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HomeMy WebLinkAbout2010.05.10 Council Workshop Packet AGENDA PASCO CITY COUNCIL Workshop Meeting 7:00 p.m. May 10, 2010 1. CALL TO ORDER 2. ROLL CALL: (a) Pledge of Allegiance. 3. VERBAL REPORTS FROM COUNCILMEMBERS: 4. ITEMS FOR DISCUSSION: (a) Staff Presentation: irrigation Systems. (NO WRITTEN MATF.,RIAL ON AGF,NDA) Presented by Jess Greenough,Field Division Manager. (b) Senior Services Advisory Committee Interviews: 1. Agenda Report from Gary Crutchfield, City Manager dated May 6,2010. 2. Applications (2) (Council packets only) (c) Renewal of HOME Consortium Agreement for KenneNdck, Pasco and Richland for Program Years 2011-2013: 1. Agenda Report from Angela Pitman, Block Grant Administrator dated May 6, 2010. 2. Resolution. (d) 2010 Water and Sewer Utility Revenue Bonds: I. Agenda Report from Stan Strebel, Deputy City Manager dated May 6,2010. 2. Proposed Ordinance. 3. Preliminary Official Statement. (Attachments in Council packets only; copies available for public review in the City Manager's office, the Pasco Library or on the city's webpage at: hltyJ /www.yasco- wa.gQv fweb!qpp/ci()&ouncih-e,orts.) (e) Legislative Consultant Agreement: 1. Agenda Report from Gary Crutchfield,City Manager dated May 7, 2010. 2. Proposed Agreement. 5. OTHER ITEMS FOR DISCUSSION: (a) (b) (c) 6. EXECUTIVE SESSION: (a) (b) (c) 7. ADJOURNMENT REMINDERS: 1. 11:00 a.m., Monday, May 10, 904 E. Ainsworth—Osprey Pointe—Business & Technology Progress Celebration. (MAYOR PRO-TEM MATT WATKINS) 2. 12:00 p.m., Monday, May 10, Pasco Red Lion — Pasco Chamber of Commerce Membership Luncheon. (Presenter: WSU Tri-Cities Chancellor Vicky L.Carwein) 3. 10:00 a.m., Tuesday, May 11, Senior Center -- Senior Citizens Advisory Committee Meeting. (COUNCILMEMBER TOM LARSEN, Rep.; BOB HOFFMANN, Alt.) 4. 10:00 a.m., Wednesday, May 12, KONA — KONA Mayor's Report. (MAYOR PRO-TEM MATT WATKINS) 5. 7:00 a.m., Thursday, May 13, Cousin's Pasco — BFCG Tri-Mats Policy Advisory Committee Meeting. (COUNCILMEMBER BOB HOFFMANN,Rep.; REBECCA FRANCIK, Alt.) 6. 7:00 p.m., Thursday, May 13, Transit Facility — Ben-Franklin "Transit Board Meeting. (MAYOR PRO-TEM MATT WATKINS, Rep.; COUNCILMEMBER MIKE GARRISON, Alt.) 7. 1:30 p.m., Friday, May 14, 7130 W. Grandridge Blvd. — Ridges to Rivers Jurisdictional Council Meeting. (MAYOR PRO-TEM MATT WATKINS) AGENDA REPORT TO: City Council May 6, 2010 FROM: Gary Crutcl 9 Manager Workshop Mtg,: 5110110 SUBJECT: Senior Service. Advisory Committee Interviews 1. REFERENCE(S): 1. Applications (2) (Council packets only) II. ACTION REQUESTED OF COUNCIL/STAFF RECOMMENDATIONS: 5110: Council to conduct brief interviews with Jim Michaud and Lynda Salgado. Ill. HISTORY AND FACTS BRIEF: A) The Senior Services Advisory Committee includes four appointed members (the fifth board position is reserved for the Senior Citizens Association President); terms are for three years. The committee meets on the second Tuesday of each month at 10:00 a.m. B) The Senior Services Advisory Committee advises the City Council on programs, activities and interests of senior citizens as they relate to the Senior Citizen Center, C) At the present time there is one vacancy on the commission: 1. Position No. 2 tern expiration date of 411110 D) After Council screening committee review of all applications, the following have been selected to interview for Position 2: 1. Jim Michaud ...............................................................9100 Court Street 2. Lynda Salgado.................... ....................—..............916 N. 24"' Avenue IV. DISCUSSION: A) After conduct of interviews at the May 10 Workshop meeting, it is proposed that an appointment be made by the Mayor, subject to confirmation by the Council, at the May 17 meeting. 4(b) AGENDA REPORT FOR: City Council May 4, 2010 TO: Gary Crutchfield, City ger Workshop Mtg.: 5110110 Rick White, �tl� Regular Mtg.: 5/17/10 Community &Economic Development Director FROM: Angela R. Pitman, Block Grant Administrator SUBJECT: Renewal of HOME Consortium A rrccment for Kennewick, Pasco and Richland for Program Years 2011-2013 I. RJR FERENCI N: A. Resolution II. ACTION REQUESTED OF COUNCIL 1 STAFF RECONINMENDATIONS: 5110: DISCUSSION 5117: MOTION: I move to approve Resolution No. renewing the HOME 2005-2007 Cooperative Agreement between the Cities of Pasco, Kennewick and Richland for Program Years 2011-2013. III. FISCAL IMPACT: Pasco's share of federal HOME fiinds in 2010 was $215,925. It is estimated that Pasco will be awarded approximately $200,000 each of the next three years. IV. HISTORY AND FACTS BRIEF: A. Pasco entered into a HOME consortium agreement with Richland and Kennewick in 1995, making the city eligible for federal HOME funds. The populations of the individual cities alone do not meet the U.S. Department of Housing and Urban Development (HUD) minimum. By joining together in a consortium, funds are available to the three cities. B. The original consortium agreement ran from 1995 through 1998. The cities then agreed to enter into a new three-year agreement, as authorized by HUD through 2001. Thereafter, the agreement has been renewed every three years. In 2007, the agreement was amended to renew automatically unless one of the cities objects. However, the renewal clause still requires the City of Richland as lead representative for the consortium to notify participating jurisdictions of their opportunity to not participate in the subsequctnt three-year period(2011-2013). C. Richland has expressed their willingness to continue as lead representative to the consortium. V. DISCUSSION: A. Funding through the IiOME consortium allows Council to designate a variety of programs designed to increase the supply of decent and affordable housing to low income residents. 4(c) RESOLUTION NO. A RESOLUTION APPROVING RENEWAL TO THE HOME COOPERATIVE AGREEMENT FOR TRI-CITIES HOME CONSORTIUM OF KENNEWICK, PASCO, AND RICHLAND CONSORTIUM UNDER THE NATIONAL AFFORDABLE HOUSING ACT FOR PROGRAM YEARS 2011-2013. WHEREAS, the Cities of Kennewick, Pasco and Richland entered into a cooperative agreement to form a consortium to increase the local supply of decent affordable housing to low income residents as authorized by public Law 101-625, the National Affordable Housing Act of 1940 (NAHA); and WHEREAS, the members of the Consortium extended the agreement for an additional three years from 2008-2010, NOW TH EREORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PASCO: That the City Council approves renewal of the Cooperative Agreement with the Cities of Kennewick and Richland for program years 2011-2013 to increase the supply of decent and affordable housing to low income residents. BE IT FURTHER RESOLVED that this Resolution shall take effect immediately. PASSED by the City Council of the City of Pasco this day of . 2010 Matt Watkins Mayor Pro-Tem ATTEST: APPROVED AS TO FORM: Debra L. Clark Leland B. Kerr City Clerk City Attorney AGENDA REPORT FOR: City Council r May 6, 2010 TO. Gary Crutchti eanager Workshop Mtg.: 5/I0/10 Regular Mtg.: 5/17/10 FROM: Stan Strebel, L)e uty City Manag SUBJECT: 2010 Water and Sewer Utility Revenue Bonds I. REFERENCE(S): I. Proposed Ordinance 2. Preliminary Official Statement (Attachments in Council packets only; copies available for public review in the City Manager's office, the Pasco Library or on the city's webpage at: hzrl)://www.uasco-wa.2ov/webri r�i/eitycouncilrepor-ts.) II. ACTION REQUESTED OF COUNCIL /STAFF RECOMMENDATIONS: 5/10: Discussion 5/17: MOTION: I move to adopt Ordinance No. , an ordinance relating to the waterworks utility of the city, including the sanitary sewerage system and the system of storm or surface water sewers as a part thereof; adopting a system or plan of additions to and betterments and extensions of the waterworks utility of the city; providing for the issuance and sale of $ par value of water and sewer improvement and refunding revenue bonds, 2010A, for the purpose of obtaining the funds with which to pay the cost of carrying out such plan of additions, pay the cost of a current refunding of the city's outstanding water and sewer revenue refunding bonds, 1998, Series B (tax-exempt), and the administrative costs of such refunding, and fund a reserve for and pay the costs of issuance of such bonds; providing for the issuance and sale of$ par value of water and sewer refunding revenue bonds, 2010T (taxable), for the purpose of obtaining the funds with which to pay the cost of a current refunding of the city's outstanding water and sewer revenue bonds, 1998, Series A (taxable), and the administrative costs of such refunding, and pay the costs of issuance of such bonds; fixing the date, form, denomination, maturities, interest rates, terms and covenants of the bonds authorized herein; providing for and authorizing the purchase of certain obligations out of the proceeds of the sale of such bonds and for the use and application of the money derived from those investments; authorizing the execution of an agreement with U.S. Bank National Association of Seattle, Washington, as refunding trustee; providing for the call, payment and redemption of the outstanding bonds to be refunded; and providing for the sale and delivery of the bonds to Piper .laffray & Co. of Seattle, Washington and, further, authorize publication only. 11I. FISCAL IMPACT: IV. HISTORY AND FAC'T`S BRIEF: A) It is proposed that the city issue a combined total of $10,615,000 in water and sewer revenue bonds for completing approximately $3 million in water system improvements (new west side water treatment plant); $3 million in sewer system improvements (primary clarification at WWTP; pump stations at Highway 12 and Commercial Avenue; and Court Street/]-182 north sewer extension); for refunding some $4,070,000 of 1998 water and sewer revenue bonds; and providing approximately $545,000 for the city's debt service reserve fund (preferable to raising utility rates for this required set aside) and costs. 4(d) B) The 2010 Water and Sewer Revenue Bonds would be issued in two series: 2010A ($9,390,000) and 2010T (taxable) in the amount of$1,225,000. The 2010A series would be payable over 20 years with the taxable series payment over eight years. The taxable series is necessary due to the fact that a portion of the refunded bonds were originally issued as taxable due to private beneficiaries (PWRF). C) Favorable interest rates support combining the sewer projects (some accelerated fi•om the capital plan schedule) and the refunding with the balance of bonds necessary to complete the water treatment plant. Refunding the 1998 bonds is estimated to result in savings of$220,000. D) Interest rates on the bonds are expected to range from 2.00% to 4.75% (the higher rates will apply to the taxable series). V. DISCUSSION: A) Standard & Poor's again assigned a rating of AA- to the issue, reaffirming the upgrade received on our 2009 revenue bonds. Given the favorable rating, it will not be necessary to consider bond insurance in order to gain the most favorable rates. B) The bonds will be sold on May 17. The completed bond ordinance will be available by the start of that Council meeting. C) Jane Towery, Managing Director of Public Finance with Piper Jaffray, Inc. will be present at the May 17 meeting to report on the sale of the bonds. D) Staff recommends adoption of the proposed ordinance. i PRELIMINARY OFFICIAL STATEMENT DATED MAY 7, 2010 r r NEW ISSUE RATING: AA-(S&P) s BOOK-ORDER ENTRY BANK QUALIFIED—2010A Bonds o " a v In the opinion of Bond Counsel,under exi ting federal law and assuming compliance with applicable requirements of the Internal Revenue Code of 9986,as amended(the v w `Code'), that must be satioed subsequent to the issue date of the 2090A Bonds, interest on the 2090A Bonds is excluded from gross income for federal income tax a° purposes and is not an item of tax preference forpurposes of the alternative minimum tax applicable to individuals. However,while interest on the 2090A Bonds also is not an item of tax preference forpurposes of the alternative minimum tax applicable to corporations, interest on the 2090A Bonds received by corporations is taken into a" account in the computation of adjusted current earnings forpurposes of the alternative minimum tax applicable to corporations, interest on the 2090A Bonds received by certain S corporations may be subject to tax, and interest on the 2090A Bonds received by foreign corporations with United States branches may be subject to a foreign o branch profits tax. Receipt of interest on the 2090A Bonds may have other federal tax consequences for certain taxpayers. See `TAX MATTERS—Tax Exemption v r of the Series 2090A Bonds"and"-Certain Other Federal Tax Consequences"herein. ° Interest on the 2090T Bonds is not excluded fromgross income forfederal income taxpurposes. A $9,390,000* $1,225,000* 0 o CITY OF PASCO,WASHINGTON CITY OF PASCO,WASHINGTON w WATER AND SEWER WATER AND SEWER IMPROVEMENT AND REFUNDING REVENUE BONDS, REFUNDING REVENUE BONDS, c 2010A 2010T (TAXABLE) 0 DATED: Date of Delivery DUE: June 1,as shown on inside cover � 0 � The City of Pasco, Washington (the "City', Water and Sewer Improvement and Refunding Revenue Bonds, 2010A (the g "2010A Bonds") and Water and Sewer Refunding Revenue Bonds, 2010T (Taxable) (the "2010T Bonds" and, together with y c the 2010A Bonds, the "Bonds"), will be issued as fully registered bonds under a book-entry only system, registered in the 0 ° name of Cede and Co. as bond owner and nominee for DTC. DTC will act as initial securities depository for the Bonds. 0 0 Individual purchases of the Bonds will be made in book-entry form, in the denomination of$5,000 or any integral multiple thereof. Purchasers will not receive certificates representing their interests in the Bonds. Interest on the Bonds will be paid vsemi-annually on each June 1 and December 1, beginning December 1, 2010, to the maturity or earlier redemption of the o2 Bonds. The principal of and premium, if any, and interest on the Bonds are payable by the City's Bond Registrar, the fiscal agent of the State of Washington currently The Bank of New York Mellon in New York,New York,to DTC,which,in turn, is obligated to remit such payments to its participants for subsequent disbursement to beneficial owners of the Bonds, as y .y- described under"DESCRIPTION OF THE BONDS"and in Appendix D. o Security: The Net Revenue of the City's Waterworks Utility,including any Utility Local Improvement District Assessments 8 w 00 ("ULID Assessments") in any ULID created to secure the payment of any Parity Bonds, are pledged to the payment of the „ principal of and interest on the Outstanding Parity Bonds, the Bonds and any Future Parity Bonds when due. The lien and w charge of the Bonds,the Outstanding Parity Bonds and any Future Parity Bonds on the Net Revenue and ULID Assessments I is prior and superior to any other liens and charges whatsoever. See "SECURITY OF THE BONDS"herein. The Bonds do not o constitute a debt or indebtedness of the State of Washington,or any other political subdivision thereof,other than the City. ¢ Optional Redemption: Bonds maturing on or prior June 1, 2019 shall not be subject to optional redemption by the City 3 prior to their stated maturity dates.The City reserves the right and option to redeem Bonds maturing on or after June 1,2020 cy � o E a prior to their stated maturity date at any time on or after December 1,2019, as a whole or in part (randomly in such manner as the Bond Registrar shall determine),at par plus accrued interest. C 3 Bank Designation: The 2010A Bonds have been designated as "Qualified Tax Exempt Obligations." See "TAX MATTERS-CERTAIN OTHER TAX CONSEQUENCES"herein. oLegal Opinion: The Bonds are offered for delivery by the Purchaser when, as and if issued, subject to the approving legal - n opinion of Foster Pepper PLLC,Seattle,Washington,Bond Counsel. The form of Bond Counsel's opinion is attached hereto d _o as Appendix C. It is anticipated that the Bonds will be available for delivery through the facilities of DTC in New York,New vYork,or to the Bond Registrar on behalf of DTC by Fast Automated Securities Transfer on or about June 3,2010. s N 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. C r rt 9 r *Preliminary,subject to change R b Vi .w •ri Pxperjaff ray. CITY OF PASCO,WASHINGTON $9,390,000* WATER AND SEWER IMPROVEMENT AND REFUNDING REVENUE BONDS,2010A MATURITY SCHEDULE Due Interest Price or Tune 1 Amount* Rate Yield CUSIP No.(1) 2011 $930,000 702571_ 2012 955,000 702571_ 2013 980,000 702571_ 2014 1,010,000 702571_ 2015 275,000 702571_ 2016 285,000 702571_ 2017 295,000 702571_ 2018 310,000 702571_ 2019 320,000 702571_ 2020 335,000 702571_ $1,880,000 %Term Bond Maturing on June 1,2025 @ %(CUSIP No.(1)702571 ) $1,815,000 %Term Bond Maturing on June 1,2029 @ %(CUSIP No.(1)702571) $1,225,000* WATER AND SEWER REFUNDING REVENUE BONDS,2010T(TAXABLE) MATURITY SCHEDULE $1,225,000 %Term Bond Maturing on June 1,2018 @ %(CUSIP No.(1)702571) (1) The CUSIP numbers are included in this Official Statement for convenience of the holders and potential holders of the Bonds. Copyright 2009, American Bankers Association. The CUSIP numbers herein are provided by CUSIP Global Service.CUSIP Global Service is managed on behalf of the American Bankers Association by Standard and Poor's. These numbers are not intended to create a database and do not serve in any way as a substitute for the CUSIP Service. CUSIP numbers are subject to change. The City takes no responsibility for the accuracy of such CUSIP numbers. *Preliminary,subject to change. No dealer, broker, sales representative or other person has been authorized by the City or Piper Jaffray & Co. (the "Underwriter") to give any information or to make any representations with respect to the Bonds other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy,nor 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 set forth or included in this Official Statement has been provided by the City and from other sources believed by the City to be reliable but is not guaranteed as to accuracy or completeness and it is not to be construed as a representation by the Underwriter. The Underwriter has reviewed the information in this Official Statement in accordance with,and as a part of,its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale hereunder shall create any implication that there has been no change in the financial condition or operations of the City described herein since the date hereof. This Official Statement contains,in part,estimates and matters of opinion that are not intended as statements of fact,and no representation or warranty is made as to the correctness of such estimates and opinions or that they will be realized. Certain statements contained in this Official Statement reflect not historical facts but are forecasts and"forward-looking statements." No assurance can be given that the future results discussed herein will be achieved,and actual results may differ materially from the forecasts described herein. In this respect, the words `estimate," "forecast," "project," "anticipate," "expect," "intend," "believe" and other similar expressions are intended to identify forward-looking statements. The forward-looking statements in this Official Statement are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by such statements. All estimates,projections, forecasts, assumptions and other forward-looking statements are expressly qualified in their entirety by the cautionary statements set forth in this Official Statement. The City specifically disclaims any obligation to update any forward- looking statements to reflect occurrences or unanticipated events or circumstances after the date of this Official Statement,except as other expressly provided in"CONTINUING DISCLOSURE." The Bonds have not been registered with the Securities and Exchange Commission under the Securities Act of 1933,in reliance upon a specific exemption contained in such act. The Bonds may, however, be subject to registration or qualification under the securities laws of various states,and may not be transferred in violation of such state laws. The registration or qualification of the Bonds in accordance with applicable provisions of the securities laws of the states in which the Bonds have been registered or qualified, if any, and exemption from registration or qualification in other states,shall not be regarded as a recommendation thereof. No state nor any state or federal agency has passed upon the merits of these Bonds or the accuracy or completeness of this Official Statement. Any representation to the contrary may be a criminal offense. This Preliminary Official Statement has been "deemed final" as of its date by the City pursuant to Rule 15c2-12 of the Securities and Exchange Commission except for the omission of offering prices, interest rates, selling compensation, aggregate principal amount,principal amount per maturity, delivery dates, and other terms of the Bonds depending on such matters, in accordance with Section 240.15c2-12(b)(1) of Chapter 11 of Title 17 of the Code of Federal Regulations. The City has also undertaken to provide continuing disclosure on certain matters, including annual financial information and specific material events, as more fully described herein under "CONTINUING DISCLOSURE." CITY OF PASCO, WASHINGTON 525 NORTH THIRD AVENUE P.O.Box 293 PASCO,WA 99301 (509)545-3404 www.pasco-wa.gov* ELECTED OFFICIALS Members Position Term Expires Matt Watkins Mayor December 31, 2011 Vacant Mayor Pro-Tem December 31, 2011 Robert Hoffmann Council Member December 31, 2013 Michael Garrison Council Member December 31,2013 Rebecca Francik Council Member December 31, 2011 Tom Larsen Council Member December 31, 2013 Al Yenney Council Member December 31, 2011 CITY ADMINISTRATIVE STAFF Gary Crutchfield City Manager Richard Terway Administrative and Community Services Director Robert Alberts Public Works Director Michael McShane City Engineer Denis Austin Police Chief Robert Gear Fire Chief BOND REGISTRAR AND PAYING AGENT The Bank of New York Mellon New York, New York BOND COUNSEL Foster Pepper PLLC Seattle,Washington * The City's website is not part of this Official Statement, and investors should not rely on information presented in the City's website in determining whether to purchase the Bonds. This inactive textual reference to the City's website is not a hyperlink and does not incorporate the City's website by reference. TABLE OF CONTENTS INTRODUCTION.............................................................................................................................................................................1 DESCRIPTIONOF THE BONDS................................................................................................................................................1 General..............................................................................................................................................................................................1 RedemptionProvisions..................................................................................................................................................................1 Noticeof Redemption....................................................................................................................................................................2 OpenMarket Purchase of Bonds..................................................................................................................................................2 Form,Denomination and Registration.........................................................................................................................................3 Failureto Redeem the Bonds........................................................................................................................................................3 Defeasanceof the Bonds................................................................................................................................................................3 Book-Entry Bonds..........................................................................................................................................................................3 Purposeand Use of Proceeds........................................................................................................................................................3 SOURCES AND USES OF FUNDS..............................................................................................................................................4 SECURITY FOR THE BONDS......................................................................................................................................................5 Pledge of Revenue and Lien Position...........................................................................................................................................5 CoverageRequirement....................................................................................................................................................................5 BondFund........................................................................................................................................................................................5 ReserveAccount..............................................................................................................................................................................5 Flowof Funds..................................................................................................................................................................................6 Covenantsof the City.....................................................................................................................................................................6 FutureParity Bonds........................................................................................................................................................................7 THEWATERWORKS UTILITY....................................................................................................................................................9 TheWater System...........................................................................................................................................................................9 TheSewer System..........................................................................................................................................................................10 RateComparisons.........................................................................................................................................................................11 TheProcess Water Reuse Facility...............................................................................................................................................12 StormwaterManagement Utility..................................................................................................................................................13 IrrigationUtility.............................................................................................................................................................................13 CapitalImprovement Plan...........................................................................................................................................................13 OtherWaterworks Utility Debt...................................................................................................................................................14 HistoricalOperating Results........................................................................................................................................................15 ProjectedOperating Results.........................................................................................................................................................16 DEBTPAYMENT RECORD........................................................................................................................................................17 OTHERFINANCINGS..................................................................................................................................................................17 CITYPROFILE................................................................................................................................................................................18 CityCouncil....................................................................................................................................................................................18 KeyAdministrative Staff..............................................................................................................................................................18 LaborRelations..............................................................................................................................................................................18 TheCity's Investments.................................................................................................................................................................19 PensionSystem..............................................................................................................................................................................19 OtherPost-Employment Benefits..............................................................................................................................................21 Accountingand Budgeting Policies............................................................................................................................................21 Auditingof City Finances.............................................................................................................................................................21 Local Government Investment Pool..........................................................................................................................................21 Insurance........................................................................................................................................................................................21 Liability,Claims and Litigation....................................................................................................................................................22 GENERAL AND ECONOMIC INFORMATION...................................................................................................................22 Population......................................................................................................................................................................................22 LargestEmployers.........................................................................................................................................................................22 EconomicData..............................................................................................................................................................................23 INITIATIVEAND REFERENDUM..........................................................................................................................................25 TAXMATTERS ...............................................................................................................................................................................25 The2010A Bonds..........................................................................................................................................................................25 Certain Other Federal Tax Consequences.................................................................................................................................26 Preservation of Tax Exemption of 2010A Bonds....................................................................................................................26 NoTax Exemption for 2010T Bonds........................................................................................................................................26 CONTINUINGDISCLOSURE....................................................................................................................................................26 Basic Undertaking to Provide Annual Financial Information and Notice of Material Events...........................................26 AnnualFinancial Information.....................................................................................................................................................27 Amendmentof Undertaking........................................................................................................................................................27 Terminationof Undertaking........................................................................................................................................................27 Remedy for the Failure to Comply with Undertaking..............................................................................................................27 Prior Compliance with Continuing Disclosure Undertakings.................................................................................................27 LEGALINFORMATION..............................................................................................................................................................28 Absence of Litigation Affecting the