OFFICIAL STATEMENT CITY OF SYLACAUGA, ALABAMA

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1 OFFICIAL STATEMENT NEW ISSUE BOOK-ENTRY ONLY RATING: Standard & Poor's Rating: AA+ (stable outlook) See "RATING" herein. [AGC Insured] A+ In the opinion of Bradley Arant Boult Cummings LLP, Birmingham, Alabama, Bond Counsel, assuming compliance by the City with certain conditions imposed by the Internal Revenue Code of 1986, as amended, interest on the Series 2010-A Warrants is excludable from the gross income of the recipients thereof for federal income tax purposes, but receipt of said interest has other federal tax consequences to certain recipients as summarized herein under "Tax Matters." INTEREST ON THE SERIES 2010-B WARRANTS IS NOT EXCLUDED FROM GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES. Bond Counsel is of the further opinion that the interest income on the Warrants of both series is, under existing statutes, exempt from Alabama income taxation. CITY OF SYLACAUGA, ALABAMA $5,610,000 $16,565,000 General Obligation Warrants General Obligation Warrants Tax-Exempt Series 2010-A BAB Series 2010-B (Federally Taxable Direct Payment to Issuer) Dated: November 1, 2010 Due: June 1, as shown on the inside cover hereof SEE INSIDE COVER FOR MATURITIES, INTEREST RATES AND YIELDS Interest on the Warrants is payable June 1 and December 1, commencing June 1, The Warrants will be issued as fully registered warrants, and when issued, will be registered in the name of CEDE & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). Purchases of beneficial interests in the Warrants will be made in book-entry form only and purchasers of a beneficial interest in the Warrants ("Beneficial Owners") will not receive physical delivery of the certificates representing their interests in the Warrants. The principal of and interest on the Warrants will be paid directly to DTC, so long as DTC or its nominee is the registered owner of the Warrants. The final disbursements of such payments to the Beneficial Owners of the Warrants will be the responsibility of the DTC Participants and the Indirect Participants, all as defined and more fully described in this Official Statement under the caption "THE WARRANTS Book-Entry Only System." The Warrants are general obligations of the City for the prompt payment of the principal of and interest on which its full faith and credit will be irrevocably pledged. Certain of the Warrants are subject to redemption prior to maturity, as described herein. The scheduled payment of principal of and interest on the Warrants when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Warrants by Assured Guaranty Corp. See "INSURANCE" herein. The Warrants are offered when, as and if issued and received by the Underwriter, subject to prior sale, to withdrawal or modification of the offer without notice, and to the approval of the validity thereof by Bradley Arant Boult Cummings LLP, Bond Counsel, Birmingham, Alabama, and certain other conditions. It is expected that the Warrants in definitive form will be available for delivery on or about November 18, October 14, 2010

2 AMOUNTS, MATURITIES, INTEREST RATES AND YIELDS Maturity Date (June 1) $5,610,000 General Obligation Warrants Tax-Exempt Series 2010-A Amount Maturing Interest Rate Yield 2011 $190, % 0.90% , , , , , , , , , , , , , , $740, % Term Warrants due June 1, 2027, yield 3.875% $1,215, % Term Warrants due June 1, 2030, yield 4.10% $16,565,000 General Obligation Warrants BAB Series 2010-B (Federally Taxable Direct Payment to Issuer) Maturity Date (June 1) Amount Maturing Interest Rate Yield 2011 $505, % 1.20% , , , , , , , , , $925, % Term Warrants due June 1, 2023, yield 4.80% $665, % Term Warrants due June 1, 2025, yield 5.05% $3,355, % Term Warrants due June 1, 2030, yield 5.35% $3,970, % Term Warrants due June 1, 2035, yield 5.50% $4,730, % Term Warrants due June 1, 2040, yield 5.60%

3 CITY OF SYLACAUGA, ALABAMA Sam H. Wright Mayor James Heigl Council President Manuell Smith, III Kenneth E. Horn Walter Jacobson Doug Murphree Councilmembers Patricia G. Carden City Clerk Edwin B. Livingston Sylacauga, Alabama City Attorney Merchant Capital, L.L.C. Montgomery, Alabama Underwriter Bradley Arant Boult Cummings LLP Birmingham, Alabama Bond Counsel

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5 No dealer, broker, salesman or any other person has been authorized by the City of Sylacauga or the Underwriter to give any information or to make any representations other than as contained in this Official Statement in connection with the offering of the Warrants described herein and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. 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 Warrants by any person, in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information contained in this Official Statement has been furnished by the City of Sylacauga and other sources that are believed to be reliable, but it is not guaranteed as to accuracy or completeness by, and not to be construed as a representation by, the Underwriter. The information and expressions of opinion herein are 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 of Sylacauga since the date hereof. Assured Guaranty Corp. ("AGC") makes no representation regarding the Warrants or the advisability of investing in the Warrants. In addition, AGC has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding AGC supplied by AGC and presented under the heading "INSURANCE" and "Appendix D - Specimen Financial Guaranty Insurance Policy." TABLE OF CONTENTS Page No. INTRODUCTION... 1 THE SERIES 2010-A WARRANTS... 2 THE SERIES 2010-B WARRANTS... 4 CERTAIN PROVISIONS RESPECTING REGISTRATION AND TRANSFER OF THE WARRANTS 10 INSURANCE CITY GOVERNMENT AND ADMINISTRATION DEBT INFORMATION PROPOSED INDEBTEDNESS DEBT SERVICE REQUIREMENTS FINANCIAL INFORMATION MAJOR SOURCES OF REVENUE SYLACAUGA CITY BOARD OF EDUCATION EMPLOYEES' RETIREMENT THE FEDERAL BANKRUPTCY ACT i

6 GENERAL INFORMATION RESPECTING THE CITY LEGALITY TAX MATTERS SERIES 2010-A WARRANTS TAX MATTERS SERIES 2010-B WARRANTS LITIGATION FINANCIAL STATEMENT UNDERWRITING CONTINUING DISCLOSURE REQUIREMENTS RATING MISCELLANEOUS Appendix A-1 - Proposed Form of Approving Legal Opinion for the Series 2010-A Warrants Appendix A-2 - Proposed Form of Approving Legal Opinion for the BAB Series 2010-B Warrants Appendix B Audit Report City of Sylacauga, Alabama Appendix C - Summary of Continuing Disclosure Agreement Appendix D - Specimen Financial Guaranty Insurance Policy ii

7 OFFICIAL STATEMENT relating to CITY OF SYLACAUGA, ALABAMA $5,610,000 $16,565,000 General Obligation Warrants General Obligation Warrants Tax-Exempt Series 2010-A BAB Series 2010-B Dated November 1, 2010 (Federally Taxable Direct Payment to Issuer) Dated November 1, 2010 INTRODUCTION The City of Sylacauga, Alabama ("the City"), is furnishing this Official Statement, including its Appendices, to prospective purchasers in connection with the sale of $5,610,000 aggregate principal amount of its General Obligation Warrants, Tax-Exempt Series 2010-A, dated November 1, 2010 ("the Series 2010-A Warrants") and $16,565,000 aggregate principal amount of its General Obligation Warrants, BAB Series 2010-B (Federally Taxable Direct Payment to Issuer), dated November 1, 2010 ("the Series 2010-B Warrants"; the warrants of both series are sometimes herein together called "the Warrants"). The Warrants will be general obligations of the City for the prompt payment of the principal of and interest on which its full faith and credit will be irrevocably pledged. Any statements made in this Official Statement involving estimates or matters of opinion, whether or not expressly so stated, are intended merely as estimates or opinions and not as representations of fact. Neither the delivery of this Official Statement nor any sale made hereunder implies that there has been no change in the affairs of the City at any time subsequent to the date hereof. The principal office of the City is located at the City Hall, 301 Broadway, Sylacauga, Alabama, and the mailing address of the City is Post Office Box 390, Sylacauga, Alabama The telephone number is Inquiries with respect to information contained in this Official Statement should be directed to the Underwriter, Merchant Capital, L.L.C., Lakeview Center, Suite 400, 2660 Eastchase Lane, Montgomery, Alabama 36117, attention: Reid Cavnar, telephone no. (334)

8 THE SERIES 2010-A WARRANTS General Description Amount, Maturities, Interest Rates and Form. The Series 2010-A Warrants will be dated November 1, 2010, will be registered as to both principal and interest and will be issuable in the denomination of $5,000 or any integral multiple thereof. The Series 2010-A Warrants will bear interest (computed on the basis of a 360-day year of twelve consecutive thirty-day months), payable June 1, 2011, and semiannually thereafter on each June 1 and December 1, at the rates shown and in such amounts and on the dates set forth on the inside cover page of this Official Statement. The Series 2010-A Warrants will be issued as fully registered warrants, registerable as to both principal and interest, in the denominations of $5,000 or any integral multiple thereof. Except as described hereinafter under "Book-Entry Only System," the principal of and premium (if any) on the Series 2010-A Warrants will be payable at the principal corporate trust office of U.S. Bank National Association, Birmingham, Alabama (the "Bank"), and the interest on the Series 2010-A Warrants will be paid by the Bank by draft or check mailed to the registered owner as such registered owner's name shall appear on the registry books of the Bank on the May 15 and November 15 (the "Record Date"), as the case may be, next preceding any interest payment date. Payments of interest with respect to the Series 2010-A Warrants shall be deemed timely made if made by check or draft mailed by the Bank on or before the respective due dates of such interest. The principal of and the interest and premium (if any) on the Series 2010-A Warrants will be payable in lawful money of the United States of America. Overdue interest will not be payable to the holder of the Series 2010-A Warrants solely by reason of such holder having been the holder on the Record Date immediately preceding the interest payment date on which such interest became due and payable, but will be payable by the Bank not less than ten (10) days following receipt by the Bank of immediately available funds in an amount sufficient to enable the Bank to pay all overdue interest. The Bank will fix an overdue interest payment date for payment of such overdue interest. Such overdue interest payment date fixed by the Bank will be a date not more than twenty (20) days following the expiration of such period, and overdue interest will be paid to the persons in whose names the Series 2010-A Warrants were registered on the overdue interest payment date. Security; General Obligation The Series 2010-A Warrants will constitute direct general obligations of the City, for the prompt payment of the principal of and interest on which its full faith and credit will be irrevocably pledged. 2

9 Purpose The Series 2010-A Warrants are being issued for the purpose of (i) refunding (on a current basis) the City's General Obligation Warrants, dated July 1, 2002 (the "2002 Warrants"), refunding the City's note payable to Superior Bank and now outstanding in the approximate principal amount of $800,000, and providing approximately $1,200,000 for various miscellaneous capital improvements in the City, and (ii) paying the expenses related to the issuance of the Series 2010-A Warrants. The Series 2010-A Warrants will be issued pursuant to an ordinance (the "Series 2010-A Authorizing Ordinance") of the governing body of the City. Redemption of Warrants Prior to Maturity Optional Redemption. Those of the Series 2010-A Warrants maturing in 2019 and thereafter will be subject to redemption prior to their respective maturities, at the option of the City, as a whole or in part on June 1, 2018, or on any date thereafter (but if in part, in integral multiples of $5,000 and in such maturities as shall be selected by the City in its discretion, and if less than all Warrants of a single maturity are to be redeemed, such redemption to be selected by lot), at and for a redemption price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption. Mandatory Redemption. (a) Except as provided below with respect to credits against mandatory redemption requirements, those of the Series 2010-A Warrants having a stated maturity in 2027 will be subject to mandatory redemption, pro rata among holders of the 2027 term warrants, on June 1 in the following years and in the following aggregate principal amounts at a redemption price for each Warrant redeemed equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption: Year (June 1) Amount to be Redeemed 2026 $365, ,000 (maturity) (b) Except as provided below with respect to credits against mandatory redemption requirements, those of the Series 2010-A Warrants having a stated maturity in 2030 will be subject to mandatory redemption, pro rata among holders of the 2030 term warrants, on June 1 in the following years and in the following aggregate principal amounts at a redemption price for each Warrant redeemed equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption: 3

10 Year (June 1) Amount to be Redeemed 2028 $390, , ,000 (maturity) Credits Mandatory Redemption. In the event that the City shall have partially redeemed Warrants or shall have provided for a partial redemption of Warrants in such a manner that, under the provisions of the Series 2010-A Authorizing Ordinance, the Series 2010-A Warrants for the redemption of which provision is made are considered as fully paid, the City may elect to apply all or any part (but only in integral multiples of $5,000) of the principal amount of such Warrants so redeemed or to be redeemed to the reduction of the principal amount of Warrants required to be redeemed pursuant to the schedule set forth above on any June 1 coterminous with or subsequent to the date such optional redemption actually occurs. Such notice shall be deemed effective only if it is given prior to the Bank's having given notice of redemption contrary to the provisions of such notice pursuant to the provisions of the Series 2010-A Authorizing Ordinance. Manner, Notice and Effect of Redemption. In the event that less than all the principal of the Series 2010-A Warrants of a single maturity is redeemed and prepaid, the Bank shall select by lot that portion of the principal of the Series 2010-A Warrants of such maturity to be redeemed and prepaid. Notice of each such redemption must be given one time, not more than 60 nor less than 30 days before the date fixed for redemption, to the holders of each of the Series 2010-A Warrants affected by such redemption by registered or certified mail, at the address shown on the registry books of the Bank pertaining to the Series 2010-A Warrants. No further interest will accrue, after the date fixed for redemption, on the principal of any Warrants called for redemption if notice has been duly given and payment therefor has been duly provided. THE SERIES 2010-B WARRANTS General Description Amount, Maturities, Interest Rates and Form. The Series 2010-B Warrants will be dated November 1, 2010, will be registered as to both principal and interest and will be issuable in the denomination of $5,000 or any integral multiple thereof. The Series 2010-B Warrants will bear interest (computed on the basis of a 360-day year of twelve consecutive thirty-day months), payable June 1, 2011, and semiannually thereafter on each June 1 and December 1, at the rates shown and in such amounts and on the dates set forth on the inside cover page of this Official Statement. The Series 2010-B Warrants will be issued as fully 4

11 registered warrants, registerable as to both principal and interest, in the denominations of $5,000 or any integral multiple thereof. Except as described hereinafter under "Book-Entry Only System," the principal of and premium (if any) on the Series 2010-B Warrants will be payable at the principal corporate trust office of U.S. Bank National Association, Birmingham, Alabama (the "Bank"), and the interest on the Series 2010-B Warrants will be paid by the Bank by draft or check mailed to the registered owner as such registered owner's name shall appear on the registry books of the Bank on the May 15 and November 15 (the "Record Date"), as the case may be, next preceding any interest payment date. Payments of interest with respect to the Series 2010-B Warrants shall be deemed timely made if made by check or draft mailed by the Bank on or before the respective due dates of such interest. The principal of and the interest and premium (if any) on the Series 2010-B Warrants will be payable in lawful money of the United States of America. Overdue interest will not be payable to the holder of the Series 2010-B Warrants solely by reason of such holder having been the holder on the Record Date immediately preceding the interest payment date on which such interest became due and payable, but will be payable by the Bank not less than ten (10) days following receipt by the Bank of immediately available funds in an amount sufficient to enable the Bank to pay all overdue interest. The Bank will fix an overdue interest payment date for payment of such overdue interest. Such overdue interest payment date fixed by the Bank will be a date not more than twenty (20) days following the expiration of such period, and overdue interest will be paid to the persons in whose names the Series 2010-B Warrants were registered on the overdue interest payment date. Security; General Obligation The Series 2010-B Warrants will constitute direct general obligations of the City, for the prompt payment of the principal of and interest on which its full faith and credit will be irrevocably pledged. Purpose The Series 2010-B Warrants are being issued for the purpose of (i) providing public school buildings (and improvements thereto) in the City and (ii) paying the expenses related to the issuance of the Series 2010-B Warrants. The Series 2010-B Warrants will be issued pursuant to an ordinance (the "Series 2010-B Authorizing Ordinance") of the governing body of the City. 5

12 Redemption of Warrants Prior to Maturity Optional Redemption. Those of the Series 2010-B Warrants having stated maturities in 2019 and thereafter will be subject to redemption prior to their respective maturities, at the option of the City, as a whole or in part on June 1, 2018, or on any date thereafter (but if in part, in integral multiples of $5,000 and in such maturities as shall be selected by the City in its discretion, and if less than all Warrants of a single maturity are to be redeemed, such redemption to be on a pro rata basis), at and for a redemption price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption. Extraordinary Optional Redemption. The Series 2010-B Warrants will be subject to redemption prior to their respective maturities, at the option of the City, in whole or in part on any date (but if in part, in integral multiples of $5,000 and in such maturities as shall be selected by the City in its discretion, and if less than all Warrants of a single maturity are to be redeemed, such redemption to be on a pro rata basis), upon the occurrence of an Extraordinary Event (as hereinafter defined), at a redemption price (the "Extraordinary Optional Redemption Price") equal to the greater of (i) 100% of the principal amount of the Series 2010-B Warrants to be redeemed; or (ii) the sum of the present value of the scheduled payments of principal and interest on the Series 2010-B Warrants to be redeemed, not including any portion of those payments of interest accrued and unpaid as of the date on which the Series 2010-B Warrants are to be redeemed, remaining to be paid during the period beginning with the date on which the Series 2010-B Warrants are to be redeemed and ending on the first optional redemption date at par (i.e., June 1, 2018), discounted to the date on which the Series 2010-B Warrants are to be redeemed on a semi-annual basis, assuming a 360-day year consisting of twelve 30-day months, at the Treasury Rate (as hereinafter defined), plus 100 basis points; plus, in either case, accrued interest on the Series 2010-B Warrants to be redeemed to the redemption date; provided, however, that the redemption premium may not exceed 12 months' interest on the Series 2010-B Warrants, computed at the rate or rates which the Series 2010-B Warrants would bear on the redemption date as specified therein if such option had not been exercised. At the request of the Bank, the Extraordinary Optional Redemption Price of the Series 2010-B Warrants to be redeemed at the option of the City will be determined by an independent accounting firm, investment banking firm or financial advisor retained by the City at the City's expense to calculate such redemption price. The Bank and the City may conclusively rely on the determination of such redemption price by such independent accounting firm, investment banking firm or financial advisor and will not be liable for such reliance. As used hereinabove, "Extraordinary Event" means an amendment of or other material adverse change to Section 54AA of the Internal Revenue Code of 1986, as amended (the "Code"), pursuant to which the City's 35% cash subsidy payment from the United States Treasury is reduced or eliminated. 6

13 As used hereinabove, "Treasury Rate" means, with respect to any redemption date for a particular Warrant, the rate per annum, expressed as a percentage of the principal amount, equal to the semiannual equivalent yield to maturity or interpolated maturity of the Comparable Treasury Issue (as hereinafter defined), assuming that the Comparable Treasury Issue is purchased on the redemption date for a price equal to the Comparable Treasury Price (as hereinafter defined), as calculated by the Designated Investment Banker (as hereinafter defined). "Comparable Treasury Issue" means, with respect to any redemption date for a particular Warrant, the United States Treasury security or securities selected by the Designated Investment Banker which has an actual or interpolated maturity comparable to the remaining average life of the Warrant to be redeemed, and that would be utilized in accordance with customary financial practice in pricing new issues of debt securities of comparable maturity to the remaining average life of the Series 2010-B Warrants to be redeemed. "Comparable Treasury Price" means, with respect to any redemption date for a particular Warrant, (i) if the Designated Investment Banker receives at least four Reference Treasury Dealer Quotations (as hereinafter defined), the average of such quotations for such redemption date, and after excluding the highest and lowest Reference Treasury Dealer Quotations, or (ii) if the Designated Investment Banker obtains fewer than four Reference Treasury Dealer Quotations, the average of all such quotations. "Designated Investment Banker" means one of the Reference Treasury Dealers (as hereinafter defined) appointed by the City from time to time. "Reference Treasury Dealer" means a firm, specified by the City from time to time, that is a primary United States Government securities dealer in the City of New York (each, a "Primary Treasury Dealer"); provided, however, that if any of them ceases to be a Primary Treasury Dealer, the City will substitute another Primary Treasury Dealer. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date for a particular Warrant, the average, as determined by the Designated Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Designated Investment Banker by such Reference Treasury Dealer at 3:30 P.M., New York City time, on the third business day preceding such redemption date. 7

14 Mandatory Redemption. (a) Except as provided below with respect to credits against mandatory redemption requirements, those of the Series 2010-B Warrants having a stated maturity in 2023 will be subject to mandatory redemption, pro rata among holders of the 2023 term warrants, on June 1 in the following years and in the following aggregate principal amounts at a redemption price for each Warrant redeemed equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption: Year (June 1) Amount to be Redeemed 2021 $300, , ,000 (maturity) (b) Except as provided below with respect to credits against mandatory redemption requirements, those of the Series 2010-B Warrants having a stated maturity in 2025 will be subject to mandatory redemption, pro rata among holders of the 2025 term warrants, on June 1 in the following years and in the following aggregate principal amounts at a redemption price for each Warrant redeemed equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption: Year (June 1) Amount to be Redeemed 2024 $325, ,000 (maturity) (c) Except as provided below with respect to credits against mandatory redemption requirements, those of the Series 2010-B Warrants having a stated maturity in 2030 will be subject to mandatory redemption, pro rata among holders of the 2030 term warrants, on June 1 in the following years and in the following aggregate principal amounts at a redemption price for each Warrant redeemed equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption: Year (June 1) Amount to be Redeemed 2026 $625, , , , ,000 (maturity) 8

