acceptance and use of the parking facility continues to grow each year since opening in A residential parking permit program was launched in January 2006 and is now operating in multiple areas of the City proving to be a viable parking scheme for residents in those designated areas. The Heritage Tourism Signage Program was completed in 2010 resulting in the installation of 11 informational signs strategically placed at the City s entry points to direct traffic in the most functional way. Tourists entering the City are directed to the Historic Downtown Parking Facility and the Visitor Information Center where access to the downtown area is most convenient. Installation of the signs has shown a noticeable increase in the number of vehicles using the parking facility. The downtown parking meter and pay-station system was phased in from December 2007 through spring of As the system became operational the City worked to educate the public on the system, a process that is on-going. This process includes the promotion of and education regarding the City s ParkNow Card, a method of purchasing bulk parking at a discounted rate via smart card. Transfer of State Owned Historical Properties In 1997, upon elimination of the Historic St. Augustine Preservation Board, an agency of the State of Florida funded by annual legislation appropriation, the City of St. Augustine assumed responsibility for the Board's properties and programs. The City also assumed the responsibility of deferred City of St. Augustine, Florida Letter of Transmittal maintenance on the properties. The cost of maintaining these properties and programs was burdensome, as the City received no state compensation. In 2007, the state legislature approved legislation authorizing transfer of the administration of these same properties and programs from the City to the University of Florida. This legislation took effect when the transfer was formally approved by the University in The City successfully transferred the administration and management of each of these properties to the University of Florida and in September 2010 signed a Memorandum of Agreement with the University of Florida regarding the management and operation of the Colonial Spanish Quarter. Colonial Spanish Quarter The Department of Heritage Tourism & Historic Preservation continues to develop a citywide comprehensive heritage tourism system based on a business/programmatic model implemented in January 2010 with a special projects appropriation from the City Commission. Efforts initially focused on upgrading the product at the Colonial Spanish Quarter through restoration of infrastructure, buildings, gardens, pathways and visitor amenities, as well as retraining and crosstraining the staff in the areas of interactive interpretation, customer service, and visitor engagement. The second phase focused on developing a comprehensive program for visitors seeking colonial experiences in St. Augustine. This included the creation of an Explorer s Passport program, a highquality promotional and marketing strategy, and visitor experience previews at the Visitor Information Center and other locations. The third and current phase focuses on the improvement and reopening of the southern half of the Spanish Quarter, closed many years ago to consolidate operations at the museum. The southern quarter, called the De Mesa Yard, will open April 1, 2011 with a new visitor center and Spanish Quarter entrance on Castillo, a new trolley-train pull-off drivethrough, and new and dynamic programs for heritage tourists and school students. 450 th Commemoration The commemoration of the 450th anniversary of the founding of St. Augustine in 2015 is widely recognized as a significant opportunity to elevate the recognition of St. Augustine to a much wider than normal audience. Toward that end, the City of St. Augustine has contracted with First America Foundation, a nonprofit corporation, to produce four major events related to the history of the City culminating with the 450th anniversary. Those events are: the bicentennial of the 1812 Spanish Constitución in 2012; the 500th anniversary of the founding of Florida in 2013; the 50th anniversary of the passage of the Civil Rights Act in 2014; and the 450th anniversary of the founding of St. Augustine in The City funded First America Foundation with $275,000 in September In addition to this initiative by local government, the Federal Government has established within the Department of the Interior, the Commission on the Commemoration of St. Augustine s 450th Anniversary. The 14-member commission is expected to be appointed and schedule its first meeting in St. Augustine by early summer The commission carries an appropriation authorization of $500,000 annually through

95 B-9 City of St. Augustine, Florida Letter of Transmittal Economic Recovery The City is experiencing a renewal of projects that once were in foreclosure including: the multifamily Islander development now under construction as a 72 unit townhome development; the 80 unit single-family, Old Sebastian Point; and Whispering Creek Town Center, a mixed use commercial and residential development actively under construction. Many projects throughout the City experienced a slowdown or stop in activity during the economic recession, however, recent activity has demonstrated a positive shift in activity. The 749 unit Madeira project, north of the City along U.S. 1, has obtained refinancing after being threatened with foreclosure and is now expected to resume activity in the near future. Flagler College is redeveloping the third tower of the former Flagler East Coast Railroad building as dormitories and this will complete the redevelopment of this important property on the King Street entry corridor into downtown. Anastasia Boulevard Now that construction is complete with the renovations of the Bridge of Lions, commercial development opportunities are being observed along Anastasia Boulevard. Commercial property owners have recently organized the Anastasia Business Association, new offices and a restaurant have been permitted, the Alligator Farm Zoological Park has constructed a new "zip line" attraction and an increase in the volume of development proposals is anticipated. Historic Downtown The historic downtown of the City has continued to experience positive development activity despite the recent economic recession. Few stores are vacant for any length of time and there is a continuous move on the part of entrepreneurs to seek commercial development activities in the downtown historic area. For instance, the Monterey Motel, once slated for a complete redevelopment, is now set for partial renovation and redevelopment. Public sector development of the Colonial Spanish Quarter Museum, the National Park Service Visitor's Orientation Center and grant assisted activities to improve pedestrian access to the Castillo de San Marcos are on-going. Flagler College has received architectural and zoning approval for its new Welcome Center and is now in the preliminary planning stages for its new Communications Department building, both of which are in the historic downtown area. State Road 312 Corridor The State Road 312 corridor has experienced some recent activity, as expressed earlier with the Islander development. However, the Antigua development, consisting of 455 residential units, and Fish Island development, consisting of 450 residential units, have not yet demonstrated renewed activity. The Antigua development was returned to the lending institution with partial infrastructure complete and remains a desirable development opportunity along the intercostal waterway. The Fish Island development has obtained dock permits from the State of Florida, but has not applied for a building permit. City of St. Augustine, Florida Letter of Transmittal CHALLENGES AND CONCERNS As the City addresses the need for improved services, it is important that it identify the challenges which will face the community in future years. Property Values In addition to Florida s property-tax reform, the current economic crisis has devastated property values within the area. The City s ad valorem tax revenues have decreased for Fiscal Year 2011 with no improvement expected in the near term. Budget and Growth Concerns The City is still faced with a weakened and narrow economy. A continuation of weak economic conditions could strain the City s revenue base further requiring the City to make additional adjustments to maintain balanced operations. The City has historically maintained strong reserves, as evidenced by its most recent bond ratings of A+/Stable, A+ and Aa3. There have, however, been recent decisions to make one-time draw-downs of reserves for non-budgeted expenditures. In order for the City to maintain its healthy financial position, additional draw-downs of reserves must be evaluated closely before approval. Utility and Stormwater Infrastructure As the City addresses its various requests for improved services, it is important that it identifies the challenges which will face the community in future years. Current challenges are caused by reduced growth and reduction in revenue projects coupled with excess capacity awaiting new connections. As the economy has slowed, new service connections have diminished creating an excess service capacity. Maintaining underutilized facilities places some strain on the utility, however, it is considerably minimal in comparison to the rest of the system and can be easily maintained in its current configuration indefinitely. The City is taking aggressive measures to conserve potable water and assure all billable water use is charged accordingly. New procedures and practices will better account for water usage and lost water, process for inspections, repair/replacement of meters, and for the calibration and adjustment of meters as necessary. This will ensure all revenue is captured and reduce the City s use of potable water for irrigation purposes. Additionally, due to the age of the infrastructure of the utility system, the challenge is to make the best use of the available resources with limited maintenance dollars. As revenues are down, the department must use objective criteria to target improvements to extend life cycle and take measures to reduce labor costs through attrition. Therefore, a number of positions remain vacant that relate to engineering, development review, and utility connections. 9 10

96 B-10 City of St. Augustine, Florida Letter of Transmittal West Augustine Community Redevelopment Area (CRA) The West Augustine CRA is located within the City s utility service area. During Fiscal Year 2010 the City and St. Johns County entered into an inter-local agreement to help address concerns made by the CRA to provide sewer expansion into the area. To fulfill the City s role in the inter-local agreement, the City completed the West Augustine Master Sewer Plan in The Plan identified $15 million of improvements to provide sewer to all areas of the CRA. Another provision of the inter-local agreement was for the City and the County to work together to find financing mechanisms to fund the sewer expansion and to address and solve the connection fee policy. Work is continuing between both agencies towards developing strategies to fund sewer expansion and to address connection fees to provide economic development to the blighted CRA. Such mechanisms include applications for grants or low cost loans with Community Development Block Grants (CDBG) and State Revolving Loan Fund (SRF) and the USDA Rural Small Community Grants. Colonial Spanish Quarter As discussed earlier, the Colonial Spanish Quarter is currently being upgraded through restoration, cross-training of staff, a new promotional and marketing strategy, the opening of the De Mesa Yard and the construction of a new trolley-train pull-off drive-through. For Fiscal Year 2011, the City s General Fund supplemented the operations of the Spanish Quarter with $440,000. Once these improvements are fully in place, the City hopes to begin reducing this transfer from the General Fund. If the Spanish Quarter does not begin to realize increased revenue, the City will have to make decisions about the future of operations. Galimore Center Pool The Galimore Center Pool at Eddie Vickers Park is located within the Lincolnville neighborhood and is maintained by both the City and the County via inter-local agreement. The pool is currently closed and in need of repair before it can be reopened. The City is currently working with the County to establish a plan for the future of the pool. MANAGEMENT DISCUSSION AND ANALYSIS Included in the Financial Section of this Comprehensive Annual Financial Report is the Management Discussion and Analysis. This section provides a broad overview and analysis of the City s activities and should be used in conjunction with the Letter of Transmittal. City of St. Augustine, Florida Letter of Transmittal DEBT ADMINISTRATION The City does not have any outstanding property tax supported debt. Each of the proprietary debt issues are considered to be self-supporting because revenues derived from operations provide for the debt requirements on an annual basis. A summary of outstanding bond issues and long-term notes payable as of September 30, 2010, for the City are as follows: Outstanding Bond Issue Balance Water and Sewer Revenue, 2005 $ 10,950,000 Water and Sewer Revenue, ,849,012 Public Service Tax and Guaranteed Entitlement, ,505,000 Public Service Tax and Guaranteed Entitlement, ,149,999 Total Outstanding Bond Issues $ 55,454,011 The table below shows the City s debt service coverage for the Utility Fund for the year ended September 30, Fiscal Year Gross Operating Net Debt Service Debt Service Ended Revenue Expenses Revenue Requirements Coverage ,876,944 6,962,796 4,914,148 3,288, REPORTING ACHIEVEMENT The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of St. Augustine, Florida, for its Comprehensive Annual Financial Report for the fiscal year ended September 30, This is the 18 th consecutive year that the City has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current Comprehensive Annual Financial Report continues to meet the Certificate of Achievement Program s requirements and are submitting it to the GFOA to determine its eligibility for another certificate

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99 City of St. Augustine Comprehensive Annual Financial Report For the Year Ended September 30th, 2010 Principal City Officials Principal City Officials City Commission Mayor-Commissioner....Joseph Boles Vice Mayor-Commissioner.. Errol Jones Commissioner.. Donald Crichlow Commissioner...Leanna Freeman Commissioner...Nancy Sikes-Kline B-13 City Staff City Manager John Regan City Attorney...Ronald Brown City Clerk Vacant Assistant City Manager......Timothy Burchfield City Comptroller Mark Litzinger Police Chief Loran Lueders Fire Chief..Michael Arnold Director, General Services......James Piggott Director, Heritage Tourism..Dana Ste. Claire Director, Planning & Building......Mark Knight Director, Public Affairs...Paul Williamson Director, Public Works.....Martha Graham City Boards & Committees Care & Share Committee Civil Service Board Code Enforcement, Adjustments & Appeals Board Entry Corridor Review Committee Firefighters Retirement Board of Trustees General Employees Retirement Board Historic Architectural Review Board (HARB) Historic Preservation Advisory Committee (HPAC) Parking & Traffic Committee Planning & Zoning Board (PZB) Police Officers Retirement Board Street Tree Advisory Committee (STAC) 17

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101 City of St. Augustine Comprehensive Annual Financial Report For the Year Ended September 30th, 2010 City Government Organizational Chart Citizens of St. Augustine This Page Intentionally Left Blank Mayor and Board of City Commissioners B-15 Boards and Committees Assistant City Manager City Manager City Clerk City Attorney City Comptroller Police Chief Fire Chief Director, Heritage Tourism Director, Planning & Building Director, Public Affairs Director, General Services Director, Public Works 19 20

102 FINANCIAL SECTION This Section Contains the Following: Independent Auditors Report Management Discussion and Analysis (MD&A) Independent Auditors Report B-16 Basic Financial Statements Required Supplementary Information Other than MD&A Combining Statements Schedule of Expenditures of Federal Awards and State Financial Assistance

103 B

104 Management Discussion and Analysis Management Discussion & Analysis The City of St. Augustine s Management Discussion and Analysis (MD&A) is designed to provide an objective and easy to read analysis of the City of St. Augustine s financial activities based on currently known facts, decisions and conditions. It is intended to provide a broad overview and short-term and long-term analysis of the City s activities based on information presented in the financial statements. Specifically, this information is designed to assist the reader in focusing on significant financial issues, provide an overview of the City s financial activity, identify changes in the City s financial position, distinguish material deviations from the approved budget and recognize any individual fund concerns. The information contained within this MD&A is designed to focus on the current year s activities, resulting changes and currently known facts and is only a component of the entire financial statement report. We encourage readers to consider the information contained in this discussion in conjunction with additional information contained in our transmittal letter beginning on page 1 in the front of this report, and the City s financial statements beginning on page 41. Financial Highlights B-18 The City s assets at the close of the most recent fiscal year exceeded its liabilities (reported as net assets) by $85,663,808. Of this amount, $25,382,154 (unrestricted net assets) can be used to meet the government s ongoing obligations to citizens and creditors. The City s net assets increased by $2,296,527 (or 2.75%) from the previous year. Governmental net assets decreased by $424,571 (or 1.5%) for the current fiscal year and governmental unrestricted net assets were equal to $10,794,948. Business-type net assets increased by $2,721,098 as restated (or 4.9%). Businesstype unrestricted net assets were equal to $14,587,206. The governmental fund activities revenue decreased by $566,027 (or 2.3%). The current year s activities produced a decrease in net assets of $424,471 compared to the previous year s decrease of $703,054. The business-type activities operating revenue increased by $222,454 (or 1.1%). The current year s activities produced an increase in net assets of $2,721,098 compared to the previous year s restated increase of $2,812,041. The City s total debt decreased by a net $2,294,632 during the fiscal year. 23

105 City of St. Augustine, Florida Management Discussion and Analysis For the year ended September 30, 2010 Overview of the Financial Statements Using the Annual Report The following graphic is provided for your review to better understand this report s layout. City of St. Augustine, Florida Management Discussion and Analysis For the year ended September 30, 2010 Government-wide Financial Statements The government-wide financial statements report on the City as a whole. The statements are designed to provide readers with a broad overview of the City s finances, in a manner similar to a private-sector business. There are two government-wide statements. Both distinguish functions of the City that are principally supported by taxes, licenses and permits, 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 Government-wide Financial Statements can be found on pages of this report. B-19 Management s Discussion And Analysis (required supplementary information) Pages Government-wide Financial Statements Pages Fund Financial Statements Pages Notes to the Financial Statements Pages Required Supplementary Information (other than MD&A) Pages The statement of net assets presents information on all of the City s assets and liabilities, with the difference between the two being reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City is improving or weakening. However, other factors should be considered such as the condition of the City s capital assets to assess the overall health of the City. The statement of activities presents information showing how the government s net assets changed during the most recent fiscal year. All changes in net assets 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. Fund Financial Statements MD&A Basic Financial Statements Other Required Supplementary Information The City s basic financial statements are comprised of three components: Government-wide Financial Statements, Fund Financial Statements and Notes to the Financial Statements. The report also includes Required Supplementary Information in addition to the basic financial statements. Traditional users of governmental financial statements will find the fund financial statements presentation more familiar. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate legal compliance with finance-related legal requirements. The City chose to include the required budget-to-actual comparisons in the fund financial statements of its financial report. The City has three fund categories: governmental funds, proprietary funds and fiduciary funds. Governmental funds report basic services, which focus on near-term inflows and outflows of available resources and their balances at year-end. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. Governmental fund information helps the reader determine whether there are more or fewer financial resources that can be spent in the near future to finance the City s programs. The differences are reconciled between government-wide activities (reported in the statement of net assets and the statement of activities) and governmental funds on separate schedules following the respective governmental funds

106 B-20 City of St. Augustine, Florida Management Discussion and Analysis For the year ended September 30, 2010 The fund financial statements provide detailed information about the most significant funds, not the City as a whole. The City opted to report all funds as major funds which include the following: General Fund, Debt Service Fund, Special Revenue Fund, Capital Projects Fund and Permanent Fund. The City of St. Augustine adopts an annual appropriated budget for its General Fund and Special Revenue Fund. A budgetary comparison statement has been provided for these funds to demonstrate compliance with their budget. Proprietary funds are used to account for revenues and expenses from services provided on a user-charge basis to the public. Proprietary fund activities are reported on the same accounting basis and measurement focus as the statement of activities, which is similar to that found in the private sector and provides a periodic measurement of net income. The City s proprietary activities are accounted for in enterprise funds. The City opted to report all funds as major funds which include the following: Utility Fund, Stormwater Fund, Solid Waste Fund, Municipal Marina Fund, Visitor Information Center Fund and Heritage Tourism Fund. Fiduciary funds report information about financial arrangements in which the City acts solely as an agent or trustee for others. The City is responsible for ensuring these resources are used for their intended purposes. Since the funds are not resources of the City, but are held for the benefit of others, we exclude these activities from the government-wide statements. The City s fiduciary funds include the following: General Pension Fund, Police Pension Fund and Fire Pension Fund. Notes to the Financial Statements & Other Information The notes provide additional information that is essential for a full understanding of the data provided in the government-wide and fund financial statements. The required supplementary information includes the schedules of funding progress and contributions for the fiduciary funds. The combining statements include the fiduciary funds combined but in more detail than the government-wide. Additional statistical information is presented to give users of the report a historical perspective and to assist in determining current financial trends of the City. Financial Analysis City as a whole As noted earlier, net assets may serve over time as a useful indicator of a government s financial position. The City s assets exceeded liabilities by $85,663,808 as of September 30, A portion of the City s net assets of $57,913,687 (or 67.61%), reflects its investments in capital assets less any related debt used to acquire these assets that is still outstanding. The City uses capital assets to provide services to citizens; therefore, these assets are not available for future spending. The governmental unrestricted net asset of $10,794,948 is a decrease of $1,299,337 City of St. Augustine, Florida Management Discussion and Analysis For the year ended September 30, 2010 from the previous year. This is due to a transfer of surplus funds to cover Commission approved projects that were beyond the normal operating budget. The business-type unrestricted net assets decreased $494,287 from the previous year, as restated, primarily due to an investment of unrestricted net assets into capital assets. Restricted net assets of the City in the amount of $2,367,967 are reported in both governmental and business-type activities. These net assets have limits on their use that are externally imposed. The majority of these resources can be used only for renewal and replacement of existing utility infrastructure. Unrestricted net assets of the City in the amount of $25,382,154 can be used to meet the City s ongoing obligations to citizens and creditors. The terms restricted and unrestricted are governed by generally accepted accounting principles and do not fully consider City management decisions regarding spending limitations. Accounting principles may not restrict some amounts that have been earmarked for future uses governed by managerial decisions and plans. City of St. Augustine Summary of Net Assets as of September 30th, 2010, with comparative data for 2009 Governmental Activities Business-type Activities Total Primary Government Current and Other Assets $ 14,446,128 $ 15,389,407 $ 18,972,204 $ 18,968,658 $ 33,418,332 $ 34,358,065 Capital Assets 23,781,410 23,278,055 89,586,289 88,686, ,367, ,964,341 Total Assets 38,227,538 38,667, ,558, ,654, ,786, ,322,406 Current and Other Liabilities 3,411,758 3,100,173 2,256,454 2,106,309 5,668,212 5,206,482 Long-term Debt Outstanding 7,331,955 7,658,893 48,122,056 50,089,750 55,454,011 57,748,643 Total Liabilities 10,743,713 10,759,066 50,378,510 52,196,059 61,122,223 62,955,125 Net Assets: Invested in Capital Assets, Net of Related Debt 16,449,454 15,619,162 41,464,233 38,596,536 57,913,687 54,215,698 Restricted 239, ,949 2,128,544 1,780,856 2,367,967 1,975,805 Unrestricted 10,794,948 12,094,285 14,587,206 15,081,493 * 25,382,154 27,175,778 Total Net Assets $ 27,483,825 $ 27,908,396 $ 58,179,983 $ 55,458,885 * $ 85,663,808 $ 83,367,281 * As restated, see Footnote below. * The City restated its 2009 Total Net Assets to reflect two grant receivables that the City no longer plans to receive. This restatement results in reduction of Unrestricted Net Assets and therefore Total Net Assets of $489,

107 B-21 Management Discussion and Analysis As noted earlier, the statement of activities presents information showing how the government s net assets changed during the most recent fiscal year. Statement of Activities for the year ended September 30th, 2010, with compartive data for 2009 (in thousands) Governmental Activities Business-type Activities Total Primary Government Revenues Program Revenues: Charges for Services $ 5,627 $ 5,677 $ 20,983 $ 20,558 $ 26,610 $ 26,235 Operating Grants and Contributions Capital Grants and Contributions ,047 1,448 * 1,810 2,042 General Revenues: - - Taxes 14,570 15, ,570 15,022 Fees 1,415 1, ,415 1,465 Revenue Sharing Investment Income Miscellaneous Total Revenues 24,148 24,715 22,075 22,142 46,223 46,856 Program Expenses Including Indirect Expenses General Administration 9,478 10, ,478 10,030 Public Safety 8,193 8, ,193 8,280 Physical Environment 3,464 3, ,464 3,512 Transportation 1,148 1, ,148 1,329 Culture/Recreation Interest/Fiscal Charges on Long-term Debt Utilities ,621 10,685 10,621 10,685 Stormwater Solid Waste - - 2,681 2,707 2,681 2,707 Municipal Marina - - 2,208 1,988 2,208 1,988 Visitor Information Center 3,068-3,068 - Heritage Tourism - - 1,712 4,762 1,712 4,762 Total Expenses 23,171 24,067 20,757 20,681 43,928 44,747 Increase in Net Assets Before Transfers ,318 1,461 2,295 2,109 Transfers (1,402) (1,351) 1,402 1, Increase in Net Assets (425) (703) 2,720 2,812 * 2,295 2,109 Net Assets - Beginning 27,908 28,611 55,459 52,647 83,367 81,258 Net Assets - Ending $ 27,483 $ 27,908 $ 58,179 $ 55,459 $ 85,662 $ 83,367 City of St. Augustine, Florida Management Discussion and Analysis For the year ended September 30, 2010 Governmental Activities Governmental activities decreased the City s net assets by $541,224. Key elements of this decrease are as follows: Although general fund revenues exceeded the budget by $1,011,121, a transfer of $1,320,217 was made from general fund surplus to cover Commission approved projects that were outside of the regular budget. General fund expenditures exceeded the budget by $208,945. This was primarily due to an increase in capital outlay expenditures. Program revenues are revenues that can be assigned or are attributable to a specific program. These revenues account for $6,654,682 (or 27.56%) of total governmental activities revenue. The chart below shows governmental activities by program with their respective expenses and revenues. *The City restated its 2009 Statement of Activities to reflect two grant receivables that the City no longer plans to receive