Bonds...............................................................................................................................28 Approvalof Bond Counsel..........................................................................................................................................................28 BONDRATING...............................................................................................................................................................................28 CONFLICTSOF INTEREST........................................................................................................................................................28 UNDERWRITING..........................................................................................................................................................................28 CONCLUDING STATEMENT....................................................................................................................................................29 CERTAIN DEFINITIONS.........................................................................................................................................APPENDix A EXERPTS OF 2008 AUDITED FINANCIAL STATEMENTS..........................................................................APPENDix B FORMOF LEGAL OPINION...................................................................................................................................APPENDIX C DTC&BOOK ENTRY SYSTEM.............................................................................................................................APPENDIX D PRELIMINARY OFFICIAL STATEMENT $9,390,000* $1,225,000* CITY OF PASCO,WASHINGTON CITY OF PASCO,WASHINGTON WATER AND SEWER WATER AND SEWER IMPROVEMENT AND REFUNDING REVENUE REFUNDING REVENUE BONDS,2010A BONDS,2010T(TAXABLE) INTRODUCTION This Official Statement,including the cover page and any appendices attached hereto,is being distributed by the City of Pasco,Washington (the"City"),a municipal corporation duly organized and existing under and by virtue of the laws of the State of Washington,to furnish information in connection with the issuance and sale by the City of Water and Sewer Improvement and Refunding Revenue Bonds, 2010A (the "2010A Bonds") and Water and Sewer Refunding Revenue Bonds,2010T(Taxable) (the"2010T Bonds"and,together with the 2010A Bonds,the"Bonds"). The Bonds are being issued in accordance with the provisions of the Constitution and applicable Statutes of the State and pursuant to Ordinance No._(the"Bond Ordinance"),passed by the City Council on May 17,2010. Capitalized terms used herein, if not specifically defined herein, are used as defined in the Bond Ordinance. See APPENDIX A-"CERTAIN DEFINITIONS." DESCRIPTION OF THE BONDS General The Series 2010A Bonds will be issued in the principal amount of$9,390,000*and the Series 2010T Bonds will be issued in the principal amount of$1,225,000*. The Bonds will be dated and bear interest from the date of their initial delivery. The Bonds will mature on the dates and in the principal amounts and will bear interest payable semiannually on each June 1 and December 1, beginning December 1, 2010, at the respective rates as set forth on the inside cover of this Official Statement. Interest on the Bonds will be calculated on the basis of a 360-day year comprised of twelve 30-day months. The Bonds will be issued in registered form,as to both principal and interest,initially registered in the name Cede&Co., as nominee for The Depository Trust Company,New York,New York("DTC"),in the denomination of$5,000 each or any integral multiple thereof within a single maturity. Individual purchases of the Bonds will be made initially in book-entry form only and purchasers will not receive certificates representing their interest in the Bonds purchased. See Appendix D—"DTC&BOOK-ENTRY SYSTEM." The Bonds are being issued on a parity with the City's 1998C Bonds, 1999 Bonds,2001 Bonds,2005 Bonds,2007 Bonds and 2009 Bonds (the"Outstanding Parity Bonds"and,together with the Bonds and any Future Parity Bonds the"Parity Bonds"). THE BONDS ARE NOT A GENERAL OBLIGATION OF THE CITY, AND NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, FRANKLIN COUNTY, THE STATE OF WASHINGTON OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED FOR THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE BONDS. Redemption Provisions Optional Re"lion. Bonds maturing on or prior to June 1,2019 shall not be subject to optional redemption by the City prior to their stated maturity dates. The City reserves the right and option to redeem Bonds maturing on or after June 1, 2020 prior to their stated maturity date at any time on or after December 1,2019, as a whole or in part (randomly in such manner as the Bond Registrar shall determine),at par plus accrued interest. Mandatory Re"tion. The Series 2010A Bonds maturing on June 1, 2025 are subject to mandatory redemption prior to maturity at the redemption price of 100% of the principal amount thereof(without premium) plus accrued interest to the date fined for redemption,on June 1,in the years and in the amounts set forth below: 2025 Term Bond Due June 1 Mandatory Redemption* Due June 1 Mandatory Redemption* 2021 $345,000 2024 $390,000 2022 360,000 20250) 410,000 2023 375,000 (1)Maturity *Preliminary,subject to change. 1 The Series 2010A Bonds maturing on June 1, 2029 are subject to mandatory redemption prior to maturity at the redemption price of 100%of the principal amount thereof(without premium)plus accrued interest to the date fixed for redemption,on June 1,in the years and in the amounts set forth below: 2029 Term Bond Due June 1 Mandatory Redemption* 2026 $425,000 2027 445,000 2028 460,000 2029(t) 485,000 (l)Maturity *Preliminary,subject to change. The Series 2010T Bonds maturing on June 1, 2018 are subject to mandatory redemption prior to maturity at the redemption price of 100%of the principal amount thereof(without premium)plus accrued interest to the date fixed for redemption,on June 1,in the years and in the amounts set forth below: 2018 Term Bond Due June 1 Mandatory Redemption* Due june 1 Mandatory Redemption* 2011 $130,000 2015 $155,000 2012 135,000 2016 165,000 2013 140,000 2017 170,000 2014 150,000 20180) 180,000 (1)Maturity *Preliminary,subject to change. If the City redeems under the optional redemption provisions,purchases in the open market or defeases Term Bonds, the par amount of the Term Bonds so redeemed, purchased or defeased (irrespective of their actual redemption or purchase prices) shall be credited against one or more scheduled mandatory redemption amounts for those Term Bonds. The City shall determine the manner in which the credit is to be allocated and shall notify the Bond Registrar in writing of its allocation at least 60 days prior to the earliest mandatory redemption date for that maturity of Term Bonds for which notice of redemption has not already been given. Notice of Redemption So long as the Bonds are in book-entry only form,the Fiscal Agent will notify DTC of an early redemption not less than 30 days prior to the date fixed for redemption, and will provide such information as required by the Letter of Representations between the City and DTC. During any period in which the Bonds are not in book-entry form, unless waived by an Owner of the Bonds to be redeemed,notice of any intended redemption of Bonds will be given by the Fiscal Agent on behalf of the City not less than 30 nor more than 60 days prior to the date fixed for redemption by first-class mail, postage prepaid, to the registered owner of any Bond to be redeemed at the address appearing on the Bond Register at the time the Bond Registrar prepares the notice,as described in the Bond Ordinance. Interest on Bonds called for redemption will cease to accrue on the date fixed for redemption unless the Bond or Bonds called are not redeemed when presented pursuant to the call. In the case of an optional redemption, the notice may state that the City retains the right to rescind the redemption notice and the related optional redemption of Bonds by giving a notice of rescission to the affected registered owners at any time prior to the scheduled optional redemption date. Any notice of optional redemption that is no rescinded will be of no effect,and the Bonds for which the notice of optional redemption has been rescinded will remain outstanding. Open Market Purchase of Bonds The City reserves the right and option to purchase any or all of the Bonds in the open market at any time at any price plus accrued interest to the date of purchase. 2 Form,Denomination and Registration The Bonds will be issued in fully registered form as to both principal and interest in the denomination of$5,000 each or any integral multiple thereof within a single maturity. The Bonds,when issued,will be registered in the name of Cede& Co.,as registered owner and nominee of DTC. DTC will act as securities depository for the Bonds. Individual purchases may be made in Book-Entry form only. Purchasers will not receive certificates representing their interest in the Bonds purchased. So long as Cede&Co.is the registered owner of the Bonds, as nominee of DTC, references herein to the registered owners or bond owners will mean Cede & Co. and will not mean the `Beneficial Owners" of the Bonds. In this Official Statement, the term "Beneficial Owner"will mean the person for which a DTC participant acquires an interest in the Bonds. See Appendix D-"DTC&BOOK-ENTRY SYSTEM". Failure to Redeem the Bonds If any Bond is not redeemed when properly presented at its maturity or call date,the City will pay interest on that Bond at the same rate provided on the Bond from and after its maturity or call date until that Bond, both principal and interest,is paid in full or until sufficient money for its payment in full is on deposit in the Bond Fund and the Bond has been called for payment by giving notice of that call to the registered owner of each of those unpaid Bonds. Defeasance of the Bonds If money and/or government obligations (as defined in chapter RCW 39.53.010(9)) are irrevocably set aside in a special account of the City to effect redemption and retirement of all or a portion of the Bonds, and such amounts (including interest earning thereon) are pledged for such purpose,then no further payments need be made into the Bond Fund for the payment of the principal of and interest on the Bonds,and such Bonds shall cease to be entitled to any lien,benefit or security of the Bond Ordinance except the right to receive the moneys so set aside and pledged,and such Bonds shall be deemed not to be outstanding. Book-Entry Bonds DTC will act as securities depository for the Bonds. The ownership of one fully registered Bond for each maturity of the Bonds, as set forth on the inside cover of this Official Statement, each in the aggregate principal amount of such maturity, will be registered in the name of Cede & Co., as nominee for DTC. See Appendix C — `BOOK-ENTRY TRANSFER SYSTEM." Neither the City nor the Bond Registrar will have any responsibility or obligation to DTC participants or the persons for whom they act as nominees with respect to the Bonds in respect of the accuracy of any records maintained by DTC (or any successor depository) or any DTC participant, the payment by DTC (or any successor depository) or any DTC participant of any amount in respect of the principal of or interest on Bonds,any notice which is permitted or required to be given to registered owners under the Bond Ordinances (except such notices as are required to be given by the City to the Bond Registrar or to DTC (or any successor depository)),or any consent given or other action taken by DTC (or any successor depository) as the registered owner. For so long as any Bonds are held in fully immobilized form under the Bond Ordinance, DTC or its successor depository will be deemed to be the registered owner for all purposes thereunder, and all references therein to the registered owners will mean DTC (or any successor depository) or its nominee and will not mean the owners of any beneficial interest in such Bonds. In the event that the Bonds are no longer in fully immobilized form, interest on the Bonds shall be paid by check or draft mailed to the registered owners at the addresses for such registered owners appearing on the Bond Register on the 15th day of the month preceding the interest payment date,and principal of the Bonds will be payable upon presentation and surrender of such Bonds by the registered owners at the principal office of the Bond Registrar. Purpose and Use of Proceeds The 2010A Bonds The 2010A Bonds are being issued for the purpose of providing a portion of the funds to pay the cost of carrying out certain improvements to the water and sewer system,to current refund the City's outstanding Water and Sewer Revenue Refunding Bonds, 1998,Series B (the"1998B Bonds"),and to pay costs of issuance. See"Refunding Plan"below. The 2010T Bonds The 2010T Bonds are being issued for the purpose of providing a portion of the funds to current refund the City's outstanding Water and Sewer Revenue Bonds, 1998,Series A(Taxable) (the"1998A Bonds"),to fund the balance of the Debt Service Reserve requirement,and to pay costs of issuance. See"Refunding Plan"below. 3 Refunding Plan Upon issuance of the Bonds, certain proceeds of the Bonds, together with other money of the City,will be deposited with U.S. Bank National Association,the Refunding Trustee,and held in cash or used to acquire Acquired Obligations in an amount sufficient to call,pay and redeem on July 6,2010,all of the then-outstanding Refunded Bonds at a price of par plus accrued interest thereon. The following tables provide a listing of the Refunded Bonds. Refunded Bonds Water and Sewer Revenue Bonds,1998,Series A(Taxable) Maturity Years Principal Interest Call Call CUSIP Nos. (June 1) Amounts Rates Date Price(%) (702571) 2013 $380,000* 6.25% 06/16/10 100% FGO,FH8 FJ4,FK1 2018 825,000* 6.45 06/16/10 100 FL9,FM7,FN5, FPO,FQ8 Total $1,205,000 *Term Bond Water and Sewer Revenue Refunding Bonds,1998,Series B Maturity Years Principal Interest can Call CUSIP Nos. (June 1) Amounts Rates Date Price (%) (702571) 2011 $665,000 4.40% 06/16/10 100% GC8 2012 700,000 4.45 06/16/10 100 GD6 2013 735,000 4.55 06/16/10 100 GE4 2014 765,000 4.60 06/16/10 100 GF1 Total $2,865,000 Tlerification of Matbemahcal Calculations Verification shall be obtained from Piper Jaffray & Co. stating that the cash and Acquired Obligations held by the Refunding Trustee shall be sufficient to pay when due, pursuant to stated maturity or call for redemption, as the case may be,the principal of and interest on the Refunded Bonds. SOURCES AND USES OF FUNDS Proceeds of the 2010A Bonds are to be applied as follows: Sources of Funds Par Amount of 2010A Bonds $9,390,000 Reoffering Premium Total Sources of Funds $ Uses of Funds Deposit to Project Funds $ Refund 1998B Bonds Debt Service Reserve Contribution Issuance Expenses,Underwriter's Discount,and Contingency Total Uses of Funds $ 4 Proceeds of the Series 2010T Bonds are to be applied as follows: Sources of Funds Par Amount of 2010T Bonds $1,225,000 Reoffering Premium Total Sources of Funds $ Uses of Funds Refund 1998A Bonds $ Issuance Expenses,Underwriter's Discount,and Contingency Total Uses of Funds $ SECURITY FOR THE BONDS Pledge of Revenue and Lien Position The Net Revenue of the Waterworks Utility and ULID Assessments are pledged to the payment of the principal of and interest on the Bonds when due and shall constitute alien and charge upon that Net Revenue of the Waterworks Utility and ULID Assessments prior and superior to any other charges whatsoever, except that the lien and charge upon such Net Revenue and ULID Assessments for the Bonds shall be on a parity with the lien and charge thereon for any outstanding Parity Bonds. Coverage Requirement "Coverage Requirement"' in any year means an amount of Net Revenue of the Waterworks Utility, together with the ULID Assessments collected in that year,equal to at least the Maximum Annual Debt Service on all Assessment Bonds plus an amount of the Net Revenue of the Waterworks Utility not used to calculate the Coverage Requirement on Assessment Bonds equal to at least 1.25 times Maximum Annual Debt Service on all bonds payable from the Bond Fund that are not Assessment Bonds. Bond Fund The Bond Fund has been previously created and established in the office of the Finance Director as a special fund known and designated as the Water and Sewer Revenue and Refunding Bond Redemption Fund, 1991,which fund has been divided into two accounts, namely, the Principal and Interest Account and the Reserve Account. So long as any Parity Bonds are outstanding against the Bond Fund,the Finance Director shall set aside and pay into the Bond Fund all ULID Assessments upon their collection and,out of the Net Revenue of the Waterworks Utility,certain fixed amounts without regard to any fixed proportion, namely, amounts, together with any ULID Assessments collected by the City and deposited into the applicable account in the Bond Fund and investment earnings in that account,as follows: a) Into the Principal and Interest Account, on or before each interest or principal and interest payment date, an amount equal to the interest or the principal and interest to become due and payable on that interest or principal and interest payment date of all Parity Bonds;and b) Into the Reserve Account, on the issue date of the Bonds, an amount sufficient, together with the Reserve Insurance,to fully fund the Reserve Requirement for all Parity Bonds. Money deposited in the Reserve Account for the Reserve Requirement for all Parity Bonds may be decreased for any issue of Parity Bonds when and to the extent the City has provided for an Alternate Security or Reserve Insurance for those bonds. The City may establish additional accounts in the Bond Fund for the deposit of ULID Assessments after the deposit of the required amount in the other funds. Reserve Account The Reserve Account for any Future Parity Bonds may be accumulated from any other funds which the City legally may have available for such purpose in addition to using ULID Assessments and Net Revenue of the Waterworks Utility. The City further agrees that when the required amounts have been paid into the Reserve Account in the Bond Fund,the City will maintain those amounts therein at all times,except for withdrawals therefrom as authorized herein,until there is sufficient money in the Bond Fund, including the Reserve Account therein,to pay the principal of and interest to 5 maturity on all outstanding bonds payable from the Bond Fund, at which time no further payments need be made into the Bond Fund,and the money in the Bond Fund,including the Reserve Account,may be used to pay that principal and interest. If there shall be a deficiency in the Principal and Interest Account to meet maturing installments of either principal or interest, as the case may be, on the Bonds, the deficiency shall be made up from the Reserve Account by first the withdrawal of cash and investments therefrom and after all cash and investments have been depleted,then by the draws on the Reserve Insurance for that purpose on a pro rata basis. Any deficiency created in the Reserve Account by reason of any withdrawal shall then be made up from the Net Revenue of the Waterworks Utility first available after making necessary provisions for the required payments into the Principal and Interest Account. The Reserve Insurer shall be reimbursed first,within one year, to reinstate the Reserve Insurance, before the balance of the Reserve Requirement is restored. All money in the Reserve Account not needed to meet the payments of principal and interest when due may be kept on deposit in the official bank depository of the City or in any national bank or may be invested in any legal investment for City funds maturing not later than the interest or principal and interest payment date when the money will be needed. Interest on any of those investments or on that bank account shall be deposited in and become a part of the Reserve Account until the Reserve Requirement shall have been accumulated therein, after which time the interest shall be deposited in the Principal and Interest Account. Notwithstanding the provisions for the deposit or maintenance of earnings in accounts of the Bond Fund,any earnings which are subject to a federal tax or rebate requirement may be withdrawn from the Bond Fund for deposit into a separate fund or account for that purpose. If the City shall fail to set aside and pay into the Bond Fund the amounts which it has obligated itself by the Bond Ordinance to set aside and pay therein,the owner of any Bond may bring suit against the City to compel it to do so. The City currently has in place,to meet a portion of the Reserve Requirement for Parity Bonds,a surety bond issued by Ambac Assurance Corporation in the amount of$2,176,230,which expires in 2019. The City will fund the balance of its Reserve Requirement of approximately$ with Bond proceeds. See Appendix A—"CERTAIN DEFINITIONS." Flow of Funds Funds in the Water and Sewer Revenue Fund shall be used in the following order of priority: a) To pay Operating and Maintenance Expenses; b) To make all payments required to be made into the Bond Fund to pay and secure the payment of the Annual Debt Service on all outstanding Parity Bonds; c) To make all payments required to be made into the Reserve Account and to make all payments (principal and interest) required to be made in connection with Reserve Insurance and any Alternate Security, except if there is not sufficient money to make all payments for Reserve Insurance and any Alternate Security, the payments shall be made on a pro rata basis with deposits in the Reserve Account. d) To make all payments required to be made into the loan redemption funds or accounts, and other revenue bond redemption funds created to pay the debt service on any revenue obligation having alien upon the Net Revenue of the Waterworks Utility subordinate to the lien of the Bonds;and e) To make necessary additions,betterments,improvements or repairs to the Waterworks Utility,and to retire by redemption or purchase any outstanding Parity Bonds,or for any other lawful purpose. Covenants of the City The City covenants and agrees with the owner of each of the Bonds as follows: a) It will not sell,lease,mortgage,or in any manner encumber or dispose of all the properties of the Waterworks Utility unless provision is made for payment into the Bond Fund of an amount sufficient either to defease all outstanding Parity Bonds or to pay the principal of and interest on all the outstanding Parity Bonds in accordance with the terms, thereof; and further binds itself irrevocably not to mortgage, sell, lease or in any manner dispose of any part of the Waterworks Utility that is used,useful and material to the operation of such utility unless provision is made for replacement thereof or for payment into the Bond Fund of an amount 6 which shall bear the same ratio to the amount of outstanding Parity Bonds as the Net Revenue available for debt service for such bonds for the twelve months preceding such sale, lease, encumbrance or disposal from the portion of the Waterworks Utility so leased,encumbered or disposed of bears to the Net Revenue available for debt service for such bonds from the entire Waterworks Utility for the same period. Any such money so paid into the Bond Fund shall be used to retire outstanding Parity Bonds at the earliest possible date. b) It will maintain and keep the Waterworks Utility in good repair,working order and condition and operate such utility and the business in connection therewith in an efficient manner and at a reasonable cost. c) It will maintain and collect such rates as will produce sufficient Net Revenue of the Waterworks Utility, together with ULID Assessment collections, as will make available for the payment of the principal of and interest on the Parity Bonds as they come due and for payments as required to be made into the Reserve Account an amount at least equal to the Coverage Requirement and, in addition thereto, that it will pay all Operating and Maintenance Expenses and otherwise meet the obligations of the City as set forth in the Bond Ordinance. d) It will keep proper books of accounts and records separate and apart from other accounts and records, in which complete and correct entries will be made of all transactions relating to the Waterworks Utility of the City, and it will make available to any Bondowner on written request the annual operating and income statements of the Waterworks Utility. e) Except to aid the poor or infirm,to provide for resource conservation or to provide for the proper handling of hazardous materials, it will not furnish water or sewerage service to any customer whatsoever free of charge and it shall,not later than 60 days after the end of each calendar year,take such legal action as may be feasible to enforce collection of all collectible delinquent accounts and,in addition thereto, shall promptly avail itself of its utility lien rights,as set forth in applicable statutes. f) It will carry the types of insurance on its Waterworks Utility properties in the amounts normally carried by private water and sewer companies engaged in the operation of water and sewerage systems, and the cost of such insurance shall be considered a part of Operating and Maintenance Expenses, or it will implement and maintain a self insurance program or an insurance pool program with reserves adequate,in the judgment of the City Council,to protect the owners of the Parity Bonds against loss. g) To the extent permitted by State law,it will maintain its corporate identity and existence so long as any Bonds remain outstanding. h) It will not grant any competing utility service franchise and will use all legal means to prevent competition with the Waterworks Utility. i) If on the first day of January in any year,two installments of any ULID Assessment are delinquent,or the final installment of any ULID Assessment has been delinquent for more than one year, the City will proceed with the foreclosure of the delinquent assessment or delinquent installments thereof in the manner provided by law. Future Parity Bonds The City reserves the right to issue Future Parity Bonds if the following conditions are met and complied with at the time of the issuance of those Future Parity Bonds: a) There shall be no deficiency in the Bond Fund. b) The ordinance providing for the issuance of the Future Parity Bonds shall provide that all ULID Assessments shall be paid directly into the Bond Fund,except for any prepaid assessments permitted by law to be paid into a construction fund or account. c) The ordinance providing for the issuance of such Future Parity Bonds shall provide for the deposit into the Reserve Account of(i) an amount equal to the Reserve Requirement for those Future Parity Bonds from the Future Parity Bond proceeds, or (ii)Reserve Insurance or Alternate Security or an amount plus Reserve Insurance or Alternate Security equal to the Reserve Requirement for those Future Parity Bonds,or (iii) to the extent that the Reserve Requirement is not funded from Future Parity Bond proceeds or Reserve Insurance or Alternate Security at the time of issuance of those Future Parity Bonds, by no later than the fifth anniversary date from the dated date of the respective issue of Future Parity Bonds from ULID Assessments,if any,levied and first collected for the payment of the principal of and interest on those Future Parity Bonds and, to the extent that ULID Assessments are insufficient, then from the Net Revenue of the Waterworks Utility in approximately equal annual payments,the Reserve Requirement for those Future Parity Bonds. No Reserve 7 Insurance or Alternate Security may be used to satisfy the Reserve Requirement for Future Parity Bonds unless (i)the insurance policy or Alternate Security is non cancelable and (ii)the insurer or provider of the Alternate Security as of the time of issuance of such insurance or Alternate Security is rated in the highest rating categories by both Moody's Investors Service,Inc.,and Standard&Poor's Ratings Group. d) The ordinance authorizing the issuance of such Future Parity Bonds shall provide for the payment of mandatory redemption or sinking fund requirements into the Bond Fund for any Term Bonds to be issued and for regular payments to be made for the payment of the principal of such Term Bonds on or before their maturity, or, as an alternative, the mandatory redemption of those Term Bonds prior to their maturity date from money in the Principal and Interest Account. e) There shall be on file from a licensed professional engineer experienced in the design, construction and operation of municipal utilities, or from an independent certified public accountant, a certificate showing that in his or her professional opinion the Net Revenue of the Waterworks Utility for any 12 consecutive calendar months out of the immediately preceding 24 calendar months shall be equal to the Coverage Requirement for each year thereafter, except that such certificate may be provided by a City representative if it is based solely upon actual historical Net Revenue of the Waterworks Utility without any adjustment. The certificate,in estimating the Net Revenue of the Waterworks Utility available for debt service,shall use the historical Net Revenue of the Waterworks Utility for any 12 consecutive months out of the 24 months immediately preceding the month of delivery of the Future Parity Bonds. Net Revenue of the Waterworks Utility may be adjusted to reflect: 1) Any changes in rates in effect and being charged or expressly adopted by ordinance to take effect within 180 days after the date of this Certificate; 2) Income derived from customers of the Waterworks Utility that have become customers during the 12 consecutive month period or thereafter adjusted to reflect one year's net revenue from those customers; 3) Revenue from any customers to be connected to the Waterworks Utility who have paid the required connection charges; 4) Revenue received or to be received which is derived from any person,firm,corporation or municipal corporation under any executed contract for water, sewage disposal or other utility service, which revenue was not included in the historical Net Revenue of the Waterworks Utility; 5) The engineer's or accountant's estimate of the Net Revenue of the Waterworks Utility to be derived from customers to connect within 180 days after the date of the completion of the additions to and improvements and extensions of the Waterworks Utility to be paid for out of the proceeds of the sale of the additional Future Parity Bonds or from other additions to and improvements and extensions of the Waterworks Utility then under construction and not fully connected to the facilities of the Waterworks Utility when such additions,improvements and extensions are completed;and 6) Any increases or decreases in Net Revenue as a result of any actual or reasonably anticipated changes in Operating and Maintenance Expense subsequent to the 12 month period. If Future Parity Bonds proposed to be so issued are for the sole purpose of refunding outstanding bonds payable from the Bond Fund, such certification of coverage shall not be required if the amount required for the payment of the principal and interest in each year for the refunding bonds is not increased over the amount for that year required for the bonds to be refunded thereby and if the maturities of such refunding bonds are not extended beyond the maturities of the bonds to be refunded thereby. Nothing contained in the Bond Ordinance shall prevent the City from issuing Future Parity Bonds to refund any maturing Parity Bonds then outstanding,money for the payment of which is not otherwise available. Nothing contained in the Bond Ordinance shall prevent the City from issuing revenue bonds or incurring other obligations that are a charge upon the Net Revenue of the Waterworks Utility of the City subordinate or inferior to the payments required to be made therefrom into the Bond Fund for the payment of Parity Bonds or from pledging the payment of utility local improvement district assessments into a redemption fund created for the payment of the principal of and interest on those subordinate lien bonds or obligations as long as such utility local improvement district assessments are levied for improvements constructed from the proceeds of those subordinate lien bonds or obligations. 