$4,000,000* CITY OF COVINGTON, KENTUCKY TAXABLE GENERAL OBLIGATION BONDS, SERIES 2015

Transcription

1 PRELIMINARY OFFICIAL STATEMENT DATED AUGUST 5, 2015 This Preliminary Official Statement and information contained herein are subject to change, completion or amendment without notice. These securities may not be sold nor may offers to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of any offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. Book-Entry Only New Issue Not Bank Qualified Rating: Moody s: Rating Applied For See "Rating" herein In the opinion of Bond Counsel for the Bonds, based upon an analysis of laws, regulations, rulings and court decisions, (i) interest on the Bonds will be includable in gross income of the holders thereof for purposes of federal income taxation and (ii) interest on the Bonds is exempt from income taxation and the Bonds are exempt from ad valorem taxation by the Commonwealth of Kentucky, all subject to the qualifications described herein under the heading "LEGAL MATTERS Tax Treatment" herein. $4,000,000* CITY OF COVINGTON, KENTUCKY TAXABLE GENERAL OBLIGATION BONDS, SERIES 2015 Interest on the captioned bonds (herein the "Bonds") will be payable from the dated date, on May 1 and November 1, commencing May 1, 2016, and the Bonds mature on May 1, as shown below: Year Amount* Interest Rate Price/ Yield Cusip Year Amount* Interest Rate 2016 $150,000 % 2026 $195,000 % , , , , , , , , , , , , , , , , , ,000 Price/ Yield Cusip The Bonds will be issuable under a book entry system, registered in the name of The Depository Trust Company ("DTC") or its nominee. There will be no distribution of the Bonds to the ultimate purchasers. See "Book Entry" herein. Principal and interest on the Bonds is payable at the designated corporate trust office of U.S. Bank National Association, Cincinnati, Ohio, as Paying Agent and Bond Registrar. The Bonds are being issued as fully registered bonds in denominations of $5,000 and integral multiples thereof. Interest payments will be mailed by the Paying Agent to each holder of record as of the fifteenth day of the month preceding the date for such interest payment. The Bonds shall be subject to optional redemption prior to their maturity on any date on or after May 1, 2025, as described herein. The City deems this Preliminary Official Statement to be final for purposes of Security and Exchange Commission Rule 15c2-12, except for certain information on the cover page hereof and certain pages herein which has been omitted in accordance with the Rule and will be provided with the final Official Statement. The Bonds are offered when, as and if issued, subject to the approval of legality by Dinsmore & Shohl LLP, Bond Counsel, Covington, Kentucky. Certain legal matters have been passed upon for the City by Frank Warnock, Esq., City Solicitor. The Bonds are expected to be available for delivery on or about August 27, THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION. *Preliminary; subject to change. FIFTH THIRD SECURITIES, INC. FINANCIAL ADVISOR

2 [this page intentionally left blank]

3 CITY OF COVINGTON, KENTUCKY Mayor Sherry Carran Board of Commissioners Steve Frank Chuck Eilerman Jordan Huizenga Bill Wells City Manager Larry Klein Interim Finance Director Lisa Desmarais City Solicitor Frank Warnock, Esq. City Clerk Margaret Nyhan BOND COUNSEL Dinsmore & Shohl LLP Covington, Kentucky FINANCIAL ADVISOR Fifth Third Securities, Inc. Cincinnati, Ohio PAYING AGENT AND BOND REGISTRAR U.S. Bank National Association Cincinnati, Ohio

4 [this page intentionally left blank]

5 TABLE OF CONTENTS INTRODUCTION... 1 The Issuer Authority for Issuance... 1 Sources of Payment for the Bonds... 1 Purpose of the Bonds... 1 Description of the Bonds... 1 Redemption Book Entry Payment of Bonds and Paying Agent and Bond Registrar... 2 Interest Parties to the Issuance of the Bonds... 2 Offering and Delivery of the Bonds... 3 Disclosure Information... 3 Additional Information... 3 DESCRIPTION OF THE BONDS... 3 Redemption Provisions... 3 Security and Source of Payment for Bonds... 5 Book-Entry Only System... 5 DESCRIPTION OF THE PROJECT AND PLAN OF FINANCE... 5 INVESTMENT CONSIDERATIONS... 6 PROFILE OF THE CITY AND SURROUNDING AREA... 6 CITY GOVERNMENT... 6 Elected and Appointed Officials... 6 Financial Matters... 7 Financial Management... 7 Financial Reports and Examinations of Accounts... 8 Budgeting and Appropriations Procedures... 8 Investment Policies... 8 Debt Limitation Tax Limitation Future Borrowings of the City LEGAL MATTERS General Information Transcript and Closing Certificates Litigation Tax Treatment RATING CONTINUING DISCLOSURE UNDERWRITING FINANCIAL ADVISOR MISCELLANEOUS APPENDICES: APPENDIX A - Estimated Debt Service Requirements for the Bonds and Aggregate Debt Service on General Obligation Indebtedness APPENDIX B - APPENDIX C - APPENDIX D - APPENDIX E - APPENDIX F - APPENDIX G - APPENDIX H - APPENDIX I - Demographic and Economic Data Historical General Fund Revenues and Expenses and Actual and Projected General Fund Balances; and Audited Financial Statements for the Fiscal Year ended June 30, 2014 Audited General Purpose Financial Statements of the City of Covington, Kentucky for the Fiscal Year Ending June 30, 2014 Statement of Indebtedness of Interim Finance Director Form of Legal Approving Opinion of Bond Counsel Book-Entry Only System Official Terms and Conditions of Bond Sale Official Bid Form i

6 REGARDING THIS OFFICIAL STATEMENT This Official Statement does not constitute an offering of any security other than the original offering of the Bonds of the City. No dealer, broker, salesman or other person has been authorized by the City to give any information or to make any representation, other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by the City. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information and expressions of opinion herein are subject to change without notice. Neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof. Upon issuance, the Bonds will not be registered by the City under any federal or state securities law, and will not be listed on any stock or other securities exchange. Neither the Securities and Exchange Commission nor any other federal, state, municipal or other governmental entity or agency except the City will have, at the request of the City, passed upon the accuracy or adequacy of this Official Statement or approved the Bonds for sale. All financial and other information presented in this Official Statement has been provided by the City from its records, except for information expressly attributed to other sources. The presentation of information, including tables of receipts from taxes and other sources, is intended to show recent historic information, and is not intended to indicate future or continuing trends in the financial position or other affairs of the City. No representation is made that past experience, as is shown by that financial and other information, will necessarily continue or be repeated in the future. Insofar as the statements contained in this Official Statement involve matters of opinion or estimates, even if not expressly stated as such, such statements are made as such and not as representations of fact or certainty, no representation is made that any of such statements have been or will be realized, and such statements should be regarded as suggesting independent investigation or consultation of other sources prior to the making of investment decisions. Certain information may not be current; however, attempts were made to date and document sources of information. Neither this Official Statement nor any oral or written representations by or on behalf of the City preliminary to sale of the Bonds should be regarded as part of the City's contract with the successful bidder or the holders from time to time of the Bonds. References herein to provisions of Kentucky law, whether codified in the Kentucky Revised Statutes ("KRS") or uncodified, or to the provisions of the Kentucky Constitution or the City's ordinances or resolutions, are references to such provisions as they presently exist. Any of these provisions may from time to time be amended, repealed or supplemented. As used in this Official Statement, "debt service" means principal of, interest and any premium on, the obligations referred to; "City" means the City of Covington; and "State" or "Kentucky" means the Commonwealth of Kentucky. ii

7 INTRODUCTION The purpose of this Official Statement, which includes the cover page and appendices hereto, is to provide certain information with respect to the issuance of $4,000,000* aggregate principal amount of Taxable General Obligation Bonds, Series 2015 (the "Bonds") of the City of Covington, Kentucky as specified on the cover hereof. This introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of Bonds to potential investors is made only by means of the entire Official Statement. The Issuer The Bonds are being issued by the City of Covington, Kentucky (the "City"), a municipal corporation of the 2 nd class and a political subdivision of the State of Kentucky. The City is located in Kenton County in Northern Kentucky. Authority for Issuance Authority for the issuance of the Bonds is provided by Sections through of the Kentucky Revised Statutes and an ordinance (the "Ordinance") adopted by the Board of Commissioners of the City on June 16, Sources of Payment for the Bonds The Bonds are general obligation debt of the City. The basic security for the Bonds is the City's ability to levy an annual tax to pay the interest on and principal of the Bonds as and when the same become due and payable. (See "Security and Source of Payment for the Bonds," herein). Purpose of the Bonds The Bonds are being issued for the purpose of: (i) financing a portion of the costs of the redevelopment of formerly owned municipal property into a hotel to be located in downtown Covington, including related appurtenances (the "Project"); and (ii) paying the costs of issuance of the Bonds. (See "DESCRIPTION OF THE PROJECT AND PLAN OF FINANCE" herein for a more detailed description of the Project.) Description of the Bonds The Bonds mature as indicated on the cover page hereof. The Bonds are being offered in the denominations of $5,000 or any integral multiple thereof. The Bonds are initially being issued in Book-Entry-Only form registered in the name of DTC or its nominee. There will be no distribution of Bonds to ultimate purchasers (see "Book-Entry", herein). Redemption The Bonds maturing May 1, 2026 and thereafter are subject to optional redemption prior to maturity, commencing May 1, 2025, see "DESCRIPTION OF THE BONDS Redemption Provisions Optional Redemption," herein). *Preliminary; subject to change throughout.