108 City of St. Augustine, Florida Management Discussion and Analysis For the year ended September 30, 2010 General revenues are revenues that fail to meet the criteria of program specific revenues. General revenues account for $17,494,026 (or 72.45%) of total governmental activities revenue. The chart below shows total general revenues by category. City of St. Augustine, Florida Management Discussion and Analysis For the year ended September 30, 2010 The chart below shows business-type activities by program with their respective expenses and revenues. B-22 Business-type Activities Business-type activities increased the City s net assets by $2,721,098. Key elements of this increase are as follows: Total revenues for business-type activities amounted to $22,075,523. Below is a chart depicting business-type activities by source. The business-type activities that are primarily driven by growth and development added $3,296,515 to net assets. The majority of this addition can be attributed to charges for services and developer contributions of land, rights-of-way and infrastructure. The business-type activities that are primarily driven by the economy and tourism experienced a loss in net assets of $575,417. This is primarily attributed to an operating loss in the Visitor Information Center Fund and interest expense for the Visitor Information Fund. Program revenues are revenues that can be assigned or are attributable to a specific program. These revenues account for $22,030,378 (or 99.8%) of total business-type activities revenue

109 B-23 City of St. Augustine, Florida Management Discussion and Analysis For the year ended September 30, 2010 Governmental Funds The focus of the City s governmental funds is to provide information on near-term inflows, outflows and balances of spendable resources. This information is useful in assessing the City s financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government s net resources available for spending at the end of the fiscal year. At the end of the current fiscal year, the City s governmental funds reported combined ending fund balances of $12,282,794, a decrease of $1,091,924 from the previous fiscal year. The majority of this total amount, $10,759,201 (or 87.60%) constitutes unreserved fund balance, which is available for spending at the government s discretion. The remaining $1,523,593 (or 12.40%) is designated to indicate that it is not available for new spending because it has already been committed. The General Fund is the chief operating fund of the City. At the end of the current fiscal year, the unreserved fund balance of the General Fund was $10,704,273 while the total fund balance was $11,607,122. As a measure of the General Fund s liquidity, it may be useful to compare both the unreserved fund balance and the total fund balance to the total fund expenditures. Unreserved fund balance represents 48.7% of the total General Fund expenditures, while total fund balance represents 57.9% of that same amount. The fund balance of the City s General Fund decreased by $853,072 over the previous fiscal year. Key factors for this are as follows: City of St. Augustine, Florida Management Discussion and Analysis For the year ended September 30, 2010 The Permanent Fund is used to report resources that are legally restricted to the extent that only earnings, and not principal, may be used to support the City s programs. At the end of the current fiscal year, the total fund balance was $63,549. The fund balance increased by $124 over the previous year. This increase is due to interest earned on the Anderson and Woodman Trust Funds throughout the year. Proprietary Funds The City s proprietary funds provide the same type of information provided in the governmentwide statements, but in more detail. The tables below list the net assets summaries for the various enterprise funds. Summary of Change in Net Assets - Proprietary Funds For the Year Ended September 30, 2010 (in thousands) Utility Storm Water Drainage Solid Waste Municipal Marina Heritage Tourism Total Proprietary Net Assets - Beginning $ 48,359 $ 5,151 $ 1,809 $ 1,031 $ (510) * $ (380) $ 55,459 Change in Net Assets 2, (607) (30) 2,721 Net Assets - Ending $ 50,639 $ 5,364 $ 2,612 $ 1,092 $ (1,116) $ (410) $ 58,180 Net Assets As of September 30, 2010 Visitor Information Center Although general fund revenues exceeded the budget by $1,011,121, a transfer of $1,320,217 was made from general fund surplus to cover Commission approved projects that were outside of the regular budget. General fund expenditures exceeded the budget by $208,945. This was primarily due to an increase in capital outlay expenditures. Utility Storm Water Drainage Solid Waste Municipal Marina Visitor Information Center Heritage Tourism Total Proprietary Invested in Capital Assets, Net of Related Debt $ 39,820 $ 1,772 $ 1,308 $ 874 $ (2,925) $ 614 $ 41,464 The Debt Service Fund is the fund used to set aside resources to meet current debt service requirements on general long-term debt. The Special Revenue Fund maintains certain revenue raised to be used for a specific purpose. At the end of the current fiscal year, the total fund balance was $557,195. The fund balance decreased by $284,882 below the previous fiscal year. This decrease is due mainly to the decrease in intergovernmental revenues received for the fiscal year. Restricted 1, ,129 Unrestricted 8,940 3,591 1, ,808 (1,273) 14,587 Total Net Assets $ 50,639 $ 5,364 $ 2,612 $ 1,092 $ (1,116) $ (410) $ 58,180 * The City restated its 2009 Total Net Assets to reflect two grant receivables that the City no longer plans to receive. The Capital Projects Fund is used to report major capital acquisitions and construction separately from ongoing operating activities. At the end of the current fiscal year, the total fund balance was $54,928. The fund balance increased by $45,906 compared to the previous fiscal year

110 B-24 City of St. Augustine, Florida Management Discussion and Analysis For the year ended September 30, 2010 Cumulatively, the proprietary funds had a $2,721,098 increase in net assets. Key factors pertaining to this increase are as follows: The Utility Fund had a $2,280,634 increase in net assets from the previous year. The fund had an operating income of $2,116,624 due mainly to reduced operating expenses. Additionally, the fund received $343,318 in developer contributions and $633,170 in state grants. Of the increase in proprietary funds, $212,645 can be attributed to the Stormwater Fund. The Stormwater Fund often accumulates money for future projects that are large in scope. The Solid Waste Fund experienced an increase in net assets of $803,236. This amount can be attributed to the continued reduction in operating expenditures. The Municipal Marina Fund had a slight increase in net assets of $61,173. The Visitor Information Center Fund had a decrease in fund balance of $606,703. This is primarily attributed to depreciation expense for the VIC Garage. The Heritage Tourism Fund experienced a slight decrease in net assets of $29,887. General Fund Budgetary Highlights There are no material differences between the original budget and the final amended budget for appropriations (expenditures) in the General Fund. There were no material budgetary changes to the General Fund budgets and all budgetary policies and controls were adhered to throughout the year. (See budget to actual comparison on page 51.) City of St. Augustine, Florida Management Discussion and Analysis For the year ended September 30, 2010 Capital Asset and Long-term Debt Administration Capital Assets The City s investment in capital assets for its governmental and business-type activities as of September 30, 2010, amounts to $113,367,698 (net of accumulated depreciation). This investment in capital assets includes land, buildings, improvements, machinery and equipment and infrastructure. The total increase in the City s investment in capital assets for the current fiscal year was 1.25%. Governmental Business-type Activities Activities Totals Land $ 6,563,747 $ 6,311,529 $ 1,130,003 $ 1,130,003 $ 7,693,750 $ 7,441,532 Capitalized Interest 116, ,946 1,275,912 1,362,933 1,392,567 1,486,879 Buildings 9,800,376 7,627,776 35,693,270 22,203,223 45,493,646 29,830,999 Infrastructure 4,825,718 4,987,160 44,577,798 37,629,079 49,403,516 42,616,239 Machinery 1,423,448 1,717,714 1,698,159 1,653,056 3,121,607 3,370,770 Total 22,729,944 20,768,125 84,375,142 63,978, ,105,086 84,746,419 Work in Progress 1,051,465 2,509,930 5,211,147 24,707,992 6,262,612 27,217,922 Total $ 23,781,409 $ 23,278,055 $ 89,586,289 $ 88,686,286 $ 113,367,698 $ 111,964,341 The following reconciliation summarizes the change in capital assets, which is presented in detail on pages of the Notes to the Financial Statements. Governmental Business-type Activities Activities Total Beginning Balance $ 23,278,055 $ 88,686,286 $ 111,964,341 Additions 3,374,434 24,230,591 27,605,025 Retirement (114,879) (117,005) (231,884) CWIP (1,458,465) (19,496,845) (20,955,310) Other Depreciation (1,297,736) (3,716,738) (5,014,474) Ending Balance $ 23,781,409 $ 89,586,289 $ 113,367,

111 B-25 City of St. Augustine, Florida Management Discussion and Analysis For the year ended September 30, 2010 The City currently has the following construction work-in-progress: Wastewater Improvements 1,947,589 Salt Run Dredging 716,117 Mooring Field 367,238 Aviles Street Renovation 209,246 Riberia Street Phase II 183,231 Riberia Street Design 133,339 Water Treatment Plant 117,288 FDOT Traffic Engineering Safety Study 88,168 LRPO Concentrate Disposal Permitting 65,887 Pump Station Rehabilitation 63,077 N. Matanzas Blvd & Andreas St. Watermain 57,268 Aviles Street Improvements 37,302 Waterworks Building Repairs 27,787 Infil and Inflow Elimination 26,000 Design Horizontal Directional Drill 16,248 Trolley Train Drop Off 10,391 Archaeology Building Repair 9,199 Utility Building Office Remodel 948 Palmer Street Watermain Upgrade 139 Flagler Blvd Watermain 126 Total $ 6,262,612 Major capital asset events during the current fiscal year included the following: Water Treatment Plant $ 14,482,027 Northwest Force Main 6,706,303 Fleet Building 2,813,766 Wastewater Treatment Plant Pipe Repairs 708,802 Milton Street Water Main 351,683 Land Purchase-101 S. Ponce de Leon 252,215 Street Sweeper 179,745 Transmission and Distribution Improvements 168,024 Marina Repairs 166,920 King Street Seg 3 152,684 Pump Station Improvements 115,094 Truck, Freightliner with Grapple Boom 114,537 Streets Improvements 102,701 $ 26,314,501 City of St. Augustine, Florida Management Discussion and Analysis For the year ended September 30, 2010 Long-Term Debt At the end of fiscal year 2010, the City had total debt outstanding of $55,454,011. All of this debt is secured solely by specified revenue sources. More detail on the long-term debt is presented on pages of the Notes to the Financial Statements. Economic Factors Governmental: Revenue Bonds $ 7,331,955 $ 7,658,893 Business Type: Water & Sewer Revenue Bonds 23,799,012 25,363,644 Municipal Marina Revenue Bonds 814, ,486 Heritage Tourism Revenue Bonds 23,509,042 23,795,620 Total $ 55,454,011 $ 57,748,643 The City primarily relies on property and a limited array of permitted or other taxes and fees for governmental activities. There are a number of state-shared revenues and recurring and nonrecurring grants from both the state and federal governments. Property values within the City have continued to fall over the last three years with the current economic state. Although the City was able to compensate for most of the lost tax revenue with a decrease in governmental activity expenses, the level of services offered to its citizens has still been impacted

112 City of St. Augustine, Florida Management Discussion and Analysis For the year ended September 30, 2010 City of St. Augustine, Florida Management Discussion and Analysis For the year ended September 30, 2010 $1,800,000,000 $1,600,000,000 $1,400,000,000 $1,200,000,000 $1,000,000,000 $800,000,000 $600,000,000 $400,000,000 City of St. Augustine Total Taxable Value The City regularly competes with the County for growth and expansion of services in an attempt to offset cost and lower customer fees. The level of taxes, fees and charges for services will have a bearing on the City s specific competitive ability to annex additional land into its corporate limits and encourage development to choose to locate within its jurisdiction. 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 Comptroller s office located at the Financial Services Center, 50 Bridge Street, St. Augustine, Florida $200,000,000 $- 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 B

113 Basic Financial Statements This Page Intentionally Left Blank B-27 40

114 This Page Intentionally Left Blank ASSETS CITY OF ST. AUGUSTINE, FLORIDA Statement of Net Assets September 30, 2010 Governmental Activities Business-type Activities Cash and Cash Equivalents $ 10,906,763 $ 13,501,388 $ 24,408,151 Receivables (Net) 1,124,114 2,260,915 3,385,029 Due from Other Governments 4,017-4,017 Inventories 591, , ,431 Prepaid Items 180, ,297 Investments, At Fair Value 7,500-7,500 Net Pension Assets 955, ,832 Restricted Assets: Cash and Cash Equivalents 675,875 2,128,544 2,804,419 Capital Assets: Non-Depreciable 6,965,571 6,341,150 13,306,721 Depreciable (Net) 16,815,838 83,245, ,060,977 Deferred Charges - 758, ,657 Total Assets 38,227, ,558, ,786,031 Total B-28 LIABILITIES Accounts Payable and Accrued Expenses 1,032,888 1,512,897 2,545,785 Deposits - 313, ,230 Unearned Revenue 174, ,615 Net Insurance Obligation 239, ,636 Non-Current Liabilities: Due Within One Year: Compensated Absences 79,333 30, ,883 Bonds Payable 341,823 2,628,177 2,970,000 Deferred Charges - Defeased Bond Cost - (191,532) (191,532) Due in More Than One Year Compensated Absences 1,885, ,244 2,370,530 Bonds Payable 6,990,132 45,493,879 52,484,011 Deferred Charges - Defeased Bond Cost - 106, ,065 Total Liabilities 10,743,713 50,378,510 61,122,223 NET ASSETS Invested in Capital Assets (Net of Related Debt) 16,449,454 41,464,233 57,913,687 Restricted for: Expendable Capital Projects 54,928-54,928 Renewal and Replacement - 1,879,846 1,879,846 Other 120, , ,644 Non-Expendable Permanent Fund 63,549-63,549 Unrestricted 10,794,948 14,587,206 25,382,154 Total Net Assets $ 27,483,825 $ 58,179,983 $ 85,663,808 See accompanying notes to basic financial statements 41

115 B-29 FUNCTION/PROGRAM ACTIVITIES PRIMARY GOVERNMENT: Governmental Activities: CITY OF ST. AUGUSTINE, FLORIDA Statement of Activities For Year Ended September 30, 2010 Expenses Charges for Services Operating Grants and Contributions Capital Grants and Contributions General Government $ 9,477,947 $ 4,159,321 $ - $ 763,338 Public Safety 8,192,511 1,001, ,405 Physical Environment 3,464, , Transportation 1,148, , Culture/Recreation 517,985 46, Interest/Fiscal Charges on Long-term Debt 369, Total Governmental Activities 23,170,808 5,626, , ,338 Business-type Activities: Utilities 10,620,601 11,471, ,488 Stormwater 466, , Solid Waste 2,681,359 3,363, Municipal Marina 2,207,992 2,197,463-70,485 Visitor Information Center 3,068,303 1,327, Heritage Tourism 1,712,119 1,875, Total Business-type Activities 20,756,896 20,983,405-1,046,973 Total Primary Government $ 43,927,704 $ 26,610,344 $ 264,405 $ 1,810,311 General Revenues: Property Taxes Utility Taxes Communication Service Taxes Franchise Fees State Revenue Sharing, Unrestricted Local Option Gas Taxes Local Option Sales Taxes Insurance Premium Taxes Other Taxes Miscellaneous Investment Income Transfers Total General Revenues and Transfers Change in Net Assets Net Assets - Beginning of Year (as restated) Net Assets - End of Year Program Revenues Governmental Activities Net (Expense) Revenue and Changes in Net Assets Primary Government Business-type Activities Total $ (4,555,288) $ - $ (4,555,288) (6,926,830) - (6,926,830) (3,162,083) - (3,162,083) (1,031,028) - (1,031,028) (471,238) - (471,238) (369,659) - (369,659) (16,516,126) - (16,516,126) - 1,827,260 1,827, , , , ,609-59,956 59,956 - (1,740,865) (1,740,865) - 163, ,705-1,273,482 1,273,482 (16,516,126) 1,273,482 (15,242,644) 10,690,906-10,690, , ,872 1,046,752-1,046,752 1,415,038-1,415, , , , , , , , ,602 99,409-99, , ,858 41,448 45,145 86,593 (1,402,471) 1,402,471-16,091,555 1,447,616 17,539,171 (424,571) 2,721,098 2,296,527 27,908,396 55,458,885 83,367,281 $ 27,483,825 $ 58,179,983 $ 85,663,808 See accompanying notes to basic financial statements 42 43

116 B-30 ASSETS CITY OF ST. AUGUSTINE, FLORIDA Balance Sheet Governmental Funds September 30, 2010 General Debt Service Special Revenue Cash and Cash Equivalents $ 10,822,468 $ - $ - Receivables (Net of Allowance for Uncollectibles) 1,124, Due from Other Funds Due from Other Governments 4, Inventories, At Cost 591, Prepaid Expenditures 180, Investments, At Fair Value 7, Restricted Assets: Cash and Cash Equivalents ,195 Total Assets $ 12,730,383 $ - $ 557,195 LIABILITIES AND FUND BALANCES Liabilities: Accounts Payable $ 836,535 $ - $ - Unearned Revenue 174, Accrued Expenditures 112, Due to Other Funds Total Liabilities 1,123, Fund Balances: Reserved for: Inventories 591, Police Education/Confiscation/Donations 120, Tree Memorial Fund 9, Prepaid Expenditures 180, Community Redevelopment Area ,195 Trust Funds Unreserved, Reported In: General Fund 10,704, Capital Projects Fund Total Fund Balances 11,607, ,195 Total Liabilities and Fund Balances $ 12,730,383 $ - $ 557,195 Capital Projects Permanent Total Governmental $ 84,242 $ 53 $ 10,906, ,124, , , , ,500 54,928 63, ,875 $ 139,170 $ 63,805 $ 13,490,553 $ 84,242 $ - $ 920, , , , ,207, , , , , ,195-63,549 63, ,704,273 54,928-54,928 54,928 63,549 12,282,794 $ 139,170 $ 63,805 $ 13,490,553 See accompanying notes to basic financial statements 44 45

117 CITY OF ST. AUGUSTINE, FLORIDA Reconciliation of Governmental Funds Balance Sheet to the Statement of Net Assets September 30, 2010 Total Governmental Fund Balances $ 12,282,794 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the governmental funds. Governmental capital assets 43,520,832 Less accumulated depreciation (19,739,423) 23,781,409 Long-term liabilities, including bonds payable are not due and payable in the current period and therefore are not reported in the governmental funds. Long-term liabilities (net of discounts/premiums and deferred amounts on refunding) at year-end consist of: 23,781,409 This Page Intentionally Left Blank B-31 Governmental bonds payable (7,331,955) Compensated absences (1,964,619) Net pension assets/obligations and net insurance assets/obligations are not reported as assets/liabilities of the governmental funds. (9,296,574) Net pension assets 955,832 Net insurance obligations (239,636) 716,196 Net Assets of Governmental Activities $ 27,483,825 See accompanying notes to basic financial statements 46 47

118 B-32 CITY OF ST. AUGUSTINE, FLORIDA Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended September 30, 2010 General Debt Service Special Revenue REVENUES Ad Valorem Taxes $ 10,361,986 $ - $ - Sales, Use and Gas Taxes 892, Utility and Communications Service Taxes 2,008, Grants 1,027, Intergovernmental 1,563, ,920 Franchise Fees 1,415, Licenses, Permits and Other Fees 2,567, Fines and Forfeitures 280, Administrative Overhead Charges 1,983, Investment Income 32, ,095 Miscellaneous 1,676, Total Revenues 23,810, ,015 EXPENDITURES Current Operating: General Government 7,169, Public Safety 8,143, Physical Environment 3,346, Transportation 1,112, Culture/Recreation 517, Capital Outlay 1,689, Debt Service: Principal Retirement - 326,938 - Interest and Other - 369,659 - Total Expenditures 21,979, ,597 - Excess (Deficiency) of Revenues Over (Under) Expenditures 1,831,233 (695,967) 334,015 OTHER FINANCING SOURCES (USES) Transfers In 856, , ,938 Transfers (Out) (3,540,876) - (1,132,835) Total Other Financing Sources (Uses) (2,684,305) 695,967 (618,897) Net Change in Fund Balances (853,072) - (284,882) Fund Balances - Beginning 12,460, ,077 FUND BALANCES - ENDING $ 11,607,122 $ - $ 557,195 Capital Projects Permanent Total Governmental $ - $ - $ 10,361, , ,008, ,027, ,892, ,415, ,567, , ,983,565 3, , ,676,693 3, ,148, ,413-8,020, ,143, ,346, ,112, , ,950-2,000, , ,659 1,162,363-23,838,162 (1,158,914) ,547 1,210,217-3,276,693 (5,397) (56) (4,679,164) 1,204,820 (56) (1,402,471) 45, (1,091,924) 9,022 63,425 13,374,718 $ 54,928 $ 63,549 $ 12,282,794 See accompanying notes to basic financial statements 48 49