15 (d) Except as provided below with respect to credits against mandatory redemption requirements, those of the Series 2010-B Warrants having a stated maturity in 2035 will be subject to mandatory redemption, pro rata among holders of the 2035 term warrants, on June 1 in the following years and in the following aggregate principal amounts at a redemption price for each Warrant redeemed equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption: Year (June 1) Amount to be Redeemed 2031 $740, , , , ,000 (maturity) (e) Except as provided below with respect to credits against mandatory redemption requirements, those of the Series 2010-B Warrants having a stated maturity in 2040 will be subject to mandatory redemption, pro rata among holders of the 2040 term warrants, on June 1 in the following years and in the following aggregate principal amounts at a redemption price for each Warrant redeemed equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption: Year (June 1) Amount to be Redeemed 2036 $ 880, , , , ,015,000 (maturity) Credits Mandatory Redemption. In the event that the City shall have partially redeemed Warrants or shall have provided for a partial redemption of Warrants in such a manner that, under the provisions of the Authorizing Ordinance, the Series 2010-B Warrants for the redemption of which provision is made are considered as fully paid, the City may elect to apply all or any part (but only in integral multiples of $5,000) of the principal amount of such Warrants so redeemed or to be redeemed to the reduction of the principal amount of Warrants required to be redeemed pursuant to the schedule set forth above on any June 1 coterminous with or subsequent to the date such optional redemption actually occurs. Such notice shall be deemed effective only if it is given prior to the Bank's having given notice of redemption contrary to the provisions of such notice pursuant to the provisions of the Series 2010-B Authorizing Ordinance. 9

16 Manner, Notice and Effect of Redemption. In the event that less than all the principal of the Series 2010-B Warrants of a single maturity is redeemed and prepaid, the Bank shall select by lot that portion of the principal of the Series 2010-B Warrants of such maturity to be redeemed and prepaid. Notice of each such redemption must be given one time, not more than 60 nor less than 30 days before the date fixed for redemption, to the holders of each of the Series 2010-B Warrants affected by such redemption by registered or certified mail, at the address shown on the registry books of the Bank pertaining to the Series 2010-B Warrants. No further interest will accrue, after the date fixed for redemption, on the principal of any Warrants called for redemption if notice has been duly given and payment therefor has been duly provided. CERTAIN PROVISIONS RESPECTING REGISTRATION AND TRANSFER OF THE WARRANTS The Warrants shall be registered as to both principal and interest and are transferable only on the registry books of the Bank pertaining to the Warrants. No transfer of the Warrants shall be permitted except upon presentation and surrender of such Warrant at the office of the Bank with written power to transfer signed by the registered owner thereof in person or by a duly authorized attorney in form and with guaranty of signature satisfactory to the Bank. The holder of one or more of the Warrants may, upon request, and upon the surrender to the Bank of such Warrant or Warrants, exchange such Warrants for Warrants of other authorized denominations ($5,000 or any integral multiple thereof) of the same amount as the Warrants so surrendered. Any registration, transfer and exchange of Warrants shall be without expense to the holder thereof, except that the holder shall pay any expenses incurred in connection with the replacement of a mutilated, lost, stolen or destroyed Warrant. The Authorizing Ordinances provide that interest on the Warrants shall be payable solely by check or draft mailed by the Bank to the holders of the Warrants. The Authorizing Ordinances make special provision for payment of overdue interest which may be paid to a holder other than the registered holder at the time such overdue interest became due and payable. Reference is made to the provisions of the Authorizing Ordinances in full for provisions pertaining to the registration, transfer, exchange of Warrants and the method of payment of the principal of and interest thereon. 10

17 Book-Entry Only System The Depository Trust Company ("DTC") will act as securities depository for the Warrants. The ownership of one fully registered Warrant for each maturity, each in the aggregate principal amount of such maturity, will be registered in the name of Cede & Co., as nominee for DTC. SO LONG AS CEDE & CO. IS THE REGISTERED OWNER OF THE WARRANTS, AS NOMINEE OF DTC, REFERENCES HEREIN TO THE WARRANTHOLDERS, WARRANT OWNERS OR REGISTERED OWNERS OF THE WARRANTS SHALL MEAN CEDE & CO. AND SHALL NOT MEAN THE BENEFICIAL OWNERS OF THE WARRANTS. DTC 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 securities that its participants ("DTC Participants") deposit with DTC. DTC also facilitates the settlement among DTC Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in DTC Participants' accounts, thereby eliminating the need for physical movement of securities certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is owned by a number of the DTC Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly ("Indirect Participants"). The rules applicable to DTC and the DTC Participants are on file with the Securities and Exchange Commission. Purchases of beneficial ownership interests in the Warrants under the DTC system must be made by or through DTC Participants, which will receive a credit for the Warrants on DTC's records. The ownership interest of each beneficial owner of a Warrant (a "Beneficial Owner") is in turn to be recorded on the DTC Participants' and Indirect Participants' records. Beneficial Owners will not receive written communication from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the DTC Participant or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of beneficial ownership interests in the Warrants are to be accomplished by entries made on the books of DTC Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their beneficial ownership interests in the Warrants, except in the event that use of the book-entry only system for the Warrants is discontinued. 11

18 To facilitate subsequent transfers, all Warrants deposited by DTC Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. The deposit of Warrants with DTC and their registration in the name of Cede & Co. effects no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Warrants. DTC's records reflect only the identity of the DTC Participants to whose accounts such Warrants are credited, which may or may not be the Beneficial Owners. The DTC Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to DTC Participants, by DTC Participants to Indirect Participants, and by DTC 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 shall be sent to Cede & Co. If less than all of the Warrants are being redeemed, DTC's practice is to determine by lot the amount of the interest of each DTC Participant to be redeemed; provided, however, that the portion of any Warrant to be redeemed shall be in the principal amount of $5,000 or an integral multiple thereof and that, to the extent practicable, the City will request that DTC select the amount of interests of the Direct Participants in the Warrants on a pro rata basis based on the principal amount of their respective interests. The City can provide no assurance that DTC will so select the interests of the Direct Participants on a pro rata basis. Neither DTC nor Cede & Co. will consent or vote with respect to the Warrants. Under its usual procedures, DTC mails an "Omnibus Proxy" to the City as soon as possible after the record date. The "Omnibus Proxy" assigns Cede & Co.'s consenting or voting rights to those DTC Participants to whose accounts the Warrants are credited on the record date identified in a listing attached to the "Omnibus Proxy." Principal, premium and interest payments on the Warrants will be made to DTC. DTC's practice is to credit DTC Participants' accounts, upon DTC's receipt of funds and corresponding detail information from the issuer or the paying agent on payable date in accordance with their respective holdings shown on DTC's records. Payments by DTC 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 DTC Participants and not of DTC, the Bank or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payments of principal, premium (if any) and interest to DTC are the responsibility of the Bank. Disbursement of such payments to DTC Participants shall be the responsibility of DTC and disbursement of such payments to the Beneficial Owners shall be the responsibility of the DTC Participants and Indirect Participants. 12

19 THE CITY AND THE BANK CANNOT AND DO NOT GIVE ANY ASSURANCES THAT DTC, THE DTC PARTICIPANTS OR THE INDIRECT PARTICIPANTS WILL DISTRIBUTE TO THE BENEFICIAL OWNERS OF THE WARRANTS (1) PAYMENTS OF PRINCIPAL, REDEMPTION PRICE OR PURCHASE PRICE OF, OR INTEREST ON THE WARRANTS; (2) CERTIFICATES REPRESENTING AN OWNERSHIP INTEREST OR OTHER CONFIRMATION OF BENEFICIAL OWNERSHIP INTERESTS IN WARRANTS, OR (3) REDEMPTION OR OTHER NOTICES SENT TO DTC OR CEDE & CO., ITS NOMINEE, AS THE REGISTERED OWNER OF THE WARRANTS, OR THAT THEY WILL DO SO ON A TIMELY BASIS OR THAT DTC, DTC PARTICIPANTS OR INDIRECT PARTICIPANTS WILL SERVE AND ACT IN THE MANNER DESCRIBED IN THIS OFFICIAL STATEMENT. THE CURRENT "RULES" APPLICABLE TO DTC ARE ON FILE WITH THE SECURITIES AND EXCHANGE COMMISSION, AND THE CURRENT "PROCEDURES" OF DTC TO BE FOLLOWED IN DEALING WITH DTC PARTICIPANTS ARE ON FILE WITH DTC. NEITHER THE CITY NOR THE BANK WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO ANY DTC PARTICIPANT, INDIRECT PARTICIPANT OR ANY BENEFICIAL OWNER OR ANY OTHER PERSON WITH RESPECT TO: (1) THE WARRANTS; (2) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT; (3) THE PAYMENTS BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL OR REDEMPTION PRICE OF OR INTEREST ON THE WARRANTS; (4) THE DELIVERY BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE INDENTURE TO BE GIVEN TO WARRANTHOLDERS; (5) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF THE WARRANTS; OR (6) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS WARRANTHOLDER. Discontinuation of Book-Entry Only System DTC may determine to discontinue providing its services with respect to the Warrants at any time by giving notice to the City and the Bank and discharging its responsibilities with respect thereto under applicable law. Upon the giving of such notice, the book-entry only system for the Warrants will be discontinued unless a successor securities depository is appointed by the City. In addition, the City may discontinue the book-entry only system for the Warrants at any time by giving reasonable notice to DTC. 13

20 In the event that the book-entry only system for the Warrants is discontinued, the following provisions would apply, subject to the further conditions set forth in the authorizing Ordinance. The principal of and premium, if any, on the Warrants will be payable when due upon their presentation and surrender at the office of the Bank in Birmingham, Alabama. Interest payments on the Warrants will be made to the persons who are the registered owners by check or draft mailed to such owners at their addresses as they appear on the registration books of the Bank. The Warrants are transferable only upon presentation to the Bank with written power to transfer signed by the registered owner thereof in person or by duly authorized attorney. Upon the request of the owner of any Warrant, the City will execute and the Bank will authenticate and deliver, upon surrender to the Bank of such Warrant and in exchange therefor, as may be requested by the person surrendering such Warrant, other Warrants in different authorized denominations ($5,000 or any integral multiple thereof) of like tenor and together aggregating the same principal amount as the then outstanding unpaid principal amount of Warrant so surrendered. The Bank will not be required to register or transfer any Warrant during the period beginning June 15 or December 15 next preceding any Interest Payment Date with respect thereto. If any such Warrant is called for redemption, the Bank will not be required to register, transfer or exchange such Warrant during the period beginning 30 days next preceding the redemption date with respect thereto. INSURANCE Bond Insurance Policy Concurrently with the issuance of the Warrants, Assured Guaranty Corp. ("AGC" or the "Insurer") will issue its financial guaranty insurance policy (the "Policy") for the Warrants. The Policy guarantees the scheduled payment of principal of and interest on the Warrants when due as set forth in the form of the Policy included as an exhibit to this Official Statement. The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. Assured Guaranty Corp. AGC is a Maryland-domiciled insurance company regulated by the Maryland Insurance Administration and licensed to conduct financial guaranty insurance business in all fifty states of the United States, the District of Columbia and Puerto Rico. AGC commenced 14

21 operations in AGC is a wholly owned, indirect subsidiary of Assured Guaranty Ltd. ("AGL"), a Bermuda-based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol "AGO." AGL, through its operating subsidiaries, provides credit enhancement products to the U.S. and global public finance, infrastructure and structured finance markets. Neither AGL nor any of its shareholders is obligated to pay any debts of AGC or any claims under any insurance policy issued by AGC. AGC's financial strength is rated "AA+" (stable outlook) by Standard & Poor's Ratings Services, a Standard & Poor's Financial Services LLC business ("S&P") and "Aa3" (negative outlook) by Moody's Investors Service, Inc. ("Moody's"). On February 24, 2010, Fitch, Inc. ("Fitch"), at the request of AGL, withdrew its "AA-" (Negative Outlook) insurer financial strength rating of AGC at the then current rating level. Each rating of AGC should be evaluated independently. An explanation of the significance of the above ratings may be obtained from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawal at any time by the rating agencies, including withdrawal initiated at the request of AGC in its sole discretion. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of any security guaranteed by AGC. AGC does not guarantee the market price of the securities it insures, nor does it guarantee that the ratings on such securities will not be revised or withdrawn. Current Financial Strength Ratings On October 25, 2010, S&P published a Research Update in which it downgraded AGC's counterparty credit and financial strength rating from "AAA" (negative outlook) to "AA+" (stable outlook). Reference is made to the Research Update, a copy of which is available at for the complete text of S&P's comments. In a press release dated February 24, 2010, Fitch announced that, at the request of AGL, it had withdrawn the "AA-" (Negative Outlook) insurer financial strength rating of AGC at the then current rating level. Reference is made to the press release, a copy of which is available at for the complete text of Fitch's comments. In a press release dated December 18, 2009, Moody's announced that it had confirmed its "Aa3" insurance financial strength rating of AGC, with a negative outlook. Reference is made to the press release, a copy of which is available at for the complete text of Moody's comments. There can be no assurance as to any further ratings action that Moody's or S&P may take with respect to AGC. For more information regarding AGC's financial strength ratings and the risks relating thereto, see AGL's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which was filed by AGL with the Securities and Exchange Commission ("SEC") on March 15

22 1, 2010, AGL's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2010, which was filed by AGL with the SEC on May 10, 2010, and AGL's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010, which was filed by AGL with the SEC on August 9, Capitalization of Assured Guaranty Corp. As of June 30, 2010, AGC had total admitted assets of $2,949,042,401 (unaudited), total liabilities of $1,929,636,018 (unaudited), total surplus of $1,019,406,383 (unaudited) and total statutory capital (surplus plus contingency reserves) of $1,646,256,069 (unaudited), in each case, determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. Incorporation of Certain Documents by Reference The portions of the following documents filed by AGL with the SEC relating to AGC are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof: the Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (which was filed by AGL with the SEC on March 1, 2010); the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2010 (which was filed by AGL with the SEC on May 10, 2010); the Current Report on Form 8-K dated August 6, 2010; and the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010 (which was filed by AGL with the SEC on August 9, 2010). All consolidated financial statements of AGC and all other information relating to AGC included in documents filed by AGL with the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, after the filing of the last document referred to above and prior to the termination of the offering of the Warrants shall be deemed to be incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such documents. Any statement contained in a document incorporated herein by reference or contained herein under the heading "INSURANCE Assured Guaranty Corp." shall be modified or superseded for purposes of this Official Statement to the extent that a statement 16

23 contained herein or in any subsequently filed document which is incorporated by reference herein also modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. Copies of the consolidated financial statements of AGC incorporated by reference herein and of the statutory financial statements filed by AGC with the Maryland Insurance Administration are available upon request by contacting AGC at 31 West 52 nd Street, New York, New York or by calling AGC at (212) In addition, the information regarding AGC that is incorporated by reference in this Official Statement that has been filed by AGL with the SEC is available to the public over the Internet at the SEC's web site at and at AGL's web site at from the SEC's Public Reference Room at 450 Fifth Street, N.W., Room 1024, Washington, D.C , and at the office of the New York Stock Exchange at 20 Broad Street, New York, New York AGC makes no representation regarding the Warrants or the advisability of investing in the Warrants. In addition, AGC has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding AGC supplied by AGC and presented under the heading "INSURANCE". CITY GOVERNMENT AND ADMINISTRATION The City has the Mayor-Council form of government, and the City Council ("the Council") constitutes the governing body of the City subject to certain powers vested in the Mayor. The Mayor and the members of the Council together with the year in which their respective terms of office end are as follows: Mayor Sam H. Wright 2012 Council President James Heigl 2012 Councilmembers Manuell Smith, III 2012 Kenneth E. Horn 2012 Walter Jacobson 2012 Doug Murphree 2012 Patricia G. Carden serves as City Clerk and City Treasurer. The Council appoints the managers of the various departments in the City and these managers are responsible for the routine operation of their respective departments. The City Clerk and all department managers are covered by Civil Service. 17

24 The City employs approximately 130 persons in such capacities as firemen, policemen, administrative, park and recreation, library board, department supervisors and equipment operators. The City employees are not unionized. The Utilities Board of the City of Sylacauga, a public corporation, owns and operates the natural gas distribution system, the electric transmission system, the water distribution system and the sanitary sewer system in the City. DEBT INFORMATION General Obligation Indebtedness The general obligation indebtedness of the City as of October 1, 2010, taking into consideration the Warrants but not including any general obligation indebtedness of the City provision for the payment of the principal of and interest on which has heretofore been made or will be made simultaneously with the issuance of the Warrants, is as follows: Amount Outstanding General Obligation Warrants, Tax-Exempt Series 2010-A $ 5,610,000 General Obligation Warrants, BAB Series 2010-B (1) $16,565,000 General Obligation Warrants, dated September 1, 2005 (1) (2) 14,765,000 Funding agreement dated July 1, 2000, with East Central Alabama Industrial Development Authority (pertains to the American Honda Motor Co., Inc., automobile assembly plant in Lincoln, Alabama; the City's annual funding requirement is approximately $49,000 payable on each February 1, until and including February 1, 2015) 245,000 Miscellaneous warrants, notes and capital lease obligations, not exceeding 100,000 (1) (2) Exempt from the constitutional limitation on indebtedness. Additionally secured by a special pledge of the Special Ad Valorem Tax (hereinafter described) currently levied at the rate of 18.5 mills for public school purposes. 18

25 Debt Limit The Constitution of Alabama of 1901 provides that cities having a population of 6,000 or more may not become indebted in an amount in excess of twenty per cent (20%) of the assessed valuation of taxable property located in the City. The Constitution excepts from this debt limitation several categories of indebtedness, including (a) temporary loans to be paid within one year made in anticipation of the collection of taxes and not exceeding one-fourth of the general revenues; (b) bonds or other obligations already issued or which may be issued for the purpose of acquiring, providing or constructing schoolhouses, waterworks and sewers; and (c) obligations incurred and bonds issued for street or sidewalk improvements where the cost of the same, in whole or in part, is to be assessed against the property abutting said improvements. The approximate aggregate principal amount of outstanding debt of the City subject to the debt limitation was, as of October 1, 2010, $5,955,000, excluding the interest accrued on the aforesaid amount but including the Warrants (which are not subject to the said limitations). The assessed value of property as of September 30, 2009 (not including motor vehicles), was $111,449,090. The debt limitation is computed as follows: 20% of assessed value $ 22,289,818 Outstanding debt (approximate) subject to debt limitation as of October 1, ,955,000 Debt margin $ 16,334,818 Because of the several exceptions to the aforesaid limitation on debt, the City will not be limited by the Constitution in borrowing for purposes fully within those several exceptions. Pursuant to further Constitutional provisions, statutes and court decisions, the limitation on debt is not applicable to revenue bonds and warrants which may be issued by the City for a variety of purposes, including hospitals, public buildings, recreation facilities, and water, sewer and gas systems. The debt limit provisions of the Constitution do not restrict the borrowing by separate public corporations (such as The Public Building Authority of the City of Sylacauga) authorized by the City to be created for the purpose of financing and operating certain municipal functions. 19

26 PROPOSED INDEBTEDNESS The City expects, within the next six (6) months, to issue approximately $15,000,000 in general obligation indebtedness in connection with an economic and commercial development project in the City expected to be made up of a cinema and several retail establishments. (Remainder of Page Intentionally Left Blank) 20

27 DEBT SERVICE REQUIREMENTS The following chart indicates the debt service requirements on the City's indebtedness on a fiscal year basis: Fiscal Year Ending Sept. 30 Debt Service Paid from General Fund ECAIDA Principal Series 2010-A Total Series 2005 Debt Service Paid from Special Ad Valorem Tax Series 2010-B Less Series 2010-B Subsidy (1) Net Total Debt Service All General Obligation Debt Aggregate Net Debt Service 2011 $49, $299, $348, $1,386, $ 972, $ (150,223.23) $2,207, $2,556, , , , ,387, ,045, (278,264.88) 2,154, ,496, , , , ,385, ,046, (277,039.88) 2,155, ,495, , , , ,382, ,047, (275,567.26) 2,153, ,491, , , , ,386, ,042, (273,747.26) 2,155, ,496, , , ,389, ,040, (271,563.26) 2,158, ,598, , , ,386, ,038, (269,012.62) 2,155, ,594, , , ,381, ,040, (266,083.12) 2,155, ,592, , , ,385, ,035, (262,751.12) 2,158, ,597, , , ,386, ,029, (258,910.76) 2,157, ,597, , , ,384, ,027, (254,749.26) 2,157, ,597, , , ,384, ,023, (249,761.76) 2,158, ,596, , , ,385, ,013, (244,608.00) 2,154, ,592, , , ,387, ,008, (239,371.12) 2,157, ,594, , , ,382, ,007, (233,683.62) 2,156, ,597, , , ,275, (227,733.62) 1,047, ,489, , , ,267, (216,249.26) 1,051, ,489, , , ,253, (204,305.50) 1,049, ,488, , , ,243, (191,994.26) 1,051, ,489, , , ,227, (179,223.62) 1,047, ,484, ,214, (166,085.50) 1,048, ,048, ,199, (152,099.50) 1,047, ,047, ,188, (137,641.00) 1,050, ,050, ,170, (122,615.50) 1,047, ,047, ,156, (107,117.50) 1,048, ,048, ,140, (91,052.50) 1,049, ,049, ,121, (74,112.50) 1,047, ,047, ,106, (56,595.00) 1,050, ,050, ,089, (38,403.76) 1,051, ,051, ,070, (19,538.76) 1,051, ,051, (1) This column reflects the interest subsidy (equal to 35% of each interest payment amount) the City expects to receive from the United States Treasury as the Series 2010-B Warrants are being issued as "Build America Bonds" under the provisions of the American Recovery and Reinvestment Act of The City expects these subsidy payments will be received on or soon after each semiannual interest payment date. As stated below in "TAX MATTERS," the holders of the Series 2010-B Warrants have no claim to these interest subsidy payments nor do such holders have a security interest in the payments. 21

