COUNTY OF MUSKEGON STATE OF MICHIGAN MUSKEGON, MICHIGAN $ 9,000,000 GENERAL OBLIGATION LIMITED TAX NOTES SERIES 2005

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1 FINAL OFFICIAL STATEMENT COUNTY OF MUSKEGON STATE OF MICHIGAN MUSKEGON, MICHIGAN $ 9,000,000 GENERAL OBLIGATION LIMITED TAX NOTES SERIES 2005 Sale Date : Wednesday May 3, 2006 Sale Time: 11:00 a.m. EST Rating : MIG1 This Preliminary Official Statement and the information contained herein is subject to completion and amendment. These securities may not be sold nor an offer to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer of sale or the solicitation of an offer to buy, nor shall there be any sale of the Notes, in any jurisdiction in which such offers, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. TAXABLE NOTES December 1, 2006 $3,500, % June 1, 2007 $4,000, % December 1, 2007 $1,500, % MILLER, CANFIELD, PADDOCK AND STONE, P. L. C. is of the opinion that under existing law as presently interpreted, the interest on the Notes is INCLUDED IN GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES. They express no opinion regarding other federal tax consequences arising with respect to the Notes and the interest thereon. Note counsel is further of the opinion that under existing statutes, regulation, rulings and court decisions, as presently interpreted, the Notes and the interest thereon are exempt from all taxation provided by the laws of the State of Michigan. Purchaser: Wells Fargo Salt Lake City, Utah Tony Moulatsiotis, Treasurer Note Counsel: Muskegon County Miller, Canfield, Paddock and Stone, P. L. C. Muskegon, Michigan Detroit, Michigan (231)

2 Table of Contents Page Financial Certification Letter 3 Information for Bidders 4 Tax Collection, Delinquencies, Sales and chargebacks 18 Five year total tax collection history Total Delinquent Real Taxes 20 Actual Cash Flow 2004 Delinquent Tax Revolving Fund 21 Actual Cash Flow 2003 Delinquent Tax Revolving Fund 22 Actual Cash Flow 2002 Delinquent Tax Revolving Fund 23 Tax Sales 24 Chargebacks Unpaid Taxes 25 Estimated Cash Flow on 2005 Delinquent tax note issue 27 Property Tax Rates 32 Debt Statement 33 Statement of Legal Debt Margin 34 Schedule of Bond Maturities 35 Overlapping Debt 36 Assessed and Equalized Value of Taxable Property 38 Equalized Value and Net Bonded Debt Per Capita 39 General Bonded Debt to Total General Expenditures 40 Banking Summary and Top Ten Taxpayers Financial Management 42 Investment Policy 43 Litigation 44 Retirement Plan 44 Sample Opinion Letter 45 Labor Agreements 46 Miscellaneous Statistical 47 Educational Characteristics 48 Utilities and Public Services 49 Medical Facilities 50 Annual Financial Report Official Notice of Sale 134 1

3 MUSKEGON COUNTY BOARD OF COMMISSIONERS JAMES DEREZINSKI Chairman I. JOHN SNIDER II ViceChair DONALD ALEY CHARLES L. BUZZELL MARVIN R. ENGLE BILL GILL LOUIS MCMURRAY ROBERT SCOLNIK ROGER WADE NANCY WATERS STEPHEN P. WISNIEWSKI ELECTED OFFICIALS TONY MOULATSIOTIS County Treasurer KAREN D. BUIE County Clerk TONY TAGUE County Prosecutor MARK F. FAIRCHILD Register of Deeds MARTIN L. HULKA Drain Commissioner GEORGE JURKAS County Sheriff COUNTY FINANCIAL STAFF JAMES BORUSHKO JACK NIEMIEC JOSEPH SIEDENSTRANG, CPA Administrator Finance/Management Serv. Director Accounting Manager PROFESSIONAL SERVICES NOTE COUNSEL AUDITOR MILLER, CANFIELD, PADDOCK AND STONE, P.L.C. Detroit, Michigan PRIDNIA LAPRES, PLLC Muskegon, Michigan TRANSFER AGENT U.S. Bank National Association Detroit, Michigan 2

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5 $ 9,000,000 COUNTY OF MUSKEGON, STATE OF MICHIGAN GENERAL OBLIGATION LIMITED TAX NOTES, SERIES 2005 INFORMATION FOR BIDDERS DATE OF SALE May 3, 2006 TIME OF SALE 11:00 A.M. Eastern Daylight Savings Time PLACE OF SALE Muskegon County Treasurer's Office Municipal Advisory Council Second Floor, Hall of Justice or of Michigan 990 Terrace St 1445 First National Building Muskegon, Michigan Detroit, Michigan BIDS MAY BE SUBMITTED ELECTRONICALLY VIA PARITY DATED as of the Date of Delivery MAXIMUM INTEREST RATE MULTIPLES 11.5% (Spread 5%), first 1/8 or ½ of 1%, or both due December 1, 2006, and semiannually thereafter PRINCIPAL DUE DENOMINATIONS December 1, 2006, $3,500, % $5,000 or multiples thereof, up June 1, 2007, $4,000, % to the amount of any maturity December 1, 2007, $1,500, % TRANSFER AGENT U.S. BANK NATIONAL ASSOCIATION DETROIT, MICHIGAN NO DISCOUNT PERMITTED REDEMPTION Notes of this series shall not be subject to redemption prior to maturity. PURPOSE AND SECURITY The notes are issued under the provisions of Act 206, Public Acts of Michigan, 1893, as amended, and pursuant to resolution duly adopted by the Board of Commissioners of the County for the purpose of establishing a fund to pay 4

6 part of the 2005 delinquent taxes on real property to the State of Michigan, county and political subdivisions therein. The notes are issued in anticipation of, and are payable primarily from 2005 delinquent taxes uncollected as of May 2, 2006, described above, including interest and penalties thereon and county property tax administration fees, which amounts the county has pledged for payment of principal and interest on the notes. The county, as authorized by law, has pledged its full faith and credit for the prompt payment thereof, and, should funds primarily pledged be insufficient for payment, the county is obligated to make such payment from general funds, including the collection of any taxes which it may levy within applicable statutory or constitutional limitations, as a first budget obligation, to the extent provided by law. The rights and remedies of Noteholders may be affected by bankruptcy, insolvency, fraudulent conveyance or other laws affecting creditors' rights generally now existing or hereafter enacted, and by the application of general principles of equity including those relating to equitable subordination. LIMITED TAX OBLIGATION Tax limitation amendments to the Michigan Constitution were approved by the electors of the state on November 7, 1978, and became effective on December 23, These amendments place certain restrictions on new taxes and tax increases, but do not limit taxes for the payment of principal of and interest on notes or other evidences of indebtedness outstanding on their effective date, nor do they limit taxes imposed for payment of principal of or interest on notes or other evidences of indebtedness issued after their effective date, if such obligations are approved by the electors of the issuing public corporation. Act No. 206 of the Public Acts of Michigan, 1893, as amended (specifically Sections 87c, 87d, 87e and 89), authorizing the county to issue the above described notes declares that the notes shall be general obligations of the county supported by a pledge of the county's full faith and credit. These provisions permit the county to pay the principal of and interest on the notes from ad valorem taxes or any other revenue sources of the county. However, since the notes have not been approved by the electors of the county and are not otherwise excluded from the above constitutional limitations, any taxes which the county may levy for the payment of the notes and the interest thereon must be within applicable statutory and constitutional limits. These limitations are phrased both in terms of tax rate and tax revenues. Factual information as to the county's tax rate, base, levies and collection is set out elsewhere in this Official Statement. The county's tax rate may be increased or new taxes imposed only if approved by the electors of the county. In addition, if the existing tax base, exclusive of new construction and improvements, increases in value in a given year at a greater pace than the United State Consumer Price Index, as defined by law, the county must roll back its tax rate so that it does not collect more tax revenues than could have been collected by application of that tax rate to the tax base increased at the Consumer Price Index rate of growth only. Further, if the value of the county's tax base is broadened by operation 5

