City of Harrisonburg, Virginia $40,215,000 General Obligation Public Improvement Bonds, Series 2016

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1 NEW ISSUE Ratings: Moody s: Aa2 Book-Entry-Only Standard & Poor s: AA (See SECTION FIVE: MISCELLANEOUS -- RATINGS herein) In the opinion of Bond Counsel, under existing law and subject to conditions described in the section herein SECTION TWO: THE BONDS -- TAX EXEMPTION, interest on the Bonds (a) is excludable from gross income for federal income tax purposes, (b) will not be an item of tax preference for purposes of the federal alternative minimum income tax imposed on individuals and (c) will be exempt from income taxation by the Commonwealth of Virginia and any political subdivision thereof. Such interest may be included in the calculation of a corporation s alternative minimum income tax, and a holder may be subject to other federal tax consequences as described in the section herein SECTION TWO: THE BONDS -- TAX EXEMPTION. City of Harrisonburg, Virginia $40,215,000 General Obligation Public Improvement Bonds, Series 2016 Dated: Date of Issuance Due: July 15, as shown on inside cover Interest Payable: January 15 and July 15 First Interest Payment: January 15, 2017 The General Obligation Public Improvement Bonds, Series 2016, in the aggregate principal amount of $40,215,000 (the Bonds ), issued by the City of Harrisonburg, Virginia (the City ), are general obligations of the City, for the payment of which the full faith and credit and unlimited taxing power of the City are irrevocably pledged. The City Council of the City is authorized and required, unless other funds are lawfully available and appropriated for timely payment of the Bonds, to levy and collect annually on all locally taxable property in the City an ad valorem tax over and above all other taxes authorized or limited by law and without limitation as to rate or amount, sufficient to pay principal of and premium, if any, and interest on the Bonds as the same respectively become due and payable. See the section herein SECTION TWO: THE BONDS -- SECURITY FOR THE BONDS. The proceeds of the Bonds will be used to (a) finance all or a portion of the costs of (i) the design, construction and equipping of a new elementary school and related infrastructure including, without limitation, road improvements, (ii) the design, construction and equipping of a pre-kindergarten facility and related infrastructure including, without limitation, road improvements, (iii) HVAC replacement at Thomas Harrison Middle School and (iv) the design and construction of bicycle and pedestrian trails including the possible acquisition of land for the same and (b) pay the costs of issuance of the Bonds. The Bonds will be issued as fully registered bonds and when issued will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ), which will act as securities depository of the Bonds. So long as Cede & Co. is registered owner of the Bonds, as the nominee for DTC, (a) references herein to the Bondholder or registered owner shall mean Cede & Co. and (b) principal, premium, if any, and interest shall be payable to Cede & Co., as nominee for DTC, which will, in turn, remit such principal, premium and interest to the DTC participants for subsequent disbursements to the beneficial owners of the Bonds. Individual purchases of beneficial ownership interest in the Bonds will be made in book-entry form only, in denominations of $5,000 or multiples thereof. Bond certificates will be immobilized at DTC and not available for delivery to the public. See the section herein SECTION TWO: THE BONDS -- DESCRIPTION OF THE BONDS -- Book-Entry-Only System. The Bonds will bear interest from their date of issuance, payable semiannually on each January 15 and July 15, commencing January 15, The Bonds are subject to redemption prior to their stated maturities as summarized on the inside cover and in the section herein SECTION TWO: THE BONDS -- DESCRIPTION OF THE BONDS -- Redemption Provisions. The Bonds are offered for delivery when, as and if issued, subject to the approval of validity by Troutman Sanders LLP, Richmond, Virginia, Bond Counsel, as described herein. Certain legal matters will be passed upon for the City by the City Attorney, G. Chris Brown, Esquire, Harrisonburg, Virginia. It is expected that the Bonds will be available for delivery through The Depository Trust Company in New York, New York, on or about May 18, 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. Dated: April 26, 2016