28 FINANCIAL INFORMATION The City operates on a fiscal year that begins October 1 and ends on the then next succeeding September 30. The City begins its budget cycle in the summer with the Mayor requesting budgets from each department head. Those requests are reviewed and submitted to the Council. Hearings are held and the budget is adopted before the first meeting in the new fiscal year. The General Fund Budget adopted by the City for fiscal year 2010 projected revenues of $13,506,621 and expenditures of $13,744,226, with a deficit of $237,605. The notes to the financial statements included herewith as Appendix B include a description of the accounting policies applicable to the City and the various funds and account groups. The financial statements of the City for the fiscal years ending September 30, 2005, 2006, 2007, 2008 and 2009 show revenues and expenditures for all governmental fund types as follows: (Remainder of Page Intentionally Left Blank) 22

29 CITY OF SYLACAUGA, ALABAMA COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES ALL GOVERNMENTAL FUND TYPES YEAR ENDED SEPTEMBER Revenues Sales taxes $ 6,407,724 $ 6,573,201 $ 6,551,241 $ 6,336,047 $ 5,906,450 Property taxes 1,912,950 2,556,026 2,769,238 2,910,129 3,064,594 Motor fuel taxes 282, , , , ,993 Lodging taxes 97, , , , ,406 Rental and leasing taxes 194, , , , ,184 Tobacco taxes 105, , , , ,298 Alcoholic beverages 95, ,337 99,045 89,949 92,747 Other taxes 102, , ,016 48,659 48,544 Licenses and permits 1,085,610 1,189,597 1,208,918 1,238,510 1,325,497 Grants 681, ,492 1,552, , ,924 Police fines 348, , , , ,349 Charges for services 688, , , , ,788 Appropriations from Utilities Board 2,160,000 2,236,023 2,235,600 2,304,000 2,400,000 Appropriations from County Agency 17,754 14, Investment earnings 341, , , , ,412 Miscellaneous 175, , , , ,879 Total Revenues 14,703,886 16,026,069 17,246,903 16,197,341 16,039,065 Expenditures Current: Executive and legislative 191, , , , ,131 General government and admin. 1,715,200 1,794,574 2,042,854 2,372,101 2,230,637 Judicial 203, , , , ,906 Civil Service Board 14,463 15,900 17,580 20,722 17,557 Police 2,709,141 2,658,169 2,893,130 3,109,935 3,127,992 Fire 1,119,735 1,160,762 1,244,421 1,275,845 1,336,874 Street 1,572,706 1,561,407 1,522,773 1,821,175 1,809,366 Shop 245, , , , ,604 Planning and Code Enforcement 322, , , , ,617 Building and Grounds/custodial 38,207 42,929 43,262 47,009 50,207 Senior citizens services 129, , , , ,195 Payments to component units: School Board 3,025, , , ,832 1,738,430 Parks and Recreation Board 894, ,986 1,042,466 1,033, ,203 Library 591, , , , ,618 Industrial development 176, , , , ,046 Social and economic development 303, , , , ,540 Debt Service: Principal 828,272 1,179,564 1,016,018 1,037,633 1,284,249 Interest and fiscal charges 1,349, , , , ,772 Capital Outlay 1,421,198 2,471,487 4,469,862 3,446, ,619 Total Expenditures 16,853,203 15,768,797 18,598,515 18,736,070 16,548,563 23

30 Excess (Deficiency) of Revenues Over (Under) Expenditures (2,149,317) 257,272 (1,351,612) (2,538,729) (509,498) Other Financing Sources (Uses) Sale of capital assets 15,199 44, ,400 3,545 10,497 Proceeds of refunding bonds 16,445, ,200,000 - Payments to refunded escrow agent (14,724,124) Bond premium 575, Operating Transfers In 3,073,426 2,608,316 6,287,434 4,231,892 3,565,172 Operating Transfers Out (3,073,426) (2,608,316) (6,287,434) (4,231,892) (3,565,172) Total Other Financing Sources (Uses) 2,311,081 44, ,400 1,203,545 10,497 Net changes in Fund Balances 161, ,619 (1,219,212) (1,335,184) (499,001) Fund Balances - Beginning of Year 13,634,092 13,795,857 14,097,477 12,878,265 11,485,660 Prior Period Adjustment (57,421) 895,652 Fund Balances - Beginning (as restated) 12,820,844 12,381,312 Fund Balances - End of Year $13,795,856 $14,097,476 $12,878,265 $11,485,660 $11,882,311 (Remainder of Page Intentionally Left Blank) 24

31 MAJOR SOURCES OF REVENUE Ad Valorem Taxes The levy and collection of ad valorem taxes in Alabama are subject to limitations imposed by the Alabama Constitution. The Alabama Constitution limits the rates at which property may be assessed, specifies the maximum millage rates at which taxes may be levied on property, and limits total ad valorem taxes on any property in any year. Ratios of Assessed Value to Fair Market Value. At its 1978 Regular Session, the Legislature of Alabama proposed a Constitutional Amendment and adopted numerous laws contingent upon ratification of the proposed Amendment, all of which, taken together, effect substantial changes in ratios of assessment, exemptions and levels of ad valorem taxation in the State. The Amendment and, indirectly, the related statutes (together "the 1978 Amendments") were ratified by the electorate of the State at the general election on November 7, Certain salient features of the 1978 Amendments are set out below. The following new classifications of taxable property and corresponding ratios of assessed value to fair and reasonable market value are established for all ad valorem taxation (State and local), subject to certain exceptions stated below: Class I - Property of utilities used in their business - 30%; Class II - Property not otherwise classified (generally, business or commercial property) - 20%; Class III - Agricultural; forest; single-family, owner-occupied residential property; and historical buildings and sites - 10%; and Class IV - Private passenger automobiles and small trucks (pickups) for personal use - 15%. Under the 1978 Amendments, Class III property (primarily agricultural, forest and single-family residential property) is permitted to be assessed, upon application of the owner, on the basis of its current use value with no consideration to be taken of prospective value if the property were put to some other possible use. 25

32 Under the 1978 Amendments, any local taxing authority was authorized, under certain circumstances, to make millage adjustments prior to September 30, The City increased the rates of ad valorem taxes pursuant to that authorization from a total of 12-1/2 mills to fifteen (15) mills. Under the 1978 Amendments, any local taxing authority may increase or decrease any assessment ratio subject to approval by the Legislature and by the majority of the electorate of such authority at a special election. In no case may an assessment ratio be less than 5% or more than 35%. Legislative (as opposed to constitutional) provisions of the 1978 Amendments further restrict any increase of an assessment ratio (i) to a class of property constituting less than 20% of all taxable property in the taxing authority or (ii) in the case of a taxing authority having more than 75% of its property in a single class, to the other classes of property. Furthermore, any local taxing authority may increase the rate at which any ad valorem tax is levied above the limit specified in the Constitution subject (i) to the approval by the Legislature and by the majority of the electorate of such authority at a special election and (ii) to the limitations on the total rate of taxation hereinafter stated. Constitutional Limit on Ad Valorem Taxes and Certain Exemptions. The 1978 Amendments provide that all ad valorem taxes payable to the State and to all counties, municipalities and other taxing authorities with respect to any item of taxable property shall not exceed the following percentage of the fair and reasonable market value of such property: 2% in the case of Class I property; 1-1/2% in the case of Class II property; 1% in the case of Class III property; and 1-1/4% in the case of Class IV property. The limitations are not now exceeded as to any class of property in the City. A Constitutional Amendment forming a part of the 1978 Amendments exempts from ad valorem taxation household and kitchen furniture, all farm tractors, all farming implements, and all stocks of goods, wares and merchandise (inventories). Under prior law, those classes of property were subject to taxation. The 1978 Amendments also increase certain exemptions from ad valorem taxation of residences of persons over 65 years of age. Act No adopted at the 1982 Second Special Session of the Legislature of Alabama authorizes any municipality in the State to increase the present $2,000 homestead exemption from municipal ad valorem taxes to an amount not greater than $4,000. The City does not intend to increase or extend the homestead exemption pursuant to the provisions of Act No Assessed Valuation. According to information obtained from the Talladega County Revenue Commissioner, the assessed value of taxable properties (including motor vehicles) located within the corporate limits of the City for the fiscal years indicated was as follows: 26

33 Fiscal Year Ending September 30 All Property Other Than Motor Vehicles 2007 $114,568, ,937, ,449,090 Major Ad Valorem Taxpayers. The following table indicates the ten (10) largest ad valorem taxpayers in the City and the amounts of taxes paid and assessed valuation for the year ended September 30, 2009: State, County and Municipal Ad Taxpayer Assessed Value Valorem Taxes Paid Alabama Municipal Electric Authority $5,200,500 $127, Centro NP Payton Park, LLC 3,129,960 76, Agrium Polymer Coatings Corp. 2,193,880 53, Bellsouth Telecommunications 1,756,400 43, Blue Bell Creameries, LP 2,125,040 52, Home Depot USA, Inc. 1,330,480 32, Blue Bell Operating, LP 1,312,580 32, Fort Williams Assoc., LP 1,225,860 30, Pursell Holdings, LLC 1,118,000 27, Fleetwood Metal Industries, Div. of Starcan 1,785,240 43, Millage Rates on Taxable Property in the City. Pursuant to the applicable provisions of the Constitution of Alabama and general laws of the State, the City levies ad valorem taxes of 24.5 mills on property situated in the City. This includes a six mill tax for general purposes and the Special Ad Valorem Tax for school purposes (levied at the rate of 9 mills from 1980 through 1999 and presently at 18.5 mills). The following taxes are levied on property situated in the City but are levied by other taxing authorities: State of Alabama mills Talladega County mills 27

34 There are, therefore, 50.5 mills currently being levied on taxable property situated in the City. For the tax years for which taxes became due and payable on October 1, 1980, through 1999, the ad valorem taxes levied on property in the City amounted to 41.5 mills. Ad valorem taxes levied by the City are collected on behalf of the City by the Talladega County Revenue Commissioner. The Revenue Commissioner estimates that not less than 97.5% of all ad valorem taxes levied in the City in recent years have in fact been collected. A charge for collection equal to approximately 1% of the amount levied (2-1/2% in the case of automobiles) is withheld by the County Revenue Commissioner prior to the remittance to the City. The amounts collected from the six mill general purposes ad valorem tax levied by the City for the fiscal years indicated are as follows: Fiscal Year Ending September 30 Amount Collected 2006 $593, , , , ,368 (unaudited) The Special Ad Valorem Tax was authorized to be levied for certain public school purposes without limit as to time at an election held in the City on November 9, 1959; the rate was increased from 9 mills to 18.5 mills for a period continuing until the levy for which taxes become due and payable on October 1, 2024, pursuant to an election held on May 9, For collections after 2024, the rate will be at 9 mills unless subsequent proceedings authorize an increase. The Special Ad Valorem tax is now being levied annually at the rate of 18.5 mills on the assessed value of taxable property in the City. The proceeds of the Special Ad Valorem Tax have been pledged as security for the payment of the General Obligation Warrants of the City, dated September 1, 2005, and issued for public school purposes. The following table shows the amounts of the Special Ad Valorem Tax collected during the fiscal years indicated: 28

35 Fiscal Year Ending September 30 Amount Collected 2006 $1,962, ,133, ,255, ,335, ,322,118 (unaudited) The City's policy is to maintain, at all times, a balance in its Special Ad Valorem Tax Fund at least equal to the greater of $2,300,000, or the debt service requirement coming due in the next 12 months on the indebtedness of the City incurred for public school purposes, whether or not the Special Ad Valorem Tax has been pledged for the payment of the indebtedness. Privilege License Taxes The City levies, under general authority granted by the Legislature, privilege license taxes on the privilege of engaging in certain businesses and professions within the corporate limits of the City (these are sometimes referred to as "business license fees"). Businesses and professions are usually taxed the amount stated for their respective type of business or profession plus a percentage of their estimated annual gross receipts. There are certain limitations with respect to the rate at which privilege license taxes may be levied with respect to certain businesses located within the corporate limits of the City, including banks and insurance companies; however, there is no statutory minimum or maximum rate applicable to the privilege license tax. The privilege license taxes are collected by the City Clerk. Under the applicable judicial precedents, neither the gross receipts tax nor the privilege license taxes may be levied at rates that are confiscatory or unreasonable. The amounts collected from privilege license taxes by the City for the fiscal years indicated are as follows: 29

36 Fiscal Year Ending September 30 Amount Collected 2005 $ 890, , , ,016, ,096, ,106,615 (unaudited) (Remainder of Page Intentionally Left Blank) 30

37 Gross Receipts Taxes The City levies by ordinance the Gross Receipts Tax (often called "the Sales Tax") within its corporate limits at the rate of 3% on the gross receipts of all persons selling or using tangible personal property at retail and conducting places of amusement in the City; however, certain transactions are taxed at lower rates. There is no statutory maximum rate applicable to the said tax. The Gross Receipts Tax is collected by the vendor from the consumer and paid to the State of Alabama Department of Revenue and, in turn, after the deduction of certain collection charges, to the City. The following table sets forth the amounts of Gross Receipts Tax received by the City during the fiscal years indicated below: Fiscal Year Ending September 30 Amount Collected 2005 $6,407, ,573, ,551, ,336, ,906, ,720,347 (unaudited) SYLACAUGA CITY BOARD OF EDUCATION General The Sylacauga City Board of Education ("the Board") is responsible for providing public education within the city limits. Members are appointed by the City Council for five-year staggered terms. Educational policy is established by the Board and carried out by the Superintendent, A. Renée Riggins. The members of the Board and their respective terms are as follows: 31

38 Board Member Term Ending Troy W. Smithwick, Jr., President June 2014 Tracey Allen, Vice President June 2013 Steve Marlowe June 2015 Jennie McGhee June 2011 Carole Bailey June 2012 At present, the Board employs 303 staff personnel, 192 of which are certified and 111 that are staffed. 41% of the Board's teachers have a bachelor's degree, 51% have a master's degree and 8% have degrees beyond the master's degree. The student/teacher ratios for each grade are as follows: Student/Teacher Grade Ratio K 17:1 1 18:1 2 19:1 3 20:1 4 20:1 5 24: : : : :1 Enrollment for the last five school years was as follows: Academic Year Approximate Enrollment , , , , , ,402 * * Projected. 32

39 The following schools presently make up the system: Approximate School Grades Enrollment Indian Valley Elementary School K Pinecrest Elementary School Nichols Lawson Middle School Sylacauga High School Aggie Enrichment Center EMPLOYEES RETIREMENT Employees of the City participate in the Employees' Retirement System maintained by the State of Alabama ("the Employees' System"). The current contribution rate for the City is 5.28% of payroll, which contribution consists of (a) a normal contribution rate of 5.28% of payroll; (b) an accrued liability rate of 2.97%; (c) a pre-retirement death benefit rate of 0.15% of payroll; and (d) an administrative rate of 0.18% of payroll. The actuary for the Employees' System is preparing an actuarial valuation of the accrued liability of each of the participating local governments. Consequently, the current contribution may be adjusted either upward or downward. There are currently approximately 131 active members and approximately 47 retired members and beneficiaries participating in the Employees' System. Retirement plans for teachers in the City's school system are funded by the State Teachers' Retirement System ("the Teachers' System"), maintained by the State of Alabama. Because the State of Alabama has assumed responsibility for providing retirement plans for public school teachers, the City historically has had no direct responsibility in this area. Unlike the Teachers' System, the Employees' System does not undertake to fund the retirement plans of participating local governments and acts only in an administrative capacity, and then only upon the election of local governments. The statute permitting such election provides that "the retirement system shall not be liable for the payment of any pensions or other benefits on account of the employees or pensioners of any employers under this section, for which reserves have not been previously created from funds contributed by such employer or its employees for such benefits." The statute further provides that the agreement of the City to contribute to the Employees' System on account of its employees is irrevocable, but should it become financially unable to make the normal and accrued liability contribution, the City would be deemed to be in default under the Employees' System. 33

40 THE FEDERAL BANKRUPTCY ACT The rights and remedies of the holders of the Warrants are subject to the provisions of Chapter 9 of Title 11 of the United States Code ("the Bankruptcy Act"), which was enacted on November 6, 1978, and took effect on October 1, Chapter 9 permits, under certain specified circumstances (but only after authorization by the legislature or by a governmental officer or organization empowered by state law to give such authorization), a political subdivision of a state -- such as the City -- to file a petition for relief in the Federal Bankruptcy Court if it is insolvent or unable to meet its debts as they mature and desires to effect a plan to adjust its debts. Under the statute, the filing of such a petition operates, with certain limited exceptions, as an "automatic" stay of the commencement or the continuation of any judicial or other proceedings against the petitioner, its property, or any officer or inhabitant thereof and as an "automatic" stay of any act or proceeding which seeks to enforce a lien on the property of the petitioner or a lien on any taxes or assessments due to the petitioner. Chapter 9 also permits a political subdivision that files a petition under the Bankruptcy Act to issue, with the approval of the Court, certificates of indebtedness having priority of payment over preexisting obligations. Any political subdivision filing a petition for relief under Chapter 9 must in due course file a plan for the adjustment of its debts, and such plan may include provisions modifying or altering the rights of creditors generally, or any class of them, secured or unsecured. Such plan, when confirmed by the Court, binds all creditors who had notice or knowledge of the plan and discharges all claims against the petitioning political subdivision provided for in the plan when (a) the petitioning subdivision has deposited, with a duly appointed disbursing agent, all money, securities or other consideration required by the plan to be distributed, and (b) the Court is satisfied that any securities to be so distributed are valid obligations of the petitioning political subdivision and that any provision to pay or secure such obligations is also valid. No plan may, however, be confirmed by the Court unless certain conditions occur, among which are (1) that the plan has been accepted in writing by two-thirds (2/3) in amount and fifty per cent (50%) in number of the allowed claims of each class which are affected by the plan, and (2) that the plan is fair, equitable and feasible and does not discriminate unfairly in favor of any creditor or class of creditors. While the matter is not entirely free from doubt, prospective purchasers of the Warrants should assume that existing Alabama statutes presently authorize the City and other incorporated municipalities in Alabama to file petitions for relief under Chapter 9. 34

41 GENERAL INFORMATION RESPECTING THE CITY Geographical The City is located in the southern part of Talladega County in central Alabama approximately 50 miles southeast of Birmingham and 63 miles north of Montgomery. It is served by U.S. Highway 231 running north and south and U.S. Highway 280 running east and west. It is on the main line of the Central of Georgia Railroad and on a branch line of the Louisville and Nashville Railroad. Sylacauga is surrounded by major natural resources including timberland, marble quarries and navigable waterways. Industry and Agriculture Sylacauga lies in the fertile Coosa Valley area which is developing into a leading industrial and agricultural center in Alabama. The Coosa River is eleven miles west of Sylacauga. The largest employers in Talladega County are as follows: Approximate Number of Employer Product or Service Employees Honda of Alabama automobiles and v-6 engines 4,000 Alabama Institute for Deaf & Blind education institution 1,012 Talladega County Board of Education county public schools 952 New South Express Honda parts supplier 619 Coosa Valley Medical Center hospital 580 Nemak Aluminum Components motor vehicle parts 507 Wal-Mart SuperCenter (Sylacauga) discount retail store 425 Abitibi Bowater Newsprint Coosa Pines paper mill 415 Federal Correctional Institution federal correctional facility 330 Baptist Citizen Medical Center hospital 322 Talladega City Board of Education city public schools 321 Sylacauga City Board of Education city public schools 304 Legacy Cabinets cabinets 300 Imerys USA Inc. marble quarry 280 City of Talladega city government 244 Source: Talladega County Economic Development Authority, August 18,