8 THE WATERWORKS UTILITY The Waterworks Utility's primary activity is the operation and maintenance of a domestic water system which supplies and distributes potable water and water for fire protection purposes for City residents (the "Water System"), a sanitary system which collects sanitary sewage and delivers it to a regional sewage treatment facility (the "Sewer System"), a stormwater management system to manage surface and stormwater and delivery to the City's stormwater facilities (the "Stormwater System"), an irrigation system for residential landscaping (the "Irrigation System") and a process water reuse facility for food preparation process wastewater(the"Process Water Reuse Facility"). The City owns and operates the Waterworks Utility as a separate enterprise fund that provides water and/or sewer service to virtually all of the City's residents. The City operates its Waterworks Utility in compliance with federal and State environmental and health laws. The Water System The Water System receives its water supply from the Columbia River via an intake structure in the river. The intake facility has multiple pumps with a total pumping capacity of 24 million gallons per day("mgd"). The raw or untreated water is pumped through three lines to a treatment plant. The water treatment plant was originally constructed in 1949, expanded in 1958, and upgraded and automated in 1987. The treatment plant consists of the following main process components: two flocculation basins, two sedimentation basins, eight dual media filters, a clearwell and five treated water pumps which discharge into the transmission/distribution system. The plant is automated and routinely operates in an unmanned mode 16 hours out of each 24-hour day. Present water demands on the water system can vary from a minimum winter day demand of 3.6 mgd to a peak summer day demand of 22.6 mgd.The year-round average daily flow is 13.1 mgd. The treated water from the metered plant is pumped into the transmission and distribution system which consists of 290 miles of main line varying in size from 6 to 36 inches. The distribution system is divided into three separate zones,with each zone servicing its respective elevation. Storage is provided by a one 10 million gallon ground level reservoir,a 1 million gallon reservoir,and a 2.5 million gallon water tower. Customers. The City's Water System presently serves approximately 16,390 customers, of which approximately 88% are single-family residential customers. Historical customer statistics are shown in the following charts. WATER SYSTEM CUSTOMERS Customer Class 2009 2008 2007 2006 2005 Single Family Residential 14,344 13,549 13,172 12,364 11,850 Multi-Family Residential 507 504 495 493 479 Commercial 1,112 1,058 1,042 1,022 957 Other(1) 426 456 458 449 257 TOTAL 16,389 15,567 15,167 14,328 13,543 (1)Industrial,Irrigation,the City and schools. Source:The City of Pam Vater Kates and Charles. Water rates include a charge for the amount of water used plus a monthly service charge determined by the size of the waterline serving the premises. The following rates and charges were approved on April 26,2010 and go into effect on July 1,2010. The most recent rate increase by the City prior to the 2010 increase was in 2004. 9 WATER RATES AND CHARGES Multi-Family Residential Single-Family Residential &Commercial Size of Service Service Charge Size of Service Service Charge 3/4 inch $12.50 3/a inch $17.61 1 inch 18.74 1 inch 25.43 1 1/2 inch 49.61 2 inch 79.59 3 inch 108.69 4 inch 156.60 6 inch 224.46 8 inch 338.77 Source:The City of Pasco. In addition to the monthly service charge,users pay$0.65 per 100 cubic feet of water. A 90%surcharge is added to accounts located outside the City limits. Users qualifying for a senior low income discount receive services at one-third of the normal applicable rate. The Sewer System The City's sewage treatment plant was originally constructed in 1954, upgraded from primary treatment to secondary treatment in 1970,and upgraded to advanced secondary treatment and expanded in 1997. The upgrade in 1997 included a new digester,aeration basins,an ultraviolet disinfection system,and additional drying beds. The plant currently has an average flow capacity of 4.5 mgd,with a peak of 8.5 mgd and is capable of serving a population of 80,000 people. The current average flow is 3.2 mgd and the peak in 2009 was approximately 3.6 mgd. The sewer collection system has been expanded and consists of 210 miles of 8-inch to 36-inch diameter collection pipelines. The sewer collection system is being expanded into residential areas currently utilizing septic tanks in which utility local improvement districts are being formed to convert properties from septic tanks to City sewers. The collection system is also being expanded into both the residential and industrial growth areas of the City Customers. The City's Sewer System presently serves approximately 13,600 customers, of which 90% are single-family residential customers. SEWER SYSTEM CUSTOMERS Customer Class 2009 2008 2007 2006 2005 Single-Family Residential 12,148 11,887 11,632 10,726 9,905 Multi-Family Residential 482 504 495 487 467 Commercial 1,017 921 901 881 847 TOTAL 13,647 13,212 13,028 12,094 11,219 Source:The City of Pasco. Sewer Charges. The following rates and charges were approved on April 26,2010 and go into effect on July 1,2010. SEWER RATES Monthly Customer Class Base Charge Residential dwellings or four units or less $26.00 Residential dwellings more than four units 20.95 Sr.Citizen/Low Income 8.72 Commercial 34.95 Hotel/Motel 5.51 Source: The City of Pasco. Effective November 2000,for commercial users and hotel/motels consuming in excess of 1,000 cubic feet,the overage is charged at $1.29 per 100 cubic feet of water used. A 50% surcharge is added to accounts located outside the City limits. 10 Delinquencies. After notice of delinquency of a water and/or sewer bill is given and the bill remains unpaid,the City staff is directed to cut off water service to the premises and enforce a lien upon the property. Such a lien is superior to all other liens or encumbrances, except those for general taxes and special assessments. Less than one-half of one percent of water and sewer bills were uncollected by the City in 2009. LARGEST WATERWORKS UTILITY CUSTOMERS FOR 2009 Usage Usage %of Water %of Sewer %of (Cubic Feet) (Gallons) Total Charges Total Charges Total Pasco Processing LLC 33,328,710 249,298,751 6.31% $114,758 2.13% $745,318 12.15% Twin City Foods 22,808,675 170,608,889 4.32 126,735 2.36 332,927 5.43 Bybee Foods 20,214,500 151,204,460 3.83 114,824 2.13 340,409 5.55 City of Pasco 12,418,892 92,893,312 2.35 116,552 2.17 23,642 0.39 Reser's Fine Foods 11,886,800 88,913,264 2.25 68,592 1.27 309,474 5.04 Pasco Housing Authority 7,572,165 56,639,794 1.43 58,436 1.09 104,174 1.70 Lake View Mobile Home Park 4,453,480 33,312,030 0.84 25,145 0.47 25,931 0.42 Sundance Home Park 3,686,650 27,576,142 0.70 21,487 0.40 32,281 0.53 Silver Creek Apartments 3,238,430 24,223,456 0.61 21,404 0.40 64,033 1.04 Pasco School District 3,004,069 22,470,436 0.57 54,279 1.01 23,048 0.38 Remainder of Customers 405,237,788 3,031,178,654 76.77 4,658,006 86.58 4,135,074 67.39 527,850,159 3,948,319,189 100.00% $5,380,219 100.00% $6,136,310 100.00% Source:The City of Pasco. Rate Comparisons The following table provides rate comparisons for similar utilities. A one-month period is assumed with a water usage of 1,000 cubic feet and a 3/4 inch meter. This level of usage is representative of single family residential usage less any irrigation or lawn watering. COMPARATIVE MONTHLY SINGLE FAMILY RESIDENTIAL WATER SERVICE RATES Single Family Average Number of Connections Monthly Charge(1,000/cf) Daily Flow City Residential Commercial Inside City Outside City (million gal) City of Pasco 14,851 1,112 $15.90 $30.25 12.1 City of Richland 15,032 1,859 30.20 n/a 14.7 City of Kennewick 19,494 2,127 19.89 43.76 10.8 City of Yakima 16,192 2,865 32.41 35.02 11.72 City of Bellevue 34,590 2,460 38.74 38.74 16.72 City of Moses Lake 6,595 1,119 24.60 24.60 8.7 Source: Individual utilities,the City of Pasco and Association of Washington Cities Survey of Water and Server Fees. COMPARATIVE MONTHLY SINGLE FAMILY RESIDENTIAL SEWER SERVICE RATES Single Family Number of Connections Monthly Charge(1,000/cf) City Residential Commercial Inside City Outside City City of Pasco 12,900 1,017 $27.53 $41.30 City of Richland 18,752 941 25.35 n/a City of Kennewick 15,285 1,555 19.24 57.72 City of Yakima 21,986 2,188 40.69 48.09 City of Bellevue 34,130 2,370 56.10 56.10 City of Moses Lake 6,517 859 30.45 30.45 Source:The City of Pasco and Association of Washington Cities Survey of Water and Sewer Fees. 11 RECENT HISTORICAL WATER AND SEWER RATE CHANGES Percent Change for In City Service Year Water Sewer 2010 19.0-20.3% 5.0-5.6% reduction 2007 0.0% 10.0% reduction 2004 3.9%-4.9% 2.0%-4.0% 2003 4.1%-5.2% 2.0%-4.2% 2000 0.0%0 0.0%-4.5% Source:The City of Pasco The Process Water Reuse Facility The Process Water Reuse Facility (the "Facility's was constructed by the City and placed in operation in 1995. The Facility services food processing plants. The food processing wastewater is pumped and sprayed onto farmland crop circles as the means of disposal. The system and processing plants operate year-round,with peak usage in March and December. The facility originally consisted of two pump stations,pipelines,a 5 million gallon equalization basin and 10 irrigation circles totaling 1,200 acres. In 1997, a 115 million gallon winter storage pond was added. In 2002, four additional circles were added to the operation, increasing the irrigated total to 1800 acres. The winter storage pond allows food processors at the Pasco Processing Center to operate year round. The City issued its 1994 Water and Sewer Revenue Bonds to finance the initial construction of the Facility, which bonds were refunded in 1998. The food processing users are responsible for payment of the debt service and operation and maintenance costs of the Facility through the rates and charges described as follows. Rates and Cbarnes. Food processing users are subject to rates and charges established by the City in Ordinance No. 3291, passed on April 6,1998. This ordinance requires the industrial users connecting to the Facility to pay the following rates and charges, which are subject to annual adjustments. In addition, the City may negotiate a special operation and maintenance or contract rate with individual customers or industrial users of the Facility. Monthly Charges. Base Operation and Maintenance Charges - Actual costs of operating and maintaining the Facility are shared proportionally among all users based on estimated annual flows of each user. Minimum annual charge for each user is $12,000. Customized Operation and Maintenance Charges - The actual costs of operation and maintenance associated with any specifically constructed or customized facility are charged directly to the user(s)based upon actual monthly flows of each during the period. Overage Charges (for effluent characteristics) -These charges are based on individual wastewater discharge permits.The average charges to be assessed and paid monthly by the user when exceeding a 15-day accumulation allowance are as follows: Effluent Characteristic Overage Rate Volume/Hydraulic(Millions of Gallons) $800.00/MG Bio-Chemical Oxygen Demand 0.03/lb Total Suspended Solids 0.01/lb Total Nitrogen 0.90/lb Capital Charges - All capital charges related to all outstanding debt of the Facility are allocated to the users, based on their proportionate share of the total permitted combined annual flows, as determined in each user's discharge permit. The minimum annual capital charge for any user is$12,000 per year. Customized Specific Capital Charges - In addition to the capital charges described above, any capital projects which benefit a single user are directly charged to and paid by such user. For any new customer, a rate will be established which is considered reimbursement of any non-capital charges made by the City for establishment and reservation of excess capacity. 12 Stormwater Management Utility The Stormwater System was established by the City in 1999 pursuant to Chapters 35.67 and 35A.80.010 of the Revised Code of Washington("RCW"). Its purpose is to promote public health,safety and welfare by promoting an approach to the management of surface and stormwater runoff created on City streets and delivery to City-owned stormwater facilities. Stormwater Kates & Charges. Effective beginning in 1999, the following monthly rates for the Stormwater System are billed to property owners throughout the City using the following general classifications. STORMWATER RATES Customer Class Rate per Month Single Family Residential $1.80 Apartments (per unit) 0.90 Multi-Family Residential(per unit) 0.90 Undeveloped Parcels 0.00 Vacant Buildings 1.80 Industrial/Commercial Parking for 0-5 vehicles $1.80 Parking for 6-10 vehicles 3.60 Parking for 11-15 vehicles 7.20 Parking for 16 plus vehicles 9.00 Additional Charges Property runoff to City systems ($0.90 min.) $30.00/acre State Highway right-of-way 10.00/acre Beginning in 2008,the Sewer utility provides additional funding to the Stormwater utility. The City Council determined the Sewer utility and the Stormwater utility share a common goal: the prevention of contamination of existing groundwater supplies. In place of a rate increase in the Stormwater utility, the Sewer utility will provide ongoing operating transfers of up to 50%of the annual operating expenses of the Stormwater utility. This funding is estimated at $276,000 for 2009. Irrigation Utility The Irrigation Utility was purchased by the City in 2002 from a private utility. At the time of purchase the system serviced approximately 900 customers in an area where new homes were being built. Since the purchase and through expansion of the utility,it now services approximately 4,450 residential customers. At the time of purchase, customers were being charged $32 per month for 7 months during the irrigation season, April through October. In 2004, after evaluating the increase in customer base and projected annual expenditures, the monthly fee was reduced to $24 per month. Effective January 1,2011,the base fee will be increased to$26.00 per month. Capital Improvement Plan The City annually adopts a six-year Capital Improvement Plan ("CIP"), which includes a water and sewer system component.The current CIP includes the following projects. CIP COSTS FOR PROJECTED WATER AND SEWER PROJECTS Project Type 2010 2011 2012 2013 2014 Water Supply,Treatment, Distribution&Storage $1,610,000 $820,000 $820,000 $1,320,000 $820,000 Sewer Treatment&Collection 1,900,000 1,400,000 2,420,000 1,000,000 1,000,000 Process Water Reuse Facility 110,000 110,000 80,000 80,000 80,000 Stormwater Collection 210,000 160,000 160,000 160,000 110,000 Irrigation 250,000 100,000 50,000 50 000 50,000 Total $4,080,000 $2,590,000 $3,530,000 $2,610,000 $2,060,000 13 The City intends to pay for CIP projects through Bond proceeds, ULID assessments, State Revolving Fund ("SRF'� loans and Public Works Trust Fund("PWTF'�loans,existing reserves,and water and sewer customer charges. The SRF and PWTF loans, subordinate debt to the Bonds, have already been obtained and are described below under "Other Waterworks Utility Debt." Other Waterworks Utility Debt In addition to the Outstanding Parity Bonds,the City has loans outstanding in the combined total principal amount of $13,837,108,as of January 1,2010,through the State Department of Ecology State Revolving Fund Loan program.The next payment will be due in July 2010. These SRF Loans were originally issued on a parity with the City's then outstanding Parity Bonds. In 2001,the Washington State Department of Ecology modified the terms of the SRF Loans to be subordinate to the Parity Bonds. The City has used money obtained from the SRF Loans to upgrade the City's wastewater treatment facility,construct an interceptor and pumping station serving West Pasco, and an interceptor serving the eastern part of the central business district. The City also has PWTF Loans outstanding in the combined principal amount of$2,124,865 as of December 31,2009. This debt has a subordinate lien to the Parity Bonds. (REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK 14 Historical Operating Results The following shows historical operating results for the years 2005 through 2009 for the Waterworks Utility. WATERWORKS UTILITY HISTORICAL OPERATING RESULTS (as of December 31) Audited Audited Audited Audited Unaudited 2005 2006 2007 2008 2009 Operating Revenues Water Sales(1) $ 4,910,473 $ 5,455,176 $ 5,619,985 $ 5,982,662 $ 6,233,590 Sewer Sales(2) 7,472,547 7,838,131 7,809,425 8,094,866 8,448,302 Charges for Services(3) 375,033 448,174 497,912 545,480 660,952 Total Operating Revenue $12,758,053 $13,741,481 $13,927,322 $14,623,008 $15,342,844 Operating Expenses Personnel Servion $ 1,712,641 $ 1,800,937 $ 2,014,749 $ 2,205,180 $ 2,662,206 Benefits 436,186 501,301 682,213 841,052 929,642 Supplies 234,713 282,130 361,443 673,461 633,415 Operations&Maint 2,122,568 2,268,073 2,417,706 2,299,382 2,876,780 Administrative Serv.Fees 712,204 747,780 770,280 743,400 760,800 State Services 46,813 49,397 52,723 61,269 64,072 Property/Leasehold Ex Taxes 75,880 81,380 89,064 98,064 122,799 State Revenue Taxes 418,027 434,590 420,911 444,915 481,815 Total Operating Expenses $ 5,759,032 $ 6,165,588 $ 6,809,089 $ 7,366,723 $ 8,531,529 Operating Income $ 6,999,021 $ 7,575,893 $ 7,118,233 $ 7,256,285 $ 6,811,315 Non-Operating Rev(Exp) Interest Income $ 491,592 $ 572,283 $ 579,418 $ 373,009 $ 194,658 Farmland Rental 582,630 626,292 686,140 756,230 948,870 Miscellaneous Revenues - - - - - Total Non-Open.Rev. $ 1,074,222 $ 1,198,575 $ 1,265,558 $ 1,129,239 $ 1,143,528 Net Revenue $ 8,073,243 $ 8,774,468 $ 8,383,791 $ 8,385,524 $ 7,954,843 Other Sources of Funds Cap Expansion Charges(4) $ 2,915,729 $ 2,428,529 $ 1,847,089 $ 1,271,650 $ 1,710,995 ROW/Water Rights 55,386 104,121 63,904 34,230 6,960 MiscReoeipts 382,136 23,262 9,600 11,100 - Total Other Sour(rs $ 3,353,251 $ 2,555,912 $ 1,920,593 $ 1,316,980 $ 1,717,955 Actual UIdD/CLID Payments $ 309,611 $ 306,036 $ 297,186 $ 562,590 $ 369,606 Balance Available for Debt Servcco $11,736,104 $11,636,416 $10,601,570 $10,265,094 $10,042,404 Outstanding Non-Assessment Debt $ 1,734,065 $ 2,038,365 $ 2,050,932 $ 2,320,586 $ 2,308,184 Non-Assessment Debt Service Coverage(5) 6.77 5.71 5.17 4.42 4.35 Balance Available for Other Purposes $10,002,039 $ 9,598,051 $ 8,550,638 $ 7,944,508 $ 7,734,220 (1) Includes irrigation water sales. (2) Includes storm water utility and Water Reuse Facility charge. (3) Excludes bad debt expense. (4) Charges paid by new customers. (5) The coverage presented is only for non-assessment bonds since the assessment bonds paid are greater than Maximum Annual as required. Source:The City of Pasco audited financial repws and 2009 figures 15 Projected Operating Results The following shows projected operating results for the years 2010 through 2014 for the Waterworks Utility. The projections reflect rate changes to be effective July 1, 2010. No assurance can be given that the future results shown below will be achieved,and actual results may differ materially. WATERWORKS UTILITY PROJECTED OPERATING RESULTS (as of December 31) Estimated Estimated Estimated Estimated Estimated 2010 2011 2012 2013 2014 Operating Revenues Water Sales(1) $ 6,880,256 $ 7,600,141 $ 7,771,436 $ 7,945,428 $ 8,122,173 Sewer Sales(2) 8,384,582 8,443,073 8,655,292 8,873,349 9,097,418 Charges for Services(3) 683,397 776,961 800,994 825,865 851,603 Total Operating Revenue $15,948,235 $16,820,174 $17,227,722 $17,644,643 $18,071,194 Operating Expenses Personnel Services $ 2,748,284 $ 2,837,240 $ 2,929,173 $ 3,024,188 $ 3,122,393 Benefits 975,664 1,023,968 1,074,669 1,127,884 1,183,740 Supplies 665,086 698,340 733,257 769,920 808,416 Operations&Maint 3,020,619 3,171,650 3,330,232 3,496,744 3,671,581 Administrative Serv.Fees 796,536 834,013 873,316 914,537 957,770 State Services 66,956 69,974 73,133 76,440 79,902 Property/Leasehold Ex Taxes 77,995 78,040 78,088 78,138 78,190 State Revenue Taxes 562,859 607,632 619,636 631,927 644,512 Total Operating Expenses $ 8,913,999 $ 9,320,856 $ 9,711,504 $10,119,777 $10,546,504 Operating Income $ 7,034,236 $ 7,499,318 $ 7,516,218 $ 7,524,865 $ 7,524,690 Non-Operating Rev(Exp) Interest Income $ 352,650 $ 222,175 $ 159,894 $ 185,536 $ 222,136 Farmland Rental 600,000 600,000 600,000 600,000 600,000 Miscellaneous Revenues - - - - - Total Non-Open.Rev. $ 952,650 $ 822,175 $ 759,894 $ 785,536 $ 822,136 Net Revenue $ 7,986,886 $ 8,321,493 $ 8,276,112 $ 8,310,402 $ 8,346,826 Other Sources of Funds Cap Expansion Charges(4) $ 1,200,000 $ 1,395,000 $ 1,395,000 $ 1,395,000 $ 1,395,000 ROW/Water Rights - - - - - MiscReceipts - - - - - Total Other Sources $ 1,200,000 $ 1,395,000 $ 1,395,000 $ 1,395,000 $ 1,395,000 Actual ULID/CLID Payments $ 479,190 $ 446,623 $ 329,880 $ 320,278 $ 315,353 Balance Available for Debt Service $ 9,666,076 $10,163,116 $10,000,992 $10,025,680 $10,057,179 Outstanding Non-Assessment Debt $ 2,406,988 $ 1,443,025 $ 1,441,500 $ 1,438,438 $ 1,443,600 2010 Non-Assessment Bonds $ 189,171 $ 1,430,206 $ 1,435,063 $ 1,434,281 $ 1,437,544 Non-Assessment Debt Service Coverage 3.72 3.54 3.48 3.49 3.49 Balance Available for Other Purposes(5) $ 7,259,088 $ 8,720,091 $ 8,559,492 $ 8,587,242 $ 8,613,579 (1) Includes irrigation water sales. (2) Includes storm water utility and Water Reuse Facility charge. (3) Excludes bad debt expense. (4) Charges paid by new customers. (5) Other purposes include capital projects and repayment of PWTF Loans and SRF Loan as follows: 2010-$2,002,731;2011-$2,000,127; 2012-$1,997,500;2013-$1,994,890;and 2014-$1,992270. Sourre:The City of Pasco 16 WATERWORKS UTILITY DEBT SERVICE SCHEDULE (1) OUTSTANDING BONDS(" THE BONDS(3) Assessment Bonds Non-Assessment Bonds Non-Assessment Bonds Series 2010A Bonds Series 2010T Bonds Year Principal Interest Principal Interest Principal Interest Principal Interest TOTAL 2010 $ 335,000 $144,190 $ 1,490,000 $ 916,988 $ 160,401 $ 28,770 $ 3,075,349 2011 335,000 111,623 775,000 668,025 $ 930,000 315,106 $ 130,000 55,100 3,319,854 2012 230,000 99,880 800,000 641,500 955,000 296,256 135,000 48,806 3,206,443 2013 230,000 90,278 825,000 613,438 980,000 272,006 140,000 42,275 3,192,996 2014 235,000 80,353 860,000 583,600 1,010,000 242,156 150,000 35,388 3,196,496 2015 325,000 69,955 885,000 550,825 275,000 222,881 155,000 28,144 2,511,805 2016 405,000 53,908 925,000 515,950 285,000 213,056 165,000 20,544 2,583,458 2017 110,000 34,043 960,000 478,690 295,000 201,456 170,000 12,588 2,261,776 2018 110,000 29,268 1,005,000 439,465 310,000 189,356 180,000 4,275 2,267,364 2019 110,000 24,493 1,050,000 397,978 320,000 176,756 - - 2,079,226 2020 115,000 19,718 1,090,000 354,290 335,000 163,656 - 2,077,664 2021 55,000 15,905 1,140,000 308,558 345,000 149,841 - 2,014,303 2022 175,000 10,653 1,180,000 259,743 360,000 135,300 - 2,120,695 2023 - 5,400 790,000 208,213 375,000 120,141 - 1,498,753 2024 120,000 2,700 825,000 174,385 390,000 104,363 - 1,616,448 2025 - - 860,000 138,569 410,000 87,863 - 1,496,431 2026 - 575,000 100,425 425,000 70,109 - 1,170,534 2027 - 600,000 73,988 445,000 51,078 - 1,170,066 2028 - 630,000 45,919 460,000 31,281 - 1,167,200 2029 - 660,000 15,675 485,000 10,609 - - 1,171;284 $2,890,000 $792,363 $17,925,000 $7,486,220 $9,390,000 $3,213,673 $1,225,000 $275,889 $43,198,145 (1) All Bonds are Parity Bonds. Assessment Bonds and Non-Assessment Bonds are shown separately for analysis purposes only. (2) Figures shown for 2010 include debt service on the Refunded Bonds. (3) Interest on the Bond is estimated at interest rates ranging from 2.00%to 4.75%. DEBT PAYMENT RECORD The City has always promptly met principal and interest payments on outstanding bonds,notes and warrants when due. Additionally,no refunding bonds have been issued or other debt received for the purpose of preventing an impending default. OTHER FINANCINGS The City does not anticipate issuing additional water and sewer revenue bonds within the next year. 17 CITY PROFILE The City of Pasco, located in Southeastern Washington, encompasses approximately 33.6 square miles and has a 2009 estimated population of 54,490. The City and the adjacent cities of Richland and Kennewick make up what is known as the Tri-Cities.The City serves as the Franklin County(the"County") Seat and is the largest city in the County. The City was incorporated in 1891. The City has a Council-Manager form of government. The City Manager is appointed by the City Council and is responsible for the administration of all aspects of City operations. Council members are part-time officials, elected every four years through city-wide elections. The Council is comprised of seven members,one of whom is selected by the members to serve as Mayor for a two-year term. The City provides a full range of services normally associated with a municipality. These services include police and fire protection, ambulance service, parks and recreational activities, street maintenance and construction, planning and zoning and general administrative services. The City owns and operates a water/sewer/stormwater utility and a cemetery. The City owns a golf course which is leased to an operator. City Council Following are the current members of the City Council and their term expiration dates. Members Position Term Expires Matt Watkins Mayor December 31,2011 Vacant Mayor Pro-Tem December 31,2011 Robert Hoffmann Council Member December 31,2013 Michael Garrison Council Member December 31,2013 Rebecca Francik Council Member December 31,2011 Tom Larsen Council Member December 31,2013 Al Yenney Council Member December 31,2011 Key Administrative Staff Gary Crutcbfield, City Manager,was appointed City Manager in October 1984. He has 35 years of experience in municipal government as a planner and manager. Prior to being appointed City Manager,Mr. Crutchfield served as Community Development Director of the City between 1978 and 1984. Kick Terway, Administrative and Community Services Director, began serving as the Director of the City's Department of Administrative and Community Services Department on July 13, 2009. The department consists of five service divisions: Administration, Facilities, Finance, Information Systems, and Recreation. Prior to coming to Pasco, Mr. Terway served as Parks, Recreation and Forestry Manager for the City of Fergus Falls, MN for 3 years and as Public Service Director for the City of Vadnais Heights,MN. His experience also includes 12+ years working for Washington State Parks. Mr.Terway holds a BS in Applied Management from National American University and an AAS in Natural Resources from the University of Minnesota. Robert Alberts, Public Vorks Director, was hired as Public Works Director for the City of Pasco in 1994. Mr. Albert's previous employment includes nine years with the City of Edmonds as the City Engineer and as a project manager. Prior to that, he held positions with CH2M Hill, Consultants Northwest and Columbia Engineers. Mr. Alberts is a graduate of Washington State University with a BS in civil engineering and is a registered Professional Engineer. Labor Relations The City currently employs 288 people including part-time workers. There are 184 employees represented by 5 bargaining units as follows: Number of Current Contract Bargaining Unit Employees Expiration Date International Union of Operating Engineers,Local No.280 60 December 31,2012 International Association of Firefighters 48 December 31,2010 Pasco Police Officers Assoc"Uniformed"Employee Bargaining Unit 63 December 31,2007* Pasco Police Officers Assoc"Non-uniformed"Employee Bargaining Unit 8 December 31,2008* Pasco Code Enforcement Officer's and Permit Technicians 5 December 31,2010 TOTAL 184 *Currently under negotiations. The City considers labor relations with its bargaining units to be good. There have been no recent strikes or major labor relations problems. 18 The City's Investments As required by State law,all investments (except as noted below) are obligations of the U.S. Government or its agencies or deposits with Washington state banks and savings and loan institutions. Investments of (pension nonexpendable) trust funds are not subject to the preceding limitations. The City's deposits and certificates of deposits are entirely covered by federal depository insurance or by collateral held in a multiple financial institution collateral pool administered by the Washington Public Deposit Protection Commission. RCW 43.250.040 authorizes the City to invest in the Washington State Local Government Investment Pool (the "LGIP'� which is a 2a-7 like pool. The LGIP is comparable to a Rule 2a-7 money market fund recognized by the Securities and Exchange Commission (17CFR.270.2a-7). Rule 2a-7 funds are limited to high quality obligations with limited maximum and average maturities, the effect of which is to minimize both market and credit risk. See "Local Government Investment Pool." The City's investments are categorized to give an indication of the risk assumed at year-end. The following summary shows the City's investments at year-end categorized by risk. Category 1 includes investments that are either insured or registered and held by the City or its agent in the City's name. Category 2 includes uninsured and unregistered investments that are held by the counterparty's trust department or agent in the City's name. Category 3 includes uninsured and unregistered investments for which the securities are held by the counterparty, or its trust department or agent, but not in the City's name. The fair market value of investments is based upon quoted market prices as of December 31,2009. The City's investments at December 31,2009,at book value,are as follows: Fair Market Investment Category 11 Category 2 Category 33 Total Value Federal Agency Securities $30,498,791 $30,498,791 $30,506,543 Mutual Funds $1,938,019 1,938,019 2 365 742 TOTAL 530.498.791 1 1 32.436.810 $32.872.285 Investments not subject to Categorization LGIP $8,876,203 $8,876,203 Municipal Investor's Savings Acct 27,939 27,939 Money Market Fund 22A80 22,480 TOTAL INVESTMENTS �41,3�3,431 9641,798 207 Pension System Public Employees'Retirement System (`PERS'). Substantially all of the City's full-time and qualifying part-time employees, other than those covered under union plans, participate in PERS. This is a statewide local government retirement system administered by the Washington State Department of Retirement Systems,under cost-sharing,multiple-employer defined benefit public employee retirement plans. The PERS system includes three plans. Participants who joined the system by September 30, 1977, are PERS Plan I members. Those joining thereafter are enrolled in PERS Plan II. A third plan,entitled PERS Plan III,provides members with a defined benefit plan similar to PERS Plan 11 and the opportunity to invest their retirement contributions in a defined contribution plan. PERS Plan I members are eligible for retirement at any age after 30 years of service,at age 60 with five years of service, or at age 55 with 25 years of service. The annual pension is two percent of the average final compensation per year of service,capped at 60 percent. The average final compensation is based on the greatest compensation earned during any 24 eligible consecutive compensation months. PERS Plan I1 members may retire at age 65 with five years of service or at 55 with 20 years of service. The annual pension is two percent of the average final compensation per year of service. PERS Plan 11 retirements prior to 65 are actuarially reduced. On July 1 of each year following the first full year of retirement service,the benefit will be adjusted by the percentage change in the Consumer Price Index("CPI") of Seattle,capped at three percent annually. PERS Plan III is structured as a dual benefit program that will provide members with the following benefits: • A defined benefit allowance similar to PERS Plan II calculated as one percent of the average final compensation per year of service (versus a two percent formula) and funded entirely by employer contributions. • A defined contribution account consisting of member contributions plus the full investment return on those contributions. 