7 of law, the county may collect in tax revenues only an amount which would have been produced by the application of its tax rate to the prior tax base valuation. Michigan law provides that the tax rate referred to is that authorized by charter or general state law rather than the rate actually levied. MICHIGAN PROPERTY TAX REFORM PROPOSALS: The Michigan Department of Treasury approved revisions to the State's personal property tax tables which became effective in the year 2001 and which may reduce overall personal property tax revenues in some jurisdictions. The financial impact of the change in multipliers on the County's operating revenues and revenues available for debt service is unknown. The ultimate nature, extent and impact of the administrative action and of other tax and revenue measures which are still under consideration cannot currently be predicted. No assurance can be given that any future legislation or administrative action, if enacted or implemented, will not adversely affect the market price of marketability of the Notes, or otherwise prevent noteholders from realizing the full current benefit of an investment therein. Purchasers of the Notes offered herein should be alert to the potential effect of such measures upon the Notes, the security therefore, and the operation of the County. Personal Property Tax Assessments: Since the 1960's, Michigan personal property tax assessments have been based on the use of one or more of several different multiplier tables, formulated by the State Tax Commission, against taxpayerreported original cost, depending upon the assessor's view of the average life of the personal property. The State Tax Commission has approved revisions to the State's personal property tax tables which became effective for the year 2000 and which may reduce overall personal property tax revenues in some jurisdictions. The State Tax Tribunal has informally indicated that it may allow the new multipliers to be applied retroactively in pending personal property tax appeals. In anticipation of the new multipliers, many personal property taxpayers filed appeals of their existing tax assessments. In an unpublished, nonprecedential opinion, the Michigan Court of Appeals, in Valassis Communications v. City of Livonia, recently affirmed a decision of the State Tax Tribunal that the personal property multipliers, which became effective in 2000, could be retroactively applied and used to determine the true cash value of the subject property for the 1999 tax year. In its unpublished opinion, the court held that the controlling factor is whether the method used most accurately reflects the property's true cash value. The court in Valassis determined that based upon the facts of the case, the old multipliers (in effect for the 1999 tax year) did not accurately reflect the property's true cash value and that the 2000 multipliers more accurately reflected the property's true cash value. In January 2004, the Michigan Court of Appeals, in County of Wayne v. Michigan State Tax Commission, affirmed the use of at least one of the revised multiplier tables by the State Tax Tribunal in determining personal property tax appeals. The Court of Appeals upheld a recent Tax Tribunal ruling authorizing the use of the revised multiplier developed by the State Tax Commission to determine the true cash value of public utility electric transmission and distribution property on the grounds that the multiplier tables, as finalized, did not violate the State constitutional requirements for personal property tax valuation. The 6

8 financial impact of the change in multipliers and any appeals, if successful, on the County s general operating revenues is unknown at this time. General The County receives revenue sharing payments and other moneys from the State of Michigan under the State Constitution and the State Revenue Sharing Act of 1971, as amended (the "Revenue Sharing Act"). The table appearing at the end of this section shows State revenue sharing distributions and other moneys received by the County during the County's past six fiscal years, and the estimated receipts for the County's 2006 fiscal year. The State's fiscal year begins October 1 of each year and ends September 30 of the following calendar year. Before the State's fiscal year, the State shared revenues received from personal income tax, intangibles tax, sales tax and single business tax collections with counties, cities, townships and villages. In 1996, the State legislature began reform of both the formula for distribution of State revenue sharing and the designated sources of revenue to be shared. At that time, the State expressly designated the revenues of the sales tax as the sole source for revenue sharing. At the end of calendar year 1998, the Legislature again amended the Revenue Sharing Act (the "1998 Amendments") to accomplish the following: Freeze payments to the City of Detroit for 8.5 years at levels. Create a threepart formula for distribution to all other cities, villages and townships. Readjust the percent share of statutory distributions from 24.5% for counties and 75.5% to cities, villages and townships, to 25.06% for counties and 74.94% to cities, villages and townships. Limit the annual increase in distributions to any one city, village or township to 8% of the previous year's distribution. Provide for an 8.5 year phasein of the new formulas, beginning in the State's fiscal year ending September 30, Create a "sunset" of the statute by including language that revenue sharing after June 30, 2007 will be distributed "as provided by law." The sales tax revenues come from a 6% State levy on retail sales (other than sales of certain exempt items such as food and drugs). The State Constitution limits the rate of sales tax to 6%, and dedicates 100% of the revenue of sales tax imposed at a rate of 2% to the State School Aid Fund. The State Constitution further mandates that 15% of the total revenues collected from sales taxes levied at the remaining 4% be distributed to townships, cities and villages. The Revenue Sharing Act distributes an additional 21.3% of those revenues to Michigan municipalities. The State's ability to make revenue sharing payments to the County in the amounts and at the times specified in the Revenue Sharing Act is subject to the State's overall financial condition and its ability to finance any temporary cash flow deficiencies. Under the revised formula for distribution of revenue sharing moneys, the County receives its pro rata share determined per capita of the following amount: 25.06% of 21.3% of the difference between the sales tax collections at a rate of 4% in the 12 month period ending June 30 of the state fiscal year in which the payments are made and $31,926,

9 The County's receipts could therefore vary depending on the population of the County and the County's taxable value per capita compared to the population and taxable value per capita in the State as a whole. In addition to payments of revenue sharing moneys, the State pays the County to support judges' salaries, as well as other miscellaneous state grants. Revenue sharing payments and other monies paid to municipalities (other than the portion which is mandated by the State constitution) are subject to annual appropriation by the State legislature, and may be reduced or delayed by Executive Order during any fiscal year in which the Governor, with the approval of the legislature's appropriation committees, determines that actual revenues will be less than the revenue estimates on which appropriations were based. Revenue sharing payments were distributed in accordance with the 1998 Amendments until December Consistent with the downturn in the national economy, however, the State began experiencing an economic slowdown, resulting in reductions in anticipated and actual sales tax revenues for State fiscal year In response, outgoing Governor John Engler issued Executive Order No implementing certain spending reductions in order to bring the State's fiscal year 2003 general fund budget into balance. The Executive Order included a $53.1 million reduction in revenue sharing payments to local governments, including a 3.5% reduction in previously appropriated revenue sharing payments, as well as an additional $9.9 million reduction in certain grants to local governments in respect of statutory revenue sharing shortfalls. On December 31, 2002, Governor Engler signed into law Act 679, Public Acts of Michigan, 2002 ("Act 679"), a corresponding amendment to the Revenue Sharing Act to codify the reduction in statutory revenue sharing payments to local governments otherwise established by the 1998 Amendments. Act 679 resulted in the following: Adjusted the distribution to be received by the City of Detroit in State fiscal year only, from a combined constitutional and statutory payment of $333.9 million (the levels) to a combined payment of $322.2 million. Combined distributions for each fiscal year thereafter until September 30, 2007 were frozen at $333.9 million. For State fiscal year only, adjusted the distribution to be received by all other cities, villages, townships and counties to 96.5% of the amount the local units would have received if the 1998 formula were applied to calculate the distributions. Capped the total amount of revenue sharing payments available for distribution to cities, villages and townships at $936.2 million, and the total amount available for distribution to all counties at $204.1 million. Extended the sunset of the statute from June 30, 2007 until September 30, 2007, so as to make it consistent with the end of the State's fiscal year. Did not otherwise adjust formulas for distribution approved under the 1998 Amendments. On February 19, 2003, in response to continuing declines in the State's revenue estimates, Governor Jennifer Granholm issued Executive Order No which approved of a further $145 million in spending reductions in order to again bring the State's fiscal year 2003 general fund budget into balance. No further reductions to payments to local governments were included within Executive Order No On August 11, 2003, the Revenue Sharing Act was further amended by enactment of Act 168, Public Acts of Michigan, 2003 ("Act 168"). Act 168 re 8

10 adjusted the distribution formula approved by Act 679. The reductions enacted in Act 679 contemplated uniform reductions for all local units of approximately 3.5%; based upon lowerthanestimated sales tax receipts, however, the actual payments reflected a 3.5% reduction for the City of Detroit and a larger than 3.5% reduction for all other local units. Act 168 marginally reduced the combined constitutional and statutory payment for the city of Detroit for State fiscal year from $322.2 million to $319.7 million, and increased payments to all other local units by 0.2%. For State fiscal year , based on thencurrent estimates, Act 168 further provided for a 3.0% reduction in the combined constitutional and statutory payments for the City of Detroit and all other local units from the statutory payment the City of Detroit and each local unit received in State fiscal year Act 168 further provided for a reduction in payments by more than 3.0% should State sales tax receipts fall below forecasts. State estimates for actual revenues for fiscal year having fallen below the revenue estimates upon which the appropriations for the fiscal year were based, on December 10, 2003, Governor Granholm issued Executive Order No implementing additional spending reductions in order to bring the State's fiscal year 2004 general fund budget into balance. The Executive Order included an additional $72 million reduction in payments to local governments, including a 3.0% reduction in revenue sharing payments previously appropriated by the State Legislature in respect of statutory revenue sharing shortfalls. Governor Granholm indicated that the Executive Order was predicated on the State Legislature's enactment of proposed amendments to Act 281, Public Acts of Michigan, 1967, as amended (the "Income Tax Act"), to delay until July 1, 2004, a previously authorized rollback of the State's income tax (from 4% to 3.9%) scheduled to take effect on January 1, Accordingly, on December 23, 2003 the Governor signed into law Act 239, Public Acts of Michigan, 2003 ("Act 239") to effectuate the delay of the authorized income tax rollback on January 1, Act 239, together with the Executive Order, brought the State's fiscal year 2004 general fund budget back into balance. County Reserve Fund In anticipation of a continued budget deficit, in September 2004, Governor Granholm signed into law Act 356, Public Acts of Michigan, 2004 ("Act 356"), an amendment to the Revenue Sharing Act, and Act 357, Public Acts of Michigan, 2004 ("Act 357") an amendment to the General Property Tax Act. Act 356 and Act 357 accomplish the temporary elimination of approximately $182.1 million in statutory revenue sharing payments to counties by creating a reserve fund paid for by the permanent advancement of the counties' property tax levy from December to July each year, beginning July Under Act 356 and Act 357, the county revenue generated from the accelerated levy will be placed in a reserve fund that each county would draw against in lieu of their annual revenue sharing payments. State revenue sharing payments to a county would resume in the first year in which a county's property tax revenue reserve is less than the amount the county would have otherwise received in state revenue sharing payments. Recent Developments In March 2005, Governor Granholm proposed and the State Legislature approved an executive order cutting expenditures for the general fund budget by approximately $295 million, including approximately $75 million in cuts to the public universities, in response to reduced revenue projections for the State's revenue estimating conferences held in December 2004 and January 9