8 The Bonds maturing on May 1, 20 are subject to mandatory sinking fund redemption commencing May 1, 20 and the Bonds maturing on May 1, 20 are subject to mandatory sinking fund redemption commencing May 1, 20 (see "DESCRIPTION OF THE BONDS - Redemption Provisions - Mandatory Sinking Fund Redemption", herein). In the event any Bonds are called for redemption, notice shall be given by mailing a copy of the redemption notice at least thirty (30) days prior to the date fixed for redemption to the registered owner of each Bond to be redeemed (see "DESCRIPTION OF THE BONDS - Redemption Provisions", herein). Book Entry The Bonds are issuable only as fully registered Bonds, without coupons. The Bonds, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York, which will act as securities depository for the Bonds. Purchasers will not receive certificates representing their ownership interest in the Bonds purchased. So long as DTC or its nominee is the registered owner of the Bonds, payments of the principal of and interest due on the Bonds will be made directly to DTC. Principal of, redemption premium, if any, and interest on the Bonds will be paid directly to DTC by U.S. Bank National Association, Cincinnati, Ohio, as Registrar and Paying Agent (the "Paying Agent and Bond Registrar"). See "DESCRIPTION OF THE BONDS Book-Entry Only System" and APPENDIX G herein. Payment of Bonds and Paying Agent and Bond Registrar Principal of the Bonds will be paid in lawful money of the United States of America at the designated corporate trust office of U.S. Bank National Association, Cincinnati, Ohio, and interest shall be mailed by the Paying Agent and Bond Registrar to the record date registered holders at the address of such holder maintained on the registration book of the Paying Agent and Bond Registrar. The record dates for May 1 and November 1 interest payment dates on the Bonds shall be the preceding April 15 and October 15, respectively. Interest The Bonds shall be dated their date of initial issuance and delivery and bear interest at the rates set forth on the cover hereof, payable semi-annually on May 1 and November 1, beginning May 1, Tax Treatment Under the laws, regulations, rulings and judicial decisions in effect as of the date hereof, interest, including original issue discount, if any, on the Bonds is includable in gross income for Federal income tax purposes, pursuant to the Internal Revenue Code of 1986, as amended (the "Code"). Bond Counsel expresses no other opinion as to the federal tax consequences of purchasing, holding or disposing of the Bonds. Interest on the Bonds is exempt from income taxation and the bonds are exempt from ad valorem taxation by the Commonwealth of Kentucky and any of its political subdivisions. See "LEGAL MATTERS Tax Treatment" herein and Appendix F for the form of the opinion Bond Counsel proposes to deliver in connection with the Bonds. Parties to the Issuance of the Bonds The Paying Agent and Bond Registrar is U.S. Bank National Association, Cincinnati, Ohio. Legal matters incident to the issuance of the Bonds and with regard to the tax-exempt status of the interest thereon are subject to the approving legal opinion of Dinsmore & Shohl LLP, Covington, Kentucky, Bond Counsel. The Financial Advisor to the City is Fifth Third Securities, Inc., Cincinnati, Ohio. 2

9 Offering and Delivery of the Bonds The Bonds are offered when, as and if issued by the City. The Bonds will be delivered on or about August 27, 2015 in New York, New York through the Depository Trust Company (DTC). Disclosure Information This Official Statement speaks only as of its date, and the information contained herein is subject to change. This Official Statement and continuing disclosure documents of the City are intended to be made available through one or more repositories. Copies of the basic documentation relating to the Bonds, including the authorizing ordinances and the note forms, are available from the City. The City deems this Preliminary Official Statement to be final for the purposes of Securities and Exchange Commission Rule 15c2-12(b)(1), except for certain information on the cover page hereof and certain pages herein which has been omitted in accordance with the Rule and will be provided with the final Official Statement. Additional Information Additional information concerning this Official Statement, as well as copies of the basic documentation relating to the Bonds, is available from Fifth Third Securities, Inc., Financial Advisor to the City, 38 Fountain Square Plaza, Cincinnati, Ohio 45202, Telephone (513) Attn: Mr. Andrew J. Brossart. DESCRIPTION OF THE BONDS The Bonds are dated their date of initial issuance and delivery and bear interest from such date at the rates set forth on the cover page of this Official Statement. The Bonds are being issued as fully registered bonds in the denomination of $5,000 or any integral multiple thereof. Interest on the Bonds is payable semi-annually on May 1 and November 1, commencing May 1, Interest on all Bonds is payable by check or draft mailed to the registered holder by U.S. Bank National Association, Cincinnati, Ohio, the Paying Agent and Bond Registrar. Principal is payable when due to the registered holder upon surrender of the Bonds at the corporate trust office of the Paying Agent and Bond Registrar in Cincinnati, Ohio. Redemption Provisions Optional Redemption The Bonds maturing on and after May 1, 2026 shall be subject to optional redemption prior to their maturity on any date on or after May 1, 2025, in whole or in part, in such order of maturity as may be selected by the City and by lot within a maturity at a redemption price equal to the principal amount of Bonds to be redeemed, plus accrued interest to the date of redemption. Mandatory Sinking Fund Redemption The Bonds maturing on the dates set forth below are subject to mandatory sinking fund redemption prior to maturity at a redemption price of 100% of the principal amount to be redeemed, plus accrued interest to the redemption date, on the dates, in the years and in the principal amounts as follows: 3

10 Maturing May 1, 20 Date Amount *Final Maturity Maturing May 1, 20 Date Amount Notice of Redemption *Final Maturity If less than all Bonds which are payable by their terms on the same date are to be called, the particular Bonds or portions of Bonds payable on such same date and to be redeemed from such series shall be selected by lot by the Paying Agent and Bond Registrar, in such manner as the Paying Agent and Bond Registrar in its discretion may determine; provided, however, that the portion of any Bond to be redeemed shall be in the principal amount of $5,000 or some multiple thereof, and that, in selecting Bonds for redemption, the Paying Agent and Bond Registrar shall treat each bond as representing that number of Bonds which is obtained by dividing the principal amount of such Bond by $5,000. At least thirty (30) days before the redemption date of any Bonds the Paying Agent and Bond Registrar shall cause a notice of such redemption either in whole or in part, signed by the Paying Agent and Bond Registrar, to be mailed, postage prepaid, to all registered owners of Bonds to be redeemed in whole or in part at their addresses as they appear on the registration books kept by the Paying Agent and Bond Registrar, but failure so to mail any such notice shall not affect the validity of the proceedings for such redemption. Each such notice shall set forth the date fixed for redemption, the redemption price to be paid and, if less than all of the Bonds being payable by their terms on a single date then outstanding shall be called for redemption, the distinctive numbers or letters, if any, of such Bonds to be redeemed and, in the case of Bonds to be redeemed in part only, the portion of the principal amount thereof to be redeemed. In case any Bond is to be redeemed in part only, the notice of redemption which relates to such Bond shall state also that on or after the redemption date upon surrender of such Bonds, a new Bond in principal amount equal to the unredeemed portion of such Bonds will be issued. On the date so designated for redemption, notice having been sent in the manner and under the conditions hereinabove provided and moneys for payment of the redemption price being held in separate accounts by the Paying Agent and Bond Registrar for the holders of the Bonds or portions thereof to be redeemed, the Bonds or portions of Bonds so called for redemption shall become and be due and payable at the redemption price provided for redemption of such Bonds or portions of Bonds on such date, interest on the Bonds or portions of Bonds so called for redemption shall cease to accrue, and the holders or registered owners of such Bonds or portions of Bonds shall have no rights in respect thereof except to receive payment of the redemption price thereof and to receive Bonds for any unredeemed portions of Bonds. In case part but not all of an outstanding Bond shall be selected for redemption, the registered owner thereof or his attorney or legal representative shall present and surrender such Bond to the Paying Agent and Bond Registrar for payment of the principal amount hereof so called for redemption, and the City shall execute and the Paying Agent and Bond Registrar shall authenticate and deliver to or upon the order of such registered owner or his legal representative, without charge therefor, for the unredeemed 4

11 portion of the principal amount of the Bond so surrendered a Bond of the same series and maturity and bearing interest at the same rate. Security and Source of Payment for Bonds The Bonds are general obligations of the City and the full faith, credit and taxing power of the City is irrevocably pledged to the payment of principal of and interest on the Bonds when due. The basic security for the general obligation debt of the City, including the Bonds, is the City's ability to levy, and its pledge to levy, an annual tax to pay the interest on and principal of the Bonds as and when the same become due and payable. The tax must be levied in sufficient amount to pay, as the same become due, the principal of and interest on the Bonds as well as the principal of and interest on all outstanding general obligation bonds and bond anticipation notes of the City. The Constitution of the State mandates the collection of a tax sufficient to pay the interest on an authorized indebtedness and the creation of a sinking fund for the payment of the principal thereof. The Ordinance levies such annual tax which shall be collected to the extent other lawfully available monies of the City are not provided. The Ordinance also maintains a sinking fund into which the proceeds of such tax or other lawfully available monies of the City are to be deposited for payment of the interest on and principal of the Bonds and shall not be used for any other purpose. Chapter 9 of the Federal Bankruptcy Code contains provisions relating to the adjustment of debts of a State's political subdivisions, public agencies and instrumentalities ("eligible entity"), such as the City. Under the Bankruptcy Code and in certain circumstances described therein, an eligible entity may be authorized to initiate Chapter 9 proceedings without prior notice to or consent of its creditors, which proceedings may result in material and adverse modification or alteration of the rights of its secured and unsecured creditors, including holders of its bonds and notes. Section of the Kentucky Revised Statutes permits a political subdivision, such as the City, for the purpose of enabling such subdivision to take advantage of the provisions of the Bankruptcy Code, and for that purpose only, to file a petition stating that the subdivision is insolvent or unable to meet its debts as they mature, and that it desires to effect a plan for the composition or readjustment of its debts, and to take such further proceedings as are set forth in the Bankruptcy Code as they relate to such subdivision. No taxing subdivision is permitted, in availing itself of the provisions of the Bankruptcy Code, to scale down, cut down or reduce the principal sum of its securities except that interest thereon may be reduced in whole or in part. Book-Entry Only System The Bonds initially will be issued solely in book entry form to be held in the book-entry only system maintained by DTC. So long as such book-entry system is used, only DTC will receive or have the right to receive physical delivery of Bonds and Beneficial Owners will not be or be considered to be, and will not have any rights as, owners or holders of the Bonds under the Ordinance. For additional information about DTC and the book-entry-only system see "APPENDIX G Book-Entry Only System." THE INFORMATION IN THIS SECTION AND IN APPENDIX G CONCERNING DTC AND DTC'S BOOK-ENTRY SYSTEM HAS BEEN OBTAINED FROM SOURCES THAT THE CITY BELIEVES TO BE RELIABLE, BUT THE CITY TAKES NO RESPONSIBILITY FOR THE ACCURACY THEREOF DESCRIPTION OF THE PROJECT AND PLAN OF FINANCE The Bonds are being issued to (i) finance a portion of the costs of the redevelopment and conversion of real property formerly owned by the City into a hotel to be located in downtown Covington, including related appurtenances (the "Project"); and (ii) pay the costs of issuing the Bonds. 5

12 The Project is located in the City Center Covington Development Area. The remainder of the project is being financed with historic tax credits, tourism tax credits, and new market tax credits, along with equity investments. SOURCES AND USES OF FUNDS Sources: Bond Proceeds [Plus Original Issue Premium][Less Original Issue Discount] Total Sources Uses: Underwriter's Discount Deposit to Construction Fund Cost of Issuance Total Uses $ $ $ $ INVESTMENT CONSIDERATIONS The Bonds, like all obligations of state and local government, are subject to changes in value due to changes in the condition of the tax-exempt bond market and/or changes in the financial condition of the City. It is possible under certain market conditions, or if the financial condition of the City should change, that the market price of the Bonds could be adversely affected. With regard to the risk involved in a lowering of the City's bond rating, see "RATING" herein. With regard to creditors' rights, see "SECURITY AND SOURCE OF PAYMENT FOR BONDS" herein. PROFILE OF THE CITY AND SURROUNDING AREA Economic and financial information with respect to the City is set forth in Appendix B hereto. Elected and Appointed Officials CITY GOVERNMENT The City of Covington is governed by a Board of Commissioners, comprised of a Mayor, elected to a four year term, and four (4) commissioners who are elected to two year terms. The members of the Board of Commissioners and their terms of office are as follows: Member Original Term Began Current Term Ends Sherry Carran, Mayor January 1, 2013 December 31, 2016 Steve Frank January 1, 2011 December 31, 2016 Chuck Eilerman January 1, 2013 December 31, 2016 Jordan Huizenga January 1, 2015 December 31, 2016 Bill Wells January 1, 2015 December 31,