19 Each biennium, the State Pension Funding Council adopts PERS Plan I employer contribution rates and PERS Plan II employer and employee contribution rates. Employee contribution rates for PERS Plan I are established by statute at six percent and do not vary from year to year. The employer and employee contribution rates for PERS Plan II are set by the director of the Department of Retirement Systems, based on recommendations by the Office of the State Actuary, to continue to fully fund PERS Plan II. Unlike PERS Plan II, which has a single contribution rate, with PERS Plan III, the employee chooses how much to contribute from one to six contribution rate options. Once an option has been selected,the contribution rate choice is irrevocable unless the employee changes employers. All employers are required to contribute at the level established by State law. The methods used to determine the contribution requirements are established under State statute in accordance with chapters 41.40 and 41.26 RCW. For the year ended December 31, 2009, the City's contribution of $628,462, which represents its full liability under the system. Lazy Enforcement Officers'and Fire Fighters'Retirement System (LEOFF'). LEOFF is a cost-sharing multiple-employer defined benefit pension plan. Membership in the plan includes all full-time, fully compensated local law enforcement officers, and fire fighters. The LEOFF system includes two plans. Participants who joined the system by September 30, 1977, are LEOFF Plan I members. Those joining thereafter are enrolled in LEOFF Plan II. Retirement benefits are financed from employee and employer contributions, investment earnings, and State contributions. Retirement benefits in both LEOFF Plan I and LEOFF Plan II are vested after completion of five years of eligible service. LEOFF Plan I members are eligible to retire with five years of service at age 50. The service retirement benefit is dependent upon the final average salary and service credit years at retirement. LEOFF Plan II members are eligible to retire at the age of 50 with 20 years of service or at 53 with five years of service. Retirement benefits prior to age 53 are actuarially reduced at a rate of three percent per year. The benefit is two percent of the final average salary per year of service. The final average salary is determined as the 60 highest paid consecutive service months. There is no limit on the number of service credit years,which may be included in the benefit calculation. LEOFF Plan I employer and employee contribution rates are established by statute, and the State is responsible for the balance of the funding at rates set by the Pension Funding Council to fully amortize the total costs of the plan. Employer and employee rates for LEOFF Plan II are set by the director of the Department of Retirement Systems, based on recommendations by the Office of the State Actuary, to continue to fully fund the plan. LEOFF Plan II employers and employees are required to contribute at the level required by State law. The methods used to determine the contribution rates are established under State statute in accordance with chapters 41.26 and 41.45 RCW. For the year ending December 31, 2009, the City's contribution to LEOFF II totaled $444,345,representing its full liability under the system. Fireman's Pension Fund (`FPF'). The City is the administrator of the Fireman's Pension Systems, which is shown as the pension trust fund in the City's financial statements. FPF is a single-employer closed pension system that was established in conformance with Revised Code of Washington (RCW) Chapter 41.18. Membership is limited to fire fighters employed prior to Match 1, 1970 when the LEOFF retirement system was established. The City's liability under the FPF consists of all benefits,including payments to beneficiaries, for firemen retired prior to March 1, 1970, and excess benefits over amounts provided by LEOFF for covered fire fighters retired after March 1, 1970. Under the FPF, eligible fire fighters may retire at age 50 with 25 years of service. Death and disability benefits are also provided,as established under the governing State law. Individuals who terminate employment prior to retirement may withdraw their contributions to the plan plus accumulated interest,but by doing so,forfeit their rights to future pension benefits. No separate financial reporting is issued for the plan. As of December 31, 2009, there were a total of eight individuals covered by this system.. Seven of these individuals are retirees and one is actively employed. There are also four widows drawing benefits. All of the retirees are drawing excess pension benefits under the system over the amount of full benefit provided through LEOFF. The most recent actuarial study of the Fireman's Pension System was done to determine future funding requirements as of January 1, 2007. The City's obligations under the FPF are limited to the benefits provided to firefighters retired prior to March 1, 1970, plus payments of excess retirement benefits to active members as of that date. In order to meet these obligations,the City may contribute annually to the FPF the amount raised by levying all or part of a tax of up to $0.45 per $1,000 of true and fair market value of assessed property,the maximum provided by law for retaining the FPF.The City has met full liability under the system. Historical trend information regarding all of these plans is presented in Washington State's Department of Retirement Systems'annual financial report.A copy of this report may be obtained at: Department of Retirement Systems Point Plaza West 1025 East Union Street P.O.Box 48380 Olympia,WA 98504-8380 Internet Address:www.drs.wa.gov 20 Other Post-Employment Benefits The Governmental Accounting Standards Board ("GASB") has issued a new standard concerning Accounting and Financial Reporting by Employers for Post-Employment Benefits Other than Pensions (GASB 45). In addition to pensions,many State and local governmental employers provide other post-employment benefits ("OPEB") as a part of total compensation to attract and retain the services of qualified employees. OPEB includes post-employment health care as well as other forms of post-employment benefits when provided separately from a pension plan. The new standard provides for the measurement, recognition and display of OPEB expenses/expenditures, related liabilities (assets),note disclosures,and,if applicable,required supplementary information in the financial reports. The City plans to meet its obligations under GASB 45. This pronouncement is effective for the City for the fiscal year ending on December 31,2009. The City is required by State law to pay for the full medical costs of its retired LEOFF Plan I employees. The City has 30 such retired employees. As required, the City reimburses 100% of the health care costs of these retired employees. The reimbursements are financed on a pay-as-you-go basis, although the City has taken out a long-term care insurance policy for the City's benefit to guard against major future costs. During the years 2008, 2007, 2006 and 2005, expenditures of$232,067, $307,328, $256,866 and $211,212, respectively,were recognized for post-employment health care. Expenditures for 2009 were$208,890. The City provides certain healthcare benefits to retired firefighters and police officers who were hired prior to 1978 as required by RCW 41.26.150.Entry into this system is now closed. The City is currently preparing to do additional work to calculate the City's Annual Required Contribution to consider funding the anticipated costs associated with OPEB. At present, it has 10 former firemen and 20 former police employees subject to OPEB. Accounting and Budgeting Policies The accounts of the City are organized on the basis of funds and account groups,each of which is considered a separate accounting entity. Each fund is accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities,fund equity,revenues and expenditures,as appropriate.The City's resources are allocated to and accounted for in individual funds depending on their intended purpose. Annual appropriated budgets are adopted at the fund level,except in the general fund,where expenditures are adopted at the department level.The budgets constitute the legal authority for expenditures at that level.Annual appropriations for all funds lapse at the fiscal period end. Auditing of City Finances The State Auditor is required to examine the affairs of the cities at least once every two years. The City is audited annually.The examination must include,among other things,the financial condition and resources of the City,whether the laws and constitution of the State are being complied with, and the methods and accuracy of the accounts and reports of the City.Reports of the auditor's examinations are required to be filed in the office of the State Auditor and in the auditing department of the City.The most recent audit of the City's finances is for the year 2008. Local Government Investment Pool The Office of the State Treasurer administers the Local Government Investment Pool(the"LGIP"),a$6.5 billion dollar fund that invests money on behalf of approximately 450 participants, including cities, counties and special taxing districts. The LGIP, authorized by Chapter 43.250 RCW, is a voluntary pool which provides its participants the opportunity to benefit from the economies of scale inherent in poling. The LGIP is a managed by the State Treasurer's Office and is modeled after 2A-7 (money market) funds, although it is not a registered money market fund and is not rated by a rating agency. The pool is restricted to investments with maturities of 762 days or less, and the average life typically is less than 90 days. Permissible investments include U.S. government and agency securities, bankers" acceptances, high quality commercial paper, repurchase and reverse repurchase agreements, and certificates of deposit issued by qualified State depositories. Insurance The City is a member of the Washington Cities Insurance Authority ("WCIA") of Washington and its insurance pool (the "Pool"). WCIA is fully funded by its members, who make annual assessments on a prospectively rated basis, as determined by an outside, independent actuary. The assessment covers loss, loss adjustment and administrative expenses. WCIA retains the right to additionally assess the membership for any finding shortfall. WCIA offers a combination of self-insurance and standard insurance to cover liability and property risks and provides related risk management services. 21 Liability coverage is written on an occurrence basis,without deductibles. Coverage includes general, automobile, police professional, public officials errors and omissions, stop gap and employee benefits liability. Limits are $4 million per occurrence in the self insured layer,$16 million per occurrence in the reinsured excess layer. The excess layer is insured by the purchase of reinsurance and insurance and is subject to aggregate limits. Total limits are $20 million per occurrence subject to aggregate and sub-limits in the excess layer. The Board of Directors determines the limits and terms of the coverage annually. Liability,Claims and Litigation In the normal course of its various operations,the City is involved in lawsuits and is the recipient of claims for damages alleging the City is responsible for damage incurred by third parties. These claims or lawsuits are a consequence of conducting the City's business.The City self-insures to cover the majority of its liability risk. GENERAL AND ECONOMIC INFORMATION The City is located in southeastern Washington in Franklin County (the "County") at the confluence of the Columbia and the Yakima rivers, approximately 200 miles southeast of Seattle, 150 miles southwest of Spokane and 200 miles northeast of Portland, Oregon. Pasco is one of three cities which make up the urban area known as the Tri-Cities,the others being Kennewick and Richland in neighboring Benton County. Population With a 2009 estimated population of 54,490, the City is the largest of four incorporated communities in Franklin County. Historical populations for the City and Franklin County are as follows: POPULATION City of Franklin Year Pasco Coun 2009 54,490 72,700 2008 52,290 70,200 2007 50,210 67,400 2006 47,610 64,200 2005 44,190 60,500 Source: Wasbington State Office of FinancialManagement Largest Employers The three largest employers in the City are involved with food processing. The table below shows a list of the top ten employers ranked by number of employees. PASCO AREA MAJOR EMPLOYERS 2009 Employer Service/Product Employ Pasco School District Schools 2100 Lourdes Health Network Health Care 807 Wal-Mart Grocery-Retail 410 Columbia Basin College Schools—Universities 552 Pasco Processing LLC Frozen Food Processing 350 Con Agra Foods Lamb-Weston Frozen Food Processing 320 City of Pasco Government 305 Franklin County Government 257 Zirkle Fruit Company Farms 200-400 Sagemoor Farms Agriculture 150-275 Resers Fine Foods Food Products—Retail 190 La Clinica Community Health Care Health Care 184 McCurley Integrity Dealerships Automobile Sales 160 Lowes Hardware 117 Source: City of Pasco 2010 22 Economic Data Following are additional economic indicators for the City,Franklin County and the Tri-Cities Area. CITY OF PASCO BUILDING PERMITS Residential(t) Commercial Total Year Permits Value Permits Value Permits Value 2009 1,499 $102,114,296 350 $59,980,045 1,849 $162,094,341 2008 1,403 82,936,295 274 40,022,768 1,677 122,959,064 2007 1,577 106,210,440 310 81,570,866 1,887 187,781,328 2006 1,221 136,939,576 98 43,807,699 842 177,057,403 2005 1,028 181,006,886 61 34,886,778 1,089 215,893,664 (1)Includes Single Family,Two Family,Three or more families. Source: City of Pasco Building Department TAXABLE RETAIL SALES City of Franklin Year Pasco County 2009(l) $599,590,518 $685,896,285 2008 877,529,074 1,052,102,171 2007 856,422,037 1,057,004,462 2006 811,292,511 929,717,630 2005 781,596,534 862,138,345 (1) Through 31d Quarter 2009 Source: Washington State Office of Financial Management PERSONAL INCOME Franklin County State of Washington Total Personal Per Capita Total Personal Per Capita Year Income(000's) Personal Income Income (000's) Personal Income 2008 N/A N/A $280,677,561 $42,857 2007 $1,528,030 $22,106 265,783,395 41,203 2006 1,412,813 21,466 245,764,517 38,639 2005 1,322,468 21,184 226,585,245 36,227 2004 1,210,453 20,509 218,431,726 35,347 2003 1,177,407 20,999 202,942,123 33,214 Source: U.S.Department of Commerce,Bureau of Economic Analysis *Most RecentAvaila&le MEDIAN HOUSEHOLD INCOME M Franklin Washington Year County State 2009 $37,818 $52,413 2008 39,299 54,086 2007 40,876 55,771 2006 43,230 56,808 2005 42,533 54,618 (1)Figures for 2008 and preliminary estimate,2009 are projected and all are presented in current dollars. Source: IYIa rhington State Ofice of Financial Management 23 RESIDENT CIVILIAN LABOR FORCE AND EMPLOYMENT Average Annual Feb.2010 2009 2008 2007 2006 2005 State of Washington Labor Force 3,500,870 3,528,710 3,476,370 3,390,410 3,317,390 3,255,530 Employed 3,135,210 3,214,500 3,290,090 3,235,960 3,154,420 3,075,970 Unemployed 10.4% 8.9% 5.4% 4.6% 4.9% 5.5% Franklin County Labor Force 36,410 35,980 33,630 32,080 30,020 29,340 Employed 32,560 33,100 31,540 30,090 27,920 27,280 %Unemployed 10.6% 8.0% 6.2% 6.2% 7.0% 7.0% Source: Vasbington State Employment Security Department. NON-AGRICULTURE WAGE AND SALARY WORKERS EMPLOYED IN KENNEWICK-RICHLAND-PASCO MSA(000x)(1) Employment Sector Feb.2010 2009 2008 2007 2006 2005 Goods Producing 12,900 12,900 12,900 12,700 11,900 11,600 Natural Resources&Mining 6,100 5,900 6,500 6,600 6,000 5,900 Manufacturing 6,800 7,000 6,400 6,100 5,800 5,800 Services Providing 82,900 82,900 80,700 78,900 74,800 75,300 Private Services Providing 64,800 65,600 63,700 62,500 58,900 59,300 Trade, Transportation,Warehousing&Utilities 15,200 15,800 16,700 16,800 16,000 14,900 Retail Trade 11,700 12,000 11,700 11,900 11,400 10,600 Financial Activities 3,200 3,300 3,600 3,600 3,500 3,400 Professional&Business Services 22,600 22,700 20,600 20,300 18,500 20,600 Administrative&Support Services 11,400 11,600 9,400 9,800 9,000 10,000 Education&Health Services 10,600 10,700 10,100 9,700 9,200 8,600 Leisure and Hospitality 8,400 8,500 8,600 8,100 7,900 7,900 Food Services 6,100 6,200 6,300 6,000 5,600 5,600 Government 18,100 17,400 17,000 16,400 16,000 16,000 Federal&State Government 4,100 3,700 3,700 3,700 3,600 3,600 Local Government 14,000 13,700 13,300 12,700 12,400 12,400 Total Non-Agriculture 95,800 95,800 93,600 91,600 86,700 86,900 Total Private 77,700 78,400 76,600 75,200 70,700 70,900 (1) Detail may not add to indicate totals due to rounding. Excludes proprietors, agriculture, self-employed,unpaid family,domestic workers and military. Includes all full and part-time wage and salary workers receiving pay during the period including the 121h of the month by place of work. Source: llasbington State Employment Security Department. 24 INITIATIVE AND REFERENDUM Under the State Constitution,the voters of the State have the ability to initiate legislation and modify existing legislation through the powers of initiative and referendum, respectively. The initiative power in Washington may not be used to amend the State Constitution. Initiatives and referenda are submitted to the voters upon receipt of a petition signed by at least 8% (initiatives) and 4% (referenda) of the number of voters registered and voting for the office of Governor at the preceding regular gubernatorial election. Any law approved in this manner by a majority of the voters may not be amended or repealed by the Legislature within a period of two years following enactment,except by a vote of two-thirds of all the members elected to each house of the Legislature. After two years,the law is subject to amendment or repeal by the Legislature in the same manner as other laws. Tax and fee initiative measures have been and may be filed from time to time. It cannot be predicted whether any such initiatives might gain sufficient signatures to qualify for submission to the Legislature and/or the voters or,if submitted, whether they ultimately would be approved. TAX MATTERS The 2010A Bonds Exclusion From Gross Income. In the opinion of Bond Counsel,under existing federal law and assuming compliance with applicable requirements of the Internal Revenue Code of 1986, as amended (the "Code"), that must be satisfied subsequent to the issue date of the 2010A Bonds, interest on the 2010A Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the alternative minimum tax applicable to individuals. Continuing Requirements. The City is required to comply with certain requirements of the Code after the date of issuance of the 2010A Bonds in order to maintain the exclusion of the interest on the 2010A Bonds from gross income for federal income tax purposes,including,without limitation,requirements concerning the qualified use of bond proceeds and the facilities financed or refinanced with bond proceeds,limitations on investing gross proceeds of the 2010A Bonds in higher yielding investments in certain circumstances and the requirement to comply with arbitrage rebate requirements to the extent applicable to the 2010A Bonds. The City has covenanted in the Bond Ordinance to comply with those requirements, but if the City fails to comply with those requirements, interest on the 2010A Bonds could become taxable retroactive to the date of issuance of the 2010A Bonds. Bond Counsel has not undertaken and does not undertake to monitor the City's compliance with such requirements. Corporate Alternative Minimum Tax. While interest on the 2010A Bonds also is not an item of tax preference for purposes of the alternative minimum tax applicable to corporations,under Section 55 of the Code,tax exempt interest,including interest on the 2010A Bonds, received by corporations is taken into account in the computation of adjusted current earnings for purposes of the alternative minimum tax applicable to corporations (as defined for federal income tax purposes). Under the Code, alternative minimum taxable income of a corporation will be increased by 75% of the excess of the corporation's adjusted current earnings (including any tax exempt interest) over the corporation's alternative minimum taxable income determined without regard to such increase. A corporation's alternative minimum taxable income, so computed, that is in excess of an exemption of$40,000,which exemption will be reduced (but not below zero) by 25%of the amount by which the corporation's alternative minimum taxable income exceeds$150,000,is then subject to a 20%minimum tax. A small business corporation is exempt from the corporate alternative minimum tax for any taxable year beginning after December 31,1997,if its average annual gross receipts during the three-taxable-year period beginning after December 31, 1993, did not exceed $5,000,000, and its average annual gross receipts during each successive three-taxable-year period thereafter ending before the relevant taxable year did not exceed$7,500,000. Tax on Certain Passive Investment Income of S Corporations. Under Section 1375 of the Code, certain excess net passive investment income, including interest on the 2010A Bonds, received by an S corporation (a corporation treated as a partnership for most federal tax purposes) that has Subchapter C earnings and profits at the close of the taxable year may be subject to federal income taxation at the highest rate applicable to corporations if more than 25% of the gross receipts of such S corporation is passive investment income. Foreign Branch Props Tax. Interest on the 2010A Bonds may be subject to the foreign branch profits tax imposed by Section 884 of the Code when the 2010A Bonds are owned by,and effectively connected with a trade or business of,a United States branch of a foreign corporation. 25 Possible Consequences of Tax Comfiliance Audit. The Internal Revenue Service (the "IRS") has established a general audit program to determine whether issuers of tax-exempt obligations, such as the 2010A Bonds, are in compliance with requirements of the Code that must be satisfied in order for the interest on those obligations to be, and continue to be, excluded from gross income for federal income tax purposes. Bond Counsel cannot predict whether the IRS will commence an audit of the 2010A Bonds. Depending on all the facts and circumstances and the type of audit involved,it is possible that commencement of an audit of the 2010A Bonds cod adversely affect the market value and liquidity of the 2010A Bonds until the audit is concluded,regardless of its ultimate outcome. Certain Other Federal Tax Consequences The 2010A Bonds Are `Qual ied Tax-Exembt Obligations" for Financial Institutions. Section 265 of the Code generally provides that 100% of any interest expense incurred by banks and other financial institutions that is allocable to tax- exempt obligations acquired after August 7, 1986, will be disallowed as a tax deduction. However, if the tax-exempt obligations are obligations other than certain private activity bonds,are issued by a governmental unit that,together with all entities subordinate to it, does not reasonably anticipate issuing more than $30,000,000 of tax-exempt obligations (other than certain private activity bonds and other obligations not required to be included in such calculation) in the current calendar year, and are designated by the governmental unit as "qualified tax-exempt obligations," only 20% of any interest expense deduction allocable to those obligations will be disallowed. The City is a governmental unit that, together with all subordinate entities, reasonably anticipates issuing less than $30,000,000 of tax-exempt obligations (other than certain private activity bonds and other obligations not required to be included in such calculation) during the current calendar year, and has designated the 2010A Bonds as "qualified tax- exempt obligations" for purposes of Section 265(6)(3) of the Code. Therefore, only 20% of the interest expense deduction of a financial institution allocable to the 2010A Bonds will be disallowed for federal income tax purposes. Reduction of Loss Reserve Deductions for Property &Casualty Insurance Companies. Under Section 832 of the Code,interest on the 2010A Bonds received by property and casualty insurance companies will reduce tax deductions for loss reserves otherwise available to such companies by an amount equal to 15% of tax-exempt interest received during the taxable year. Effect on Certain Social Security and Retirement Bents. Section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take receipts or accruals of interest on the 2010A Bonds into account in determining gross income. Other Possible Federal Tax Consequences. Receipt of interest on the 2010A Bonds may have other federal tax consequences as to which prospective purchasers of the 2010A Bonds may wish to consult their own tax advisors. Preservation of Tax Exemption of 2010A Bonds The City covenants, by the Bond Ordinance, that it will take all actions necessary to prevent interest on the 2010A Bonds from being included in gross income for federal income tax purposes,and it will neither take any action nor make or permit any use of proceeds of the 2010A Bonds or other funds of the City treated as proceeds of the 2010A Bonds at any time during the term of the 2010A Bonds which will cause interest on the 2010A Bonds to be included in gross income for federal income tax purposes. No Tax Exemption for 2010T Bonds Interest on the 2010T Bonds is not excluded from gross income for federal income taxation. Prospective purchasers of the 2010T Bonds should consult their own tax advisors regarding federal tax consequences of owning Series 2010T Bonds. CONTINUING DISCLOSURE Basic Undertaking to Provide Annual Financial Information and Notice of Material Events To meet the requirements of United States Securities and Exchange Commission ("SEC") Rule 15c2-12(b)(5) (the "Rule"), as applicable to a participating underwriter for the Bonds, the City will undertake (the "Undertaking") for the benefit of holders of the Bonds to provide or cause to be provided,either directly or through a designated agent,to the Municipal Securities Rulemaking Board ("MSRB"),in an electronic format as prescribed by the MSRB,accompanied by identifying information as prescribed by the MSRB: (a) annual financial information and operating data of the type included in this Official Statement as generally described below ("annual financial information"), and (b) to the MSRB timely notice of the occurrence of any of the following events with respect to the Bonds, if material: (i) principal and interest payment delinquencies; (ii) non-payment related defaults; (iii) unscheduled draws on debt service reserves reflecting financial difficulties; (iv) unscheduled draws on credit enhancements reflecting financial difficulties; (v) 26 substitution of credit or liquidity providers, or their failure to perform; (vi) adverse tax opinions or events affecting the tax-exempt status of the Bonds; (vii) modifications to rights of holders of the Bonds; (viii) Bond calls (other than scheduled mandatory redemption of Term Bonds); (ix) defeasances; (x) release, substitution,or sale of property securing repayment of the Bonds;and(xi)rating changes.The City will also provide to the MSRB timely notice of a failure by the City to provide required annual financial information on or before the date specified below. Annual Financial Information The annual financial information that the City undertakes to provide will consist of: (1) the City's annual financial statements prepared (except as noted in the financial statements) in accordance with generally accepted accounting principles applicable to Washington governmental units such as the City, as such principles may be changed from time to time, which statements shall not be audited, except, however, that if and when audited financial statements are otherwise prepared and available to the City they will be provided; (2) a statement of authorized,issued and outstanding bonded debt secured by the Net Revenue of the Waterworks Utility; (3) debt service coverage ratios; and (4) general customer statistics for the Waterworks Utility. The annual financial information that the City undertakes to provide will be provided to the MSRB not later than the last day of the ninth month after the end of each fiscal year of the City(currently,a fiscal year ending December 31),as such fiscal year may be changed as permitted or required by State law, commencing with the City's fiscal year ending December 31,2010. The annual financial information may be provided in a single or multiple documents and may be incorporated by reference to other documents available to the public on the Internet website of the MSRB or filed with the SEC. Amendment of Undertaking The Undertaking is subject to amendment after the primary offering of the Bonds without the consent of any holder of any Bond, or of any broker, dealer, municipal securities dealer, participating underwriter, rating agency, or the MSRB, under the circumstances and in the manner permitted by the Rule. The City will give notice to the MSRB of the substance (or provide a copy) of any amendment to the Undertaking and a brief statement of the reasons for the amendment. If the amendment changes the type of annual financial information to be provided,the notice also will include a narrative explanation of the effect of that change in the type of information to be provided. Termination of Undertaking The City's obligations under the Undertaking shall terminate upon the legal defeasance of all of the Bonds. In addition, the City's obligations under the Undertaking shall terminate if those provisions of the Rule which require the City to comply with the Undertaking become legally inapplicable in respect of the Bonds for any reason, as confirmed by an opinion of nationally recognized bond counsel or other counsel familiar with federal securities laws delivered to the City, and the City provides timely notice of such termination to the MSRB. Remedy for the Failure to Comply with Undertaking If the City or any other obligated person fails to comply with the Undertaking,the City will proceed with due diligence to cause such noncompliance to be corrected as soon as practicable after the City learns of that failure. No failure by the City or other obligated person to comply with the Undertaking will constitute a default in respect of the Bonds. The sole remedy of any holder of a Bond will be to take such actions as that holder deems necessary,including seeking an order of specific performance from an appropriate court, to compel the City or other obligated person to comply with the Undertaking. Prior Compliance with Continuing Disclosure Undertakings Pursuant to the Rule, and beginning in 1997, the City entered into undertakings with respect to several prior issues of general obligation and revenue bonds. The City believes that it is in compliance with its continuing disclosure undertakings in all respects. 27 LEGAL INFORMATION Absence of Litigation Affecting the Bonds There is no litigation of any kind now pending or, to the knowledge of the City, threatened to restrain or enjoin the issuance or delivery of the Bonds or in any manner questioning the proceedings and authority under which the Bonds are issued or affecting the ability of the City to pay the principal of or the interest on the Bonds. Approval of Bond Counsel Legal matters incident to the authorization, issuance and sale of Bonds by the City are subject to the approving legal opinion of Foster Pepper PLLC, Seattle,Washington,Bond Counsel. The form of the opinion of Bond Counsel with respect to the Bonds is attached hereto as Appendix C. The opinion of Bond Counsel is given based on factual representations made to Bond Counsel,and under existing law, as of the date of initial delivery of the Bonds, and Bond Counsel assumes no obligation to revise or supplement its opinion to reflect any facts or circumstances that may thereafter come to its attention, or any changes in law that may thereafter occur. The opinion of Bond Counsel is an expression of its professional judgment on the matters expressly addressed in its opinion and does not constitute a guarantee of result. Bond Counsel will be compensated only upon the issuance and sale of Bonds. BOND RATING The City received an underlying rating of"AA-" from Standard&Poor's ("S&P'�. A municipal bond rating reflects a rating agency's current assessment of a number of factors relating to the issuer of any debt,including the likelihood of repayment of such debt,the perceived quality of management and administration of the entity, the nature and relative health of the local economy in which the issuer exists and the overall financial condition and operational controls which exist for the issuer. The existence of a bond rating does not imply a recommendation by a rating agency to purchase,sell or hold any such security, inasmuch as it does not take into account a number of subjective variables, including the market price of any such security or suitability of such security for any particular investor. A credit rating is based on current information furnished by the issuer or obtained by a rating agency from sources which it considers to be reliable. S&P does not perform an audit in connection with any credit rating it may assign and may,on occasion,rely on un-audited financial information. A bond rating may be changed,suspended or withdrawn as a result of changes in,or unavailability of,such information,or for other circumstances. CONFLICTS OF INTEREST Some or all of the fees of the Underwriter and Bond Counsel are contingent upon the issuance and sale of the Bonds. Furthermore,Bond Counsel from time to time serves as counsel to the Underwriter with respect to issuers other than the City and transactions other than the issuance of the Bonds. None of the council members or other officers of the City have interests in the issuance of the Bonds that are prohibited by applicable law. UNDERWRITING The Underwriter has agreed, subject to certain conditions, to purchase all of the 2010A Bonds, at a price equal to the principal amount thereof,plus an original issue premium of$ ,less an underwriting discount of$ The Underwriter has agreed, subject to certain conditions, to purchase all of the 2010T Bonds, at a price equal to the principal amount thereof,plus an original issue premium of$ ,less an underwriting discount of$ The Underwriter has represented that the Bonds will be reoffered at the prices or yields set forth on the inside cover hereof, and such initial offering prices may be changed from time to time by the Underwriter. After the initial public offering,the public offering prices may be varied from time to time. Piper Jaffray & Co., ("Piper' has entered into an agreement (the "Distribution Agreement") with Advisors Asset Management,Inc. ("AAM") for the distribution of certain municipal securities offerings allocated to Piper at the original offering prices. Under the Distribution Agreement, if applicable to the Bonds,Piper will share with AAM a portion of the fee or commission,exclusive of management fees,paid to Piper. 