2 City of Harrisonburg, Virginia $40,215,000 General Obligation Public Improvement Bonds, Series 2016 Dated: Date of Issuance Due: July 15, as shown below (Base CUSIP ** Number ) MATURITIES, AMOUNTS, INTEREST RATES, YIELDS, PRICES AND CUSIP SUFFIX NUMBERS Year of Maturity Amount Interest Rate Yield Price CUSIP ** Suffix 2017 $1,100, % 0.620% % QH ,135, QJ ,185, QK ,250, QL ,310, QM ,380, QN ,450, QP ,520, QQ ,605, QR ,685, QS ,755, * QT ,805, QU ,860, * QV ,940, * QW ,655, * QX ,720, * QY ,780, * QZ ,835, * RA ,890, * RB ,950, RC ,005, RD ,070, RE ,135, RF ,195, RG3 *Yield to July 15, 2026 call date Optional Redemption The Bonds maturing on or after July 15, 2027 are subject to optional redemption by the City on or after July 15, 2026, in whole or in part (in an integral multiple of $5,000) at a redemption price equal to one hundred percent of the principal amount of the Bonds to be redeemed, plus accrued interest to the redemption date. See the section herein SECTION TWO: THE BONDS -- DESCRIPTION OF THE BONDS -- Redemption Provisions Optional Redemption. ** A registered trademark of the American Bankers Association, used by S&P in its operation of the CUSIP Service Bureau for the ABA. The above CUSIP (Committee on Uniform Securities Identification Procedures) numbers have been assigned by an organization not affiliated with the City, and the City is not responsible for the selection or use of the CUSIP numbers. The CUSIP numbers are included solely for the convenience of bondholders and no representation is made as to the correctness of such CUSIP numbers. CUSIP numbers assigned to securities may be changed during the term of such securities based on a number of factors including, but not limited to, the refunding or defeasance of such securities or the use of secondary market financial products. The City has not agreed to, and there is no duty or obligation to, update this Official Statement to reflect any change or correction in the CUSIP numbers set forth above. i

3 CITY OF HARRISONBURG, VIRGINIA 409 South Main Street Harrisonburg, Virginia (540) CITY COUNCIL Christopher Jones, Mayor Richard Baugh, Vice Mayor Ted Byrd, Council Member Kai Degner, Council Member Abe Shearer, Council Member CITY OFFICIALS Kurt D. Hodgen, City Manager Anne C. Lewis, Deputy City Manager G. Chris Brown, City Attorney Erica Kann, City Clerk Jeffrey L. Shafer, Treasurer Karen I. Rose, Commissioner of the Revenue Larry L. Propst, Director of Finance BOND COUNSEL Troutman Sanders LLP 1001 Haxall Point Richmond, Virginia INDEPENDENT AUDITOR Brown, Edwards & Company, LLP 319 McClanahan Street, S.W. Roanoke, Virginia FINANCIAL ADVISOR Davenport & Company LLC 901 East Cary Street Richmond, Virginia No dealer, broker, salesman or other person has been authorized to give any information or to make any representations other than as contained in this Official Statement in connection with the offering of the Bonds and, if given or made, such other information or representations must not be relied upon. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be a 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. This Official Statement is not to be construed as a contract or agreement between the City and the purchasers or owners of any of the Bonds. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof. Any statement in this Official Statement involving matters of opinion or estimates, whether or not expressly stated, are intended as such and not as representations of fact. No representation is made that any such opinion or estimate will be realized. The information set forth herein has been obtained from sources which are believed to be reliable. THE BONDS HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACT. THE REGISTRATION OR QUALIFICATION OF THE BONDS IN ACCORDANCE WITH APPLICABLE PROVISIONS OF THE SECURITIES LAWS OF THE STATES, IF ANY, IN WHICH THE BONDS HAVE BEEN REGISTERED OR QUALIFIED AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN CERTAIN OTHER STATES CANNOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THESE STATES NOR ANY OF THEIR AGENCIES HAS PASSED UPON THE MERITS OF THE BONDS OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. All quotations from, and summaries and explanations of, provisions of law and documents herein do not purport to be complete, and reference is made to such laws and documents for full and complete statements of their provisions. This Official Statement contains statements which, to the extent they are not recitations of historical fact, constitute forward-looking statements. In this respect, the words, estimate, project, anticipate, expect, intend, believe and similar expressions are intended to identify forward-looking statements. A number of important factors affecting the City s financial results could cause actual results to differ materially from those stated in the forward-looking statements. ii

4 TABLE OF CONTENTS Page SECTION ONE: INTRODUCTION... 1 SECTION TWO: THE BONDS... 3 INTRODUCTION... 3 Authorization and Purpose of the Bonds... 3 DESCRIPTION OF THE BONDS... 3 General Provisions... 3 Redemption Provisions... 3 Book-Entry-Only System... 4 SECURITY FOR THE BONDS... 7 General Obligation Pledge; State-Aid Intercept... 7 Limitation on Remedies; Events of Default... 7 ESTIMATED SOURCES AND USES OF FUNDS... 8 APPROVAL OF LEGAL PROCEEDINGS... 8 TAX EXEMPTION... 8 Opinion of Bond Counsel... 8 Original Issue Discount... 9 Original Issue Premium... 9 Other Tax Matters SECTION THREE: CITY OF HARRISONBURG, VIRGINIA GENERAL DESCRIPTION Overview Form and Organization of Government Certain Administrative Staff Members City Employees GOVERNMENT SERVICES AND FACILITIES Introduction Public Schools Utilities Solid Waste Disposal Service; Resource Recovery Facility Public Safety Health and Welfare Community Facilities Economic Development DEMOGRAPHIC AND ECONOMIC INFORMATION Transportation Population Employment Personal Income Retail Sales Construction Activity Health Care Higher Education SECTION FOUR: FINANCIAL INFORMATION FINANCIAL MANAGEMENT Auditors Budget Process Accounting Practices CAPITAL IMPROVEMENTS PROGRAM DEBT ADMINISTRATION Introduction Statement of General Obligation Long-Term Debt Computation of Legal Debt Margin iii