11 2005. For the State's fiscal year ended on September 30, 2005, the general fund ended with a $220 million surplus. The State Legislature has passed a package of bills to implement the budget and the Governor has signed that legislation. The budget is currently projected to be in balance. Purchasers of the bonds offered herein should be alert to further modifications to revenue sharing payments to Michigan local government units, to the potential consequent impact upon the County's general fund condition, and to the potential impact upon the market price or marketability of the Bonds resulting from changes in revenues received by the County from the State. The following table sets forth the annual revenue sharing payments and other moneys received by the County for the fiscal years ended September, 2001, through September, 2005, and the currently anticipated revenue sharing payments to be received in the fiscal year ended September, Fiscal Year Ending Revenue Sharing Payment 9/30/2001 $3,693,508 9/30/2002 $3,918,674 9/30/2003 $3,275,242 9/30/2004 $2,938,961 9/30/2005 $0 9/30/2006 $0 * The County's fiscal year 2006 budget anticipates a draw of $3,156,503 in lieu of the County's annual revenue sharing payment from the revenue generated from the Statecreated reserve fund. The amount is computed by the State of Michigan annually and communicated via an internet web site. See "County Reserve Fund" above. LEGALITY AND NOTE COUNSEL RESPONSIBILITIES The approving opinion of Miller, Canfield, Paddock and Stone, P.L.C., attorneys of Detroit, Michigan, will be furnished without expense to the original purchaser of the notes and a copy of the opinion will be printed on the reverse side of each note. The fees of Miller, Canfield, Paddock and Stone, P.L.C., for services rendered in connection with such approving opinion may be paid from the note proceeds. Except to the extent necessary to issue their approving opinion as to the validity of the above notes, Miller, Canfield, Paddock and Stone, P.L.C., has made no inquiry as to any such financial information, statements or materials contained in the Official Statement or otherwise relating to the notes and has not independently verified any financial information, statements or materials that have been or may be furnished in the connection with the authorization, issuance or marketing of notes, and accordingly, will not express any opinion with respect to the accuracy or completeness of any such financial information, statements or materials. 10

12 TAX STATUS In the opinion of Miller, Canfield, Paddock and Stone, P.L.C., Note Counsel, based on their examination of the documents described in their opinions, under existing law as presently interpreted, the interest on the notes is included in gross income for federal income tax purposes. Note Counsel are further of the opinion that under existing law as presently interpreted, the Notes and the interest thereon are exempt from all taxation provided by the laws of the State of Michigan except for estate and inheritance taxes, and taxes on gains realized from the sale, payment or other disposition thereof. MUNICIPAL FINANCE QUALIFYING STATEMENTS The County has been granted qualified status. The Michigan Department of Treasury has determined that the County is in material compliance with the criteria identified in Section 303 (3) of Act 34 of the Public Acts of 2001, as amended. PROPERTY VALUATIONS Article IX Section 3, of the Michigan Constitution provides that the proportion of true cash value at which property shall be assessed shall not exceed 50% of true cash value. The Michigan Legislature by statute has provided that property shall be assessed at 50% of its true cash value. The Michigan Legislature or the electorate may at some future time reduce the percentage below 50% of true cash value. On March 15, 1994, the electors of the State approved an amendment to the Michigan Constitution permitting the Legislature to author ad valorem taxes on a nonuniform basis. The legislation implementing this constitutional amendment added a new measure of property value known as Taxable Value. Since 1995, taxable property will have two valuationsstate equalized valuation ( SEV ) and Taxable Value. Property taxes are levied on Taxable Value. Generally, Taxable Value of property is the lesser of (a) the Taxable Value of the property in the immediately preceding year, adjusted for losses, multiplied by the lesser of the net percentage change in the property s SEV, or the inflation rate, or 5%, plus additions, or (b) the property s current SEV. Under certain circumstances, therefore, the Taxable Value of property may be different from the same property s SEV. This constitutional amendment and the implementing legislation base the Taxable Value of existing property for the year 1995 on the SEV of that property in 1994 and for the years 1996 and thereafter on the Taxable Value of the property in the preceding year. Beginning with the taxes levied in 1995, an increase, if any, in Taxable Value of existing property is limited to the lesser of the percentage net change in SEV from the preceding year to the current year, 5% or the inflation rate. When property is sold or transferred, Taxable Value is adjusted to the SEV, which under existing law is 50% of the current true cash value. The Taxable Value of new construction is equal to current SEV. Taxable Value and SEV of existing property are also adjusted annually for additions and losses. Responsibility for assessing taxable property rests with the local assessing officer of each township and city. Any property owner may appeal the assessment to the local assessor, the local Board of Review and ultimately to the Michigan Tax Tribunal. 11

13 The Michigan Constitution also mandates a system of equalization for assessments. Although the assessors for each local unit of government within a county are responsible for actually assessing at 50% of true cash value, adjusted for Taxable Value purposes, the final SEV and Taxable Value are arrived at through several steps. Assessments are established initially by the municipal assessor. Municipal assessments are then equalized to the 50% levels as determined by the County s Department of Equalization. Thereafter, the State equalizes the various counties in relation to each other. SEV is important, aside from its use in determining Taxable Value for the purpose of levying ad valorem property taxes, because of its role in the spreading of taxes between overlapping jurisdictions, the distribution of various State aid programs, State revenue sharing and in the calculation of debt limits. Property that is exempt from property taxes, e.g., churches, government property, and public schools, is not included in the SEV and Taxable Value data in the Official Statement. Property granted tax abatements under either Act 198, Public Acts of Michigan, 1974, as amended ( Act 198"), or Act 255, Public Acts of Michigan, 1978, as amended ( Act 255"), is recorded on separate tax rolls while subject to tax abatement. The valuation of tax abated property is based upon SEV but is not included in either the SEV or Taxable Value data in the Official Statement except as noted. PROPERTY VALUATIONS SECTION Property taxpayers may appeal their assessments to the Michigan Tax Tribunal. Unless otherwise ordered by the Tax Tribunal, before the Tax Tribunal renders a decision on an assessment appeal, the taxpayer must have paid the tax bill. In the County there are approximately 82 tax appeals pending before the Tax Tribunal for the years 1999 through 2003 (including Personal Property appeals), none of which will have a significant impact on State Equalized Valuation, Taxable Value or the resulting taxes. HISTORY OF PROPERTY VALUATIONS YEAR STATE EQUALIZED VALUATION TAXABLE VALUE ,497,060,814 2,368,439, ,693,583,620 2,523,467, ,876,769,060 2,639,408, ,191,715,441 2,808,287, ,475,535,083 2,969,387, ,896,510,084 3,244,251, ,284,270,433 3,453,067, ,594,019,022 3,613,148, ,840,137,970 3,795,561, ,053,598,542 3,995,550,610 An analysis of the Total Taxable Value is as follows: By Class Real Property $3,616,258,107 $3,424,985,645 $3,245,564,047 Personal Property 379,292, ,576, ,584,692 Total $3,995,550,610 $3,795,561,731 $3,613,148,739 Source: Muskegon County Equalization Department 12

14 MAJOR TAXPAYERS According to County Officials, the 2005 State Equalized Valuation and the 2005 Taxable Value of each of the County s major taxpayers is as follows: Name of Taxpayer 2005 State Equalized Valuation 2005 Taxable Value Consumers Energy $104,913,300 $102,120,308 Howmet 31,487,000 30,729,245 Sappi, Inc 25,876,800 25,756,210 DTE Energy 25,789,800 25,690,107 Sun Chemical Company 21,962,500 20,716,963 THF Fruitport Dev LP 19,746,800 15,214,776 Lakes Mall LLC 15,398,300 12,068,401 Hayes/Lemmerz International 14,793,000 14,271,963 RAMBO Lakeshore LLC 12,911,700 10,121,844 Lorin Industries 9,239,700 8,842,495 Source: Muskegon County Equalization Department REVENUES FROM THE STATE OF MICHIGAN (projected) Single Business Tax $402,961 $0 $0 State Revenue Sharing $2,536,000 $0 $0 Total $2,938,961 $0 $0 Source: County financial records 13