28 CONCLUDING STATEMENT All estimates, assumptions, statistical information and other statements contained herein, while taken from sources considered reliable, are not guaranteed by the City or the Underwriter. So far as any statement herein includes matters of opinion, or estimates of future expenses and income,whether or not expressly so stated,they are intended merely as such and not as representations of fact. The information contained herein should not be construed as representing all conditions affecting the City or the Bonds. Additional information may be obtained directly from the City or the Underwriter. The foregoing statements relating to the Ordinance and other documents are in all respects subject to and qualified in their entirety by provisions of such documents. This Official Statement, starting with the cover page and all subsequent pages,including any appendices, comprise the entire Preliminary Official Statement, which has been approved by the City. The City has represented to the Underwriter that the portions of this Preliminary Official Statement directly pertaining to the City neither contain any misrepresentation of material fact nor omit any material fact necessary to understand the financial, economic or legal nature of the City or any information presented herein. CITY OF PASCO,WASHINGTON By: Its: City Manager 29 APPENDIX A CERTAIN DEFINITIONS Certain terms used in this Preliminary Official Statement that are not specifically defined herein have the meanings as set forth in the Bond Ordinance. The following terms shall have the following meanings in this Official Statement as defined in the Bond Ordinance: "Acquired Obligations" means those United States Treasury Certificates of Indebtedness,Notes, and Bonds--State and Local Government Series and other direct, noncallable obligations of the United States of America purchased to accomplish the refunding of the Refunded Bonds as authorized by the Bond Ordinance. "Alternate Security" means any bond insurance, collateral, security, letter of credit, guaranty, surety bond or similar credit enhancement device providing for or securing the payment of all or part of the principal of and interest on any specified Parity Bonds, issued by an institution which has been assigned a credit rating at the time of issuance of the applicable Parity Bonds,respectively,secured by such Alternate Security in the highest rating categories by both Moody's Investors Service,Inc.,and Standard&Poor's Ratings Services. "Annual Debt Service"for any or all Parity Bonds for any year means all the interest,plus all principal which will mature or come due in such year,less all bond interest payable from the proceeds of any such bonds in that year. "Assessment Bonds" means, at the time of determination, Parity Bonds then outstanding equal to the sum of the nondelinquent unpaid principal amount of ULID Assessments then outstanding plus any UL113 Assessment payments then on deposit in the Principal and Interest Account of the Bond Fund. Assessment Bonds shall be allocated to each remaining maturity of Parity Bonds in the same proportion as the total of the Assessment Bonds relates to the total of the Parity Bonds then outstanding. "Average Annual Debt Service" means, at the time of its calculation, the sum of the Annual Debt Service for the remaining years to the last scheduled maturity of the applicable Parity Bonds divided by the number of those years. "Bond Fund" means the Water and Sewer Revenue and Refunding Bond Redemption Fund, 1991, of the City created and established by Ordinance No.2846 in the office of the Finance Director of the City. "Bond Register"means the registration books of the Bond Registrar on which are recorded the names of the owners of the Bonds. "Bond Registrar"means the Fiscal Agent. "Bonds"means,collectively,the 2010A Bonds and the 2010T Bonds. "1998A Bonds" means the Water and Sewer Revenue Bonds, 1998, Series A (Taxable), issued pursuant to Ordinance No.3314. "199813 Bonds" means the Water and Sewer Revenue Refunding Bonds, 1998, Series B (Tax-Exempt),issued pursuant to Ordinance No.3314. "1998C Bonds" means the Water and Sewer Revenue Bonds, 1998, Series C (Tax-Exempt), issued pursuant to Ordinance No.3314. "1999 Bonds"means the Water and Sewer Revenue Bonds,1999,issued pursuant to Ordinance No. 3378. "2001 Bonds"means the Water and Sewer Revenue Bonds,2001,issued pursuant to Ordinance No.3503. "2002 Bonds"means the Water and Sewer Revenue Bonds,2002,issued pursuant to Ordinance No.3567. "2005 Bonds"means the Water and Sewer Revenue Bonds,2005,issued pursuant to Ordinance No.3740. "2007 Bonds"means the Water and Sewer Revenue Bonds,2007,issued pursuant to Ordinance No.3835. "2009 Bonds"means the Water and Sewer Revenue Bonds,2009,issued pursuant to Ordinance No.3195. "2010A Bonds" means the Water and Sewer Improvement and Refunding Revenue Bonds, 2010A,issued pursuant to the Bond Ordinance. "2010T Bonds"means the Water and Sewer Refunding Revenue Bonds, 2010T (Taxable),issued pursuant to the Bond Ordinance. "City"means the City of Pasco,Washington,a duly organized code city. A-1 "Code" means the United States Internal Revenue Code of 1986, as amended, and applicable rules and regulations promulgated thereunder. "Coverage Requirement" in any year means an amount of Net Revenue of the Waterworks Utility, together with the ULID Assessments collected in that year,equal to at least the Maximum Annual Debt Service on all Assessment Bonds plus an amount of the Net Revenue of the Waterworks Utility not used to calculate the Coverage Requirement on Assessment Bonds equal to at least 1.25 times Maximum Annual Debt Service on all bonds payable from the Bond Fund that are not Assessment Bonds. "DTC"means The Depository Trust Company,New York,New York. "Fiscal Agent" means the fiscal agent of the State of Washington as the same may be designated by the State of Washington from time to time. "Future Parity Bonds" means any and all water and sewer revenue bonds or other obligations of the City issued or incurred after the date of the issuance of the Bonds pursuant to the provisions of the Parity Bond Ordinances, the payment of the principal of and interest on which constitutes a lien and charge upon the Net Revenue of the Waterworks Utility and ULID Assessments on a parity with the lien and charge upon such Net Revenue and ULID Assessments for the Outstanding Parity Bonds and the Bonds,but shall not include variable rate obligations. "Government Obligations" means those government obligations defined by RCW 39.53.010(9) as it now reads or hereafter may be amended and which are otherwise lawful investments of the City at the time of such investment. "Gross Revenue of the Waterworks Utility"or"Gross Revenue"means all of the earnings and revenues received by the City from the maintenance and operation of the Waterworks Utility and all earnings from the investment of money on deposit in the Bond Fund,except ULID Assessments,government grants,proceeds from the sale of Waterworks Utility property, City taxes collected by or through the Waterworks Utility, principal proceeds of bonds and earnings or proceeds from any investments in a trust, defeasance or escrow fund created to defease or refund Waterworks Utility obligations (until commingled with other earnings and revenues of the Waterworks Utility) or held in a special account for the purpose of paying a rebate to the United States Government under the Code. "Letter of Representations" means the Blanket Issuer Letter of Representations between the City and DTC dated August 31, 1998. "Maximum Annual Debt Service"means, at the time of calculation,the maximum amount of Annual Debt Service that will mature or come due in the current year or any future year on the outstanding Parity Bonds. "MSRB"means the Municipal Securities Rulemaking Board. "Net Revenue of the Waterworks Utility"or"Net Revenue"means the Gross Revenue less Operating and Maintenance Expenses. "Operating and Maintenance Expenses"means all reasonable expenses incurred by the City in causing the Waterworks Utility to be operated and maintained in good repair, working order and condition, including payments made to any other municipal corporation or private entity for water service and for sewage treatment and disposal service or other utility service in the event the City combines such service in the Waterworks Utility and enters into a contract for such service,but not including any depreciation or taxes levied or imposed by the City or payments to the City in lieu of taxes, or capital additions or capital replacements to the Waterworks Utility. "Outstanding Parity Bonds"means the outstanding 1998C Bonds, 1999 Bonds,2001 Bonds, 2002 Bonds, 2005 Bonds, 2007 Bonds and 2009 Bonds. "Parity Bond Ordinances"means Ordinance No.3314,Ordinance No.3378,Ordinance No.3503,Ordinance No.3567, Ordinance No.3740,Ordinance No.3835,Ordinance No.3195 and the Bond Ordinance. "Parity Bonds"means the Outstanding Parity Bonds,the Bonds and any Future Parity Bonds. "Plan of Additions"means the system or plan of additions to and betterments and extensions of the Waterworks Utility specified,adopted and ordered to be carried out by the Bond Ordinance. "Principal and Interest Account" means the account of that name created in the Bond Fund for the payment of the principal of and interest on all Parity Bonds. "Purchaser"means Piper Jaffray&Co. of Seattle,Washington. "Refunded Bonds" means the outstanding 1998A Bonds maturing in the years 2013 and 2018 and the 1998B Bonds maturing in the years 2010 through 2014, inclusive, the refunding of which has been provided for by the Bond Ordinance. A-2 "Refunding Plan"means: (a) the placement of sufficient proceeds of the Bonds which,with other money of the City,if necessary, will acquire the Acquired Obligations to be deposited,with cash,with the Refunding Trustee; (b) pay the principal of and interest on the Refunded Bonds when due on June 1,2010; (C) the call,payment,and redemption on June 16,2010,of all of the then outstanding Refunded Bonds at a price of par plus accrued interest;and (d) the payment of the costs of carrying out the foregoing elements of the Refunding Plan. "Refunding Trust Agreement" means a Refunding Trust Agreement between the City and the Refunding Trustee substantially in the form of that which is on file with the City Clerk. "Refunding Trustee"means U.S.Bank national Association of Seattle,Washington,serving as trustee or escrow agent or any successor trustee or escrow agent. "Reserve Account"means the account of that name created in the Bond Fund for the purpose of securing the payment of the principal of and interest on the Parity Bonds. "Reserve Insurance" means, in lieu of cash and investments,insurance obtained by the City to fund all or a portion of the Reserve Requirement for any Parity Bonds then outstanding for which such insurance is obtained; and for the Outstanding Parity Bonds and the Bonds means the Surety Bond provided by the Reserve Insurer. "Reserve Insurer"means Ambac Assurance Corporation for the Outstanding Parity Bonds and the Bonds. "Reserve Requirement"means: (1) For the Outstanding Parity Bonds and the Bonds,an amount equal to the least of(a) 10%of the issue price of the then outstanding Parity Bonds, (b)Maximum Annual Debt Service on the then outstanding Parity Bonds and (c) 1.25 times Average Annual Debt Service on the outstanding Parity Bonds. For the purposes of determining Maximum Annual Debt Service and Average Annual Debt Service for calculating the Reserve Requirement,all bonds payable or proposed to be paid from the Bond Fund shall be treated as a single issue and the number of years to the last scheduled maturity for any of those issues shall be used as the denominator. (2) For any Future Parity Bonds, an amount equal to the difference between the Reserve Requirement for the then outstanding Parity Bonds and the least of (a) 10% of the issue price of the then outstanding Parity Bonds and the Future Parity Bonds proposed to be issued, (b)Maximum Annual Debt Service on the then outstanding Parity Bonds and the Future Parity Bonds proposed to be issued and (c) 1.25 times Average Annual Debt Service on the outstanding Parity Bonds and the Future Parity Bonds proposed to be issued, but in no event to exceed an amount equal to the least of 10% of the issue price of the proposed Future Parity Bonds, Maximum Annual Debt Service on those bonds and 1.25 times Average Annual Debt Service on the proposed bonds. For the purposes of determining Maximum Annual Debt Service and Average Annual Debt Service for calculating the Reserve Requirement, all bonds payable or proposed to be paid from the Bond Fund shall be treated as a single issue and the number of years to the last scheduled maturity for any of those issues shall be used as the denominator. "SEC"means the United States Securities and Exchange Commission. "Surety Bond" means the surety bond issued by the Reserve Insurer guaranteeing certain payments into the Reserve Account with respect to the Outstanding Parity Bonds and the Bonds as provided in and subject to the limitations set forth in that surety bond. "Term Bonds" means those bonds of any single issue or series of Parity Bonds designated as such in the ordinance providing for those bonds. "ULID"means utility local improvement district. "ULID Assessments"means all ULID assessments and installments thereof, plus interest and penalties thereon,in any ULID created to secure the payment of any Parity Bonds and pledged to be paid into the Bond Fund. "Water and Sewer Revenue Fund" means that special fund of the City into which all of the Gross Revenue of the Waterworks Utility of the City shall be deposited. "Waterworks Utility" means the combined sewerage system and water system of the City, together with the storm or surface water sewers and agricultural/industrial wastewater treatment facilities heretofore or hereafter authorized to be constructed and installed as a part of such combined systems, and together with all additions thereto and betterments and extensions thereof now or hereafter made. A-3 APPENDIX B EXERPTS OF 2008 AUDITED FINANCIAL STATEMENTS Washington State Auditor's Office Independent Auditor's Report on Financial Financial Statements and Federal Single Audit Report Statements City of Pasco Franklin County January 1,2008 through December 31,2008 City of Pasco Franklin Count Mayor and City Council County City of Pasco Pasco,Washington Audit Period We have audited the accompanying financial statements of the governmental activities, the January 1,2008 through December 31,2008 business-type activities,each major fund and the aggregate remaining fund information of the City of Pasco,Franklin County,Washington,as of and for the year ended December 31,2008, which collectively comprise the City's basic financial statements as listed on page 15. These Report No. 1002255 financial statements are the responsibility of the City's management. Our responsibility is to express opinions on these financial statements based on our audit. The prior year comparative information has been derived from the City's 2007 financial statements and, in our audited report dated September 11,2008,we expressed unqualified opinions on the respective financial statement of the governmental activities, business-type activities, each major fund and the aggregate remaining information. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards,issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining,on a test basis,evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion,the financial statements referred to above present fairly,in all material respects, the respective financial position of the governmental activities,the business-type activities,each major fund and the aggregate remaining fund information of the City of Pasco, as of December 31, 2008, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. As described in Note 19, during the year ended December 31, 2008, the City implemented WASHINGTON Governmental Accounting Standards Board Statement 45,Accounting and Financial Reporting Issued September 28, 2009 ? 17 i� hT (y � f'+ by Employers for Postemployment Benefits Other Than Pensions. Reissued February 1,2010 j�j�j STATE In accordance with Government Auditing Standards, we have also issued our report on our $TATS A[Jt�ITC]R consideration of the City's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and Washington State Auditor's Office 13 C%t1�of Pasco,VashhVton 2008 Statement of Net Assets other matters. The purpose of that report is to describe the scope of our testing of internal December 31,2008 control over financial reporting and compliance and the results of that testing,and not to provide Governmental Business-Type an opinion on the internal control over financial reporting or on compliance. That report is an ASSETS Activities Activities 2008 2007 integral part of an audit performed in accordance with Government Auditing Standards and Current Cash R Cash Equivalents $ 948,723 $ 907,938 $ 1,856,661 $ 17,342,336 should be considered in assessing the results of our audit. Investments 25,969,010 6,769,049 32,738,059 20,308,415 Receivables(net of allowances) The financial statements include partial prior year comparative information. Such information rakes 2,573, 2,573,202 2,719,114 Customer Acw unls 6,672,7711 11 835,946 7,508,657 6,073,332 does not include all of the information required for a presentation in conformity with accounting Due from Other Funds (17,000) 17,000 - 48,100 principles generally accepted in the United States of America. Accordingly, such information Interest Receivable 155,064 64,314 219,378 203,997 should be read in conjunction with the City's financial statements for the year ended Other Receivables 723,023 294,018 1,017,041 1,210,917 December 31,2007,from which such partial information was derived. Inventories 8,357 284,357 292,714 312,381 Prepaid Insurance - 20,036 20,036 19,226 Joint Ventures 278,229 - 278,229 299,984 The management's discussion and analysis on pages 16 through 26 and budgetary comparison Land 5,855,166 317,786 6,172,952 6,028,233 information on page 73 are not a required part of the basic financial statements but are Capital Assets,Net of Depreciation 33,827,168 42,438,098 76,265,266 81,553,741 supplementary information required by the Governmental Accounting Standards Board. We Construction Work In Progress 986,569 3,213,130 4,199,699 6,101,715 have applied certain limited procedures,which consisted principally of inquiries of management Infrastructure,Net of Depreciation 58,092,092 97,350,872 155,442,964 130,153,182 regarding the methods of measurement and presentation of the required supplementary Deferred Charges - 162,601 162,601 183,290 information. However,we did not audit the information and express no opinion on it. TOTAL ASSETS 136,072,314 152,675,145 288,747,459 272,557,963 Our audit was performed for the purpose of forming an opinion on the financial statements that LIABILmES collectively comprise the City's basic financial statements. The accompanying Schedule of current Accourrts Payable 712,844 244,149 956,993 2,298,844 Expenditures of Federal Awards is presented for purposes of additional analysis as required by Bank Overdraft 1,768,775 - 1,768,775 - U.S.Office of Management and Budget Circular A-133,Audits of States,Local Governments, Due to Other Govemmental Units 8,792 30,729 39,521 175,445 and Non-Profit Organizations. This schedule is not a required part of the basic financial Retainage Payable - 201,181 201,181 180,777 statements. Such information has been subjected to the auditing procedures applied in the Deposits Payable 404,691 93,510 498,201 471,055 audit of the basic financial statements and, in our opinion, is fair) stated, in all material Interest Payable 359,901 359,901 392,113 p y Other 501,095 - 501,095 115,145 respects,in relation to the basic financial statements taken as a whole. Deferred Revenue - 1,262,101 1,262,101 1,114,327 Non-Current Liabilities - Deferred Revenue 5,583,891 - 5,583,891 4,100,410 . Unclaimed Properly 5,434 25,082 30,516 24,410 Claims Incurred Not Reported 550,000 550,000 125,000 Due within One Year 2,728,583 3,049,667 5,778,250 5,549,717 Due in More than One Year 10,759,710 31,213,808 41,973,518 46,213,474 Total Liabilities 23,023,815 36.480,128 59.503,943 60,760.717 BRIAN SONNTAG,CGFM STATE AUDITOR NETASSETS Invested in Capital Assets,Net of Related Debt 85,293,636 109,736,474 195,030,110 171,693,558 January 25,2010 Restricted for Debt Service 2,173,622 747,042 2,920,664 3,071,215 Capital Improvements 15,165 - 15,165 15,165 Other Restricted 1,815,716 - 1,815,716 1,648,705 Unrestricted(deficit) 23,750,360 5,711,501 29,461,861 35,368,603 Total Net Assets $113,048,499 $116,195,017 $229,243,516 $211,797,246 See accompanying notes to the basic financial statements. Washington State Auditor's Office Washington State Auditor's Office 14 27 City ofTasco,'Washington 2008 Comprehensive Annuaf financiaCReport C%t1�of Pasco,VashhVton 2008 Balance Sheet m y m Governmental Funds 'x December31,2008 Total Other Govemmental �- "" Mj n - - General Govemmental Funds Fund Funds 2008 2007 ASSETS Current Cash&Cash Equivalents $ 80,425 $ 736,606 $ 817,032 $ 9,442,809 Investments 7,962,112 14,071,475 22,033,586 11,541,211 Receivables(net of allowances) Taxes 2,465,934 107,268 2,573,202 2,719,114 u Customer Accounts 1,376,020 5,270,983 6,647,003 5,129,442 m Intertund Loans Receivable 676,800 1,100 677,900 1,505,900 m W Interest Receivable 53,970 75,962 129,932 117,732 m E - Other Receivables 233,763 489,260 723,023 957,646 d �'L 'e�aomN e a TOTAL ASSETS 12,849,024 20,752,654 33,601,678 31,413,854 `m mQ f LIABILMES AND FUND BALANCES Liabilities m m v Accounts Payable 218,747 460029 678,776 1,586,1- 40 1 2 m IBankOvrdr 1, 1,_ 768775 768,775 Mertund Loans Payable - 634,900 634,900 1,704,000 Due to Other Governmental Units 7,887 905 8,792 76,320 Bonds,Notes,Loans Payable - 120,000 120,000 120,000 Deposits Payable 404,691 - 404,691 383,822 a m f ,, Other p - 501,095 583 1,095 115,145 a♦?a 11 $� o g Nl 11 Deferred Revenue 1,250,177 4,333,714 5,583,891 4,100,410 E Unclaimed Property 5,434 - 5.434 3.422 v «, Total Liabilities 1.886.936 7.819,418 9.706.354 8.089.259 P o , , , , Fund Balances "a w Reserved for: E a E Advances to Other Funds 676,800 1,100 677,900 1,505,900 E o ci w z Debt Service - 2,073,622 2,073,622 2,257,622 Capital Improvements 15,165 - 15,165 15,165 y a Other Reserves - 1,815,716 1,815,716 1,648,705 Unreserved,Reported in: P. n - General Fund 10,270,1-2 3 - 10270123 9087,738 A Special Revenue Funds 9,871,5 9,7 ,58 , 825914 921,004 921,004 773,275 Debt Service Funds Cp Total ital Project Funds - (1,749,795) (1,749,795) (223,724 ) Fund Balances 10,962,088 12,933,236 23.895.324 23,324,595 W m "8 - - - - - W 16 Iz 4 rc mm'arm� Em m° m m o ., a w v n ui o o o q o e a S ¢ TOTAL LIABILITIES AND FUND BALANCES $ 12,849,024 $ 20.752.654 �Faaw r v za` z g a _ Amounts reported for governmental activities in the statements of net assets °a are different because:balance in government funds 23,895,324 Capital Assets used in governmental activities are not financial resources and E.s E E e e m a & o €' therefore are not reported in the govemment funds. 96,733,027 2 m a o .W x'w '2'm z Internal Service funds are used by management to charge the costs of certain uy y o F.E d° a 3 0`� E activities to individual funds.The assets and liabilities of internal service funds are d" E E Z 8 u 2 a E ,°-� °_ $ included in the governmental activities in the Statement of Net Assets. 5,767,507 8 E u a' i w v s m 3 u,3 o s Some liabilities,including bonds payable,are not due and payable in the current ai o" i 0 w period and therefore are not reported in the funds. (13,347,359) Net assets ofgovemmental activities $ 113,048,499 See accompanying rotes to the basic financial statements. Washington State Auditor's Office Washington State Auditor's Office 28 29 City of Pasco,1WashinWton 2oo8 C%t1�of Pasco,"WashhVton 2oo8 Statement of Revenues,Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended December 31,2008 Reconciliation of the Statement of Revenues,Expenditures,and Total Changes in Fund Balance of Govemmental Funds to the Statement ofActivifies Other Governmental For the Year Ended December 31,2008 General Governmental Funds REVENUES Fund Funds 2008 2007 Netchange infund balances-total govemmental funds $ 569,101 Taxes $ 22,969,749 $ 2,746,707 $ 25,716,456 $ 24,516,433 Amounts reported forgovemmental activities in the Statement ofAcbvifies are Licenses&Permits 1,364,996 250,739 1,615,735 1,923,553 different because ofthe following reconciling items: Intergovernmental Revenue 2,081,152 3,212,074 5,293,226 4,719,252 Charges for Services 2,726,668 2,044,253 4,770,921 4,737,984 Govemmental funds report capital outlays as expenditures.However,in the Statement Fines&Forfeitures 980,468 36,271 1,016,739 1,054,334 of Net Assets they are reported net of depreciation as a capital asset.This is the Investment Income 311,637 546,499 858,136 960,833 amountbywhich capital outlays exceeded depreciation inthe current period. (985,821) Miscellaneous Revenue 588,946 863,375 1,452,321 1,772,971 Total Revenues 31,023,616 9,699,918 40,723,534 39,685,360 The Statement of Net Assets shows a decrease in the value of Joint Ventures. (21,755) EXPENDITURES Repayment of bond pri ncipal is an expenditure in the governmental funds,but the Current: payment reduces long-term liabilities in the Statement of Net Assets.This is the General Government 4,526,556 - 4,526,556 4,251,117 amount of debt service payments for bonds.This amount comes from the Statement Judicial 813,800 - 813,800 750,294 of Revenues,Expenditures,and Changes in Fund Balances for Government Funds. 1,108,336 Public Safety 15,621,460 2,089,859 17,711,319 16,819,676 Physical Environment 1,821,202 256,394 2,077,596 1,825,137 Adjustmentfor interfund transfers recorded as expenditures in govemmentalfunds Transportation - 1,536,157 1,536,157 1,537,483 but are reconciled in Statement of Activities.This amount comes from the Statement Health and Human Services 14,483 42,169 56,652 39,740 of Activities. (551,722) Economic Environment 326,182 344,936 671,118 745,388 Non-cashcapital contributions reported in the Statement of Activities do not involve the use Culture and Recreation 3,532,304 747,034 4,279,338 4,117,179 Capital Outlay 1,101,091 6,243,922 7,345,013 5,737,339 of current financial resources and,therefore,are not reported as revenues in governmental funds. 12,164,171 Debt Service Some expenses reported in the Statement of Activities do not involve the me of current Interest 374,006 213,415 587,4421 21 639,570 Principal 533,853 574,483 1,108, 1,162,174 financial resources and,therefore,are not reported as expenditures in governmental funds. (154,898) Total Expenditures 28,664,937 12,048,369 40,713,306 37,625,097 Internal service funds are used by management to charge the costs of certain activities to individual funds.The net revenue of internal service funds is reported with governmental Excess of Revenues Over(Under)Expenditures 2,358,679 (2,348,451) 10,228 2,060,263 activities.This amount comes from the Combining Statement of Revenues,Expenditures and Changes in Net Fund Assets for Intemal Service Funds,Net Operating Income. 636,275 OTHER FINANCING SOURCES(USES) Disposition of Capital Assets 7,076 - 7,076 157,018 Change in net assets of governmental activities $ 12,763.687 Proceeds of General L-T Debt - - - - Insurance Recoveries - 75 75 (103) Operating Transfers-(In) 82,561 5,011,193 5,093,754 4,984,301 See accompanying rates to the basic financial statements. Operating Transfers-(Out) (2,089,963) (2,452,069) (4,542,032) (4,246,752) Total Other Financing Sources(Uses) (2,000,326) 2,559,199 558,873 894,464 Net Change in Fund Balances 358,353 210,748 569,101 2,954,727 Prior Year Adjustments (968) 2,595 1,627 262,007 Fund Balance Beginning 10,604,703 12,719,892 23,324,595 20,107,861 Fund Balance,Ending $ 10,962,088 $ 12,933,235 $ 23,895,323 $ 23,324,595 See accompanying notes to the basic financial statements. Washington State Auditor's Office Washington State Auditor's Office 30 31 City of Pasco,-Washington 2oo8 Cit1�of Pasco,-VashhVton 2oo8 Statement of Net Assets Proprietary Funds For the Year Ended December 31,2008 2008 2007 2008 2007 Business Type Business Type Business Type Business Type Activities Governmental Business Type Activities Governmental Business Type Activities Governmental Business Type Activifies Governmental Business Type Enterprise Funds Activities Activities Enterprise Funds Activities Activities Enterprise Funds Activities Activities Enterprise Funds Activities Activities Water/Sewer internal Service Internal Service Water/Sewer Internal Service Internal Service Water/Sewer Menial Service Internal Service Water/Sewer Menial Service krtemal Service Fund Funds Funds Fund Funds Funds Fund Funds Funds Fund Funds Funds ASSETS LIABILRIES Current Assets: Current Liabilities: Current Cash&Cash Equivalents $ 55,588 $ 131,692 $ 122,308 $ 5,373,636 $1,296,699 $ 502,831 Accounts Payable 238,330 34,068 5,819 631,385 78,914 2,405 Receivables(natofallowances) Due to Other Governments 30,729 - - 71,025 - - Utility Receivables 835,946 - - 911,823 - _ Retainage Payable 201,181 - - 180,777 - - .1 Receivables 294,018 - - 253,271 - _ Matured G.O.Bonds - - - - - - Notes Receivable - _ _ _ _ _ Current Portion Bonds Payable 1,405,000 - - 1,375,000 - - Interfund Loans Receivable 17,000 100,000 - 28,100 170,000 _ Current Portion Loans Payable 1,507,037 160,000 - 7,466,661 -interest Receivable 53,910 25,132 10,404 65,250 14,432 6,583 Deposits 93,570 - - 87,233 - - Due from Governmental Units - 25,708 - - 32,067 _ Merest Payable 359,901 - - 392,113 - - Deferred Credits 1.262.101 1.114.327 Merohandise inventory 284,357 8,357 - 303,026 9,355 - Total Current Liabilities 5,097,789 194,068 5,819 5,318,521 78,914 2,405 Prepaid Insurance 20,036 19,226 Non-Current Liabilities Total Current Assets 1,560,855 290,889 132,712 6,954,332 1,522,553 509,414 Compensated Absences 129,746 20,934 7,883 160,156 16,791 7,884 Non-Curtest Assets: Claims Incurred Not Reported - 550,000 - - 125,000 - Investments 5,503,193 3,935,423 1,265,856 6,567,778 1,584,855 614,572 Unclaimed Property 25,082 - - 20,988 - - Restricted Assets Bonds Payable: Debt Service: 1998 Revenue Bonds Series A 1,420,000 - - 1,520,000 - - ash 8 Cash Equivalents 730,042 - - 726,360 - - 1998 Refunding Bonds Series 8 4,120,000 - - 4,710,000 C - - Capital Assets 1998 Revenue Bonds Series C 315,000 - - 415,000 - - Land 317,786 - - 317,786 _ _ 1999 Revenue Bonds 535,000 - - 585,000 - - Baldi /Structures/Inc rovements/ 2001 Revanus Bonds 435,000 - - 675,000 - - n9s P 2002 Revenue Bonds 4,550,000 - - 4,810,000 - - Equipment&Systems 68,372,350 5,357,490 2,104,799 70,947,967 4,859,150 1,866,638 2005 Revenue Bonds 3,900,000 - - 4,060,000 - - Less Accumulated Depreciation (26,935,535) (3,051,293) (1,103,516) (24,953,457) (2,612,474) (879,547) 2007 Revenue Bonds 795,000 - - 845,000 - - Infrastructure 115,594,180 - - 101,775,946 - - Less:Current Portion (1,405,000) - - (1,375,000) - - Less Accumulated Depreciation (18,243,308) - - (16,486,587) - - Loans Payable: Construction Work In Progress 3,213,130 - - 2,754,080 - - PWTF Loans 2,447,951 - - 2,771,040 - - Deferred Charges 162,601 - - 183,290 - - SRF Loan 15,607,895 - - 16,751,468 - - Total Non-Cument Assets 148714,439 6,241,620 2,267 39 141.833,163 3.831,531 1.607,663 Interfund Loans - 160,000 - - - - Less:CurrentPortion (1,507,037) (160,000) (1,466,661) TOTALASSETS $150,275,294 $6,532,509 $ 2,399,851 $148,787,495 $5,354,084 $2,111,077 Total Non-Current Liabilities 31,368,637 570.934 7,883 34.481,991 141,791 7.884 Total Liabilifies 36,466,426 765,002 13,702 39,800,512 220,705 70,289 See accompanying notes to the financial statements. NETASSETS Investment in Capital Assets: Net of Related Debt 107,631,675 2,306,197 2,104,799 96,648,274 2,246,676 987,091 Restricted for Debt Service 747,042 100,000 - 841,693 170,000 - Unrestricted 5,430,151 3,361,310 281,350 11,497,016 2,716,703 1.,113,697 Total Net Assets $113,808,868 $5,767,507 $ 2,386,149 $708.986983 $5,133,379 $2,700,768 See accompanying notes to the basic financial statements. Washington State Auditor's Office Washington State Auditor's Office 32 33 City of Pasco,1WashinWton 2oo8 City of Pasco,"Washington 2oo8 Statement of Revenues,E>yenses,and C hanges i n Fund Net Asseb SM.e ntof Cash Flows Propnetery Funds Propnafery Funds For the Years Ended December 31,2008 and 2007 Forthe Year EMed December 31,2008 2008 2007 2008 2007 3-1 ­4 G-mmerdal Busirress-lype Gosemm.-I Busiress-type Goeemmertsl Busiress-type Busirzss-type AcWfie ActiHties Business-type AcWies Acd,ni Business-type Activities Activities Business-type Activities Activitles Actirties Irrtemal Intemal ActiHties IrRemal Mernal Activities Intemal hternel ActiHties Intemal kRernal Enterprise Fund s Service Funtls Service Furls Enterprise Funtls Sernce Funds Service Funds Enterprise Funds Service Funds Service Funds Enterprise Furls Sewe Funds Service Funds Water/Sewer WaterlSewer Waler/Sewer Water/Sewer Fund Total Total Fund Total Total Fund Total Total Fund Total Total CASH FLOW FROM OPERATING ACTIVITIES: OPERATING REVENUES Receipt nnmCustomers $16,826,992 $ 5,186,441 $ 531,505 $16.038,078 $ 4,560,656 $ 490,129 Pay. for Maintenance&Ops. - (1,465,135) (257,186) - (1,406,887) (257,681) Chafgesfor Services-Memel $ - $ 4,499,715 $ 525,120 $ - $ 4,012,717 $ 474,960 Payments.Merchandise (654,790) - - (368,384) - - ChargesforServices-Other 14,440,301 725,659 6,424 13,816,835 586,872 14,950 PaymeMS for Wages (3,076,641) - - (2,688,916) - - MlacellaneousRevenue 1,332,057 - - 1,952,100 - - Payments for Operating Emenses (5,278,755) - - (3,055,937) - - TotalOpmngRevenues 15,772.358 5.225.374 531,544 15.768,935 4,599,589 489,910 Int-1 ACWbes-paymeris to other Mnds - - - - PeymenlsfprTa (1,903,025) - (1,775,130) - OPERATING EXPENSES Payments to Employxes (2,628.376) (2,486.796) Personal Services 3,046,231 749,983 18,000 2,697,082 593,979 18,600 Net Cash prnfded(used)by operating.c bes 5.913.781 1,092,930 274:319 8.149.711 666.973 232,448 Supplies 673,459 - - 365,282 - - OtherSenytces&Charges 4,024,418 - - 3,433,020 - - CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES: - - Taxes 1,862,729 - - 1,815,355 - - MaintenanceEgierees - 766,902 225,973 - 639,582 159,803 Pnor Year Adjustinents (426,290) - 551,470 23,291 (]02,579) Insurance Claims and 6penses - 2,628,228 - 2,486,648 - Trasfers in(0.) (561,244) 61,222 - (777,075) 109,086 (88,869) Depreciation 4,502,037 438,819 223,970 4,535,918 338,132 69,375 Non-0perating Revenue 928,453 - - 756.698 - - CapitalOWays 5,167 16,627 - 230,243 79,431 Net Cash provided from m-pital financial activities 367209 (365068) - 531.091 132,377 (791.448) Total Operating EV..es 14,108,874 4.589,099 484,570 12,866,657 4,288,584 327,209 CASH FLOW FROM CAPITAL AND RELATED FINANCING ACTIVITIES: OPERATING INCOME(LOSS) 1,663.484 636,275. 