5 Debt Service Requirements Debt Ratios GENERAL GOVERNMENT REVENUES BY SOURCE AND GENERAL GOVERNMENT EXPENDITURES BY FUNCTION TAX BASE DATA Local Sales Tax Meals Tax Other Local Taxes Other Sources of Revenue RETIREMENT SYSTEMS Pension Plan - Agent Multiple-Employer Pension Plan - Teacher Cost-Sharing Pool Post-Employment Benefits Other Than Pensions RISK MANAGEMENT COMMITMENTS AND CONTINGENT LIABILITIES SECTION FIVE: MISCELLANEOUS RATINGS LITIGATION SALE AT COMPETITIVE BIDDING FINANCIAL ADVISOR RELATIONSHIP OF PARTIES CERTIFICATES OF CITY OFFICIALS CONTINUING DISCLOSURE SUMMARIES AND DESCRIPTIONS Appendix A -- General Purpose Financial Statements of the City of Harrisonburg, Virginia for Fiscal Year Ended June 30, A-1 Appendix B -- Form of Continuing Disclosure Certificate... B-1 Appendix C -- Proposed Form of Bond Counsel Opinion... C-1 iv

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7 OFFICIAL STATEMENT CITY OF HARRISONBURG, VIRGINIA GENERAL OBLIGATION PUBLIC IMPROVEMENT BONDS, SERIES 2016 SECTION ONE: INTRODUCTION The Issuer: The Issue: Security: The City of Harrisonburg, Virginia (the City ), is located in the geographic center of the Shenandoah Valley of Virginia. The City is equidistant from Washington, D.C. (124 miles), Richmond, Virginia (116 miles), and Roanoke, Virginia (111 miles). The City is autonomous and entirely independent of any county or any other political subdivision. It is not subject to taxation by any county. The City was established in 1780 and became an incorporated city in It now encompasses 17.3 square miles and has an estimated population of 53,875 in See the section herein SECTION THREE: CITY OF HARRISONBURG, VIRGINIA. The General Obligation Public Improvement Bonds, Series 2016, in the aggregate principal amount of $40,215,000 (the Bonds ), dated the date of their issuance. See the section herein SECTION TWO: THE BONDS -- DESCRIPTION OF THE BONDS. The Bonds are being issued under the Public Finance Act of 1991, Chapter 26, Title 15.2 of the Code of Virginia of 1950, as amended (the Act ), and pursuant to a Resolution adopted by the City Council of the City (the City Council ) on March 22, 2016 (the Resolution ). The Bonds are secured by the full faith and credit of the City. See the section herein SECTION TWO: THE BONDS -- SECURITY FOR THE BONDS. Principal Payments: Principal of the Bonds is payable annually on July 15 commencing July 15, See the inside cover and the section herein SECTION TWO: THE BONDS -- DESCRIPTION OF THE BONDS. Interest Payments: Redemption: Denominations: Purpose: Interest on the Bonds will be payable on each January 15 and July 15 commencing January 15, 2017, until the earlier of maturity or redemption. See the inside cover and the section herein SECTION TWO: THE BONDS -- DESCRIPTION OF THE BONDS. See the section herein SECTION TWO: THE BONDS -- DESCRIPTION OF THE BONDS -- Redemption Provisions. The Bonds maturing on or after July 15, 2027 are subject to optional redemption by the City on or after July 15, 2026, in whole or in part (in an integral multiple of $5,000) at any time upon payment of a redemption price equal to one hundred percent of the aggregate principal amount of the Bonds to be redeemed, plus accrued interest to the redemption date. The Bonds will be issued in authorized denominations of $5,000 and multiples thereof. The proceeds of the Bonds will be used to (a) finance all or a portion of the costs of (i) the design, construction and equipping of a new elementary school and related infrastructure including, without limitation, road improvements, (ii) the design, construction and equipping of a pre-kindergarten facility and related infrastructure including, without limitation, road improvements, (iii) HVAC replacement at Thomas Harrison Middle School and (iv) the design and construction of bicycle and pedestrian trails including the possible acquisition of land for the same and (b) pay 1

