$10,365,000* CITY OF FAYETTEVILLE, GEORGIA Water and Sewerage Refunding Revenue Bonds, Series 2010

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1 This Preliminary Official Statement and the information contained herein are subject to completion or amendment without notice. These securities may not be sold nor may offers to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. NEW ISSUE (Book-Entry Only) RATINGS Standard & Poor's :AA- See "MISCELLANEOUS - Ratings" herein. In the opinion of King & Spalding LLP, Bond Counsel, under existing statutes, rulings and court decisions, and under applicable regulations, and assuming the accuracy of certain representations and certifications and compliance with certain tax covenants, interest on the Series 2010 Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. In the opinion of Bond Counsel, interest on the Series 2010 Bonds is exempt from present State of Georgia income taxation under existing statutes as described herein. See "LEGAL MATTERS -- Opinion of Bond Counsel." The Series 2010 Bonds have been designated by the City as "qualified tax-exempt obligations" for purposes of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended. Dated: Date of Issuance $10,365,000* CITY OF FAYETTEVILLE, GEORGIA Water and Sewerage Refunding Revenue Bonds, Series 2010 Due: November 1, as shown below The Water and Sewerage Refunding Revenue Bonds, Series 2010 (the "Series 2010 Bonds") are being issued by the City of Fayetteville, Georgia (the "City") for the purpose of (i) refunding a portion of the City's Water and Sewerage Revenue Bonds, Series 2003, (ii) refunding a loan made by the Georgia Environmental Facilities Authority to the City, (iii) funding a debt service reserve fund and (iv) paying the costs of issuance of the Series 2010 Bonds. See "PLAN OF FINANCING" herein. Interest on the Series 2010 Bonds is payable semiannually on May 1 and November 1 of each year, commencing on May 1, All Series 2010 Bonds bear interest from their date of issuance. See "INTRODUCTION - Description of the Series 2010 Bonds" herein. The Series 2010 Bonds are subject to optional redemption and mandatory sinking fund redemption prior to maturity as described herein. See "THE SERIES 2010 BONDS - Redemption" herein. The Series 2010 Bonds are special limited obligations of the City payable solely from and secured by a pledge of and lien on revenues derived by the City from the ownership and operation of its water system, remaining after the payment of expenses of operating, maintaining, and repairing the system. The Series 2010 Bonds will be issued and secured on a parity with the Series 2003 Bonds (as defined herein) and any additional revenue bonds of the City hereafter issued on a parity with the Series 2003 Bonds and the Series 2010 Bonds. See "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2010 BONDS" herein. The Series 2010 Bonds do not constitute a debt or general obligation of the City or a pledge of the faith and credit or taxing power of the City. No governmental entity, including the City, is obligated to levy any tax for the payment of the Series 2010 Bonds. No recourse may be had against the General Fund of the City for the payment of the Series 2010 Bonds. Maturity (November 1) MATURITIES, PRINCIPAL AMOUNTS, INTEREST RATES, AND PRICES OR YIELDS Principal Amount* Interest Rate Price or Yield Maturity (November 1) Principal Amount* 2014 $35, $ 45, , , , , , ,005, , ,045, , ,090, , ,140, , ,195, , ,245, , ,305,000 Interest Rate Price or Yield THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO MAKING AN INFORMED INVESTMENT DECISION. The Series 2010 Bonds are offered when, as, and if issued by the City and accepted by the Underwriter, subject to prior sale and to withdrawal or modification of the offer without notice, and are subject to the approving opinion of King & Spalding LLP, Atlanta, Georgia, Bond Counsel. Certain legal matters will be passed on for the City by its general counsel, Epstein Becker & Green, P.C., Atlanta, Georgia, and for the Underwriter by its counsel, McKenna Long & Aldridge LLP, Atlanta, Georgia. The Series 2010 Bonds in definitive form are expected to be delivered to The Depository Trust Company in New York, New York on or about March, Dated: February, 2010 * Preliminary; subject to change. PRELIMINARY OFFICIAL STATEMENT DATED FEBRUARY 11, 2010

2 CITY OF FAYETTEVILLE, GEORGIA ELECTED OFFICIALS Mayor and City Council of City of Fayetteville Kenneth Steele, Mayor Larry Dell Al Hovey-King Paul C. Oddo, Jr. Wilson Price Walt White MANAGEMENT William J. Morton, Jr., City Manager Lorri Lynn Robinson, Director of Finance Leigh Ellen Walls, Assistant Director of Finance Richard H. Eastin, Director, Water and Sewer Department SPECIAL SERVICES General Counsel Epstein Becker & Green, P.C. Atlanta, Georgia Auditors Mauldin & Jenkins, LLC Macon, Georgia Bond Counsel King & Spalding LLP Atlanta, Georgia Consulting Engineers Integrated Science and Engineering Fayetteville, Georgia

3 TABLE OF CONTENTS Page INTRODUCTION...1 The City...1 Purpose of the Series 2010 Bonds...1 The System...1 Security and Sources of Payment for the Series 2010 Bonds...2 Description of the Series 2010 Bonds...2 Tax Exemption...3 Bond Registrar, Paying Agent, Custodian, and Depository...3 Professionals Involved in the Offering...3 Legal Authority...3 Offering and Delivery of the Series 2010 Bonds...3 Continuing Disclosure...4 Other Information...4 PLAN OF FINANCING...5 Estimated Sources and Applications of Funds...5 Refunding Program...5 THE SERIES 2010 BONDS...6 Description...6 Redemption...6 Book-Entry Only System...7 Legal Authority...9 SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2010 BONDS...9 Pledge of Revenues...9 Funds Created By the Bond Resolution and Flow of Funds...9 Rate Covenant...11 Additional Parity Bonds...11 Limited Obligations...11 Remedies...11 THE CITY...13 Introduction...13 City Administration and Officials...13 THE SYSTEM...13 Introduction...13 Management...14 System Facilities...14 Water Sources...15 Service Area...17 Service Area Demographic Information...17 Service Area Economic Information...18 Customers...21 Rates, Fees, and Charges...23 Rate Setting Process...24 Billing and Collection...24 Governmental Approvals and Environmental Regulation...25 Employees, Employee Relations, and Labor Organizations...26 (i)

4 SYSTEM FINANCIAL INFORMATION...26 Accounting System and Policies...26 Historical Capital Structure...27 Proposed Debt...28 Debt Service Requirements...29 Five Year Operating History...30 Management's Discussion and Analysis of Results of Operations...31 Historical and Forecasted Debt Service Coverage Ratios...32 Operating Budget...33 Capital Improvements...35 Employee Benefits...35 Insurance Coverage...36 LEGAL MATTERS...36 Pending Litigation...36 Opinion of Bond Counsel...36 Validation Proceedings...37 Closing Certificates...37 MISCELLANEOUS...38 Ratings...38 Underwriting...38 Verification of Arithmetical Computations...38 Independent Professionals...38 Summary of Continuing Disclosure Certificate...38 Additional Information...41 CERTIFICATION...41 APPENDIX A: FINANCIAL STATEMENTS OF THE SYSTEM...A-1 APPENDIX B: ENGINEERING REPORT...B-1 APPENDIX C: SUMMARY OF THE BOND RESOLUTION...C-1 APPENDIX D: FORM OF LEGAL OPINION...D-1 (ii)

5 OFFICIAL STATEMENT of the CITY OF FAYETTEVILLE, GEORGIA relating to its $10,365,000 WATER AND SEWERAGE REFUNDING REVENUE BONDS, SERIES 2010 INTRODUCTION The purpose of this Official Statement, which includes the cover page and the Appendices hereto, is to furnish certain information in connection with the sale by the City of Fayetteville, Georgia of $10,365,000* in aggregate principal amount of its Water and Sewerage Refunding Revenue Bonds, Series 2010 (the "Series 2010 Bonds"). This Introduction is not a summary of this Official Statement and is intended only for quick reference. It is only a brief description of and guide to, and is qualified in its entirety by reference to, more complete and detailed information contained in the entire Official Statement, including the cover page and the Appendices, and the documents summarized or described herein. Potential investors should fully review the entire Official Statement. The offering of the Series 2010 Bonds to potential investors is made only by means of the entire Official Statement, including the Appendices hereto. No person is authorized to detach this Introduction from the Official Statement or to otherwise use it without the entire Official Statement, including the Appendices hereto. The City The City of Fayetteville, Georgia (the "City"), the issuer of the Series 2010 Bonds, is a body corporate and politic of the State of Georgia incorporated by an Act of the General Assembly of the State of Georgia in The City is the county seat of Fayette, County, Georgia. The City is located in the west central portion of the State of Georgia approximately 25 miles south of downtown Atlanta. For more complete information, see "THE CITY" herein. Purpose of the Series 2010 Bonds The proceeds of the Series 2010 Bonds will be used, together with other available funds, (i) to refund a portion of the City's Water and Sewerage Revenue Bonds, Series 2003 maturing on November 1, 2010* through and including November 1, 2013* in the aggregate principal amounts described herein, (ii) to refund approximately $8,123,439* in aggregate principal amount of a loan made by the Georgia Environmental Facilities Authority to the City (iii) to fund a debt service reserve fund and (iv) to pay the costs of issuance of the Series 2010 Bonds. For more complete information, see "PLAN OF FINANCING" herein. The System The City owns and operates a water supply, treatment, and distribution system (the "System"). The System consists of a raw surface water supply with a daily maximum and a maximum monthly average allotment of water of 3.0 million gallons per day ("MGD"), a ground water supply with a daily maximum and a maximum monthly withdrawal limit of MGD, one raw surface water pump station with aggregate raw water pumping capacity of 4.0 MGD, two operating wells with aggregate well-water pumping capacity of MGD, one water treatment plant with a rated capacity for treatment of raw water of 4.0 MGD and an aggregate treated water pumping rated capacity of 4.3 MGD, treated water storage capacity of 1.5 million gallons, and a water distribution network of approximately 108 miles of pipelines. The System currently (1) supplies water to a geographic area of approximately square mile area containing an estimated population in excess of 15,804 and (2) provides sewer Throughout this Preliminary Official Statement, the asterisk indicates information that is preliminary and subject to change.

6 service to a geographic area of approximately square mile area containing an estimated population in excess of 15,340. As of July 31, 2009, the System had 6,585 water connections and 8,032 sewer connections. For more complete information, see "THE SYSTEM" herein. Security and Sources of Payment for the Series 2010 Bonds The Series 2010 Bonds are special limited obligations of the City payable solely from and secured by a first priority pledge of and lien on revenues derived by the City from the ownership and operation of the System, remaining after the payment of expenses of operating, maintaining, and repairing the System (the "Net Revenues"). The City has previously issued $14,205,000 in original aggregate principal amount of its Water and Sewerage Revenue Bonds, Series 2003 (the "Series 2003 Bonds") which is also secured by a first priority pledge of and lien on Net Revenues. The Series 2003 Bonds are presently outstanding in the aggregate principal amount of $10,595,000 and are payable solely from and secured by a first priority pledge of and lien on the Net Revenues. The Series 2010 Bonds will be equally and ratably secured on a parity basis with the Series 2003 Bonds that are not being refunded (the "Unrefunded Series 2003 Bonds") and with any additional revenue bonds of the City hereafter issued on a parity basis with the Unrefunded Series 2003 Bonds and the Series 2010 Bonds. The Unrefunded Series 2003 Bonds, the Series 2010 Bonds, and any additional revenue bonds of the City hereafter issued on a parity basis with the Unrefunded Series 2003 Bonds and the Series 2010 Bonds are collectively referred to as the "Bonds" in this Official Statement. The Series 2010 Bonds do not and will not constitute a debt or general obligation of the City or a pledge of the faith and credit or taxing power of the City. No governmental entity, including the City, is obligated to levy any tax for the payment of the Series 2010 Bonds. No recourse may be had against the General Fund of the City for the payment of the Series 2010 Bonds. The pledge of and lien on Net Revenues securing the Series 2010 Bonds does not create a legal or equitable pledge, charge, lien, or encumbrance upon any of the City's property or income, receipts, or revenues, except the Net Revenues and the amounts on deposit in the funds held under the hereinafter described Bond Resolution. The Series 2010 Bonds, together with the Unrefunded Series 2003 Bonds, will also be secured by a debt service reserve fund to be held in trust for the owners of all of the Bonds, equally and ratably, under the terms of the hereinafter described Bond Resolution. The debt service reserve fund will be funded upon the issuance of the Series 2010 Bonds at the Debt Service Reserve Requirement from a combination of (1) a portion of the proceeds of the Series 2010 Bonds in an amount equal to $1,028,943.44* and (2) a municipal bond debt service reserve insurance policy issued by Assured Guaranty Municipal Corp. (formerly known as Financial Security Assurance Inc.) with a policy limit of $1,120, in connection with the issuance of the Series 2003 Bonds (the "2003 AGM Surety"). The 2003 AGM Surety only secures debt service payments on the Series 2003 Bonds and does not secure debt payments on the Series 2010 Bonds. For more complete and detailed information, see "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2010 BONDS" herein. Description of the Series 2010 Bonds Redemption. The Series 2010 Bonds maturing on or after November 1, 20 * are redeemable at the option of the City, not earlier than November 1, 20 *, at the redemption price and on the terms described in this Official Statement. The Series 2010 Bonds maturing on November 1, 20 * are subject to mandatory sinking fund redemption as described in this Official Statement. For more complete information, see "THE SERIES 2010 BONDS - Redemption" herein. Denominations. The Series 2010 Bonds are issuable in denominations of $5,000 or any integral multiple thereof. Book-Entry Bonds. Each of the Series 2010 Bonds will be issued as fully registered certificates in the denomination of one certificate per aggregate principal amount of the stated maturity thereof, and, when issued, will be registered in the name of Cede & Co., as nominee for The Depository Trust Company ("DTC"), New York, New York, an automated depository for securities and clearing house for securities transactions, which will act as securities depository for the Series 2010 Bonds. Purchasers will not receive certificates representing their ownership interest in the Series 2010 Bonds purchased. Purchases of beneficial interests in the Series 2010 Bonds will be made in book-entry only form (without certificates), in authorized denominations, and, under certain circumstances as 2

7 more fully described in this Official Statement, such beneficial interests are exchangeable for one or more fully registered certificates of like principal amount and maturity in authorized denominations. For more complete information, see "THE SERIES 2010 BONDS - Book-Entry Only System" herein. Payments. So long as DTC or its nominee, Cede & Co., is the registered owner of the Series 2010 Bonds, payments of the principal of, premium, if any, and interest on the Series 2010 Bonds will be made directly to Cede & Co., which will remit such payments to the DTC participants, which will in turn remit such payments to the beneficial owners of the Series 2010 Bonds. For a more complete description of the Series 2010 Bonds, see "THE SERIES 2010 BONDS" herein. Tax Exemption In the opinion of Bond Counsel, under existing statutes, rulings and court decisions and under applicable regulations, interest on the Series 2010 Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. In the opinion of Bond Counsel, interest on the Series 2010 Bonds is exempt from present State of Georgia income taxation under existing statutes as described herein. The Series 2010 Bonds have been designated by the City as "qualified tax-exempt obligations" within the meaning of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code"). See Appendix D hereto for the form of the opinion Bond Counsel proposes to deliver in connection with the issuance of the Series 2010 Bonds. For a more complete discussion of such opinion and certain other tax consequences of owning the Series 2010 Bonds, including certain exceptions to the exclusion of the interest on the Series 2010 Bonds from gross income, see "LEGAL MATTERS - Opinion of Bond Counsel" herein. Bond Registrar, Paying Agent, Custodian, and Depository U.S. Bank National Association, Atlanta, Georgia, will act as bond registrar and as paying agent for the Series 2010 Bonds. Wachovia Bank, National Association, a Wells Fargo Company, Atlanta, Georgia, will act as custodian of the Sinking Fund created under the hereinafter described Bond Resolution. Wachovia Bank, National Association, a Wells Fargo Company, Atlanta, Georgia, will act as depository of the Revenue Fund, the Renewal and Extension Fund, and the Debt Service Reserve Fund created under the hereinafter described Bond Resolution. Professionals Involved in the Offering Certain legal matters pertaining to the City and its authorization and issuance of the Series 2010 Bonds are subject to the approving opinion of King & Spalding LLP, Atlanta, Georgia, Bond Counsel. Copies of such opinion will be available at the time of delivery of the Series 2010 Bonds, and a copy of the proposed form of such opinion is attached hereto as Appendix D. Certain legal matters will be passed on for the City by its general counsel, Epstein Becker & Green, P.C., Atlanta, Georgia, and for the Underwriter by its counsel, McKenna Long & Aldridge LLP, Atlanta, Georgia. The financial statements of the System as of July 31, 2009 and for the year then ended, attached hereto as part of Appendix A, have been audited by Mauldin & Jenkins, LLC, Macon, Georgia, independent certified public accountants, to the extent and for the period indicated in its report thereon which appears in Appendix A hereto. The Engineering Report attached to this Official Statement as Appendix B has been prepared by Integrated Science and Engineering, Fayetteville, Georgia. See "MISCELLANEOUS - Independent Professionals" herein. Legal Authority The Series 2010 Bonds are being issued and secured pursuant to the authority granted by the laws of the State of Georgia and under the provisions of a resolution adopted by the City Council of the City (the "City Council") on December 18, 2003, as supplemented, and amended by a resolution adopted by the City Council on February, 2010 (collectively the "Bond Resolution"). For more complete information, see "THE SERIES 2010 BONDS - Legal Authority" herein. Offering and Delivery of the Series 2010 Bonds The Series 2010 Bonds are offered when, as, and if issued by the City and accepted by the Underwriter, subject to prior sale and to withdrawal or modification of the offer without notice. The Series 2010 Bonds in definitive form are expected to be delivered to The Depository Trust Company in New York, New York on or about March,

8 Continuing Disclosure The City has covenanted in the Bond Resolution and a Continuing Disclosure Certificate (the "Disclosure Certificate") for the benefit of the beneficial owners of the Series 2010 Bonds to provide certain financial information and operating data relating to the System (the "Annual Report") by not later than 180 days after the end of each fiscal year of the City, commencing with the fiscal year ending July 31, 2010, and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed by the City with the Municipal Securities Rulemaking Board (the "MSRB") in an electronic format as prescribed by the MSRB (which, as of the date hereof, is the Electronic Municipal Market Access ("EMMA") system of the MSRB). The notices of material events will be filed by the City with the MSRB in an electronic format as prescribed by the MSRB (which, as of the date hereof, is EMMA). The specific nature of the information to be contained in the Annual Report or the notices of material events is summarized herein under the caption "MISCELLANEOUS - Summary of Continuing Disclosure Certificate." These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5). Other Information This Official Statement speaks only as of its date, and the information contained herein is subject to change. This Official Statement contains forecasts, projections, and estimates that are based on current expectations but are not intended as representations of fact or guarantees of results. If and when included in this Official Statement, the words "expects," "forecasts," "projects," "intends," "anticipates," "estimates," and analogous expressions are intended to identify forward-looking statements as defined in the Securities Act of 1933, as amended, and any such statements inherently are subject to a variety of risks and uncertainties, which could cause actual results to differ materially from those contemplated in such forward-looking statements. These forward-looking statements speak only as of the date of this Official Statement. The City disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in its expectations with regard thereto or any change in events, conditions, or circumstances on which any such statement is based. This Official Statement and the Appendices hereto contain brief descriptions of, among other matters, the City, the Series 2010 Bonds, the System, the Bond Resolution, the Disclosure Certificate, and the security and sources of payment for the Series 2010 Bonds. Such descriptions and information do not purport to be comprehensive or definitive. The summaries of various constitutional provisions and statutes, the Bond Resolution, the Disclosure Certificate, and other documents are intended as summaries only and are qualified in their entirety by reference to such documents, and references herein to the Series 2010 Bonds are qualified in their entirety to the form thereof included in the Bond Resolution. Copies of the Bond Resolution, the Disclosure Certificate, and other documents and information are available, upon request and upon payment to the City of a charge for copying, mailing, and handling, from Lynn Robinson, Finance Director, City of Fayetteville, Georgia, 240 Glynn Street, South, Fayetteville, Georgia 30214, telephone (770) During the period of the offering of the Series 2010 Bonds copies of such documents are available, upon request and upon payment to the Underwriter of a charge for copying, mailing, and handling, from Merchant Capital L.L.C., One Buckhead Plaza, 3060 Peachtree Road, Suite 1700, Atlanta, Georgia 30305, telephone (404) The Series 2010 Bonds have not been registered under the Securities Act of 1933, and the Bond Resolution has not been qualified under the Trust Indenture Act of 1939, in reliance on exemptions contained in such Acts. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Series 2010 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation, or sale. No dealer, broker, salesman, or other person has been authorized by the City or the Underwriter to give any information or to make any representations other than those contained in this Official Statement, and, if given or made, such other information or representations should not be relied upon as having been authorized by the City or the Underwriter. Except where otherwise indicated, all information contained in this Official Statement has been provided by the City. The information set forth herein has been obtained by the City from sources which are believed to be reliable but is not guaranteed as to accuracy or completeness by the City. The information contained herein is subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall under any circumstances create an implication that there has been no change in the affairs of the City since the date hereof or the earlier dates set forth herein as of which certain information contained herein is given. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibility to investors under federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. 4

9 In connection with this offering, the Underwriter may over-allot or effect transactions which stabilize or maintain the market prices of the Series 2010 Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. Estimated Sources and Applications of Funds PLAN OF FINANCING The sources and applications of funds in connection with the issuance of the Series 2010 Bonds are estimated below. Estimated Sources of Funds: Proceeds of Series 2010 Bonds 1 Funds Held Under Bond Resolution 2 Total Sources of Funds Estimated Applications of Funds: Deposit with Escrow Agent 3 Deposit to Debt Service Reserve Fund Prepay 2008 GEFA Loan Costs of Issuance 4 Total Applications of Funds 1 After adding net premium of $. 2 See "PLAN OF FINANCING - Refunding Program" herein. 3 The Escrow Agent will apply this amount to purchase the Government Obligations and to establish the initial cash balances. See "PLAN OF FINANCING - Refunding Program" herein. 4 Includes underwriter's discount, legal and accounting fees, initial Bond Registrar's and Paying Agent's fees, printing costs, validation court costs, and other costs of issuance. Refunding Program The City will use a portion of the proceeds of the sale of the Series 2010 Bonds, together with certain amounts held under the Bond Resolution, to refund a portion of the City's Water and Sewerage Revenue Bonds, Series 2003 maturing on November 1, 2010* through and including November 1, 2013* in the aggregate principal amounts as described below (the "Refunded Bonds"): Maturity Date (November 1) Outstanding Principal Amount Refunded Principal Amount* 2010 $675,000 $155, , , , , , ,000 In addition, the City will use a portion of the proceeds of the sale of the Series 2010 Bonds to prepay, on or shortly after the date of issuance of the Series 2010 Bonds, approximately $8,123,439* in aggregate principal amount of a loan (the "2008 GEFA Loan") made to the City by the Georgia Environmental Facilities Authority in September 2008 in order to restructure the principal amortization of such debt. The 2008 GEFA Loan is a general obligation of the City. Although the City used Net Revenues of the System to repay amount due on the 2008 GEFA Loan, the 2008 GEFA Loan is not secured by any lien on the Net Revenues. After giving effect to the refunding and defeasance of the Refunded Bonds and the prepayment of the 2008 GEFA Loan, the City will have outstanding $20,330,000* in aggregate principal amount of revenue bonds secured by a lien on the Net Revenues of the System. The City has determined that refunding the Refunded Bonds and the 2008 GEFA Loan will restructure the City's total debt service payments resulting in more level overall debt service payments. 5

10 A portion of the proceeds of the Series 2010 Bonds, together with certain amounts held under the Bond Resolution, will be irrevocably deposited in escrow with U.S. Bank National Association, Atlanta, Georgia, as escrow agent (the "Escrow Agent"), pursuant to an Escrow Deposit Agreement (the "Escrow Agreement"), to be dated the date of its execution and delivery, between the City and the Escrow Agent, and will be applied by the Escrow Agent (except for required cash balances, if any) to the purchase of certain direct obligations of the United States of America (the "Government Obligations"). The Government Obligations will bear interest at such rates and will be scheduled to mature at such times and in such amounts so that sufficient moneys will be available to pay when due the principal of and interest on the Refunded Bonds and the 2008 GEFA Loan on their maturity date or earliest date of optional redemption. The Refunded Bonds are subject to optional redemption on November 1, 2013, and the 2008 GEFA Loan may be prepaid on any date. The Government Obligations and all other amounts held under the Escrow Agreement will not be available to pay the principal of or interest on the Series 2010 Bonds, and the owners of the Series 2010 Bonds will have no claim to any amounts held under the Escrow Agreement. Based upon the verification by Causey Demgen & Moore Inc., Denver, Colorado, independent certified public accountants, of the arithmetical computations used to determine the sufficiency of the escrow deposit (see "MISCELLANEOUS - Verification of Arithmetical Computations" herein), the Refunded Bonds will no longer be deemed outstanding under the Bond Resolution, upon the purchase of the Government Obligations required pursuant to the Escrow Agreement, and the lien of the Bond Resolution on the Net Revenues of the System securing the payment of the Refunded Bonds will be fully and completely discharged. Description THE SERIES 2010 BONDS The Series 2010 Bonds will be dated as of their date of issuance and will bear interest at the rates set forth on the cover page of this Official Statement, payable May 1, 2010 and semiannually thereafter on May 1 and November 1 of each year (each an "Interest Payment Date") to the registered owner as shown on the books and records of U.S. Bank National Association, Atlanta, Georgia, as Paying Agent and Bond Registrar (the "Paying Agent" or the "Bond Registrar") as of the close of business on the 15th day of the calendar months next preceding such May 1 and November 1. Subject to the redemption provisions described below, the Series 2010 Bonds will mature on the dates and in the amounts set forth on the cover page of this Official Statement. The principal of and redemption premium, if any, on the Series 2010 Bonds are payable when due to the registered owner upon presentation at the main corporate trust office of the Paying Agent. The Series 2010 Bonds are issuable only as fully registered bonds, without coupons, in any authorized denomination. Purchases of beneficial ownership interests in the Series 2010 Bonds will be made in book-entry form and purchasers will not receive certificates representing interests in the Series 2010 Bonds so purchased. If the book-entry system is discontinued, Series 2010 Bonds will be delivered as described in the Bond Resolution, and beneficial owners of the Series 2010 Bonds will become the registered owners of the Series 2010 Bonds. See "THE SERIES 2010 BONDS - Book-Entry Only System" herein. Redemption Optional Redemption The Series 2010 Bonds maturing on and after November 1, 20 * are redeemable at the option of the City in whole or in part at any time, not earlier than November 1, 20 *, in any order of maturities (less than all of such Series 2010 Bonds of a single maturity to be selected by lot in a manner determined by the Bond Registrar), from any monies available therefor at a redemption price equal to 100% of the principal amount of the Series 2010 Bonds being redeemed plus accrued interest to the redemption date, all in the manner provided in the Bond Resolution. Mandatory Sinking Fund Redemption The Series 2010 Bonds maturing on November 1, 20 * are subject to mandatory sinking fund redemption in part from time to time prior to maturity on November 1 of the years and in the principal amounts indicated below, without a premium, plus accrued interest to the redemption date (the 20 * amount to be paid rather than redeemed): 6

11 Year * Principal Amount * Redemption Notices Notice of any redemption of the Series 2010 Bonds, designating the Series 2010 Bonds to be redeemed, will be mailed by first class mail, not less than thirty (30) days nor more than sixty (60) days prior to the redemption date to all registered owners of the Series 2010 Bonds to be redeemed (in whole or in part) at addresses which appear upon the bond registration book. Failure to mail any such notice of redemption of the Series 2010 Bonds will not affect the validity of the proceedings for such redemption or cause the interest to continue to accrue on the principal amount of such Series 2010 Bonds so designated for redemption after the redemption date. Book-Entry Only System The Depository Trust Company ("DTC"), New York, New York, or its successor, will act as securities depository for the Series 2010 Bonds. The Series 2010 Bonds will be issued as fully registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered Series 2010 Bond will be issued for each maturity, in the aggregate principal amount of such maturity, and will be deposited with DTC. So long as DTC or its nominee is the registered owner of the Series 2010 Bonds, payments of the principal and redemption premium of and interest due on the Series 2010 Bonds will be payable directly to DTC. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that 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"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at and Purchases of Series 2010 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2010 Bonds on DTC's records. The ownership interest of each actual purchaser of each Series 2010 Bond (a "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 Series 2010 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 Series 2010 Bonds, except in the event that use of the book-entry system for the Series 2010 Bonds is discontinued. To facilitate subsequent transfers, all Series 2010 Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2010 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 Series 2010 Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Series 2010 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. 7

12 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. Redemption notices will be sent to DTC. If less than all of the Series 2010 Bonds within a maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Series 2010 Bonds unless authorized by a Direct Participant in accordance with DTC's procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Paying Agent 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 the Series 2010 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, premium, and interest payments on the Series 2010 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 payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Paying Agent, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, premium, and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the 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. DTC may discontinue providing its services as securities depository with respect to the Series 2010 Bonds at any time by giving reasonable notice to the City or the Paying Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Series 2010 Bonds are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Series 2010 Bonds will be printed and delivered. The information concerning DTC and DTC's book-entry system set forth above has been obtained from DTC, and the City takes no responsibility for the accuracy thereof. SO LONG AS CEDE & CO., AS NOMINEE FOR DTC, IS THE SOLE BONDHOLDER, THE CITY SHALL TREAT CEDE & CO. AS THE ONLY BONDHOLDER FOR ALL PURPOSES, INCLUDING RECEIPT OF ALL PRINCIPAL AND PREMIUM OF AND INTEREST ON THE SERIES 2010 BONDS, RECEIPT OF NOTICES, VOTING, AND REQUESTING OR DIRECTING THE CITY AND THE PAYING AGENT TO TAKE OR NOT TO TAKE, OR CONSENTING TO, CERTAIN ACTIONS. THE CITY HAS NO RESPONSIBILITY OR OBLIGATION TO THE DIRECT OR INDIRECT PARTICIPANTS OR THE BENEFICIAL OWNERS WITH RESPECT TO (A) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DIRECT OR INDIRECT PARTICIPANT; (B) THE PAYMENT BY ANY DIRECT OR INDIRECT PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL AND PREMIUM OF AND INTEREST ON THE SERIES 2010 BONDS; (C) THE DELIVERY OR TIMELINESS OF DELIVERY BY ANY DIRECT OR INDIRECT PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE BOND RESOLUTION TO BE GIVEN TO BONDHOLDERS; OR (D) OTHER ACTION TAKEN BY DTC OR CEDE & CO. AS BONDHOLDER. Beneficial Owners of the Series 2010 Bonds may experience some delay in their receipt of distributions of principal and interest on the Series 2010 Bonds since such distributions will be forwarded by the Paying Agent to DTC and DTC will credit such distributions to the accounts of Direct Participants which will thereafter credit them to the accounts of Beneficial Owners either directly or indirectly through Indirect Participants. Issuance of the Series 2010 Bonds in book-entry form may reduce the liquidity of the Series 2010 Bonds in the secondary trading market since investors may be unwilling to purchase Series 2010 Bonds for which they cannot obtain physical certificates. In addition, since transactions in the Series 2010 Bonds can be effected only through DTC, Direct Participants, Indirect Participants, and certain banks, the ability of a Beneficial Owner to pledge Series 2010 Bonds to persons or entities that do not participate in the DTC system, or otherwise to take action in respect of such Series 2010 Bonds, may be limited due to lack of a physical certificate. Beneficial Owners will not be recognized by the Paying Agent as registered owners for purposes of the Bond Resolution, and Beneficial Owners 8