46.974 2,902,278 311,005 162.701 Acquisition of Capital Assets (3,685,501) 234,525 238,162 (8,332,556) 382,698 295,906 NON-OPERATING REVENUES(EXPENSES) Pnncipai Paid on BOMS&Loans (3,016,662) - - (2,697,663) - - InlereslaMlnvaslmentRownue 373,099 128,396 51,925 579,419 109,516 59,701 Merest Paid on Bonds&Lpare (1,377415) - - (1,133,242) - - CoreWC WO in Process (7,800,560) - - (4,908,721) - ProceedsfromDebtlssuance - - 835,650 - - Proceeds of Bonds - - 835,650 - - Fannrand Rsnlals 756,230 - - 686,140 - - PaymeMS received fin.Notes and L.- 11,100 1,029,600 nI., lExpense (1,344,208) - - (1,436,785) - - Net Cash Used by Capital&Related Financing ActiHties 05.869o381 234.525 238.162 (15.206.9321 382698 295.906 AmortizationE�erse (44,054) - - (43,430) - - Miscell aneous NOn-Operzting Revenues 172,223 - - 70,556 - - CASH FLOWS FROM INVESTING ACTIVTIES: ,IAI Non-Operating Revenues(Elgenses) (86,710) 128,396 51,925 691,550 109.516 59,701 Intedurd Loans (75,000) (30,000) (75,000) (30,000) I....(Loss)before CorMbugars end InveslmeMAdiHfi-rn. 384439 128.396 51925 575,390 109.516 59.701 Transfers 1.576,774 764,671 98,899 3,593,828 420,521 MA02 Net Cash Provided from Investing ActiHties 384,439 53,396 21,925 575,390 34,516 29,701 Capital Concibudons 3,015,396 234,525 238,162 6,061,445 736,145 489,688 NON CASH ACTIVITIES: Transfers In 826,680 61,222 - 947,186 108,869 - Tr'a-(0.) (1387924) - (51 700) (1724261) (88,869) Capital C.ntdbuti- 2.824.658 - - 6.769.301 - - ChMge3ln Net Assets 4,030,926 1,060,418 285,361 8,898,198 1,265,535 623,219 Net Iwrease(Decrease)in Cash aM Pnor Year Adjust.erlts 790,959 (426,290) - 551,478 24,939 (702,579) Cash Equivalents (6,378,951) 1,015,783 534,406 818,561 1,216,564 (233,393) NETASSETS-BEGINNING 108.986,983 5.133,379 2,100,788 99,537.307 3,842,905 2,180,148 Cash and Cash Equiva1-January1 12.667.775 2.871,535 1.117403 11.849.213 1.fifi4.990 1.350,796 NETASSETS-ENDING $113.808,868 $ 5,767.507 $ 2,386,149 $108,986,983 $ 5,133,379 $ 2.100,788 Cash and Cash Egdi le December 31 S 6.288,824 $ 3,887:318 $ 1,651,809 $12.667.774 $ 2,881.554 $ 1.117,403 See accompanying notes In the basic fins.ial s.temeMS. See acco.panyfng notes to the basic financial sW[emeMS. Washington State Auditor's Office Washington State Auditor's Office 34 35 City of Pasco,1WashinWton 2oo8 Cit1�of Pasco,"Washington 2008 Statmentof Cash Flows Statement of Fiduciary Net Assets Pm ph-,Fund. Fiduciary Funds Forttre Year Er.d December 31.2008 uca ry zoos zoo] December 31,2008 Govemmernal Buafne..4wa GoeemmeMal sc.iness-type Busim.a-type Acwr.. A=fl- Suam.aa-type Actiw6es AcIl.b.s 2008 2007 AcUwties IMemal Intmal ActlwUes Ntrnal h mat Enterprise Funds Service Furls Service Furls Enterprise Funds SeNce Funds Sernce Funds wat.ris.wer walens.w.r Fire Pension Agency Fire Pension Agency Furl T..1 IDti Fund Total T..I Fund Funds Fund Funds ASSETS RECONCILATION OF OPERATING INCOME(LOSS)TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net O,Wng Income S 1,663,484 S 636,275 S 46.974 $ 3.087,512 $ 311.005 $ 162.701 Cash&Cash Equivalents $ 107,328 $ 285,357 $ 486,208 $ 164,503 ADJUSTMENTS TO RECONCILE OPERATING Receivables(net of allowances) NCOME TO NET CASH PROVIDED(USED)BY Interest Receivable 15,597 - 9,204 - OPERATNGACTfVRIES Investments,at FMV 3,113,361 3,818,323 Depreciafion 4,502,037 438,819 223,9]0 4,535,918 338,132 69,375 Cn.rg..In a...t and li.billn.a: Total Assets 3,236,286 285,357 4,313,735 164,503 (hcreaseyDecrease in Customer Receivables 33,958 (38,933) (39) (97,229) (38,933) 219 (HCreaseyD.. in Prepaid E>pense. (810) - - 7,367 - - (nnrea.eyD.d sa In lmrenmd.a lass - - 1s,898 - - LIABILITIES (IncreaseYDec in G..Receivable 1,1]2 - - (1,172) - - Increa se/(Decrease)in Customer Deposits 6,2]] - - 2,832 - - Ycreesel(Decrease)in Accc-Peyabl. (393,055) 56,064 3,414 184,482 Sa,os4 153 Due to Others - 285,357 - 164,503 ncreasel(Decreas.)in Unclei--!Property 4,094 - - 3,416 - - m.reaae�(oepreaae>inDaemomerFanda - - - (1,337) - - Total Liabilities 285,357 164,503 Increasel(Decrease)in Deferred Remus 867 - - 887 - - lure::./(Decrease)In Te..Payable (40,296) - 41,562 - Increasel(Decrease)in Compensated Abseces (30,410) 705 - 8,166 705 - NET ASSETS Iureasel(Decrease)in Latecomer Payable - - (2,108) - - Increas:l(Decrease)In Advance Minimum Deposits 147.774 - - 382.517 - Net Cash Prewde by Operating ACtiwtiea $ 5913.781 $ 1,092,930 $ 274,319 $ 8,149,711 _L__L6_6973 $ 232,448 Held in Trust for Pension Benefits&Other Purposes $ 3,236,286 $ $ 4,313,735 $ See accompanying notes to the basic financial statement. See accompanying notes to the basic financial statements. Washington State Auditor's Office Washington State Auditor's Office 36 37 City of Pasco,-Washington 2oo8 City of Pasco,"Washington 2008 Statement of Changes in Fiduciary Net Assets NOTES TO FINANCIAL STATEMENTS Fiduciary Funds For the Year Ended December 31,2008 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2008 2007 Fire Pension Fire Pension The financial statements of the City of Pasco have been prepared in conformity with generally Fund Fund accepted accounting principals (GAAP) as applied to government units. The Governmental ADDITIONS Accounting Standards Board (GASB) is the accepted standard-setting body for establishing Taxes $ 41,723 $ 40,123 governmental accounting and financial reporting principles. The significant accounting policies Investment Earnings Interest 61,372 77,005 are described below. Dividends 86,101 212,990 Net Increase(Decrease)in Fair Value of Investments (1,064,918) (66,493) A. REPORTING ENTITY Loan Interest The City of Pasco was incorporated on May 4,1891 and operates under the laws of the State Total Additions (875,722) 263,625 of Washington applicable to a Non-Charter Code City with a council/manager form of government. As required by the generally accepted accounting principles the financial DEDUCTIONS statements present the City of Pasco as a primary government unit. Pension Benefits 106,764 88,581 Medical Premiums 82,963 81,954 Administrative Expenses 12,000 11,100 The City's primary government major operations include police and fire protection including emergency medical response, a municipal court, engineering, street construction and Total Deductions 201,727 181,635 maintenance,planning and zoning,parks and recreation services,a public library and general administrative functions. The City also owns and operates a cemetery, a water system, a Change In Net Assets (1,077,449) 81,990 sewer system, a process water reuse system, a storm water management system and an irrigation system. Prior Year Adjustments - - NET ASSETS-BEGINNING 4,313,735 4,231,745 B. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS NET ASSETS-ENDING $ 3,236,286 $ 4,313,735 The government—wide financial statements (i.e., the Statement of Net Assets and the Statement of Activities) report information on all of the non-fiduciary activities of the primary government. For the most part,the effect of interfund activity has been removed from these statements. Governmental activities,which normally are supported by taxes and intergovernmental revenues,are reported separately from business-type activities,which rely See accompanying notes to the basic financial statements. to a significant extent on fees and charges for support. The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment.Our policy is to allocate indirect costs to a specific function or segment.Program revenues include 1)charges to customers or applicants who purchase,use,or directly benefit from goods,services,or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements for a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Washington State Auditor's Office Washington State Auditor's Office 38 39 City of Pasco,Vashington 2oo8 City of Pasco,"Washington 2oo8 Separate fund financial statements are provided for governmental funds,proprietary funds, The Pension Trust Fund is used to account for the sources and uses of funds to meet the and fiduciary funds,even though the latter are excluded from the government-wide financial pension benefit rights of those firemen covered under the Plan prior to the creation of Law statements. Major individual governmental funds and major individual enterprise funds are Enforcement Officers and Fire Fighters(LEOFF)pension system in 1970. reported as separate columns in the fund financial statements. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both government-wide and proprietary fund financial C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL statements to the extent that those standards do not conflict with or contradict guidance of the STATEMENT PRESENTATION Governmental Accounting Standards Board. Governments also have the option of following subsequent private sector guidance for their business-type activities and enterprise funds, The government-wide financial statements are reported using the economic resources subject to this same limitation. measurement focus and the accrual basis of accounting, as are the proprietary fund and The City has elected not to follow subsequent private-sector guidance. fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred,regardless of the timing of related cash flows. Property As a general rule the effect of the interfund activity has been eliminated for the government- taxes are recognized as revenues in the year for which they are levied. Grants and similar wide financial statements. items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Amounts reported as program revenues include 1)charges to customers,2)operating grants and contributions, and 3) capital grants and contributions, including special assessments. Governmental fund financial statements are reported using the current financial resources Internally dedicated resources are reported as general revenues rather than as program measurement focus and the modified accrual basis of accounting. Revenues are recognized revenues. General revenues include all taxes. as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities Proprietary funds distinguish operating revenues and expenses from non-operating items. of the current period. For this purpose,the City considers revenues to be available if they are Operating revenues and expenses generally result from providing services and producing and collected within 60 days of the end of the current fiscal period. Expenditures generally are delivering goods in connection with a proprietary fund's principal ongoing operations. The recorded when a liability is incurred,as under accrual accounting. However, debt service principal operating revenues of the Water/Sewer Fund are charges to customers.The major expenditures, as well as expenditures related to compensated absences and claim and services provided by the proprietary fund are water, sewer, storm drain, irrigation and judgments,are recorded only when payment is due. industrial waste water processing. Operating expenses for enterprise funds and internal service funds include the cost of sales and services,administrative expenses,and depreciation Property taxes,licenses,and interest associated within the current period are all considered to on capital assets. All revenues and expenses not meeting this definition are reported as non- be susceptible to accrual and so have been recognized as revenues of the current fiscal period. operating revenues and expenses. Only the portion of special assessment receivable due within the current fiscal period is When both restricted and unrestricted resources are available for use,it is the City's policy to considered to be susceptible to accrual as revenue of the current period. All other revenue use restricted resources first,then unrestricted resources as needed. items are considered to be measurable and available only when cash is received by the City. D. BUDGETARY INFORMATION The City of Pasco reports the following major governmental fund: 1. Scone of Budget The General Fund is the City's operating fund. It accounts for all financial resources of the general government,except those required to be accounted for in another fund. Annual appropriated budgets are adopted for the general and special revenue funds and The City reports the following major proprietary fund: for all proprietary funds on the modified accrual basis of accounting. Budgets for debt service and capital project funds are adopted at the level of the individual debt issue or Water/Sewer fund - includes water, sewer,process water reuse, stormwater and irrigation project and for fiscal periods that correspond to the lives of debt issues or projects. operations. Annual appropriated budgets are adopted at the level of the fund,except in the general Additionally,the City reports the following fund types: fund,where expenditures may not exceed appropriations at the department level and the budgets constitute the legal authority for expenditures at that level. Internal Service Funds account for equipment replacement and operation,central stores,and medical/dental insurance services provided to other departments of the City on a cost Appropriations for general and special revenue funds lapse at year-end, except for reimbursement basis. appropriations for capital outlays,which are carried forward from year to year until fully expended or the purpose of the appropriations has been accomplished or abandoned. Washington State Auditor's Office Washington State Auditor's Office 40 41 City of Pasco,"Wasfungton 2oo8 City of Pasco,"Washington 2oo8 Encumbrances accounting is employed in governmental funds. Encumbrances (e.g., 5. Deficit Fund Equity purchase orders, contracts)outstanding at year end are reported as reservation of fund balances and do not constitute expenditures or liabilities because the commitments will be The following funds report a deficit fund equity position at December 31,2008. re-appropriated and honored during the subsequent year. DEFICIT EQUITY BALANCE 2.Procedures for Adopting the Original Budget Cemetery Fund $ (23,345) The City's budget procedures are mandated by RCW 35A.33. The steps in the budget LID Construction Fund (1,842,631) process are as follows: The following steps have been taken to eliminate the above deficits: 1. Prior to the first Tuesday in November,the City Manager submits a proposed budget to the Council. This budget is based on priorities established by the Council and The Cemetery Fund continues to try and increase sales in excess of costs to assist in the estimates provided by departments during the preceding months,and balanced with elimination of its deficit. The fund was able to reduce the deficit in 2008 as a result of revenue estimates made by the Finance Manager. operating transfers and sales revenues. 2. The Council conducts public hearings on the proposed budget in November and/or The Trade,Recreation and Agricultural Center continue to operate at a loss. The City and December. Franklin County share in the losses. The County has oversight authority. Operating transfers will be made to eliminate the deficit. 3. The Council makes its adjustments to the proposed budget and adopts by ordinance a final balanced budget no later than December 31. The LID Construction Fund will receive a funds transfer in 2009 for ULID 143 when bonds are sold to finance this project. 4. Within 30 days of adoption,the final budget is available to the public. E. ASSETS,LIABILITIES AND EQUITIES 3. Amending the Budget 1. Cash and Equivalents The budget, as adopted, constitutes the legal authority for expenditures. The City's budget is adopted at the fund level, so that expenditures may not legally exceed It is the City's policy to invest all temporary cash surpluses. At December 31,2008,the appropriations at that level of detail. The City Manager is authorized to transfer budgeted treasurer was holding$6,953,922 in short-term residual investments of surplus cash and amounts between departments within any fund;however,any revisions that alter the total $28,897,499 in investments longer than one year. Investment amounts maturing within expenditures of a fund,or that affect the number of authorized employee positions,salary one year are classified on the balance sheet as Cash and Cash Equivalents in various ranges,hours,or other conditions of employment must be approved by the City Council. funds. Investments with maturity beyond one year are classified as Investments. The interest earnings on these investments are prorated to the various funds based on cash When the City Council determines that it is in the best interest of the City to increase or balances. decrease the appropriation for a particular fund,it may do so by ordinance approved by one more than the majority after holding one public hearing. The amounts reported as cash and cash equivalents also include compensating balances maintained with certain banks in lieu of payment for services rendered. The average The budget amounts shown in the financial statements are the final authorized amounts as compensating balances maintained during 2008 were approximately$2 million. revised during the year. For purposes of the Statement of Cash Flows, the City considers all highly liquid The financial statements contain the original and final budget information. The original investments (including restricted assets) with maturity of three months or less when budget is the first complete appropriated budget. The final budget is the original budget purchased to be cash equivalents. adjusted by all reserves, transfers, allocations, supplemental appropriations, and other legally authorized changes applicable for the fiscal year. 2. Investments-See Note 4. 4. Excess of Expenditures Over Appropriations The Senior Citizens Center Fund exceeded budgeted appropriations by$611. Washington State Auditor's Office Washington State Auditor's Office 42 43 City of Pasco,Vashington 2oo8 City of Pasco,"Washington 2oo8 3. Receivables The restricted assets of the enterprise fund as of December 31,2008 are composed of the following: Taxes receivable consists of property, sales, gambling,utility taxes and related interest and penalties. (See Note 16) Accrued interest receivable consists of amounts earned on Cash and Investments-Debt Service $730,043 investments,notes,and contracts at the end of the year. Cash Deposits 93,510 Special assessments are recorded when levied. Special assessments receivable consist of current and delinquent assessments. Deferred assessments on the fund financial Total Restricted Assets 823 553 statements consist of unbilled special assessments that are liens against the property benefited. As of December 31, 2008, $92,470 in special assessments receivable was delinquent. Of this delinquent amount,$53,806 or 58.2%is on property that is owned by 7. Capital Assets and Depreciation-See Note 6. the City and will be recovered as part of the sale price of the property. Capital assets,which include property,plant,and equipment and infrastructure assets,are Customer accounts receivable consists of amounts owed from private individuals or reported in the applicable governmental or business-type columns in the government- organizations for goods and services including amounts owed for which billings have not wide financial statements. Capital assets are defined by the City as assets with an initial, been prepared. Notes and contracts receivable consists of amounts owed on open individual cost of more than$5,000 and an estimated useful life in excess of 3 years. accounts from private individuals or organizations for goods and services rendered. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date 4. Amounts Due to and from Other Funds and Governments, Interfund Loans and of donation. Advances Receivable The cost of normal maintenance and repairs that do not add to the value of the asset or Activity between funds that are representative of lending/borrowing arrangements materially expend assets lives are not capitalized. outstanding at the end of the fiscal year are referred to either "interfund loans receivable/payable"or"advances to/from other funds." All other outstanding balances Major outlays for capital assets and improvements are reported as Construction Work in between funds are reported as "due to/from other funds." Any residual balances Progress as projects are constructed.Interest incurred during the construction phase of the outstanding between funds are reported in the government-wide financial statements as capital assets of business-type activities is included as part of the capitalized value of the "internal balances." A separate schedule of interfund loans receivable and payable is assets constructed. Capital Assets and improvements are capitalized once the project is furnished in Note 15. completed. There were no capitalized interest costs incurred by the City during fiscal year 2008. Advances between funds,as reported in the fund financial statements,are offset by a fund balance reserve account in applicable governmental funds to indicate that they are not Property, plant and equipment of the primary government are depreciated using the available for appropriation and are not expendable available financial resources. straight-line method over the following estimated useful lives: 5. Inventories ASSETS YEARS Buildings 40 Inventories in governmental funds consist of expendable supplies held for consumption. Improvements 20 The cost is recorded as expenditures when individual inventory items are purchased. The Machinery&Equipment 10 reserve for inventory is equal to the ending amount of inventory to indicate that a portion of the fund balance is not available for future expenditures. A comparison to market value is not considered necessary. 8. Other Property and Investments—See Note 4. Inventories in proprietary funds are valued using a floating average of costs for each item. 9. Compensated Absences 6. Restricted Assets and Liabilities The City accrues accumulated unpaid vacation and sick leave and associated employee related costs when earned(or estimated to be earned)by the employee. All vacation and These accounts contain resources for construction and debt service in enterprise funds. sick pay is accrued when incurred in the government-wide,proprietary, and fiduciary The current portion of related liabilities is shown as Pavables from Restricted Assets. fund financial statements. Specific debt service requirements are described in Note 10. Washington State Auditor's Office Washington State Auditor's Office 44 45 City of Pasco,-Washington 2oo8 C%ty of Pasco,"WashhWton 2oo8 Sick leave may be accumulated up to a maximum of 960 hours for all employees except B. Explanation of Certain Differences Between the Governmental Funds firefighters. Firefighter sick leave may be accumulated up to a maximum of 840 hours. Statement of Revenues,Expenditures,and Changes in Fund Balances Sick leave is payable at a rate of 25% up to a maximum of 720 payout hours upon and the Government-Wide Statement of Activities resignation,retirement or death. The governmental funds' statement of revenues, expenditures, and changes in fund Vacation leave may be accumulated up to a maximum of one and a half time the balances includes a reconciliation between net changes in fund balances — total employee's annual vacation accrual rate and is payable upon resignation,retirement or governmental funds and changes in net assets of governmental activities as reported in the death. government-wide statement of activities. This information can be found on the Reconciliation of the Statement of Revenues,Expenditures and Changes in Fund Balance 10. Other Accrued Liabilities of Governmental Funds to the Statement of Activities. These accounts consist of accrued wages and accrued employee benefits. NOTE 3. STEWARDSHIP,COMPLIANCE AND ACCOUNTABILITY 11. Long-Term Debt—See Note 10. There have been no material violations of finance-related legal or contractual provisions. 12. Deferred Revenue NOTE 4. DEPOSITS AND INVESTMENTS This account includes amounts recognized as receivables but not revenues in A. DEPOSITS governmental funds because the revenue recognition criterion has not been met. The City's deposits and certificates of deposit are covered by federal depository insurance 13. Fund Reserves and Designations (FDIC)or by collateral held in a multiple financial institution collateral pool administered by the Washington Public Deposit Protection Commision(PDPC). The PDPC is a statutory In the fund financial statements,governmental funds report reservations of fund balance authority established under Chapter 39.58 of the Revised Code of Washington. for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative B. INVESTMENTS management plans that are subject to change. As required by state law, all investments of the City's funds (except as noted below) are 14. Reclassification of Prior Year in the Statement of Activities obligations of the U. S. Government, U. S. agency issues, obligations of the State of Washington, general obligations of Washington State municipalities,the State Treasurer's Comparative total data for the prior year have been presented in order to provide an Investment Pool,or certificates of deposits with Washington State banks and savings and understanding of the changes in financial position and operations. Certain amounts loan institutions. Investments of(pension/nonexpendable)trust funds are not subject to the presented in prior year data have been reclassified in order to be consistent with current preceding limitations. All temporary investments are stated at purchase price. year's presentation. Investments are shown on entity-wide Statement of Net Assets at fair market value. NOTE 2. RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL Investments are reported within Cash&Cash Equivalents or Investments of Governmental STATEMENTS Activities and within Cash&Cash Equivalents or Investments of Business-type Activities. A. Explanation of Certain Differences Between the Governmental Funds The fair market value of investments is based upon quoted market prices as of December 31, Balance Sheet and the Government-Wide Statement of Assets 2008. The governmental funds'balance sheet includes a reconciliation between fund balance— total governmental funds and net assets — governmental activities as reported in the government-wide statement of net assets.This information can be found on the Balance Sheet for Government Funds. Washington State Auditor's Office Washington State Auditor's Office 46 47 City of Pasco,Washington 2008 City of Pasco,"Washington 2008 As of December 31,2008,the City had the following investments: Franklin County,Washington 2008 Property Tax Calendar FAIR MARKET MATURITIES VALUE City of Pasco INVESTMENTS January 1.........Taxes levied and become an enforceable lien against properties. Federal Agency Securities 28,050,266 28,481,183 February 15......Tax bills are mailed. Mutual Funds 1,854,512 1,929,598 State Treasurer's Investment Pool 3,334,062 3,334,062 April 30..........First of two equal installment payments is due. Savings Accounts 2,106,578 2,106,578 May 31...........Assessed value of property established for next year's levy at Total Investments 35.345.418 35.851.420 100 percent of market value. October 31.......Second installment is due. Custodial credit risk is the risk that in event of a failure of the counterparty to an investment transaction the city would not be able to recover the value of the investment or collateral securities. Of the city's total position of$35,851,420 in 2008, $1,500,420 is exposed to Property taxes are recorded as a receivable and revenue when levied. Property taxes collected in custodial credit risk because the investments are held by the city's brokerage firm,which is advance of the fiscal year to which they apply are recorded as deferred revenue and recognized as also the counterparty in those particular securities. revenue of the period to which they apply. No allowance for uncollected taxes is established because delinquent taxes are considered fully collectible. Prior year tax levies were recorded NOTE 5. PROPERTY TAXES using the same principal,and delinquent taxes are evaluated annually. The County Treasurer acts as an agent to collect property taxes levied within Franklin County for The City may levy up to $3.60 per $1,000 of assessed valuation for general governmental all taxing authorities. Taxes are levied annually on January 1,on property value listed as of the services,subject to two limitations: prior May 31. Assessed values are established by the County Assessor at 100%of fair market value. At least once every six years by law,the Assessor is required to physically inspect and Washington State Constitution and Washington State law,RCW 84.5 5.010 limits the rate. value all taxable real property in the County. Currently,the Assessor uses a four year review cycle. The City's general levy for 2008 was $2.2205 per $1,000 on an assessed valuation of Taxes are due in two equal installments on April 30 and October 31. The County Treasurer $2,483,166,932 for a total regular levy of$5,513,967. remits collections weekly to the appropriate district. The following Property Tax Calendar for Franklin County, Washington provides the relevant property tax data for the 2008 tax year. Washington State Auditor's Office Washington State Auditor's Office 48 49 City of Pasco,-Washington 2oo8 City of Pasco."Washington 2oo8 NOTE 6. CAPITAL ASSETS Beginning Ending A. Capital Assets Balance Balance Business Activities 01/01108 Increases Decreases 12/31/2008 Capital assets activity for the year ended December 31,2008 was as follows: Capital assets,not being depreciated Land $ 317,786 $ - $ - $ 317,786 Beginning Ending Construction in progress 2,754,080 459,050 3,213,130 Balance Balance Total capital assets,not being depreciated 3,071,866 459,050 3,530,916 Governmental Activities 01/01/08 Increases Decreases 12/31/2008 Capital assets being depreciated Capital assets,not being depreciated Source of Supply 326,976 - - 326,976 Land $ 5,710,447 $ 146,552 $ 1,833 $ 5,855,166 Pumping Plants 8,593,671 - - 8,593,671 Construction in progress 3,347,635 4,564,419 6,925,485 986,569 Treatment Plants 37,983,487 566,940 - 38,550,427 Total capital assets,not being depreciated 9,058,082 4,710,971 6,927,318 6,841,735 Transmission,Distribution&Collection Lines 83,495,596 10,045,704 44,053 93,497,247 General Plant Assets 3,603,575 5,332 - 3,608,907 Capital assets being depreciated West Pasco Water System 1,328,485 - - 1,328,485 Buildings 32,264,968 446,070 113,076 32,597,962 Plant Acquisition 700,961 - - 700,961 Improvements other than buildings 8,193,230 1,034,200 138,411 9,089,019 Process Water Reuse Plant 15,203,332 59,591 - 15,262,923 Machinery&Equipment 2,291,657 313,500 128,820 2,476,337 Storm water 3,207,481 364,628 - 3,572,109 Infrastructure 69,244,519 17,548,043 - 86,792,562 Irrigation 18,324,401 200,422 - 18,524,823 Equipment rental 4,788,732 476,708 - 5,265,440 Equipment Rental 1,866,638 238,161 2,104,799 Equipment-Animal control 70,418 21,632 - 92,050 Total capital assets being depreciated 174,634,603 11,480,778 44,053 186,071,328 Total capital assets being depreciated 116,853,524 19,840,153 380,307 136,313,370 Less accumulated depreciation Less accumulated depreciation Source of Supply 229,799 6,540 - 236,339 Buildings 8,182,655 922,677 - 9,105,332 Pumping Plants 3,461,285 359,220 - 3,820,505 Improvements other than buildings 1,775,824 567,979 - 2,343,803 Treatment Plants 14,947,731 1,544,335 208,864 16,283,202 Machinery&Equipment 465,911 727,301 - 1,193,212 Transmission,Distribution&Collection Lines 15,360,386 1,636,739 423,090 16,574,035 Infrastructure 25,292,097 4,319,774 911,401 28,700,470 General Plant Assets 1,781,829 177,359 21,286 1,937,902 Equipment rental 2,587,387 424,180 - 3,011,567 West Pasco Water System 966,759 34,918 33,251 968,426 Equipment-Animal control 25,087 14,639 - 39,726 Plant Acquisition 373,845 23,365 - 397,210 Total accumulated depreciation 38,328,961 6,976,550 911,401 44,394,110 Process Water Reuse Plant 2,994,174 307,370 9,594 3,291,950 Total capital assets being depreciated,net 78,524,563 12,863,603 (531,094) 91,919,260 Storm water 198,034 64,150 54,011 208,173 Irrigation 1,126,202 371,407 36,509 1,461,100 Governmental activities capital assets,net $ 87,582,645 $ 17,574,574 $ 6,396,224 $ 98,760,995 Equipment Rental 879,546 223,970 - 1,103,516 Total accumulated depreciation 42,319,590 4,749,373 786,605 46,282,358 Total capital assets being depreciated,net 132,315,013 6,731,405 (742,552) 139,788,970 Depreciation expense was charged to functions/programs of the primary government as follows: Business activities capital assets,net $135,386,879 $ 7,190,455 $ (742,552) $143,319,886 Governmental Activities General Government $ 443,974 NOTE 7. PENSION PLANS Security of Persons&Property 125,123 Physical Environment 50,159 Substantially all City of Pasco full-time employees and qualifying part-time employees Transportation 5,280,805 participate in one of the following statewide retirement systems administered by the Washington Economic Environment 349,325 State Department of Retirement Systems,under cost-sharing,multiple-employer public employee Culture&Recreation 721,314 Judicial 5,850 p p defined benefit and defined contribution retirement plans. The Department of Retirement Total Depreciation-Governmental Activities $ 6,976,550 Systems(DRS),a department within the primary government of the State of Washington,issues a publicly available comprehensive annual financial report (CAFR) that includes financial statements and required supplementary information for each plan. The DRS CAFR may be obtained from the Department of Retirement Systems,Communications Unit,P.O.Box 48380, Olympia,WA 98504-8380. The following disclosures are made pursuant to GASB Statement Washington State Auditor's Office Washington State Auditor's Office 50 51 City of Pasco."Wasfungton 2oo8 City of Pasco."WashhVton 2oo8 27,Accounting for Pensions by State and Local Government Employers and No. 50,Pension PERS Plan 2 members are vested after the completion of five years of eligible service. Disclosures,an Amendment of GASB Statements No.25 and No.27. Plan 2 members may retire at the age of 65 with five years of service with an allowance of two percent of the AFC per year of service. (The AFC is based on the greatest A. Public Employees'Retirement System(PERS)Plans 1,2 and 3 compensation during any eligible consecutive 60 month period.) Plan 2 members who retire prior to age 65 receive reduced benefits.If retirement is at age 55 or older with at I. Plan Description least 30 years of service,a three percent per year reduction applies;otherwise an actuarial reduction will apply. The benefit is also actuarially reduced to reflect the choice of a PERS is a cost sharing multiple-employer retirement system comprised of three separate survivor option. There is no cap on years of service credit;and a cost-of-living allowance plans for membership purposes: Plans 1 and 2 are defined benefit plans and Plan 3 is a is granted(based on the Consumer Price Index),capped at three percent annually. defined benefit plan with a defined contribution component. Plan 3 has a dual benefit structure. Employer contributions finance a defined benefit Membership in the system includes:elected officials;state employees;employees of the component,and member contributions finance a defined contribution component. The Supreme,Appeals,and Superior courts(other than judges in a judicial retirement system); defined benefit portion provides a benefit calculated at one percent of the AFC per year of employees of legislative committees; community and technical colleges, college and service. (The AFC is based on the greatest compensation during any eligible consecutive university employees(not in national higher education retirement programs);judges of 60-month period.) Effective July 7, 2006, Plan 3 members are vested in the defined districts and municipal courts;and employees of local governments. benefit portion of their plan after ten years of service;or after five years of service, if twelve months of that service are earned after age 44; or after five service credit years PERS participants who joined the system by September 30, 1977,are Plan 1 members. earned in PERS Plan 2 prior to June 1,2003. Plan 3 members are immediately vested in Those who joined on or after October 1, 1977 and by either,February 28,2002 for state the defined contribution portion of their plan. Vested Plan 3 members are eligible to and higher education employees,or August 31,2002 for local government employees,are retire with full benefits at age of 65,or they may retire at age 55 with 10 years of service. Plan 2 members unless they exercise an option to transfer their membership to Plan 3. Plan 3 members who retire prior to the age of 65 receive reduced benefits. If retirement is PERS participants joining the system on or after March 1, 2002 for state and higher at age 55 or older with at least 30 years of service,a 3 percent per year reduction applies; education employees, or September 1, 2002 for local government employees have the otherwise an actuarial reduction will apply. The benefit is also actuarially reduced to irrivocable option of choosing membership in either PERS Plan 2 or PERS Plan 3. The reflect the choice of a survivor option. There is no cap on years of service credit,and option must be exercised within 90 days of employment. An employee is reported in Plan Plan 3 provides the same cost-of-living allowance as Plan 2. 