42 The largest employers in City of Sylacauga are as follows: Approximate Number of Employer Product or Service Employees Coosa Valley Medical Center hospital 580 Nemak Aluminum Components motor vehicle parts 507 Wal-Mart SuperCenter (Sylacauga) discount retail store 425 Sylacauga City Board of Education city public schools 304 Imerys USA Inc. marble quarry 280 Blue Bell Creameries ice cream and frozen desserts 205 City of Sylacauga city government 169 American Plant Services industrial cleaning services 125 Agrium Advanced Technologies sta-green fertilizers and fertilizer products 109 Fleetwood Metal Industries metal stamping automotive 92 J & M Tanklines, Inc. trucking company 80 Source: Talladega County Economic Development Authority, August 18, 2010 A solid bed of white marble is quarried by four companies within five miles of the western limits of the City. This marble has been quarried since 1840 and is used for construction, medicines and food supplements. The United States Supreme Court Building and the Lincoln Memorial, both in Washington, D.C., are constructed with Sylacauga marble. Bowater Newsprint, a Coosa Pines Corporation, operates a large pulp and newsprint paper mill at Coosa Pines, Alabama, 10 miles west of Sylacauga. The mill and forest products operations are located on 500,000 acres of forest land, which supply approximately 20% of the wood used in its operations. The other 80% is purchased within a fifty-mile radius of the mill. The mill is in its 136 th year of operation and produces newsprint, pulp and lumber. The mill employs approximately 415 persons. 36

43 Residential and Commercial Permits Building permits were issued during the ten most recent calendar years for construction projects having the following aggregate costs: Year Amount 2001 $ 7,573, ,098, ,724, ,309, ,572, ,536, ,265, ,019, ,195, ,583,501 Utilities The Utilities Board of the City of Sylacauga, a public corporation organized and existing under Act No. 175 adopted at the 1951 Regular Session of the Legislature of Alabama, operates the gas, electric, water and sanitary sewer systems in the City. This Board consists of three members appointed by the City Council. Customers served by the Board were as follows: Electric 7,199 7,158 7,146 7,205 7,187 Water 8,157 8,168 8,207 8,370 8,370 Gas 6,816 6,813 6,782 6,716 6,651 Sewer 6,123 6,142 6,177 6,131 6,161 Air Service Lee-Merkle Field has a 5,400 long runway and accommodates private jets and other medium-sized aircraft. Commercial service is provided by the Birmingham airport, which is approximately 50 miles northwest of the City. 37

44 Population The population of the City of Sylacauga and Talladega County is shown below: Census * Alabama 3,444,165 3,893,888 4,040,587 4,447,100 4,708,708 Talladega County 65,280 73,826 74,107 80,321 80,242 City of Sylacauga 12,255 12,708 12,108 12,616 13,055 * 2009 population estimates were released March, Source: U. S. Census Bureau, Population Division Miscellaneous Demographic Information Following is various information with respect to demographic, transportation, housing, health services, income and agriculture in Talladega County: Vital Statistics Median Marriage Rate Divorce Rate Birth Rate Death Rate Age per 1,000 per 1,000 per 1,000 per 1, Source: Alabama Department of Public Health, Center of Health Statistics Estimated Median Family Income United States $58,000 $59,600 $59,000 $61,500 $64,000 $64,440 Alabama 48,650 51,400 48,400 51,700 53,200 54,100 Talladega County 45,600 47,000 41,700 45,900 48,400 56,300 Source: HUD Office of Economic Affairs, Economic and Market Analysis Division 38

45 Per Capita Personal Income United States $31,504 $33,123 $34,757 $36,714 $39,392 $40,166 Alabama 26,371 28,007 29,306 30,894 32,803 33,655 Talladega County 24,056 25,234 27,085 28,102 29,522 30,324 Source: U.S. Department of Commerce, Bureau of Economic Analysis Poverty Estimates and Poverty Rates, 2008 Number of Poor Poverty Rate United States 35,600, % Alabama 700, Talladega County 14, Source: State of Alabama, Department of Industrial Relations Occupancy Characteristics of Housing Units, 2008 Occupied Total Total Owner Renter Alabama 2,135,236 1,811,009 1,291, ,319 Talladega County 36,016 30,567 22,100 8,467 City of Sylacauga (2000) 5,748 5,215 3,180 2,035 Source: U.S. Department of Commerce, Bureau of the Census 39

46 Structural Characteristics, 2008 Family Non-Family Mobile Home Total Households Households or Trailer Alabama 1,811,009 1,232, , ,021 Talladega County 30,567 21,284 9,283 8,438 Source: U.S. Department of Commerce, Bureau of the Census Average Value of Owner-Occupied Housing Units, 2008 Alabama... $114,700 Talladega County... 85,300 Source: U.S. Department of Commerce, Bureau of the Census, Population and Housing Transportation Area in Motor Persons Vehicle State Square Vehicle Per Per State County Licensed County Miles Registration Vehicle Road Mile System System Total Airports Talladega , ,052 1,206 2 Mean Travel Time Drove Alone-2008 Number of Number of Number of (Minutes) Number Percent Accidents Injuries Fatalities County Talladega , , Source: U.S. Bureau of the Census and Alabama Department of Transportation 40

47 Health Services The City is served by Coosa Valley Baptist Medical Center, with 148 certified beds. The hospital is staffed by 385 administrative and support personnel; approximately 41 physicians are members of the active staff. The Cheaha Mental Health Clinic is located within the city limits and served a four-county area. Licensed Nursing Physicians Dentists Hospital Beds Home Beds Medicare Enrollees County Talladega ,674 15,269 Source: Center for Business and Economic Research, The University of Alabama Agriculture Item ALL FARMS Farms...number Land in farms...acres.. 119, ,499 Average size of farm...acres Value of land and buildings Average per farm...dollars.. 442, ,402 Average per acre...dollars.. 2,325 2,567 Total crop land...acres.. 48,612 52,976 Market value of agricultural products sold...$1, ,384 26,700 Average per farm...dollars.. 45,414 45,719 Source: Alabama Department of Agriculture and Industries Employment Unemployment Rates United States 4.0% 4.7% 5.8% 6.0% 5.5% 5.1% 4.6% 4.6% 5.8% 9.3% Alabama Talladega County Source: Alabama Department of Industrial Relations 41

48 Annual Average Labor Force Estimates * Employment Status Civilian Labor Force 35,923 36,114 37,498 38,398 38,954 39,728 40,076 39,003 38,707 36,828 Employment 34,276 33,956 34,955 35,644 36,505 38,005 38,223 37,200 36,258 31,958 Unemployment 1,647 2,158 2,543 2,754 2,449 1,723 1,853 1,803 2,449 4,870 Rate * Estimates adjusted to the 2009 Current Population Survey. Place of residence basis. Rate computed on unrounded data. Source: Alabama Department of Industrial Relations LEGALITY The Warrants will be issued subject to the approving opinion of Bradley Arant Boult Cummings LLP, Birmingham, Alabama, Bond Counsel. It is anticipated that Bond Counsel's approving opinions will be in substantially the forms attached as Appendix A-1 and Appendix A-2. TAX MATTERS SERIES 2010-A WARRANTS Opinion of Bond Counsel In the opinion of Bradley Arant Boult Cummings LLP, Birmingham, Alabama, Bond Counsel, under existing statutes and court decisions and assuming continuing compliance with certain tax covenants described herein, interest on the Series 2010-A Warrants is excluded from gross income for federal income tax purposes pursuant to Section 103 of the Internal Revenue Code of 1986, as amended ("the Code"). Interest on the Series 2010-A Warrants is not treated as a preference item in calculating the alternative minimum tax imposed on individuals and corporations under the Code; such interest, however, is included in the adjusted current earnings of certain corporations for purposes of calculating the alternative minimum tax imposed on such corporations. In rendering its opinion, Bond Counsel has relied on certain representations, certifications of fact, and statements of reasonable expectations made by the City and others in connection with the Series 2010-A Warrants, and Bond Counsel has assumed compliance with certain ongoing covenants to comply with applicable requirements of the Code to assure the exclusion of interest on the Series 2010-A Warrants from gross income under Section 103 of the Code. 42

49 Bond Counsel is further of the opinion that the interest income on the Series 2010-A Warrants is exempt from present Alabama income taxation. Bond Counsel expresses no opinion regarding any other federal or state tax consequences with respect to the Series 2010-A Warrants. Bond Counsel renders its opinion under existing statutes and court decisions as of the issue date and assumes no obligation to update its opinion after the issue date to reflect any future action, fact or circumstance, or change in law or interpretation, or otherwise. Bond Counsel expresses no opinion on the effect of any action taken in reliance upon an opinion of other counsel on the exclusion from gross income for federal income tax purposes of interest on the Series 2010-A Warrants. Certain Ongoing Federal Tax Requirements and Covenants The Code establishes certain significant ongoing requirements that must be met subsequent to the issuance and delivery of the Series 2010-A Warrants in order that interest thereon be and remain excluded from gross income under Section 103 of the Code. These requirements include, but are not limited to, requirements relating to use and expenditure of gross proceeds of the Series 2010-A Warrants, yield and other restrictions on investments of gross proceeds, and the arbitrage rebate requirement that certain excess earnings on gross proceeds be rebated to the federal government. Noncompliance with such requirements may cause interest on the Series 2010-A Warrants to become included in gross income for federal income tax purposes retroactive to their issue date, irrespective of the date on which such noncompliance occurs or is discovered. The City has covenanted to comply with certain applicable requirements of the Code to assure the exclusion of interest on the Series 2010-A Warrants from gross income under Section 103 of the Code. Certain Collateral Federal Tax Consequences The following is a brief discussion of certain collateral federal income tax matters with respect to the Series 2010-A Warrants. It does not purport to deal with all aspects of federal taxation that may be relevant to a particular owner of a Series 2010-A Warrant. Prospective investors, particularly those who may be subject to special rules, are advised to consult their own tax advisors regarding the federal tax consequences of owning and disposing of the Series A Warrants. 43

50 Prospective owners of the Series 2010-A Warrants should be aware that the ownership of such obligations may result in collateral federal income tax consequences to various categories of persons, such as corporations (including S corporations and foreign corporations), financial institutions, property and casualty and life insurance companies, individual recipients of Social Security and railroad retirement benefits, individuals otherwise eligible for the earned income tax credit, and taxpayers deemed to have incurred or continued indebtedness to purchase or carry obligations the interest on which is not included in gross income for federal income tax purposes. Interest on the Series 2010-A Warrants may be taken into account in determining the tax liability of foreign corporations subject to the branch profits tax imposed by Section 884 of the Code. Original Issue Discount The initial public offering price to be paid for certain of the Warrants ("the Original Issue Discount Warrants") is less than the principal amount thereof. Under existing law, the difference between (i) the amount payable at the maturity of each Original Issue Discount Warrants, and (ii) the initial offering price to the public of such Original Issue Discount Warrants constitutes original issue discount with respect to such Original Issue Discount Warrants in the hands of any owner who has purchased such Original Issue Discount Warrants in the initial public offering of the Warrants. Such initial owner is entitled to exclude from gross income (as defined in Section 61 of the Code) an amount of income with respect to such Original Issue Discount Warrants equal to that portion of the amount of such original issue discount allocable to the period that such Original Issue Discount Warrants continues to be owned by such owner. In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Warrants prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Warrants in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Original Issue Discount Warrants was held by such initial owner) is includable in gross income. Under existing law, the original issue discount on each Original Issue Discount Warrants is accrued daily to the stated maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the semiannual anniversary dates of the Warrants and ratably within each such six-month period) and the accrued amount is added to an initial owner's basis for such Original Issue Discount Warrants for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other taxable disposition thereof. The amount (if any) to be added to basis for each accrual period is equal to (a) the sum of the issue price and the amount of original issue discount accrued in prior periods (if any) multiplied by the yield to maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less (b) the amounts payable as current interest during such accrual period on such Warrants. 44

51 The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Original Issue Discount Warrants which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those described above. All owners of Original Issue Discount Warrants should consult their own tax advisors with respect to the determination for federal, state and local income tax purposes of interest accrued upon redemption, sale or other disposition of such Original Issue Discount Warrants and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale, gift or other disposition of such Original Issue Discount Warrants. Original Issue Premium The initial public offering price to be paid for certain of the Warrants ("the Original Issue Premium Warrants") is greater than the principal amount thereof. Under existing law, any owner who has purchased an Original Issue Premium Warrants in the initial public offering of the Warrants is required to reduce his basis in such Original Issue Premium Warrants by the amount of premium allocable to periods during which he holds such Original Issue Premium Warrants, and the amount of premium allocable to each accrual period will be applied to reduce the amount of interest received by the owner during each such period. All owners of Original Issue Premium Warrants should consult their own tax advisors with respect to the determination for federal, state and local income tax purposes of interest accrued upon redemption, sale or other disposition of such Original Issue Premium Warrants and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale, gift or other disposition of such Original Issue Premium Warrants. Bank Qualification Section 265 of the Code provides that, as a general rule, banks, thrifts, and other financial institutions may not deduct that portion of their interest expense that is allocable to taxexempt obligations acquired after August 7, There is a specific exception in Section 265 for interest income from a "qualified tax-exempt obligation" which is defined as an obligation (not a private activity bond) that has been designated by the issuer for purposes of the Code as a "qualified tax-exempt obligation." Under the exception, interest allocable to qualified taxexempt obligations is subject to the 20% disallowance rule effective prior to the Tax Reform Act of Section 265 provides that not more than $30,000,000 (for obligations issued in 2009 and 2010) of obligations may be designated by an issuer as "qualified tax-exempt obligations" during any calendar year and that obligations may not be designated as "qualified tax-exempt obligations" unless the issuer reasonably anticipates that the amount of qualified tax-exempt obligations issued by such issuer during such calendar year will not exceed $30,000,

52 In the proceedings authorizing the issuance of the Series 2010-A Warrants, the City has designated the Series 2010-A Warrants as "qualified tax-exempt obligations" for purposes of Section 265 and has, in connection therewith, specifically found that the amount of tax-exempt obligations that have heretofore been issued during the current calendar year and the reasonably anticipated amount of tax-exempt obligations that will be issued by the City during the current calendar year will not exceed $30,000,000. Contemporaneously with the delivery of the Series 2010-A Warrants, Bond Counsel will furnish to the purchaser thereof from the City a supplemental opinion regarding the status of the Series 2010-A Warrants as "qualified taxexempt obligations" under Section 265(b)(3)(B) of the Code. TAX MATTERS SERIES 2010-B WARRANTS General INTEREST ON THE SERIES 2010-B WARRANTS WILL NOT BE EXCLUDED FROM GROSS INCOME OF THE HOLDERS FOR FEDERAL INCOME TAX PURPOSES. In the opinion of Bradley Arant Boult Cummings LLP, Bond Counsel to the City, under existing statutes, interest income on the Series 2010-B Warrants is exempt from Alabama income taxation. Bond Counsel expresses no opinion regarding any other state tax consequences with respect to the Series 2010-B Warrants. Bond Counsel expresses its opinion under existing statutes as of the issue date and assumes no obligation to update its opinion after the issue date to reflect any future action, fact or circumstance, or change in law or interpretation, or otherwise. Interest Subsidy for "Build America Bonds" The Series 2010-B Warrants are being issued as "Build America Bonds" under Section 54AA of the Code. The City expects to receive interest subsidy payments from the United States Treasury in connection with the Series 2010-B Warrants. Holders of the Series 2010-B Warrants have no claim to, or security interest in, these interest subsidy payments. The City is obligated to make the full interest payments on the Series 2010-B Warrants, whether or not the interest subsidy payments are received from the United States Treasury. 46

53 LITIGATION The City will furnish its certificate dated the date of the delivery of the Warrants, stating in substance that there is no controversy or litigation of any nature pending or threatened which restrains or enjoins the issuance, sale, execution or delivery of the Warrants or in any way contests or affects the validity of the Warrants or any proceedings of the City taken with respect to the issuance and sale thereof. AUDITED FINANCIAL STATEMENTS The City's Audit Report pertaining to the City's General Fund for the fiscal year ended September 30, 2009, prepared by Machen, McChesney & Chastain, LLP, Certified Public Accountants, is attached hereto as Appendix B. UNDERWRITING The Series 2010-A Warrants are being purchased by Merchant Capital, L.L.C., Montgomery, Alabama ("the Underwriter"), at a price equal to $5,578, (which represents an underwriting discount of $39,270, and net original issue premium of $7,471.90), plus accrued interest from the date of the Series 2010-A Warrants to the date of delivery. The City has been advised that the Underwriter intends to offer the Series 2010-A Warrants to the public at prices that may be changed from time to time by the Underwriter without any requirement of prior notice. The City has also been advised that the Underwriter may offer the Series 2010-A Warrants to certain dealers and to others at prices lower than the public offering prices. The Series 2010-B Warrants are being purchased by the Underwriter, at a price equal to $16,274, (which represents an underwriting discount of $115,955, and original issue discount of $174,144.20), plus accrued interest from the date of the Series 2010-B Warrants to the date of delivery. The City has been advised that the Underwriter intends to offer the Series 2010-B Warrants to the public at prices that may be changed from time to time by the Underwriter without any requirement of prior notice. The City has also been advised that the Underwriter may offer the Series 2010-B Warrants to certain dealers and to others at prices lower than the public offering prices. 47

54 CONTINUING DISCLOSURE REQUIREMENTS The City has entered into a Continuing Disclosure Agreement for the benefit of holders of the Warrants wherein the City has agreed to provide annually certain financial information and operating data relating to the City (the "Annual Report") and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed by the City with the Electronic Municipal Market Access system ("EMMA"). The notices of material events will be filed with EMMA. The specific nature of the information to be contained in the Annual Report or the notices of material events and other provisions of the Continuing Disclosure Agreement are summarized in "Appendix C - Summary of Continuing Disclosure Agreement." The Continuing Disclosure Agreement has been entered into in order to assist the Underwriter of the Warrants in complying with Rule 15c2-12(b)(5) of the Securities and Exchange Commission. Certain outstanding indebtedness of the City has been secured by credit enhancements, including bond insurance. The credit ratings of the insurer have been downgraded at various times in the past two years. Information about the downgrades was publicly reported but the City may not have filed a notice of each downgrade in accordance with the Rule 15c2-12. Further, the City did not timely file its audited annual financial information for fiscal years 2008 and 2009, but it has recently filed such audits with EMMA. RATING Standard & Poor's ("S&P") is expected to assign the Warrants a rating of "AA+" (stable outlook) with the understanding that, upon the delivery of the Warrants, a policy guaranteeing when due the principal of and interest on the Warrants will be issued by Assured Guaranty Corp. Any explanation of the significance of such rating must be obtained from S&P. The rating is not a recommendation to buy, sell or hold the Warrants and should be evaluated independently. There is no assurance that such rating will maintain in effect for any given period of time or will not be lowered or withdrawn entirely, if, in the judgment of the rating agency, circumstances should warrant such action. Any such downward revision or withdrawal of any rating assigned to the Warrants could have an adverse effect on the market price. Neither the City nor the Underwriter is undertaking any responsibility after the issuance of the Warrants to assure maintenance of the rating or to oppose any such revision or withdrawal. S&P has given the Warrants an underlying rating of "A+". Any explanation of the significance of the rating may be obtained from S&P. 48

55 MISCELLANEOUS All references to the Constitution and laws of Alabama, to summaries of contracts, documents or official acts are qualified by the exact terms of such Constitution, laws, contracts, documents or acts, each being an item of public record. So far as any statements are made in this Official Statement involving matters of opinion or estimates, whether or not expressly so stated, they are set forth as such and not as representations of fact, and no representation is made that any such estimates will be realized. The distribution of this Official Statement has been approved by the City. CITY OF SYLACAUGA, ALABAMA By /s/ Sam H. Wright Mayor Dated October 14,

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57 APPENDIX A-1 PROPOSED FORM OF APPROVING LEGAL OPINION

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59 APPENDIX A-1 (Proposed Form of Approving Legal Opinion) BRADLEY ARANT BOULT CUMMINGS LLP One Federal Place 1819 Fifth Avenue North Birmingham, Alabama November 18, 2010 City of Sylacauga Sylacauga, Alabama Ladies and Gentlemen: We have examined certified copies of proceedings of the governing body of the City of Sylacauga ("the City"), in the State of Alabama, and other documents submitted to us pertaining to the authorization, sale and issuance of $5,610,000 CITY OF SYLACAUGA, ALABAMA General Obligation Warrants Tax-Exempt Series 2010-A Dated November 1, 2010 ("the Warrants"). We have not examined the Warrants as executed, but we have been furnished with an appropriate certificate respecting their execution. The opinion hereinafter expressed is based upon our examination of the said proceedings and documents. We are of the following opinion: that the Warrants are in due and legal form, have been validly authorized and issued pursuant to the applicable provisions of the constitution and laws of Alabama, and constitute valid orders on the city treasurer of the City for the payment thereof as therein provided; that the indebtedness ordered paid by the Warrants is a valid general obligation of the City for the payment of the principal of and interest on which the City has validly and irrevocably pledged its full faith and credit; and that, under existing statutes, the interest on the Warrants is exempt from income taxation by the State of Alabama. 1