8 Delivery: Appendices: the costs of issuance of the Bonds. See the section herein SECTION TWO: THE BONDS -- SOURCES AND USES OF FUNDS. The Bonds are offered for delivery, when, as, and if issued, subject to the approval of validity by Troutman Sanders LLP, Richmond, Virginia, Bond Counsel, and to certain other conditions referred to herein. Certain legal matters will be passed on for the City by the City Attorney, G. Chris Brown, Esquire, Harrisonburg, Virginia. It is expected that the Bonds will be available for delivery, at the expense of the City, in New York, New York, through the facilities of The Depository Trust Company, on or about May 18, See also the section herein SECTION TWO: THE BONDS -- APPROVAL OF LEGAL PROCEEDINGS. Appendix A includes the audited general purpose financial statements for the City for the fiscal year ended June 30, A copy of the Continuing Disclosure Certificate summarized in the section herein SECTION FIVE: MISCELLANEOUS -- CONTINUING DISCLOSURE, is included in Appendix B. Appendix C contains the proposed form of the approving opinion of Troutman Sanders, LLP, as Bond Counsel, for the Bonds. The Appendices are an integral part of this Official Statement and must be read in their entirety together with the remainder of this Official Statement. Additional Information: Any question concerning the content of this Official Statement should be directed to the City s Director of Finance, 409 South Main Street, Harrisonburg, Virginia (540)

9 SECTION TWO: THE BONDS Authorization and Purpose of the Bonds INTRODUCTION The City Council has authorized the issuance of the Bonds pursuant to the Resolution. The proceeds of the Bonds will be used to (a) finance all or a portion of the costs of (i) the design, construction and equipping of a new elementary school and related infrastructure including, without limitation, road improvements, (ii) the design, construction and equipping of a pre-kindergarten facility and related infrastructure including, without limitation, road improvements, (iii) HVAC replacement at Thomas Harrison Middle School and (iv) the design and construction of bicycle and pedestrian trails including the possible acquisition of land for the same and (b) pay the costs of issuance of the Bonds. See the section below SOURCES AND USES OF FUNDS. General Provisions DESCRIPTION OF THE BONDS The Bonds are dated the date of their issuance and mature on July 15 in the years and in the principal amounts set forth in the inside cover page. The Bonds will be issued in authorized denominations of $5,000 and multiples thereof. The Bonds will be held by The Depository Trust Company ( DTC ), or its nominee, as securities depository with respect to the Bonds. Purchases of beneficial ownership interests in the Bonds will be made only in book-entry form and individual purchasers will not receive physical delivery of bond certificates. See the section below SECTION TWO: THE BONDS -- DESCRIPTION OF THE BONDS - - Book-Entry-Only System. Interest on the Bonds will be payable on each January 15 and July 15, commencing January 15, 2017 (each, an Interest Payment Date ), until the earlier of maturity or redemption, at the rates set forth in the inside cover page. Interest on the Bonds will be paid by wire or by check mailed to the registered owners of the Bonds (the Bondholders or the Holders of the Bonds) at their addresses as they appear on the registration books kept by U.S. Bank National Association, as paying agent (the Paying Agent ) on the close of business on the first day of the month during which each Interest Payment Date occurs; provided, that if the Bonds are registered in the name of DTC or its nominee, payment will be made by wire transfer to DTC or its nominee. Each Bond will bear interest (a) from its date, if such Bond is authenticated prior to January 15, 2017, or (b) otherwise from the Interest Payment Date that is, or immediately precedes, the date on which such Bond is authenticated; provided, that if at the time of authentication of any Bond payment of interest is in default, such Bond will bear interest from the date to which interest has been paid. Interest on the Bonds will be calculated on the basis of a 360-day year of twelve 30-day months. In the event an Interest Payment Date or a payment or redemption date for the Bonds is a date other than a Business Day, then payment of principal or redemption price of, and interest on, the Bonds will be made on the next succeeding day which is a Business Day at the place where the principal corporate trust office of the Paying Agent is located, and if made on such next succeeding Business Day, no additional interest will accrue for the period after such Interest Payment Date or payment or redemption date. Redemption Provisions Optional Redemption. The Bonds maturing on or after July 15, 2027 are subject to optional redemption by the City on or after July 15, 2026, in whole or in part (in an integral multiple of $5,000) at any time upon payment of a redemption price equal to one hundred percent of the aggregate principal amount of the Bonds to be redeemed, plus accrued interest to the redemption date. 3