13 will be permitted to exercise the rights of registered owners only indirectly through DTC and the Direct or Indirect Participants. Legal Authority Paragraph I of Section VI of Article IX of the Constitution of the State of Georgia authorizes any political subdivision to issue revenue bonds as provided by general law and provides (1) that the obligation represented by revenue bonds shall be repayable only out of the revenue derived from the project and shall not be deemed to be a debt of the issuing political subdivision and (2) that no issuing political subdivision shall exercise the power of taxation for the purpose of paying any part of the principal or interest of any such revenue bonds. The Series 2010 Bonds are being issued and secured pursuant to the authority granted by Article 3 of Chapter 82 of Title 36 of the Official Code of Georgia Annotated, known as the "Revenue Bond Law" (the "Revenue Bond Law"). The Series 2010 Bonds are being issued under the provisions of the Bond Resolution. Pledge of Revenues SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2010 BONDS Under the terms of the Bond Resolution, the Series 2010 Bonds are secured by a pledge of and lien on revenues derived by the City from the ownership and operation of the System, remaining after the payment of expenses of operating, maintaining, and repairing the System (the "Net Revenues"). The City has covenanted in the Bond Resolution that it will not create or permit to be created in the operation and maintenance of the System any charge, lien, or encumbrance on the System or upon the revenues derived therefrom ranking prior to or (except as provided in the Bond Resolution with respect to the issuance of parity bonds) equally with the lien or charge upon such revenues created by the Bond Resolution. The City has also made certain covenants in the Bond Resolution concerning the sale or disposition of the System and insurance on the System, which are described in "SUMMARY OF THE BOND RESOLUTION --Maintenance of Insurance and --Sale of the System" in Appendix C to this Official Statement. Under the terms of the Bond Resolution, the Series 2010 Bonds will be equally and ratably secured on a parity basis with the Unrefunded Series 2003 Bonds, which are presently outstanding in the aggregate principal amount of $9,965,000*. Funds Created By the Bond Resolution and Flow of Funds The Bond Resolution creates and requires the City to maintain the following funds: (1) "The City of Fayetteville Water and Sewerage System Revenue Fund" (the "Revenue Fund"), to be held by the City separate and apart from its other funds with the depository appointed by the City pursuant to the Bond Resolution (currently Wachovia Bank, National Association, a Wells Fargo Company, Atlanta, Georgia); (2) "The City of Fayetteville Water and Sewerage System Sinking Fund" (the "Sinking Fund"), to be held in trust by the custodian appointed by the City pursuant to the Bond Resolution (currently Wachovia Bank, National Association, a Wells Fargo Company, Atlanta, Georgia); (3) "The City of Fayetteville Water and Sewerage System Debt Service Reserve Fund" (the "Debt Service Reserve Fund"), to be held by the City separate and apart from its other funds with the depository appointed by the City pursuant to the Bond Resolution (currently Wachovia Bank, National Association, a Wells Fargo Company, Atlanta, Georgia); and (4) "The City of Fayetteville Water and Sewerage System Renewal and Extension Fund" (the "Renewal and Extension Fund"), to be held by the City separate and apart from its other funds with the depository appointed by the City pursuant to the Bond Resolution (currently Wachovia Bank, National Association, a Wells Fargo Company, Atlanta, Georgia). 9

14 Revenue Fund Pursuant to the Bond Resolution, the City has agreed that all revenues arising from the operation and ownership of the System will be collected by the City or by its agents or employees and deposited promptly into the Revenue Fund. The Bond Resolution provides that moneys in the Revenue Fund will be used first to pay the reasonable and necessary cost of operating, maintaining, and repairing the System, including salaries, wages, the payment of any contractual obligations incurred pertaining to the operation of the System, the purchase of water or the treatment of sewage, cost of materials and supplies, rentals of leased property (real or personal), insurance premiums, audit fees, and such other charges as may properly be made for the purpose of operating, maintaining, and repairing the System in accordance with sound business practice, but before making provision for depreciation or amortization. Sinking Fund The Bond Resolution provides that, after making the payments of operating costs from the Revenue Fund described above, for the purpose of paying the principal of and interest on the Bonds as same become due and payable, either at maturity or by proceedings for mandatory redemption, in the then current sinking fund year, there must be paid into the Sinking Fund, taking into account moneys on deposit therein, an amount equal to 1/6 th of the interest on the Bonds coming due in the next Interest Payment Date and amount equal to 1/12 th of the principal of the Bonds coming due (whether by maturity, mandatory sinking fund redemption or otherwise) on the next succeeding November 1 st. Debt Service Reserve Fund The Bond Resolution provides that, after making the payments of moneys to the Sinking Fund as described above, moneys from the Revenue Fund must be paid into the Debt Service Reserve Fund, taking into account moneys on deposit therein, in equal monthly sums as may be necessary to restore the balance in the Debt Service Reserve Fund to the Debt Service Reserve Requirement within 12 months of the date the balance fell below the Debt Service Reserve Requirement. The "Debt Service Reserve Requirement" is defined in the Bond Resolution as an amount equal to the least of (a) 10% of the original outstanding principal amount of the Bonds, (b) the maximum annual principal of and interest on the Bonds payable in any sinking fund year or (c) 125% of average annual debt service on the Bonds. The Debt Service Reserve Fund will be funded upon the issuance of the Series 2010 Bonds at the Debt Service Reserve Requirement from a combination of (1) a portion of the proceeds of the Series 2010 Bonds in an amount equal to $1,028,943.44* and (2) the 2003 AGM Surety. The 2003 AGM Surety only secures debt service payments on the Series 2003 Bonds and does not secure debt payments on the Series 2010 Bonds. At the time that the City deposited the 2003 AGM Surety into the Debt Service Reserve Fund, Assured Guaranty Municipal Corp. was rated in the highest rating category by Moody's Investors Service, Inc. and Standard & Poor's Ratings Services. However, Assured Guaranty Municipal Corp.'s financial strength has been downgraded by Moody's Investor's Service to "Aa3" with a negative outlook. The Bond Resolution does not, by virtue of such downgrade, require the City to replace the 2003 AGM Surety with cash or a substitute surety bond. The obligation to fund the Debt Service Reserve Fund may be fulfilled by depositing into the Debt Service Reserve Fund an irrevocable surety bond or an irrevocable letter of credit which is rated by Moody's Investors Service or Standard & Poor's Corporation in its highest rating category, which has a term not less than final maturity date of the series of Bonds (or may be drawn upon in full upon its expiration date if a substitute letter of credit or surety bond is not in place prior to its expiration date) which it is given to secure and which is payable on any Interest Payment Date in an amount equal to any portion of the balance then required to be maintained within the Debt Service Reserve Fund. Junior Lien Obligations The Bond Resolution provides that, after making the payments of moneys to the Debt Service Reserve Fund as described above, moneys from the Revenue Fund must be used to pay (i) junior lien obligations, including, but not limited to, any loans made by the Georgia Environmental Facilities Authority and the State of Georgia revolving fund, (ii) the issuer of a letter of credit or surety bond for payment under such letter of credit or surety bond relating to the Debt Service Reserve Fund and (iii) a Liquidity Provider for the payments it makes related to additional parity revenue bonds which do not bear interest at a fixed rate. Renewal and Extension Fund The Bond Resolution provides that there must next be paid from the Revenue Fund at the end of each month to the Renewal and Extension Fund all remaining monies except for a working capital reserve in an amount not to 10

15 exceed 15 days' estimated operating and maintenance costs as determined by the City. Such monthly transfers will continue until the amount in the Renewal and Extension Fund equals $750,000 and thereafter, if the balance in the Renewal and Extension Fund falls below $750,000, the City will recommence the monthly transfers in amounts sufficient to build up the balance in the Renewal and Extension Fund to $750,000. As of January 22, 2010, the balance in the Renewal and Extension Fund was $92,715. Expenditures may be made from the Renewal and Extension Fund only for (i) paying principal of and interest on all revenue bonds payable from revenues of the System then outstanding and falling due at any time for the payment of which money is not available in the Sinking Fund securing the payment thereof; (ii) an emergency having a major effect on the System and only to alleviate such effect; and (iii) making replacements, additions, extensions, and improvements to the System and acquiring equipment deemed to be reasonable and in the best interest of the City and the bondowners. After making the payments required to be made from the Revenue Fund as described above, the City, at the end of each fiscal year, may withdraw from the Revenue Fund any excess amounts, and the City may use such amounts for any lawful public purposes. In addition, notwithstanding the balance in the Renewal and Extension Fund, the City may withdraw an amount, at the end of each fiscal year, equal to 2% of the gross revenues of the System provided all payment to the Sinking Fund and the Debt Service Reserve Fund have been made and these accounts are at their proper balance. Rate Covenant The City has covenanted in the Bond Resolution that it has established a schedule of rates, fees, and charges for the services, facilities, and commodities furnished by the System, and that it will at all times, and from time to time, prescribe, issue, and revise rates and collect fees and charges for the services, facilities, and commodities furnished by the System, to the extent necessary, to produce funds sufficient at all times to (i) maintain and operate the System on a sound businesslike basis; (ii) create and maintain the Sinking Fund in the amounts required; and (iii) create and maintain the Renewal and Extension Fund. In addition, the City has covenanted in the Bond Resolution to maintain such rates, fees, and charges at a level so as to produce Net Revenues equal to 115% of the amount then required to be paid into the Sinking Fund in the then current sinking fund year. For this purpose "Net Revenues" means the gross revenues received from the operation and ownership of the System remaining after the payment therefrom of the reasonable and necessary costs of operating, maintaining and repairing the System, but before making any provision for any depreciation or amortization charges. See "SUMMARY OF THE BOND RESOLUTION --Maintenance of Rates" in Appendix C to this Official Statement. Additional Parity Bonds Upon satisfaction of certain conditions, the Bond Resolution permits the City, for specified purposes, to issue additional revenue bonds without express limit as to principal amount, which will be equally and ratably secured on a parity basis with the Unrefunded Series 2003 Bonds and the Series 2010 Bonds under the Bond Resolution. See "SUMMARY OF THE BOND RESOLUTION Additional Parity Bonds" in Appendix C hereto. The City may issue additional parity bonds in the future to finance part of the cost of ongoing capital improvements to the System; however, the City has no plans to do so at this time. The issuance of additional parity bonds may, for a period of time, dilute the security for the Series 2010 Bonds. Limited Obligations The Series 2010 Bonds are special limited obligations of the City payable solely from the Net Revenues of the System. The Series 2010 Bonds are not payable from and are not secured by a charge, lien, or encumbrance upon any funds or assets of the City other than the Net Revenues and the funds created and held under the Bond Resolution. The Series 2010 Bonds do not and will not constitute a debt or general obligation of the City or a pledge of the faith and credit or taxing power of the City. No governmental entity, including the City, is obligated to levy any tax for the payment of the Series 2010 Bonds. No recourse may be had against the General Fund of the City for the payment of the Series 2010 Bonds. The pledge of and lien on Net Revenues securing the Series 2010 Bonds does not create a legal or equitable pledge, charge, lien, or encumbrance upon any of the City's property or income, receipts, or revenues, except the Net Revenues and the amounts on deposit in the funds held under the Bond Resolution. Remedies The Revenue Bond Law provides that the provisions of the Revenue Bond Law and the Bond Resolution constitute a contract between the City and the owners of the Bonds. For a description of the remedies available to 11

16 owners of the Bonds under the terms of the Bond Resolution upon the occurrence of an Event of Default thereunder, see "SUMMARY OF THE BOND RESOLUTION - Default and Remedies" in Appendix C hereto. In addition to the remedies set forth in the Bond Resolution, the Revenue Bond Law provides that the duties of the City, the City Council, and the officers of the City under the Revenue Bond Law and the Bond Resolution are enforceable by any owner of the Bonds by mandamus or other appropriate action or proceeding at law or in equity. The Revenue Bond Law also provides that in the event the City defaults in the payment of the principal or interest on any of the Bonds after the same becomes due, whether at maturity or upon call for redemption, and such default continues for a period of 30 days, or in the event the City or the City Council or the officers, agents, or employees of the City fail or refuse to comply with the essential provisions of the Revenue Bond Law or default in any material respect in the Bond Resolution, any holders of the Bonds shall have the right to apply in an appropriate judicial proceeding to the Superior Court of Fayette County or to any court of competent jurisdiction for the appointment of a receiver of the System, whether or not all Bonds have been declared due and payable and whether or not such holder is seeking or has sought to enforce any other right or to exercise any remedy in connection with the Bonds. Upon such application, the Superior Court, if it deems such action necessary for the protection of the bondholders, may appoint and, if the application is made by the holders of 25 percent in principal amount of the Bonds then outstanding, shall appoint a receiver of the System. The receiver so appointed under the Revenue Bond Law, directly or by his agents and attorneys, is required under the Revenue Bond Law to forthwith enter into and upon and take possession of the System. If the court so directs, the receiver may exclude the City, the City Council, and the City's officers, agents, and employees, and all persons claiming under them, wholly from the System. Under the Revenue Bond Law, the receiver will have, hold, use, operate, manage, and control the System, in the name of the City or otherwise, as the receiver may deem best. Under the Revenue Bond Law, the receiver will exercise all the rights and powers of the City with respect to the System as the City itself might do. The receiver will maintain, restore, insure, and keep insured the System and from time to time will make all such necessary or proper repairs as the receiver may deem expedient. Under the Revenue Bond Law, the receiver will establish, levy, maintain, and collect such fees, tolls, rentals, and other charges in connection with the System as he deems necessary or proper and reasonable. Under the Revenue Bond Law, the receiver will collect and receive all revenues and will deposit the same in a separate account and apply the revenues so collected and received in such manner as the court shall direct. Notwithstanding the provisions of the Revenue Bond Law described above, the receiver has no power to sell, assign, mortgage, or otherwise dispose of any assets of whatever kind or character belonging to the City and useful for the System. The authority of any such receiver is limited to the operation and maintenance of the System. No court may have jurisdiction to enter any order or decree requiring or permitting the receiver to sell, assign, mortgage, or otherwise dispose of any such assets. The receiver must, in the performance of the powers conferred upon him, act under the direction and supervision of the court making such appointment and will at all times be subject to the orders and decrees of such court and may be removed by such court. Under the terms of the Revenue Bond Law, whenever all that is due upon the Bonds and interest thereon and upon any other notes, bonds, or other obligations and interest thereon having a charge, lien, or encumbrance on the revenues of the System and under any of the terms of the Bond Resolution has been paid or deposited as provided therein and whenever all defaults have been cured and made good and it appears to the court that no default is imminent, the court must direct the receiver to surrender possession of the System to the City. The same right of the holders of the Bonds to secure the appointment of a receiver exists upon any subsequent default as is provided in the Revenue Bond Law. If the City were to default on the Series 2010 Bonds, the realization of value from the pledge of the Net Revenues of the System to secure the payment of the Series 2010 Bonds would depend upon the exercise of various remedies specified by the Bond Resolution and Georgia law (including the Revenue Bond Law). These remedies may require judicial actions, which are often subject to discretion and delay and which may be difficult to pursue. The enforceability of rights or remedies with respect to the Series 2010 Bonds may be limited by state and federal laws, rulings, and decisions affecting remedies and by bankruptcy, insolvency, or other laws affecting creditors' rights or remedies heretofore or hereafter enacted. Section of the Official Code of Georgia Annotated provides that no municipality created under the Constitution or laws of the State of Georgia shall be authorized to file a petition for relief from payment of its debts as they mature or a petition for composition of its debts under any federal statute providing for such relief or composition or otherwise to take advantage of any federal statute providing for the adjustment of debts of political subdivisions and public agencies and instrumentalities. Section of the Official Code of Georgia Annotated also provides that no chief executive, mayor, city council, or other governmental officer, governing body, or organization shall be empowered to cause or authorize the filing by or on behalf of any municipality created under 12

17 the Constitution or laws of the State of Georgia of any petition for relief from payment of its debts as they mature or a petition for composition of its debts under any federal statute providing for such relief or composition or otherwise to take advantage of any federal statute providing for the adjustment of debts of political subdivisions and public agencies and instrumentalities. Introduction THE CITY The City of Fayetteville, Georgia, is a body corporate and politic of the State of Georgia incorporated by an Act of the General Assembly of the State of Georgia in 1823 and has as its formal name "City of Fayetteville, Georgia". The City is the county seat for Fayette County, Georgia (the "County"). The City is located in the west central portion of the State of Georgia approximately 25 miles south of downtown Atlanta. Fayette County is bordered on the north by Fulton County, on the east by Clayton County, on the south by Spalding County, and on the west by Coweta County. The terrain is rolling, and the elevation ranges from 720 feet to 1,005 feet above sea level. Average rainfall is inches per year, and average temperatures range from a high of 87 degrees in the summer to a low of 34 degrees in the winter. The City's population as of July, 2009 is approximately 15,340. The City presently has a land area of approximately square miles. City Administration and Officials The affairs of the City are conducted by a Mayor and a City Council consisting of five members. The Mayor is the chief executive officer of the City and the presiding officer of the City Council. The Mayor and members of the City Council are elected to serve staggered four-year terms of office. To be eligible to serve as Mayor or a member of the City Council, a person must be at least twenty-one years of age on the date of the election, must have resided in the City at least one year immediately preceding the date of the election and must be qualified and registered to vote for members of the Georgia General Assembly. The Mayor pro-tem of the City Council is elected by the City Council at the first meeting of each year to serve for that year, and the Mayor pro-tem performs the duties of the Mayor when the Mayor is absent from the City or unable to perform his or her duties. Information concerning Mayor and the current members of the City Council is set forth below: Name and Office Held Expiration of Term Number of Years in Office Principal Occupation Kenneth Steele, Mayor December 31, Retired Larry Dell Al Hovey-King December 31, 2014 December 31, Retired Engineer Paul C. Oddo, Jr. December 31, Certified Public Accountant Wilson Price Walt White December 31, 2012 December 31, Retired Retired The daily operation of the City is directed by a City Manager, who is appointed by and serves at the pleasure of the City Council. The City Manager is the administrative head of the City government, responsible to the City Council for the proper and efficient administration of all affairs of the City. William J. Morton, Jr. has served as City Manager from February, 1994 to March, 1998 and April 2000 to present. Introduction THE SYSTEM The Revenue Bond Law authorizes the City to acquire and operate for users within and outside the territorial boundaries of the City systems, plants, works, instrumentalities, and properties (i) used or useful in connection with obtaining a water supply and conserving, treating, and disposing of water for public and private uses and (ii) used or useful in connection with collecting, treating, and disposing of sewage and wastewater. The System operates as a department of the City. 13

18 Management The System is administered by the City through the City Council. The City Manager is charged with the responsibility of daily operation and administration of the System. William J. Morton, Jr. has been the City Manager of the City from February, 1994 to March, 1998 and April 2000 to present. Mr. Morton received a Bachelor of Science degree in Criminal Justice from Florida State University in 1979 and a Master's of Public Administration from the University of Georgia in Lorri Lynn Robinson has been the Director of Finance for the City since 1987 and has been employed by the City for 22 years. Ms. Robinson received an Associates degree from Community College of Allegheny County in Ms. Robinson is a certified Finance Officer. Richard H. Eastin has been the Director of the Water and Sewer Department of the City since 1991 and has been employed by the City for 19 years. Mr. Eastin holds Water and Waste Water Treatment Plant Operator licenses and has been involved in the management, maintenance and operation of water and wastewater treatment plants in Georgia for more than 20 years. System Facilities Water System The City's water system consists of a water supply, treatment, and distribution system. The System's primary source of raw water is Whitewater Creek. The System's primary source of treated water is the County pursuant to water supply contract between the City and the County. See "THE SYSTEM - Water Sources" herein. In addition, the City owns two operating wells that have an aggregate well-water pumping capacity rated at approximately MGD. Water from the operating wells is pumped to the plant site, treated with chlorine and other agents and is then pumped into the distribution system. The condition of the two operating wells is good. The City owns one water treatment plant, which is described below. Rated Capacity Treated Water Production Date for Treatment of Pumping Rated of Treated Water (MGD) of Original Date of Plant Raw Water (MGD) Capacity (MGD) Average Maximum Construction Improvements Fayetteville n/a 1 Year ended July 31, The condition of the water treatment plant is good. The City owns one elevated storage tank with an aggregate storage capacity for treated water of one million gallons. This storage tank was constructed in 1978 and is in excellent condition. In addition, the City has 1.5 million gallons of clear well water storage capacity located near the center of downtown. The System's water distribution network consists of approximately 108 miles of pipelines, ranging in size from 6 inches to 20 inches in diameter. Most of the pipelines are made of PVC or ductile iron. Approximately 80% of the pipelines have been in service for 10 years or more, with the oldest pipelines installed approximately 50 years ago. The general condition of the water distribution network is good. The City also owns 3 buildings, 22 vehicles, and various equipment related to the System. Sewerage System The City's sewerage system consists of a wastewater treatment and collection system. 14

19 The City owns one wastewater treatment plant, which is described below. Rated Treated Date of Treatment Wastewater (MGD) Original Dates of Plant Capacity (MGD) Average Maximum Construction Improvements Receiving Stream Whitewater Creek Whitewater Creek 1 Year ended July 31, The City recently completed the construction of an upgrade of the plant's treatment capacity to 5.0 MGD and is in the process of applying to the State of Georgia Department of Natural Resources, Environmental Protection Division to receive the necessary permits. The condition of the City's wastewater treatment plant is excellent. The City believes that it has sufficient future capacity capabilities within its current permits to handle wastewater treatment demands for at least the next 30 years. The City's wastewater collection and conveyance system consists of 24 wastewater pumping stations and approximately 122 miles of collection sewers which transport primarily sanitary sewage. The collection and conveyance system uses a combination of 8-inch to 48-inch sewers. Most of the sewers are made of PVC, ductile iron, or concrete. Approximately 80% of the sewers have been in service for 10 years or more, with the oldest sewers installed approximately 50 years ago. The collection and conveyance system has standby pumps, a standby power system, and supervisory and data acquisition systems. The general condition of the collection and conveyance system is good. Water Sources Raw Water Sources The primary source of raw water for the System is Whitewater Creek. The City is entitled to withdraw a monthly average and a daily maximum of 3.0 MGD of raw water from Whitewater Creek. The City's surface water withdrawal permit requires the City to allow a flow of 3.0 cubic feet per second (cfs) or the natural stream flow, whichever is less, to pass immediately below the City's intake at all times. Thus, the City cannot make any withdrawal from Whitewater Creek that would reduce the flow of the creek immediately below the City's intake to less than 3.0 cfs, and when the natural flow passing by the City's intake is less than 3.0 cfs, the City cannot withdraw any water from Whitewater Creek. This restriction has prevented the City from withdrawing water from Whitewater Creek during certain droughts in the past; however, it did not result in any water shortages because the City was able to purchase sufficient water from Fayette County pursuant to the Water Supply Agreement (described below). During fiscal year 2009, the City produced and delivered approximately 71% of the treated water that it sold to customers. The City purchased the remaining 29% of the treated water that it sold from the County. The City purchases a portion of the treated water it sells because (1) the City's current raw water supply is not adequate to satisfy all of the demand for water by its customers and (2) it is more feasible and less expensive for the City to use the County's distribution system than to transport a sufficient quantity of the treated water the long distance from the City's water treatment plant to certain of the City's customers. Water Supply Agreement The City has entered into a water supply agreement dated December 11, 1984 with the County (the "Water Supply Agreement"), which expires on December 11, Pursuant to the Water Supply Agreement, the County agrees to sell and deliver to the City and the City agrees to purchase not less than 1,000 gallons of water per day together with such additional amounts as may be necessary to meet supply requirements of the System. The costs of the water per 1,000 gallons equals 54.7% of the monthly amount billed to a residential customer served by the County in the unincorporated portion of the County using 10,000 gallons of water. Currently, the rate per 1,000 gallons of water charged to the City pursuant to the Water Supply Agreement is $2.43. Set forth below is a summary of water purchases by the City from the County pursuant to the Water Supply Agreement for the past five fiscal years of the City. 15

20 Summary of Water Purchases (millions of gallons) Years Ended July 31 Supplier County 53,232 74, , , ,873 The amounts paid by the City to the County for water purchased by the City pursuant to the Water Supply Agreement for the City's past five fiscal years are set forth below. Fiscal Year County $120,615 91, , , ,010 Water Allocation Issues The State of Alabama, in a lawsuit filed against the U.S. Department of the Army Corps of Engineers (the "Corps") in 1990, challenged the Corps' operation of the Buford Dam/Lake Sidney Lanier project, a federal dam and reservoir located on the Chattahoochee River within the Apalachicola-Chattahoochee-Flint ("ACF") River Basin for water supply purposes. Shortly after the case was filed, the State of Alabama and the Corps agreed to stay the case. Beginning in 1991, the State of Alabama and the Corps, along with the States of Florida and Georgia, entered into a series of Memoranda of Agreement, pursuant to which they agreed to participate in a comprehensive, basin-wide study of the ACF River Basin. The County is located in the ACF River Basin but obtains its water from the Flint River and its tributaries, not the Chattahoochee River. In November of 1997, the United States Congress ("Congress") consented to an interstate compact entered into by the States of Georgia, Alabama, and Florida pertaining to the allocation of water in the ACF River Basin. The compact provided for the equitable allocation of water within the ACF River Basin according to principles and formulae that were to be agreed upon by the three states prior to a specified deadline and pursuant to the procedures provided by the compact. Because the three states could not reach such an agreement for the ACF River Basin before the specified deadline, the compact terminated of its own accord on July 1, As a result, the States of Georgia, Alabama, and Florida are now left to address various water allocation and use issues in the ACF River Basin as they may agree, or as may be decided in the appropriate legislative or judicial forum. Following the termination of the compacts, the States of Alabama, Florida, Georgia, the Corps, and other parties have been engaged in several federal lawsuits concerning the operation of federal reservoirs within the ACF River Basin. These cases subsequently were consolidated by the Judicial Panel on Multidistrict Litigation in the Middle District of Florida (the "MDL Litigation"). The first issue to be addressed in the MDL Litigation involved the Corps' operation of Lake Lanier. Specifically, the issue was whether the Corps exceeded the authority granted to it by Congress and violated the National Environmental Policy Act ("NEPA") and other statutes by providing storage, allowing installation of water intake structures in Lake Lanier, and otherwise accommodating water supply needs in its operation of Lake Lanier. On July 17, 2009, the Court in the MDL Litigation issued a ruling that water supply, in the form of withdrawals from Lake Lanier, is not an authorized purpose of Lake Lanier and that the Corps exceeded its statutory authority in operating Lake Lanier to accommodate certain water supply needs without further Congressional authorization. The Court has provided a stay of three years to allow the parties to obtain Congress' approval for the operational changes needed to allow the particular water supply uses found to be unlawful. According to the ruling at the end of the three years, if approval is not obtained, operation of the Buford Dam will return to baseline operations as such existed in the mid-1970s, with only Gainesville and Buford allowed to withdraw water from Lake Lanier. During the next three years, the Corps may continue to meet existing needs from Lake Lanier, but those needs cannot increase within the consent of all of the parties to the MDL Litigation. The State of Georgia and the Corps have appealed the July 17, 2009 ruling to the United States Court of Appeals. Meanwhile, separately, the next phase of the MDL Litigation involves whether the Corps' operation of the federal reservoirs on the Chattahoochee River in the ACF Basin violate the Endangered Species Act, NEPA, or other laws. At the present time, it is not known how the Court's July 17, 2009 ruling or any other rulings in the MDL Litigation could indirectly impact water withdrawals in the ACF Basin beyond those that were the subject of the lawsuit. The MDL Litigation does not directly challenge any water withdrawals within the Flint River Basin, and 16

21 there are no federal storage reservoirs within the Flint River Basin. Although the City currently does not expect any of the foregoing to affect the County's ability to withdraw water at the level currently permitted, to construct and withdraw water from Lake McIntosh when completed, or, if needed, to increase its withdrawals beyond currentlypermitted levels in the future, it is not possible to predict whether the outcome of the MDL Litigation, state management decisions or Congressional actions made as a result thereof, or future litigation could have an effect upon water use within the entire ACF Basin, including the County's use of water within the Flint River Basin. Service Area The System supplies water to residential, commercial, and industrial customers located within the corporate City limits and certain areas outside of the City consisting of a geographic area of approximately square miles containing an estimated population in excess of 15,804. This geographic area is established by the Water Supply Agreement that was executed in The System provides sewer services to residential, commercial, and industrial customers located within the corporate City limits of the City. The System provides sewer services to a geographic area of approximately square miles containing an estimated population in excess of 15,340. Service Area Demographic Information The City is located in the central portion of Fayette County, which is located in the west central portion of the State of Georgia, and is the county seat of Fayette County. Set forth below is selected demographic data for the City and Fayette County. Fayette County Average Household City County Per Capita Income 2 Effective Buying Income 3 Median Year Population 1 Population 1 County State County State Age , ,465 $ n/a $ n/a $104,493 $74, ,097 14, , ,580 42,384 40,662 33,499 32, ,414 92,530 73,497 69, , ,484 39,873 31,260 80,346 60, ,678 13,368 99,888 97,976 38,799 37,704 29,723 28,720 77,305 n/a 61,945 n/a ,148 91,263 36,741 27,990 n/a n/a ,827 2,715 62,415 29,043 21,717 11,532 17,603 8,420 n/a n/a n/a n/a ,160 11,364 3,867 3,378 n/a n/a ,384 8,199 n/a n/a n/a n/a 24.9 Sources: 1 U.S. Department of Commerce, Bureau of the Census. All population figures for years other than 2000, 1990, 1980, 1970, and 1960 are estimates by the U.S. Department of Commerce, Bureau of the Census. 2 U.S. Department of Commerce, Bureau of Economic Analysis. 3 Editor & Publisher Market Guide. 17

22 Service Area Economic Information The following information is provided to give prospective investors an overview of the general economic conditions in the service area. These statistics have not been adjusted to reflect economic trends and are not to be relied upon as a representation or guarantee of the City. Fayette County Retail Sales (in thousands) Year Amount 2008 $1,611, ,522,689 1,394, ,116, ,106,018 Source: Editor & Publisher Market Guide. Summary of City Building Permits Commercial/ Residential 2 Industrial/Other 1 Single Family Multi-Family Permits Value Permits Value Units Value $ 7,931, $ 1,926,848 $-0- $ ,445, ,268, ,062,389 23,569, ,232,262 41,129, , ,516, ,472, Source: 1 City of Fayetteville. 2 U.S. Department of Commerce, Bureau of the Census, Manufacturing and Construction Division. 18

23 Following is a table showing the percentage of the 2007 payroll distribution in the City for each major sector of the local economy. Percentage of 2007 Payroll Distribution in the City by Sector Percentage of 2007 Industry Payroll Distribution Mining; Utilities 5.26% Construction Manufacturing Wholesale Trade Retail Trade Transportation and Warehousing Information Finance and Insurance 4.78 Real Estate and Rental and Leasing Professional, Scientific, and Technical Services Management of Companies and Enterprises 5.04 Administrative, Support, Waste Management, and Remediation Services Educational Services Health Care and Social Assistance Arts, Entertainment, and Recreation Accommodation and Food Services 3.63 Other Services Unclassified Total % Source: U.S. County Business Patterns, U.S. Department of Commerce, Bureau of the Census. Set forth below are the ten largest private employers located in the City as of July 31, 2009, their industries, and their approximate number of employees. There can be no assurance that any employer listed below will continue to be located in the City or will continue employment at the level stated. No independent investigation has been made of, and no representation can be made as to, the stability or financial condition of the companies listed below. Employer Industry Employees Piedmont Fayette Hospital WalMart Healthcare Retail Sales 1, Piedmont Physicians Yorktown Center Medical Offices 230 Kroger Publix Retail Grocery Retail Grocery Target Retail Sales 180 LaFayette Nursing Home The Home Depot, Inc. Healthcare Retail Sales Allan Vigil Automobile Sales and Service 72 Leslie Contracting Commercial Construction 50 Source: City of Fayetteville. Set forth below are the largest public employers located in the City, including the City, as of July 31, 2009, and their approximate number of full-time employees. Employer Employees Fayette County 700 Fayette County Board of Education 585 City of Fayetteville 142 Source: City of Fayetteville. 19

24 Set forth below are labor statistics for the City for the past five years, with comparative data for the State of Georgia Employment Unemployment 6, , , , , Total Labor Force 6,851 7,123 7,145 7,422 7,465 City Unemployment Rate County Unemployment Rate 4.5% 3.7% 5.0% 4.5% 4.1% 3.9% 4.1% 3.9% 5.5% 5.1% State Unemployment Rate 4.7% 5.2% 4.6% 4.6% 6.2% Source: State of Georgia Department of Labor. According to the State of Georgia Department of Labor, the preliminary November 2009 unemployment rate of the City was 8.6%, compared to 8.0% for Fayette County and 10.2% for the State of Georgia. Total Deposits in County Financial Institutions as of June 30 (in thousands) Year Total Deposits 2008 $1,860, ,865, ,805,814 1,604, ,507,672 Source: State of Georgia Department of Banking and Finance. According to the State of Georgia Department of Banking and Finance as of December 31, 2008, the County had 17 financial institutions with a total of 49 branch offices. 20