2 until a choice is made. Employees who fail to choose within 90 days default to PERS Plan 3. Notwithstanding, PERS Plan 2 and Plan 3 members may opt out of plan The defined contribution portion can be distributed in accordance with an option selected membership if terminally ill,with less than five years to live. by the member, either as a lump sum or pursuant to other options authorized by the Employee Retirement Benefits Board. PERS defined benefit retirement benefits are financed from a combination of investment earnings and employee and employer contributions. PERS retirement benefit provisions Judicial Benefit Multiplier are established in state statute and may be amended only by the State Legislature. Beginning January 1,2007 through December 31,2007,judicial members of PERS were given the choice to participate in the Judicial Benefit Multiplier Program(JBM). Justices PERS Plan 1 members are vested after the completion of five years of eligible service. and judges in PERS Plan 1 and 2 were able to make a one-time irrevocable election to pay Plan 1 members are eligible for retirement after 30 years of service,or at the age of 60 increased contributions that would fund a retirement benefit with a 3.5%multiplier. The with 5 years of service,or at the age of 55 with 25 years of service. The annual benefit is benefit would be capped at 75%of AFC. Judges in PERS Plan 3 could elect a 1.6%of two percent of the average final compensation(AFC)per year of service,capped at 60 pay per year of service benefit,capped at 37.5%of average compensation. percent. (The AFC is based on the greatest compensation during any 24 eligible consecutive compensation months.)Plan 1 members who retire from inactive status prior Members who chose to participate in JBM would: accrue service credit at the higher to the age of 65 may receive actuarially reduced benefits. The benefit is actuarially multiplier beginning with the date of their election,be subject to the benefit cap of 75%of reduced to reflect the choice of a survivor option. A cost-of-living allowance(COLA)is AFC, pay higher contributions, stop contributing to the Judicial Retirement Account granted at age 66 based upon years of service times the COLA amount,increased by three (JRA), and be given the option to increase the multiplier on past judicial service. percent annually. Plan 1 members may also elect to receive an optional COLA amount Members who did not choose to participate would:continue to accrue service credit at the that provides an automatic annual adjustment based on the Consumer Price Index. The regular multiplier;continue to participate in the IRA,if applicable;never be a participant adjustment is capped at three percent annually. To offset the cost of this annual in the JBM Program;and continue to pay contributions at the regular PERS rate. adjustment,the benefit is reduced. Newly elected or appointed justices and judges who chose to become PERS members on or after January 1,2007,or who had not previously opted into PERS membership,were Washington State Auditor's Office Washington State Auditor's Office 52 53 City of Pasco,-Washington 2oo8 C%tt�of Pasco,"WashhWton 2008 required to participate in the JBM Program. Members required into the JBM program Members not participating in JBM: would: return to prior PERS Plan if membership had previously been established; be mandated into Plan 2 and not have a Plan 3 transfer choice, if a new PERS member; accrue the higher multiplier for all judicial service;not contribute to JRA;and not have PERS Plan 1 PERS Plan 2 PERS Plan 3 the option to increase the multiplier for past judicial service. Employer* 8.31%** 8.31%** 8.31%*** There are 1,190 participating employers in PERS. Membership in PERS consisted of the Employee 6.00%**** 5.45%**** ***** latest actuarial valuation data for the plans of June 30,2007: *The employer rates do not include the employer administrative expense fee currently set at 0.16%. Retirees and Beneficiaries Receiving Benefits 71,244 **The employer rate for state elected officials is 12.39%for Plan 1 and 8.31%for Plan 2 and 3. Terminated Plan Members Entitled To but not yet Receiving Benefits 26,583 R**Plan 3 defined benefit portion only. Active Plan Members Vested 105,447 **The employee rate for state elected officials is 7.50%for Plan 1 and 5.45%for Plan 2. *****Variable from 5.0%minimum to 15.0%maximum based on rate selected by the PERS 3 member. Active Plan Members Non-vested 52,575 Total 255,849 Members participating in JBM: 2. Funding Policy PERS Plan 1 PERS Plan 2 PERS Plan 3 Each biennium,the State Pension Funding Council adopts Plan 1 employer contribution Employer-State Agency* 10.81% 10.81% 10.81%** rates,Plan 2 employer and employee contribution rates,and Plan 3 employer contribution Employer-Local Govt.* 8.31% 8.31% 8.31%** rates. Employee contribution rates for Plan 1 are established by statute at 6%for state Employee-State Agency 9.76% 11.13% 7.50%*** agencies and local government unit employees,and at 7.5%for state government elected Employee-Local Govt. 12.26% 13.63% 7.50%*** officials. The employer and employee contribution rates for Plan 2 and the Employer contribution rate for Plan 3 are developed by the Office of the State Actuary to continue to fully fund Plan 2 and the defined benefit portion of Plan 3. All employers are required to contribute at the level established b the Legislature.Under PERS Plan 3,employer *The employer rates do not include the employer administrative expense fee currently set at 0.16%. y g **Plan 3 defined benefit portion only. contributions finance the defined benefit portion of the plan,and member contributions ***Minimum rate. finance the defined contribution portion. The Employee Retirement Benefits Board sets PERS Plan 3 employee contribution rates. Six rate options are available ranging from 5% Both the City and the employees made the required contribution. The City's required to 15%;two of the options are graduated rates dependent on the employee's age. As a contributions for the years ended December 31,were as follows: result of the implementation of the Judicial Benefit Multiplier Program in January 2007,a second tier of employer and employee rates was developed to fund,along with investment earnings,the increased retirement benefits of those justices and judges that participate in PERS Plan 1 PERS Plan 2 PERS Plan 3 the program. The methods used to determine the contribution requirements are established under state statute in accordance with chapters 41.40 and 41.45 RCW. 2008 $40,277 $482,824 $84,170 2007 33,638 356,299 62,010 The required contribution rates expressed as a percentage of current-year covered payroll, 2006 19,131 180,984 35,058 as of December 31,2008,were as follows: Washington State Auditor's Office Washington State Auditor's Office 54 55 City of Pasco,-WashinWton 2oo8 City of Pasco."WashhVton 2008 B. Law Enforcement Officers and Fire Fighters(LEOFF)Plans 1 and 2 age of 53 receive reduced benefits.Benefits are actuarially reduced for each year that the benefit commences prior to age 53 and to reflect the choice of a survivor option. If the 1. Plan Description member has at least 20 years of service and is age 50,the reduction is three percent for each year prior to age 53. There is no cap on years of service credit; and a cost-of-living LEOFF is a cost sharing multiple employer retirement system comprised of two separate allowance is granted(based on the Consumer Price Index)capped at three percent annually. defined benefit plans. LEOFF participants who joined the system by September 30,1977 are Plan 1 members. Those who joined on or after October 1,1977 are Plan 2 members. There are 374 participating employers in LEOFF. Membership in LEOFF consisted of the Membership in the system includes all full-time, fully compensated, local law following as of the latest actuarial valuation date for the plans of June 30,2007: enforcement officers, firefighters, and as of July 24, 2005, those emergency medical technicians who were given the option and chose LEOFF Plan 2 membership. LEOFF membership is comprised primarily of non-state employees,with Department of Fish and Retirees and Beneficiaries Receiving Benefits 9,085 Wildlife enforcement officers,who were first included prospectively effective July 27, Terminated Plan Members Entitled to but not yet Receiving Benefits 633 2003,being an exception. Active Plan Members Vested 12,904 Active Plan Members Non-vested 3,708 Effective July 1,2003,the LEOFF Plan 2 Retirement Board was established by Initiative Total 26,330 790 to provide governance of LEOFF Plan 2. The Board's duties include adopting contribution rates and recommending policy changes to the Legislature for the LEOFF Plan 2 retirement plan. LEOFF defined benefits are financed from a combination of investment earnings, 2. Funding Policy employee and employer contributions,and a special funding situation in which the state Starting on July 1,2000,LEOFF Plan 1 employers and employees contribute zero percent pays the remainder through state legislative appropriations. LEOFF retirement benefit as long as the plan remains fully funded. Employer and employee contribution rates are provisions are established in state statute and may be amended only by the State developed by the Office of the State Actuary to fully fund the plan. LEOFF Plan 2 Legislature. employers and employees are required to pay at the level adopted by the LEOFF Plan 2 LEOFF Plan 1 members are vested after completion of five years of eligible service. Plan Retirement Board. All employers are required to contribute at the level required by state I members are eligible for retirement with five years of service at age 50. The benefit per law. The Legislature,by means of a special funding arrangement,appropriated money year of service calculated as a percent of final average salary(FAS)is as follows: from the state General Fund to supplement the current service liability and fund the prior service costs of LEOFF Plan 2 in accordance with the requirements of the Pension Funding Council and the LEOFF Plan 2 Retirement Board. However,this special funding situation is not mandated by the state constitution and this funding requirement could be Term Of Service Percent Of Final Average returned to the employers by a change of statute. 20 or more years 2.0% The required contribution rates expressed as a percentage of current-year covered payroll, 10 but less than 20 years 1.5% as of December 31,2008 were as follows: 5 but less that 10 years 1.0% LEOFF Plan 1 LEOFF Plan 2 The FAS is the basic monthly salary received at the time of retirement,provided a member Employer* 0.16% 5.46%** has held the same position or rank for 12 months preceding the date of retirement. Employee 0.00% 8.83% Otherwise,it is the average of the highest consecutive 24 month's salary within the last 10 State N/A 3.53% years of service. A cost-of-living allowance is granted(based on the Consumer Price Index). LEOFF Plan 2 members are vested after the completion of five years of eligible service. Plan *The employer rates includes the employer administrative expense fee currently set at 0.16%. 2 members may retire at the age of 50 with 20 years of service,or at the age of 53 with five **The employer rate for ports and universities is 8.99%. years of service,with an allowance of two percent of the FAS per year of service. The final average salary is based on the highest consecutive 60 months. Plan 2 who retire prior to the Washington State Auditor's Office Washington State Auditor's Office 56 57 City of Pasco,-Washington 2oo8 C%t�of Pasco,"WashhWton 2008 Both the City and the employees made the required contributions. The City's required The following 10-year table of historical trend information shows the system's progress in contributions for the year ended December 31 were as follows: accumulating sufficient assets to pay benefits when due: Unfunded Unfunded Pension LEOFF Plan 1 LEOFF Plan 2 Net Assets Pension Pension Annual Benefit as a Fiscal AvaiIablefor Benefit Percent Benefit Covered %of Covered 2008 $812 $444,557 Year Benefit* Obligation** Funded Obligation Payroll Payroll 2007 765 404,634 2008 $ 3,214,175 $ 3,035,160 105.90% $ (179,015) $ 78,486 -228.09% 2006 815 351,698 2007 4,316,568 2,963,247 145.67% (1,353,321) 80,074 -1690.09% 2006 1 4,231,745 2,890,973 146.38% (1,340,772) 92,979 -1442.02% 2005 3,946,652 2,820,461 139.93% (1,126,191) 70,376 -1600.25% 2004 3,913,393 2,792,414 140.14% (1,120,979) 69,939 -1602.80% The City does not have any employees enrolled in the Public Safety Employee's Retirement 2003 3,774,259 2,724,306 138.54% (1,049,953) 72,770 -1442.84% System(PSERS)Plan 2. 2002 3,384,775 2,657,860 127.35% (726,915) 88,284 -823.38% C. Firemen's Pension 2001 3,668,413 2,593,034 141.47% (1,075,379) 69,173 -1554.62% 2000 3,663,819 2,529,789 144.83% (1,134,030) 63,364 -1789.71% The City administers a closed, small single-employer defined benefit plan called the 1999 1 3,467,0251 2,468,0871 140.47% (998,938) 61,989 -1611.48% Firemen's Pension Fund. The system is shown as a trust fund in the financial reports of the City. * Market Value ** Actuarial study completed in2005. As of December 31,2008,there were a total of 12 individuals covered by this system of which one is currently still employed and 11 were drawing benefits. The Fire Pension Fund has no Schedule of Contributions for 2008. The liabilities for future fund The most recent actuarial study of the system was performed by EFI Actuaries to determine benefits are less than the market value of fund assets; consequently,no City contributions are the funding requirements as of September 30,2005. As of this date,the market value(based required. on market quotes)of the plan assets was$3,920,949 and the present value of future benefits was$2,820,461.The actuarial computation was performed using the entry age normal cost method. Under this method the projected benefits are allocated on a level basis as a Schedule of Funding Progress percentage of salary over the earnings of each individual between entry age and assumed exit age. The actuarial accrued liability is amortized as a level dollar amount over a closed 30- Unfunded year period beginning September 30,2005. The actuarial assumptions used in this valuation are as follows: Investment Return—6.25%per year net of investment and administrative Actuarial Actuarial Pension Valuation Value of Value of expenses;Consumer Price Index Increases—3%per year;Salary Increases—5%per year in Benefit Percentage each member's rank at retirement;Medical Cost Inflation—5.75%per year;Pre-retirement Date Assets Liabilities Obligation Funded decrements—No termination, death disablement,or mortality rates are assumed for active 09/30/2005 $3,920,949 $2,820,461 ($1,100,488) 139.02% employees;Retirement—Active employees are assumed to retire at the later of age 50 or 25 087 468 025 $2 467, , , 12/31/1999 $3, ° years of service;Post retirement mortality—RP-2000 male and female mortality rates,and ($ 998,938) 140.47% Family Composition—all members are assumed to be married with no children eligible for 12/31/1984 $ 869,788 $1,501,537 $ 238,724 57.93% benefits. Wives are assumed to be three years younger than their husbands. Surviving spouses are assumed not to remarry. Washington State Auditor's Office Washington State Auditor's Office 58 59 City of Pasco,-Washington 2008 City of Pasco,"Washington 2oo8 The following is the three-year historical data of Revenues and Expenditures. In-house services include risk management consultation,loss control field services,claims and litigation administration, and loss analyses. WCIA contracts for the claims investigation Revenues Expenditures consultants for personnel issues and land use problems, insurance brokerage and lobbyist Interest Fire Ins. Total services. Income Prem.Tax Revenues Pension Costs WCIA is fully funded by its members,who make annual assessments on a prospectively rated 2008 $147,473 $41,723 $189,196 $201,727 basis, as determined by an outside, independent actuary. The assessment covers loss, loss 2007 292,828 40,123 332,951 181,635 adjustment,and administrative expenses. As outlined in the interlocal,WCIA retains the right to 2006 200,080 34,834 234,914 227,162 additionally assess the membership for any funding shortfall. An investment committee,using investment brokers,produces additional revenue by investment of WCIA's assets in financial instruments which comply with all State guidelines. These NOTE 8. RISK MANAGEMENT revenues directly offset portions of the membership's assessment. The City maintains insurance against most normal hazards except for unemployment insurance A Board of Directors governs WCIA,which is comprised of one designated representative from and automobile collision where it has elected to become self-insured. each member. The Board elects an Executive Committee and appoints a Treasurer to provide general policy direction for the organization. The WCIA Executive Director reports to the For unemployment claims,the City is on a 100%reimbursable program with the State where the Executive Committee and is responsible for conducting the day-to-day operations of WCIA. City pays all unemployment claims charged against it. Fire and employee fidelity insurance is purchased through commercial insurance brokers. The City of Pasco is a member of the Washington Cities hfsurance Authority(WCIA). The City is self-insured for medical and dental coverage for its employees. A third party Utilizing Chapter 48.62 RCW(self-insurance regulations)and Chapter 39.34 RCW(Interlocal administrator, Benefits Management, Inc. processes all claims for reimbursement. The third Cooperation Act),nine cities originally formed WCIA on January 1, 1981. WCIA was created party administrator provides utilization management services and requires pre-authorization for for the purpose of providing a pooling mechanism for jointly purchasing insurance,jointly elf- all non-emergency hospital confinements. It is the City's policy to maintain at least four months P P g p g I y P g total of average monthly claims in cash reserves. To limit the exposure for large claims, the City insuring,and/or jointly contracting for risk management services. WCIA has a total of 129 purchases individual stop-loss coverage from a commercial insurance carrier that limits the City's members. exposure for claim losses to$70,000 per individual or$2,789,000 aggregate per year. New members initially contract for a three-year term,and thereafter automatically renew on an NOTE 9. SHORT-TERM DEBT annual basis. A one-year withdrawal notice is required before membership can be terminated. Termination does not relieve a former member from its unresolved loss history incurred during The City does not currently have any short-term debt issuances in either governmental or membership. proprietary activities. Liability coverage is written on an occurrence basis,without deductibles. Coverage includes NOTE 10. LONG-TERM DEBT general, automobile,police professional,public officials' errors and omissions, stop gap, and employee benefits liability. Limits are$4 million per occurrence in the self insured layer,and A. Long-Term Debt $16 million per occurrence in the re-insured excess layer. The excess layer is insured by the purchase of reinsurance and insurance and is subject to aggregate limits. Total limits are $20 The City issues general obligations and revenue bonds to finance capital improvements such as million per occurrence subject to aggregate sub-limits in the excess layers. The Board of bridges,streets,municipal buildings and enterprise facilities such as water and sewer utilities. Directors determines the limits and terms of coverage annually. Bonded indebtedness has also been entered into(currently and in prior years)to advance refund Insurance coverage for property,automobile physical damage,fidelity bonds,inland marine,and several general obligation and revenue bonds. General obligation bonds have been issued for boiler and machinery are purchased on a group basis. Various deductibles apply by type of both general government and business-type activities and are being repaid from the applicable coverage. Property insurance and auto physical damage are self-funded from the member's resources. Proprietary fund revenues are used to repay revenue and refunding bonds. The City deductible to$500,000,for all perils other than flood and earthquake, and insured above that is also liable for notes that were entered into for the purchase of the TRAC Facility,a fire truck, amount by the purchase of reinsurance. Animal Control facilities and Police equipment. These notes are considered obligations of the general government and are being repaid with general governmental revenue sources. Washington State Auditor's Office Washington State Auditor's Office 60 61 City of Pasco,-Washington 2oo8 City of Pasco,"Washington 2oo8 Revenue bond debt service requirements to maturity are as follows: The City also has outstanding notes for Special Assessments. These represent Interfand loans from the Water/Sewer Fund to the Special Assessment Funds. These assessments are for sewer Year Ending December 31 Principal Interest lines and street improvements. 2009 $ 1,405,000 $ 627,209 2010 1,460,000 644,913 General obligation bonds currently outstanding are as follows: 2011 1,505,000 580,698 2012 1,455,000 516,419 2013 1,515,000 450,483 Interest Maturity Original Remaining 2014-2018 5,005,000 1,398,779 Purpose Rate Date Amount Balance 2019-2023 3,120,000 504,153 1999 GOB Library Bond 4.50-5.50% 12/1/2019 $ 1,700,000 $ 1,100,000 2024-2028 605,000 38,743 2001 CLID 135 Bond 5.75% 11/2012 536,975 120,000 Total $16,070,000 $4,761,394 2001 LTGO Bond 2.00-4.70% 12/1/2020 6,900,000 5,360,000 2002 LTGO&Refunding Bond 5.72% 4/1/2022 3,635,000 2,765,000 Loan and Note obligations currently outstanding are as follows: 2002 UTGO Refunding Bond 2.50-4.00% 12/1/2013 3,155,000 1,690,000 Total $15,926,975 $11,035,000 Original Interest Maturity Bond Remaining Purpose Rate Date Amount Balance The annual debt service requirements to maturity for general obligation bonds are as follows: State LOCAL Loan-Fire Truck 5.72% 6/l/2009 $ 225,000 $ 28,477 State LOCAL Loan-Animal Control 6.24% 12/1/2016 275,500 176,922 Governmental Activities Business Type Activities TRAC Loan 4.50-5.50% 12/1/2014 1,197,931 527,587 Year Ending December 31 Principal Interest Principal Interest Port of Pasco Airport Fire Building 4.00% 7/12/2016 120,000 95,231 2009 $ 990,000 $ 495,025 0 0 PWTF Loan#89036-Water Tank 3.00% 7/24/2009 1,245,000 61,561 2010 1,055,000 455,200 0 0 State Revolving Loan 1.00% 10/31/2015 23,700,000 15,607,895 2011 1,085,000 410,878 0 0 PWTF Loan#95025-Sewer Plant 1.00% 6/30/2015 812,700 301,079 2012 1,075,000 364,634 0 0 PWTF Loan#95026-Water Reservoir 1.00% 6/30/2015 2,687,300 751,627 2013 1,110,000 318,776 0 0 PWTF Loan#691043 1.00% 6/30/2020 1,890,000 1,333,684 2014-2018 3,815,000 997,330 0 0 Total $32,153,431 $18,884,063 2019-2023 1,905,000 156,245 0 0 Total $11,035,000 $3,198,088 0 0 Loan and Note debt service requirements to maturity are as follows: The revenue bonds currently outstanding are as follows: Governmental Activities Business-Type Activities Year Ending December 31 Principal Interest Principal Interest Original 2009 $133,507 $ 40,794 $ 1,507,037 $ 561,102 Interest Maturity Bond Remaining 2010 109,951 34,570 1,487,276 515,454 Purpose Rate Date Amount Balance 2011 120,281 29,148 1,530,553 469,563 1998 Water/Sewer Series A Bonds 5.50-6.45% 6/1/2018 $ 2,255,000 $ 1,420,000 2012 121,894 23,167 1,575,358 422,143 1998 Water/Sewer Series B Bonds 3.80-4.60% 6/1/2014 6,725,000 4,120,000 2013 124,675 17,091 1,621,744 373,141 1998 Water/Sewer Series C Bonds 3.70-4.80% 6/1/2014 1,515,000 315,000 2014-2018 217,908 16,246 8,412,744 1,075,804 1999 Water/Sewer Bonds 4.10-5.80% 9/1/2016 985,000 535,000 2019-2023 0 0 1,921,134 48,892 2001 Water/Sewer Bonds 3.50-4.85% 9/1/2016 995,000 435,000 2024-2028 0 0 0 0 2002 Water/Sewer Bonds 2.00-4.70% 12/l/2022 5,945,000 4,550,000 Total $828,216 $161,016 $18,055,847 $3,466,098 2005 Water/Sewer Bonds 3.50-4.25% 12/5/2025 4,400,000 3,900,000 2007 Water/Sewer Bonds 4.25-4.75% 9/01/2022 845,000 795,000 Total $23,665,000 $16,070,000 Washington State Auditor's Office Washington State Auditor's Office 62 63 City of Pasco,-WashinWton 2oo8 City of Pasco,"Washington 2oo8 In proprietary funds,unamortized debt issue costs are recorded as deferred charges and bonds Internal Service funds are separate for governmental and proprietary activities. Long-term are displayed net of premium or discount; annual interest expense is decreased by liabilities for them are included as part of the above totals under their respective activity. amortization of debt premium and increased by the amortization of debt issue costs and Compensated absences are included in the above amounts.Also,for the governmental activities, discount. claims and judgments and compensated absences are generally liquidated by the general fund. At December 31,2008,the City has$312,275 available in the debt service funds to service NOTE 13. CONTINGENCIES AND LITIGATION the general bonded debt,which is not unusual because the major portion of debt service is paid out towards the end of the year. Restricted assets in proprietary funds contain$730,043 The City has recorded in its financial statements all material liabilities, including applicable in sinking funds and reserves as required by bond indentures. estimates for situations that are not yet resolved but where, based on available information, management believes it is probable that the City will have to make payment. In the opinion of B. Refunded Debt management,the City's insurance policies and self-insurance reserves are adequate to pay all known or pending claims. The City did not issue any refunded debt during 2008. As discussed in Note 10,the City is contingently liable for repayment of refunded debt. NOTE 11. LEASES The City participates in a number of federal and state assisted programs. These grants are subject The City does not currently have any capital or operating leases. to audit by the grantor or representative. Such audits could result in requests for reimbursement to grantor agencies for expenditures disallowed under the terms of the grants. However,City NOTE 12. CHANGES IN LONG-TERM LIABILITIES management believes that such disallowances,if any,will be immaterial. During the year ended December 31, 2008, the following changes occurred in long-tern NOTE 14. RESTRICTED NET ASSETS liabilities: The government-wide statement of net assets reports$4,004,503 of restricted net assets,of which Beginning Ending $4,004,503 is restricted by enabling legislation. Balance Balance Due Within 01/01/08 Additions Reductions 12/31/08 One Year NOTE 15. INTERFUND BALANCES AND TRANSFERS Governmental Activities: Bonds Payable: A. Classification of Interfund Transactions General obligation bonds, special assessment debt hnterfund transactions are classified as follows: with govt.commitment $11,970,000 $ 0 $ 935,000 $11,035,000 $ 990,000 Loans and Notes 1,050,551 0 222,335 828,216 133,507 1. Transactions that would be treated as revenues, expenditures or expenses if they Compensated Absences 1,432,092 172,050 0 1,604,142 1,604,142 involved external organizations,such as buying goods and services or payments in lieu Governmental Activity of taxes,are similarly treated when they involve other funds of the City. Lon -Term Liabilities $14,452,643 $172,050 $1,157,335 $13,467,358 $2,727,649 Beginning Ending 2. Transfers to support the operations of other funds are recorded as "Transfers" and Balance Balance Due Within classified with"Other Financing Sources or Uses." 01/01/08 Additions Reductions 12/31/08 One Year Business-Type Activities: 3. Contributions to the capital of enterprise or internal service funds,(transfers between Bonds Payable: those funds and the general fixed assets account group)transfers to establish or reduce General obligation bonds, working capital in other funds, and transfers of remaining balances when funds are revenue bonds $17,620,000 $ 0 $1,550,000 16,070,000 1,405,000 closed,are classified as"Transfers"and are reported as direct additions to or deductions Loans and Notes 19,522,508 0 1,466,661 18,055,847 1,507,037 from net assets. Compensated Absences 168,040 0 30,410 137,630 137,630 4. Loans between funds are classified as Interfund loans receivable and payable or as Business-Type Activity advances to and from other funds on the fund balance sheets depending on the time Long-Term Liabilities $37,310,548 $ 0 $3,026,137 $34,263,477 $3,049,667 period for which the loan was made. Interfund loans do not affect total fund equity,but advances to other funds are offset by a reservation of fund equity. Washington State Auditor's Office Washington State Auditor's Office 64 65 City of Pasco,-Washington 2oo8 City of Pasco,"Washington 2oo8 A. Interfund Loan Balances Special Assessment receivables represent $4,655,977 of the balance of outstanding Customer Accounts receivable at year end December 31, 2008. Of this amount $92,470 represents Interfund balances at December 31,2008 were as follows: delinquent Special Assessments receivable. Due From B. Payables at December 31,2008,were as follows: All Other Purpose Funds Total ACCOUNTS: AMOUNTS General Fund Start-up loans for new funds&neg. Governmental Activities: cash balance loans $676,800 $676,800 Accounts Payable $ 712,844 Q Water/Sewer Fund LID loans&Equip Rental Op 17,000 17,000 Due to Other Govt.Units 8,792 All Other Funds LID and Capital Improvement loans 101,100 101,100 Deposits Payable 404,691 Total $794,900 $794,900 Unclaimed Property 5,434 Other Payables 501,095 B. Interfund Transfers Claims htcurred Not Reported 550,000 Deferred Revenue 5,583,891 Interfand transfers at December 31,2008 were as follows: Due within One Year 2,728,583 Due in More than One Year 10,759,710 Transfer From Total Governmental Activities $21,255,040 General Water/Sewer All Other Business-type Activities: H Fund Fund Funds Total Accounts Payable $ 244,149 w General Fund $ 0 $ 0 $ 82,561 $ 82,561 Due to Other Govt.Units 30,729 Water/Sewer Fund 0 0 0 0 Retainage Payable 201,181 F