15 PRINTING AND DELIVERY The county will furnish executed, printed notes at its expense. Notes will be delivered without expense to the purchaser. The usual closing documents, including a certificate that no litigation is pending affecting the issuance of the notes, will be delivered at the time of delivery of the notes. At the Purchaser s request, the Notes will be registered in the name of the nominee of the Depository Trust Company of New York, New York. Payment for the notes shall be made in immediately available funds. CONTINUING DISCLOSURE The following has been adopted and approved by the County as the continuing disclosure covenant and undertaking in connection with the notes: (a) Definitions. The following terms used herein shall have the following meanings: Audited Financial Statements means the annual audited financial statements pertaining to the County prepared by an individual or firm of independent certified public accountants as required by Act 2, Public Acts of Michigan, 1968, as amended, which presently requires preparation in accordance with generally accepted accounting principles. Noteholders shall mean the registered owner of any note and the beneficial owner (as defined in Rule 13d3 of the SEC) of any note. Disclosure Representative means the County Treasurer or his or her designee, or such other officer, employee, or agent as any party hereto shall designate from time to time in writing. MSRB means the Municipal Securities Rulemaking Board. NRMSIR means each nationally recognized municipal securities information repository as designated by the SEC in accordance with the Rule. Rule means Rule 15c212 promulgated by the SEC pursuant to The Securities Exchange Act of 1934, as amended. SEC means the United States Securities and Exchange Commission. SID means the appropriate state information depository, if any, for the State of Michigan as designated by the SEC in accordance with the Rule. 14

16 (b) Continuing Disclosure The County (sometimes herein referred to as the Obligated Person ) hereby agrees, in accordance with the provisions of the Rule, to provide or cause to be provided to each NRMSIR and to the appropriate SID, if any, for the State of Michigan, on or before the last day of the sixth month after the end of each fiscal year of the County, the following annual financial information and operating data of and for the County, commencing with the County s fiscal year ended September 30, (1) Updates of the numerical financial information and operating data included in the official statement of the County relating to the notes (the Official Statement ) as generally described below: a. History of Property Valuations Current year state equalized valuation (SEV) and taxable valuation; b. Major Taxpayers Current year major taxpayers and current year SEV thereof; c. Property Tax Rates Current year tax rates; d. Tax Levies and Collections Current year tax levies and collections; e. Debt Statement, Schedule of all note and bond Maturities and Statement of Legal Debt Margin Update as of current year; f. Delinquent Tax Information (each year revolving fund cash flow, tax sales, chargebacks) update as of current year; and g. Revenues from the State of Michigan for Single Business Tax and State Revenue Sharing (2)Audited Financial Statements or, if unavailable, unaudited financial statements. (3) Such additional financial information or operating data of the type described in (a) (1) above and Audited Financial Statements as described in (a) (2) above as may be determined by the County and its advisors as desirable or necessary to comply with the Rule. Such annual financial information and operating data described above are expected to be provided directly by the County or its designated agent or agents described in the following documents to be filed with each NRMSIR and the SID, if any, and, if required, the SEC: the Audited Financial Statements; materials containing the updates described in (b) (1) above; and in subsequent official statements of the County filed with the MSRB. c) Notice of Failure to Disclose The County agrees to provide or cause to be provided, in a timely manner, to (I) each NRMSIR or the MSRB and (ii) the SID, notice of a 15

17 failure by the County to provide the annual financial information with respect to the County described in subsection (b) above on or prior to the dates set forth in subsection (b) above. (d) Occurrence of Events The County agrees to provide or cause to be provided, in a timely manner to (I) each NRMSIR or the MSRB and (ii) the SID, if any, notice of the occurrence of any of the following events listed in (b)(5)(i) ) of the Rule with respect to the notes, if applicable, if material: (1) principal and interest payment delinquencies; (2) nonpayment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the taxexempt status of the notes; (7) modifications to rights of holders of the notes; (8) note calls; (9) defeasances; (10) release, substitution or sale of property securing repayment of the notes; (11) rating changes. (e) Materiality Determined Under Federal Securities Laws The County agrees that determination of whether any event listed in subsection (d) is material shall be made in accordance with federal securities laws. (f) Termination of Reporting Obligation The County reserves the right to terminate its obligation to provide annual financial information and notices of material events, as set forth above, if and when the County no longer remains an obligated person with respect to the notes within the meaning of the Rule, including upon legal defeasance of all notes. (g) Benefit of Noteholders The County agrees that its undertaking pursuant to the Rule set forth in this Section is intended to be for the benefit of the Noteholders and 16

18 shall be enforceable by any Noteholder; provided that the right to enforce the provisions of this undertaking shall be limited to a right to obtain specific enforcement of the obligations of the County hereunder, and any failure to comply with the provisions of this undertaking shall not constitute a default or an event of default with respect to the notes. (h) Amendments to the Undertaking Amendments may be made in the specific types of information provided or the format of the presentation of such information to the extent deemed necessary or appropriate in the judgement of the County, provided that the County agrees that any such amendment will be adopted procedurally and substantively in a manner consistent with the Rule, including any interpretations thereof by the SEC, which, to the extent applicable, are incorporated herein by reference. Such interpretations currently include the requirements that (a) the amendment may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law or change in the identity, nature or status of the County or the type of activities conducted thereby, (b) the undertaking, as amended, would have complied with the requirements of the Rule at the time of the primary offering of the notes, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances, and ) the amendment does not materially impair the interests of Noteholders, as determined by parties unaffiliated with the County (such as independent legal or financial counsel). Such interpretations may be changed in the future. If the accounting principles to be followed by the County in the preparing of the Audited Financial Statements are modified, the annual financial information for the year in which the change is made shall present a comparison between the financial statements as prepared on the prior basis and the statements as prepared on the new basis, and otherwise shall comply with the requirements of the Rule, in order to provide information to investors to enable them to evaluate the ability of the County to meet its obligations. A County notice of the change in accounting principles shall be sent (i) to each NRMSIR or the MSRB and (ii) the SID. Since the County Treasurer is acting on behalf of the County in the sale and delivery of the notes, the County hereby appoints the Treasurer as its agent to make any amendments, deletions or additions to the foregoing covenant and undertaking as may be determined by the Treasurer, the County or advisors to either to be desirable or necessary to comply with the Rule and to successfully market the notes. Any such amendments, deletions, or additions shall be binding upon the County without further action by the County, but the Treasurer shall promptly notify the County of any such amendments, deletions or additions. The Treasurer shall set out the final statement of the foregoing undertaking and covenant of the County under the Rule as binding upon the County in his Order awarding the notes to the successful bidder, and the Treasurer shall further cause to be set out in the Official Statement for the notes appropriate provisions relative to continuing disclosure and the covenant and undertaking of the County to meet the requirements of the Rule. 17

19 TAX COLLECTION, DELINQUENCIES, SALES AND CHARGEBACKS Property taxes are due and payable when levied by a City and Township Treasurer or local school on July 1st and December 1st of each year, and becomes a lien against the property when levied. The total current tax collection due the County is transferred to the Muskegon County Treasurer, who distributes the proceeds to each taxing authority:(county General Fund Operating, Museum, Veterans, Quality of Life, Central Dispatch and Muskegon Community College). Until March 1st of each year, local treasurers are responsible for the collection. Thereafter, a settlement is made by the Muskegon County Treasurer with each local unit. Those not paid by March 1st become delinquent, and property tax administration fees and interest as prescribed by state law begin to accrue. The countywide delinquent tax roll is prepared from these settlements and becomes the basis of the County General Obligation Tax Note sale each year. The proceeds of this sale are distributed to each taxing authority. If the taxes are not paid by March 1st of the following year, the property is forfeited to the County Treasurer and additional fees apply. If taxes are not paid by March 1st of the second year, Circuit Court enters a judgement of foreclosure and within 30 days all taxpayer redemption rights expire. The property is now owned by the County. Property is then sold at public auction and the delinquent tax fund is made whole. Under the statutes, collection of the total delinquencies is assured. 18

20 FIVE YEAR TOTAL TAX COLLECTION HISTORY Total Real Levy $145,815,521 $136,772,231 $124,899,063 $122,085,598 $109,884,246 Total Tax Collected to March 1 Total Tax Returned Delinquent Percentage Returned Delinquent 131,316, ,098, ,441, ,154,726 97,487,453 14,499,498 13,673,798 12,457,355 12,930,872 12,396, % 10.00% 9.97% 10.59% 11.28% 19

21 2005 TOTAL DELINQUENT REAL TAXES Delinquent Taxes Villages Total Distributions By City Twp. Or Village Unit By: County Total Lakewood Club $32, $32, County Operating $1,830, Casnovia 1, , Community College 707, Ravenna 15, , Quality of Life 128, Fruitport 31, , Museum 103, Subtotal Villages 81, , Central Dispatch 96, Veteran Services 24, Cities By: Intermediate Montague 169, , Muskegon 4,475, ,608, Muskegon 1,158, Muskegon Heights 1,550, , Ottawa 17, Roosevelt Park 295, , Kent 11, Whitehall 297, , Newaygo 17, Norton Shores 1,611, , Hackley Public Library 198, North Muskegon 295, , T.I.F.A. City N. Shores 18, Subtotal Cities 8,695, ,677, Spring Lake Improvement 1, DrainMontague 0.00 Townships White Lake Ambulance 27, White Lake Library 33, Casnovia 185, , White Lake Fire 34, Cedar Creek 206, , Egelston 616, , S.E.T. State 1,371, Holton 204, , Laketon 407, , By: School Districts Montague 125, , Moorland 184, , Whitehall 440, Muskegon 1,261, , Kent City 32, White River 137, , Grant 31, Sullivan 120, , Oakridge 240, Dalton 691, , Ravenna 151, Fruitland 416, , Reeths Puffer 580, Fruitport 592, , Fremont 2, Blue Lake 221, , Fruitport 108, Ravenna 155, , Mona Shores 519, Whitehall 195, , Montague 151, Subtotal Townships 5,722, , Orchard View 358, Muskegon 1,399, Local unit Coopersville 6, Distributions 3,742, Muskegon Heights 599, North Muskegon 92, Grand Haven 61, Holton 174, County PTAF 4, RSRF Interest 20, Total County, State and School Districts 10,756, Total all units $14,499, Total all units $14,499,