25 Customers Water System Set forth below is information concerning the demand for water from the System for the City's past five fiscal years. Water Demand Years Ended July Average Daily (MGD) Maximum Daily (MGD) Set forth below is the number of connections to the water system by customer class as of the dates shown. Number of Water Connections 1 As of July 31 Customer Class Residential 2 Commercial and Industrial 5, , , , , Totals 6,576 6,640 6,643 6,631 6,585 1 Excludes inactive accounts. 2 Includes apartment complexes, which are served by a single connection. Set forth below is information concerning the ten largest water customers of the System for the year ended July 31, No independent investigation has been made of, and consequently no representation can be made as to, the stability or financial condition of any of the customers listed below or that such customers will continue to maintain their status as major customers of the System. Ten Largest Water Customers Gallons Total Percentage of Customer Metered 1 Billing Total Water Revenues Banks Station 5,654,800 $ 26, % Bay Branch Condo Swanbrook 3,372, ,500 16,875 16, Summit Retail 3,158,750 14, Cobblestone of Fayette County Board of Commissioners 2,648, ,450 14,424 14, Fayette County Jail Complex 4,380,940 12, HCCC, Inc. Fayetteville Town Center 3,293, ,260 11,862 9, Marksman Landscaping 681,000 5, Totals $141, % 1 In thousands. 21

26 Sewerage System Set forth below is information concerning the demand for sewer service from the System for the City's past five fiscal years. Treated Wastewater Flow Years Ended July Average Daily (MGD) Maximum Daily (MGD) Set forth below is the number of connections to the sewerage system as of the dates shown. Number of Sewer Connections 1 As of July 31 Customer Class Residential 2 6,112 6,229 6,783 6,737 6,626 Commercial and Industrial ,279 1,314 1,406 Totals 6,748 6,870 8,062 8,051 8,032 1 Excludes inactive accounts. 2 Includes apartment complexes, which are served by a single connection. 3 Commercial and industrial connections are included in residential numbers. Set forth below is information concerning the ten largest sewer customers of the System for the year ended July 31, No independent investigation has been made of, and consequently no representation can be made as to, the stability or financial condition of any of the customers listed below or that such customers will continue to maintain their status as major customers of the System. Ten Largest Sewer Customers Gallons Total Percentage of Customer Metered Billing 1 Total Sewer Revenues Fayette Community Hospital 40,412,000 $ 174, % Inland Group Banks Station 14,286,300 5,654,800 99,543 46, Bay Branch Condo 3,372,960 17, Swanbrook Cobblestone of Fayette 178,500 2,648,400 17,604 15, Summit Retail 3,158,750 14, County Board of Commissioners Fayette County Jail Complex 583,400 4,380,940 13,308 11, Fayetteville Town Center 738,260 8, Totals $419, % 1 Based upon water consumption. 22

27 Rates, Fees, and Charges Monthly service charges for water and sewer services generally consist of a monthly demand charge based upon the size of a customer's water meter plus a volume charge applied to the monthly water consumption. In addition, connection fees varying by water meter size are charged to new customers connecting to the System. The water and sewer rates to all retail customers are uniform. Other than water service provided to public parks, fire hydrants, and fire sprinklers, the City does not provide any free water or sewer service. The City last adjusted its water and sewer rate schedules in 2007 and 2008, respectively. A summary of the general rate schedules in effect since January 1, 2000 is set forth below. Fiscal Year Monthly Base Rate Monthly Water Service Rates Residential Commercial Senior 1 Rate per Monthly Base Rate per Monthly Base 1,000 Gallons Rate 1,000 Gallons Rate Rate per 1,000 Gallons 2000 $12.00 $2.40 $22.00 $2.40 $ 9.00 $ Customers age 65 and older. 2 $3.19 per thousand in excess of 20,000 gallons. Fiscal Year Monthly Base Rate Monthly Sewer Service Rates Residential Commercial Senior 1 Rate per Monthly Base Rate per Monthly Base 1,000 Gallons Rate 1,000 Gallons Rate Rate per 1,000 Gallons 2000 $10.00 $1.65 $20.00 $1.65 $ 9.00 $ Customers age 65 and older. 23

28 Water Connection Fees Meter Size Connection Fee 5/8-3/4" $ 1,300 1" 1-1/2" 1,600 1,900 2" 2,400 3" 4" 2,500 7,800 6" 10,540 8" 14,000 The monthly minimum charge for a 3/4" residential meter for sewer service is $ The City's sewer connection fee for a 3/4" residential meter is $3,024. Set forth below is a comparison of monthly residential water bills of customers of the System and customers of other retail water systems in Georgia which are similar to the System, based on rates in effect for each system as of July 31, Monthly Residential Water Bill as of Utility July 31, The System Fayette County $ Town of Brooks Clayton County Coweta County Douglas County Henry County Based upon meter size of 5/8" or 3/4" using 7,000 gallons of water. Rate Setting Process Under Georgia law, the City has the exclusive authority to establish rates and charges for water and sewer service supplied by the System. The rates charged by the City for water and sewer service supplied by the System are not subject to review or approval by any federal or state regulatory body. The City Council establish the rates, which are subject to change at any time as the City Council deems advisable. The City Council adopts rate schedules by resolution after recommendations from the staff of the System. The staff of the System makes periodic reviews of the rate structure to determine if modifications are needed. See "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2010 BONDS - Rate Covenant" herein for a description of the City's agreements concerning the rates, fees, and charges for the services, facilities, and commodities to be furnished by the System. No statutory procedures are required as a condition precedent to a change in rates. Billing and Collection The City bills on a monthly basis for water and sewer service. The City prepares a single bill covering charges for water and sewer service. Payment is due within approximately 14 days from the billing date. A 10% penalty is added to the bill if payment is not made by the due date. If the delinquent amount is not paid by 30 days after the due date, water and sewer service is discontinued. To restore service, the customer must pay all overdue amounts in full and pay a reconnection fee of $25. The City collected in excess of 95% of its total water and sewer billings during its past five fiscal years. The City's policy is to write off, as uncollectible, overdue accounts which are more than twelve months old. 24

29 Governmental Approvals and Environmental Regulation Water Withdrawal The Georgia Water Quality Control Act authorizes the State of Georgia Department of Natural Resources, Environmental Protection Division ("EPD"), to regulate the withdrawal of water from lakes, streams, and aquifers in Georgia. The City holds a permit for withdrawal of raw water and well water in the following amounts from the following sources: Permitted Withdrawal (MGD) Actual Withdrawal (MGD) Raw Water Source Average Maximum Average Maximum Whitewater Creek Three wells Year ended July 31, Although the City's groundwater use permit authorizes the withdrawal from three wells, the City's water system permit allows it to supply water only from the two wells that are currently in operation. Water Treatment EPD also regulates water treatment systems in Georgia. EPD has issued to the City operating permits for the treatment of water in the following amounts for the following water treatment plant: Permitted Treatment Capacity (MGD) Actual Treatment Flow (MGD) Water Treatment Average Maximum Average Maximum Fayetteville The City's water system permit allows the City to operate the water treatment plant at a maximum capacity of 4.0 MGD, subject to the terms of the City's surface water withdrawal permit. However, the City's surface water withdrawal permit currently limits withdrawals to a daily maximum of 3.0 MGD. 2 Year ended July 31, Wastewater Treatment The City's wastewater operations are subject to the regulatory requirements imposed by the federal Water Pollution Control Act, as amended (the "Clean Water Act"), and the Georgia Water Quality Control Act. The regulatory requirements are administered by the federal Environmental Protection Agency ("EPA") and the EPD. EPD has issued to the City operating permits for the treatment of wastewater in the following amounts at the City wastewater treatment plant: Permit Limit on Flow Actual Treatment Flow Peak Wastewater Treatment Plant (Monthly Average MGD) (Monthly Average MGD) Treatment Flow Whitewater Creek The City recently completed the construction of an upgrade of the plant's treatment capacity to 5.0 MGD and is in the process of applying to the State of Georgia Department of Natural Resources, Environmental Protection Division to receive the approvals to operate the plant at this capacity. 2 Year ended July 31,

30 State and federal regulations applicable to the City's wastewater operations deal with, among other issues, the quality of effluent which may be discharged from the City's wastewater treatment facilities, the disposal of sludge generated by the wastewater treatment plants, and the nature of waste material (particularly industrial waste) discharged into the collection system. National Pollutant Discharge Elimination System ("NPDES") Permits Under the Clean Water Act, an NPDES permit is generally required for discharges to surface water. Therefore, to comply with federally mandated effluent quality and disposal criteria, the City must operate its wastewater treatment facility according to discharge limitations and reporting requirements set forth in NPDES permits. The City's wastewater treatment plant has an NPDES permit allowing discharges of wastewater flow of up to 3.75 MGD on a monthly average basis and 4.69 MGD on a weekly average basis (conditioned upon meeting other effluent limitations) to Whitewater Creek; however, the City recently completed the construction of an upgrade of the plant's treatment capacity to 5.0 MGD and is in the process of applying to the State of Georgia Department of Natural Resources, Environmental Protection Division to receive the necessary approvals for operation at that capacity limit. Upon receiving such approvals, the City will be authorized, pursuant to is wastewater discharge permit, to discharge 5.0 MGD on a monthly average basis and 6.25 MDG on a weekly average basis. Other Approvals EPD has the authority to review and approve the plans and specifications for certain of the improvements and extensions to the System. As such plans and specifications are finalized, the City submits them to EPD for approval, and as support for applications to obtain new or modified operating permits. Apart from approvals required from EPD, the City is not aware of any further approvals necessary for the planned improvements and extensions to the System or for the operation of the System. Issues Relating to Noncompliance The City is currently in substantial compliance with all of its environmental permits and all environmental requirements now applicable to the System. Employees, Employee Relations, and Labor Organizations The City employed 21 persons related to the System as of July 31, 2009, all of which are full-time employees. No employees of the City related to the System are represented by labor organizations or are covered by collective bargaining agreements, and the City is not aware of any union organizing efforts at the present time. The City Manager believes that employee relations are good. The System's management staff, plant operators, and certain maintenance and repair personnel are required to be certified by the State of Georgia. The System has a continuing education program to ensure that its personnel are qualified and able to meet the State of Georgia's certification requirements. Accounting System and Policies SYSTEM FINANCIAL INFORMATION The City maintains all of its funds and accounts relating to the System separate from other City funds. The accounting practices and policies of the City relating to the System conform to generally accepted accounting principles as applied to governments. The System is accounted for as an Enterprise Fund of the City. Enterprise Funds are used to account for operations (i) that are financed and operated in a manner similar to private business enterprises, where the intent of the governing body is that the cost (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges, or (ii) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. The System is accounted for using the accrual basis of accounting. Its revenues are recognized when earned, and its expenses are recognized when incurred. Note 1 of the audited financial statements of the System included as part of Appendix A contains a detailed discussion of the City's significant accounting policies relating to the System. 26

31 Historical Capital Structure Set forth below is an historical, comparative summary of the capital structure of the System as of the end of its past five fiscal years. The information in the following table has been extracted from audited financial statements of the System for the years ended July 31, 2005 to Although the information for the past five fiscal years was taken from audited financial statements, no representation is made that the information is comparable from year to year, or that the information as shown taken by itself presents fairly the capital structure of the System as of the end of the years shown. For more complete information, reference is made to the financial statements from which this information was extracted, copies of which are available from the City upon request. [Remainder of Page Intentionally Left Blank] 27

32 Historical Capital Structure of the System Amount Outstanding as of July 31 (Audited) Current Liabilities Accounts payable $ 273,762 $1,115,294 $2,498,954 $ 303,455 $ 147,634 Accrued liabilities 73,395 74,205 78, ,180 97,025 Notes payable, current portion 1 247, , , , ,430 Capital lease payable, current portion ,515 2,630 1,315 Due to other funds 132,162 97, , , ,581 Current portion of revenue bonds payable from restricted assets 590, , , , ,000 Accrued interest 152, , , , ,661 Total Current Liabilities 1,469,368 2,309,200 3,906,700 2,139,445 1,650,646 Noncurrent Liabilities Revenue bonds payable, net of current portion 12,465,788 11,907,431 11,339,074 10,750,718 10,147,361 Notes payable, net of current portion 1 1,955,364 2,957,435 7,555,986 9,240,534 8,025,254 Capital lease payable, net of current portion ,943 1,313 Total Noncurrent Liabilities 14,421,152 14,864,866 18,899,003 19,992,565 18,172,615 Total Liabilities 15,890,520 17,174,066 22,805,703 22,132,010 19,823,261 Net Assets Invested in capital assets, net of related debt 9,606,017 11,267,649 12,776,513 12,195,150 13,532,153 Restricted for debt service 7,253,854 4,005,622 1,923,585 1,091, ,721 Unrestricted (3,248,560) (609,094) 1,005,444 2,649,153 2,361,827 Total Net Assets 13,611,311 14,664,177 15,705,542 15,936,011 16,028,701 Total Liabilities and Net Assets $29,501,831 $31,838,243 $38,511,245 $38,068,021 $35,851,962 Ratio of Noncurrent Liabilities to Net Assets % % % % % Noncurrent Liabilities as a Percentage of Total Liabilities and Net Assets 48.88% 46.69% 49.07% 52.52% 50.69% 1 Notes are payable to GEFA. These notes evidence loans made by GEFA to finance improvements to the System. The notes are unsecured general obligations of the City. Although the City intends to repay these notes from revenues of the System, the notes are not secured by any lien on the revenues of the System. There has never been a default in payment of the principal of or interest on any revenue bonds of the City secured by revenues of the System. Proposed Debt The City does not plan to issue any additional revenue bonds secured by revenues of the System during the next five years. Instead, the City expects to finance any capital improvements to the System during the next five years with available moneys from the System's current reserves and income from operations. See "CITY FINANCIAL INFORMATION - Capital Improvements" herein. 28

33 Debt Service Requirements Following are the principal and interest payment requirements with respect to the Series 2010 Bonds, compared to the principal and interest payment requirements with respect to the Unrefunded Series 2003 Bonds, for the years shown below. For purposes of calculating the principal payable in any year, the relevant maturity or mandatory redemption amount is used. Year Ending November 1 Unrefunded Series 2003 Bonds Series 2010 Bonds Total Debt Service Principal* Requirements* Principal* Interest Total Debt Service Requirements Combined Total Debt Service Requirements 2010 $ 520,000 $ 951, , , , , , , , ,424 $ 35, , ,761 40, , ,636 40, , ,805 40, , ,205 40, , ,940 40, , ,750 40, , ,500 45, , ,500 45, , ,500 40, , ,250 45, , , ,005, ,045, ,090, ,140, ,195, ,245, ,305,000 Total $9,965,000 $13,935,694 $10,365,000 29

34 Five Year Operating History Set forth below is an historical, comparative summary of the statements of operations of the System for its past five fiscal years. The information in the following table has been extracted from audited financial statements of the City for the years ended July 31, 2005 to Although the information for the past five fiscal years was taken from audited financial statements, no representation is made that the information is comparable from year to year, or that the information as shown taken by itself presents fairly the results of operations of the System for the periods shown. For more complete information, reference is made to the financial statements from which this information was extracted, copies of which are available from the City upon request. Summary of System Statements of Operations Years Ended July 31 (Audited) Operating Revenues Water sales $ 2,212,619 $ 2,409,884 $ 2,513,048 $ 2,471,267 $ 2,375,179 Sewer sales 1,528,208 1,719,739 2,006,031 2,148,367 2,524,928 Stormwater sales 450, , , , ,799 Other fees and charges ,980 7,773 4,487 5,574 Total Operating Revenues 4,191,258 4,614,379 5,001,076 5,113,316 5,399,480 Operating Expenses Personal services and employee benefits 1,664,320 1,760,069 1,869,481 1,936,884 2,104,257 Contracted services 751, , , , ,268 Supplies 900, ,615 1,165,161 1,247,919 1,067,309 Other operating expenses 37, Depreciation 1,087,317 1,234,578 1,182,464 1,200,240 1,186,339 Amortization 69,997 69,997 69,997 69,997 69,997 Total Operating Expenses 4,511,200 4,807,655 4,968,097 5,030,428 4,932,170 Income (Loss) From Operations (319,942) (193,276) 32,979 82, ,310 Nonoperating Income (Expenses) Intergovernmental revenue , ,116 Interest income 201, , ,063 79,661 3,844 Interest expense (619,866) (601,842) (577,753) (582,767) (831,249) Total Nonoperating Income (418,731) (285,371) (310,690) (305,978) (435,289) Income (loss) before contributions (738,673) (478,647) (277,711) (223,090) 32,021 Capital Contributions 1 2,057,053 1,531,513 1,319, ,559 60,669 Transfers Out (24,999) Change in Net Assets 1,293,381 1,052,866 1,041, ,469 92,690 Net Assets, beginning of year 12,317,930 13,611,311 14,664,177 15,705,542 15,936,011 Net Assets, end of year $13,611,311 $14,664,177 $15,705,542 $15,936,011 $16,028,701 1 Developer contributions of infrastructure (including lines and lift stations) and sewer connection fees. 30

35 Management's Discussion and Analysis of Results of Operations For a narrative overview and analysis of the financial activities of the City for fiscal year 2009, see "Management's Discussion and Analysis" included in the City's financial statements included as Appendix A hereto. Since fiscal year 2005, the number of water customers of the System has decreased by approximately 0.3%, and the number of sewer customers has increased by approximately 19.0%. The downturn in the economy has left some homes unsold and rental property empty which is reflected in the decrease in active water accounts. The Westside of the City continues to develop with retail businesses and medical facilities near the Fayette Piedmont Hospital. In addition, from fiscal year 2005 to fiscal year 2009, operating revenues related to the System increased by 29%, operating expenses related to the System increased by approximately 9.3%, and income from operations of the System has increased from ($319,942) to $467,310. Rate increases were implemented in three phases beginning in June 1, 2006 with the final rate increase in September The percentage of rate increase for all three phases was 35%. The System's cash flow available for debt service, including connection fees, has increased from $1,501,047 in fiscal year 2005 to $1,788,159 in fiscal year 2009, representing an approximately 19.1% increase. For each complete fiscal year since fiscal year 2005, the System's debt service coverage ratio from cash flow available for debt service, including connection fees, has exceeded the minimum debt service ratio requirement of 1.15 for the Bonds, ranging from a low of 1.46x in fiscal year 2005 to a high of 1.99x in fiscal year See "SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2010 BONDS - Rate Covenant" herein. 31

36 Historical and Forecasted Debt Service Coverage Ratios Set forth below is the City's historical ratios of Cash Flow Available for Debt Service to Debt Service on the Bonds for the past five fiscal years. Historical Debt Service Coverage Ratios Years Ended July 31 (Audited) Historical Cash Flow Available for Debt Service on Bonds Operating Income 1 $ 650,319 $ 895,699 $1,176,387 $1,307,375 $1,710,346 Interest Income 201, , ,063 79,661 3,844 Water Connection Fees 187, , ,053 45,750 13,300 Sewer Connection Fees 462, , , ,559 60,669 Total $1,501,047 $2,041,107 $2,225,769 $1,886,345 $1,788,159 Historical Debt Service on Bonds 1,024,738 1,108,888 1,116,889 1,114,279 1,120,089 Historical Debt Service Coverage Ratios on Bonds Excludes depreciation and amortization from operating expenses. Does not include intergovernmental revenue from grants, connection fees or interest income. See "SYSTEM FINANCIAL INFORMATION - Five Year Operating History" herein. The City has prepared a financial forecast of the System's Net Revenues Available for Debt Service, for a period of 5 years commencing with fiscal year 2010, based upon assumptions and estimates concerning future events and circumstances which the City believes to be reasonable. The City's financial forecast has been examined and reported on by Integrated Science and Engineering, Fayetteville, Georgia, the City's consulting engineers. The forecasted Debt Service Coverage Ratios set forth below are derived from the financial forecasts included as part of Appendix B to this Official Statement, the Engineering Report of Integrated Science and Engineering. 32

37 THE FINANCIAL FORECAST IS BASED SOLELY UPON ASSUMPTIONS MADE BY THE CITY, INCLUDING, WITHOUT LIMITATION, ASSUMPTIONS AS TO RATES FOR WATER SERVICE, STABILITY AND GROWTH OF THE CUSTOMER BASE, AND OPERATING EXPENSES. THERE IS NO ASSURANCE THAT ACTUAL EVENTS WILL CORRESPOND WITH SUCH ASSUMPTIONS, THAT UNCONTROLLABLE FACTORS WILL NOT AFFECT SUCH ASSUMPTIONS, OR THAT THE FORECASTED RESULTS WILL BE ACHIEVED. THE ACHIEVEMENT OF THE FINANCIAL FORECAST WILL BE AFFECTED BY ECONOMIC CONDITIONS AND OTHER UNCONTROLLABLE FACTORS AND IS DEPENDENT UPON THE OCCURRENCE OF FUTURE EVENTS WHICH CANNOT BE ASSURED. THUS, THE ACTUAL RESULTS ACHIEVED MAY VARY FROM THOSE FORECAST, AND SUCH VARIATIONS COULD HAVE AN ADVERSE EFFECT UPON THE SYSTEM'S NET REVENUES AVAILABLE FOR DEBT SERVICE. THE ASSUMPTIONS AND RATIONALE INCLUDED IN THE ENGINEERING REPORT ARE AN INTEGRAL PART OF THE FORECASTS. THE ENGINEERING REPORT, INCLUDING ALL COMMENTS, ASSUMPTIONS, NOTES, AND DISCLAIMERS, SHOULD BE READ IN ITS ENTIRETY. See "ENGINEERING REPORT" in Appendix B to this Official Statement. Forecasted Debt Service Coverage Ratios Years Ended July Forecasted Net Revenues Available 1 for Debt Service $2,124,350 $2,424,017 $2,439,228 $2,423,727 $2,396,723 Maximum Annual Debt Service on 2, 3 Bonds 1,207,324 1,401,900 1,395,340 1,387,583 1,363,936 Forecasted Debt Service Coverage Ratio See the Engineering Report included as Appendix B to this Official Statement. 2 See "SYSTEM FINANCIAL INFORMATION - Debt Service Requirements" herein. 3 Preliminary, subject to change. Operating Budget The City is not legally required to adopt a budget for the System. The staff of the System, however, prepares an annual operating budget for the System for management control purposes. The staff of the System uses a modified cash basis of accounting in its annual operating budget for the System, which is not consistent with the basis of accounting used in the System's financial statements. Set forth below is a summary of the System's budget for the year ending July 31, This budget is based upon certain assumptions and estimates of the staff of the System regarding future events, transactions, and circumstances. Realization of the results projected in these budgets will depend upon implementation by management of the System of policies and procedures consistent with the assumptions. There can be no assurance that actual events will correspond with such assumptions, that uncontrollable factors will not affect such assumptions, or that the projected results will be achieved. Accordingly, the actual results achieved could materially vary from those projected in the budget set forth below. 33

38 System Budget 1 Fiscal Year Ending July 31, 2010 Operating Revenues: Charges for sales and services 2 $5,996,823 Miscellaneous 28,100 Total operating revenues 6,024,923 Operating Expenses 3 : Personnel 1,886,423 Contractual services Other operating 824,045 1,165,936 Supplies Total operating expenses 3,876,404 Operating Income (Loss) 2,148,519 Non-Operating Activities: Interest income Unreserved Stormwater Fund balance 25,250 (84,419) Uncollectible doubtful funds (25,000) Debt service - principal payment / interest (1,731,001) Total non-operating activities (1,815,170) Income before transfers 333,349 Transfers Transfers out 0 Change in Net Assets $333,349 1 Adopted by Mayor and City Council on July 17, 2009 with an effective date of August 1, Includes budgeted meter and connection fees in the amount of $150, Does not reflected budgeted depreciation of $1,678,

39 Capital Improvements The following table summarizes the estimated value of capital improvements made to the System in each year for the past five fiscal years. The City paid for such capital improvements during the past five fiscal years with (1) revenues from the System in the amount of $6,663,546, (2) proceeds from the Series 2003 Bonds in the amount of $6,587,664 and (3) proceeds from GEFA loans in the amount of $8,097,532. Fiscal Year Total Value of Capital Improvements $3,133,208 5,812, ,979, ,685, ,260 During the next several years, the City plans to finance the cost of maintaining the System, including repairs to lines, lift stations and manholes, with revenues from the System. The City expects that, from time to time, new water lines, sewer lines and lift stations will be contributed to the City by developers as new subdivisions are developed. The City does not plan any new capital improvements to the System for the foreseeable future. Employee Benefits The City presently maintains a defined-benefit pension plan, which was amended by the City effective as of July 1, The plan is administered through the Georgia Municipal Employer's Benefits System, an agent multiple-employer public employee retirement system that acts as a common investment and administrative agent for counties in the State of Georgia. The plan covers all full-time employees, including employees of the System, after one year of employment, except for certain exclusions of elected officials and employees who are eligible to participate in one or more other publicly provided retirement plans. The funding methods and determination of benefits payable for the plan in general provides that pension funds are to be accumulated from employer contributions and income from the investment of accumulated funds. Under current provisions, employee contributions are not required, and employees are fully vested after five years of continuous employment. The City is required by Georgia law to have an actuarial valuation of its defined-benefit pension plan done once every two years. The City also maintains a single employer, defined-contribution plan created in accordance with Internal Revenue Code Section 401(a) for substantially all of its full-time employees, including employees of the System. In a defined-contribution plan, benefits depend solely on amounts contributed to the plan plus investment earnings. The City has no liability under this plan except for contributions established and made each year. Employees are eligible to participate in the plan if they are at least 18 years old and work a minimum of 32 hours per week and after one year of employment. Under current provisions, the City is required to contribute to the pension plan an amount equal to one dollar for every two dollars contributed by the participant to the plan or to the deferred compensation plan described below, up to a maximum of 6% of the participant's annual compensation. The City's contributions for each employee are fully vested after five years of continuous employment. The plan is administrated by MetLife. As of July 31, 2009, there were approximately 84 participants in the plan. For the year ended July 31, 2009, participants in the plan contributed approximately $204,845 and the City contributed approximately $85,465. The City also offers its employees, including employees of the System, a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan is available to all City employees and permits them to defer income taxation of a portion of their salary to future years. Participation in the plan is optional. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. All amounts of compensation deferred under the plan, all property and rights purchased with those amounts, and all income attributable to those amounts, property, or rights are (until paid or made available to the employee or other beneficiary) solely the property and rights of the City subject only to the claims of the City's general creditors. Participants' rights under the plan are equal to those of general creditors of the City in an amount equal to the fair market value of the deferred account for each participant. The City believes that it is unlikely that it will use these assets to satisfy the claims of general creditors in the future. The City believes that it has no liability for losses under the plan but does have the duty of care that would be required of an ordinary prudent investor in making plan investments. Reference is made to Notes 11 and 12 of the City's financial statements included as Appendix A for a description of the City's retirement plans and other post-employment retirement benefits covering employees of the System. 35

40 City employees accrue vacation and sick leave in different amounts, depending upon the period of time the City has employed them. The maximum amount of vacation leave that employees may accumulate is 240 hours. The City pays accrued vacation leave upon termination of employment and has reflected a liability for accumulated vacation pay in its financial statements. The maximum amount of sick leave that City employees may accumulate is unlimited. Insurance Coverage The City carries liability insurance for the types of claims and in amounts that are customary for similar enterprises. The City also carries property and casualty insurance on buildings and other physical assets. Present insurance coverage for the City, including the System, is summarized below: Type Amount in Force Property 1 $38,155,082 Other Equipment 746,085 Type Limits of Liability Each Occurrence Aggregate General Liability $1,000,000 $1,000,000 Automobile Liability 1,000,000 1,000,000 Public Officials' Liability Employee Benefits Liability 1,000,000 1,000,000 1,000,000 1,000,000 Crime Liability 500, ,000 1 Includes real and personal property and boiler and machinery coverage. The City requires payment and performance surety bonds and builders' risk insurance of all contractors and subcontractors involved in construction related to the System. The City requires the surety bonds to be issued by surety firms listed on the U.S. Treasury-approved list and the builders' risk insurance to be in the amount of the contract sums. Pending Litigation LEGAL MATTERS The City, like other similar bodies, is subject to a variety of suits and proceedings arising in the ordinary conduct of the affairs of the System. The City, after reviewing the current status of all pending and threatened litigation relating to the System with its general counsel, Epstein Becker & Green, P.C., believes that, while the outcome of litigation cannot be predicted, the final settlement of all lawsuits which have been filed and of any actions or claims pending or threatened against the City relating to the System or its officials in such capacity are adequately covered by insurance or will not have a material adverse effect upon the financial position or results of operations of the System. There is no litigation now pending or, to the knowledge of the City, threatened against the City which restrains or enjoins the issuance or delivery of the Series 2010 Bonds, the pledge of the Net Revenues to secure the Series 2010 Bonds, or the use of the proceeds of the Series 2010 Bonds or which questions or contests the validity of the Series 2010 Bonds or the proceedings and authority under which they are to be issued and secured. Neither the creation, organization, or existence of the City, nor the title of the present members or other officials of the City to their respective offices, is being contested or questioned. Opinion of Bond Counsel General. In the opinion of King & Spalding LLP, Atlanta, Georgia, Bond Counsel, under existing statutes, rulings and court decisions and under applicable regulations, interest on the Series 2010 Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. Except as provided below, no opinion will be 36

41 expressed with respect to any other federal tax consequences of the receipt or accrual of interest on, or the ownership of the Series 2010 Bonds. Ownership of the Series 2010 Bonds may result in other collateral federal income tax consequences to certain taxpayers, including without limitation, corporations subject to the environmental tax, banks, thrift institutions and other financial institutions, foreign corporations which conduct a trade or business in the United States, property and casualty insurance corporations, sub-chapter S corporations, individual recipients of social security or railroad retirement benefits and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry the Series 2010 Bonds. Purchasers of the Series 2010 Bonds should consult their tax advisors as to the applicability of any such collateral consequences. In rendering an opinion that the interest on the Series 2010 Bonds is excludable from gross income for federal income tax purposes, Bond Counsel will (i) rely as to certain factual matters upon representations of the City with respect to, among other things, the use of the proceeds of the Series 2010 Bonds, and the facilities financed or refinanced thereby and their remaining economic useful life, without undertaking to verify the same by independent investigation, and (ii) assume the continued compliance by the City with its covenants relating to the use of the proceeds of the Series 2010 Bonds and the facilities financed or refinanced thereby and compliance with other requirements of the Code, including the City's covenant to comply with the arbitrage rebate requirements in Section 148(f) of the Code. The inaccuracy of any such representations or noncompliance with any of such covenants may cause interest on the Series 2010 Bonds to become includable in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2010 Bonds. The City has designated the Series 2010 Bonds as "qualified tax-exempt obligations" under Section 265(b)(3) of the Code. Georgia Income Taxation. In the opinion of Bond Counsel, under existing statutes, interest on the Series 2010 Bonds is exempt from all present state income taxation within the State of Georgia. Interest on the Series 2010 Bonds may or may not be subject to state or local income taxation in jurisdictions other than Georgia under applicable state or local laws. Purchasers of the Series 2010 Bonds should consult their tax advisors as to the taxable status of the Series 2010 Bonds in a particular state or local jurisdiction other than Georgia. Subsequent Events. The opinion of Bond Counsel will be dated the date of issuance of the Series 2010 Bonds. Bond Counsel has not undertaken to notify the City, the original purchaser of the Series 2010 Bonds, any subsequent purchasers of the Series 2010 Bonds or any other person or entity of changes in law or fact after the date of issuance of the Series 2010 Bonds which might affect any of the opinions expressed therein. The proposed form of opinion of Bond Counsel expected to be delivered in connection with the issuance of the Series 2010 Bonds is attached as Appendix D. Validation Proceedings As required under Georgia law, the State of Georgia will institute proceedings in the Superior Court of Fayette County, Georgia to validate the Series 2010 Bonds and the security therefor. The State of Georgia will be the plaintiff in the proceeding, and the City will be the defendant. As a condition precedent to the issuance and delivery of the Series 2010 Bonds, a final judgment confirming and validating the Series 2010 Bonds and the security therefor must be entered. Under Georgia law, the judgment of validation will be forever conclusive against the City upon the validity of the Series 2010 Bonds and the security therefor. Closing Certificates At closing of the sale of the Series 2010 Bonds by the Underwriter, the City will deliver to the Underwriter a certificate (1) that no litigation is pending or threatened against it that would have a material effect on the issuance or validity of the Series 2010 Bonds or the security for the Series 2010 Bonds or on the financial condition of the System, and (2) that the information contained in this Official Statement does not contain any misstatement of a material fact and does not omit to state any material fact necessary to make the statements herein contained, in light of the circumstances under which they were made, not misleading. 37