119 B-33 CITY OF ST. AUGUSTINE, FLORIDA Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Year Ended September 30, 2010 Net Change in Fund Balances - Total Governmental Funds $ (1,091,924) Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of capital and related assets is allocated over their estimated useful lives and reported as depreciation and amortization expense. Expenditures for capital assets 2,000,736 Less: current year depreciation and amortization (1,297,736) 703,000 The net effect of various transactions involving capital assets (i.e., sales, trade-ins, and donations) is to decrease net assets. Gain/loss on transfer of capital assets to proprietary fund (52,582) Cost of capital assets sold or retired net (147,063) (199,645) Borrowing and repayment of bond principal is either a revenue or an expenditure in the governmental funds, the borrowing and repayment of principal either increases or reduces long-term liabilities in the statement of net assets. Principal payments and retirement of debt 326, ,938 Government funds do not report negative net pension obligations or net insurance obligations as assets/liabilities of the general fund. Net pension asset (121,842) Net insurance obligation (104,982) (226,824) Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. Change in long-term compensated absences 63,884 63,884 Change in Net Assets of Governmental Activities $ (424,571) CITY OF ST. AUGUSTINE, FLORIDA Statement of Revenues, Expenditures and Changes in Fund Balances Budget and Actual General Fund For the Year Ended September 30, 2010 Original Budget Final Budget Actual Amount Variance with Final Budget Positive (Negative) REVENUES Taxes $ 12,741,924 $ 12,741,924 $ 13,263,435 $ 521,511 Intergovernmental 2,421,929 2,457,835 2,591, ,664 Licenses, Permits and Fees 4,063,475 4,063,475 3,982,266 (81,209) Fines and Forfeitures 305, , ,874 (24,626) Administrative Service Charges 2,026,750 2,026,750 1,983,565 (43,185) Investment Income 84,250 84,250 32,093 (52,157) Proceeds from Sale of Land - Miscellaneous 1,102,890 1,119,580 1,676, ,123 Total Revenues 22,746,718 22,799,314 23,810,435 1,011,121 EXPENDITURES Current Operating: General Government 7,095,800 7,137,977 7,169,422 (31,445) Public Safety 8,070,691 8,074,726 8,143,485 (68,759) Physical Environment 3,570,265 3,570,265 3,346, ,095 Transportation 1,162,209 1,162,209 1,112,354 49,855 Culture/Recreation 539, , ,985 20,716 Capital Outlay 1,169,019 1,286,379 1,689,786 (403,407) Total Expenditures 21,607,174 21,770,257 21,979,202 (208,945) Excess of Revenues Over Expenditures 1,139,544 1,029,057 1,831, ,176 OTHER FINANCING SOURCES (USES) Transfers In 1,107,588 1,328, ,571 (471,504) Transfers (Out) (2,247,132) (2,357,132) (3,540,876) (1,183,744) Total Other Financing Sources (Uses) (1,139,544) (1,029,057) (2,684,305) (1,655,248) Net Change in Fund Balances - - (853,072) (853,072) Fund Balances - Beginning 12,460,194 12,460,194 12,460,194 - FUND BALANCES - ENDING $ 12,460,194 $ 12,460,194 $ 11,607,122 $ (853,072) See accompanying notes to basic financial statements See accompanying notes to basic financial statements 51

120 CITY OF ST. AUGUSTINE, FLORIDA Statement of Revenues, Expenditures and Changes in Fund Balances Budget and Actual Special Revenue Fund - Community Redevelopment Agency For the Year Ended September 30, 2010 B-34 Original Budget Final Budget Actual Amount Variance with Final Budget Positive (Negative) REVENUES Intergovernmental $ 331,449 $ 331,449 $ 328,920 $ (2,529) Investment Income 16,000 16,000 5,095 (10,905) Total Revenues 347, , ,015 (13,434) EXPENDITURES Current Operating: General Government 44,953 44,953-44,953 Capital Outlay Total Expenditures 44,953 44,953-44,953 Excess of Revenues Over Expenditures 302, , ,015 31,519 OTHER FINANCING SOURCES (USES) Transfers In 1,077,889 1,077, ,938 (563,951) Transfers (Out) (1,380,385) (1,380,385) (1,132,835) 247,550 Total Other Financing Sources (Uses) (302,496) (302,496) (618,897) (316,401) Net Change in Fund Balances - - (284,882) (284,882) Fund Balances - Beginning 842, , ,077 - FUND BALANCES - ENDING $ 842,077 $ 842,077 $ 557,195 $ (284,882) This Page Intentionally Left Blank See accompanying notes to basic financial statements 52 53

121 B-35 ASSETS Utility Stormwater Drainage Solid Waste Current Assets: Cash and Cash Equivalents $ 8,601,166 $ 3,514,191 $ 876,917 Accounts Receivable (Net) 1,335, , ,326 Due from Other Funds ,000 Deferred Charges, Current Portion 37, Inventories, at Cost 119, Total Current Assets 10,093,230 3,635,447 1,447,243 Non-Current Assets: Restricted Assets Cash and Cash Equivalents 1,879, Total Restricted Assets 1,879, Other Assets: Deferred Charges, Less Current Portion 359, Property, Plant and Equipment: Land and Improvements 1,130, Buildings and Structures 28,526, ,163 Infrastructure 65,063,397 1,751,651 51,154 Machinery and Equipment 2,803, ,071 2,363,935 Construction in Progress 4,516, ,570 - Accumulated Depreciation (38,422,174) (459,953) (1,439,759) Net Property, Plant and Equipment: 63,618,725 1,772,339 1,308,493 Total Non-Current Assets 65,858,302 1,772,339 1,308,493 Total Assets $ 75,951,532 $ 5,407,786 $ 2,755,736 LIABILITIES Current Liabilities: Accounts Payable and Accrued Expenses $ 1,204,306 $ 30,950 $ 90,723 Customer Deposits 307, Revenue Bonds Payable, Current Portion 2,215, Deferred Charges - Defeased Bonds, Current Portion (191,060) - - Unearned Revenues - Other Due to Other Funds Compensated Absences, Current Portion 12, ,947 Total Current Liabilities 3,548,353 31,717 94,670 (Continued) See accompanying notes to basic financial statements CITY OF ST. AUGUSTINE, FLORIDA Statement of Net Assets Proprietary Funds September 30, 2010 Municipal Marina Visitor Information Center Heritage Tourism Total Proprietary $ 268,119 $ 74,717 $ 166,278 $ 13,501, , ,064 2,260,915-1,400,000-1,608,000 4,870 13,381-55,553 75, , , ,054 1,787, ,604 17,748, ,698 2,128, ,698 2,128,544 26, , , ,130,003 2,921,408 23,639,673 1,093,232 56,514,467 1,098, ,502-68,900, ,892 72,195 7,380 5,544, ,238-10,391 5,211,147 (2,831,981) (4,063,111) (497,006) (47,713,984) 1,688,476 20,584, ,997 89,586,289 1,714,856 20,901, ,695 92,417,937 $ 2,062,910 $ 22,689,230 $ 1,299,299 $ 110,166,493 $ 127,310 $ 23,756 $ 35,852 $ 1,512, , , , ,146 2,628,177 (4,832) 4,360 - (191,532) ,608,000 1,608,000 2,822 4,691 6,096 30, , ,953 1,655,298 5,901,

122 B-36 CITY OF ST. AUGUSTINE, FLORIDA Statement of Net Assets Proprietary Funds September 30, 2010 (Continued) Stormwate Drainage Solid Waste Utility LIABILITIES Non-Current Liabilities: Revenue Bonds Payable, Less Current Portion 21,584, Deferred Charges - Defeased Bonds, Less Current Portion (71,919) - - Compensated Absences, Less Current Portion 251,819 12,554 49,263 Total Non-Current Liabilities 21,763,912 12,554 49,263 Total Liabilities $ 25,312,265 $ 44,271 $ 143,933 NET ASSETS Invested in Capital Assets, Net of Related Debt 39,819,713 1,772,339 1,308,493 Restricted 1,879, Unrestricted 8,939,708 3,591,176 1,303,310 Total Net Assets $ 50,639,267 $ 5,363,515 $ 2,611,803 Municipal Marina Visitor Information Center Heritage Tourism Total Proprietary 691,971 23,217,896-45,493,879 (26,191) 204, ,065 58,022 59,559 54, , ,802 23,481,630 54,027 46,085,188 $ 971,133 $ 23,805,583 $ 1,709,325 $ 51,986, ,474 (2,924,783) 613,997 41,464, ,698 2,128, ,303 1,808,430 (1,272,721) 14,587,206 $ 1,091,777 $ (1,116,353) $ (410,026) $ 58,179,983 See accompanying notes to basic financial statements 56 57

123 B-37 CITY OF ST. AUGUSTINE, FLORIDA Statement of Revenues, Expenses and Changes in Fund Net Assets Proprietary Funds For the Year Ended September 30, 2010 Utility Stormwater Drainage Solid Waste OPERATING REVENUES User Charges $ 10,546,620 $ - $ 3,352,968 Fees 799, ,339 - Rental Other Total Operating Revenues 11,345, ,339 3,352,968 OPERATING EXPENSES Salaries, Wages and Employee Benefits 2,978, , ,805 Utilities 714, ,572 Supplies and Materials 674, ,276 Contractual Services 503,373 60,696 1,178,284 Repairs and Maintenance 721,060 41, ,571 Cost of Goods Sold Other 124,047 17,270 6,330 Administrative Overhead Charges 1,263, , ,702 Depreciation and Amortization 2,249,704 48, ,612 Total Operating Expenses 9,229, ,522 2,615,152 Operating Income (Loss) 2,116, , ,816 NON-OPERATING REVENUES (EXPENSES) Investment Income 34,018 7, Interest Expense and Fiscal Charges (1,385,922) - - Gain on Sale of Capital Assets 42,317-11,000 Other 77,753 - (66,207) Total Non-Operating Revenues (Expenses) (1,231,834) 7,748 (55,115) Income Before Contributions and Transfers 884, , ,701 Municipal Marina Visitor Information Center Heritage Tourism Total Proprietary $ 2,145,872 $ - $ 1,104,490 $ 17,149,950-1,113,988 53,401 2,713,925 29,902 40, , ,135 21, ,689 2,197,463 1,154,288 1,875,824 20,673, , ,691 1,011,639 5,681,547 84, ,858 64,664 1,014,304 16,587 49,521 27, ,581 3, ,166 8,831 1,910,604 36,799 27,068 76,000 1,030,236 1,156, , ,718 1,572,595 64,183 16, , , ,113 59,193 52,492 1,983, , ,672 47,478 3,626,439 2,152,739 1,932,620 1,699,767 18,095,993 44,724 (778,332) 176,057 2,577,706 1,217 1, ,145 (46,484) (1,132,788) - (2,565,194) ,422 (8,769) 170,150 (12,352) 160,575 (54,036) (961,206) (11,609) (2,306,052) (9,312) (1,739,538) 164, ,654 Capital Contributions 976, Transfers In 787, ,000 Transfers (Out) (367,871) (75,920) (79,465) Change in Net Assets 2,280, , ,236 70, ,046,973-1,268, ,447 2,465,210 - (135,701) (403,782) (1,062,739) 61,173 (606,703) (29,887) 2,721,098 Net Assets - Beginning (as restated) 48,358,633 5,150,870 1,808,567 Net Assets - Ending $ 50,639,267 $ 5,363,515 $ 2,611,803 See accompanying notes to basic financial statements 1,030,604 (509,650) (380,139) 55,458,885 $ 1,091,777 $ (1,116,353) $ (410,026) $ 58,179,

124 B-38 CITY OF ST. AUGUSTINE, FLORIDA Statement of Cash Flows Proprietary Funds For the Year Ended September 30, 2010 Utility Stormwater Drainage Solid Waste INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Cash Flows from Operating Activities: Received from Customers $ 11,112,964 $ 731,905 $ 3,361,022 Payment to Suppliers for Goods and Services (3,980,378) (324,074) (1,771,505) Paid to Employees (2,978,905) (160,341) (616,805) Paid to Customers for Deposit Refunds (4,841) - - Other revenues (expenses) 77,753 - (66,207) Net Cash Flows from Operating Activities 4,226, , ,505 Cash Flows from Capital and Related Financing Activities: Principal Paid on Outstanding Bond Issues (2,145,000) - - Interest Paid on Outstanding Bond Issues (562,421) - - Acquisition and Construction of Capital Assets (3,300,980) (334,715) (252,235) Proceeds form sale of assets 49,279-11,000 Capital Contributions and Grants 976, Net Cash Flows from Capital and Related Financing Activities (4,982,634) (334,715) (241,235) Cash Flows from Investing Activities: Investment Income 34,018 7, Net Cash Flows from Investing Activities 34,018 7, Cash Flows from Non-Capital Financing Activities: Receipts Under Interfund Loan Agreements Payments Under Interfund Loan Agreements 4,827,994 (260,000) (289,911) Transfers from Other Funds 787, ,000 Transfers (to) Other Funds (367,871) (75,920) (79,465) Net Cash Flows from Non-Capital Financing Activities 5,247,350 (335,920) (169,376) Net Change in Cash and Cash Equivalents 4,525,327 (415,397) 495,986 Cash and Cash Equivalents at Beginning of Year 5,955,685 3,929, ,931 Cash and Cash Equivalents at End of Year $ 10,481,012 $ 3,514,191 $ 876,917 Municipal Marina Visitor Information Center Heritage Tourism Total Proprietary $ 2,197,463 $ 1,158,345 $ 1,663,361 $ 20,225,060 (1,365,319) (620,889) (591,944) (8,654,109) (465,166) (448,691) (1,011,639) (5,681,547) (4,841) (8,769) 170,150 (12,352) 160, , ,915 47,426 6,045,138 (116,484) (286,578) - (2,548,062) (41,652) (1,137,148) - (1,741,221) (631,604) - (10,389) (4,529,923) ,384 70, ,046,973 (719,255) (1,423,621) (10,389) (7,711,849) 1,217 1, ,145 1,217 1, , ,000 (529,714) - (379,714) ,000 4,294,083-1,268, ,447 2,465,210 - (135,701) (403,782) (1,062,739) 150, ,121 (178,335) 5,316,840 (209,829) (560,258) (140,555) 3,695, , , ,531 11,934,658 $ 268,119 $ 74,717 $ 414,976 $ 15,629,932 Non-Cash Transactions: Amortization of deferred charges and accredited interest charged to notes payable included in interest expense and not included above in capital and related financing activities totaled $823,501 for the year. (Continued) See accompanying notes to basic financial statements 60 61

125 B-39 CITY OF ST. AUGUSTINE, FLORIDA Statement of Cash Flows Proprietary Funds For the Year Ended September 30, 2010 (Continued) Utility Stormwater Drainage Solid Waste RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH FLOWS FROM OPERATING ACTIVITIES Net Operating Income $ 2,116,624 $ 280,817 $ 737,816 Adjustments to Reconcile Net Operating Income to Net Cash Flows from Operating Activities: Depreciation and Amortization 2,249,704 48, ,612 Provision for Uncollectible Accounts 34,452 4,851 15,421 Other revenues (expenses) 77,753 - (66,207) Changes in Operating Assets and Liabilities: Accounts Receivable (232,853) (15,434) 8,054 Inventories (3,119) - - Accounts Payable and Compensated Absences (11,127) (71,278) 2,809 Deposits Payable (4,841) - - Deferred Revenues Total Adjustments 2,109,969 (33,327) 168,689 Net Cash Flows from Operating Activities $ 4,226,593 $ 247,490 $ 906,505 Municipal Marina Visitor Information Center Heritage Tourism Total Proprietary $ 44,724 $ (778,332) $ 176,057 $ 2,577, , ,672 47,478 3,626, ,724 (8,770) 170,150 (12,352) 160, ,057 (139,783) (375,959) 21,782-24,377 43, ,034 (8,632) 24,329 36, (1,000) (5,841) - - (71,680) (71,680) 313,485 1,037,247 (128,631) 3,467,432 $ 358,209 $ 258,915 $ 47,426 $ 6,045,138 See accompanying notes to basic financial statements 62

126 B-40 ASSETS Employee Retirement Funds Cash and Short-Term Investments $ 3,289,858 Receivables: Member Contributions 28,898 City Contributions 77,368 Interest and Dividends 208,704 Due from State 30,889 Total Receivables 345,859 Prepaid Pension Payment 35,899 Prepaid Expense 577 Investments, at Fair Value: U.S. Government Obligations Fund 4,593,266 U.S. Stock Fund 18,951,269 Mutual Fund - International Equity 1,753,388 Bond and Mortgage Fund 11,468,392 International Exchange Fund 1,114,258 Real Estate Fund 138,371 Total Investments 38,018,944 Total Assets 41,691,137 LIABILITIES Expenses Payable 112,549 Total Liabilities 112,549 NET ASSETS CITY OF ST. AUGUSTINE, FLORIDA Statement of Fiduciary Net Assets Fiduciary Funds September 30, 2010 Held in Trust for Pension Benefits and Other Purposes $ 41,578,588 CITY OF ST. AUGUSTINE, FLORIDA Statement of Changes in Fiduciary Net Assets Fiduciary Funds For the Year Ended September 30, 2010 Employee Retirement Funds ADDITIONS Contributions: Members $ 602,898 City 1,484,614 State Insurance Premium Tax from General Fund 357,601 Total Contributions 2,445,113 Investment Income: Net Decrease in Fair Value of Investments 2,750,661 Interest and Dividends on Investments 1,206,115 Total Investment Income 3,956,776 Less Investment Expenses 229,386 Net Income from Investing Activities 3,727,390 Total Additions 6,172,503 DEDUCTIONS Benefit Payments 2,428,895 Termination Payments 89,695 Administrative Expenses 115,412 Total Deductions 2,634,002 Net Change in Assets 3,538,501 Net Assets - Beginning 38,040,087 NET ASSETS - ENDING $ 41,578,588 See accompanying notes to basic financial statements See accompanying notes to basic financial statements 64 65

127 CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The City of St. Augustine, Florida (the City), was established in 1925, by Special Legislative Act of the Florida Legislature. The City operates under a commission-manager form of government and provides the following services as authorized by its charter: General Government, Public Safety, Public Works, Public Utilities, Culture, Recreation, and Community Development. The accounting and reporting policies of the City relating to the funds included in the Basic Financial Statements conform to accounting principles generally accepted in the United States of America applicable to state and local governments. Generally accepted accounting principles for local governments include those principals prescribed by the Government Accounting Standards Board (GASB), the American Institute of Certified Public Accountants in the publication entitled Audits of State and Local Governments and by the Financial Accounting Standards Board (when applicable). The City applies Financial Accounting Standards Board (FASB) Statements and Interpretations issued on or before November 30, 1989, to its governmental and business-type activities (proprietary funds) provided they do not conflict with or contradict GASB pronouncements. The City has elected not to apply FASB pronouncements issued after November 30, 1989, to its business-type (proprietary funds) activities. This Page Intentionally Left Blank A. Financial Reporting Entity As required by generally accepted accounting principles, the financial statements of the reporting entity include those of the City of St. Augustine, Florida, and its blended component units. The blended component units discussed here are included in the City s reporting entity because of the significance of their operational or financial relationships with the City. B-41 The City currently has separate and distinct defined benefit pension plans for the City s general employees, firefighters and police officers. These plans are legally separate from the City and are governed by board members who are both elected by their peers and appointed by the City Commission. For financial reporting purposes, these plans are reported as if they were part of the City s operations as the sole purpose of the plans are to provide retirement benefits for the City s employees. These plans have separately issued financial statements that can be obtained through the City Clerk s office. B. Government-wide and Fund Financial Statements The government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the non-fiduciary activities of the City. For the most part, the effect of inter-fund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The statement of activities demonstrates the degree to which the direct expense of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Indirect costs are included in the program expense reported for individual functions and activities. Program revenues include charges to customers or applicants who purchase, use or directly benefit from goods, services, or privileges provided by a given function or segment, and grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major proprietary funds are reported as separate columns in the fund financial statements

128 B-42 CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued) C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 60 days of the end of the fiscal period. Expenditures are generally recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to claims and judgments, are recorded only when payment is due. Taxes, intergovernmental revenue, licenses and permits, charges for services, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the City. Since the fund level statements for governmental activities are presented using a different measurement focus and basis of accounting than the government-wide statements governmental column, a reconciliation is presented on the page following governmental fund level statements. The reconciliation briefly explains the adjustments necessary to convert the fund level statements into the government-wide governmental column presentations. The City reports the following funds: Major Governmental Funds Governmental Funds are those through which most governmental functions typically are financed. Governmental fund reporting focuses on the sources, uses and balances of current financial resources. Expendable assets are assigned to the various governmental funds according to the purpose for which they may or must be used. Current liabilities are assigned to the fund from which they will be paid. The difference between governmental fund assets and liabilities is reported as fund balance. The General Fund and Special Revenue Fund have legally adopted annual budgets. The following are the City s major governmental funds: a. General Fund The General Fund is the general operating fund of the City. It is used to account for all financial resources except those required to be accounted for in another fund. Resources are generated primarily from local property and utility service taxes, franchises, licenses, permits and fees, intergovernmental revenues and charges for services. Expenditures are incurred to provide public safety, general government, public works, parks and recreation services. b. Special Revenue Fund The Special Revenue Fund is used to account for specific revenues that are legally restricted to expenditures for particular purposes. The Special Revenue Fund used by the City is the Community Redevelopment Agency Fund. This fund was established by ordinance in 2000 to assist the City in redeveloping the Historic Area Community Redevelopment Area (HACRA), a blighted transportation and parking geographical area principally located in the historic downtown area. CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued) c. Capital Project Fund The Capital Project Fund is used to account for the acquisition or construction of major capital facilities (other than those financed by Proprietary Funds). The principal sources of revenue are bond issue proceeds and transfers from the General Fund. d. Debt Service Fund The Debt Service Fund is used to account for the accumulation of resources for, and the payment of, longterm debt principal and interest of the governmental funds. e. Permanent Fund This fund includes the Anderson and Woodman Trust Funds and accounts for assets held by the City as a trustee for individuals. Major Proprietary Funds Proprietary Funds are used to account for activities that are similar to those often found in the private sector. All assets, liabilities, equities, revenues, expenses, and payments relating to the government s business activities are accounted for through proprietary funds. Proprietary funds used by the City are: a. Utility Fund This fund accounts for the operation, maintenance, and construction of the City-owned water and sewer system. b. Stormwater Drainage Fund This fund accounts for the operation, maintenance and construction of the City-owned stormwater drainage system. c. Solid Waste Fund This fund accounts for the operation and maintenance of the City-owned solid waste pick-up and disposal service. d. Municipal Marina Fund This fund accounts for the operation and maintenance of the City Municipal Marina facilities. e. Visitor Information Center This fund account for the operations and maintenance of the City-owned Visitor Information Center and parking garage. f. Heritage Tourism Fund This fund accounts for the operation and maintenance of the Colonial Spanish Quarter. Fiduciary Funds Fiduciary Funds are used to account for assets held by the City as a trustee or agent. Fiduciary Funds used by the City are: a. General Employees' Pension Plan This fund accounts for the contributions of the general employees and the City, along with the benefits paid to the retired participants of the plan. b. Police Officers' Retirement System This fund accounts for the contributions of the police officer employees, the City and the State of Florida, along with the benefits paid to the retired participants of the plan