13 The current appointed City officials who serve at the pleasure of Board of Commissioners are: City Manager Interim Finance Director City Clerk City Solicitor Larry Klein Lisa Desmarais Margaret Nyhan Frank Warnock, Esq. Financial Matters The Finance Director is the fiscal officer of the City, and is appointed by and serves at the pleasure of the Board of Commissioners. The Finance Director is responsible for the accounting, collection, custody and disbursement of the funds of the City. The Finance Director serves the Board of Commissioners and the City Manager as financial advisor in connection with City affairs, and performs such other duties as the Board of Commissioners or City Manager request. The City's fiscal year commences July 1 and ends the following June 30. The administrative functions of the City are performed by or under the supervision of the following: 1. Establishment of overall financial policy, the Board of Commissioners. 2. Planning and development, City Manager. 3. Assessment of real and personal property, the Kenton County Property Valuation Administrator. 4. Financial control functions, the Finance Director. 5. Inspection and supervision of the accounts and reports of the City as required by law, by independent certified public accountants. Financial Management The Board of Commissioners is responsible for appropriating the funds used to support the various City activities. The Board of Commissioners exercises its legislative powers by budgeting, appropriating, levying taxes, issuing bonds and notes, and letting contracts for public works and services to provide this financial management. On August 23, 2013, the former Finance Director for the City was arrested and charged with theft, unlawful access to a computer, criminal possession of a forged instrument, and official misconduct. An examination was completed by the Kentucky Auditor of Public Accounts which identified a total of $793,127 in embezzled funds over a 12 year period. The checks were the result of a circumvention of controls and manipulation of accounting records perpetrated by the former finance director. The City has filed a civil lawsuit against the former finance director and a variety of other parties, including prior auditors. Recovery of funds is still pending legal proceedings. The City expects that it will be able to recover most of the money that was stolen, which will be added to the existing General Fund balance. The City took several actions to mediate this risk in the future, including hiring a new Finance Director, a Certified Public Accountant (CPA), an Assistant Finance Director, also a CPA, an Internal Auditor who is a Certified Fraud Examiner and an Information Technology Manager. Additionally, internal control procedures are being reviewed at every level of operation within the City, with control mechanisms having been put in place that will continually be monitored by internal and external auditors. These changes reflect the City Management s commitment to preventing future occurrences and ensuring that public funds are properly managed going forward. 7

14 Financial Reports and Examinations of Accounts Each city in the State is required to keep its accounting records and render financial reports in such a way as to: (a) determine compliance with statutory provisions; (b) determine fairly and with full disclosure the financial operations of consistent funds and account groups of the city in conformity with generally accepted governmental accounting principles; and (c) readily provide such financial data as may be required by the federal revenue sharing program. Municipal accounting systems are required to be organized and operated on a fund basis. The City maintains its accounts and other fiscal records on an appropriation and modified accrual basis in accordance with the procedures established and prescribed by the Kentucky Department for Local Government. As required by law, financial reports are prepared annually by the City and filed with the Kentucky Department for Local Government. Audits are required to be completed by the February 1st immediately following the fiscal year being audited. The accounting procedures prescribed by the Kentucky Department for Local Government are generally applicable to all cities in Kentucky and may be different from generally accepted government accounting principles as presented and recommended in the National Council on Governmental Accounting publication "Governmental Accounting Auditing and Financial Reporting," and the Industry Audit Guide of the American Institute of Certified Public Accountants, entitled "Audits of State and Local Governmental Units." Those publications, among other things, provide for a modified accrual basis of accounting for the general fund, all special revenue funds and the debt service fund, and for a full accrual basis of accounting for all other funds, and further provide for the preparation for each fund of balance sheets, statements of revenues and expenditures, and statements showing changes in fund balances. Budgeting and Appropriations Procedures Detailed provisions for City budgeting, tax levies and appropriations are made in the Kentucky Revised Statutes. Cities are required to operate under an annual budget ordinance and no City may expend any moneys from a governmental or proprietary fund except in accordance with such budget. A budget proposal must be submitted to the City's legislative body no later than 30 days prior to the beginning of the fiscal year covered by the budget. No budget ordinance may be adopted which provides for appropriations to exceed revenues and the available fund balance in a fiscal year. The full amount estimated to be required for debt service during the budget year must be appropriated. Investment Policies Section of the Kentucky Revised Statutes sets forth the requirements and limitations for investments of the state's political subdivisions, including the City. Under that Section, the City must adopt an investment policy and may invest its funds only in the classifications of obligations; which are eligible for investment, which are as follows: (a) (b) Obligations of the United States and of its agencies and instrumentalities, including obligations subject to repurchase agreements, if delivery of these obligations subject to repurchase agreements is taken either directly or through an authorized custodian. These investments may be accomplished through repurchase agreements reached with sources including, but not limited to, national or state banks chartered in Kentucky; Obligations and contracts for future delivery or purchase of obligations backed by the full faith and credit of the United States or a United States governmental agency, including but not limited to: 1. United States Treasury; 8

15 2. Export-Import Bank of the United States; 3. Farmers Home Administration; 4. Governmental National Mortgage corporation; and 5. Merchant Marine bonds; (c) Obligations of any corporation of the United States government, including but not limited to: 1. Federal Home Loan Mortgage Corporation; 2. Federal Farm Credit Banks; 3. Bank for Cooperatives; 4. Federal Intermediate Credit Banks; 5. Federal Land Banks; 6. Federal Home Loan Banks; 7. Federal National Mortgage Association; and 8. Tennessee Valley Authority; (d) (e) (f) (g) Certificates of deposit issued by or other interest-bearing accounts of any bank or savings and loan institution which are insured by the Federal Deposit Insurance Corporation or similar entity or which are collateralized, to the extent uninsured, by any obligations permitted by KRS (d); Uncollateralized certificates of deposit issued by any bank or savings and loan institutions rated in one (1) of the three (3) highest categories by a nationally recognized rating agency; Bankers' acceptances for banks rated in one (1) of the three (3) highest categories by a nationally recognized rating agency; Commercial paper rated in the highest category by a nationally recognized rating agency; (h) Bonds or certificates of indebtedness of this state and of its agencies and instrumentalities; (i) (j) Securities issued by a state or local government, or any instrumentality of agency thereof, in the United States, and rated in one (1) of the three highest categories by a nationally recognized rating agency; and Shares of mutual funds, each of which shall have the following characteristics; 1. The mutual fund shall be an open-end diversified investment company registered under the Federal Investment Company Act of 1940, as amended; 2. The management company of the investment company shall have been in operation for at least five (5) years; and 3. All of the securities in the mutual fund shall be eligible investments pursuant to this section. The City's current investment policy is more restrictive than is permitted by State law. The City values safety, liquidity and return, in that order. 9

16 Debt Limitation Kentucky Constitution Section 158 provides that cities shall not incur indebtedness to an amount exceeding the following maximum percentages on the value of the taxable property therein, to be estimated by the last assessment previous to the incurring of the indebtedness: (a) Cities having a population of fifteen thousand (15,000) or more, ten percent (10%); (b) Cities having a population of less than fifteen thousand (15,000) but not less than three thousand, five percent (5%); and (c) Cities having a population of less than three thousand (3,000), three percent (3%). Nothing shall prevent the issue of renewal bonds, or bonds to fund the floating indebtedness of any city, county, or taxing district. Subject to the limits and conditions set forth in that section and elsewhere in the Constitution, the General Assembly has the power to establish additional limits on indebtedness and conditions under which debt may be incurred by cities. KRS provides the same limitations as are set forth in the Constitution except that the limitations apply to "net indebtedness". In calculating "net indebtedness," KRS provides that certain obligations of a municipality are not to be considered in the calculation, including self-supporting obligations, revenue bonds, and special assessment debt. (For a complete list of exempt debt see the Statement of Indebtedness attached as Appendix E.) Other infrequently-issued types of obligations are also excluded from the calculation of net indebtedness. The City has no such obligations outstanding. Notes issued in anticipation of bonds excluded from the calculation of net indebtedness are also excluded from such calculation. Appendix E of this Official Statement is a Statement of Indebtedness for the City, certified by the Interim Finance Director, calculating the amount of the outstanding obligations of the City (including the Bonds) which are subject to the total direct debt limit (10% limit). The total principal amount of general obligation debt that could be issued by the City, subject to the 10% total direct debt limitation is $221,081,976 and the City's net debt subject to such limitation presently outstanding (including the Bonds) is $60,484,136* leaving a balance of approximately $160,597,840* borrowing capacity issuable within such limitation. However, as described below, the City's ability to incur debt in these amounts is restricted by tax limitations. In the case of general obligation debt, both the debt limitations and tax limitations must be met. Tax Limitation The Kentucky Constitution Section 157 also indirectly imposes a debt limitation on general obligation indebtedness of Cities by limiting the tax rates cities may impose upon the value of taxable property, as follows: (a) (b) (c) cities having a population of fifteen thousand or more, one dollar and fifty cents on each hundred dollars of assessed value; cities having a population of less than fifteen thousand and not less than ten thousand, one dollar on each hundred dollars of assessed value; and cities having a population of less than ten thousand, seventy-five cents on the hundred dollars. 10