42 MISCELLANEOUS Ratings Standard & Poor's Ratings Services has assigned a rating of "AA-" to the Series 2010 Bonds. The rating reflects only the views of the rating agency, and any desired explanation of the significance of such rating should be obtained from the rating agency furnishing such rating, at the following addresses: Standard & Poor's Ratings Services, 55 Water Street, 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 that either or both of such rating will remain unchanged for any given period of time or that it will not be revised downward or withdrawn entirely by the rating agency furnishing the same, if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of such rating, or either of them, may have an adverse effect on the liquidity and market price of the Series 2010 Bonds. Underwriting The Series 2010 Bonds are being purchased for reoffering by Merchant Capital, L.L.C. (the "Underwriter"). The Underwriter has agreed to purchase the Series 2010 Bonds at an aggregate purchase price of $ (which is equal to the par amount of the Series 2010 Bonds of $, less an underwriter's discount of $ and [plus / less] a net original issue [premium / discount] of $ ). The Bond Purchase Agreement dated February, 2010 between the City and the Underwriter (the "Bond Purchase Agreement") provides that the Underwriter will purchase all of the Series 2010 Bonds, if any are purchased. The obligation of the Underwriter to accept delivery of the Series 2010 Bonds will be subject to various conditions contained in the Bond Purchase Agreement. The City has agreed, in the Bond Purchase Agreement, to indemnify the Underwriter with respect to losses, claims, damages, expenses, actions and liabilities arising out of incorrect statements or information, including the omission of material facts contained in this Official Statement. The Underwriter may offer and sell the Series 2010 Bonds to certain dealers (including dealers depositing bonds into unit investment trusts) and others at prices lower than the public offering price as stated on the cover page hereof. The initial public offering prices may be changed from time to time by the Underwriter. Verification of Arithmetical Computations On or prior to the date of delivery of the Series 2010 Bonds, Causey Demgen & Moore Inc., Denver, Colorado, independent certified public accountants, will verify the accuracy of the arithmetical computations with respect to the adequacy of the maturing principal amounts of and interest earned on the Government Obligations to be held under the Escrow Agreement, together with uninvested cash, if any, to pay, when due, the principal of and premium and interest on the Refunded Bonds on their on their maturity date or earliest date of optional redemption, November 1, Such verification will be based on information supplied to such accounting firm by the City and the Underwriter. Independent Professionals The financial statements of the System as of July 31, 2009 and for the year then ended, attached hereto as part of Appendix A, have been audited by Mauldin & Jenkins, LLC, Macon, Georgia, independent certified public accountants, to the extent and for the periods indicated in their report thereon, which appears in Appendix A. Such financial statements have been included herein in reliance upon the report of Mauldin & Jenkins, LLC. The City has retained Integrated Science and Engineering, Fayetteville, Georgia, as its consulting engineers to develop several reports and studies relating to the System and certain financial matters. Integrated Science and Engineering has prepared the Engineering Report included as Appendix B to this Official Statement, which is included herein in reliance upon the authority of such firm as experts in engineering and related financial matters. Summary of Continuing Disclosure Certificate Definitions The following capitalized terms have the following meanings for purposes of the Disclosure Certificate: "Annual Report" means any Annual Report provided by the City pursuant to the provisions of the Disclosure Certificate described herein under the caption "MISCELLANEOUS - Summary of Continuing Disclosure Certificate - Provision of Annual Reports and - Content of Annual Reports." "Bondholders" means the beneficial owners of the Series 2010 Bonds. 38

43 "Dissemination Agent" means any Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. "Fiscal Year" means any period of twelve consecutive months adopted by the City as its fiscal year for financial reporting purposes and initially means the period beginning on August 1 of each calendar year and ending on July 31 of the next calendar year. "Listed Events" means any of the events listed in the provisions of the Disclosure Certificate described herein under the caption "MISCELLANEOUS - Summary of Continuing Disclosure Certificate - Reporting of Significant Events." "MSRB" means the Municipal Securities Rulemaking Board. "Rule" means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. Provision of Annual Reports The City agreed in the Disclosure Certificate to, or to cause the Dissemination Agent to, not later than 180 days after the end of each Fiscal Year, commencing with the fiscal year ending July 31, 2010, provide to the MSRB an Annual Report that is consistent with the requirements of the provisions of the Disclosure Certificate described below under the caption "MISCELLANEOUS - Summary of Continuing Disclosure Certificate -- Content of Annual Reports." The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in the provisions of the Disclosure Certificate described below under the caption "MISCELLANEOUS - Summary of Continuing Disclosure Certificate -- Content of Annual Reports." All documents, reports, notices, statements, information and other materials provided to the MSRB under the Disclosure Certificate must be provided in an electronic format and accompanied by identifying information as prescribed by the MSRB. If audited financial statements are not available to include in the Annual Report, the City must provide unaudited financial statements by the due date set forth above and must provide audited financial statements as soon as practicable thereafter. If the City is unable to provide to the MSRB an Annual Report by the date required as described above, the City must send a written notice to the MSRB of such failure. The Dissemination Agent is required to: (i) (ii) determine each year prior to the date for providing the Annual Report the appropriate electronic format prescribed by the MSRB for filing with the MSRB and the proper form for such filing; and if the Dissemination Agent is other than the City, file a report with the City certifying that the Annual Report has been provided pursuant to the Disclosure Certificate and stating the date it was provided. Content of Annual Reports The Disclosure Certificate requires the City's Annual Report to contain or incorporate by reference the following: (1) the annual audited financial statements of the City relating to the System for the prior Fiscal Year, prepared in accordance with generally accepted accounting principles and audited by a firm of independent certified public accountants, if available; (2) if generally accepted accounting principles have changed since the last Annual Report was submitted pursuant to the Disclosure Certificate and if such changes are material to the System, a narrative explanation describing the impact of such changes on the System; and (3) an update of the financial information and operating data with respect to the System of the type contained in this Official Statement relating to the Series 2010 Bonds including the information under the captions "DEBT SERVICE SCHEDULE," "THE SYSTEM Customers," "THE SYSTEM Rates, Fees and Charges" and "SYSTEM FINANCIAL INFORMATION Historical and Forecasted Debt Service Coverage" (historic debt service coverage only) above. 39

44 Any or all of the items listed above may be incorporated by reference from other documents which have been submitted to the Securities and Exchange Commission or available on the MSRB's website. If the document incorporated by reference is a final official statement, it must be available from the MSRB. Reporting of Significant Events The Disclosure Certificate governs the giving of notices of the occurrence of any of the following events with respect to the Series 2010 Bonds: (1) Principal and interest payment delinquencies; (2) Non-payment 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 tax-exempt status of the Series 2010 Bonds; (7) Modifications to rights of Bondholders; (8) Series 2010 Bond calls; (9) Defeasances; (10) Release, substitution, or sale of property securing repayment of the Series 2010 Bonds; and (11) Rating changes. If the City obtains knowledge of the occurrence of a Listed Event that is material, the City has agreed to file in a timely manner a notice of such occurrence with the MSRB. Notwithstanding the foregoing, notice of Listed Events described in clauses 8 and 9 above need not be given under the Disclosure Certificate any earlier than the notice (if any) of the underlying event is given to the owners of the affected Series 2010 Bonds pursuant to the Bond Resolution. Termination of Reporting Obligation The City's obligations under the Disclosure Certificate will terminate upon the legal defeasance, prior redemption, or payment in full of all of the Series 2010 Bonds. Dissemination Agent The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under the Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. Amendment; Waiver The City's continuing disclosure undertakings may be amended from time to time without the consent of the owners of the Series 2010 Bonds if such amendment would not, in and of itself, cause the undertakings (or action of the initial purchasers of the Series 2010 Bonds in reliance on the undertakings) to violate the Rule, as amended or officially interpreted from time to time by the Securities and Exchange Commission. The City will provide notice of such amendment to the MSRB with its Annual Report. Additional Information Nothing in the Disclosure Certificate will prevent the City from disseminating any other information, using the means of dissemination set forth in the Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by the Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by the Disclosure Certificate, 40

45 the City will have no obligation under the Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Default Unless otherwise required by law, no Bondholder or beneficial owner is entitled to damages resulting from the City's noncompliance with its continuing disclosure undertakings; however, Bondholders and beneficial owners may take action to require performance of such obligation by any judicial proceeding available. Breach of the continuing disclosure undertakings does not constitute an event of default under the Bond Resolution and any rights and remedies provided in the Bond Resolution in the event of default thereunder are not applicable to a breach of the continuing disclosure undertakings. The cost to the City of performing its obligations under the provisions of this Continuing Disclosure Certificate will be paid solely from funds lawfully available for such purpose. Additional Information Use of the words "shall," "must," or "will" in this Official Statement in summaries of documents or laws to describe future events or continuing obligations is not intended as a representation that such event or obligation will occur but only that the document or law contemplates or requires such event to occur or obligation to be fulfilled. Any statements made in this Official Statement involving estimates or matters of opinion, 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 or matters of opinion will be realized. Neither this Official Statement nor any statement which may have been made orally or in writing is to be construed as a contract with the owners of the Series 2010 Bonds. CERTIFICATION The execution and delivery of this Official Statement, and its distribution and use by the Underwriter, have been duly authorized and approved by the City. CITY OF FAYETTEVILLE, GEORGIA By: Mayor 41

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47 APPENDIX A FINANCIAL STATEMENTS OF THE SYSTEM The financial statements of the System as of July 31, 2009 and for the year then ended, included as part of this Appendix A, have been audited by Mauldin & Jenkins, LLC, Macon, Georgia, independent certified public accountants, to the extent and for the periods indicated in their report thereon which appears in this Appendix A. Such financial statements have been included herein in reliance upon the report of Mauldin & Jenkins, LLC. [Remainder of Page Intentionally Left Blank]

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49 CITY OF FAYETTEVILLE, GEORGIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JULY 31, 2009 Prepared By: Lorri Lynn Robinson Director of Finance Submitted By: Joe Morton City Manager

50 INTRODUCTORY SECTION

51 CITY OF FAYETTEVILLE, GEORGIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JULY 31, 2009 TABLE OF CONTENTS Page INTRODUCTORY SECTION Table of Contents... i - iii Letter of Transmittal... iv - x Certificate of Achievement for Excellence in Financial Reporting...xi List of Principal Officials...xii Organizational Chart...xiii FINANCIAL SECTION Independent Auditor's Report... 1 and 2 Management s Discussion and Analysis Basic Financial Statements: Government-wide Financial Statements: Statement of Net Assets and 12 Statement of Activities and 14 Fund Financial Statements: Balance Sheet Governmental Funds...15 Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds and 17 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities General Fund Statement of Revenues, Expenditures and Changes in Fund Balances Budget and Actual and 20 Statement of Net Assets Proprietary Funds and 22 Statement of Revenues, Expenses and Changes in Fund Net Assets Proprietary Funds...23 Statement of Cash Flows Proprietary Funds and 25 Notes to Financial Statements Required Supplementary Information: Schedule of Funding Progress...53 Combining and Individual Fund and Statements and Schedules: Combining Balance Sheet Nonmajor Governmental Funds and 55 Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Governmental Funds and 57 Special Revenue Funds Schedule of Revenue, Expenditures and Changes in Fund Balances Budget and Actual Capital Projects Funds Schedule of Revenue, Expenditures and Changes in Fund Balances Budget and Actual i

52 CITY OF FAYETTEVILLE, GEORGIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JULY 31, 2009 TABLE OF CONTENTS Page FINANCIAL SECTION (Continued) Schedule of Expenditures of Special Purpose Local Option Sales Tax Proceeds Component Unit Downtown Development Authority: Balance Sheet Component Unit Downtown Development Authority...66 Statement of Revenues, Expenditures and Changes in Fund Balance Component Unit Downtown Development Authority Component Unit Main Street Tourism Association: Statement of Cash Flows Component Unit Main Street Tourism Association STATISTICAL SECTION Net Assets by Component and 70 Changes in Net Assets Governmental Activities Tax Revenues by Source and 76 Fund Balances of Governmental Funds and 78 Changes in Fund Balances of Governmental Funds and 80 General Governmental Tax Revenues by Source and 82 Assessed Value and Estimated Actual Value of Taxable Property and 84 Property Tax Rates Direct and Overlapping Governments...85 Principal Property Taxpayers...86 Property Tax Levies and Collections...87 Water Sold by Customer Type...88 Water and Sewer User Rates and 90 Ten Largest Water Customers...91 Ten Largest Sewer Customers...92 Ratios of Outstanding Debt by Type and 94 Direct and Overlapping Governmental Activities Debt...95 Legal Debt Margin Information and 97 Pledged-Revenue Coverage...98 Demographic and Economic Statistics...99 Principal Employers Full-time Equivalent City Government Employees by Function Operating Indicators by Function Capital Asset Statistics by Function ii

53 CITY OF FAYETTEVILLE, GEORGIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JULY 31, 2009 TABLE OF CONTENTS Page CONTINUING DISCLOSURE SECTION Water Supply by Source Wastewater Treatment Plant Average Flow Water and Sewer Customers Water and Sewer User Fees and Charges iii

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55 City of Fayetteville 240 Glynn Street South Fayetteville, Georgia Telephone (770) Facsimile (770) MAYOR Kenneth Steele COUNCIL Al Hovey-King Larry Dell Paul Oddo Wilson Price Walt White CITY MANAGER Joe Morton CITY CLERK Judy Stephens January Honorable Ken Steele, Mayor Members of the City Council And Citizens of Fayetteville, Georgia Ladies and Gentlemen: The comprehensive annual financial report of the City of Fayetteville, Georgia (the City ) for the fiscal year ended July 31, 2009 is hereby submitted. Responsibility for both the accuracy of the data, and the completeness and fairness of the presentation, including all disclosures, rests with the government. To the best of our knowledge and belief, the enclosed data are accurate in all material respects and are reported in a manner designed to present fairly the financial position and results of operations of the various funds of the government. All disclosures necessary to enable to reader to gain an understanding of the City s financial activities have been included. The City s management is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the City are protected from loss, theft or misuse and to ensure that adequate accounting data is compiled to allow for the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America. The internal control structure is designed to provide reasonable, but not absolute, assurance that these objectives are met. We believe the City s internal accounting controls adequately safeguard assets and provide reasonable assurance that all financial information has been recorded accurately. State statutes require an annual audit by an independent certified public accountant. The accounting firm of Mauldin & Jenkins, LLC, is the City s auditing firm. The independent auditors report on the basic financial statements and combining and individual fund statements and schedules is included in the financial section of this report. As a recipient of federal and state financial assistance, the City of Fayetteville is also responsible for ensuring that an adequate internal control structure is in place to ensure compliance with applicable laws and regulations related to those programs. The internal control structure is subject to periodic evaluation by the management of the City. For fiscal year 2009, the City was required to undergo a Single Audit. The information related to the Single Audit is included in a separately issued single audit report. iv

56 Generally accepted accounting principles require that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. The City of Fayetteville s MD&A can be found immediately following the report of the independent auditors. Reporting Entity. This report includes all funds of the primary government, as well as the component units. The government provides a full range of services. These services include police protection, fire protection, court system, the construction and maintenance of highways, street and drainage improvements, planning and zoning, engineering, building and code enforcement, water, sewer, and storm water services, and Main Street activities and events. Residential sanitation services are provided through a contractual agreement with a private carrier. Discretely presented component units are reported as a separate column in the government-wide financial statements to emphasize that they are legally separate from the primary government and to differentiate their financial position, results of operations and cash flows from the primary government. The Downtown Development Authority and Main Street Tourism Association are reported as discretely presented component units. Government Structure. A mayor and five (5) City Council members serve the City of Fayetteville. The Mayor and City Council are elected at large and serve four (4) year staggered terms. The Mayor and City Council serves as the legislative body responsible for enacting City ordinances, resolutions, appropriating funds, and providing policy direction to City staff. The City Council appoints a City Manager, City Attorney, Municipal Court Judge and various Boards, Commissions and Authorities. The City Council annually adopts a balanced budget and establishes a tax rate for the support of the City programs. The City Manager and Department Directors have the responsibility of administering these programs in accordance with policies and the annual budget adopted by the City Council. An organizational chart depicting the current structure associated with the management of the City of Fayetteville is included in this introductory section. General Information. The City of Fayetteville is named for General Marquis de Lafayette of France, who aided the American colonists during the Revolutionary War. Fayetteville was named as the county seat in 1823 and the present-day courthouse in the town square was built in Listed on the National Register, it remains the oldest courthouse in Georgia and boasts the longest court bench in the world. There was more or less a city/county government until the 1880 s. The first mayor elected in Fayetteville was W. P. Redwine in Downtown Fayetteville is rich in history with the preservation of many notable places of interest. Most of the store buildings that exist today around the courthouse square were built in the late 1890s and early 1900s. In 1900, the first gas lamps and telephones were installed. The Fayette County news that began in 1886 is still in operations. Electricity lit up Fayetteville in the 1920s. In 1926, the first public water system was installed with a 60,000-gallon tank above the city well. In 1953, the water system was upgraded with the construction of a new water plant just northwest of the City. A sewer system was installed in the early 1960s. The history of Fayetteville remains in the downtown area, the historic district, through a program that initially was created in 1994 to bring businesses and activities into the historic district. Development standards have been developed just for the historic district. Fayetteville was designated Georgia s 37 th Main Street City by the Georgia Department of Community Affairs in v

57 West of the square, one of Fayetteville s finest historical attractions, The Holliday-Dorsey-Fife house was built in 1855, an antebellum structure with large white columns considered by many to be one of the most refined of the Greek revival houses in Fayette County. The house derives its name from the three main owners that dwelled there: Dr. John Stiles Holliday, who built the house, and was the uncle of the Doc Holliday of Western fame; Solomon Dawson Dorsey, a Colonel of the State Militia during the war Between the States who helped enlist volunteers for the confederacy; and Robert E. Lee Fife, a former Fayetteville city council member related to the last family to occupy the house as a residence. The house has ties with well known personalities such as Margaret Mitchell of Gone with the Wind fame, former Georgia Governor Hugh M. Dorsey, and abounds in confederate history. Today, the City of Fayetteville Downtown Development Authority owns the Holliday-Dorsey-Fife house and is operating it as a museum. Across the street lies the City s historic cemetery circa The Fitzgerald s, great-grandparents of Margaret Mitchell, as well as the Holliday s, Dorsey s and Fife s are laid to rest. A recently constructed entranceway, longterm project for refurbishing and repairing headstones and designing a self-guided, walking tour brochure are many projects underway for preserving Fayetteville s history. East of the square is the historic Train Depot, which serves as Fayetteville s Welcome Center, used as a special events facility and functions as the Main Street offices. The Train Depot was originally built in 1902 along the railroad that ran from Atlanta to Fort Valley via Fayetteville. The railroad ceased to run through Fayetteville and the tracks were lifted in South of the square, The Fayetteville Academy or Seminary was built in 1857, which later became a public school, Glynn Street School, and later in 1994 was renovated and is where the Fayetteville City Hall resides. In May 2006, a Georgia Historical Marker was unveiled at City Hall honoring former Georgia Governor Hugh M. Dorsey. He was born in Fayetteville and served as governor for two terms from 1917 to In 2007, First Lady Laura Bush awarded the City of Fayetteville the Preserve America Designation in recognition of the continuing commitment to preserving and using its cultural and natural resources for the benefit and enjoyment of the public. Fayetteville has a strong historical preservation ethic that is evident throughout the downtown district. At present there is an effort underway by the Main Street program to revitalize the downtown area. The city limits have been extended far beyond the courthouse and the city business district now runs from a couple of miles south of the courthouse to almost three miles north for a total of about 5 miles of business area. There are now seven schools in Fayetteville, an outdoor shopping center (the Pavilion), the Villages Amphitheater, two hotels, specialty shops of all descriptions, and a developing west side, that includes the Fayette Piedmont Hospital and medical complexes, all which make Fayetteville an attractive community. Numerous festivals and events are held on the square during the calendar year which brings thousands of people to downtown to participate in fellowship and community. Additionally the Villages Amphitheater plays host to a wide array of concerts, films, and dramatic events. Economic Condition and Outlook. Located approximately 21 miles south of Atlanta, the City of Fayetteville continues to benefit economically by being an integral part of Metropolitan Atlanta. The City of Fayetteville is well positioned geographically to Atlanta and to the Hartsfield-Jackson Atlanta International Airport, which makes it convenient for the residents to travel for business and/or pleasure. The City of Fayetteville has a wealth of natural, cultural, historical, and commercial resources that provides an amenity for residents, a destination for tourists, and an attractive location for commercial businesses. vi

58 The population of Fayetteville is 15,340; a 38% increase since The median home cost in Fayetteville is $275,000. Renters make up about 30% of the City s population, while 70% own homes. Five percent of the homes and apartments are vacant in the City. The housing market for Fayetteville decreased in fiscal year 2009 in comparison to fiscal year The total permits issued for new housing during 2009 was 6 as compared to 13 for The City remains affordable to residents as the median household income is $62,000. The unemployment rate for Fayetteville is 8.8% compared to the United States average of 9.7%. Sales and office type jobs are the most prominent jobs in Fayetteville, followed by professional and management, business, and financial operation. The total number of new commercial permits issued during fiscal year 2009 was 3, valued at $2,243,500, compared to 7 permits issued during fiscal year Approximately 15 new tenant finishes valued at $2,220,972 occurred during fiscal year However, the City s vacant inventory by percentage is 24.9% commercial, 5.71% industrial, and 29.74% office. Financial Planning. The annual budget(s) serves as the current foundation for the City of Fayetteville s financial planning and control. Financial policies and procedures have also been implemented to ensure balance, control, and stability to maintain and oversee the finances within and throughout the City. These policies and procedures address fund balances, reserve fund policy, purchasing, contract administration, debt administration, accounting, auditing, financial reporting, budget, capital outlay, investment, revenue administration, fixed assets, strategic planning, and grant administration. The Mayor and City Council have set the goals that our financial planning adheres to by providing the necessary and available resources. The overall goals are (1) Achieve all goals while striving for the lowest total cost for public services. (2) Maintain a managed growth policy that requires quality development in concert with our economic development strategy. (3) Provide for the public safety and welfare by committing appropriate resources to police, fire, streets, recreation, water and sewer, and support services. (4) Continue cooperative efforts with other governments and government agencies. (5) Preserve our historic and cultural heritage and encourage revitalization of downtown through support of Main Street initiatives. The financial position of the City of Fayetteville has been effected by the recession, which has resulted in reduced revenues, mostly in sales taxes and building permits and fees. During fiscal year 2009 budget measures were implemented to reduce the effected revenues and expenditures. Major expenditure reductions involved, but were not limited to, continuation of a hiring freeze, no purchasing on new or replacement capital items or projects, an early retirement incentive program, an employee voluntary reduction in work hours, a voluntary 2.5% pay reduction on department head positions or higher, no out-of-state training and travel, limited in-state training, and fuel conservation policy. These measures, as well as conservative spending, allowed the City to offset the revenue deficit in fiscal year Transportation projects, including highways and streets and sidewalks, that were funded via special local option sales tax, grants, and/or impact fees were continued as planned in the capital project fund budgets. The City has continued to maintain or reduce the millage rate on Ad Valorem taxes for the past sixteen (16) years. The City has continued to maintain adequate fund balances consistent with our reserve fund policy. With continued monitoring of our revenues and expenditures, the City can meet goals and objectives in the public service area, police and fire protection, street and drainage improvements, and infrastructure. vii

59 Personnel. No new personnel were added during fiscal year As mentioned above, a hiring freeze was implemented in mid fiscal year 2008 and continued through fiscal year An average of 13.5% was allocated to continue our pay for performance salary plan, retention plan, wellness and safety program, and employee benefits, including but not limited to, health, dental, vision, life, and retirement. Blue Cross Blue Shield of Ga., Inc. administered the health insurance program. The health insurance program includes health and vision. The dental, life, short and long term disability programs are administered by Assurant. The City also participates in the Georgia Municipal Association Workers Compensation Self-Insurance Fund for workers compensation coverage. The employees life insurance costs will increase as salaries increase because coverage is based on annual income with a limit of $50,000. Capital Improvement Program. The wastewater plant rehabilitation in the Water and Sewer Fund as well as the Pye Lake Dam Project, with 80% being funded by a federal grant and the Pye Lake Dredging Project was concluded. Within the SPLOST Funds several major transportation, sidewalk, and pedestrian projects were completed and/or under construction. These projects are listed below in the table along with the funding source and if they were completed or are still in progress to continue next fiscal year. DESCRIPTION IN PROGRESS OR COMPLETED SR85 Sidewalk Project In Progress SPLOST FUNDING SOURCE Grady/Stonewall/Booker Pedestrian Improvements In Progress SPLOST & Grant S Jeff Davis Shoulders In Progress Impact Fees & SPLOST Lafayette Avenue Extension In Progress Impact Fees & SPLOST Lanier Avenue Pedestrian Improvements Completed SPLOST & Grant Lee Street Sidewalk In Progress SPLOST Lafayette and Glynn Street Traffic Signal In Progress SPLOST Grady at Beauregard In Progress Impact Fees Hwy 54-Safete-LU Sidewalk In Progress SPLOST & Grant Lafayette Tiger Trail Alternate Improvements In Progress Impact Fees 314/White Road/Banks Road Turn Lane In Progress Impact Fees Jimmie Mayfield Widening In Progress SPLOST Fayetteville Connecting Sidewalks (TIP) In Progress SPLOST & Grant Cemetery Sidewalk Project In Progress SPLOST & Trust Budgetary control. Budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America. The level of budgetary control is on a departmental basis. A budget is legally adopted for all Governmental Fund types and Proprietary Fund types. Formal budgetary integration is employed as a management control device during the year. The budget is based on the same method of accounting as the fund it represents. Transfers of appropriations within a department budget or within a non departmental expenditures category require the approval of the finance director. Increase or decrease (change) in appropriations within a departmental budget or in a non departmental expense category requires approval of the governing body in the form of amendments to the budget ordinance. Encumbrances. The City maintains an encumbrance accounting system as another means of accomplishing budgetary control. Monthly computerized reports are generated and distributed to all departments which detail year to date actual versus budgeted expenditure comparisons of the various departments by budgeted line item. The department heads use the printouts to ascertain the budget status of an expenditure category before authorizing additional purchases. The City uses a purchase order system to help maintain the level of budgetary control at the viii

60 department level. The City has developed a purchasing manual with a decentralized form of a purchasing system. A decentralized purchasing system means the departments have purchasing control within a limited dollar amount. When the limited dollar amount has been exceeded restrictions and conditions must be followed. Encumbrances outstanding at year end are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be reappropriated and honored during the subsequent year. Cash management. Cash temporarily idle during the year is held in money market checking accounts. Cash equivalents are invested in certificates of deposits, market investment accounts, or the state administered investment pool. The City s investment policy is to minimize credit and market risks while maintaining a competitive yield on its portfolio. Accordingly, deposits are required to be either insured by federal depository insurance or collateralized. Pension plans. The City participates in the Georgia Municipal Employee Benefit System (GMEBS). Full time employees working at least 30 hours a week become eligible for the plan after one (1) year and are vested after five (5) years of service. Annual actuarial reviews are performed and funding requirements are adjusted as needed based upon directions received from the Georgia Municipal Employees Benefit System. All contributions required to meet the actuarial study have been made. In addition to providing the defined contribution pension plan through GMEBS a 457/401a deferred retirement plan is also offered to the employees. The City will match an employee s contribution fifty (50) cents on the dollar up to a maximum of six (6) percent. The investment companies administer the plan. Risk Management. The City participates in the Georgia Interlocal Risk Management Association (GIRMA). Gallagher Bassett Services, Inc. administers the plan. The GIRMA coverage includes but is not limited to, property, casualty, crime, automobile, and general liability. The City is sufficiently insured under this policy. Other Information Awards. The Government Finance Officers Association (GFOA) of the United States and Canada awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Fayetteville for its comprehensive annual financial report for the fiscal year ended July 31, This was the thirteenth consecutive year that the government has received this prestigious award. In order to be awarded a Certificate of Achievement, the 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 we are submitting it to the GFOA to determine its eligibility for another certificate. In addition, the City also received the GFOA Award for Distinguished Budget Presentation for the annual budget for fiscal year In order to qualify for the Distinguished Budget Presentation Award, the City s budget document was judged to be proficient as a policy document, a financial plan, an operations guide, and a communication device. ix

61 Acknowledgments. The preparation of the comprehensive annual financial report on a timely basis was made possible by the dedicated service of the City staff and department directors and the auditors of the City. In closing, without the leadership and support of the Mayor and City Council, the preparation of this report would not have been possible. Our sincere appreciation is extended to each individual for the contributions made in the preparations of this report. Respectfully submitted, Lorri Lynn Robinson Director of Finance and Administrative Services Joe Morton City Manager x

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63 xi

64 CITY OF FAYETTEVILLE, GEORGIA LIST OF PRINCIPAL OFFICIALS MAYOR Kenneth Steele CITY COUNCIL MEMBERS Larry Dell, Mayor Pro-Tem Walt White Al Hovey-King Paul Oddo, Jr. Wilson Price CITY MANAGER Joe Morton CITY CLERK Judy Stephens DIRECTOR OF FINANCE & ADMINISTRATION Lorri Lynn Robinson MUNICIPAL COURT JUDGE Michael Martin CITY ATTORNEY David Winkle CITY AUDITORS Mauldin & Jenkins, LLC xii

65 CITY OF FAYETTEVILLE, GEORGIA ORGANIZATIONAL CHART Mayor and Council City Manager City Clerk Police Dept Fire Dept Main Street Public Services Finance & Admin Main St Tourism Fund Water and Sewer Human Resources DDA Public Works Court Bldg Dept Information Tech Planning and Zoning Finance (Budget/Acct/ Cust Serv) xiii

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67 FINANCIAL SECTION

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69 INDEPENDENT AUDITOR'S REPORT Honorable Mayor and Members Of City Council City of Fayetteville Fayetteville, Georgia We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Fayetteville, Georgia (the City ) as of and for the year ended July 31, 2009, which collectively comprise the City of Fayetteville, Georgia s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express opinions on these financial statements based on our audit. We 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 financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Fayetteville, Georgia as of July 31, 2009, and the respective changes in financial position and cash flows, where applicable, thereof and the respective budgetary comparison for the General Fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated January 19, 2010, on our consideration of the City of Fayetteville, Georgia's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.