22 Ad ACTUAL CASH FLOW 2004 DELINQUENT TAX REVOLVING FUND Total Note Issue: $ 9,000,000 Total Tax Delinquency: $ 13,682,142 Valorem Interest Penalties Cumulative Percentage Taxes* On taxes On Taxes Total Total collected Nov Dec Jan Feb Mar05 1, ,593 1, Apr05 1, ,168 2, May , Jun05 1, ,851 5, Jul05 1, ,109 6, Aug , Sep , Oct , Nov , Dec , Jan , Feb06 1, ,563 11, Mar , $11,019 $663 $426 $12,108 *Amounts shown in 1000's 21

23 Ad ACTUAL CASH FLOW 2003 DELINQUENT TAX REVOLVING FUND Total Note Issue: $ 9,000,000 Total Tax Delinquency: $ 12,457,355 Valorem Interest Penalties Cumulative Percentage Taxes* On taxes On Taxes Total Total collected Nov Dec Jan Feb Mar04 1, ,453 1, Apr , May , Jun04 1, ,444 4, Jul , Aug , Sep , Oct , Nov , Dec , Jan , Feb05 1, ,458 10, Mar , Apr , May , Jun , Jul , Aug , Sep , Oct , Nov , Dec , Jan , Feb , Mar , $12,169 $1,205 $467 $13,841 *Amounts shown in 1000's 22

24 Ad ACTUAL CASH FLOW 2002 DELINQUENT TAX REVOLVING FUND Total Note Issue: $ 9,000,000 Total Tax Delinquency: $ 12,930,872 Valorem Interest Penalties Cumulative Percentage Taxes* On taxes On Taxes Total Total collected Nov02 $4 $0 $0 $4 $4 0 % Dec Jan Feb Mar03 1, ,666 1, Apr ,015 2, May03 1, ,092 3, Jun03 1, ,540 5, Jul , Aug , Sep , Oct , Nov , Dec , Jan , Feb04 1, ,826 11, Mar , Apr , May , Jun , Jul , Aug , Sep , Oct , Nov , Dec , Jan , Feb , Mar , Apr , May , Jun , Jul , Aug , Sep , $12,931 $1,143 $481 $14,555 *Amounts shown in 1000's 23

25 Tax Sales (Last Three Fiscal Years) Cities Montague $0.00 $6, $0.00 Muskegon 103, , , Muskegon Heights 82, , , North Muskegon Norton Shores 54, Roosevelt Park Whitehall Total Cities 240, , , Townships Blue Lake 1, , , Casnovia Cedar Creek Dalton , , Egelston 10, , Fruitland Fruitport Holton Laketon Montague , Moorland Muskegon 12, , , Ravenna Sullivan , White River Whitehall Total Townships 25, , , Villages Casnovia Fruitport Lakewood Ravenna Total Villages Total All Units $265, $276, $324,

26 CHARGEBACKS UNPAID TAXES (Last Three Fiscal Years) Chargebacks Chargebacks Unpaid taxes Cities Montague $ $0.00 $0.00 Roosevelt Park Whitehall Muskegon 27, , , Muskegon Heights 33, , , Norton Shores 6, , , North Muskegon Total Cities 67, , , Townships Blue Lake Casnovia Cedar Creek 4, Dalton 3, Egelston Fruitland Fruitport Holton Laketon Montague Moorland Muskegon 2, , , Ravenna Sullivan White River Whitehall Total Townships 11, , , Villages Casnovia Fruitport Lakewood Ravenna Total Villages $38.15 $19.44 $

27 CHARGEBACKS UNPAID TAXES CONTINUATION (Last Three Fiscal Years) Muskegon County Community College $6, $5, $5, General Fund 15, , , Intermediate Schools 5, , , Museum Quality of Life 1, , Special Education 2, , , Veterans Total Muskegon County 31, , , School Districts Coopersville Fremont Fruitport Grand Haven Grant Holton Kent City Mona Shores 5, Montague , Muskegon Heights 45, , , Muskegon 18, , , North Muskegon Oakridge Orchard View Ravenna Reeths Puffer , Whitehall Total School Districts 72, , , SETState of Michigan 18, , , Total All Units $201, $197, $218,

28 COUNTY OF MUSKEGON CASHFLOW ON 2005 DELINQUENT TAX NOTE ISSUE TOTAL DELINQUENT TAX NOTE $ 9,000,000 Cumm Percent Collected Cumm Tax Collected 12.40% $1,541, % $2,800, % $3,547, % $4,588, % $5,423, % $6,376,283 Date Mar05 Apr05 May05 Jun05 Jul05 Aug05 Monthly Collections Prop Tax Admin Fee Note Proceeds Interest on Taxes Interest on Cash $1,541,062 55,073 14,656 0 $1,259,645 43,007 21,700 0 $746,724 29,869 22,402 9,784 $1,041,064 41,643 9,000,000 41,643 12,420 $835,171 33,407 41,759 2,122 $952,617 38,105 57, Total Income 1,610,791 1,324, ,779 10,136, ,215 1,048,784 Note Principal Tax Payments to Muni's Note Interest Issuance costs ,800 14,499,498 Total Expenses ,800 14,499, ASSETS Cash Taxes Rec. Cash Int Rec. 1,610,791 12,958, ,935,143 11,698, ,726,122 10,952,067 9, ,607 9,911,003 22, ,608 9,075,832 20,082 1,320,392 8,123,215 20,988 Total Assets $14,569,227 $14,633,934 $14,687,972 $9,296,601 $9,367,522 $9,464,595 LIABILITIES Note Payable $9,000,000 $9,000,000 EFFECTIVE TAX RATE ON ISSUE IS % ASSUMED 4.00% INTEREST RATE ON CASH BALANCE 27

29 COUNTY OF MUSKEGON CASHFLOW ON 2005 DELINQUENT TAX NOTE ISSUE TOTAL DELINQUENT TAX NOTE $ 9,000,000 Cumm Percent Collected Cumm Tax Collected 47.99% $7,014, % $7,497, % $7,863, % $8,272, % $8,768, % $10,350,595 Date Sep05 Oct05 Nov05 Dec05 Jan06 Feb06 Monthly Collections Prop Tax Admin Fee Note Proceeds Interest on Taxes Interest on Cash $637,978 25, ,401 $482,833 19,313 38,627 6,628 $366,837 14,673 33,015 8,537 $408,886 16,355 40,889 9,947 $495,883 19,835 54,547 1,017 $1,581,895 63, , Total Income 667, , , , ,248 1,835,879 Note Principal Tax Payments to Muni's Note Interest Issuance costs 3,500, ,375 Total Expenses ,765, ASSETS Cash Taxes Rec. Cash Int Rec. 1,988,291 7,485,237 25,389 2,561,080 7,002,404 6,628 2,984,142 6,635,567 15, ,156 6,226,681 25, ,092 5,730,798 24,095 2,099,971 4,148,903 24,975 Total Assets $9,498,917 $9,570,111 $9,634,874 $5,946,637 $6,018,984 $6,273,848 LIABILITIES Note Payable $9,000,000 $9,000,000 $9,000,000 $5,500,000 $5,500,000 $5,500,000 EFFECTIVE TAX RATE ON ISSUE IS % ASSUMED 4.00% INTEREST RATE ON CASH BALANCE 28

30 COUNTY OF MUSKEGON CASHFLOW ON 2005 DELINQUENT TAX NOTE ISSUE TOTAL DELINQUENT TAX NOTE $ 9,000,000 Cumm Percent Collected Cumm Tax Collected 74.04% $10,791, % $11,027, % $11,313, % $11,609, % $11,858, % $12,152,883 Date Mar06 Apr06 May06 Jun06 Jul06 Aug06 Monthly Collections Prop Tax Admin Fee Note Proceeds Interest on Taxes Interest on Cash $440,785 17,631 57,302 7,000 $236,342 9,454 33,088 8,742 $285,640 11,426 42,846 9,701 $295,790 11,832 47,326 10,866 $249,391 9,976 42,396 1,752 $294,340 11,774 52, Total Income 522, , , , , ,344 Note Principal Tax Payments to Muni's Note Interest Issuance costs 4,000, ,250 Total Expenses ,151, ASSETS Cash Taxes Rec. Cash Int Rec. 2,622,688 3,708,118 31,975 2,910,315 3,471,776 40,717 3,259,928 3,186,136 50, ,507 2,890,346 61, ,496 2,640,955 59, ,848 2,346,615 58,781 Total Assets $6,362,781 $6,422,808 $6,496,482 $2,426,123 $2,474,992 $2,538,244 LIABILITIES Note Payable $5,500,000 $5,500,000 $5,500,000 $1,500,000 $1,500,000 $1,500,000 EFFECTIVE TAX RATE ON ISSUE IS % ASSUMED 4.00% INTEREST RATE ON CASH BALANCE 29