17 Section 159 of the Kentucky Constitution requires the collection of an annual tax sufficient to pay the interest on contracted indebtedness and to retire indebtedness over a period not exceeding forty years. The two constitutional provisions operate as a limit on general obligation debt. Because the indirect debt limit results from tax limitations and the requirement to levy taxes to pay debt charges, it has application only to debts which are payable from taxes either initially or in the event other pledged non-tax revenues prove to be insufficient. It does not have any application where the type of debt being issued does not pledge the credit of the municipality or when the debt is payable solely out of the revenues of non-tax sources, such as utility income. Appendix E of this Official Statement contains a Statement of Indebtedness, certified by the City, setting forth the property tax rate currently levied by the City of $.3045 per $100 for real property and $.3045 per $100 for personal property, and certifying that the issuance of the Bonds will not cause such rates to increase to amounts which would exceed the maximum permissible rates. Future Borrowings of the City The City does not presently anticipate issuing any additional general obligation debt. General Information LEGAL MATTERS Legal matters incident to the issuance of the Bonds the Bonds are subject to the approving legal opinion of Dinsmore & Shohl LLP, Bond Counsel. Upon delivery of the Bonds of the City to the successful bidder therefor, the Bonds will be accompanied by an approving opinion dated the date of such delivery, rendered by Dinsmore & Shohl LLP. A draft of such legal opinion for the Bonds is attached as Appendix F. Said firm as Bond Counsel has performed certain functions to assist the City in the preparation by the City of its Official Statement. However, said firm assumes no responsibility for, and will express no opinion regarding the accuracy or completeness of this Official Statement or any other information relating to the City or the Bonds that may be made available by the City or others to the bidders or holders of the Bonds or others. The engagement of said firm as Bond Counsel is limited to the preparation of certain of the documents contained in the transcript of proceedings with regard to the Bonds, and an examination of such transcript proceedings incident to rendering its legal opinion. In its capacity as Bond Counsel, said firm has reviewed the information in this Official Statement under Sections entitled "General Information" as to legal matters, "Authority for Issuance", "Security and Source of Payment for Bonds", "Debt Limitation", Tax Limitation, and Tax Treatment, which review did not include any independent verification of financial statements and statistical data included therein, if any. Transcript and Closing Certificates A complete transcript of proceedings, a no-litigation certificate and other appropriate closing documents will be delivered by the City when the Bonds are delivered to the original purchaser. The City will also provide to the original purchaser, at the time of such delivery, a certificate from the City's Mayor and or Treasurer addressed to such purchaser relating to the accuracy and completeness of this Official Statement. 11

18 Litigation To the knowledge of the City, no litigation or administrative action or proceeding is pending or threatened materially affecting the financial position of the City, directly affecting the Bonds, the security for the Bonds or the improvements being financed from the proceeds of the Bonds. A No-Litigation Certificate to that effect will be delivered to the purchaser at the time of the delivery of the Bonds. Tax Treatment In the opinion of Bond Counsel for the Bonds, based upon an analysis of existing laws, regulations, rulings and court decisions, interest on the Bonds is includable in gross income for Federal income tax purposes under the Code. Furthermore, Bond Counsel for the Bonds is of the opinion that interest on the Bonds is exempt from taxation, including personal income taxation, by the Commonwealth of Kentucky and its political subdivisions. A copy of the opinion of Bond Counsel for the Bonds is set forth in Appendix F, attached hereto. RATING Moody's Investors Service, Inc. ("Moody's") has given the Bonds the rating of "." Such rating reflects only the view of Moody's. An explanation of the significance of the rating given by Moody's may be obtained from Moody's Investors Service at 7 World Trade Center, 250 Greenwich Street, New York, New York 10007, (212) There is no assurance that the rating will continue for any given period of time or that the rating will not be revised downward or withdrawn entirely if, in the judgment of Moody's, circumstances so warrant. Any such downward revision or withdrawal of the rating may have an adverse effect on the market price of the Bonds. The City presently expects to furnish such rating agency with information and material that it may request on future general obligation bond issues. However, the City assumes no obligation to furnish requested information and materials, and may issue debt for which a rating is not requested. Failure to furnish requested information and materials, or the issuance of debt for which a rating is not requested, may result in the suspension or withdrawal of the rating agency's ratings on outstanding general obligation bonds. CONTINUING DISCLOSURE In accordance with the Securities and Exchange Commission Rule 15c2-12 (the "Rule") and so long as the Bonds are outstanding the City (the "Obligated Person") will agree pursuant to an Undertaking to be dated as of the date of issuance and delivery of the Bonds (the "Disclosure Undertaking"), to cause the following information to be provided: (i) to the Municipal Securities Rulemaking Board ("MSRB"), or any successor thereto for purposes of the Rule, through the continuing disclosure service portal provided by the MSRB's Electronic Municipal Market Access ("EMMA") system as described in 1934 Act Release No , or any similar system that is acceptable to the Securities and Exchange Commission, certain annual financial information and operating data, including audited financial statements, generally consistent with the information contained in "Appendix B," and "Appendix D" of the Official Statement (the "Annual Financial Information"). The Annual Financial Information shall be provided on or before March 1 following the fiscal year ending on the preceding June 30, commencing with the fiscal year ended June 30, 2015; provided that the audited financial statements may not be available by such date, but will be made available immediately upon delivery thereof by the auditors for the Obligated Person; and; 12

19 (ii) to the MSRB through EMMA, in a timely manner, not in excess of ten business days after the occurrence of the event, notice of the occurrence of the following events with respect to the Bonds: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) (n) Principal and interest payment delinquencies; Non-payment related defaults, if material; Unscheduled draws on debt service reserves reflecting financial difficulties; Unscheduled draws on credit enhancements reflecting financial difficulties; Substitution of credit or liquidity providers, or their failure to perform; Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax-exempt status of the security; Modifications to rights of security holders, if material; Bond calls, if material, and tender offers (except for mandatory scheduled redemptions not otherwise contingent upon the occurrence of an event); Defeasances; Release, substitution or sale of property securing repayment of the securities, if material; Rating changes; Bankruptcy, insolvency, receivership or similar event of the obligated person (Note: For the purposes of this event, the event is considered to occur when any of the following occur: The appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person); The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and Appointment of a successor or additional trustee or the change of name of a trustee, if material. (iii) in a timely manner, to the MSRB through EMMA, notice of a failure (of which the Obligated Persons have knowledge) of the Obligated Person to provide the required Annual Financial Information on or before the date specified in the Disclosure Agreement. The Disclosure Undertaking provides bondholders, including beneficial owners of the Bonds, with certain enforcement rights in the event of a failure by the Obligated Person to comply with the terms thereof; however, a default under the Disclosure Undertaking does not constitute an event of default under the Ordinance. The Disclosure Undertaking may also be amended or terminated under certain circumstances in accordance with the Rule as more fully described therein. 13

20 For purposes of this transaction with respect to events as set forth in the Rule: (a) (b) (c) (d) there are no debt service reserve funds applicable to the Bonds; there are no credit enhancements applicable to the Bonds; there are no liquidity providers applicable to the Bonds; and there is no property securing the repayment of the Bonds. The City has previously entered into continuing disclosure undertakings pursuant to the Rule (the Prior Disclosure Undertakings ). For the most recent five year period, the audited financial statements for the fiscal years ended in June 30, 2010, June 30, 2011, June 30, 2012 and June 30, 2013 as well as an event notice regarding a rating change for the City s outstanding general obligation bonds, were filed after the dates specified by the City in the Prior Disclosure Undertakings. The annual Financial Information for the fiscal year ended June 30, 2014 was filed within the timeframes specified in the prior Disclosure Undertakings. In 2014, the City also adopted procedures and controls to ensure further Annual Financial Information and event notices are filed within the time requirements specified. Those procedures are as follows: (i) On or before the 60 th day following the conclusion of each fiscal year of the City, the City shall compile all financial data relating to the operations of the City that shall be required to enable the independent auditors of the City to prepare audited financial statements of the City for the fiscal year just ended and to enable the City to submit operating data required to be submitted to the EMMA system under the Prior Disclosure Undertakings and the Disclosure Undertaking; (ii) On or before the 90 th day following the conclusion of each fiscal year of the City, the Finance Director of the City shall submit the required financial data set forth in subsection (i). above for preparation of the City s audited financial statements to the independent auditors of the City; (iii) On or before the 150 th day following the conclusion of each fiscal year of the City, the Finance Director of the City shall seek confirmation in writing from the City s independent auditors that the audited financial statements of the City for such fiscal year shall be released and publicly available not less than 10 days prior to the date such audited financial statements are required to be submitted by the City under its Prior Disclosure Undertakings and the Disclosure Undertaking; (iv) On or before the 200 th day following the conclusion of each fiscal year of the City, the Finance Director of the City shall determine whether the audited financial statements of the City for such fiscal year have been received from the City s independent auditors, and, if so, shall cause such, together with the operating data referenced in subsection (i) above, to be transmitted in accordance with its Prior Disclosure Undertakings and the Disclosure Undertaking; (v) In the event the City shall not have received on or before the 210 th day following the conclusion of each fiscal year of the City, the audited financial statements of the City for such fiscal year from the City s independent auditors, then the Finance Director of the City shall compile unaudited financial statements for such fiscal year on before the 220 th day following the conclusion of such fiscal year and cause such unaudited financial statements to be immediately transmitted in accordance with its Prior Disclosure Undertakings and the Disclosure Undertaking utilizing the same procedures as would have been utilized for the submission of audited financial statements; and 14

21 (vi) In the event the City shall have transmitted unaudited financial statements in accordance with its Prior Disclosure Undertakings and the Disclosure Undertaking pursuant to the provisions of the foregoing subsection (v)., the Finance Director of the City shall cause the audited financial statements, when prepared and released by the City s independent auditors, to be transmitted in accordance with its Prior Disclosure Undertakings and the Disclosure Undertaking within ten days of acceptance by the Board of Commissioners of the independent audited financial statements prepared by the City s independent auditors. The City intends to file all future Annual Financial Information within the time requirements specified in the Prior Disclosure Undertakings and in the Disclosure Undertaking. In furtherance thereof, the City recently, in addition to adopting the written policies and procedures described above, retained Dinsmore & Shohl LLP, to serve as disclosure agent for the City in connection with the submission of the Annual Financial Information through the EMMA system. UNDERWRITING The Bonds are being purchased for reoffering by (the "Underwriter"). The Underwriter has agreed to purchase the Bonds at an aggregate purchase price of $ (reflecting the par amount of the Bonds, less original issue discount of $, and less underwriter's discount of $ ). The initial public offering prices which produce the yields set forth on the cover page of this Official Statement may be changed by the Underwriter and the Underwriter may offer and sell the Bonds to certain dealers (including dealers depositing Bonds into investment trusts) and others at prices lower than the offering prices which produce the yields set forth on the cover page. FINANCIAL ADVISOR Fifth Third Securities, Inc. (the "Financial Advisor"), Cincinnati, Ohio has been employed as Financial Advisor in connection with the issuance of the Bonds. The Financial Advisor's fee for services rendered with respect to the sale of the Bonds is contingent upon the issuance and delivery thereof. MISCELLANEOUS To the extent any statements made in this Official Statement involve matters of opinion or estimates, whether or not expressly stated to be such, such statements are made as such and not as representations of fact or certainty, and no representation is made that any of such statements will be realized. Information herein has been derived by the City from official and other sources and is believed by the City to be reliable, but such information other than that obtained from official records of the City has not been independently confirmed or verified by the City and its accuracy is not guaranteed. Neither this Official Statement nor any statement which may have been made orally or in writing is to be construed as a contract with the holders of the Bonds. This Official Statement has been duly executed and delivered for and on behalf of the City of Covington, Kentucky, by its Mayor. CITY OF COVINGTON, KENTUCKY Dated: July, 2015 By: Mayor 15

22 [this page intentionally left blank]

23 APPENDIX A CITY OF COVINGTON, KENTUCKY TAXABLE GENERAL OBLIGATION BONDS, SERIES 2015 ESTIMATED DEBT SERVICE REQUIREMENTS FOR THE BONDS AND AGGREGATE DEBT SERVICE ON GENERAL OBLIGATION INDEBTEDNESS