10 Other Redemption Provisions. If less than all of the Bonds are to be redeemed pursuant to an optional redemption, the maturities and series of the Bonds to be redeemed will be selected by the City. If less than all of the Bonds of any maturity of any series are to be redeemed, the particular Bonds or portions thereof to be called for redemption will be selected by DTC pursuant to its rules and procedures. In any event, (a) the portion of any Bond to be redeemed will be in the principal amount of $5,000 or an integral multiple thereof, and (b) in selecting Bonds for redemption, each Bond will be considered as representing that number of Bonds which is obtained by dividing the principal amount of such Bond by $5,000. If a portion of a Bond is called for redemption, a new Bond in principal amount equal to the unredeemed portion thereof will be issued to the Bondholder upon the surrender thereof. The City will send or cause to be sent notice of the call for redemption not less than thirty (30) nor more than sixty (60) days prior to the redemption date, by electronic or facsimile transmission, registered or certified mail or overnight express delivery, (1) to the Holder of each Bond to be redeemed at its address as it appears on the registration books (which shall be DTC or its nominee so long as the book-entry system is in effect), (2) to the Electronic Municipal Market Access System ( EMMA ) maintained by the Municipal Securities Rulemaking Board or any successor thereto and (3) if in existence, any similar repository operated by or on behalf of the Commonwealth of Virginia. Failure to give any notice specified in (1), or any defect therein, will not affect the validity of any proceedings for the redemption of any Bond with respect to which no such failure has occurred. Failure to give or delay in giving any notice specified in (2) or (3), or any defect therein, will not affect the validity of any proceedings for the redemption of any Bonds with respect to which the notice specified in (1) is correctly given and will not give rise to any liability of the City to any Holder of the Bonds or any other person or entity. Any notice so mailed will be presumed to have been given regardless of whether actually received by any Bondholder. Book-Entry-Only System The description that follows of the procedures and recordkeeping with respect to beneficial ownership interests in the Bonds, payments of principal of and premium if any and interest on the Bonds to DTC, its nominee, Direct and Indirect Participants (as defined below) or Beneficial Owners (defined below), confirmation and transfer of beneficial ownership interests in the Bonds and other bond-related transactions by and between DTC, Direct and Indirect Participants and Beneficial Owners is based solely on information furnished by DTC. Neither the City nor the Paying Agent assumes any responsibility for the accuracy or adequacy of the information included in such description. DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the posttrade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. 4

11 securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has a Standard & Poor s highest rating of AA +. The DTC Rules applicable to its Direct and Indirect Participants (together, the Participants ) are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmation providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Bonds may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults and proposed amendments to the Bond documents. For example, Beneficial Owners of the Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal of and premium, if any, and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the City or the Paying Agent, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Paying Agent, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal of and premium, if any, and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Paying Agent, disbursement of 5

12 such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. THE CITY CAN GIVE NO ASSURANCES THAT DIRECT AND INDIRECT PARTICIPANTS WILL PROMPTLY TRANSFER PAYMENT TO BENEFICIAL OWNERS. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City or the Paying Agent. If the City fails to locate another qualified securities depository to replace DTC, the City will execute and the Paying Agent will authenticate and deliver replacement Bonds to the Beneficial Owners or to the Participants on behalf of the Beneficial Owners. The City may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository) by giving notice of the same to DTC. In that event, the City may use another qualified securities depository or execute and the Paying Agent authenticate and deliver, replacement Bonds to the Beneficial Owners or to the Participants on behalf of the Beneficial Owners. The foregoing information concerning DTC and DTC s book-entry system has been obtained from sources that the City believes to be reliable. Neither the City nor the Paying Agent takes any responsibility for the accuracy thereof. THE CITY AND THE PAYING AGENT DISCLAIM ANY RESPONSIBILITY OR OBLIGATION TO THE DIRECT OR INDIRECT PARTICIPANTS OR THE BENEFICIAL OWNERS OF THE BONDS WITH RESPECT TO (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DIRECT OR INDIRECT PARTICIPANT; (2) THE PAYMENT BY DTC TO ANY DIRECT OR INDIRECT PARTICIPANT OR BY ANY DIRECT OR INDIRECT PARTICIPANT TO ANY BENEFICIAL OWNER OF ANY AMOUNT DUE WITH RESPECT TO THE PRINCIPAL OR PREMIUM, IF ANY, AND INTEREST ON THE BONDS; (3) THE DELIVERY BY DTC TO ANY DIRECT OR INDIRECT PARTICIPANT OR BY ANY PARTICIPANT TO ANY BENEFICIAL OWNER OF ANY NOTICE WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE RESOLUTION TO BE GIVEN TO THE HOLDERS OF THE BONDS; (4) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF THE BONDS; OR (5) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC OR ITS NOMINEE AS THE REGISTERED OWNER OF THE BONDS, INCLUDING THE EFFECTIVENESS OF ANY ACTION TAKEN PURSUANT TO AN OMNIBUS PROXY. So long as Cede & Co. is the registered owner of the Bonds, as nominee of DTC, references in this Official Statement to the Bondholders or Holders of the Bonds shall mean Cede & Co. and shall not mean the Beneficial Owners and Cede & Co. will be treated as the only Bondholder of the Bonds for all purposes under the Resolution. The City may enter into amendments to the agreement with DTC or successor agreements with a successor securities depository, relating to the book-entry system to be maintained with respect to the Bonds without the consent of the Beneficial Owners. 6