129 B-43 CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued) c. Firefighters' Pension Plan This fund accounts for the contributions of the firefighter employees, the City and the State of Florida, along with the benefits paid to the retired participants of the plan. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are administration overhead charges between the general fund and the funds benefited. Elimination of these charges would distort the direct costs for the various functions concerned. Amounts reported as program revenues include: 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions. Internally dedicated resources are reported as general revenues rather than program revenues. Likewise, general revenues include all taxes. 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 principal operating revenues of the City s proprietary funds are charges to customers for goods and services. Operating expenses for the proprietary 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. When both restricted and unrestricted resources are available for use, it is the City s policy to use restricted resources first, then unrestricted resources as needed. The budget is prepared on a GAAP basis and may be over-expended to the extent that actual revenues exceed the adopted budget. D. Cash and Cash Equivalents The City pools cash resources of its various funds to facilitate the management of cash. Cash applicable to a particular fund is readily identifiable. The balance in the pooled cash accounts is available to meet current operating requirements. Cash in excess of current requirements is invested with the State Board of Administration (SBA) Pool and two fully collateralized investment accounts with qualified public depositories. All of these investments are considered cash equivalents due to their liquidity and similarity to cash. E. Investments Investments within the Pension Trust Funds are made through financial brokers and are held by trustees. These assets are stated at fair value as determined in an active market. F. Receivables and Allowance for Uncollectible Accounts All receivables are reported at gross value and, where appropriate, are reduced by the portion that is expected to be uncollectible. Estimated unbilled revenues from the Utility, Stormwater, and Solid Waste Funds are recognized at the end of each fiscal year on a pro rata basis. The estimated amount is based on billings during the month following the close of the year. Activities between funds that are representative of lending/borrowing arrangements outstanding at the end of the year are classified as due to/due from other funds. G. Inventories Inventories held by the General Fund are valued at cost using the first-in/first-out (FIFO) method. Because the consumption method is used, the inventory items are recorded as expenditures at the time they are withdrawn from central stores. The inventory value has been recorded as an asset, offset by a reserve in an equal amount. CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued) Inventories in the proprietary funds are valued at the lower of cost (using FIFO method) or market. Inventories of the proprietary funds are expensed as used. H. Prepaid Items 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. The consumption method is used for these items. I. Restricted Assets These assets consist of cash restricted for debt service, construction, renewal and replacement, and customer deposits (See Note 2). J. Capital Assets Capital outlays are recorded as expenditures in the Governmental Fund Financial Statements, and as assets in the Government-wide Financial Statements to the extent the City s capitalization threshold of $5,000 is met. In accordance with GASB Statement No. 34, infrastructure has been capitalized. Infrastructure consists primarily of streets, curbs and sidewalks. Depreciation is recorded on general capital assets (except for land and construction in progress) on a government-wide basis using the straight-line method over the following estimated useful lives: Buildings 30 years Furniture and Other Equipment 3-20 years Infrastructure years To the extent the City s capitalization threshold of $5,000 is met, capital outlays of the Proprietary Funds are recorded as capital assets and depreciated over their estimated useful lives on a straight-line basis on both the fund basis and the government-wide basis using the following estimated useful lives: Buildings years Infrastructure & Improvements years Equipment 2-10 years All capital assets were valued at historical cost or estimated historical cost if actual cost was not available. Donated capital assets are valued at their estimated fair market value on the date donated. The City does not capitalize historical treasurers or works of art. The City maintains many items and buildings of historical significance. The City does not require the proceeds from the sale of historical treasures or works of art be used to acquire other items for the collection. Maintenance, repairs, and minor equipment are charged to operations when incurred. Expenses that materially change capacities or extend useful lives are capitalized. Upon sale or retirement of land, buildings, and equipment, the cost and related accumulated depreciation, if applicable, are eliminated from the respective accounts and any resulting gain or loss is included in the results of operations in the government-wide financial statements. K. Deferred Charges Deferred charges represent the remaining costs associated with issuing various bonds. These costs are being amortized using the straight-line method over the related life of the respective bond issues. Unamortized bond costs at September 30, 2010 are as follows: 70 71

130 B-44 CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued) Original Accumulated Unamortized Cost Amortization Costs Beginning of the year $ 1,065,446 $ (251,235) $ 814,211 Current year additions - (55,554) (55,554) End of year $ 1,065,446 $ (306,789) $ 758,657 L. Compensated Absences Annual vacation leave is accumulated in the following manner: General, Municipal & Police Employees: 80 hours per year with five years or less, 88 hours with six years, 96 hours with seven years, 104 hours with eight years, 112 hours with nine years, 120 hours with ten to fifteen years, 128 hours with sixteen years, 136 hours with seventeen years, 144 with eighteen years, 152 with nineteen years, maximum per employee is 160 hours with 20 or more years of service. Fire Department Employees: 120 hours per year with five years or less, 156 hours with six years, 165 hours with seven years, 174 hours with eight years, 183 hours with nine years, 192 hours with ten to fifteen years, 216 hours with sixteen years, 228 hours with seventeen years, 241 with eighteen years, maximum per employee is 252 hours with 20 or more years of service. Sick leave is available to be paid at termination, retirement or resignation as follows: General and Municipal Employees: 80 hours per year, no maximum Fire Department Employees: 112 hours per year, no maximum Police Department Employees: 80 hours per year, no maximum The City has accrued for sick and vacation leave earned but unused at year end. This accrual was based on unused sick and vacation hours available to employees as maintained by the City s payroll system and as multiplied by each eligible employees individual hourly pay rate. Liquidation of the accrued sick and vacation leave has historically come from the general fund. M. Other Post-Employment Benefits (OPEB) Pursuant to Section , Florida Statutes, the City is mandated to permit participation in the health insurance program by retirees and their eligible dependents at a cost to the retiree that is no greater than the cost at which coverage is available for active employees. The rates provide an implicit subsidy for retirees because, on an actuarial basis, their current and future claims are expected to result in higher costs to the Plan on average than those of active employees. The City currently provides these benefits in accordance with the vesting and retirement requirements for its employees. The City is financing the post employee benefits on a pay-as-you-go basis. As determined by an actuarial evaluation, the City records a net OPEB obligation in its government-wide financial statements related to the implicit and explicit subsidy. See Note 10 for further information. CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued) N. Long-Term Obligations In the government-wide financial statements, governmental long-term debt and other governmental long-term obligations are reported as liabilities in the governmental activities column of the Statement of Net Assets. Long-term debt and other long-term obligations of the proprietary funds are reported as liabilities in the businesstype activities column of the Statement of Net Assets and the appropriate proprietary fund in the fund level statements. O. Defeased Bond Costs Defeased bond costs represent the bond discount or premium and gain or loss on refunding of various bond issues. These costs are being amortized over the life of the respective bond issues using the straight-line method, which is comparable to the effective interest method. Defeased bond costs at September 30, 2010 are as follows: Original Accumulated Unamortized Cost Amortization Costs Beginning of the year $ 1,571,883 $ (1,294,884) $ 276,999 Current year additions - (191,532) (191,532) End of year $ 1,571,883 $ (1,486,416) $ 85,467 P. Fund Balance Reserves The City reserves those portions of fund balance which are legally segregated for a specific future use or which do not represent expendable resources and therefore are not available for appropriation or expenditure. The following is a list of reserves used by the City and a description of each: Reserved for Inventories - An account used to designate amounts set aside for supplies inventory. Reserved for Police Education/Confiscation/Donations - An account used to designate amounts set aside for police education and confiscations. Reserved for Tree Memorial Fund - An account used to designate amounts set aside for the City's tree planting projects. Reserved for Prepaid Expenditures - An account used to designate amounts set aside for the expenditures not yet expended (i.e., copier supplies and postage). Reserved for Trust Funds - An account used to designate amounts set aside for the Anderson and Woodman trust funds. Reserved for Community Redevelopment Area - An account used to designate amounts set aside for the redevelopment of a specific geographical blighted transportation and parking area. Q. Revenue Recognition Property Taxes Property tax revenue is recognized when it becomes available and measurable. Property taxes, under Florida law, levied on November 1 by the County Tax Appraiser and collected by the County Tax Collector become a lien on November

131 B-45 CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued) The law allows a four percent discount if paid in November, a three percent discount if paid in December, a two percent discount if paid in January, and a one percent discount if paid in February. Taxes become delinquent on April 1 of each year. Delinquent real estate taxes are advertised during the month of May. Tax certificates are sold on May 30, at a public sale, against property on which the current taxes have not been paid. If not redeemed within two years, the property will be subject to an application for tax deed. In accordance with National Council on Governmental Accounting (NCGA) Interpretation 3, property taxes that are measurable but not available are reported as deferred revenue. The deferred revenues are recognized in the fiscal year in which they become available. The City had no taxes subject to this deferral at year-end. R. Expenditures Expenditures are recognized when the related fund liability is incurred. Inventory costs are reported in the period when inventory items are used, rather than in the period purchased. The General Fund provides administrative services and incurs overhead costs relating to the Proprietary Funds. The General Fund charges the Proprietary Funds an administrative overhead charge, which is included in direct expenses. NOTE 2. DEPOSITS AND INVESTMENTS: A. Cash and Cash Equivalents The City maintains a cash and investment pool that is designed for use by all funds. For the purposes of cash flows, the City considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. In addition, investments are separately held and accounted for by several of the City's funds where contractual agreements and bond covenants provide for and require such arrangements. At September 30, 2010, the carrying amount of cash on hand was $542,346 and the related bank balance was $779,643. Monies, which are placed on deposit with financial institutions in the form of demand deposit accounts, are defined as Public Deposits and as such are secured as provided for in Chapter 280, Florida Statutes. Financial institutions, which meet the requirements for this chapter, can be designated as qualified public depositories eligible to receive Public Deposits. This chapter also created the Public Deposit Security Trust Fund to facilitate the recovery of administrative penalties resulting from the default or insolvency of any qualified Public Depository and the subsequent payment of any losses to Public Depositors. When Public Deposits are made in accordance with this statute, no Public Depositor shall be liable for any loss thereof. Thus, all deposits at year-end are insured or collateralized with securities pursuant to Chapter 280, Florida Statutes. State Statutes govern the City s investment policies. The basic allowable investment instruments include the Local Government Surplus Funds Trust Fund (State Board); Securities and Exchange Commission (SEC) registered money market funds with the highest credit quality rating; interest-bearing time deposits or savings accounts in qualified public depositories; direct obligations of the United States Treasury; Federal agencies and instrumentalities; other investments authorized by law or ordinance for a county or municipality. The State Board consists of the Local Government Surplus Trust Fund (Florida PRIME) and the Fund B Surplus Funds Trust Fund (Fund B). The Florida PRIME is currently considered a SEC 2a7-like fund, thus the account balance should also be considered the fair value of the investment. Florida PRIME is rated by Standard & Poor s and currently has a rating of AAAm. The Florida PRIME balance of $21,564,470 had a weighted average of 52 days to maturity as of September 30, The Fund B is accounted for as a fluctuating net asset value (NAV) pool. The Fund B is not rated by any nationally recognized statistical rating agency. The fair value of the City s Fund B investment was $1,019,164 and had a weighted average life of 7.49 years as of September 30, A government money market account with a qualified public depository was established by the City in This account is fully collateralized and held a balance of $624 as of September 30, A second CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 NOTE 2. DEPOSITS AND INVESTMENTS: (Continued) account with a qualified public depository was established by the City in This account is fully collateralized and held a balance of $4,020,916 as of September 30, B. Investments General Pension Plan Interest Rate Risk The General Pension Plan Investment Policy limits interest rate risk by limiting the fixed-income portfolio duration to less than 135% of the market index duration, including investments in government issues, corporate bonds rated A quality or higher and/or the Government National Mortgage Association pooled obligations. There may be exceptional circumstances indicating the use of longer maturities, but these exceptions should be few. Investment Maturities (in Years) Fair Less Between Between More Investment Type Value Than Than 10 Real Estate Account $ 138,371 $ 138,371 $ - $ - $ - Bond & Mortgage Account 7,395, ,444 2,668,905 1,225,299 2,529,811 Stock and Mutual Funds 11,753,435 11,753, $ 19,287,265 $ 12,863,250 $ 2,668,905 $ 1,225,299 $ 2,529,811 Credit Risk and Concentration of Credit Risk Excessive concentration of assets will be avoided. Excessive Concentration is defined as having more than five percent on a cost basis of the equity portfolio in any single common stock or having more than five percent on a cost basis of the portfolio in fixed-income securities of one specific issue, with the exception of the securities of the U. S. Government and its agencies and high quality market funds, as stated in the plan s investment policy. Foreign Currency Investment in Foreign Securities is allowed under the investment plan; however, not more than twenty-five percent of the total fund market value may be invested in Foreign Securities. C. Investments Police Pension Plan Interest Rate Risk The St. Augustine Police Retirement System s investment policy limits fixed income securities normally to an average maturity of 12 years or less, including investments in government issues, corporate bonds rated A quality or higher and/or Government National Mortgage Association pooled obligations. There may be exceptional circumstances indicating the use of longer maturities, but these exceptions should be few. As of September 30, 2010, the St. Augustine Police Officer s Retirement System had the following investments and maturities: Investment Maturities (in Years) S&P Fair Less Between Between More Investment Type Rating Value Than Than 10 Money Market Funds $ 332,987 $ 332,987 $ - $ - $ - U.S. Government AAA 1,400, ,768 88, ,446 Bonds A-AAA 4,579, ,298 2,058,877 1,406, ,043 Equity Securities 5,212,910 5,212, Total $ 11,525,796 $ 6,169,195 $ 3,053,645 $ 1,494,467 $ 808,

132 B-46 CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 NOTE 2. DEPOSITS AND INVESTMENTS: (Continued) Credit Risk and Concentration of Credit Risk Excessive concentration of assets will be avoided. Excessive Concentration is defined as having more than five percent on a cost basis of the total portfolio in any single common stock or having more than five percent on a cost basis of the portfolio in fixed-income securities of one specific issue, with the exception of the securities of the U. S. Government and its agencies and high quality market funds, as stated in the plan s investment policy. Foreign Currency Investments in foreign equity securities are not allowed under the investment plan unless they are American Depository Receipts listed on the New York Stock Exchange. D. Investments Firefighters Pension Plan Interest Rate Risk The St. Augustine Firefighters Pension Trust Fund limits all investments in corporate fixed income securities to those that hold a rating of investment grade or higher. There is no limit imposed on investments in fixed income securities issued directly by the U. S. Government. The Plan limits the effective duration of its investment portfolio through the adoption of the Merrill Lynch Government/Corporate Bond Index bench mark. It is expected that the average duration of the total fixed income portfolio will not exceed 150% of the duration of the Index. As of September 30, 2010, the St. Augustine Firefighters Pension Trust Fund held the following fixed income investments: S&P Effective Investment Type % of Fund Fair Value Rating Duration US Government Agencies 14.4% $ 1,132,283 AAA Corporate Bonds 19.8% $ 1,554,017 A- 4.3 International Bonds 0.7% $ 53,520 BBB+A 4.5 Temporary Invesment Funds 3.9% $ 306,806 AAA Daily $ 3,046,626 Credit Risk and Concentration of Credit Risk Excessive concentration of assets will be avoided. Excessive concentration is defined as having more than ten percent of the total value of the portfolio being invested in the securities of any single corporate issuer, as stated in the plan s investment policy. Foreign Currency Risk Investment in Foreign Securities is allowed under the plan; however, no more than twenty-five percent of the plan s total assets may be in invested in Foreign Securities. NOTE 3. ACCOUNTS RECEIVABLE: CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 Receivables at September 30, 2010, consist of the following: Governmental Activities Capital Business-Type General Projects Activities Total Utility Taxes $ 96,536 $ - $ - $ 96,536 Accounts 85,681-2,034,701 2,120,382 Intergovernmental 941, ,613 1,240,510 Gross Receivables 1,124,114-2,333,314 3,457,428 Less: Allowance for Uncollectibles ,399 72,399 Total Receivables $ 1,124,114 $ - $ 2,260,915 $ 3,385,029 NOTE 4. CAPITAL ASSETS: The following is a summary of the changes in capital assets for the fiscal year ended September 30, 2010: Governmental Activities Balance Balance 10/1/2009 Increases Decreases 9/30/2010 Capital Assets Not Being Depreciated: Land and Land Improvements $ 5,394,945 $ 252,216 $ - $ 5,647,161 Construction in Progress 2,509,930 1,050,969 2,509,434 1,051,465 Capitalized Interest 123,946-7, ,655 Total Capital Assets Not Being Depreciated 8,028,821 1,303,185 2,516,725 6,815,281 Other Capital Assets: Buildings 15,508,961 2,542,802 12,773 18,038,990 Infrastructure 11,376, ,330-11,544,712 Furniture and Other Equipment 7,193, , ,646 7,121,850 Total Other 34,078,752 3,122, ,419 36,705,551 Less Accumulated Depreciation For: Buildings 7,881, ,339 10,910 8,238,614 Infrastructure 5,472, ,772-5,802,409 Furniture and Other Equipment 5,475, , ,921 5,698,400 Total Accumulated Depreciation 18,829,518 1,297, ,831 19,739,423 Other Capital Assets, Net 15,249,234 1,824, ,588 16,966,128 TOTALS $ 23,278,055 $ 3,127,667 $ 2,624,313 $ 23,781,409 Depreciation was charged to governmental functions as follows: General Government $ 1,094,528 Public Safety 49,026 Physical Environment 117,896 Transportation 36,286 Total $ 1,297,

133 B-47 NOTE 4. CAPITAL ASSETS: (continued) CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 Construction in progress is composed of the following at September 30, 2010: Waterworks Building Repairs $ 27,787 Archaeology Building Repair 9,199 Aviles Street Renovation 209,246 Salt Run Dredging 716,117 FDOT Traffic Engineering Safety Study 88,168 Utility Building Office Remodel 948 Total $ 1,051,465 Business-Type Activities Balance Balance 10/1/2009 Increases Decreases 9/30/2010 Capital Assets Not Being Depreciated: Land and Land Improvements $ 1,130,003 $ - $ - $ 1,130,003 Construction in Progress 24,707,992 3,166,692 22,663,537 5,211,147 Total Capital Assets Not Being Depreciated 25,837,995 3,166,692 22,663,537 6,341,150 Other Capital Assets: Buildings 41,879,431 14,722,057 87,021 56,514,467 Infrastructure 60,024,770 8,875,853-68,900,623 Furniture and Other Equipment 5,524, , ,699 5,544,033 Total Other 107,428,252 24,230, , ,959,123 Less Accumulated Depreciation For: Buildings 18,313,275 1,232,010-19,545,285 Infrastructure 22,395,691 1,927,134-24,322,825 Furniture and Other Equipment 3,870, , ,715 3,845,874 Total Accumulated Depreciation 44,579,961 3,716, ,715 47,713,984 Other Capital Assets, Net 62,848,291 20,513, ,005 83,245,139 TO TALS $ 88,686,286 $ 23,680,545 $ 22,780,542 $ 89,586,289 Depreciation was allocated to Business-Type Activities as follows: Utility Fund $ 2,356,794 Stormwater Drainage Fund 74,374 Solid Waste Fund 218,575 Municipal Marina Fund 195,569 Visitor Information Center 823,342 Heritage Tourism Fund 48,084 Total $ 3,716,738 NOTE 4. CAPITAL ASSETS: (Continued) CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 Construction in progress is composed of the following at September 30, 2010: Wellfield Expansion $ 2,186,024 Wastewater Improvements 1,947,589 Mooring Field 367,238 Riberia Street Phase II 183,231 Riberia Street Design 133,339 Water Treatment Plant 117,288 LRPO Concentrate Disposal Permitting 65,887 Pump Station Rehabilitation 63,077 N. Matanzas Blvd & Andreas St. Watermain 57,268 Aviles Street Improvements 37,302 Infil and Inflow Elimination 26,000 Design Horizontal Directional Drill 16,248 Trolley Train Drop Off 10,391 Palmer Street Watermain Upgrade 139 Flagler Blvd Watermain 126 Total $ 5,211,147 NOTE 5. RISK MANAGEMENT, LITIGATION AND COMMITMENTS: The City is exposed to various risks of losses related to torts, theft of, damage to, and destruction of assets, errors and omissions, injuries to employees, and natural disasters. A small portion of the risk is covered by commercial insurance. The majority of this risk (Workers Compensation, Property and Liability) is covered through the Florida Municipal Insurance Trust (the Trust ). The City pays an annual premium to the Trust for its coverage. The premiums are designed to fund the liability risk assumed by the Trust and are based on certain actual exposures and appropriate classifications of each member. The coverage provided for Workers Compensation is $1,000,000 for each occurrence. Coverage provided for Property and Liability is $100,000 for each person and $200,000 for each occurrence. The City also has Specific Excess Coverage of $1,000,000 through the Trust. There were no claims paid that exceeded coverage in the past three fiscal years. Employee medical benefits are covered by commercial insurance. The City Attorney estimates that the amount of these actual or potential claims against the City as of September 30, 2010, will not materially affect the financial condition of the City. Therefore, the financial statements contain no provision for estimated claims. The City also had a Consent Order approved by the City and FDEP to replace the waste water treatment plant outfall to the Intracoastal Waterway. The project is completed in compliance with all terms of the Consent Order. The City has entered a Consent Order approved by the City and FDEP regarding a sewage discharge into a waterway in the year 2009 and has satisfactorily addressed all current requirements of the Consent Order. Several individuals asserting legal standing petitioned the FDEP for administrative review of the Consent Order. The City obtained a satisfactory outcome for the City in the administrative review. At September 30, 2010, the City had outstanding commitments of approximately $738,200 relating to construction contracts