70 The Management s Discussion and Analysis (on pages 3 through 10) and the Schedule of Funding Progress (on page 53) are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Fayetteville, Georgia s basic financial statements. The combining and individual nonmajor fund financial statements, introductory, statistical, and continuing disclosure sections listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements of the City of Fayetteville, Georgia. The schedule of expenditures of special purpose local option sales tax proceeds is presented for purposes of additional analysis as required by the Official Code of Georgia Annotated , and is not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements and schedules and the schedule of expenditures of special purpose local option sales tax proceeds of the City of Fayetteville, Georgia have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly presented in all material respects in relation to the basic financial statements taken as a whole. The introductory section, statistical section and continuing disclosure section have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. Macon, Georgia January 19,

71 CITY OF FAYETTEVILLE, GEORGIA MANAGEMENT S DISCUSSION AND ANALYSIS JULY 31, 2009 This management discussion and analysis of the City of Fayetteville, Georgia s financial performance provides an overall review of the City s financial activities for the fiscal year ended July 31, It is designed to give the reader an objective and easily readable analysis of the City s financial performance. The primary intent of this discussion and analysis is to look at the City s financial performance as a whole; readers should also review the letter of transmittal, notes to the basic financial statements, and the financial statements to enhance their understanding of the City s financial performance. Financial Highlights Key financial highlights for FY2009 are as follows: In total, combined net assets increased $609,115 which represents a.73% increase over FY2008. This increase can primarily be attributed to operating and capital grants received by the City for the resurfacing of roads and the downtown pedestrian improvements project. Combined tax revenues accounted for $8,293,573 or 66.2% of all revenues from governmental activities. Service specific revenues in the form of charges for services, operating grants and contributions, and capital grants and contributions accounted for $4,186,735 or 33.4% of total revenues of $12,521,097 from governmental activities. The City had $12,007,221 in expenses related to governmental activities; $4,186,735 of these expenses was offset by charges for services, grants, and contributions. General revenues (primarily taxes) of $8,334,362 provided $7,820,486 for these services and $513,876 for future debt service and capital improvements. Total water and sewer fund revenues for fiscal year 2009 were $5,795,440. Total expenses for fiscal year 2009 were $5,763,419. Capital contributions were recorded in the amount of $60,669, including but not limited to donated property and sewer proportionate share. The change in net assets after depreciation and non-operating revenues and/or expenses was $92,690 for the fiscal year end. Revenues from the General Fund were $10,120,784 for fiscal year 2009, an increase of approximately 6.8% over the prior fiscal year, due to an increase in fines and forfeitures. General Fund expenditures totaled $10,115,597 for the fiscal year ending July 31, 2009, an increase of 1.1% over last fiscal year. Overview of the Financial Statements This comprehensive annual financial report consists of a series of financial statements and notes to those statements. These statements are organized so the reader can understand the City of Fayetteville as a financial whole, or as an entire operating entity. 3

72 MANAGEMENT S DISCUSSION AND ANALYSIS Statements of Net Assets and the Statement of Activities The Statement of Net Assets and Statement of Activities provide information about the activities of the whole City, presenting both an aggregate view of the City s finances and a longer-term view of those finances. Fund financial statements provide the next level of detail. For governmental funds, these statements tell how services were financed in the short term as well as what remains for future spending. For proprietary funds, the statements offer short and long term financial information about activities the City operates like businesses, such as water and sewer. The fund financial statements also look at the City s most significant funds with all other non-major funds presented in total in one column. The purpose of the Statement of Net Assets and the Statement of Activities is to answer the question, How did we do financially during FY2009? These statements include all assets and liabilities using the accrual basis of accounting similar to the accounting used by most private sector companies. This basis of accounting takes into account all of the current year s revenues and expenses regardless of when the cash is received or paid. These two statements report the City s net assets and changes in those assets. This change in net assets is important because it tells the reader that, for the City as a whole, the financial position of the City has improved or diminished. The causes of this change may be the result of many factors, some financial, some not. Non-financial factors include the City s property tax base, facility conditions, and other factors. In the Statement of Net Assets and the Statement of Activities, the City has both governmental and business-type activities: Governmental Activities : Most of the City s programs and services are reported here including general government, judicial, public safety, public works, culture and recreation, and housing and development. Sales taxes, property taxes, occupation taxes, and fines and forfeitures finance most of these activities. Business-Type Activities: The City charges fees to cover the services it provides. These activities include water and sewer services, stormwater services, sanitation services and recycling services. Reporting the City s Most Significant Funds Fund financial reports provide detailed information about the City s major funds. The City uses many funds to account for a multitude of financial transactions. However, these fund financial statements focus on the City s most significant funds. Governmental Funds Most of the City s activities are reported in the governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end available for spending in future periods. 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. The governmental fund statements provide a detailed short-term view of the City s general governmental operations and basic services it provides. Governmental fund information helps you determine whether there are more financial resources that can be spent in the near future to finance governmental services. The relationship (or difference) between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds is reconciled in the financial statements. See Note #2 to the Financial Statements. 4

73 MANAGEMENT S DISCUSSION AND ANALYSIS The capital projects funds are used to account for financial resources to be used for the acquisition, construction, or renovation of major fixed assets. The City of Fayetteville has three Capital Projects Funds: (1) Building Fund and (2) Impact Fee Fund and (3) Special Purpose Local Option Sales Tax (SPLOST) Fund. The special revenue funds are used to account for specific revenues that are legally restricted to expenditures for particular purposes. The City of Fayetteville has four Special Revenue Funds: (1) Confiscated Assets Fund, (2) Hotel/Motel Tax Fund, (3) Vehicle Excise Tax Fund, and (4) Cemetery Fund. Proprietary Funds Proprietary funds are activities that a City operates similar to a business in that it attempts to recover costs through charges to the user. The City s only proprietary funds are enterprise funds. Enterprise funds may be used to account for any activity or service that charges a fee to external users to cover the cost of operations, including cost of depreciation and debt service. The City operates its water and sewer fund and solid waste fund as enterprise funds. Proprietary fund statements use the accrual basis of accounting similar to the City-wide statements. Financial Analysis As was previously stated, the FY2009 total net assets represent an increase of.73% over FY2008. Although the City is experiencing difficult economic concerns and obstacles, it was still able to realize a small increase to its total net assets. See Tables 1 (Statement of Net Assets on pages 11 and 12) and 2 (Statement of Activities on pages 13 and 14) for a schedule of net assets and change in net assets. TABLE 1-NET ASSETS Governmental Business-type Total Activities Activities Activities Current and other assets $ 8,827,007 $ 8,284,591 $ 3,001,822 $ 4,848,399 $ 11,828,829 $ 13,132,990 Capital assets 64,406,568 65,122,928 32,652,495 33,100,574 97,059,063 98,223,502 Total assets 73,233,575 73,407,519 35,654,317 37,948, ,887, ,356,492 Long-term liabilites 4,795,061 5,256,335 19,120,360 20,914,142 23,915,421 26,170,477 Other liabilities 807,679 1,034, ,408 1,040,521 1,252,087 2,074,746 Total liabilities 5,602,740 6,290,560 19,564,768 21,954,663 25,167,508 28,245,223 Net assets: Invested in capital assets, net of related debt 60,089,837 60,352,897 13,532,153 12,195,150 73,621,990 72,548,047 Restricted 1,954,676 1,566, ,721 1,091,708 2,089,397 2,658,578 Unrestricted 5,586,322 5,197,192 2,422,675 2,707,452 8,008,997 7,904,644 Total net assets $ 67,630,835 $ 67,116,959 $ 16,089,549 $ 15,994,310 $ 83,720,384 $ 83,111,269 5

74 MANAGEMENT S DISCUSSION AND ANALYSIS TABLE 2-CHANGE IN NET ASSETS Governmental Business-type Total Activities Activities Activities Revenues Program revenues: Charges for services $ 2,736,978 $ 2,164,873 $ 6,118,050 $ 5,840,199 $ 8,855,028 $ 8,005,072 Operating grants and contributions 448, , , ,400 Capital grants and contributions 1,001,476 1,194, , ,687 1,454,261 1,845,356 Total program revenues 4,186,735 3,485,942 6,570,835 6,490,886 10,757,570 9,976,828 General revenues: Property taxes 2,764,455 2,670, ,764,455 2,670,751 Other taxes 5,529,118 6,454, ,529,118 6,454,003 Unrestricted investment earnings 40, ,744 3,927 81,686 44, ,430 Gain on sale of capital assets - 45, ,811 Total general revenues 8,334,362 9,353,309 3,927 81,686 8,338,289 9,434,995 Total revenues 12,521,097 12,839,251 6,574,762 6,572,572 19,095,859 19,411,823 Expenses General government 1,158,496 1,217, ,158,496 1,217,486 Judicial 896, , , ,758 Public safety 6,847,442 6,520, ,847,442 6,520,196 Public works 1,883,585 2,786, ,883,585 2,786,357 Housing and development 1,034,348 1,134, ,034,348 1,134,852 Interest on long-term debt 186, , , ,039 Water and sewer - - 5,490,099 5,500,306 5,490,099 5,500,306 Stormwater , , , ,889 Solid waste , , , ,089 Total expenses 12,007,221 12,715,688 6,479,523 6,340,284 18,486,744 19,055,972 Increase in net assets 513, ,563 95, , , ,851 Net assets, beginning of year 67,116,959 66,993,396 15,994,310 15,762,022 83,111,269 82,755,418 Net assets, end of year $ 67,630,835 $ 67,116,959 $ 16,089,549 $ 15,994,310 $ 83,720,384 $ 83,111,269 Governmental Activities Please note that public safety expenses of $6,847,442 represent 57.0% of the total governmental expenses. The next most significant program expense is public works which totals $1,883,585 and 15.7% of the total. Interest expense of $186,816 represents only 1.6%. Interest expense was attributable to the GMA Lease Program to lease/purchase the City s public safety vehicles and public works equipment, as well as the Certificates of Participation for the construction of the law enforcement center. Business-Type Activities The most significant business-type activity of the City is the Water and Sewer Department. The majority of its revenue was derived from user fees charged for product and service. 6

75 MANAGEMENT S DISCUSSION AND ANALYSIS Cost of Program Services The Statement of Activities shows the cost of program services and the charges for services and grants offsetting those services. Table 3 shows, for governmental and business-type activities, the combined total cost of services and the combined net cost of services, that is, it identifies the cost of these services supported by tax revenue. Although program revenues make up 41.9% of the combined revenues, the City is dependent upon tax revenues for governmental activities. The net cost of services amounts to $7,820,486 which approximates 94.3% of our local tax receipts of $8,293,573. This information was taken from the Statement of Activities on pages 13 and 14. TABLE 3 Governmental and Business Type Activities Total Cost Net Cost of Services of Services General government $ 1,158,496 $ 1,217,486 $ (688,642) $ (857,750) Judicial 896, , , ,577 Public safety 6,847,442 6,520,196 (5,958,820) (6,284,353) Public works 1,883,585 2,786,357 (798,339) (1,495,627) Housing and development 1,034,348 1,134,852 (912,180) (723,554) Interest on long-term debt 186, ,039 (186,816) (196,039) Total governmental activities 12,007,221 12,715,688 (7,820,486) (9,229,746) Business-type activities 6,479,523 6,340,284 91, ,602 Total expenses $ 18,486,744 $ 19,055,972 $ (7,729,174) $ (9,079,144) Governmental Fund Balance At the end of the fiscal year 2009, the combined ending fund balances for the City s Governmental Funds were $7,777,712. Of the total fund balance, $7,511,631 is unreserved/undesignated fund balance, which is available as working capital for current spending in accordance with the purposes of the specific funds. The remainder of fund balance is reserved to indicate that it is not available for new spending because it is committed for the following purposes: a) reserved for prepaid $225,895; b) reserved for inventories $15,186; and c) reserved for a community development grant $25,000. The General Fund s fund balance for the fiscal year ending 2009 was $3,147,860, which indicates an increase in fund balance over previous year by $11,232. The increase in General Fund s fund balance is due to the City s diligence in managing a zero based budget during the continued downturn in the economy. The fund balance of the City s Impact Fee Fund increased by $30,953 during the fiscal year to an ending fund balance of $2,292,448. This is mainly due to Impact Fees being received during the fiscal year but capital projects had not started along with their associated expenses. The increase in fund balance for the Building Fund from $46,834 to $82,352 was due to capital projects being suspended for the fiscal year. The SPLOST funds continue to grow and many of the projects are underway and are currently listed as construction in progress. Information provided in Table 4 is from the Balance Sheet of Governmental Funds on page 15. 7

76 MANAGEMENT S DISCUSSION AND ANALYSIS Proprietary Net Assets TABLE 4 Governmental Fund Balance General Fund $ 3,147,860 $ 3,136,628 Impact Fee Fund 2,292,448 2,261,495 Building Fund 82,352 46,834 SPLOST Fund 1,845,119 1,458,031 Other Governmental Funds 409, ,193 Total $ 7,777,712 $ 7,039,181 At the end of the fiscal year 2009, the combined net assets of the City s Proprietary Funds were $16,089,549. The most significant event that took place in the Water and Sewer Fund was the conclusion of both the Wastewater Treatment Plant Expansion and the improvements to the existing infrastructure of the Pye Lake Dam for the prevention of flooding and treatment of stormwater runoff. General Fund Budgeting Highlights The City s budget is prepared according to Georgia law. The most significant budget fund is the General Fund. For the General Fund, the actual revenues of 10,120,784 exceeded the final budgeted amount of $10,080,736 by $40,048. This difference was primarily due to an increase in revenues for charges for services. The actual expenditures of $10,115,957 were less than the final budgeted amount of $10,483,705 by $367,748. This difference was primarily due to vacant personnel positions. The original budget had to be decreased by ($104,441) due to the change in revenues, Sales Taxes were budgeted for $2,520,000 with actual revenues of $2,147,990 for a total decrease of ($338,478); Fines and Forfeitures were budgeted for $1,350,000 with actual revenues of $1,616,336 for a total increase of $266,336. Due to the downturn in the economic conditions which have rendered the historical data and past trends irrelevant, forecasting has become difficult. Capital Assets and Debt Administration At the end of fiscal year 2009, the City had $97,059,063 invested in capital assets which is a decrease over FY2008 of ($1,164,439). Table 5 shows fiscal years 2008 and 2009 balances of the Capital Assets, net of depreciation as presented on pages 38 through 40 under Note 7 Capital Assets. 8

77 MANAGEMENT S DISCUSSION AND ANALYSIS TABLE 5 Capital Assets, Net of Accumulated Depreciation Governmental Business-type Total Activities Activities Activities Land $ 3,989,650 $ 3,989,650 $ 1,630,139 $ 1,630,139 $ 5,619,789 $ 5,619,789 Construction in progress 1,184, , ,766 14,926,063 1,668,943 15,874,693 Buildings 5,913,814 6,105, ,913,814 6,105,891 Land improvements 125, , , ,522 Equipment 1,034,733 1,356,368 78, ,693 1,113,579 1,466,061 Infrastructure 52,159,156 52,585,867 30,458,744 16,434,679 82,617,900 69,020,546 Total $ 64,406,568 $ 65,122,928 $ 32,652,495 $ 33,100,574 $ 97,059,063 $ 98,223,502 The major changes occurred in Water and Sewer with a decrease in Construction in Progress of ($14,441,297) and increase in Infrastructure of $14,024,065. Debt The amount of outstanding debt of $11,250,000 in Water and Sewerage Revenue Bonds is to refinance the cost of a surface water supply, a water treatment and transmission facilities, a new gravity sewer line to connect the new Fayette Community Hospital to the sewer collection system and to finance a new Wastewater Plant Expansion. The Water and Sewer Fund has a loan to the Georgia Environmental Facilities Authority of the State of Georgia in the amount of $8,316,684 on July 31, The amount of outstanding debt in Governmental Activities is $3,784,156 in Certificates of Participation (COPS) with Georgia Municipal Association (GMA) to finance the cost of construction and furnishing of the new Law Enforcement Center. The General Fund has lease purchase agreements in the amount of $532,575 as of July 31, Table 6 Outstanding Long-Term Liabilities reflects information provided on page 40 under Note 8 Long-Term Debt. TABLE 6 Outstanding Long-Term Liabilities Governmental Activities Business-type Activities Capital leases $ 532,575 $ 793,724 $ 1,315 $ 3,943 Compensated absences 479, , Certificates of participation: Certificates payable 3,825,000 4,020, Discount (40,844) (43,693) - - Total Certificates of participation 3,784,156 3,976, Bonds payable: Revenue bonds ,250,000 11,890,000 Deferred amounts: Premium , ,066 On refunding - - (560,392) (619,348) Total bonds payable ,802,361 11,390,718 Notes Payable - - 8,316,684 9,519,481 Total long-term liabilities $ 4,796,061 $ 5,256,335 $ 19,120,360 $ 20,914,142 9

78 MANAGEMENT S DISCUSSION AND ANALYSIS Current Issues Economic Factors and Next Year s Budget and Rates Today, the population for the City of Fayetteville is estimated to be 15,340. This growth has been reflected in the City s General Fund revenues, which have increased from $3,840,328 in 1994 to $10,120,784 in The economic condition and outlook of the City has declined due to lack of residential construction, frugal purchasing by City residents, and loss of jobs and employment in our area. We are beginning to see a much slower growth in revenues, particularly property taxes and franchise fees and building related fees. Our local option sales taxes are decreasing which is a direct reflection of our area s recession. While our revenues have begun to slow, our operating expenses have continued to increase, mainly due to providing competitive salaries and increasing health insurance benefits. Additionally, our debt service expenses have increased as a result of much needed equipment replacement and facility upgrades. Staff has developed a Five-Year Plan that includes Workload Indicators and Trend Analysis to assist the City in long-range financial planning and forecasting. This plan is developed with input from each department and is updated annually to reflect any changing needs. This Plan is a very conservative forecast of the City s financial resources and departmental needs to maintain our existing service levels to the community. The Mayor and Council and staff will need to continue to closely evaluate the service and staffing levels on an ongoing basis to ensure that adequate personnel resources and financial resources are available to achieve the desired service levels. Contacting the City s Financial Management This financial report is designed to provide our citizens, taxpayers, investors and creditors with a general overview of the City s finances and to show the City s accountability for the money it receives. If you have questions about this report or need additional financial information, Lynn Robinson, Director of Finance, City of Fayetteville, 240 Glynn Street South, Fayetteville, Georgia 30214, , or lrobinson@fayetteville-ga.gov 10

79 BASIC FINANCIAL STATEMENTS

80 CITY OF FAYETTEVILLE, GEORGIA STATEMENT OF NET ASSETS JULY 31, 2009 Primary Government Governmental Business-type ASSETS Activities Activities Total Cash and cash equivalents $ 5,161,000 $ 866,324 $ 6,027,324 Investments 2,002,663-2,002,663 Taxes receivable 460, ,998 Accounts receivable, net of allowances 243, ,742 1,027,927 Due from other governments 347, ,512 Internal balances 127,694 (127,694) - Due from primary government Due from component unit 13, ,920 Inventories 15, , ,120 Prepaid expenses 225,895 49, ,439 Restricted assets, cash and cash equivalents 84, ,149 1,037,706 Deferred charges, unamortized balance 145, , ,220 Capital assets, nondepreciable 5,173,827 2,114,905 7,288,732 Capital assets, depreciable, net of accumulated depreciation 59,232,741 30,537,590 89,770,331 Total assets 73,233,575 35,654, ,887,892 LIABILITIES Checks issued in excess of bank balance 2,740-2,740 Accounts payable 183, , ,771 Accrued liabilities 172, , ,217 Unearned revenues 405, ,084 Due to primary government Due to component unit 44,275-44,275 Liabilities payable from restricted assets - 655, ,000 Capital leases due within one year 178,721 1, ,036 Capital leases due in more than one year 353, ,854 Compensated absences due within one year 239, ,165 Compensated absences due in more than one year 239, ,165 Certificates of participation due within one year 200, ,000 Certificates of participation due in more than one year 3,584,156-3,584,156 Notes payable due within one year - 291, ,430 Notes payable due in more than one year - 8,025,254 8,025,254 Bonds payable due in more than one year - 10,147,361 10,147,361 Total liabilities 5,602,740 19,564,768 25,167,508 NET ASSETS Invested in capital assets, net of related debt 60,089,837 13,532,153 73,621,990 Restricted for debt service 84, , ,278 Restricted for community development grant 25,000-25,000 Restricted for capital projects 1,845,119-1,845,119 Unrestricted 5,586,322 2,422,675 8,008,997 Total net assets $ 67,630,835 $ 16,089,549 $ 83,720,384 The accompanying notes are an integral part of these financial statements. 11

81 Component Units Downtown Development Authority Main Street Tourism Association $ 81,831 $ 83, , ,680 6, ,627 10, , ,230 56,799-55, ,105-2,393,515-3,624, , , ,220 30,807 6,707-32,692 2,779 11, , , ,768-1,890,000-2,510, , , ,115 (36,237) $ 1,113,565 $ (36,237) 12

82 CITY OF FAYETTEVILLE, GEORGIA STATEMENT OF ACTIVITIES FOR THE FISCAL YEAR ENDED JULY 31, 2009 Program Revenues Operating Capital Charges for Grants and Grants and Functions/Programs Expenses Services Contributions Contributions Primary government: Governmental activities: General government $ 1,158,496 $ 469,854 $ - $ - Judicial 896,534 1,620, Public safety 6,847, , ,993 1,040 Public works 1,883,585 74,522 10,288 1,000,436 Housing and development 1,034, , Interest on long-term debt 186, Total governmental activities 12,007,221 2,736, ,281 1,001,476 Business-type activities: Water and sewer 5,490,099 4,905, ,785 Stormwater 273, , Solid waste 716, , Total business-type activities 6,479,523 6,118, ,785 Total primary government $ 18,486,744 $ 8,855,028 $ 448,281 $ 1,454,261 Component units: Downtown Development Authority $ 282,050 $ 75 $ 242,254 $ - Main Street Tourism Association 412, , ,670 - Total component units $ 694,076 $ 208,656 $ 502,924 $ - General revenues: Property taxes Sales taxes Franchise taxes Alcoholic beverage excise taxes Business and occupation taxes Insurance premium taxes Other taxes Unrestricted investment earnings Total general revenues Change in net assets Net assets (deficit), beginning of year Net assets (deficit), end of year The accompanying notes are an integral part of these financial statements. 13

83 Net (Expenses) Revenues and Changes in Net Assets Component Units Downtown Main Street Governmental Business-type Development Tourism Activities Activities Total Authority Association $ (688,642) $ - $ (688,642) $ - $ - 724, , (5,958,820) - (5,958,820) - - (798,339) - (798,339) - - (912,180) - (912,180) - - (186,816) - (186,816) - - (7,820,486) - (7,820,486) (131,633) (131,633) , , ,466 2, ,312 91, (7,820,486) 91,312 (7,729,174) (39,721) , (39,721) 57,225 2,764,455-2,764, ,147,990-2,147, ,267,033-1,267, , , , , , , , , ,789 3,927 44,716 2, ,334,362 3,927 8,338,289 2, ,876 95, ,115 (36,804) 57,227 67,116,959 15,994,310 83,111,269 1,150,369 (93,464) $ 67,630,835 $ 16,089,549 $ 83,720,384 $ 1,113,565 $ (36,237) 14

84 CITY OF FAYETTEVILLE, GEORGIA BALANCE SHEET GOVERNMENTAL FUNDS JULY 31, 2009 Other Totals Impact Fee Governmental Governmental ASSETS General Fund Funds Funds Cash and cash equivalents $ 630,456 $ 2,424,650 $ 2,105,894 $ 5,161,000 Investments 2,002, ,002,663 Taxes receivable 446,315-14, ,998 Accounts receivable 243, ,185 Due from other governments 159, , ,512 Due from other funds 260,558-26, ,570 Due from component unit 13, ,053 Inventories 15, ,186 Prepaid expenditures 211,048-14, ,895 Restricted assets ,557 84,557 Total assets $ 3,982,414 $ 2,424,650 $ 2,433,555 $ 8,840,619 LIABILITIES AND FUND BALANCES LIABILITIES Checks issued in excess of bank balance $ - $ - $ 2,740 $ 2,740 Accounts payable 143,615-39, ,049 Accrued liabilities 144, ,271 Deferred revenue 529, ,696 Due to other funds 15, ,900 11, ,876 Due to component unit 1, ,437 44,275 Total liabilities 834, ,202 96,151 1,060,167 FUND BALANCES Fund balances: Reserved for: Prepaid expenditures 211,048-14, ,895 Inventories 15, ,186 Community development grant 25, ,000 Unreserved reported in: General fund 2,896, ,896,626 Special revenue funds , ,933 Capital project funds - 2,292,448 1,912,624 4,205,072 Total fund balances 3,147,860 2,292,448 2,337,404 7,777,712 Total liabilities and fund balances $ 3,982,414 $ 2,424,650 $ 2,433,555 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 funds. $ 64,406,568 Other long-term assets are not available to pay for current-period expenditures and, therefore, are deferred in the funds. 124,612 Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the funds. (4,678,057) Net assets of governmental activities $ 67,630,835 The accompanying notes are an integral part of these financial statements. 15

85 CITY OF FAYETTEVILLE, GEORGIA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JULY 31, 2009 Other Totals Impact Fee Governmental Governmental General Fund Funds Funds Revenues Taxes $ 7,471,341 $ - $ 781,413 $ 8,252,754 Licenses and permits 261, ,485 Intergovernmental 437, ,093 1,187,335 Fines and forfeitures 1,616, ,750 2,040,086 Charges for services 112, ,990 Impact fees - 121, ,768 Contributions 1,791-10,288 12,079 Interest income 18,950 11,506 10,333 40,789 Other revenues 200, ,649 Total revenues 10,120, ,274 1,975,877 12,229,935 Expenditures Current: General government 1,026, ,026,932 Judicial 895, ,312 Public safety 6,286, ,434 6,429,522 Public works 1,087, ,087,963 Housing and development 683, , ,542 Capital outlay: Public works , ,488 Housing and development - 7, , ,939 Debt service: Principal 134, , ,149 Interest , ,579 Total expenditures 10,115,957 7,074 1,371,395 11,494,426 Excess of revenues over expenditures 4, , , ,509 (Continued) 16

86 CITY OF FAYETTEVILLE, GEORGIA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JULY 31, 2009 Other Totals Impact Fee Governmental Governmental General Fund Funds Funds Other financing sources (uses): Proceeds from sale of assets $ 3,022 $ - $ - $ 3,022 Transfers in 3, , ,490 Transfers out - (95,247) (17,243) (112,490) Total other financing sources (uses) 6,405 (95,247) 91,864 3,022 Net change in fund balances 11,232 30, , ,531 Fund balances, beginning of year 3,136,628 2,261,495 1,641,058 7,039,181 Fund balances, end of year $ 3,147,860 $ 2,292,448 $ 2,337,404 $ 7,777,712 The accompanying notes are an integral part of these financial statements. 17

87 CITY OF FAYETTEVILLE, GEORGIA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE FISCAL YEAR ENDED JULY 31, 2009 Amounts reported for governmental activities in the statement of activities are different because: Net change in fund balances - total governmental funds $ 738,531 Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which depreciation expense exceeded capital outlay in the current period. (872,342) The net effect of various miscellaneous transactions involving capital assets (i.e., sales, trade-ins, and donations) is to increase net assets. 155,982 Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. 40,819 The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. This amount is the net effect of these differences in the treatment of long-term debt and related items. 456,149 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. (5,263) Changes in net assets - governmental activities $ 513,876 The accompanying notes are an integral part of these financial statements. 18

88 CITY OF FAYETTEVILLE, GEORGIA GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JULY 31, 2009 Budget Variance With Original Final Actual Final Budget Revenues: Property taxes $ 2,101,870 $ 2,101,870 $ 2,109,888 $ 8,018 Sales taxes 2,520,000 2,181,522 2,147,990 (33,532) Other taxes 3,218,457 3,204,948 3,213,463 8,515 Licenses and permits 300, , ,485 (30,515) Intergovernmental 433, , ,242 4,022 Fines and forfeitures 1,350,000 1,535,000 1,616,336 81,336 Charges for services 58, , ,990 9,940 Contributions 5,500 5,500 1,791 (3,709) Interest income 90,000 40,000 18,950 (21,050) Other revenues 5, , ,649 17,023 Total revenues 10,083,047 10,080,736 10,120,784 40,048 Expenditures: Current: General government: Mayor and council 147, , ,398 6,202 Clerk of council 54,281 57,400 54,814 2,586 City manager 83,112 83,012 79,813 3,199 Elections Financial administration 443, , ,197 43,019 Law 160, ,206 86,346 48,860 Data processing 83,351 83,351 81,074 2,277 Human resources 75,506 65,476 64, Building and plant 112, ,871 87,331 19,540 Total general government 1,159,658 1,153,232 1,026, ,300 Judicial: Municipal court 811, , , Public safety: Police administration 391, , ,840 15,201 Investigations 780, , ,840 8,869 Patrol 2,295,639 2,175,335 2,164,822 10,513 Police stations and buildings 103,618 90,014 87,930 2,084 Support services 346, , ,710 4,823 Fire administration 292, , ,325 1,277 Fire fighting 2,018,731 2,003,020 1,922,263 80,757 Fire prevention 190, , ,961 1,014 Fire training 69,319 67,679 28,674 39,005 Fire station 91 and headquarters 48,788 50,403 50, Fire station 92 21,166 19,551 19, E , , ,256 - Total public safety 6,671,442 6,450,118 6,286, ,030 (Continued) 19

89 CITY OF FAYETTEVILLE, GEORGIA GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JULY 31, 2009 Budget Variance With Original Final Actual Final Budget Public works: Public works administration $ 153,044 $ 153,044 $ 150,647 $ 2,397 Highways and streets 871, , ,316 23,606 Total public works 1,024,771 1,113,966 1,087,963 26,003 Housing and development: Inspection 323, , , Planning and zoning 258, , ,021 29,818 Engineering and development 73,537 84,700 66,937 17,763 Main Street 85,000 85,000 85,000 - Total housing and development 740, , ,877 48,328 Debt service: Principal 169, , ,962 2,797 Interest 11, Total debt service 181, , ,785 2,804 Total expenditures 10,588,146 10,483,705 10,115, ,748 Excess (deficiency) of revenues over (under) expenditures (505,099) 099) (402,969) 4, , Other financing sources: Proceeds from sale of assets - - 3,022 3,022 Transfers in 419, ,199 3,383 (415,816) Total other financing sources 419, ,199 6,405 (412,794) Net change in fund balances (85,900) 16,230 11,232 (4,998) Fund balances, beginning of year 3,136,628 3,136,628 3,136,628 - Fund balances, end of year $ 3,050,728 $ 3,152,858 $ 3,147,860 $ (4,998) The accompanying notes are an integral part of these financial statements. 20

90 CITY OF FAYETTEVILLE, GEORGIA STATEMENT OF NET ASSETS PROPRIETARY FUNDS JULY 31, 2009 Major Nonmajor Enterprise Fund Enterprise Fund Water and Solid Waste ASSETS Sewer Fund Fund Totals CURRENT ASSETS Cash and cash equivalents $ 807,131 $ 59,193 $ 866,324 Accounts receivable, net of allowances 784, ,742 Due from component units Due from other funds 129,144 52, ,887 Inventories 191, ,934 Prepaid expenses 49,544-49,544 Restricted assets, cash and cash equivalents 953, ,149 Total current assets 2,916, ,936 3,028,447 NONCURRENT ASSETS Deferred charges, unamortized balance 282, ,956 Capital assets: Capital assets, non-depreciable 2,114,905-2,114,905 Capital assets, depreciable, net of accumulated depreciation 30,537,590-30,537,590 Total capital assets 32,652,495-32,652,495 LIABILITIES Total noncurrent assets 32,935,451-32,935,451 Total assets 35,851, ,936 35,963,898 CURRENT LIABILITIES Accounts payable 147,634 51, ,722 Accrued liabilities 97,025-97,025 Notes payable, current portion 291, ,430 Capital lease payable, current portion 1,315-1,315 Due to other funds 309, ,581 Current portion of revenue bonds payable from restricted assets 655, ,000 Accrued interest 148, ,661 Total current liabilities 1,650,646 51,088 1,701,734 NONCURRENT LIABILITIES Revenue bonds payable, net of current portion 10,147,361-10,147,361 Notes payable, net of current portion 8,025,254-8,025,254 Total noncurrent liabilities 18,172,615-18,172,615 (Continued) Total liabilities 19,823,261 51,088 19,874,349 21

91 CITY OF FAYETTEVILLE, GEORGIA STATEMENT OF NET ASSETS PROPRIETARY FUNDS JULY 31, 2009 Major Nonmajor Enterprise Fund Enterprise Fund Water and Solid Waste Sewer Fund Fund Totals NET ASSETS Invested in capital assets, net of related debt $ 13,532,153 $ - $ 13,532,153 Restricted for debt service 134, ,721 Unrestricted 2,361,827 60,848 2,422,675 Total net assets $ 16,028,701 $ 60,848 $ 16,089,549 The accompanying notes are an integral part of these financial statements. 22

92 CITY OF FAYETTEVILLE, GEORGIA STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS FOR THE FISCAL YEAR ENDED JULY 31, 2009 Major Nonmajor Enterprise Fund Enterprise Fund Water and Solid Waste Sewer Fund Fund Totals OPERATING REVENUES Charges for services: Water sales pledged as security for revenue bonds $ 2,375,179 $ - $ 2,375,179 Sewer sales pledged as security for revenue bonds 2,524,928-2,524,928 Stormwater sales pledged as security for revenue bonds 493, ,799 Sanitation charges - 718, ,570 Other fees and charges 5,574-5,574 Total operating revenues 5,399, ,570 6,118,050 OPERATING EXPENSES Personal services and employee benefits 2,104,257-2,104,257 Contracted services 504, ,104 1,220,372 Supplies 1,067,309-1,067,309 Depreciation 1,186,339-1,186,339 Amortization 69,997-69,997 Total operating expenses 4,932, ,104 5,648,274 Operating income 467,310 2, ,776 NONOPERATING INCOME (EXPENSES) Intergovernmental revenue 392, ,116 Interest income 3, ,927 Interest expense (831,249) - (831,249) Total nonoperating income (expenses) (435,289) 83 (435,206) Income before contributions 32,021 2,549 34,570 CAPITAL CONTRIBUTIONS 60,669-60,669 Change in net assets 92,690 2,549 95,239 NET ASSETS, beginning of year 15,936,011 58,299 15,994,310 NET ASSETS, end of year $ 16,028,701 $ 60,848 $ 16,089,549 The accompanying notes are an integral part of these financial statements. 23