60 We are further of the opinion that, under the Internal Revenue Code of 1986, as amended (herein called "the Code"), as presently construed and administered, and assuming continuing compliance by the City with its covenants pertaining to certain requirements of federal tax law that are set forth in the proceedings authorizing the issuance of the Warrants, the interest on the Warrants will be excludable from the gross income of the recipients thereof for federal income tax purposes pursuant to the provisions of Section 103 of the Code and will not be an item of tax preference included in alternative minimum taxable income for the purpose of computing the interest for the minimum tax imposed by Section 55 of the Code. We express no opinion with respect to the federal tax consequences to the recipients of the interest on the Warrants under any provision of the Code not referred to above. We express no opinion regarding the accuracy, adequacy, or completeness of the Official Statement of the City relating to the Warrants. Further, we express no opinion regarding tax consequences arising with respect to the Warrants other than as expressly set forth herein. The rights of the holders of the Warrants and the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights and the exercise of judicial discretion in appropriate cases. This opinion is given as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention, or any changes in law that may hereafter occur. Yours very truly, 2

61 APPENDIX A-2 PROPOSED FORM OF APPROVING LEGAL OPINION

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63 APPENDIX A-2 (Proposed Form of Approving Legal Opinion) BRADLEY ARANT BOULT CUMMINGS LLP One Federal Place 1819 Fifth Avenue North Birmingham, Alabama November 18, 2010 City of Sylacauga Sylacauga, Alabama Ladies and Gentlemen: We have examined certified copies of proceedings of the governing body of the City of Sylacauga (herein called the "City"), in the State of Alabama, and other documents submitted to us pertaining to the authorization, sale and issuance of $16,565,000 CITY OF SYLACAUGA, ALABAMA General Obligation Warrants BAB Series 2010-B (Federally Taxable Direct Payment to Issuer) Dated November 1, 2010 ("the Warrants"). We have not examined the Warrants as executed, but we have been furnished with an appropriate certificate respecting their execution. The opinion hereinafter expressed is based upon our examination of the said proceedings and documents. We are of the following opinion: that the Warrants are in due and legal form, have been validly authorized and issued pursuant to the applicable provisions of the constitution and laws of Alabama, and constitute valid orders on the treasurer of the City for the payment thereof as therein provided; that the indebtedness ordered paid by the Warrants is a valid general obligation of the City for the payment of the principal of and interest on which the City has validly and irrevocably pledged its full faith and credit; and that, under existing statutes, the interest on the Warrants is exempt from Alabama income taxation. 1

64 We call to your attention that interest on the Warrants will not be excludable from gross income of the recipients thereof for federal income tax purposes. We express no opinion regarding the accuracy, adequacy or completeness of the Official Statement of the City relating to the Warrants. Further, we express no opinion regarding tax consequences arising with respect to the Warrants other than as expressly set forth herein. The rights of the holders of the Warrants and the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights and the exercise of judicial discretion in appropriate cases. This opinion is given as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention, or any changes in law that may hereafter occur. Yours very truly, 2

65 APPENDIX B AUDIT REPORT SEPTEMBER 30, 2009 CITY OF SYLACAUGA, ALABAMA

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67 CITY OF SYLACAUGA, ALABAMA FINANCIAL STATEMENTS SEPTEMBER 30, 2009

68 CITY OF SYLACAUGA, ALABAMA TABLE OF CONTENTS SEPTEMBER 30, 2009 Page Independent Auditor's Report 1 Basic Financial Statements Statement of Net Assets 2 Statement of Activities 3 Balance Sheet - Governmental Funds 4 Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds 5 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 6 Notes to Financial Statements 7 Required Supplementary Information Budgetary Comparison Schedule - General Fund 41 Notes to Required Supplementary Information 43 Non-major Combining Statements Combining Balance Sheet - Non-major Governmental Funds 44 Combining Balance Sheet - Non-major Governmental Funds - Special Revenue Funds 45 Combining Balance Sheet - Non-major Governmental Funds - Capital Projects Funds 46 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Non-major Governmental Funds 47 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Non-major Governmental Funds - Special Revenue Funds 48 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Non-major Governmental Funds - Capital Projects Funds 49

69 INDEPENDENT AUDITOR S REPORT The Honorable Sam H. Wright, Mayor and Members of the City Council City of Sylacauga, Alabama We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the City of Sylacauga, Alabama, as of and for the year ended September 30, 2009, which collectively comprise the basic financial statements of the City's primary government as listed in the table of contents. These financial statements are the responsibility of the City of Sylacauga, Alabama 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. The financial statements do not include financial data for the City s legally separate component units. Accounting principles generally accepted in the United States of America require the financial data for those component units to be reported with the financial data of the City s primary government unless the City also issues financial statements for the financial reporting entity that include the financial data for its component units. The City has not issued such reporting entity financial statements. The effects of this departure from accounting principles generally accepted in the United States of America cannot be easily determined. In our opinion, because of the omission of the discretely presented component units, as discussed above, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States of America, the financial position of the aggregate discretely presented component units of the City of Sylacauga, Alabama, as of September 30, 2009, or the changes in financial position thereof for the year then ended. In addition, in our opinion, except for the effects of omitting blended component units as discussed above, the financial statements referred to above present fairly, in all material respects, the financial position of the aggregate remaining fund information of the City of Sylacauga, Alabama, as of September 30, 2009, and the changes in financial position thereof for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Further, in our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of the City of Sylacauga, Alabama, as of September 30, 2009, and the respective changes in financial position thereof for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

70 In accordance with Government Auditing Standards, we have also issued our report dated July 23, 2010 on our consideration of the City of Sylacauga 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. The budgetary comparison information on pages 41 through 43 is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquires of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. The City of Sylacauga has not presented the management s discussion and analysis that accounting principles generally accepted in the United States has determined is necessary to supplement, although not required to be part of, the basic financial statements. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Sylacauga, Alabama s basic financial statements. The combining non-major fund financial statements are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining non-major fund financial statements have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. Auburn, Alabama July 23, 2010

71 -1- BASIC FINANCIAL STATEMENTS

72 CITY OF SYLACAUGA, ALABAMA STATEMENT OF NET ASSETS SEPTEMBER 30, 2009 Primary Government Governmental Activities ASSETS Cash and cash equivalents $ 4,112,654 Equity in pooled cash 6,930,582 Receivables, net 2,242,937 Inventories 72,996 Deferred charges 238,746 Capital assets not being depreciated (Note 5) 8,083,475 Capital assets net of accumulated depreciation (Note 5) 21,952,577 Total assets 43,633,967 LIABILITIES Accounts payable 429,731 Accrued payroll 219,421 Accrued interest 336,500 Other accrued liabilities 56,077 Noncurrent liabilities (Note 6) Due within one year 1,144,864 Due in more than one year 19,691,032 Total liabilities 21,877,625

73 NET ASSETS Invested in capital assets, net of related debt 9,796,052 Restricted for: Capital projects 815,701 Debt service 247,434 Federal and state grants 67,587 Special revenues (gas tax and road projects) 475,506 Special revenues (ad valorem tax for schools) 4,091,055 Unrestricted 6,263,007 Total net assets $ 21,756,342 The notes to the financial statements are an integral part of this statement.

74 -2- CITY OF SYLACAUGA, ALABAMA STATEMENT OF ACTIVITIES YEAR ENDED SEPTEMBER 30, 2009 Net (Expense) Revenue and Changes in Program Revenues Net Assets Primary Operating Capital Government Charges for Grants and Grants and Governmental Functions/Programs: Expenses Services Contributions Contributions Activities Primary government: Governmental activities: Executive and legislative $ 255,298 $ - $ - $ - $ (255,298) General government and administration 3,124,694 1,356,431 6, ,150 (1,657,965) Judicial 291, (291,239) Civil Service Board 17, (17,557) Police 3,240, ,619 18,483 28,587 (2,963,244) Fire 1,432, (1,431,672) Street 2,033, ,052-1,000 (1,202,477) Shop 336,235 63, (273,023) Planning and code enforcement 395,162 23, (371,969) Building and grounds/custodial 50, (50,207) Senior citizens services 283,451 18, ,147 - (137,556) Payments to component units School Board 1,738, (1,738,430) Parks and Recreation Board 875, (875,203) Library 605, (605,618) Industrial development 136, ,021 38,975 Social and economic development 313,540 40,010-57,264 (216,266) Interest on long-term debt 975, (975,601) Total primary government $ 16,105,414 $ 2,562,265 $ 152,777 $ 366,022 (13,024,350)

75 General revenues: Taxes: Sales taxes 5,906,450 Property taxes 3,064,594 Motor fuel taxes 270,993 Lodging taxes 124,406 Rental and leasing taxes 172,184 Tobacco taxes 101,298 Alcoholic beverage taxes 92,747 Other taxes 48,544 Grants and contributions not restricted to specific programs 2,401,000 Investment earnings 433,412 Miscellaneous 228,353 Gain on sale of assets 1,738 Total general revenues 12,845,719 Change in net assets (178,631) Net assets, beginning 21,039,321 Prior period adjustment 895,652 Net assets, beginning, as restated 21,934,973 Net assets, ending $ 21,756,342 The notes to the financial statements are an integral part of this statement.

76 -3- CITY OF SYLACAUGA, ALABAMA BALANCE SHEET - GOVERNMENTAL FUNDS SEPTEMBER 30, 2009 Eighteen and Other Total General One Half Debt Service Governmental Governmental Fund Mill Tax Fund Fund Funds Funds ASSETS Cash and cash equivalents $ 809,371 $ 2,511,393 $ 245,324 $ 546,566 $ 4,112,654 Equity in pooled cash 5,374,936 1,553,126 2,520-6,930,582 Receivables Revenues 492,274 26, ,810 Federal government grants 10, ,658 63,910 Other governmental agencies 24, , ,687 Municipal court 831, ,444 Other receivables 58, ,812 84,032 Parks and Recreation Board 3, ,079 City Board of Education 16, ,975 Industrial Development Board 400, ,000 Due from other funds 36, ,413 Inventories 72, ,996 Total assets $ 8,130,475 $ 4,091,055 $ 247,844 $ 926,208 $ 13,395,582 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 331,429 $ - $ - $ 98,302 $ 429,731 Accrued payroll 219, ,421 Due to other funds ,003 36,413 Deferred revenue 771, ,629 Other accrued liabilities 56, ,077 Total liabilities 1,378, ,305 1,513,271

77 Eighteen and Other Total General One Half Debt Service Governmental Governmental Fund Mill Tax Fund Fund Funds Funds Fund balances: Reserved for: Inventories 72, ,996 Debt service , ,434 Encumbrances 105, , ,712 Unreserved: Designated for unemployment compensation 434, ,015 Designated for future construction 1,712, ,434 1,936,445 Designated for industrial development 2,468, ,468,667 Undesignated 1,958,894 4,091, ,049,949 Unreserved, reported in non-major funds: Special revenue funds , ,093 Total fund balances 6,751,919 4,091, , ,903 11,882,311 Total liabilities and fund balances $ 8,130,475 $ 4,091,055 $ 247,844 $ 926,208 Amounts reported as 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. 30,036,052 Deferred charges used in governmental activities are not financial resources and therefore are not reported in the funds. 238,746 Other long-term assets are not available to pay for current period expenditures and therefore are deferred in the funds. 771,629 Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the funds. (20,835,896) Full-accrual basis liabilities, including accrued interest payable, are not required to be recorded in governmental funds. (336,500) Net assets of governmental activities $ 21,756,342 The notes to the financial statements are an integral part of this statement.

78 -4- CITY OF SYLACAUGA, ALABAMA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS YEAR ENDED SEPTEMBER 30, 2009

79 Eighteen and Other Total General One Half Debt Service Governmental Governmental Fund Mill Tax Fund Fund Funds Funds REVENUES Sales taxes $ 5,906,450 $ - $ - $ - $ 5,906,450 Property taxes 729,396 2,335, ,064,594 Motor fuel taxes 178, , ,993 Lodging taxes 124, ,406 Rental and leasing taxes 172, ,184 Tobacco taxes 101, ,298 Alcoholic beverage taxes 92, ,747 Other taxes 48, ,544 Licenses and permits 1,325, ,325,497 Grants 20, , ,924 Police fines 439, ,349 Charges for services 907, ,788 Appropriation from Utilities Board 2,400, ,400,000 Investment earnings 350,746 51,139 15,524 16, ,412 Miscellaneous 336, , ,879 Total revenues 13,133,613 2,386,337 15, ,591 16,039,065 EXPENDITURES Current: Executive and legislative 254, ,131 General government and administration 2,217, ,755 2,230,637 Judicial 288, ,906 Civil Service Board 17, ,557 Police 3,127, ,127,992 Fire 1,336, ,336,874 Street 1,809, ,809,366 Shop 333, ,604 Planning and code enforcement 392, ,617

80 Eighteen and Other Total General One Half Debt Service Governmental Governmental Fund Mill Tax Fund Fund Funds Funds Building and grounds/custodial 50, ,207 Senior citizens services , ,195 Payments to component units School Board 938, , ,738,430 Parks and Recreation Board 875, ,203 Library 605, ,618 Industrial development 136, ,046 Social and economic development 312, ,540 Debt service: Principal - - 1,284,249-1,284,249 Interest and fiscal charges , ,772 Capital outlay 220, , ,619 Total expenditures 12,917, ,000 2,209, ,835 16,548,563 Excess (deficiency) of revenues over expenditures 215,906 1,586,337 (2,193,497) (118,244) (509,498) OTHER FINANCING SOURCES (USES) Sale of capital assets 10, ,497 Operating transfers in 817,830-2,103, ,073 3,565,172 Operating transfers out (1,419,073) (1,418,269) (198,800) (529,030) (3,565,172) Total other financing sources (uses) (590,746) (1,418,269) 1,904, ,043 10,497 Net change in fund balances (374,840) 168,068 (289,028) (3,201) (499,001) Fund balances - beginning 6,231,107 3,922, , ,104 11,485,660 Prior period adjustment 895, ,652 Fund balances - beginning, as restated 7,126,759 3,922, , ,104 12,381,312 Fund balances - ending $ 6,751,919 $ 4,091,055 $ 247,434 $ 791,903 $ 11,882,311 The notes to the financial statements are an integral part of this statement. -5- CITY OF SYLACAUGA, ALABAMA

81 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED SEPTEMBER 30, 2009 Net change in fund balances-total governmental funds $ (499,001) Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of these assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which depreciation exceeded capital outlays in the current period. (525,863) In the statement of activities, only the gain on sale of assets is reported, whereas 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 remaining cost of the assets sold less any trade-in allowances. (8,759) Repayment of bond principal is an expenditure of the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. 1,284,249 Bond issue costs, premiums and deferred amount on refunding are reported as expenditures in governmental funds in the year paid, however, these costs are deferred and amortized over the life of the bonds in the government-wide statements. (66,518) Some revenues reported in the statement of activities are not considered "available" revenues in the governmental funds. (247,757) 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. (114,982) Change in net assets of governmental activities $ (178,631) The notes to the financial statements are an integral part of this statement. -6-

82 NOTES TO THE FINANCIAL STATEMENTS CITY OF SYLACAUGA, ALABAMA

83 NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, Summary of Significant Accounting Policies The City of Sylacauga, Alabama was incorporated February 26, The City operates under the Mayor-Council form of government and provides the following services: public safety (police and fire), sanitation, planning and zoning, public improvements, and general administrative services. The accounting policies of the City of Sylacauga conform to generally accepted accounting principles in the United States of America (GAAP) applicable to municipal governments as prescribed by the Governmental Accounting Standards Board (GASB) and other authoritative literature. The following is a summary of the more significant policies: A. Reporting Entity - Financial statements for the City of Sylacauga include only the data of the primary government; data of component units of the City that is necessary for reporting in conformity with generally accepted accounting principles is not included. B. Basis of Presentation - The City's government-wide financial statements provide both short-term and long-term information about the City's overall financial status. Fund financial statements focus on the individual activities of City government, reporting the City's operations in more detail then the government-wide financial statements. Government-Wide Financial Statements - The government-wide financial statements are designed to provide readers with a broad overview of the City s finances, in a manner similar to a private-sector business. These statements are presented on an economic resources measurement focus and the accrual basis of accounting. The statement of net assets presents information on all of the City s assets and liabilities, with the difference between the two presented as net assets. Net assets are reported as one of three categories: invested in capital assets, net of related debt; restricted; or unrestricted. Restricted net assets are further classified as either net assets restricted by enabling legislation or net assets that are otherwise restricted. The statement of activities presents information showing how the net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event gives rise to the change that occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Fund Financial Statements - Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements use a current financial resources measurement focus and the modified accrual basis of accounting, focusing on the near-term inflows and outflows of spendable resources, and balances of spendable resources available at fiscal year end. -7- CITY OF SYLACAUGA, ALABAMA

84 NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, Summary of Significant Accounting Policies - continued Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, the readers may better understand the long-term impact of the government s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The financial transactions of the City are recorded in individual funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures. Government resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The various funds are grouped, in the financial statements in this report, into fund types and broad fund categories as follows: GOVERNMENTAL FUNDS General Fund - The General Fund is the general operating fund of the City. It is used to account for all financial resources except those required to be accounted for in another fund. The General Fund also accounts for the financing of public improvements or services deemed to benefit the properties against which special assessments are levied. Special Revenue Funds - Special Revenue Funds are used to account for the proceeds of specific revenue sources (other than major capital projects) that are legally restricted to expenditures for specified purposes. Debt Service Fund - The Debt Service Fund is used to account for the accumulation of resources for, and the payment of, general long-term debt principal, interest, and related costs. Capital Projects Funds - The Capital Projects Funds are used to account for financial resources to be used for the acquisition or construction of major capital facilities. -8- CITY OF SYLACAUGA, ALABAMA

85 NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, Summary of Significant Accounting Policies - continued GASB 34 establishes criteria (percentage of the assets, liabilities, revenues or expenditures/expenses of either fund category or the governmental and proprietary combined) for the determination of major funds. The non-major funds are combined in a single column in the fund financial statements. The City reports the following major funds: The General Fund (See note above). The Eighteen and One Half Mill Tax Fund, a special revenue fund, accounts for funds received from the special eighteen and one half mill ad valorem and automobile taxes. The Debt Service Fund (See note above). GASB 34 eliminates the presentation of account groups, but provides for these records to be maintained. Information for the City's general capital assets and general long-term debt is presented in the governmental activities column of the government-wide statement of net assets. C. Basis of Accounting - Basis of accounting refers to when revenues and expenditures or expenses are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurements made, regardless of the measurement focus applied. The government-wide financial statements are presented on the accrual basis of accounting. The governmental funds in the fund financial statements are presented on the modified accrual basis. Accrual Basis - Revenues are recognized when earned and expenses are recognized when incurred. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. The government-wide Statement of Activities reflects both the gross and net cost per functional category (police, fire, etc.) which are otherwise being supported by general government revenues (property, sales and use taxes, certain intergovernmental revenues, fines, permits and charges, etc.). The Statement of Activities reduces gross expenses (including depreciation) by related program revenues, operating and capital grants. The program revenues must be directly associated with the function. Program revenues include revenues from fines and forfeitures, licenses and permit fees, special assessment taxes, and charges for services. The operating grants include operating-specific and discretionary (either operating or capital) grants while the capital grants column reflects capital-specific grants. As a rule the effect of interfund activity has been eliminated from the government-wide financial statements. -9- CITY OF SYLACAUGA, ALABAMA

86 NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, Summary of Significant Accounting Policies - continued Modified Accrual - All of the governmental funds of the primary government are accounted for using the modified accrual basis of accounting. Their revenues are recorded when they are susceptible to accrual; i.e., both measurable and available. Measurable means the amount of the transaction can be determined. Available means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. The City defines the length of time used for available for purposes of revenue recognition in the governmental fund financial statements to be 60 days. The specific types of major revenue sources that are susceptible to accrual include sales and use taxes, occupational license fees, lodging taxes, rental and leasing taxes, gasoline taxes, and fines. Under the modified accrual basis of accounting, expenditures are generally recognized when the related liability is incurred, with the following exceptions that are in conformity with generally accepted accounting principles: general long-term obligations principal and interest are reported only when due; inventory costs are reported in the period consumed, rather than in the period purchased; and costs of accumulated unpaid vacation and sick leave are reported in the period due and payable rather than in the period earned by employees. D. Cash and Cash Equivalents - Cash and cash equivalents of the City of Sylacauga primary government includes demand deposits as well as all highly liquid investments with a maturity of three months or less when purchased. The cash and cash equivalents consist solely of cash, not securities or other investments; therefore, the City has no credit risk or concentration risk associated with these deposits as described in GASB Statement No. 40 Deposit and Investment Risk Disclosures. Also, since the City s deposits are held by a certified qualified public depository under the SAFE program, its deposits are not subject to custodial credit risk. E. Investments - Investments of the City of Sylacauga are stated at fair value, except for nonnegotiable certificates of deposit with redemption terms that do not consider market rates, which are reported at cost. State statutes authorize the City to invest in any type of security which is backed by the federal or state government; however, the City usually invests only in certificates of deposit and interest-bearing demand deposits. F. Receivables - Municipal court receivables in the General Fund are reflected net of an allowance for doubtful accounts. The amount of the allowance is equal to receivables in excess of 2 years past due, and totaled $1,513,668 at September 30, The only receivables not expected to be collected within one year are $18,719 of funds on deposit with the State Department of Industrial Relations in the General Fund CITY OF SYLACAUGA, ALABAMA