134 B-48 NOTE 6. LONG-TERM DEBT: Governmental Funds CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 Public Service Tax and Guaranteed Entitlement Revenue Refunding & Improvement Bonds, Series 2001: On February 14, 2001, the City issued Public Service Tax and Guaranteed Entitlement Revenue Refunding & Improvement Bonds totaling $11,819,829 to refund the 1992 Series Revenue Bonds and to construct a fire station, a fleet operations building and other capital improvements for the City. Revenue is provided by an excise tax levied by the City on purchases of electricity, metered or bottle gas, local telephone service, and heating oil or kerosene. The revenue is subject to a first lien and is pledged to provide funds for the retirement of the bonds. Payment of maturing principal and interest (3.5 percent to 5.0 percent) is currently provided for in the Debt Service Fund. Principal payments are due annually on October 1, and interest payments are due semi-annually on April 1 and October 1. The annual requirement to amortize long-term bonded debt outstanding as of September 30, 2010 is as follows: Public Service Tax & Guaranteed Entitlement Revenue Refunding & Improvement Bonds Bond Year Ended Series 2001 October 1 Principal Interest 2011 $ 292,404 $ 341, , , , , , , , , ,475,637 1,202, ,735, , ,214, ,821 $ 7,013,125 $ 3,942,962 Capital Improvement and Refunding Revenue Bonds, Series 2004: On October 14, 2004, the City issued Capital Improvement and Refunding Revenue Bonds totaling $22,155,000 to refund the 1995 Series Revenue Bonds and construct a parking garage and other capital improvements for the City. The Series 2004 Bonds and the interest thereon are secured by and payable solely from (1) Non-Ad Valorem Revenues budgeted and appropriated by the City in accordance with the Resolution and deposited into the Debt Service Fund, and (2) until applied in accordance with the provisions of the Resolution, all monies, including the investments thereof, in the funds and accounts established under the Resolution, with the exception of the Rebate Fund (collectively the Pledged Funds ). Pursuant to the Resolution, the City covenants and agrees to appropriate in its annual budget, by amendment if necessary, for each Fiscal Year sufficient amounts of Non-Ad Valorem Revenues for the payment of principal of and interest on the Series 2004 Bonds and to make certain other payments required under the Resolution in each such Fiscal Year. Such covenant to budget and appropriate does not create any lien upon or pledge of such Non-Ad Valorem Revenues until such funds are deposited in the Debt Service Fund, nor does it preclude the City from pledging in the future or covenanting to budget and appropriate in the future its Non-Ad Valorem Revenues, nor does it require the City to levy and collect any particular Non-Ad Valorem Revenues, nor does it give the holders of the Series 2004 Bonds a prior claim on the Non-Ad Valorem Revenues as opposed to claims of general creditors of the City. The City does not covenant to maintain any services or programs not maintained or provided by the City including those which generate Non-Ad Valorem Revenues. The Resolution defines Non-Ad Valorem Revenues as all legally available non-ad valorem revenues of the City, which are legally available to make the payments required by the Resolution, but only after provision has been made by the City for payment of services and programs which are NOTE 6. LONG-TERM DEBT (Continued) CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 for essential public purposes affecting the health, welfare and safety of the inhabitants of the City or which are legally mandated by applicable law. This issuance results in a $240,599 difference in cash flow requirements with a present value economic gain of $183,406. Payment of maturing principal and interest (2.0 percent to 5.0 percent) on these bonds is provided for in the Debt Service Fund. Principal payments are due annually on October 1, and interest payments are due semi-annually on April 1 and October 1. The annual requirement to amortize bonded debt outstanding as of September 30, 2010 is as follows: Enterprise Funds Capital Improvements & Current Refunding Bond Year Ended Series 2004 October 1 Principal Interest 2011 $ 49,419 $ 11, ,418 9, ,607 8, ,201 6, ,790 4,175 Thereafter 57,395 2,152 $ 318,830 $ 41,671 Water and Sewer Revenue Refunding Bonds, Series 2005: On July 7, 2005, the City issued Water and Sewer Revenue Refunding Bonds, Series 2005, totaling $21,435,000 for the purpose of providing funds, together with other legally available funds of the City, to (i) refund the City s $4,245,000 outstanding Water and Sewer Revenue Refunding Bonds, Series 1996, $11,260,000 outstanding Water and Sewer Revenue Refunding Bonds, Series 1995A, $365,000 outstanding Water and Sewer Revenue Refunding Bonds, Series 1995B and $4,240,000 outstanding Water and Sewer Revenue Refunding Bonds, Series 1999 (the 1999 Bonds and together with the bonds other than the 2005 Bonds described in this sentence, collectively, the Refunded Bonds ), (ii) finance and reimburse the cost of certain capital improvements to the System and to pay the cost of issuance of the 2005 Bonds. This issuance results in a $2,562,543 difference in cash flow requirements with a present value economic gain of $1,068,491. Proceeds will be used to finance and reimburse the cost of certain capital improvements to the System including, upgrading the waste water treatment facility and water treatment plant expansion. Payment of maturing principal and interest (3.00 percent to 5.00 percent) on these bonds is provided for in the Debt Service Fund. Principal payments are due annually on October 1, and interest payments are due semi-annually on April 1 and October 1. The annual requirement to amortize bonded debt outstanding as of September 30, 2010 is as follows: Water & Sewer Fund Bond Year Ended Revenue Bonds, Series 2005 October 1 Principal Interest 2011 $ 2,215,000 $ 495, ,320, , , , , , , , ,645, ,550 Thereafter 2,065,000 82,600 $ 10,950,000 $ 2,415,

135 B-49 NOTE 6. LONG-TERM DEBT: (Continued) Water and Sewer Revenue Bonds, Series 2003: CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 During the month of November 2003, the City issued capital appreciation Water and Sewer Revenue Bonds, Series 2003 totaling $9,363,854, to finance and reimburse the cost of capital improvements to the City s water and sewer system, pay premiums for both municipal bond insurance and the Reserve Account Surety Bond, and pay the costs of issuance of the 2003 Bonds. Principal of premium, if any, and interest on the 2003 Bonds are payable solely from and secured by an irrevocable lien on and pledge of the Net Revenues derived from the operation of the City s water and sewer system on a parity with other water and sewer bond issues. The interest rate for Series 2003 varies from 4.15 to 5.17 percent. Restrictive covenants agreed to by the City are as follows: 1. The entire revenue of the System will be deposited upon receipt into a trust fund entitled the "Revenue Fund". 2. The disposition of revenue from the "Revenue Fund" shall be to pay the cost of operation and maintenance as a first priority, with all other expenditures prioritized in the following order: a. Deposits to the Debt Service Fund b. Deposits to the Renewal and Replacement Account c. Any other lawful purpose 3. Funds are considered trust funds and are to be secured in the same manner as public deposits. (See Note 2). 4. The City will maintain the System in good condition, operate in an efficient and economical manner, maintain proper records, cause an independent audit within 120 days of fiscal year-end, not dispose of any necessary parts of the System, maintain adequate insurance, not furnish free service, require all structures to be connected to the System and employ consulting engineers to review the overall operations of the System on an ongoing basis. 5. The City will not issue additional obligations without first having an independent certified public accountant verify that coverage requirements of 125% are being met and that the City is not in default under the bond resolution. 6. The City can provide for the defeasance of the bonds by making necessary provisions for the payment of principal, interest and premium. No principal or interest is due on the capital appreciation bonds until 2013, at which time principal and interest totaling $17,640,000 will then be paid down over nine years as follows: Water and Sewer Fund Bond Year Ended Capital Appreciation Bonds, Series 2003 October 1 Principal Interest 2011 $ - $ ,351, , ,269, , ,193, , ,268,014 5,596,986 Thereafter 281, ,551 9,363,854 $ 8,276,146 Accredited interest 3,485,158 Balance September 30, 2010 $ 12,849,012 NOTE 6. LONG-TERM DEBT: (Continued) CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 Public Service Tax and Guaranteed Entitlement Revenue Refunding & Improvement Bonds, Series 2001: On February 14, 2001, the City issued Public Service Tax and Guaranteed Entitlement Revenue Refunding & Improvement Bonds totaling $2,145,171 to refund the 1992 Series Revenue Bonds. Guaranteed Entitlement Revenue is provided by the State of Florida through the State Revenue Sharing Trust Fund. Revenue is provided by an excise tax levied by the City on purchases of electricity, metered or bottled gas, local telephone service, and heating oil or kerosene. The revenue is subject to a first lien and is pledged to provide funds for the retirement of the bonds. Payment of maturing principal and interest (3.5 percent to 5.0 percent) is currently provided for in the Municipal Marina Fund and the Visitors Information Center Fund. Principal payments are due annually on October 1, and interest payments are due semi-annually on April 1 and October 1. The annual requirement to amortize bonded debt outstanding as of September 30, 2010 is as follows: Municipal Marina Revenue Bonds Bond Year Ended Guaranteed Entitlement, Series 2001 October 1 Principal Interest 2011 $ 122,031 $ 36, ,578 31, ,738 26, ,285 20, ,218 13,958 Thereafter 151,152 7,180 $ 814,002 $ 136,239 Heritage Tourism Revenue Bonds Bond Year Ended Guaranteed Entitlement, Series 2001 October 1 Principal Interest 2011 $ 25,565 $ 133, , , , , , , , , , , , , ,095, ,680 $ 2,677,873 $ 1,819,

136 NOTE 6. LONG-TERM DEBT: (Continued) CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 Capital Improvement and Refunding Revenue Bonds, Series 2004: On October 14, 2004, the City Issued Capital Improvement and Refunding Revenue Bonds totaling $22,155,000 to refund the 1995 Series Revenue Bonds and construct a parking garage and other capital improvements for the City. Payment of maturing principal and interest (2.00 percent to 5.00 percent) on these bonds is provided for in the Debt Service Fund. Principal payments are due annually on October 1, and interest payments are due semiannually on April 1 and October 1. The annual requirement to amortize bonded debt outstanding as of September 30, 2010, is as follows: Heritage Tourism Capital Improvement & Bond Year Ended Revenue Refunding Bonds, Series 2004 October 1 Principal Interest 2011 $ 265,581 $ 992, , , , , , , , , ,772,605 4,521, ,760,000 3,771, ,805,000 2,731, ,055,000 1,031,500 $ 20,831,169 $ 16,923,789 NOTE 7. CHANGES IN LONG-TERM DEBT: CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 During the year ended September 30, 2010 the following changes occurred in the City's long-term obligations: Primary Government Governmental Activities Balance Balance Current 10/1/2009 Increases Decreases 9/30/2010 Portion General Long-Term Debt & Obligations Public Service Tax & Guaranteed Entitlement Revenue Refunding & Improvement Bonds $ 7,658,893 $ - $ 326,938 $ 7,331,955 $ 341,823 Accrued Compensated Absences 2,028,503 1,108,127 1,172,011 1,964,619 79,333 Total General Long-Term Obligations 9,687,396 1,108,127 1,498,949 9,296, ,156 Proprietary Fund Long-Term Obligations Accrued Compensated Absences 514, , , ,794 30,550 Revenue Bonds Payable From: Proprietary Funds 25,363, ,368 2,145,000 23,799,012 2,215,000 Public Service Tax & Guaranteed Entitlement Revenue 24,726, ,062 24,323, ,177 B-50 Total Proprietary Fund Long-Term Obligations 50,603,896 1,017,945 2,983,991 48,637,850 2,658,727 Total Long-Term Debt & Obligations $ 60,291,292 $ 2,126,072 $ 4,482,940 $ 57,934,424 $ 3,079,883 NOTE 8. INTERFUND RECEIVABLES, PAYMENTS, AND TRANSFERS: A. At September 30, 2010, interfund payments and transfers are as follows: Fund Type/Fund Transfers-in Transfers-out GOVERNMENTAL FUNDS General Fund $ 856,571 $ 3,540,876 Community Redevelopment Agency Fund 513,938 1,132,835 Debt Service Fund 695,967 - Capital Projects Fund 1,210,217 5,397 Permanent Fund - 56 PROPRIETARY FUNDS Utility Fund 787, ,871 Stormwater Fund - 75,920 Solid Waste Fund 200,000 79,465 Municipal Marina Fund - - Visitor Information Center 1,268, ,701 Heritage Tourism Fund 209, ,782 $ 5,741,903 $ 5,741,

137 B-51 CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 NOTE 8. INTERFUND RECEIVABLES, PAYMENTS, AND TRANSFERS: (Continued) Transfers are used to move unrestricted revenues collected to finance various programs accounted for in other funds in accordance with budgetary authorizations, and to segregate money for anticipated capital projects. Administrative Administrative Fund Type/Fund Overhead Charges Overhead Expenses GOVERNMENTAL FUNDS General Fund $ 1,983,565 $ - PROPRIETARY FUNDS Utility Fund - 1,263,111 Stormwater Fund - 136,954 Solid Waste Fund - 346,702 Municipal Marina Fund - 125,113 Visitor Information Center - 59,193 Heritage Tourism Fund - 52,492 $ 1,983,565 $ 1,983,565 Administrative overhead charges are primarily used to move funds from proprietary funds to the General Fund for an allocated amount of overhead. These charges are not eliminated in the financial statements as such elimination would not accurately report the activities of the funds benefited. B. At September 30, 2010, interfund receivables are as follows: Fund Type/Fund Due to Due from GOVERNMENTAL FUNDS General Fund $ - $ 256 Permanent Fund PROPRIETARY FUNDS Utility Fund - - Stormwater Fund - - Solid Waste Fund - 208,000 Municipal Marina Fund - - Visitor Information Center 1,400,000 Heritage Tourism Fund 1,608,000 - $ 1,608,256 $ 1,608,256 Interfund balances represent amounts loaned to or borrowed from other funds to assist in financing the operations of the borrowing fund. NOTE 9. OPERATING LEASES: The City leases various City and State owned buildings and properties under the terms of operating leases. The cost of the buildings and properties leased is not specifically identifiable as most of the leases are for only a portion of the building or property occupied. Future rental income expected from these leases is as follows: Year Ending September 30 Amount 2011 $ 1,250, ,288, ,326, ,366, ,407,557 Total future minimum rentals $ 6,639,584 NOTE 10. EMPLOYEE BENEFITS: CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 The City of St. Augustine has established three pension trust funds. Each plan is administered by a Board of Trustees in which City administration and members of the plans are represented. The General Fund would be used to liquidate any of the obligations for these pension funds or any other post-employment benefit. Disclosures relating to the individual pension trust funds and other post-employment benefits are as follows: A. General Employees' Retirement System: 1. Plan Description: The City of St. Augustine General Employees' Retirement System (System), a single-employer defined benefit pension plan, was authorized in its original form by City Ordinance 88-54, amending Chapter 20, Article IV of the Code of the City of St. Augustine, effective September 26, City Ordinance was amended in 2002 by City Ordinance , and in 2006 by City Ordinance , which is the current ordinance in effect for the plan. The System is classified as a fiduciary trust fund of the City. The System is presented as a blended component unit of the City and stand-alone financial reports can be obtained through the City Clerk s office. Any full-time City employee (those who work 40 or more hours per week), other than regular members of the Police and Fire Departments of the City, is eligible to become a member of this System. The City Manager may elect not to participate in the System. As of September 30, 2010, the System had 233 active participants, 116 retirees/beneficiaries and 9 vested terminated participants. The total payroll for eligible employees covered by this System was $9,118,329. As stipulated by City Ordinance 88-54, authority to establish and amend benefit provisions of the System rest with the City Commission, along with the authority to provide for cost of living adjustments. Benefits are calculated using the average of the highest five years of earnings within ten years of retirement or termination. For each year of credited service to a maximum of 35 years, monthly benefits shall be earned at the rate of two and a half percent of the member's average final salary. A supplemental annuity benefit is available to senior managers and directors pay grade 32 and above who retire after March 31, 2002, with ten or more years of credited service earned after March 31, The annuity amount is.5 percent of final average compensation times credited service up to 35 years for service in pay grades 32 through 35 and 1 percent of final average compensation times credited service up to 35 years for pay grades 36 and higher. Benefits are paid for the life of the participant with 60 percent continued to a surviving eligible spouse, unless optional forms of payments are elected. Eligibility for normal retirement is the earlier of age 65 and 5 years of service, age 60 and 10 years of service, or age 55 and 25 years of service. No benefits will be paid to a member upon termination if the termination occurs prior to the completion of ten years of service. The member, however, will receive his or her contribution to the plan, along with 3 percent interest. If a member of the System dies a non-duty death or becomes disabled prior to five years of service, the member or beneficiary will receive a refund of the member's contribution to the fund. If a member dies in the line of duty or has 5 years of service, the eligible spouse will receive 60 percent of the projected benefits (with service credit extended to age 60) and eligible children will receive 10 percent of the projected benefits to a maximum of 20 percent. Duty related disability with five or more years of service provides benefits under the group disability insurance contract. Upon termination of insurance, the pension benefit is computed as a normal retirement with additional service credit granted. Members with ten or more years of service who have attained age and service conditions for normal retirement but are within five years of the earliest normal retirement date may elect to have their terminated 86 87

138 B-52 NOTE 10. EMPLOYEE BENEFITS: (Continued) CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 benefits calculated as if the member had retired at an eligible normal retirement date up to five years earlier on or after February 13, Benefits that would have been payable are accumulated at interest to date of termination and paid or rolled over in a single sum, and payments are made directly to the member thereafter. In the event the Plan terminates, the assets of the retirement system shall be apportioned and distributed in accordance with the established provisions of Section of the City of St. Augustine Code, which provides for the distribution of assets in the following order: a. To provide for all expenses of the Plan including any cost of liquidation; then b. To provide for the payment of each participant and non-retired former participant an amount equal to his or her accumulated participant contributions; then c. To provide for the continuance of retirement allowances to retirees and beneficiaries; then d. To provide for the potential rights of participants and former participants entitled to a vested termination retirement allowance; then e. To revert back to the City if any excess exists after satisfying subsections a through d above. The Plan is a governmental benefit plan and is tax exempt under the IRS Code. 2. Summary of Accounting Policies: The following are the significant accounting policies followed by the System: a. Basis of Accounting - The financial statements of the System are prepared using the accrual basis of accounting in conformity with generally accepted accounting principles. Under this basis, revenue is recognized in the period earned, expenses are recognized in the period the obligation is incurred, and employee and employer contributions are recognized as revenue in the period in which the employee services are performed. b. Valuation of Investments Investments are reported at fair value as provided by the System s asset manager, Salem Trust Company. The summary of investments at September 30, 2010, is as follows: Cost Market Value Value US Treasury Obligations N/A $ 2,060,485 Real Estate Fund N/A 138,371 Corporate & Foreign Bonds N/A 5,334,974 Common Equity Securities N/A 9,823,617 Equity Mutual Funds N/A 1,699,868 Cash & Short term Investments N/A 2,621,500 Preferred Equity Securities N/A 229,950 $ 21,908,765 NOTE 10. EMPLOYEE BENEFITS: (Continued) CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, Funding Policy, Contributions, Status and Progress: The City of St. Augustine General Employees' Retirement System is funded under the provisions of Chapter 20, Article IV, St. Augustine Code and Chapter 112, Florida Statutes. Funding arrangements include contributions by retirement system members, the City of St. Augustine, and investment income from retirement system assets. Administrative costs of the System are financed through investment earnings. Effective November 8, 1988, contributions by retirement system members are based on four percent of compensation while the City of St. Augustine contributes one percent of compensation on behalf of the employees. Previously, retirement system members contributed five percent of compensation. The System's funding policy provides for periodic employer contributions at actuarially determined rates that, expressed as percentages of annual covered payroll, are sufficient to accumulate sufficient assets to pay benefits when due. The current rate contributed as a percentage of covered payrolls is percent. The following is funded status information for the plan as of October 1, 2010, the most recent actuarial valuation date (in thousands): (1) (2) (3) (4) (5) (6) Actuarial Unfunded UAAL as a % of Actuarial Actuarial Accrued AAL Funded Covered Valuation Value of Liability (AAL) (UAAL) Ratio Covered Payroll Date Assets Entry Age (2)-(1) (1)/(2) Payroll [(2)-(1)/(5)] 9/30/2010 $ 24,932 $ 31,861 $ 6, % $ 9, % The schedule of funding progress, presented as RSI following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. 4. Annual Pension Cost: For 2010, the City s annual pension cost was $1,250,914. The City s actual contribution was $1,206,532. The annual required contribution for the current year was determined as part of the October 1, 2009, actuarial valuation using the entry age actuarial cost method. The actuarial assumptions in the October 1, 2009, valuations included (a) 8.0% investment rate of return; (b) projected salary increases ranging from 4% to 8% per year; and (c) 3.5% rate of inflation. The assumptions did not include postretirement benefit increases. The actuarial value of assets was determined by adjusting the expected values of assets as of any valuation date by a portion of the cumulative differences of the market value of assets and the expected actuarial value of assets. Each difference is fully recognized over a period not to exceed five years. The unfunded actuarial liability is being amortized over 15 years as a level percentage of projected payroll on a closed basis. Three-Year Trend Information Fiscal Year Annual Pension Percentage of Net Pension Ended Cost (APC) APC Contributed (Asset) 9/30/2008 $909, % (558,116) 9/30/2009 $1,157, % (593,598) 9/30/2010 $1,250,914 96% (549,216) 88 89