93 CITY OF FAYETTEVILLE, GEORGIA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE FISCAL YEAR ENDED JULY 31, 2009 Major Nonmajor Enterprise Fund Enterprise Fund Water and Solid Waste Sewer Fund Fund Totals CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $ 5,352,344 $ 728,127 $ 6,080,471 Payments to suppliers and service providers (1,688,979) (726,830) (2,415,809) Payments to employees (2,039,992) - (2,039,992) Net cash provided by operating activities 1,623,373 1,297 1,624,670 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Purchase of property and equipment (738,260) - (738,260) Principal paid on bonds (640,000) - (640,000) Principal paid on notes payable (1,665,025) - (1,665,025) Principal paid on capital lease (2,628) - (2,628) Interest paid (792,433) - (792,433) Intergovernmental revenue 519, ,857 Capital contributions 60,669-60,669 Net cash used in capital and related financing activities (3,257,820) - (3,257,820) CASH FLOWS FROM INVESTING ACTIVITIES Interest on investments 3, ,927 Net cash provided by investing activities 3, ,927 Increase (decrease) in cash and cash equivalents (1,630,603) 1,380 (1,629,223) Cash and cash equivalents: Beginning of year (including $1,952,399) in restricted cash in the Water and Sewer Fund) 3,390,883 57,813 3,448,696 End of year (including $953,149 in restricted cash in the Water and Sewer Fund) $ 1,760,280 $ 59,193 $ 1,819,473 Classified as: Cash and cash equivalents $ 807,131 $ 59,193 $ 866,324 Restricted assets, cash and cash equivalents 953, ,149 (Continued) $ 1,760,280 $ 59,193 $ 1,819,473 24

94 CITY OF FAYETTEVILLE, GEORGIA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE FISCAL YEAR ENDED JULY 31, 2009 Reconciliation of operating income to net cash provided by operating activities: Major Nonmajor Enterprise Fund Enterprise Fund Water and Solid Waste Sewer Fund Fund Totals Operating income $ 467,310 $ 2,466 $ 469,776 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 1,186,339-1,186,339 Amortization 69,997-69,997 Increase in accounts receivable (47,136) - (47,136) Decrease in inventories 8,381-8,381 Decrease in due from other funds 4,077 9,557 13,634 Increase in due from component units (867) - (867) Decrease in prepaid expenses 26,828-26,828 Decrease in accrued liabilities (6,155) - (6,155) Decrease in accounts payable (155,821) (10,726) (166,547) Increase in due to other funds 70,420-70,420 Net cash provided by operating activities $ 1,623,373 $ 1,297 $ 1,624,670 Noncash investing, capital, and financing activities: Capitalization of accrued interest on construction loan $ 462,228 $ - $ 462,228 The accompanying notes are an integral part of these financial statements. 25

95 CITY OF FAYETTEVILLE, GEORGIA NOTES TO FINANCIAL STATEMENTS JULY 31, 2009 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the City of Fayetteville, Georgia (the City ) have been prepared in conformity with accounting principles generally accepted in the United States of America as applied to governments. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The more significant of the City's accounting policies are described below. A. Reporting Entity The City operates under a Council/Manager form of government. As required by accounting principles generally accepted in the United States of America, the financial statements of the reporting entity include those of the City of Fayetteville, Georgia (the primary government) and its component units. The component units discussed below are included in the City's reporting entity because of the significance of their operational or financial relationship with the City. In conformity with accounting principles generally accepted in the United States of America, as set forth in Governmental Accounting Standards Board Statements No. 14 and 39, the financial statements of the component units are discretely presented in the government-wide financial statements. The City of Fayetteville Downtown Development Authority (the Downtown Development Authority) was organized to develop and promote commerce, industry and general welfare within the City. The City appoints the Downtown Development Authority s board members, provides the majority of funding for the Downtown Development Authority s operating budget, and has contractually obligated itself to use its taxing powers to guarantee repayment of principal and interest on certain revenue bonds issued by the Downtown Development Authority; therefore, the Downtown Development Authority is fiscally dependent on the City of Fayetteville. The Downtown Development Authority is reviewed and audited along with the primary government financial statements in accordance with Governmental Accounting Standards Board Statements No. 14 and 39. However, separate financial statements are not prepared. 26

96 NOTES TO FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) A. Reporting Entity (Continued) The Fayetteville Main Street Tourism Association, Inc. (the Main Street Tourism Association) was organized to serve the needs and interests of tourism within the City of Fayetteville, and in particular, tourism within the Main Street District of Fayetteville. The City appoints the Main Street Tourism Association s board members and has the ability to impose its will on the operations of the Main Street Tourism Association. The Main Street Tourism Association is reviewed and audited along with the primary government financial statements in accordance with Governmental Accounting Standards Board Statement No. 14. However, separate financial statements are not prepared. 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 nonfiduciary activities of the government. For the most part, the effect of interfund 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 expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to those who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds and proprietary funds. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. 27

97 NOTES TO FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. Measurement Focus, Basis of Accounting and Basis of 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 financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of the 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. For this purpose, the city considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Property taxes, intergovernmental grants, and investment income 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. The format of the fund financial statements has been modified by GASB Statement No. 34. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. GASB Statement No. 34 also requires, as required supplementary information, Management s Discussion and Analysis which includes an analytical overview of the City s financial activity. The City reports the following major governmental funds: The General Fund is the City s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The Impact Fee Fund is used to account for capital projects activity funded by development impact fees. 28

98 NOTES TO FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. Measurement Focus, Basis of Accounting and Basis of Presentation (Continued) The City reports the following major proprietary fund: The Water and Sewer Fund accounts for the operation of the water and sewerage system including all revenues from sources applicable to these operations and all expenses of the operation. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent privatesector guidance for their business-type activities and enterprise funds, subject to this same limitation. The City has elected not to follow subsequent private-sector guidance. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are charges between the City s water and sewer function and the other functions of the government. Elimination of these charges would distort the direct costs reported for the various functions concerned. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operations. The principal operating revenues of the enterprise funds are charges for goods and services provided. Operating expenses of the enterprise funds include the cost of these goods and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the City s policy to use restricted resources first, then unrestricted resources as they are needed. 29

99 NOTES TO FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Cash and Deposits The City s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. State statutes authorize the City to invest in: obligations of the United States, the State of Georgia and other political subdivisions of the State of Georgia, and other states; prime bankers acceptances; repurchase agreements; and the Georgia local government investment pool (Georgia Fund 1). Georgia Fund 1, created by OCGA , is a stable net asset value investment pool which follows Standard & Poor s criteria for AAAm rated money market funds. However, Georgia Fund 1 operates in a manner consistent with Rule 2a-7 of the Investment Company Act of 1940 and is considered to be a 2a-7 like pool. The pool is not registered with the SEC as an investment company. The pool s primary objectives are safety of capital, investment income, liquidity and diversification while maintaining principal ($1 per share value). Net asset value is calculated weekly to ensure stability. The pool distributes earnings (net of management fees) on a monthly basis and determines participants shares sold and redeemed based on a $1 per share. The fair value of the City s position in the pool is the same as the value of pool shares ($1 per share value). The regulatory oversight agency for Georgia Fund 1 is the Office of Treasury and Fiscal Services of the State of Georgia. E. Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year as well as all other outstanding balances between funds are reported as due to/from other funds. Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as internal balances. F. Inventories Inventories are valued at cost, which approximates market, using the first in, first out (FIFO) method. The consumption method is used to account for inventories. Under the consumption method, inventory items are recognized as expenditures when used. G. Prepaid Expenditures/Expenses Payments made to vendors for services that will benefit periods beyond July 31, 2009, are recorded as prepaid items. 30

100 NOTES TO FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) H. Restricted Assets Certain proceeds of enterprise fund revenue bonds, as well as certain resources set aside for their repayment, are classified as restricted assets on the balance sheet because their use is limited by applicable bond covenants. I. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets, are reported in the applicable governmental or business-type activities column in the government-wide financial statements. Capital assets are defined by the City as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The City has retroactively reported major general infrastructure assets. In this case, the City chose to include all items regardless of their acquisition date. The City was able to estimate the historical cost for the initial reporting of these assets through backtrending. The costs of normal maintenance and repairs that do not add to the value of the assets or materially extend assets lives are not capitalized. Property, plant and equipment of the primary government, as well as the component units, are depreciated using the straight line method over the following useful lives: Asset Years Land improvements 50 Buildings 40 Public domain infrastructure System infrastructure Equipment 3-30 J. Compensated Absences It is the City s policy to permit employees to accumulate earned but unused vacation and sick pay benefits. There is no liability for unpaid accumulated sick leave since the City does not have a policy to pay any amount when employees separate from service with the City. All vacation pay is accrued when incurred in the government-wide and proprietary fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations or retirements. 31

101 NOTES TO FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) K. Long-Term Obligations In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bond using the straight-line method, which approximates the effective interest method. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. The gain on defeasance of bonds is presented as an addition to the face amount of bonds payable and is being amortized over the life of the bonds through interest expense. In the fund financial statements, governmental fund types report the face amount of debt issued as other financing sources. L. Fund Equity In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change. M. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 32

102 NOTES TO FINANCIAL STATEMENTS NOTE 2. RECONCILIATION OF GOVERNMENT-WIDE FINANCIAL STATEMENTS AND FUND FINANCIAL STATEMENTS A. Explanation of Certain Differences between the Governmental Fund Balance Sheet and the Government-wide Statement of Net Assets The governmental fund balance sheet includes a reconciliation between fund balance total governmental funds and net assets governmental activities as reported in the government-wide statement of net assets. One element of that reconciliation explains that Long-term liabilities are not due and payable in the current period and therefore are not reported in the funds. The details of this $4,678,057 difference are as follows: Accrued interest payable $ (28,260) Capital leases payable (532,575) Compensated absences payable (478,330) Certificates of participation (3,825,000) Less: Deferred charge for issuance costs (to be amortized over life of debt) 145,264 Less: Issuance discount (to be amortized as interest expense) 40,844 Net adjustment to reduce fund balance - total governmental funds to arrive at net assets - governmental activities $ (4,678,057) B. Explanation of Certain Differences between the Governmental Fund Statement of Revenues, Expenditures, and Changes in Fund Balances and the Government-wide Statement of Activities The governmental fund statement of revenues, expenditures, and changes in fund balances includes a reconciliation between net changes in fund balances total governmental funds and changes in net assets of governmental activities as reported in the government-wide statement of activities. One element of that reconciliation explains that Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their useful lives and reported as depreciation expense. The details of this $872,342 difference are as follows: Capital outlay $ 356,118 Depreciation expense (1,228,460) Net adjustment to decrease net changes in fund balance - total governmental funds to arrive at changes in net assets of governmental activities $ (872,342) 33

103 NOTES TO FINANCIAL STATEMENTS NOTE 2. RECONCILIATION OF GOVERNMENT-WIDE FINANCIAL STATEMENTS AND FUND FINANCIAL STATEMENTS (CONTINUED) B. Explanation of Certain Differences between the Governmental Fund Statement of Revenues, Expenditures, and Changes in Fund Balances and the Government-wide Statement of Activities (Continued) Another element of the reconciliation states that The net effect of various miscellaneous transactions involving capital assets (i.e., sales, trade-ins, and donations) is to increase net assets. The details of this $155,982 difference are as follows: Donations of capital assets increase net assets in the statement of activities, but do not appear in the governmental funds because they are not financial resources. $ 250,343 In the statement of activities, only the loss on the sale of capital assets is reported. However, in the governmental funds, the proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balance by the net book value of the capital assets sold. (94,361) Net adjustment to increase net changes in fund balances - total governmental funds to arrive at changes in net assets of governmental activities $ 155,982 Another element of the reconciliation states that The issuance of long-term debt (e.g., bonds, leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. The details of this $456,149 difference are as follows: Principal repayments: Certificates of participation $ 195,000 Capital leases 261,149 Net adjustment to increase net changes in fund balances - total governmental funds to arrive at changes in net assets of governmental activities $ 456,149 34

104 NOTES TO FINANCIAL STATEMENTS NOTE 2. RECONCILIATION OF GOVERNMENT-WIDE FINANCIAL STATEMENTS AND FUND FINANCIAL STATEMENTS (CONTINUED) B. Explanation of Certain Differences between the Governmental Fund Statement of Revenues, Expenditures, and Changes in Fund Balances and the Government-wide Statement of Activities (Continued) Another element of that reconciliation states that 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. The details of this $5,263 difference are as follows: Compensated absences $ 7,974 Accrued interest (253) Amortization of issuance costs (10,135) Amortization of discounts on certificates of participation (2,849) Net adjustment to decrease net changes in fund balances - total governmental funds to arrive at changes in net assets of governmental activities $ (5,263) NOTE 3. LEGAL COMPLIANCE - BUDGETS Budgetary Data. Budgets are adopted on a basis consistent with generally accepted accounting principles for the General Fund, special revenue funds, and capital projects funds. Enterprise fund budgets are prepared and utilized as a management tool to assess the operations of the enterprise funds. All annual appropriations lapse at fiscal year end. Prior to July 31, the Director of Finance with the City Manager receives budget requests from the various departments and their department chairmen. A budget is then formulated which the City Manager and Mayor present to full council sixty (60) days prior to the beginning of each fiscal year. After review by full council, the budget is published for public hearing. A public hearing is held and the budget is legally adopted by the City Council on the second council meeting in July before the new year begins on August 1. The legal level of budgetary control is the department level. 35

105 NOTES TO FINANCIAL STATEMENTS NOTE 3. LEGAL COMPLIANCE BUDGETS (CONTINUED) The appropriated budget is prepared by fund, function, and department. Transfers of appropriations within a department budget or within a nondepartmental expenditure category can be authorized by the Director of Finance, except expenditures for additional personnel. Increases in appropriations in a departmental budget or in a nondepartmental expenditure category, as well as increases in appropriations for employing additional personnel, require approval of the governing body in the form of amendments to the budget resolution. The council made several immaterial supplemental budgetary appropriations throughout the year. Encumbrance accounting is employed in governmental funds. Encumbrances (e.g., purchase orders, contracts) outstanding at year end are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be reappropriated and honored during the subsequent year. At July 31, 2009, there were no outstanding encumbrances. NOTE 4. DEPOSITS AND INVESTMENTS Credit risk. State statutes authorize the City to invest in obligations of the State of Georgia or other states; obligations issued by the U.S. government; obligations fully insured or guaranteed by the U.S. government or by a government agency of the United States; obligations of any corporation of the U.S. government; prime bankers acceptances; the local government investment pool established by state law; repurchase agreements; and obligations of other political subdivisions of the State of Georgia. As of July 31, 2009, the City s investment in Georgia Fund 1 was rated AAAm by Standard & Poor s. At July 31, 2009, the City had the following investment: Investment Maturities Fair Value Georgia Fund 1 30 day weighted average $ 2,002,663 At July 31, 2009, the Downtown Development Authority (Component Unit) had the following investment: Investment Maturities Fair Value Georgia Fund 1 30 day weighted average $ 332,928 36

106 NOTES TO FINANCIAL STATEMENTS NOTE 4. DEPOSITS AND INVESTMENTS (CONTINUED) Interest rate risk. The City does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Custodial credit risk deposits. Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover deposits or will not be able to recover collateral securities that are in the possession of an outside party. State statutes require all deposits and investments (other than federal or state government instruments) to be collateralized by depository insurance, obligations of the U.S. government, or bonds of public authorities, counties, or municipalities. As of July 31, 2009, all of the deposits for the City and component units were fully collateralized in accordance with the state statutes. NOTE 5. RECEIVABLES Receivables at July 31, 2009 for the City s individual major funds and nonmajor funds in the aggregate, including the applicable allowances for uncollectible accounts are as follows: Nonmajor Water and and Other General Sewer Funds Total Receivables: Taxes $ 446,315 $ - $ 14,683 $ 460,998 Accounts 290, ,742-1,174,818 Gross receivables 736, ,742 14,683 1,635,816 Less allowance for uncollectibles 46, , ,891 Net total receivables $ 689,500 $ 784,742 $ 14,683 $ 1,488,925 NOTE 6. PROPERTY TAXES The City receives its property tax revenue from Fayette County, which assesses, levies, and collects the taxes, including real and personal property, mobile homes, and motor vehicles. Tax bills were levied to taxpayers on September 1, 2008, and were due and payable on November 15, All unpaid taxes became delinquent as of November 16, Property taxes attached as an enforceable lien on property as of November 16, Receivables are recorded when taxes are levied. 37

107 NOTES TO FINANCIAL STATEMENTS NOTE 7. CAPITAL ASSETS Capital asset activity for the fiscal year ended July 31, 2009 is as follows: A. Primary Government Governmental activities: Beginning Ending Balance Increases Decreases Transfers Balance Capital assets, not being depreciated: Land $ 3,989,650 $ - $ - $ - $ 3,989,650 Construction in Progress 948, ,908 (94,361) - 1,184,177 Total 4,938, ,908 (94,361) - 5,173,827 Capital assets, being depreciated: Buildings 7,601, ,601,467 Land Improvements 163, ,378 Infrastructure 58,909, , ,159,711 Equipment 4,257,363 26, ,283,573 Total 70,931, , ,208,129 Less accumulated depreciation for: Buildings 1,495, , ,687,653 Land Improvements 26,856 11, ,340 Infrastructure 6,323, , ,000,555 Equipment 2,900, , ,248,840 Total 10,746,928 1,228, ,975,388 Total assets, being depreciated, net 60,184,648 (951,907) ,232,741 Governmental activities capital assets, net $ 65,122,928 $ (621,999) $ (94,361) $ - $ 64,406,568 38

108 NOTES TO FINANCIAL STATEMENTS NOTE 7. CAPITAL ASSETS (CONTINUED) Beginning Ending Balance Increases Decreases Transfers Balance Business-type activities: Capital assets, not being depreciated: Land $ 1,630,139 $ - $ - $ - $ 1,630,139 Construction in Progress 14,926, ,260 - (15,179,557) 484,766 Total 16,556, ,260 - (15,179,557) 2,114,905 Capital assets, being depreciated: Water and plant distribution system 11,809, ,809,986 Sewer plant and extensions 18,158, ,916,386 32,074,477 Stormwater system 1,870, ,263,171 3,133,205 Equipment 1,236, ,236,877 Total 33,074, ,179,557 48,254,545 Less accumulated depreciation for: Water and plant distribution system 6,073, , ,599,597 Sewer plant and extensions 9,274, , ,853,038 Stormwater system 55,780 50, ,289 Equipment 1,127,184 30, ,158,031 Total 16,530,616 1,186, ,716,955 Total assets, being depreciated, net 16,544,372 (1,186,339) - 15,179,557 30,537,590 Business-type activities capital assets, net $ 33,100,574 $ (448,079) $ - $ - 32,652,495 Depreciation expense was charged to functions/programs of the City as follows: Governmental activities: General government $ 56,409 Public safety 425,328 Public works 722,530 Housing and development 24,193 Total depreciation expense - governmental activities $ 1,228,460 Business-type activities: Water and sewer $ 1,186,339 Total depreciation expense - business-type activities $ 1,186,339 39

109 NOTES TO FINANCIAL STATEMENTS NOTE 7. CAPITAL ASSETS (CONTINUED) C. Discretely Presented Component Unit Downtown Development Authority Beginning Ending Balance Increases Decreases Balance Capital assets, not being depreciated: Land $ 449,826 $ - $ - $ 449,826 Historical treasures 91, ,279 Total 541, ,105 Capital assets, being depreciated: Land Improvements 244, ,764 Buildings 2,581, ,581,260 Total 2,826, ,826,024 Less accumulated depreciation for: Land Improvements 26,460 6,892-33,352 Buildings 334,445 64, ,157 Total 360,905 71, ,509 Total assets, being depreciated, net 2,465,119 (71,604) - 2,393,515 Capital assets, net $ 3,006,224 $ (71,604) $ - $ 2,934,620 NOTE 8. LONG-TERM DEBT Revenue Bonds. During the year ended July 31, 2004, the City issued revenue bonds in the amount of $14,205,000. The bond proceeds were used to refund the series 1996 revenue bonds. Revenue bonds outstanding at July 31, 2009, are as follows: Interest Due Original Outstanding Purpose Rate Term Date Amount Amount Water & Sewer Fund % 21 years 2024 $ 14,205,000 $ 11,250,000 Plus unamortized premium 112,753 Less unamortized deferred refunding loss (560,392) $ 10,802,361 40

110 NOTES TO FINANCIAL STATEMENTS NOTE 8. LONG-TERM DEBT (CONTINUED) Revenue Bonds (Continued). Debt service requirements to maturity on the revenue bonds are as follows: Year Ending July 31, Principal Interest 2010 $ 655,000 $ 463, , , , , , , , , ,080,000 1,465, ,825, , ,000 22,125 Total $ 11,250,000 $ 4,262,022 The Downtown Development Authority issued revenue bonds during the year ended July 31, 2002 in the amount of $2,220,000. The purpose of the bonds is to fund various capital outlay projects. The principal and interest on the bonds is payable from and secured by certain payments made to the Downtown Development Authority by the City pursuant to a contract between the Downtown Development Authority and the City. To fulfill its obligations under the contract, the City has agreed that it will, to the extent necessary, levy an annual tax on all taxable property located within the boundaries of the City, at such rate or rates, limited to 3 mills, as may be necessary to make the payments to the Downtown Development Authority for its services as called for by the contract. Revenue bonds outstanding at July 31, 2009, are as follows: Interest Due Original Outstanding Purpose Rate Term Date Amount Amount Downtown Development Authority % 20 years 2021 $ 2,220,000 $ 1,945,000 41

111 NOTES TO FINANCIAL STATEMENTS NOTE 8. LONG-TERM DEBT (CONTINUED) Revenue Bonds (Continued). Downtown Development Authority revenue bond debt service requirements to maturity are as follows: Year Ending July 31, Principal Interest 2010 $ 55,000 $ 90, ,000 88, ,000 85, ,000 83, ,000 80, , , ,000 52,168 Total $ 1,945,000 $ 769,208 Notes Payable. The Water and Sewer Fund has also incurred debt to the Georgia Environmental Facilities Authority for various water and sewer system projects. During September 2008, a construction line of credit agreement was finalized and converted to a fixed loan. The details of this loan are as follows at July 31, 2009: Original Outstanding Interest Rate Term Due Date Amount Amount 4.11% 20 years 2028 $ 8,552,012 $ 8,316,684 42

112 NOTES TO FINANCIAL STATEMENTS NOTE 8. LONG-TERM DEBT (CONTINUED) Notes Payable (Continued). The annual requirements to pay the notes outstanding at July 31, 2009 are as follows: Year Ending July 31, Principal Interest 2010 $ 291,430 $ 336, , , , , , , , , ,945,182 1,194, ,387, , ,399, ,351 Total $ 8,316,684 $ 3,715,507 The Downtown Development Authority has incurred debt to a financial institution to be used on specifically identified Main Street projects. In connection with this debt, a contract has been entered into between the Downtown Development Authority and the City of Fayetteville whereby the City is to levy an annual tax on all taxable property located within the boundaries of the City in order to produce revenues sufficient to pay the debt service on the Downtown Development Authority debt. In the event that payments of this tax by the City to the Downtown Development Authority each year are not sufficient to pay the debt service payment on the debt, the City will be liable for any difference. The note is as follows at July 31, 2009: Original Outstanding Interest Rate Term Due Date Amount Amount 4.17% 15 years 2023 $ 540,000 $ 526,865 43

113 NOTES TO FINANCIAL STATEMENTS NOTE 8. LONG-TERM DEBT (CONTINUED) Notes Payable (Continued). The annual requirements to pay the Downtown Development Authority s notes outstanding are as follows: Year Ending July 31, Principal Interest 2010 $ 27,097 $ 21, ,238 20, ,428 19, ,668 18, ,960 16, ,172 62, ,302 21,241 Total $ 526,865 $ 180,550 Certificates of Participation. During the year ended July 31, 2005, the City entered into leasepurchase agreements with the Georgia Municipal Association for the construction of a new law enforcement center issuing certificates of participation in the amount of $4,575,000. Certificates of participation outstanding at July 31, 2009 are as follows: Original Outstanding Interest Rate Term Due Date Amount Amount % 20 years 2023 $ 4,575,000 $ 3,825,000 Less unamortized discount (40,844) $ 3,784,156 44

114 NOTES TO FINANCIAL STATEMENTS NOTE 8. LONG-TERM DEBT (CONTINUED) Certificates of Participation (Continued). Annual debt service requirements on the certificates of participation are as follows: Year Ending July 31, Principal Interest 2010 $ 200,000 $ 145, , , , , , , , , ,250, , ,520, ,062 Total $ 3,825,000 $ 1,297,290 Capital Leases. The City has entered into lease agreements as lessee for financing the acquisition of various items of equipment. The lease agreements qualify as capital leases for accounting purposes (titles transfer at the end of the lease terms) and, therefore, have been recorded at the present values of the future minimum lease payments as of the date of their inceptions. The following is an analysis of leased assets under capital leases as of July 31, 2009: Governmental Activities Business-type Activities Equipment $ 1,162,183 $ 7,749 45

115 NOTES TO FINANCIAL STATEMENTS NOTE 8. LONG-TERM DEBT (CONTINUED) Capital leases (Continued). The City s total capital lease debt service requirements to maturity are as follows: Year Ending July 31, 2010 $ Governmental Activities 195,954 $ Business-type Activities 1, , , , , ,387 - Total minimum lease payments 578,748 1,338 Less amount representing interest 46, Present value of future minimum lease payments $ 532,575 $ 1,315 Long-term liability activity for the year ended July 31, 2009 is as follows: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental activities: Capital leases $ 793,724 $ - $ (261,149) $ 532,575 $ 178,721 Compensated absences 486, ,544 (437,518) 478, ,165 Certificates of participation: Certificates payable 4,020,000 - (195,000) 3,825, ,000 Discount (43,693) - 2,849 (40,844) - Total certificates of participation 3,976,307 - (192,151) 3,784, ,000 Governmental activity Long-term liabilities $ 5,256,335 $ 429,544 $ (890,818) $ 4,795,061 $ 617,886 Business-type activities: Bonds payable: Revenue bonds $ 11,890,000 $ - $ (640,000) $ 11,250,000 $ 655,000 Deferred amounts: Premium 120,066 - (7,313) 112,753 - Deferred loss on refunding (619,348) - 58,956 (560,392) - Total bonds payable 11,390,718 - (588,357) 10,802, ,000 Capital leases 3,943 - (2,628) 1,315 1,315 Notes payable 9,519, ,228 (1,665,025) 8,316, ,430 Business-type activity Long-term liabilities $ 20,914,142 $ 462,228 $ (2,256,010) $ 19,120,360 $ 947,745 For governmental activities, compensated absences are generally liquidated by the General Fund. 46

116 NOTES TO FINANCIAL STATEMENTS NOTE 8. LONG-TERM DEBT (CONTINUED) Beginning Ending Due Within Balance Additions Reductions Balance One Year Downtown Development Authority: Revenue bonds $ 1,995,000 $ - $ (50,000) $ 1,945,000 $ 55,000 Notes payable 520, ,000 (533,918) 526,865 27,097 Downtown Development Authority Long-term liabilities $ 2,515,783 $ 540,000 $ (583,918) $ 2,471,865 $ 82,097 Prior Year Defeasance of Debt. During prior years, the City defeased certain water and sewer bonds by placing part of the proceeds of new bonds in irrevocable trusts to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the City s financial statements. On July 31, 2009, the outstanding amount of bonds considered defeased in prior years was $5,636,100. NOTE 9. INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS The composition of interfund balances as of July 31, 2009 is as follows: Payable Fund Nonmajor Receivable General Impact Fee Water and Governmental Fund Fund Fund Sewer Fund Fund Total General Fund $ - $ 3,383 $ 256,838 $ 337 $ 260,558 Water and Sewer Fund 2, , ,144 Nonmajor governmental funds 13,318 1,491-11,203 26,012 Nonmajor business-type funds ,743-52,743 Total $ 15,436 $ 131,900 $ 309,581 $ 11,540 $ 468,457 These balances resulted from the time lag between the dates that (1) interfund goods and services are provided or reimbursable expenditures occur, (2) transactions are recorded in the accounting system, and (3) payments between funds are made. 47

117 NOTES TO FINANCIAL STATEMENTS NOTE 9. INTERFUND RECEIVABLE, PAYABLES AND TRANSFERS (CONTINUED) Interfund transfers: Transfers Out Nonmajor Impact Fee governmental Transfers In Fund funds Total General Fund $ 3,383 $ - $ 3,383 Nonmajor governmental funds 91,864 17, ,107 Total $ 95,247 $ 17,243 $ 112,490 Transfers are used to (1) move revenues from the fund that statute or budget requires to collect them to the fund that the statute or budget requires to expend them, and (2) use unrestricted revenues collected in the General Fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. NOTE 10. JOINT VENTURE Under Georgia law, the City, in conjunction with other cities and counties in the ten (10) county Atlanta area, is a member of the Atlanta Regional Commission (Regional Development Center - RDC) and is required to pay annual dues thereto. During its fiscal year ended July 31, 2009, the City s membership dues were paid by Fayette County, Georgia. The City did not pay any annual dues. Membership in an RDC is required by the Official Code of Georgia Annotated (OCGA) Section which provides for the organizational structure of the RDC in Georgia. The RDC Board membership includes the chief elected official of each county and municipality of the area. OCGA provides that the member governments are liable for any debts or obligations of an RDC. Separate financial statements may be obtained from: Atlanta Regional Commission 3715 Northside Parkway 200 Northcreek Suite 300 Atlanta, Georgia

118 NOTES TO FINANCIAL STATEMENTS NOTE 11. DEFINED BENEFIT PENSION PLAN Plan Description The City s defined benefit pension plan, City of Fayetteville Retirement Plan, provides retirement, disability, and death benefits to plan members and beneficiaries. The City of Fayetteville Retirement Plan is affiliated with the Georgia Municipal Employees Benefit System (GMEBS), an agent multiple-employer pension plan administered by the Georgia Municipal Association. The benefit provisions and all other requirements are established by City ordinance. GMEBS issues a publicly available financial report that includes financial statements and required supplementary information for the City of Fayetteville Retirement Plan. That report may be obtained by writing to Georgia Municipal Association, Employee Benefit Section, 201 Pryor Street, SW, Atlanta, Georgia Funding Policy The funding policy for the City of Fayetteville Retirement Plan is to contribute an actuarially determined amount equal to the recommended contribution each year. The City makes all contributions to the City of Fayetteville Retirement Plan. The City is required to contribute at an actuarially determined rate; the current rate is 11.09% of annual covered payroll. Annual Pension Cost For the year ended July 31, 2009, the City s annual pension cost was $597,824 for the City of Fayetteville Retirement Plan. The City s recommended contribution for the period October 2008 through September 2009 is $599,063. The difference between the City s actual contribution and the required contribution is due to the three month variance between the City s fiscal year and the contribution period. The recommended contribution was determined as part of the September 1, 2008 actuarial valuation using the projected unit credit actuarial cost method. The actuarial assumptions included (a) 8.0% investment rate of return, (b) projected salary increases for inflation of 5.0% per year and for merit or seniority of.5% per year, and (c) no postretirement benefit increases or cost of living adjustments. The period, and related method, for amortizing the initial unfunded actuarial accrued liability is 30 years from 1981, and current changes in the unfunded actuarial accrued liability over 15 years for actuarial gains and losses, 20 years for plan provisions, and 30 years for actuarial assumptions and cost methods as a level dollar amount. These amortization periods, if applicable, are closed for this plan year. The method for determining the actuarial value of assets is part of GMEBS actuarial funding policy. It produces an adjusted actuarial value of assets. The smoothing technique gradually incorporates investment performance that exceeds or falls short of the expected return of 8%, which is the valuation s investment return assumption. 49