31 COUNTY OF MUSKEGON CASHFLOW ON 2005 DELINQUENT TAX NOTE ISSUE TOTAL DELINQUENT TAX NOTE $ 9,000,000 Cumm Percent Collected Cumm Tax Collected 85.28% $12,421, % $12,644, % $12,838, % $13,162, % $13,462, % $13,876,874 Date Sep06 Oct06 Nov06 Dec06 Jan07 Feb07 Monthly Collections Prop Tax Admin Fee Note Proceeds Interest on Taxes Interest on Cash $268,241 10,730 50, $223,292 8,932 44,658 1,544 $194,293 7,772 40,802 2,670 $323,339 12,934 71,135 3,488 $300,140 12,006 69, $414,686 16,587 99,525 1,004 Total Income 330, , , , , ,802 Note Principal Tax Payments to Muni's Note Interest Issuance costs 1,500,000 41,250 Total Expenses ,541, ASSETS Cash Taxes Rec. Cash Int Rec. 463,227 2,078,374 59, ,878 1,855,082 1,544 1,046,414 1,660,789 4,214 79,727 1,337,450 3, ,186 1,037,310 3, , ,624 4,226 Total Assets $2,600,825 $2,657,504 $2,711,417 $1,261,211 $1,341,718 $1,459,838 LIABILITIES Note Payable $1,500,000 $1,500,000 $1,500,000 $0 $0 $0 EFFECTIVE TAX RATE ON ISSUE IS % ASSUMED 4.00% INTEREST RATE ON CASH BALANCE 30

32 COUNTY OF MUSKEGON CASHFLOW ON 2005 DELINQUENT TAX NOTE ISSUE TOTAL DELINQUENT TAX NOTE $ 9,000,000 Cumm Percent Collected Cumm Tax Collected 99.65% $14,469, % $14,481, % $14,497, % $14,499,498 Date Mar07 Apr07 May07 Jun07 Monthly Collections Prop Tax Admin Fee Note Proceeds Interest on Taxes Interest on Cash $592,828 23, ,207 2,777 $11, ,016 5,335 $15, ,306 5,403 $2, ,491 14,499, , ,364, Total Income 767,525 20,415 26,296 8,457 Note Principal Tax Payments to Muni's Note Interest Issuance costs 9,000, , Total Expenses ASSETS Cash Taxes Rec. Cash Int Rec. 1,600,512 29,796 7,003 1,620,927 18,196 12,338 1,647,223 2,247 17,741 1,655, ,232 Total Assets $1,637,311 $1,651,461 $1,667,211 $1,678,912 LIABILITIES Note Payable $0 $0 $0 $0 EFFECTIVE TAX RATE ON ISSUE IS % IS % ASSUMED 4.00% INTEREST RATE ON CASH BALANCE 31

33 PROPERTY TAX RATES TEN YEARS ENDED SEPTEMBER 30,2005* Year Ended September 30 County Operating, Veterans, Central Dispatch, Museum Tax & Quality of Life Rate per $1,000 Value (1) Tax Rate Per $1,000 Value Authorized Levied County General Rate Museum Millage Central Dispatch Veterans Millage Quality of Life Millage Total Millage (1) After Headlee Rollback * Starting in 1998, Muskegon County s fiscal year ends as of September

34 DEBT STATEMENT AS OF APRIL 30, 2006 DIRECT DEBT SelfSupporting or Portion Paid Directly by Benefitted County Credit Pledged Gross Municipalities Net General Obligation Tax $5,500,000 $5,500,000 $ 0 General Obligation Bonds 12,980, ,980,000 Sewer 25,095,000 8,860,000 16,235,000 Water 5,525,000 5,525,000 0 Building Authority 9,370, ,370,000 NET DIRECT DEBT $58,470,000 $19,885,000 $38,585,000 OVERLAPPING DEBT Cities, villages and townships $39,594,000 School Districts 354,971,774 Intermediate School District 79,496 Libraries 1,465,000 Community Colleges 18,655,000 County Issued Bonds Paid by Local Municipalities 19,885,000 NET OVERLAPPING DEBT $434,650,270 DEBT RATIOS* Per Capita 2005 State Equalized Valuation $28, Per Capita 2005 True Cash Value 56, Per Capita Gross Direct Debt Per Capita Net Overlapping Debt 2, Percent Gross Direct Debt of State Equalized Valuation 1.32% Percent Net Overlapping Debt of State Equalized Valuation 9.36% Percent Gross Direct Debt of True Cash Value 0.66% Percent Net Overlapping Debt of True Cash Value 4.68% DEBT HISTORY The county has no record of default. *Debt ratios are based on 170,200 census population Source: Municipal Advisory Council 33

35 County of Muskegon STATEMENT OF LEGAL DEBT MARGIN April 30, 2006 (Unaudited) State equalized value $5,053,598,542 Debt limit 10 percent of equalized value 505,359,854 Amount of debt applicable to debt limit Total bonded debt $ 58,470,000 Less assets available for debt retirement 27,214,073 Total amount of debt applicable to debt limit 31,255,927 Legal debt margin $474,103,927 34

36 SCHEDULE OF BOND MATURITIES AS OF APRIL 30, 2006 Delinquent Tax Notes GO Bonds Unlt Tax Sewer Bonds Water Bonds Revenue Bonds Building Authority Ltd Tax Total 2006 $4,000,000 $775,000 $2,230,000 $225,000 $170,000 $755,000 $8,155, ,500, ,000 2,210, , , ,000 5,860, ,000 2,190, , , ,000 4,660, ,005, , , , ,000 3,070, ,095, , , , ,000 3,050, ,185, , , , ,000 3,020, ,285, , , , ,000 3,200, ,395, , , , ,000 3,400, ,460, , , , ,000 3,220, ,500, , , , ,000 3,305, ,505, , , , ,000 3,355, , , , ,000 1,900, , , , ,000 1,970, , , , ,000 2,070, , , , ,000 2,120, , ,000 1,345, , ,000 1,370, , , , , , , , , $5,500,000 $12,980,000 $8,860,000 $5,525,000 $16,235,000 $9,370,000 $58,470,000 35

37 MUSKEGON COUNTY OVERLAPPING DEBT STATEMENT SEPTEMBER 30, 2005 School Districts Net Tax Supported Debt Share 2.82% Coopersville $44,547,953 $1,256, % Fremont 15,610, , % Fruitport 19,180,000 16,195, % Grand Haven 58,295,000 2,535, % Grant Newaygo 13,926,311 2,193, % Holton 9,485,000 8,873, % Kent City 24,985,151 4,120, % Mona Shores 34,485,000 34,485, % Montague 35,538,653 24,710, % Muskegon 33,593,999 33,593, % Muskegon Heights 25,856,634 25,856, % North Muskegon 19,994,830 19,994, % Oakridge 17,272,483 17,234, % Orchard View 45,923,407 45,923, % Ravenna 13,956,751 12,228, % Reeths Puffer 69,338,068 69,338, % Whitehall 36,221,347 36,221, ,971,774 Cities % Montague 78,682 78, % Muskegon 13,983,682 13,983, % Muskegon Heights 1,668,972 1,668, % North Muskegon 1,200,077 1,200, % Norton Shores 3,697,640 3,697, % Roosevelt Park 1,884,072 1,884, % Whitehall 1,379,082 1,379,082 23,892,207 Townships % Blue Lake % Casnovia % Cedar Creek % Dalton 197, , % Egelston 388, , % Fruitland % Fruitport 6,348,157 6,348, % Holton 89,000 89, % Laketon 375, , % Montague % Moorland % Muskegon 8,299,779 8,299, % Ravenna % Sullivan % White River % Whitehall 3,545 3,545 $15,701,793 36

38 MUSKEGON COUNTY OVERLAPPING DEBT STATEMENT SEPTEMBER 30, 2005 CONTINUATION Villages Net Tax Supported Debt Share 50.00% Casnovia $0 $ % Fruitport % Lakewood Club % Ravenna Intermediate School District 0.14% Kent ISD % Muskegon ISD % Newaygo ISD 170,000 5, % Ottawa ISD 7,815,000 74,243 79,496 Community College % Muskegon Community College 18,655,000 18,655,000 Library % White Lake District Library 1,465,000 1,465,000 $414,765,270 Source: Municipal Advisory Council 37

39 COUNTY OF MUSKEGON ASSESSED AND EQUALIZED VALUE OF TAXABLE PROPERTY TEN YEARS ENDED SEPTEMBER 30, 2005 (Unaudited) Year Ended Sept. 30 Real Property Assessed Equalized Personal Property Assessed and Equalized Total* Equalized Value 1996 $2,212,563,335 $2,212,563,335 $284,497,479 $2,497,060, ,387,631,165 2,387,631, ,952,455 2,693,583, ,579,575,879 2,579,575, ,193,181 2,876,769, ,855,886,609 2,855,886, ,828,832 3,191,715, ,129,275,639 3,129,275, ,259,444 3,475,535, ,496,502,024 3,496,502, ,008,060 3,896,510, ,912,057,046 3,912,057, ,213,387 4,284,270, ,226,229,077 4,226,229, ,789,945 4,594,019, ,469,290,770 4,469,290, ,847,200 4,840,137, ,053,598,542 5,053,598, ,423,700 5,433,022,242 * The Michigan constitution and statutes provide that property is to be assessed and equalized at 50% of its fair market value. (Source: Equalization Report) 38