139 B-53 NOTE 10. EMPLOYEE BENEFITS: (Continued) CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 Fiscal Year Ended September 30, 2010 Annual Annual Required City Contribution (ARC) $ 1,215,253 Interest on NPO (47,488) Adjustment to ARC (83,149) Annual Pension Cost 1,250,914 Contributions Made 1,206,532 Decrease in NPO 44,382 NPO Beginning of Year (593,598) NPO End of Year $ (549,216) 5. Concentrations: Salem Trust, Sawgrass Asset Management, Tradewinds, Europacific Growth, Vanguard Total International Stock, Principal U.S. Property and Integrity Management Fixed Income currently hold investments of the system which consist of a bond and mortgage account, U.S. stock account, international stock account and a real estate account. The value of assets managed by these companies and their relation to the net assets of the plan as of September 30, 2010 is as follows: Market Percent of Value Net Assets Domestic Equity Securities $ 8,819,242 40% International Equity Securities 2,934,194 13% Real Estate 138,371 1% Fixed Income Securities 7,395,459 34% Cash & Short term Investments 2,621,500 12% $ 21,908,765 B. Police Officers Retirement System 1. Plan Description: The St. Augustine Police Officers' Retirement System (System), a single-employer defined benefit plan, was created June 1, 1957, by the City of St. Augustine, Article X of the St. Augustine Code, under the provisions of general law pertaining to Municipal Police Officers' Retirement Trust Fund (Chapter 185, Florida Statutes). The System is presented as a blended component unit of the City and stand-alone financial reports can be obtained through the City Clerk s office. Any police officer who is a regular member of the police department of the City of St. Augustine is a member of this retirement system. As of September 30, 2010, the System had 47 active participants, 21 retirees/beneficiaries, 3 disabled participants, 1 pending refund and 6 vested/terminated participants. The total payroll for eligible employees covered by this System was $2,565,977. As stipulated by City Ordinance 88-75, authority to establish and amend benefit provisions of the retirement system rests with the City Commission, along with the authority to provide cost of living adjustments. Benefits are calculated using the average of the highest five years of earnings within ten years of retirement or termination. For each year of creditable service, monthly benefits shall be earned at the rate of 2.5 percent to 3.0 percent of the member's average final salary. Benefits are paid for life with 120 monthly payments guaranteed. Eligibility for normal retirement is the earlier of age 55 and 10 years of service or 25 years of service regardless of age. No benefits will be paid to a member upon termination if termination occurs prior to the completion of 10 years of service. NOTE 10. EMPLOYEE BENEFITS: (Continued) CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 If a retirement system member dies before becoming eligible for any retirement benefits, the beneficiary will receive a refund, not including interest, of the deceased's member contributions to the fund. If ten years of creditable service had been attained, then the accrued benefit of the member is due to the surviving spouse, payable in 120 monthly payments. Disability benefits are based on the accrued benefit and are due to the member as of the disability retirement date. Minimum benefit is 42 percent of the average monthly earnings if the disability occurred in the line of duty, otherwise, the minimum benefit would be 25 percent of the average monthly benefits. In the event the plan terminates, or upon written notice to the Board of Trustees that contributions they are under are being permanently discontinued, the assets of the retirement system shall be apportioned and distributed in accordance with the established provisions of Section , Florida Statutes. The amount of benefits which at the time of termination has accrued to the member or beneficiary shall not be affected, except to the extent that the assets of the retirement system may be determined to be inadequate. The plan is a governmental benefit plan and is tax exempt under the Internal Revenue Service Code. 2. Summary of Accounting Policies: a. Basis of Accounting - The financial statements of the System are prepared using the accrual basis of accounting in conformity with generally accepted accounting principles. In addition, fair value is used in the financial statements in presenting investments. Under this basis, revenue, including net changes in fair value of investments, is recognized in the period earned, expenses are recognized in the period the obligation is incurred, and employee and employer contributions are recognized as revenue in the period in which the employee services are performed. b. Valuation of Investments Quoted market prices, not original costs, are used to value investments as provided by Salem Trust Company, investment custodians for the plan. Many factors are considered in determining the fair value of these investments. The results of these factors may cause the fair value of these investments to increase or decrease during the course of the year. On many occasions, the fair value may be higher or lower than the original purchase price of the investment. Cost Fair Value Value Corporate Bonds N/A $ 4,579,401 Governmental Obligations N/A 1,400,498 Stocks N/A 5,212,910 $ 11,192, Funding Policy, Contributions, Status and Progress: The St. Augustine Police Officers' Retirement System is funded under the provisions of Article X, Section 10.03, St. Augustine Code and Chapter , Florida Statutes. Funding arrangements include contributions by retirement system members, the City of St. Augustine, percentage of casualty insurance premiums collected on property located within the corporate limits of the City of St. Augustine, accretions to the fund by way of interest on bank deposits or otherwise, and any other source of income authorized by law to increase the retirement fund. At September 30, 2010, contributions by retirement system members are based on 5.5 percent of compensation while the City of St. Augustine contributes a minimum of 2.5 percent of compensation. Previously, retirement system members contributed four percent of fixed monthly compensation. The Board of Trustees for the Plan anticipates the above funding methods will result in all members' benefits being fully provided for by the time of their retirement. Effective October 1, 1993, the member contributions were changed from after tax compensation to pre-tax compensation. Administrative costs are funded by City and member contributions

140 B-54 NOTE 10. EMPLOYEE BENEFITS: (Continued) CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 The Plan's funding policy provides for periodic employer contributions at actuarially determined rates that, expressed as percentages of annual covered payroll, are sufficient to accumulate sufficient assets to pay benefits when due. The City made an actuarial contribution of 3.5 percent during the fiscal year ended September 30, 2010, in addition to the ordinance-required contribution of 1.5 percent. The following is funded status information for the plan as of September 30, 2010, the most recent actuarial valuation date (in thousands): (1) (2) (3) (4) (5) (6) Actuarial Unfunded UAAL as a % of Actuarial Actuarial Accrued AAL Funded Covered Valuation Value of Liability (AAL) (UAAL) Ratio Covered Payroll Date Assets Entry Age (2)-(1) (1)/(2) Payroll [(2)-(1)/(5)] 9/30/2010 $ 13,078 $ 13,980 $ % $ 2, % The schedule of funding progress, presented as RSI following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. 4. Annual Pension Cost: For 2010, the City s annual pension cost was $394,821. The actual contribution was $326,733. The annual required contribution for the current year was determined as part of the October 1, 2009, actuarial valuation using the Individual Entry Age Actuarial Cost Method. The actuarial assumptions in the October 1, 2009, valuations included (a) 8% investment rate of return; (b) projected salary increases ranging from 4.5% to 8% per year; and (c) 3.5% rate of inflation. The assumptions did include post-retirement benefits with a cost of living adjustment of up to 3%. The actuarial value of assets was determined by adjusting the expected value of assets as of any valuation date by a portion of the cumulative differences of the market value of assets and the expected actuarial value of assets starting from October 1, Each difference is fully recognized over a period not to exceed five years. The unfunded actuarial liability is being amortized over 15 years as a level percentage of projected payroll on a closed basis. Three-Year Trend Information Fiscal Year Annual Pension Percentage of Net Pension Ended Cost (APC) APC Contributed (Asset) 9/30/2008 $415,753 92% (164,254) 9/30/2009 $407,169 85% (103,824) 9/30/2010 $394,821 83% (35,736) Fiscal Year Ended September 30, 2010 Annual Annual Required City Contribution (ARC) $ 390,534 Interest on NPO (8,306) Adjustment to ARC (12,593) Annual Pension Cost 394,821 Contributions Made 326,733 Decrease in NPO 68,088 NPO Beginning of Year (103,824) NPO End of Year $ (35,736) NOTE 10. EMPLOYEE BENEFITS: (Continued) CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, Concentrations: As of September 30, 2010, the Plan had no investments that exceeded five percent of the Plan s net assets as of that date. C. Firefighters' Retirement System: 1. Plan Description: The City of St. Augustine Firefighters' Retirement System (System), a single-employer defined benefit pension plan, was authorized in its present form by City Ordinance 87-60, amending Chapter 20, Article V of the Code of the City of St. Augustine, effective December 4, The System is classified as a fiduciary trust fund of the City. The System is presented as a blended component unit of the City and stand-alone financial reports can be obtained through the City Clerk s office. Any City full-time firefighter and retired firefighter is eligible to become a member of this System. As of September 30, 2010, the System had 30 active participants and 24 retirees/beneficiaries. The total payroll for employees covered by this System for the year ended September 30, 2010 was $1,381,622. As stipulated by City Ordinance 87-60, authority to establish and amend benefit provisions of the Fund rest with the City Commission, along with the authority to provide for cost of living adjustments. Benefits are calculated using the average of the highest five years of earnings within ten years of retirement or termination. For each year of credited service to a maximum of 35 years, monthly benefits shall be earned at the rate of 3.0 percent of the member's average final compensation. Benefits are paid for the life of the participant with ten years certain. Eligibility for normal retirement is the earlier of age 55 and 10 years of credited service or 25 years of credited service, regardless of age. No benefits will be paid to a participant if termination occurs prior to the completion of ten years of service. Such participants, however, will receive their contributions to the plan along with three percent interest. If a member of the Fund dies a non-duty death prior to five years of service, the beneficiary will receive the member s contribution with three percent interest. If a member dies in the line of duty or has five years of credited service, the beneficiary will receive the value of accrued benefits based on the member's average final compensation (AFC) and credited service. Disability benefits, as determined by the Board of Trustees, are the member's accrued benefits, but not less than 42 percent of AFC for service incurred and 25 percent for non-service incurred disabilities. Benefits are paid in the form of a ten-year certain and life annuity. In the event the plan terminates, the assets of the retirement system shall be apportioned and distributed in accordance with the established provisions of Section of the Code of the City of St. Augustine. The amount of benefits, which at the time of termination has accrued to the member or beneficiary shall not be affected except to the extent that the assets of the retirement system may be determined to be inadequate. The plan is a governmental benefit plan and is tax exempt under the IRS Code. 2. Summary of Accounting Policies: The following are the significant accounting policies followed by the System: a. Basis of Accounting - The financial statements of the System are prepared using the accrual basis of accounting in conformity with generally accepted accounting principles. Under this basis, revenue is recognized in the period earned, expenses are recognized in the period the obligation is incurred, and employee and employer contributions are recognized as revenue in the period in which the employee services are performed

141 B-55 NOTE 10. EMPLOYEE BENEFITS: (Continued) CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 b. Valuation of Investments Investments are reported at fair value as provided by the Fund s investment manager Fifth Third Bank. Fifth Third arrives at fair value through the use of broker and pricing services. The summary of investments at September 30, 2010, is as follows: Cost Fair Value Value Corporate and Government Bonds $ 2,481,816 $ 2,686,300 International exchange traded fund 1,190,170 1,114,258 Common Stock & Short Term Investments 2,925,273 3,738,312 $ 6,597,259 $ 7,538, Funding Policy, Contributions, Status and Progress: The City of St. Augustine Firefighters' Retirement System plan was created in 1987 under City Ordinance amending Section 20, Article V of the Code of the City of St. Augustine, Florida. The Plan was substantively amended in 1993, 1995, 2000, 2001 and In addition, the Plan is a local law plan subject to provisions of Chapter 175 of the State of Florida Statutes. Funding arrangements include contributions by retirement system members, the City of St. Augustine, 1.85 percent premium tax for property insurance and investment income from the retirement system assets. Administrative costs of the fund are financed through investment earnings. For the current fiscal year the state premium tax revenue was $163,863 and the City expended the full amount to the Pension Fund. Effective September 22, 2008, contributions by retirement system members are based on five percent of compensation while the City of St. Augustine contributes one percent of compensation on behalf of members. Previously, retirement system members contributed four percent. The Plan's funding policy provides for periodic employer contributions at actuarially determined rates that, expressed as percentages of annual covered payroll, are sufficient to accumulate sufficient assets to pay benefits when due. The City was required to make an actuarial contribution of 10.6 percent during the Fiscal Year ended September 30, 2010, in addition to the ordinance-required contribution of 1.5 percent and ordinance-required one percent on the employee s behalf. The following is funded status information for the plan as of October 1, 2010, the most recent actuarial valuation date (in thousands): (1) (2) (3) (4) (5) (6) Actuarial Unfunded UAAL as a % of Actuarial Actuarial Accrued AAL Funded Covered Valuation Value of Liability (AAL) (UAAL) Ratio Covered Payroll Date Assets Entry Age (2)-(1) (1)/(2) Payroll [(2)-(1)/(5)] 10/1/2010 $ 8,390 $ 8,207 $ (183) % $ 1, % The schedule of funding progress, presented as RSI following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. 4. Annual Pension Cost: For 2010, the City s annual pension cost was $211,905. The City s actual contribution was $202,533. The annual required contribution for the current year was determined as part of the October 1, 2010, actuarial valuation using the frozen entry age actuarial cost method. The actuarial assumptions in the October 1, 2010 valuations included (a) 7.5% investment rate of return; (b) projected salary increases of % per year; and (c) 3% rate of inflation. NOTE 10. EMPLOYEE BENEFITS: (Continued) CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 The actuarial value of assets was determined by adjusting the expected value of assets as of any valuation date by a portion of the cumulative differences of the market value of assets and the expected actuarial value of assets starting from October 1, Each difference is fully recognized over a period not to exceed five years. The unfunded actuarial liability is being amortized over 15 years as a level percentage of projected payroll on a closed basis. Three-Year Trend Information Fiscal Year Annual Pension Percentage of Net Pension Ended Cost (APC) APC Contributed Obligation 9/30/ , % (336,036) 9/30/ , % (380,252) 9/30/ ,905 96% (370,880) Fiscal Year Ended September 30, 2010 Annual Annual Required City Contribution (ARC) $ 202,533 Interest on NPO (30,420) Adjustment to ARC 39,792 Annual Pension Cost 211,905 Contributions Made (202,533) Decrease in NPO 9,372 NPO Beginning of Year (380,252) NPO End of Year $ (370,880) 5. Concentrations: As of September 30, 2010, the Plan had no investments that exceeded five percent of the Plan s net assets as of that date. D. Other Post-Employment Benefits (OPEB): Pursuant to Section of the Florida Statutes, the City is required to permit participation in the single-employer health insurance program (the Plan ) by retirees and their eligible dependents at a cost to the retiree that is no greater than the cost at which coverage is available for active employees. Based on Governmental Accounting Standards Board (GASB) approval of Statement Nos. 43 and 45 which set forth the guidelines and a future implementation timetable for reporting and disclosure of Other Post- Employment Benefits (OPEB), the City had an actuary calculate future funding requirements using an appropriate actuarial cost method. The valuation was performed as of September 30, 2009 and covers subsidies for medical insurance benefits. The City has elected to implement the provisions of GASB Statement No. 45 prospectively. The City s annual OPEB cost for the Plan is calculated based on the annual required contribution of the employer, an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The projected unit credit cost method was used to determine all liabilities, with the liability for each active employee assumed to accrue over the working lifetime based on elapsed time from the date of hire until retirement. 1. Plan Description: The City provides optional post-employment benefits to all eligible individuals including lifetime medical, prescription, dental, and certain life insurance coverage. Eligible individuals include all employees of the City of St. Augustine who retire from active service under one of the pension plans sponsored by the City

142 B-56 NOTE 10. EMPLOYEE BENEFITS: (Continued) CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 Under certain conditions, eligible individuals also include spouses and dependent children. As of September 30, 2009, there were 292 future retirees, 14 retired and disabled participants receiving benefits, and 3 spouses receiving benefits for a total of 309 included in the valuation. The Plan does not issue a publicly available financial report. 2. Funding Policy: The City Commission is authorized to establish benefit levels and approve the actuarial assumptions used in the determination of contributions levels. The City Commission establishes the contributions requirements of plan members and the City. These contributions are neither mandated nor guaranteed. The retiree contributes the premium cost each month. Spouses and other dependents are also eligible for coverage, although the retiree pays the premium cost. Retirees must pay a monthly premium as determined by the insurance carrier. The premium varies depending on whether the retiree elects single, single plus spouse, single plus dependents, or family coverage. Currently, the City s subsidy to OPEB benefits is unfunded. There are no separate Trust Funds or equivalent arrangements into which the City makes contributions to advance-fund the OPEB obligations, as it does for its retiree pension plans. The City s cost of the OPEB benefits, funded on a pay-as-you-go basis, was $216,181 for the year ended September 30, The ultimate implicit and explicit subsidies which are provided over time are financed directly by general assets of the City, which are invested in short-term fixed income instruments according to its current investment policy. The City selected an interest discount rate of 4.50% per annum, which is the long range expected return on such short-term fixed income instruments, to calculate the present values and costs of the OPEB. This is consistent with GASB Statement No. 45 guidance. Significant Actuarial Assumptions and methods used to estimate the OPEB liability are as follows: 3. Actuarial Methods: Valuation date... September 30, 2009 Actuarial cost method... Projected Unit Credit Cost Method Amortization method... Level Dollar Payment Amortization period Year Period Assumed rate of return on investments % per annum Assumed healthcare cost trend rates: Fiscal Year Ending Percent Increase % % % % Thereafter % The projection of future benefit payments for an ongoing plan involves estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Actuarially determined amounts are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. Projections of benefits for financial reporting purposes are based on the substantive Plan (the Plan as understood by the employer and Plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and Plan members to that point. Actuarial calculations reflect a long-term perspective and the 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. NOTE 10. EMPLOYEE BENEFITS: (Continued) CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, Annual OPEB Cost and Net OPEB Obligation: The City s annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 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 the actuarial liabilities (or funding excess) over a period not to exceed 30 years. The City s annual OPEB cost for the fiscal year was $216,181. The City s annual OPEB cost and the net OPEB obligation for the fiscal year ended September 30, 2010 is as follows: Annual Required City Contribution (ARC) $ 218,388 Interest on Plan Obligation 6,059 Adjustment to ARC 8,267 Annual Plan Retiree Cost 216,180 Contributions Made (111,198) Increase in Plan Obligation 104,982 Plan Obligation Beginning of Year 134,654 Plan Obligation End of Year $ 239,636 The City s percentage of annual OPEB cost contributed to the Plan, and the net OPEB obligation for the fiscal year ended September 30, 2010 is as follows: Percentage of Fiscal Year Annual City City* Retiree Cost Net Obligation Ending Retiree Cost Contributions Contributed (Asset) 9/30/2010 $ 216,180 $ 111,199 51% $ 239,636 *Limited to the difference between age-adjusted and composite premiums paid for retirees during the year. The 2010 contribution represented 51% of the annual required contribution. The actuarial valuation for the Plan was done as of September 30, As of September 30, 2010, the most recent actuarial valuation date, the Plan was unfunded. The actuarial accrued liability for benefits was $2,234,989, and the actuarial value of assets was $-0-, resulting in an unfunded actuarial accrued liability (UAAL) of $2,234,989. The covered payroll was $13,391,220, and the ratio of the UAAL to the covered payroll was 16.69%. The Schedule of Funding Progress, presented as Required Supplementary Information immediately following the Notes to the Financial Statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. NOTE TAX-DEFERRED COMPENSATION PLAN: The City offers its employees a deferred compensation plan created in accordance with the Internal Revenue Code, Section 457. On August 20, 1996, Section 457 of the Code was amended with the passage of the Small Jobs Protection Act of The Code now requires employers to maintain the plan assets in a trust, custodial account or annuity for each individual member as of January 1, Since the inception of its plan on October 1, 1993, the City has deposited all funds in a custodial account with The Variable Annuity Life Insurance Company

143 B-57 CITY OF ST. AUGUSTINE, FLORIDA Notes to the Financial Statements September 30, 2010 NOTE TAX-DEFERRED COMPENSATION PLAN: (Continued) In October 1997, the GASB issued Statement No. 32, Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans. This statement allows the employer to not report the assets and liabilities in their financial statements if the employer has met the new criteria of the Internal Revenue Code, Section 457 and does not retain fiduciary accountability for the plan assets. In fiscal year 1998, the City amended its deferred compensation plan to reflect the changes in the Internal Revenue Code and, in the opinion of management, does not retain fiduciary accountability for plan assets. Accordingly, the City has implemented GASB No. 32 and is no longer including the assets and liabilities of the deferred compensation plan in its financial statements. There is no effect on the City s overall fund balance as the plan was an agency fund in which plan assets equal liabilities. NOTE 12. SUBSEQUENT EVENT The City is currently in the process of issuing $16,215,000 of revenue bonds. The Bonds are being issued for the purpose of (i) financing the acquisition, construction and equipping a portion of the costs of various capital projects located within the City, including without limitation, water and sewer capital projects, stormwater capital projects, transportation capital projects, municipal marina improvements and other municipal capital projects on file with the City and (ii) paying certain costs of issuance incurred with respect thereto. The presale occurred on Thursday, March 10, 2011 and the closing is scheduled for April 5, The interest rate on this bond is 5.75% and the maturity date is October 1, Management has evaluated subsequent events through March 18, 2011, the date the financial statements were available to be issued, and has determined that no subsequent events have occurred that would require adjustment to or disclosure in the financial statements other than discussed above. NOTE 13. PRIOR PERIOD RESTATEMENT The City restated its 2009 Total Net Assets of the Proprietary Funds to reflect two grant receivables that the City no longer plans to receive. This restatement resulted in a reduction of Fiscal Year 2009 Proprietary Fund Net Assets of $489,550. The City also restated the beginning fund balance of the Heritage Tourism Fund to reflect the separation of the Visitor Information Center Fund from the Heritage Tourism Fund. These Funds were reported together in Fiscal Year 2009 but are reported separately in Fiscal Year Required Supplementary Information Other than Management Discussion & Analysis (MD&A) 98

144 B-58 CITY OF ST. AUGUSTINE, FLORIDA General, Police, and Fire Employees' Pension Plans Required Supplementary Information Schedule of Funding Progress (Dollar Amounts in Thousands) (1) (2) (3) (4) (5) (6) UAAL as a Actuarial Unfunded Percentage of Actuarial Actuarial Accrued AAL Funded Covered Valuation Value of Liability (AAL) (UAAL) Ratio Covered Payroll Date Assets Entry Age (2)-(1) (1)/(2) Payroll [(2)-(1)/(5)] General Pension: 9/30/2010 $ 24,932 $ 31,861 $ 6, % $ 9, % 9/30/ ,817 29,574 5, % 9, % 9/30/ ,258 27,153 3, % 9, % 9/30/ ,172 25,909 3, % 9, % 9/30/ ,135 22,726 2, % 8, % 9/30/ ,481 19,674 1, % 7, % 9/30/ ,076 17, % 7, % 9/30/ ,835 15,374 (461) % 7, % 9/30/ ,486 14, % 6, % 9/30/ ,750 13,759 1, % 6, % Police Pension: 9/30/ ,078 13, % 2, % 9/30/ ,759 13, % 2, % 9/30/ ,951 13, % 2, % 9/30/ ,424 12, % 2, % 9/30/ ,383 11, % 2, % 9/30/ ,566 11, % 2, % 9/30/ ,267 9,774 (493) % 2, % 9/30/ ,013 11,295 1, % 2, % 9/30/2002 9,643 10,910 1, % 1, % 9/30/2001 9,245 10,555 1, % 1, % Fire Pension: 9/30/2010 8,390 8,207 (183) % 1, % 9/30/2009 8,301 8,123 (178) % 1, % 9/30/2008 8,222 8,031 (191) % 1, % 9/30/2007 8,089 9,377 1, % 1, % 9/30/2006 7,428 8,771 1, % % 9/30/2005 6,904 8,311 1, % % 9/30/2004 6,608 7,868 1, % % 9/30/2003 6,458 7,747 1, % % 9/30/2002 6,362 7,670 1, % % 9/30/2001 6,333 7,651 1, % % CITY OF ST. AUGUSTINE, FLORIDA General, Police, and Fire Employees' Pension Plans Required Supplementary Information Schedule of Employer Contributions and Other Contributing Entities Annual * State Year Ended Required * City Premium Percentage September 30 Contribution Contribution Tax Contributed General Pension: 2010 $ 1,250,914 $ 1,206,532 $ % ,157,224 1,192, % ,542 1,039, % , , % , , % , , % , , % , , % , , % , , % Police Pension: , , % , , % , , % , , % , , , % ,097 56, , % ,781 52, , % ,351 52, , % ,544 48, , % ,713 46, , % Fire Pension: , , , % , , , % , , , % , , , % ,014 91, , % ,791 59, , % ,714 34, , % ,387 22, , % ,846 22, , % , , % * General and police contributions for the City and State are adjusted for interest credits to the end of the fiscal year, as per the plan's actuarial valuation, dated September 30, As a result, the amount indicated above will not be consistent with similar financial data exhibited in other areas of this report