24 [this page intentionally left blank]

25 ESTIMATED DEBT SERVICE SCHEDULE Date Principal Interest Total 12/01/ , , /01/ , , , /01/ , , , /01/ , , , /01/ , , , /01/ , , , /01/ , , , /01/ , , , /01/ , , , /01/ , , , /01/ , , , /01/ , , , /01/ , , , /01/ , , , /01/ , , , /01/ , , , /01/ , , , /01/ , , , /01/ , , , /01/ , , , /01/ , , , Total $4,000, $2,007, $6,007, A-1

26 AGGREGATE DEBT SERVICE ON GENERAL OBLIGATION INDEBTEDNESS A-2

27 APPENDIX B CITY OF COVINGTON, KENTUCKY TAXABLE GENERAL OBLIGATION BONDS, SERIES 2015 DEMOGRAPHIC AND ECONOMIC DATA

28 [this page intentionally left blank]

29 DEMOGRAPHIC AND ECONOMIC DATA CITY OF COVINGTON Regional Setting The City of Covington, Kentucky, which was incorporated in 1834, is located in the northern most part of the state. Covington covers a total land area of 10 square miles and is ideally situated along and adjacent to the south bank of the Ohio River, immediately south of Cincinnati, Ohio. Covington, located in Kenton County, is the largest city in Northern Kentucky and the fourth largest in the state. The City of Covington is part of the Greater Cincinnati Area and of the Cincinnati Metropolitan Statistical Area. The current population of the City is 40,713. Kenton County is part of the tri-county Northern Kentucky Area, which forms the northern apex of an industrial triangle anchored by Louisville on the southwest and Lexington on the southeast. Located within the triangle are more than one-third of the state's population and nearly one-half of its manufacturing jobs. The interstate highway system places these three metropolitan areas within less than two hours driving from each other. These factors, combined with available industrial sites, a good livability environment, high quality educational facilities, and wide variety of recreation, provide a strong base for additional industrial growth in the area. Historical Information The beginnings of Covington can be found at the junction of Second and Garrard Streets, in a small park commemorating the legendary George Rogers Clark. Now a part of the Cincinnati Bicentennial River Walk, this tract of land was once the site of a 150-acre farm owned by Thomas Kennedy, the founder of Covington. On this site he built a modest log home in 1791 and proceeded to run a ferry across the Ohio River from Northern Kentucky to Losantiville, now called Cincinnati. By 1814 the town was officially put on the map, bearing the name of General Leonard Covington, a famous hero from the War of With a constant influx of industry and inhabitants, Covington was a full-fledged city by the mid 1830's. "The Point," at the confluence of the Licking and Ohio Rivers, was both the commercial and residential focus of the city for several years, home to various shipping facilities and industry along the rivers, taking full advantage of Covington's superior river location. Advances in transportation changes the character of the city, as work was completed on both the Kentucky Central Railroad and Cincinnati- Covington Bridge (John Roebling Suspension Bridge) by the late 1860's. Financial and commercial interest shifted to locate near the new train terminals, forming a more advantageous hub in the area now called Downtown. The Ohio Riverside area, however, did not suffer for long. Once again capitalizing on its riverfront location, it became home to the elegant townhouses and villas, with park-like settings and commanding views still seen today. With a new direct link to Cincinnati via the Suspension Bridge, the area continued to prosper and the residential grandeur began to spread south along Garrard and Greenup Streets. Here, the more urban Licking Riverside area took shape, characterized by a dense settlement of large homes on fairly modest lots. By combining these two areas, the full spectrum of nineteenth century architecture, from typical Italianate townhouse to the mansions of the Second Empire, Queen Anne, Romanesque and Greek Revival styles can be experienced. B-1

30 The City of Covington has been very fortunate in that so many of its historic resources remain intact. Due to the efforts of many admirable individuals, the hands of time have left a collection of unique structures that form a unified tapestry of the city's rich heritage. Taxation City Assessment Rates (per $ assessed valuation) Year Real Estate Tangible Personal Real Estate Franchise Tangible Franchise Bank Shares Motor Vehicles Watercraft n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Source: City of Covington, Kentucky City Property Tax Levy and Collection Fiscal Year Total Tax Levy Percent Of Current Taxes Collected 2014 $6,577, % ,427, % ,724, % ,542, % ,385, % Source: City of Covington, Kentucky Largest City Principal Taxpayers. The following were the ten largest real property taxpayers for the tax year ending December 31, 2014: Name Real Property Taxes Paid Assessed Valuation Fidelity Properties, Inc. $507,845 $166,780,100 ARCP of Covington KY, LLC 251,593 82,625,000 CPX-RiverCenter Development Corporation 209,385 68,763,500 EHP Rivercenter Landmark Hotel 102,245 33,578,000 OH 16 FO 66,193 21,738,300 Atkins & Pearce 34,896 11,460,000 J & S Latonia Centre KY, LLC 31,918 10,482,000 FMR Kentucky I, LLC 29,080 9,550,000 Truss Latonia Plaza KY, LLC 20,781 6,824,500 CCO, LLC 20,744 6,812,500 Source: City of Covington, Kentucky B-2

31 Assessed Value of Property Fiscal Year Real Property Personal Property Bank Deposits Franchise Total Assessed Value 2014 $2,010,732,622 $200,087,137 $265,748,148 $182,199,672 $2,658,767, ,972,203, ,941, ,748, ,692,723 2,593,585, ,982,856, ,288, ,935, ,582,571 2,584,661, ,027,907, ,468, ,159, ,647,886 2,730,182, ,014,385, ,294, ,391, ,210,000 2,637,280, ,897,368, ,242, ,309, ,207,000 2,543,126,000 Source: City of Covington, Kentucky Building Permit Values Building activity is evidenced by the following data relating to the issuance of building permits by the City from 2008 to 2014: Residential Commercial Year Estimated Number of New Units Construction Costs Year Estimated Number of New Units Construction Costs $1,408, $12,020, ,361, ,583, ,097, ,124, ,699, ,545, ,746, , ,171, ,311, ,378, ,096,800 Source: City of Covington, Kentucky Recent Developments The City of Covington has the following construction projects currently planned, underway, or recently completed: Southern and Latonia Reconstruction: $950,000; 80% SNK: Complete reconstruction of Latonia Ave from Madison to Southern and Southern Avenue from Latonia to Grace. This is a heavily traveled roadway that had surpassed its useful life to the point where resurfacing was no longer a viable option. Latonia Reconstruction: $785,000; 80% SNK: Complete reconstruction of Latonia Ave from Southern to W 36 th. This is a heavily traveled roadway that had surpassed its useful life to the point where resurfacing was no longer a viable option. Johnson Reconstruction and sidewalk widening: $891,000; 80% SNK: Complete reconstruction of Johnson and sidewalk widening to meet ADA requirements. The roadway will be reconstructed so that it can handle the bus and heavy truck load it gets while widening the sidewalks to make them more usable and ADA accessible. Devou/Western Avenue Retaining Wall: $2.1 Million; reconstruction of failed retaining walls along Devou Drive and Western Avenue to stabilize the hillsides and roadways. B-3

32 City Center Parking Garage: $247,582: Repairs to the exterior stabilization of the garage will take place to bring the Garage up to current codes. Joints along the driving surface will also be replaced. 21 st Street Slide: $1 Million: There is a significant slide along the earthen levee that runs along the Licking River. The levee will need to be stabilized in order for the properties in this area to avoid having to get flood insurance and for the City s flood protection system to maintain certification with the USACE. Caroline Underpass Reconstruction: $620,000; 80% SNK: Complete reconstruction of Caroline Avenue from 34 th to 36 th Street. This is a heavily traveled roadway that had surpassed its useful life to the point where resurfacing was no longer a viable option. The grade on the roadway was changed and a new storm water system was constructed to alleviate flooding during heavy rain events. Madison Avenue Streetscape: $635,000; 80% grant: Utilities were placed underground and all sidewalks were replaced on Madison Avenue from 5 th to 8 th Street. This is one of the key business corridors in the City. 6 th Street and Scott Street Design and Construction: $1.7 million: A grant to cover 80% of the costs of both the design and construction was approved. Design will take place this year and construction will begin in the fall. The project will replace the sidewalks, place utilities underground, install mast arm traffic signals, and resurface the road on Scott between 4 th and 6 th and on 6 th Street from Scott to Russell. These are both key business corridors and connectors within the City. Demolitions: $345,000: 50 vacant and dilapidated buildings were demolished throughout the City to help improve the building stock and safety issues. 55 more properties are slated to be demolished this calendar year. Cost for next phase has not been determined. Riverfront Commons: Additional grant applications have been submitted for this $10 Million project; $230,000 in construction money has been awarded from SNK for this year. Project will develop riverfront property between the foot of Greenup (Riverside Terrace) to west of the floodwall and will be part of a complete multi use trail that will ultimately connect the 6 river Cities from Ludlow to Ft. Thomas. The Covington portion will include a large plaza area that will serve as a gathering space and a park/recreation area that will attract residents and visitors of all ages. Access to the river will also be provided for fishing, kayaking, and other recreational activities. Lake Park Drive reconstruction: $190,000. This is a heavily traveled industrial roadway that had surpassed its useful life to the point where resurfacing was no longer a viable option. Mainstrasse Parking Lot Improvement: $100,000. This is the main parking facility for visitors to the Mainstrasse area. The project included resurfacing the lot, TANK bus stop improvements, plaza reconstruction, a kiosk directing visitors to the amenities in Mainstrasse, and landscaping/green infrastructure to improve the drainage and aesthetics of the lot. Retained ABM Facilities Management Group to manage parking: Prior to ABM taking over parking, the management of parking was poorly organized and handled by several departments. ABM has brought organization, coordination, consistency, and efficiency to parking within the City. MLK Reconstruction/widening plus landscaping: 12 th Street/MLK was completely reconstructed and widened from the interstate to Greenup Street. This project included placing the utilities underground, decorative lighting throughout, and decorative pavers around the Cathedral. B-4