87 NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, Summary of Significant Accounting Policies - continued G. Inventories - Inventories of the City of Sylacauga primary government are valued at cost and consist of gasoline, parts, tires, diesel fuel, oil and postage held for consumption. The amount of such inventories is recorded as an asset in the General Fund, and the cost of inventories is recorded as an expenditure at the time used. In the governmental fund financial statements, the General Fund fund balance is reserved to indicate that assets equal to the inventory reserve are not available for future appropriation. H. Capital Assets - Capital assets, which include property and equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are reported in the governmental column in the government-wide financial statements. Capital assets are defined by the City as assets with an initial, individual cost of more than $500 and an estimated useful life in excess of four years. Such assets are recorded at historical cost (or estimated historical cost if actual historical cost is not available) if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Property and equipment of the City are depreciated using the straight-line method over the following estimated useful lives: Years Buildings and improvements Furniture and equipment 5-10 Vehicles 5-15 Infrastructure I. Risk Financing - The City is exposed to various risks of loss related to theft of, damage to, and destruction of assets; errors and omissions, natural disasters, and torts related to law enforcement. These risks are covered by commercial insurance purchased from independent third parties. There have been no significant reductions in insurance coverage from coverage in the prior year. Also, no settlements have exceeded insurance coverage in the past three years. As a municipal corporation, the City is a self-insurer under the Alabama Workmen s Compensation Law. Under the terms of a contract, workmen s compensation coverage is provided by Municipal Workmen s Compensation Management Company, Inc. Billing is based on annual payrolls adjusted for a claims experience rate CITY OF SYLACAUGA, ALABAMA

88 NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, Summary of Significant Accounting Policies - continued J. Long-Term Obligations - In the government-wide financial statements long-term debt and other long-term obligations are reported as liabilities in the governmental activities statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. K. Compensated Absences - Effective December 1996, City employees accrue annual leave each month based upon continuous years of completed service as follows: employees with at least one year and up to two years of service can accumulate up to five days of annual leave; employees with three to four years service can accumulate ten annual leave days; employees with five to fourteen years service can accumulate fifteen annual leave days; employees with fifteen to twenty-four years service can accumulate twenty annual leave days; and employees with over twenty-five years service can accumulate twenty-five annual leave days. All earned vacation leave must be taken within a leave year. However, employees with at least five years of service have the option of selling up to forty hours (forty-eight for police and fifty-six for fire extended shift employees) of vacation leave back to the City. Upon separation from service, an individual will be paid for all earned and unused vacation leave. The liability for compensated absences attributable to the City s governmental funds is recorded in the governmentwide statements. City employees with at least one year of service earn sick leave at the rate of one day per month. Upon separation from service, an individual will be paid for up to two-hundred forty hours (three-hundred sixty for fire extended shift employees) of accumulated and unused sick leave. The City estimates its accrued sick leave liability using the vesting method, whereby the estimated liability is based on the sick leave accumulated at the balance sheet date by those employees who currently are eligible to receive termination payments as well as other employees who are expected to become eligible in the future to receive such payments. L. Fund Balance - In the fund financial statements portions of governmental funds fund balances are separately identified as reserves; such reservations indicate the amount of the fund s net assets which are not appropriable for expenditure or which are legally segregated for a specific future use. 1. Reserve for inventories indicates that the portion of fund balance represented by inventories is not available for appropriation. 2. Reserve for debt service indicates the amount of fund balance which is legally segregated for payment of debt service expenditures CITY OF SYLACAUGA, ALABAMA

89 NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, Summary of Significant Accounting Policies - continued 3. Reserve for encumbrances indicates that a portion of fund balance has been segregated for expenditure upon vendor performance. Amounts reserved for encumbrances represent material commitments for goods and services which were ordered at September 30, 2009, but which had not been received or completed at that date. Encumbrances are not included as expenditures in the governmental funds operating statements. Designations of unreserved fund balance represent amounts that have been designated by City executives to indicate plans or commitments for those resources in a future period. Designations of fund balances are made at the discretion of the City, reflecting management s intent to expend the resources in the designated manner. Designations of fund balance represent management plans that are subject to change. In contrast, reserves, as discussed in the preceding section, are statutory requirements or reflect commitments already made. The Airport Expansion Fund had a deficit fund balance at September 30, 2009 of $58,208. This deficit will be financed through future revenues of the fund. M. Net Assets - The government-wide fund financial statements utilize a net asset presentation. Net assets are categorized as investment in capital assets (net of related debt), restricted and unrestricted. Investment in Capital Assets (net of related debt) - is intended to reflect the portion of net assets which are associated with non-liquid capital assets less outstanding capital asset related debt. The net related debt is the outstanding capital debt less any unspent debt proceeds (held as liquid assets) and any associated unamortized cost. Restricted Net Assets - represent liquid assets which have third party (statutory, bond covenant or granting agency) limitations on their use. The City would typically use restricted net assets first, as appropriate opportunities arise, but reserve the right to selectively defer the use thereof to a future project or replacement equipment acquisition. Unrestricted Net Assets - represent unrestricted liquid assets. While City management may have categorized and segmented portions for various purposes, the City Council has the unrestricted authority to revisit or alter these managerial decisions CITY OF SYLACAUGA, ALABAMA

90 NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, Summary of Significant Accounting Policies - continued N. Interfund Transactions - Interfund transactions are either loans, services provided, reimbursements or transfers. Loans are reported as receivables and payables as appropriate and are subject to elimination upon consolidation. Services, deemed to be reasonably equivalent in value, are treated as revenues and expenditures/expenses. Reimbursements are when one fund incurs a cost, charges the appropriate benefiting fund and reduces its related cost as a reimbursement. All other interfund transactions are presented as transfers. Transfers within governmental activities are eliminated upon consolidation in the government-wide statements. Amounts reported in the fund financial statements as interfund receivables and payables are eliminated in the government-wide governmental activities column of the statement of net assets. Three types of interfund transactions may be accounted for in an affected fund s statements. 1. Interfund receivables and payables - consist of temporary loans between funds which are expected to be repaid within one year. These short-term interfund loans are captioned Due from other funds and Due to other funds in the various funds balance sheets. See Note Interfund advances - consist of longer term loans between funds, which are not expected to be repaid within one year. These longerterm interfund loans are captioned Advances to other funds and Advances from other funds in the various funds balance sheets. As of September 30, 2009, there were no interfund advances. 3. Interfund transfers - consist of routine, recurring transfers between funds, other than interfund loans or advances, fund reimbursements or payments between the City and its component units. Interfund transfers are accounted for separately from fund revenues and expenses. See Note 14. O. Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates CITY OF SYLACAUGA, ALABAMA

91 NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, Deposits in Financial Institutions In its 2000 Regular Session, the Alabama State Legislature enacted the Security for Alabama Funds Enhancement (SAFE) Program that changes the way all Alabama public deposits are collateralized. Public deposits include the funds of any covered public entity or covered public official placed on deposit in a qualified depository, including time and demand deposit accounts and certificates of deposit but excluding bonds, notes, money market mutual funds, repurchase agreements and similar investment instruments. Covered public entities include the state and its political subdivisions, including municipalities and related boards. In the past, the bank pledged collateral directly to each public entity. Under SAFE, which is mandatory, each qualified public depository (QPD) is required to hold collateral for all of its public deposits on a pooled basis in a custody account (SAFE Custody Account) established for the State Treasurer as SAFE administrator. In the unlikely event a public entity should suffer a deposit loss due to QPD insolvency or default; a claim form would be filed with the State Treasurer, who would use the SAFE pool collateral or other means to reimburse the loss. As of September 30, 2009, all deposits of the City of Sylacauga primary government are held in a certified qualified public depository, and as such, are deemed fully insured. 3. Property Taxes Property taxes attach as an enforceable lien as of January 1. Taxes are levied on October 1 and are due and payable between October 1 and December 31. The County bills and collects the taxes and remits them to the City of Sylacauga. The City currently levies taxes of $2.45 per $100 assessed valuation (or per $1,000 of appraised value) for governmental purposes - $1.85 for school purposes and $.60 for general governmental services. The assessed value equals 10% of the appraised value for homestead property, 20% for commercial property and vacant land less than five acres, as determined by the Revenue Commissioner. 4. Equity in Pooled Cash Equity in pooled cash consists of pooled cash, other certificates of deposits and cash with fiscal agents. Interest earned from equity in pooled cash purchased with pooled cash is allocated to each of the funds based on the fund s equity balance. The cost of these pooled cash items equals their market value. All pooled cash and other certificates of deposit are held in a certified qualified public depository, and as such are covered by the SAFE program described in Note 2. The composition of equity in pooled cash and a summary of each fund s share is as follows: -15- CITY OF SYLACAUGA, ALABAMA

92 NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, Equity in Pooled Cash continued Interest Composition Rate Cost Pooled Cash Frontier National Bank Certificate of deposit, # % $ 801,184 Other Certificates of Deposit Alabama Trust Bank Certificate of deposit, # % 297,616 Certificate of deposit, # % 238,092 Certificate of deposit, # % 119,046 Certificate of deposit, # % 178,569 Certificate of deposit, # % 119,046 Frontier National Bank Certificate of deposit, # % 15,101 Certificate of deposit, # % 1,033,200 Certificate of deposit, # % 60,264 Certificate of deposit, # % 207,096 Superior Bank Certificate of deposit, # % 448,128 Certificate of deposit, # % 65,423 Certificate of deposit, # % 218,784 Certificate of deposit, # % 169,207 Certificate of deposit, # % 201,142 Certificate of deposit, # % 2,000,000 Certificate of deposit, # % 519,926 Wachovia Bank Certificate of deposit, # % 236,238 Total other certificates of deposit 6,126, CITY OF SYLACAUGA, ALABAMA

93 NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, Equity in Pooled Cash - continued Cash with Fiscal Agents Regions Bank 2 US Bank 2,518 Total cash with fiscal agents 2,520 Total equity in pooled cash $ 6,930,582 Funds' Share of Equity in Pooled Cash General Fund $ 5,374,936 Special Revenue Funds 1,553,126 Debt Service Fund 2,520 Total $ 6,930, CITY OF SYLACAUGA, ALABAMA NOTES TO THE FINANCIAL STATEMENTS

94 SEPTEMBER 30, Capital Assets Capital asset activity for the year ended September 30, 2009, was as follows: Governmental activities: Capital assets, not being depreciated: Balance Balance 10/01/08 Additions Retirements 09/30/09 Land $ 7,180,677 $ 140,958 $ - $ 7,321,635 Construction in progress 1,285, ,147 (901,325) 761,840 Total capital assets, not being depreciated 8,465, ,105 (901,325) 8,083,475 Capital assets, being depreciated: Buildings and improvements 27,203, ,274-27,345,717 Furniture and equipment 1,561,535 55,626 (111,777) 1,505,384 Vehicles 3,598,369 1,000 (120,228) 3,479,141 Infrastructure 5,964, ,674-6,871,823 Total capital assets, being depreciated 38,327,496 1,106,574 (232,005) 39,202,065 Less accumulated depreciation for: Buildings and improvements (11,597,241) (751,259) - (12,348,500) Furniture and equipment (1,122,200) (90,435) 87,022 (1,125,613) Vehicles (2,322,275) (288,047) 136,226 (2,474,096) Infrastructure (1,180,801) (120,478) - (1,301,279) Total accumulated depreciation (16,222,517) (1,250,219) 223,248 (17,249,488) Total capital assets, being depreciated, net 22,104,979 (143,645) (8,757) 21,952,577 Governmental activities capital assets, net $ 30,570,674 $ 375,460 $ (910,082) $ 30,036, CITY OF SYLACAUGA, ALABAMA NOTES TO THE FINANCIAL STATEMENTS

95 SEPTEMBER 30, Capital Assets - continued Depreciation expense was charged to governmental functions of the primary government as follows: Executive and legislative $ 1,167 General government and administration 763,386 Judicial 2,333 Police 112,941 Fire 95,797 Street, which includes the depreciation of general infrastructure assets 224,163 Shop 2,631 Planning and code enforcement 2,545 Senior citizens services 45,256 Total depreciation expense $ 1,250,219 During fiscal year 2006, the Sylacauga School Board closed East Highland School and returned control back to the City. The City has always owned the school building and property, however, the Board was responsible for maintaining the property. The City depreciated the property through September 30, 2006, however, it s considered to be idle as of October 1, 2006, and therefore, will not be depreciated again until placed back in service. The property was not returned to service as of September 30, Long-Term Liabilities The city entered into a funding agreement dated July 1, 2000, with the East Central Alabama Industrial Development Authority (ECAIDA) to provide for funding of the Authority s Special Obligation Bonds issued to finance the cost of acquiring certain improvements with respect to a parcel of land located in Talladega County, Alabama, upon which American Honda Motor, Co., Inc., or an affiliate thereof constructed and operates an automobile assembly plant. The Authority also entered into funding agreements with Talladega County, Etowah County, St. Clair County, Calhoun County, and the cities of Anniston, Birmingham, Gadsden, Jacksonville, Lincoln, Oxford, Pell City, and Talladega. The City of Sylacauga s annual funding requirement is approximately $49,000 payable February 1, 2001, through CITY OF SYLACAUGA, ALABAMA NOTES TO THE FINANCIAL STATEMENTS

96 SEPTEMBER 30, Long-Term Liabilities - continued The City has a short-term note payable with a balance of $1 million due on November 15, 2009, which bears interest at 3.96%. Subsequent to year end the note was refinanced with a due date of November 15, 2010 and an interest rate of 3.7%, therefore, it is included in long-term liabilities at September 30, The note is secured by a $2 million certificate of deposit. Long-term liability activity for the year ended September 30, 2009, was as follows: Governmental activities: Warrants payable: Balance Balance Due Within 10/01/08 Additions Reductions 09/30/09 One Year Warrants payable $ 20,290,000 $ - $ (1,050,000) $ 19,240,000 $ 1,090,000 Deferred amount on refunding (798,258) - 72,902 (725,356) - Unamortized premium 487,809 - (29,664) 458,145 - Net warrants payable 19,979,551 - (1,006,762) 18,972,789 1,090,000 Other liabilities: Funding agreement-ecaida 278,999 - (34,249) 244,750 35,864 Note Payable - Avondale Property 1,200,000 - (200,000) 1,000,000 - Accumulated annual leave 472,686 19,149 (19,025) 472,810 19,000 Claims payable 15,000 15,000-30,000 - Other postemployment benefits liability - 115, ,547 - Total other liabilities 1,966, ,696 (253,274) 1,863,107 54,864 Governmental activities long-term liabilities $ 21,946,236 $ 149,696 $ (1,260,036) $ 20,835,896 $ 1,144,864 For the governmental activities, other liabilities are generally liquidated by the general fund CITY OF SYLACAUGA, ALABAMA NOTES TO THE FINANCIAL STATEMENTS

97 SEPTEMBER 30, Long-Term Liabilities - continued Warrants payable of the City of Sylacauga at September 30, 2009, are comprised of the following individual issues: Date Principal Interest Interest Series Principal Outstanding Due Within Rates Dates Matures Source of Payment Issued 9/30/09 One Year General obligations: 2002 G.O. Warrants 1.80% to 6/1 & dated July 1, % 12/ General Fund $ 6,340,000 $ 3,850,000 $ 465, G.O. Warrants 2.00% to dated May 1, % 6/ General Fund $ 1,705, , , G.O. School Warrants 3.00% to 6/1 & 18.5-Mill Tax Fund dated September 1, % 12/ Ad valorem taxes $ 16,445,000 15,085, ,000 Total warrants payable $ 19,240,000 $ 1,090,000 The following schedule shows debt service to maturity for general obligation warrants payable at September 30, 2009: Fiscal Year Ended September 30, Principal Total Annual Requirements Interest Total 2010 $ 1,090,000 $ 860,270 $ 1,950, ,125, ,513 1,947, ,170, ,921 1,951, ,220, ,770 1,947, ,270, ,708 1,940, ,270,000 2,433,333 8,703, ,775,000 1,153,238 6,928, ,320,000 62,700 1,382,700 Total $ 19,240,000 $ 7,512,453 $ 26,752, CITY OF SYLACAUGA, ALABAMA NOTES TO THE FINANCIAL STATEMENTS

98 SEPTEMBER 30, Deferred Revenue The City recorded deferred revenue of $771,629 on municipal court receivables received beyond sixty days of year end. This deferred revenue was excluded from revenues and fund balance in the governmental fund financial statements as it was not available to pay for current period expenditures. 8. Defined Benefit Pension Plan Plan Description. The City contributes to the Employees Retirement System of Alabama ("System"), an agent multiple-employer public employee retirement system (PERS) which acts as a common investment and administrative agent for all State agencies and departments as well as for cities and counties which elect to participate in the System. The Retirement System issues a publicly available report that includes financial statements and required supplementary information for the System. That report may be obtained by writing to The Retirement Systems of Alabama, P.O. Box , Montgomery, Alabama or by calling (334) All full-time and permanent part-time City employees are eligible to participate in the System. Benefits vest after ten years of service. Vested employees may choose a lump sum benefit or payments for life. The benefit amount is based upon employee and employer contributions and accrued interest as of the retirement date and is established by State statute. The System also provides death and disability benefits. Funding Policy. Covered employees are required by State statute to contribute five percent (5%) of their salaries/wages to the System. Emergency personnel (fire and police) contribute six percent (6%) of their salaries/wages to the System. The City is required by the same State statute to contribute the remaining amounts necessary to fund the System using the actuarial basis specified by the statute. The City s contribution rate for the year ended September 30, 2009, was 7.75% of covered payroll. Annual Pension Cost. The City s annual pension cost of $365,649 was equal to the City s required and actual contributions. The required contribution was determined as part of the September 30, 2008 actuarial valuation using the entry age actuarial cost method. Significant actuarial assumptions used in the valuation include: a) a rate of return on the investment of present and future assets of 8.0%, b) projected annual rate of salary increases ranging from 4.61% to 7.75%, based on age, and c) no cost-of-living adjustment. Both a) and b) included an inflation component of 4.5%. The actuarial value of the plan s assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a five-year period. The plan s unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll on an open basis. These assumptions were also used in the computation of actuarially determined contribution requirements CITY OF SYLACAUGA, ALABAMA NOTES TO THE FINANCIAL STATEMENTS

99 SEPTEMBER 30, Defined Benefit Pension Plan - continued Funded Status and Funding Progress. As of September 30, 2008, the most recent actuarial valuation date, the plan was 89.4% funded. The actuarial accrued liability for benefits was $15,470,226, and the actual value of assets was $13,833,726, resulting in an unfunded actuarial accrued liability (UAAL) of $1,636,501. The covered payroll (annual payroll of active employees covered by the plan) was $4,602,272, and the ratio of the UAAL to the covered payroll was 35.6%. The plan s schedule of funding progress for the most current valuation year and the two preceding years is as follows: Fiscal Annual Percentage Net Pension Year Pension of APC Obligation Ending Cost (APC) Contributed (NPO) 9/30/06 $ 91, % $ - 9/30/07 $ 164, % $ - 9/30/08 $ 246, % $ - Actuarial Actuarial Accrued Unfunded UAAL as a Actuarial Value of Liability (AAL) AAL Funded Covered Percentage of Valuation Assets - Entry Age (UAAL) Ratio Payroll Covered Payroll Date (a) (b)* (b-a) (a/b) ( c ) ((b-a)/c) 9/30/06 ** $ 13,202,054 $ 14,422,619 $ 1,220, % $ 4,145, % 9/30/07 $ 13,722,820 $ 14,881,254 $ 1,158, % $ 4,421, % 9/30/08 $ 13,833,726 $ 15,470,226 $ 1,636, % $ 4,602, % ** Reflects changes in actuarial assumptions CITY OF SYLACAUGA, ALABAMA NOTES TO THE FINANCIAL STATEMENTS

100 SEPTEMBER 30, Other Postemployment Benefits The City of Sylacauga s Health Care Plan is a single-employer, defined benefit other postemployment benefit (OPEB) plan. From an accrual accounting perspective, the cost of postemployment healthcare benefits, like the cost of pension benefits, should be associated with the periods in which the cost occurs, rather than in the future year when it will be paid. In adopting the requirements of GASB Statement No. 45 during the year ended September 30, 2009, the City recognizes the cost of postemployment healthcare in the year when employee services are received, reports the accumulated liability from prior years, and provides information useful in assessing potential demands on the City s future cash flows. Because the City is adopting the requirements of GASB Statement No. 45 prospectively, recognition of the liability accumulated from prior years will be phased in over 30 years, commencing with the 2009 liability. Plan description The City provides continuation of medical, drug and dental benefits to employees who retire under the State Retirement System at the same time they end their service to the City. The City provides benefits to employees upon retirement according to the retirement eligibility provisions as follows: 25 years of service at any age; or, 10 years of service and age 60 or is determined disabled by the Social Security Administration or the Retirement Systems of Alabama s Medical Board. Employees will have the full cost of health and dental coverage paid by the City until the retiring employee becomes eligible for Medicare, is reemployed and subsequently eligible for health insurance through another employer, or for the following duration: Employees retiring upon the completion of ten years of continuous service with the City will be eligible to receive individual health and dental insurance benefits for up to twelve months. Employees retiring upon the completion of ten to twenty-five years of continuous service with the City will be eligible to receive individual health and dental insurance benefits for twelve months, plus one additional month of coverage for each year (over ten) of completed continuous service with the City. Employees retiring upon the completion of twenty-five or more years of continuous service with the City will be eligible to receive individual health and dental insurance benefits for up to thirty-six months, plus one additional month of coverage for each year of completed continuous service with the City thereafter. Dependents of eligible retirees are not eligible to participate in the City s health plan. Benefits and contribution requirements (both employee and employer) for the City s OPEB Plan are established by City ordinance and can only be amended by City Council. OPEB benefits are administered by City personnel. No separate financial statements are issued CITY OF SYLACAUGA, ALABAMA NOTES TO THE FINANCIAL STATEMENTS