145 CITY OF ST. AUGUSTINE, FLORIDA Note to the Schedule of Funding Progress and Schedule of Employer and Other Contributions For all Pension Plans CITY OF ST. AUGUSTINE, FLORIDA Other Post-Employment Benefits Required Supplementary Information Schedule of Funding Progress (Dollar Amounts in Thousands) General Police Employees' Officers' Firefighters' Pension Pension Pension Plan Plan Plan Valuation Date 30-Sep Sep Sep-10 Actuarial Cost Method Individual Entry Age Individual Entry Age Frozen Entry Age (1) (2) (3) (4) (5) (6) UAAL as a Actuarial Unfunded Percentage of Actuarial Actuarial Accrued AAL Funded Covered Valuation Value of Liability (AAL) (UAAL) Ratio Covered Payroll Date Assets Entry Age (2)-(1) (1)/(2) Payroll [(2)-(1)/(5)] 9/30/2010 $ - $ 2,235 $ 2, % $ 13, % 9/30/2009-2,169 2, % 12, % Amortization Level Percentage (closed) of Level Percentage (closed) of Level Percentage of pay, Method Projected Payroll Projected Payroll closed Remaining Amortization Weighted Average of Weighted Average of Weighted Average of Period 15 Years 15 Years 30 Years B-59 Asset 5 Year Weighted Average of 5 Year Weighted Average of Valuation Difference Between Market Difference Between Market Method & Expected Market & Expected Market 4 Year Smoothing Actuarial Assumptions: Investment Rate of Return 8% Annually 8% Annually 8% Annually Projected Salary Increases 4% to 8% Annually 4.5% to 8% Annually 7% Annually Cost of Living Adjustments none Up to 3% Annually Up to 3% Annually

146 CITY OF ST. AUGUSTINE, FLORIDA Other Post-Employment Benefits Required Supplementary Information Schedule of Employer Contributions and Other Contributing Entities Annual Year Ended Required * City Percentage September 30 Contribution Contribution Contributed 2010 $ 216,180 $ 111, % ,983 74, % * Limited to the difference between age-adjusted and composite premiums paid for retirees during the year. This Page Intentionally Left Blank B

147 CITY OF ST. AUGUSTINE, FLORIDA Combining Statement of Fiduciary Net Assets Fiduciary Funds September 30, 2010 Combining Statements General Police Total Employee Employees' Officers' Firefighters' Retirement Pension Fund Pension Fund Pension Fund Funds ASSETS Cash and Short-term Investments $ 2,621,500 $ 332,987 $ 335,371 $ 3,289,858 Receivables: Member Contributions 18,140 6,802 3,956 28,898 City Contributions 55,711 6,184 15,473 77,368 Interest and Dividends 111,142 67,369 30, ,704 Due from State ,889 30,889 Total Receivables 184,993 80,355 80, ,859 Prepaaid Pension Payment 35,899 35,899 Prepaid Expense B-61 Investments, at Fair Value: U.S. Government Obligations Fund 2,060,485 1,400,498 1,132,283 4,593,266 U.S. Stock Fund 10,053,567 5,212,910 3,684,792 18,951,269 Mutual Funds - International Equity 1,699,868-53,520 1,753,388 Bond and Mortgage Fund 5,334,974 4,579,401 1,554,017 11,468,392 International Exchange Fund 1,114,258 1,114,258 Real Estate Fund 138, ,371 Total Investments 19,287,265 11,192,809 7,538,870 38,018,944 LIABILITIES Total Assets 22,093,758 11,606,151 7,991,228 41,691,137 Expenses Payable 31,450 19,229 61, ,549 NET ASSETS Total Liabilities 31,450 19,229 61, ,549 Held in Trust for Pension Benefits $ 22,062,308 $ 11,586,922 $ 7,929,358 $ 41,578,

148 CITY OF ST. AUGUSTINE, FLORIDA Combining Statement of Changes in Fiduciary Net Assets Fiduciary Funds For the Year Ended September 30, 2010 General Police Total Employee Employees' Officers' Firefighters' Retirement Pension Fund Pension Fund Pension Fund Funds ADDITIONS Contributions Members $ 377,032 $ 136,787 $ 89,079 $ 602,898 City 1,157, , ,709 1,484,614 State Insurance Premium Tax, from General Fund - 193, , ,601 Other Total Contributions 1,534, , ,651 2,445,113 Investment Income Net Increase in Fair Value of Investments 1,680, , ,850 2,750,661 Interest and Dividends on Investments 570, , ,903 1,206,115 Total Investment Income 2,251,355 1,020, ,753 3,956,776 Less Investment Expenses 120,336 57,852 51, ,386 Schedule of Expenditures of Federal Awards and State Financial Assistance B-62 Net Investment Income 2,131, , ,555 3,727,390 Total Additions 3,665,604 1,417,693 1,089,206 6,172,503 DEDUCTIONS Benefit Payments 1,347, , ,079 2,428,895 Termination Payments 58,198 10,520 20,977 89,695 Administrative Expenses 44,770 40,172 30, ,412 Total Deductions 1,450, , ,526 2,634,002 Net Change in Assets 2,214, , ,680 3,538,501 Net Assets - Beginning 19,847,311 10,762,098 7,430,678 38,040,087 NET ASSETS - ENDING $ 22,062,308 $ 11,586,922 $ 7,929,358 $ 41,578,

149 CITY OF ST. AUGUSTINE, FLORIDA Schedule of Expenditures of Federal Awards and State Financial Assistance For the Year Ended September 30, 2010 Federal Agency or Federal Program CFDA Number Contract Number Federal Expenditures Department of Homeland Security (FEMA) Firefighters (SAFER) EMW-2006-FF ,203 Department of Justice JAG Grant ARRC-STJO-1-W ,341 JAG Grant JAGC-STJO-3-4X ,906 (Pass Through State of Florida) E. Byrne Grant (Pass Through State of Florida) F4980-FL-DJ 44,177 Total Expenditures of Federal Awards $ 258,626 This Page Intentionally Left Blank State Agency CFSA Number Contract Number State Expenditures B-63 Department of State Dredging of Salt Run N/A SJ-SA $ 434,705 Florida Department of Environmental Protection Marina Pump Out Vessel & Trailer CVA LE701 70,485 Water Management District Wellfield Expansion SJ ,170 FDOT Pedestrian Safety Study LAP ,064 Port and Waterway District--Derelict Vessels N/A ICW-SA ,586 Total Expenditures of State Financial Assistance $ 1,311,

150 Statistical Section STATISTICAL SECTION This section of the City of St. Augustine, Florida's comprehensive annual financial report presents detailed information as a context for understanding the information in the financial statements, note disclosures, and required supplementary information about the City's overall financial health. Contents Page Financial Trends 110 These schedules contain trend information to help the reader understand how the City's financial performance and well-being have changed over Revenue Capacity 118 These schedules contain information to help the reader assess the factors affecting the City's ability to generate its property taxes. B-64 Debt Capacity 123 These schedules present information to help the reader assess the affordabilty of the City's current levels of outstanding debt and the City's ability to issue additional debt in the future. Demographic and Economic Information 131 These schedules offer demographic and economic indicators to help the reader understand the environment within which the City's financial activities take place and to help make comparisons over time and with other governments. Operating Information 133 These schedules contain information about the City's operations and resources to help the reader understand how the City's financial information relates to the services the City provides and the activities it performs. 109

151 CITY OF ST. AUGUSTINE, FLORIDA NET ASSETS BY COMPONENT LAST TEN FISCAL YEARS "UNAUDITED" Governmental Activities 2000/ / / / / / / / /09 * 2009/10 Invested in Capital Assets, $ 24,171,092 $ 27,019,741 $ 10,744,342 $ 13,491,170 net of related debt Restricted 1,124,044 1,517,136 5,365,938 4,725,306 Unrestricted 10,462,446 9,872,765 1,087,186 (671,043) Total governmental activities net assets $ 35,757,582 $ 38,409,642 $ 17,197,466 $ 17,545,433 $ 9,451,793 $ 10,966,110 $ 14,175,163 $ 14,676,684 $ 15,619,162 $ 16,449,454 3,203,122 1,134, , , , ,423 8,543,387 12,340,617 12,813,500 13,631,715 12,094,285 10,794,948 $ 21,198,302 $ 24,441,129 $ 27,620,033 $ 28,611,450 $ 27,908,396 $ 27,483,825 Business-type activities B-65 Invested in Capital Assets, $ 5,846,119 $ 5,846,119 $ 2,194,130 $ 2,372,560 net of related debt Restricted - 2,262,668 10,138,334 Unrestricted 6,977,839 7,175,100 9,232,343 2,952,198 Total business-type activities net assets $ 12,823,958 $ 13,021,219 $ 13,689,141 $ 15,463,092 Primary Government Invested in Capital Assets, $ 30,017,211 $ 32,865,860 $ 12,938,472 $ 15,863,730 net of related debt Restricted 1,124,044 1,517,136 7,628,606 14,863,640 Unrestricted 17,440,285 17,047,865 10,319,529 2,281,155 Total primary government net assets $ 48,581,540 $ 51,430,861 $ 30,886,607 $ 33,008,525 $ 6,027,693 $ 11,785,907 $ 22,747,771 $ 33,767,723 $ 38,596,536 $ 41,464,233 2,561,863 4,310,849 10,310,337 1,282,194 1,780,856 2,128,544 11,490,954 11,489,120 9,225,883 17,596,927 15,081,493 14,587,206 $ 20,080,510 $ 27,585,876 $ 42,283,991 $ 52,646,844 $ 55,458,885 $ 58,179,983 $ 15,479,486 $ 22,752,017 $ 36,922,934 $ 48,444,407 $ 54,215,698 $ 57,913,687 5,764,985 5,445,251 10,941,707 1,585,245 1,975,805 2,367,967 20,034,341 23,829,737 22,039,383 31,228,642 27,175,778 25,382,154 $ 41,278,812 $ 52,027,005 $ 69,904,024 $ 81,258,294 $ 83,367,281 $ 85,663,808 * As Restated

152 B / / /09 * 2009/10 EXPENSES Governmental Activities: General Government $ 7,665,655 $ 8,378,922 $ 10,029,770 $ 9,477,947 Public Safety 7,823,572 7,948,163 8,279,880 8,192,511 Physical Environment 3,729,585 3,743,697 3,511,790 3,464,066 Transportation 1,254,902 1,249,125 1,328,943 1,148,640 Culture & Recreation 531, , , ,985 Interest and Fiscal Charges 387, , , ,659 Total Governmental Activities Expenses $ 21,392,704 $ 22,223,440 $ 24,066,779 $ 23,170,808 Business-type Activities: Utility $ 10,731,084 $ 9,958,306 $ 10,684,931 $ 10,620,601 Stormwater Drainage 394, , , ,522 Solid Waste 3,026,966 2,991,630 2,706,985 2,681,359 Municipal Marina 2,457,325 2,717,157 1,988,206 2,207,992 Visitor Information Center ,068,303 Heritage Tourism 5,207,489 4,675,944 4,761,529 1,712,119 Total Business-type Activities Expenses $ 21,817,851 $ 20,733,528 $ 20,680,685 $ 20,756,896 Total Primary Government Expenses $ 43,210,555 $ 42,956,968 $ 44,747,464 $ 43,927,704 PROGRAM REVENUES Governmental Activities: Charges for Services General Government $ 3,571,247 $ 3,778,531 $ 4,085,583 $ 4,159,321 Public Safety 1,832,397 1,407,388 1,068,530 1,001,276 Physical Environment 580, , , ,983 Transportation 191, , , ,612 Culture/Recreation 89,239 67,669 55,191 46,747 Operating Grants and Contributions 167, , , ,405 Captial Grants and Contributions 88, , , ,338 Total Governmental Activities Program Revenues $ 6,520,959 $ 6,428,990 $ 6,667,185 $ 6,654,682 Business-type activities (a): Charges for Services Utility $ 18,107,334 $ 11,704,165 $ 11,511,293 $ 11,471,373 Stormwater Drainage 736, , , ,339 Solid Waste 3,172,619 3,151,729 3,274,854 3,363,968 Municipal Marina 2,624,581 2,719,574 2,006,504 2,197,463 Visitor Information Center ,327,438 Heritage Tourism 2,662,456 2,871,376 3,029,780 1,875,824 Operating Grants and Contributions Capital Grants and Contributions 6,705,343 8,187,145 1,448,401 1,046,973 Total Business-type Activities Program Revenues $ 34,008,701 $ 29,368,317 $ 22,005,963 $ 22,030,378 Total Primary Government Revenues $ 40,529,660 $ 35,797,307 $ 28,673,148 $ 28,685,060 (continued) NOTES: CITY OF ST. AUGUSTINE, FLORIDA CHANGES IN NET ASSETS LAST FOUR FISCAL YEARS "UNAUDITED" (a) Business-type expenses do not include Debt Service, Capital Outlay, or Transfers. * As Restated. 2006/ / /09 * 2009/10 Net (Expense)/Revenue Governmental Activities $ (14,871,745) $ (15,794,450) $ (17,399,594) $ (16,516,126) Business-type Activities 12,190,850 8,634,789 1,325,278 1,273,482 Total primary government net expense $ (2,680,895) $ (7,159,661) $ (16,074,316) $ (15,242,644) General Revenues and Other Changes in Net Assets Governmental Activities: Property Taxes $ 11,079,328 $ 11,055,233 11,399,886 10,690,906 Utility Taxes 787, , , ,872 Communication Service Taxes 960, , ,119 1,046,752 Franchise Fees 1,582,899 1,231,158 1,464,650 1,415,038 State Revenue Sharing, Unrestriced 566, , , ,520 Local Option Gas Taxes 671, , , ,223 Local Option Sales Taxes 1,114,883 1,043, , ,398 Insurance Premium Taxes 554, , , ,602 Other Taxes 91,768 88, ,520 99,409 Miscellaneous 585, , , ,858 Investment Income 965, , ,422 41,448 Interfund Transfer of Assets (net) 168, Transfers (1,076,793) (1,100,204) (1,351,010) (1,402,471) Total Governmental Activities $ 18,050,649 $ 16,785,867 $ 16,696,540 $ 16,091,555 Business-type activities (a): Unrestricted Investment Earnings $ 1,598,588 $ 627,860 $ 135,753 $ 45,145 Interfund Transfer of Assets (net) (168,116) Transfers 908,677 1,100,204 1,351,010 1,402,471 Total Business-type Activities $ 2,507,265 $ 1,728,064 $ 1,486,763 $ 1,447,616 Total Primary Government $ 20,557,914 $ 18,513,931 $ 18,183,303 $ 17,539,171 Change in Net Assets Governmental Activities $ 3,178,904 $ 991,417 $ (703,054) $ (424,571) Business-type Activities 14,698,115 10,362,853 2,812,041 2,721,098 Total Primary Government $ 17,877,019 $ 11,354,270 $ 2,108,987 $ 2,296,527 NOTES: CITY OF ST. AUGUSTINE, FLORIDA CHANGES IN NET ASSETS LAST FOUR FISCAL YEARS "UNAUDITED" (a) Business-type expenses do not include Debt Service, Capital Outlay, or Transfers. * As Restated

153 CITY OF ST. AUGUSTINE, FLORIDA FUND BALANCES, GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS September 30, 2010 "UNAUDITED" B General Fund Reserved $ 923,027 $ 1,101,805 $ 1,340,368 $ 1,790,289 $ 1,848,645 Unreserved 3,540,170 4,401,586 4,942,892 3,488,124 7,835,329 Total General Fund 4,463,197 5,503,391 6,283,260 5,278,413 9,683,974 All Other Governmental Funds Reserved 201, , , ,069 3,058,435 Unreserved reported in: Capital Projects Fund 6,922,276 5,471,179 5,050,193 4,400,300 15,245,090 Special Revenue Fund Total All Other Governmental Funds 7,123,293 5,886,510 5,529,715 5,196,369 18,303,525 Total Governmental Funds $ 11,586,490 $ 11,389,901 $ 11,812,975 $ 10,474,782 $ 27,987, $ 884,631 $ 796,284 $ 1,208,861 $ 1,060,567 $ 902,849 11,513,122 11,902,148 12,970,610 11,399,627 10,704,273 12,397,753 12,698,432 14,179,471 12,460,194 11,607,122 2,010,274 1,713, , , ,744 2,350, , ,620 9,022 54,928 4,361,243 1,995, , , ,672 $ 16,758,996 $ 14,694,154 $ 14,905,990 $ 13,374,717 $ 12,282,

154 REVENUES CITY OF ST. AUGUSTINE, FLORIDA CHANGES IN FUND BALANCES, GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS "UNAUDITED" 2000/ / / / / / / / / /10 Ad Valorem Taxes $ 3,989,576 $ 4,645,101 $ 5,120,073 $ 6,025,894 Sales and Use Taxes 928, , ,604 1,032,566 Utility Excise Taxes 1,524,213 1,896,688 1,856,050 1,760,159 Licenses, Permits & Fees 1,914,940 1,819,874 1,893,049 1,178,438 Intergovernmental 1,632,769 1,683,833 1,670,364 1,841,242 Fines & Forfeitures 308, , , ,704 Interest Earnings 498, , , ,938 Administrative Service Charges 2,998,595 3,250,695 3,423,685 3,359,772 Sale of Surplus Assets 129, , Other 872, ,286 1,348,335 2,011,386 Total Revenues 14,796,621 15,800,444 17,065,347 17,791,099 $ 6,689,649 $ 8,534,508 $ 10,581,764 $ 10,589,451 $ 10,966,589 $ 10,361,986 1,096,132 1,221,253 1,226,062 1,141, , ,825 1,842,707 1,815,289 1,747,093 1,601,724 1,649,673 2,008,624 1,433,542 1,886,205 1,790,500 1,983,703 2,199,545 2,567,238 2,063,359 2,134,319 2,310,841 2,195,144 2,091,824 1,892, , , , , , , ,298 1,263, , , ,421 41,447 3,546,557 3,611,332 3,368,212 2,675,852 2,306,131 1,983,565 3,586, , ,922,765 2,395,265 3,113,832 3,328,623 4,181,187 4,119,474 24,502,532 23,436,922 25,480,285 24,315,061 24,714,735 24,148,709 B-68 EXPENDITURES Current: General Government 3,593,359 4,853,831 5,529,232 5,336,832 Public Safety 5,370,523 5,456,861 5,783,307 5,980,184 Physical Environment 2,684,639 2,408,870 2,411,853 2,502,833 Transportation 812, , , ,999 Culture & Recreation 217, , , ,789 Capital Outlay 1,857,314-1,443,463 3,511,261 Debt Service: Principal Retirement 208, , , ,426 Interest and Fiscal Charges 498, , , ,366 Issuance Cost Total Expenditures 15,242,422 14,690,670 17,059,163 19,368,690 Excess (deficiency) of revenues over (under) expenditures (445,801) 1,109,774 6,184 (1,577,591) Other Financing Sources (Uses) Transfers In 5,963,062 1,740,888 2,202,016 4,127,939 Transfers (Out) (5,909,258) (1,596,154) (1,840,686) (3,888,541) Long-term Debt Issued 11,785, Retirement to Escrow Agent (4,131,875) Premium on Long-Term Debt Issued Total Other Financing Sources (Uses) 7,707, , , ,398 Net Change in Fund Balances $ 7,261,249 $ 1,254,508 $ 367,514 $ (1,338,193) Debt Service as a percentage of noncapital expenditures 5.58% 6.22% 5.72% 5.58% 5,654,721 6,564,789 7,395,472 7,769,930 8,882,214 8,020,835 6,312,235 6,900,438 7,705,333 7,823,977 8,157,878 8,143,485 2,715,641 3,097,289 3,466,862 3,489,882 3,354,800 3,346,170 1,115,556 1,069,139 1,144,871 1,152,404 1,102,977 1,112, , , , , , ,985 9,335,467 14,809,417 5,496,747 1,560,586 2,167,291 2,000, , , , , , ,938 1,569,121 1,526, , , , , , ,796,501 34,712,639 26,468,334 23,003,021 24,894,998 23,838,162 (3,293,969) (11,275,717) (988,049) 1,312,040 (180,263) 310,547 6,103,130 6,307,014 5,191,500 2,701,482 4,640,885 3,276,693 (6,020,414) (6,259,800) (6,268,293) (3,801,686) (5,991,895) (4,679,164) 20,999, (578,198) , ,806,686 47,214 (1,076,793) (1,100,204) (1,351,010) (1,402,471) $ 17,512,717 $ (11,228,503) $ (2,064,842) $ 211,836 $ (1,531,273) $ (1,091,924) 11.36% 10.02% 3.59% 3.38% 3.20% 3.30%

155 CITY OF ST. AUGUSTINE, FLORIDA TOTAL ASSESSED VALUATIONS AND TOTAL EXEMPTIONS LAST TEN FISCAL YEARS September 30, 2010 "UNAUDITED" B Real Property $ 520,688,082 $ 628,742,076 $ 728,606,206 $ 861,761,206 $ 964,366,560 Personal Property 62,402,778 68,205,751 63,426,737 73,963,887 73,456,340 Railroad & Telegraph 2,263,924 2,282,126 2,371,769 2,539,213 2,631,148 Total Assessed Valuations 585,354, ,229, ,404, ,264,306 1,040,454,048 Homestead Exempt Property (a) 68,326,530 68,138,029 69,563,109 69,803,529 70,662,166 Other Exemptions 276,398, ,989, ,719, ,524, ,558,761 Total Exempt Property 344,724, ,127, ,282, ,327, ,220,927 Total Just Valuations $ 930,079,612 $ 1,073,357,289 $ 1,219,687,627 $ 1,427,591,890 $ 1,609,674,975 Direct Rate NOTES: (a) Real property is assessed at 100 percent of fair market value. Tangible Personal Property: Equipment is assessed at current depreciated value. Centrally Assessed Property: (1) State of Florida makes annual assessments of all operating property of railroad and railroad terminal companies in the State. Such assessment is apportioned to each county, based upon actual situs, and, in the case of property not having situs in a particular county, is apportioned based upon track miles. (2) All private car and freight line and equipment companies operating rolling stock in Florida other than in (1) above shall return for taxation the average number of their cars which are habitually present within Florida and shall state the fair market value thereof. Property is assessed as of January 1st. Tax bills are mailed November 1st. Four percent discount, if paid in November, three percent if paid in December, two percent if paid in January, one percent discount if paid in February, full amount due in March, delinquent April 1st. Source: St. Johns County Property Appraiser, St. Johns County Tax Collector, Department of Revenue, State of Florida (b) $ 1,246,909,727 $ 1,550,199,349 $ 1,564,575,408 $ 1,550,350,973 $ 1,303,221,123 79,796,610 84,639,356 79,538,769 84,760,234 74,772,148 2,694,393 2,355,234 2,724,258 2,350,861 2,404,981 1,329,400,730 1,637,193,939 1,646,838,435 1,637,462,068 1,380,398,252 72,884,446 74,445,529 74,445,529 75,575, ,841, ,259, ,985, ,985, ,639, ,265, ,143, ,430, ,430,606 1,012,214, ,107,212 $ 2,084,544,216 $ 2,585,624,545 $ 2,595,269,041 $ 2,649,677,054 $ 2,199,505, (b) Figures are from the PRELIMINARY tax rolls. These could change once the final tax rolls are received. Source: St. Johns County Property Appraiser, St. Johns County Tax Collector, Department of Revenue, State of Florida