13 General Obligation Pledge; State-Aid Intercept SECURITY FOR THE BONDS The Bonds constitute general obligations of the City, and the full faith and credit of the City are irrevocably pledged to the payment of the principal of, the premium, if any, and the interest on the Bonds. The proceedings authorizing the issuance of the Bonds provide that the City Council will, in each year while any of the Bonds are outstanding, levy and collect on all property in the City subject to local taxation an annual ad valorem tax over and above all other taxes authorized or limited by law and without limitation as to rate or amount, sufficient to pay when due the principal of, the premium, if any, and the interest on the Bonds, unless other funds are legally available and appropriated for timely payment of the Bonds. The City has never defaulted in the payment of either principal or interest on any debt obligation. Section of the Code of Virginia of 1950, as amended, provides that upon affidavit filed by or on behalf of any owner, or by any paying agent therefor, of a general obligation bond in default as to payment of principal, premium, if any, or interest, the Governor will conduct a summary investigation and, if such default is established to the Governor s satisfaction, the Governor will immediately order the State Comptroller to withhold all funds appropriated and payable by the Commonwealth to the political subdivision so in default and apply the amount so withheld to payment of the defaulted principal, premium, if any, and interest. Section also provides for notice to registered owners of the bonds of the default and the availability of withheld funds. The State Comptroller advises that to date no order to withhold funds pursuant to Section , or its predecessor provisions Section and Section , has ever been issued. Although neither Section nor its predecessors Section or Section has been approved by a Virginia court, the Attorney General of Virginia has opined that appropriated funds may be withheld by the Commonwealth pursuant to the prior Section The City received a total of $28.3 million and the School Board received a total of $30.9 million from the Commonwealth during the fiscal year ended June 30, The Bonds are not secured by a lien on or a security interest in any tangible assets of the City. Limitation on Remedies; Events of Default The right of a Bondholder to enforce payment of the Bonds may be limited by bankruptcy, insolvency, reorganization, moratorium, and similar laws and equitable principles, which may limit the specific enforcement of certain remedies. Chapter 9 of the United States Bankruptcy Code (the Bankruptcy Code ) permits a municipality such as the City, if insolvent or otherwise unable to pay its debts as they become due, to file a voluntary petition for the adjustment of debts provided that such municipality is generally authorized to be a debtor under Chapter 9 by State law, or by a governmental officer or organization empowered by State law to authorize such entity to be a debtor (Bankruptcy Code, 109(c)(2)). Current Virginia statutes do not expressly authorize the City or municipalities generally to file for bankruptcy under Chapter 9. Chapter 9 does not authorize the filing of involuntary petitions against municipalities such as the City. Bankruptcy proceedings by the City could have adverse effects on Bondholders including (a) delay in the enforcement of their remedies, (b) subordination of their claims to claims of those supplying goods and services to the City after the initiation of bankruptcy proceedings and to the administrative expenses of bankruptcy proceedings, and (c) imposition without their consent of a reorganization plan reducing or delaying payment of the Bonds. The Bankruptcy Code contains provisions intended to ensure that, in any reorganization plan not accepted by at least a majority of a class of creditors such as the holders of general obligation bonds, such creditors will have the benefit of their original claims or the indubitable equivalent thereof, although such plan may not provide for payment of the Bonds in full. The effect of these and other provisions of the Bankruptcy Code cannot be predicted and may be significantly affected by judicial interpretations. 7