101 SEPTEMBER 30, Other Postemployment Benefits - continued The number of participants as of September 30, 2009, the effective date of the OPEB valuation, follows. There has been no change in the number covered or the type of coverage since that date. Active Members 120 Retired Members 5 Funding policy Total 125 The City currently pays for postemployment health care benefits on a pay-as-you-go basis. Although the City could establish a trust to accumulate and invest assets necessary to pay for the accumulated liability, these financial statements assume that pay-as-you-go funding will continue. Annual other postemployment benefit cost The City s annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. For the fiscal year ended September 30, 2009, the City s annual OPEB cost of $115,547 is equal to the ARC. The annual required contribution (ARC) was calculated as follows: Rate as a Percentage of Compensation Annual Amount Normal cost 1.79% $ 81,004 Accrued liability 0.76% 34,543 Total 2.55% $ 115, CITY OF SYLACAUGA, ALABAMA NOTES TO THE FINANCIAL STATEMENTS

102 SEPTEMBER 30, Other Postemployment Benefits - continued Trend information Three-year trend information will be presented in future years. Fiscal year ended September 30, 2009 was the year of implementation of GASB Statement No. 45 and the City elected to implement prospectively. As such, comparative data for prior years is not available. Actuarial Accrued Actuarial Liability (AAL) Unfunded UAAL as a Actuarial Value of Projected AAL Funded Covered Percentage of Valuation Assets Unit Credit (UAAL) Ratio Payroll Covered Payroll Date (a) (b) (b-a) (a/b) ( c ) ((b-a)/c) 9/30/09 $ - $ 1,111,893 $ 1,111, % $ 4,520, % Actuarial methods and assumptions The projection of future benefits for an ongoing plan involves estimates of the value of reported amounts and assumptions about the probability of occurrence of future events far into the future. Actuarially determined amounts are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the September 30, 2009 actuarial valuation, the liabilities were computed using the projected unit credit cost method. The actuarial assumptions included a 4% investment rate of return utilizing a 4.5% inflation assumption. The assumed investment rate of return reflects the fact that no assets have been set aside by the City of Sylacauga for retiree health benefits. If a trust or equivalent arrangement were set up for this purpose, the investment rate of return could be increased. The valuation assumes a 10.5% healthcare cost trend increase for fiscal year 2009, graded down to an ultimate annual rate of 5% for 2016 and beyond. The actuarial value of assets will be determined using fair market value. The UAAL will be amortized as a level percentage of projected payroll on an open basis. The remaining amortization period is thirty years CITY OF SYLACAUGA, ALABAMA NOTES TO THE FINANCIAL STATEMENTS

103 SEPTEMBER 30, Self-Insurance As a municipal corporation, the City is a self-insurer under the Alabama Workmen s Compensation Law. Under the terms of a contract, workmen s compensation coverage is provided by Municipal Workmen s Compensation Management Company, Inc. Billing is based on annual payrolls adjusted for a claims experience rate. Claims are paid by Municipal Workmen s Compensation Management Company, Inc., as incurred by employees. Other than the cost of the billings, the City incurred normal claims of $49,158 during the fiscal year and had no liability for unpaid claims at September 30, Unemployment Taxes The City of Sylacauga is on the reimbursement method of unemployment compensation and the actual amount paid in the fiscal year ended September 30, 2009, by the State ($654) to individuals is reflected as an expense of the General Fund and Senior Citizens Service Fund. 12. Tax Collection Expenses The City is charged a collection fee by the County Tax Assessor and Collector for the collection of the 6 and 18.5-mill ad valorem taxes and auto taxes. The following is a summary of taxes collected and related expenses for the year ended September 30, 2009: Taxes Collection Net Received Funds Collected Fee by City General Fund $ 755,826 $ 29,476 $ 726,350 Eighteen and One Half Mill Tax Fund $ 2,425,439 $ 95,050 $ 2,330,389 The State of Alabama also charges the City a fee for handling the collection of the City s 3% sales tax. Gross receipts and the fee charged are as shown below: Taxes Collection Net Received Funds Collected Fee by City General Fund $ 5,873,951 $ 116,404 $ 5,757, CITY OF SYLACAUGA, ALABAMA NOTES TO THE FINANCIAL STATEMENTS

104 SEPTEMBER 30, Interfund Receivables and Payables The following is a schedule by individual fund for interfund receivables and payables for the primary government as of September 30, 2009: Interfund Receivables Interfund Payables General Fund $ 36,413 $ - Debt Service Fund Non-major governmental funds - 36,003 Totals $ 36,413 $ 36,413 The Senior Citizens Service Fund reimburses the General Fund for payroll, bookkeeping and vehicle expenses. The Airport and CDBG Funds reimburse the General Fund for capital project type expenditures. 14. Interfund Transfers The following is a schedule, by individual fund, of interfund transfers for the primary government for the year ended September 30, 2009: Interfund Transfers In Interfund Transfers Out General Fund $ 817,830 $ 1,419,073 Eighteen and One Half Mill Tax Fund - 1,418,269 Debt Service Fund 2,103, ,800 Non-major Governmental Funds 644, ,030 Total governmental activities $ 3,565,172 $ 3,565,172 Generally, transfers are used to (1) move revenues from funds accounting for revenues with a restricted purpose to funds expending resources for the restricted purpose, (2) move receipts restricted to debt service from the funds collecting the receipts to the funds making the payments as debt service payments become due, and (3) use unrestricted revenues collected in various funds to finance programs accounted for in other funds in accordance with budgetary authorizations CITY OF SYLACAUGA, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2009

105 15. Commitments and Contingencies Commitments - The City was committed under certain construction contracts for various general government projects. The aggregate amount of such commitments was $129,712 as of September 30, 2009 and is encumbered as reservations of fund balance in the appropriate funds. Claims and Litigation - The City is party to various legal proceedings which normally occur in governmental operations. These legal proceedings are not likely to have a material adverse impact on the affected funds of the City. The amount of possible tort and other claims liability at September 30, 2009, was approximately $30,000. Audit of Federal and State Grants - In the normal course of operations, the City receives grant funds from various federal and state agencies. The grant programs are subject to audit by agents of the granting authority, the purpose of which is to ensure compliance with conditions precedent to the granting of funds. Any liability for reimbursement which may arise as the result of these audits is not believed to be material. 16. Reconciliation of Fund Financial Statements to Government-Wide Financial Statements A. Explanation of differences between Governmental Funds Balance Sheet and the Statement of Net Assets Total fund balances of the City s governmental funds differs from net assets of governmental activities reported in the statement of net assets. This difference primarily results from the long-term economic focus of the statement of net assets versus the current financial resources focus of the governmental fund balance sheets CITY OF SYLACAUGA, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2009

106 16. Reconciliation of Fund Financial Statements to Government-Wide Financial Statements- continued Balance Sheet/Statement of Net Assets Total Long-term Reclassifications Statement of Governmental Assets, and Net Assets Funds Liabilities (a) Eliminations Totals ASSETS Cash and cash equivalents $ 4,112,654 $ - $ - $ 4,112,654 Equity in pooled cash 6,930, ,930,582 Receivables, net - - 2,242,937 2,242,937 Revenues 518,810 - (518,810) - Federal government grants 63,910 - (63,910) - Other governmental agencies 324,687 - (324,687) - Municipal court 831,444 - (831,444) - Other receivables 84,032 - (84,032) - Parks and Recreation Board 3,079 - (3,079) - City Board of Education 16,975 - (16,975) - Industrial Development Board 400,000 - (400,000) - Due from other funds 36,413 - (36,413) - Inventories 72, ,996 Deferred charges - 238, ,746 Capital assets not being depreciated - 8,083,475-8,083,475 Capital assets net of accumulated depreciation - 21,952,577-21,952,577 Total assets $ 13,395,582 $ 30,274,798 $ (36,413) $ 43,633, CITY OF SYLACAUGA, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2009

107 16. Reconciliation of Fund Financial Statements to Government-Wide Financial Statements- continued LIABILITIES Accounts payable $ 429,731 $ - $ - $ 429,731 Accrued payroll 219, ,421 Accrued interest - 336, ,500 Due to other funds 36,413 - (36,413) - Deferred revenue 771,629 (771,629) - - Other accrued liabilities 56, ,077 Long-term liabilities - 20,835,896-20,835,896 Total liabilities 1,513,271 20,400,767 (36,413) 21,877,625 FUND BALANCES/NET ASSETS Total fund balances/net assets 11,882,311 9,874,031-21,756,342 Total liabilities and fund balances/net assets $ 13,395,582 $ 30,274,798 $ (36,413) $ 43,633,967 (a) When capital assets (land, buildings, equipment) that are to be used in governmental activities are purchased or constructed, the cost of those assets are reported as expenditures in governmental funds. However, the statement of net assets includes those capital assets among the assets of the City as a whole. Cost of capital assets not being depreciated $ 8,083,475 Cost of capital assets being depreciated 39,202,065 Accumulated depreciation (17,249,488) $ 30,036,052 Bond issue costs are reported as expenditures in the governmental funds and thus contribute to the change in fund balance. In the statement of assets, however, bond issue costs are deferred and amortized over the life of the bonds. Bond issue costs $ 345,262 Accumulated amortization - bond issue costs (106,516) $ 238, CITY OF SYLACAUGA, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2009

108 16. Reconciliation of Fund Financial Statements to Government-Wide Financial Statements continued Because the focus of governmental funds is on short-term financing, some assets will not be available to pay for current-period expenditures. Those assets (for example, receivables) are offset by deferred revenue in the governmental funds, and thus are not included in fund balance. Adjustment to deferred revenue - municipal court $ 771,629 Long-term liabilities applicable to the City's governmental activities are not due and payable in the current period and accordingly are not reported as fund liabilities. All liabilities - both current and long-term - are reported in the statement of net assets. General obligation debt $ 18,972,789 Funding agreement 244,750 Note payable 1,000,000 Accumulated annual leave 472,810 Claims payable 30,000 Other postemployment benefits payable 115,547 $ 20,835,896 The City's governmental activities are reported on a modified-accrual basis and therefore do not include all liabilities required of full-accrual basis financial statements. Accrued interest payable on long-term liabilities $ 336, CITY OF SYLACAUGA, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2009

109 16. Reconciliation of Fund Financial Statements to Government-Wide Financial Statements - continued B. Explanation of differences between Governmental Fund Operating Statements and the Statement of Activities The net change in fund balances for governmental funds differs from the change in net assets for governmental activities reported in the statement of activities. The differences arise primarily from the long-term economic focus of the statement of activities versus the current resources focus of the governmental funds. The effect of the differences is illustrated below. Statement of Revenues, Expenditures, and Changes in Fund Balances/Statement of Activities Total Capital Long-term Long-term Statement of Governmental Related Debt Trans- Revenues and Activities Funds Items (b) actions (c) Expenses (d) Totals REVENUES AND OTHER SOURCES Sales taxes $ 5,906,450 $ - $ - $ - $ 5,906,450 Property taxes 3,064, ,064,594 Motor fuel taxes 270, ,993 Lodging taxes 124, ,406 Rental and leasing taxes 172, ,184 Tobacco taxes 101, ,298 Alcoholic beverage taxes 92, ,747 Other taxes 48, ,544 Licenses and permits 1,325, ,325,497 Grants 379, ,924 Police fines 439, (247,757) 191,592 Charges for services 907, ,788 Appropriation from Utilities Board 2,400, ,400,000 Investment earnings 433, ,412 Miscellaneous 371, , ,616 Total revenues and other sources 16,039, ,737 - (247,757) 15,925, CITY OF SYLACAUGA, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2009

110 16. Reconciliation of Fund Financial Statements to Government-Wide Financial Statements continued Total Capital Long-term Long-term Statement of Governmental Related Debt Trans- Revenues and Activities Funds Items (b) actions (c) Expenses (d) Totals EXPENDITURES/EXPENSES Current: Executive and legislative 254,131 1, ,298 General government and administration 2,230, , ,671 3,124,694 Judicial 288,906 2, ,239 Civil Service Board 17, ,557 Police 3,127, , ,240,933 Fire 1,336,874 95, ,432,671 Street 1,809, , ,033,529 Shop 333,604 2, ,235 Planning and code enforcement 392,617 2, ,162 Building and grounds/custodial 50, ,207 Senior citizens services 238,195 45, ,451 Payments to component units School Board 1,738, ,738,430 Parks and Recreation Board 875, ,203 Library 605, ,618 Industrial development 136, ,046 Social and economic development 313, ,540 Debt service: Principal 1,284,249 - (1,284,249) - - Interest and fiscal charges 924,772-66,518 (15,689) 975,601 Capital outlay 590,619 (590,619) Total expenditures/expenses 16,548, ,600 (1,217,731) 114,982 16,105,414 Other financing sources (uses) Sales of capital assets 10,497 (8,759) - - 1,738 Net change for the year $ (499,001) $ (534,622) $ 1,217,731 $ (362,739) $ (178,631) -34- CITY OF SYLACAUGA, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2009

111 16. Reconciliation of Fund Financial Statements to Government-Wide Financial Statements - continued (b) When capital assets that are to be used in governmental activities are purchased or constructed, the resources expended for those assets are reported as expenditures in governmental funds. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. As a result, fund balance decreases by the amount of financial resources expended, whereas net assets decreases by the amount of depreciation expense charged for the year. Capital outlay $ 590,619 Value of assets donated to City 133,737 Depreciation expense (1,250,219) Difference $ (525,863) The proceeds from the sale of assets are reported as revenue in the governmental funds. However, the cost of the assets sold is removed from the capital assets account in the statement of net assets and offset against the sale proceeds resulting in a "gain on sale of assets" in the statement of activities. Thus, more revenue is reported in the governmental funds than gain in the statement of activities. Cost of assets sold $ (232,006) Accumulated depreciation on assets sold 223,247 Difference $ (8,759) (c) Repayment of bond principal is reported as an expenditure in governmental funds and, thus, has the effect of reducing fund balance because current financial resources have been used. For the City as a whole, however, the principal payments reduce the liabilities in the statement of net assets and do not result in an expense in the statement of activities. The City's bonded debt was reduced by making principal payments to bond holders. Principal payments made $ 1,284,249 Current year amortization of deferred amount on refunding (72,902) Current year amortization of bond premium 29,664 $ 1,241, CITY OF SYLACAUGA, ALABAMA NOTES TO THE FINANCIAL STATEMENTS

112 SEPTEMBER 30, Reconciliation of Fund Financial Statements to Government-Wide Financial Statements - continued Bond issue costs and premiums are reported as expenditures in governmental funds in the year paid; however, these costs are deferred and amortized over the life of the bonds in the government-wide statements. Current year amortization of bond issue costs $ (23,280) (d) Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. Change in accrued interest on long-term debt $ (15,689) Change in accumulated annual leave 124 Change in claims payable 15,000 Change in other postemployment benefits 115,547 $ 114,982 Because some municipal court fines will not be collected for several months after the City's fiscal year end, they are not considered as "available" revenues in the governmental funds. Deferred revenue current year $ 771,629 Deferred revenue prior year (1,019,386) Change in revenue $ (247,757) 17. Prior Period Adjustment During prior years the City recorded donations received from citizens for cemetery improvements as deferred revenues until related cemetery improvement expenses were recognized. During 2009 the City determined that these revenues did not meet the requirements to be classified as deferred revenues and reclassed them to undesignated unreserved fund balance. This reclassification totaled $81,163. During prior years the City recorded annual payments from the Alabama Trust Fund as deferred revenues until appropriate capital projects expenditures were recognized. During 2009 the City determined that these revenues did not meet the requirements to be classified as deferred revenues and reclassed them to unreserved fund balance designated for future construction. This reclassification totaled $814, CITY OF SYLACAUGA, ALABAMA NOTES TO THE FINANCIAL STATEMENTS

113 SEPTEMBER 30, Reporting of General Fund Activities For managerial accounting purposes, certain activities reported in the City of Sylacauga s General Fund are recorded in sub-funds. Selected financial information for these various activities for the current fiscal year (as reflected in the governmental fund financial statements) is shown below, net of related eliminating entries: Special Fund Total General Investment (Net of Fund Fund Eliminations) ASSETS Cash and cash equivalents $ 633,846 $ 175,525 $ 809,371 Equity in pooled cash 4,645, ,920 5,374,936 Receivables Revenues 492, ,274 Federal government grants 10,252-10,252 Other governmental agencies 24,515-24,515 Municipal court 831, ,444 Other receivables 58,220-58,220 Parks and Recreation Board 3,079-3,079 City Board of Education 16,975-16,975 Industrial Development Board 400, ,000 Intra-fund receivable/payable-general fund/special fund investments 2,600 (2,600) - Due from other funds 35, ,413 Inventories 72,996-72,996 Total assets $ 7,227,120 $ 903,355 $ 8,130, CITY OF SYLACAUGA, ALABAMA NOTES TO THE FINANCIAL STATEMENTS

114 SEPTEMBER 30, Reporting of General Fund Activities - continued LIABILITIES AND FUND BALANCES Liabilities: Accounts payable 331,429 Special Fund Total General Investment (Net of Fund Fund Eliminations) $ $ - $ 331,429 Accrued payroll 219, ,421 Deferred revenue 771, ,629 Other accrued liabilities 56,077-56,077 Total liabilities 1,378,556-1,378,556 Fund balances: Reserved for: Inventories 72,996-72,996 Encumbrances 105, ,336 Unreserved: Designated for unemployment compensation 434, ,015 Designated for future construction 896, ,701 1,712,011 Designated for industrial development 2,468,667-2,468,667 Undesignated 1,871,240 87,654 1,958,894 Total fund balances 5,848, ,355 6,751,919 Total liabilities and fund balances $ 7,227,120 $ 903,355 $ 8,130, CITY OF SYLACAUGA, ALABAMA NOTES TO THE FINANCIAL STATEMENTS

115 SEPTEMBER 30, Reporting of General Fund Activities - continued Special Fund Total General Investment (Net of Fund Fund Eliminations) REVENUES Sales taxes $ 5,906,450 $ - $ 5,906,450 Property taxes 729, ,396 Motor fuel taxes 178, ,385 Lodging taxes 124, ,406 Rental and leasing taxes 172, ,184 Tobacco taxes 101, ,298 Alcoholic beverage taxes 92,747-92,747 Other taxes 48,544-48,544 Licenses and permits 1,325,497-1,325,497 Grants 20,492-20,492 Police fines 439, ,349 Charges for services 907, ,788 Appropriation from Utilities Board 2,400,000-2,400,000 Investment earnings 172, , ,746 Miscellaneous 332,090 4, ,331 Total revenues 12,951, ,182 13,133,613 EXPENDITURES Current: Executive and legislative 254, ,131 General government and administration 2,211,826 6,056 2,217,882 Judicial 288, ,906 Civil Service Board 17,557-17,557 Police 3,127, ,127,992 Fire 1,336,874-1,336,874 Street 1,809,366-1,809,366 Shop 333, , CITY OF SYLACAUGA, ALABAMA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2009

116 18. Reporting of General Fund Activities - continued Special Fund Total General Investment (Net of Fund Fund Eliminations) Planning and code enforcement 392, ,617 Building and grounds/custodial 50,207-50,207 Payments to component units School Board 938, ,430 Parks and Recreation Board 875, ,203 Library 605, ,618 Industrial development 136, ,046 Social and economic development 312, ,940 Capital outlay 167,286 53, ,334 Total expenditures 12,858,053 59,654 12,917,707 Excess of revenues over expenditures 93, , ,906 OTHER FINANCING SOURCES (USES) Sale of capital assets 10,497-10,497 Intra-fund transfers (11,217) 11,217 - Operating transfers in 817, ,830 Operating transfers out (1,280,281) (138,792) (1,419,073) Total other financing sources (uses) (463,171) (127,575) (590,746) Net change in fund balances (369,793) (5,047) (374,840) Fund balances - beginning 6,218,357 12,750 6,231,107 Prior period adjustment - 895, ,652 Fund balances - beginning, as restated 6,218, ,402 7,126,759 Fund balances - ending $ 5,848,564 $ 903,355 $ 6,751,