156 B-70 CITY OF ST. AUGUSTINE, FLORIDA PROPERTY TAX RATES AND TAX LEVIES DIRECT AND OVERLAPPING GOVERNMENTS LAST TEN FISCAL YEARS September 30, 2010 "UNAUDITED" Direct Overlapping St. Johns City of River Water Fiscal Year St. St. Johns School Management Ended Augustine County District District Other Total NOTES: Millage rates are per $1,000 of assessed valuation. Source: St. Johns County Tax Collector CITY OF ST. AUGUSTINE, FLORIDA PRINCIPAL TAXPAYERS September 30, 2010 "UNAUDITED" 2009/ /2001 Taxable Percent of Taxable Percent of Assessed Total Assessed Total Taxpayer Value Rank Assessment Value Rank Assessment Patris Real Estate LLC $ 15,561, % The Flagler Resort, LTD $ 13,730, % $ 1,205, % Sea Wall Motor Lodge, INC $ 7,338, % Target Corporation $ 7,185, % 3,672, % The Allegro Senior Housing, LLC $ 5,911, % 6,735, % Patel, Kantibhai M. $ 5,250, % Home Depot USA, Inc. $ 4,981, % 8,421, % Orthopedic Associates Partners $ 4,227, % Avista Properties IX, Inc. Gates of St. Johns, LLC $ 3,593, % Vista Hotel III Inc $ 3,455, % WP-VDP St. Augustine, LLC 21,418, % Ponce De Leon Resort & Convention 19,583, % Harbour Isle at St. Augustine 12,339, % St. Johns Investors, LTD Part. 4,608, % Carmel-Olympic Associates ETAL 3,892, % University of St. Augustine Health Services 3,466, % T.W.C. Ninety-Six, LTD 3,343, % Other Taxpayers 1,024,758, % 497,899, % $ 1,095,994, % $ 586,585, % Source: St. Johns County Property Appraiser's Office

157 B-71 CITY OF ST. AUGUSTINE, FLORIDA PROPERTY TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS September 30, 2010 "UNAUDITED" Estimated Estimated Current Percent (a) Assessed Actual % of Fair Fiscal Year Total Tax of Levy Taxable Value Market Ended Tax Levy Collection Collected Value (Thousands) Value NOTES: ,097,483 3,989, % 585,379, , % ,754,492 4,645, % 699,229, , % ,252,238 5,103, % 794,404, , % ,192,544 6,013, % 938,264, , % ,866,997 6,654, % 1,040,454,048 1,040, % ,774,045 8,517, % 1,329,400,730 1,329, % ,805,480 10,548, % 1,637,193,939 1,637, % ,396,491 10,487, % 1,646,838,435 1,646, % ,172,404 10,743, % 1,637,462,068 1,637, % ,352,987 9,939, % 1,380,398,252 1,380, % (a) Florida Statutes provide for a discount of up to four percent for early payment of Ad Valorem Taxes. CITY OF ST. AUGUSTINE, FLORIDA RATIO OF NET GENERAL BONDED DEBT TO ASSESSED VALUE AND NET BONDED DEBT PER CAPITA LAST TEN FISCAL YEARS September 30, 2010 "UNAUDITED" Ratio of Assessed Debt Net Bonded Value Gross Service Debt to Net Bonded (In Bonded Monies Net Bonded Assessed Debt Per Fiscal Year Population (a) Thousands) (b) Debt Available Debt Value Capita , , , , , , , , ,505 1,040, ,702 1,329, ,912 1,637, ,874 1,646, ,663 1,637, ,719 1,380, NOTES: (a) City of St. Augustine, Planning & Building Department (b) Previous year's preliminary tax role is adjusted to final role in current year

158 B-72 CITY OF ST. AUGUSTINE, FLORIDA RATIO OF ANNUAL DEBT SERVICE EXPENDITURES FOR GENERAL BONDED DEBT TO TOTAL GENERAL EXPENDITURES LAST TEN FISCAL YEARS September 30, 2010 "UNAUDITED" Ratio of Debt Total Service to Total General Total General Fiscal Year Principal Interest Debt Service Expenditures Expenditures , , ,620 12,678, , , ,363 13,830, , , ,214 15,247, , , ,792 15,523, ,230 1,569,121 1,846,351 16,597, ,605 1,526,056 1,811,661 18,846, , , ,931 21,058, , , ,828 20,932, , , ,250 21,349, , , ,597 21,979, CITY OF ST. AUGUSTINE, FLORIDA UTILITY REVENUE BOND COVERAGE LAST TEN FISCAL YEARS September 30, 2010 "UNAUDITED" Fiscal Year Gross Operating Net Debt Service Debt Service Ended Revenue (a) Expenses (b) Revenue (c) Requirements Coverage NOTES: ,922,536 5,914,349 4,008,187 2,770, ,494,924 6,006,185 3,488,739 2,772, ,136,328 6,363,700 3,772,628 2,775, ,319,398 6,467,225 4,852,173 3,145,464 (d) ,778,639 6,565,120 6,213,519 1,609,044 (d) (e) ,299,897 7,467,811 6,832,086 3,188,793 (d) ,720,962 7,804,057 11,916,905 3,209,541 (d) ,515,380 7,233,245 5,282,135 3,234,726 (d) ,148,028 7,104,682 5,043,346 3,254,261 (d) ,876,944 6,979,489 4,897,455 3,288,337 (d) 1.49 (a) Gross Revenue = Operating Revenue + Net Transfers In (Out) + Interest Revenue + Miscellaneous Revenue (b) Operating Expenses = Total Operating Expenses - Depreciation and Amortization (c) Net Revenue = Gross Revenue - Operating Expenses - Extraordinary Revenues + Extraordinary Expenses (d) Includes interest on zero-coupon bonds (e) Series 2005 Water and Sewer Bond issue refunded four previous outstanding bond issues lowering current year's annual required debt service payment

159 B-73 CITY OF ST. AUGUSTINE, FLORIDA NET DEBT STATEMENT Computation of Direct and Overlapping Debt September 30, 2010 "UNAUDITED" Non-Self Self General Supporting Supporting Direct Debt/ Certificate of Obligation Revenue Revenue Overlapping Debt Participation Debt Bonds Bonds City of St. Augustine Water and Sewer, Revenue Refunding Bonds, 2005 $ - $ - $ - $ 10,950,000 Water and Sewer, Revenue Bonds, ,849,012 Public Service Tax and Guaranteed Entitlement Revenue Refunding and Improvements Bonds, ,505,000 - Capital Improvement & Reserve Refunding Bonds, Series ,149,999 - Total Direct Debt $ - $ - $ 31,654,999 $ 23,799,012 St. Johns County Water and Sewer Revenue Bonds, 1991A $ - $ - $ - $ 24,135,553 Water and Sewer Revenue Refunding Bonds ,365,000 Water and Sewer, Revenue Refunding Bonds, Series ,315,000 Water and Sewer, Revenue Refunding Bonds, Series 1999A ,335,000 Water and Sewer, Revenue Series ,615,483 Water and Sewer, Revenue Series ,770,000 Ponte Vedra Water and Sewer, Revenue Bonds, Series ,050,000 Ponte Vedra Water and Sewer, Revenue Bonds, Series ,620,000 (continued) CITY OF ST. AUGUSTINE, FLORIDA NET DEBT STATEMENT Computation of Direct and Overlapping Debt September 30, 2010 "UNAUDITED" (continued) Non-Self Self General Supporting Supporting Direct Debt/ Certificate of Obligation Revenue Revenue Overlapping Debt Participation Debt Bonds Bonds City of Gulf Breeze, Florida Local Gov't Loan Program, Series ,280,000 Solid Waste Disposal Revenue Long-Term Note ,675,000 Capital Improvement Revenue Bonds, Series ,530,000 - Sales Tax Revenue Bonds, Series ,000 - Sales Tax Revenue Bonds, Series ,370,000 - Sales Tax Revenue Bonds, Series ,270,000 - Sales Tax Revenue Bonds, Series ,360,000 - Sales Tax Revenue Bonds, Series 2009A ,815,000 - Community Redevelopment Agency Revenue & Refunding Note, ,275,000 - Transportation Improvement Revenue Bonds, ,930,000 - Transportation Improvement Revenue Bonds, ,770,000 - $45,000,000 Commercial Paper Progra - - 2,053,000 - State Revolving Loan Fund Agreement - - 4,298, ,190 Board of Public Instruction Certificate of Participation 129,210, General Obligation Bonds, Series, ,160, Total Overlapping Debt $ 129,210,000 $ 8,160,000 $ 205,606,597 $ 177,893,226 Total Direct and Overlapping Debt $ 129,210,000 $ 8,160,000 $ 237,261,596 $ 201,692,238 (continued)

160 CITY OF ST. AUGUSTINE, FLORIDA NET DEBT STATEMENT Computation of Direct and Overlapping Debt September 30, 2010 "UNAUDITED" (continued) CITY OF ST. AUGUSTINE, FLORIDA COMPUTATION OF LEGAL DEBT MARGIN September 30, 2010 "UNAUDITED" DEBT RATIOS Direct and Overlapping General Obligation Debt $ 8,160,000 Per Capita $ 595 As a Percentage of Taxable Assessed Valuation 0.67% As a Percentage of Total Just Valuation 0.46% The Constitution of the State of Florida, Florida Statutes , and the City of St. Augustine Charter set no legal debt margin. Direct and Overlapping General Obligation and Non-Self Supporting Revenue Debt and Long-Term Notes Payable $ 245,421,596 Per Capita $ 17,889 As a Percentage of Taxable Assessed Valuation 20.23% As a Percentage of Total Just Valuation 13.77% B

161 CITY OF ST. AUGUSTINE, FLORIDA SUMMARY OF PLEDGED FUNDS Public Service Tax/Guaranteed Entitlement Bonds September 30, 2010 "UNAUDITED" CITY OF ST. AUGUSTINE, FLORIDA DEMOGRAPHIC STATISTICS September 30, 2010 "UNAUDITED" B-75 Revenue Source FY 2005/06 FY 2006/07 FY 2007/08 FY 2008/09 FY 2009/10 Public Service Tax Electric $ 596,575 $ 711,370 $ 636,610 $ 643,040 $ 894,452 Communication 1,135, , , ,119 1,046,752 Gas 83,375 75,667 71,111 52,513 67,420 Fuel Oil Total $ 1,815,289 $ 1,747,093 $ 1,601,723 $ 1,649,672 $ 2,008,624 Florida Revenue Sharing Revenue Sharing $ 562,170 $ 566,485 $ 557,521 $ 548,313 $ 547,520 Guaranteed Entitlements Local Option Gas Tax $ 648,709 $ 671,481 $ 611,697 $ 504,738 $ 535,223 Total $ 648,709 $ 671,481 $ 611,697 $ 504,738 $ 535,223 Total Pledged Funds $ 3,026,168 $ 2,985,059 $ 2,770,942 $ 2,702,723 $ 3,091,367 Population Per Capita Total Personal Unemploy- City of St. Johns Personal Income ment Year St. Augustine County Income (in thousands) Rate , ,135 (est.) $ 37,501 $ 4,812, % , ,135 (est.) $ 37,316 $ 4,940, % , ,396 (est.) $ 37,637 $ 5,170, % , ,900 (est.) $ 41,834 $ 5,483, % , ,006 (est.) $ 44,451 $ 6,466, % , ,014 (est.) $ 48,392 $ 7,262, % , ,453 (est.) $ 50,179 $ 8,276, % , ,570 (est.) $ 49,327 $ 8,869, % , ,244 (est.) $ 48,283 $ 8,999, % , ,464 (est.) $ 49,327 Not Available 9.9% Population Projection City of St. Johns Year St. Augusine County , , , ,100 Avg Household Size: Not Available 2.44 Source: City of St. Augustine, Planning & Building Department, St. Johns County Chamber of Commerce Office of Economic and Demographic Research

162 CITY OF ST. AUGUSTINE, FLORIDA MAJOR EMPLOYERS IN THE ST. AUGUSTINE AREA September 30, 2010 "UNAUDITED" CITY OF ST. AUGUSTINE, FLORIDA SUMMARY OF TEN LARGEST WATER CUSTOMERS September 30, 2010 "UNAUDITED" Establishment Product Approximate Employment 2009/ /2001 Customer Usage for Fiscal Year Ended September 30, 2010 (in gallons) B-76 St. Johns County School Board Educational 3,449 2,401 Flagler Hospital Health Care 1,689 1,000 US Army National Guard Florida National Guard HQ 1, St. Johns County County Government 1, Northrop Grumman Aircraft Overhaul & Modification 900 1,040 Florida School for the Deaf and Blind Educational Institution Tree of Life Health Food Distribution Flagler College Four-Year Liberal Arts College Ring Power Heavy Equipment Sales City of St. Augustine Municipal Government Carlisle Interconnect Technologies (Tensolite Company) Manufacturer Hydro Aluminum Aluminum Fabrication Casa Monica Hotel Resort 164 n/a Prosperity Bank Banking First Coast Technical Institute Vocational School St. Augustine Record Daily Newspaper Leonard's Studio Photo Finishing Flagler Hospital 40,961,800 City of St. Augustine 25,006,400 St. Johns County 22,127,500 Flagler College 16,397,400 Florida School for the Deaf & Blind 14,805,400 St. Johns County School Board 12,754,300 Grumman of St. Augustine 11,727,200 St. Johns Welfare Federation 9,240,800 Flagler Resort LTD 7,097,600 Northport Health Services 4,096,400 Source: City of St. Augustine Customer Service Department

163 CITY OF ST. AUGUSTINE, FLORIDA HISTORICAL UTILITY CUSTOMERS AND SALES OF THE SYSTEM LAST TEN FISCAL YEARS September 30, 2010 "UNAUDITED" B-77 Water Customers Sewer Customers Fiscal Year Inside Outside Inside Outside Ended City City Total City City Total ,244 2,266 8,510 5, , ,243 2,264 8,507 5, , ,259 2,535 8,794 5,871 1,113 6, ,307 2,710 9,017 5,901 1,336 7, ,528 3,169 9,697 6,151 1,336 7, ,642 3,594 10,236 6,283 1,586 7, ,741 3,858 10,599 6,651 1,859 8, ,000 4,058 11,058 6,674 1,998 8, ,047 4,183 11,230 6,697 2,134 8, ,988 4,419 11,407 6,704 2,210 8,914 Water Sales (Thousands of Gallons) Inside Outside City City Total 811, ,509 1,127, , ,888 1,054, , ,448 1,046, , , , , , , , , , , , , , , , , , , , , ,392 Source: City of St. Augustine Customer Service Department

164 CITY OF ST. AUGUSTINE, FLORIDA WATER AND WASTEWATER TREATMENT PLANTS SUMMARY OF HISTORICAL DAILY FLOWS September 30, 2010 "UNAUDITED" CITY OF ST. AUGUSTINE, FLORIDA WATER AND SEWER UTILITIES HISTORICAL RATE STRUCTURES September 30, 2010 "UNAUDITED" B-78 Water Treatment Plant (a) Wastewater Treatment Plant Annual Average Maximum Monthly Annual Average Maximum Monthly Daily Flow Average Daily Flow Daily Flow Average Daily Flow Fiscal Year (Millions of (Millions of (Millions of (Millions of Ended Gallons Per Day) Gallons Per Day) Gallons Per Day) Gallons Per Day) Source: City of St. Augustine Engineering Department Minimum Water Sewer Charge Additional Additional Effective Service Flow Rate Minimum Charge Per Minimum Charge Per October 1, Area Gal./Month Charge 1,000 Gal. Charge 1,000 Gal Inside City 3, Outside City 3, Inside City 3, Outside City 3, Inside City 3, Outside City 3, Inside City 3, Outside City 3, Inside City 3, Outside City 3, Inside City 3, Outside City 3, Inside City 3, Outside City 3, Inside City 3, Outside City 3, Inside City 3, Outside City 3, Inside City 3, Outside City 3,

165 CITY OF ST. AUGUSTINE, FLORIDA BUILDING PERMIT ACTIVITY LAST TEN FISCAL YEARS (Value in Thousands) September 30, 2010 "UNAUDITED" CITY OF ST. AUGUSTINE, FLORIDA PROPERTY VALUE, CONSTRUCTION AND BANK DEPOSITS (In Thousands of Dollars) LAST TEN FISCAL YEARS September 30, 2010 "UNAUDITED" B-79 Residential & Non- Single Multi- New New Non- Residential Fiscal Family Family Residential Residential Additions/ Public Total Year Units Units Valuation Valuations Alterations Valuation Valuation ,515 6,824 NA - 11, ,469 1,210 NA - 5, ,034 39,874 3, , ,360 9,304 NA , ,193 5,821 3, , ,220 17,340 NA 3,082 27, ,263 13,953 4, , ,267 11, , ,179 4,224 6,812 2,851 18, ,417 3, ,411 Source: City of St. Augustine Planning & Building Department Commercial Residential Construction (a) Construction (a) Fiscal Number Number Bank Year of Units Value of Units Value Deposits (b) , ,515 1,263, , ,469 1,367, , ,034 1,515, , ,360 1,649, , ,400 1,941, , ,220 2,457, , ,414 2,315, , ,919 1,898, , ,043 2,786, , ,417 2,850,983 NOTES: (a) Planning and Building Division (b) Deposits for St. Johns County Source:

166 B-80 CITY OF ST. AUGUSTINE, FLORIDA MISCELLANEOUS STATISTICAL DATA September 30, 2010 "UNAUDITED" Date of Incorporation May 30, 1925 Form of Government Commission - Manager Area: Square Miles Miles Paved Streets Unpaved Streets 10.5 Altitude 13 Feet Above Sea Level Education: Elementary 3 Secondary 1 Post-Secondary 2 Fire Protection: Number of Fire Stations 2 Number of Firefighters 32 Police Protection: Number of Police Stations 1 Number of Police Officers 51 Utility Customers: Water 11,407 Sewer 8,914 Solid Waste 7,286 Tourism Facts (St. Johns County): Visitors (Per Year) 6,260,000 Airports 1 Attractions/Points of Interest 50 + Camp Sites 1,241 Condominium Units (Rentals) 4,000 Hotel/Motel Units 5,600 Marinas 7 Parks and Playgrounds 29 Public Golf Courses 5 Public Tennis Courts 28 Restaurants Sightseeing Services 6 State Parks 5 (continued) Climate: CITY OF ST. AUGUSTINE, FLORIDA MISCELLANEOUS STATISTICAL DATA September 30, 2010 "UNAUDITED" (continued) Average Temperature and Precipitation in St. Johns County Average Daily Average Daily Quarter Max. Temperature Min. Temperature Total Rainfall January - March April - June July - September October - December source: St. Johns County Chamber of Commerce, Southeast Regional Climate Center

167 CITY OF ST. AUGUSTINE, FLORIDA CITY OF ST. AUGUSTINE, FLORIDA FULL-TIME EQUIVALENT CITY EMPLOYEES BY FUNCTION LAST FIVE FISCAL YEARS September 30, 2010 "UNAUDITED" Operating Indicators by Function LAST FIVE FISCAL YEARS September 30, 2010 "UNAUDITED" FUNCTION Full-time Equivalent Employees as of September 30, FUNCTION B-81 Governmental Activities: General Government Public Safety Physical Environment Transportation Culture/Recreation Business-Type Activities Utilities Stormwater Solid Waste Municpal Marina Visitor Information Center Heritage Tourism Source: City of St. Augustine Human Resources Department Police Physical Arrests 1,205 1,094 1,485 1,712 1,622 Traffic Violations 4,976 2,733 3,016 3,862 5,849 Calls for Service 38,469 37,030 35,660 40,175 44,550 Parking Violations 14,792 19,724 17,528 13,685 10,321 (includes those issued by Parking Enforcement) Fire Number of calls answered 3,049 3,193 3,081 3,140 3,162 Inspections Hydrants Flow Tested Highways and Streets New Street Pavings (miles) Sanitation Refuse Collected (tons/day) Recyclables Collected (tons/day) Culture and Recreation Field Permits Issued Plaza Permits Issued Other Event Permits Issued Water New Connections Average Daily Consumption 3,000 3,560 3,651 3,388 3,356 (thousands of gallons) Wastewater Average Daily Usage 3,026 3,624 2,995 3,697 3,033 (thousands of gallons) Source: Various City Departments

168 CITY OF ST. AUGUSTINE, FLORIDA Captial Asset Satitstics by Function LAST FIVE FISCAL YEARS September 30, 2010 "UNAUDITED" Compliance Section FUNCTION This Section Contains the Following: B-82 Police Stations Fire Stations Vehicles Boats Highways and Streets New Streets (Miles) Sanitation Collection Trucks Water New Feet of Water Mains Added 26,037 17,208 67,355 15,739 6,073 Fire hydrants 999 1,009 1,009 1,034 1,051 Maximum Monthly Average Daily Flow 3,400 4,085 4,601 4,119 3,769 (thousands of gallons) Wastewater New Feet of Sanitary Sewer Added 27,165 10,468 70,275 35,702 - New Feet of Storm Sewers Added Maximum Monthly Average Daily Flow 4,100 6,016 10,885 9,639 9,030 (thousands of gallons) Source: Various City Departments Independent Auditors Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditors Report on Compliance with Requirements Applicable to Each Major State Project and on Internal Control Over Compliance in Accordance with Chapter Rules of the Auditor General Schedule of Findings and Questioned Costs Management Letter 144

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