33 KY Route 16 reconstruction/widening: KY Route 16 was completely reconstructed and widened in South Covington. Can get cost from state tomorrow Purchased and demolished mobile home park at Patton: A mobile home park in Austinburg was creating a variety of issues for the neighborhood. The mobile home park was purchased, the tenants were relocated, and the site was demolished and graded. Sidewalk replacement: $2.5 million in South Covington and Latonia $1.0-$3.5 million planned for this year in north Covington. All of the sidewalk blocks in South Covington that were 10% deteriorated or worse were replaced. All of the sidewalk blocks in Latonia that were 25% deteriorated or worse were replaced. The details for the North Covington section are being worked out for construction this year. The improvements make the City a much more walkable place for residents and visitors. Additionally, the City has several development projects underway or in the start-up stage, including the following: Scott Street The City has a development agreement with Allan Haehnle for the redevelopment of the building for the City s Bike Patrol on the first floor and new development on the upper floors. Construction will be complete in th Street Properties The City entered into a Development Agreement with The Milburn Group and Ecce Properties, LLC for the development of the city owned property at 11 E. 5 th Street, 18 E. 5 th Street, and 20 E. 5 th Street, for the redevelopment of upper floor residential and first floor retail and office. 3. Martin Luther King, Jr. Street state owned properties (remnants from 12 th Street/MLK Widening) The State auctioned off the buildings along MLK to various bidders. A 14,000 sq foot historic lumber mill is being renovated into an artist/maker space and community center. The City is in discussion with the state on the additional remaining right of way property Main Street The City is evaluating the options for this prime location property. Several interested parties have been through the building but no offers for outright purchase or lease have come to fruition. City is considering issuing another RFP for redevelopment of the entire city owned property, but some challenges remain Pike Street - Tanino s The City has transferred the property to a developer who will be renovating the building into residential and office uses Pike Street - Pike Star / UpTech The City, along with several partners, assisted in the redevelopment of the Pike Star building at 112 Pike street. The City is subsidizing the non-profit corporation, Up-Tech, which is an affiliate of NKU s Department of Informatics and the Northern Kentucky e-zone. B-5

34 7. Lincoln Grant Scholar House The Lincoln Grant School building, at 824 Greenup Street, is being planned as the future location of a Family Scholar House ( LIHTC have been awarded and the project is in its final planning stages. Closing on the transfer of the property will occur in Upper Floor Residential Rehab Projects utilizing City loan/grant sources W Pike Street with 7 units was completed March 3, Madison Avenue with 2 units is 80% complete as of June 30, E 5 th Street with 2 units is 80% complete as of June 30, W Pike Street with 2 units is 80% complete as of June 30, E 5 th Street with 2 units was completed July 8, W Pike Street with 1 or 2 units City has received initial inquiries for program funding Madison The Mutual Building is nearing completion. Fourteen Residential units and first floor commercial space B-6

35 Scott - Doctors Building Redevelopment of eight residential units, first floor commercial and fourth floor office space. Construction is underway and tenants should be moving in this Fall. 11. Boone Block Redevelopment of 9 single family townhomes with 2-3 bedrooms, ranging in price from $299,000 $450,000. Project construction will be underway in Duveneck Initial project financing structure and design is underway for a Mixed Use development, subject to market and financial feasibility, consisting of office space, research, education and healthcare space, retail, commercial and multi-family residential in the vicinity of 730 Washington Street. 13. Kenton County Administrative Building The County is actively working to redevelop the Roebling Point Project which converts an underutilized building in a key location to a high impact economic development project that: Substantially enhances entrepreneurship and other business support services for the emerging knowledge-based economy enterprises, small businesses, and start-ups that are locating in Northern Kentucky s river cities. Incents as many as 600 students, most ages 21 and older, to live, study and play in Northern Kentucky s river cities, principally Covington and Newport. Provides a beneficial urban location for multiple NKU academic programs, including the Chase Law School, allowing students to connect with potential clients and employers due to the project site s proximity to two federal courthouses, three county courthouses and the Greater Cincinnati/Northern Kentucky region s central business district. B-7

36 14. RiverCenter The RiverCenter Towers have recently been refinanced. Aggressive marketing and potential renovations are being planned for the office spaces and first floor retail. 15. Jackson Square Jackson Square is a 20-acre, 15 block area in Covington, Kentucky having high potential for a residential redevelopment project consisting of rehab of existing structures as well as infill construction of new units. The area is bounded by Martin Luther King Boulevard on the south, Pike Street on the north, Main Street on the west, and the properties on the west side of Banklick Street on the east. The City of Covington has primed the area for private investment by acquiring over 38 properties and demolishing those that were in blighted condition and causing crime and nuisance issues. Also, the Center for Great Neighborhoods, a non-profit Community Development Corporation, has successfully rehabbed and sold several properties in the area, establishing comparables and proving demand for market rate single-family units. A Master Planning process is currently underway support the City of Covington and Catalytic Fund in their collaborative efforts to accelerate rehabilitation, re-investment and infill development efforts in the area. Regional Economy Northern Kentucky is generally defined as the three counties of Boone, Campbell and Kenton Counties. From a regional perspective, Northern Kentucky is part of the greater Cincinnati CMSA, which is composed of 13 counties in Kentucky, Ohio, and Indiana. The Greater Cincinnati region is known as a major center for transportation, medical services, wholesaling, manufacturing, retailing, insurance/financial service, government installations and service industries. A recent study conducted by Michael Gallis & Associates describes the Greater Cincinnati region as "diversified, and a stable economy with the best airport in America." Northern Kentucky is the location of the Cincinnati/Northern Kentucky International Airport (CVG), voted Best Regional Airport for 2011, 2012 and 2013 by Skytrax. [Remainder of Page Intentionally Left Blank] B-8

37 The Greater Cincinnati economy has prospered over the past decade. The following table shows the region's labor market. Greater Cincinnati Labor Market Overview Greater Cincinnati Area As of 2015 Civilian Labor Force 1,092.1 Total Employed 1,044.8 Total Unemployed 47.3 Unemployment Rate 4.3 Manufacturing Durable Goods and Non-Durable Goods Non-Manufacturing Trade, Transportation & Utilities Information 13.6 Financial Activities 66.8 Professional & Business Services Educational & Health Services Leisure, Hospitality and Other Service Government Natural Resources, Mining & Construction 43.1 Total Non-Agricultural 1,076.9 Source: United States Bureau of Labor Statistics [Remainder of Page Intentionally Left Blank] B-9

38 The Greater Cincinnati region has a diversified employment base, with numerous business entities employing significant numbers of employees. Largest Employers in Greater Cincinnati/Northern Kentucky Company Employees Locations in Tri-State The Kroger Company 20, University of Cincinnati 15,326 3 Cincinnati Children's Hospital 12, The Procter & Gamble Co. 12, TriHealth, Inc 10, Catholic Health Partners/Mercy Health Partners 8, UC Health 8, GE Aviation 7,500 6 St. Elizabeth Healthcare 7, Fifth Third Bancorp 7, Source: Business Courier 2013 Enrollment at Major Colleges & Universities Enrollment Institution Location Fall 2014 University of Cincinnati Cincinnati, OH 43,691 Brown Mackie College Cincinnati, OH 17,000 Miami University Oxford, OH 18,456 Northern Kentucky University Highland Heights 15,738 Jefferson Community & Technical College Carrollton 1,115 Xavier University Cincinnati, OH 6,325 Maysville Community & Technical College Cynthiana 4,634 Gateway Community & Technical College Covington 4,850 College of Mount St Joseph Cincinnati, OH 1,795 Thomas More College Crestview Hills 1,502 Wilmington College Wilmington, OH 1,435 Antonelli College Cincinnati, OH 872 Cincinnati Christian University Cincinnati, OH 1,025 Beckfield College Florence 1,579 Unemployment Rate/Percentages Greater Cincinnati United States Source: United States Bureau of Labor Statistics Data B-10

39 Total Civilian Labor Force Year Kenton County 2015(May) ,217 Employment by Place of Residence & Unemployment Rate Year Kenton County Total Employment Kenton County Unemployment Rate , , , , , , (May) 79, Total Median Family Income Year Kenton County Family Income 2000 Census $52, , , , , ,270 Source: U.S. Census Bureau, American Community Survey Per Capita Income Per capita income for Kenton County has exceeded the national average in 2004, 2005, 2006, 2012 and Kenton County $34,990 $36,526 $38,405 $38,783 $39,161 $37,703 $38,613 $41,281 $43,509 $41,766 United States $33,909 $35,452 $37,725 $39,506 $40,947 $38,637 $39,791 $41,560 $42,693 $41,706 Source: US Department of Commerce, Bureau of Economic Analysis B-11

40 Average Increase in Population The annual average population growth rate in Northern Kentucky for the indicated periods in the following table has exceeded the growth rates of the greater Cincinnati CMSA, the Commonwealth of Kentucky and the United States Northern Kentucky 29.9% 15.2% 17.3% 8.9% Cincinnati CMSA 5.1% 13.7% 20.1% 8.4% Commonwealth of Kentucky 0.7% 9.7% 6.0% 8.2% United States 9.5% 13.2% 6.5% 10.0% Source: Tri-County Economic Dev. Corporation Population Historical population growth data from Northern Kentucky presented in the following table shows over a 3.50% increase in population since 2009, and an 11.00% increase since Year Boone Campbell Kenton Northern County County County Kentucky Thousands Source: Kentucky Cabinet for Economic Development Transportation The Greater Cincinnati International Airport, located in adjoining Boone County, Kentucky, provides commercial airline service. The major highways serving Boone, Kenton, and Campbell County include Interstates 71 and 75, U.S. Highways 42/127, 27, and 25. Interstate 275, a three-state beltline, traverses the three counties. Interstate 471 extends from I-275 to the Ohio River in Campbell County. The Norfolk Southern and CSX Transportation provides main line rail service to the area. Several barge and towing companies provide barge transportation on the Ohio River. The Port of Cincinnati extends 30 miles along both banks of the Ohio River. Power and Fuel Electric power is provided to Boone, Kenton, and Campbell Counties by Union Light, Heat and Power (a subsidiary of the Duke Energy) and the Owens County Rural Electric Cooperative Corporation. Natural Gas service is provided to portions of the three-county area by Union Light, Heat and Power Company. B-12

41 Education Primary and secondary education is provided by the Boone, Kenton, and Campbell County Public School Systems; eleven independent school systems; and 44 nonpublic schools within the three-county area. Three universities and six senior colleges are located in the Northern Kentucky-Cincinnati Area. Northern Kentucky University and Thomas Moore College are located in Northern Kentucky. Vocational training is available at both the state vocational-technical schools and the area vocational education centers. The state vocational-technical schools are post-secondary institutions. The area vocational education centers are designed to supplement the curriculum of high school students. Both the state vocational-technical schools and the area vocational education centers offer evening courses to enable working adults to upgrade current job skills. Arrangements can be made to provide training in the specific production skills required by an industrial plant. Instruction may be conducted either in the vocational school or in the industrial plant, depending upon the desired arrangement and the availability of special equipment. The Bluegrass State Skills Corporation, an independent public corporation created and funded by the Kentucky General Assembly, provides programs of skills training to meet the needs of business and industry from entry level to advanced training, and from upgrading present employees to retraining experienced workers. The Bluegrass State Skills Corporation is the primary source for skills training assistance for a new or existing company. The Corporation works in partnership with other employment and job training resources and programs, as well as Kentucky's economic development activities, to package a program customized to meet the specific needs of a company. OUTSTANDING INDEBTEDNESS OF THE CITY OF COVINGTON, KENTUCKY AS OF JUNE 30, 2015 Name of Issue Principal Amount Outstanding Final Maturity 2003 Series A $1,285, KIA Fidelity Rainwater project 463, KLCFT Fort Mitchell Pool 6,367, KLCFT Fort Mitchell Pool #2 295, KLCFT Richmond Pool 402, Lease with Bank of Kentucky 1,155, Recovery Zone Bonds 2,410, KBC 2012E 14,910, Series 2014B 10,960, Series ,235, TAN 3,500, Total $59,984,136 B-13