119 NOTES TO FINANCIAL STATEMENTS NOTE 11. DEFINED BENEFIT PENSION PLAN (CONTINUED) Trend Information Trend information which gives an indication of the progress made in accumulating sufficient assets to pay benefits when due, is presented below. Fiscal Year Ending Annual Pension Cost Actual City Contribution Percentage of Annual Pension Cost Contributed Net Pension Obligation 7/31/2007 $ 508,023 $ 508, % $ - 7/31/ , , /31/ , , As of the most recent valuation date, September 1, 2008, the funded status of the City of Fayetteville Retirement Plan was as follows: Unfunded Actuarial Accrued Unfunded Liability as Actuarial Actuarial Actuarial Actuarial Annual a Percentage Valuation Value of Accrued Accrued Funded Covered of Covered Date Assets Liability Liability Ratio Payroll Payroll 09/01/08 $ 7,361,955 $ 8,628,483 $ 1,266, % $ 5,402, % The required schedule of funding progress immediately following the notes to the financial statements presents multiyear trend information about whether the actuarial value of plan net assets is increasing or decreasing over time relative to the actuarial accrued liability. Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future, and actuarially determined amounts are subject to continual revision as results are compared to past expectations and new estimates are made about the future. Actuarial calculations reflect long-term perspective. Calculations are based on the substantive plan in effect as of September 1,

120 NOTES TO FINANCIAL STATEMENTS NOTE 12. DEFINED CONTRIBUTION PENSION PLAN The City participates in the Georgia Municipal Association 401(a) Defined Contribution Plan (the Plan) which is administered by the Georgia Municipal Association through their service manager, MetLife. The Plan provides retirement benefits to plan participants and beneficiaries. Plan provisions and contribution requirements are established and may be amended by the City. Employees are not required to contribute to the Plan. The City contributes an amount equal to 50% of the amount contributed by participants to the City s deferred compensation plan, except that the City shall not match in excess of 6% of the participant s annual compensation. The City s contribution for each employee is 100% vested after five (5) years of continuous service. For the fiscal year ending July 31, 2009, the City s contribution to the Plan was $77,189. The amount contributed by employees was $220,284. NOTE 13. RISK MANAGEMENT The City is exposed to various risks of losses related to: torts; thefts of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City has joined together with other municipalities in the state as part of the Georgia Interlocal Risk Management Agency Property and Liability Insurance Fund and the Georgia Municipal Association Group Self- Insurance Workers' Compensation Fund, public entity risk pools currently operating as common risk management and insurance programs for member local governments. As part of these risk pools, the City is obligated to pay all contributions and assessments as prescribed by the pools, to cooperate with the pools agents and attorneys, to follow loss reduction procedures established by the funds, and to report as promptly as possible, and in accordance with any coverage descriptions issued, all incidents which could result in the funds being required to pay any claim of loss. The City is also to allow the pools agents and attorneys to represent the City in investigation, settlement discussions and all levels of litigation arising out of any claim made against the City within the scope of loss protection furnished by the funds. The funds are to defend and protect the members of the funds against liability or loss as prescribed in the member City contract and in accordance with the Workers' Compensation law of Georgia. The funds are to pay all cost taxed against members in any legal proceeding defended by the members, all interest accruing after entry of judgment, and all expenses incurred for investigation, negotiation or defense. Settled claims in the past three years have not exceeded the coverages. 51

121 NOTES TO FINANCIAL STATEMENTS NOTE 14. COMMITMENTS AND CONTINGENCIES Litigation: The City is involved in several pending lawsuits. Liability, if any, which might result from these proceedings, would not, in the opinion of management and legal counsel, have a material adverse effect on the financial position of the City. Grant Contingencies: The City has received federal and state grants for specific purposes that are subject to review and audit by the grantor agencies. Such audits could lead to the disallowance of certain expenditures previously reimbursed by those agencies. Based upon prior experience, management of the City believes such disallowances, if any, will not be significant. NOTE 15. HOTEL/MOTEL LODGING TAX The City has levied a 5% lodging tax. The Official Code of Georgia Annotated requires that all lodging taxes levied of 5% or more be expended or obligated contractually for the promotion of tourism, conventions, or trade shows. For the fiscal year ended July 31, 2009, the City collected $102,170 of hotel/motel taxes. Management represents that $102,170, or 100%, of the lodging tax received during the year ended July 31, 2009, was used for the promotion of tourism. NOTE 16. EXCISE TAXES ON RENTAL MOTOR VEHICLES Under the provisions of the Official Code of Georgia Annotated Section , the City has imposed and collected an excise tax on rental motor vehicles. The Code section requires the City to expend taxes collected for the purpose of promoting tourism, conventions, trade shows, etc., and promoting the City and business therein. During the year ended July 31, 2009, the City transferred all motor vehicle excise taxes to the Downtown Development Authority, where it was used for the promotion of tourism. The following schedule represents the revenue and expenditures pertaining to the tax for the year ended July 31, 2009: Revenue $65,495 Expenditures $65,

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123 REQUIRED SUPPLEMENTARY INFORMATION

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125 CITY OF FAYETTEVILLE, GEORGIA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF FUNDING PROGRESS Unfunded Actuarial Accrued Unfunded Liability as Actuarial Actuarial Actuarial Actuarial Annual a Percentage Valuation Value of Accrued Accrued Funded Covered of Covered Date Assets Liability Liability Ratio Payroll Payroll 09/01/03 $ 3,805,738 $ 5,002,350 $ 1,196, % $ 4,383, % 09/01/04 4,336,420 5,684,841 1,348, ,858, /01/05 4,988,033 6,418,052 1,430, ,783, /01/06 5,732,501 6,684, , ,893, /01/07 6,558,197 7,823,385 1,265, ,593, /01/08 7,361,955 8,628,483 1,266, ,402, The assumptions used in the preparation of the above schedule are disclosed in Note 11 in the Notes to the Financial Statements. 53

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127 NONMAJOR GOVERNMENTAL FUNDS Special Revenue Funds Vehicle Excise Tax Fund This fund is used to account for revenues from an excise tax on rental motor vehicles, which must be used for the promotion of recreation, tourism and commerce and for the construction or repair of related facilities. Confiscated Assets Fund This fund is used to account for cash received either as a result of a cash confiscation or from the sale of capital assets acquired from a drug raid. Hotel/Motel Tax Fund This fund is used to account for hotel/motel taxes collected. Cemetery Fund This fund is used to account for revenues earned from a trust set up for cemetery improvements. Capital Project Funds Building Fund This fund is used to account for the accumulation and expenditures of resources for various public improvements which are funded by a percentage of property taxes. Special Purpose Local Option Sales Tax Fund (SPLOST) - This fund accounts for expenditures relating to the renovation of existing City buildings, recreation projects and construction of roads. Funding is provided by special purpose sales taxes, which are collected by the County and remitted to the City through an intergovernmental agreement.

128 CITY OF FAYETTEVILLE, GEORGIA COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS JULY 31, 2009 Special Revenue Funds Vehicle Excise Confiscated Hotel/Motel Cemetery ASSETS Tax Fund Assets Fund Tax Fund Fund Cash and cash equivalents $ 124 $ 377,636 $ - $ 50,415 Taxes receivable 5,571-9,112 - Due from other governments Due from other funds Prepaid expenditures Restricted assets Total assets $ 5,695 $ 377,636 $ 9,112 $ 50,415 LIABILITIES AND FUND BALANCES LIABILITIES Checks issued in excess of bank balance $ - $ - $ - $ - Accounts payable - 6, Due to other funds ,203 Due to component unit 5,695-9,112 - Total liabilities 5,695 6,915 9,112 11,203 FUND BALANCES Reserved for: Prepaid expenditures Unreserved, undesignated - 370,721-39,212 Total fund balances - 370,721-39,212 Total liabilities and fund balances $ 5,695 $ 377,636 $ 9,112 $ 50,415 54

129 Capital Projects Funds Total Nonmajor Building SPLOST Governmental Fund Fund Funds $ - $ 1,677,719 $ 2,105, , , ,562 13,318 12,694 26,012 14,847-14,847 84,557-84,557 $ 112,722 $ 1,877,975 $ 2,433,555 $ 2,740 $ - $ 2,740-32,519 39, ,540 27,630-42,437 30,370 32,856 96,151 14,847-14,847 67,505 1,845,119 2,322,557 82,352 1,845,119 2,337,404 $ 112,722 $ 1,877,975 $ 2,433,555 55

130 CITY OF FAYETTEVILLE, GEORGIA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JULY 31, 2009 Special Revenue Funds Vehicle Excise Confiscated Hotel/Motel Cemetery Tax Fund Assets Fund Tax Fund Fund Revenues: Property taxes $ - $ - $ - $ - Other taxes 65, ,170 - Intergovernmental Fines and forfeitures - 423, Contributions ,288 Interest income Total revenues 65, , ,170 10,288 Expenditures: Current: Public safety - 143, Housing and development 65, ,170 - Capital outlay: Public works Housing and development Debt service: Principal Interest Total expenditures 65, , ,170 - Excess (deficiency) of revenues over (under) expenditures - 280,695-10,288 Other financing sources (uses): Transfers in Transfers out (17,243) Total other financing sources (uses) (17,243) Net change in fund balances - 280,695 - (6,955) Fund balances, beginning of year - 90,026-46,167 Fund balances, end of year $ - $ 370,721 $ - $ 39,212 56

131 Capital Projects Funds Total Nonmajor Building SPLOST Governmental Fund Fund Funds $ 613,748 $ - $ 613, ,665 13, , , , , ,013 10, , ,469 1,975, , , , , , , , , , , , ,488 1,371,395 (29,482) 342, ,482 65,000 44, , (17,243) 65,000 44,107 91,864 35, , ,346 46,834 1,458,031 1,641,058 $ 82,352 $ 1,845,119 $ 2,337,404 57

132 CITY OF FAYETTEVILLE, GEORGIA SPECIAL REVENUE FUNDS SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JULY 31, 2009 Vehicle Excise Tax Fund Final Variance With Budget Actual Final Budget Revenues: Other taxes $ 65,500 $ 65,495 $ (5) Fines and forfeitures Contributions Interest income Total revenues 65,500 65,495 (5) Expenditures: Current: Public safety Housing and development 65,500 65,495 5 Total expenditures 65,500 65,495 5 Excess of revenues over expenditures Other financing sources (uses): Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Fund balances, beginning of year Fund balances, end of year $ - $ - $ - 58

133 Confiscated Assets Fund Final Variance With Budget Actual Final Budget $ - $ $ - 385, ,750 38, , (621) 386, ,129 38, , , , , , , , , , ,695 90,026 90,026 - $ 90,026 $ 370,721 $ 280,695 (Continued) 59

134 CITY OF FAYETTEVILLE, GEORGIA SPECIAL REVENUE FUNDS SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JULY 31, 2009 Hotel/Motel Tax Fund Final Variance With Budget Actual Final Budget Revenues: Other taxes $ 102,500 $ 102,170 $ (330) Fines and forfeitures Contributions Interest income Total revenues 102, ,170 (330) Expenditures: Current: Public safety Housing and development 102, , Total expenditures 102, , Excess of revenues over expenditures Other financing sources (uses): Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Fund balances, beginning of year Fund balances, end of year $ - $ - $ - 60

135 Cemetery Fund Final Variance With Budget Actual Final Budget $ - $ - $ ,300 10,288 3,988 1,000 - (1,000) 7,300 10,288 2, ,300 10,288 2,988 33,850 - (33,850) (41,150) (17,243) 23,907 (7,300) (17,243) (9,943) - (6,955) (6,955) 46,167 46,167 - $ 46,167 $ 39,212 $ (6,955) 61

136 CITY OF FAYETTEVILLE, GEORGIA CAPITAL PROJECTS FUNDS SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JULY 31, 2009 Building Fund Final Variance With Budget Actual Final Budget Revenues: Property taxes $ 690,392 $ 613,748 $ (76,644) Intergovernmental - 13,637 13,637 Impact fees Interest income 10, (9,059) Total revenues 700, ,326 (72,066) Expenditures: Capital outlay: General government Public works Housing and development 173, ,865 9,579 Debt service: Principal 323, ,187 2,295 Interest 173, , Total expenditures 670, ,808 12,241 Excess (deficiency) of revenues over (under) expenditures 30, (29,482) (59,825) Other financing sources (uses): Transfers in 388,856 65,000 (323,856) Transfers out (419,199) - 419,199 Total other financing sources (uses) (30,343) 65,000 95,343 Net change in fund balances - 35,518 35,518 Fund balances, beginning of year 46,834 46,834 - Fund balances, end of year $ 46,834 $ 82,352 $ 35,518 62

137 Impact Fee Fund Final Variance With Budget Actual Final Budget $ - $ - $ , ,768 (30,107) 20,000 11,506 (8,494) 171, ,274 (38,601) 1,250-1, ,500 7,074 10, ,750 7,074 11, , , (26,925) (401,500) (95,247) 306,253 (401,500) (95,247) 306,253 (248,375) 30, ,328 2,261,495 2,261,495 - $ 2,013,120 $ 2,292,448 $ 279,328 (Continued) 63

138 CITY OF FAYETTEVILLE, GEORGIA CAPITAL PROJECTS FUNDS SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JULY 31, 2009 Special Purpose Local Option Sales Tax Fund Final Variance With Budget Actual Final Budget Revenues: Property taxes $ - $ - $ - Intergovernmental 727, ,456 9,136 Impact fees Interest income 15,000 9,013 (5,987) Total revenues 742, ,469 3,149 Expenditures: Capital outlay: General government Public works 449, ,488 47,012 Housing and development Debt service: Principal Interest Total expenditures 449, ,488 47,012 Excess (deficiency) of revenues over (under) expenditures 292, ,981 50,161 Other financing sources (uses): Transfers in 50,000 44,107 (5,893) Transfers out Total other financing sources (uses) 50,000 44,107 (5,893) Net change in fund balances 342, ,088 44,268 Fund balances, beginning of year 1,458,031 1,458,031 - Fund balances, end of year $ 1,800,851 $ 1,845,119 $ 44,268 64

139 CITY OF FAYETTEVILLE, GEORGIA SCHEDULE OF EXPENDITURES OF SPECIAL PURPOSE LOCAL OPTION SALES TAX PROCEEDS FOR THE FISCAL YEAR ENDED JULY 31, 2009 Original Current Estimated Estimated Prior Current Project Cost Cost Years Year Total Intersections $ 291,000 $ 335,000 $ 36,225 $ - $ 36,225 Roadways 2,196,494 2,289, , , ,204 Streetscapes/paths 1,759,833 1,622, ,216 89, ,881 Totals $ 4,247,327 $ 4,247,327 $ 1,101,543 $ 278,767 $ 1,380,310 65

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141 COMPONENT UNIT DOWNTOWN DEVELOPMENT AUTHORITY

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143 CITY OF FAYETTEVILLE, GEORGIA BALANCE SHEET COMPONENT UNIT - DOWNTOWN DEVELOPMENT AUTHORITY JULY 31, 2009 ASSETS Current assets: Cash $ 81,831 Investments 332,928 Accounts receivable 128,680 Due from primary government 33,627 Prepaid expenditures 763 Restricted cash 56,799 Total current assets 634,628 Total assets $ 634,628 LIABILITIES AND FUND BALANCE LIABILITIES Current liabilities: Accounts payable $ 5,474 Accrued liabilities 497 Due to primary government 2,779 Total current liabilities 8,750 Total liabilities 8,750 FUND BALANCE Unreserved, undesignated Total fund balance 625,878 Total liabilities and fund balance $ 634,628 66

144 CITY OF FAYETTEVILLE, GEORGIA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE COMPONENT UNIT - DOWNTOWN DEVELOPMENT AUTHORITY FOR THE FISCAL YEAR ENDED JULY 31, 2009 Revenues: Contributions $ 242,254 Interest income 2,917 Other revenues 75 Total revenues 245,246 Expenditures: Current: Housing and development 78,970 Debt service: Principal 583,918 Interest 127,022 Total debt service 710,940 Total expenditures 789,910 Deficiency of revenues under expenditures (544,664) Other financing sources: Proceeds from issuance of debt 540,000 Net change in fund balance (4,664) Fund balance, beginning of year 630,542 Fund balance, end of year $ 625,878 67

145 COMPONENT UNIT MAIN STREET TOURISM ASSOCIATION

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147 CITY OF FAYETTEVILLE, GEORGIA STATEMENT OF CASH FLOWS COMPONENT UNIT - MAIN STREET TOURISM ASSOCIATION FOR THE FISCAL YEAR ENDED JULY 31, 2009 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $ 180,884 Payments to suppliers and service providers (293,875) Payments to employees (86,499) Net cash used in operating activities (199,490) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Contributions 260,670 Net cash provided by noncapital financing activities 260,670 CASH FLOWS FROM INVESTING ACTIVITIES Interest on investments 2 Net cash provided by investing activities 2 Increase in cash and cash equivalents 61,182 Cash and cash equivalents: Beginning of year 22,124 End of year $ 83,306 Reconciliation of operating loss to net cash used in operating activities: Operating loss $ (203,445) Adjustments to reconcile operating loss to net cash used in operating activities: Increase in accounts receivable (6,000) Decrease in inventories 824 Increase in due from primary government (424) Increase in prepaid expenses (24,275) Increase in accounts payable 58,803 Increase in accrued liabilities 274 Decrease in deferred revenue (21,697) Decrease in due to primary government (3,550) Net cash used in operating activities $ (199,490) 68

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149 STATISTICAL SECTION

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151 STATISTICAL SECTION This part of the City of Fayetteville s comprehensive financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City s overall financial health. Contents Page Financial Trends These schedules contain trend information to help the reader understand how the City s financial performance and well-being have changed over time. Revenue Capacity These schedules contain information to help the reader assess the City s most significant local revenue source, the property tax. Debt Capacity These schedules contain information to help the reader assess the affordability 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 and 100 These schedules offer demographic and economic indicators to help the reader understand the environment within which the City s financial activities take place. Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the City s financial report relates to the services the City provides and the activities it performs. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive financial reports for the relevant year. The City implemented GASB Statement 34 for the year ended July 31, 2003; schedules presenting financial information include information beginning in that year.

152 CITY OF FAYETTEVILLE, GEORGIA NET ASSETS BY COMPONENT LAST SEVEN FISCAL YEARS (ACCRUAL BASIS OF ACCOUNTING) Fiscal Year Governmental Activities Invested in capital assets, net of related debt $ 5,261,475 $ 7,882,963 $ 10,294,750 Restricted - 3,068,384 87,098 Unrestricted 3,274, ,402 4,259,448 Total governmental activities net assets $ 8,535,767 $ 11,509,749 $ 14,641,296 Business-Type Activities Invested in capital assets, net of related debt $ 5,884,794 $ 7,901,010 $ 9,606,017 Restricted 1,879,325 8,270,414 7,253,854 Unrestricted 3,723,709 (3,818,597) (3,204,854) Total business-type activities net assets $ 11,487,828 $ 12,352,827 $ 13,655,017 Primary Government Invested in capital assets, net of related debt $ 11,146,269 $ 15,783,973 $ 19,900,767 Restricted 1,879,325 11,338,798 7,340,952 Unrestricted 6,998,001 (3,260,195) 1,054,594 Total primary government net assets $ 20,023,595 $ 23,862,576 $ 28,296,313 (1) The City has retroactively reported major general infrastructure assets as allowed by provisions of GASB Statement No. 34 in fiscal year

153 $ 57,100,929 (1) $ 60,009,707 $ 60,352,897 $ 60,089, ,422 1,214,750 1,566,870 1,954,676 5,187,583 5,768,939 5,197,192 5,586,322 $ 63,137,934 $ 66,993,396 $ 67,116,959 $ 67,630,835 $ 11,267,649 $ 12,776,513 $ 12,195,150 $ 13,532,153 4,005,622 1,923,585 1,091, ,721 (555,976) 1,061,924 2,707,452 2,422,675 $ 14,717,295 $ 15,762,022 $ 15,994,310 $ 16,089,549 $ 68,368,578 $ 72,786,220 $ 72,548,047 $ 73,621,990 4,855,044 3,138,335 2,658,578 2,089,397 4,631,607 6,830,863 7,904,644 8,008,997 $ 77,855,229 $ 82,755,418 $ 83,111,269 $ 83,720,384 70

154 CITY OF FAYETTEVILLE, GEORGIA CHANGES IN NET ASSETS LAST SEVEN FISCAL YEARS (ACCRUAL BASIS OF ACCOUNTING) Fiscal Year Expenses Governmental activities: General government $ 998,498 $ 1,160,759 $ 1,115,440 Judicial 479, , ,178 Public safety 4,586,837 5,062,070 5,496,987 Public works 977, , ,095 Culture and recreation Housing and development 1,180,063 1,185,628 1,290,549 Interest on long-term debt 22, , ,500 Total governmental activities expenses 8,244,684 8,973,310 9,660,749 Business-type activities: Water and sewer 4,411,577 4,322,669 5,040,537 Stormwater - 241,349 (2) 90,529 Solid waste 583, , ,009 Total business-type activities 4,995,443 5,119,920 5,638,075 Total primary government $ 13,240,127 $ 14,093,230 $ 15,298,824 Program Revenues Governmental activities: Charges for services: General government $ 406,725 $ 555,174 $ 543,057 Judicial 920, ,928 1,093,293 Public safety 94,629 40, ,591 Public works 336, , ,703 Culture and recreation 97,758 70,127 30,817 Housing and development 84,534 59,384 58,369 Operating grants and contributions 89,165 82, ,203 Capital grants and contributions 243,074 2,827,656 (1) 2,417,294 Total governmental activities program revenues 2,272,978 5,085,678 5,265,327 Business-type activities: Charges for services: Water and sewer 3,389,526 3,760,435 3,741,066 Stormwater - 219,296 (2) 450,192 Solid waste 595, , ,424 Capital grants and contributions 1,525,326 1,353,804 2,057,053 Total business-type activities program revenues 5,510,460 5,897,985 6,762,735 Total primary government program revenues $ 7,783,438 $ 10,983,663 $ 12,028,062 71

155 $ 1,095,054 $ 1,349,586 $ 1,217,486 $ 1,158, , , , ,534 5,735,782 6,144,495 6,520,196 6,847,442 1,605,451 (4) 1,751,093 2,786,357 (6) 1,883,585 3,424 39,053 39,053-1,046,976 1,100,831 1,100,831 1,034, , , , ,816 10,342,148 11,439,936 12,730,308 12,007,221 5,307,856 5,403,258 5,403,258 5,490, , , , , , , , ,104 6,019,975 6,243,660 6,243,660 6,479,523 $ 16,362,123 $ 17,683,596 $ 18,973,968 $ 18,486,744 $ 651,798 $ 423,077 $ 348,843 $ 469,854 1,247,609 1,679,139 1,188,335 1,620, ,211 35, , , ,641 - (5) 115,816 (7) 74,522 42, ,715 (5) 384,464 (8) 122, , , , ,281 5,245,516 (3) 2,932,053 1,194,669 1,001,476 8,289,172 5,893,456 3,485,942 4,186,735 4,147,603 4,526,852 4,624,121 4,905, , , , , , , , ,570 1,531,513 1,319, ,687 (9) 452,785 6,763,258 7,018,110 6,490,886 6,570,835 $ 15,052,430 $ 12,911,566 $ 9,976,828 $ 10,757,570 (Continued) 72

156 CITY OF FAYETTEVILLE, GEORGIA CHANGES IN NET ASSETS LAST SEVEN FISCAL YEARS (ACCRUAL BASIS OF ACCOUNTING) Fiscal Year Net (expense)/revenue Governmental activities $ (5,971,706) $ (3,887,632) $ (4,395,422) Business-type activities 515, ,065 1,124,660 Total primary government net expense $ (5,456,689) $ (3,109,567) $ (3,270,762) General Revenues and Other Changes in Net Assets Governmental activities: Taxes Property taxes $ 1,716,999 $ 1,856,492 $ 2,111,885 Sales taxes 2,026,571 2,235,325 2,384,936 Other taxes 2,611,572 2,715,674 2,860,975 Unrestricted investment earnings 44,395 44, ,383 Gain on sale of capital assets 11,675 24,728 41,791 Transfers - (15,432) 24,999 Total governmental activities 6,411,212 6,861,614 7,526,969 Business-type activities: Unrestricted investment earnings 71,411 71, ,529 Transfers - 15,432 (24,999) Total business-type activities 71,411 86, ,530 Total primary government $ 6,482,623 $ 6,948,548 $ 7,704,499 Change in Net Assets Governmental activities $ 439,506 $ 2,973,982 $ 3,131,547 Business-type activities 586, ,999 1,302,190 Total primary government $ 1,025,934 $ 3,838,981 $ 4,433,737 (1) Donations of capital assets (streets and roadways). (2) Collection of new stormwater program fees implemented in fiscal year (3) The net effect of various public works sales, trade-ins and donations of capital assets. (4) Depreciation expense has been recorded in fiscal year 2006 due to GASB Statement 34 (retroactively reporting of major general infrastructure assets). (5) Reclassification of impact fees (program revenues) from public works to housing and development. (6) Multiple transportation and sidewalk construction projects. (7) State of Georgia Local Assistance Road Program (LARP) for street maintenance. (8) Decrease in residential and commercial building; therefore, decrease in impact fees collected. (9) Business-activities did not receive any contribution of infrastructure during fiscal year (10) Drastic decrease in interest rates due to the current economic recession. (11) During 2009, Special Purpose Local Option Sales Taxes received from the County were classified as Capital Contributions. 73

157 $ (2,052,976) $ (5,546,480) $ (9,229,746) $ (7,820,486) 743, , ,602 91,312 $ (1,309,693) $ (4,772,030) $ (9,079,144) $ (7,729,174) $ 2,287,451 $ 2,489,094 $ 2,670,751 $ 2,764,455 3,210,939 3,294,819 3,127,513 2,147,990 (11) 3,115,776 3,286,540 3,326,490 3,381, , , ,744 (10) 40,789 (10) 13,558-45, ,832,740 9,401,942 9,353,309 8,334, , ,277 81,686 (10) 3,927 (10) , ,277 81,686 3,927 $ 9,151,735 $ 9,672,219 $ 9,434,995 $ 8,338,289 $ 6,779,764 $ 3,855,462 $ 123,563 $ 513,876 1,062,278 1,044, ,288 95,239 $ 7,842,042 $ 4,900,189 $ 355,851 $ 609,115 74

158 CITY OF FAYETTEVILLE, GEORGIA GOVERNMENTAL ACTIVITIES TAX REVENUES BY SOURCE LAST SEVEN FISCAL YEARS (ACCRUAL BASIS OF ACCOUNTING) Fiscal Property Sales Franchise Year Tax Tax Tax Alcoholic Insurance Business and Beverage Premium Occupation Tax Tax Tax ,716,999 2,026, , , , , ,856,492 2,235, , , , , ,111,885 2,384, , , , , ,287,451 3,210,939 (1) 1,032, , , , ,489,094 3,294,819 1,075, , , , ,670,751 3,127,513 1,134, , , , ,764,455 2,147,990 (2) 1,267, , , ,782 (1) The City began collecting Special Purpose Local Option Sales Taxes from the County at the end of fiscal year (2) During 2009, Special Purpose Local Option Sales Taxes received from the County were reclassified as Capital Contributions. 75

159 Other Taxes Total 290,548 $ 6,355, ,863 6,807, ,100 7,357, ,244 8,614, ,507 9,070, ,566 9,124, ,598 8,293,573 76

160 CITY OF FAYETTEVILLE, GEORGIA FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (MODIFIED ACCRUAL BASIS OF ACCOUNTING) Fiscal Year General Fund Reserved $ 275,126 $ 343,393 $ 139,842 $ 224,023 Unreserved 2,738,910 2,338,210 2,324,845 2,453,341 Total General Fund $ 3,014,036 $ 2,681,603 $ 2,464,687 $ 2,677,364 All Other Governmental Funds Reserved $ - $ - $ - $ - Unreserved, reported in: Special revenue funds , ,655 Capital project funds 1,155, , , ,054 Total all other governmental funds $ 1,155,237 $ 559,976 $ 385,192 $ 821,709 (1) The increase of fund balance is due to the financing of the Law Enforcement Center through Certificates of Participation (COPS). (2) The increase of fund balance is due to the collection of special purpose local option sales taxes that began at the end of fiscal year

161 $ 191,238 $ 201,701 $ 221,603 $ 294,565 $ 233,337 $ 251,234 2,663,047 2,173,967 2,741,170 3,168,063 2,903,291 2,896,626 $ 2,854,285 $ 2,375,668 $ 2,962,773 $ 3,462,628 $ 3,136,628 $ 3,147,860 $ - $ - $ - $ - $ - $ 14, ,103 80,476 83,864 75, , ,933 3,742,412 (1) 2,047,978 3,215,686 (2) 3,733,553 3,766,360 4,205,072 $ 3,857,515 $ 2,128,454 $ 3,299,550 $ 3,809,523 $ 3,902,553 $ 4,629,852 78

162 CITY OF FAYETTEVILLE, GEORGIA CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (MODIFIED ACCRUAL BASIS OF ACCOUNTING) Revenues Fiscal Year Taxes $ 4,039,427 $ 5,238,789 $ 5,826,916 $ 6,354,389 Licenses and permits 1,208, , , ,138 Intergovernmental 135, , , ,226 Fines and forfeitures 824, , , ,205 Charges for services 461,159 70, ,060 75,051 Main Street 70, , ,197 73,718 Impact fees 375, , , ,465 Contributions 139, ,648 1,453, ,280 Interest income 206, ,344 76,143 44,395 Other revenues 117,872 70,576 72,155 54,895 Total revenues 7,578,073 7,831,392 9,925,830 8,671,762 Expenditures General government 801, , , ,396 Judicial 280, , , ,836 Public safety 3,624,252 4,689,412 4,242,754 4,482,098 Public works 1,050, , , ,198 Housing and development 713, ,156 1,227,056 1,091,648 Capital outlay 1,137,085 2,000,607 2,611, ,054 Debt service Principal 207, , , ,942 Interest 54,054 18,683 36,775 23,796 Issuance costs Total expenditures 7,868,108 9,584,063 10,438,415 8,520,968 Excess of revenues over (under) expenditures (290,035) (1,752,671) (512,585) 150,794 Other financing sources (uses) Capital leases 333, , , ,542 Issuance of certificates of participation Discount on certificates of participation Proceeds from sale of assets ,675 Transfers in 13,970 20, , ,178 Transfers out (13,970) (20,430) (454,616) (256,178) Total other financing sources (uses) 333, , , ,217 Net change in fund balances $ 43,029 $ (1,070,303) $ (385,106) $ 392,011 Debt service as a percentage of noncapital expenditures 3.9% 1.8% 4.4% 4.5% (1) Fiscal year 2004 and 2005 capital outlay increase is due to the construction of the new Law Enforcement Center (LEC) (2) In fiscal year 2004, the City of Fayetteville issued Certificates of Participation (COPS) to finance the new LEC. (3) The increase in debt service interest expenditure is due to the COPS issue. (4) The Main Street function has been moved from the General Fund to the Main Street Tourism Association. (5) Capital outlay has decreased due to the completion of the Law Enforcement Center. (6) The decrease in impact fees is due to the decline in new construction during fiscal year

163 $ 6,828,255 $ 7,337,120 $ 8,623,312 $ 9,067,548 $ 9,102,276 $ 8,252,754 (12) 387, , , , ,705 (7) 261, ,421 96, ,601 82, ,844 (8) 1,187,335 (12) 850,897 1,100,542 1,247,609 1,685,084 1,292,402 (9) 2,040, ,287 14,065 64,132 34, , ,990 58,634 58,369 - (4) , ,321 1,063, ,715 (6) 384,064 (7) 121,768 7, ,301 77,874 58,608 20,460 12,079 44, , , , ,744 (10) 40,789 59,036 32,927 12,975 13,097 51, ,649 9,541,185 10,422,251 11,960,585 12,388,224 12,283,090 12,229,935 1,072,138 1,029,781 1,025,695 1,122,977 1,172,837 1,026, , , , , , ,312 5,277,726 5,645,529 5,335,737 5,807,045 5,965,835 6,429, , ,637 1,014,991 1,101,204 1,176,544 1,087, , , , , , ,542 2,354,857 (1) 3,378, ,963 (5) 1,320,032 2,246,574 (11) 573, , , , , , ,149 82, ,876 (3) 195, , , , ,696 (2) ,626,232 12,921,730 10,420,761 11,684,684 12,934,566 11,494,426 (2,085,047) (2,499,479) 1,539, ,540 (651,476) 735, , , , , ,209-4,575,000 (2) (56,989) ,811 60,860 13,558 21,624 51,297 3, , , , , , ,490 (295,456) (549,469) (500,467) (574,958) (531,041) (112,490) 5,297, , , , ,506 3,022 $ 3,212,727 $ (2,207,678) $ 1,758,201 $ 1,009,828 $ (232,970) $ 738, % 5.4% 7.2% 6.3% 5.5% 5.7% (7) The decrease in impact fees and permits is due to the continual decline in new construction during fiscal year (8) The City received a federal grant for Downtown Pedestrian Improvements. (9) During fiscal year 2008, the City experienced an increase in jail population, therefore, reducing the collection of fines. (10) Drastic decrease in interest rates due to the current economic recession. (11) Costs associated with the Downtown Pedestrian Improvements project and other transportation and sidewalk projects. (12) During 2009, Special Purpose Local Option Sales Taxes received from the County were reclassified as Intergovernmental revenues. 80