14 Neither the Bonds nor the proceedings with respect thereto specifically provide any remedies to Bondholders if the City defaults in the payment of principal of or interest thereon, nor do they contain any provision for the appointment of a trustee to enforce the interests of the Bondholders upon the occurrence of such default. Upon any default in the payment of principal, premium, if any, or interest, a Bondholder could, among other things, seek from an appropriate court a writ of mandamus requiring the City Council to observe the covenants contained in the Resolution and the Bonds. The mandamus remedy, however, may be impracticable and difficult to enforce. Furthermore, the right to enforce payment of the Bonds may be limited by bankruptcy, insolvency, reorganization, moratorium, and similar laws and equitable principles, which may limit the specific enforcement of certain remedies. ESTIMATED SOURCES AND USES OF FUNDS The following table sets forth the direct or indirect anticipated application of the proceeds of the Bonds and other available funds: Sources of Funds Face Amount of Bonds $40,215, Net Original Issue Premium 3,995, Expected Investment Earnings (1) 172, Total Sources $44,382, Uses of Funds Deposit to Construction Fund $43,839, Costs of Issuance (2) 542, Total Uses $44,382, (1) Investment earnings are assumed at an interest rate of 0.53% based upon a draw schedule provided by the City. (2) Includes Underwriter s Discount. APPROVAL OF LEGAL PROCEEDINGS Certain legal matters relating to the authorization and validity of the Bonds will be subject to the approving opinion of Troutman Sanders LLP, Richmond, Virginia, Bond Counsel, which will be furnished at the expense of the City upon delivery of the Bonds (the Bond Opinion ). The Bond Opinion will be limited to matters relating to the authorization and validity of the Bonds and to the tax-exempt status of interest thereon as described in the following section. Bond Counsel has not been engaged to investigate the financial resources of the City or its ability to provide for payment of the Bonds, and the Bond Opinion will make no statement as to such matters or as to the accuracy or completeness of this Official Statement or any other information that may have been relied on by anyone in making the decision to purchase Bonds. The proposed form of the Bond Opinion is attached to this Official Statement as Appendix C. Certain legal matters will be passed upon for the City by the City Attorney, G. Chris Brown, Esquire. Opinion of Bond Counsel TAX EXEMPTION In the opinion of Bond Counsel, under existing law, interest, including accrued original issue discount ( OID ), on the Bonds (a) will not be included in gross income for federal income tax purposes, (b) will not be an item of tax preference for purposes of the federal alternative minimum income tax imposed on individuals and corporations; however, with respect to corporations (as defined for federal income tax purposes) subject to the alternative minimum income tax, such interest is taken into account in determining adjusted current 8

15 earnings for purposes of computing such tax, and (c) will be exempt from income taxation by the Commonwealth of Virginia. Except as discussed below in the section TAX EXEMPTION -- Original Issue Discount, regarding OID and in the Section TAX EXEMPTION Original Discount Premium regarding original issue premium, no other opinion will be expressed by Bond Counsel regarding the tax consequences of the ownership of or the receipt or accrual of interest on the Bonds. Bond Counsel s opinion will be given in reliance upon certifications by representatives of the City as to certain facts relevant to both the opinion and requirements of the Internal Revenue Code of 1986, as amended (the Code ) and upon certifications as to the yield on the Bonds. The City has covenanted to comply with the provisions of the Code regarding, among other matters, the use, expenditure and investment of the proceeds of the Bonds and the timely payment to the United States of any arbitrage rebate amounts with respect to the Bonds. Failure by the City to comply with such covenants could cause interest, including accrued OID, on the Bonds to become included in gross income for federal income tax purposes retroactively to their date of issue. Original Issue Discount The OID on the Bonds maturing on July 15 in the year 2028 and the years 2037 through 2040 (collectively, the OID Bonds ) is the excess of the stated redemption price of any OID Bond at maturity over the initial offering price to the public at which a substantial amount of the Bonds of the same maturity was sold. The public does not include bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers. OID on the OID Bonds represents interest that is excludable from gross income for purposes of federal and Virginia income taxation. However, the portion of the OID that is deemed to have accrued to the owner of an OID Bond in each year will be included in determining the corporate alternative minimum tax and the distribution requirements of certain investment companies and may result in some of the collateral federal income tax consequences mentioned below. Therefore, owners of OID Bonds should be aware that the accrual of OID in each year may result in corporate alternative minimum tax liability, additional distribution requirements, or other collateral federal and Virginia income tax consequences although the owner may not have received cash in such year. In the case of an original owner of an OID Bond, the amount of the OID which is treated as having accrued with respect to the OID Bond is added to the cost basis of the owner in determining, for federal income tax purposes, gain or loss upon its disposition (including its sale, redemption or payment at maturity). The amounts received upon such disposition which are attributable to accrued OID will be excluded from the gross income of the recipients for federal income tax purposes. The accrual of OID and its effect on redemption, sale or other disposition of OID Bonds that are not purchased in the initial offering at the initial offering price may be determined according to rules that differ from those described herein. Interest in the form of OID is treated under Section 1288 of the Code as accruing under a constant yield method that takes into account compounding on a semiannual or more frequent basis. If an OID Bond is sold or otherwise disposed of between semiannual compounding dates, then the OID which would have accrued for that semiannual compounding period for federal income tax purposes is to be apportioned in equal amounts among the days in the compounding period. Prospective purchasers of OID Bonds should consult their own tax advisors with respect to the precise determination for federal income tax purposes of interest accrued upon sale or redemption of such Bonds and with respect to state and local tax consequences of owning such Bonds. Original Issue Premium The Bonds maturing on July 15 in the years 2017 through 2027 and 2029 through 2035 are referred to below as original issue premium bonds (collectively, the OIP Bonds ). The initial offering price of the OIP Bonds at which a substantial amount of such OIP Bonds will be sold exceeds the principal amount payable on such OIP Bonds at maturity or upon redemption. Such excess constitutes amortizable bond premium for federal income tax purposes. 9