42 [this page intentionally left blank]

43 APPENDIX C CITY OF COVINGTON, KENTUCKY TAXABLE GENERAL OBLIGATION BONDS, SERIES 2015 HISTORICAL GENERAL FUND REVENUES AND EXPENSES FOR FISCAL YEARS ENDING JUNE 30, 2010 THROUGH JUNE 30, 2014 AND ACTUAL AND PROJECTED GENERAL FUND BALANCES FOR FISCAL YEARS ENDING JUNE 30, 2009 THROUGH JUNE 30, 2016

44 [this page intentionally left blank]

45 City of Covington Kentucky Historical General Fund Revenues and Expenses - GAAP Basis Historical Revenues: Taxes $14,194,342 $13,806,160 $13,657,232 $13,725,616 $14,291,815 Licenses and Permits 25,429,776 25,362,255 26,175,310 25,979,427 25,353,330 Intergovernmental 612,863 1,652,616 1,862, ,800 1,179,402 Charges for Services 4,937,078 5,394,348 6,063,323 6,063,670 5,936,837 Fines and Forfeitures 746, , , , ,625 Investment Earnings 1,353 45,885 21,948 95,694 3,181 Miscellaneous 422, , , , ,563 Total Revenues $46,344,472 $47,435,590 $48,914,815 $47,454,649 $47,743,753 Expenditures: Current: General Government 2,955,869 3,119,887 3,207,768 3,526,196 3,629,368 Police 15,010,788 15,288,716 14,902,625 13,465,973 13,168,105 Fire 13,326,126 13,156,714 13,241,215 12,731,634 12,267,843 Public improvements 6,514,905 6,268,883 5,891,702 5,994,547 8,791,581 Recreation 504, , , ,483 - Community Development 3,544,888 3,749,450 3,947,945 4,146,502 2,454,467 Parking Garage 732, , , , ,835 Debt Principal 503,716 1,584,379 2,147,521 1,312,011 2,326,777 Debt Interest 209, , , ,919 1,219,509 Capital Outlay - 2,791,727 3,743, Total Expenditures $43,302,421 $48,054,193 $48,865,845 $42,957,023 $44,589,485 Operating Income (Loss) $3,042,051 $(618,603) $48,970 $4,497,626 $3,154,268 Other Financing Sources (Uses) Transfers In 1,231,004 1,172,469 1,595, , ,099 Transfers Out (4,712,226) (2,692,926) - (5,334,951) (2,238,043) Sale of Assets/Proceeds of Debt 9,700 2,772,157 5,517 31,092 33,684 Inception of Leases - - (3,937,681) - - Total Other Financing Sources (Uses) $(3,471,522) $1,251,700 $(2,337,151) $(4,571,917) $(2,081,260) Special Item $ - $ - $ - $(102,445) $(17,000) Net Change In Fund Balance $(429,471) $633,097 $(2,288,181) $(176,736) $1,056,008 Fund Balance at beginning of year, restated 771,969 2,987,558 3,620, ,604 1,148,435 Fund Balance at End of Year $342,498 $3,620,655 $1,332,474 $779,868 $2,204,443 C-1

46 City of Covington, Kentucky Year End General Fund Balance Fiscal Year End Cash Balance 2009 $529, (1,712,680) , , , , (Est.) 1,553,462 C-2

47 APPENDIX D CITY OF COVINGTON, KENTUCKY TAXABLE GENERAL OBLIGATION BONDS, SERIES 2015 AUDITED GENERAL PURPOSE FINANCIAL STATEMENTS OF CITY OF COVINGTON, KENTUCKY FOR FISCAL YEAR ENDING JUNE 30, 2014

48 [this page intentionally left blank]

49 COVINGTON, KENTUCKY COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2014 THE SPIRIT OF PROGRESS

50 CITY OF COVINGTON, KENTUCKY COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2014 Issued by: Finance Department Lisa Goetz, CPA Finance Director

51 CITY OF COVINGTON, KENTUCKY COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2014 Table of Contents INTRODUCTORY SECTION Letter of Transmittal... 1 List of Elected and Appointed Officials... 9 Organizational Chart FINANCIAL SECTION Independent Auditors Report Management s Discussion and Analysis Basic Financial Statements: Government-wide Financial Statements: Statement of Net Position Statement of Activities Fund Financial Statements: Balance Sheet Governmental Funds Reconciliation of Total Governmental Fund Balances to Net Position of Governmental Activities Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds Reconciliation of the Statement of Revenues, Expenditures and Changes In Fund Balances of Governmental Funds to the Statement of Activities 28 Statement of Net Position Proprietary Funds Statement of Revenues, Expenses and Changes in Net Position Proprietary Funds Statement of Cash Flows Proprietary Funds Statement of Fiduciary Net Position Fiduciary Funds Statement of Changes in Fiduciary Net Position Fiduciary Funds i

52 Table of Contents (con t.) Notes to the Basic Financial Statements Required Supplementary Information: Schedule of Revenues, Expenditures, and Change in Fund Balance Budget and Actual General Fund Schedule of Revenues, Expenditures, and Change in Fund Balance Budget and Actual Neighborhood Stabilization Program Fund RSI Employees Retirement Plan RSI Police and Firemen s Retirement Plan Notes to Required Supplementary Information Combining Statements and Individual Fund Schedules: Description of Funds Combining Balance Sheet Nonmajor Governmental Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds Schedules of Revenues, Expenditures and Changes in Fund Balance Budget and Actual Federal & State Grants Fund Community Development Fund HOME Program Fund Renaissance Grant Fund One Stop Shop Fund Police Forfeiture Justice Fund HOME Consortium Fund Housing Voucher Program Fund Police & Fire Supplemental Pay Fund Devou Park Maintenance Fund Devou Park Master Plan Fund Pension Obligation 2004 Fund Capital Improvement Fund Combining Statement Net Position Internal Service Funds Combining Statement of Revenues, Expenses and Changes in Net Position Internal Service Funds Combining Statement of Cash Flows Internal Service Funds ii

53 Table of Contents (con t.) STATISTICAL SECTION Schedule 1 - Net Position by Component Schedule 2 - Changes in Net Position Schedule 3 - Fund Balances, Governmental Funds Schedule 4 - Changes in Fund Balances Governmental Funds Schedule 5 - Occupational License Fees Payroll Withholding Schedule 6 - Principal Occupational Payroll Tax Payers Schedule 7 - Assessed Value and Estimated Actual Value of Taxable Property Schedule 8 - Direct and Overlapping Property Tax Rates Schedule 9 - Principal Real Property Tax Payers Schedule 10 - Property Tax Levies and Collections Schedule 11 - Ratios of Outstanding Debt by Type Schedule 12 - Ratio of General Bonded Debt Outstanding Schedule 13 - Direct and Overlapping Governmental Activities Debt Schedule 14 - Legal Debt Margin Information Schedule 15 - Demographic and Economic Statistics Schedule 16 - Principal Employers Schedule 17 - Full-Time Equivalent City Government Employees by Function/Program Schedule 18 - Operating Indicators by Function/Program Schedule 19 - Capital Assets Statistics by Function/Program SINGLE AUDIT SECTION Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Required by OMB Circular A Schedule of Findings and Questioned Costs iii

54 INTRODUCTORY SECTION

55

56

57

58

59

60

61

62

63 City of Covington, Kentucky Elected and Appointed Officials June 30, 2014 Elected Officials Mayor... Sherry Carran Commissioner/Mayor Pro Tem... Steve Frank Commissioner... Charles Eilerman Commissioner... Mildred Rains Commissioner... Michelle Williams Appointed Officials City Manager... Larry Klein Assistant City Manager for Development... Larisa Sims Assistant City Manager/City Solicitor... Frank Warnock Finance Director... Lisa Goetz City Operations Director... Lisa Desmarais Internal Auditor... Greg Crump City Clerk... Margaret Nyhan Interim City Solicitor... Christian Dennery Chief of Police... Spike Jones Fire Chief... Dan Mathew DPI Director/Assistant City Engineer... Rick Davis Community Service Manager/City Engineer... Mike Yeager Human Resources Director... Jo Ann Simpson 9

64 Citizens of Covington, Kentucky Mayor Sherry Carran Commissioner/Mayor Pro Tem Steve Frank Commissioner Charles Eilerman Commisioner Michelle Williams Commissioner Mildred Rains City Manager Larry Klein Assistant City Manager for Development Larisa Sims Community Services Manager/City Engineer Mike Yeager Programs and Strategic Projects Manager Natalie Gardner Business Development Manager Naashom Marx Marketing & Communications Director Natalie Bowers Assistant City Manager/City Solicitor Frank Warnock Human Resources Director Jo Ann Simpson Assistant City Solicitor Bryce Rhoades Assistant City Solicitor Christian Dennery City Clerk Margaret Nyhan Police Chief Spike Jones Assistant Police Chief Bryan Carter Fire Chief Dan Mathew Assistant Fire Chief Chris Black Assistant Fire Chief Glenn Johnson DPI Director/Assistant City Engineer Rick Davis Finance Director Lisa Goetz Assistant Finance Director Vickie Cox Internal Auditor Greg Crump Information Technology & Data Manager Lisa Desmarais City of Covington City Wide Organizational Chart June, 2014

65 FINANCIAL SECTION

66 INDEPENDENT AUDITORS REPORT To the Mayor and City Commissioners City of Covington, Kentucky: Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Covington, Kentucky (the City ) as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the City s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of Devou Properties, Inc.. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Devou Properties, Inc., is based on solely on the report of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. one east fourth street, ste cincinnati, oh cincinnati cleveland columbus miami valley northern kentucky springfield toledo p f

67 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Covington, Kentucky, as of June 30, 2014, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Effect of Adopting New Accounting Standards As discussed in Note 13, the City adopted the provisions of Governmental Accounting Standards Board Statement No. 65, Items Previously Reported as Assets and Liabilities, Statement No. 67, Financial Reporting for Pension Plans an amendment of GASB Statement No. 25 and Statement No. 68, Accounting and Financial Reporting for Pensions an amendment of GASB Statement No. 27. Our opinions were not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and other required supplementary information, as identified in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. 12

68 Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City s basic financial statements. The introductory section, combining and individual nonmajor fund financial statements and schedules, the statistical section, and the schedule of expenditures of federal awards, as required by Office of Management Budget Circular A-133, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements and schedules and schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statement themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual nonmajor fund financial statements and schedules and schedule of expenditures of federal awards are fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 29, 2014 on our consideration of the City of Covington 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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Covington s internal control over financial reporting and compliance. Clark, Schaefer, Hackett & Co. Cincinnati, Ohio December 29,