164 CITY OF FAYETTEVILLE, GEORGIA GENERAL GOVERNMENT TAX REVENUES BY SOURCE LAST TEN FISCAL YEARS (MODIFIED ACCRUAL BASIS OF ACCOUNTING) Fiscal Property Sales Franchise Year Tax Tax Tax Alcoholic Beverage Tax Insurance Premium Tax 2000 $ 1,275,615 $ 1,720,009 $ 736,988 $ 272,889 $ ,350,324 1,819, , , ,629 (1) ,550,213 1,917, , , , ,716,246 2,026, , , , ,877,256 2,235, , , , ,091,209 2,384, , , , ,296,597 3,210,939 (3) 1,032, , , ,486,189 3,294,819 1,075, , , ,648,273 3,127,513 1,134, , , ,723,636 2,147,990 (4) 1,267, , ,934 (1) The City of Fayetteville began collecting Insurance Premium taxes during fiscal year (2) The City of Fayetteville began collecting Business and Occupation taxes during fiscal year (3) The City began collecting Special Purpose Local Option Sales Taxes from the County at the end of fiscal year (4) During 2009, Special Purpose Local Option Sales Taxes received from the County were reclassified as Intergovernmental revenues. 81

165 Business and Occupation Tax Other Taxes Total $ - $ 33,926 $ 4,039, ,245 (2) 103,859 5,238, , ,181 5,826, , ,548 6,354, , ,863 6,828, , ,100 7,337, , ,403 8,623, , ,311 9,067, , ,563 9,102, , ,598 8,252,754 82

166 CITY OF FAYETTEVILLE, GEORGIA ASSESSED VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY LAST TEN FISCAL YEARS Assessed Value Fiscal Motor Year Residential Commercial Industrial Agricultural Utility Vehicle 2000 $ 165,387,148 $ 163,580,780 $ 137,015 $ 1,864,932 $ 5,709,182 $ 29,330, ,574, ,196, ,746 1,826,420 6,286,159 30,450, ,025, ,655,894 7,864,505 1,534,460 7,128,616 33,660, ,530, ,890,427 9,278,780 3,641,909 8,032,951 35,615, ,515, ,935,371 8,977,075 3,030,349 7,801,976 36,278, ,492, ,075,403 10,431,109 1,361,596 7,531,135 37,328, ,193, ,175,668 10,168, ,036 7,466,898 37,336, ,942, ,533,006 10,755, ,976 7,683,612 39,031, ,285, ,896,540 11,109, ,976 8,193,162 42,481, ,596, ,936,262 10,779, ,976 7,926,971 49,614,470 SOURCE: City of Fayetteville, Georgia and Fayette County, Georgia tax records. (1) Includes heavy duty equipment, timber, and conservation use. (2) State of Georgia requires 40% assessment of actual value. 83

167 Total Estimated Assessed Less: Taxable Total Actual Value as a Tax-Exempt Assessed Direct Taxable Percentage of Other (1) Property Value Tax Rate Value Actual Value (2) $ 90,096 $ 283,626 $ 365,815, $ 914,538,940 40% 352, , ,446, ,043,617,345 40% 552, , ,064, ,205,160,523 40% 430, , ,825, ,394,564,353 40% 374,095 1,019, ,892, ,552,231,350 40% 373,502 1,350, ,243, ,755,609,173 40% 532,228 1,272, ,278, ,883,196,878 40% 959,228 2,042, ,077, ,075,194,848 40% 1,278,367 1,328, ,071, ,245,178,068 40% 873,427 1,809, ,072, ,335,182,233 40% 84

168 CITY OF FAYETTEVILLE, GEORGIA PROPERTY TAX RATES DIRECT AND OVERLAPPING GOVERNMENTS (PER $1,000 OF ASSESSED VALUE) LAST TEN FISCAL YEARS City of Fayetteville County Capital Fiscal School General Projects Total Year State County District Fund Fund City Total SOURCE: City of Fayetteville, Georgia and Fayette County, Georgia tax records. 85

169 CITY OF FAYETTEVILLE, GEORGIA PRINCIPAL PROPERTY TAXPAYERS CURRENT YEAR AND NINE YEARS AGO Fiscal Year 2009 Fiscal Year 2000 Percentage Percentage of Total of Total Taxable Taxable Taxable Taxable Assessed Assessed Assessed Assessed Taxpayer Value Rank Value Value Rank Value DDRTC Fayette Pavilion I & II $ 34,669, % $ - - DDRTC Fayette Pavilion III & IV 21,159, % - - Piedmont Fayette Medical & Office Bldg 7,507, % - - Piedmont Hospital Inc 7,142, % 4,193, % CP Summit Retail LLC 6,273, % - - Banks Crossing Assoc. LLC & BC Plaza 5,648, % Norbelle LLC 5,498, % - - BellSouth Telecommunication 5,169, % 3,481, % IBS Cobblestone Operating, LLC 5,092, % - - CA New Plan Acquisition Fund & LLC 5,042, % - - Fourth Quarter Properties I ,017, % JDN Realty Corporation - - 3,635, % Lowes Home Centers, Inc ,623, % FAI LTD C/O Alexander Properties Inc - - 3,209, % Parkway Fayette, LP - - 3,069, % Wal-Mart Stores, Inc ,905, % Home Depot USA, Inc ,566, % Fayetteville Towne Center C/O Retail - - 2,422, % Total $ 103,202, % $ 48,124, % SOURCE: City of Fayetteville, Georgia and Fayette County, Georgia tax records. 86

170 CITY OF FAYETTEVILLE, GEORGIA PROPERTY TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS Collected within the Taxes Levied Fiscal Year of the Levy Collections Total Collections to Date Fiscal for the Percentage in Subsequent Percentage Year Fiscal Year Amount of Levy Years Amount of Levy 2001 $ 1,239,746 $ 1,185, % $ 27,427 $ 1,213, % ,357,583 1,331, ,431 1,348, ,457,954 1,410, ,325 1,432, ,567,067 1,486, ,257 1,503, ,885,197 1,835, ,783 1,880, ,016,641 1,852, ,764 1,884, ,170,958 2,051, ,762 2,089, ,364,823 2,239, ,502 2,267, ,556,835 2,379, ,608 2,418, ,642,618 2,456, ,999 2,494, SOURCE: City of Fayetteville, Georgia and Fayette County, Georgia tax records. 87

171 CITY OF FAYETTEVILLE, GEORGIA WATER SOLD BY CUSTOMER TYPE LAST SEVEN FISCAL YEARS (MILLIONS OF GALLONS) Type of Fiscal Year Customer Residential (1) Commercial (1) Senior (1) Other (1) Total usage Total direct rate per 1,000 gallons (2) $ 2.40 $ 2.40 $ 2.40 $ 2.65 $ 2.65 $ 2.90 $ 2.90 (1) City of Fayetteville billing registers. (2) City of Fayetteville ordinances. Note: Information prior to fiscal year 2003 is not readily available. 88

172 CITY OF FAYETTEVILLE, GEORGIA WATER AND SEWER USER RATES LAST TEN FISCAL YEARS Water (Residential) Water (Commercial) Water (Senior) Fiscal Monthly Rate per Monthly Rate per Monthly Rate per Year Base Rate 1000 Gallons Base Rate 1000 Gallons Base Rate 1000 Gallons 2000 $ $ 2.40 $ $ 2.40 $ 9.00 $ SOURCE: City of Fayetteville, Georgia ordinances. 89

173 Sewer (Residential) Sewer (Commercial) Sewer (Senior) Monthly Rate per Monthly Rate per Monthly Rate per Base Rate 1000 Gallons Base Rate 1000 Gallons Base Rate 1000 Gallons $ $ 1.65 $ $ 1.65 $ 9.00 $

174 CITY OF FAYETTEVILLE, GEORGIA TEN LARGEST WATER CUSTOMERS CURRENT YEAR AND SEVEN YEARS AGO Fiscal Year 2009 Fiscal Year 2003 Percentage Percentage Total of Total Total of Total Water Water Water Water Taxpayer Revenue Rank Revenue Revenue Rank Revenue Banks Station $ 26, % $ 25, % Bay Branch Condo 16, % 6, % Swanbrook 16, % 16, % Summit Retail 14, % - - Cobblestone of Fayette 14, % - - Fayette County Board of Commissioners 14, % 11, % Fayette County Jail Complex 12, % - - HCCC, Inc. 11, % 7, % Fayetteville Towne Center 9, % 7, % Marksman Landscaping 5, % 6, % Walker Concrete - - 9, % Holiday Inn Express - - 6, % Cobblestone Fayette Apts , % Subtotal (10 Largest) 141, % 102, % - Balance from Other Customers 2,329, % 1,729, % Total $ 2,471, % $ 1,832, % SOURCE: City of Fayetteville, Georgia Water/Sewer Department records. Note: Information prior to fiscal year 2003 is not readily available. 91

175 CITY OF FAYETTEVILLE, GEORGIA TEN LARGEST SEWER CUSTOMERS CURRENT YEAR AND SEVEN YEARS AGO Fiscal Year 2009 Fiscal Year 2003 Percentage Percentage Total of Total Total of Total Sewer Sewer Sewer Sewer Taxpayer Revenue Rank Revenue Revenue Rank Revenue Fayette Community Hospital $ 174, % $ - - Inland Group 99, % - - Banks Station 46, % 19, % Bay Branch Condo 17, % 4, % Swanbrook 17, % 12, % Cobblestone of Fayette 15, % 4, % Summit Retail 14, % - - Fayette County Board of Commissioners 13, % 10, % Fayette County Jail Complex 11, % - - Fayetteville Towne Center 8, % 6, % HCCC, Inc , % Marksmen Landscaping - - 5, % Holiday Inn Express - - 4, % Magnolia Park Daycare - - 3, % Subtotal (10 Largest) 419, % 77, % Balance from Other Customers 2,105, % 1,465, % Total $ 2,524, % $ 1,542, % SOURCE: City of Fayetteville, Georgia Water/Sewer Department records. Note: Information prior to fiscal year 2003 is not readily available. 92

176 CITY OF FAYETTEVILLE, GEORGIA RATIOS OF OUTSTANDING DEBT BY TYPE LAST TEN FISCAL YEARS Governmental Activities Business-type Activities Fiscal Certificates of Capital Revenue Notes Year Participation Leases Total Bonds Payable Total 2000 $ - $ 273,807 $ 273,807 $ 8,105,000 $ 3,253,138 $ 11,358, , ,573 7,795,000 3,068,100 10,863, , ,341 7,475,000 2,853,432 10,328, , ,941 7,135,000 2,613,115 9,748, ,575, ,215 5,477,215 14,205,000 2,382,219 16,587, ,575, ,377 5,390,377 13,710,000 2,202,916 15,912, ,395, ,610 5,104,610 13,120,000 3,215,038 16,335, ,210, ,622 4,920,622 12,510,000 7,824,049 20,334, ,020, ,724 4,813,724 11,890,000 9,519,481 21,409, ,825, ,575 4,357,575 11,250,000 8,316,684 19,566,684 NOTES: Details regarding the City's outstanding debt can be found in the notes to the financial statements. (1)) See the Schedule of Demographic and Economic Statistics for personal income and population data. 93

177 Total Percentage Primary of Personal Per Government Income (1) Capita (1) $ 11,631, % 1,029 11,676, ,903, ,209, ,064, ,600 21,303, ,480 21,439, ,426 25,254, ,639 26,223, ,734 23,924, ,560 94

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179 CITY OF FAYETTEVILLE, GEORGIA DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT AS OF JULY 31, 2009 Estimated Estimated Share of Debt Percentage Overlapping Governmental Unit Outstanding Applicable (1) Debt Debt repaid with property taxes: Fayette County School District $ 105,720, % $ 10,572,080 Fayette County Public Facilities Authority 49,410, % 4,941,000 Total overlapping debt 15,513,080 City of Fayetteville direct debt 4,357,575 Total direct and overlapping debt $ 19,870,655 SOURCES: Fayette County School District and Fayette County Public Facilities Authority. NOTE: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the City. This schedule estimates the portion of the outstanding debt of those overlapping governments that is borne by the residents and businesses of the City of Fayetteville. This process recognizes that, when considering the City's ability to issue and repay long-term debt, the entire debt burden borne by residents and businesses should be taken into account. However, this does not imply that every taxpayer is a resident, and therefore responsible for repaying the debt of each overlapping government. (1) The percentage of overlapping debt applicable is estimated using taxable assessed property values. Applicable percentages were estimated by determining the portion County's taxable assessed value that is within the City's boundaries and dividing it by the County's total taxable assessed value. 95

180 CITY OF FAYETTEVILLE, GEORGIA LEGAL DEBT MARGIN INFORMATION LAST TEN FISCAL YEARS Debt limit $ 55,842,087 $ 62,191,243 $ 70,359,375 $ 75,455,121 Total net debt applicable to limit Legal debt margin $ 55,842,087 $ 62,191,243 $ 70,359,375 $ 75,455,121 Total net debt applicable to the limit as a percentage of debt limit 0.00% 0.00% 0.00% 0.00% NOTE: Under Georgia law, the City of Fayetteville's outstanding general obligation debt should not exceed 10% of total assessed property value. By law, the general obligation debt subject to the limitation may be offset by amounts set aside for repaying the general obligation bonds. 96

181 Fiscal Year $ 83,212,043 $ 89,939,999 $ 75,455,121 $ 83,212,043 $ 89,939,999 $ 93,588, $ 83,212,043 $ 89,939,999 $ 75,455,121 $ 83,212,043 $ 89,939,999 $ 93,588, % 0.00% 0.00% 0.00% 0.00% 0.00% Legal Debt Margin Calculation for Fiscal Year 2008 Assessed value $ 934,072,893 Add back: exempt real property 1,809,096 Total assessed value 935,881,989 Debt limit (10% of assessed value) 93,588,199 Debt applicable to limit: General obligation bonds - Less: Amount set aside for repayment of General obligation debt - Total net debt applicable to limit - Legal debt margin $ 93,588,199 97

182 CITY OF FAYETTEVILLE, GEORGIA PLEDGED-REVENUE COVERAGE LAST TEN FISCAL YEARS Utility Less: Net Fiscal Service Operating Available Year Charges Expenses Revenue Principal Interest Coverage 2000 $ 3,604,656 $ 2,131,430 $ 1,473,226 $ 270,000 $ 434,130 $ ,487,877 2,563, , , , ,563,597 2,676, , , , ,389,526 2,986, , , , ,979,731 2,883,941 1,095, , , ,191,258 3,353, , , , ,614,379 3,503,080 1,111, , , ,001,076 3,715,636 1,285, , , ,113,316 3,760,191 1,353, , , ,399,480 3,675,834 1,723, , , NOTES: Details regarding the City's outstanding debt can be found in the notes to the financial statements. Utility service charges include tap fees, but exclude interest. Operating expenses do not include interest, depreciation, or amortization expense. 98

183 CITY OF FAYETTEVILLE, GEORGIA DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN FISCAL YEARS Personal Per Capita Fiscal Income Personal Median School Unemployment Year Population (1) (thousands) (2) Income (2) Age (1) Enrollment (3) Rate (4) ,300 $ 415,015 $ 36,727 N/A 19, % , ,928 37,396 N/A 19, , ,970 37,156 N/A 20, , ,432 37, , , ,882 38, , , ,976 33, , , ,240 34, , , ,320 35, , , ,670 36, , , ,849 31, , SOURCES: (1) City of Fayetteville records. (2) Bureau of Economic Analysis, U.S. Department of Commerce. (3) Fayette County Board of Education. (4) Bureau of Labor Statistics, U.S. Department of Labor. 99

184 CITY OF FAYETTEVILLE, GEORGIA PRINCIPAL EMPLOYERS CURRENT YEAR AND NINE YEARS AGO Fiscal Year 2009 Fiscal Year 2000 Percentage Percentage of Total of Total City City Employer Employees Rank Employment Employees Rank Employment Fayette Hospital 1, % % Fayette County Board of Commissioners % % Fayette County Board of Education % % Wal-Mart Stores, Inc % % Fayette Medical % % Kroger % % Publix % - - Target % - - Lafeyette Nursing Home % - - City of Fayetteville % % Home Depot % Leslie Contracting % Carolyn Ford % Total 3, % 2, % SOURCE: City of Fayetteville, Georgia records. 100

185 CITY OF FAYETTEVILLE, GEORGIA FULL-TIME EQUIVALENT CITY GOVERNMENT EMPLOYEES BY FUNCTION LAST TEN FISCAL YEARS Function General government Judicial Public safety Police Fire Public works Housing and development Main Street Tourism Water and Sewer Water N/A N/A Wastewater N/A N/A Total SOURCE: City of Fayetteville, Georgia records NOTE: Prior to fiscal year 2002, separate records were not maintained for Water and Wastewater. 101

186 CITY OF FAYETTEVILLE, GEORGIA OPERATING INDICATORS BY FUNCTION LAST SIX CALENDAR YEARS Function Mayor And Council Citizen contacts - 1,745 5,871 4,859 4,626 7,000 Council meetings Correspondence generated Finance and Administration A/P checks processed 4,638 4,044 4,472 4,869 4,354 4,900 Business licenses processed 2,212 2,168 2,015 2,157 2,337 2,200 Utility bills generated 84,641 88,274 97,494 99, , ,250 Information Technology Number of work orders received 1, Hits on City website per year 80, , , , , ,000 Municipal Court Citations processed 8,369 8,816 8,218 10,033 8,060 7,742 Cases adjudicated 7,894 8,708 9,708 11,990 7,319 7,900 Average inmates per month Police Number of arrests 1,332 1,164 1,385 1,427 1,434 1,748 Number of traffic accidents 1,506 1,618 1,507 1,396 1,148 1,174 Citations/warnings issued 8,577 8,897 11,777 7,869 9,752 9,104 Fire Emergency calls 2,367 2,387 2,570 2,560 2,656 2,542 Hydrants maintained 947 1,089 1,117 1,250 1,250 1,277 Inspections completed 1,795 1,660 1,446 1,431 1,391 1,322 Public Works Miles resurfaced Miles of cracks sealed Miles of right of way mowed Housing And Development Building permit inspections 5,487 5,484 7,020 4,097 3,087 2,600 Development plan applications Erosion control inspections 3,668 3,672 3,452 2,085 1,643 1,400 Water And Sewer Water - gallons processed (X 1,000) 584, , , , , ,419 Wastewater - gallons processed (X 1,000) 768, , , , , ,408 New meter installations NOTE: Operating indicator information was not maintained by the City prior to

187 CITY OF FAYETTEVILLE, GEORGIA CAPITAL ASSET STATISTICS BY FUNCTION LAST TEN FISCAL YEARS Function/Program General Government Phone system Computer system Buildings Police Station Fire Stations Fire trucks Public Works Parks Highways/streets Building Bridge Traffic signals Cemetery Lake Water And Sewer Buildings Lift stations Miles of sewer lines Miles of water lines N/A N/A N/A N/A N/A N/A Manholes 1,833 1,980 2,138 2,309 2,494 2,693 2,798 2,798 2,798 2,798 Stormwater detention Lake Wells SOURCE: City of Fayetteville, Georgia records. 103

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191 CITY OF FAYETTEVILLE, GEORGIA WATER SUPPLY BY SOURCE LAST TEN CALENDAR YEARS (IN THOUSAND GALLONS) Fayette County System Well/Water Plant Calendar Total Percent Year Volume Percent Volume Percent Usage Change , % 380,071 % ,829 (0.8) % , , , , , , , , , , , ,897 (2.0) , , ,986 (5.0) , , ,465 (4.8) , , , , , ,281 (12.8) , , , Source: City of Fayetteville, Georgia records. 104

192 CITY OF FAYETTEVILLE, GEORGIA WASTEWATER TREATMENT PLANT AVERAGE FLOW LAST TEN CALENDAR YEARS (IN MILLION GALLONS PER DAY) Calendar Year Average Daily Flow MGD Average Weekly Peak Flow MGD Note: The City's sewerage system consists of a modern secondary wastewater treatment facility, twenty-four (24) pumping stations and approximately one hundred twenty-two (122) miles of collector and transmission lines. The Whitewater Creek wastewater treatment plant was expanded and upgraded in 1992 to 3.75 MGC and in 2008 to 5.0 MGC through 2003 Water and Sewer Bonds and a GEFA Loan. 105

193 CITY OF FAYETTEVILLE, GEORGIA WATER AND SEWER CUSTOMERS LAST TEN CALENDAR YEARS Calendar Number of Water % Increase Water Number of Sewer % Sewer to Water Year Customers Customers Customers Customers , % 5, % , , , , , , , , , , , , , , ,631 (0.2) 8, ,585 (0.7) 8, SOURCE: City of Fayetteville, Georgia records. 106

194 CITY OF FAYETTEVILLE, GEORGIA WATER AND SEWER USER FEES AND CHARGES In accordance with the requirements of Rule 15c-2-12 promulgated by the Securities and Exchange Commission ( SEC ), the City has covenanted to disclose the following annual financial information. User fees are set by the Mayor and Council to recover independently the cost of providing water and sewerage service, to pay principal and interest on debt obligations of the System and to general reserves for emergencies and expansion of the System. The Mayor and Council last adopted a schedule for rates, tolls, assessments and fees charged by the System in August The City has covenanted in the Ordinance to revise and adjust such schedules of rates, fees and charges for water sewerage services and facilities to the extent necessary to produce funds at least equal to the amount necessary to: (1) operate and maintain the System on a sound businesslike basis but before provision for depreciation or amortization; (2) produce an amount equal to 115% of the Debt Service Requirement for the then current Sinking Fund Year, (3) create and maintain in the Debt Service Reserve Fund an amount equal to the Debt Service Reserve Requirement and (4) make the payments then required to be made into the Renewal and Extension Fund. The minimum water and sewer bill is based on the first 2,000 gallons of water usage. In addition to the charges outlined below for water and sewerage usage, the City charges a minimum water meter fee of $ and had adopted a proportionate share fee system for new sewer service based on land uses and square footage. The proportionate share sewer fee is imposed to recover transmission and other costs associated with developing new sewer collection basins and service areas. These charges range from $3, for a single family residential dwelling to $ per 1,000 square feet of retail, $ per 1,000 square feet of standard office and $1, per 1,000 square feet of medical space. Based on the current rate structure and average residential water of usage of 6,500 gallons per month, the average water bill for a residential customer is approximately $27.55 per month. The average residential sewer bill is approximately $28.78 per month. 107

195 APPENDIX B ENGINEERING REPORT The City has retained Integrated Science and Engineering, Fayetteville, Georgia, as its consulting engineer to develop several reports and studies relating to the System and certain financial matters. The Engineering Report, prepared by Integrated Science and Engineering, has been included as this Appendix B in reliance upon the authority of such firm as experts in engineering and related financial matters. [Remainder of Page Intentionally Left Blank]

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197 Report of Projected Revenues for the Water & Wastewater Department FY Prepared for: City of Fayetteville, Georgia February 2010

198 Whitewater Creek Water Pollution Control Plant Operations & Maintenance Manual City of Fayetteville 105 McIntosh Crossing Fayetteville, Georgia (p) (f) May 13,

199 TABLE OF CONTENTS 1. INTRODUCTION...1 PURPOSE &SCOPE... 1 AUTHORIZATION... 1 CITY DESCRIPTION... 1 REPORT OVERVIEW EXISTING FACILITIES...3 WATER SYSTEM &TREATMENT FACILITY... 3 STORMWATER SYSTEM... 3 WASTEWATER SYSTEM &TREATMENT FACILITY WATER SUPPLY & WASTEWATER TREATMENT NEEDS...4 HISTORICAL POPULATION &POPULATION PROJECTIONS... 4 SHORT-TERM CAPITAL NEEDS HISTORICAL & PROJECTED WATER & WASTEWATER SYSTEM CUSTOMERS...5 RECENT RATE INCREASES... 5 HISTORICAL &PROJECTED WATER PRODUCTION &WASTEWATER FLOW FINANCIAL ANALYSIS...8 TABLES & FIGURES Figure 1. General Location Map... 2 Table 1. Historical & Projected Population... 4 Table 2. Historical & Projected Water System & Wastewater System Customers... 5 Figure 2. Water & Wastewater Service Area... 6 Table 3. Historical Water Production & Projections Based on Customers... 7 Table 4. Projected Net Revenue & Expenses & Debt Service Requirements... 9 Table 5. Assumptions Used for Table Integrated Science & Engineering February 2010 i

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201 1. INTRODUCTION Purpose & Scope This report reviews the approach, methodology and population projections used by the City of Fayetteville to project the revenues and expenses over the next five fiscal years for the City s Water, Stormwater and Wastewater system (the System ). The financial aspects of the proposed revenues and operation costs are evaluated. In addition, the ability of the System to service the cost of operations and debt are evaluated in light of the City s proposed plan to issue its water and sewerage revenue refunding bonds (the Series 2010 Bonds ) for the purpose of refunding and restructuring a portion of its Series 2003 Bonds and its 2008 Georgia Environmental Facilities Authority (GEFA) loan, which a portion of the proceeds were used to finance the recent expansion of the wastewater treatment plant from 2.5 to 5 MGD. Authorization The City of Fayetteville authorized Integrated Science & Engineering, Inc. (ISE) to undertake this study. The proposed issuance of the Series 2010 Bonds by the City for the purpose described above will assist the City s Water, Stormwater and Wastewater Departments to develop sufficient cash flow for the next five years so that service levels remain essentially the same and as required to meet the needs of the community. City Description The City of Fayetteville is the County seat of Fayette County, Georgia. The City is centrally located in Fayette County, which is located in the west central portion of the State of Georgia. The City is located approximately 25 miles south of the City of Atlanta. The City of Fayetteville, like many other municipalities in the metropolitan Atlanta area continues to experience growth and infill development. As a result of this growth, additional demands have been placed on the City s water and wastewater infrastructure. The 2000 Census population for the City was 11,148. Today, it is estimated that the population is approximately 15, Presently the City limits have an area of approximately square miles. Figure 1 shows the present City limits, surrounding area and the location of the water treatment and wastewater treatment facilities. Report Overview This report includes information related to the estimated revenue, expenses, population projections and expected debt coverage ratio assuming the City proceeds with the issuance of the Series 2010 Bonds. The issuance of the Series 2010 Bonds would consolidate a portion of the Series 2003 Bonds and the 2008 GEFA loan. The report provides a financial analysis of how water, stormwater and wastewater user fees will provide for operations costs and retirement of the revenue bonds and other System obligations. 1 Source City of Fayetteville Integrated Science & Engineering February

202 City of Fayetteville Projected Revenues for the Water & Wastewater Department Figure 1. General Location Map Integrated Science & Engineering February

203 2. EXISTING FACILITIES Water System & Treatment Facility The City s existing water system consists of approximately 108 miles of water piping serving an estimated 6,585 customers. The system water lines are constructed of primarily 10-inch through 12- inch PVC and ductile iron piping. Current average daily water usage is approximately 1.39 million gallons per day (mgd) with a peak monthly production of approximately 2.29 mgd. Under the City s current water system permit, Fayetteville is allowed to produce 3.0 mgd at its water treatment facility. Additional water needs are supplemented by municipal wells and purchased water from Fayette County. Water storage is provided by a one million gallon elevated storage tank that is located near the center of downtown and a 1.5 million gallon clear well at the water treatment facility. Stormwater System The existing stormwater system consists of an extensive network of drainage pipes, inlets, catch basins, swales, curb & gutter systems, channels and other drainage infrastructure that convey stormwater runoff. In addition, the City drainage system includes detention ponds and other stormwater management facilities to mitigate the effects of development by reducing the discharge rate of stormwater runoff from these properties. Recent developments within the City have incorporated stormwater quality enhancement features into their site-specific stormwater management design, which includes improvements to Pye Damn. The City adopted a stormwater user fee charge several years ago to fund its Stormwater Management Plan. These fees which are based on an impervious land area methodology are used to pay ongoing operations and capital costs associated with stormwater improvement projects. Wastewater System & Treatment Facility The City s sewerage system consists of a modern secondary wastewater treatment facility, 24 pumping stations and approximately 61 miles of collector and transmission lines. Whitewater Creek Water Pollution Control Plant is located approximately two miles southwest of the intersection of Georgia Highways 85 and 54. The City of Fayetteville owns and operates the facility, providing secondary treatment of municipal wastewater for all areas located within the City limits. The wastewater treatment facility has a permitted maximum monthly average of 5.0 mgd. The facility includes two wastewater treatment processes; sequencing batch reactor with a capacity of 2.50 mgd and a conventional continuously mixed activated sludge treatment facility with a capacity of 2.50 mgd. The treatment facility was constructed and placed into service in Integrated Science & Engineering February

204 3. WATER SUPPLY &WASTEWATER TREATMENT NEEDS Historical Population & Population Projections Fayette County continues to be one of the fastest growing counties in the State of Georgia. Likewise, the City of Fayetteville has experienced rapid growth since 1960 and the population is expected to continue to increase in population beyond the year The current estimated population for the City is 15,340. Table 1 indicates historical and projected population for the City of Fayetteville through the year In summary, a 1% annual increase in population was used to determine future populations. Table 1. Historical & Projected Population Year Population , , , , , , , , , , , ,067 Notes: Population: Source U.S. Census Bureau Population: Source Population: Source City of Fayetteville In 2009 the Metropolitan North Georgia Water Planning District (MNGWPD) finalized its Water Supply and Water Conservation Management Plan and the Wastewater Management Plan for the Planning District. Fayette County is part of the MNGWPD. The 2009 Plans provide population forecasts on a county-wide basis to insure that adequate planning is taking place. For Fayette County as a whole, the MNGWPD estimated an annual population increase of 1.54%. Thus, we feel that the 1% population increase used for our projections is reasonable. Short-term Capital Needs There are currently no identified major capital needs for the System over the next five year period. Minor capital projects will be considered if funds are available. Minor capital projects include items such as replacing rolling stock and small equipment. The City will consider other projects to the System if grants become available. Integrated Science & Engineering February

205 4. HISTORICAL &PROJECTED WATER &WASTEWATER SYSTEM CUSTOMERS The number of water and sewer customers for the City of Fayetteville has steadily grown over the past 20 years. The City provides sewer service to all areas within the City limits and requires new developments to connect to the wastewater collection system. The City provides water service for customers located within the Water Service District. Figure 2 shows the location of the water service district and present City limits. The City Limits are the limits of sewer service area. Upon build-out of the Water Service District, the number of water customers will remain flat; however, the number of sewer customers is anticipated to increase until the City limits approach build out population beyond year Table 2 indicates historical and projected water system and wastewater system customers for the City of Fayetteville through the year Recent Rate Increases Table 2. Historical & Projected Water System & Wastewater System Customers Year Water Customers Wastewater Customers ,470 4, ,662 5, ,955 5, ,174 5, ,240 6, ,263 6, ,322 6, ,576 6, ,640 6, ,643 8, ,631 8, ,585 8, ,606 8, ,672 8, ,739 8, ,806 8, ,874 8,381 Notes: Customers Source City of Fayetteville Billing Department Customers Number estimated by ISE based on population projections The City of Fayetteville has increased rates three separate times within the last five years. Based on residential billing, with an average consumption of 7,500 gallons per month, the first rate increase raised water and sewer fees 15%; the second rate increase raised water and sewer fees 10%; the third rate increase raised sewer fees 9%. No additional rate increases have been approved by the City. Integrated Science & Engineering February

206 City of Fayetteville Projected Revenues for the Water & Wastewater Department Figure 2. Water & Wastewater Service Area Integrated Science & Engineering February