16 A purchaser of an OIP Bond must amortize any premium over such OIP Bond s term using constant yield principles, based on the OIP Bond s yield to maturity. As premium is amortized, the purchaser s basis in such OIP Bond and the amount of tax-exempt interest received will be reduced by the amount of amortizable premium properly allocable to such purchaser. This will result in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes on the sale or disposition of such OIP Bond prior to its maturity. Even though the purchaser s basis is reduced, no federal income tax deduction is allowed. Purchasers of any OIP Bond at a premium, whether at the time of initial issuance or subsequent thereto, should consult their tax advisors with respect to the determination and treatment of premium for federal income tax purposes, and with respect to the state and local tax consequences of owning such Bonds. Other Tax Matters In addition to the matters addressed above, prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to certain taxpayers including without limitation, financial institutions, property and casualty insurance companies, S corporations, foreign corporations subject to the branch profits tax, recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations. Prospective purchasers of the Bonds should consult their own tax advisors as to the applicability and impact of such consequences. Prospective purchasers of the Bonds should consult their own tax advisors as to the status of interest on the Bonds under the tax laws of any state other than Virginia. The Bonds have not been designated as qualified tax-exempt obligations under Section 265(b)(3) of the Code. 10

17 SECTION THREE: CITY OF HARRISONBURG, VIRGINIA GENERAL DESCRIPTION Overview The City of Harrisonburg is located in the geographic center of the Shenandoah Valley of Virginia. The Blue Ridge Mountains on the east and the Alleghany Mountains on the west provide protection so the area is markedly free from climate extremes and disturbances. The Valley floor itself is at an elevation of 1,000 feet while the City s elevation is 1,329 feet. The City is equidistant from Washington, D.C. (124 miles), Richmond, Virginia (116 miles), and Roanoke, Virginia (111 miles). The City was established in 1780 and was named for Thomas Harrison, who donated the land for the Rockingham County courthouse. It became the permanent county seat of Rockingham County in 1781 and became an incorporated city in It now encompasses 17.3 square miles and was proclaimed a city of the first class in April The City has an estimated 2015 population of 53,875 people. The City is the center of commerce and travel for the area. The City is diverse with its mix of history, business, education and recreation. Form and Organization of Government The City is operated under the Council-Manager form of government. The City Council is the governing body which formulates policies for the administration of the City. It is comprised of five members elected on an at-large basis to serve four-year terms. The City Council appoints a City Manager to serve as the City s chief administrative officer. The City Manager is responsible for implementing the policies of the City Council, directing business and administrative procedures and appointing departmental officials and certain other City employees. The City provides or contributes to other governmental entities that provide comprehensive urban services, including primary and secondary education, police and fire protection, social services, public transportation, water and sewer utility services, streets and highways, housing and community development, parks and recreation, and solid waste management. The operation of the public school system in the City is the responsibility of the City of Harrisonburg School Board (the School Board ). It is comprised of six members elected on an at-large basis to serve fouryear terms. The Superintendent of Schools is appointed by the School Board. The local share of funds for operating public schools in the City is provided by an appropriation from the City s General Fund to the School Board. The School Board, however, is an autonomous policy-making body in matters governing education. The City Treasurer and the Commissioner of the Revenue are local constitutional officers of the Commonwealth elected by the residents of the City. The City Treasurer is responsible for the collection of and accountability for all moneys payable to the City. The Commissioner of the Revenue prepares the assessments of all local taxes and processes the Virginia income tax returns of City residents. The Sheriff, the Clerk of the Circuit Court, and the Commonwealth s Attorney, also local constitutional officers, are elected by the voters of both the City and Rockingham County, and serve both jurisdictions. 11