69 THIS PAGE INTENTIONALLY LEFT BLANK 14

70 City of Covington, Kentucky Management s Discussion and Analysis For the Fiscal Year Ended June 30, 2014 (unaudited) The management discussion and analysis (MD&A) of the City of Covington, Kentucky s (the City s) financial statements provides readers a narrative overview and analysis of the City s financial position and activities for the fiscal year ended June 30, The information presented here should be read in conjunction with the City s basic financial statements which immediately follow this overview and analysis. Financial Highlights Some of the City s financial highlights for the fiscal year ended June 30, 2014 include: The assets and deferred outflows of resources exceeded its liabilities at the close of the most recent fiscal year by $24,473,322 (net position). The City s total net position decreased during the fiscal year by $368,542, or 1%. The City s total expenses were $60,473,108, a decrease of $1,224,668. Program revenues of $20,187,141 reduced the net cost of the City s functions to be financed from the City s general revenue to $40,285,967. At the close of the current fiscal year, the City s governmental funds reported combined fund balances of $8,912,925, a decrease of $9,524,940 in comparison with the prior year. Approximately 24% of this amount ($2,103,342) is available for spending at the City s discretion (unassigned fund balance). At the end of the fiscal year end, unrestricted fund balance for the general fund was $2,178,928, or approximately 5% of total general fund expenditures. The City s total outstanding long-term debt decreased by $2,771,777 during the fiscal year because of the payment of bond and lease payments. Overview of the Financial Statements The discussion and analysis provided here is intended to serve as an introduction to the City s basic financial statements. The City s basic financial statements consist of three components: 1) governmentwide financial statements, 2) fund financial statements, and 3) notes to financial statements. This report also includes supplementary information intended to furnish additional detail to support the basic financial statements themselves. 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. The statement of net position presents financial information on all of the City s assets/deferred outflows of resources and liabilities, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities presents information showing how the City s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported for some items that will only result in cash flows in future fiscal periods. The government-wide financial statements include functions of the City, including police, fire, street maintenance, parks and recreation, and general administration services, that are principally supported by licenses, fees, taxes and intergovernmental revenues (governmental activities). 15

71 The government-wide financial statements include not only the City itself (known as the primary government), but also Devou Properties, Inc., a legally separate non-profit organization. Financial information for this component unit is reported separately from the financial information presented for the primary government itself. The Municipal Properties Corporation, although also legally separate, functions for all practical purposes as a department of the City, and therefore has been included as an integral part of the primary government. Fund Financial Statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental Funds. 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 focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in assessing a government s near-term financing requirements. 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, 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 City maintains several individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General Fund, Neighborhood Stabilization Program Fund, and the Capital Improvement Fund, which are considered to be major funds. Data from the other governmental funds are combined into a single aggregated presentation. The City adopts an annual appropriation budget for its governmental funds. Budgetary comparison schedules have been provided for its general and special revenue major funds in required supplementary information to demonstrate compliance with its budgets. Proprietary Funds. Proprietary funds can be classified into two subcategories; enterprise funds and internal service funds. The City does not have any enterprise funds. Internal service funds are an accounting device used to accumulate and allocate costs internally among the City s various functions. The City uses internal service funds to account for the management of its retained risks and for selfinsured for medical and dental coverage for its employees. Internal service funds are combined into a single, aggregated presentation in the proprietary fund financial statements. Because both of these services benefit governmental functions, they have been included within governmental activities in the government-wide financial statements. Fiduciary Funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the City. Fiduciary funds are not reported in the government-wide financial statements because the resources of those funds are not available to support the City s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The City is trustee, or fiduciary, for two retirement funds. The Police and Firemen s Retirement Fund and Employee s Retirement Fund are closed pension funds held solely for trust beneficiaries. 16

72 Notes to the Financial Statements. The notes provide additional information that is necessary to acquire a full understanding of the data provided in the government-wide and fund financial statements. Government-wide Overall Financial Analysis As noted earlier, net position over time, may serve as a useful indicator of a government s financial position. In the case of the City, assets and deferred outflows of resources exceeded liabilities by $24,473,322, at the close of the most recent fiscal year. City s Net Position Governmental Activities Restated Change Current and other assets $ 21,568,048 $ 28,368,609 $ (6,800,561) Capital assets 59,932,539 54,489,483 5,443,056 Total assets 81,500,587 82,858,092 (1,357,505) Deferred outflows of resources 243, ,805 (468,711) Long-term liabilities 49,437,125 52,918,302 (3,481,177) Other liabilities 7,833,234 5,809,731 2,023,503 57,270,359 58,728,033 (1,457,674) Net position: Net investment in capital assets 29,360,778 33,666,204 (4,305,426) Restricted 6,653,643 4,561,466 2,092,177 Unrestricted (deficit) (11,541,099) (13,385,806) 1,844,707 Total net position $ 24,473,322 $ 24,841,864 $ (368,542) By far, the largest portion of the City s net position ($29,360,778) reflects its investment in capital assets (e.g., land and improvements, construction in progress, buildings and improvements, machinery and equipment, vehicles, and infrastructure), less any related outstanding debt that was used to acquire those assets. The City uses these capital assets to provide a variety of services to its citizens. Accordingly, these assets are not available for future spending. Although the City s investment in capital assets is reported net of related debt, it should be noted that the resources used to repay this debt must be provided from other sources, since capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the City s net position ($6,653,643) represents resources that are subject to external restrictions on how they may be used. Any remaining balance is unrestricted and may be used to meet the City s ongoing obligations to its citizens and creditors. At the end of the current fiscal year, the City s overall net position decreased from the prior fiscal year. The reasons for this overall decrease are discussed in the following section. 17

73 City s Changes in Net Position Governmental Activities Restated Change Program revenues: Charges for services $ 7,027,222 $ 6,538,387 $ 488,835 Operating grants and contributions 10,842,196 11,932,368 (1,090,172) Capital grants and contributions 2,317,723 1,290,469 1,027,254 Total program revenues 20,187,141 19,761, ,917 General revenues: Taxes 39,770,408 40,049,286 (278,878) Investment earnings 4,287 96,889 (92,602) Miscellaneous 159, ,261 (417,531) Total general revenues 39,934,425 40,723,436 (789,011) Total revenues 60,121,566 60,484,660 (363,094) Expenses: General government 5,916,248 4,028,857 1,887,391 Police 14,177,725 15,464,519 (1,286,794) Fire 13,060,943 13,727,885 (666,942) Public improvements 13,769,904 10,916,212 2,853,692 Recreation - 683,742 (683,742) Community development 11,159,338 13,912,337 (2,752,999) Parking garage 734, ,059 (48,461) Interest on long-term debt 1,654,352 2,181,165 (526,813) Total expenses 60,473,108 61,697,776 (1,224,668) Special item (17,000) (102,445) 85,445 Change in net position (368,542) (1,315,561) 947,019 Net position beginning of year 24,841,864 26,157,425 (1,315,561) Net position end of year $ 24,473,322 $ 24,841,864 $ (368,542) During the current fiscal year, net position for governmental activities decreased $368,542 from the prior fiscal year for an ending balance of $24,473,322. Total revenues decreased by $363,094, or less than 1%. Operating grants and contributions decreased as the City was granted less housing voucher funding in Capital grants and contributions increased due to project-specific state funding and new grant awards. However, the City was able to reduce its expenses by $1,224,668, or 2%. In response to declining tax revenue, an on-going review of expenses have resulted in cost savings. Please note that expenses by category are altered from the previous year due to department restructuring. The special item amounts of $17,000 and $102,445 in 2014 and 2013, respectively, represent amounts identified as alleged embezzlement transactions incurred in prior years by the former finance director. The City has filed lawsuits to recover these funds and is currently involved in litigation. 18

74 Financial Analysis of Governmental Funds At June 30, 2014, the City s governmental funds reported combined fund balances of $8,912,925, a decrease of $9,524,940 in comparison with the prior year. The majority of this decrease occurred in the Capital Improvement Fund, discussed below. Approximately 24% of this amount ($2,103,342) constitutes unassigned fund balance, which is available for spending at the City s discretion. The remainder of the fund balance is either nonspendable, restricted, or committed to indicate that it is 1) not in spendable form ($25,515), 2) restricted for particular purposes ($6,356,203), or 3) committed for particular purposes ($427,865). The General Fund is the chief operating fund of the City. At the end of the current fiscal year, unassigned fund balance of the General Fund was $2,178,928, or 5% of total General Fund expenditures. The following schedules present a summary of the General Fund revenues and expenditures for the current fiscal year. General Fund Revenues for the Fiscal Year Ended June 30, Percent Percent 2014 of Total 2013 Change Taxes $ 14,291, % $ 13,725, % Licenses and permits 25,353, % 25,979, % Intergovernmental 1,179, % 839, % Fines and forfeitures 414, % 367, % Charges for services 5,936, % 6,063, % Investment earnings 3, % 95, % Miscellaneous 564, % 382, % Total Revenue $ 47,743, % $ 47,454, % Revenue remained fairly consistent during the fiscal year, with total General Fund revenue only increasing by $289,104, or less than 1% General Fund Revenues Intergovernmental, 2.47% Licenses and permits, 53.10% Fines and forfeitures, 0.87% Charges for services, 12.43% Investment earnings, 0.01% Taxes, 29.93% Miscellaneous, 1.19% 19

75 Taxes, which include real estate taxes, personal property taxes, and insurance premium taxes increased by $566,199, or 4% from the prior fiscal year. Total taxable assessed value increased by $114 million, or 6%, to remain at approximately $2 billion. License and permit revenue includes both a payroll occupational license fee and a net profit occupational license fee on businesses. License and permit revenue decreased by $626,097, or 2.4%, from the prior fiscal year and are expected to remain flat into the next fiscal year. With health care costs and pension costs continuing to escalate, there will be increasing pressure to further reduce operating expenditures. General Fund Expenditures for the Fiscal Year Ended June 30, Percent Percent 2014 of Total 2013 Change General government $ 3,629, % $ 3,526, % Public safety 25,435, % 26,197, % Public improvements 8,791, % 5,994, % Recreation % 437, % Community development 2,454, % 4,146, % Parking garage 731, % 776, % Debt service 3,546, % 1,877, % Total Expenditures $ 44,589, % $ 42,957, % Total General Fund expenditures increased by $1,632,462, or 3.80%, primarily due to funding more debt service expenditures that had been paid by other funds in previous years General Fund Expenditures Public safety 57.04% Public improvements 19.72% Debt service 7.96% Community development 5.50% Parking garage 1.64% General government 8.14% The Neighborhood Stabilization Program is a cost reimbursement HUD-funded program. There is no fund balance, and therefore, no change in fund balance to report. 20