All Other Funds 1,305,907 1,123,925 1,336,992 3,766,824 Interest Payable 359,901 Total $1,305,907 $1,123,925 $1,336,992 $3,849,385 Deposits Payable 93,510 Deferred Revenue 1,262,101 Interfund transfers are used to fund ongoing operations such as ambulance services, senior Unclaimed Property 25,082 center activities,recreation activities, street repair and maintenance,and transfers between Due within One Year 3,049,667 Local Improvement District funds and the Water/Sewer Fund. Due in More than One Year $31,213,808 Total Business-type Activities: $36,480,128 NOTE 16. RECEIVABLE AND PAYABLES BALANCES A. Receivables at December 31,2008 were as follows: NOTE 17. SEGMENT INFORMATION ACCOUNTS: AMOUNTS The City's only Enterprise Fund is the Water/Sewer Fund. The services provided by this Governmental Activities: fund are water, sewer,process water reuse,storm water and irrigation operations. These Taxes $ 2,573,202 services are not broken out into separate segments but are reported as one fund in the fund Customer Accounts 6,672,711 statements. Due from Other Funds -17,000 Interest Receivable 155,064 NOTE 18. JOINT VENTURES Other Receivables 723,023 Total Governmental Activities $ 10,107,000 A. Bi-County Police Information Network Business-type Activities: Utility Receivables $ 835,946 The Bi-County Police Information Network(BI-PIN)was established November 24, 1982, Other Receivables 294,018 when an Interlocal Agreement was entered into by five participating municipal corporations, Due from Other Funds 17,000 the cities of Kennewick,Pasco,and Richland,and Benton and Franklin Counties. BI-PIN Interest Receivable 64,314 was established to assist the participating police and sheriffs departments in the deterrence Total Business-type Activities: $ 1,211,270 and solution of criminal incidents. BI-PIN is served by an Executive Committee composed Washington State Auditor's Office Washington State Auditor's Office 66 67 City of Pasco,"Wasfungton 2oo8 City of Pasco,"Washington 2oo8 of the City Manager of each of the cities and a member from each of the Boards of County Effective January 1, 1990, the City of Pasco assumed responsibility for the operation of Commissioners of Benton and Franklin Counties. A liaison from the Bi-County Chiefs and Metro. As the Operating Jurisdiction,the City provides all necessary support services for the Sheriffs is an ex officio,non-voting member. operation of Metro such as accounting,legal services and risk management. The allocation of financial participation among the participating jurisdictions is based upon The City of Pasco's equity interest in Metro was$34,535 on June 30,2008,which is reported the approved budget for that year and is billed quarterly in advance to each agency. On as an investment in joint ventures in the government-wide statement of net assets. The dissolution of the Interlocal Agreement,the net assets will be shared based upon participant change in equity is reflected in the government-wide statement of activities under Public contribution. Safety. The City does not anticipate any income distribution from Metro since charges are assessed only to recover anticipated expenses. Effective January 1,1992,the City of Kennewick assumed responsibility for the operation of the BI-PIN system. As the Operating Jurisdiction,the City provides all necessary support Complete separate financial statements for Metro may be obtained at the City of Pasco,525 services for the operation of BI-PIN such as accounting,legal services,risk management and North Third Street,Pasco,Washington. information systems. The total amount paid by BI-PIN in 2008 for these transactions was $126,785. D. Trade,Recreation,Agricultural Center The City of Pasco's equity interest in BI-PIN was$243,694 on December 31,2008,which is In 1994 the City entered into an agreement with Franklin County for the Trade,Recreation, reported as investment in joint ventures in the government-wide statement of net assets. The and Agricultural Center(TRAC). The City shares with Franklin County the expenses to change in equity is reflected in the government-wide statement of activities under Public operate and cover debt service. Franklin County handles all operating decisions and financial Safety. The City does not anticipate any income distribution from BI-PIN since charges are reporting for TRAC. assessed only to recover anticipated expenses. Complete financial statements for TRAC may be obtained at Franklin County, 1016 N.4`h Complete separate financial statements for BI-PIN may be obtained at the City of Avenue,Pasco,Washington. Kennewick,210 West Sixth Avenue,Kennewick,Washington. For calendar year 2008, the City of Pasco paid Franklin County $169,231 in operating B. Emergency Medical Services expenses and$102,990 in debt service expenses. The Emergency Medical Services(EMS)joint venture was dissolved in the fall of 2007,at The City's obligation for debt service is included in the debt service schedule in Note 10. which time the net assets were distributed based on the direction of the EMS Administrative Board. In conjunction with the dissolution of EMS,the City of Pasco entered into a series of NOTE 19. POSTEMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS Interlocal Agreements with each participating agency to provide oversight for the administrative clerical support for the emergency medical services Medical Program Director Plan Description (MPD)for Benton and Franklin Counties. As required by the Revised Code of Washington(RCW)Chapter 41.26,the City provides C. Metro Drug Forfeiture Fund lifetime medical care for members of the Law Enforcement Officers and Firefighters (LEOFF)retirement system hued before October 1, 1977 under a defined benefit healthcare The Metropolitan Controlled Substance Enforcement Group(Metro)was established prior to plan administered by the City. The members necessary hospital,medical,and nursing care 1987,when six participating municipal corporations entered into an Interlocal Agreement. expenses not payable by worker's compensation, social security, insurance provided by These entities include the cities of Kennewick, Pasco, Richland, and West Richland, and another employer, or other pension plan, or any other similar source are covered. Most Benton and Franklin Counties. Metro was established to account for the proceeds of medical coverage for eligible retirees is provided by City's employee medical insurance forfeitures,federal grants,and court ordered contributions,and to facilitate the disbursement program. Under authorization of the LEOFF Disability Board,direct payment is made for of those proceeds for the purpose of drug enforcement and investigations. Metro is served by other retiree medical expenses not covered by standard medical plan benefit provisions. an Executive Committee composed of the City Manager,or designee,of each of the cities and Financial reporting for the LEOFF retiree healthcare plan is included in the City's a member from each of the Boards of County Commissioners of Benton and Franklin Comprehensive Annual Financial Report. Counties. In addition,a Governing Board,consisting of the Police Chiefs from each of the cities and the Sheriffs and Prosecuting Attorneys from the two counties,administers daily Funding Policy activity. Funding for LEOFF retiree healthcare costs is provided entirely by the City as required by the RCW. The City's funding policy is based upon pay-as-you-go financing requirements. Washington State Auditor's Office Washington State Auditor's Office 68 69 City of Pasco,"Wasfungton 2oo8 City of Pasco."WashhVton 2oo8 Annual OPEB Costs and Net OPEB Obligation Other Postemolovment Benefit(OPEB)Plans The City's annual Other Post Employment Benefits(OPEB)cost is calculated based upon the The City does not have any OPEB plans other than those listed above. annual required contribution(ARC),an amount actuarially determined in accordance with the parameters of Governmental Accounting Standards Board(GASB)Statement 45. The ARC NOTE 20. CLOSURE AND POSTCLOSURE CARE COSTS represents a level of funding that,if paid on an ongoing basis,is projected to cover the normal costs each year and amortize any unfunded actuarial liabilities over a period of thirty years. The City does not own a landfill but it does have a Landfill Remediation Fund. The purpose This is the City's first year of implementation for GASB Statement 45. of this fund is to provide Pasco with the means fund liability and or/pay expenses related to third party claims asserted against Pasco with respect to the implementation and enforcement The GASB statement allows entities with fewer than 100 retired LEOFF members the option of the Institutional Controls Program. to either hire an actuary to perform a valuation of the plan,or,do the valuation in-house. The Office of the State Actuary for Washington State has provided a tool to do the in-house NOTE 21. TERMINATION BENEFITS evaluation. The City currently does not have an inducement program to hasten the termination of an The City of Pasco has a total of 43 LEOFF plan 1 members. Thirty-seven of those members employee's services or ask for voluntary terminations. are retired and 6 are still active employees. Upon termination,an employee is paid 100%of their unused accrued Vacation balance and Seven of those 37 retired members are a part of the Old Firemen's Pension Plan and are fully unused accrued Compensation Time balance. Unused Sick time balance is paid out at the funded through the Old Fire Pension Fund. Based on the in-house evaluation,the Actuarial rate of 25%up to a maximum of 720 hours. These amounts are paid to the employee in their Accrued Liability for the Fire Pension Fund is$1,735,160. The Fund also supplements the last check which is processed in the next available payroll period. Payroll is processed every LEOFF Retirement System retirement payments. As shown in note 7, the total amount other week. needed to fund both medical insurance and future pension requirements is$3,035,160. As of December 31,2008,the fund had assets of$3,236,286. Accrued employee leave payable,or Compensated Absences,is reflected in the Statement of Net Assets. Performing the valuation for the remaining 30 members, it is determined the Unfunded Actuarial Accrued Liability(UAAL)is$9,942,533. This amount can be funded over the next NOTE 22. POLLUTION REMEDIATION OBLIGATIONS 30 years. As mentioned previously,the City pays the medical premiums on an annual basis. Dividing the UAAL by 30 years equals$331,418. During 2008,The City made payments The City does not have any pollution remediation obligations. totaling$349,680 for postemployment health care in the General Fund for those members. NOTE 23. OTHER DISCLOSURES The City uses the alternative measurement method permitted under GASB Statement No.45. A single retirement age of 56.22 was assumed for all active members for the purpose of A. Prior Period Adiustments determining the actuarial accrued liability. Termination and mortality rates were assumed to follow the LEOFF 1 termination and mortality rates used in the September 30,2006 actuarial Prior period adjustments consist of the following: valuation report issued by the office of the State Actuary(OSA). Healthcare costs and trends were determined by Milliman and used by OSA in the state-wide LEOFF 1 medical study An adjustment of$425,000 was made to the Medical Dental Fund to increase Claims performed in 2007. The results were based on grouped data with 4 active groupings and 4 Incurred But Not Recorded and for$1,291 for a refund check for a prior period. inactive groupings. The actuarial cost method used to determine the actuarial accrued liability was Projected Unit Credit. These assumptions are individually and collectively An adjustment of $792,603 was made in the Water/Sewer Fund to correct assets and reasonable for the purpose of this valuation. accumulated depreciation and$1,644 to adjust debt service. The city reimburses 100%of the amount of validated claims for medical,prescription,and B. Subsequent Events hospitalization costs incurred by pre-Medicare retirees. None. Employer contributions are financed on pay-as-you-go basis. Expenditures for postemployment health care benefits are recognized as retirees report claims and include a provision for estimated claims incurred but not yet reported to the City. Washington State Auditor's Office Washington State Auditor's Office 70 71 City of Pasco,Washington 2oo8 C. Related Organization Pursuant to RCW 35.57(the"City PFD Act")the Pasco Public Facilities District was formed and created by Ordinance No.3558 on July 15,2002,coextensive with the boundaries of the City,with the powers and authority set forth in the City PFD Act. The District is established for the purpose of acquiring,constructing,owning,remodeling,maintaining,equipping,re- equipping,repairing,financing,operating one or more Regional Centers,as defined by the RCW 35.57.020 and/or participating with any other qualified public facilities district in a cooperative and joint development of a Regional Center in the Tri-Cities area by interlocal agreement. The members of the board of directors of the District(the"PFD Board")shall be selected and appointed by the Council,as required by the RCW. The PFD Board consisted of five members. Three of the members will be appointed based on recommendations from local organizations. The members will serve four-year terms. Of the initial members,one will be appointed for a one year term,one for a two year term,one for a three year term,and the remainder for four year terms. The Council may,by resolution,remove a member for any reason. Vacancies will be filled by appointment by the Council. All corporate powers of the District will be exercised by or under the authority of the PFD Board;and the business,property and affairs of the District shall be managed under the direction of the PFD Board,except as may be otherwise provided for by law herein,or in the Charter. Washington State Auditor's Office 72 APPENDIX C FORM OF LEGAL OPINION RP FOSTER PEPPER [FORM OF APPROVING LEGAL OPINION] City of Pasco, Washington Re: City of Pasco, Washington, $ Water and Sewer Improvement and Refunding Revenue Bonds, 2010A, and $ Water and Sewer Refunding Revenue Bonds, 2010T (Taxable) We have served as bond counsel to the City of Pasco, Washington (the "City"), in connection with the issuance of the above-referenced bonds (the "2010A Bonds" and the "2010T Bonds," and together, the "Bonds"), and in that capacity have examined such law and such certified proceedings and other documents as we have deemed necessary to render this opinion. As to matters of fact material to this opinion, we have relied upon representations contained in the certified proceedings and other certifications of public officials furnished to us, without undertaking to verify the same by independent investigation. The 2010A Bonds are issued by the City pursuant to Ordinance No. (the "Bond Ordinance") to provide funds to pay the cost of carrying out the Plan of Additions adopted by the Bond Ordinance, to pay part of the cost of a current refunding of the City's outstanding Water and Sewer Revenue Refunding Bonds, 1998, Series B (Tax-Exempt), and the administrative costs of such refunding, and to pay the costs of issuance and sale of the 2010A Bonds, all as set forth in the Bond Ordinance. The 2010T Bonds are issued by the City pursuant to Bond Ordinance to provide funds to pay part of the cost of a current refunding of the City's outstanding Water and Sewer Revenue Bonds, 1998, Series A (Taxable), and the administrative costs of such refunding, and to pay the costs of issuance and sale of the 2010T Bonds, all as set forth in the Bond Ordinance. Reference is made to the Bonds and the Bond Ordinance for the definitions of capitalized terms used and not otherwise defined herein. We have not been engaged to review and thus express no opinion concerning the completeness or accuracy of any official statement, offering circular or other sales or disclosure material relating to the issuance of the Bonds or otherwise used in connection with the Bonds. Under the Internal Revenue Code of 1986, as amended(the "Code"), the City is required to comply with certain requirements after the date of issuance of the 2010A Bonds in order to maintain the exclusion of the interest on the 2010A Bonds ftom gross income for federal income TEL:206.447.4400 FAX:206.447.9700 1111 THIRD AVENUE,SUITE 3400 SEATTLE,WASHINGTON 98101-3299 www.FOSTER.com SEATTLE WASHINGTON SPOKANE WASHINGTON City of Pasco, Washington [Date] Page 2 tax purposes, including, without limitation, requirements concerning the qualified use of 2010A Bond proceeds and the facilities financed or refinanced with 2010A Bond proceeds, limitations on investing gross proceeds of the 2010A Bonds in higher yielding investments in certain circumstances and the arbitrage rebate requirement to the extent applicable to the 2010A Bonds. The City has covenanted in the Bond Ordinance to comply with those requirements, but if the City fails to comply with those requirements, interest on the 2010A Bonds could become taxable retroactive to the date of issuance of the Bonds. We have not undertaken and do not undertake to monitor the City's compliance with such requirements. Based upon the foregoing, as of the date of initial delivery of the Bonds to the purchaser thereof and full payment therefor, it is our opinion that under existing law: 1. The City is a duly organized and legally existing code city under the laws of the State of Washington; 2. The Bonds have been duly authorized and executed by the City and are issued in full compliance with the provisions of the Constitution and laws of the State of Washington and the ordinances of the City relating thereto; 3. The Bonds constitute valid obligations of the City payable solely out of the Net Revenue of the Waterworks Utility and ULID Assessments to be paid into the Bond Fund, except only to the extent that enforcement of payment may be limited by bankruptcy, insolvency or other laws affecting creditors' rights and by the application of equitable principles and the exercise of judicial discretion in appropriate cases; 4. The Bonds are not general obligations of the City; and 5. Assuming compliance by the City after the date of issuance of the 2010A Bonds with applicable requirements of the Code, the interest on the 2010A Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the alternative minimum tax applicable to individuals; however, while interest on the 2010A Bonds also is not an item of tax preference for purposes of the alternative minimum tax applicable to corporations, interest on the 2010A Bonds received by corporations is to be taken into account in the computation of adjusted current earnings for purposes of the alternative minimum tax applicable to corporations, interest on the 2010A Bonds received by certain S corporations may be subject to tax, and interest on the 2010A Bonds received by foreign corporations with United States branches may be subject to a foreign branch profits tax. We express no opinion regarding any other federal tax consequences of receipt of interest on the 2010A Bonds. The City, in the Bond Ordinance, has declared its intention that the interest on the 2010T Bonds be includable in gross income for federal tax purposes. We express no opinion regarding any federal tax consequences of receipt of interest on the 2010T Bonds. This opinion is given as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention, or any changes in law that may hereafter occur. City of Pasco, Washington [Date] Page 3 We bring to your attention the fact that the foregoing opinions are expressions of our professional judgment on the matters expressly addressed and do not constitute guarantees of result. Respectfully submitted, APPENDIX D DTC & BOOK-ENTRY SYSTEM The following information has been provided by DTC. The City makes no representation regarding the accuracy or completeness thereof. Beneficial Owners(as hereinafter defined)should therefore confirm the fallowing with DTC or the Participants(as hereinafter defined). General Description DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities 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 in the 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 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S.and non-U.S.equity issues,corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants' deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers,banks,trust companies,clearing corporations,and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as securities brokers and dealers,banks and 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 S&P's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. Purchases of the Bonds under the DTC system, in denominations of$5,000 or any integral multiple thereof, 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 confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 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 Participants with DTC are registered in the name of DTC's partnership nominee, Cede& Co. The deposit of Bonds with DTC and their registration in the name of Cede& Co. effect no 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 Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 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 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 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). Redemption proceeds, distributions, and dividend payments on the Bonds will be made to DTC. DTC's practice is to credit Direct Participants' accounts on payable date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on payable date. Payments by Participants to D-1 Beneficial Owners will be governed by standing instructions and customary practices,as is the case with Bonds 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 Registrar,or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede& Co. (or any other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as Bonds depository with respect to the Bonds at any time by giving reasonable notice to the City or the Registrar. Under such circumstances,in the event that a successor Bonds depository is not obtained,Bond certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor Bonds depository). In that event,Bond certificates will be printed and delivered to DTC. With respect to Bonds registered on the Bond Register in the name of Cede&Co.,as nominee of DTC,the City and the Registrar shall have no responsibility or obligation to any Participant or to any person on behalf of whom a Participant holds an interest in the Bonds with respect to (i) the accuracy of the records of DTC,Cede&Co.or any Participant with respect to any ownership interest in the Bonds;(ii)the delivery to any Participant or any other person,other than a Bond owner as shown on the Bond Register, of any notice with respect to the Bonds, including any notice of redemption; (iii)the payment to any Participant or any other person,other than a Bond owner as shown on the Bond Register,of any amount with respect to principal of,premium,if any,or interest on the Bonds; (iv) any consent given or action taken by DTC as registered owner; or (v) any other matter. The City and the Registrar may treat and consider Cede& Co., in whose name each Security is registered on the Bond Register,as the holder and absolute owner of such Security for the purpose of payment of principal and interest with respect to such Security, for the purpose of giving notices of redemption and other matters with respect to such Security,for the purpose of registering transfers with respect to such Security, and for all other purposes whatsoever. For the purposes of this Official Statement, the term `Beneficial Owner"shall include the person for whom the Participant acquires an interest in the Bonds. Unless the book-entry system will have been discontinued,the City and the Registrar will recognize DTC or its nominee as the registered owner of the Bonds. Conveyance of notices and other communications by DTC to DTC Participants and by DTC Participants to Beneficial Owners will be governed by arrangements between them,subject to any statutory and regulatory requirements as may be in effect from time to time. D-2 AGENDA REPORT TO: City Council t'' May 7, 2010 FROM: Gary Crutchfie it anager Workshop Mtg.: 5/10/10 Regular Mtg.: 5/17/10 SUBJECT. Legislative Corlsu tant Agreement I. REFERENCE(S): 1. Proposcd Agreement II. ACTION REQUESTED OF COUNCIL !STAFF RECOMMENDATIONS: 5110: Discussion 5/17: MOTION: I move to approve the agreement with Gordon Thomas Honeywell Governmental Affairs for legislative consultant services and, further, authorize the City Manager to sign the agreement. III. FISCAL IMPACT: Total: $41,000 maximum IV. HISTORY AND FACTS BRIEF: A) The city has employed the services of a legislative consultant for each of the past five years. In doing so, the city has realized the following accomplishments that would likely not have happened if not for the particular services of the consultant work: • $5.2 million legislative appropriation for construction of the Ainsworth Overpass Project; $400,000 legislative appropriation for construction of the Court Street Pedestrian Overpass of SR395; • $3 million legislative appropriation for Lewis Street Overpass project. B) GTH has offered to continue services for Pasco, at their standard rate of$3,150 per month, with a contract term of one year; the resulting cost is $37,800 (plus S3,000 in reiinbursables). While the consultant will perform the general legislative duties listed, the greatest value will be the consultant's effort to obtain additional state funding assistance for the Lewis Street overpass, a priority project of the city which is simply too costly for the city to construct on its own. V. DISCUSSION: A) The value of an effective legislative consultant is cleat-when measured by the success the city has realized over the past five years. Continuing such a relationship is imperative if the city desires to continue to seek assistance via the state legislature (whether by appropriation or statutory language). B) GTH accomplished no small feat in the 2009 session by helping obtain the legislative appropriation of $3,000,000 for the Lewis Street Overpass. In addition, GTH was instrumental in guiding the regional PFD legislation through the 2010 legislature. While our legislators were also instrumental in these endeavors, they were aided greatly by the effort of GTH coordinating with many other legislators to assure the local objective was not lost in the details of the process. C) GTH has the advantage of a Washington D.C. office; thus, the opportunity to pursue a coordinated effort (state and federal) to obtain the funding assistance necessary for construction of the Lewis Street Overpass project. The proposed scope of work will address the city's 2011 legislative agenda. D) In view of the potential 2011 legislative benefits, staff recommends approval of the proposed contract. 4(e) CITY OF PASCO CONSULTING AGREEMENT This Agreement is entered into by and between City of Pasco and Gordon Thomas Honeywell Governmental Affairs (hereinafter referred to as "Consultant"), upon the following terms and conditions; A. Scope of Work. Consultant will advise and assist the City of Pasco in accordance with Consultant's Scope of Work, described in Attachment "A" hereto and incorporated herein, and Consultant will do and produce such other things as are set forth in the Scope of Work (the "Services"), Consultant's Services will be in compliance with applicable laws, regulations, rules, orders, licenses and permits; now or hereinafter in effect, and Consultant shall furnish such documents as may be required to effect or evidence such compliance. B. Compensation; Expenses. 'The City of Pasco will pay Consultant for satisfactorily rendered Services in accordance with the specific terms set forth in Attachment "A." C. Invoices; Payment, Consultant will furnish the City of Pasco invoices at regular intervals, as set forth in Attachincnt "A." D. Term. Consultant shall promptly begin the Services hereunder on the date set forth in Attachment "A" and shall terminate same on the date set forth in Attachment "A," unless earlier terminated by mutual agreement. The City of Pasco or consultant may terminate consultant services for convenience at any time prior to the termination date set forth in Attachment A, provided that either party provides 30-days notice. E. Ownership of Work Product. The product of all work performed under this agreement, including reports, and other related materials shall be the property of the City of Pasco or its nominees, and the City of Pasco or its nominees shall have the sole right to use, sell, license, publish or otherwise disseminate or transfer rights in such work product. G. Independent Contractor. Consultant is an independent contractor and nothing contained herein shall be deemed to make Consultant an employee of the City of Pasco, or to empower consultant to bind or obligate the City of Pasco in any way. Consultant is solely responsible for paying all of Consultant's own tax obligations, as well as those due for any employee/subcontractor permitted to work for Consultant hereunder. H. Release of Claims; Indemnity. Consultant hereby releases, and shall dcfend, indernnify and hold harmless the City of Pasco from and against all claims, liabilities, damages and costs arising directly or indirectly out of, or related to, Consultant's fault, negligence, strict liability or produce liability of Consultant, and/or that of any pen-pitted employee or subcontract or Consultant, pertaining to the Services hereunder, 1. Assignment. Consultant's rights and obligations hereunder shall not be assigned or transferred without the City of Pasco's prior written consent; subject thereto, this Agreement shall be binding upon and inure to the benefit of the parties' heirs, and successors. J. Governing Law; Severability. This Agreement shall be governed by the laws of the State of Washington, U.S.A. (excluding conflict of laws provisions). If any term or provision of this Agreement is determined to be legally invalid or unenforceable by a court with lawful jurisdiction hereover (excluding arbitrators), such term or provision shall not affect the validity or enforceability of any remaining terms or provisions of this Agreement, and the court shall, so far as possible, construe the invalid portion to implement the original intent thereof. K. Arbitration. Should any dispute arise concerning the enforcement, breach or interpretation of this Agreement, the parties shall first meet in a good faith attempt to resolve the dispute. In the event such dispute cannot be resolved by agreement of the parties, such dispute shall be resolved by binding arbitration pursuant to RCW 7.04A, as amended, and the Mandatory Rules of Arbitration (MAR); venue shall he placed in Pasco, Franklin County, Washington, the laws of the State of Washington shall apply, and the prevailing party shall be entitled to its reasonable attorney fees and costs. L. Entire Agreement; Etc. This Agreement, and its incorporated attachments hereto, state the entire agreement between the parties regarding the subject matter hereof and supersede any prior agreements or understandings pertaining thereto. Any modification to this Agreement must be made in writing and signed by authorized representatives of both parties. Any provision hereof which may be reasonably deemed to survive the expiration or termination of this Agreement shall so survive, and rernain in continuing effect. No delay or failure in exercising any right hereunder shall be deemed to constitute a waiver of any right granted hereunder or at law by either party, Consultant: City of Pasco: Gordon Thomas Honeywell Governmental Affairs Tina Schellberg, President Gary Crutchfield, City Manager Date; Date: 2010-2011 Legislative Services Agreement Page 2 ATTACHMENT "A" TO CITY OF PASCO CONSULTING AGREEMENT A. Scope of Work: Consultant shall provide the City of Pasco with the following governmental affairs services: General Washington State Legislative Services • Identify and track all relevant legislation. • During the legislative session, provide the City with weekly reports and tracking lists. • Attend all relevant legislative hearings. • Attend all relevant legislative meetings. • Coordinate City officials to testify at relevant legislative hearings. • Lobby to amend, defeat or pass legislation or budgets that directly affect the City's interests. • Strengthen relevant legislative relationships between the City, state legislators, and executive offices. • Work with the City to develop a state budget request and lobby the Legislature to fund the request. Sj2ecific Legislative Issues: • Obtain specific allocations for the Lewis Street Overpass within the Capital and/or Transportation budgets. • Work with the Association of Washington Cities on municipal legislation, including development standard.-, within urban growth areas. * Begin lobbying on selected 2012 Budget requests during the legislative inter'm. B. Compensation/Expenses: The City of Pasco shall pay Consultant a monthly fee of $3,150 for the services listed above. Consultant shall only bill communication expenses, such as travel to Pasco. The expenses shall not exceed $3,000 for the term of the contract. C_ Invoices/Payments: (a) Consultant shall furnish the City of Pasco with invoices for services performed on a monthly basis, and (b) the City of Pasco shall pay each of Consultant's invoices within thirty (30) days after City's receipt and verification of invoices, D. Term of Agreement: Consultant's services shall commence on July 1, 2010 and shall terminate on June 30, 2011, 2010-2011 Legislative Services Agreetnetit Page 3