40 COUNTY OF MUSKEGON RATIO OF NET GENERAL BONDED DEBT TO EQUALIZED VALUE AND NET BONDED DEBT PER CAPITA TEN YEARS ENDED SEPTEMBER 30, 2005 (Unaudited) Year Ended Sept. 30 Population Equalized Value Net General Bonded Debt Ratio of Bonded Debt to Equalized Value Net Bonded Debt Per Capita ,983* 2,497,060,814 17,910, % ,983 2,693,583,620 17,725, % ,983 2,876,769,060 17,355, % ,983 3,191,715,441 17,490, % ,200** 3,475,535,083 16,890, % ,200 3,896,510,084 16,230, % ,200 4,284,270,433 15,520, % ,200 4,594,019,022 14,750, % ,200 4,840,137,970 13,890, % ,200 5,053,598,542 12,980, % * Based on 1990 Census ** Based on 2000 Census 39

41 COUNTY OF MUSKEGON RATIO OF ANNUAL DEBT SERVICE EXPENDITURES FOR GENERAL BONDED DEBT TO TOTAL GENERAL EXPENDITURES TEN YEARS ENDED SEPTEMBER 30, 2005 (Unaudited) Fiscal Year Principal Interest Total Debt Service Total General Expenditures Ratio of Debt Service to General Expenditures 1996 $185,000 $142,841 $327,841 $26,666, ,000 1,283,473 1,468,473 28,796, , ,342 1,459,342 25,676, ,868 1,032,090 1,541,958 30,804, , ,782 1,438,782 32,585, , ,988 1,461,988 33,172, , ,587 1,470,587 35,769, , ,587 1,485,587 39,129, , ,474 1,528,474 38,947, , ,481 1,318,481 40,066,997 3 * Serial maturities in the case of serial bonds; annual debt service fund requirements in the case of term bonds. ** Starting in 1998, Muskegon County s fiscal year ends as of September 30. The amounts for 1998 represent a period of 9 months. 40

42 Bank BANKS OPERATING IN MUSKEGON COUNTY National City Bank 10 Fifth Third Bank 8 Comerica Bank 7 Huntington Bank 7 Shelby State Bank 3 Valley Ridge Bank 2 Bank One 1 Community Shores Bank Corp. 2 Muskegon Commerce Bank 1 Republic Bank 1 Independent Bank 1 Flagstar Bank 1 Savings and Loans Bank One Michigan 1 Branches (Muskegon Co.) MUSKEGON COUNTY 2005 TOP TEN TAXPAYERS (Including Act 189) 2005 S.E.V. I.F.T.* S.E.V. Grand Total Consumers Energy $104,913,300 $12,134,900 $117,048,200 Sappi, Inc 25,876,800 24,897,100 50,773,900 Howmet 31,487,000 14,687,300 46,174,300 Hayes/Lemmerz International 14,793,000 30,411,300 45,204,300 Sun Chemical Company 21,962,500 4,349,800 26,312,300 DTE Energy 25,789, ,789,800 THF Fruitport Dev LP 19,746, ,746,800 Lakes Mall LLC 15,398, ,398,300 RAMBO Lakeshore LLC 12,911, ,911,700 Lorin Industries 9,239, ,400 9,787,100 (Without IFT) MUSKEGON COUNTY 2005 TOP TEN TAXPAYERS (S.E.V.) Consumers Energy 104,913,300 Howmet 31,487,000 Sappi, Inc 25,876,800 DTE Energy 25,789,800 Sun Chemical Company 21,962,500 THF Fruitport Dev LP 19,746,800 Lakes Mall LLC 15,398,300 Hayes/Lemmerz International 14,793,000 RAMBO Lakeshore LLC 12,911,700 Lorin Industries 9,239,700 41

43 Financial Management The County's Comprehensive Annual Financial Report is audited annually. The report for the period ending September 30, 2005 was audited by Pridnia LaPres, PLLC, an independent firm of certified public accountants. The financial statements of the county are prepared in compliance with applicable state statutes and generally accepted accounting principles as stated in Governmental Accounting, Auditing and Financial Reporting (GAAFR). The Governmental Finance Officers Association of the United States and Canada (GFOA) first awarded a Certificate of Achievement for Excellence in Financial Reporting to the County of Muskegon, Michigan, for its annual financial report for the fiscal year ended December 31, The county has been awarded the certificate for each fiscal year since. 42

44 INVESTMENT POLICY The County of Muskegon invests its idle and surplus funds strictly according to State Statute, Act 20 of Public Acts of 1943, as amended. The pertinent portion of the act is as follows: "Sec. 1 (1) The legislative or governing body of a county, city, village, township, or special assessment district or agency, board, or commission of a county, city, village or township, by resolution, may authorize its treasurer or other chief fiscal officer to invest surplus funds belonging to and under control of the political subdivision, special assessment district, or agency, board or commission of a county as follows: (a) In bonds, securities, and other direct obligations of the United States or an agency or instrumentality of the United States. (b) In certificates of deposit, savings accounts, deposit accounts, or depository receipts of a financial institution but only if the financial institution complies with subsection (2). ) In commercial paper rated at the time of purchase within the two highest classifications established by not less than two standard rating services and which matures not more than 270 days after the date of purchase. (d) Repurchase agreements consisting of instruments listed in subdivision (a). (e) In bankers' acceptances of United States banks. (f) In obligations of this state or any of its political subdivisions that at the time of purchase are rated as investment grade by not less than 1 standard rating service (g) In mutual funds registered under the Investment Company Act of 1940, Title I of Chapter 686, 54 Stat. 789, 15 U.S.C. 80a1 to 80a3 and 80a4 to 80a64, with authority to purchase only investment vehicles that are legal for direct investment by a public corporation. (h) In obligations described in subdivisions (a) through (g) if purchased through an interlocal agreement under the Urban Cooperation Act of 1967, 1967 (ex sess) PA 7, MCL to (i) In investment pools organized under the Surplus Funds Investment Pool Act, 1982 PA 367, MCL to (j) In investment pools organized under the Local Government Investment Pool Act, 1985 PA 121, MCL to The Muskegon County Board of Commissioners has authorized the Muskegon County Treasurer to invest its idle or surplus funds according to state law. 43

45 LITIGATION The County of Muskegon Corporate Counsel advised that the county is involved in a number of law suits and claims arising out of the normal course of county operations. Most of these claims are covered by insurance placed with private carriers requiring a $50,000 deductible for which the county has established ample reserves. In their opinion, an adverse outcome in one or all of these cases would not have a material impact on the county's financial condition. They also advise that there is no litigation pending or threatened that would affect the county's ability to issue the County of Muskegon's General Obligation Limited Tax Notes, Series RETIREMENT PLAN The County of Muskegon provides retirement benefits to its employees through the Michigan Municipal Employees Retirement System (MERS). County contributions are determined annually by actuarial review. The latest annual actuarial review dated June, 2005 by Gabriel, Roeder, Smith and Company for the period ending December 31, 2004, provided the following contribution rates for fiscal year 2006: Pension Unit Pension Rate General Employees Unit 2.34% Medical Care Facility LPN 6.28% AFSCME 2.00% Sheriff Deputy 3.50% Sheriff Command 4.50% Sheriff Professional Command 3.90% Undersheriff 1.08% Judges 4.13% Nonbargaining Employees 3.91% Nonunion Directors/Elected Officials 2.70% Wastewater Employees 0.89% Health Department Nurses 2.55% In 2005, the County of Muskegon made a total of $3,445,079 in contributions to the retirement program. 44

46 Founded in 1852 by Sidney Davy Miller 150 West Jefferson, Suite 2500 Detroit, Michigan TEL: (313) FAX: (313) MICHIGAN: Ann Arbor Detroit Grand Rapids Howell Kalamazoo Lansing Monroe Troy New York, NY Pensacola, FL Washington, DC CANADA: Windsor, ON POLAND: Gdynia Katowice Warsaw County of Muskegon State of Michigan May 2006 We have examined the transcript of proceedings for the issue by the County of Muskegon, State of Michigan (the Issuer ), of notes in the aggregate principal sum of $9,000,000 designated General Obligation Limited Tax Notes, Series 2005 (the Notes ), in anticipation of the collection of delinquent ad valorem real property taxes for the year 2005 uncollected as of May 3, 2006, together with interest and penalties thereon and certain fees and chargebacks levied by the State of Michigan, the Issuer and public subdivisions levying ad valorem taxes therein. The Notes are in fully registered form, in the denomination of $5,000 or multiples thereof, bearing an original issue date of May, 2006 and payable as to principal and interest semiannually on June 1st and December 1st of each year commencing December 1, 2006 to and including December 1, 2007, with interest payable on December 1, 2006 and semiannually thereafter, without the option of redemption prior to maturity. We have also examined one Note only as executed. From such examination we are of opinion that the Notes are valid and legally binding obligations of the Issuer, payable as to principal and interest in the first instance from the collection of the aforesaid delinquent 2005 real property taxes, together with interest and penalties thereon, certain fees thereon and amounts charged back to taxing units by reason of noncollection or otherwise. Further, the Issuer has pledged its full faith and credit for the prompt payment thereof, and, should funds primarily pledged be insufficient for such payment, the Issuer is obligated to make such payment from general funds as a first budget obligation or from any taxes which it may levy within applicable statutory or constitutional limitations, as provided by law. The rights and remedies of Noteholders may be affected by bankruptcy, insolvency, fraudulent conveyance or other laws affecting creditors rights generally now existing or hereafter enacted, and by the application of general principles of equity including those relating to equitable subordination. We are also of the opinion that under existing law as presently interpreted, the interest on the Notes is includable in gross income for purposes of federal income tax, but the Notes and the interest thereon are exempt from all taxation in the State of Michigan except inheritance and estate taxes and taxes on gains realized from the sale, payment or other disposition thereof. Very truly yours, MILLER, CANFIELD, PADDOCK AND STONE, P.L.C. By Joel L. Piell 45