117 REQUIRED SUPPLEMENTARY INFORMATION CITY OF SYLACAUGA, ALABAMA BUDGETARY COMPARISON SCHEDULE - GENERAL FUND

118 YEAR ENDED SEPTEMBER 30, 2009 Final Budget Actual Budget Actual to Actual Budgeted Budgeted Amounts to GAAP Amounts Variance Amounts Amounts Budgetary Differences GAAP Favorable Original Final Basis Over (Under) Basis (Unfavorable) REVENUES Sales taxes $ 6,414,658 $ 6,414,658 $ 5,948,435 (a) $ 41,985 $ 5,906,450 $ (466,223) Property taxes 645, , ,251 (a) ,396 85,152 Motor fuel taxes 164, , ,362 (a) (2,023) 178,385 11,377 Lodging taxes 138, , ,036 (a) 6, ,406 (7,644) Rental and leasing taxes 192, , ,565 (a) 9, ,184 (10,573) Tobacco taxes 103, , ,782 (a) ,298 (1,306) Alcoholic beverage taxes 94,393 94,393 93,912 (a) 1,165 92,747 (481) Other taxes 60,911 60,911 48,544-48,544 (12,367) Licenses and permits 1,245,777 1,245,777 1,325,497-1,325,497 79,720 Grants 573, ,500 20,492-20,492 (553,008) Police fines 560, , ,647 (b) 14, ,349 (106,353) Charges for services 928, , , ,788 (21,032) Appropriation from Utilities Board 2,400,000 2,400,000 2,400,000-2,400,000 - Investment earnings 170, , , , ,746 Miscellaneous 230, , , , ,183 Total revenues 13,922,197 13,922,197 13,206,388 72,775 13,133,613 (715,809) CITY OF SYLACAUGA, ALABAMA BUDGETARY COMPARISON SCHEDULE - GENERAL FUND - CONTINUED

119 YEAR ENDED SEPTEMBER 30, 2009 Final Budget Actual Budget Actual to Actual Budgeted Budgeted Amounts to GAAP Amounts Variance Amounts Amounts Budgetary Differences GAAP Favorable Original Final Basis Over (Under) Basis (Unfavorable) EXPENDITURES Current: Executive and legislative 255, , , ,131 1,140 General government and administration 2,625,271 2,625,271 2,217,882-2,217, ,389 Judicial 283, , , ,906 (4,994) Civil Service Board 22,335 22,335 17,557-17,557 4,778 Police 3,198,752 3,198,752 3,127,992-3,127,992 70,760 Fire 1,374,822 1,374,822 1,336,874-1,336,874 37,948 Street 1,793,469 1,793,469 1,809,366-1,809,366 (15,897) Shop 347, , , ,604 14,128 Planning and code enforcement 421, , , ,617 28,391 Building and grounds/custodial 53,778 53,778 50,207-50,207 3,571 Payments to component units School Board 919, , , ,430 (19,430) Parks and Recreation Board 821, , ,641 (c) (52,562) 875,203 (649) Library 611, , , ,618 5,397 Industrial development 135, , , ,046 (484) Social and economic development 291, , , ,940 (21,937) Capital outlay (d) (220,334) 220,334 - Total expenditures 13,154,922 13,154,922 12,644,811 (272,896) 12,917, ,111 Excess (deficiency) of revenues over expenditures 767, , , , ,906 (205,698) -41-

120 Final Budget Actual Budget Actual to Actual Budgeted Budgeted Amounts to GAAP Amounts Variance Amounts Amounts Budgetary Differences GAAP Favorable Original Final Basis Over (Under) Basis (Unfavorable) OTHER FINANCING SOURCES (USES) Sale of capital assets ,497-10,497 10,497 Operating transfers in 212, , ,754 (e) 212, ,830 - (d) (529,030) (f) (288,800) Operating transfers out (892,914) (892,914) (889,636) (d) 529,437 (1,419,073) 3,278 Total other financing sources (uses) (680,160) (680,160) (666,385) (75,639) (590,746) 13,775 Net change in fund balances 87,115 87,115 (104,808) 270,032 (374,840) (191,923) Fund balances - beginning 6,231,107 6,231,107 6,231,107-6,231,107 - Prior period adjustment , ,652 (895,652) Fund balance - beginning, as restated 6,231,107 6,231,107 7,126,759-7,126,759 (895,652) Fund balances - ending $ 6,318,222 $ 6,318,222 $ 7,021,951 $ (270,032) $ 6,751,919 $ (1,087,575) Explanation of differences: (a) The City budgeted revenues based on prior year amounts that had not been adjusted for implementation of GASB 33 - Accounting and Reporting for Non-exchange Transactions. (b) (c) (d) (e) The City budgeted revenues based on prior year amounts that had not been adjusted for municipal court deferred revenue. The City does not budget for the Parks and Recreation Board's portion of workers compensation insurance. The City did not budget for capital outlay or operating transfers related to capital projects funds. The City budgets for interest received from an escrow fund that is combined with the General Fund for financial statement purposes.. (f) The City does not budget for operating transfers related to debt service funds. -42-

121 NOTES TO REQUIRED SUPPLEMENTARY INFORMATION CITY OF SYLACAUGA, ALABAMA NOTES TO REQUIRED SUPPLEMENTARY INFORMATION SEPTEMBER 30, 2009

122 1. Budgets and Budgetary Accounting - The City follows these procedures in establishing the budgetary data reflected in the financial statements: A. The Mayor submits to the City Council a proposed operating budget for the fiscal year commencing the following October 1. B. Prior to September 30, the budget is legally enacted through passage of a resolution. Any revisions that alter the total expenditures of any fund must be approved by the City Council. C. Annual budgets were legally adopted for the 2009 fiscal year for the General Fund, Seven Cent Gasoline Tax Fund, Four Cent State Gasoline Tax Fund, and Senior Citizens Service Fund. The City is not required to legally adopt a budget for the Eighteen and One Half Mill Tax Fund, which is a major special revenue fund. D. Budgets for the General and Special Revenue Funds are adopted on a basis consistent with generally accepted accounting principles (GAAP). E. Individual department heads have ultimate responsibility for the bottom line of their department s budget. Budgeted amounts may be transferred among line items within the department; however, total departmental expenditures may not exceed total approved appropriations. F. Budgeted amounts are as originally adopted, or as amended by the City Council. All budget amounts presented reflect the original budget and the amended budget (which have been adjusted for legally authorized revisions to the annual budgets during the year). G. All budgetary appropriations expire at year end. H. Excess of expenditures over appropriations: in the General Fund, the following departments expenditures exceeded appropriations by the amounts listed: Judicial, $4,994; and Street, $15,897. Other General Fund expenditures exceeding appropriations were: Payments to Component Units - School Board, $19,430; Payments to Component Units - Parks and Recreation Board, $649; Industrial development, $484; and Social and economic development, $21,

123 NON-MAJOR COMBINING STATEMENTS CITY OF SYLACAUGA, ALABAMA COMBINING BALANCE SHEET NON-MAJOR GOVERNMENTAL FUNDS

124 SEPTEMBER 30, 2009 Special Capital Revenue Projects Funds Funds Total ASSETS Cash and cash equivalents $ 495,391 $ 51,175 $ 546,566 Receivables Federal government grants 40,070 13,588 53,658 Other governmental agencies - 300, ,172 Other receivables 25,812-25,812 Total assets $ 561,273 $ 364,935 $ 926,208 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 17,270 $ 81,032 $ 98,302 Due to other funds ,093 36,003 Total liabilities 18, , ,305 Fund balances: Reserved for: Encumbrances - 24,376 24,376 Unreserved: Designated for future construction - 224, ,434 Undesignated 543, ,093 Total fund balances 543, , ,903 Total liabilities and fund balances $ 561,273 $ 364,935 $ 926, CITY OF SYLACAUGA, ALABAMA COMBINING BALANCE SHEET NON-MAJOR GOVERNMENTAL FUNDS - SPECIAL REVENUE FUNDS

125 SEPTEMBER 30, 2009 Senior Seven Cent Four Cent Citizens' Gas Tax Gas Tax Service Fund Fund Fund Total ASSETS Cash and cash equivalents $ 244,216 $ 231,290 $ 19,885 $ 495,391 Receivables Federal government grants ,070 40,070 Other receivables ,812 25,812 Total assets $ 244,216 $ 231,290 $ 85,767 $ 561,273 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ - $ - $ 17,270 $ 17,270 Due to other funds Total liabilities ,180 18,180 Fund balances: Unreserved: Undesignated 244, ,290 67, ,093 Total liabilities and fund balances $ 244,216 $ 231,290 $ 85,767 $ 561, CITY OF SYLACAUGA, ALABAMA COMBINING BALANCE SHEET NON-MAJOR GOVERNMENTAL FUNDS CAPITAL PROJECTS FUNDS

126 SEPTEMBER 30, 2009 Airport Expansion Construction CDBG Fund Fund Fund Total ASSETS Cash and cash equivalents $ 14,385 $ 7,018 $ 29,772 $ 51,175 Receivables Federal government grants 13, ,588 Other governmental agencies , ,172 Total assets $ 28,145 $ 307,018 $ 29,772 $ 364,935 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 81,032 $ - $ - $ 81,032 Due to other funds 5,321-29,772 35,093 Total liabilities 86,353-29, ,125 Fund balances: Reserved for: Encumbrances 14,765 9,611-24,376 Unreserved: Designated for future construction (72,973) 297, ,434 Total fund balances (58,208) 307, ,810 Total liabilities and fund balances $ 28,145 $ 307,018 $ 29,772 $ 364, CITY OF SYLACAUGA, ALABAMA COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NON-MAJOR GOVERNMENTAL FUNDS

127 YEAR ENDED SEPTEMBER 30, 2009 Special Capital Revenue Projects Funds Funds Total REVENUES Motor fuel taxes $ 92,608 $ - $ 92,608 Grants 127, , ,432 Investment earnings 14,206 1,797 16,003 Miscellaneous 15,148 20,400 35,548 Total revenues 249, , ,591 EXPENDITURES Current: General government and administration 8,000 4,755 12,755 Senior citizens services 238, ,195 Social and economic development Capital outlay - 370, ,285 Total expenditures 246, , ,835 Excess (deficiency) of revenues over expenditures 2,914 (121,158) (118,244) OTHER FINANCING SOURCES (USES) Operating transfers in 114, , ,073 Operating transfers out (263,446) (265,584) (529,030) Total other financing sources (uses) (148,810) 263, ,043 Net change in fund balances (145,896) 142,695 (3,201) Fund balances - beginning 688, , ,104 Fund balances - ending $ 543,093 $ 248,810 $ 791, CITY OF SYLACAUGA, ALABAMA COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NON-MAJOR GOVERNMENTAL FUNDS - SPECIAL REVENUE FUNDS

128 YEAR ENDED SEPTEMBER 30, 2009 Senior Seven Cent Four Cent Citizens' Gas Tax Gas Tax Service Fund Fund Fund Total REVENUES Motor fuel taxes $ 52,132 $ 40,476 $ - $ 92,608 Grants , ,147 Investment earnings 13, ,206 Miscellaneous ,148 15,148 Total revenues 66,107 40, , ,109 EXPENDITURES Current: General government and administration 8, ,000 Senior citizens services , ,195 Total expenditures 8, , ,195 Excess (deficiency) of revenues over expenditures 58,107 40,707 (95,900) 2,914 OTHER FINANCING SOURCES (USES) Operating transfers in , ,636 Operating transfers out (263,446) - - (263,446) Total other financing sources (uses) (263,446) - 114,636 (148,810) Net change in fund balances (205,339) 40,707 18,736 (145,896) Fund balances - beginning 449, ,583 48, ,989 Fund balances - ending $ 244,216 $ 231,290 $ 67,587 $ 543, CITY OF SYLACAUGA, ALABAMA COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NON-MAJOR GOVERNMENTAL FUNDS CAPITAL PROJECTS FUNDS

129 YEAR ENDED SEPTEMBER 30, 2009 Airport Expansion Construction CDBG Fund Fund Fund Total REVENUES Grants $ 57,264 $ 175,021 $ - $ 232,285 Investment earnings 1, ,797 Miscellaneous 20, ,400 Total revenues 79, , ,482 EXPENDITURES Current: General government and administration 4, ,755 Social and economic development Capital outlay 58, , ,285 Total expenditures 63, , ,640 Excess (deficiency) of revenues over expenditures 15,782 (136,340) (600) (121,158) OTHER FINANCING SOURCES (USES) Operating transfers in 55, , ,437 Operating transfers out (65,584) (200,000) - (265,584) Total other financing sources (uses) (10,250) 273, ,853 Net change in fund balances 5, , ,695 Fund balances - beginning (63,740) 169, ,115 Fund balances - ending $ (58,208) $ 307,018 $ - $ 248,

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131 APPENDIX C SUMMARY OF CONTINUING DISCLOSURE AGREEMENT

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133 APPENDIX C SUMMARY OF CONTINUING DISCLOSURE AGREEMENT The following is a summary of the Continuing Disclosure Agreement (the "Agreement") entered into by the City, for the benefit of the holders of the Warrants, in order to assist the Underwriter in complying with the provisions of Rule 15c2-12 (the "Rule"), promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of Except where otherwise defined in the Appendix, all capitalized terms have the meaning assigned in the front portion of this Official Statement. Annual Report. The City agrees, in accordance with the provisions of the Rule, to provide or cause to be provided through the Electronic Municipal Market Access system ("EMMA") established by the Municipal Securities Rulemaking Board (the "MSRB") (or such other system subsequently authorized by the MSRB), as designated by the Commission in accordance with the Rule, (i) in the case of audited financial statements referred to below, when available and (ii) in all other cases, within 180 days after the close of each fiscal year of the City (October 1 September 30) commencing after September 30, 2010, the following annual financial information and operating data (the "City's Annual Report"): the audited financial statements of the City and notes thereto, prepared in accordance with generally accepted accounting principles and to include such schedules from which can be derived the financial information comparable to that set forth in the Official Statement under the headings "FINANCIAL INFORMATION" and "CERTAIN SOURCES OF REVENUE." The City reserves the right to modify from time to time the specific types of information provided or the format of the presentation of the City's Annual Report, to the extent necessary or appropriate in the judgment of the City; provided that, the City agrees that any such modification will be done in a manner consistent with the Rule. Notice of Material Events. The City agrees to provide or cause to be provided, in a timely manner, through EMMA (or such other system subsequently authorized by the MSRB), notice of the occurrence of any of the following events with respect to the Warrants, if material: 1

134 (a) principal and interest payment delinquencies; (b) non-payment related defaults; (c) difficulties; unscheduled draws on debt service reserves reflecting financial (d) difficulties; unscheduled draws on credit enhancements reflecting financial (e) perform; substitution of credit or liquidity providers, or their failure to (f) adverse tax opinions or events affecting the tax treatment (both federal and state) of the interest on the Warrants; (g) modifications of the rights of holders of the Warrants; (h) calls for redemption, other than scheduled mandatory redemption, of any of the Warrants; (i) defeasance of the Warrants or any portion thereof; (j) Warrants; or release, substitution or sale of property securing repayment of the (k) any change in any rating on the Warrants. The City may from time to time choose to provide notice of the occurrence of certain other events, in addition to those listed above, if, in the judgment of the City such other event is material with respect to the Warrants, but the City does not undertake to commit to provide any such notice of the occurrence of any material event except those events listed above. 2

135 Notice of Non-Compliance. The City agrees to provide or cause to be provided, in a timely manner, through EMMA (or such other system subsequently authorized by the MSRB), notice of any failure by it to provide the annual financial information described in Sections 1 and 2 hereof on or prior to the dates respectively set forth in said sections. Beneficiaries and Enforcement. The City agrees that its undertaking pursuant to the Rule set forth in the Agreement is intended to be for the benefit of the holders of the Warrants and the Trustee and shall be enforceable by such holders; provided, that the right of the holders of the Warrants to enforce the provisions of the Agreement shall be limited to a right to obtain specific enforcement of the respective obligations of the City hereunder. No failure by the City to comply with its obligations under the Agreement shall constitute an event of default under the Ordinances. Amendment. The Agreement may be amended without the consent of any holders of the Warrants if (a) such amendment is made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of the City; (b) the agreement, as so amended, would have complied with the requirements of the Rule at the time of the execution hereof, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the City receives an opinion of nationally recognized bond counsel that such amendment does not materially impair the interests of any of the holders of the Warrants. 3

136 (Page Intentionally Left Blank)

137 APPENDIX D SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY

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139 Financial Guaranty Insurance Policy Issuer: Policy No.: Obligations: Premium: Effective Date: Assured Guaranty Corp., a Maryland corporation ( AGC ), in consideration of the payment of the Premium and on the terms and subject to the conditions of this Policy (which includes each endorsement hereto), hereby unconditionally and irrevocably agrees to pay to the trustee (the Trustee ) or the paying agent (the Paying Agent ) for the Obligations (as set forth in the documentation providing for the issuance of and securing the Obligations) for the benefit of the Holders, that portion of the Insured Payments which shall become Due for Payment but shall be unpaid by reason of Nonpayment. AGC will make such Insured Payments to the Trustee or the Paying Agent on the later to occur of (i) the date applicable principal or interest becomes Due for Payment, or (ii) the Business Day next following the day on which AGC shall have Received a completed Notice of Nonpayment. If a Notice of Nonpayment by AGC is incomplete or does not in any instance conform to the terms and conditions of this Policy, it shall be deemed not Received, and AGC shall promptly give notice to the Trustee or the Paying Agent. Upon receipt of such notice, the Trustee or the Paying Agent may submit an amended Notice of Nonpayment. The Trustee or the Paying Agent will disburse the Insured Payments to the Holders only upon receipt by the Trustee or the Paying Agent, in form reasonably satisfactory to it of (i) evidence of the Holder's right to receive such payments, and (ii) evidence, including without limitation any appropriate instruments of assignment, that all of the Holder's rights to payment of such principal or interest Due for Payment shall thereupon vest in AGC. Upon and to the extent of such disbursement, AGC shall become the Holder of the Obligations, any appurtenant coupon thereto and right to receipt of payment of principal thereof or interest thereon, and shall be fully subrogated to all of the Holder's right, title and interest thereunder, including without limitation the right to receive payments in respect of the Obligations. Payment by AGC to the Trustee or the Paying Agent for the benefit of the Holders shall discharge the obligation of AGC under this Policy to the extent of such payment. This Policy is non-cancelable by AGC for any reason. The Premium on this Policy is not refundable for any reason. This Policy does not insure against loss of any prepayment premium or other acceleration payment which at any time may become due in respect of any Obligation, other than at the sole option of AGC, nor against any risk other than Nonpayment. Except to the extent expressly modified by any endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. Avoided Payment means any amount previously distributed to a Holder in respect of any Insured Payment by or on behalf of the Issuer, which amount has been recovered from such Holder pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction that such payment constitutes an avoidable preference with respect to such Holder. Business Day means any day other than (i) a Saturday or Sunday, (ii) any day on which the offices of the Trustee, the Paying Agent or AGC are closed, or (iii) any day on which banking institutions are authorized or required by law, executive order or governmental decree to be closed in the City of New York or in the State of Maryland. Due for Payment means (i) when referring to the principal of an Obligation, the stated maturity date thereof, or the date on which such Obligation shall have been duly called for mandatory sinking fund redemption, and does not refer to any earlier date on which payment is due by reason of a call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless AGC in its sole discretion elects to make any principal payment, in whole or in part, on such earlier date) and (ii) when referring to interest on an Obligation, the stated date for payment of such interest. Holder means, in respect of any Obligation, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Obligation to payment of principal or interest thereunder, except that Holder shall not include the Issuer or any person or entity whose direct or indirect obligation constitutes the underlying security for the Obligations. Insured Payments means that portion of the principal of and interest on the Obligations that shall become Due for Payment but shall be unpaid by reason of Nonpayment. Insured Payments shall not include any additional amounts owing by the Issuer solely as a result of the failure by the Trustee or the Paying Agent to pay such amount when due and payable, including without limitation any such additional amounts as may be attributable to penalties or to interest accruing at a default rate, to amounts payable in respect of indemnification, or to any other additional amounts payable by the Trustee or the Paying Agent by reason of such failure. Nonpayment means, in respect of an Obligation, the failure of the Issuer to have provided sufficient funds to the Trustee or the Paying Agent for payment in full of all principal and interest Due for Payment on such Obligation. It is further understood that the term "Nonpayment" in respect of an Obligation includes any Avoided Payment. Receipt or Received means actual receipt or notice of or, if notice is given by overnight or other delivery service, or by certified or registered United States mail, by a delivery receipt signed by a person authorized to accept delivery on behalf of the person to whom the notice was given. Notices to AGC may be mailed by registered mail or personally delivered or telecopied to it at 31 West 52 nd Street, New York, New York 10019, Telephone Number: (212) , Facsimile Number: (212) , Attention: Risk Management Department Public Finance Surveillance, with a copy to the General Counsel at the same address and at generalcounsel@assuredguaranty.com or at the following Facsimile Number: (212) , or to such other address as shall be specified by AGC to the Trustee or the Paying Agent in writing. A Notice of Nonpayment will be deemed to be Received by AGC on a given Business Day if it is Received prior to 12:00 noon (New York City Page 1 of 2 Form NY-FG (05/07)

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