47 LABOR AGREEMENTS Expiration Date of Current Contracts Local 517M, Service Employees International, AFLCIO, Professional and Clerical Division: Public Works Unit 12/31/08 Local 79, Service Employees International Union: Brookhaven Practical Nurses Unit 12/31/08 Local 570, Council 25, American Federation of State, County and Municipal Employees, AFLCIO: Brookhaven Employees 12/31/06 Teamsters Local 214, Affiliated with the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America: Sheriff Corrections Officers 12/31/08 Sheriff Deputies 12/31/08 Sheriff Command Officers 12/31/04 District Court Employees 12/31/06 General Employees Unit 12/31/08 CMH Aide Unit 12/31/08 Airport Operations Unit In Negotiations Child Haven/Juvenile Detention Center Hourly Unit New Certification Transit Hourly Unit New Certification Michigan Nurses Association Public Health Nurses 12/31/06 Professional Command Association Sheriff Captain 12/31/04 SOURCE: HUMAN RESOURCES DEPARTMENT 46

48 MISCELLANEOUS STATISTICAL DATA Voter Registration and Participation: Number of registered voters in ,241 Votes cast in last general election 78,489 Percentage voters voting in last general election 63% (Source: Muskegon County Clerk) Census Data: Population, 1990 U.S. Census 158,983 Population, 2000 U.S. Census 170,200 (Source: U.S. Census Bureau) Age Distribution of Population (2000 Census) Age Male % Female % Total % 0 to 4 years 6, % 5, % 11, % 5 to 9 years 6, % 6, % 13, % 10 to 19 years 13, % 12, % 26, % 20 to 44 years 29, % 30, % 59, % 45 to 64 years 19, % 17, % 37, % Over 65 years 8, % 12, % 21, % Totals 84, % 85, % 170, % (Source: 2000 United States Census) Employment Data For the period from October, 2002 through September 2005, Muskegon County unemployment rates (in percent) as compared to national rates were as follows: 2005 County 2005 USA 2004 County 2004 USA 2003 County 2003 USA 2002 County October November December January February March April May June July August September USA Average

49 EDUCATIONAL CHARACTERISTICS Primary and secondary educational needs of county residents are met by the twelve public school districts and three charter schools. The statistical information regarding public education facilities as of September 30, 2005 is as follows: Number of School Districts/Charter Schools 17 Number of Students 33,691 Number of Administrative Personnel 244 Number of Teachers (Pre K12) 2,142 (Source: MTEC Muskegon Education and Training Center is operated by the Muskegon Public School System through the cooperation of the Michigan Employment Security Commission, which provides a cooperative training program for disadvantaged persons for employment in the automotive, machine, welding, house repair, building maintenance, and clerical trade areas. The programs are funded through grants received through the Michigan Department of Labor from the Federal government. Muskegon Community College offers comprehensive programs in a broad range of academic and vocational disciplines. A variety of twoyear associate degree and oneyear or less diploma and certificate programs prepare students for transfer to a university or for immediate employment. Founded in 1926, MCC is accredited by the North Central Association of Colleges and Schools. The following enrollment and employment information was effective January 15, 2006: Enrollment (fulltime) 1,565 (parttime) 2,956 Faculty (fulltime) 108 Faculty (parttime) 150 (Source: Muskegon Community College) The Muskegon Center for Higher Education, on campus at Muskegon Community College, houses an academic consortium consisting of Ferris State University, Grand Valley State University, Muskegon Community College, and Western Michigan University. The primary objective of the consortium is to offer a variety of baccalaureate degree completion courses at the junior and senior level and graduate programs in coordination with the cooperating institutions. Baker College of Muskegon is a private, nonprofit, selfsupporting North Central accredited institution granting certificates, diplomas, Associate, Bachelor, and Master's degrees in over 70 programs. Baker serves the needs of the community and employers through a comprehensive offering of business, medical, and technical education emphasizing practical, handson training in combination with meaningful work experience. Grand Valley State University provides educational opportunities at the undergraduate and graduate levels and is a fully accredited state university. The main campus is located only one half hour from downtown Muskegon with other offerings at the Muskegon Center for Higher Education. (See above) Western Michigan University and Ferris State University also operate extension programs through the Muskegon Center for Higher Education at Muskegon Community College. 48

50 UTILITIES AND PUBLIC SERVICES Electric energy is provided by Consumers Energy. Consumers Energy owns and operates the B.C. Cobb plant, located in the City of Muskegon. The plant has a capacity of 288 net megawatts. Natural gas service is provided by DTE Energy. Telephone service is provided by Verizon. They maintain their Michigan headquarters in the County of Muskegon. Sewage treatment is provided by the Muskegon County Wastewater Management System to sixteen contractual municipal and industrial users. The 2005 operations reveal the following: Number of Users: 15 Sewage Treated: 24,676,082 gallons per day Plant Capacity: 43,000,000 gallons per day Data on Distribution: 54% industrial/46% residential Solid Waste facilities are provided by the Muskegon County Solid Waste Facility. The 2004 statistics reveal the following: Solid Waste Type Number of Users: 10,433 Data on Use: 96,991 tons filled Remaining Plant Capacity: 2,240,771 cubic yards The Muskegon Area Transit System (MATS) operated by the County of Muskegon, provides metropolitan public transit services to the community. The results of operation for 2005 reveal the following: Number of Users: 437,815 passengers Data on Use: 581,368 miles Number of Buses: 15 The Muskegon County Airport, owned and operated by the County of Muskegon, provides air passenger and freight service for the region. It is currently served by Northwest Airlink and Midwest Express airlines. The use statistics for 2005 reveal the following: Number of Users: Data on Use: Present Annual Capacity: 72,134 passengers 63,876 landings and takeoffs 129,301 passengers 49

51 MEDICAL FACILITIES Hospitals Location Total Beds Hackley Hospital & Medical Center Muskegon 181 Mercy General Health Partners Muskegon 302 Select Specialty Hospital Long term care Muskegon 31 Extended Care Facility (Nursing) Brookhaven Medical Care Facility Muskegon Township 218 Christian Care Nursing Center Muskegon 49 Deboer Nursing Home Muskegon 90 Hillcrest Nursing Home N. Muskegon 63 Roosevelt Park Nursing Center Roosevelt Park 69 McCauley Place Muskegon 98 University Park Care Center Muskegon 99 Heartland Care Center Whitehall 125 Homes for the Aged Agape Home Assisted Living Muskegon 20 Cedar Creek Personal Care Home Holton 20 Christian Care Senior Care Community Muskegon 105 Dayspring Assisted Living Norton Shores 45 Norton Terrace Adult Foster Care Home Muskegon 12 Northcrest Living Center North Muskegon 86 Seminole Shores Living Center Norton Shores 50 The Hermitage Muskegon 72 The Hume Home Muskegon 34 Clinics Family Chiropractic Center Hackley Community Care Center Muskegon County Health Department Clinic Mercy MediCenter Muskegon Family Care Center Northside Immediate Care Center Norton Shores Medi Center Palmer Chiropractic Center Planned Parenthood Center Westshore Occupational Health Center Doctors: 232 Optometrists: 12 Dentists: 97 50

52 COUNTY OF MUSKEGON Muskegon, Michigan ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2005 PREPARED BY DEPT. OF FINANCE & MANAGEMENT SERVICES/ACCOUNTING 51 JOSEPH W. SIEDENSTRANG, CPA ACCOUNTING MANAGER

53 3145 HENRY STREET, STE. 200 MUSKEGON, MI TEL: FAX: Independent Auditors' Report To the Board of Commissioners of the County of Muskegon, Michigan We have audited the accompanying financial statements of the governmental activities, the businesstype activities, each major fund, and the aggregate remaining fund information of the County of Muskegon, Michigan, as of and for the year ended September 30, 2005, which collectively comprise the County s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the County of Muskegon's management. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Muskegon County Road Commission, the discretely presented component unit. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinion, insofar as it relates to the amounts included for the Muskegon County Road Commission, is based on the report of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall basic financial statement presentation. We believe that our audit and the report of other auditors provide a reasonable basis for our opinions. In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the businesstype activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the County of Muskegon, Michigan, as of September 30, 2005, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. 52